EXHIBIT 99.1
Casino Magic of Louisiana, Corp.
Index
Three and Nine Months Ended September 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., ("Casino Magic") which is a wholly owned
subsidiary of Hollywood Park, Inc. ("Hollywood Park"). 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 September 30, 1999,
filed by Hollywood Park, Inc., which include Managment's Discussion and Analysis
for Hollywood Park, Inc., as well as other disclosures not included herein.
Results of Operation:
For the three months ended September 30, 1999 compared to the three months ended
- --------------------------------------------------------------------------------
September 30, 1998:
- ------------------
Gaming revenues at Casino Magic-Bossier City increased to $34.5 million for the
third quarter of 1999 compared to $28.3 million in the third quarter of 1998; an
increase of $6.2 million ($1.1 million table games and $5.1 million slots) or
21.9%. 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 $9.0 million over the comparable quarter or 5.7%. Casino Magic-
Bossier City's taxable gaming receipts increased 18.7% over the same comparative
quarter, increasing its market share by approximately 2.3% over the same period.
Non gaming revenues (net of complimentaries) increased $0.6 million, or 64.0%,
over the comparable period, principally as a result of the new hotel and food
and beverage facilities.
Total costs and expenses during the third quarter of 1999 were $30.7 million
compared to $28.1 million in the third quarter of 1998, a cost increase of $2.6
million or 9.3%. Casino costs increased $3.0 million, or 20.8%, from $14.4
million to $17.4 million over the comparative quarter. This increase was due
generally to increased taxes on incremental 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 $1.7 million, or 44.7%,
over the third quarter of 1998. Expenses in the third quarter of 1998 included
certain non-recurring expenses related to the acquisition of Casino Magic by
Hollywood Park. Advertising & Marketing expenses increased by $0.8 million, or
21.1%, over the 1998 quarter. Marketing costs for the third quarter of 1999 were
only 12.8% of net revenues compared to 13.2% in the same period of 1998.
Marketing strategy in the third quarter of 1998, although effective, required
more promotional costs to drive business, and compensate for lack of competitive
facilities and disruption from construction. Other administrative and operating
expenses (excluding depreciation) increased $0.1 million, or 2.3%, over the
comparative quarter. Depreciation increased $0.4 million, or 25.0%, as a result
of the increased cost of the new facilities.
Casino Magic-Bossier City earned an operating profit of $5.4 million for the
third quarter of 1999 versus $1.1 million in the third quarter of 1998; an
improvement of $4.3 million.
There was no income tax provision or benefit for the third 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 $0.8 million in the third
quarter of 1999 compared with a net loss of $3.2 million during the third
quarter of 1998.
1
For the nine months ended September 30, 1999 compared to the nine months ended
- -------------------------------------------------------------------------------
September 30, 1998:
- -------------------
Gaming revenues at Casino Magic-Bossier City increased to $100.6 million for the
first nine months of 1999 compared to $81.4 million in the first nine months of
1998; an increase of $19.2 million ($3.4 million table games and $15.8 million
slots) or 23.6%. 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 $27.3 million over the comparable nine months or
6.0%. Casino Magic-Bossier City's taxable gaming receipts increased 22.1% over
the same comparative period, increasing its market share by approximately 2.8%.
Non gaming revenues (net of complimentaries) increased $1.6 million, or 55.2%,
over the comparable period, principally as a result of the new hotel and food
and beverage facilities.
Total costs and expenses during the first nine months of 1999 were $88.4 million
compared to $75.0 million in the first nine months of 1998, a cost increase of
$13.4 million or 17.9%. Casino costs increased $10.9 million, or 27.3%, from
$40.0 million to $50.9 million over the comparative period. This increase was
due generally to increased taxes on incremental 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 decreased $1.6 million, or 20.3%,
over the prior year. Expenses in the nine months of 1998 included certain non-
recurring expenses relative to the acquisition of Casino Magic by Hollywood
Park. Advertising & Marketing expenses increased by $1.2 million, or 11.1%, over
the same period in 1998. Marketing costs for the first nine months of 1999 were
only 11.5% of net revenues compared to 12.8% in the same period of 1998.
