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: 333-81584
DELAWARE MAJESTIC INVESTOR HOLDINGS, LLC 33-4468392
DELAWARE MAJESTIC INVESTOR CAPITAL CORP. 36-4471622
(State or other (Exact name of registrant as (I.R.S. Employer
jurisdiction of specified in its charter) Identification No.)
incorporation or
organization)
ONE BUFFINGTON HARBOR DRIVE
GARY, INDIANA
46406-3000
(219) 977-7823
(Registrant's address and telephone number, including area code)
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
MAJESTIC INVESTOR HOLDINGS, LLC
2002 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
Item 1. Business................................................................ 1
Item 2. Properties.............................................................. 25
Item 3. Legal Proceedings....................................................... 26
Item 4. Submission of Matters to a Vote of Security Holders..................... 27
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters... 27
Item 6. Selected Consolidated Financial Data.................................... 27
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................... 29
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.............. 52
Item 8. Consolidated Financial Statements and Supplementary Data................ 53
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................... 53
PART III
Item 10. Directors and Executive Officers of Registrant.......................... 54
Item 11. Executive Compensation.................................................. 55
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters......................................... 56
Item 13. Certain Relationships and Related Transactions.......................... 58
Item 14. Controls and Procedures................................................. 59
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........ 59
SIGNATURES........................................................................ S-1
CERTIFICATIONS.................................................................... C-1
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PART I
ITEM 1. BUSINESS
GENERAL
Majestic Investor Holdings, LLC (the "Company" or the "Registrant,"
which may also be referred to as "Investor Holdings," "we," "us" or "our") was
formed on September 14, 2001 as a Delaware limited liability company. The
Company is a multi-jurisdictional gaming company that owns and operates 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
Fitzgeralds properties collectively contain approximately 2,836 slot machines,
65 table games and 1,145 hotel rooms.
The Company has four wholly-owned subsidiaries. Barden Mississippi
Gaming, LLC, organized on March 29, 2001 as a Mississippi limited liability
company ("Barden Mississippi"), was formed to hold the Fitzgeralds Tunica
assets. Barden Colorado Gaming, LLC, organized on March 26, 2001 as a Colorado
limited liability company ("Barden Colorado"), was formed to hold the
Fitzgeralds Black Hawk assets. Barden Nevada Gaming, LLC, organized on November
22, 1999 as a Nevada limited liability company ("Barden Nevada"), was formed to
hold the Fitzgeralds Las Vegas assets. Majestic Investor Capital Corp.,
incorporated on August 24, 2001 as a Delaware corporation ("Majestic Investor
Capital"), was formed solely for the purpose of serving as a co-issuer to
facilitate the offering of the Company's 11.653% Senior Secured Notes (the
"Investor Holdings Senior Secured Notes") and has no assets or operations.
Barden Mississippi, Barden Colorado and Barden Nevada have unconditionally and
irrevocably, jointly and severally, guaranteed the Investor Holdings Senior
Secured Notes.
We are wholly-owned by Majestic Investor, LLC, which was formed on
September 12, 2000 as a Delaware limited liability company ("Investor").
Investor is owned by The Majestic Star Casino, LLC, which was formed on December
8, 1993 as an Indiana limited liability company ("Majestic Star"). Majestic Star
is the owner and operator of a riverboat casino located at Buffington Harbor in
Gary, Indiana. Majestic Star is wholly-owned by Barden Development, Inc., an
Indiana corporation and Manager of Majestic Star ("BDI"). BDI is wholly-owned by
Don H. Barden, our Manager, Chairman, President and Chief Executive Officer.
On November 22, 2000, Investor entered into a definitive agreement
(the "Purchase Agreement") to purchase substantially all of the assets of
Fitzgeralds Tunica, Fitzgeralds Black Hawk and Fitzgeralds Las Vegas owned by
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 under the
Purchase Agreement to the Company as well as all of its assets and liabilities.
On December 6, 2001, the transaction contemplated by the Purchase Agreement was
consummated.
On December 6, 2001, we (i) issued the Investor Holdings Senior
Secured Notes to fund the acquisition of the Fitzgeralds properties and (ii)
entered into a $15.0 million credit facility with Foothill Capital Corporation
(the "Investor Holdings Credit Facility"). The Investor Holdings Senior Secured
Notes and the Investor Holdings Credit Facility are collateralized by
substantially all of the Fitzgeralds assets other than certain excluded assets.
Because each of Investor, the Company, Barden Colorado, Barden Nevada and Barden
Mississippi are "unrestricted subsidiaries" under the indenture (the "Majestic
Star Indenture") governing Majestic Star's 10 7/8% Senior Secured Notes (the
"Majestic Star Senior Secured Notes") and Majestic
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Star's $20.0 million credit facility (the "Majestic Star Credit Facility"),
their assets are excluded from the collateral securing the Majestic Star Senior
Secured Notes and the Majestic Star Credit Facility. As such, none of the
Fitzgeralds assets serve as collateral for the Majestic Star Senior Secured
Notes or the Majestic Star Credit Facility. Similarly, none of the Majestic Star
Casino assets serve as collateral for the Investor Holdings Senior Secured Notes
or the Investor Holdings Credit Facility. Accordingly, Majestic Star's
noteholders and the Majestic Star Credit Facility are collateralized 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' noteholders 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.
In addition, Majestic Star and certain of its subsidiaries are prohibited from
providing cash or credit support to Investor Holdings or its subsidiaries or to
Investor. Investor Holdings and its subsidiaries and Investor also are
prohibited from engaging in transactions with Majestic Star and certain of its
subsidiaries other than on an arm's length basis and in accordance with certain
other prescribed conditions.
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 whom 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 Fitzgeralds Black Hawk, which does not
include a hotel); 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 higher rate of repeat
business and is the basis for the further development of the Company's gaming
brand and its reputation for quality and service at an affordable price.
Promote Gaming Brand. The Company believes it is important to
promote its gaming brand to attract and retain customers. The Fitzgeralds brand
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
Fitzgeralds Card to track individual or combined play at slot machines, table
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games and keno (Fitzgeralds Las Vegas only), as well as food and beverage and
hotel expenditures at each individual property (except Fitzgeralds Black Hawk).
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. The Company's player tracking program
allows us to target our marketing programs to categories of players, including
through advertising programs, promotions, tournaments with substantial cash
prizes, special group and tour packages and other events and incentives designed
to promote customer loyalty and increase repeat business. The Company's tracking
system also allows us to better tailor its pricing, promotions, gaming machine
selection and other guest services to customer preferences. In the future, the
Company intends to fully integrate its tracking system data in order for each
related property to share our data with other related properties and thereby
encourage customers of each individual property to patronize our other
properties. The Company and Majestic Star currently have over 736,000 active
players in its Majestic and Fitzgeralds database.
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 for slot customers,
and complimentary food, beverage and entertainment when gaming play warrants.
The cost of providing promotional allowances is relatively small as a percentage
of the potential casino revenue obtainable from these tracked high limit
customers.
Leverage Existing Majestic Star Customer Base. Majestic Star has
established the Club Majestic and Club Majestic Premier Slot Clubs to increase
the frequency of visits by Majestic Star's existing customers. This program
enables Majestic Star to maintain a comprehensive database of information on
approximately 160,000 of its active gaming patrons, including their gaming
levels, duration of play and preferences. Majestic Star uses this information to
create a comprehensive direct mail marketing program. The Company utilizes this
information to cross market its Fitzgeralds properties to existing customers of
Majestic Star.
GROWTH STRATEGY
The Company believes that there are future growth opportunities
within each of the markets where its properties are located, including the
following:
Fitzgeralds Tunica
- ------------------
A 168-acre, $23 million Tunica River Front Park is under development
adjacent to the Fitzgeralds Tunica property. The park will include a marina and
boat dock facility along the Mississippi River (including space for sight-seeing
paddlewheel riverboats), a historic Mississippi River museum, nature trails,
retail space, and parking. Construction began on the park in mid October 2001,
and the Company expects the park to open in phases beginning in July 2003
through March 2004. Tunica County has assumed the full obligation to fund this
project and will require no financial contribution from the Company. Fitzgeralds
Tunica conveyed approximately 71 acres of the river park land to Tunica County.
As consideration for the conveyance, Tunica County granted the Company certain
rights, easements and licenses to operate a daily excursion boat from the marina
and visitors center or to lease or license its rights hereunder to a third
party. The rights, leases and licenses will expire 15 years from the date of
substantial completion of the marina. The Company has licensed its right to use
the boat dock to a riverboat operator who will provide riverboat excursions
along the Mississippi River from the marina and boat dock. In an effort to
increase customer traffic in the Tunica area, Tunica County also is expanding
its airport into a regional airport, with the first phase of expansion scheduled
for completion in 2004 and the second phase scheduled for completion in 2005.
Although there can be no assurance, the
3
Company believes that both the Tunica River Front Park and the regional airport
will attract new customers to the Company's Tunica property.
Fitzgeralds Black Hawk
- ----------------------
The Company believes that the Black Hawk market has potential for
future growth, in part due to various proposals to improve access to Black Hawk.
The City of Black Hawk Development Authority and the Colorado Department of
Transportation continue to work on projects to improve road access to the City.
The completion of such projects is subject to a number of issues beyond our
control, including access to funding and time to plan for construction. During
2002, we authorized and began a partial demolition project on property adjacent
to and owned by Fitzgeralds Black Hawk. The property is available for expansion
if market conditions warrant and the Company is currently evaluating the
feasibility of such an expansion to better serve this market. One of the issues
concerning such expansion is the issue of whether there is adequate
infrastructure in the Black Hawk market.
Fitzgeralds Las Vegas
- ---------------------
The downtown Las Vegas area has long been the focus of continued
efforts to increase tourist traffic, beginning with the Fremont Street
Experience, an entertainment and retail promenade, which opened in December
1995. The most recent development is the approximately $100 million Neonopolis
project, a 250,000 square foot retail and entertainment venue with a 14 screen
movie theater that opened on May 4, 2002. The project also included a $32
million, 600 space parking garage. This project is located at the east end of
the Fremont Street Experience and across from the Fitzgeralds Las Vegas
property. The Company believes that this project will attract more potential
customers to downtown Las Vegas and shift the focus of downtown traffic along
the Fremont Street Experience towards our Fitzgeralds Las Vegas property.
Additionally, a $14 million project has been proposed to visually enhance the
Fremont Street Experience "Sound and Light Show" by replacing the existing light
display with flat panel display screens which have the capability to show
televised and other multimedia events and programming, thereby dramatically
enhancing the range of entertainment programming options. The project is
anticipated to be completed in late 2003. The Company is also continuing to
enhance the amenities at Fitzgeralds Las Vegas, including the addition of a
swimming pool and new slot technologies which are anticipated to enhance the
customer's experience.
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) the securing of 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 Investor Holdings Senior Secured Notes and the
Investor Holdings Credit Facility, which limit the Company's 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.
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COMPETITION
There is intense competition among companies in the gaming
industry, many of which have greater name recognition and financial and
marketing resources than the Company. In addition to the regional competitors
described below (including gaming operations on Native American lands), the
Company competes with gaming facilities nationwide, including 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 a national level, including
state-sponsored lotteries, on and off-track wagering and card parlors. The
recent and continuing expansion of legalized casino gaming to new jurisdictions
throughout the United States has affected competitive conditions faced by the
Company and will continue to do so in the future. To maintain its competitive
position, the Company regularly evaluates the need to incur capital expenditures
to increase the attractiveness of its properties.
Fitzgeralds Tunica
- ------------------
Fitzgeralds Tunica competes primarily with eight other dockside
gaming facilities in the Tunica, Mississippi area, five of which are
approximately one mile north of Fitzgeralds Tunica and three of which are
approximately four miles south of Fitzgeralds Tunica. The Isle of Capri Casino,
not included in the eight current competitors in the Tunica, Mississippi area,
ceased operations on September 4, 2002. The Isle of Capri facility was purchased
by Boyd Gaming. The Isle of Capri hotel and entertainment property has been
incorporated into Boyd Gaming's Sam's Town Tunica property. It is unknown if and
when casino operations will commence at the Isle of Capri facility. In addition,
due to the substantial competition in the immediate vicinity of Fitzgeralds
Tunica, the Company competes for customers that travel from Memphis, Tennessee
and Little Rock, Arkansas, jurisdictions where gaming is currently prohibited.
An initiative was passed for the lottery in the State of Tennessee in November
2002. Lottery operations in Tennessee are expected to commence in December 2003.
The legalization of gaming in either of those jurisdictions would likely have an
adverse impact on our operations at Fitzgeralds Tunica. There can be no
assurance that the State of Tennessee or the State of Arkansas will not legalize
casino gaming in the future.
Fitzgeralds Black Hawk
- ----------------------
Competition has intensified in Black Hawk with the December 19,
2001 opening of a casino developed by Windsor Woodmont Black Hawk Resort
Corporation and Hyatt Gaming. This property and several others including Isle of
Capri, and Riviera are larger than Fitzgeralds Black Hawk, are operated by
companies with greater resources and are located at the eastern end (closest to
Denver) of Black Hawk at the first major intersection off State Highway 119,
which may give them a competitive advantage over Fitzgeralds Black Hawk since
they have the initial opportunity to capture visitors to Black Hawk from the
Denver metropolitan area. The increased competition may have a material adverse
effect on Fitzgeralds Black Hawk operations. Also, the concentration of these
larger properties on the south end of the street including Isle of Capri,
Riviera, the Lodge and Mardi Gras, has shifted the center of gaming activity
away from Fitzgeralds Black Hawk, which is located at the north end of the
street.
In order to generate additional state-supervised lottery proceeds
for the promotion of Colorado tourism, an initiative is expected for the
November 2003 ballot to allow video gaming machines at five Colorado racetracks.
The initiative would also permit the state's 43 casinos to add video-lottery
terminals, which offer games including keno, poker and blackjack. If this
5
initiative is successful, the program would be implemented in December 2004.
There can be no assurance that this legislation will be passed.
Moreover, there is a fundamental issue concerning the size of the
Black Hawk market and the ability to expand the market because of its mountain
location and the availability of adequate roads and other infrastructure.
Although initiatives to expand gaming venues in Colorado have thus far been
unsuccessful, initiatives, legislation or regulations could be introduced in the
future. The enactment of any new initiative, legislation or regulation
legalizing gaming including video lottery terminals elsewhere in Colorado could
and, if such legalized gaming was closer to Denver, would have a material
adverse effect on Fitzgeralds Black Hawk.
Fitzgeralds Las Vegas
- ----------------------
Fitzgeralds Las Vegas competes primarily with other downtown casino
properties, casino properties located near the Nevada/California state line and
certain facilities located on the Las Vegas Strip. The Company also believes
that it competes, to a lesser extent, with the local neighborhood casinos and
casino-hotels on the Boulder Strip and in the Laughlin market.
The Las Vegas market is highly competitive. The Company has
experienced competition from new and existing Las Vegas casino-hotels which have
sought to attract some of the same "middle-income" players, and tour and travel
visitors targeted by Fitzgeralds Las Vegas. The Company anticipates continuing
increased competition for these customers. Moreover, on the Las Vegas Strip,
Bellagio with 3,000 rooms opened in 1998; Mandalay Bay, Venetian and Paris with
an aggregate of approximately 9,200 rooms all opened in 1999; and the Aladdin
resort with approximately 2,600 rooms opened in August of 2000. In addition,
casinos catering to local residents also compete for business from the Company's
targeted segment including the Suncoast Casino, which opened in September 2000,
Terrible Herbst, which opened in December 2000, the Palms, which opened in
December 2001, and the Cannery, which opened in January 2003. These new
properties, as well as any other major additions, such as the current
construction of Steve Wynn's Le Reve, along with expansions or enhancements to
existing properties by the Company's competitors, could have a material adverse
effect on the Company's business.
FINANCIAL INFORMATION ABOUT SEGMENTS
For financial information regarding the Company's business segments,
see Note 12 of the Notes to Consolidated Financial Statements.
EMPLOYEES AND UNIONS
At December 31, 2002, on a consolidated basis, the Company employed
approximately 2,351 persons and had collective bargaining contracts with unions
covering approximately 16% of its employees. The Company believes that its
overall relations with its employees are good.
At December 31, 2002, Fitzgeralds Tunica and Fitzgeralds Black Hawk
employed approximately 1,175 and 333 people, respectively, none of whom are
represented by a union. At December 31, 2002, Fitzgeralds Las Vegas employed
approximately 843 people, approximately 366 of whom are represented by the
Culinary Workers Union, Local No. 226 and the Bartenders Union, Local 165, under
a five-year contract expiring on May 31, 2007. In addition, four employees are
represented by the United Brotherhood of Carpenters and Joiners of America,
Southern California-Nevada Regional Council of Carpenters and its Affiliated
Local No. 1780, under a four-year, contract that expires on July 31, 2005.
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TRADE NAMES, TRADEMARKS AND SERVICE MARKS
We believe Fitzgeralds developed a national gaming brand by using a
consistent Irish Luck theme throughout the casinos, hotels, restaurants and bars
at all of its properties. As part of the Fitzgeralds acquisition, the Company
acquired proprietary rights in registered and common law trade names, trademarks
and service marks used in connection with the business and created to enhance
the Irish Luck theme, gaming activities and the Company's association with the
Fremont Street Experience, including the marks "Fitzgeralds," "Fitz" and the
"Mr. O'Lucky" character design. In connection with the Fitzgeralds acquisition,
the Company also acquired several non-exclusive licenses and supply agreements,
which permit the Company to utilize and offer at its facilities a variety of
casino games, gaming devices and related software and technology which are
subject to certain third party patent, copyright and trademark rights. Under an
exclusive license from the Company, Fitzgeralds retained the right to use the
name "Fitzgeralds" in connection with its operation of its existing casino
property in Reno, Nevada and in connection with any casino properties it may
operate in the future in Northern California, Northern Nevada, Oregon and
Washington. The Company retained all other rights to the Fitzgeralds name and
all Fitzgeralds trademarks, service marks and trade dress for use in connection
with Fitzgeralds Tunica, Fitzgeralds Black Hawk and Fitzgeralds Las Vegas. In
connection with any use of the Fitzgeralds name, the terms of the license
require Fitzgeralds to comply with certain requirements, including operating any
casino property using the Fitzgeralds name in accordance with the Company's
current operating standards. The right of Fitzgeralds to continue to use the
name "Fitzgeralds" may negatively impact the Company's national brand
recognition.
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, the Fitzgeralds Black Hawk
site, located in the Rocky Mountains of Colorado, is subject to snow and icy
road conditions during the winter months. Any such severe weather conditions may
discourage potential customers from visiting the Black Hawk facilities. 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 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"). In November 2000, independent environmental consultants conducted a
Phase I on all three casino properties and identified no recognized
environmental conditions meriting a Phase II investigation. The Company may
incur material liability if contamination is discovered on any of its
properties, either during the course of future development or in
7
connection with the properties designated for investigation or remediation, as
discussed below.
Specifically, the Black Hawk and Central City gaming districts,
including the Fitzgeralds Black Hawk site, are located within a 400-square mile
area that in 1983 was designated by the EPA as the Clear Creek/Central City
National Priorities List Site Study Area ("Study Area") pursuant to CERCLA. The
Study Area includes numerous specifically identified areas of mine tailings and
other waste piles caused by historical mining activity in the area, which areas
are the subject of ongoing investigation and clean-up by the EPA and the
Colorado Department of Public Health and Environment ("CDPHE"). CERCLA requires
remediation of sites from which there has been a release or threatened release
of hazardous substances and authorizes the EPA to take any necessary response
actions at Superfund sites, including authorizing potentially responsible
parties ("PRPs") to clean up or contribute to the clean up of a Superfund site.
PRPs are broadly defined under CERCLA, and include past and present owners and
operators of a site. CERCLA imposes strict liability on PRPs, and courts have
commonly held PRPs to be jointly and severally liable for all response costs.
Fitzgeralds Black Hawk is not within any of the specific areas of
the Study Area currently identified by the EPA and CDPHE for investigation or
remediation. The property on which the Fitzgeralds Black Hawk casino is situated
was not a historical mining site but rather was the location for a general
store. The parking complex for the casino and an adjacent vacant lot, however,
are situated near a historical milling area. To date, no remediation
requirements have been recommended or required with regard to any portion of the
property although test borings would likely be required in connection with any
future construction on the expansion parcel of the property. Based on the
assessments to date, we are not aware of any environmental problems affecting
Fitzgeralds Black Hawk which are likely to result in material costs to us. No
assurance can be given, however, that environmental problems will not
subsequently be discovered. Furthermore, the EPA or other governmental
authorities could broaden their investigations and identify areas of concern
within the site, the Company could be identified as a PRP, and any liability
related thereto could have a material adverse effect on the Company.
GOVERNMENTAL REGULATION
General
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 laws
and regulations applicable to the Company's gaming facilities.
Mississippi Gaming Regulation
The ownership and operation of casino gaming facilities in
Mississippi are subject to extensive state and local regulations, but primarily
the licensing and/or regulatory control of the Mississippi Gaming Commission
(the "Mississippi Commission").
The Mississippi Gaming Control Act (the "Mississippi Act"), which
legalized dockside casino gaming in Mississippi, is similar to the Nevada Gaming
Control Act. The Mississippi Commission has adopted regulations which are also
similar in many respects to the Nevada gaming regulations.
8
The laws, regulations and supervisory procedures of the Mississippi
Commission are based upon declarations of public policy that are concerned with,
among other things:
. the prevention of unsavory or unsuitable persons from having a
direct or indirect involvement with gaming at any time or in any
capacity;
. the establishment and maintenance of responsible accounting
practices and procedures;
. the maintenance of effective controls over the financial practices
of licensees, including the establishment of minimum procedures for
internal fiscal affairs and the safeguarding of assets and revenues,
providing for reliable record keeping and requiring the filing of
periodic reports with the Mississippi Commission;
. the prevention of cheating and fraudulent practices;
. providing a source of state and local revenues through taxation and
licensing fees; and
. ensuring that gaming licensees, to the extent practicable, employ
Mississippi residents.
The regulations are subject to amendment and interpretation by the
Mississippi Commission. We believe that our compliance with the licensing
procedures and regulatory requirements of the Mississippi Commission will not
affect the marketability of our securities. Changes in Mississippi laws or
regulations may limit or otherwise materially affect the types of gaming that
may be conducted and such changes, if enacted, could have an adverse effect on
us and our business, financial condition and results of operations.
The Mississippi Act provides for legalized dockside gaming in each
of the fourteen counties that border the Gulf Coast or the Mississippi River,
but only if the voters in the applicable county have not voted to prohibit
gaming in that county. In recent years, certain anti-gaming groups proposed for
adoption through the initiative and referendum process certain amendments to the
Mississippi Constitution which would prohibit gaming in the state. The proposals
were declared illegal by Mississippi courts on constitutional and procedural
grounds. The latest ruling was appealed to the Mississippi Supreme Court, which
affirmed the decision of the lower court. If another such proposal were to be
offered and if a sufficient number of signatures were to be gathered to place a
legal initiative on the ballot, it is possible for the voters of Mississippi to
consider such a proposal in November of 2004. While we are unable to predict
whether such an initiative will appear on a ballot or the likelihood of such an
initiative being approved by the voters, if such an initiative were passed and
gaming were prohibited in Mississippi, it would have a significant adverse
effect on us and our business, financial condition and results of operations.
As of March 31, 2003, dockside gaming was permissible in nine of the
fourteen eligible counties in the State of Mississippi and gaming operations had
commenced in seven counties. Under Mississippi law, gaming vessels must be
located on the Mississippi River or on navigable waters in eligible counties
along the Mississippi River, or in the waters lying south of the counties along
the Mississippi Gulf Coast. Our Fitzgeralds Tunica casino is located on barges
situated in a specially constructed basin near the Mississippi River. In the
past, whether basins such as the one in which the Fitzgeralds Tunica casino
barges are located constituted "navigable waters" suitable for gaming under
Mississippi law was a controversial issue. The Mississippi Attorney General
issued an opinion in July 1993 addressing legal locations for gaming vessels
under the Mississippi Act, and on May 24, 1993, the Mississippi Commission
approved the location of the casino barges on the Fitzgeralds Tunica site as
legal under the opinion of the Mississippi Attorney General. Since 1993, the
Mississippi Commission has issued or renewed licenses to Fitzgeralds Tunica on
several separate occasions. We believe that Fitzgeralds Tunica is in compliance
with the Mississippi Act and the Mississippi Attorney General's "navigable
waters" opinion. However, no assurance can be given that a court would
ultimately conclude that our Fitzgeralds Tunica
9
barges are located on navigable waters within the meaning of Mississippi law. If
the basin in which our Fitzgeralds Tunica casino barges are presently located
were not deemed navigable waters within the meaning of Mississippi law, such a
decision would have a material adverse effect on us and our business, financial
condition and results of operations.
The Mississippi Act permits unlimited stakes gaming on permanently
moored vessels on a 24-hour basis and does not restrict the percentage of space
which may be utilized for gaming. The Mississippi Act permits substantially all
traditional casino games and gaming devices. Only persons who are 21 years of
age or older may wager on games in the state of Mississippi.
We and any subsidiary of ours that operates a casino in Mississippi
(a "Gaming Subsidiary") are subject to the licensing and regulatory control of
the Mississippi Commission. Each of the Company, Investor, Majestic Star and BDI
have registered under the Mississippi Act as either a publicly traded
corporation (a "Registered Corporation") or a holding company of Barden
Mississippi, the owner and operator of Fitzgeralds Tunica, a licensee of the
Mississippi Commission. BDI, Majestic Star, Investor and the Company, as
registered holding companies or publicly traded corporations, and Barden
Mississippi, as a gaming licensee, are required to submit detailed financial,
operating and other reports to the Mississippi Commission and furnish any other
information which the Mississippi Commission may require. If we are unable to
continue to satisfy the registration requirements of the Mississippi Act, we,
any of our related registered holding companies or publicly traded corporations
and Barden Mississippi cannot own or operate gaming facilities in Mississippi.
No person may become a stockholder of or receive any percentage of profits from
a licensed subsidiary of a registered holding company or publicly traded
corporation without first obtaining licenses and approvals from the Mississippi
Commission. While we have received such approvals in connection with the
licensing of Barden Mississippi, no assurance can be given that we will continue
to receive such approvals in the future.
