UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURRITIES ECXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
Commission file number: 333-06489
THE MAJESTIC STAR CASINO, LLC
(Exact name of registrant as specified in its charter)
Indiana 43-1664986
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.) No.)
One Buffington Harbor Drive
Gary, Indiana
46406-3000
(Address of principal executive offices)
(Zip Code)
(219)977-7777
(Registrant's telephone number, including area code)
Indicate check by mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the proceeding 12 months (or for such shorter period that the
registrant was required to filed such reports), and (2) has been subject
filing requirements for the past 90 days.
Yes X No______
Shares outstanding of each of the registrant's classes of common
stock as of September 30, 1996:
Class Number of shares
Not applicable Not applicable
THE MAJESTIC STAR CASINO, LLC
Index
Part I FINANCIAL INFORMATION
Item 1 Financial Statements
Balance Sheets as of September 30, 1996 and December 31,
1995
Statements of Income for the quarter and nine months ended
September 30, 1996
Statements of Changes in Members' Equity for the nine months
ended September 30, 1996 and the period ended December 31,
1995
Statement of Cash Flows for the nine months ended September
30, 1996
Notes to Financial Statements
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Part II OTHER INFORMATION
Item 1 Legal Proceedings
Item 2 Changes in Securities
Item 3 Default Upon Senior Securities
Item 4 Submission of Matters to a Vote of Security Holders
Item 5 Other Information
Item 6 Exhibits and Reports on Form 8-K
SIGNATURES
The Majestic Star Casino, LLC
Balance Sheets
As of September 30, 1996 and December 31, 1995
September 30, December 31,
1996 1995
------------- -----------
ASSETS
Current Assets
Cash and cash equivalents $ 9,644,114 $ 8,446,389
Accounts receivable, less allowance
for doubtful accounts of $80,000 1,406,905 -
Inventories 29,836 -
Prepaid expenses 1,324,730 -
--------- ---------
Total current assets 12,405,585 8,446,389
Property, equipment, and leasehold
interests, net 18,849,139 74,846
Organizational costs, less accumulated
amortization of $8,710 and $ -0-,
respectively 132,531 141,241
Deferred financing costs, less accumu-
lated amortization of $197,884 and
$ -0- 3,682,796 -
Deferred costs, less accumulated
amortization of $341,544 and $ -0-
respectively 5,310,485 4,392,729
Investment in Buffington Harbor
Riverboats, L.L.C. 44,514,682 21,823,018
Other assets and deposits 1,873,090 250,000
Restricted cash 64,057,577 -
---------- ----------
Total Assets $150,825,885 $35,128,223
=========== ==========
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 2,211,599 $ -
Accounts payable 1,576,875 119,573
Accrued liabilities
Payroll and related 676,588 -
Interest 5,269,297 -
Other accrued liabilities 1,794,454 -
---------- ----------
Total current liabilities 11,528,813 119,573
Long-term debt, net of current
maturities 119,296,266 -
Deferred income 66,224 -
Commitments - -
----------- ----------
Total Liabilities 130,891,303 119,573
----------- ----------
Members' Equity
Members' contributions 24,000,000 34,759,355
Retained earnings (4,065,418) 249,295
----------- ----------
Total members' equity (deficit) 19,934,582 35,008,650
----------- ----------
Total Liabilities and Members'
Equity 150,825,885 35,128,223
=========== ==========
The Majestic Star Casino, LLC
Statement of Income
For the quarter and nine months ended September 30, 1996
Quarter ended Nine months ended
September 30, 1996 September 30, 1996
(unaudited) (unaudited)
REVENUES
Casino $ 24,338,786 $ 29,817,655
Food and beverage 389,587 480,107
Other 258,777 276,317
---------- ----------
Gross Revenues 24,987,150 30,574,079
---------- ----------
COSTS AND EXPENSES
Casino 4,115,062 5,100,167
Gaming and admission taxes 7,246,987 8,885,743
Food and beverage 489,439 594,996
Advertising and promotion 2,205,617 2,786,131
General and administrative 3,373,166 3,829,394
Security and surveillance 426,124 514,411
Marine operations 1,444,275 1,792,934
Economic incentive - City of Gary 730,256 896,163
Depreciation and amortization 1,705,393 2,045,336
Pre-opening costs - 4,586,879
--------- ---------
Total costs and expenses 21,736,319 31,032,154
---------- ----------
Operating income(loss) 3,250,831 (458,075)
---------- ----------
Other income (expense)
Loss on investment in Buffington
Harbor Riverboats, L.L.C. (613,556) (1,196,416)
Interest income 326,290 557,680
Interest expense (2,288,933) (3,217,902)
---------- ----------
Total other income (expense) (2,576,199) (3,856,638)
NET INCOME (LOSS) $ 674,632 $(4,314,713)
========== ==========
The accompanying notes are an integral part of these financial statements
The Majestic Star Casino, LLC
Statements of Changes in Members' Equity
