ITEM 1.                BUSINESS.

Overview

     We were incorporated in Delaware in February 1990.  We are a leading developer, owner and operator of branded gaming facilities and related lodging and entertainment facilities in growing markets in the United States and internationally.  We wholly own and operate eleven gaming facilities in the U.S. located in Lake Charles and Bossier City, Louisiana; Lula, Biloxi, Vicksburg and Natchez, Mississippi; Kansas City and Boonville, Missouri; and Bettendorf, Davenport and Marquette, Iowa.  We also own a 57% interest in, and receive management fees for operating, two gaming facilities in Black Hawk, Colorado and a gaming facility in Cripple Creek, Colorado.  All but three of these gaming facilities operate under the name “Isle of Capri” and feature our distinctive tropical island theme.  Our international gaming interests include a wholly owned casino in Freeport, Grand Bahama, and a two-thirds ownership interest in casinos in Dudley and Wolverhampton, England.  We also wholly own and operate a pari-mutuel harness racing facility in Pompano Beach, Florida.

     In October 2003, we became the first United States gaming company approved to own casinos in the United Kingdom and, in November 2003, acquired a two-thirds interest in Blue Chip Casinos, PLC, which owns and operates casinos in Dudley and Wolverhampton, England.  In December 2003, we opened a new wholly owned gaming facility at Our Lucaya Beach and Golf Resort in Freeport, Grand Bahama.  Also in December 2003, in anticipation of reforms to gaming legislation currently being considered by the British government, we entered into an agreement to develop and operate an entertainment complex, which will include an Isle of Capri themed casino, in a commercial leisure complex under development in Coventry, England.

     On March 15, 2004, we announced that we had been selected by the Illinois Gaming Board as the successful bidder in a federal bankruptcy court auction for the 10th Illinois gaming license conducted pursuant to an agreement approved by, among other parties, the Illinois Attorney General.  We bid $518.0 million to acquire by merger the stock of a company in bankruptcy that owns the license.  If this merger is completed, we expect to spend approximately $150.0 million in addition to amounts already expended at the site in Rosemont, Illinois to construct a single-level, 40,000 square foot casino, with 1,200 gaming positions, restaurants, an entertainment venue, and retail space. The plan of reorganization pursuant to which the merger would be consummated has been confirmed by the federal bankruptcy court.  The merger remains subject to certain conditions, including a finding of suitability and final approval by the Illinois Gaming Board as well as certain other conditions.  In addition, the Illinois Attorney General has raised issues with regard to the appropriateness of the Village of Rosemont as a host community and the Illinois Gaming Board’s selection of our bid, and has announced that she intends to attempt to recommence administrative proceedings with a proposed remedy of revoking the license from the current owner.  The Illinois Attorney General has also filed a suit against the Illinois Gaming Board seeking to enjoin the Board from conducting a suitability investigation of us in connection with the merger provided for under the plan of reorganization.  There can be no assurance that the foregoing conditions will be satisfied or that we will be able to acquire the license.

     For the twelve fiscal months ended April 25, 2004, we had net revenues of approximately $1.1 billion.

     Our Internet website is http://www.islecorp.com.  We make our filings available free of charge on our Internet website as soon as reasonably practical after we electronically file such reports with, or furnish them to, the SEC.

Louisiana

The Isle-Lake Charles

     The Isle-Lake Charles, which commenced operations in July 1995, is located on a 19-acre site along Interstate 10, the main thoroughfare connecting Houston, Texas to Lake Charles, Louisiana.  The property consists of two dockside casinos offering 1,783 slot machines and 90 table games, a 252-room deluxe hotel, a separate 241-room hotel, a 105,000 square foot land-based pavilion and entertainment center, and 2,200 parking spaces, including approximately 1,400 spaces in an attached parking garage.  The pavilion

     The Isle-Lula is the only gaming facility in the Coahoma County, Mississippi market and generated gaming revenues of approximately $92.6 million in calendar year 2003. The Isle-Lula is the closest gaming facility to the Little Rock, Arkansas metropolitan area, which has a population of approximately 580,000 and is located approximately 120 miles northwest of the property. Coahoma County is also located approximately 60 miles southwest of Memphis, Tennessee, which is primarily served by 10 casinos in Tunica, Mississippi. Approximately 850,000 people reside within 150 miles of the property’s primary target market.

The Isle-Biloxi

     The Isle-Biloxi, which commenced operations in August 1992, is located on a 17-acre site at the eastern end of a cluster of facilities known as “Casino Row” in Biloxi, Mississippi, and is the first property reached by visitors coming from Alabama, Florida and Georgia via Highway 90. The property consists of a dockside casino offering 1,171 slot machines and 28 table games, a 367-room hotel, a 90-seat Farraddays’ restaurant, a 425-seat Calypso’s buffet, a 64-seat Tradewinds Marketplace and 1,450 parking spaces.  An estimated $51.9 million will be spent over the next 24 months to expand and enhance the Isle-Biloxi.  Plans include an additional 400 hotel rooms, an Isle-branded Kitt’s Kitchen restaurant, a 12,000 square-foot multi-purpose center, and expanded pool and spa area.  Construction commenced in January 2004.

     The Mississippi Gulf Coast market (which includes Biloxi, Gulfport and Bay St. Louis) is one of the largest gaming markets in the United States and consists of 12 dockside gaming facilities which, in the aggregate, generated gaming revenues of approximately $1.2 billion in calendar year 2003.  In addition, a Hard Rock Casino and Hotel currently is under construction and is expected to be operational in spring 2005.  Among the other operators of dockside gaming facilities in this market are MGM Mirage, Caesars Entertainment, Penn National Gaming and Pinnacle Entertainment.  The Mississippi Gulf Coast, a regional tourist destination, is the closest gaming market to the Mobile, Alabama metropolitan area, which has a population of approximately 540,000 and is located approximately 60 miles east of Biloxi.  We believe that the Isle-Biloxi attracts customers from the local area, Alabama, Florida, Georgia and southeastern Louisiana, including New Orleans and Baton Rouge. Approximately 800,000 and 2.9 million people reside within 50 to 100 miles, respectively, of the Isle-Biloxi.

