UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 0-20712
CASINO MAGIC CORP.
(Exact name of registrant as specified in its charter)
MINNESOTA 64-0817483
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
711 CASINO MAGIC DRIVE, BAY SAINT LOUIS, MS 39520
(Address of principal executive offices) (Zip Code)
(228) 466-8099
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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 ______
Indicate the number of shares outstanding of the issuer's classes of common
stock, as of the latest practicable date.
35,722,124 shares common stock outstanding as of November 12, 1997
CASINO MAGIC CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION PAGE
NO.
Item 1. Financial Statements
Condensed Consolidated Statements of Operations
For the three months ended September 30, 1997 and 1996 ........1
Condensed Consolidated Statements of Operations
For the nine months ended September 30, 1997 and 1996 ........2
Condensed Consolidated Balance Sheets -
September 30, 1997 and December 31, 1996 ......................3
Condensed Consolidated Statements of Cash Flows -
For the nine months ended September 30, 1997 and 1996 .........4
Notes to Condensed Consolidated Financial Statements ..............5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ......................6-14
PART II OTHER INFORMATION
Item 1. Legal Proceedings
..........................................15
Item 2. Changes in Securities.
.....................................15
Item 3. Default Upon Senior Securities
..............................15
Item 4. Submission of Matters to a Vote of Security Holders
.........15
Item 5. Other Information
...........................................15
Item 6. Exhibits and Reports on Form 8-K
............................15
SIGNATURES .....................................................16
PART I - FINANCIAL INFORMATION
CASINO MAGIC CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
1997 1996
REVENUES:
Casino $ 62,680,205 $ 39,849,171
Food and beverage 2,404,469 1,718,984
Rooms 328,578 505,075
Royalty and management fees -- 730,034
Other operating income 1,081,882 467,971
Total revenues 66,495,134 43,271,235
COSTS AND EXPENSES:
Casino 30,658,015 16,432,601
Food and beverage 1,767,142 2,010,774
Rooms 140,554 279,844
Other operating costs and expenses 1,017,571 721,940
Advertising and marketing 7,112,014 5,365,483
General and administrative 6,181,399 5,422,144
Property operation, maintenance and energy cost 2,625,158 1,681,739
Rents, property taxes and insurance 1,906,446 1,348,281
Development expenses 56,750 473,117
Depreciation and amortization 4,905,523 4,179,874
Total costs and expenses 56,370,572 37,915,797
INCOME FROM OPERATIONS 10,124,562 5,355,438
OTHER (INCOME) EXPENSE:
Equity (income) loss from
unconsolidated subsidiaries 176,005 (290,088)
Interest expense, net 7,954,345 4,540,596
(Gain) loss from sale of assets (1,337,687) 36,342
Other (57,828) 110,274
Write-off of investment in
Porto Carras Casino, S.A. -- 26,982,422
Total other expense 6,734,835 31,379,546
INCOME (LOSS) BEFORE INCOME TAXES AND
MINORITY INTEREST 3,389,727 (26,024,108)
INCOME TAX EXPENSE (BENEFIT) -- (5,341,377)
MINORITY INTEREST IN INCOME OF SUBSIDIARY 715,023 --
NET INCOME (LOSS) $2,674,704 $(20,682,731)
NET INCOME (LOSS) PER COMMON SHARE:
Primary $ 0.07 $ (0.57)
Fully-diluted $ 0.07 $ (0.57)
AVERAGE SHARES AND EQUIVALENTS OUTSTANDING:
Primary 35,654,174 36,403,759
Fully-diluted 35,735,741 36,404,350
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
1
MAGIC CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30
1997 1996
REVENUES:
Casino $186,411,356 $118,123,734
Food and beverage 7,391,186 4,897,699
Room 1,103,592 1,442,641
Royalty and management fees -- 2,860,041
Other operating income 3,327,423 1,439,795
Total revenues 198,233,557 128,763,910
COSTS AND EXPENSES:
Casino 88,899,256 49,475,040
Food and beverage 8,364,166 5,543,721
Rooms 509,219 811,275
Other operating costs and expenses 3,326,192 1,883,661
Advertising and marketing 28,517,336 15,288,395
General and administrative 20,261,984 15,288,225
Property operation, maintenance and energy cost 8,669,605 4,818,119
Rents, property taxes and insurance 5,866,014 4,234,866
Development expenses 511,882 1,462,841
Depreciation and amortization 15,258,905 12,564,323
Total costs and expenses 180,184,559 111,370,466
INCOME FROM OPERATIONS 18,048,998 17,393,444
OTHER (INCOME) EXPENSE:
Equity (income) loss from unconsolidated
Subsidiaries 405,066 (883,337)
Interest expense, net 23,703,909 12,250,572
(Gain) loss of sale of assets (2,578,231) 50,302
