10-Q 1 doc1.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JULY 29, 2001 OR [ ] 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 333-38093 --------- ISLE OF CAPRI BLACK HAWK L.L.C. / ISLE OF CAPRI BLACK HAWK CAPITAL CORP. ------------------------------------------------------------------------ (Exact name of registrant as specified in its charter)

Registrant's telephone number, including area code: (228) 396-7000 Securities Registered Pursuant to Section 12(b) Of the Act: None Securities Registered Pursuant to Section 12(g) Of the Act: None 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 -- ISLE OF CAPRI BLACK HAWK L.L.C. FORM 10-Q INDEX

See notes to consolidated financial statements.

See notes to consolidated financial statements.

See notes to consolidated financial statements.

See notes to consolidated financial statements. ISLE OF CAPRI BLACK HAWK L.L.C. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation On April 25, 1997 ("Date of Inception"), Isle of Capri Black Hawk L.L.C. ("Isle-Black Hawk"), a Colorado limited liability company, was formed. Isle-Black Hawk is owned by Casino America of Colorado, Inc., a wholly-owned subsidiary of Isle of Capri Casinos, Inc., and Blackhawk Gold, Ltd., a wholly-owned subsidiary of Nevada Gold & Casinos, Inc. The principal purpose of Isle-Black Hawk has been to develop and operate a casino in Black Hawk, Colorado, which opened December 30, 1998. Prior to December 30, 1998, Isle - Black Hawk was a Development Stage Company and had not commenced gaming operations. On August 20, 1997, Isle-Black Hawk and Isle of Capri Black Hawk Capital Corp., a wholly-owned subsidiary of Isle-Black Hawk that has no operations, issued $75.0 million of 13% First Mortgage Notes (the "First Mortgage Notes") due 2004 with Contingent Interest in order to finance the construction and development of Isle-Black Hawk. The rights and obligations of Casino America of Colorado, Inc. and Blackhawk Gold, Ltd. are governed in part by the Amended and Restated Operating Agreement of Isle-Black Hawk (the "Agreement") dated as of July 29, 1997. The Agreement provides that Isle-Black Hawk will continue until December 31, 2096, or until such date that dissolution may occur. Pursuant to the Agreement, Casino America of Colorado, Inc. contributed cash, land purchase rights and development costs to Isle-Black Hawk and Blackhawk Gold, Ltd. contributed land to Isle-Black Hawk. On July 29, 1997, Casino America of Colorado, Inc., Isle of Capri Casinos, Inc., Blackhawk Gold, Ltd., and Nevada Gold & Casinos, Inc. also entered into a Members Agreement (the "Members Agreement") which addressed the development of Isle-Black Hawk, management of Isle-Black Hawk, additional capital contributions, and other matters. Casino America of Colorado, Inc. has an ownership interest in Isle-Black Hawk of 57% and Blackhawk Gold, Ltd. has an ownership interest in Isle-Black Hawk of 43%. Profits and losses of Isle-Black Hawk are allocated in proportion to ownership interests. The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments considered necessary for a fair presentation have been included. Operating results for the three month period ended July 29, 2001, are not necessarily indicative of the results that may be expected for the fiscal year ending April 28, 2002. For further information, refer to the consolidated financial statements and footnotes thereto included in Isle-Black Hawk's annual report on Form 10-K for the year ended April 29, 2001. The consolidated financial statements of Isle-Black Hawk include the accounts of Isle-Black Hawk and its subsidiary, Isle of Capri Black Hawk Capital Corp. All material intercompany balances and transactions have been eliminated in consolidation. The preparation of financial statements in conformity with accounting principles generally accepted in the United States necessarily requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as revenues and expenses during the reporting period. Actual amounts when ultimately realized could differ from those estimates. ISLE OF CAPRI BLACK HAWK L.L.C. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) New Pronouncements In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001. Early adoption is permitted for companies with fiscal years beginning after March 15, 2001, provided that their first quarter financial statements have not been issued. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. The Company has elected early adoption and has applied the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of fiscal 2002, April 30, 2001. Application of the nonamortization provisions of the Statement, net of taxes, is expected to have no material effect. Effective fourth quarter fiscal 2001, the Company adopted new guidance issued by the Emerging Issues Task Force of the Financial Accounting Standards Board relative to EITF Issue No.00-14 "Accounting for Certain Sales Incentives" and EITF Issue No.00-22, "Accounting for "Points" and Certain Other Time-Based Sales Incentive Offers, and Offers for Free Products or Services to be Delivered in the Future". EITF Issue No.00-14 requires the redemption of coupons for cash to be recognized as a reduction of revenue and EITF Issue No.00-22 requires the redemption of "points" for cash to be recognized as a reduction of revenue. The Company has complied with the requirements of this new guidance in the accompanying consolidated statements of operations. To be consistent with the fiscal 2002 presentation, approximately $2.4 million of slot points expense and cash coupon redemptions, previously reported as marketing expenses, have been reclassified to promotional allowances for the three months ended July 30, 2000. In June 1998, FASB Statement No. 133 Accounting for Derivative Instruments and Hedging Activities ("FASB 133") was issued. FASB 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. In June 1999, FASB Statement No. 137 Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133 ("FASB 137") was issued. FASB 133, as amended by FASB 137, is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. The Company does not have any derivative or hedging instruments as of July 29, 2001 and expects FASB Statement No. 133 to have no material effect. 2. PROPERTY AND EQUIPMENT Property and equipment is recorded at cost except for land contributed by Blackhawk Gold, Ltd., which is recorded at its appraised value. Depreciation began accumulating upon the commencement of gaming operations and is computed using the straight-line method over the following estimated useful lives:

ISLE OF CAPRI BLACK HAWK L.L.C. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 3. LONG-TERM DEBT Long-term debt consists of the following:

13% First Mortgage Notes On August 20, 1997, Isle-Black Hawk issued $75.0 million of 13% First Mortgage Notes with contingent interest, due August 31, 2004, that is non-recourse debt to Isle of Capri Casinos, Inc. Interest on the First Mortgage Notes is payable semi-annually on February 28 and August 31 of each year, commencing February 28, 1998. Additionally, contingent interest is payable on the First Mortgage Notes on each interest payment date, in an aggregate principal amount of 5% of Isle-Black Hawk's Consolidated Cash Flow (as defined in the Indenture), provided that no contingent interest was payable prior to commencement of operations and may, under certain circumstances, be deferred. Every six months Isle-Black Hawk has met its debt covenant ratios to pay contingent interest in accordance with the Indenture. The amount of contingent interest expense recorded for the three months ended July 29, 2001 and July 30, 2000 totaled $0.4 million and $0.3 million, respectively. The First Mortgage Notes are redeemable at the option of Isle-Black Hawk, in whole or in part, at any time on or after August 31, 2001, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest to the redemption date, if redeemed during the 12-month period beginning on August 31 of the years indicated below:

On June 5, 2000, as required by the Indenture, Isle-Black Hawk offered to purchase for cash up to $1.2 million principal amount of First Mortgage Notes at a price of $1,010 per $1,000 principal amount, plus interest accrued up to, but not including, the payment date in accordance with the terms of the Indenture. None of the First Mortgage Notes were tendered for purchase. Isle-Black Hawk is required to make an offer based upon excess cash flow, as defined, every year during the term of the First Mortgage Notes. See subsequent events note 5. ISLE OF CAPRI BLACK HAWK L.L.C. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. LONG-TERM DEBT (CONTINUED) The CIT Group Note In November 2000, Isle-Black Hawk issued a $1.9 million note payable to The CIT Group, due June 2004, that is non-recourse debt to Isle of Capri Casinos, Inc. The note is payable in forty-two monthly installments starting in January 2001 of $46,239 principal plus variable interest at 90 day LIBOR plus 3%. The proceeds from the note were used to finance hotel equipment that serves as collateral on the note. Other Isle-Black Hawk obtained a letter of credit, as a requirement to guarantee the City of Black Hawk (the "City") improvements according to the subdivision improvement agreement with the City. The letter of credit, totaling $.4 million and insured by $.2 million of restricted cash, can be drawn upon by the City for repair on the public improvements during the one-year warranty period ending February 2002. Substantially all of Isle-Black Hawk's assets are pledged as collateral for long-term debt. At July 29, 2001, Isle-Black Hawk was in compliance with all debt covenants. 4. RELATED PARTY TRANSACTIONS Management Agreement On April 25, 1997, Isle-Black Hawk entered into a Management Agreement, which was subsequently amended and restated on July 29, 1997 (the "Management Agreement"), with Isle of Capri Casinos, Inc., which manages the casino in exchange for a fee. The management fee is equal to two percent of revenues, as defined, plus ten percent of operating income, but not to exceed four percent of revenues, as defined. The management fee became effective upon commencement of casino operations. Loans In August 2000, Isle-Black Hawk completed construction of its hotel containing 237 rooms for approximately $29.0 million. Isle of Capri Casinos, Inc. loaned Isle-Black Hawk a total of $5.75 million which was used to develop the hotel. The first loan, $5.0 million, was repaid by Isle-Black Hawk on November 28, 2000. The second loan, $0.75 million, is due and payable upon the redemption of the First Mortgage Notes. The loan is recorded in accounts payable related parties in the accompanying balance sheet. 5. SUBSEQUENT EVENTS On August 16, 2001, as required by the Indenture, Isle-Black Hawk offered to purchase for cash up to $4.2 million principal amount of First Mortgage Notes at a price of $1,010 per $1,000 principal amount, plus interest accrued up to, but not including, the payment date in accordance with the terms of the Indenture. The offer will expire September 14, 2001. Isle-Black Hawk is required to make an offer based upon excess cash flow, as defined, every year during the term of the First Mortgage Notes. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion should be read in conjunction with, and is qualified in its entirety by, Isle-Black Hawk's financial statements, including the notes thereto, and other financial information included elsewhere in this report. The following discussion includes "forward-looking statements" within the meaning of section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In particular, statements concerning the effects of increased competition in the Black Hawk market, the effects of regulatory and legislative matters, and Isle-Black Hawk's plans to make capital investments at its facility are forward-looking statements. Although Isle-Black Hawk believes that the expectations are reasonable, there can be no assurance that such expectations are reasonable or that they will be correct. Actual results may vary materially from those expected. GENERAL Isle-Black Hawk was organized on April 25, 1997 and from that time, until the opening of the casino on December 30, 1998, Isle-Black Hawk's activities were limited to the design, construction and opening of the casino. Isle-Black Hawk includes a 43,000 square-foot gaming facility on a single floor with 1,105 slot machines, 14 table games, on-site covered parking for 1,100 vehicles, a 237 deluxe room hotel and various other amenities. Isle of Capri Black Hawk Capital Corp. is a wholly owned subsidiary of Isle-Black Hawk and was incorporated for the sole purpose of serving as co-issuer of the First Mortgage Notes. Isle of Capri Black Hawk Capital Corp. has not and will not have any operations or material assets or revenues. Isle-Black Hawk believes that its historical results of operations may not be indicative of its future results of operations because of the substantial present and expected future increase in competition for gaming customers in Isle-Black Hawk's market, as new casinos open and existing casinos add to or enhance their facilities. Isle-Black Hawk also believes that its operating results may be affected by seasonality and weather. RESULTS OF OPERATIONS Three Fiscal Months Ended July 29, 2001 Compared to Three Fiscal Months Ended July 30, 2000 Gross revenue for the quarter ended July 29, 2001 was $32.3 million, which included $27.1 million of casino revenue, $1.4 million of room revenue and $3.8 million of food, beverage and other revenue. This compares to gross revenue for the prior year fiscal quarter ended July 30, 2000 of $27.9 million, which included $24.4 million of casino revenue, $0.1 million of room revenue and $3.4 million of food, beverage and other revenue. Casino revenue increased $2.6 million or 10.6% primarily as a result of the increase in slot revenue that was driven by a 7.9% increase in patron count as well as the growth in the Black Hawk market. Patron counts were positively impacted by the opening of the new hotel in August 2000. The Black Hawk market has grown an average of 7.0% over prior year fiscal quarter. Room revenue increased $1.4 million due to the hotel opening. Food, beverage and other revenue increased by $0.4 million or 12.2% as a result of the opening of the new hotel. Casino operating expenses for the quarter ended July 29, 2001 totaled $4.0 million, or 14.6% of casino revenue. This compares to casino operating expenses for the prior year fiscal quarter ended July 30, 2000 of $3.6 million, or 14.6% of casino revenue. These expenses are primarily comprised of salaries, wages and benefits and other operating expenses of the casino. State and local gaming taxes paid in Colorado totaled $5.4 million for the quarter ended July 29, 2001, compared to $4.8 million for the quarter ended July 30, 2000, which is consistent with the applicable Colorado gaming tax rate for the respective quarters. Food, beverage and other expenses totaled $1.0 million for the quarter ended July 29, 2001, compared to $0.9 million for the quarter ended July 30, 2000. These expenses consist primarily of the cost of goods sold, salaries, wages and benefits and operating expenses of these departments. Food, beverage and other operating expenses as a percentage of food, beverage and other revenues increased to 26.6% for the quarter ended July 29, 2001 compared to 25.6% for the quarter ended July 30, 2000 as a result of sales mix. Facilities expenses totaled $1.1 million for the quarter ended July 29, 2001 compared to $1.0 million for the quarter ended July 30, 2000. These expenses include salaries, wages and benefits, as well as operating expenses of insurance, housekeeping and general maintenance of the facilities. Marketing and administrative expenses totaled $6.0 million, or 