A Gaming Subsidiary must maintain a gaming license from the
Mississippi Commission to operate a casino in Mississippi. Such licenses are
issued by the Mississippi Commission subject to certain conditions, including
continued compliance with all applicable state laws and regulations. There are
no limitations on the number of gaming licenses which may be issued in
Mississippi. Gaming licenses require the payment of periodic fees and taxes, are
not transferable, are issued for a three-year period (and may be continued for
two additional three-year periods) and must be renewed periodically thereafter.
Barden Mississippi's current gaming license expires in December of 2004. There
can be no assurance that any subsequent application for a license will be
approved.
Certain management personnel of BDI, Majestic Star, Investor and the
Company, and certain management personnel and key employees of Barden
Mississippi must be found suitable or approved by the Mississippi Commission. We
have obtained all necessary findings of suitability with respect to the
companies, although the Mississippi Commission, in its discretion, may require
additional persons to file applications for findings of suitability. In
addition, any person having a material relationship or involvement with us may
be required to be found suitable, in which case those persons must pay the costs
and fees associated with such investigation. The Mississippi Commission may deny
an application for a finding of suitability for any cause that it deems
reasonable. Changes in certain licensed positions must be reported to the
Mississippi Commission. In addition to its authority to deny an application for
a finding of suitability, the Mississippi Commission has jurisdiction to
disapprove a change in any person's corporate position or title and such changes
must be reported to the Mississippi Commission. The Mississippi Commission has
the power to require us, BDI, Majestic Star, Investor and Barden
10
Mississippi to suspend or dismiss officers, directors, managers, members and
other key employees or sever relationships with other persons who refuse to file
appropriate applications or whom the authorities find unsuitable to act in such
capacities. There can be no assurance that such persons who have filed or will
be required to file applications for findings of suitability will be found
suitable by the Mississippi Commission. Determinations of suitability and
questions pertaining to licensing are not subject to judicial review under the
Mississippi Act.
At any time, the Mississippi Commission has the power to investigate
and require the finding of suitability of any person who becomes the record or
beneficial owner of any security of BDI, Majestic Star, Investor, the Company or
Barden Mississippi, regardless of the percentage of ownership. The Mississippi
Act requires any person who acquires more than five percent of any class of
voting securities of a Registered Corporation, as reported to the Securities and
Exchange Commission ("SEC"), to report the acquisition to the Mississippi
Commission, and such person may be required to be found suitable. Also, any
person who becomes a beneficial owner of more than ten percent of any class of
voting securities of a Registered Corporation must apply for a finding of
suitability by the Mississippi Commission and must pay the costs and fees that
the Mississippi Commission incurs in conducting the investigation. If a
stockholder who must be found suitable is a corporation, partnership or trust,
it must submit detailed business and financial information including a list of
beneficial owners.
The Mississippi Commission generally has exercised its discretion to
require a finding of suitability of any beneficial owner of more than five
percent of any class of voting securities of a Registered Corporation, a holding
company or a Gaming Subsidiary. However, under certain circumstances, an
"institutional investor," as defined in the Mississippi Commission's
regulations, which acquires more than ten percent, but not more than fifteen
percent, of the voting securities of a Registered Corporation may apply to the
Mississippi Commission for a waiver of such finding of suitability if such
institutional investor holds the voting securities for investment purposes only.
An institutional investor shall not be deemed to hold voting securities for
investment purposes unless the voting securities were acquired and are held in
the ordinary course of business as an institutional investor and not for the
purpose of causing, directly or indirectly, the election of a majority of the
members of the board of directors of the Registered Corporation, any change in
the corporate charter, bylaws, management, policies or operations, or any of its
gaming affiliates, or any other action which the Mississippi Commission finds to
be inconsistent with holding the voting securities for investment purposes only.
Activities which are not deemed to be inconsistent with holding voting
securities for investment purposes include:
. voting on all matters voted on by stockholders;
. making financial and other inquiries of management of the type
normally made by securities analysts for informational purposes and
not to cause a change in our management, policies or operations; and
. such other activities as the Mississippi Commission may determine to
be consistent with such investment intent.
Any person who fails or refuses to apply for a finding of
suitability or a license within thirty days after being ordered to do so by the
Mississippi Commission may be found unsuitable. The same restrictions apply to a
record owner, if the record owner, after request, fails to identify the
beneficial owner. Any person found unsuitable and who holds, directly or
indirectly, any beneficial ownership of such securities beyond such time as the
Mississippi Commission prescribes, may be guilty of a misdemeanor. We believe
that our compliance with the licensing procedures and regulatory requirements of
the Mississippi Commission will not affect the marketability of our securities.
We may be subject to disciplinary action if, after receiving notice
11
that a person is unsuitable to be an owner or to have any other relationship
with BDI, Majestic Star, Investor, the Company or Barden Mississippi, the
company involved:
. pays the unsuitable person any dividend or other distribution upon
such person's voting securities;
. recognizes the exercise, directly or indirectly, of any voting
rights conferred by securities held by the unsuitable person;
. pays the unsuitable person any remuneration in any form for services
rendered or otherwise, except in certain limited and specific
circumstances; or
. fails to pursue all lawful efforts to require the unsuitable person
to divest himself of the securities, including, if necessary, the
immediate purchase of the securities for cash at a fair market
value.
We may be required to disclose to the Mississippi Commission, upon
request, the identities of the holders of any of our debt or other securities.
In addition, under the Mississippi Act, the Mississippi Commission may in its
discretion require the holder of any debt security of a Registered Corporation
or a registered holding company to file an application, be investigated and be
found suitable to own the debt security if it has reason to believe that the
ownership would be inconsistent with the declared policies of the State.
Although the Mississippi Commission generally does not require the
individual holders of obligations such as notes to be investigated and found
suitable, the Mississippi Commission retains the discretion to do so for any
reason, including but not limited to, a default, or where the holder of the debt
instrument exercises a material influence over the gaming operations of the
entity in question. Any holder of debt securities required to apply for a
finding of suitability must pay all investigative fees and costs of the
Mississippi Commission in connection with the investigation.
If the Mississippi Commission determines that a person is unsuitable
to own a debt security, then the Registered Corporation can be sanctioned,
including the loss of its approvals, if without the prior approval of the
Mississippi Commission, it:
. pays to the unsuitable person any dividend, interest, or any
distribution whatsoever;
. recognizes any voting right by the unsuitable person in connection
with those securities;
. pays the unsuitable person remuneration in any form; or
. makes any payment to the unsuitable person by way of principal,
redemption, conversion, exchange, liquidation, or similar
transaction.
Each of BDI, Majestic Star, Investor, the Company and Barden
Mississippi is required to maintain in Mississippi a current ledger with respect
to the ownership of its equity securities which must reflect the record
ownership of each outstanding ownership interest in the company. The ledgers
must be available for inspection by the Mississippi Commission at any time. If
any securities are held in trust by an agent or by a nominee, the record holder
may be required to disclose the identity of the beneficial owner to the
Mississippi Commission. A failure to make such disclosure may be grounds for
finding the record holder unsuitable. We and Barden Mississippi must also render
maximum assistance in determining the identity of the beneficial owner of any of
the voting securities of us or our affiliates.
The Mississippi Act requires that the certificates representing
securities of a Registered Corporation bear a legend indicating that the
securities are subject to the Mississippi Act and the
12
regulations of the Mississippi Commission. The Mississippi Commission has the
power to impose additional restrictions on the holders of our securities at any
time.
Substantially all material loans, leases, sales of securities and
similar financing transactions by a Registered Corporation or a Gaming
Subsidiary must be reported to or approved by the Mississippi Commission. A
Gaming Subsidiary may not make a public offering of its securities, but may
pledge or mortgage casino facilities. A Registered Corporation may not make a
public offering of its securities without the prior approval of the Mississippi
Commission if any part of the proceeds of the offering is to be used to finance
the construction, acquisition or operation of gaming facilities in Mississippi
or to retire or extend obligations incurred for those purposes. Such approval,
if given, does not constitute a recommendation or approval of the investment
merits of the securities subject to the offering.
Under the regulations of the Mississippi Commission, Barden
Mississippi may not guarantee a security issued by us or any other affiliated
company pursuant to a public offering, or pledge the assets of Barden
Mississippi to secure payment or performance of the obligations evidenced by the
security issued by the affiliated company, without the prior approval of the
Mississippi Commission. A pledge of the equity securities of a gaming licensee
and the foreclosure of such a pledge are ineffective without the prior approval
of the Mississippi Commission. Moreover, restrictions on the transfer of an
equity security issued by a Mississippi gaming licensee or a registered holding
company and agreements not to encumber such securities are ineffective without
the prior approval of the Mississippi Commission.
Changes in control of BDI, Majestic Star, Investor, the Company or
Barden Mississippi, whether through merger, consolidation, acquisition of
assets, management or consulting agreements or any act or conduct by a person by
which he or she obtains control, may not occur without the prior approval of the
Mississippi Commission. Entities seeking to acquire control of one or more of
these companies must satisfy the Mississippi Commission in a variety of
stringent standards prior to assuming control of any such company. The
Mississippi Commission may also require controlling stockholders, officers,
directors, and other persons having a material relationship or involvement with
the entity proposing to acquire control, to be investigated and licensed as part
of the approval process relating to the transaction.
The Mississippi legislature has declared that some corporate
acquisitions opposed by management, repurchases of voting securities and other
corporate defense tactics that affect corporate gaming licensees in Mississippi
and Registered Corporations, may be injurious to stable and productive corporate
gaming. The Mississippi Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Mississippi's gaming industry and to further Mississippi's policy to:
. assure the financial stability of corporate gaming operators and
their affiliates;
. preserve the beneficial aspects of conducting business in the
corporate form; and
. promote a neutral environment for the orderly governance of
corporate affairs.
Approvals are, in certain circumstances, required from the
Mississippi Commission before a Registered Corporation may make exceptional
repurchases of voting securities (such as repurchases which treat holders
differently) in excess of the current market price and before a corporate
acquisition opposed by management can be consummated. Mississippi's gaming
13
regulations also require prior approval by the Mississippi Commission of a plan
of recapitalization proposed by the Registered Corporation's board of directors
in response to a tender offer made directly to the Registered Corporation's
stockholders for the purpose of acquiring control of the Registered Corporation.
None of BDI, Majestic Star Casino, Investor, the Company or Barden
Mississippi may engage in gaming activities in Mississippi while also conducting
gaming operations outside of Mississippi without approval of the Mississippi
Commission. The Mississippi Commission may require determinations that, among
other things, there are means for the Mississippi Commission to have access to
information concerning the out-of-state gaming operations of us and our
affiliates. We have received a waiver of foreign gaming approval from the
Mississippi Commission for the gaming operations of Majestic Star in Indiana and
for our operations in Colorado and Nevada. We will be required to obtain the
approval or a waiver of such approval from the Mississippi Commission prior to
engaging in any additional future gaming operations outside of Mississippi.
There can be no assurance that any such approvals will be obtained.
If the Mississippi Commission determined that we, BDI, Majestic
Star, Investor or Barden Mississippi violated a gaming law or regulation, the
Mississippi Commission could limit, condition, suspend or revoke the approvals
of any such company and the license of Barden Mississippi, subject to compliance
with certain statutory and regulatory procedures. In addition, we, BDI, Majestic
Star, Investor, Barden Mississippi and the persons involved could be subject to
substantial fines for each separate violation. Because of such a violation, the
Mississippi Commission could attempt to appoint a supervisor to operate the
casino facilities. Limitation, conditioning or suspension of any gaming license
or approval or the appointment of a supervisor could (and revocation of any
gaming license or approval would) materially adversely affect us and our
business, financial condition and results of operations.
License fees and taxes are computed in various ways depending on the
type of gaming involved, are payable to the State of Mississippi and to the
counties and cities in which a Gaming Subsidiary's operations are conducted.
Depending upon the particular fee or tax involved, these fees and taxes are
payable either weekly, monthly, quarterly or annually. Gaming taxes are based
upon:
. a percentage of the gross gaming revenues received by the casino
operation;
. the number of gaming devices operated by the casino; or
. the number of table games operated by the casino.
The license fee payable to the State of Mississippi is based upon
"gaming receipts" (generally defined as gross receipts less payouts to customers
as winnings) and the current maximum tax rate imposed is eight percent of all
gaming receipts in excess of $134,000. The foregoing license fees paid by Barden
Mississippi are allowed as a credit against Barden Mississippi's Mississippi
income tax liability for the year paid. The gross revenue fee imposed by Tunica
County equals approximately four percent of the gaming receipts.
The Mississippi Commission adopted a regulation requiring, as a
condition of licensure or license renewal, that an existing gaming
establishment's plan include a 500-car parking facility in close proximity to
the casino complex and infrastructure facilities which will amount to at least
twenty-five percent of the casino cost. These requirements were met with the
opening of the Fitzgeralds Tunica Hotel and related facilities in 1996. The
Mississippi Commission later adopted amendments to the regulation that would
increase the infrastructure development requirement
14
from twenty-five to one hundred percent. However, the regulation amendment
increasing the infrastructure requirement grandfathers existing licensees and
applies only to new casino projects and casinos that are not operating at the
time of acquisition or purchase, and therefore would not apply to Fitzgeralds
Tunica.
The sale of alcoholic beverages, including beer and wine, at
Fitzgeralds Tunica is subject to licensing, control and regulation by both the
local jurisdiction and the Alcoholic Beverage Control Division (the "ABC") of
the Mississippi State Tax Commission. Fitzgeralds Tunica is in an area
designated as a special resort area, which allows Fitzgeralds Tunica to serve
alcoholic beverages on a 24-hour basis. The ABC requires that all equity owners
and certain managers file personal record forms and fingerprint forms for their
licensing process. In addition, owners of more than 5% of Barden Mississippi's
equity and Barden Mississippi's officers, members and certain managers must
submit detailed financial information to ABC for licensing. All such licenses
are revocable and are non-transferable. The Mississippi State Tax Commission has
full power to limit, condition, suspend or revoke any such license, and any such
disciplinary action could (and revocation would) have a material adverse effect
on us and Barden Mississippi's operations at Fitzgeralds Tunica.
Colorado Gaming Regulation
Colorado legalized limited gaming by constitutional amendment
approved by Colorado voters on November 6, 1990. The Colorado legislature
thereafter enacted the Limited Gaming Act of 1991 (the "Colorado Act") to
implement the provisions of the constitutional amendment, and limited gaming
commenced in Colorado on October 1, 1991. The Colorado Act authorizes limited
gaming only in certain designated commercial districts of Central City, Black
Hawk and Cripple Creek, Colorado. Limited gaming consists of poker, blackjack
and slot machines, all with maximum single bets of five dollars. Only persons
aged 21 or older may participate in limited gaming, and limited gaming and the
sale of alcoholic beverages are prohibited between the hours of 2:00 a.m. and
8:00 a.m. Limited gaming is only allowed on premises licensed for that purpose,
and the licensed premises of any building may not exceed 35% of the square
footage of the building and no more than 50% of any floor of such building.
There is no limitation on the size of any structure or total square footage
devoted to limited gaming.
As of March 2003, four potential statewide ballot measures have been
announced which would affect the possibility of placement of video lottery
terminals at five designated horse and dog racetracks along Colorado's front
range. The first three initiated measures prohibit the installation of video
slot terminals or any other form of a slot machine at any location other than
the three existing towns where limited gaming is permitted.
The fourth proposed initiative would allow the initial installation
of up to five hundred video lottery terminals at each of five designated tracks
under supervision of the state Lottery Commission.
A constitutional amendment based upon a statewide vote is required
for passage of any of the anti pro expansion proposals. Although each measure
has been presented for approval of clarity of content and ballot title to
required legislative committees, no required voter signatures have been gathered
and no date for inclusion in a regularly scheduled election has been
designated.The three anti expansion measures are proposed for the November 2004
ballot.
The single pro expansion measure is targeted for November 2003. It
must, however, be noted that odd year initiatives are restricted by law to new
tax issues and a court challenge to the
15
race track expansion appearing before voters in 2003 is expected.
The following statutory and regulatory requirements are applicable
to the Company since its acquisition of the Fitzgeralds assets. Barden Colorado
holds the Company's Colorado gaming license.
On October 18, 2001, the Colorado Limited Gaming Control Commission
issued operators and retailers licenses to Barden Colorado. The operators
license was effective as of October 18, 2001 and was renewed on October 18, 2002
(expires October 18, 2003). The retailers license, which permits the actual
conduct of gaming by Barden Colorado, became effective upon the happening of
certain standard conditions for retail licenses and gaming commenced under
Barden Colorado's retail license on December 7, 2001. These conditions apply to
all gaming licenses in the State of Colorado and are as follows:
. Confirmation that a valid certificate of occupancy has been issued
by the appropriate local authorities for the building in which
limited gaming is to be conducted;
. Confirmation by the local historical preservation commission that
the building in which limited gaming is to be conducted meets the
architectural requirements of the Limited Gaming Act of 1991;
. Certification by the appropriate local official that the building in
which limited gaming is to be conducted meets the standards for fire
safety set forth in the Limited Gaming Act of 1991;
. Certification by the appropriate local official that access to the
building for the handicapped has been approved, as required by the
Limited Gaming Act of 1991; and
. Surrender of any retail license previously issued for the premises
to be occupied by the new retail license.
Pursuant to the Colorado Act and the rules and regulations
promulgated thereunder (collectively, the "Colorado Gaming Regulations"), the
ownership and operation of limited gaming facilities in Colorado, however
acquired, are subject to extensive regulation. The Colorado Act created the
Division of Gaming (the "Colorado Division") within the Colorado Department of
Revenue and the Colorado Limited Gaming Control Commission (the "Colorado Gaming
Commission") to license, implement, regulate, and supervise the conduct of
limited gaming. The Director of the Colorado Division (the "Colorado Director"),
under the general supervision of the Colorado Gaming Commission, is granted
broad powers to ensure compliance with the Colorado Act and the rules. The
Colorado Act now provides that the provisions which established the Colorado
Division are repealed effective July 1, 2003, unless continued by act of the
General Assembly. This is a "sunset" provision common in assessing the
continuing necessity for the existence of administrative agencies within
Colorado. If the repeal takes effect, Colorado law provides a procedure for
winding up the affairs of the Colorado Division, public hearings, analysis and
evaluation, and for determining claims by or against the Colorado Division. The
potential effect of the possible repeal upon the regulatory structure governing
limited gaming is unknown. The activity of limited gaming itself would continue
regardless of a change in regulatory structure, as the authority for gaming lies
in the state constitution.
16
The Colorado Act declares public policy on limited stakes gaming
to be that:
. the success of limited stakes gaming is dependent upon public
confidence and trust that licensed limited stakes gaming is
conducted honestly and competitively, the rights of the creditors of
licensees are protected and gaming is free from criminal and
corruptive elements;
. public confidence and trust can be maintained only by strict
regulation of all persons, locations, practices, associations and
activities related to the operation of licensed gaming
establishments and the manufacture or distribution of gaming devices
and equipment;
. all establishments where limited stakes gaming is conducted and
where gambling devices are operated and all manufacturers, sellers
and distributors of certain gambling devices and equipment must
therefore be licensed, controlled and assisted to protect the public
health, safety, good order and the general welfare of the
inhabitants of the state to foster the stability and success of
limited stakes gaming and to preserve the economy and free
competition in Colorado; and
. no applicant for a license or other approval has any right to a
license or to the granting of the approval sought.
The Colorado Gaming Commission may issue: (1) slot machine or
distributor; (2) operator; (3) retail gaming; (4) support; and (5) key employee
gaming licenses. The first three licenses require annual renewal by the Colorado
Gaming Commission. Support and key employee licenses are issued for two-year
periods and are renewable by the Division Director. The Colorado Gaming
Commission has broad discretion to condition, suspend for up to six months,
revoke, limit or restrict a license at any time and also has the authority to
impose fines.
A retail gaming license is required for all persons conducting
limited stakes gaming on their premises. In addition, an operator license is
required for all persons who engage in the business of placing and operating
slot machines on the premises of a retailer. However, a retailer is not required
to hold an operator license. No person may have an ownership interest in more
than three retail licenses.
The Colorado Act requires that every officer, director, and
stockholder of private corporations or equivalent office or ownership holders
for non-corporate applicants, and every officer, director or stockholder holding
either a 5% or greater interest or controlling interest of a publicly traded
corporation or owners of an applicant or licensee, shall be a person of good
moral character and submit to a full background investigation conducted by the
Colorado Division and the Colorado Gaming Commission. The Colorado Gaming
Commission may require any person having an interest in a license or a licensee
to undergo a full background investigation and pay the cost of investigation in
the same manner as an applicant. Limited disclosure forms are required of those
persons holding any equity interest in a non-publicly traded applicant.
In addition, all persons loaning monies, goods, or real or personal
property to a licensee or applicant, or having any interest in a licensee or
applicant, or entering into any agreement with
17
a licensee or applicant, must provide any information requested by the Colorado
Division or Colorado Gaming Commission, and in the discretion of the Colorado
Division or the Colorado Gaming Commission, these persons must supply all
information relevant to a determination of any such person's suitability for
licensure and must submit to a full background investigation if ordered by the
Colorado Gaming Commission. Failure to promptly provide all information
requested, or to submit to a suitability or background investigation, may result
in the denial of a license application, suspension or revocation of an existing
license, termination of any lease, note arrangement, or agreement between the
applicant or licensee and the person requested to provide the information, and
other sanctions. Investigations for suitability, background, or any other reason
may delay a license application or the operation under any agreement with a
licensee. All agreements, contracts, leases or arrangements in violation of the
Colorado Act or the rules are void and unenforceable.
Persons found unsuitable by the Colorado Gaming Commission may be
required immediately to terminate any interest in, association or agreement
with, or relationship to a licensee. A finding of unsuitability with respect to
any officer, director, employee, associate, lender or beneficial owner of a
licensee or applicant may also jeopardize the licensee's license or applicant's
license application. Licenses may be conditioned upon termination of any
relationship with unsuitable persons.
The Colorado Act and the rules require licensees to maintain
detailed books and records which accurately account for all monies and business
transactions. Books and records must be furnished upon demand to the Colorado
Gaming Commission, the Colorado Division and other law enforcement authorities.
The rules also establish extensive playing procedures, standards, requirements
and rules of play for poker, blackjack and slot machines.
Retail gaming licensees must, in addition, adopt comprehensive
internal control procedures governing their limited gaming operations. Such
procedures include the areas of accounting, internal fiscal control,
surveillance, security, cashier operations, key control, reporting procedures,
personnel procedures and fill and drop procedures, among others. Such procedures
must be approved in advance by the Colorado Division. Licensees are prohibited
from engaging in fraudulent acts which include, among other things,
misrepresenting the probabilities of pay out, improperly canceling a bet,
conducting limited gaming without a valid license and employing an unlicensed
person in a position which requires a licensed employee. Licensees must report
to the Colorado Division all licenses, and all applications for licenses, in
foreign jurisdictions.
With limited exceptions applicable to licensees that are publicly
traded entities, no person, including persons who may acquire an interest in a
licensee pursuant to a foreclosure, may sell, lease, purchase, convey or acquire
any interest in a retail gaming or operator license or business without the
prior approval of the Colorado Gaming Commission.
The rules impose certain additional restrictions and reporting and
filing requirements on publicly traded entities holding gaming licenses in
Colorado and on gaming licensees in Colorado owned directly or indirectly, 5% or
more, by publicly traded entities.
A licensee or affiliated company or any controlling person of a
license or affiliated company, which commences a public offering of voting
securities, must notify the Colorado Gaming Commission, with regard to a public
offering to be registered with the SEC, no later than ten business days after
the initial filing of a registration statement with the SEC, or, with regard to
any other type of public offering, no later than ten business days prior to the
public use or
18
distribution of any offering document, if: 1) the licensee, affiliated company
or a controlling person thereof, intending to issue the voting securities is not
a publicly traded corporation; or 2) if the licensee, affiliated company or
controlling person thereof, intending to issue the voting securities is a
publicly traded corporation, and if the proceeds of the offering, in whole or in
part, are intended to be used: a) to pay for construction of gaming facilities
in Colorado to be owned and operated by the licensee; b) to acquire any direct
or indirect interest in gaming facilities in Colorado; c) to finance the
operation by the licensee of gaming facilities in Colorado; or d) to retire or
extend obligations incurred for one or more of the purposes set forth in
subsections a, b, or c above.
Any licensee notifying the Colorado Gaming Commission of a public
offering must provide specific information as set forth in the Colorado Gaming
Regulations. All offering material provided to the SEC must also be provided to
the Colorado Gaming Commission.
Such entities also must include certain provisions in their charter
or other organizational documents restricting the transfer of interests in the
entity except in compliance with the Colorado Act. The Colorado Gaming
Commission may require persons affiliated with, and certain direct or indirect
owners of, such transferees to apply for a finding of suitability. If found
unsuitable, such persons must terminate their relationship with the entity and
such owners must sell their interest back to the issuer or to a suitable person
approved by the Colorado Gaming Commission.
The State of Colorado has enacted an annual tax on the adjusted
gross proceeds ("AGP") from limited gaming. AGP is generally defined as the
amounts wagered minus payments to players. For poker, AGP means those sums
wagered on a hand retained by the licensee as compensation. Currently, the
gaming tax on AGP ranges between 0.25% and 20%. The gaming tax is paid monthly,
with licensees required to file returns by the 15th of the following month.
Effective July 1 of each year, the Colorado Gaming Commission establishes the
gaming tax rates for the following 12 months. Under the Constitution of the
State of Colorado, the Colorado Gaming Commission may increase the gaming tax
rate to as much as 40% of AGP. Since July 1, 1999, the Colorado Commission has
set a gaming tax rate of 0.25% on adjusted gross gaming proceeds of up to and
including $2 million, 2% over $2 million up to and including $4 million, 4% over
$4 million up to and including $5 million, 11% over $5 million up to and
including $10 million, 16% over $10 million up to and including $15 million, and
20% over $15 million.
The Colorado Commission also may impose device fees. Effective July
1, 1999, the Colorado Commission eliminated annual device fees. Despite the
elimination of the annual device fee, casinos are still required to obtain
device stamps from the Colorado Division of Gaming and must follow device
tracking procedures. The town of Black Hawk imposes an annual device fee on each
slot machine, black jack and poker table in the current amount of $750.00 per
device. Black Hawk also imposes taxes and fees on other aspects of the
businesses of gaming licensees, such as parking, liquor license and other
municipal taxes and fees. It is not unreasonable to expect substantial increases
in these fees or the imposition of new taxes and fees.
