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EXHIBIT 99.1
Index
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Management's Discussion and Analysis of Financial Condition and Results of Operations. 1
Financial Statement Schedules F-2
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CASINO MAGIC OF LOUISIANA CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations:
For the three months ended March 31, 2000 compared to the three months ended
----------------------------------------------------------------------------
March 31, 1999:
---------------
Gaming revenues increased by $4.9 million or 15.2% to $37.3 million for the
first quarter of 2000 compared to $32.4 million for the first quarter of 1999.
During this period table game revenue grew by $0.6 million and slot revenue grew
by $4.3 million compared to the first quarter of 1999. The increase is primarily
a result of improvement in the food and beverage facilities, upgrading of
product mix in slot machines, and targeted marketing programs. The Bossier
City/Shreveport, Louisiana gaming market (as measured by taxable gaming
receipts) grew $18.4 million over first quarter last year or 11.9%. Casino Magic
of Louisiana Corp.'s dockside riverboat casino ("Casino Magic-Bossier City")
taxable gaming receipts increased 12.5% over the same comparative period,
decreasing its market share by approximately 2.1%. Non-gaming revenues (food and
beverage and hotel operations net of complimentaries) decreased $134 thousand
over the comparable periods principally as a result of a decrease in mail
offers. Other operating income increased $250 thousand for the first quarter of
2000 compared to the first quarter of 1999 as a result of the increase in gaming
revenue which directly attributed to the increase in commissions and retail
revenues.
Total costs and expenses during the first quarter of 2000 were $30.4 million
compared to $27.3 million in the first quarter of 1999, a cost increase of $3.1
million or 11.4%. Casino costs increased $2.6 million or 15.8% over the
comparative period. This increase was generally due to increased taxes on
marginal gaming revenues (23.9% tax rate) and increases in the cost of slot club
points with respect to triple points awarded on Tuesdays in some months, and
other promotional expenses. Other operating costs and expenses decreased by $41
thousand or 25.5% over the prior year primarily due to cost savings in the gift
shop. Advertising and marketing expenses decreased by $62 thousand or 1.7% over
first quarter 1999. Marketing costs for the first quarter 2000 were only 9.0% of
net revenues compared to 10.5% in the same period of 1999. Marketing strategy in
the first quarter of 1999, although effective, required more promotional costs
to drive business. General and administrative expenses increased $226 thousand
or 10.5% over the comparative period due primarily to an increase in human
resources recruitment and training costs. Property operation expenses increased
$221 thousand or 16.9% as a result of increased maintenance and utility costs
associated with the new facilities. Depreciation increased $205 thousand or
10.9% as a result of the increased cost of the new facilities.
Casino Magic-Bossier City earned an operating profit of $8.5 million for the
first quarter of 2000 versus $6.5 million in the first quarter of 1999, an
improvement of $2.0 million or 30.8%. There was no income tax provision or
benefit for the first quarter of 2000 or the first quarter of 1999. The Company
is included in a consolidated group subject to a tax-sharing agreement between
itself and affiliated companies. The difference between the 0% effective rate
and the statutory rate of 35% is due to a net operating loss carry forward in
excess of current taxable income. Casino Magic-Bossier City registered net
income of $2.9 million in the first quarter of 2000 compared to a net income of
$1.1 million for the first quarter of 1999.
1
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Liquidity and Capital Resources:
--------------------------------
At March 31, 2000, the Company had unrestricted cash and cash equivalents of
$22.2 million compared to unrestricted cash and cash equivalents of $10.1
million at March 31, 1999. For the three months ended March 31, 2000, the
Company generated $1.7 million of cash flow from operating activities and spent
$447 thousand for acquisitions of property and equipment. Casino Magic-Bossier
City recognized cash flows in the first quarter of 2000 from financing
activities of $730 thousand, attributed mainly to the pay off of debt, offset by
an increase in accrued management fees.
The Company completed construction of a 188-room hotel and related amenities,
including restaurants and beverage service in December 1998. The construction of
the hotel and amenities of approximately $21 million has substantially increased
income from operations. Management believes that cash at March 31, 2000 and cash
flows from operations will be sufficient to service its operating needs and debt
service through at least the next twelve months, although no assurances can be
given.
