SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
XAnnual 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. 333-14535
CASINO MAGIC OF LOUISIANA, CORP.
(Exact name of Registrant as specified in its charter)
Louisiana 64-0878110
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
711 Casino Magic Drive, Bay Saint Louis, MS 39520
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (228) 467-9257
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
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 XNo
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was $0 as of March 28, 1998. As of the close of business March 28,
1998, there were 1,000 shares of the Registrant's common stock outstanding all
of which were held by affiliates.
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION
(I)(1)(A)(B) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
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INDEX
PAGE
PART I
Item 1. - BUSINESS 1
Item 2. - PROPERTIES 7
Item 3. - LEGAL PROCEEDINGS 7
Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 7
PART II
Item 5. - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 8
Item 6. - SELECTED FINANCIAL DATA 8
Item 7. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8
Item 8. - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 11
Item 9. - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE 11
PART III
Item 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 11
Item 11 - EXECUTIVE COMPENSATION 11
Item 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 11
Item 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 11
PART IV
Item 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K 12
CONSOLIDATED FINANCIAL STATEMENTS F-1
EXHIBITS
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PART 1
ITEM 1. BUSINESS
GENERAL
In May 1996 ("Inception"), Casino Magic Corp. ("Casino Magic"), through its
wholly-owned subsidiary, Jefferson Casino Corporation. ("Jefferson Corp.")
acquired Crescent City Development Corporation, ("Crescent City") for $50
million plus the assumption of up to $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 was
the subject of a plan of reorganization under Chapter 11 of the U.S.
Bankruptcy Code in 1996, and owned the Crescent City Queen ("Crescent City
Riverboat"), a cruising riverboat outfitted for gaming. In addition, Crescent
City owned a license to conduct riverboat gaming operations in Louisiana, as
well as gaming, surveillance and other gaming related equipment. When
Crescent City emerged from the bankruptcy proceedings in May 1996, it was
acquired by Jefferson Corp. and renamed Casino Magic of Louisiana, Corp.
(referred to herein as "Louisiana Corp." or the "Company") 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 Company sold the Crescent City
Riverboat, and will use the $11.7 million in net proceeds to assist in funding
the further development of Casino Magic-Bossier City.
The Company opened Casino Magic-Bossier City on October 4, 1996 using a
temporary boarding facility, and on December 31, 1996, opened the permanent
land-based pavilion. The facility includes a 30,000 square feet 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 the hotel and pavilion improvements
are largely dependent upon the proceeds from the sale of the Crescent City
Riverboat and future operating cash flow of Casino Magic-Bossier City. There
is no assurance 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.
Prior to Inception, Jefferson Corp. had no business activities and Crescent
City was a wholly owned subsidiary of Capital Gaming International, Inc. with
which Jefferson Corp. had no affiliation. The original agreement to acquire
Crescent City was entered into by Jefferson Corp. and C-M of Louisiana, Inc.,
the latter being another wholly owned subsidiary of Casino Magic. C-M of
Louisiana, Inc. was the fee owner of approximately 20 acres of land with 900
feet of shoreline on the Red River in Bossier City, Louisiana (the property
that is being used as the gaming site for Casino Magic-Bossier City). Another
wholly owned subsidiary of Casino Magic, Coastal Land of Florida, Inc., held a
99-year lease on the Casino Magic-Bossier City property. Casino Magic had
acquired C-M of Louisiana, Inc. and Coastal Land of Florida, Inc. on October
26, 1995 in anticipation of obtaining a gaming license and establishing gaming
operations at the Bossier City property. Immediately prior to or as part of
the acquisition of Crescent City, the lease was canceled and C-M of Louisiana,
Inc. was merged into Jefferson Corp. As a result, when the acquisition of
Crescent City was completed, Jefferson Corp. held all ownership interests in
the Bossier City property and all of the capital stock of Crescent City
(which, renamed, is Louisiana Corp.). In August 1996, Jefferson Corp.
contributed all of its Bossier City property, which constituted its only
material assets other than the capital stock of Louisiana Corp., to Louisiana
Corp., its subsidiary, and Louisiana Corp. assumed and paid the only
significant liability of Jefferson Corp.
The Company believes the Bossier City/Shreveport Market presents it with a
significant gaming development opportunity based upon the strong population
density of its target market (which includes the Dallas-Fort Worth
metropolitan area, for which the Bossier City/Shreveport Market is the nearest
current gaming market) and the current regulations allowing dockside riverboat
gaming in Bossier City/Shreveport. The Bossier City/Shreveport Market is the
only market in Louisiana that currently permits continuous dockside gaming
without requiring cruising or simulated cruising schedules. This allows Casino
Magic-Bossier City to operate 24 hours a day with uninterrupted and convenient
casino access for gaming patrons.
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Unless the context requires otherwise, reference in this Annual Report to the
"Company" means Louisiana Corp. which was incorporated under the laws of the
State of Louisiana in June 1993. In August 1996 the Company entered into a
Management Agreement with Casino Magic and Casino Magic Management Services
(the "Manager") for a term through August 22, 2006, pursuant to which Casino
Magic licensed the "Casino Magic" name to the Company and the Manager provides
management services to the Company. 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.
OTHER
PROPOSED MERGER
On February 19, 1998, Casino Magic 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, Casino Magic has agreed, subject to approval of Casino
Magic's shareholders, to merge (the "Merger") with HP. Upon consummation of
such Merger Casino Magic will be the surviving entity and will become a
wholly-owned subsidiary of Hollywood. The separate existence of HP will then
cease. Upon consummation of the Merger, the shareholders of Casino Magic will
be entitled to receive $2.27 for each share of Casino Magic's stock held. All
shareholders of Casino Magic will be entitled to dissent from the Merger in
accordance with the provisions of Minnesota law.
The Merger is subject to the approval of Casino Magic'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 Casino Magic 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 Casino Magic should the Board of
Directors of the Company determine to accept a proposal of another party to
merge with or acquire Casino Magic on terms which it believes to be superior
to those contained in the Merger Agreement, Casino Magic will be required to
pay Hollywood $3,500,000.
The Merger Agreement restricts the ability of Casino Magic 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
Casino Magic obtains the consent of Hollywood, which consent may not be
unreasonably withheld. These provisions, among other things, preclude Casino
Magic 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 Casino
Magic and its subsidiaries may effect, which are not inconsistent with Casino
Magic's current plans.
The proposed Merger will be a Change of Control (as defined in the Indentrue):
accordingly if the Merger is consummated,, each Holder of the Company's $115
million outstanding principal amount of 13% First Mortgage Notes due 2003 with
Contingent Interest ("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 regulations are applicable
in connection with the repurchase of the First Mortgage Notes.
