SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): April 15, 1999
CASINO MAGIC OF LOUISIANA, CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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Louisiana . . . . . . . . . . 333-14535 64-0878110
(STATE OR OTHER JURISDICTION. (COMMISSION (IRS EMPLOYER
OF INCORPORATION) . . . . . . FILE NUMBER) IDENTIFICATION NO.)
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711 Casino Magic Drive, Bay Saint Louis, Mississippi 39520
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (228) 467-9257
ITEM 5. OTHER EVENTS.
On April 15, 1999, the Company completed its audit for fiscal year 1998.
Attached as Exhibit 99.1 is certain financial information relating to the
Company, which is incorporated herein by reference.
ITEM 7. EXHIBITS.
99.1 Financial Statements of Casino Magic of Louisiana, Corp.
together with Management's Discussion and Analysis of Financial Condition and
Results of Operations.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CASINO MAGIC OF LOUISIANA, CORP.
Date: April 15, 1999 By: /s/ Paul Alanis
-----------------
Name: Paul Alanis
-----------------
Title: President and Chief Operating Officer
-----------------------------------------
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Exhibit Index
-------------
Exhibit Description
- ------- -----------
99.1 Financial Statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations.
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INDEX
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Page
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . 1
FINANCIAL STATEMENT SCHEDULES . . . . . . . . . . F-1
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i
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CASINO MAGIC OF LOUISIANA, CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Except for the historical information contained herein, the matters addressed
in this Annual Report may constitute "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended and Section
21E of the Securities and Exchange Act of 1934, as amended. Such
forward-looking statements are subject to a variety of risks and uncertainties
that could cause actual results to differ materially from those anticipated by
the Company's management. Factors that may cause actual performance of the
Company to differ materially from that contemplated by such forward-looking
statements include, among others: the failure to obtain adequate financing to
meet strategic goals; possible Year 2000 issues (discussed in more detail
below); the failure to retain gaming licenses or regulatory approvals; severe
weather conditions; the failure to meet the Company's debt service
obligations; and the saturation of, or other adverse changes in the gaming
market in which the Company operates. The Private Securities Litigation
Reform Act of 1995 (the "Act") provides certain "safe harbor" provisions for
forward-looking statements. All forward-looking statements made in this
Annual Report are made pursuant tot he Act. For more information on the
potential factors which could affect the Company's financial results, please
review the Company's financial statements included herein and the discussion
contained therein under the caption "Certain Significant Risks Factors and
Uncertainties."
YEAR 2000
The Company is actively evaluating and resolving any potential impact of the
Year 2000 problem on the processing of date-sensitive information by its
information systems, and the information systems of vendors upon whom the
Company is dependent. The Year 2000 problem exists because computer systems
and applications were historically designed to use two digit fields (rather
than four) to designate a year, and date sensitive systems may not properly
recognize 2000, which could result in miscalculations or system failures.
Hollywood Park has established a Year 2000 project team composed of
individuals from each business unit, including Casino Magic of Louisiana,
Corp., to identify and mitigate Year 2000 issues, with respect to the
Company's information systems, products, facilities, suppliers and customers.
INTERNAL COMPUTER SYSTEMS. The Company believes that its various financial
reporting software and associated hardware are Year 2000 compatible. It has
identified the following software and hardware applications that will need to
be upgraded or replaced at an estimated cost of $100,000: (a) payroll
software; (b) personal computer networks; and (c) gaming patron player
tracking systems. This cost estimate is based on numerous assumptions,
including the assumptions that the Company has already identified the most
significant Year 2000 issues. There can be no guarantee that these
assumptions are accurate, and actual results could differ materially from
those anticipated.
The Company cannot be assured that its Year 2000 program will be effective, or
that estimates about time and costs of completing the Year 2000 program will
be accurate, or that third party suppliers will timely resolve any or all Year
2000 problems with their systems. Any failure of a third party supplier to
timely resolve their Year 2000 issues could result in material disruption of
the Company's business. Such disruption could have a materially adverse
effect on the Company's business, financial condition and results of
operations.
