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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 For Fiscal Year Ended December 31, 1997 or Transition Report pursuant to
Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the transition
period from ___ to ___ Commission File No. 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 Identification Number)
incorporation or organization)
711 CASINO MAGIC DRIVE, BAY SAINT LOUIS, MS 39520
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (601) 467-9257
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was $57,911,544 as of March 25, 1998. As of the close of business
March 25, 1998, there were 35,722,124 shares of the Registrant's common stock
outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated herein by reference:
The discussions under the sections captioned ELECTION OF DIRECTORS,"
"EXECUTIVE COMPENSATION," "CERTAIN TRANSACTIONS" and "PRINCIPAL SHAREHOLDERS" to
be included in the Registrant's definitive proxy statement to be filed with the
Securities and Exchange Commission and delivered to the Registrant's
shareholders pursuant to Regulation 14A promulgated under the Securities
Exchange Act of 1934, with respect to the 1998 annual meeting of shareholders of
the Registrant are incorporated herein in response to Items 10, 11, 12 and 13 of
Part III hereof, respectively.
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INDEX
PAGE
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PART I
Item 1. -- BUSINESS......................................... 1
Item 2. -- PROPERTIES....................................... 12
Item 3. -- LEGAL PROCEEDINGS................................ 15
Item 4. -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS................................................... 16
PART II
Item 5. -- MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.............................. 16
Item 6. -- SELECTED FINANCIAL DATA.......................... 17
Item 7. -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.............. 18
Item 8. -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...... 23
Item 9. -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE....................... 23
PART III
Items 10, 11, 12 and 13 ARE INCORPORATED BY REFERENCE TO THE
COMPANY'S 1997 DEFINITIVE PROXY STATEMENT................. 23
PART IV
Item 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K.............................. 23
CONSOLIDATED FINANCIAL STATEMENTS........................... F-1
EXHIBITS....................................................
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PART I.
ITEM 1. BUSINESS
GENERAL
Casino Magic Corp., through its wholly owned subsidiaries, owns and
operates two dockside casinos on the Mississippi Gulf Coast in Bay Saint Louis
and Biloxi, Mississippi, and one dockside casino in Bossier City, Louisiana. In
addition to its United States operations, Casino Magic Corp. operates and has a
51% ownership in two casinos in Neuquen and San Martin de los Andes, Argentina.
The following is a tabulation of the Company's operating casino properties
at December 31, 1997:
DATE CASINO
COMMENCED SQUARE SLOT TABLE HOTEL
BUSINESS FOOTAGE MACHINES GAMES ROOMS
--------- ------- -------- ----- -----
Bay Saint Louis............................... 9/92 39,500 1,115 43 201
Biloxi........................................ 6/93 47,700 1,196 36 387(1)
Bossier City.................................. 10/96 30,000 1,004 40 --
Argentina..................................... 1/95 29,500 473 56 --
------- ----- --- ---
Total......................................... 146,700 3,788 175 588
======= ===== === ===
- ---------------
(1) A 387 room hotel at the Company's gaming casino in Biloxi is scheduled to
open during the second quarter of 1998.
Unless the context requires otherwise, reference in this Annual Report to
the "Company" means Casino Magic Corp. and its relevant subsidiaries, and
reference to "Casino Magic" means Casino Magic Corp. Casino Magic was
incorporated under the laws of the State of Minnesota on April 17, 1992. The
Company's principal executive and administrative offices are located at 711
Casino Magic Drive, Bay Saint Louis, Mississippi 39520. The Company's telephone
number is (228) 467-9257.
INDUSTRY BACKGROUND
Until approximately 1988, legalized casino gaming in the United States was
restricted substantially to the State of Nevada and the City of Atlantic City,
New Jersey. Since then, legalized casino gaming has significantly expanded
throughout the United States. Numerous states have legalized either land-based,
riverboat or dockside gaming, sponsor lotteries, and sponsor the use of video
poker, video blackjack, or video lottery machines in connection with their
lotteries. In addition, since the passage of 1988 Indian Gaming Regulatory Act,
a significant number of North American Indian tribes have established gaming on
Indian reservations. The expansion of gaming has also occurred in countries
other than the United States. Numerous countries, including Argentina, have
either adopted laws which permit gaming, or expanded such legislation to allow
private enterprises to operate casinos.
Riverboat gaming is conducted on vessels which by law are required to leave
their mooring and cruise during gaming operations. The laws generally require
cruises to be of a certain duration, and will permit dockside gaming shortly
preceding and following the cruise period. While dockside gaming must be
conducted on a vessel in a body of water, the vessel is not required to leave
its moorings, and customers may come and go at will. Dockside gaming was
authorized in Mississippi in June 1990, but gaming operations did not commence
until August 1992. Riverboat and dockside gaming was legalized in Louisiana in
1991, but gaming operations did not begin until September 1993. Some states
limit the amount that a gaming customer may bet or lose, which is referred to as
"limited stakes gaming," and prohibit the issuance of house credit. The gaming
laws of Mississippi and Louisiana permit 24-hour unlimited stakes gaming, and
permit the issuance of house credit.
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FINANCIAL INFORMATION REGARDING CASINOS
See "Item 6. -- SELECTED FINANCIAL DATA," and the Consolidated Statements
of Operations, page F-3 in the 1997 Financial Statements.
OPERATIONS
THE BAY SAINT LOUIS CASINO
The casino in Bay Saint Louis, Mississippi (referred to herein as "Casino
Magic-BSL") commenced operations on September 30, 1992, as the first dockside
casino in Mississippi to operate on a barge rather than a traditional riverboat.
The casino is located in a 17-acre marina that is part of a 590-acre
Company-owned site located 1.5 miles north of U.S.
Highway 90, approximately nine miles south of Interstate 10, and approximately
51 miles east of New Orleans, Louisiana. Casino Magic-BSL has approximately
39,500 square foot of gaming space on two levels offering 1,115 slot machines,
43 table games, poker and live keno. Amenities within the facility include a
22,500 square foot entertainment and conference barge, a 330-seat buffet
restaurant, a themed steak and seafood restaurant, an express food counter, four
bars, a gift shop, a lounge area, a customer service center and office space.
The Company owns and operates the 201-room "Casino Magic Inn" at Casino
Magic-BSL, which includes 24 suites, banquet and meeting space, and an outdoor
swimming pool with Jacuzzi. Included at the Casino Magic-BSL complex is a
97-space recreational vehicle park, child entertainment center, and an 18-hole
Arnold Palmer designed championship Golf Course. The golf course includes a
clubhouse, a pro-shop, a casual dining restaurant, and hosts an Arnold Palmer
Golf Academy. (See Item 2 -- Property).
THE BILOXI CASINO
The Company's casino in Biloxi, Mississippi (referred herein as "Casino
Magic-Biloxi") is located on the Gulf Coast south of and adjacent to U.S.
Highway 90 in the middle of a four-casino strip. Biloxi is approximately 54
miles west of Mobile, Alabama and 27 miles east of Bay Saint Louis, Mississippi.
Casino Magic-Biloxi, which opened in June 1993, contains a 47,700 square foot,
gaming space on two levels. The casino offers 1,196 slot machines and 36 table
games. Amenities include a 360-seat buffet, a themed steak and seafood
restaurant, a McDonald's restaurant operated by a franchisee unaffiliated with
the Company, two bars, a lounge and entertainment area, a customer service
center, a gift shop and office space.
Construction of a 378-room hotel on top of the existing eight story-parking
garage at Casino Magic-Biloxi is substantially completed. The hotel is expected
to open in the second quarter of 1998 and will have amenities such as a health
spa, beauty salon, swimming pool and conference space, and will include 16
suites. Although the Company has taken steps to minimize the potential
construction disruption on its existing operations at Casino Magic-Biloxi during
the hotel construction, some disruption has occurred and will continue to occur.
Prior to the opening of the hotel, it is anticipated that Casino Magic-Biloxi
will add approximately 200 employees to serve hotel guests and an anticipated
increase in casino operations. (See Item 2 -- Property).
THE BOSSIER CITY CASINO
The Company's dockside casino at Bossier City, Louisiana (referred to
herein as "Casino Magic-Bossier City"), is located on 23 acres of land on the
Red River, and is within one mile of Interstate 20. Bossier City is immediately
across the Red River from Shreveport, Louisiana and approximately 180-miles east
of the Dallas/Fort Worth.
Casino Magic-Bossier City which opened on October 4, 1996 includes a 30,000
square foot floating dockside casino, a 55,000 square foot entertainment, food
and beverage pavilion, a four story 1,500 space parking garage, and surface
parking for 400 cars. The Company has completed the architectural and
engineering plans and has broken ground for the construction of a 188-room hotel
and the expansion of the pavilion area. The expanded pavilion and the hotel are
planned to include a themed steak and seafood restaurant, a bar and a swimming
pool. The development and construction of these improvements are largely
dependent upon the $11.7 million in proceeds from the sale of the Crescent City
Riverboat and future
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operating cash flow of Casino Magic-Bossier City. There are no assurances that
the proceeds from the sale of the Crescent City Riverboat and the cash flow from
the operations of Casino Magic-Bossier City will be sufficient to complete the
planned projects. (See Item 2 -- Property).
CASINO MAGIC-NORTH DAKOTA
The Company, through a wholly-owned subsidiary, entered into a consulting
agreement with the Sisseton-Wahpeton Dakota Nation ("Sisseton") to provide
consulting services to Sisseton concerning the operation of a casino facility on
Tribal land located adjacent to Interstate 29, 75 miles north of Fargo, North
Dakota. The Company began providing these services in November 1996 after the
opening of a temporary casino facility. Sisseton terminated this consulting
agreement in January 1998.
CASINO MAGIC-ARGENTINA
In December 1994, the Company, acquired a twelve year concession agreement
to operate two casinos in the Argentine Province of Neuquen (referred herein as
"Casino Magic-Neuquen"). Through its subsidiary, Casino Magic Neuquen S.A., the
Company began gaming operations in the Argentine cities of Neuquen and San
Martin de los Andes on January 1, 1995. The larger of the two casinos is located
in the city of Neuquen, and has approximately 27,000 square foot of gaming space
and contains 40 table games, 398 slot machines and a 384-seat bingo facility.
The smaller casino in San Martin de los Andes, a resort town approximately 200
miles southwest of the city of Neuquen has approximately 2,500 square foot of
gaming space, 75 slot machines and 16 table games. Prior to December 1994, the
Neuquen provincial government operated the two casinos. (See Item
2 -- Property).
On June 1, 1997 the Company sold a 49% interest in Casino Magic Neuquen
S.A., to Crown Casino Corp. for $7.0 million. The Company has retained a
controlling interest in Casino Magic Neuquen S.A. and manages its two casinos
Argentina for a fee equal to two percent of Casino Magic Neuquen S.A.'s gross
revenues.
FUTURE DEVELOPMENT
INDIANA
Casino Magic, through its wholly owned subsidiary, Crawford County Casino,
Corp. ("Indiana Corp.") is one of two applicants for the tenth gaming license
expected to be issued in the State of Indiana. If successful in obtaining this
gaming license, the Company has entered into an option agreement to sell to
Harrah's Operating Company the common stock of Indiana Corp. which owns options
on a site located in Crawford County, Indiana, on the Ohio River for
approximately $5.0 million. The option expires in January 2001. The Company is
not optimistic, and can give no assurances, that a gaming license will be
obtained for its site in Indiana.
OTHER
The Company has purchased land and acquired options to lease land in states
that have not legalized gaming activities. The costs of the options are fully
reserved on the Company's financial statements and the carry value of purchased
land represents non-gaming values.
PROPOSED MERGER
On February 19, 1998, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Hollywood Park, Inc. ("Hollywood"), and
Acquisition II, Inc. ("HP") a wholly-owned subsidiary of Hollywood. Under the
Merger Agreement, the Company has agreed, subject to approval of the Company's
shareholders and Regulatory approval, to merge (the "Merger") with HP. Upon such
Merger, the Company shall be the surviving entity and will become a wholly-owned
subsidiary of Hollywood. The separate existence of HP will then cease. Upon the
Merger, the shareholders of the Company will be entitled to receive
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$2.27 for each share of the Company's stock held. All shareholders of the
Company will be entitled to dissent from the Merger in accordance with the
provisions of Minnesota law.
The Merger is subject to the approval of the Company's shareholders prior
to October 31, 1998, and to the approval of the Mississippi Gaming Commission,
the Nevada Gaming Commission, and the Louisiana Gaming Control Board. The Merger
is also contingent upon other matters, including a requirement that neither the
Company nor Hollywood has materially breached any warranty, representation or
covenant contained in the Merger Agreement prior to the time of the Merger. If
the Merger Agreement is terminated for certain reasons, including a voluntary
termination by the Company should the Board of Directors of the Company
determine to accept a proposal of another party to merge with or acquire the
Company on terms which it believes to be superior to those contained in the
Merger Agreement, the Company will be required to pay Hollywood $3,500,000.
The Merger Agreement restricts the ability of the Company to engage in
certain transactions prior to the time of the Merger, except those which are in
the ordinary course of business consistent with past practice, unless the
Company obtains the consent of Hollywood, which consent may not be unreasonably
withheld. These provisions, among other things, preclude the Company from
issuing any additional capital stock or options to purchase capital stock,
entering into employment agreements, increasing the benefits payable under
existing severance or termination pay policies or agreements, increasing
compensation to directors or employees, declaring dividends, redeeming capital
stock, adopting or terminating any employee benefit plan, and doing other things
which are not in the ordinary course of business. The Merger Agreement also
imposes limits on the capital expenditures and borrowing which the Company may
effect, which are not inconsistent with the Company's current plans.
There is no assurance that all the necessary approvals for the Merger will
be obtained, or that the Merger will be consummated as proposed. (See Note 8 to
the Financial Statements)
MARKETS
CASINO MAGIC-BSL AND CASINO MAGIC-BILOXI MARKETS
Casino Magic-BSL and Casino Magic-Biloxi are two of the twelve casinos in
operation in the Mississippi Gulf Coast market. A majority of the customers of
these two casinos reside within 150 miles of the two sites. This primary market
area includes a population of an estimated 4.5 million residents. New Orleans,
Louisiana is approximately 51 miles west of Casino Magic-BSL, and Mobile,
Alabama is approximately 54 miles east of Casino Magic-Biloxi. Previously, the
market range was limited due to the lack of overnight, on-site accommodations on
the Mississippi Gulf Coast. The opening of the 201-room Casino Magic Inn at
Casino Magic-BSL has allowed the Company to expand its market range beyond the
traditional 150-mile range. With the completion of the golf course in Casino
Magic-BSL (opened February 19, 1997) and the anticipated completion in the
second quarter of 1998 of the Casino Magic-Biloxi hotel, the Company expects to
draw additional visitors from areas outside the 150-mile radius.
The major market for Casino Magic-BSL is the greater New Orleans, Louisiana
metropolitan area where over 1.5 million adults reside. In addition to local
residents, Casino Magic-Biloxi attracts customers from Mobile, Alabama, and
Pensacola, Florida. The Mobile-Pensacola region is home to over 1,000,000
adults. Mobile and the Florida Panhandle area account for a significant portion
of Casino Magic-Biloxi's customers. In addition, Casino Magic-Biloxi's location
in the middle of the Biloxi Strip enables it to attract customers from
surrounding casinos. Local gaming industry marketing surveys have indicated the
typical non-resident gaming customer visits an average of three casinos.
CASINO MAGIC-BOSSIER CITY MARKET
Casino Magic-Bossier City is one of our four casinos operating in the
Shreveport/Bossier City, Louisiana metropolitan area. Casino Magic-Bossier
City's primary market is the 6.8 million adults residing within 200 miles of
Bossier City, including persons residing in the Dallas-Forth Worth area which is
located approximately 180 miles west of Casino Magic-Bossier City. Casino
Magic-Bossier City's location provides
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customers from the Dallas-Fort Worth market direct access from Interstate
Highway 20, the major east-west artery connecting Dallas-Fort Worth to Bossier
City. Other cities within 200 miles of Casino Magic-Bossier City include
Longview and Tyler, Texas and Monroe, Louisiana.
MARKETING
The Company's marketing programs consist of a variety of advertising,
direct mail and promotional programs intended to encourage more repeat visits to
the Company's facilities. These marketing efforts utilize a wide variety of
media, including television, radio, newspaper and outdoor, with direct mail
advertising of its Magic Money Player's Club, special promotions, events and
entertainment, and a motorcoach program. The Company believes that the Magic
Money Player's Club is the most important marketing tool utilized by the
Company. Similar to a frequent flier airline program or cash back credit card,
it promotes customer loyalty and frequent use. Player's Club members can be
targeted for direct-mail offers and promotions, along with information on
upcoming events, entertainment schedules, current membership incentives and
photos of recent winning patrons. The Magic Money Player's Club also provides
benefits to the customer, such as cash rewards, club perquisites and a sense of
belonging. Because gaming members earn points that are redeemable for cash, the
Magic Money Player's Club provides an effective way to give back to loyal
customers a portion of their play. The reward levels are viewed as goals for the
member and therefore increase length of stay and frequency of visits. Active
members with high play levels are also rewarded with complimentary entertainment
and event tickets as well as free dining and lodging. Since other competing
casinos have similar "clubs", the perceived quality of such clubs is an
important marketing factor.
All three domestic properties actively promote group motorcoach package
programs. Intended to maintain customer volume during traditionally nonpeak
times, bus programs originate at locations 50 to 250 miles from the properties,
are completed in one day, and are generally organized by one of the
participants. Professional tour operators also organize bus trips which
originate at locations more than 250 miles from the Casinos. These motorcoach
groups will typically spend one or more nights away from home.
CASINO MAGIC-ARGENTINA
The two casinos comprising Casino Magic-Neuquen are in the Province of
Neuquen located in west central Argentina. The population within a 150-miles
radius of those two cities is approximately 900,000. The cities of Neuquen and
San Martin de los Andes are located near a number of Argentine tourist
attractions including national parks, ski resorts and a wide variety of outdoor
activities. The two cities have a combined total of more than 5,000 hotel rooms.
SEASONALITY
The Company's current gaming operations on the Mississippi Gulf Coast and
in Bossier City, Louisiana are subject to seasonal variation. Gaming revenues
typically increase during the summer months of the year. The operations of
Casino Magic-Argentina, also experience similar seasonal variation due to
reliance on tourism which is during the summer and winter months.
COMPETITION
GENERAL
The Company 's casinos on the Mississippi Gulf Coast and in Bossier City,
Louisiana have experienced intense competition. Many of the Company's
competitors have greater amenities, name recognition, marketing capabilities and
financial resources. In attempting to attract customers to its casinos, the
Company faces, or may face, increasing competition from new casinos developed on
the Mississippi Gulf Coast, in Northwest Louisiana and in surrounding market
areas, and from established gaming centers such as those in Nevada and Atlantic
City, New Jersey. The Company also faces competition from other forms of lawful
gaming, such as state-sponsored lotteries and video lottery terminals,
pari-mutuel betting on horse and dog racing, and bingo parlors as well as from
other forms of entertainment. It is possible that increased competition could
have a material adverse effect on the Company.
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CASINO MAGIC-BSL AND CASINO MAGIC-BILOXI
The Company's current Mississippi operations compete primarily with ten
other dockside gaming casinos on the Mississippi Gulf Coast. Eight competing
facilities are located in Biloxi and two are located in Gulfport, approximately
10 miles from Biloxi and 15 miles from Bay Saint Louis. In addition, the Company
believes that many of its competitors will add or enhance their existing
amenities, and new competitors will enter the Mississippi Gulf Coast market.
Intense competition on the Mississippi Gulf Coast has contributed to the closing
of two gaming facilities, and two casino operators reorganizing under bankruptcy
protection. Mississippi law does not limit the number of gaming licenses that
may be granted. Any increase in the number of gaming facilities along the
Mississippi Gulf Coast and surrounding areas could have a material adverse
effect on the Company.
The Company's management believes that Casino Magic-Biloxi should be more
competitive after the 387 room hotel opens in the second quarter of 1998.