Violations of the Colorado Act, or any of the rules, is a criminal
offense. Persons violating the Colorado Act or the rules may, in addition to any
gaming license suspension or revocation, or administrative fine be subject to
criminal prosecution resulting in incarceration, fines or both.
The sale of alcoholic beverages in gaming establishments is subject
to strict licensing, control and regulation by state and local authorities.
Alcoholic beverage licenses are revocable
19
and non-transferable. State and local licensing authorities have full power to
limit, condition, suspend or revoke any such licenses. Violation of these state
alcoholic beverage laws is a criminal offense, and violators are subject to
criminal prosecution, incarceration and fines.
Nevada Gaming Regulation
The ownership and operation of casino gaming facilities in Nevada
are subject to the Nevada Gaming Control Act and the regulations promulgated
thereunder (the "Nevada Act") and to the licensing and regulatory control of the
Nevada Gaming Commission (the "Nevada Commission"), the Nevada State Gaming
Control Board (the "Nevada Board") and various local ordinances and regulations,
including, without limitation, applicable city and county gaming and liquor
licensing authorities (collectively, the "Nevada Gaming Authorities").
The laws, regulations and supervisory procedures of the Nevada
Gaming Authorities are based upon declarations of public policy which are
concerned with, among other things:
. the prevention of unsavory or unsuitable persons from having a
direct or indirect involvement with gaming at any time or in any
capacity;
. the establishment and maintenance of responsible accounting
practices and procedures;
. the maintenance of effective controls over the financial practices
of licensees, including the establishment of minimum procedures for
internal fiscal affairs and the safeguarding of assets and revenues,
providing reliable record keeping and filing periodic reports with
the Nevada Gaming Authorities;
. the prevention of cheating and fraudulent practices; and
. providing a source of state and local revenues through taxation and
licensing fees.
Changes in such laws, regulations and procedures could have an
adverse effect on our gaming operations.
The Company and Barden Nevada are required to be licensed by the
Nevada Gaming Authorities. The gaming licenses require the periodic payment of
fees and taxes and are not transferable. In addition, the Company has been
registered by the Nevada Commission as a "registered corporation" and found
suitable to own the stock of Barden Nevada. BDI, Majestic Star and Investor also
have been registered with the Nevada Commission and found suitable to own the
stock of their direct wholly-owned subsidiaries. Barden Nevada serves as the
Company's corporate gaming licensee under the terms of the Nevada Act. No person
may become a stockholder of, or receive any percentage of profits from, a
corporate gaming licensee without first obtaining licenses and approvals from
the Nevada Gaming Authorities. The Company and Barden Nevada have obtained from
the Nevada Gaming Authorities the various registrations, findings of
suitability, approvals, permits and licenses required in order to engage in
gaming activities in Nevada.
A registered corporation is required to periodically submit detailed
financial operating reports to the Nevada Commission and furnish any other
information which the Nevada
20
Commission may require. The Nevada Gaming Authorities may investigate any
individual who has a material relationship to or material involvement with the
Company or Barden Nevada in order to determine whether such individual is
suitable or should be licensed as a business associate of a gaming licensee.
Officers, directors, managers, members and certain key employees of Barden
Nevada must file applications with the Nevada Gaming Authorities and may be
required to be licensed or found suitable by the Nevada Gaming Authorities.
Officers, directors and key employees of the Company who are actively and
directly involved in gaming activities of Barden Nevada may be required to be
licensed or found suitable by the Nevada Gaming Authorities. The Nevada Gaming
Authorities may deny an application for licensing for any cause which they deem
reasonable. A finding of suitability is comparable to licensing, and both
require submission of detailed personal and financial information followed by a
thorough investigation. The applicant for licensing or a finding of suitability
must pay all the costs of the investigation. Changes in licensed positions must
be reported to the Nevada Gaming Authorities and, in addition to their authority
to deny an application for a finding of suitability or licensure, the Nevada
Gaming Authorities have jurisdiction to disapprove a change in a corporate
position.
If the Nevada Gaming Authorities were to find an officer, director,
manager, member or key employee unsuitable for licensing or unsuitable to
continue having a relationship with the Company or Barden Nevada, the companies
involved would have to sever all relationships with such person. In addition,
the Nevada Commission may require the Company or Barden Nevada to terminate the
employment of any person who refuses to file appropriate applications.
Determinations of suitability or of questions pertaining to licensing are not
subject to judicial review in Nevada.
If the Nevada Commission determined that the Nevada Act was violated
by the Company or Barden Nevada, the registration or gaming licenses that the
Company or Barden Nevada holds could be limited, conditioned, suspended or
revoked, subject to compliance with certain statutory and regulatory procedures.
In addition, the Company, Barden Nevada and the persons involved could be
subject to substantial fines for each separate violation of the Nevada Act at
the discretion of the Nevada Commission. Further, a supervisor could be
appointed by the Nevada Commission to operate Fitzgeralds Las Vegas and, under
certain circumstances, earnings generated during the supervisor's appointment
(except for reasonable rental value of the casino) could be forfeited to the
State of Nevada. Limitation, conditioning or suspension of the gaming licenses
of Barden Nevada or the appointment of a supervisor could (and revocation of any
gaming license would) have a material adverse effect on the Company's gaming
operations.
The Company and Barden Nevada are required to periodically submit
detailed financial and operating reports to the Nevada Commission and furnish
any other information which the Nevada Commission may require. Substantially all
material loans, leases, sales of securities and similar financing transactions
by the Company and Barden Nevada must be reported to or approved by the Nevada
Commission. In addition, all "registered corporations" would also be required to
report to or receive approval by the Nevada Commission for such similar
financing transactions if such transactions involve pledges of or restrictions
or liens on such corporation's equity securities.
Any beneficial holder of a registered corporation's voting
securities (or rights to acquire such securities), regardless of the number of
shares owned, may be required to file an application, be investigated and have
its suitability as a beneficial holder of the registered corporation's voting
securities determined if the Nevada Commission has reason to believe that such
ownership would otherwise be inconsistent with the declared policies of the
State of Nevada. If the beneficial holder of voting securities who must be found
suitable is a corporation, partnership, limited
21
liability company or trust, it must submit detailed business and financial
information, including a list of beneficial owners. The applicant must pay all
costs of investigation incurred by the Nevada Gaming Authorities in conducting
any such investigation.
The Nevada Act requires any person who acquires beneficial ownership
of more than 5% of a registered corporation's voting securities to report the
acquisition to the Nevada Commission. The Nevada Act requires that beneficial
owners of more than 10% of a registered corporation's voting securities apply to
the Nevada Commission for a finding of suitability within 30 days after the
Chairman of the Nevada Board mails the written notice requiring such filing.
Under certain circumstances, an "institutional investor," as defined in the
Nevada Act, which acquires more than 10%, but not more than 15%, of a registered
corporation's voting securities may apply to the Nevada Commission for a waiver
of such finding of suitability if such institutional investor holds the voting
securities for investment purposes only. An institutional investor is not deemed
to hold voting securities for investment purposes unless the voting securities
were acquired and are held in the ordinary course of business as an
institutional investor and not for the purpose of causing, directly or
indirectly:
. the election of a majority of the members of the board of directors
or managers of the registered corporation;
. any change in the corporate charter, bylaws, similar organizational
documents, management, policies or operations of the registered
corporation, or any of its gaming affiliates; or
. any other action which the Nevada Commission finds to be
inconsistent with holding the registered corporation's voting
securities for investment purposes only.
Activities which are not deemed to be inconsistent with holding
voting securities for investment purposes only include:
. voting on all matters voted on by securityholders;
. making financial and other inquiries of management of the type
normally made by securities analysts for informational purposes and
not to cause a change in its management, policies or operations; and
. such other activities as the Nevada Commission may determine to be
consistent with such investment intent.
If the beneficial holder of voting securities who must be found
suitable is a corporation, partnership, limited partnership, limited liability
company or trust, it must submit detailed business and financial information,
including a list of beneficial owners. The applicant is required to pay all
costs of investigation.
Any person who fails or refuses to apply for a finding of
suitability or a license within 30 days after being ordered to do so by the
Nevada Commission or the Chairman of the Nevada Board may be found unsuitable.
The same restrictions apply to a record owner if the record owner, after
request, fails to identify the beneficial owner. Any securityholder found
unsuitable and who holds, directly or indirectly, any beneficial ownership of
the voting securities beyond such period of time as may be prescribed by the
Nevada Commission may be guilty of a criminal
22
offense. The Company will be subject to disciplinary action if, after it
receives notice that a person is unsuitable to be a securityholder or to have
any other relationship with the Company or Barden Nevada, it:
. pays that person any dividend, distribution or interest upon its
voting securities;
. allows that person to exercise, directly or indirectly, any voting
right conferred through securities held by that person;
. pays remuneration in any form to that person for services rendered
or otherwise; or
. fails to pursue all lawful efforts to require such unsuitable person
to relinquish its voting securities including, if necessary, the
immediate purchase of said voting securities for cash at fair market
value.
Additionally, the City of Las Vegas has the authority to approve all
persons owning or controlling the equity interests of any entity controlling a
gaming licensee located in that city.
The Nevada Commission may, in its discretion, require the holder of
any debt or similar security of a registered corporation to file applications,
be investigated and be found suitable to own the debt security of a registered
corporation if the Nevada Commission has reason to believe that such ownership
would otherwise be inconsistent with the declared policies of the State of
Nevada. If the Nevada Commission determines that a person is unsuitable to own
such security, then pursuant to the Nevada Act, the registered corporation can
be sanctioned, including the loss of its approvals, if without the prior
approval of the Nevada Commission, it:
. pays to the unsuitable person any dividend, interest, or any
distribution whatsoever;
. recognizes any voting right by such unsuitable person in connection
with such securities;
. pays the unsuitable person remuneration in any form; or
. makes any payment to the unsuitable person by way of principal,
redemption, conversion, exchange, liquidation, or similar
transaction.
The Company and Barden Nevada will be required to maintain a
current stock ledger in Nevada which may be examined by the Nevada Gaming
Authorities at any time. If any securities are held in trust by an agent or by a
nominee, the record holder may be required to disclose the identity of the
beneficial owner to the Nevada Gaming Authorities. A failure to make such
disclosure may be grounds for finding the record holder unsuitable. The Company
will also be required to render maximum assistance in determining the identity
of the beneficial owner of any of our voting securities. The Nevada Commission
has the power to require the Company's security certificates to bear a legend
indicating that the securities are subject to the Nevada Act. To date, the
Nevada Commission has not imposed this requirement on the Company.
The Company may not make a public offering of its securities without
the prior approval
23
of the Nevada Commission if the securities or proceeds therefrom are intended to
be used to construct, acquire or finance gaming facilities in Nevada, or to
retire or extend obligations incurred for such purposes, unless the Chairman of
the Nevada Board issues a ruling that such approval is not required.
Changes in control of a registered corporation through merger,
consolidation, stock or asset acquisitions, management or consulting agreements,
or any act or conduct by a person whereby he obtains control, may not occur
without the prior approval of the Nevada Commission. Entities seeking to acquire
control of a registered publicly traded corporation must satisfy the Nevada
Board and Nevada Commission in a variety of stringent standards prior to
assuming control of such registered corporation. The Nevada Commission may also
require controlling stockholders, officers, directors and other persons having a
material relationship or involvement with the entity proposing to acquire
control, to be investigated and licensed as part of the approval process
relating to the transaction.
License fees and taxes, computed in various ways depending on the
type of gaming or activity involved, are payable to the State of Nevada and to
the counties and cities in which the Nevada licensee's respective operations are
conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly or annually and are based upon:
. a percentage of the gross revenues received;
. the number of gaming devices operated; or
. the number of table games operated.
A casino entertainment tax is also paid by casino operations where
entertainment is furnished in connection with the selling or serving of food or
refreshments or the selling of merchandise. Nevada licensees that hold a
manufacturer's license or a distributor's license also pay certain fees and
taxes to the State of Nevada.
Any person who is licensed, required to be licensed, registered,
required to be registered, or is under common control with such persons, and who
is or proposes to become involved in a gaming venture outside of Nevada, is
required to deposit with the Nevada Board, and thereafter maintain, a revolving
fund in the amount of $10,000 to pay the expenses of investigation by the Nevada
Board for such licensee's participation in such foreign gaming. The revolving
fund is subject to increase or decrease in the discretion of the Nevada
Commission. Thereafter, foreign licensees are required to comply with certain
reporting requirements imposed by the Nevada Act. Such licensees are also
subject to disciplinary action by the Nevada Commission if they:
. knowingly violate any laws of the foreign jurisdiction pertaining to
the foreign gaming operation;
. fail to conduct the foreign gaming operation in accordance with the
standards of honesty and integrity required of Nevada gaming
operations;
. engage in activities or enter into associations that are harmful to
the State of Nevada or its ability to collect gaming taxes and fees;
or
. employ, contract with or associate with a person in the foreign
24
operation who has been denied a license or finding of suitability in
Nevada on the grounds of unsuitability.
The sale of alcoholic beverages at Fitzgeralds Las Vegas is subject
to licensing, control and regulation by the City of Las Vegas. All licenses are
revocable and are not transferable. The agencies involved have full power to
limit, condition, suspend or revoke any such license, and any such disciplinary
action could (and revocation would) have a material adverse effect on the
operations of Fitzgeralds Las Vegas.
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 a suspicious activity reporting rule. The 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 expected to take effect on March 25,
2003.
ITEM 2. PROPERTIES
The Company currently owns and operates Fitzgeralds Tunica in
Tunica, 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 Fitzgeralds 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.
Fitzgeralds Tunica
- ------------------
Fitzgeralds Tunica is located in north Tunica County, Mississippi,
approximately 30 miles from downtown Memphis, Tennessee. Fitzgeralds Tunica has
an Irish castle theme and is the focal point of a heavily wooded, 50-acre site
situated by the Mississippi River. The facility was expanded to include a hotel
and related amenities, which improvements were substantially completed in
October 1996. Fitzgeralds Tunica is a full-service entertainment destination and
its customer base has been increased and diversified by its ability to attract,
in addition to local customers, independent travelers, tour-and-travel customers
and guests for special events and
25
conventions. Fitzgeralds Tunica includes a 507-room hotel (including 72 suites),
a special events center, an indoor swimming pool and a casino offering 1,349
slot machines and 34 table games, two bars, three restaurants, and a gift shop.
Under Mississippi law, gaming vessels in Tunica County must be located on the
Mississippi River or on navigable waters within counties bordering the
Mississippi River. Fitzgeralds Tunica was constructed on barges situated in a
specially constructed basin. The facility includes a 411 space parking garage,
1,264 surface parking spaces and 120 valet spaces. Fitzgeralds Tunica has
conveyed approximately 71 acres of adjacent land to Tunica County, as part of
the County's 168-acre, $23.0 million river park project, which will include,
among other things, a marina and boat dock (including space for sight-seeing
paddlewheel riverboats) and a nature park. As consideration for the conveyance,
Tunica County granted Fitzgeralds Tunica a rent-free lease to use and further
sublease the boat dock for 15 years, from the date of substantial completion of
the marina, as well as a perpetual easement allowing ingress and egress between
the Fitzgeralds Tunica property and the boat dock. Fitzgeralds has granted
Mississippi Riverboat Company LLC, an unrelated third-party operator, an
exclusive license to operate riverboat excursions along the Mississippi River
from the boat dock in return for a percentage of gross revenues.
Fitzgeralds Black Hawk
- -----------------------
Fitzgeralds Black Hawk is located adjacent to the entrance to the
downtown gaming area of Black Hawk, Colorado. Fitzgeralds Black Hawk consists of
a two-story building, the interior of which features high ceilings and other
architectural details which set it apart visually from many other Black Hawk
casinos. The casino offers 592 slot machines, 6 table games, a restaurant and a
bar. The second floor is mostly unfinished and currently is partially used for
offices and storage space. Fitzgeralds Black Hawk also has a 392-space, all
valet parking garage adjacent to the casino. In addition, during 2002, we
authorized and began a partial demolition project on property adjacent to and
owned by Fitzgeralds Black Hawk. This property is available for expansion if
market conditions warrant and we are currently evaluating the feasibility of
such an expansion to better serve this growing market. One of the issues
concerning such expansion is the issue of whether there is adequate
infrastructure in the Black Hawk market. We have obtained some, but not all, of
the permits necessary to undertake any proposed expansion.
Fitzgeralds Las Vegas
- ---------------------
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. The property is accessible via Interstate 15 and U. S. 95.
The hotel was refurbished and the casino was remodeled in December 1996.
Fitzgeralds Las Vegas offers 895 slot machines, 25 table games, 638 hotel rooms
(including 14 suites), a 42-seat keno lounge and a sports book (operated by a
third party). Fitzgeralds Las Vegas amenities include five restaurants
(including a McDonald's restaurant), three bars, a special events center, a gift
shop and an entertainment area. The facility includes a 335-space parking
structure and an adjacent surface parking area with an additional 31 spaces.
Fitzgeralds Las Vegas is in the process of constructing a swimming
pool and implementing coinless slot technology on selected slot machines. These
improvements are being provided to enhance the overall customer experience at
Fitzgeralds Las Vegas.
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
26
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 or results of operations.
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 plans to pay any cash dividends in the near term. We are
restricted in our ability to pay dividends under various debt covenants.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected historical consolidated
financial data for Majestic Investor Holdings, LLC at December 31, 2002 and 2001
and for the year ended December 31, 2002 and for the period from inception
(September 14, 2001) through December 31, 2001. The following table also
presents selected historical combined financial data for Fitzgeralds Tunica,
Fitzgeralds Black Hawk and Fitzgeralds Las Vegas (the "Predecessor") at December
31, 1998, 1999 and 2000 and for the years ended December 31, 1998, 1999 and 2000
and for the period from January 1, 2001 to December 6, 2001. The selected
historical financial data as of and for the year ended December 31, 2002 and the
period from inception (September 14, 2001) through December 31, 2001 has been
derived from the audited consolidated financial statements for Majestic Investor
Holdings, LLC for the period from inception (September 14, 2001) through
December 31, 2001. The selected historical financial data as of December 31,
2001 has been derived from the audited consolidated financial statements of
Majestic Investor Holdings, LLC for the period from inception (September 14,
2001) through December 31, 2001. The selected historical financial data at
December 31, 1998, 1999 and 2000, and for the years ended December 31, 1998,
1999, 2000, and for the period from January 1, 2001 to December 6, 2001
presented below, have been derived from the audited combined financial
statements for Fitzgeralds Las Vegas, Inc., Fitzgeralds Mississippi, Inc. and
101 Main Street Limited Liability Company at those dates and for those periods.
Because the data in this table is only a summary and does not provide all of the
data contained in the financial statements, including the notes thereto, you
should read "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the financial statements included elsewhere herein.
27
Successor (1)
-----------------------------------------------------
For the period from inception
(September 14, 2001)
December 31, 2002 through December 31, 2001
--------------------- ------------------------------
(in thousands) (in thousands)
STATEMENT OF OPERATIONS DATA: (2)
Net Operating Revenues (3) $ 169,412 $ 10,521
Operating Expenses (4) (5) 153,363 10,799
Pre-opening Expenses 13 1,018
Income (Loss) from operations 16,049 (278)
Interest Expense, Net (17,982) (993)
Net Loss Before Extraordinary Item (1,975) (1,271)
Extraordinary Item 69 -
Net Income (Loss) (1,906) (1,271)
Predecessor
----------------------------------------------------------------
For the period from
January 1, 2001 to For the year ended December 31,
December 6, 2001 2000 1999 1998
---------------------- ------------ ----------- -------------
(in thousands)
STATEMENT OF OPERATIONS DATA: (2)
Net Operating Revenues (3) $ 157,659 $ 159,738 $ 152,776 $ 149,222
Operating Expenses (4) (5) 132,217 144,342 141,053 138,679
Pre-opening Expenses - - - -
Income (Loss) from operations 25,442 15,396 11,723 10,543
Interest Expense, Net (2) (25,935) (28,070) (28,504)
Net Loss Before Extraordinary Item - - - -
Extraordinary Item - - - -
Net Income (Loss) 25,358 (10,535) (16,248) (21,269)
Successor (1) Predecessor
------------------------------------- ---------------------------------------
At At At December 31,
December 31, 2002 December 31, 2001 2000 1999 1998
----------------- ------------------ ---------- ----------- -----------
(in thousands) (in thousands) (in thousands)
BALANCE SHEET DATA: (2)
Cash and Cash Equivalents $ 15,984 $ 17,705 $ 2,840 $ 10,278 $ 8,748
Restricted Cash 1,250 1,000 - - -
Total Assets 171,039 183,445 147,320 157,033 162,025
Current Liabilities 17,310 24,394
Long-Term Debt (excluding current maturities) 145,647 145,340 - 719 3,326
Liabilities Subject to Compromise - - 225,873 - -
Total Liabilities 162,957 170,912 226,365 225,543 214,287
Members' Equity 8,082 12,532 (79,045) (68,510) (52,262)
NOTES:
(1) Investor Holdings is an unrestricted subsidiary, formed on September 14,
2001, that acquired three Fitzgeralds brand casinos on December 6, 2001.
The statement of operations data includes operations of Majestic Investor
Holdings and for the acquired casinos for the year ended December 31, 2002
and from inception, including twenty-five days of operations for the
acquired casinos, through December 31, 2001.
(2) The aforementioned financial data is consolidated and includes Majestic
Investor Holdings, Barden Mississippi, Barden Colorado and Barden Nevada.
(3) Net operating revenue is defined as gross revenues less promotional
allowances.
(4) Operating expenses excludes $13,000 and $1,018,000 of pre-opening costs
associated with the acquisition of Fitzgeralds for the year ended December
31, 2002 and the period from inception through December 31, 2001.
(5) The predecessor company, for the period from December 5, 2000 to December
6, 2001, discontinued the recording of depreciation expense for property
and equipment included in net assets held for sale subsequent to filing
bankruptcy in December 2000.
28
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
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 our gaming licenses;
increases in or new taxes imposed on gaming revenues; 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 employees;
significant increase in fuel or transportation prices; adverse economic
conditions in the Company's markets; severe and unusual weather in our markets;
adverse results of significant litigation matters; non-renewal of the Company's
gaming licenses from the appropriate governmental authorities in Nevada,
Mississippi and Colorado; and 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 hereof. 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 Company was formed on September 14, 2001 and commenced
operations of the Fitzgeralds casinos on December 7, 2001, and accordingly has a
limited operating history. Therefore, the discussion of operations herein will
focus on events and the Company's revenues and expenses for the year ended
December 31, 2002 and during the period from inception (September 14, 2001)
through December 31, 2001. In addition, this section discusses the combined
results of operations of the three Fitzgeralds casino properties on a historical
basis.
Predecessor information other than revenues, may not necessarily be
meaningful, as our
29
cost structure and capitalization following the acquisition of the three
Fitzgeralds casino properties is significantly different nor should it be relied
upon as a reliable indicator of our future performance with respect to the
acquired properties.
Results of Operations
- ---------------------
The following table sets forth information derived from the
Company's statement of operations expressed as a percentage of gross revenues
and the combined financial statements for Fitzgeralds Las Vegas, Inc.,
Fitzgeralds Mississippi, Inc. and 101 Main Street Limited Liability Company
expressed as a percentage of gross revenues. The classifications for certain
costs and expenses are different between the Company and predecessor.
30
CONSOLIDATED STATEMENTS OF OPERATIONS - SUMMARY INFORMATION
(dollars in thousands)
Successor Predecessor
------------------------------------------- -----------------------------------------------------
For The Period
FROM (INCEPTION)
FOR THE YEAR ENDED SEPTEMBER 14, 2001 FOR THE PERIOD FROM FOR THE YEAR ENDED
December 31, THROUGH JANUARY 1, 2001 DECEMBER 31,
2002 December 31, 2001 TO DECEMBER 6, 2001 2000
--------------- ------------------------- ---------------------------- -----------------------
Gross Revenues $ 199,760 $ 12,832 $ 187,623 $ 188,493
Operating Income $ 16,049 $ (278) $ 25,442 $ 15,396
</Table>
CONSOLIDATED STATEMENTS OF OPERATIONS - PERCENTAGE OF GROSS REVENUES
SUCCESSOR PREDECESSOR
---------------------------------------------- -------------------------------------------
From Inception
FOR THE YEAR ENDED (SEPTEMBER 14, 2001) FOR THE PERIOD FROM FOR THE YEAR ENDED
DECEMBER 31, THROUGH JANUARY 1, 2001 DECEMBER 31,
2002 DECEMBER 31, 2001 TO DECEMBER 6, 2001 2000
-------------------- ------------------------ --------------------- --------------------
REVENUES:
Casino 80.7 % 80.7 % 80.3 % 78.9 %
Rooms 7.8 % 8.4 % 8.0 % 8.8 %
Food and beverage 9.7 % 9.3 % 9.8 % 10.4 %
Other 1.8 % 1.6 % 1.9 % 1.9 %
---------- ---------- ---------- ------------
Gross Revenues 100.0 % 100.0 % 100.0 % 100.0 %
less promotional allowances (15.2)% (18.0)% (16.0)% (15.3)%
---------- ---------- ---------- ------------
Net Revenues 84.8 % 82.0 % 84.0 % 84.7 %
COSTS AND EXPENSES:
Casino 30.5 % 32.1 % 37.2 % 36.7 %
Rooms 4.5 % 4.9 % 5.2 % 5.8 %
Food and beverage 5.6 % 5.5 % 5.7 % 6.1 %
Other 0.8 % 0.9 % 1.0 % 1.0 %
Gaming taxes 9.0 % 6.3 % - % - %
Advertising and promotion 6.6 % 7.2 % - % - %
General and administrative 12.5 % 12.2 % 20.2 % 20.9 %
Depreciation and amortization 7.2 % 7.2 % - % 6.2 %
Loss on disposal of assets 0.0 % - % - % - %
Write-down of assets - % - % 6.9 % - %
Reorganization items - % - % (5.6)% - %
Pre-opening expenses 0.0 % 7.9 % - % - %
---------- ---------- ---------- ------------
Total costs and expenses 76.7 % 84.2 % 70.6 % 76.7 %
---------- ---------- ---------- ------------
Operating income 8.1 % (2.2)% 13.4 % 8.0 %
OTHER INCOME (EXPENSE):
Interest income 0.1 % 1.7 % - % - %
Interest expense (9.1)% (9.4)% - % (13.9)%
Other non-operating expense 0.0 % - % - % - %
---------- ---------- ---------- ------------
Total other income
(expense) (9.0)% (7.7)% - % (13.9)%
Income (loss) before
extraordinary item (0.9)% (9.9)% 13.4 % (5.9)%
EXTRAORDINARY ITEM:
Gain on bond redemption 0.0 % - % - % - %
---------- ---------- ---------- ------------
Net income (loss) (0.9)% (9.9)% 13.4 % (5.9)%
========== ========== ========== ============
31
2002 Compared to Inception through December 31, 2001
- ----------------------------------------------------
The substantial increase in the Company's revenues and expenses for
the year 2002 is attributable to a full twelve months of operating results. In
2001, the Company's operations were limited from the date of acquisition of the
Fitzgeralds assets, December 7, 2001 through December 31, 2001. Consolidated
gross revenues for the year ended December 31, 2002 were $199,760,000 compared
to $12,832,000 for the period from inception (September 14, 2001) through
December 31, 2001, an increase of $186,928,000, or 1,456.7%. For the twelve
months ended December 31, 2002, gross revenues for Fitzgeralds Tunica accounted
for $106,954,000, or 53.6% of total revenues, Fitzgeralds Black Hawk accounted
for $38,188,000, or 19.1% of total revenues and Fitzgeralds Las Vegas accounted
for $54,618,000, or 27.3% of total revenues compared to $6,708,000, or 52.3%,
$2,679,000, or 20.9%, and $3,445,000, or 26.8%, respectively for the twelve
month period ended December 31, 2001.
