Casino Magic of Louisiana, Corp.
Index
Three and Six Months Ended June 30, 1999
Page
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 1
FINANCIAL STATEMENT SCHEDULES F-1
i
CASINO MAGIC OF LOUISIANA, CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Casino Magic of Louisiana, Corp. ("Casino Magic-Bossier City") is a wholly
owned subsidiary of Casino Magic Corp., which is a wholly owned subsidiary of
Hollywood Park, Inc. Accordingly, reference is made to the Annual Report on Form
10-K for the year ended December 31, 1998, and the Quarterly Report on Form 10-Q
for the quarter ended June 30, 1999, filed by Hollywood Park, Inc., which
include Management's Discussion and Analysis for Hollywood Park, Inc., as well
as other disclosures not included herein.
Results of Operations:
For the three months ended June 30, 1999 compared to the three months ended June
30, 1998:
Gaming revenues at Casino Magic of Louisiana Corp. ("Casino Magic-Bossier City")
increased to $33.7 million for the second quarter of 1999 compared to $26.1
million in the second quarter of 1998; an increase of $7.6 million ($1.3 million
from table games and $6.3 million from slots) or 29.1%. The increase is a result
of Casino Magic's opening of a 188 room luxury hotel and other quality food and
beverage facilities in December 1998, upgrading of product mix in slot machines,
and more effective marketing programs. The Bossier City/Shreveport, Louisiana
gaming market (as measured by taxable gaming receipts) grew $14.0 million over
the comparable quarters or 9.7%. Casino Magic-Bossier City's taxable gaming
receipts increased 29.8% over the same comparative quarters, increasing its
market share by approximately 3.5% over the same period. Non gaming revenues
(net of complimentaries) increased $0.6 million, or 75.0% over the comparable
periods, principally as a result of the new hotel and food and beverage
facilities.
Total costs and expenses during the second quarter of 1999 were $29.5 million
compared to $23.3 million in the second quarter of 1998, a cost increase of $6.2
million or 26.6%. Casino costs increased $4.5 million or 36.0% over the
comparative quarter. This increase was due generally to increased taxes related
to the higher marginal gaming revenues (24.9% tax rate) and increases in the
cost of slot club points and other promotional expenses. Other operating costs
and expenses decreased approximately $0.1 million or 4.5% over the prior year.
Other operating costs in the second quarter of 1998 included $372,000 of
nonrecurring expenses related to the acquisition of Casino Magic by Hollywood
Park, Inc. Advertising & Marketing increased expenses by $0.6 million, or 18.2%
over the 1998 second quarter. However, marketing costs for the second quarter of
1999 were only 11.1% of net revenues compared to 12.3% in the same period of
1998. Marketing strategy in the second quarter of 1998, although effective,
required more promotional costs to drive business and compensate for the lack of
competitive facilities. Other administrative and operating expenses (excluding
depreciation) increased $0.8 million or 21.6% over the comparative quarter as a
result of increased maintenance and utility costs associated with the new
facilities. Depreciation increased $0.5 million, or 31.3%, as a result of the
increased cost of the new facilities.
Casino Magic-Bossier City earned an operating profit of $5.6 million for the
second quarter of 1999 versus an operating profit of $3.6 million in the second
quarter of 1998; an improvement of $2.0 million, or 55.6%.
There was no income tax provision or benefit for the second quarter of 1999 or
1998. The Company is included in a consolidated group subject to a tax-sharing
agreement between itself and affiliated companies. The difference between the 0%
rate and the statutory rate of 35% is due to a net operating loss carry forward
in excess of current taxable income.
Casino Magic-Bossier City registered net income of $1.1 million in the second
quarter of 1999 compared with a net loss of $0.7 million during the second
quarter of 1998.