Other (244,461) 209,296
Write-off of investment in
Porto Carras Casino, S.A. -- 26,982,422
Total other expense 21,286,283 38,609,255
INCOME (LOSS) BEFORE INCOME TAXES AND
MINORITY INTEREST IN INCOME OF SUBSIDIARY (3,237,285) (21,215,811)
INCOME TAX EXPENSE (BENEFIT) (1,935,000) (3,836,505)
MINORITY INTEREST 916,535 --
NET INCOME (LOSS) $(2,218,820) (17,379,306)
NET INCOME (LOSS) PER COMMON SHARE:
Primary $ (.06) $ (.48)
Fully-diluted $ (.06) $ (.49)
AVERAGE SHARES AND EQUIVALENTS OUTSTANDING:
Primary 35,642,780 36,485,878
Fully-diluted 35,642,780 35,387,280
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
2
CASINO MAGIC CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
SEPTEMBER 30, DECEMBER 31,
1997 1996 (*)
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 26,886,635 $17,561,512
Restricted cash 10,610,051 16,984,654
Other current assets 9,028,863 7,410,331
Total current assets 46,525,549 41,956,497
PROPERTY AND EQUIPMENT, NET 256,365,066 243,692,571
OTHER LONG-TERM ASSETS:
Investment in unconsolidated subsidiaries 774,234 957,831
Deferred gaming license cost 38,449,048 38,337,333
Foreign casino concession agreement, net 8,777,279 9,488,950
Other long-term assets 17,226,712 36,168,509
Total other long-term assets 65,227,273 84,952,623
$368,117,888 $370,601,691
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES 47,550,158 48,448,985
OTHER LONG-TERM LIABILITIES -- 266,761
LONG-TERM DEBT, NET OF CURRENT MATURITIES 253,484,013 258,261,231
MINORITY INTEREST 5,444,359 --
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $0.01 par, 50,000,000 shares authorized,
35,722,124 issued and outstanding at September 30, 1997
and 35,637,083 issued and outstanding at
December 31, 1996 357,221 356,371
Undesignated stock, 2,500,000 shares authorized,
none issued
Additional paid-in capital 67,122,857 67,123,702
Retained earnings (4,731,892) (2,513,062)
Unrealized holding loss on securities (788,156) (850,156)
Less unearned compensation (320,672) (492,141)
Total shareholders' equity 61,639,358 63,624,714
$ 368,117,888 $370,601,691
See notes to condensed consolidated financial statements.
* Derived from audited financial statements
3
CASINO MAGIC CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (2,218,828) (17,379,306)
Adjustments for non-cash charges 14,574,699 30,018,664
Changes in assets and liabilities 5,728,959 (5,687,216)
NET CASH PROVIDED BY OPERATING ACTIVITIES 18,084,830 6,952,142
Cash flows from investing activities:
Acquisitions of property and equipment (28,996,109) (42,202,267)
Acquisition of gaming license -- (15,000,000)
Investments in unconsolidated subsidiaries (221,469) --
Proceeds from sale of assets 19,833,971 1,209,019
Other, net 366,782 (310,129)
NET CASH USED IN INVESTING ACTIVITIES (9,016,825) (56,303,377)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable
long-term debt 6,514,988 121,077,031
Principal payments on notes payable
and long-term debt (12,285,515) (48,230,214)
Net proceeds from sale of common stock -- 264,676
Other (346,958) __
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (6,117,485) 73,111,493
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 2,950,520 23,760,258
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 34,546,166 30,755,698
CASH AND CASH EQUIVALENTS, END OF PERIOD $37,496,686 $54,515,956
SUPPLEMENTAL CASH FLOW INFORMATION
CASH PAID DURING THE PERIOD FOR:
Interest (net of amount capitalized) $ 25,104,711 $ 6,558,224
Income taxes (net of refunds) (6,382,324) (7,587,982)
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Property and equipment and other asset acquisitions included in
accounts and construction payable and accrued
expenses 1,658,604 1,225,532
Property and equipment financed with
long-term debt 946,004 46,416,570
Gaming license acquisition financed with
long-term debt -- 1,042,070
Common stock granted to officers 171,469 135,398
Reclassification of long-term liabilities
to accrued expenses -- 250,000
Acquisition of securities available-for-sale
through sale of subsidiary -- 1,198,052
Reserve for shut down of Porto Carras -- 4,078,320
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1996 ARE UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, RISKS AND UNCERTAINTIES:
ORGANIZATION AND BASIS OF PRESENTATION:
The consolidated financial statements include the accounts of Casino Magic
Corp. and its wholly-owned subsidiaries ("the Company"). All significant
intercompany accounts and transactions have been eliminated. Investments in
unconsolidated affiliates are accounted for using the equity method of
accounting.
