-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CySoBOo/TDQhwg7CLtVTB38+xbgjd3e8hxcpCEX7Ywdk4urEZkfQuKeDr/pgqcmI GvkuQHrgmfyWI4ao5ZUoTg== 0000891105-97-000013.txt : 19970815 0000891105-97-000013.hdr.sgml : 19970815 ACCESSION NUMBER: 0000891105-97-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CASINO MAGIC CORP CENTRAL INDEX KEY: 0000891105 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 640817483 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20712 FILM NUMBER: 97661889 BUSINESS ADDRESS: STREET 1: 711 CASINO MAGIC DR CITY: BAY ST LOUIS STATE: MS ZIP: 39520 BUSINESS PHONE: 6014679257 MAIL ADDRESS: STREET 1: PO BOX 3150 CITY: BAY ST LOUIS STATE: MS ZIP: 39521 10-Q 1 FORM 10-Q FOR 2QTR CASINO MAGIC CORP. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997 ------------- [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from - to - --------------- --------------- Commission file number 0-20712 CASINO MAGIC CORP. ------------------------ (Exact name of registrant as specified in its charter) MINNESOTA 64-0817483 ----------------- ---------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 711 CASINO MAGIC DRIVE, BAY ST. LOUIS, MS 39520 ------------------------------------------------- (Address of principal executive offices) (Zip Code) (601) 466-8099 ------------------ (Registrant's telephone number, including area code) NOT APPLICABLE ------------------ (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate the number of shares outstanding of the issuer's classes of common stock, as of the latest practicable date. 35,637,083 shares common stock outstanding as of August 13, 1997 ======================================================================== CASINO MAGIC CORP. AND SUBSIDIARIES INDEX PART I FINANCIAL INFORMATION PAGE NO. Item 1. Financial Statements. Condensed Consolidated Statements of Operations For the six months ended June 30, 1997 and 1996 1 Condensed Consolidated Statements of Operations - For the three months ended June 30, 1997 and 1996 2 Condensed Consolidated Balance Sheets - June 30, 1997 and December 31, 1996 3 Condensed Consolidated Statements of Cash Flows - For the six months ended June 30, 1997 and 1996 4 Notes to Condensed Consolidated Financial Statements 5-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10-15 PART II OTHER INFORMATION Item 1. Legal Proceedings 16 Item 2. Changes in Securities 16 Item 3. Default Upon Senior Securities 16 Item 4. Submission of Matters to a Vote of Security Holders 16-17 Item 5. Other Information 17 Item 6. Exhibits and Reports on Form 8-K 17 SIGNATURES 18 PART I - FINANCIAL INFORMATION CASINO MAGIC CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1997 1996 REVENUES: ----------- ----------- Casino $ 123,731,151 $ 78,274,563 Food and beverage 4,986,717 3,178,715 Rooms 775,014 937,566 Royalty and management fees - 2,130,007 Other operating income 2,245,541 971,824 ------------- ------------ Total revenues 131,738,423 85,492,675 ------------- ------------ COSTS AND EXPENSES: Casino 58,241,241 33,042,439 Food and beverage 6,597,024 3,532,947 Rooms 368,665 531,431 Other operating costs and expenses 2,308,621 1,161,721 Advertising and marketing 21,405,322 9,922,912 General and administrative 14,080,585 9,866,081 Property operation, maintenance and energy cost 6,044,447 3,136,380 Rents, property taxes and insurance 3,959,568 2,886,585 Development expenses 455,132 989,724 Depreciation and amortization 10,353,382 8,384,449 ------------- ------------ Total costs and expenses 123,813,987 73,454,669 ------------- ------------ INCOME FROM OPERATIONS 7,924,436 12,038,006 ------------- ------------ OTHER (INCOME) EXPENSE: Equity (income) loss from unconsolidated subsidiary 229,061 (428,735) Interest expense, net 15,749,566 7,709,976 Other (1,427,177) (51,532) ------------- ------------ Total other expense 14,551,450 7,229,709 ------------- ------------ INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY INTERESTS (6,627,014) 4,808,297 INCOME TAX EXPENSE (BENEFIT) (1,935,000) 1,504,872 MINORITY INTEREST 201,512 - ------------- ------------ NET INCOME (LOSS) $ (4,893,526) $ 3,303,425 ============= ============ NET INCOME (LOSS) PER COMMON SHARE: Primary $ (0.14) $ 0.09 ============= ============ Fully-diluted $ (0.14) $ 0.09 ============== ============ AVERAGE SHARES AND EQUIVALENTS OUTSTANDING: Primary 35,637,083 36,526,938 ============= ============ Fully-diluted 35,637,083 36,648,715 ============= ============ SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 1 CASINO MAGIC CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) THREE MONTHS ENDED JUNE 30, 1997 1996 REVENUES: -------- -------- Casino $ 62,057,468 $ 38,514,881 Food and beverage 2,479,674 1,626,879 Rooms 227,583 499,883 Royalty and management fees - 1,205,479 Other operating income 1,192,820 520,986 ------------ ------------ Total revenues 65,957,545 42,368,108 ------------ ------------ COSTS AND EXPENSES: Casino 31,705,786 16,642,453 Food and beverage 1,707,142 1,251,708 Rooms (57,582) 269,871 Other operating costs and expenses 1,153,665 571,940 Advertising and marketing 8,250,625 5,104,770 General and administrative 6,763,040 4,410,679 Property operation, maintenance and energy cost 3,034,439 1,592,326 Rents, property taxes and insurance 1,986,566 1,424,803 Development expenses 172,843 489,463 Depreciation and amortization 5,313,728 4,137,222 ------------ ------------ Total costs and expenses 60,030,252 35,895,235 ------------ ------------ INCOME FROM OPERATIONS 5,927,293 6,472,873 ------------ ------------ OTHER (INCOME) EXPENSE: Equity loss from unconsolidated Subsidiaries 113,937 169,414 Interest expense, net 8,069,102 