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TABLE OF CONTENTS
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One) | ||
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended April 27, 2014 |
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OR |
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o |
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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.
(Exact name of registrant as specified in its charter)
Delaware
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41-1659606
(I.R.S. Employer Identification Number) |
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600 Emerson Road, Suite 300, St. Louis, Missouri
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63141
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Registrant's telephone number, including area code: (314) 813-9200
Securities Registered Pursuant to Section 12(b) of the Act:
Common Stock, $.01 Par Value Per Share | NASDAQ | |
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(Title of Class) | (Name of each exchange on which registered) |
Securities Registered Pursuant to Section 12(g) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No ý
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý
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 ý 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 (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated filer ý |
Non-accelerated filer
o
(Do not check if a smaller reporting company) |
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 ý
The aggregate market value of the voting and non-voting stock held by non-affiliates(1) of the Company is $179,448,232, based on the last reported sale price of $7.73 per share on October 25, 2013 on the NASDAQ Stock Market; multiplied by 23,214,519 shares of Common Stock outstanding and held by non-affiliates of the Company on such date.
As of June 19, 2014, the Company had a total of 39,829,177 shares of Common Stock outstanding (which excludes 2,236,971 shares held by us in treasury).
Part III incorporates information by reference to the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year.
ISLE OF CAPRI CASINOS, INC.
FORM 10-K
INDEX
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Annual 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 Annual 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. Factors that might cause actual results to differ include, but are not limited to, those discussed in the section entitled "Risk Factors" beginning on page 11 of this report. 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 Annual Report.
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Overview
We are a developer, owner and operator of regional gaming facilities and related dining, lodging and entertainment facilities in the United States. We currently own or operate 15 gaming and entertainment facilities in Colorado, Florida, Iowa, Louisiana, Mississippi, Missouri and Pennsylvania. Collectively, these properties feature approximately 12,800 slot machines and over 300 table games (including approximately 80 poker tables) over 2,300 hotel rooms and more than 45 restaurants. We also operate a harness racing track at our casino in Florida. Our portfolio of properties provides us with a diverse geographic footprint that minimizes geographically concentrated risks caused by weather, regional economic difficulties, gaming tax rates and regulations imposed by local gaming authorities.
We operate under two brands, Isle and Lady Luck. Isle-branded facilities are generally in larger markets with a regional draw and offer expanded amenities, whereas Lady Luck-branded facilities are typically in smaller markets drawing primarily from a local customer base. Our senior management team has over 200 collective years of experience spanning 20 states, and multiple foreign jurisdictions. This team has established and executed against a strategic plan for growth focusing on three core principles, (1) focused fiscal discipline, (2) restyled customer experiences, and (3) a renewed asset base.
1. Focused Fiscal Discipline We believe that our business benefits from a cost-effective approach to creating valuable customer experiences. We focus on fiscal discipline by utilizing technology and our customer research platform, responsibly reducing our cost structure and identifying opportunities for operating efficiencies at our properties.
We continually strive to find ways to make our business processes more efficient and have consistently reduced our operating costs. In fiscal 2014, we undertook a company-wide effort to identify a variety of cost savings measures to improve our operating performance and have implemented measures that we believe are on a run rate to reduce our costs by over $12 million annually.
Since fiscal 2008, when the current management joined the Company, we have reduced our debt by approximately $440 million, or 29%, through the disciplined application of our free cash flow and a series of financing transactions. We plan to maintain this discipline through continued efforts to further reduce our cost structure, applying cost discipline in the evaluation and execution of future capital projects, and actively managing our capital structure.
2. Restyled Customer Experiences We focus on customer satisfaction and delivering superior guest experiences by providing popular gaming, dining and entertainment experiences that are designed to exceed customer expectations in a clean, safe, friendly and fun environment. We have introduced initiatives to increase customer time on device, refreshed several of our casino floors, introduced an improved loyalty program, and have introduced several targeted non-gaming amenities.
These non-gaming amenities have included the development of several custom food, beverage and entertainment offerings, including the introduction of Lone Wolf bars and Otis and Henry's restaurants, a buffet concept called Farmer's Pick focused on locally-sourced, fresh food, and a live entertainment series, Jester's Jam. The Lone Wolf and Otis & Henry's are open in seven of our properties and Farmer's Pick Buffets are now open in Pompano, Waterloo, Vicksburg, Boonville and Cape Girardeau. In fiscal 2015, we expect to complete the introduction of our enhanced customer loyalty program, the Fan Club, at the four remaining properties aimed to attract new customers and increase visitation from our current customers.
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3. Renewed Asset Base We believe our long-term success will depend substantially upon increasing the quality, reach and scope of our operating portfolio, including targeted development projects, rebranding projects, identifying profitable growth opportunities and, where appropriate, asset sales.
On July 1, 2013, we opened our Lady Luck-branded facility at the Nemacolin Woodlands Resort in Pennsylvania. On October 30, 2012, we opened our Isle-branded gaming and entertainment facility in Cape Girardeau, Missouri, two months ahead of the original schedule. We are also partnered with Tower Entertainment, LLC, to manage and operate the proposed casino entertainment complex dubbed, The Provence, if selected for licensure by the Pennsylvania Gaming Control Board.
We have monetized non-core assets, including the sale of the Rhythm City Casino in Davenport, Iowa, in February 2014, our former Biloxi facility in November 2012 and the sale of the second license at our Lake Charles facility in February 2012.
In addition to the items discussed above, we plan to continue to refresh our hotel room product, pursue third-party development partners for additional hotel and restaurant concepts, consider opportunistic monetization of non-core operating assets and renovate select facilities to improve our product offerings.
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Casino Properties
The following is an overview of our casino properties as of April 27, 2014:
Property
|
Date Acquired or
Opened |
Slot
Machines |
Table
Games |
Hotel
Rooms |
Parking
Spaces |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Colorado |
|||||||||||||||
Isle Casino Hotel-Black Hawk |
December 1998 | 1,080 | 35 | 238 | 1,100 | ||||||||||
Lady Luck Casino-Black Hawk |
April 2003 | 501 | 15 | 164 | 1,200 | ||||||||||
Florida |
|||||||||||||||
Pompano Park |
July 1995/April 2007 | 1,482 | 41 | | 3,800 | ||||||||||
Iowa |
|||||||||||||||
Bettendorf |
March 2000 | 975 | 21 | 514 | 2,057 | ||||||||||
Marquette |
March 2000 | 541 | 8 | | 475 | ||||||||||
Waterloo |
June 2007 | 951 | 27 | 195 | 1,500 | ||||||||||
Louisiana |
|||||||||||||||
Lake Charles |
July 1995 | 1,216 | 48 | 493 | 2,539 | ||||||||||
Mississippi |
|||||||||||||||
Lula |
March 2000 | 912 | 20 | 485 | 1,611 | ||||||||||
Natchez |
March 2000 | 536 | 6 | 141 | 675 | ||||||||||
Vicksburg |
June 2010 | 595 | 8 | | 977 | ||||||||||
Missouri |
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Boonville |
December 2001 | 934 | 20 | 140 | 1,101 | ||||||||||
Cape Girardeau |
October 2012 | 921 | 27 | | 1,049 | ||||||||||
Caruthersville |
June 2007 | 547 | 11 | | 1,000 | ||||||||||
Kansas City |
June 2000 | 1,058 | 18 | | 1,685 | ||||||||||
Pennsylvania |
|||||||||||||||
Nemacolin |
July 2013 | 582 | 28 | | 800 | ||||||||||
| | | | | | | | | | | | | | | |
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12,831 | 333 | 2,370 | 21,569 | |||||||||||
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Colorado
Isle Casino Hotel-Black Hawk
Isle Casino Hotel-Black Hawk commenced operations in December 1998, is located on an approximately 10-acre site and is one of the first gaming facilities reached by customers arriving from Denver via Highway 119, the main thoroughfare connecting Denver to Black Hawk. The property includes a land-based casino with 1,080 slot machines, 24 standard table games, an 11 table poker room, a 238-room hotel and 1,100 parking spaces in an attached parking garage. Isle Casino Hotel-Black Hawk also offers customers three restaurants, including a 128-seat Farraddays restaurant, a 270-seat Calypso's buffet and a 42-seat Tradewinds Marketplace. The property also has approximately 5,000 square feet of flex space that can be used for meetings and special events.
Lady Luck Casino-Black Hawk
Lady Luck Casino-Black Hawk, which we acquired in April 2003 and rebranded in June 2009, is located across the intersection of Main Street and Mill Street from the Isle Casino Hotel-Black Hawk. The property consists of a land-based casino with 501 slot machines, 9 standard table games, 6 poker tables, a 164-room hotel that opened in December 2005 and 1,200 parking spaces in our parking structure connecting Isle Casino Hotel-Black Hawk and Lady Luck Casino-Black Hawk. The property also offers guests dining in a 93-seat Otis & Henry's restaurant as well as a grab-and-go fast serve food cart that is located in the main level of the facility. The property also has approximately 2,250 square
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feet of flex space that can be used for meetings and special events. Our Black Hawk sites are connected via sky bridges.
When casinos having multiple gaming licenses in the same building are combined, the Black Hawk/Central City market consists of 24 gaming facilities (seven of which have more than 500 slot machines), which in aggregate, generated gaming revenues of approximately $617 million in the twelve months ended April 2014. Our Black Hawk properties generated casino revenues for fiscal 2014 of approximately $129 million. Black Hawk is the closest gaming market to the Denver, Colorado metropolitan area, which has a population of approximately 3.1 million and is located approximately 40 miles east of Black Hawk and serves as the primary feeder market for Black Hawk.
Florida
Pompano
In 1995, we acquired Pompano Park, a harness racing track located in Pompano Beach, Florida and opened the casino in April 2007. Pompano Park is located off of Interstate 95 and the Florida Turnpike on a 223-acre owned site, near Fort Lauderdale, midway between Miami and West Palm Beach. Pompano Park is the only racetrack licensed to conduct harness racing in Florida.
Our Pompano facility includes 1,482 slot machines, a 41-table poker room, a 120-seat Farraddays restaurant, a 110-seat Bragozzos Italian restaurant, a 280-seat Farmer's Pick buffet, a 100-seat deli, a 60-seat express grab and go food outlet, a feature bar, a sports bar and 3,800 parking spaces.
Approximately 2.8 million people reside within a 25-mile radius of our Pompano facility, which competes with eight other racinos and three Native American gaming facilities in the market. The Pompano facility generated approximately $167 million in casino revenues for fiscal 2014. While casino revenues are not available for all market competitors, we estimate that we operate approximately 11% of the slot machines in the market.
Iowa
Bettendorf
Our Bettendorf property was acquired in March 2000 and is located off of Interstate 74, an interstate highway serving the Quad Cities metropolitan area, which consists of Bettendorf and Davenport, Iowa and Moline and Rock Island, Illinois. The property consists of a dockside casino offering 975 slot machines, 17 table games, 4 poker tables, 514 hotel rooms, 40,000 square feet of flexible convention/banquet space, a 142-seat Farraddays restaurant, a 262-seat Calypso's buffet, a 26-seat Tradewinds Marketplace and 2,057 parking spaces. We have entered into agreements with the City of Bettendorf, Iowa under which we manage and provide financial and operating support for the QC Waterfront Convention Center that is adjacent to our hotel. The QC Waterfront Convention Center opened in January 2009.
The Quad Cities metropolitan area currently has three gaming operations, including our gaming facility in Bettendorf and the Rhythm City facility in Davenport which we sold during February 2014. The three casinos in the Quad Cities generated total gaming revenues of approximately $194 million for the twelve months ended April 2014. Our Bettendorf property generated casino revenues for fiscal 2014 of approximately $70 million. Bettendorf also competes with other gaming operations in Illinois and Iowa and a competitor has announced plans to move the Rhythm City casino to a new land based location. Approximately 905,000 people reside within 60 miles of our Bettendorf property.
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Marquette
Our Marquette, Iowa property, which we acquired in March 2000, is approximately 60 miles north of Dubuque, Iowa. The property consists of a dockside casino offering 541 slot machines and 8 table games, a marina and 475 parking spaces. The facility was rebranded as a Lady Luck casino in fiscal 2010 and includes a 136-seat buffet restaurant, a 22-seat Otis and Henry's Express food outlet and a 155-seat Lone Wolf restaurant and bar.
Our Marquette property is the only gaming facility in the Marquette, Iowa market and generated casino revenues of approximately $27 million in fiscal 2014. We believe most of our Marquette customers are from northeast Iowa and Wisconsin, which includes approximately 490,000 people within 60 miles of our property, and we compete for those customers with other gaming facilities in Dubuque, Iowa and Native American casinos in southwestern Wisconsin.
Waterloo
Our Waterloo, Iowa property opened in June 2007 and is located adjacent to Highway 218 and US 20. The property consists of a single-level casino offering 951 slot machines, 23 table games and 4 poker tables. The property also offers a wide variety of non-gaming amenities, including a 118-seat Otis & Henry's restaurant, a newly renovated 200-seat Farmer's Pick buffet, 63-seat Lone Wolf restaurant and bar, 5,000 square feet of meeting space, 1,500 parking spaces and a 195-room hotel, which includes 27 suites.
Our Waterloo property is the only gaming facility in the Waterloo, Iowa market and approximately 685,000 people live within 60 miles of the property. We compete with other casinos in eastern Iowa. We generated casino revenues of approximately $85 million in fiscal 2014.
Louisiana
Lake Charles
Our Lake Charles property commenced operations in July 1995 and is located on a 19-acre site along Interstate 10, the main thoroughfare connecting Houston, Texas to Lake Charles, Louisiana. In February 2012 we consolidated our gaming operations onto one gaming vessel offering 1,216 slot machines, 48 table games, including 8 poker tables, two hotels offering 493 rooms, a 96,000 square foot land-based pavilion and entertainment center, and 2,539 parking spaces, including approximately 1,160 spaces in an attached parking garage. The pavilion and entertainment center offer customers a wide variety of non-gaming amenities, including a 96-seat Otis & Henry's restaurant, a 258-seat Calypso's buffet, a 63-seat Lucky Wins Asian-inspired restaurant, which also includes a grab and go deli, and Caribbean Cove featuring free live entertainment and can accommodate 127 guests. The pavilion also has a 14,750 square foot entertainment center comprised of a 1,100-seat special events center designed for concerts, banquets and other events, meeting facilities and administrative offices.
The Lake Charles market currently consists of two dockside gaming facilities, a Native American casino and a pari-mutuel facility/racino. The current number of slot machines in the market is approximately 7,300 machines and approximately 170 table games. For the twelve months ended April 2014, the two gaming facilities and one racino, in the aggregate, generated gaming revenues of approximately $681 million. Revenues for the Native American property are not published. Casino revenues for our Lake Charles property for fiscal 2014 were approximately $137 million. A new competitor is currently under construction and is expected to open by the end of calendar year 2014, adding approximately 1,600 slot machines, 60 table games and 750 hotel rooms to the market. Lake Charles is the closest gaming market to the Houston metropolitan area, which has a population of approximately 6.2 million and is located approximately 140 miles west of Lake Charles. We believe that our Lake Charles property attracts customers primarily from southeast Texas, including Houston,
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Beaumont, Galveston, Orange and Port Arthur and from local area residents. Approximately 500,000 and 1.7 million people reside within 50 and 100 miles, respectively, of the Lake Charles property.
Mississippi
Lula
Our Lula property, which we acquired in March 2000, is located off of Highway 49, the only road crossing the Mississippi River between Mississippi and Arkansas for more than 50 miles in either direction. The property consists of two dockside casinos containing 912 slot machines and 20 table games, two on-site hotels with a total of 485 rooms, a land-based pavilion and entertainment center, 1,611 parking spaces, and a 28-space RV Park. The pavilion and entertainment center offer a wide variety of non-gaming amenities, including a 122-seat Otis & Henry's restaurant, a 283-seat Calypso's buffet, and a 56-seat Otis & Henry's Express.
Our Lula property is the only gaming facility in Coahoma County, Mississippi and generated casino revenues of approximately $56 million in fiscal 2014. Lula draws a significant amount of business from the Little Rock, Arkansas metropolitan area, which has a population of approximately 725,000 and is located approximately 120 miles west of the property. Coahoma County is also located approximately 60 miles southwest of Memphis, Tennessee, which is primarily served by eight casinos in Tunica County, Mississippi. Lula also competes with Native American casinos in Oklahoma and racinos in West Memphis, Arkansas and Hot Springs, Arkansas. Approximately 65,000 and 1.0 million people reside within 25 and 60 miles, respectively, of our Lula property.
Natchez
Our Natchez property, which we acquired in March 2000, is located off of Highways 84 and 61 in western Mississippi. The property consists of a dockside casino offering 536 slot machines and 6 table games, a 141-room off-site hotel located approximately one mile from the casino, a 118-seat Calypso's buffet and 675 parking spaces.
The Natchez market consists of two gaming facilities, including a land based competitor which opened in December 2012. Our Natchez property generated total casino revenues of approximately $23 million in fiscal 2014. The impact of the new competition has resulted in growth in the overall gaming market, however our gaming revenues have declined. We believe that the Natchez property attracts customers primarily from the approximately 390,000 people residing within 60 miles of the Natchez property. Our Natchez property is also 70 miles south of our Vicksburg property.
Vicksburg
Our Vicksburg property, which we acquired in June 2010, is located off Interstate 20 and Highway 61 in western Mississippi, approximately 50 miles west of Jackson, Mississippi. The property consists of a dockside casino offering 595 slot machines and eight table games. During fiscal 2013, the property was rebranded to a Lady Luck, which involved significant changes in appearance and renovation of all restaurants. The property now offers a 200-seat Farmer's Pick buffet, a 48-seat Otis & Henry's, a 64-seat Lone Wolf bar and an 18-seat Otis & Henry's Express. The property has 977 parking spaces.
The Vicksburg market consists of five dockside casinos which generated total gaming revenues of approximately $234 million for the twelve months ended April 2014. Our Vicksburg property generated casino revenues of approximately $40 million in fiscal 2014. Approximately 700,000 people reside within 60 miles of the property.
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Missouri
Boonville
Our Boonville property, which opened in December 2001, is located three miles off Interstate 70, approximately halfway between Kansas City and St. Louis. The property consists of a single level dockside casino offering 934 slot machines, 20 table games, a 140-room hotel, a 32,400 square foot pavilion and entertainment center and 1,101 parking spaces. In February 2012, we launched our first Farmer's Pick Buffet with seating capacity for 202, featuring locally sourced food products that are prepared at action stations in view of the guests. In addition, the pavilion and entertainment center also offers customers a wide variety of other non-gaming amenities, including a 90-seat Farraddays restaurant, a 30-seat Tradewinds Marketplace, an 800 seat event center, and a historic display area.
Our Boonville property is the only gaming facility in central Missouri and generated casino revenues of approximately $78 million in fiscal 2014. We believe that our Boonville casino attracts customers primarily from the approximately 615,000 people who reside within 60 miles of the property which includes the Columbia and Jefferson City areas.
Cape Girardeau
Our Cape Girardeau property, which opened in October 2012, is located three and a half miles from Interstate 55 in Southeast Missouri, approximately 120 miles south of St. Louis, Missouri. The dockside casino offers 921 slot machines, 20 table games and 7 poker tables. The pavilion and entertainment center offer a wide variety of non-gaming amenities, which includes a 110-seat Lone Wolf restaurant, bar and lounge, a 230-seat Farmer's Pick buffet, a 122-seat Farraddays restaurant, a 12-seat Lone Wolf Express, and a 59-seat Keller's restaurant and bar that overlooks the Mississippi river. The property also operates a 7,725 square foot event center with seating for up to 600 patrons and has 1,049 parking spaces.
Our Cape Girardeau property is the only gaming facility in the Cape Girardeau, Missouri market and generated casino revenues of approximately $57 million in fiscal 2014. Our operations compete with other gaming operations in Southwest Illinois and Southeast Missouri. Approximately 640,000 people reside within 60 miles of our property, which includes Carbondale and Marion, Illinois, Paducah, Kentucky and Sikeston, Missouri.
Caruthersville
Our Caruthersville property was acquired in June 2007 and is a riverboat casino located along the Mississippi River in Southeast Missouri. The dockside casino offers 547 slot machines and 11 table games. The property offers a 40,000 square foot pavilion, which includes a 147-seat Lone Wolf restaurant, bar and lounge and a 232-seat Otis & Henry's restaurant. The property also operates a 10,000 square foot exposition center with seating for up to 1,100 patrons and has 1,000 parking spaces.
Our Caruthersville facility generated casino revenues of approximately $31 million in fiscal year 2014. Approximately 610,000 people reside within 60 miles of the property. Our casino in Cape Girardeau is located approximately 85 miles north of our Caruthersville casino.
Kansas City
Our Kansas City property, which we acquired in June 2000, is the closest gaming facility to downtown Kansas City and consists of a dockside casino offering 1,058 slot machines and 18 table games, a 214-seat Calypso's buffet, a 210-seat Lone Wolf restaurant and bar, a 32-seat Tradewinds Marketplace and 1,685 parking spaces.
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The Kansas City market consists of four dockside gaming facilities, a land-based facility which opened in February 2012 and a Native American casino. Operating statistics for the Native American casino are not published. The four dockside gaming facilities and the land-based facility generated gaming revenues of approximately $728 million for the twelve months ended April 2014. Our Kansas City property generated casino revenues of approximately $77 million during fiscal 2014. We believe that our Kansas City casino attracts customers primarily from the Kansas City metropolitan area, which has approximately 2 million residents.
Pennsylvania
Nemacolin
Lady Luck Nemacolin opened July 1, 2013. The property is located on the 2,000 acre Nemacolin Woodlands Resort in Western Pennsylvania. The casino property includes 582 slot machines, 28 table games, a 133-seat Otis & Henry's restaurant, a 103-seat Lone Wolf restaurant, bar and lounge and 800 parking spots. The Nemacolin Woodlands Resort includes over 300 rooms, suites, townhouses and luxury homes for the property guests, as well as numerous activities for the outdoor enthusiast.
Our Nemacolin property is the only casino in Fayette County, Pennsylvania and generated $27 million of gaming revenues during fiscal year 2014. We believe that our casino attracts customers staying at the Nemacolin Woodlands Resort as well as from the 2.5 million people who reside within 60 miles of the property. The closest competing casino to Nemacolin is approximately 60 miles away. The Nemacolin facility competes primarily with a racino property located near Pittsburgh, Pennsylvania and casinos in Rocky Gap, Maryland and Wheeling, West Virginia.
Marketing
Our marketing programs are designed to promote our overall business strategy of providing customers with a safe, clean, friendly and fun gaming experience at each of our properties. We have developed an extensive proprietary customer database that allows us to create effective targeted marketing and promotional programs that are designed to reward customer loyalty, attract new customers to our properties and maintain high recognition of our brands.
Specifically, our marketing programs and initiatives are tailored to support this corporate strategic plan and are generally focused on the following areas:
Customer Research : In an ever changing market, it is critical for us to stay in tune with our customers and offer relevant and competitive services and programs. Our marketing strategies have been developed and implemented to meet the needs and desires of our casino customers in each of our locations. In order to assess these needs and desires, we engage in significant customer research in each of our markets by conducting periodic surveys, focus groups and customer interviews. In fiscal 2014, we introduced Net Promoter Scores (NPS), our customer service program where we ask customers to rate us on their experience on competencies such as level of service, receptiveness and effectiveness of our advertising, direct mail programs, promotions and our loyalty program, Fan Club®. Upon receipt of these findings, we assess the attitudes of our customers and the customers of our competitors' properties towards the most important attributes of their experience in a regional and/or local gaming facility. We use the extensive information gathered from these research initiatives to make marketing, operating and development decisions that, we believe, will optimize the position of our properties relative to our competition and the customer experience
Database Marketing: We have enhanced our database marketing efforts through the application of advanced analytic modeling to help us predict and better manage a customer's lifecycle. Specifically, we have focused on understanding the desirability of our direct mail and
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promotions and their impact on visitation and loyalty as well as the profitability of our programs. A deeper understanding of the effectiveness of our database marketing efforts helps us enhance loyalty efforts, focus on attrition and better predict customer behavior.
Segmentation: We have compiled an extensive database of customer information over time. Among our most important marketing initiatives, we have introduced database segmentation to our properties and at the corporate level in order to adjust investment rates to a level at which we expect to meet a reasonable level of customer profit contribution.
Fan Club® : Fan Club, our customer loyalty program, provides customers the opportunity to earn points based on their level of play. The five-tier program provides for clear customer understanding of how points are earned, how points can be utilized and the benefits offered at each tier. Fan Club has been implemented at eleven of our properties to date and our goal is to have full implementation by the end of fiscal 2015. In fiscal 2014, we improved the program, based on customer feedback, with increased branding elements and an exciting new set of customer benefits including complementary cruises on Carnival Cruises and rooms at the Tropicana in Las Vegas for select customers. Other daily and monthly enhancement for select customers include flight credits, birthday benefits, anniversary benefits and enhanced food benefits to be enjoyed at our restaurants.
Retail Development: We believe that we must more effectively attract new, non-database customers to our properties in order to increase profitability and free cash flow. These customers are generally less expensive to attract and retain and, therefore, currently represent a significant opportunity for our operations. We are focused on driving growth in our retail player segment using a mix of promotions and new dining and entertainment options that offer fun and value. We will use traditional and new media marketing channels to reach our non-database segment and to continue to build awareness of our brands.
Employees
As of April 27, 2014, we employed approximately 7,000 full and part-time people. We have a collective bargaining agreement with UNITE HERE covering approximately 500 employees at our Pompano property which was renewed in May 2012 and expires in May 2015. We believe that our relationship with our employees is satisfactory.
Governmental Regulations
The gaming and racing industries are highly regulated, and we must maintain our licenses and pay gaming taxes to continue our operations. Each of our facilities is subject to extensive regulation under the laws, rules and regulations of the jurisdiction where it is located. These laws, rules and regulations generally relate to the responsibility, financial stability and character of the owners, managers and persons with financial interests in the gaming operations. Violations of laws in one jurisdiction could result in disciplinary action in other jurisdictions. A more detailed description of the regulations to which we are subject is contained in Exhibit 99.1 to this Annual Report on Form 10-K.
Our businesses are subject to various federal, state and local laws and regulations in addition to gaming regulations. These laws and regulations include, but are not limited to, restrictions and conditions concerning alcoholic beverages, food service, smoking, environmental matters, employees and employment practices, currency transactions, taxation, zoning and building codes, and marketing and advertising. Such laws and regulations could change or could be interpreted differently in the future, or new laws and regulations could be enacted. Material changes, new laws or regulations, or material differences in interpretations by courts or governmental authorities could adversely affect our operating results.
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Available Information
Our web site is www.isleofcapricasinos.com. Our electronic filings with the U.S. Securities and Exchange Commission (including all annual reports on Form 10-K, quarter reports on Form 10-Q, and current reports on Form 8-K, and any amendments to these reports), including the exhibits, are available free of charge through our web site as soon as reasonably practicable after we electronically file them with or furnish them to the U.S. Securities and Exchange Commission. The information found on our website is not part of this or any other report we file with, or furnish to, the U.S. Securities and Exchange Commission.
We face significant competition from other gaming operations, including Native American gaming facilities, 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. 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.
Legalized gaming is currently permitted in various forms throughout the United States. Certain states have recently legalized, and other states are currently considering legalizing gaming. Our existing gaming facilities compete directly with other gaming properties in the states in which we operate. Our existing casinos attract a significant number of their customers from Houston, Texas; Mobile, Alabama; Southern Florida; Little Rock, Arkansas; and Denver, Colorado. Legalization of gaming in jurisdictions closer to these geographic markets other than the jurisdictions in which our facilities are located would have a material adverse effect on our operating results. Other jurisdictions, including states in close proximity to jurisdictions where we currently have operations, have considered and may consider legalizing casino gaming and other forms of competition. In addition, there is no limit on the number of gaming licenses that may be granted in several of the markets in which we operate. As a result, new gaming licenses could be awarded in these markets, which could allow new gaming operators to enter our markets that could have an adverse effect on our operating results. For example, a new casino is under construction in Lake Charles, Louisiana which will compete with our existing Lake Charles property and a competitor has announced plans for a land based casino in Davenport, Iowa which will compete with our existing Bettendorf property.
Our continued success depends upon drawing customers from each of these geographic markets. We expect competition to increase as new gaming operators enter our markets, existing competitors expand their operations, gaming activities expand in existing jurisdictions and gaming is legalized in new jurisdictions. We cannot predict with any certainty the effects of existing and future competition on our operating results.
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.
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We are subject to extensive regulation from gaming and other regulatory authorities that could adversely affect us.
Licensing requirements. As owners and operators of gaming and pari-mutuel wagering facilities, we are subject to extensive state and local regulation. State and local authorities require us and our subsidiaries to demonstrate suitability to obtain and retain various licenses and require that we have registrations, permits and approvals to conduct gaming operations. The regulatory authorities in the jurisdictions in which we operate have very broad discretion with regard to their regulation of gaming operators, and may for a broad variety of reasons and in accordance with applicable laws, rules and regulations, limit, condition, suspend, fail to renew or revoke a license to conduct gaming operations or prevent us from owning the securities of any of our gaming subsidiaries, or prevent other persons from owning an interest in us or doing business with us. We may also be deemed responsible for the acts and conduct of our employees. Substantial fines or forfeiture of assets for violations of gaming laws or regulations may be levied against us, our subsidiaries and the persons involved, and some regulatory authorities have the ability to require us to suspend our operations. The suspension or revocation of any of our licenses or our operations or the levy on us or our subsidiaries of a substantial fine would have a material adverse effect on our business.
To date, we have demonstrated suitability to obtain and have obtained all governmental licenses, registrations, permits and approvals necessary for us to operate our existing gaming facilities. We cannot assure you that we will be able to retain these licenses, registrations, permits and approvals, or that we will be able to obtain any new ones in order to expand our business, or that our attempts to do so will be timely. Like all gaming operators in the jurisdictions in which we operate, we must periodically apply to renew our gaming licenses and have the suitability of certain of our directors, officers and employees approved. We cannot assure you that we will be able to obtain such renewals or approvals.
In addition, regulatory authorities in certain jurisdictions must approve, in advance, any restrictions on transfers of, agreements not to encumber or pledges of equity securities issued by a corporation that is registered as an intermediary company with such state, or that holds a gaming license. If these restrictions are not approved in advance, they will be invalid.
Compliance with other laws. We are also subject to a variety of other federal, state and local laws, rules, regulations and ordinances that apply to non-gaming businesses, including zoning, environmental, construction and land-use laws and regulations governing the serving of alcoholic beverages. Under various federal, state and local laws and regulations, an owner or operator of real property may be held liable for the costs of removal or remediation of certain hazardous or toxic substances or wastes located on its property, regardless of whether or not the present owner or operator knows of, or is responsible for, the presence of such substances or wastes. We have not identified any issues associated with our properties that could reasonably be expected to have a material adverse effect on us or the results of our operations. However, several of our properties are located in industrial areas or were used for industrial purposes for many years. As a consequence, it is possible that historical or neighboring activities have affected one or more of our properties and that, as a result, environmental issues could arise in the future, the precise nature of which we cannot now predict. The coverage and attendant compliance costs associated with these laws, regulations and ordinances may result in future additional costs.
Regulations adopted by the Financial Crimes Enforcement Network of the U.S. Treasury Department require us to report currency transactions in excess of $10,000 occurring within a gaming day, including identification of the patron by name and social security number. U.S. Treasury Department regulations also require us to report certain suspicious activity, including any transaction that exceeds $5,000 if we know, suspect or have reason to believe that the transaction involves funds from illegal activity or is designed to evade federal regulations or reporting requirements. Substantial
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penalties can be imposed against us if we fail to comply with these regulations. The Financial Crime Enforcement Network of the U.S. Treasury has recently increased its focus on gaming companies.
Several of our riverboats must comply with U.S. Coast Guard requirements as to boat design, on-board facilities, equipment, personnel and safety and must hold U.S. Coast Guard Certificates of Documentation and Inspection. The U.S. Coast Guard requirements also set limits on the operation of the riverboats and mandate licensing of certain personnel involved with the operation of the riverboats. Loss of a riverboat's Certificate of Documentation and Inspection could preclude its use as a riverboat casino. The U.S. Coast Guard has shifted inspection duties related to permanently moored casino vessels to the individual states. Louisiana and Missouri have elected to utilize the services of the American Bureau of Shipping to undertake the inspections. Iowa has elected to handle the inspections through the Iowa Department of Natural Resources. The states will continue the same inspection criteria as the U.S. Coast Guard in regard to annual and five year inspections. Depending on the outcome of these inspections a vessel could become subject to dry-docking for inspection of its hull, which could result in a temporary loss of service.
We are required to have third parties periodically inspect and certify all of our casino barges for stability and single compartment flooding integrity. Our casino barges and other facilities must also meet local fire safety standards. We would incur additional costs if any of our gaming facilities were not in compliance with one or more of these regulations.
Potential changes in legislation and regulation of our operations. From time to time, legislators and special interest groups have proposed legislation that would expand, restrict or prevent gaming operations in the jurisdictions in which we operate. In addition, from time to time, certain anti-gaming groups have challenged constitutional amendments or legislation that would limit our ability to continue to operate in those jurisdictions in which these constitutional amendments or legislation have been adopted.
Taxation and fees. State and local authorities raise a significant amount of revenue through taxes and fees on gaming activities. We believe that the prospect of significant revenue is one of the primary reasons that jurisdictions permit legalized gaming. As a result, gaming companies are typically subject to significant taxes and fees in addition to normal federal, state, local and provincial income taxes, and such taxes and fees are subject to increase at any time. We pay substantial taxes and fees with respect to our operations. From time to time, federal, state, local and provincial legislators and officials have proposed changes in tax laws, or in the administration of such laws, affecting the gaming industry. Any material increase, or the adoption of additional taxes or fees, could have a material adverse effect on our future financial results.
Our operations in certain jurisdictions depend on agreements with third parties.
Our operations in several jurisdictions depend on agreements with third parties. If we are unable to renew these agreements on satisfactory terms as they expire, our business may be disrupted and, in the event of disruptions in multiple jurisdictions, could have a material adverse effect on our financial condition and results of operations. For example, Iowa law requires that each gambling venue in Iowa must have a licensed "Qualified Sponsoring Organization," or QSO, which is a tax-exempt non-profit organization. The QSO must donate the profits it receives from casino operations to educational, civic, public, charitable, patriotic or religious uses. Each of our three Iowa properties has an agreement with a local QSO. We have the right to renew our agreements for Bettendorf and Waterloo when they expire in 2015 and 2019, respectively, but we do not have the automatic right to renew our agreement for Marquette when it expires in 2019. There can be no assurance that we will be able to negotiate a new agreement (or renew or extend the existing agreement) for Marquette upon expiration in 2019. Failure to do so may result in our inability to continue operating our Marquette property in 2019.
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We have a management agreement with Nemacolin Woodlands Resort, the owner of the gaming license issued by the Pennsylvania Gaming Control Board allowing operation of a casino at the resort. Under the terms of this agreement, we constructed and currently operate a casino at the resort. Our management agreement is subject to a buy-out provision 102 months after the opening of the casino, as well as other terms and conditions which could result in termination of the management agreement. The base term of the agreement is ten years, with four, five year renewal options. Additionally, each party to the management agreement has certain termination rights. If the management agreement is terminated, we will no longer have the right to manage our casino at Nemacolin Woodlands Resort.
Our business may be adversely affected by legislation prohibiting tobacco smoking.
Legislation in various forms to ban indoor tobacco smoking has been enacted or introduced in many states and local jurisdictions, including several of the jurisdictions in which we operate. If additional restrictions on smoking are enacted in our jurisdictions, we could experience a significant decrease in gaming revenue and particularly, if such restrictions are not applicable to all competitive facilities in that gaming market, our business could be materially adversely affected.
Our substantial indebtedness could adversely affect our financial health and restrict our operations.
We have a significant amount of indebtedness. As of April 27, 2014, we had approximately $1.1 billion of total debt outstanding.
Our significant indebtedness could have important consequences to our financial condition, such as:
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A portion of our outstanding debt bears interest at variable rates. If short-term interest rates rise, our interest cost will increase on our variable rate indebtedness, which will adversely affect our results of operations and available cash.
Any of the factors listed above could have a material adverse effect on our business, financial condition and results of operations. We cannot assure you that our business will continue to generate sufficient cash flow, or that future available draws under our senior secured credit facility will be sufficient, to enable us to meet our liquidity needs, including those needed to service our indebtedness.
Despite our significant indebtedness, we may still be able to incur significantly more debt. This could intensify the risks described above.
The terms of the indentures and agreements governing our senior secured credit facility, our 5.875% senior notes, our 7.75% senior notes, our 8.875% senior subordinated notes and our other indebtedness limit, but do not prohibit, us or our subsidiaries from incurring significant additional indebtedness in the future.
As of April 27, 2014, we have the capacity to incur additional indebtedness, including the ability to incur additional indebtedness under our line of credit, of approximately $184 million, after consideration of $33 million in letters of credit currently outstanding. Our capacity to issue additional indebtedness is subject to the limitations imposed by the covenants in our senior secured credit facility, and the indentures governing our 5.875% senior notes, our 7.75% senior notes, and our 8.875% senior subordinated notes, however the agreements do not fully prohibit us from incurring additional debt. If new debt is added to our current level of indebtedness, the related risks that we now face could intensify.
We may not be able to successfully expand to new locations or recover our investment in capital projects or new properties which would adversely affect our operations and available resources.
We regularly evaluate opportunities for growth through development of gaming operations in existing or new markets, through acquiring or managing other gaming entertainment facilities or through redeveloping our existing facilities. The expansion of our operations, whether through acquisitions, development, management contracts or internal growth, could divert management's attention and could also cause us to incur substantial costs, including legal, professional and consulting fees. To the extent that we elect to pursue any new gaming acquisition, management or development opportunity, our ability to benefit from our investment will depend on many factors, including:
Many of these factors are beyond our control. Additionally, from time to time there are significant disruptions in the global capital markets that may adversely impact the ability of borrowers like us to
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access capital. Accordingly, we could be dependent on free cash flow from operations and remaining borrowing capacity under our senior secured credit facility to implement our near-term expansion plans and fund our planned capital expenditures. Moreover, lower-than-expected results from the opening of a new property may negatively affect our operating results and financial condition and may make it more difficult to raise capital. As a result of these and other considerations, we cannot be sure that we will be able to successfully expand to additional locations or recover our investments in any new gaming development or management opportunities or acquired facilities.
We may experience construction delays or cost overruns during our expansion or development projects that could adversely affect our operations.
From time to time we may commence construction projects on new properties or at our current properties. We also evaluate other expansion opportunities as they become available and we may in the future engage in additional construction projects. The anticipated costs and construction periods for our construction projects are based upon budgets, conceptual design documents and construction schedule estimates prepared by us in consultation with our architects. Construction projects entail significant risks, which can substantially increase costs or delay completion of a project. Such risks include shortages of materials or skilled labor, unforeseen engineering, environmental or geological problems, work stoppages, weather interference and unanticipated cost increases. Most of these factors are beyond our control. In addition, difficulties or delays in obtaining any of the requisite licenses, permits or authorizations from regulatory authorities can increase the cost or delay the completion of an expansion or development. Significant budget overruns or delays with respect to expansion and development projects could adversely affect our results of operations.
Our gaming operations rely heavily on technology services and an uninterrupted supply of electrical power. Our security systems and all of our slot machines are controlled by computers and reliant on electrical power to operate.
The absence of sufficient electrical power, open data lines, or a failure of the technology services needed to run our systems may cause us to be unable to run all or parts of gaming operations. Any unscheduled interruption in our technology services or interruption in the supply of electrical power is likely to result in an immediate, and possibly substantial, loss of revenues due to a shutdown of our gaming operations. Our systems are also vulnerable to damage or interruption from rolling blackouts, earthquakes, floods, fires, telecommunication failures, terrorist attacks, computer viruses, computer denial-of-service attacks and similar events.
Some of our casinos are located on leased property. If we default on one or more leases, the applicable lessors could terminate the affected leases and we could lose possession of the affected casino.
We lease certain parcels of land on which several of our properties are located. As a ground lessee, we have the right to use the leased land; however, we do not hold fee ownership in the underlying land. Accordingly, with respect to the leased land, we will have no interest in the land or improvements thereon at the expiration of the ground leases. Moreover, since we do not completely control the land underlying the property, a landowner could take certain actions to disrupt our rights in the land leased under the long-term leases which are beyond our control. If the entity owning any leased land chose to disrupt our use either permanently or for a significant period of time, then the value of our assets could be impaired and our business and operations could be adversely affected. If we were to default on any one or more of these leases, the applicable lessors could terminate the affected leases and we could lose possession of the affected land and any improvements on the land, including the hotels and casinos. This would have a significant adverse effect on our business, financial condition and results of operations as we would then be unable to operate all or portions of the affected facilities and may result in the default under our amended and restated credit facility.
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If our key personnel leave us, our business could be adversely affected.
Our continued success will depend, among other things, on the efforts and skills of a few key executive officers and the experience of our property managers. Our ability to retain key personnel is affected by the competitiveness of our compensation packages and the other terms and conditions of employment, our continued ability to compete effectively against other gaming companies and our growth prospects. The loss of the services of any of these key individuals could have a material adverse effect on our business, financial condition and results of operations. We do not maintain "key man" life insurance for any of our employees.
We are effectively controlled by members of the Goldstein Family and their decisions may differ from those that may be made by other stockholders.
Robert S. Goldstein, our Vice Chairman of the Board, and Jeffrey D. Goldstein and Richard A. Goldstein, two of our directors, and various family trusts associated with members of the Goldstein family and entities associated with certain members of the Goldstein family, (collectively the "Goldstein Parties") directly and indirectly collectively own and control approximately 41.6% of our common stock as of April 27, 2014.
The Goldstein Parties have substantial control over the election of our board of directors and the outcome of the vote on substantially all other matters, including amendment of our amended and restated certificate of incorporation, amendment of our by-laws and significant corporate transactions, such as the approval of a merger or other transactions involving a sale of the Company. Such substantial control may have the effect of discouraging transactions involving an actual or potential change of control, which in turn could have a material adverse effect on the market price of our common stock or prevent our stockholders from realizing a premium over the market price for their shares of common stock. The interests of the Goldstein Parties may differ from those of our other stockholders.
Our amended and restated certificate of incorporation contains provisions that could delay and discourage takeover attempts that stockholders may consider favorable.
Certain provisions of our amended and restated certificate of incorporation may make it more difficult or prevent a third party from acquiring control of us, including:
"Supermajority Expiration Time" means the first to occur of (i) the Goldstein Group ceasing to hold common stock of the Company representing at least 22.5% of our outstanding common stock, not including any shares of Class B common stock or shares of common stock issued upon conversion of any preferred stock and (ii) April 8, 2021. The "Goldstein Group" means Robert S. Goldstein, our Vice Chairman, and Jeffrey D. Goldstein and Richard A. Goldstein, two of our directors, spouses, children and grandchildren of certain members of the Goldstein family and entities associated with certain members of the Goldstein family.
These provisions may make mergers, acquisitions, tender offers, the removal of management and certain other transactions more difficult or more costly and could discourage or limit stockholder participation in such types of transactions, whether or not such transactions are favored by the stockholders. The provisions also could limit the price that investors might be willing to pay in the future for shares of our common stock. Further, the existence of these anti-takeover measures may
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cause potential bidders to look elsewhere, rather than initiating acquisition discussions with us. Any of these factors could reduce the price of our common stock.
We have a history of fluctuations in our operating income (losses) from continuing operations, and we may incur additional operating losses from continuing operations in the future. Our operating results could fluctuate significantly on a periodic basis.
