XNAS:ISLE Isle of Capri Casinos Inc Quarterly Report 10-Q Filing - 1/22/2012

Effective Date 1/22/2012

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 


 

(Mark One)

 

x

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

 

For the quarterly period ended January 22, 2012

 

OR

 

o

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

 

For the transition period from              to            

 

Commission File Number 0-20538

 

ISLE OF CAPRI CASINOS, INC.

 

Delaware

 

41-1659606

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification Number)

 

 

 

600 Emerson Road, Suite 300, Saint Louis, Missouri

 

63141

(Address of principal executive offices)

 

(Zip Code)

 

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

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

 

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

 

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

 

Large accelerated o

 

Accelerated filer x

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

 

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

 

As of February 22, 2012, the Company had a total of 38,982,281 shares of Common Stock outstanding (which excludes 3,083,867 shares held by us in treasury).

 

 

 



 

PART I—FINANCIAL INFORMATION

ITEM 1.                         FINANCIAL STATEMENTS

ISLE OF CAPRI CASINOS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

 

 

 

January 22,

 

April 24,

 

 

 

2012

 

2011

 

 

 

(unaudited)

 

 

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

72,426

 

$

75,178

 

Marketable securities

 

25,650

 

22,173

 

Accounts receivable, net

 

7,903

 

9,367

 

Insurance receivable

 

3,705

 

234

 

Income taxes receivable

 

3,972

 

3,866

 

Deferred income taxes

 

7,826

 

12,097

 

Prepaid expenses and other assets

 

26,620

 

25,444

 

Total current assets

 

148,102

 

148,359

 

Property and equipment, net

 

1,102,991

 

1,113,549

 

Other assets:

 

 

 

 

 

Goodwill

 

345,303

 

345,303

 

Other intangible assets, net

 

78,616

 

82,207

 

Deferred financing costs, net

 

14,865

 

18,911

 

Restricted cash and investments

 

12,492

 

12,810

 

Prepaid deposits and other

 

9,566

 

12,749

 

Total assets

 

$

1,711,935

 

$

1,733,888

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current maturities of long-term debt

 

$

5,389

 

$

5,373

 

Accounts payable

 

32,773

 

26,013

 

Accrued liabilities:

 

 

 

 

 

Payroll and related

 

39,009

 

44,187

 

Property and other taxes

 

17,879

 

19,891

 

Interest

 

20,118

 

10,802

 

Progressive jackpots and slot club awards

 

16,531

 

15,280

 

Other

 

31,209

 

32,332

 

Total current liabilities

 

162,908

 

153,878

 

Long-term debt, less current maturities

 

1,160,283

 

1,187,221

 

Deferred income taxes

 

23,937

 

30,762

 

Other accrued liabilities

 

36,318

 

36,305

 

Other long-term liabilities

 

16,870

 

16,694

 

Stockholders’ equity:

 

 

 

 

 

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

 

 

 

Common stock, $.01 par value; 60,000,000 shares authorized; shares issued:

 

 

 

 

 

42,066,148 at January 22, 2012 and 42,063,569 at April 24, 2011

 

421

 

421

 

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

 

 

 

Additional paid-in capital

 

251,220

 

254,013

 

Retained earnings

 

98,133

 

103,095

 

Accumulated other comprehensive (loss) income

 

(1,012

)

(2,235

)

 

 

348,762

 

355,294

 

Treasury stock, 3,083,867 shares at January 22, 2012 and 3,841,283 at April 24, 2011

 

(37,143

)

(46,266

)

Total stockholders’ equity

 

311,619

 

309,028

 

Total liabilities and stockholders’ equity

 

$

1,711,935

 

$

1,733,888

 

 

See notes to the condensed consolidated financial statements.

 

2



 

ISLE OF CAPRI CASINOS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

January 22,

 

January 23,

 

January 22,

 

January 23,

 

 

 

2012

 

2011

 

2012

 

2011

 

Revenues:

 

 

 

 

 

 

 

 

 

Casino

 

$

251,371

 

$

240,205

 

$

760,428

 

$

754,007

 

Rooms

 

8,464

 

8,400

 

29,868

 

29,924

 

Food, beverage, pari-mutuel and other

 

33,672

 

31,082

 

100,525

 

99,170

 

Insurance recoveries

 

1,867

 

 

1,978

 

 

Gross revenues

 

295,374

 

279,687

 

892,799

 

883,101

 

Less promotional allowances

 

(53,126

)

(47,680

)

(157,273

)

(152,522

)

Net revenues

 

242,248

 

232,007

 

735,526

 

730,579

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Casino

 

41,385

 

38,529

 

123,290

 

118,117

 

Gaming taxes

 

61,069

 

58,331

 

183,550

 

182,951

 

Rooms

 

1,893

 

2,002

 

6,918

 

7,496

 

Food, beverage, pari-mutuel and other

 

10,386

 

10,557

 

32,113

 

32,848

 

Marine and facilities

 

14,956

 

14,602

 

46,681

 

44,558

 

Marketing and administrative

 

63,863

 

61,152

 

192,993

 

188,580

 

Corporate and development

 

7,892

 

8,719

 

29,548

 

32,180

 

Depreciation and amortization

 

21,405

 

21,822

 

64,739

 

