UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
Commission file number: 333-06489
Indiana THE MAJESTIC STAR CASINO, LLC 43-1664986
Indiana THE MAJESTIC STAR CASINO CAPITAL CORP. 35-2100872
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Buffington Harbor Drive
Gary, Indiana
46406-3000
(219) 977-7823
(Registrant's address and telephone number, including area code)
Securities registered pursuant to section 12(b) of the act: None
Securities registered pursuant to section 12(g) of the act: None
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
------ ------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act)
Yes No X
---- -----
The aggregate market value of the voting and non-voting stock held by
non-affiliates of the registrant: Not Applicable. The Company has no publicly
traded equity securities.
The number of shares of common stock issued and outstanding: Not Applicable.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
THE MAJESTIC STAR CASINO, LLC
2002 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
Item 1. Business..................................................... 1
Item 2. Properties................................................... 12
Item 3. Legal Proceedings............................................ 13
Item 4. Submission of Matters to a Vote of Security Holders ......... 14
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 14
Item 6. Selected Consolidated Financial Data......................... 14
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 15
Item 7A. Quantitative and Qualitative Disclosures About Market Risk... 31
Item 8. Financial Statements and Supplementary Data.................. 32
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure....................... 32
PART III
Item 10. Directors and Executive Officers of Registrant............... 32
Item 11. Executive Compensation....................................... 33
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters................ 35
Item 13. Certain Relationships and Related Transactions............... 35
Item 14. Controls and Procedures...................................... 36
PART IV
Item 15. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K....................................... 37
SIGNATURES..................................................................S-1
CERTIFICATIONS..............................................................C-1
i
PART I
ITEM 1. BUSINESS
GENERAL
The Majestic Star Casino, LLC (the "Company" or the "Registrant," which
may also be referred to as "Majestic Star," "we," "us" or "our") was formed in
December 1993 as an Indiana limited liability company. The Company is a
multi-jurisdictional gaming company that owns and operates one riverboat gaming
facility located in Gary, Indiana and, through certain "unrestricted
subsidiaries," three Fitzgeralds-brand casino-hotels located in Tunica County,
Mississippi ("Fitzgeralds Tunica"), Black Hawk, Colorado ("Fitzgeralds Black
Hawk") and downtown Las Vegas, Nevada ("Fitzgeralds Las Vegas"). As of March 31,
2003, the riverboat casino and the Fitzgeralds properties collectively contain
approximately 4,378 slot machines, 121 table games and 1,145 hotel rooms.
In June 1999, the Company issued $130.0 million of 10 7/8% Senior
Secured Notes due 2006 (the "Majestic Star Senior Secured Notes"). The Majestic
Star Casino Capital Corp. ("Majestic Star Capital"), one of the Company's two
direct wholly-owned subsidiaries, was formed solely to serve as a co-issuer to
facilitate the offering of the Majestic Star Senior Secured Notes and has no
assets or operations. In August 1999, the Company entered into a four year $20.0
million credit facility (the "Majestic Star Credit Facility"). The Majestic Star
Senior Secured Notes and the Majestic Star Credit Facility are secured by
substantially all current and future assets of the Company other than certain
excluded assets which excluded assets of the Company's unrestricted
subsidiaries.
The Company's other direct wholly-owned subsidiary, Majestic Investor,
LLC ("Investor"), was organized on September 12, 2000 as an "unrestricted
subsidiary" under the Company's Indenture relating to the Majestic Star Senior
Secured Notes (the "Majestic Star Indenture"). On November 22, 2000, Investor
entered into a definitive agreement to purchase the assets of Fitzgeralds
Tunica, Fitzgeralds Black Hawk and Fitzgeralds Las Vegas from Fitzgeralds Gaming
Corporation ("Fitzgeralds") for approximately $149.0 million in cash, subject to
adjustments, plus the assumption of certain liabilities. On October 16, 2001,
Investor assigned all of its rights and obligations to purchase the Fitzgeralds
assets to Majestic Investor Holdings, LLC ("Investor Holdings"), a wholly-owned
subsidiary of Investor and also an "unrestricted subsidiary" under the Majestic
Star Indenture. The acquisition was consummated on December 6, 2001. The assets
of Fitzgeralds Tunica, Fitzgeralds Black Hawk and Fitzgeralds Las Vegas are held
by Barden Mississippi Gaming, LLC ("Barden Mississippi"), Barden Colorado
Gaming, LLC ("Barden Colorado"), and Barden Nevada Gaming, LLC ("Barden
Nevada"), respectively. Each of such entities are direct wholly-owned
subsidiaries of Investor Holdings and "unrestricted subsidiaries" under the
Majestic Star Indenture.
On December 6, 2001, Investor Holdings issued $152.6 million of 11.653%
Senior Secured Notes due 2007 (the "Investor Holdings Senior Secured Notes") to
finance the purchase of the Fitzgeralds assets. Majestic Investor Capital Corp.,
co-issuer of the Investor Holdings Senior Secured Notes and a wholly-owned
subsidiary of Investor Holdings, was formed specifically to facilitate the
offering of such notes and has no material assets or operations. Also on
December 6, 2001, Investor Holdings entered into a four year $15.0 million
credit facility (the "Investor Holdings Credit Facility").
The Investor Holdings Senior Secured Notes and the Investor Holdings
Credit Facility are secured by substantially all current and future assets of
Investor Holdings (including the Fitzgeralds assets) other than certain excluded
assets. Because each of Investor, Investor Holdings, Barden Mississippi, Barden
Colorado and Barden Nevada is an "unrestricted subsidiary" under the Majestic
Star Indenture, their assets, including Fitzgeralds Tunica, Fitzgeralds Black
Hawk and Fitzgeralds Las Vegas, are excluded
1
from the collateral securing the Majestic Star Senior Secured Notes and the
Majestic Star Credit Facility. Accordingly, the Majestic Star Senior Secured
Notes and the Majestic Star Credit Facility are secured primarily by the assets
of the riverboat casino and gaming facility in Gary, Indiana and Majestic Star's
noteholders and lender have no recourse to the Fitzgeralds assets. Similarly,
the Investor Holdings Senior Secured Notes and the Investor Holdings Credit
Facility are secured primarily by the Fitzgeralds assets and Investor Holdings'
noteholders and lender have no recourse to the Majestic Star assets. Majestic
Star does not guarantee or otherwise have any obligations under the Investor
Holdings Senior Secured Notes or the Investor Holdings Credit Facility with
respect to repayment of principal and interest. In addition, Investor Holdings
and its subsidiaries are prohibited from making distributions to the Company and
its subsidiaries except under certain prescribed conditions. The Company and
certain of its subsidiaries also are prohibited from engaging in transactions
with Investor Holdings and its subsidiaries other than on an arm's length basis
and in accordance with certain other prescribed conditions.
Because the Company's noteholders and lender have no recourse to the
Fitzgeralds assets, this Annual Report on Form 10-K focuses primarily on the
Company's consolidated operations and on the Company's riverboat gaming
operation, with limited information concerning the Fitzgeralds operations. For
additional information specific to the operation of the Fitzgeralds properties,
please refer to the Majestic Investor Holdings, LLC Annual Report on Form 10-K
as filed with the Securities and Exchange Commission (the "Investor Holdings
10-K").
THE RIVERBOAT CASINO AND GAMING FACILITY
The Company's riverboat casino and gaming facility, the Majestic Star
Casino, commenced operations in Gary, Indiana on June 7, 1996 pursuant to a
five-year riverboat owner's license granted to it by the Indiana Gaming
Commission (the "IGC"). On August 23, 2001, the Company's riverboat ownership
license was unanimously renewed by the IGC for a one-year period beginning June
7, 2001 (under Indiana gaming laws, a licensee may only renew its original
license for one-year periods). On May 13, 2002, the Company's riverboat
ownership license was again unanimously renewed by the IGC for another one-year
period beginning June 2, 2002. As of March 31, 2003, the Company's vessel
contains approximately 43,000 square feet of casino space, 1,542 slot machines
and 56 table games on three decks. The Majestic Star Casino is part of a gaming
complex (the "Buffington Harbor Gaming Complex") developed at Buffington Harbor
in Gary, Indiana, and owned by Buffington Harbor Riverboats, L.L.C. ("BHR" or
the "BHR Joint Venture"), a joint venture which is owned equally (50%) by the
Company and Trump Indiana, Inc. (the "Joint Venture Partner"). The Company and
the Joint Venture Partner, the holder of a second gaming license to operate from
Gary, formed the BHR Joint Venture to own and operate certain common facilities
of the Buffington Harbor Gaming Complex such as a guest pavilion, vessel berths,
parking lots and other infrastructure. The Company and the Joint Venture Partner
each operate its own riverboat casino at the Buffington Harbor Gaming Complex.
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 gaming 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 has
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 (as
defined by Indiana gaming laws). Prior to July 1, 2002, Indiana gaming taxes
were levied on adjusted gross receipts at the rate of 20%. In addition to the
wagering tax, an admissions tax of $3 per turnstile count is assessed. Prior to
August 5, 2002, Indiana imposed an admissions tax of $3 per patron turnstile
count at every boarding time plus the count of the patrons that stayed over on
the vessel from a previous boarding time period.
2
In September of 2000, AMB Parking, LLC, (a limited liability company
indirectly owned by Don H. Barden, Chairman and CEO of the Company) and Trump
Indiana, Inc. (the "Joint Venture Partner") entered into an Operating Agreement
to form Buffington Harbor Parking Associates, LLC ("BHPA"). The limited
liability company was formed for the purpose of constructing and operating a
2,000 space parking garage. BHPA purchased certain property owned by Gary New
Century, LLC (another company owned by Don H. Barden) for $15,000,000 (the
"Purchase"). To finance this transaction, BHR advanced BHPA $14,182,856 (which
advance accrues interest at the rate of 6%), and acquired approximately one acre
of land from BHPA for $817,144. In connection with the Purchase, the Company and
the Joint Venture Partner advanced $7,099,147 and contributed $7,900,833 to BHR,
which was used to fund the advance to BHPA and to acquire the one acre of land.
In June 2001, BHR and BHPA terminated the BHPA agreement. A new agreement was
reached between BHR, the Company and the Joint Venture Partner in which BHR
transferred one half of the loan receivable as a return of capital to the
Company in the amount of $7,099,167, and assigned the other half of the loan
balance to the Joint Venture Partner. In addition, BHR distributed one half of
the accrued interest receivable ($308,669) and an additional $34,347 as a return
of capital to the Company and the Joint Venture Partner in order to finance the
construction of the garage. The Company is recognizing $9,462,815 of advances
made on the parking garage construction as prepaid lease expense. The Company
and the Joint Venture Partner have each entered into parallel operating lease
agreements with BHPA, each having a term of until December 31, 2018. The rent
payable under the both leases is intended to service the debt incurred by BHPA
to construct the parking garage. The Company is amortizing its prepaid lease
over the term of the operating lease agreement. The operating lease agreement
calls for the Company and the Joint Venture Partner to make monthly lease
payments equal to 100% of BHPA's debt service requirement for the following
month, although each party is entitled to a credit for 50% of such payment if
the other party makes its monthly payment.
The executive offices of the Company are located at One Buffington
Harbor Drive, Gary, Indiana 46406-3000, and the Company's telephone number is
(219) 977-7823.
OPERATING STRATEGY
The principle elements of our operating strategy include:
Focus on Quality and Service at an Affordable Price. The Company's
casinos provide a high-quality casino entertainment experience at an affordable
price to attract middle-income guests. We believe these middle-income guests
constitute the largest segment of potential gaming customers who we can then
identify, qualify and target for direct marketing activities. The Company's
approach to business focuses on guest service and includes trained hosts to
personally assist guests; friendly employees; quality food, beverages and
lodging at a moderate price (except for the Gary riverboat casino and
Fitzgeralds Black Hawk, which do not include hotels); a mix of gaming machines
tailored to its customers; and personal attention through direct mail promotions
and targeted incentives.
Management recognizes that consistent quality and a comfortable
atmosphere stem from the collective care and friendliness of each team member.
Toward this end, management takes a hands-on approach through active and direct
involvement with team members at all levels.
The Company believes that such an approach to business creates a
comfortable, familiar and friendly environment that promotes customer loyalty
and satisfaction, enhances playing time, leads to a high rate of repeat business
and is the basis for the further development of the Company's gaming brands and
its reputation for quality and service at an affordable price.
Promote Gaming Brands. The Company believes it is important to promote
its gaming brands to attract and retain customers. In February 2000, the Company
began a comprehensive integrated marketing
3
campaign to brand the Majestic Star Casino as "the place to play" for slot
customers from the middle income segment. The Company's registered tagline,
"We've Got Your Slots"(R) has appeared in all advertising venues including
television, radio, print and outdoor media and will allow the Company to enhance
its slot leadership positioning among Chicago-area gaming facilities. The
Company intends to utilize this and other similar broad marketing techniques to
attract middle-income customers, who it is then able to qualify and target for
direct marketing activities.
The Fitzgeralds brand has developed into what the Company believes to
be a nationally recognized gaming brand by using a consistent Irish Luck theme
throughout the casinos, hotels, restaurants and bars at all of its properties.
The Irish Luck theme incorporates various aspects of Irish folklore, such as
leprechauns, horseshoes, four-leaf clovers, the Blarney Stone and a pot of gold
at the end of a rainbow. The Company believes that this theme creates an
exciting and comfortable environment together with a distinctive brand identity
for customers.
Capitalize on Player Tracking and Extensive Guest Database. Direct
marketing to our guests is a key component of the Company's operating strategy.
Each of the Company's properties contains a player tracking system that permits
detailed player tracking at each individual property. The system uses the
Majestic and Fitzgeralds Cards to track individual or combined play at slot
machines, table games and keno (available only at Fitzgeralds Las Vegas), as
well as food and beverage and hotel expenditures (available only at Fitzgeralds
Las Vegas and Fitzgeralds Tunica) at each individual property. This player
tracking system allows us to identify players and their gaming preferences and
practices and to develop a comprehensive customer database for marketing and
guest services purposes. Our player tracking program allows us to target our
marketing programs to categories of players, including through advertising
programs, promotions, tournaments, special group and tour packages and other
events and incentives designed to promote customer loyalty and increase repeat
business. Our tracking system also allows us to better tailor our pricing,
promotions, gaming machine selection and other guest services to customer
preferences. In the future, we intend to fully integrate our tracking system
data in order for each property to share its data with other related properties
and thereby encourage customers of each individual property to patronize our
other related properties. On a consolidated basis, the Company currently has
over 736,000 active players in its Majestic and Fitzgeralds database and about
160,000 active players in its Majestic database.
In addition, the Company has established the Club Majestic and Club
Majestic Premier Slot Clubs ("Club Majestic"). Club Majestic enables the Company
to maintain a comprehensive database of information about its customers. The
Company also has an established strategy for recruiting and retaining higher
activity casino customers through the reward of certain promotional allowances,
such as direct mail cash back offers primarily for slot customers, and
complimentary food, beverage and entertainment when gaming play warrants.
Promotional allowances are a relatively small percentage of the potential casino
revenue obtainable from these tracked high limit customers. The Company offers
two VIP lounges for Club Majestic guests. The Company has aggressively utilized
its VIP lounges and an onboard events center and meeting room located on the
fourth level of the vessel for entertaining Club Majestic guests and for special
events and promotions. Majestic Star Casino management believes that its
continued marketing efforts at its riverboat gaming facility, combined with the
amenities offered by its vessel and the extension of credit to customers, will
allow the Company to continue to increase its share of the middle and higher
income market in the greater Chicago metropolitan area.
Emphasis on Slot Play. The Company emphasizes slot machine wagering,
which it believes is the fastest growing and most profitable segment of the
casino entertainment business. The increasing popularity of slot machines is
due, in part, to the continuing rapid technological development that is
resulting in the replacement of older devices with advanced interactive
electronic games and bill acceptors. These newer games offer greater variety,
higher payouts and longer periods of play for the
4
casino entertainment dollar relative to simple older devices. The Company
continues to enhance and modify its mix of slot machines to meet the demand of
its customers. The Company attempts to maintain payout percentages that are
competitive to attract and retain customers. Beginning in December 2002, the
company began to implement International Game Technologies' ("IGT's") coinless
slot technology. During 2003, the Company anticipates converting and/or
purchasing approximately 700 slot machines that will utilize IGT's coinless slot
technology.
Emphasis on Attributes of Buffington Harbor. With respect to the
Majestic Star Casino, the Company emphasizes the attributes of the Buffington
Harbor Gaming Complex, including the ability to park once and play twice (at two
casinos) and direct highway access. The Buffington Harbor Gaming Complex also
has enhanced and expanded its' food outlets to include five dining options.
These dining options include Harbor Treats and Miller Pizza, which are owned and
operated by third parties, Jackpot Java and Wings and Things which are owned and
operated by BHR and South Shore Grille, which replaced the Harbor Steak House on
February 7, 2003. In addition, the 2000 space covered parking garage opened on
May 13, 2002. During 2003, BHR anticipates remodeling the first floor of its
pavilion, previously utilized by the Company and its Joint Venture Partner
primarily for ticketing purposes and a buffet, into a multi-purpose events
center.
GROWTH STRATEGY
The Company believes that there are future growth opportunities within
each of the markets where its properties are located.
The Buffington Harbor Gaming Complex is located on an approximately
100-acre site. The Company believes that this is only one of two locations in
the Chicago market with the capacity to significantly expand its land-based
facilities. In addition to the BHR Joint Venture property, Gary New Century,
LLC, "GNC", an affiliate of the Company, has plans of developing the land
adjacent to the BHR Joint Venture property.
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 on August 5, 2002, that allows
the continuous ingress and egress of patrons for the purpose of gambling while
the riverboat is docked. Management expects that dockside operations will allow
its customers unrestricted access to its gaming facility and eliminates many of
the inconveniences created through restricted boarding.
BHPA opened the 2000 space covered parking garage on May 13, 2002. The
Company believes that the convenience of the new parking structure will attract
a significant number of new customers to Buffington Harbor, thereby providing
opportunities for the Company to increase its net revenues and cash flow.
There are a number of projects planned, in development or operational
with respect to the Fitzgeralds properties, including a waterfront park and
marina being developed by Tunica County adjacent to the Fitzgeralds Tunica
property, infrastructure developments in the Black Hawk market, and
entertainment and retail projects in Las Vegas. For further information
regarding the Company's growth strategy for each of the Fitzgeralds properties,
please refer to the Investor Holdings 10-K.
We regularly evaluate possible expansion and acquisition opportunities.
We may undertake these opportunities either alone or with joint venture
partners. The Company's ability to expand will depend upon a number of factors
including, but not limited to: (i) the identification and availability of
suitable locations, and the negotiation of acceptable purchase, lease, joint
venture or other terms; (ii) securing
5
required state and local licenses, permits and approvals, which in some
jurisdictions may be limited in number, (iii) political factors; (iv) the risks
typically associated with any new construction; and (v) the availability of
adequate financing or acceptable terms, particularly in light of restrictive
covenants contained in the instruments relating to the Majestic Star Senior
Secured Notes and the Majestic Star Credit Facility (and the Investor Holdings
Senior Secured Notes and Investor Holdings Credit Facility with respect to
Investor Holdings), which limit the Company's and Investor Holdings', as the
case may be, ability to obtain such financing. As a result, there can be no
assurance that the Company will be able to expand either its current properties
or to add any other additional locations or, if such expansion occurs, that it
will be successful.
COMPETITION
The Company faces intense competition in each of the markets in which
its gaming facilities are located. Many of the Company's competitors have
significantly greater name recognition and financial, marketing and other
resources. The Company's riverboat casino and Fitzgeralds properties compete
principally with other gaming properties in or near California, Illinois,
Indiana, Nevada, Michigan, Mississippi, Missouri, Louisiana and Colorado,
including gaming operations on Native American lands. In addition to regional
competitors, the Company competes with gaming facilities nationwide, including
but not limited to land-based casinos in Nevada and Atlantic City, not only for
customers but also for employees and potential future gaming sites.
The Company also competes, to some extent, with other forms of gaming
on both a local and national level, including state-sponsored lotteries,
Internet gaming, on- and off-track wagering and card parlors. The expansion of
legalized gaming to new jurisdictions throughout the United States has increased
competition faced by the Company and will continue to do so in the future.
Additionally, if gaming were legalized in jurisdictions near the Company's
properties where gaming currently is not permitted, the Company would face
additional competition. There can be no assurance that the Company will be able
to continue to compete successfully in its existing markets or that the Company
will be able to compete successfully against any such future competition.
The Majestic Star Casino is dependent primarily on adults residing
within 150 miles of the Buffington Harbor Gaming Complex, which includes the
Chicago metropolitan area. Illinois and Indiana state laws limit the total
number of gaming licenses issuable in the Chicago metropolitan area to ten. Nine
of the licenses are currently in operation and the number of licenses cannot be
increased without legislative action. The Company also expects to compete to a
lesser extent with six additional riverboats authorized to operate in southern
Indiana, of which five are currently operational. There can be no assurance that
Indiana or Illinois will not authorize additional gaming licenses or legislate
an increase in the number of gaming positions with respect to Indiana or
Illinois in the future. The authorization of additional gaming licenses and, or
gaming positions could have a material adverse effect on the Company.
Dockside gaming was approved in Illinois in June 1999. Since such
approval, the Illinois gaming market has grown by approximately 13.8% annually
and the northwest Indiana gaming market has grown by approximately 7.0%
annually. Since the inception of dockside gaming in Indiana on August 1, 2002,
the northwest Indiana gaming market has grown by approximately 16.4%. In
addition, some Illinois casinos, such as Harrah's and Hollywood, have
constructed barge-based casinos. Barge-based casinos provide greater flexibility
in designing the casino floor and eliminate the need for a marine crew.
Management is unable to predict whether these growth rates will continue and if
increased competition in the market from barge-based casinos and dockside gaming
will have a negative impact on the Company's revenues.
6
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 went into effect on August
5, 2002, and imposes a graduated wagering tax based upon adjusted gross
receipts.
The Majestic Star Casino also competes with gaming operations on Native
American lands, including those located, or to be located, in Michigan,
Wisconsin and possibly northern Indiana. The Saginaw Chippewa Indian Tribe is
currently operating one of the largest Native American gaming complexes in the
United States in Mt. Pleasant, Michigan, approximately 250 miles northeast of
Gary, Indiana. The Pokagon Band of Potawatomi Indians have revenue-sharing and
infrastructure financing agreements with local officials in New Buffalo
Township, Michigan. The Pokagons plan to have the second largest casino in the
Midwest, which would be substantially larger in size than any of the riverboats
currently operating in the Chicago metropolitan area. The casino would be
approximately 50 miles east of the Buffington Harbor Gaming Complex. On January
21, 2003, a judge ruled that the study issued by the Federal Bureau of Indian
Affairs did not present enough evidence to show the impact a casino would have
on that area, therefore a new study would have to be done. To date, there has
been no construction of this infrastructure due to on-going litigation.
The Company believes that the Majestic Star Casino's ability to compete
successfully in the riverboat gaming industry will be primarily based on the
quality and location of its gaming facilities, the effectiveness of its
marketing efforts, and overall levels of customer service and satisfaction. The
Company believes that the implementation of dockside gaming and the opening
of the 2000 space parking facility has provided added competitive benefits to
the Buffington Harbor Gaming Complex.
For information regarding competition specific to the Fitzgeralds
properties, please refer to the Investor Holdings 10-K.
FINANCIAL INFORMATION ABOUT SEGMENTS
For financial information regarding the Company's business segments, see
Note 16 of the Notes to Consolidated Financial Statements.
EMPLOYEES AND UNIONS
At December 31, 2002, on a consolidated basis, the Company employed
approximately 3,581 persons and had collective bargaining contracts with unions
covering approximately 572 of its employees. The Company believes that its
overall relations with its employees are good.
At December 31, 2002, the Majestic Star Casino employed approximately
1,006 persons and the BHR Joint Venture employed approximately 224 persons. The
Majestic Star Casino and the BHR Joint Venture have collective bargaining
agreements with Local 1 of the Hotel Employees and Restaurant Employees
International Union ("H.E.R.E."), covering approximately 64 employees of the
Majestic Star Casino and approximately 110 employees of the BHR Joint Venture.
The Majestic Star Casino's H.E.R.E. members are exclusively in food and beverage
positions. The agreements expired on June 30, 2001 and a new agreement was
ratified on November 6, 2002 and expires on October 31, 2004 for Majestic Star
employees. The annual incremental cost of the contract is approximately $50,000
per year and the average annual wage increase is approximately 3.3% for the
total bargaining unit. BHR's new agreement was ratified on November 20, 2002 and
expires on October 31, 2004. The agreement is in the process of being signed by
the union. The BHR Joint Venture also has collective bargaining agreements with
the Operating Engineers Union, covering approximately 7 employees of its
facilities department. This agreement expires on June 30, 2006. The Majestic
Star Casino also has a collective bargaining agreement
7
with the Seafarers International Union that covers approximately 21 employees in
the marine operations department. This agreement expires on July 10, 2003.
At December 31, 2002, the Company was involved in a "labor dispute"
with the United Steelworkers of America. On May 24, 2002, under the direct
supervision of the Regional Director for Region 13 of the National Labor
Relations Board, the United Steelworkers of America held an election for
representation of 21 full-time and regular part-time slot technicians. Of the
ballots cast, 13 were in favor of the union and eight were against participating
in labor organizations. On May 31, 2002 the Company filed timely "Objections to
Conduct Affecting the Results of the Election." Thus, the Company requested that
the results of the election be vitiated and a new election be conducted. Since
then a number of filings and objections have been made with the National Labor
Relations Board. The National Labor Relations Board has ordered that the
proceeding be transferred to and continued before the Board in Washington D.C.
No ruling has been issued with respect to the election results.
In recruiting personnel, the Company is obligated, under the terms of
an agreement with the City of Gary, to use its best efforts to have an employee
base which is comprised of 70% from racially minority groups, 52% females, 67%
residents of the City of Gary and 90% residents of Lake County, Indiana.
For information regarding employees specific to the Fitzgeralds
properties, please refer to the Investor Holdings 10-K.
TRADE NAMES, TRADEMARKS AND SERVICES MARKS
The Company owns certain trademarks that are integral to the business
and operation of its riverboat gaming facility. The most significant of these
are Majestic Star Casino (words and design), Majestic Star, Club Majestic, Club
Majestic Premier, Change Your Luck! and We've Got Your Slots. Majestic Star
Casino (words and design), Majestic Star and Club Majestic are currently
registered in the United States Patent and Trademark Office ("PTO") and
applications for registrations of the other above referenced trademarks have
been filed in the PTO. Generally, registrations with the PTO last for ten years
and may be renewed for additional ten-year periods.
With respect to the Fitzgeralds properties, as part of the Fitzgeralds
acquisition, Investor Holdings acquired proprietary rights in registered and
common law trade names, trademarks and service marks used in connection with the
business, including the "Fitzgeralds" mark. Fitzgeralds Gaming Corporation
retained limited rights to use the "Fitzgeralds" mark pursuant to a license
agreement with Investor Holdings.
SEASONALITY
The gaming operations of the Company's properties may be seasonal and,
depending on the location and other circumstances, the effects of such
seasonality could be significant. The properties' results are affected by
inclement weather in relevant markets. For example, because of the climate in
the Chicago metropolitan area, the Majestic Star Casino's operations are
expected to be seasonal with stronger results generally expected during the
period from May through September. Fitzgeralds Black Hawk, located in the Rocky
Mountains of Colorado, is subject to snow and icy road conditions during the
winter months. Also, at Fitzgeralds Las Vegas, business levels are generally
weaker from Thanksgiving through the middle of January (except during the week
between Christmas and New Year's) and throughout the summer, and generally
stronger from mid-January through Easter and from mid-September through
Thanksgiving. At Fitzgeralds Tunica and Fitzgeralds Black Hawk, business levels
are typically weaker from Thanksgiving through the end of the winter and
typically stronger from mid-June to mid-November. Accordingly, the Company's
results of operations are expected to fluctuate from quarter to quarter and the
8
results for any fiscal quarter may not be indicative of results for future
fiscal quarters.
ENVIRONMENTAL MATTERS
The Company is subject to certain federal, state and local
environmental, safety and health laws, regulations and ordinances, including the
Clear Air Act, Clean Water Act, Occupational Safety and Health Act, Oil
Pollution Act, Resource Conservation Recovery Act and the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"). The Company may incur material liability if contamination is
discovered on any of its properties. As of March 31, 2003, the Company is not
aware of any contamination.
For information regarding environmental matters specific to the
Fitzgeralds properties, please refer to the Investor Holdings 10-K.
GOVERNMENTAL REGULATION
The ownership and operation of the Company's gaming facilities are
subject to various state and local laws and regulations in the jurisdictions
where they are located. The following is a summary of the provisions of the
Indiana laws and regulations applicable to the Company's riverboat gaming
facility and other laws and regulations applicable to the Company as a
registered holding company in Nevada and Mississippi. For information regarding
governmental regulations specific to the Fitzgeralds gaming facilities, please
refer to the Investor Holdings 10-K. The summary does not purport to be a full
description thereof and is qualified in its entirety by reference to such laws
and regulations.
Indiana Gaming Regulation
The ownership and operation of the Majestic Star Casino is subject to
regulation by the State of Indiana.
In 1993, the State of Indiana passed the Riverboat Gambling Act that
created the Indiana Gaming Commission (the "IGC"). The IGC is given extensive
powers and duties for the purposes of administering, regulating and enforcing
riverboat gaming in Indiana and was authorized to award up to eleven gaming
licenses to operate riverboat casinos in the State of Indiana, including five to
counties contiguous to Lake Michigan in northern Indiana, five to counties
contiguous to the Ohio River in southern Indiana and one to a county contiguous
to Patoka Lake in southern Indiana.
Referenda required by the Riverboat Gambling Act to authorize the five
licenses to be issued for counties contiguous to Lake Michigan have been
conducted and gaming has been authorized for the cities of Hammond, East
Chicago, and Gary in Lake County, Indiana, and for Michigan City in LaPorte
County, Indiana to the east of Lake County.
The IGC has jurisdiction and supervision over all riverboat gaming
operations in Indiana and all persons on riverboats where gaming operations are
conducted. These powers and duties include authority to (i) investigate all
applicants for riverboat gaming licenses, (ii) select licensees from competing
applicants, (iii) establish fees for licensees and (iv) prescribe all forms used
by applicants. The IGC is authorized to adopt rules for administering the gaming
statute and the conditions under which riverboat gaming in Indiana may be
conducted. The IGC may suspend or revoke the license of a licensee or impose
civil penalties, in some cases without notice or hearing, for any act in
violation of the Riverboat Gambling Act or for any other fraudulent act.
The Riverboat Gambling Act requires an extensive disclosure of records
and other information
9
concerning an applicant, including disclosure of all directors, officers and
persons holding a five percent or more direct or indirect beneficial interest in
an applicant.
In determining whether to grant or renew an owner's license to an
applicant, the IGC considers a number of factors, including (i) the character,
reputation, experience and financial integrity of the applicant, (ii) the
facilities or proposed facilities for the conduct of riverboat gaming, (iii) the
prospective revenue to be collected by the state from the conduct of riverboat
gaming, (iv) the good faith affirmative action plan to recruit, train and
upgrade minorities in all employment classifications, (v) the financial ability
of the applicant to purchase and maintain adequate liability and casualty
insurance, (vi) whether the applicant has adequate capitalization to provide and
maintain the riverboat for the duration of the license and (vii) the extent to
which the applicant meets or exceeds other standards adopted by the IGC. The IGC
may also give favorable consideration to applicants for economically depressed
areas and applicants who provide for significant development of a large
geographic area. A person or entity holding a riverboat owner's license issued
by the IGC may not own more than a ten percent interest in another such
licensee. Legislation has been introduced during each of the last three years
that would allow a person or entity to own not more than two casinos. To date no
such legislation has been enacted.
An owner's license expires five years after the effective date of the
license (unless earlier terminated or revoked) and may be renewed for one-year
periods by the IGC upon satisfaction of certain statutory and regulatory
requirements. A gaming license is a revocable privilege and is not a property
right pursuant to the Riverboat Gambling Act. On June 3, 1996, the Majestic Star
Casino obtained a gaming license from the IGC. On August 23, 2001 and May 13,
2002, the Company's riverboat ownership license was unanimously renewed by the
IGC for one year periods beginning June 7, 2001 and again on June 2, 2002,
respectively.
Under IGC regulations, minimum and maximum wagers on games are left to
the discretion of the licensee. Wagering is required to be conducted with
tokens, chips or electronic cards instead of cash or coins. 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 has 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, Indiana
gaming taxes were levied on adjusted gross receipts, as defined by Indiana
gaming laws, at the rate of 20%. In addition to the wagering tax, an admissions
tax of $3 per turnstile count is assessed. Prior to August 5, 2002, Indiana
imposed an admissions tax of $3 per patron turnstile count at every boarding
time plus the count of the patrons that stayed over on the vessel from a
previous boarding time period.
The IGC is authorized to license suppliers and certain occupations
related to riverboat gaming. Gaming equipment and supplies customarily used in
conducting riverboat gaming may be purchased or leased only from licensed
suppliers.
The Riverboat Gambling Act places special emphasis upon minority and
women business enterprise participation in the riverboat industry. The IGC is
directed by Indiana statute to establish annual goals for a riverboat owner
licensee for the use of minority and women business enterprises. Each riverboat
owner licensee is required to submit annually to the IGC a report that included
the total dollar value of contracts awarded for goods and services and the
percentage awarded to minority and women's business enterprises. The IGC may
suspend, limit or revoke an owner's gaming license or impose a fine for failure
to comply with these statutory requirements. For the calendar year ended
December 31, 2002, the Company has submitted unaudited reports to the IGC that
it believes meets these statutory requirements.
10
In addition, the Company and its affiliates are subject to restrictions
on the incurrence of debt. A riverboat licensee and its affiliates may enter
into debt transactions that total one million dollars or more only with the
prior approval of the IGC. Such approval is subject to compliance with request
procedures and a showing that each person with whom the riverboat licensee and
its affiliates enters into a debt transaction would be suitable for licensure
under the Indiana Riverboat Gambling Act. The Company and Investor Holdings
received such approval in mid-November 2001 in connection with the purchase of
the Fitzgeralds assets and the issuance of the Investor Holdings Senior Secured
Notes and a $15 million credit facility with Foothill Capital Corporation
("Investor Holdings Credit Facility").
Other Gaming Regulation
The gaming licenses of the Fitzgeralds Tunica and Fitzgeralds Las Vegas
gaming facilities are held by Barden Mississippi and Barden Las Vegas,
respectively. Under the applicable gaming laws and regulations in Mississippi
and Nevada, each direct and indirect owner of such licenses is required to be
registered with the applicable gaming authorities and found suitable to own the
stock of its direct subsidiary. Accordingly, Barden Development, Inc., an
Indiana corporation and the sole owner and manager of the Company ("BDI"); the
Company, the owner of Investor; and Investor Holdings, the owner of each of
Barden Mississippi and Barden Nevada are "registered corporations" under and
subject to applicable Mississippi and Nevada law. Violation of applicable laws
and regulations by a registered corporation could subject such entity to
substantial fines and, under certain circumstances, forfeiture of earnings and
suspension or forfeiture of the gaming license. The gaming license of
Fitzgeralds Black Hawk is held by Barden Colorado. Our operations in Black Hawk
are subject to the Gaming Regulations of the State of Colorado and the Colorado
Gaming Commission.
Treasury Department Regulations
The Internal Revenue Code and Treasury Regulations require operators of
casinos located in the United States to file information returns for U.S.
citizens, including names and addresses of winners, for keno and slot machine
winnings in excess of prescribed amounts and table game winnings in which the
payout is a certain amount greater than the wager. The Internal Revenue Code and
Treasury Regulations also require operators to withhold taxes on some keno,
bingo, and slot machine winnings of nonresident aliens. We are unable to predict
the extent to which these requirements, if extended, might impede or otherwise
adversely affect operations of, and/or income from, the other games.
Regulations adopted by the Financial Crimes Enforcement Network
("FinCEN") of the Treasury Department and the gaming regulatory authorities in
some of the domestic jurisdictions in which we operate casinos, require the
reporting of currency transactions in excess of $10,000 occurring within a
gaming day, including identification of the patron by name and social security
number. This reporting obligation began in May 1985 and may have resulted in the
loss of gaming revenues to jurisdictions outside the United States, which are
exempt from the ambit of these regulations. On September 26, 2002 FinCEN
implemented the suspicious activity reporting rule. This new reporting
obligation requires casinos to report suspicious monetary transactions when the
casino knows, suspects, or has reason to suspect that the transaction involves
funds derived from illegal activity or is otherwise intended to facilitate
illegal activity. The new reporting obligations are effective March 25, 2003.
Compliance with Other Laws and Regulations
The Company's operations are also subject to extensive state and local
regulations in addition to the regulations described above, and, on a periodic
basis, we must obtain various other licenses and permits, including those
required to sell alcoholic beverages.
11
ITEM 2. PROPERTIES
The Company currently owns and operates the Majestic Star Casino in
Gary, Indiana, and through its' indirect subsidiaries, Fitzgeralds Tunica in
Tunica County, Mississippi, Fitzgeralds Black Hawk in Black Hawk, Colorado, and
Fitzgeralds Las Vegas in Las Vegas, Nevada.
All of the Company's assets related to the Majestic Star Casino,
including the vessel are subject to a lien in favor of the holders of the
Majestic Star Senior Secured Notes and the lender under the Majestic Star Credit
Facility.
Buffington Harbor, Gary, Indiana
- --------------------------------
The Majestic Star Casino operates from the Buffington Harbor Gaming
Complex ("Buffington Harbor"), which is shared with the Joint Venture Partner.
Buffington Harbor is located at the interchange of U.S. 12 and Indiana State
Highway 912, just off of I-80/94 and the Indiana Toll Road. Buffington Harbor is
situated on an approximately 100-acre site, containing approximately 3,000
parking spaces, and offers valet parking and convenient bus loading and
unloading facilities. Buffington Harbor includes a guest pavilion, vessel
berths, parking lots and other common area facilities.