There is no assurance that all the necessary approvals for the Merger will be
obtained, or that the Merger will be consummated as proposed.
FINANCIAL INFORMATION REGARDING SEGMENTS
See "Item 6.-SELECTED FINANCIAL DATA," "Item 14.-EXHIBITS, FINANCIAL STATEMENT
SCHEDULES, AND REPORTS ON FORM 8-K" and the Consolidated Statements of
Operations, page F-3 in the 1997 Financial Statements.
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MARKETS AND MARKETING
Casino Magic-Bossier City is one of 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 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, Texas, Tyler, Texas and Monroe,
Louisiana.
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. The Company's domestic marketing efforts utilize a wide
variety of media including television, radio, newspaper, and outdoor along
with direct mail advertising of its Magic Money Player's Club, special
promotions, events and entertainment, and a motor coach program. The Magic
Money Player's Club is the most important marketing tool utilized by the
Company. Similar to a frequent flier airline card 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.
Casino Magic-Bossier City actively promotes motorcoach group package programs.
Intended to maintain customer volume during traditionally non-peak times, bus
programs originate at locations 50 to 250 miles from the property, 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 Casino. These motorcoach groups will
typically spend one or more nights away from home.
SEASONALITY
The Company's current gaming operations, are subject to seasonal variation.
Gaming revenues typically increase in the summer months.
COMPETITION
GENERAL
Thirteen of the fifteen available riverboat gaming licenses have been awarded
and have operating casinos in Louisiana, all of which 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 which would allow
racetracks in Saint Landry, Calcasieu and Bossier parishes to install slot
machines. The Governor of Louisiana has signed the billand pursuant to the
Constitutional Amendment the introduction of this new form of gaming has been
approval by 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.
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RISK OF TEXAS GAMING LEGALIZATION
Casino gaming is currently prohibited in several nearby jurisdictions which
are important to the Bossier City/Shreveport Market. As a result, residents of
these jurisdictions, principally Texas, comprise a significant portion of the
customers of existing gaming operations in Bossier City/Shreveport, including
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 from
time to time various proposals to authorize casino gaming, but to date has not
done so. A constitutional amendment would require a two-thirds vote of those
present and voting in each house of the Texas Legislature and approval by the
electorate in a referendum. 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 the Company's results of operations.
GAMING REGULATION
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 land-based 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 construction, ownership and operation of riverboat gaming vessels is now
subject to regulation 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.
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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 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 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 Company
is also required to periodically submit detailed financial and operating
reports to the Louisiana Board and furnish any other information which the
Louisiana Board may require.
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% or 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.
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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 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.
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.
Traditional riverboats capable of cruising, including those that are not
required to cruise, 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 shipboard employees of the Company, 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.
SERVICE MARKS
Casino Magic is the owner of U.S. service mark registrations for the service
marks "Casino Magic ", "A Cut Above " "Casino Magic GetawaysSM", "Magic
MoneySM", "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 "
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.
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PERSONNEL
As of January 1, 1998, the Company had approximately 958 full-time employees
and 100 part-time employees. The Company's management believes that its
relationship with its employees is good. With the expansion of gaming in
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. PROPERTY
CORPORATE HEADQUARTERS
Pursuant to the Management Agreement, the Company's principal executive and
administrative offices are maintained in approximately 6,000 square feet of
office space at 711 Casino Magic Drive, Bay Saint Louis, Mississippi 39520.
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 First Mortgage Notes.
Gaming at Casino Magic-Bossier City occurs upon a riverboat which, while
capable of cruising on the river, is permanently moored at the site. The
riverboat provides approximately 30,000 square feet 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 service building which
includes restaurants and lounges, customer entertainment and service areas and
office space. Parking for Casino Magic-Bossier City is provided by a 1,500
four-story parking ramp and surface parking for an additional 400 vehicles.
The Company has developed plans for the expansion of the pavilion for
additional restaurant facilities and the construction of a 188 room hotel on
the site of Casino Magic-Bossier City. The architectural and engineering
designs for the expansion of the pavilion and the hotel have been completed
and groundwork has begun.
Management believes that Casino Magic-Bossier City facilities and space for
expansion are adequate for the future growth and development of the facility.
ITEM 3. LEGAL PROCEEDINGS
In July 1997, the Company entered into an agreement to sell to Carlo
Corporation ("Carlo") the Crescent City Riverboat acquired by the Company in
connection with its establishment of Casino Magic-Bossier City. A deposit of
$1,000,000 was paid by Carlo under the agreement and was subject to forfeiture
as liquidated damages if the purchase of the vessel was not completed. Carlo
asserted that the condition of the vessel excused Carlo from completing the
purchase, and requested the return of the deposit. The Company denied the
claim and retained the deposit. On August 29, 1997 Carlo commenced litigation
on the Circuit Court of Harrison County, Mississippi seeking return of the
deposit and punitive damages. The Company has answered the claim. While the
Company's management can not predict the outcome of this action, management
believes that Company was entitled to retain the deposit as liquidated damages
under the agreement and intends to vigorously defend this action.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
7
<PAGE>
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS
The common stock of the Company is held by Jefferson Corp., its parent
corporation, and is pledged to secure the First Mortgage Notes. There is no
market for the common equity of the Company.
ITEM 6. SELECTED FINANCIAL DATA
Beginning in April 1995, Crescent City conducted gaming activities in New
Orleans, Louisiana for a 65-day period before a bankruptcy proceeding was
commenced against it. Pursuant to the court approved Plan of Reorganization,
Crescent City was acquired by Jefferson Corp. in May 1996. Because the
Company is operating in a different market, with a different vessel and
facility, with different management, ownership, and employees and using a
different name and marketing theme, management believes that the financial
position and operating results of Crescent City prior to the acquisition are
not meaningful.
The selected financial data of the Company presented below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements of the
Company and notes thereto. The historical statement of operations and balance
sheet data have been derived from the financial statements of the Company
which have been audited by Arthur Andersen LLP, independent auditors of the
Company. The Company had no operations until the opening of Casino
Magic-Bossier City on October 4, 1996, and, accordingly, no revenues or
expenses were incurred other than interest income, expense and capitalized
interest prior to October 4, 1996. All normal operating expenses were
capitalized under preopening costs until October 4, 1996, in accordance with
the Company's accounting policies.
