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 SEPTEMBER 30, 2004
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 333-06489
INDIANA THE MAJESTIC STAR CASINO, LLC 43-1664986
INDIANA THE MAJESTIC STAR CASINO CAPITAL CORP. 35-2100872
(State or (Exact name of registrant as specified (I.R.S. Employer
other in its charter) Identification No.)
jurisdiction
of incorporation
or organization)
301 FREMONT STREET
LAS VEGAS, NEVADA 89101
(702) 388 - 2224
(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 Exchange Act)
Yes [ ] No [X]
As of September 30, 2004, shares outstanding of each of the registrant's classes
of common stock:
Class Number of shares
- ----- ----------------
Not applicable Not applicable
THE MAJESTIC STAR CASINO, LLC
INDEX
PAGE NO.
--------
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of September 30, 2004 (unaudited)
and December 31, 2003 .................................................. 1
Consolidated Statements of Operations for the three and nine months
ended September 30, 2004 and 2003 (unaudited) .......................... 2
Consolidated Statements of Changes in Member's Deficit for the nine
months ended September 30, 2004 (unaudited) and the year ended
December 31, 2003 ...................................................... 3
Consolidated Statements of Cash Flows for the nine months ended
September 30, 2004 and 2003 (unaudited) ................................ 4
Notes to the Consolidated Financial Statements ......................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................................... 34
Item 3. Quantitative and Qualitative Disclosures About Market Risk ............ 52
Item 4. Controls and Procedures ............................................... 52
PART II OTHER INFORMATION
Item 1. Legal Proceedings ..................................................... 53
Item 5. Other Information ..................................................... 54
Item 6. Exhibits .............................................................. 55
SIGNATURES .................................................................... S-1
PART I
FINANCIAL INFORMATION
ITEM 1
CONSOLIDATED FINANCIAL STATEMENTS
THE MAJESTIC STAR CASINO, LLC
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
2004 2003
------------- -------------
ASSETS
Current Assets:
Cash and cash equivalents $ 15,583,654 $ 22,058,016
Restricted cash 1,790,008 1,400,000
Accounts receivable, less allowance for doubtful accounts of $495,047 and
$258,546 as of September 30, 2004 and December 31, 2003, respectively 2,523,386 2,212,546
Inventories 498,283 707,685
Prepaid expenses 3,065,492 2,126,583
Receivable from affiliate 107,807 210,135
Note receivable due from related party - 133,000
Assets held for sale 30,112,759 -
------------- -------------
Total current assets 53,681,389 28,847,965
------------- -------------
Property, equipment and improvements, net 141,258,704 142,167,931
Intangible assets, net 5,450,883 9,249,247
Goodwill 3,997,904 5,922,398
Other assets:
Deferred financing costs, net of accumulated amortization
of $1,463,724 and $552,079 as of September 30, 2004 and
December 31, 2003, respectively 5,665,703 6,289,187
Investment in Buffington Harbor Riverboats, LLC 27,950,794 29,733,594
Other assets 8,492,466 11,004,456
------------- -------------
Total other assets 42,108,963 47,027,237
------------- -------------
Total Assets $ 246,497,843 $ 233,214,778
============= =============
LIABILITIES AND MEMBER'S DEFICIT
Current Liabilities:
Accounts payable $ 1,324,768 $ 6,387,955
Payable to related party - 247
Accrued liabilities:
Payroll and related 5,658,524 6,487,107
Interest 12,093,678 6,023,703
Progressive jackpots 1,763,240 2,673,662
Slot club liabilities 504,896 498,070
Other accrued liabilities 12,775,639 11,595,665
Liabilities related to assets held for sale 2,598,736 -
------------- -------------
Total current liabilities 36,719,481 33,666,409
------------- -------------
Long-term debt, net of current maturities 311,473,928 301,715,324
------------- -------------
Total Liabilities 348,193,409 335,381,733
------------- -------------
Member's Deficit (101,695,566) (102,166,955)
------------- -------------
Total Liabilities and Member's Deficit $ 246,497,843 $ 233,214,778
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
1
THE MAJESTIC STAR CASINO, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For The Three Months Ended For The Nine Months Ended
September 30, September 30,
------------------------------ --------------------------------
2004 2003 2004 2003
---- ---- ---- ----
OPERATING REVENUES:
Casino $ 58,158,742 $ 55,554,104 $ 180,481,342 $ 167,725,235
Rooms 2,026,708 2,155,546 5,820,214 6,042,051
Food and beverage 3,032,634 2,736,494 8,414,932 8,109,231
Other 1,095,844 903,583 3,112,955 2,761,378
------------ ------------ ------------- -------------
Gross revenues 64,313,928 61,349,727 197,829,443 184,637,895
Less promotional allowances 4,894,277 3,718,136 13,340,508 11,125,915
------------ ------------ ------------- -------------
Net operating revenues 59,419,651 57,631,591 184,488,935 173,511,980
------------ ------------ ------------- -------------
OPERATING COSTS AND EXPENSES:
Casino 19,037,940 18,671,522 58,512,217 55,136,249
Rooms 449,177 658,404 1,381,473 1,921,639
Food and beverage 1,432,422 1,181,910 3,813,858 3,312,812
Other 583,091 144,705 784,955 335,906
Gaming taxes 13,033,727 12,113,632 40,529,945 38,209,407
Advertising and promotion 3,677,204 3,161,818 10,462,947 9,088,629
General and administrative 9,076,049 9,401,567 30,536,975 25,863,016
Corporate expense 825,766 874,000 2,506,052 2,535,030
Economic incentive - City of Gary 1,087,049 1,035,573 3,423,286 3,106,984
Depreciation and amortization 4,365,733 4,043,481 12,531,588 12,017,044
Loss on investment in Buffington Harbor Riverboats, LLC 616,058 594,718 1,854,406 1,793,898
(Gain) loss on disposal of assets (2,704) 4,671 (6,266) 109,890
------------ ------------ ------------- -------------
Total operating costs and expenses 54,181,512 51,886,001 166,331,436 153,430,504
------------ ------------ ------------- -------------
Operating income 5,238,139 5,745,590 18,157,499 20,081,476
------------ ------------ ------------- -------------
OTHER INCOME (EXPENSE):
Interest income 13,834 18,135 24,237 80,143
Interest expense (7,117,213) (7,956,269) (21,371,498) (23,867,957)
Other non-operating expense (44,656) (47,348) (168,504) (141,802)
------------ ------------ ------------- -------------
Total other expense (7,148,035) (7,985,482) (21,515,765) (23,929,616)
------------ ------------ ------------- -------------
Loss from continuing operations (1,909,896) (2,239,892) (3,358,266) (3,848,140)
DISCONTINUED OPERATIONS:
Income from discontinued operations 2,930,076 913,944 7,772,962 3,927,912
------------ ------------ ------------- -------------
Net income (loss) $ 1,020,180 $ (1,325,948) $ 4,414,696 $ 79,772
============ ============ ============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
2
THE MAJESTIC STAR CASINO, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER'S DEFICIT
For the Nine Months Ended September 30, 2004 and
the Year Ended December 31, 2003
Member's Deficit
----------------
BALANCE, DECEMBER 31, 2002 $ (24,174,562)
Net loss (43,851,974)
Distributions to Barden Development, Inc. (6,065,213)
Distribution of Barden Nevada Gaming, LLC to Barden
Development, Inc. (27,515,400)
Cash paid in excess of historical cost for land purchased from a related party (559,806)
-------------
BALANCE, DECEMBER 31, 2003 $(102,166,955)
Net income (unaudited) 4,414,696
Distributions to Barden Development, Inc. (unaudited) (3,943,307)
-------------
BALANCE, SEPTEMBER 30, 2004 (UNAUDITED) $(101,695,566)
=============
The accompanying notes are an integral part of these consolidated financial
statements.
3
THE MAJESTIC STAR CASINO, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For The Nine Months Ended
September 30,
-----------------------------
2004 2003
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,414,696 $ 79,772
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 11,600,690 11,357,959
Amortization 1,925,230 4,015,318
Loss on investment in Buffington Harbor Riverboats, LLC 1,854,406 1,793,898
Loss on disposal of assets 6,292 105,629
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable, net (381,805) 56,891
Decrease in related parties receivables 102,079 323,359
Decrease (increase) in inventories 81,244 (31,583)
Increase in prepaid expenses (1,045,667) (339,230)
Decrease in other assets 859,944 473,180
(Decrease) increase in accounts payable (4,594,723) 187,209
Decrease in accrued payroll and other expenses (603,790) (829,767)
Increase in accrued interest 6,069,975 7,955,832
Increase in other accrued liabilities 2,181,420 1,242,485
------------ ------------
Net cash provided by operating activities 22,469,991 26,390,952
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in restricted cash (390,008) (250,000)
Acquisition of property and equipment (31,976,010) (10,914,305)
Cash paid in excess of historical cost for land purchased from a related party - (559,806)
Decrease in prepaid leases and deposits 10,683 108,500
Investment in Buffington Harbor Riverboats, LLC (71,606) (211,138)
Proceeds from disposal of equipment 249,373 56,219
------------ ------------
Net cash used in investing activities (32,177,568) (11,770,530)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance cost for the 9 1/2% senior secured notes (229,507) (206,276)
Issuance cost for the $80.0 million secured credit facility (58,652) -
Proceeds from line of credit 32,901,293 -
Repayment of line of credit (23,244,786) -
Repayment of notes from related parties 133,000 1,067,000
Repayment of long-term debt - (114,014)
Distribution to Barden Development, Inc. (3,943,307) (4,658,705)
------------ ------------
Net cash provided by (used in) financing activities 5,558,041 (3,911,995)
------------ ------------
Net (decrease) increase in cash and cash equivalents (4,149,536) 10,708,427
Cash related to discontinued operations (2,324,826) -
Cash and cash equivalents, beginning of period 22,058,016 24,547,881
------------ ------------
Cash and cash equivalents, end of period $ 15,583,654 $ 35,256,308
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
4
THE MAJESTIC STAR CASINO, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(unaudited)
For The Nine Months Ended
September 30,
-------------------------
2004 2003
---- ----
NON-CASH INVESTING ACTIVITIES:
Credit received from Naming Rights Agreement and applied to acquisition
of 170 acres of property from an affiliate $1,500,000 $ -
========== ========
The accompanying notes are an integral part of these consolidated financial
statements.
5
THE MAJESTIC STAR CASINO, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION
The Majestic Star Casino, LLC (the "Company") was formed on December 8,
1993 as an Indiana limited liability company to provide gaming and related
entertainment to the public. The Company commenced gaming operations in the City
of Gary at Buffington Harbor, located in Lake County, Indiana on June 7, 1996.
As a result of the acquisition of three additional casino properties in
December of 2001 from Fitzgeralds Gaming Corporation and certain of its
affiliates, The Majestic Star Casino, LLC is a multi-jurisdictional gaming
company that directly owns and operates one riverboat gaming facility located in
Gary, Indiana ("Majestic Star") and through its wholly-owned subsidiary,
Majestic Investor Holdings, LLC ("Majestic Investor Holdings" or "Investor
Holdings") owns two Fitzgeralds-brand casino-hotels located in Tunica County,
Mississippi ("Barden Mississippi Gaming, LLC", "Barden Mississippi" or
"Fitzgeralds Tunica"), and Black Hawk, Colorado (casino only) ("Barden Colorado
Gaming, LLC", "Barden Colorado" or "Fitzgeralds Black Hawk"), and prior to
January 1, 2004, owned a third Fitzgeralds-brand casino-hotel located in Las
Vegas, Nevada ("Barden Nevada Gaming, LLC", "Barden Nevada" or "Fitzgeralds Las
Vegas"). See Note 2 for further discussion of the spin-off of Fitzgeralds Las
Vegas on December 31, 2003. Also, on July 12, 2004, the Company entered into an
agreement to sell substantially all of the assets of Fitzgeralds Black Hawk
subject to certain of its liabilities to a third party (see Note 3 for a further
discussion on the sales agreement).
The Majestic Star Casino Capital Corp., a wholly-owned subsidiary of The
Majestic Star Casino, LLC, was originally formed for the purpose of facilitating
the offering of The Majestic Star Casino, LLC's $130.0 million 10 7/8% senior
secured notes due 2006 (the "10 7/8% notes") and Majestic Investor Capital
Corp., a wholly-owned subsidiary of Investor Holdings, was formed specifically
to facilitate the offering of Investor Holdings' $152.6 million 11.653% senior
secured notes due 2007 (the "11.653% notes"). Both The Majestic Star Casino
Capital Corp. and Majestic Investor Capital Corp. do not have any assets or
operations. On October 7, 2003, the Company issued $260.0 million 9 1/2% senior
secured notes (the "9 1/2% notes") and entered into an $80.0 million credit
facility (the "$80.0 million credit facility"). The proceeds from the 9 1/2%
notes and $28.0 million from the $80.0 million credit facility were used to
purchase and redeem all of the 10 7/8% notes and purchase approximately 89.3%,
or $135.5 million, of the 11.653% notes (see Note 8 for a further discussion of
the debt refinancing and the 9 1/2% notes).
Except where otherwise noted, the words "we," "us," "our," and similar
terms, as well as the "Company," refer to The Majestic Star Casino, LLC and all
of its direct and indirect subsidiaries.
NOTE 2. BASIS OF PRESENTATION
The accompanying consolidated financial statements are unaudited. All
inter-company
6
THE MAJESTIC STAR CASINO, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
transactions and balances have been eliminated. Investments in affiliates in
which the Company has the ability to exercise significant influence, but not
control, are accounted for by the equity method. These financial statements have
been prepared in accordance with accounting principals generally accepted in the
United States of America, or "GAAP" for interim financial information and with
the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
certain information and footnote disclosures normally included in financial
statements have been condensed or omitted. The preparation of financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Significant estimates incorporated into our consolidated
financial statements include the estimated useful lives of depreciable and
amortizable assets, the estimated allowance for doubtful accounts receivable,
estimated cash flow in assessing the recoverability of long-lived assets and
estimated liabilities for our self-insured medical plan, slot club point
programs, and litigation, claims and assessments. Actual results could differ
from those estimates.
In the opinion of management, all adjustments (which include normal
recurring adjustments) considered necessary for a fair presentation of the
results for the interim periods have been made. The results for the three and
nine months ended September 30, 2004 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
Majestic Star Casino, LLC's Annual Report on Form 10-K for the year ended
December 31, 2003.
SPIN-OFF
The spin-off of Fitzgeralds Las Vegas to Barden Development, Inc. ("BDI"),
our member, occurred on December 31, 2003. As such, the assets, liabilities and
equity of Fitzgeralds Las Vegas are not included in our Consolidated Balance
Sheets as of September 30, 2004 or as of December 31, 2003. The Consolidated
Statements of Operations and Cash Flows for the three and nine months ended
September 30, 2004 do not include the activities of Fitzgeralds Las Vegas.
However, the Consolidated Statements of Operations recognize Fitzgeralds Las
Vegas as a discontinued operation for the three and nine months ended September
30, 2003 (see Note 3, Discontinued Operations).
SUPPLEMENTAL CASH FLOW INFORMATION
Contained within the September 30, 2004 and 2003 Consolidated Statements
of Cash Flows are the cash flow activities of Fitzgeralds Black Hawk, for which
an agreement was executed on July 12, 2004 to sell substantially all of its
assets subject to certain of its liabilities. Also, contained within the
September 30, 2003 Consolidated Statement of Cash Flows are the cash flow
activities of Fitzgeralds Las Vegas.
7
THE MAJESTIC STAR CASINO, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PROMOTIONAL ALLOWANCES
Cash discounts and other cash incentives related to gaming play and the
retail value of accommodations, food and beverage, and other services furnished
to hotel/casino guests without charge are included in gross revenue and then
deducted as promotional allowances. The estimated departmental cost of providing
such promotional allowances is included primarily in casino operating expenses
as follows:
For the three months ended September 30, For the nine months ended September 30,
---------------------------------------- ---------------------------------------
2004 2003 2004 2003
---- ---- ---- ----
Hotel $ 618,950 $ 363,468 $1,769,690 $1,090,162
Food and Beverage 1,913,893 1,848,658 5,479,107 5,515,575
Other 111,638 100,895 347,683 311,571
---------- ---------- ---------- ----------
Total $2,644,481 $2,313,021 $7,596,480 $6,917,308
========== ========== ========== ==========
The estimated retail value of such promotional allowances is included in
operating revenues as follows:
For the three months ended September 30, For the nine months ended September 30,
---------------------------------------- ---------------------------------------
2004 2003 2004 2003
---- ---- ---- ----
Hotel $1,404,330 $ 928,447 $ 3,835,560 $2,597,746
Food and Beverage 2,004,085 1,933,943 5,675,952 5,738,057
Other 326,940 248,501 978,123 832,513
---------- ---------- ----------- ----------
Total $3,735,355 $3,110,891 $10,489,635 $9,168,316
========== ========== =========== ==========
RECENT ACCOUNTING PRONOUNCEMENTS
In May 2003, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 150 ("SFAS 150") "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity."
Provisions of SFAS 150 became effective for financial instruments entered into
or modified after May 31, 2003. The Company adopted SFAS 150 on January 1, 2004.
The adoption had no impact on its financial position, results of operations or
cash flows.
In December 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46R ("FIN46R"), "Consolidation of Variable Interest Entities
- - an
8
THE MAJESTIC STAR CASINO, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
interpretation of Accounting Research Bulletin No. 51" (revised December
2003). FIN46R addresses consolidation by business enterprises of certain
variable interest entities. Application of FIN46R is required in financial
statements of public entities that have interests in variable interest entities
for periods ending December 15, 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 interests in these
parties. Adoption of FIN46R did not have a material impact on the Company's
financial statements for the period ending September 30, 2004.