1
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CASINO MAGIC OF LOUISIANA, CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - (CONTINUED)
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Gaming revenues increased by $18.3 million, or 20.4%, for the year ended
December 31, 1998, as compared to the year ended December 31, 1997. The
increase in revenues was a result of the Company's greater maturity in the
Shreveport-Bossier City market, the upgrading of product mix in slot machines,
and more effective marketing programs. Food and beverage revenues decreased
by $0.6 million, or 21.1%, over the comparative year primarily due to the
change in marketing strategy for 1998 that greatly reduced complimentary food
and beverage promotions.
Total operating expenses increased $6.6 million, or 8%, during the year ended
December 31, 1998, as compared to the year ended December 31, 1997. Casino
expenses increased $6.7 million, or 14%, as a corresponding result of the
increased gaming revenues. Casino expenses as a percentage of Total Revenues
decreased from 51.0% in 1997 to 48.9% in 1998, principally as a result of
operating efficiencies at higher revenue levels. In addition, advertising and
marketing costs as a percentage of Total Revenues dropped from 16.1% to 12.7%.
This reduction reflects more focused and effective marketing programs,
particularly direct mail marketing. Other administrative and operating
expenses slightly decreased by $0.1 million over the comparative year as a
result of cost cutting and budgetary programs.
Other expenses increased $7.0 million, or 43%, during the year ended December
31, 1998, as compared to the year ended December 31, 1997. These expenses
include an increase in interest expense of $0.8 over the comparative year
relating primarily to the First Mortgage Notes. Also included in other
(income) and expenses is an increase of $2.3 million in expenses related to
the merger between Casino Magic and Hollywood Park, Inc. and a $3.4 million
increase in loss on sale of assets. In 1998, the Company recorded a $1.9
million loss on sale of assets due to impairment in value; whereas in the
comparative year, the Company recorded a $1.4 million gain on sale of assets
due to the sale of the Crescent City Riverboat.
YEAR ENDED DECEMBER 31, 1997
A comparison of results from 1996 to 1997 is not meaningful due to the opening
of the facility in October 1996.
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 17.5% 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. 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.
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.
2
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CASINO MAGIC OF LOUISIANA, CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - (CONTINUED)
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 had a net loss of $10.0 million 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, 1998, the Company had unrestricted cash and marketable
securities of $8.6 million compared to unrestricted cash and marketable
securities of $10.7 million at December 31, 1997. Restricted marketable
securities at December 31, 1998, were $0.1 million compared to $10.6 million
at December 31, 1997. Proceeds from the sale of restricted marketable
securities have been used to construct the 188-room hotel which opened in
December 1998.
During 1998, the Company generated $4.2 million of cash flow in operating
activities. The Company spent $18.6 million for acquisitions of property,
equipment and other long-term assets, primarily for the construction of the
188-room hotel. Casino Magic-Bossier City issued $7.2 million in promissory
notes to Casino Magic Corp. and Casino Magic Management Services and made
principal payments on notes payable and long-term debt of $5.4 million.
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 believes that cash at December 31, 1998, and cash flows from
operations will be sufficient to service its operating and debt service
requirements, through at least the next twelve months.
3
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INDEX TO FINANCIAL STATEMENTS
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CONTENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PAGES
Report of Independent Public Account . . . . . . . . . . . . . . . . . . . . . . . F-2
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Statement of Operations for the years ended December 31, 1998, 1997 and for the
period from May 13, 1996 (date of inception) through December 31, 1996. . . . . . F-4
Balance Sheets as of December 31, 1998 and December 31, 1997 . . . . . . . . . . . F-5
Statement of Changes in Equity for the years ended December 31, 1998, 1997 and for
the period from May 13, 1996 (date of inception) through December 31, 1996. . . . F-6
Statement of Cash Flows for the years ended December 31, 1998, 1997 and for the
period from May 31, 1996 (date of inception) through December 31, 1996. . . . . . F-7
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . F-8
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F-1
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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. which is a wholly owned subsidiary of Hollywood Park, Inc.) as of
December 31, 1998 and 1997 and the related statements of operations, changes
in equity and cash flows for each of the two years in the period ended
December 31, 1998, 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, 1998 and 1997 and the results of its operations and
development stage activities and its cash flows for each of the two years in
the period ended December 31, 1998, 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 23, 1999
F-2
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CASINO MAGIC OF LOUISIANA, CORP.