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA) May 13, 1996 (inception)
STATEMENT OF OPERATIONS DATA December 31,1997 through December 31, 1996
------------------- ---------------------------
<S> <C> <C>
Revenues $ 93,205 $ 12,738
Costs and expenses 87,468 20,060
Income (loss) from operations 5,737 (7,322)
Other 16,379 2,705
(Loss) before income taxes (10,642) (10,027)
Income taxes benefit -- --
Net (loss) (10,642) (10,027)
Net (loss) per share $ (10,641.78) $ (10,027.17)
BALANCE SHEET DATA: December 31, 1997 December 31, 1996
------------------- ---------------------------
Working capital (deficiency) (825) 4,670
Total assets 142,638 149,330
Current liabilities (including construction payable) 23,349 17,154
Total long-term debt, including current maturities 121,319 121,729
Shareholder's equity 1,684 12,326
</TABLE>
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)
construction on the pavilion expansion and hotel at Casino Magic-Bossier City;
and (ii) the Company's ability to fund planned developments and debt service
obligations over the next twelve months with currently available cash and
marketable securities and with cash flow from operations. Construction
projects entail significant construction risks, including, but not limited to,
cost overruns, delay in receipt of governmental approvals, shortages in
materials or skilled labor, labor disputes, unforeseen environmental or
engineering problems, work stoppage, fire and other natural disasters,
construction scheduling problems and weather interferences, any of which, if
it occurred, could delay construction or result in a substantial increase in
costs to the Company. The Company's ability to meet its consolidated debt
obligations may be dependent upon the successful completion of the hotel 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.
8
<PAGE>
DEVELOPMENT ACTIVITIES
On May 13, 1996 Jefferson Corp. acquired all the outstanding capital stock of
Crescent City pursuant to the Plan of Reorganization. Crescent City
discontinued all of its gaming activities in June 1995 after only a very brief
period of operations in the New Orleans market and its only significant assets
at the time of the Plan of Reorganization consisted of the Crescent City
Riverboat, a Louisiana gaming license, and the furniture, fixtures and gaming
equipment located on the Crescent City Riverboat. As a result of the foregoing
factors and because the Company is operating in a different market, with a
different vessel and facility, different management and ownership and with a
different name and marketing theme, management believes that the financial
position and operating results of Crescent City prior to the acquisition are
not meaningful to the Company or prospective investors, and such financial
information is therefore not presented. Pursuant to the Plan of
Reorganization, Crescent City was discharged from substantially all of its
liabilities prior to the acquisition. From that time until the October 4,
1996 opening of Casino Magic-Bossier City using temporary boarding, mooring
and paved parking facilities, the Company had been in the development stage
and its activities had been limited to arranging for the design, preliminary
site work, construction, and financing for Casino Magic-Bossier City.
A comparison of results from 1996 to 1997 is not meaningful due to the opening
of the facility in October 1996.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
Gaming revenues at Casino Magic-Bossier City were $89.5 million for 1997.
Based upon public reports made to the Louisiana Gaming Control Board, this
represents approximately a 17% share of total gaming revenues in the four
casino Bossier City/Shreveport Market. During 1997, the Company attempted to
increase Casino Magic-Bossier City's market share through significant
marketing, advertising and promotional efforts. However, this attempt to
strengthen Casino Magic-Bossier City's market share was not as successful as
anticipated. Although the Company continues to implement improved and cost
effective marketing and promotional programs to increase revenues, there can
be no assurance it will continue to be successful in doing so. Other
revenues, which represent food and beverage sales, were $3.7 million for 1997.
Total costs and expenses during 1997 were $87.5 million and Casino
Magic-Bossier City had operating income of $5.7 million for 1997. The Company
incurred $8.2 million in total marketing and promotional expenses during the
first quarter of 1997, including approximately $4.0 million in promotional
give-away programs which were expected to generate a level of incremental
gaming revenues that were not achieved. Additionally, in the first four
months of 1997, Casino Magic-Bossier City was incurring operating expenses at
a level consistent with operating a property at significantly higher revenue
levels. Beginning in May 1997 the Company implemented changes to reduce
overall operating costs, and specifically marketing and promotional costs.
These cost reductions enabled the Company to achieved positive cash flow from
operations of approximately $4.6 million during the last three quarters of
1997.
Other (income) and expenses were $16.4 million for 1997. Expenses included
$17.0 million in interest expense relating primarily to the First Mortgage
Notes used to develop Casino Magic-Bossier City. Additionally, included in
other income and expense are the gain on the sale of the Crescent City
Riverboat of approximately $1.4 million and management fees of approximately
$1.1 million.
The Company is included in a consolidated group subject to a tax-sharing
agreement between itself, all affiliated companies and its ultimate parent
Casino Magic. The difference between the 0% rate and the statutory rate of
35% is due to a tax valuation allowance against the tax benefit recorded as a
result of the tax sharing agreement.
Casino Magic-Bossier City incurred a net loss of $10.6 million during 1997, or
a loss of $10,641 per share. This is the result of lower than anticipated
revenues, exceptionally high advertising and promotional costs that should not
recur in future periods and operating costs incurred in anticipation of
significantly higher revenues, specifically in the first quarter of 1997.
9
<PAGE>
FROM MAY 13, 1996 (INCEPTION) THROUGH DECEMBER 31, 1996:
The Company had no operations until the opening of Casino Magic-Bossier City
on October 4, 1996. No revenues or expenses were incurred other than interest
income, expense and capitalized interest prior to October 4, 1996. All normal
operating expenses were capitalized under preopening costs until October 4,
1996, in accordance with the Company's accounting policies. The Company
anticipated that its initial results might be adversely affected by opening
with limited facilities while construction was proceeding on the permanent
land-based amenities, as well as by the expensing of preopening costs. During
the period from October 4, 1996 through December 31, 1996, Casino
Magic-Bossier City generated revenues of approximately $12.6 million with only
limited food, beverage and retail services. Such revenues were achieved in
spite of the fact that high water on the Red River, which flooded the
Company's temporary parking area, caused the casino to be closed for fifteen
days in November and December including two weekends, one the Thanksgiving
holiday weekend. The substantially completed permanent Casino Magic-Bossier
City facility, which opened on December 31, 1996, is located above the flood
plain so that high water should not cause a closing in the future. The
Company believes that such revenue levels were also adversely affected by the
lack of competitive amenities during the period of operations with temporary
land based facilities.
Total costs and expenses for the period May 13 1996 (inception) through
December 31, 1996 were $20.1 million. These costs were significantly affected
by several factors including: (i) most operating expenses were unusually high
as a percentage of revenues due to the 15-day closure of the casino
operations, which reduced revenues, although the Company continued to incur
certain payroll and most other operating costs during the closure periods;
(ii) additional costs incurred because of opening and closing procedures
necessary when the casino twice ceased operations during the high water
periods; (iii) clean-up costs incurred due to high water during this period.
(iv) marketing costs increased due to efforts to inform customers of closures
and subsequent reopenings; and (v) the Company incurred $6.5 million in
preopening costs.