3,889,461 Other (1,235,441) (42,336) ------------ ------------ Total other expense 6,947,598 4,016,539 ------------ ------------ INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY INTEREST: (1,020,305) 2,456,334 INCOME TAX EXPENSE (BENEFIT) - 796,583 MINORITY INTEREST 201,512 - ------------ ------------ NET INCOME (LOSS) $ (1,221,817) $ 1,659,751 ============ ============ NET INCOME (LOSS) PER COMMON SHARE: Primary $ (0.03) $ 0.05 ============ ============ Fully-diluted $ (0.03) $ 0.05 ============ ============ AVERAGE SHARES AND EQUIVALENTS OUTSTANDING: Primary 35,637,083 36,872,546 ============ ============ Fully-diluted 35,637,083 36,883,341 ============ ============ SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 2 CASINO MAGIC CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS JUNE 30 DECEMBER 31, (UNAUDITED) 1997 1996 (*) ------------ ------------ CURRENT ASSETS: Cash and cash equivalents $ 29,261,749 $ 17,561,512 Other current assets 10,133,609 24,394,985 ------------- ------------ Total current assets 39,395,358 41,956,497 ------------- ------------ PROPERTY AND EQUIPMENT, NET 251,535,343 243,692,571 ------------- ------------- OTHER LONG-TERM ASSETS: Investment in unconsolidated subsidiaries 835,433 957,831 Deferred gaming license cost 38,849,671 38,337,333 Foreign casino concession agreement, net 9,014,503 9,488,950 Other long-term assets 27,393,152 36,168,509 ------------- ------------ Total other long-term assets 76,092,759 84,952,623 ------------- ------------ $ 367,023,460 $ 370,601,691 ============= ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES $ 47,004,730 $ 48,448,985 ------------- ------------ OTHER LONG-TERM LIABILITIES 266,760 266,761 ------------- ------------ LONG-TERM DEBT, NET OF CURRENT MATURITIES 256,042,583 258,261,231 MINORITY INTEREST 4,801,888 - ------------- ------------ COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Common stock, $0.01 par, 50,000,000 shares authorized, 35,637,083 issued and outstanding at June 30, 1997 and December 31, 1996 356,371 356,371 Undesignated stock, 2,500,000 shares authorized, none issued - - Additional paid-in capital 67,123,707 67,123,702 Retained earnings (7,406,594) (2,513,062) Currency translation adjustments - - Less unearned compensation (377,829) (492,141) Unrealized holding loss on securities (788,156) (850,156) ------------- ------------ Total shareholders' equity 58,907,499 63,624,714 ------------- ------------ $367,023,460 $370,601,691 ============= ============ SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. * DERIVED FROM AUDITED FINANCIAL STATEMENTS 3 CASINO MAGIC CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES: ------------ ------------ Net income (loss) $ (4,893,526) $ 3,303,425 Adjustments for non-cash charges 9,505,514 8,596,273 Changes in assets and liabilities 6,624,971 (6,720,168) ------------- ------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 11,236,959 5,179,530 ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions of property and equipment (20,409,274) (9,217,492) Acquisition of gaming license - (15,000,000) Proceeds from sale of subsidiary and Property equipment 174,586 - Other, net 290,874 (108,099) ----------- ------------ NET CASH USED IN INVESTING ACTIVITIES (11,943,814) (24,325,591) ----------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of notes payable and long-term debt 6,350,000 4,343,749 Principal payments on notes payable and long-term debt (10,842,560) (4,118,606) Net proceeds from sale of common stock - - Other - 123,391 ----------- ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES (4,492,560) 348,534 ----------- ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (5,199,415 (18,797,527) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 34,546,164 30,755,698 ----------- ------------ CASH AND CASH EQUIVALENTS, END OF PERIOD $ 29,346,749 $ 11,958,171 ============ =========== SUPPLEMENTAL CASH FLOW INFORMATION CASH PAID DURING THE PERIOD FOR: Interest (net of amount capitalized) $ 16,708,321 $ 7,197,402 Income taxes (net of refunds) (6,382,324) - 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 1,931,566 1,198,172 Property and equipment financed with long-term debt 18,079 46,416,570 Gaming license acquisition financed with long-term debt - 1,042,070 Common stock granted to officers - 135,938 Reclassification of long-term liabilities to accrued expenses 170,029 250,000 Acquisition of securities available-for-sale through sale of subsidiary - 1,198,052 SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 4 CASINO MAGIC CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION WITH RESPECT TO THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996 IS UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: ORGANIZATION AND BASIS OF PRESENTATION: The consolidated financial statements include the accounts of Casino Magic Corp. and its subsidiaries ("the Company"). All significant inter-company accounts and transactions have been eliminated. The Company conducts casino gaming operations in Bay St. Louis, Mississippi ("Casino Magic-BSL"), Biloxi, Mississippi ("Casino Magic-Biloxi"), Bossier City, Louisiana ("Casino Magic-Bossier"), and through a 51% owned subsidiary, in the Argentina Province of Neuquen in the cities of Neuquen City and San Martin de los Andes ("Casino Magic-Neuquen"). 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 consolidated 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 consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1996 and Form 10-Q for March 31, 1997. Certain reclassifications have been made to 1996 amounts to conform with the June 30, 1997 presentation. 