The Company conducts casino gaming operations in Bay Saint Louis, Mississippi
("Casino Magic-BSL"), Biloxi, Mississippi ("Casino Magic-Biloxi"), Bossier
City, Louisiana ("Casino Magic-Bossier City") and through a 51% owned
subsidiary, in the Argentina Province of Neuquen in the cities of Neuquen City
and San Martin de los Andes ("Casino Magic-Neuquen").
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The accompanying unaudited
condensed consolidated financial statements contain all adjustments which are,
in the opinion of management, necessary for a fair statement of the results of
the interim periods. The results of operations for the interim periods are
not indicative of results of operations for an entire year.
It is suggested that these consolidated financial statements be read in
conjunction with the consolidated financial statements and the notes thereto
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 and Form 10-Q for March 31, 1997 and June 30, 1997.
Certain reclassifications have been made to 1996 amounts to conform with the
September 30, 1997 presentation.
2. SALE OF ASSET HELD FOR SALE:
In September 1997, the Company sold the Crescent City Queen Riverboat
("Crescent City Queen")for $11.7 million, and Other Income for the period
ended September 30, 1997 represented recognized gain on the sale of $1.4
million. The proceeds from the sale are restricted by the Indenture governing
the $115 First Mortgage Notes issued by Casino Magic-Bossier City. The
Indenture restriction requires the proceeds from the sale of the Crescent City
Queen to be used for capital improvements at the Casino Magic-Bossier City
facility or returned to the Indenture trustee.
3. EARNINGS PER SHARE:
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 (FAS 128), "Earnings Per Share", which simplifies the computation of
earnings per share. FAS 128 is effective for financial statements issued for
periods ending after December 15, 1997 and requires restatement for all prior
period earnings per share data presented. Basic earnings per share calculated
in accordance with FAS 128 would be $0.08 for the third quarter ended
September 30, 1997 but would remain unchanged for the nine months ended
September 30, 1997. Diluted earnings per share would remain unchanged $(0.06)
per share for the third quarter of the nine months ended September 30, 1997,
respectively. Basic and diluted earnings per share calculated in accordance
with FAS 128 would remain unchanged at $(0.57) and $(0.48) per share for the
third quarter of 1996 and the nine months ended September 30, 1996,
respectively.
5
CASINO MAGIC CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussions regarding proposed Company developments and operations
included in "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" and "NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS" contain forward looking statements that involve a number of risks
and uncertainties. These forward-looking statements relate to: (i) completion
of a hotel in 1998 at Casino Magic-Biloxi; and (ii) the Company's ability to
fund planned developments and debt service obligations over the next twelve
months with currently available cash and marketable securities and with cash
flow from operations. Construction projects entail significant construction
risks, including, but not limited to, cost overruns, delay in receipt of
governmental approvals, shortages in materials or skilled labor, labor
disputes, unforeseen environmental or engineering problems, work stoppage,
fire and other natural disasters, construction scheduling problems and weather
interferences, any of which, if it occurred, could delay construction or
result in a substantial increase in costs to the Company. The Company's
ability to meet its consolidated debt obligations may be dependent upon the
successful completion of the hotel at Casino Magic-Biloxi and the other
planned construction projects, and the Company's future operating performance,
which is itself dependent on a number of factors, such as, prevailing economic
and competitive conditions, regulatory compliance, and other factors affecting
the Company's operations and business, many of which are outside of the
Company's control. In addition to the risks and uncertainties discussed
above, other factors that could cause actual results to differ materially are
detailed from time to time in the Company's reports filed with the Securities
and Exchange Commission.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain operating
information for the Company on a consolidated basis and for its existing
properties. The principal operating entities are Casino Magic-BSL and Casino
Magic-Biloxi, both dockside casinos operating on the Gulf Coast of Mississippi
(together referred to collectiv
ely as the "Casino Magic-Gulf Coast"), Casino Magic-Bossier City, a dockside
casino operating on the Red River in Bossier City, Louisiana, and Casino Magic
Neuquen SA, a 51% owned subsidiary of the Company, which operates gaming
facilities at two casino sites in Neuquen City and San Martin de los Andes,
Argentina (together referred to collectively as "Casino Magic-Neuquen").