However, Casino Magic-Biloxi is faced with additional competition from the
Imperial Palace, which opened in January 1998. While results of operations to
Casino Magic-Biloxi have remained slightly ahead of last year since the opening
of Imperial Palace, the full impact of such competition may not yet have been
experienced. At the beginning of 1999, Mirage Resorts, Inc. plans to open the
Beau Rivage casino in Biloxi. It is likely that the opening of the Imperial
Palace and Beau Rivage casinos will add more competitive pressure to the Biloxi
area. Since the Biloxi market is not expected to grow at the same rate as the
added gaming positions, Casino Magic-Biloxi may ultimately experience a loss of
revenues until the market for gaming in Biloxi grows to meet the added gaming
positions, if ever.
Casino Magic-BSL's principal market is the local population and suburban
areas of New Orleans. The establishment of a land-based casino in New Orleans in
the future could have an adverse effect on Casino Magic-BSL, although the
Company does not believe that it will be materially adverse to the Casino
Magic-BSL operations. The opening of the Imperial Palace in Biloxi in January
1998, and the Beau Rivage casino scheduled to open in 1999 in Biloxi, could also
have a material adverse affect on Casino Magic-BSL revenues. However, while the
Bay Saint Louis and Biloxi markets overlap, the Company does not believe that
the competitive impact of the opening of the Imperial Palace and Beau Rivage
casinos will be material on operations of Casino Magic-BSL.
Circus Circus, Inc. is planning to develop a casino on the north shore of
the Bay of Saint Louis (the Company's casino barge is on the south shore of the
Bay of Saint Louis) approximately 15 minutes off of Interstate 10. If
established, access to the Circus Circus casino will be quicker and easier from
the Interstate than the current access to Casino Magic-BSL. The development of a
casino or casinos on the north shore of the Bay of Saint Louis will, in all
likelihood, adversely impact the revenues of Casino Magic-BSL. To attempt to
offset this potential competition, the Company believes it must develop its Bay
Saint Louis properties as a destination resort, with a first class hotel and
other amenities, to compliment its casino and Arnold Palmer Championship Golf
Course. The capital necessary to accomplish this development is not currently
available.
CASINO MAGIC-BOSSIER CITY
Thirteen of the fifteen available riverboat gaming licenses are currently
operating in Louisiana, all of which except for Casino Magic-Bossier City, have
opened since September 1993. Of these thirteen riverboat casinos, four are
currently licensed and operate in the Bossier City/Shreveport market and offer
substantially similar gaming facilities. Casino Magic-Bossier City faces
competition from those existing operations, particularly to the extent that they
add to or enhance existing amenities. For example, Binion's Horseshoe Casino has
completed construction of a 606-room all suites hotel at its riverboat casino
location in Bossier City. In addition, Horseshoe Casino has replaced its
original casino riverboat with a new riverboat that offers significantly
expanded gaming and non-gaming areas. This expanded riverboat in conjunction
with the new hotel gives Horseshoe casino a significant advantage in the Bossier
City/Shreveport market. Another casino operator in the area has begun
construction of an onsite hotel.
On June 1997, the Louisiana legislature passed a bill that would allow
racetracks in Saint Landry, Calcasieu and Bossier parishes to install slot
machines. The Governor of Louisiana has signed the bill and pursuant to the
Constitutional Amendment the introduction of this new form of gaming has been
approved by
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each affected parish in a local referendum. However, new legislation relating to
the taxation of the slot machines will need to be passed with a 66% approval
margin in order to fully implement this new legislation. The impact of the
legislation, if approved, on the Company can not currently be determined.
TEXAS AND ALABAMA LEGALIZATION RISKS
Casino gaming is currently prohibited in several jurisdictions adjacent to
Louisiana and Mississippi. As a result, residents of these jurisdictions,
principally Texas and Alabama, comprise a significant portion of the customers
of Casino Magic-BSL, Casino Magic-Biloxi and Casino Magic-Bossier City.
Although casino gaming is not currently permitted in Texas and the Texas
Attorney General has issued an opinion that gaming in Texas would require an
amendment to the Texas Constitution, the Texas Legislature has considered
various proposals to authorize casino gaming. The legalization of casino gaming
in Texas and the opening of one or more casinos in the Dallas/Fort Worth area,
which is a major market for Bossier City/Shreveport gaming operations, would
have a material adverse effect on Casino Magic-Bossier City operations.
Casino gaming is currently illegal in Alabama due to a constitutional
prohibition against lotteries. Several attempts have been made to pass a
resolution of the Alabama Legislature providing for a statewide referendum on
the repeal of the pertinent section of the Alabama Constitution prohibiting
lotteries (and thereby gaming). Currently Alabama allows pari-mutuel wagering
and limited charitable bingo within the state. The legalization of casino gaming
in Alabama would have a material adverse effect on the Company's Mississippi
operations, particularly Casino Magic-Biloxi, both because the Mobile
metropolitan area is a major market for the Company's Casino Magic-Biloxi
operation and because a substantial portion of the Company's customers are
residents of areas east of Mobile, including Florida and Georgia.
ARGENTINA
The Company's two casinos in the Province of Neuquen, Argentina, located in
the cities of Neuquen and San Martin de los Andes are currently the only
operating casinos in the Province of Neuquen. There are, however, 44
government-operated casino operations throughout the country, including a casino
in Chipolletti, across the Rio Negro River from the City of Neuquen in Rio Negro
Province, and a casino in Rio Negro Province approximately 10 miles southeast of
the city of Neuquen.
GOVERNMENT REGULATION
UNITED STATES
The ownership and operation of a casino gaming business within the United
States and other jurisdictions in which the Company operates are subject to
extensive and complex governmental regulation and control under federal, state
or local laws and regulations. These laws and regulations are subject to change
including the repeal of laws which permit gaming. The Company and certain of its
officers, directors, key employees, shareholders and other affiliates
("Regulated Persons") are subject to strict legal and regulatory requirements,
including mandatory licensing and approval requirements, suitability
requirements, and ongoing regulatory oversight with respect to such gaming
operations. Such legal and regulatory requirements and oversight will be
administered and exercised by the relevant regulatory agency or agencies in each
jurisdiction.
The Company and the Regulated Persons will need to satisfy the licensing,
approval and suitability requirements of each jurisdiction in which the Company
seeks to become involved in gaming operations. Such requirements vary from
jurisdiction to jurisdiction, but generally concern the responsibility,
financial stability and character of the owners and managers of gaming
operations, as well as persons financially interested or involved in operations.
In general, the procedures for gaming licensing, approval and findings of
suitability require that the Company and each Regulated Person to submit
detailed background and financial information and that the Company demonstrate
that the proposed gaming operation has adequate financial resources generated
from suitable sources and adequate procedures to comply with the operating
controls and requirements imposed by law and regulation in each jurisdiction.
This submission is normally followed by a
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thorough investigation by the regulatory authorities. An application for any
gaming license, approval or finding of suitability may be denied for any cause
that the regulatory authorities deem reasonable. There can be no assurance that
the Company or the Regulated Persons will obtain or maintain all of the
necessary licenses, approvals and findings of suitability to permit the Company
to continue its development plans. Once a license or approval is obtained, the
Company will be required to periodically submit detailed financial and operating
reports to regulatory authorities. Such licenses and approvals may be subject to
periodic renewal and generally are not transferable. The regulatory authorities
may at any time revoke, suspend, condition, limit or restrict a license,
approval, or finding of suitability for any cause they deem reasonable. Fines
for violations may be levied against the holder of a license and in some
jurisdictions gaming operation revenues can be forfeited to the state under
certain circumstances. The laws, regulations and procedures pertaining to gaming
are subject to the interpretation of the regulatory authorities and may be
amended. Any changes in such laws or regulations, or their current
interpretations, could have a material adverse effect on the Company.
MISSISSIPPI GAMING REGULATIONS
In 1990, the State of Mississippi legalized dockside casino gaming for
counties along the Mississippi River and the Gulf Coast. The legislation gave
each of those counties the opportunity to hold a referendum on whether to allow
dockside casino gaming within its boundaries. Mississippi law permits gaming
licensees to offer unlimited stakes gaming on a 24-hour basis. The law does not
restrict the amount or percentage of space on a vessel that may be utilized for
gaming. The legislation also does not limit the number of licenses that the
Mississippi Gaming Commission (the "Mississippi Commission") can grant a
particular area and does not impose different conditions on different licensees.
The ownership and operation of casino gaming facilities in Mississippi are
subject to extensive state and local regulation. The Company, through its
subsidiaries, holds licenses for Casino Magic-Biloxi and Casino Magic-BSL under
the Mississippi Gaming Control Act (the "Mississippi Act"). Each license is site
specific. The Company's current and proposed gaming operations are subject to
the licensing and regulatory control of the Mississippi Commission and various
federal, state, county and city regulatory agencies. The Mississippi Commission
adopted regulations in furtherance of the Mississippi Act. These regulations
have been amended from time to time since that date.
Each of the directors, officers and certain key employees of the Company
who are actively and directly engaged in the administration or supervision of
gaming, or who have any other significant influence on the activities of the
Company, must be found suitable therefor and may be required to be licensed by
the Mississippi Commission. In practice, a finding of suitability of an
individual is considered the same as licensing that individual. The finding of
suitability requires submission of detailed personal financial information
followed by a thorough investigation. Although certain current members of the
Company's management have been found suitable in connection with the licensing
of the Casino Magic-Biloxi and Casino Magic-BSL, there can be no assurance that
additional key personnel or management persons who may be recruited from time to
time by the Company will be found suitable by the Mississippi Commission, if the
Mississippi Commission were to find a director, officer or key employee
unsuitable for licensing or unsuitable to continue having a relationship with
the Company, the Company would have to suspend, dismiss and sever all
relationships with such person. The Company would have similar obligations with
regard to any person who refuses to file appropriate applications. Each gaming
employee must obtain a work permit. The Mississippi Commission may refuse to
issue a work permit to a gaming employee for various grounds enumerated in the
Mississippi Act, including if the employee has committed larceny, embezzlement
or any crime of moral turpitude, or knowingly violated the Mississippi Act or
Mississippi regulations, or for any other reasonable cause. Denial of a work
permit is mandatory if the applicant has committed, attempted or conspired to
commit a felony.
The licenses obtained by the Company have terms of two years and are not
transferable. New licenses must be obtained at the end of each two-year period.
There can be no assurance that new licenses can be obtained. The Mississippi
Commission has the power to deny, limit, condition, revoke and suspend any
license, finding of suitability or registration, and to fine any person as it
deems reasonable and in the public interest, subject to an opportunity for a
hearing. The Mississippi Commission may fine any licensee or other
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person who is subject to the Mississippi Act up to $100,000 for each violation
of the Mississippi Act, which is the subject of an initial complaint, and up to
$250,000 for each such violation which is the subject of any subsequent
complaint. The Mississippi Act provides for judicial review of certain decisions
of the Mississippi Commission by petition to a Mississippi circuit court, but
the filing of such petition does not necessarily stay any such action taken by
the Mississippi Commission pending a decision by the circuit court.
Any individual who is found to have a material relationship to, or material
involvement with, the Company or, in the discretion of the Gaming Commission,
any other person associated with a gaming establishment of the Company, may be
required to be investigated in order to be found suitable or to be licensed as a
business associate of the Company. Key employees, controlling persons or others
who exercise significant influence upon the management or affairs of the Company
may also be deemed to have such a relationship or involvement.
The Mississippi Act requires that owners of more than 10% of the Company's
voting securities be found suitable by the Mississippi Commission. The statutes
and regulations also give the Mississippi Commission the discretion to require a
suitability finding with respect to anyone who acquires any security of the
Company regardless of the percentage of ownership. The current policy of the
Mississippi Commission is to require anyone acquiring 5% or more of any voting
securities to be found suitable. If the owner of voting securities who is
required to be found suitable is a corporation, partnership or trust, it must
submit detailed business and financial information including a list of
beneficial owners. The applicant is required to pay all costs of investigation.
Any owner of voting securities who is found unsuitable and who holds,
directly or indirectly, any beneficial ownership of equity interests in the
Company beyond such period of time as may be prescribed by the Mississippi
Commission may be guilty of a misdemeanor. Additionally, any person who fails or
refuses to apply for a finding of suitability or a license within 30 days after
being ordered to do so by such Commission may be found unsuitable. The Company
is subject to disciplinary action if, after it receives notice that a person is
unsuitable to have any relationship with it, the Company (i) pays the unsuitable
person any distributions or interest upon any securities of the Company or any
payments or distribution of any kind whatsoever, (ii) recognizes the exercise,
directly or indirectly, of any voting rights in its securities by the unsuitable
person, or (iii) pays the unsuitable person any remuneration in any form for
services rendered or otherwise, except in certain limited and specific
circumstances.
The Company will be required to maintain current equity ownership ledgers
in the State of Mississippi which may be examined by the Mississippi Commission
at any time. If any securities are held in trust by an agent or by a nominee,
the record holder may be required to disclose the identity of the beneficial
owner to the Mississippi Commission. A failure to make such disclosure may be
grounds for finding the record holder unsuitable. The Company also is required
to render maximum assistance in determining the identity of the beneficial
owner.
The Mississippi Act requires that certificates representing equity
securities of the Company bear a legend to the general effect that the
securities are subject to the Mississippi Act and regulations of the Mississippi
Commission. The Mississippi Commission has the authority to grant a waiver from
the legend requirement, which the Company has obtained. The Mississippi
Commission has the power to impose additional restrictions on the holders of the
Company's securities at any time through its power to regulate licenses.
The regulations provide that a change in control of the Company may not
occur without the prior approval of the Mississippi Commission. Mississippi law
prohibits the Company from making a public offering of its securities without
the approval of the Mississippi Commission if any part of the proceeds of the
offering is to be used to finance the construction, acquisition or operation of
gaming facilities in Mississippi, or to retire or extend obligations incurred
for one or more of such purposes.
The Mississippi Commission has enacted regulations requiring that, as a
condition to licensure or renewal licensure, an applicant provide a plan to
develop "infrastructure facilities" amounting to 25% of the cost of the casino
and a parking facility capable of accommodating 500 cars. "Infrastructure
facilities" include any of the following: a 250-room hotel, theme park, golf
course, marina, tennis complex, or any other facilities approved
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by the Mississippi Commission, but such team does not include parking
facilities, roads, sewage and water systems or civic facilities. The Mississippi
Commission may reduce the number of rooms required in a hotel, where it is shown
to the satisfaction of the Mississippi Commission that sufficient rooms are
available to accommodate the anticipated number of visitors. Management believes
that the Company is in compliance with this regulation.
The Company's future gaming operations outside of Mississippi are also
subject to approval by the Mississippi Commission.
LOUISIANA GAMING REGULATIONS
In 1991 the Louisiana legislature enacted the Louisiana Riverboat Economic
and Gaming Control Act, LSA-R.S. 4:501, et. seq. (the "Louisiana Gaming Act").
The Louisiana Gaming Act authorized the licensing of up to 15 riverboats to
conduct gaming on designated rivers and waterways. Pursuant to the Louisiana
Gaming Act, the Riverboat Gaming Commission (the "Louisiana Commission"), was
created within the Department of Public Safety and Corrections for the State of
Louisiana. Additionally, a riverboat gaming regulatory group within the
Louisiana State Police was created. The Louisiana Gaming Commission and the
State Police were authorized to and did promulgate the existing rules and
regulations governing the licensing and operations of riverboats. The Louisiana
legislature in the First Extraordinary Session, 1996, enacted new legislation
(the "Louisiana Board Act") which transferred the regulatory oversight of most
gaming operations in Louisiana, including riverboat gaming, to the Gaming
Control Board (the "Louisiana Board"), effective as of May 1, 1996. The
Louisiana Commission was abolished as of that same date. The Louisiana Board
consists of nine members appointed by the Governor of Louisiana.
The Louisiana Board is empowered to regulate four forms of gaming
activities and operations in the state: riverboat, video poker, the landbased
casino in New Orleans, and all state regulated aspects of Indian gaming.
(Excluded is the regulation and oversight of horse racing and off-track betting,
the state lottery, and charitable gaming.) Accordingly, the Louisiana Board has
all regulatory authority, control, and jurisdiction, including investigation,
licensing, and enforcement, and all power incidental to or necessary for such
regulatory authority, control and jurisdiction, over all aspects of gaming
activities and operations as authorized pursuant to the provisions of the
Louisiana Gaming Act, the Louisiana Economic Development and Gaming Corporation
Act (Land-Based Casino in New Orleans), and the Video Draw Poker Devices Control
Act.
The Louisiana Board has been authorized to promulgate rules and regulations
to govern the aforesaid types of gaming in Louisiana; however, all
administrative rules and regulations promulgated by entities whose powers have
been transferred to the Louisiana Board are to be considered valid and remain in
effect until repealed by the Louisiana Board.
The State Police conduct investigations and audits regarding the
qualifications of applicants for licenses or permits requiring suitability
determinations, submit all investigative reports to the Louisiana Board, conduct
audits to assist the Louisiana Board, issue certain licenses and permits in
accordance with rules adopted by the Louisiana Board, and perform all other
duties and functions necessary for the efficient and thorough regulation and
control of gaming activities and operations under the Louisiana Board's
jurisdiction.
The Louisiana Board Act did not repeal the Louisiana Gaming Act, the
original 1991 statute authorizing riverboat gaming in Louisiana, but rather
amended it to transfer licensing and regulatory authority to the Louisiana Board
and to redefine the authority of the State Police. Otherwise the Louisiana
Gaming Act remains in effect. Accordingly, the Louisiana Gaming Act continues to
authorize up to 15 licenses to conduct gaming activities on riverboats, with no
more than six licenses to be granted to riverboats operating in any one parish.
Current Louisiana law limits the number of riverboat casino licenses in the
state to 15, all but one of which have been awarded, and limits the
concentration of riverboat casino licenses in any one parish to six. The
relative success of gaming operations in the Bossier City/Shreveport market, as
compared to other Louisiana markets, may increase the possibility that existing
licenses may be relocated to the Bossier City/Shreveport market. However, the
relocation of existing licenses to another parish or of riverboats within
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the same parish is restricted by the Constitutional Amendment which requires,
among other things, a local parish-wide election to approve, by majority vote,
the licensing of any additional riverboats in a parish with existing licensed
riverboats or the relocation of any operating riverboat to a different berth in
the same parish.
A Constitutional Amendment was approved by voters statewide, which requires
local option elections in parishes before new forms of gaming may be conducted
therein or before existing forms of gaming may be conducted in new areas. For
example, the Constitutional Amendment requires a local option referendum before
an additional riverboat could move into a parish, regardless of whether such
parish had authorized the continuation of riverboat gaming in such parish in the
Louisiana Referendum. In this respect, (i.e., relocation of riverboat gaming
vessels to new locations) the Constitutional Amendment would appear to be more
restrictive than the legislation requiring the Louisiana Referendum.
Licenses may be and have been issued for dockside riverboat gaming along
the Red River in the Shreveport/Bossier City area. Dockside gaming is presently
prohibited at other locations in the state. A riverboat gaming license has an
initial term of five years, with subsequent annual renewals thereafter. Pursuant
to the decision of the State Police at a hearing held on April 30, 1996, the
Louisiana riverboat gaming license acquired by the Company has an unexpired term
of five years less the sixty-five days that the previous licensee conducted
riverboat gaming operations. The unexpired term of the license recommenced on
October 4, 1996 the date that the Company began riverboat gaming operations in
Bossier City. The application for renewal consists of a sworn statement of all
changes in information, including financial information, provided in any
previous applications. The transfer of a license is prohibited. The Louisiana
Board may restrict, suspend or revoke a license or permit. Suspension or
revocation of any license or permit would have a material adverse effect upon
the business of the Company.
Pursuant to the existing laws, rules and regulations, the Company must
periodically submit detailed financial, operating and other reports to the
Louisiana Board and substantially all loans, leases, private sales of
securities, extensions of credit and similar financing transactions entered into
by any of the Regulated Persons, must be reported to the Louisiana Board for
prior approval or for a determination that the transaction does not need prior
approval The applicant for a gaming license, its directors, officers, key
personnel, partners, and persons holding a 5% or greater interest in the
applicant and their spouses will be required to be found suitable by the
Louisiana Board. This requires the filing of an extensive application to the
Louisiana Board disclosing personal, financial, criminal, business and other
information. The applicant is required to pay all costs of investigation. There
can be no assurance that such person will be found suitable by the Louisiana
Board. An application for licensing of an individual may be denied for any cause
deemed reasonable by the Louisiana Board. Any individual who is found to have a
material relationship to or a material involvement with, the Company may be
required to be investigated in order to be found suitable or be licensed as a
business associate of an applicant. Key employees, controlling persons or others
who exercise significant influence upon the management or affairs of the Company
may also be deemed to have such a relationship or involvement.