The Company incurred $2.7 million in other (income) and expenses for the
period May 13, 1996 through December 31, 1996. This consisted of $7.3 million
in interest expense on the First Mortgage Notes. Of this amount, the Company
capitalized interest of $4.1 million relating to the construction of Casino
Magic-Bossier City's entertainment facility and had interest income of $0.5
million earned on funds held in the Cash Collateral Accounts. No Contingent
Interest was incurred or paid during this period.
The Company incurred neither an income tax expense or benefit during the
period from May 13, 1996 through December 31, 1996. The Company is included
in a consolidated group subject to a tax sharing agreement between itself, its
ultimate parent Casino Magic and other subsidiaries thereof.
The Company had a net loss of $10.0 million, or $10,027.17 loss per share in
the period ended from May 13, 1996 (inception) through December 31, 1996. The
net loss is attributable to the Company having had no operations until October
4, 1996, incurring $6.5 million in preopening costs, the closure of the casino
due to high water for 15 days in November and December 1996, and the casino's
beginning of operations before a substantial portion of the casino's amenities
were completed.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had unrestricted cash and marketable
securities of $10.7 million compared to unrestricted cash and marketable
securities of $4.0 million at December 31, 1996. The Company has $10.6
million in restricted marketable securities at December 31, 1997 due to the
sale of the Crescent City Riverboat. At December 31, 1996, the Company had
$16.9 million in restricted cash relating to the First Mortgage Notes issued
to fund the construction of Casino Magic-Bossier City.
During 1997, the Company generated $1.6 million of cash flow in operating
activities and refinanced approximately $3.9 million of long term equipment
debt. The Company spent $7.2 million for acquisitions of property, equipment
and other long-term assets. The Company plans additional investments in 1998,
but most of such additional expenditures will be subject to the ability of the
Company to generate positive cash flows from operations, the $11.7 million in
proceeds from the sale of the Crescent City Riverboat or the availability of
financing. There can be no assurance that sufficient funds will be available
for the Company to make all planned improvements.
10
<PAGE>
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 pavilion and to construct an
approximately 188-room convention hotel and related amenities, 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 develop such hotel and related
facilities or that these improvements will ever be developed.
The First Mortgage Notes are governed by the Louisiana Indenture. The
Louisiana Indenture pursuant to which the First Mortgage Notes have been
issued contains certain covenants that will limit the ability of the Company
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 Company will have a significant need for cash in 1998 and beyond in order
to continue its planned development. 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 and
beginning of construction on the Casino Magic-Bossier City hotel and pavilion
expansion through at least the next twelve months.
ITEM 8. FINANCIAL DATA AND SUPPLEMENTARY DATA
The financial statements of the Company and the notes thereto are attached to
this Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Omitted pursuant to General Instruction (I)(2)(c) to Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
OMITTED PURSUANT TO GENERAL INSTRUCTION (I)(2)(C) TO FORM 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Omitted pursuant to General Instruction (I)(2)(c) to Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In August 1996 the Company entered into a Management Agreement with Casino
Magic and Casino Magic Management Services (the "Manager") for a term through
August 22, 2006, pursuant to which Casino Magic licensed the "Casino Magic"
name to the Company and the Manager provides management services to the
Company. Casino Magic is the direct parent corporation of Jefferson Corp.
which holds a 100% beneficial ownership interest in the Company. In
consideration for the services provided under the Management Agreement, the
Company has agreed to pay the Manager a management fee equal to 10% of
Adjusted Consolidated Cash Flow, subject to certain limitations set forth in
the Indenture. The Company accrued management fees of $1.4 million during
1997, none of which has been paid.
The Company and Jefferson Corp. are and all future subsidiaries of the Company
will be, parties to a Tax-Sharing Agreement (as defined herein) between Casino
Magic and each of its domestic subsidiaries (the "Consolidated Group")
pursuant to which Casino Magic will file a consolidated federal income tax
return on behalf of the Consolidated Group and timely pay the Consolidated
Group's federal income tax liability and the Company, Jefferson Corp. and each
such future subsidiary will pay Casino Magic an amount equal to their
respective share of the Consolidated Group's federal income tax liability
calculated in the manner prescribed in such Tax-Sharing Agreement.
11
<PAGE>
PART IV
ITEM 14. FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) FINANCIAL STATEMENTS OF CASINO MAGIC OF LOUISIANA, CORP.
Report of Independent Public Accountants.
Financial Statements:
Consolidated Statements of Operations for the year:
ended December 31,1997 and for the period from May 13, 1996 (date of
inception) through
December 31, 1996
Consolidated Balance Sheets as of December 31, 1997 and December 31,1996
Consolidated Statements of Changes in Equity for the year ended December
31,1997
and for the period from May 13, 1996 (date of inception) through December
31, 1996
Consolidated Statements of Cash Flows for the year ended December 31, 1997
and for the period fromMay 13, 1996 (date of inception) through December
31, 1996
Notes to Consolidated Financial Statements
(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.
(C) EXHIBITs
3.1* Amended and Restated Certificate of Incorporation of Casino Magic of
Louisiana, Corp.
3.2* By-laws of Casino Magic of Louisiana, Corp. (the "Company")
3.3* Certificate of Incorporation of Jefferson Casino Corporation.
3.4* By-laws of Jefferson Casino Corporation.
4.1* Form of the Company's 13% Notes due 2003 with Contingent Interest in
the aggregate principal amount of $115,000,000.
4.2* Form of Guarantee issued on August 22, 1996 by Jefferson Casino
Corporation.
4.3* Indenture dated as of August 22, 1996 by and among the Company, First
Union Bank of Connecticut, as Trustee, and the Guarantors named therein, for
the Company's $115,000,000 of 13% First Mortgage Notes due 2003 with
contingent interest.
4.4* Registration Rights Agreement dated as of August 22, 1996 by and
among the company, the Guarantors named therein and the Initial Purchasers
named therein.
4.5* Cash Collateral and Disbursement Agreement dated August 22, 1996 by
and among the Company, First Union Bank of Connecticut, as Trustee, and First
National Bank of Commerce, as disbursement agent.
4.6* Security Agreement dated as of August 22, 1996 by and between First
Union Bank of Connecticut, as Trustee, and the Company, as Guarantor.
4.7* Stock Pledge and Security Agreement dated as of August 22, 1996 by
and between First Union Bank of Connecticut, as Trustee, and Jefferson Casino
Corporation, as Pledgor.
4.8* Security Agreements dated as of August 22, 1996 by and between First
Union Bank of Connecticut, as Trustee, and Jefferson Casino Corporation.
12
<PAGE>
4.9* First Preferred Ship Mortgage dated as of August 22, 1996 executed in
favor of First Union Bank of Connecticut, as Trustee, by the Company.