The Isle-Vicksburg

     The Isle-Vicksburg, which commenced operations in August 1993, is located on an 18-acre site approximately one-mile north of Interstate 20, the main road connecting Jackson, Mississippi to Vicksburg, Mississippi. The property consists of a dockside casino offering 757 slot machines and 20 table games, a 122-room hotel, a 12,483 square foot land-based pavilion and entertainment center, 1,100 parking spaces and a 67-space recreational vehicle park, a 68-seat Farraddays’ restaurant, a 340-seat Calypso’s buffet, a Tradewinds Marketplace and live entertainment.

The Isle-Natchez

      The Isle-Natchez, which was acquired in March 2000, is located off of Highways 84 and 85 in western Mississippi. The property consists of a dockside casino offering 648 slot machines and 11 table games, a 96-room off-site hotel located approximately one mile from the casino, a 150-seat Calypso’s buffet and 908 parking spaces.

     The Isle-Natchez is the only gaming facility in the Natchez market and generated gaming revenues of approximately $34.5 million in calendar year 2003. We believe that the Isle-Natchez attracts customers primarily from among the 110,000 people residing within 50 miles of the Isle-Natchez.

Missouri

The Isle-Kansas City

     We acquired the Isle-Kansas City in June 2000. The facility is the closest facility to downtown Kansas City and consists of a dockside casino offering 1,558 slot machines and 25 table games, a 72-seat Farraddays’ restaurant, a 325-seat Calypso’s buffet, a 24-seat Tradewinds Marketplace and 2,054 parking spaces.

     The Kansas City market consists of four dockside gaming facilities that, in the aggregate, generated gaming revenues of approximately $612.6 million in calendar year 2003.  The other operators of dockside gaming facilities in this market are Ameristar Casinos, Argosy Gaming and Harrah’s Entertainment. We believe that the Isle-Kansas City attracts customers primarily from the Kansas City metropolitan area, which has approximately 1.7 million residents.

The Isle-Boonville

     The Isle-Boonville, which opened on December 6, 2001, is located off of Interstate 70, approximately halfway between Kansas City and St. Louis.  The property consists of a dockside casino offering 911 slot machines and 27 table games, a 32,396 square foot pavilion and entertainment center and 1,101 parking spaces. The pavilion and entertainment center offers customers a wide variety of non-gaming amenities, including a 60-seat Farraddays’ restaurant, a 282-seat Calypso’s buffet, a 36-seat Tradewinds Marketplace and a historic display area.

The Isle-Boonville is the only gaming facility in the Boonville market and generated gaming revenues of approximately $68.7 million in calendar year 2003.  We believe the Isle-Boonville attracts most of its customers from the approximately 733,000 persons living within a 75-mile radius in central Missouri, including Jefferson City and Columbia.

Grand Bahama Island

The Isle-Our Lucaya

     The Isle-Our Lucaya is one of two gaming facilities in the Freeport market on the Island of Grand Bahama. This market generated gaming revenues of approximately $27.0 million in calendar year 2003 and has a population of approximately 50,000 and approximately 300,000 visitors annually. The Island has 4,900 hotel rooms.  The facility is located at Our Lucaya Beach & Golf Resort, which features a Westin and Sheraton hotel with 1,260 rooms.   The approximately 19,000 square-foot resort-style casino offers 380 slot machines, 33 table games and a 110-seat restaurant. 

United Kingdom

Blue Chip-Dudley

     The pub-style casino in Dudley, England is one of 15 gaming facilities in the West Midlands market.  Dudley is the closest gaming market to the Birmingham metropolitan area, which has a population of approximately 5.25 million.  The casino consists of 10 slot machines, 26 table games and 30 parking spaces.  We own  two-thirds of the Blue Chip-Dudley through an unrestricted subsidiary.

Blue Chip-Wolverhampton

     The pub-style casino in Wolverhampton, England is also in the West Midlands market.  Wolverhampton is close to the Birmingham metropolitan area.  The casino consists of 10 slot machines, 43 table games and 10 parking spaces.  We own two-thirds of the Blue Chip-Wolverhampton through an unrestricted subsidiary.

Coventry

     In December 2003, we entered into an agreement to develop and operate an entertainment complex, including an “Isle of Capri” themed casino, in a new commercial leisure complex under development in Coventry, England.  The leisure complex will include a 32,500-seat football stadium and a 6,000-seat exhibition/events hall.  We will lease an approximately 100,000 square-foot space in which we will develop and operate an entertainment complex that will include an Isle of Capri casino, a retail area, restaurants and other amenities.  The casino portion of the project is subject to planning and United Kingdom gaming regulatory approval.  Development of a casino of the size we currently are contemplating will require new legislation.

Salford

     In December 2003, we also signed a letter of intent to develop and operate an entertainment complex, including an “Isle of Capri” themed casino, in a new commercial leisure complex under development in Salford, England.  The new leisure complex will include a hotel and a 20,000-seat rugby stadium.  We will lease an approximately 100,000 square-foot space in which we will develop and operate an entertainment complex that will include an Isle of Capri casino, retail areas, restaurants and other amenities.  The site of the new complex is six miles from Manchester City Center and one mile from the one million square-foot Trafford Center retail development.  The project is subject to acquisition of the property to be utilized in connection with the development, execution of definitive agreements and planning and United Kingdom gaming regulatory approval.  In addition, development of a casino of the size we currently are contemplating also will require new legislation.