We sustained (losses) from continuing operations of $(129.7) million, $(52.5) million and $(25.6) million in fiscal 2014, 2013 and 2012, respectively. Companies with fluctuations in income (loss) from continuing operations often find it more challenging to raise capital to finance improvements in their businesses and to undertake other activities that return value to their stockholders. In addition, companies with operating results that fluctuate significantly on a quarterly or annual basis experience increased volatility in their stock prices in addition to difficulties in raising capital. We cannot assure you that we will not have fluctuations in our income (losses) from continuing operations in the future, and should that occur, that we would not suffer adverse consequences to our business as a result, which could decrease the value of our common stock.
We may incur impairments to goodwill, indefinite-lived intangible assets, or long-lived assets, which could negatively affect our operating results.
We perform annual impairment testing for goodwill and indefinite-lived intangible assets as of the first day of the fourth fiscal quarter of each year, or on an interim basis if indicators of impairment exist. For properties with goodwill and/or other intangible assets with indefinite lives, these tests require the comparison of the implied fair value of each reporting unit to carrying value.
We must make various assumptions and estimates in performing our impairment testing. The implied fair value includes estimates of future cash flows that are based on reasonable and supportable assumptions which represent our best estimates of the cash flows expected to result from the use of the assets including their eventual disposition and by a market approach based upon valuation multiples for similar companies. Changes in estimates, increases in our cost of capital, reductions in transaction multiples, operating and capital expenditure assumptions or application of alternative assumptions and definitions, could produce significantly different results.
We also evaluate long-lived assets for impairment if indicators of impairment exist. In assessing the recoverability of the carrying value of such property, equipment and other long-lived assets, we make assumptions regarding future cash flows and residual values.
Future cash flow estimates are, by their nature, subjective and actual results may differ materially from our estimates. If our ongoing estimates of future cash flows are not met, we may have to record additional impairment charges in future accounting periods. Our estimates of cash flows are based on the current regulatory, social and economic climates, recent operating information and budgets, and current operating plans of the various properties where we conduct operations. These estimates could be negatively impacted by changes in federal, state or local regulations, economic downturns, internal operating decisions, or other events affecting various forms of travel and access to our properties.
Inclement weather and other conditions could seriously disrupt our business and have a material, adverse effect on our financial condition and results of operations.
The operations of our facilities are subject to disruptions or reduced patronage as a result of severe weather conditions, natural disasters and other casualties. Because many of our gaming operations are located on or adjacent to bodies of water, these facilities are subject to risks in addition to those associated with other casinos, including loss of service due to casualty, forces of nature, mechanical failure, extended or extraordinary maintenance, flood, hurricane or other severe weather conditions and other disasters. For example, flooding along the Mississippi River resulted in five of our
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properties being closed for differing periods of time in fiscal 2012 and the harsh weather in the winter of fiscal 2014 affected regional gaming revenues. In addition, severe weather such as high winds and blizzards occasionally limits access to our land-based facilities in Colorado. We cannot be sure that the proceeds from any future insurance claim will be sufficient to compensate us if one or more of our casinos experience a closure.
We have two properties that each generated more than 10% of our net revenues.
In fiscal 2014, our Pompano, Florida, and Lake Charles, Louisiana casinos, each generated more than 10% of our net revenues. Our ability to meet our operating and debt service requirements is dependent, in part, upon the continued success of these facilities. The operations at these facilities and any of our other facilities could be adversely affected by numerous factors, including those described in these "Risk Factors" as well as more specifically those described below:
Reductions in discretionary consumer spending could have a material adverse effect on our business.
Our business has been and may continue to be adversely affected by economic fluctuations experienced in the United States, as we are highly dependent on discretionary spending by our patrons. Reductions in discretionary consumer spending or changes in consumer preferences brought about by factors such as increased unemployment, significant increases in energy prices, perceived or actual deterioration in general economic conditions, housing market instability, instability in the financial markets, perceived or actual decline in disposable consumer income and wealth, and changes in consumer confidence in the economy could reduce customer demand for the leisure activities we offer and may adversely affect our revenues and operating cash flow. We are unable to predict the frequency, length or severity of economic circumstances.
The market price of our common stock may fluctuate significantly.
The market price of our common stock has historically been volatile and may continue to fluctuate substantially due to a number of factors, including actual or anticipated changes in our results of operations, the announcement of significant transactions or other agreements by our competitors, conditions or trends in the our industry or other entertainment industries with which we compete, general economic conditions including those affecting our customers' discretionary spending, changes in the cost of gasoline, changes in the gaming markets in which we operate and changes in the trading value of our common stock. The stock market in general, as well as stocks in the gaming sector have been subject to significant volatility and extreme price fluctuations that have sometimes been unrelated or disproportionate to individual companies' operating performances. Broad market or industry factors may harm the market price of our common stock, regardless of our operating performance.
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Work stoppages, organizing drives and other labor problems could negatively impact our future profits.
Some of our employees are currently represented by a labor union. Labor unions are making a concerted effort to recruit more employees in the gaming industry. In addition, organized labor may benefit from new legislation or legal interpretations by the current presidential administration. We cannot provide any assurance that we will not experience additional or more successful union activity in the future.
Additionally, lengthy strikes or other work stoppages at any of our casino properties or construction projects could have an adverse effect on our business and result of operations.
We are or may become involved in legal proceedings which, if adversely adjudicated or settled, could impact our financial condition.
From time to time, we are defendants in various lawsuits and gaming regulatory proceedings relating to matters incidental to our business. As with all litigation, no assurance can be provided as to the outcome of these matters and, in general, litigation can be expensive and time consuming. We may not be successful in the defense or prosecution of our current or future legal proceedings, which could result in settlements or damages that could significantly impact our business, financial condition and results of operations.
Our insurance coverage may not be adequate to cover all possible losses that our properties could suffer. In addition, our insurance costs may increase and we may not be able to obtain the same insurance coverage in the future.
We may suffer damage to our property caused by a casualty loss (such as fire, natural disasters, acts of war or terrorism), that could severely disrupt our business or subject us to claims by third parties who are injured or harmed. Although we maintain insurance customary in our industry, (including property, casualty, terrorism and business interruption insurance) that insurance may not be adequate or available to cover all the risks to which our business and assets may be subject. The lack of sufficient insurance for these types of acts could expose us to heavy losses if any damages occur, directly or indirectly, that could have a significant adverse impact on our operations.
We renew our insurance policies on an annual basis. The cost of coverage may become so high that we may need to further reduce our policy limits or agree to certain exclusions from our coverage. Among other factors, it is possible that regional political tensions, homeland security concerns, other catastrophic events or any change in government legislation governing insurance coverage for acts of terrorism could materially adversely affect available insurance coverage and result in increased premiums on available coverage (which may cause us to elect to reduce our policy limits), additional exclusions from coverage or higher deductibles. Among other potential future adverse changes, in the future we may elect to not, or may not be able to, obtain any coverage for losses due to acts of terrorism.
Our information technology and other systems are subject to cyber security risk including misappropriation of customer information or other breaches of information security.
We collect information relating to our guests and employees for various business purposes, including marketing and promotional purposes. The collection and use of personal data are governed by privacy laws and regulations enacted in the United States. We rely on information technology and other systems to maintain and transmit this personal and financial information, credit card settlements, credit card funds transmissions, mailing lists and reservations information. Our information and processes are subject to the ever-changing threat of compromised security, in the form of a risk of potential breach, system failure, computer virus, or unauthorized or fraudulent use by customers, company employees, or employees of third party vendors. The steps we take to deter and mitigate
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these risks may not be successful, and any resulting compromise or loss of data or systems could adversely impact, operations or regulatory compliance and could result in remedial expenses, fines, litigation, and loss of reputation, potentially impacting our financial results.
The concentration and evolution of the slot machine manufacturing industry could impose additional costs on us.
There are a limited number of slot machine manufacturers servicing the gaming industry and a large majority of our revenues are derived from slot machines at our casinos. It is important, for competitive reasons, we offer the most popular and up-to-date slot machine games, with the latest technology to our customers.
In recent years, slot machine manufacturers have frequently refused to sell slot machines featuring the most popular games, instead requiring participating lease arrangements. Generally, a participating lease is substantially more expensive over the long-term than the cost to purchase a new slot machine.
For competitive reasons, we may be forced to purchase new slot machines, slot machine systems, or enter into participating lease arrangements that are more expensive than our current costs associated with the continued operation of our existing slot machines. If the newer slot machines do not result in sufficient incremental revenues to offset the increased investment and participating lease costs, it could adversely affect our profitability.
* * * * * * *
In addition to the foregoing, you should consider each of the factors set forth in this Annual Report in evaluating our business and our prospects. The factors described in our Part 1, Item 1A are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently consider immaterial may also impair our business operations. This Annual Report is qualified in its entirety by these risk factors. If any of the foregoing risks actually occur, our business, financial condition and results of operation could be materially harmed. In that case, the trading price of our securities, including our common stock, could decline significantly.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
Isle-Black Hawk
We own approximately 10 acres of land in Black Hawk, Colorado for use in connection with our Black Hawk operations. The property leases an additional parcel of land adjoining the Isle-Black Hawk to where the Lady Luck Hotel and parking are located. This lease is for an initial term of five years ending May 2019 with options to renew for 15 additional terms of five years each with the final option period concluding May 31, 2094. Annual rent is currently $2.57 million through May 31, 2019. The rental rate thereafter shall be adjusted annually to correspond to any rise or fall in the CPI at one-year intervals.
Lady Luck-Black Hawk
We own or lease approximately seven acres of land in Black Hawk, Colorado for use in connection with the Lady Luck-Black Hawk. The property leases an additional parcel of land near the Lady Luck-Black Hawk for parking as described above.
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Pompano
We own approximately 223 acres at Pompano.
Lake Charles
We own approximately 2.7 acres and lease approximately 16.2 acres of land in Calcasieu Parish, Louisiana for use in connection with our Lake Charles operations. This lease automatically renewed in March 2010 for five years and we have the option to renew it for 14 additional terms of five years each, subject to increases based on the Consumer Price Index ("CPI") with a minimum of 10% and construction of hotel facilities on the property. We own two hotels in Lake Charles with a total of 493 rooms. Annual rent payments under the Lake Charles lease are approximately $2.2 million.
Bettendorf
We own approximately 24.6 acres of land in Bettendorf, Iowa used in connection with the operations of our Bettendorf property. We also operate under a long-term lease with the City of Bettendorf, the QC Waterfront Convention Center that is adjacent to our new hotel tower. Future minimum payments associated with the convention center are approximately $1.7 million per year. We also lease approximately eight acres of land on a month-to-month basis from an entity owned by members of the Goldstein family, including Robert S. Goldstein, our Vice Chairman of the Board and Jeffrey D. Goldstein and Richard A. Goldstein, directors of our company, which we utilize for parking. The initial term of the lease expires 60 days after written notice is given to either party and rent under the lease is currently $60,000 annually.
Marquette
We lease the dock site in Marquette, Iowa that is used in connection with our Marquette operations. The lease expires in 2019, and annual rent under the lease is approximately $180,000, plus $1.00 per passenger, plus 2.5% of gaming revenues (less state wagering taxes) in excess of $20.0 million but less than $40.0 million; 5% of gaming revenues (less state wagering taxes) in excess of $40.0 million but less than $60.0 million; and 7.5% of gaming revenues (less state wagering taxes) in excess of $60.0 million. We have an easement related to an overhead pedestrian bridge and driveway that is an annual payment of approximately $6,300. We also own approximately 25 acres of land for the pavilion, satellite offices, warehouse, lots by the marina and other property.
Waterloo
We own approximately 54 acres of land in Waterloo, Iowa used in connection with the operation of our Waterloo property. We also entered into a three-year lease agreement for 17,517 square feet of warehouse space. Rent under this lease is currently $5,021 per month.
Lula
We lease approximately 1,000 acres of land in Coahoma County, Mississippi and utilize approximately 50 acres in connection with the operations in Lula, Mississippi. Unless terminated by us at an earlier date, the lease expires in 2033. Rent under the lease is currently 5.5% of gross gaming revenue as reported to the Mississippi Gaming Commission, plus $100,000 annually. We also own approximately 100 acres in Coahoma County, which may be utilized for future development.
Natchez
Through numerous lease agreements, we lease approximately 24 acres of land in Natchez, Mississippi that are used in connection with the operations of our Natchez property. Unless terminated
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by us at an earlier date, the leases have varying expiration dates through 2037. Annual rent under the leases total approximately $1.3 million. We also lease approximately 7.5 acres of land that is utilized for parking at the facility. We own approximately 6 additional acres of property in Natchez, Mississippi, as well as the property upon which our hotel is located.
Vicksburg
We own approximately 60 acres in Vicksburg, Mississippi which are used in connection with the operations of our Vicksburg property.
Boonville
We lease our 27 acre casino site in Boonville pursuant to a lease agreement with the City of Boonville. Under the terms of the agreement, we lease the site for a period of ninety-nine years. In lieu of rent, we are assessed additional amounts by the City of Boonville based on a 3.5% tax on gaming revenue, up to $1.0 million, which we recognize as additional gaming taxes.
Cape Girardeau
We own approximately 22 acres in Cape Girardeau, Missouri which are used in connection with the operations of our Cape Girardeau property.
Caruthersville
We own approximately 37 acres, including our riverboat casino and 1,000 parking spaces in Caruthersville, Missouri.
Kansas City
We lease approximately 28 acres of land from the Kansas City Port Authority in connection with the operation of our Kansas City property. The term of the original lease was ten years and was renewed in October 2006 and October 2011 for additional five-year terms. The lease includes six additional five-year renewal options. The minimum lease payments correspond to any rise or fall in the CPI, initially after the ten-year term of the lease or October 18, 2006 and thereafter, at each five year renewal date. Rent under the lease currently is the greater of $2.9 million (minimum rent) per year, or 3.25% of gross revenues, less complimentaries.
Nemacolin
We operate under a long-term lease with the Nemacolin Woodlands Resort for 30 acres of land and building in which we operate our casino. The lease is for an initial term of 10 years which commenced with the opening of the casino, on July 1, 2013. The lease includes options to renew for four additional terms of five years each, with the final option period concluding June 2043. Lease payments associated with this space are $150,000 annually, plus 2.0% of gross gaming revenues in excess of $30 million.
Other
We own all of the riverboats and barges utilized at our facilities. We also own or lease all of our gaming and non-gaming equipment.
We lease our principal corporate office in Creve Coeur, Missouri.
We own additional property and have various property leases and options to either lease or purchase property that are not directly related to our existing operations and that may be utilized in
23
the future in connection with expansion projects at our existing facilities or development of new projects.
All of our operating properties, except for our Nemacolin property, and most of our other owned and leased property interests collateralize our obligations under our senior secured credit facility.
We and our wholly-owned subsidiary, Riverboat Corporation of MississippiVicksburg, were defendants in a lawsuit filed in the Circuit Court of Adams County, Mississippi by Silver Land, Inc., alleging breach of contract in connection with our 2006 sale of casino operations in Vicksburg, Mississippi. The court originally ruled in favor of Silver Land and awarded damages of $2.0 million, which we accrued. We appealed the decision and in June 2013 the court of appeals reversed the trial court and ruled in our favor. Silver Land filed a Petition for Writ of Certiorari in November 2013 requesting review by the Mississippi Supreme Court. On February 20, 2014, the Mississippi Supreme Court denied Silver Land's request, which effectively disposed of this matter in its entirety. As a result, during fiscal 2014, we reversed a litigation accrual of $2.2 million, of which $2.0 million was recorded as a reduction to operating expenses and $0.2 million was recorded as a reduction to interest expense.
Our wholly owned subsidiary, Lady Luck Gaming Corporation, and several joint venture partners were defendants in the Greek Civil Courts and the Greek Administrative Courts in similar lawsuits brought by the country of Greece. The actions alleged that the defendants failed to make specified payments in connection with the gaming license bid process for Patras, Greece. In the Civil Court lawsuit, the Civil Court of First Instance ruled in our favor and dismissed the lawsuit in 2001. The lawsuits continued through the appeals process and in October 2013, the Supreme Administrative Court rejected both lawsuits which disposed of this matter completely. As a result, during fiscal 2014, we reversed a litigation accrual of $14.7 million, of which $7.3 million was recorded as a reduction to operating expenses and $7.4 million was recorded as a reduction to interest expense.
We were named as a defendant in a complaint filed in the Circuit Court for Broward County, Florida. The complaint alleged we sent unsolicited fax advertisements in violation of the Telephone Consumer Protection Act of 1991, as amended by the Junk Fax Prevention Act of 2005 (the "TCPA"), and sought to certify a class action. The complaint sought statutory damages for alleged negligent and willful violations of the TCPA, attorneys' fees, costs and injunction relief. In fiscal 2014 we reached a settlement of this matter and the resulting payments were within our reserves for this lawsuit.
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 results 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 seeking damages of approximately $4.6 million. 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
24
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.
ITEM 4. MINE SAFETY DISCLOSURES
None.
25
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|
High | Low | |||||
---|---|---|---|---|---|---|---|
First Quarter (through June 19, 2014) |
$ | 7.09 | $ | 6.39 | |||
Fiscal Year Ending April 27, 2014 |
|
|
|||||
Fourth Quarter |
$ | 9.56 | $ | 6.75 | |||
Third Quarter |
9.11 | 7.36 | |||||
Second Quarter |
8.01 | 7.24 | |||||
First Quarter |
8.69 | 7.16 | |||||
Fiscal Year Ending April 28, 2013 |
|
|
|||||
Fourth Quarter |
$ | 7.53 | $ | 6.03 | |||
Third Quarter |
6.54 | 4.91 | |||||
Second Quarter |
7.39 | 5.66 | |||||
First Quarter |
6.83 | 4.84 |
None.
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 common stock under these programs. These programs have no approved dollar amount, nor expiration dates. No purchases were made during the fiscal year ended April 27, 2014.
26
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Isle of Capri Casinos, Inc., the NASDAQ Composite Index,
and the Dow Jones US Gambling Index
Copyright© 2014 Dow Jones & Co. All rights reserved.
27
ITEM 6. SELECTED FINANCIAL DATA.
The following table presents our selected consolidated financial data for the five most recent fiscal years, which is derived from our audited consolidated financial statements and the notes to those statements. Because the data in this table does not provide all of the data contained in our consolidated financial statements, including the related notes, you should read "Management's Discussion and Analysis of Financial Condition and Results of Operations," our consolidated financial statements, including the related notes, contained elsewhere in this document and other data we have filed with the U.S. Securities and Exchange Commission.
28
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion together with the financial statements, including the related notes and the other financial information, contained in this Annual Report on Form 10-K.
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.
Operating Results 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 and giving consideration to the following:
Items Impacting Income (Loss) from Continuing Operations Significant items impacting our income (loss) from continuing operations during the fiscal years ended April 27, 2014, April 28, 2013 and April 29, 2012 are as follows:
New Casinos We opened our new casino at the Nemacolin Woodlands Resort on July 1, 2013 and we opened our new casino in Cape Girardeau, Missouri on October 30, 2012. We incurred preopening expenses of $4.0 million, $5.8 million and $0.6 million in fiscal 2014, 2013 and 2012, respectively, related to these properties prior to their respective openings.
Impairment and Other Valuation Charges As a result of market conditions and our annual impairment tests of goodwill and indefinite lived intangible assets, we have recorded goodwill impairment charges of $133.8 million, $50.1 million and $14.4 million in fiscal 2014, 2013 and 2012, respectively. These impairment charges were a result of economic conditions, deteriorating operating performance and the impact of new and forthcoming competition in certain of our markets.
In addition, during fiscal 2014, we recorded impairment charges related to our Nemacolin and Natchez properties' long-lived assets of $26.4 million and $1.9 million, respectively. As a result of the less than expected operating performance and projected future operating results, it was determined that the value of our long-lived assets were impaired. The impairment charge consisted of $12.2 million recorded to write-off our Nemacolin operating licenses and $16.1 million to reduce the carrying value of our fixed assets to their estimated fair value.
In connection with the sale of Grand Palais Riverboat, Inc., including its gaming license, a riverboat gaming vessel and certain other equipment, we recorded a valuation charge of $16.1 million to reduce the carrying value of the net assets sold to the net proceeds realized upon sale during fiscal 2012.
Legal Recoveries In 2014, we received favorable rulings in two legal cases in which we had previously recorded reserves. As a result, during fiscal 2014, we reversed previously recorded accruals totaling $16.9 million, of which $9.3 million was recorded as a reduction to operating expenses and $7.6 million was recorded as a reduction to interest expense.
29
Disruptions Several of our properties' operating results have been impacted by disruptions during fiscal 2014 as follows:
During fiscal 2013, we undertook significant renovation projects at our Lake Charles and Vicksburg properties. In Lake Charles we renovated our main hotel tower which resulted in approximately one-third of the rooms being out of service at any given time from May 2012 through January 2013. In Vicksburg, we completely rebranded the property into a Lady Luck property. Both projects were completed prior to the end of the fiscal year; however certain areas of these properties were not easily accessible to our customers during the construction periods which had a negative impact on our operating results.
Increased Competition From time to time, new or expanded facilities by our competitors impact our results. For example, competition from a new casino in Natchez, which opened at the end of December 2012, has negatively impacted our Natchez casino. Competition from a new casino in Kansas, which opened during February 2012, has negatively impacted our Kansas City casino and expansion by a competitor in February 2012 has negatively impacted our Pompano casino. Expansions by Arkansas based competitors have negatively impacted our Lula property.
53 rd Week in Fiscal 2012 Our fiscal year ends on the last Sunday in April. This fiscal year convention creates more comparability of our quarterly operations, by generally having an equal number of weeks (13) and weekend days (26) in each quarter. Periodically, this convention necessitates a 53-week year. The fiscal years ending April 27, 2014 and April 28, 2013 were 52-week years. Fiscal year ending April 29, 2012 was a 53-week year, with the extra week in the fourth fiscal quarter.
Flooding and Insurance Recoveries Our fiscal 2012 operating results were impacted by flooding along the Mississippi River, which resulted in five of our properties being closed for differing periods of time.
|
Closing Date | Reopening Date |
Number
Days Closed |
|||||
---|---|---|---|---|---|---|---|---|
Caruthersville, Missouri |
May 1, 2011 | May 13, 2011 | 12 | |||||
Lula, Mississippi |
May 3, 2011 | June 3, 2011 | 31 | |||||
|
September 2, 2011 | 91 | (A) | |||||
Natchez, Mississippi |
May 7, 2011 | June 17, 2011 | 41 | |||||
Vicksburg, Mississippi |
May 11, 2011 | May 27, 2011 | 16 |
Related to the flooding, we filed and settled flood insurance claims resulting in the recognition of $9.6 million business interruption recoveries in our statement of operations in fiscal 2012.
30
Income Tax Benefit Our income tax benefit from continuing operations was $18.5 million for fiscal 2014. Included in this amount is a benefit of $12.0 million from reversing a valuation allowance as a result of our Davenport property sale as well as the reversal of a previously unrecognized tax benefit of $7.7 million as a result of a favorable ruling in a tax court matter.
Items Impacting Current and Future Operations During the fiscal years ended April 27, 2014, April 28, 2013 and April 29, 2012, we have entered into agreements or completed transactions as follows:
Discontinued Operations
Sale of Davenport Casino On December 4, 2013, we entered into a definitive asset purchase agreement to sell substantially all of the assets and for the assumption of certain liabilities related to our casino located in Davenport, Iowa, ("Davenport"). We completed the sale on February 3, 2014 for net cash proceeds of $48.7 million.
Sale of Biloxi Casino On November 29, 2012, we completed the sale of our Biloxi, Mississippi casino operations. Our fiscal 2013 results include a loss from Biloxi's discontinued operations of $1.6 million which included a $1.5 million valuation allowance reflecting a credit against the purchase price to satisfy our obligation to repair the property after Hurricane Isaac, as required by the purchase agreement. In fiscal 2012, our loss from discontinued operations included a noncash valuation charge of $112.5 million to reduce the carrying value of Biloxi's net assets held for sale to the expected net realizable value.
Development Activities
Philadelphia 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 five applicants for the final gaming license in Philadelphia. As part of our agreement with the Tower JV, we agreed 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.
Capital Transactions
Long-term Debt During April 2013, proceeds from our 5.875% senior notes and borrowings under our credit facility were used to fully repay and cancel the term loan borrowings under our credit facility.
During August 2012, we issued $350 million of 8.875% senior subordinated notes due 2020. Proceeds from these notes were used to repay our 7% senior subordinated notes.
As a result of these transactions, we wrote-off $3.2 million in deferred finance costs and incurred fees of $1.5 million in fiscal 2013.
Results of Operations
Our results of continuing operations for the fiscal years ended April 27, 2014, April 28, 2013 and April 29, 2012 reflect the consolidated operations of all of our subsidiaries. Our Davenport and Biloxi entities are presented as discontinued operations.
31
|
Net Revenues Fiscal Year Ended |
Operating Income (Loss)
Fiscal Year Ended |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in thousands)
|
April 27,
2014 |
April 28,
2013 |
April 29,
2012 |
April 27,
2014 |
April 28,
2013 |
April 29,
2012 |
|||||||||||||
Colorado |
|||||||||||||||||||
Black Hawk |
$ | 121,313 | $ | 122,135 | $ | 124,051 | $ | 20,067 | $ | 20,109 | $ | 17,468 | |||||||
Florida |
|||||||||||||||||||
Pompano |
164,777 | 154,629 | 154,740 | 25,116 | 19,396 | 17,393 | |||||||||||||
Iowa |
|||||||||||||||||||
Bettendorf |
73,695 | 78,083 | 79,156 | 12,127 | 13,995 | 12,793 | |||||||||||||
Marquette |
25,014 | 27,605 | 28,036 | 3,472 | 3,718 | 4,169 | |||||||||||||
Waterloo |
85,361 | 86,654 | 86,484 | 21,074 | 21,544 | 20,399 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Iowa Total |
184,070 | 192,342 | 193,676 | 36,673 | 39,257 | 37,361 | |||||||||||||
Louisiana |
|||||||||||||||||||
Lakes Charles |
129,899 | 125,575 | 138,634 | 8,888 | 9,270 | 11,671 | |||||||||||||
Mississippi |
|||||||||||||||||||
Lula |
50,489 | 55,444 | 61,525 | 2,715 | 4,285 | 9,671 | |||||||||||||
Natchez |
20,190 | 25,378 | 28,643 | (2,356 | ) | 1,333 | 6,478 | ||||||||||||
Vicksburg |
29,947 | 29,918 | 32,695 | 1,718 | 1,184 | 4,145 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Mississippi Total |
100,626 | 110,740 | 122,863 | 2,077 | 6,802 | 20,294 | |||||||||||||
Missouri |
|||||||||||||||||||
Boonville |
74,531 | 78,624 | 81,796 | 22,583 | 24,004 | 26,018 | |||||||||||||
Cape Girardeau(1) |
54,833 | 32,782 | | (2,359 | ) | (1,085 | ) | | |||||||||||
Caruthersville |
29,879 | 32,282 | 35,039 | 2,232 | 2,832 | 4,497 | |||||||||||||
Kansas City |
70,385 | 73,538 | 80,703 | 13,022 | 13,275 | 13,902 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Missouri Total |
229,628 | 217,226 | 197,538 | 35,478 | 39,026 | 44,417 | |||||||||||||
Pennsylvania |
|||||||||||||||||||
Nemacolin(2) |
23,575 | | | (13,640 | ) | | | ||||||||||||
Valuation charges(3) |
|
|
|
(162,100 |
) |
(50,100 |
) |
(30,549 |
) |
||||||||||
Corporate and other |
712 | 758 | 1,442 | (20,124 | ) | (41,299 | ) | (41,933 | ) | ||||||||||
| | | | | | | | | | | | | | | | | | | |
From continuing operations |
$ | 954,600 | $ | 923,405 | $ | 932,944 | $ | (67,565 | ) | $ | 42,461 | $ | 76,122 | ||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
32
Fiscal 2014 Compared to Fiscal 2013
Revenues and operating expenses for the fiscal years 2014 and 2013 are as follows:
|
Fiscal Year Ended |
|
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in thousands)
|
April 27,
2014 |
April 28,
2013 |
Variance |
Percentage
Variance |
|||||||||
Revenues: |
|||||||||||||
Casino |
$ | 1,004,255 | $ | 967,142 | $ | 37,113 | 3.8 | % | |||||
Rooms |
32,449 | 31,851 | 598 | 1.9 | % | ||||||||
Food, beverage, pari-mutuel and other |
135,305 | 128,319 | 6,986 | 5.4 | % | ||||||||
| | | | | | | | | | | | | |
Gross revenues |
1,172,009 | 1,127,312 | 44,697 | 4.0 | % | ||||||||
Less promotional allowances |
(217,409 | ) | (203,907 | ) | (13,502 | ) | -6.6 | % | |||||
| | | | | | | | | | | | | |
Net revenues |
954,600 | 923,405 | 31,195 | 3.4 | % | ||||||||
Operating expenses: |
|
|
|
|
|||||||||
Casino |
158,019 | 150,075 | 7,944 | 5.3 | % | ||||||||
Gaming taxes |
254,685 | 241,038 | 13,647 | 5.7 | % | ||||||||
Rooms |
7,023 | 6,654 | 369 | 5.5 | % | ||||||||
Food, beverage, pari-mutuel and other |
44,116 | 41,289 | 2,827 | 6.8 | % | ||||||||
Marine and facilities |
57,624 | 54,509 | 3,115 | 5.7 | % | ||||||||
Marketing and administrative |
234,690 | 226,397 | 8,293 | 3.7 | % | ||||||||
Corporate and development |
28,455 | 33,953 | (5,498 | ) | -16.2 | % | |||||||
Valuation charges |
162,100 | 50,100 | 112,000 | N/M | |||||||||
Litigation accrual reversals |
(9,330 | ) | | (9,330 | ) | N/M | |||||||
Preopening |
3,898 | 5,765 | (1,867 | ) | N/M | ||||||||
Depreciation and amortization |
80,885 | 71,164 | 9,721 | 13.7 | % | ||||||||
| | | | | | | | | | | | | |
Total operating expenses |
$ | 1,022,165 | $ | 880,944 | 141,221 | 16.0 | % | ||||||
| | | | | | | | | | | | | |
Casino Casino revenues increased $37.1 million, or 3.8%, in fiscal 2014 compared to fiscal 2013. Excluding casino revenues of $54.9 million at our Cape Girardeau and Nemacolin properties during the comparative periods for which they were not open during the prior year, our casino revenues decreased $17.8 million, or 1.8%. Casino revenues decreased at our Natchez, Lula and Kansas City properties by $12.2 million due to market conditions and weather. Casino revenues decreased at our Iowa and Boonville properties by $12.5 million due to disruptions and weather. These decreases were offset by a $14.2 million increase at our Pompano property resulting from focused marketing efforts and overall market growth.
The majority of our casino revenues are derived from slot machines (representing approximately 90.0% of our casino revenues in each fiscal 2014 and 2013) and, to a lesser extent, table games, which is highly depended upon the volume and spending limits of customers at our properties.
Key performance indicators related to casino revenue are slot handle and table game drop (volume indicators) and "win" or "hold" percentage. Slot handle is the gross amount wagered for the period cited. The win or hold percentage is the net amount of gaming wins and losses, with liabilities recognized for accruals related to the anticipated payout of progressive jackpots. Our slot hold percentages have been extremely consistent over the past several years. Given the stability in our slot hold percentages, we have not experienced significant impacts to earnings from fluctuations in slot hold.
Table game win is the amount of drop that is retained and recorded as casino gaming revenue, with liabilities recognized for funds deposited by customers before gaming play occurs, for unredeemed gaming chips, and for accruals related to the anticipated payout of progressive jackpots. As we are focused on regional gaming markets, our table hold percentages are fairly stable as the majority of
33
these markets do not regularly experience high-end play which can lead to volatility in win percentages. Therefore, changes in table game win percentages do not typically have a material impact to our earnings.
Our typical property slot hold percentage is in the range of 6% to 10% of slot handle, and our typical table game win percentage is in the range of 15% to 25% of table game drop.
Casino operating expenses increased $7.9 million, or 5.3% for fiscal 2014 compared to fiscal 2013. Excluding casino operating expenses of $4.6 million and $5.7 million at our Cape Girardeau and Nemacolin properties, respectively, during the comparative period for which they were not open during the prior year, casino operating expenses decreased $2.4 million, or 1.6% proportionately with the change in casino revenues.
Gaming Taxes State and local gaming taxes increased $13.6 million, or 5.7%, for fiscal 2014 compared to fiscal 2013. Excluding gaming taxes of $7.9 million and $10.7 million at our Cape Girardeau and Nemacolin properties, respectively, during the comparative period for which they were not open during the prior year, gaming taxes decreased $5.0 million, or 2.0%, commensurate with casino revenues.
Rooms Rooms revenue increased $0.6 million, or 1.9%, in fiscal 2014 compared to fiscal 2013, primarily a result of construction disruption at our Lake Charles and Black Hawk properties during hotel renovations in fiscal 2013.
Rooms expense increased $0.4 million, or 5.5%, in fiscal 2014 compared to fiscal 2013.
Food, Beverage, Pari-Mutuel and Other Food, beverage, pari-mutuel and other revenues increased $7.0 million, or 5.4%, in fiscal 2014 compared to fiscal 2013. Excluding food, beverage and other revenues of $3.7 million and $3.0 million at our Cape Girardeau and Nemacolin properties, respectively, during the comparative period for which they were not open during the prior year, food, beverage, pari-mutuel and other revenues increased $0.3 million or, 0.2%.
Food, Beverage, Pari-Mutuel and Other operating expenses increased $2.8 million, or 6.8%, in fiscal 2014 compared to fiscal 2013. Excluding food, beverage and other expenses of $1.2 million and $1.3 million at our Cape Girardeau and Nemacolin properties, respectively, during the comparative period for which they were not open during the prior year, food, beverage, pari-mutuel and other expenses increased $0.3 million, or 0.9%.
Promotional Allowances Promotional allowances increased $13.5 million, or 6.6%, in fiscal 2014 compared to fiscal 2013. Excluding promotional allowances of $5.0 million and $6.2 million at our Cape Girardeau and Nemacolin properties, respectively, during the comparative period for which they were not open during the prior year, promotional allowances increased $2.3 million, or 1.2%.
Marine and Facilities Marine and facilities expenses increased $3.1 million, or 5.7%, for fiscal 2014 compared to fiscal 2013. Excluding marine and facilities expenses of $1.6 million and $1.2 million at our Cape Girardeau and Nemacolin properties, respectively, marine and facilities expenses decreased $0.3 million, or 0.5%.
Marketing and Administrative Marketing and administrative expenses increased $8.3 million, or 3.7%, for fiscal 2014 compared to fiscal 2013. Excluding marketing and administrative expenses of $7.9 million and $9.0 million at our Cape Girardeau and Nemacolin properties, marketing and administrative expenses decreased $8.6 million, or 3.8%, reflecting changes in our marketing programs as well as savings from cost reduction initiatives.
Corporate and Development During fiscal 2014, our corporate and development expenses were $28.5 million compared to $34.0 million for fiscal 2013. Fiscal 2014 includes a gain of $1.0 million from
34
the sale of our corporate aircraft and fiscal 2013 included $1.5 million of non-recurring debt refinancing costs. The remaining decrease is a reduction of stock compensation expense of $0.6 million and as a result of savings achieved through cost reduction initiatives.
Depreciation and Amortization Depreciation and amortization expense for fiscal 2014 compared to fiscal 2013 increased $9.7 million, primarily related to the depreciation at our Cape Girardeau and Nemacolin properties.
Other Income (Expense), Income Taxes and Discontinued Operations
Interest expense, interest income, derivative income, income tax benefit (provision) and income from discontinued operations, net of income taxes for the fiscal years 2014 and 2013 are as follows:
|
Fiscal Year Ended |
|
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in thousands)
|
April 27,
2014 |
April 28,
2013 |
Variance |
Percentage
Variance |
|||||||||
Interest expense |
$ | (81,342 | ) | $ | (89,446 | ) | $ | 8,104 | -9.1 | % | |||
Interest income |
349 | 502 | (153 | ) | -30.5 | % | |||||||
Derivative income |
398 | 748 | (350 | ) | -46.8 | % | |||||||
Income tax benefit (provision) |
18,494 | (6,732 | ) | 25,226 | NM | ||||||||
Income from discontinued operations, net of income taxes |
1,980 | 4,898 | (2,918 | ) | N/M |
Interest Expense Interest expense decreased $8.1 million, or 9.1%, in fiscal 2014 compared to fiscal 2013. The decrease is primarily a result of the reversal of $7.4 million in interest expense related to the Greek litigation proceedings and the reversal of $0.2 million in interest expense related to the Silver Land legal proceedings during fiscal 2014.
Fiscal 2013 Compared to Fiscal 2012
Revenues and operating expenses for the fiscal years 2013 and 2012 are as follows:
|
Fiscal Year Ended |
|
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in thousands)
|
April 28,
2013 |
April 29,
2012 |
Variance |
Percentage
Variance |
|||||||||
Revenues: |
|||||||||||||
Casino |
$ | 967,142 | $ | 955,897 | $ | 11,245 | 1.2 | % | |||||
Rooms |
31,851 | 32,438 | (587 | ) | -1.8 | % | |||||||
Food, beverage, pari-mutuel and other |
128,319 | 122,983 | 5,336 | 4.3 | % | ||||||||
Insurance recoveries |
| 9,266 | (9,266 | ) | N/M | ||||||||
| | | | | | | | | | | | | |
Gross revenues |
1,127,312 | 1,120,584 | 6,728 | 0.6 | % | ||||||||
Less promotional allowances |
(203,907 | ) | (187,640 | ) | (16,267 | ) | -8.7 | % | |||||
| | | | | | | | | | | | | |
Net revenues |
923,405 | 932,944 | (9,539 | ) | -1.0 | % | |||||||
Operating expenses: |
|
|
|
|
|||||||||
Casino |
150,075 | 147,205 | 2,870 | 1.9 | % | ||||||||
Gaming taxes |
241,038 | 237,135 | 3,903 | 1.6 | % | ||||||||
Rooms |
6,654 | 6,990 | (336 | ) | -4.8 | % | |||||||
Food, beverage, pari-mutuel and other |
41,289 | 40,028 | 1,261 | 3.2 | % | ||||||||
Marine and facilities |
54,509 | 55,319 | (810 | ) | -1.5 | % | |||||||
Marketing and administrative |
226,397 | 224,885 | 1,512 | 0.7 | % | ||||||||
Corporate and development |
33,953 | 40,248 | (6,295 | ) | -15.6 | % | |||||||
Valuation charges and expense recoveries |
50,100 | 30,549 | 19,551 | N/M | |||||||||
Preopening |
5,765 | 615 | 5,150 | N/M | |||||||||
Depreciation and amortization |
71,164 | 73,848 | (2,684 | ) | -3.6 | % | |||||||
| | | | | | | | | | | | | |
Total operating expenses |
$ | 880,944 | $ | 856,822 | 24,122 | 2.8 | % | ||||||
| | | | | | | | | | | | | |
35
Casino Casino revenues increased $11.2 million, or 1.2%, in fiscal 2013 compared to fiscal 2012. Excluding casino revenues of $35.3 million at our Cape Girardeau property, casino revenues decreased $24.1 million, or 2.6%, due in part to the extra week in fiscal 2012 compared to fiscal 2013.
The majority of our casino revenues are derived from slot machines (representing approximately 90.0% and 89.4% of our casino revenues in fiscal years 2013 and 2012, respectively) and, to a lesser extent, table games, which is highly depended upon the volume and spending limits of customers at our properties.
Key performance indicators related to casino revenue are slot handle and table game drop (volume indicators) and "win" or "hold" percentage. Slot handle is the gross amount wagered for the period cited. The win or hold percentage is the net amount of gaming wins and losses, with liabilities recognized for accruals related to the anticipated payout of progressive jackpots. Our slot hold percentages have been extremely consistent over the past several years. Given the stability in our slot hold percentages, we have not experienced significant impacts to earnings from fluctuations in slot hold.
Table game win is the amount of drop that is retained and recorded as casino gaming revenue, with liabilities recognized for funds deposited by customers before gaming play occurs, for unredeemed gaming chips, and for accruals related to the anticipated payout of progressive jackpots. As we are focused on regional gaming markets, our table hold percentages are fairly stable as the majority of these markets do not regularly experience high-end play which can lead to volatility in win percentages. Therefore, changes in table game win percentages do not typically have a material impact to our earnings.
Our typical property slot hold percentage is in the range of 6% to 10% of slot handle, and our typical table game win percentage is in the range of 15% to 25% of table game drop.
Casino operating expenses increased $2.9 million, or 1.9% for fiscal 2013 compared to fiscal 2012. Excluding casino operating expenses of $5.7 million at our Cape Girardeau property, casino operating expenses decreased $2.8 million, or 1.9%.
Gaming Taxes State and local gaming taxes increased $3.9 million, or 1.6%, for fiscal 2013 compared to fiscal 2012. Excluding gaming taxes of $10.2 million at our Cape Girardeau property, gaming taxes decreased $6.3 million, or 2.7%, commensurate with casino revenues.
Rooms Rooms revenue decreased $0.6 million, or 1.8%, in fiscal 2013 compared to fiscal 2012, primarily a result of construction disruption at our Lake Charles and Black Hawk properties during hotel renovations in fiscal 2013.
Food, Beverage, Pari-Mutuel and Other Food, beverage, pari-mutuel and other revenues increased $5.3 million, or 4.3%, in fiscal 2013 compared to fiscal 2012, which included $4.8 million of food, beverage and other revenues at our Cape Girardeau property.
Food, Beverage, Pari-Mutuel and Other operating expenses increased $1.3 million, or 3.2%, in fiscal 2013 compared to fiscal 2012. Excluding food, beverage and other expenses of $1.9 million at our Cape Girardeau property, food, beverage, pari-mutuel and other expenses decreased $0.6 million, or 1.6%.
Promotional Allowances Promotional allowances increased $16.3 million, or 8.7%, in fiscal 2013 compared to fiscal 2012. Excluding promotional allowances of $7.3 million at our Cape Girardeau property, promotional allowances increased $9.0 million, or 4.5%.
Marine and Facilities Marine and facilities expenses decreased $0.8 million, or 1.5%, for fiscal 2013 compared to fiscal 2012. Excluding marine and facilities expenses of $1.8 million at our Cape
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Girardeau property, marine and facilities expenses decreased $2.6 million, or 4.9%, primarily reflecting cost savings from operating one vessel in Lake Charles.
Marketing and Administrative Marketing and administrative expenses increased $1.5 million, or 0.7%, for fiscal 2013 compared to fiscal 2012. Excluding marketing and administrative expenses of $8.8 million at our Cape Girardeau property, marketing and administrative expenses decreased $7.3 million, or 3.3%, reflecting reductions at our Lake Charles, Black Hawk and Kansas City properties.
Corporate and Development During fiscal 2013, our corporate and development expenses were $34.0 million compared to $40.2 million for fiscal 2012. The decrease is primarily a result of decreases in incentive compensation of $3.9 million, stock-based compensation expense of $2.5 million, and insurance costs of $1.3 million, offset by refinancing costs of $1.5 million.
Depreciation and Amortization Depreciation and amortization expense for fiscal 2013 compared to fiscal 2012 decreased $2.7 million, primarily due to certain assets becoming fully depreciated, offset by Cape Girardeau depreciation of $5.6 million.
Other Income (Expense), Income Taxes and Discontinued Operations
Interest expense, interest income, derivative income, income tax provision and loss from discontinued operations, net of income taxes for the fiscal years 2013 and 2012 are as follows:
|
Fiscal Year Ended |
|
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in thousands)
|
April 28,
2013 |
April 29,
2012 |
Variance |
Percentage
Variance |
|||||||||
Interest expense |
$ | (89,446 | ) | $ | (87,884 | ) | $ | (1,562 | ) | 1.8 | % | ||
Interest income |
502 | 819 | (317 | ) | -38.7 | % | |||||||
Derivative income |
748 | 439 | 309 | 70.4 | % | ||||||||
Income tax provision |
(6,732 | ) | (15,119 | ) | 8,387 | -55.5 | % | ||||||
Loss from discontinued operations, net of income taxes |
4,898 | (104,130 | ) | 109,028 | N/M |
Interest Expense Interest expense increased $1.6 million, or 1.8%, in fiscal 2013 compared to fiscal 2012. The increase is primarily a result of the write-off of deferred financing costs during the year of $3.3 million, offset by capitalized interest of $2.6 million related to construction projects during fiscal 2013.
