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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 SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 333-06489
INDIANA THE MAJESTIC STAR CASINO, LLC 43-1664986
INDIANA THE MAJESTIC STAR CASINO CAPITAL CORP. 35-2100872
(State or other (Exact name of registrant as specified in its charter) (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
ONE BUFFINGTON HARBOR DRIVE
GARY, INDIANA
46406-3000
(219) 977-7823
(Registrant's address and telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to filing requirements
for the past 90 days.
Yes X No
------- ------
Shares outstanding of each of the registrant's classes of common stock as of
June 30, 2002:
Class Number of shares
- ----- ----------------
Not applicable Not applicable
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THE MAJESTIC STAR CASINO, LLC
INDEX
PAGE NO.
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PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets, as of June 30, 2002 and December 31, 2001 1
Consolidated Statements of Operations for the three and six months
ended June 30, 2002 and 2001 2
Consolidated Statements of Cash Flows for the six months ended
June 30, 2002 and 2001 3
Notes to Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 22
Item 3. Quantitative and Qualitative Disclosures About Market Risk 33
PART II OTHER INFORMATION
Item 1. Legal Proceedings 33
Item 6. Exhibits and Reports on Form 8-K 33
SIGNATURES 34
i
PART 1 - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
THE MAJESTIC STAR CASINO, LLC
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JUNE 30, DECEMBER 31,
2002 2001
ASSETS
Current Assets:
Cash and cash equivalents $ 28,200,794 $ 25,925,291
Accounts receivable, less allowance for doubtful accounts
of $360,274 and $359,702, respectively 3,033,258 3,079,523
Inventories 975,436 995,708
Prepaid expenses 3,273,266 2,190,255
Due from affiliate 975,539 700,000
Due from Buffington Harbor Riverboats, L.L.C 470,782 333,838
------------ ------------
Total current assets 36,941,037 33,224,615
------------ ------------
Property, equipment, and vessel improvements, net 168,822,132 170,195,013
Intangible assets, net 18,493,623 19,290,753
Goodwill 6,713,162 10,602,250
Other Assets:
Deferred financing costs, less accumulated amortization
of $3,262,395 and $2,202,831, respectively 10,045,988 10,530,426
Investment in Buffington Harbor Riverboats, L.L.C 32,731,339 33,898,771
Restricted cash 1,000,000 1,000,000
Other assets, prepaid leases and deposits 13,046,212 12,317,704
------------ ------------
Total other assets 56,823,539 57,746,901
Total Assets $287,793,493 $291,059,532
============ ============
LIABILITIES AND MEMBERS' DEFICIT
Current Liabilities:
Current maturities of long-term debt $ 2,131,364 $ 6,656,574
Accounts payable 3,992,901 2,978,502
Accrued payroll and related 6,207,230 6,194,601
Accrued interest 8,564,554 8,294,312
Other accrued liabilities 11,975,737 13,020,097
------------ ------------
Total current liabilities 32,871,786 37,144,086
Long-term debt, net of current maturities 274,625,782 273,896,933
------------ ------------
Total Liabilities 307,497,568 311,041,019
------------ ------------
Commitments and contingencies
Members' Deficit:
Members' contributions 29,000,000 29,000,000
Accumulated deficit (48,704,075) (48,981,487)
------------ ------------
Total Members' Deficit (19,704,075) (19,981,487)
------------ ------------
Total Liabilities and Members' Deficit $287,793,493 $291,059,532
============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
1
THE MAJESTIC STAR CASINO, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
2002 2001 2002 2001
REVENUES:
Casino $72,066,873 $31,011,048 $145,560,288 $62,931,224
Rooms 3,938,875 - 8,027,387 -
Food and beverage 5,421,772 525,975 11,065,485 1,069,878
Other 1,393,350 324,678 2,563,705 622,657
----------- ----------- ------------ -----------
Gross Revenues 82,820,870 31,861,701 167,216,865 64,623,759
less promotional allowances (9,864,682) (1,603,276) (20,759,675) (3,095,598)
----------- ----------- ------------ -----------
Net Revenues 72,956,188 30,258,425 146,457,190 61,528,161
----------- ----------- ------------ -----------
COSTS AND EXPENSES:
Casino 21,863,264 6,129,391 43,354,471 12,172,570
Rooms 2,282,536 - 4,441,458 -
Food and beverage 3,447,130 578,209 6,767,100 1,186,176
Other 396,601 - 775,440 -
Gaming taxes 13,428,854 8,631,441 27,025,441 17,509,581
Advertising and promotion 5,260,936 1,463,851 10,127,534 3,505,886
General and administrative 11,344,853 5,805,140 22,252,003 11,889,526
Economic incentive - City of Gary 948,882 931,256 1,887,142 1,889,033
Depreciation and amortization 5,175,426 2,140,188 10,234,119 4,446,996
(Gain)/loss on disposal of assets (2,886) 12,114 (9,428) 12,114
Pre-opening expenses 116,982 - 124,269 -
----------- ----------- ------------ -----------
Total costs and expenses 64,262,578 25,691,590 126,979,549 52,611,882
----------- ----------- ------------ -----------
Operating income 8,693,610 4,566,835 19,477,641 8,916,279
----------- ----------- ------------ -----------
OTHER INCOME (EXPENSE):
Loss on investment in Buffington Harbor Riverboats, L.L.C. (601,940) (750,797) (1,207,900) (1,548,995)
Interest income 38,488 105,658 77,970 244,424
Interest expense (8,120,429) (3,548,389) (16,284,461) (7,243,275)
Other non-operating expense (41,298) (24,688) (92,291) (47,479)
----------- ----------- ------------ -----------
Total other income (expense) (8,725,179) (4,218,216) (17,506,682) (8,595,325)
----------- ----------- ------------ -----------
Net income (loss) $ (31,569) $ 348,619 $ 1,970,959 $ 320,954
=========== =========== ============ ===========
The accompanying notes are an integral part of these consolidated financial
statements.
2
THE MAJESTIC STAR CASINO, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,970,959 $ 320,954
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 7,578,115 3,308,079
Amortization 2,656,004 1,138,917
Loss on investment in Buffington Harbor Riverboats, L.L.C. 1,207,900 1,548,995
(Gain) loss on sale of assets (9,428) 12,114
Changes in operating assets and liabilities:
Decrease in accounts receivable 159,277 457,347
Decrease in inventories 20,272 12,320
Increase in prepaid expenses (1,309,205) (369,559)
(Increase) decrease in other assets 375,072 (439,372)
Increase in accounts payable 1,014,399 396,386
Decrease in related party payables (1,106,606) -
Increase in accrued payroll and other expenses 12,629 273,260
Increase (decrease) in accrued interest 270,242 (18,220)
Decrease in other accrued liabilities (513,955) (318,054)
----------- -----------
Net cash provided by operating activities 12,325,675 6,323,167
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment of acquisition related costs (986,158) -
Proceeds from seller from purchase price adjustment 3,800,000 -
Acquisition of property, equipment and vessel improvements (6,238,519) (1,695,421)
(Increase) decrease in deposits (74,000) 1,828,568
Investment in Buffington Harbor Riverboats, L.L.C (40,455) (149,618)
Proceeds from sale of equipment 42,717 1,850
----------- -----------
Net cash provided by (used in) investing activities (3,496,415) (14,621)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Line of credit, net (4,507,565) (5,100,000)
Payment of 11.653% Senior Secured Notes issuance costs (1,084,355) -
Cash advances to/from affiliates 819,815 -
Cash paid to reduce long-term debt (88,105) (794,418)
Distribution to Barden Development, Inc. (1,693,547) -
----------- -----------
Net cash used in financing activities (6,553,757) (5,894,418)
----------- -----------
Net increase (decrease) in cash and cash equivalents 2,275,503 414,128
Cash and cash equivalents, beginning of period 25,925,291 16,119,512
----------- -----------
Cash and cash equivalents, end of period $28,200,794 $16,533,640
=========== ===========
INTEREST PAID:
Equipment Debt $ 8,391 $ 31,047
Senior Secured Notes - Fixed Interest 10-7/8% $ 7,068,750 $ 7,068,750
Senior Secured Notes - Fixed Interest 11.653% $ 8,707,126 $ -
Lines of credit $ 197,730 $ 161,697
The accompanying notes are an integral part of these consolidated
financial statements.
3
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The Majestic Star Casino, LLC (the "Company") was formed on December 8,
1993, as an Indiana limited liability company ("LLC"), 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 on June 7, 1996. Majestic Investor, LLC was formed on
September 12, 2000 as an "unrestricted subsidiary" of the Company under the
Indenture relating to the Company's 10-7/8% Senior Secured Notes. Majestic
Investor, LLC was initially formed to satisfy the Company's off-site development
obligations under the Development Agreement with the City of Gary.
Majestic Investor, LLC entered into a definitive purchase and sale
agreement dated as of November 22, 2000, as amended December 4, 2000, with
Fitzgeralds Gaming Corporation ("Fitzgeralds") and certain of its affiliates to
purchase substantially all of the assets of three of its subsidiaries for
approximately $149.0 million in cash, subject to adjustment in certain
circumstances, plus assumption of certain liabilities. Majestic Investor, LLC
assigned all of its rights and obligations to Majestic Investor Holdings, LLC, a
wholly-owned subsidiary of Majestic Investor, LLC, following the formation of
Majestic Investor Holdings, LLC. Majestic Investor Holdings, LLC completed the
purchase of the Fitzgeralds assets on December 6, 2001 and commenced operations
on December 7, 2002. The three Fitzgeralds brand casinos are "restricted
subsidiaries" of Majestic Investor Holdings, LLC under the Indenture relating to
Majestic Investor Holdings, LLC's 11.653% Senior Secured Notes and "unrestricted
subsidiaries" under the Company's Indenture relating to the Company's 10-7/8%
Senior Secured Notes.
Except where otherwise noted, the words "we," "us," "our," and similar
terms, as well as the "Company," refer to The Majestic Star Casino, LLC and all
of its subsidiaries.