If the Louisiana Board were to find a director, officer or key employee
unsuitable for licensing or unsuitable to continue having a relationship with an
applicant, the applicant would have to suspend, dismiss and sever all
relationships with such person. The applicant would have similar obligations
with regard to any person who refuses to file appropriate applications. Each
gaming employee must obtain a gaming employee permit which may be revoked upon
the occurrence of certain specified events.
The sale, assignment, transfer, pledge or disposition of securities which
represent 5% of more of the total outstanding shares issued by a corporate
licensee is subject to Louisiana Board approval. After a license is granted, any
person acquiring an economic interest of 5% or more in a license must obtain the
Louisiana Board's prior approval for the transaction. Failure to obtain that
approval is grounds for license revocation. A security issued by a corporate
license must generally disclose these restrictions.
If the Louisiana Board finds that an individual holder of a corporate
licensee's securities or a director, partner, officer or manager of the licensee
is not qualified pursuant to the existing laws, rules and regulations, and if as
a result the licensee is no longer qualified to continue as a licensee, it can
propose action necessary to protect the public interest, including the
suspension or revocation of a license or permit. It may also issue, under
penalty of revocation of license, a condition of disqualification naming the
person and declaring that
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such person may not (a) receive dividends or interest on securities of the
licensee, (b) exercise any right conferred by securities of the licensee, (c)
receive remuneration or any other economic benefit from the licensee or continue
in an ownership or economic interest in the licensee or remain as a director,
partner, officer, or manager of the licensee.
FOREIGN
The Provincial Government of Neuquen, Argentina enacted a casino
privatization program to issue 12-year exclusive concession agreements to
operate existing casinos. The Company's two casinos are the only casinos in the
province of Neuquen, in west central Argentina, and are located in Neuquen City
and San Martin de los Andes. The casinos had previously been operated by the
provincial government. The Ministry of Finance of Argentina has adopted a
modified regulatory system for casinos, based on the regulatory system utilized
by the State of Nevada, and such regulatory system is being administered by the
Provincial Government of Neuquen. The Company cannot predict what effect the
enactment of other laws, regulations or pronouncements relating to casino
operations may have on the operations of the Casino Magic-Argentina.
NON-GAMING REGULATION
The Company is subject to certain federal, state and local safety and
health laws, regulations and ordinances that apply to non-gaming businesses
generally, such as the Clean Air Act, Clean Water Act, Occupational Safety and
Health Act, Resource Conservation Recovery Act and the Comprehensive
Environmental Response, Compensation and Liability Act. The Company has not
made, and does not anticipate making, material expenditures with respect to such
environmental laws and regulations. However, the coverage and attendant
compliance costs associated with such laws, regulations and ordinances may
result in future additional costs to the Company's operations. For example, in
1990 the U.S. Congress enacted the Oil Pollution Act to consolidate and
rationalize mechanisms under various oil spill response laws. The Department of
Transportation has proposed regulations requiring owners and operators of
certain vessels to establish through the U.S. Coast Guard evidence of financial
responsibility in the amount of $5.5 million for clean-up of oil pollution. This
requirement would be satisfied by either proof of adequate insurance (including
self-insurance) or the posting of a surety bond or guaranty.
Riverboats capable of cruising, including those that are not required to
cruise, such as the Company's boat in Bossier City, Louisiana, must comply with
U.S. Coast Guard requirements as to boat design, on-board facilities, equipment,
personnel and safety. Each of them must hold a Certificate of Seaworthiness or
must be approved by the American Bureau of Shipping ("ABS") Building Code. The
U.S. Coast Guard requirements establish design standards, set limits on the
operation of the vessels and require individual licensing of all personnel
involved with the operation of the vessels. Loss of a vessel's Certificate of
Seaworthiness or ABS approval would preclude its use as a floating casino.
All employees engaged on a riverboat, even those who have nothing to do
with the actual operation of the vessel, such as dealers, waiters and security
personnel, may be subject to the Jones Act which, among other things, exempts
those employees from state limits on workers' compensation awards.
COMPANY LICENSES AND APPLICATIONS
To date, other than in Mississippi, Louisiana and Argentina, no gaming
licenses, approvals or findings of suitability have been obtained or, other than
in Indiana, applied for by the Company. The Company may apply for additional
gaming licenses in domestic and international jurisdictions. The loss or
suspension of any such license, or the failure to obtain any license for
properties upon which the Company plans to operate a gaming casino in the
future, would have a material adverse affect on the Company's business.
INFORMATION REGARDING FOREIGN OPERATIONS
The Company operates casinos in Argentina. Although a number of the
Company's employees have experience in the operation of casinos outside of the
United States, the Company's executive officers have had limited experience in
such operations. The distance of the operations from the Company's executive
offices,
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the stability of the relevant government, regulations imposed by the foreign
government, tax issues, and the acceptance of American-style gaming are all
risks associated with a foreign operation with which the Company's management
has had limited previous experience. Additionally, the Company's operations in
foreign jurisdictions are subject to risks associated with currency exchange
rate fluctuations and the repatriation of funds.
SERVICE MARKS
Casino Magic is the owner of U.S. service mark registrations for the
service marks "Casino Magic(R)", "A Cut Above(R)" "Casino Magic Getaways(SM)",
"Magic Money(SM)", "ABRACADABRA'S" and "Amazing Randolphs" granted by the U.S.
Patent and Trademark Office on July 13, 1993, June 21, 1994, October 18, 1994,
December 2, 1997, March 3, 1998 and March 3, 1998 respectively. Casino Magic is
also the owner of a Canadian service mark registration for "Casino Magic(R)"
service mark granted on March 3, 1995. The Company has filed service mark
registration applications for the "Casino Magic" service mark in Greece and
Mexico. The Company also uses and claims rights to several additional service
marks. The effect of the Company's service marks is to provide an identity
between the Company and its services. U.S. service mark registrations provide
protection for a period of 10 years from the date of registration and may be
renewed indefinitely for successive 10-year periods. While prior use of a
service mark may establish an exclusive right to its use in connection with the
sale of services in a particular market area, registration with the U.S. Patent
and Trademark Office, or similar government agencies in foreign jurisdictions,
provides such right throughout the United States or the foreign jurisdiction and
a presumption of damage to the Company should the mark be infringed. There are
no assurances that any of the service marks used by the Company, whether or not
registered, will be free from future challenge by others as to prior use or as
otherwise being unprotectable.
PERSONNEL
As of January 1, 1998, the Company had approximately 2,800 full-time
employees and 460 part-time employees in the United States. Of the employees,
five are executive officers of the Company. The Company has approximately 265
full-time employees at two foreign locations that the Company operates. The
Company's management believes that its relationship with its employees is good.
With the expansion of gaming in the Mississippi Gulf Coast region and Northwest
Louisiana, new competitors are likely to actively recruit the Company's
management and casino personnel, many of whom have been trained at the expense
of the Company. None of the Company's employees are currently represented by a
labor union.
FORWARD LOOKING STATEMENTS
The discussions regarding proposed Company developments and operations
included in "Item 1 -- BUSINESS" contain forward looking statements that involve
a number of risks and uncertainties. In addition to the factors discussed above,
other factors that could cause actual results to differ materially are the
following: business conditions and growth in the gaming industry and the general
economy; existing and future development by gaming operators competing with the
Company; obtaining and retaining necessary licenses or regulatory approvals;
acquiring or generating funding necessary to undertake and complete development
plans; and other risks detailed from time to time in the Company's reports filed
with the Securities and Exchange Commission.
ITEM 2. PROPERTIES
CORPORATE HEADQUARTERS
The Company's principal executive and administrative offices are located in
approximately 6,000 square foot of office space in the Casino Magic-BSL support
building at 711 Casino Magic Drive, Bay Saint Louis, Mississippi 39520.
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CASINO MAGIC -- BSL PROPERTY
Casino Magic-BSL is located in a 17 acre arena in the Bay of Saint Louis on
the Gulf of Mexico in the city of Bay Saint Louis, Mississippi, on an
approximately 590 acre site The property, which is owned the Company, secures
the $135,000,000 First Mortgage Notes issued in October 1993. The gaming barge,
which is moored in the marina, has approximately 46,000 square foot of floor
space on two levels and provides approximately 39,500 square foot of gaming
area. The gaming area contains 1,115 slot machines and 43 table games. Access to
the barge is provided through an approximately 30,000 square foot support
building constructed on the shore of the marina. In addition to proving the
entrance to the casino, the support building contains restaurants and lounges,
customer entertainment and service facilities and office space. Adjacent to the
gaming barge is a 22,500 square foot entertainment barge, which can be used for
special events and meetings. There is surface parking for 2,500 vehicles. The
Company operates a 201 room hotel on the property which is approximately 1,000
foot from the Bay Saint Louis casino and which includes banquet and meeting
rooms. In addition, the Company operates an 18-hole Arnold Palmer designed
championship golf course, driving range and golf academy on the Bay Saint Louis
casino property. As part of the golf course, the Company has a clubhouse and
various storage facilities. Casino Magic-BSL property also contains a child care
facility and a recreational vehicle park with 97 spaces.
Management believes that Casino Magic-BSL facilities and space for
expansion are currently adequate, but that the addition of another more upscale
hotel and other amenities will be necessary to remain competitive and to
maintain Casino Magic-BSL revenues.
CASINO MAGIC-BILOXI PROPERTY
Casino Magic-Biloxi is located on the Gulf of Mexico in Biloxi,
Mississippi, on property which is either owned or leased by the Company,
including the lease from the state of Mississippi of water bottoms adjacent to
the land. Except for the Casino One Property described below, the owned and
leased properties secure the $135,000,000 First Mortgage Notes issued in October
1993. The site for Casino Magic-Biloxi has 660 foot of frontage on the south
side of U.S. Highway 90. The eastern 500 foot of that frontage consists of one
owned and two leased parcels of land. The leases provided for five year primary
terms commencing in January 1993 and 17 optional renewal terms of five years
each. In 1997, the aggregate annual base rent under the two leases was $500,000.
In 1998 and in subsequent years, that base rent will increase based on the
Consumer Price Index. The lease for the water bottoms provided for an initial
term of ten years commencing in July 1993 and one renewal term of five years.
The annual rent under the water bottoms lease for the twelve months ending in
June 1998 is $775,000 with rent for subsequent periods being in the amount to be
determined under Mississippi law regarding the leasing of "public trust
tidelands."
Another parcel of property, which is not subject to the $135,000,000 First
Mortgage Notes, (referred to as "The Casino One Property" consists of land
having approximately 160 foot of frontage on the south of U.S. Highway 90 which
is adjacent and to the west of the site of Casino Magic-Biloxi, and
approximately 2.24 acres of land which is located on the north side of U.S.
Highway 90. The Casino One Property to the north of U.S. Highway 90 consisted of
six adjacent parcels, four of which secure the payment of their respective
purchase prices. The Company's subsidiary which operates Casino Magic-Biloxi
leased the Casino One Property from another subsidiary of the Company, Casino
One Corporation to provide parking and space for the storage of construction
materials. The lease provides for base annual rent of $1,340,000.
In April 1996, the state of Mississippi claimed that the site of Casino
Magic-Biloxi and the Casino One Property located to the south of U.S. Highway 90
were artificially filled tidelands areas such that they were property held by
the state of Mississippi. The claim relating to the Casino One Property was
resolved in September 1995 pursuant to a boundary agreement which recognized the
northern 100 foot of the property as being owned by Casino One Corporation with
the state leasing the remaining portion of the property to Casino One
Corporation for a rental payment essentially equal to the property taxes which
would have otherwise been payable on the land. The Company was not able to enter
into a similar boundary agreement with respect to the site of Casino
Magic-Biloxi without the consent of all of the holders of the $135,000,000 First
Mortgage Notes issued in October 1993 and the participation of the lessors of
the two leased parcels. The Company did,
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however, agree to enter into appropriate agreements with the state of
Mississippi at such times as the Company was permitted to do so. It is expected
that such agreements would not materially increase the Company's cost of
possessing and using the site of Casino Magic-Biloxi.
Gaming at Casino Magic-Biloxi occurs upon a barge moored within the water
bottoms area leased from the state of Mississippi. The barge has approximately
97,200 square foot of area on three levels, which provide approximately 47,700
square foot of gaming area. Casino Magic-Biloxi, operates 1,196 slot machines,
36 table games, restaurants, and customer entertainment and service areas.
Access to the barge is provided through a 69,900 square foot support building
which acts as the entrance to the casino, and which includes entertainment,
service facilities and office space. Parking for Casino Magic-Biloxi is provided
by a 700 space eight floor parking garage located to the south of the service
building, 250 spaces of surface parking on the Casino One Property and shared
parking on an adjacent 430 space two-story parking ramp. There is also parking
for 30 tour buses on the Casino One Property on the north side of U. S. Highway
90, across from the casino.
A hotel consisting of 378 rooms is near completion on top of the eight
floor parking garage making that structure a total of 22 stories. The hotel,
which is expected to open in the second quarter of 1998, will include 86 suites,
meeting and conference facilities, a health spa, beauty salon and swimming pool.
The Company plans additional improvements to the Biloxi casino support building,
including an improvement to the casino entrance and the addition of a 24-hour
restaurant.
Management believes that Casino Magic-Biloxi facilities and space for
expansion are currently adequate, but that the property will need continued
improvement and refurbishing.
CASINO MAGIC-BOSSIER CITY PROPERTY
Casino Magic-Bossier City is located on a 23 acre site on the Red River in
Bossier City, Louisiana. The property secures the $115,000,000 First Mortgage
Notes issued in August 1996. Gaming at Casino Magic-Bossier City occurs on a
riverboat which, while capable of cruising on the river, is permanently moored
at the site. The riverboat provides approximately 30,000 square foot of area
within which the Company has located 1,004 slot machines and 40 table games.
Access to the riverboat is provided through a 55,000 square foot support
building which includes restaurants, lounges, entertainment and service areas,
and office space. A 1,500 space four-story parking garage and surface parking
for an additional 400 vehicles provide parking for Casino Magic-Bossier City.
The Company has also commenced construction of a 188-room hotel adjacent to the
support building. Construction of the hotel is scheduled to be completed before
the end of 1998. The hotel is anticipated to attract overnight casino customers,
primarily from the Dallas/Fort Worth area. To improve the competitiveness of
Casino Magic-Bossier City, the Company has also developed plans for the
expansion of the support building to provide additional restaurant facilities
and an improved interior appearance. There is no assurance that the hotel will
be completed or opened as scheduled.
Management believes that Casino Magic-Bossier City facilities and space for
expansion are adequate for the future growth and development of the facility.
CASINO MAGI -- ARGENTINA
Pursuant to the agreement between the Company's 51% owned subsidiary,
Casino Magic Neuquen S.A., and the provincial government, the Company was
allowed to use the premises established by the province for the two casinos
formerly operated by the province at those sites. The Company has continued to
use the approximately 27,000 square foot site located in the city of Neuquen. In
December, 1995, the Company relocated the site of the casino in San Martin de
los Andes to a 2,500 square foot site leased for a term of six years with a
monthly rent of $7,000. The agreement under which the Company operates the two
casinos provided for an initial term of twelve years commencing in January 1995.
The Company is entitled to a five year extension in the event at least
$5,000,000 is expended by the Company in establishing hotels for the casinos.
Monthly payments of $220,000 are to be made to the provincial government under
the agreement. If the Company elects to change the site of the Neuquen casino,
the monthly payment under the agreement is to be reduced by $40,000.
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Management believes that Casino Magic-Neuquen facilities and space for
expansion are adequate for the future growth and development of the facility.
OTHER PROPERTIES
The Company owns approximately nine acres of land with approximately 370
foot of shoreline in Bay Saint Louis, Mississippi on U.S. Highway 90
approximately 2.5 miles from Casino Magic-BSL. This site has been approved as
(but is probably not suitable for) a gaming site by the Mississippi Commission
and is included in the Company's financial statements at December 31, 1997, as
property held for sale having a value of $800,000.
The Company owns 25.6 acres of land on the Jordan River, immediately west
of the Company's gaming operation in Bay Saint Louis, Mississippi. The Company
acquired the property to provide additional land for future expansion and to
prevent potential competition from acquiring a possible gaming site in immediate
proximity to Casino Magic-BSL.
In 1993 and 1994, the Company acquired a 3.5 acre parcel and a 0.2 acre
parcel of unimproved land in downtown St. Louis, Missouri in anticipation of
obtaining a gaming license in that city through a joint venture with Caesars
World, Inc. for $4,000,000 and $800,000, respectively. The Company is no longer
pursuing the joint venture and, accordingly the parcels are included in the
Company's financial statements at December 31, 1997, as property held for sale
having carrying values of $4,000,000 and $800,000 respectively.
The Company also has options on potential gaming sites in Alabama and
Indiana, which the Company does not anticipate exercising.
ITEM 3. LEGAL PROCEEDINGS
ONGOING LEGAL PROCEEDINGS
A class action lawsuit was filed on April 26, 1994, in the United States
District Court, Middle District of Florida (the "Poulos Lawsuit"), naming as
defendants 41 manufacturers, distributors and casino operators of video poker
and electronic slot machines, including the Company. The lawsuit alleges that
such defendants have engaged in a course of fraudulent and misleading conduct
intended to induce people to play such games based on a false belief concerning
the operation of the gaming machines, as well as the extent to which there is an
opportunity to win. The suit alleges violations of the Racketeer Influenced and
Corrupt Organization Act, as well as claims of common law fraud, unjust
enrichment and negligent misrepresentation, and seeks damages in excess of $6
billion. On May 10, 1994, a second class action lawsuit was filed in the United
States District Court, Middle District of Florida (the "Ahern Lawsuit") , naming
as defendants the same defendants who were named in the Poulos Lawsuit and
adding as defendants the owners of certain casino operations in Puerto Rico and
the Bahamas, who were not named as defendants in the Poulos Lawsuit. The claims
in the Ahern Lawsuit are identical to the claims in the Poulos Lawsuit. Because
of the similarity of parties and claims, the Poulos Lawsuit and Ahern Lawsuit
were consolidated into one case file in the United States District Court, Middle
District of Florida. On December 9, 1994 a motion by the defendants for change
of venue was granted, transferring the case to the United States District Court
for the District of Nevada, in Las Vegas. In response to a motion to dismiss the
Complaint brought by the Company and other defendants, the United States
District Court for the District of Nevada entered an order dated April 17, 1996,
granting the motions and dismissing the complaint without prejudice. The
plaintiffs then filed an amended Complaint on May 31, 1996, in which the
plaintiffs sought damages against the Company and other defendants in excess of
$1 billion and punitive damages for violations of the Racketeer Influenced and
Corrupt Organizations Act and for state common law claims for fraud, unjust
enrichment and negligent misrepresentation. The Company and other defendants
have moved to dismiss the amended Complaint. The Company believes that the
claims are without merit and does not expect that the lawsuit will have a
material adverse effect on the financial condition or results of operations of
the Company.
On or about September 6, 1996, Casino America, Inc. commenced litigation in
the Chancery Court of Harrison County, Mississippi, Second Judicial District,
against the Company, and James Edward Ernst, its
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Chief Executive Officer (collectively "Defendants"), seeking injunctive relief
and unspecified compensatory damages in an amount to be proven at trial as well
as punitive damages. plaintiff claims, among other things, that Defendants (i)
breached the terms of an agreement they had with Plaintiff, (ii) tortiously
interfered with certain business relations of plaintiff; and (iii) breached
covenants of good faith and fair dealing they allegedly owed to plaintiff. On or
about October 8, 1996, Defendants interposed an answer to plaintiff's complaint
denying the allegations contained in the complaint. The discovery phase of this
litigation is continuing and a trial date has been set for August 1998. While
the Company's management cannot predict the outcome of this action, management
believes plaintiff's claims are without merit and the Company intends to
vigorously defend this action.