STATEMENTS OF OPERATIONS
YEAR ENDED
MAY 13, 1996
DECEMBER 31, (INCEPTION) THROUGH
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1998 1997 DECEMBER 31, 1996
--------------------- -------------- -------------------
REVENUES:
Casino . . . . . . . . . . . . . . . . . . . . . $ 107,796,395 $ 89,539,940 $ 12,664,451
Food and beverage. . . . . . . . . . . . . . . . 2,271,653 2,879,922 --
Other operating income . . . . . . . . . . . . . 842,798 785,226 73,349
--------------------- -------------- -------------------
Total revenues . . . . . . . . . . . . . . . . 110,910,846 93,205,088 12,737,800
--------------------- -------------- -------------------
COSTS AND EXPENSES:
Casino . . . . . . . . . . . . . . . . . . . . . 54,263,124 47,556,444 7,123,353
Food and beverage. . . . . . . . . . . . . . . . 3,104,423 3,608,206 --
Other operating costs and expenses . . . . . . . 707,080 618,699 36,294
Advertising and marketing. . . . . . . . . . . . 14,068,932 14,998,833 1,695,039
General and administrative . . . . . . . . . . . 7,964,762 7,234,507 2,241,551
Property operation, maintenance and energy cost. 4,549,677 4,975,789 1,060,727
Rents, property taxes and insurance. . . . . . . 2,934,731 2,575,905 246,169
Depreciation and amortization. . . . . . . . . . 6,514,933 5,899,975 1,136,883
Preopening costs . . . . . . . . . . . . . . . . -- -- 6,520,158
--------------------- -------------- -------------------
Total costs and expenses . . . . . . . . . . . 94,107,662 87,468,358 20,060,174
--------------------- -------------- -------------------
INCOME (LOSS) FROM OPERATIONS . . . . . . . . . . 16,803,184 5,736,730 (7,322,374)
--------------------- -------------- -------------------
OTHER (INCOME) EXPENSES:
Interest expense . . . . . . . . . . . . . . . . 17,829,401 17,035,579 7,220,979
Capitalized interest . . . . . . . . . . . . . . (847,052) (107,401) (4,026,591)
Interest income. . . . . . . . . . . . . . . . . (447,570) (464,259) (488,774)
Loss (gain) on disposal of assets. . . . . . . . 1,930,360 (1,439,916)
Other (income) and expense . . . . . . . . . . . 4,959,923 1,354,504 (818)
--------------------- -------------- -------------------
Total other expense. . . . . . . . . . . . . . 23,425,062 16,378,507 2,704,796
--------------------- -------------- -------------------
LOSS BEFORE INCOME TAXES. . . . . . . . . . . . . (6,621,878) (10,641,777) (10,027,170)
INCOME TAX EXPENSE (BENEFIT). . . . . . . . . . . -- -- --
NET LOSS. . . . . . . . . . . . . . . . . . . . . $ (6,621,878) $ (10,641,777) $ (10,027,170)
===================== ============== ===================
<FN>
SEE NOTES TO FINANCIAL STATEMENTS.
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F-3
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CASINO MAGIC OF LOUISIANA, CORP.