66,934

 

Total operating expenses

 

222,849

 

215,714

 

679,832

 

673,664

 

Operating income

 

19,399

 

16,293

 

55,694

 

56,915

 

Interest expense

 

(21,737

)

(21,506

)

(65,439

)

(68,711

)

Interest income

 

185

 

431

 

624

 

1,372

 

Derivative income (expense)

 

223

 

974

 

252

 

(1,256

)

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations before income taxes

 

(1,930

)

(3,808

)

(8,869

)

(11,680

)

Income tax benefit

 

748

 

1,151

 

3,907

 

4,555

 

Loss from continuing operations

 

(1,182

)

(2,657

)

(4,962

)

(7,125

)

Income from discontinued operations, net of income taxes

 

 

 

 

794

 

Net loss

 

$

(1,182

)

$

(2,657

)

$

(4,962

)

$

(6,331

)

 

 

 

 

 

 

 

 

 

 

Loss per common share-basic and dilutive:

 

 

 

 

 

 

 

 

 

Loss from continuing operations

 

$

(0.03

)

$

(0.08

)

$

(0.13

)

$

(0.22

)

Income from discontinued operations, net of income taxes

 

 

 

 

0.03

 

Net loss

 

$

(0.03

)

$

(0.08

)

$

(0.13

)

$

(0.19

)

 

 

 

 

 

 

 

 

 

 

Weighted average basic shares

 

38,982,281

 

32,929,965

 

38,670,827

 

32,720,532

 

Weighted average diluted shares

 

38,982,281

 

32,929,965

 

38,670,827

 

32,720,532

 

 

See notes to the condensed consolidated financial statements.

 

3



 

ISLE OF CAPRI CASINOS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Accum.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

Shares of

 

 

 

Additional

 

 

 

Comprehensive

 

 

 

Total

 

 

 

Common

 

Common

 

Paid-in

 

Retained

 

Income

 

Treasury

 

Stockholders’

 

 

 

Stock

 

Stock

 

Capital

 

Earnings

 

(Loss)

 

Stock

 

Equity

 

Balance, April 24, 2011

 

42,063,569

 

$421

 

$254,013

 

$103,095

 

$(2,235

)

$(46,266

)

$309,028

 

Net loss

 

 

 

 

(4,962

)

 

 

(4,962

)

Deferred hedge adjustment, net of income tax provision of $700

 

 

 

 

 

1,164

 

 

1,164

 

Unrealized gain on interest rate cap contracts net of income tax provision of $36

 

 

 

 

 

59

 

 

59

 

Comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,739

)

Exercise of stock options

 

2,000

 

 

13

 

 

 

 

13

 

Issuance of restricted stock from common stock

 

579

 

 

 

 

 

 

 

Issuance of restricted stock from treasury stock

 

 

 

(9,123

)

 

 

9,123

 

 

Stock compensation expense

 

 

 

6,317

 

 

 

 

6,317

 

Balance, January 22, 2012

 

42,066,148

 

$421

 

$251,220

 

$98,133

 

$(1,012

)

$(37,143

)

$311,619

 

 

See notes to the condensed consolidated financial statements.

 

4



 

ISLE OF CAPRI CASINOS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Nine Months Ended

 

 

 

January 22,

 

January 23,

 

 

 

2012

 

2011

 

Operating activities:

 

 

 

 

 

Net loss

 

$

(4,962

)

$

(6,331

)

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

 

 

 

 

 

Depreciation and amortization

 

64,739

 

66,934

 

Amortization of deferred financing costs

 

4,439

 

2,463

 

Amortization of debt discount

 

(155

)

 

Deferred income taxes

 

(3,290

)

(3,513

)

Stock compensation expense

 

6,317

 

6,024

 

(Gain) loss on derivative instruments

 

(252

)

1,256

 

Loss (gain) on disposal of assets

 

18

 

(267

)

Changes in operating assets and liabilities, net of acquisition:

 

 

 

 

 

(Purchases) sales of trading securities

 

(3,477

)

1,159

 

Accounts receivable

 

2,014

 

1,024

 

Insurance receivable

 

(3,471

)

 

Income tax receivable

 

(106

)

3,620

 

Prepaid expenses and other assets

 

2,258

 

2,000

 

Accounts payable and accrued liabilities

 

6,126

 

8,415

 

Net cash provided by operating activities

 

70,198

 

82,784

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

Purchase of property and equipment

 

(45,965

)

(46,124

)

Net cash paid for acquisition, net of cash acquired

 

 

(76,167

)

Restricted cash and investments

 

163

 

(9,942

)

Net cash used in investing activities

 

(45,802

)

(132,233

)

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

Principal payments on debt

 

(3,768

)

(6,606

)

Net (repayments) borrowings on line of credit

 

(23,000

)

58,000

 

Payment of deferred financing costs

 

(393

)

 

Proceeds from exercise of stock options

 

13

 

3

 

Net cash (used in) provided by financing activities

 

(27,148

)

51,397

 

 

 

 

 

 

 

Effect of foreign currency exchange rates on cash

 

 

(51

)

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

(2,752

)

1,897

 

Cash and cash equivalents, beginning of period

 

75,178

 

68,069

 

Cash and cash equivalents, end of the period

 

$

72,426

 

$

69,966

 

 

See notes to the condensed consolidated financial statements.