TERMINATED LEGAL PROCEEDINGS
In April 1994, the Company entered into an agreement with the
Sisseton-Wahpeton Sioux Tribe ("Tribe") to develop and manage a gaming casino on
tribal lands in northeastern South Dakota. The Company and Tribe subsequently
canceled the management agreement and entered into a consulting agreement, which
consulting agreement was terminated by the Tribe in January 1998. On October 20,
1994, International Gaming Network, Inc., commenced litigation against the
Company in the United States District Court for the District of South Dakota,
Southern Division alleging, among other claims, that the Company intentionally
and improperly interfered with plaintiff's existing and prospective contractual,
economic or business relationship with the Tribe. On October 7, 1996, the United
States District Court filed a Judgment of Dismissal, dismissing all of
Plaintiff's claims, pursuant to a Motion for Summary Judgment which had been
brought by the Company. The Plaintiff appealed the dismissal of its claims to
the United States Court of Appeals for the Eighth Circuit. On July 17, 1997 the
Appellate Court affirmed the District Court's dismissal of the claim.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the year ended December 31, 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded over-the-counter and has been quoted
on the NASDAQ National Market since October 23, 1992, under the symbol CMAG. The
following table sets forth for the periods indicated the high and low per share
bid prices for the Company's common stock as quoted on the NASDAQ National
Market. The information set forth below was obtained from the NASDAQ National
Market.
1996 HIGH LOW
---- ------ ------
Quarter 1............................................ $4.063 $2.750
Quarter 2............................................ $7.063 $3.875
Quarter 3............................................ $5.875 $3.625
Quarter 4............................................ $4.125 $2.156
1997
----
Quarter 1............................................ $3.000 $1.438
Quarter 2............................................ $1.875 $1.250
Quarter 3............................................ $2.438 $1.004
Quarter 4............................................ $2.375 $1.094
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The last sales price for the Company's common stock as quoted on the NASDAQ
National Market as of the close of business on March 25, 1998 was $2.09375 per
share. The over-the-counter quotations above reflect inter-dealer prices,
without retail markup, markdown or commissions, and may not represent actual
transactions. There were approximately 1,293 shareholders owning the Company's
common stock of record as of the close of business March 25, 1998.
The Company has not paid any cash dividends with respect to its common
stock, and does not anticipate doing so in the foreseeable future. The Company
intends to retain all earnings for the foreseeable future to fund the operation
and expansion of its business. The payment of any future dividends will be
determined by its Board of Directors in light of conditions then existing,
including the Company's earnings, financial condition and requirements,
restrictions in financing agreements, business conditions and other factors. The
indenture agreements covering both outstanding first mortgage notes in the
aggregate principal amount of $250,000,000 million, contain limitations on the
Company's ability to pay dividends.
ITEM 6. SELECTED FINANCIAL DATA
Presented below are the selected consolidated financial data of Casino
Magic and its subsidiaries for the five years ended December 31, 1997 which has
been derived from the audited consolidated financial statements of Casino Magic
and its subsidiaries. This data has not been examined by the Company's
independent auditors, Arthur Andersen LLP. The selected consolidated financial
data should be read in conjunction with the consolidated financial statements,
related notes and other financial information included elsewhere in this Annual
Report.
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1997(5) 1996(4) 1995(3) 1994(2) 1993(1)
-------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE DATA)
STATEMENTS OF OPERATIONS DATA
Revenue................................ $261,474 $180,278 $177,723 $185,018 $202,404
Costs and Expenses..................... 236,919 171,435 172,952 173,786 136,996
Income (loss) from Operations.......... 24,555 8,843 4,771 11,232 65,408
Other Expenses......................... 30,335 45,109 18,293 14,450 5,677
Net Income (loss)...................... (5,249) (31,589) (10,292) (3,030) 38,506
Net Income (loss) Per Share............ (0.15) (0.89) (0.31) (0.10) 1.32
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1997(5) 1996(4) 1995(3) 1994(2) 1993(1)
-------- -------- -------- -------- --------
(IN THOUSANDS)
BALANCE SHEET DATA
Working Capital (deficiency)........... $(11,290) $ (6,492) $ 15,910 $ 20,847 $ 50,021
Total Assets........................... 372,705 369,799 268,431 252,623 222,892
Current Liabilities (including
construction payables)............... 51,031 47,649 32,171 25,139 21,553
Long-term Debt, Net of Current
Maturities........................... 253,471 258,261 136,840 135,643 131,984
Shareholders' Equity................... 59,454 63,625 95,179 79,577 66,858
- ---------------
(1) Includes full years operations of Casino Magic-BSL, Casino Magic-South
Dakota and approximately seven months of operations of Casino Magic-Biloxi.
(2) Includes full years operations of Casino Magic-BSL and Casino Magic-Biloxi,
Casino Magic-South Dakota.
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(3) Includes full years operations of Casino Magic-BSL, Casino Magic-Biloxi and
Casino Magic-Neuquen, Casino Magic-South Dakota and seven and one half
months of operations for Casino Magic-Porto Carras, a 49% equity interest
of Casino Magic.
(4) Includes full years operations of Casino Magic-BSL, Casino Magic-Biloxi,
Casino Magic-Neuquen, 87 days of operations of Casino Magic-Bossier City,
six and one half months of operations of Casino Magic-South Dakota and nine
months of operations for Casino Magic-Porto Carras a 49% equity interest of
Casino Magic.
(5) Includes full years operations of Casino Magic-BSL, Casino Magic-Biloxi,
Casino Magic-Neuquen and Casino Magic-Bossier City,
ITEM 7. 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) the opening
of a hotel in 1998 at Casino Magic-Biloxi; (ii) construction of the pavilion
expansion and hotel at Casino Magic-Bossier City; and (iii) 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 opening of
the hotel at Casino Magic-Biloxi and the other planned construction projects at
Casino Magic-Bossier City, 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.
PROPOSED MERGER
On February 19, 1998, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Hollywood Park, Inc. ("Hollywood"), and
Acquisition II, Inc. ("HP") a wholly-owned subsidiary of Hollywood. Under the
Merger Agreement, the Company has agreed, subject to approval of the Company's
shareholders, to merge (the "Merger") with HP. Upon such Merger, the Company
shall be the surviving entity and will become a wholly-owned subsidiary of
Hollywood. Upon the Merger, the shareholders of the Company will be entitled to
receive $2.27 for each share of the Company's stock held.
The Merger is subject to the approval of the Company's shareholders prior
to October 31, 1998, and to the approval of the Mississippi Gaming Commission,
the Nevada Gaming Commission, and the Louisiana Gaming Control Board. The Merger
is also contingent upon other matters, including a requirement that neither the
Company nor Hollywood has materially breached any warranty, representation or
covenant contained in the Merger Agreement prior to the time of the Merger. If
the Merger Agreement is terminated for certain reasons, the Company will be
required to pay Hollywood $3,500,000.
The Merger Agreement restricts the ability of the Company to engage in
certain transactions prior to the time of the Merger, except those which are in
the ordinary course of business consistent with past practice, unless the
Company obtains the consent of Hollywood. The Merger Agreement also imposes
limits on the capital expenditures and borrowing which the Company may effect,
which are not inconsistent with the
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Company's current plans. (See Note 8 of the Financial Statements for Change in
Control provisions relating to the Company's bond issues).
GENERAL
The Company commenced operations on the Gulf Coast of Mississippi in
September 1992 at Casino Magic-BSL. In 1993 the Company opened Casino
Magic-Biloxi; in 1995 the Company opened a gaming facility in Porto Carras,
Greece, (in which the Company had a 49% equity ownership): in 1995 the Company
opened two gaming facilities in the Province of Neuquen Argentina; and in 1996
the Company opened Casino Magic-Bossier City. Since its organization in 1992,
the Company owned and operated a small hotel/casino in Deadwood, South Dakota
("Goldiggers"), which was immaterial to the Company's business. Because of poor
operating performance, in 1996 the Company sold its gaming facilities in
Deadwood, South Dakota, and its 49% ownership in the gaming facility in Porto
Carras, Greece. In addition, the Company terminated all management operating
agreements in Greece.
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 as of December 31, 1997. The principal operating entities are Casino
Magic-BSL and Casino Magic-Biloxi, both dockside casinos operating on the Gulf
Coast of Mississippi ("Casino Magic-Gulf Coast"), Casino Magic-Bossier City, a
dockside casino in Northwest Louisiana and Casino Magic-Neuquen, which commenced
gaming operations at its two casinos in Neuquen and San Martin de los Andes,
Argentina, on January 1, 1995. The revenues, costs and expenses of Porto Carras
are not included below, as Porto Carras was accounted for under the equity
method of accounting.
FISCAL YEAR ENDED DECEMBER 31,
------------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
REVENUES:
Casino Magic-BSL(1)......................................... $ 88,414 $ 83,924 $ 87,534
Casino Magic-Biloxi(2)...................................... 62,310 63,876 72,737
Casino Magic-Bossier City(3)................................ 93,205 12,738 --
Casino Magic-Neuquen(4)..................................... 17,545 15,885 13,084
Corporate and Other(5)...................................... -- 3,855 4,368
-------- -------- --------
TOTAL REVENUES:............................................. $261,474 $180,278 $177,723
COSTS AND EXPENSES:
Casino Magic-BSL(1)......................................... $ 71,927 $ 67,356 $ 71,356
Casino Magic-Biloxi(2)...................................... 58,096 56,983 59,882
Casino Magic-Bossier City(3)................................ 87,468 20,060 --
Casino Magic-Neuquen(4)..................................... 12,634 12,553 11,424
Corporate and Other(5)...................................... 6,794 14,483 30,290
-------- -------- --------
TOTAL COSTS AND EXPENSES:................................... $236,919 $171,435 $172,952
INCOME (LOSS) FROM OPERATIONS:
Casino Magic-BSL(1)......................................... $ 16,487 $ 16,568 $ 16,178
Casino Magic-Biloxi(2)...................................... 4,214 6,893 12,855
Casino Magic-Bossier City(3)................................ 5,737 (7,322) --
Casino Magic-Neuquen(4)..................................... 4,911 3,332 1,660
Corporate and Other(5)...................................... (6,794) (10,628) (25,922)
-------- -------- --------
TOTAL INCOME FROM OPERATIONS:............................... $ 24,555 $ 8,843 $ 4,771
======== ======== ========
- ---------------
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(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 October 4, 1996; opened permanent facility on December 31,
1996.
(4) Began operations January 1, 1995.
(5) Includes management fees and royalty fees from Porto Carras which began
operations May 18, 1995. Equity in earnings with respect to Porto Carras was
reported as non-operating income. The Company ceased recording management
fees and royalty fees from Porto Carras on October 1, 1996.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Consolidated revenues increased $81.2 million, or 45.0%, to $261.5 in 1997
compared to $180.3 in 1996. The increase in 1997 consolidated revenues is
attributable to $93.2 million in revenues from Casino Magic-Bossier City, which
opened on October 4, 1996. Casino Magic-Bossier City revenues increased by $80.5
million in 1997 as compared to 1996. Casino Magic-Biloxi revenues declined $1.6
million, or 2.5%, from 1996 to 1997. This decline is primarily the result of
competition from other casinos with greater amenities than Casino Magic-Biloxi.
While competitive pressures will likely continue to adversely effect Casino
Magic-Biloxi's revenues and operating margins, management believes that the
hotel currently in the final stages of construction at Casino Magic-
Biloxi will help offset or reverse these declines in revenues. The opening
of the hotel at Casino Magic-Biloxi is expected in the second quarter of 1998.
Additionally, Casino Magic-Biloxi may experience reduced revenues in 1998 due to
customer inconveniences particularly those related to the construction of the
hotel entrance areas. However, Management will continue to take precautions to
minimize the impact of the construction on the customer. Other fluctuations in
revenues when comparing the periods ended December 31, 1997 to December 31, 1996
include: the loss of $3.1 million in royalties and management fees from Greece
in 1997 due to the termination of operations in Greece in December 1996; a loss
of $0.8 million in revenues as of the result of the sale of Goldiggers in June
1996; increased $4.5 million at Casino Magic-BSL as the result of increased
direct mail efforts and improved amenities, which include a golf course and
expanded buffet; and an increase in revenues at Casino Magic-Neuquen of $1.7
million attributable to the addition of seventy-five slot machines during the
latter half of 1997 and the continued popularity of slot machines at Casino
Magic-Neuquen.
Total operating expenses increased $65.5 million, or 38.2% to $236.9
million in 1997 compared to $171.4 million in 1996. Of this amount, $67.4
million is related to Casino Magic-Bossier City, which opened in October 1996
and the closure of Goldiggers in June 1996, which decreased operating expenses,
by $1.2 million. Excluding the effects of Casino Magic-Bossier City and
Goldiggers, operating costs in 1997 decreased by $0.7 million, or 0.5%, as
compared to operating costs in 1996. Although total operating expenses remained
flat between the comparable periods for 1997 and 1996 there are significant
fluctuations in various categories. Casino expenses increased by $4.0 million in
1997 as compared to 1996 as a result of increased costs associated increases in
player's club slot point redemption values, the increased use of complimentaries
in marketing efforts and increased gaming taxes due to increased revenues. Other
operating costs and expenses increased $1.0 million as a result of the opening
of a golf course at Casino Magic-BSL in February 1997. Advertising and marketing
expense increased by $2.3 million due to increased motorcoach based marketing
efforts at Casino Magic-Biloxi and the associated commission and giveaways
expenses. The increases in advertising and marketing costs are the results of
attempts to stabilize revenues in Biloxi and offset the effects of disruption
caused by the hotel construction. General and administrative costs decreased by
$2.7 million and are a result of cost containment efforts and staff reductions.
The majority of this decrease, $2.3 million was at the corporate management
level. Development expenses decreased by $1.2 million as a result of decreased
efforts to pursue new gaming opportunities. Depreciation expenses decreased by
$1.9 due to the sale of various assets held by Casino Magic including a jet
airplane and slot machines that were previously leased in Argentina. It is
anticipated that depreciation expense will increase after the opening of the
hotel in Biloxi.
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Consolidated "Other (income) expense" (non-operating income and expenses)
improved by $14.8 million, to net expense of $30.3 million in 1997, compared to
a net expense of $45.1 million in 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 $13.5 million in 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 by Casino Magic of Louisiana,
Corp. ( a wholly-owned subsidiary of the Company ) in late August 1996, and a
reduction of $3.7 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 increased by $2.3 million in 1997 compared to the same
period in 1996 due to a gain on the sale of the Crescent City Riverboat and the
gain on the sale of a 49% interest in Casino Magic-Neuquen.
The Company's effective tax rates for 1997 and 1996 of approximately
(33.5%) and (12.9%), respectively, are the result of an allowance against
deferred tax assets. This allowance reduces net deferred tax assets to
approximately zero.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Consolidated revenues increased $2.6 million, or 1.4%, to $180.3 in 1996
compared to $177.7 in 1995. The increase in 1996 consolidated revenues is
attributable to $12.7 million in revenues from Casino Magic-Bossier City, which
opened using a temporary facility on October 4, 1996 and increased revenues from
Casino Magic-Neuquen of $2.8 million, or 21.4%. The majority of the increase in
revenues at Casino Magic-Neuquen is attributable to increased slot machine
revenues of $3.4 million. Slot machine revenues increased in 1996 compared to
the same period in 1995 due to an increase in the number of slot machines at
Casino Magic-Neuquen from 89 to 400 in May 1995. Additional increases resulted
from increased customer counts and their influence on food and beverage
revenues. These increases in revenues at Casino Magic-Neuquen were partially
offset by declining table games revenues. These increase in consolidated
revenues where offset by reduced revenues at Casino Magic-BSL, Casino
Magic-Biloxi and the loss of approximately six months revenues from the sale of
a gaming facility in Deadwood, South Dakota, which the Company sold in June
1996. Casino Magic-Biloxi revenues declined $8.9 million, or 12.2%, from 1995 to
1996. This decline is primarily the result of adjacent hotel/casino operations
on both sides of Casino Magic-Biloxi, which have significantly greater amenities
than Casino Magic-Biloxi. While competitive pressures will likely continue to
adversely effect Casino Magic-Biloxi's revenues and operating margins,
management believes that the hotel scheduled to open in 1998 at Casino
Magic-Biloxi will help offset or reverse these declines in revenues. Management
believes that combination of construction disruption caused by the development
of a new buffet and kitchen and increased overall competition in the Gulf Coast
and New Orleans markets, both of which Casino Magic-BSL competes in, contributed
significantly to the $3.6 million, or 4.1%, decline in revenues at Casino
Magic-BSL. The loss of $1.4 million in corporate and other revenues is due to
the June 1996 sale of a gaming facility located in Deadwood, South Dakota.
Although royalty and management fee revenues increased by $0.9 million, or
39.3%, to $3.1 million in 1996, the Company has divested itself of all
operations in Greece during 1996 where the majority of all royalties and
management fee revenues where generated.
Total operating costs and expenses were down $1.5 million, or 1.0%, in 1996
compared to 1995. Casino expenses increased $5.3 million, or 7.6%, during the
same period principally as a result of the Company opening a new gaming facility
in Bossier City, Louisiana, which had $7.1 million in casino expenses in 1996.
This increase in casino expenses relating to Casino Magic-Bossier City was
offset by reduced expenses at Casino Magic-Biloxi as a result of reduced
revenues, and the sale of the Company's gaming facility at Deadwood, South
Dakota in June 1996. Food and beverage costs increased $0.6 million, or 8.1%, as
a result of increased customer traffic at Casino Magic-Neuquen. Casino
Magic-Neuquen relies on its food and beverage facilities at the casino to
promote casino operations. Other operating costs and expenses increased $1.5
million, or 110.5%, to $2.8 million in 1996 compared to 1995. This increase is
the result of additions to amenities at Casino Magic-BSL, and the transfer of
the gift shop operations at Casino Magic-BSL and Casino Magic-Biloxi from a
third party to the Company. During 1996, Casino Magic-BSL added amenities
relating to the Arnold Palmer designed golf course, such as the pro shop, the
Arnold Palmer Golf Academy and the
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groundskeeping department. In addition, Casino Magic-BSL began operating a
child-care facility for casino patrons in 1996. Advertising and marketing
expenses decreased by $5.0 million, or 19.2%, in 1996 as compared to 1995. This
decrease in 1996 is the result of several factors: a reduction in the use of air
charters to attract customers; the use of more cost efficient promotions
concerning giveaways through the Magic Money Players Club Card; and an overall
reduction in marketing and advertising costs. This decrease was partially offset
by the opening of Casino Magic-Bossier City, in October 1996.
General and administrative expenses decreased $4.3 million, or 15.0%, in
1996 as compared to the same period of 1995. The decline is a result of cost
reduction measures implemented in early 1996, including the elimination of
several corporate officer positions. Property operation, maintenance and energy
costs increased $3.4 million, or 83.2%, in 1996 as compared to 1995 as the
result of the addition of Casino Magic-Bossier City, the continued aging of the
facilities at Casino Magic-BSL and Casino Magic-Biloxi which required more
maintenance costs in 1996, and the addition of the golf facility at Casino
Magic-BSL in 1996. Rents, property taxes and insurance costs increased by $1.7
million, or 38.9%, in 1996 as compared to 1995. The increase is in part a result
of the addition of Casino Magic-Bossier City. Depreciation and amortization
increased $2.6 million, or 16.3%, in 1996 as compared to the same period in
1995. This increase is due to the addition of tangible depreciable property, the
amortization of the investment costs in excess of equity interest in the 49%
owned Greek gaming facility which was amortized for 105 days in 1995 and for
nine months in 1996, and a change in 1996 in the method used to amortize the
Company's land option deposits over the life of the option. During 1996,
management wrote-off the excess of equity interest in the Greek gaming facility.
Furthermore, the addition of Casino Magic-Bossier City increased depreciation
expense, while the divesting of the Company's gaming facility in Deadwood, South
Dakota, decreased depreciation expense. Preopening costs increased by $4.7
million, or 260.0%, in 1996 from 1995. This is a result of the opening of Casino
Magic-Bossier City in October 1996. In 1995 the Company opened the Greek gaming
facility in which it had a 49% ownership.
Consolidated other (income) expense (non-operating income and expenses)
increased $26.8 million from a net expense of $18.3 million in 1995 to a net
expense of $45.1 million in 1996. Of this increase, $26.1 million, is due to the
Company's decision to write off its investment in a gaming facility in Porto
Carras, Greece, ("Porto Carras") where the Company had a 49% equity interest.
