UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 333-81584
DELAWARE MAJESTIC INVESTOR HOLDINGS, LLC 36-4468392
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
(Address of principal executive offices and telephone number, including
area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to filing requirements
for the past 90 days.
Yes X No
----- -----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act)
Yes No X
----- -----
Shares outstanding of each of the registrant's classes of common stock:
Class Number of shares
- ----- ----------------
Not applicable Not applicable
MAJESTIC INVESTOR HOLDINGS, LLC
INDEX
PART I FINANCIAL INFORMATION PAGE NO.
--------
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of March 31, 2003 (Unaudited)
and December 31, 2002 1
Consolidated Statement of Operations for the three months
ended March 31, 2003 and 2002 (Unaudited) 2
Consolidated Statement of Cash Flows for the three months
ended March 31, 2003 and 2002 (Unaudited) 3
Notes to Financial Statements 4
Supplemental Consolidating Schedules:
Consolidating Balance Sheet as of March 31, 2003 (Unaudited) 17
Consolidating Balance Sheet as of December 31, 2002 (Unaudited) 18
Consolidating Statements of Operations for the three months ended
March 31, 2003 (Unaudited) 19
Consolidating Statements of Operations for the three months ended
March 31, 2002 (Unaudited) 20
Consolidating Statements of Cash Flows for the three months ended
March 31, 2003 (Unaudited) 21
Consolidating Statements of Cash Flows for the three months ended
March 31, 2002 (Unaudited) 22
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 23
Item 3. Quantitative and Qualitative Disclosures About Market Risk 32
Item 4. Controls and Procedures 32
PART II OTHER INFORMATION
Item 1. Legal Proceedings 32
Item 6. Exhibits and Reports on Form 8-K 33
SIGNATURES 34
CERTIFICATIONS 35
i
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
MAJESTIC INVESTOR HOLDINGS, LLC
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
MARCH 31, DECEMBER 31,
2003 2002
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 21,076,219 $ 15,983,824
Restricted cash 500,000 250,000
Accounts receivable, less allowance for doubtful accounts
of $204,019 and $239,066, respectively 1,081,130 1,241,183
Inventories 928,837 929,126
Prepaid expenses 1,617,003 1,644,735
Note receivable from related party - 700,000
Other 53,883 39,133
------------ ------------
Total current assets 25,257,072 20,788,001
------------ ------------
Property, equipment and improvements, net 115,771,657 117,297,506
Intangible assets, net 17,292,996 17,691,746
Goodwill 5,922,398 5,922,398
Other Assets:
Deferred financing costs, net of accumulated amortization
of $1,755,716 and $1,407,041, respectively 6,368,564 6,714,902
Restricted cash 1,000,000 1,000,000
Other assets, prepaid leases and deposits 1,648,855 1,624,359
------------ ------------
Total other assets 9,017,419 9,339,261
------------ ------------
Total Assets $173,261,542 $171,038,912
============ ============
LIABILITIES AND MEMBER'S EQUITY
Current Liabilities:
Current maturities of long-term debt $ 79,406 $ 134,084
Accounts payable 1,795,522 2,136,369
Other accrued liabilities:
Payroll and related 4,604,160 5,949,275
Interest 5,895,144 1,473,785
Progressive jackpots 2,331,862 2,476,543
Slot club liability 831,389 738,559
Other accrued liabilities 3,613,668 4,401,378
------------ ------------
Total current liabilities 19,151,151 17,309,993
------------ ------------
Long-term debt, net of current maturities 145,943,045 145,646,514
------------ ------------
Total Liabilities 165,094,196 162,956,507
Commitments and contingencies
Member's Equity: 8,167,346 8,082,405
------------ ------------
Total Liabilities and Member's Equity $173,261,542 $171,038,912
============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
1
MAJESTIC INVESTOR HOLDINGS, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED FOR THE THREE MONTHS ENDED
MARCH 31, 2003 MARCH 31, 2002
-------------------------- --------------------------
REVENUES:
Casino $ 39,435,707 $ 42,354,751
Rooms 3,798,785 4,088,511
Food and beverage 4,860,940 5,096,101
Other 800,838 888,490
------------ ------------
Gross revenues 48,896,270 52,427,853
Less promotional allowances (5,617,111) (6,123,455)
------------ ------------
Net revenues 43,279,159 46,304,398
------------ ------------
COSTS AND EXPENSES:
Casino 15,558,718 18,026,159
Rooms 1,545,896 1,768,500
Food and beverage 2,498,200 2,770,118
Other 409,608 378,654
Gaming taxes 4,575,313 5,019,754
Advertising and promotion 3,251,419 3,296,536
General and administrative 6,437,693 6,161,194
Depreciation and amortization 3,653,460 3,387,015
Pre-opening expenses - 7,287
------------ ------------
Total costs and expenses 37,930,307 40,815,217
------------ ------------
Operating income 5,348,852 5,489,181
------------ ------------
OTHER INCOME (EXPENSE):
Interest income 22,943 31,608
Interest expense (4,428,090) (4,515,387)
Gain on sale of assets 15,000 6,542
Other non-operating expense (9,479) (17,492)
------------ ------------
Total other expense (4,399,626) (4,494,729)
------------ ------------
Net income $ 949,226 $ 994,452
============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
2
MAJESTIC INVESTOR HOLDINGS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE FOR THE
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
2003 2002
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 949,226 $ 994,452
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 2,588,972 2,362,841
Amortization 1,064,488 1,024,174
Gain on sale of assets (15,000) (6,542)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 160,052 (78,072)
Decrease in inventories 288 71,082
Decrease (increase) in prepaid expenses 27,732 (369,346)
Increase in other assets (39,234) (604,976)
Decrease in accounts payable (340,847) (396,241)
Decrease in amounts due to related parties, net (184,621) (32,060)
Decrease in accrued payroll and related expenses (1,345,116) (688,788)
Increase in accrued interest 4,421,359 4,437,005
(Decrease) increase in other accrued liabilities (654,941) 252,061
------------ ------------
Net cash provided by operating activities 6,632,358 6,965,590
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in restricted cash (250,000) -
Acquisition of property, equipment and improvements (1,063,123) (1,171,782)
Payment of acquisition related costs - (796,649)
Proceeds from sale of equipment 15,000 6,542
------------ ------------
Net cash used in investing activities (1,298,123) (1,961,889)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash advances from related parties - 164,570
Line of credit, net - (4,800,000)
Payment of 11.653% Senior Secured Notes issuance costs (2,337) (505,136)
Cash paid to reduce long-term debt (75,209) (55,182)
Repayment of loan to Barden Development, Inc. 700,000 -
Distribution to Barden Development, Inc. (864,294) (188,242)
------------ ------------
Net cash used in financing activities (241,840) (5,383,990)
------------ ------------
Net increase (decrease) in cash and cash equivalents 5,092,395 (380,289)
Cash and cash equivalents, beginning of period 15,983,824 17,704,815
------------ ------------
Cash and cash equivalents, end of period $ 21,076,219 $ 17,324,526
============ ============
INTEREST PAID:
Equipment Debt $ 4,981 $ 8,361
Lines of credit $ - $ 70,020
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
3
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
Majestic Investor Holdings, LLC (the "Company"), is a Delaware limited
liability company formed on September 14, 2001. The Company owns and operates
three Fitzgeralds brand casinos through its wholly-owned subsidiaries, Barden
Mississippi Gaming, LLC, Barden Colorado Gaming, LLC and Barden Nevada Gaming,
LLC, each of which is a "restricted subsidiary" of the Company under the
Indenture relating to the Company's 11.653% Senior Secured Notes (the "Notes").
Majestic Investor Capital Corp. ("MICC"), another wholly-owned subsidiary of the
Company, was formed specifically to facilitate the offering of the Company's
Notes and does not have any material assets or operations.
The Company is a wholly-owned subsidiary of Majestic Investor, LLC 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 Member, Chairman,
President and Chief Executive Officer.
Except where otherwise noted, the words "we," "us," "our" and similar
terms, as well as the "Company," refer to Majestic Investor Holdings, LLC and
all of its subsidiaries.
The accompanying consolidated financial statements are unaudited and
include the accounts of the Company and the guarantor subsidiaries: Barden
Mississippi Gaming, LLC, Barden Colorado Gaming, LLC and Barden Nevada Gaming,
LLC. 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. All significant intercompany
transactions and balances have been eliminated. These financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (which
include normal recurring adjustments) considered necessary for a fair
presentation of the results for the interim period have been made. The results
for the three months ended March 31, 2003 are not necessarily indicative of
results to be expected for the full fiscal year. The financial statements should
be read in conjunction with the financial statements and notes thereto included
in the Company's Annual Report on Form 10-K for the year ended December 31,
2002.