Liquidity and Capital Resources
Cash Flows from Operating Activities During fiscal 2014, we generated $86.8 million in cash flows from operating activities compared to generating $116.0 million during fiscal 2013. The year over year decrease in cash flows from operating activities is the result of business volumes and working capital changes. Additionally, the cash flows from operating activities for fiscal 2013 includes the collection of $7.5 million of insurance receivables related to flooding during fiscal 2012.
Cash Flows used in Investing Activities During fiscal 2014 we generated $6.1 million from investing activities compared to using $123.4 million during fiscal 2013. Significant investing activities during fiscal 2014 included net proceeds from the sale of assets of $49.9 which is primarily attributable to the sale of our casino in Davenport. These inflows were offset by $38.1 million of capital expenditures as well as an additional $7.5 million toward a Nemacolin table gaming license.
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Significant investing activities during fiscal 2013 included capital expenditures of $153.2 million, including $79.0 million relating to Cape Girardeau and $28.7 million relating to Nemacolin, offset by $33.2 million in net proceeds from the sale of our casino in Biloxi, Mississippi.
Cash Flows used in Financing Activities During fiscal 2014, our financing activities primarily consisted of utilizing $91.5 million of cash to reduce borrowings under our Credit Facility.
During fiscal 2013, we completed $700 million in issuances of new indebtedness. The net proceeds from these offerings, along with borrowings under our credit facility, were used to retire $357.3 million in subordinated notes and to repay and cancel $490.0 million in term loans under our credit facility. To complete these financing transactions, we incurred and capitalized $21.5 million in deferred financing costs.
These financing transactions extended our major debt maturities to April 2018 and beyond. Prior to the completion of these transactions, our credit facility matured in fiscal 2016 and $357.3 million of senior subordinated notes matured in fiscal 2014. In addition, we converted the variable interest rate term loan borrowings under our credit facility to fixed interest rate senior notes. As of April 27, 2014, 93.9% of our indebtedness is at fixed rates compared to 57.1% at April 29, 2012.
Availability of Cash and Additional Capital At April 27, 2014, we had cash and cash equivalents of $69.8 million and marketable securities of $27.3 million. As of April 27, 2014, we had $64.7 million in outstanding revolving credit borrowings under our senior secured credit facility and our net line of credit availability was approximately $184 million, as limited by our maximum consolidated total leverage ratio covenant.
Capital Expenditures and Development Activities As part of our business development activities, historically 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.
In June 2013, we completed the construction of Lady Luck Nemacolin, a new casino at the Nemacolin Woodlands Resort in Western Pennsylvania and our casino opened July 1, 2013 at a total cost of $55.1 million.
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 five 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. In fiscal 2015, we expect to make several improvements to our properties as well as ongoing maintenance capital totaling approximately $47 million to $50 million. The timing, completion and amount of
38
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.
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:
Based upon management's discussion of the development and selection of these critical accounting estimates with the Audit Committee of our Board of Directors, we believe the following accounting estimates involve a higher degree of judgment and complexity.
Goodwill and Other Intangible Assets At April 27, 2014, we had goodwill and other intangible assets of $163.9 million, representing 12.7% of total assets. In accordance with ASC Topic 350, IntangiblesGoodwill and Other, if necessary, we perform an annual impairment test for goodwill and indefinite-lived intangible assets as of the first day of the fourth fiscal quarter of each year, or on an interim basis if indicators of impairment exist. For properties with goodwill and/or other intangible assets with indefinite lives, this test requires the comparison of the fair value of each reporting unit to carrying value.
We must make various assumptions and estimates in performing our impairment testing. The fair value determination includes estimates of future cash flows that are based on reasonable and supportable assumptions which represent our best estimates of the cash flows expected to result from the use of the assets including their eventual disposition and by a market approach based upon valuation multiples for similar companies. Changes in estimates, increases in our cost of capital, reductions in transaction multiples, operating and capital expenditure assumptions or application of alternative assumptions and definitions, could produce significantly different results. Future cash flow estimates are, by their nature, subjective and actual results may differ materially from our estimates. If our ongoing estimates of future cash flows are not met, we may have to record additional impairment charges in future accounting periods. Our estimates of cash flows are based on the current regulatory,
39
social and economic climates, recent operating information and budgets, assumptions regarding the impact of new competitors and current operating plans of the various properties where we conduct operations. These estimates could be negatively impacted by changes in federal, state or local regulations, economic downturns, internal operating decisions, or other events affecting various forms of travel and access to our properties.
In conjunction with our fiscal 2014 annual impairment testing, we recorded goodwill impairment charges of $133.8 million. The charges consist of $60.0 million at our Bettendorf property, $24.2 million at our Lake Charles property, $36.0 million at our Lula property, $8.6 million at our Natchez property, and $5.0 million at our Vicksburg property. These impairment charges were a result of deteriorating operating performance and the impact of new and forthcoming competition. We noted that our other reporting units with goodwill and/or other long-lived intangibles had fair values which exceeded their carrying values by at least 10%. Three of our reporting units with current fiscal year impairment charges still have goodwill totaling $39.5 million. These reporting units could be subject to future impairment charges to the extent their future casino revenues deteriorate, discount rates or transaction multiples change significantly or we do not achieve our cash flow projections.
Property and Equipment At April 27, 2014, we had property and equipment, net of accumulated depreciation of $955.6 million, representing 74.1% of our total assets. We capitalize the cost of property and equipment. Maintenance and repairs that neither materially add to the value of the property or equipment nor appreciably prolong its life are charged to expense as incurred. We depreciate property and equipment on a straight-line basis over their estimated useful lives. The estimated useful lives are based on the nature of the assets as well as our current operating strategy. Future events such as property expansions, new competition, changes in technology and new regulations could result in a change in the manner in which we are using certain assets requiring a change in the estimated useful lives of such assets.
Impairment of Long-lived Assets We evaluate long-lived assets for impairment in accordance with the guidance in the Impairment or Disposal of Long Lived Assets subsection of ASC Topic 360, Property, Plant and Equipment ("ASC Topic 360"). For a long-lived asset to be held and used, we review the asset for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. In assessing the recoverability of the carrying value of such property, equipment and other long-lived assets, we make assumptions regarding future cash flows and residual values. If these estimates or the related assumptions are not achieved or change in the future, we may be required to record an impairment loss for these assets. In evaluating impairment of long-lived assets for newly opened operations, estimates of future cash flows and residual values may require some period of actual results to provide the basis for an opinion of future cash flows and residual values used in the determination of an impairment loss for these assets. For assets held for disposal, we recognize the asset at the lower of carrying value or fair market value, less cost of disposal based upon appraisals, discounted cash flows or other methods as appropriate. An impairment loss would be recognized as a non-cash component of operating income.
During fiscal 2014, we recorded impairment charges related to our Nemacolin and Natchez properties of $26.4 million and $1.9 million, respectively. As a result of operating performance and projected future operating results, it was determined that the value of our long-lived assets were impaired. The impairment charge consisted of $12.2 million recorded to write-off our Nemacolin gaming licenses and $16.1 million to reduce the carrying value of our fixed assets to their estimated fair value. During fiscal 2012, following our agreement to sell our Biloxi property, we recognized an impairment loss of $112.6 million in discontinued operations related to the assets held for sale. We also recognized during fiscal 2012 an impairment charge of $16.1 million related to the sale of certain long-lived assets at our Lake Charles property.
40
Self-Insurance Liabilities We are self-funded up to a maximum amount per claim for our employee-related health care benefits program, workers' compensation and general liabilities. Claims in excess of this maximum are fully insured through a stop-loss insurance policy. We accrue a discounted estimate for workers' compensation and general liabilities based on claims filed and estimates of claims incurred but not reported. We rely on independent consultants to assist in the determination of estimated accruals. While the ultimate cost of claims incurred depends on future developments, such as increases in health care costs, in our opinion, recorded reserves are adequate to cover future claims payments. Based upon our current accrued insurance liabilities, a 1% change in our discount factor would cause a $0.7 million change in our accrued self-insurance liability.
Income Tax Assets and Liabilities We account for income taxes in accordance with the guidance in ASC Topic 740, Income Taxes ("ASC Topic 740"). We are subject to income taxes in the United States and in several states in which we operate. We recognize a current tax asset or liability for the estimated taxes refundable or payable based upon application of the enacted tax rates to taxable income in the current year. Additionally, we are required to recognize a deferred tax liability or asset for the estimated future tax effects attributable to temporary differences. Temporary differences occur when differences arise between: (a) the amount of taxable income and pretax financial income for a year and (b) the tax basis of assets or liabilities and their reported amounts in financial statements. Deferred tax assets recognized must be reduced by a valuation allowance for any tax benefits that, in our judgment and based upon available evidence, may not be realizable. At April 27, 2014 we have reduced our deferred tax assets by a valuation allowance of $57.9 million.
We assess our tax positions using a two-step process. A tax position is recognized if it meets a "more likely than not" threshold, and is measured at the largest amount of benefit that has a greater than 50 percent likelihood of being realized. Uncertain tax positions must be reviewed at each balance sheet date. Liabilities recorded as a result of this analysis must generally be recorded separately from any current or deferred income tax accounts, and are classified as current or long-term in the balance sheet accounts accrued liabilities-other or other long-term liabilities, respectively, based on the time until expected payment. We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense.
Stock Based Compensation We apply the guidance of ASC Topic 718, CompensationStock Compensation ("ASC Topic 718") in accounting for stock compensation. Generally, we are required to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. During fiscal 2013, we granted restricted stock units ("RSUs") containing market performance conditions which will determine the amount of shares to vest, if any. The fair value of these RSUs is determined utilizing a lattice pricing model which considers a range of assumptions including volatility and risk-free interest rates. The estimate of the fair value of the stock options was calculated using the Black-Scholes-Merton option-pricing model. This model requires the use of various assumptions, including the historical volatility of our stock price, the risk free interest rate, estimated expected life of the grants, the estimated dividend yield and estimated rate of forfeitures. Stock based compensation expense is included in the expense category corresponding to the employees' regular compensation in the accompanying consolidated statements of operations.
Contingencies We are involved in various legal proceedings and have identified certain loss contingencies. We record liabilities related to these contingencies when it is determined that a loss is probable and reasonably estimable in accordance with the guidance of ASC Topic 450, Contingencies ("ASC Topic 450"). These assessments are based on our knowledge and experience as well as the advice of legal counsel regarding current and past events. Any such estimates are also subject to future events, court rulings, negotiations between the parties and other uncertainties. If an actual loss differs from our estimate, or the actual outcome of any of the legal proceedings differs from expectations, future operating results could be impacted.
41
Contractual Obligations and Commercial Commitments
The following table provides information as of the end of fiscal 2014, about our contractual obligations and commercial commitments. The table presents contractual obligations by due dates and related contractual commitments by expiration dates (in millions).
|
Payments Due by Period | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Contractual Obligations
|
Total |
Less Than
1 Year |
1 - 3 Years | 4 - 5 Years | After 5 Years | |||||||||||
Long-Term Debt |
$ | 1,067.8 | $ | 0.2 | $ | 0.3 | $ | 364.9 | $ | 702.4 | ||||||
Estimated interest payments on long-term debt(1) |
462.6 | 77.8 | 156.7 | 153.0 | 75.1 | |||||||||||
Operating Leases |
209.9 | 11.3 | 22.2 | 21.6 | 154.8 | |||||||||||
Long-Term Obligations and Other(2) |
24.3 | 19.2 | 4.0 | 0.5 | 0.6 | |||||||||||
Other Long-Term Obligations |
19.3 | 1.7 | 3.6 | 2.5 | 11.5 | |||||||||||
Total Contractual Cash Obligations |
$ | 1,783.9 | $ | 110.2 | $ | 186.8 | $ | 542.5 | $ | 944.4 |
Recently Issued Accounting Standards
In April 2014, the FASB issued Update No. 2014-08, "Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity," which changes the definition of a discontinued operation to include only those disposals of components of an entity that represent a strategic shift that has, or will have, a major effect on an entity's operations and financial results. The amendment is effective prospectively for disposals that occur within annual periods beginning on or after December 15, 2014, and interim periods within those annual periods. Early adoption is permitted for disposals that have not been reported in financial statements previously issued. As this accounting standard is prospective, we will apply the provisions to our future financial statements as applicable.
In May 2014, the FASB issued Update No. 2014-09, "Revenue from Contracts with Customers," which converges the FASB's and the International Accounting Standards Board's current standards on revenue recognition. The standard provides companies with a single model to use in accounting for revenue arising from contracts with customers and supersedes current revenue guidance. The standard is effective for annual and interim periods beginning after December 15, 2016. Early adoption is not permitted. The standard permits companies to either apply the adoption to all periods presented, or apply the requirements in the year of adoption through a cumulative adjustment. We are currently evaluating the impact of adopting this accounting standard update on our consolidated financial statements and disclosures.
ITEM 7A. 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, foreign currency exchange rates, commodity prices and equity prices. Our primary exposure to market risk is interest rate risk associated with our senior secured credit facility.
The following table provides information at April 27, 2014 about our financial instruments that are sensitive to changes in interest rates. The table presents principal cash flows and related weighted average interest rates by expected maturity dates.
42
Interest Rate Sensitivity
Principal (Notional) Amount by Expected Maturity
Fiscal year
(dollars in millions) |
2015 | 2016 | 2017 | 2018 | 2019 | Thereafter | Total |
Fair Value
4/27/2014 |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Liabilities |
|||||||||||||||||||||||||
Long-term debt, including current portion |
|||||||||||||||||||||||||
Fixed rate |
$ | 0.2 | $ | 0.2 | $ | 0.1 | $ | 0.1 | $ | 300.1 | $ | 702.4 | $ | 1,003.1 | $ | 1,047.0 | |||||||||
Average interest rate |
7.51 | % | 7.52 | % | 7.52 | % | 7.52 | % | 7.24 | % | 7.38 | % | |||||||||||||
Variable rate |
$ | | $ | | $ | | $ | 64.7 | $ | | $ | | $ | 64.7 | $ | 63.1 | |||||||||
Average interest rate(1) |
3.64 | % | 4.10 | % | 5.01 | % | 5.67 | % | 0.00 | % | 0.00 | % |
As of April 27, 2014, our senior secured credit facility consisted of variable rate debt based on LIBOR. The following table depicts the estimated impact on our annual interest expense for the relative changes in interest rate based upon current debt levels:
Increase to
variable rate |
Increase/(decrease)
(in millions) |
||||
---|---|---|---|---|---|
1 | % | $ | 0.6 | ||
2 | % | 1.3 | |||
3 | % | 1.9 | |||
4 | % | 2.6 | |||
5 | % | 3.3 |
43
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements are included in this report:
44
Report of Independent Registered Public Accounting Firm
The
Board of Directors and Stockholders
Isle of Capri Casinos, Inc.
We have audited Isle of Capri Casinos, Inc.'s internal control over financial reporting as of April 27, 2014, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) (the COSO criteria). Isle of Capri Casinos, Inc.'s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Isle of Capri Casinos, Inc. maintained, in all material respects, effective internal control over financial reporting as of April 27, 2014, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Isle of Capri Casinos, Inc. as of April 27, 2014 and April 28, 2013, and the related consolidated statements of operations, comprehensive income (loss), stockholders' equity, and cash flows for the fiscal years ended April 27, 2014, April 28, 2013, and April 27, 2012, and our report dated June 23, 2014, expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
St. Louis,
Missouri
June 23, 2014
45
Report of Independent Registered Public Accounting Firm
The
Board of Directors and Stockholders
Isle of Capri Casinos, Inc.
We have audited the accompanying consolidated balance sheets of Isle of Capri Casinos, Inc. (the Company) as of April 27, 2014 and April 28, 2013, and the related consolidated statements of operations, comprehensive income (loss), stockholders' equity, and cash flows for the fiscal years ended April 27, 2014, April 28, 2013, and April 29, 2012. Our audits also included the financial statement schedule listed in the Index at Item 15(a). 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 audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Isle of Capri Casinos, Inc. at April 27, 2014 and April 28, 2013, and the consolidated results of its operations and its cash flows for the years ended April 27, 2014, April 28, 2013, and April 29, 2012, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Isle of Capri Casinos, Inc.'s internal control over financial reporting as of April 27, 2014, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework), and our report dated June 23, 2014, expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
St. Louis,
Missouri
June 23, 2014
46
ISLE OF CAPRI CASINOS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
See accompanying notes to consolidated financial statements.
47
ISLE OF CAPRI CASINOS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
|
Fiscal Year Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
April 27,
2014 |
April 28,
2013 |
April 29,
2012 |
|||||||
Revenues: |
||||||||||
Casino |
$ | 1,004,255 | $ | 967,142 | $ | 955,897 | ||||
Rooms |
32,449 | 31,851 | 32,438 | |||||||
Food, beverage, pari-mutuel and other |
135,305 | 128,319 | 122,983 | |||||||
Insurance recoveries |
| | 9,266 | |||||||
| | | | | | | | | | |
Gross revenues |
1,172,009 | 1,127,312 | 1,120,584 | |||||||
Less promotional allowances |
(217,409 | ) | (203,907 | ) | (187,640 | ) | ||||
| | | | | | | | | | |
Net revenues |
954,600 | 923,405 | 932,944 | |||||||
Operating expenses: |
||||||||||
Casino |
158,019 | 150,075 | 147,205 | |||||||
Gaming taxes |
254,685 | 241,038 | 237,135 | |||||||
Rooms |
7,023 | 6,654 | 6,990 | |||||||
Food, beverage, pari-mutuel and other |
44,116 | 41,289 | 40,028 | |||||||
Marine and facilities |
57,624 | 54,509 | 55,319 | |||||||
Marketing and administrative |
234,690 | 226,397 | 224,885 | |||||||
Corporate and development |
28,455 | 33,953 | 40,248 | |||||||
Valuation charges |
162,100 | 50,100 | 30,549 | |||||||
Litigation accrual reversals |
(9,330 | ) | | | ||||||
Preopening expense |
3,898 | 5,765 | 615 | |||||||
Depreciation and amortization |
80,885 | 71,164 | 73,848 | |||||||
| | | | | | | | | | |
Total operating expenses |
1,022,165 | 880,944 | 856,822 | |||||||
| | | | | | | | | | |
Operating income (loss) |
(67,565 | ) | 42,461 | 76,122 | ||||||
Interest expense |
(81,342 | ) | (89,446 | ) | (87,884 | ) | ||||
Interest income |
349 | 502 | 819 | |||||||
Derivative income |
398 | 748 | 439 | |||||||
| | | | | | | | | | |
Loss from continuing operations before income taxes |
(148,160 | ) | (45,735 | ) | (10,504 | ) | ||||
Income tax benefit (provision) |
18,494 | (6,732 | ) | (15,119 | ) | |||||
| | | | | | | | | | |
Loss from continuing operations |
(129,666 | ) | (52,467 | ) | (25,623 | ) | ||||
Income (loss) from discontinued operations, including loss on sale, net of income tax (provision) benefit of ($1,226), $0 and $2,026 for the fiscal years ended 2014, 2013 and 2012, respectively |
1,980 | 4,898 | (104,130 | ) | ||||||
| | | | | | | | | | |
Net loss attributable to common stockholders |
$ | (127,686 | ) | $ | (47,569 | ) | $ | (129,753 | ) | |
| | | | | | | | | | |
| | | | | | | | | | |
Earnings (loss) per common share attributable to common stockholdersbasic and diluted: |
||||||||||
Loss from continuing operations |
$ | (3.26 | ) | $ | (1.33 | ) | $ | (0.66 | ) | |
Income (loss) from discontinued operations including gain on sale, net of income taxes |
0.05 | 0.12 | (2.69 | ) | ||||||
| | | | | | | | | | |
Net loss attributable to common stockholders |
$ | (3.21 | ) | $ | (1.21 | ) | $ | (3.35 | ) | |
| | | | | | | | | | |
| | | | | | | | | | |
Weighted average basic shares |
39,731,766 | 39,340,325 | 38,753,098 | |||||||
Weighted average diluted shares |
39,731,766 | 39,340,325 | 38,753,098 |
See accompanying notes to consolidated financial statements.
48
ISLE OF CAPRI CASINOS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
|
Fiscal Year Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
April 27,
2014 |
April 28,
2013 |
April 29,
2012 |
|||||||
Net loss |
$ | (127,686 | ) | $ | (47,569 | ) | $ | (129,753 | ) | |
Other comprehensive income, net of tax: |
||||||||||
Deferred hedge adjustment, net of income tax provision of $149, $357 and $789 for 2014, 2013 and 2012, respectively |
247 | 594 | 1,312 | |||||||
Unrealized gain on interest rate cap contracts, net of income tax provision of $8 and $41 for 2013 and 2012, respectively |
| 14 | 68 | |||||||
| | | | | | | | | | |
Other comprehensive income |
247 | 608 | 1,380 | |||||||
| | | | | | | | | | |
Comprehensive loss |
$ | (127,439 | ) | $ | (46,961 | ) | $ | (128,373 | ) | |
| | | | | | | | | | |
| | | | | | | | | | |
See accompanying notes to the consolidated financial statements.
49
ISLE OF CAPRI CASINOS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
|
Shares of
Common Stock |
Common
Stock |
Additional
Paid-in Capital |
Retained
Earnings (Deficit) |
Accum. Other
Comprehensive Income (Loss) |
Treasury
Stock |
Total
Stockholders' Equity |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance, April 24, 2011 |
42,063,569 | 421 | 254,013 | 103,095 | (2,235 | ) | (46,266 | ) | 309,028 | |||||||||||||
Net loss |
| | | (129,753 | ) | | | (129,753 | ) | |||||||||||||
Other comprehensive income, net of tax |
| | | | 1,380 | | 1,380 | |||||||||||||||
Exercise of stock options |
2,000 | | 13 | | | | 13 | |||||||||||||||
Issuance of restricted stock, net of forfeitures |
579 | | (9,123 | ) | | | 9,123 | | ||||||||||||||
Reduction of tax benefit from vested and exercised stock based compensation |
| | (4,758 | ) | | | | (4,758 | ) | |||||||||||||
Stock compensation expense |
| | 7,710 | | | | 7,710 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Balance, April 29, 2012 |
42,066,148 | 421 | 247,855 | (26,658 | ) | (855 | ) | (37,143 | ) | 183,620 | ||||||||||||
Net loss |
| | | (47,569 | ) | | | (47,569 | ) | |||||||||||||
Other comprehensive income, net of tax |
| | | | 608 | | 608 | |||||||||||||||
Exercise of stock options |
| | (536 | ) | | | 1,204 | 668 | ||||||||||||||
Issuance of restricted stock, net of forfeitures |
| | (6,188 | ) | | | 6,188 | | ||||||||||||||
Reduction of tax benefit from vested and exercised stock based compensation |
| | (10 | ) | | | | (10 | ) | |||||||||||||
Stock compensation expense |
| | 5,093 | | | | 5,093 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Balance, April 28, 2013 |
42,066,148 | 421 | 246,214 | (74,227 | ) | (247 | ) | (29,751 | ) | 142,410 | ||||||||||||
Net loss |
| | | (127,686 | ) | | | (127,686 | ) | |||||||||||||
Other comprehensive income, net of tax |
| | | | 247 | | 247 | |||||||||||||||
Issuance of restricted stock, net of forfeitures |
| | (2,808 | ) | | | 2,808 | | ||||||||||||||
Stock compensation expense |
| | 4,413 | | | | 4,413 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Balance, April 27, 2014 |
42,066,148 | $ | 421 | $ | 247,819 | $ | (201,913 | ) | $ | | $ | (26,943 | ) | $ | 19,384 | |||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to consolidated financial statements.
50
ISLE OF CAPRI CASINOS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
Fiscal Year Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
April 27,
2014 |
April 28,
2013 |
April 29,
2012 |
|||||||
Operating activities: |
||||||||||
Net loss |
$ | (127,686 | ) | $ | (47,569 | ) | $ | (129,753 | ) | |
Adjustments to reconcile net loss to net cash |
||||||||||
provided by operating activities: |
||||||||||
Depreciation and amortization |
82,245 | 73,419 | 83,526 | |||||||
Amortization and write-off of deferred financing costs |
4,464 | 7,461 | 6,072 | |||||||
Amortization of debt discount |
242 | 220 | 211 | |||||||
Litigation accrual reversals |
(16,953 | ) | | | ||||||
Valuation charges |
162,100 | 51,600 | 143,113 | |||||||
Deferred income taxes |
(9,913 | ) | 5,728 | 11,176 | ||||||
Stock compensation expense |
4,413 | 5,093 | 7,710 | |||||||
Gain on derivative instruments |
(398 | ) | (748 | ) | (439 | ) | ||||
Loss (gain) on disposal of assets |
(535 | ) | 32 | 95 | ||||||
Changes in operating assets and liabilities: |
||||||||||
Marketable securites |
(1,769 | ) | (578 | ) | (2,769 | ) | ||||
Accounts receivable |
(1,537 | ) | (3,567 | ) | 2,012 | |||||
Income taxes receivable |
4,716 | (2,628 | ) | 1,705 | ||||||
Insurance receivable |
| 7,497 | (7,263 | ) | ||||||
Prepaid expenses and other assets |
4,120 | (109 | ) | 8,468 | ||||||
Accounts payable and accrued liabilities |
(16,760 | ) | 20,191 | (5,805 | ) | |||||
| | | | | | | | | | |
Net cash provided by operating activities |
86,749 | 116,042 | 118,059 | |||||||
| | | | | | | | | | |
Investing activities: |
||||||||||
Purchase of property and equipment |
(38,149 | ) | (153,245 | ) | (75,333 | ) | ||||
Proceeds from asset sales, net |
49,881 | 33,253 | 14,940 | |||||||
Payments towards gaming license |
(7,500 | ) | (5,000 | ) | | |||||
Restricted cash and investments |
1,879 | 1,543 | 344 | |||||||
| | | | | | | | | | |
Net cash provided by (used in) investing activities |
6,111 | (123,449 | ) | (60,049 | ) | |||||
| | | | | | | | | | |
Financing activities: |
||||||||||
Proceeds from long-term debt borrowings |
| 700,000 | | |||||||
Net (repayments) borrowings on line of credit |
(90,200 | ) | 154,900 | (33,000 | ) | |||||
Principal repayments on long-term debt |
(626 | ) | (852,667 | ) | (5,374 | ) | ||||
Payment of deferred financing costs |
(673 | ) | (21,486 | ) | (366 | ) | ||||
Proceeds from exercise of stock options |
| 668 | 13 | |||||||
| | | | | | | | | | |
Net cash used in financing activities |
(91,499 | ) | (18,585 | ) | (38,727 | ) | ||||
| | | | | | | | | | |
Net increase (decrease) in cash and cash equivalents |
1,361 | (25,992 | ) | 19,283 | ||||||
Cash and cash equivalents at beginning of year |
68,469 | 94,461 | 75,178 | |||||||
| | | | | | | | | | |
Cash and cash equivalents at end of year |
$ | 69,830 | $ | 68,469 | $ | 94,461 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
See accompanying notes to consolidated financial statements.
51
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share amounts)
1. Organization
Organization 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. Summary of Significant Accounting Policies
Basis of Presentation The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated. We view each property as an operating segment and all operating segments have been aggregated into one reporting segment.
Discontinued operations include our Davenport, Iowa property sold in February 2014 and our Biloxi, Mississippi property sold in November 2012.
Fiscal Year-End Our fiscal year ends on the last Sunday in April. Periodically, this system necessitates a 53-week year. Fiscal years 2014 and 2013 were 52-week years, which commenced on April 29, 2013 and April 30, 2012, respectively. Fiscal year 2012 was a 53-week year, which commenced on April 25, 2011, with the fourth quarter having 14 weeks. Fiscal 2015 will be a 52-week year.
Reclassifications Certain reclassifications of prior year presentations have been made to conform to the fiscal 2014 presentation.
Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents We consider all highly liquid investments purchased with an original maturity of three months or less as cash equivalents. Cash also includes the minimum operating cash balances required by state regulatory bodies, which totaled $23,139 and $25,256 at April 27, 2014 and April 28, 2013, respectively.
Marketable Securities Marketable securities consist primarily of trading securities held by our captive insurance subsidiary. The trading securities are primarily debt and equity securities that are purchased with the intention to resell in the near term. The trading securities are carried at fair value with changes in fair value recognized in current period income in the accompanying statements of operations.
Inventories Inventories are stated at the lower of weighted average cost or market value.
Property and Equipment Property and equipment are stated at cost or if purchased through a business acquisition, the value determined under purchase accounting. We capitalize the cost of
52
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(amounts in thousands, except share and per share amounts)
2. Summary of Significant Accounting Policies (Continued)
purchased property and equipment and capitalize the cost of improvements to property and equipment that increases the value or extends the useful lives of the assets. Costs of normal repairs and maintenance are charged to expense as incurred.
Depreciation is computed using the straight-line method over the following estimated useful lives of the assets:
|
Years | |
---|---|---|
Slot machines, software and computers |
3 - 5 | |
Furniture, fixtures and equipment |
5 - 10 | |
Leasehold improvements |
Lesser of life of lease or
estimated useful life |
|
Buildings and improvements |
7 - 39.5 |
Certain property currently leased in Bettendorf, Iowa and at our Nemacolin, Pennsylvania casino is accounted for in accordance with Accounting Standards Codification ("ASC") Topic 840, Leases ("ASC 840").
We periodically evaluate the carrying value of long-lived assets to be held and used in accordance with ASC Topic 360, Property, Plant and Equipment ("ASC 360") which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amounts. In assessing the recoverability of the carrying value of such property, equipment and other long-lived assets, we make assumptions regarding future cash flows and residual values. In estimating expected future cash flows, assets are grouped at the lowest level of identifiable cash flows, which is usually the individual property. If the assets are determined to be impaired, a loss is recognized based on the amount by which the carrying amount exceeds the estimated fair market value of the long-lived assets.
Capitalized Interest The interest cost associated with major development and construction projects is capitalized and included in the cost of the project. When no debt is incurred specifically for a project, interest is capitalized on amounts expended on the project using the weighted-average cost of our borrowings. Capitalization of interest ceases when the project is substantially complete or development activity is suspended. Capitalized interest was $185, $2,647, and $1,105 for fiscal years 2014, 2013 and 2012, respectively.
Restricted Cash and Investments We classify cash and investments which are either statutorily or contractually restricted as to withdrawal or usage as restricted cash short-term, included in prepaid expenses and other assets, or restricted cash and investments long-term based on the duration of the underlying restriction. Restricted cash primarily includes amounts related to state tax bonds and other gaming-related bonds, and amounts held in escrow related to leases. Restricted investments relate to trading securities pledged as collateral by our captive insurance company.
Goodwill and Other Intangible Assets Goodwill represents the excess of cost over the net identifiable tangible and intangible assets of acquired businesses and is stated at cost, net of impairments, if any. Other intangible assets include values attributable to acquired gaming licenses,
53
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(amounts in thousands, except share and per share amounts)
2. Summary of Significant Accounting Policies (Continued)
customer lists, and trademarks. ASC Topic 350, IntangiblesGoodwill and Other ("ASC 350") requires these assets be reviewed for impairment at least annually or on an interim basis if indicators of impairment exist. We perform our annual impairment test as of the first day of the fourth fiscal quarter. Goodwill for relevant reporting units is tested for impairment using; 1) a discounted cash flow analysis based on forecasted future results discounted at the weighted average cost of capital and, 2) by using a market approach based upon public trading and recent transaction valuation multiples for similar companies. Intangible assets with indefinite lives not subjects to amortization are reviewed by comparing the fair value of the recoded assets to their carrying amount. We review, at least annually, the continued use of an indefinite useful life. If these intangible assets are determined to have a finite useful life, they are amortized over their estimated remaining useful lives.
Deferred Financing Costs The costs of issuing long-term debt are capitalized and amortized using the effective interest method over the term of the related debt.
Self-Insurance We are self-funded up to a maximum amount per claim for employee-related health care benefits, workers' compensation and general liabilities. Claims in excess of this maximum are fully insured through stop-loss insurance policies. We accrue for workers' compensation and general liabilities on a discounted basis based on claims filed and estimates of claims incurred but not reported. The estimates have been discounted at 1.1% and 0.8% at April 27, 2014 and April 28, 2013, respectively, or a discount of $796 and $593, respectively. We utilize independent consultants to assist management in its determination of estimated insurance liabilities. As of April 27, 2014 and April 28, 2013, we have accrued $16,011 and $17,335, respectively, for employee-related health care and workers' compensation which are included in accrued liabilitiespayroll in the accompanying consolidated balance sheet, and we have accrued $11,774 and $11,273, respectively, for general liability claims which are included in accrued liabilitiesother in the accompanying consolidated balance sheets. While the total cost of claims incurred depends on future developments, in management's opinion, recorded reserves are adequate to cover future claims payments.
Revenue Recognition In accordance with gaming industry practice, we recognize casino revenues as the net win from gaming activities. Casino revenues are net of accruals for anticipated payouts of progressive slot and table game jackpots. Revenues from rooms, food, beverage, entertainment and the gift shop are recognized at the time the related service or sale is performed or realized.
Promotional Allowances The retail value of rooms, food and beverage and other services furnished to guests without charge or at a discount is included in gross revenues and then deducted as promotional allowances to arrive at net revenues included in the accompanying consolidated statements of operations. We also record the redemption of coupons and points for cash as promotional
54
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(amounts in thousands, except share and per share amounts)
2. Summary of Significant Accounting Policies (Continued)
allowances. The estimated cost of providing such complimentary services from continuing operations are included in casino expense in the accompanying consolidated statements of operations as follows:
|
Fiscal Year Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
April 27,
2014 |
April 28,
2013 |
April 29,
2012 |
|||||||
Rooms |
$ | 8,956 | $ | 8,979 | $ | 8,603 | ||||
Food and beverage |
65,287 | 60,557 | 57,250 | |||||||
Other |
519 | 602 | 970 | |||||||
| | | | | | | | | | |
Total cost of complimentary services |
$ | 74,762 | $ | 70,138 | $ | 66,823 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
Players Club Awards We provide patrons with rewards based on the amounts wagered on casino games. A liability has been established based on the estimated value of these outstanding rewards, considering the age of the points and prior redemption history.
Advertising Advertising costs are expensed the first time the related advertisement appears. Total advertising costs from continuing operations were $35,480, $32,668, and $32,045 in fiscal years 2014, 2013 and 2012, respectively.
Operating Leases We recognize rent expense for each lease on the straight line basis, aggregating all future minimum rent payments including any predetermined fixed escalations of the minimum rentals. Our liabilities include the aggregate difference between rent expense recorded on the straight-line basis and amounts paid under the leases.
Development Costs We pursue development opportunities for new gaming facilities in an ongoing effort to expand our business. In accordance with ASC Topic 720, Other Expenses ("ASC 720), costs related to projects in the development stage are recorded as a development expense, except for those costs capitalized in accordance with the guidance of ASC 720. Previously capitalized development costs are expensed when the development is deemed less than probable. Total development costs expensed from continuing operations were recorded in the consolidated statements of operations in corporate and development expenses.
Pre-Opening Costs We expense pre-opening costs as incurred. Pre-opening costs include payroll, outside services, advertising, insurance, utilities, travel and various other expenses related to new operations prior to opening.
Income Taxes We account for income taxes in accordance with ASC Topic 740, Income Taxes ("ASC 740"). ASC 740 requires the recognition of deferred income tax liabilities and deferred income tax assets for the difference between the book basis and tax basis of assets and liabilities. We have recorded valuation allowances related to net operating loss carry forwards and certain temporary differences. Recognizable future tax benefits are subject to a valuation allowance, unless such tax benefits are determined to be more likely than not realizable. We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense.
55
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(amounts in thousands, except share and per share amounts)
2. Summary of Significant Accounting Policies (Continued)
Earnings (Loss) Per Common Share In accordance with the guidance of ASC 260, Earnings Per Share ("ASC 260"), basic earnings (loss) per share ("EPS") is computed by dividing net income (loss) applicable to common stockholders by the weighted average common shares outstanding during the period. Diluted EPS reflects the additional dilution related to all potentially dilutive securities such as restricted stock units and stock options. Any potentially dilutive securities with an exercise price in excess of the average market price of our common stock during the periods presented are not considered when calculating diluted earnings per share calculations as they would be anti-dilutive.
Stock Compensation Our stock based compensation is accounted for in accordance with ASC Topic 718, CompensationStock Compensation ("ASC 718"). Stock compensation cost is measured at the grant date, based on the estimated fair value of the award and is recognized as expense on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards.
Allowance for Doubtful Accounts We reserve for receivables that may not be collected. Methodologies for estimating the allowance for doubtful accounts range from specific reserves to various percentages applied to aged receivables. Historical collection rates are considered, as are customer relationships, in determining specific reserves.
Recently Announced Accounting Standards In April 2014, the FASB issued Update No. 2014-08, "Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity," which changes the definition of a discontinued operation to include only those disposals of components of an entity that represent a strategic shift that has, or will have, a major effect on an entity's operations and financial results. The amendment is effective prospectively for disposals that occur within annual periods beginning on or after December 15, 2014, and interim periods within those annual periods. Early adoption is permitted for disposals that have not been reported in financial statements previously issued. As this accounting standard is prospective, we will apply the provisions to our future financial statements as applicable.
In May 2014, the FASB issued Update No. 2014-09, "Revenue from Contracts with Customers," which converges the FASB's and the International Accounting Standards Board's current standards on revenue recognition. The standard provides companies with a single model to use in accounting for revenue arising from contracts with customers and supersedes current revenue guidance. The standard is effective for annual and interim periods beginning after December 15, 2016. Early adoption is not permitted. The standard permits companies to either apply the adoption to all periods presented, or apply the requirements in the year of adoption through a cumulative adjustment. We are currently evaluating the impact of adopting this accounting standard update on our consolidated financial statements and disclosures.
56
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(amounts in thousands, except share and per share amounts)
3. Discontinued Operations
The results of our discontinued operations are summarized as follows:
|
Discontinued Operatons
Fiscal Year Ended |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
April 27,
2014 |
April 28,
2013 |
April 29,
2012 |
|||||||
Net revenues |
$ | 29,158 | $ | 77,901 | $ | 111,881 | ||||
Valuation charges |
| (1,500 | ) | (112,564 | ) | |||||
Pretax income (loss) from discontinued operations |
3,206 | 4,898 | (106,156 | ) | ||||||
Income tax (provision) benefit from discontinued operations |
(1,226 | ) | | 2,026 | ||||||
Income (loss) from discontinued operations |
1,980 | 4,898 | (104,130 | ) |
Interest expense of $6, $15, and $21 for the fiscal years 2014, 2013, and 2012, respectively, and interest income of $0, $2, and $6 for fiscal years 2014, 2013, and 2012, respectively, has been allocated to discontinued operations and represents interest expense related to third-party debt at the respective entity.
Davenport , Iowa On December 4, 2013, we entered into a definitive asset purchase agreement to sell substantially all of the assets and for the assumption of certain liabilities related to our casino located in Davenport, Iowa, ("Davenport"). We completed the sale on February 3, 2014 for net cash proceeds of $48,727. Including closing costs, we recorded a loss of $459 in discontinued operations. The results of our Davenport casino operations are presented as discontinued operations for all periods presented.
Biloxi, Mississippi In connection with the sale of our Biloxi property in fiscal 2012, we recorded a non-cash pretax valuation charge of $112,564 to reduce the carrying value of Biloxi's net assets held for sale to the expected net realizable value at the time the contract was signed. The income tax benefit of $2,026 recorded in discontinued operations for fiscal 2012 is net of a valuation allowance of $41,029. During fiscal 2013, we recorded a $1,500 charge reflecting a credit against the purchase price to satisfy our obligation to repair the property after Hurricane Isaac, as required by the purchase agreement.
57
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(amounts in thousands, except share and per share amounts)
4. Property and Equipment, Net
Property and equipment, net consists of the following:
|
April 27,
2014 |
April 28,
2013 |
|||||
---|---|---|---|---|---|---|---|
Property and equipment: |
|||||||
Land and land improvements |
$ | 195,478 | $ | 197,896 | |||
Leasehold improvements |
144,667 | 145,708 | |||||
Buildings and improvements |
715,976 | 709,133 | |||||
Riverboats and floating pavilions |
102,839 | 124,485 | |||||
Furniture, fixtures and equipment |
523,646 | 535,132 | |||||
Construction in progress |
6,576 | 46,413 | |||||
| | | | | | | |
Total property and equipment |
1,689,182 | 1,758,767 | |||||
Less accumulated depreciation and amortization |
(733,578 | ) | (724,741 | ) | |||
| | | | | | | |
Property and equipment, net |
$ | 955,604 | $ | 1,034,026 | |||
| | | | | | | |
| | | | | | | |
We recorded depreciation expense of $79,700, $70,326, and $70,011 for our continuing operations for the fiscal years ended 2014, 2013, and 2012, respectively.
5. Goodwill and Other Intangible Assets
A roll forward of goodwill is as follows:
Balance, April 29, 2012 |
$ | 330,903 | ||
Impairment charge |
(50,100 | ) | ||
| | | | |
Balance, April 28, 2013 |
280,803 | |||
Davenport sale |
(38,008 | ) | ||
Impairment charge |
(133,825 | ) | ||
| | | | |
Balance, April 27, 2014 |
$ | 108,970 | ||
| | | | |
| | | | |
Goodwill includes accumulated impairment losses of $213,125.
58
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(amounts in thousands, except share and per share amounts)
5. Goodwill and Other Intangible Assets (Continued)
Other intangible assets consist of the following:
|
April 27, 2014 | April 28, 2013 | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Historical
Cost |
Accumulated
Amortization |
Impairment
Charge |
Net
Carrying Amount |
Historical
Cost |
Accumulated
Amortization |
Net
Carrying Amount |
|||||||||||||||
Indefinite-lived assets |
||||||||||||||||||||||
Gaming licenses |
$ | 44,342 | $ | | $ | | $ | 44,342 | $ | 44,342 | $ | | $ | 44,342 | ||||||||
Trademarks |
7,149 | | | 7,149 | 7,149 | | 7,149 | |||||||||||||||
Intangible assetssubject to amortization |
|
|
|
|
|
|
|
|||||||||||||||
Gaming licenses |
12,500 | (347 | ) | (12,153 | ) | | 5,000 | | 5,000 | |||||||||||||
Customer relationships |
6,700 | (3,280 | ) | | 3,420 | 6,700 | (2,443 | ) | 4,257 | |||||||||||||
Customer lists |
15,393 | (15,393 | ) | | | 15,393 | (15,393 | ) | | |||||||||||||
Tradename |
544 | (544 | ) | | | 544 | (544 | ) | | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total |
$ | 86,628 | $ | (19,564 | ) | $ | (12,153 | ) | $ | 54,911 | $ | 79,128 | $ | (18,380 | ) | $ | 60,748 | |||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Our indefinite-lived intangible assets consist primarily of gaming licenses and trademarks for which it is reasonably assured that we will continue to renew indefinitely. Our other finite-lived intangible assets consist of customer relationships amortized over 8 years, customer lists amortized over 2 to 4 years, and a trade name amortized over 1.5 years. The weighted average remaining life of our customer relationships is approximately 4.1 years.
We recorded amortization expense of $1,185, $838, and $3,837 for our intangible assets subject to amortization related to our continuing operations for the fiscal years ended 2014, 2013, and 2012, respectively.