Management's decision was based on the results from the Company's Greek gaming
facilities after the opening of a competing casino. In September 1996, Hyatt
Corporation opened a new casino in the City of Thessaloniki, Porto Carras's
primary market. Although the Company anticipated some revenue loss as a result
of this increased competition, the actual effects were greater than anticipated
and resulted in a $2.0 million loss in operations at Porto Carras for the month
of September 1996. Despite new marketing and cost containment efforts, these
losses continued. Furthermore, the majority owner in the Porto Carras venture
was unwilling or unable to advance any funds to the operation, informed the
Company that it did not intend to operate a substantial portion of the Porto
Carras resort area, consisting of two hotels and amenities, during the 1997
season. These factors, among others, led to the Company's decision to write off
its investment in Porto Carras and led to the sale of Porto Carras in December
1996 for a nominal amount. Net interest expense (interest expense less
capitalized interest and interest income) increased $2.1 million from 1995 to
1996. The increase reflects the cost of funding the development of Casino
Magic-Bossier City. In August 1996, the Company, through a wholly owned
subsidiary, issued $115 million in first mortgage notes to fund Casino
Magic-Bossier City. In 1995, the Company expensed capitalized costs relating to
development joint ventures in the amount of $2.2 million. In 1996, no such
expense was incurred.
The Company's effective tax rate for 1996 of approximately (13.0%) is the
result of an allowance against deferred tax assets of approximately $8.2
million. This valuation allowance was recorded in recognition of the Company's
recent operating results. The effective tax rate for 1995 of (24.0%) is due to
significant permanent tax differences.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had unrestricted cash of $20.9 million
compared to unrestricted cash of $17.6 million at December 31, 1996. At December
31, 1997, the Company also had restricted cash and
23
28
marketable securities of $10.7 million all of which came from the sale of the
Crescent City Riverboat (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 year ended December 31, 1997, the Company
generated $23.8 million of cash flow from operating activities and received $6.4
million of proceeds from the issuance of debt. During 1997 the Company spent
$37.1 million for acquisitions of property, equipment and reduced debt by $12.1
million.
Of the $37.1 million spent, approximately $28.6 million was expended in
capital improvements at Casino Magic-Gulf Coast, and $7.2 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 expand the land based pavilion and construct a
188-room convention hotel, including restaurants, 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 Riverboat 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 Riverboat 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 near completion of a hotel at Casino Magic-Biloxi above the
eight-story parking garage adjacent to the casino. The hotel consists of
approximately 378 rooms, including 86 suites, and will include a health spa,
beauty salon, swimming pool and conference space. for the hotel is scheduled to
open in the second quarter 1998. The hotel construction costs have been funded
out of the cash flow of Casino Magic-BSL and Casino Magic-Biloxi, and the $7.0
million in proceeds from the sale of a 49% ownership interest in Casino
Magic-Neuquen. The Company has obtained debt financing of the 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 Corporation 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 1998 and beyond in order to continue its planned
development of its existing properties. The Company believes that cash and
marketable securities at December 31, 1997, and cash flows from operations will
be sufficient to service its operating and debt service requirements, through at
least the next twelve months, including the opening of the 378 room hotel and
the completion of other planned improvements at Casino Magic-Biloxi and the
construction of the Casino Magic-Bossier City hotel, but are not anticipated to
be sufficient to engage in any other development activities.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of Casino Magic and subsidiaries and
the notes thereto are attached to this Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
24
29
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The discussion under the section captioned "Proposal No. 1 -- ELECTION OF
DIRECTORS" to be included in the Registrant's definitive proxy statement to be
filed with the Securities and Exchange Commission ("SEC") and delivered to the
Registrant's shareholders pursuant to Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended ("Regulation 14A"), with respect to
the 1998 annual meeting of shareholders of the Registrant ("1998 Shareholders
Meeting") is incorporated by reference in response to this Item 10.
ITEM 11. EXECUTIVE COMPENSATION
The discussion under the section captioned "EXECUTIVE COMPENSATION" but
excluding the discussions contained in the subsections captioned "EXECUTIVE
COMPENSATION -- Compensation Committee Report on Executive Compensation" and
"EXECUTIVE COMPENSATION -- Performance Graph", to be included in the
Registrant's definitive proxy statement to be filed with the SEC and delivered
to the Registrant's shareholders pursuant to Regulation 14A with respect to the
1998 Shareholders Meeting is incorporated by reference in response to Item 11.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The discussion under the section captioned "PRINCIPAL SHAREHOLDERS" to be
included in the Registrant's definitive proxy statement to be filed with the SEC
and delivered to the Registrant's shareholders pursuant to Regulation 14A with
respect to the 1998 Shareholders Meeting is incorporated by reference in
response to Item 12.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The discussion under the section captioned "CERTAIN TRANSACTIONS" to be
included in the Registrant's definitive proxy statement to be filed with the SEC
and delivered to the Registrant's shareholders pursuant to Regulation 14A with
respect to the 1998 Shareholders Meeting is incorporated by reference in
response to Item 13.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A)1. FINANCIAL STATEMENTS OF CASINO MAGIC CORP. AND ITS SUBSIDIARIES
Independent Auditors' Report of Arthur Andersen LLP.
Consolidated Balance Sheets as of December 31, 1997 and 1996.
Consolidated Statements of Operations -- years ended December 31, 1997,
1996, and 1995.
Consolidated Statements of Shareholders' Equity -- years ended December 31,
1997, 1995, and 1995.
Consolidated Statements of Cash Flows -- years ended December 31, 1997,
1996, and 1995.
Notes to Consolidated Financial Statements
(A) 2. FINANCIAL STATEMENT SCHEDULES OF CASINO MAGIC CORP. AND ITS SUBSIDIARIES
All schedules are omitted because they are not applicable, or not required,
or the information is included in the Consolidated Financial Statements of
Casino Magic Corp. and its subsidiaries.
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were been filed during the fourth quarter of the
year ended December 31, 1997.
25
30
A report on Form 8-K was filed on March 4, 1998 relating to the proposed
merger with Hollywood Park Inc.
(C) EXHIBITS
3(i)(a)(1) Articles of Incorporation of Casino Magic Corp.
3(i)(b)(2) Articles of Amendment to Articles of Incorporation of Casino
Magic Corp.
3(ii)(a)(1) By-Laws of Casino Magic Corp. as amended.
3(ii)(b)(8) Amendment dated April 4, 1995 to the By-Laws of Casino Magic
Corp.
3(ii)(c)(11) Amendment dated August 11, 1995 to the By-Laws of Casino
Magic Corp.
4.1(4) Form of Certificate for Common Stock of Casino Magic Corp.
4.2(3) Form of 11.5% First Mortgage Note due 2001 Series B.
4.3(2) Indenture Dated October 14, 1993 among Casino Magic Finance
Corp., Casino Magic Corp., and IBJ Schroder Bank & Trust
Company (Without Exhibits).
4.4 Deleted
4.5 Deleted
4.6(5) Form of Warrant issued to Summit Investment Corporation and
related persons for the purchase of an aggregate of
1,110,000 shares of Common Stock.
4.7(5) Indenture dated as of May 13, 1996, $35,000,000 11 1/2%
Senior Secured Notes due 1999.
4.8(14) Form of Casino Magic of Louisiana Corp.'s ("Louisiana Corp")
13% First Mortgage Notes due 2003 with Contingent Interest
in the aggregate principal amount of $115,000,000.
4.9(14) Form of Guarantee issued on August 22, 1996 by Jefferson
Casino Corporation.
4.10(14) Indenture dated as of August 22, 1996 by and among Louisiana
Corp, First Union Bank of Connecticut, as Trustee, and the
Guarantors named therein, for Louisiana Corp.'s $115,000,000
of 13% First Mortgage Notes due 2003 with Contingent
Interest.
4.11(14) Registration Rights Agreement dated as of August 22, 1996 by
and among Louisiana Corp, the Guarantors named therein and
the Initial Purchasers named therein.
4.12(14) Cash Collateral and Disbursement Agreement dated August 22,
1996 by and among Louisiana Corp, First Union Bank of
Connecticut, as Trustee, and First National Bank of
Commerce, as disbursement agent.
4.13(14) Security Agreement dated as of August 12, 1996 by and
between First Union Bank of Connecticut, as Trustee, and
Louisiana Corp, as Guarantor.
4.14(14) Stock Pledge dated as of August 22, 1996 by and between
First Union Bank of Connecticut, as Trustee, and Jefferson
Casino Corporation, as Pledgor.
4.15(14) Security Agreements dated as of August 22, 1996 by and
between First Union Bank of Connecticut, as Trustee, and
Jefferson Casino Corporation.
4.16(14) First Preferred Ship Mortgages dated as of August 22, 1996
executed in favor of First Union Bank of Connecticut, as
Trustee, by Louisiana Corp.
4.17(14) First Preferred Ship Mortgages dated as of August 22, 1996
executed in favor of First Union Bank of Connecticut, as
Trustee, by Louisiana Corp.
4.18(14) Mortgage of Louisiana Corp. dated as of August 22, 1996
executed in favor of First Union Bank of Connecticut, as
Trustee.
4.19(14) Cash Collateral and Disbursement Agreement.
4.20(14) Form of Accounts Pledge Agreement.
4.21(14) Note Purchase Agreement dated August 16, 1996.
4.22(14) Collateral Assignment dated August 22, 1996.
10.1(1)* Employment Agreement dated June 1, 1992 between Marlin F.
Torguson and Casino Magic Corp., and Amendment No. 1 thereto
dated August 26, 1992.
10.2(7)* Amendment No. 2 dated August 26, 1994 to Employment
Agreement between Marlin F. Torguson and Casino Magic Corp.
10.3 Deleted
26
31
10.4 Deleted
10.5 Deleted
10.6(a)(1)* Incentive Stock Option Plan.
10.6(b)(2)* Amendment adopted on May 13, 1993 to Incentive Stock Option
Plan.
10.6(c)(2)* Amendment adopted on May 14, 1993 to Incentive Stock Option
Plan.
10.7(1) Lease Agreement dated April 4, 1992 between G & W
Enterprises, Inc. and Biloxi Casino Corp.
10.8 Deleted
10.11 Deleted
10.12(2) Public Trust Tidelands Lease dated May 27, 1993 between
Biloxi Casino Corp. and the State of Mississippi.
10.13(2) Lease Agreement dated November 23, 1992 between Gary
Gollott, Tommy Gollott and Tyrone Gollott, and Biloxi Casino
Corp.
10.14(2) Promissory Note dated October 14, 1993 in the principal sum
of $67,500,000 issued by Mardi Gras Casino Corp. in favor of
Casino Magic Finance Corp.
10.15(2) Promissory Note dated October 14, 1993 in the principal sum
of $67,500,000 issued by Biloxi Casino Corp. in favor of
Casino Magic Finance Corp.
10.16(2) Guaranty dated October 14, 1993 by Mardi Gras Casino Corp.
of Biloxi Casino Corp. Note.
10.17(2) Guaranty dated October 14, 1993 by Biloxi Casino Corp. of
Mardi Gras Casino Corp. Note.
10.18(2) First and Second Deeds of Trust dated October 14, 1993 by
Mardi Gras Casino Corp. in favor of Casino Magic Finance
Corp.
10.19(2) First and Second Deeds of Trust dated October 14, 1993 by
Biloxi Casino Corp. in favor of Casino Magic Finance Corp.
10.20(2) First and Second Leasehold Deeds of Trust dated October 14,
1993 for G&W Lease.
10.21(2) First and Second Leasehold Deeds of Trust dated October 14,
1993 for Gollott Lease.
10.22(2) First and Second Leasehold Deeds of Trust dated October 14,
1993 for State of Mississippi Lease.
10.23(2) Assignments of Deeds of Trust dated October 14, 1993.
10.24(2) Pledge and Security Agreement I & II dated October 14, 1993
of Mardi Gras Casino Corp.
10.25(2) Pledge and Security Agreement I & II dated October 14, 1993
of Biloxi Casino Corp.
10.26(2) Assignment and Pledge Agreement dated October 14, 1993 of
Casino Magic Finance Corp.
10.27 Deleted
10.28 Deleted
10.29 Deleted
10.30 Deleted
10.31 Deleted
10.32(4) Option Agreement dated March 2, 1994 between Anthony's
Hawthorne, Inc. and Boston Casino Corp.
10.33(4) Option Mortgage dated March 2, 1994 by Anthony's Hawthorne,
Inc. in favor of Boston Casino Corp.
10.34(4) Guaranty dated March 2, 1994 by Casino Magic Corp. in favor
of Anthony's Hawthorne, Inc.
10.35(4) Option Agreement dated July 2, 1993 between Atlantic Land
Corp. and Casino Magic Corp. to acquire real estate located
in Mobile, Alabama.
10.36(4) Option Agreement dated July 13, 1993 between Marshall J.
Demouy and Edward F. Murray, Jr., as Trustees and Casino
Magic Corp. to acquire real estate located in Mobile,
Alabama.
27
32
10.37(4) Option Agreement dated July 13, 1993 between Marshall J.
Demouy and Edward F. Murray, Jr., as Trustees and Casino
Magic Corp. to acquire real estate located in Mobile,
Alabama.
10.38(4) Option to Lease Real Estate dated December 11, 1993 between
Opportunity Options, Inc. and Casino Magic Corp. to lease
real estate located in Crawford County, Indiana.
10.39 Deleted
10.40 Deleted
10.41 Deleted
10.42 Deleted
10.43 Deleted
10.44(6)* Employment Agreement dated September 1, 1994 between Robert
A. Callaway and Casino Magic Corp.
10.45 Deleted
10.46 Deleted
10.47 Deleted
10.48 Deleted
10.49 Deleted
10.50(7) Concession Contract for the Management, Operation,
Maintenance and Related Services of the Gaming Houses of the
Provincial Casino in the Cities of Neuquen and San Martin De
Los Andes dated December 21, 1994 between the Province of
Neuquen and Casino Magic Neuquen, S.A. (English
translation).
10.51 Deleted
10.52(7) Option Agreement dated February 14, 1995 among Estate of
Janice Small, Ronald W. Brewer, executor, and Casino Magic
Corp. for real estate in Crawford County, Indiana.
10.53(7) Option Agreement dated January 11, 1994 between Terry Roser
and Eddie P. Roser (collectively) and Casino Magic Corp. for
real estate in Crawford County, Indiana.
10.54 Deleted
10.55 Deleted
10.56(7) Consulting Agreement between Casino Magic Corp. and National
Gaming Consultants, Inc. dated January 15, 1994.
10.57 Deleted
10.58 Deleted
10.59 Deleted
10.60 Deleted
10.61 Deleted
10.62 Deleted
10.63 Deleted
10.64(7) Option Agreement dated January 11, 1994 between Tower
Orchards, Inc. and Casino Magic Corp. for real estate in
Crawford County, Indiana.
10.65 Deleted
10.66 Deleted
10.67 Deleted
10.68 Deleted
10.69 Deleted
10.70 Deleted
10.71 Deleted
10.72 Deleted
10.73 Deleted
10.74 Deleted
10.75 Deleted
10.76 Deleted
28
33
10.77(9) Extension of Exclusive Option to Purchase dated June 26,
1995 between Atlantic Land Corp. and Casino Magic Corp. to
acquire real estate located in Mobile, Alabama.
10.78(9) Registration Agreement dated June 26, 1995 between Atlantic
Land Corp. and Casino Magic Corp.
10.79(9) Stock Option Agreement dated June 26, 1995 between Atlantic
Land Corp. and Casino Magic Corp.
10.80* Deleted
10.81(10)* Employment Agreement dated October 2, 1995 between the
Company and Jay S. Osman
10.82(10) Lease Agreement dated September 29, 1995 between the Company
and the State of Mississippi
10.83 Deleted
10.84 Deleted
10.85 Deleted
10.86 Deleted
10.87 Deleted
10.88 Deleted
10.89 Deleted
10.90 Deleted
10.91 Deleted
10.92(11* Employment Agreement between Casino Magic Corp. and James E.
Ernst dated December 20, 1995.
10.93 Deleted
10.94 Deleted
10.95(11) Purchase Agreement between Casino Magic Corp., Jefferson
Casino Corporation, C-M of Louisiana, Inc. and Capital
Gaming International, Inc. dated February 21, 1996.
[CRESCENT CITY].
10.96(11) Amendment to an option agreement between Boston Casino Corp.
and Anthony's Hawthorne, Inc. dated January 22, 1996.
10.97* Deleted
10.98(11) Non-Statutory Stock Option Agreement dated December 20, 1995
between James E. Ernst and Casino Magic Corp.
10.99 Deleted
10.100 Deleted
10.101 Deleted
10.102 Deleted
10.103(13) Loan Participation Agreement dated June 28, 1996 by and
between BNC National Bank and Casino Magic American Corp.
10.104(16)* Deleted
10.105 Deleted
10.106 Deleted
10.107(16) Agreement dated December 12, 1996 among Touristiki Georgiki
Exagogiki, S.A., Parral Compania Naviera, S.A., Casino Magic
(Europe) B.V., Casino Magic Hellas Management Services S.A.
and Casino Magic Corp. relating to the termination of Joint
Venture Agreement and the Management Agreement between the
parties.
10.108(16) Agreement dated December 12, 1996 among Touristiki Georgiki
Exagogiki, S.A., Parral Compania Naviera, S.A., Casino Magic
(Europe) B.V., Casino Magic Hellas Management Services S.A.,
Casino Magic Corp. and Murbec Inc. relating to the purchase
of Porto Carras Casino S.A.
10.109(16) Amendment to Operating Agreement of Kansas Gaming Partners,
L.L.C. dated January 22, 1997.
10.110(17) Purchase agreement for sale of Registrant's 49% interest in
Casino Magic Neuquen, S.A. to Crown Casino Corp.
29
34
10.111(17) Purchase agreement for sale of Crescent City Queen riverboat
to Hollywood Park, Inc. for $11.7 million.
10.112(18) Agreement and Plan of Merger dated February 19, 1997,
between Casino Magic Corp. Hollywood Park, Inc. and HP
Acquisition II, Inc.
10.113* Change in Control Severance Plan for Officers and Casino
Managers effective 1/23/98
10.114* Employment Agreement dated June 3, 1997 between Ken Schultz
and Casino Magic Corp.
23.1 Consent of Independent Public Accountants.
27. Financial Data Schedule (filed electronically only).
- ---------------
* Indicates management contracts and compensatory plans and arrangements.
(1) Incorporated by reference to the Registrant's Registration Statement (No.
33-51438) on Form S-1 dated August 28, 1992.
(2) Incorporated by reference to the Registrant's Registration Statement (No.
33-71572) on Form S-4 dated November 12, 1993.
(3) Incorporated by reference to Amendment No. 2 to the Registrant's
Registration Statement (No. 33-71572) on Form S-4 dated February 3, 1994.
(4) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993.
(5) Incorporated by reference to Amendment No. 3 to the Registrant's
Registration Statement (No. 33-51438) on Form S-1 dated October 21, 1992.
(6) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the period ended September 30, 1994.
(7) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the Fiscal Year ended December 31, 1994.
(8) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the period ended March 31, 1995.
(9) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the period ended June 30, 1995.
(10) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the period ended September 30, 1995.
(11) Incorporated by reference to Registrant's Annual Report on Form 10-K for
the period ended December 31, 1995.
(12) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for
the period ended March 31, 1996.
(13) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for
the period ended June 30, 1996.
(14) Incorporated by reference to Casino Magic of Louisiana Corp. Registration
Statement (No. 333-14535) on Form S-4 dated October 21, 1996.
(15) Incorporated by reference to the Registrant's Form 8-K filed May 28, 1996.
(16) Incorporated by reference to Registrant's Annual Report on Form 10-K for
the period ended December 31, 1996.
30
35
(17) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for
the period ended September 30, 1997
(18) Incorporated by reference to Registrant's Report on Form 8-K filed March 4,
1998
(D) FINANCIAL STATEMENTS REQUIRED BY REGULATION S-X WHICH ARE EXCLUDED FROM THE
ANNUAL REPORT TO SHAREHOLDERS.
None.
31
36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CASINO MAGIC CORP.