BALANCE SHEETS
ASSETS
DECEMBER 31, DECEMBER 31,
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1998 1997
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CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . $ 8,622,824 $ 10,675,429
Restricted marketable securities. . . . . . . . . . . . . 108,484 10,629,405
Other current assets. . . . . . . . . . . . . . . . . . . 1,260,094 1,218,886
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Total current assets. . . . . . . . . . . . . . . . . . 9,991,402 22,523,720
PROPERTY AND EQUIPMENT, NET. . . . . . . . . . . . . . . . 92,218,176 77,263,462
OTHER LONG-TERM ASSETS
Deferred gaming license cost, net . . . . . . . . . . . . 36,445,935 38,048,426
Debt issuance costs, net. . . . . . . . . . . . . . . . . 3,890,239 4,710,121
Other long-term assets. . . . . . . . . . . . . . . . . . 131,838 91,820
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Total other long-term assets. . . . . . . . . . . . . . 40,468,012 42,850,367
-------------- --------------
$ 142,677,590 $ 142,637,549
============== ==============
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Notes and contracts payable . . . . . . . . . . . . . . . $ 1,698,871 $ 76,950
Current maturities of long-term debt. . . . . . . . . . . 5,213,608 3,714,540
Accounts payable. . . . . . . . . . . . . . . . . . . . . 4,925,136 3,665,071
Accrued expenses. . . . . . . . . . . . . . . . . . . . . 1,800,200 4,222,609
Accrued interest. . . . . . . . . . . . . . . . . . . . . 7,679,149 6,547,014
Accrued payroll and related benefits. . . . . . . . . . . 2,426,360 2,942,523
Accrued progressive gaming liabilities. . . . . . . . . . 1,669,583 388,221
Other current liabilities . . . . . . . . . . . . . . . . -- 400,000
-------------- --------------
Total current liabilities . . . . . . . . . . . . . . . 25,412,907 21,956,928
Other long-term liabilities. . . . . . . . . . . . . . . . 3,852,963 1,391,689
Long-term debt, net of current maturities. . . . . . . . . 118,349,249 117,604,583
SHAREHOLDER'S EQUITY (ACCUMULATED DEFICIT)
Common stock, $0.01 par value, 10,000 shares authorized,
1,000 shares issued and outstanding at December 31, 1998
and December 31, 1997 1 1
Additional paid-in capital 22,353,295 22,353,295
Accumulated deficit. . . . . . . . . . . . . . . . . . . . (27,290,825) (20,668,947)
-------------- --------------
Total shareholder's equity (accumulated deficit) (4,937,529) 1,684,349
-------------- --------------
$ 142,677,590 $ 142,637,549
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<FN>
SEE NOTES TO FINANCIAL STATEMENTS.
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F-4
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CASINO MAGIC OF LOUISIANA, CORP.
STATEMENTS OF CHANGES IN EQUITY
Common Stock Additional Retained
Shares Amount Paid-in-Capital Earnings Total
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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
Net loss. . . . . . . . -- -- -- (6,621,878) (6,621,878)
------ ------- ---------------- ------------- -------------
BALANCE AT
DECEMBER 31, 1998 . . 1,000 $ 1 $ 22,353,295 $(27,290,825) $ (4,937,529)
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<FN>
SEE NOTES TO FINANCIAL STATEMENTS.
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F-5
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CASINO MAGIC OF LOUISIANA, CORP.
STATEMENTS OF CASH FLOWS
MAY 13, 1996
(INCEPTION)
THROUGH
YEAR ENDED DECEMBER 31, DECEMBER 31,
<S> <C> <C> <C>
1998 1997 1996
------------------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . $ (6,621,878) $(10,641,777) $(10,027,170)
Depreciation 4,912,433 4,281,626 740,922
Amortization 1,602,491 1,618,349 395,961
(Gain) loss on disposal of property and equipment 1,930,360 (1,439,916) (818)
Amortization of debt issuance costs 819,882 931,567 322,594
Preopening costs -- -- 6,520,158
(Increase) decrease in prepaid expenses 227,229 (161,260) (166,824)
Increase in notes and accounts receivable, net. . . . . . . (208,107) (113,311) (345,116)
Increase in other current assets. . . . . . . . . . . . . . (60,329) (85,250) (131,147)
Increase (decrease) in accounts payable 916,075 (102,171) 2,180,746
Increase (decrease) in accrued expenses 38,865 5,133,580 535,661
Increase in accrued interest 285,083 901,037 3,715,909
Increase (decrease) in accrued payroll and related benefits (516,162) 1,222,331 1,720,191
Increase in accrued progressive gaming liabilities 1,281,361 274,790 113,432
Increase (decrease) in other current liabilities (400,000) 400,000 --
------------------------- ------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,207,303 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. . . . . . . . . . . (18,562,376) (7,226,920) (52,098,366)
Acquisition of property held for sale -- (154,750) (70,944)
Acquisition of gaming license -- -- (15,250,000)
Expenditures for preopening costs -- -- (6,520,158)
(Increase) decrease in deposits and other long-term assets (40,018) 57,021 (245,969)
(Increase) decrease in marketable securities 10,520,921 (10,629,405) --
------------------------- ------------- -------------
NET CASH USED IN INVESTING ACTIVITIES. . . . . . . . . . . . (8,081,473) (6,246,810) (74,185,437)
------------------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 7,225,606 3,850,001 116,700,000
Principal payments on notes payable and long-term debt. . . (5,404,041) (9,461,430) (44,169,002)
Capital contributions received -- -- 22,358,295
Debt issue costs -- (544,707) (5,419,575)
------------------------- ------------- -------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,821,565 (6,156,136) 89,469,718
------------------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,052,605) (10,183,351) 20,858,780
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 10,675,429 20,858,780 --
------------------------- ------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 8,622,824 $ 10,675,429 $ 20,858,780
========================= ============= =============
<FN>
SEE NOTES TO FINANCIAL STATEMENTS.