RECLASSIFICATIONS
The consolidated financial statements and footnotes for the prior year
reflect certain reclassifications to conform to the current year presentation,
which have no effect on previously reported net income.
NOTE 3. DISCONTINUED OPERATIONS
FITZGERALDS BLACK HAWK
On July 12, 2004, the Company entered into an agreement to sell
substantially all of the assets subject to certain liabilities of Fitzgeralds
Black Hawk for a purchase price of $66.0 million, which purchase price will be
subject to adjustments based on working capital and certain capital expenditures
made as of the closing date. The Company anticipates the transaction to close on
or before May 1, 2005. Consummation of the transaction is subject to normal and
customary closing requirements. If the Company should choose not to close on the
transaction, then the Company will be required to pay the purchaser money
damages of $2.0 million plus other costs as described in the agreement.
The results of Fitzgeralds Black Hawk are reflected in discontinued
operations in the accompanying Consolidated Statements of Operations for the
three- and nine-month periods presented. Net revenues of Fitzgeralds Black Hawk
for the three months ended September 30, 2004 and 2003 were $9.8 million and
$8.8 million, respectively. Fitzgeralds Black Hawk's net revenues for the nine
months ended September 30, 2004 and 2003 were $28.7 million and $25.3 million,
respectively. Fitzgeralds Black Hawk's net income for the three and nine months
ended September 30, 2004 and 2003 was $2.9 million and $7.8 million,
respectively, compared to $2.3 million and $5.4 million, respectively. The
estimated fair value less costs to sell Fitzgeralds Black Hawk exceeds the
carrying value; therefore, no impairment has been recognized.
The following table summarizes the assets and liabilities of Fitzgeralds
Black Hawk as of September 30, 2004 included as assets and liabilities held for
sale in the accompanying Consolidated Balance Sheet:
9
THE MAJESTIC STAR CASINO, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As of
September 30,
2004
------------
Cash $ 2,324,826
Accounts receivable, net 70,966
Inventory 128,158
Prepaid expenses and other 106,757
-----------
Total current assets 2,630,707
Property and equipment, net 22,528,883
Other assets, net 4,953,169
-----------
Total assets $30,112,759
-----------
Accounts payable $ 468,464
Other current liabilities 2,130,272
-----------
Total liabilities 2,598,736
-----------
Net assets $27,514,023
===========
Under the indenture governing the 9 1/2% notes and the Loan and Security
Agreement for the $80.0 million credit facility, the net proceeds from the sale
of the Fitzgeralds Black Hawk assets must be (i) invested in fixed assets or
property that will be used in a related business of the Company or its
restricted subsidiaries, or (ii) applied to repay indebtedness under the $80.0
million credit facility and permanently reduce the commitment thereunder in the
amount so repaid. To the extent such net proceeds are not used as described in
(i) and (ii), the Company is required to make an offer to purchase the 9 1/2%
notes.
The Company has been aggressively seeking new growth opportunities in
numerous locations. Since many of these new gaming possibilities are still
evolving and being analyzed, or are part of a broader bidding process, it is
premature to indicate specifically and quantitatively when these opportunities
and the investments needed to bring these opportunities to fruition will
transpire, if at all. Reinvestment could also include enhancing or upgrading the
facilities and amenities at either Majestic Star or Fitzgeralds Tunica.
FITZGERALDS LAS VEGAS
As discussed above in more detail in Note 2, Fitzgeralds Las Vegas was
spun off to our member, BDI, effective December 31, 2003. The net loss recorded
in discontinued operations for Fitzgeralds Las Vegas was $1.4 million and $1.5
million for the three and nine months ended September 30, 2003, respectively.
NOTE 4. RESTRICTED CASH
As of December 31, 2003, restricted cash relating to the Company's
self-insured workers' compensation programs totaled $1.4 million. The Majestic
Star Casino, LLC purchased a $0.9 million certificate of deposit to secure a
letter of credit related to the Majestic Star workers' compensation program. The
certificate of deposit is recorded as
10
THE MAJESTIC STAR CASINO, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
restricted cash. Investor Holdings maintains a letter of credit in the amount of
$0.5 million for the self-insured workers' compensation programs at Fitzgeralds
Tunica, Fitzgeralds Black Hawk and Fitzgeralds Las Vegas. The bank that issued
the $0.5 million letter of credit has restricted the cash of Investor Holdings
in an equivalent amount as security for the letter of credit.
Restricted cash increased to $1.8 million as of September 30, 2004. The
Company was required to post a bond in the amount of $0.4 million to appeal an
award rendered against the Company in the U.S. District Court for the Northern
District of Mississippi. The insurance company that issued the bond on behalf of
the Company required that the bond be secured. The Company secured the bond with
a $0.4 million letter of credit. The bank that issued the letter of credit
restricted the cash of the Company by the same amount.
NOTE 5. INTANGIBLE ASSETS
Intangible assets at Investor Holdings primarily include $5.0 million for
customer relationships and $2.2 million for trade names. Intangible assets for
customer relationships and trade names are being amortized over periods of 8 and
10 years, respectively. The $0.7 million intangible asset represents an
excursion license for a riverboat, which commenced full operations on March 18,
2004. The riverboat excursion license is being amortized over 15 years, the
period of the license. In accordance with SFAS 142, goodwill is not amortized
but instead subject to impairment tests at least annually.
The gross carrying amount and accumulated amortization of the Company's
intangible assets, other than goodwill, as of September 30, 2004 and December
31, 2003 are as follows:
Gross Carrying Accumulated Net Amount Expected
As of September 30, 2004 Amount Amortization September 30, 2004 Life
- ------------------------ --------------- ------------- ------------------- ----------
Amortized intangible assets: (in thousands)
Customer relationship $4,954 $(1,745) $ 3,209 8 yrs
Tradename 2,180 $ (615) 1,565 10 yrs
Riverboat excursion license 700 (23) 677 15 yrs
------ ------- -------
Total intangible assets $7,834 $(2,383) $ 5,451
====== ======= =======
Gross Carrying Accumulated Net Amount Expected
As of December 31, 2003 Amount Amortization December 31, 2003 Life
- ------------------------ --------------- ------------- ------------------- ----------
Amortized intangible assets: (in thousands)
Customer relationship $ 7,840 $(2,033) $ 5,807 8 yrs
Tradename 3,450 (708) 2,742 10 yrs
Riverboat excursion license 700 - 700 15 yrs
------- ------- -----------
Total intangible assets $11,990 $(2,741) $ 9,249
======= ======= ===========
The schedule of amortized intangible assets as of December 31, 2003
includes our
11
THE MAJESTIC STAR CASINO, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
discontinued operation, Fitzgeralds Black Hawk. Fitzgeralds Black Hawk had
intangible assets for customer relations and trade name, net of accumulated
amortization, of $2.1 million and $1.0 million, respectively, at December 31,
2003.
The amortization expense recorded on the intangible assets, excluding
those of Fitzgeralds Black Hawk, was $0.2 million and $0.7 million,
respectively, for the three-month and nine-month periods ended September 30,
2004 and $0.2 million and $0.6 million for the same periods in 2003.
In accordance with Financial Accounting Standards Board Statement Number
144, Accounting for the Impairment or Disposal of Long-Lived Assets ("FAS 144"),
Barden Colorado discontinued amortizing its intangible assets on July 12, 2004,
the date of the sales agreement discussed above in Note 3. Consequently,
amortization expense recorded on its intangible assets was $16,000 and $0.3
million, respectively, for the three-month and nine-month periods ended
September 30, 2004 and $0.1 million and $0.4 million for the same periods in
2003.
NOTE 6. INVESTMENT IN BUFFINGTON HARBOR RIVERBOATS, L.L.C.
On October 31, 1995, the Company and Trump Indiana, Inc., our Joint
Venture Partner ("Trump"), entered into the First Amended and Restated Operating
Agreement of Buffington Harbor Riverboats, LLC ("BHR") for the purpose of
acquiring and developing certain facilities for the gaming operations in the
City of Gary ("BHR Property"). BHR is responsible for the management,
development and operation of the BHR Property. The Company and Trump have each
entered into an agreement with BHR (the "Berthing Agreement") to use BHR
Property for their respective gaming operations and have committed to pay the
cash operating losses of BHR as additional berthing fees. All expenditures
requiring a cash outlay by BHR are billed to Trump and the Company at cost.
Accordingly, BHR records as expenses the cost of providing such services and
records as other revenues the amounts billed to Trump and the Company.
The Company has paid to BHR approximately $1.3 million and $5.2 million of
berthing fees for the three and nine months ended September 30, 2004,
respectively, and $1.5 million and $4.1 million for the three and nine months
ended September 30, 2003, respectively. Such amounts are recorded in general and
administrative expense in the Consolidated Statements of Operations.
Majestic Star uses the food and beverage operations at BHR to provide its
casino customers with complimentary meals, beverages and services. Late in 2003,
two new restaurants opened at BHR. Passports-A World Class Buffet ("Passports")
replaced the existing buffet and Koko Taylor's Blues Cafe ("Koko Taylor's")
replaced the South Shore Grill. In addition, both Passports and Koko Taylor's
are run by a third party operator. The prior restaurants were operated by BHR.
The Company sends guests to these restaurants, and the other food and beverage
operators at BHR and the proprietors of these businesses charge the Company for
the meals served and the services provided. The Company paid approximately $0.6
million
12
THE MAJESTIC STAR CASINO, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
and $1.6 million to these restaurants, and other food and beverage operators at
BHR, in the three- and nine-month periods ended September 30, 2004. In addition,
the Company has reimbursed BHR for valet services in the amount of $25,000 and
$85,000 in the three- and nine-month periods ended September 30, 2004. Food,
beverage and valet costs are recorded in casino expense in the Company's
Consolidated Statements of Operations. The Company paid approximately $0.3
million and $0.8 million for food, beverage and valet services in the three and
nine months ended September 30, 2003, respectively. After the Company and Trump
reimburse BHR for all cash operational losses, the remaining net loss of BHR
results from depreciation expense associated with the BHR property and is
recorded as a loss on investment in Buffington Harbor Riverboats, LLC on the
Company's Consolidated Statements of Operations. The allocated net losses are
approximately $1.2 million and $3.7 million for the three- and nine-month
periods ended September 30, 2004, respectively, and $1.2 million and $3.6
million for the three- and nine-month periods ended September 30, 2003,
respectively.
The following represents selected financial information for BHR as of
September 30, 2004 and December 31, 2003 and for the three and nine months ended
September 30, 2004 and 2003.
13
THE MAJESTIC STAR CASINO, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, December 31,
BALANCE SHEETS 2004 2003
------------ ------------
Cash $ 343,343 $ 82,639
Current assets, excluding cash 2,157,262 5,013,217
Property, plant and equipment, net 58,374,722 61,881,975
Other assets 98,070 101,248
----------- -----------
Total assets $60,973,397 $67,079,079
=========== ===========
Current liabilities $ 4,720,595 $ 7,223,400
Capital lease obligation, net of current 351,214 388,491
----------- -----------
Total liabilities 5,071,809 7,611,891
Total members' equity 55,901,588 59,467,188
----------- -----------
Total liabilities and members' equity $60,973,397 $67,079,079
=========== ===========
The Majestic Star Casino, LLC member's equity $27,950,794 $29,733,594
=========== ===========
For The Three Months Ended For The Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
STATEMENTS OF INCOME 2004 2003 2004 2003
---- ---- ---- ----
Gross revenue $ 2,951,871 $ 3,560,391 $ 8,536,109 $ 10,276,367
Gross profit $ 2,923,276 $ 3,060,285 $ 7,273,212 $ 8,763,977
Operating loss $(1,232,095) $(1,190,998) $(3,708,453) $ (3,584,044)
Net loss $(1,232,118) $(1,190,849) $(3,708,812) $ (3,589,216)
14
THE MAJESTIC STAR CASINO, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. LONG-TERM DEBT
September 30, December 31,
2004 2003
------------- ------------
Long-term debt outstanding at September 30, 2004 and December 31, 2003 is as
follows:
$260,000,000 senior secured notes, bearing interest of 9 1/2% payable
semi-annually on October 15 and April 15, with a final payment of principal and
interest due on October 15, 2010; collateralized by The Majestic Star Casino,
LLC's equity interests, and its equity interests in the subsidiary guarantors,
and substantially all of the assets of The Majestic Star Casino, LLC and the
assets of its subsidiary guarantors, other than the excluded assets. $260,000,000 $260,000,000
$80,000,000 credit facility, which expires in October 2007, bears interest at
the Company's choice of LIBOR plus a range of 3.00% to 3.50% or Wells Fargo
Foothill, Inc.'s base rate plus a range of 0.25% to 0.75%. The range is based
on the Company's EBITDA (as defined in the Loan and Security Agreement). The
credit facility is secured by The Majestic Star Casino, LLC's equity interests
and its equity interests in the subsidiary guarantors, and substantially all
the assets of The Majestic Star Casino, LLC and the assets of its subsidiary
guarantors, other than the excluded assets. 35,615,000 25,958,493
$16,290,000 unsecured notes payable, net of unamortized discount of $431,072
and $533,169 at September 30, 2004 and December 31, 2003, respectively.
Investor Holdings pays interest at a rate of 11.653% on the notes. Interest is
paid semi-annually on May 31 and November 30, with a final payment of principal
and interest due on November 30, 2007. On October 7, 2003, the notes became
unsecured obligations of Investor Holdings. 15,858,928 15,756,831
------------ ------------
Long-term debt $311,473,928 $301,715,324
Less current maturities - -
------------ ------------
Total long-term debt $311,473,928 $301,715,324
============ ============
9 1/2% NOTES
The 9 1/2% notes bear interest at a fixed annual rate of 9.5% payable on
April 15 and October 15 of each year and have a maturity date of
October 15, 2010. The 9 1/2% notes are secured by a pledge of substantially all
of the Company's current and future assets, other than certain excluded
assets. The 9 1/2% notes are also collateralized by our equity interests held by
BDI and our equity interests in the subsidiary guarantors.
The indenture governing the 9 1/2% notes contains covenants which, among
other things, restrict the Company's ability to (i) make asset sales; (ii) make
certain payments to, or investments in, third parties; (iii) incur additional
indebtedness or liens on any assets; (iv) enter into transactions with
affiliates; and (v) sell any restricted subsidiaries' assets. In addition, upon
a Change of Control as defined in the indenture governing the 9 1/2% notes, the
Company will be required to offer to repurchase all of the outstanding 9 1/2%
notes at a cash price equal to 101% of the principal amount thereof, plus
accrued and unpaid interest to the date of repurchase.
Concurrent with the closing of the 9 1/2% notes, the Company established
the $80.0
15
THE MAJESTIC STAR CASINO, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
million credit facility with Wells Fargo Foothill, Inc., and terminated two
existing credit facilities with Wells Fargo Foothill, Inc. Subject to certain
exceptions, the $80.0 million credit facility is secured by a pledge of our
equity held by BDI and the equity of our subsidiary guarantors and a first
priority lien on substantially all of the assets of the Company. Borrowings
under the $80.0 million credit facility bear interest at the Company's choice of
LIBOR plus a range of 3.00% to 3.50% or Wells Fargo Foothill, Inc.'s base rate
(which approximates the prime rate) plus a range of 0.25% to 0.75%. The range is
determined based on the Company's EBITDA (as defined in the Loan and Security
Agreement). Full payment of any outstanding balance under the $80.0 million
credit facility is due upon maturity of the agreement in October 2007. The $80.0
million credit facility includes covenants similar to those set forth in the
indenture governing the 9 1/2% notes, and also requires the Company to
maintain, as defined in the covenants, minimum EBITDA and interest coverage
ratios, which increase periodically, and an annual limit on capital
expenditures. During the nine months ended September 30, 2004, the Company paid
interest on borrowings ranging from 4.61% to 5.29%.
At September 30, 2004 and at December 31, 2003, the Company had available
borrowing capacity under the $80.0 million credit facility of approximately
$44.4 million and $54.0 million, respectively.
On May 4, 2004, The Company entered into Amendment Number One to Loan and
Security Agreement ("Amendment") with the lenders to the $80.0 million credit
facility. The main item addressed in the Amendment was the definition of EBITDA,
which was amended to specifically clarify that it was acceptable to add back up
to $2.5 million of charges related to a retroactive property tax adjustment at
Majestic Star (see Note 8). The modified definition of EBITDA is effective as of
December 31, 2003. Without the Amendment, the Company would have not met the
required EBITDA covenant for the quarter ended March 31, 2004 as contained in
the Loan and Security Agreement. For the nine-month period ended September 30,
2004, the Company was in compliance with all covenants to the $80.0 million
credit facility.
11.653% NOTES
At September 30, 2004 and at December 31, 2003, Investor Holdings had debt
outstanding of $15.9 million and $15.8 million, respectively, related to its
11.653% notes, net of unamortized discount of $0.4 million and $0.5 million,
respectively. The 11.653% notes bear interest at a fixed rate of 11.653% per
annum payable May 31 and November 30 each year. The 11.653% notes will mature on
November 30, 2007. There are no guarantees related to the 11.653% notes, and the
notes are unsecured.