During 1996, the Company had a 49% interest in Porto Carras Casino S.A.
("Porto Carras") which managed a casino at the Porto Carras resort
approximately 60 miles south of Thessaloniki, Greece. Porto Carras was written
off in September 1996 and subsequently sold for a nominal amount in December
1996. The revenues, costs and expenses of Porto Carras were not included
below as Porto Carras was accounted for under the equity method of accounting.
6
CASINO MAGIC CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1997 1996 1997 1996
(Dollars in thousands)
(Unaudited)
REVENUES:
Casino Magic-BSL (1) $ 22,658 21,592 68,227 63,630
Casino Magic-Biloxi (2) 15,479 16,734 48,138 49,379
Casino Magic-Neuquen (3) 4,608 4,215 13,392 12,141
Casino Magic-Bossier (4) 23,750 - 68,477 -
Corporate and Other (5)(6) - 730 - 3,614
Total revenues 66,495 43,271 198,234 128,764
COST AND EXPENSES:
Casino Magic-BSL 17,591 16,804 54,659 49,335
Casino Magic-Biloxi 14,470 14,822 44,141 42,285
Casino Magic-Neuquen 3,038 3,065 9,424 9,361
Casino Magic-Bossier 19,996 - 66,494 -
Corporate and Other 1,275 3,224 5,467 10,389
Total costs and expenses 56,370 37,915 180,185 111,370
INCOME (LOSS) FROM OPERATIONS:
Casino Magic-BSL 5,067 4,788 13,568 14,295
Casino Magic-Biloxi 1,009 1,912 3,997 7,094
Casino Magic-Neuquen 1,570 1,150 3,968 2,780
Casino Magic-Bossier 3,754 - 1,983 -
Corporate and Other (1,275) (2,494) (5,467) (6,775)
Total income from operations $10,125 $5,356 $18,049 $17,394
________________ _________________
(1) Began operations September 30, 1992; expanded casino capacity December
31, 1992.
(2) Began operations June 5, 1993; expanded casino capacity December 16,
1993.
(3) Began operations on January 1, 1995.
(4) Began operations on October 4, 1996: completed facility on December 31,
1996.
(5) Includes management fees and royalty fees from Porto Carras which began
operations May 18, 1995. Equity in earnings with respect to Porto Carras is
reported as non-operating income. Casino Magic divested of Porto Carras in
December 1996.
(6) Corporate and Other includes the operations of Goldiggers through June
13, 1996.
7
CASINO MAGIC CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED):
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996:
Consolidated revenues were $66.5 million for the third quarter of 1997, an
increase of $23.2 million over the third quarter of 1996 revenues of $43.3
million. The increase in the 1997 third quarter consolidated revenues is
primarily attributable to Casino Magic-Bossier City, which the Company opened
in late 1996 and which accounted for $23.7 million in additional revenues.
Casino Magic-Biloxi revenues declined by $1.2 million, or 7.7%, to $15.5
million in the third quarter of 1997 compared to $16.7 million in the same
period in 1996. Management believes the decline is attributable to
intensified competition in the Biloxi market, where Casino Magic-Biloxi is
located, and the disruption caused by the on-going construction of a hotel at
Casino Magic-Biloxi. Competitive pressures will likely continue to effect
Casino Magic-Biloxi's revenues and operating margins. Although there can be no
assurances, it is anticipated that revenues and operating margins will improve
at such time as the Casino Magic-Biloxi hotel is completed. Competitive
pressure will increase upon the opening of a competing hotel casino located in
Biloxi that is scheduled to open in late 1997 or early 1998. Casino Magic-BSL
revenues increased by $1.1 million or 5.0%, to $22.7 million in the third
quarter of 1997 compared to $21.6 million in the third quarter of 1996. The
increased revenues at Casino Magic-BSL may in part be attributable to
improvements in amenities at the facility, including a golf course and
improved food and beverage outlets. Casino Magic-Neuquen revenues increased
$0.4 million, or 9.3%, in the third quarter of 1997 compared to the same
period in 1996. This increase is associated with the continued increase in
slot machine revenues due to increased popularity. Royalty and management
revenues declined $0.7 million or 100% in the third quarter of 1997. The
Company ceased earning such royalties and management fees when the Company
divested itself of its Greek operations in December 1996.