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F-6
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<CAPTION>
CASINO MAGIC OF LOUISIANA, CORP.
STATEMENTS OF CASH FLOWS
MAY 13, 1996
(INCEPTION)
THROUGH
YEAR ENDED DECEMBER 31, DECEMBER 31,
<S> <C> <C> <C>
1998 1997 1996
------------------------- ------------ -----------
CASH PAID DURING THE PERIOD FOR:
Interest (net of amount capitalized) $ 15,028,592 $15,110,640 $ --
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Property and equipment and other asset acquisitions
included in accounts and construction payable and accrued
expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,508,032 (832,364) $ 5,074,056
Property and equipment and property held for sale financed
with long-term debt . . . . . . . . . . . . . . . . . . . . . . . . 345,220 946,000 32,493,913
Gaming license acquisition financed with long-term debt -- -- 21,617,612
Other current assets in accounts payable -- 105,932 --
<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. Effective October 15, 1999, the Company
became a wholly owned subsidiary of Hollywood Park, Inc. (see "Merger"
description below). Immediately following the acquisition of Crescent City
Capital Development Corporation ("Crescent City"), the name 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. 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.
MERGER :
On February 19, 1998, Casino Magic entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Hollywood Park, Inc. ("Hollywood Park"),
and Acquisition II, Inc. ("HP") a wholly-owned subsidiary of Hollywood Park.
Under the Merger Agreement, on October 15, 1998, Casino Magic merged with HP
and Casino Magic became the surviving entity and became a wholly-owned
subsidiary of Hollywood Park. Upon the Merger, the shareholders of Casino
Magic received $2.27 for each share of Casino Magic's stock held. The Merger
was accounted for by Hollywood Park using the purchase method. The effects of
the purchase price allocation are not reflected in the accompanying financial
statements, but are included in the consolidated financial statements of
Hollywood Park.
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
rooms, food, and beverage furnished gratuitously to customers. The estimated
departmental costs of providing rooms, food, and beverage services are
included in casino expense as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
- ---------------------------
1998 1997
- ---------- ----------
<S> <C>
8,200,000 $7,500,000
========== ==========
</TABLE>
CASH AND CASH EQUIVALENTS:
For purposes of the balance sheet and statement 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 cost, which, based on the short term
nature of the investments approximates fair value.
The Louisiana First Mortgage Notes (See Note 4), 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, 1998 are
shown as marketable securities and are restricted.
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 18 - 39 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:
Expenses incurred prior to opening and operation of the hotel in December 1998
were expensed as incurred. Prior to 1998, preopening costs were initially
capitalized and then expensed when the related business commenced operations.
In April 1998, Statement of Position 98-5 Reporting on the Costs of Start-Up
Activities was issued and was effective for years after December 31, 1998.
Statement of Position 98-5 required that start-up activities and
organizational costs be expensed as incurred. The adoption of Statement of
Position 98-5 did not have an impact on the financial statements of the
Company.
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.
