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 OCTOBER 28, 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)

Colorado 84-1422931 ------------------------------------------- ---------------------- (State or other jurisdiction. . . . . . . . (I.R.S. Employer of incorporation or organization) . . . . . Identification Number) 1641 Popps Ferry Road, Biloxi, Mississippi. 39532 ------------------------------------------- ---------------------- (Address of principal executive offices). . (Zip Code)

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

PAGE ---- PART I. FINANCIAL INFORMATION ~~PAGE~~ --------~~-----------------------------------------------------------------------~~ ~~--------~~ ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS, ~~JULY~~OCTOBER 2928, 2001 (UNAUDITED) AND APRIL 29, 2001. . . . . . . . . . . . . . . . . . . . . . .1 .CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED OCTOBER 28, 2001 AND OCTOBER 29, 2000 (UNAUDITED) . . . . . . . . . .. . . . . . . . . . . ~~1 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED JULY 29, 2001 AND JULY 30, 2000 (UNAUDITED)~~.. . 2 CONSOLIDATED STATEMENT OF MEMBERS' EQUITY FOR THE ~~THREE~~SIX MONTHS ENDED ~~JULY~~OCTOBER 2928, 2001 (UNAUDITED). . . . . . . . ~~. . . . . .~~ 3 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE ~~THREE~~SIX MONTHS ENDED ~~JULY~~OCTOBER 2928, 2001 AND ~~JULY~~OCTOBER 3029, 2000 (UNAUDITED) . . . ~~. . . . . . . .~~ 4 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS . . . . 5 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . ~~. . . . . . . . . . . . . . .~~ 9 PART II. OTHER INFORMATION --------~~-----------------------------------------------------------------------~~ ITEM 1. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . .13 ~~. . . . . . . . . . . .. . . 12~~ ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. . . . . . . . . . . . .. . 1213 ITEM 3. DEFAULTS UPON SENIOR SECURITIES. . . . . . . . . . . . . . . . . . .13 ~~. . . . .. . 12~~ ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. . . ~~12 ITEM 5~~. ~~OTHER INFORMATION~~. . . . . .13 .ITEM 5. .OTHER .INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . .13 ~~. . . . 12~~ ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. . . . . . . . . . . . . . . . . . .13 ~~. . . . . 12~~ SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 ~~. . . . . . . . . . . . . . . . . . . . . . 13~~ EXHIBIT LIST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ~~. . . . . . . . . . . . . . . . . . . . . . . . 14~~15

ISLE OF CAPRI BLACK HAWK L.L.C. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) ASSETS ~~July~~October 2928, April 29, -------------------------------------------------- 2001 2001 ------------- ---------- (Unaudited) Current assets: Cash and cash equivalents. . . . . . . . . . . . . . . . $ 2019,~~707~~571 $ 13,042 Accounts receivable.. . . . . . . . . . . . . . . . . . .375 ~~. 433~~ 392 Prepaid expenses and other assets. . . . . . . . . . . 1,~~073~~283 976 ------------- ---------- Total current assets . . . . . . . . . . . . . ~~. . .. 22~~21,~~213~~229 14,410 Property and equipment - net. . . . . . . . . . . . . . . . ~~103~~102,~~085~~712 103,677 Other assets: Deferred financing costs, net of accumulated amortization of $2,~~726~~898 and $2,553, respectively. . ~~. . . . . . . . . . . . . . . . . . 2~~1,~~123~~951 2,296 Restricted cash. . . . . . . . . . . . . . . . . . . . ~~. . . . . .~~ 258 202 Prepaid deposits and other . . . . . . . . . . . . . . .589 ~~. . 609~~ 649 ------------- ---------- Total assets. . . . . . . . . . . . . . . . . ~~. . . . . . .~~$ ~~128~~126,~~288~~739 $ 121,234 ============= ========== LIABILITIES AND MEMBERS' EQUITY ----------------------------------------------------------- Current liabilities: Current maturities of long-term debt.. . . . . . . . . $ 555 $ 555 Accounts payable: Trade . . . . . . . . . . . . . . . . . . . . . . ~~. . . . . . . .~~ 1,~~422~~311 1,243 Related parties. . . . . . . . . . . . . . . . .. . ~~. .. . . .~~ 2,~~292~~506 2,190 Accrued liabilities: Interest. . . . . . . . . . . . . . . . . . . . . ~~. .. . . . . . 4~~2,~~873~~012 2,054 Payroll and related.. . . . . . . . . . . . . . . ~~. . .~~ 3,~~183~~566 3,420 Property and other taxes. . . . . . . . . . . . . ~~. . 2~~3,~~278~~519 2,024 Progressive jackpots and slot club awards.. . . . 2,~~324~~323 2,190 Other.. . . . . . . . . . . . . . . . . . . . . . .1,017 ~~. . . . . . . 932~~ 872 ------------- ---------- Total current liabilities. . . . . . . . . . ~~. . . . 17~~16,~~859~~809 14,548 Long-term debt, less current maturities.. . . . . . . . . 76. 75,~~063~~925 76,202 Members' equity: Casino America of Colorado, Inc. . . . . . . . . . . . 18,~~795~~589 16,582 Blackhawk Gold, Ltd. . . . . . . . . . . . . . . . . . ~~. . .~~ 15,~~571~~416 13,902 ------------- ---------- Total members' equity. . . . . . . . . . . . ~~. . .~~ 34,~~366~~005 30,484 ------------- ---------- Total liabilities and members' equity. . . . $ ~~128~~126,~~288~~739 $ 121,234 ============= ==========