22.4% of net revenue, for the quarter ended July 29, 2001. This compares to marketing and administrative expenses of $5.8 million, or 24.8% of net revenue, for the quarter ended July 30, 2000. Marketing expenses include salaries, wages and benefits of the marketing and sales departments, as well as promotions, advertising, special events and entertainment. Administrative expenses include administration and human resource department expenses, rent, professional fees and property taxes. These expenses were higher during the first quarter of last year due to the additional costs associated with building the brand name in the Isle-Black Hawk market. Management fees totaled $1.2 million , or 4.4% of net revenue, for the quarter ended July 29, 2001 compared to $1.0 million, or 4.4% of net revenue, for the quarter ended July 30, 2000. Management fees reflect fees paid to Isle of Capri Casinos, Inc. for management services rendered to Isle-Black Hawk. Depreciation and amortization expense was $1.0 million and $0.6 million for the quarters ended July 29, 2001 and July 30, 2000, respectively. These expenses relate to property and equipment. The increase in depreciation and amortization expense is consistent with the increase in fixed assets placed in service, primarily the hotel. Interest expense was $3.0 million for the quarter ended July 29, 2001. This compares to interest expense of $2.4 million for the quarter ended July 30, 2000 net of capitalized interest of $0.7 million. Interest expense primarily relates to indebtedness incurred in connection with the acquisition of property and equipment. LIQUIDITY AND CAPITAL RESOURCES At July 29, 2001 Isle-Black Hawk had cash and cash equivalents of $20.7 million compared to cash and cash equivalents of $13.0 million as of April 29, 2001. The increase in cash is primarily a result of cash flow from operating activities. During the three months ended July 29, 2001, Isle-Black Hawk's operating activities provided $8.3 million of cash compared to the three months ended July 30, 2000, in which Isle-Black Hawk's operating activities provided $8.0 million of cash. Isle-Black Hawk invested $0.4 million in property and equipment during the three months ended July 29, 2001, primarily for cage expansion and additional slot machines. This compares with the $4.6 million invested by Isle-Black Hawk in property and equipment during the three months ended July 30, 2000 primarily for the completion of the hotel facility. Isle-Black Hawk anticipates that additional capital improvements approximating $3.7 million will be made during the remainder of fiscal 2002 to maintain its existing facility and remain competitive in its market. Isle-Black Hawk expects that available cash and cash from future operations will be adequate to fund future expansion, planned capital expenditures, service debt and meet working capital requirements. There is no assurance that Isle-Black Hawk will have the capital resources to make all of the expenditures described above or that planned capital investments will be sufficient to allow the Isle-Black Hawk to remain competitive in its existing market. In addition, the Indenture restricts, among other things, the Isle-Black Hawk's ability to borrow money, make capital expenditures, use assets as security in other transactions, make restricted payments or restricted investments, incur contingent obligations, sell assets and enter into leases and transactions with affiliates. In addition, Isle-Black Hawk is required to make significant interest payments semi-annually on its First Mortgage Notes, which will include additional contingent interest. Isle-Black Hawk is highly leveraged and may be unable to obtain additional debt or equity financing on acceptable terms. As a result, limitations on Isle-Black Hawk's capital resources could delay or cause the abandonment of certain plans for capital improvements. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. None. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITEM 5. OTHER INFORMATION. None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a). Exhibits. -------- A list of the exhibits included as part of this Form 10-Q is set forth in the Exhibit Index that immediately precedes such exhibits, which is incorporated herein by reference. (b). Reports on Form 8-K. ---------------------- During the quarter ended July 29, 2001, the Company filed the following reports on Form 8-K: None. SIGNATURES 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 BLACK HAWK L.L.C.

INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION --------------- ----------- None.

ISLE OF CAPRI BLACK HAWK LLC 10-Q