F-9
<PAGE>
CASINO MAGIC OF LOUISIANA, CORP.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED):
ACCOUNTING PRONOUNCEMENTS:
LONG-LIVED ASSETS. The Company periodically reviews the propriety of the
carrying amount of long-lived assets and the related intangible assets as well
as the related amortization period to determine whether current events or
circumstances warrant adjustments to the carrying value and/or the estimates
of useful lives. This evaluation consists of the Company's projection of the
undercounted operating income before depreciation, amortization and interest
over the remaining lives of the excess costs, in accordance with FASB
Statement No. 121 Accounting for the Impairment of Long-lived Assets and for
Long-Lived Assets to be Disposed Of. Based on its review, the Company
believes that as of December 31, 1998, there were no significant impairments
of its long-lived assets or related intangible assets.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. In September 1998, the
Financial Accounting Standards Board issued statement of Financial Accounting
Standards No. 133 Accounting for Derivative Instruments and Hedging Activities
("SFAS No. 133"). The Company has not made such investments in the past and
does not expect to make such investments in the foreseeable future, and thus
SFAS No. 133 has no impact on the financial reporting of the Company.
SFAS No. 133 established accounting and reporting standards with respect to
recording derivative instruments on the balance sheet measured at its fair
value. SFAS No. 133 will be effective for accounting years beginning after
June 15, 1999.
COMPREHENSIVE INCOME. In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standard's No. 130, Reporting
Comprehensive Income ("SFAS No. 130"), which became effective for years
beginning after December 31, 1997. SFAS No. 130 requires the classification
of other comprehensive income by its nature in a financial statement, and to
disclose the accumulated balance of other comprehensive income separately in
the shareholders' equity section of the balance sheet.
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 Hollywood Park, 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 operating expenses.
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.
F-10
<PAGE>
CASINO MAGIC OF LOUISIANA, CORP.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
2. NOTES AND CONTRACTS PAYABLE:
Short-term notes and contracts payable consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------
1998 1997
---------- -------
<S> <C> <C>
Construction contracts (a) $1,698,871 $ --
Other (b) -- 76,950
---------- -------
$1,698,871 $76,950
========== =======
<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>
3. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1998 1997
------------- -------------
<S> <C> <C>
Notes payable, bank (a) $ 1,705,249 $ 3,993,039
Equipment contracts (b) 1,700,218 2,293,017
Other (c) 38,684 33,067
Other, promissory note (d) 7,243,705 --
Louisiana First Mortgage Notes (e) 112,875,000 115,000,000
------------- -------------
123,562,856 121,319,123
Less current maturities (5,213,608) (3,714,540)
------------- -------------
$118,349,248 $117,604,583
============= =============
</TABLE>
F-11
<PAGE>
CASINO MAGIC OF LOUISIANA, CORP.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
3. LONG-TERM DEBT (CONTINUED):
(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 0.25%
(8.75% at December 31, 1998) with a final balloon payment due August 1999.
(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, 1998, the Company was in compliance with the debt
covenants relating to this note.
(b) Consists of four 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% (10.75% at
December 31, 1998) with final balloon payment due at term of note. (ii)
Original note of $1,075,740 collateralized by equipment, payable in
twenty-three monthly payments of $44,823, including interest at prime plus 1%
(8.75% at December 31, 1998) with final balloon payment due at term of note.
In March 1998 these two 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 payment due
September 1999. (iv) Original note of $59,135.01 collateralized by equipment,
payable in twelve monthly payments of $4,798.67, including principal and
interest at 12%.
(c) Consists of various collateralized notes payable through the year
2001. The interest rates on those notes vary from 9.6% to 12.95% fixed rates.
(d) Consists of one promissory note payable to Casino Magic Corp. and two
promissory notes payable to Casino Magic Management Services. The detail of
these notes is as follows: (i) Original balance of $1,000,000 payable in
thirty-six consecutive monthly installments of $31,451.82 beginning January
1999, including principal and interest at 8.25%. (ii) Original balance of
$5,000,000 payable in thirty-six consecutive monthly installments of
$156,820.78 beginning January 1999, including principal and interest at 8.25%.