For the nine months ended September 30, 1996 and
the period ended December 31, 1995
- - ----------------------------------------------------------------------------
Retained Total
Capital Earnings Members'
Contributions (Deficit) Equity
------------- --------- --------
Balance, December 8, 1993 - - -
Members' contributions $32,547,090 $ - $32,547,090
Non-cash contributions 2,212,265 - 2,212,265
Net income - 249,295 249,295
---------- ------- ----------
Balance, December 31, 1995 (audited) 34,759,355 249,295 3,008,650
Reclassification of capital
contribution (10,759,355) - (10,759,355)
Net loss - (4,314,713) (4,314,713)
---------- --------- ----------
Balance, September 30, 1996
(unaudited) $24,000,000 $4,065,418 19,934,582
========== ========= ==========
The accompanying notes are an integral part of these financial statements
The Majestic Star Casino, LLC
Statement of Cash Flows
For the nine months ended September 30, 1996
Nine months ended
September 30, 1996
(unaudited)
------------------
Cash flows from operating activities
Net Loss $ (4,314,713)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and Amortization 2,045,336
Loss on investment in Buffington Harbor
Riverboats, L.L.C. 1,196,416
(Increase) decrease in accounts receivable, net (1,406,905)
(Increase) decrease in inventories (29,836)
(Increase) decrease in prepaid expenses (1,324,730)
(Increase) decrease in other assets (1,822,175)
Increase (decrease) in accrued payroll and
other expenses 676,588
Increase (decrease) in accrued interest 5,269,297
Increase (decrease) in other accrued liabilities 1,794,454
Increase (decrease) in accounts payable 1,457,302
----------
Net cash provided by (used in) operating activities 3,541,034
----------
Cash flows from investing activities
Acquisition of property, equipment and leasehold
interests (19,897,505)
(Increase) decrease in Chartered Vessel deposit (1,434,201)
Deferred Income 66,224
Investment in Buffington Harbor Riverboats, L.L.C. (23,888,080)
(Increase) decrease in restricted cash (64,057,577)
----------
Net cash provided by (used in) financing activities (109,211,139)
------------
Cash flows from financing activities
Proceeds from issuance of 12.75% Senior Secured
Notes 105,000,000
Equipment financing 6,624,426
Cash paid to reduce long-term debt (875,916)
Payment of Senior Secured Notes issuance costs (3,880,680)
-----------
Net cash provided by (used in) financing activities 106,867,830
------------
Net increase (decrease) in cash and cash equivalents 1,197,725
Cash and cash equivalents, beginning of year 8,446,389
-----------
Cash and cash equivalents, end of year 9,644,114
===========
Supplemental noncash financing activities include the following:
On March 31, 1996, contributions totaling $10,759,355 were
classified from Members' Equity to Long-term debt.
The accompanying notes are an integral part of these financial statements
THE MAJESTIC STAR CASINO, LLC
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation:
The accompanying unaudited interim financial statements of The
Majestic Star Casino, LLC (the "Company") have been prepared in
accordance with generally accepted accounting principles, except
that certain information and footnote disclosures normally included
in financial statements have been condensed or omitted. In the
opinion of management, the accompanying unaudited interim financial
statements contain all of the adjustments (consisting of normal
recurring adjustments) which are necessary for the fair presentation
of the results of the interim period. The results of operations for
any interim period are not necessarily indicative of results of
operations for a full year. The Company was formed on December 8,
1993, as an Indiana limited liability company, to provide gaming and
related entertainment to the public. The Company commenced gaming
operations in the City of Gary (the "City") at Buffington Harbor,
located in Lake County, in the State of Indiana, in June 1996.
2. Summary of Significant Accounting Policies:
The accounting policies of the Company conform to generally accepted
accounting principles. The following is a summary of the more
significant of such policies:
Cash and Cash Equivalents - Cash includes cash required for gaming
operations. The Company considers cash equivalents to include
short-term investments with original maturities of ninety days or
less.
Inventories - are stated at the lower of cost or market, cost being
determined principally on a first in, first out basis.
Property and Equipment - are stated at cost. Depreciation and
amortization are computed utilizing the straight line method over
the estimated useful lives of the assets. Costs of major
improvements are capitalized; costs of normal repairs and
maintenance are charged to expense as incurred. Gains or losses on
disposals are recognized when incurred.