The consolidated financial statements and footnotes for the prior year
reflect certain reclassifications to conform to the current year presentation,
which has no effect on previously reported net income.
4
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 2. NEW ACCOUNTING PRINCIPLES
In April 2002, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 145 ("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 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."
FIN 45 elaborates on the disclosures to be made by a guarantor in its interim
and annual financial statements 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 March 31, 2003, the Company did 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.
In January 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities."
FIN 46 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. FIN 46 is intended
to provide guidance in judging multiple economic interest in an entity and in
determining the primary beneficiary. FIN 46 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 VIEs 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.
NOTE 3. COMMITMENTS AND CONTINGENCIES
Gaming Regulations
The ownership and operation of our casino gaming facilities are subject
to various state and local laws and 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
5
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 3. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 licenses. These 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.
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.
Restricted Cash
At March 31, 2003 and December 31, 2002, 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 Tunica and Fitzgeralds Black Hawk. At March 31, 2003, this
amount was increased to $500,000 when Fitzgeralds Las Vegas was added to the
self-insured workers compensation program.
NOTE 4. INTANGIBLE ASSETS
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 tradenames are being amortized
over a period of 8-10 years. In accordance with SFAS 142, goodwill, and other
indefinite lived intangible assets, such as the Company's gaming license, are
not amortized but instead are subject to impairment tests at least annually.
6
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 4. INTANGIBLE ASSETS (CONTINUED)
The gross carrying amount and accumulated amortization of the Company's
intangible assets, other than goodwill, as of March 31, 2003, are as follows:
Gross Carrying Accumulated Net Amount
Amount Amortization March 31, 2003
-------------- -------------- --------------
(in thousands) (in thousands) (in thousands)
Amortized intangible assets:
Customer relationships $ 9,800 $(1,619) $ 8,181
Tradename 3,700 (488) 3,212
Riverboat excursion license 700 - 700
------- ------- -------
Total $14,200 $(2,107) $12,093
======= ======= =======
Unamortized intangible assets:
Gaming license $ 5,200 $ - $ 5,200
------- ------- -------
Total $ 5,200 $ - $ 5,200
======= ======= =======
The amortization expense recorded on the intangible assets for the
three months ended March 31, 2003 was $0.4 million. The estimated amortization
expense for each of the five succeeding fiscal years is as follows (in
thousands):
For the year ended December 31,
-------------------------------
2003 $ 1,618
2004 1,642
2005 1,642
2006 1,642
2007 1,642
NOTE 5. GOODWILL
There were no changes in the carrying amount of goodwill for the three
months ended March 31, 2003. The carrying amount of goodwill for the three
months ended March 31, 2003 was approximately $5,922,000. In accordance with
SFAS 142, goodwill is not amortized but instead subject to impairment tests at
least annually.
7
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 6. 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, in each of their segments, market 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 rooms (except in Black Hawk, Colorado) and food and
beverage.
The accounting policies of each business segment are the same as those
described in the summary of significant accounting policies previously described
in the Company's Annual Report on Form 10-K for the year ended December 31,
2002. There are minimal inter-segment sales. Corporate costs are allocated to
the business segment through management fees and are reflected in "General and
Administrative" expense.
A summary of the Properties' operations by business segment for the
three months ended March 31, 2003 and March 31, 2002 is presented below:
8
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 6. SEGMENT INFORMATION (CONTINUED)
As of and for the Three Months Ended
March 31, 2003 March 31, 2002
-------------- --------------
(In thousands) (In thousands)
Net revenues:
Fitzgeralds Tunica $ 22,965 $ 24,347
Fitzgeralds Black Hawk 7,916 8,962
Fitzgeralds Las Vegas 12,398 12,995
--------- ---------
Total $ 43,279 $ 46,304
--------- ---------
Income (loss) from operations:
Fitzgeralds Tunica $ 4,548 $ 4,628
Fitzgeralds Black Hawk 1,231 1,259
Fitzgeralds Las Vegas 236 240
Unallocated and other (1) (666) (638)
--------- ---------
Total $ 5,349 $ 5,489
--------- ---------
Segment depreciation and amortization
Fitzgeralds Tunica $ 1,905 $ 1,780
Fitzgeralds Black Hawk 412 364
Fitzgeralds Las Vegas 671 617
Unallocated and other (1) 666 626
--------- ---------
Total $ 3,654 $ 3,387
--------- ---------
Expenditures for additions to long-lived assets:
Fitzgeralds Tunica $ 267 $ 513
Fitzgeralds Black Hawk 249 104
Fitzgeralds Las Vegas 547 555
--------- ---------
Total $ 1,063 $ 1,172
--------- ---------
Segment assets:
Fitzgeralds Tunica $ 86,987 $ 89,921
Fitzgeralds Black Hawk 29,953 30,234
Fitzgeralds Las Vegas 38,367 45,597
Unallocated and other (1) 134,035 172,607
--------- ---------
Total $ 289,342 $ 338,359
Less: Intercompany (116,080) (155,508)
--------- ---------
Total $ 173,262 $ 182,851
--------- ---------
(1) Unallocated and other include corporate items and eliminations that are not
allocated to the operating segments.
9
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 7. RELATED PARTY TRANSACTIONS
On September 19, 2001, the Company entered into an LLC Manager
Agreement with Barden Development, Inc. ("BDI"), which was amended and restated
on December 5, 2001, effective December 6, 2001, pursuant to which BDI will act
as the Manager of the Company. Distribution of profits to BDI are limited by the
Indenture for the Investor Holdings Senior Secured Notes for any fiscal quarter,
shall not exceed 1% of net revenues plus 5% of consolidated cash flow for the
immediately preceding fiscal quarter, provided that the payment of such
distributions shall be subordinated to the payment in full of principal,
interest and liquidated damages, as defined, if any, then due on the Investor
Holdings Senior Secured Notes. During the three months ended March 31, 2003, a
distribution of $864,000, related to the fourth quarter of 2002, was paid to BDI
in accordance with the LLC Manager Agreement between the Company and BDI dated
December 5, 2001.
In December 2001, the Company issued a $700,000 note to BDI. The note
bore 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.
NOTE 8. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION
The Company's $151.8 million of 11.653% Senior Secured Notes 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
financial statements as of March 31, 2003 and December 31, 2002 and for the
three months ended March 31, 2003 and March 31, 2002, of the Company, the
guarantor subsidiaries (on a combined basis) and the elimination entries
necessary to combine such entities on a consolidated basis. MICC, a wholly-owned
subsidiary of the Company, is a non-guarantor subsidiary. However, MICC does not
have any material assets, obligations or operations. Therefore, no non-guarantor
subsidiary information has been presented below.
10
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING BALANCE SHEETS AS OF MARCH 31, 2003
(UNAUDITED)
Majestic
Investor Guarantor Eliminating Total
Holdings, LLC Subsidiaries Entries Consolidated
------------- ------------- ------------- -------------
ASSETS
Current Assets:
Cash and cash equivalents $ 5,783,064 $ 15,293,155 $ - $ 21,076,219
Restricted cash 500,000 - - 500,000
Accounts receivable (net) - 1,081,130 - 1,081,130
Inventories - 928,837 - 928,837
Prepaid expenses and other current assets 279,162 1,567,771 (176,047)(a) 1,670,886
------------- ------------- ------------- -------------
Total current assets 6,562,226 18,870,893 (176,047) 25,257,072
------------- ------------- ------------- -------------
Property and equipment, net - 115,771,657 - 115,771,657
Intangible assets, net 5,200,000 12,092,996 - 17,292,996
Due from related parties 115,904,126 - (115,904,126)(b) -
Other assets 6,368,564 8,571,253 14,939,817
Investment in subsidiaries 25,986,523 - (25,986,523)(b) -
------------- ------------- ------------- -------------
Total Assets $ 160,021,439 $ 155,306,799 $(142,066,696) $ 173,261,542
============= ============= ============= =============
LIABILITIES AND MEMBER'S EQUITY
Current Liabilities:
Current maturities of long-term debt $ - $ 79,406 $ - $ 79,406
Accounts payable, accrued and other 6,005,583 13,242,209 (176,047)(a) 19,071,745
------------- ------------- ------------- -------------
Total current liabilities 6,005,583 13,321,615 (176,047) 19,151,151
------------- ------------- ------------- -------------
Due to related parties 115,904,126 (115,904,126)(b) -
Long-term debt, net of current maturities 145,848,510 94,535 145,943,045
------------- ------------- ------------- -------------
Total Liabilities 151,854,093 129,320,276 (116,080,173) 165,094,196
Member's Equity 8,167,346 25,986,523 (25,986,523)(b) 8,167,346
------------- ------------- ------------- -------------
Total Liabilities and Member's Equity $ 160,021,439 $ 155,306,799 $(142,066,696) $ 173,261,542
============= ============= ============= =============
(a) To eliminate intercompany receivables and payables.