1
For the six months ended June 30, 1999 compared to the six months ended June 30,
1998:
Gaming revenues at Casino Magic-Bossier City increased to $66.1 million for the
first six months of 1999 compared to $53.1 million in the first six months of
1998; an increase of $13.0 million ($2.3 million from table games and $10.7
million from slots) or 24.5%. The increase is a result of Casino Magic's opening
of a 188 room luxury hotel and other quality food and beverage facilities in
December 1998, upgrading of product mix in slot machines, and more effective
marketing programs. The Bossier City/Shreveport, Louisiana gaming market (as
measured by taxable gaming receipts) grew $18.3 million over the comparable six
month period or 6.2%. Casino Magic-Bossier City's taxable gaming receipts
increased 23.9% over the same comparative period, increasing its market share by
approximately 3%. Non gaming revenues (net of complimentaries) increased $0.9
million, or 45.0% over the comparable periods, principally as a result of the
new hotel and food and beverage facilities.
Total costs and expenses during the first six months of 1999 were $57.7 million
compared to $46.9 million in the first half of 1998, a cost increase of $10.8
million or 23.2%. Casino costs increased $7.9 million or 30.9% over the
comparative period. This increase was due generally to increased taxes on the
higher marginal gaming revenues (24.9% tax rate) and increases in the cost of
slot club points with respect to triple points awarded on Tuesdays in the months
of April and May 1999, and other promotional expenses. Other operating costs and
expenses increased $0.1 million or approximately 2.4% over the prior year as a
result of costs associated with the hotel which was not in service in the first
half of 1998. Advertising & Marketing increased expenses by $0.4 million, or
5.7% over the same period in 1998. Marketing costs for the first six months of
1999 were only 10.7% of net revenues compared to 12.7% in the same period of
1998. Marketing strategy in the first half of 1998, although effective, required
more promotional costs to drive business and compensate for the lack of
competitive facilities. Other administrative and operating expenses (excluding
depreciation) increased $1.7 million or 24.3% over the comparative semiannual
period as a result of a increased maintenance and utility costs associated with
the new facilities. Depreciation increased $0.8 million, or 25%, as a result of
the increased cost of the new facilities.
Casino Magic-Bossier City earned an operating profit of $11.2 million for the
first six months of 1999 versus $8.2 million in the first half of 1998; an
improvement of $3.0 million, or 36.6%.
There was no income tax provision or benefit for the first six months of 1999 or
1998. The Company is included in a consolidated group subject to a tax-sharing
agreement between itself and affiliated companies. The difference between the 0%
rate and the statutory rate of 35% is due to a net operating loss carry forward
in excess of current taxable income.
Casino Magic-Bossier City registered net income of $2.1 million in the first
half of 1999 compared with a net loss of $0.6 million during the first half of
1998.
Liquidity and Capital Resources:
At June 30, 1999, the Company had unrestricted cash and cash equivalents of
$15.8 million compared to unrestricted cash and cash equivalents of $8.6 million
at December 31, 1998. The Company also had $0.1 million in restricted marketable
securities at December 31, 1998. The 1998 restricted funds were invested in the
completion of the hotel and other amenities in the first quarter of 1999,
consistent with the indenture ("Indenture") governing the Casino Magic of
Louisiana, Corp. 13% First Mortgage Notes ("Louisiana First Mortgage Notes").
For the six months ended June 30, 1999, the Company generated $7.6 million of
cash flow from operating activities and spent $1.3 million for acquisitions of
property and equipment. Casino Magic-Bossier City reduced principal payments on
third party debt by $1.8 million during the six months and increased debt to
affiliated companies by $2.5 million for a net increase in long term debt of
$0.7 million.
The Company completed construction of an 188-room hotel and related amenities,
including restaurants and beverage service in December 1998. The construction of
the hotel and amenities of approximately $21 million was funded primarily by
$11.7 million in proceeds received from the sale of the Crescent City Queen,
cash flow of Casino Magic-Bossier City, and loans from affiliated companies. The
addition of the new hotel and facilities has substantially increased income from
operations. The Company still has significant need for cash, including debt
service. However, management believes that cash at June 30, 1999 and cash flows
from operations will be sufficient to service its operating needs and debt
service through, at least, the next twelve months, although no assurances can be
given.