OLD CREDIT FACILITIES
Prior to October 7, 2003, The Majestic Star Casino, LLC had a $20.0
million credit facility (the "Majestic credit facility") and Investor Holdings
had a $15.0 million credit facility (the "Majestic Investor Holdings credit
facility"). There were no borrowings against either of these lines of credit
during the nine months ended September 30, 2003,
16
THE MAJESTIC STAR CASINO, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
and therefore, there was no interest expense. However, there were non-usage fees
charged during the three and nine months ended September 30, 2003, which are
reflected in other non-operating expense in the Consolidated Statements of
Operations. These credit facilities were replaced in October 2003 with the $80.0
million credit facility.
NOTE 8. COMMITMENTS AND CONTINGENCIES
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. Except as described below, management
believes that the resolution of these proceedings will not individually or in
the aggregate, have a material effect on the Company's financial condition,
results of operations or cash flows.
In August 2003, a former employee of Majestic Star filed a complaint in
the U.S. District Court, Northern District of Indiana seeking back wages for
overtime hours worked while employed with Majestic Star plus all other relief to
which he may be entitled under the Fair Labor Standards Act ("FLSA") (the "2003
Complaint"). The plaintiff is challenging his "seaman" status in the calculation
of overtime hours and wages. Majestic Star filed an answer to the 2003 Complaint
asserting its position that plaintiff was employed as an able-bodied seaman and
thus is exempt from the overtime provisions of the FLSA. The parties have
entered into a settlement agreement pursuant to which Majestic Star will pay
plaintiff a nominal amount in exchange for dismissal of the 2003 Complaint with
prejudice.
In July 2004, a former employee of Majestic Star filed a complaint against
the Majestic Star vessel in the U.S. District Court, Northern District of
Indiana on behalf of himself and a class of employees similarly situated seeking
to enforce a maritime lien for back wages for overtime hours worked while
employed with Majestic Star plus all other relief to which they may be entitled
under the Fair Labor Standards Act ("FLSA") (the "2004 Complaint"). Similar to
the 2003 Complaint, the plaintiff is challenging his "seaman" status in the
calculation of overtime hours and wages. On September 29, 2004, the clerk of the
court entered an entry of default against the Company without a hearing. On
October 1, 2004, the Company moved to set aside the entry of default and to
dismiss the 2004 Complaint for insufficiency of service of process. The
plaintiff has filed a response to the motion indicating that he has no objection
to setting aside the clerk's entry of default. There could be potentially 23
seamen that qualify for the 2004 Complaint. To date, two additional individuals
formerly employed with Majestic Star as able-bodied seamen have filed consents
to join in the 2004 Complaint. On November 11, 2004, the plaintiff in the 2004
Complaint filed a Motion to File Second Amended Complaint to add Majestic Star
as a party to the 2004 Complaint. The Company intends to file an opposition to
plaintiff's motion. Since any potential liability in this matter cannot be
reasonably estimated, no liability has been recorded. The Company will
vigorously defend this matter.
17
THE MAJESTIC STAR CASINO, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INCOME TAX MATTER
The Majestic Star Casino, LLC has been assessed $2.6 million, plus
interest, for the fiscal year 1996 and the period January 1, 1998 through June
18, 2001, by the Indiana Department of Revenue ("Department"). The assessments
relate to deductions for payments of taxes on adjusted gross gaming revenues the
Company's member took in computing adjusted gross income for Indiana state
income tax purposes. The Department has taken the position that the Company had
an obligation to withhold and remit tax for its non-resident member. The Company
timely filed protests that are currently pending before the Legal Division of
the Department. On September 7, 2004, the Department assessed Barden
Development, Inc., the Company's parent and member, $1.3 million, plus penalties
and interest for the remainder of 2001 and all of fiscal year 2002. No
assessments have been received for the fiscal year 2003 or the period to date of
fiscal year 2004. The Department had held the assessments and protest in
abeyance while awaiting the resolution of Aztar Indiana Gaming Corporation
("Aztar") v. Indiana Department of Revenue. Aztar faced a similar issue to that
of the Company's member. On April 19, 2004 the Indiana Tax Court ruled in favor
of the Department and against Aztar. Aztar asked the Indiana Supreme Court to
review the Indiana Tax Court's decision. On September 28, 2004, the Indiana
Supreme Court denied Aztar's request to review. On October 5, 2004, the
Department sent a letter considering the matter closed unless the Company's
protest contains new issues not addressed in the Aztar matter. The Majestic Star
Casino, LLC is a limited liability company, and as such, it is a pass through
entity for federal and state tax purposes. It is the Company's belief that it is
not liable or obligated to pay the assessment or interest thereon. However,
under the Company's indenture governing the 9 1/2% notes and the loan agreement
related to the $80.0 million credit facility, the Company is allowed to make
distributions to its member for tax purposes. Any payments would be recorded as
distributions in Member's Deficit. The Company's protest sets forth issues not
decided in Aztar and therefore the Company will continue to pursue its protest
with the Department. The Company does not intend to make any distributions until
it has fully evaluated its options with its member and parent, Barden
Development, Inc.
PROPERTY TAXES
During January 2004, Majestic Star received a preliminary property tax
reassessment notice that increased the valuation of its riverboat vessel in Lake
County, Indiana, where Majestic Star is located. The valuation assessment was
part of a countywide reassessment, which are retroactive to March 1, 2002. The
reassessment was a result of a 1998 Indiana Supreme Court ruling that declared
the method of property assessment previously used was unconstitutional. Majestic
Star followed administrative policies of the taxing authorities and paid Lake
County an amount equal to 70% of its 2001 property tax liability, and had
estimated an accrual for the balance due for 2002 and 2003. In April 2004, tax
rates on the real property within Lake County, Indiana were issued. In addition,
in April 2004, the State of Indiana issued final notices of assessed valuations
to property owners within Lake County. The Company used the information provided
in April to revise its estimate of the amounts due.
18
THE MAJESTIC STAR CASINO, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
BHR, the Company's joint venture with Trump, also received a notice of
final assessed value of its real property. Similarly Buffington Harbor Parking
Associates ("BHPA"), the owner of a parking garage for which Majestic Star is a
lessee under an operating lease, received a notice reflecting final assessed
values. Majestic Star, through the joint venture agreement and the operating
lease agreement, would be liable for its portion of BHR's and BHPA's property
tax liabilities.
Based on the assessments and tax rates issued in April 2004, Majestic Star
increased its accrual for real property taxes on its vessel and its
proportionate share of liability for BHPA and BHR, by $2.2 million for the
quarter ended March 31, 2004, but this amount was subsequently adjusted downward
by $0.1 million in the current quarter as the Company has changed its estimate
for the retroactive tax liability for the year 2003. At September 30, 2004, the
accrual related to the nine-month period ended September 30, 2004 and to the
fiscal year 2003 for property taxes owed directly or indirectly by Majestic Star
is $7.9 million. Majestic Star anticipates paying its 2003 tax bill in early
2005.
GAMING REGULATIONS
The ownership and operation of riverboat gaming operations in Indiana are
subject to strict state regulation under the Riverboat Gambling Act (the "Act")
and the administrative rules promulgated thereunder. The Indiana Gaming
Commission ("IGC") is empowered to administer, regulate and enforce the system
of riverboat gaming established under the Act and has jurisdiction and
supervision over all riverboat gaming operations in Indiana, as well as over all
persons on riverboats where gaming operations are conducted. The IGC is
empowered to regulate a wide variety of gaming and non-gaming related
activities, including the licensing of suppliers to, and employees at, riverboat
gaming operations and to approve the form of entity qualifiers and intermediary
and holding companies. The IGC has broad rulemaking power, and it is impossible
to predict what effect, if any, the amendment of existing rules or the
finalization of proposed rules might have on the Company's operations.
On August 6, 2004, the IGC unanimously renewed Majestic Star's gaming
license for an additional one-year period commencing on June 2, 2004.
Effective July 1, 2003, a licensed riverboat owner who implements flexible
scheduling can conduct gambling operations for up to 24 hours per day upon
receiving IGC approval. Under prior IGC rules, riverboat casinos were required
to close for three hours daily. Majestic Star's plan for 24-hour dockside gaming
was submitted to the IGC and approved. Majestic Star began operating on a
24-hour basis on July 12, 2003.
In the second quarter of 2003, Majestic Star took a $2.1 million charge
for retroactive gaming taxes. This charge occurred when the State of Indiana
clarified the start date for recognizing gaming taxes under the current tiered
tax structure associated with the implementation of dockside gaming. Even though
Majestic Star did not implement
19
THE MAJESTIC STAR CASINO, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
dockside gaming until August 5, 2002, Majestic Star, along with all other
Indiana casinos, was required to begin paying taxes under the tiered structure
effective July 1, 2002, the effective date of the legislation allowing dockside
gaming. From the period July 1, 2002 to August 4, 2002, Majestic Star was paying
taxes at a rate of 22.5%, none of which was credited by the State of Indiana
against the retroactive tax. An Indiana casino ("taxpayer") filed a protest with
the state of Indiana Department of Revenue ("Department") arguing that it was
inappropriate for the Department to collect taxes under both tax structures. On
July 30, 2004, the Department denied the taxpayer's protest. The protest denial
has no impact on Majestic Star's financial results, because the Company
previously paid the $2.1 million retroactive gaming tax assessment.
The ownership and operation of our casino gaming facilities in Mississippi
and Colorado are also subject to various state and local regulations in the
jurisdictions where they are located. In Mississippi, our gaming operations are
subject to the Mississippi Gaming Control Act, and to the licensing and/or
regulatory control of the Mississippi Gaming Commission, the Mississippi State
Tax Commission and various state and local regulatory agencies, including liquor
licensing authorities. In Colorado, our gaming operations are subject to the
Limited Gaming Act of 1991, which created the Division of Gaming within the
Colorado Department of Revenue and the Colorado Limited Gaming Control
Commission, which is empowered to license, implement, regulate and supervise the
conduct of limited gaming. Our Colorado operations are also subject to the
Colorado Liquor Code and the state and local liquor licensing authorities. The
Division of Gaming renewed our Black Hawk limited gaming license for a
twelve-month period expiring on October 18, 2005.
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 for 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.
OTHER CONTINGENCIES
The Company and Trump have each entered into parallel operating lease
agreements with Buffington Harbor Parking Associates, LLC ("BHPA"), each having
a term until December 31, 2018. The operating lease agreement calls for the
Company and Trump to make monthly lease payments equal to 100% of BHPA's debt
service requirement for the following month, although each party is entitled to
a credit for 50% of such payment if the other party makes its monthly payment.
Since the inception of the lease, neither the Company nor Trump has had to make
a payment greater than 50% of BHPA's debt service cost.
On October 20, 2004, Trump Hotels and Casino Resorts, Inc. ("THCR")
entered into a Restructuring Support Agreement ("Agreement") with certain note
holders in order to facilitate the restructuring of THCR's public indebtedness
and recapitalize THCR. THCR is the parent to Trump. According to the Agreement,
in order to accomplish the restructuring, THCR intends to enter into a
pre-negotiated plan of reorganization under
20
THE MAJESTIC STAR CASINO, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Chapter 11 of the U.S. Bankruptcy Code. It is anticipated that the bankruptcy
filing will occur in November 2004. THCR has stated that it intends to
maintain its current level of operations during the Chapter 11 proceedings.
LETTER OF CREDIT/SURETY BOND
As part of a self-insured workers' compensation program at Majestic Star,
the Company was required to post a letter of credit in the amount of $0.9
million to secure payment of claims. To collateralize the letter of credit, the
bank required that Majestic Star purchase a $0.9 million certificate of deposit.
Such certificate of deposit is recorded in restricted cash on the Company's
Consolidated Balance Sheets (see Note 4).
To secure payment of claims under the workers' compensation programs at
Fitzgeralds Tunica, Fitzgeralds Black Hawk and Fitzgeralds Las Vegas, Investor
Holdings was required to post a letter of credit of $0.5 million. This letter of
credit is secured by restricted cash (see Note 4).
The State of Mississippi has required Fitzgeralds Tunica to post surety
bonds as security for current and future sales and gaming revenue tax
obligations. Fitzgeralds Tunica has four surety bonds: a $0.6 million bond in
place with the Mississippi State Tax Commission and three $5,000 bonds with the
Mississippi Alcoholic Beverage Control. These surety bonds are secured only by
personal guaranties of Don H. Barden. If Mr. Barden is required to make payments
to the bonding companies as a result of the guaranties, the Company will be
obligated to reimburse Mr. Barden for any such payments.
The Company has posted an appeal bond in the amount of $0.4 million in
order to proceed with its appeal regarding the unfavorable ruling against the
Company by the U.S. District Court for the Northern District of Mississippi.
This bond is secured by a letter of credit. Investor Holdings in turn has
restricted $0.4 million of its cash to secure the letter of credit.
NOTE 9. RELATED PARTY TRANSACTIONS
LOANS TO RELATED PARTIES
In January 2002, the Company made a $200,000 employee loan to Mr. Michael
Kelly, Executive Vice President and Chief Operating Officer of the Company. This
loan bore no interest and was due and payable in full in January 2005. In both
March 2003 and March 2004, Mr. Kelly paid $67,000 in accordance with the loan
agreement. In August 2004, Mr. Kelly's employment with the Company was
terminated. Upon termination, Mr. Kelly paid the remaining $66,000 due on the
loan.
21
THE MAJESTIC STAR CASINO, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TRANSACTIONS BY OR WITH AFFILIATES
On February 11, 2004, the Company acquired approximately 170 acres of land
located adjacent to the Buffington Harbor gaming complex from an affiliate (the
"GNC Land"). The purchase price was approximately $21.9 million (net of a
deposit of $2.0 million and a credit of $1.5 million related to the naming
rights agreement discussed below).
Gary New Century, LLC ("GNC"), a company wholly-owned by Mr. Barden,
intended to develop an outdoor amphitheater on property it owned adjacent to
Majestic Star. The Company entered into a Naming Rights Agreement with GNC
effective in October 2001. Pursuant to the Naming Rights Agreement, GNC agreed
to use the name "The Majestic Star Amphitheater" as the name of the amphitheater
and the Company paid GNC $1.5 million during 2001 for such rights. The initial
term of the Naming Rights Agreement was three years commencing on the opening of
the amphitheater. The Naming Rights Agreement was terminated in connection with
the acquisition of the GNC Land by the Company and the Company received a credit
of $1.5 million against the purchase price of the GNC Land at closing.
In April 2003, the Company, as authorized by the indentures governing the
10 7/8% notes and the 11.653% notes, made income tax distributions totaling $1.0
million to its sole member.
MANAGER AGREEMENT
During the nine months ended September 30, 2004, Majestic Star made
distributions totaling $3.9 million to BDI pursuant to a new Manager Agreement
(see below). Majestic Star made distributions totaling $1.0 million for the nine
months ended September 30, 2003 related to the prior Majestic Star manager
agreement.
Investor Holdings made a distribution of $2.6 million for the nine months
ended September 30, 2003 related to the prior Investor Holdings manager
agreement.
On October 7, 2003, concurrent with the consummation of the offering of
the 9 1/2% notes, the Company entered into a new Manager Agreement with BDI.
Distributions to BDI under the new Manager Agreement are governed and limited by
the terms of the indenture governing the 9 1/2% notes and by the terms of the
$80.0 million credit facility. The distributions for each fiscal quarter may not
exceed 1% of the Company's consolidated net operating revenue and 5% of the
Company's consolidated cash flow (as defined in the indenture governing the
9 1/2% notes and the Loan and Security Agreement for the $80.0 million credit
facility) for the immediately preceding fiscal quarter.
BARDEN NEVADA EXPENSE SHARING AGREEMENT
Concurrent with the consummation of the offering of the 9 1/2% notes, the
Company entered into an expense sharing agreement with Barden Nevada. The
expense sharing agreement provides for a fee from Barden Nevada to the Company
in the amount of the greater of (i) $0.5 million per year or (ii) the actual
amount of certain specified expenses incurred by the Company in connection with
providing management services to Barden
22
THE MAJESTIC STAR CASINO, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Nevada. During the nine months ended September 30, 2004, the expense sharing
fees charged to Barden Nevada were $0.8 million.
NOTE 10. SEGMENT INFORMATION
The Majestic Star Casino, LLC either directly or indirectly through
wholly-owned subsidiaries owns and operates three properties as follows: a
riverboat casino located in Gary, Indiana; 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. The major products offered in each segment are as follows:
casino, hotel rooms (in Tunica, Mississippi only), and food and beverage.
The accounting policies of each business segment are the same as those
described in the summary of significant accounting policies previously described
in Note 1 to the audited financial statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2003. There are minimal
inter-segment sales.