Capitalized Interest - Statements No. 34 and 62 of the Financial
Accounting Standards Board require that interest costs be
capitalized for those assets that are constructed or acquired for
the Company's own use and that interest earned on investments
acquired with the proceeds of the $105 million 12.75% senior secured
notes due 2003 with contingent interest (the "Senior Secured Notes")
be offset against related construction assets until completed for
use. For the nine months ended September 30, 1996, net interest
expense capitalized for the construction of a riverboat casino
amounted to approximately $1.5 million.
Deferred Financing Costs - represent agent's commission, closing
costs and professional fees incurred in connection with the Senior
Secured Notes. Such costs are being amortized over the seven year
term of the notes.
Organizational Costs - are costs incurred in connection with the
formation of the limited liability company. These costs have been
capitalized and are being amortized over a period of five years.
Investment in Buffington Harbor Riverboats, L.L.C. - the Company
accounts for its 50 percent interest in Buffington Harbor
Riverboats, L.L.C. ("BHR") under the equity method, whereby the
initial investments are recorded at cost and then adjusted for the
Company's share of BHR's net income or loss or distributions. The
Company's investment will not be reduced below zero as a result of
such adjustments.
Deferred Costs - include development obligation payments to the City
and licensing costs. Such payments and costs, which represent
direct costs associated with the development of the riverboat
casino, were deferred until operations commenced in June 1996, and
are currently being amortized over five years, the life of the
gaming license. At December 31, 1995, deferred costs also included
pre-opening costs which were charged to operations in the quarter
ended June 1996.
Restricted Cash - represents cash and investments held in escrow in
association with the Senior Secured Notes, and are invested
primarily in securities of the U.S. government and its agencies,
with original maturities less than 180 days.
Casino Revenue - is the net win from gaming activities, which is the
difference between gaming wins and losses.
Indirect Expenses - certain indirect expenses of operating
departments, such as depreciation and amortization, are shown
separately in the accompanying statements of income and are not
allocated to departmental operating costs and expenses.
Federal Income Taxes - the Company has elected status as a
partnership under the Internal Revenue Code. Under this election,
income of the Company is taxed directly to the members and,
accordingly, there is no provision for federal income taxes.
Long-Lived Assets - During 1995, the Company adopted the provisions
of Statement of Financial Accounting Standard No. 121, "Accounting
for the Impairment of Long-Lived Assets" ("SFAS No. 121"). SFAS No.
121 requires, among other things, that an entity review its long-
lived and certain related intangibles for impairment whenever
changes in circumstances indicate that the carrying amount of an
asset may not be fully recoverable. Impairment of long-lived assets
exists, if, at a minimum the future expected cash flows
(undiscounted and without interest charges) from an entity's
operation are less than the carrying value of these assets. As a
result of its review, the Company does not believe that any
impairment exists in the recoverability of its long-lived assets.
3. Certificate of Suitability:
On December 9, 1994, the Indiana Gaming Commission (the
"Commission") awarded the Company one of two certificates for a
riverboat owner's license for a riverboat casino to be docked in the
City. Having complied with certain statutory and regulatory
requirements and other conditions of the Commission, the Company
received a five year riverboat owner's license on June 3, 1996.
The second certificate was issued to Trump Indiana, Inc. ("Trump").
The Company and Trump have committed to a joint development and
operation of a docking location from which the entities are
conducting their respective riverboat gaming operations in the City.
4. City of Gary, Indiana, Development Obligation:
On September 7, 1995, the Company and the City entered into an
agreement for the purpose of summarizing procedures regarding the
acquisition of a certain parcel of land in accordance with the
Certificate. The Company paid the City $250,000 under the terms of
this agreement.
On September 29, 1995, the Company, Trump and the City entered into
an agreement. In accordance with this agreement, the Company paid
the City $5,000,000. As of September 30, 1996, $5,250,000 of
deferred costs represent the Company's development obligation to the
City.
As of March 26, 1996, the City and the Company entered into a
development agreement which supersedes the September 7, 1995,
agreement between the City and the Company. The development
agreement ("Development Agreement") requires the Company, among
other things, to (1) invest $116 million in various on-site
improvements over the next five years, (2) pay the City an economic
incentive equal to 3% of the Company's adjusted gross receipts, as
defined by the Riverboat Gaming Act and (3) pay a default payment in
the amount of damages for failure to complete certain on-site
developments, which amount is capped at $12 million.