The Company's business can be separated into four operating
departments: casino, rooms (except Fitzgeralds Black Hawk), food and beverage
and other. Consolidated casino revenues for the twelve months ended December 31,
2002 totaled $161,189,000, of which $142,861,000, or 88.6% were derived from
slot machine revenues, and $18,328,000, or 11.4%, were derived from table game
revenues, compared to casino revenues of $10,359,000, or 80.7% of consolidated
gross revenues, of which slot machines accounted for $9,011,000, or 87.0%, and
table games accounted for $1,348,000, or 13.0%, for the period from inception
through December 31, 2001. Casino revenues attributed to Fitzgeralds Tunica were
$88,200,000, or 82.5% of its gross revenues, of which $79,266,000 or 89.9% were
derived from slot machine revenues and $8,934,000, or 10.1%, were derived from
table games revenues for the twelve months ended December 31, 2002, compared to
casino revenues of $5,494,000, or 81.9% of its gross revenues, of which
$4,800,000, or 87.4%, were derived from slot machine revenues and $694,000, or
12.6%, were derived from table games revenues for the period from inception
through December 31, 2001. Casino revenues attributed to Fitzgeralds Black Hawk
were $36,028,000, or 94.3% of its gross revenues, of which $35,306,000, or 98.0%
were derived from slot machine revenues and $722,000, or 2.0%, were derived from
table games revenues for the twelve months ended December 31, 2002, compared to
casino revenues of $2,510,000, or 93.7% of its gross revenues, of which
$2,446,000, or 97.5%, were derived from slot machine revenues and $64,000, or
2.5%, were derived from table games revenues for the period from inception
through December 31, 2001. Casino revenues attributed to Fitzgeralds Las Vegas
were $36,961,000, or 67.7% of its gross revenues, of which $28,289,000, or 76.5%
were derived from slot machine revenues and $8,672,000, or 23.5%, were derived
from table games revenues for the twelve months ended December 31, 2002,
compared to casino revenues of $2,355,000, or 68.4% of its gross revenues, of
which $1,764,000, or 74.9%, were derived from slot machine revenues and
$591,000, or 25.1%, were derived from table games revenues for the period from
inception through December 31, 2001.
The consolidated average number of slot machines in operation was
2,869 during the twelve months ended December 31, 2002 compared to 2,935 during
the period from inception through December 31, 2001. Fitzgeralds Tunica
accounted for 1,371, or 47.8%, Fitzgeralds Black Hawk accounted for 593, or
20.7%, and Fitzgeralds Las Vegas accounted for 905, or 31.5%. The consolidated
average win per slot machine per day was $133 for the twelve months ended
December 31, 2002, with an average of $158, $163 and $86 at Fitzgeralds Tunica,
Fitzgeralds Black Hawk and Fitzgeralds Las Vegas, respectively, compared to
$138, $164 and $74, respectively, for the period from inception through December
31, 2001. The consolidated average number of table games in operation during the
twelve months ended December 31, 2002
32
was 64, of which Tunica accounted for 34, or 53.1%, Fitzgeralds Black Hawk
accounted for 6, or 9.4%, and Fitzgeralds Las Vegas accounted for 24, or 37.5%,
compared to 64, of which Tunica accounted for 34, or 53.1%, Fitzgeralds Black
Hawk accounted for 6, or 9.4%, and Fitzgeralds Las Vegas accounted for 24, or
37.5%, during the period from inception through December 31, 2001. The
consolidated average win per table game per day during the twelve months ended
December 31, 2002 was $785, with an average of $720, $330 and $989 at
Fitzgeralds Tunica, Fitzgeralds Black Hawk and Fitzgeralds Las Vegas,
respectively, compared to $843, with an average of $839, $424 and $947 at
Fitzgeralds Tunica, Fitzgeralds Black Hawk and Fitzgeralds Las Vegas,
respectively during the year ended December 31, 2001. With respect to
Fitzgeralds Black Hawk the maximum wager is limited to $5.00.
Consolidated room revenues for the twelve months ended December 31,
2002 was $15,496,000, or 7.8% of gross revenues, compared to $1,079,000, or 8.4%
of gross revenues for the period from inception through December 31, 2001. Of
this amount, Fitzgeralds Tunica accounted for $8,161,000, or 52.7%, with 507
rooms and Fitzgeralds Las Vegas accounted for $7,335,000, or 47.3%, with 638
rooms, compared to $544,000, or 50.4%, at Fitzgeralds Tunica and $535,000, or
49.6% at Fitzgeralds Las Vegas during the period from inception through December
31, 2001. During the twelve months ended December 31, 2002, at Fitzgeralds
Tunica the average daily rate was $48 and the occupancy rate was 93.4% and at
Fitzgeralds Las Vegas the average daily rate was $36 and the occupancy rate was
86.5%, compared to $50 and 86.5% at Fitzgeralds Tunica and $42 and 79.8% at
Fitzgeralds Las Vegas during the period from inception through December 31,
2001.
Consolidated food and beverage revenues for the twelve months ended
December 31, 2002 amounted to $19,471,000, or 9.7% of consolidated gross
revenues, compared to $1,190,000, or 9.3% of consolidated gross revenues for the
period from inception through December 31, 2001. Of this amount, Fitzgeralds
Tunica accounted for $9,280,000, or 47.7%, Fitzgeralds Black Hawk accounted for
$1,910,000, or 9.8%, and Fitzgeralds Las Vegas accounted for $8,281,000, or
42.5%, compared to $586,000, or 49.3%, $156,000, or 13.1%, and $448,000, or
37.6%, respectively, during the period from inception through December 31, 2001.
Other consolidated revenues consisted primarily of commission and
retail income and totaled $3,605,000, or 1.8% of consolidated gross revenues for
the twelve months ended December 31, 2002, compared to 204,000, or 1.6% of
consolidated gross revenues during the period from inception through December
31, 2001. Of this amount, Fitzgeralds Tunica accounted for $1,314,000, or 36.4%,
Fitzgeralds Black Hawk accounted for $250,000, or 7.0%, and Fitzgeralds Las
Vegas accounted for $2,041,000, or 56.6%, compared to $84,000, or 41.2%,
$13,000, or 6.4%, and $107,000, or 52.4%, respectively, during the period from
inception through December 31, 2001.
Consolidated promotional allowances included in the consolidated
gross revenues for the twelve months ended December 31, 2002, were $30,348,000,
or 15.2% of consolidated gross revenues compared to $2,311,000, or 18.0% of
consolidated gross revenues during the period from inception through December
31, 2001. Of this amount, Fitzgeralds Tunica accounted for $19,566,000, or
64.5%, Fitzgeralds Black Hawk accounted for $5,079,000, or 16.7%, and
Fitzgeralds Las Vegas accounted for $5,703,000, or 18.8%, compared to
$1,340,000, or 58.0%, $606,000, or 26.2%, and $365,000, or 15.8%, respectively,
during the period from inception through December 31, 2001.
Consolidated casino operating expenses for the twelve months ended
December 31, 2002, were $60,822,000, or 30.5% of consolidated gross revenues and
37.7% of casino revenues
33
compared to $4,112,000, or 32.1% of consolidated gross revenues and 39.7% of
consolidated casino revenues during the period from inception through December
31, 2001. These expenses were primarily comprised of salaries, wages and
benefits, and operating expenses of the casinos. Of the consolidated casino
operating expenses, Fitzgeralds Tunica accounted for $32,287,000, or 53.1%,
Fitzgeralds Black Hawk accounted for $10,505,000, or 17.3%, and Fitzgeralds Las
Vegas accounted for $18,030,000, or 29.6% compared to $2,076,000 or 50.5%,
$692,000 or 16.8% and $1,344,000 or 32.7%, respectively, during the period from
inception through December 31, 2001.
Consolidated rooms expenses for the twelve months ended December 31,
2002, were $9,014,000, or 4.5% of consolidated gross revenues compared to
$629,000, or 4.9% of consolidated gross revenues during the period of inception
through December 31, 2001. These expenses were primarily comprised of salaries,
wages and benefits, and operating expenses of the hotels. Of the consolidated
rooms operating expenses, Fitzgeralds Tunica accounted for $3,474,000 or 38.5%
and Fitzgeralds Las Vegas accounted for $5,540,000 or 61.5% compared to $188,000
or 29.9% and $441,000 or 70.1%, respectively, during the period from inception
through December 31, 2001.
Consolidated food and beverage expenses for the twelve months ended
December 31, 2002, were $11,267,000, or 5.6% of consolidated gross revenues
compared to $707,000, or 5.5% of consolidated gross revenues during the period
from inception through December 31, 2001. Of the consolidated food and beverage
expenses, Fitzgeralds Tunica accounted for $2,892,000, or 25.7%, Fitzgeralds
Black Hawk accounted for $1,071,000, or 9.5% and Fitzgeralds Las Vegas accounted
for $7,304,000, or 64.8% compared to $222,000 or 31.4%, $65,000 or 9.1% and
$421,000 or 59.5%, respectively, during the period from inception through
December 31, 2001.
Consolidated gaming taxes totaled $17,951,000, or 9.0% of
consolidated gross revenues and 11.1% of casino revenues for the year ended
December 31, 2002, compared to $808,000, or 6.3% of consolidated gross revenues
and 7.8% of casino revenues during the period from inception through December
31, 2001. During the year ended December 31, 2002, Fitzgeralds Tunica accounted
for $10,496,000, or 58.5%, Fitzgeralds Black Hawk accounted for $4,554,000, or
25.3% and Fitzgeralds Las Vegas accounted for $2,901,000, or 16.2%, compared to
$654,000 or 80.9%, $15,000 or 1.9% and $139,000 or 17.2%, respectively, during
the period from inception through December 31, 2001.
Consolidated advertising and promotion expenses taxes totaled
$13,283,000, or 6.6% of consolidated gross revenues for the year ended December
31, 2002, compared to $926,000, or 7.2% of consolidated gross revenues during
the period from inception through December 31, 2001. During the year ended
December 31, 2002, Fitzgeralds Tunica accounted for $5,818,000, or 43.8%,
Fitzgeralds Black Hawk accounted for $3,000,000, or 22.6% and Fitzgeralds Las
Vegas accounted for $4,465,000, or 33.6%, compared to $423,000 or 45.7%,
$181,000 or 19.5% and $322,000 or 34.8%, respectively, during the period from
inception through December 31, 2001.
Consolidated general and administrative expenses for the twelve
months ended December 31, 2002 were $24,978,000, or 12.5% of consolidated gross
revenues compared to $1,570,000, or 12.2% for the period from inception through
December 31, 2001. During the twelve months ended December 31, 2002, Fitzgeralds
Tunica accounted for $10,429,000, or 41.8%, Fitzgeralds Black Hawk accounted for
$5,035,000, or 20.2%, Fitzgeralds Las Vegas accounted for $9,169,000, or 36.7%
and unallocated corporate expenses accounted for $345,000 or 1.3% compared to
$642,000 or 40.9%, $302,000 or 19.2%, $599,000 or 38.2% and $27,000 or 1.7%,
respectively, during the twelve months ended December 31, 2001. During 2002, the
Company
34
expensed $196,000 of retention bonuses to various members of management which
bonuses were paid during the fourth quarter of 2002. The retention bonuses were
negotiated prior to the acquisition of the Fitzgeralds properties and were given
to certain members of the predecessor company's management team if they would
stay with the successor company for a period of one year after the acquisition.
Consolidated depreciation and amortization for the twelve months
ended December 31, 2002 was $14,460,000, or 7.2% of consolidated gross revenues
compared to $921,000 or 7.2% of consolidated gross revenues in the period from
inception through December 31, 2001. Fitzgeralds Tunica accounted for
$7,373,000, or 51.0%, Fitzgeralds Black Hawk accounted for $1,538,000, or 10.6%,
and Fitzgeralds Las Vegas accounted for $2,952,000 or 20.4% of consolidated
depreciation and amortization expense, compared to $485,000 or 52.7%, $100,000
or 10.9% and 167,000 or 18.1%, respectively, during the period from inception
through December 31, 2001. Corporate amortization of deferred financing costs
accounted for $2,597,000, or 18.0% of consolidated depreciation and amortization
expense compared to $169,000 or 18.3% for the period from inception through
December 31, 2001. Of the consolidated depreciation and amortization expense,
$9,844,000, or 68.0%, is depreciation expense, and $4,617,000, or 32.0%, is
amortization expense compared to $642,000 or 69.8% and $278,000 or 30.2%,
respectively, during the period from inception through December 31, 2001.
Consolidated pre-opening costs for the year ended December 31, 2002
and from the period from inception through December 31, 2001 were $13,000 and
$1,018,000, respectively. These expenses were incurred prior to the acquisition
and represents costs including salaries and wages, professional fees and other
administrative expenses.
Consolidated operating income for the year ended December 31, 2002
was $16,049,000, or 8.1% of consolidated gross revenues compared to a loss of
$278,000, or (2.2)% for the period from inception through December 31, 2001. The
$16,327,000 increase was primarily due to a full year of operations compared to
twenty five days of operation in the prior year period. Fitzgeralds Tunica
accounted for operating income of $14,288,000, or 89.0%, Fitzgeralds Black Hawk
accounted for operating income of $6,694,000, or 41.7%, Fitzgeralds Las Vegas
accounted for operating loss of $1,977,000, or (12.3)%, and the unallocated
corporate loss principally for amortization was $2,956,000, or (18.4)% of
consolidated operating income for the year ended December 31, 2002, compared to
$654,000, or 235.3%, $674,000, or 242.4% and a loss of $393,000, or (141.4)% and
the unallocated corporate loss principally for pre-opening expenses was
$1,214,000, or (436.3)% of consolidated operating income, respectively, for the
period from inception through December 31, 2001.
Consolidated net interest expense for the year ended December 31,
2002 was $17,982,000 or 9.0% of consolidated gross revenues compared to $993,000
or 7.7% of gross revenues for the period from inception through December 31,
2001. The $16,989,000 increase is attributable to interest expense recognized
for all of 2002 versus twenty five days in 2001. Fitzgeralds Tunica accounted
for interest income of $28,000, Fitzgeralds Black Hawk accounted for net
interest income of $8,000, Fitzgeralds Las Vegas accounted for net interest
expense of $18,000 and the unallocated corporate net interest expense primarily
associated with the Investor Holdings Senior Secured Notes was $18,000,000
during the year ended December 31, 2002 compared to net interest income of
$1,500 at Fitzgeralds Tunica, net interest income of $900 at Fitzgeralds Black
Hawk and net interest expense of $2,100 at Fitzgeralds Las Vegas and unallocated
corporate net interest expense primarily associated with the Investor Holdings
Senior Secured Notes was approximately $993,000 during the period from inception
through December 31, 2001.
35
As a result of the foregoing, the Company realized a consolidated
net loss of $1,906,000 for the year ended December 31, 2002 compared to a
consolidated net loss of $1,271,000 for the period from inception through
December 31, 2001. Of this amount Fitzgeralds Tunica accounted for net income of
$14,316,000, Fitzgeralds Black Hawk accounted for net income of $6,702,000 and
Fitzgeralds Las Vegas accounted for a net loss of $1,995,000. The $635,000 or
50.0% decrease is principally the result of enhanced revenues and expenses from
a full year of operation in 2002 as compared to twenty-five days of operations
in 2001.
Inception Through December 31, 2001 (Successor)
- -----------------------------------------------
Consolidated gross revenues were $12,832,000 for the period from
inception (September 14, 2001) through December 31, 2001. Revenues for
Fitzgeralds Tunica accounted for $6,708,000, or 52.3% of total revenues,
Fitzgeralds Las Vegas accounted for $3,445,000, or 26.8% of total revenues, and
Fitzgeralds Black Hawk accounted for $2,679,000, or 20.9% of total revenues.
The Company's business can be separated into four operating
departments: casino, rooms (except Fitzgeralds Black Hawk), food and beverage
and other. Consolidated casino revenues were $10,359,000, of which $9,011,000,
or 87.0% were derived from slot machine revenues, and $1,348,000, or 13.0%, were
derived from table game revenues for the period from inception through December
31, 2001.
Casino revenues attributed to Fitzgeralds Tunica were $5,494,000, of
which $4,800,000, or 87.4% were derived from slot machine revenues, and
$694,000, or 12.6% were derived from table games revenues for the period from
inception through December 31, 2001. Casino revenues attributed to Fitzgeralds
Las Vegas were $2,355,000, of which $1,764,000, or 74.9% were derived from slot
machine revenues, and $591,000, or 25.1% were derived from table game revenues
for the period from inception through December 31, 2001. Casino revenues
attributed to Fitzgeralds Black Hawk were $2,510,000, of which $2,446,000, or
97.5% were derived from slot machine revenues, and $64,000, or 2.5% were derived
from table game revenues for the period from inception through December 31,
2001.
The consolidated average number of slot machines in operation was
2,935 during the period from inception through December 31, 2001, of which
Fitzgeralds Tunica accounted for 1,388, or 47.3%, Fitzgeralds Las Vegas
accounted for 951 or 32.4%, and Fitzgeralds Black Hawk accounted for 596 or
20.3%. The consolidated average win per slot machine per day was approximately
$123 for the period from inception through December 31, 2001, with an average of
approximately $138, $74 and $164 at Fitzgeralds Tunica, Fitzgeralds Las Vegas
and Fitzgeralds Black Hawk, respectively. The consolidated average number of
table games in operation during the period from inception through December 31,
2001, was 64, of which Tunica accounted for 34, or 53.1%, Fitzgeralds Las Vegas
accounted for 24, or 37.5%, and Fitzgeralds Black Hawk accounted for 6, or 9.4%.
The average win per table game per day during the period from inception through
December 31, 2001, was approximately $843, with an average of approximately
$839, $947, and $424 at Fitzgeralds Tunica, Fitzgeralds Las Vegas and
Fitzgeralds Black Hawk, respectively.
Consolidated room revenues for the period from inception through
December 31, 2001 was $1,079,000, or 8.4% of the total revenue. Of this amount,
Fitzgeralds Tunica accounted for $544,000 or 50.4% with 507 rooms and
Fitzgeralds Las Vegas accounted for $535,000 or 49.6% with 638 rooms. At
Fitzgeralds Tunica during this period the average daily rate was $50 and the
36
occupancy rate was 86.5%. At Fitzgeralds Las Vegas during this period the
average daily rate was $42 and the occupancy rate was 79.8%.
Consolidated food and beverage revenues for the period from
inception through December 31, 2001, amounted to $1,190,000, or 9.3% of the
total revenue. Of this amount, Fitzgeralds Tunica accounted for $586,000, or
49.3%, Fitzgeralds Las Vegas accounted for $448,000, or 37.6% and Fitzgeralds
Black Hawk accounted for $156,000 or 13.1%.
Other consolidated revenues consisted primarily of commission and
retail income and totaled approximately $204,000, or 1.6% of total revenue. Of
this amount, Fitzgeralds Tunica accounted for $84,000 or 41.2%, Fitzgeralds Las
Vegas accounted for approximately $107,000 or 52.4%, and Fitzgeralds Black Hawk
accounted for $13,000 or 6.4%.
Promotional allowances included in the consolidated gross revenues
for the period from inception through December 31, 2001 were $2,311,000, or
18.0% of gross revenues. Of this amount, Fitzgeralds Tunica accounted for
$1,340,000, or 58.0%, Fitzgeralds Las Vegas accounted for $365,000, or 15.8%,
and Fitzgeralds Black Hawk accounted for $606,000, or 26.2%.
Consolidated casino operating expenses for the period from inception
through December 31, 2001 were $4,112,000 or 32.1% of gross revenues and 39.7%
of casino revenues. These expenses were primarily comprised of salaries, wages
and benefits, and operating expenses of the casinos. Of the consolidated casino
operating expenses, Fitzgeralds Tunica accounted for $2,076,000, or 50.5%,
Fitzgeralds Las Vegas accounted for $1,344,000 or 32.7%, and Fitzgeralds Black
Hawk accounted for $692,000 or 16.8%.
Gaming taxes are levied on adjusted gross receipts (as defined in
each of the applicable state's gaming laws). Gaming taxes were $808,000 or 6.3%
of the gross revenues for the period from inception through December 31, 2001.
Of this amount, Fitzgeralds Tunica accounted for $654,000, or 80.9%, Fitzgeralds
Las Vegas accounted for $139,000, or 17.2%, and Fitzgeralds Black Hawk accounted
for $15,000, or 1.9%.
Consolidated advertising and promotion expenses included salaries,
wages and benefits of the marketing and casino service departments, as well as
promotions, advertising and special events. Advertising and promotion expenses
for the period from inception through December 31, 2001, totaled $926,000, or
7.2% of gross revenues. Of this amount, Fitzgeralds Tunica accounted for
$423,000, or 45.7%, Fitzgeralds Las Vegas accounted for $322,000, or 34.8%, and
Fitzgeralds Black Hawk accounted for $181,000 or 19.5%.
Consolidated general and administrative expenses for the period from
inception through December 31, 2001 were $1,570,000, or 12.2% of gross revenues,
of which Fitzgeralds Tunica accounted for $642,000, or 40.9%, Fitzgeralds Las
Vegas accounted for $599,000, or 38.2%, and Fitzgeralds Black Hawk accounted for
$302,000, or 19.2%. Corporate expenses accounted for $27,000, or 1.7%.
Consolidated depreciation and amortization for the period from
inception through December 31, 2001, was approximately $921,000, or 7.2% of
gross revenues, of which Fitzgeralds Tunica accounted for $485,000, or 52.7%,
Fitzgeralds Las Vegas accounted for $167,000, or 18.1%, and Fitzgeralds Black
Hawk accounted for $100,000 or 10.9%. Corporate amortization of deferred
financing costs and the discount on the Investor Holdings Senior Secured Notes
accounted for $169,000, or 18.3% of consolidated depreciation and amortization
37
expense. Of the consolidated depreciation and amortization expense,
approximately $642,000, or 69.7%, is depreciation expense, and $279,000, or
30.3%, is amortization expense.
Consolidated pre-opening costs of approximately $1,018,000 were
expenses incurred prior to the acquisition of the Fitzgeralds properties. These
costs include salaries and wages, professional fees and other administrative
expenses.
Consolidated operating loss for the period from inception through
December 31, 2001, was $278,000, or 2.2% of gross revenues, of which Fitzgeralds
Tunica accounted for operating income of $654,000, or 235.3%, Fitzgeralds Las
Vegas accounted for an operating loss of $393,000, or (141.4)% and Fitzgeralds
Black Hawk accounted for operating income of $674,000, or 242.4%.
Consolidated net interest expense for the period from inception
through December 31, 2001, was $993,000, or approximately 7.7% of gross
revenues, of which the Company accounted for net interest expense of $993,000,
Fitzgeralds Tunica accounted for interest income of $1,500, Fitzgeralds Las
Vegas accounted for interest expense of $2,100 and Fitzgeralds Black Hawk
accounted for interest income of $900.
As a result of the foregoing, the Company realized a net loss of
$1,271,000 for the period from inception through December 31, 2001.
Period From January 1, 2001 To December 6, 2001 Compared To Year Ended December
- -------------------------------------------------------------------------------
31, 2000 (Predecessor)
- ----------------------
As a result of the sale of Fitzgeralds Las Vegas, Fitzgeralds Tunica
and Fitzgeralds Black Hawk to the Company on December 6, 2001, comparative data
for the year 2001 is available only for January 1, 2001 to December 6, 2001.
Operating Revenues. Total operating revenues for the properties were
$187.6 million and net operating revenues were $157.7 million for the period
from January 1, 2001 to December 6, 2001, representing decreases of 0.5% and
1.3%, respectively, over total operating revenues for the properties of $188.5
million and net operating revenues of $159.7 million for the year ended December
31, 2000. Such decreases were largely the result of the sale of Fitzgeralds Las
Vegas, Fitzgeralds Tunica and Fitzgeralds Black Hawk to the Company on December
6, 2001.
Casino revenues (of which approximately 89.2% and 87.8% are derived
from slot machine revenues for the period from January 1, 2001 to December 6,
2001 and the year ended December 31, 2000, respectively) increased 1.3% to
$150.7 million for the period from January 1, 2001 to December 6, 2001 from the
$148.8 million recorded for the year ended December 31, 2000.
Room revenues (at 8.0% and 10.5% of total revenues for the period
from January 1, 2001 to December 6, 2001 and the year ended December 31, 2000,
respectively) decreased 9.6% from $16.6 million for the year ended December 31,
2000 to $15.0 million in the period from January 1, 2001 to December 6, 2001.