(iii) Original balance of $1,243,705 payable in thirty-six consecutive monthly
installments of $39,115.13 beginning January 1999, including principal and
interest at 8.25%.
(e) 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.
F-12
<PAGE>
CASINO MAGIC OF LOUISIANA, CORP.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
3. LONG-TERM DEBT (CONTINUED):
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 merger with Hollywood Park, Inc. 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 the Change of Control, the Company mailed a notice to
each Holder describing the transaction that constitutes a Change of Control
and offered 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. On December 22, 1998, principal amount of $2,125,000 of the
First Mortgage Notes were redeemed. Redemption costs, including a redemption
premium, interest and write-off of unamortized debt issuance costs, were
approximately $192,000 and are included in the accompanying statement of
operations for the year ended December 31, 1998.
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%
The Indenture requires the disclosure of the following information for 1998:
Contingent Interest paid $ --
Contingent Interest accrued $1,231,000
Accrued Management Fees $2,463,000
Adjusted Consolidated Cash Flow $24,613,000
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, 1998, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- --------------------------
<S> <C>
1999 . . . . . . . . . . . $ 5,213,608
2000 . . . . . . . . . . . 2,860,119
2001 . . . . . . . . . . . 2,614,130
2002 . . . . . . . . . . . --
2003 . . . . . . . . . . . 112,875,000
Thereafter . . . . . . . . --
------------
123,562,857
==========================
</TABLE>
F-13
<PAGE>
CASINO MAGIC OF LOUISIANA, CORP.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
4. 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, 1998, 1997 and 1996 were approximately
$57,700, $20,000 and $3,768, respectively.
5. RELATED PARTY TRANSACTIONS:
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 and $2.5
million during 1998 and 1997, respectively, none of which has been paid. No
management fees were accrued or paid in 1996 as the fees were not applicable
until the permanent facility opened on December 31, 1996 (see Note 1).
During 1998, the Company executed certain promissory notes payable to Casino
Magic Corp. and Casino Magic Management Services (See Note 4).
6. INCOME TAXES:
Components of deferred tax liabilities (assets) are as follows:
<TABLE>
<CAPTION>
DECEMBER
<S> <C> <C>
1998 1997
------------- -------------
Depreciation and amortization . $ 4,005,309 $ 2,727,118
Write-off preopening costs. . . (1,684,808) (1,720,565)
Net operating loss carryforward (12,452,198) (10,890,715)
Other . . . . . . . . . . . . . (2,205,242) (1,027,937)
------------- -------------
Gross deferred tax assets . . . (12,336,948) (10,912,099)
------------- -------------
Less valuation allowance. . . . 12,336,948 10,912,099
============= =============
Net deferred tax liabilities . $ -- $ --
============= =============
</TABLE>
F-14
<PAGE>
CASINO MAGIC OF LOUISIANA, CORP.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
6. INCOME TAXES (CONTINUED):
The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory federal income tax rate
to pre-tax income from continuing operations as a result of the following
differences:
<TABLE>
<CAPTION>
DECEMBER
<S> <C> <C>
1998 1997
------------ ------------
Statutory U.S. tax rate (35%) . . . . . . . . $(2,317,657) $(3,724,622)
Increase (decrease) in rates resulting from:
Expenses which were non-deductible
for tax purposes . . . . . . . . . . . . . . 330,669 914,000
Expenses which were deductible for
tax purposes and not book. . . . . . . . . . -- (4,255,000)
Valuation allowance . . . . . . . . . . . . . 1,424,849 6,637,388
Other . . . . . . . . . . . . . . . . . . . . 562,139 428,234
------------ ------------
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.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts and fair values of the Company's financial instruments at
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Carrying Fair
(In thousands) Amount Value
- ------------------------------------------------------- --------- --------
<S> <C> <C>
Cash and cash equivalents . . . . . . . . . . . . . . . $ 8,623 $ 8,623
Marketable securities . . . . . . . . . . . . . . . . . 108 108
Notes payable and current maturities of long-term debt
and long-term debt . . . . . . . . . . . . . . . . 123,562 127,668
</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-15