(b) To eliminate intercompany accounts and investment in subsidiaries.
11
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING BALANCE SHEETS AS OF DECEMBER 31, 2002
(UNAUDITED)
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)(a)(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.
12
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 2003
(UNAUDITED)
MAJESTIC INVESTOR GUARANTOR ELIMINATING
HOLDINGS, LLC SUBSIDIARIES ENTRIES CONSOLIDATED
-------------- ------------- ------------ ---------------
REVENUES:
Casino $ - $ 39,435,707 $ - $ 39,435,707
Rooms - 3,798,785 - 3,798,785
Food and beverage - 4,860,940 - 4,860,940
Other - 800,838 - 800,838
-------------- ------------- ------------ ---------------
Gross revenues - 48,896,270 - 48,896,270
Less promotional allowances - (5,617,111) - (5,617,111)
-------------- ------------- ------------ ---------------
Net revenues - 43,279,159 - 43,279,159
COSTS AND EXPENSES:
Casino - 15,558,718 - 15,558,718
Rooms - 1,545,896 - 1,545,896
Food and beverage - 2,498,200 - 2,498,200
Other - 409,608 - 409,608
Gaming taxes - 4,575,313 - 4,575,313
Advertising and promotion - 3,251,419 - 3,251,419
General and administrative - 6,437,693 - 6,437,693
Depreciation and amortization 665,738 2,987,722 - 3,653,460
-------------- ------------- ------------ ---------------
Total costs and expenses 665,738 37,264,569 - 37,930,307
-------------- ------------- ------------ ---------------
Operating income (loss) (665,738) 6,014,590 - 5,348,852
-------------- ------------- ------------ ---------------
OTHER INCOME (EXPENSE):
Interest income 18,298 4,645 - 22,943
Interest expense (4,421,360) (6,730) - (4,428,090)
Gain on sale of assets - 15,000 - 15,000
Other non-operating expense (9,479) - - (9,479)
Equity in net income of subsidiaries 6,027,505 - (6,027,505)(a) -
-------------- ------------- ------------ ---------------
Total other income (expense) 1,614,964 12,915 (6,027,505) (4,399,626)
-------------- ------------- ------------ ---------------
Net income $ 949,226 $ 6,027,505 $(6,027,505) $ 949,226
============== ============= ============ ===============
(a) To eliminate equity in net income of subsidiaries.
13
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 2002
UNAUDITED)
MAJESTIC INVESTOR GUARANTOR ELIMINATING
HOLDINGS, LLC SUBSIDIARIES ENTRIES CONSOLIDATED
------------- ------------ ------- ------------
REVENUES:
Casino $ - $ 42,354,751 $ - $ 42,354,751
Rooms - 4,088,511 - 4,088,511
Food and beverage - 5,096,101 - 5,096,101
Other - 888,490 - 888,490
--------------- -------------- --------------- --------------
Gross revenues - 52,427,853 - 52,427,853
Less promotional allowances - (6,123,455) - (6,123,455)
--------------- -------------- --------------- --------------
Net revenues - 46,304,398 - 46,304,398
--------------- -------------- --------------- --------------
COSTS AND EXPENSES:
Casino - 18,026,159 - 18,026,159
Rooms - 1,768,500 - 1,768,500
Food and beverage - 2,770,118 - 2,770,118
Other - 378,654 - 378,654
Gaming taxes - 5,019,754 - 5,019,754
Advertising and promotion - 3,296,536 - 3,296,536
General and administrative 4,205 6,156,989 - 6,161,194
Depreciation and amortization 626,347 2,760,668 - 3,387,015
Pre-opening expenses 7,287 - - 7,287
--------------- -------------- --------------- --------------
Total costs and expenses 637,839 40,177,378 - 40,815,217
--------------- -------------- --------------- --------------
Operating income (loss) (637,839) 6,127,020 - 5,489,181
--------------- -------------- --------------- --------------
OTHER INCOME (EXPENSE):
Interest income 16,512 15,096 - 31,608
Interest expense (4,507,026) (8,361) - (4,515,387)
Gain on sale of assets - 6,542 - 6,542
Other non-operating expense (17,492) - - (17,492)
Equity in net income of subsidiaries 6,140,297 - (6,140,297)(a) -
--------------- -------------- --------------- --------------
Total other income (expense) 1,632,291 13,277 (6,140,297) (4,494,729)
--------------- -------------- --------------- --------------
Net income $ 994,452 $ 6,140,297 $ (6,140,297) $ 994,452
=============== ============== =============== ==============
(a) To eliminate equity in net income of subsidiaries.
14
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED
MARCH 31, 2003
(UNAUDITED)
MAJESTIC INVESTOR GUARANTOR ELIMINATING CONSOLIDATED
HOLDINGS, LLC SUBSIDIARIES ENTRIES TOTAL
------------- ------------ ------- -----
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ (7,965) $ 6,640,323 $ - $ 6,632,358
--------------- -------------- ------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, equipment and vessel improvements - (1,063,123) - (1,063,123)
Increase in restricted cash (250,000) - - (250,000)
Proceeds from sale of equipment - 15,000 - 15,000
--------------- -------------- ------------- ----------------
Net cash used in investing activities (250,000) (1,048,123) - (1,298,123)
--------------- -------------- ------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of 11.653% Senior Secured Notes issuance costs (2,337) - - (2,337)
Cash paid to reduce long-term debt - (75,209) - (75,209)
Repayment of loan to Barden Development, Inc. 700,000 - 700,000
Cash advances (to) from affiliates 5,200,000 (5,200,000) - -
Distribution to Barden Development, Inc. (864,294) - - (864,294)
--------------- -------------- ------------- ----------------
Net cash provided by (used in) financing activities 5,033,369 (5,275,209) - (241,840)
--------------- -------------- ------------- ----------------
Net increase in cash and cash equivalents 4,775,404 316,991 - 5,092,395
Cash and cash equivalents, beginning of period 1,007,660 14,976,164 - 15,983,824
--------------- -------------- ------------- ----------------
Cash and cash equivalents, end of period $ 5,783,064 $ 15,293,155 $ - $ 21,076,219
=============== ============== ============= ================
15
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED
MARCH 31, 2002
(UNAUDITED)
MAJESTIC INVESTOR GUARANTOR ELIMINATING CONSOLIDATED
HOLDINGS, LLC SUBSIDIARIES ENTRIES TOTAL
------------- ------------ ------- -----
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ (288,761) $ 7,253,171 $ 1,180 (a) $ 6,965,590
--------------- -------------- ------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment of acquisition related costs (796,649) - - (796,649)
Proceeds from sale of equipment - 6,542 - 6,542
Acquisition of property, equipment and vessel improvements - (1,171,782) - (1,171,782)
--------------- -------------- ------------- ----------------
Net cash used in investing activities (796,649) (1,165,240) - (1,961,889)
--------------- -------------- ------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of 11.653% Senior Secured Notes issuance costs (505,136) - - (505,136)
Cash advances (to) from affiliates 7,351,278 (7,185,528) (1,180)(a) 164,570
Line of credit, net (4,800,000) - - (4,800,000)
Distribution to Barden Development, Inc. (188,242) - - (188,242)
Cash paid to reduce long-term debt - (55,182) - (55,182)
--------------- -------------- ------------- ----------------
Net cash provided by (used in) financing activities 1,857,900 (7,240,710) (1,180) (5,383,990)
--------------- -------------- ------------- ----------------
Net increase (decrease) in cash and cash equivalents 772,490 (1,152,779) - (380,289)
Cash and cash equivalents, beginning of period 498,363 17,206,452 - 17,704,815
--------------- -------------- ------------- ----------------
Cash and cash equivalents, end of period $ 1,270,853 $ 16,053,673 $ - $ 17,324,526
=============== ============== ============= ================
(a) To eliminate intercompany receivables and payables.