Future amortization expense of our amortizable intangible assets is as follows:
2015 |
$ | 838 | ||
2016 |
838 | |||
2017 |
838 | |||
2018 |
838 | |||
2019 |
70 | |||
| | | | |
Total |
$ | 3,422 | ||
| | | | |
| | | | |
59
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(amounts in thousands, except share and per share amounts)
6. Valuation Charges
We recorded valuation charges as follows:
|
Fiscal Year Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
April 27,
2014 |
April 28,
2013 |
April 29,
2012 |
|||||||
Goodwill impairment charges: |
||||||||||
Bettendorf |
$ | 60,000 | $ | | $ | | ||||
Lake Charles |
24,238 | | | |||||||
Lula |
36,000 | 34,100 | 14,400 | |||||||
Natchez |
8,587 | 16,000 | | |||||||
Vicksburg |
5,000 | | | |||||||
| | | | | | | | | | |
Total goodwill impairment charges |
133,825 | 50,100 | 14,400 | |||||||
Property and equipment, net impairment charges |
16,122 | | | |||||||
Intangible asset impairment charge |
12,153 | | 16,149 | |||||||
| | | | | | | | | | |
Total impairment valuation charges |
$ | 162,100 | $ | 50,100 | $ | 30,549 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
Goodwill Our goodwill impairment charges are a result of expected decreases in future cash flows as a result of unfavorable economic conditions and the impact of changes by our competitors. Competitive changes include a proposed land-based casino replacing an existing riverboat casino competing with our Bettendorf property, new casinos competing with our Lake Charles and Natchez properties and expansions by casinos competing with our Lula property.
The fair values used in our determination of the goodwill impairment charges considered discounted cash flows and market based multiple valuation methods.
The remaining goodwill balance by property as of April 27, 2014 is as follows:
|
April 27,
2014 |
|||
---|---|---|---|---|
Bettendorf |
$ | 5,713 | ||
Black Hawk |
30,533 | |||
Boonville |
2,599 | |||
Kansas City |
7,182 | |||
Lula |
6,581 | |||
Marquette |
29,195 | |||
Vicksburg |
27,167 | |||
| | | | |
Total |
$ | 108,970 | ||
| | | | |
| | | | |
Other Long-Lived Assets During fiscal 2014, we also recorded impairment charges related to property and equipment, net of $14,200 and $1,922 at our Nemacolin and Natchez properties, respectively and $12,153 related to intangible assets at our Nemacolin property as a result of our impairment testing under ASC 360. The fair values used in our determination of the impairment charges considered the cost replacement value of the assets adjusted for an associated risk premium or
60
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(amounts in thousands, except share and per share amounts)
6. Valuation Charges (Continued)
economic obsolescence, and a market based valuation multiple method. The impairments were the result of our current and future expected cash flows at our properties.
During fiscal 2012, in connection with the sale of Grand Palais Riverboat, Inc., including its gaming license, a riverboat gaming vessel and certain other equipment, we recorded a valuation charge of $16,149 to reduce the carrying value of the net assets sold to the net proceeds realized upon sale during fiscal year 2012. This gaming license and riverboat were used as a portion of our Lake Charles, Louisiana gaming operations. We continue to operate a casino riverboat operation in Lake Charles.
7. Long-Term Debt
Long-term debt consists of the following:
|
April 27,
2014 |
April 28,
2013 |
|||||
---|---|---|---|---|---|---|---|
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 |
$ | 64,700 | $ | 154,900 | |||
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 |
298,488 | 298,246 | |||||
8.875% Senior Subordinated Notes, interest payable semi-annually June 15 and December 15 |
350,000 | 350,000 | |||||
Other |
3,113 | 3,738 | |||||
| | | | | | | |
|
1,066,301 | 1,156,884 | |||||
Less current maturities |
230 | 415 | |||||
| | | | | | | |
Long-term debt |
$ | 1,066,071 | $ | 1,156,469 | |||
| | | | | | | |
| | | | | | | |
Senior Secured Credit Facility, as amended and restated 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 all of our restricted subsidiaries.
Our net revolving line of credit availability at April 27, 2014, as limited by our maximum consolidated total leverage ratio, was approximately $184,000, after consideration of $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 fiscal years 2014 and 2013 were 3.95% and 5.21%, respectively.
The Credit Facility includes a number of affirmative and negative covenants, as well as 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 April 27, 2014.
61
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(amounts in thousands, except share and per share amounts)
7. Long-Term Debt (Continued)
We amended our Credit Facility to modify our maximum allowed leverage and minimum interest coverage ratio covenants in fiscal 2014. This was accounted for in accordance with ASC 470-50, Debt Modifications and Extinguishments and we capitalized new deferred financing costs of $673 during fiscal year 2014.
In connection with a previous amendment, we incurred non-cash charges, included in the statement of operations for the year ended April 28, 2013, of $2,236 related to the write-off of certain unamortized deferred financing costs. In addition, we capitalized new deferred financing costs of $6,288 in fiscal 2013.
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 loan borrowings under our Credit Facility. The 5.875% Senior Notes are guaranteed, on a joint and several basis, by substantially all of our significant subsidiaries and certain other subsidiaries as described in Note 18. All of the guarantor subsidiaries are wholly owned by us. 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 June 15, 2016, with call premiums as defined in the indenture governing the 5.875% Senior Notes. We received net proceeds of $343,400 for this issuance after deducting underwriting fees. As a result of the issuance, we capitalized deferred financing costs of $7,060 in fiscal 2013.
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 net proceeds from the issuance were used to repay term loan borrowings under our Credit Facility. The 7.75% Senior Notes are guaranteed, on a joint and several basis, by substantially all of our significant subsidiaries and certain other subsidiaries as described in Note 18. All of the guarantor subsidiaries are wholly owned by us. 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 On August 7, 2012, we completed the issuance and sale of $350,000 of 8.875% Senior Subordinated Notes due 2020 ("8.875% Senior Subordinated Notes"). We received net proceeds of $343,000 for this issuance after deducting underwriting fees. We repurchased and retired $357,275, of previously issued Senior Subordinated Notes with the proceeds from the issuance of the 8.875% Senior Subordinated Notes and cash on hand. As a result of the issuance and retirement, we incurred expenses related to the write-off of deferred financing costs, issuance costs and other related fees of approximately $2,500, including $1,000 in non-cash charges, and capitalized deferred financing costs of $8,137 in fiscal 2013.
The 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 18. All of the guarantor subsidiaries are wholly owned by us. The 8.875% Senior Subordinated Notes are general unsecured obligations and rank junior to all of our senior indebtedness. The 8.875% Senior
62
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(amounts in thousands, except share and per share amounts)
7. Long-Term Debt (Continued)
Subordinated Notes are 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 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.
Future Principal Payments of Long-term Debt The aggregate principal payments due on long-term debt as of April 27, 2014 over the next five years and thereafter, are as follows:
Fiscal Years Ending: |
||||
2015 |
$ | 230 | ||
2016 |
169 | |||
2017 |
112 | |||
2018 |
64,816 | |||
2019 |
300,094 | |||
Thereafter |
702,392 | |||
| | | | |
|
1,067,813 | |||
Unamortized debt discount |
(1,512 | ) | ||
| | | | |
|
$ | 1,066,301 | ||
| | | | |
| | | | |
8. Other Long-Term Obligations
Nemacolin Woodlands Resort We entered into agreements with Nemacolin Woodland Resort ("Resort") in Pennsylvania to construct and manage a casino, which we opened in July 2013. Under terms of the agreements, the Resort has provided land, land improvements and a building for the casino property. The Company was deemed, for accounting purposes only, to be the owner of these assets provided by the Resort during the construction and casino operating periods due to our continuing involvement. Therefore, we are accounting for the transaction using the direct financing method. As of April 27, 2014, in accordance with ASC 840, we have recorded property, plant and equipment, net of accumulated depreciation of $6,011, and a liability of $6,100 in other long-term obligations related to the agreement.
Quad-Cities Waterfront Convention Center We entered into agreements with the City of Bettendorf, Iowa under which the City constructed a convention center which opened in January 2009, adjacent to our hotel. We lease, manage, and provide financial and operating support for the convention center. The Company was deemed, for accounting purposes only, to be the owner of the convention center during the construction period. Upon completion of the convention center we were precluded from accounting for the transaction as a sale and leaseback due to our continuing involvement. Therefore, we are accounting for the transaction using the direct financing method. As of April 27, 2014, we have recorded in other long-term obligations $16,291 related to our liability under
63
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(amounts in thousands, except share and per share amounts)
8. Other Long-Term Obligations (Continued)
ASC 840 related to the convention center. Under the terms of our agreements for the convention center, we have guaranteed certain obligations related to $13,815 of notes issued by the City of Bettendorf, Iowa for the convention center.
The other long term obligations will be reflected in our consolidated balance sheets until completion of the applicable management or lease agreement terms, at which time the related fixed assets, net of accumulated depreciation, will be removed from our consolidated financial statements and the net remaining obligation over the net carrying value of the associated fixed asset will be recognized as a gain (loss) on sale of the facility.
Future minimum payments due under other long-term obligations, including interest, as of April 27, 2014 are as follows:
Fiscal Years Ending: |
||||
2015 |
1,729 | |||
2016 |
1,767 | |||
2017 |
1,767 | |||
2018 |
1,433 | |||
2019 |
1,100 | |||
Thereafter |
11,470 | |||
| | | | |
Total minimum payments |
$ | 19,266 | ||
| | | | |
| | | | |
9. Income Taxes
Income tax benefit (provision) from continuing operations consists of the following:
|
Fiscal Year Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
April 27,
2014 |
April 28,
2013 |
April 29,
2012 |
|||||||
Current: |
||||||||||
Federal |
$ | | $ | | $ | 415 | ||||
State |
7,352 | (1,005 | ) | (2,333 | ) | |||||
| | | | | | | | | | |
|
7,352 | (1,005 | ) | (1,918 | ) | |||||
Deferred: |
||||||||||
Federal |
10,116 | (3,888 | ) | (15,628 | ) | |||||
State |
1,026 | (1,839 | ) | 2,427 | ||||||
| | | | | | | | | | |
|
11,142 | (5,727 | ) | (13,201 | ) | |||||
| | | | | | | | | | |
Income tax benefit (provision) |
$ | 18,494 | $ | (6,732 | ) | $ | (15,119 | ) | ||
| | | | | | | | | | |
| | | | | | | | | | |
64
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(amounts in thousands, except share and per share amounts)
9. Income Taxes (Continued)
A reconciliation of income taxes from continuing operations at the statutory corporate federal tax rate of 35% to the income tax benefit (provision) reported in the accompanying consolidated statements of operations is as follows:
|
Fiscal Year Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
April 27,
2014 |
April 28,
2013 |
April 29,
2012 |
|||||||
Statutory tax benefit |
$ | 51,856 | $ | 16,007 | $ | 3,676 | ||||
Effects of : |
||||||||||
State taxes |
10,396 | (459 | ) | 854 | ||||||
Reduction of unrecognized tax benefits |
5,010 | | 270 | |||||||
Other |
||||||||||
Lobbying |
(607 | ) | (752 | ) | (594 | ) | ||||
Employment tax credits |
1,112 | 665 | 1,082 | |||||||
Fines & Penalties |
(26 | ) | (204 | ) | (55 | ) | ||||
Meals & Entertainment |
(62 | ) | (72 | ) | (64 | ) | ||||
Various permanent differences |
(16 | ) | (52 | ) | 42 | |||||
Interest |
(446 | ) | (161 | ) | 163 | |||||
Bahamas stock loss |
| | 727 | |||||||
Debt basis differential |
| | (4,529 | ) | ||||||
Goodwill impairment |
(45,088 | ) | (17,535 | ) | (5,040 | ) | ||||
Valuation allowance |
(2,668 | ) | (3,985 | ) | (11,623 | ) | ||||
Other |
(967 | ) | (184 | ) | (28 | ) | ||||
| | | | | | | | | | |
Income tax benefit (provision) |
$ | 18,494 | $ | (6,732 | ) | $ | (15,119 | ) | ||
| | | | | | | | | | |
| | | | | | | | | | |
65
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(amounts in thousands, except share and per share amounts)
9. Income Taxes (Continued)
Significant components of our domestic net deferred income tax asset (liability) are as follows:
|
Fiscal Year Ended | ||||||
---|---|---|---|---|---|---|---|
|
April 27,
2014 |
April 28,
2013 |
|||||
Deferred tax liabilities: |
|||||||
Property and equipment |
$ | (46,867 | ) | $ | (50,835 | ) | |
Goodwill and intangibles |
(16,810 | ) | (33,622 | ) | |||
Gain on early extinguishment of debt |
(19,673 | ) | (22,131 | ) | |||
Other |
64 | (1,161 | ) | ||||
| | | | | | | |
Total deferred tax liabilities |
(83,286 | ) | (107,749 | ) | |||
| | | | | | | |
Deferred tax assets: |
|||||||
Net operating losses |
72,878 | 80,370 | |||||
Employment tax credits |
22,043 | 20,318 | |||||
Accrued expenses |
8,415 | 6,871 | |||||
Alternative minimum tax credit |
1,338 | 1,338 | |||||
Other |
4,748 | 13,750 | |||||
| | | | | | | |
Total deferred tax assets |
109,422 | 122,647 | |||||
Valuation allowance on deferred tax assets |
(57,900 | ) | (56,429 | ) | |||
| | | | | | | |
Net deferred tax asset |
51,522 | 66,218 | |||||
| | | | | | | |
Net deferred tax liability |
$ | (31,764 | ) | $ | (41,531 | ) | |
| | | | | | | |
| | | | | | | |
Deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years. Such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating loss and tax credit carryforwards.
At April 27, 2014, we have federal net operating loss carryforwards of $127,206 for income tax purposes, with expiration dates from fiscal 2025 to 2034. Approximately $41,473 of these net operating losses are attributable to our Colorado subsidiaries and can only be used to offset income earned by these entities. The remaining federal net operating losses are subject to limitations under the internal revenue code and underlying treasury regulations, which may limit the amount ultimately utilized. We also have various state income tax net operating loss carryforwards totaling $371,640 with expiration dates from fiscal 2017 to 2034. This includes both consolidated and separate company net operating loss carryforwards. We also have a federal general business and alternative minimum tax credit carryforwards of $23,381 for income tax purposes, with expiration dates from fiscal 2022 to 2034. Deferred income taxes related to NOL carryforwards have been classified as noncurrent to reflect the expected utilization of the carryforwards.
We evaluated the realizability of our deferred tax assets and performed an analysis of all available evidence, both positive and negative, consistent with the provisions of ASC 740. Our current three-year cumulative loss is a significant piece of negative evidence. While it is primarily the result goodwill and intangible asset impairments as well as the fiscal 2013 sale of the Isle Casino Hotel in Biloxi,
66
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(amounts in thousands, except share and per share amounts)
9. Income Taxes (Continued)
Mississippi assets, and not an indication of continuing operations, we are required to give objective historical evidence significantly more weight than subjective evidence, such as forecasts of future income. Based on these provisions, we concluded that a valuation allowance should be booked against our deferred tax assets as of April 27, 2014 and April 28, 2013.
A reconciliation of the beginning and ending amounts of valuation allowance is as follows:
|
Federal | State | Total | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Balance, April 29, 2012 |
$ | 46,805 | $ | 7,410 | $ | 54,215 | ||||
(Benefit) Provision |
(4,114 | ) | 6,328 | 2,214 | ||||||
| | | | | | | | | | |
Balance, April 28, 2013 |
$ | 42,691 | $ | 13,738 | $ | 56,429 | ||||
(Benefit) Provision |
(10,968 | ) | 12,439 | 1,471 | ||||||
| | | | | | | | | | |
Balance, April 27, 2014 |
$ | 31,723 | $ | 26,177 | $ | 57,900 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
We allocated the income tax provision and valuation allowance between continuing operations and discontinued operations consistent with the provisions of ASC 740.
This allowance does not preclude us from utilizing the deferred tax assets in the future, nor does it reflect a change in our long-term outlook. If or when recognized, the tax benefits relating to any reversal of the valuation allowance on deferred tax assets as of April 27, 2014 will be accounted for as a reduction of income tax expense. During fiscal 2014, an increase to the valuation allowance of $1,471 was recorded as an income tax expense, which was net of a reduction of $11,993 related to the February 3, 2014 sale of Davenport and its goodwill that had previously been treated as indefinite lived.
We account for unrecognized tax benefits in accordance with ASC 740. A reconciliation of the beginning and ending amounts of unrecognized tax benefits as follows:
|
April 27,
2014 |
April 28,
2013 |
April 29,
2012 |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Beginning balance |
$ | 4,072 | $ | 4,072 | $ | 11,491 | ||||
Impact of favorable court ruling |
(4,072 | ) | | | ||||||
Lapse of statute of limitations |
| | (7,419 | ) | ||||||
| | | | | | | | | | |
Ending balance |
$ | | $ | 4,072 | $ | 4,072 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
On February 13, 2014, the Supreme Court of Mississippi ruled in our favor with regard to positions taken on Mississippi income tax returns for fiscal years ending April 2002 through April 2008. As a result, we recognized a benefit of $4,072 related to principle and $4,025 related to interest. As of April 27, 2014, we do not have any uncertain tax positions.
We recorded interest expense of $390, $466 and $310 in fiscal 2014, 2013 and 2012, respectively, prior to the favorable ruling. We accrued no penalties during fiscal 2014, 2013 or 2012. As of April 28, 2013, we had recognized a liability of $3,635 for interest and no amount for penalties.
67
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(amounts in thousands, except share and per share amounts)
9. Income Taxes (Continued)
In fiscal 2012, the Federal statute of limitation for fiscal 2006 and fiscal 2007 lapsed. Consequently, we recognized approximately $6,704 and $475 of federal and state tax benefits, respectively, and interest income of $404 related to prior periods during the fiscal year ended April 29, 2012.
As of April 27, 2014, we were subject to U.S. federal income tax examination for tax years 2008 - 2012. We are also subject to state and local income tax examinations for various tax years in jurisdictions where we operate.
10. Flooding
Flooding along the Mississippi River caused five of our properties to close for portions of fiscal 2012. A summary of the closure dates and subsequent reopening is as follows:
|
Closing Date | Reopening Date |
Number Days
Closed |
|||||
---|---|---|---|---|---|---|---|---|
Caruthersville, Missouri |
May 1, 2011 | May 13, 2011 | 12 | |||||
Lula, Mississippi |
May 3, 2011 | June 3, 2011 | 31 | |||||
|
September 2, 2011 | 91 | (A) | |||||
Natchez, Mississippi |
May 7, 2011 | June 17, 2011 | 41 | |||||
Vicksburg, Mississippi |
May 11, 2011 | May 27, 2011 | 16 |
During fiscal 2012 we settled all of our insurance claims with our insurance carrier and recognized $9,266 of revenue, included in insurance recoveries in the consolidated statement of operations, as reimbursement under our business interruption insurance policies. We collected the insurance receivable recorded at April 29, 2012 during fiscal 2013.
68
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(amounts in thousands, except share and per share amounts)
11. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings (loss) per share (in thousands, except share and per share amounts):
|
Fiscal Year Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
April 27,
2014 |
April 28,
2013 |
April 29,
2012 |
|||||||
Numerator: |
||||||||||
Income (loss) applicable to common shares: |
||||||||||
Loss from continuing operations attributable to common stockholders |
$ | (129,666 | ) | $ | (52,467 | ) | $ | (25,623 | ) | |
Income (loss) from discontinued operations |
1,980 | 4,898 | (104,130 | ) | ||||||
| | | | | | | | | | |
Net loss attributable to the common stockholders |
$ | (127,686 | ) | $ | (47,569 | ) | $ | (129,753 | ) | |
| | | | | | | | | | |
| | | | | | | | | | |
Denominator: |
||||||||||
Denominator for basic income (loss) per shareweighted average shares |
39,731,766 | 39,340,325 | 38,753,098 | |||||||
Effect of dilutive securities |
| | | |||||||
| | | | | | | | | | |
Denominator for diluted income (loss) per shareadjusted weighted average shares and assumed conversions |
39,731,766 | 39,340,325 | 38,753,098 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
Basic and Diluted income (loss) per share attributable to common stockholders |
||||||||||
Loss from continuing operations |
$ | (3.26 | ) | $ | (1.33 | ) | $ | (0.66 | ) | |
Income (loss) from discontinued operations |
0.05 | 0.12 | (2.69 | ) | ||||||
| | | | | | | | | | |
Net loss attributable to common stockholders |
$ | (3.21 | ) | $ | (1.21 | ) | $ | (3.35 | ) | |
| | | | | | | | | | |
| | | | | | | | | | |
Our basic earnings (loss) per share are computed by dividing net income (loss) by the weighted average number of shares outstanding for the period. Due to the loss from continuing operations, stock options representing 52,501 shares, which are potentially dilutive and 753,860 stock options, which were anti-dilutive, were excluded from the calculation of common shares for diluted earnings per share for fiscal 2014. Restricted stock units representing 48,362 shares, which were potentially dilutive, and 1,254,413 restricted stock units whose minimum market performance conditions had not been achieved, were also excluded from the calculation of diluted earnings per share for fiscal 2014.
Due to the loss from continuing operations, stock options representing 25,367 shares, which are potentially dilutive and 904,660 stock options, which were anti-dilutive, were excluded from the calculation of common shares for diluted earnings per share for fiscal 2013. As the minimum market performance conditions related to our restricted stock units had not been achieved as of April 28, 2013, 1,714,286 units were excluded from the calculation of diluted earnings per share for fiscal 2013.
Due to the loss from continuing operations, stock options representing 21,845 shares, which are potentially dilutive and 1,161,710 stock options, which were anti-dilutive, were excluded from the calculation of common shares for diluted earnings per share for fiscal 2012.
69
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(amounts in thousands, except share and per share amounts)
12. Stock Based Compensation
Under our amended and restated 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 1,714,286 units. Any RSUs earned will vest 50% on April 26, 2015 and 50% on April 26, 2016. The fair value of these RSUs is determined utilizing a lattice pricing model which considers a range of assumptions including volatility and risk-free interest rates. The aggregate compensation cost related to these RSUs is $4,932 to be recognized over the vesting periods. As of April 27, 2014, our unrecognized compensation cost for these RSUs is $2,241.
Restricted Stock We have issued shares of restricted common stock to employees and directors under our Long Term Incentive Plan. Restricted stock awarded to employees primarily vests one-third on each of the first three anniversaries of the grant date and for directors' vests one-half on the grant date and one-half on the first anniversary of the grant date. Our aggregate estimate of forfeitures for restricted stock for employees and directors is 8% and 0%, respectively.
Stock Options We have issued incentive stock options and nonqualified stock options which have a maximum term of 10 years and are, generally, exercisable in yearly installments of 20% commencing one year after the date of grant. There were no stock options granted in fiscal 2014, 2013 or 2012.
Stock Compensation Expense Total stock compensation expense from continuing operations in the accompanying consolidated statements of operations was $4,399, $5,058, and $7,616 for the fiscal years 2014, 2013, and 2012, respectively. We recognize compensation expense for these awards on a straight-line basis over the requisite service period for each separately vesting portion of the award.
70
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(amounts in thousands, except share and per share amounts)
12. Stock Based Compensation (Continued)
Activity Under Our Share Based Plans A summary of restricted stock and option activity for fiscal 2014 is presented below:
|
Restricted
Stock |
Weighted
Average Grant-Date Fair Value |
Options |
Weighted
Average Exercise Price |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Outstanding at April 28, 2013 |
804,698 | $ | 7.32 | 1,014,660 | $ | 10.71 | |||||||
Granted |
276,243 | 7.69 | | | |||||||||
Exercised |
| | | | |||||||||
Vested |
(484,171 | ) | 7.56 | | | ||||||||
Forfeited and expired |
(43,086 | ) | 6.88 | (56,800 | ) | 20.68 | |||||||
| | | | | | | | | | | | | |
Outstanding at April 27, 2014 |
553,684 | $ | 7.33 | 957,860 | $ | 10.12 | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
As of April 27, 2014: |
|||||||||||||
Outstanding exercisable options |
n/a | 937,860 | $ | 10.09 | |||||||||
Weighted average remaining contractual term |
0.7 years | 3.8 years | |||||||||||
Aggregate intrinsic value: |
|||||||||||||
Outstanding exercisable |
n/a | $239 | |||||||||||
Outstanding |
$3,762 | $239 | |||||||||||
Nonvested: |
|||||||||||||
Unrecognized compensation cost |
$1,205 | $12 | |||||||||||
Weighted average remaining vesting period |
0.7 years | 0.4 years |
Additional information relating to our share based plans is as follows:
|
April 27,
2014 |
April 28,
2013 |
April 29,
2012 |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Restricted Stock: |
||||||||||
Fair value of restricted stock vested during the year |
$ | 3,660 | $ | 5,272 | $ | 7,317 | ||||
Stock Options: |
||||||||||
Intrinsic value of stock options exercised |
| 41 | 5 | |||||||
Proceeds from stock option exercises |
| 668 | 13 |
We have 645,914, shares available for future issuance under our equity compensation plan as of April 27, 2014, assuming the maximum number of RSUs is awarded upon vesting. Upon issuance of restricted shares or exercise of stock options, shares may be issued from available treasury or common shares.
Tax effect of Stock Based Compensation Upon the exercise of stock options, vested restricted stock and vested RSUs, the tax benefit (provision) related to stock compensation, subject to certain limitations, is recognized as an addition to or deduction from additional paid-in capital. During fiscal year 2014, there was no impact to additional paid-in capital related to the vesting of restricted stock. At April 27, 2014, we have deferred $1,433 of tax benefits associated with stock exercises and restricted stock vesting due to our net operating loss position.
71
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(amounts in thousands, except share and per share amounts)
12. Stock Based Compensation (Continued)
Stock Repurchase Our Board of Directors has approved a stock repurchase program, as amended, allowing up to 6,000,000 shares of our common stock to be repurchased. As of April 27, 2014, we have repurchased 4,895,792 shares of common stock, and retired 553,800 shares of common stock under this stock repurchase program. No shares were repurchased in fiscal years 2014, 2013 or 2012.
13. Deferred Compensation Plans
2005 Deferred Compensation Plan Our 2005 Deferred Compensation Plan (the "Plan"), as amended and restated, is an unfunded deferred compensation arrangement for the benefit of key management officers and employees of the Company and its subsidiaries. The terms of the Plan include the ability of the participants to defer, on a pre-tax basis, salary, and bonus payments in excess of the amount permitted under IRS Code Section 401(k). The terms also allow for a discretionary annual matching contribution by the Company. The Plan allows for the aggregation and investment of deferred amounts in notional investment alternatives, including units representing shares of our common stock. The liability related to the Plan as of April 27, 2014 and April 28, 2013 was $3,765 and $3,545, respectively, and is included in long-term other accrued liabilities in the consolidated balance sheets. Expense from continuing operations for our contributions related to the Plan was $79, $100, and $69 in fiscal years 2014, 2013 and 2012, respectively.
14. Supplemental Disclosure of Cash Flow Information
For the fiscal years 2014, 2013 and 2012, we made cash payments for interest, net of capitalized interest, of $85,472, $76,235, and $83,004, respectively. We received income tax refunds, net of payments, of $4,354 in fiscal 2014 and made income tax payments, net of refunds, of $3,293 and $1,547 for fiscal 2013 and 2012, respectively.
For fiscal 2014, 2013, and 2012, the change in accrued purchase of property and equipment in accounts payable decreased by $7,149 and $2,667 and increased by $8,315, respectively.
For fiscal 2014, 2013 and 2012, we capitalized interest of $185, $2,647, and $1,105, respectively, primarily related to construction of our casinos at the Nemacolin Woodland Resort in Pennsylvania and in Cape Girardeau, Missouri.
15. Employee Benefit Plan
401(k) Plan We have a 401(k) plan covering substantially all of our employees who have completed 90 days of service. Expense for our contributions for continuing operations related to the 401(k) plan was $1,450, $1,443, and $1,430 in fiscal years 2014, 2013, and 2012, respectively. Our contribution is based on a percentage of employee contributions and may include an additional discretionary amount.
72
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(amounts in thousands, except share and per share amounts)
16. Interest Rate Derivatives
We previously had interest rate derivative agreements in order to manage market risk on variable rate loans outstanding. We had an interest rate swap agreement with an aggregate notional value of $50,000 that matured in September 2013. The fair value of our interest rate swap contract as of April 28, 2013 was $794 and was included in accrued interest. We had entered into interest rate cap contracts, which matured in fiscal 2013.
During fiscal 2010, our interest rate swaps no longer met the criteria for hedge effectiveness and changes in the fair value of the swaps since that date were recorded in derivative income in the consolidated statements of operations. The cumulative loss recorded in other comprehensive income (loss), through the date of ineffectiveness, was amortized into derivative expense over the remaining term of the individual interest rate swap agreements.
The loss recorded in accumulated other comprehensive income (loss) of our interest rate swap contracts is recorded net of deferred income tax benefits of $149 and $357, as of April 27, 2014 and April 28, 2013, respectively.
Derivative income related to the change in fair value of interest rate swap contracts is as follows:
|
Fiscal Year Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
April 27,
2014 |
April 28,
2013 |
April 29,
2012 |
|||||||
Derivative income |
$ | 794 | $ | 1,699 | $ | 2,540 |
Derivative income realized associated with the amortization of cumulative loss recorded in other comprehensive income (loss) for the interest rate swaps through the date of ineffectiveness is as follows:
|
Fiscal Year Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
April 27,
2014 |
April 28,
2013 |
April 29,
2012 |
|||||||
Accumulated OCI amortization |
$ | 247 | $ | 594 | $ | 1,312 | ||||
Change in deferred taxes |
149 | 357 | 789 | |||||||
Derivative income (expense) |
(396 | ) | (951 | ) | (2,101 | ) |
The interest rate cap agreements met the criteria for hedge accounting for cash flow hedges. As a result, there was no impact on our consolidated statement of operations from changes in fair value of the interest rate cap agreements. The change in unrealized gain (loss) on our derivatives qualifying for hedge accounting was $14 and $68 for fiscal year 2013 and 2012, respectively.
73
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(amounts in thousands, except share and per share amounts)
17. Fair Value
ASC Topic 820, Fair Value Measurements and Disclosures ("ASC 820") establishes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques (market approach, income approach, and cost approach). The levels of hierarchy are described below:
Level 1: Inputs such as quoted prices in active markets for identical assets or liabilities that can be accessed at the measurement date.
Level 2: Inputs other than quoted prices included within Level1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets in active markets, quoted prices from identical or similar assets in inactive markets and observable inputs such as interest rate and yield curves.
Level 3: Inputs that are not observable in the market and that include management's judgments about assumptions market participants would use.
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 April 27, 2014 and April 28, 2013:
|
April 27, 2014 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Level 1 | Level 2 | Level 3 | Total | |||||||||
Assets: |
|||||||||||||
Marketable securities |
$ | 10,074 | $ | 17,215 | $ | | $ | 27,289 | |||||
Restricted cash and investments |
4,459 | 5,348 | | 9,807 |
|
April 28, 2013 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Level 1 | Level 2 | Level 3 | Total | |||||||||
Assets: |
|||||||||||||
Marketable securities |
$ | 9,433 | $ | 16,087 | $ | | $ | 25,520 | |||||
Restricted cash and investments |
3,978 | 7,438 | | 11,416 | |||||||||
Liabilities: |
|||||||||||||
Interest rate derivatives |
| | 794 | 794 |
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.
74
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(amounts in thousands, except share and per share amounts)
17. Fair Value (Continued)
Interest rate derivatives The fair value of our interest swap contract, which matured in September 2013, was previously recorded using Level 3 inputs at the present value of all expected future cash flows based on the LIBOR-based yield curve as of the date of the valuation. The following table presents the changes in Level 3 assets measured at fair value on a recurring basis for the fiscal years ended April 27, 2014 and April 28, 2013:
|
Fiscal Year Ended | ||||||
---|---|---|---|---|---|---|---|
Interest Rate Derivatives
|
April 27,
2014 |
April 28,
2013 |
|||||
Beginning balance |
$ | (794 | ) | $ | (2,493 | ) | |
Realized gain |
794 | 1,699 | |||||
| | | | | | | |
Ending balance |
$ | | $ | (794 | ) | ||
| | | | | | | |
| | | | | | | |
Items Measured at Fair Value on a Non-recurring Basis The following table sets forth the assets measured at fair value on a non-recurring basis, by input level, in the consolidated balance sheets at April 27, 2014 as well as the valuation charge recorded during fiscal 2014 associated with each category:
|
April 27,
2014 |
|
|||||
---|---|---|---|---|---|---|---|
|
Valuation
Charge |
||||||
|
Level 3 | ||||||
Assets: |
|||||||
Property and equipment, net |
$ | 33,796 | $ | 16,122 | |||
Goodwill |
39,461 | 133,825 | |||||
Intangible assetssubject to amortization |
| 12,153 |
Property and equipment, net The cost and market approaches were used to value the property and equipment, net using various Level 2 and Level 3 inputs. Inputs included were future cash flow estimates, contractual transaction multiples, estimated replacement cost values, estimates for economic obsolescence and estimated risk premiums.
Goodwill The market and income approaches were used to value the goodwill utilizing various Level 2 and Level 3 inputs. Inputs included were discounted cash flow estimates, weighted average cost of capital, and transaction and valuation multiples for similar companies.
Other intangible assets, net The market approach was used to value other intangible assets, net utilizing various Level 2 and Level 3 inputs. Inputs included were future cash flow estimates and contractual transaction multiples.
See Note 2 "Summary of Significant Accounting Policies" for further discussion over the model and inputs utilized.
75
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(amounts in thousands, except share and per share amounts)
17. Fair Value (Continued)
Other Financial Instruments The estimated carrying amounts and fair values of our other financial instruments are as follows:
|
April 27, 2014 | April 28, 2013 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Carrying
Amount |
Fair
Value |
Carrying
Amount |
Fair
Value |
|||||||||
Financial liabilities: |
|||||||||||||
Revolving line of credit |
$ | 64,700 | $ | 63,083 | $ | 154,900 | $ | 151,802 | |||||
5.875% Senior notes |
350,000 | 351,750 | 350,000 | 357,000 | |||||||||
7.75% Senior notes |
298,488 | 318,576 | 298,246 | 327,698 | |||||||||
8.875% Senior subordinated notes |
350,000 | 373,520 | 350,000 | 381,535 | |||||||||
Other long-term debt |
3,113 | 3,113 | 3,738 | 3,738 | |||||||||
Other long-term obligations |
22,391 | 22,391 | 22,514 | 22,514 |
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.
18. 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.