The accompanying consolidated financial statements are unaudited and
include the accounts of The Majestic Star Casino, LLC ("Majestic Star") and its
wholly-owned subsidiary, Majestic Investor, LLC. All intercompany transactions
and balances have been eliminated. Investments in affiliates in which the
Company has the ability to exercise significant influence, but not control, are
accounted for by the equity method. These financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (which
include normal recurring adjustments) considered necessary for a fair
presentation of the results for the interim periods have been made. The results
for the six months ended June 30, 2002, are not necessarily indicative of
results to be expected for the full fiscal year. The financial statements should
be read in conjunction with the financial statements and notes thereto included
in the Company's Annual Report on Form 10-K for the year ended December 31,
2001.
Certain reclassifications have been made to the 2001 financial statements
to conform to the 2002 presentation, which have no effect on previously reported
net income.
4
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In April 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 145, "Rescission of FASB statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13 and Technical Corrections" which is effective for fiscal years
beginning after May 15, 2002. This Statement updates, clarifies, and simplifies
existing accounting pronouncements. Management does not expect the standard to
have a material impact on the Company's consolidated financial position, results
of operations or cash flows.
In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated
with Exit or Disposal Activities" which will become effective for exit or
disposal activities initiated after December 31, 2002. SFAS No. 146 supersedes
Emerging Issues Task Force Issue No. 94-3 "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity." SFAS No. 146
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred and states that an
entity's commitment to an exit plan, by itself, does not create a present
obligation that meets the definition of a liability. SFAS No. 146 also
establishes that fair value is the objective for initial measurement of the
liability. Adoption of SFAS No. 146 will have no impact on our historical
consolidated financial position or results of operations.
NOTE 3. INVESTMENT IN BUFFINGTON HARBOR RIVERBOATS, L.L.C. ("BHR")
On October 31, 1995, the Company and Trump Indiana, Inc. (the "Joint
Venture Partner") entered into the First Amended and Restated Operating
Agreement of BHR for the purpose of acquiring and developing certain facilities
for the gaming operations in the City ("BHR Property"). BHR is responsible for
the management, development and operation of the BHR Property. The Company and
the Joint Venture Partner have each entered into an agreement with BHR (the
"Berthing Agreement") to use BHR Property for their respective gaming operations
and have committed to pay cash operating losses of BHR as additional berthing
fees. The Company and the Joint Venture Partner share equally in the operating
expenses relating to the BHR Property, except for costs associated with food and
beverage and gift shop, which are allocated on a percentage of use by the casino
customers of the Company and the Joint Venture Partner. The Company accounts for
its 50% interest in 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.
5
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following represents selected financial information of BHR:
Buffington Harbor Riverboats, L.L.C.
Statements of Operations
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
2002 2001 2002 2001
----------- ----------- ----------- -----------
Gross Revenue $ 3,704,614 $ 4,172,560 $ 7,922,587 $ 8,339,223
Operating Income $ 2,530 $ 7,639 $ 7,520 $ 16,170
Net Loss $(1,201,350) $(1,501,594) $(2,413,270) $(3,097,990)
NOTE 4. ACQUISITIONS
On December 6, 2001, we, through certain indirect wholly-owned
subsidiaries, completed the acquisition of substantially all of the assets and
assumed certain liabilities of Fitzgeralds Las Vegas, Inc. ("Fitzgeralds Las
Vegas"), Fitzgeralds Mississippi Inc. ("Fitzgeralds Tunica") and 101 Main Street
Limited Liability Company ("Fitzgeralds Black Hawk") (the "Fitzgeralds assets")
for approximately $152.7 million in cash, which includes the purchase price of
$149.0 million and professional fees and other expenses related to the
acquisition. Pursuant to the terms of the purchase and sale agreement, the
parties agreed to a $3.8 million purchase price reduction on May 9, 2002, based
upon a negotiated settlement of the value of working capital at December 6,
2001. We are accounting for the acquisition under the purchase method.
Accordingly, the purchase price is allocated to the assets acquired and
liabilities assumed based upon their estimated fair values at the date of
acquisition. We determined the estimated fair value of property and equipment
and intangible assets based upon third-party valuations.
The purchase price was determined based upon estimates of future cash flows
and the net worth of the assets acquired. Majestic Investor Holdings, LLC funded
the acquisition through the issuance of its 11.653% Senior Secured Notes. The
following table summarizes the estimated fair value of the assets acquired and
the liabilities assumed at the acquisition date.
6
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 4. ACQUISITIONS (CONTINUED)
(In millions) At December 6, 2001
Current assets $ 12.2
Property and equipment 122.9
Intangible assets 19.4
Goodwill 10.6
Other noncurrent assets 2.0
------
Total assets acquired 167.1
------
Current liabilities 14.0
Other noncurrent liabilities 0.4
------
Total liabilities assumed 14.4
------
Net $152.7
------
The Company (parent only) has no intangible assets. Intangible assets at
Majestic Investor Holdings, LLC primarily include $9.8 million for customer
relationships, $3.7 million for tradename and $5.2 million for gaming licenses.
Intangible assets for customer relationships and tradenames are being amortized
over a period of 8-10 years. In accordance with SFAS 142, goodwill, and other
indefinite lived intangible assets, such as the Majestic Investor Holdings,
LLC's gaming license, are not amortized but instead are subject to impairment
tests at least annually.
NOTE 5. OTHER INTANGIBLE ASSETS
The gross carrying amount and accumulated amortization of the intangible
assets, other than goodwill, as of June 30, 2002, are as follows:
Gross Carrying Amount Accumulated Amortization
--------------------- ------------------------
(in thousands)
Amortized intangible assets:
Customer relationships $ 9,800 $(696)
Tradename 3,700 (210)
Riverboat excursion license 700 -
------- -----
Total $14,200 $(906)
======= =====
Unamortized intangible assets:
Gaming license $ 5,200
-------
Total $ 5,200
=======
7
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The amortization expense recorded on the intangible assets for the three
and six months ended June 30, 2002 was $0.4 million and $0.8 million,
respectively. The estimated amortization expense for each of the five succeeding
fiscal years is as follows (amounts in thousands):
For the year ending December 31,
--------------------------------
2002 $1,595
2003 $1,642
2004 $1,642
2005 $1,642
2006 $1,642
NOTE 6. GOODWILL
The changes in the carrying amount of goodwill for the six months ended
June 30, 2002 are as follows:
(In thousands)
Balance as of January 1, 2002 $10,602
Goodwill acquired 296
-------
Balance as of March 31, 2002 $10,898
Purchase price adjustment (3,800)
Goodwill adjustments (549)
Goodwill acquired 164
-------
Balance as of June 30, 2002 $ 6,713
-------
The increase in goodwill acquired primarily relates to professional fees
incurred by the Company related to the acquisition of Fitzgeralds Tunica,
Fitzgeralds Black Hawk, and Fitzgeralds Las Vegas and the decrease in goodwill
primarily relates to the purchase price adjustment as previously described in
Note 4.
In accordance with SFAS 142, goodwill is not amortized but instead is
subject to impairment testing at least annually.
NOTE 7. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
There have been no significant changes in the legal proceedings previously
described in the Company's Annual Report on Form 10-K for the year ended
December 31, 2001.
8
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Gaming Regulations
The ownership and operation of riverboat gaming operations in Indiana are
subject to strict state regulation under the Riverboat Gambling Act ("Act") and
the administrative rules promulgated thereunder. The Indiana Gaming Commission
("IGC") is empowered to administer, regulate and enforce the system of riverboat
gaming established under the Act and has jurisdiction and supervision over all
riverboat gaming operations in Indiana, as well as all persons on riverboats
where gaming operations are conducted. The IGC is empowered to regulate a wide
variety of gaming and nongaming related activities, including the licensing of
supplies to, and employees at, riverboat gaming operations and to approve the
form of entity qualifiers and intermediary and holding companies. Indiana is a
relatively new jurisdiction and the emerging regulatory framework is not yet
complete. The IGC has adopted certain final rules and has published others in
proposed or draft form, which are proceeding through the review and final
adoption process. The IGC has broad rulemaking power, and it is impossible to
predict what effect, if any, the amendment of existing rules or the finalization
of currently new rules might have on the Company's operations.
A change in the Indiana state law governing gaming took effect on July 1,
2002 which enables Indiana's riverboat casinos to operate dockside. The IGC
approved Majestic Star's flexible boarding plan that allows the continuous
ingress and egress of patrons for the purpose of gambling while the riverboat is
docked. The plan went into effect on August 5, 2002 and imposes a graduated
wagering tax based upon adjusted gross receipts. The graduated wagering tax will
have a starting rate of 15% with a top rate of 35% for adjusted gross receipts
in excess of $150 million. For the period July 1 through August 4, 2002, the
wagering tax was raised by statute to 22.5% of adjusted gross receipts. Prior to
July 1, 2002, in Indiana, gaming taxes were levied on adjusted gross receipts,
as defined by Indiana gaming laws, at the rate of 20%.
The ownership and operation of our other casino gaming facilities in
Nevada, Mississippi and Colorado are also subject to various state and local
regulations in the jurisdictions where they are located. In Nevada, our gaming
operations are subject to the Nevada Gaming Control Act, and to the licensing
and regulatory control of the Nevada Gaming Commission, the Nevada State Gaming
Control Board and various local ordinances and regulations, including, without
limitation, applicable city and county gaming and liquor licensing authorities.
In Mississippi, our gaming operations are subject to the Mississippi Gaming
Control Act, and to the licensing and/or regulatory control of the Mississippi
Gaming Commission, the Mississippi State Tax Commission and various state and
local regulatory agencies, including liquor licensing authorities. In Colorado,
our gaming operations are subject to the Limited Gaming Act of 1991, which
created the Division of Gaming within the Colorado Department of Revenue and the
Colorado Limited Gaming Control Commission to license, implement, regulate and
supervise the conduct of limited gaming. Our operations are also subject to the
Colorado Liquor Code and the state and local liquor licensing authorities.
9
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The Company's directors, officer, managers and key employees are required
to hold individual licenses, the requirements for which vary from jurisdiction
to jurisdiction. Licenses and permits for gaming operations and of individual
licensees are subject to revocation or non- renewal for cause. Under certain
circumstances, holders of our securities are required to secure independent
licenses and permits.