2
In August 1996, the Company issued $115,000,000 in aggregate principal amount of
13% Louisiana First Mortgage Notes (of which, $2.1 million was tendered in
December 1998 in connection with the required change of control purchase offer)
with contingent interest at 5% of the Company's adjusted consolidated cash flow
(as defined under the indenture governing the notes). Although no contingent
interest has previously been paid to note holders (as the adjusted fixed charge
coverage ratio as defined had not previously been met), contingent interest of
$1.3 million (as calculated for the twelve month period ended June 30, 1999) was
paid in connection with the scheduled interest payment on August 16, 1999. As of
June 30, 1999, contingent interest of $2.8 million has been accrued, which
amount represents the accrued contingent interest since the notes were issued in
1996. (See Note 2 to the Notes to Financial Statements.)
3
Index to Financial Statements
Contents Pages
Financial Statements
Condensed Statement of Operations for the three months ended June 30, 1999 and 1998 F-1
Condensed Statement of Operations for the six months ended June 30, 1999 and 1998 F-2
Condensed Balance Sheets as of June 30, 1999 and December 31, 1998 F-3
Condensed Statement of Cash Flows for the six months ended June 30, 1999 and 1998 F-4
Notes to Financial Statements F-5
CASINO MAGIC OF LOUISIANA, CORP.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months ended June 30,
-----------------------------------
1999 1998
--------------- --------------
Revenues:
Casino....................................................... $ 33,720,753 $ 26,075,568
Other operating income....................................... 1,419,114 867,987
--------------- --------------
Total revenues.......................................... 35,139,867 26,943,555
--------------- --------------
Costs and expenses:
Casino....................................................... 17,014,674 12,475,532
Other operating costs and expenses........................... 2,060,801 2,185,190
Advertising and marketing.................................... 3,883,900 3,341,846
General and administrative................................... 2,296,565 1,823,744
Property operation, maintenance and energy cost.............. 1,400,688 1,070,464
Rents, property taxes and insurance.......................... 812,663 824,747
Depreciation and amortization................................ 2,065,030 1,581,119
--------------- --------------
Total costs and expenses................................ 29,534,321 23,302,642
--------------- --------------
Income from operations......................................... 5,605,546 3,640,913
Interest expense............................................... 4,540,238 4,326,312
--------------- --------------
Income before income taxes..................................... 1,065,308 (685,399)
Income tax expense............................................. -- --
--------------- --------------
Net income..................................................... $ 1,065,308 $ (685,399)
=============== ==============
See notes to financial statements.
F-1
CASINO MAGIC OF LOUISIANA, CORP.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months ended June 30,
----------------------------------
1999 1998
-------------- --------------
Revenues:
Casino....................................................... $ 66,118,874 $ 53,131,329
Other operating income....................................... 2,872,455 1,922,900
-------------- --------------
Total revenues.......................................... 68,991,329 55,054,229
-------------- --------------
Costs and expenses:
Casino....................................................... 33,527,833 25,613,136
Other operating costs and expenses........................... 4,174,810 4,065,855
Advertising and marketing.................................... 7,429,599 6,964,784
General and administrative................................... 4,449,567 3,437,083
Property operation, maintenance and energy cost.............. 2,710,117 2,171,445
Rents, property taxes and insurance.......................... 1,499,002 1,462,370
Depreciation and amortization................................ 3,953,767 3,178,321
-------------- --------------
Total costs and expenses................................ 57,744,695 46,892,994
-------------- --------------
Income from operations......................................... 11,246,634 8,161,235
Interest expense............................................... 9,128,517 8,760,150
-------------- --------------
Income before income taxes..................................... 2,118,117 (598,915)
Income tax expense............................................. -- --
-------------- --------------
Net income..................................................... $ 2,118,117 $ (598,915)
============== ==============
See notes to financial statements.
F-2
CASINO MAGIC OF LOUISIANA, CORP.