76
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(amounts in thousands, except share and per share amounts)
18. Consolidating Condensed Financial Information (Continued)
Consolidating condensed balance sheets as of April 27, 2014 and April 28, 2013 are as follows:
|
As of April 27, 2014 | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance Sheet
|
Isle of Capri
Casinos, Inc. (Parent Obligor) |
Guarantor
Subsidiaries |
Non-Guarantor
Subsidiaries |
Consolidating
and Eliminating Entries |
Isle of Capri
Casinos, Inc. Consolidated |
|||||||||||
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 | |||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
|
As of April 28, 2013 | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance Sheet
|
Isle of Capri
Casinos, Inc. (Parent Obligor) |
Guarantor
Subsidiaries |
Non-Guarantor
Subsidiaries |
Consolidating
and Eliminating Entries |
Isle of Capri
Casinos, Inc. Consolidated |
|||||||||||
Current assets |
$ | 19,176 | $ | 84,251 | $ | 28,922 | $ | (49 | ) | $ | 132,300 | |||||
Intercompany receivables |
626,444 | | 11,803 | (638,247 | ) | | ||||||||||
Investments in subsidiaries |
643,257 | | | (643,257 | ) | | ||||||||||
Property and equipment, net |
7,831 | 977,423 | 48,772 | | 1,034,026 | |||||||||||
Other assets |
50,958 | 317,800 | 23,955 | (5,440 | ) | 387,273 | ||||||||||
| | | | | | | | | | | | | | | | |
Total assets |
$ | 1,347,666 | $ | 1,379,474 | $ | 113,452 | $ | (1,286,993 | ) | $ | 1,553,599 | |||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Current liabilities |
$ | 43,139 | $ | 77,340 | $ | 35,368 | $ | (48 | ) | $ | 155,799 | |||||
Intercompany payables |
| 613,248 | 25,000 | (638,248 | ) | | ||||||||||
Long-term debt, less current maturities |
1,155,939 | 210 | 320 | | 1,156,469 | |||||||||||
Other accrued liabilities |
6,178 | 76,401 | 21,782 | (5,440 | ) | 98,921 | ||||||||||
Stockholders' equity |
142,410 | 612,275 | 30,982 | (643,257 | ) | 142,410 | ||||||||||
| | | | | | | | | | | | | | | | |
Total liabilities and stockholders' equity |
$ | 1,347,666 | $ | 1,379,474 | $ | 113,452 | $ | (1,286,993 | ) | $ | 1,553,599 | |||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
77
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(amounts in thousands, except share and per share amounts)
18. Consolidating Condensed Financial Information (Continued)
Consolidating condensed statements of operations for the fiscal years ended April 27, 2014, April 28, 2013, and April 29, 2012 are as follows:
|
For the Fiscal Year Ended April 28, 2014 | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Statement of Operations
|
Isle of Capri
Casinos, Inc. (Parent Obligor) |
Guarantor
Subsidiaries |
Non-Guarantor
Subsidiaries |
Consolidating
and Eliminating Entries |
Isle of Capri
Casinos, Inc. Consolidated |
|||||||||||
Revenues: |
||||||||||||||||
Casino |
$ | | $ | 977,551 | $ | 26,704 | $ | | $ | 1,004,255 | ||||||
Rooms, food, beverage, pari-mutuel and other |
688 | 164,014 | 12,237 | (9,185 | ) | 167,754 | ||||||||||
Management fee revenue |
33,307 | | | (33,307 | ) | | ||||||||||
| | | | | | | | | | | | | | | | |
Gross revenues |
33,995 | 1,141,565 | 38,941 | (42,492 | ) | 1,172,009 | ||||||||||
Less promotional allowances |
| (211,253 | ) | (6,156 | ) | | (217,409 | ) | ||||||||
| | | | | | | | | | | | | | | | |
Net revenues |
33,995 | 930,312 | 32,785 | (42,492 | ) | 954,600 | ||||||||||
Operating expenses: |
|
|
|
|
|
|||||||||||
Casino |
| 152,271 | 5,748 | | 158,019 | |||||||||||
Gaming taxes |
| 244,017 | 10,668 | | 254,685 | |||||||||||
Rooms, food, beverage, pari-mutuel and other |
31,737 | 331,991 | 21,263 | (9,185 | ) | 375,806 | ||||||||||
Valuation charges |
| 135,747 | 26,353 | | 162,100 | |||||||||||
Litigation accrual reversals |
(1,979 | ) | | (7,351 | ) | (9,330 | ) | |||||||||
Management fee expense |
| 32,499 | 808 | (33,307 | ) | | ||||||||||
Depreciation and amortization |
1,709 | 73,733 | 5,443 | | 80,885 | |||||||||||
| | | | | | | | | | | | | | | | |
Total operating expenses |
31,467 | 970,258 | 62,932 | (42,492 | ) | 1,022,165 | ||||||||||
| | | | | | | | | | | | | | | | |
Operating income (loss) |
2,528 | (39,946 | ) | (30,147 | ) | | (67,565 | ) | ||||||||
Interest (expense) income, net |
(45,829 | ) | (39,894 | ) | 4,730 | | (80,993 | ) | ||||||||
Derivative income |
398 | | | | 398 | |||||||||||
Equity in income (loss) of subsidiaries |
(125,290 | ) | | | 125,290 | | ||||||||||
| | | | | | | | | | | | | | | | |
Income (loss) from continuing operations before income taxes |
(168,193 | ) | (79,840 | ) | (25,417 | ) | 125,290 | (148,160 | ) | |||||||
Income tax (provision) benefit |
32,327 | (22,439 | ) | 8,606 | | 18,494 | ||||||||||
| | | | | | | | | | | | | | | | |
Income (loss) from continuining operations |
(135,866 | ) | (102,279 | ) | (16,811 | ) | 125,290 | (129,666 | ) | |||||||
Income of discontinued operations |
1,980 | 916 | | (916 | ) | 1,980 | ||||||||||
| | | | | | | | | | | | | | | | |
Net income (loss) |
$ | (133,886 | ) | $ | (101,363 | ) | $ | (16,811 | ) | $ | 124,374 | $ | (127,686 | ) | ||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
78
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(amounts in thousands, except share and per share amounts)
18. Consolidating Condensed Financial Information (Continued)
|
For the Fiscal Year Ended April 28, 2013 | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Statement of Operations
|
Isle of Capri
Casinos, Inc. (Parent Obligor) |
Guarantor
Subsidiaries |
Non-Guarantor
Subsidiaries |
Consolidating
and Eliminating Entries |
Isle of Capri
Casinos, Inc. Consolidated |
|||||||||||
Revenues: |
||||||||||||||||
Casino |
$ | | $ | 967,142 | $ | | $ | | $ | 967,142 | ||||||
Rooms, food, beverage, pari-mutuel and other |
735 | 159,412 | 8,978 | (8,955 | ) | 160,170 | ||||||||||
Management fee revenue |
32,474 | | | (32,474 | ) | | ||||||||||
| | | | | | | | | | | | | | | | |
Gross revenues |
33,209 | 1,126,554 | 8,978 | (41,429 | ) | 1,127,312 | ||||||||||
Less promotional allowances |
| (203,907 | ) | | | (203,907 | ) | |||||||||
| | | | | | | | | | | | | | | | |
Net revenues |
33,209 | 922,647 | 8,978 | (41,429 | ) | 923,405 | ||||||||||
Operating expenses: |
|
|
|
|
|
|||||||||||
Casino |
| 150,075 | | | 150,075 | |||||||||||
Gaming taxes |
| 241,038 | | | 241,038 | |||||||||||
Rooms, food, beverage, pari-mutuel and other |
37,769 | 332,904 | 6,849 | (8,955 | ) | 368,567 | ||||||||||
Valuation charges |
| 50,100 | | | 50,100 | |||||||||||
Management fee expense |
| 32,474 | | (32,474 | ) | | ||||||||||
Depreciation and amortization |
2,020 | 68,825 | 319 | | 71,164 | |||||||||||
| | | | | | | | | | | | | | | | |
Total operating expenses |
39,789 | 875,416 | 7,168 | (41,429 | ) | 880,944 | ||||||||||
| | | | | | | | | | | | | | | | |
Operating income (loss) |
(6,580 | ) | 47,231 | 1,810 | | 42,461 | ||||||||||
Interest (expense) income, net |
(51,810 | ) | (36,146 | ) | (988 | ) | | (88,944 | ) | |||||||
Derivative income |
748 | | | | 748 | |||||||||||
Equity in income (loss) of subsidiaries |
(14,801 | ) | | | 14,801 | | ||||||||||
| | | | | | | | | | | | | | | | |
Income (loss) from continuing operations before income taxes |
(72,443 | ) | 11,085 | 822 | 14,801 | (45,735 | ) | |||||||||
Income tax (provision) benefit |
19,976 | (26,011 | ) | (697 | ) | (6,732 | ) | |||||||||
| | | | | | | | | | | | | | | | |
Income (loss) from continuining operations |
(52,467 | ) | (14,926 | ) | 125 | 14,801 | (52,467 | ) | ||||||||
Income (loss) of discontinued operations |
4,898 | 2,382 | | (2,382 | ) | 4,898 | ||||||||||
| | | | | | | | | | | | | | | | |
Net income (loss) |
$ | (47,569 | ) | $ | (12,544 | ) | $ | 125 | $ | 12,419 | $ | (47,569 | ) | |||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
79
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(amounts in thousands, except share and per share amounts)
18. Consolidating Condensed Financial Information (Continued)
|
For the Fiscal Year Ended April 29, 2012 | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Statement of Operations
|
Isle of Capri
Casinos, Inc. (Parent Obligor) |
Guarantor
Subsidiaries |
Non-Guarantor
Subsidiaries |
Consolidating
and Eliminating Entries |
Isle of Capri
Casinos, Inc. Consolidated |
|||||||||||
Revenues: |
||||||||||||||||
Casino |
$ | | $ | 955,897 | $ | | $ | | $ | 955,897 | ||||||
Rooms, food, beverage, pari-mutuel and other |
1,088 | 163,244 | 9,645 | (9,290 | ) | 164,687 | ||||||||||
Management fee revenue |
33,074 | | | (33,074 | ) | | ||||||||||
| | | | | | | | | | | | | | | | |
Gross revenues |
34,162 | 1,119,141 | 9,645 | (42,364 | ) | 1,120,584 | ||||||||||
Less promotional allowances |
| (187,640 | ) | | | (187,640 | ) | |||||||||
| | | | | | | | | | | | | | | | |
Net revenues |
34,162 | 931,501 | 9,645 | (42,364 | ) | 932,944 | ||||||||||
Operating expenses: |
|
|
|
|
|
|||||||||||
Casino |
| 147,205 | | | 147,205 | |||||||||||
Gaming taxes |
| 237,135 | | | 237,135 | |||||||||||
Rooms, food, beverage, pari-mutuel and other |
41,502 | 327,837 | 8,036 | (9,290 | ) | 368,085 | ||||||||||
Valuation charges |
| 30,549 | | | 30,549 | |||||||||||
Management fee expense |
| 33,074 | | (33,074 | ) | | ||||||||||
Depreciation and amortization |
1,960 | 71,336 | 552 | | 73,848 | |||||||||||
| | | | | | | | | | | | | | | | |
Total operating expenses |
43,462 | 847,136 | 8,588 | (42,364 | ) | 856,822 | ||||||||||
| | | | | | | | | | | | | | | | |
Operating income (loss) |
(9,300 | ) | 84,365 | 1,057 | | 76,122 | ||||||||||
Interest (expense) income, net |
(28,384 | ) | (58,025 | ) | (656 | ) | | (87,065 | ) | |||||||
Derivative income |
439 | | | | 439 | |||||||||||
Equity in income (loss) of subsidiaries |
47,899 | | | (47,899 | ) | | ||||||||||
| | | | | | | | | | | | | | | | |
Income (loss) from continuing operations before income taxes |
10,654 | 26,340 | 401 | (47,899 | ) | (10,504 | ) | |||||||||
Income tax (provision) benefit |
(36,277 | ) | 21,279 | (121 | ) | | (15,119 | ) | ||||||||
| | | | | | | | | | | | | | | | |
Income (loss) from continuining operations |
(25,623 | ) | 47,619 | 280 | (47,899 | ) | (25,623 | ) | ||||||||
Income (loss) of discontinued operations |
(104,130 | ) | (107,562 | ) | | 107,562 | (104,130 | ) | ||||||||
| | | | | | | | | | | | | | | | |
Net income (loss) |
$ | (129,753 | ) | $ | (59,943 | ) | $ | 280 | $ | 59,663 | $ | (129,753 | ) | |||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
80
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(amounts in thousands, except share and per share amounts)
18. Consolidating Condensed Financial Information (Continued)
Consolidating condensed statements of cash flows for the fiscal years ended April 27, 2014, April 28, 2013, and April 29, 2012 are as follows:
|
For the Fiscal Year Ended April 27, 2014 | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Statement of Cash Flows
|
Isle of Capri
Casinos, Inc. (Parent Obligor) |
Guarantor
Subsidiaries |
Non-Guarantor
Subsidiaries |
Consolidating
and Eliminating Entries |
Isle of Capri
Casinos, Inc. Consolidated |
|||||||||||
Net cash provided by (used in) operating activities |
$ | 5,431 | $ | 88,579 | $ | (7,261 | ) | $ | | $ | 86,749 | |||||
Investing Activities: |
|
|
|
|
|
|||||||||||
Purchases of property and equipment |
(580 | ) | (19,243 | ) | (18,326 | ) | | (38,149 | ) | |||||||
Proceeds from sales of assets, net |
| 48,759 | 1,122 | | 49,881 | |||||||||||
Payments towards gaming license |
| | (7,500 | ) | | (7,500 | ) | |||||||||
Restricted cash and investments |
| | 1,879 | | 1,879 | |||||||||||
Parent company investment in subsidiaries |
85,222 | | | (85,222 | ) | | ||||||||||
| | | | | | | | | | | | | | | | |
Net cash provided by (used in) investing activities |
84,642 | 29,516 | (22,825 | ) | (85,222 | ) | 6,111 | |||||||||
Financing Activities: |
|
|
|
|
|
|||||||||||
Net repayments on line of credit |
(90,200 | ) | | | | (90,200 | ) | |||||||||
Principal payments on debt |
(63 | ) | (410 | ) | (153 | ) | | (626 | ) | |||||||
Payments of deferred financing costs |
(673 | ) | | | | (673 | ) | |||||||||
Net proceeds from (payments to) related parties |
| (121,166 | ) | 35,944 | 85,222 | | ||||||||||
| | | | | | | | | | | | | | | | |
Net cash provided by (used in) financing activities |
(90,936 | ) | (121,576 | ) | 35,791 | 85,222 | (91,499 | ) | ||||||||
Net increase (decrease) in cash and cash equivalents |
(863 |
) |
(3,481 |
) |
5,705 |
|
1,361 |
|||||||||
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 |
$ | 6,051 | $ | 53,787 | $ | 9,992 | | $ | 69,830 | |||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
81
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(amounts in thousands, except share and per share amounts)
18. Consolidating Condensed Financial Information (Continued)
|
For the Fiscal Year Ended April 28, 2013 | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Statement of Cash Flows
|
Isle of Capri
Casinos, Inc. (Parent Obligor) |
Guarantor
Subsidiaries |
Non-Guarantor
Subsidiaries |
Consolidating
and Eliminating Entries |
Isle of Capri
Casinos, Inc. Consolidated |
|||||||||||
Net cash provided by (used in) operating activities |
$ | (48,218 | ) | $ | 165,168 | $ | (908 | ) | $ | | $ | 116,042 | ||||
Investing Activities: |
|
|
|
|
|
|||||||||||
Purchases of property and equipment |
(598 | ) | (128,915 | ) | (23,732 | ) | | (153,245 | ) | |||||||
Proceeds from sales of assets, net |
| 33,253 | | | 33,253 | |||||||||||
Payments towards gaming license |
| | (5,000 | ) | | (5,000 | ) | |||||||||
Restricted cash and investments |
500 | 1,085 | (42 | ) | | 1,543 | ||||||||||
Parent company investment in subsidiaries |
34,072 | | | (34,072 | ) | | ||||||||||
| | | | | | | | | | | | | | | | |
Net cash provided by (used in) investing activities |
33,974 | (94,577 | ) | (28,774 | ) | (34,072 | ) | (123,449 | ) | |||||||
Financing Activities: |
|
|
|
|
|
|||||||||||
Proceeds from the issuance of long-term debt |
700,000 | | | | 700,000 | |||||||||||
Net borrowings on line of credit |
154,900 | | | | 154,900 | |||||||||||
Principal payments on debt |
(852,289 | ) | (237 | ) | (141 | ) | | (852,667 | ) | |||||||
Payments of deferred financing costs |
(21,486 | ) | | | | (21,486 | ) | |||||||||
Proceeds from exercise of stock options |
668 | | | | 668 | |||||||||||
Net proceeds from (payments to) related parties |
| (63,835 | ) | 29,763 | 34,072 | | ||||||||||
| | | | | | | | | | | | | | | | |
Net cash provided by (used in) financing activities |
(18,207 | ) | (64,072 | ) | 29,622 | 34,072 | (18,585 | ) | ||||||||
Net increase (decrease) in cash and cash equivalents |
(32,451 |
) |
6,519 |
(60 |
) |
|
(25,992 |
) |
||||||||
Cash and cash equivalents at beginning of period |
39,365 | 50,749 | 4,347 | | 94,461 | |||||||||||
| | | | | | | | | | | | | | | | |
Cash and cash equivalents at end of the period |
$ | 6,914 | $ | 57,268 | $ | 4,287 | $ | | $ | 68,469 | ||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
82
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(amounts in thousands, except share and per share amounts)
18. Consolidating Condensed Financial Information (Continued)
|
For Fiscal Year Ended April 29, 2012 | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Statement of Cash Flows
|
Isle of Capri
Casinos, Inc. (Parent Obligor) |
Guarantor
Subsidiaries |
Non-Guarantor
Subsidiaries |
Consolidating
and Eliminating Entries |
Isle of Capri
Casinos, Inc. Consolidated |
|||||||||||
Net cash provided by (used in) operating activities |
$ | 12,960 | $ | 99,588 | $ | 5,511 | $ | | $ | 118,059 | ||||||
Investing Activities: |
|
|
|
|
|
|||||||||||
Purchases of property and equipment |
(1,082 | ) | (73,530 | ) | (721 | ) | | (75,333 | ) | |||||||
Proceeds from asset sales, net |
| 14,940 | | | 14,940 | |||||||||||
Restricted cash and investments |
24 | 635 | (315 | ) | | 344 | ||||||||||
Parent company investment in subsidiaries |
61,864 | | | (61,864 | ) | | ||||||||||
| | | | | | | | | | | | | | | | |
Net cash provided by (used in) investing activities |
60,806 | (57,955 | ) | (1,036 | ) | (61,864 | ) | (60,049 | ) | |||||||
Financing Activities: |
|
|
|
|
|
|||||||||||
Net repayments on line of credit |
(33,000 | ) | | | | (33,000 | ) | |||||||||
Principal payments on debt |
(5,000 | ) | (244 | ) | (130 | ) | | (5,374 | ) | |||||||
Payments of deferred financing costs |
(366 | ) | | | | (366 | ) | |||||||||
Proceeds from exercise of stock options |
13 | | | | 13 | |||||||||||
Net proceeds from (payments to) related parties |
| (52,745 | ) | (9,119 | ) | 61,864 | | |||||||||
| | | | | | | | | | | | | | | | |
Net cash provided by (used in) financing activities |
(38,353 | ) | (52,989 | ) | (9,249 | ) | 61,864 | (38,727 | ) | |||||||
Net increase (decrease) in cash and cash equivalents |
35,413 |
(11,356 |
) |
(4,774 |
) |
|
19,283 |
|||||||||
Cash and cash equivalents at beginning of period |
3,952 | 62,105 | 9,121 | | 75,178 | |||||||||||
| | | | | | | | | | | | | | | | |
Cash and cash equivalents at end of the period |
$ | 39,365 | $ | 50,749 | $ | 4,347 | | $ | 94,461 | |||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
83
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(amounts in thousands, except share and per share amounts)
19. Selected Quarterly Financial Information (unaudited)
Our selected quarterly financial information includes new casino operations in Cape Girardeau and Nemacolin on October 30, 2012 and July 1, 2013, respectively, and includes reclassifications for amounts shown in our previously filed reports on Forms 10-Q to reflect the discontinued operations presentation for our Davenport, Iowa property which was classified as discontinued operations during the quarter ended January 26, 2014.
|
July 28,
2013 |
October 27,
2013 |
January 26,
2014 |
April 27,
2014 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net revenues |
$ | 238,013 | $ | 231,621 | $ | 224,190 | $ | 260,776 | |||||
Operating income |
18,097 | 22,611 | 17,947 | (126,220 | ) | ||||||||
Income (loss) from continuing operations |
(5,648 | ) | 6,311 | 9,391 | (139,720 | ) | |||||||
Income (loss) from discontinued operations, net of income taxes |
786 | 1,726 | 1,266 | (1,798 | ) | ||||||||
Net income (loss) |
(4,862 | ) | 8,037 | 10,657 | (141,518 | ) | |||||||
Earnings (loss) per common share basic: |
|||||||||||||
Income (loss) from continuing operations |
$ | (0.14 | ) | $ | 0.16 | $ | 0.24 | $ | (3.51 | ) | |||
Income (loss) from discontinued operations, net of income taxes |
0.02 | 0.04 | 0.03 | (0.04 | ) | ||||||||
| | | | | | | | | | | | | |
Net income (loss) |
$ | (0.12 | ) | $ | 0.20 | $ | 0.27 | $ | (3.55 | ) | |||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Earnings (loss) per common share diluted: |
|||||||||||||
Income (loss) from continuing operations |
$ | (0.14 | ) | $ | 0.16 | $ | 0.24 | $ | (3.51 | ) | |||
Income (loss) from discontinued operations, net of income taxes |
0.02 | 0.04 | 0.03 | (0.04 | ) | ||||||||
| | | | | | | | | | | | | |
Net income (loss) |
$ | (0.12 | ) | $ | 0.20 | $ | 0.27 | $ | (3.55 | ) | |||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Weighted average basic shares |
39,582,928 | 39,686,217 | 39,828,740 | 39,829,177 | |||||||||
Weighted average dilutive shares |
39,582,928 | 39,731,193 | 39,911,715 | 39,829,177 |
84
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(amounts in thousands, except share and per share amounts)
19. Selected Quarterly Financial Information (unaudited) (Continued)
|
Fiscal Quarters Ended | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
July 29,
2012 |
October 28,
2012 |
January 27,
2013 |
April 28,
2013 |
|||||||||
Net revenues |
$ | 225,177 | $ | 212,817 | $ | 228,017 | $ | 257,394 | |||||
Operating income |
24,583 | 14,589 | 18,931 | (15,642 | ) | ||||||||
Income (loss) from continuing operations |
3,147 | (5,904 | ) | (2,450 | ) | (47,260 | ) | ||||||
Income (loss) from discontinued operations, net of income taxes |
3,514 | (749 | ) | 264 | 1,869 | ||||||||
Net income (loss) |
6,661 | (6,653 | ) | (2,186 | ) | (45,391 | ) | ||||||
Earnings (loss) per common share basic: |
|||||||||||||
Income (loss) from continuing operations |
$ | 0.08 | $ | (0.15 | ) | $ | (0.06 | ) | $ | (1.20 | ) | ||
Income (loss) from discontinued operations, net of income taxes |
0.09 | (0.02 | ) | | 0.05 | ||||||||
| | | | | | | | | | | | | |
Net income (loss) |
$ | 0.17 | $ | (0.17 | ) | $ | (0.06 | ) | $ | (1.15 | ) | ||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Earnings (loss) per common share diluted: |
|||||||||||||
Income (loss) from continuing operations |
$ | 0.08 | $ | (0.15 | ) | $ | (0.06 | ) | $ | (1.20 | ) | ||
Income (loss) from discontinued operations, net of income taxes |
0.09 | (0.02 | ) | | 0.05 | ||||||||
| | | | | | | | | | | | | |
Net income (loss) |
$ | 0.17 | $ | (0.17 | ) | $ | (0.06 | ) | $ | (1.15 | ) | ||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Weighted average basic shares |
39,018,281 | 39,336,134 | 39,488,480 | 39,518,406 | |||||||||
Weighted average dilutive shares |
39,035,280 | 39,336,134 | 39,488,480 | 39,518,406 |
A summary of certain revenues and expenses from our continuing operations impacting our quarterly financial results is as follows:
85
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(amounts in thousands, except share and per share amounts)
20. Commitments and Contingencies
Operating Leases The Company leases real estate and various equipment under operating lease agreements. Future minimum payments over the lease term of non-cancelable operating leases with initial terms of one year or more consisted of the following at April 27, 2014:
Fiscal Years Ending:
|
|
|||
---|---|---|---|---|
2015 |
$ | 11,250 | ||
2016 |
11,189 | |||
2017 |
10,985 | |||
2018 |
10,822 | |||
2019 |
10,813 | |||
Therafter |
154,809 | |||
| | | | |
Total minimum lease payments |
$ | 209,868 | ||
| | | | |
| | | | |
Rent expense related to continuing operations was $27,721, $27,363, and $27,578 in fiscal years 2014, 2013, and 2012, respectively. Such amounts include contingent rentals of $2,926, $3,315, and $3,654 in fiscal years 2014, 2013 and 2012, respectively. Contingent rent is based upon casino revenues or other metrics as defined in our lease agreements. Certain of our leases are subject to renewals and may contain escalation clauses.
Legal and Regulatory Proceedings We and our wholly-owned subsidiary, Riverboat Corporation of MississippiVicksburg, were defendants in a lawsuit filed in the Circuit Court of Adams County, Mississippi by Silver Land, Inc., alleging breach of contract in connection with our 2006 sale of casino operations in Vicksburg, Mississippi. The court originally ruled in favor of Silver Land and awarded damages of $1,979, which we accrued. We appealed the decision and in June 2013 the court of appeals reversed the trial court and ruled in our favor. Silver Land filed a Petition for Writ of Certiorari in November 2013 requesting review by the Mississippi Supreme Court. On February 20, 2014, the Mississippi Supreme Court denied Silver Land's request, which effectively disposed of this matter in its entirety. As a result, during fiscal 2014, we reversed a litigation accrual of $2,223, of which $1,979 was recorded as a reduction to operating expenses and $244 was recorded as a reduction to interest expense.
Our wholly owned subsidiary, Lady Luck Gaming Corporation, and several joint venture partners were defendants in the Greek Civil Courts and the Greek Administrative Courts in similar lawsuits brought by the country of Greece. The actions alleged that the defendants failed to make specified payments in connection with the gaming license bid process for Patras, Greece. In the Civil Court lawsuit, the Civil Court of First Instance ruled in our favor and dismissed the lawsuit in 2001. The lawsuits continued through the appeals process and in October 2013, the Supreme Administrative Court rejected both lawsuits which disposed of this matter completely. As a result, during fiscal 2014, we reversed a litigation accrual of $14,730, of which $7,351 was recorded as a reduction to operating expenses and $7,379 was recorded as a reduction to interest expense.
We were named as a defendant in a complaint filed in the Circuit Court for Broward County, Florida. The complaint alleged we sent unsolicited fax advertisements in violation of the Telephone Consumer Protection Act of 1991, as amended by the Junk Fax Prevention Act of 2005 (the "TCPA"), and sought to certify a class action. The complaint sought statutory damages for alleged negligent and
86
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(amounts in thousands, except share and per share amounts)
20. Commitments and Contingencies (Continued)
willful violations of the TCPA, attorneys' fees, costs and injunction relief. In fiscal 2014 we reached a settlement of this matter and the resulting payments were within the Company's reserves for this lawsuit.
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 results 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 seeking damages of approximately $4,600. 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 five 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.
87
ISLE OF CAPRI CASINOS, INC.
SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Accounts Receivable Reserve | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Period
|
Balance at
Beginning of Year |
Charged to
Costs and Expenses |
Deductions from
Reserves |
Balance at End
of Year |
|||||||||
Year Ended April 27, 2014 |
$ | 2,086 | $ | 388 | $ | (354 | ) | $ | 2,120 | ||||
Year Ended April 28, 2013 |
2,502 | 522 | (938 | ) | 2,086 | ||||||||
Year Ended April 29, 2012 |
1,010 | 1,711 | (219 | ) | 2,502 |
Other Receivables Reserve | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Period
|
Balance at
Beginning of Year |
Charged to
Costs and Expenses |
Deductions from
Reserves |
Balance at End
of Year |
|||||||||
Year Ended April 27, 2014 |
$ | 1,882 | $ | | $ | | $ | 1,882 | |||||
Year Ended April 28, 2013 |
1,882 | | | 1,882 | |||||||||
Year Ended April 29, 2012 |
1,882 | | | 1,882 |
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures Based on their evaluation as of April 27, 2014, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective to ensure that the information required to be disclosed by us in this Annual Report was recorded, processed, summarized and reported within the time periods specified in the SEC's rules and instructions for Form 10-K.
Management's Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our management, including our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of April 27, 2014. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal ControlIntegrated Framework (1992 Framework). Our management has concluded that, as of April 27, 2014, our internal control over financial reporting is effective based on these criteria. Ernst & Young LLP, an independent registered public accounting firm, who audited and reported on the consolidated financial statements included in this Annual Report on Form 10-K, has issued an attestation report on the effectiveness of the Company's internal control over financial reporting as stated in their report which is included in Item 8.
Changes in Internal Controls over Financial Reporting There have been no changes in our internal controls over financial reporting during the quarter ended April 27, 2014 that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.
Inherent Limitations on Effectiveness of Controls Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.
None.
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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
This item has been omitted from this report and is incorporated by reference to Isle of Capri's definitive proxy statement to be filed with the U.S. Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this report.
ITEM 11. EXECUTIVE COMPENSATION
This item has been omitted from this report and is incorporated by reference to Isle of Capri's definitive proxy statement to be filed with the U.S. Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this item relating to security ownership of management has been omitted from this report and is incorporated by reference to Isle of Capri's definitive proxy statement to be filed with the U.S. Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this report.
Equity Compensation Plans. The following table provides information about securities authorized for issuance under our 2009 Long-Term Stock Incentive Plan for fiscal 2014.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
This item has been omitted from this report and is incorporated by reference to Isle of Capri's definitive proxy statement to be filed with the U.S. Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this report.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
This item has been omitted from this report and is incorporated by reference to Isle of Capri's definitive proxy statement to be filed with the U.S. Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this report.
90
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following documents are filed as part of this Form 10-K.
All other schedules are omitted because they are not applicable or not required, or because the required information is included in the consolidated financial statement or notes thereto.
91
Pursuant to the requirements of Section 13 or 15(d) 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: June 23, 2014 |
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/s/ VIRGINIA M. MCDOWELL Virginia M. McDowell, Chief Executive Officer, President and Director |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Dated: June 23, 2014 |
/s/ VIRGINIA M. MCDOWELL
Virginia M. McDowell, Chief Executive Officer, President and Director (Principal Executive Officer) |
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Dated: June 23, 2014 |
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/s/ DALE R. BLACK Dale R. Black, Chief Financial Officer (Principal Financial and Accounting Officer) |
Dated: June 23, 2014 |
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/s/ JAMES B. PERRY James B. Perry, Executive Chairman of the Board |
Dated: June 23, 2014 |
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/s/ ROBERT S. GOLDSTEIN Robert S. Goldstein, Vice Chairman of the Board |
Dated: June 23, 2014 |
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/s/ BONNIE BIUMI Bonnie Biumi, Director |
Dated: June 23, 2014 |
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/s/ ALAN J. GLAZER Alan J. Glazer, Director |
92
Dated: June 23, 2014 |
/s/ JEFFREY D. GOLDSTEIN
Jeffrey D. Goldstein, Director |
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Dated: June 23, 2014 |
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/s/ RICHARD A. GOLDSTEIN Richard A. Goldstein, Director |
Dated: June 23, 2014 |
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/s/ GREGORY J. KOZICZ Gregory J. Kozicz, Director |
Dated: June 23, 2014 |
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/s/ SCOTT E. SCHUBERT Scott E. Schubert, Director |
Dated: June 23, 2014 |
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/s/ LEE S. WIELANSKY Lee S. Wielansky, Director |
93
EXHIBIT
NUMBER |
DESCRIPTION | ||
---|---|---|---|
2.1 | Asset Purchase Agreement, dated December 4, 2013, by and among Isle of Capri Casinos, Inc., IOC Davenport, Inc., Scott County Casino, LLC and Kehl Development Corporation (Incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed on December 4, 2013) | ||
3.1 | Amended and Restated Certificate of Incorporation of Isle of Capri Casinos, Inc. (Incorporated by reference to Exhibit 3.1 to the Annual Report on Form 10-K filed on June 16, 2011) | ||
3.2 | Bylaws, as amended (Incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on June 25, 2010) | ||
4.1 | Indenture, dated as of March 7, 2011, among the Company, the guarantors named therein and U.S. Bank National Association, as trustee (Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed on March 8, 2011) | ||
4.2 | Indenture, dated as of August 7, 2012, among the Company, the guarantors named therein and U.S. Bank National Association, as trustee (Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed on August 9, 2012) | ||
4.3 | Indenture, dated as of March 5, 2013, among the Company, the guarantors named therein and U.S. Bank National Association, as trustee (Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed on March 6, 2013) | ||
4.4 | Supplemental Indenture, dated as of April 19, 2013, among the Company, the guarantors named therein and U.S. Bank National Association, as trustee (Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed on April 24, 2013) | ||
4.5 | Supplemental Indenture, dated as of April 19, 2013, among the Company, the guarantors named therein and U.S. Bank National Association, as trustee (Incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K filed on April 24, 2013) | ||
4.6 | Supplemental Indenture, dated as of April 19, 2013, among the Company, the guarantors named therein and U.S. Bank National Association, as trustee (Incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K filed on April 24, 2013) | ||
10.1 | Agreement, dated January 19, 2011, by and among Isle of Capri Casinos, Inc., and Mr. Jeffrey D. Goldstein, Mr. Robert S. Goldstein, Richard A. Goldstein and GFIL Holdings, LLC (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-k filed on January 19, 2011) | ||
10.2 | Amendment Number One to Governance Agreement, dated February 23, 2011, by and among Isle of Capri Casinos, Inc., GFIL Holdings, LLC, Jeffrey D. Goldstein, Robert S. Goldstein and Richard A. Goldstein (Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed on February 28, 2011) | ||
10.3 | | Isle of Capri Casinos, Inc. Amended and Restated 2009 Long-Term Stock Incentive Plan (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on October 19, 2012) | |
10.4 | | Isle of Capri Casinos, Inc. Corporate Level Incentive Compensation Plan (Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed on December 3, 2010) | |
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94
EXHIBIT
NUMBER |
DESCRIPTION | ||
---|---|---|---|
10.5 | | Isle of Capri Casinos, Inc. Deferred Bonus Plan (Incorporated by reference to the Proxy Statement filed on August 15, 2000) | |
10.6 | | Isle of Capri Casinos, Inc. Deferred Bonus Plan Code Section 409A Compliance Amendment (Incorporated by reference to Exhibit 10.4 to the Annual Report on Form 10-K filed on June 25, 2009) | |
10.7 | | Isle of Capri Casinos, Inc.'s Amended and Restated Deferred Compensation Plan (Incorporated by reference to Exhibit 10.5 to the Annual Report on Form 10-K filed on June 25, 2009) | |
10.8 | | Isle of Capri Casino, Inc. Amended and Restated Deferred Compensation Plan Adoption Agreement (Incorporated by reference to Exhibit 10.6 to the Annual Report on Form 10-K filed on June 25, 2009) | |
10.9 | | Isle of Capri Casinos, Inc.'s 2005 Non-employee Director Deferred Compensation Plan (Incorporated by reference to Exhibit 10.33 to the Quarterly Report Form 10-Q filed on March 1, 2005) | |
10.10 | | Isle of Capri Casinos, Inc. Non-employee Director Deferred Compensation Plan (Incorporated by reference to Exhibit 10.9 to the Annual Report on Form 10-K filed on June 25, 2009) | |
10.11 | | Isle of Capri Casinos, Inc. Medical Expense Reimbursement Plan (MERP) (Incorporated by reference to Exhibit 10.10 to the Annual Report on Form 10-K filed on June 25, 2009) | |
10.12 | | Amended and Restated Employment Agreement, dated January 18, 2011, between Virginia M. McDowell and Isle of Capri Casinos, Inc. (Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on January 18, 2011) | |
10.13 | | Employment Agreement dated as of December 3, 2007, between Isle of Capri Casinos, Inc. and Dale R. Black (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on December 7, 2007) | |
10.14 | | Amended and Restated Employment Agreement, dated January 18, 2011, between James B. Perry and Isle of Capri Casinos, Inc. (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on January 18, 2011) | |
10.15 | | Employment Agreement, dated as of July 1, 2008, between Isle of Capri Casinos, Inc. and Edmund L. Quatmann, Jr. (Incorporated by reference to Exhibit 10.18 to the Annual Report on Form 10-K filed on July 11, 2008) | |
10.16 | * | First Amendment to Employment Agreement, dated as of January 9, 2014, between Isle of Capri Casinos, Inc. and Edmund L. Quatmann, Jr. | |
10.17 | | Isle of Capri Casinos, Inc. Employment Agreement Compliance AddendumDale R. Black (Incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q filed on March 6, 2009) | |
10.18 | | Isle of Capri Casinos, Inc. Employment Agreement Compliance AddendumEdmund L. Quatmann, Jr. (Incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q filed on March 6, 2009) | |
10.19 | | Employment Agreement dated as of August 6, 2009, between Isle of Capri Casinos, Inc. and Eric Hausler (Incorporated by reference to Exhibit 10.19 to the Annual Report on Form 10-K/A filed on June 8, 2010) | |
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95
96
EXHIBIT
NUMBER |
DESCRIPTION | ||
---|---|---|---|
10.31 | Fourth Amendment Documents to Credit Agreement and Amendments to Loan Documents, dated as of April 19, 2013 among the Company, the financial institutions listed therein as Lenders and Wells Fargo Bank, National Association (as successor to Credit Suisse AG, Cayman Islands Branch (f/k/a Credit Suisse, Cayman Islands Branch)), as administrative agent to the Lenders, Issuing Bank and Swing Line Lender (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on April 24, 2013) | ||
10.32 | Fifth Amendment to Credit Agreement, dated as of July 2, 2013, among Isle of Capri Casinos, Inc., as borrower, certain subsidiaries of Isle of Capri Casinos, Inc., the financial institutions listed therein, as lenders, Wells Fargo Bank, National Association, as administrative agent, and the other agents referred to therein (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on July 2, 2013) | ||
10.33 | Amended and Restated Lease, dated as of April 19, 1999, among Port Resources, Inc. and CRU, Inc., as landlords and St. Charles Gaming Company, Inc., as tenant (St. Charles) (Incorporated by reference to Exhibit 10.28 to the Annual Report on Form 10-K filed on July 02, 1999) | ||
10.34 | Lease of property in Coahoma, Mississippi dated as of November 16, 1993 by and among Roger Allen Johnson, Jr., Charles Bryant Johnson and Magnolia Lady, Inc. (Incorporated by reference to the Registration Statement on Form S-4/A filed June 19, 2002) | ||
10.35 | Addendum to Lease dated as of June 22, 1994 by and among Roger Allen Johnson, Jr., Charles Bryant Johnson and Magnolia Lady, Inc. (Incorporated by reference to Exhibit 10.46 to the Annual Report on Form 10-K filed on July 28, 2000) | ||
10.36 | Second addendum to Lease dated as of October 17, 1995 by and among Roger Allen Johnson, Jr., Charles Bryant Johnson and Magnolia Lady, Inc. (Incorporated by reference to Exhibit 10.47 to the Annual Report on Form 10-K filed on July 28, 2000) | ||
10.37 | Master Lease between The City of Boonville, Missouri and IOC-Boonville, Inc. formally known as Davis Gaming Boonville, Inc. dated as of July 18, 1997. (Incorporated by reference to Exhibit 10.40 to the Annual Report on Form 10-K filed on July 11, 2008) | ||
10.38 | Amendment to Master Lease between The City of Boonville, Missouri and IOC-Boonville, Inc. formally known as Davis Gaming Boonville, Inc. dated as of April 19, 1999. (Incorporated by reference to Exhibit 10.41 to the Annual Report on Form 10-K filed on July 11, 2008) | ||
10.39 | Second Amendment to Master Lease between The City of Boonville, Missouri and IOC-Boonville, Inc. formerly known as Davis Gaming Boonville, Inc. dated as of September 17, 2001. (Incorporated by reference to Exhibit 10.42 to the Annual Report on Form 10-K filed on July 11, 2008) | ||
10.40 | Third Amendment to Master Lease between The City of Boonville, Missouri and IOC-Boonville, Inc. formerly known as Gold River's Boonville Resort, Inc. and Davis Gaming Boonville, Inc. dated as of November 19, 2001. (Incorporated by reference to Exhibit 10.43 to the Annual Report on Form 10-K filed on July 11, 2008) | ||
10.41 | Amended and Restated Lease Agreement by and between the Port Authority of Kansas City, Missouri and Tenant dated as of August 21, 1995 (Incorporated by reference to Exhibit 10.44 to the Annual Report on Form 10-K filed June 25, 2009) | ||
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97
98
EXHIBIT
NUMBER |
DESCRIPTION | ||
---|---|---|---|
10.56 | * | Third Amendment to Operator's Contract by and between Isle of Capri Bettendorf, L.C. and Scott County Regional Authority dated as of October 30, 2007. | |
21.1 | * | Significant Subsidiaries of Isle of Capri Casinos, Inc. | |
23.1 | * | Consent of Ernst & Young LLP | |
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 | |
99.1 | * | Description of Governmental Regulation. | |
101 | * | The following financial statements and notes from the Isle of Capri Casinos, Inc. Annual Report on Form 10-K for the year ended April 27, 2014, filed on June 23, 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. |
99
Exhibit 10.16
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT (Amendment) is made and entered into as of this 9th day of January 2014 by and between Isle of Capri Casinos, Inc., a Delaware corporation (the Company), and Edmund L. Quatmann, Jr. (Employee).
WHEREAS, the Company and Employee are parties to that certain Employment Agreement dated as of July 1, 2008 (the Agreement);
WHEREAS, a Code Section 409A Compliance Addendum to the Agreement was entered into between the Company and Employee effective as of January 1, 2009; and
WHEREAS, amendment of the Agreement is now considered desirable.
NOW, THEREFORE, in consideration of the promises set forth herein and other good and valuable consideration, the Company and Employee hereby agree that the Agreement is hereby amended, effective as of December 2, 2013, by substituting the following for Section 4 of the Agreement:
4. Change in Control of the Company . If (i) there is a sale, acquisition, merger, or buyout of the Company to an unaffiliated person, or any person that is not an affiliate (as such term is defined under the Securities Exchange Act of 1934) of the Company or any of its shareholders on July 1, 2008 becomes the legal and beneficial owner of more than 50% of the Companys common stock (a Change in Control), and (ii) immediately prior to, on or within 12 months after such Change in Control, (A) the Company terminates the Term of Employment pursuant to Section 3(a)(ii) (for any reason without cause) or (B) Employee voluntarily terminates the Term of Employment pursuant to Section 3(a)(iii) in circumstances where there has been a significant reduction in the authority, responsibilities, position or compensation of Employee or Employee has been required to move the location of his principal residence a distance of more than 35 miles, and the Company has failed to remedy such situation within 30 days after receipt of Employees written notice thereof, then in lieu of the severance payments, if any, otherwise payable to Employee under Section 3 of the Agreement, Employee will be entitled to the following severance payments and benefits:
(a) Two times Annual Base Salary payable in 24 monthly installments beginning on the first day following the six-month anniversary of Employees Termination of Employment (as defined in the Compliance AddendumCode Section 409A to this Agreement); plus a lump sum payment equal to the amount of any earned but unpaid bonus plus the average of the previous 3 years bonus payment, inclusive of deferred amounts, if any, which lump sum shall be paid to Employee on the first day following the six-month anniversary of Employees Termination of Employment.
Notwithstanding the foregoing, the Board of Directors may authorize that portion of the foregoing payments under this Section 4(a) that qualify as a 409A Exempt Payment (as defined in Section 3(a)(ii)) to be paid in a single lump sum to Employee on the first payroll date following Employees Termination of Employment; and the remaining Annual Base Salary amounts to be paid to Employee in 24 equal installments beginning on the six-month anniversary of Employees Termination of Employment and ending on the second anniversary of Employees Termination of Employment and the remaining bonus amount, if any, to be paid in a single lump sum on the six-month anniversary of Employees Termination of Employment.
(b) During the 24-month period following Employees Termination of Employment (the Continuation Period) Employee will receive continuation coverage for himself and his spouse and dependents under the Companys group medical, dental and vision plans (collectively, the Medical Plan), at Employees sole expense, consistent with the level of coverage otherwise in effect as of his Termination of Employment. During the Continuation Period, the Company shall provide to Employee an amount such that, after the payment of all income and employment taxes due with respect to such amount, there remains an amount equal to the Companys premium contribution paid with respect to its active employees for the level of coverage provided to Employee and his spouse and dependents under the Medical Plan during such period. Any payment required pursuant to the preceding sentence shall be paid monthly during the Continuation Period; provided, however, that that payment for the period beginning on Employees Termination of Employment and ending on the six month anniversary of Employees Termination of Employment shall be paid in a lump sum on the first day following the six month anniversary of Employees Termination of Employment. Nothing in this Section 4(b) shall be deemed to offset or otherwise limit the period of continuation coverage otherwise available to Employee and his spouse and dependents under Code Section 4980B, which shall be deemed to commence following the end of the Continuation period and shall be provided at Employees sole expense.
Upon the occurrence of a Change in Control, all stock options owned by Employee shall become fully vested and exercisable. As a condition to receiving the payments described in clause (a) above, Employee shall be required to execute and deliver to the Company a general release in customary and agreed form, provided that if Employee fails to sign the release, Employee shall not be entitled to any severance payments or benefits under this Section 4; and provided further, if any severance payments or benefits are subject to Section 409A of the Code, Employee shall only be entitled to any such severance payments or benefits if such release has been executed, is effective and the applicable revocation period has expired no later than the date as of which such payment of the severance or benefits are otherwise to commence and if
such requirements are not satisfied, Employee shall not be entitled to any such portion of the severance payments or benefits thereafter.
This Amendment was executed on behalf of the Company by its duly authorized officer and by Employee as of the dates set forth below and effective as provided herein. If this Amendment was executed in multiple counterparts, each of which has been deemed an original.
IN WITNESS HEREOF, each party has caused this Amendment to be executed in a manner appropriate for such party as of the date first above written.
ISLE OF CAPRI CASINOS, INC. |
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By: |
/s/ Virginia McDowell |
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Name: Virginia McDowell |
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Its: President and Chief Executive Officer |
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EMPLOYEE |
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/s/ Edmund L. Quatmann, Jr. |
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Edmund L. Quatmann, Jr. |
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Exhibit 10.49
FIFTH ADDENDUM TO LEASE AND AGREEMENT SPRING 1995 (LOWER LOTS) AND
FOURTH ADDENDUM TO LEASE AND AGREEMENT SPRING 1995 (UPPER LOTS)
This Fifth Addendum to Lease and Agreement Spring 1995 (Lower Lots) and Fourth Addendum to Lease and Agreement Spring 1995 (Upper Lots) (this Agreement ) is entered into this 11 th day of December, 2013, by and between Andrianakos Limited Liability Company, a Colorado limited liability company ( Andrianakos LLC ) and the Isle of Capri Black Hawk, L.L.C., a Colorado limited liability company (the Isle of Capri ) (Andrianakos LLC and Isle of Capri, collectively the Parties ).
EXPLANATORY STATEMENT
A. Andrianakos LLC and Anchor Coin d/b/a Colorado Central Station Casino entered into that certain Lease and Agreement Spring 1995 (Lower Lots) dated August 15, 1995, as amended by Addendum to Lease and Agreement Spring 1995 (Lower Lots) dated April 4, 1996, and by Second Addendum to Lease and Agreement Spring 1995 (Lower Lots) effective as of March 21, 2003 (collectively the Lower Lot Leases ).
B. Andrianakos LLC and Anchor Coin d/b/a Colorado Central Station Casino entered into that certain Spring 1995 Amended and Restated Vacant Ground Lease for Parking Lot Purposes and Agreement (Upper Lot) dated August 15, 1995 and Lease Addendum dated May 1, 2000 (collectively Upper Lot Leases ).
C. Anchor Coin d/b/a Colorado Central Station Casino assigned the Upper Lot Leases to CCSC/Blackhawk, Inc. effective January 1, 2002, and CCSC/Blackhawk, Inc. d/b/a Colorado Central Station Casino and Andrianakos LLC further amended the Upper Lot Leases for Parking Lot Purposes and Agreement (Upper Lot) dated effective April 22, 2003.
D. Anchor Coin/b/a Colorado Central Station Casino assigned the Lease to CCSC/Blackhawk, Inc. effective January 1, 2002.
D. CCSC/Blackhawk, Inc. assigned the Lower Lot Leases and the Upper Lot Leases and conveyed the real property described as Isle Real Property to Isle of Capri Black Hawk, L.L.C effective April 22, 2003.
E. Andrianakos Limited Liability Company and Isle of Capri Black Hawk, L.L.C entered into that Third Addendum to Lease Agreement Spring 1995 (Lower Lots) effective April 22, 2003 adding addition real property and otherwise amending and supplementing the Lower Lot Leases.
F. Pursuant to Section A-3 of the Lower Lot Leases and Upper Lot Leases the term of such leases shall automatically renew unless the Isle of Capri gives its notice of non-renewal not less than six months prior to the end of any term.
G. Andrianakos Limited Liability Company and Isle of Capri Black Hawk, L.L.C. entered into that Fourth Addendum to Lease and Agreement Spring 1995 (Lower Lots) and Third Addendum to Lease and Agreement Spring 1995 (Upper Lots), dated November 26, 2013, thereby extending the notice period under Section A-3 of the Lower Lot Leases and Upper Lot Leases for an additional thirty (30) days up to and including 5:00 PM (MST) on Tuesday, December 31, 2013 in order to give the parties additional time to draft and finalize this Fifth Addendum to Lease and Agreement Spring 1995 (Lower Lots) and this Fourth Addendum to Lease and Agreement Spring 1995 (Upper Lots).
H. Andrianakos Limited Liability Company and Isle of Capri Black Hawk, L.L.C. have mutually agreed to amend and modify the terms of the Lower Lot Leases and Upper Lot Leases as stated herein.
NOW THEREFORE , in consideration of the foregoing Explanatory Statement that is made a substantive part of this Agreement and for other good and valuable consideration the receipt and sufficiency of which is acknowledged, the Parties agree as follows:
1. Incorporation of the Upper Lot Lease into the Lower Lot Leases. The Upper Lot Leases are hereby incorporated into and made part of the Lower Lot Leases resulting in one lease for the real property that currently is subject to the Lower Lot Leases and the Upper Lot Leases and the combined Lower Lot Leases and the Upper Lot Leases shall be referred to as the Isle of Capri Blackhawk Lease .
2. Term of the Isle of Capri Blackhawk Lease. The Term of the Isle of Capri Blackhawk Lease shall commence as of the date of this Agreement through May 31, 2019 at 12:00 PM MDT.
3. Rental Rate. The rental rate for the Isle of Capri Blackhawk Lease shall be Two Hundred Fourteen Thousand Four Hundred and Fifty One Dollars and Sixty Eight Cents ($214,451.68) per month from the date of this Agreement through the term ending May 31, 2019 at 12:00 PM MDT. The foregoing rental rate includes the rent for all real property that was previously subject to the Lower Lot Leases and the Upper Lot Leases.
4. Renewals. Section A-3 of both the Lower Lot Leases and the Upper Lot Leases that is now the Isle of Capri Blackhawk Lease are deleted in their entirety and replaced with the following:
A-3. Renewals. This Lease may be renewed at Lessees sole option for up to fifteen (15) terms of five (5) years each commencing June 1, 2019. Renewal shall be automatic for each term unless Lessee gives its notice of non-renewal not less than six (6) months prior to the end of any term.
5. Rental Rate Indexing. Section A-5 Rental Rate Indexing of the Lower Lots Leases that is now the Isle of Capri Blackhawk Lease shall be deleted in its entirety and replaced with the following that shall apply to the real property that that was previously subject to both the Lower Lot Leases and the Upper Lot Leases:
The rental rate for the current renewal (June 1, 2014 to May 31, 2019) shall remain the same and not change. The rental rate thereafter shall be adjusted annually by the Consumer Price Index (CDI) figures for the Denver/Boulder Standard Metropolitan Statistical Area released by the U.S. Department of Commerce, or its successor, most recently preceding the June first of the subject year to determine any change in the cost of living.
6. Miscellaneous . As modified herein, all other terms and conditions of the Lower Lot Leases and Upper Lot Leases, incorporated into one lease as set forth in Section 2 above, shall remain in full force and effect and are hereby ratified and confirmed. This Agreement may be executed in counterparts.