4.10* First Preferred Ship Mortgage dated as of August 22, 1996 executed
in favor of First Union Bank of Connecticut, as Trustee, by the Company.
4.11* Mortgage of the Company dated as of August 22, 1996 executed in
favor of First Union Bank of Connecticut, as Trustee.
4.12* Form of Accounts Pledge Agreement.
4.13* Note Purchase Agreement dated August 16, 1996.
4.14 Collateral Assignment dated August 22, 1996.
4.15* First Supplement to the Indenture
4.16* First Supplement to the Security Agreement
10.1* Management Agreement
10.2* Tax-Sharing Agreement
10.3* Credit Agreement with First National Bank of Commerce dated March
27, 1997.
10.4* Agreement for the sale of the Crescent City Queen Riverboat.
27 Financial Data Schedule (filed electronically only)
- - Filed with Form S-4 333-14535
13
<PAGE>
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 OF LOUISIANA, 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
James E. Ernst Executive Officer
(principal executive officer)
/s/ Jay S. Osman Chief Financial March 30, 1998
Jay S. Osman Officer and Treasurer (principal
financial and accounting officer)
/s/ Roger H. Frommelt Director March 30, 1998
Roger H. Frommelt
/s/E. Thomas Welch Director March 30, 1998
E. Thomas Welch
14
<PAGE>
INDEX TO FINANCIAL STATEMENTS
CONTENTS PAGES
Report of Independent Public Accountants F-2
Financial Statements:
Consolidated Statement of Operations for the yearended December 31,1997 and
for the period from May 13, 1996 (date of inception)
through December 31, 1996 F-3
Consolidated Balance Sheets as of December 31, 1997 and December 31,1996
F-4
Consolidated Statements of Changes in Equity for the year ended December
31,1997
and for the period from May 13, 1996 (date of inception) through December
31, 1996 F-5
Consolidated Statements of Cash Flows for the year ended December 31, 1997
and for the period from May 13, 1996 (date of inception) through December
31, 1996 F-6
Notes to Consolidated Financial Statements F-8
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Casino Magic of Louisiana, Corp.:
We have audited the accompanying balance sheet of Casino Magic of Louisiana,
Corp. (a Louisiana corporation and a wholly owned subsidiary of Casino Magic
Corp.) as of December 31, 1997 and 1996 and the related statements of
operations, changes in equity and cash flows for the year ended December 31,
1997 and for the period from inception (May 13, 1996) through December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these 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 of Louisiana,
Corp. as of December 31, 1997 and 1996 and the results of its operations and
development stage activities and its cash flows for the year ended December
31, 1997 and for the period from inception (May 13, 1996) through December 31,
1996 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana,
February 27, 1998
F-2
<PAGE>
<TABLE>
<CAPTION>
CASINO MAGIC OF LOUISIANA, CORP
STATEMENTS OF OPERATIONS
MAY 13, 1996
YEARS ENDED (INCEPTION) THROUGH
DECEMBER 31,1997 DECEMBER 31,1997
------------------ ------------------
<S> <C> <C>
REVENUES:
Casino $ 89,539,940 $ 12,664,451
Food, beverage and rooms 2,879,922 -
Other Operating revenues 785,226 73,349
------------------ ------------------
93,205,088 12,737,800
------------------ ------------------
COSTS AND EXPENSES:
Casino 47,556,444 7,123,353
Food and beverage 3,608,206 -
Other operating costs and expenses 618,699 36,294
Advertising and marketing 14,998,833 1,695,039
General and administrative 7,234,507 2,241,551
Property operation, maintenance and
energy cost 4,975,789 1,060,727
Rents, property taxes and insurance 2,575,905 246,169
Depreciation and amortization 5,899,975 1,136,883
Preopening expenses - 6,520,158
------------------ ------------------
87,468,358 20,060,174
------------------ ------------------
INCOME (LOSS) FROM OPERATIONS 5,736,730 (7,322,374)
------------------ ------------------
OTHER (INCOME) EXPENSE:
Interest expense 17,035,579 7,220,979
Interest capitalized (107,401) (4,026,591)
Interest income (464,259) (488,774)
Other (85,412) (818)
------------------ ------------------
16,378,507 2,704,796
------------------ ------------------
LOSS BEFORE INCOME TAXES: (10,641,777) (10,027,170)
------------------ ------------------
INCOME TAX EXPENSE(BENEFIT) - -
NET LOSS $ (10,641,777) $ (10,027,170)
================== ==================
NET LOSS PER COMMON SHARE: $ (10,641.78) $ (10,027.17)
================== ==================
WEIGHTED AVERAGE COMMON SHARES - 1000
<FN>
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
CASINO MAGIC OF LOUISIANA, CORP.
BALANCE SHEETS
DECEMBER 31, DECEMBER 31,
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10,675,429 $ 3,959,126
Restricted cash - 16,899,654
Restricted marketable securities 10,629,405 -
Other current assets 1,218,886 964,997
------------- -------------
Total current assets 22,523,720 21,823,777
------------- -------------
Property and equipment:
Land and improvements 18,956,769 14,716,035
Building and improvements 20,930,281 -
Riverboat and improvements 22,599,897 20,427,361
Leasehold improvements 111,711 74,075
Furniture and equipment 18,775,297 12,239,594
Construction in progress 883,291 27,105,683
------------- -------------
82,257,246 74,562,748
Less accumulated depreciation and amortization (4,993,784) (740,922)
------------- -------------
Total property and equipment, net 77,263,462 73,821,826
------------- -------------
Other long-term assets:
Deferred gaming license cost, net of accumulated
amortization of $2,013,838 and $395,489, respectively 38,048,426 38,337,333
Property held for sale - 10,101,182
Debt issuance costs, net of accumulated
amortization of $1,254,160 and $322,594 , respectively 4,710,121 5,096,981
Deposits and other assets 91,820 -
Other long-term assets - 148,846
------------- -------------
Total other long-term assets 42,850,367 53,684,342
------------- -------------
$142,637,549 $149,329,945
============= =============
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Notes and contracts payable $ 76,950 $ 4,486,710
Current maturities of long-term debt 3,714,540 1,878,605
Accounts payable 3,665,071 2,837,908
Accrued expenses 5,614,298 535,661
Accrued interest 6,547,014 5,581,119
Accrued payroll and related benefits 2,942,523 1,720,191
Accrued progressive gaming liabilities 388,221 113,432
Other current liabilities 400,000 -
------------- -------------
Total current liabilities 23,348,617 17,153,626
------------- -------------
Long-term debt, net of current maturities 117,604,583 119,850,193
------------- -------------
Commitments and contingencies
Common stock, $.01par value, 10,000 shares
authorized 1,000 issued and outstanding 1 1
Additional paid-in capital 22,353,295 22,353,295
Retained earnings (deficit) (20,668,947) (10,027,170)
------------- -------------
Total shareholder's equity 1,684,348 12,326,125
------------- -------------
$142,637,549 $149,329,945
============= =============
<FN>
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
CASINO MAGIC OF LOUISIANA, CORP.