16
MAJESTIC INVESTOR HOLDINGS, LLC
CONSOLIDATING BALANCE SHEETS AS OF MARCH 31, 2003
(UNAUDITED)
Barden Barden Barden
Mississippi Colorado Nevada
Parent Gaming, LLC Gaming, LLC Gaming, LLC Elimination Consolidated
------------ ----------- ------------- ------------ ------------- -------------
ASSETS
Current Assets:
Cash and cash equivalents $ 5,783,064 $ 8,279,526 $ 2,268,826 $4,744,803 $ - $ 21,076,219
Restricted cash 500,000 - - - - 500,000
Accounts receivable (net) - 451,720 54,399 575,011 - 1,081,130
Inventories - 423,896 219,194 285,747 - 928,837
Prepaid expenses and other 103,519 426,092 226,154 915,121 - 1,670,886
Receivable from related party 175,643 - 254 150 (176,047) (a) -
------------ ----------- ------------- ------------ ------------- -------------
Total current assets 6,562,226 9,581,234 2,768,827 6,520,832 (176,047) 25,257,072
------------ ----------- ------------- ------------ ------------- -------------
Property and equipment, net - 66,227,021 21,605,832 27,938,804 - 115,771,657
Intangible assets, net 5,200,000 6,730,091 3,512,905 1,850,000 - 17,292,996
Goodwill - 3,997,904 1,924,494 - - 5,922,398
-
Other Assets: -
Deferred financing costs, net 6,368,564 - - - - 6,368,564
Restricted cash - - - 1,000,000 - 1,000,000
Due from related parties 115,904,126 - - - (115,904,126) (a) -
Other assets and deposits - 450,618 141,363 1,056,874 - 1,648,855
Investment in subsidiaries 25,986,523 - - - (25,986,523) (b) -
------------ ----------- ------------- ------------ ------------- -------------
Total other assets 148,259,213 450,618 141,363 2,056,874 (141,890,649) 9,017,419
------------ ----------- ------------- ------------ ------------- -------------
Total Assets $160,021,439 $86,986,868 $ 29,953,421 $38,366,510 $(142,066,696) $ 173,261,542
============ =========== ============= ============ ============= =============
LIABILITIES AND MEMBER'S DEFICIT
Current Liabilities:
Current maturities of long-term debt $ - $ - $ - $ 79,406 $ - $ 79,406
Accounts payable - 647,141 443,409 704,972 - 1,795,522
Other accrued liabilities:
Payroll and related - 2,052,290 806,891 1,744,979 - 4,604,160
Interest 5,895,144 - - - - 5,895,144
Progressive jackpots - 803,266 1,266,752 261,844 - 2,331,862
Slot club liabilities - 247,310 344,513 239,566 - 831,389
Other accrued liabilities 110,439 1,999,361 640,950 1,038,965 (176,047) (a) 3,613,668
------------ ----------- ------------- ------------ ------------- -------------
Total current liabilities 6,005,583 5,749,368 3,502,515 4,069,732 (176,047) 19,151,151
------------ ----------- ------------- ------------ ------------- -------------
Due to related parties - 61,700,000 17,842,454 36,361,672 (115,904,126) (a) -
Long-term debt, net of current maturities 145,848,510 - - 94,535 - 145,943,045
------------ ----------- ------------- ------------ ------------- -------------
Total Liabilities 151,854,093 67,449,368 21,344,969 40,525,939 (116,080,173) 165,094,196
Member's Equity 8,167,346 19,537,500 8,608,452 (2,159,429) (25,986,523) (b) 8,167,346
------------ ----------- ------------- ------------ ------------- -------------
Total Liabilities and Member's Equity $160,021,439 $86,986,868 $ 29,953,421 38,366,510 (142,066,696) $ 173,261,542
============ =========== ============= ============ ============= =============
(a) To eliminate intercompany receivables and payables.
(b) To eliminate intercompany accounts and investment in subsidiaries.
17
MAJESTIC INVESTOR HOLDINGS, LLC
CONSOLIDATING BALANCE SHEETS AS OF DECEMBER 31, 2002
(UNAUDITED)
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 form related party 4,748,371 15,670 - 1,760 (4,765,801)(a) -
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)(a) -
Other assets, prepaid lease and deposits - 450,616 141,363 1,032,380 - 1,624,359
Investment in subsidiaries 19,959,009 - - - (19,959,009)(b) -
------------ ------------- ------------ ------------ ------------ ------------
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
Accrued 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)(a) -
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: 8,082,405 14,971,617 7,377,129 (2,389,737) (19,959,009)(b) 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
============ ============= ============ ============ ============ ============
18
(a) To eliminate intercompany receivables and payables.
(b) To eliminate intercompany accounts and investment in subsidiaries.
MAJESTIC INVESTOR HOLDINGS, LLC
CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2003
(UNAUDITED)
BARDEN BARDEN BARDEN
MISSISSIPPI COLORADO NEVADA
PARENT GAMING, LLC GAMING, LLC GAMING, LLC ELIMINATION CONSOLIDATED
------------ ----------- ------------ ------------ ----------- -------------
REVENUES:
Casino $ - $21,810,069 $ 8,113,961 $ 9,511,677 $ - $ 39,435,707
Rooms - 1,925,669 - 1,873,116 - 3,798,785
Food and beverage - 2,344,891 483,385 2,032,664 - 4,860,940
Other - 302,121 62,246 436,471 - 800,838
------------ ------------ ------------ ------------ ----------- -------------
Gross revenues - 26,382,750 8,659,592 13,853,928 - 48,896,270
Less promotional allowances - (3,417,392) (744,095) (1,455,624) - (5,617,111)
------------ ------------ ------------ ------------ ----------- -------------
Net revenues - 22,965,358 7,915,497 12,398,304 - 43,279,159
------------ ------------ ----------- ------------ ----------- -------------
COSTS AND EXPENSES:
Casino - 8,904,877 2,569,572 4,084,269 - 15,558,718
Rooms - 602,837 - 943,059 - 1,545,896
Food and beverage - 634,685 282,056 1,581,459 - 2,498,200
Other - 81,218 170,953 157,437 - 409,608
Gaming taxes - 2,561,820 1,273,028 740,465 - 4,575,313
Advertising and promotion - 1,271,478 715,475 1,264,466 - 3,251,419
General and administrative - 2,455,879 1,261,388 2,720,426 - 6,437,693
Depreciation and amortization 665,738 1,904,968 411,702 671,052 - 3,653,460
------------ ------------ ----------- ------------ ----------- -------------
Total costs and expenses 665,738 18,417,762 6,684,174 12,162,633 - 37,930,307
------------ ------------ ------------ ------------ ----------- -------------
Operating income (loss) (665,738) 4,547,596 1,231,323 235,671 - 5,348,852
------------ ------------ ------------ ------------ ----------- -------------
OTHER INCOME (EXPENSE):
Interest income 18,298 3,287 - 1,358 - 22,943
Interest expense (4,421,360) - - (6,730) - (4,428,090)
Gain on sale of assets - 15,000 - - - 15,000
Other non-operating expense (9,479) - - - - (9,479)
Equity in net income of subsidiaries 6,027,505 - - - (6,027,505)(a) -
------------ ------------ ------------ ------------ ----------- -------------
Total other income (expense) 1,614,964 18,287 - (5,372) (6,027,505) (4,399,626)
------------ ------------ ------------ ------------ ----------- -------------
Net income $ 949,226 $ 4,565,883 $1,231,323 $ 230,299 $(6,027,505) $ 949,226
============ ============ ============ ============ =========== =============
(a) To eliminate equity in net income of subsidiaries.
19
MAJESTIC INVESTOR HOLDINGS, LLC
CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2002
(UNAUDITED)
BARDEN BARDEN BARDEN
MISSISSIPPI COLORADO NEVADA
PARENT GAMING, LLC GAMING, LLC GAMING, LLC ELIMINATION CONSOLIDATED
--------------- ----------- ----------- ------------ ----------- -----------
REVENUES:
Casino $ - $23,356,959 $ 9,217,305 $ 9,780,487 $ - $42,354,751
Rooms - 2,085,520 - 2,002,991 - 4,088,511
Food and beverage - 2,475,101 506,060 2,114,940 - 5,096,101
Other - 335,979 58,584 493,927 - 888,490
-------------- ----------- ----------- ------------ ----------- -----------
Gross revenues - 28,253,559 9,781,949 14,392,345 - 52,427,853
Less promotional allowances - (3,906,023) (820,172) (1,397,260) - (6,123,455)
-------------- ----------- ----------- ------------ ----------- -----------
Net revenues - 24,347,536 8,961,777 12,995,085 - 46,304,398
-------------- ----------- ----------- ------------ ----------- -----------
COSTS AND EXPENSES:
Casino - 9,908,991 3,544,498 4,572,670 - 18,026,159
Rooms - 721,768 - 1,046,732 - 1,768,500
Food and beverage - 678,916 271,120 1,820,082 - 2,770,118
Other - 85,040 166,416 127,198 - 378,654
Gaming taxes - 2,779,336 1,483,083 757,335 - 5,019,754
Advertising and promotion - 1,365,791 733,390 1,197,355 - 3,296,536
General and administrative 4,205 2,399,475 1,141,057 2,616,457 - 6,161,194
Depreciation and amortization 626,347 1,779,913 363,668 617,087 - 3,387,015
Pre-opening expenses 7,287 - - - - 7,287
-------------- ----------- ----------- ------------ ----------- -----------
Total costs and expenses 637,839 19,719,230 7,703,232 12,754,916 - 40,815,217
------------- ----------- ----------- ------------ ----------- -----------
Operating income (loss) (637,839) 4,628,306 1,258,545 240,169 - 5,489,181
-------------- ----------- ----------- ------------ ----------- -----------
OTHER INCOME (EXPENSE):
Interest income 16,512 6,894 3,633 4,569 - 31,608
Interest expense (4,507,026) - - (8,361) - (4,515,387)
Gain on sale of assets - 6,542 - - - 6,542
Other non-operating expense (17,492) - - - (17,492)
Equity in net income of subsidiaries 6,140,297 - - - (6,140,297)(a) -
-------------- ----------- ----------- ------------ ----------- -----------
Total other income (expense) 1,632,291 13,436 3,633 (3,792) (6,140,297) (4,494,729)
-------------- ----------- ----------- ------------ ----------- -----------
Net income $ 994,452 $ 4,641,742 $ 1,262,178 $ 236,377 $(6,140,297) $ 994,452
=============== =========== ========== ============ =========== ===========
(a) To eliminate equity in net income of subsidiaries.