     We attract customers to our casinos by designing and implementing marketing and promotional programs that emphasize our Isle of Capri, Rhythm City and Colorado Central Station brands and reward loyal customers. We have developed an extensive proprietary database of primarily slot-oriented customers that allows us to create effective targeted marketing and promotional programs, merchandise giveaways, game tournaments and other special events. These programs are designed to reward customer loyalty, attract new customers to our properties and maintain high recognition of our brands.  To date, we have implemented the first and second phases of our IsleOne marketing system.  Phase I allows our customers to use our players club card at all of our properties other than Colorado Grande-Cripple Creek and the Blue Chip-Dudley.  Phase II, launched in 2002, introduced our Isle Miles marketing program, a frequent-player program that rewards customers through a partnership with Carnival Cruise Lines.  During 2003, we expanded the Isle Miles program to provide upgraded merchandise and travel incentives, including the addition of travel to the Isle-Our Lucaya facility and a marketing agreement with gaming facilities in Las Vegas, Nevada that permits IsleOne customers to redeem Isle Miles for trips to these locations.  These promotional programs are designed to reward customer loyalty and maintain high recognition of our “Isle of Capri” brand.  

     As of April 25, 2004, our database contained approximately 5.6 million members, of whom approximately 1.7 million receive regular mailings.  To develop this database, we offer all of our customers membership in the IsleOne Players Club at Isle of Capri properties, the Fan Club at the Rhythm City-Davenport and the Fast Track Club at the Colorado Central Station properties. These programs reward loyal customers with IsleOne points that can be redeemed at our casinos by using our players club card.  Currently, the players’ club card allows us to track the members’ gaming preferences, maximum, minimum and total amount wagered and frequency of visits. Players are classified in groups according to these characteristics.  Our database is used for direct marketing programs and other promotional events that are tailored to these specific groups of players. We believe we have effectively used our database to encourage repeat visits, increase customers’ length of stay and improve our operating results.

     We place significant emphasis on attracting local residents and seek to maintain a strong local identity in each market in which we operate by initiating and supporting community and special events. We use broadcast media to promote the Isle of Capri brand name and attract customers to our properties. To further enhance our tropical theme, we have engaged actor Ricardo Montalban to narrate our radio advertisements and appear in our television advertisements.

Employees

     As of April 25, 2004, we employed approximately 11,000 people.  None of our employees are subject to a collective bargaining agreement.  We believe that our relationship with our employees is satisfactory.

by each licensee on its operations.  Additionally, there will be two prepaid assessments due on June 1, 2005 and June 1, 2006 in an amount equal to 2.152% of each licensee's adjusted gross receipts for fiscal year 2004.  These assessments will be offset by future state gaming taxes paid by each licensee with a credit for 20% of the assessments paid allowed each year beginning July 1, 2010 for five consecutive years.  The licensee will also reimburse the state of Iowa for all costs associated with monitoring and enforcement by the Iowa Gaming Commission and the Iowa Department of Criminal Investigation.

We are subject to non-gaming regulation that could adversely affect us.

     Several of our riverboats must comply with U.S. Coast Guard requirements as to boat design, on-board facilities, equipment, personnel and safety and must hold U.S. Coast Guard Certificates of Documentation and Inspection. The U.S. Coast Guard requirements also set limits on the operation of the riverboats and mandate licensing of certain personnel involved with the operation of the riverboats. Loss of a riverboat’s Certificate of Documentation and Inspection could preclude its use as a riverboat casino. Each of our riverboats is inspected annually and, every five years, is subject to dry-docking for inspection of its hull, which could result in a temporary loss of service.

     We are required to have third parties periodically inspect and certify all of our casino barges for stability and single compartment flooding integrity. Our casino barges must also meet local fire safety standards. We would incur additional costs if any of our gaming facilities were not in compliance with one or more of these regulations.

     We are also subject to certain federal, state and local environmental laws, regulations and ordinances that apply to non-gaming businesses generally, such as the Clean Air Act, the Clean Water Act, the Resource Conservation Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act and the Oil Pollution Act of 1990. Under various federal, state and local laws and regulations, an owner or operator of real property may be held liable for the costs of removal or remediation of certain hazardous or toxic substances or wastes located on its property, regardless of whether or not the present owner or operator knows of, or is responsible for, the presence of such substances or wastes. We have not identified any issues associated with our properties that could reasonably be expected to have an adverse effect on us or the results of our operations. However, several of our properties are located in industrial areas or were used for industrial purposes for many years. As a consequence, it is possible that historical or neighboring activities have affected one or more of our properties and that, as a result, environmental issues could arise in the future, the precise nature of which we cannot now predict. The coverage and attendant compliance costs associated with these laws, regulations and ordinances may result in future additional costs.

     Regulations adopted by the Financial Crimes Enforcement Network of the U.S. Treasury Department require us to report currency transactions in excess of $10,000 occurring within a gaming day, including identification of the patron by name and social security number.  U.S. Treasury Department regulations also require us to report certain suspicious activity, including any transaction that exceeds $5,000 if we know, suspect or have reason to believe that the transaction involves funds from illegal activity or is designed to evade federal regulations or reporting requirements.  Substantial penalties can be imposed against us if we fail to comply with these regulations.

     We are also subject to a variety of other local rules and regulations, including zoning, environmental, construction and land-use laws and regulations governing the serving of alcoholic beverages.  Penalties can be imposed against us if we fail to comply with these regulations.  The imposition of a substantial penalty or the loss of service of a gaming facility for a significant period of time would have a material adverse affect on our business.

If our key personnel leave us, our business will be significantly adversely affected.