NOTE 8. SEGMENT INFORMATION
The Company owns and operates four properties as follows: a riverboat
casino located in Gary, Indiana; a casino and hotel located in downtown Las
Vegas, Nevada; a casino and hotel located in Tunica, Mississippi; and a casino
located in Black Hawk, Colorado (collectively, the "Properties"). The Company
identifies its business in four segments based on geographic location. The
Properties, in each of their segments, market primarily to middle-income slot
customers. The major products offered in each segment are as follows: casino,
hotel rooms (except in Gary, Indiana and Black Hawk, Colorado) and food and
beverage.
The accounting policies of each business segment are the same as those
described in the summary of significant accounting policies previously described
in Note 1 to the audited financial statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2001. There are minimal
inter-segment sales. Corporate costs are allocated to the business segment
through a management service fee from Majestic Star and are fully reflected in
the expense line titled "General and Administrative" expenses.
A summary of the Properties' operations by business segment for the three
and six months ended June 30, 2002 and 2001 is presented below:
10
(a) AS OF AND FOR THE (a)
THREE MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2002 JUNE 30, 2001 JUNE 30, 2002 JUNE 30, 2001
------------------ ------------------ ----------------- -----------------
Net revenues:
Majestic Star Casino $30,569 $30,258 $ 60,757 $ 61,528
Fitzgeralds Tunica 21,857 20,827 44,106 42,063
Fitzgeralds Black Hawk 7,902 8,516 15,908 16,392
Fitzgeralds Las Vegas 12,628 13,616 25,686 27,925
------- ------- --------- --------
Total $72,956 $73,217 $ 146,457 $147,908
------- ------- --------- --------
Income (loss) from operations:
Majestic Star Casino $ 5,289 $ 4,567 $ 10,577 $ 8,920
Fitzgeralds Tunica 3,310 4,889 7,946 10,330
Fitzgeralds Black Hawk 1,524 2,003 2,782 3,568
Fitzgeralds Las Vegas (659) 840 (419) 2,508
Unallocated and other(1) (770) - (1,408) 4
------- ------- --------- --------
Total $ 8,694 $12,299 $ 19,478 $ 25,330
------- ------- --------- --------
Segment depreciation and amortization
Majestic Star Casino $ 1,682 $ 2,140 $ 3,354 $ 4,447
Fitzgeralds Tunica 1,835 - 3,615 -
Fitzgeralds Black Hawk 364 - 727 -
Fitzgeralds Las Vegas 648 - 1,265 -
Unallocated and other(1) 646 - 1,273 -
------- ------- --------- --------
Total $ 5,175 $ 2,140 10,234 $ 4,447
------- ------- --------- --------
Expenditures for additions to long-lived assets:
Majestic Star Casino $ 2,331 $ 692 $ 3,504 $ 1,695
Fitzgeralds Tunica 983 283 1,496 530
Fitzgeralds Black Hawk 335 94 439 153
Fitzgeralds Las Vegas 245 36 800 148
------- ------- --------- --------
Total $ 3,894 $ 1,105 $ 6,239 $ 2,526
------- ------- --------- --------
Segment assets:
Majestic Star Casino $ 122,951
Fitzgeralds Tunica 92,495
Fitzgeralds Black Hawk 30,903
Fitzgeralds Las Vegas 45,709
Unallocated and other(1) 162,140
---------
Total $ 454,198
---------
Less: intercompany (166,405)
---------
Total $ 287,793
---------
Goodwill:
Majestic Star Casino $ -
Fitzgeralds Tunica 3,998
Fitzgeralds Black Hawk 1,524
Fitzgeralds Las Vegas 1,191
---------
Total $ 6,713
---------
(1) Unallocated and other include corporate items and eliminations that are not
allocated to the operating segments.
(a) The segment information provided for the Fitzgeralds properties is derived
from prior year consolidated financial information provided by the
predecessor company and is for the quarter and two quarters ended July 1,
2001.
11
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 9. RELATED PARTY TRANSACTIONS
During the six months ended June 30, 2002, the Company made distributions
of approximately $628,000 to Barden Development, Inc. ("BDI"), of which $280,000
was related to the fourth quarter of 2001 and $348,000 was related to the first
quarter of 2002. These distributions were made in accordance with the Management
Agreement between the Company and BDI dated June 18, 1999.
During the six months ended June 30, 2002, Majestic Investor Holdings, LLC
made distributions of approximately $1,065,000 to BDI, of which $188,000 was
related to the fourth quarter of 2001 and $877,000 was related to the first
quarter of 2002, in accordance with the Management Agreement between Majestic
Investor Holdings, LLC and BDI dated December 5, 2001.
In December 2001, Majestic Investor Holdings, LLC issued a $700,000 note to
BDI. The note bears interest at a rate of 7% per annum and is due and payable in
full on December 12, 2002.
During 2001, The Majestic Star Casino, LLC made a $300,000 employee loan to
Mr. Barden. This loan bears interest at a rate of 7% per annum and is due and
payable in full on December 12, 2002.
NOTE 10. SUPPLEMENTAL FINANCIAL INFORMATION
The Company's $130.0 million, 10 7/8% Senior Secured Notes are secured by
substantially all of the assets of the Majestic Star Casino, but not the assets
of Majestic Investor Holdings, LLC and its wholly-owned subsidiaries which
include the three Fitzgeralds' casino properties acquired on December 6, 2001.
Majestic Investor Holdings, LLC's $152.6 million, 11.653% Senior Secured
Notes are unconditionally and irrevocably guaranteed, jointly and severally, by
all of the restricted subsidiaries (the "Guarantor Subsidiaries") of Majestic
Investor Holdings, LLC. The guarantees rank senior in right of payment to all
existing and future subordinated indebtedness of these restricted subsidiaries
and equal in right of payment with all existing and future senior indebtedness
of these restricted subsidiaries.
The following condensed consolidating information presents condensed
consolidating balance sheets, as of June 30, 2002 and December 31, 2001 and
condensed consolidating statements of operations for the three and six months
ended June 30, 2002 and 2001, and condensed consolidating statements of cash
flows for the six months ended June 30, 2002 and 2001 for The Majestic Star
Casino, LLC, Majestic Investor Holdings, LLC, and the restricted subsidiaries of
12
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 10. SUPPLEMENTAL FINANCIAL INFORMATION (CONTINUED)
Majestic Investor Holdings, LLC (on a combined and individual basis) and the
elimination entries necessary to combine such entities on a consolidated basis.
The Majestic Star Casino Capital Corp. ("MSCCC") and Majestic Investor, LLC,
wholly-owned subsidiaries of The Majestic Star Casino, LLC, and Majestic
Investor Capital Corp. ("MICC"), a wholly-owned subsidiary of Majestic Investor,
LLC, do not have any material assets, obligations or operations. Therefore, no
information has been presented below for these subsidiaries.
13
CONDENSED CONSOLIDATING BALANCE SHEETS AS OF JUNE 30, 2002 (UNAUDITED)
MAJESTIC STAR MAJESTIC INVESTOR GUARANTOR ELIMINATING
CASINO, LLC HOLDINGS, LLC SUBSIDIARIES ENTRIES
ASSETS
Current Assets:
Cash and cash equivalents $ 10,825,940 $ 741,326 $ 16,633,528 $ -
Accounts receivable (net) 1,803,232 27,086 1,202,940 -
Inventories 61,161 - 914,275 -
Prepaid expenses and other current assets 1,864,510 4,406,009 2,142,414 (3,693,346)(a)
-----------------------------------------------------------------------
Total current assets 14,554,843 5,174,421 20,893,157 (3,693,346)
-----------------------------------------------------------------------
Property and equipment, net 48,503,175 - 120,318,957 -
Intangible assets, net - - 18,493,623 -
Due from related parties 1,417,163 138,746,446 - (140,163,609)(b)
Investment in Buffington Harbor Riverboats, L.L.C 32,731,339 - - -
Other assets 14,452,078 6,964,046 9,401,200 -
Investment in subsidiaries 11,292,675 11,255,046 - (22,547,721)(b)
-----------------------------------------------------------------------
Total Assets $122,951,273 $162,139,959 $169,106,937 $(166,404,676)
=======================================================================
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
Current Liabilities:
Current maturities of long-term debt $ - $ 1,992,435 $ 138,929 $ -
Accounts payable, accrued and other 13,937,148 1,714,516 15,088,758 -
-----------------------------------------------------------------------
Total current liabilities 13,937,148 3,706,951 15,227,687 -
-----------------------------------------------------------------------
Due to related parties - 1,417,163 142,439,792 (143,856,955)(b)
Long-term debt, net of current maturities 128,718,200 145,723,170 184,412 -
-----------------------------------------------------------------------
Total Liabilities 142,655,348 150,847,284 157,851,891 (143,856,955)
Members' Equity (Deficit) (19,704,075) 11,292,675 11,255,046 (22,547,721)(b)
-----------------------------------------------------------------------
Total Liabilities and Member's Equity (Deficit) $122,951,273 $162,139,959 $169,106,937 $(166,404,676)
=======================================================================
TOTAL
CONSOLIDATED
ASSETS
Current Assets:
Cash and cash equivalents $ 28,200,794
Accounts receivable (net) 3,033,258
Inventories 975,436
Prepaid expenses and other current assets 4,719,587
------------
Total current assets 36,929,075
------------
Property and equipment, net 168,822,132
Intangible assets, net 18,493,623
Due from related parties -
Investment in Buffington Harbor Riverboats, L.L.C 32,731,339
Other assets 30,817,324
Investment in subsidiaries -
------------
Total Assets $287,793,493
============
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
Current Liabilities:
Current maturities of long-term debt $ 2,131,364
Accounts payable, accrued and other 30,740,422
------------
Total current liabilities 32,871,786
------------
Due to related parties -
Long-term debt, net of current maturities 274,625,782
------------
Total Liabilities 307,497,568
Members' Equity (Deficit) (19,704,075)
------------
Total Liabilities and Member's Equity (Deficit) $287,793,493
============
(a) To eliminate intercompany receivables and payables.
(b) To eliminate intercompany accounts and investment in subsidiaries.