5. Investment in Buffington Harbor Riverboat, L.L.C.:
On October 31, 1995, the Company and Trump entered into the First
Amended and Restated Operating Agreement of Buffington Harbor
Riverboat, L.L.C. ("BHR") for the purpose of acquiring and
developing certain facilities for the gaming operations on 88 acres
of land in the City ("BHR Property"). BHR is responsible for the
management,
development and operation of the BHR Property. The Company and
Trump have each entered into an agreement with BHR (the "Berthing
Agreement") to use BHR Property for their respective gaming
operations.
The following represents selected financial information of BHR:
September 30, 1996 December 31, 1995
------------------ -----------------
Balance Sheet
Cash and cash equivalents (208,713) 14,056,869
Property, equipment and
construction in progress, net 89,804,002 32,603,593
Deferred pre-opening costs - 571,440
Other assets 2,522,435 -
Total assets 92,117,724 47,231,902
Total liabilities 3,504,988 3,512,085
Capital contributions-The
Majestic Star Casino, LLC 45,711,097 21,823,018
Total members' equity 88,612,736 43,719,817
Income Statement
Gross revenue 6,663,128 -
Operating income(loss) (341,085) -
Net income (loss) (2,753,908) 73,781
6. Charter Agreement:
On August 17, 1995, the Company entered into a Charter Agreement
("Agreement") with New Yorker Acquisition Corporation ("Owner") and
President Casino, Inc. for the purpose of leasing the Owner's casino
gaming vessel together, with all improvements, furniture, fixtures
and equipment.
The agreement became effective on May 3, 1996, and expires on May 3,
2001, subject to early termination options. Under the terms of the
Agreement, the Company will pay the Owner $125,000 monthly for the
first 24 months. The monthly rate for the final three years will be
negotiated based on market rates. The Company is responsible for
certain refurbishing and expenses to operate the vessel during the
charter.
As required by the Agreement, the Company has placed a security
deposit in escrow with a financial institution. As of September 30,
1996 and December 31, 1995, the amount in escrow including accrued
interest was approximately $1.7 million and $250,000, respectively.
The security deposit is refundable pursuant to the terms of the
escrow agreement.
7. Long Term Debt:
Senior Secured Notes
On May 22, 1996, the Company completed a private offering of
$105,000,000 of Senior Secured Notes due May 15, 2003.
The Senior Secured Notes bear interest at a fixed rate of 12.75% per
annum payable May 15 and November 15 of each year commencing
November 15, 1996. Contingent interest is payable on the Senior
Secured Notes, on each such interest payment date, in an aggregate
amount equal to 5.0% of the Company's Consolidated Cash Flow, as
defined in the Indenture between the Company and IBJ Schroder Bank &
Trust Company, as Trustee, dated May 22, 1996 (the "Indenture"),
for the six month period ending on March 31 or September 30 (each, a
"Semiannual Period") most recently completed prior to such interest
payment date, based on a maximum of $60.0 million of the Company's
Consolidated Cash Flow during any two consecutive Semiannual
Periods; provided that no contingent interest shall be payable with
respect to any period prior to the first day of the operation of the
Majestic Star casino, as defined in the Indenture. Under certain
circumstances, the Company, at its option, may defer payment of all
or a portion of any installment of contingent interest.
A portion of the proceeds from the Senior Secured Notes will be used
to construct a new casino vessel ("Permanent Vessel") to replace the
Chartered Vessel.
The Senior Secured Notes are secured by, among other things (i.) a
pledge of the Company's 50% membership interest in BHR, (ii) a
collateral assignment of the Company's interest in the Berthing
Agreement, (iii) a pledge of all funds in the collateral accounts
into which the proceeds from the Senior Secured Notes were deposited
pending their use and (iv) upon delivery of the Permanent Vessel to
the Company, a duly perfected first preferred ship mortgage on such
Permanent Vessel.
The Indenture contains covenants, which among other things, restrict
the Company's ability to (i.) make certain distributions and
payments, (ii) incur additional indebtedness, (iii) enter into
transactions with affiliates, (iv) sell assets or stock, and (v)
merge, consolidate or transfer substantially all of its assets.
Holders of Senior Secured Notes are entitled to certain exchange
rights under the terms of the Registration Rights Agreements (the
"Agreement"). Pursuant to the Agreement, the Company has registered
on October 4, 1996, with the Securities and Exchange Commission a
new issue of senior secured notes (the "Senior Exchange Notes") of
the Company that are identical in all material respects to the
Senior Secured Notes and offered the holders of the Senior Secured
Notes the opportunity to exchange their Senior Secured Notes for a
like principal amount of Senior Exchange Notes.