In August 1996, the Company issued $115 million in aggregate principal amount of
13% Louisiana First Mortgage Notes (of which, $2.1 million was tendered in
December 1998 in connection with a change of control purchase offer made by
Pinnacle Entertainment, Inc., the new parent of Casino Magic-Bossier City - see
note 1 of Notes to Financial Statements) with contingent interest at 5% of the
Company's adjusted consolidated cash flow (as defined under the indenture
governing the notes). On February 14, 2000, $2.1 million of accrued contingent
interest as of December 31, 1999, was paid in connection with the scheduled
interest payment of $7.3 million on that date. This payment included all accrued
but unpaid interest as of February 14, 2000. As of March 31, 2000, contingent
interest was $514 thousand (see Note 2 to the notes to financial statements).
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 limit 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.
2
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Index to Financial Statements
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Contents Pages
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Statements of Operations for the three months ended March 31, 2000 and 1999 F-2
Condensed Balance Sheets as of March 31, 2000 and December 31, 1999 F-3
Condensed Statements of Cash Flows for the three months ended March 31, 2000 and 1999 F-4
Condensed Notes to Financial Statements F-5
</TABLE>
F-1
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CASINO MAGIC OF LOUISIANA CORP
STATEMENTS OF OPERATIONS
(in thousands, unaudited)
For the Three Months Ended March 31,
------------------------------------
2000 1999
---- ----
Revenues:
Casino $ 37,325 $ 32,398
Food and beverage 626 648
Hotel operations 450 562
Other operating income 429 179
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Total revenues 38,830 33,787
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Costs and expenses:
Casino 19,121 16,513
Food and beverage 698 736
Hotel 232 294
Other operating costs and expenses 120 161
Advertising and marketing 3,484 3,546
General and administrative 2,379 2,153
Property operation and maintenance cost 1,530 1,309
Rents, property taxes and insurance 695 686
Depreciation and amortization 2,094 1,889
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Total costs and expenses 30,353 27,287
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Income from operations 8,477 6,500
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Other (income) expenses:
Interest expense 4,421 4,308
Interest income (102) (64)
Loss on disposal of assets - 78
Other expense 1,236 1,125
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Total other expenses 5,555 5,447
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Income before income taxes 2,922 1,053
Income tax expense - -
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Net income $ 2,922 $ 1,053
========= =========
See notes to financial statements.
F-2
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CASINO MAGIC OF LOUISIANA CORP.
CONDENSED BALANCE SHEETS
(in thousands, except share data)
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March 31, December 31,
2000 1999
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ASSETS (unaudited)
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Current Assets:
Cash and cash equivalents $ 22,195 $ 20,249
Other current assets 2,407 1,767
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Total current assets 24,602 22,016
Property and Equipment, net 87,178 88,425
Other Long-Term Assets:
Deferred gaming license 34,443 34,843
Debt issuance costs, net 2,776 2,984
Deposits and other assets 113 130
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Total other long-term assets 37,332 37,957
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$ 149,112 $ 148,398
=============== ===============
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Current maturities of long-term debt $ 50 $ 348
Accounts payable 5,224 5,348
Accrued expenses 4,063 3,211
Accrued interest (including $203 and $862 at March 31,
2000 and December 31, 1999 respectively due affiliates) 2,925 8,169
Accrued payroll and related benefits 4,069 2,667
Accrued progressive gaming liabilities 442 251
Other current liabilities 3 3
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Total current liabilities 16,776 19,997
Other long-term liabilities due affiliates 8,226 7,198
Long-term debt, net of current maturities 122,612 122,627
Shareholder's Equity (Accumulated Deficit):
Common stock, no par value, 10,000 shares authorized
1,000 shares issued and outstanding at March 31, 2000
and December 31, 1999 1 1
Additional paid-in capital 22,353 22,353
Accumulated deficit (20,856) (23,778)
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Total shareholder's equity (accumulated deficit) 1,498 (1,424)
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$ 149,112 $ 148,398
=============== ===============
</TABLE>
See notes to financial statements.