CONDENSED BALANCE SHEETS
(Unaudited)
ASSETS
June 30, December 31,
1999 1998(*)
-------------- --------------
Current Assets:
Cash and cash equivalents......................................... $ 15,794,829 $ 8,622,824
Restricted marketable securities.................................. -- 108,484
Other current assets.............................................. 2,342,216 1,260,094
-------------- --------------
Total current assets......................................... 18,137,045 9,991,402
Property and equipment, net......................................... 90,143,618 92,218,176
Other long-term assets
Deferred gaming license cost, net................................. 35,644,690 36,445,935
Debt issuance costs, net.......................................... 3,400,633 3,890,239
Other long-term assets............................................ 143,426 131,838
-------------- --------------
Total other long-term assets................................. 39,188,749 40,468,012
-------------- --------------
$ 147,469,412 $ 142,677,590
============== ==============
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Accounts payable.................................................. $ 4,840,827 $ 4,925,136
Accrued expenses.................................................. 2,404,657 1,800,200
Accrued interest.................................................. 8,494,595 7,679,149
Accrued payroll and related benefits.............................. 2,496,528 2,426,360
Accrued progressive gaming liabilities............................ 2,127,647 1,669,583
Notes and contracts payable....................................... 237,589 1,698,871
Current maturities of long-term debt.............................. 1,494,622 5,213,608
-------------- --------------
Total current liabilities.................................... 22,096,465 25,412,907
Due to affiliates................................................... 5,556,546 3,852,963
Long-term debt, net of current maturities........................... 122,635,813 118,349,249
Shareholder's Equity (Accumulated deficit)
Common stock, $0.01 par value, 10,000 shares authorized,
100 shares issued and outstanding at June 30, 1999
and December 31, 1998............................................. 1 1
Additional paid-in capital.......................................... 22,353,295 22,353,295
Accumulated deficit................................................. (25,172,708) (27,290,825)
-------------- --------------
Total shareholder's equity (accumulated deficit) (2,819,412) (4,937,529)
-------------- --------------
$ 147,469,412 $ 142,677,590
============== ==============
See notes to financial statements.
* Derived from audited financial statements.
F-3
CASINO MAGIC OF LOUISIANA, CORP.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months ended June 30,
-----------------------------------
1999 1998
-------------- --------------
Cash Flows From Operating Activities:
Net income......................................................... $ 2,118,117 $ (598,915)
Depreciation and amortization...................................... 3,953,767 3,178,321
Adjustments for other non-cash charges............................. 567,150 390,010
Changes in assets and liabilities.................................. 980,299 (1,518,882)
-------------- --------------
Net Cash Provided by Operating Activities........................... 7,619,333 1,450,534
-------------- --------------
Cash Flows From Investing Activities:
Acquisitions of property and equipment............................. (1,250,341) (4,148,707)
Other, net......................................................... 103,737 (1,077,660)
-------------- --------------
Net Cash Used in Investing Activities................................ (1,146,604) (5,226,367)
-------------- --------------
Cash Flows From Financing Activities:
Proceeds from issuance of long-term debt........................... 2,500,000 --
Principal payments on notes payable and long-term debt............. (1,800,724) (1,566,553)
-------------- --------------
Net Cash Provided by (Used in) Financing Activities.................. 699,276 (1,566,553)
-------------- --------------
Net Increase (Decrease) in Cash and Cash Equivalents................. 7,172,005 (5,342,386)
Cash and Cash Equivalents, Beginning of Period....................... 8,622,824 10,675,429
-------------- --------------
Cash and Cash Equivalents, End of Period............................. $ 15,794,829 $ 5,333,043
============== ==============
Supplemental Cash Flow Information
Cash Paid During the Period for:
Interest (net of amount capitalized)............................... $ 7,679,150 $ 8,326,786
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.......................................................... 126,688 1,204,451
See notes to financial statements.
F-4
CASINO MAGIC OF LOUISIANA, CORP.
NOTES TO FINANCIAL STATEMENTS
1. Summary of significant accounting policies:
Organization and basis of presentation:
On May 13, 1996 ("Inception"), Jefferson Casino Corporation ("Jefferson Corp."),
a Louisiana corporation and a wholly owned subsidiary of Casino Magic Corp.