20
MAJESTIC INVESTOR HOLDINGS, LLC
CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2003
(UNAUDITED)
BARDEN BARDEN BARDEN
MISSISSIPPI COLORADO NEVADA
PARENT GAMING, LLC GAMING, LLC GAMING, LLC ELIMINATION CONSOLIDATED
------------- ------------ ----------- ------------ ----------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 949,226 $ 4,565,883 $1,231,323 $ 230,299 $(6,027,505)(a) $ 949,226
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation - 1,695,655 289,765 603,552 - 2,588,972
Amortization 665,738 209,313 121,937 67,500 - 1,064,488
Income from wholly-owned subsidiaries (6,027,505) - - - 6,027,505 (a) -
Gain on sale of assets - (15,000) - - - (15,000)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable, net 52,695 95,820 (6,231) 17,768 - 160,052
(Increase) decrease in inventories - 2,761 (35,755) 33,282 - 288
(Increase) decrease in prepaid expenses 22,101 (5,775) (49,917) 61,323 - 27,732
Increase in other assets - - (14,749) (24,485) - (39,234)
Increase (decrease) in accounts payable - 72,775 (13,829) (399,793) - (340,847)
Increase (decrease) in amounts due to related 68,342 (28,923) (422,527) 198,487 - (184,621)
parties, net
Decrease in accrued payroll and other expenses - (877,177) (178,000) (289,939) - (1,345,116)
Increase in accrued interest 4,421,359 - - - - 4,421,359
Increase (decrease) in other accrued liabilities (159,921) (336,798) (632,011) 473,789 - (654,941)
------------- ------------ ----------- ------------ ----------- -----------
Net cash provided by (used in) operating (7,965) 5,378,534 290,006 971,783 - 6,632,358
activities ------------- ------------ ----------- ------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, equipment and - (266,922) (248,824) (547,377) - (1,063,123)
improvements
Increase in restricted cash (250,000) - - - - (250,000)
Proceeds from sale of equipment - 15,000 - - - 15,000
------------- ------------ ----------- ------------ ----------- -----------
Net cash used in investing activities (250,000) (251,922) (248,824) (547,377) - (1,298,123)
------------- ------------ ----------- ------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of 11.653% Senior Secured Notes
issuance costs (2,337) - - - - (2,337)
Cash paid to reduce long-term debt - - - (75,209) - (75,209)
Repayment of loan to Barden Development, Inc. 700,000 - - - - 700,000
Cash advances (to)/from affiliates, net 5,200,000 (4,700,000) (500,000) - - -
Distribution to Barden Development, Inc. (864,294) - - - - (864,294)
------------- ------------ ----------- ------------ ----------- -----------
Net cash provided by (used in) financing 5,033,369 (4,700,000) (500,000) (75,209) - (241,840)
activities ------------- ------------ ----------- ------------ ----------- -----------
Net increase (decrease) in cash and cash equivalents 4,775,404 426,612 (458,818) 349,197 - 5,092,395
Cash and cash equivalents, beginning of period 1,007,660 7,852,914 2,727,644 4,395,606 - 15,983,824
------------- ------------ ----------- ------------ ----------- -----------
Cash and cash equivalents, end of period $ 5,783,064 $ 8,279,526 $2,268,826 $ 4,744,803 $ - $21,076,219
============= ============ =========== ============ =========== ===========
(a) To eliminate intercompany investment in subsidiaries.
21
MAJESTIC INVESTOR HOLDINGS, LLC
CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2002
(UNAUDITED)
BARDEN BARDEN BARDEN
MISSISSIPPI COLORADO NEVADA
PARENT GAMING, LLC GAMING, LLC GAMING, LLC ELIMINATION CONSOLIDATED
------------ ------------- ------------ ------------- ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 994,452 $4,641,742 $ 1,262,178 $ 236,377 $(6,140,297)(a) $ 994,452
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation - 1,570,600 241,730 550,511 - 2,362,841
Amortization 626,347 209,313 121,938 66,576 - 1,024,174
Gain on sale of assets - (6,542) - - - (6,542)
Income from wholly-owned subsidiaries (6,140,297) - - - 6,140,297 (a) -
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable, 68,670 (109,786) (12,955) (24,001) - (78,072)
net
(Increase) decrease in inventories - (3,933) 13,600 61,415 - 71,082
(Increase) decrease in prepaid expenses 1,999 (146,395) (267,916) 42,966 - (369,346)
Increase in other assets - (2,711) (26,731) (575,534) - (604,976)
Increase (decrease) in accounts payable - (149,454) 148,661 (395,448) - (396,241)
Increase (decrease) in amounts due to - 711 - (33,951) 1,180 (b) (32,060)
related parties, net
Increase in accrued interest 4,437,005 - - - - 4,437,005
Decrease in accrued payroll and related - (488,682) (24,196) (175,910) - (688,788)
expenses
Increase (decrease) in other accrued (276,937) (520,666) 870,824 178,840 - 252,061
liabilities ------------ ------------- ------------ ------------- ------------ ------------
Net cash provided by (used in) operating (288,761) 4,994,197 2,327,133 (68,159) 1,180 6,965,590
activities ------------ ------------- ------------ ------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for acquisition related costs (796,649) - - - - (796,649)
Proceeds from sale of equipment - 6,542 - - - 6,542
Acquisition of property, equipment and - (512,590) (103,777) (555,415) - (1,171,782)
improvements ------------ ------------- ------------ ------------- ------------ ------------
Net cash used in investing activities (796,649) (506,048) (103,777) (555,415) - (1,961,889)
------------ ------------- ------------ ------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of 11.653% Senior Secured Notes (505,136) - - - - (505,136)
issuance costs
Cash advances (to) from affiliates 7,351,278 (4,900,067) (2,914,233) 628,772 (1,180) (b) 164,570
Line of credit, net (4,800,000) - - - - (4,800,000)
Distribution to Barden Development, Inc. (188,242) - - - - (188,242)
Cash paid to reduce long-term debt - - (22,965) (32,217) - (55,182)
------------ ------------- ------------ ------------- ------------ ------------
Net cash provided by (used in) financing 1,857,900 (4,900,067) (2,937,198) 596,555 (1,180) (5,383,990)
activities ------------ ------------- ------------ ------------- ------------ ------------
Net increase (decrease) in cash and cash 772,490 (411,918) (713,842) (27,019) - (380,289)
equivalents
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 $1,270,853 $ 8,040,426 $ 3,081,880 $ 4,931,367 $ - $17,324,526
============ ============= ============ ============= ============ ============
(a) To eliminate intercompany investment in subsidiaries.
(b) To eliminate intercompany receivables and payables.
22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
STATEMENT OF 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 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 and gaming devices;
admission taxes; 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 the Company's most
recently filed Form 10-K. 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 1.
OVERVIEW
The Company was formed on September 14, 2001, commenced operations of
the Fitzgeralds casinos on December 7, 2001, and accordingly has a limited
operating history. The discussion of operations herein will focus on events and
the Company's revenues and expenses during the three month periods ended March
31, 2003 and 2002.
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
23
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.
RESULTS OF OPERATIONS
The following discussion provides a comparison of the results of
operations of the Company and its subsidiaries on a consolidated basis, for the
three months ended March 31, 2003, with the three months ended March 31, 2002.
On a consolidated basis, gross revenues decreased approximately $3,532,000 or
6.7% to approximately $48,896,000 during the three months ended March 31, 2003,
compared to $52,428,000 during the three months ended March 31, 2002.
24
The following table sets forth information derived from the Company's
consolidated statements of operations for the three-month periods ended March
31, 2003 and 2002, expressed as a percentage of gross revenues.