Fitzgeralds Las Vegas room revenues decreased 11.7% from $8.5 million in the
year ended December 31, 2000 to $7.5 million for the period from January 1, 2001
to December 6, 2001, as its average daily rate decreased 7.4%, and the average
occupancy rate decreased to 91.9% for the period from January 1, 2001 to
December 6, 2001 from 92.1% in the year ended December 31, 2000. Fitzgeralds
Tunica room revenues decreased 6.5%, from $8.1 million for the year ended
December 31, 2000 to $7.6 million for the period from January 1, 2001
38
to December 6, 2001, as an increase in the average occupancy rate to 94.5% for
the period from January 1, 2001 to December 6, 2001 from 92.5% in the year ended
December 31, 2000 was offset by a 2.2% decrease in the average daily rate.
Food and beverage revenues (at 9.8% and 10.4% of total revenues for
2001 and 2000, respectively) decreased 6.1%, from $19.6 million for the year
ended December 31, 2000 to $18.4 million for the period from January 1, 2001 to
December 6, 2001, primarily due to the sale of assets to the Company.
Other revenues remained constant at $3.5 million in the year ended
December 31, 2000 and for the period from January 1, 2001 to December 6, 2001.
Promotional allowances showed a net increase of 4.0% to $30.0
million for the period from January 1, 2001 to December 6, 2001 from $28.8
million for the year ended December 31, 2000, reflecting the increased level of
competition in all four markets.
Operating Costs and Expenses. Total operating costs and expenses for
the properties decreased 8.4%, to $132.2 million for the period from January 1,
2001 to December 6, 2001 from $144.3 million for the year ended December 31,
2000. This decrease was largely the result of the sale of Fitzgeralds Las Vegas,
Fitzgeralds Tunica and Fitzgeralds Black Hawk to the Company on December 6,
2001.
Casino expenses were $69.8 million for the period from January 1,
2001 to December 6, 2001, a 1.1% decrease from $69.1 million for the year ended
December 31, 2000. Food and beverage expenses decreased 7.8% to $10.6 million
for the period from January 1, 2001 to December 6, 2001 from $11.5 million for
the year ended December 31, 2000. Room expenses decreased 10.1% to $9.8 million
in the period from January 1, 2001 to December 6, 2001 from $10.9 million in the
year ended December 31, 2000. Selling, general and administrative expenses
decreased 3.8% to $37.9 million for the period from January 1, 2001 to December
6, 2001 from $39.4 million for the year ended December 31, 2000, which includes
$3.2 million for the year ended December 31, 2000 of pre-petition professional
fees and expenses incurred in conjunction with the ongoing development,
negotiation and implementation of the restructuring of Fitzgeralds Gaming
Corporation. Such expenses also include professional fees and expenses paid by
Fitzgeralds Gaming Corporation for the financial and legal advisors to the
informal committee (the "Committee") representing holders of a majority in
interest of the notes of Fitzgeralds Gaming Corporation.
Personnel expenses decreased 2.8%, to $63.4 million for the period
from January 1, 2001 to December 6, 2001 from $65.2 million for the year ended
December 31, 2000 as a result of the December 6, 2001 sale. Such expenses are
included in the operating departmental expense to which they relate on the
consolidated statements of operations.
Marketing expenses, which include advertising, promotional material
and special events, decreased 5.3 %, to $10.7 million for the period from
January 1, 2001 to December 6, 2001 from $11.3 million for the year ended
December 31, 2000. The Company's strategy was to utilize its expanded and
renovated facilities as additional marketing elements and to continue to adjust
marketing expense levels as needed to respond to competition. Such expenses are
included in selling, general and administrative expenses on the consolidated
statements of operations.
Depreciation and amortization expense decreased 100% to $0 for the
period from January 1, 2001 to December 6, 2001 from $11.7 million for the year
ended December 31, 2000, due to
39
the discontinuation of recording depreciation and amortization expense for
property and equipment included in net assets held for sale subsequent to filing
to Bankruptcy Cases in December 2000.
Income from Operations. Income from operations for the properties
increased from $15.4 million for the year ended December 31, 2000 to $25.4
million for the period from January 1, 2001 to December 6, 2001. The increase in
results is primarily due to the $11.4 million gain on sale of assets to the
Company and a $13.9 million decrease in depreciation and amortization expense
resulting from the discontinuation of recording substantially all depreciation
and amortization expense for assets held for sale in the year ended December 31,
2001.
Net Interest Expense. Interest expense (net of interest income)
decreased to $(1,552) for the period from January 1, 2001 to December 6, 2001
from $96,064 for the year ended December 31, 2000, due to the discontinuation of
accruing interest on the Notes on December 5, 2000 with the commencement of the
Bankruptcy Cases.
Net Income. Net income for the Properties increased to $25.4 million
for the period from January 1, 2001 to December 6, 2001 compared to a net loss
of $10.5 million for the year ended December 31, 2000.
40
Liquidity and Capital Resources
At December 31, 2002, the Company had cash and cash equivalents of
$15,984,000. Cash and cash equivalents included $1,008,000 at the Company,
$7,853,000 at Fitzgeralds Tunica, $2,728,000 at Fitzgeralds Black Hawk and
$4,395,000 at Fitzgeralds Las Vegas.
41
The Company has met its capital expenditure requirements to date
through net cash from operations, capital contributions and equipment loans. For
the year ended December 31, 2002, net cash provided by operating activities
totaled $12,344,000 and cash used by investing activities totaled $2,599,000.
For the period from inception through December 31, 2001, cash provided by
operating activities totaled $2,634,000 and cash used in investing activities
totaled $143,881,000. The Company invested $152,700,000 to acquire the three
Fitzgeralds brand casinos. For the year ended December 31, 2002, cash used in
financing activities totaled $11,466,000. The primary financing activities were
the re-payment of $6,500,000 previously drawn on the Investor Holdings Credit
Facility and $2,544,000 paid to BDI pursuant to the Company's management
agreement with BDI. In addition, the Company redeemed $865,000 of its Senior
Secured Notes at a discount to par of 87 3/4% plus accrued interest of $38,359.
The redemption resulted in a $69,000 gain to the Company. Also, from the period
from inception through December 31, 2001, cash provided by financing activities
totaled $158,951,000 primarily resulting from the Company's offering of Investor
Holdings Senior Secured Notes. As of December 31, 2002, there was no outstanding
borrowings under the Credit Facility.
In connection with the issuance by the Company of $152,632,000 of
unregistered 11.653% Senior Secured Notes due 2007 (the "Unregistered Notes") on
December 6, 2001, the Company entered in a registration rights agreement
pursuant to which the Company 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 requires the Company 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 the Company 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, an amount per week per
$1,000 principal amount of Registrable Securities equal to $0.05 for the first
90-day period following April 5, 2002, increasing by an additional $0.05 per
week with respect to each subsequent 90-day period, up to a maximum amount of
$0.20 per week. On May 31, 2002, in connection with the first scheduled interest
payment on the Unregistered Notes, the Company 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
with the scheduled interest payment 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 was completed on
Friday, September 6, 2002 at 5 p.m. Eastern Standard Time.
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 Investor Holdings Senior
Secured Notes and other permitted indebtedness for at least the year 2003. If
necessary and to the extent permitted under the Investor Holdings 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.
42
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. Among other matters, 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 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 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 it 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 6 and 13.
In January 2003, the Financial Accounting Standards Board issued
FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest
Entities." 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 "Variable
Interest Entities ("VIE")" in existence prior to January 31, 2003, and outlines
consolidation requirement 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 commitments.
43
Critical Accounting Policies
Our consolidated financial statements are prepared in accordance
with accounting principles generally accepted in the United States of America,
which requires 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 revenue is the net win from gaming
activities, which is the difference between gaming wins and losses. Hotel and
other revenue is 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 intangible 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
$117.3 million of net property and equipment recorded on our balance sheet
compared to $122.4 million at December 31, 2001. Prior to the acquisition of the
Fitzgeralds properties, third-party valuations were obtained for property and
equipment and intangible assets. 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 Company offers 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 Company's
redemption history. This liability can be impacted by changes in the program,
increases in membership and changes in the redemption patterns of the
participants.
Self-Insurance. The Company maintains accruals for self-insured
health costs, which is classified in other accrued liabilities in the
consolidated balance sheet. Management determines the estimates of these
accruals by periodically evaluating the historical experience and projects
trends related to these accruals. Actual results may differ from these
estimates.
44
Contractual Commitments.
The following table summarizes our 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 $ - $145,531,448 $ - $145,780,598
Capital Leases - - - - - - $ -
Operating Leases 757,451 268,278 33,890 15,932 15,932 15,932 $ 1,107,415
------------------------------------------------------------------------------------------------------
Total $ 891,535 $ 353,262 $ 63,972 $ 15,932 $145,547,380 $ 15,932 $146,888,013
Amount of Commitment Expiration Per Period
Total Amounts Less than 1-3 4-5 Over 5
Other Commercial Commitments Committed 1 Year Years Years Years
-----------------------------------------------------------------------------
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
$151.8 million of long-term debt represented by the Investor Holdings Senior
Secured Notes and approximately $249,000 associated with equipment debt at
Barden Nevada Gaming. At December 31, 2002 we had no outstanding debt under the
$15.0 million Investor Holdings Credit Facility. In addition, the Investor
Holdings Indenture and Investor Holdings Credit Facility will permit us to incur
additional debt in certain circumstances, including to finance 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 Investor Holdings 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
Investor Holdings Indenture or in the Investor Holdings Credit
Facility, which event of default could result in all of our
indebtedness becoming immediately due and payable and would
45
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;
. 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 Investor Holdings 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 Investor Holdings 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
Investor Holdings 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 Investor Holdings
Indenture and the Investor Holdings Credit Facility. The Investor Holdings
Senior Secured Notes and the Investor Holdings Credit Facility are secured by
substantially all of our current and future assets.
We are a holding company and therefore, our ability to make payments on the
Investor Holdings Senior Secured Notes and service our debt depends on our cash
flow from our subsidiaries.
Cash flows from our subsidiaries will depend on:
. their earnings;
. covenants contained in our debt agreements and the debt
agreements of our subsidiaries;
. covenants contained in other agreements to which we or our
subsidiaries are or may become subject;
46
. business and tax considerations; and
. applicable law, including regulations of gaming authorities
and state laws regulating the payment of dividends and
distributions.
We cannot assure you that the operating results of our subsidiaries
at any given time will be sufficient to make distributions or other payments to
us.
The Investor Holdings Indenture and the Investor Holdings Credit Facility
contain covenants that significantly restrict our operations.
The Investor Holdings Indenture and the Investor Holdings Credit
Facility do, 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 or make other distributions;
. make acquisitions or investments;
. use assets as security in other transactions;
. 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 Investor Holdings 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.
Risks Related to Our Business
We may be unable to retain management at 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.
47
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 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, 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 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 which 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.
48
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 or our gaming licenses could require us to make material
expenditures or could otherwise materially adversely affect our business or
financial results.
Legislation or 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.
The right of Fitzgeralds to continue to use the name "Fitzgeralds" may
negatively impact our national brand recognition.
Under an exclusive license from us, Fitzgeralds has the right to
use the name "Fitzgeralds" in connection with its operation of its existing
casino property in Reno, Nevada and in connection with any casino properties it
may operate in the future in Northern California, Northern Nevada, Oregon and
Washington. We have all other rights to the Fitzgeralds name and all Fitzgeralds
trademarks, service marks and trade dress for use in connection with Fitzgeralds
Tunica, Fitzgeralds Black Hawk and Fitzgeralds Las Vegas. Because Fitzgeralds
operates the existing Reno casino property and may operate any future casino
properties in certain geographic areas under the Fitzgeralds name, we cannot
assure you that our customers will not associate Fitzgeralds Reno and these
other casino properties with our Fitzgeralds Tunica, Fitzgeralds Black Hawk and
Fitzgeralds Las Vegas properties, which association may negatively impact our
nationally recognized brand.
49
Members of the Fitzgeralds senior management team may become employed by our
competitors in the future, and this could adversely impact our operations.
In connection with the Fitzgeralds acquisition, certain members of
the senior management team of Fitzgeralds entered into limited noncompete
agreements that will expire on June 6, 2003. Following the expiration of these
noncompete agreements, these former members of the management team of
Fitzgeralds may operate, control, manage or consult for any of our competitors
in Tunica, Mississippi, Black Hawk, Colorado, Las Vegas, Nevada and the
surrounding areas.
These managers have specific knowledge regarding our customer base
and the markets in which we operate. If these managers provide this information
to our competitors, it may adversely affect our ability to compete with other
casino properties in the markets in which we operate.
We have limited operating history.
Prior to our acquisition of the Fitzgeralds casino properties, we
had limited cash assets, our only liabilities were those under the purchase
agreement with Fitzgeralds, and we had no significant operating history. We
cannot assure you that we will be able to operate the Fitzgeralds casino
properties effectively or realize any of the anticipated benefits of the
acquisition.
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.
At December 31, 2002, approximately 16% of our workforce is
unionized. At December 31, 2002, Fitzgeralds Las Vegas employed approximately
843 people, approximately 366 of whom are represented by the Culinary Workers
Union, Local No. 226 and the Bartenders Union, Local 165, under a five-year
contract expiring on May 31, 2007. The contract has been ratified by the
membership but not signed by the Union. In addition, four employees are
represented by the United Brotherhood of Carpenters and Joiners of America,
Southern California-Nevada Regional Council of Carpenters and its Affiliated
Local No. 1780, under a four-year contract that expires on July 31, 2005. At
December 31, 2002, Fitzgeralds Tunica and Fitzgeralds Black Hawk employed
approximately 1,175 and 333 people, respectively. Any labor disruptions or work
stoppages could have a material adverse effect on our operations.
Loss of our casino properties from service would adversely affect our
operations.
The operations of our properties are subject to disruptions or
reduced patronage as a result of severe weather conditions. Fitzgeralds Black
Hawk is subject to snow and icy road conditions during the winter months. Our
Tunica vessel and its dockside facilities are subject to risks in addition to
those associated with land-based casinos, including loss of service due to
casualty, mechanical failure, extended or extraordinary maintenance or
inspection (including routine inspections required by the U.S. Coast Guard) and
access restrictions which may be imposed by the Mississippi authorities
controlling the mainline Mississippi River levee in Tunica. Although there can
be no assurances, we believe that these authorities will not exercise their
right to impose access restrictions in the absence of flood or other
flood-related effects, hurricane or other severe weather conditions. Reduced
patronage and the loss of our Tunica dockside vessel or either of our land-based
casino properties from service for any period of time due to severe weather
could adversely affect our business, financial condition and results of
operations.
50
We are subject to potential exposure to environmental liabilities.
Generally, we are subject to a variety of federal, state and local
governmental laws and regulations relating to the use, storage, discharge,
emission and disposal of hazardous materials. Failure to comply with such laws
could result in the imposition of severe penalties or restrictions on operations
by governmental agencies or courts that could adversely affect operations. We
are not aware of any environmental contamination at the Fitzgeralds properties.
The Fitzgeralds Black Hawk property, however, is located within a 400-square
mile area that in 1983 was designated as the Clear Creek/Central City National
Priorities List Site Study Area ("Study Area") pursuant to the CERCLA. Although
Fitzgeralds Black Hawk is not within any of the specific areas of the Study Area
currently identified for investigation or remediation, no assurance can be given
that environmental problems will not subsequently be discovered, including in
connection with any future construction on the expansion parcel of the property.
Furthermore, the EPA or other governmental authorities could broaden their
investigations and identify areas of concern within the site, we could be
identified as a "potentially responsible party" and any liability related
thereto could have a material adverse effect on us. We do not have insurance to
cover environmental liabilities, if any. Under the Fitzgeralds Purchase
Agreement, we are entitled to indemnification for environmental matters relating
to the properties only in very limited circumstances.
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 future occurrences of terrorist or other
destabilizing events, could negatively affect our revenues and cash flow.
Recent military action, the prospect of extended military action
and the fear of domestic terrorism has resulted in a decline in vacation travel
and tourism due to, among other factors, fears regarding additional acts of
terrorism, and reduced operations by airlines due to decreased demands for air
travel, new security directives and increased costs. The magnitude and duration
of these effects is unknown and cannot be predicted. Any decline in vacation
travel and tourism
51
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 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 and Investor are prohibited by the Majestic Star Indenture from engaging in
certain transactions with Majestic Star.
We and Investor have been designated as "unrestricted subsidiaries"
by Majestic Star under the Majestic Star Indenture. As a result, Majestic Star
and certain of its other subsidiaries are prohibited from providing cash or
credit support to us or our subsidiaries or to Investor. We and our subsidiaries
and Investor also are prohibited from engaging in transactions with Majestic
Star and certain of its subsidiaries other than on an arm's length basis and, if
a proposed transaction exceeds $2.0 million in value, Majestic Star and certain
of its subsidiaries may only participate in such transaction with the approval
of a majority of the disinterested members of Majestic Star's 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 Majestic Star
from a financial point of view. Such restrictions could have an adverse effect
on us by limiting our ability and the ability of Investor to engage in
transactions with Majestic Star and its other subsidiaries, which could
potentially impact any synergies we realize from the Fitzgeralds acquisition.
On the other hand, Majestic Star may redesignate us or Investor as a
restricted subsidiary under the Majestic Star Indenture. In such a case, our
business and operations and the business and operations of Investor,
respectively, would become subject to, and would be required to comply with, the
restrictions set forth in such indenture. These restrictions, many of which are
similar to those contained in the indenture governing the notes, could impair
our ability to raise capital, enter into certain transactions and conduct our
business, which could have a material effect on our business, growth, financial
condition and results of operations and our ability to make payments on the
notes and our other outstanding indebtedness.
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
Investor Holdings Credit Facility, under which 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 Investor Holdings Credit Facility has a maximum credit line of
$15.0 million. Assuming we have borrowed against the maximum available under the
Investor Holdings Credit Facility, a one-half percentage point change in the
underlying variable rate would result in a
52
change in related interest expense of $75,000. 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.
In addition, we have approximately $151.8 million principal amount
of notes outstanding under the Investor Holdings 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.
53
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. The Company does not have directors since
it is a limited liability company.
Name and Age Position(s) Held
------------ ----------------
Don H. Barden, 59 Manager, Chairman, President and Chief Executive Officer
Michael E. Kelly, 41 Manager, 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 since its formation, with responsibility for
key policy making functions. Since their formation, Mr. Barden is also President
and Chief Executive Officer of Investor and Manager of Barden Colorado, Barden
Mississippi and Barden Nevada; Chairman, President and Chief Executive Officer
of Majestic Star, Majestic Investor Capital, Barden Colorado, Barden Mississippi
and Barden Nevada; and Chairman and President of BDI. Mr. Barden also has served
as a director of Majestic 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.
Michael E. Kelly, is the Manager, Executive Vice President, Chief
Operating Officer and Secretary of the Majestic Star and its affiliates
including, the Company, since January 1, 1999, with overall responsibility for
the daily operations. Mr. Kelly also served as Majestic Star's and the Company's
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 Majestic Star with overall responsibility for financial reporting and
investor relations functions. Mr. Kelly assumed the responsibility for
management of daily operations and related activities of Majestic Star effective
October 17, 1998. From October 1998 through October 2001, Mr. Kelly also served
as the Majestic Star'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 Majestic
Star, Majestic Star Capital, Majestic Investor, Majestic Investor Capital,
Barden Mississippi, Barden Colorado and Barden Nevada. Prior to Mr. Bennett's
appointment as Vice President and Chief Financial Officer, Mr. Bennett was Vice
54
President of Finance and Administration for Barden Mississippi 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, the Company 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 Majestic Star.
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 Majestic Star 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 Majestic Star 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 related to 2001.
In 2002, Majestic Star contributed a 401(k) match of $3,433 to Mr.
Bennett.
In 2001 the Majestic Star contributed a 401(k) match of $17,530 to
Mr. Kelly, and Mr. Kelly was also reimbursed by the Majestic Star
$5,000 for non-deductible medical plan expenditures. In 2001, life
insurance premiums of $1,271 and $2,724 were paid by the Majestic
Star on behalf of Messrs. Barden and Kelly, respectively.
In 2000, the Majestic Star contributed a 401(k) match of $11,520 to
Mr. Kelly, and Mr. Kelly was also reimbursed by the Majestic Star
$5,045 for non-deductible medical plan expenditures. In 2000, life
insurance premiums of $920 and $2,024 were paid by the Majestic Star
on behalf of Messrs. Barden and Kelly, respectively.
3. All of Messrs. Barden's, Kelly's and Bennett's compensation is paid
by the Majestic Star, but a portion of such compensation is
reimbursed by Investor Holdings through an expense sharing agreement.
See Item 13 - "Certain Relationships and Related Transactions."
55
Employment Agreements
Mr. Barden serves as our 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 Majestic
Star.
Mr. Kelly serves as our Manager, Executive Vice President and Chief
Operating Officer and Secretary pursuant to a three-year employment agreement
with Majestic Star 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 performance of
Majestic Star and the three Fitzgeralds casinos. 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
Majestic Star'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. 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 Majestic
Star'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
We have no standing Compensation Committees. All compensation
decisions are made by BDI.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
We are indirectly wholly-owned by Don H. Barden, our Manager,
Chairman, President and Chief Executive Officer.
The following table sets forth the beneficial ownership of each of
the Company, Majestic Investor Capital, Barden Colorado, Barden Mississippi and
Barden Nevada as of the date hereof.
56
Name and Address of Beneficial Owner of
Majestic Investor Holdings, LLC % Ownership
-------------------------------
Don H. Barden 100.0% /1/
163 Madison Avenue, Suite 2000
Detroit, MI 48226
---------------------------------------
(1) Includes the membership interests in the Company, all of which are
beneficially owned directly by Investor, which is directly wholly owned
by Majestic Star. All of the membership interest in Majestic Star are
directly wholly-owned by BDI, which is directly wholly-owned by Mr.
Barden.
Name and Address of Beneficial Owner of
Majestic Investor Capital Corp. % Ownership
Don H. Barden 100.0% /1/
163 Madison Avenue, Suite 2000
Detroit, MI 48226
---------------------------------------
(1) Includes the common stock of Majestic Investor Capital, all of
which is beneficially owned directly by the Company, which is
directly wholly owned by Investor, which is directly wholly owned
by Majestic Star. All of the membership interests in Majestic Star
are directly wholly owned by BDI, which is directly wholly-owned
by Mr. Barden.
Name and Address of Beneficial Owner of
Barden Colorado Gaming, LLC % Ownership
Don H. Barden 100.0% /1/
163 Madison Avenue, Suite 2000
Detroit, MI 48226
---------------------------------------
(1) Includes the membership interests in Barden Colorado Gaming, all
of which are beneficially owned directly by the Company, which is
directly wholly owned by Investor, which is directly wholly owned
by Majestic Star. All of the membership interest in Majestic Star
are directly wholly-owned by BDI, which is directly wholly-owned
by Mr. Barden.
Name and Address of Beneficial Owner of
Barden Mississippi Gaming, LLC % Ownership
Don H. Barden 100.0% /1/
163 Madison Avenue, Suite 2000
Detroit, MI 48226
---------------------------------------
(1) Includes the membership interests in Barden Mississippi Gaming,
all of which are beneficially owned directly by the Company, which
is directly wholly owned by Investor, which is directly wholly
owned by Majestic Star. All of the membership interest in Majestic
Star are directly wholly-owned by BDI, which is directly
wholly-owned by Mr. Barden.
Name and Address of Beneficial Owner of
Barden Nevada Gaming, LLC % Ownership
Don H. Barden 100.0% /1/
163 Madison Avenue, Suite 2000
Detroit, MI 48226
---------------------------------------
(1) Includes the membership interests in Barden Nevada Gaming, all of
which are beneficially owned directly by the Company, which is
directly wholly owned by Investor, which is directly wholly owned
by Majestic Star. All of the membership interest in Majestic Star
are directly wholly-owned by BDI, which is directly wholly-owned
by Mr. Barden.
57
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In September 2000, Investor was capitalized by Majestic Star with
$9.0 million of capital contributions, including interest earned thereon.
Investor subsequently contributed this $8.8 million to the Company in connection
with Investor's assignment of its rights and obligations under the Fitzgeralds
purchase and sale agreement to the Company.
Prior to the consummation of the offering of the Investor Holdings
Senior Secured Notes, the Company issued a 35.71% membership interest to BDI in
exchange for the contribution by BDI of a promissory note for $5.0 million. BDI
subsequently contributed the 35.71% membership interest to Investor, as
additional paid-in equity. Investor currently owns 100% of the membership
interests in the Company. BDI, upon the closing of the offering of the Investor
Holdings Senior Secured Notes, contributed $5.0 million to the Company in
repayment of the promissory note.
A $2.0 million note made by Investor to BDI was later assigned to
the Company from Investor. BDI paid the principal of the note in conjunction
with the closing of the Fitzgeralds acquisition on December 6, 2001. Interest of
$185,750 was paid on May 24, 2002.
During 2001, Investor Holdings made a $700,000 loan to BDI. This
loan accrued interest at 7% per annum and was paid in full, with accrued
interest, on March 14, 2003.
LLC Manager Agreement
Pursuant to an amended and restated agreement entered into on
December 5, 2001, and effective December 6, 2001, BDI will act as our manager.
Distributions of profits to BDI are limited under the terms of the Investor
Holdings Indenture. Distributions for each fiscal quarter cannot exceed 1% of
net revenues plus 5% of our Consolidated Cash Flow (as defined in the Investor
Holdings Indenture) for the immediately preceding fiscal quarter and may not be
paid if we are in default under the Investor Holdings Indenture. We make
distributions to BDI as a return on the investment capital contributed to us by
BDI for corporate oversight and governance services and as an inducement for Mr.
Barden, the sole stockholder of BDI, to continue using his visibility in the
gaming industry to promote us. The payment is subordinated to the payment in
full of principal, interest, and liquidated damages, if any, then due on the
Investor Holdings Senior Secured Notes. Distributions to BDI in 2002 were
$2,544,000.
Expense Sharing Agreement
Pursuant to an expense sharing agreement entered into on October
22, 2001, Investor Holdings will reimburse Majestic Star 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
Majestic Star. These executives and employees will provide services to both
Majestic Star and to us and our 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.
58
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 effectiveness of the design and 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.
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:
The Company filed a report on Form 8-K on September 9, 2002
announcing the successful completion of its Senior Secured Notes
exchange offer.
(c) Exhibits:
The exhibits included as part of this report are listed in the
attached Exhibit Index, which is incorporated herein by
reference.