A summary of the Properties' operations by business segment for the three
and nine months ended September 30, 2004 and 2003 and a summary of the
Properties' assets as of September 30, 2004 and December 31, 2003 are presented
below:
23
THE MAJESTIC STAR CASINO, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For The Three Months For The Nine Months
Ended September 30, Ended September 30,
---------------------- ---------------------
2004 2003 2004 2003
---- ---- ---- ----
(in thousands)
Net revenues:
Majestic Star Casino $ 36,510 $ 35,135 $ 115,739 $ 105,362
Fitzgeralds Tunica 22,910 22,497 68,750 68,150
-------- -------- --------- -----------
Total $ 59,420 $ 57,632 $ 184,489 $ 173,512
======== ======== ========= ===========
Operating income (loss):
Majestic Star Casino $ 3,542 $ 4,706 $ 11,603 $ 14,277
Fitzgeralds Tunica 2,621 2,782 9,687 10,562
Corporate (1) (826) (874) (2,506) (2,535)
Majestic Investor Holdings (99) (868) (627) (2,223)
-------- -------- --------- -----------
Total $ 5,238 $ 5,746 $ 18,157 $ 20,081
======== ======== ========= ===========
Segment depreciation and amortization:
Majestic Star Casino $ 2,038 $ 1,388 $ 5,831 $ 4,197
Fitzgeralds Tunica 2,258 1,989 6,493 5,823
Majestic Investor Holdings 69 666 208 1,997
-------- -------- --------- -----------
Total $ 4,365 $ 4,043 $ 12,532 $ 12,017
======== ======== ========= ===========
Expenditure for additions to long-lived assets:
Majestic Star Casino $ 630 $ 2,650 $ 26,086 $ 4,986
Fitzgeralds Tunica 1,766 953 4,835 2,749
Fitzgeralds Black Hawk 419 749 1,055 1,521
Fitzgeralds Las Vegas (2) - 738 - 1,658
-------- -------- --------- -----------
Total $ 2,815 $ 5,090 $ 31,976 $ 10,914
======== ======== ========= ===========
As of As of
September 30, December 31,
2004 2003
------------ ------------
(in thousands)
Segment assets:
Majestic Star Casino $ 258,225 $ 260,925
Fitzgeralds Tunica 81,049 84,458
Fitzgeralds Black Hawk assets retained 536 30,498
Fitzgeralds Black Hawk assets held for sale 30,113 -
Majestic Investor Holdings 44,303 64,639
--------- ------------
Total 414,226 $ 440,520
Less: Intercompany (167,728) (207,305)
--------- ------------
Total $ 246,498 $ 233,215
========= ============
(1) Corporate expenses reflect payroll, benefits, travel and other costs
associated with our corporate staff and are not allocated to the
properties.
(2) The equity interests in Fitzgeralds Las Vegas were spun off to BDI on
December 31, 2003. Prior to the spin-off, the assets of Fitzgeralds Las
Vegas were reflected as held for use.
24
THE MAJESTIC STAR CASINO, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION
The proceeds from the issuance of the 9 1/2% notes and approximately $28.0
million of the $80.0 million credit facility were used to purchase and redeem
all of the 10 7/8% notes and purchase substantially all of the 11.653% notes.
Under the indenture governing the 9 1/2% notes and the Loan and Security
Agreement for the $80.0 million credit facility, Fitzgeralds Tunica and
Fitzgeralds Black Hawk remain as guarantors; however, Fitzgeralds Las Vegas
became an unrestricted and non-guarantor subsidiary and was subsequently spun
off to BDI on December 31, 2003. The operations and cash flows of Fitzgeralds
Las Vegas are reflected in discontinued operations in the Condensed
Consolidating Statements of Operations and Cash Flows for the three and nine
months ended September 30, 2003.
On July 12, 2004, the Company executed a definitive agreement to sell
substantially all the assets subject to certain liabilities of Fitzgeralds Black
Hawk. As such, those assets and liabilities to be sold are included in the
Condensed Consolidating Balance Sheet as of September 30, 2004 in assets held
for sale and liabilities related to assets held for sale (see Note 3). The
operations and cash flows of Fitzgeralds Black Hawk are reflected in
discontinued operations in the Condensed Consolidating Statements of Operations
and Cash Flows for the three and nine months ended September 30, 2004 and 2003.
The following condensed consolidating information presents Condensed
Consolidating Balance Sheets as of September 30, 2004 and December 31, 2003,
Condensed Consolidating Statements of Operations for the three and nine months
ended September 30, 2004 and 2003 and Condensed Consolidating Statements of Cash
Flows for the nine months ended September 30, 2004 and 2003 for The Majestic
Star Casino, LLC, The Majestic Star Casino Capital Corp. (a co-issuer of the
9 1/2% notes), the guarantor subsidiaries, our discontinued operations, and
eliminating entries necessary to consolidate such entities.
25
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEETS
As of September 30, 2004
(unaudited)
The Majestic The Majestic
Star Casino, Star Casino Guarantor Eliminating Total
LLC Capital Corp. Subsidiaries Entries Consolidated
------------- ------------- ------------ ------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 9,076,519 $ - $ 6,507,135 $ - $ 15,583,654
Restricted cash 900,000 - 890,008 - 1,790,008
Accounts receivable, net 1,958,698 - 564,688 - 2,523,386
Inventories 57,133 - 441,150 - 498,283
Prepaid expenses 2,279,862 - 785,630 - 3,065,492
Receivables from affiliate 172,878 - 19,524 (84,595)(a) 107,807
Assets held for sale - - 30,112,759 - 30,112,759
------------- ------------ ------------- ------------- -------------
Total current assets 14,445,090 - 39,320,894 (84,595) 53,681,389
------------- ------------ ------------- ------------- -------------
Property, equipment and improvements, net 77,244,526 - 64,014,178 - 141,258,704
Intangible assets, net - - 5,450,883 - 5,450,883
Goodwill - - 3,997,904 - 3,997,904
Other assets:
Deferred financing costs, net 5,216,652 - 449,051 - 5,665,703
Investment in Buffington Harbor
Riverboat, LLC 27,950,794 - - - 27,950,794
Long term receivable - related party 125,334,816 - - (125,334,816)(a) -
Other assets 8,033,777 - 458,689 - 8,492,466
------------- ------------ ------------- ------------- -------------
Total other assets 166,536,039 - 907,740 (125,334,816) 42,108,963
------------- ------------ ------------- ------------- -------------
Total Assets $ 258,225,655 $ - $ 113,691,599 $(125,419,411) $ 246,497,843
============= ============ ============= ============= =============
LIABILITIES AND MEMBER'S DEFICIT
Current Liabilities:
Accounts payable $ 514,396 $ - $ 810,372 $ - $ 1,324,768
Other accrued liabilities:
Payroll and related 2,435,000 - 3,223,524 - 5,658,524
Payable to related party - - 84,595 (84,595)(a) -
Interest 11,460,920 - 632,758 - 12,093,678
Progressive jackpots 971,682 - 791,558 - 1,763,240
Slot club liabilities 278,025 - 226,871 - 504,896
Other accrued liabilities 9,454,148 - 3,321,491 - 12,775,639
Liabilities related to assets
held for sale - - 2,598,736 - 2,598,736
------------- ------------ ------------- ------------- -------------
Total current liabilities 25,114,171 - 11,689,905 (84,595) 36,719,481
------------- ------------ ------------- ------------- -------------
Investment in subsidiaries 39,192,050 - - (39,192,050)(b) -
Due to related parties - - 125,334,816 (125,334,816)(a) -
Long-term debt, net of current maturities 295,615,000 260,000,000 15,858,928 (260,000,000)(c) 311,473,928
------------- ------------ ------------- ------------- -------------
Total Liabilities 359,921,221 260,000,000 152,883,649 (424,611,461) 348,193,409
------------- ------------ ------------- ------------- -------------
Member's Deficit (101,695,566) (260,000,000) (39,192,050) 299,192,050 (b)(c) (101,695,566)
------------- ------------ ------------- ------------- -------------
Total Liabilities and Member's
Deficit $ 258,225,655 $ - $ 113,691,599 $(125,419,411) $ 246,497,843
============= ============ ============= ============= =============
(a) To eliminate intercompany receivables and payables.
(b) To eliminate intercompany accounts and investment in subsidiaries.
(c) As more fully described in Note 7, Long-Term Debt, The Majestic Star
Casino Capital Corp. is a co-obligor of the 9 1/2% notes issued by the
Company. Accordingly, such indebtedness has been presented as an
obligation of both the issuer and the co-obligor in the above balance
sheets.
26
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEETS
As of December 31, 2003
The Majestic The Majestic
Star Casino, Star Casino Guarantor Eliminating Total
LLC Capital Corp. Subsidiaries Entries Consolidated
------------- ------------- ------------ ------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 10,929,430 $ - $ 11,128,586 $ - $ 22,058,016
Restricted cash 900,000 - 500,000 - 1,400,000
Accounts receivable, net 1,544,483 - 668,063 - 2,212,546
Inventories 77,312 - 630,373 - 707,685
Prepaid expenses 1,628,044 - 498,539 - 2,126,583
Receivable from affiliate 587,254 - - (377,119)(a) 210,135
Note receivable from related party 133,000 - - - 133,000
-------------- ------------- ------------- ------------- -------------
Total current assets 15,799,523 - 13,425,561 (377,119) 28,847,965
-------------- ------------- ------------- ------------- -------------
Property, equipment and improvements,
net 54,849,742 - 87,318,189 - 142,167,931
Intangible assets, net - - 9,249,247 - 9,249,247
Goodwill - - 5,922,398 - 5,922,398
Other assets:
Deferred financing costs, net 5,734,214 - 554,973 - 6,289,187
Investment in Buffington Harbor
Riverboat, LLC 29,733,594 - - - 29,733,594
Long term receivable - related party 144,395,427 - - (144,395,427)(a) -
Other assets 10,412,477 - 591,979 - 11,004,456
-------------- ------------- ------------- ------------- -------------
Total other assets 190,275,712 - 1,146,952 (144,395,427) 47,027,237
-------------- ------------- ------------- ------------- -------------
Total Assets $ 260,924,977 $ - $ 117,062,347 $(144,772,546) $ 233,214,778
============== ============= ============= ============= =============
LIABILITIES AND MEMBER'S DEFICIT
Current Liabilities:
Accounts payable $ 5,457,108 $ - $ 930,847 $ - $ 6,387,955
Payable to related party - - 377,366 (377,119)(a) 247
Accrued liabilities:
Payroll and related 2,588,039 - 3,899,068 - 6,487,107
Interest 5,865,514 - 158,189 - 6,023,703
Progressive jackpots 608,234 - 2,065,428 - 2,673,662
Slot club liabilities - - 498,070 - 498,070
Other accrued liabilities 8,003,123 - 3,592,542 - 11,595,665
-------------- ------------- ------------- ------------- -------------
Total current liabilities 22,522,018 - 11,521,510 (377,119) 33,666,409
-------------- ------------- ------------- ------------- -------------
Investment in subsidiaries 54,611,421 - - (54,611,421)(b) -
Due to related parties - - 144,395,427 (144,395,427)(a) -
Long-term debt, net of current maturities 285,958,493 260,000,000 15,756,831 (260,000,000) (c) 301,715,324
-------------- ------------- ------------- ------------- -------------
Total Liabilities 363,091,932 260,000,000 171,673,768 (459,383,427 (a) 335,381,733
-------------- ------------- ------------- ------------- -------------
Member's Deficit (102,166,955) (260,000,000) (54,611,421) 314,611,421 (b)(c) (102,166,955)
-------------- ------------- ------------- ------------- -------------
Total Liabilities and Member's
Deficit $ 260,924,977 $ - $ 117,062,347 $(144,772,546) $ 233,214,778
============== ============= ============= ============= =============
(a) To eliminate intercompany receivables and payables.
(b) To eliminate intercompany accounts and investment in subsidiaries.
(c) As more fully described in Note 7, Long-Term Debt, The Majestic Star
Casino Capital Corp. is a co-obligor of the 9 1/2% notes issued by the
Company. Accordingly, such indebtedness has been presented as an
obligation of both the issuer and the co-obligor in the above balance
sheets.
27
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended September 30, 2004
(unaudited)
The Majestic The Majestic
Star Casino, Star Casino Guarantor Discontinued Eliminating Total
LLC Capital Corp. Subsidiaries Operation(b) Entries Consolidated
------------- ------------ ------------ ------------ ------------ ------------
OPERATING REVENUES:
Casino $ 36,159,528 $ - $ 21,999,214 $ - $ - $ 58,158,742
Rooms - - 2,026,708 - - 2,026,708
Food and beverage 453,296 - 2,579,338 - - 3,032,634
Other 795,877 - 299,967 - - 1,095,844
------------ ------ ------------ ---------- ----------- ------------
Gross revenues 37,408,701 - 26,905,227 - - 64,313,928
Less promotional allowances 898,681 - 3,995,596 - - 4,894,277
------------ ------ ------------ ---------- ----------- ------------
Net operating revenues 36,510,020 - 22,909,631 - - 59,419,651
------------ ------ ------------ ---------- ----------- ------------
OPERATING COSTS AND EXPENSES:
Casino 9,404,710 - 9,633,230 - - 19,037,940
Rooms - - 449,177 - - 449,177
Food and beverage 509,771 - 922,651 - - 1,432,422
Other 526,100 - 56,991 - - 583,091
Gaming taxes 10,399,342 - 2,634,385 - - 13,033,727
Advertising and promotion 2,379,789 - 1,297,415 - - 3,677,204
General and administrative 6,007,515 - 3,068,534 - - 9,076,049
Corporate expense 825,766 - - - - 825,766
Economic incentive - City of Gary 1,087,049 - - - - 1,087,049
Depreciation and amortization 2,038,075 - 2,327,658 - - 4,365,733
Loss on investment in Buffington
Harbor Riverboats, LLC 616,058 - - - - 616,058
Gain on disposal of assets (800) - (1,904) - - (2,704)
------------ ------ ------------ ---------- ----------- ------------
Total operating costs and
expenses 33,793,375 - 20,388,137 - - 54,181,512
------------ ------ ------------ ---------- ----------- ------------
Operating income 2,716,645 - 2,521,494 - - 5,238,139
------------ ------ ------------ ---------- ----------- ------------
OTHER INCOME (EXPENSE):
Interest income 10,107 - 3,727 - - 13,834
Interest expense (6,642,646) - (474,567) - - (7,117,213)
Other non-operating expense (44,656) - - - - (44,656)
Equity in net income of subsidiaries 4,980,730 - 2,930,076 (7,910,806)(a) -
------------ ------ ------------ ---------- ----------- ------------
Total other (expense) income (1,696,465) - 2,459,236 - (7,910,806) (7,148,035)
------------ ------ ------------ ---------- ----------- ------------
Income from continuing
operations 1,020,180 - 4,980,730 - (7,910,806) (1,909,896)
DISCONTINUED OPERATIONS:
Income from discontinued operation - - - 2,930,076 2,930,076
------------ ------ ------------ ---------- ----------- ------------
Net income $ 1,020,180 $ - $ 4,980,730 $2,930,076 $(7,910,806) $ 1,020,180
============ ====== ============ ========== =========== ============
(a) To eliminate equity in net income of subsidiaries.
(b) The Discontinued Operation represents Fitzgeralds Black Hawk for which an
agreement was entered into on July 12, 2004 to sell substantially all of
its assets subject to certain of its liabilities (see Note 3, Discontinued
Operations).
28
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended September 30, 2003
(unaudited)
The Majestic The Majestic
Star Casino, Star Casino Guarantor Discontinued Eliminating Total
LLC Capital Corp. Subsidiaries Operations(b) Entries Consolidated
------------- ------------ ------------ ------------- ------------ -------------
OPERATING REVENUES:
Casino $ 34,533,303 $ - $ 21,020,801 $ - $ - $ 55,554,104
Rooms - - 2,155,546 - - 2,155,546
Food and beverage 362,514 - 2,373,980 - - 2,736,494
Other 523,958 - 379,625 - - 903,583
------------ ------- ------------ -------- ----------- ------------
Gross revenues 35,419,775 - 25,929,952 - - 61,349,727
Less promotional allowances 284,693 - 3,433,443 - - 3,718,136
------------ ------- ------------ -------- ----------- ------------
Net operating revenues 35,135,082 - 22,496,509 - - 57,631,591
------------ ------- ------------ -------- ----------- ------------
OPERATING COSTS AND EXPENSES:
Casino 9,215,369 - 9,456,153 - - 18,671,522
Rooms - - 658,404 - - 658,404
Food and beverage 392,561 - 789,349 - - 1,181,910
Other - - 144,705 - - 144,705
Gaming taxes 9,623,655 - 2,489,977 - - 12,113,632
Advertising and promotion 1,835,473 - 1,326,345 - - 3,161,818
General and administrative 6,342,945 - 3,058,622 - - 9,401,567
Corporate expense 530,733 - 343,267 - - 874,000
Economic incentive - City of Gary 1,035,573 - - - - 1,035,573
Depreciation and amortization 1,388,381 - 2,655,100 - - 4,043,481
Loss on investment in Buffington
Harbor Riverboats, LLC 594,718 - - - - 594,718
Loss on disposal of assets - - 4,671 - - 4,671
------------ ------- ------------ -------- ----------- ------------
Total operating costs and expenses 30,959,408 - 20,926,593 - - 51,886,001
------------ ------- ------------ -------- ----------- ------------
Operating income 4,175,674 - 1,569,916 - - 5,745,590
------------ ------- ------------ -------- ----------- ------------
OTHER INCOME (EXPENSE):
Interest income 12,715 - 5,420 - - 18,135
Interest expense (3,534,893) - (4,421,376) - - (7,956,269)
Other non-operating expense (37,766) - (9,582) - - (47,348)
Equity in net (loss)
income of subsidiaries (1,941,678) - 913,944 - 1,027,734 (a) -
------------ ------- ------------ -------- ----------- ------------
Total other expense (5,501,622) - (3,511,594) - 1,027,734 (7,985,482)
------------ ------- ------------ -------- ----------- ------------
Loss from continuing operations (1,325,948) - (1,941,678) - 1,027,734 (2,239,892)
DISCONTINUED OPERATIONS:
Income from discontinued operation - - - 913,944 - 913,944
------------ ------- ------------ -------- ----------- ------------
Net loss (income) $ (1,325,948) $ - $ (1,941,678) $913,944 $ 1,027,734 $ (1,325,948)
============ ======= ============ ======== =========== ============
(a) To eliminate equity in net (loss) income of subsidiaries.