Buffington Harbor is a two-level, 90,000 square foot structure
containing multiple dining options, including, Harbor Treats and Miller Pizza,
which are owned and operated by third parties, Jackpot Java and Wings and
Things, which are owned and operated by Buffington Harbor and the South Shore
Grille, which replaced the Harbor Steak House in February 2003. There is also a
bar, gift shop and areas for staging and ticketing. The complex features a grand
entrance, granite and marble floors, unique metallic finishes, two large
fountains and a variety of lighting effects.
Because the Joint Venture Partner's riverboat casino is docked at
Buffington Harbor, Buffington Harbor has the largest concentration of gaming
positions in the Chicago Market, offering patrons a total of approximately 3,500
gaming positions, which is greater than the number of gaming positions that
exist at any other site in northwest Indiana. This number is also substantially
greater than the number of gaming positions allowed at any individual Illinois
gaming site, which is currently limited by Illinois gaming laws to 1,200. The
Company believes that it has achieved operating cost savings and marketing
advantages over its competitors as a result of the operation of two casinos at
the same location.
A change in the Indiana state law governing gaming took effect on July
1, 2002, and enables Indiana's riverboat casinos to operate dockside. The IGC
approved Majestic Star's flexible boarding plan (which went into effect o August
5, 2002) that allows the continuous ingress and egress of patrons for the
purpose of gambling while the riverboat is docked.
In May of 2002, BHPA constructed a parking garage, which operates on
the land formerly leased from Lehigh Portland Cement Company and purchased from
GNC. The parking structure provides customers with approximately 2,000 covered
parking spaces and indoor access to the Buffington Harbor. The Company believes
that the convenience of the new parking structure will attract a significant
number of new customers to Buffington Harbor, thereby providing opportunities to
increase its net revenues and cash flow. The Company and the Joint Venture
Partner each entered into identical leases with BHPA with lease payments
sufficient to service BHPA's debt. In the event one party, (the Company or the
Joint Venture Partner as the case may be) fails to make its required lease
payment or does not make the required lease payment in full, then the other
party is required to make the payment or make up the difference in the short
payment.
12
Fitzgeralds Properties
- ----------------------
Fitzgeralds Tunica is located in north Tunica County, Mississippi,
approximately 30 miles from downtown Memphis, Tennessee, and is the focal point
of a heavily wooded, 50-acre site situated by the Mississippi River. Fitzgeralds
Black Hawk is located adjacent to the entrance to the downtown gaming area of
Black Hawk, Colorado, next to the Gilpin Casino and across the street from
Bullwhackers. Fitzgeralds Las Vegas is located on the city block bounded by
Fremont, Carson, Third and Fourth Streets at the Fremont Street Experience in
downtown Las Vegas. All of the Company's assets related to the Fitzgerald
properties are subject to a lien in favor of the holders of the Investor
Holdings Senior Secured Notes and the lender under the Investor Holdings Credit
Facility.
For further information regarding the Fitzgeralds properties, please
refer to the Investor Holdings 10-K.
ITEM 3. LEGAL PROCEEDINGS
Various legal proceedings are pending against the Company. Management
considers all such pending proceedings, comprised primarily of personal injury
and equal employment opportunity (EEO) claims, to be routine litigation
incidental to 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, results of operations or cash
flows.
On June 25, 1997, a complaint was filed in an Illinois Cook County
Court against Majestic Star Casino. The plaintiff, a former employee, was
injured during and as a result of a routine boat drill attempt and is requesting
compensatory and punitive damages totaling approximately $3.5 million. The suit
alleges that Majestic Star Casino failed to provide adequate safety measures to
their employees during these drills. This complaint was settled in April 2002
with no financial impact on the company.
On March 27, 1998, a complaint was filed in the Lake County Superior
Court in East Chicago, Indiana, against BHR, the Joint Venture Partner, and the
Company. The plaintiff, a former employee of the Company, claims to have been
assaulted in the BHR parking lot on June 25, 1997 and is requesting compensatory
and punitive damages totaling approximately $11.0 million. The suit alleges that
the Joint Venture Partner and the Company failed to provide adequate security to
prevent assaults. The Company intends to vigorously defend against such suit.
However, it is too early to determine the outcome of such suit and the effect,
if any, on the Company's financial position and results of operations.
On March 2, 2000, the Company was issued a notice of audit findings,
and on May 11 and 12, 2000, was issued notices of assessment by the Indiana
Department of Revenue for income tax withholding deficiencies for the years
ended 1996 and 1998. The Indiana Department of Revenue has taken the position
that wagering taxes should not be classified as an allowable deductible expense
for calculating state income taxes and therefore requires that wagering taxes be
added back to net income to determine the tax liability. The estimated tax
deficiency for 1996 is approximately $239,000 excluding interest and the
estimated tax deficiency for 1998 is approximately $315,000 excluding interest.
Other Indiana casinos have protested this same finding. The Company has filed an
administrative protest and demand for hearing with the Indiana Department of
Revenue. However, it is too early to determine the outcome of such a protest.
On November 3, 2000 a complaint was filed in the State of Indiana, Lake
County Court, Civil Division. The plaintiff, a former employee filed a complaint
under Title VII of the Civil Rights Act of 1964. The suit alleges violation of
the American with Disabilities Act, retaliation and infliction of
13
emotional distress. On July 24, 2002 a jury award of $553,000 was entered in the
plaintiff's favor, plus attorney's fees and costs. The plaintiff is also seeking
$117,000 in front pay. There has been no award of front pay and a hearing is
scheduled in July 2003 regarding this issue. The Company believes that errors
were made during the trial and in the jury award. As a result the Company is
appealing the award. The Company believes that the potential loss could range
from $250,000 to $450,000. An accrual of $250,000 was charged to operations in
the accompanying December 31, 2002 financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company is a limited liability company, and 100% of our membership
interests are indirectly held by Mr. Barden. There is no established public
trading market for the membership interests.
We did not pay any cash dividends during the past three years, and
have no current plan to pay any cash dividends in the near term. We are
restricted in our ability to pay dividends under various covenants.
ITEM 6. SELECTED CONSOLDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
Years Ended December 31,
2002 2001 (1) 2000 1999 1998
------------------------------------------------------------
STATEMENT OF OPERATIONS DATA:
Net Operating Revenues (2) $ 296,706 $ 130,285 $ 113,762 $ 117,172 $ 114,188
Pre-opening Expenses 13 1,018 -- -- --
Operating Income 33,673 14,226 8,861 16,084 10,518
Interest Expense, Net 32,243 15,628 14,105 14,605 14,991
Net Income (Loss)
Before Extraordinary Item 1,247 (1,551) (5,367) 1,478 (4,473)
Extraordinary Item 69 -- (383) (15,238) --
Net Income (Loss) 1,316 (1,551) (5,750) (13,760) (4,473)
At December 31,
BALANCE SHEET DATA: 2002 2001 (1) 2000 1999 1998
-------------------------------------------------------------
Cash and Cash Equivalents $ 24,548 $ 25,925 $ 16,120 $ 20,145 $ 17,295
Restricted Cash 1,250 1,000 2,000 7,358 --
Investment in BHR, Net 31,833 33,899 43,924 38,146 40,749
Total Assets 275,810 291,076 126,597 133,150 125,261
Current Liabilities 25,208 37,144 21,795 21,311 11,109
Long-Term Debt 274,526 273,897 128,233 128,922 108,390
Total Liabilities 299,734 311,057 150,028 150,233 128,259
Members' Deficit (24,175) (19,981) (23,431) (17,083) (2,998)
NOTES:
1. Includes 25 days of operation for the Fitzgeralds properties and balance
sheet data for the properties at December 31, 2001.
2. Net operating revenue is defined as gross revenues less promotional
allowances.
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Statement on Forward-Looking Information
- ----------------------------------------
This 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," "expects," "will," or "could,"
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 at the gaming complex; the
ability to fund planned development needs and to service debt from existing
operations and from new financing; 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; significant increase in fuel or transportation
prices; adverse economic conditions in the Company's markets; severe and unusual
weather in the Company's markets; adverse results of significant litigation
matters; non-renewal of the Company's gaming license from the appropriate
regulatory authorities; adverse results of significant litigation matters; and
the continuing effects of terrorist attacks and any future occurrences of
terrorist attacks or other destabilizing events.
For more information on these and other factors, see "Factors that May
Affect Future Results." 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 15(a).
Overview
- --------
The Majestic Star Casino, 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.
On a consolidated basis, revenues, promotional allowance and expenses
are going to be much greater for the year ended December 31, 2002 when compared
to the year ended December 31, 2001. This is due to a full year of consolidated
operations in 2002 with the Fitzgeralds properties. In 2001, the consolidated
results reflect only 25 days of operations of the Fitzgeralds properties.
15
On a consolidated basis, gross revenues increased to $335.9 million
during the year ended December 31, 2002 compared to $138.4 million during the
year ended December 31, 2001, primarily as a result of the acquisition of the
Fitzgeralds casino properties on December 6, 2001.
Casino operations provided approximately 87.5% and 95.8% of the
Company's gross revenues during the year ended December 31, 2002 compared to the
year ended December 31, 2001, respectively, and substantially all of its income
from operations. Slot machine income has been the primary component of the
Company's gaming revenues, providing approximately 87.1% and 84.5% of such
revenues during the year ended December 31, 2002 compared to December 31, 2001,
respectively.
The discussion below focuses on the results of the Majestic Star Casino
as well as the Company and its subsidiaries on a consolidated basis, including
25 days of operations for the Fitzgeralds casino properties during December 31,
2001. For a discussion of the results of the operations for the Fitzgeralds
casino properties, please refer to the Investor Holdings 10-K.
Results of Operations
- ---------------------
The following table sets forth information derived from the Company's
statements of income expressed as a percentage of gross revenues.
16
CONSOLIDATED STATEMENTS OF OPERATIONS - SUMMARY INFORMATION
(dollars in thousands)
For The Years Ended December 31,
2002 2001 2000
----------------------------------------------
Gross Revenues $ 335,925 $ 138,367 $ 118,451
Operating Income $ 33,673 $ 14,226 $ 8,862
CONSOLIDATED STATEMENTS OF OPERATIONS - PERCENTAGE OF GROSS REVENUES
FOR THE YEARS ENDED DECEMBER 31,
2002 2001 2000
--------------------------------
REVENUES:
Casino 87.5 % 95.8 % 97.5 %
Rooms 4.6 % 0.8 % - %
Food and beverage 6.3 % 2.0 % 1.3 %
Other 1.6 % 1.4 % 1.2 %
----- ------- -------
Gross Revenues 100.0 % 100.0 % 100.0 %
less promotional allowances (11.7)% (5.8)% (4.0)%
----- ------- -------
Net Revenues 88.3 % 94.2 % 96.0 %
COSTS AND EXPENSES:
Casino 25.9 % 20.4 % 20.1 %
Rooms 2.7 % 0.5 % - %
Food and beverage 4.0 % 2.2 % 2.0 %
Other 0.5 % 0.1 % - %
Gaming taxes 15.4 % 25.2 % 27.3 %
Advertising and promotion 6.2 % 6.2 % 7.0 %
General and administrative 15.4 % 17.5 % 19.6 %
Economic incentive - City of Gary 1.2 % 2.7 % 2.7 %
Depreciation and amortization 7.0 % 8.5 % 9.4 %
Loss on disposal of assets 0.0 % 0.0 % 0.3 %
Pre-opening expenses 0.0 % 0.6 % - %
----- ------- -------
Total costs and expenses 78.3 % 83.9 % 88.4 %
----- ------- -------
Operating income 10.0 % 10.3 % 7.6 %
OTHER INCOME (EXPENSE):
Interest income 0.1 % 0.3 % 0.8 %
Interest expense (9.7)% (11.6)% (12.7)%
Other non-operating expense (0.1)% (0.1)% (0.1)%
----- ------- -------
Total other income (expense) (9.7)% (11.4)% (12.0)%
Income (loss) before extraordinary item 0.3 % (1.1)% (4.4)%
EXTRAORDINARY ITEM:
Gain on bond redemption 0.0 % - % (0.3)%
----- ------- -------
Net income (loss) 0.3 % (1.1)% (4.7)%
===== ======= =======
Results for any one or more periods are not necessarily indicative of annual
results or continuing trends.
17
2002 Compared to 2001
- ---------------------
Consolidated gross revenues for the year ended December 31, 2002
amounted to $335,925,000, an increase of $197,558,000 or 142.8% over gross
revenues recorded in the year ended December 31, 2001. Majestic Star, for the
year ended December 31, 2002, accounted for $136,165,000 or 40.5% of
consolidated gross revenue, an increase of $10,630,000 compared to the year
ended December 31, 2001. The 8.5% increase in gross revenues at Majestic Star
was primarily attributable to a $9,918,000 or 9.6% increase in slot revenue. A
primary reason for the increase was the commencement of dockside gaming at
Majestic Star on August 5, 2002. Dockside gaming eliminates the requirement to
cruise and provides the guests with continual access to the riverboat casino.
Management believes dockside gaming will result in increased patronage of its
riverboat gaming facility.
Consolidated casino revenues during the year ended December 31, 2002
totaled $293,789,000, of which slot machines accounted for $255,980,000 or 87.1%
and table games accounted for $37,809,000 or 12.9%. Majestic Star's casino
revenues during the year ended December 31, 2002 totaled $132,600,000, an
increase of $10,405,000 or 8.5%, of which slot machines accounted for
$113,119,000 or 85.3% and table games accounted for $19,481,000 or 14.7%. The
average number of slot machines in operation was 1,508 during the year ended
December 31, 2002, compared to 1,423 during the year ended December 31, 2001.
The average win per slot machine per day increased to $205 for the year ended
December 31, 2002, from $199 during the year ended December 31, 2001. The
average number of table games in operation during the year ended December 31,
2002, increased to 53 from 50 during the year ended December 31, 2001. The
average win per table game per day during the year ended December 31, 2002,
decreased to $1,009, compared to $1,034 during the year ended December 31, 2001.
During the year ended December 31, 2002, the decline in table games revenues was
attributable to a decline of $465,000 or 0.4% in table drop and an increase in
the table hold from 15.4% to 15.8% in comparison to the prior year. The average
daily win per patron was $62 for the year ended December 31, 2002, compared to
an average daily win per patron of $68 for the year ended December 31, 2001.
Consolidated room revenues totaled $15,496,000 or 4.6% of the gross
revenue for the year ended December 31, 2002 compared to $1,079,000 or 0.8% of
the gross revenue for the year ended December 31, 2001. The primary increase was
attributed to a full year of operations at the Fitzgeralds properties for the
year ended December 31, 2002 compared to 25 days of operation during December
2001. Majestic Star does not operate a hotel.
Consolidated food and beverage revenue for the twelve months ended
December 31, 2002 totaled $21,094,000 or 6.3% of gross revenues, compared to
$2,804,000 or 2.0% of gross revenues for the year ended December 31, 2001.
Majestic Star accounted for $1,624,000 or 1.2% of gross revenue for the twelve
months ended December 31, 2002, an increase of $10,000 or 0.6% compared to the
year ended December 31, 2001.
Consolidated other revenues totaled $5,547,000 or 1.6% of consolidated
gross revenues for the year ended December 31, 2002. Majestic Star accounted for
$1,942,000 or 1.4% of its gross revenues, compared to $1,727,000 or 1.4% of its
gross revenues during the year ended December 31, 2001. Other revenue at
Majestic Star consisted primarily of commission income.
Consolidated promotional allowances deducted from the Company's gross
revenues for the years ended December 31, 2002 and December 31, 2001, were
$39,219,000 or 11.7% of gross revenues and $8,082,000 or 5.8% of gross revenues,
respectively. Of this amount Majestic Star accounted for $8,871,000 or 6.5% of
its gross revenues, an increase of $3,100,000 or 53.7% compared to the year
ended December 31, 2001. The increase is attributable to an increase in cash
back giveaways during the year ended December 31, 2002. Promotional allowances
provided to the Majestic Star's gaming patrons at
18
facilities located in, and/or owned by BHR for the year ended December 31, 2002
and December 31, 2001, totaled $979,000 and $805,000, respectively, and are
characterized in the financial statements as an expense. BHR and other
third-party operators of food kiosks invoice the Majestic Star monthly for these
promotional allowances at cost, which approximates retail value.
Consolidated casino operating expenses for the year ended December 31,
2002, totaled $87,160,000 or 25.9% of gross revenues and 29.7% of casino
revenues compared to $28,213,000 or 20.4% of gross revenues and 21.3% of casino
revenues, respectively, for the year ended December 31, 2001. These expenses
were primarily comprised of salaries, wages and benefits, and operating expenses
of the casino. Majestic Star accounted for $26,338,000 or 19.3% of Majestic Star
gross revenues and 19.9% of Majestic Star casino revenues for the year ended
December 31, 2002 compared to $24,102,000 or 19.2% of gross revenues and 19.7%
of casino revenues, respectively, for the year ended December 31, 2001. The
increase of $2,236,000 or 9.3% in casino operating expenses is primarily
attributed to an increase of $1,070,000 for cash related coupons and other
related items, $1,000,000 in payroll and related benefits, $150,000 for base
stock uniforms, offset by a reduction in other various casino operating
expenses.
Consolidated gaming taxes totaled $51,572,000, or 15.4% of consolidated
gross revenues and 17.6% of casino revenues for the year ended December 31,
2002, compared to $34,835,000, or 25.2% of consolidated gross revenues and 26.3%
of casino revenues for the year ended December 31, 2001. During the six months
ended June 30, 2002, 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. For the period July 1, 2002 through
August 4, 2002, in Indiana, gaming taxes were levied on adjusted gross receipts,
as defined by Indiana gaming laws, at a flat rate of 22.5% of adjusted gross.
Beginning August 5, 2002, in connection with the commencement of dockside
gaming, Majestic Star began using an effective rate to calculate gaming tax
expense associated with adjusted gross receipts. On August 5, 2002 a graduated
tax structure with a starting rate of 15% and a top rate of 35% for adjusted
gross receipts in excess of $150 million was implemented by the State of
Indiana. Majestic Star accounted for $33,621,000 or 24.7% of consolidated gross
revenue and 25.4% of consolidated casino revenues during the year ended December
31, 2002 compared to $34,026,000 or 27.1% of consolidated gross revenue and
27.8% of consolidated casino revenues of gaming taxes during the year ended
December 31, 2001.
Consolidated advertising and promotion expenses include 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 year ended December 31, 2002 totaled $20,919,000 or
6.2% of gross revenues, compared to $8,522,000 or 6.2% for the year ended
December 31, 2001. Of this amount, Majestic Star accounted for $7,636,000 or
5.6% of gross revenues for the year ended December 31, 2002 and $7,596,000 or
6.1% of gross revenues for the year ended December 31, 2001.
Consolidated general and administrative expenses for the year ended
December 31, 2002 were $51,754,000 or 15.4% of gross revenues, compared to
$24,241,000 or 17.5% of gross revenues during the year ended December 31, 2001.
Majestic Star accounted for $26,776,000 or 19.7% of gross revenue for the year
ended December 31, 2002 and $22,671,000 or 18.1% for the year ended December 31,
2001. These expenses included $6,001,000 for berthing fees paid to BHR,
$5,983,000 for marine operations including housekeeping, and $3,112,000 for
security and surveillance operations during the year ended December 31, 2002.
The dollar increase of $4,105,000 in these expenses is primarily attributed to
an increase of approximately $1,700,000 in operating expense associated with
corporate, a $1,000,000 million increase associated with the BHPA parking garage
lease, $703,000 for various legal claims and fees, $500,000 due to an increase
in property tax, $400,000 in insurance costs and $222,000 for one-time severance
payments to marine employees. These employees were no longer required with the
implementation of dockside gaming.
19
Consolidated depreciation and amortization for the year ended December
31, 2002 was $23,502,000 or 7.0% of gross revenues, compared to $11,788,000 or
8.5% of gross revenues during the year ended December 31, 2001. Depreciation and
amortization attributed to Majestic Star for the year ended December 31, 2002
was $9,041,000 compared to $10,868,000 during the year ended December 31, 2001.
The dollar decrease totaled $1,827,000, of which $1,274,000 is depreciation
expense and $553,000 is amortization expense. Part of the decrease for the year
ended December 31, 2002 is attributable to machinery and equipment being fully
depreciated. The loss relating to the investment in BHR (for depreciation and
amortization) for the years ended December 31, 2002 and 2001 was $2,424,000 and
$2,798,000, respectively.
The consolidated operating income for the year ended December 31, 2002
was $33,673,000 or 10.0% of gross revenues, compared to an operating income for
the year ended December 31, 2001 of $14,226,000 or 10.3% of gross revenues.
Operating income attributed to the Majestic Star for the year ended December 31,
2002 was $17,624,000 or 12.9% of gross Majestic Star revenues. Operating income
attributed to the Majestic Star for the year ended December 31, 2001 was
$14,505,000 or 11.6% of gross Majestic Star revenues. The $3,119,000 or 21.5%
increase is attributed to an 8.5% increase in Majestic Star's gross revenues
partially offset by increased expenses as previously discussed. During 2002,
Majestic Star was negatively impacted by charges that are infrequent in nature
including $703,000 for uninsured legal claims and fees, and $222,000 for
severance payments to Marine employees.
The consolidated net interest expense for the year ended December 31,
2002 was $32,243,000 or 9.6% of gross revenues compared to $15,628,000 or 11.3%
of gross revenue for the same period last year. Net interest expense attributed
to the Majestic Star for the year ended December 31, 2002 was $14,261,000 or
10.5% of gross revenues, compared to $14,635,000 or 11.7% of gross revenue for
the same period last year. The $374,000 decrease in net interest expense at
Majestic Star is primarily attributed to a $124,000 decrease in interest income,
offset by lower interest in the line of credit and interest paid in 2001 to the
Indiana Department of Revenue.
Other non-operating expenses of $142,000 and $149,000 for the years
ended December 31, 2002 and 2001, respectively, mainly represent fees associated
with the line of credit.
During 2002, Investor Holdings purchased for $759,000, plus accrued
interest its Senior Secured Notes with a face value of $865,000. The notes, net
of unamortized original issue discount, were being carried at a value of
$828,000. The result was a $69,000 gain.
As a result of the foregoing, the Company realized a consolidated net
income of $1,316,000 or 0.3% of consolidated gross revenue during the year ended
December 31, 2002, compared to a loss of $1,551,000 or (1.1%) of consolidated
gross revenue during the year ended December 31, 2001.
2001 Compared to 2000
- ---------------------
Consolidated gross revenues for the year ended December 31, 2001
amounted to $138,367,000, an increase of $19,916,000 or 16.8% of gross revenues
recorded in the year ended December 31, 2000. Majestic Star, for the year ended
December 31, 2001, accounted for $125,535,000 or (90.7%), an increase of
$7,084,000 compared to the year ended December 31, 2000. The 6.0% increase in
gross revenues at Majestic Star was primarily attributable to a $10,114,000 or
10.9% increase in slot revenue partially offset by a $3,374,000 or 15.1% decline
in table game revenues as a result of an 11.7% decrease in the table drop and a
lower than anticipated table hold.
Consolidated casino revenues during the year ended December 31, 2001
totaled $132,554,000 or 95.8% of its gross revenue, of which slot machines
accounted for $112,211,000 (84.7%) and table games
20
accounted for $20,343,000 (15.3%). Majestic Star's casino revenues during the
year ended December 31, 2001 totaled $122,195,000 or 97.3% of its gross revenue,
an increase of $6,740,000 or 5.8%, of which slot machines accounted for
$103,200,000 (84.5%) and table games accounted for $18,995,000 (15.5%). The
average number of slot machines in operation was 1,423 during the year ended
December 31, 2001, compared to 1,435 during the year ended December 31, 2000.
The average win per slot machine per day increased to $199 for the year ended
December 31, 2001, from $177 during the year ended December 31, 2000. During the
year ended December 31, 2001, slot machine coin-in and win increased by 6.2% and
10.9%, respectively, compared to the year ended December 31, 2000, resulting in
a higher win per slot machine per day. The percentage increases in slot coin-in
and win is partially attributed to an aggressive multi-media marketing campaign
(including direct mail) emphasizing the tag line "Change Your Luck" combined
with a reconfiguration of the casino gaming floor which optimized the available
space to accommodate the casino patrons. The average number of table games in
operation during the year ended December 31, 2001, decreased to 50 from 55
during the year ended December 31, 2000. The average win per table game per day
during the year ended December 31, 2001, decreased to $1,033, compared to $1,108
during the year ended December 31, 2000. During the year ended December 31,
2001, the decline in table games revenues was attributable to a decline of
$16,311,000 or 11.7% in table drop and a decrease in the table hold from 16.0%
to 15.4% in comparison to the prior year. The average daily win per state
passenger count was $38 and the average daily win per patron was $67 during the
year ended December 31, 2001, compared to an average daily win per state
passenger count of $37 and an average daily win per patron of $68 during the
year ended December 31, 2000.
Consolidated room revenues totaled $1,079,000 or 0.8% of the gross
revenue for the year ended December 31, 2001 and was attributed to the 25 days
of operations for the Fitzgeralds properties. Majestic Star does not operate a
hotel.
Consolidated food and beverage revenue for the twelve months ended
December 31, 2001 totaled $2,804,000 or 2.0% of gross revenues, compared to
$1,565,000 or 1.3% of gross revenues for the year ended December 31, 2000.
Majestic Star accounted for $1,614,000 or 1.3% of gross revenue for the twelve
months ended December 31, 2001, an increase of $49,000 or 3.1% compared to the
year ended December 31, 2000.
Consolidated other revenues totaled $1,931,000 or 1.4% of consolidated
gross revenues for the year ended December 31, 2001. Majestic Star accounted for
$1,727,000 or 1.4% of its gross revenues, compared to $1,431,000 or 1.2% of
gross revenues during the year ended December 31, 2000. Other revenue at
Majestic Star consisted primarily of commission income.
Consolidated promotional allowances deducted from the Company's gross
revenues for the years ended December 31, 2001 and 2000, were $8,082,000 or 5.8%
of gross revenues and $4,690,000 or 4.0% of gross revenues, respectively. Of
this amount Majestic Star accounted for $5,771,000 or 4.6% of its gross revenue,
an increase of $1,081,000 or 23.0% compared to the year ended December 31, 2000.
Promotional allowances provided to the Majestic Star's gaming patrons at
facilities located in, and/or owned by BHR for the year ended December 31, 2001
and 2000, totaled $805,000 and $435,000, respectively, and are characterized in
the financial statements as an expense. BHR and other third-party operators of
food kiosks invoice the Majestic Star monthly for these promotional allowances
at cost, which approximates retail value.
Consolidated casino operating expenses for the year ended December 31,
2001, totaled $28,213,000 or 20.4% of gross revenues and 21.3% of casino
revenues compared to $23,787,000 or 20.1% of gross revenues and 20.6% of casino
revenues, respectively, for the year ended December 31, 2000. These expenses
were primarily comprised of salaries, wages and benefits, and operating expenses
of the casino. Majestic Star accounted for $24,102,000 or 19.2% of Majestic Star
gross revenues and 19.7% of Majestic
21
Star casino revenues compared to $23,787,000 or 20.1% of gross revenues and
20.6% of casino revenues, respectively, for the year ended December 31, 2000.
The dollar increase of $315,000 in casino operating expenses is primarily
attributed to an increase of $120,000 for gaming equipment rental and other
various casino operating expenses.
Consolidated gaming taxes totaled $34,835,000 or 25.2% of gross revenue
for the year ended December 31, 2001, compared to $32,350,000 or 27.3% of gross
revenue during the year ended December 31, 2000. Gaming taxes are 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
$34,026,000 or 27.1% of its gross revenues and 27.8% of casino revenue and
$32,350,000 or 27.3% of its gross revenue and 28.0% of casino revenue, of gaming
taxes, during the years ended December 31, 2001 and 2000, respectively. An
additional $3,667,000 was paid during the year ended December 31, 2001, compared
to $3,231,000 in the year ended December 31, 2000, to the City of Gary under an
economic incentive agreement whereby Majestic Star pays 3% of adjusted gross
receipts directly to the City.
Advertising and promotion expenses include 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 year ended December 31, 2001 totaled $8,522,000 or 6.2% of gross
revenues, compared to $8,348,000 or 7.0% for the year ended December 31, 2000.
Of this amount, Majestic Star accounted for $7,596,000 or 6.1% of gross revenues
for the year ended December 31, 2001 and $8,348,000 or 7.0% of gross revenues
for the year ended December 31, 2000. The $752,000 or 9.0% decrease in
advertising and promotion expenses during the year ended December 31, 2001 was
primarily the result of a decrease in mass marketing expenditures partially
offset by an increase in operating supplies.
Consolidated general and administrative expenses for the year ended
December 31, 2001 were $24,241,000 or 17.5% of gross revenues, compared to
$23,192,000 or 19.6% of gross revenues during the year ended December 31, 2000.
Majestic Star accounted for $22,671,000 or 18.1% of its gross revenue for the
year ended December 31, 2001 and $22,942,000 or 19.4% of its gross revenue for
the year ended December 31, 2000. These expenses included $6,317,000 for
berthing fees paid to BHR, $6,151,000 for marine operations including
housekeeping, and $2,693,000 for security and surveillance operations during the
year ended December 31, 2001. The dollar decrease of $271,000 in these expenses
is primarily attributed to a reduction of $651,000 in berthing fees, partially
offset by higher professional fees and fees to the Indiana Gaming Commission.
Consolidated depreciation and amortization for the year ended December
31, 2001 was $11,789,000 or 8.5% of gross revenues, compared to $11,172,000 or
9.4% of gross revenues during the year ended December 31, 2000. Depreciation and
amortization attributed to Majestic Star for the year ended December 31, 2001
was $10,868,000 or 8.7% of its gross revenue compared to $11,172,000 or 9.4% of
its gross revenue during the year ended December 31, 2000. The dollar decrease
totaled $304,000. The decrease for the year ended December 31, 2001 is primarily
attributable to machinery and equipment being fully depreciated and deferred
licensing fees being fully amortized. The loss relating to its investment in BHR
(for depreciation and amortization) for the years ended December 31, 2001 and
2000 was $2,798,000 and $2,059,000, respectively.
The consolidated operating income for the year ended December 31, 2001
was $14,266,000 or 10.3% of gross revenues, compared to an operating income for
the year ended December 31, 2000 of $8,862,000 or 7.6% of gross revenues.
Operating income attributed to the Majestic Star for the year ended December 31,
2001 was $14,505,000 or 11.6% of its gross revenue compared to $9,112,000 or
7.7% of its gross revenue. During the year ended December 31, 2001, Majestic
Star had a net loss on the disposition of assets totaling $12,000. The
$5,393,000 or 59.2% increase is attributed to a 6.0% increase
22
in gross Majestic Star revenues partially offset by increased expenses as
previously discussed.
The consolidated net interest expense for the year ended December 31,
2001 was $15,628,000 or 11.3% of gross revenues compared to $14,105,000 or 11.9%
for the same period last year. Net interest expense attributed to the Majestic
Star for the year ended December 31, 2001 was $14,636,000 or 11.7% of gross
revenues, compared to $14,158,000 or 12.0% for the same period last year. The
$478,000 increase in net interest expense at Majestic Star is primarily
attributed to a $659,000 decrease in interest income, partially offset by a
$181,000 increase in interest expense associated with the line of credit.
The Company's expense on the redemption of its 12-3/4% Senior Secured
Notes for the year ended December 31, 2000 was $382,500 and is classified as an
extraordinary item. Other non-operating expenses of $149,000 and $125,000 for
the years ended December 31, 2001 and 2000, respectively, represent fees
associated with the line of credit.
As a result of the foregoing, the Company realized a consolidated loss
of $1,551,000 during the year ended December 31, 2001, compared to a loss
(before the extraordinary item) of $5,368,000 during the year ended December 31,
2000. The Majestic Star realized a loss of $280,000 during the year ended
December 31, 2001, compared to a loss (before the extraordinary item) of
$5,368,000 during the year ended December 31, 2000. The Majestic Star net losses
were $280,000 and $5,750,000 during the years ended December 31, 2001, and 2000,
respectively.
Liquidity and Capital Resources
At December 31, 2002, the Company had cash and cash equivalents of
$24,548,000. This amount included $15,984,000 at Majestic Investor Holdings, LLC
and $8,564,000 at Majestic Star. During the year ended December 31, 2002, the
Company's capital expenditures at Majestic Star were $5,182,000, which included
$3,600,000 for slot machines and other gaming equipment, $505,000 for
construction in progress, $302,000 for furniture and equipment, $239,000 for
computer equipment and software, $158,000 for leasehold improvements, and
$134,000 for vessel and barge improvements. These capital expenditures include
an additional $2,204,000 for the settlement of disputed use tax payments
associated with the chartered vessel and the subsequent construction of the
permanent vessel. The Company also made a capital contribution of $359,000 to
BHR during the year ended December 31, 2002.
The Company, including the accounts of Majestic Investor, LLC, has met
its capital requirements to date through net cash from operations. For the year
ended December 31, 2002, net cash provided by operating activities totaled
$21,305,000, compared to net cash provided by operating activities of
$12,411,000 during the year ended December 31, 2001. At Majestic Star for the
year ended December 31, 2002, net cash provided by operating activities totaled
$8,960,000 and cash used by investing activities totaled $5,652,000, compared to
$8,840,000 provided by operating activities and $4,393,000 used in investing
activities, during the year ended December 31, 2001. At the Majestic Star for
the year ended December 31, 2002, cash used in financing activities totaled
$2,965,000, compared to $8,778,000 used in financing activities during the year
ended December 31, 2001. As of March 31, 2003, there are no outstanding
borrowings under the Majestic Star Credit Facility and Investor Holdings Credit
Facility.
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 the Senior Secured Notes, lease payments
to BHPA and other permitted indebtedness for at least the year 2003. No
assurance can be given, however, that such proceeds and operating cash flow, in
light of increased competition, principally dockside gambling in Illinois and
the purchase of certain Indiana gaming facilities by larger more recognized
brand names, will be sufficient for such purposes. If necessary and to the
extent permitted
23
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.
New Accounting Principles
In August 2001, the Financial Accounting Standards Board issued
Statement No. 143 ("SFAS 143"), "Accounting for Obligations Associated with the
Retirement of Long-Lived Assets". Under SFAS No. 143, the fair value of a
liability for an asset retirement obligation is required to be recognized in the
period in which it is incurred if a reasonable estimate of fair value can be
made. The associated asset retirement costs are capitalized as part of the
carrying amount of the long-lived asset. SFAS 143 is effective for fiscal years
beginning after June 15, 2002. Adoption of SFAS No. 143 is not anticipated to
have a material impact on our financial condition, results of operations or cash
flows.
In April 2002, the Financial Accounting Standards Board issued SFAS 145.
SFAS 145 addresses the presentation for gains and losses on early retirements of
debt in the statement of operations. SFAS 145 is effective for fiscal years
beginning after May 15, 2003. Adoption of SFAS 145 is not anticipated to have a
material impact on our financial condition, results of operations or cash flows.
In June 2002, the Financial Accounting Standard Board issued Statement 146
("SFAS 146") "Accounting for Costs Associated with Exit or Disposal Activities."
The provisions of SFAS 146 become effective for exit or disposal activities
commenced subsequent to December 31, 2002 and the Company does not expect any
impact on its financial condition, results of operations or cash flows.
In November 2002, the Financial Accounting Standards Board issued FASB
Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others." This interpretation elaborates on the disclosures to be made by a
guarantor in its interim and an annual financial statement about its obligations
under certain guarantees that is has issued. It also clarifies (for guarantees
issued after January 1, 2003) that a guarantor is required to recognize at the
inception of a guarantee, a liability for the fair value of the obligations
undertaken in issuing the guarantee. At December 31, 2002, the Company does not
have any guarantees outside of its consolidated group and accordingly does not
expect the adoption of FIN 45 to have a material impact on its financial
condition, results of operations or cash flows. Disclosures concerning
guarantees are found in Notes 10 and 17 to our audited financial statements.
In January 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities
("VIE")". This interpretation addresses the requirements for business
enterprises to consolidate related entities in which they are determined to be
the primary economic beneficiary as a result of their variable economic
interests. The interpretation is intended to provide guidance in judging
multiple economic interest in an entity and in determining the primary
beneficiary. The interpretation outlines disclosure requirements for VIEs in
existence prior to January 31, 2003, and outlines consolidation requirements for
VIEs created after January 31, 2003. The Company has reviewed its major
relationships and its overall economic interests with other companies consisting
of related parties, companies in which it has an equity position and other
suppliers to determine the extent of its variable economic interest in these
parties. The review has not resulted in a determination that the Company would
be judged to be the primary economic beneficiary in any material relationships,
or that any material entities would be judged to be Variable Interest Entities
of the Company. The Company believes it has appropriately reported the economic
impact and its share of risks of its commercial relationships through its equity
accounting along with appropriate disclosure of its other commitments.
24
Critical Accounting Policies
Our consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America, which
requires our management to make estimates and assumptions about the effects of
matters that are inherently uncertain. We have summarized our significant
accounting policies in Note 2 to our consolidated financial statements. Of our
accounting policies, we believe the following may involve a higher degree of
judgment and complexity.
Revenue Recognition - Casino revenues is the net win from gaming
activities, which is the difference between gaming wins and losses. Hotel and
other revenue are recognized at the time the related service is performed.
Goodwill and Other Intangible Assets - We have approximately $5.9
million of goodwill and $17.7 million of other intangibles assets recorded on
our balance sheet at December 31, 2002, related to the acquisition of the
Fitzgeralds properties. We regularly evaluate our acquired businesses for
potential impairment indicators. Additionally, we adopted the provisions of SFAS
No. 142, "Goodwill and Other Intangible Assets," on January 1, 2002, that
require us to perform impairment testing at least annually. Our judgments
regarding the existence of impairment indicators are based on, among other
things, the regulatory and market status and operational performance of each of
our acquired businesses. Future events could significantly impact our judgments
and any resulting impairment loss could have a material adverse impact on our
financial condition and results of operations.
Property and Equipment - At December 31, 2002, we have approximately
$164.8 million of net property and equipment recorded on our balance sheet.
Third-party valuations were obtained for property and equipment and intangible
assets acquired in connection with the Fitzgeralds acquisitions. We depreciate
our assets on a straight-line basis over their estimated useful lives. The
estimate of the useful lives is based on the nature of the asset as well as our
current operating strategy. Future events, such as property expansions, new
competition and new regulations, could result in a change in the manner in which
we are using certain assets requiring a change in the estimated useful lives of
such assets. In assessing the recoverability of the carrying value of property
and equipment, we must make assumptions regarding estimated future cash flows
and other factors. If these estimates or the related assumptions change in the
future, we may be required to record impairment charges for these assets.