See notes to consolidated financial statements.

ISLE OF CAPRI BLACK HAWK L.L.C. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS) Three Months Ended Six Months Ended -------------------- ~~July~~------------------ October 28, October 29, ~~July~~October 3028, October 29, 2001 2000 2001 2000 -------------------- ------------------ ------------- ------------- Revenues: Casino . . . . . . . . . . . . . . .$ .28,785 .$ .26,587 ~~. . . . .~~ $ 2755,~~050~~835 $ 2451,~~456~~043 Rooms. . . . . . . . . . . . . . . .1,468 .1,130 .2,896 ~~. . . . .~~ 1,~~428~~194 64 Food, beverage and other . . . . . ~~. . .~~ 3,~~774~~909 3,~~363~~607 7,683 6,970 -------------------- ------------------ ------------- ------------- Gross revenues . . . . . . . .34,162 .31,324 ~~. . . . 32~~66,~~252~~414 2759,~~883~~207 Less promotional allowances. .5,950 5,~~537~~008 411,~~598~~487 9,606 -------------------- ------------------ ------------- ------------- Net revenues . . . . .28,212 ~~. . . . .~~ 26,~~715~~316 2354,~~285~~927 49,601 Operating expenses: Casino . . . . . . . . . . . . . . .4,052 ~~. . . . . . .~~ 3,~~957~~751 38,~~571~~009 7,322 Gaming taxes . . . . . . . . . . . .5,639 ~~. . . .~~ 5,~~369~~256 411,~~804~~008 10,060 Rooms. . . . . . . . . . . . . . . .303 .393 .618 .462 ~~. . . 315 69~~ Food, beverage and other . . . . . .988 .1,011 1,~~002~~990 ~~860~~1,871 Facilities . . . . . . . . . . . . ~~. . . . . . . .~~ 1,~~066~~068 1,~~023~~120 2,134 2,143 Marketing and administrative . . . .6,242 56,~~978~~114 512,~~766~~220 11,880 Management fees. . . . . . . . . . ~~. . . .~~ 1,~~183~~253 1,~~019~~148 2,436 2,167 Depreciation and amortization. . . .1,020 ~~990~~801 ~~574~~2,010 1,375 -------------------- ------------------ ------------- ------------- Total operating expenses. . . .20,565 ~~. .~~ 19,~~860~~594 1740,~~686~~425 37,280 -------------------- ------------------ ------------- ------------- Operating income . . . . . . . . . .7,647 ~~. . .~~ 6,~~855~~722 514,~~599~~502 12,321 Interest expense . . . . . . . . . .(3,080) ~~. . . .~~ (3,~~044~~156) (26,~~367~~124) (5,523) Interest income. . . . . . . . . . .72 .51 .143 .81 .-------------------- ~~71 30~~ ------------------ ------------- ------------- Net income. . . . . . . . . . . . . . . .$ .4,639 .$ .3,617 . $ 38,~~882~~521 $ 36,~~262~~879 ==================== ================== ============= =============

See notes to consolidated financial statements.

ISLE OF CAPRI BLACK HAWK L.L.C. CONSOLIDATED STATEMENT OF MEMBERS' EQUITY (UNAUDITED) (IN THOUSANDS) Casino America of Blackhawk Total Colorado, Inc. Gold, Ltd. Members' Equity -------------------~~----~~ ------------- -----------------~~----~~ Balance, April 29, 2001. . . $ 16,582 $ 13,902 $ 30,484 Net income. . . . . . .4,857 .3,664 .8,521 .Members' distributions (2,~~213~~850) 1(2,~~669~~150) 3(5,~~882~~000) ------------------- ------------- -----------------~~-----~~ Balance, ~~July~~October 2928, 2001 . ~~. . .~~ $ 18,~~795~~589 $ 15,~~571~~416 $ 34,~~366~~005 =================== ============ =================

See notes to consolidated financial statements.