     Our continued success will depend, among other things, on the efforts and skills of a few key executive officers and the experience of our property managers as well as our ability to attract and retain additional highly qualified personnel with gaming industry experience and qualifications to obtain the requisite licenses.  We do not maintain “key man” life insurance for any of our employees.  There is no assurance that we would be able to attract and hire suitable replacements for any of our key employees.  We need qualified executives, managers and skilled employees with gaming industry experience to continue to successfully operate our business.  We believe a shortage of skilled labor in the gaming industry may make it increasingly difficult and expensive to attract and retain qualified employees. We expect that increased competition in the gaming industry will intensify this problem.

Inclement weather and other conditions could seriously disrupt our business, financial condition and results of operations.

     Dockside and riverboat facilities are subject to risks in addition to those associated with land-based casinos, including loss of service due to casualty, mechanical failure, extended or extraordinary maintenance, flood, hurricane or other severe weather.  Our riverboats and barges face additional risks from the movement of vessels on waterways.

     Reduced patronage and the loss of a dockside or riverboat casino from service for any period of time could adversely affect our results of operations.  For example, as a result of flooding of the Mississippi River, we closed the Isle-Marquette from April 18 to May 2, 2001, and the Rhythm City-Davenport from April 18 to May 20, 2001.  While our business interruption insurance provided sufficient coverage for those losses, we cannot assure you that the proceeds from any future claim will be sufficient to compensate us if one or more of our casinos experiences a closure.

     Access to a number of our facilities may also be affected by road conditions, such as construction and traffic.  In addition, severe weather such as high winds and blizzards occasionally limits access to our facilities in Colorado.

Construction disruptions associated with expansion projects at existing facilities may adversely affect operations.

     We have expansion projects underway at several properties and are considering expansion projects at additional properties.  Construction activities in connection with expansion of our properties typically disrupt operations to varying degrees depending on the nature of the project, which may adversely affect our business.

Energy and fuel price increases may adversely affect our costs of operations and our revenues.

     Our casino properties use significant amounts of electricity, natural gas and other forms of energy.  While no shortages of energy have been experienced, the recent substantial increases in the cost of electricity in the United States will negatively affect our results of operations. In addition, energy and fuel price increases in cities that constitute a significant source of customers for our properties could result in a decline in disposable income of potential customers and a corresponding decrease in visitation to our properties, which would negatively impact our revenues.  The extent of the impact is subject to the magnitude and duration of the energy and fuel price increases, but this impact could be material.

·      agents of the Louisiana State Police are permitted on board at any time during gaming      

       operations;

·     gaming devices, equipment and supplies may only be purchased or leased from permitted suppliers and, with respect to gaming equipment, from permitted manufacturers;

·     gaming may only take place in the designated gaming area while the riverboat is docked on a designated river or waterway;

·     gaming equipment may not be possessed, maintained or exhibited by any person on a riverboat except in the specifically designated gaming area or in a secure area used for inspection, repair or storage of such equipment;

·     wagers may be received only from a person present on a licensed riverboat;

·     persons under 21 are not permitted in designated gaming areas;

·     except for slot machine play, wagers may be made only with tokens, chips or electronic cards purchased from the licensee aboard a riverboat;

·     licensees may only use docking facilities and routes for which they are licensed and may only board and discharge passengers at the riverboat’s licensed berth;

·     licensees must have adequate protection and indemnity insurance;

·     licensees must have all necessary federal and state licenses, certificates and other regulatory approvals prior to operating a riverboat; and

·     gaming may only be conducted in accordance with the terms of the license and Louisiana law.

     To receive a gaming license in Louisiana, an applicant must be found to be a person of good character, honesty and integrity and a person whose prior activities, criminal record, if any, reputation, habits and associations do not (1) pose a threat to the public interest of the State of Louisiana or to the effective regulation and control of gaming or (2) create or enhance the dangers of unsuitable, unfair or illegal practices, methods and activities in the conduct of gaming or the carrying on of business and financial arrangements of gaming activities. In addition, the Louisiana Gaming Control Board will not grant a license unless it finds that, among other things:

·     the applicant can demonstrate the capability, either through training, education, business experience or a combination of the preceding, to operate a gaming operation;

·     the proposed financing of the riverboat and the gaming operations is adequate for the nature of the proposed operation and is from a suitable and acceptable source;

·     the applicant demonstrates a proven ability to operate a vessel of comparable size, capacity and complexity to a riverboat so as to ensure the safety of its passengers;

·     the applicant submits with its application for a license a detailed plan of design of the riverboat;

·     the applicant designates the docking facilities to be used by the riverboat;

·      the applicant shows adequate financial ability to construct and maintain a riverboat; and

·      the applicant has a good faith plan to recruit, train and upgrade minorities in all employment classifications.

     An initial license to conduct riverboat gaming operations is valid for a term of five years and legislation passed in the 1999 legislative session provides for renewals every five years thereafter.  Louisiana gaming law provides that a renewal application for the period succeeding the initial five-year term of an operator’s license must be made to the Louisiana Gaming Control Board and must include a statement under oath of any and all changes in information, including financial information, provided in the previous application.  The transfer of a license or an interest in a license is prohibited.  A gaming license is deemed to be a privilege under Louisiana law and, as such, may be denied, revoked, suspended, conditioned or limited at any time by the Louisiana Gaming Control Board.  The Isle-Bossier City and the Isle-Lake Charles each received a five-year renewal of their license on July 20, 1999.

            On April 9, 2004, the Isle-Bossier City and the Isle-Lake Charles filed applications for a second five year renewal of their three licenses.  These applications are pending approval.

     Certain persons affiliated with a riverboat gaming licensee, including directors and officers of the licensee, directors and officers of any holding company of the licensee involved in gaming operations, persons holding 5% or greater interests in the licensee and persons exercising influence over a licensee, are subject to the application and suitability requirements of Louisiana gaming law.

