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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-----------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 333-06489
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Indiana THE MAJESTIC STAR CASINO, LLC 43-1664986
Indiana THE MAJESTIC STAR CASINO CAPITAL CORP. 35-2100872
(State or other (Exact name of registrant as specified (I.R.S. Employer
jurisdiction in its charter) Identification No.)
of incorporation
or organization)
One Buffington Harbor Drive
Gary, Indiana
46406-3000
(219) 977-7823
(Registrant's address and telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to filing requirements
for the past 90 days.
Yes __X__ No ______
Shares outstanding of each of the registrant's classes of common stock as of
March 31, 2002:
Class Number of shares
- ----- ----------------
Not applicable Not applicable
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THE MAJESTIC STAR CASINO, LLC
Index
PART I FINANCIAL INFORMATION Page No.
--------
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets, as of March 31, 2002
and December 31, 2001....................................... 1
Consolidated Statements of Income for the three months
ended March 31, 2002 and 2001............................... 2
Consolidated Statements of Cash Flows for the three months
ended March 31, 2002 and 2001............................... 3
Notes to Financial Statements.................................. 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 18
Item 3. Quantitative and Qualitative Disclosures About Market Risk..... 25
PART II OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 26
Item 6. Exhibits and Reports on Form 8-K............................... 26
SIGNATURES................................................................. 27
i
PART 1 - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
THE MAJESTIC STAR CASINO, LLC
Consolidated Balance Sheets
(Unaudited)
March 31, December 31,
2002 2001
ASSETS
Current Assets:
Cash and cash equivalents $ 24,241,989 $ 25,925,291
Accounts receivable, less allowance for doubtful accounts
of $411,925 and $359,702, respectively 3,063,403 3,079,523
Inventories 946,889 995,708
Prepaid expenses 2,788,802 2,190,255
Note due from affiliate 700,000 700,000
Due from Buffington Harbor Riverboats, L.L.C. 69,484 333,838
-------------- ------------
Total current assets 31,810,567 33,224,615
-------------- ------------
Property, equipment, and vessel improvements, net 168,798,526 170,195,013
Intangible assets (net) 18,892,928 19,290,753
Goodwill 10,897,775 10,602,250
Other Assets:
Deferred financing costs, less accumulated amortization
of $2,722,697 and $2,202,831, respectively 10,400,301 10,530,426
Investment in Buffington Harbor Riverboats, L.L.C. 33,316,327 33,898,771
Restricted cash 1,000,000 1,000,000
Other assets, prepaid leases and deposits 12,885,666 12,317,704
-------------- ------------
Total other assets 57,602,294 57,746,901
Total Assets $288,002,090 $291,059,532
============== ============
LIABILITIES AND MEMBERS' DEFICIT
Current Liabilities:
Current maturities of long-term debt $ 1,836,099 $ 6,656,574
Accounts payable 2,235,167 2,978,502
Accrued payroll and related 5,282,581 6,194,601
Accrued interest 9,211,629 8,294,312
Other accrued liabilities 13,621,961 13,020,097
-------------- ------------
Total current liabilities 32,187,437 37,144,086
Long-term debt, net of current maturities 274,261,880 273,896,933
-------------- ------------
Total Liabilities 306,449,317 311,041,019
-------------- ------------
Commitments and contingencies
Members' Deficit:
Members' contributions 29,000,000 29,000,000
Accumulated deficit (47,447,227) (48,981,487)
-------------- -------------
Total Members' Deficit (18,447,227) (19,981,487)
-------------- -------------
Total Liabilities and Members' Deficit $288,002,090 $291,059,532
============== ============
The accompanying notes are an integral part of these consolidated financial
statements.