Equipment Financing
At September 30, 1996, approximately $5.7 million of equipment
financing was outstanding of which $2.2 million represents current
maturities of long-term debt. This debt, which carries a floating
interest rate of 3% over prime (prime was 8.25% at September 30,
1996), is secured by certain gaming equipment and the remaining
balance will be repaid in equal monthly principal payments of
approximately $184,000.
Note to Member
At September 30, 1996, approximately $10.8 million was owed to a
member of the Company. This note carries a floating interest rate
(5.86% at September 30, 1996) and cannot be repaid, under the
Indenture, until the completion of the Permanent Vessel. This note
resulted from the conversion of members' contributions into debt on
March 31, 1996.
8. Letter of Credit/Surety Bond:
In May 1996, the Company arranged for a $12.5 million five year
surety bond (the "Bond") to be issued to the Commission. The Bond's
primary purpose is to secure completion of the Company's off-site
development obligations under the Development Agreement. To support
the Company's obligations to the bonding company, the Company
obtained a $3.5 million letter of credit from a bank to benefit the
bonding company. The beneficial owner of the Company (the "Owner")
guaranteed the Company's obligations to the bonding company under
the Bond and to the bank under the $3.5 million letter of credit.
If the Owner is required to make payments to the bank or the bonding
company as a result of the guaranty, the Company will be obligated
to reimburse the Owner for any such payments.
Item 2
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The discussions regarding proposed developments and operations of The
Majestic Star Casino, LLC (the "Company") included in Management's
Discussion and Analysis of Financial Condition and Results of Operations
contain forward looking statements that involve a number of risks and
uncertainties. These proposed developments and operations include the
construction and placing in service of a new casino vessel by the fourth
quarter of 1997, resolution of the need for a new harbor and the Company's
ability to fund planned developments and service its debt with currently
available cash, marketable securities and cash flow from operations. These
risks and uncertainties could significantly and adversely affect anticipated
results in the future and, accordingly, results may differ from those
expressed in any forward-looking statement made herein.
Overview
The Company was formed in December, 1993, as an Indiana limited liability
company, to develop a riverboat casino in Gary, Indiana, (the "City") as
its sole operation. The Company's efforts resulted in the Indiana Gaming
Commission (the "Commission") granting the Company a five year license on
June 3, 1996. The Company's operations began in June 1996.
The Company's operations are conducted on a vessel chartered from a
subsidiary of President Casinos, Inc. (the "Chartered Vessel"). The
Chartered Vessel is chartered pursuant to a five year lease and contains
approximately 26,000 square feet of gaming space, 924 slot machines and 50
table games. Due to a federal law, the Company has conducted all gaming
operations to date with the Chartered Vessel docked. However, with a recent
change to the federal law, the Commission has advised the Company that
cruising will commence November 15, 1996.
The Company has entered into various agreements for the design, engineering
and construction of a vessel (the "Permanent Vessel") to replace the
Chartered Vessel. The Permanent Vessel is anticipated to contain
approximately 43,000 square feet of casino space on three decks, 1,780 slot
machines and 68 table games. The Permanent Vessel will have an atrium,
escalators and elevators. The Company has entered into a contract for the
construction of the Permanent Vessel for the delivery of the vessel on
September 27, 1997 at a fixed cost of $33,000,000. The Company estimates
that design, engineering, and owner furnished materials will cost
$7,000,000, excluding additional gaming-related equipment. The cost of
additional gaming equipment expenditures is undetermined at this time. It
is anticipated that these additional expenditures will be funded through
available cash flow from the casino's future operations and certain
equipment (vendor-provided) financing.
The Company expects to complete the outfitting of, and to place, the
Permanent Vessel in service during the fourth quarter of 1997. The Company
has committed under the terms of its Senior Secured Notes due 2003 (the
"Senior Secured Notes") to replace the Chartered Vessel with the Permanent
Vessel no later than June 30, 1998.
The Company and Trump Indiana, Inc. ("Trump"), the holder of a second gaming
license to operate from the City, formed Buffington Harbor Riverboats,
L.L.C. ("BHR") to own and operate certain common facilities at Buffington
Harbor such as the guest pavilion, vessel berths, parking lots and other
infrastructure. The Company and Trump each have a fifty-percent ownership
interest in BHR.
Results of Operations for Periods Ending September 30, 1996
Because the Company commenced operations in June 1996, the Company has a
limited operating history and lacks any comparable periods of operation for
the three and nine month periods ended September 30, 1996. Therefore, the
discussion of operations herein will focus on events and the Company's
revenues and expenses during the three and nine month periods ended
September 30, 1996. Management believes that it is too early to determine
whether the results of operations for these periods provide any discernible
trends; however, the Company expects intense competition in the Northern
Illinois/Indiana market to continue with the anticipated opening of two
additional riverboat casinos during 1997.