F-3
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CASINO MAGIC OF LOUISIANA CORP.
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
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For the Three Months Ended March 31,
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2000 1999
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Cash Flows From Operating Activities:
Net income $ 2,922 $ 1,053
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 2,094 1,889
Loss on disposal of assets - 78
Amortization of debt issuance costs (208) (280)
Increase in prepaid expenses (364) (174)
Increase in notes and accounts receivable, net (358) (36)
Decrease in other current assets 499 450
Decrease in accounts payable (124) (812)
Increase in accrued expenses 852 376
Decrease in accrued interest (5,244) (3,310)
Increase in accrued payroll and related benefits 1,402 385
Increase in accrued progressive gaming liabilities 191 140
------------------------------------
Net Cash Provided by Operating Activities 1,662 (241)
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Cash Flows From Investing Activities:
Proceeds from sale of property and equipment - 7
Acquisition of property and equipment (447) (773)
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Net Cash Used by Investing Activities (447) (766)
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Cash Flows From Financing Activities:
Principal (payments on) increase in notes payable and long-term debt (298) 1,493
Increase in other long-term liabilities 1,028 845
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Net Cash Provided by Financing Activities 730 2,338
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Net Increase in Cash and Cash Equivalents 1,946 1,331
Cash and Cash Equivalents, Beginning of Period 20,249 8,731
------------------------------------
Cash and Cash Equivalents, End of Period $ 22,195 $ 10,062
====================================
</TABLE>
See notes to financial statements.
F-4
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CASINO MAGIC OF LOUISIANA CORP.
CONDENSED NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
Organization and basis of presentation:
On May 13, 1996 ("Inception"), Jefferson Casino Corporation ("Jefferson Corp."
or the "Company"), a Louisiana corporation and a wholly-owned subsidiary of
Casino Magic Corp. ("Casino Magic"), commenced development stage activities by
acquiring all of the outstanding capital stock of Crescent City Capital
Development Corporation, a Louisiana corporation. Immediately following the
acquisition of Crescent City Capital Development Corporation ("Crescent City"),
the name was changed to Casino Magic of Louisiana Corp. ("Louisiana Corp.").
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. Effective October 15, 1998, Casino Magic
Corp. became a wholly owned subsidiary of Pinnacle Entertainment, Inc. (formerly
Hollywood Park, Inc.) ("Pinnacle").
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. The accompanying unaudited condensed financial
statements contain all adjustments which are, in the opinion of management,
necessary for a fair statement of the results of the interim periods. The
results of operations for the interim periods are not indicative of results of
operations for an entire year. It is suggested that these financial statements
be read in conjunction with the audited financial statements and the notes
thereto included in the Company's Form 8-K for the year ended December 31, 1999
filed on form 8-K dated April 17, 2000. Certain reclassifications have been
made to 1999 amounts to conform with the March 31, 2000, presentation.
2. Long-Term Debt:
Long-term debt at March 31, 2000 and December 31, 1999 consisted of the
following (in thousands):
March 31, December 31,
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2000 1999
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Equipment contracts (a) $ 24 $ 333
Other (b) 19 24
Other, due to affiliates (c) 9,744 9,743
Louisiana First Mortgage Notes (d) 112,875 112,875
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122,662 122,976
Less current maturities (50) (348)
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$ 122,612 $ 122,627
============ ============
(a) Consists of one note collateralized by equipment payable in eighteen
monthly installments of approximately $10,000 bearing interest at 10.75%
with a final payment due in August 2000.
F-5
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(b) Consists of various collateralized notes payable through the year 2001.
The interest rates on those notes vary from 9.6% to 12.95%.
(c) Consists of four promissory notes payable to affiliates - two payable to
Casino Magic Corp. and two payable to Casino Magic Management Services.
Approximately $7,244,000 of these notes originated in 1998, and $2,500,000
originated in 1999. The notes bear interest at 8.25%, which is being
accrued, but not currently being paid. Principal and interest are due in
full 36 months from the date of each note.