("Casino Magic"), commenced development stage activities by acquiring all of the
outstanding capital stock of Crescent City Capital Development Corporation, a
Louisiana corporation. Immediately following the acquisition of Crescent City
Capital Development Corporation ("Crescent City") by Jefferson Corp., the name
of Crescent City Capital Development Corporation was changed to Casino Magic of
Louisiana, Corp. ("Louisiana Corp." or the "Company"). Louisiana Corp. has
developed a dockside riverboat casino and entertainment complex in Bossier City,
Louisiana ("Casino Magic-Bossier City"). Casino Magic-Bossier City opened on
October 4, 1996, using a temporary facility, thereby completing its development
stage activities, and opened the permanent facility on December 31, 1996.
Effective October 15, 1998, Casino Magic Corp. was acquired by and became a
wholly owned subsidiary of Hollywood Park, Inc.
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 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 financial statements
be read in conjunction with the audited consolidated financial statements and
the notes thereto included in the Company's Form 8-K for the year ended December
31, 1998 filed on form 8-K dated April 15, 1999. Certain reclassifications have
been made to 1998 amounts to conform with the June 30, 1999, presentation.
F-5
2. Long-term debt:
Long-term debt consists of the following:
June 30, December 31,
-------------- --------------
1999 1998
-------------- --------------
Notes payable, bank $ 529,110 $ 1,705,250
Equipment contracts 949,110 1,700,218
Other 33,510 38,684
Other, promissory note 9,743,705 7,243,705
Louisiana First Mortgage Notes 112,875,000 112,875,000
-------------- --------------
124,130,435 123,562,857
Less current maturities (1,494,622) (5,213,608)
-------------- --------------
$ 122,635,813 $ 118,349,249
============== ==============
Additions to long-term debt consist of one promissory note to Casino Magic
Management Services (an affiliated company) in the principal amount of $2.5
million. The note was incurred in February 1999 and is being repaid over thirty
six months bearing interest at an annual rate of 8.25%.
In August 1996, the Company issued $115,000,000 in aggregate principal amount of
13% First Mortgage Notes (the "Louisiana First Mortgage Notes") (of which $2.1
million was tendered in December 1998 in connection with the required change of
control purchase offer) with contingent interest at 5% of Casino Magic-Bossier
City's adjusted consolidated cash flow (as defined under the indenture governing
these notes). Although no contingent interest has previously been paid to note
holders (as the adjusted fixed charge coverage ratio as defined had not
previously been met), contingent interest of $1.3 million (as calculated for the
twelve month period ended June 30, 1999) was paid in connection with the
scheduled interest payment on August 16, 1999. As of June 30, 1999 contingent
interest of $2.8 million has been accrued, which amount represents the accrued
contingent interest since the notes were issued in 1996.
The Louisiana First Mortgage Notes are secured by a first priority lien and
security interest in substantially all of the assets of Casino Magic-Bossier
City, and Jefferson Casino Corp. guarantees the Louisiana First Mortgage Notes,
and the guarantee is secured by all of the assets of Jefferson Casino Corp.,
including all of the capital stock of Casino Magic of Louisiana, Corp. The
Louisiana First Mortgage Notes are redeemable, in whole or in part, on or after
August 15, 2000, at a premium to face amount, plus accrued interest, as follows:
(a) August 15 ,2000, at 106.5%; (b) August 15 ,2001, at 104.332%; (c) August 15,
2002, and thereafter, at 102.166%.
The indenture governing the Louisiana First Mortgage Notes contains certain
covenants limiting the ability of Casino Magic of Louisiana, Corp. and its
subsidiaries to engage in any line of business other than the current gaming
operations of Casino Magic-Bossier City and incidental related activities, to
borrow funds or otherwise become liable for additional debt, to pay dividends,
issue preferred stock, make investments, or enter into certain specified
transactions with affiliates.
F-6