2. LONG TERM DEBT: Long-term debt, including capital lease obligations, consists of the following: June 30, December 31, 1997 1996 (unaudited) ------------- ------------ Notes payable, bank (a) $ 9,572,353 $ 9,585,130 Equipment contracts (b) 2,465,702 622,274 Notes payable, land (c) 3,426,539 4,678,401 Capital lease obligations 838,708 308,514 Louisiana First Mortgage Notes (d) 115,000,000 115,000,000 First Mortgage Notes (e) 135,000,000 135,000,000 Unamortized original issue discount (2,100,905) (2,284,450) -------------- -------------- 264,202,397 262,909,869 Less current maturities (8,159,814) (4,648,638) ------------- ------------- $ 256,042,583 $ 258,261,231 ============== ============= 5 CASINO MAGIC CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION WITH RESPECT TO THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996 IS UNAUDITED) (a) Consists of four notes payable to banks. The detail of these notes is as follows: (i)$3,000,000 uncollateralized promissory note, payable in monthly installments of interest only through July 1996; thereafter, monthly payments of $63,200 including principal and interest based on a 60 month amortization through February 2000. The promissory note bears interest at prime plus 1% (9.50% at June 30, 1997) throughout the life of the note with a final payment of unpaid balance due February 2000. (ii) $1,700,000 note collateralized by gaming equipment. The note is payable in six monthly payments, based on a twenty-four month amortization. Monthly payments of $70,833, including interest at prime plus 2% (10.5% at June 30, 1997) with a final payment of unpaid balance due November 1997. (iii) $2,500,000 line of credit due March 1998. Interest is payable quarterly at prime plus .25% (8.75% at June 30, 1997). (iv) $3,850,000 collateralized by gaming equipment. The note is payable in twelve quarterly principal payments of $385,000, excluding interest at prime plus .25% (8.75% at June 30, 1997). (b) Consists of five notes payable collateralized by equipment. The detail of these notes is as follows: (i) $1,075,740 note payable in monthly payments of $12,150, including interest at 8.25% through December 1999. (ii) $946,004 note payable in monthly payments of $4,540, including interest at 11.25% through March 1998. (iii) $442,356 note payable in monthly installments of $13,923 including interest at 8.30% through September 1999. (iv) $111,165 note payable in monthly installments of $3,583 including interest at 9.9% through December 1999. (v) $188,700 note payable in monthly installments of $623 including interest at 19.44% through July 1998. (c) Consists of six notes payable for land acquisitions. The detail of the notes is as follows: (i)$593,400 note payable in monthly installments of $14,959 including interest at prime plus 2% (11.0% at June 30, 1997), through April 1999. (ii)$1,000,000 note payable in monthly installments of $12,134 including interest at 8% through July 2003. (iii)$3,000,000 note payable in monthly installments of $111,699 including interest at 8.75% through November 1998. (iv) $300,000 note payable in monthly installment of $3,965 including interest at 10% through February 2003. (v) $500,000 note pyable in monthly installments of $6,470 including interest at 9.5% through June 2004. (vi) $70,000 note payable in monthly installments of $925 including interest at 10% through March 2003. (d) On August 22, 1996, a wholly owned subsidiary of the Company, Casino Magic-Bossier City, sold $115,000,000 aggregate principal amount of 13%, First Mortgage Notes due in 2003 ("Series A Notes") with contingent interest. On July 22, 1997, Casino Magic-Bossier City commenced an offer to exchange up to an aggregate of $115,000,000 principal amount of 13% Series B First Mortgage Notes due 2003 with Contingent Interest (the "Series B Notes" and, together with the Series A Notes, the "Louisiana First Mortgage Notes") for such Series A Notes under in effective registration statement filed under the Securities Act of 1933. The terms of the Series B Notes are identical to those of the Series A Notes. 6 CASINO MAGIC CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION WITH RESPECT TO THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996 IS UNAUDITED) Contingent Interest is payable on the Louisiana First Mortgage Notes, on each interest payment date, in an aggregate amount equal to 5% of Casino Magic-Bossier City's Adjusted Consolidated Cash Flow (as defined in the Louisiana First Mortgage Notes Indenture ("Louisiana Indenture") for the Accrual Period (as defined in the Louisiana Indenture, but generally a six month period) last completed prior to such interest payment date; provided that no Contingent Interest is payable with respect to any period prior to the Commencement Date (as defined in the Louisiana Indenture). Payment of all or a portion of any installment of Contingent Interest may be deferred, at the option of Casino Magic-Bossier City, if, and only to the extent that, (i) the payment of such portion of Contingent Interest will cause Casino Magic-Bossier City's Adjusted Fixed Charge Coverage Ratio (as defined in the Louisiana Indenture) for Casino Magic-Bossier City's most recently completed Reference Period prior to such interest payment date to be less than 1.5 to 1.0 on a pro forma basis after giving effect to the assumed payment of such Contingent Interest and (ii) the principal amount of the Louisiana First Mortgage Notes corresponding to such Contingent Interest has not then matured and become due and payable (at stated maturity, upon acceleration, upon redemption, upon maturity of a repurchase obligation or otherwise). The aggregate amount