Marketing strategy in the first nine months of 1998, although effective,
required more promotional costs to drive business, and compensate for lack of
competitive facilities and disruption from construction. Other administrative
and operating expenses (excluding depreciation) increased $1.6 million, or
13.9%, over the comparative nine months as a result of a increased maintenance
and utility costs associated with the new facilities. Depreciation increased
$1.2 million, or 25%, as a result of the increased cost of the new facilities.
Casino Magic-Bossier City earned an operating profit of $16.7 million for the
first nine months of 1999 versus $9.3 million in the first nine months of 1998;
an improvement of $7.4 million.
There was no income tax provision or benefit for the first nine 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 $3.0 million in the first
nine months of 1999 compared with a net loss of $3.8 million during the first
nine months of 1998.
Liquidity and Capital Resources:
At September 30, 1999, the Company had unrestricted cash and cash equivalents of
$15.3 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").
2
For the nine months ended September 30, 1999, the Company generated $8.6 million
of cash flow from operating activities and spent $1.8 million for acquisitions
of property and equipment. Casino Magic-Bossier City reduced principal payments
on third party debt by $2.7 million during the nine months and increased debt to
affiliated companies by $2.5 million for a net increase in long term debt of
$0.2 million.
The Company completed construction of a 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 September 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.
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
September 30, 1999, contingent interest of $1.9 million has been accrued, which
amount represents the accrued contingent interest since the notes were issued in
1996 less the amount paid on August 16, 1999. (See Note 2 to the Condensed Notes
to Financial Statements.)
3
Index to Financial Statements
Contents Pages
Financial Statements
Condensed Statement of Operations for the three months ended September 30, 1999 and 1998 F-1
Condensed Statement of Operations for the nine months ended September 30, 1999 and 1998 F-2
Condensed Balance Sheets as of September 30, 1999 and December 31, 1998 F-3
Condensed Statement of Cash Flows for the nine months ended September 30, 1999 and 1998 F-4
Condensed Notes to Financial Statements F-5
CASINO MAGIC OF LOUISIANA, CORP.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited )
Three Months ended Sept. 30,
----------------------------
1999 1998
---- ----
(in thousands)
--------------
Revenues:
Casino....................................................... $34,485 $28,290
Other operating income....................................... 1,580 937
------- -------
Total revenues.......................................... 36,065 29,227
------- -------
Costs and expenses:
Casino....................................................... 17,421 14,387
Other operating costs and expenses........................... 2,100 3,821
Advertising and marketing.................................... 4,619 3,849
General and administrative................................... 2,276 2,404
Property operation, maintenance and energy cost.............. 1,454 1,187
Rents, property taxes and insurance.......................... 730 808
Depreciation and amortization................................ 2,050 1,642
------- -------
Total costs and expenses................................ 30,650 28,098
------- -------
Income from operations......................................... 5,415 1,129
Interest expense............................................... 4,573 4,285
------- -------
Income before income taxes..................................... 842 (3,156)
Income tax expense............................................. -- --
------- -------
Net income..................................................... $ 842 $(3,156)
======= =======
See condensed notes to financial statements.
F-1
CASINO MAGIC OF LOUISIANA, CORP.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months ended Sept. 30,
---------------------------
1999 1998
---- ----
(in thousands)
--------------
Revenues:
Casino....................................................... $100,603 $81,421
Other operating income....................................... 4,452 2,860
-------- -------
Total revenues.......................................... 105,055 84,281
-------- -------
Costs and expenses:
Casino....................................................... 50,949 40,000
Other operating costs and expenses........................... 6,275 7,886
Advertising and marketing.................................... 12,049 10,814
General and administrative................................... 6,725 5,840
Property operation, maintenance and energy cost.............. 4,164 3,359
Rents, property taxes and insurance.......................... 2,228 2,271
Depreciation and amortization................................ 6,003 4,821
------ -------
Total costs and expenses................................ 88,393 74,991
------ -------
Income from operations......................................... 16,662 9,290
Interest expense............................................... 13,701 13,045
------ -------
Income before income taxes..................................... 2,961 (3,755)
Income tax expense............................................. -- --
------ -------
Net income..................................................... 2,961 $(3,755)
====== =======
See condensed notes to financial statements.
F-2
CASINO MAGIC OF LOUISIANA, CORP.