Casino Club Liability - The Fitzgeralds casinos offer a program whereby
participants can accumulate points for casino wagering that can currently be
redeemed for cash, lodging, food and beverages and merchandise. A liability is
recorded for the estimate of unredeemed points based upon the Fitzgeralds
casinos' redemption history. Changes in the program, increases in membership and
changes in the redemption patterns of the participants can impact this
liability.
Self-Insurance - The Company maintains accruals for their self-insured
health program, which is classified in other accrued liabilities in the
consolidated balance sheet. Management determines the estimates of these
accruals by periodically evaluating the historical expenses and projected trends
related to these accruals. Actual results may differ from those estimates.
Litigation, Claims and Assessments - We also utilize estimates for
litigation, claims and assessments. These estimates are based upon our knowledge
and experience about past and current events and also upon reasonable future
events. Actual results may differ from those estimates.
25
Contractual Commitments:
The following table summarizes our consolidated obligations and
commitments to make future payments under certain contracts, including long-term
debt obligations, capitalized leases and operating leases at December 31, 2002.
Payments Due By Year
Contractual Obligations 2003 2004 2005 2006 2007 Thereafter Total
------------------------------------------------------------------------------------------------
Long Term Debt $ 134,084 $ 84,984 $ 30,082 $128,879,771 $145,531,448 $ - $274,660,369
Capital Leases - - - - - - $ -
Operating Leases 1,922,915 1,550,269 1,500,130 1,477,845 1,477,845 10,929,895 $ 18,858,899
------------------------------------------------------------------------------------------------
Total $2,056,999 $1,635,253 $1,530,212 $130,357,616 $147,009,293 $10,929,895 $293,519,268
Payments Due By Year
Other Commercial Commitments 2003 2004 2005 2006 2007 Thereafter Total
------------------------------------------------------------------------------------------------
Lines of Credit $ - $ - $ - $ - $ - $ - $ -
------------------------------------------------------------------------------------------------
Total $ - $ - $ - $ - $ - $ - $ -
FACTORS THAT MAY AFFECT FUTURE RESULTS
Risks Related to Our Substantial Debt
Our significant indebtedness could adversely affect our financial health.
We have a significant amount of debt. We currently have outstanding
$130.0 million of long-term debt represented by the Majestic Star Senior Secured
Notes and $151.8 million of long-term debt represented by the Investor Holdings
Senior Secured Notes. In addition, the Majestic Star Indenture will permit us to
incur additional debt in certain circumstances, including financing the purchase
of furniture and equipment.
Our high level of debt could have significant effects on our business.
For example, it could, among other things:
. make it more difficult for us to satisfy our obligations with
respect to the Majestic Star Senior Secured Notes and our
other outstanding indebtedness;
. increase our vulnerability to adverse economic and industry
conditions or a downturn in our business;
. result in an event of default if we fail to comply with the
financial and other restrictive covenants contained in the
Majestic Star Indenture or in the Majestic Star Credit
Facility, which event of default could result in all of our
indebtedness becoming immediately due and payable and would
permit some or all of our lenders to foreclose on our assets
securing such indebtedness;
. limit our ability to fund or obtain additional financing for
future working capital, capital expenditures and other general
financial requirements;
26
. require us to dedicate a substantial portion of our cash flow
from operations to payments on our indebtedness, thereby
reducing the availability of our cash flow to fund working
capital, capital expenditures, development projects,
acquisitions and other general corporate purposes;
. limit our flexibility in planning for, or reacting to, changes
in our business and industry; and
. place us at a competitive disadvantage compared to our
competitors that have less debt.
The occurrence of any one of these events could have a material adverse
effect on our business, financial condition, results of operations and
prospects.
We may not be able to generate sufficient cash flow to service our debt.
We might not be able to generate sufficient cash flow to service our
debt, to repay the Majestic Star Senior Secured Notes when due or to meet
unanticipated capital needs or shortfalls in our projections. We plan to be able
to service our debt and repay the Majestic Star Senior Secured Notes when due
with cash from operations. Our ability to generate sufficient cash flow to
satisfy our obligations will depend on the future performance of our gaming
operations, which is subject to many economic, political, competitive,
regulatory and other factors that we are not able to control. However, if cash
flows from operations are not sufficient to satisfy our obligations, we may need
to seek additional financing in the debt or equity markets, refinance the
Majestic Star Senior Secured Notes, sell selected assets or reduce or delay
planned activities and capital expenditures. Any such financings or sale of
assets might not be available on economically favorable terms, if at all, and
may be difficult because of governmental restrictions on ownership. In the event
that we are left without sufficient liquidity to meet our debt service
requirements, an event of default would occur under the Majestic Star Indenture
and the Majestic Star Credit Facility. The Majestic Star Senior Secured Notes
and the Majestic Star Credit Facility are secured by substantially all of the
Majestic Star casino's current and future assets.
The Majestic Star Indenture and the Majestic Star Credit Facility contain
covenants that significantly restrict our operations.
The Majestic Star Indenture and the Majestic Star Credit Facility does,
and any other future debt agreement will, contain numerous covenants imposing
financial and operating restrictions on our business. These restrictions may
affect our ability to operate our business, limit our ability to take advantage
of potential business opportunities as they arise and adversely affect the
conduct of our current business. These covenants will place restrictions on our
ability and the ability of our subsidiaries to, among other things:
. incur more debt;
. pay dividends, redeem or repurchase our stock or make other
distributions;
. make acquisitions or investments;
. use assets as security in other transactions;
27
. enter into transactions with affiliates;
. merge or consolidate with others;
. dispose of assets or use asset sale proceeds;
. create liens on our assets; and
. extend credit.
The Majestic Star Credit Facility also requires us to meet a number of
financial ratios and tests. Our ability to meet these ratios and tests and to
comply with other provisions governing our indebtedness may be adversely
affected by our operations and by changes in economic or business conditions or
other events beyond our control.
We may be unable to retain management at Majestic Star or the three Fitzgeralds
casinos.
The Company retains management and key executives through a combination
of programs and techniques including, employment agreements, performance based
compensation, and other types of incentives and benefit packages. The Company
does not award stock or stock options.
A number of current members of management and key executives are under
employment contracts. Some contracts expire in 2003. While the Company will make
every reasonable effort to maintain those management and key executives that are
viewed as valuable to the operations of Majestic Star Casino and the Fitzgeralds
properties, there can be no assurance as to our success. Though we will attempt
to fill vacated management and key executive positions determined as necessary
to our operations, there can be no estimate as to the time frame in filling
these positions. Any delays in filling these positions could have a materially
negative impact to our operations and financial results.
We face significant competition in each market where we operate.
We face intense competition in each of the markets in which our gaming
facilities are located. Many of our competitors have significantly greater name
recognition and financial, marketing and other resources than we do. Our
properties compete principally with other gaming properties in or near
California, Illinois, Indiana, Nevada, Mississippi and Colorado. In some of
these jurisdictions, competition is expected to intensify as new gaming
operations enter these markets and existing competitors consolidate with one
another or expand or enhance their operations. In addition, we compete with
gaming facilities nationwide, including casinos located on Indian reservations
and other land-based casinos in Nevada and Atlantic City, as well as elsewhere,
not only for customers but also for employees and potential future gaming sites.
We also compete, to some extent, with other forms of gaming on both a local and
national level, including state-sponsored lotteries, Internet gaming, on-and
off-track wagering and card parlors. The expansion of legalized gaming to new
jurisdictions throughout the United States also has increased competition faced
by us and will continue to do so in the future. Additionally, if gaming were
legalized in jurisdictions near our properties where gaming currently is not
permitted, we would face additional competition.
Increased competition may require us to make substantial capital
expenditures to maintain and enhance the competitive positions of our
properties, including updating slot machines to reflect changing technology,
refurbishing rooms and public service areas periodically, replacing obsolete
equipment on an ongoing basis and making other expenditures to increase the
attractiveness and add to the appeal of our properties. Because we are highly
leveraged, after satisfying our obligations under our outstanding
28
indebtedness, there can be no assurance that we will have sufficient funds to
undertake these expenditures or that we will be able to obtain sufficient
financing to fund such expenditures. If we are unable to make such expenditures,
our competitive position and our results of operations could be materially
adversely affected.
Extensive government regulation continuously impacts our operations.
The ownership, management and operation of gaming facilities is subject
to extensive laws, regulations and ordinances that are administered by various
federal, state and local government entities and agencies. The gaming
authorities located in the jurisdictions in which we operate have broad
authority and discretion to require us and our officers, directors, managers,
members, employees and certain security holders to obtain various licenses,
registrations, permits, findings of suitability and other approvals. To enforce
applicable gaming regulations, gaming authorities may, among other things,
limit, suspend or revoke the licenses of any gaming entity or individual, and
may levy fines or forfeiture of assets against us or individuals for violations
of gaming laws or regulations. Any of these actions would have a material
adverse effect on us.
Government regulations require us to:
. pay gaming fees and taxes in each state where we operate a casino;
. obtain a gaming license in each state where we operate a casino,
which we must have renewed periodically and which may be suspended or
revoked if we do not meet detailed regulatory requirements;
. receive and maintain federal and state environmental approvals; and .
. receive and maintain local licenses to sell alcoholic beverages in
our casinos.
No assurances can be given that any new gaming licenses, liquor
licenses, registrations, findings of suitability, permits and approvals,
particularly those related to any proposed expansion, will be given or that
existing ones will be renewed when they expire. We know of no reason why our
existing gaming licenses would not be renewed or maintained, or why new licenses
would not be granted to us; however, any failure to renew or maintain our
licenses or receive new licenses when necessary would have a material adverse
effect on us.
The compliance costs associated with these laws, regulations and
licenses are significant. A change in the laws, regulations and licenses
applicable to our business or a violation of any current or future laws or
regulations of our gaming licenses could require us to make material
expenditures or could otherwise materially adversely affect our business or
financial results.
Legislation at local referenda on gaming may restrict or adversely impact our
operations.
The casino entertainment industry is subject to political and
regulatory uncertainty. In some of the jurisdictions in which we currently
operate or from which we attract customers, or in which we may expand, gaming is
subject to local referenda. If the results of a referendum held in a
jurisdiction in which we operate were to restrict gaming in whole or in part or
if the results of a referendum in a nearby non-gaming jurisdiction were to
permit gaming, our results of operations could be negatively impacted. Many of
our employees belong to unions; any labor disruptions, work stoppages or
significant union imposed wage increases could have an adverse impact on our
business.
As of December 31, 2002, the Majestic Star Casino employed
approximately 1,006 people and the BHR Joint Venture employed approximately 224
people. Any labor disruptions or work stoppages could
29
have a material adverse effect on our operations. A significant number of such
employees are unionized.
Energy price increases may adversely affect our costs of operations and our
revenues.
Our casino properties use significant amounts of electricity, natural
gas and other forms of energy. While no shortages of energy have been
experienced, the recent substantial increases in the cost of electricity and
petroleum-based products in the United States will negatively affect our
operating results. The extent of the impact is subject to the magnitude and
duration of the energy price increases, but this impact could be material. In
addition, energy price increases in cities that constitute a significant source
of customers for our properties could result in a decline in disposable income
of potential customers and a corresponding decrease in visitation to our
properties, which could negatively impact our revenues.
The casino industry generally is dependent on a number of factors that are
beyond our control.
The economic health of the casino industry is affected by a number of
factors that are beyond our control, including: (i) general economic conditions;
(ii) levels of disposable income of casino patrons; (iii) increased
transportation costs resulting in decreased travel by patrons; (iv) local
conditions in key gaming markets, including seasonal and weather-related
factors; (v) increase in gaming taxes or fees; (vi) competitive conditions in
the gaming industry and in particular gaming markets, including the effect of
such conditions on the pricing of our games and products; and (vii) the relative
popularity of entertainment alternatives to casino gaming that compete for the
leisure dollar. Any of these factors could negatively impact the casino industry
generally, and as a result, our revenues and results of operations.
The recent war with Iraq and any future occurrences of terrorist or other
destabilizing events, could negatively affect our revenues and cash flow.
Recent military action, the prospects of extended military action and
the fear of domestic terrorism has resulted in a decline in vacation travel and
tourism. The magnitude and duration of these effects is unknown and cannot be
predicted. Any decline in vacation travel and tourism could adversely affect our
revenues, particularly with respect to Fitzgeralds Las Vegas, where the majority
of our customers rely on air travel to visit our casino property. Continued or
even worsening negative market conditions related to any future occurrences of
terrorist actions or other destabilizing events, and other actions that
perpetuate a climate of war could cause existing and potential customers to
further delay and cancel travel, convention and vacation plans, could decrease
wagering and increase costs, and as a result could adversely affect our revenues
and cash flow in the future.
We are prohibited by the Majestic Star Indenture from engaging in certain
transactions with Investor and Investor Holdings.
We are prohibited from engaging in transactions with Investor, Investor
Holdings and its subsidiaries other than on an arms length basis and, if a
proposed transaction exceeds $2.0 million in value, we may only participate in
such transaction with the approval of a majority of the disinterested members of
our board of managers or following receipt of a written fairness opinion from a
nationally recognized investment banking firm stating that the transaction is
fair to us from a financial point of view. Such restrictions could have an
adverse effect on us by limiting our ability to engage in transactions with
Investor, Investor Holdings and its subsidiaries, which could potentially impact
any synergies we realize from the Fitzgeralds acquisition.
Any failure by the Joint Venture Partner to fund operations or make
lease payment, or any significant conflicts between our Joint Venture Partner
and us could have an adverse effect on the operations of the Buffington Harbor
Gaming Complex, which would adversely affect our business.
30
In 1995, we formed the BHR Joint Venture with the Joint Venture Partner
to develop and operate the dockside pavilion and common areas of the Buffington
Harbor Gaming Complex. Efficient operation of the BHR Joint Venture to support
our casino will depend upon our continuing ability, as well as that of our Joint
Venture Partner, to fund day-to-day operations and agree on related business
matters. In addition, the Joint Venture Partner is required to make lease
payments related to the parking facility and we receive a 50% credit towards our
lease obligations. Any failure by the Joint Venture Partner to fund operations
of the BHR Joint Venture when required or make the lease payments related to the
parking facility (including its obligations under the BHPA lease), or any
significant conflict in this relationship that is not promptly resolved, would
adversely affect the operations of the gaming complex. A significant disruption
in the business of the gaming complex is likely to adversely affect the
operations of the Majestic Star Casino and our ability to generate revenues.
Many factors affecting the labor pool in Indiana could increase our labor costs
We are dependent upon the available labor pool of unskilled and
semi-skilled employees. We are also subject to the Fair Labor Standards act,
which governs such matters as minimum wage, overtime and other working
conditions. In addition, our agreement with the City of Gary, Indiana, requires
us to use our best efforts to have an employee base comprised of 70% racial
minorities, 52% females, 67% residents of the City of Gary and 90% residents of
Lake County, Indiana. A shortage in the labor pool, especially in the City of
Gary and in Lake County, or other general inflationary pressures or changes in
applicable state or federal minimum wage or other labor laws, could result in
increased labor costs to us.
We are subject to potential exposure to environmental liabilities
The Buffington Harbor Gaming Complex is located on a site where prior
industrial operations and activities may have resulted in contamination of the
environment. As the owner and operator of the Majestic Star Casino and a member
of the BHR Joint Venture, we could be held responsible for the costs of
addressing any contamination. Our liability under applicable environmental laws
may be imposed without regard to whether we knew of, or were responsible for,
the presence of hazardous substances and, in some cases, may not be limited to
the value of the affected property. There can be no assurance that further
development of the facility, or of a new harbor, and the related construction,
will not identify environmental contamination. If this were to occur, the costs
of remediation or the disruption to our business could adversely affect our
operations and may also adversely affect our ability to sell, lease or operate
the property or to borrow against it. Neither the BHR Joint Venture nor we is
entitled to indemnification from any prior owners or operators of the site with
respect to environmental matters.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not have any financial instruments held for
traditional purposes, such as trading or other speculative purposes, and does
not hedge any of its market risks with derivative instruments.
The Company's primary market risk exposure relates to interest risk
exposure through its borrowings and third-party financing, including the
Majestic Star Credit Facility, under which any interest accrues on a floating
rate basis. These sources of credit, along with cash flow from operations, are
used to maintain liquidity and fund business operations. The Company typically
replaces borrowings under its third-party vendor financing, as necessary, with
shorter termed variable rate financing generally secured by the assets being
acquired. The nature and amount of the Company's debt may vary as a result of
future business requirements, market conditions and other factors.
The Majestic Star Credit Facility has a maximum credit line of $20.0
million. Assuming we have borrowed against the maximum available under the
Majestic Star Credit Facility, a one-half percentage
31
point change in the underlying variable rate would result in a change in related
interest expense of $100,000. Additionally, should we assume variable rate debt
in the future, we will be subject to market risk, which is the risk of loss from
changes in market prices and interest rates.
At March 31, 2003, Majestic Star had no outstanding borrowings under
its credit facility.
In addition, we have approximately $130.0 million principal amount of
notes outstanding under the Majestic Star Indenture. Our fixed rate debt
instruments are not generally affected by a change in the market rates of
interest and therefore, such instruments generally do not have an impact on
future earnings. However, as our fixed rate debt matures, future earnings and
cash flows may be impacted by changes in interest rates related to debt incurred
to fund repayments under maturing facilities.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 15(a) of this Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The following table sets forth certain information with respect to the
executive officers of the Company as of December 31, 2002. The Company does not
have directors since it is a limited liability company.
Name and Age Position(s) Held
- ------------ ----------------
Don H. Barden, 59 Chairman, President and Chief Executive Officer
Michael E. Kelly, 41 Executive Vice President, Chief Operating Officer
and Secretary
Jon S. Bennett, 42 Vice President and Chief Financial Officer
Don H. Barden, is the Manager, Chairman, President and Chief Executive
Officer of the Company and, since November 16, 1993, Chairman and President of
BDI, with responsibility for key policy-making functions. Since their
formations, Mr. Barden is also President and Chief Executive Officer of Investor
and Manager of Investor Holdings; Barden Colorado Gaming, LLC; Barden
Mississippi Gaming LLC; and Barden Nevada Gaming, LLC; Chairman, President and
Chief Executive Officer of Investor Holdings, Majestic Investor Capital Corp.
("Investor Capital"), Barden Colorado Gaming, LLC, Barden Mississippi Gaming,
LLC and Barden Nevada Gaming, LLC. Mr. Barden also has served as a director of
Investor Capital since its formation. Additionally, he is the President and
Chief Executive Officer of a group of other companies he owns and/or operates.
Over the past 35 years, Mr. Barden has successfully developed, owned and
operated many business enterprises in various industries including real estate
development, casino gaming, broadcasting, cable television and international
trade.
32
Michael E. Kelly, is the Manager, Executive Vice President, Chief
Operating Officer and Secretary of the Company since January 1, 1999, with
overall responsibility for the daily operations. Mr. Kelly also served as Chief
Financial Officer from April 1996 to October 2002. From April 1996 through
December 31, 1998, Mr. Kelly was the Vice President and Chief Financial Officer
of the Company with overall responsibility for the Company's financial reporting
and investor relations functions. Mr. Kelly assumed the responsibility for
management of daily operations and related activities of the Company effective
October 17, 1998. From October 1998 through October 2001, Mr. Kelly also served
as the Company's General Manager. Mr. Kelly is a Vice President of BDI since
April 1996 and director of Majestic Investor Capital Corp. since its formation.
Since their formation, Mr. Kelly is also Executive Vice President, Chief
Operating Officer of Investor; Manager of Investor Holdings, and Barden
Mississippi Gaming, LLC; Executive Vice President, Chief Operating Officer and
Secretary of Investor Holdings, Investor Capital, Barden Colorado Gaming, LLC,
Barden Mississippi Gaming, LLC and Barden Nevada Gaming, LLC; Director of
Majestic Investor Capital Corp. From 1982 to 1996, Mr. Kelly was employed in
various senior finance and administrative functions by Harrah's Hotel & Casino
in New Jersey and Nevada, by Fitzgeralds Gaming Corporation and by Empress River
Casino Corporation and its affiliates.
Jon S. Bennett, is the Vice President and Chief Financial Officer of the
Company since October 21, 2002 with overall responsibility for all aspects of
the Company's financial management, accounting and reporting processes. Mr.
Bennett is also the Vice President and Chief Financial Officer for Investor
Holdings, Majestic Investor, Majestic Star Capital, Majestic Investor Capital,
Barden Mississippi Gaming LLC, Barden Colorado Gaming LLC and Barden Nevada
Gaming LLC. Prior to Mr. Bennett's appointment as Vice President and Chief
Financial Officer, Mr. Bennett was Vice President of Finance and Administration
for Barden Mississippi Gaming LLC from the acquisition, December 6, 2001 to the
date of his promotion, October 21, 2002. Mr. Bennett has held various positions
with Fitzgeralds Gaming Corporation, including Vice President of Finance and
Administration for Fitzgeralds Tunica from April 30, 1997 to December 5, 2001
and Director of Finance for three Fitzgeralds properties located in Reno,
Nevada. Mr. Bennett was also Chief Financial Officer for Peppermill Casinos,
Inc. from May, 1995 to April, 1997.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth all compensation earned for services
performed for Majestic Star, Investor and, following its formation in September
of 2001, Investor Holdings and each of its subsidiaries, during the fiscal year
ended December 31, 2002, 2001 and 2000 by our Chief Executive Officer and our
other executive officers (collectively the "Named Executive Officers"). All
compensation is paid by the Company.
33
Summary Compensation Table
Annual
Compensation (1) All Other
Name and Position Year Salary Bonus Compensation (2)
----------------- ---- ------ ----- -----------------
Don H. Barden (3) 2002 $ 370,000 $ - $ 124,533
Chairman, President and Chief 2001 332,788 - 1,271
Executive Officer 2000 331,250 - 920
Michael E. Kelly (3) 2002 $ 423,077 $ 50,000 $ 72,370
Executive Vice President, Chief 2001 296,635 175,000 24,901
Operating and Secretary 2000 280,000 100,000 18,589
Jon S. Bennett (3) 2002 $ 212,716 $ 43,000 $ 3,433
Vice President and 2001 - - -
Chief Financial Officer 2000 - - -
Notes:
1. The incremental cost to the Company of providing perquisites and other
personal benefits did not exceed, as to any "Named Executive Officer,"
the lesser of $50,000 or 10% of the total salary and bonus paid to such
executive officer for any such year and, accordingly, is omitted from
the table.
2. In 2002, the Company contributed a 401(k) match of $12,900 to Mr. Kelly.
Mr. Kelly was also reimbursed $5,000 for non-deductible medical plan
expenditures. In 2002, life insurance premiums of $124,533 and $3,324
were paid on behalf of Messrs. Barden and Kelly, respectively. In 2002,
the Company paid Mr. Kelly $38,511 for relocation expenses and $12,635
for automobile allowance. Mr. Kelly's salary in 2002 includes $23,077
for unused vacation for 2001. In 2002, Majestic Star contributed a
401(k) match of $3,433 to Mr. Bennett.
In 2001, the Company contributed a 401(k) match of $17,530 to Mr. Kelly,
and Mr. Kelly was also reimbursed by the Company $4,647 for
non-deductible medical plan expenditures. In 2001, life insurance
premiums of $1,271 and $2,724 were paid by the Company on behalf of
Messrs. Barden and Kelly, respectively.
In 2000, the Company contributed a 401(k) match of $11,520 to Mr. Kelly,
and Mr. Kelly was also reimbursed by the Company $5,045 for
non-deductible medical plan expenditures. In 2000, life insurance
premiums of $920 and $2,024 were paid by the Company on behalf of
Messrs. Barden and Kelly, respectively.
3. All compensation for Messrs. Barden, Kelly and Bennett is paid by the
Company, but a portion of such compensation is reimbursed by Investor
Holdings through an expense sharing agreement. See Item 13 - "Certain
Relationships and Related Transactions."
Employment Agreements
Mr. Barden serves as our Chairman, President and Chief Executive
Officer and currently receives annual compensation of $370,000 as an employee,
pursuant to a letter agreement dated October 22, 2001 with the Company.
Mr. Kelly serves as our Executive Vice President, Chief Operating
Officer and Secretary pursuant to a three-year employment agreement with the
Company dated October 22, 2001. Under this agreement, Mr. Kelly will receive
base compensation of $400,000 per year and can also earn annual incentive
compensation based upon his performance and the consolidated Company's
performance. In addition to such compensation, Mr. Kelly is entitled to term
life insurance in an amount equal to $2.5 million and other customary employee
benefits, including participation in the Company's 401(k) plan, together with a
$100,000 signing bonus and an interest-free loan in the amount of $200,000 to be
repaid in three equal annual installments. Mr. Kelly is also entitled to
additional compensation, upon a change in control, equal to his base salary and
incentive compensation for the remainder of the term of the agreement, plus 12
months thereafter. Mr. Kelly's employment agreement contains certain
non-competition provisions with a
34
duration of 12 months following termination of his employment.
Mr. Bennett serves as our Vice President and Chief Financial Officer
pursuant to a two-year employment agreement with Majestic Star dated October 21,
2002. Under this agreement, Mr. Bennett will receive base compensation of
$250,000, subject to annual reviews, and can also earn bonuses subject to the
discretion of the President and Chief Executive Officer and Executive Vice
President and Chief Operating Officer. In addition to such compensation, Mr.
Bennett is entitled to term life insurance in an amount equal to $1.0 million
and other customary employee benefits, including participation in the Company's
401(k) plan and reimbursement of relocation expenses. Mr. Bennett is also
entitled to additional compensation upon a change in control, equal to the
remaining amount due under his employment agreement plus six months of his
annual salary following the expiration of his current employment agreement. Mr.
Bennett's employment agreement contains certain non-competition provisions with
a duration of 12 months if Mr. Bennett should voluntarily terminate his
employment within 18 months of the commencement date of his employment
agreement.
Compensation Committee Interlocks and Insider Participation
The Company has no standing Compensation Committee. All compensation
decisions are made by BDI, the sole manager of the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The Company is indirectly wholly-owned by Don H. Barden, its Chairman,
President and Chief Executive Officer.
The following table sets forth certain information, as of the date
hereof, with regard to the beneficial ownership of the membership interests in
the Company.
Name and Address of Beneficial Owner % Ownership
------------------------------------ -----------
Don H. Barden 100.0% (1)
163 Madison Avenue, Suite 2000
Detroit, Michigan 48226
(1) Includes the membership interests in the Company beneficially owned
directly by BDI. Mr. Barden is the beneficial owner of 100% of BDI.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Loans to Related Parties
In December 2001, Investor Holdings issued a $700,000 note to BDI. The
note bears interest at a rate of 7% per annum and was paid in full, with accrued
interest, on March 17, 2003.
During 2001, Majestic Star made a $300,000 employee loan to Mr. Barden.
This loan bears interest at a rate of 7% per annum through December 12, 2002,
increasing to 10% thereafter. On March 17, 2003 a partial payment was made
leaving $84,089 of principal and $28,750 of interest outstanding as of the
partial payment date.
On January 31, 2002, Majestic Star made a $200,000 employee loan to Mr.
Kelly. This loan bears no
35
interest and is due and payable in full on January 31, 2005. As of March
31, 2003, the outstanding balance is $133,000.
LLC Manager Agreement
A LLC Manager Agreement was entered into on June 18, 1999 with BDI to
provide for, among other things, BDI to act as our manager. Distributions of
profits to BDI are limited under the terms of the Indenture governing the
Majestic Star Senior Secured Notes. The distributions for each fiscal quarter
cannot exceed 5% of the Company's Consolidated Cash Flow (as defined in the
Indenture for the Majestic Star Senior Secured Notes) for the immediately
preceding fiscal quarter and may not be paid if the Company is in default under
the Majestic Star Indenture or if the Company does not meet certain financial
ratios as provided in such Indenture.
During the twelve months ended December 31, 2002, Majestic Star made
distributions of approximately $3.0 million to BDI. These distributions were
made in accordance with the LLC Manager Agreement between the Company and BDI
dated June 18, 1999.
During the twelve months ended December 31, 2002, Investor Holdings made
distributions of approximately $2.5 million to BDI. These distributions were
made in accordance with the LLC Manager Agreement between Investor Holdings and
BDI dated December 5, 2001.
Expense Sharing Agreement
Pursuant to an expense sharing agreement entered into on October 22,
2001, Investor Holdings will reimburse the Company for sixty percent (60%) of
(i) the costs and expenses of executives and certain other employees, including,
but not limited to, salaries, bonuses, benefit payments, insurance and supplies,
(ii) rent and (iii) other similar costs and expenses paid by the Company. These
executives and employees will provide services to both the Company and to
Investor Holdings and its subsidiaries. Currently, due to restrictions set forth
in the Investor Holdings Indenture, the reimbursement percentage is capped at
fifty percent (50%) up to an aggregate of $1.7 million.
Naming Rights Agreement
Gary New Century, LLC ("GNC"), a company wholly-owned by Mr. Barden,
intends to develop an outdoor amphitheater on property it owns adjacent to the
Company's riverboat gaming facility. The Company entered into a Naming Rights
Agreement with GNC effective as of October 31, 2001. Pursuant to the Naming
Rights Agreement, GNC agreed to use the name "The Majestic Star Amphitheater" as
the name of the amphitheater and the Company paid GNC $1.5 million during 2001
for such rights. The initial term of the Naming Rights Agreement is three years
commencing on the opening of the amphitheater.
ITEM 14. CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this report, the Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, including its Chief Executive Officer and Chief
Financial Officer, of the effectives of the design an operation of the Company's
disclosure controls and procedures pursuant to Rule 15d-15 of the Securities
Exchange Act of 1934. Based upon that evaluation, the Company's Chief Executive
Officer and Chief Financial Officer concluded that the Company's disclosure
controls and procedures are adequate and effective. There have been no
significant changes in the Company's internal controls or in other factors which
could significantly affect internal controls subsequent to the date the Company
carried out its evaluation.
36
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements as listed on Page F-1.
2. Financial Statement Schedule as listed on Page F-1.
3. Exhibits: The exhibits included as part of this report are listed in
the attached Exhibit Index on Page E-1, which is incorporated herein
by reference.
(b) Reports on Form 8-K:
None.
(c) Exhibits:
The exhibits included as part of this report are listed in the attached
Exhibit Index, which is incorporated herein by reference.
37
THE MAJESTIC STAR CASINO, LLC
INDEX OF FINANCIAL STATEMENTS
THE MAJESTIC STAR CASINO, LLC
Report of Independent Accountants F-2
Consolidated Balance Sheets as of December 31, 2002 and 2001 F-3
Consolidated Statements of Operations for the years ended December 31, 2002, 2001 and 2000 F-4
Consolidated Statements of Changes of Members' Deficit for the years ended December 31, 2002, 2001 and 2000 F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000 F-6
Notes to the Consolidated Financial Statements F-7
Schedule II - Valuation and Qualifying Accounts F-38
INDEX TO HISTORICAL COMBINED FINANCIAL STATEMENTS OF FITZGERALDS LAS VEGAS,
INC., FITZGERALDS MISSISSIPPI, INC. AND 101 MAIN STREET LIMITED LIABILITY
COMPANY (DEBTORS-IN-POSSESSION)(WHOLLY OWNED SUBSIDIARIES OF FITZGERALDS GAMING
CORPORATION)*
Report of Independent Accountants F-39
Combined Balance Sheets as of December 31, 2000 and December 6, 2001 F-41
Combined Statements of Operations for the years ended December 31, 1999, 2000 and for the period
ended December 6, 2001 F-42
Combined Statements of Stockholder's Deficiency for the years ended December 31, 1999, 2000 and
for the period ended December 6, 2001 F-43
Combined Statements of Cash Flows for the years ended December 31, 1999, 2000 and for the period
ended December 6, 2001 F-44
Notes to the Combined Financial Statements F-46
Supplemental Combining Schedules:
Combining Statement of Operations Information for the Year Ended December 31, 1999 F-67
Combining Statement of Cash Flows Information for the Year Ended December 31, 1999 F-69
Combining Balance Sheet Information at December 31, 2000 F-71
Combining Statement of Operations Information for the Year Ended December 31, 2000 F-73
Combining Statement of Cash Flows Information for the Year Ended December 31, 2000 F-74
Combining Balance Sheet Information at December 6, 2001 F-76
Combining Statement of Operations Information for the Period from January 1, 2001 through December 6, 2001 F-78
Combining Statement of Cash Flows Information for the Period from January 1, 2001 through December 6, 2001 F-79
Schedule II - Valuation and Qualifying Accounts F-81
FINANCIAL STATEMENTS OF BUFFINGTON HARBOR RIVERBOATS, LLC:
Report of Independent Accountants F-82
Balance Sheets at December 31, 2002 and 2001 F-84
Statements of Operations for the years ended December 31, 2002, 2001 and 2000 F-85
Statements of Changes of Members' Capital for the years ended December 31, 2002, 2001 and 2000 F-86
Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000 F-87
Notes to the Financial Statements F-88
F-1
* The Registrant completed the acquisition of the assets of three subsidiaries
of Fitzgeralds Gaming Corporation on December 6, 2001. In order to comply with
Rule 3-02 of Regulation S-X, the historical predecessor financial statements
for Fitzgeralds Las Vegas, Inc., Fitzgeralds Mississippi, Inc. and 101 Main
Street Limited Liability Company are included in this Annual Report on Form
10-K for the year ended December 31, 2002.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Members of
The Majestic Star Casino, LLC:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 15(a)1 on page F-1 present fairly, in all material
respects, the financial position of The Majestic Star Casino, LLC and its
subsidiaries at December 31, 2002 and 2001, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2002, in conformity with accounting principles generally accepted in the
United States of America. In addition, in our opinion, the financial statement
schedule listed in the index appearing under Item 15(a)(2) on page F-1 presents
fairly in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Las Vegas, Nevada
February 23, 2003, except for Note 15,
as to which the date is March 17, 2003
F-2
ITEM 1.