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Isle of Capri Black Hawk, L.L.C. |
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Andrianakos Limited Liability Company |
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/s/ Brian P. Watts |
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By: |
/s/ Ioannis E. Andrianakos |
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Brian P. Watts, Vice President & GM |
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Ioannis E. Andrianakos, Manager |
Exhibit 10.51
AMENDED AND RESTATED OPERATORS CONTRACT
This Operators Contract (Agreement) is made and entered into by and between the Black Hawk County Gaming Association, an Iowa non-profit corporation (the BHCGA) and IOC Black Hawk County, Inc., an Iowa Corporation (IOC) as of the 9th day of November, 2004.
WHEREAS, the BHCGA is an Iowa non-profit corporation with its principal place of business in Black Hawk County, Iowa, which corporation intends to apply for a license to be granted by the Iowa Racing and Gaming Commission (IRGC) for an excursion gambling boat; and
WHEREAS, IOC wishes to enter into a contract with the BHCGA as the operator of the excursion gambling boat pursuant to the rules and regulations of the IRGC.
NOW THEREFORE, for and in consideration of the mutual covenants herein contained, it is agreed as follows:
1. The parties intend to submit an application to the IRGC (the Application) pursuant to which they will operate a gambling excursion boat.
2. This Agreement shall commence on the date of its execution (the Commencement Date) and terminate on March 31, 2015, unless terminated earlier pursuant to paragraph 11 below, provided, however, that so long as IOC has substantially complied with this Agreement and the IRGC rules and the parties gaming license is renewed and/or in effect, IOC is hereby granted the right to renew this Contract for succeeding three year periods, the last of which shall terminate on the last date for licensed gaming as approved by Black Hawk County voters pursuant to Chapter 99F of the Code of Iowa. If the IRGC denies the Application, this Contract will immediately terminate upon the occurrence of such event.
3. IOC as operator, shall be responsible for the payment of the initial application fees, all annual licensing fees as required by the IRGC, the payment of all premiums or any additional fees required by the IRGC and all gaming taxes under the provisions of Iowa Code Chapter 99F and its regulations and any amendments thereto, or any other provisions of the Iowa code, all of which are required in order to maintain an excursion boat gambling license.
4. IOC agrees to provide all necessary accounting and verification required by the IRGC to determine the adjusted gross receipts in order to determine the gaming taxes as assessed pursuant to Iowa Code Chapter 99F, and shall comply with all reasonable requests of the BHCGA and/or the IRGC, or any other regulating body, to determine the extent of the gaming tax, and further agrees to make any payments required in a timely fashion.
5. A. Upon issuance of a gaming license by the IRGC, IOC will make a one time gift of $1,000,000 to The Waterloo Development Corporation for a project to be approved by BHCGA, The Waterloo Development Corporation and the City of Waterloo. In addition, IOC shall advance to BHCGA a payment of $1,500,000 on the date of such issuance and advance an additional payment of $1,500,000 on the anniversary date. Upon the commencement of operations (and continuing for the term of this Agreement), IOC shall pay a fee to the BHCGA equal to 4.1% of each weeks adjusted gross receipts (as defined in Section 99F. 1(1) of the Iowa Code), with IOC receiving a deduction for payments advanced to BHCGA creditable at the rate of 50% of each weekly payment until the advance has been retired. These weekly payments shall be made by 12:00 Noon on Friday following the completion of each calendar week.
B. From said sums, the BHCGA shall be responsible for all distributions required by Iowa Code Section 99F.5, Subsection 1, all of its administrative costs (other than initial application costs), the annual DCI investigation as required, all legal expenses, salaries, and all related costs associated with the administration of its license.
C. BHCGA will use its best efforts to negotiate an exclusive gaming development agreement with the City of Waterloo. If BHCGA is successful in negotiating a gaming development/dock site agreement containing these terms which is otherwise acceptable to IOC, then IOC shall pay to BHCGA an additional fee of 1.65% of each weeks adjusted gross receipts (as defined in Section 99F.1(1) of the Iowa Code) continuing for the term of such agreement, which fee shall include and be in lieu of any admission or docking fee which might otherwise be charged the county or any city..
D. IOC covenants and agrees to be responsible for the payment of all regulatory charges as required by the IRGC. IOC shall provide, at its expense, all necessary accounting and documentation to establish to the reasonable satisfaction of the BHCGA, the City of Waterloo, Black Hawk County, and the IRGC, computation of the fees set forth above. IOC agrees to pay to the BHCGA and to account to the BHCGA as required to comply with the IRGCs rules and regulations.
E. In the event the wagering tax charged by the State of Iowa under 99F. 11 of the Code of Iowa is increased above its current top bracket rate of 22% of the adjusted gross receipts, IOC shall be entitled to a prorated credit against payments due under this contract equal to the amount of such increased tax payable to the state.
F. BHCGA hereby acknowledges and agrees that it is quite possible that some or all of the approvals may not be obtained and that IOC may determine in its sole and absolute discretion that it is not in its best interest to seek or continue to seek approvals to develop the project or to operate or continue to operate the project (an IOC Termination Decision) BHCGA further agrees that upon receipt of written notice of an IOC Termination Decision, this Contract shall terminate without any further obligation by either party.
6. IOC agrees to hold the BHCGA harmless and to defend it from any and all claims arising out of IOCs operation of its gambling and excursion boat and any related activity of IOC as required by this Agreement, city and county ordinances, or state or federal statutes, and all regulations promulgated thereunder. IOC shall be responsible for the payment of all legal expenses incurred by the BHCGA in defense of any such claim, and all costs attributable thereto including payment of any settlements, damage awards and interest thereon. IOC shall not be responsible for any acts or omissions of the BHCGA and the indemnity shall not apply thereto.
7. The BHCGA agrees with IOC that it will not enter into any agreements with any operators, and will not make Application to the IRGC for any operator, to operate gambling excursion boats within Black Hawk County without first obtaining the written consent of IOC which may be withheld by IOC for any reason in IOCs sole and absolute discretion. In addition, the BHCGA agrees to take all reasonable steps available to the BHCGA to prevent any other operator or excursion boat gambling license holder from conducting operations within Black Hawk County without the written prior permission of IOC.
8. It is agreed that this Agreement is intended to comply with, and is subject to all the rules and regulations of the IRGC, the ordinances of the City of Waterloo, and the laws of the State of Iowa and
of the United States of America. The terms of this Agreement are subject to amendment to comply with any of said requirements or any changes in any laws or regulations. In the event that any provisions of this
Agreement is determined to be invalid by a court of competent jurisdiction, the remaining provisions of this Agreement shall remain in full force and effect.
9. IOC agrees that it will provide, at its expense, within the time requirements set forth by the regulations of the IRGC, all necessary audits of financial transactions and conditions of the operations conducted by IOC, as well as audits of the financial transactions and conditions of IOCs total operations as required by the rules and regulations of the IRGC.
10. IOC and the BHCGA do hereby agree and covenant with each other to comply with the terms of Iowa Code Section 99F, all chapters of the Iowa Code, the U.S. Federal Code, all City ordinances of the City of Waterloo, and any and all regulations promulgated pursuant to any such law as duly adopted. Both parties represent and covenant with each other that they will cooperate with each other in order to achieve their mutual goals.
11. In the event either IOC or the BHCGA is deemed by the other or the IRGC not to be in compliance with the terms of this Agreement, the non-breaching party or the IRGC shall be entitled to specific performance of the terms of this Agreement. Further, the parties agree that in the event of any operational default, the defaulting party shall be required to cure such default to the satisfaction of the IRGC. In the event said party does not cure the default to the satisfaction of the IRGC, then the non-defaulting party may, at its option, after obtaining written approval from the IRGC and giving the other party thirty (30) days written notice and opportunity to cure, declare this Agreement terminated. This Agreement may be terminated by the BHCGA after given IOC thirty (30) days written notice and opportunity to cure, upon the occurrence of any of the following events:
1. Loss or suspension of more than thirty (30) days of gaming, liquor or any governmental license required to operate a gaming facility;
2 . Material breach of IOCs obligations under this Agreement;
3. Absence of an operational gaming facility by IOC in Waterloo for more than thirty (30) days in any twelve-month period;
If by reason of Force Majeure (as hereinafter defined) either party is unable to carry out, either in whole or in part, its obligations herein contained, that party shall not be deemed in default and its obligations shall be suspended so long as such inability continues, provided that it shall use commercially reasonable efforts to perform its obligations. Force Majeure shall mean acts of God; winds; hurricanes; tornadoes; fires; epidemic; landslides; earthquakes; floods; strikes; lockouts or other industrial disturbances; acts or public enemies; acts, failures to act or orders of any kind of any governmental authorities, acting in their regulatory or judicial capacity, which are unrelated to the performance of IOC; insurrections; military action; war, whether or not it is declared; sabotage; riots; civil disturbances; explosions; or any cause or event, not reasonably within the control of either party, which precludes that party from carrying out, in whole or in part, its obligations under this Agreement. However, Force Majeure shall not excuse payment of IOCs obligations under paragraph 5.A for the first four weeks of such occurrence, further, in the event that there is no operational gaming facilities by IOC in Waterloo for more than six consecutive months at any time or a total of nine months during the term of this Agreement, IOCs obligations herein shall no longer be excused.
12. IOC agrees to provide the BHCGA financial performance reports of IOCs operations on a weekly basis.
13. This Agreement embodies the entire agreement between the parties and may be amended or supplemented only by an instrument in writing executed by the party against whom the enforcement is sought.
14. All representations, warranties and indemnities set forth in this Agreement shall survive the execution hereof.
15. The Agreement may be executed in a number of identical counterparts, and is so executed, each such counterpart is deemed an original for all purposes, and all such counterparts hall collectively constitute one agreement.
16. This Agreement binds the parties hereto and inures to the benefit of their respective heirs, personal representatives, successors or assigns.
17. In addition to the acts and deeds recited in this Agreement and contemplated herein, the parties hereto shall execute any and all additional agreements as may be necessary to consummate the transactions contemplated by this Agreement and to fulfill the intentions of this agreement.
18. Time is of the essence of this Agreement and each and every provision contained herein.
19. In the event a dispute arises between the parties, hereto, each party shall be responsible for paying its own attorneys fees and court costs, if any, incurred in connection with such dispute.
20. If and in the event of a dispute arising hereunder, venue is vested in the Iowa District Court for Black Hawk County, or in any Federal District Court in Iowa which has jurisdiction. IOC acknowledges that it has negotiated this Agreement in Black Hawk County, Iowa, and has made numerous business contacts and entered into agreements relating to matters sufficient to confer jurisdiction on the Iowa District Court in and for Black Hawk County.
21. The parties hereto represent to each other that each has the full right, power and authority to enter into this Agreement and to fully perform its obligations. The persons executing this Agreement warrant and represent that each has the authority to execute in the capacity stated and to bind the parties hereto.
22. IOC shall not have the right to assign this Agreement without the prior written consent of the IRGC and the BHCGA which may be withheld by the BHCGA for any reason in the BHCGAs sole and absolute discretion.
23. If, and in the event, any provision of this Agreement is determined to be invalid for any reason, it shall be severed and all other provisions not determined invalid shall continue with full force and effect.
24. No failure by either party hereto, at any time, to require the performance by the other of any terms of this Agreement, shall in any way affect the right of either party to enforce such terms, nor shall any waiver, by either party of any terms hereof be taken or held to be a waiver of any other provisions of this Agreement. No waiver of any term or provision of this Agreement shall be effective unless the same is in writing, signed by the parties hereto.
25. This Agreement is entered into in the State of Iowa and shall be construed in accordance therewith, and all of the rights and obligations hereunder shall be determined in accordance with the laws of the State of Iowa.
This Agreement is signed and entered into as of the day and year first above written.
IOC BLACK HAWK COUNTY |
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BLACK HAWK COUNTY GAMING ASSOCIATION |
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Exhibit 10.52
MANAGEMENT AGREEMENT
This Management Agreement is made and entered into this 10 th day of June , 1994, by and between Gamblers Supply Management Company, a South Dakota corporation (hereafter Operator) and the Marquette Gaming Corporation, an Iowa non -profit corporation (hereafter MGC).
WHEREAS, Operator desires to operate and manage casino gambling on excursion gambling boats and related activities in and about Marquette, Iowa (hereafter gaming operation); and
WHEREAS, MGC desires to promote economic development in the Marquette, Iowa vicinity, by conducting excursion gambling under a pplicable Iowa gaming laws and regulations and desires Operator to manage the gaming operation, all in accordance with the terms and conditions of this Agreement as hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto agree as follows:
1. Appointment of Operator and Manager .
A. Acceptance . Marquette Gaming Corporation hereby appoints Gamblers Supply Management Company, and Gamblers Supply Management Company hereby accepts such appointment, as the exclusive Manager and Operator of the gaming operation upon the terms and conditions hereinafter set forth.
B. Operator Activities . MGC acknowledges that the Operator is in the business of managing gaming operations and may in the future engage in such activity both for its own account and for others. It is hereby expressly agreed that the Operator and its affiliates may engage in such activities and may manage or operate facilities other than those to be managed for MGC whether or not such other facility may compete directly or indirectly with those of MGC, except as prohibited in paragraph 4.
C. Independent Contractor . In the performance of its duties under this Agreement, the Operator shall occupy the position of an independent contractor with respect to MGC. Nothing contained herein shall be construed as making the parties hereto partners or joint venturers, nor, except as expressly otherwise provided herein, construed as making the Operator an agent or employee of MGC.
D. Sponsoring Organization . MGC agrees to act as the qualified sponsoring organization as that term is defined in Iowa Code Chapter 99F in connection with the license applications of MGC and Operator to the Iowa Racing and Gaming Commission (IRGC).
2. Conditions Precedent . This Agreement and the appointment of Operator as exclusive operating and management agent is subject to the conditions precedent that;
A. Prior to commencing operation, Operator and MGC shall obtain the required licenses from the Iowa Racing and Gaming Commission to conduct casino gambling and to operate an excursion gambling boat;
B. Approval of this Agreement, amendments thereto, and other ancillary agreements by the Iowa Racing and Gaming Commission;
C. The execution of a Dock Site Agreement by the City of Marquette, as Lessor, and Gamblers Supply Management Company, as Lessee, in the form attached hereto as Exhibit A, and incorporated herein by this reference;
D. Operator obtaining a permit from the U.S. Army Corps of Engineers to moor the excursion and gambling boat in the Mississippi River channel at the dock site described in Exhibit A and operate the boat in areas defined as Pools 9 and 10.
3. Term .
A. The term of this Agreement shall be for a period of twenty-five (25) years from the date this Agreement is executed. This Agreement may be terminated by Operator upon one hundred eighty (180) days written notice by certified mail to the registered agent of MGC, and upon such termination the Operator shall pay to MGC in addition to all sums then accrued but not yet paid, an amount equal to twenty-five percent (25%) of the payments received by MGC from the Operator pursuant to this Agreement for the last full year of casino gambling prior to termination. For purposes of this subparagraph, the last full year means the year ending on the last anniversary date of the commencement of casino gambling preceding the termination notice. Ifthe termination notice is sent prior to the first anniversary date of the commencement of casino gambling, the payment shall be an amount equal to twenty-five percent (25%) of the payments received by MGC from the Operator pursuant to this Agreement for the first full year of casino gambling.
B. This Agreement shall automatically terminate upon the happening of the following events:
i. Cancellation of gambling or excursion boat licenses as a result of an unfavorable referendum after submission to the electorate;
ii. Non-renewal of licenses by the Iowa Racing and Gaming Commission; or
iii. Termination of the Dock Site Agreement. In the event this Agreement is terminated as a result of a voluntary termination of the Dock Site Agreement under paragraph 2A thereof, MGC shall receive that amount identified in paragraph 3A of this Agreement.
C. After the commencement of casino gambling operations, if the Operator, for reasons which are in the Operators exclusive control, fails to regularly conduct casino gambling operations on an excursion boat which takes on passengers exclusively at Marquette, Iowa, for any continuous period of sixty (60) days or more, such inactivity shall, unless Operator resumes-regularly conducted gaming operations within thirty (30) days after written demand by MGC, constitute a voluntary termination of this Agreement by the Operator under paragraph 3A, above, and the Operator shall pay to MGC the amount provided in paragraph 3A.
4. Exclusivity . MGC agrees during the term of this Agreement that it shall not, without the prior written consent of Operator, enter into any agreement with any entity other than Operator to operate casino gambling or excursion gambling boat operations in Marquette, Iowa, or any other additional geographical area subject to the jurisdiction or control of the City of
Marquette or MGC. Operator agrees during the term of this Agreement it will not permit the boarding of passengers on any excursion gambling boat operated by it in Pool 9 or Pool 10 of the Mississippi River at any site other than the Marquette dock site.
5. Duties and Authority of the Operator . Subject to any limitations imposed by state law or regulations of the Iowa Racing and Gaming Commission, the Operator shall have the following duties and authority:
A. Exclusive Authority . The Operator shall have the sole and exclusive authority to fully and completely manage and operate all aspects of the excursion boat gambling operation, including, without limitation, casino gaming, concessions, personnel, entertainment, security, prices, terms and conditions of occupancy, hours of operation, casino gaming, excursion routes, and all other affairs associated with or related to the operation thereof.
B. Establish Policies . The Operator shall direct and establish policies and procedures for the Operators employees who will have direct responsibility for gaming operations. The Operator shall have the sole discretion to establish terms and conditions of employment, and all other related policies.
C. Acquisition . The Operator shall supervise and have control over the making and executing of all decisions concerning the acquisition of equipment, whether original or replacement, furniture, fixtures, supplies, and the purchase, lease, or other acquisition of the same. The Operator shall have control over the making and executing of all decisions concerning the maintenance and repair of all gaming properties.
D. Selection of Vendors . The Operator shall select all vendors, suppliers, and independent contractors and subcontractors with respect to the gaming operation and shall hire, discharge, and supervise all labor and employees required for the operation and maintenance of the gaming operation, including on-site managers.
E. Agreements . The Operator may with the prior consent of MGC negotiate and execute in the name of and on account of MGC such agreements as the Operator deems necessary or advisable for the furnishing of utilities, services, concessions, and supplies for the maintenance, repair and operation of the gaming operation and such other agreements which may be beneficial to the excursion gambling boat operation or incidental to the matters for which the Operator is responsible hereunder.
F. Policy . The Operator shall make all policy decisions and shall have control over the making of all the routine decisions in connection with the daily operations of the gaming operation.
G. Compliance with Law . The Operator shall use its best efforts to cause all things to be done, on behalf, in the name of and for the account of MGC, necessary to comply with any statute, ordinance, law, rule, regulation, or order of any governmental or regulatory body having jurisdiction over the matters contained herein. The Operator shall apply for and attempt to obtain and maintain all licenses and permits required or advisable (in the Operators sole judgment) in connection with the management and operation of all gaming operations.
H. Accounting System . The Operator shall devise, establish, and supervise the operation of an accounting system for the gaming operation.
I. Legal Actions . The Operator may with the prior consent of MGC cause to be instituted, on behalf of and in the name of MGC, any and all legal actions or proceedings it deems necessary or advisable to protect and maintain the gaming operations as a commercially profitable business enterprise.
J. Insurance . Operator shall obtain, maintain, and keep in full force and effect during the term of this Agreement comprehensive general public liability insurance covering any premises at which the Operator conducts any activities pursuant to this Agreement, operations, contracts, independent contractors, personal injury and other normal coverage as provided by the standard broad form liability policies against claims for bodily injury, death or property damage, occurring in, on or about the premises, with coverage limits of not less than $2,000,000.00 for bodily injury or death resulting from any one accident or occurrence, but shall be increased to five million dollars ($5,000,000.00), provided the cost per million for five million is not greater than the cost per million for coverage of two million dollars. All insurance provided for herein shall name MGC as an additional name insured and be effected under a valid and enforceable policy or policies issued by insurers of recognized responsibility, licensed to do business in the State of Iowa and approved by MGC. Certificates of said policies, providing for thirty (30) days notice to MGC prior to cancellation shall be delivered to MGC within twenty (20) days from the date of the beginning of the term of this Agreement.
K. Payment of Taxes, Assessments and Other Charges . The Operator shall pay all taxes, personal and real, assessments
and other charges of every kind and nature properly levied by any federal, state or local governmental authority with respect to the gaming operations, on behalf of and in the name of MGC. The Operators responsibilities shall include furnishing such office space and/or other facilities to such regulatory authorities as may be required.
L. Limitations . Notwithstanding anything to the contrary, the Operator shall not be required to do, or cause to be done, anything for the account of MGC (i) which may make the Operator liable to third parties; (ii) which con stitutes impermissible delegation of the duties and responsibilities of MGC, including, but not limited to, the purchase and construction of capital improvements, the sale or disposition of all or substantially all of MGCs assets; or (iii) which may not be commenced, undertaken, or completed because of acts of God, strikes, governmental regulations or laws, acts of war, or other types of events beyond the Operators control whether similar or dissimilar to the foregoing.
M. Excursion Gambling Boat . The Operator shall furnish, at its sole expense, an excursion gambling boat with a minimum capacity of 750 passengers which will take on passengers exclusively at the leased premises described in the Dock Site Agreement.
6. Compensation Payable to MGC . As compensation for the rights granted to the Operator under this Agreement, the Operator shall pay to MGC the following amounts:
A. Twenty-five cents ($.25) per ticketed passenger embarking on any excursion gambling boat operated pursuant to this Agreement, payable in monthly installments, with payments for each month due on or prior to the 15th day of the following month; and
B. Beginning with the fourth year of this Agreement, the additional sum of twenty-five cents ($.25) per ticketed passenger embarking on any excursion gambling boat operated pursuant to this Agreement, payable as provided in subparagraph A.; and
C. For purposes of paragraphs 6A and 6B, ticketed passenger shall mean every person admitted during a calendar day on the excursion gambling boat, except necessary officials and employees of Operator working on the boat.
The parties agree that the fees set forth in this paragraph are the sole compensation to which MGC is entitled to under this Agreement. The Operator agrees that neither it nor its officers, directors, partners, and shareholders, if any, shall receive any share, percentage, or proportion of the money received for admissions to the excursion gambling boat.
7. Wagering Taxes and Admission Fees . Operator shall pay any admission fees and wagering taxes imposed pursuant to law.
8. License Applications . MGC and Operator agree to cooperate in the preparation and filing of all documentation required by the Iowa Racing and Gaming Commission. MGC and Operator will seek approval for a license to conduct the gaming operations under Iowa Code Chapter 99F, and under applicable rules and regulations of the IRGC. Operator shall pay for any required application fees, bonds, and annual license fees.
9. Reports, Accounting and Auditing . The parties shall prepare and file all reports, including financial reports, as may be required by each of them, respectively, by applicable law and regulation of the Iowa Racing and Gaming Commission. Each party shall keep such books and records and have audits performed from time to time as required of each of them, respectively, by applicable law and regulation. Operator shall pay for any and all audit and accounting services for any reports, accountings, and audits required of either party by the IRGC.
Each party agrees that the IRGC and every other party to this Agreement shall have the right to audit each partys records to the extent necessary to provide verification of compliance under this Agreement. In the event any party is not in compliance with the terms of this Agreement, then in addition
to all other remedies provided for by law, each party shall have the right to specifically enforce the terms and provisions of this Agreement.
10. Compliance with Laws . The parties jointly agree and hereby accept the responsibility for compliance with the laws of Iowa and the rules promulgated by the IRGC from time to time, as well as the laws of any other applicable governmental agency. Each party shall have the right to contest by legal action or appeal any government law, regulation, order, judgment or fine imposed upon said party. If a government agency imposes a certain amount of time within which a party is permitted the opportunity to take some corrective or other action, said party shall not be in default under the terms of this Agreement until such time has passed and the corrective action has not been taken, or the party has initiated legal action or an appeal to obtain reversal of such requirement.
11. Default . The occurrence of any one or more of the following events shall constitute a default by a party hereunder:
A. Failure of a party to perform or comply with any of the duties or obligations imposed under the terms of this Agreement.
B. Suspension or revocation of any partys license under Chapter 99F of the Iowa Code by the State of Iowa or IRGC.
C. Any partys adjudication as bankrupt or insolvent, or the appointment of a receiver or an assignment for the benefit of creditors by or on behalf of any party.
D. Liquidation of dissolution of a party, which liquidation or dissolution is not caused by the other party.
E. At no time during the term of this Agreement shall Operator cause such license (or renewal thereof) to be suspended, revoked or terminated for a period in excess of one hundred twenty (120) days.
If one of the foregoing acts occurs and is not remedied by the defaulting party within thirty (30) days after giving of written notice by any non-defaulting party of said default, then the non-defaulting party shall have all legal and equitable rights and remedies provided by law, including without limita tion, termination of this Agreement, specific performance, or injunctive relief. The remedies of the non-defaulting party shall be cumulative, and the exercise of any one or more remedies provided at law shall not be construed as a waiver of any other remedies.
12. Indemnification . Operator shall indemnify, defend and hold harmless MGC, its officers, directors, employees, and agents, from and against any and all liabilities, obligations, claims, damages, causes of action, costs and expenses, incurred by, or asserted against MGC relating to any accident, injury to or death of any persons, or loss of or damage to property occurring on the excursion gambling boat or related to the gaming operation, compliance with applicable gaming laws and pay of any fees or taxes imposed with respect to gambling operations.
MGC shall indemnify, defend and hold harmless the Operator, its officers, directors, employees, and agents, from and against any and all liabilities, obligations, claims, damages, causes of action, costs and expenses, incurred by, or asserted against Operator by reason of any accident, injury to or death of any persons, or loss of or damage to property occurring as a result of any act or omission by MGC arising out of the gaming operation.
13. MGC Office Space . Operator agrees to provide MGC with office space sufficient for storage of MGC records and for board of directors meetings. MGC agrees that it will be responsible for maintaining its own employees, including but not limited to payment of compensation and all other legally imposed obligations.
14. Entire Agreement . This Agreement shall constitute the entire agreement and understanding between the parties and supersedes any prior agreement or understanding relating to the subject matter of this Agreement. This Agreement may be modified or amended only by a written agreement signed by all the parties, and subject to the approval of the IRGC, if necessary. The parties hereby covenant they will agree to any amendments to this Agreement which may be necessary or desirable in order to conform to federal tax law, Iowa statutes, or administrative rules, including future legislative enactments and rules, provided that such amendments do not materially alter the rights or obligations of either party hereunder.
15. Severability . In the event any portion of this Agreement is determined by competent jurisdiction to be void, illegal, or otherwise unenforceable, all other terms of the Agreement shall remain in full force and effect and this Agreement shall be in full force as if the void, illegal, or otherwise unenforceable provisions did not exist.
16. Benefit . This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective legal representatives, heirs, successors and assigns.
17. Assignment . No party shall assign its rights or duties under this Agreement without the prior written consent of the
remaining parties, and in no event shall any such assignment relieve the assigning party of its obligations under the Agreement; provided, however, that the Operator is specifically prohibited from subcontracting any of its duties relating to casino gambling. Notwithstanding the foregoing, it is further understood and agreed that the Operator may be sold to any party, and that said sale shall not constitute a default under this paragraph or this Agreement. Provided further, that the operator shall not unreasonably withhold its consent to the assignment by MGC of its rights under this Agreement to another qualified sponsoring organization under Iowa Code Chapter 99F if such assignment is approved by the IRGC and if such assignment does not alter the rights of the Operator hereunder.
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GAMBLERS SUPPLY MANAGEMENT COMPANY |
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/s/ [ILLEGIBLE] |
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MARQUETTE GAMING CORPORATION |
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/s/ [ILLEGIBLE] |
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Exhibit 10.53
OPERATORS CONTRACT
THIS AGREEMENT is made this 11 day of August, 1994, by and between the RIVERBEND REGIONAL AUTHORITY, an Iowa not-for-profit corporation (RRA), GREEN BRIDGE COMPANY, an Iowa corporation (Green Bridge), BETTENDORF RIVERFRONT DEVELOPMENT COMPANY, L.C., an Iowa limited liability company (BRDC), LADY LUCK GAMING CORPORATION, a Delaware corporation (LLGC) and LADY LUCK BETTENDORF, L.C. , an Iowa limited liability company (LLB) (Green Bridge, BRDC, LLGC and LLB shall sometimes hereinafter be collectively referred to as the Operator)
WHEREAS, RRA is an Iowa non-profit corporation with its principal place of business in Scott County, Iowa, which corporation was formed for the purpose of making an application to the Iowa Racing and Gaming Commission (IRGC) for a gaming license; and
WHEREAS, Operator, has or will enter into a development agreement (the Development Agreement) with the City of Bettendorf, Iowa for the implementation of certain development within the City of Bettendorf provided that the RRA and Operator are granted licenses to operate gaming boats; and
WHEREAS, Operator wishes to enter into a contract with the RRA as an operator of a gaming boat pursuant to the rules and regulations of the IRGC.
NOW, THEREFORE, in consideration of the premises, it is hereby agreed as follows:
1. Operator acknowledges and requests that RRA make an application for an Iowa gaming license designating LLB as the
operator pursuant to the provisions of Iowa Code Chapter 99F, and all related chapters of the Iowa Code. RRA acknowledges that LLB may enter into a management contract with Lady Luck Casino, Inc. providing same as approved by IRGC.
2. Upon the granting of a license from IRGC and the securing of all necessary regulatory approvals, Operator agrees to acquire or construct and maintain a riverboat gaming facility with a minimum capacity of 900 gaming positions.
3. Operator will be responsible for payment of all application fees to the IRGC and all fees or expenses charged by the Iowa Department of Criminal Investigation (DCI) for background checks and investigations of Operator. Operator will be responsible for all fees and expenses for the initial background checks and investigations of all RRA Board Members. Thereafter, RRA shall be responsible for all fees and expenses on an ongoing basis charged by DCI for background checks and investigations of all RRA board members.
4. This contract shall run from the date of execution until the termination of the initial license period for RRA and LLB as issued by the IRGC. It is anticipated that the license will be issued for a three year period to commence in November of 1994. It is agreed that this contract shall terminate on the expiration of such license provided, however, that so long as LLB has substantially complied with the IRGC rules, (and the RRAs gaming license is renewed), Operator is hereby granted the right to renew this Contract for succeeding three year periods, the last of which shall terminate on the last date for licensed
gaming as approved by Scott County voters pursuant to Chapter 99F of the Iowa Code.
5. During the term of this Contract, the Operator shall pay a license fee to RRA of $1.00 for the first 500,000 admissions and $1.50 for all admissions in excess thereof (computed annually). In addition, Operator agrees that if the adjusted gross receipts (as defined in Section 99F.1(1) of the Iowa Code) in any given twelve month period (commencing on the date gaming operations begin and computed on each anniversary thereafter) exceeds $44,000,000, RRA will be paid an amount equal to two percent (2%) of any such excess win over $44,000,000. Payment shall be for all admissions (excepting actual and necessary officials and employees of RRA and Operator, and all other persons actually working on the gaming facility) as determined by the State of Iowa for tax purposes under the rules of the IRGC and Chapter 99F of the Iowa Code. From said sum, RRA shall be responsible for all of its administrative costs, the annual DCI investigation of its board members as required, all legal expenses, salaries, and all related costs associated with RRAs administration of the license. Operator covenants and agrees to pay all charges as required by IRGC. Operator agrees to hold RRA harmless for any charge required by IRGC. The Operator shall provide at its expense, all necessary accounting and documentation to establish to the reasonable satisfaction of RRA and IRGC, the number of all admissions. Operator agrees to pay to RRA and to account to RRA as required to comply with IRGCs rules and regulations. Operator shall pay said sums as
required herein weekly by 12:00 Noon on the Friday following the completion of each calendar week.
In the event that this Contract is extended as contemplated in Paragraph 4 above, at the commencement of each three (3) year extension, RRA shall have the right to increase the per person admissions charge equal to one-half ( 1 / 2 ) of the percentage increase, if any, in the Consumer Price Index for Chicago, Illinois for All Items, published monthly in the Monthly Labor Review of the Bureau of Labor Statistics of the United States Department of Labor (the Index). For all purposes hereof, in the event the Index is no longer in existence, then the successor Index, if it exists, or the index most similar to the Index shall be used for purposes of this Agreement.
6. Operator will protect, indemnify, defend and save harmless RRA from and against any and all claims, loss, costs, damage and expenses occasioned by, or arising out of all land and water-based activities of Operator and any subsidiaries or affiliates as they relate to the operations of the gaming facility. Operator further covenants and agrees that it will at its own expense procure and maintain casualty and liability insurance in a responsible company or companies authorized to do business in the State of Iowa, with commercially reasonable limits, naming RRA as an additional insured.
7. In the event Operator ceases operations of the gaming facility and such cessation of operations continues for a period of ninety days, RRA shall have the right to terminate this
Contract and Operator shall then pay to RRA a termination fee of $500,000 payable on receipt of the notice of termination. For purposes of this paragraph, cessation of operations for the following reasons shall not be deemed a terminating event: flooding, other acts of God, or other cause without fault and beyond the control of Operator (financial inability excepted).
8. Except as approved by the IRGC, Operator and RRA agree that neither party shall subcontract any duty related to casino gambling. This Contract and any further amendments hereto are expressly subject to the approval of the IRGC. In the event the IRGC requires any amendment of this Contract, all parties agree to make a best efforts attempt to negotiate in good faith such additional terms as are acceptable to the IRGC. Further, in the event Chapter 99F of the Code of Iowa is amended to permit imposition of the state gaming taxes based on a percentage of revenue, RRA agrees to make a best efforts attempt to negotiate in good faith a replacement license fee based on a percentage of revenue that reasonably equates to the fees paid RRA under Paragraph 5 of this Contract. Except as specifically approved by the IRGC, Operator, its officers, directors, partners and shareholders shall not have a share, percentage or proportion of the money received for admissions to the gaming facility (as those terms are defined under the Iowa Code and any rules promulgated by the IRGC). The parties hereby jointly accept the responsibility for compliance with Chapter 99F of the Iowa Code and all laws of the State of Iowa and the rules of the IRGC. Each party agrees that the IRGC and the other parties to this
Contract shall have the right to audit each partys records to the extent necessary to provide verification of compliance under this Contract. Operator will provide to RRA at least quarterly copies of the financial data provided by Operator to the IRGC. In the event the IRGC or any party determines that a party is not in compliance with the terms of this Contract, then the remedies in the following paragraphs shall apply.
a. In the event that Operator shall be in default in any of its obligations to pay Gaming License/Lease Fees or any other fees under this Contract and fail to make said payment within thirty (30) days after written notice thereof or in the event Corporation is adjudged bankrupt or files a petition in bankruptcy or for any reorganization or arrangement under the bankruptcy laws, becomes subject to the jurisdiction of the bankruptcy court on involuntary petition, which jurisdiction shall not be terminated within sixty (60) days, becomes subject to receivership for a period of thirty (30) days or makes an assignment for the benefit of creditors, the RRA may, at its option, declare this Contract terminated.
b. In the event either party is deemed by the other party or the IRGC not to be in compliance with the terms of this Contract, the non-breaching party or the IRGC shall be entitled to specific performance of the terms of this Contract. Further, the parties agree that in the event of any operational default, the
defaulting party shall be required to cure such default to the satisfaction of the IRGC. In the event said party does not cure the default to the satisfaction of the IRGC, then the non-breaching party may, at its option, after obtaining written approval from the IRGC and giving thirty (30) days written notice and opportunity to cure, declare this Contract terminated.
9. Operator agrees, on behalf of itself and RRA, to collect and remit all taxes imposed under Section 99F.11 of the Iowa Code as well as any other fees or expenses imposed by the IRGC and to protect, indemnify and save harmless RRA from all liability arising out of certification under Iowa Regulation 49120.11(6). In the event the IRGC assesses a penalty or imposes any fees or expenses pursuant to said certification, Operator agrees to pay any such amounts.
10. This Contract is expressly subject to the execution of the Development Agreement, approval by IRGC and the securing of all necessary regulatory approvals. Operator hereby grants to RRA the authority to enforce the terms of the Development Agreement.
11. The terms and conditions of this Contract shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. Further, although the City of Bettendorf will not be a party hereto, it shall be a third-party beneficiary to this Contract, and may enforce, by legal or any other means, any benefits accruing to the City of Bettendorf by the terms of this Contract.
12. LLGC, BRDC and Green Bridge agree to guarantee and be co-obligors of all duties and obligations imposed upon LLB by this Contract and the gaming license issued by the IRGC.
Signed as of the date first hereinabove set forth.
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RIVERBEND REGIONAL AUTHORITY |
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/s/ Martin W. Rich 8/11/94 |
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/s/ Carol A. Nielsen 8/11/94 |
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Its Secretary |
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GREEN BRIDGE COMPANY |
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/s/ Jeffrey D. Goldstein |
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Jeffrey D. Goldstein |
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BETTENDORF RIVERFRONT
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/s/ Jeffrey D. Goldstein |
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Jeffrey D. Goldstein |
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LADY LUCK GAMING CORPORATION |
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/s/ A. Tompkins, C.E.O. |
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LADY LUCK BETTENDORF, L.C. |
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/s/ A. Tompkins, Pres. |
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Exhibit 10.54
AMENDMENT TO OPERATORS CONTRACT
THIS AMENDMENT TO OPERATORS CONTRACT (the Amendment) is made this 27th day of August, 1998, by and among GREEN BRIDGE COMPANY, an Iowa corporation, BETTENDORF RIVERFRONT DEVELOPMENT COMPANY, L.C., an Iowa limited liability company, LADY LUCK GAMING CORPORATION, a Delaware corporation, and LADY LUCK BETTENDORF, L.C., an Iowa limited liability company (hereinafter collectively referred to as the Operator) and RIVERBEND REGIONAL AUTHORITY, an Iowa not-for-profit corporation (RRA).
WHEREAS, Operator and RRA have entered into an Operators Contract dated August 11, 1994 (the Operators Contract); and
WHEREAS, the parties desire to amend the Operators Contract as provided herein.
NOW, THEREFORE, it is agreed as follows:
1. Paragraph 5 of the Operators Contract is hereby amended to read in its entirety as follows:
5. Commencing on September 1, 1998 and continuing for the term of this Contract, the Operator shall pay a fee to RRA equal to 4.1% of the adjusted gross receipts (as defined in Section 99F.1(1) of the Iowa Code). In order to assist RRA in its budgeting and grant process, subject to the foregoing conditions subsequent, Operator agrees to pay RRA a minimum annual fee of $3,000,000.00 (the Floor Amount). The Floor Amount will be reconciled on an annual basis from September 1 through August 31 of each year with any deficiency between the Floor Amount and the accumulated weekly percentage fee due and payable on September 10, immediately following such year. The Floor Amount shall be automatically terminated for any year during which any of the following conditions subsequent occur which result in a decrease of adjusted gross receipts to less than $64,000,000.00:
a.) a change in Illinois gaming law resulting in dockside gaming in the Illinois Quad Cities;
b.) introduction and operation of a fourth casino in either Rock Island or Scott Counties;
c.) removal of the Lady Luck Bettendorf vessel for a hull inspection if required by applicable regulation; or
d.) any change in Chapter 99F of the Iowa Code or regulations promulgated by the Iowa Racing and Gaming Commission (IRGC).
From said sums, RRA shall be responsible for all of its administrative costs, the annual DCI investigation of its board members as may be required, all legal expenses, salaries, and all related costs associated with RRAs administration of the license. Operator covenants and agrees to pay all charges as required by IRGC. Operator agrees to hold RRA harmless for any such charges required by IRGC. The Operator shall provide at its expense, all necessary documentation to establish to the reasonable satisfaction of RRA and IRGC the computation of the fee set forth above. Operator agrees to pay to RRA and to account to RRA as required to comply with IRGCs rules and regulations. Operator shall pay the percentage fee required herein weekly by 12:00 Noon on Friday following the completion of each calendar week.
2. Paragraph 7 of the Operators Contract is hereby amended by increasing the termination fee from $500,000.00 to $1,000,000.00 which fee shall be payable within thirty (30) days.
3. In all other respects the parties hereto ratify and confirm the Operators Contract.
4. This Amendment is expressly subject to approval by the Iowa Racing and Gaming Commission and will be effective on September 1, 1998. Operator further agrees to pay all legal and accounting expenses of RRA related to the negotiation, preparation and approval of the Amendment.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed and delivered by their duly authorized representatives as of the day and year first above written.
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RIVERBEND REGIONAL AUTHORITY |
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/s/ Martin W. Rich |
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Its President |
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By |
/s/ (ILLEGIBLE) |
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Its Secretary |
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LADY LUCK BETTENDORF, L.C. |
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/s/ A. Tompkins |
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Title: Manager |
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/s/ (ILLEGIBLE) |
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Title: Manager |
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BETTENDORF RIVERFRONT |
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DEVELOPMENT COMPANY, L.C. |
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/s/ Michael L. Sampson |
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Michael L. Sampson |
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Title: Manager |
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GREEN BRIDGE COMPANY |
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/s/ Jeffrey D. Goldstein |
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Jeffrey D. Goldstein |
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Title: President |
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LADY LUCK GAMING CORPORATION |
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/s/ Andrew H. Tompkins |
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Andrew H. Tompkins |
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Title: President |
Exhibit 10.55
SECOND AMENDMENT TO OPERATORS CONTRACT
THIS SECOND AMENDMENT TO OPERATORS CONTRACT (the Amendment) is made this 30 th day of June, 2004, by and between ISLE OF CAPRI BETTENDORF, L.C., an Iowa limited liability company (hereinafter referred to as the Operator) and SCOTT COUNTY REGIONAL AUTHORITY, an Iowa not-for-profit corporation (SCRA).
WHEREAS, Operator and SCRA have entered into an Operators Contract dated August 11, 1994 as amended (the Operators Contract); and
WHEREAS, the parties desire to amend the Operators Contract as provided herein.
NOW, THEREFORE, it is agreed as follows:
1. Paragraph 4 of the Operators Contract is hereby amended to read in its entirety as follows:
4. This Contract shall run until the conclusion of SCRAs obligations under the Bettendorf Conference Center Support Agreement attached as Exhibit A. It is agreed that this Contract shall terminate on the expiration of the license year following such conclusion of SCRAs obligations provided, however, that so long as Operator has substantially complied with the IRGC rules, (and the SCRAs gaming license is renewed), Operator is hereby granted the right to renew this Contract for succeeding one year periods, the last of which shall terminate on the last date for licensed gaming as approved by Scott County voters pursuant to Chapter 99F of the Iowa Code. Operator agrees to guarantee SCRAs payment obligations as set forth on Exhibit A.
2. In all other respects the parties hereto ratify and confirm the Operators Contract.
3. This Amendment is expressly subject to approval by the Iowa Racing and Gaming Commission and will be effective on August 1, 2004. Operator further agrees to pay all legal and accounting expenses of SCRA related to the negotiation, preparation and approval of the Amendment.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed and delivered by their duly authorized representatives as of the day and year first above written.
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SCOTT COUNTY REGIONAL AUTHORITY |
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/s/ [ILLEGIBLE] |
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Its President |
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By |
/s/ Steve Hershberger |
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Its Secretary |
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ISLE OF CAPRI BETTENDORF, L.C. |
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/s/ Bernard Goldstein (Chairman) |
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Title: Manager |
Exhibit 10.56
THIRD AMENDMENT TO THE OPERATORS CONTRACT
THIS THIRD AMENDMENT TO THE OPERATORS CONTRACT (the Amendment) is made this 30 day of Oct., 2007, by and between ISLE OF CAPRI BETTENDORF, L.C., an Iowa limited liability company (hereinafter referred to as the Operator) and SCOTT COUNTY REGIONAL AUTHORITY, an Iowa not-for-profit corporation (SCRA).
WHEREAS, Operator and SCRA have entered into an Operators Contract dated August 11, 1994 as amended (the Operators Contract); and
WHEREAS, the Bettendorf Conference/Event Center support Agreement, dated June 30, 2004 is now null and void and that Agreement was the subject of the Second Amendment to the Operators Contract dated June 30, 2004.