14
CONDENSED CONSOLIDATING BALANCE SHEETS AS OF DECEMBER 31, 2001
MAJESTIC
MAJESTIC STAR INVESTOR GUARANTOR ELIMINATING
CASINO, LCC HOLDINGS, LLC SUBSIDIARIES ENTRIES
ASSETS
Current Assets:
Cash and cash equivalents $ 8,220,476 $ 498,363 $ 17,206,452 $ -
Accounts receivable (net) 1,642,462 269,501 1,196,044 (28,484)(a)
Inventories 38,144 957,564 -
Prepaid and other current assets 1,213,056 707,467 1,303,570 -
-------------------------------------------------------------------------
Total current assets 11,114,138 1,475,331 20,663,630 (28,484)
-------------------------------------------------------------------------
Property and equipment, net 47,767,051 - 122,427,962 -
Intangible assets, net - - 19,290,753 -
Due from related parties 1,177,829 150,855,685 - (152,033,514)(b)
Investment in Buffington Harbor
Riverboats, LLC 33,898,771 - - -
Other assets 14,869,249 14,545,956 5,025,618 9,557(a)
Investment in subsidiaries 12,532,295 935,731 - (13,468,026)(b)
-------------------------------------------------------------------------
Total assets $121,359,333 $167,812,703 $167,407,963 $(165,520,467)
=========================================================================
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
Current Liabilities:
Current maturities of long-term debt $ - $ 6,500,000 $ 156,574 $ -
Accounts payable, accrued and other 12,784,191 2,526,703 15,195,545 (18,927)(a)
-------------------------------------------------------------------------
Total current liabilities 12,784,191 9,026,703 15,352,119 (18,927)
Due to related parties - 1,168,273 150,865,241 (152,033,514)(b)
Long-term debt, net of current portion 128,556,629 145,085,432 254,872 -
-------------------------------------------------------------------------
Total Liabilities 141,340,820 155,280,408 166,472,232 (152,052,441)
Members' Equity (Deficit) (19,981,487) 12,532,295 935,731 (13,468,026)(b)
-------------------------------------------------------------------------
Total Liabilities and Members'
Equity (Deficit) $121,359,333 $167,812,703 $167,407,963 $(165,520,467)
=========================================================================
CONSOLIDATED
TOTAL
ASSETS
Current Assets:
Cash and cash equivalents $ 25,925,291
Accounts receivable (net) 3,079,523
Inventories 995,708
Prepaid and other current assets 3,224,093
------------
Total current assets 33,224,615
------------
Property and equipment, net 170,195,013
Intangible assets, net 19,290,753
Due from related parties -
Investment in Buffington Harbor
Riverboats, LLC 33,898,771
Other assets 34,450,380
Investment in subsidiaries -
------------
Total assets $291,059,532
============
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
Current Liabilities:
Current maturities of long-term debt $ 6,656,574
Accounts payable, accrued and other 30,487,512
-------------
Total current liabilities 37,144,086
Due to related parties -
Long-term debt, net of current portion 273,896,933
------------
Total Liabilities 311,041,019
Members' Equity (Deficit) (19,981,487)
------------
Total Liabilities and Members'
Equity (Deficit) $291,059,532
=============
15
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED
JUNE 30, 2002
(UNAUDITED)
MAJESTIC STAR MAJESTIC INVESTOR GUARANTOR ELIMINATING CONSOLIDATED
CASINO, LLC HOLDINGS, LLC SUBSIDIARIES ENTRIES TOTAL
REVENUES:
Casino $31,640,532 $ - $40,426,341 $ - $72,066,873
Rooms - - 3,938,875 - 3,938,875
Food and beverage 535,028 - 4,886,744 - 5,421,772
Other 415,838 - 977,512 - 1,393,350
----------------------------------------------------------------------------------------
Gross revenues 32,591,398 - 50,229,472 - 82,820,870
less promotional allowances (2,022,310) - (7,842,372) - (9,864,682)
----------------------------------------------------------------------------------------
Net revenues 30,569,088 - 42,387,100 - 72,956,188
----------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Casino 5,952,601 - 15,910,663 - 21,863,264
Rooms - - 2,282,536 - 2,282,536
Food and beverage 503,539 - 2,943,591 - 3,447,130
Other - - 396,601 - 396,601
Gaming taxes 8,649,780 - 4,779,074 - 13,428,854
Advertising and promotion 1,566,998 - 3,693,938 - 5,260,936
General and administrative 5,984,860 7,498 5,352,495 - 11,344,853
Economic incentive - City of Gary 948,882 - - - 948,882
Depreciation and amortization 1,682,276 646,178 2,846,972 - 5,175,426
Gain on sale of assets (8,850) - 5,964 - (2,886)
Pre-opening expenses - 116,982 - - 116,982
----------------------------------------------------------------------------------------
Total costs and expenses 25,280,086 770,658 38,211,834 - 64,262,578
----------------------------------------------------------------------------------------
Operating income (loss) 5,289,002 (770,658) 4,175,266 - 8,693,610
----------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Loss on investment in
Buffington Harbor Riverboats, L.L.C (601,940) - - - (601,940)
Interest income 8,292 18,286 11,910 - 38,488
Interest expense (3,526,978) (4,585,293) (8,158) - (8,120,429)
Other non-operating expense (31,415) (9,883) - - (41,298)
Equity in net income (loss) of
subsidiaries (1,168,530) 4,179,018 - (3,010,488)(b) -
----------------------------------------------------------------------------------------
Total other income (expense) (5,320,571) (397,872) 3,752 (3,010,488) (8,725,179)
----------------------------------------------------------------------------------------
Net income (loss) $ (31,569) $(1,168,530) $ 4,179,018 $(3,010,488) $ (31,569)
----------------------------------------------------------------------------------------
16
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED
JUNE 30, 2002
(UNAUDITED)
MAJESTIC STAR MAJESTIC INVESTOR GUARANTOR ELIMINATING
CASINO, LLC HOLDINGS, LLC SUBSIDIARIES ENTRIES
REVENUES:
Casino $62,779,197 $ - $82,781,091 $ -
Rooms - - 8,027,387 -
Food and beverage 1,083,923 - 9,981,562 -
Other 696,419 - 1,867,286 -
------------------------------------------------------------------------------
Gross revenues 64,559,539 - 102,657,326 -
less promotional allowances (3,802,002) - (16,957,673) -
------------------------------------------------------------------------------
Net revenues 60,757,537 - 85,699,653 -
------------------------------------------------------------------------------
COSTS AND EXPENSES:
Casino 11,710,151 - 31,644,320 -
Rooms - - 4,441,458 -
Food and beverage 1,054,807 - 5,712,293 -
Other - - 775,440 -
Gaming taxes 17,226,612 - 9,798,829 -
Advertising and promotion 3,076,948 - 7,050,586 -
General and administrative 11,879,477 11,703 10,360,823 -
Economic incentive - City of Gary 1,887,142 - - -
Depreciation and amortization 3,353,954 1,272,525 5,607,640 -
Gain on sale of assets (8,850) - (578) -
Pre-opening expenses - 124,269 - -
------------------------------------------------------------------------------
Total costs and expenses 50,180,241 1,408,497 75,390,811 -
------------------------------------------------------------------------------
Operating income (loss) 10,577,296 (1,408,497) 10,308,842 -
------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Loss on investment in
Buffington Harbor Riverboats, L.L.C (1,207,900) - - -
Interest income 16,166 34,798 27,006 -
Interest expense (7,175,603) (9,092,319) (16,539) -
Other non-operating expense (64,916) (27,375) - -
Equity in net income (loss) of
subsidiaries (174,084) 10,319,309 - (10,145,225)(b)
------------------------------------------------------------------------------
Total other income (expense) (8,606,337) 1,234,413 10,467 (10,145,225)
------------------------------------------------------------------------------
Net income (loss) $ 1,970,959 $ (174,084) $10,319,309 $(10,145,225)
------------------------------------------------------------------------------
CONSOLIDATED
TOTAL
REVENUES:
Casino $145,560,288
Rooms 8,027,387
Food and beverage 11,065,485
Other 2,563,705
--------------
Gross revenues 167,216,865
less promotional allowances (20,759,675)
--------------
Net revenues 146,457,190
--------------
COSTS AND EXPENSES:
Casino 43,354,471
Rooms 4,441,458
Food and beverage 6,767,100
Other 775,440
Gaming taxes 27,025,441
Advertising and promotion 10,127,534
General and administrative 22,252,003
Economic incentive - City of Gary 1,887,142
Depreciation and amortization 10,234,119
Gain on sale of assets (9,428)
Pre-opening expenses 124,269
--------------
Total costs and expenses 126,979,549
--------------
Operating income (loss) 19,477,641
--------------
OTHER INCOME (EXPENSE):
Loss on investment in
Buffington Harbor Riverboats, L.L.C (1,207,900)
Interest income 77,970
Interest expense (16,284,461)
Other non-operating expense (92,291)
Equity in net income (loss) of
subsidiaries -
--------------
Total other income (expense) (17,506,682)
--------------
Net income (loss) $ 1,970,959
--------------
17
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED
JUNE 30, 2002
(Unaudited)
MAJESTIC STAR MAJESTIC INVESTOR GUARANTOR ELIMINATING CONSOLIDATED
CASINO, LLC HOLDINGS, LLC SUBSIDIARIES ENTRIES TOTAL
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES: $ 7,091,693 $(9,604,006) $ 14,824,068 $ 13,920(a) $12,325,675
--------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition related costs - (986,158) - - (986,158)
Proceeds from seller from
purchase price adjustment - 3,800,000 - - 3,800,000
Acquisition of property and
equipment (3,503,728) - (2,734,791) - (6,238,519)
Increase in prepaid leases
and deposits (74,000) - - - (74,000)
Investment in Buffington
Harbor Riverboats, L.L.C. (40,455) - - - (40,455)
Proceeds from sale of
equipment 8,850 - 33,867 - 42,717
--------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities (3,609,333) 2,813,842 (2,700,924) - (3,496,415)
--------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of 11.653% Senior
Secured Notes issuance costs - (1,084,355) - - (1,084,355)
Line of credit, net - (4,507,565) - (4,507,565)
Cash advances to/from affiliates (248,891) 13,690,589 (12,607,963) (13,920)(a) 819,815
Cash paid to reduce long-term
debt - - (88,105) - (88,105)
Distribution to Barden Development, Inc. (628,005) (1,065,542) - - (1,693,547)
--------------------------------------------------------------------------------
Net cash provided by (used in) financing
activities (876,896) 7,033,127 (12,696,068) (13,920) (6,553,757)
--------------------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents 2,605,464 242,963 (572,924) - 2,275,503
Cash and cash equivalents,
beginning of period 8,220,476 498,363 17,206,452 - 25,925,291
================================================================================
Cash and cash equivalents, end of
period $10,825,940 $ 741,326 $ 16,633,528 $ - $28,200,794
================================================================================
18
CONDENSED CONSOLIDATING STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED
JUNE 30, 2001
(UNAUDITED)
UNRESTRICTED
PARENT SUBSIDIARY CONSOLIDATED
REVENUES:
Casino $31,011,048 $31,011,048
Food and beverage 525,975 525,975
Other 324,678 324,678
------------------------------------------
Gross Revenues 31,861,701 31,861,701
less promotional allowances (1,603,276) (1,603,276)
------------------------------------------
Net Revenues 30,258,425 30,258,425
------------------------------------------
COSTS AND EXPENSES:
Casino 6,129,391 6,129,391
Food and beverage 578,209 578,209
Gaming taxes 8,631,441 8,631,441
Advertising and promotions 1,463,463 388 1,463,851
General and administrative 5,805,140 5,805,140
Economic incentive - City of Gary 931,256 931,256
Depreciation and amortization 2,140,188 2,140,188
Loss on disposal of assets 12,114 12,114
------------------------------------------
Total costs and expenses 25,691,202 388 25,691,590
Operating income (loss) 4,567,223 (388) 4,566,835
------------------------------------------
OTHER INCOME (EXPENSE):
Loss on investment in
Buffington Harbor (750,797) (750,797)
Riverboats, L.L.C.