THE MAJESTIC STAR CASINO, LLC
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2002 AND 2001
2002 2001
------------- -------------
ASSETS
Current Assets:
Cash and cash equivalents $ 24,547,881 $ 25,925,291
Restricted cash 250,000 -
Accounts receivable, less allowance for doubtful accounts
of $ 372,689 and $359,702, respectively 2,974,726 3,095,604
Inventories 982,486 995,708
Prepaid expenses 2,921,064 2,190,255
Note receivable due from affiliate 700,000 700,000
Due from Buffington Harbor Riverboats, L.L.C 217,925 333,838
------------- -------------
Total current assets 32,594,082 33,240,696
------------- -------------
Property, equipment and improvements, net 164,809,158 170,195,013
Intangible assets, net 17,691,746 19,290,753
Goodwill 5,922,398 10,602,250
Other Assets:
Deferred financing costs, net of accumulated amortization
of $4,375,528 and $2,202,831, respectively 9,372,067 10,530,426
Investment in Buffington Harbor Riverboats, L.L.C 31,833,311 33,898,771
Restricted cash 1,000,000 1,000,000
Other assets, prepaid leases and deposits 12,587,112 12,317,704
------------- -------------
Total other assets 54,792,490 57,746,901
------------- -------------
Total Assets $ 275,809,874 $ 291,075,613
============= =============
LIABILITIES AND MEMBER'S DEFICIT
Current Liabilities:
Current maturities of long-term debt $ 134,084 $ 6,656,574
Accounts payable 4,048,298 2,978,502
Payroll and related 7,656,515 6,194,601
Accrued interest 1,473,785 8,294,312
Other accrued liabilities 11,895,469 13,036,178
------------- -------------
Total current liabilities 25,208,151 37,160,167
Long-term debt, net of current maturities 274,526,285 273,896,933
------------- -------------
Total Liabilities 299,734,436 311,057,100
Commitments and contingencies 250,000 -
Member's Deficit (24,174,562) (19,981,487)
------------- -------------
Total Liabilities and Member's Deficit $ 275,809,874 $ 291,075,613
============= =============
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
THE MAJESTIC STAR CASINO, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2002, DECEMBER 31, 2001, AND DECEMBER 31, 2000
For the Year Ended For the Year Ended For the Year Ended
December 31, 2002 December 31, 2001 December 31, 2000
------------------ ------------------ ------------------
REVENUES:
Casino $ 293,788,942 $ 132,553,506 $ 115,455,271
Rooms 15,495,620 1,079,456 -
Food and beverage 21,094,121 2,803,706 1,564,684
Other 5,546,624 1,930,561 1,431,304
------------- ------------- -------------
Gross revenues 335,925,307 138,367,229 118,451,259
Less promotional allowances (39,219,124) (8,081,983) (4,689,543)
------------- ------------- -------------
Net revenues 296,706,183 130,285,246 113,761,716
COSTS AND EXPENSES:
Casino 87,159,935 28,213,481 23,787,240
Rooms 9,014,354 628,910 -
Food and beverage 13,553,116 3,024,356 2,402,518
Other 1,559,861 108,732 -
Gaming taxes 51,572,106 34,834,624 32,350,368
Advertising and promotion 20,919,305 8,522,115 8,347,889
General and administrative 51,753,800 24,240,726 23,192,220
Economic incentive - City of Gary 3,980,501 3,667,100 3,230,679
Depreciation and amortization 23,501,577 11,788,356 11,172,350
Loss on disposal of assets 5,219 12,114 416,904
Pre-opening expenses 13,391 1,018,234 -
------------- ------------- -------------
Total costs and expenses 263,033,165 116,058,748 104,900,168
------------- ------------- -------------
Operating income 33,673,018 14,226,498 8,861,548
OTHER INCOME (EXPENSE):
Interest income 193,792 399,752 893,453
Interest expense (32,436,813) (16,028,074) (14,998,377)
Other non-operating expense (183,200) (148,690) (124,503)
------------- ------------- -------------
Total other expense (32,426,221) (15,777,012) (14,229,427)
------------- ------------- -------------
Income (loss) before extraordinary item 1,246,797 (1,550,514) (5,367,879)
EXTRAORDINARY ITEM:
Gain (loss) on bond redemption 68,957 - (382,500)
------------- ------------- -------------
Net income (loss) $ 1,315,754 $ (1,550,514) (5,750,379)
============= ============= =============
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
THE MAJESTIC STAR CASINO, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER'S DEFICIT
For the Years Ended December 31, 2002, December 31, 2001 and December 31, 2000
Capital Accumulated Total
Contributions Deficit Members' Deficit
------------- ------------- ----------------
Balance, December 31, 1999 $ 24,000,000 $ (41,082,984) $ (17,082,984)
Net loss - (5,750,379) (5,750,379)
Distribution to Manager - (597,610) (597,610)
--------------------------------------------------------
Balance, December 31, 2000 24,000,000 (47,430,973) (23,430,973)
Member's contribution 5,000,000 - 5,000,000
Net loss - (1,550,514) (1,550,514)
--------------------------------------------------------
Balance, December 31, 2001 29,000,000 (48,981,487) (19,981,487)
Net income - 1,315,754 1,315,754
Distribution to Manager - (5,508,829) (5,508,829)
--------------------------------------------------------
Balance, December 31, 2002 $ 29,000,000 $ (53,174,562) $ (24,174,562)
========================================================
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
THE MAJESTIC STAR CASINO, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002, DECEMBER 31, 2001, AND DECEMBER 31, 2000
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 2002 DECEMBER 31, 2001 DECEMBER 31, 2000
------------------ ------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,315,754 $ (1,550,514) $ (5,750,379)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation 15,287,877 6,987,173 6,835,778
Amortization 5,789,308 2,003,444 2,277,903
Loss on investment in Buffington Harbor Riverboats, L.L.C 2,424,392 2,797,740 2,058,669
Loss on sale of assets 5,219 12,114 416,904
(Gain) loss on bond redemption (68,957) - 382,500
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 224,482 (440,012) (65,416)
Decrease in inventories 13,222 36,221 13,570
(Increase) decrease in prepaid expenses (1,259,507) (539,246) 405,411
Decrease (increase) in other assets 1,511,208 (470,733) (1,738,980)
Increase (decrease) in accounts payable 873,426 637,465 (69,794)
Increase in accrued payroll and related expenses 1,375,464 203,763 171,458
Decrease (increase) in accrued interest (6,820,527) 1,187,254 (796,202)
Increase in other accrued liabilities 633,362 1,546,616 605,290
------------- ------------- -------------
Net cash provided by operating activities 21,304,723 12,411,285 4,746,712
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for purchase of Fitzgeralds, net of cash received - (143,758,152) -
Payment of acquisition related costs (986,158) - -
Proceeds from seller from purchase price adjustment 3,800,000 - -
Acquisition of property, equipment and improvements (10,396,222) (5,089,848) (3,039,635)
(Increase) decrease in prepaid lease and deposits (113,186) 2,287,437 (98,404)
Purchase of naming rights - (1,500,000) -
(Increase) decrease in restricted cash (250,000) 2,000,000 (2,000,000)
Investment in Buffington Harbor Riverboats, L.L.C (358,918) (214,665) (7,836,489)
Purchase of 49% interest in Gary New Century - - (9,000,000)
Sale of 49% interest in Gary New Century - - 9,000,000
Proceeds from sale of equipment 53,117 1,850 179,200
------------- ------------- -------------
Net cash used in investing activities (8,251,367) (146,273,378) (12,795,328)
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of 12-3/4% Senior Secured Notes - - (6,382,500)
Proceeds from issuance of 11.653% Senior Secured Notes - 145,000,400
Line of credit, net (6,500,000) (1,300,000) 7,800,000
Payment of 11.653% Senior Secured Notes issuance costs (1,523,568) (5,349,230)
Member's equity contribution - 5,000,000
Decrease in restricted cash - - 7,357,874
Cash paid for redemption of 11.653% Senior Secured Notes (759,038) -
Cash paid to reduce long-term debt (139,331) (983,298) (2,154,680)
Issuance of loans to Barden Development, Inc. - (700,000) (6,000,000)
Cash received from loans from Barden Development, Inc. - 2,000,000 4,000,000
Distribution to Barden Development, Inc. (5,508,829) - (597,610)
------------- ------------- -------------
Net cash provided by (used in) financing activities (14,430,766) 143,667,872 4,023,084
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents (1,377,410) 9,805,779 (4,025,532)
Cash and cash equivalents, beginning of period 25,925,291 16,119,512 20,145,044
------------- ------------- -------------
Cash and cash equivalents, end of period $ 24,547,881 $ 25,925,291 $ 16,119,512
============= ============= =============
INTEREST PAID:
Equipment Debt $ 44,667 $ 35,898 $ 237,513
Senior Secured Notes - Fixed Interest 10-7/8% $ 21,206,250 $ 14,137,500 $ 14,648,021
Senior Secured Notes - Fixed Interest 12.75% $ - $ - $ 382,500
Senor Secured Notes - Contingent Interest, 12.75% $ - $ - $ 250,545
Senior Secured Notes - Fixed Interest 11.653% $ 17,702,015 $ - $ -
Lines of credit $ 303,878 $ 423,831 $ 276,000
Indiana Department of Revenue $ - $ 260,374 $ -
SUPPLEMENTAL NONCASH OPERATING AND FINANCING ACTIVITIES:
Elimination of slot based progressives $ 400,000 $ - $ -
Elimination of slot club $ 1,300,000 $ - $ -
Conversion of Investment in Buffington Harbor Riverboats, LLC
to prepaid lease $ - $ 6,213,615 $ -
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation:
The Majestic Star Casino, LLC (the "Company") was formed on December 8, 1993, as
an Indiana limited liability company to provide gaming and related entertainment
to the public. The Company commenced gaming operations in the City of Gary (the
"City") at Buffington Harbor, located in Lake County, in the State of Indiana on
June 7, 1996. Majestic Investor, LLC ("Investor") was formed in September 2000
as an "unrestricted subsidiary" of the Company under the Indenture relating to
the Company's 10-7/8% Senior Secured Notes (the "Majestic Star Senior Secured
Notes"). Investor was initially formed to satisfy the Company's off-site
development obligations under the Development Agreement with the City of Gary.
Investor entered into a definitive purchase and sale agreement dated as of
November 22, 2000, as amended December 4, 2000, with Fitzgeralds Gaming
Corporation and certain of its affiliates (the "Seller") 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. Investor assigned all of its rights and
obligations to Majestic Investor Holdings, LLC, ("Investor Holdings") a
wholly-owned subsidiary of Investor, following the formation of Investor
Holdings. Investor Holdings completed the purchase of the Fitzgeralds assets on
December 6, 2001. The Fitzgeralds brand casinos are "restricted subsidiaries" of
Investor Holdings under the Indenture relating to Majestic Investor Holdings,
LLC's 11.653% Senior Secured Notes (the "Investor Holdings Senior Secured
Notes") and "unrestricted subsidiaries" under the Company's Indenture relating
to the Majestic Star 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 include the accounts of The
Majestic Star Casino, LLC and its wholly-owned subsidiary, Majestic Investor,
LLC. Intercompany transactions are eliminated. Investment in affiliates in which
the Company has the ability to exercise significant influence, but not control,
are accounted for by the equity method.
2. Summary of Significant Accounting Policies:
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All intercompany
balances and transactions have been eliminated in the consolidation.
CASH AND CASH EQUIVALENTS - The Company considers cash equivalents to include
short-term investments with original maturities of ninety days or less. Cash
equivalents are carried at cost plus accrued interest, which approximates fair
value. The Company places its cash primarily in checking and money market
accounts with high credit quality financial institutions, which, at times, have
exceeded federally insured limits.
RESTRICTED CASH - At December 31, 2002 and December 31, 2001 restricted cash of
$1,000,000 represents U.S. Treasury Notes held in an escrow account for the
benefit of certain owners of land leased to Barden Nevada Gaming, LLC. Also, at
December 31, 2002, restricted cash of $250,000 at Investor Holdings secures a
letter of credit for self insured workers compensation at Barden Mississippi
Gaming, LLC and Barden Colorado Gaming, LLC.
F-7
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONCENTRATION OF CREDIT RISK - Financial instruments that potentially subject
the Company to concentrations of credit risk consist principally of casino
accounts receivable. The Company extends credit to approved casino customers
following background checks and investigations of creditworthiness. An estimated
allowance for doubtful accounts is maintained to reduce the Company's
receivables to their carrying amount, which approximates fair value. Management
believes that as of December 31, 2002, no significant concentrations of credit
risk existed for which an allowance had not already been determined and
recorded.
INVENTORIES - Inventories consisting principally of food, beverage, operating
supplies and gift shop items are stated at the lower of cost or market value.
Cost is determined by the first-in, first-out method.
OTHER ASSETS - The estimated cost of normal operating quantities (base stock) of
china, silverware, glassware, linen, uniforms and utensils has been recorded as
an asset and is not being depreciated. Costs of base stock replacements are
expensed as incurred. Other assets in the accompanying consolidated balance
sheets include $1,177,162 and $1,243,910 of base stock inventories at December
31, 2002 and 2001, respectively.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Depreciation
expense is computed utilizing the straight-line method over the estimated useful
lives of the depreciable assets. Certain equipment held under capital leases are
classified as property and equipment and amortized using the straight-line
method over the lease terms and the related obligations are recorded as
liabilities. Costs of major improvements are capitalized; costs of normal
repairs and maintenance are charged to expense as incurred. Gains or losses on
dispositions of property and equipment are recognized in the consolidated
statement of operations when incurred.
CAPITALIZED INTEREST - The Company capitalizes interest costs associated with
debt incurred in connection with major construction projects. When no debt is
specifically identified as being incurred in connection with such construction
projects, the Company capitalizes interest on amounts expended on the project at
the Company's average cost of borrowed money.
DEFERRED FINANCING COSTS - Deferred financing costs represent agent's
commissions, closing costs and professional fees incurred in connection with the
issuance of the Company's 10 7/8% Senior Secured Notes and a $20.0 million
credit facility with Foothill Capital Corporation (the "Majestic Star Credit
Facility"), and Investor Holdings Senior Secured Notes and a $15.0 million
credit facility with Foothill Capital Corporation ("the Investor Holdings Credit
Facility"). Such costs are being amortized over the terms of the related notes
and lines of credit, respectively, using the effective interest method.
DEFERRED COSTS - Development and obligation payments to the City of Gary, (the
"City") and licensing costs represent direct costs associated with the
development of the riverboat casino, and were deferred until operations
commenced on June 7, 1996. These costs have been amortized over five years, the
life of the gaming license.
GOODWILL - Goodwill represents the cost of the Fitzgeralds assets acquired in
excess of their fair value. Goodwill for acquisitions after June 30, 2001 is not
subject to amortization but is subject to impairment testing at least annually.
F-8
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTANGIBLE ASSETS - Intangible assets are amortized over their estimated useful
lives, generally eight to ten years. See Note 7.
INVESTMENT IN BUFFINGTON HARBOR RIVERBOATS, L.L.C. - The Company accounts for
its 50 percent interest in Buffington Harbor Riverboats, L.L.C. ("BHR") under
the equity method, whereby the initial investments are recorded at cost and then
adjusted for the Company's share of BHR's net income or loss.
CASINO REVENUE - Casino revenue is the net win from gaming activities, which is
the difference between gaming wins and losses. Hotel and other revenue are
recognized at the time the related service is performed.
PROMOTIONAL ALLOWANCES - Cash discounts and other cash incentives related to
gaming play are recorded as a reduction of gross casino revenues. In addition,
the retail value of accommodations, food and beverage, and other services
furnished to hotel/casino guests without charge is included in gross revenue and
then deducted as promotional allowances. The estimated departmental cost of
providing such promotional allowances is included primarily in casino operating
expenses as follows:
Year Ended December 31,
2002 2001 2000
---- ---- ----
Rooms $ 4,121,861 $ 254,918 $ -
Food and Beverage 11,414,415 1,008,421 179,782
Other 1,354,876 231,933 105,391
-------------- ------------- --------------
$ 16,891,152 $ 1,495,272 $ 285,173
The estimated retail value of such promotional allowances is included in
operating revenues as follows:
Year Ended December 31,
2002 2001 2000
---- ---- ----
Rooms $ 5,592,973 $ 436,701 $ -
Food and Beverage 11,990,058 1,070,136 243,108
Other 1,302,589 368,659 167,579
--------------- -------------- ---------------
$ 18,885,620 $ 1,875,496 $ 410,687
PRE-OPENING EXPENSES - Pre-opening expenses are expensed as incurred.
FEDERAL INCOME TAXES - The Company has historically been treated as a
partnership for U.S. federal income tax purposes. As a result of a change in the
Company's ownership structure in June 2001, the Company ceased to be a
partnership for U.S. federal income tax purposes, and is now an entity
disregarded for U.S. federal income tax purposes. At all times during 2002,
income of the Company was taxed directly to its members, and, accordingly, no
provision for federal income taxes is reflected in the financial statements.
ADVERTISING COSTS - Costs for advertising are expensed as incurred, except costs
for direct-response advertising, which are capitalized and amortized over the
period of the related program. Direct-response advertising consists primarily of
mailing costs associated with the direct-mail programs. Capitalized advertising
costs, included in prepaid expense, were immaterial at December 31, 2002 and
2001.
F-9
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated advertising costs included in advertising and promotion expenses
were $4,000,467, $2,698,484, and $3,169,974 for the years ended December 31,
2002, 2001 and 2000, respectively.
LONG-LIVED ASSETS - Long-lived assets and certain identifiable intangibles held
and used by the Company are reviewed for impairment when events or changes in
circumstances warrant such a review. The carrying value of a long-lived or
intangible asset is considered impaired when the anticipated undiscounted cash
flow from such asset is less than its carrying value. In that event, an
impairment loss is recognized. Losses on long-lived assets to be disposed of are
determined in a similar manner, except that fair values are reduced for the cost
of disposition. Effective January 1, 2002 SFAS 142 requires annual impairment
review all intangible assets with indefinite lives. The Company performed an
impairment test of its intangible assets with indefinite lives during the year
2002 and concluded that there was no impairment. See Note 7.
CASINO CLUB LIABILITY - The Fitzgeralds properties have accrued for the
liability of points earned but not redeemed by its casino club members, less
inactive players and expired points. The liability is calculated based on
average historical redemption rate. Expenses incurred from actual cash
redemption and the change in reserve for club redemption is included in
promotional allowances on the consolidated statement of operations.
PROGRESSIVE LIABILITY - The Company maintains a number of progressive slot
machines and table games. As wagers are made on the respective progressive
games, the amount available to win (to be paid out when the appropriate jackpots
are hit) increases. The Company has recorded the progressive jackpots as a
liability with a corresponding charge against casino revenue.
SELF-INSURANCE LIABILITY - The Company maintains accruals for their self-insured
health program, which is classified in other accrued liabilities in the
consolidated balance sheet. Management determines the estimates of these
accruals by periodically evaluating the historical expenses and projected trends
related to these accruals. Actual results may differ from these estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The Company believes, based upon current
information, that the carrying value of the Company's cash and cash equivalents,
restricted cash, accounts receivable and accounts payable approximates fair
value. The Company also estimates that the fair value of its long-term debt
approximates its carrying value based on quoted market prices for the same or
similar issues.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the period. Actual results
could differ from those estimates.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS - In August 2001, the Financial
Accounting Standards Board issued Statement 143 ("SFAS 143"), "Accounting for
Obligations Associated with the Retirement of Long-Lived Assets". Under SFAS
143, the fair value of a liability for an asset retirement obligation is
required to be recognized in the period in which it is incurred if a reasonable
estimate of fair value can be made. The associated asset retirement costs are
capitalized as part of the carrying amount of the long-lived asset. SFAS 143 is
effective for fiscal years beginning after
F-10
MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 15, 2002. Adoption of SFAS No. 143 is not anticipated to have a material
impact on our financial condition, results of operations or cash flows.
In April 2002, the Financial Accounting Standards Board issued SFAS 145. SFAS
145 addresses the presentation for gains and losses on early retirements of debt
in the statement of operations. SFAS 145 is effective for fiscal years beginning
after May 15, 2003. Adoption of SFAS 145 is not anticipated to have a material
impact on our financial condition, results of operations or cash flows.
In June 2002, the Financial Accounting Standard Board issued Statement No. 146
("SFAS 146") "Accounting for Costs Associated with Exit or Disposal Activities."
The provisions of SFAS 146 became effective for exit or disposal activities
commenced subsequent to December 31, 2002 and the Company does not expect any
impact on its financial condition, results of operations or cash flows.
In November 2002, the Financial Accounting Standards Board issued FASB
Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others." This interpretation elaborates on the disclosures to be made by a
guarantor in its interim and an annual financial statement about its obligations
under certain guarantees that is has issued. It also clarifies (for guarantees
issued after January 1, 2003) that a guarantor is required to recognize at the
inception of a guarantee, a liability for the fair value of the obligations
undertaken in issuing the guarantee. At December 31, 2002, the Company does not
have any guarantees outside of its consolidated group and accordingly does not
expect the adoption of FIN 45 to have a material impact on its financial
condition, results of operations or cash flows. Disclosures concerning
guarantees are found in Notes 10 and 17.
In January 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities
("VIE")". This interpretation addresses the requirements for business
enterprises to consolidate related entities in which they are determined to be
the primary economic beneficiary as a result of their variable economic
interests. The interpretation is intended to provide guidance in judging
multiple economic interest in an entity and in determining the primary
beneficiary. The interpretation outlines disclosure requirements for VIEs in
existence prior to January 31, 2003, and outlines consolidation requirements for
VIEs created after January 31, 2003. The Company has reviewed its major
relationships and its overall economic interests with other companies consisting
of related parties, companies in which it has an equity position and other
suppliers to determine the extent of its variable economic interest in these
parties. The review has not resulted in a determination that the Company would
be judged to be the primary economic beneficiary in any material relationships,
or that any material entities would be judged to be Variable Interest Entities
of the Company. The Company believes it has appropriately reported the economic
impact and its share of risks of its commercial relationships through its equity
accounting along with appropriate disclosure of its other commitments.
RECLASSIFICATION - The consolidated financial statements and footnotes for prior
years reflect certain reclassifications to conform with the current year
presentation, which have no effect on previously reported net income.
3. Certificate of Suitability
On December 9, 1994, the Indiana Gaming Commission (the "Commission") awarded
the Company one of two certificates (the "Certificate") for a riverboat owner's
license for a riverboat casino to be docked in
F-11
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the City. Having complied with certain statutory and regulatory requirements and
other conditions of the Commission, the Company received a five-year riverboat
owner's license on June 3, 1996. On August 23, 2001, the Company's riverboat
ownership license was renewed for a one-year period beginning June 7, 2001 (as
under Indiana gaming laws, a licensee may only renew its original license for
one-year periods). On May 13, 2002, the Company's riverboat ownership license
was again renewed by the IGC for another one-year period beginning June 2, 2002.
There can be no assurance that the Company's license will be renewed beyond the
one-year period.
The second certificate was issued to Trump Indiana, Inc. ("Trump"). The Company
and Trump jointly developed and operate a docking location from which the
entities are conducting their respective riverboat gaming operations in the
City.
4. City of Gary, Indiana Development Obligation
On September 7, 1995, the Company and the City entered into an agreement for the
purpose of summarizing procedures regarding the acquisition of a certain parcel
of land in accordance with the Certificate. The Company paid the City $250,000
under the terms of this agreement. On September 29, 1995, the Company and Trump
entered into an agreement with the City for which the Company paid the City
$5,000,000. As of December 31, 2002, the deferred costs representing the
Company's development obligation to the City has been fully amortized.
As of March 26, 1996, the City and the Company entered into a development
agreement that supersedes the previous agreement between the City and the
Company. The development agreement ("Development Agreement") requires the
Company, among other things, (1) to invest $116 million in various on-site
improvements over the succeeding five years, (2) pay the City an economic
incentive equal to 3% of the Company's adjusted gross receipts, as defined by
the Riverboat Gambling Act and (3) pay a default payment in the amount of
damages for failure to complete certain on-site developments, which amount is
capped at $12 million.
The Company fulfilled all commitments with respect to the Development Agreement
as of September 2000, by purchasing and equipping the Permanent Vessel,
constructing substantial harbor improvements and the BHR facilities, and by
investing in an affiliated entity that purchased land for future development
adjacent to the BHR facility. In addition, the Company is current on its ongoing
economic incentive payments.
5. 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. We are accounting for the acquisition
under the purchase method. Accordingly, the purchase price is allocated to the
underlying 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. Investor Holdings funded
the acquisition through the issuance of its 11.653% Senior Secured Notes (see
Note 10). Pursuant to the terms of the purchase and sale agreement, the parties
agreed to a $3.8 million reduction in the purchase price on
F-12
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 9, 2002, based upon a negotiated settlement of the value of working capital
at December 6, 2001.
The $3.8 million reduction was taken against Goodwill. The results of operations
for the twenty-five days ended December 31, 2001, since the acquisition on
December 6, 2001, are included in our consolidated statement of operations. The
following table summarizes the estimated fair value of the assets acquired and
the liabilities assumed at the acquisition date.
At December 6, 2001
-------------------
(in millions)
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 (Gary property only) has no intangible assets. Intangible assets at
Investor Holdings 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 No. 142, goodwill and other
indefinite lived intangible assets, such as the Investor Holdings' gaming
license, are not amortized but instead are subject to impairment tests at least
annually. See Note 7.
The following unaudited pro forma consolidated financial information has been
prepared assuming our acquisition had occurred on January 1, 2000.
For the years ended
December 31, 2001 December 31, 2000
---------------------------------------------
(Unaudited)
Net revenue $ 291,114,248 $ 273,171,030
Income from operations $ 36,724,595 $ 26,614,526
Net income (loss) $ 167,824 $ (10,531,166)
These unaudited pro forma results are presented for comparative purposes only.
The pro forma results are not necessarily indicative of what our actual results
would have been had the acquisition been completed as of the beginning of the
year, or of future results.
F-13
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Property and Equipment
Property and equipment at December 31, 2002 and 2001 consists of the following:
Estimated
Service Life
2002 2001 (Years)
------------- ------------- -------------
Land used in casino operations $ 6,403,375 $ 6,403,375 -
Vessel, Buildings & Improvements 116,749,218 116,161,955 25-39
Site improvements 17,596,240 15,870,892 9-15
Barge and improvements 15,798,767 15,555,248 13-15
Leasehold improvements 395,886 237,763 5
Furniture, fixtures and equipment 50,566,918 44,131,889 4-10
Construction in progress 1,513,320 713,772
------------- -------------
209,023,724 199,074,894
Less accumulated depreciation and amortization (44,214,566) (28,879,881)
------------- -------------
Property and equipment, net $ 164,809,158 $ 170,195,013
============= =============
Substantially all property and equipment are pledged as collateral on long-term
debt. See Note 10.
7. Other Intangible Assets
The gross carrying amount and accumulated amortization of the Company's
intangible assets, other than goodwill, as of December 31, 2002 are as follows:
Gross Carrying Accumulated Net Amount
Amount Amortization December 31, 2002
-------------- -------------- --------------
(in thousands) (in thousands) (in thousands)
Amortized intangible assets:
Customer relationships $ 9,800 $(1,312) $ 8,488
Tradename 3,700 (396) 3,304
Riverboat excursion license 700 - 700
------- ------- -------
Total $14,200 $(1,708) $12,492
======= ======= =======
Unamortized intangible assets:
Gaming license $ 5,200 $ - $ 5,200
------- ------- -------
Total $ 5,200 $ - $ 5,200
======= ======= =======
F-14
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Other Intangible Assets (continued)
The amortization expense recorded on the intangible assets for the year ended
December 31, 2002 and for the period from inception of Investor Holdings
(September 14, 2001) through December 31, 2001 was $1.6 million and $0.1 million
respectively. The estimated amortization expenses for each of the five
succeeding fiscal years is as follows:
For the year ended December 31,
- -------------------------------
2003 $ 1,618
2004 1,642
2005 1,642
2006 1,642
2007 1,642
Under SFAS No. 142, goodwill and other indefinite intangible assets are no
longer subject to amortization over their useful lives; rather, they are subject
to assessments for impairment at least annually. Also, under SFAS No. 142, an
intangible asset should be recognized if the benefit of the intangible asset is
obtained through contractual or other legal rights or if the intangible asset
can be sold, transferred, licensed, rented or exchanged. Such intangibles will
be amortized over their useful lives. Under SFAS No. 142, Investor Holdings
acquisition of the Fitzgeralds assets was immediately subject to the provision
of SFAS No. 142.
8. Investment in Buffington Harbor Riverboats, L.L.C.
On October 31, 1995, the Company and Trump 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 Trump 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 Trump share equally in the operating expenses
relating to the BHR Property, except for costs associated with food and
beverage, and valet operations, which are allocated on a percentage of use by
the casino customers of the Company and Trump.
The Company has paid approximately $6.0 million, $6.3 million and $6.9 million
of berthing fees for the years 2002, 2001 and 2000, respectively. Such amounts
are recorded in general and administrative expense in the consolidated statement
of operations. In addition, the Company has paid approximately $979,000,
$805,000 and $435,000 of costs associated with food and beverage, and valet
operations, and such amounts are recorded in casino expense in the Company's
consolidated statement of operations, for the years 2002, 2001 and 2000,
respectively. After the Company and Trump reimburse BHR for all cash operational
losses, the remaining net loss of BHR results from depreciation expense
associated with the BHR property. The Company has elected to record its
allocated portion of BHR's net loss within depreciation expense in its
consolidated statement of operations. The allocated net loss recorded in
depreciation expense for the years 2002, 2001 and 2000, respectively, are
approximately $2.4 million, $2.8 million and $2.1 million.
F-15
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following represents selected financial information of BHR:
December 31, 2002 December 31, 2001
--------------------- ---------------------
BALANCE SHEET
Cash and cash equivalents $ 50,505 $ 317,646
Current assets 441,535 782,001
Property, plant and equipment, net 65,616,042 69,650,069
Other assets 108,414 111,478
Total assets 66,165,991 70,543,548
Current liabilities 2,499,369 2,745,899
Total liabilities 2,499,369 2,745,899
Members' equity
The Majestic Star Casino, LLC 31,833,311 33,898,825
Total members' equity 63,666,622 67,797,649
Years Ended December 31,
------------------------
STATEMENTS OF INCOME 2002 2001 2000
---- ---- ----
Gross revenue $ 16,095,365 $ 16,468,581 $ 17,814,012
Operating loss (4,794,560) (5,981,620) (4,350,334)
Net loss (4,848,863) (5,595,475) (4,117,338)
F-16
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Other Accrued Liabilities
Other accrued liabilities at December 31 were comprised of:
2002 2001
---- ----
Property taxes $ 3,884,271 $ 2,168,667
Casino Club points 738,559 2,087,087
Progressive jackpots 3,189,626 2,883,958
Other 4,083,013 5,880,385
-------------- ---------------
$ 11,895,469 $ 13,020,097
10. Long - Term Debt
Long-term debt outstanding at December 31 is as follows: 2002 2001
------------- -------------
$152,632,000 senior secured notes payable, net of unamortized discount of
$6,235,552 at 2002 and $7,546,568 at 2001, collateralized by a first priority
lien on substantially all of the assets of Majestic Investor Holdings, LLC, due
in semi-annual installments of interest at 11.653% on May 31 and November 30;
with a final payment of principal and interest due on November 30, 2007. During
2002 Investor Holdings purchased $865,000 of its senior secured notes. $ 145,531,448 $ 145,085,432
$130,000,000 senior secured notes payable, net of unamortized discount of
$1,120,229 at 2002 and $1,443,371 in 2001; collateralized by a first priority
lien on substantially all of the assets of The Majestic Star Casino, LLC, due in
semi-annual installments of interest at 10 7/8% on July 1 and January 1;
with a final payment of principal and interest due on July 1, 2006. 128,879,771 128,556,629
$20.0 million four-year credit facility established on August 2,1999, expiring
on August 2, 2003; collateralized by substantially all current and future assets
of The Majestic Star Casino, LLC, other than excluded assets; interest rate at
the borrowers choice of LIBOR plus 3.75% or 1.5% points above the
base rate which approximates the prime rate, with a minimum interest rate of 8.5%. - -
$15.0 million four year credit facility established with Majestic Investor
Holdings, LLC, on December 6, 2001 expiring on December 6, 2005; collateralized
by substantially all current and future assets, other than excluded assets;
interest rate at the borrowers choice of LIBOR plus 2.0% above the base
rate which approximates the prime rate, or the prime rate. - 6,500,000
Equipment and software financing payable at Barden Nevada Gaming, LLC including
related use taxes; collateralized by gaming equipment; interest rates from 7.5%
to 12.0%; due in aggregate monthly installments of $13,526 with varying maturity
dates through 2005. 249,150 411,446
------------- -------------
274,660,369 280,553,507
Less current maturities (134,084) (6,656,574)
------------- -------------
Long-term debt, net of current maturities $ 274,526,285 $ 273,896,933
============= =============
F-17
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Long Term Debt (Continued)
The scheduled maturities of long-term debt are as follows:
Year Ending December 31,
2003 $ 134,084
2004 84,984
2005 30,082
2006 128,879,771
2007 145,531,448
Thereafter -
--------------------
$ 274,660,369
====================
Senior Secured Notes
On June 18, 1999, the Company issued $130.0 million of 10-7/8% Senior Secured
Notes due 2006. In October 1999, the Company successfully completed an exchange
of its privately placed $130.0 million 10-7/8% Senior Secured Notes Series A for
$130.0 million 10-7/8% Senior Secured Notes Series B that are registered with
the Securities and Exchange Commission. The net proceeds from the offering were
utilized to redeem $99.0 million principal amount of the Company's 12-3/4%
Senior Secured Notes due 2003 with Contingent Interest. During June 1999,
approximately $4.2 million of the net proceeds were utilized for fees to fund
the repurchase and approximately $7.5 million of the net proceeds were
classified as restricted cash to effect a covenant defeasance of the $6.0
million of remaining 12-3/4% Senior Secured Notes due 2003 with Contingent
Interest. During May 2000, the Company redeemed this remaining $6.0 million of
12-3/4% Senior Secured Notes. Holders of the outstanding 10-7/8% Senior Secured
Notes have the right to require that the Company repurchase the notes at a
premium under certain conditions, including a change in control of the Company.
The 10-7/8% Senior Secured Notes bear interest at a fixed rate of 10-7/8% per
annum payable January 1 and July 1 each year, commencing January 1, 2000.
Substantially all of the Company's current and future assets other than certain
excluded assets are pledged as collateral. Excluded assets include the assets of
our "unrestricted subsidiaries," which include the subsidiaries that hold our
Fitzgeralds assets. The notes rank senior in right of payment to any of the
Company's subordinated indebtedness and equally with any of the Company's senior
indebtedness.
After July 1, 2003, the Company may, at its option, redeem all or some of the
notes at a premium that will decrease over time from 105.438% to 100% of their
face amount, plus interest. Prior to July 1, 2002, if the Company publicly
offers certain equity securities, as defined, it may, at its option, apply part
of the net proceeds from those transactions to redeem up to 35% of the principal
amount of the notes at 110.875% of their face amount, plus interest. If the
Company goes through a change of control, it must give holders of the notes the
opportunity to sell the Company their notes at 101% of their face amount, plus
interest.
F-18
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Indenture contains covenants, which among other things, restrict the
Company's ability to (i) make certain distributions and payments, (ii) incur
additional indebtedness, (iii) enter into transactions with affiliates, (iv)
sell assets or stock, and (v) merge, consolidate or transfer substantially all
of its assets.
On December 6, 2001, Investor Holdings and Majestic Investor Capital, as
co-issuer, issued $152.6 million of 11.653% Senior Secured Notes due 2007. The
net proceeds of $145,000,400 from the offering, together with an equity
contribution from Investor, were utilized to purchase substantially all of the
assets of Fitzgeralds Mississippi Inc., 101 Main Street Limited Liability
Company and Fitzgeralds Las Vegas, Inc. and to pay related fees and expenses.
The Investor Holdings Senior Secured Notes bear interest at a fixed rate of
11.653% per annum payable May 31 and November 30 each year, commencing on May
31, 2002, Substantially all of Investor Holdings' current and future assets,
other than certain excluded assets, are pledged as collateral. The notes rank
senior in right of payment to any of Investor Holdings' subordinated
indebtedness and equally with any of Investor Holdings' senior indebtedness.
In connection with the issuance by Investor Holdings of $152,632,000 of
unregistered 11.653% Senior Secured Notes due 2007 (the "Unregistered Notes") on
December 6, 2001, Investor Holdings entered in a registration rights agreement
pursuant to which it agreed to file with the Securities and Exchange Commission
("SEC") a registration statement (the "Registration Statement") to exchange up
to $152,632,000 principal amount of 11.653% Senior Secured Notes due 2007
registered under the Securities Act of 1933 (the "Registered Notes") for any and
all of its outstanding Unregistered Notes. The registration rights agreement
required Investor Holdings to pay liquidated damages to the holders of the
Unregistered Notes if the Registration Statement was not declared effective by
the SEC on or prior to April 5, 2002. The Registration Statement was declared
effective by the SEC on August 8, 2002 and Investor Holdings was required to pay
liquidated damages pursuant to the terms of the registration rights agreement
for the period from April 6, 2002 until August 8, 2002. On May 31, 2002, in
connection with the first scheduled interest payment on the Unregistered Notes,
Investor Holdings, made its initial liquidated damages payment of $61,053 to the
holders of the Notes. The final liquidated damages payment of $114,474 was paid
to the holders of the Unregistered Notes on November 30, 2002. Pursuant to the
Registration Statement, the offer to exchange the Registered Notes for any or
all of the Unregistered Notes commenced on August 8, 2002 and completed on
Friday, September 6, 2002 at 5p.m. Eastern Standard Time.
On or after November 30, 2005, Investor Holdings has the right to redeem notes
from time to time at a price that will decrease over time from 105.827% of the
principal amount in 2005 to 100% of the principal amount in 2006, plus, in each
case, accrued and unpaid interest. Prior to November 30, 2004, Investor Holdings
may, at its option, apply part of the net proceeds from certain equity offerings
to redeem up to 35% of the principal amount of the notes at 111.653% of their
face amount, plus accrued and unpaid interest.
The Indenture contains covenants, which among other things, restrict Investor
Holdings ability to (i) make certain distributions and payments, (ii) incur
additional indebtedness, (iii) enter into transactions with affiliates, (iv)
sell assets or stock, and (v) merge, consolidate or transfer substantially all
of its assets.
During 2002, the Investor Holdings purchased for $759,000, plus accrued
interest, its 11.653% Senior Secured Notes with a face value of $865,000. The
notes, net of un-amortized original issue discount, were being carried at a
value of $828,000; the resulting gain was $69,000.
F-19
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Credit Facilities
On August 2, 1999, the Company established a $20.0 million credit facility,
which is also secured by substantially all current and future assets, other than
certain excluded assets. The lien on the collateral securing this credit
facility is structurally senior to the lien securing the 10-7/8% Senior Secured
Notes. As of December 31, 2000, $7.8 million of the credit facility was
outstanding. During 2001, $8.0 million was borrowed on this credit facility, and
at December 31, 2001, these borrowings had been repaid in full. There were no
borrowing on the credit facility in 2002.
The terms of the $20.0 million line of credit is four years with an interest
rate at the Company's choice of LIBOR plus 3.75% or 1.5 percentage points above
the base rate. The base rate approximates the prime rate. The minimum interest
rate is 8.5%. The credit agreement includes covenants, which among other things,
(i) require operating income as defined in the credit facility of at least $10.0
million for twelve consecutive months during the credit period, and (ii)
restrict the Company's ability to incur, assume, or guarantee any indebtedness.
On December 6, 2001, Investor Holdings established a $15.0 million credit
facility. The terms of the $15.0 million line of credit is four years with an
interest rate at the Company's choice of LIBOR plus 2.0%, or the base rate,
which approximates the prime rate. The credit facility is secured by
substantially all of Investor Holdings current and future assets, other than
certain excluded assets. The lien on the collateral securing Investor Holdings'
credit facility is senior to the lien on the collateral securing the senior
secured notes. The credit facility also contains financial covenants and
restrictions on, among other things, indebtedness, investments, distributions
and mergers. At December 31, 2001 $6.5 million was borrowed on this credit
facility and at December 31, 2002, the borrowings had been paid in full.
Intercreditor Agreements
In connection with Majestic Star entering into its $20.0 million credit
facility, the trustee (as collateral agent) under the indenture associated with
Majestic Star's senior secured notes entered into an intercreditor agreement
with Foothill Capital Corporation, the lender under Majestic Star's credit
facility. In addition, in connection with Majestic Investor Holdings entering
into its $15.0 million credit facility, the trustee (as collateral agent) under
the indenture associated with Majestic Investor Holdings' senior secured notes
entered into a virtually identical intercreditor agreement with Foothill Capital
Corporation, the lender under Majestic Investor Holdings' credit facility. Both
intercreditor agreements provide for the subordination of the liens securing the
respective senior secured notes to the liens securing the indebtedness under the
respective credit facilities.
The intercreditor agreements, among other things, limit the trustee's rights in
an event of default under the respective senior secured notes. Under the
intercreditor agreements, if the respective senior secured notes become due and
payable prior to the stated maturity or are not paid in full at the stated
maturity at a time during which there is indebtedness outstanding under the
corresponding credit facilities, the trustee will not have the right to
foreclose upon the collateral unless and until the lender under the
corresponding credit facilities fails to take steps to exercise remedies with
respect to or in connection with the collateral within 180 days following notice
to such lender of the occurrence of an event of default under the corresponding
indenture. In addition, the intercreditor agreements prevent the trustee and the
holders of the respective senior secured notes from pursuing remedies with
respect to the collateral in an insolvency
F-20
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
proceeding. The intercreditor agreements also provide that the net proceeds from
the sale of the corresponding collateral will first be applied to repay
indebtedness outstanding under the corresponding credit facilities and
thereafter to the holders of the corresponding senior secured notes.
11. Fair Value of Financial Instruments
The following table presents the carrying value and estimated fair value as of
December 31, 2002 of the Company's financial instruments. (Refer to Notes 2 and
10).