     The sale, purchase, assignment, transfer, pledge or other hypothecation, lease, disposition or acquisition by any person of securities that represent 5% or more of the total outstanding shares issued by a licensee is subject to the approval of the Louisiana Gaming Control Board.  A security issued by a licensee must generally disclose these restrictions.  Prior approval from the Louisiana Gaming Control Board is required for the sale, purchase, assignment, transfer, pledge or other hypothecation, lease, disposition or acquisition of any ownership interest of 5% or more of any non-corporate licensee or for the transfer of any “economic interest” of 5% or more of any licensee or affiliated gaming person. An “economic interest” is defined as any interest whereby a person receives or is entitled to receive, by agreement or otherwise, a profit, gain, thing of value, loan, credit, security interest, ownership interest or other benefit.

     Fees payable to the state for conducting gaming activities on a riverboat include (1) $50,000 per riverboat for the first year of operation and $100,000 per year per riverboat thereafter, plus (2) 21.5% of net gaming proceeds.  Legislation was passed during the 2001 legislative session that allowed those riverboats that had been required to conduct cruises, including the riverboats at the Isle-Lake Charles, to remain permanently dockside beginning April 1, 2001.  The legislation also increased the gaming tax for operators from 18.5% to 21.5%.  A statute also authorizes local governing authorities to levy boarding fees.  We currently have development agreements with certain local governing authorities in the jurisdictions in which we operate pursuant to which we make payments in lieu of boarding fees.  Absent such an agreement, we are subject to statutory boarding fees.

     The failure of a licensee to comply with the requirements set forth above may result in the suspension or revocation of that licensee’s gaming license. Additionally, if the Louisiana Gaming Control Board finds that the individual owner or holder of a security of a corporate license or intermediary company or any person with an economic interest in a licensee is not qualified under Louisiana law, the Louisiana Gaming Control Board may require, under penalty of suspension or revocation of the license, that the person not:

·         receive dividends or interest on securities of the corporation;

·         exercise directly or indirectly a right conferred by securities of the corporation;

·         receive remuneration or economic benefit from the licensee;

·         exercise significant influence over activities of the licensee; or

·         continue its ownership or economic interest in the licensee.

     A licensee must periodically report the following information to the Louisiana Gaming Control Board, which is not confidential and is available for public inspection: (1) the licensee’s net gaming proceeds from all authorized games, (2) the amount of net gaming proceeds tax paid and (3) all quarterly and annual financial statements presenting historical data, including annual financial statements that have been audited by an independent certified public auditor.

     During the 1996 special session of the Louisiana legislature, legislation was enacted placing on the ballot for a statewide election a constitutional amendment limiting the expansion of gaming, which was subsequently passed by the voters. As a result, local option elections are required before new or additional forms of gaming can be brought into a parish.

     Proposals to amend or supplement Louisiana’s riverboat gaming statute are frequently introduced in the Louisiana State Legislature.  There is no assurance that changes in Louisiana gaming law will not occur or that such changes will not have a material adverse effect on our business in Louisiana.

Mississippi

     In June 1990, Mississippi enacted legislation legalizing dockside casino gaming for counties along the Mississippi River, which is the western border for most of the state, and the Gulf Coast, which is the southern border for most of the state.  The legislation gave each of those counties the opportunity to hold a referendum on whether to allow dockside casino gaming within its boundaries.

     Gaming vessels in Mississippi must be located on the Mississippi River, on navigable waters in eligible counties along the Mississippi River or in the waters lying south of the counties along the Mississippi Gulf Coast. Mississippi law permits unlimited stakes gaming on permanently moored vessels on a 24-hour basis and does not restrict the percentage of space that may be utilized for gaming. There are no limitations on the number of gaming licenses that may be issued in Mississippi.

·      theme parks;

·      golf courses;

·      marinas;

·      entertainment facilities;

·      tennis complexes; and

·      any other facilities approved by the Mississippi Gaming Commission.

     Parking facilities, roads, sewage and water systems or civic facilities are not considered “infrastructure facilities.”  The Mississippi Gaming Commission may reduce the number of rooms required in a hotel if it is satisfied that sufficient rooms are available to accommodate the anticipated number of visitors.  In 2003, the Mississippi Gaming Commission again amended its regulations regarding development plan approval but left the 100% infrastructure requirement intact.

     License fees and taxes are payable to the State of Mississippi and to the counties and cities in which a Mississippi gaming subsidiary’s respective operations will be conducted.  The license fee payable to the state of Mississippi is based upon gross revenue of the licensee (generally defined as gaming receipts less payout to customers as winnings) and equals 4% of gross revenue of $50,000 or less per month, 6% of gross revenue in excess of $50,000 but less than $134,000 per calendar month, and 8% of gross revenue in excess of $134,000 per calendar month.  The foregoing license fees are allowed as a credit against the licensee’s Mississippi income tax liability for the year paid. Additionally, a licensee must pay a $5,000 annual license fee and an annual fee based upon the number of games it operates.  The gross revenue tax imposed by the Mississippi communities and counties in which our casino operations are located equals 0.4% of gross revenue of $50,000 or less per calendar month, 0.6% of gross revenue over $50,000 and less than $134,000 per calendar month and 0.8% of gross revenue greater than $134,000 per calendar month.  These fees have been imposed in, among other cities and counties, Biloxi, Vicksburg, and Coahoma County. Certain local and private laws of the state of Mississippi may impose fees or taxes on the Mississippi gaming subsidiaries in addition to the fees described above.

     The Mississippi Gaming Commission requires, as a condition of licensure or license renewal, that casino vessels on the Mississippi Gulf Coast that are not self-propelled must be moored to withstand a Category 4 hurricane with 155 mile-per-hour winds and 15-foot tidal surge.  We believe that all of our Mississippi gaming locations currently meet this requirement.  A 1996 Mississippi Gaming Commission regulation prescribes the hurricane emergency procedure to be used by the Mississippi Gulf Coast casinos.