WHEREAS, the parties desire to amend the Operators Contract to reflect the new agreement between the SCRA and the City of Bettendorf.
NOW, THEREFORE, it is agreed as follows:
1. Paragraph 4 of the Operators Contract is hereby amended to read in its entirety as follows:
4. This contract shall run until the conclusion of SCRAs obligations under the Agreement between the City of Bettendorf and SCRA dated October 30, 2007, attached as Exhibit A. It is agreed that this contract shall terminate on the expiration of the license year following such conclusion of SCRAs obligations, provided, however, that so long as Operator has substantially complied with the IRGC rules, (and the SCRAs gaming license is renewed), Operator is hereby granted the right to renew this Contract for succeeding one year periods, the last of which shall terminate on the last date for licensed gaming as approved by Scott County voters pursuant to Chapter 99F of the Iowa Code. Operator agrees to guarantee SCRAs payment obligations as set forth on Exhibit A.
2. In all other respects the parties hereto ratify and confirm the Operators Contract.
3. This Amendment is expressly subject to approval by the Iowa Racing and Gaming Commission and will be effective on November 1, 2007. Operator further agrees to pay all legal and accounting expenses of SCRA related to the negotiation, preparation and approval of the Amendment.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed and delivered by their duly authorized representatives as of the day and year first above written.
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SCOTT COUNTY REGIONAL AUTHORITY |
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By |
/s/ [ILLEGIBLE] |
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Its President |
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By |
/s/ [ILLEGIBLE] |
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Its Secretary |
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ISLE OF CAPRI BETTENDORF, L.C. |
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/s/ Bernard Goldstein |
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Title: Manager |
STATE OF IOWA |
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COUNTY OF SCOTT |
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This instrument was acknowledged before me on 30 day of Oct. , 2007 by James A. Mezvinsky, President and John DeDoncker, Secretary of Scott County Regional Authority.
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/s/ David A. Millage |
Notary Public in and for said County and State |
STATE OF FLORIDA |
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COUNTY OF PALM BEACH |
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This instrument was acknowledged before me on 5 th day of November , 2007 by BERNARD GOLDSTEIN, Manger of Isle of Capri Bettendorf, L.C.
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/s/ Rose L. Mayer |
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Notary Public in and for said County and State |
EXHIBIT A
AGREEMENT
This Agreement is entered into this 30 day of Oct., 2007, by and between the City of Bettendorf, a municipal corporation of the State of Iowa (City) and Scott County Regional Authority, an Iowa not-for-profit corporation (SCRA).
WHEREAS the City and SCRA previously entered into a Bettendorf Conference/Events Center Support Agreement (Project) dated June 30, 2004.
WHEREAS such Agreement provided that SCRA would fund a portion of the Project out of gaming revenues which would exceed a certain amount, and
WHEREAS it now appears that those excess gaming revenues will not materialize, and
WHEREAS without SCRA assistance, funding would be insufficient to complete the Project as originally conceived, and
WHEREAS the SCRA desires to assist the City in the construction of the Project and has determined that such assistance fulfills a civic purpose and reduces the burden on the City for the construction of this public improvement, and
WHEREAS SCRA believes that the Project will benefit the residents of the City of Bettendorf by providing increased entertainment options, increased tourism and increased employment opportunities so the project should be supported.
THEREFORE IT IS AGREED:
1. That the parties agree that because of the lack of increased gaming revenues, the funding for the project has a shortfall of $10,000,000.00 (Ten Million Dollars and no/100).
2. That the City and the Isle of Capri Bettendorf, L.C. (Isle), have agreed to fund two-thirds (2/3) of the shortfall.
3. That SCRA shall fund the remaining one-third (1/3) of the shortfall subject to the following conditions:
A. Payments shall be made over a ten-year period with equal semi-annual payments of $166,667.00 ($333,334.00 per year) provided, however, that the payments received by the SCRA from the Isle exceed $3,000,000.00 in the preceding 12-month period from the time the payment is due. In the event the payments received by SCRA are less than $3,000,000.00, then the payment made by the SCRA shall
be reduced by the amount of such shortfall.
B. The maximum amount SCRA will fund is $3,333,333.00.
C. In the event the interest rate cost of the bonds are less than projected, or via the bond structure, the shortfall is less than $10,000,000.00, then the amount to be paid by SCRA shall be reduced by one-third (1/3) of the reduced shortfall. For example, if the shortfall is ultimately determined to be $9,000,000.00, then the SCRA commitment shall be reduced to $3,000,000.00 and the semi-annual payments shall be reduced accordingly.
4. The City shall notify SCRA at the time the bonds are issued of the actual shortfall in funding and the SCRA commitment shall be finally established at that point.
5. The payments to the City under this Agreement shall be made semi-annually on June 1 and December 1 of each year during the term of this Agreement, beginning on June 1, 2008.
6. Termination. If any of the foregoing conditions precedent does not occur within twelve (12) months of the date of this Agreement, either party may terminate this Agreement upon written notice to the other party.
7. Noncompliance/Mediation/Arbitration. In the event of any breach of any covenant, agreement, restriction or regulation contained in this Agreement, dispute shall be first mediated and then (if necessary) arbitrated. Only after a good faith effort to mediate such dispute has failed shall the matter proceed to arbitration. On the written notice of either party to the other of a breach of this Agreement, each party shall designate their representatives and shall meet within three (3) days after receipt of the notice. The parties themselves shall then attempt to resolve the dispute within fourteen (14) days of the meeting. Should the parties be unable to agree upon a resolution of the dispute, the parties agree that Federal Mediation and Conciliation Service shall be appointed as mediator/arbitrator, whose decision(s) shall be final, and judgment may be made and entered in any court in accordance therewith (except that either party may petition a court of competent jurisdiction for review of errors of law). Either party may notify the mediator/arbitrator and so commence the mediation/arbitration process. The mediator/arbitrator shall meet with the parties to hear the dispute within ten (10) days of such notification and shall attempt to resolve the dispute or issue his arbitration decision within fourteen (14) days of the first meeting. Each party shall abide by the decision of the mediator/arbitrator and shall pay the amounts, costs and expenses as awarded by the mediator/arbitrator with the mediator/arbitrator fee to be borne equally by both parties. The parties further agree that the non-breaching party may institute separate legal proceedings to enjoin the threatened or attempted violation of any covenant, agreement, restriction or regulation contained herein. The parties agree that specific
performance may accordingly be a remedy for and ordered by any court.
8. Additional Agreements. From time to time hereafter without further consideration, the parties agree to execute and deliver, or cause to be executed and delivered, such further agreements and instruments, and shall take such other actions, as any party may reasonably request in order to more effectively memorialize, confirm and effectuate the intentions, undertakings and obligations contemplated by this Agreement.
9. Counterparts. This Agreement may be executed in any number of counterparts with the same effect as if the parties hereto had signed the same document. All such counterparts shall constitute one instrument.
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SCOTT COUNTY REGIONAL AUTHORITY |
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By |
/s/ [ILLEGIBLE] |
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Its President |
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Its Secretary |
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THE CITY OF BETTENDORF |
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/s/ Michael J. Freemire, Mayor |
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Michael J. Freemire, Mayor |
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City of Bettendorf |
STATE OF IOWA |
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COUNTY OF SCOTT |
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This instrument was acknowledged before me on 30 day of Oct., 2007 by James A. Mezvinsky, President and John DeDoncker, Secretary of Scott County Regional Authority.
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/s/ David A. Millage |
Notary Public in and for said County and State |
STATE OF IOWA |
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COUNTY OF SCOTT |
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This instrument was acknowledged before me on 30 day of Oct. , 2007 by Michael J. Freemire, Mayor of The City of Bettendorf, Scott County, Iowa.
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/s/ David A. Millage |
Notary Public in and for said County and State |
SIGNIFICANT SUBSIDIARIES OF ISLE OF CAPRI CASINOS, INC.
WHOLLY-OWNED SUBSIDIARIES
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STATE OF INCORPORATION | |
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Black Hawk Holdings, L.L.C. | Colorado | |
Capri Insurance Company | Hawaii | |
CCSC Blackhawk, Inc. | Colorado | |
IC Holdings Colorado, Inc. | Colorado | |
IOC-Black Hawk Distribution Company, LLC | Colorado | |
IOC-Boonville, Inc. | Nevada | |
IOC-Caruthersville, L.L.C | Missouri | |
IOC-Kansas City, Inc. | Missouri | |
IOC-Lula, Inc. | Mississippi | |
IOC-Natchez, Inc. | Mississippi | |
IOC-Vicksburg, Inc. | Delaware | |
IOC-Vicksburg, L.L.C. | Delaware | |
IOC Black Hawk County, Inc. | Iowa | |
IOC Cape Girardeau, LLC | Missouri | |
IOC Holdings, L.L.C. | Louisiana | |
IOC-PA, L.L.C. | Pennsylvania | |
Isle of Capri Bettendorf, L.C. | Iowa | |
Isle of Capri Black Hawk, L.L.C. | Colorado | |
Isle of Capri Marquette, Inc. | Iowa | |
PPI, Inc. | Florida | |
Rainbow Casino-Vicksburg Partnership, L.P. | Mississippi | |
St. Charles Gaming Company, LLC | Louisiana |
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements:
of our reports dated June 23, 2014, with respect to the consolidated financial statements and schedule of Isle of Capri Casinos, Inc. and the effectiveness of internal control over financial reporting of Isle of Capri Casinos, Inc. included in this Annual Report (Form 10-K) of Isle of Capri Casinos, Inc. for the year ended April 27, 2014.
/s/ Ernst & Young LLP
St. Louis,
Missouri
June 23, 2014
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13A-14(A)
UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, Virginia M. McDowell, Chief Executive Officer of Isle of Capri Casinos, Inc., certify that:
1. I have reviewed this annual report on Form 10-K of Isle of Capri Casinos, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's first fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: June 23, 2014 |
/s/ VIRGINIA M. MCDOWELL
Virginia M. McDowell Chief Executive Officer |
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13A-14(A)
UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, Dale R. Black, Chief Financial Officer of Isle of Capri Casinos, Inc., certify that:
1. I have reviewed this annual report on Form 10-K of Isle of Capri Casinos, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's first fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: June 23, 2014 |
/s/ DALE R. BLACK
Dale R. Black Chief Financial Officer |
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350)
In connection with the Annual Report of Isle of Capri Casinos, Inc. (the "Company") on Form 10-K for the period ended April 27, 2014, as filed with the Securities and Exchange Commission on the date hereof (the "Annual Report"), I, Virginia M. McDowell, Chief Executive Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that:
(1) The Annual Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and
(2) The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
Date: June 23, 2014 |
/s/ VIRGINIA M. MCDOWELL
Virginia M. McDowell Chief Executive Officer |
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350)
In connection with the Annual Report of Isle of Capri Casinos, Inc. (the "Company") on Form 10-K for the period ended April 27, 2014 as filed with the Securities and Exchange Commission on the date hereof (the "Annual Report"), I, Dale R. Black, Chief Financial Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that:
(1) The Annual Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and
(2) The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
Date: June 23, 2014 |
/s/ DALE R. BLACK
Dale R. Black Chief Financial Officer |
Exhibit 99.1
DESCRIPTION OF GOVERNMENT REGULATIONS
The ownership and operation of casino gaming facilities are subject to extensive state and local regulations. We are required to obtain and maintain gaming licenses in each of the jurisdictions in which we conduct gaming. The limitation, conditioning or suspension of gaming licenses could (and the revocation or non-renewal of gaming licenses, or the failure to reauthorize gaming in certain jurisdictions, would) materially adversely affect our operation in that jurisdiction. In addition, changes in law that restrict or prohibit our gaming operations in any jurisdiction could have a material adverse effect on us.
Colorado
The State of Colorado created the Division of Gaming (Colorado Division) within the Department of Revenue to license, implement, regulate and supervise the conduct of limited gaming under the Colorado Limited Gaming Act. The Director of the Colorado Division (Colorado Director), pursuant to regulations promulgated by, and subject to the review of, a five-member Colorado Limited Gaming Control Commission (Colorado Commission), has been granted broad power to ensure compliance with the Colorado gaming laws and regulations (collectively, the Colorado Regulations). The Colorado Director may inspect without notice, impound or remove any gaming device. The Colorado Director may examine and copy any licensees records, may investigate the background and conduct of licensees and their employees, and may bring disciplinary actions against licensees and their employees. The Colorado Director may also conduct detailed background investigations of persons who loan money to, or otherwise provide financing to, a licensee.
The Colorado Commission is empowered to issue five types of gaming and gaming-related licenses, and has delegated authority to the Colorado Director to issue certain types of licenses and approve certain changes in ownership. The licenses are revocable and non-transferable. The failure or inability of the Isle of Capri Black Hawk, LLC or CCSC/Blackhawk, Inc. (each, a Colorado Casino or collectively, the Colorado Casinos), or the failure or inability of others associated with any of the Colorado Casinos, including us, to maintain necessary gaming licenses or approvals would have a material adverse effect on our operations. All persons employed by any of the Colorado Casinos, and involved, directly or indirectly, in gaming operations in Colorado also are required to obtain a Colorado gaming license. All licenses must be renewed every two years. As a general rule, under the Colorado Regulations, no person may have an ownership interest in more than three retail gaming licenses in Colorado. The Colorado Commission has ruled that a person does not have an ownership interest in a retail gaming licensee for purposes of the multiple license prohibition if:
· that person has less than a 5% ownership interest in an institutional investor that has an ownership interest in a publicly traded licensee or publicly traded company affiliated with a licensee;
· a person has a 5% or more ownership interest in an institutional investor, but the institutional investor has less than a 5% ownership interest in a publicly traded licensee or publicly traded company affiliated with a licensee;
· an institutional investor has less than a 5% ownership interest in a publicly traded licensee or publicly traded company affiliated with a licensee;
· an institutional investor possesses voting securities in a fiduciary capacity for another person, and does not exercise voting control over 5% or more of the outstanding voting securities of a publicly traded licensee or of a publicly traded company affiliated with a licensee;
· a registered broker or dealer retains possession of voting securities of a publicly traded licensee or of a publicly traded company affiliated with a licensee for its customers and not for its own account, and exercises voting rights for less than 5% of the outstanding voting securities of a publicly traded licensee or publicly traded company affiliated with a licensee;
· a registered broker or dealer acts as a market maker for the stock of a publicly traded licensee or of a publicly traded company affiliated with a licensee and exercises voting rights in less than 5% of the outstanding voting securities of the publicly traded licensee or publicly traded company affiliated with a licensee;
· an underwriter is holding securities of a publicly traded licensee or publicly traded company affiliated with a licensee as part of an underwriting for no more than 90 days after the beginning of such underwriting if it exercises voting rights of less than 5% of the outstanding voting securities of a publicly traded licensee or publicly traded company affiliated with a licensee;
· a book entry transfer facility holds voting securities for third parties, if it exercises voting rights with respect to less than 5% of the outstanding voting securities of a publicly traded licensee or publicly traded company affiliated with a licensee; or
· a persons sole ownership interest is less than 5% of the outstanding voting securities of the publicly traded licensee or publicly traded company affiliated with a licensee.
Because we own the Colorado Casinos, our business opportunities, and those of persons with an ownership interest in us, or any of the Colorado Casinos, are limited to interests that comply with the Colorado Regulations and the Colorado Commissions rule.
In addition, pursuant to the Colorado Regulations, no manufacturer or distributor of slot machines or associated equipment may, without notification being provided to the Colorado Division within ten days, knowingly have an interest in any casino operator, allow any of its officers or any other person with a substantial interest in such business to have such an interest, employ any person if that person is employed by a casino operator, or allow any casino operator or person with a substantial interest therein to have an interest in a manufacturers or distributors business. A substantial interest means the lesser of (i) as large an interest in an entity as any other person or (ii) any financial or equity interest equal to or greater than 5%. The Colorado Commission has ruled that a person does not have a substantial interest if such persons sole ownership interest in such licensee is through the ownership of less than 5% of the outstanding voting securities of a publicly traded licensee or publicly traded affiliated company of a licensee.
We are a publicly traded corporation under the Colorado Regulations.
Under the Colorado Regulations, any person or entity having any direct or indirect interest in a gaming licensee or an applicant for a gaming license, including, but not limited to, us, Black Hawk Holdings, LLC, IC Holdings Colorado, Inc., IOC Black Hawk Distribution Company, LLC or either of the two Colorado Casinos and their security holders, may be required to supply the Colorado Commission with substantial information, including, but not limited to, background information, source of funding information, a sworn statement that such person or entity is not holding his or her interest for any other party, and fingerprints. Such information, investigation and licensing (or finding of suitability) as an associated person automatically will be required of all persons (other than certain institutional investors discussed below) which directly or indirectly beneficially own 10% or more of a direct or indirect beneficial ownership or interest in either of the two Colorado Casinos, through their beneficial ownership of any class of voting securities of us, Black Hawk Holdings, LLC, IC Holdings Colorado, Inc., IOC Black Hawk Distribution Company, LLC or either of the two Colorado Casinos. Those persons must report their interest within 10 days (including institutional investors) and file appropriate applications within 45 days after acquiring that interest (other than certain institutional investors discussed below). Persons (including institutional investors) who directly or indirectly beneficially own 5% or more (but less than 10%) of a direct or indirect beneficial ownership or interest in either of the two Colorado Casinos, through their beneficial ownership of any class of voting securities of us, Black Hawk Holdings, LLC, IC Holdings Colorado, Inc., IOC Black Hawk Distribution Company, LLC or either of the two Colorado Casinos, must report their interest to the Colorado Commission within 10 days after acquiring that interest and may be required to provide additional information and to be found suitable. (It is the current practice of the gaming regulators to require findings of suitability for persons beneficially owning 5% or more of a direct or indirect beneficial ownership or interest, other than certain institutional investors discussed below.) If
certain institutional investors provide specified information to the Colorado Commission within 45 days after acquiring their interest (which, under the current practice of the gaming regulators is an interest of 5% or more, directly or indirectly) and are holding for investment purposes only, those investors, in the Colorado Commissions discretion, may be permitted to own up to 14.99% of the Colorado Casinos through their beneficial ownership in any class of voting of securities of us, Black Hawk Holdings, LLC, IC Holdings Colorado, Inc., IOC Black Hawk Distribution Company, LLC or either of the two Colorado Casinos, before being required to be found suitable. All licensing and investigation fees will have to be paid by the person in question.
The Colorado Regulations define a voting security to be a security the holder of which is entitled to vote generally for the election of a member or members of the board of directors or board of trustees of a corporation or a comparable person or persons of another form of business organization.
The Colorado Commission also has the right to request information from any person directly or indirectly interested in, or employed by, a licensee, and to investigate the moral character, honesty, integrity, prior activities, criminal record, reputation, habits and associations of: (1) all persons licensed pursuant to the Colorado Limited Gaming Act; (2) all officers, directors and stockholders of a licensed privately held corporation; (3) all officers, directors and stockholders holding either a 5% or greater interest or a controlling interest in a licensed publicly traded corporation; (4) all general partners and all limited partners of a licensed partnership; (5) all persons that have a relationship similar to that of an officer, director or stockholder of a corporation (such as members and managers of a limited liability company); (6) all persons supplying financing or loaning money to any licensee connected with the establishment or operation of limited gaming; (7) all persons having a contract, lease or ongoing financial or business arrangement with any licensee, where such contract, lease or arrangement relates to limited gaming operations, equipment devices or premises; and (8) all persons contracting with or supplying any goods and services to the gaming regulators.
Certain public officials and employees are prohibited from having any direct or indirect interest in a license or limited gaming.
In addition, under the Colorado Regulations, every person who is a party to a gaming contract (as defined below) or lease with an applicant for a license, or with a licensee, upon the request of the Colorado Commission or the Colorado Director, must promptly provide the Colorado Commission or Colorado Director all information that may be requested concerning financial history, financial holdings, real and personal property ownership, interests in other companies, criminal history, personal history and associations, character, reputation in the community and all other information that might be relevant to a determination of whether a person would be suitable to be licensed by the Colorado Commission. Failure to provide all information requested constitutes sufficient grounds for the Colorado Director or the Colorado Commission to require a licensee or applicant to terminate its gaming contract or lease with any person who failed to provide the information requested. In addition, the Colorado Director or the Colorado Commission may require changes in gaming contracts before an application is approved or participation in the contract is allowed. A gaming contract is defined as an agreement in which a person does business with or on the premises of a licensed entity.
The Colorado Commission and the Colorado Division have interpreted the Colorado Regulations to permit the Colorado Commission to investigate and find suitable persons or entities providing financing to or acquiring securities from us, Black Hawk Holdings, LLC, IC Holdings Colorado, Inc., IOC Black Hawk Distribution Company, LLC or either of the two Colorado Casinos. As noted above, any person or entity required to file information, be licensed or found suitable would be required to pay the costs thereof and of any investigation. Although the Colorado Regulations do not require the prior approval for the execution of credit facilities or issuance of debt securities, the Colorado regulators reserve the right to approve, require changes to or require the termination of any financing, including if a person or entity is required to be found suitable and is not found suitable. In any event, lenders, note holders, and others providing financing will not be able to exercise certain rights and remedies without the prior approval of the Colorado gaming authorities. Information regarding lenders and holders of securities will be periodically reported to the Colorado gaming authorities.
Except under certain limited circumstances relating to slot machine manufacturers and distributors, every person supplying goods, equipment, devices or services to any licensee in return for payment of a percentage, or calculated upon a percentage, of limited gaming activity or income must obtain an operator license or be listed on the retailers license where such gaming will take place.
An application for licensure or suitability may be denied for any cause deemed reasonable by the Colorado Commission or the Colorado Director, as appropriate. Specifically, the Colorado Commission and the Colorado Director must deny a license to any applicant who, among other things: (1) fails to prove by clear and convincing evidence that the applicant is qualified; (2) fails to provide information and documentation requested; (3) fails to reveal any fact material to qualification, or supplies information which is untrue or misleading as to a material fact pertaining to qualification; (4) has been convicted of, or has a director, officer, general partner, stockholder, limited partner or other person who has a financial or equity interest in the applicant who has been convicted of, specified crimes, including the service of a sentence upon conviction of a felony in a correctional facility, city or county jail, or community correctional facility or under the state board of parole or any probation department within ten years prior to the date of the application, gambling-related offenses, theft by deception or crimes involving fraud or misrepresentation, is under current prosecution for such crimes (during the pendency of which license determination may be deferred), is a career offender or a member or associate of a career offender cartel, or is a professional gambler; or (5) has refused to cooperate with any state or federal body investigating organized crime, official corruption or gaming offenses. If the Colorado Commission determines that a person or entity is unsuitable to directly or indirectly own interests in us, Black Hawk Holdings, LLC, IC Holdings Colorado, Inc., or either of the two Colorado Casinos, one or more of the Colorado Casinos may be sanctioned, which may include the loss of our approvals and licenses.
The Colorado Commission does not need to approve in advance a public offering of securities but rather requires the filing of notice and additional documents prior to a public offering of (i) voting securities, and (ii) non-voting securities if any of the proceeds will be used to pay for the construction of gaming facilities in Colorado, to directly or indirectly acquire an interest in a gaming facility in Colorado, to finance the operation of a gaming facility in Colorado or to retire or extend obligations for any of the foregoing. The Colorado Commission may, in its discretion, require additional information and prior approval of such public offering.
In addition, the Colorado Regulations prohibit a licensee or affiliated company thereof, such as us Black Hawk Holdings, LLC, IC Holdings Colorado, Inc., IOC Black Hawk Distribution Company, LLC or either of the two Colorado Casinos, from paying any unsuitable person any dividends or interest upon any voting securities or any payments or distributions of any kind (except as set forth below), or paying any unsuitable person any remuneration for services or recognizing the exercise of any voting rights by any unsuitable person. Further, under the Colorado Regulations, each of the Colorado Casinos and IOC Black Hawk Distribution Company, LLC may repurchase its voting securities from anyone found unsuitable at the lesser of the cash equivalent to the original investment in the applicable Colorado Casino or IOC Black Hawk Distribution Company, LLC or the current market price as of the date of the finding of unsuitability unless such voting securities are transferred to a suitable person (as determined by the Colorado Commission) within sixty (60) days after the finding of unsuitability. A licensee or affiliated company must pursue all lawful efforts to require an unsuitable person to relinquish all voting securities, including purchasing such voting securities. The staff of Colorado Division has taken the position that a licensee or affiliated company may not pay any unsuitable person any interest, dividends or other payments with respect to non-voting securities, other than with respect to pursuing all lawful efforts to require an unsuitable person to relinquish non-voting securities, including by purchasing or redeeming such securities. Further, the regulations require anyone with a material involvement with a licensee, including a director or officer of a holding company, such as us, Black Hawk Holdings, LLC, IC Holdings Colorado, Inc., IOC Black Hawk Distribution Company, LLC or either of the two Colorado Casinos, to file for a finding of suitability if required by the Colorado Commission.
Because of their authority to deny an application for a license or suitability, the Colorado Commission and the Colorado Director effectively can disapprove a change in corporate position of a licensee and with respect to any entity which is required to be found suitable, or indirectly can cause us, Black Hawk Holdings, LLC, IC Holdings Colorado, Inc., IOC Black Hawk Distribution Company, LLC or the applicable Colorado Casino to suspend or dismiss managers, officers, directors and other key employees or sever relationships with other persons who refuse to file appropriate applications or who the authorities find unsuitable to act in such capacities.
Generally, a sale, lease, purchase, conveyance or acquisition of any interest in a licensee is prohibited without the Colorado Commissions prior approval. However, because we are a publicly traded corporation, persons may acquire an interest in us (even, under current staff interpretations, a controlling interest) without the Colorado Commissions prior approval, but such persons may be required to file notices with the Colorado Commission and
applications for suitability (as discussed above) and the Colorado Commission may, after such acquisition, find such person unsuitable and require them to dispose of their interest. Under some circumstances, we may not sell any interest in our Colorado gaming businesses without the prior approval of the Colorado Commission.
Each Colorado Casino must meet specified architectural requirements, fire safety standards and standards for access for disabled persons. Each Colorado Casino also must not exceed specified gaming square footage limits as a total of each floor and the full building. Each Colorado Casino may permit only individuals 21 or older to gamble in the casino. No Colorado Casino may provide credit to its gaming patrons. Each Colorado Casino must comply with Colorados Gambling Payment Intercept Act, which governs the collection of unpaid child support costs on certain cash winnings from limited gaming.
As originally enacted by amendment to the Colorado Constitution, limited stakes gaming in Colorado was limited to slot machines, blackjack and poker, with a maximum single bet of $5.00, and casinos could operate only between 8 a.m. and 2 a.m.. On November 4, 2008, however, Colorado voters approved a subsequent amendment to the Colorado Constitution that allowed the towns of Cripple Creek, Black Hawk, and Central City to add table games of craps and roulette, increase the maximum single bet to $100.00, and increase the permitted hours of operation to 24 hours per day effective July 2, 2009.
A licensee is required to provide information and file periodic reports with the Colorado Division, including identifying those who have a 5% or greater ownership, financial or equity interest in the licensee, or who have the ability to control the licensee, or who have the ability to exercise significant influence over the licensee, or who loan money or other things of value to a licensee, or who have the right to share in revenues of limited gaming, or to whom any interest or share in profits of limited gaming has been pledged as security for a debt or performance of an act. A licensee, and any parent company or subsidiary of a licensee, who has applied to a foreign jurisdiction for licensure or permission to conduct gaming, or who possesses a license to conduct foreign gaming, is required to notify the Colorado Division. Any person licensed by the Colorado Commission and any associated person of a licensee must report criminal convictions and criminal charges to the Colorado Division.
The Colorado Commission has broad authority to sanction, fine, suspend and revoke a license for violations of the Colorado Regulations. Violations of many provisions of the Colorado Regulations also can result in criminal penalties.
The Colorado Constitution currently permits gaming only in a limited number of cities and certain commercial districts in such cities.
The Colorado Constitution permits a gaming tax of up to 40% on adjusted gross gaming proceeds, and authorizes the Colorado Commission to change the rate annually. The current gaming tax rate is 0.25% on adjusted gross gaming proceeds of up to and including $2.0 million, 2% over $2.0 million up to and including $5.0 million, 9% over $5.0 million up to and including $8.0 million, 11% over $8.0 million up to and including $10.0 million, 16% over $10.0 million up to and including $13.0 million and 20% on adjusted gross gaming proceeds in excess of $13.0 million. The City of Black Hawk has imposed an annual device fee of $750 per gaming device and may revise it from time to time. The City of Black Hawk also has imposed other fees, including a business improvement district fee and transportation fee, calculated based on the number of devices and may revise the same or impose additional such fees.
Colorado participates in multi-state lotteries.
The sale of alcoholic beverages is subject to licensing, control and regulation by the Colorado liquor agencies. All persons who directly or indirectly hold a 10% or more interest in, or 10% or more of the issued and outstanding capital stock of, any of the Colorado Casinos, through their ownership of us, Black Hawk Holdings, LLC, IC Holdings Colorado, Inc., or either of the two Colorado Casinos, must file applications and possibly be investigated by the Colorado liquor agencies. The Colorado liquor agencies also may investigate those persons who, directly or indirectly, loan money to or have any financial interest in liquor licensees. In addition, there are restrictions on stockholders, directors and officers of liquor licensees preventing such persons from being a stockholder, director, officer or otherwise interested in some persons lending money to liquor licensees and from making loans to other liquor licensees. All licenses are revocable and transferable only in accordance with all applicable laws. The
Colorado liquor agencies have the full power to limit, condition, suspend or revoke any liquor license and any disciplinary action could (and revocation would) have a material adverse effect upon the operations of us, Black Hawk Holdings, LLC, IC Holdings Colorado, Inc., or the applicable Colorado Casino. Each Colorado Casino holds a retail gaming tavern liquor license for its casino, hotel and restaurant operations.
Persons directly or indirectly interested in either of the two Colorado Casinos may be limited in certain other types of liquor licenses in which they may have an interest, and specifically cannot have an interest in a retail liquor license (but may have an interest in a hotel and restaurant liquor license and several other types of liquor licenses). No person can hold more than three retail gaming tavern liquor licenses. The remedies of certain lenders may be limited by applicable liquor laws and regulations.
Florida
In June 1995, the Florida Department of Business and Professional Regulation, Division of Pari-Mutuel Wagering (the Division), issued its final order approving the transfer to the companys wholly owned subsidiary, PPI, Inc. (PPI), the pari-mutuel wagering permits which authorize the acceptance of pari-mutuel wagers on harness horse and quarter horse races conducted at the Pompano Park Racetrack (Pompano Park) located in Pompano Beach, Florida. Harness horse racing at Pompano Park has been continuously conducted by PPI since the time it acquired the foregoing described harness horse racing permit through the present. The license to conduct live evening harness racing performances at Pompano Park must be renewed annually and was most recently renewed in March 2014 for the State of Floridas fiscal year beginning July 1, 2014 to June 30, 2015. PPI also has a quarter horse racing permit that is not currently active.
The Florida statutes and the applicable rules and regulations of the Division set forth in the Florida Administrative Code (the Florida Law) establish a regulatory framework for pari-mutuel wagering activities in the State of Florida, including licensing requirements, a taxing structure on pari-mutuel permitholders and requirements for payments to the horsemen, including owners and breeders. Florida Law grants to the Division full regulatory power over all permitholders and licensees, including the power to revoke or suspend any permit or license upon the willful violation of Florida Law by a permitholder or a licensee. The Division must approve any transfer of five percent (5%) or more of the stock or other evidence of ownership or equity in all pari-mutuel racing permitholders such as PPI. In addition to the power to suspend or revoke a permit or license on account of a willful violation of the Florida Law, the Division also is granted the power to impose various civil penalties on the permitholder or licensee on account of other violations. Penalties may not exceed $1,000 for each count or separate offense.
PPI races 126 live performances annually, down from 140 live performances annually due to a one-time statutory reduction implemented this year. PPI also is authorized to conduct full-card pari-mutuel wagering on: (1) simulcast harness races from outside of Florida throughout the racing season; and (2) night-time (after 6 p.m.) thoroughbred races conducted outside of Florida. Such races may be simulcast only to a Florida thoroughbred track. If the Florida thoroughbred track accepts wagers on those races, it is required by law to rebroadcast the signal to PPI which will accept pari-mutuel wagers on the races. PPI also has the right under Florida Law to conduct full-card simulcasting of harness racing on days during which no live racing is held at Pompano Park; however, on non-race days, Pompano Park must rebroadcast the simulcast signals to other pari-mutuel facilities that are eligible to conduct intertrack wagering. In addition, Pompano Park may transmit its live harness races into any dog racing or jai alai facility in Florida, including facilities in Miami-Dade and Broward Counties, for intertrack wagering. Pompano Park also receives live races from other Florida pari-mutuel facilities for intertrack wagering. Florida Law establishes the allocation of contributions to the pari-mutuel pools between Pompano Park and the other facilities sharing such signals.
Florida Law authorizes pari-mutuel facilities, including Pompano Park, to operate card rooms in those counties in which card rooms have been approved by a majority vote of the County Commission and a local ordinance adopted. The County Commission of Broward County, where Pompano Park is located, has approved the operation of card rooms in Broward County. Although the provisions of Florida Law regarding card room operations have been amended frequently by the Florida Legislature, the amendments generally have resulted in the regulatory scheme becoming more liberal as opposed to becoming more restrictive. Under amendments which became effective on July 1, 2007, the beneficial changes included permitting daily operations for any twelve (12) hour period without the requirement for live racing, raising the limit on the maximum bet amount from $2.00 to $5.00 with up to three (3)
raises allowed per round, providing less restrictive regulations for tournaments and allowing the operator to award prizes and create jackpots not tied to the amount bet.
In November 2004, the voters in the State of Florida amended the Florida State Constitution to allow the voters of Miami-Dade and Broward Counties to decide whether to approve slot machines at existing racetracks and jai alai frontons which had conducted live racing or games in the calendar years 2002-03, in their respective counties. Broward County voters approved that countys local referendum in 2005 and Miami Dade voters approved that countys local referendum in 2008. Legislation enacted by the Florida Legislature in 2005, and amended in 2007, (the Florida Slot Law) implemented the constitutional amendment by authorizing Pompano Park and three (3) other pari-mutuel facilities in Broward and the pari-mutuel facilities in Miami-Dade County to offer slot machine gaming to patrons at those facilities. Although there are pari-mutuel facilities in numerous other counties in the State of Florida, slot machine gaming presently is authorized only in Broward and Miami-Dade Counties. In April 2007, a new casino facility was opened at Pompano Park adjacent to the harness race facility.
The Florida slot machine gaming laws require the slot licensee to continue to be in compliance with the pari-mutuel laws and maintain the pari-mutuel license in good standing by, among other things, conducting a full schedule of live racing. The following regulatory provisions also are applicable to slot machine gaming at Pompano Park:
· The facility may be operated 365 days per year, eighteen (18) hours per weekday and twenty-four (24) hours on weekends.
· The maximum number of machines is 2,000 Vegas-style (Class III) slot machines per facility, with a payout percentage of at least eighty-five percent (85%).
· The annual license fee is $2,000,000.00.
· Effective July 1, 2010, the tax payable to the State of Florida is thirty-five percent (35%) of net slot machine revenue.
· The machines will not accept coins or currency, but are ticket in/ticket out.
· The minimum age to play the machines is twenty-one (21) years.
· ATMs are permitted in the facility but not on the gaming floor.
· The Division is the regulatory agency charged with the duty of enforcing the provisions of the Florida Law.
PPI also pays combined county and city taxes of approximately three and one-half percent (3.5%) on the first $250 million of net slot machine revenue and five percent (5%) on net slot machine revenue over $250 million.
In April 2009, legislation was passed which set forth and granted the parameters under which the Governor has authority to enter into an Indian Gaming Compact (Compact) with the Seminole Indian Tribe of Florida on behalf of the State of Florida for the purpose of authorizing Class III gaming. Additionally, the legislation provided for a reduction of the tax rate on slot machines operated by pari-mutuel facilities from fifty percent (50%) to thirty-five percent (35%) with a guarantee of tax revenue to the state, from all slot facilities, of no less than the amount that was collected in the fiscal year ended June 30, 2009, from all slot facilities. The tax guarantee was easily met. After the proposed effective date of the legislation, two (2) new slot facilities opened in Miami-Dade County. These facilities created enough new tax revenue to ensure that total revenues exceeded revenue collected in the base year. The legislation also reduced the annual license fee from $3 million to $2.5 million for the State of Floridas 2010 Fiscal Year and to $2 million each fiscal year thereafter. It allowed slot machines to be linked using a progressive system and expanded poker operations to allow operation for eighteen (18) hours per day on week days and twenty-four (24) hours per day on weekends. In addition, it authorized no-limit poker games and tournaments. In order for this legislation to become effective in 2009, the following conditions must have been met:
(i) it must have been approved by or allowed to become law by the Governor;
(ii) a Compact must have been entered into with the Seminole Indian Tribe of Florida by August 31, 2009; and
(iii) the Legislature must have ratified the Compact and the Compact must have been published in the Federal Registry.
All of the provisions outlined above became effective July 1, 2010. The same act expanded the number of slot facilities in Miami-Dade County by authorizing a new slot license for Hialeah race track, which was not an eligible slot facility under the 2004 constitutional amendment. The act also set forth a method for further expansion of slots at other pari-mutuel facilities throughout the state by authorizing a countywide referendum on slots. After several counties attempted to authorize slots by referendum, the Attorney General officially opined that further legislative or constitutional authorization was necessary before any expansion could proceed. The Division has adopted the same position.
Iowa
In 1989, the State of Iowa legalized riverboat gaming on the Mississippi River and other navigable waterways located in Iowa. The legislation authorized the granting of licenses to non-profit corporations that, in turn, are permitted to enter into operating agreements with qualified persons who actually conduct riverboat gaming operations. Such operators must likewise be approved and licensed by the Iowa Racing and Gaming Commission (the Iowa Gaming Commission).
The Isle-Bettendorfs operators contract with the Scott County Regional Authority, a non-profit corporation organized for the purpose of facilitating riverboat gaming in Bettendorf, Iowa, is automatically renewed for succeeding one-year periods as long as gaming remains approved in Scott County. Under the operators contract, the Isle-Bettendorf pays the Scott County Regional Authority a fee equal to 4.1% of the adjusted gross receipts. Further, the Isle-Bettendorf pays a fee to the City of Bettendorf equal to 1.65% of adjusted gross receipts.
In June 1994, Upper Mississippi Gaming Corporation, a non-profit corporation organized for the purpose of facilitating riverboat gaming in Marquette, Iowa, entered into an operators agreement for the Isle-Marquette for a period of twenty-five years. Under the management agreement, the non-profit organization is to be paid a fee of $0.50 per passenger. Further, pursuant to a dock site agreement (which also has a term of twenty-five years), the Isle-Marquette is required to pay a fee to the City of Marquette in the amount of $1.00 per passenger, plus a fixed amount of $15,000 per month and 2.5% of gaming revenues (less state wagering taxes) in excess of $20.0 million but less than $40.0 million; 5% of gaming revenues (less state wagering taxes) in excess of $40.0 million but less than $60.0 million; and 7.5% of gaming revenues (less state wagering taxes) in excess of $60.0 million.
In November 2004, the Black Hawk County Gaming Association, a non-profit corporation organized for the purpose of facilitating riverboat gaming in Waterloo, Iowa entered into an operators agreement with the Isle-Waterloo to conduct riverboat gaming in Waterloo, Iowa. The operating agreement requires that Isle-Waterloo make weekly payments to the qualified sponsoring organization equal to 4.1% of each weeks adjusted gross receipts and an additional fee of 1.65% of each weeks adjusted gross receipts in lieu of any admission or docking fee which might otherwise be charged by the county or any city (as defined in Section 99F.1(1) of the Iowa Code). This agreement will remain in effect through March 31, 2015 and may be extended by the Isle-Waterloo for three-year periods so long as it has substantially complied with gaming laws and regulations and holds a license to conduct gaming. In addition, the Isle-Waterloo has agreed to pay a development fee to the City. Pursuant to an admission fee administration and development agreement with the City and Black Hawk County Gaming Association the Isle-Waterloo shall pay a development fee equal to 1% of each weeks adjusted gross receipts.
Iowa law permits gaming licensees to offer unlimited stakes gaming on games approved by the Iowa Gaming Commission on a 24-hour basis. Land-based casino gaming was authorized on July 1, 2007 and the Iowa Gaming Commission now permits licensees the option to operate on permanently moored vessels, moored barges, or approved gambling structures. The legal age for gaming is 21.
All Iowa licenses were approved for renewal at the March 6, 2014 Iowa Gaming Commission meeting. These licenses are not transferable and will need to be renewed in March 2015 and prior to the commencement of each subsequent annual renewal period.
The ownership and operation of gaming facilities in Iowa are subject to extensive state laws, regulations of the Iowa Gaming Commission and various county and municipal ordinances (collectively, the Iowa Gaming Laws),
concerning the responsibility, financial stability and character of gaming operators and persons financially interested or involved in gaming operations. Iowa Gaming Laws seek to: (1) prevent unsavory or unsuitable persons from having direct or indirect involvement with gaming at any time or in any capacity; (2) establish and maintain responsible accounting practices and procedures; (3) maintain effective control over the financial practices of licensees (including the establishment of minimum procedures for internal fiscal affairs, the safeguarding of assets and revenues, the provision of reliable record keeping and the filing of periodic reports with the Iowa Gaming Commission); (4) prevent cheating and fraudulent practices; and (5) provide a source of state and local revenues through taxation and licensing fees. Changes in Iowa Gaming Laws could have a material adverse effect on the Iowa gaming operations.
The Iowa gaming operations must submit detailed financial and operating reports to the Iowa Gaming Commission. Certain contracts of licensees in excess of $100,000 must be submitted to and approved by the Iowa Gaming Commission. Certain officers, directors, managers and key employees of the Iowa gaming operations are required to be licensed by the Iowa Gaming Commission. Gaming licenses granted to individuals must be renewed every year, and licensing authorities have broad discretion with regard to such renewals. Licenses are not transferable. Employees associated with gaming must obtain occupational licenses that are subject to immediate suspension under specific circumstances. In addition, anyone having a material relationship or involvement with the Iowa gaming operations may be required to be found suitable or to be licensed, in which case those persons would be required to pay the costs and fees of the Iowa Gaming Commission and Division of Criminal Investigation in connection with the investigation. The Iowa Gaming Commission may require any person who acquires 5% or more of a licensees equity securities to submit to a background investigation and be found suitable. The applicant stockholder is required to pay all costs of this investigation. The Iowa Gaming Commission may deny an application for a license for any cause deemed reasonable. In addition to its authority to deny an application for license, the Iowa Gaming Commission has jurisdiction to disapprove a change in position by officers or key employees and the power to require the Iowa gaming operations to suspend or dismiss officers, directors or other key employees or sever relationships with other persons who refuse to file appropriate applications or whom the Iowa Gaming Commission finds unsuitable to act in such capacities.
The Iowa Gaming Commission may revoke a gaming license if the licensee:
· has been suspended from operating a gaming operation in another jurisdiction by a board or commission of that jurisdiction;
· has failed to demonstrate financial responsibility sufficient to meet adequately the requirements of the gaming enterprise;
· is not the true owner of the enterprise;
· has failed to disclose ownership of other persons in the enterprise;
· is a corporation 10% of the stock of which is subject to a contract or option to purchase at any time during the period for which the license was issued, unless the contract or option was disclosed to the Iowa Gaming Commission and the Iowa Gaming Commission approved the sale or transfer during the period of the license;
· knowingly makes a false statement of a material fact to the Iowa Gaming Commission;
· fails to meet a monetary obligation in connection with an excursion gaming boat;
· pleads guilty to, or is convicted of a felony;
· loans to any person, money or other thing of value for the purpose of permitting that person to wager on any game of chance;
· is delinquent in the payment of property taxes or other taxes or fees or a payment of any other contractual obligation or debt due or owed to a city or county; or
· assigns, grants or turns over to another person the operation of a licensed excursion boat (this provision does not prohibit assignment of a management contract approved by the Iowa Gaming Commission) or permits another person to have a share of the money received for admission to the excursion boat.