Carrying Estimated
Value Fair Value
----- ----------
Assets:
Cash and equivalents $ 24,547,881 $ 24,547,881
Restricted cash $ 1,250,000 $ 1,250,000
Liabilities:
Long-term debt (including capital lease
obligations and line of credit borrowings) $ 274,660,369 $ 273,061,750
12. Savings Plan
The Company contributes to a defined contribution plan, which provides for
contributions in accordance with the plan document. The plan is available to
certain employees with at least one year of service. The Company contributes a
matching contribution up to a maximum of 3% of an employee's salary limited to a
specified dollar amount as stated in the plan document. The Company's
contributions to the plan amounted to $1,188,000, $402,000 and $340,000 during
2002, 2001 and 2000, respectively. The $786,000 increase between 2002 and 2001
is directly related to the acquisition of the Fitzgeralds properties on December
6, 2001.
13. Commitments and Contingencies
Leases
The Company has operating leases that cover various office and gaming equipment.
Future minimum lease payments for operating leases with initial terms in excess
of one year as of December 31, 2002 are as follows:
Years Ending December 31,
2003 1,922,915
2004 1,550,269
2005 1,500,130
2006 1,477,845
2007 1,477,845
Thereafter 10,929,895
---------------
$ 18,858,899
===============
Rent Expense for the years ended December 31, 2002 and December 31, 2001 were
$6,969,370 and $3,668,098 respectively.
F-21
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In September of 2000, AMB Parking, LLC, (a limited liability company indirectly
owned by Don. H. Barden, Chairman and CEO of the Company) and Trump Indiana,
Inc. (the "Joint Venture Partner") entered into an Operating Agreement to form
Buffington Harbor Parking Associates, LLC ("BHPA"). The limited liability
company was formed for the purpose of constructing and operating a 2,000 space
parking garage. BHPA purchased certain property owned by Gary New Century, LLC
(another company owned by Don H. Barden) for $15,000,000 (the "Purchase"). To
finance this transaction, BHR advanced BHPA $14,182,856 (which advance accrues
interest at the rate of 6%), and acquired approximately one acre of land from
BHPA for $817,144. In connection with the Purchase, the Company and the Joint
Venture Partner advanced $7,099,147 and contributed $7,900,833 to BHR, which was
used to fund the advance to BHPA and to acquire the one acre of land. In June
2001, BHR and BHPA terminated the BHPA agreement. A new agreement was reached
between BHR, the Company and the Joint Venture Partner in which BHR transferred
one half of the loan receivable as a return of capital to the Company in the
amount of $7,099,167, and assigned the other half of the loan balance to the
Joint Venture Partner. In addition, BHR distributed one half of the accrued
interest receivable ($308,669) and an additional $34,347 as a return of capital
to the Company and the Joint Venture Partner in order to finance the
construction of the garage. The Company is recognizing $9,462,815 of advances
made on the parking garage construction as prepaid lease expense. The Company
and the Joint Venture Partner have each entered into parallel operating lease
agreements with BHPA, each having a term of until December 31, 2018. The rent
payable under the both leases is intended to service the debt incurred by BHPA
to construct the parking garage. The Company is amortizing its prepaid lease
over the term of the operating lease agreement. The operating lease agreement
calls for the Company and the Joint Venture Partner to make monthly lease
payments equal to 100% of BHPA's debt service requirement for the following
month, although each party is entitled to a credit for 50% of such payment if
the other party makes its monthly payment.
Employment Agreements
Mr. Don H. Barden serves as the Company's Manager, Chairman, President and Chief
Executive Officer and currently receives annual compensation of $370,000 as an
employee, pursuant to a letter agreement dated October 22, 2001 with The
Majestic Star Casino, LLC.
Mr. Michael E. Kelly serves as the Company's Manager, Executive Vice President,
Chief Operating and Financial Officer and Secretary pursuant to a three-year
employment agreement with The Majestic Star Casino, LLC dated October 22, 2001.
Under this agreement, Mr. Kelly will receive base compensation of $400,000 per
year and can also earn annual incentive compensation based upon his performance
and the consolidated performance of the Company. In addition to such
compensation, Mr. Kelly is entitled to term life insurance in an amount equal to
$2.5 million and other customary employee benefits, including participation in
The Majestic Star Casino, LLC's 401(k) plan, together with a $100,000 signing
bonus and an interest-free loan in the amount of $200,000 to be repaid in three
equal annual installments. Mr. Kelly is also entitled to additional
compensation, upon a change in control, equal to his base salary and incentive
compensation for the remainder of the term of the agreement, plus 12 months
thereafter. Mr. Kelly's employment agreement contains certain non-competition
provisions with a duration of 12 months following termination of his employment.
Mr. Jon S. Bennett serves as our Vice President and Chief Financial Officer
pursuant to a two-year employment agreement with The Majestic Star Casino, LLC
dated October 21, 2002. Under this agreement, Mr. Bennett will receive base
compensation of $250,000, subject to annual reviews, and can also earn bonuses
subject to the discretion of the President and Chief Executive Officer and
Executive Vice President and Chief Operating Officer. In addition to such
compensation, Mr. Bennett is entitled to term life insurance in an amount equal
to $1 million and
F-22
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
other customary employee benefits, including participation in the Company's
401(k) plan and reimbursement of relocation expenses. Mr. Bennett is also
entitled to additional compensation upon a change in control, equal to the
remaining amount due under his employment agreement plus six months of his
annual salary following the expiration of his current employment agreement. Mr.
Bennett's employment agreement contains certain non-competition provisions with
a duration of 12 months if Mr. Bennett should voluntarily terminate his
employment within 18 months of the commencement date of his employment
agreement.
The amounts payable pursuant to the agreements with Messrs. Barden, Kelly, and
Bennett are the responsibility of the Company. As indicated in Note 14, the
Company entered into an Expense Reimbursement/Sharing Agreement with Investor
Holdings whereby Investor Holdings will reimburse the Company for a specified
percentage of expenses paid by the Company for Investor Holdings' corporate
overhead.
Letter of Credit/Surety Bond
In May 1996, the Company was required by the City of Gary, to maintain a Surety
Bond in the amount of $12.5 million to guarantee the remaining $10.0 million of
its off-site development obligation and $2.5 million to satisfy state and local
regulatory obligations. The Surety Bond was secured by a $3.5 million letter of
credit issued by a bank, which was collateralized by $3.6 million in cash. In
September 2000, the Company met its development obligation, concurrently the
Surety Bond was reduced from $12.5 million to $2.5 million and the bank released
$1.0 million of the cash collateral. In March 2001, the Company replaced its
existing Surety Bond with a new $2.5 million unsecured Surety Bond. In
conjunction with the release of the original Surety Bond, the letter of credit
was canceled and the remaining $2.6 million of cash collateral was released to
the Company.
Effective August 23, 2001, in accordance with an order of the Indiana Gaming
Commission, the Company's riverboat owner's license was renewed subject to
certain conditions. Pursuant to the license renewal, the Company was required to
post a bond in the amount of $1,000,000 to secure its regulatory obligations.
The $2.5 million bond previously posted was released on the effective date. The
$1,000,000 bond has yet to be provided. The Indiana Gaming Commission is
currently reviewing language to be included in the bond. When the language is
finalized, the Company will post the new bond.
During the year ended December 31, 2002, a $250,000 letter of credit was issued
to secure payment of workers compensation claims at Barden Colorado Gaming, LLC
and Barden Mississippi Gaming, LLC. In order to collateralize the letter of
credit the bank, through which the letter of credit was issued, restricted
$250,000 of Investor Holdings' cash in bank.
The States of Nevada and Mississippi have required Barden Nevada Gaming, LLC and
Barden Mississippi Gaming, LLC to post surety bonds as security for current and
future sales and gaming revenue tax obligations. Barden Nevada Gaming, LLC
currently has one surety bond in place with the Nevada Department of Taxation in
the amount of $122,250. Barden Mississippi Gaming, LLC has four surety bonds; a
$600,000 bond in place with the Mississippi State Tax Commission and three
$5,000 bonds with the Mississippi Alcoholic Beverage Control. These surety bonds
are secured only by personal guaranties of Don H. Barden. If Mr. Barden is
required to make payments to the bonding companies as a result of the
guaranties, Investor Holdings, Barden Nevada Gaming, LLC and Barden Mississippi
Gaming, LLC will be obligated to reimburse Mr. Barden for any such payments.
F-23
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Legal Proceedings
On June 25, 1997, a complaint was filed in an Illinois Cook County Court against
Majestic Star Casino. The plaintiff, a former employee, was injured during and
as a result of a routine boat drill attempt and is requesting compensatory and
punitive damages totaling approximately $3.5 million. The suit alleges that
Majestic Star Casino failed to provide adequate safety measures to their
employees during these drills. This complaint was settled April 2002 with no
financial bearing on the company.
On March 27, 1998, a complaint was filed in the Lake County Superior Court in
East Chicago, Indiana, against BHR, the Joint Venture Partner, and the Company.
The plaintiff, a former employee of the Company, claims to have been assaulted
in the BHR parking lot on June 25, 1997 and is requesting compensatory and
punitive damages totaling approximately $11.0 million. The suit alleges that the
Joint Venture Partner and the Company failed to provide adequate security to
prevent assaults. The Company intends to vigorously defend against such suit.
However, it is too early to determine the outcome of such suit and the effect,
if any, on the Company's financial position and results of operations.
On March 2, 2000, the Company was issued a notice of audit findings, and on May
11 and 12, 2000, was issued notices of assessment by the Indiana Department of
Revenue for income tax withholding deficiencies for the years ended 1996 and
1998. The Indiana Department of Revenue has taken the position that wagering
taxes should not be classified as an allowable deductible expense for
calculating state income taxes and therefore requires that wagering taxes be
added back to net income to determine the tax liability. The estimated tax
deficiency for 1996 is approximately $239,000 excluding interest and the
estimated tax deficiency for 1998 is approximately $315,000 excluding interest.
Other Indiana casinos have protested this same finding. The Company has filed an
administrative protest and demand for hearing with the Indiana Department of
Revenue. However, it is too early to determine the outcome.
On November 3, 2000, a complaint was filed in the State of Indiana, Lake County
Court, Civil Division. The plaintiff, a former employee filed a complaint under
Title VII of the Civil Rights Act of 1964. The suit alleges violation of the
American with Disabilities Act, retaliation and infliction of emotional
distress. On July 24, 2002 a jury award of $553,000 was entered in the
plaintiff's favor, plus attorney's fees and costs. The plaintiff is also seeking
$117,000 in front pay. There has been no award of front pay and a hearing is
scheduled in July 2003 regarding this issue. The Company believes that errors
were made during the trial and in the jury award. As a result, the Company is
appealing the award. The Company believes that the potential loss could range
from $250,000 to $450,000. An accrual of $250,000 was charged to operations in
the accompanying December 31, 2002 financial statements.
F-24
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. Indian's
regulatory framework continues to develop. The IGC has adopted certain final
rules and has published others in proposed or draft form that 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, Indiana gaming taxes were levied on adjusted gross receipts, as
defined by Indiana gaming laws, at the rate of 20%. In addition to the wagering
tax, an admissions tax of $3 per turnstile count is assessed. Prior to August 5,
2002, Indiana imposed an admissions tax of $3 per patron turnstile count at
every boarding time plus the count of the patrons that stayed over on the vessel
from a previous boarding time period.
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.
The Company's directors, officer, managers and key employees are required to
hold individual licenses, which requirements vary from jurisdiction to
jurisdiction. Licenses and permits for gaming operations and of individual
licensees are subject to renovation or non-renewal for cause. Under certain
circumstances, holders of our securities are required to secure independent
licenses and permits.
F-25
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Related Party Transactions
The Company entered into a LLC Manager Agreement on June 18, 1999 with BDI to
provide for, among other things, BDI to act as the managing member of the LLC.
Distributions of profits to BDI are limited under the Indenture for the Majestic
Star Senior Secured Notes. The distribution for each fiscal quarter cannot
exceed 5% of the Company's Consolidated Cash Flow (as defined in the Indenture
for the Majestic Star Senior Secured Notes) for the immediately preceding fiscal
quarter and may not be paid if the Company is in default under the Indenture
governing such notes or if the Company does not meet certain financial ratios as
provided in such Indenture. During the twelve months ended December 31, 2002,
2001 and 2002 the Company made distributions of approximately $2,965,000
$280,000, and $315,000 respectively to Barden Development, Inc. ("BDI").
In September 2000, Majestic Investor, LLC was capitalized by the Company with
$9.0 million of capital contributions, including interest thereon. Majestic
Investor, LLC subsequently contributed this $9.0 million to Investor Holdings in
connection with the assignment of its rights and obligations under the
Fitzgeralds purchase and sale agreement to Investor Holdings.
Prior to the consummation of the offering of the Investor Holdings 11.653%
Senior Secured Notes, Investor Holdings issued a 35.71% membership interest to
BDI in exchange for the contribution by BDI of a note for $5.0 million. BDI
subsequently contributed the 35.71% membership interest to Majestic Investor,
LLC as additional paid-in-equity. Majestic Investor, LLC currently owns 100% of
the member interests of Investor Holdings. BDI, upon closing of the offering of
the senior secured notes, contributed $5.0 million in repayment of the
promissory note.
On September 19, 2001, Investor Holdings entered into a LLC Manager Agreement
with BDI, which was amended and restated on December 5, 2001 effective December
6, 2001, pursuant to which BDI will act as the Manager of Investor Holdings.
Distributions of profits to BDI are limited under the Indenture for the Holdings
Senior Secured Notes. The distribution for any fiscal quarter, shall not exceed
1% of net revenues plus 5% of consolidated cash flow for the immediately
preceding fiscal quarter, provided that the payment of such distribution shall
be subordinated to the payment in full of principal, interest, premium and
liquidated damages, if any, then due on the senior secured notes.
During the twelve months ended December 31, 2002, Investor Holdings made
distributions of approximately $2,544,000 to BDI. These distributions were made
in accordance with the LLC Manager Agreement between Investor Holdings and BDI
dated December 5, 2001.
On October 22, 2001, Investor Holdings entered into an Expense
Reimbursement/Sharing Agreement with the Company, pursuant to which Investor
Holdings and its restricted subsidiaries will each reimburse the Company for
sixty percent (60%) of the documented out-of-pocket expenses paid by the Company
for Investor Holdings' corporate overhead, including (i) the costs and expenses
of executives and certain other employees, including, but not limited to,
salaries, bonuses, benefit payments, insurance, and supplies, (ii) rent and
(iii) other similar costs and expenses.
These executives and employees will provide services to both Investor Holdings
and to our subsidiaries and us. Currently, due to restrictions set forth in the
Investor Holdings Indenture, the reimbursement percentage is capped at fifty
percent (50%) up to an aggregate of $1.7 million.
On January 31, 2002, the Company made a $200,000 employee loan to Mr. Kelly.
This loan bears no interest and is due and payable in full on January 31, 2005.
F-26
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Subsequent Events
In December 2001, Investor Holdings issued a $700,000 note to BDI. The note
bears interest at a rate of 7% per annum and was paid in full, with accrued
interest, on March 17, 2003.
In December 2001, the Company made a $300,000 employee loan to Mr. Barden. This
loan bears interest at a rate of 7% per annum and was due and payable in full on
December 12, 2002. On March 17, 2003, $215,911 was paid on the note leaving
$84,089 in principal and $28,750 in interest as outstanding.
16. 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
market in each of their segments primarily to middle-income guests. The major
products offered in each segment are as follows: casino, hotel (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. There are minimal
inter-segment sales. Corporate costs are allocated to the business segment
through management fees.
A summary of the Properties' operations by business segment for the years ended
December 31, 2002 and December 31, 2001, is presented below:
F-27
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2002 As of December 31, 2001
----------------------- -----------------------
(In thousands) (In thousands)
Net revenues:
Majestic Star Casino $ 127,294 $ 119,764
Fitzgeralds Tunica 87,388 5,368
Fitzgeralds Black Hawk 33,109 2,072
Fitzgeralds Las Vegas 48,915 3,081
Unallocated and other (1) - -
----------- ------------
Total $ 296,706 $ 130,285
----------- ------------
Income (loss) from operations:
Majestic Star Casino $ 17,624 $ 14,505
Fitzgeralds Tunica 14,288 654
Fitzgeralds Black Hawk 6,694 674
Fitzgeralds Las Vegas (1,977) (393)
Unallocated and other (1) (2,956) (1,214)
----------- ------------
Total $ 33,673 $ 14,226
----------- ------------
Segment depreciation and amortization:
Majestic Star Casino $ 9,041 $ 10,867
Fitzgeralds Tunica 7,373 485
Fitzgeralds Black Hawk 1,538 100
Fitzgeralds Las Vegas 2,952 167
Unallocated and other (1) 2,598 169
----------- ------------
Total $ 23,502 $ 11,788
----------- ------------
Expenditures for additions to long-lived assets:
Majestic Star Casino $ 5,189 $ 4,967
Fitzgeralds Tunica 2,549 100
Fitzgeralds Black Hawk 1,177 23
Fitzgeralds Las Vegas 1,481 -
Unallocated and other (1) - -
----------- ------------
Total $ 10,396 $ 5,090
----------- ------------
Segment assets:
Majestic Star Casino $ 113,177 $ 121,359
Fitzgeralds Tunica 88,307 91,338
Fitzgeralds Black Hawk 30,468 30,915
Fitzgeralds Las Vegas 38,231 45,171
Unallocated and other (1) 155,574 167,813
----------- ------------
Total $ 425,757 $ 456,596
Less: intercompany (149,947) (165,520)
----------- ------------
Total $ 275,810 $ 291,076
=========== ============
(1) Unallocated and other include corporate items and eliminations that are not
allocated to the operation segments.
F-28
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. Supplemental Guarantor Financial Information
The Company's $130.0 million, 10 7/8% Senior Secured Notes (See Note 10) are
guaranteed by substantially all of the assets of the Company, except for those
assets of Investor Holdings and its wholly-owned subsidiaries which include the
three casino properties acquired on December 6, 2001. The guarantees on the 10
7/8% Senior Secured Notes rank senior in right of payment to the Company's
subordinated indebtedness and equal with any of the Company's senior
indebtedness.
Investor Holdings $151.8 million, 11.653% Senior Secured Notes (See Note 10) are
unconditionally and irrevocably guaranteed, jointly and severally by all of the
restricted subsidiaries of Investor Holdings. 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 financial statements as of December 31, 2002 and December 31, 2001
and for the years ended December 31, 2002, 2001 and 2000 of The Majestic Star
Casino, LLC, Majestic Investor Holdings, LLC, and the restricted subsidiaries of
Majestic Investor Holdings, LLC (on a combined basis) and the elimination
entries necessary to combine such entities on a consolidated basis. The Majestic
Star Casino Capital Corp. ("MSCCC"), a wholly-owned subsidiary 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.
F-29
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. Supplemental Guarantor Financial Information (Continued)
CONDENSED CONSOLIDATING BALANCE SHEETS AS OF DECEMBER 31, 2002
Majestic Star Majestic Investor Guarantor Eliminating Total
Casino, LLC Holdings, LLC Subsidiaries Entries Consolidated
-------------- --------------- ------------- ------------- -------------
ASSETS
Current Assets:
Cash and cash equivalents $ 8,564,057 $ 1,007,660 $ 14,976,164 $ - $ 24,547,881
Restricted cash - 250,000 - - 250,000
Accounts receivable (net) 1,733,543 52,695 1,188,488 - 2,974,726
Inventories 53,360 - 929,126 - 982,486
Prepaid expenses and other current assets 1,778,480 5,573,991 1,575,678 (5,089,160)(a) 3,838,989
-------------- --------------- ------------- ------------- -------------
Total current assets 12,129,440 6,884,346 18,669,456 (5,089,160) 32,594,082
-------------- --------------- ------------- ------------- -------------
Property, equipment and vessel improvements, net 47,511,652 - 117,297,506 - 164,809,158
Intangible assets, net - 5,200,000 12,491,746 - 17,691,746
Due from related parties - 116,816,043 - (116,816,043)(b) -
Investment in Buffington Harbor Riverboats, L.L.C. 31,833,311 - - - 31,833,311
Other assets 13,619,918 6,714,902 8,546,757 - 28,881,577
Investment in subsidiaries 8,082,405 19,959,009 - (28,041,414)(b) -
-------------- --------------- ------------- ------------- -------------
Total Assets $ 113,176,726 $ 155,574,300 $ 157,005,465 $(149,946,617) $ 275,809,874
============== =============== ============= ============= =============
LIABILITIES AND MEMBER'S DEFICIT
Current Liabilities:
Current maturities of long-term debt $ - $ - $ 134,084 $ - $ 134,084
Accounts payable, accrued and other 8,221,517 1,960,447 15,215,462 (323,359) 25,074,067
-------------- --------------- ------------- ------------- -------------
Total current liabilities 8,221,517 1,960,447 15,349,546 (323,359) 25,208,151
-------------- --------------- ------------- ------------- -------------
Due to related parties - - 121,581,844 (121,581,844)(a)(b) -
Long-term debt, net of current maturities 128,879,771 145,531,448 115,066 274,526,285
-------------- --------------- ------------- ------------- -------------
Total Liabilities 137,101,288 147,491,895 137,046,456 (121,905,203) 299,734,436
Commitments and contingencies 250,000 - - - 250,000
Member's Equity (Deficit): (24,174,562) 8,082,405 19,959,009 (28,041,414)(b) (24,174,562)
-------------- --------------- ------------- ------------- -------------
Total Liabilities and Member's
Equity (Deficit) $ 113,176,726 $ 155,574,300 $ 157,005,465 $(149,946,617) $ 275,809,874
============== =============== ============= ============= =============
(a) To eliminate intercompany receivables and payables.
(b) To eliminate intercompany accounts and investment in subsidiaries.
F-30
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. Supplemental Guarantor Financial Information (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31,
2002
MAJESTIC STAR MAJESTIC INVESTOR GUARANTOR ELIMINATING
CASINO, LLC HOLDINGS, LLC SUBSIDIARIES ENTRIES CONSOLIDATED
-------------- -------------- ------------- -------------- ---------------
REVENUES:
Casino $ 132,599,608 $ - $ 161,189,334 $ - $ 293,788,942
Rooms - - 15,495,620 - 15,495,620
Food and beverage 1,623,621 - 19,470,500 - 21,094,121
Other 1,941,880 - 3,604,744 - 5,546,624
------------- ------------- ------------- ------------- -------------
Gross revenues 136,165,109 - 199,760,198 - 335,925,307
Less promotional allowances (8,870,991) - (30,348,133) - (39,219,124)
------------- ------------- ------------- ------------- -------------
Net revenues 127,294,118 - 169,412,065 - 296,706,183
COSTS AND EXPENSES:
Casino 26,337,807 - 60,822,128 - 87,159,935
Rooms - - 9,014,354 - 9,014,354
Food and beverage 2,285,881 - 11,267,235 - 13,553,116
Other - - 1,559,861 - 1,559,861
Gaming taxes 33,621,349 - 17,950,757 - 51,572,106
Advertising and promotion 7,636,379 - 13,282,926 - 20,919,305
General and administrative 26,775,809 345,443 24,632,548 - 51,753,800
Economic incentive - City of Gary 3,980,501 - - - 3,980,501
Depreciation and amortization 9,041,255 2,597,154 11,863,168 - 23,501,577
(Gain)/loss on disposal of assets (8,850) - 14,069 - 5,219
Pre-opening expenses - 13,391 - - 13,391
------------- ------------- ------------- ------------- -------------
Total costs and expenses 109,670,131 2,955,988 150,407,046 - 263,033,165
------------- ------------- ------------- ------------- -------------
Operating income (loss) 17,623,987 (2,955,988) 19,005,019 - 33,673,018
OTHER INCOME (EXPENSE):
Interest income 57,962 86,401 49,429 - 193,792
Interest expense (14,318,995) (18,086,650) (31,168) - (32,436,813)
Other non-operating expense (141,516) (41,684) - - (183,200)
Equity in net income (loss) of
subsidiaries (1,905,684) 19,023,280 - (17,117,597)(a) -
------------- ------------- ------------- ------------- -------------
Total other expense (16,308,233) 981,347 18,261 (17,117,597) (32,426,221)
------------- ------------- ------------- ------------- -------------
Income (loss) before
extraordinary item 1,315,754 (1,974,641) 19,023,280 1,246,797
EXTRAORDINARY ITEM:
Gain on bond redemption - 68,957 - - 68,957
------------- ------------- ------------- ------------- -------------
Net income (loss) $ 1,315,754 $ (1,905,684) $ 19,023,280 $ - $ 1,315,754
============= ============= ============= ============= =============
(a) To eliminate equity in net income (loss) of subsidiaries.
F-31
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. Supplemental Guarantor Financial Information (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31,
2002
MAJESTIC STAR MAJESTIC INVESTOR GUARANTOR ELIMINATING CONSOLIDATED
CASINO, LLC HOLDINGS, LLC SUBSIDIARIES ENTRIES TOTAL
------------ ------------- ------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES: $ 8,960,224 $(21,143,727) $ 30,452,724 $ 3,035,502 (a) $ 21,304,723
------------ ------------ ------------ ------------ ------------
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 (5,188,766) - (5,207,456) - (10,396,222)
Increase in restricted cash - (250,000) - - (250,000)
Increase in prepaid leases and deposits (113,186) - - - (113,186)
Investment in Buffington Harbor Riverboats,
L.L.C (358,918) - - - (358,918)
Proceeds from sale of equipment 8,850 - 44,267 - 53,117
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in) investing
activities (5,652,020) 2,563,842 (5,163,189) - (8,251,367)
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of 11.653% Senior Secured Notes
issuance costs - (1,523,568) - - (1,523,568)
Line of credit, net - (6,500,000) - - (6,500,000)
Cash advances to/from affiliates - 30,415,994 (27,380,492) (3,035,502)(a) -
Cash paid for redemption of 11.653% Senior
Secured Notes - (759,038) (759,038)
Cash paid to reduce long-term debt - - (139,331) - (139,331)
Distribution to Barden Development, Inc. (2,964,623) (2,544,206) - - (5,508,829)
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
financing activities (2,964,623) 19,089,182 (27,519,823) (3,035,502) (14,430,766)
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents 343,581 509,297 (2,230,288) - (1,377,410)
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 $ 8,564,057 $ 1,007,660 $ 14,976,164 $ - $ 24,547,881
============ ============ ============ ============ ============
(a) To eliminate intercompany receivables and payables.
F-32
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. Supplemental Guarantor Financial Information (Continued)
CONDENSED CONSOLIDATING BALANCE SHEETS AS OF DECEMBER 31, 2001
Majestic Star Majestic Majestic Investor Guarantor Eliminating Total
Casino, LLC Investor, LLC Holdings, LLC Subsidiaries Entries Consolidated
------------- ------------- ------------- ------------ ------------ --------------
ASSETS
Current Assets:
Cash and cash equivalents $ 8,220,476 $ - $ 498,363 $ 17,206,452 $ - $ 25,925,291
Accounts receivable, net 1,642,462 - 269,501 1,212,125 (28,484)(a) 3,095,604
Inventories 38,144 - - 957,564 - 995,708
Prepaid expenses and other
current assets 1,213,056 - 707,467 1,303,570 - 3,224,093
------------- ----------- ------------- ------------- ------------- -------------
Total current assets 11,114,138 - 1,475,331 20,679,711 (28,484) 33,240,696
------------- ----------- ------------- ------------- ------------- -------------
Property and equipment, net 47,767,051 - - 122,427,962 - 170,195,013
Intangible assets, net - - - 19,290,753 - 19,290,753
Due from related parties 1,177,829 - 150,855,685 - (152,033,514)(b) -
Investment in Buffington Harbor
Riverboats, L.L.C 33,898,771 - - - - 33,898,771
Other assets 14,869,249 - 14,545,956 5,025,618 9,557 (a) 34,450,380
Investment in subsidiaries 12,532,295 - 935,731 - (13,468,026)(b) -
------------- ----------- ------------- ------------- ------------- -------------
Total Assets $ 121,359,333 $ - $ 167,812,703 $ 167,424,044 $(165,520,467) $ 291,075,613
============= =========== ============= ============= ============= =============
LIABILITIES AND MEMBER'S EQUITY
(DEFICIT)
Current Liabilities:
Current maturities of long-term
debt $ - $ - $ 6,500,000 $ 156,574 $ - $ 6,656,574
Accounts payable, accrued and
other 12,784,191 - 2,526,703 15,211,626 (18,927)(a) 30,503,593
------------- ----------- ------------- ------------- ------------- -------------
Total current liabilities 12,784,191 - 9,026,703 15,368,200 (18,927) 37,160,167
------------- ----------- ------------- ------------- ------------- -------------
Due to related parties - - 1,168,273 150,865,241 (152,033,514)(b) -
Long-term debt, net of current
maturities 128,556,629 - 145,085,432 254,872 - 273,896,933
------------- ----------- ------------- ------------- ------------- -------------
Total Liabilities 141,340,820 - 155,280,408 166,488,313 (152,052,441) 311,057,100
Commitments and contingencies - - - - - -
Member's Equity (Deficit): (19,981,487) - 12,532,295 935,731 (13,468,026)(b) (19,981,487)
------------- ----------- ------------- ------------- ------------- -------------
Total Liabilities and
Member's Equity
(Deficit) $ 121,359,333 $ - $ 167,812,703 $ 167,424,044 $(165,520,467) $ 291,075,613
============= =========== ============= ============= ============= =============
(a) To eliminate intercompany receivables and payables.
(b) To eliminate intercompany accounts and investment in subsidiaries.
F-33
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. Supplemental Guarantor Financial Information (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31,
2001
MAJESTIC STAR MAJESTIC MAJESTIC INVESTOR GUARANTOR ELIMINATING
CASINO, LLC INVESTOR, LLC HOLDINGS, LLC SUBSIDIARIES ENTRIES CONSOLIDATED
------------- ------------- -------------- ------------ ---------- ------------
REVENUES:
Casino $ 122,194,707 $ - $ - $ 10,358,799 $ - $ 132,553,506
Rooms - - - 1,079,456 - 1,079,456
Food and beverage 1,613,902 - - 1,189,804 - 2,803,706
Other 1,726,703 - 203,858 - 1,930,561
------------- --------- ------------- ------------- ------------- -------------
Gross revenues 125,535,312 - - 12,831,917 - 138,367,229
Less promotional
allowances (5,771,135) - - (2,310,848) - (8,081,983)
------------- --------- ------------- ------------- ------------- -------------
Net Revenues 119,764,177 - - 10,521,069 - 130,285,246
COSTS AND EXPENSES:
Casino 24,101,978 - - 4,111,503 - 28,213,481
Rooms - - - 628,910 - 628,910
Food and beverage 2,317,409 - - 706,947 - 3,024,356
Other - - - 108,732 - 108,732
Gaming taxes 34,026,160 - - 808,464 - 34,834,624
Advertising and promotion 7,595,889 - - 926,226 - 8,522,115
General and administrative 22,671,083 - 26,476 1,543,167 - 24,240,726
Economic incentive - City of
Gary 3,667,100 - - - - 3,667,100
Depreciation and amortization 10,867,708 - 168,930 751,718 - 11,788,356
Loss on disposal of assets 12,114 - - - - 12,114
Pre-opening costs - - 1,018,234 - - 1,018,234
------------- --------- ------------- ------------- ------------- -------------
Total costs and expenses 105,259,441 - 1,213,640 9,585,667 - 116,058,748
------------- --------- ------------- ------------- ------------- -------------
Operating income (loss) 14,504,736 - (1,213,640) 935,402 - 14,226,498
OTHER INCOME (EXPENSE):
Interest income 181,551 - 215,791 2,410 - 399,752
Interest expense (14,817,214) - (1,208,779) (2,081) - (16,028,074)
Other non-operating expense (148,690) - - - - (148,690)
Equity in net income (loss)
of subsidiaries (1,270,897) - 935,731 - (335,166)(a) -
------------- --------- ------------- ------------- ------------- -------------
Total other income
(expense) (16,055,250) - (57,257) 329 (335,166) (15,777,012)
------------- --------- ------------- ------------- ------------- -------------
Net income (loss) $ (1,550,514) $ - $ (1,270,897) $ 935,731 $ (335,166) $ (1,550,514)
============= ========= ============= ============= ============= =============
(a) To eliminate equity in net income (loss) of subsidiaries
F-34
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. Supplemental Guarantor Financial Information (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31,
2001
MAJESTIC STAR MAJESTIC MAJESTIC INVESTOR GUARANTOR ELIMINATING CONSOLIDATED
CASINO, LLC INVESTOR, LLC HOLDINGS, LLC SUBSIDIARIES ENTRIES TOTAL
----------- ------------- ------------- ------------ ------- ------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES: $ 8,840,041 $ 18,500 $ (14,700,259) $ 17,334,730 $ 918,273 $ 12,411,285
------------- ------------- ------------- ------------- ------------- -------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Payments for business acquired,
net of cash acquired - - (143,758,152) - - (143,758,152)
Acquisition of property and
equipment (4,967,152) - - (122,696) - (5,089,848)
Decrease in prepaid leases and
deposits 2,287,437 - - - - 2,287,437
Purchase of naming rights (1,500,000) - - - - (1,500,000)
Proceeds from sale of slot
machines 1,850 - - - - 1,850
Investment in Buffington Harbor
Riverboats, LLC (214,665) - - - - (214,665)
Decrease in restricted cash - 2,000,000 - - - 2,000,000
------------- ------------- ------------- ------------- ------------- -------------
Net cash provided by
(used in) investing
activities (4,392,530) 2,000,000 (143,758,152) (122,696) - (146,273,378)
------------- ------------- ------------- ------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of 11.653%
Senior Secured Notes - - 145,000,400 - - 145,000,400
Deferred financing costs - 1,465,860 (6,815,090) - - (5,349,230)
Member's equity contribution - - 5,000,000 - - 5,000,000
Contribution from Majestic
Investor - (8,803,191) 8,803,191 - - -
Cash received for loan to Barden
Development, Inc. - 2,000,000 - - - 2,000,000
Cash advances to/from related
parties - (250,000) 1,168,273 - (918,273) -
Issuance of loan to Barden
Development, Inc. - - (700,000) - - (700,000)
Line of credit, net (7,800,000) - 6,500,000 - - (1,300,000)
Cash paid to reduce long-term
debt (977,716) - - (5,582) - (983,298)
------------- ------------- ------------- ------------- ------------- -------------
Net cash provided by
(used in) financing
activities (8,777,716) (5,587,331) 158,956,774 (5,582) (918,273) 143,667,872
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in cash
and cash equivalents (4,330,205) (3,568,831) 498,363 17,206,452 - 9,805,779
Cash and cash equivalents,
beginning of period 12,550,681 3,568,831 - - - 16,119,512
------------- ------------- ------------- ------------- ------------- -------------
Cash and cash equivalents, end of
period $ 8,220,476 $ - $ 498,363 $ 17,206,452 $ - $ 25,925,291
============= ============= ============= ============= ============= =============
F-35
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. Supplemental Guarantor Financial Information (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31,
2000
MAJESTIC STAR MAJESTIC
CASINO, LLC INVESTOR, LLC CONSOLIDATED
-------------- ---------------- ---------------
REVENUES:
Casino $ 115,455,271 $ - $ 115,455,271
Food and beverage 1,564,684 - 1,564,684
Other 1,431,304 - 1,431,304
------------- ------------- -------------
Gross revenues 118,451,259 - 118,451,259
Less promotional allowances (4,689,543) - (4,689,543)
------------- ------------- -------------
Net revenues 113,761,716 - 113,761,716
COSTS AND EXPENSES:
Casino 23,787,240 - 23,787,240
Food and beverage 2,402,518 - 2,402,518
Gaming taxes 32,350,368 - 32,350,368
Advertising and promotion 8,347,889 - 8,347,889
General and administrative 22,941,994 250,226 23,192,220
Economic incentive - City of Gary 3,230,679 - 3,230,679
Depreciation and amortization 11,172,350 11,172,350
Loss on disposal of assets 416,904 - 416,904
------------- ------------- -------------
Total costs and expenses 104,649,942 250,226 104,900,168
------------- ------------- -------------
Operating income (loss) 9,111,774 (250,226) 8,861,548
OTHER INCOME (EXPENSE):
Interest income 840,536 52,917 893,453
Interest expense (14,998,377) - (14,998,377)
Other non-operating expense (124,503) - (124,503)
------------- ------------- -------------
Total other income (expense) (14,282,344) 52,917 (14,229,427)
Income (loss) before extraordinary item (5,170,570) (197,309) (5,367,879)
EXTRAORDINARY ITEM:
Loss on bond redemption (382,500) - (382,500)
------------- ------------- -------------
Net loss $ (5,553,070) $ (197,309) $ (5,750,379)
============= ============= =============
F-36
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. Supplemental Guarantor Financial Information (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31,
2000
MAJESTIC STAR MAJESTIC CONSOLIDATED
CASINO, LLC INVESTOR, LLC TOTAL
-------------- -------------- ---------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: $ 6,178,381 $ (1,431,669) $ 4,746,712
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (3,039,635) - (3,039,635)
Sale of slot equipment 179,200 - 179,200
Increase in deposits (98,404) - (98,404)
Investment in Buffington Harbor Riverboats, LLC (7,836,489) - (7,836,489)
Increase in restricted cash - (2,000,000) (2,000,000)
Contribution to Majestic Investor, LLC (9,000,500) 9,000,500 -
Purchase of 49% interest in Gary New Century, LLC - (9,000,000) (9,000,000)
Sale of 49% interest in Gary New Century, LLC - 9,000,000 9,000,000
------------ ------------ ------------
Net cash provided by (used in) investing activities (19,795,828) 7,000,500 (12,795,328)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of 12-3/4% Senior Secured Notes (6,382,500) - (6,382,500)
Decrease in restricted cash 7,357,874 - 7,357,874
Distribution to Barden Development, Inc. (597,610) - (597,610)
Line of credit, net 7,800,000 - 7,800,000
Cash paid to reduce long-term debt (2,154,680) - (2,154,680)
Issuance of loans to Barden Development, Inc. (4,000,000) (2,000,000) (6,000,000)
Cash received for loans to Barden Development, Inc. 4,000,000 - 4,000,000
------------ ------------ ------------
Net cash provided by (used in) financing activities 6,023,084 (2,000,000) 4,023,084
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (7,594,363) 3,568,831 (4,025,532)
Cash and cash equivalents, beginning of period 20,145,044 - 20,145,044
------------ ------------ ------------
Cash and cash equivalents, end of period $ 12,550,681 3,568,831 $ 16,119,512
============ ============ ============
F-37
SCHEDULE II
THE MAJESTIC STAR CASINO, LLC
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2002, DECEMBER 31, 2001 AND DECEMBER 31, 2000
Balance at Charged to Balance at
beginning costs and Cash end
Descriptions of year expenses Recoveries Deductions of year
- ----------------------------------------------------------------------------------------------------------------------
Allowance for doubtful accounts
Year ended December 31, 2000 36,548 140,182 35,270 92,000 120,000
Year ended December 31, 2001 120,000 400,685 35,704 196,687 359,702
Year ended December 31, 2002 359,702 449,335 50,358 486,706 372,689
F-38
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Fitzgeralds Gaming Corporation:
We have audited the accompanying combined balance sheets of Fitzgeralds Las
Vegas, Inc., Fitzgeralds Mississippi, Inc., and 101 Main Street Limited
Liability Company (collectively, the "Properties") (wholly owned subsidiaries of
Fitzgeralds Gaming Corporation, the "Parent") (Debtors-in-Possession) as of
December 6, 2001 and December 31, 2000, and the related combined statements of
operations, stockholder's deficiency, and cash flows for the period from January
1, 2001 through December 6, 2001 and for the years ended December 31, 2000 and
1999. Our audits also included the financial statement schedule of combined
valuation and qualifying accounts listed in the Index on page F-1. These
financial statements and financial statement schedule are the responsibility of
the Properties' management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the financial position of the Properties as of December 6,
2001 and December 31, 2000, and the results of their operations and their cash
flows for the period from January 1, 2001 through December 6, 2001 and for the
years ended December 31, 2000 and 1999 in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, such
financial statement schedule, when considered in relation to the basic combined
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
As discussed in Note 2, the Properties have filed for reorganization under
Chapter 11 of the Federal Bankruptcy Code. The accompanying combined financial
statements do not purport to reflect or provide for the consequences of the
bankruptcy proceedings. In particular, such combined financial statements do not
purport to show (a) as to assets, their realizable value on a liquidation basis
or their availability to satisfy liabilities; (b) as to prepetition liabilities,
the amounts that may be allowed for claims or contingencies, or the status and
priority thereof; (c) as to stockholder accounts, the effect of any changes that
may be made in the capitalization of the Properties; or (d) as to operations,
the effect of any changes that may be made in their business.