Dated: March 30, 1998
By: /s/ JAMES E. ERNST
--------------------------------------
James E. Ernst
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ MARLIN F. TORGUSON Chairman of the Board March 30, 1998
- ---------------------------------------------
Marlin F. Torguson
/s/ JAMES E. ERNST President and Chief March 30, 1998
- --------------------------------------------- Executive Officer
James E. Ernst (principal executive officer)
/s/ JAY S. OSMAN Chief Financial Officer and March 30, 1998
- --------------------------------------------- Treasurer (principal financial and
Jay S. Osman accounting officer)
/s/ ROGER H. FROMMELT Director March 30, 1998
- ---------------------------------------------
Roger H. Frommelt
/s/ E. THOMAS WELCH Director March 30, 1998
- ---------------------------------------------
E. Thomas Welch
32
37
CASINO MAGIC CORP. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Independent Public Accountants.................... F-2
Consolidated Statements of Operations....................... F-3
Consolidated Balance Sheets................................. F-4
Consolidated Statements of Shareholders' Equity............. F-5
Consolidated Statements of Cash Flows....................... F-7
Notes to Consolidated Financial Statements.................. F-9
F-1
38
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Casino Magic Corp.:
We have audited the accompanying consolidated balance sheets of Casino
Magic Corp. (a Minnesota corporation) and subsidiaries (the Company) as of
December 31, 1997 and 1996, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1997. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Casino Magic Corp. and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
February 27, 1998
F-2
39
CASINO MAGIC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
------------------------------------------
1997 1996 1995
------------ ------------ ------------
REVENUES:
Casino........................................... $246,320,048 $167,153,012 $165,997,836
Food, beverage and rooms......................... 10,784,762 8,080,067 8,392,529
Royalty and management fees...................... -- 3,099,407 2,224,351
Other operating revenues......................... 4,369,206 1,945,357 1,108,049
------------ ------------ ------------
261,474,016 180,277,843 177,722,765
------------ ------------ ------------
COSTS AND EXPENSES:
Casino........................................... 118,467,492 74,943,304 69,654,888
Food and beverage................................ 10,756,505 7,351,838 6,795,164
Rooms............................................ 639,778 1,039,081 1,224,685
Other operating costs and expenses............... 4,292,276 2,807,038 1,333,183
Advertising and marketing........................ 36,427,434 20,901,821 25,873,832
General and administrative....................... 26,425,200 24,216,613 28,501,308
Property operation, maintenance and energy
cost.......................................... 11,210,297 7,433,262 4,057,144
Rents, property taxes and insurance.............. 7,891,199 5,991,261 4,314,355
Depreciation and amortization.................... 20,246,663 18,346,202 15,768,546
Preopening expenses.............................. -- 6,554,535 1,818,715
Development expenses............................. 562,419 1,849,583 2,228,549
Write-off capitalized costs relating to inactive
developments.................................. -- -- 11,381,945
------------ ------------ ------------
236,919,263 171,434,538 172,952,314
------------ ------------ ------------
INCOME FROM OPERATIONS............................. 24,554,753 8,843,305 4,770,451
OTHER (INCOME) EXPENSE:
Interest expense................................. 34,723,613 25,071,767 17,436,904
Interest capitalized............................. (1,963,955) (5,717,494) (867,236)
Interest income.................................. (1,375,100) (1,436,468) (803,624)
Loss from unconsolidated subsidiaries............ 505,424 26,501,808 112,250
Write-off of capitalized costs primarily relating
to joint ventures............................. -- -- 2,210,219
Other............................................ (1,555,201) 689,221 204,981
------------ ------------ ------------
30,334,781 45,108,834 18,293,494
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY
INTEREST IN INCOME OF SUBSIDIARY................. (5,780,028) (36,265,529) (13,523,043)
INCOME TAX BENEFIT................................. (1,935,000) (4,676,182) (3,230,864)
MINORITY INTEREST.................................. 1,404,180 -- --
------------ ------------ ------------
NET LOSS........................................... $ (5,249,208) $(31,589,347) $(10,292,179)
============ ============ ============
NET LOSS PER COMMON SHARE:
Basic............................................ $ (0.15) $ (0.89) $ (0.31)
============ ============ ============
Diluted.......................................... $ (0.15) $ (0.89) $ (0.31)
============ ============ ============
AVERAGE SHARES AND EQUIVALENTS OUTSTANDING:
Basic............................................ 35,662,616 35,448,068 33,260,904
============ ============ ============
Diluted.......................................... 35,662,616 35,448,068 33,260,904
============ ============ ============
See notes to consolidated financial statements.
F-3
40
CASINO MAGIC CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
----------------------------
1997 1996
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 20,901,510 $ 17,561,512
Restricted Cash........................................... 85,000 16,984,654
Restricted Marketable Securities.......................... 10,629,405 --
Prepaid expenses.......................................... 3,330,041 2,844,995
Notes and accounts receivable, net........................ 3,781,945 2,889,486
Other current assets...................................... 1,012,886 873,676
------------ ------------
Total current assets.................................... 39,740,787 41,154,323
------------ ------------
PROPERTY AND EQUIPMENT, NET................................. 263,993,452 243,692,571
------------ ------------
OTHER LONG-TERM ASSETS:
Notes receivable.......................................... 3,385,198 4,119,700
Investments in unconsolidated subsidiaries................ 713,035 957,831
Options and land deposits................................. -- 2,282,244
Foreign casino concession agreement, net of accumulated
amortization of $2,846,685 in 1997 and $1,897,790 in
1996.................................................... 8,540,055 9,488,950
Deferred gaming license cost, net of accumulated
amortization of $2,013,838 in 1997 and $395,489 in
1996.................................................... 38,048,426 38,337,333
Property held for development............................. 525,000 3,040,357
Property held for sale.................................... 5,606,265 15,108,541
Debt issuance costs, net of accumulated amortization of
$4,289,382 in 1997 and $2,506,133 in 1996............... 8,957,645 10,195,688
Deposits and other........................................ 3,194,954 1,421,979
------------ ------------
Total other long-term assets............................ 68,970,578 84,952,623
------------ ------------
$372,704,817 $369,799,517
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes and contracts payable............................... $ 305,925 $ 4,708,603
Current maturities of long-term debt...................... 8,590,945 4,648,638
Accounts Payable.......................................... 9,323,949 7,945,068
Accrued Expenses.......................................... 11,522,887 11,320,101
Accrued Interest.......................................... 9,783,784 8,830,040
Accrued payroll and related benefits...................... 7,719,441 8,341,720
Accrued progressive gaming liabilities.................... 1,445,257 1,121,623
Other current liabilities................................. 2,338,909 731,018
------------ ------------
Total current liabilities............................... 51,031,097 47,646,811
------------ ------------
DEFERRED INCOME TAXES....................................... -- 266,761
------------ ------------
OTHER LONG-TERM LIABILITIES AND MINORITY INTEREST........... 8,748,212 --
------------ ------------
LONG-TERM DEBT, NET OF CURRENT MATURITIES................... 253,471,219 258,261,231
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $0.01 par, 50,000,000 shares, authorized
35,722,124 issued and outstanding in 1997 and 35,637,083
in 1996 issued and outstanding.......................... 357,221 356,371
Undesignated stock, 2,500,000 shares authorized, none
issued.................................................. -- --
Additional paid-in capital................................ 67,122,852 67,123,702
Retained earnings (deficit)............................... (7,762,270) (2,513,062)
Unrealized holding loss on securities..................... -- (850,156)
Less unearned compensation................................ (263,514) (492,141)
------------ ------------
Total shareholders' equity.............................. 59,454,289 63,624,714
------------ ------------
$372,704,817 $369,799,517
============ ============
See notes to consolidated financial statements.
F-4
41
CASINO MAGIC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
COMMON STOCK FOREIGN
---------------------- ADDITIONAL CURRENCY
SHARES AMOUNT PAID-IN CAPITAL ADJUSTMENT
---------- ------ --------------- ----------
BALANCE AT DECEMBER 31, 1994................... 29,961,750 $299,618 $41,127,168 --
Amortization of unearned compensation........ -- -- -- --
Write-off of unearned compensation........... -- -- (1,642,886) --
Stock options granted to executive
officers.................................. -- -- 101,563 --
Vested stock grants to executive officers.... 16,250 162 (162) --
Net proceeds from exercise of employee stock
options................................... 308,564 3,086 376,726 --
Net proceeds from common stock issued
pursuant to Reg. S........................ 1,771,000 17,710 8,303,095 --
Stock issued for consultants' compensation... 12,000 120 63,632 --
Stock issued for land........................ 3,210,000 32,100 17,758,277 --
Foreign currency translation................. -- -- -- (224,195)
Net loss..................................... -- -- -- --
---------- -------- ----------- --------
BALANCE AT DECEMBER 31, 1995................... 35,279,564 $352,796 $66,087,413 (224,195)
Amortization of unearned compensation........ -- -- -- --
Stock options granted to executive
officers.................................. -- -- 567,188 --
Net proceeds from exercise of warrants....... -- -- 500
Net proceeds from exercise of employee and
non-employee director stock options....... 357,519 3,575 453,654 --
Casino One Corp. acquisition................. -- -- 14,947 --
Unrealized Holding Loss on Securities
Available for Sale........................ -- -- -- --
Foreign currency translation adjustment...... -- -- -- 224,195
Net loss..................................... -- -- -- --
---------- -------- ----------- --------
BALANCE AT DECEMBER 31, 1996................... 35,637,083 $356,371 $67,123,702 --
Amortization of unearned compensation........
Vested stock grants to executive officers
Available for Sale........................ 85,041 850 (850)
Loss on Securities...........................
Net loss.....................................
---------- -------- ----------- --------
BALANCE AT DECEMBER 31, 1997................... 35,722,124 $357,221 $67,122,852 --
========== ======== =========== ========
See notes to consolidated financial statements.
F-5
42
CASINO MAGIC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (CONTINUED)
UNREALIZED
HOLDING LOSS RETAINED LESS
ON SECURITIES (DEFICIT) EARNED
AVAILABLE FOR SALE EARNINGS COMPENSATION TOTAL
------------------ ----------- ------------ ------------
BALANCE AT DECEMBER 31, 1994........... -- $39,368,464 $(1,218,751) $ 79,576,499
Amortization of unearned
compensation...................... -- -- 470,962 470,962
Write-off of unearned compensation... -- -- 735,819 (907,067)
Stock options granted to executive
officers.......................... -- -- (101,563) --
Vested stock grants to executive
officers.......................... -- -- -- --
Net proceeds from exercise of
employee stock options............ -- -- -- 379,812
Net proceeds from common stock issued
pursuant to Reg. S................ -- -- -- 8,320,805
Stock issued for consultants'
compensation...................... -- -- -- 63,752
Stock issued for land................ -- -- -- 17,790,377
Foreign currency translation......... -- -- -- (224,195)
Net loss............................. -- (10,292,179) -- (10,292,179)
---------- ----------- ----------- ------------
BALANCE AT DECEMBER 31, 1995........... -- $29,076,285 $ (113,533) $ 95,178,766
Amortization of unearned
compensation...................... -- -- 188,580 188,580
Stock options granted to executive
officers.......................... -- -- (567,188) --
Net proceeds from exercise of
warrants.......................... -- -- -- 500
Net proceeds from exercise of
employee and non-employee director
stock options..................... -- -- -- 457,229
Casino One Corp. acquisition......... -- -- -- 14,947
Unrealized Holding Loss on Securities
Available for Sale................ (850,156) -- -- (850,156)
Foreign currency translation
adjustment........................ -- -- -- 224,195
Net loss............................. (31,589,347) (31,589,347)
---------- ----------- ----------- ------------
BALANCE AT DECEMBER 31, 1996........... (850,156) $(2,513,062) $ (492,141) $ 63,624,714
Amortization of unearned
compensation...................... 228,627 228,627
Vested stock grants to executive
officers.......................... --
Loss on Securities................... --
Available for Sale................... 850,156 850,156
Net loss............................. (5,249,208) (5,249,208)
---------- ----------- ----------- ------------
BALANCE AT DECEMBER 31, 1997........... -- $(7,762,270) $ (263,514) $ 59,454,289
========== =========== =========== ============
See notes to consolidated financial statements.
F-6
43
CASINO MAGIC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
Cash flows from operating activities:
Net loss............................................ (5,249,208) (31,589,347) (10,292,179)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation..................................... 17,655,235 16,263,270 13,387,345
Amortization..................................... 2,591,428 2,082,932 2,381,201
Loss (gain) on disposal of property and
equipment...................................... (2,632,633) 339,056 466,712
Amortization of original issue discount and
deferred debt issuance costs................... 1,966,074 1,496,259 954,351
Amortization of unearned stock compensation, net
of recoveries.................................. 228,627 188,580 (436,105)
Consultants' compensation recognized on issuance
of stock....................................... -- -- 63,752
Gain on contract settlement...................... -- -- (855,000)
Write-off of preopening costs, development
project costs, land options and deposits &
property held for development.................. -- 7,054,532 12,104,212
Net loss on investment in unconsolidated
subsidiaries................................... 505,424 22,436,241 112,250
Minority interest................................ 1,404,180 -- --
Decrease in income tax receivable................ -- 4,225,047 1,899,459
(Increase) decrease in prepaid expenses.......... (507,361) 88,861 1,634,019
Decrease in notes and accounts receivable, net... 2,327,826 (147,705) (4,753,232)
Decrease in deferred income taxes -- current..... 3,157,856 2,923,171 (720,628)
Increase in other current assets................. (139,210) (277,793) (129,225)
Decrease in net deferred income tax
liability -- non current....................... (266,759) (4,173,197) (1,063,610)
Increase (decrease) in accounts payable.......... (2,251,299) 2,924,820 (389,241)
Increase (decrease) in accrued expenses.......... 3,595,066 (4,278,518) (2,026,436)
Increase in accrued interest..................... 888,886 3,487,883 208,449
Increase (decrease) in accrued payroll and
related benefits............................... (622,279) 1,255,364 2,236,447
Increase (decrease) in accrued progressive gaming
liabilities.................................... 323,634 55,376 (393,866)
Decrease in income taxes payable................. 805,716 (228,591) 959,609
----------- ----------- -----------
Net cash provided by operating activities...... 23,781,203 24,126,241 15,348,284
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of property and equipment........ 19,895,616 1,436,821 173,389
Acquisitions of property and equipment.............. (37,176,995) (67,850,010) (11,396,332)
Acquisitions of gaming license...................... -- (15,250,000) --
Acquisitions of property held for sale.............. (126,400) 40,437 --
Investments in unconsolidated subsidiaries.......... (260,628) (651,206) (6,117,636)
Expenditures for organizational and acquisition
cost............................................. -- (359) (80,788)
Expenditures for land options and deposits.......... -- (480,000) (1,326,130)
Expenditures for development and preopening costs... -- (6,554,535) (130,794)
(Increase) decrease in deposits and other long-term
assets........................................... (2,920,936) 2,530,873 (1,898,786)
(Increase) decrease in marketable securities........ (10,629,405) -- 10,244,233
----------- ----------- -----------
F-7
44
CASINO MAGIC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
Net cash provided by (used in) investing
activities.................................. (31,218,748) (86,777,979) (10,532,844)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of debt or notes payable..... 6,350,000 121,043,749 202,011
Payments of debt issuance costs..................... (349,955) (5,419,575) (2,000)
Principal payments on notes payable................. (4,606,480) (1,010,180) (1,185,342)
Principal payments on long-term debt................ (7,515,676) (48,644,469) (2,261,096)
Net proceeds from sale of common stock.............. -- 14,947 8,320,805
Net proceeds from exercise of employee stock
options.......................................... -- 457,734 379,812
----------- ----------- -----------
Net cash provided by (used in) financing
activities.................................. (6,122,111) 66,442,206 5,454,190
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents......................................... (13,559,656) 3,790,468 10,269,630
Cash and cash equivalents, beginning of period........ 34,546,166 30,755,698 20,486,068
----------- ----------- -----------
Cash and cash equivalents, including restricted cash,
end of period....................................... 20,986,510 34,546,166 30,755,698
=========== =========== ===========
Interest paid, net of amount capitalized.............. 29,551,551 12,379,128 15,406,868
Income taxes paid, net of refunds..................... (6,382,324) (7,604,043) (4,236,206)
Supplemental schedule of non-cash operating,
investing, and financing activities:
Other current assets.................................. 22,315 -- --
Other current liabilities............................. 302,758 -- --
Property and equipment and other asset acquisitions
financed with short-term notes payable.............. -- -- 850,208
Property and equipment and other asset acquisitions
included in accounts and construction payable and
accrued expenses.................................... 1,805,945 5,455,469 177,091
Gaming license acquisition financed with long-term
debt................................................ -- 21,617,612 --
Land acquired through the issuance of common stock.... -- -- 22,140,969
Property and equipment under capital leases........... 375,891 81,114 63,632
Property and equipment and property held for sale
financed with long-term debt........................ -- 30,728,879 --
Consulting services performed for common stock........ -- -- 63,752
Common stock granted to officers...................... -- 567,188 101,563
Commitment for land options........................... -- -- (156,725)
See notes to consolidated financial statements.
F-8
45
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND BASIS OF PRESENTATION:
Casino Magic Corp. and Subsidiaries is an international gaming company with
operations in Bay Saint Louis, Mississippi ("Casino Magic-BSL"), Biloxi,
Mississippi ("Casino Magic-Biloxi"), Bossier City, Louisiana ("Casino
Magic-Bossier City"), and the Argentina Province of Neuquen in the cities of
Neuqu n City and San Mart n de los Andes ("Casino Magic-Neuquen").
Unless the context requires otherwise, reference in this Annual Report to
the "Company" means Casino Magic Corp. and its relevant subsidiaries, and
reference to "Casino Magic" means Casino Magic Corp.
The consolidated financial statements include the accounts of Casino Magic
Corp. and its wholly-owned and majority-owned subsidiaries.
All significant intercompany accounts and transactions have been
eliminated.
CASINO REVENUES AND COMPLIMENTARIES:
In accordance with common industry practice, casino revenues are the net of
gaming wins less losses. Revenues exclude the retail value of complimentary
rooms, food and beverage furnished gratuitously to customers. The estimated
departmental costs of providing rooms is not significant, and the estimated
departmental costs of providing food and beverage services are included in
casino expense as follows:
YEARS ENDED DECEMBER 31,
- -------------------------------------
1997 1996 1995
- ----------- ----------- -----------
$21,846,000 $13,838,000 $12,072,000
=========== =========== ===========
CASH AND CASH EQUIVALENTS:
For purposes of the consolidated balance sheets and statements of cash
flows, the Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
MARKETABLE SECURITIES:
The Company holds U.S. agency securities as held to maturity and as such,
the investments are recorded at amortized costs, which, based on the short term
nature of the investments approximates fair value.
RESTRICTED FUNDS:
The Louisiana First Mortgage Notes (See Note 8), restrict the use of
certain cash amounts. At December 31, 1997, funds relating to the net proceeds
from the sale of the Crescent City Queen Riverboat ($11.7 million) are
restricted to be used for capital improvements at Casino Magic-Bossier City. The
balances that remain in these restricted accounts at December 31, 1997 are shown
as restricted marketable securities. At December 31, 1996, funds shown as
restricted cash relate to proceeds from the issuance of the Louisiana First
Mortgage Notes and were restricted for use in the original construction of the
land based pavilion and facilities at Casino Magic-Bossier City.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost. Depreciation, including
amortization of capital leases and leasehold improvements, is computed using the
straight-line method. Estimated useful lives for property and
F-9
46
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
equipment are 15-31 years for barges and buildings, life of the lease for
leasehold improvements and 5-7 years for furniture and equipment.
Normal repairs and maintenance are charged to expense when incurred.
Expenditures which materially extend the useful life of capital assets are
capitalized.
In June 1997, the Company changed the depreciable lives on the asset
categories, land improvements, buildings and improvements, and barges and
improvements from originally estimated useful lives of 10 or 15 years to 31
years. The useful lives for these assets originally reflected their tax lives
and have been changed to anticipated useful lives. These changes reduced the
December 31, 1997, net loss by $859,796 and the loss share by $0.02. Excluding
the change in depreciable lives net loss and earnings per share would have been
$(6,109,004) and $(0.17), respectively.
INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES:
Investments in unconsolidated subsidiaries where the Company exercises
significant influence are accounted for under the equity method.
OPTIONS AND LAND DEPOSITS:
The costs of land options are amortized over the life of the option until
such time as the option is exercised or considered impaired by Management. As of
December 31, 1997, all land options were fully reserved.
AMORTIZATION OF INTANGIBLES:
Deferred charges relating to debt issuance costs and original issue
discounts on long-term debt instruments are amortized over the life of the
related debt using the effective interest rate method to provide a constant
yield.
Included under other long term assets is "Deferred gaming license cost."