Consolidated operating costs and expenses increased $18.5 million, or 48.8%,
from $37.9 million in the third quarter of 1996, to $56.4 million in the third
quarter of 1997. Of this increase, $20.0 million is related to Casino
Magic-Bossier City, which opened in October 1996. Excluding the effects of
Casino Magic-Bossier City, operating costs in the third quarter of 1997
decreased by $1.5 million, or 4.0%, as compared to operating costs in the
third quarter of 1996. Casino Magic Corp.'s and non-operating subsidiaries'
operating costs in the third quarter of 1997 declined by $2.0 million as
compared to the same quarter in 1996. This decline is related to reductions
in corporate overhead and developmental costs. Operating costs at Casino
Magic-Gulf Coast and Casino Magic-Neuquen increased $0.5 million with no
significant fluctuations in any identifiable areas between the comparable
periods.
Earnings before income taxes, depreciation and amortization (EBITDA) increased
$5.5 million, or 57.7%, in the third quarter of 1997 compared to the same
period in 1996. The third quarter 1996 results include revenues of $0.7
million and EBITDA of $0.7 million from operations in Greece which were sold
during December 1996. The remaining increase in EBITDA was the result of the
following;
(i) EBITDA contribution of $5.3 million from Casino Magic-Bossier City.
8
(ii) EBITDA at Casino Magic-BSL increased to $6.6 million from $6.2
million for the 1997 period compared to 1996. The increased EBITDA is
believed to be the result of an increase in revenues primarily achieved
through a new golf facility which opened in February 1997 and improved food
and beverage outlets.
(iii) EBITDA at Casino Magic-Biloxi for the third quarter of 1997 declined
to $2.3 million compared with $3.5 million during the same period in 1996.
The decline in EBITDA was primarily the result of decreased revenues, which
may be primarily attributable to intensified competition in the Biloxi market
and the disruption caused by the on-going construction of a hotel at Casino
Magic-Biloxi.
(iv) EBITDA at Casino Magic-Neuquen increased $0.4 million in the third
quarter of 1997 compared to the third quarter of 1996. This increase is the
result of increased slot machine revenues.
(v) EBITDA at Casino Magic Corp. and non-operating subsidiaries increased
$0.4 million in the third quarter of 1997 compared to the third quarter of
1996. This increase is related to reductions in Corporate overhead and
developmental costs, which reductions exceeded the loss of royalties and
management revenues.
Consolidated income from operations increased $4.7 million, or 87.0%, to $10.1
million in the third quarter of 1997 compared to $5.4 million in the third
quarter of 1996. In addition to the items described above with respect to
EBITDA results, depreciation and amortization increased $1.5 million as the
result of the addition of the Casino Magic-Bossier City facility and decreased
by $0.7 million related to the Company's divestiture of its Greek investments.
Consolidated "Other (income) expense" (non-operating income and expenses)
improved by $24.7 million, to a net expense of $6.7 million in the third
quarter of 1997, compared to a net expense of $31.4 million in the third
quarter of 1996. Approximately $27.0 million of the additional expenses in
1996 were attributable to management's decision to write off its 49% equity
interest in a gaming facility in Porto Carras, Greece. Net interest expense
increased by $3.4 million in the third quarter of 1997 compared to the same
period in 1996. This was due to the increased debt from the issuance of the
$115,000,000, 13% Louisiana First Mortgage Notes in late August 1996, and a
reduction of $1.7 million in capitalized interest due to the completion of the
Casino Magic-Bossier City facility and the golf course at Casino Magic-Casino
Magic-BSL. Other income was increased by $1.4 million in the third quarter of
1997 compared to the same period in 1996 due to a gain on the sale of the
Crescent City Queen.
9
CASINO MAGIC CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED):
The Company's effective tax rate for the third quarter of 1997 of 0% is the
result of an anticipated loss for the year ending 1997 and the allowance
against the deferred tax assets. The effective tax rate for the third quarter
of 1996 of (20.4%) is the result of an allowance against deferred tax assets.