of Contingent Interest payable in any Semiannual Period will be reduced pro rata for reductions in the outstanding principal amount of notes prior to the close of business on the record date immediately preceding such payment of Contingent Interest. No contingent interest or management fees were paid in the first six months of 1997. Additionally, contingent interest and management fees were accrued in the first six months of 1997, in the amount of $40,616 and $81,233, respectively. No contingent interest and management fees are due based upon certain ratios which were not met during the six months ended June 30, 1997. The Series A Notes were issued to consolidate the funding necessary to develop Casino Magic-Bossier City project. This included the repayment of the Louisiana Land Note and the Louisiana Notes. The Louisiana First Mortgage Notes are secured by a first priority security interest, subject to permitted liens, in substantially all of the existing and future assets of Bossier City, including the Bossier Riverboat and substantially all of the other assets that comprise Casino Magic-Bossier City, the Crescent City Riverboat, and an assignment of the construction contracts pursuant to which Casino Magic-Bossier City was being constructed. The Jefferson Guarantee will be secured by a pledge of all of the capital stock of Jefferson Casino Corp., a wholly owned subsidiary of the Company. The Louisiana Indenture permits Casino Magic-Bossier City to sell secured assets, including the Crescent City Riverboat, so long as the net proceeds of that sale are used, or contractually committed to be used, to make capital improvements or acquire non-current assets, within 180 days after receipt of the proceeds, at the Casino Magic-Bossier City casino property in connection with its gaming and related business operations. Otherwise, the net proceeds from such an asset sale must be used to offer to redeem Louisiana First Mortgage Note at 101% of the principal amount thereof. 7 CASINO MAGIC CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION WITH RESPECT TO THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996 IS UNAUDITED) The Louisiana First Mortgage Notes are governed by the Louisiana Indenture. The Louisiana Indenture pursuant to which the Louisiana First Mortgage Notes have been issued contains certain covenants that will limit the ability of Casino Magic-Bossier City and its subsidiaries to, among other things, incur additional indebtedness and issue preferred stock, pay dividends, make investments or make other restricted payments, incur liens, enter into mergers or consolidations, enter into transactions with affiliates or sell assets. (e) On October 14, 1993, a wholly owned indirect subsidiary of the Company, Casino Magic Finance Corp. ("Finance Corp."), sold $135,000,000 in aggregate principal amount of 11 1/2% First Mortgage Notes due in 2001 (the " Finance Notes") and warrants to purchase 810,000 shares of Casino Magic Corp. common stock. Proceeds from the Notes were allocated by the underwriter between the Finance Corp. and the Company based on the estimated fair market value at the time of issuance of the Finance Notes and the warrants in the amounts of $131,760,000 and $3,240,000 ($4 per warrant), respectively. The value of the warrants is treated as original issue discount for financial statement purposes, and is reflected in the balance sheet net of amortization as an adjustment to the carrying value of long-term debt into on the same date between Finance Corp., the Company and IBJ Schroder Bank & Trust Company as the Trustee. Under Section 4.10 of the Indenture, the Company's ability to pay dividends on its common stock is restricted to an amount which is determined under a formula based primarily on the Company's future income, and is precluded upon the occurrence of an "Event of Default" as defined under the Indenture. Events of Default include, among other things, the failure to pay the interest or principal due on the Finance Notes, the entry of a judgment in excess of $10,000,000 against the Company or Casino Magic-BSL, Casino Magic-Biloxi and Finance Corp., which is not discharged within 60 days after entry, and the default by the Company or Casino Magic-BSL, Casino Magic-Biloxi and Finance Corp. under indebtedness due to third parties. The Indenture also contains certain covenants that restrict, among other things, the making of certain investments, payments of dividends and other distributions, the incurrence of additional indebtedness and future guarantees of indebtedness, certain transactions with shareholders and affiliates, certain mergers and consolidations, certain asset sales and the creation of certain liens. Additionally, in Mississippi, where certain of the Company's subsidiaries are incorporated, laws exist which prohibit payments of dividends if such payments would create negative equity on a fair market value basis. The Finance Notes are secured by a pledge of the stock of Finance Corp., Bay Saint Louis and Biloxi along with the accounts receivable, inventories, property and equipment, property held for development and deposits of Casino Magic-BSL and Casino Magic-Biloxi. The book basis of these pledged assets is approximately $160,000,000 at June 30, 1997. The effective interest rate of the Notes is 13.06%. The proceeds from the Notes were used to pay off substantially all outstanding obligations at October 14, 1993. 