Future operating results will be subject to significant business, economic,
regulatory and competitive uncertainties and contingencies, including new
and existing casino operations, many of which are beyond the control of the
Company. While the Company believes that the Majestic Star casino will be
able to attract a sufficient number of customers and generate a sufficient
amount of revenue to meet its debt obligations as they become due, there can
be no assurance with respect thereto.
Three Months Ended September 30, 1996
During the three month period ended September 30, 1996, which was the first
full three month period of casino operations, the Company generated revenues
of approximately $24,987,000. Casino revenue during this period totaled
approximately $24,339,000, of which slot machines accounted for
approximately $17,203,000 (70.7%) and table games accounted for
approximately $7,136,000 (29.3%). The average win per slot machine per day
was approximately $202 and the average win per table game per day was
approximately $1,551. The average daily win per state passenger count was
approximately $31 and the average daily win per patron was approximately
$51.
Food and beverage revenue for the three month period ended September 30,
1996 totaled approximately $389,000 and other revenue, consisting primarily
of commission income, totaled approximately $259,000.
For the three months ended September 30, 1996, casino expenses totaled
approximately $4,115,000 or 16.5% of revenues.
Gaming and admission taxes totaled approximately $7,247,000 for the three
month period ended September 30, 1996. These taxes are based upon 20% of
adjusted gross receipts, as defined by Indiana Gaming laws, and $3 per
passenger per the state passenger count. An additional $730,000 was paid
during the three month period to the City under an agreement whereby the
Company pays 3% of the adjusted gross receipts directly to the City.
General and administrative expenses totaled approximately $3,373,000 for the
three month period, of which approximately $1,734,000 represents berthing
fees paid to BHR.
Depreciation and amortization, net interest expense and other non-gaming
expenses, for the three month period, were approximately $1,705,000,
$1,963,000 and $4,566,000, respectively. Net interest expense includes
accrued but unpaid contingent interest of approximately $265,000. No
contingent interest was paid during the quarter.
The Company's loss in its investment in BHR for the three month period was
approximately $614,000.
As a result of the foregoing, income from operations for the three month
period was approximately $3,251,000 and the net income was approximately
$675,000.
Consolidated cash flow as defined in the Indenture governing the Company's
Senior Secured Notes was approximately $5,283,000 during the three month
period ended September 30, 1996.
Nine Months Ended September 30, 1996
Operations for the nine month period ended September 30, 1996 reflect the
operation of the riverboat casino for 21 days in June and for the three
month period ended September 30, 1996.
Prior to commencing operations in June 1996, the Company was in the
development stage and capitalized costs associated with obtaining the
license to operate a riverboat casino.
The capitalized costs consist primarily of development obligation payments,
vessel design costs, financing and commitment fees, gaming application fees
and other pre-opening costs. Pre-opening costs of $4,587,000 were charged
to operations during the nine months ended September 30, 1996. These costs
had previously been deferred.
During the nine month period ended September 30, 1996, the Company generated
revenues of approximately $30,574,000. Casino revenues during this period
totaled approximately $29,818,000 of which slot machines accounted for
approximately $21,251,000 (71.3%) and table games accounted for
approximately $8,567,000 (28.7%). The average win per slot machine per day
was approximately $204 and the average win per table game per day was
approximately $1,516. The average daily win per state passenger count was
approximately $31 and the average daily win per patron was approximately
$51.
Food and beverage revenue for the nine month period ended September 30, 1996
totaled approximately $480,000 and other revenue, consisting primarily of
commission income, totaled approximately $276,000.
For the nine months ended September 30, 1996, casino expenses totaled
approximately $5,100,000 or 16.7% of revenues.
Gaming and admission taxes totaled approximately $8,886,000 for the nine
month period ended September 30, 1996. These taxes are based upon 20% of
adjusted gross receipts, as defined by Indiana Gaming laws, and a head tax
of $3 per passenger count based on 971,546 passengers, as determined by the
Commission's regulations. An additional $896,000 was paid during the nine
month period to the City under an agreement whereby the Company pays 3% of
the adjusted gross receipts directly to the City.
General and administrative expenses totaled approximately $3,829,000 of
which approximately $1,874,000 represents for berthing fees paid to BHR.