59
MAJESTIC INVESTOR HOLDINGS, LLC
INDEX OF FINANCIAL STATEMENTS
MAJESTIC INVESTOR HOLDINGS, LLC
Report of Independent Accountants F-2
Consolidated Balance Sheets as of December 31, 2002 and December 31, 2001 F-3
Consolidated Statements of Operations for the year ended December 31, 2002
and for the period from (inception) September 14, 2001 through December 31, 2001 F-4
Consolidated Statements of Changes in Members' Equity for the year ended
December 31, 2002 and for the Period from (inception) September 14, 2001
through December 31, 2001 F-5
Consolidated Statements of Cash Flows for the period for the year ended
December 31, 2002 and for the period from (inception) September 14,
2001 through December 31, 2001 F-6
Notes to the Consolidated Financial Statements F-7
Supplemental Consolidating Schedules:
Consolidating Balance Sheets as of December 31, 2002 F-31
Consolidating Statements Of Operations for the year ended December 31, 2002 F-32
Consolidating Statements of Cash Flows for the year ended December 31, 2002 F-33
Consolidating Balance Sheets as of December 31, 2001 F-34
Consolidating Statements of Operations for the period from (inception)
September 14, 2001 through December 31, 2001 F-35
Consolidating Statements of Cash Flows for the period from (inception) September 14, 2001
through December 31, 2001 F-36
Schedule II - Valuation and Qualifying Accounts F-37
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-38
Balance Sheets at December 31, 2000 and December 6, 2001 F-40
Statements of Operations for the years ended December 31, 1999 and 2000, and for the
Period ended December 6, 2001 F-41
Statements of Stockholder's Deficiency for the Years Ended December 31, 1999 and 2000, and
for the Period ended December 6, 2001 F-42
Statements of Cash Flows for the Years Ended December 31, 1999 and 2000, and for the Period
ended December 6, 2001 F-43
Notes to Combined Financial Statements F-45
Supplemental Combining Schedules:
Combining Statement of Operations Information for the Year Ended December 31, 1999 F-66
Combining Statement of Cash Flows Information for the Year Ended December 31, 1999 F-68
Combining Balance Sheet Information at December 31, 2000 F-70
Combining Statement of Operations Information for the Year Ended December 31, 2000 F-72
Combining Statement of Cash Flows Information for the Year Ended December 31, 2000 F-73
Combining Balance Sheet Information at December 6, 2001 F-75
Combining Statement of Operations Information for the Period from January 1, 2001
through December 6, 2001 F-77
Combining Statement of Cash Flows Information for the Period from January 1, 2001
through December 6, 2001 F-78
Schedule II -- Valuation and Qualifying Accounts F-80
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.
MAJESTIC INVESTOR HOLDINGS, LLC
To the Members of
Majestic Investor Holdings, LLC:
In our opinion, the consolidated financial statements listed in the
index appearing under Item 15a(1) on page F-1 present fairly, in all material
respects, the financial position of Majestic Investor Holdings, LLC and its
subsidiaries at December 31, 2002 and December 31, 2001, and the results of
their operations and their cash flows for the year ended December 31, 2002 and
for the period from (inception) September 14, 2001 through December 31, 2001, 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.
Our audit was conducted for the purpose of forming an opinion on the
consolidated financial statements and financial statement schedule taken as a
whole. The consolidating information on pages F-31 through F-36 is presented for
purposes of additional analysis of the consolidated financial statements rather
than to present the financial position, results of operations and cash flows of
the individual companies. Accordingly, we do not express an opinion on the
financial position, results of operations and cash flows of the individual
companies. However, the consolidating information has been subjected to the
auditing procedures applied in the audit of the consolidated financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the consolidated financial statements taken as a whole.
/s/ PricewaterhouseCoopers LLP
Las Vegas, Nevada
February 23, 2003, except for Note 11,
as to which the date is March 17, 2003
F-2
MAJESTIC INVESTOR HOLDINGS, LLC
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
2002 2001
----------- -----------
ASSETS
Current Assets:
Cash and cash equivalents $ 15,983,824 $ 17,704,815
Restricted cash 250,000 -
Accounts receivable, less allowance for doubtful accounts
of $ 239,066 and $248,042, respectively 1,241,183 1,464,834
Inventories 929,126 957,564
Prepaid expenses 1,644,735 1,212,653
Due from seller - 98,913
Note receivable from related party 700,000 700,000
Other 39,133 15,552
----------- -----------
Total current assets 20,788,001 22,154,331
----------- -----------
Property, equipment and improvements, net 117,297,506 122,427,962
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 $1,407,041 and $83,897, respectively 6,714,902 7,023,706
Restricted cash 1,000,000 1,000,000
Other assets, prepaid leases and deposits 1,624,359 945,618
----------- -----------
Total other assets 9,339,261 8,969,324
----------- -----------
Total Assets $ 171,038,912 $ 183,444,620
=========== ===========
LIABILITIES AND MEMBER'S EQUITY
Current Liabilities:
Current maturities of long-term debt $ 134,084 $ 6,656,574
Accounts payable 2,136,369 1,946,730
Other accrued liabilities:
Payroll and related 5,949,275 5,006,114
Interest 1,473,785 1,208,779
Progressive jackpots 2,476,543 2,274,050
Slot club liability 738,559 2,241,876
Other accrued liabilities 4,401,378 5,060,069
----------- -----------
Total current liabilities 17,309,993 24,394,192
----------- -----------
Due to related parties - 1,177,829
Long-term debt, net of current maturities 145,646,514 145,340,304
----------- -----------
Total Liabilities 162,956,507 170,912,325
Commitments and contingencies
Member's Equity: 8,082,405 12,532,295
----------- -----------
Total Liabilities and Member's Equity $ 171,038,912 $ 183,444,620
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
MAJESTIC INVESTOR HOLDINGS, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD
FROM INCEPTION
(SEPTEMBER 14, 2001)
FOR THE YEAR ENDED THROUGH
DECEMBER 31, 2002 DECEMBER 31, 2001
----------------- -----------------
REVENUES:
Casino $ 161,189,334 $ 10,358,799
Rooms 15,495,620 1,079,456
Food and beverage 19,470,500 1,189,804
Other 3,604,744 203,858
------------ ------------
Gross revenues 199,760,198 12,831,917
Less promotional allowances (30,348,133) (2,310,848)
------------ ------------
Net revenues 169,412,065 10,521,069
COSTS AND EXPENSES:
Casino 60,822,128 4,111,503
Rooms 9,014,354 628,910
Food and beverage 11,267,235 706,947
Other 1,559,861 108,732
Gaming taxes 17,950,757 808,464
Advertising and promotion 13,282,926 926,226
General and administrative 24,977,991 1,569,643
Depreciation and amortization 14,460,322 920,648
Loss on disposal of assets 14,069 -
Pre-opening expenses 13,391 1,018,234
------------ ------------
Total costs and expenses 153,363,034 10,799,307
------------ ------------
Operating income (loss) 16,049,031 (278,238)
------------ ------------
OTHER INCOME (EXPENSE):
Interest income 135,830 218,201
Interest expense (18,117,818) (1,210,860)
Other non-operating expense (41,684) -
------------ ------------
Total other expense (18,023,672) (992,659)
Loss before extraordinary item (1,974,641) (1,270,897)
EXTRAORDINARY ITEM:
Gain on bond redemption 68,957 -
------------ ------------
Net loss $ (1,905,684) $ (1,270,897)
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
MAJESTIC INVESTOR HOLDINGS, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER'S EQUITY
For the Year Ended December 31, 2002 and For the Period From Inception
(September 14, 2001) through December 31, 2001
Capital Accumulated Total
Contributions Deficit Members' Equity
-------------------- --------------------- ---------------------
Contribution from Majestic Investor, LLC $ 8,803,192 $ - $ 8,803,192
Contribution from Majestic Investor, LLC 5,000,000 5,000,000
Net loss - (1,270,897) (1,270,897)
----------------------------------------------------------------------
Balance, December 31, 2001 13,803,192 (1,270,897) 12,532,295
Net loss - (1,905,684) (1,905,684)
Distribution paid to
Barden Development, Inc. - (2,544,206) (2,544,206)
----------------------------------------------------------------------
Balance, December 31, 2002 $13,803,192 $ (5,720,787) $ 8,082,405
======================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
MAJESTIC INVESTOR HOLDINGS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCEPTION
YEAR ENDED (SEPTEMBER 14, 2001)
DECEMBER 31, THROUGH DECEMBER 31,
2002 2001
--------------- ---------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,905,684) $ (1,270,897)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation 9,843,712 642,472
Amortization 4,616,610 278,176
Loss on sale of assets 14,069 -
Gain on redemption of bonds (68,957) -
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 325,118 (532,843)
Decrease in inventories 28,438 20,886
Increase in prepaid expenses (817,442) (296,365)
Decrease (increase) in other assets 788,685 (24,503)
Decrease (increase) in accounts payable (6,733) 394,988
Decrease in amounts due to related parties, net (836,249) (8,665)
Increase in accrued payroll and related expenses 856,711 -
Increase in accrued interest 265,006 1,208,779
(Decrease) increase in other accrued liabilities (758,785) 2,222,443
----------- -----------
Net cash provided by operating activities 12,344,499 2,634,471
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for purchase of Fitzgeralds, net of cash acquired - (143,758,152)
Increase in restricted cash (250,000) -
Acquisition of property, equipment and improvements (5,207,456) (122,696)
Payment of acquisition related costs (986,158) -
Proceeds from seller from purchase price adjustment 3,800,000 -
Proceeds from sale of equipment 44,267 -
----------- -----------
Net cash used in investing activities (2,599,347) (143,880,848)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Investor Holdings senior secured notes - 145,000,400
Payment of Investor Holdings senior secured notes issuance costs - (6,815,090)
Member's equity contribution - 5,000,000
Contribution from Majestic Investor - 8,803,191
Cash advances from related parties - 1,168,273
Issuance of loan to Barden Development, Inc. - (700,000)
Line of credit, net (6,500,000) 6,500,000
Payment of Investor Holdings senior secured notes issuance costs (1,523,568) -
Cash paid for redemption of Investor Holdings senior secured notes (759,038) -
Cash paid to reduce long-term debt (139,331) (5,582)
Distribution to Barden Development, Inc. (2,544,206) -
----------- -----------
Net cash (used in) provided by financing activities (11,466,143) 158,951,192
----------- -----------
Net (decrease) increase in cash and cash equivalents (1,720,991) 17,704,815
Cash and cash equivalents, beginning of period 17,704,815 -
----------- -----------
Cash and cash equivalents, end of period $ 15,983,824 $ 17,704,815
=========== ===========
INTEREST PAID:
Equipment Debt $ 8,391 $ 2,081
Senior Secured Notes - Fixed Interest 11.653% $ 8,707,126 $ -
Lines of credit $ 98,168 $ -
SUPPLEMENTAL NONCASH OPERATING AND FINANCING ACTIVITIES:
Elimination of slot based progressives $ 400,000 $ -
Elimination of slot club $ 1,300,000 $ -
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-6
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. General
Majestic Investor Holdings, LLC (the "Company"), is a wholly-owned
subsidiary of Majestic Investor, LLC ("Investor") and an indirect wholly-owned
subsidiary of The Majestic Star Casino, LLC ("Majestic Star"), owner and
operator of the Majestic Star Casino, a riverboat casino located at Buffington
Harbor in Gary, Indiana. The Company is indirectly wholly-owned and controlled
by Don H. Barden, the Company's Manager, Chairman, President and Chief Executive
Officer.
On November 22, 2000, Investor entered into a definitive purchase
and sale agreement, as amended, with Fitzgeralds Gaming Corporation and certain
of its affiliates (the "Seller") to purchase substantially all of the assets of
three of its subsidiaries for $149.0 million in cash, subject to adjustment in
certain circumstances, plus the assumption of certain liabilities. Investor
assigned all of its rights and obligations under the purchase and sale agreement
to the Company following the formation of the Company. At the date of
assignment, Investor had approximately $8.8 million of assets, no liabilities
and $8.8 million of members' equity. Because all entities were under common
control the assignment and contribution has been reflected in the consolidated
financial statements of the Company as though it occurred as of the beginning of
the period.
On December 6, 2001, the Company completed the acquisition of
substantially all of the assets and assumed certain liabilities of Fitzgeralds
Las Vegas, Inc., Fitzgeralds Mississippi, Inc., and 101 Main Street Limited
Liability Company (collectively the "Fitzgeralds Assets") for approximately
$152.7 million (the "Acquisition") (See Note 3). In connection with the
Acquisition, the Company formed three new subsidiaries that hold the respective
Fitzgeralds Assets and provide gaming and related entertainment to the public.
These are Barden Mississippi Gaming, LLC ("Fitzgeralds Tunica"), Barden Colorado
Gaming, LLC ("Fitzgeralds Black Hawk"), and Barden Nevada Gaming, LLC
("Fitzgeralds Las Vegas").
The Company formed Majestic Investor Capital Corp. ("Majestic Investor
Capital"), a wholly-owned subsidiary of the Company, to specifically serve as a
co-issuer to facilitate the offering of 11.653% Senior Secured Notes ("the
Investor Holdings Senior Secured Notes") which proceeds were used to purchase
the Fitzgeralds Assets (See Note 6). Majestic Investor Capital does not have any
material assets or operations. The three Fitzgeralds brand casinos are
"restricted subsidiaries" of the Company under the indenture agreement relating
to the Investor Holdings Senior Secured Notes.
The results of operations for the twenty-five days ended December
31, 2001, since the acquisition on December 7, 2001, are included in our
consolidated statement of operations and consolidated statement of cash flows.
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 consolidation.
F-7
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies (Continued)
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
$1.0 million represents U.S. Treasury Notes held in an escrow account for the
benefit of certain owners of land leased to Fitzgeralds Las Vegas. Also at
December 31, 2002, restricted cash of $250,000 at Majestic Investor Holdings
represents a letter of credit for self-insured workers compensation at
Fitzgeralds Mississippi and Fitzgeralds Black Hawk.
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 approximate 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, 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
sheet include $661,488 and $627,473, respectively, of base stock inventories at
December 31, 2002 and December 31, 2001.
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.
DEFERRED FINANCING COSTS - Deferred financing costs represent agent's
commission, closing costs and professional fees incurred in connection with the
issuance of the 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 six year term of the notes
and over the four year term of the line of credit, respectively, using the
effective interest method.
F-8
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies (Continued)
GOODWILL - Goodwill represents the cost of net 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.
INTANGIBLE ASSETS - Intangible assets are amortized over their estimated useful
lives, generally eight to ten years.
CASINO REVENUE - Casino revenue is the net win from gaming activities, which is
the difference between gaming wins and losses. Hotel and other revenue is
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:
For the period from (inception)
September 14, 2001
Year Ended December 31, 2002 through December 31, 2001
---------------------------- -------------------------
Rooms $ 4,121,861 $ 254,918
Food and Beverage 11,194,141 837,469
Other 1,083,884 50,543
-------------- -------------
$ 16,399,886 $ 1,142,930
============== =============
The estimated retail value of such promotional allowances is included in
operating revenues as follows:
For the period from (inception)
September 14, 2001
Year Ended December 31, 2002 through December 31, 2001
---------------------------- -------------------------
Rooms $ 5,592,973 $ 436,701
Food and Beverage 11,621,979 770,142
Other 849,824 50,526
-------------- -------------
$ 18,064,776 $ 1,257,369
============== =============
F-9
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies (Continued)
PRE-OPENING COSTS - Pre-opening costs are expensed as incurred.
FEDERAL INCOME TAXES - The Company is a limited liability corporation which
results in the tax attributes of the Company passing through to its Members.
Accordingly, federal and state income taxes have not been provided for in the
Company's 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. Advertising costs included in advertising and promotion expenses were
$2,440,021 and $199,337, respectively, for the year ended December 31, 2002 and
for the period from inception (September 14, 2001) through December 31, 2001,
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 of 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 5.
CASINO CLUB LIABILITY - The Company has established a promotional club (the
"Casino Club") to encourage repeat business from frequent and active slot
machine customers and table games patrons. Members earn points based on gaming
activity and such points can be redeemed for cash. The Company accrues for club
points based upon the estimates for expected redemptions.
SELF-INSURANCE LIABILITY - The Company maintains accruals for self-insured
health costs, which is classified in other accrued liabilities in the
consolidated balance sheet. Management determines the estimate of these accruals
by periodically evaluating the historical experience and projects trends related
to these accruals. Actual results could differ from these estimates.
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.
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.
F-10
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies (Continued)
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 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 No.
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 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 flow.
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 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 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 it 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 6 and 13.
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,
F-11
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies (Continued)
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
2003, and outlines consolidation requirement 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 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. Fitzgeralds Acquisition
The Company accounted 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. Pursuant to the terms of the purchase and sale agreement, the
parties agreed to a $3.8 million reduction on May 9, 2002, based upon a
negotiated settlement of the value of working capital at December 6, 2001. The
$3.8 million reduction went against Goodwill. 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
=========
F-12
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Fitzgeralds Acquisition (Continued)
Intangible assets 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 tradename are being amortized over a
period of 8-10 years. In accordance with SFAS 142, goodwill, and other
indefinite lived intangible assets such as the Company's gaming license, are not
amortized but instead are subject to impairment tests at least annually. (See
Note 5).
The following unaudited pro forma consolidated financial information has been
prepared assuming our acquisition occurred on January 1, 2001.
For the year ended
December 31, 2001
----------------------------
(Unaudited in thousands)
Net revenue $ 168,260
Income from operations $ 14,482
Net income (loss) $ (3,542)
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.
4. Property and Equipment
Property and equipment at December 31, 2002 and 2001 consists of the following:
Estimated Service
2002 2001 Life (Years)
-------------------- --------------------- -----------------
Land used in casino operations $ 6,403,375 $ 6,403,375 -
Vessel, Buildings & Improvements 69,812,270 69,287,364 25-39
Site improvements 15,971,805 15,870,892 9-15
Barge and improvements 14,691,854 14,655,000 13-15
Furniture, fixtures and equipment 20,050,973 16,157,574 4-10
Construction in progress 900,221 696,229
-------------------- ---------------------
127,830,498 123,070,434
Less accumulated depreciation (10,532,992) (642,472)
-------------------- ---------------------
Property and equipment, net $ 117,297,506 $ 122,427,962
==================== =====================
Substantially all property and equipment are pledged as collateral on long-term
debt. (See Note 6).
F-13
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. 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
=============== ============== ====================
The amortization expense recorded on the intangible assets for the year ended
December 31, 2002 and for the period from (inception) September 14, 2001 through
December 31, 2001 was $1.6 million and $0.1 million, respectively. The estimated
amortization expense 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
F-14
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Long - Term Debt
Long-term debt at December 31, 2002 and 2001 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, Majestic Investor Holdings, LLC purchased $865,000 of its
senior secured notes. $ 145,531,448 145,085,432
$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 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
------------------ -----------------
145,780,598 151,996,878
Less current maturities (134,084) (6,656,574)
------------------ -----------------
Long-term debt, net of current maturities $ 145,646,514 145,340,304
================== =================
The scheduled maturities of long-term debt are as follows:
Year Ending December 31,
2003 134,084
2004 84,984
2005 30,082
2006 -
2007 145,531,448
Thereafter -
--------------------------
$ 145,780,598
==========================
F-15
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Long - Term Debt (Continued)
Investor Holdings Senior Secured Notes
On December 6, 2001, the Company 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 our
member, were utilized to complete the acquisition.
The Senior Secured Notes bear interest at a fixed rate of 11.653% per annum
payable May 31 and November 30 each year, commencing May 31, 2002. Substantially
all of the Company's current and future assets other than certain excluded
assets are pledged as collateral. 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.
In connection with the issuance by the Company and Majestic Investor Capital of
$152,632,000 of unregistered 11.653% Senior Secured Notes due 2007 (the
"Unregistered Notes") on December 6, 2001, the Company entered in a registration
rights agreement pursuant to which the Company 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 requires the Company 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
the Company 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, at an amount per week per $1,000 principal amount of Registrable
Securities equal to $0.05 for the first 90-day period following April 5, 2002,
increasing by an additional $0.05 per week with respect to each subsequent
90-day period, up to a maximum amount of $0.20 per week. On May 31, 2002, in
connection with the first scheduled interest payment on the Unregistered Notes,
the Company 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 with the scheduled interest payment 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 was completed on Friday, September 6, 2002 at 5 p.m. Eastern
Standard Time.
On or after November 30, 2005, the Company 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, the Company may,
at its option, apply part of the net proceeds from certain equity offerings, as
defined, 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 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.
During 2002, the Company purchased for $759,037, plus accrued interest Investor
Holdings Senior
F-16
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Long-Term Debt (Continued)
Secured Notes with a face value of $865,000. The notes, net of unamortized
original issue discount, were being carried at value of $827,994. The resulting
gain was $68,957.
Credit Facility
On December 6, 2001, the Company established a $15.0 million four-year credit
facility. The credit facility is collateralized by substantially all of the
Company's current and future assets, other than the excluded assets. The lien on
the collateral securing the Company's 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. The interest rate can be
at the Company's choice of LIBOR plus 2.0% above the base rate, which
approximates prime, or the prime rate.
Intercreditor Agreement
In connection with the Company entering into its credit facility, the trustee
under the indenture (as collateral agent) entered into an intercreditor
agreement with Foothill Capital Corporation, as the lender under the Company's
credit facility, which, among other things, subordinates the liens securing the
Investor Holdings Senior Secured Notes to the liens securing the indebtedness
under the Investor Holdings Credit Facility.
The intercreditor agreement, among other things, limits the trustee's rights in
an event of default under the Investor Holdings Senior secured notes. Under the
intercreditor agreement, if the Investor Holdings 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 we have indebtedness outstanding under
the Investor Holdings Credit Facility, the trustee will not have the right to
foreclose upon the collateral unless and until the lenders under the Investor
Holdings Credit Facility fail to take steps to exercise remedies with respect to
or in connection with the collateral within 180 days following notice to such
lenders of the occurrence of an event of default under the indenture. In
addition, the intercreditor agreement prevents the trustee and the holders of
the Investor Holdings Senior Secured Notes from pursuing remedies with respect
to the collateral in an insolvency proceeding. The intercreditor agreement also
provides that the net proceeds from the sale of collateral will first be applied
to repay indebtedness outstanding under the Investor Holdings Credit Facility
and thereafter to the holders of the Investor Holdings Senior Secured Notes.
F-17
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. 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
6).
Carrying Estimated
Value Fair Value
------------------- -------------------
Assets:
Cash and equivalents $ 15,983,824 $ 15,983,824
Restricted cash $ 1,250,000 $ 1,250,000
Liabilities:
Long-term debt (including capital lease
obligations and line of credit borrowings) $ 145,780,598 $ 145,780,598
8. 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 $713,608 during the year ended
December 31, 2002.
9. 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:
Year ending December 31,
2003 $ 757,451
2004 268,278
2005 33,890
2006 15,932
2007 15,932
Thereafter 15,932
------------------
$ 1,107,415
==================
Rent expense for the year ended December 31, 2002 and from (inception) September
14, 2001 through December 31, 2001 was approximately $3,159,900 and $363,925,
respectively.
F-18
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Commitments and Contingencies (Continued)
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 or results of operations.
Letter of Credit/Surety 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 the Company's 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 guarantees of Don H. Barden. If Mr. Barden is
required to make payments to the bonding companies as a result of the
guarantees, the Company, Barden Nevada Gaming, LLC and Barden Mississippi
Gaming, LLC will be obligated to reimburse Mr. Barden for any such payments.
Gaming Regulations
The ownership and operation of our casino gaming facilities are 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. In addition, as The Majestic Star Casino, LLC does
business in the State of Indiana, the Company is subject to certain reviews by
the Indiana Gaming Commission.
The Company's directors, officers, managers and key employees are required to
hold individual
F-19
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Commitments and Contingencies (Continued)
licenses, which requirements vary from jurisdiction to jurisdiction. Licenses
and permits for gaming operations and of individual licensees are subject to
revocation or non-renewal for cause. Under certain circumstances, holders of our
securities are required to secure independent licenses and permits.
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 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, the
performance of Majestic Star and the performance of the three Fitzgeralds
casinos. 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 $1.0 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.
The amounts payable pursuant to the agreements with Messrs. Barden, Kelly and
Bennett are the responsibility of Majestic Star. As indicated in Note 10, the
Company entered into an Expense Reimbursement/Sharing Agreement with Majestic
Star whereby the Company will reimburse Majestic Star for a specified percentage
of expenses paid by Majestic Star for the Company's corporate overhead.
F-20
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Related Party Transactions
In September 2000, Majestic Investor, LLC was capitalized by Majestic Star with
$9.0 million of capital contributions, including interest thereon. Majestic
Investor, LLC subsequently contributed this $9.0 million to the Company in
connection with the assignment of its rights and obligations under the
Fitzgeralds purchase and sale agreement to the Company.
On November 22, 2000, Majestic Investor, LLC entered into a definitive purchase
and sale agreement, as amended, with Fitzgeralds Gaming Corporation and certain
of its affiliates to purchase substantially all of the assets of three of its
subsidiaries for $149 million in cash, subject to adjustment in certain
circumstances, plus the assumption of certain liabilities. Majestic Investor,
LLC assigned all of its rights and obligations under the purchase and sale
agreement to the Company following formation of the Company.
Prior to the consummation of the offering of the Investor Holdings Senior
Secured Notes, the Company issued a 35.71% membership interest to Barden
Development, Inc. (a company wholly-owned by Mr. Barden and a member of Majestic
Star Casino, LLC) ("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 membership interests of the Company. BDI, upon
closing of the offering of the Senior Secured Notes, contributed $5.0 million to
the Company in repayment of the promissory note.
On September 19, 2001, the Company entered into an agreement with BDI, which was
amended and restated on December 5, 2001, effective December 6, 2001, pursuant
to which BDI will for act as the Manager of the Company. Distribution of profits
to BDI are limited by the Indenture for the Investor Holdings Senior Secured
Notes. Distribution's for any fiscal quarter, cannot exceed 1% of net revenues
plus 5% of consolidated cash flow for the immediately preceding fiscal quarter,
provided that the payment of such distributions are subordinated to the payment
in full of principal, interest, premium and liquidated damages, as defined, if
any, then due on the Investor Holdings Senior Secured Notes. During the year
ended December 31, 2002, the Company made distributions of approximately
$2,544,000 to BDI.