This allowance reduces deferred tax assets, which relate primarily to the
Porto Carras write off, to their estimated realizable value.
The Company had net income of $2.7 million, or $0.07 per share in the quarter
ended September 30, 1997, compared to net loss of $20.7 million, or $0.57 per
share for the quarter ended September 30, 1996. The improvement in the net
income for the 1997 third quarter compared to the 1996 third quarter is
primarily attributable to the $26.7 million write off of Porto Carras Casino
S.A. in 1996.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996:
Consolidated revenues increased $69.4 million, or 54.0%, to $198.2 million in
the first nine months of 1997, compared to $128.8 million in the same period
of 1996. The increase in consolidated revenues in the first nine months of
1997 is primarily attributable to Casino Magic-Bossier City, which the Company
opened in late 1996 and which accounted for $68.5 million in additional
revenues. Casino Magic-Biloxi revenues declined by $1.2 million, or 2.5%, to
$48.1 million in the first nine months of 1997, compared to $49.4 million in
the same period in 1996. Management believes the decline is attributable to
intensified competition in the Biloxi market, where Casino Magic-Biloxi is
located, and the disruption caused by the on-going construction of a hotel at
Casino Magic-Biloxi which began in December 1996. Competitive pressures will
likely continue to effect Casino Magic-Biloxi's revenues and operating
margins. Although there can be no assurances it is anticipated that revenues
and operating margins will improve when the Casino Magic-Biloxi hotel is
completed. Competitive pressure will increase upon the opening of a competing
hotel casino located in Biloxi that is scheduled to open in late 1997, or
early 1998. Casino Magic-BSL revenues increased by $4.6 million, or 7.2% to
$68.2 million in the first nine months of 1997 compared to $63.6 million in
the same period of 1996. The increased revenues at Casino Magic-BSL may in
part be attributable to improvements in amenities at the facility, including a
golf course and improved food and beverage outlets. Casino Magic-Neuquen
revenues increased $1.3 million, or 10.7%, in the first nine months of 1997 as
compared to the same period in 1996. This increase is associated with the
continued increase in slot machine revenues at the casino due to increased
popularity. Royalty and management revenues declined $2.9 million, or 100%,
in the first nine months of 1997. The Company ceased earning such royalties
and management fees when the Company divested itself of its Greek operations
in December 1996.
10
CASINO MAGIC CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED):
Consolidated operating costs and expenses increased $68.8 million, or 61.8%,
from $111.4 million in the first nine months of 1996 to $180.2 million in the
first nine months of 1997. Of this increase, $62.2 million is related to
Casino Magic-Bossier City, which opened in October 1996. Excluding the
effects of Casino Magic-Bossier City, operating costs in the first nine
months of 1997 increased by $2.3 million, or 2.1%, compared to operating
costs in the first nine months of 1996. Casino Magic Corp.'s and non-operating
subsidiaries' operating costs in the first nine months of 1997 declined by
$4.9 million as compared to the same period in 1996, in part as the result of
the sale of the casino operation in South Dakota in June 1996, which resulted
in a $1.2 decline in operating costs. The remainder of this decline is related
to reductions in corporate overhead and developmental costs. Operating costs
at Casino Magic-Gulf Coast and Casino Magic-Neuquen increased $7.2 million in
the first nine months of 1997 compared to the same period in 1996. Operating
costs at Casino Magic-BSL increased $5.3 million, or 10.7%, between the
periods. The increases in cost were the result of the operation of the golf
course, the associated depreciation and increases in promotional allowances.
Operating costs at Casino Magic-Biloxi increased $1.9 million, or 4.4%, in the
first nine months of 1997 compared to the same period in 1996. The increased
operating cost was primarily the result of increased marketing and advertising
costs of $1.9 million.
EBITDA increased $3.4 million, or 11.2%, in the first nine months of 1997
compared to the same period in 1996. The first nine months 1996 results
include revenues of $3.6 million and EBITDA of $2.6 million from casino
operations in South Dakota and Greece which were sold during 1996. The
remaining increase in EBITDA is the result of the following;
(i) EBITDA contribution of $6.3 million from Casino Magic-Bossier City.