Interest income 52,840 52,818 105,658
Interest expense (3,548,389) (3,548,389)
Other non-operating expense (24,688) (24,688)
------------------------------------------
Total other income (expense) (4,271,034) 52,818 (4,218,216)
Net income $ 296,189 $52,430 $ 348,619
==========================================
19
CONDENSED CONSOLIDATING STATEMENTS OF INCOME FOR THE SIX MONTHS ENDED JUNE 30,
2001
(UNAUDITED)
UNRESTRICTED
PARENT SUBSIDIARY CONSOLIDATED
REVENUES:
Casino $62,931,224 $ - $62,931,224
Food and beverage 1,069,878 - 1,069,878
Other 622,657 - 622,657
-------------------------------------------
Gross Revenues 64,623,759 - 64,623,759
less promotional allowances (3,095,598) - (3,095,598)
-------------------------------------------
Net Revenues 61,528,161 - 61,528,161
-------------------------------------------
COSTS AND EXPENSES:
Casino 12,172,570 - 12,172,570
Gaming and admission taxes 17,509,581 - 17,509,581
Food and beverage 1,186,176 - 1,186,176
Advertising and promotion 3,505,886 - 3,505,886
General and administrative 11,885,638 3,888 11,889,526
Economic incentive - City of Gary 1,889,033 - 1,889,033
Depreciation and amortization 4,446,996 - 4,446,996
Loss on disposal of assets 12,114 12,114
-------------------------------------------
Total costs and expenses 52,607,994 3,888 52,611,882
Operating income (loss) 8,920,167 (3,888) 8,916,279
-------------------------------------------
OTHER INCOME (EXPENSE):
Loss on investment in
Buffington Harbor Riverboats,
L.L.C. (1,548,995) - (1,548,995)
Interest income 139,106 105,318 244,424
Interest expense (7,243,275) - (7,243,275)
Other non-operating expense (47,479) - (47,479)
-------------------------------------------
Total other income (expense) (8,700,643) 105,318 (8,595,325)
Net income (loss) $ 219,524 $101,430 $ 320,954
===========================================
20
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED
JUNE 30, 2001
(UNAUDITED)
UNRESTRICTED
PARENT SUBSIDIARY CONSOLIDATED
----------- ------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: $ 6,641,865 $ (318,698) $ 6,323,167
------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, equipment and vessel (1,695,421) - (1,695,421)
improvements
(Increase) Decrease in deposits 2,328,568 (500,000) 1,828,568
Proceeds from sale of slot machines 1,850 1,850
Investment in Buffington Harbor Riverboats, L.L.C. (149,618) - (149,618)
------------------------------------------
Net cash provided by (used in) investing activities 485,379 (500,000) (14,621)
------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Line of credit, net (5,100,000) - (5,100,000)
Cash paid to reduce long-term debt (794,418) - (794,418)
------------------------------------------
Net cash used in financing activities (5,894,418) - (5,894,418)
------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,232,826 (818,698) 414,128
Cash and cash equivalents, beginning of period 12,550,681 3,568,831 16,119,512
------------------------------------------
Cash and cash equivalents, end of period $13,783,507 $2,750,133 $16,533,640
==========================================
21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
STATEMENT OF FORWARD-LOOKING INFORMATION
This quarterly report includes statements that constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and
are subject to the safe harbor provisions of those sections and the Private
Securities Litigation Reform Act of 1995. Words such as "believes,"
"anticipates," "estimates", "plans", "intends", "will", "could", or "expects"
used in the Company's press releases and reports filed with the Securities and
Exchange Commission are intended to identify forward-looking statements. All
forward-looking statements involve risks and uncertainties. Although the Company
believes its expectations are based upon reasonable assumptions within the
bounds of its current knowledge of its business and operations, there can be no
assurances that actual results will not materially differ from expected results.
The Company cautions that these and similar statements included in this report
and in previously filed periodic reports are further qualified by important
factors that could cause actual results to differ materially from those in the
forward-looking statements. Such factors include, without limitation, the
following: the risk of the Joint Venture Partner not making its lease payments
when due in connection with the parking facility constructed at the Company's
gaming complex; the ability to fund planned development needs and to service
debt from existing operations; the ability to effectively implement dockside
gaming; increased competition in existing markets or the opening of new gaming
jurisdictions; a decline in the public acceptance of gaming; the limitation,
conditioning or suspension of the Company's gaming license; increases in or new
taxes imposed on gaming revenues; admission taxes; taxes on gaming devices; a
finding of unsuitability by regulatory authorities with respect to the Company
or its officers, or key employees; loss and/or retirement of key executives; our
inability to timely and cost effectively integrate operations of the Fitzgeralds
casinos; a significant increase in fuel or transportation prices; adverse
economic conditions in the Company's markets; severe and unusual weather in the
Company's markets; non-renewal of the Company's or any of its operating
subsidiaries' gaming license from the appropriate regulatory authorities;
adverse results of significant litigation matters; and future occurrences of
terrorist attacks or other destabilizing events.
We caution readers not to place undue reliance on forward-looking
statements, which speak only as of the date thereof. All subsequent written and
oral forward-looking statements attributable to us are expressly qualified in
their entirety by the cautionary statements and factors that may affect future
results contained throughout this report. The Company undertakes no obligation
to publicly release any revisions to such forward-looking statements to reflect
events or circumstances after the date hereof.
The following discussion should be read in conjunction with, and is
qualified in its entirety by, our financial statements, including the notes
thereto listed in Item 1.
OVERVIEW
The Majestic Star Casino ("Majestic Star"), the Company's riverboat gaming
facility located in Gary, Indiana, has been owned and operated by the Company
since 1996. On December 6, 2001, the Company, through certain "unrestricted
subsidiaries," acquired three Fitzgeralds brand casino-hotels.
22
The Company's 10 7/8% Senior Secured Notes (the "Notes") are secured
primarily by the assets of the Gary, Indiana casino and the gaming facility. The
Fitzgeralds assets are held by the "unrestricted subsidiaries" and specifically
excluded from the collateral securing the Notes. As the Company's noteholders
have no recourse to the Fitzgeralds assets, Management's Discussion and Analysis
of Financial Condition and Results of Operations focuses primarily on the
results of the Majestic Star Casino as well as the Company and it subsidiaries
on a consolidated basis. For a discussion of the results of the Fitzgeralds
properties, please refer to the Majestic Investor Holdings, LLC Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 2002, as filed with the
Securities and Exchange Commission (the "Investor Holdings 10-Q").
The gaming operations of Majestic Star may be affected by inclement weather
in the Chicago metropolitan market. Due to the climate in the Chicago
metropolitan area, Majestic Star's operations are expected to be seasonal with
stronger results generally expected during the period from May through
September. Accordingly, the Company's results of operations are expected to
fluctuate from quarter to quarter and the results for any fiscal quarter may not
be indicative of results for future fiscal quarters.
RESULTS OF OPERATIONS
The following discussion provides a comparison of the results of operations
of the Majestic Star Casino, and the Company and its subsidiaries on a
consolidated basis, for the three and six month periods ended June 30, 2002,
with the three and six month periods ended June 30, 2001. On a consolidated
basis, gross revenues increased approximately $50,959,000 and $102,593,000 or
159.9% and 158.8% to approximately $82,821,000 and $167,217,000 during the three
and six months ended June 30, 2002, compared to $31,862,000 and $64,624,000
during the three and six months ended June 30, 2001, primarily as a result of
the acquisition of the Fitzgeralds casino properties on December 6, 2001.
The following table sets forth information derived from the Company's
consolidated statements of income for the three and six months ended June 30,
2002 and 2001, expressed as a percentage of gross revenues.