 

5



 

ISLE OF CAPRI CASINOS, INC.

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

 

1.  Nature of Operations

 

Isle of Capri Casinos, Inc., a Delaware corporation, was incorporated in February 1990. Except where otherwise noted, the words “we,” “us,” “our” and similar terms, as well as “Company,” refer to Isle of Capri Casinos, Inc. and all of its subsidiaries. We are a developer, owner and operator of branded gaming facilities and related lodging and entertainment facilities in markets throughout the United States. Our wholly owned subsidiaries own and operate fourteen casino gaming facilities in the United States located in Black Hawk, Colorado; Lake Charles, Louisiana; Lula, Biloxi, Natchez and Vicksburg, Mississippi; Kansas City, Boonville and Caruthersville, Missouri; Bettendorf, Davenport, Marquette and Waterloo, Iowa; and Pompano Beach, Florida.  We are currently constructing a new gaming facility in Cape Girardeau, Missouri, which we expect to open by Thanksgiving 2012, subject to regulatory approval.

 

2.  Basis of Presentation

 

The accompanying condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and in accordance with accounting principles generally accepted in the United States of America for interim financial reporting. Accordingly, certain information and note disclosures normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States have been condensed or omitted. In managements’ opinion, the accompanying interim condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results presented. The accompanying interim condensed consolidated financial statements have been prepared without audit. The results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended April 24, 2011 as filed with the SEC and all of our other filings, including Current Reports on Form 8-K, filed with the SEC after such date and through the date of this report, which are available on the SEC’s website at www.sec.gov or our website at www.islecorp.com.

 

Our fiscal year ends on the last Sunday in April. Periodically, this system necessitates a 53-week year.  Fiscal 2012 is a 53-week year, which commenced on April 25, 2011, with the fourth quarter having 14 weeks.  Fiscal 2011 was a 52-week year, which commenced on April 26, 2010.

 

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

 

3. New Accounting Pronouncements

 

In September 2011, the Financial Accounting Standards Board, (“FASB”) issued Update No. 2011-08, “Testing Goodwill for Impairment,” which amends Accounting Standards Codification 350 “Intangibles — Goodwill and Other.” This update permits entities to make a qualitative assessment of whether a reporting unit’s fair value is, more likely than not, less than its carrying amount. If an entity concludes it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, the entity is not required to perform the two-step impairment test for that reporting unit. The update is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. We do not expect the adoption to materially affect our consolidated financial statements.

 

6



 

In June 2011, the FASB issued Update No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income,” which allows for the presentation of total comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  In addition, the guidance eliminates the option of presenting the components of other comprehensive income as part of the statement of changes in stockholders’ equity. This guidance is effective for interim and annual reporting periods beginning after December 15, 2011.  While the adoption will impact where we disclose the components of other comprehensive income in our consolidated financial statements, we do not expect the adoption to have a material impact on those consolidated financial statements.

 

4.  Flooding

 

Flooding along the Mississippi River caused five of our properties to close for portions of the nine months ended January 22, 2012.  A summary of the closure dates and subsequent reopening is as follows:

 

 

 

Closing Date

 

Reopening Date

 

Number Days
Closed

 

Caruthersville, Missouri

 

April 15, 2011

 

May 1, 2011

 

15

(A)

Davenport, Iowa

 

May 1, 2011

 

May 13, 2011

 

12

 

Caruthersville, Missouri

 

May 3, 2011

 

June 3, 2011

 

31

 

Lula, Mississippi

 

 

 

September 2, 2011

 

91

(B)

Natchez, Mississippi

 

May 7, 2011

 

June 17, 2011

 

41

 

Vicksburg, Mississippi

 

May 11, 2011

 

May 27, 2011

 

16

 

 


(A)  Six days of closure in the first quarter of fiscal 2012 and nine days of closure in the fourth quarter of fiscal 2011.

(B)  The second casino barge reopened on September 2, 2011 after flood damage was remediated.

 

Operations were impacted beyond the number of days closed as business levels fluctuated before actual closure and for extended periods of time after reopening. We maintain insurance coverage, subject to various deductibles, for both property damage and business interruption. We have a receivable of $2,711 at January 22, 2012 representing the unreimbursed portion of allowable direct reimbursable costs and property damage net of the insurance policy deductibles.  During the three and nine months ended January 22, 2012, we recognized $872 and $983, respectively, of revenue, included in insurance recoveries in the consolidated statement of operations, as partial settlement of our business interruption claims related to our Caruthersville, Davenport, Natchez and Vicksburg properties.  Any additional business interruption claims will be recognized in the periods settled.