F-39
The accompanying combined financial statements have been prepared assuming that
the Properties will continue as a going concern. As discussed in Note 1 to the
combined financial statements, the Parent's event of default on its senior
secured registered notes, which are guaranteed by the Properties, along with the
Properties' recurring losses and stockholder's deficiency raise substantial
doubt about the Properties' ability to continue as a going concern. Parent
management's plans concerning these matters are discussed in Note 2. The
combined financial statements do not include adjustments that might result from
the outcome of this uncertainty.
As discussed in Note 1, on December 6, 2001, the Parent sold substantially all
of the assets and related liabilities of the Properties.
Our audits were conducted for the purpose of forming an opinion on the basic
combined financial statements taken as a whole. The supplemental combining
schedules on pages F-67 through F-80 are presented for purposes of additional
analysis of the basic combined financial statements rather than to present the
financial position, results of operations, and cash flows of the individual
properties, and are not a required part of the basic combined financial
statements. These schedules are the responsibility of the Properties'
management. Such schedules have been subjected to the auditing procedures
applied in our audit of the basic combined financial statements and, in our
opinion, are fairly stated in all material respects when considered in relation
to the basic combined financial statements taken as a whole.
/s/ DELOITTE & TOUCHE LLP
Las Vegas, Nevada
April 8, 2002
F-40
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC. AND
101 MAIN STREET LIMITED LIABILITY COMPANY
(DEBTORS-IN-POSSESSION)
(WHOLLY OWNED SUBSIDIARIES OF FITZGERALDS GAMING
CORPORATION)
COMBINED BALANCE SHEETS
AT DECEMBER 31, AT DECEMBER 6,
2000 2001
------------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,840,011 $ 3,762,566
Accounts receivable, net -- 225,495
Prepaid expenses:
Gaming taxes 265,381 817,590
Other 366,312 780,238
------------- -------------
Total current assets 3,471,704 5,585,889
------------- -------------
OTHER ASSETS:
Net assets held for sale 143,342,890 --
Restricted cash 500,000 --
Accounts receivable -- related parties 5,309 16,762,294
Other assets -- 25,000
------------- -------------
Total other assets 143,848,199 16,787,294
------------- -------------
TOTAL $ 147,319,903 $ 22,373,183
============= =============
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
LIABILITIES NOT SUBJECT TO COMPROMISE
CURRENT LIABILITIES:
Accounts payable $ -- $ 166,073
Due to Majestic -- 3,800,000
Accrued and other:
Payroll and related 491,255 919,143
Other -- 264,732
------------- -------------
Total current liabilities 491,255 5,149,948
NOTES PAYABLE, related party -- 228,825
------------- -------------
Total liabilities not subject to compromise 491,255 5,378,773
LIABILITIES SUBJECT TO COMPROMISE 225,873,496 70,680,462
------------- -------------
Total liabilities 226,364,751 76,059,235
------------- -------------
COMMITMENTS AND CONTINGENCIES (Notes 8 and 13)
STOCKHOLDER'S DEFICIENCY
Common stock -- Fitzgeralds Mississippi, Inc., $.01 par
value; 8,000,000 shares authorized; 8,000,000 shares
issued and outstanding 80,000 80,000
Common stock -- Fitzgeralds Las Vegas, Inc., $.01 par
value; 25,000 shares authorized; 10,000 shares issued
and outstanding 100 100
Additional paid-in-capital 7,586,667 7,586,667
Accumulated deficit (86,711,615) (61,352,819)
------------- -------------
Total stockholder's deficiency (79,044,848) (53,686,052)
------------- -------------
TOTAL $ 147,319,903 $ 22,373,183
============= =============
See notes to historical combined financial statements.
F-41
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC. AND
101 MAIN STREET LIMITED LIABILITY COMPANY
(DEBTORS-IN-POSSESSION)
(WHOLLY OWNED SUBSIDIARIES OF FITZGERALDS GAMING
CORPORATION)
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, FOR THE PERIOD FROM
--------------------------------- JANUARY 1, 2001 TO
1999 2000 DECEMBER 6, 2001
-------------- -------------- -------------------
OPERATING REVENUES:
Casino............................................. $138,928,815 $148,776,855 $150,670,567
Food and beverage.................................. 18,729,064 19,586,213 18,365,243
Rooms.............................................. 16,293,618 16,600,072 15,042,200
Other.............................................. 3,285,207 3,530,032 3,545,338
------------ ------------ ------------
Total....................................... 177,236,704 188,493,172 187,623,348
Less promotional allowances...................... 24,460,048 28,755,624 29,964,002
------------ ------------ ------------
Net......................................... 152,776,656 159,737,548 157,659,346
------------ ------------ ------------
OPERATING COSTS AND EXPENSES:
Casino............................................. 64,146,974 69,113,279 69,757,787
Food and beverage.................................. 11,793,071 11,508,965 10,625,017
Rooms.............................................. 10,701,241 10,904,351 9,818,552
Other.............................................. 1,877,030 1,717,182 1,657,265
Selling, general and administrative................ 40,808,792 39,370,958 37,852,210
Depreciation and amortization...................... 11,726,085 11,687,964 --
Write-down of assets............................... -- -- 13,005,582
Reorganization items............................... -- 38,967 (10,499,075)
------------ ------------ ------------
Total....................................... 141,053,193 144,341,666 132,217,338
------------ ------------ ------------
INCOME FROM OPERATIONS............................... 11,723,463 15,395,882 25,442,008
OTHER INCOME (EXPENSE):
Interest income.................................... 129,654 167,446 38,407
Interest expense................................... (210,314) (71,382) (39,959)
Interest expense -- related party (contractual
interest of $29,279,747 for the year ended
December 31, 2000 and $28,549,207 for 2001)...... (27,989,851) (26,031,023) --
Other, net......................................... 99,012 4,493 (81,660)
------------ ------------ ------------
NET INCOME (LOSS).................................... $(16,248,036) $(10,534,584) $ 25,358,796
============ ============ ============
See notes to historical combined financial statements.
F-42
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC. AND
101 MAIN STREET LIMITED LIABILITY COMPANY
(DEBTORS-IN-POSSESSION)
(WHOLLY OWNED SUBSIDIARIES OF FITZGERALDS GAMING
CORPORATION)
COMBINED STATEMENTS OF STOCKHOLDERS DEFICIENCY
COMMON STOCK ADDITIONAL TOTAL
------------------- PAID-IN ACCUMULATED STOCKHOLDER'S
SHARES AMOUNT CAPITAL DEFICIT DEFICIENCY
--------- ------- ---------- ------------ -------------
BALANCE, JANUARY 1, 1999............ 8,010,000 $80,100 $7,586,667 $(59,928,995) $(52,262,228)
Net loss............................ -- -- -- (16,248,036) (16,248,036)
--------- ------- ---------- ------------ ------------
BALANCE, DECEMBER 31, 1999.......... 8,010,000 80,100 7,586,667 (76,177,031) (68,510,264)
Net loss............................ -- -- -- (10,534,584) (10,534,584)
--------- ------- ---------- ------------ ------------
BALANCE, DECEMBER 31, 2000.......... 8,010,000 80,100 7,586,667 (86,711,615) (79,044,848)
Net income.......................... -- -- -- 25,358,796 25,358,796
--------- ------- ---------- ------------ ------------
BALANCE, DECEMBER 6, 2001........... 8,010,000 $80,100 $7,586,667 $(61,352,819) $(53,686,052)
========= ======= ========== ============ ============
See notes to historical combined financial statements.
F-43
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC. AND
101 MAIN STREET LIMITED LIABILITY COMPANY
(DEBTORS-IN-POSSESSION)
(WHOLLY OWNED SUBSIDIARIES OF FITZGERALDS GAMING
CORPORATION)
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS
ENDED DECEMBER 31, FOR THE PERIOD
--------------------------- JANUARY 1, 2001
1999 2000 TO DECEMBER 6, 2001
------------ ------------ --------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................... $(16,248,036) $(10,534,584) $ 25,358,796
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization....................... 11,726,085 11,687,964 --
Write-down of assets............................. -- -- 13,005,582
Gain on sale of assets to Majestic............... -- -- (11,121,811)
Reorganization items incurred in connection with
Chapter 11 and related legal proceedings....... -- 38,967 622,736
Other............................................ (58,032) 36,487 116,439
Changes in working capital, net of assets sold
and liabilities assumed:
(Increase) decrease in accounts receivable,
net............................................ 136,090 (233,359) (42,071)
(Increase) decrease in inventories............... (135,666) 98,529 66,048
(Increase) decrease in prepaid expenses.......... (401,108) (492,966) 255,985
(Increase) decrease in other assets.............. (130,091) (139,028) 27,115
Increase (decrease) in accounts payable.......... (2,511,838) (1,408,119) 240,806
Increase in due to Majestic...................... -- -- 3,800,000
Increase (decrease) in accrued and other
liabilities.................................... 450,505 (2,124,978) 624,469
Increase (decrease) in amounts due to related
parties, net................................... 15,945,345 15,134,274 (40,404,341)
Increase in liabilities subject to compromise.... -- 106,677 149,835
------------ ------------ ------------
Net cash provided by (used in) operating
activities before reorganization items......... 8,773,254 12,169,864 (7,300,412)
Reorganization items:
Interest received on cash accumulated because of the
bankruptcy proceedings........................... -- -- 171,442
Professional fees paid for services rendered in
connection with the bankruptcy proceedings....... -- -- (38,392)
Other reorganization items incurred in connection
with Chapter 11 and related legal proceedings.... -- (38,967) (755,786)
------------ ------------ ------------
Net cash provided by (used in) operating
activities..................................... 8,773,254 12,130,897 (7,923,148)
------------ ------------ ------------
See Notes To Historical Combined Financial Statements.
F-44
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC. AND
101 MAIN STREET LIMITED LIABILITY COMPANY
(DEBTORS-IN-POSSESSION)
(WHOLLY OWNED SUBSIDIARIES OF FITZGERALDS GAMING CORPORATION)
COMBINED STATEMENTS OF CASH FLOWS (Continued)
ENDED DECEMBER 31, FOR THE PERIOD
--------------------------- JANUARY 1, 2001
1999 2000 TO DECEMBER 6, 2001
------------ ------------ --------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets........................ 77,726 8,463 28,250
Acquisition of property and equipment............... (4,345,588) (9,011,942) (1,054,131)
------------ ------------ ------------
Net cash used in investing activities............ (4,267,862) (9,003,479) (1,025,881)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt......................... (2,975,622) (453,560) (240,288)
------------ ------------ ------------
Net cash used in financing activities............... (2,975,622) (453,560) (240,288)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS......................................... 1,529,770 2,673,858 (9,189,317)
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD......... 8,748,255 10,278,025 2,840,011
(INCREASE) DECREASE IN CASH AND CASH EQUIVALENTS
INCLUDED IN NET ASSETS HELD FOR SALE................ -- (10,111,872) 10,111,872
------------ ------------ ------------
CASH AND CASH EQUIVALENTS END OF PERIOD............... $ 10,278,025 $ 2,840,011 $ 3,762,566
============ ============ ============
See notes to historical combined financial statements.
F-45
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC. AND
101 MAIN STREET LIMITED LIABILITY COMPANY
(DEBTORS-IN-POSSESSION)
(WHOLLY OWNED SUBSIDIARIES OF FITZGERALDS GAMING CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND FINANCIAL STATEMENT PRESENTATION
Fitzgeralds Las Vegas, Inc., Fitzgeralds Mississippi, Inc. and 101 Main Street
Limited Liability Company (collectively, the "Properties") are wholly owned
subsidiaries of Fitzgeralds Gaming Corporation (the "Parent")
(Debtors-in-Possession). Until December 6, 2001 the Properties owned and
operated the Fitzgeralds-brand casino-hotels in downtown Las Vegas, Nevada
("Fitzgeralds Las Vegas"), Tunica, Mississippi ("Fitzgeralds Tunica"), and Black
Hawk, Colorado ("Fitzgeralds Black Hawk"). On December 6, 2001, the Parent sold
substantially all of the assets and related liabilities of Fitzgeralds Las
Vegas, Fitzgeralds Tunica and Fitzgeralds Black Hawk to Majestic Investor
Holdings, LLC ("Majestic"). The Properties are marketed primarily to
middle-market customers, emphasizing their Fitzgeralds brand and their
"Fitzgeralds Irish Luck" theme.
As described in Note 13, the Properties are guarantors, and substantially all of
their assets serve as collateral, under various debt agreements that the Parent
has entered into with outside lenders. The Parent generated net income during
2001 and experienced net losses during 2000 and 1999, is highly leveraged, and
has a stockholders' deficiency at December 6, 2001 and at the end of 2000.
On May 13, 1999, the Parent's Board of Directors determined that, pending a
restructuring of its indebtedness, it would not be in the best interest of the
Parent to make the regularly scheduled interest payments on its 10 7/8% senior
secured registered notes due 2004 (the "Notes"). Accordingly, the Parent has not
paid the regularly scheduled interest payments of $12.5 million that were due
and payable on June 15, 1999, December 15, 1999 and June 15, 2000. Accordingly,
an event of default under the indenture (the "Indenture"), dated December 30,
1997, governing the Notes occurred on July 15, 1999, and continued until the
Parent and the Properties filed a petition for relief under Chapter 11 of the
Bankruptcy Code (the "Petition"). The Parent's contractual interest on the Notes
was $31,390,852 for the period from January 1, 2001 through December 6, 2001 and
was $33,699,003 for the year ended December 31, 2000. No action has been taken
by either the Indenture trustee or the holders of at least 25 percent of the
Notes, as permitted under the Indenture, to accelerate the Notes and declare the
unpaid principal and interest to be due and payable. Failure to make the
scheduled payment on June 15, 1999 resulted in a 1 percent increase in the
interest rate to 13.25 percent, effective June 16, 1999 until the Parent and the
Properties filed the Petition. In accordance with the Indenture, the Parent
began accruing interest on the unpaid interest at 13.25 percent, effective June
16, 1999 until the Parent and the Properties filed the Petition. See Note 2.
The accompanying financial statements have been prepared on a going concern
basis. Such 2001 financial statements are as of and for the period ended
December 6, 2001, the date of the sale of
F-46
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
substantially all of the assets and related liabilities of the Properties to
Majestic. At December 6, 2001, stockholder's deficiency was $53.7 million. The
Parent's inability to meet the interest payments on the Notes, which are
guaranteed by the Properties, along with the Properties' recurring losses in
prior years and stockholder's deficiency, raise substantial doubt about their
ability to continue as a going concern.
2. PETITION FOR RELIEF UNDER CHAPTER 11
GENERAL
On December 5, 2000, the Parent and the Properties commenced cases under Chapter
11 of the Bankruptcy Code (collectively, the "Bankruptcy Cases") in the United
States Bankruptcy Court for the Northern District of Nevada (the "Bankruptcy
Court"). The Bankruptcy Cases are jointly administered and coordinated under
Case No. BK-N-00-33467 GWZ. The Bankruptcy Cases were commenced in accordance
with an Agreement Regarding Pre-Negotiated Restructuring, dated as of December
1, 2000 (the "Restructuring Agreement"), with the holders (the "Consenting
Noteholders") of a majority in interest of the Notes. The Restructuring
Agreement contemplates an expeditious and orderly sale of all of the Parent's
operating assets and properties as going concerns.
Under the terms of the Restructuring Agreement, the Parent is required to seek
buyers for each of its operating businesses. In order to effectuate this
liquidation, the Parent commenced the Bankruptcy Cases and has received approval
from the Bankruptcy Court to sell its operating businesses through negotiated
sales agreements either by way of motion to sell free and clear of liens under
section 363 of the Bankruptcy Code, or under one or more plans of
reorganization.
As part of the restructuring contemplated in the Restructuring Agreement, the
Parent, as debtor-in-possession, sought and obtained Bankruptcy Court approval
to: (i) sell free and clear of liens pursuant to section 363 of the Bankruptcy
Code substantially all of its assets; and (ii) assume and assign pursuant to
section 365 of the Bankruptcy Code contracts used in its operations in Las
Vegas, Nevada, Black Hawk, Colorado and Tunica, Mississippi to an affiliate of
The Majestic Star Casino, LLC, an Indiana limited liability company
("Majestic"), pursuant to a Purchase and Sale Agreement, dated as of November
22, 2000, as amended on December 4, 2000 and November 1, 2001 (the "Purchase
Agreement"). On March 19, 2001, the Bankruptcy Court entered an order approving
the Purchase Agreement with Majestic.
The Restructuring Agreement provides a vehicle for liquidating the assets of the
Parent in the Bankruptcy Court through Chapter 11 of the Bankruptcy Code. Upon
execution of the Restructuring Agreement and before commencement of the
Bankruptcy Cases, the Parent distributed $13.0 million in Excess Cash (as that
term is defined in the Restructuring Agreement) to the trustee under the
Indenture (the "Indenture Trustee") to be applied to unpaid and accrued
Indenture Trustee's fees and expenses incurred and as partial payment of accrued
and unpaid interest and principal as provided in the Indenture. Pursuant to the
Restructuring Agreement and
F-47
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
an order entered by the Bankruptcy Court, the Parent was required to distribute
unrestricted cash (which includes cash in net assets held for sale) in excess of
$24.8 million to holders of its Notes within 45 days after the end of each
quarter. In May, August and November 2001, the Parent distributed $1.8 million,
$7.7 million and $7.2 million, respectively, in Excess Cash to the Indenture
Trustee to be applied to accrued and unpaid interest and principal as provided
in the Indenture. On December 6, 2001, approximately $133.3 million was
distributed to the Indenture Trustee from the proceeds of the December 6, 2001
sale to Majestic. The Parent and the Informal Committee are currently engaged in
discussions to establish a new threshold for cash reserves subsequent to the
December 6, 2001 sale to Majestic. As part of the Restructuring Agreement, the
Consenting Noteholders and the Indenture Trustee agree to forbear from
exercising certain of their rights otherwise allowable under the Notes and the
Indenture.
The parties to the Restructuring Agreement have each concluded that the fair
market value of the Parent's real and personal property given as collateral for
the Notes is less than the total outstanding principal and interest due under
the Notes, and that the fair market value of the real and personal property not
securing the Notes is less than the amount of the unsecured deficiency claim of
the holders of the Notes. As a result, it is not expected that any distribution
will be made to holders of the existing capital stock of the Parent or the
Properties. The Restructuring Agreement requires that as part of the liquidation
process, all of the existing common stock of Fitzgeralds Tunica and Fitzgeralds
Las Vegas is to be canceled and extinguished without payment therefor.
Under the terms of the Restructuring Agreement, upon the closing of each sale of
the Parent's assets, the net proceeds of the collateral for the Notes, less
certain reserves for management incentives and other liabilities, must be
distributed to the Indenture Trustee for the benefit of and distribution to the
holders of the Notes in accordance with the Indenture. All of the Parent's
assets remaining after such sales, including any registered notes received as
part of the consideration for the sales of the Parent's assets and payment of
remaining liabilities of the Parent, will be transferred to a liquidating trust
created for the benefit of the holders of the Notes and others under the terms
of the Restructuring Agreement.
In light of the regulatory approvals needed to accomplish the liquidations, and
recognizing the need to retain senior management in order to insure continuity
and compliance with all gaming regulations and licensing requirements in the
Parent's operations during the process, the Restructuring Agreement required
implementation of a senior management incentive and retention program. After
obtaining Bankruptcy Court approval in December 2000, this program was adopted
by the Parent in order to retain Philip D. Griffith, Michael E. McPherson, Max
L. Page and Paul H. Manske (the "Senior Management"), each an officer, director
and/or senior executive of the Parent, as key executives and to compensate them
for their continued employment with the Parent during the process.
F-48
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Pursuant to the Purchase Agreement, the Parent has agreed to: (i) sell free and
clear of liens pursuant to section 363 of the Bankruptcy Code substantially all
of the Properties' assets; and (ii) assume and assign pursuant to section 365 of
the Bankruptcy Code contracts used in its operations at the Properties, as well
as the Parent's interest in the Fremont Street Experience Limited Liability
Company (collectively, the "Assets") to Majestic for $149.0 million in cash,
subject to certain holdbacks and adjustments, plus the assumption of certain
liabilities relating to the Assets.
The transactions contemplated by the Purchase Agreement were consummated on
December 6, 2001. The purchase price for the Assets was $149.0 million, subject
to certain adjustments and holdbacks specified in the Purchase Agreement, which
resulted in net proceeds prior to distributions of approximately $146.9 million.
Of such amount, $7.7 million was retained by the Parent for cash reserves,
approximately $5.9 million was distributed to Senior Management, in
consideration of non-competition and sales incentives pursuant to the
Restructuring Agreement, and approximately $133.3 million was distributed to
holders of the Notes (on account of the $205.0 million aggregate principal
amount of Notes outstanding and approximately $44.8 million in accrued
pre-petition interest). In addition, during 2001 the Parent distributed
approximately $16.8 million to holders of the Notes in accordance with the
provisions of the Restructuring Agreement.
REORGANIZATION ITEMS
For the period from January 1, 2001 through December 6, 2001 and for the year
ended December 31, 2000, the Properties incurred the following expenses
subsequent to the filing of the Bankruptcy Cases:
2000 2001
------- ------------
Reorganization items:
Post-petition professional fees........................... $ -- $ 38,392
Pre-petition expenses recorded post-petition.............. 38,967 --
U.S. trustee fees......................................... -- 120,000
Other..................................................... -- 635,786
Gain on sale of assets to Majestic........................ -- (11,121,811)
Interest earned on accumulated cash resulting from the
bankruptcy proceedings................................. -- (171,442)
------- ------------
$38,967 $(10,499,075)
======= ============
F-49
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
LIABILITIES SUBJECT TO COMPROMISE
At December 6, 2001 and December 31, 2000, liabilities subject to
compromise consisted of the following:
2000 2001
------------ -----------
Liabilities subject to compromise:
Due to related parties.................................... $225,774,418 $70,414,353
Unsecured creditors....................................... 99,078 266,109
------------ -----------
$225,873,496 $70,680,462
============ ===========
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Combined Financial Statements -- The combined financial statements of the
Properties include the accounts of Fitzgeralds Las Vegas, Inc., Fitzgeralds
Mississippi, Inc. and 101 Main Street Limited Liability Company. All
inter-company balances and transactions have been eliminated.
Cash and Cash Equivalents -- Cash includes cash required for gaming operations.
The Properties consider cash equivalents to include short-term investments with
original maturities of ninety days or less at the date of purchase.
Inventories -- Inventories consist principally of food and beverage and
operating supplies and are stated at the lower of first-in, first-out cost or
market.
The estimated cost of normal operating quantities (base stock) of china,
silverware, glassware, linen, uniforms and utensils has been recorded as an
asset and is not being depreciated. Costs of base stock replacements are
expensed as incurred.
Property and Equipment -- Property and equipment are stated at cost.
Depreciation and amortization are computed using the straight-line method over
the estimated service lives of the assets. Leasehold improvements are amortized
over the life of the lease or the life of the asset, whichever is shorter. Costs
of major improvements are capitalized; costs of normal repairs and maintenance
are charged to expenses as incurred. Gains or losses on disposals are
recognized. Certain of the assets of the Properties were classified as held for
sale upon consummation of the Purchase Agreement with Majestic in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of. This standard requires that assets to be disposed of shall be reported at
the lower of carrying amount or fair value less costs to sell and shall not be
depreciated or amortized while they are held for disposal. The Properties
discontinued recording depreciation and amortization expense on property and
equipment subsequent to the filing of the
F-50
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Bankruptcy Cases and consummation of the Purchase Agreement with Majestic based
on the requirements of SFAS No. 121.
Restricted Cash -- At December 31, 2000, restricted cash represents U.S.
Treasury Notes of $1,000,000 held in an escrow account for the benefit of
certain land lessors related to Fitzgeralds Las Vegas. In 2000, $500,000 of this
amount was reclassified as net assets held for sale. See Note 6.
Goodwill -- Goodwill represents the cost in excess of fair value of the net
assets acquired in purchase transactions. Goodwill is being amortized using the
straight-line method over 40 years and is recorded net of accumulated
amortization. The Properties discontinued the amortization of their goodwill
included in net assets held for sale subsequent to the filing of the Bankruptcy
Cases on December 5, 2000. Furthermore, the Company wrote down $13.0 million of
the asset as of December 6, 2001 due to the sale of Fitzgeralds Black Hawk to
Majestic.
Revenue Recognition -- Casino revenue is the net win from gaming activities,
which is the difference between gaming wins and losses. The majority of our
casino revenue is counted in the form of cash, chips and tokens and therefore is
not subject to any significant or complex estimation procedures. Food and
beverage and room revenues are recognized at retail value at the time the
related service is performed.
Operating revenues include the retail value of rooms, food and beverage, and
other items provided to customers without charge; corresponding charges have
been deducted from revenue in the accompanying combined statements of operations
as promotional allowances in the determination of net operating revenues.
Promotional allowances also include cash-back incentives earned in our Slot
Club. The Properties provide cash-back incentives to patrons who earn a
percentage of their cash wagered using their slot card provided by the
Properties.
The retail value of the complimentaries and the cash-back incentives included in
promotional allowances are as follows:
1999 2000 2001
----------- ----------- -----------
Hotel rooms................................... $ 4,509,181 $ 4,863,935 $ 4,527,788
Food and beverage............................. 9,849,482 10,831,067 10,401,400
Other......................................... 498,476 756,761 819,329
Cash-back incentives.......................... 9,602,909 12,303,861 14,215,485
----------- ----------- -----------
$24,460,048 $28,755,624 $29,964,002
=========== =========== ===========
F-51
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The estimated costs of providing the complimentary services are charged to the
casino department and are as follows:
1999 2000 2001
----------- ----------- -----------
Hotel rooms................................... $ 2,441,182 $ 2,528,282 $ 2,925,396
Food and beverage............................. 10,141,593 10,935,259 10,638,710
Other......................................... 280,998 524,426 572,390
----------- ----------- -----------
$12,863,773 $13,987,967 $14,136,496
=========== =========== ===========
Advertising Costs -- Advertising expenditures are expensed in the period the
advertising initially takes place. Advertising costs included in selling,
general and administrative expenses were $3,860,890 and $3,649,524 for the years
ended December 31, 1999 and 2000, respectively and $3,157,440 for the period
from January 1, 2001 through December 6, 2001.
Federal Income Taxes -- The Properties account for income taxes in accordance
with SFAS No. 109, Accounting for Income Taxes, which requires recognition of
deferred tax assets and liabilities for the expected future tax consequences of
events that have been included in the financial statements or tax returns.
Deferred income taxes reflect the net tax effects of (a) temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, and (b) operating loss
and tax credit carryforwards.
101 Main Street Limited Liability Company is a limited liability company formed
under the laws of the state of Colorado, and, as such, is classified as a
partnership for federal income tax purposes. Accordingly, no provision for
federal or state income taxes was recorded because any taxable income or loss is
included in the corporate income tax return of the Parent.
Financial Reporting Period -- The Properties have adopted a "4-4-5" (weeks)
financial reporting period which maintains a December 31 year-end. This method
of reporting results in 13 weeks in each quarterly accounting period. The first
and fourth accounting periods will have a fluctuating number of days resulting
from the maintenance of a December 31 year-end, whereas the second and third
periods will have the same number of days each year.
Fair Value of Financial Instruments -- The Properties believe, based on current
information, that the carrying value of the Properties' cash and cash
equivalents, restricted cash, accounts receivable, advances, and accounts
payable approximates fair value because of the short maturity of those
instruments.
F-52
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Impairment of Long Lived Assets -- The Properties review long-lived assets and
certain identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If the sum of the expected future cash flows, undiscounted and
without interest charges, is less than the carrying amount of the asset, an
impairment charge is recognized in the amount by which the carrying value of the
asset exceeds its fair market value. The fair value of assets is determined
using the present value of the estimated future cash flows or the expected
selling price less selling costs for assets expected to be disposed of.
Recently Issued Accounting Standards -- On June 30, 1998, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. This statement establishes
accounting and reporting standards for derivative instruments and hedging
activities and is effective for the period ended December 6, 2001. Adoption of
this statement did not have a material impact on the Properties' financial
condition or results of operation.
On January 1, 2001, the Properties implemented Emerging Issues Task Force
("EITF") No. 00-14 Accounting for Certain Sales Incentives, EITF No. 00-21,
Accounting for Multiple-Element Revenue Arrangements, EITF No. 00-22, Accounting
for "Points" and Certain Other Time-Based or Volume-Based Sales Incentive
Offers, and Offers for Free Products or Services to Be Delivered in the Future,
and EITF No. 00-25, Accounting for Consideration from a Vendor to a Retailer in
Connection with the Purchase or Promotion of the Vendor's Products, requiring
cash coupons or rebates to be classified as a reduction of revenue. Prior to
implementation, the Properties had expensed the cash coupons, players club
reward program and other cash back programs as a casino or marketing expense. In
2001, the Properties reclassified their 2000 and 1999 statements of operations
to reflect such expenses as promotional expense thereby reducing net revenue.
This reclassification did not have any effect on the Properties' income from
operations and net income for the current year and previously reported net
losses.
In June 2001, the FASB issued Statement of Financial Accounting Standards No.
141 ("SFAS 141"), Business Combinations, which requires the purchase method of
accounting for business combinations initiated after June 30, 2001 and prohibits
the use of the pooling-of-interest method. The Properties do not believe that
the adoption of SFAS 141 will have a significant impact on their financial
statements.
In June 2001, the FASB issued Statement of Financial Accounting Standards No.
142 ("SFAS 142") Goodwill and Other Intangible Assets, which is effective
January 1, 2002. SFAS 142 requires that goodwill and other intangible assets
with indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually. The Properties discontinued recording the
amortization of goodwill included in net assets held for sale subsequent to
filing
F-53
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
the Bankruptcy Cases. Amortization expense related to goodwill was $0.3 million
for 2000. As of December 6, 2001, the Properties wrote-down $13.0 million of
goodwill due to the sale of Fitzgeralds Black Hawk to Majestic.
Also, in June 2001, the FASB issued Statement of Financial Accounting Standards
No. 143, Accounting for Asset Retirement Obligations, which is effective for
financial statements issued for fiscal years beginning after June 15, 2002. This
statement establishes accounting standards for recognition and measurement of a
liability for an asset retirement obligation and the associated asset retirement
cost. The Properties are currently evaluating the impact that this standard will
have on its financial condition and results of operations.
In August 2001, the FASB issued Statement of Financial Accounting Standards No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets, which is
effective for financial statements issued for fiscal years beginning after
December 15, 2001, and the interim periods within those fiscal years. This
statement addresses financial accounting and reporting for the impairment of
long-lived assets and for long-lived assets to be disposed of, and supersedes
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and For Long-Lived Asset to be Disposed of. The
Properties are currently evaluating the impact that this standard will have on
its financial condition and results of operations.
Bankruptcy Related Accounting -- The Properties have accounted for all
transactions related to the Bankruptcy Cases in accordance with Statement of
Position 90-7 ("SOP 90-7"), Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code, which was issued by the American Institute of
Certified Public Accountants in November 1990. Accordingly, liabilities subject
to compromise under the Bankruptcy Cases have been segregated on the Combined
Balance Sheets and are recorded for the amounts that are expected to be allowed
under the Restructuring Agreement (see Note 2). In addition, the Combined
Statements of Operations and the Combined Statements of Cash Flows for the year
ended December 31, 2000 and for the period from January 1, 2001 through December
6, 2001 disclose expenses related to the Bankruptcy Cases under "Reorganization
Items." The Properties will continue to present their Combined Statements of
Cash Flows using the indirect method.
Use of Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of certain assets and
liabilities at the date of the financial statements. These estimates also affect
the disclosure of contingent liabilities at the date of the financial statements
and the reported amounts of certain revenues and expenses during the reporting
period. Actual results could differ from those estimates.
F-54
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Reclassifications -- Certain amounts in the 1999 and 2000 combined financial
statements have been reclassified to conform to the 2001 method of presentation.
4. STATEMENTS OF CASH FLOWS INFORMATION
The following supplemental disclosure is provided as part of the Combined
Statements of Cash Flows for the years ended December 31, 1999 and 2000 and for
the period from January 1, 2001 through December 6, 2001:
Cash paid for interest, net of amounts capitalized, during the years ended
December 31, 1999 and 2000 and for the period from January 1, 2001 through
December 6, 2001 was $225,072, $67,600 and $48,824, respectively.
Certain non-cash operating, investing and financing activities were as follows:
Long-term contracts payable of $368,888 in 1999 and $368,420 in 2000 were
incurred with the acquisition of new equipment. In 2001, no additional new
equipment was acquired through long-term contracts payable.
See Note 2 and Note 6 for a summary of Liabilities Subject to Compromise and Net
Assets Held for Sale.
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 2000 and
December 6, 2001:
ESTIMATED
2000 2001 SERVICE LIFE
------------- ----- ------------
Land used in casino operations...................... $ 10,748,949 $ -- --
Buildings and improvements.......................... 94,646,085 -- 7-40 years
Site improvements................................... 20,930,897 -- 20 years
Barge and improvements.............................. 12,896,235 -- 15 years
Furniture, fixtures and equipment................... 55,288,988 -- 3-12 years
------------- -----
194,511,154 --
Less accumulated depreciation and amortization...... (70,612,350) --
------------- -----
123,898,804 --
Construction in progress............................ 760,878 --
------------- -----
124,659,682 --
Less net assets held for sale....................... (124,659,682) --
------------- -----
Total............................................... $ -- $ --
============= =====
F-55
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Substantially all property and equipment is pledged as collateral on the
Parent's long-term debt.
6. NET ASSETS HELD FOR SALE
On December 1, 2000, the Parent entered into the Restructuring Agreement with
the Consenting Noteholders. The Restructuring Agreement contemplates an
expeditious and orderly sale of all of the Parent's operating assets and
properties. The transactions contemplated by the Purchase Agreement were
consummated on December 6, 2001. The purchase price for the Assets was $149.0
million, subject to certain adjustments and holdbacks specified in the Purchase
Agreement, which resulted in net proceeds prior to distributions of
approximately $146.9 million.
The components of the net assets held for sale as of December 31, 2000 are as
follows:
FITZGERALDS FITZGERALDS FITZGERALDS
LAS VEGAS TUNICA BLACK HAWK TOTAL
----------- ----------- ----------- ------------
Assets:
Cash and cash equivalents..... $ 3,082,396 $ 5,274,598 $ 1,754,878 $ 10,111,872
Accounts receivable, net of
allowance for doubtful
accounts of $210,586....... 696,054 539,510 55,420 1,290,984
Inventories................... 445,572 445,722 153,204 1,044,498
Prepaid gaming taxes.......... 566,788 -- 48,052 614,840
Other current assets.......... 1,506,705 366,376 109,802 1,982,883
Property and equipment, net... 37,162,537 62,708,013 24,789,132 124,659,682
Goodwill, net of accumulated
amortization of
$1,173,579................. -- -- 13,005,582 13,005,582
Restricted cash............... 500,000 -- -- 500,000
Other non-current assets...... 320,251 461,361 141,363 922,975
Current portion of long term
debt....................... (167,273) (73,015) -- (240,288)
Accounts payable.............. (514,831) (809,013) (227,676) (1,551,520)
Accrued expenses:
Payroll and related........... (1,336,852) (2,349,516) (667,094) (4,353,462)
Progressive jackpots.......... (269,561) (322,665) (387,602) (979,828)
Outstanding chips and
tokens..................... (104,175) (91,247) (39,152) (234,574)
Other......................... (788,550) (1,095,992) (1,152,148) (3,036,690)
Long-term debt.................. (394,064) -- -- (394,064)
----------- ----------- ----------- ------------
$40,704,997 $65,054,132 $37,583,761 $143,342,890
=========== =========== =========== ============
F-56
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT
Long-term debt outstanding at December 31, 2000 and December 6, 2001 is as
follows:
2000 2001
--------- -----
Contracts payable secured by certain equipment due in
maximum aggregate monthly installments of $32,842, with
varying maturity dates through 2005....................... $ 634,352 $ --
--------- -----
Total debt.................................................. 634,352 --
Less net assets held for sale............................... (634,352) --
--------- -----
Long-term debt.............................................. $ -- $ --
========= =====
8. COMMITMENTS
Operating Leases -- In connection with the sale of assets to Majestic, the
Properties' commitments under operating leases were assumed by Majestic.