     The sale of food or alcoholic beverages at our Mississippi gaming locations is subject to licensing, control and regulation by the applicable state and local authorities.  The agencies involved have full power to limit, condition, suspend or revoke any such license, and any such disciplinary action could (and revocation would) have a material adverse effect upon the operations of the affected casino or casinos.  Certain of our officers and managers and our Mississippi gaming subsidiaries must be investigated by the Alcoholic Beverage Control Division of the State Tax Commission in connection with liquor permits that have been issued. The Alcoholic Beverage Control Division of the State Tax Commission must approve all changes in licensed positions.

Missouri

     Conducting gambling games and operating an excursion gambling boat in Missouri are subject to extensive regulation under Missouri’s Riverboat Gambling Act and the rules and regulations promulgated thereunder.  The Missouri Gaming Commission was created by the Missouri Riverboat Gambling Act and is charged with regulatory authority over riverboat gaming operations in Missouri, including the issuance of riverboat gaming licenses. In June 2000, IOC-Kansas City, Inc., a subsidiary of ours, was issued a riverboat gaming license in connection with our Kansas City operation.  Additionally, in December 2001, IOC-Boonville, Inc., a subsidiary of ours, was issued a riverboat gaming license for our Boonville operation.

     In order to obtain a riverboat gaming license, the proposed operating business entity must complete a Class A Riverboat Gaming Application, comprised of comprehensive application forms, including corroborating attachments, and undergo an extensive background investigation by the Missouri Gaming Commission.  In addition, each key person associated with the applicant (including directors, officers, managers and owners of a significant direct or indirect interest in the applicant) must complete a Riverboat Gaming Application Form I and undergo a background investigation.  Certain key business entities closely related to the applicant or "business entity key persons" must undergo a similar application process and background check.  An applicant will not receive a license to conduct gambling games and to operate an excursion gambling boat if the applicant and its key persons have not established good repute and moral character and no licensee shall either employ or contract with any person who has pled guilty to, or been convicted of, a felony, to perform any duties directly connected with the licensee’s privileges under a license granted by the Commission.  Each license granted entitles a licensee to conduct gambling games on an excursion gambling boat or to operate an excursion gambling boat and the equipment thereon from a specific location.  The duration of the license initially runs for two one-year terms; thereafter, two-year terms.  The Commission also licenses the serving of alcoholic beverages on riverboats and related facilities.

     In determining whether to grant a license, the Commission considers the following factors, among others: (i) the integrity of the applicants; (ii) the types and variety of games the applicant may offer; (iii) the quality of the physical facility, together with improvements and equipment, and how soon the project will be completed; (iv) the financial ability of the applicant to develop and operate the facility successfully; (v) the status of governmental actions required by the facility; (vi) management ability of the applicant; (vii) compliance with applicable statutes, rules, charters and ordinances; (viii) the economic, ecological and social impact of the facility as well as the cost of public improvements; (ix) the extent of public support or opposition; (x) the plan adopted by the home dock city or county; and (xi) effects on competition.

     Any transfer or issuance of ownership interest in a publicly held gaming licensee or its holding company that results in an entity owning, directly or indirectly, an aggregate ownership interest of 5% or more in the gaming licensee must be reported to the Missouri Gaming Commission within seven days.  Further, any pledge or hypothecation of 5% or more of the ownership interest in a publicly held gaming licensee or its holding company must be reported to the Missouri Gaming Commission within seven days.

     Every employee participating in a riverboat gaming operation must hold an occupational license. In addition, the Missouri Gaming Commission issues supplier’s licenses, which authorize the supplier licensee to sell or lease gaming equipment and supplies to any licensee involved in the operation of gaming operations.

     Riverboat gaming operations may only be conducted on the Missouri River or Mississippi River. Although, all of the excursion gambling boats in Missouri are permanently moored boats or barges, a two hour simulated cruise is imposed in order to ensure the enforcement of loss limit restrictions. Missouri law imposes a maximum loss per person per cruise of $500.  Minimum and maximum wagers on games are set by the licensee and wagering may be conducted only with a cashless wagering system, whereby money is converted to tokens, electronic cards or chips that can only be used for wagering.  No person under the age of 21 is permitted to wager, and wagers may only be taken from a person present on a licensed excursion gambling boat.

     The Missouri Riverboat Gambling Act imposes a 20% wagering tax on adjusted gross receipts (generally defined as gross receipts less winnings paid to wagerers) from gambling games.  The tax imposed is to be paid by the licensee to the Commission on the day after the day when the wagers were made. Of the proceeds of that tax, 10% goes to the local government where the home dock is located, and the remainder goes to the State of Missouri.

     The Missouri Riverboat Gambling Act also requires that licensees pay a $2.00 admission tax to the Missouri Gaming Commission for each person admitted to a gaming cruise.  The licensee is required to maintain public books and records clearly showing amounts received from admission fees, the total amount of gross receipts and the total amount of adjusted gross receipts.  In addition, all local income, earnings, use, property and sales taxes are applicable to licensees.  There have been from time to time pending before the Missouri General Assembly several proposed bills which individually or in combination would, if adopted, (1) remove the loss limit restriction, (2) adjust the amount of wagering tax imposed on adjusted gross receipts of licensees and/or (3) adjust the amount of admission tax paid by the licensee for each person admitted for a gaming cruise.

Iowa

     In 1989, the State of Iowa legalized riverboat gaming on the Mississippi River and other waterways located in Iowa.  The legislation authorized the granting of licenses to non-profit corporations that, in turn, are permitted to enter into operating agreements with qualified persons who also actually conduct riverboat gaming operations. Such operators must likewise be approved and licensed by the Iowa Racing and Gaming Commission (the “Iowa Gaming Commission”).