 

5.  Long-Term Debt

 

Long-term debt consists of the following:

 

7



 

 

 

January 22,

 

April 24,

 

 

 

2012

 

2011

 

Senior Secured Credit Facility:

 

 

 

 

 

Revolving line of credit, expires November 1, 2013, interest payable at least quarterly at either LIBOR and/or prime plus a margin

 

$

10,000

 

$

33,000

 

Variable rate term loans, mature November 1, 2013, principal and interest payments due quarterly at either LIBOR and/or prime plus a margin

 

496,500

 

500,000

 

 

 

 

 

 

 

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

 

297,970

 

297,815

 

7% Senior Subordinated Notes, interest payable semi-annually March 1 and September 1

 

357,275

 

357,275

 

Other

 

3,927

 

4,504

 

 

 

1,165,672

 

1,192,594

 

Less current maturities

 

5,389

 

5,373

 

Long-term debt

 

$

1,160,283

 

$

1,187,221

 

 

Credit Facility - Our Senior Secured Credit Facility as amended (“Credit Facility”) consists of a $300,000 revolving line of credit and a $500,000 term loan.  The Credit Facility is secured on a first priority basis by substantially all of our assets and guaranteed by all of our significant subsidiaries.

 

Our net line of credit availability at January 22, 2012, as limited by our maximum leverage covenant, was approximately $177,000, after consideration of $29,000 in outstanding surety bonds and letters of credit. We pay a commitment fee related to the unused portion of the Credit Facility of up to 0.625% which is included in interest expense in the accompanying consolidated statements of operations.  The weighted average effective interest rate of the Credit Facility for the nine months ended January 22, 2012 was 5.55%.

 

The Credit Facility includes a number of affirmative and negative covenants. Additionally, we must comply with certain financial covenants including maintenance of a senior secured leverage ratio, a total 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 all covenants as of January 22, 2012.

 

7.75% Senior Notes — In March 2011, we issued $300,000 of 7.75% Senior Notes due 2019 at a price of 99.264% (“Senior Notes”).  The net proceeds from the issuance were used to repay term loans under our Credit Facility.  The 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 14.  All of the guarantor subsidiaries are wholly owned by us.  The Senior Notes are general unsecured obligations and rank junior to all of our senior secured indebtedness and senior to our senior subordinated indebtedness.  The 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 Senior Notes.

 

7% Senior Subordinated Notes - Our 7% Senior Subordinated Notes are due 2014 (“Subordinated Notes”) and are guaranteed, on a joint and several basis, by all of our significant subsidiaries and certain other subsidiaries as described in Note 14. All of the guarantor subsidiaries are wholly owned by us. The Subordinated Notes are general unsecured obligations and rank junior to all of our senior indebtedness. The Subordinated Notes are redeemable, in whole or in part, at our option at any time with call premiums as defined in the indenture governing the Subordinated Notes.

 

The indenture governing the Subordinated Notes limits, 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 or pay dividends on or repurchase stock. The indenture also limits our ability to issue and sell capital stock of subsidiaries, sell assets in excess of specified amounts or merge with or into other companies.

 

8



 

6.  Earnings Per Share

 

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

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

January 22,

 

January 23,

 

January 22,

 

January 23,

 

 

 

2012

 

2011

 

2012

 

2011

 

Numerator:

 

 

 

 

 

 

 

 

 

Income (loss) applicable to common shares:

 

 

 

 

 

 

 

 

 

Loss from continuing operations

 

$

(1,182

)

$

(2,657

)

$

(4,962

)

$

(7,125

)

Income from discontinued operations

 

 

 

 

794

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(1,182

)

$

(2,657

)

$

(4,962

)

$

(6,331

)

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

Denominator for basic loss per share - weighted average shares

 

38,982,281

 

32,929,965

 

38,670,827

 

32,720,532

 

Effect of dilutive securities Employee stock options

 

 

 

 

 

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

 

38,982,281

 

32,929,965

 

38,670,827

 

32,720,532

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted loss per share:

 

 

 

 

 

 

 

 

 

Loss from continuing operations

 

$

(0.03

)

$

(0.08

)

$

(0.13

)

$

(0.22

)

Income from discontinued operations

 

 

 

 

0.03

 

Net loss

 

$

(0.03

)

$

(0.08

)

$

(0.13

)

$

(0.19

)

 

Our basic earnings (loss) per share are computed by dividing net loss by the weighted average number of shares outstanding for the period. Due to the loss from continuing operations, stock options representing zero and 21,655 shares, which are potentially dilutive, and 1,279,710 and 1,169,710 shares which are anti-dilutive, were excluded from the calculation of common shares for diluted (loss) per share for the three and nine months ended January 22, 2012.  Due to the loss from continuing operations, stock options representing 144,909 and 95,615 shares, which are potentially dilutive, and 475,210 and 475,210 shares which are anti-dilutive, were excluded from the calculation of common shares for diluted (loss) per share for the three and nine months ended January 23, 2011.

 

7.  Stock Based Compensation

 

Under our amended and restated Long Term Incentive Plans we have issued restricted stock and stock options.

 

Restricted Stock —During the nine months ended January 22, 2012, we issued 500,992 shares of restricted stock with a weighted average grant-date fair value of $8.73 to employees and 257,003 shares of restricted stock with a weighted average grant-date fair value of $5.37 to directors.  Restricted stock awarded to employees under annual long-term incentive grants primarily vests one-third on each anniversary 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. Restricted stock awarded under our October 2008 tender offer vested in October 2011. Our estimate of forfeitures for restricted stock for employees is 5%. No forfeiture rate is estimated for directors. As of January 22, 2012, our unrecognized compensation cost for unvested restricted stock is $3,961 with a remaining weighted average vesting period of 1.1 years.