ISLE OF CAPRI BLACK HAWK L.L.C. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS) ~~Three~~Six Months Ended -------------------- ~~July~~October 2928, ~~July~~October 3029, 2001 2000 ------------- ------------- OPERATING ACTIVITIES: Net income . . . . . . . . . . . . . . . . . . . . . . . ~~. . . . .~~ $ 38,~~882~~521 $ 36,~~262~~879 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.. . . . . . . . . . . ~~990~~2,010 ~~574~~1,375 Amortization of deferred financing costs.. . . . ~~171~~. ~~172~~345 344 Changes in current assets and liabilities: Accounts receivable. . . . . . . . . . . . . . .17 ~~. . .~~ (41139) ~~(112)~~ Prepaid expenses and other assets. . . . . . . (96307) 28(265) Accounts payable and accrued liabilities. . . 32,~~310~~261 43,~~079~~516 ------------- ------------- Net cash provided by operating activities . . . . . . . 812,~~216~~847 811,~~003~~710 INVESTING ACTIVITIES: Purchase of property and equipment. . . . . . . . . . . (~~396~~1,045) (46,~~617~~928) Increase in restricted cash. . . . . . . . . . . . . . . ~~. . .~~ (56) - Deposits and other . . . . . . . . . . . . . . . . . . . .60 ~~. . . 40~~ (61) ------------- ------------- Net cash used in investing activities. . . . . . . . . . (~~412~~1,041) (46,~~678~~989) FINANCING ACTIVITIES: Principal payments on debt.. . . . . . . . . . . . . . . .(277) (~~139~~409) Members' distributions . . . . . . . . . . . . . . . . . (~~202~~5,000) - ------------- ------------- Net cash used in financing activities . . . . . . . . . (~~139~~5,277) (~~202~~409) Net increase in cash and cash equivalents . . . . . 7. . 6,~~665~~529 34,~~123~~312 Cash and cash equivalents at beginning of period . . . . ~~. . . . . . . . . . . . . . . . . . . . . . .~~ 13,042 6,513 ------------- ------------- Cash and cash equivalents at end of period. . . . . . . $ 2019,~~707~~571 $ 910,~~636~~825 ============= ============= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash payments for interest. . . . . . . . . . . . . $ 316,166 $ ~~115~~5,787 SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Construction costs funded through accounts payable. - ~~1,339~~458

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. 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. 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 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 and six month period, ended October 28, 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 (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) New Pronouncements In July 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 the fiscal year ending April 30, 2002. 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 $4.8 million of cash coupon redemptions, previously reported as marketing expenses, have been reclassified to promotional allowances for the three and six months ended October 29, 2000, respectively. 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 October 28, 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 is computed using the straight-line method over the following estimated useful lives:

YEARS ----- Slot machines. . . . . . . . . . . ~~. . . . . . . .~~ 3 Furniture, fixtures and equipment. ~~. . .~~ 5-10 Buildings and improvements. . . . ~~. . . .~~ 39.5

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

~~July~~October 2928, April 29, 2001 2001 ------------ ---------- (In thousands) 13% First Mortgage Notes, issued by Isle of Capri Black Hawk L.L.C., due August 2004; non-recourse to Isle of Capri Casinos, Inc . . . . . . $ 75,000 $ 75,000 Note payable interest at 90 day LIBOR + 3.00% (65.6828% on ~~July~~October 2928, 2001), issued by Isle of Capri Black Hawk L.L.C., due June 2004; non-recourse to Isle of Capri Casinos, Inc . . . . . . . . . . . . . . 1,~~618~~480 1,757 ------------ ---------- 76,~~618~~480 76,757 Less: current maturities. . . . . . . . . . . . . . . . . . . . . . . . . . 555 555 ------------ ---------- Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7675,~~063~~925 $ 76,202 ============ ==========

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 and six months ended October 28, 2001 totaled $.4 million and $.8 million, respectively. The amount of contingent interest expense recorded for the three and six months ended October 29, 2000 totaled $.4 million and $.7 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:

Year Percentage --------------------~~-----~~ ------------ 2001. . . . . . . . . ~~. . . .~~ 106.500% 2002. . . . . . . . . ~~. . . .~~ 103.200% 2003 and thereafter.. 100.000%