CONDENSED BALANCE SHEETS
(Unaudited)
ASSETS
September 30, December 31,
1999 1998(*)
---- -------
(in thousands)
--------------
Current Assets:
Cash and cash equivalents......................................... $ 15,263 $ 8,623
Restricted marketable securities.................................. -- 108
Other current assets.............................................. 2,121 1,260
-------- --------
Total current assets......................................... 17,384 9,991
Property and equipment, net......................................... 89,593 92,218
Other long-term assets
Deferred gaming license cost, net................................. 35,244 36,446
Debt issuance costs, net.......................................... 3,192 3,890
Other long-term assets............................................ 142 132
-------- --------
Total other long-term assets................................. 38,578 40,468
-------- --------
$145,555 $142,677
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................................. $ 5,678 $ 4,923
Accrued expenses.................................................. 2,892 1,800
Accrued interest.................................................. 4,005 7,679
Accrued payroll and related benefits.............................. 3,413 2,426
Accrued progressive gaming liabilities............................ 1,788 1,670
Notes and contracts payable....................................... 83 1,699
Current maturities of long-term debt.............................. 646 5,214
-------- --------
Total current liabilities.................................... 18,505 25,411
Due to affiliates................................................... 6,396 3,854
Long-term debt, net of current maturities........................... 122,630 118,349
Shareholders' Equity (Accumulated deficit)
Common stock, $0.01 par value, 10,000 shares authorized,
100 shares issued and outstanding at September 30, 1999
and December 31, 1998 -- --
Additional paid-in capital.......................................... 22,353 22,353
Accumulated deficit................................................. (24,329) (27,290)
-------- --------
Total shareholders' equity (accumulated deficit) (1,976) (4,937)
-------- --------
$145,555 $142,677
======== ========
See condensed notes to financial statements.
* Derived from audited financial statements.
F-3
CASINO MAGIC OF LOUISIANA, CORP.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months ended Sept. 30,
---------------------------
1999 1998
---- ----
(in thousands)
Cash Flows From Operating Activities:
Net income (loss).................................................. $ 2,961 $ (3,755)
Depreciation and amortization...................................... 6,003 4,821
Adjustments for other non-cash charges............................. 776 2,534
Changes in assets and liabilities.................................. (1,156) (2,003)
------- --------
Net Cash Provided by Operating Activities........................... 8,584 1,597
------- --------
Cash Flows From Investing Activities:
Acquisitions of property and equipment............................. (1,846) (10,802)
Other, net......................................................... 105 9,010
------- --------
Net Cash Provided by (Used in) Investing Activities.................. (1,741) (1,792)
------- --------
Cash Flows From Financing Activities:
Proceeds from issuance of long-term debt........................... 2,500 - -
Principal payments on notes payable and long-term debt............. (2,703) (2,447)
------- --------
Net Cash Used in Financing Activities................................ (203) (2,447)
------- --------
Net Increase (Decrease) in Cash and Cash Equivalents................. 6,640 (2,642)
Cash and Cash Equivalents, Beginning of Period....................... 8,623 10,675
------- --------
Cash and Cash Equivalents, End of Period............................. $15,263 $ 8,033
======= ========
Supplemental Cash Flow Information
Cash Paid During the Period for:
Interest........................................................... $16,825 $ 15,837
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.......................................................... 524 3,958
Property and equipment financed with long-term debt ............... -- 299
See condensed notes to financial statements.
F-4
CASINO MAGIC OF LOUISIANA, CORP.
CONDENSED 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 September 30, 1999, presentation.
F-5
2. Long-term debt:
Long-term debt consists of the following:
September 30, December 31,
------------- ------------
1999 1998
---- ----
Notes payable, bank $ -- $ 1,705,250
Equipment contracts 630,979 1,700,218
Other 27,133 38,684
Other, promissory note 9,743,705 7,243,705
Louisiana First Mortgage Notes 112,875,000 112,875,000
------------ ------------
123,276,817 123,562,857
Less current maturities (646,472) (5,213,608)
------------ ------------
$122,630,345 $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 September 30, 1999
contingent interest of $1.9 million has been accrued, which amount represents
the accrued contingent interest since the notes were issued in 1996, less the
amount paid on August 16, 1999.
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