 

9



 

Stock Options - We have issued incentive stock options and nonqualified stock options which have a maximum term of 10 years and are, generally, vested and exercisable in yearly installments of 20% commencing one year after the date of grant. We currently estimate our aggregate forfeiture rates at 13%. As of January 22, 2012, our unrecognized compensation cost for unvested stock options was $327 with a weighted average vesting period of 1.4 years.

 

8.   Interest Rate Derivatives

 

We have entered into various interest rate derivative agreements in order to manage market risk on variable rate term loans outstanding. We have an interest rate swap agreement with an aggregate notional value of $50,000 with a maturity date in fiscal 2014. We have also entered into interest rate cap contracts with an aggregate notional value of $200,000 having maturity dates in fiscal 2012 and 2013 and paid premiums of $203 at inception.

 

The fair values of derivatives included in our consolidated balance sheet are as follows:

 

Type of Derivative Instrument

 

Balance Sheet Location

 

January 22, 2012

 

April 24, 2011

 

Interest rate cap contracts

 

Prepaid deposits and other

 

$

 

$

29

 

Interest rate swap contracts

 

Accrued interest

 

 

1,439

 

Interest rate swap contracts

 

Other long-term liabilities

 

2,917

 

3,594

 

 

The interest rate cap agreements meet the criteria for hedge accounting for cash flow hedges and have been evaluated, as of January 22, 2012, as being fully effective. As a result, there is no impact on our consolidated statement of operations from changes in fair value of the interest rate cap agreements. The loss recorded in other comprehensive income (loss) for our interest rate cap agreements is recorded net of deferred income tax benefits of $13 and $49 as of January 22, 2012 and April 24, 2011, respectively. The change in unrealized loss on our derivatives qualifying for hedge accounting was $3 and $29 for the three and nine months ended January 22, 2012, respectively.  The change in unrealized gain (loss) on our derivatives qualifying for hedge accounting was $63 and $67 for the three and nine months ended January 23, 2011, respectively.

 

Our interest rate swaps no longer meet the criteria for hedge effectiveness, and therefore changes in the fair value of the swaps subsequent to the date of ineffectiveness in February 2010, are recorded in derivative income (expense) in the consolidated statement of operations. The cumulative loss recorded in other comprehensive income (loss) through the date of ineffectiveness is being amortized into derivative expense over the remaining term of the individual interest rate swap agreements or when the underlying transaction is no longer expected to occur. As of January 22, 2012, the weighted average fixed LIBOR interest rate of our interest rate swap agreement was 3.995%.

 

The loss recorded in other comprehensive income (loss) of our interest rate swap agreements is recorded net of deferred income tax benefits of $595 and $1,295, as of January 22, 2012 and April 24, 2011, respectively.

 

Derivative income (expense) related to the change in fair value of interest rate swap contracts is as follows:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

January 22,

 

January 23,

 

January 22,

 

January 23,

 

 

 

2012

 

2011

 

2012

 

2011

 

Derivative income (expense)

 

$

749

 

$

2,344

 

$

2,116

 

$

7,207

 

 

10



 

Derivative income (expense) 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:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

January 22,

 

January 23,

 

January 22,

 

January 23,

 

 

 

2012

 

2011

 

2012

 

2011

 

Accumulated OCI amortization

 

$

328

 

$

858

 

$

1,164

 

$

5,299

 

Change in deferred taxes

 

198

 

512

 

700

 

3,164

 

Derivative income (expense)

 

(526

)

(1,370

)

(1,864

)

(8,463

)

 

The amount of accumulated other comprehensive income (loss) related to interest rate swap contracts and interest rate cap contracts maturing within the next twelve months was $616, net of tax of $371, as of January 22, 2012.

 

9.  Fair Value

 

The fair value of our interest swap and cap contracts are recorded using Level 3 inputs at the present value of all expected future cash flows based on the LIBOR-based swap yield curve as of the date of the valuation.

 

The following table presents the changes in Level 3 liabilities measured at fair value on a recurring basis for the three and nine months ended January 22, 2012 and January 23, 2011:

 

 

 

Three Months Ended

 

Nine Months Ended

 

Interest Rate Hedges

 

January 22, 2012

 

January 23, 2011

 

January 22, 2012

 

January 23, 2011

 

Beginning Balance

 

$

(3,663

)

$

(8,060

)

$

(5,004

)

$

(12,927

)

Realized gains/(losses)

 

749

 

2,345

 

2,116

 

7,208

 

Unrealized gains/(losses)

 

(3

)

63

 

(29

)

67

 

Ending Balance

 

$

(2,917

)

$

(5,652

)

$

(2,917

)

$

(5,652

)

 

11



 

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

 

 

 

January 22, 2012

 

April 24, 2011

 

 

 

Carrying

 

 

 

Carrying

 

 

 

 

 

Amount

 

Fair Value

 

Amount

 

Fair Value

 

Financial assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

72,426

 

$

72,426

 

$

75,178

 

$

75,178

 

Marketable securities

 

25,650

 

25,650

 

22,173

 

22,173

 

Restricted cash and investments

 

12,492

 

12,492

 

12,810

 

12,810

 

Notes receivable

 

1,923

 

1,923

 

3,788

 

3,788

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

Revolving line of credit

 

$

10,000

 

$

8,550

 

$

33,000

 

$

31,350

 

Variable rate term loans

 

496,500

 

498,111

 

500,000

 

505,000

 

7% Senior subordinated notes

 

357,275

 

351,916

 

357,275

 

358,615

 

7.75% Senior notes

 

297,970

 

277,857

 

297,815

 

305,055

 

Other long-term debt

 

3,927

 

3,927

 

4,504

 

4,504

 

Other long-term obligations

 

16,870

 

16,870

 

16,694

 

16,694

 

 

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

 

Cash and cash equivalents, restricted cash and notes receivable are carried at cost, which approximates fair value due to their short-term maturities.