If it were determined that the Iowa Gaming Laws were violated by a licensee, the gaming licenses held by a licensee could be limited, made conditional, suspended or revoked. In addition, the licensee and the persons involved could be subject to substantial fines for each separate violation of the Iowa Gaming Laws in the discretion of the Iowa Gaming Commission. Limitations, conditioning or suspension of any gaming license could (and revocation of any gaming license would) have a material adverse effect on operations.
Gaming taxes approximating 22% of the adjusted gross receipts will be payable by each licensee on its operations to the State of Iowa. In addition, assessments paid by certain licensees during fiscal year 2004 in an amount equal to 2.152% of each licensees adjusted gross receipts for fiscal year 2004 are currently being reimbursed by an offset to state gaming taxes paid by each licensee in the amount of 20% of the assessments paid each year beginning July 1, 2010 for five consecutive years. The state of Iowa is also reimbursed by the licensees for all costs associated with monitoring and enforcement by the Iowa Gaming Commission and the Iowa Department of Criminal Investigation.
Louisiana
In July 1991, Louisiana enacted legislation permitting certain types of gaming activity on certain rivers and waterways in Louisiana. The legislation granted authority to supervise riverboat gaming activities to the Louisiana Riverboat Gaming Commission and the Riverboat Gaming Enforcement Division of the Louisiana State Police. The Louisiana Riverboat Gaming Commission was authorized to hear and determine all appeals relative to the granting, suspension, revocation, condition or renewal of all licenses, permits and applications. In addition, the Louisiana Riverboat Gaming Commission established regulations concerning authorized routes, duration of excursions, minimum levels of insurance, construction of riverboats and periodic inspections. The Riverboat Gaming Enforcement Division of the Louisiana State Police was authorized to investigate applicants and issue licenses, investigate violations of the statute and conduct continuing reviews of gaming activities.
In May 1996, regulatory oversight of riverboat gaming was transferred to the Louisiana Gaming Control Board, which is comprised of nine voting members appointed by the governor. The Louisiana Gaming Control Board now oversees all licensing matters for riverboat casinos, land-based casinos, racinos, video poker and certain aspects of Native American gaming other than those responsibilities reserved to the Louisiana State Police.
The Louisiana Gaming Control Board is empowered to issue up to 15 licenses to conduct gaming activities on a riverboat in accordance with applicable law. However, no more than six licenses may be granted to riverboats operating from any one designated waterway.
The Louisiana State Police continues to be involved broadly in gaming enforcement and reports to the Louisiana Gaming Control Board. Louisiana law permits the Louisiana State Police, among other things, to continue to (1) conduct suitability investigations, (2) audit, investigate and enforce compliance with standing regulations, (3) initiate enforcement and administrative actions and (4) perform all other duties and functions necessary for the efficient, efficacious, and thorough regulation and control of gaming activities and operations under the Louisiana Gaming Control Boards jurisdiction.
Louisiana gaming law specifies certain restrictions relating to the operation of riverboat gaming, including the following:
· agents of the Louisiana State Police are permitted on board at any time during gaming operations;
· gaming devices, equipment and supplies may only be purchased or leased from permitted suppliers and, with respect to gaming equipment, from permitted manufacturers;
· gaming may only take place in the designated gaming area while the riverboat is docked on a designated river or waterway;
· gaming equipment may not be possessed, maintained or exhibited by any person on a riverboat except in the specifically designated gaming area or in a secure area used for inspection, repair or storage of such equipment;
· wagers may be received only from a person present on a licensed riverboat;
· persons under 21 are not permitted in designated gaming areas;
· except for slot machine play, wagers may be made only with tokens, chips or electronic cards purchased from the licensee aboard a riverboat;
· licensees may only use docking facilities and routes for which they are licensed and may only board and discharge passengers at the riverboats licensed berth;
· licensees must have adequate protection and indemnity insurance;
· licensees must have all necessary federal and state licenses, certificates and other regulatory approvals prior to operating a riverboat; and
· gaming may only be conducted in accordance with the terms of the license and Louisiana law.
To receive a gaming license in Louisiana, an applicant must be found to be a person of good character, honesty and integrity and a person whose prior activities, criminal record, if any, reputation, habits and associations do not (1) pose a threat to the public interest of the State of Louisiana or to the effective regulation and control of gaming or (2) create or enhance the dangers of unsuitable, unfair or illegal practices, methods and activities in the conduct of gaming or the carrying on of business and financial arrangements of gaming activities. In addition, the Louisiana Gaming Control Board will not grant a license unless it finds that, among other things:
· the applicant can demonstrate the capability, either through training, education, business experience or a combination of the preceding, to operate a gaming operation;
· the proposed financing of the riverboat and the gaming operations is adequate for the nature of the proposed operation and is from a suitable and acceptable source;
· the applicant demonstrates a proven ability to operate a vessel of comparable size, capacity and complexity to a riverboat so as to ensure the safety of its passengers;
· the applicant submits with its application for a license a detailed plan of design of the riverboat;
· the applicant designates the docking facilities to be used by the riverboat;
· the applicant shows adequate financial ability to construct and maintain a riverboat; and
· the applicant has a good faith plan to recruit, train and upgrade minorities in all employment classifications.
An initial license to conduct riverboat gaming operations is valid for a term of five years and legislation passed in the 1999 legislative session provides for renewals every five years thereafter. Louisiana gaming law provides that a renewal application for the period succeeding the initial five-year term of an operators license must be made to the Louisiana Gaming Control Board and must include a statement under oath of any and all changes in information, including financial information, provided in the previous application. The transfer of a license or an interest in a license is prohibited. A gaming license is deemed to be a privilege under Louisiana law and, as such, may be denied, revoked, suspended, conditioned or limited at any time by the Louisiana Gaming Control Board.
St. Charles Gaming Company, Inc. is the sole Isle licensee in Louisiana operating its gaming operations on the riverboat known as Grand Palais in Calcasieu Parish. St. Charles Gaming received its initial approval in March 1993. Isle received approval in July 1995 to acquire its interest in St. Charles Gaming. St. Charles Gaming has been awarded three (3) five-year renewals on July 20, 1999, March 29, 2005 and February 23, 2010.
Certain persons affiliated with a riverboat gaming licensee, including directors and officers of the licensee, directors and officers of any holding company of the licensee involved in gaming operations, persons holding 5% or greater
interests in the licensee and persons exercising influence over a licensee, are subject to the application and suitability requirements of Louisiana gaming law.
The sale, purchase, assignment, transfer, pledge or other hypothecation, lease, disposition or acquisition by any person of securities that represent 5% or more of the total outstanding shares issued by a licensee is subject to the approval of the Louisiana Gaming Control Board. A security issued by a licensee must generally disclose these restrictions. Prior approval from the Louisiana Gaming Control Board is required for the sale, purchase, assignment, transfer, pledge or other hypothecation, lease, disposition or acquisition of any ownership interest of 5% or more of any non-corporate licensee or for the transfer of any economic interest of 5% or more of any licensee or affiliated gaming person. An economic interest is defined as any interest whereby a person receives or is entitled to receive, by agreement or otherwise, a profit, gain, thing of value, loan, credit, security interest, ownership interest or other benefit.
Fees payable to the state for conducting gaming activities on a riverboat include (1) $50,000 per riverboat for the first year of operation and $100,000 per year per riverboat thereafter, plus (2) 21.5% of net gaming proceeds. Legislation was passed during the 2001 legislative session that allowed those riverboats that had been required to conduct cruises, including the riverboats at the Isle-Lake Charles, to remain permanently dockside beginning April 1, 2001. The legislation also increased the gaming tax for operators from 18.5% to 21.5%. A statute also authorizes local governing authorities to levy boarding fees. We currently have development agreements in Lake Charles with certain local governing authorities in the jurisdictions in which we operate pursuant to which we make payments in lieu of boarding fees.
A licensee must notify and/or seek approval from the Louisiana Gaming Control Board in connection with any withdrawals of capital, loans, advances or distributions in excess of 5% of retained earnings for a corporate licensee, or of capital accounts for a partnership or limited liability company licensee, upon completion of any such transaction. The Louisiana Gaming Control Board may issue an emergency order for not more than ten days prohibiting payment of profits, income or accruals by, or investments in, a licensee. Unless excepted or waived by the Louisiana Gaming Control Board, riverboat gaming licensees and their affiliated gaming persons must notify the Louisiana Gaming Control Board 60 days prior to the receipt by any such persons of any loans or extensions of credit or modifications thereof. The Louisiana Gaming Control Board is required to investigate the reported loan, extension of credit or modification thereof and to determine whether an exemption exists on the requirement of prior written approval and, if such exemption is not applicable, to either approve or disapprove the transaction. If the Louisiana Gaming Control Board disapproves of a transaction, the transaction cannot be entered into by the licensee or affiliated gaming person. We are an affiliated gaming person of our subsidiary that holds the license to conduct riverboat gaming at the St. Charles Gaming Company, Inc.
The failure of a licensee to comply with the requirements set forth above may result in the suspension or revocation of that licensees gaming license. Additionally, if the Louisiana Gaming Control Board finds that the individual owner or holder of a security of a corporate license or intermediary company or any person with an economic interest in a licensee is not qualified under Louisiana law, the Louisiana Gaming Control Board may require, under penalty of suspension or revocation of the license, that the person not:
· receive dividends or interest on securities of the corporation;
· exercise directly or indirectly a right conferred by securities of the corporation;
· receive remuneration or economic benefit from the licensee;
· exercise significant influence over activities of the licensee; or
· continue its ownership or economic interest in the licensee.
A licensee must periodically report the following information to the Louisiana Gaming Control Board, which is not confidential and is available for public inspection: (1) the licensees net gaming proceeds from all authorized games, (2) the amount of net gaming proceeds tax paid and (3) all quarterly and annual financial statements presenting historical data, including annual financial statements that have been audited by an independent certified public
auditor.
During the 1996 special session of the Louisiana legislature, legislation was enacted placing on the ballot for a statewide election a constitutional amendment limiting the expansion of gaming, which was subsequently passed by the voters. As a result, local option elections are required before new or additional forms of gaming can be brought into a parish.
Proposals to amend or supplement Louisianas riverboat gaming statute are frequently introduced in the Louisiana State Legislature. There is no assurance that changes in Louisiana gaming law will not occur or that such changes will not have a material adverse effect on our business in Louisiana.
Mississippi
In June 1990, Mississippi enacted legislation legalizing dockside casino gaming for counties along the Mississippi River, which is the western border for most of the state, and the Gulf Coast, which is the southern border for most of the state. The legislation gave each of those counties the opportunity to hold a referendum on whether to allow dockside casino gaming within its boundaries.
In its 2005 regular session, the legislature amended Mississippi law to allow gaming to be conducted on vessels or cruise vessels placed upon permanent structures located on, in or above the Mississippi River, on, in or above navigable waters in eligible counties along the Mississippi River or on, in or above the waters lying south of the counties along the Mississippi Gulf Coast. Later, after Hurricane Katrina, the Mississippi legislature again amended the law to allow land-based gaming along the Gulf Coast in very limited circumstances. Mississippi law permits unlimited stakes gaming on a 24-hour basis and does not restrict the percentage of space that may be utilized for gaming. There are no limitations on the number of gaming licenses that may be issued in Mississippi.
The ownership and operation of gaming facilities in Mississippi are subject to extensive state and local regulation intended to:
· prevent unsavory or unsuitable persons from having any direct or indirect involvement with gaming at any time or in any capacity;
· establish and maintain responsible accounting practices and procedures for gaming operations;
· maintain effective control over the financial practices of licensees, including establishing minimum procedures for internal fiscal affairs and safeguarding of assets and revenues, providing reliable record keeping and making periodic reports;
· provide a source of state and local revenues through taxation and licensing fees;
· prevent cheating and fraudulent practices; and
· ensure that gaming licensees, to the extent practicable, employ Mississippi residents.
State gaming regulations are subject to amendment and interpretation by the Mississippi Gaming Commission. Changes in Mississippi laws or regulations may limit or otherwise materially affect the types of gaming that may be conducted in Mississippi and such changes, if enacted, could have an adverse effect on us and our Mississippi gaming operations.
We are registered as a publicly traded corporation under the Mississippi Gaming Control Act. Our gaming operations in Mississippi are subject to regulatory control by the Mississippi Gaming Commission, the Mississippi Department of Revenue and various other local, city and county regulatory agencies (collectively referred to as the Mississippi Gaming Authorities). Our subsidiaries have obtained gaming licenses from the Mississippi Gaming Authorities. We must obtain a waiver from the Mississippi Gaming Commission before beginning certain proposed
gaming operations outside of Mississippi, and we must notify the Mississippi Gaming Commission in writing within 30 days after commencing certain gaming operations outside the state. The licenses held by our Mississippi gaming operations have terms of three years and are not transferable. The Isle-Natchez, the Isle-Lula, and the Lady Luck Casino Vicksburg property hold licenses effective from May 23, 2012, through May 22, 2015. In addition, our wholly-owned subsidiary, IOC Manufacturing, Inc., holds a manufacturer and distributors license, so that we may perform certain upgrades to our Mississippi player tracking system. This license was recently renewed and has a term of three years effective June 16, 2014 through June 15, 2017. The license is not transferable. There is no assurance that new licenses can be obtained at the end of each three-year period of a license. Moreover, the Mississippi Gaming Commission may, at any time, and for any cause it deems reasonable, revoke, suspend, condition, limit or restrict a license or approval to own shares of stock in our subsidiaries that operate in Mississippi.
Substantial fines for each violation of Mississippis gaming laws or regulations may be levied against us, our subsidiaries and the persons involved. Disciplinary action against us or one of our subsidiary gaming licensees in any jurisdiction may lead to disciplinary action against us or any of our subsidiary licensees in Mississippi, including, but not limited to, the revocation or suspension of any such subsidiary gaming license.
We, along with each of our Mississippi gaming subsidiaries, must periodically submit detailed financial, operating and other reports to the Mississippi Gaming Commission and/or the Mississippi Department of Revenue. Numerous transactions, including but not limited to substantially all loans, leases, sales of securities and similar financing transactions entered into by any of our Mississippi gaming subsidiaries must be reported to or approved by the Mississippi Gaming Commission. In addition, the Mississippi Gaming Commission may, at its discretion, require additional information about our operations.
Certain of our officers and employees and the officers, directors and certain key employees of our Mississippi gaming subsidiaries must be found suitable or be licensed by the Mississippi Gaming Commission. We believe that all required findings of suitability and key employee licenses related to all of our Mississippi properties have been applied for or obtained, although the Mississippi Gaming Commission at its discretion may require additional persons to file applications for findings of suitability or key employee licenses. In addition, any person having a material relationship or involvement with us may be required to be found suitable or licensed, in which case those persons must pay the costs and fees associated with such investigation. The Mississippi Gaming Commission may deny an application for a finding of suitability for any cause that it deems reasonable. Changes in certain licensed positions must be reported to the Mississippi Gaming Commission. In addition to its authority to deny an application for a finding of suitability, the Mississippi Gaming Commission has jurisdiction to disapprove a change in a licensed position. The Mississippi Gaming Commission has the power to require us and any of our Mississippi gaming subsidiaries to suspend or dismiss officers, directors and other key employees or to sever relationships with other persons who refuse to file appropriate applications or who the authorities find unsuitable to act in such capacities.
Employees associated with gaming must obtain work permits that are subject to immediate suspension under certain circumstances. The Mississippi Gaming Commission will refuse to issue a work permit to a person who has been convicted of a felony, committed certain misdemeanors or knowingly violated the Mississippi Gaming Control Act, and it may refuse to issue a work permit to a gaming employee for any other reasonable cause.
At any time, the Mississippi Gaming Commission has the power to investigate and require the finding of suitability of any record or beneficial stockholder of ours. The Mississippi Gaming Control Act requires any person who individually or in association with others acquires, directly or indirectly, beneficial ownership of more than 5% of our common stock to report the acquisition to the Mississippi Gaming Commission, and such person may be required to be found suitable. In addition, the Mississippi Gaming Control Act requires any person who, individually or in association with others, becomes, directly or indirectly, a beneficial owner of more than 10% of our common stock, as reported to the U.S. Securities and Exchange Commission, to apply for a finding of suitability by the Mississippi Gaming Commission and pay the costs and fees that the Mississippi Gaming Commission incurs in conducting the investigation.
The Mississippi Gaming Commission has generally exercised its discretion to require a finding of suitability of any beneficial owner of 5% or more of a registered publicly traded corporations stock. However, the Mississippi Gaming Commission has adopted a regulation that may permit certain institutional investors to obtain waivers that allow them to beneficially own, directly or indirectly, up to 15% (19% in certain specific instances) of the voting
securities of a registered publicly traded corporation without a finding of suitability. If a stockholder who must be found suitable is a corporation, partnership or trust, it must submit detailed business and financial information, including a list of beneficial owners.
Any person who fails or refuses to apply for a finding of suitability or a license within 30 days after being ordered to do so by the Mississippi Gaming Commission may be found unsuitable. We believe that compliance by us with the licensing procedures and regulatory requirements of the Mississippi Gaming Commission will not affect the marketability of our securities. Any person found unsuitable who holds, directly or indirectly, any beneficial ownership of our securities beyond such time as the Mississippi Gaming Commission prescribes may be guilty of a misdemeanor. We are subject to disciplinary action if, after receiving notice that a person is unsuitable to be a stockholder or to have any other relationship with us or our subsidiaries operating casinos in Mississippi, we:
· pay the unsuitable person any dividend or other distribution upon its voting securities;
· recognize the exercise, directly or indirectly, of any voting rights conferred by its securities;
· pay the unsuitable person any remuneration in any form for services rendered or otherwise, except in certain limited and specific circumstances; or
· fail to pursue all lawful efforts to require the unsuitable person to divest itself of the securities, including, if necessary, our immediate purchase of the securities for cash at a fair market value.
We may be required to disclose to the Mississippi Gaming Commission upon request the identities of the holders of any of our debt securities. In addition, under the Mississippi Gaming Control Act, the Mississippi Gaming Commission may, in its discretion, (1) require holders of our securities, including our notes, to file applications, (2) investigate such holders and (3) require such holders to be found suitable to own such securities. Although the Mississippi Gaming Commission generally does not require the individual holders of obligations such as the notes to be investigated and found suitable, the Mississippi Gaming Commission retains the discretion to do so for any reason, including but not limited to a default, or where the holder of the debt instrument exercises a material influence over the gaming operations of the entity in question. Any holder of debt securities required to apply for a finding of suitability must pay all investigative fees and costs of the Mississippi Gaming Commission in connection with such an investigation.
The Mississippi regulations provide that a change in control of us may not occur without the prior approval of the Mississippi Gaming Commission. Mississippi law prohibits us from making a public offering of our securities without the approval of the Mississippi Gaming Commission if any part of the proceeds of the offering is to be used to finance the construction, acquisition or operation of gaming facilities in Mississippi, or to retire or extend obligations incurred for one or more such purposes. The Mississippi Gaming Commission has the authority to grant a continuous approval of securities offerings and has granted such approval to us, subject to renewal every three years.
Regulations of the Mississippi Gaming Commission prohibit certain repurchases of securities of publicly traded corporations registered with the Mississippi Gaming Commission, including holding companies such as ours, without prior approval of the Mississippi Gaming Commission. Transactions covered by these regulations are generally aimed at discouraging repurchases of securities at a premium over market price from certain holders of greater than 3% of the outstanding securities of the registered publicly traded corporation. The regulations of the Mississippi Gaming Commission also require prior approval for a plan of recapitalization as defined in such regulations.
We must maintain in the State of Mississippi current stock ledgers, which may be examined by the Mississippi Gaming Authorities at any time. If any securities are held in trust by an agent or by a nominee, the record holder may be required to disclose the identity of the beneficial owner to the Mississippi Gaming Authorities. A failure to make such disclosure may be grounds for finding the record holder unsuitable. We must render maximum assistance in determining the identity of the beneficial owner.
Mississippi law requires that certificates representing shares of our common stock bear a legend to the general effect that the securities are subject to the Mississippi Gaming Control Act and regulations of the Mississippi Gaming Commission. The Mississippi Gaming Commission has the authority to grant a waiver from the legend requirement,
which we have obtained. The Mississippi Gaming Commission, through the power to regulate licenses, has the power to impose additional restrictions on the holders of our securities at any time.
The Mississippi Gaming Commission enacted a regulation in 1994 requiring that, as a condition to licensure, an applicant must provide a plan to develop infrastructure amounting to 25% of the cost of the casino and a parking facility capable of accommodating 500 cars. The regulation was amended in 1999 to increase the infrastructure requirement from 25% to 100% for new casinos (or upon acquisition of a closed casino) but grandfathered existing licensees and development plans approved prior to the effective date of the new regulation. In 2003, 2006, 2007, and 2013, the Mississippi Gaming Commission made additional changes to this regulation.
The 2013 amendment removed the 100% reference and, among other things, specifies that a proposed gaming development must include the following:
· A 500-car or larger parking facility in close proximity to the casino complex;
· A 300-room or larger hotel of at least a three diamond rating as defined by an acceptable travel publication to be determined by the Mississippi Gaming Commission;
· A 200-seat or larger restaurant;
· A 75-seat or larger fine dining facility; and
· A 40,000-square foot or larger casino floor.
The proposed gaming development must also have or support an amenity that is unique to the market and encourages economic development and promotes tourism. The Mississippi Gaming Commission may, in its discretion, reduce these requirements or allow an amenity of high value to the overall tourism market to supplant the requisite hotel and dining facilities. This 2013 amendment applies only to new applicants for gaming licenses and to acquisitions / purchases of existing licensees or gaming facilities that have ceased gaming operations prior to the acquisition / purchase; it does not apply to licensees licensed by the Mississippi Gaming Commission, or to persons receiving Approval to Proceed with Development from the Mississippi Gaming Commission, before December 31, 2013.
License fees and taxes are payable to the State of Mississippi and to the counties and cities in which a Mississippi gaming subsidiarys respective operations will be conducted. The license fee payable to the state of Mississippi is based upon gross revenue of the licensee (generally defined as gaming receipts less payout to customers as winnings) and equals 4% of gross revenue of $50,000 or less per month, 6% of gross revenue in excess of $50,000 but less than $134,000 per calendar month, and 8% of gross revenue in excess of $134,000 per calendar month. The foregoing license fees are allowed as a credit against the licensees Mississippi income tax liability for the year paid. Additionally, a licensee must pay a $5,000 annual license fee and an annual fee based upon the number of games it operates. The gross revenue tax imposed by the Mississippi communities and counties in which our casino operations are located equals 0.4% of gross revenue of $50,000 or less per calendar month, 0.6% of gross revenue over $50,000 and less than $134,000 per calendar month and 0.8% of gross revenue greater than $134,000 per calendar month. These fees have been imposed in, among other cities and counties, Biloxi and Coahoma County. Certain local and private laws of the state of Mississippi may impose fees or taxes on the Mississippi gaming subsidiaries in addition to the fees described above.
In April 2010, the Mississippi Gaming Commission adopted a regulation amendment that imposes a flat annual fee on each casino operator licensee, covering all investigative fees for that year associated with an operator licensee, any entity registered as a holding company or publicly traded corporation of that licensee, and any person required to be found suitable in connection with that licensee or any holding company or publicly traded corporation of that licensee. The particular fee is based on the average number of gaming devices operated by the licensee during a twelve (12) month period, as reported to the Mississippi Gaming Commission. The investigative fee is $325,000 for licensees with 1500 or more gaming devices, $250,000 for licensees with 1000 to 1499 gaming devices, and
$150,000 for licensees with less than 1000 gaming devices. The fee is payable in four (4) equal quarterly installments. The amendment provides that should such total investigative fees collected by the Mississippi Gaming Commission exceed the amount allowed by Mississippi statute, then the excess fees will be credited to the licensees for the following year. The amended regulation also provides a schedule of various fees applicable to licensees and persons not covered by the annual investigative fee.
The Mississippi Gaming Commission requires, as a condition of licensure or license renewal, that casino vessels on the Mississippi Gulf Coast that are not self-propelled must be moored to withstand a Category 4 hurricane with 155 mile-per-hour winds and 15-foot tidal surge. However, after Hurricane Katrina, Isle - Biloxi reopened its casino on shore rather than on a vessel. A 1996 Mississippi Gaming Commission regulation prescribes the hurricane emergency procedure to be used by the Mississippi Gulf Coast casinos.
The sale of food or alcoholic beverages at our Mississippi gaming locations is subject to licensing, control and regulation by the applicable state and local authorities. The agencies involved have full power to limit, condition, suspend or revoke any such license, and any such disciplinary action could (and revocation would) have a material adverse effect upon the operations of the affected casino or casinos. Certain of our officers and managers and our Mississippi gaming subsidiaries must be investigated by the Alcoholic Beverage Control Division of the Mississippi Department of Revenue in connection with liquor permits that have been issued. The Alcoholic Beverage Control Division of the Mississippi Department of Revenue must approve all changes in licensed positions.
On three separate occasions since 1998, certain anti-gaming groups have proposed referenda that, if adopted, would have banned gaming in Mississippi and required that gaming entities cease operations within two years after the ban. All three referenda were declared invalid by Mississippi courts because each lacked a required government revenue impact statement.
Missouri
Conducting gambling activities and operating a riverboat gaming facility in Missouri are subject to extensive regulation under Missouris Riverboat Gambling Act and the rules and regulations promulgated thereunder. The Missouri Gaming Commission (the Commission) was created by the Missouri Riverboat Gambling Act and is charged with regulatory authority over riverboat gaming operations in Missouri, including the issuance of gaming licenses to owners, operators, suppliers and certain affiliates of riverboat gaming facilities. In June 2000, IOC-Kansas City, Inc., a subsidiary of ours, was issued a riverboat gaming license in connection with our Kansas City operation. In December 2001, IOC-Boonville, Inc., a subsidiary of ours, was issued a riverboat gaming license for our Boonville operation. In June of 2007, IOC-Caruthersville, LLC f/k/a Aztar Missouri Riverboat Gaming Company, L.L.C. was acquired by us and began operations as a subsidiary of ours under a Missouri riverboat gaming license. In October 2012, IOC-Cape Girardeau LLC, a subsidiary of ours, was issued a riverboat gaming license for our Cape Girardeau operation.
In order to obtain a license to operate a riverboat gaming facility, the proposed operating business entity must complete a Riverboat Gaming Application form requesting a Class B License. In order to obtain a license to own and/or control a Class B Licensee as its ultimate holding company, a company must complete a Riverboat Gaming Application form requesting a Class A License. The Riverboat Gaming Application form is comprised of comprehensive questions regarding the nature and suitability of the applicant. Applicants who submit the Riverboat Gaming Application form requesting either a Class A or Class B License undergo an extensive background investigation by the Commission. In addition, each key person associated with the applicant (including directors, officers, managers and owners of a significant direct or indirect interest in the Class A or Class B License applicant) must complete a Key Person and Level 1 Application (Personal Disclosure Form 1) and undergo a substantial background investigation. Certain key business entities closely related to the applicant must undergo a similar application process and background check. An applicant for a Class A or Class B License will not receive a license if the applicant and its key persons, including key business entities, have not established good repute and moral character, and no licensee shall either employ or contract with any person who has pled guilty to, or been convicted of, a felony, to perform any duties directly connected with the licensees privileges under a license granted by the Commission.
Each Class B License granted entitles a licensee to conduct gambling activities at a specific riverboat gaming operation. Each Class A License granted entitles the licensee to develop and operate a Class B licensee or, if authorized, multiple Class B licensees. The duration of both the Class A and Class B License initially runs for two one-year terms; thereafter, for four-year terms. In conjunction with the renewal of each license, the Commission requires the filing of a Riverboat Gaming Renewal Application form and renewal fees. In conjunction with each renewal, the Commission may conduct an additional investigation of the licensee with specific emphasis on new information provided in the Riverboat Gaming Renewal Application form. The Commission also possesses the right to periodically conduct a comprehensive investigation on any Class A, Class B, supplier or key person licensee since the date on which the last comprehensive investigation was conducted. The Commission also licenses the serving of alcoholic beverages on riverboats and related facilities.
In determining whether to grant and allow the continued possession of a gaming license, the Commission considers the following factors, among others: (i) the integrity of the applicant; (ii) the types and variety of games the applicant may offer; (iii) the quality of the physical facility, together with improvements and equipment; (iv) the financial ability of the applicant to develop and operate the facility successfully; (v) the status of governmental actions required by the facility; (vi) the management ability of the applicant; (vii) compliance with applicable statutes, rules, charters and ordinances; (viii) the economic, ecological and social impact of the facility as well as the cost of public improvements; (ix) the extent of public support or opposition; (x) the plan adopted by the home dock city or county; and (xi) effects on competition.
A licensee is subject to the imposition of penalties, suspension or revocation of its license for any act that is injurious to the public health, safety, morals, good order and general welfare of the people of the State of Missouri, or that would discredit or tend to discredit the Missouri gaming industry or the State of Missouri, including without limitation: (i) failing to comply with or make provision for compliance with the legislation, the rules promulgated thereunder or any federal, state or local law or regulation; (ii) failing to comply with any rules, order or ruling of the Commission or its agents pertaining to gaming; (iii) receiving goods or services from a person or business entity who does not hold a suppliers license but who is required to hold such license by the legislation or the rules; (iv) being suspended or ruled ineligible or having a license revoked or suspended in any state or gaming jurisdiction; (v) associating with, either socially or in business affairs, or employing persons of notorious or unsavory reputation or who have extensive police records, or who have failed to cooperate with any officially constituted investigatory or administrative body and would adversely affect public confidence and trust in gaming; (vi) employing in any Missouri gaming operation any person known to have been found guilty of cheating or using any improper device in connection with any gambling game; (vii) use of fraud, deception, misrepresentation or bribery in securing any license or permit issued pursuant to the legislation; (viii) obtaining any fee, charge or other compensation by fraud, deception or misrepresentation; and (ix) incompetence, misconduct, gross negligence, fraud, misrepresentation or dishonesty in the performance of the functions or duties regulated by the Missouri Riverboat Gambling Act.
Any transfer or issuance of ownership interests in a publicly held gaming licensee or its holding company that results in an entity or group of entities acting in concert owning, directly or indirectly, an aggregate ownership interest of 5% or more in the gaming licensee must be reported to the Commission within seven days. Further, any pledge or hypothecation of, or grant of a security interest in, 5% or more of the ownership interest in a publicly held gaming licensee or its holding company must be reported to the Commission within seven days. The Commission will impose certain licensing requirements upon a holder of an aggregate ownership interest of 5% or more in a publicly-traded Missouri Class A or Class B licensee, unless such holder applies for and obtains an institutional investor exemption in accordance with the Missouri gaming regulations. The Executive Director of the Commission may grant a waiver to an institutional investor that holds up to 10% of the outstanding equity of the Missouri licensee. The Commission itself may grant a waiver to an institutional investor that holds up to 20% of the outstanding equity of the Missouri licensee.
Every employee participating in a riverboat gaming operation must hold an occupational license. In addition, the Commission issues suppliers licenses, which authorize the supplier licensee to sell or lease gaming equipment and supplies to any licensee involved in the operation of gaming activities. Class A and Class B licensees may not be licensed as suppliers.
Riverboat gaming activities may only be conducted on, or within 1,000 feet of the main channel of, the Missouri River or Mississippi River. Minimum and maximum wagers on games are set by the licensee, and wagering may be
conducted only with a cashless wagering system, whereby money is converted to tokens, electronic cards or chips that can only be used for wagering. No person under the age of 21 is permitted to wager, and wagers may only be taken from a person present on a licensed excursion gambling boat.
The Missouri Riverboat Gambling Act imposes a 21% wagering tax on adjusted gross receipts (generally defined as gross receipts less winnings paid to wagerers) from gambling games. The tax imposed is to be paid by the licensee to the Commission on the day after the day when the wagers were made. Of the proceeds of the wagering tax, 10% of such proceeds goes to the local government where the home dock is located, and the remainder goes to the State of Missouri.
The Missouri Riverboat Gambling Act also requires that licensees pay a two dollar admission tax to the Commission for each person admitted to a gaming cruise. One dollar of the admission fee goes to the State of Missouri, and one dollar goes to the home dock city in which the licensee operates. The licensee is required to maintain public books and records clearly showing amounts received from admission fees, the total amount of gross receipts and the total amount of adjusted gross receipts. In addition, all local income, earnings, use, property and sales taxes are applicable to licensees. From time to time, there have been several proposed bills pending before the Missouri General Assembly which, individually or in combination, if adopted, would (1) allow gaming credits to be used in food and beverage purchases, (2) adjust the amount of wagering tax imposed on adjusted gross receipts of licensees and/or (3) adjust the amount of admission tax paid by the licensee for each person admitted for a gaming cruise.
After many failed attempts in prior legislative sessions, a new law to become effective August 28, 2014 authorizes casino operators to provide lines of credit to persons they deem creditworthy. Each patron must be approved for credit in an amount of at least $10,000, and the underlying credit instruments shall not be due more than 30 days from issuance, are to be unsecured and shall not bear interest.
Pennsylvania
In 2004, the Commonwealth of Pennsylvania established the Pennsylvania Gaming Control Board (PGCB) to oversee the creation of the new casino industry. Initially, only slot machines were permitted, but in 2010, the law was revised to authorize table games as well (collectively, the PA Gaming Law). The law created three categories of licenses - Category 1 slot machine licenses for up to seven licensed racetrack facilities, five Category 2 licenses (two in Philadelphia, one in Pittsburgh and two at large), and three Category 3 licenses to well-established resort hotels having no fewer than 275 guest rooms under common ownership and having substantial year-around recreational guest amenities, one of which Category 3 licenses cannot be issued before July, 2017. Holders of Category 1 and Category 2 licenses are entitled to up to 5,000 slot machines and 250 table games. Holders of Category 3 licenses are entitled to up to 600 slot machines and 50 table games.
The license fee for a Category 1 and 2 slot machine license is $50 million and for a Category 3 slot machine license is $5 million. The license fee for a Category 1 and 2 table game operation certificate is $16.5 million for a petition submitted on or before June 1, 2010 and $24.75 million thereafter, and for a Category 3 table game operation certificate is $7.5 million for a petition submitted on or before June 1, 2010 and $11.25 million thereafter. The licenses to be issued to slot machine licensees and managers are valid for three years from the date the license or renewal is approved by the PGCB.
Unlike the Category 1 and 2 licensed facilities which are open to the general public, the holder of a Category 3 license may only permit entry into the gaming area of the facility by the following:
(1) A registered overnight guest of the resort.
(2) A patron of one or more of the amenities of the resort. A patron of an amenity is any individual who is a registered attendee of a convention, meeting or banquet event or participant in a sport or recreational event or any other social, cultural or business event held at a resort hotel or who participates in one or more of the amenities provided to registered guests of the hotel in return for non-de minimus consideration, currently defined by the PGCB as $10.00. A patron of an amenity at the resort may be permitted unlimited access to the gaming floor for one 24 hour period within 72 hours of use of the amenity.
(3) An authorized employee of the licensee or gaming service provider, of the PGCB or any regulatory, emergency response or law enforcement agency while engaged in the performance of the employees duties.
(4) An individual holding a valid membership approved by the PGCB or a guest of such individual. The PGCB may approve seasonal or year-round memberships that allow an individual to use one or more of the amenities provided by the resort, based upon the duration of the membership, the amenity covered by the membership and whether the fee charged represents the fair market value for the use of the amenity.
The Category 2 licensed facilities located in Philadelphia are not to be within 10 linear miles of a Category 1 licensed facility and, other than the two Philadelphia licenses, no Category 2 licensed facility is to be located within 20 linear miles of another Category 2 licensed facility. The first two Category 3 licenses are not to be located within 15 linear miles of another licensed facility. The third Category 3 license to be issued on or after July 20, 2017 is not to be located within 30 linear miles of another licensed facility.
IOC-PA, LLC (IOC-PA), a wholly-owned subsidiary of Isle, teamed up with Nemacolin Woodlands Resort (Nemacolin) and Woodlands Fayette, LLC (Woodlands Fayette) to develop and manage a proposed Category 3 casino at Nemacolin in Fayette County, Pennsylvania. The casino is called Lady Luck Casino Nemacolin. In April 2011, Woodlands Fayette was awarded the Category 3 license after a competitive process and on August 20, 2012, the Pennsylvania Supreme Court affirmed the award. On January 9, 2013, the PGCB approved IOC-PA as the manager of Lady Luck Casino Nemacolin, and approved the Management Agreement with Nemacolin and Woodlands Fayette. In addition, a table game operation certificate was awarded on February 20, 2013. All final regulatory approvals were received and the casino opened on July 1, 2013.
Isle Philadelphia Manager, LLC (Isle-Phila), a wholly-owned subsidiary of Isle, has teamed up with Tower Entertainment, LLC (Tower) to manage a proposed Category 2 casino in Philadelphia, referred to as The Provence. The Provence is one of five proposed casino projects for the sole remaining Category 2 slot machine license for Philadelphia. Closing arguments were heard by the PGCB on February 26, 2014 and we are now awaiting the decision from the PGCB as to which project will be awarded the license. There is no indication as to when a decision will be made. Based on past history, it is anticipated that there will be an appeal of that decision, regardless of who is awarded the license, which appeal is direct to the Pennsylvania Supreme Court. If The Provence is selected by the PGCB in the competitive process, then Isle-Phila will need to be licensed as the manager of The Provence. Even though IOC-PA and Isle are licensed in connection with Lady Luck Casino - Nemacolin, Isle-Phila and its affiliates and holding companies must go through the licensing process, and must prove by clear and convincing evidence their financial stability and integrity, and their good character, honesty and integrity. In addition, a table games operation certificate will need to be applied for and obtained. Further, the Management Agreement between Isle-Phila and Tower is not effective until the terms and conditions have been approved by the PGCB.
Any amendments to either management agreement must be submitted to the PGCB 30 days prior to the effective date of the proposed amendment and shall not become effective until the PGCB has reviewed and approved the terms and conditions thereof. As the management company, IOC-PA and Isle-Phila, respectively, may be jointly and severally liable for any act or omission by Woodlands Fayette and Tower, as applicable, as the slot machine licensee for any violation of the Act or the regulations, regardless of actual knowledge by IOC-PA or Isle-Phila, as applicable, of the act or omission.
Certain persons affiliated with IOC-PA and Isle-Phila, including our directors, key employees, and any person who acquires a 5% or greater beneficial interest of our voting securities, will be required to apply to the PGCB for licensure, obtain licensure and remain licensed. Licensure requires, among other things, that the applicant establish by clear and convincing evidence the applicants good character, honesty and integrity. In addition, any trust that holds 5% percent or more of our voting securities is required to be licensed by the PGCB and each individual who is a grantor, trustee or beneficiary of the trust is also required to be licensed by the PGCB. Under certain circumstances and under the regulations of the PGCB, an institutional investor, as defined under the regulations, which acquires ownership of 5% or more, but less than 10% of our voting securities, may not be required to be licensed by the PGCB provided that a notice of ownership form is filed with the PGCB. In addition, any beneficial owner of our voting securities, regardless of the number of shares beneficially owned, may be
required at the discretion of the PGCB to file an application for licensure. The PGCB also licenses or registers various categories of individuals employed by the casino in gaming and non-gaming capacities.
Non-renewal, suspension or revocation of a license, permit, certification or registration may occur for sufficient cause consistent with the PA Gaming Law and public interest. A person whose application has been denied or whose license, permit, certification or registration has been revoked may not apply for a license, permit, certification or registration for five years from the date of denial or revocation, except under certain circumstances. In the event any of our security holders is required to be licensed and is not found qualified, the security holder may be required by the PGCB to divest its interest at a price not exceeding the cost of the interest.
It is the continuing duty of all holders of licenses, permits, certifications or registrations to fully cooperate with the PGCB in the conduct of any inquiry or investigation and to provide supplementary information requested by the PGCB.
IOC-PA and Isle-Phila are required to notify the PGCB of any proposed appointment, appointment, proposed nomination, nomination, election, hiring, tender of resignation, resignation, removal, firing, incapacitation or death of any person required to be licensed as a principal or key employee under the PA Gaming Law or the regulations promulgated thereunder. In addition, IOC-PA and Isle-Phila are also required to notify the PGCB as soon as they become aware that they intend to enter into a transaction which may result in any new financial backers.
The PGCB has broad authority to sanction, fine, suspend and revoke a license for violations of the PA Gaming Law.
IOC-PA and Isle-Phila are required to submit to the PGCB with respect to their respective projects: (1) fully signed copies of all written agreements with manufacturers, suppliers and vendors; (2) a description of any oral agreements with any manufacturers, suppliers and vendors; (3) copies of all agreements relating to land and real estate; and (4) copies of all written agreements or a description of any oral agreements with a person which involves or may involve payments of $500,000 or more per year to a Pennsylvania slot machine licensee; together with any changes or amendments thereto and any other agreements as requested by the PGCB.
We must notify the PGCB immediately upon becoming aware of any proposed or contemplated change in the ownership of Isle, IOC-PA or Isle-Phila by a person or a group of persons acting in concert which involves any of the following:
(1) more than 5% percent of our securities or other ownership interest;
(2) more than 5% of the securities or other ownership interests of a corporation or other form of business entity that owns, directly or indirectly, at least 20% of our voting or other securities or ownership interests;
(3) the sale, other than the normal course of business, of Isle, IOC-PA or Isle-Philas assets; and
(4) other transactions or occurrences deemed by the PGCB to be relevant to license qualification.
PGCB approval is required prior to the completion of any proposed change of ownership that meets the above criteria.
Upon a change of control of Woodlands Fayette or Tower, the acquirer of the ownership interest would be required to qualify for licensure and pay a new license fee of $5 million. The PGCB retains the discretion to eliminate the need for qualification and/or reduce the license fee required upon a change of control.
Pennsylvania imposes up to a 55% tax on slot machine revenues, consisting of 34% of slot machine revenues to the State Gaming Fund, 2% to the host county and 2% to the host township or city (provided that for a licensed facility located in Philadelphia, the entire 4% goes to Philadelphia County), up to 12% to the Pennsylvania Race Horse Development Fund and 5% to the Pennsylvania Gaming Economic Development and Tourism Fund. In
addition, during the initial two years of table game operations, Pennsylvania imposes a table game tax of 14% of table game revenues to the Commonwealth, plus a 2% local share to each of host county and host township, provided that for a licensed facility located in Philadelphia, the entire 4% local share goes to Philadelphia County. Following the initial two years of operation, the table game tax to the Commonwealth is reduced to 12% of table game revenues, plus 2% local share to each of host county and host township, provided that for a licensed facility located in Philadelphia, the entire 4% local share goes to Philadelphia County. In addition, the table game tax to the Commonwealth is 34% of table games revenues from fully automated electronic gaming tables.
Slot machine and table game operators in Pennsylvania are also required to reimburse the PGCB for its administrative and operating expenses. In addition, in order to fund operations of the PGCB, an initial loan of approximately $36.1 million was granted to the PGCB from gaming tax funds received by the Commonwealth of Pennsylvania, followed by additional loans in the aggregate amount of approximately $63.8 million, all of which was to fund the PGCBs operational costs.
On July 11, 2011, the PGCB adopted a schedule governing the repayment of the approximately $63.8 million in loans by licensed gaming entities. The schedule provides that the loans will be repaid in quarterly installments over ten years, with one-tenth of the total initial loan balance as it existed on July 1, 2011 repaid each year by the operating gaming facilities, commencing on January 1, 2012. Each operating facilitys portion of the payment for each year is calculated on a pro rata basis in relation to an average of the facilitys annual and cumulative gross terminal revenue. The repayment of the initial $36.1 million in appropriation continues to be deferred until all licensees have commenced operations. Currently there are eleven licensed facilities operational in Pennsylvania.