CONSOLIDATED STATEMENTS OF OPERATIONS - SUMMARY INFORMATION
(IN THOUSANDS)
FOR THE THREE MONTHS ENDED FOR THE THREE MONTHS ENDED
MARCH 31, MARCH 31,
2003 2002
--------------------------- --------------------------
Gross revenues $ 48,896 $ 52,428
Operating income $ 5,349 $ 5,489
EBITDA (1) $ 9,002 $ 8,876
CONSOLIDATED STATEMENTS OF OPERATIONS - PERCENTAGE OF GROSS REVENUES
FOR THE THREE MONTHS ENDED FOR THE THREE MONTHS ENDED
MARCH 31, MARCH 31,
2003 2002
--------------------------- --------------------------
REVENUES:
Casino 80.7 % 80.8 %
Rooms 7.8 % 7.8 %
Food and beverage 9.9 % 9.7 %
Other 1.6 % 1.7 %
-------- --------
Gross revenues 100.0 % 100.0 %
Less promotional allowances (11.5)% (11.7)%
-------- --------
Net revenues 88.5 % 88.3 %
COSTS AND EXPENSES:
Casino 31.8 % 34.4 %
Rooms 3.2 % 3.4 %
Food and beverage 5.1 % 5.3 %
Other 0.8 % 0.7 %
Gaming taxes 9.4 % 9.6 %
Advertising and promotion 6.6 % 6.3 %
General and administrative 13.2 % 11.7 %
Depreciation and amortization 7.5 % 6.4 %
Pre-opening expenses - % - %
-------- --------
Total costs and expenses 77.6 % 77.8 %
-------- --------
Operating income 10.9 % 10.5 %
OTHER INCOME (EXPENSE):
Interest income - % - %
Interest expense (9.0)% (8.6)%
Gain on disposal of assets - % - %
Other non-operating expense - % - %
-------- --------
Total other income (expense) (9.0)% (8.6)%
-------- --------
Net income 1.9 % 1.9 %
======== ========
EBITDA (1) 18.4 % 16.9 %
(1) EBITDA is defined as earnings from operations before interest, taxes,
depreciation and amortization. EBITDA is presented solely as a supplemental
disclosure because management believes that it is a widely used measure of
operating performance in the gaming industry, and a principal basis for
valuation of gaming companies. Other companies may calculate EBITDA
differently. Management uses EBITDA as a measure of the Company's operating
performance. EBITDA should not be construed as an alternative to operating
income, as an indicator of the Company's operating performance, or as an
alternative to cash flows from operating activities, as a measure of
liquidity, or any other measure determined in accordance with generally
accepted accounting principles. The Company has significant uses of cash
including capital expenditures, interest payments, taxes and debt principal
repayments, which are not reflected in EBITDA. A reconciliation of
operating income to EBITDA follows:
RECONCILIATION OF OPERATING INCOME TO EBITDA
(IN MILLIONS)
<Table>
<Caption>
FOR THE THREE MONTHS ENDED FOR THE THREE MONTHS ENDED
MARCH 31, MARCH 31,
2003 2002
--------------------------- --------------------------
Operating income $ 5.3 $ 5.5
Depreciation and amortization 3.7 3.4
-------- --------
EBITDA $ 9.0 $ 8.9
======== ========
</Table>
25
THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THREE MONTHS ENDED MARCH 31, 2002
Consolidated gross revenues for the three months ended March 31, 2003
amounted to approximately $48,896,000, a decrease of approximately $3,532,000 or
6.7% from consolidated gross revenues recorded in the three months ended March
31, 2002. The 6.7% decrease in consolidated gross revenues was primarily
attributable to a $2,690,000 or 7.2% decrease in slot revenues. For the three
months ended March 31, 2003, gross revenues for Fitzgeralds Tunica accounted for
$26,383,000, or 54.0% of total revenues, Fitzgeralds Black Hawk accounted for
$8,659,000, or 17.7% of total revenues, and Fitzgeralds Las Vegas accounted for
$13,854,000, or 28.3% of total revenues, compared to $28,254,000, or 53.9%,
$9,782,000, or 18.7% and $14,392,000, or 27.4%, respectively for the three month
period ended March 31, 2002.
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 three months ended March 31,
2003 totaled $39,436,000, or 80.7% of consolidated gross revenues, of which
$34,561,000 or 87.6% were derived from slot machine revenues, and $4,875,000 or
12.4% were derived from table game revenues, compared to consolidated casino
revenues of $42,354,000 or 80.8% of consolidated gross revenues, of which
$37,251,000 or 87.9% were derived from slot machine revenues, and $5,103,000 or
12.1% were derived from table games revenues for the three months ended March
31, 2002. Casino revenues attributed to Fitzgeralds Tunica were $21,810,000, or
82.7% of its gross revenues, of which $19,677,000 or 90.2% were derived from
slot machine revenues, and $2,133,000 or 9.8% were derived from table games
revenues for the three months ended March 31, 2003, compared to casino revenues
of $23,357,000 or 82.7% of its gross revenues, of which $20,867,000 or 89.3%
were derived from slot machine revenues, and $2,490,000, or 10.7%, were derived
from table games revenues for the three months ended March 31, 2002. During the
three month period ended March 31, 2003, slot revenues in the Northern River
Region, which includes the Fitzgeralds Tunica, eight other casinos in Tunica
County, Mississippi, and gaming operations in Lula, Mississippi, were down 7.1%
over the same three-month period in 2002. During this same comparative period,
Fitzgeralds Tunica's slot revenues were down 5.7%. As a result, Fitzgeralds
Tunica's slot market share improved to 7.7% during the three-month period ended
March 31, 2003 as compared to 7.6% during the three-month period ended March 31,
2002. The Company feels that the weakness in its revenues, particularly slot
revenues, can be attributed to a slow economy, attention drawn to the conflict
with Iraq, and periods of poor weather. Casino revenues attributed to
Fitzgeralds Black Hawk were $8,114,000, or 93.7% of its gross revenues, of which
$7,969,000, or 98.2%, were derived from slot machine revenues and $145,000 or
1.8% were derived from table game revenues for the three months ended March 31,
2003, compared to casino revenues of $9,217,000, or 94.2% of its gross revenues,
of which $9,020,000 or 97.9% were derived from slot machine revenues and
$197,000, or 2.1%, were derived from table games
26
revenues for the three months ended March 31, 2002. The Company feels that
part of the year over year decline in casino revenues at Fitzgeralds Black Hawk
can be attributed to poor weather and a soft Denver economy. During a three day
period in mid-March access to Fitzgeralds Black Hawk was virtually closed due to
heavy snows in and around the Denver/Black Hawk area. Casino revenues attributed
to Fitzgeralds Las Vegas were $9,512,000, or 68.7% of its gross revenues, of
which $6,915,000, or 72.7%, were derived from slot machine revenues and
$2,597,000, or 27.3%, were derived from table game revenues for the three months
ended March 31, 2003, compared to casino revenues of $9,780,000, or 68.0% of its
gross revenues, of which $7,364,000, or 75.3%, were derived from slot machine
revenues and $2,416,000, or 24.7%, were derived from table game revenues for the
three months ended March 31, 2002.
The consolidated average number of slot machines in operation was 2,833
during the three months ended March 31, 2003, compared to 2,915 during the three
months ended March 31, 2002. Fitzgeralds Tunica accounted for 1,348, or 47.6%,
Fitzgeralds Black Hawk accounted for 592, or 20.9% and Fitzgeralds Las Vegas
accounted for 893, or 31.5%. The consolidated average win per slot machine per
day was approximately $136 for the three months ended March 31, 2003, with an
average of approximately $162, $150 and $86 at Fitzgeralds Tunica, Fitzgeralds
Black Hawk and Fitzgeralds Las Vegas, respectively, compared to the consolidated
average win per slot machine per day of $142 for the three months ended March
31, 2002 with an average of approximately $168, $169 and $87, respectively. The
consolidated average number of table games in operation during the three months
ended March 31, 2003 was 65, of which Fitzgeralds Tunica accounted for 34, or
52.3%, Fitzgeralds Black Hawk accounted for 6, or 9.2%, and Fitzgeralds Las
Vegas accounted for 25, or 38.5%. The consolidated average win per table game
per day during the three months ended March 31, 2003 was approximately $786,
with an average of approximately $697, $270, and $1,020 at Fitzgeralds Tunica,
Fitzgeralds Black Hawk and Fitzgeralds Las Vegas, respectively, compared to the
consolidated average win per table game per day of $848 for the three months
ended March 31, 2002 with an average of approximately $814, $365 and $1,023 at
Fitzgeralds Tunica, Fitzgeralds Black Hawk and Fitzgeralds Las Vegas,
respectively. With respect to Fitzgeralds Black Hawk the maximum wager is
limited to $5.00.