 

Marketable securities are based upon Level 1 inputs obtained from quoted prices available in active markets and represent the amounts we would expect to receive if we sold these marketable securities.

 

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 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. Debt obligations with a short remaining maturity are valued at the carrying amount.

 

10.  Accumulated Other Comprehensive Income (Loss)

 

A detail of Accumulated other comprehensive income (loss) is as follows:

 

 

 

January 22, 2012

 

April 24, 2011

 

Interest rate cap contracts

 

$

(23

)

$

(82

)

Interest rate swap contracts

 

(989

)

(2,153

)

 

 

$

(1,012

)

$

(2,235

)

 

The amount of change in the gain (loss) recognized in accumulated other comprehensive income (loss) related to derivative instruments is as follows:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

January 22,

 

January 23,

 

January 22,

 

January 23,

 

Type of Derivative Instrument

 

2012

 

2011

 

2012

 

2011

 

Interest rate cap contract

 

$

20

 

$

21

 

$

59

 

$

(5

)

Interest rate swap contracts

 

328

 

858

 

1,164

 

5,299

 

 

 

$

348

 

$

879

 

$

1,223

 

$

5,294

 

 

12



 

11.  Income Taxes

 

Our effective income tax rates from continuing operations for the three and nine months ended January 22, 2012 were 38.8% and 44.1%, respectively.  Our effective income tax rates from continuing operations for the three and nine months ended January 23, 2011 were 30.2% and 39.0%, respectively. Our effective rate is based on statutory rates applied to our income adjusted for permanent differences.  Our actual effective rate will fluctuate based upon the amount of our pretax book income, permanent differences and other items used in the calculation of our income tax benefit. During the nine months ended January 22, 2012, the federal statute of limitations expired for the open tax years ending April 2006 and April 2007.

 

During fiscal 2010, the IRS completed its examination of our federal income tax returns which relate to our fiscal years 2007 and 2008.  The income tax examination changes were subject to review by the U.S. Congress Joint Committee on Taxation and on August 20, 2010 we received notification that the review had been completed with no exception to the examination.  As a result, during the nine months ended January 23, 2011, we recognized a tax benefit in discontinued operations of $794 related to the resolution of previously unrecognized tax positions related to our former UK operations.

 

12.  Supplemental Disclosures

 

Cash Flow — For the nine months ended January 22, 2012 and January 23, 2011, we made net cash payments for interest of $50,820 and $61,210, respectively. Additionally, we made net income tax payments of $947 during the nine months ended January 22, 2012 and received net income tax refunds of $5,733 during the nine months ended January 23, 2011.

 

For the nine months ended January 22, 2012 and January 23, 2011, the change in accrued purchases of property and equipment in accounts payable increased by $5,194 and $859, respectively.

 

Acquisition — We completed the acquisition of Rainbow Casino-Vicksburg Partnership, L.P. (“Rainbow”) located in Vicksburg, Mississippi on June 8, 2010 acquiring 100% of the partnership interests and have included the results of Rainbow in our consolidated financial statements subsequent to June 8, 2010.  The pro forma results of operations, as if the acquisition of Rainbow had occurred on the first day of fiscal 2011, is as follows:

 

 

 

January 23, 2011

 

 

 

Nine Months

 

 

 

Ended

 

Pro forma

 

 

 

Net revenues

 

$

734,395

 

Loss from continuing operations before income taxes

 

(11,564

)

Net loss from continuing operations

 

(7,053

)

Basic and diluted loss per share from continuing operations

 

(0.22

)

 

13



 

13.  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 7.75% Senior Notes and 7% Senior Subordinated Notes.

 

The following wholly owned subsidiaries of the Company are guarantors, on a joint and several basis, under the 7.75% Senior Notes and 7% Senior Subordinated Notes: Black Hawk Holdings, L.L.C.; Casino America of Colorado, Inc.; CCSC/Blackhawk, Inc.; Grand Palais Riverboat, 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 Services, LLC.; IOC-Vicksburg, Inc.; IOC-Vicksburg, LLC; Rainbow Casino Vicksburg Partnership, L.P.; IOC Cape Girardeau, LLC; Isle of Capri Bettendorf Marina Corporation; Isle of Capri Bettendorf, L.C; Isle of Capri Black Hawk Capital Corp.; Isle of Capri Black Hawk, L.L.C.; Isle of Capri Marquette, Inc.; P.P.I, Inc.; Riverboat Corporation of Mississippi; Riverboat Services, Inc.; and St. Charles Gaming Company, Inc.