(d) In August 1996, the Company issued $115,000,000 13% First Mortgage Notes
due 2003 with contingent interest ("First Mortgage Notes"), with contingent
interest equal to 5% of Casino Magic-Bossier City's adjusted consolidated
cash flow. 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 rate 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. Contingent interest as of March 31, 2000 and December
31, 1999 was $514,079 and $1,672,636, respectively.
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 Casino Magic-Bossier City, including the Riverboat and
substantially all of the other assets that comprise Casino Magic-Bossier
City. The Jefferson Corp. Guarantee will be secured by a pledge of all the
capital stock of Casino Magic of Louisiana Corp. a wholly owned subsidiary
of Jefferson Corp.
The First Mortgage Notes are governed by the Louisiana Indenture. The
Louisiana Indenture contains certain covenants limiting Casino Magic-
Bossier City from engaging in lines of business other than the current
gaming operations at Casino Magic-Bossier City and incidental related
activities, to borrow funds or otherwise become liable for additional debt,
to pay dividends, issue preferred stock, make investments and certain types
of payments, to grant liens on its property, enter into mergers or
consolidations, or to enter into certain specified transactions with
affiliates.
The Louisiana First Mortgage Notes are redeemable at the option of the
Company in whole or in part, on or after August 15, 2000, at a premium to
face amount, plus accrued interest, as follows:
Through August 15,
2000 106.500%
2001 104.332%
2002 102.166%
F-6
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3. Pinnacle's Proposed Merger:
On March 8, 2000, Pinnacle announced it had received a proposal pursuant to
which an affiliate of Harveys Casino Resorts ("Harveys") would acquire all of
the outstanding shares of Pinnacle common stock. Pinnacle's Board of Directors
formed a special committee (which committee excluded certain management board
members) (the "Special Committee") to evaluate and negotiate the proposal.
Harveys is an affiliate of Colony Capital, Inc., a private investment firm.
On April 17, 2000, Pinnacle entered into a definitive agreement with PH Casino
Resorts ("PHCR"), a newly formed subsidiary of Harveys, and Pinnacle Acquisition
Corporation ("Pinnacle Acq. Corp."), a newly formed subsidiary of PHCR, pursuant
to which PHCR would acquire by merger all of the outstanding capital stock of
Pinnacle (the "PHCR Merger Agreement"). The proposed merger received the
unanimous approval of both the Special Committee and the Board of Directors of
Pinnacle (the "Proposed Merger"). In the Proposed Merger, Pinnacle Acq. Corp.
would merge into Pinnacle. In addition, in connection with the Proposed Merger,
Harveys (like Pinnacle) would become a wholly owned subsidiary of PHCR.
Upon closing of the Proposed Merger, PHCR will acquire all of the outstanding
stock of Pinnacle for $24 per fully diluted share in cash, plus up to an
additional $1 per fully diluted share in cash, which amount is contingent upon
the sale of Pinnacle's 97 acres of surplus land in Inglewood, California for net
after tax proceeds of at least $40,750,000 by December 31, 2001. In the event
the 97 acres are sold prior to December 31, 2001 for after tax proceeds of less
than $40,750,000 but more than $13,054,000, the $1 per fully diluted share will
be reduced proportionately. In the event the 97 acres are not sold by December
31, 2001, or have been sold, but at a price less than or equal to $13,054,000,
then Pinnacle stockholders would not be entitled to any additional payment.
Consummation of the merger is subject to, among other things, (a) senior
management contributing $50,000,000 of Pinnacle equity to PHCR and maintaining
an on-going role within PHCR; (b) regulatory approvals in the various
jurisdictions in which Pinnacle and Harveys conduct gaming operations; (c)
approval by a majority of Pinnacle's stockholders; (d) completion of PHCR's
financing for the transaction (which customary bank commitment and high yield
"highly confident" letters have been received by PHCR), and (e) satisfaction of
other conditions precedent, including completion of Pinnacle's pending casino
and race track assets sales (see Pinnacle's Quarterly Report on Form 10-Q for
the three months ended March 31, 2000) and the opening of Pinnacle's "Belterra
Resort and Casino" (currently under construction in Southern Indiana)
substantially in accordance with its current budget not later than September 15,
2000. The Proposed Merger is expected to close in the fourth quarter of 2000.
F-7