Consolidated room revenues for the three months ended March 31, 2003
was $3,799,000, or 7.8% of consolidated gross revenues, compared to $4,089,000,
or 7.8% of consolidated gross revenues for the three months ended March 31,
2002. Of this amount, Fitzgeralds Tunica accounted for $1,926,000, or 50.7%,
with 507 rooms and Fitzgeralds Las Vegas accounted for $1,873,000, or 49.3%,
with 638 rooms, compared to $2,086,000, or 51.0%, with 507 rooms at Fitzgeralds
Tunica and $2,003,000, or 49.0%, with 638 rooms at Fitzgeralds Las Vegas during
the three months ended March 31, 2002. During the three months ended March 31,
2003, at Fitzgeralds Tunica the average daily rate was $47 and the occupancy
rate was 90.3% and at Fitzgeralds Las Vegas the average daily rate was $40 and
the occupancy rate was 81.8%, compared to $48 and 95.5%, respectively, at
Fitzgeralds Tunica and $41 and 84.4%, respectively, at Fitzgeralds Las Vegas
during the three months ended March 31, 2002.
Consolidated food and beverage revenues for the three months ended
March 31, 2003 amounted to $4,861,000, or 9.9% of consolidated gross revenues,
compared to $5,096,000, or 9.7% of consolidated gross revenues for the three
months ended March 31, 2002. Of this amount, Fitzgeralds Tunica accounted for
$2,345,000, or 48.3%, Fitzgeralds Black Hawk accounted for $483,000, or 9.9% and
Fitzgeralds Las Vegas accounted for $2,033,000, or 41.8%, compared to
$2,475,000, or 48.6%, $506,000, or 9.9%, and $2,115,000, or 41.5%, respectively,
during the three months ended March 31, 2002.
27
Other consolidated revenues consisted primarily of commission and
retail income and totaled approximately $800,000, or 1.6% of consolidated gross
revenues for the three months ended March 31, 2003, compared to $889,000, or
1.7% of consolidated gross revenues for the three months ended March 31, 2002.
Of this amount, Fitzgeralds Tunica accounted for $302,000 or 37.7%, Fitzgeralds
Black Hawk accounted for approximately $62,000 or 7.8%, and Fitzgeralds Las
Vegas accounted for $436,000, or 54.5% during the three months ended March 31,
2003, compared to $336,000, or 37.8%, $59,000, or 6.6%, and $494,000, or 55.6%,
respectively, during the three months ended March 31, 2002.
Consolidated promotional allowances included in the consolidated gross
revenues for the three months ended March 31, 2003, were $5,617,000, or 11.5% of
consolidated gross revenues compared to $6,123,000, or 11.7% of consolidated
gross revenues during the three months ended March 31, 2002. Of this amount,
Fitzgeralds Tunica accounted for $3,417,000, or 60.9%, Fitzgeralds Black Hawk
accounted for $744,000, or 13.2%, and Fitzgeralds Las Vegas accounted for
$1,456,000, or 25.9% during the three months ended March 31, 2003, compared to
$3,906,000, or 63.8%, $820,000, or 13.4%, and $1,397,000, or 22.8%,
respectively, during the three months ended March 31, 2002. The decline in
promotional allowances is directly associated with the decline in casino
revenues. The most substantial portion of the decline in promotional allowances
comes from reduced complimentaries to our casino guests.
Consolidated casino operating expenses for the three months ended March
31, 2003, were $15,559,000, or 31.8% of consolidated gross revenues and 39.5% of
consolidated casino revenues, compared to $18,026,000, or 34.4% of consolidated
gross revenues and 42.6% of consolidated casino revenues. For the three months
ended March 31, 2003 and March 31, 2002, 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
$8,905,000, or 57.2%, Fitzgeralds Black Hawk accounted for $2,570,000, or 16.5%,
and Fitzgeralds Las Vegas accounted for $4,084,000, or 26.3% during the three
months ended March 31, 2003, compared to $9,909,000 or 55.0%, $3,544,000 or
19.6% and $4,573,000 or 25.4%, respectively, during the three months ended March
31, 2002. The decline in casino operating expenses is the result of lower direct
mail cash offers to patrons of $1,260,000, a decline in gaming equipment lease
and wide area progressive expenses of $370,000, a reduction in progressive
expense of $280,000 and lower payroll and related expenses of $100,000.
Consolidated rooms expenses for the three months ended March 31, 2003,
were $1,546,000, or 3.2% of consolidated gross revenues, compared to $1,768,000,
or 3.4% of consolidated gross revenues during the three months ended March 31,
2002. 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 $603,000 or 39.0% and Fitzgeralds Las
Vegas accounted for $943,000 or 61.0% during the three months ended March 31,
2003, compared to $722,000 or 40.8% and $1,046,000 or 59.2%, respectively,
during the three months ended March 31, 2002. Room expenses were generally lower
in the three-month period ended March 31, 2003, versus the same period in 2002
due to lower room occupancies at both Fitzgeralds Tunica and Fitzgeralds Las
Vegas.
Consolidated food and beverage expenses for the three months ended
March 31, 2003, were $2,498,000, or 5.1% of consolidated gross revenues,
compared to $2,770,000, or 5.3% of consolidated gross revenues during the three
months ended March 31, 2002. Of the consolidated food and beverage expenses,
Fitzgeralds Tunica accounted for $ 635,000, or 25.4%, Fitzgeralds Black Hawk
accounted for $282,000, or 11.3% and Fitzgeralds Las Vegas accounted for
$1,581,000, or 63.3% during the three months ended March 31, 2003, compared to
$679,000, or
28
24.5%, $271,000, or 9.8% and $1,820,000, or 65.7%, respectively, during the
three months ended March 31, 2002. The primary decline in food and beverage
expenses comes from our Fitzgeralds Las Vegas property. Payroll and related
costs are down $125,000. In addition, on January 1, 2003, Fitzgeralds Las Vegas
started allocating the costs of operating its employee cafeteria to departments
at the property. This accounted for $270,000 of reduced expenses.
Consolidated gaming taxes totaled $4,575,000, or 9.4% of consolidated
gross revenues and 11.6% of consolidated casino revenues for the three months
ended March 31, 2003, compared to $5,020,000, or 9.6% of consolidated gross
revenues and 11.9% of consolidated casino revenues during the three months ended
March 31, 2002. During the three months ended March 31, 2003, Fitzgeralds Tunica
accounted for $2,562,000, or 56.0%, Fitzgeralds Black Hawk accounted for
$1,273,000, or 27.8%, and Fitzgeralds Las Vegas accounted for $740,000, or
16.2%, compared to $2,780,000, or 55.4%, $1,483,000, or 29.5% and $757,000, or
15.1%, respectively, during the three months ended March 31, 2002. The decline
in gaming taxes is directly associated with the decline in casino revenues.
Consolidated advertising and promotion expenses totaled $3,251,000, or
6.6% of consolidated gross revenues for the three months ended March 31, 2003,
compared to $3,297,000, or 6.3% of consolidated gross revenues during the three
months ended March 31, 2002. Fitzgeralds Tunica accounted for $1,271,000, or
39.1%, Fitzgeralds Black Hawk accounted for $715,000, or 22.0%, and Fitzgeralds
Las Vegas accounted for $1,265,000 or 38.9%, respectively, during the three
months ended March 31, 2003, compared to $1,366,000, or 41.4%, $734,000, or
22.3% and $1,197,000, or 36.3%, respectively, during the three months ended
March 31, 2002.
Consolidated general and administrative expenses for the three months
ended March 31, 2003 were $6,438,000, or 13.2% of consolidated gross revenues,
compared to $6,161,000, or 11.7% for the three months ended March 31, 2002.
During the three months ended March 31, 2003, Fitzgeralds Tunica accounted for
$2,456,000, or 38.1%, Fitzgeralds Black Hawk accounted for $1,261,000, or 19.6%,
and Fitzgeralds Las Vegas accounted for $2,721,000, or 42.3%, compared to
$2,399,000, or 39.0%, $1,141,000, or 18.5% and $2,617,000, or 42.5%,
respectively, for the three months ended March 31, 2002. Also, unallocated
corporate expenses accounted for $4,000 during the three months ended March 31,
2002.
Consolidated depreciation and amortization for the three months ended
March 31, 2003 were approximately $3,654,000, or 7.5% of consolidated gross
revenues, compared to $3,387,000, or 6.4% of consolidated gross revenues during
the three months ended March 31, 2002. Fitzgeralds Tunica accounted for
$1,905,000, or 52.1%, Fitzgeralds Black Hawk accounted for $412,000, or 11.3%,
and Fitzgeralds Las Vegas accounted for $671,000 or 18.4% during the three
months ended March 31, 2003, compared to $1,780,000, or 52.6%, $364,000, or
10.7% and $617,000, or 18.2%, respectively, during the three months ended March
31, 2002. Corporate amortization of deferred financing costs and the discount on
the Investor Holdings Senior Secured Notes accounted for $666,000, or 18.2% of
consolidated depreciation and amortization during the three months ended March
31, 2003 compared to $626,000, or 18.5% during the three months ended March 31,
2002. Of the consolidated depreciation and amortization expense, $2,589,000, or
70.9%, is depreciation expense, and $1,065,000, or 29.1% is amortization expense
during the three months ended March 31, 2003, compared to $2,363,000, or 69.8%
$1,024,000, or 30.2%, respectively, during the three months ended March 31,
2002.