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. 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 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 42 monthly installments starting in January 2001 of $46,239 principal plus variable interest at 90 day LIBOR plus 3%. The proceeds from the note payable 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 October 28, 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, $.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 November 16, 2001, Isle-Black Hawk announced that it has elected to redeem all of its outstanding 13% First Mortgage Notes in the principal amount of $75.0 million due 2004 on December 18, 2001. The redemption price of the Notes is 106.500% of the principal amount plus accrued and unpaid interest to the date of redemption, which equals a redemption price of $1,065 for each $1,000 principal amount of Notes, plus accrued and unpaid interest. Isle-Black Hawk expects to record an extraordinary loss in the third quarter ending January 27, 2002 of approximately $6.8 million related to early payment premiums as well as the write-off of debt acquisition costs. Isle-Black Hawk intends to fund the redemption of the Notes with proceeds from a new $90.0 million secured credit facility, comprised of two separate $40.0 million term loans and a $10.0 million revolver, from a group of lenders including CIBC World Markets, as Administrative Agent. The interest rate, on a blended basis, will fluctuate from LIBOR plus 2.75% to LIBOR plus 4%, depending on Isle-Black Hawk's consolidated total leverage and the amount of funds borrowed. Any undrawn revolver capacity under the credit facility will be available for working capital and other general company purpose. 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 1,120 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 October 28, 2001 Compared to Three Fiscal Months Ended October 29, 2000 Gross revenue for the quarter ended October 28, 2001 was $34.2 million, which included $28.8 million of casino revenue, $1.5 million of room revenue and $3.9 million of food, beverage and other revenue. This compares to gross revenue for the prior year fiscal quarter ended October 29, 2000 of $31.3 million, which included $26.6 million of casino revenue, $1.1 million of room revenue and $3.6 million of food, beverage and other revenue. Casino revenue increased $2.2 million or 8.3% primarily as a result of the increase in slot revenue that was driven by the growth in the Black Hawk market. The Black Hawk market has grown an average of 9.5% over the prior year fiscal quarter. Room revenue increased $.3 million or 29.9% due to higher occupancy rates. Food, beverage and other revenue increased by $.3 million or 8.4% as a result of increased hotel occupancy. Promotional allowances were $6.0 million or 17.4% of gross revenue for the current quarter compared to $5.0 million or 16.0% of gross revenue for the same quarter last year. Casino operating expenses for the quarter ended October 28, 2001 totaled $4.1 million, or 14.1% of casino revenue. This compares to casino operating expenses for the prior year fiscal quarter ended October 29, 2000 of $3.8 million, or 14.1% 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 $5.6 million for the quarter ended October 28, 2001, compared to $5.3 million for the quarter ended October 29, 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 October 28, 2001, compared to $1.0 million for the quarter ended October 29, 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 decreased to 25.3% for the quarter ended October 28, 2001 compared to 28.0% for the quarter ended October 29, 2000 as a result of sales mix. Marketing and administrative expenses totaled $6.2 million, or 22.1% of net revenue, for the quarter ended October 28, 2001. This compares to marketing and administrative expenses of $6.1 million, or 23.2% of net revenue, for the quarter ended October 29, 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 as a percentage of revenue in the quarter ended October 29, 2000 due to additional costs associated with building the "Isle" brand name in the Isle-Black Hawk market. Management fees totaled $1.3 million, or 4.4% of net revenue, for the quarter ended October 28, 2001 compared to $1.1 million, or 4.4% of net revenue, for the quarter ended October 29, 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 $.8 million for the quarters ended October 28, 2001 and October 29, 2000, respectively. The increase in depreciation and amortization expense is consistent with the increase in fixed assets placed in service, primarily the hotel. Interest expense was $3.1 million for the quarter ended October 28, 2001, which is comparable to $3.2 million for the quarter ended October 29, 2000. Interest expense primarily relates to indebtedness incurred in connection with the acquisition of property and equipment. Six Fiscal Months Ended October 28, 2001 Compared to Six Fiscal Months Ended October 29, 2000 Gross revenue for the six months ended October 28, 2001 was $66.4 million, which included $55.8 million of casino revenue, $2.9 million of room revenue and $7.7 million of food, beverage and other revenue. This compares to gross revenue for the six months ended October 29, 2000 of $59.2 million, which included $51.0 million of casino revenue, $1.2 million of room revenue and $7.0 million of food, beverage and other revenue. Casino revenue increased $4.8 