8 CASINO MAGIC CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION WITH RESPECT TO THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996 IS UNAUDITED) Maturities of the Company's long-term debt, including capital lease obligations, as of June 30, 1997, are as follows: Year ending June 30, 1998 $ 8,159,814 1999 5,854,240 2000 1,407,714 2001 135,276,488 2002 257,047 Thereafter 115,347,999 ------------- 266,303,302 Unamortized original issue discount (2,100,905) -------------- $ 264,202,397 ============== 3 SALE OF INTEREST IN SUBSIDIARY On June 1, 1997 the Company sold a 49% interest in a wholly-owned subsidiary, Casino Magic Neuquen S.A., for $7.0 million. The Company retained a controlling interest in Casino Magic-Neuquen and manages its two facilities located in Neuquen City and San Martin de Los Andes, Argentina for a fee equal to two percent of Casino Magic-Neuquen's gross monthly revenues. 4. EARNING PER SHARE: In February 1997, the Financial Accounting Standards Board issued Statement No. 128 (FAS 128), "Earnings Per Share", which simplifies the computation of earnings per share. FAS 128 is effective for financial statements issued for periods ending after December 15, 1997 and requires restatement for all prior period earnings per share data presented. Basic earnings per share and diluted earnings per share calculated in accordance with FAS 128 would remain unchanged at $(0.03) and $(0.14) per share for the second quarter of 1997 and the six months ended June 30, 1997, respectively, $0.05 and $0.09 per share for the second quarter of 1996 and the six months ended June 30, 1996, respectively. 9 CASINO MAGIC CORP. AND SUBSIDIARIES 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 proposed developments and operations include: (i) completion of a hotel in 1998 at Casino Magic-Biloxi and (ii) the Company's ability to fund planned developments and debt service obligations over the next twelve months with currently available cash, marketable securities and cash flow from operations. In addition to the risks and uncertainties discussed below, 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. RESULTS OF OPERATIONS The following table sets forth for the periods indicated certain operating information for the Company on a consolidated basis and for its existing properties. The principal operating entities are Mardi Gras Casino Corp.("Casino Magic-BSL") and Biloxi Casino Corp. ("Casino Magic-Biloxi") both dockside casinos operating on the Gulf Coast of Mississippi (together referred to collectively as "Casino Magic-Gulf Coast"), Casino Magic of Louisiana, Corp. ("Casino Magic-Bossier City") and Casino Magic Neuquen SA, a 51% owned subsidiary of the Company, which operates gaming facilities at two casino sites in Neuquen and San Martin de los Andes, Argentina (together referred to collectively as "Casino Magic-Neuquen".) During 1996, the Company had a 49% interest in Porto Carras Casino S.A. ("Porto Carras") pursuant to which it managed a casino at the Porto Carras resort approximately 60 miles south of Thesseloniki, Greece until December 1996. The revenues, costs and expenses of Porto Carras are not included below as Porto Carras was accounted for under the equity method of accounting. THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, --------------- ------------------ 1997 1996 1997 1996 (Dollars in thousands) (Unaudited) REVENUES: -------- ------- -------- -------- Casino Magic-BSL (1) $ 23,503 $ 20,993 $ 45,569 $ 42,037 Casino Magic-Biloxi (2) 16,567 15,811 32,659 32,644 Casino Magic-Bossier City 21,519 - 44,726 - Casino Magic-Neuquen (3) 4,369 3,983 8,784 7,926 Corporate and Other (4)(5) - 1,581 - 2,886 -------- --------- --------- -------- Total revenues 65,958 42,368 131,738 85,493 COST AND EXPENSES: Casino Magic-BSL 18,821 16,297 37,069 32,531 Casino Magic-Biloxi 14,961 13,330 29,670 27,463 Casino Magic-Bossier City 21,190 46,497 - Casino Magic-Neuquen 3,303 3,113 6,386 6,296 Corporate and Other 1,756 3,155 4,192 7,165 -------- --------- --------- -------- Total costs and expenses 60,031 35,895 123,814 73,455 10 CASINO MAGIC CORP. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INCOME (LOSS) FROM OPERATIONS: Casino Magic-BSL 4,683 4,696 8,501 9,506 Casino Magic-Biloxi 1,606 2,481 2,989 5,181 Casino Magic-Bossier City 329 - (1,771) - Casino Magic-Neuquen 1,065 870 2,398 1,630 Corporate and Other (1,756) (1,574) (4,192) (4,279) --------- --------- -------- -------- Total income from operations $ 5,927 $ 6,473 $ 7,925 $ 12,038 ========= ======== ======== ======== ______________________ (1)Began operations September 30, 1992; expanded casino capacity December 31, 1992. (2)Began operations June 5, 1993; expanded casino capacity December 16,1993. (3)Began operations on January 1, 1995. (4)Includes management fees and royalty fees from Porto Carras which began operations May 18, 1995. Equity in earnings with respect to Porto Carras is reported as non-operating income. Casino Magic divested of Porto Carras in December 1996. (5)Corporate and Other includes the operations of Goldiggers through June 13, 1996. Three months ended June 30, 1997 compared to three months ended June 30, 1996: Consolidated revenues increased $23.6 million, or 5.5% to $66.0 million in the second quarter of 1997, compared to $42.4 million in the second quarter of 1996. The increase in the 1997 second quarter consolidated revenues is primarily attributable to Casino Magic-Bossier City, the Company's new facility which opened in late 1996 and accounted for $21.5 million of the increase. Casino Magic-Biloxi revenues increased $0.8 million or 4.8%, to $16.6 million in the second quarter of 1997, compared to $15.8 million in the second quarter of 1996. Casino Magic-BSL revenues increased $2.5 million in the second quarter of 1997 as compared to 1996. The increased win at Casino Magic-Gulf Coast is due to a strong direct mailing effort during the second quarter of 1997. In addition, at Casino Magic-BSL the opening of the golf course in February 1997 has had a positive impact on gaming revenues. Revenues at Casino Magic-Neuquen increased $0.4 million, or 10.0% to $4.4 million in the second quarter of 1997. Royalty and management fees decreased $1.2 million in the second quarter of 1997 because the Company ceased earning such royalties and management fees when the Company divested itself of its Greek operations in December 1996. Consolidated operating costs and expenses increased by $24.1 million, or 67.2%, from $35.9 million in the second quarter of 1996 to $60.0 million in the second quarter of 1997. Of this increase, $21.2 million is related to Casino Magic-Bossier City, which opened in October 1996. 