Deferred gaming license cost represents the estimated fair value of the
Louisiana gaming license, an asset acquired in conjunction with the purchase of
Crescent City Development Corporation ("Crescent City" see Note 5). This cost is
being amortized on a straight-line basis over twenty-five years, the estimated
period to be benefited by the license which commenced at the time gaming
operations began in Bossier City.
The costs capitalized to acquire the foreign casino concession agreement
are being amortized on a straight-line basis over the twelve-year life of the
agreement.
DEVELOPMENT AND PREOPENING COSTS:
All internal salary and related costs of the Company's development
activities are expensed as incurred. Amounts paid for outside consultants and
professional fees are expensed until gaming has been legalized in the
jurisdiction, the Company has an approved site and there is a reasonable
likelihood that the Company will be granted a gaming license. Preopening costs
are capitalized then expensed when the related business commences operations.
INCOME TAXES:
Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
F-10
47
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
basis. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.
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 ("EPS"). 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. Under FAS 128, the Company
computes two earnings per share amounts -- basic EPS and EPS assuming dilution.
Basic Weighted average number of shares of common stock outstanding for the
1997, 1996 and 1995 periods were 35,662,616, 35,448,068 and 33,260,904
respectively. EPS assuming dilution is based on the weighted average number of
shares of common stock outstanding for the periods, including common equivalent
shares which reflect the dilutive effect of stock options granted to certain
employees and outside directors on various dates through December 31, 1997.
Dilutive options that are issued during a period or that expire or are cancelled
during a period are reflected in EPS assuming dilution computations for the time
they were outstanding during the periods being reported. There were no common
equivalent shares for 1997, 1996 and 1995. For the years ended December 31,
1997, 1996 and 1995, the Company had 2,943,535, 2,320,292, and 2,2107,642
options which were considered antidilutive as a result of the exercise price of
the options exceeding the average price for the period, or that the Company had
a net loss for the period and therefore are not included in the calculation of
common
CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES:
GAMING REGULATION LICENSING. The Company has gaming operations in the
United States and abroad that depend on the continued licensability or
qualification of the Company and subsidiaries that hold gaming licenses in
various jurisdictions. Such licensing and qualifications are reviewed
periodically by the gaming authorities in those jurisdictions.
COMPETITION. The gaming industry is extremely competitive and the Company
faces competition from new developments in both the United States, specifically
on the Mississippi Gulf Coast and in Louisiana, and abroad.
FOREIGN OPERATIONS. The Company has investments and net assets of
approximately $9 million in gaming operations outside of the United States which
are subject to risks associated with the distance of these casino facilities
from the Company's executive offices, the stability of the relevant government,
regulations imposed by foreign governments, the continued ability to repatriate
cash, and currency exchange issues.
SEVERE WEATHER. The Mississippi Gulf Coast is subject to severe weather,
including hurricanes. Severe weather could cause damage to one or both of the
Company's Mississippi casino facilities. The Company maintains insurance against
casualty losses resulting from severe weather and against business interruption.
Such insurance may not adequately compensate the Company for loss of profits
resulting from severe weather.
CONSTRUCTION. Risk include 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.
PERVASIVENESS OF ESTIMATES. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the
F-11
48
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS:
Certain reclassifications have been made to the 1996 and 1995 amounts to
conform with the December 31, 1997 presentation.
2. PROPOSED MERGER:
On February 19, 1998, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Hollywood Park, Inc. ("Hollywood"), and
Acquisition II, Inc. ("HP") a wholly-owned subsidiary of Hollywood. Under the
Merger Agreement, the Company has agreed to merge (the "Merger") with HP. Upon
such Merger, the Company shall be the surviving entity and will become a
wholly-owned subsidiary of Hollywood. Upon the Merger, the shareholders of the
Company will be entitled to receive $2.27 for each share of the Company's stock
held.
The Merger is subject to the approval of the Company's shareholders prior
to October 31, 1998, and to the approval of the Mississippi Gaming Commission,
the Nevada Gaming Commission, and the Louisiana Gaming Control Board. If the
Merger Agreement is terminated for certain reasons, the Company will be required
to pay Hollywood $3,500,000.
The Merger Agreement restricts the ability of the Company to engage in
certain transactions prior to the time of the Merger, except those which are in
the ordinary course of business consistent with past practice, unless the
Company obtains the consent of Hollywood, which consent may not be unreasonably
withheld. The Merger Agreement also imposes limits on the capital expenditures
and borrowing which the Company may effect, which are not inconsistent with the
Company's current plans.
3. NOTES AND ACCOUNTS RECEIVABLE:
Notes and accounts receivable consist of the following:
DECEMBER 31,
-----------------------------
1997 1996
---------- ----------
Current:
- ---------------------------------------------------
Notes receivable................................... $ 885,995 $ 790,228
Accounts receivable -- air charter................. 156,818 548,239
Accounts receivable -- trade....................... 3,601,778 2,505,463
Other.............................................. 581,376 606,631
---------- ----------
5,225,967 4,450,561
Less allowance for doubtful accounts............... 1,444,022 1,561,075
---------- ----------
Total Notes and Accounts Receivable (current)...... 3,781,945 2,889,486
Noncurrent:
- ---------------------------------------------------
Notes receivable................................... 3,385,198 4,119,700
---------- ----------
Total Notes and Accounts Receivable................ $7,167,143 $7,009,186
========== ==========
Included in notes receivable is a commercial loan in which the Company,
through a wholly-owned subsidiary, participated in the initial amount of $5
million. The entire loan amount is $17,500,000. A
F-12
49
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. NOTES AND ACCOUNTS RECEIVABLE: (CONTINUED)
consortium of lenders made the loan to the Sisseton-Wahpeton Dakota Nation, a
Native American Tribe, for the construction of a casino facility on Tribal land.
The term loan is repayable over a sixty-month period beginning February 1997, in
monthly installments of $105,230 including principal and interest at a fixed
rate of 10% through February 2002.
4. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
DECEMBER 31,
-------------------------------
1997 1996
------------ ------------
Land and improvements........................... $ 85,020,923 $ 67,658,624
Buildings and improvements...................... 69,193,225 44,554,665
Barges and improvements......................... 57,568,009 55,203,063
Leasehold improvements.......................... 300,801 382,907
Furniture and equipment......................... 75,876,943 69,663,192
Construction in progress........................ 33,843,154 48,549,525
------------ ------------
321,803,055 286,011,976
Less accumulated depreciation and
amortization.................................. (57,809,603) (42,319,405)
------------ ------------
$263,993,452 $243,692,571
============ ============
5. STOCK ACQUISITIONS:
In May 1996, Casino Magic, through its wholly-owned subsidiary, Jefferson
Casino Corporation ("Jefferson Corp") acquired Crescent City Capital Development
Corp. ("Crescent City") for $50 million plus the assumption of $5.7 million in
equipment liabilities. Jefferson Corp paid $15 million in cash at closing and
caused Crescent City to issue $35 million of 11.5% secured, three year notes.
Crescent City, which was the subject of a plan of reorganization under Chapter
11 of the U.S. Bankruptcy Code, owned the Crescent City Queen riverboat
("Crescent City Riverboat"), gaming and related equipment and surveillance
equipment and a license to conduct riverboat gaming operations in Louisiana.
Crescent City emerged from the Bankruptcy proceedings as Casino Magic of
Louisiana Corp. ("Casino Magic-Bossier City"). The Company is using Casino
Magic-Bossier City's gaming license in Bossier City, Louisiana, where it
currently owns 23 acres of land. Although Jefferson Corp. was required to
purchase the Crescent City Riverboat to obtain the Louisiana gaming license, the
Crescent City Riverboat could not be used at Casino Magic-Bossier City because
of its width. Therefore, the Company purchased a casino riverboat (the "Bossier
Riverboat") for use at Casino Magic-Bossier City for $20 million. The Crescent
City Riverboat, was sold and the proceeds will be used to assist in the funding
of the pavilion expansion and construction of a hotel at Casino Magic-Bossier
City.
No assurances can be given that the proceeds from the sale of the Crescent
City Riverboat and the cash flow from the operations of Casino Magic-Bossier
City will be sufficient to complete such hotel and related facilities.
6. DISPOSITIONS:
In September 1997, the Company sold the Crescent City Riverboat for $11.7
million. Other income for the period ended December 31, 1997, includes the 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.
F-13
50
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. DISPOSITIONS: (CONTINUED)
The Indenture restriction requires the proceeds from the sale of the Crescent
City Riverboat to be used for capital improvements at the Casino Magic-Bossier
City facility or returned to the Indenture trustee.
On June 1, 1997, the Company sold a 49% interest in its wholly-owned
subsidiary, Casino Magic Neuquen S.A., for $7.0 million. The Company retained a
controlling interest in Casino Magic-Neuquen and manages its two facilities
located in Neuquen City and San Martin de Los Andes, Argentina for a fee equal
to two percent of Casino Magic-Neuquen's gross monthly revenues. The gain of
$1.3 million is recorded in other income.
At September 30, 1996, management determined that its 49% equity investment
in Porto Carras Casino S.A., and notes and accounts receivable relating to
unpaid management fees and royalties were impaired. Because of this impairment,
management wrote off its investment in such gaming facilities in Porto Carras,
Greece, ("Porto Carras") and all unpaid notes and receivables related thereto.
The total charge recorded relating to the write off of Porto Carras was $26.1
million. Management's decision was based, primarily, on the results from Porto
Carras after the opening of a competing casino. Although the Company anticipated
some revenue loss as a result of this increased competition, the actual effects
were much greater than anticipated and resulted in a $2.0 million loss from
operations at Porto Carras for the month of September 1996. Despite new
marketing and cost containment efforts, these losses continued; furthermore, the
majority owner in Porto Carras venture was unwilling or unable to advance any
funds to the operation. Additionally, the majority owner informed the Company
that it did not intend to operate a substantial portion of the Porto Carras
resort area, consisting of two hotels and amenities, during the 1997 season.
These factors, among others, led to the Company's decision to write off its
investment in Porto Carras and led to the sale of Porto Carras, for a nominal
amount in December 1996.
7. NOTES AND CONTRACTS PAYABLE:
Short-term notes and contracts payable consist of the following:
DECEMBER 31,
---------------------
1997 1996
-------- ----------
Construction contracts(a)................................... $ 382 $4,540,434
Other(b).................................................... 305,543 168,169
-------- ----------
$305,925 $4,708,603
======== ==========
- ---------------
(a) Consists of various payables relating to both fixed and cost plus contracts.
(b) In 1997, the balance consisted of five notes payable. The detail of these
notes is as follows: (i) $199,763 equipment, payable in monthly installments
of $15,814. (ii) $164,989 note collateralized by equipment, payable in
monthly installments of $14,892. (iii) three notes totaling $12,000
collateralized by equipment, payable in total monthly installments of $500.
F-14
51
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. LONG -TERM DEBT:
Long-term debt, including capital lease obligations, consists of the
following:
DECEMBER 31,
---------------------------
1997 1996
------------ ------------
Notes payable, bank(a)...................................... $ 8,170,063 $ 9,585,130
Equipment contracts(b)...................................... 2,099,465 622,274
Notes payable, land(c)...................................... 2,052,569 3,470,415
Other(d).................................................... 920,422 308,514
Capital lease obligations (Note 9).......................... 726,018 1,207,986
Louisiana First Mortgage Notes(e)........................... 115,000,000 115,000,000
First Mortgage Notes(f)..................................... 135,000,000 135,000,000
Unamortized original issue discount......................... (1,906,373) (2,284,450)
------------ ------------
262,062,164 262,909,869
Less current maturities..................................... (8,590,945) (4,648,638)
------------ ------------
$253,471,219 $258,261,231
============ ============
- ---------------
(a) Consists of four notes payable to banks. The detail of these notes is as
follows: (i) Original balance of $3,000,000 uncollateralized promissory
note, payable in monthly installments of interest only through July 1996;
thereafter, principal and interest based on a 60 month amortization through
February 2000. The promissory note bears interest at prime plus 1% (9.5% at
December 31, 1997) throughout the life of the note with a final balloon
payment of $305,243 due in February 2000. (ii) Original balance of
$1,700,000 note collateralized by gaming equipment. Payments of principal
and interest based on a 36 month amortization through May 1998. The note
bears interest at prime plus .25%. (8.75% at December 31, 1997) with a final
balloon payment of $1,065,807 due in May 1998. (iii) Original balance of
$3,850,000 note collateralized by the equipment. The note is payable in 10
quarterly payments of $385,000, including interest at 8.25%. (iv) Original
balance of $2,500,000 uncollateralized line of credit due in March 1998
bearing interest at prime plus 1/4% (8.75% at December 31, 1997). In March
1998 this note was refinanced to a term loan payable in eighteen monthly
installments of $142,760 bearing interest at 8.75%.
During 1997 the Company was not in compliance with certain debt covenants
relating to notes (iii) and (iv). The Company has received a waiver of the
covenants at December 31, 1997, and has restructured these covenants to
allow the Company to maintain compliance.
(b) Consists of two notes payable collateralized by equipment. The detail of
these notes is as follows: (i) Original balance of $946,005 note payable in
eleven monthly payments of $78,833, including interest at prime plus 3%.
(11.5% at December 31, 1997) with final balloon payment due at term of note.
(ii) Original balance of $1,075,740 note collateralized by equipment,
payable in twenty-three monthly payments of $44,823, including interest at
prime plus 1%. (9.50% at December 31, 1997) with final balloon payment due
at term of note. In March 1998 these notes were refinanced to a term loan
payable in twenty-three monthly installments of $93,465 bearing interest at
10.5% with a final balloon payment of $101,319 due in March 2000.
(c) Consists of three notes payable for land acquisitions. The detail of the
three notes is as follows: (i) Original balance of $700,000 note payable in
monthly installments of $14,959 including interest at prime plus 2% (10.50%
at December 31, 1997), through April 1999. (ii) Original balance of $870,942
note payable in monthly installments of $12,134 including interest at 8%
through July 2003. (iii) Original balance of $3,000,000 note payable in
monthly installments of $111,699 including interest at 8.75% through
November 1998.
F-15
52
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. LONG -TERM DEBT: (CONTINUED)
(d) Consists of various collateralized notes payable through the year 2004. The
interest rates on these notes vary from 9.5% to 13.25% at fixed rates.
(e) On August 22, 1996, a wholly owned subsidiary of the Company, Casino
Magic-Bossier City, sold $115,000,000 aggregate principal amount of 13%,
First Mortgage Notes securities due in 2003 ("Louisiana First Mortgage
Notes"). Contingent Interest is payable on the Louisiana First Mortgage
Notes, on each interest payment date, in an aggregate amount equal to 5% of
Casino Magic-Bossier City's Adjusted Consolidated Cash Flow (as defined in
the Louisiana First Mortgage Notes Indenture ("Louisiana Indenture") for the
Accrual Period (as defined in the Louisiana Indenture, but generally a six
month period) last completed prior to such interest payment date; provided
that no Contingent Interest is payable with respect to any period prior to
the Commencement Date (as defined in the Louisiana Indenture). Payment of
all or a portion of any installment of Contingent Interest may be deferred,
at the option of Casino Magic-Bossier City, if, and only to the extent that,
(i) the payment of such portion of Contingent Interest will cause Casino
Magic-Bossier City's Adjusted Fixed Charge Coverage Ratio (as defined in the
Louisiana Indenture) for Casino Magic-Bossier City's most recently completed
Reference Period prior to such interest payment date to be less than 1.5 to
1.0 on a pro forma basis after giving effect to the assumed payment of such
Contingent Interest and (ii) the principal amount of the Louisiana First
Mortgage Notes corresponding to such Contingent Interest has not then
matured and become due and payable (at stated maturity, upon acceleration,
upon redemption, upon maturity of a repurchase obligation or otherwise). The
aggregate amount of Contingent Interest payable in any Semiannual Period
will be reduced pro rata for reductions in the outstanding principal amount
of notes prior to the close of business on the record date immediately
preceding such payment of Contingent Interest. During 1997, the Company
accrued $677,251 of contingent interest, none of which was paid.
The Louisiana First Mortgage Notes are secured by a first priority security
interest, subject to permitted liens, in substantially all of the existing and
future assets of Bossier City, including the Bossier Riverboat and substantially
all of the other assets that comprise Casino Magic-Bossier City. The Jefferson
Guarantee will be secured by a pledge of all of the capital stock of Jefferson
Casino Corp., a wholly owned subsidiary of the Company.
Casino Magic-Bossier City has contractually committed to apply net proceeds
from the asset sale of the Crescent City Riverboat to the construction of an
entertainment facility or hotel.
The Louisiana First Mortgage Notes are governed by the Louisiana Indenture.
The Louisiana Indenture pursuant to which the Louisiana First Mortgage Notes
have been issued contains certain covenants that will limit the ability of
Casino Magic-Bossier City and its subsidiaries to, among other things, incur
additional indebtedness and issue preferred stock, pay dividends, make
investments or make other restricted payments, incur liens, enter into mergers
or consolidations, enter into transactions with affiliates or sell assets.
The proposed merger is a Change of Control, each holder of Louisiana First
Mortgage Notes will have the right to require the Company to repurchase all or
any part (equal to $1,000 or an integral multiple thereof) at an offer price in
cash equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest, if any, thereon to the date of repurchase. Within 30 days
following any Change of Control, the Company will mail a notice to each Holder
describing the transaction or transactions that constitute the Change of Control
and offering to repurchase the First Mortgage Notes pursuant to the procedures
required by the Indenture and described in such notice. The Company will comply
with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
F-16
53
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. LONG -TERM DEBT: (CONTINUED)
regulations are applicable in connection with the repurchase of the First
Mortgage Notes. The Louisiana First Mortgage Notes are redeemable at the option
of the Company. The redemption amounts are as follows:
August 15,
2000........................................................ 106.500%
2001........................................................ 104.332%
2002........................................................ 102.166%
(f) On October 14, 1993, a wholly owned indirect subsidiary of the Company,
Casino Magic Finance Corp. ("Finance Corp."), sold $135,000,000 in aggregate
principal amount of 11 1/2% First Mortgage Notes due in 2001 (the "Finance
Notes") and warrants to purchase 810,000 shares of Casino Magic Corp. common
stock. Proceeds from the Notes were allocated by the underwriter between the
Finance Corp. and the Company based on the estimated fair market value at the
time of issuance of the Finance Notes and the warrants in the amounts of
$131,760,000 and $3,240,000 ($4 per warrant), respectively. The value of the
warrants is treated as original issue discount for financial statement purposes,
and is reflected in the balance sheet net of amortization as an adjustment to
the carrying value of long-term debt. The Finance Notes are governed by an
Indenture (the "Indenture") entered into on the same date between Finance Corp.,
the Company and IBJ Schroder Bank & Trust Company as the Trustee. Under Section
4.10 of the Indenture, the Company's ability to pay dividends on its common
stock is restricted to an amount which is determined under a formula based
primarily on the Company's future income, and is precluded upon the occurrence
of an "Event of Default" as defined under the Indenture. Events of Default
include, among other things, the failure to pay the interest or principal due on
the Finance Notes, the entry of a judgment in excess of $10,000,000 against the
Company or Casino Magic-BSL, Casino Magic-Biloxi and Finance Corp., which is not
discharged within 60 days after entry, and the default by the Casino Magic or
Casino Magic-BSL, Casino Magic-Biloxi and Finance Corp. under indebtedness due
to third parties. The Indenture also contains certain covenants that restrict,
among other things, the making of certain investments, payments of dividends and
other distributions, the incurrence of additional indebtedness and future
guarantees of indebtedness, certain transactions with shareholders and
affiliates, certain mergers and consolidations, certain asset sales and the
creation of certain liens. The Finance Notes are secured by a pledge of the
stock of Finance Corp., Bay Saint Louis and Biloxi along with the accounts
receivable, inventories, property and equipment, property held for development
and deposits of Casino Magic-BSL and Casino Magic-Biloxi.