million or 9.4% primarily as a result of the increase in slot revenue that was driven by a 3.9% increase in patron count as well as the growth in the Black Hawk market. The Black Hawk market has grown an average of 8.2% over prior year fiscal period. Room revenue increased $1.7 million or 142.5% due to the opening of the new hotel in August 2000 as well as higher occupancy rates. Food, beverage and other revenue increased by $.7 million or 10.2% as a result of the hotel opening. Promotional allowances were $11.5 million or 17.3% of gross revenue for the current six month period compared to $9.6 million or 16.2% of gross revenue for the same period last year. Casino operating expenses for the six months ended October 28, 2001 totaled $8.0 million, or 14.3% of casino revenue. This compares to casino operating expenses for the six months ended October 29, 2000 of $7.3 million, or 14.3% 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 $11.0 million for the six months ended October 28, 2001, compared to $10.1 million for the six months ended October 29, 2000, which is consistent with the applicable Colorado gaming tax rate for the respective quarters. Food, beverage and other expenses totaled $2.0 million for the six months ended October 28, 2001, compared to $1.9 million for the six months ended October 29, 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 decreased to 25.9% for the six months ended October 28, 2001 compared to 26.8% for the six months ended October 29, 2000 as a result of sales mix. Marketing and administrative expenses totaled $12.2 million, or 22.2% of net revenue, for the six months ended October 28, 2001. This compares to marketing and administrative expenses of $11.9 million, or 24.0% of net revenue, for the six months ended October 29, 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 as a percentage of revenue for the six months ended October 29, 2000 due to the additional costs associated with building the "Isle" brand name in the Isle-Black Hawk market. Management fees totaled $2.4 million, or 4.4% of net revenue, for the six months ended October 28, 2001 compared to $2.2 million, or 4.4% of net revenue, for the six months ended October 29, 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 $2.0 million and $1.4 million for the six months ended October 28, 2001 and October 29, 2000, respectively. The increase in depreciation and amortization expense is consistent with the increase in fixed assets placed in service, primarily the hotel. Interest expense was $6.1 million for the six months ended October 28, 2001. This compares to interest expense of $5.5 million for the six months ended October 29, 2000 net of capitalized interest of $.7 million. Interest expense primarily relates to indebtedness incurred in connection with the acquisition of property and equipment. LIQUIDITY AND CAPITAL RESOURCES At October 28, 2001 Isle-Black Hawk had cash and cash equivalents of $19.6 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 six months ended October 28, 2001, Isle-Black Hawk's operating activities provided $12.8 million of cash compared to the six months ended October 29, 2000, in which Isle-Black Hawk's operating activities provided $11.7 million of cash. Isle-Black Hawk invested $1.0 million in property and equipment during the six months ended October 28, 2001, primarily for additional slot machines and a new warehouse. This compares with the $6.9 million invested by Isle-Black Hawk in property and equipment during the six months ended October 29, 2000 primarily for the completion of the hotel facility. Isle-Black Hawk anticipates that additional capital improvements approximating $3.1 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. On November 16, 2001, Isle-Black Hawk announced that it has elected to redeem all of its outstanding 13% First Mortgage Notes in the principal amount of $75.0 million due 2004 on December 18, 2001. The redemption price of the Notes is 106.5% of the principal amount plus accrued and unpaid interest to the date of redemption, which equals a redemption price of $1,065 for each $1,000 principal amount of Notes, plus accrued and unpaid interest. Isle-Black Hawk will record a one-time charge in the third quarter of approximately $6.8 million related to the early extinguishment of debt. Isle-Black Hawk intends to fund the redemption with proceeds from a new $90.0 million secured credit facility, comprised of two separate $40.0 million term loans and a $10.0 million revolver, from a group of lenders including CIBC World Markets, as Administrative Agent. The interest rate, on a blended basis, will fluctuate from LIBOR plus 2.75% to LIBOR plus 4%, depending on Isle-Black Hawk's consolidated total leverage and the amount of funds borrowed. Undrawn revolver capacity under the CIBC credit facility will be available for working capital and other general company purposes. Assuming a rate of 7%, the transaction will increase Isle-Black Hawk's after tax net income by approximately $3.0 million per annum. 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 October 28, 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.

Dated: ~~September~~December 1110, 2001 . . . . . . . . . . . . /s/ Rexford A. Yeisley ---------------------- Rexford A. Yeisley, Chief Financial Officer, (Principal Financial and Accounting Officer)

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

Filing Compare · ISLE OF CAPRI BLACK HAWK LLC