Such operating lease commitments primarily related to equipment, signs,
warehouses and ground leases on which the Properties' buildings and equipment
reside. Rent expense for the years ended December 31, 1999 and 2000 was
$2,183,428 and $1,732,028, respectively and for the period from January 1, 2001
through December 6, 2001 was $1,164,417.
Employment Agreements -- Consistent with industry practice, the Properties have
entered into employment agreements with certain of their executives and
departmental directors. In accordance with the Restructuring Agreement, the
Properties have agreed not to assume these employment agreements as provided in
Section 365 of the Bankruptcy Code.
9. RELATED PARTY TRANSACTIONS
Amounts due to/from the Parent and other wholly owned subsidiaries of the Parent
at December 6, 2001 includes receivables for $16,762,294, registered notes
payable of $70,414,353 and notes payable of $228,825. Amounts due to/from the
Parent and other wholly owned subsidiaries of the Parent at December 31, 2000
include receivables for $5,309 and registered notes payable of $225,774,418. The
registered notes due to Parent have an effective interest rate of approximately
15.0 percent for 2001 and 2000 and are due December 15, 2004, the due date of
the Notes. Accounts receivable -- related parties of $16,762,294 at December 6,
2001 represents advances made to the Parent by the Properties. These advances
will be used to offset the notes due to the Parent as described above.
During the period from January 1, 2001 through December 6, 2001 and during the
years ended December 31, 2000 and 1999, the Parent allocated approximately
$1,000,000 to Fitzgeralds Las
F-57
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Vegas, Fitzgeralds Tunica, and Fitzgeralds Black Hawk for corporate overhead
allocations. These costs are accounted for as general and administrative
expenses. These corporate overhead allocations have been made in order that the
Properties absorb a portion of the expenses incurred by the Parent on their
behalf including, but not limited to, internal audit, risk management, legal and
corporate accounting services. The allocation method used is based on an equal
distribution to each of the Fitzgeralds operating properties. Management
believes that the allocation method used is reasonable. Specific identification
of these expenses to each of the properties is not practicable.
10. PROFIT SHARING PLAN
The Parent has a contributory profit-sharing plan for eligible employees. The
Parent's contribution to the plan for any year, as determined by the Board of
Directors, is discretionary. Contributions to the plan are allocated among
eligible participants in the proportion of their salaries to the total salaries
of all participants.
The Parent amended the plan to include a 401(k) savings plan whereby eligible
employees may contribute up to 20% of their salary, which is matched by the
Properties at 25 cents per employee dollar contributed, up to a maximum of 6% of
their salary. The Properties' matching contributions were $218,912 and $221,140
for the years ended December 31, 1999 and 2000 and $231,975 for the period from
January 1, 2001 through December 6, 2001.
Each employee age 21 or older completing 1,000 or more hours of service during
the twelve-month period preceding the entry dates, January 1, April 1, July 1 or
October 1, is eligible to participate in the plan.
In addition, the Properties contribute to multi-employer defined contribution
pension plans under various union agreements. Contributions, based on wages paid
to covered employees, were $537,998 and $351,847 for the years ended December
31, 1999 and 2000 and $342,172 for the period from January 1, 2001 through
December 6, 2001.
11. STOCKHOLDER'S DEFICIENCY
The Restructuring Agreement requires that all of the existing common stock of
Fitzgeralds Tunica and Fitzgeralds Las Vegas be canceled and extinguished
without payment therefor. It is not expected that any distribution will be made
to holders of the existing capital stock of the Properties.
As stated above, 101 Main Street Limited Liability Company is a limited
liability company formed under the laws of the state of Colorado. Included in
total stockholder's deficiency on the combined balance sheets is a total
member's equity of $4,663,213 as of December 6, 2001 and
F-58
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
total member's deficiency of $2,331,468 as of December 31, 2000 for 101 Main
Street Limited Liability Company.
12. INCOME TAXES
The Properties are included in Fitzgeralds Gaming Corporation's consolidated tax
return. The information below appears as if the Properties were filing separate
tax returns.
A reconciliation of the income tax benefit with amounts determined by applying
the statutory U.S. Federal income tax rate to combined income (loss) before
taxes is as follows:
1999 2000 2001
----------- ----------- -----------
Tax benefit at U.S. statutory rate............ $ 5,524,332 $ 3,687,104 $(8,774,424)
(Increase) decrease in valuation allowance.... (5,489,867) (3,553,559) 8,738,172
Other......................................... (34,465) (133,545) 36,252
----------- ----------- -----------
Total......................................... $ -- $ -- $ --
=========== =========== ===========
The following summarizes the effect of deferred income tax items and the impact
of "temporary differences" between amounts of assets and liabilities for
financial reporting purposes and such amounts as measured by tax laws.
The tax items comprising the Properties' net deferred tax asset as of December
31, 2000 are as follows:
CURRENT NONCURRENT TOTAL
--------- ------------ ------------
Deferred tax assets:
Accrued and other liabilities.............. $ 588,486 $ -- $ 588,486
Bad debt reserve........................... 31,285 -- 31,285
FICA credits not utilized.................. -- 400,836 400,836
NOL carryforward........................... -- 25,795,441 25,795,441
Other...................................... -- 66,826 66,826
--------- ------------ ------------
619,771 26,263,103 26,882,874
--------- ------------ ------------
Deferred tax liabilities:
Difference between book and tax basis of
property................................ -- (4,548,554) (4,548,554)
Intangibles................................ -- (710,827) (710,827)
Deferred state taxes....................... -- (5,552,056) (5,552,056)
Prepaid expenses........................... (681,523) -- (681,523)
Differences from flow through entity....... -- (98,482) (98,482)
--------- ------------ ------------
(681,523) (10,909,919) (11,591,442)
--------- ------------ ------------
(61,752) 15,353,184 15,291,432
Less: valuation allowance.................... 61,752 (15,353,184) (15,291,432)
--------- ------------ ------------
Net.......................................... $ -- $ -- $ --
========= ============ ============
F-59
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The tax items comprising the Properties' net deferred tax asset as of December
6, 2001 are as follows:
CURRENT NONCURRENT TOTAL
--------- ----------- -----------
Deferred tax assets:
Accrued and other liabilities................ $ 101,787 $ -- $ 101,781
FICA credits not utilized.................... -- 462,862 462,862
NOL carryforward............................. -- 6,232,200 6,232,200
Other........................................ -- 1,743 1,743
--------- ----------- -----------
101,781 6,696,805 6,798,586
--------- ----------- -----------
Deferred tax liabilities:
Deferred state taxes......................... -- (143,546) (143,546)
Prepaid expenses............................. (245,326) -- (245,326)
(245,326) (143,546) (388,872)
--------- ----------- -----------
(143,545) 6,553,259 6,409,714
Less: valuation allowance...................... 143,545 (6,553,259) (6,409,714)
--------- ----------- -----------
Net............................................ $ -- $ -- $ --
========= =========== ===========
Due to the uncertainty of the realization of certain tax carry forward items, a
valuation allowance has been established in the amount of $6.4 million at
December 6, 2001. Realization of a significant portion of the assets offset by
the valuation allowance is dependent on the Properties generating sufficient
taxable income prior to expiration of the loss and credit carryforwards.
As of December 6, 2001, the Properties had a combined net operating loss
carryforward of approximately $17.8 million and a tax credit carryforward of $.7
million, which are available to offset future tax through 2020. The availability
of the loss and credit carryforwards may be subject to limitations under
sections 382 and 383 of the Internal Revenue Code in the event of a significant
change of ownership.
13. CONTINGENCIES
Guarantee -- The Properties are guarantors under various credit agreements,
including the Parent's Notes totaling approximately $99.7 million in outstanding
principal amount. In addition, substantially all of the Properties' assets serve
as collateral under such agreements. Subject to certain exceptions, the
guarantee of the Notes is secured by a lien on substantially all assets of the
Properties other than certain excluded assets, as defined. Such excluded assets
include, among other things, (i) cash, deposit accounts and other cash
equivalents; (ii) furniture, fixtures and equipment securing certain
non-recourse indebtedness; and (iii) any agreements, permits, licenses or the
like that cannot be subjected to a lien without the consent of third parties,
which
F-60
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
consent is not obtainable by the Parent (including all gaming licenses of the
Parent and its restricted subsidiaries as defined), provided that excluded
assets does not include the proceeds of the assets under clauses (ii) or (iii)
or any other collateral to the extent such proceeds do not constitute excluded
assets under clause (i) above. Assets not transferred upon the close of the sale
with Majestic will continue to serve as collateral after the sale.
LEGAL MATTERS
Central City Litigation -- On or about May 25, 2001, City of Central, Colorado
("Central City"), and certain businesses claiming to do business in Central City
commenced an action, Civil Action No. 01-D-0964, in the United States District
Court for the District of Colorado against the City of Black Hawk, Colorado
("Black Hawk"), certain companies alleged to do business in or about Black Hawk
and various individuals.
101 Main Street Limited Liability Company ("101 Main"), a wholly owned
subsidiary of Fitzgeralds Black Hawk, Inc.-II, was named defendant in the
action. The claims against all defendants, including 101 Main, are predicated on
15 U.S.C. section 1 (Restraint of Trade), 15 U.S.C. section 2 (Monopolization),
15 U.S.C. section 2 (Attempted Monopolization), Colorado Revised Statute section
6-4-104 (Restraint of Trade), violation of Colorado Revised Statute section
6-4-105 (Monopolization), Colorado Revised Statute section 6-4-105 (Attempted
Monopolization), 18 U.S.C. section 1962 (Racketeering), Colorado Revised Statute
section 18-17-104 (Colorado Organized Crime Control Act), intentional
interference with prospective economic advantage, civil conspiracy, tortuous
interference with contractual relations and inducing breach of contract. The
plaintiffs in the action are seeking judgment by jury against all defendants for
an amount in excess of $100.0 million. The principal cause of the action
relating to 101 Main is that the defendants, including 101 Main Street Limited
Liability Company, engaged in certain conduct to prevent the construction of a
highway defined as the "Southern Access Road" that would provide access to
travelers directly to Central City from Interstate 70 instead of requiring
passage through Black Hawk.
The complaint was filed after the commencement of the Bankruptcy Cases, and 101
Main has asserted that the action was commenced in violation of the automatic
stay, Section 362(a) of the Bankruptcy Code. On June 21, 2001, the Parent filed
a Notice of Pending Bankruptcy Cases and Existence of the Automatic Stay.
F-61
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
101 Main then obtained an order to show cause why Plaintiffs and their attorneys
should not be held in contempt. Before the hearing, Plaintiffs amended the
complaint to omit 101 Main as a defendant, and Plaintiffs filed two motions with
the Bankruptcy Court, which sought (i) leave to file a late claim in the 101
Main bankruptcy case and (ii) relief from the automatic stay to add 101 Main as
a party defendant to the amended complaint. The amended complaint sought
damages, in an amount alleged to exceed $300,000,000, against the defendants
for, among other matters, RICO and conspiracy.
At a December 10, 2001 hearing, the Bankruptcy Court found that Plaintiffs had
violated the automatic stay and denied Plaintiffs' motion for leave to file a
late claim with the Bankruptcy Court. Furthermore, at this hearing the
Bankruptcy Court denied Plaintiffs' motion for relief from the automatic stay to
add 101 Main as a party defendant to the amended complaint, although it did
allow Plaintiffs to obtain discovery from 101 Main, its agents and
representatives in conjunction with the prosecution of the amended complaint
against other named defendants. On March 28, 2002, the Bankruptcy Court entered
its orders in this regard, which orders are now final and non-appealable.
Other Legal Matters -- The Properties are a party to various lawsuits relating
to routine matters incidental to its business. Except as noted below, the
Properties do not believe that the outcome of such litigation, individually or
in the aggregate, will have any material adverse effect on its financial
condition.
Reliance -- From April 1, 1998 through September 30, 1999, the Properties'
general liability insurance and worker's compensation insurance carrier was
Reliance Insurance Company ("Reliance"). On May 29, 2001, a Pennsylvania court
placed Reliance under the control of the Pennsylvania Insurance Department for
rehabilitation. Thereafter, on October 3, 2001, the Reliance Insurance Company
was declared insolvent and placed under an order of liquidation by the
Pennsylvania Commonwealth Court at the request of the Pennsylvania Insurance
Department. The Properties have not incurred any material amounts for liability
claims or workers compensation claims that would be subject to reimbursement by
Reliance.
However, the statute of limitation has not expired for filing claims and it is
unclear at this time what the insurance coverage would be from Reliance, if any,
in the event that a future claim is filed that would be large enough to result
in an insurance reimbursement from Reliance, or if there is insurance coverage
for an existing claim that is currently under the threshold level for
reimbursement, but increases in the future to an amount eligible for
reimbursement. The reimbursement threshold per claim is $25,000 and $100,000 for
liability claims and worker compensation claims, respectively. At the present
time, the Properties are unable to determine what effect this action may have on
liability and worker's compensation claims which arose during the coverage
period for which Reliance was the Properties' insurance carrier or whether
F-62
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
any limitations on coverage would have a material adverse effect on the
Properties' financial condition.
Holiday Inn -- Upon notification by Majestic of its intent to not enter into a
new franchise agreement with Holiday Inn Franchising, Inc. ("Inns"), the Parent
filed a motion with the Bankruptcy Court on October 26, 2001 to remove its
pre-petition franchise and other agreements with Inns from the list of
agreements to be assumed and assigned to Majestic. On October 26, 2001, the
Bankruptcy Court granted the motion. Since the transactions contemplated by the
Purchase Agreement were consummated on December 6, 2001, the Parent believes
Inns will assert an unsecured claim in the Bankruptcy Cases based upon the
liquidated damages provision of the franchise agreement (approximately $1.6
million). While the Parent would contest the allowance of such a claim by the
Bankruptcy Court, the Parent cannot predict the Bankruptcy Court's ultimate
resolution of such a claim.
14. SEGMENT INFORMATION
Until December 6, 2001, the Properties owned and operated three Fitzgeralds
casino-hotels: downtown Las Vegas, Nevada; Tunica, Mississippi; and Black Hawk,
Colorado. The Properties identify their business in three segments based on
geographic location. The Properties market in each of their segments primarily
to middle-market customers, emphasizing their Fitzgeralds brand and their
"Fitzgeralds Irish Luck" theme. The major products offered in each segment are
as follows: casino, hotel (except for Fitzgeralds Black Hawk) and food and
beverage.
The accounting policies of each business segment are the same as those described
in the summary of significant accounting policies. There are minimal
inter-segment sales. The Properties evaluate business segment performance based
on EBITDA (defined below). Corporate costs are allocated to the business segment
through management fees.
Assets are principally cash and cash equivalents, property and equipment and
goodwill related to the acquisition of the remaining 78% membership interest in
101 Main Street Limited Liability Company. No single customer accounts for more
than 10% of revenue.
F-63
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the Properties' operations by business segment for 1999, 2000 and
2001 is presented below:
FOR THE
PERIOD JANUARY 1,
YEAR ENDED DECEMBER 31, 2001 THROUGH
----------------------- DECEMBER 6,
1999 2000 2001
---------- ---------- -----------------
(IN THOUSANDS)
Net operating revenues:
Fitzgeralds Las Vegas.......................... $ 50,910 $ 52,139 $ 49,435
Fitzgeralds Tunica............................. 69,582 75,062 76,713
Fitzgeralds Black Hawk......................... 32,284 32,537 31,511
-------- -------- --------
Total....................................... $152,776 $159,738 $157,659
======== ======== ========
Income (loss) from operations:
Fitzgeralds Las Vegas.......................... $ (1,115) $ (7) $(23,618)
Fitzgeralds Tunica............................. 5,321 9,018 42,033
Fitzgeralds Black Hawk(1)...................... 7,517 6,385 7,027
-------- -------- --------
Total....................................... $ 11,723 $ 15,396 $ 25,442
======== ======== ========
Reconciliation of total business segment
operating income to combined net
income (loss) before income tax and
extraordinary item:
Total segment operating income................. $ 11,723 $ 15,396 $ 25,442
Interest income................................ 130 167 38
Interest expense............................... (210) (71) (40)
Interest expense -- related party.............. (27,990) (26,031) --
Other, net..................................... 99 4 (81)
-------- -------- --------
Net income (loss) before income tax......... $(16,248) $(10,535) $ 25,359
======== ======== ========
EBITDA(2):
Fitzgeralds Las Vegas(3)....................... $ 2,594 $ 3,692 $(23,618)
Fitzgeralds Tunica............................. 11,553 15,253 42,198
Fitzgeralds Black Hawk......................... 9,303 8,138 7,027
-------- -------- --------
Total....................................... $ 23,450 $ 27,083 $ 25,607
======== ======== ========
F-64
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE
PERIOD JANUARY 1,
YEAR ENDED DECEMBER 31, 2001 THROUGH
----------------------- DECEMBER 6,
1999 2000 2001
---------- ---------- -----------------
(IN THOUSANDS)
Segment depreciation and amortization:
Fitzgeralds Las Vegas.......................... $ 3,709 $ 3,698 $ --
Fitzgeralds Tunica............................. 6,231 6,235 --
Fitzgeralds Black Hawk......................... 1,786 1,755 --
-------- -------- --------
Total....................................... $ 11,726 $ 11,688 $ --
======== ======== ========
Expenditures for additions to long-lived assets:
Fitzgeralds Las Vegas.......................... $ 1,635 $ 1,619 $ 249
Fitzgeralds Tunica............................. 2,393 6,199 627
Fitzgeralds Black Hawk......................... 687 1,518 178
-------- -------- --------
Total....................................... $ 4,715 $ 9,336 $ 1,054
======== ======== ========
AS OF AS OF
DECEMBER 31, DECEMBER 6,
2000 2001
------------ -----------
(IN THOUSANDS)
Segment assets:
Fitzgeralds Las Vegas..................................... $ 42,657 $ 1,789
Fitzgeralds Tunica........................................ 65,943 15,547
Fitzgeralds Black Hawk.................................... 38,728 5,024
-------- -------
Total.................................................. 147,328 22,360
Less: inter-company....................................... (8) 13
-------- -------
Total.................................................. $147,320 $22,373
======== =======
- ---------------
(1) Includes write-down of assets of $13.0 million in 2001 at Fitzgeralds Black
Hawk.
(2) EBITDA is a supplemental financial measurement used by the Company in the
evaluation of its gaming business and by many gaming industry analysts. EBITDA
is calculated by adding depreciation and amortization expense to income from
operations. At any property, EBITDA is calculated after the allocation of
corporate costs. However, EBITDA should only be read in conjunction with all of
the Properties' financial data summarized above and its financial statements
prepared in accordance with generally accepted accounting principles ("GAAP")
appearing elsewhere herein, and should not be construed as an alternative either
to income from
F-65
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC.
AND 101 MAIN STREET LIMITED LIABILITY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
operations (as determined in accordance with GAAP) as an indication of the
Properties' operating performance or to cash flows from operating activities (as
determined in accordance with GAAP) as a measure of liquidity. This presentation
of EBITDA may not be comparable to similarly titled measures reported by other
companies.
(3) Fitzgeralds Las Vegas invested $0.8 million, $0.9 million and $0.9 million
in 2001, 2000 and 1999, respectively, in FSE. Such investment was charged
against earnings as a selling, general and administrative expense.
F-66
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC. AND
101 MAIN STREET LIMITED LIABILITY COMPANY
(DEBTORS-IN-POSSESSION)
(WHOLLY OWNED SUBSIDIARIES OF FITZGERALDS GAMING CORPORATION)
SUPPLEMENTAL COMBINING SCHEDULE--STATEMENT OF OPERATIONS
INFORMATION FOR THE YEAR ENDED DECEMBER 31, 1999
101 MAIN STREET
FITZGERALDS FITZGERALDS LIMITED ELIMINATING
LAS VEGAS, INC. MISSISSIPPI, INC. LIABILITY CO. ENTRIES COMBINED TOTAL
--------------- ----------------- --------------- ----------- --------------
OPERATING REVENUES:
Casino...................... $38,129,610 $ 65,676,465 $35,122,740 $ -- $138,928,815
Food and beverage........... 8,502,928 7,936,527 2,289,609 -- 18,729,064
Rooms....................... 8,465,897 7,827,721 -- -- 16,293,618
Other....................... 1,808,135 1,195,908 281,164 -- 3,285,207
----------- ------------ ----------- ----- ------------
Total................ 56,906,570 82,636,621 37,693,513 -- 177,236,704
Less promotional
allowances................ 5,996,339 13,054,629 5,409,080 -- 24,460,048
----------- ------------ ----------- ----- ------------
Net.................. 50,910,231 69,581,992 32,284,433 -- 152,776,656
----------- ------------ ----------- ----- ------------
OPERATING COSTS AND EXPENSES:
Casino...................... 19,583,057 31,027,932 13,535,985 -- 64,146,974
Food and beverage........... 7,695,608 2,929,046 1,168,417 -- 11,793,071
Rooms....................... 6,101,345 4,599,896 -- -- 10,701,241
Other....................... 906,070 386,663 584,297 -- 1,877,030
Selling, general and
administrative............ 14,029,853 19,085,794 7,693,145 -- 40,808,792
Depreciation and
amortization.............. 3,709,225 6,231,109 1,785,751 -- 11,726,085
----------- ------------ ----------- ----- ------------
Total................ 52,025,158 64,260,440 24,767,595 -- 141,053,193
----------- ------------ ----------- ----- ------------
INCOME (LOSS) FROM
OPERATIONS.................. (1,114,927) 5,321,552 7,516,838 -- 11,723,463
OTHER INCOME (EXPENSE):
Interest income............. 43,422 67,221 19,011 -- 129,654
Interest expense............ (120,596) (65,291) (24,427) -- (210,314)
Interest expense -- related
party..................... (7,951,662) (12,722,660) (7,315,529) -- (27,989,851)
Other, net.................. 100,606 -- (1,594) -- 99,012
----------- ------------ ----------- ----- ------------
F-67
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC. AND
101 MAIN STREET LIMITED LIABILITY COMPANY
(DEBTORS-IN-POSSESSION)
(WHOLLY OWNED SUBSIDIARIES OF FITZGERALDS GAMING CORPORATION)
SUPPLEMENTAL COMBINING SCHEDULE--STATEMENT OF OPERATIONS
INFORMATION FOR THE YEAR ENDED DECEMBER 31, 1999
101 MAIN STREET
FITZGERALDS FITZGERALDS LIMITED ELIMINATING
LAS VEGAS, INC. MISSISSIPPI, INC. LIABILITY CO. ENTRIES COMBINED TOTAL
--------------- ----------------- --------------- ----------- --------------
INCOME (LOSS) BEFORE INCOME
TAXES....................... (9,043,157) (7,399,178) 194,299 -- (16,248,036)
INCOME TAX (PROVISION)
BENEFIT..................... -- -- -- -- --
----------- ------------ ----------- ----- ------------
NET INCOME (LOSS)............. $(9,043,157) $ (7,399,178) $ 194,299 $ -- $(16,248,036)
=========== ============ =========== ===== ============
</Table>
F-68
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC. AND
101 MAIN STREET LIMITED LIABILITY COMPANY
(DEBTORS-IN-POSSESSION)
(WHOLLY OWNED SUBSIDIARIES OF FITZGERALDS GAMING CORPORATION)
SUPPLEMENTAL COMBINING SCHEDULE--STATEMENT OF CASH FLOWS
INFORMATION FOR THE YEAR ENDED DECEMBER 31, 1999
101 MAIN STREET
FITZGERALDS FITZGERALDS LIMITED ELIMINATING
LAS VEGAS, INC. MISSISSIPPI, INC. LIABILITY CO. ENTRIES COMBINED TOTAL
--------------- ----------------- --------------- ----------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................... $(9,043,157) $(7,399,178) $ 194,299 $ -- $(16,248,036)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization..... 3,709,225 6,231,109 1,785,751 -- 11,726,085
Other............................. (59,626) -- 1,594 -- (58,032)
(Increase) decrease in accounts
receivable, net................. 100,735 113,972 (78,617) -- 136,090
Increase in inventories........... (80,012) (23,278) (32,376) -- (135,666)
(Increase) decrease in prepaid
expenses........................ (380,727) (54,012) 33,631 -- (401,108)
(Increase) decrease in other
assets.......................... 41,423 (190,879) 19,365 -- (130,091)
Increase (decrease) in accounts
payable......................... (1,096,585) (1,453,520) 38,267 -- (2,511,838)
Increase (decrease) in accrued and
other liabilities............... (355,418) 1,031,932 (226,009) -- 450,505
Increase (decrease) in amounts due
to related parties, net......... 10,196,712 5,808,510 (59,877) -- 15,945,345
----------- ----------- ---------- ----- ------------
Net cash provided by
operating activities....... 3,032,570 4,064,656 1,676,028 -- 8,773,254
----------- ----------- ---------- ----- ------------
F-69
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC. AND
101 MAIN STREET LIMITED LIABILITY COMPANY
(DEBTORS-IN-POSSESSION)
(WHOLLY OWNED SUBSIDIARIES OF FITZGERALDS GAMING CORPORATION)
SUPPLEMENTAL COMBINING SCHEDULE--STATEMENT OF CASH FLOWS
INFORMATION FOR THE YEAR ENDED DECEMBER 31, 1999
101 MAIN STREET
FITZGERALDS FITZGERALDS LIMITED ELIMINATING
LAS VEGAS, INC. MISSISSIPPI, INC. LIABILITY CO. ENTRIES COMBINED TOTAL
--------------- ----------------- --------------- ----------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets........ 59,626 -- 18,100 -- 77,726
Acquisition of property and
equipment......................... (1,568,093) (2,090,648) (686,847) -- (4,345,588)
----------- ----------- ---------- ----- ------------
Net cash used in investing
activities................. (1,508,467) (2,090,648) (668,747) -- (4,267,862)
----------- ----------- ---------- ----- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt......... (1,511,339) (891,606) (572,677) -- (2,975,622)
----------- ----------- ---------- ----- ------------
Net cash used in financing
activities................. (1,511,339) (891,606) (572,677) -- (2,975,622)
----------- ----------- ---------- ----- ------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS......................... 12,764 1,082,402 434,604 -- 1,529,770
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR............................. 3,113,838 4,104,073 1,530,344 -- 8,748,255
----------- ----------- ---------- ----- ------------
CASH AND CASH EQUIVALENTS, END OF
YEAR................................ $ 3,126,602 $ 5,186,475 $1,964,948 $ -- $ 10,278,025
=========== =========== ========== ===== ============
F-70
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC. AND
101 MAIN STREET LIMITED LIABILITY COMPANY
(DEBTORS-IN-POSSESSION)
(WHOLLY OWNED SUBSIDIARIES OF FITZGERALDS GAMING CORPORATION)
SUPPLEMENTAL COMBINING SCHEDULE--BALANCE SHEET
AT DECEMBER 31, 2000
101 MAIN STREET
FITZGERALDS FITZGERALDS LIMITED ELIMINATING
LAS VEGAS, INC. MISSISSIPPI, INC. LIABILITY CO. ENTRIES COMBINED TOTAL
--------------- ----------------- --------------- ----------- --------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.... $ 1,068,324 $ 684,394 $ 1,087,293 $ -- $ 2,840,011
Prepaid expenses:............ --
Gaming taxes............... 237,196 28,185 -- -- 265,381
Other...................... 133,269 176,266 56,777 -- 366,312
------------ ------------ ----------- -------- ------------
Total current
assets.............. 1,438,789 888,845 1,144,070 -- 3,471,704
------------ ------------ ----------- -------- ------------
OTHER ASSETS:
Net assets held for sale..... 40,704,997 65,054,132 37,583,761 -- 143,342,890
Restricted cash.............. 500,000 -- -- -- 500,000
Long-term accounts
receivable -- related
parties.................... 13,033 -- -- (7,724)(a) 5,309
------------ ------------ ----------- -------- ------------
Total other assets.... 41,218,030 65,054,132 37,583,761 (7,724) 143,848,199
------------ ------------ ----------- -------- ------------
TOTAL.......................... $ 42,656,819 $ 65,942,977 $38,727,831 $ (7,724) $147,319,903
============ ============ =========== ======== ============
F-71
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC. AND
101 MAIN STREET LIMITED LIABILITY COMPANY
(DEBTORS-IN-POSSESSION)
(WHOLLY OWNED SUBSIDIARIES OF FITZGERALDS GAMING CORPORATION)
SUPPLEMENTAL COMBINING SCHEDULE--BALANCE SHEET
AT DECEMBER 31, 2000
101 MAIN STREET
FITZGERALDS FITZGERALDS LIMITED ELIMINATING
LAS VEGAS, INC. MISSISSIPPI, INC. LIABILITY CO. ENTRIES COMBINED TOTAL
--------------- ----------------- --------------- ----------- --------------
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
LIABILITIES NOT SUBJECT TO
COMPROMISE
CURRENT LIABILITIES:
Payroll and related.......... $ 118,409 $ 305,652 $ 67,194 $ -- $ 491,255
------------ ------------ ----------- -------- ------------
Total liabilities not
subject to
compromise.......... 118,409 305,652 67,194 -- 491,255
LIABILITIES SUBJECT TO
COMPROMISE................... 88,396,939 96,492,176 40,992,105 (7,724)(b) 225,873,496
------------ ------------ ----------- -------- ------------
Total liabilities..... 88,515,348 96,797,828 41,059,299 (7,724) 226,364,751
------------ ------------ ----------- -------- ------------
STOCKHOLDER'S DEFICIENCY....... (45,858,529) (30,854,851) (2,331,468) -- (79,044,848)
------------ ------------ ----------- -------- ------------
TOTAL.......................... $ 42,656,819 $ 65,942,977 $38,727,831 $ (7,724) $147,319,903
============ ============ =========== ======== ============
- ---------------
(a) To eliminate intercompany accounts and notes receivable.
(b) To eliminate intercompany accounts and notes payable.
F-72
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC. AND
101 MAIN STREET LIMITED LIABILITY COMPANY
(DEBTORS-IN-POSSESSION)
(WHOLLY OWNED SUBSIDIARIES OF FITZGERALDS GAMING CORPORATION)
SUPPLEMENTAL COMBINING SCHEDULE--STATEMENT OF OPERATIONS
INFORMATION FOR THE YEAR ENDED DECEMBER 31, 2000
101 MAIN STREET
FITZGERALDS FITZGERALDS LIMITED ELIMINATING
LAS VEGAS, INC. MISSISSIPPI, INC. LIABILITY CO. ENTRIES COMBINED TOTAL
--------------- ----------------- --------------- ----------- --------------
OPERATING REVENUES:
Casino................. $38,476,427 $73,506,899 $36,793,529 $ -- $148,776,855
Food and beverage...... 8,541,003 8,658,645 2,386,565 -- 19,586,213
Rooms.................. 8,452,168 8,147,904 -- -- 16,600,072
Other.................. 2,246,343 977,444 306,245 -- 3,530,032
----------- ----------- ----------- ----- ------------
Total.......... 57,715,941 91,290,892 39,486,339 -- 188,493,172
Less promotional
allowances........ 5,576,597 16,229,247 6,949,780 -- 28,755,624
----------- ----------- ----------- ----- ------------
Net............ 52,139,344 75,061,645 32,536,559 -- 159,737,548
----------- ----------- ----------- ----- ------------
OPERATING COSTS AND
EXPENSES:
Casino................. 19,945,222 34,163,968 15,004,089 -- 69,113,279
Food and beverage...... 7,487,388 3,241,141 780,436 -- 11,508,965
Rooms.................. 6,672,465 4,231,886 -- -- 10,904,351
Other.................. 756,129 377,204 583,849 -- 1,717,182
Selling, general and
administrative...... 13,586,618 17,757,582 8,026,758 -- 39,370,958
Depreciation and
amortization........ 3,698,468 6,234,911 1,754,585 -- 11,687,964
Reorganization items... -- 37,015 1,952 -- 38,967
----------- ----------- ----------- ----- ------------
Total.......... 52,146,290 66,043,707 26,151,669 -- 144,341,666
----------- ----------- ----------- ----- ------------
INCOME (LOSS) FROM
OPERATIONS............. (6,946) 9,017,938 6,384,890 -- 15,395,882
OTHER INCOME (EXPENSE):
Interest income........ 49,433 88,699 29,314 -- 167,446
Interest expense....... (52,923) (16,561) (1,898) -- (71,382)
Interest expense --
related party....... (7,386,790) (11,848,387) (6,795,846) -- (26,031,023)
Other, net............. 48,943 (44,450) -- -- 4,493
----------- ----------- ----------- ----- ------------
NET LOSS................. $(7,348,283) $(2,802,761) $ (383,540) $ -- $(10,534,584)
=========== =========== =========== ===== ============
F-73
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC. AND
101 MAIN STREET LIMITED LIABILITY COMPANY
(DEBTORS-IN-POSSESSION)
(WHOLLY OWNED SUBSIDIARIES OF FITZGERALDS GAMING CORPORATION)
SUPPLEMENTAL COMBINING SCHEDULE--STATEMENT OF CASH FLOWS
INFORMATION FOR THE YEAR ENDED DECEMBER 31, 2000
101 MAIN STREET
FITZGERALDS FITZGERALDS LIMITED ELIMINATING
LAS VEGAS, INC. MISSISSIPPI, INC. LIABILITY CO. ENTRIES COMBINED TOTAL
--------------- ----------------- --------------- ----------- --------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss......................... $(7,348,283) $(2,802,761) $ (383,540) $ -- $(10,534,584)
Adjustments to reconcile net loss
to net cash provided by
operating activities:
Depreciation and
amortization................. 3,698,468 6,234,911 1,754,585 -- 11,687,964
Reorganization items incurred
in connection with Chapter 11
and related legal
proceedings.................. -- 37,015 1,952 -- 38,967
Other.......................... (7,963) 44,450 -- -- 36,487
(Increase) decrease in accounts
receivable, net.............. (295,349) (13,680) 75,670 -- (233,359)
(Increase) decrease in
inventories.................. 146,770 (57,423) 9,182 -- 98,529
(Increase) decrease in prepaid
expenses..................... (365,739) 6,734 (133,961) -- (492,966)
(Increase) decrease in other
assets....................... 17,285 (14,950) (141,363) -- (139,028)
Decrease in accounts payable... (746,909) (429,695) (231,515) -- (1,408,119)
Decrease in accrued and other
liabilities.................. (232,349) (1,864,197) (28,432) -- (2,124,978)
Increase in amounts due to
related parties, net......... 7,599,558 6,067,908 1,466,808 -- 15,134,274
Increase in liabilities subject
to compromise................ 33,677 65,267 7,733 -- 106,677
----------- ----------- ----------- ----- ------------
Net cash provided by operating
activities before
reorganization items......... 2,499,166 7,273,579 2,397,119 -- 12,169,864
Reorganization items incurred
in connection with Chapter 11
and related legal
proceedings.................. -- (37,015) (1,952) -- (38,967)
----------- ----------- ----------- ----- ------------
</Table>
F-74
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC. AND
101 MAIN STREET LIMITED LIABILITY COMPANY
(DEBTORS-IN-POSSESSION)
(WHOLLY OWNED SUBSIDIARIES OF FITZGERALDS GAMING CORPORATION)
SUPPLEMENTAL COMBINING SCHEDULE--STATEMENT OF CASH FLOWS
INFORMATION FOR THE YEAR ENDED DECEMBER 31, 2000
101 MAIN STREET
FITZGERALDS FITZGERALDS LIMITED ELIMINATING
LAS VEGAS, INC. MISSISSIPPI, INC. LIABILITY CO. ENTRIES COMBINED TOTAL
--------------- ----------------- --------------- ----------- --------------
Net cash provided by
operating activities.... 2,499,166 7,236,564 2,395,167 -- 12,130,897
----------- ----------- ----------- ----- ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from sale of assets..... 7,963 -- 500 -- 8,463
Acquisition of property and
equipment...................... (1,250,139) (6,243,359) (1,518,444) -- (9,011,942)
----------- ----------- ----------- ----- ------------
Net cash used in investing
activities.............. (1,242,176) (6,243,359) (1,517,944) -- (9,003,479)
----------- ----------- ----------- ----- ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Repayment of long-term debt...... (232,872) (220,688) -- -- (453,560)
----------- ----------- ----------- ----- ------------
Net cash used in financing
activities.............. (232,872) (220,688) -- -- (453,560)
----------- ----------- ----------- ----- ------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS...................... 1,024,118 772,517 877,223 -- 2,673,858
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR................ 3,126,602 5,186,475 1,964,948 -- 10,278,025
INCREASE IN CASH AND CASH
EQUIVALENTS INCLUDED IN NET
ASSETS HELD FOR SALE............. (3,082,396) (5,274,598) (1,754,878) -- (10,111,872)
----------- ----------- ----------- ----- ------------
CASH AND CASH EQUIVALENTS, END OF
YEAR............................. $ 1,068,324 $ 684,394 $ 1,087,293 $ -- $ 2,840,011
=========== =========== =========== ===== ============
</Table>
F-75
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC. AND
101 MAIN STREET LIMITED LIABILITY COMPANY
(DEBTORS-IN-POSSESSION)
(WHOLLY OWNED SUBSIDIARIES OF FITZGERALDS GAMING CORPORATION)
SUPPLEMENTAL COMBINING SCHEDULE--BALANCE SHEET
AT DECEMBER 6, 2001
101 MAIN STREET
FITZGERALDS FITZGERALDS LIMITED ELIMINATING
LAS VEGAS, INC. MISSISSIPPI, INC. LIABILITY CO. ENTRIES COMBINED TOTAL
--------------- ----------------- --------------- ----------- --------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...... $ 726,021 $ 2,388,390 $ 648,155 $ -- $ 3,762,566
Accounts receivable, net....... 3,963 192,532 29,000 -- 225,495
Prepaid expenses:
Gaming taxes................. 783,392 32,360 1,838 -- 817,590
Other........................ 275,749 309,651 194,838 -- 780,238
------------ ----------- ---------- ------- ------------
Total current assets....... 1,789,125 2,922,933 873,831 -- 5,585,889
------------ ----------- ---------- ------- ------------
OTHER ASSETS:
Accounts receivable -- related
parties...................... -- 12,599,516 4,149,702 13,076(a) 16,762,294
Other assets................... -- 25,000 -- 25,000
------------ ----------- ---------- ------- ------------
Total other assets......... -- 12,624,516 4,149,702 13,076 16,787,294
------------ ----------- ---------- ------- ------------
TOTAL............................ $ 1,789,125 $15,547,449 $5,023,533 $13,076 $ 22,373,183
============ =========== ========== ======= ============
F-76
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC. AND 101 MAIN STREET LIMITED LIABILITY COMPANY
(DEBTORS-IN-POSSESSION)
(WHOLLY OWNED SUBSIDIARIES OF FITZGERALDS GAMING CORPORATION) SUPPLEMENTAL COMBINING SCHEDULE--BALANCE SHEET
AT DECEMBER 6, 2001
LIABILITIES AND STOCKHOLDER'S EQUITY
101 MAIN STREET
FITZGERALDS FITZGERALDS LIMITED ELIMINATING COMBINED
LAS VEGAS, INC. MISSISSIPPI, INC. LIABILITY CO. ENTRIES TOTAL
--------------- ----------------- --------------- ----------- ------------
LIABILITIES NOT SUBJECT TO
COMPROMISE
CURRENT LIABILITIES:
Accounts payable $ 166,073 $ -- $ -- $ -- $ 166,073
Due to Majestic 2,405,289 1,716,150 (321,439) -- 3,800,000
Accrued and other:
Payroll and related 204,835 486,628 227,680 -- 919,143
Other 76,034 98,912 89,786 -- 264,732
------------ ------------ ------------ ------------ ------------
Total current
liabilities 2,852,231 2,301,690 (3,973) -- 5,149,948
------------ ------------ ------------ ------------ ------------
NOTE PAYABLE -- RELATED PARTY 215,749 -- -- 13,076(a) 228,825
------------ ------------ ------------ ------------ ------------
Total liabilities not
subject to compromise 3,067,980 2,301,690 (3,973) 13,076 5,378,773
LIABILITIES SUBJECT TO
COMPROMISE 68,245,167 2,071,002 364,293 -- 70,680,462
------------ ------------ ------------ ------------ ------------
Total liabilities 71,313,147 4,372,692 360,320 13,076 76,059,235
------------ ------------ ------------ ------------ ------------
STOCKHOLDER'S DEFICIENCY (69,524,022) 11,174,757 4,663,213 -- (53,686,052)
------------ ------------ ------------ ------------ ------------
TOTAL $ 1,789,125 $ 15,547,449 $ 5,023,533 $ 13,076 $ 22,373,183
============ ============ ============ ============ ============
- ---------------
(a) To eliminate intercompany accounts and notes receivable/payable.