Depreciation and amortization, net interest expense and other non-gaming
expenses, for the nine month period, were approximately $2,045,000,
$2,660,000 and $5,689,000 respectively. Net interest expense includes
accrued but unpaid contingent interest of approximately $337,000.
The Company's loss in its investment in BHR was approximately $1,196,000 for
the nine month period.
As a result of the foregoing, the loss from operations for the nine month
period was approximately $458,000, including the charge to operations of
$4,587,000 of pre-opening costs. The net loss was approximately $4,315,000.
Earnings Before Interest, Income Taxes, Depreciation and Amortization
("EBITDA")
EBITDA is presented solely as a supplemental disclosure. EBITDA is used by
the Company to assist in the evaluation of the cash generating ability of
its gaming business.
EBITDA (excluding pre-opening costs and the Chartered Vessel lease payments)
for the three and nine month periods ended September 30, 1996, was
approximately $5,442,000 and $6,660,000, respectively and represented 22% of
net revenues for both the quarter and nine month periods. EBITDA should
only be viewed in conjunction with all of the Company's financial data and
statements, and should not be construed as an alternative either to income
from operations as an indicator of the Company's operating performance or to
cash flows from operating activities as a measure of liquidity.
Liquidity and Capital Resources
Through September 30, 1996, the principal expenditures were approximately as
follows: $46 million invested in BHR, $20 million expended on property,
equipment and leasehold interests, $5 million paid to the City of Gary, and
$6 million incurred on pre-opening, licensing and organizational costs. BHR
owns and operates the berthing facility for the Company's casino vessel, the
guest pavilion and associated infrastructure. Property, equipment and
leasehold interests primarily consist of slot machines and associated
equipment and leasehold improvements to the Chartered Vessel. The Company
has committed to spend an additional $40 million on the Permanent Vessel,
excluding additional gaming-related equipment.
As discussed below, the Company, to date, has met its capital requirements
through net cash from operations, capital contributions and loans.
For the nine months ended September 30, 1996, net cash provided from
operations totaled approximately $3,541,000.
Net capital contributions through September 30, 1996, were approximately
$24 million, compared to approximately $35 million through December 31,
1995. This reduction is due to the Company's reassessment of its capital
structure, which resulted, on March 31, 1996, in Barden Development, Inc.
("BDI") converting approximately $11 million of its capital contributions to
the Company into a note. BDI is one of the Company's members and its
manager.
At September 30, 1996, loans included $105 million of Senior Secured Notes,
$11 million borrowed from BDI and $6 million of secured equipment financing.
The Company borrowed an additional $18 million from BDI in April and May of
1996 which was repaid in May of 1996 from the proceeds of the Senior Secured
Notes. At September 30, 1996, approximately $65 million of the proceeds and
interest earned thereon from the Senior Secured Notes were held in escrow
for future cash requirements of the Company and were allocated as follows:
$41 million for the Permanent Vessel, $13 million as an interest reserve,
and $11 million designated to repay the loan due to BDI. The portion
designated for the repayment of the loan due to BDI cannot be paid to BDI
until certain conditions, primarily the completion of the BHR's facilities
and the Permanent Vessel, are met. Until repaid, these funds are available,
subject to certain limitations and qualifications, to the Company for
completion of the BHR's facilities and the Permanent Vessel.
The Senior Secured Notes mature on May 15, 2003. The Senior Secured Notes
are redeemable at the option of the Company, in whole or part, at any time
on or after May 15, 2000, at various premiums. Holders of the Senior
Secured Notes have the right to require that the Company repurchase the
notes at a premium under certain conditions including a change in control of
the Company.
The Senior Secured Notes carry a coupon interest rate of 12.75%, plus
contingent interest equal to 5% of EBITDA (not to exceed $3 million
annually), both payable semi-annually.
The payment of contingent interest can be deferred under certain conditions.
The contingent interest ordinarily payable on November 15, 1996 will be
deferred, as allowed under the terms of the Indenture. The Senior Secured
Notes are secured by essentially all the assets of the Company.
The Indenture, which governs the Senior Secured Notes (the "Indenture"),
contains financial and other covenants, which, among other things, limits
the Company's ability to (1) the issue indebtedness, (2) make investments,
(3) make distributions and equity repurchases, (4) enter into merger,
consolidation and asset sale transactions, (5) create liens and (6) enter
into transactions with affiliates. These restrictions are subject to a
number of qualifications and exceptions as described in the Indenture.
If the Company is determined to be in default under the Indenture, any
portion of the proceeds from the Senior Secured Notes held in escrow may no
longer be available to the Company and the Senior Secured Notes may be
accelerated. Either event could materially adversely affect the Company.