(ii) EBITDA at Casino Magic-BSL decreased to $18.6 million from $18.7
million for the 1997 period compared to 1996. The decreased EBITDA is the
result of increases in costs associated with the operation of the golf course
and increases in promotional allowances;
(iii) EBITDA at Casino Magic-Biloxi for the first nine months of 1997
declined to $8.2 million compared with $11.4 million during the same period in
1996. The decrease in EBITDA was primarily the result of decreased revenues
and increased marketing, advertising and promotional costs. The decline is
attributable to intensified competition in the Biloxi market, and the
disruption caused by the construction of a hotel at Casino Magic-Biloxi. The
increases in marketing and advertising costs are the result of attempts to
stabilize revenues at Casino Magic-Biloxi.
(iv) EBITDA at Casino Magic-Neuquen increased $1.2 million in the first
nine months of 1997 compared to the first nine months of 1996. This increase
is the result of increased slot machine revenues.
11
CASINO MAGIC CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED):
(v) EBITDA at Casino Magic Corp. increased $1.0 million in 1997 as
compared to 1996. This increase is related to reductions in corporate
overhead and developmental costs, which these reductions more than offset the
loss of royalties and management revenues;
Consolidated income from operations increased $0.7 million, or 3.8%, to $18.1
million in the first nine months of 1997 compared to $17.4 million in the same
period of 1996. In addition to the items described above with respect to
EBITDA results, depreciation and amortization increased $4.3 million as the
result of the addition of the Casino Magic-Bossier City facility and decreased
by $2.1 million related to the Company's divestiture of its Greek investments.
Consolidated "Other (income) expense" (non-operating income and expenses)
improved $17.3 million, for the first nine month of 1997, from a net expense
of $38.6 million to a net expense of $21.3 million in the comparative period
of 1996. Approximately $27.0 million of the additional expense in 1996 was
due to management's decision to write off its 49% equity interest in its
gaming facility in Porto Carras, Greece, in the third quarter of 1996. Net
interest expense increased by $11.5 million in the first nine months of 1997
compared to the same period in 1996. This was due to the increased debt from
the issuance of the $115,000,000, 13% Louisiana First Mortgage Notes in late
August 1996, and a reduction of $2.3 million in capitalized interest due to
the completion of the Casino Magic-Bossier City facility and the golf course
at Casino Magic-BSL. Other income increased by $2.8 million in the first nine
months of 1997 compared to the same period in 1996 due to gains from the
sales of a 49% interest in Casino Magic-Neuquen and the sale of the Crescent
City Queen.
The Company's effective tax rate for the first nine months of 1997 of
approximately (59.8%) is the result of anticipated losses for the year ended
December 1997. The Company's effective tax rate for the first nine months of
1996 of approximately (18.1%) is the result of an allowance against deferred
tax assets. This allowance reduces deferred tax assets, which relate
primarily to the Porto Carras write off, to their estimated realizable value.
The Company had a net loss of $2.2 million, or $0.06 per share in the current
year's first nine months compared to a net loss of $17.4 million, or $0.48 per
share in the 1996 period. The improvement in net income for the first nine
months of 1997 would not have occurred but for the write off of the Company's
investment in Porto Carras Casino S.A. in the third quarter of 1996.
12
CASINO MAGIC CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company had unrestricted cash and marketable
securities of $26.9 million compared to unrestricted cash and marketable
securities of $17.6 million at December 31, 1996. At September 30, 1997, the
Company had $10.6 million in restricted cash related to the sale of the
Crescent City Queen (see discussion below). The Company had $17.0 million in
restricted cash relating to the $115 million, 13% Louisiana First Mortgage
Notes at December 31, 1996. For the nine months ended September 30, 1997, the
Company generated $18.1 million of cash flow from operating activities and
received $6.5 million of proceeds from the issuance of a long term note
payable. During that nine months the Company spent $30.0 million for
acquisitions of property, equipment and other long-term assets and reduced
long term debt by $12.3 million.
Of the $30 million spent, approximately $21.3 million was expended in capital
improvements at Casino Magic-Gulf Coast, and $7.4 million in capital
expenditures at Casino Magic-Bossier City. The Company plans additional
capital improvements at Casino Magic-Gulf Coast and Casino Magic-Bossier
City, much of which is subject to cash flows generated by the Company's
operations, and the availability of financing. There are no assurances that
adequate funding will be available for these planned improvements.