11 CASINO MAGIC CORP. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Excluding the effects of Casino Magic-Bossier City, operating costs in the second quarter of 1997 increased $3.8 million or 8.1% when comparing the second quarter of 1997 to the same period in 1996. These increases were the direct result of increased marketing, advertising and promotional efforts at both properties on the Gulf Coast, and increased costs incurred as the result of the opening of a golf course at Casino Magic-BSL in February 1997. Earnings before income taxes, depreciation and amortization (EBITDA) decreased by $0.6 million or 5.9% in the second quarter of 1997 as compared to the same period in 1996. The second quarter 1996 results include revenues of $1.2 million and EBITDA of $0.7 million from operations in South Dakota and Greece which were sold during 1996. The remaining changes in EBITDA are the result of the following: (i) EBITDA contribution of $1.8 million from Casino Magic-Bossier City which continues to achieve lower than expected revenues. Operating expenditures at Casino Magic-Bossier City have been reduced to help offset the lower operating revenues. (ii) EBITDA at Casino Magic-BSL increased to $6.6 million from $6.2 million for the 1997 period compared to 1996. The increased EBITDA is the result of an increase in revenues primarily achieved through a more effective marketing and advertising programs coupled with the new golf course which opened in February 1997. (iii) EBITDA at Casino Magic-Biloxi for the second quarter of 1997 declined to $3.1 million compared with $3.9 million during the same period in 1996. The decrease in EBITDA was primarily the result of increased marketing and advertising costs of $1.7 million with no increase in revenues and (iv) EBITDA at Casino Magic-Neuquen increased $0.2 million in the second quarter of 1997 as compared to the second quarter of 1996. This increase is the result of increased slot machine revenues. Casino Magic-Neuquen has continued to grow its slot machine player base and American style gaming continues to attract more customers in that market. Income from operations decreased $0.6 million to $5.9 million in the second quarter of 1997 compared to $6.5 million in the same period in 1996. In addition to the items described above with respect to EBITDA results, depreciation and amortization increased $1.4 million as the result of the Company's new gaming facility in Casino Magic-Bossier City. Other (income) expense (non-operating income and expense) increased by $3.1 million over the comparative quarter in 1996. Approximately $4.1 million of this increase is the results of the addition of the $115 million in Louisiana First Mortgage Notes in August 1996 related to the development of Casino Magic-Bossier City. This was offset in part by a gain of $1.3 million from the sale of a 49% interest in Casino Magic-Neuquen during the second quarter of 1997, for $7.0 million. The Company had net loss of $1.2 million, or $0.03 per share in the 1997 second quarter compared to net income of $1.6 million, or $0.05 per share in the 1996 second quarter. The majority of this decline in net income between the periods is due to the increase in interest expense of $4.1 million and a less than anticipated contribution to operating income from the Company's new gaming facility in Casino Magic-Bossier City. 12 CASINO MAGIC CORP. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Six months ended June 30, 1997 compared to June 30, 1996: Consolidated revenues increased $46.2 million or 54.1% to $131.7 million in the first six months of 1997, compared to $85.5 million in the first six months of 1996. This increase was primarily the result of the Company's new gaming facility, Casino Magic-Bossier City, which accounted for $44.7 million in revenues in the first six months in 1997. Excluding the effect of Casino Magic-Bossier City, revenues increased $1.5 million due to a $3.5 million increase in revenues at Casino Magic-BSL, a $0.9 million increase in revenues at Casino Magic-Neuquen and the loss of $2.5 million in revenues from operations in South Dakota and Greece which were sold during 1996. Revenues at Casino Magic-Biloxi were unchanged during the comparative periods. Operating costs and expenses increased by $50.4 million, or 68.6%, to $123.8 million in the first six months of 1997. Of this increase, $46.5 million relates to the opening of Casino Magic-Bossier City in late 1996. Offsetting this increase is a decrease of $1.0 million relating to the operating costs from a gaming facility in South Dakota which the Company sold in June 1996. Excluding the effects of Casino Magic-Bossier City and the sale of a subsidiary in the second quarter 1996, operating expenses increased $5.0 million, or 6.9%, when comparing the first six months of 1997 to the same period in 1996. These increases were the