STATEMENT OF CHANGES IN EQUITY
Common Stock Additional Retained
Shares Amount Paid-in-Capital Earnings Total
------ ------- ---------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at May 13, 1996 - $ - $ - $ - $ -
Stock issued 1,000 1 21,000,295 - 21,000,296
Paid-in-Capital - - 1,353,000 - 1,353,000
Net Loss - - - (10,027,170) (10,027,170)
------ ------- ---------------- ------------- -------------
Balance at December 31, 1996 1,000 $ 1 $ 22,353,295 $(10,027,170) $(12,326,126)
Net Loss - - - (10,641,777) (10,641,777)
------ ------- ---------------- ------------- -------------
Balance at December 31, 1997 1,000 $ 1 22,353,295 (20,668,947) 1,684,349
====== ======= ================ ============= =============
<FN>
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
CASINO MAGIC OF LOUISIANA, CORP.
STATEMENTS OF CASH FLOWS
MAY 13, 1996
(INCEPTION)
YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1997 1996
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (10,641,777) $ (10,027,170)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 4,281,626 740,922
Amortization 1,618,349 395,961
Gain on disposal of property and equipment (1,439,916) (818)
Amortization of debt issuance costs 931,567 322,594
Preopening costs - 6,520,158
Increase in prepaid expenses (161,260) (166,824)
(Increase) decrease in notes and accounts receivable, net (113,311) (345,116)
(Increase) decrease in other current assets (85,250) (131,147)
Increase (decrease) in accounts payable (102,171) 2,180,746
Increase (decrease) in accrued expenses 5,133,580 535,661
Increase (decrease) in accrued interest 901,037 3,715,909
Increase (decrease) in accrued payroll and related benefits 1,222,331 1,720,191
Increase other current liabilities 400,000 -
Increase (decrease) in accrued progressive gaming liabilities 274,790 113,432
-------------- --------------
Net cash provided by operating activities 2,219,595 5,574,499
-------------- --------------
Cash flows from investing activities:
Proceeds from sale of property and equipment 11,707,244 -
Acquisitions of property and equipment (7,226,920) (52,098,366)
Acquisitions of gaming license - (15,250,000)
Acquisitions of property held for sale (154,750) (70,944)
Expenditures for preopening costs - (6,520,158)
Increase in marketable securities (10,629,405) -
Other, net 57,021 (245,969)
-------------- --------------
Net cash provided by (used in) investing activities (6,246,810) (74,185,437)
-------------- --------------
Cash flows from financing activities:
Proceeds from issuance of notes payable and long-term debt 3,850,001 116,700,000
Principal payments on notes payable and long-term debt (9,461,430) (44,169,002)
Capital contributions received - 22,358,295
Debt issuance costs (544,707) (5,419,575)
-------------- --------------
Net cash provided by (used in) financing activities (6,156,136) 89,469,718
-------------- --------------
Net increase (decrease) in cash and cash equivalents (10,183,351) 20,858,780
Cash and cash equivalents, beginning of period 20,858,780 -
-------------- --------------
Cash and cash equivalents, including restricted cash, end of period $10,675,429 $20,858,780
============== ==============
<FN>
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
CASINO MAGIC OF LOUISIANA, CORP
STATEMENT OF CASH FLOWS (CONTINUED)
Supplemental schedule of non-cash investing and financing activities:
YEAR MAY 13, 1996
ENDED (INCEPTION) TO
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------ -----------------
<S> <C> <C>
Property and equipment acquisitions and property held for sale
financed with long-term debt or capital contributions 946,004 32,493,913
Construction in progress and preopening costs and other
included in accounts payable - 5,074,056
Gaming license acquisition financed with long-term debt - 21,617,612
Other current assets included in accounts payable 105,932 -
Property and equipment acquisitions included in accounts payable (832,364) -
<FN>
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
F-7
<PAGE>
CASINO MAGIC OF LOUISIANA, CORP.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND BASIS OF PRESENTATION:
On May 13, 1996 ("Inception"), Jefferson Casino Corporation ("Jefferson
Corp."), a Louisiana corporation and a wholly owned subsidiary of Casino Magic
Corp. ("Casino Magic"), commenced development stage activities by acquiring
all of the outstanding capital stock of Crescent City Capital Development
Corporation, a Louisiana corporation. Immediately following the acquisition,
the name of Crescent City Capital Development Corporation ("Crescent City")
was changed to Casino Magic of Louisiana, Corp. ("Louisiana Corp." or the
"Company"). Louisiana Corp. has developed a dockside riverboat casino and
entertainment complex in Bossier City, Louisiana ("Casino Magic-Bossier
City"). Casino Magic-Bossier City opened on October 4, 1996, using a temporary
facility, thereby completing its development stage activities, and opened the
permanent facility on December 31, 1996. The permanent facility has been
developed on a 23 acre site and includes; a 55,000 square foot land based
pavilion, which includes a buffet, a fine dining restaurant, fast food and
entertainment areas; a parking garage for approximately 1,550 cars and surface
parking for another approximately 400 cars; the 30,000 square foot casino has
approximately 1,004 slot machines and approximately 40 table games and
operates 24 hours a day dockside. Prior to October 4, 1996, the Company had
no material revenues or expenses other than interest income and expense.
Prior to Inception, Jefferson Corp. had no business activities and Crescent
City was a wholly owned subsidiary of Capital Gaming International, Inc. with
which Jefferson Corp. had no affiliation. Crescent City obtained a gaming
license from the State of Louisiana and on April 4, 1995, began operations on
a riverboat casino, the Crescent City Queen (the "Crescent City Riverboat"),
docked on the Mississippi River at New Orleans, Louisiana. On June 9, 1995
Crescent City ceased gaming operations and subsequently converted an
involuntary bankruptcy proceeding to a voluntary petition under Chapter 11 of
the U.S. Bankruptcy Code in the United States Bankruptcy Court. A plan of
reorganization was developed, and was confirmed by the U.S. Bankruptcy Court
on April 29, 1996 (the "Plan of Reorganization"). Pursuant to the Plan of
Reorganization, Crescent City was discharged from substantially all of its
liabilities prior to the acquisition. The purchase of the outstanding capital
stock of Crescent City by Jefferson Corp. was effected as part of the Plan of
Reorganization. Although the substance of the transaction was an acquisition
of certain assets, the acquisition was structured as a stock purchase to
satisfy Louisiana gaming license requirements. Crescent City had discontinued
all gaming activities after only 65 days of operations in the New Orleans
market and its only significant assets consisted of the Crescent City
Riverboat, a Louisiana gaming license, and the furniture, fixtures and gaming
equipment located on the Crescent City Riverboat. As a result of the
foregoing factors, management believes that the financial position and
operating results of Crescent City prior to the acquisition are not meaningful
and are therefore not presented because the Company operates in a different
market including different cruising requirements, with a different vessel and
facility, under different management and ownership and using a different name
and marketing theme.