23
Consolidated Statements of Operations -- Summary Information
(dollars in thousands)
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- -----------------------------
2002 2001 2002 2001
------- ------- -------- -------
Gross Revenues $82,821 $31,862 $167,217 $64,624
Operating Income $ 8,694 $ 4,567 $ 19,478 $ 8,916
Adjusted EBITDA(1) $13,983 $ 6,719 $ 29,827 $13,375
Consolidated Statements of Operations -- Percentage of Gross Revenues
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2002 2001 2002 2001
----- ----- ----- -----
Revenues:
Casino 87.0% 97.3% 87.1% 97.4%
Rooms 4.8% - 4.8% -
Food and beverage 6.5% 1.7% 6.6% 1.6%
Other 1.7% 1.0% 1.5% 1.0%
----- ----- ----- -----
Gross revenues 100.0% 100.0% 100.0% 100.0%
less promotional allowances (11.9%) (5.0%) (12.4%) (4.8%)
----- ----- ----- -----
Net revenues 88.1% 95.0% 87.6% 95.2%
----- ----- ----- -----
Costs and Expenses:
Casino 26.4% 19.3% 25.9% 18.9%
Rooms 2.8% - 2.7% -
Food and beverage 4.2% 1.9% 4.0% 1.9%
Other 0.5% - 0.5% -
Gaming taxes 16.2% 27.1% 16.2% 27.1%
Advertising and promotions 6.4% 4.6% 6.1% 5.4%
General and administrative 13.7% 18.2% 13.3% 18.5%
Economic incentive - City of Gary 1.1% 2.9% 1.1% 2.9%
Depreciation and amortization 6.2% 6.7% 6.1% 6.9%
Gain on sale of assets - - - -
Pre-opening expenses 0.1% - 0.1% -
----- ----- ----- -----
Total costs and expenses 77.6% 80.7% 76.0% 81.6%
Operating income 10.5% 14.3% 11.6% 13.6%
----- ----- ----- -----
Other Income (Expense):
Loss on investment in Buffington Harbor
Riverboats, L.L.C (0.7%) (2.3%) (0.7%) (2.4%)
Interest income - 0.3% 0.1% 0.4%
Interest expense (9.8%) (11.1%) (9.7%) (11.2%)
Other nonoperating expense - (0.1%) (0.1%) (0.1%)
----- ----- ----- -----
Total other income (expense) (10.5%) (13.2%) (10.4%) (13.3%)
----- ----- ----- -----
Net Income (Loss): - 1.1% 1.2% 0.3%
===== ===== ===== =====
Adjusted EBITDA:(1) 16.8% 21.1% 17.8% 20.7%
NOTES:
(1) Adjusted EBITDA (defined as earnings before interest, income taxes,
depreciation and amortization, and excluding pre-opening costs associated
with the acquisition of the Fitzgeralds casinos and gain (loss) on disposal
of assets) is presented solely as a supplemental disclosure to assist in
the evaluation of the Company's ability to generate cash flow. In
particular, the Company believes that an analysis of Adjusted EBITDA
enhances the understanding of the financial performance of companies with
substantial depreciation and amortization.
Results for any one or more periods are not necessarily indicative of annual
results or continuing trends.
24
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2002 AND 2001
Consolidated gross revenues for the three months ended June 30, 2002
amounted to approximately $82,821,000, an increase of approximately $50,959,000,
or 159.9% from consolidated gross revenues recorded in the three months ended
June 30, 2001. The increase was principally attributable to the acquisition of
the Fitzgeralds casino properties on December 6, 2001. Majestic Star accounted
for approximately $32,591,000 or 39.4% of gross revenues for the three months
ended June 30, 2002, which reflects an increase of approximately $730,000 in
Majestic Star's revenues on an unconsolidated basis, or 2.3% compared to the
three months ended June 30, 2001. The $730,000 or 2.3% increase in gross
revenues at Majestic Star was primarily attributable to a $1,171,000 or 4.4%
increase in slot revenues partially offset by a $542,000 or 11.6% decline in
table revenues.
The Company's business can be separated into four operating departments:
casino, hotel rooms (except Fitzgeralds Black Hawk and Majestic Star), food and
beverage and other. Consolidated casino revenues for the three months ended June
30, 2002 totaled approximately $72,067,000, of which slot machines accounted for
approximately $63,427,000 or 88.0% and table games accounted for approximately
$8,640,000 or 12.0%. Majestic Star's casino revenues during the three months
ended June 30, 2002 totaled approximately $31,641,000, an increase of
approximately $630,000, or 2.0%, of which slot machines accounted for
approximately $27,513,000, or 87.0%, and table games accounted for approximately
$4,127,000 or 13.0%. The average number of slot machines in operation at
Majestic Star increased to 1,519 during the three months ended June 30, 2002,
from 1,424 during the three months ended June 30, 2001. The average win per slot
machine per day at Majestic Star decreased to approximately $199 for the three
months ended June 30, 2002, from approximately $203 during the three months
ended June 30, 2001. The average number of table games in operation at Majestic
Star during the three months ended June 30, 2002 and 2001, was 52 and 50,
respectively. The average win per table game per day during the three months
ended June 30, 2002, decreased to approximately $872 compared to approximately
$1,019 during the three months ended June 30, 2001. The average daily win per
state passenger count at Majestic Star was approximately $70 and the average
daily win per patron was approximately $41 during the three months ended June
30, 2002, compared to an average daily win per state passenger count of $68 and
an average daily win per patron of $38 for the three months ended June 30, 2001.
Consolidated hotel room revenues totaled $3,939,000, or 4.8% of the gross
revenues for the three months ended June 30, 2002 and was attributed to
operations of the Fitzgeralds properties. Majestic Star does not operate a
hotel.
Consolidated food and beverage revenues for the three months ended June 30,
2002 totaled approximately $5,422,000, or 6.5% of gross revenues, compared to
approximately $526,000, or 1.7% of gross revenues for the three months ended
June 30, 2001. Majestic Star accounted for approximately $535,000, or 9.9% of
consolidated food and beverage revenues for the three months ended June 30,
2002, which reflects an increase of approximately $9,000 in such revenues at
Majestic Star, or 1.7%, compared to the three months ended June 30, 2001.
Consolidated other revenues for the three months ended June 30, 2002
totaled approximately $1,393,000, or 1.7% of consolidated gross revenues,
compared to approximately $325,000, or 1.0% of consolidated gross revenues
during the three months ended June 30, 2001. Majestic Star accounted for
approximately $416,000, or 29.9% of consolidated other revenues for the three
months ended June 30, 2002, an increase of $91,000 or 28.1%, compared to the
three
25
months ended June 30, 2001. Other revenue at Majestic Star consisted primarily
of commission income.
Consolidated promotional allowances deducted from the Company's
consolidated gross revenues for the three months ended June 30, 2002 and 2001,
were approximately $9,865,000, or 11.9% of consolidated gross revenues, and
$1,603,000, or 5.0% of consolidated gross revenues, respectively. Of this
amount, Majestic Star accounted for approximately $2,022,000 or 20.5% of
consolidated promotional allowances, an increase of $419,000, or 26.1%, compared
to the three months ended June 30, 2001. The increase in promotional allowances
is primarily attributed to an increase in rated slot play and associated
incentives. Promotional allowances provided to the Majestic Star's gaming
patrons at facilities located in and/or owned by BHR for the three months ended
June 30, 2002 and 2001, were approximately $200,000 and $210,000, respectively,
and are characterized in the financial statements as an expense. BHR and other
third party operators of food kiosks invoice the Company monthly for these
promotional allowances at cost, which approximates retail value.
Consolidated casino operating expenses for the three months ended June 30,
2002, totaled approximately $21,863,000, or 26.4% of consolidated gross revenues
and 30.3% of consolidated casino revenues, respectively, compared to
approximately $6,129,000, or 19.2% of gross revenues and 19.8% of casino
revenues, respectively, for the three months ended June 30, 2001. These expenses
were primarily comprised of salaries, wages and benefits, and operating expenses
of the casinos. Majestic Star's casino operating expenses accounted for
approximately $5,953,000 or 18.3% of Majestic Star gross revenues and 18.8% of
Majestic Star casino revenues, compared to approximately $6,129,000 or 19.2% of
Majestic Star gross revenues and 19.8% of Majestic Star casino revenues,
respectively, for the three months ended June 30, 2001. The dollar decrease of
approximately $176,000 or 2.9% is primarily attributed to a reduction in casino
expenses of $64,000 for equipment rental, $50,000 for repair and maintenance and
$30,000 for gaming supplies and various other casino operating expenses.
Consolidated gaming taxes totaled approximately $13,429,000 for the three
months ended June 30, 2002, compared to approximately $8,631,000 for the three
months ended June 30, 2001. During the three months ended June 30, 2002, in
Indiana, gaming taxes were levied on adjusted gross receipts, as defined by
Indiana gaming laws, at the rate of 20% plus $3 per passenger per the state
passenger count. Majestic Star accounted for approximately $8,650,000 and
$8,631,000 of gaming taxes during the three months ended June 30, 2002 and 2001,
respectively. An additional $949,000 was paid during the three months ended June
30, 2002, compared to approximately $931,000 in the three months ended June 30,
2001, to the City of Gary under an agreement whereby Majestic Star pays 3% of
the adjusted gross receipts directly to the City.
Advertising and promotion expenses included salaries, wages and benefits of
the marketing and casino service departments, as well as promotions, advertising
and special events. Consolidated advertising and promotion expenses for the
three months ended June 30, 2002 totaled approximately $5,261,000, or 6.4% of
gross revenues, compared to approximately $1,464,000, or 4.6% of gross revenues
during the three months ended June 30, 2001. Of this amount, Majestic Star
accounted for approximately $1,567,000 for the three months ended June 30, 2002
and approximately $1,464,000 for the three months ended June 30, 2001. The
$103,000 or 7.0% increase in advertising and promotion expenses during the three
months ended June 30, 2002, was primarily the result of an increase in mass
marketing expenditures associated with the opening of the new 2,000 space
parking garage at Buffington Harbor in June 2002.
26
Consolidated general and administrative expenses for the three months ended
June 30, 2002 were approximately $11,345,000, or 13.7% of gross revenues,
compared to $5,805,000, or 18.2% of gross revenues, during the three months
ended June 30, 2001. Majestic Star accounted for approximately $5,985,000 for
the three months ended June 30, 2002 and $5,805,000 for the three months ended
June 30, 2001. These expenses included approximately $1,338,000 for berthing
fees paid to BHR and $1,581,000 for marine operations, including housekeeping
during the three months ended June 30, 2002. The $180,000 or 3.1% increase in
these expenses is primarily attributed to an increase of approximately $90,000
in recruitment expenses and approximately $48,000 in operating supplies during
the three months ended June 30, 2002.