The Company, pursuant to the Indenture, commenced on October 4, 1996, an
offer to exchange a new issue of senior secured notes for all outstanding
12.75% Senior Secured Notes due 2003, with Contingent Interest. These new
notes have the same terms and conditions as the Senior Secured Notes.
Under the terms of the lease relating to the harbor on which the Chartered
Vessel is docked, BHR may be required within two years to construct new
harbor, berthing and guest facilities for the Company's casino vessel. The
level of expenditures required for such new facilities cannot be accurately
estimated at this time.
Under the terms of its development agreement with the City, the Company
committed to make development expenditures of $116 million for its casino
and associated infrastructure in the City over the next five years. Through
September 30, 1996, the Company has met or accrued a significant portion of
these commitments including as follows: $46 million investment in BHR, $20
million agreed to value of the Chartered Vessel, $5 million of economic
development obligation payments to the City, $20 million of gaming equipment
and other property and other expenditures of $6 million prior to opening.
The two principal components of the remaining commitment are as follows:
(1) $10 million for off-site development in the City by 1998/1999 with the
particular project(s) to be agreed to by the City and (2) $12 million
(subject to the agreement $5 million has already been expended as of
September 30, 1996) to be expended over the five years following the June
1996 opening of the casino for enhancements to the Company's operations at
Buffington Harbor and/or to BHR's facilities.
The Company anticipates that additional capital contributions to BHR,
currently estimated not to exceed $2 million, may be required for BHR's
facilities. The Company expects to fund such further investment from
working capital, from operations and/or from the funds designated for the
repayment of the note due to BDI.
Based upon the Company's anticipated future operations, management believes
that available cash flow from the casino's future operations and certain
equipment financing, together with the proceeds from the Senior Secured
Notes, will be adequate to meet the Company's anticipated future
requirements for working capital, the remaining development obligations to
the City, capital expenditures, including the additional gaming equipment
required for the Permanent Vessel, and scheduled payments of interest and
principal on the Senior Secured Notes and other permitted indebtedness for
fiscal 1996. No assurance can be given, however, that operating cash flow
will be sufficient for such purposes. The Company intends to establish
working capital reserves to provide for anticipated short-term liquidity
needs. The Company will seek, if necessary and to the extent permitted
under the Indenture, additional financing through borrowings and debt or
equity financing. There can be no assurance that additional financing, if
needed, will be available to the Company, or that, if available, the
financing will be on terms favorable to the Company. There is no assurance
that the Company's estimate of its reasonably anticipated liquidity needs is
accurate or that unforeseen events will not occur, resulting in the need to
raise additional funds.
Part II
Item 1
Legal Proceedings
None.
Item 2
Changes in Securities
The Company, pursuant to the terms of the Indenture, commenced on
October 4, 1996, an offer to exchange a new issue of notes (the
"Senior Exchange Notes") for all outstanding 12-3/4% Senior Secured
Notes due 2003, with Contingent Interest.
The terms of the Senior Exchange Notes are substantially identical
in all material respects to those of the Senior Secured Notes,
except for certain transfer restrictions and registration rights
relating to the Senior Secured Notes. The Exchange Offer is not
conditioned upon any minimum principal amount of Senior Secured
Notes being tendered for exchange, but is otherwise subject to
certain customary conditions. The Senior Secured Notes may be
tendered only in integral multiples of $1,000. The Exchange Offer
expired at 5:00 p.m., New York City time, on November 13, 1996. All
of the Senior Secured Notes were tendered for exchange.
Item 3
Default Upon Senior Securities
None
Item 4
Submission of Matters to a Vote of Security Holders
None
Item 5
Other Information
On October 24, 1996, the Seafarers International Union withdrew its
petition to represent approximately 170 individuals employed in
slot, cage and credit operations positions at the Company. The
Seafarers International Union may under certain guidelines of the
National Labor Relations Board be eligible to hold another election
in six months.
Item 6
Exhibits and Reports on Form 8-K
(a) Exhibit
10.14. Vessel Construction Contract between Majestic Star
and Atlantic Marine, Inc. dated as of September 27,
1996.
27 Financial Data Schedule (Edgar copy only)
(b) Reports on Form 8-K
None
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 duly authorized officers.
The Majestic Star Casino, LLC
Registrant
Date: November 13, 1996 /S/ Don H. Barden
__________________________________
Don H. Barden, President and Chief
Executive Officer
Date: November 13, 1996 /S/ Michael E. Kelly
__________________________________
Michael E. Kelly, Vice President
and Chief Financial Officer
(principal financial and accounting
officer)