The original agreement to acquire Crescent City was entered into by Jefferson
Corp. and C-M of Louisiana, Inc., the latter being another wholly owned
subsidiary of Casino Magic. C-M of Louisiana, Inc. was the fee owner of
approximately 20 acres of land with 900 feet of shoreline on the Red River in
Bossier City, Louisiana (the property that is being used as the gaming site
for Casino Magic-Bossier City). Another wholly owned subsidiary of Casino
Magic, Coastal Land of Florida, Inc., held a 99-year lease on the Casino
Magic-Bossier City property. Casino Magic had acquired C-M of Louisiana, Inc.
and Coastal Land of Florida, Inc. on October 26, 1995 in anticipation of
obtaining a gaming license and establishing gaming operations at the Bossier
City property. Immediately prior to or as part of the acquisition of Crescent
City, the lease was canceled and C-M of Louisiana, Inc. was merged into
Jefferson Corp. As a result, when the acquisition of Crescent City was
completed, Jefferson Corp. held all ownership interests in the Bossier City
property and all of the capital stock of Crescent City (which, renamed, is
Louisiana Corp.). In August 1996, Jefferson Corp. contributed all of its
Bossier City property, which constituted its only material assets other than
the capital stock of Louisiana Corp., to Louisiana Corp., its subsidiary, and
Louisiana Corp. assumed and paid the only significant liability of Jefferson
Corp.
F-8
<PAGE>
CASINO MAGIC OF LOUISIANA, CORP.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED):
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,
food and beverage furnished gratuitously to customers. The estimated
departmental costs of of providing food and beverage services are included in
casino expense as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996
- ---------- --------
<S> <C>
7,500,000 $700,000
========== ========
</TABLE>
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 Note5), 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 marketable securities and are restricted. 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 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
AMORTIZATION OF INTANGIBLES:
Deferred charges relating to debt issuance costs on long-term debt instruments
are amortized over the life of the related debt using the straight line method
which approximates the effective interest rate method. Included under other
assets is "Deferred gaming license cost". Deferred gaming license costs
represents the estimated fair value of the Louisiana gaming license, an asset
acquired in conjunction with the purchase of Crescent City. This cost is
being amortized on a straight-line basis over twenty-five years, the estimated
period to be benefited by the license, commencing at the time gaming
operations began at Casino Magic-Bossier City.
PREOPENING COSTS:
Preopening costs are initially capitalized and then expensed when the related
business commences operations.
F-9
<PAGE>
CASINO MAGIC OF LOUISIANA, CORP.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
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 bases. 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.
The Company is a party to a tax sharing agreement between Casino Magic Corp.
and each of its domestic subsidiaries (the "Consolidated Group") pursuant to
which Casino Magic Corp. files a consolidated federal income tax return on
behalf of the Consolidated Group and timely pays the Consolidated Group
federal income tax liability and each Company pays Casino Magic Corp. an
amount equal to its respective share of the Consolidated Group's federal
income tax liability. The Company is reimbursed for losses to the extent
those losses could have been used by the Company had it filed a separate
return.
CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES:
Gaming regulation licensing. The Company's ability to conduct gaming
operations in the State of Louisiana depends on the continued licensability or
qualification of Casino Magic, Jefferson Corp. and Louisiana Corp. under
Louisiana Gaming Regulations. Such licensing and qualifications will be
reviewed periodically by the gaming authorities in Louisiana.
Competition. The gaming industry is extremely competitive and the Company will
face competition from developments in both the Bossier City/Shreveport area
and other jurisdictions.
Substantial leverage and ability to service debt. The Company is highly
leveraged, with substantial debt service in addition to construction and
operating expenses.
Construction. Risks. 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 disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
2. PROPOSED MERGER :
On February 19, 1998, Casino Magic 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, Casino Magic has agreed to merge (the "Merger") with HP.
Upon such Merger, Casino Magic will be the surviving entity and will become a
wholly-owned subsidiary of Hollywood. Upon the Merger, the shareholders of
Casino Magic will be entitled to receive $2.27 for each share of Casino
Magic'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 Casino Magic 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.
F-10
<PAGE>
CASINO MAGIC OF LOUISIANA, CORP.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
3. OTHER ASSETS:
Included in other assets are the tangible and intangible assets that were
acquired in the purchase. Two significant purchased assets were the Louisiana
gaming license held by Crescent City and the Crescent City Riverboart. At
December 31, 1996 the balances associated with these costs are comprised of
the cost to acquire Crescent City, additional costs incurred to operate and
maintain the Crescent City Riverboat and capitalized interest related to the
gaming license. Jefferson Corp. acquired Crescent City for $50.0 million and
was accounted for as a purchase. Of the total purchase price, the Louisiana
gaming license and the Crescent City Riverboat were allocated $39 million and
$10 million, respectively. In September 1997 the Crescent City Riverboat was
sold for $11.7 million.
4. NOTES AND CONTRACTS PAYABLE:
Short-term notes and contracts payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
------- ----------
<S> <C> <C>
Construction contracts (a) $ -- $4,324,771
Other (b) 76,950 161,939
------- ----------
$76,950 $4,486,710
======= ==========
<FN>
(a) Consists of various payables relating to both fixed and cost plus
contracts.
(b) In 1997, the balance consisted of one note payable with the balance of
$76,950, payable of monthly installments of $12,825.
</TABLE>
5. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
------------- -------------
<S> <C> <C>
Notes payable, bank (a) $ 3,993,039 $ 6,275,740
Equipment contracts (b) 2,293,017 409,542
Other (c) 33,067 43,515
Louisiana First Mortgage Notes (d) 115,000,000 115,000,000
------------- -------------
121,319,123 121,728,797
Less current maturities (3,714,540) (1,878,605)
------------- -------------
$117,604,583 $119,850,192
============= =============
</TABLE>
(a) Consists of two notes payable to banks. The detail of these notes is
as follows: (i) Original note of $1,700,000 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 due in May 1998.
(ii) Original note of $3,850,000 collateralized by certain equipment. The
note is payable in 10 quarterly payments of $385,000, including interest at
8.25%. At December 31, 1997 the Company was not in compliance with certain
debt covenants relating to this note. The Company has received a waiver of
the covenants at December 31, 1997 and has restructured these covenants.