Consolidated depreciation and amortization for the three months ended March
31, 2002 was approximately $5,175,000, or 6.2% of gross revenues, compared to
approximately $2,140,000, or 6.7% of gross revenues, during the three months
ended June 30, 2001. Depreciation and amortization attributed to Majestic Star
for the three months ended June 30, 2002 was approximately $1,682,000 compared
to approximately $2,140,000 during the three months ended June 30, 2001. The
dollar decrease totaled approximately $458,000 or 21.4%, of which approximately
$182,000 is depreciation expense and approximately $276,000 is amortization
expense. The decrease for the three months ended June 30, 2002 is primarily
attributable to machinery and equipment being fully depreciated and deferred
licensing fees being fully amortized.
Consolidated operating income for the three months ended June 30, 2002 was
$8,694,000, or 10.5% of gross revenues, compared to an operating income for the
three months ended June 30, 2001 of $4,567,000 or 14.3% of gross revenues.
Operating income attributed to Majestic Star for the three months ended June 30,
2002 was approximately $5,289,000 or 16.2% of gross Majestic Star revenues,
compared to $4,567,000, or 14.3% of gross revenues, during the three months
ended June 30, 2001. The $722,000 or 15.8% increase in operating income is
principally attributed to a 2.3% increase in gross revenues and a $458,000 or
21.4% decrease in depreciation and amortization.
The consolidated net interest expense for the three months ended June 30,
2002 was approximately $8,082,000, or 9.8% of gross revenues, compared to
approximately $3,442,000 or 10.8% of gross revenues for the same period last
year. Net interest expense attributed to Majestic Star for the three months
ended June 30, 2002 was approximately $3,519,000 or 10.8% of gross revenues,
compared to $3,4443,000, or 10.8% of gross revenues for the same period last
year.
The Company's loss relating to its investment in BHR, principally for
depreciation and amortization, for the three months ended June 30, 2002 and
2001, was approximately $602,000 and $751,000, respectively. Costs of
approximately $1,338,000 and $1,591,000 associated with operating BHR are
included in the operating expense line "General and Administrative" and are
fully reflected in operating income for the three months ended June 30, 2002 and
2001, respectively. Other non-operating expenses attributed to Majestic Star of
$31,000 and $25,000 for the three months ended June 30, 2002 and 2001,
respectively, represent fees associated with the Majestic Star Credit Facility.
As a result of the foregoing, the Company realized consolidated net loss of
approximately $32,000 for the three months ended June 30, 2002 compared to
consolidated net income of approximately $349,000 during the three months ended
June 30, 2001. Majestic Star realized net income of $1,137,000 during the three
months ended June 30, 2002, compared to net income of $296,000 during the three
months ended June 30, 2001. The $841,000 or 284.1% increase in net
27
income is principally attributed to an increase in gross revenues combined with
a decrease as previously discussed in depreciation, amortization and loss on
investment in BHR.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 2002 AND THE SIX MONTHS ENDED JUNE 30,
2001
Consolidated gross revenues for the six months ended June 30, 2002 amounted
to approximately $167,217,000, an increase of approximately $102,593,000, or
158.8% from consolidated gross revenues recorded in the six months ended June
30, 2001. The increase was principally attributable to the acquisition of the
Fitzgeralds casino properties on December 6, 2001. Majestic Star accounted for
approximately $64,560,000, or 38.6% of gross revenues for the six months ended
June 30, 2002, which reflects a decrease of $64,000 in Majestic Star's revenues
on an unconsolidated basis compared to the six months ended June 30, 2001.
The Company's business can be separated into four operating departments:
casino, hotel rooms (except Fitzgeralds Black Hawk and Majestic Star), food and
beverage and other. Consolidated casino revenues for the six months ended June
30, 2002 totaled approximately $145,560,000, of which slot machines accounted
for approximately $127,238,000, or 87.4%, and table games accounted for
approximately $18,322,000, or 12.6%. Majestic Star's casino revenues during the
six months ended June 30, 2002 totaled approximately $62,779,000, a decrease of
approximately $152,000, or 0.2%, of which slot machines accounted for
approximately $54,073,000, or 86.1%, and table games accounted for approximately
$8,706,000, or 13.9%. The average number of slot machines in operation at
Majestic Star increased to 1,473 during the six months ended June 30, 2002, from
1,430 during the six months ended June 30, 2001. The average win per slot
machine per day at Majestic Star decreased slightly to approximately $203 for
the six months ended June 30, 2002, from approximately $204 during the six
months ended June 30, 2001. The average number of table games in operation at
Majestic Star during the six months ended June 30, 2002 and 2001, was 52 and 51,
respectively. The average win per table game per day during the six months ended
June 30, 2002, decreased to approximately $931 compared to approximately $1,088
during the six months ended June 30, 2001. The average daily win per state
passenger count at Majestic Star was approximately $70 and the average daily win
per patron was approximately $41 during the six months ended June 30, 2002,
compared to an average daily win per state passenger count of $70 and an average
daily win per patron of $38 for the six months ended June 30, 2001.
Consolidated hotel room revenues totaled $8,027,000, or 4.8% of the gross
revenues for the six months ended June 30, 2002 and was attributed to operations
of the Fitzgeralds properties. Majestic Star does not operate a hotel.
Consolidated food and beverage revenues for the six months ended June 30,
2002, totaled approximately $11,065,000, or 6.6% of gross revenues, compared to
approximately $1,070,000, or 1.7% of gross revenues, for the six months ended
June 30, 2001. Majestic Star accounted for approximately $1,084,000, or 9.8% of
consolidated food and beverage revenues for the six months ended June 30, 2002,
which reflects an increase of $14,000 in such revenues at Majestic Star, or
1.3%, compared to the six months ended June 30, 2001.
Consolidated other revenues for the six months ended June 30, 2002 totaled
approximately $2,564,000, or 1.5% of gross revenues, compared to approximately
$623,000, or 1.0% of gross revenues during the six months ended June 30, 2001.
Majestic Star accounted for approximately $696,000, or 27.1% of consolidated
other revenues for the six months ended June
28
30, 2002, an increase of $73,000 or 11.7%, compared to the six months ended June
30, 2001. Other revenue at Majestic Star consisted primarily of commission
income.
Consolidated promotional allowances deducted from the Company's gross
revenues for the six months ended June 30, 2002 and 2001, were approximately
$20,760,000, or 12.4% of gross revenues, and $3,096,000, or 4.8% of gross
revenues, respectively. Of this amount, Majestic Star accounted for
approximately $3,802,000 or 18.3% of consolidated promotional allowances, an
increase of $706,000, or 22.8%, compared to the six months ended June 30, 2001.
The increase in promotional allowances is primarily attributed to an increase in
rated slot play and associated incentives. Promotional allowances provided to
the Majestic Star's gaming patrons at facilities located in and/or owned by BHR
for the six months ended June 30, 2002 and 2001 were approximately $403,000 and
$381,000, respectively, and are characterized in the financial statements as an
expense. BHR and other third party operators of food kiosks invoice the Company
monthly for these promotional allowances at cost, which approximates retail
value.
Consolidated casino operating expenses for the six months ended June 30,
2002 totaled approximately $43,354,000, or 25.9% of gross revenues and 29.8% of
casino revenues, respectively, compared to approximately $12,173,000, or 18.8%
of gross revenues and 19.3% of casino revenues, respectively, for the six months
ended June 30, 2001. These expenses were primarily comprised of salaries, wages
and benefits, and operating expenses of the casinos. Majestic Star's casino
operating expenses accounted for approximately $11,710,000 or 18.1% of Majestic
Star gross revenues and 18.7% of Majestic Star casino revenues, compared to
approximately $12,173,000 or 18.8% of Majestic Star gross revenues and 19.3% of
Majestic Star casino revenues, respectively, for the six months ended June 30,
2001. The dollar decrease of approximately $463,000 or 3.8%, is primarily
attributed to a reduction in casino expenses of $282,000 for equipment rental
and $120,000 for payroll and payroll benefits.
Consolidated gaming taxes totaled approximately $27,025,000 for the six
months ended June 30, 2002, compared to approximately $17,510,000 for the six
months ended June 30, 2001. During the six months ended June 30, 2002, in
Indiana, gaming taxes were levied on adjusted gross receipts, as defined by
Indiana gaming laws, at the rate of 20% plus $3 per passenger per the state
passenger count. Majestic Star accounted for approximately $17,227,000 and
$17,510,000 of gaming taxes during the six months ended June 30, 2002 and 2001,
respectively. An additional $1,887,000 was paid during the six months ended June
30, 2002, compared to approximately $1,889,000 in the six months ended June 30,
2001, to the City under an agreement whereby Majestic Star pays 3% of the
adjusted gross receipts directly to the City of Gary.
Consolidated advertising and promotion expenses included salaries, wages
and benefits of the marketing and casino service departments, as well as
promotions, advertising and special events. Consolidated advertising and
promotion expenses for the six months ended June 30, 2002 totaled approximately
$10,128,000, or 6.1% of gross revenues, compared to approximately $3,506,000, or
5.4% of gross revenues during the six months ended June 30, 2001. Of this
amount, Majestic Star accounted for approximately $3,077,000 for the six months
ended June 30, 2002 and approximately $3,506,000 for the six months ended June
30, 2001. The $429,000 or 12.2% decrease in advertising and promotion expenses
during the six months ended June 30, 2002, was primarily the result of a
decrease in mass marketing expenditures and a continued focus on direct mail
initiatives.
Consolidated general and administrative expense for the six months ended
June 30, 2002, were approximately $22,252,000, or 13.3% of gross revenues,
compared to $11,890,000, or 18.4% of gross revenues, during the six months ended
June 30, 2001. Majestic Star accounted for
29
approximately $11,879,000 for the six months ended June 30, 2002 and $11,886,000
for the six months ended June 30, 2001. These expenses included approximately
$2,950,000 for berthing fees paid to BHR and $3,135,000 for marine operations,
including housekeeping during the six months ended June 30, 2002.