(1) The operating results and data presented for fiscal years prior to fiscal year 2001 are not comparable to other fiscal years presented because they do not include the operating results of the Isle-Kansas City, which we acquired on June 6, 2000, the Lady Luck-Las Vegas, which we acquired on September 12, 2000, and the Rhythm City-Davenport, which we acquired on October 10, 2000. The operating results and data presented for fiscal years prior to fiscal year 2002 are not comparable to other fiscal years presented because they do not include the operating results of the Isle-Boonville, which opened on December 6, 2001.  The operating results and data presented for fiscal years prior to fiscal year 2003 are not comparable to other fiscal years presented as we ceased operations at the Isle-Tunica on September 3, 2002, and acquired the Colorado Central Station-Black Hawk and the Colorado Grande-Cripple Creek on April 22, 2003.  The operating results and data presented for fiscal years prior to fiscal year 2004 are not comparable to other fiscal years presented because they do not include the operating results of the Isle-Our Lucaya, which we opened on December 15, 2003, the Blue Chip-Dudley, which we acquired on November 28, 2003, and the Blue Chip-Wolverhampton, which we opened on April 22, 2004.  We also ceased operations at the Lady Luck-Las Vegas on September 3, 2003.

(2) Excludes amortization of goodwill and other indefinite-lived intangible assets in connection with the adoption of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets.”

(3) This data is as of the end of the respective period.

(4) The data presented for fiscal years prior to 2003 is not comparable to other fiscal years presented due to the exclusion of the 227 Isle-Tunica and the 792 Lady Luck-Las Vegas hotel rooms.

N/A Not applicable.

Critical Accounting Estimates

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

• those that require the use of assumptions about matters that are inherently and highly uncertain at the time the estimates are made
• those estimates where, had we chosen different estimates or assumptions, the resulting differences would have had a material impact on our financial condition, changes in financial condition or results of operations; and
• those estimates that are reasonably likely to change from period to period, resulting in a material impact on our financial condition, changes in financial condition or results of operations.

     Based upon management’s discussion of the development and selection of these critical accounting estimates with the Audit Committee of our Board of Directors, we believe the following accounting estimates involve a higher degree of judgment and complexity. 

Goodwill and Other Intangible Assets

     At April 25, 2004, we had goodwill and other intangible assets with indefinite useful lives of $406.1 million, representing 27% of total assets.  Effective April 30, 2001, we adopted Statement of Financial Accounting Standards No. 142 “Goodwill and Other Intangible Assets” (“SFAS 142”), which requires that goodwill and intangible assets with indefinite useful lives be tested for impairment annually or more frequently if an event occurs or circumstances change that may reduce the fair value of the company below its carrying value.  We completed our annual impairment test as required under SFAS 142 in the fourth quarter of fiscal year 2004 and determined that goodwill and other indefinite-lived intangible assets were not impaired.  For properties with goodwill and/or other intangible assets with indefinitive lives, this test requires the comparison of the implied fair value of each property to carrying value.  The implied fair value includes estimates of future cash flows that are based on reasonable and supportable assumptions and represent our best estimates of the cash flows expected to result from the use of the assets and their eventual disposition.  Changes in estimates or application of alternative assumptions and definitions could produce significantly different results.

 Our results of operations for the fiscal year ended April 25, 2004 reflect the consolidated operations of all of our subsidiaries and include the following properties: the Isle-Bossier City, the Isle-Lake Charles, the Isle-Biloxi, the Isle-Lula, the Isle-Natchez, the Isle-Vicksburg, the Isle-Kansas City, the Isle-Boonville, the Isle-Bettendorf, the Isle-Marquette, the Rhythm City-Davenport, the Isle-Black Hawk, the

. 

     Casino revenue remained constant year over year on a company-wide basis.  A $38.5 million increase in revenue attributable to a full year of operations at the Isle-Boonville was offset by a $23.0 million decrease in revenue at the Isle-Lake Charles due to new competition and a $22.7 million decrease at the Isle-Tunica attributable to closing the property on September 3, 2002. 

    Rooms revenue decreased $6.7 million or 12.0% compared to prior year.  The decrease was primarily attributed to a decrease of 1,019 hotel rooms resulting from the sale of the Isle-Tunica and the Lady Luck-Las Vegas.  

     Food, beverage, pari-mutuel and other revenue decreased $11.0 million or 6.2% when compared to the prior year primarily as a result of the sale of the Isle-Tunica and the Lady Luck-Las Vegas.

     Casino operating expenses for the fiscal year ended April 27, 2003 totaled $181.7 million, or 17.3% of casino revenue, versus $195.0 million, or 18.4% of casino revenue, for the fiscal year ended April 28, 2002.  These expenses are primarily comprised of salaries, wages and benefits and other operating expenses of the casinos.  The decrease is primarily the result of closing the Isle-Tunica, a low margin property.

     For the fiscal year ended April 27, 2003, state and local gaming taxes totaled $229.5 million, or 21.8% of casino revenue, compared to $227.1 million, or 21.5% of casino revenue, for the fiscal year ended April 28, 2002, which is consistent with each state’s gaming tax rate for the applicable fiscal years.  Gaming taxes increased because a larger percentage of our casino revenue was earned in Missouri, a higher gaming tax jurisdiction, than in the previous year due to the opening of the Isle-Boonville and a 1.0% increase in the tax rate at the Isle-Bossier City effective April 1, 2002.  An additional 1.0% increase in the tax rate at the Isle-Bossier City became effective on April 1, 2003.

     Operating expenses for the fiscal year ended April 27, 2003, also included room expenses of $11.6 million, or 23.5% of gross room revenue compared to $13.3 million or 23.8% of gross room revenue for the fiscal year ended April 28, 2002.  The $1.8 million or 13.3% decrease in rooms expense was comparable to the decrease in rooms revenue.