Consolidated operating income for the three months ended March 31, 2003
was $5,349,000, or 10.9% of consolidated gross revenues compared to $5,489,000,
or 10.5% of consolidated gross revenues during the three months ended March 31,
2002. The $140,000, or
29
2.6% decrease was primarily attributed to reduced casino revenues
offset by expense reductions as previously discussed. Fitzgeralds Tunica
accounted for operating income of $4,548,000, or 85.0%, Fitzgeralds Black Hawk
accounted for operating income of $1,231,000, or 23.0% and Fitzgeralds Las Vegas
accounted for operating income of $236,000, or 4.4% and the unallocated
corporate loss principally for amortization was $666,000 or (12.4%) of
consolidated operating income for the three months ended March 31, 2003,
compared to $4,628,000, or 84.3%, $1,258,000, or 22.9%, $240,000, or 4.4% and
the unallocated corporate loss principally for amortization expense was
$637,000, or (11.6)% of consolidated operating income, respectively, for the
three months ended March 31, 2002.
Consolidated net interest expense for the three months ended March 31,
2003 was $4,405,000, or 9.0% of consolidated gross revenues compared to
$4,484,000, or 8.6% of consolidated gross revenues during the three months ended
March 31, 2002. Fitzgeralds Tunica accounted for interest income of $3,000,
Fitzgeralds Las Vegas accounted for net interest expense of $5,000 and the
unallocated corporate net interest expense primarily associated with the
Company's 11.653% Senior Secured Notes was $4,403,000 during the three months
ended March 31, 2003, compared to net interest income of $7,000 at Fitzgeralds
Tunica, net interest income of $4,000 at Fitzgeralds Black Hawk and net interest
expense of $4,000 at Fitzgeralds Las Vegas and unallocated corporate net
interest expense primarily associated with the Company's 11.653% Senior Secured
Notes was approximately $4,491,000 during the three months ended March 31, 2002.
As a result of the foregoing, the Company realized consolidated net
income of $949,000 for the three months ended March 31, 2003, compared to a
consolidated net income of $994,000 for the three months ended March 31, 2002.
Fitzgeralds Tunica accounted for net income of $4,566,000, Fitzgeralds Black
Hawk accounted for net income of $1,231,000 and Fitzgeralds Las Vegas accounted
for net income of $230,000 during the three months ended March 31, 2003,
compared to $4,642,000, $1,262,000, $236,000, respectively, during the three
months ended March 31, 2002.
EBITDA (defined as earnings from operations before interest, taxes,
depreciation and amortization) for the three months ended March 31, 2003 was
$9,002,000 compared to $8,876,000 for the three months ended March 31, 2002, an
improvement of approximately $126,000. Fitzgeralds Tunica accounted for
$6,453,000, Fitzgeralds Black Hawk accounted for $1,643,000 and Fitzgeralds Las
Vegas accounted for $907,000 during the three months ended March 31, 2003,
compared to $6,408,000, $1,622,000 and $857,000, respectively, during the three
months ended March 31, 2002. EBITDA is presented solely as a supplemental
disclosure because management believes that it is a widely used measure of
operating performance in the gaming industry, and a principal basis for
valuation of gaming companies. Other companies may calculate EBITDA differently.
Management uses EBITDA as a measure of the Company's operating performance.
EBITDA should be not construed as an alternative to operating income, as an
indicator of the Company's operating performance, or as an alternative to cash
flows from operating activities, as a measure of liquidity, or as any other
measure determined in accordance with generally accepted accounting principles.
The Company has significant uses of cash including capital expenditures,
interest payments, taxes and debt principal repayments, which are not reflected
in EBITDA. A reconciliation of operating income/(loss) to EBITDA is included in
the Consolidated Statements of Operations Summary Information.
30
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2003, the Company had cash and cash equivalents of
approximately $21,076,000. Cash and cash equivalents included $5,783,000 at the
Company, $8,279,000 at Fitzgeralds Tunica, $2,269,000 at Fitzgeralds Black Hawk
and $4,745,000 at Fitzgeralds Las Vegas.
The Company has met its capital requirements to date through net cash
from operations, capital contributions and equipment loans. For the three months
ended March 31, 2003, net cash provided by operating activities totaled
approximately $6,632,000 and cash used by investing activities totaled
approximately $1,298,000. The Company invested $1,063,000 primarily for gaming
and non-gaming equipment and restricted cash in the amount of $250,000 as
collateral for a Letter of Credit associated with worker's compensation
insurance. For the three months ended March 31, 2002, cash provided by operating
activities totaled approximately $6,966,000 and cash used by investing
activities totaled approximately $1,962,000. The Company invested $1,172,000
primarily for gaming and non-gaming equipment and $797,000 for the payment of
professional fees related to the acquisition. For the three months ended March
31, 2003, cash used in financing activities totaled $242,000. The primary
financing activities were $864,000 paid to BDI pursuant to the Company's
management agreement with BDI and $700,000 received from BDI in satisfaction of
principal and accrued interest on an outstanding note. For the three months
ended March 31, 2002, cash used in financing activities totaled $5,384,000. The
primary financing activities were $4,800,000 repaid on the Company's credit
facility, $505,000 expended for professional fees related to the issuance of the
Company's 11.653% Senior Secured Notes, $188,000 paid to BDI pursuant to the
Company's management agreement with BDI and $165,000 for cash advances from
affiliates.
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 Company's 11.653% Senior Secured Notes
and other permitted indebtedness for the year 2003. If necessary and to the
extent permitted under the Company's Indenture, the Company will seek additional
financing through borrowings and debt or equity financing. There can be no
assurance that additional financing, if needed, will be available to the
Company, or that, if available, the financing will be on terms favorable to the
Company. In addition, there is no assurance that the Company's estimate of its
reasonably anticipated liquidity needs is accurate or that unforeseen events
will not occur, resulting in the need to raise additional funds.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In April 2002, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 145 ("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 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."
FIN 45 elaborates on the disclosures to be made by a guarantor in its interim
and annual financial statement about its obligations under certain guarantees
that it has issued. It also clarifies (for guarantees issued after
31
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 March 31, 2003, the Company did 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.
In January 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities."
FIN 46 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. FIN 46 is intended
to provide guidance in judging multiple economic interest in an entity and in
determining the primary beneficiary. FIN 46 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 VIEs 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes from the information reported in
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2002.
ITEM 4. CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this report, the Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, including its Chief Executive Officer and Chief
Financial Officer, of the effectives of the design 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 II OTHER INFORMATION
ITEM 1. 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.
32
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this report:
Exhibit No. Description of Document
- ----------- -----------------------
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
(b) There were no reports on Form 8-K filed during the three months ended March
31, 2003.
33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MAJESTIC INVESTOR HOLDINGS, LLC
By: /s/ Don H. Barden May 15, 2003
------------------------------------------------------
Don H. Barden, Member, Chairman, President and Chief Executive Officer
By: /s/ Jon S. Bennett May 15, 2003
------------------------------------------------------
Jon S. Bennett, Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
MAJESTIC INVESTOR CAPITAL CORP.
By: /s/ Don H. Barden May 15, 2003
------------------------------------------------------
Don H. Barden, Chairman, President and Chief Executive Officer
/s/ Jon S. Bennett May 15, 2003
------------------------------------------------------
Jon S. Bennett, Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
34
CERTIFICATIONS
I, Don H. Barden, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Majestic Investor
Holdings, LLC and Majestic Investor Capital Corp.;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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
quarterly 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
quarterly 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 quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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 officer and I have indicated in this
quarterly 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: May 15, 2003
/s/ Don H. Barden
- -----------------------------------------------
Don H. Barden
Member, Chairman, President and Chief Executive Officer
35
I, Jon S. Bennett, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Majestic
Investor Holdings, LLC and Majestic Investor Capital Corp.;
2. Based on my knowledge, this quarterly 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
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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 quarterly 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 quarterly report (the "Evaluation
Date"); and
c. presented in this quarterly 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
quarterly 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: May 15, 2003
/s/ Jon S. Bennett
- -----------------------------------------
Jon S. Bennett
Vice President and Chief Financial Officer
36
EXHIBIT INDEX
Exhibit No. Description of Document
- ----------- -----------------------
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