1
THE MAJESTIC STAR CASINO, LLC
Consolidated Statements of Income
(Unaudited)
Three Months Ended March 31,
2002 2001
Revenues:
Casino $73,493,416 $31,920,176
Rooms 4,088,511 -
Food and beverage 5,644,996 543,903
Other 1,169,071 297,979
-------------- ------------
Gross Revenues 84,395,994 32,762,058
less promotional allowances (10,894,993) (1,492,322)
-------------- ------------
Net Revenues 73,501,001 31,269,736
-------------- ------------
Costs and Expenses:
Casino 16,577,575 6,043,179
Rooms 3,412,439 -
Food and beverage 6,845,902 607,967
Other 512,960 -
Gaming taxes 13,596,586 8,878,140
Advertising and promotion 2,685,505 2,042,035
General and administrative 13,088,319 6,084,386
Economic incentive - City of Gary 938,260 957,777
Depreciation and amortization 5,058,693 2,306,808
Pre-opening expenses 7,287 -
-------------- ------------
Total costs and expenses 62,723,526 26,920,292
-------------- ------------
Operating income 10,777,475 4,349,444
-------------- ------------
Other Income (Expense):
Loss on investment in
Buffington Harbor Riverboats, L.L.C. (605,960) (798,198)
Gain on sale of assets 6,542 -
Interest income 39,482 138,766
Interest expense (8,164,012) (3,694,886)
Other non-operating expense (50,993) (22,791)
-------------- ------------
Total other income (expense) (8,774,941) (4,377,109)
-------------- ------------
Net income (loss) $ 2,002,534 $ (27,665)
============== ============
The accompanying notes are an integral part of these financial statements.
2
THE MAJESTIC STAR CASINO, LLC
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended March 31,
2002 2001
Cash Flows From Operating Activities:
Net income (loss) $ 2,002,534 $ (27,665)
Adjustment to reconcile net income (loss)
to net cash provided by (used in) operating activities
Depreciation 3,741,344 1,737,333
Amortization 1,317,349 569,475
Loss on investment in Buffington Harbor Riverboats, L.L.C. 605,947 798,198
Gain on sale of assets (6,542) -
Increase (decrease) in accounts receivable 10,693 (64,702)
Decrease in inventories 48,819 7,822
Increase in prepaid expenses (286,483) (312,036)
Increase in other assets (605,247) (144,322)
Decrease in accounts payable (743,335) (32,046)
Increase (decrease) in accrued payroll and other expenses (912,020) 199,468
Increase (decrease) in accrued interest 917,317 (3,460,263)
Increase in other accrued liabilities 1,218,383 412,643
-------------- -----------
Net cash provided by (used in) operating activities 7,308,759 (316,095)
-------------- -----------
Cash Flows From Investing Activities:
Payment of acquisition related costs (796,649) -
Acquisition of property, equipment and vessel improvements (2,344,859) (1,003,166)
(Incease) decrease in deposits (5,000) 2,410,469
Investment in Buffington Harbor Riverboats, L.L.C. (23,503) (177,806)
Proceeds from sale of equipment 6,542 -
-------------- -----------
Net cash provided by (used in) investing activities (3,163,469) 1,229,497
-------------- -----------
Cash Flows From Financing Activities:
Line of credit, net (4,800,000) (4,100,000)
Payment of 11.653% Senior Secured Notes issuance costs (505,136) -
Cash paid to reduce long-term debt (55,182) (556,647)
Distribution to Barden Development, Inc. (468,274) -
-------------- -----------
Net cash used in financing activities (5,828,592) (4,656,647)
-------------- -----------
Net decrease in cash and cash equivalents (1,683,302) (3,743,245)
Cash and cash equivalents, beginning of period 25,925,291 16,119,512
-------------- -----------
Cash and cash equivalents, end of period $24,241,989 $12,376,267
============== ===========
Interest paid:
Equipment Debt $ 8,361 $ 21,802
Senior Secured Notes - Fixed Interest 10-7/8% $ 7,068,750 $ 7,068,750
Line of credit $ 169,582 $ 64,597
The accompanying notes are an integral part of these consolidated financial
statements.
3
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Basis of Presentation
The Majestic Star Casino, LLC (the "Company") was formed on December 8,
1993, as an Indiana limited liability company ("LLC"), to provide gaming and
related entertainment to the public. The Company commenced gaming operations in
the City of Gary (the "City") at Buffington Harbor, located in Lake County, in
the State of Indiana on June 7, 1996. Majestic Investor, LLC was formed on
September 12, 2000 as an "unrestricted subsidiary" of the Company under the
Indenture relating to the Company's 10-7/8% Senior Secured Notes. Majestic
Investor, LLC was initially formed to satisfy the Company's off-site development
obligations under the Development Agreement with the City of Gary.