 

Consolidating condensed balance sheets as of January 22, 2012 and April 24, 2011 are as follows (in thousands):

 

 

 

As of January 22, 2012

 

 

 

Isle of Capri

 

 

 

 

 

Consolidating

 

 

 

 

 

Casinos, Inc.

 

 

 

Non-

 

and

 

Isle of Capri

 

 

 

(Parent

 

Guarantor

 

Guarantor

 

Eliminating

 

Casinos, Inc.

 

 

 

Obligor)

 

Subsidiaries

 

Subsidiaries

 

Entries

 

Consolidated

 

Balance Sheet

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

$

31,172

 

$

90,873

 

$

28,884

 

$

(2,827

)

$

148,102

 

Intercompany receivables

 

991,046

 

(178,826

)

(49,452

)

(762,768

)

 

Investments in subsidiaries

 

427,654

 

(66,190

)

(37

)

(361,427

)

 

Property and equipment, net

 

9,592

 

1,061,090

 

32,309

 

 

1,102,991

 

Other assets

 

68,143

 

435,960

 

16,759

 

(60,020

)

460,842

 

Total assets

 

$

1,527,607

 

$

1,342,907

 

$

28,463

 

$

(1,187,042

)

$

1,711,935

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

$

50,713

 

$

83,769

 

$

31,253

 

$

(2,827

)

$

162,908

 

Intercompany payables

 

 

762,768

 

 

(762,768

)

 

Long-term debt, less current maturities

 

1,156,495

 

3,279

 

509

 

 

1,160,283

 

Other accrued liabilities

 

8,780

 

114,194

 

14,171

 

(60,020

)

77,125

 

Stockholders’ equity

 

311,619

 

378,897

 

(17,470

)

(361,427

)

311,619

 

Total liabilities and stockholders’ equity

 

$

1,527,607

 

$

1,342,907

 

$

28,463

 

$

(1,187,042

)

$

1,711,935

 

 

 

 

As of April 24, 2011

 

 

 

Isle of Capri

 

 

 

 

 

Consolidating

 

 

 

 

 

Casinos, Inc.

 

 

 

Non-

 

and

 

Isle of Capri

 

 

 

(Parent

 

Guarantor

 

Guarantor

 

Eliminating

 

Casinos, Inc.

 

 

 

Obligor)

 

Subsidiaries

 

Subsidiaries

 

Entries

 

Consolidated

 

Balance Sheet

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

$

28,886

 

$

87,650

 

$

32,274

 

$

(451

)

$

148,359

 

Intercompany receivables

 

1,020,593

 

(226,226

)

(56,599

)

(737,768

)

 

Investments in subsidiaries

 

418,767

 

(65,229

)

(37

)

(353,501

)

 

Property and equipment, net

 

10,215

 

1,071,415

 

31,919

 

 

1,113,549

 

Other assets

 

63,889

 

441,794

 

20,002

 

(53,705

)

471,980

 

Total assets

 

$

1,542,350

 

$

1,309,404

 

$

27,559

 

$

(1,145,425

)

$

1,733,888

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

$

40,714

 

$

84,565

 

$

29,050

 

$

(451

)

$

153,878

 

Intercompany payables

 

 

737,768

 

 

(737,768

)

 

Long-term debt, less current maturities

 

1,183,091

 

3,517

 

613

 

 

1,187,221

 

Other accrued liabilities

 

9,517

 

114,205

 

13,744

 

(53,705

)

83,761

 

Stockholders’ equity

 

309,028

 

369,349

 

(15,848

)

(353,501

)

309,028

 

Total liabilities and stockholders’ equity

 

$

1,542,350

 

$

1,309,404

 

$

27,559

 

$

(1,145,425

)

$

1,733,888

 

 

14



 

Consolidating condensed statements of operations for the three and nine month periods ended January 22, 2012 and January 23, 2011 are as follows (in thousands):

 

 

 

For the Three Months Ended January 22, 2012

 

 

 

Isle of Capri

 

 

 

 

 

Consolidating

 

 

 

 

 

Casinos, Inc.

 

 

 

Non-

 

and

 

Isle of Capri

 

 

 

(Parent

 

Guarantor

 

Guarantor

 

Eliminating

 

Casinos, Inc.

 

Statement of Operations

 

Obligor)

 

Subsidiaries

 

Subsidiaries

 

Entries

 

Consolidated

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

Casino

 

$

 

$

251,371

 

$

 

$

 

$

251,371

 

Rooms, food, beverage, pari-mutuel and other

 

479

 

43,516

 

2,254

 

(2,246

)

44,003

 

Gross revenues

 

479

 

294,887

 

2,254

 

(2,246

)

295,374

 

Less promotional allowances

 

 

(53,126

)

 

 

(53,126

)

Net revenues

 

479

 

241,761

 

2,254

 

(2,246

)

242,248

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Casino

 

 

41,385

 

 

 

41,385

 

Gaming taxes

 

 

61,069

 

 

 

61,069

 

Other operating expenses

 

8,744

 

91,165

 

1,327

 

(2,246

)

98,990

 

Management fee expense (revenue)

 

(8,350

)

8,350

 

 

 

 

Depreciation and amortization

 

489

 

20,778

 

138

 

 

21,405

 

Total operating expenses

 

883

 

222,747

 

1,465

 

(2,246

)

222,849

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

(404

)