The Finance Notes are redeemable at the option of the Company. The
redemption amounts are as follows:
October 15,
1997........................................................ 105.750%
1998........................................................ 103.833%
1999........................................................ 101.917%
2000 and thereafter......................................... 100.000%
F-17
54
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. LONG -TERM DEBT: (CONTINUED)
Maturities of the Company's long-term debt, including capital lease obligations,
as of December 31, 1997, are as follows:
YEAR ENDING DECEMBER 31,
------------------------
1998............................... $ 8,590,945
1999............................... 3,503,955
2000............................... 1,017,061
2001............................... 250,963
2002............................... 135,273,782
Thereafter......................... 115,331,829
------------
263,968,535
Unamortized Original Issue
Discount......................... (1,906,371)
------------
$262,062,164
============
9. LEASE COMMITMENTS:
The Company has long-term lease agreements for land for the site of Casino
Magic-Biloxi and additional land at Casino Magic-BSL. The Casino Magic-Biloxi
land is classified as an operating lease. The annual rental payments for the
initial five-year term of the Casino Magic-Biloxi land lease began June 5, 1993,
and are $550,000, $250,000, $450,000, $450,000 and $200,000 for the first
through fifth year. The land lease contains seventeen, five-year renewal options
at contractually higher rentals, plus inflation adjustments not to exceed 4.5%
per year.
On June 4, 1993, the Company entered into a long-term agreement with the
State of Mississippi to lease 283,217 square feet of submerged lands or
tidelands for Casino Magic-Biloxi. The initial lease term expires May 31, 2003,
with one five year extension. Annual rental payments are due in advance on the
first of June in the amount of $595,000, plus an annual increase of $45,000 for
the first five years. In May 1998 the lease amount will be determined under
Mississippi law regarding the leasing of public trust tidelands.
The following is a schedule of future minimum lease payments for capital
and operating leases (with initial or remaining terms in excess of one year) as
of December 31, 1997:
YEAR ENDING DECEMBER 31,
-------------------------
CAPITAL OPERATING
LEASES LEASES
-------- ----------
1998.................................................. $192,065 $1,479,257
1999.................................................. 207,325 1,164,357
2000.................................................. 153,856 1,026,287
2001.................................................. 20,348 782,454
2002.................................................. 22,007 775,000
Thereafter............................................ 130,417 4,650,000
-------- ----------
Total minimum lease payments.......................... 726,018 $9,877,355
==========
Less amount representing interest (9% to 13%)......... 145,059
--------
Present value of net minimum capital lease payments... $580,959
========
Rent expense for all non-cancelable operating leases were $3,644,000
$1,800,000, and $3,048,000 for the years ended December 31, 1997, 1996 and 1995,
respectively.
F-18
55
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. OTHER COMMITMENTS AND CONTINGENCIES:
ONGOING LEGAL PROCEEDINGS:
A class action lawsuit was filed on April 26, 1994, in the United States
District Court, Middle District of Florida (the "Poulos Lawsuit"), naming as
defendants 41 manufacturers, distributors and casino operators of video poker
and electronic slot machines, including the Company. The lawsuit alleges that
such defendants have engaged in a course of fraudulent and misleading conduct
intended to induce people to play such games based on a false belief concerning
the operation of the gaming machines, as well as the extent to which there is an
opportunity to win. The suit alleges violations of the Racketeer Influenced and
Corrupt Organization Act, as well as claims of common law fraud, unjust
enrichment and negligent misrepresentation, and seeks damages in excess of $6
billion. On May 10, 1994, a second class action lawsuit was filed in the United
States District Court, Middle District of Florida (the "Ahern Lawsuit"), naming
as defendants the same defendants who were named in the Poulos Lawsuit and
adding as defendants the owners of certain casino operations in Puerto Rico and
the Bahamas, who were not named as defendants in the Poulos Lawsuit. The claims
in the Ahern Lawsuit are identical to the claims in the Poulos Lawsuit. Because
of the similarity of parties and claims, the Poulos Lawsuit and Ahern Lawsuit
were consolidated into one case file in the United States District Court, Middle
District of Florida. On December 9, 1994 a motion by the defendants for change
of venue was granted, transferring the case to the United States District Court
for the District of Nevada, in Las Vegas. In response to a motion to dismiss the
Complaint brought by the Company and other defendants, the United States
District Court for the District of Nevada entered an order dated April 17, 1996,
granting the motions and dismissing the complaint without prejudice.
The plaintiffs then filed an amended Complaint on May 31, 1996, in which
the plaintiffs sought damages against the Company and other defendants in excess
of $1 billion and punitive damages for violations of the Racketeer Influenced
and Corrupt Organizations Act and for state common law claims for fraud, unjust
enrichment and negligent misrepresentation. The Company and other defendants
have moved to dismiss the amended Complaint. The Company believes that the
claims are without merit and does not expect that the lawsuit will have a
material adverse effect on the financial condition or results of operations of
the Company.
On or about September 6, 1996, Casino America, Inc. commenced litigation in
the Chancery Court of Harrison County, Mississippi, Second Judicial District,
against the Company, and James Edward Ernst, its Chief Executive Officer
(collectively "Defendants"), seeking injunctive relief and unspecified
compensatory damages in an amount to be proven at trial as well as punitive
damages. Plaintiff claims, among other things, that Defendants (i) breached the
terms of an agreement they had with Plaintiff, (ii) tortiously interfered with
certain business relations of plaintiff; and (iii) breached covenants of good
faith and fair dealing they allegedly owed to plaintiff. On or about October 8,
1996, Defendants interposed an answer to plaintiff's complaint denying the
allegations contained in the complaint. The discovery phase of this litigation
is continuing and a trial date has been set for August 1998. While the Company's
management cannot predict the outcome of this action, management believes
plaintiff's claims are without merit and the Company intends to vigorously
defend this action.
In addition, the Company is a litigant in legal matters arising in the
normal course of business. In the opinion of management, all such pending legal
matters are either adequately covered by insurance, or if not insured, will not
have a material adverse effect on the financial position or results of
operations of the Company.
CONTRACTUAL AGREEMENTS:
ARGENTINA. In December 1994, the Company, through its wholly-owned
subsidiary, Casino Magic-Neuquen, entered into a 12-year concession agreement
with the Province of Neuquen, Argentina. Casino Magic-Neuquen which began
operations in January 1995 operates two casinos in the Province of Neuquen in
F-19
56
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. OTHER COMMITMENTS AND CONTINGENCIES: (CONTINUED)
the cities of Neuquen City and San Martin de los Andes. The Company has
unrestricted rights to increase the number of gaming positions at both
locations.
CAMPTOWN GREYHOUND RACING, INC. On July 7, 1994, the Company and Alliance
Gaming Corp. (formerly United Gaming) formed two joint ventures ("KGP" and
"KFP") to lend Camptown Greyhound Racing, Inc. ("Camptown") approximately $3.2
million. On October 28, 1994, KFP executed a loan agreement with Boatmen's Bank
of Kansas City ("Boatmen's") whereby Boatmen's lent $3.2 million to Camptown.
KFP had collateralized the loan with a $3.1 million certificate of deposit
(one-half funded by each party to the joint venture) and, in addition,
guaranteed the repayment of the loan. In January 1996, Camptown filed for
protection under Chapter 11 of U.S. Bankruptcy Code. KFP has satisfied its
obligation under the guarantee, and now owns a second mortgage on Camptown's
facility in Frontense, Kansas in the amount of $3,205,000, plus accrued
interest. The Company has taken steps to protect its investment and rights to
operate gaming devices at the Camptown facility, if and when such operation is
legalized. The Company's $1,580,000 share of the amount lent by KFP to Camptown
was expensed in 1995.
In January 1997, the Company transferred all of its interest in KGP and KFP
to Alliance Gaming Corp., an unrelated third party, except for a deminimus
interest. The consideration for the transfer was Alliance Gaming Corp.'s
agreement to assume certain current financial obligations and to repay the
Company all of its cost in the project if they are successful in commencing
gaming operations at Camptown.
INDIANA. The Company, through its wholly owned subsidiary, Crawford County
Casino, Corp. ("Indiana Corp.") is one of two applicants for the tenth gaming
license expected to be issued in the State of Indiana. If successful in
obtaining this gaming license, the Company has entered into an option agreement
to sell to Harrah's Operating Company the common stock of Indiana Corp. for
approximately $5.0 million. The option expires on January 2001. The Company can
give no assurances that a gaming license will be obtained in Indiana. All land
options held by Indiana Corp. associated with a possible gaming site are fully
reserved at December 31, 1997.
LAND ACQUISITIONS:
In 1993, the Company exercised its option to purchase of approximately 3.5
acres of unimproved land in downtown St. Louis, Missouri at a cost of
approximately $4,000,000. At December 31, 1997, approximately $4,000,000 is
included in property held for sale related to this transaction.
In 1994, the Company exercised an option and to purchase additional real
estate located in Downtown St. Louis, Missouri at a cost of approximately
$800,000. At December 31, 1997, approximately $800,000 is included in property
held for sale related to this transaction.
In 1992, the Company purchased real estate located in downtown Bay Saint
Louis, Mississippi at a cost of approximately $1,200,000. At December 31, 1997,
the Company had written down the value of the property to $800,000 and this
value is included in property held for sale.
The Company had acquired land and options to purchase land in order to
enhance the Company's developmental and licensing procurement potential in
various States. Management has significantly reduced its development of new
gaming venues and because of this all land options are reserved for on the
Company's financial statements at December 31, 1997.
F-20
57
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. STOCK AND EMPLOYEE BENEFIT PLANS:
INCENTIVE STOCK OPTION PLAN:
In 1992, the Company adopted an incentive stock option plan (the "Plan") in
which directors, officers, and key employees of the Company participate. The
Company has registered 3,700,000 shares of the Company's common stock currently
authorized for issuance under the Plan pursuant to stock options.
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation,"
effective in 1996. Under SFAS 123, companies can either record expense based on
the fair value of stock based compensation upon issuance or elect to remain
under the current "APB Opinion No. 25" method whereby no compensation cost is
recognized upon grant if certain requirements are met. The Company is continuing
to account for its stock-based compensation plans under APB Opinion No. 25.
However, pro forma disclosures as if the Company adopted the cost recognition
requirements under SFAS 123 are presented below.
A summary of the status of the Company's stock options, non-qualified
options, and warrants as of December 31, 1997, 1996 and 1995 and changes during
the years ended on those dates is presented below (shares in thousands):
1997 1996 1995
-------------------- -------------------- --------------------
AVERAGE AVERAGE AVERAGE
WEIGHTED EXERCISE WEIGHTED EXERCISE WEIGHTED EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
-------- -------- -------- -------- -------- --------
Outstanding at beginning of year........ 4,200 $0.67 5,108 $ 7.60 4,943 $7.42
Granted................................. 400 $1.69 1,998 $ 3.56 950 $5.06
Exercised............................... (239) $1.59 (424) $ 1.72 (344) $1.43
Canceled................................ (915) $2.23 2,482 $12.00 (441) $4.61
Outstanding at end of year.............. 3,446 $3.96 4,200 $ 3.67 5,108 $7.60
Options exercisable at end of year...... 1,985 $3.96 2,655 $ 3.11 3,072 $9.12
Options available for future grants..... 2,582 2,068 1,583
Weighted average fair value of options
granted during the year............... $1.69 $1.11 $1.28
Had compensation cost for the Company's 1997, 1996 and 1995 grants for
stock-based compensation plans been determined consistent with SFAS 123, the
Company's net income and net earnings (loss) per common share for the years
ended December 31, 1997, 1996 and 1995 would approximate the pro forma amounts
below (in thousands, except per share data):
The fair value of each option granted during the periods presented is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following assumptions: (1) dividend yield of 0%, (2) expected volatility of
20%, (3) risk-free interest rates of 5.2%, 5.26%, 5.47% and 5.5%, and (4)
expected life of 2.25, 4.5, 6.75, and 9 years.
DECEMBER 31,
--------------------------------------------------------------------------------
1997 1996 1995
------------------------ ------------------------ ------------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- --------- ----------- --------- ----------- ---------
Net Income (Loss)............ $(5,249) $(5,958) $(31,589) $(32,563) $(10,292) $(10,660)
Earnings per common share
Basic...................... $ (0.15) $ (0.17) $ (0.89) $ (0.92) $ (0.31) $ (0.32)
Diluted.................... $ (0.15) $ (0.17) $ (0.89) $ (0.92) $ (0.31) $ (0.32)
F-21
58
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. STOCK AND EMPLOYEE BENEFIT PLANS: (CONTINUED)
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards prior to 1995,
and additional awards in future years are anticipated.
PENSIONS AND OTHER BENEFITS:
In July 1993, the Company adopted The Casino Magic Corp. 401(k) Plan (the
"401(k) Plan"), a defined contribution plan covering all eligible employees of
the Company who have one year of service and are age twenty-one or older. The
401(k) Plan is subject to the provisions of the Employee Retirement Income
Security Act of 1974 (ERISA). Each year, participants may contribute up to 15%
of pretax annual compensation, as defined in the 401(k) Plan. The Company's
matching and/or additional contributions may be contributed at the discretion of
the Company's Board of Directors. The Company's contributions to the 401(k) Plan
are allocated to employed participants' accounts as of the last day of the plan
year. Total employer contributions to the 401(k) Plan at December 31, 1997, 1996
and 1995 were approximately $201,000, $176,000, and $177,000, respectively.
12. WRITE-OFF OF CAPITALIZED COSTS RELATING TO INACTIVE DEVELOPMENTS:
In 1995, the Company decided to terminate development efforts with respect
to specific properties and jurisdictions. Because of this determination,
significant capitalized amounts relating to land, land options, joint ventures
and construction projects were written-off or revalued. In addition, certain
consulting agreements that were entered into to pursue gaming opportunities in
new jurisdictions were terminated. The amount expensed in the fourth quarter of
1995 was $14,542,164.
13. ADVERTISING:
The company expenses all production and communication costs of advertising
as incurred. Advertising expense was approximately $7,815,000, $5,470,000, and
$4,472,000 for years ended December 31, 1997, 1996, and 1995, respectively.
14. RELATED PARTY TRANSACTIONS:
During the years ended December 31, 1997, 1996, and 1995, the Company
incurred $7,247, $1,346,861 and $353,888, respectively, for architectural and
design services provided by an architectural firm that is wholly-owned by an
outside director and shareholder of the Company. The director resigned in
October 1996.
During the years ended December 31, 1997, 1996, and 1995, the Company
incurred $145,744, $154,028 and $388,944, respectively, for legal services
provided by a law firm in which an outside director of the Company is a
shareholder.
During the year ended December 31, 1996 and 1995, the Company incurred
$219,800, and $387,422, respectively, for charter plane rentals provided by a
company that is wholly owned by the Company's Chairman.
The Company purchased a jet airplane in February 1996 from the Company's
Chairman. The Company paid $1.7 million for the airplane which approximated fair
value at the date of purchase. The plane was sold in February 1997 to an
unrelated third party for $1.4 million, which approximated fair value.
F-22
59
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. INCOME TAXES:
Pretax financial income (loss) generated from domestic and foreign sources
was as follows:
DECEMBER 31,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
Domestic........................................... $(12,132,945) $(15,322,992) $(15,336,975)
Foreign............................................ 4,948,737 (20,942,537) 1,813,932
------------ ------------ ------------
Total pretax loss.................................. $ (7,184,208) $(36,265,529) $(13,523,043)
============ ============ ============
Provision (benefit) for income taxes for the years ended December 31 are as
follows:
DECEMBER 31,
---------------------------------------
1997 1996 1995
----------- ----------- -----------
Federal and state current............................. $(2,733,203) $(4,253,704) $(2,546,443)
Foreign current....................................... 1,064,963 827,548 1,099,816
Federal deferred...................................... (266,760) (1,250,026) (1,221,514)
Foreign deferred...................................... -- -- (562,723)
----------- ----------- -----------
Total................................................. $(1,935,000) $(4,676,182) $(3,230,864)
=========== =========== ===========
Components of deferred tax liabilities (assets) are as follows:
DECEMBER 31,
---------------------------
1997 1996
------------ ------------
Depreciation and amortization............................... $ 12,154,826 $ 9,535,121
Foreign source income....................................... 257,949 257,949
------------ ------------
Gross deferred tax liabilities.............................. 12,412,775 9,793,070
------------ ------------
Write-off of preopening costs............................... (1,781,870) (2,493,074)
Tax benefits related to non-statutory stock options......... (504,000) (504,000)
Accrued employee benefits and liabilities................... (1,428,370) (1,433,067)
Abandoned development projects.............................. (1,515,657) (10,229,821)
Net operating loss carry-forward............................ (21,299,675) (2,269,344)
Other....................................................... (902,737) (798,293)
------------ ------------
Gross deferred tax assets................................... (27,432,309) (17,727,599)
------------ ------------
Less valuation allowance.................................... 15,019,534 8,201,290
============ ============
Net deferred tax liabilities................................ $ -- $ 266,761
============ ============
F-23
60
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. INCOME TAXES: (CONTINUED)
The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory federal income tax rate to
pre-tax income from continuing operations as a result of the following
differences:
DECEMBER 31,
----------------------------------------
1997 1996 1995
----------- ------------ -----------
Statutory U.S. tax rate (35%)........................ $(2,023,010) $(12,692,935) $(4,733,065)
Increase (decrease) in rates resulting from:
Expenses which were non-deductible for tax
purposes........................................... 1,299,010 357,805 733,876
Expenses which were deductible for tax purposes and
not book........................................... (6,988,244) -- --
Foreign taxes........................................ 1,064,963 827,548 1,099,816
Valuation allowance.................................. 6,818,244 8,201,290 --
State tax benefit.................................... -- (802,174) --
Other................................................ (2,105,996) (567,716) (331,491)
----------- ------------ -----------
Effective tax rate (33%), (13%) and (24%),
respectively....................................... $(1,935,000) $ (4,676,182) $(3,230,864)
=========== ============ ===========
The valuation allowance against net deferred tax assets was recorded in
recognition of the significant operating losses incurred by the Company for the
last three years.
Mississippi State taxes were offset by a tax credit for state gaming taxes
based on gross revenues realized by Casino Magic-BSL and Casino Magic-Biloxi.
The credit is the lesser of the annual total gaming taxes paid or the state
income tax. Credit carry-forwards are not permitted.
Louisiana State taxes do not allow for an offset of state gaming taxes
based on gross revenues realized by Louisiana.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts and fair values of the Company's financial instruments
at December 31, 1997 are as follows:
CARRYING FAIR
AMOUNT VALUE
-------- -------
(IN THOUSANDS)
Cash and cash equivalents.................................. 20,902 20,902
Marketable securities...................................... 10,629 10,629
Notes receivable........................................... 3,385 3,385
Notes payable and current maturities of long-term debt and
long-term debt........................................... 262,368 247,568
The following methods and assumptions were used by the Company in
estimating its fair value disclosure:
Cash and cash equivalents, and marketable securities. The carrying amount
reported on the consolidated balance sheet approximates its fair value because
of the short term nature of these instruments.
Notes receivable. This is a long-term note receivable from an Indian Tribe.
The fair value of the note approximates market value based on the interest rate
of the note and the collateral securing the note.
F-24
61
CASINO MAGIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. FAIR VALUE OF FINANCIAL INSTRUMENTS:(CONTINUED)
Notes payable and current maturities of long-term debt and long-term debt.
The fair value of the Company's debt either approximates its carrying value or
is based upon the market price of the debt instruments.
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates are subjective in nature and involve uncertainties and matters
of significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
17. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER TOTAL
----------- ----------- ----------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, 1997
Revenue................................. $65,781 $65,958 $66,495 $63,240 $261,474
Income from operations.................. 1,997 5,927 10,125 6,506 24,555
Income (loss) before tax and minority
interest.............................. (5,607) (1,020) 3,390 (2,543) (5,780)
Net income (loss)....................... (3,672) (1,222) 2,675 (3,030) (5,249)
Earnings (loss) per share:
Basic................................. (0.10) (0.03) 0.08 (0.08) (0.15)
Diluted............................... (0.10) (0.03) 0.08 (0.08) (0.15)
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER TOTAL
----------- ----------- ----------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, 1996
Revenue................................. $43,125 $42,368 $43,271 $51,514 $180,278
Income from operations.................. 5,565 6,473 5,355 (8,550) 8,843
Income (loss) before tax................ 2,352 2,456 (26,024) (15,050) (36,266)
Net income (loss)....................... 1,644 1,660 (20,683) (14,210) (31,589)
Earnings (loss) per share:
Basic................................. 0.05 0.05 (0.57) (0.40) (0.89)
Diluted............................... 0.05 0.05 (0.57) (0.40) (0.89)
NOTE: Earnings (loss) per share totals will note necessarily agree to the sum of
the quarterly information.
F-25