Majestic Investor, LLC entered into a definitive purchase and sale
agreement dated as of November 22, 2000, as amended December 4, 2000, with
Fitzgeralds Gaming Corporation ("Fitzgeralds") and certain of its affiliates to
purchase substantially all of the assets of three of its subsidiaries for
approximately $149.0 million in cash, subject to adjustment in certain
circumstances, plus assumption of certain liabilities. Majestic Investor, LLC
assigned all of its rights and obligations to Majestic Investor Holdings, LLC, a
wholly-owned subsidiary of Majestic Investor, LLC, following the formation of
Majestic Investor Holdings, LLC. Majestic Investor Holdings, LLC completed the
purchase of the Fitzgeralds assets on December 6, 2001. The three Fitzgeralds
brand casinos are "restricted subsidiaries" of Majestic Investor Holdings, LLC
under the Indenture relating to Majestic Investor Holdings, LLC's 11.653% Senior
Secured Notes and "unrestricted subsidiaries" under the Company's Indenture
relating to the Company's 10-7/8% Senior Secured Notes.
Except where otherwise noted, the words "we," "us," "our," and similar
terms, as well as the "Company," refer to The Majestic Star Casino, LLC and all
of its subsidiaries.
The accompanying consolidated financial statements are unaudited and
include the accounts of The Majestic Star Casino, LLC ("Majestic Star") and its
wholly-owned subsidiary, Majestic Investor, LLC. All intercompany transactions
and balances have been eliminated. Investments in affiliates in which the
Company has the ability to exercise significant influence, but not control, are
accounted for by the equity method. These financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (which
include normal recurring adjustments) considered necessary for a fair
presentation of the results for the interim periods have been made. The results
for the three months ended March 31, 2002, are not necessarily indicative of
results to be expected for the full fiscal year. The financial statements should
be read in conjunction with the financial statements and notes thereto included
in the Company's Annual Report on Form 10-K for the year ended December 31,
2001.
Certain reclassifications have been made to the 2001 financial
statements to conform to the 2002 presentation, which have no effect on
previously reported net income.
4
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 2. Recently Issued Accounting Pronouncements
In April 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 145, "Rescission of FASB statements, No. 4, 44 and 64, Amendment of
FASB Statement No. 13 and Technical Corrections." This Statement updates,
clarifies, and simplifies existing accounting pronouncements. Management does
not expect the standard to have any material impact on the Company's
consolidated financial position, results of operations and cash flows.
Note 3. Investment in Buffington Harbor Riverboats, L.L.C. ("BHR")
On October 31, 1995, the Company and Trump Indiana, Inc. (the "Joint
Venture Partner") entered into the First Amended and Restated Operating
Agreement of BHR for the purpose of acquiring and developing certain facilities
for the gaming operations in the City ("BHR Property"). BHR is responsible for
the management, development and operation of the BHR Property. The Company and
the Joint Venture Partner have each entered into an agreement with BHR (the
"Berthing Agreement") to use BHR Property for their respective gaming operations
and have committed to pay cash operating losses of BHR as additional berthing
fees. The Company and the Joint Venture Partner share equally in the operating
expenses relating to the BHR Property, except for costs associated with food and
beverage and gift shop, which are allocated on a percentage of use by the casino
customers of the Company and the Joint Venture Partner. The Company accounts for
its 50% interest in BHR under the equity method, whereby the initial investments
are recorded at cost and then adjusted for the Company's share of BHR's net
income or loss.
The following represents selected financial information of BHR:
Buffington Harbor Riverboats, L.L.C.
Statements of Income
(Unaudited)
Three Months
Ended March 31,
2002 2001
------------- --------------
Gross Revenue $ 4,217,973 $ 4,166,663
Operating Income $ 4,990 $ 8,531
Net Loss $ (1,211,920) $ (1,596,396)
5
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 4. Acquisitions
On December 6, 2001, we, through certain indirect wholly-owned
subsidiaries, completed the acquisition of substantially all of the assets and
assumed certain liabilities of Fitzgeralds Las Vegas, Inc. ("Fitzgeralds Las
Vegas"), Fitzgeralds Mississippi Inc. ("Fitzgeralds Tunica") and 101 Main Street
Limited Liability Company ("Fitzgeralds Black Hawk") (the "Fitzgeralds assets")
for approximately $152.7 million in cash, which includes the purchase price of
$149.0 million and professional fees and other expenses related to the
acquisition. The parties to the acquisition entered into an agreement, dated May
9, 2002, in which the parties agreed to a $3.8 million decrease in the purchase
price based upon analysis of the assets purchased and liabilities assumed. We
are accounting for the acquisition under the purchase method. Accordingly, the
purchase price is allocated to the assets acquired and liabilities assumed based
upon their estimated fair values at the date of acquisition. We determined the
estimated fair value of property and equipment and intangible assets based upon
third-party valuations.