The Company opened Casino Magic-Bossier City on October 4, 1996 using a
temporary boarding facility, and on December 31, 1996, opened the permanent
facility. The Company plans to construct an approximately 200-room
convention hotel and related amenities, including restaurants, banquet space
and a swimming pool. The construction of the hotel is expected to be
funded primarily by the $11.7 million in proceeds received from the sale of
the Crescent City Queen and the future operating cash flow of Casino
Magic-Bossier City. No assurances can be given that the proceeds from the
sale of the Crescent City Queen and the cash flow from the operations of
Casino Magic-Bossier City will be sufficient to complete such hotel and
related facilities or that these improvements will ever be developed.
The Company is currently constructing a hotel tower at Casino Magic-Biloxi
above the eight-story parking garage adjacent to the casino. The hotel will
consist of approximately 378 rooms, including 86 suites, and will include a
swimming pool and conference space. Completion is estimated for 1998. The
hotel construction costs are being funded solely out of the cash flow of
Casino Magic-BSL and Casino Magic-Biloxi, and any lack of cash flow from
operations in the future may delay or prevent completion of the hotel as
13
CASINO MAGIC CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED):
planned. The Company has obtained a commitment for debt financing of
furniture, fixtures and equipment for the Casino Magic-Biloxi hotel in the
amount of $6.5 million.
Under the terms of the Indenture associated with the $135,000,000 First
Mortgage Notes, Casino Magic Corp., Mardi Gras Casino Corp., Biloxi Casino
Corp. and Casino Magic Finance Corp. have certain restrictions relative to
additional borrowings and guarantees. Jefferson Casino Corp and Casino Magic
of Louisiana, Corp. have certain restrictions relative to additional
borrowings and cash flow under the terms of the Louisiana Indenture associated
with the $115,000,000 First Mortgage Notes.
The Company commenced operations in 1995 outside the United States becoming
subject to certain risks including foreign currency exchange, repatriation of
earnings and profits, and adverse foreign tax treatment. In addition, the
Company will incur the general business risk associated with operating in
foreign county where culture and business practices may vary significantly
from that in the United States. Such risks could have a material impact on
the operating results and liquidity of the Company.
The Company will have a significant need for cash in 1997 and beyond in order
to continue its planned development of its existing properties. The Company
believes that cash and marketable securities at September 30, 1997, and cash
flows from operations will be sufficient to service its operating and debt
service requirements, including the completion of the hotel at Casino
Magic-Biloxi, through at least the next twelve months, but are not anticipated
to be sufficient to complete the Casino Magic-Bossier City Hotel or engage in
any other development activities without additional debt or equity financing.
There are no assurances that adequate funding will be available for these
planned investments at Casino Magic-Biloxi or Casino Magic-Bossier City.
14
CASINO MAGIC CORP. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996 and Form 10-Q for the six month period ended June 30,
1997 on file with the Securities and Exchange Commission. During the quarter
ended September 30, 1997, the Company was not a party to any newly instituted
legal proceedings and there were no material developments during such period
with respect to existing legal proceedings.
ITEM 2. CHANGES IN SECURITIES
On September 16, 1997, 18,750 shares of the Company's common stock were issued
and sold to five employees of the Company as the result of common stock grants
which had previously vested. The shares were issued in consideration for
services valued at an aggregate of $100,316. The shares were sold under the
exemption from registration provided under Section 4 (2) of the Securities Act
of 1933,as amended.
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
10.1 Purchase agreement for the sale of a 49% interest in Casino Magic
Neuquen S.A.
10.2 Purchase agreement for the sale of the Crescent City Queen Riverboat.
27. Financial Data Schedule (filed electronically only).
__________
(b) Reports on Form 8-K:
None
15
SIGNATURES
Pursuant to the requirements 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.
CASINO MAGIC CORP.
Registrant
Date: NOVEMBER 12, 1997 /S/ JAMES E. ERNST
JAMES E. ERNST, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
Date: NOVEMBER 12, 1997 /S/ JAY S. OSMAN
JAY S. OSMAN, CHIEF FINANCIAL OFFICER AND TREASURER (PRINCIPAL FINANCIAL
AND ACCOUNTING OFFICER)
16
CASINO MAGIC CORP
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1997
INDEX TO EXHIBITS
Exhibit Number
Page
10.1 Purchase agreement for the sale of a 49% interest in Casino Magic
Neuquen S.A.
10.2 Purchase agreement for the sale of the Crescent City Queen Riverboat.
27 Financial Data Schedule (filed electronically only).