direct result of increased marketing, advertising and promotional efforts at both properties on the Gulf Coast. Additionally, increased costs were incurred as a result of the opening of a golf course at Casino Magic-BSL in February 1997. Earnings before income taxes, depreciation and amortization (EBITDA) decreased $2.1 million or 10.5% in the first six months of 1997 compared to the same period in 1996. The first six months of 1996 results include revenues of $2.5 million and EBITDA of $1.5 million from operations in South Dakota and Greece which were sold during 1996. The remaining changes in EBITDA are the result of the following: (i) EBITDA contribution of $1.0 million from Casino Magic-Bossier City due to lower than expected revenues and high marketing and promotional expenditures as well as a level of overall expenses consistent with operating a property at higher expected revenue levels. Operating expenditures at Casino Magic-Bossier City have been reduced to a level that allows for positive cash flow at the current revenue levels. (ii) EBITDA at Casino Magic-BSL decreased to $11.9 million for the 1997 period from $12.4 million for 1996. The decline is the result of increased expenditures due to a significant increase in marketing and advertising expense and the new golf course which opened in February 1997. These efforts did generate additional revenues for the period. (iii) EBITDA at Casino Magic-Biloxi for the first six months of 1997 declined to $5.9 million compared with $8.0 million during the same period in 1996. The decrease in EBITDA was primarily the result of increased marketing and advertising costs of $1.9 million. (iv) EBITDA at Casino Magic-Neuquen increased $0.8 million in the six months of 1997 compared to the second quarter of 1996. This increase is the result of increased slot machine revenues. Casino Magic-Neuquen has continued to grow the slot machine player base and American style gaming continues to attract more customers in that market. 13 CASINO MAGIC CORP. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Income from operations decreased $4.1 million to $7.9 million in the first six months of 1997 compared to $12.0 million in the same period in 1996. In addition to the items described above with respect to EBITDA results, depreciation and amortization increased $2.0 million primarily as the result of the Company's new gaming facility in Casino Magic-Bossier City. Other (income) expense (non-operating income and expense) increased by $7.3 million over the comparative 1996 six month period. Approximately $7.5 million of this increase is the result of the addition of the $115 million in Louisiana First Mortgage Notes in August 1996 related to the development of Casino Magic-Bossier City. This was offset in part by a gain of $1.3 million from the sale of a 49% interest in Casino Magic Neuquen during the second quarter of 1997, for $7.0 million. The Company had net loss of $4.9 million, or $0.14 per share in the current year second quarter compared to net income of $3.3 million, or $0.09 per share in the first six months of the preceding year. The majority of this decline in net income between the periods is due to the increase in interest expense of $7.9 million and a less than anticipated contribution to operating income from the Company's new gaming facility in Casino Magic-Bossier City. Liquidity and Capital Resources At June 30, 1997, the Company had unrestricted cash and marketable securities of $29.3 million compared to unrestricted cash and marketable securities of $17.6 million at December 31, 1996. In addition, the Company had $17.0 million in restricted cash, related to the $115 million Louisiana First Mortgage Notes, at December 31, 1996. At June 30, 1997, the Company has $0 in restricted cash. For the six month period ended June 30, 1997, the Company generated $11.2 million of cash flow from operating activities and received $6.4 million of proceeds from the incurrence of long term debt. The Company spent $20.4 million for the acquisitions of property, equipment and other long-term assets, and reduced long term debt by $10.8 million. The Company expended approximately $14.5 million in capital improvements at its Gulf Coast properties and $5.9 million in capital expenditures at Casino Magic-Bossier City during the first six months of 1997. The Company plans additional investments in 1997 at its Gulf Coast properties and Casino Magic-Bossier City, much of which is subject to the cash flows of the Company or the availability of financing. There are no assurances that adequate funding will be available for these planned investments. 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's plans for the development of Casino Magic-Bossier City are divided into two phases. The first phase (which has been completed) includes a 30,000 square foot floating dockside casino space, with 986 slots and 44 table games; a 37,000 square foot entertainment and food and beverage pavilion, with 1,550 covered parking spaces and surface parking spaces for 400 cars. 14 CASINO MAGIC CORP. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The second phase plans include the construction of a 60,000 square foot entertainment facility and a 400-room convention hotel and related amenities, including restaurants, banquet space, a theater, a swimming pool, a health club and a child-care facility. The development and construction of the second phase improvements are largely dependent upon receipt of proceeds from a future sale of the Crescent City Queen Riverboat (a gaming riverboat owned by Casino Magic-Bossier City) and future operating cash flow of Casino Magic-Bossier City. No assurances can be given that such funds will become available or that such hotel and related facilities will ever be developed. The Company is currently constructing a hotel tower at Casino Magic-Biloxi above the eight-story parking garage adjacent to the casino. The hotel will consist of approximately 378 rooms, including approximately 86 suites and will include standard amenities such as a swimming pool and modest conference space. The hotel structure, when completed, is expected to be one of the tallest buildings in Biloxi. Construction on the hotel commenced in December 1996, and completion is estimated for 1998. The hotel construction costs are being funded solely out of the cash flow of Casino Magic-BSL and Casino Magic-Biloxi, and any lack of cash flow from operations in the future may delay or prevent completion of the hotel as planned. On June 1, 1997, the Company sold 49% of its wholly-owned subsidiary, Casino Magic-Neuquen for $7.0 million. The Company will use these funds for the development plans for Casino Magic-Gulf Coast, specifically the hotel at Casino Magic-Biloxi. Under the terms of the Indenture associated with the $135,000,000 First Mortgage Notes, Casino Magic Corp., Mardi Gras Casino Corp., Biloxi Casino Corp. and Casino Magic Finance Corp. have certain restrictions relative to additional borrowings and guarantees. Jefferson Corp and Louisiana Corp. have certain restrictions relative to additional borrowings and cash flow under the terms of the Louisiana Indenture associated with the Louisiana First Mortgage Notes. The Company will have a significant need for cash in 1997 and beyond in order to continue its planned development of its existing properties. The Company believes that cash and marketable securities at June 30, 1997, and its cash flows from operations will be sufficient to service its operating and debt service requirements, as well as the planned 1997 construction activities relating to the Casino Magic-Biloxi hotel, through at least the next twelve months, but are not sufficient to engage in any other development activities without additional debt or equity financing. 15 PART II - OTHER INFORMATION CASINO MAGIC CORP. AND SUBSIDIARIES ITEM 1. LEGAL PROCEEDINGS On or about September 6, 1996 Casino America, Inc. ("Plaintiff) commenced litigation in the Chancery Court of Harrison County, Mississippi, Second Judicial District, Civil Action No. C2402-96-1064 against Casino Magic Corp. (the "Company"), and Edward Ernst, its Chief Executive Officer (collectively "Defendants"), seeking injunctive relief and unspecified compensatory damages in an amount to be proven at trial as well as punitive damages. Plaintiff claims, among other things, that Defendants (i) breached the terms of an agreement they had with Plaintiff, (ii) tortiously interfered with certain business relations of Plaintiff; and (iii) breached covenants of good faith and fair dealing they allegedly owed to Plaintiff. On or about October 8, 1996, Defendants interposed an answer to Plaintiff's complaint denying the allegations contained in the complaint. The discovery phase of this litigation is continuing. While the Company's management cannot predict the outcome of this action, management believes Plaintiff's claims are without merit. The Company intends to vigorously defend this action. Reference is made to the Company's Annual Report on Form 10-K for the year ended December 31, 1996 and Form 10-Q for the quarter ended March 31, 1997 on file with the Securities and Exchange Commission. ITEM 2. CHANGES IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS (a)On June 30, 1997, the annual meeting of the shareholders of the Company was held at the Company's offices in Bossier City, Louisiana. (b)All members of the Board of Directors were elected at the annual meeting. See (c) below for the names of such members. (c)The only matter voted upon at the annual meeting was the election of the members of the Board of Directors. Shares entitled to vote were 35,637,083 and the number of votes cast for, against or withheld, as well as abstentions, with respect to the election of directors is set forth below. Information on broker non-votes was not available ("n/a"). 16 CASINO MAGIC CORP. AND SUBSIDIARIES Election of the following members of the Company's Board of Directors: Votes Cast Number of Votes Cast in Against or Number of Broker Non Favor Withheld Abstentions Votes Marlin F. Torguson 31,654,987 214,099 0 n/a James E. Ernst 31,809,479 208,753 0 n/a Roger H. Frommelt 31,712,791 208,813 0 n/a E. Thomas Welch 31,729,802 208,338 0 n/a ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits None (b) Reports on Form 8-K: None. 17 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 thereunto duly authorized. CASINO MAGIC CORP. Registrant Date: AUGUST 14, 1997 /S/ JAMES E. ERNST -------------------- --------------------------------- JAMES E. ERNST, PRESIDENT AND CHIEF EXECUTIVE OFFICER Date: AUGUST 14, 1997 /S/ JAY S. OSMAN -------------------- -------------------------------- JAY S. OSMAN, CHIEF FINANCIAL OFFICER AND TREASURER (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER) 18 CASINO MAGIC CORP. QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1996 INDEX TO EXHIBITS Exhibit Number Page None 19 EX-27 2 FINANCIAL DATA SCHEDULE 2QTR 1997
5 6-MOS DEC-31-1997 JUN-30-1997 29,261,749 5,767 8,181,851 0 957,425 39,395,358 300,771,256 49,235,913 367,023,460 47,004,730 256,042,583 0 0 356,371 63,353,016 367,023,460 131,738,423 131,738,423 0 123,813,987 (996,604) 0 15,749,566 (6,828,526) (1,935,000) 7,924,436 0 0 0 (4,893,526) (0.14) (0.14)
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