The purchase price was determined based upon estimates of future cash
flows and the net worth of the assets acquired. Majestic Investor Holdings, LLC
funded the acquisition through the issuance of its 11.653% Senior Secured Notes.
The following table summarizes the estimated fair value of the assets acquired
and the liabilities assumed at the acquisition date.
(In millions) At December 6, 2001
Current assets $ 12.2
Property and equipment 122.9
Intangible assets 19.4
Goodwill 10.6
Other noncurrent assets 2.0
--------
Total assets acquired 167.1
Current liabilities 14.0
Other noncurrent liabilities 0.4
--------
Total liabilities assumed 14.4
Net $ 152.7
========
The Company (parent only) has no intangible assets. Intangible assets
of Majestic Investor Holdings, LLC primarily include $9.8 million for customer
relationships, $3.7 million for tradename and $5.2 million for gaming licenses.
Intangible assets for customer relationships and tradenames are being amortized
over a period of 8-10 years. In accordance with SFAS 142, goodwill, and other
indefinite lived intangible assets, such as the Majestic Investor Holdings,
LLC's gaming license, are not amortized but instead are subject to impairment
tests at least annually.
6
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 5. Other Intangible Assets
The gross carrying amount and accumulated amortization of the
intangible assets, other than goodwill, as of March 31, 2002, are as follows:
Gross Carrying Accumulated
Amount Amortization
(in thousands)
Amortized intangible assets:
Customer relationships $ 9,800 $(390)
Tradename 3,700 (117)
Riverboat excursion license 700 -
------- ------
Total $14,200 $(507)
======= ======
Unamortized inangible assets:
Gaming license $ 5,200
-------
Total $ 5,200
=======
The amortization expense recorded on the intangible assets for the
three months ended March 31, 2002 was $0.4 million. The estimated amortization
expense for each of the five succeeding fiscal years is as follows (amounts in
thousands):
For the year ending December 31,
-------------------------------
2002 $1,595
2003 $1,642
2004 $1,642
2005 $1,642
2006 $1,642
7
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 6. Goodwill
The changes in the carrying amount of goodwill for the three months
ended March 2002 are as follows:
(In thousands)
Balance as of January 1, 2002 $10,602
Goodwill acquired 296
-------
Balance as of March 31, 2002 $10,898
-------
The increase in goodwill primarily relates to professional fees
incurred by the Company related to the acquisition of Fitzgeralds Tunica,
Fitzgeralds Black Hawk, and Fitzgeralds Las Vegas.
In accordance with SFAS 142, goodwill is not amortized but instead
subject to impairment testing at least annually.
Note 7. Commitments and Contingencies
Legal Proceedings
There have been no significant changes in the legal proceedings
previously described in the Company's Annual Report on Form 10-K for the year
ended December 31, 2001.
Gaming Regulations
The ownership and operation of riverboat gaming operations in Indiana
are subject to strict state regulation under the Riverboat Gambling Act ("Act")
and the administrative rules promulgated thereunder. The Indiana Gaming
Commission ("IGC") is empowered to administer, regulate and enforce the system
of riverboat gaming established under the Act and has jurisdiction and
supervision over all riverboat gaming operations in Indiana, as well as all
persons on riverboats where gaming operations are conducted. The IGC is
empowered to regulate a wide variety of gaming and nongaming related activities,
including the licensing of supplies to, and employees at, riverboat gaming
operations and to approve the form of entity qualifiers and intermediary and
holding companies. Indiana is a relatively new jurisdiction and the emerging
regulatory framework is not yet complete. The IGC has adopted certain final
rules and has published others in proposed or draft form, which are proceeding
through the review and final adoption process. The IGC has broad rulemaking
power, and it is impossible to predict what effect, if any, the amendment of
existing rules or the finalization of currently new rules might have on the
Company's operations.