Consolidated depreciation and amortization for the six months ended June
30, 2002, was approximately $10,234,000, or 6.1% of gross revenues, compared to
approximately $4,447,000, or 6.9% of gross revenues, during the six months ended
June 30, 2001. Depreciation and amortization attributed to Majestic Star for the
six months ended June 30, 2002 was approximately $3,354,000, or 5.2% of Majestic
Star's gross revenues compared to approximately $4,447,000 or 6.9% of Majestic
Star's gross revenues during the six months ended June 30, 2001. The dollar
decrease totaled approximately $1,093,000, or 24.6%, of which approximately
$540,000 is depreciation expense and approximately $553,000 is amortization
expense. The 24.6% decrease for the six months ended June 30, 2002 is primarily
attributable to machinery and equipment being fully depreciated and deferred
licensing fees being fully amortized.
Consolidated operating income for the six months ended June 30, 2002 was
$19,478,000, or 11.6% of gross revenues, compared to an operating income for the
six months ended June 30, 2001 of $8,916,000, or 13.8% of gross revenues.
Operating income attributed to Majestic Star for the six months ended June 30,
2002 was approximately $10,577,000 or 16.4% of gross Majestic Star revenues,
compared to $8,920,000, or 13.8% of gross revenues, during the six months ended
June 30, 2001. The $1,657,000 or 18.6% increase in operating income is
principally attributed to an overall decrease in operating expenses and
depreciation and amortization as previously discussed. Also reflected in
consolidated operating income is approximately $117,000 which attributed to
pre-opening expenses incurred at Majestic Investor Holdings, LLC.
The consolidated net interest expense for the six months ended June 30,
2002 was approximately $16,206,000, or 9.7% of gross revenues, compared to
approximately $6,999,000 or 10.8% of gross revenues for the same period last
year. Net interest expense attributed to Majestic Star for the six months ended
June 30, 2002 was approximately $7,159,000, or 11.1% of gross revenues, compared
to $7,104,000, or 11.0% of gross revenues for the same period last year.
The Company's loss relating to its investment in BHR, principally for
depreciation and amortization, for the six months ended June 30, 2002 and
2001was approximately $1,208,000 and $1,549,000, respectively. Costs of
approximately $2,950,000 and $3,207,000 associated with operating BHR are
included in the operating expense line "General and Administrative" and are
fully reflected in operating income for the six months ended June 30, 2002 and
2001, respectively. Other non-operating expenses attributed to Majestic Star of
$65,000 and $47,000 for the six months ended June 30, 2002 and 2001,
respectively, represent fees associated with the Majestic Star Credit Facility.
As a result of the foregoing, the Company realized consolidated net income
of approximately $1,971,000 for the six months ended June 30, 2002 compared to
consolidated net income of approximately $321,000 during the six months ended
June 30, 2001. Majestic Star realized net income of $2,145,000 during the six
months ended June 30, 2002, compared to net income of $220,000 during the six
months ended June 30, 2001, an increase of $1,925,000 or 875.0%.
30
Earnings Before Interest, Income Taxes, Depreciation and Amortization (EBITDA)
Adjusted EBITDA is presented solely as a supplemental disclosure and is
used by the Company to assist in the evaluation of the cash generating ability
of its gaming business. Consolidated Adjusted EBITDA represents earnings before
interest, income taxes, depreciation and amortization, and nonoperating
expenses. Consolidated Adjusted EBITDA during the three and six months ended
June 30, 2002 was approximately $13,983,000 and $29,827,000, respectively, or
16.9% and 17.8% of gross revenues. Adjusted EBITDA attributed to Majestic Star
during the three and six months ended June 30, 2002 was approximately $6,962,000
and $13,922,000, respectively, or 21.4% and 21.6% of gross Majestic Star
revenues, compared to approximately $6,719,000 and $13,379,000, respectively, or
21.1% or 20.7% of gross Majestic Star revenues during the three and six months
ended June 30, 2001. The increases of $242,000 and $543,000, or 3.6% and 4.1%,
respectively, in Adjusted EBITDA at Majestic Star is primarily the result of a
2.2% increase in slot revenues partially offset by a 13.3% decline in table
revenues and an overall decrease in operating expenses. Adjusted EBITDA for
Majestic Star during the three and six months ended June 30, 2002 and 2001
excludes loss on investment in BHR, gain or loss on disposal of assets and line
of credit fees. Adjusted EBITDA should be viewed only 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
At June 30, 2002, the Company had cash and cash equivalents of
approximately $28.2 million. This amount included $17.4 million at Majestic
Investor Holdings, LLC and $10.8 million at Majestic Star. During the six months
ended June 30, 2002, the Company's capital expenditures were approximately $6.2
million, which included approximately $3.5 million at Majestic Star primarily
for gaming equipment.
The Company has met its capital requirements to date through net cash from
operations and proceeds of $3.8 million from Fitzgeralds Gaming Corporation
related to the purchase price adjustment. For the six months ended June 30,
2002, net cash provided by operating activities totaled approximately $12.3
million, compared to net cash provided by operating activities of approximately
$6.3 million during the six months ended June 30, 2001. At Majestic Star for the
six months ended June 30, 2002, net cash provided by operating activities
totaled approximately $7.1 million and cash used by investing activities totaled
approximately $3.6 million, compared to approximately $6.6 million provided by
operating activities and $485 thousand provided by investing activities, during
the six months ended June 30, 2001. At Majestic Star for the six months ended
June 30, 2002, cash used by financing activities totaled approximately $877,000,
compared to $5.9 million used in financing activities during the six months
ended June 30, 2001. This amount includes distributions made to Barden
Development, Inc. related to the fourth quarter of 2001 and the first quarter of
2002 of $280,000 and $348,000, respectively, from Majestic Star during the six
months ended June 30, 2002.
Buffington Harbor Parking Associates, ("BHPA") a joint venture between
Trump Indiana and AMB Parking (a wholly-owned Barden Company) opened the newly
constructed 2,000 space covered parking garage in June. In conjunction with the
new parking garage, BHR has remodeled the entire second floor of the pavilion,
including new carpeting, wallcoverings, and lighting to enhance the overall
experience of the guest. BHR has also opened a new food outlet on the second
floor, which replaces a third-party operated food outlet. Majestic Star also is
presently expanding the total number of slot units on its vessel to take
31
advantage of potentially increased visitor volumes as a result of the 2,000
space parking garage and flexible boarding. The Majestic Star, through June 30,
2002, increased its slot unit count by approximately 150 units since December
31, 2001.
Management believes that the Company's cash flow from operations and its
current lines of credit will be adequate to meet the Company's anticipated
future requirements for working capital, its capital expenditures and scheduled
payments of interest and principal on its 10 7/8% Senior Secured Notes, lease
payments to BHPA and other permitted indebtedness for the year 2002. No
assurance can be given, however, that such proceeds and operating cash flow, in
light of increased competition, principally barge/dockside gambling in Illinois,
the purchase of certain Indiana gaming facilities by larger more recognized
brand names, and the potential of new Native American operated casinos in our
general vicinity will be sufficient for such purposes. If necessary and to the
extent permitted under the Indenture, the Company will seek 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. In addition,
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.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In April 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 145, "Rescission of FASB statements No.4, 44 and 64, Amendment of FASB
Statement No. 13 and Technical Corrections" which is effective for fiscal years
beginning after May 15, 2002. This Statement updates, clarifies, and simplifies
existing accounting pronouncements. Management does not expect the standard to
have a material impact on the Company's consolidated financial position, results
of operations or cash flows.
In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated
with Exit or Disposal Activities" which will become effective for exit or
disposal activities initiated after December 31, 2002. SFAS No. 146 supersedes
Emerging Issues Task Force Issue No. 94-3 "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity." SFAS No. 146
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred and states that an
entity's commitment to an exit plan, by itself, does not create a present
obligation that meets the definition of a liability. SFAS No. 146 also
establishes that fair value is the objective for initial measurement of the
liability. Adoption of SFAS No. 146 will have no impact on our historical
consolidated financial position or results of operations.
RECENTLY ENACTED LEGISLATION AND TAX STRUCTURE
A change in the Indiana state law governing gaming took effect on July 1,
2002 which enables Indiana's riverboat casinos to operate dockside. The IGC
approved Majestic Star's flexible boarding plan that allows the continuous
ingress and egress of patrons for the purpose of gambling while the riverboat is
docked. The plan went into effect on August 5, 2002 and imposes a graduated
wagering tax based upon adjusted gross receipts. The graduated wagering tax will
have a starting rate of 15% with a top rate of 35% for adjusted gross receipts
in excess of $150 million. For the period July 1 through August 4, 2002, the
wagering tax was raised by statute to 22.5% of adjusted gross receipts. Prior to
July 1, 2002, in Indiana, gaming taxes were levied on adjusted gross receipts,
as defined by Indiana gaming laws, at the rate of 20%.
32
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes from the information reported in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2001.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Various legal proceedings are pending against the Company. Management
considers all such pending proceedings, primarily personal injury and equal
employment opportunity (EEO) claims, to be ordinary litigation incidental to the
character of the Company's business. Management believes that the resolution of
these proceedings will not, individually or in the aggregate, have a material
effect on the Company's financial condition or results of operations.
There have been no material changes in the legal proceedings previously
described in the Company's Annual Report on Form 10-K for the year ended
December 31, 2001.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibit numbers in the following list correspond to the number assigned to
such exhibits in the Exhibit Tables of Item 601 of Regulation S-K:
Exhibit Numbers Descriptions
--------------- ------------
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, filed herewith.
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section of 906 of the
Sarbanes-Oxley Act of 2002, filed herewith.
(b) There were no reports on Form 8-K filed during the quarter ended June 30,
2002
33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
THE MAJESTIC STAR CASINO, LLC
By: /s/ Don H. Barden August 14, 2002
----------------------------------------------------
Don H. Barden, President and Chief Executive Officer
THE MAJESTIC STAR CASINO CAPITAL CORP.
By: /s/ Don H. Barden August 14, 2002
----------------------------------------------------
Don H. Barden, President and Chief Executive Officer
By: /s/ Michael E. Kelly August 14, 2002
-----------------------------------------------------------
Michael E. Kelly, Executive Vice President, Chief Operating
and Financial Officer of the Company,
and The Majestic Star Casino
Capital Corp. (Principal Financial and
Accounting Officer)
34
<Table>
<Caption>
Exhibit Numbers Descriptions
- --------------- ------------
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, filed herewith.
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section of 906 of the Sarbanes-
Oxley Act of 2002, filed herewith.
</Table>
35