On October 22, 2001, the Company entered into an Expense Reimbursement/Sharing
Agreement with Majestic Star, pursuant to which the Company and its restricted
subsidiaries will each reimburse Majestic Star for a specified percentage of the
documented out-of-pocket expenses paid by Majestic Star for the Company's
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.
Interest of $185,750 on a $2.0 million note made by Majestic Investor, LLC to
BDI which was later assigned to the Company was outstanding at December 31,
2001. BDI paid the principal of the note in conjunction with the closing of the
acquisition on December 6, 2001. The interest was paid on May 24, 2002.
F-21
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Subsequent Events
In December 2001, the Company issued a $700,000 note to BDI. The note bears
interest at a rate of 7% per annum. The principal and accrued but unpaid
interest were due and payable in full on December 12, 2002. The principal and
accrued interest was paid on March 17, 2003.
12. Segment Information
The Company owns and operates three properties as follows: 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 three segments based on
geographic location. The Properties market in each of their segments primarily
to middle-income guests, emphasizing their Fitzgeralds brand and their
"Fitzgerald 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. Corporate costs are allocated to the business segment
through management fees.
A summary of the Properties' operations by business segment for the year ended
December 31, 2002 and for the period from inception (September 14, 2001) through
December 31, 2001 is presented below:
F-22
For the Period from Inception
(September 14, 2001)
As of December 31, 2002 through December 31, 2001
----------------------- ------------------------------
(In thousands) (In thousands)
Net revenues:
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 $ 169,412 $ 10,521
---------------- ----------------
Income (loss) from operations:
Fitzgeralds Tunica $ 14,288 $ 654
Fitzgeralds Black Hawk 6,694 674
Fitzgeralds Las Vegas (1,977) (393)
Unallocated and other (1) (2,956) (1,213)
---------------- ----------------
Total $ 16,049 $ (278)
---------------- ----------------
Segment depreciation and amortization
Fitzgeralds Tunica $ 7,373 $ 485
Fitzgeralds Black Hawk 1,538 100
Fitzgeralds Las Vegas 2,952 167
Unallocated and other (1) 2,597 169
---------------- ----------------
Total $ 14,460 $ 921
---------------- ----------------
Expenditures for additions to long-lived assets:
Fitzgeralds Tunica $ 2,549 $ 100
Fitzgeralds Black Hawk 1,177 -
Fitzgeralds Las Vegas 1,481 23
Unallocated and other (1) - -
---------------- ----------------
Total $ 5,207 $ 123
---------------- ----------------
Segment assets:
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 $ 312,580 $ 335,237
Less: Intercompany (141,541) (151,792)
---------------- ----------------
Total $ 171,039 $ 183,445
---------------- ----------------
(1) Unallocated and other include certain corporate items and eliminations that
are not allocated to the operating segments.
F-23
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Supplemental Guarantor Financial Information
The Company's $151.8 million, 11.653% Senior Secured Notes (See Note 6) are
unconditionally and irrevocably guaranteed, jointly and severally, by all of the
restricted subsidiaries of the Company. 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, for the year ended December 31, 2002 and and for the period of inception
(September 14, 2001) through December 31, 2001, of the Company, the guarantor
subsidiaries (on a combined basis) and the elimination entries necessary to
combine such entities on a consolidated basis. Majestic Investor Capital, a
wholly-owned subsidiary of the Company, is a non-guarantor subsidiary. However,
Majestic Investor Capital does not have any material assets, obligations or
operations. Therefore, no non-guarantor subsidiary information has been
presented below.
F-24
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Supplemental Guarantor Financial Information (Continued)
CONDENSED CONSOLIDATING BALANCE SHEETS AS OF DECEMBER 31, 2002
Majestic Investor Guarantor Eliminating Total
Holdings, LLC Subsidiaries Entries Consolidated
----------------- ---------------- ------------------ -----------------
ASSETS
Current Assets:
Cash and cash equivalents $ 1,007,660 $ 14,976,164 $ - $ 15,983,824
Restricted cash 250,000 - - 250,000
Accounts receivable (net) 52,695 1,188,488 - 1,241,183
Inventories - 929,126 - 929,126
Prepaid expenses and other current assets 5,573,991 1,575,678 (4,765,801)(a) 2,383,868
----------------- ---------------- ------------------ -----------------
Total current assets 6,884,346 18,669,456 (4,765,801) 20,788,001
----------------- ---------------- ------------------ -----------------
Property and equipment, net - 117,297,506 - 117,297,506
Intangible assets, net 5,200,000 12,491,746 - 17,691,746
Due from related parties 116,816,043 - (116,816,043)(b) -
Other assets 6,714,902 8,546,757 15,261,659
Investment in subsidiaries 19,959,009 - (19,959,009)(b) -
----------------- ---------------- ------------------ -----------------
Total Assets $ 155,574,300 $ 157,005,465 $ (141,540,853) $ 171,038,912
================= ================ ================== =================
LIABILITIES AND MEMBER'S EQUITY
Current Liabilities:
Current maturities of long-term debt $ - $ 134,084 $ - $ 134,084
Accounts payable, accrued and other 1,960,447 15,215,462 - 17,175,909
----------------- ---------------- ------------------ ----------------
Total current liabilities 1,960,447 15,349,546 - 17,309,993
----------------- ---------------- ------------------ ----------------
Due to related parties 121,581,844 (121,581,844)(b) -
Long-term debt, net of current maturities 145,531,448 115,066 145,646,514
----------------- ---------------- ------------------ ----------------
Total Liabilities 147,491,895 137,046,456 (121,581,844) 162,956,507
Member's Equity 8,082,405 19,959,009 (19,959,009)(b) 8,082,405
----------------- ---------------- ------------------ ----------------
Total Liabilities and Member's Equity $ 155,574,300 $ 157,005,465 $ (141,540,853) $ 171,038,912
================= ================ ================== ================
(a) To eliminate intercompany receivables and payables.
(b) To eliminate intercompany accounts and investment in subsidiaries.
F-25
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Supplemental Guarantor Financial Information (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31,
2002
MAJESTIC INVESTOR GUARANTOR ELIMINATING
HOLDINGS, LLC SUBSIDIARIES ENTRIES CONSOLIDATED
--------------- ---------------- ---------------- ----------------
REVENUES:
Casino $ - $ 161,189,334 $ - $ 161,189,334
Rooms - 15,495,620 - 15,495,620
Food and beverage - 19,470,500 - 19,470,500
Other - 3,604,744 - 3,604,744
--------------- ---------------- ---------------- ----------------
Gross Revenues - 199,760,198 - 199,760,198
less promotional allowances - (30,348,133) - (30,348,133)
--------------- ---------------- ---------------- ----------------
Net Revenues - 169,412,065 - 169,412,065
--------------- ---------------- ---------------- ----------------
COSTS AND EXPENSES:
Casino - 60,822,128 - 60,822,128
Rooms - 9,014,354 - 9,014,354
Food and beverage - 11,267,235 - 11,267,235
Other - 1,559,861 - 1,559,861
Gaming taxes - 17,950,757 - 17,950,757
Advertising and promotion - 13,282,926 - 13,282,926
General and administrative 345,443 24,632,548 - 24,977,991
Depreciation and amortization 2,597,154 11,863,168 - 14,460,322
Loss on disposal of assets - 14,069 - 14,069
Pre-opening expenses 13,391 - - 13,391
--------------- ---------------- ---------------- ----------------
Total costs and expenses 2,955,988 150,407,046 - 153,363,034
--------------- ---------------- ---------------- ----------------
Operating income (loss) (2,955,988) 19,005,019 - 16,049,031
--------------- ---------------- ---------------- ----------------
OTHER INCOME (EXPENSE):
Interest income 86,401 49,429 - 135,830
Interest expense (18,086,650) (31,168) - (18,117,818)
Other non-operating expense (41,684) - - (41,684)
Equity in net income (loss) of subsidiaries 19,023,280 - (19,023,280)(a) -
--------------- ---------------- ---------------- ----------------
Total other income (expense) 981,347 18,261 (19,023,280) (18,023,672)
--------------- ---------------- ---------------- ----------------
Income (loss) before extraordinary item (1,974,641) 19,023,280 (19,023,280) (1,974,641)
EXTRAORDINARY ITEM:
Gain on bond redemption 68,957 - - 68,957
--------------- ---------------- ---------------- ----------------
Net income (loss) $ (1,905,684) $ 19,023,280 $ (19,023,280) $ (1,905,684)
=============== ================ ================ ================
(a) To eliminate equity in net income of subsidiaries.
F-26
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Supplemental Guarantor Financial Information (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31,
2002
MAJESTIC INVESTOR GUARANTOR ELIMINATING CONSOLIDATED
HOLDINGS, LLC SUBSIDIARIES ENTRIES TOTAL
-------------- -------------- ------------- ----------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ (21,143,727) $ 30,452,724 $ 3,035,502 (a) $ 12,344,499
-------------- -------------- ------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, equipment and vessel
improvements - (5,207,456) - (5,207,456)
Increase in restricted cash (250,000) - - (250,000)
Payment of acquisition related costs (986,158) - - (986,158)
Proceeds from seller from purchase price
adjustment 3,800,000 - - 3,800,000
Proceeds from sale of equipment - 44,267 - 44,267
-------------- -------------- ------------- ----------------
Net cash provided by (used in)
investing activities 2,563,842 (5,163,189) - (2,599,347)
-------------- -------------- ------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Line of credit, net (6,500,000) - - (6,500,000)
Payment of 11.653% Senior Secured Notes
issuance costs (1,523,568) - - (1,523,568)
Cash paid for redemption of Senior Secured Notes (759,038) - - (759,038)
Cash paid to reduce long-term debt - (139,331) - (139,331)
Cash advances to/from affiliates 30,415,994 (27,380,492) (3,035,502)(a) -
Distribution to Barden Development, Inc. (2,544,206) - - (2,544,206)
-------------- -------------- ------------- ----------------
Net cash provided by (used in) financing
activities 19,089,182 (27,519,823) (3,035,502) (11,466,143)
-------------- -------------- ------------- ----------------
Net increase (decrease) in cash and cash equivalents 509,297 (2,230,288) - (1,720,991)
Cash and cash equivalents, beginning of period 498,363 17,206,452 - 17,704,815
-------------- -------------- ------------- ----------------
Cash and cash equivalents, end of period $ 1,007,660 $ 14,976,164 $ - $ 15,983,824
============== ============== ============= ================
(a) To eliminate intercompany receivables and payables.
F-27
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Supplemental Guarantor Financial Information (Continued)
CONDENSED CONSOLIDATING BALANCE SHEETS AS OF DECEMBER 31, 2001
Majestic Investor Guarantor Eliminating Total
Holdings, LLC Subsidiaries Entries Consolidated
---------------- ---------------- ---------------- -----------------
ASSETS
Current Assets:
Cash and cash equivalents $ 498,363 $ 17,206,452 $ - $ 17,704,815
Accounts receivable (net) 269,501 1,196,044 (711)(a) 1,464,834
Inventories - 957,564 - 957,564
Prepaid expenses and other current assets 707,467 1,319,651 - 2,027,118
---------------- ---------------- ---------------- -----------------
Total current assets 1,475,331 20,679,711 (711) 22,154,331
---------------- ---------------- ---------------- -----------------
Property and equipment, net - 122,427,962 - 122,427,962
Intangible assets, net - 19,290,753 - 19,290,753
Due from related parties 150,855,685 - (150,855,685)(b) -
Other assets 14,545,956 5,025,618 19,571,574
Investment in subsidiaries 935,731 - (935,731)(b) -
---------------- ---------------- ---------------- -----------------
Total Assets $ 167,812,703 $ 167,424,044 $ (151,792,127) $ 183,444,620
================ ================ ================ =================
LIABILITIES AND MEMBER'S EQUITY
Current Liabilities:
Current maturities of long-term debt $ 6,500,000 $ 156,574 $ - $ 6,656,574
Accounts payable, accrued and other 2,526,703 15,211,626 (711)(a) 17,737,618
---------------- ---------------- ---------------- -----------------
Total current liabilities 9,026,703 15,368,200 (711) 24,394,192
---------------- ---------------- ---------------- -----------------
Due to related parties 1,168,273 150,865,241 (150,855,685)(b) 1,177,829
Long-term debt, net of current maturities 145,085,432 254,872 - 145,340,304
---------------- ---------------- ---------------- -----------------
Total Liabilities 155,280,408 166,488,313 (150,856,396) 170,912,325
Member's Equity 12,532,295 935,731 (935,731)(b) 12,532,295
---------------- ---------------- ---------------- -----------------
Total Liabilities and Member's Equity $ 167,812,703 $ 167,424,044 $ (151,792,127) $ 183,444,620
================ ================ ================ =================
(a) To eliminate intercompany receivables and payables.
(b) To eliminate intercompany accounts and investment in subsidiaries.
F-28
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Supplemental Guarantor Financial Information (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE PERIOD FROM (INCEPTION)
SEPTEMBER 14, 2001 THROUGH DECEMBER 31, 2001
MAJESTIC INVESTOR GUARANTOR ELIMINATING
HOLDINGS, LLC SUBSIDIARIES ENTRIES CONSOLIDATED
------------------ ---------------- ---------------- ----------------
REVENUES:
Casino $ - $ 10,358,799 $ - $ 10,358,799
Rooms - 1,079,456 - 1,079,456
Food and beverage - 1,189,804 - 1,189,804
Other - 203,858 - 203,858
---------------- ---------------- ---------------- ----------------
Gross Revenues - 12,831,917 - 12,831,917
less promotional allowances - (2,310,848) - (2,310,848)
---------------- ---------------- ---------------- ----------------
Net Revenues - 10,521,069 - 10,521,069
---------------- ---------------- ---------------- ----------------
COSTS AND EXPENSES:
Casino - 4,111,503 - 4,111,503
Rooms - 628,910 - 628,910
Food and beverage - 706,947 - 706,947
Other - 108,732 - 108,732
Gaming taxes - 808,464 - 808,464
Advertising and promotion - 926,226 - 926,226
General and administrative 26,476 1,543,167 - 1,569,643
Depreciation and amortization 168,930 751,718 - 920,648
Pre-opening expenses 1,018,234 - - 1,018,234
---------------- ---------------- ---------------- ----------------
Total costs and expenses 1,213,640 9,585,667 - 10,799,307
---------------- ---------------- ---------------- ----------------
Operating income (loss) (1,213,640) 935,402 - (278,238)
---------------- ---------------- ---------------- ----------------
OTHER INCOME (EXPENSE):
Interest income 215,791 2,410 - 218,201
Interest expense (1,208,779) (2,081) - (1,210,860)
Equity in net income of subsidiaries 935,731 - (935,731)(a) -
---------------- ---------------- ---------------- ----------------
Total other income (expense) (57,257) 329 (935,731) (992,659)
---------------- ---------------- ---------------- ----------------
Net income (loss) $ (1,270,897) $ 935,731 $ (935,731) $ (1,270,897)
================ ================ ================ ================
(a) To eliminate equity in net income of subsidiaries.
F-29
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Supplemental Guarantor Financial Information (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE PERIOD FROM (INCEPTION)
SEPTEMBER 14, 2001 THROUGH DECEMBER 31, 2001
MAJESTIC INVESTOR GUARANTOR ELIMINATING CONSOLIDATED
HOLDINGS, LLC SUBSIDIARIES ENTRIES TOTAL
----------------- ---------------- -------------- ---------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ (14,700,259) $ 17,334,730 $ - $ 2,634,471
--------------- ---------------- -------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for businesses acquired, net of cash acquired (143,758,152) - - (143,758,152)
Acquisition of property, equipment and vessel improvements - (122,696) - (122,696)
--------------- ---------------- -------------- ---------------
Net cash used in investing activities (143,758,152) (122,696) - (143,880,848)
--------------- ---------------- -------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of 11.653% Senior Secured Notes 145,000,400 - - 145,000,400
Payment of 11.653% Senior Secured Notes issuance costs (6,815,090) - - (6,815,090)
Member's equity contribution 5,000,000 - - 5,000,000
Contribution from Majestic Investor 8,803,191 - - 8,803,191
Cash advances from related parties 1,168,273 - - 1,168,273
Issurance of loan to Barden Development, Inc. (700,000) - - (700,000)
Line of credit, net 6,500,000 - - 6,500,000
Cash paid to reduce long-term debt - (5,582) - (5,582)
--------------- ---------------- -------------- ---------------
Net cash provided by (used in) financing activities 158,956,774 (5,582) - 158,951,192
--------------- ---------------- -------------- ---------------
Net increase in cash and cash equivalents 498,363 17,206,452 - 17,704,815
Cash and cash equivalents, beginning of period - - - -
--------------- ---------------- -------------- ---------------
Cash and cash equivalents, end of period $ 498,363 $ 17,206,452 $ - $ 17,704,815
=============== ================ ============== ===============
F-30
MAJESTIC INVESTOR HOLDINGS, LLC
CONSOLIDATING BALANCE SHEETS AS OF DECEMBER 31, 2002
Barden Barden Barden
Mississippi Colorado Nevada
Parent Gaming, LLC Gaming, LLC Gaming, LLC Elimination Consolidated
------------- ------------- ------------- ------------- ------------- -------------
ASSETS
Current Assets:
Cash and cash equivalents $ 1,007,660 $ 7,852,914 $ 2,727,644 $ 4,395,606 $ - $ 15,983,824
Restricted cash 250,000 - - - - 250,000
Accounts receivable (net) 52,695 547,541 48,168 592,779 - 1,241,183
Inventories - 426,658 183,439 319,029 - 929,126
Prepaid expenses and other 125,620 420,317 161,487 976,444 - 1,683,868
Receivable from related party 4,748,371 15,670 - 1,760 (4,765,801) -
Note receivable from related
party 700,000 - - - - 700,000
------------- ------------- ------------- ------------- ------------- -------------
Total current assets 6,884,346 9,263,100 3,120,738 6,285,618 (4,765,801) 20,788,001
------------- ------------- ------------- ------------- ------------- -------------
Property and equipment, net - 67,655,754 21,646,773 27,994,979 - 117,297,506
Intangible assets, net 5,200,000 6,939,404 3,634,842 1,917,500 - 17,691,746
Goodwill - 3,997,904 1,924,494 - - 5,922,398
Other Assets:
Deferred financing costs, net 6,714,902 - - - - 6,714,902
Restricted cash - - - 1,000,000 - 1,000,000
Due from related parties 116,816,043 - - - (116,816,043) -
Other assets and deposits - 450,616 141,363 1,032,380 - 1,624,359
Investment in subsidiaries 19,959,009 - - - (19,959,009) -
------------- ------------- ------------- ------------- ------------- -------------
Total other assets 143,489,954 450,616 141,363 2,032,380 (136,775,052) 9,339,261
------------- ------------- ------------- ------------- ------------- -------------
Total Assets $ 155,574,300 $ 88,306,778 $ 30,468,210 $ 38,230,477 $(141,540,853) $ 171,038,912
============= ============= ============= ============= ============= =============
LIABILITIES AND MEMBER'S DEFICIT
Current Liabilities:
Current maturities of long-term
debt $ - $ $ - $ 134,084 - $ 134,084
Accounts payable - 574,366 457,238 1,104,765 - 2,136,369
Other accrued liabilities:
Payroll and related - 2,929,467 984,890 2,034,918 - 5,949,275
Interest 1,473,785 - - - - 1,473,785
Progressive jackpots - 760,975 1,475,807 239,761 - 2,476,543
Slot club liabilities - 268,737 343,048 126,774 - 738,559
Other accrued
liabilities 486,662 2,258,123 965,151 691,442 - 4,401,378
------------- ------------- ------------- ------------- ------------- -------------
Total current
liabilities 1,960,447 6,791,668 4,226,134 4,331,744 - 17,309,993
------------- ------------- ------------- ------------- ------------- -------------
Due to related parties - 66,543,493 18,864,947 36,173,404 (121,581,844) -
Long-term debt, net of current
maturities 145,531,448 - - 115,066 - 145,646,514
------------- ------------- ------------- ------------- ------------- -------------
Total Liabilities 147,491,895 73,335,161 23,091,081 40,620,214 (121,581,844) 162,956,507
------------- ------------- ------------- ------------- ------------- -------------
Member's Equity:
Member's contributions 13,803,192 - - - - 13,803,192
Accumulated earnings (deficit) (5,720,787) 14,971,617 7,377,129 (2,389,737) (19,959,009) (5,720,787)
------------- ------------- ------------- ------------- ------------- -------------
Total member's equity
(deficit) 8,082,405 14,971,617 7,377,129 (2,389,737) (19,959,009) 8,082,405
------------- ------------- ------------- ------------- ------------- -------------
Total Liabilities and Member's
Equity $ 155,574,300 $ 88,306,778 $ 30,468,210 $ 38,230,477 $(141,540,853) $ 171,038,912
============= ============= ============= ============= ============= =============
Refer to report of independent accountants
F-31
MAJESTIC INVESTOR HOLDINGS, LLC
CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2002
BARDEN BARDEN BARDEN
MISSISSIPPI COLORADO NEVADA
PARENT GAMING, LLC GAMING, LLC GAMING, LLC ELIMINATION CONSOLIDATED
------------- ------------- ------------- ------------- ------------- -------------
REVENUES:
Casino $ - $ 88,200,397 $ 36,028,266 $ 36,960,671 $ - $ 161,189,334
Rooms - 8,160,611 - 7,335,009 - 15,495,620
Food and beverage - 9,279,696 1,909,446 8,281,358 - 19,470,500
Other - 1,313,771 250,423 2,040,550 - 3,604,744
------------- ------------- ------------- ------------- ------------- -------------
Gross Revenues - 106,954,475 38,188,135 54,617,588 - 199,760,198
less promotional
allowances - (19,566,291) (5,079,184) (5,702,658) - (30,348,133)
------------- ------------- ------------- ------------- ------------- -------------
Net Revenues - 87,388,184 33,108,951 48,914,930 - 169,412,065
COSTS AND EXPENSES:
Casino - 32,286,565 10,505,121 18,030,442 - 60,822,128
Rooms - 3,474,166 - 5,540,188 - 9,014,354
Food and beverage - 2,891,536 1,071,532 7,304,167 - 11,267,235
Other - 338,510 691,551 529,800 - 1,559,861
Gaming taxes - 10,496,318 4,553,368 2,901,071 - 17,950,757
Advertising and promotion - 5,817,730 3,000,376 4,464,820 - 13,282,926
General and administrative 345,443 10,428,530 5,034,936 9,169,082 - 24,977,991
Depreciation and amortization 2,597,154 7,373,351 1,537,467 2,952,350 - 14,460,322
(Gain)/loss on disposal of
assets - (6,542) 20,862 (251) - 14,069
Pre-opening expenses 13,391 - - - - 13,391
------------- ------------- ------------- ------------- ------------- -------------
Total costs and expenses 2,955,988 73,100,164 26,415,213 50,891,669 - 153,363,034
------------- ------------- ------------- ------------- ------------- -------------
Operating income (loss) (2,955,988) 14,288,020 6,693,738 (1,976,739) - 16,049,031
OTHER INCOME (EXPENSE):
Interest income 86,401 28,261 8,663 12,505 - 135,830
Interest expense (18,086,650) - (625) (30,543) - (18,117,818)
Other non-operating expense (41,684) - - - - (41,684)
Equity in net income (loss) of
subsidiaries 19,023,280 - - - (19,023,280) -
------------- ------------- ------------- ------------- ------------- -------------
Total other income
(expense) 981,347 28,261 8,038 (18,038) (19,023,280) (18,023,672)
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) before
extraordinary item (1,974,641) 14,316,281 6,701,776 (1,994,777) (19,023,280) (1,974,641)
EXTRAORDINARY ITEM:
Gain on bond redemption 68,957 - - - - 68,957
------------- ------------- ------------- ------------- ------------- -------------
Net income (loss) $ (1,905,684) $ 14,316,281 $ 6,701,776 $ (1,994,777) $ (19,023,280) $ (1,905,684)
============= ============= ============= ============= ============= =============
Refer to report of independent accountants
F-32
MAJESTIC INVESTOR HOLDINGS, LLC
CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2002
BARDEN BARDEN BARDEN
MISSISSIPPI COLORADO NEVADA
PARENT GAMING, LLC GAMING, LLC GAMING, LLC ELIMINATION CONSOLIDATED
------------ ------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,905,684) $ 14,316,281 $ 6,701,776 $ (1,994,777) $(19,023,280) $ (1,905,684)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation - 6,536,101 1,049,717 2,257,894 - 9,843,712
Amortization 2,597,154 837,250 487,750 694,456 - 4,616,610
Income from wholly-owned subsidiaries (19,023,280) - - - 19,023,280 -
(Gain) loss on sale of assets - (6,542) 20,862 (251) - 14,069
Gain on redemption of bonds (68,957) - - - - (68,957)
Changes in operating assets and liabilities:
Decrease in accounts receivable, net 216,806 44,981 32,047 31,284 - 325,118
(Increase) decrease in inventories - (58,511) 30,424 56,525 - 28,438
Increase in prepaid expenses (118,153) (86,954) (33,218) (579,117) - (817,442)
(Increase) decrease in other assets 1,035,122 24,864 (23,583) (247,718) - 788,685
Increase (decrease) in accounts payable - (125,162) (8,388) 126,817 - (6,733)
Increase (decrease) in amounts due to
related parties, net (3,064,178) (1,641,340) (692,563) 1,526,330 3,035,502 (836,249)
Increase in accrued payroll and other
expenses - 533,190 260,787 62,734 - 856,711
Increase in accrued interest 265,006 - - - - 265,006
Increase (decrease) in other accrued
liabilities (1,077,563) 378,366 816,768 (876,356) - (758,785)
------------ ------------ ------------ ------------ ------------ ------------
Net cash provided by (used in) operating
activities (21,143,727) 20,752,524 8,642,379 1,057,821 3,035,502 12,344,499
------------ ------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, equipment and
improvements - (2,549,049) (1,176,737) (1,481,670) - (5,207,456)
Increase in restricted cash (250,000) - - - - (250,000)
Payment of acquisition related costs (986,158) - - - - (986,158)
Proceeds from seller from purchase price
adjustment 3,800,000 - - - - 3,800,000
Proceeds from sale of equipment - 6,542 37,325 400 - 44,267
------------ ------------ ------------ ------------ ------------ ------------
Net cash provided by (used in) investing
activities 2,563,842 (2,542,507) (1,139,412) (1,481,270) - (2,599,347)
------------ ------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Line of credit, net (6,500,000) - - - - (6,500,000)
Payment of 11.653% Senior Secured Notes
issuance costs (1,523,568) - - - - (1,523,568)
Cash paid for redemption of Senior Secured
Notes (759,038) (759,038)
Cash paid to reduce long-term debt - - - (139,331) - (139,331)
Cash advances to/from affiliates, net 30,415,994 (18,809,447) (8,571,045) - (3,035,502) -
Distribution to Barden Development, Inc. (2,544,206) - - - - (2,544,206)
------------ ------------ ------------ ------------ ------------ ------------
Net cash provided by (used in) financing
activities 19,089,182 (18,809,447) (8,571,045) (139,331) (3,035,502) (11,466,143)
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents 509,297 (599,430) (1,068,078) (562,780) - (1,720,991)
Cash and cash equivalents, beginning of period 498,363 8,452,344 3,795,722 4,958,386 - 17,704,815
------------ ------------ ------------ ------------ ------------ ------------