(b) The Discontinued Operations reflect the operations of Fitzgeralds Las
Vegas, which is not a guarantor of the 9 1/2% notes and was spun off to
BDI on December 31, 2003 and Fitzgeralds Black Hawk for which an agreement
was entered into on July 12, 2004 to sell substantially all of its
assets subject to certain of its liabilities (see Note 3, Discontinued
Operations).
29
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 2004
(unaudited)
The Majestic The Majestic
Star Casino, Star Casino Guarantor Discontinued Eliminating Total
LLC Capital Corp. Subsidiaries Operation(b) Entries Consolidated
------------- ------------ ------------- ------------ ------------ -------------
OPERATING REVENUES:
Casino $ 114,063,831 $ - $ 66,417,511 $ - $ - $ 180,481,342
Rooms - - 5,820,214 - - 5,820,214
Food and beverage 1,391,537 - 7,023,395 - - 8,414,932
Other 2,137,763 - 975,192 - - 3,112,955
------------- ----------- ------------- ------------ ------------ -------------
Gross revenues 117,593,131 - 80,236,312 - - 197,829,443
Less promotional allowances 1,854,233 - 11,486,275 - - 13,340,508
------------- ----------- ------------- ------------ ------------ -------------
Net operating revenues 115,738,898 - 68,750,037 - - 184,488,935
------------- ----------- ------------- ------------ ------------ -------------
OPERATING COSTS AND EXPENSES:
Casino 30,100,865 - 28,411,352 - - 58,512,217
Rooms - - 1,381,473 - - 1,381,473
Food and beverage 1,571,671 - 2,242,187 - - 3,813,858
Other 591,746 - 193,209 - - 784,955
Gaming taxes 32,609,587 - 7,920,358 - - 40,529,945
Advertising and promotion 6,787,231 - 3,675,716 - - 10,462,947
General and administrative 21,368,930 - 9,168,045 - - 30,536,975
Corporate expense 2,506,052 - - - - 2,506,052
Economic incentive - City of Gary 3,423,286 - - - - 3,423,286
Depreciation and amortization 5,830,605 - 6,700,983 - - 12,531,588
Loss on investment in Buffington
Harbor Riverboats, LLC 1,854,406 - - - - 1,854,406
Gain on disposal of assets (2,462) - (3,804) - - (6,266)
------------- ----------- ------------- ------------ ------------ -------------
Total operating costs and
expenses 106,641,917 - 59,689,519 - - 166,331,436
------------- ----------- ------------- ------------ ------------ -------------
Operating income 9,096,981 - 9,060,518 - - 18,157,499
------------- ----------- ------------- ------------ ------------ -------------
OTHER INCOME (EXPENSE):
Interest income 14,642 - 9,595 - - 24,237
Interest expense (19,947,795) - (1,423,703) - - (21,371,498)
Other non-operating expense (168,504) - - - - (168,504)
Equity in net income of subsidiaries 15,419,372 - 7,772,962 - (23,192,334)(a) -
------------- ----------- ------------- ------------ ------------ -------------
Total other (expense) income (4,682,285) - 6,358,854 - (23,192,334) (21,515,765)
------------- ----------- ------------- ------------ ------------ -------------
Income from continuing
operations 4,414,696 - 15,419,372 - (23,192,334) (3,358,266)
DISCONTINUED OPERATIONS:
Income from discontinued
operations - - - 7,772,962 - 7,772,962
------------- ----------- ------------- ------------ ------------ -------------
Net income $ 4,414,696 $ - $ 15,419,372 $ 7,772,962 $(23,192,334) $ 4,414,696
============= =========== ============= ============ ============ =============
(a) To eliminate equity in net income of subsidiaries.
(b) The Discontinued Operation represents Fitzgeralds Black Hawk for which an
agreement was entered into on July 12, 2004 to sell substantially all of
its assets subject to certain of its liabilities (see Note 3, Discontinued
Operations).
30
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
(UNAUDITED)
The Majestic The Majestic
Star Casino, Star Casino Guarantor Discontinued Eliminating Total
LLC Capital Corp. Subsidiaries Operations(b) Entries Consolidated
------------- ------------ ------------- ------------- ------------ -------------
OPERATING REVENUES:
Casino $ 103,464,268 $ - $ 64,260,967 $ - $ - $ 167,725,235
Rooms - - 6,042,051 - - 6,042,051
Food and beverage 1,097,999 - 7,011,232 - - 8,109,231
Other 1,723,907 - 1,037,471 - - 2,761,378
------------- ------ ------------- ---------- ------------ -------------
Gross revenues 106,286,174 - 78,351,721 - - 184,637,895
Less promotional allowances 924,219 - 10,201,696 - - 11,125,915
------------- ------ ------------- ---------- ------------ -------------
Net operating revenues 105,361,955 - 68,150,025 - - 173,511,980
------------- ------ ------------- ---------- ------------ -------------
OPERATING COSTS AND EXPENSES:
Casino 27,149,303 - 27,986,946 - - 55,136,249
Rooms - - 1,921,639 - - 1,921,639
Food and beverage 1,196,149 - 2,116,663 - - 3,312,812
Other - - 335,906 - - 335,906
Gaming taxes 30,792,182 - 7,417,225 - - 38,209,407
Advertising and promotion 5,038,353 - 4,050,276 - - 9,088,629
General and administrative 17,684,591 - 8,178,425 - - 25,863,016
Corporate expense 1,552,539 - 982,491 - - 2,535,030
Economic incentive - City of Gary 3,106,984 - - - - 3,106,984
Depreciation and amortization 4,197,083 - 7,819,961 - - 12,017,044
Loss on investment in Buffington
Harbor Riverboats, LLC 1,793,898 - - - - 1,793,898
Loss (gain) on disposal of assets 125,919 - (16,029) - - 109,890
------------- ------ ------------- ---------- ------------ -------------
Total operating costs and
expenses 92,637,001 - 60,793,503 - - 153,430,504
------------- ------ ------------- ---------- ------------ -------------
Operating income 12,724,954 - 7,356,522 - - 20,081,476
------------- ------ ------------- ---------- ------------ -------------
OTHER INCOME (EXPENSE):
Interest income 42,807 - 37,336 - - 80,143
Interest expense (10,603,782) - (13,264,175) - - (23,867,957)
Other non-operating expense (113,320) - (28,482) - - (141,802)
Equity in net (loss) income of
subsidiaries (1,970,887) - 3,927,912 - (1,957,025)(a) -
------------- ------ ------------- ---------- ------------ -------------
Total other expense (12,645,182) - (9,327,409) - (1,957,025) (23,929,616)
------------- ------ ------------- ---------- ------------ -------------
Income (loss) from continuing
operations 79,772 - (1,970,887) - (1,957,025) (3,848,140)
DISCONTINUED OPERATIONS:
Income from discontinued operations - - 3,927,912 - 3,927,912
------------- ------ ------------- ---------- ------------ -------------
Net income (loss) $ 79,772 $ - $ (1,970,887) $3,927,912 $ (1,957,025) $ 79,772
============= ====== ============= ========== ============ =============
(a) To eliminate equity in net (loss) income of subsidiaries.
(b) The Discontinued Operations reflect the operations of Fitzgeralds Las
Vegas, which is not a guarantor of the 9 1/2% notes and was spun off to
BDI on December 31, 2003 and Fitzgeralds Black Hawk for which an agreement
was entered into on July 12, 2004 to sell substantially all of its assets
subject to certain of its liabilities (see Note 3, Discontinued
Operations).
31
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004
(UNAUDITED)
The Majestic The Majestic
Star Casino, Star Casino Guarantor Discontinued Eliminating Total
LLC Capital Corp. Subsidiaries Operation(a) Entries Consolidated
------------- ------------ ------------- ------------ ------------ -------------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES: $ (493,434) $ - $ 14,358,371 $ 8,605,054 $ - $ 22,469,991
------------ ---------- ------------ ----------- --------- ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Increase in restricted cash - - (390,008) - - (390,008)
Acquisition of property and
equipment (26,085,418) - (4,835,296) (1,055,296) - (31,976,010)
Decrease in prepaid leases and
deposits 10,683 - - - - 10,683
Investment in Buffington Harbor
Riverboats, LLC (71,606) - - - - (71,606)
Proceeds from disposal of equipment 168,212 - 36,900 44,261 - 249,373
------------ ---------- ------------ ----------- --------- ------------
Net cash used in investing
activities (25,978,129) - (5,188,404) (1,011,035) - (32,177,568)
------------ ---------- ------------ ----------- --------- ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance cost for the 9-1/2% senior
secured notes (229,507) - - - - (229,507)
Issuance cost for credit facility (58,652) - - - - (58,652)
Proceeds from line of credit 32,901,293 - - - - 27,901,293
Repayment of line of credit (23,244,786) - - - - (18,244,786)
Cash received from (advanced to)
related parties 19,193,611 - (11,560,611) (7,500,000) - 133,000
Distribution to Barden Development,
Inc. (3,943,307) - - - - (3,943,307)
------------ ---------- ------------ ----------- --------- ------------
Net cash provided by (used in)
financing activities 24,618,652 - (11,560,611) (7,500,000) - 5,558,041
------------ ---------- ------------ ----------- --------- ------------
Net (decrease) increase in cash and cash
equivalents (1,852,911) - (2,390,644) 94,019 - (4,149,536)
Cash related to discontinued operations - - - (2,324,826) - (2,324,826)
Cash and cash equivalents, beginning
of period 10,929,430 - 8,897,779 2,230,807 - 22,058,016
------------ ---------- ------------ ----------- --------- ------------
Cash and cash equivalents, end of period $ 9,076,519 $ - $ 6,507,135 $ - $ - $ 15,583,654
============ ========== ============ =========== ========= ============
(a) Contained within the discontinued operations are the cash flow activities
of Fitzgeralds Black Hawk, for which an agreement was entered into on July
12, 2004 to sell substantially all of its assets subject to certain of its
liabilities (see Note 3, Discontinued Operations).
32
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE. 11 SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
(UNAUDITED)
The Majestic The Majestic
Star Casino, Star Casino Guarantor Discontinued Eliminating Total
LLC Capital Corp. Subsidiaries Operations(a)(b) Entries Consolidated
------------- ------------ ------------ --------------- ------------ -------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES: $ 14,037,416 $ - $ 5,929,372 $ 6,424,164 $ - $ 26,390,952
------------ ------- ------------ ----------- -------- ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Increase in restricted cash - - (250,000) - - (250,000)
Acquisition of property and
equipment (4,986,306) - (2,748,511) (3,179,488) - (10,914,305)
Cash paid in excess of historical
cost for land purchased from a
related party (559,806) - - - - (559,806)
Decrease in prepaid leases and
deposits 108,500 - - - - 108,500
Investment in Buffington Harbor
Riverboats, LLC (211,138) - - - - (211,138)
Proceeds from disposal of equipment 14,750 - 28,180 13,289 - 56,219
------------ ------- ------------ ----------- -------- ------------
Net cash used in investing
activities (5,634,000) - (2,970,331) (3,166,199) - (11,770,530)
------------ ------- ------------ ----------- -------- ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payment of 9.5% notes issuance costs (203,939) - (2,337) - - (206,276)
Repayment of long-term debt - - - (114,014) - (114,014)
Cash received from (paid to) related
parties 367,000 - 4,600,000 (3,900,000) - 1,067,000
Distribution to Barden Development,
Inc. (1,726,009) - (2,932,696) - - (4,658,705)
------------ ------- ------------ ----------- -------- ------------
Net cash (used in) provided by
financing activities (1,562,948) - 1,664,967 (4,014,014) - (3,911,995)
Net increase (decrease) in cash and cash
equivalents 6,840,468 - 4,624,008 (756,049) - 10,708,427
Cash and cash equivalents, beginning
of period 8,564,057 - 8,860,574 7,123,250 - 24,547,881
------------ ------- ------------ ----------- -------- ------------
Cash and cash equivalents, end of period $ 15,404,525 $ - $ 13,484,582 $ 6,367,201 $ - $ 35,256,308
============ ======= ============ =========== ======== ============
(a) Contained within the Discontinued Operations are the cash flow activities
of Fitzgeralds Black Hawk, for which an agreement was entered into on July
12, 2004 to sell substantially all of its assets subject to certain of its
liabilities (see Note 3, Discontinued Operations).
(b) Contained within Discontinued Operations are the cash flow activities of
Fitzgeralds Las Vegas, whose equity interests were spun off to Barden
Development, Inc. on December 31, 2003 (see Note 3, Discontinued
Operations).
33
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
STATEMENT ON FORWARD-LOOKING INFORMATION
Throughout this report we make forward-looking statements. Forward-looking
statements include the words "may," "will," "would," "could," "likely,"
"estimate," "intend," "plan," "continue," "believe," "expect" or "anticipate"
and other similar words and include all discussions about our acquisition and
development plans. We do not guarantee that the transactions and events
described in this report will happen as described or that any positive trends
noted in this report will continue. The forward-looking statements contained in
this report are generally located in the material set forth under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," but may be found in other locations as well. These forward-looking
statements generally relate to our plans, objectives and expectations for future
operations and are based upon management's reasonable estimates of future
results or trends. Although we believe that our plans and objectives reflected
in or suggested by such forward-looking statements are reasonable, we may not
achieve such plans or objectives. You should read this report completely and
with the understanding that actual future results may be materially different
from what we expect. We will not update forward-looking statements even though
our situation may change in the future.
Specific factors that might cause actual results to differ from our
expectations, or may cause us to modify our plans and objectives, include, but
are not limited to:
- - the availability and adequacy of our cash flow to meet our requirements,
including payment of amounts due under the $80.0 million credit facility,
the 11.653% notes and the 9 1/2% notes;
- - changes in our financial condition that may cause us to not be in
compliance with the covenants contained within the indenture governing the
9 1/2% notes or the Loan and Security Agreement governing the $80.0
million credit facility, and thus causing us to be in default with the
trustee for the 9 1/2% notes and the lenders to the $80.0 million credit
facility, requiring a payment acceleration on the debt obligations
outstanding;
- - changes or developments in laws, regulations or taxes in the casino and
gaming industry including increases in taxes imposed on gaming revenues,
gaming devices or admission taxes;
- - increased competition in existing markets or the opening of new gaming
jurisdictions;
- - our failure to obtain, delays in obtaining or the loss of any licenses,
permits or approvals, including gaming and liquor licenses, or the
limitation or conditioning of any such licenses, permits or approvals, or
our failure to obtain an unconditional renewal of any such licenses,
permits or approvals on a timely basis;
- - the failure of the purchaser to close on the sale of our casino in Black
Hawk, Colorado thus restricting the ability of the Company to invest in
new projects or the inability of the Company to find an economically
viable project to invest the net proceeds after closing,
34
thus causing the Company to pay down on the $80.0 million credit facility
and take a permanent reduction in the $80.0 million credit facility by the
amount of the pay down and to make an offer to purchase the Company's
9 1/2% notes with any remaining proceeds;
- - adverse determinations of issues related to disputed taxes, particularly
in Indiana, as evidenced by the charge in the current year of retroactive
property taxes and the recent ruling in the Aztar case, which denied
Aztar's deductions of taxes paid on its casino revenue on its Indiana
state income tax return for which Majestic Star's member faces a similar
issue;
- - other adverse conditions, such as adverse economic conditions in the
Company's markets, changes in general customer confidence or spending,
increased fuel and transportation costs, or travel concerns that may
adversely affect the economy in general and/or the casino and gaming
industry in particular;
- - maintaining favorable relationships with employees of the Company
including the timely negotiation of labor agreements covering employees
subject to collective bargaining agreements;
- - the ability to fund capital improvements and development needs from
existing operations, available credit, or new financing;
- - risk of our joint venture partner, Trump Indiana, Inc., not making its
lease payments when due in connection with the parking facility in Gary,
Indiana or failing to fund the BHR joint venture;
- - the disruption to our casino operation due to acts of nature or God;
- - the ability to retain management personnel who are important to our
operations and potential delays in identifying and employing candidates to
fill vacated positions due to a lack of qualified candidates;
- - factors relating to the current state of world affairs and any further
acts of terrorism or any other destabilizing events in the United States
or elsewhere; and
- - other factors discussed under "Factors that May Affect Future Results" in
our December 31, 2003 Form 10-K in Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" or elsewhere in
that report or that may be disclosed from time to time in filings we make
with the SEC or otherwise.
All future written and verbal forward-looking statements attributable to
us or any person acting on our behalf are expressly qualified in their entirety
by the cautionary statements contained or referred to in this section. In light
of these risks, uncertainties and assumptions, the forward-looking events
discussed in this report might not occur.
The following discussion should be read in conjunction with, and is
qualified in its entirety by, our financial statements, including the notes
thereto.
35
EXECUTIVE OVERVIEW
The Company
The Majestic Star Casino, LLC and its subsidiaries (collectively, the
"Company"), operate a riverboat gaming facility located in Gary, Indiana
("Majestic Star") and two Fitzgeralds-brand casino-hotels located in Tunica
County, Mississippi ("Barden Mississippi" or "Fitzgeralds Tunica") and Black
Hawk, Colorado (casino only) ("Barden Colorado" or "Fitzgeralds Black Hawk").
The Company receives reimbursement of expenses for services provided to Barden
Nevada Gaming, LLC ("Barden Nevada" or "Fitzgeralds Las Vegas"). Fitzgeralds Las
Vegas was spun off to Barden Development, Inc. ("BDI"), the Company's parent,
effective on December 31, 2003.