(b) Consists of three notes collateralized by equipment. The detail of
these notes is as follows: (i) Original note of $946,005 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 note of $1,075,740 collaterized 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 due in March 2000. (iii) Original note of $442,359 collateralized by
equipment, payable in thirty six monthly payments of $13,923, including
principal and interest at 8.3% with the final payament due September 1999.
(c) Consists of various collateralized notes payable through the year
2000. The interest rates on these notes vary from 12.95% to 13.25% fixed
rates.
F-11
<PAGE>
CASINO MAGIC OF LOUISIANA, CORP.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
5. LONG-TERM DEBT (CONTINUED):
(d) On August 22, 1996, the Company sold $115,000,000 aggregate principal
amount of 13%, First Mortgage Notes due 2003 with Contingent Interest ("First
Mortgage Notes"). Contingent Interest is payable on the 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 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 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.
The 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 CityThe Jefferson Corp.
Guarantee will be secured by a pledge of all of the capital stock of Casino
Magic of Louisiana, Corp. a wholly owned subsidiary of Jefferson Corp.
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 First Mortgage Notes are governed by the Louisiana Indenture. The
Louisiana Indenture pursuant to which the First Mortgage Notes have been
issued contains certain covenants that will limit the ability of Casino
Magic-Bossier City 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 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 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:
Through August 15,
2000 106.500%
2001 104.332%
2002 102.166%
F-12
<PAGE>
CASINO MAGIC OF LOUISIANA, CORP.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
5. LONG-TERM DEBT (CONTINUED):
The Indenture requires the disclosure of the following information for 1997:
Contingent Interest paid $ --
Contingent Interest accrued $677,000
Accrued Management Fees $1,355,000
Adjusted Consolidated Cash Flow $13,545,000
All the above terms are as defined in the Indenture.
Maturities of the Company's long-term debt, including capital lease
obligations, as of December 31, 1997, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- -------------------------
<S> <C>
1998 $ 3,714,540
1999 2,315,796
2000 288,787
2001 --
2002 --
Thereafter 115,000,000
------------
$121,319,123
============
</TABLE>
6. BENEFIT PLAN:
The Company participates in Casino Magic Corp.'s 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
for the periods ended December 31, 1997 and 1996 were approximately $20,000,
and $3,768, respectively.
7. ADVERTISING:
The Company expenses all production and communication costs of advertising as
incurred. Advertising expenses were approximately $3,400,000 and $700,000 for
the periods ended December 31, 1997 and 1996, respectively.
8. RELATED PARTY TRANSACTIONS:
The Company made payments to affiliated companies of approximately $3,360,000
during 1996. These payments related to development costs paid on behalf of
the Company which were incurred prior to the issuance of the Louisiana First
Mortgage Notes. At December 31, 1997 and 1996 the Company had payables to
affiliated entities in the amounts of $3,262 and $1,130,000, respectively.
The balances relate to third party transactions that were paid by affiliated
entities on behalf of the Company.
In August 1996, the Company entered into a management agreement (the
"Management Agreement") with Casino Magic and a wholly owned subsidiary of
Casino Magic (the "Manager") for a term of 10 years. In consideration for the
license of the "Casino Magic" name and the services provided under the
Management Agreement, the Company has agreed to pay a management fee equal to
10% of Adjusted Consolidated Cash Flow, as defined in the Indenture. Payment
of the management fee will be subject to certain restrictions contained in the
Indenture. The Company accrued management fees of $1.4 million during 1997,
none of which has been paid.
F-13
<PAGE>
CASINO MAGIC OF LOUISIANA, CORP.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
9. INCOME TAXES:
Components of deferred tax liabilities (assets) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Depreciation and amortization $ 2,727,118 $ 193,024
Write-off of preopening costs (1,720,565) (2,179,383)
Net operating loss carryforward (10,890,715) (1,137,024)
Other (1,027,937) (1,151,328)
------------- ------------
Gross deferred tax assets (10,912,099) (4,274,711)
------------- ------------
Less valuation allowance 10,912,099 4,274,711
============= ============
Net deferred tax liabilities $ -- $ --
============= ============
</TABLE>
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:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Statutory U.S. tax rate (35%) $(3,724,622) $(3,515,539)
Increase (decrease) in rates resulting from:
Expenses which were non-deductible
or tax purposes 914,000 43,002
Expenses which were deductible
for tax purposes and not book (4,255,000) --
Valuation allowance 6,637,388 4,274,711
State tax benefit -- (802,174)
Other 428,234 --
------------ ------------
Effective tax rate (0%) $ -- $ --
============ ============
</TABLE>
The valuation allowance against deferred tax assets was recorded in
recognition of operating losses incurred by the Company since Inception.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts and fair values of the Company's financial instruments at
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
(IN THOUSANDS) AMOUNT VALUE
- ------------------------------------------------------- -------- -------
<S> <C> <C>
Cash and cash equivalents 10,675 10,675
Marketable securities 10,629 10,629
Notes payable and current maturities of long-term debt
and long-term debt 121,396 113,346
</TABLE>
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 balance sheet approximates its fair value because of the short
nature of these instruments.
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.
F-14
<PAGE>
CASINO MAGIC OF LOUISIANA, CORP.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
11. CONTINGENCIES
In July 1997, the Company entered into an agreement to sell to Carlo
Corporation ("Carlo") the Crescent City Riverboat acquired by the Company in
connection with its establishment of Casino Magic-Bossier City. A deposit of
$1,000,000 was paid by Carlo under the agreement and was subject to forfeiture
as liquidated damage if the purchase of the vessel was not completed. Carlo
asserted that the condition of the vessel excused Carlo from completing the
purchase, and requested the return of the deposit. The denied the claim and
retained the deposit. On August 29, 1997 Carlo commenced litigation on the
Circuit Court of Harrison County, Mississippi seeking return of the deposit
and punitive damages. The Company has answered the claim. While the
Company's management can not predict the outcome of this action, management
believes that Company was entitled to retain the deposit as liquidated damages
under the agreement and intends to vigorously defend this action.
F-15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECEMBER 31,
1997, FINANCIAL STATEMENTS OF CASINO MAGIC OF LOUISIANA CORP. AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 10,675,429
<SECURITIES> 10,629,405
<RECEIVABLES> 464,477
<ALLOWANCES> 0
<INVENTORY> 216,397
<CURRENT-ASSETS> 22,523,720
<PP&E> 82,257,246
<DEPRECIATION> 4,993,784
<TOTAL-ASSETS> 142,637,549
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0
0
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</TABLE>