     Pari-mutuel operating costs of Pompano Park totaled $16.9 million for the fiscal year ended April 27, 2003, compared to $16.8 million for the fiscal year ended April 28, 2002.  Such costs consist primarily of compensation, benefits, purses, simulcast fees and other direct costs of track operations.  Pari-mutuel operating costs, as a percentage of pari-mutuel revenues have remained relatively stable at 70.7% for the fiscal year ended April 27, 2003, compared to 71.4% in the prior fiscal year.

     Food, beverage and other expenses totaled $34.1 million for the fiscal year ended April 27, 2003, compared to $35.8 million for the fiscal year ended April 28, 2002.  These expenses consist primarily of the cost of goods sold, salaries, wages and benefits and other operating expenses.  Food, beverage and other operating expenses as a percentage of gross food, beverage and other revenues increased from 23.5% for the fiscal year ended April 28, 2002, to 24.2% for the fiscal year ended April 27, 2003 as a result of the start up costs of the restaurants at the Isle-Boonville. 

     Marine and facilities expenses totaled $65.9 million, or 6.2% of net revenue, for the fiscal year ended April 27, 2003, versus $70.0 million, or 6.5% of net revenue for the fiscal year ended April 28, 2002.  These expenses included salaries, wages and benefits, operating expenses of the marine crews, insurance, housekeeping and general maintenance of the riverboats and floating pavilions.  The $4.1 million, or 5.9% decrease was primarily the result of the sale of the Isle-Tunica and the Lady Luck-Las Vegas.  

     Marketing and administrative expenses totaled $283.7 million, or 26.6% of net revenue for the fiscal year ended April 27, 2003, versus $285.9 million, or 25.5% of net revenue for the fiscal year ended April 28, 2002.  Marketing expenses included salaries, wages and benefits of the marketing and sales departments, as well as promotions, advertising, special events and entertainment.  Administrative expenses included administration and human resource department expenses, rent, new development activities, professional fees and property taxes.  The $2.2 million decrease in marketing and administrative expenses, or 0.2% of net revenue, is primarily due to a $2.6 million litigation settlement at the Isle-Lake Charles that was expensed in fiscal year 2002 and recovered as income in fiscal year 2003, offset by a $1.7 million increase due to increased competition. 

     The valuation charge for the fiscal year ended April 27, 2003, totaling $1.9 million is a reserve for a loss contingency against the investment to date in Ardent Gaming, L.L.C., an unrelated third party.  The system being developed under the joint venture was substantially past due and we believed it probable that we would not recover our investment.  The valuation charge for the fiscal year ended April 28, 2002, totaling $61.4 million reflects the impairment charge of $59.2 million related to the write-down of our assets at the Isle-Tunica and the Lady Luck-Las Vegas.  On March 14, 2002, our Board of Directors resolved to sell or otherwise dispose of the property and equipment at the Isle-Tunica and the Lady Luck-Las Vegas.  As such, we recorded an impairment write-down of $59.2 million, representing the difference between the Isle-Tunica’s and the Lady Luck-Las Vegas’ carrying values of $80.7 million and their estimated fair values (less estimated costs to sell) of $21.5 million.  We ceased casino operations at the Isle-Tunica on September 3, 2002, which was 33 days prior to the sale of assets to Boyd Casino Strip, LLC on October 7, 2002.  On October 30, 2002, we completed the sale of the Lady Luck-Las Vegas but continued to operate the casino until the purchaser’s designated gaming operator received regulatory approval.  We ceased operations as the Lady Luck-Las Vegas in fiscal year 2004.  As a result, the results of operations include the gaming operations for the Lady Luck-Las Vegas for the periods presented.  Also included in fiscal year 2002 was an impairment charge of $2.2 million relating to marine assets that have been in storage for future development and are currently offered for sale.

     Depreciation and amortization expense was $76.6 million for the fiscal year ended April 27, 2003, and $72.1 million for the fiscal year ended April 28, 2002.  Depreciation expense increased by $4.6 million in fiscal year 2003 as compared to the prior year consistent with an increase in fixed assets placed into service or acquired.  During the fourth quarter of fiscal year 2002, we reclassified the Isle-Tunica’s and the Lady Luck-Las Vegas’ property and equipment as assets held for sale due to the impairment of the assets.  Under this classification, we ceased depreciating these assets.  We estimate that the benefit from suspending depreciation associated with the assets held for sale was approximately $7.1 million in fiscal year 2003.

     Interest expense was $82.0 million for the fiscal year ended April 27, 2003 net of capitalized interest of $0.2 million and interest income of $0.6 million versus $88.3 million for the fiscal year ended April 28, 2002 net of capitalized interest of $1.3 million and interest income of $0.9 million.  Interest expense primarily relates to indebtedness incurred in connection with the acquisition of property, equipment, leasehold improvements and berthing and concession rights.  Additionally, interest expense of $5.6 million net of interest income of $0.1 million related to the Isle-Black Hawk is included in interest expense for the fiscal year ended April 27, 2003.  This compares to interest expense of $9.7 million net of interest income of $0.2 million for the fiscal year ended April 28, 2002.

     At April 25, 2004, we had cash and cash equivalents of $134.6 million, compared to cash and cash equivalents of $94.6 million at April 27, 2003. The $40.0 million increase in cash and cash equivalents is the net result of $173.2 million net cash provided by operating activities, $159.1 million net cash used in investing activities and $25.9 million net cash provided by financing activities.

Investing Activities

     We invested $151.6 million in property and equipment during the fiscal year ended April 25, 2004.  The following table reflects expenditures for property and equipment on major projects in fiscal 2004 and 2003 and projected expenditures for these projects.