Cash and cash equivalents, end of period $ 1,007,660 $ 7,852,914 $ 2,727,644 $ 4,395,606 $ - $ 15,983,824
============ ============ ============ ============ ============ ============
Refer to report of independent accountants
F-33
MAJESTIC INVESTOR HOLDINGS, LLC
CONSOLIDATING BALANCE SHEETS AS OF DECEMBER 31, 2001
Barden Barden Barden
Mississippi Colorado Nevada
Parent Gaming, LLC Gaming, LLC Gaming, LLC Elimination Consolidated
------------- ------------- ------------- ------------- ------------- -------------
ASSETS
Current Assets:
Cash and cash equivalents $ 498,363 $ 8,452,344 $ 3,795,722 $ 4,958,386 $ - $ 17,704,815
Accounts receivable (net) 269,501 494,320 59,442 642,282 (711) 1,464,834
Inventories - 368,147 213,863 375,554 - 957,564
Prepaid expenses 7,467 333,363 89,135 782,688 - 1,212,653
Due from Seller - 98,913 - - - 98,913
Note receivable from related party 700,000 - - - - 700,000
Other - - 15,552 - - 15,552
------------- ------------- ------------- ------------- ------------- -------------
Total current assets 1,475,331 9,747,087 4,173,714 6,758,910 (711) 22,154,331
------------- ------------- ------------- ------------- ------------- -------------
Property, equipment and barge
improvements, net - 71,642,807 21,978,718 28,806,437 - 122,427,962
Intangible assets, net - 7,776,654 4,122,592 7,391,507 - 19,290,753
Goodwill 7,522,250 1,696,000 499,000 885,000 - 10,602,250
Other Assets:
Deferred financing costs, net 7,023,706 - - - - 7,023,706
Restricted cash - - - 1,000,000 - 1,000,000
Due from related parties 150,855,685 - - - (150,855,685) -
Other assets, prepaid lease and
deposits - 475,480 141,363 328,775 - 945,618
Investment in subsidiaries 935,731 - - - (935,731) -
------------- ------------- ------------- ------------- ------------- -------------
Total other assets 158,815,122 475,480 141,363 1,328,775 (151,791,416) 8,969,324
------------- ------------- ------------- ------------- ------------- -------------
Total Assets $ 167,812,703 $ 91,338,028 $ 30,915,387 $ 45,170,629 $(151,792,127) $ 183,444,620
============= ============= ============= ============= ============= =============
LIABILITIES AND MEMBER'S DEFICIT
Current Liabilities:
Current maturities of long-term
debt $ 6,500,000 $ - $ 22,965 $ 133,609 $ - $ 6,656,574
Accounts payable - 699,529 269,253 977,948 - 1,946,730
Other accrued liabilities:
Payroll and related - 2,312,087 721,843 1,972,184 - 5,006,114
Accrued interest 1,208,779 - - - - 1,208,779
Progressive jackpots - 919,253 1,143,567 211,230 - 2,274,050
Slot club liabilities - 131,375 377,132 1,733,369 - 2,241,876
Other accrued
liabilities 1,317,924 2,288,218 591,123 863,515 (711) 5,060,069
------------- ------------- ------------- ------------- ------------- -------------
Total current
liabilities 9,026,703 6,350,462 3,125,883 5,891,855 (711) 24,394,192
------------- ------------- ------------- ------------- ------------- -------------
Due to related parties 1,168,273 84,332,230 27,114,152 39,418,859 (150,855,685) 1,177,829
Long-term debt, net of current
maturities 145,085,432 - - 254,872 145,340,304
------------- ------------- ------------- ------------- ------------- -------------
Total Liabilities 155,280,408 90,682,692 30,240,035 45,565,586 (150,856,396) 170,912,325
------------- ------------- ------------- ------------- ------------- -------------
Member's Equity:
Member's contributions 13,803,192 - - - - 13,803,192
Accumulated earnings (deficit) (1,270,897) 655,336 675,352 (394,957) (935,731) (1,270,897)
------------- ------------- ------------- ------------- ------------- -------------
Total member's equity
(deficit) 12,532,295 655,336 675,352 (394,957) (935,731) 12,532,295
------------- ------------- ------------- ------------- ------------- -------------
Total Liabilities and Member's
Equity $ 167,812,703 $ 91,338,028 $ 30,915,387 $ 45,170,629 $(151,792,127) $ 183,444,620
============= ============= ============= ============= ============= =============
Refer to report of independent accountants
F-34
MAJESTIC INVESTOR HOLDINGS, LLC
CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE PERIOD FROM (INCEPTION)
SEPTEMBER 14, 2001 THROUGH DECEMBER 31, 2001
BARDEN BARDEN BARDEN
MISSISSIPPI COLORADO NEVADA
PARENT GAMING, LLC GAMING, LLC GAMING, LLC ELIMINATION CONSOLIDATED
------------ ------------ ------------ ------------ ------------ ------------
REVENUES:
Casino $ - $ 5,493,663 $ 2,509,689 $ 2,355,447 - $ 10,358,799
Rooms - 544,249 - 535,207 - 1,079,456
Food and beverage - 586,412 155,939 447,453 - 1,189,804
Other - 83,591 13,237 107,030 - 203,858
------------ ------------ ------------ ------------ ------------ ------------
Gross revenues - 6,707,915 2,678,865 3,445,137 - 12,831,917
less promotional
allowances - (1,339,618) (606,670) (364,560) - (2,310,848)
------------ ------------ ------------ ------------ ------------ ------------
Net Revenues - 5,368,297 2,072,195 3,080,577 - 10,521,069
COSTS AND EXPENSES:
Casino - 2,076,018 691,795 1,343,690 - 4,111,503
Rooms - 187,507 - 441,403 - 628,910
Food and beverage - 221,755 64,647 420,545 - 706,947
Other - 25,936 42,587 40,209 - 108,732
Gaming taxes - 654,003 15,200 139,261 - 808,464
Advertising and
promotion - 422,856 181,592 321,778 - 926,226
General and
administrative 26,476 641,728 302,270 599,169 - 1,569,643
Depreciation and
amortization 168,930 484,685 99,635 167,398 - 920,648
Pre-opening expenses 1,018,234 - - - - 1,018,234
------------ ------------ ------------ ------------ ------------ ------------
Total costs and expenses 1,213,640 4,714,488 1,397,726 3,473,453 - 10,799,307
------------ ------------ ------------ ------------ ------------ ------------
Operating income (loss) (1,213,640) 653,809 674,469 (392,876) - (278,238)
------------ ------------ ------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income 215,791 1,527 883 - - 218,201
Interest expense (1,208,779) - - (2,081) - (1,210,860)
Equity in net income of
subsidiaries 935,731 - - - (935,731)(a) -
------------ ------------ ------------ ------------ ------------ ------------
Total other income
(expense) (57,257) 1,527 883 (2,081) (935,731) (992,659)
Net income (loss) $ (1,270,897) $ 655,336 $ 675,352 $ (394,957) $ (935,731) $ (1,270,897)
============ ============ ============ ============ ============ ============
(a) To eliminate equity in net income of subsidiaries
Refer to report of independent accountants
F-35
MAJESTIC INVESTOR HOLDINGS, LLC
CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE PERIOD FROM (INCEPTION)
SEPTEMBER 14, 2001 THROUGH DECEMBER 31, 2001
BARDEN BARDEN BARDEN
MISSISSIPPI COLORADO NEVADA
PARENT GAMING, LLC GAMING, LLC GAMING, LLC ELIMINATION CONSOLIDATED
------------- ------------- ------------- ------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,270,897) $ 655,336 $ 675,352 $ (394,957) $ (935,731) $ (1,270,897)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation - 427,339 66,228 148,905 - 642,472
Amortization 168,930 57,346 33,407 18,493 - 278,176
Income from wholly-owned subsidiaries (935,731) - - - 935,731
Changes in operating assets and
liabilities:
Increase in accounts receivable, net (269,502) (225,106) (25,511) (12,724) - (532,843)
(Increase) decrease in inventories - 48,615 (31,048) 3,319 - 20,886
Increase in prepaid expenses (7,467) (39,130) (807) (248,961) - (296,365)
(Increase) decrease in other assets - (32,031) 1,721 5,807 - (24,503)
Increase (decrease) in accounts
payable - 341,532 229,962 (176,506) - 394,988
Increase (decrease) in amounts due to
related parties, net (14,912,296) 6,665,673 3,101,010 5,136,948 - (8,665)
Increase in accrued interest 1,208,779 - - - - 1,208,779
Increase (decrease) in other accrued
liabilities 1,317,925 652,524 (254,592) 506,586 - 2,222,443
------------- ------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
operating activities (14,700,259) 8,552,098 3,795,722 4,986,910 - 2,634,471
------------- ------------- ------------- ------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for businesses acquired, net
of cash acquired (143,758,152) - - - - (143,758,152)
Acquisition of property, equipment
and improvements - (99,754) - (22,942) - (122,696)
------------- ------------- ------------- ------------- ------------- -------------
Net cash used in investing
activities (143,758,152) (99,754) - (22,942) - (143,880,848)
------------- ------------- ------------- ------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of 11.653%
Senior Secured Notes 145,000,400 - - - - 145,000,400
Payment of Senior Secured Notes
issuance costs (6,815,090) - - - - (6,815,090)
Member's equity contribution 5,000,000 - - - - 5,000,000
Contribution from Majestic Investor 8,803,191 - - - - 8,803,191
Cash advances from related parties 1,168,273 - - - - 1,168,273
Issuance of loan to Barden
Development, Inc (700,000) - - - - (700,000)
Line of credit, net 6,500,000 - - - - 6,500,000
Cash paid to reduce long-term debt - - - (5,582) - (5,582)
------------- ------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
financing activities 158,956,774 - - (5,582) - 158,951,192
------------- ------------- ------------- ------------- ------------- -------------
Net increase in cash and cash
equivalents 498,363 8,452,344 3,795,722 4,958,386 - 17,704,815
Cash and cash equivalents, beginning of
period - - - - - -
------------- ------------- ------------- ------------- ------------- -------------
Cash and cash equivalents, end of period $ 498,363 $ 8,452,344 $ 3,795,722 $ 4,958,386 $ - $ 17,704,815
============= ============= ============= ============= ============= =============
Refer to report of independent accountants
F-36
SCHEDULE II
MAJESTIC INVESTOR HOLDINGS, LLC
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 2002 AND FOR THE PERIOD
FROM (INCEPTION) SEPTEMBER 14, 2001 THROUGH DECEMBER 31, 2001
Balance at Charged to Charged to Balance at
Descriptions Beginning of Period Costs and Expenses Other Accounts Deductions End of Period
- ----------------------------------------------------------------------------------------------------------------------------------
Allowance for doubtful accounts
Year ended December 31, 2001 - 15,463 232,579 (a) - 248,042
Year ended December 31, 2002 248,042 203,811 28,534 241,321 239,066
(a) Related to acquisition of Fitzgeralds Las Vegas, Inc., Fitzgeralds
Mississippi, Inc. and 101 Main Street Limited Liability Company.
F-37
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
F-38
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.
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-66 through F-79 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-39
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-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 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-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 STOCKHOLDER'S 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-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 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-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 (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-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)
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-45
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-46
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-47
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-48
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-49
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-50
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-51
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-52
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-53
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-54
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-55
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-56
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-57
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-58
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-59
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-60
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-61
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-62
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-63
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-64
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-65
HISTORICAL COMBINED FINANCIAL STATEMENTS
FITZGERALDS LAS VEGAS, INC., FITZGERALDS MISSISSIPPI, INC. AND 101 M
AIN 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-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
--------------- ----------------- --------------- ----------- --------------
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)
=========== ============ =========== ===== ============
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 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-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 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-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--BALANCE SHEET
AT DECEMBER 31, 2000
101 MAIN STREET
FITZGERALDS FITZGERALDS LIMITED ELIMINATING COMBINED
LAS VEGAS, INC. MISSISSIPPI, INC. LIABILITY CO. ENTRIES 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-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 COMBINED
LAS VEGAS, INC. MISSISSIPPI, INC. LIABILITY CO. ENTRIES 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-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--STATEMENT OF OPERATIONS
INFORMATION FOR THE YEAR ENDED DECEMBER 31, 2000
101 MAIN STREET
FITZGERALDS FITZGERALDS LIMITED ELIMINATING COMBINED
LAS VEGAS, INC. MISSISSIPPI, INC. LIABILITY CO. ENTRIES 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-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 CASH FLOWS
INFORMATION FOR THE YEAR ENDED DECEMBER 31, 2000
101 MAIN STREET
FITZGERALDS FITZGERALDS LIMITED ELIMINATING COMBINED
LAS VEGAS, INC. MISSISSIPPI, INC. LIABILITY CO. ENTRIES 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-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 COMBINED
LAS VEGAS, INC. MISSISSIPPI, INC. LIABILITY CO. ENTRIES 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
=========== =========== =========== ===== ============
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--BALANCE SHEET
AT DECEMBER 6, 2001
101 MAIN STREET
FITZGERALDS FITZGERALDS LIMITED ELIMINATING COMBINED
LAS VEGAS, INC. MISSISSIPPI, INC. LIABILITY CO. ENTRIES 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
============ =========== ========== ======= ============
</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
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-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--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-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 CASH FLOWS
INFORMATION FOR THE PERIOD FROM JANUARY 1, 2001 THROUGH DECEMBER 6, 2001
<Table>
<Caption>
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-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 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-79
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
F-80
- --------------------
(1) Write-offs of uncollectible accounts receivable, net of recoveries
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.
MAJESTIC INVESTOR HOLDINGS, 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)
MAJESTIC INVESTOR CAPITAL CORP.
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
Investor Holdings, LLC and The Majestic Investor 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
Investor Holdings, LLC and The Majestic Investor 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 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. The Company's 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 (Registration Statement
No. 333-81584)
2.2 First Amendment to Purchase and Sale Agreement dated as of
December 4, 2000 by and among Majestic Investor, LLC,
Fitzgeralds Las Vegas, Inc., 100 Main Street Limited Liability
Company, Fitzgeralds Mississippi, Inc., Fitzgeralds Gaming
Corporation and certain affiliates of the foregoing parties
(Registration Statement 333-81584)
2.3 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 (Registration Statement No. 333-81584)
3.1 Certificate of Formation of Majestic Investor Holdings, LLC
(Registration Statement No. 333-81584)
3.2 Limited Liability Company Agreement of Majestic Investor
Holdings, LLC dated September 25, 2001 (Registration Statement
No. 333-81584)
3.3 Certificate of Incorporation of Majestic Investor Capital Corp.
(Registration Statement No. 333-81584)
3.4 By-laws of Majestic Investor Capital Corp. (Registration
Statement No. 333-81584)
4.1 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 (Registration Statement No.
333-81584)
4.2 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. (Registration Statement No. 333-81584)
E-1
Exhibit No. Description of Document
- ----------- -----------------------
4.3 Guarantee dated as of December 6, 2001 of Barden Mississippi
Gaming LLC, Barden Colorado Gaming, LLC and Barden Nevada
Gaming, LLC(Registration Statement No. 333-81584)
4.4 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
(Registration Statement No. 333-81584)
4.5 Pledge Agreement dated as of December 6, 2001 by and between
Majestic Investor, LLC and The Bank of New York (Registration
Statement No. 333-81584)
4.6 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
(Registration Statement No. 333-81584)
4.7 First Preferred Vessel Mortgage, dated as of December 6 2001 by
and between Barden Mississippi, LLC and The Bank of New York
(Registration Statement No. 333-81584)
4.8 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 (Registration Statement No. 333-81584)
4.9 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 (Registration Statement No. 333-81584)
4.10 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 (Registration Statement No.
333-81584)
4.11 Intercreditor Agreement, dated as of December 6, 2001 between
The Bank of New York and Foothill Capital Corporation
(Registration Statement No. 333-81584)
4.12 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 (Registration Statement No.
333-81584)
4.13 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 (Registration
Statement No. 333-81584)
4.14 General Continuing Guaranty dated as of December 6, 2001, by
Majestic Investor Holdings, LLC, Majestic Investor Capital
Corp., Barden Colorado Gaming, LLC, Barden
E-2
Exhibit No. Description of Document
- ----------- -----------------------
Mississippi Gaming, LLC and Barden Nevada Gaming, LLC, in favor
of Foothill Capital Corporation (Registration Statement No.
333-81584)
4.15 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 (Registration
Statement No. 333-81584)
4.16 First Preferred Vessel Mortgage, dated as of December 6, 2001 by
Barden Mississippi Gaming, LLC in favor of Foothill Capital
Corporation (Registration Statement No. 333-81584)
4.17 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 (Registration Statement No. 333-81584)
4.18 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 (Registration
Statement No. 333-81584)
4.19 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
(Registration Statement No. 333-81584)
4.20 Stock Pledge Agreement dated as of December 6, 2001 between
Majestic Investor Holdings, LLC and Foothill Capital Corporation
(Registration Statement No. 333-81584)
4.21 Guarantor Trademark Security Agreement dated as of December 6,
2001 between Majestic Investor Holdings, LLC and Foothill
Capital Corporation (Registration Statement No. 333-81584)
4.22 Subordination of First Preferred Vessel Mortgage Upon
Fitzgeralds Tunica (Official No. 262757) (Registration Statement
No. 333-81584)
4.23 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 (Registration Statement No.
333-81584)
4.24 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 (Registration Statement No.
333-81584)
4.25 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 (Registration Statement No.
333-81584)
10.1* Employment Agreement dated October 22, 2001 between Don H.
Barden and The Majestic Star Casino, LLC (Registration Statement
No. 333-81584)
E-3
Exhibit No. Description of Document
- ----------- -----------------------
10.2* Employment Agreement dated October 22, 2001 between Michael E.
Kelly and The Majestic Star Casino, LLC (Registration Statement
No. 333-81584)
10.3 Expense Reimbursement Agreement dated as of October 22, 2001
between Majestic Investor Holdings, LLC and The Majestic Star
Casino, LLC (Registration Statement No. 333-81584)
10.4 Amended and Restated Management Agreement dated as of December
6, 2001, between Majestic Investor Holdings, LLC and Barden
Development, Inc. (Registration Statement No. 333-81584)
10.5 Member Agreement dated as of December 6, 2001 by and among
Majestic Investor, LLC, Majestic Investor Holdings, LLC, The
Majestic Star Casino, LLC and Barden Development, Inc.
(Registration Statement No. 333-81584)
10.6 Assignment of Membership Interest by and between Don H. Barden
and Majestic Investor, LLC dated as of August 18, 2001
(Registration Statement No. 333-81584)
10.7 Contribution and Assignment Agreement by and between Majestic
Investor, LLC and Majestic Investor Holdings, LLC dated as of
September 27, 2001 (Registration Statement No. 333-81584)
10.8 Lease Agreement dated September 5, 1995 by and between John A.
Kramer, Sr., Trustee, Helen M. Kramer, Elizabeth Thatcher Brooks
and Betty Bennett, Executrix of the estate of John David Kramer,
as Lessor, and Fitzgeralds Las Vegas, Inc., as Lessee
(Registration Statement No. 333-81584)
10.9 Assignment of Ground Lease dated December 6, 2001 by and between
Fitzgeralds Las Vegas, Inc., as Assignor, and Barden Nevada
Gaming, LLC, as Assignee (Registration Statement No. 333-81584)
10.10 Lease Agreement dated September 1, 1978 between Jewel F. Nolen
and Julie L. Nolen, David Kramer and Betty Bennett and Richard
J. Tinkler, as Lessor, and M.B. Dalitz, as Lessee (Registration
Statement No. 333-81584)
10.11 Amendment to Kramer Ground Lease dated December 20, 1982 between
Julie L. Nolen, David Kramer, Betty Bennett and Richard J.
Tinkler, as Lessor, and M.B. Dalitz, as Lessee (Registration
Statement No. 333-81584)
10.12 Lease Amendment, Estoppel Certificate and Consent to Assignment
dated October 18, 1987 to the named recipients and between Julie
L. Nolen, David Kramer, Betty Bennett and Richard J. Tinkler, as
Lessor, and M.B. Dalitz, as Lessee (Registration Statement No.
333-81584)
10.13 Second Amendment to the Kramer Ground Lease dated as of November
1998 by and between Fitzgeralds Las Vegas, Inc, as Lessee, and
John A. Kramer, as Trustee, and Julie LaMoyne Nolen, Betty
Bennett and Richard James Tinkler, as Lessors (Registration
Statement No. 333-81584)
E-4
Exhibit No. Description of Document
- ----------- -----------------------
10.14 Assignment of Ground Lease dated December 6, 2001 by Fitzgeralds
Las Vegas, Inc., as Assignor, and Barden Nevada Gaming, LLC, as
Assignee (Registration Statement No. 333-81584)
10.15 Lease Agreement dated July 21, 1954 between Las Vegas Lodge No.
32, Free & Accepted Masons, as Lessor, and H. John Gluskin, as
Lessee (Registration Statement No. 333-81584)
10.16 Amendment to Lease Agreement dated July 26, 1954 between Las
Vegas Lodge No. 32, Free & Accepted Masons, as Lessor, and H.
John Gluskin, as Lessee (Registration Statement No. 333-81584)
10.17 Assignment, dated July 27, 1954(Registration Statement No.
333-81584)
10.18 Supplemental Agreement of October 14, 1954 between Las Vegas
Lodge No. 32, Free & Accepted Masons and H. John Gluskin
(Registration Statement No. 333-81584)
10.19 Assignment dated February 2, 1955 (Registration Statement No.
333-81584)
10.20 Assignment dated August 7, 1972 (Registration Statement No.
333-81584)
10.21 Articles of Amendment dated June 7, 1973 between Las Vegas Lodge
No. 32, Free & Accepted Masons, as Lessor, and Frederic N.
Richman and The Pullman Company, d/b/a Nevada Building Company
(Registration Statement No. 333-81584)
10.22 Assignment dated September 1, 1973 (Registration Statement No.
333-81584)
10.23 Amendment to Masonic Lodge Ground Lease dated December 20, 1989
(Registration Statement No. 333-81584)
10.24 Lease Amendment, Estoppel Certificate and Consent to Assignment
dated October 23, 1987 to the named recipients and between Las
Vegas Lodge No. 32, Free & Accepted Masons, as Lessor, and H.
John Gluskin, as Lessee (Registration Statement No. 333-81584)
10.25 Lease Amendment, Estoppel Certificate and Consent to Assignment
dated October 23, 1987 to the named recipients and between Las
Vegas Lodge No. 32, Free & Accepted Masons, as Lessor, and H.
John Gluskin, as Lessee (Registration Statement No. 333-81584)
10.26 Second Amendment to Masonic Ground Lease dated November 23, 1998
by and between Fitzgeralds Las Vegas, Inc, as Lessee, and Las
Vegas Lodge No. 32, Free and Accepted Masons of Las Vegas, as
Lessor (Registration Statement No. 333-81584)
10.27 Lease Amendment and Estoppel Certificates dated December 6, 2001
by and among Las Vegas Lodge No. 32, Free and Accepted Masons,
as Lessor, Fitzgeralds Las Vegas, Inc., as Lessee, and Barden
Nevada Gaming, LLC, as Successor Lessee (Registration Statement
No. 333-81584)
10.28 Assignment of Ground Lease dated December 6, 2001 by Fitzgeralds
Las Vegas, Inc., as Assignor, and Barden Nevada Gaming, LLC, as
Assignee (Registration Statement No. 333-81584)
E-5
Exhibit No. Description of Document
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10.29 Lease dated March 4, 1976 between A.W. Ham, Jr., Trustee, under
the wills of A.W. Ham and Alta M. Ham, as Lessor, and Nevada
Building Company, as Lessee (Registration Statement No.
333-81584)
10.30 Amendments to Ham Ground Lease dated December 20, 1982 and
December 30, 1982 between A.W. Ham, Jr., Trustee, as Lessor, and
M.B. Dalitz, as Lessee (Registration Statement No. 333-81584)
(Registration Statement No. 333-81584)
10.31 Lease Amendment, Estoppel Certificate and Consent to Assignment
dated October 18, 1987 to the named recipients and between A.W.
Ham, Jr., Trustee, and M.B. Dalitz (Registration Statement No.
333-81584)
10.32 Second Amendment to Ham Ground Lease dated November 22, 1998 by
and between Fitzgeralds Las Vegas, Inc., as Lessee and Gary R.
Dokter, Jacquelin Trahan-Weber, Georgia Makeever and Carolyn
Pressman, as Lessors (Registration Statement No. 333-81584)
10.33 Assignment of Ground Lease dated December 6, 2001 by and between
Fitzgeralds Las Vegas, Inc., as Assignor, and Barden Nevada
Gaming, LLC, as Assignee (Registration Statement No. 333-81584)
10.34 Agreement Regarding Ground Leases by and between Barden Nevada
Gaming, LLC and The Bank of New York dated as of December 6,
2001 (Registration Statement No. 333-81584)
10.35 Agreement Regarding Ground Leases by and between Barden Nevada
Gaming, LLC and Foothill Capital Corporation, dated as of
December 6, 2001 (Registration Statement No. 333-81584)
10.36* Employment Agreement dated as of October 21, 2002 between Jon
Scott Bennett and The Majestic Star Casino, LLC (Form 10-Q for
the period ended September 30, 2002)
21.1 List of Subsidiaries of Majestic Investor Holdings, LLC
(Registration Statement No. 333-81584)
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
- ------------------
* Identifies current management contracts or compensatory plans or arrangements.
E-6