F-77
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC. AND 101 MAIN STREET LIMITED LIABILITY COMPANY
(DEBTORS-IN-POSSESSION)
(WHOLLY OWNED SUBSIDIARIES OF FITZGERALDS GAMING CORPORATION) SUPPLEMENTAL COMBINING SCHEDULE--STATEMENT OF OPERATIONS
INFORMATION FOR THE PERIOD FROM JANUARY 1, 2001 THROUGH DECEMBER 6, 2001
101 MAIN STREET
FITZGERALDS FITZGERALDS LIMITED ELIMINATING COMBINED
LAS VEGAS, INC. MISSISSIPPI, INC. LIABILITY CO. ENTRIES TOTAL
--------------- ----------------- --------------- ----------- ------------
OPERATING REVENUES:
Casino............................ $ 37,401,549 $ 77,462,357 $ 35,806,661 -- $150,670,567
Food and beverage................. 7,619,373 8,480,323 2,265,547 -- 18,365,243
Rooms............................. 7,421,444 7,620,756 -- -- 15,042,200
Other............................. 2,150,660 1,114,620 280,058 -- 3,545,338
------------ ------------ ------------ --- ------------
Total......................... 54,593,026 94,678,056 38,352,266 -- 187,623,348
Less promotional allowances......... 5,157,564 17,965,548 6,840,890 -- 29,964,002
------------ ------------ ------------ --- ------------
Net........................... 49,435,462 76,712,508 31,511,376 -- 157,659,346
------------ ------------ ------------ --- ------------
OPERATING COSTS AND EXPENSES:
Casino............................ 19,802,333 35,536,411 14,419,043 -- 69,757,787
Food and beverage................. 6,692,684 3,041,117 891,216 -- 10,625,017
Rooms............................. 6,357,318 3,461,234 -- -- 9,818,552
Other............................. 582,166 440,179 634,920 -- 1,657,265
Selling, general and
administrative.................. 13,792,262 16,194,550 7,865,398 -- 37,852,210
Depreciation and amortization..... -- -- -- -- --
Reorganization items.............. 25,826,705 (23,994,013) (12,331,767) -- (10,499,075)
Write-down of assets.............. 13,005,582 -- 13,005,582
------------ ------------ ------------ --- ------------
Total......................... 73,053,468 34,679,478 24,484,392 -- 132,217,338
------------ ------------ ------------ --- ------------
INCOME (LOSS) FROM OPERATIONS....... (23,618,006) 42,033,030 7,026,984 -- 25,442,008
OTHER INCOME (EXPENSE)
Interest income................... 38,407 -- -- -- 38,407
Interest expense.................. (34,637) (5,322) -- -- (39,959)
Other, net........................ (51,258) 1,900 (32,302) -- (81,660)
------------ ------------ ------------ --- ------------
NET INCOME (LOSS)................... $(23,665,494) $ 42,029,608 $ 6,994,682 $-- $ 25,358,796
============ ============ ============ === ============
F-78
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC. AND 101 MAIN STREET LIMITED LIABILITY COMPANY
(DEBTORS-IN-POSSESSION)
(WHOLLY OWNED SUBSIDIARIES OF FITZGERALDS GAMING CORPORATION) SUPPLEMENTAL COMBINING SCHEDULE--STATEMENT OF CASH FLOWS
INFORMATION FOR THE PERIOD FROM JANUARY 1, 2001 THROUGH DECEMBER 6, 2001
101 MAIN STREET
FITZGERALDS FITZGERALDS LIMITED ELIMINATING COMBINED
LAS VEGAS, INC. MISSISSIPPI, INC. LIABILITY CO. ENTRIES TOTAL
--------------- ----------------- --------------- ----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................ $(23,665,494) $ 42,029,608 $ 6,994,682 $-- $ 25,358,796
Adjustments to reconcile net income (loss) to
net cash used in operating activities
Write-down of assets......................... -- -- 13,005,582 -- 13,005,582
(Gain) loss on sale of assets to Majestic.... 25,290,831 (24,079,205) (12,333,437) -- (11,121,811)
Reorganization items incurred in connection
with Chapter 11 and related legal
proceedings................................ 535,874 85,192 1,670 -- 622,736
Other........................................ 89,632 (1,900) 28,707 -- 116,439
(Increase) decrease in accounts receivable,
net........................................ 36,093 (24,085) (54,079) -- (42,071)
Decrease in amounts due to related parties,
net........................................ (8,418,141) (22,898,876) (9,087,324) -- (40,404,341)
(Increase) decrease in inventories........... 66,699 28,960 (29,611) -- 66,048
(Increase) decrease in prepaid expenses...... 424,323 (65,417) (102,921) -- 255,985
(Increase) decrease in other assets.......... 34,204 (7,089) -- -- 27,115
Increase (decrease) in accounts payable...... 799,009 (451,016) (107,187) -- 240,806
Increase (decrease) in due to Majestic....... 2,405,290 1,716,150 (321,440) -- 3,800,000
Increase (decrease) in liabilities subject to
compromise................................. 16,298 125,805 7,732 -- 149,835
Increase (decrease) in accrued and other
liabilities................................ (87,589) 756,736 (44,678) -- 624,469
------------ ------------ ------------ --- ------------
Net cash used in operating activities before
reorganizational items..................... (2,472,971) (2,785,137) (2,042,304) -- (7,300,412)
Reorganization items:
Interest received on cash accumulated because
of the bankruptcy proceedings.............. -- 119,848 51,594 -- 171,442
Professional fees paid for services rendered
in connection with the bankruptcy
proceedings................................ (25,128) -- (13,264) -- (38,392)
Other reorganization items incurred in
connection with Chapter 11 and related
legal proceedings.......................... (510,746) (205,040) (40,000) -- (755,786)
------------ ------------ ------------ --- ------------
Net cash used in operating activities........ (3,008,845) (2,870,329) (2,043,974) -- (7,923,148)
------------ ------------ ------------ --- ------------
F-79
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC. AND 101 MAIN STREET LIMITED LIABILITY COMPANY
(DEBTORS-IN-POSSESSION)
(WHOLLY OWNED SUBSIDIARIES OF FITZGERALDS GAMING CORPORATION) SUPPLEMENTAL COMBINING SCHEDULE--STATEMENT OF CASH FLOWS
INFORMATION FOR THE PERIOD FROM JANUARY 1, 2001 THROUGH DECEMBER 6, 2001
101 MAIN STREET
FITZGERALDS FITZGERALDS LIMITED ELIMINATING COMBINED
LAS VEGAS, INC. MISSISSIPPI, INC. LIABILITY CO. ENTRIES TOTAL
--------------- ----------------- --------------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of assets................ -- -- 28,250 -- 28,250
Acquisition of property and equipment........ (248,581) (627,258) (178,292) -- (1,054,131)
------------ ------------ ------------ --- ------------
Net cash used in investing activities........ (248,581) (627,258) (150,042) -- (1,025,881)
------------ ------------ ------------ --- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt.................. (167,273) (73,015) -- -- (240,288)
------------ ------------ ------------ --- ------------
Net cash used in financing activities........ (167,273) (73,015) -- -- (240,288)
------------ ------------ ------------ --- ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS.... (3,424,699) (3,570,602) (2,194,016) -- (9,189,317)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD..................................... 1,068,324 684,394 1,087,293 -- 2,840,011
INCREASE IN CASH AND CASH EQUIVALENTS
INCLUDED IN NET ASSETS HELD FOR SALE....... 3,082,396 5,274,598 1,754,878 -- 10,111,872
------------ ------------ ------------ --- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD..... $ 726,021 $ 2,388,390 $ 648,155 $-- $ 3,762,566
============ ============ ============ === ============
F-80
SCHEDULE II
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC. AND 101 MAIN STREET LIMITED LIABILITY COMPANY
(DEBTORS-IN-POSSESSION)
(WHOLLY OWNED SUBSIDIARIES OF FITZGERALDS GAMING CORPORATION)
COMBINED VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND BALANCE AT
DESCRIPTION PERIOD EXPENSES DEDUCTIONS(1) END OF PERIOD
- ------------------------------------------ ------------ ---------- ------------- -------------
Allowance for doubtful accounts receivable
Period from
January 1, 2001 to
December 6, 2001........................ $ 210,586 $ 209,983 $(223,670) $ 196,899
Year ended December 31, 2000.............. 356,397 98,242 (244,053) 210,586
Year ended December 31, 1999.............. 291,925 414,716 (350,244) 356,397
(1) Write-offs of uncollectible accounts receivable, net of recoveries
F-81
Report of Independent Auditors
To the Members of
Buffington Harbor Riverboats, L.L.C.
We have audited the accompanying balance sheet of Buffington Harbor Riverboats,
L.L.C. (a Delaware limited liability company) as of December 31, 2002, and the
related statements of operations, members' capital, and cash flows for the year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Buffington Harbor Riverboats,
L.L.C. at December 31, 2002, and the results of its operations and its cash
flows for the year then ended, in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
January 18, 2003
F-82
The following report of Arthur Andersen LLP is a copy of a previously issued
report that has not been reissued by Arthur Andersen LLP. The report of Ernst &
Young LLP included in this Form 10-K relates to the year ended December 31,
2002. Consequently, for the purposes of this Form 10-K, the following report of
Arthur Andersen LLP, which is the most recently issued report, relates only to
the years ended December 31, 2001 and 2000.
Report of Independent Public Accountants
To the Members of
Buffington Harbor Riverboats, L.L.C.
We have audited the accompanying balance sheets of Buffington Harbor Riverboats,
L.L.C. (a Delaware limited liability company) as of December 31, 2001 and 2000,
and the related statements of operations, members' capital, and cash flows for
each of the three years in the period ended December 31, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Buffington Harbor Riverboats,
L.L.C. as of December 31, 2001 and 2000, and the results of its operations and
its cash flows for the three years in the period ended December 31, 2001, in
conformity with accounting principles generally accepted in the United States.
/s/ Arthur Andersen LLP
Roseland, New Jersey
January 30, 2002
F-83
BUFFINGTON HARBOR RIVERBOATS, L.L.C
BALANCE SHEET
DECEMBER 31, 2002 AND 2001
ASSETS 2002 2001
------ ---- ----
CURRENT ASSETS:
Cash $ 50,505 $ 317,646
Trade Receivables 92,787 26,014
Inventory 181,292 310,348
Prepaid expenses and other current assets 116,951 127,993
----------- -----------
Total current assets 441,535 782,001
PROPERTY, PLANT AND EQUIPMENT, NET (NOTES 2 AND 3) 65,616,042 69,650,069
OTHER ASSETS 108,414 111,478
----------- -----------
Total assets $66,165,991 $70,543,548
=========== ===========
LIABILITIES AND MEMBERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable $ 712,876 $ 435,325
Accrued expenses 1,435,326 1,752,105
Due to members' (Note 2) 351,167 558,469
----------- -----------
Total current liabilities 2,499,369 2,745,899
COMMITMENTS AND CONTINGENCIES (Note 4)
MEMBERS' CAPITAL 63,666,622 67,797,649
----------- -----------
Total liabilities and members' capital $66,165,991 $70,543,548
=========== ===========
The accompanying notes to financial statements are an integral part of these
balance sheets
F-84
BUFFINGTON HARBOR RIVERBOATS, L.L.C
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
-----------------------------------------------------
2002 2001 2000
------------ ------------ ------------
REVENUES:
Food and beverage $ 1,343,800 $ 1,495,123 $ 4,017,032
Other (Note 2) 14,751,565 14,973,458 13,796,980
------------ ------------ ------------
Net revenues 16,095,365 16,468,581 17,814,012
------------ ------------ ------------
COST AND EXPENSES:
Food and beverage 2,646,737 2,725,991 2,483,154
General and administrative 13,026,312 13,659,254 13,151,389
Depreciation 4,848,501 5,595,497 6,260,583
Other 368,375 469,459 269,220
------------ ------------ ------------
20,889,925 22,450,201 22,164,346
------------ ------------ ------------
Loss from operations (4,794,560) (5,981,620) (4,350,334)
INTEREST INCOME, net (54,303) 386,145 232,996
------------ ------------ ------------
Net loss $ (4,848,863) $ (5,595,475) $ (4,117,338)
============ ============ ============
The accompanying notes to financial statements are an integral part of these
statements.
F-85
BUFFINGTON HARBOR RIVERBOATS, L.L.C
STATEMENT OF MEMBERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, and 2000
-----------------------------------------------------
Retained
Member Earnings
Contributions (Deficit) Total
------------- ------------- -------------
BALANCE, December 31,1999 100,098,408 (23,805,982) 76,292,426
Capital contributions made by Trump Indiana, Inc. 737,322 - 737,322
Capital contributions made by Majestic Star Casino, LLC 7,836,489 - 7,836,489
Net loss - (4,117,338) (4,117,338)
------------- ------------- -------------
BALANCE, December 31, 2000 108,672,219 (27,923,320) 80,748,899
Capital contributions made by Trump Indiana, Inc. 214,759 - 214,759
Capital contributions made by Majestic Star Casino, LLC 214,666 - 214,666
Transfer of assignment of BHPA interest receivable (Note 4) (343,016) - (343,016)
Transfer of assignment of BHPA note receivable (Note 4) (7,442,184) - (7,442,184)
Net loss - (5,595,475) (5,595,475)
------------- ------------- -------------
BALANCE, December 31, 2001 101,316,444 (33,518,795) 67,797,649
Capital contributions made by Trump Indiana, Inc. 358,918 - 358,918
Capital contributions made by Majestic Star Casino, LLC 358,918 - 358,918
Net loss - (4,848,863) (4,848,863)
------------- ------------- -------------
BALANCE, December 31, 2002 $ 102,034,280 $ (38,367,658) $ 63,666,622
============= ============= =============
The accompanying notes to financial statements are an integral part of these
statements.
F-86
BUFFINGTON HARBOR RIVERBOATS, L.L.C.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
-----------------------------------------------------
2002 2001 2000
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,848,863) $ (5,595,475) $ (4,117,338)
Adjustments to reconcile net loss to net cash flows provided
by (used in) operating activities-
Depreciation 4,848,501 5,595,497 6,260,583
Deferred rent - - (2,142,845)
Loss on disposal of fixed assets 10,861
Changes in operating assets and liabilities-
(Increase) decrease in trade receivables (66,773) 180,743 (146,574)
(Increase) decrease in inventory 129,056 (81,829) 26,962
(Increase) decrease in prepaid expenses and other current assets 11,042 41,212 (39,227)
(Increase) decrease in due from affiliate - 14,402,010 (14,402,010)
(Increase) decrease in other assets 3,064 5,477 155,777
Increase (decrease) in accounts payable 277,551 (990,074) 605,507
Increase (decrease) in accrued expenses (316,779) (35,114) 181,523
Increase (decrease) in due to members' (207,302) 1,108,416 (173,182)
------------ ------------ ------------
Net cash flows (used in) provided by operating activities (159,642) 14,630,863 (13,790,824)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net (825,335) (145,196) (1,688,037)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital distributions, net of contributions 717,836 (7,355,775) 8,573,811
Member advance - (7,099,167) 7,099,167
------------ ------------ ------------
Net cash flows provided by financing activities 717,836 (14,454,942) 15,672,978
------------ ------------ ------------
Net increase (decrease) in cash (267,141) 30,725 194,117
CASH BEGINNING OF PERIOD 317,646 286,921 92,804
------------ ------------ ------------
CASH END OF PERIOD $ 50,505 $ 317,646 $ 286,921
============ ============ ============
The accompanying notes to financial statements are an integral part of these
statements.
F-87
Buffington Harbor Riverboats, L.L.C.
Notes to Financial Statements
December 31, 2002
1. ORGANIZATION AND OPERATIONS
Trump Indiana, Inc. (Trump Indiana) and The Majestic Star Casino, LLC (Barden),
the two holders of certificates of suitability for the Gary, Indiana riverboat
casinos, formed Buffington Harbor Riverboats, L.L.C. (BHR) on September 27, 1995
and have entered into an agreement (the BHR Agreement) relating to the joint
ownership, development, and operation of all common land-based and waterside
operations in support of the Trump Indiana and Barden riverboat casinos. Under
the BHR Agreement, BHR acquired property and constructed common roadways,
utilities, and other infrastructure improvements on BHR's property.
The BHR Agreement terminates on December 31, 2035, but may be extended through
Trump Indiana's and Barden's mutual consent.
The BHR Agreement provides the framework for the operations of BHR. BHR relies
on the continued financial support of Trump Indiana and Barden in order to
support its operating activities and to meet its current working capital
obligations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Under the terms of the BHR Agreement, all expenditures requiring a cash outlay
by BHR are billed to Trump Indiana and Barden at cost. Accordingly, BHR records
as expenses the cost of providing such services and records as other revenues
the amounts billed to Trump Indiana and Barden.
ADVERTISING COSTS
Included in the land-based and waterside operations is the advertising of joint
venture interests. BHR expenses advertising costs as incurred. Advertising costs
were $290,945, $167,168, and $258,729 for 2002, 2001, and 2000, respectively.
F-88
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment is carried at cost. Property, plant, and
equipment is depreciated on the straight-line method over the following useful
lives:
Land improvements 15 years
Building 40 years
Building improvements 5-10 years
Harbor improvements 10-15 years
Furniture, fixtures, and equipment 5 years
INCOME TAXES
BHR makes no provision (benefit) for income taxes since taxable income (loss) is
allocated to the members for inclusion in their respective income tax returns.
LONG-LIVED ASSETS
BHR accounts for long-lived assets under the provisions of Statement of
Financial Accounting Standard No. 144, Accounting for the Impairment or Disposal
of Long-Lived Assets (SFAS No. 144). SFAS No. 144 requires, among other things,
that an entity review its long-lived assets and certain related intangibles for
impairment whenever changes in circumstances indicate that the carrying amount
of an asset may not be fully recoverable. BHR had assets no longer operable and
in use at December 31, 2002. BHR took a loss on impairment charge of $18,694 in
2002 to record the disposal of these assets in compliance with SFAS No. 144.
3. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment is comprised of the following:
2002 2001
-------------------------------
Land and land improvements $ 34,469,021 $ 34,469,021
Building and building improvements 40,475,757 40,400,529
Harbor improvements 19,628,473 19,519,620
Furniture, fixtures, and equipment 8,439,418 7,939,228
Construction-in-progress 44,009 -
-------------------------------
103,056,678 102,328,398
Less - accumulated depreciation 37,440,636 32,678,329
-------------------------------
Total property, plant, and equipment, net $ 65,616,042 $ 69,650,069
===============================
F-89
4. COMMITMENTS AND CONTINGENCIES
INDIANA GAMING REGULATIONS
The ownership and operation of riverboat gaming operations in Indiana are
subject to 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
suppliers to, and employees at, riverboat gaming operations and to approve the
form of ownership and financial structure of not only riverboat owner and
supplier licensees, but also their entity qualifiers and intermediary and
holding companies. Indiana regulations continue to be revised and adopted by the
IGC. 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 operations of BHR, Trump Indiana, and Barden.
LEASES
Under a lease agreement assumed by BHR from Trump Indiana with Lehigh Portland
Cement Co. (Lehigh Cement), BHR leased certain property which is integral to the
gaming operations of Trump Indiana and Barden (the BHR Lease). The BHR Lease was
rent free through December 29, 1997 and subject to certain conditions, primarily
continuing progress toward permitting and construction of a new harbor, the BHR
Lease was to extend until the earlier of December 31, 2005 or the completion of
a new harbor. Subsequent to the original 30-month term and beginning January
1998, BHR was required to make payments of $125,000 per month for the remainder
of the lease term. As of December 31, 1999, BHR had recorded deferred rent
expense of $2,142,845.
In September 2000, Buffington Harbor Parking Associates (BHPA), a joint venture
formed by Trump Indiana and Barden for the purpose of constructing a garage,
purchased for $15,000,000 (the Purchase) the Lehigh Cement property, which was
subject to the BHR Lease, and at such time the BHR Lease was terminated. In
order to finance this purchase, BHR advanced BHPA $14,182,856, with interest at
6%, and acquired one acre of land from BHPA for $817,144. In connection with the
Purchase, the members advanced $7,099,167 and contributed $7,900,833 to BHR,
which was used to fund the advance to BHPA and acquire the one acre of land. As
a result of the above, BHR reversed $1,874,986 of deferred rent expense into
income in 2000.
F-90
4. COMMITMENTS AND CONTINGENCIES (CONTINUED)
LEASES (CONTINUED)
In June 2001, BHR and BHPA terminated the BHPA agreement. A new agreement was
reached between BHR, Barden, and Trump Indiana in which BHR transferred half of
the loan receivable as a return of capital to Barden in the amount of
$7,099,167. Trump Indiana was assigned half of the loan receivable, $7,099,167,
in satisfaction of the advance. In addition, BHR distributed half of the accrued
interest receivable, $308,669, and an additional $34,347 as a return of capital
to each member in order to finance the construction of the garage.
BHR has historically had noncancelable office equipment and vehicle leases.
During 2001, BHR exercised its purchase options on all vehicles under lease. As
of December 31, 2002, only office equipment leases are noncancelable. Rental
expense for all operating leases was $500,000, $412,309, and $1,367,607 for
2002, 2001, and 2000 respectively. Minimum rental payments under noncancelable
operating leases are $6,000 and $4,500 for 2003 and 2004, respectively, and
nothing thereafter.
OTHER
The Company is currently undergoing a sales and use tax examination by the
Indiana Department of Revenue for the tax years 1998 to 2001. Although the
outcome of this examination is not complete, the Company believes there will be
no material impact to the Company's financial condition or results of
operations.
F-91
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 March 31, 2003
---------------------------------------------------
Don H. Barden, Manager, Chairman, President and Chief Executive Officer
By: /s/ Jon S. Bennett March 31, 2003
---------------------------------------------------
Jon S. Bennett, Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
THE MAJESTIC STAR CAPITAL CORPORATION
By: /s/ Don H. Barden March 31, 2003
---------------------------------------------------
Don H. Barden, President and Chief Executive Officer
By: /s/ Jon S. Bennett March 31, 2003
---------------------------------------------------
Jon S. Bennett, Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
S-1
CERTIFICATIONS
I, Don H. Barden, certify that:
1. I have reviewed this annual report on Form 10-K of The Majestic
Star Casino, LLC and The Majestic Star Casino Capital Corp.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact necessary to make the statements
made, in light of the circumstances under with such statements were
made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented
in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: March 31, 2003
/s/ Don H. Barden
- ---------------------------------------------
Don H. Barden
Manager, Chairman, President and Chief Executive Officer
C-1
I, Jon S. Bennett, certify that:
1. I have reviewed this annual report on Form 10-K of The Majestic
Star Casino, LLC and The Majestic Star Casino Capital Corp.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact necessary to make the statements
made, in light of the circumstances under with such statements were
made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented
in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: March 31, 2003
/s/ Jon S. Bennett
- ------------------------------------
Jon S. Bennett
Vice President and Chief Financial Officer
C-2
EXHIBIT INDEX
Certain of the following exhibits have been previously filed with the Securities
and Exchange Commission by the Company or by Investor Holdings pursuant to the
requirements of the Securities Act of 1933 and the Securities Exchange Act of
1934. Such exhibits are identified by the parenthetical references following the
listing of each such exhibit and are incorporated herein by reference. Exhibits
previously filed by Investor Holdings are identified as such; all other
previously filed exhibits were filed by the Company. The Company's Commission
file number is 333-06489 and Investor Holdings' Commission file number is
333-81584.
Exhibit No. Description of Document
- ----------- -----------------------
2.1 Purchase and Sale Agreement dated as of November 22, 2000 by and among
Majestic Investor, LLC, Fitzgerald's Las Vegas, Inc., 101 Main Street
Limited Liability Company, Fitzgerald's Mississippi, Inc., Fitzgerald's
Gaming Corporation and certain affiliates of the foregoing parties, as
amended by the First Amendment thereto dated as of December 4, 2000
(Form 10-K for the year ended December 31, 2000)
2.2 Second Amendment to Purchase and Sale Agreement dated as of November 1,
2001 by and among Majestic Investor Holdings, LLC, Majestic Investor,
LLC, Barden Nevada Gaming, LLC, Barden Mississippi Gaming, LLC, Barden
Colorado Gaming, LLC, Fitzgeralds Las Vegas, Inc., 101 Main Street
Limited Liability Company, Fitzgeralds Mississippi, Inc. and
Fitzgeralds Gaming Corporation (Form 8-K filed December 13, 2001)
3.1 Amended and Restated Articles of Organization of The Majestic Star
Casino, LLC (Registration Statement No. 333-06489)
3.2 Third Amended and Restated Operating Agreement of The Majestic Star
Casino, LLC dated as of March 29, 1996 (Registration Statement No.
333-06489)
3.3 First Amendment of Third Amended and Restated Operating Agreement of
The Majestic Star Casino, LLC, dated as of June 18, 1999 (Registration
Statement No. 333-85089)
3.4 Articles of Incorporation of The Majestic Star Casino Capital Corp.
(Registration Statement No. 333-85089)
3.5 Bylaws of The Majestic Star Casino Capital Corp. (Registration
Statement No. 333-85089)
4.1 Indenture dated as of June 18, 1999 by and among The Majestic Star
Casino, LLC, The Majestic Star Casino Capital Corp., and IBJ Whitehall
Bank & Trust Company, as Trustee (Registration Statement No. 333-85089)
4.2 Security Agreement dated as of June 18, 1999 by and between The
Majestic Star Casino, LLC and IBJ Whitehall Bank & Trust Company
(Registration Statement No. 333-85089)
E-1
4.3 Trademark Security Agreement dated as of June 18, 1999 by and between
The Majestic Star Casino, LLC and IBJ Whitehall Bank & Trust Company
(Registration Statement, No. 333-85089)
4.4 Preferred Ship Mortgage dated as of June 18, 1999 made by The Majestic
Star Casino, LLC in favor of IBJ Whitehall Bank & Trust Company
(Registration Statement No. 333-85089)
4.5 Pledge Agreement dated as of June 18, 1999 by and between The Majestic
Star Casino, LLC and IBJ Whitehall Bank & Trust Company (Registration
Statement No. 333-85089)
4.6 Pledge Agreement dated as of June 18, 1999 by and among Barden
Development, Inc., Gary Riverboat Gaming, LLC, and IBJ Whitehall Bank &
Trust Company (Registration Statement No. 333-85089)
4.7 Loan and Security Agreement dated as of August 2, 1999 by and between
The Majestic Star Casino, LLC and Foothill Capital Corporation (Form
10-Q for the quarter ended September 30, 1999)
4.8 Indenture dated as of December 6, 2001 between Majestic Investor
Holdings, LLC, Majestic Investor Capital Corp., as issuers, Barden
Colorado Gaming, LLC, Barden Mississippi Gaming, LLC and Barden Nevada
Gaming, LLC, as subsidiary guarantors, and the Bank of New York, as
Trustee (Investor Holdings Registration Statement No. 333-81584)
4.9 Registration Rights Agreement dated as of December 6, 2001 among
Majestic Investor Holdings, LLC, Majestic Investor Capital Corp.,
Barden Colorado Gaming, LLC, Barden Mississippi Gaming, LLC and Barden
Nevada Gaming, LLC, as guarantors, and Jefferies & Company, Inc.
(Investor Holdings Registration Statement No. 333-81584)
4.10 Guarantee dated as of December 6, 2001 of Barden Mississippi Gaming
LLC, Barden Colorado Gaming, LLC and Barden Nevada Gaming, LLC.
(Investor Holdings Registration Statement No. 333-81584)
4.11 Pledge and Security Agreement dated as of December 6, 2001 by and among
Majestic Investor Holdings, LLC, Majestic Investor Capital Corp.,
Barden Colorado Gaming, LLC, Barden Mississippi Gaming, LLC, Barden
Nevada Gaming, LLC and The Bank of New York (Investor Holdings
Registration Statement No. 333-81584)
4.12 Pledge Agreement dated as of December 6, 2001 by and between Majestic
Investor, LLC and The Bank of New York (Investor Holdings Registration
Statement No. 333-81584)
4.13 Trademark Security Agreement dated as of December 6, 2001 by and among
Majestic Investor Holdings, LLC, Majestic Investor Capital Corp.,
Barden Colorado Gaming, LLC, Barden Mississippi Gaming, LLC, Barden
Nevada Gaming, LLC and The Bank of New York (Investor Holdings
Registration Statement No. 333-81584)
E-2
4.14 First Preferred Vessel Mortgage, dated as of December 6, 2001 by and
between Barden Mississippi, LLC and The Bank of New York (Investor
Holdings Registration Statement No. 333-81584)
4.15 Deed of Trust, Security Agreement and Fixture Filing with Financing
Statement and Assignment of Rents by and among Barden Mississippi
Gaming, LLC as Trustor, Jim B. Tohill as Trustee and The Bank of New
York as Beneficiary, dated as of December 6, 2001 (Investor Holdings
Registration Statement No. 333-81584)
4.16 Deed of Trust, Security Agreement and Fixture Filing with Assignment of
Rents by and among Barden Nevada Gaming, LLC as Trustor, Fidelity
National Title Agency of Nevada, Inc. as Trustee, and The Bank of New
York as Beneficiary, dated as of December 6, 2001 (Investor Holdings
Registration Statement No. 333-81584)
4.17 Deed of Trust, Security Agreement and Fixture Filing with Assignment of
Rents by and among Barden Colorado Gaming, LLC as Trustor, The Public
Trustee of the County of Gilpin, State of Colorado as Trustee, and The
Bank of New York as Beneficiary, dated as of December 6, 2001 (Investor
Holdings Registration Statement No. 333-81584)
4.18 Intercreditor Agreement, dated as of December 6, 2001 between The Bank
of New York and Foothill Capital Corporation (Investor Holdings
Registration Statement No. 333-81584)
4.19 Loan and Security Agreement dated as of December 6, 2001 by and among
Majestic Investor Holdings, LLC, Barden Colorado Gaming, LLC, Barden
Mississippi Gaming, LLC, Barden Nevada Gaming, LLC and Foothill Capital
Corporation (Investor Holdings Registration Statement No. 333-81584)
4.20 Loan and Security Agreement dated as of December 6, 2001, by Majestic
Investor, LLC, Fitzgeralds Las Vegas, Inc., 101 Main Street Limited
Liability Company, Fitzgeralds Mississippi, Inc., Fitzgeralds Gaming
Corporation and certain affiliates of the foregoing parties dated as
November 22, 2000 (Investor Holdings Registration Statement No.
333-81584)
4.21 General Continuing Guaranty dated as of December 6, 2001, by Majestic
Investor Holdings, LLC, Majestic Investor Capital Corp., Barden
Colorado Gaming, LLC, Barden Mississippi Gaming, LLC and Barden Nevada
Gaming, LLC, in favor of Foothill Capital Corporation (Investor
Holdings Registration Statement No. 333-81584)
4.22 Guarantor Security Agreement dated as of December 6, 2001 by Majestic
Investor Holdings, LLC and Majestic Investor Capital Corp. in favor of
Foothill Capital Corporation (Investor Holdings Registration Statement
No. 333-81584)
4.23 First Preferred Vessel Mortgage, dated as of December 6, 2001 by
E-3
Barden Mississippi Gaming, LLC in favor of Foothill Capital Corporation
(Investor Holdings Registration Statement No. 333-81584)
4.24 Deed of Trust, Security Agreement and Fixture Filing with Financing
Statement and Assignment of Rents by and among Barden Mississippi
Gaming, LLC as Trustor, Jim B. Tohill as Trustee and Foothill Capital
Corporation as Beneficiary, dated as of December 6, 2001 (Investor
Holdings Registration Statement No. 333-81584)
4.25 Deed of Trust, Security Agreement and Fixture Filing with Financing
Statement and Assignment of Rents by and among Barden Nevada Gaming,
LLC as Trustor, Fidelity National Title Agency of Nevada, Inc. as
Trustee, and Foothill Capital Corporation as Beneficiary, dated as of
December 6, 2001 (Investor Holdings Registration Statement No.
333-81584)
4.26 Deed of Trust, Security Agreement and Fixture Filing with Financing
Statement and Assignment of Rents by and among Barden Colorado Gaming,
LLC as Trustor, The Public Trustee of the County of Gilpin, State of
Colorado as Trustee, and Foothill Capital Corporation as Beneficiary,
dated as of December 6, 2001 (Investor Holdings Registration Statement
No. 333-81584)
4.27 Stock Pledge Agreement dated as of December 6, 2001 between Majestic
Investor Holdings, LLC and Foothill Capital Corporation (Investor
Holdings Registration Statement No. 333-81584)
4.28 Guarantor Trademark Security Agreement dated as of December 6, 2001
between Majestic Investor Holdings, LLC and Foothill Capital
Corporation (Investor Holdings Registration Statement No. 333-81584)
4.29 Subordination of First Preferred Vessel Mortgage Upon Fitzgeralds
Tunica (Official No. 262757) (Investor Holdings Registration Statement
No. 333-81584)
4.30 Subordination Agreement dated as of December 6, 2001 by Barden
Mississippi Gaming, LLC and The Bank of New York, in favor of Foothill
Capital Corporation (Investor Holdings Registration Statement No.
333-81584)
4.31 Subordination Agreement dated as of December 6, 2001 by Barden Colorado
Gaming, LLC and The Bank of New York, in favor of Foothill Capital
Corporation (Investor Holdings Registration Statement No. 333-81584)
4.32 Subordination Agreement dated as of December 6, 2001 by Barden Nevada
Gaming, LLC and The Bank of New York, in favor of Foothill Capital
Corporation (Investor Holdings Registration Statement No. 333-81584)
10.1* Employment Agreement dated October 22, 2001 between Don H. Barden and
The Majestic Star Casino, LLC (Investor Holdings Registration Statement
No. 333-81584)
E-4
10.2* Employment Agreement dated October 22, 2001 between Michael E. Kelly
and The Majestic Star Casino, LLC (Investor Holdings Registration
Statement No. 333-81584)
10.3 Management Agreement dated as of June 9, 1999 between Barden
Development, Inc. and the Company (Form 10-K for the year ended
December 31, 1999)
10.4 Expense Reimbursement Agreement dated as of October 22, 2001 between
Majestic Investor Holdings, LLC and The Majestic Star Casino, LLC
(Investor Holdings Registration Statement No. 333-81584)
10.5 Contribution and Assignment Agreement by and between Majestic Investor,
LLC and Majestic Investor Holdings, LLC dated as of September 27, 2001
(Investor Holdings Registration Statement No. 333-81584)
10.6 Berthing Agreement dated as of April 23, 1996 between The Majestic Star
Casino, LLC and Buffington Harbor Riverboats, LLC (Registration
Statement No. 333-06489)
10.7 First Amended and Restated Operating Agreement of Buffington Harbor
Riverboats, LLC made as of October 31, 1995 by and between Trump
Indiana, Inc. and The Majestic Star Casino, LLC, as amended
(Registration Statement No. 333-06489)
10.8 Equipment Financing Agreement dated April 5, 1996 by and between the
Company and International Gaming Technology (Registration Statement No.
333-06489)
10.9 Equipment Financing Agreement dated May 5, 1996 by and between the
Company and International Gaming Technology (Registration Statement,
No. 333-06489)
10.10 Equipment Financing Agreement dated September 15, 1997 by and between
the Company and PDS Financial Corporation (Form 10-K for the period
ended December 31, 1997)
10.11 Equipment Financing Agreement dated October 27, 1997 by and between the
Company and PDS Financial Corporation (Form 10-K for the period ended
December 31, 1997)
10.12* Employment Agreement dated as of October 21, 2002 by and between the
Company and Jon Scott Bennett (Form 10-Q for the period ended
September 30, 2002)
21.1 List of Subsidiaries of The Majestic Star Casino, LLC
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.
E-5
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
* Identifies current management contracts or compensatory plans or arrangements
E-6