On July 12, 2004, the Company announced the sale of substantially all the
assets and certain liabilities of Fitzgeralds Black Hawk for $66.0 million,
subject to a working capital adjustment and an adjustment based on certain
capital expenditures. Because of the pending sale, the property operations of
Fitzgeralds Black Hawk are reflected in discontinued operations for all periods
in our tables and discussion of results presented below. In addition, because
the spin-off of Fitzgeralds Las Vegas was effective December 31, 2003, the
discussion of our historical operating results in this section does not include
the financial results of Fitzgeralds Las Vegas except to the extent it is a
discontinued operation.
Overall Operating Results
Consolidated gross operating revenues in the three-month period ended
September 30, 2004 of $64.3 million increased $3.0 million or 4.8% over
consolidated gross operating revenues of $61.3 million in the three-month period
ended September 30, 2003. The increase is primarily due to our marketing and
promotional programs, and focus on providing our casino guests with the newest
and most appealing slot machines. For the nine-month period ended September 30,
2004, gross revenues were $197.8 million, a 7.1% increase or $13.2 million over
the $184.6 million generated in the prior year. Our strong year to date gross
revenue growth is primarily due to the marketing and promotional efforts at
Majestic Star. Majestic Star was responsible for $11.3 million of our gross
revenue growth. We had a consolidated loss from continuing operations of $1.9
million during the three-month period ended September 30, 2004 compared to a
consolidated loss from continuing operations of $2.2 million during the same
period in 2003. We had consolidated net income of $1.0 million during the
three-month period ended September 30, 2004 compared to a consolidated net loss
of $1.3 million during the same period in 2003. The increase in net income is
primarily due to our improved gross revenues of which casino revenues were the
primary contributor, strong performance at our Fitzgeralds Black Hawk casino and
a $1.4 million net loss at Fitzgeralds Las Vegas for the three-month period
ended September 30, 2003. Fitzgeralds Las Vegas is not included in our third
quarter 2004 results. Casino revenues for the quarter increased $2.6 million, or
4.7%.
Loss from continuing operations was $3.4 million for the nine-month period
ended September 30, 2004 and $3.8 million for the same period in 2003. We had
consolidated net income of $4.4 million during the nine-month period ended
September 30, 2004 compared to consolidated net income of $0.1 million during
the same period in 2003. The improvement in net income was $4.3 million, a
5,434.1% increase. Our increase in net income was driven by our substantial
gross revenue growth, of which casino revenues were again the primary
contributor, strong
36
performance at our Fitzgeralds Black Hawk Casino and a $1.5 million loss at
Fitzgeralds Las Vegas during the nine months ended September 30, 2003.
Fitzgeralds Las Vegas is not included in our year to date 2004 results. Casino
revenues for the nine-month period ended September 30, 2004 were $180.5 million
compared to $167.7 million in the prior year, an increase of $12.8 million or
7.6%.
An overview of the developments that affected our results during the
three- and nine-month periods ended September 30, 2004, or that may affect
future results are listed below and discussed in greater detail in our
discussion of operating results:
- Competition remains intense in all the markets in which the
Company competes. During the quarter, Majestic Star was
impacted by the opening of a 2,000 space-parking garage at
Horseshoe in Hammond and the completion of $27.0 million in
improvements and amenities at Harrah's East Chicago.
- Higher taxes, particularly at Majestic Star, negatively
impacted the earnings at the property. Majestic Star pays
significant amounts in gaming and property taxes. In the first
quarter of this year, Majestic Star took a $2.2 million charge
for retroactive (2002 and 2003) property taxes and in the
second quarter of 2003, took a $2.1 million charge for
retroactive gaming taxes.
- Majestic Star has been assessed $2.6 million, plus interest,
by the Indiana Department of Revenue for the tax deductions
its member took on his Indiana tax return for taxes paid on
adjusted gross gaming revenues. In addition, Barden
Development, Inc., the Company's parent and member, has been
assessed $1.3 million, plus interest and penalties regarding
the same issue. Majestic Star, a pass through entity for
federal and state income tax purposes, contends that it is not
liable for the assessment. However, Majestic Star will make
permitted distributions to fund its member's tax liabilities.
The Company and Barden Development, Inc. are currently
reviewing their options with regard to the assessments.
- The Company continues to be aggressive with its marketing and
promotions. The Company feels that the marketing campaigns
featuring Mike Ditka, the former Chicago Bears player and
coach, have been very successful for the Majestic Star
property. In addition, all of our properties continue to be
aggressive with direct mail marketing. This past year
Fitzgeralds Tunica has focused on filling its hotel with rated
casino gamblers.
- On October 7, 2003, the Company completed a refinancing of
substantially all of its debt. As a result of the refinancing,
the Company was able to issue debt and enter into a credit
agreement with significantly lower interest rates, which
resulted in reduced interest expense of $0.8 million and $2.5
million for the three- and nine- month periods ended September
30, 2004 when compared to the same prior year periods.
- Through September 30, 2004, we have spent approximately $33.5
million on capital expenditures. While $22.1 million was spent
on 170 acres of property adjacent to the
37
Majestic Star and Buffington Harbor facilities, the balance
has mainly been spent on improving and enhancing our casino
floors. The Company has spent significant capital dollars in
purchasing new slot machines, investing in Ticket In Ticket
Out (TITO) technology, implementation of a new slot player
tracking and marketing system and expanding the casino floor
space at Fitzgeralds Tunica, which increased slot machine
capacity by 90 games, along with remodeling the bathrooms,
cage and guest services areas at Fitzgeralds Tunica. At
September 30, 2004, the Company anticipated spending $6.4
million on capital expenditures for the remainder of 2004.
- We continue to purchase the latest slot machine product at all
of our properties. In addition, we continue the implementation
of TITO at Majestic Star. At this time 940, or 57.6%, of
Majestic Star's slot machines are equipped with TITO. We
anticipate another 240 slot machines coming on line with TITO
by year-end. In addition, the implementation of the new slot
player tracking and marketing system at Fitzgeralds Tunica
will allow us to begin installing TITO at that property. We
anticipate having 140 slot machines that operate with TITO by
year-end. The new slot machines, coupled with TITO technology,
should allow our casino guests to play their favorite slot
machines with fewer interruptions, thus generating longer time
on the devices and allowing us to provide better guest
service. The Company is currently evaluating its alternatives
for re-investing the proceeds from the sale of Fitzgeralds
Black Hawk. Reinvestment could include enhancing or upgrading
the facilities and amenities at either Majestic Star or
Fitzgeralds Tunica, investing in an emerging jurisdiction,
acquiring an existing casino operation, paying down the
Company's debt, or some combination of the alternatives above.
- The Company also has spent capital dollars in other areas this
past year with the primary benefit to improve the guest
experience. In February 2004, Fitzgeralds Tunica completed a
room remodel project with improvements to approximately 100 of
the property's 507 hotel rooms. Within the Majestic Star
vessel, construction of the new Don and Mike's Sports Bar was
completed and the bar opened in May 2004. The Sports Bar
offers sports entertainment on 13 flat screen TV's, coupled
with a food and beverage operation. The Sports Bar contains 39
slot machines and was constructed in the third floor players'
lounge. The new Sports Bar has allowed us to close our first
floor snack bar so that we can expand our casino floor and add
additional slot machines. Majestic has also remodeled the VIP
lounge and its high limit table games area known as the Monte
Carlo Room.
- The City of Gary has started construction on new roads that
will provide better access to Majestic Star, Buffington Harbor
and the 170 acres of property Majestic Star acquired from an
affiliate in February 2004. Road construction costs will be
paid from public funds. The first phase of the road
construction, which will provide better access to Majestic
Star and Buffington Harbor, is expected to be completed in the
spring of 2005.
- Discussions continue about the development of a casino in the
southern suburbs of Chicago. In addition, discussions have
occurred on granting three to four new casino licenses in
Illinois with one potentially in Chicago. In addition, there
have been discussions of additional casino projects in and
around the Tunica, Mississippi area. These projects, if they
materialize, could have a direct impact on Majestic Star and
Fitzgeralds Tunica. The Company will monitor these situations
as they develop and
38
will work to continue to enhance its gaming interests in our
markets and the economic benefits brought to the surrounding
community.
- On July 1, 2004, Harrah's Entertainment Inc. ("Harrah's")
completed its acquisition of Horseshoe Gaming Holding Corp.
("Horseshoe"). Harrah's and Horseshoe both operate casinos in
northwest Indiana and Tunica, Mississippi. The Company also
operates casinos (Majestic Star and Fitzgeralds Tunica) within
these markets. While it is difficult to determine the
long-term effects of the acquisition, the Harrah's
organization will have acquired the top competitor in these
markets, will have expanded its database of players and market
share significantly, and may be able to recognize operating
synergies within both markets.
- The announcements of Harrah's proposed acquisition of Caesars
Entertainment, Inc. ("Caesars") and MGM Mirage's ("MGM")
proposed acquisition announcement of Mandalay Resorts Group
would give Harrah's and MGM significant properties in and
around the Company's properties and would give these two large
national gaming companies an even greater presence in gaming
on a national scale. While it is difficult to determine the
actual effects of these acquisitions, both Harrah's and MGM
will have acquired numerous casinos providing an expanded
database of players and greater market share in many regions
of the country, plus the ability to recognize operating and
administrative synergies.
- Recently, Harrah's announced the sale of Harrah's East Chicago
and Harrah's Tunica to Colony Capital. Also, Caesars announced
the sale of Bally's Tunica to Colony Capital. Harrah's East
Chicago competes directly with Majestic Star. Harrah's Tunica
and Bally's Tunica compete directly with Fitzgeralds Tunica.
At this time the Company cannot determine the effects of these
transactions, however, if Colony Capital should invest
significant capital resources into these properties the
already competitive nature of these markets could increase
significantly. In addition, through Harrah's announced
acquisition of Caesars, Harrah's would still possess three
casinos in Tunica Mississippi.
- The Company's management is working with the negotiating team
of the Hotel Employees Restaurant Employees International
Union, Local 1, or UNITE HERE, on a new labor agreement. The
existing agreement, affecting about 73 employees at Majestic
Star and about 120 employees at Buffington Harbor expired on
October 31, 2004. Management is also currently negotiating a
labor agreement with the United Steelworkers of America Union.
The United Steelworkers represents 21 slot technicians at
Majestic Star.
- The information contained above under "Statement on Forward
Looking Information" and the competitive factors set forth in
Item 1. Business, under the caption "Competition", in our
December 31, 2003 Form 10-K have had and will continue to have
an effect on our operations.
39
RESULTS OF OPERATIONS
The following table sets forth information derived from the Company's
statements of income expressed as a percentage of gross operating revenues.
CONSOLIDATED STATEMENTS OF OPERATIONS - PERCENTAGE OF GROSS OPERATING REVENUES
For The For The
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
2004 2003 2004 2003
---- ---- ---- ----
OPERATING REVENUES:
Casino 90.4% 90.6% 91.2% 90.8%
Rooms 3.2% 3.5% 2.9% 3.3%
Food and beverage 4.7% 4.4% 4.3% 4.4%
Other 1.7% 1.5% 1.6% 1.5%
----- ----- ----- -----
Gross operating revenues 100.0% 100.0% 100.0% 100.0%
Less promotional allowances 7.6% 6.1% 6.7% 6.0%
----- ----- ----- -----
Net operating revenues 92.4% 93.9% 93.3% 94.0%
----- ----- ----- -----
OPERATING COSTS AND EXPENSES:
Casino 29.6% 30.4% 29.6% 29.8%
Rooms 0.7% 1.1% 0.7% 1.0%
Food and beverage 2.2% 1.9% 1.9% 1.8%
Other 0.9% 0.2% 0.4% 0.2%
Gaming taxes (1) 20.3% 19.7% 20.5% 20.7%
Advertising and promotion 5.7% 5.2% 5.3% 4.9%
General and administrative (2) 14.1% 15.3% 15.4% 14.0%
Corporate expenses 1.3% 1.4% 1.3% 1.4%
Economic incentive - City of Gary 1.7% 1.7% 1.7% 1.7%
Depreciation and amortization 6.8% 6.6% 6.3% 6.5%
Loss on investment in the BHR joint venture 1.0% 1.0% 1.0% 1.0%
Loss on sale of assets 0.0% 0.0% 0.0% 0.1%
----- ----- ----- -----
Total operating costs and expenses 84.3% 84.5% 84.1% 83.1%
----- ----- ----- -----
Operating income 8.1% 9.4% 9.2% 10.9%
----- ----- ----- -----
OTHER INCOME (EXPENSES):
Interest income 0.0% 0.0% 0.0% 0.0%
Interest expense -11.0% -12.9% -10.8% -12.9%
Other non-operating expense -0.1% -0.1% -0.1% -0.1%
----- ----- ----- -----
Total other expenses -11.1% -13.0% -10.9% -13.0%
----- ----- ----- -----
Loss from continuing operations -3.0% -3.6% -1.7% -2.1%
Income from discontinued operations 4.6% 1.5% 3.9% 2.1%
----- ----- ----- -----
Net income (loss) 1.6% -2.1% 2.2% 0.0%
===== ===== ===== =====
(1) Gaming taxes include the $2.1 million retroactive gaming tax charge in
the nine-month period ended September 30, 2003.
(2) General and administrative expenses for the three and nine months ended
September 30, 2004 include a $(0.1) million and a $2.2 million
retroactive property tax charge, respectively.
40
The following table provides certain selected financial information from our
Consolidated Statements of Operations.
For The For The
Three Months Ended Nine Months Ended
September 30, Percentage September 30, Percentage
------------- Increase ------------------- Increase
2004 2003 (Decrease) 2004 2003 (Decrease)
---- ---- ---------- ---- ---- ----------
(in millions) (in millions)
Casino revenues $ 58.2 $ 55.6 4.7% $ 180.5 $ 167.7 7.6%
Room revenues 2.0 2.1 -6.0% 5.8 6.0 -3.7%
Food and beverage revenues 3.0 2.7 10.8% 8.4 8.1 3.8%
Other revenues 1.1 0.9 21.3% 3.1 2.8 12.7%
------- ------- ------- -------- -------- ------
Gross operating revenues 64.3 61.3 4.8% 197.8 184.6 7.1%
Less promotional allowances 4.9 3.7 31.6% 13.3 11.1 19.9%
------- ------- ------- -------- -------- ------
Net operating revenues 59.4 57.6 3.1% 184.5 173.5 6.3%
Operating expenses 54.2 51.9 4.4% 166.4 153.4 8.4%
------- ------- ------- -------- -------- ------
Operating income 5.2 5.7 -8.8% 18.1 20.1 -9.6%
Other income (expense) (7.1) (7.9) -10.5% (21.5) (23.9) -10.1%
------- ------- ------- -------- -------- ------
Loss from continuing operations (1.9) (2.2) 14.7% (3.4) (3.8) -12.7%
Income from discontinued operation 2.9 0.9 220.6% 7.8 3.9 97.9%
------- ------- ------- -------- -------- ------
Net income (loss) $ 1.0 $ (1.3) - 176.9% $ 4.4 $ 0.1 5434.1%
======= ======= ======= ======== ======== ======
Consolidated
The following tables provide certain selected segment financial
information for each of the Majestic Star, Fitzgeralds Tunica, and Fitzgeralds
Black Hawk, as well as Majestic Investor Holdings (an intermediate holding
company that owns Fitzgeralds Tunica and Fitzgeralds Black Hawk). All amounts
are shown before corporate overhead.