19,014

 

789

 

 

19,399

 

Interest expense, net

 

(6,022

)

(15,365

)

(165

)

 

(21,552

)

Derivative income

 

223

 

 

 

 

223

 

Equity in income (loss) of subsidiaries

 

3,386

 

(586

)

 

(2,800

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations before income taxes

 

(2,817

)

3,063

 

624

 

(2,800

)

(1,930

)

Income tax (provision) benefit

 

1,635

 

(663

)

(224

)

 

748

 

Income (loss) from continuing operations

 

(1,182

)

2,400

 

400

 

(2,800

)

(1,182

)

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations, net of tax

 

 

 

 

 

 

Net income (loss)

 

$

(1,182

)

$

2,400

 

$

400

 

$

(2,800

)

$

(1,182

)

 

15



 

 

 

For the Three Months Ended January 23, 2011

 

 

 

Isle of Capri

 

 

 

 

 

Consolidating

 

 

 

 

 

Casinos, Inc.

 

 

 

Non-

 

and

 

Isle of Capri

 

 

 

(Parent

 

Guarantor

 

Guarantor

 

Eliminating

 

Casinos, Inc.

 

Statement of Operations

 

Obligor)

 

Subsidiaries

 

Subsidiaries

 

Entries

 

Consolidated

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

Casino

 

$

 

$

240,205

 

$

 

$

 

$

240,205

 

Rooms, food, beverage, pari-mutuel and other

 

162

 

39,295

 

2,413

 

(2,388

)

39,482

 

Gross revenues

 

162

 

279,500

 

2,413

 

(2,388

)

279,687

 

Less promotional allowances

 

 

(47,680

)

 

 

(47,680

)

Net revenues

 

162

 

231,820

 

2,413

 

(2,388

)

232,007

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Casino

 

 

38,529

 

 

 

38,529

 

Gaming taxes

 

 

58,331

 

 

 

58,331

 

Other operating expenses

 

9,150

 

88,311

 

1,959

 

(2,388

)

97,032

 

Management fee expense (revenue)

 

(7,947

)

7,947

 

 

 

 

Depreciation and amortization

 

461

 

21,223

 

138

 

 

21,822

 

Total operating expenses

 

1,664

 

214,341

 

2,097

 

(2,388

)

215,714

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

(1,502

)

17,479

 

316

 

 

16,293

 

Interest expense, net

 

(5,665

)

(15,318

)

(92

)

 

(21,075

)

Derivative expense

 

974

 

 

 

 

974

 

Equity in income (loss) of subsidiaries

 

(748

)

(463

)

 

1,211

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations before income taxes

 

(6,941

)

1,698

 

224

 

1,211

 

(3,808

)

Income tax (provision) benefit

 

4,284

 

(3,364

)

231

 

 

1,151

 

Income (loss) from continuing operations

 

(2,657

)

(1,666

)

455

 

1,211

 

(2,657

)

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations, net of tax

 

 

 

 

 

 

Net income (loss)

 

$

(2,657

)

$

(1,666

)

$

455

 

$

1,211

 

$

(2,657

)

 

16



 

 

 

For the Nine Months Ended January 22, 2012

 

 

 

Isle of Capri

 

 

 

 

 

Consolidating

 

 

 

 

 

Casinos, Inc.

 

 

 

Non-

 

and

 

Isle of Capri

 

 

 

(Parent

 

Guarantor

 

Guarantor

 

Eliminating

 

Casinos, Inc.

 

Statement of Operations

 

Obligor)

 

Subsidiaries

 

Subsidiaries

 

Entries

 

Consolidated

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

Casino

 

$

 

$

760,428

 

$

 

$

 

$

760,428

 

Rooms, food, beverage, pari-mutuel and other

 

769

 

131,253

 

7,245

 

(6,896

)

132,371

 

Gross revenues

 

769

 

891,681

 

7,245

 

(6,896

)

892,799

 

Less promotional allowances

 

 

(157,273

)

 

 

(157,273

)

Net revenues

 

769

 

734,408

 

7,245

 

(6,896

)

735,526

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Casino

 

 

123,290

 

 

 

123,290

 

Gaming taxes

 

 

183,550

 

 

 

183,550

 

Other operating expenses

 

30,579

 

278,836

 

5,734

 

(6,896

)

308,253

 

Management fee expense (revenue)

 

(25,681

)

25,681

 

 

 

 

Depreciation and amortization

 

1,491

 

62,834

 

414

 

 

64,739

 

Total operating expenses

 

6,389

 

674,191

 

6,148

 

(6,896

)

679,832

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

(5,620

)

60,217

 

1,097

 

 

55,694

 

Interest expense, net

 

(18,849

)

(45,514

)

(452

)

 

(64,815

)

Derivative income

 

252

 

 

 

 

252

 

Equity in income (loss) of subsidiaries

 

8,514

 

(975

)

 

(7,539

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continiuing operations before income taxes

 

(15,703

)

13,728

 

645

 

(7,539

)

(8,869

)

Income tax (provision) benefit

 

10,741

 

(4,568

)

(2,266

)

 

3,907

 

Income (loss) from continuing operations

 

(4,962

)

9,160

 

(1,621

)

(7,539

)

(4,962

)

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations, net of tax