Majestic Star
For The For The
Three Months Ended Nine Months Ended
September 30, Percentage September 30, Percentage
------------------ Increase ------------------- Increase
2004 2003 (Decrease) 2004 2003 (Decrease)
---- ---- ---------- ---- ---- -----------
(in millions) (in millions)
Casino revenues $ 36.2 $ 34.5 4.7% $ 114.1 $ 103.5 10.2%
Room revenues - - 0.0% - - 0.0%
Food and beverage revenues 0.5 0.4 25.0% 1.4 1.1 26.7%
Other revenues 0.7 0.5 51.9% 2.1 1.7 24.0%
------- ------- ------- -------- -------- -----
Gross operating revenues 37.4 35.4 5.6% 117.6 106.3 10.6%
Less promotional allowances 0.9 0.3 215.7% 1.9 0.9 100.6%
------- ------- ------- -------- -------- -----
Net operating revenues 36.5 35.1 3.9% 115.7 105.4 9.8%
Operating expenses 33.0 30.4 8.3% 104.1 91.1 14.3%
------- ------- ------- -------- -------- -----
Operating income 3.5 4.7 -24.7% 11.6 14.3 -18.7%
Other income (expense) (6.6) (3.6) 87.6% (20.1) (10.7) 88.3%
------- ------- ------- -------- -------- -----
Net (loss) income $ (3.1) $ 1.1 -373.4% $ (8.5) $ 3.6 -335.9%
======= ======= ======= ======== ======== =====
41
Fitzgeralds Tunica
For The For The
Three Months Ended Nine Months Ended
September 30, Percentage September 30, Percentage
------------------ Increase ------------------- Increase
2004 2003 (Decrease) 2004 2003 (Decrease)
---- ---- ---------- ---- ---- -----------
(in millions) (in millions)
Casino revenues $ 22.0 $ 21.0 4.7% $ 66.4 $ 64.3 3.4%
Room revenues 2.0 2.1 -6.0% 5.8 6.0 -3.7%
Food and beverage revenues 2.6 2.4 8.7% 7.0 7.0 0.2%
Other revenues 0.3 0.4 -21.0% 1.0 1.1 -6.0%
------- ------- ------ ------- ------- -----
Gross operating revenues 26.9 25.9 3.8% 80.2 78.4 2.4%
Less promotional allowances 4.0 3.4 16.4% 11.4 10.2 12.6%
------- ------- ------ ------- ------- -----
Net operating revenues 22.9 22.5 1.8% 68.8 68.2 0.9%
Operating expenses 20.3 19.7 2.9% 59.1 57.6 2.6%
------- ------- ------ ------- ------- -----
Operating income 2.6 2.8 -5.8% 9.7 10.6 -8.3%
Other income (expense) 0.0 0.0 78.9% 0.0 0.0 -6.2%
------- ------- ------ ------- ------- -----
Net income $ 2.6 $ 2.8 -5.7% $ 9.7 $ 10.6 -8.3%
======= ======= ====== ======= ======= =====
Fitzgeralds Black Hawk (Discontinued Operation and Not Included In Consolidated
Selected Financial Information)
For The For The
Three Months Ended Nine Months Ended
September 30, Percentage September 30, Percentage
------------------ Increase ------------------ Increase
2004 2003 (Decrease) 2004 2003 (Decrease)
---- ---- ---------- ---- ---- -----------
(in millions) (in millions)
Casino revenues $ 9.9 $ 9.0 9.7% $ 29.2 $ 25.9 12.8%
Room revenues - - 0.0% - - 0.0%
Food and beverage revenues 0.6 0.5 7.3% 1.7 1.6 8.9%
Other revenues 0.1 0.1 85.6% 0.3 0.2 66.0%
------- ------ ---- ------- ------- ----
Gross operating revenues 10.6 9.6 10.1% 31.2 27.7 13.0%
Less promotional allowances 0.8 0.8 4.2% 2.5 2.4 6.3%
------- ------ ---- ------- ------- ----
Net operating revenues 9.8 8.8 10.6% 28.7 25.3 13.6%
Operating expenses 6.9 6.5 5.3% 20.9 19.9 5.6%
------- ------ ---- ------- ------- ----
Operating income 2.9 2.3 25.5% 7.8 5.4 42.7%
Other income (expense) - - 0.0% 0.0 - 0.0%
------- ------ ---- ------- ------- ----
Net income $ 2.9 $ 2.3 25.7% $ 7.8 $ 5.4 42.7%
======= ====== ==== ======= ======= ====
42
Majestic Investor Holdings
For The For The
Three Months Ended Nine Months Ended
September 30, Percentage September 30, Percentage
----------------------- Increase ----------------------- Increase
2004 2003 (Decrease) 2004 2003 (Decrease)
-------- -------- ---------- -------- -------- ----------
(in millions) (in millions)
Casino revenues $ - $ - - $ - $ - -
Room revenues - - - - - -
Food and beverage revenues - - - - - -
Other revenues - - - - - -
-------- -------- -------- -------- -------- ------
Gross operating revenues - - - - - -
Less promotional allowances - - - - - -
-------- -------- -------- -------- -------- ------
Net operating revenues - - - - - -
Operating expenses 0.1 0.9 -88.6% 0.6 2.2 -71.8%
-------- -------- -------- -------- -------- ------
Operating loss (0.1) (0.9) -88.6% (0.6) (2.2) -71.8%
Other income (expense) (0.5) (4.4) -89.3% (1.4) (13.3) -89.3%
-------- -------- -------- -------- -------- ------
Loss from continuing operations (0.6) (5.3) -89.2% (2.0) (15.5) -86.8%
Loss from discontinued operation - (1.4) -100.0% - (1.5) -100.0%
-------- -------- -------- -------- -------- ------
Net loss $ (0.6) $ (6.7) -91.5% $ (2.0) $ (17.0) -87.9%
======== ======== ======== ======== ======== ======
The following tables reflect selected financial information as a percentage
of consolidated gross operating revenues at Majestic Star, Fitzgeralds Tunica,
Fitzgeralds Black Hawk and Majestic Investor Holdings. All percentage
calculations are shown before corporate overhead.
Majestic Star
For The For The
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- -----------------------
2004 2003 2004 2003
------ ------ ------ ------
Casino revenues 48.3% 48.6% 49.8% 48.7%
Room revenues - - - -
Food and beverage revenues 0.6% 0.5% 0.6% 0.5%
Other revenues 1.0% 0.8% 0.9% 0.9%
---- ---- ---- ----
Gross operating revenues 49.9% 49.9% 51.3% 50.1%
Less promotional allowances 1.2% 0.4% 0.8% 0.5%
---- ---- ---- ----
Net operating revenues 48.7% 49.5% 50.5% 49.6%
Operating expenses 44.0% 42.9% 45.4% 42.9%
---- ---- ---- ----
Operating income 4.7% 6.6% 5.1% 6.7%
Other income (expense) -8.9% -5.0% -8.8% -5.0%
---- ---- ---- ----
Net (loss) income -4.2% 1.6% -3.7% 1.7%
==== ==== ==== ====
43
Fitzgeralds Tunica
For The For The
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- ------------------------
2004 2003 2004 2003
------ ------ ------- ------
Casino revenues 29.4% 29.6% 29.0% 30.3%
Room revenues 2.7% 3.0% 2.5% 2.8%
Food and beverage revenues 3.4% 3.3% 3.1% 3.3%
Other revenues 0.4% 0.6% 0.4% 0.5%
---- ---- ---- ----
Gross operating revenues 35.9% 36.5% 35.0% 36.9%
Less promotional allowances 5.3% 4.8% 5.0% 4.8%
---- ---- ---- ----
Net operating revenues 30.6% 31.7% 30.0% 32.1%
Operating expenses 27.1% 27.8% 25.8% 27.1%
---- ---- ---- ----
Operating income 3.5% 3.9% 4.2% 5.0%
Other income (expense) 0.0% 0.0% 0.0% 0.0%
---- ---- ---- ----
Net income 3.5% 3.9% 4.2% 5.0%
==== ==== ==== ====
Fitzgeralds Black Hawk (Discontinued Operation)
For The For The
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- ------------------------
2004 2003 2004 2003
------ ------ ------- ------
Casino revenues 13.2% 12.7% 12.8% 12.2%
Room revenues 0.0% 0.0% 0.0% 0.0%
Food and beverage revenues 0.8% 0.8% 0.7% 0.7%
Other revenues 0.2% 0.1% 0.1% 0.1%
---- ---- ---- ----
Gross operating revenues 14.2% 13.6% 13.6% 13.0%
Less promotional allowances 1.2% 1.2% 1.1% 1.1%
---- ---- ---- ----
Net operating revenues 13.0% 12.4% 12.5% 11.9%
Operating expenses 9.1% 9.1% 9.1% 9.3%
---- ---- ---- ----
Operating income 3.9% 3.3% 3.4% 2.6%
Other income (expense) 0.0% 0.0% 0.0% 0.0%
---- ---- ---- ----
Net income 3.9% 3.3% 3.4% 2.6%
==== ==== ==== ====
44
Majestic Investor Holdings
For The For The
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- ------------------------
2004 2003 2004 2003
------ ------ ------- ------
Casino revenues - - - -
Room revenues - - - -
Food and beverage revenues - - - -
Other revenues - - - -
---- ---- ---- ----
Gross operating revenues - - - -
Less promotional allowances - - - -
---- ---- ---- ----
Net operating revenues - - - -
Operating expenses 0.1% 1.2% 0.3% 1.0%
---- ---- ---- ----
Operating loss -0.1% -1.2% -0.3% -1.0%
Other expenses -0.7% -6.3% -0.6% -6.3%
---- ---- ---- ----
Loss from continuing operations -0.8% -7.5% -0.9% -7.3%
Loss from discontinued operation -- -2.0% -- -0.7%
---- ---- ---- ----
Net loss -0.8% -9.5% -0.9% -8.0%
==== ==== ==== ====
THIRD QUARTER 2004 COMPARED TO THIRD QUARTER 2003
Consolidated gross operating revenues for the third quarter of 2004
increased $3.0 million, or 4.8%, over consolidated gross operating revenues
recorded in the third quarter of 2003. Majestic Star contributed $2.0 million of
the increase in consolidated gross operating revenues. Consolidated casino
revenues, which comprise over 90% of consolidated gross revenues, increased $2.6
million, or 4.7%, to $58.2 million during the third quarter of 2004 as compared
to the third quarter of 2003. Majestic Star accounted for $1.7 million of the
increase in consolidated casino revenues. While Majestic Star continued its
enhanced marketing and promotional programs, including the advertising campaign
featuring former Chicago Bears player and coach Mike Ditka as the property's
celebrity spokesperson, the unveiling of improvements at Horseshoe in Hammond
and Harrah's in East Chicago may have slowed our casino revenue growth from
levels seen earlier in the year. Specifically, Horseshoe opened a 2,000
space-parking garage and Harrah's completed a renovation project designed to
enhance the amenities and update the facilities at the property. In addition, we
believe that the final payment of 2002 real property tax bills in July by
residents in northwest Indiana negatively impacted the gambling budgets of our
customers. The Company has reported and the press has documented that high
assessed values of property in northwest Indiana, as a result of a statewide
reassessment of real property, coupled with very high tax rates, would have a
significant impact on the disposable incomes of many residents. Lake County, the
home to Majestic Star, saw some of the most significant increases in property
taxes. Over 30% of the property's tracked play comes from Lake County.
45
Nonetheless, more aggressive direct mail and cash promotional efforts,
combined with our other marketing programs, generated a 6.6% increase in slot
coin-in at Majestic Star. In addition, Majestic Star saw a 20.5% increase in
table games handle during the quarter from the same quarter last year. Both the
increases in slot coin-in and table games handle exceed the northwest Indiana
market averages for the quarter. Casino revenue at Fitzgeralds Tunica increased
$1.0 million, or 4.7%. Slot coin-in and table games handle were flat at the
property. A slight increase in our slot win percentage was the main contributor
to our casino revenue growth.
Consolidated promotional allowances increased $1.2 million, or 31.6%. A new,
more competitive, slot club program contributed to a $0.6 million increase in
promotional allowances at Majestic Star. Fitzgeralds Tunica also had a $0.6
million increase in promotional allowances, primarily the result of a program to
get more rated casino players occupying the hotel. This program resulted in
higher levels of complimentary expenses and was necessary in order to generate
greater levels of activity on the casino floor as the Tunica market is very
competitive.
Total consolidated operating expenses increased $2.3 million, or 4.4%, due
primarily to increases in gaming taxes of $0.9 million, or 7.6%, advertising and
promotional expenses of $0.5 million, or 16.3%, other expenses of $0.4 million,
or 303.0%, casino expenses of $0.4 million, or 2.0%, and depreciation and
amortization expenses of $0.3 million, or 8.0%. The increases were driven
primarily by activities at Majestic Star, which accounted for $2.6 million of
the overall increase (before corporate overhead) in consolidated operating
expenses.
Consolidated gaming taxes increased $0.9 million to $13.0 million primarily
because of the increased casino revenues at both Majestic Star and Fitzgeralds
Tunica, with the greatest increase coming at Majestic Star, where our increased
casino revenues resulted in a $0.8 million increase in gaming and admission
taxes. The tax structures and rates were similar at both properties in the three
months ended September 30, 2004 and the three months ended September 30, 2003.
Consolidated advertising and promotion expenses increased $0.5 million to
$3.7 million primarily due to increases at Majestic Star in newspaper, radio and
television expense in connection with various advertising campaigns, the primary
one being the advertising campaign which began in March of 2004 featuring former
Chicago Bears player and coach, Mike Ditka, as the property's celebrity
spokesperson.
Consolidated other expenses increased $0.4 million to $0.6 million. The
primary reason for the increase relates to costs associated with the Festival
Park at Majestic Star. The Festival Park is an entertainment venue and is
utilized to attract and expand Majestic Star's market reach and to enhance the
property's entertainment options.
Consolidated depreciation and amortization expense increased by $0.3 million
to $4.4 million. Majestic Star and Fitzgeralds Tunica recognized increases of
$0.6 million and $0.3 million, respectively. The increases are the result of
capital expenditures made at both properties. The increases in depreciation
expense were offset by a $0.6 million reduction in amortization expense at
Majestic Investor Holdings. Amortization expense at Majestic Investor Holdings
in 2003 resulted from the periodic write-off of deferred financing fees over the
life of the 11.653% notes. The majority of these fees were written off in
October of 2003, when the Company purchased 89.3% of the 11.653% notes during a
refinancing of the Company (see discussion below).
Consolidated other income (expense) consists primarily of interest expense,
which declined by $0.8
46
million. The reduced interest expense is the result of the October 7, 2003
purchase and redemption of all of The Majestic Star Casino, LLC's $130.0 million
10 7/8% notes and purchase of 89.3% of Majestic Investor Holdings LLC's $151.8
million 11.653% notes. To purchase and redeem these notes, and pay the related
premium thereon, the Company issued $260.0 million of 9 1/2% notes and entered
into an $80.0 million credit facility. During the quarter ended September 30,
2004, the Company paid interest on advances under the credit facility at
interest rates ranging from 4.61% to 5.29%.
The Company recognized income from discontinued operations of $2.9 million
and $0.9 million for the quarters ended September 30, 2004 and 2003,
respectively. Discontinued operations for the 2004 period reflect the results of
the Company's Black Hawk operation, which is held for sale, while discontinued
operations for the 2003 period reflect the results of both the Black Hawk
operation and Fitzgeralds Las Vegas prior to the spin off. Fitzgeralds Black
Hawk contributed income from discontinued operations of $2.9 million and $2.3
million, respectively, in the three months ended September 30, 2004 and 2003.
Fitzgeralds Las Vegas contributed a loss from discontinued operations of $1.4
million in the three months ended September 30, 2003.
NINE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2003
Consolidated gross revenues for the nine months ended September 30, 2004
increased $13.2 million or 7.1% over consolidated gross revenues recorded in the
nine months ended September 30, 2003. Majestic Star contributed $11.3 million of
the increase. Consolidated casino revenues, which comprise over 91% of our gross
revenues, were up $10.6 million at Majestic Star and $2.2 million at Fitzgeralds
Tunica. The increase in our consolidated casino revenues represents 96.7% of the
increase in our consolidated gross operating revenues.
Majestic Star accounted for 83.1% of the increase to consolidated casino
revenues, which resulted from capital improvements and our strong marketing and
promotional efforts at the property from earlier in the year and continuing into
the current quarter. These efforts include a multimedia advertising campaign
featuring former Chicago Bears player and coach, Mike Ditka, as the property's
celebrity spokesperson, the re-branding of the property as the "Winning Place to
Play"(TM), the establishment of a new players club loyalty program, the
remodeling of the property's VIP lounge and high limit area, the Monte Carlo
Room, the opening of Don and Mike's Sports Bar, our acquisitions of the newest
and most entertaining slot machines and our continued investment in ticket in
ticket out technology ("TITO"). As of September 30, 2004, the property had 940
TITO slot machines in operation (57.6% of the casino floor) and anticipates
having 1,180 slot machines TITO capable (72% of the casino floor) by year-end.
The property also expanded the entertainment provided to its casino guests by
offering nightly acts on the Star Stage and periodic concerts and events at the
Festival Park. Majestic Star's slot coin-in increased 8.3% over the same period
last year. In addition, table games handle is up 16.5% year to date. Our greater
volumes, coupled with a higher win percentage in table games, which increased to
16.9% from 15.7%, generated additional slot and table games revenues of $6.4
million and $4.2 million, respectively.
Fitzgeralds Tunica's increase in casino revenue resulted from greater
efforts in direct mail and more emphasis on putting rated casino players in the
hotel. The Tunica market is very competitive and growth is nominal. The
property's management is focusing on programs that will increase cash flow in an
efficient manner.
47
Consolidated promotional allowances increased $2.2 million, or 19.9%,
primarily due to a new slot club promotion at Majestic Star and higher levels of
hotel complimentary expenses at Fitzgeralds Tunica (see above discussion).
Promotional allowances at Fitzgeralds Tunica increased $1.2 million, or 12.6%.
Majestic Star's promotional allowances increased $1.0 million, or 100.6%.
Total consolidated operating expenses increased $13.0 million, or 8.4%, due
primarily to increases in casino expenses of $3.4 million, or 6.1%, gaming and
incentive taxes of $2.6 million, or 6.4%, advertising and promotion expenses of
$1.4 million, or 15.1%, general and administrative expenses of $4.7 million, or
18.1%, and depreciation and amortization expense of $0.5 million, or 4.3%.
Operating expenses at Majestic Star increased $13.0 million before corporate
overhead.
Consolidated casino expenses increased $3.4 million to $58.5 million. The
increase in casino expenses is directly related to the increased business
volumes at both of our casinos. Majestic Star comprised approximately 87.4%, or
$3.0 million, of our increased consolidated casino expenses. At Majestic Star
casino expenses were higher due to greater levels of cash promotional activities
directed toward our casino guests, higher progressive expenses and increased
costs of providing complimentary food and beverage services to our casino guests
at the food operations within Buffington Harbor.
Consolidated gaming and incentive taxes increased $2.6 million to $44.0
million. However, the increase would have been $4.7 million had it not been for
the Indiana retroactive gaming tax assessment of $2.1 million during the second
quarter of 2003. This $4.7 million increase (exclusive of the effect of the
retroactive gaming tax assessment) is primarily because of the increased casino
revenues at both Majestic Star and Fitzgeralds Tunica, with the greatest
increase coming at Majestic Star, where our increased casino revenues resulted
in a $4.2 million increase in gaming and economic incentive taxes (exclusive of
the retroactive gaming tax assessment).
Consolidated advertising and promotion expenses increased $1.4 million to
$10.5 million. The entire increase is attributable to the advertising and
promotional activities at Majestic Star. The increased costs at Majestic Star
are the result of the new marketing campaigns described earlier and a greater
presence in various forms of media. The property has also increased its
entertainment. The efforts at Majestic Star improved both its identity and
competitive position in the northwest Indiana and Chicago markets, and was one
of the main reasons for the property's significant casino revenue growth.
Consolidated general and administrative expenses increased $4.7 million to
$30.5 million. Majestic Star comprised $3.7 million of the increase. The most
significant item affecting Majestic Star was a $2.2 million increase due to a
retroactive property tax adjustment for the years 2002 and 2003 (see discussion
on retroactive property taxes immediately below). Majestic Star also incurred
higher current year to date property taxes for which it is either directly or
indirectly responsible for of $0.5 million, $0.3 million in increased insurance
and claim costs, $0.2 million in regulatory fees and $0.2 million in costs
associated with the 170 acres of property acquired from Gary New Century, an
affiliate, in February 2004. Fitzgeralds Tunica recognized greater costs of $0.8
million, which primarily resulted from payroll and benefit expenses of $0.3
million, higher insurance and claim costs of $0.1 million, regulatory costs of
$0.1 million and utility costs of $0.2 million.
48
The retroactive property tax accruals at Majestic Star discussed above
resulted from events beginning in January 2004, when Majestic Star received a
preliminary property tax reassessment notice that increased the valuation of its
riverboat vessel in Lake County, Indiana, where Majestic Star is located. The
valuation assessment was part of a statewide reassessment, and these
reassessments were retroactive to March 1, 2002. The reassessment was a result
of a 1998 Indiana Supreme Court ruling that declared the method of property
assessment previously used was unconstitutional. Majestic Star followed
administrative policies of the taxing authorities and paid Lake County an amount
equal to 70% of its 2001 property tax liability, and had estimated an accrual
for the balance due for 2002 and 2003. In April 2004, tax rates on the real
property within Lake County, Indiana were issued. In addition, in April 2004,
the State of Indiana issued final notices of assessed valuations to property
owners within Lake County. The Company used the information provided in April to
revise its estimate of the amounts due.
BHR, the Company's joint venture with Trump, also received a notice of final
assessed value of its real property. Similarly Buffington Harbor Parking
Associates ("BHPA"), the owner of a parking garage for which Majestic Star is a
lessee under an operating lease, received a notice reflecting final assessed
values. Majestic Star, through the joint venture agreement and the operating
lease agreement, would be liable for its portion of BHR's and BHPA's property
tax liabilities. Based on the assessments and tax rates issued in April 2004,
Majestic Star increased its accrual for real property taxes on its vessel and
its proportionate share of liability for BHPA and BHR, by $2.2 million.
Consolidated depreciation and amortization expense increased by $0.5 million
to $12.5 million. Majestic Star and Fitzgeralds Tunica recognized increases of
$1.6 million and $0.7 million, respectively. The increases are the result of
capital expenditures made at both properties. The increases in depreciation
expense were offset by a $1.8 million reduction in amortization expense at
Majestic Investor Holdings. Amortization expense at Majestic Investor Holdings,
in 2003, resulted from the periodic write-off of deferred financing fees over
the life of the 11.653% notes. The majority of these fees were written off in
October of 2003, when the Company purchased 89.3% of the 11.653% notes during a
refinancing of the Company.
Consolidated other expenses consist primarily of interest expense, which
declined by $2.5 million or approximately 10.5% in the nine-month period ended
September 30, 2004 as compared to the same period in 2003. The reduced interest
expense is the result of refinancing substantially all of the Company's
outstanding debt in October 2003.
The Company recognized income from discontinued operations of $7.8 million
and $3.9 million for the nine months ended September 30, 2004 and 2003,
respectively. Discontinued operations for the 2004 period reflect the results of
the Company's Black Hawk operation, which is held for sale, while discontinued
operations for the 2003 period reflect the results of both the Black Hawk
operation and Fitzgeralds Las Vegas prior to the spin off. Fitzgeralds Black
Hawk contributed income from discontinued operations of $7.8 million and $5.4
million, respectively, in the nine months ended September 30, 2004 and 2003.
Fitzgeralds Las Vegas contributed a loss from discontinued operations of $1.5
million in the nine months ended September 30, 2003.
LIQUIDITY AND CAPITAL RESOURCES
To date, we have financed our operations with internal cash flows from our
operations and
49
borrowings under our $80.0 million credit facility. We generate substantial cash
flows from operating activities. For the nine months ended September 30, 2004
and 2003, we reported cash flows from operating activities of $22.5 million and
$26.4 million, respectively. We use our cash flows to meet our financial
obligations, which consist principally of financing our operations, meeting our
debt service requirements, funding capital improvements and projects, and making
distributions to BDI under the manager agreement. During the nine months ended
September 30, 2004, we used our line of credit to partially finance capital
expenditures, including the acquisition of 170 acres of land, plus associated
legal fees and other costs, from an affiliate.
At September 30, 2004, $35.6 million was outstanding under the $80.0
million credit facility. The Company had unrestricted cash and cash equivalents
of $17.9 million at September 30, 2004, compared to $22.1 million at December
31, 2003, inclusive of Fitzgeralds Black Hawk for both periods. For the nine
months ended September 30, 2004, the Company spent $33.5 million for the
purchase of 170 acres of property adjacent to Majestic Star and the Buffington
Harbor facility discussed above, the construction of a new administration
building at Majestic Star, the installation of new slot player tracking and
marketing software at Fitzgeralds Tunica, a partial expansion and remodel of our
casino floor at Fitzgeralds Tunica, gaming and related equipment at all of our
properties, and stabilization of a rock wall adjacent to the parking garage at
Fitzgeralds Black Hawk. During the nine months ended September 30, 2003, the
Company spent $10.9 million, primarily on the purchase of land and a building,
technology enhancements and slot machines and gaming equipment. The Company
plans on spending up to an additional $6.4 million on capital expenditures in
2004, which is the remaining amount allowed under the 2004 capital expenditure
covenant contained within the $80.0 million credit facility. This amount will be
primarily directed toward purchasing new slot machines, integrating Majestic
Star's slot machines with TITO, installing TITO on 140 slot machines at
Fitzgeralds Tunica and installing a new slot player tracking and marketing
system at Fitzgeralds Black Hawk. We believe that TITO technology will lead to
greater efficiency on our casino floor, thus providing cost savings, and longer
slot machine playing times by our customers without interruptions, which should
enhance the guest experience and our casino revenues.
Management believes that the Company's cash flow from operations and its
current line of credit will be adequate to meet the Company's anticipated normal
operating requirements for working capital, its planned capital expenditures and
its significant contractual obligations with respect to amounts outstanding
under the $80.0 million credit facility, the 11.653% notes, the 9 1/2% notes,
payments to BHR, and lease payments to BHPA. The majority of principal payments
on our senior debt are not due until October 2010. However, the Company will be
required to pay $16.3 million still outstanding on the 11.653% notes, plus
accrued interest thereon, and any amounts outstanding on the $80.0 million
credit facility, plus accrued interest thereon, in 2007. No assurance can be
given that our operating cash flows or proceeds from additional financings, if
available, will be sufficient for such purposes.
While we continue to evaluate potential opportunities to expand our existing
casinos or to pursue other growth opportunities, we may not have sufficient
funds to finance such strategic projects under our existing debt agreements. In
addition, our existing debt agreements limit our ability to incur additional
debt unless we can meet certain financial ratios. The Company has entered into
an agreement to sell substantially all the assets subject to certain liabilities
of its Black Hawk gaming facility for $66.0 million, subject to adjustments for
working capital and capital expenditures. Pursuant to the indenture governing
the 9 1/2% notes and the Loan and Security Agreement for the $80.0 million
credit facility, the Company must (i) invest the net proceeds
50
from the sale in related assets or businesses of the Company or its restricted
subsidiaries, or (ii) pay down the current outstanding balance on the $80.0
million credit facility and take a permanent reduction in the $80.0 million
credit facility for such amounts paid. To the extent such net proceeds are not
used as described in (i) and (ii), the Company is required to make an offer to
purchase the 9 1/2% notes. Should the Company identify an asset or business
acquisition, there is no guarantee that any additional financing needed by the
Company will be available on acceptable terms or at all in order to allow for
the investment in such opportunities. In addition, we anticipate that the sale
of the assets of Fitzgeralds Black Hawk will generate a gain. The Majestic Star
Casino, LLC is a limited liability company and the income and expenses of the
Company pass through to its member. Any gain will be included with other income
and expenses the Company passes through to its member. The indenture governing
the 9 1/2% notes and the Loan and Security Agreement for the $80.0 million
credit facility allow for distributions to our member to pay income taxes.
The purchase of certain gaming facilities by larger more recognized brand
names or the expansion of gaming in jurisdictions in which gambling is already
legal or currently illegal could significantly increase competition for the
Company. If necessary and to the extent permitted under the indenture governing
the 9 1/2% notes, the Company will seek additional financing through borrowings
of debt or equity financing, subject to any governmental approvals. 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. The recent
retroactive property tax accrual as explained above and the assessments by the
Indiana Department of Revenue against the Company and the Company's member and
parent, BDI, in the amount of $3.9 million, plus penalties and interest (as more
fully described in Part II Item 1, Legal Proceedings), could have a material
impact on the Company's liquidity.
On May 4, 2004, the Company entered into Amendment Number One to Loan and
Security Agreement ("Amendment") with the lenders to the $80.0 million credit
facility. The main item addressed in the Amendment was the definition of EBITDA,
which was amended to specifically clarify that it was acceptable to add back up
to $2.5 million of charges related to the previously discussed retroactive
property tax adjustment at Majestic Star. The modified definition of EBITDA is
effective as of December 31, 2003. Without the Amendment, the Company would not
have met the required EBITDA covenant for the quarter ended March 31, 2004 as
contained in the Loan and Security Agreement. For the nine-month period ended
September 30, 2004, the Company was in compliance with all covenants to the
$80.0 million credit facility.
As of September 30, 2004, the Company had $44.4 million available on its
$80.0 million credit facility.
RECENT ACCOUNTING PRONOUNCEMENTS
In May 2003, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 150 ("SFAS 150") "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity."
Provisions of SFAS 150 became effective for financial instruments entered into
or modified after May 31, 2003. The Company adopted SFAS 150 on January 1, 2004.
The adoption had no impact on its financial position, results of operations or
cash flows.
In December 2003, the Financial Accounting Standards Board issued FASB
Interpretation
51
No. 46R ("FIN46R"), "Consolidation of Variable Interest Entities - an
interpretation of Accounting Research Bulletin No. 51" (revised December 2003).
FIN46R addresses consolidation by business enterprises of certain variable
interest entities. Application of FIN46R is required in financial statements of
public entities that have interests in variable interest entities for periods
ending December 15, 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 interests in these parties.
Adoption of FIN46R did not have a material impact on the Company's financial
statements for the period ending September 30, 2004
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,
2003.
ITEM 4.
CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the Company carried out
an evaluation, under the supervision and with the participation of the Company's
management, including its Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of the Company's disclosure
controls and procedures pursuant to Rule 15d-15 of the Securities Exchange Act
of 1934. Based upon that evaluation, the Company's Chief Executive Officer and
Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective to cause the material information required to be
disclosed by the Company in the reports that it files or submits under the
Securities Exchange Act of 1934 to be recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms.
We maintain disclosure controls and procedures that are designed to ensure
that information required to be disclosed in our Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives.
There have been no changes in the Company's internal controls during the
quarter ended September 30, 2004 that have materially affected, or are
reasonably likely to materially affect the Company's financial reporting.
52
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. Except as described below, management
believes that the resolution of these proceedings will not individually or in
the aggregate, have a material effect on the Company's financial condition,
results of operations or cash flows.
The Majestic Star Casino, LLC has been assessed $2.6 million, plus interest,
for the fiscal year 1996 and the period 1998 through June 18, 2001, by the
Indiana Department of Revenue ("Department"). The assessments relate to
deductions for payments of taxes on adjusted gross gaming revenues the Company's
member took in computing adjusted gross income for Indiana state income tax
purposes. The Department has taken the position that the Company had an
obligation to withhold and remit tax for its non-resident member. The Company
timely filed protests that are currently pending before the Legal Division of
the Department. On September 7, 2004, the Department assessed Barden
Development, Inc., the Company's parent and member, $1.3 million, plus penalties
and interest for the remainder of 2001 and all of fiscal year 2002. No
assessments have been received for the fiscal year 2003 or the period to date of
fiscal year 2004. The Department had held the assessments and protest in
abeyance following the resolution of Aztar Indiana Gaming Corporation ("Aztar")
v. Indiana Department of Revenue. Aztar faced a similar issue to that of the
Company's member. On April 19, 2004 the Indiana Tax Court ruled in favor of the
Department and against Aztar. Aztar asked the Indiana Supreme Court to review
the Indiana Tax Court's decision. On September 28, 2004, the Indiana Supreme
Court denied Aztar's request to review. On October 5, 2004, the Department sent
a letter considering the matter closed unless the Company's protest contains new
issues not addressed in the Aztar matter. The Majestic Star Casino, LLC is a
limited liability company and as such it is a pass through entity for federal
and state tax purposes. It is the Company's belief that it is not liable or
obligated to pay the assessment or interest thereon. However, under the
Company's indenture governing the 9 1/2% notes and the loan agreement related to
the $80.0 million credit facility, the Company is allowed to make distributions
to its member for tax purposes. Any payments would be recorded as distributions
in Member's Deficit. The Company's protest sets forth issues not decided in
Aztar and therefore the Company will continue to pursue its protest with the
Department. The Company does not intend to make any distributions until it has
fully evaluated its options with its member and parent, Barden Development, Inc.
In August 2003, a former employee of Majestic Star filed a complaint in
the U.S. District Court, Northern District of Indiana seeking back wages for
overtime hours worked while employed with Majestic Star plus all other relief to
which he may be entitled under the Fair Labor Standards Act ("FLSA") (the "2003
Complaint"). The plaintiff is challenging his "seaman" status in the calculation
of overtime hours and wages. Majestic Star filed an answer to the 2003 Complaint
asserting its position that plaintiff was employed as an able-bodied seaman and
thus is exempt from the overtime provisions of the FLSA. The parties have
entered into a settlement agreement pursuant to which Majestic Star will pay
plaintiff a nominal amount in exchange for dismissal of the 2003 Complaint with
prejudice.
53
In July 2004, a former employee of Majestic Star filed a complaint against the
Majestic Star vessel in the U.S. District Court, Northern District of Indiana on
behalf of himself and a class of employees similarly situated seeking to enforce
a maritime lien for back wages for overtime hours worked while employed with
Majestic Star plus all other relief to which they may be entitled under the Fair
Labor Standards Act ("FLSA") (the "2004 Complaint"). Similar to the 2003
Complaint, the plaintiff is challenging his "seaman" status in the calculation
of overtime hours and wages. On September 29, 2004, the clerk of the court
entered an entry of default against the Company without a hearing. On October 1,
2004, the Company moved to set aside the entry of default and to dismiss the
2004 Complaint for insufficiency of service of process. The plaintiff has filed
a response to the motion indicating that he has no objection to setting aside
the clerk's entry of default. There could be potentially 23 seamen that qualify
for the 2004 Complaint. To date, two additional individuals formerly employed
with Majestic Star as able-bodied seamen have filed consents to join in the 2004
Complaint. On November 11, 2004, the plaintiff in the 2004 Complaint filed a
Motion to File a Second Amended Complaint to add Majestic Star as a party to the
2004 Complaint. The Company intends to file an opposition to plaintiff's motion.
Since any potential liability in this matter cannot be reasonably estimated, no
liability has been recorded. The Company will vigorously defend this matter.
ITEM 5. OTHER INFORMATION
On October 31, 2004, the labor agreement with the Hotel Employees Restaurant
Employees International Union, Local 1, or "UNITE HERE" expired. The labor
agreement covered approximately 73 employees at the Majestic Star Casino and
approximately 120 employees at Buffington Harbor. Management is currently
negotiating with UNITE HERE. Discussions thus far have been constructive, though
management cannot predict when a new agreement will be approved by the UNITE
HERE membership or the terms and conditions of the new labor agreement.
As disclosed under Item 5, Other Information, in the Company's Form 10-Q for
the Quarterly Period Ended June 30, 2004, the Company received notice from The
United Steelworkers of America ("Union") to negotiate a labor agreement covering
approximately 21 full and regular-part time slot mechanics. The Company's
management is currently negotiating with the Union. Discussions thus far have
been constructive, though management cannot predict when an agreement will be
approved by the Union's membership or the terms and conditions of the labor
agreement.
On August 18, 2004, the Company announced the termination of the Company's
Executive Vice President and Chief Operating Officer. The Company's management
and Compensation Committee of the Board of Directors are currently in the
process of identifying and interviewing potential candidates.
54
ITEM 6. EXHIBITS
(a) The following exhibits are filed as part of this report:
Exhibit No. Description of Document
- ----------- -----------------------
31.1 Certification of Chief Executive Officer pursuant to Rule
15d-14 of the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Rule
15d-14 of the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
55
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: November 15, 2004
THE MAJESTIC STAR CASINO, LLC
/s/ Don H. Barden
- -----------------------
Don H. Barden
Manager, Chairman, President and Chief Executive Officer
(Principal Executive Officer)
/s/ Jon S. Bennett
- -----------------------
Jon S. Bennett
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
THE MAJESTIC STAR CASINO CAPITAL CORP.
/s/ Don H. Barden
- -----------------------
Don H. Barden
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Jon S. Bennett
- -----------------------
Jon S. Bennett
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
S-1