The ownership and operation of our other casino gaming facilities in
Nevada, Mississippi and Colorado are also subject to various state and local
regulations in the jurisdictions where they are located. In Nevada, our gaming
operations are subject to the Nevada Gaming Control Act, and to the licensing
and regulatory control of the Nevada Gaming Commission, the Nevada State
8
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 7. Commitments and Contingencies (Continued)
Gaming Control Board and various local ordinances and regulations, including,
without limitation, applicable city and county gaming and liquor licensing
authorities. In Mississippi, our gaming operations are subject to the
Mississippi Gaming Control Act, and to the licensing and/or regulatory control
of the Mississippi Gaming Commission, the Mississippi State Tax Commission and
various state and local regulatory agencies, including liquor licensing
authorities. In Colorado, our gaming operations are subject to the Limited
Gaming Act of 1991, which created the Division of Gaming within the Colorado
Department of Revenue and the Colorado Limited Gaming Control Commission to
license, implement, regulate and supervise the conduct of limited gaming. Our
operations are also subject to the Colorado Liquor Code and the state and local
liquor licensing authorities.
The Company's directors, officer, managers and key employees are
required to hold individual licenses, the requirements for which vary from
jurisdiction to jurisdiction. Licenses and permits for gaming operations and of
individual licensees are subject to revocation or non-renewal for cause. Under
certain circumstances, holders of our securities are required to secure
independent licenses and permits.
Note 8. Segment Information
The Company owns and operates four properties as follows: a riverboat
casino located in Gary, Indiana; a casino and hotel located in downtown Las
Vegas, Nevada; a casino and hotel located in Tunica, Mississippi; and a casino
located in Black Hawk, Colorado (collectively, the "Properties"). The Company
identifies its business in four segments based on geographic location. The
Properties market in each of their segments primarily to middle-income guests.
The major products offered in each segment are as follows: casino, hotel rooms
(except in Gary, Indiana and Black Hawk, Colorado) and food and beverage.
The accounting policies of each business segment are the same as those
described in the summary of significant accounting policies previously described
in Note 1 to the audited financial statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2001. There are minimal
inter-segment sales. Corporate costs are allocated to the business segment
through management fees from Majestic Star and are reflected in "General and
Administrative" expenses.
A summary of the Properties' operations by business segment for the
three months ended March 31, 2002 is presented below:
9
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 8. Segment Information (Continued)
Net revenues:
Majestic Star Casino $ 30,188
Fitzgeralds Tunica 22,250
Fitzgeralds Black Hawk 8,005
Fitzgeralds Las Vegas 13,058
---------
Total $ 73,501
---------
Income (loss) from operations:
Majestic Star Casino $ 5,288
Fitzgeralds Tunica 4,628
Fitzgeralds Black Hawk 1,259
Fitzgeralds Las Vegas 240
Unallocated and other (1) (638)
---------
Total $ 10,777
---------
Segment deprecation and amortization
Majestic Star Casino $ 1,672
Fitzgeralds Tunica 1,780
Fitzgeralds Black Hawk 364
Fitzgeralds Las Vegas 617
Unallocated and other (1) 626
---------
Total $ 5,059
---------
Expenditures for additions to long-lived assets:
Majestic Star Casino $ 1,173
Fitzgeralds Tunica 513
Fitzgeralds Black Hawk 104
Fitzgeralds Las Vegas 555
---------
Total $ 2,345
---------
Segment assets:
Majestic Star Casino $ 105,196
Fitzgeralds Tunica 89,921
Fitzgeralds Black Hawk 30,234
Fitzgeralds Las Vegas 45,597
Unallocated and other (1) 17,099
---------
$288,047
Less: intercompany (45)
---------
Total $ 288,002
---------
(1) Unallocated and other include corporate items and eliminations that are not
allocated to the operating segments.
10
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 9. Related Party Transactions
During the three months ended March 31, 2002, the Company made a
distribution of $280,000 to Barden Development, Inc. ("BDI") related to the
fourth quarter of 2001. This distribution was in accordance with the Management
Agreement between the Company and BDI dated December 5, 2001.
During the three months ended March 31, 2002, Majestic Investor Holdings,
LLC made a distribution of $188,000 to BDI, related to the fourth quarter of
2001, in accordance with the Management Agreement between Majestic
Investor Holdings, LLC and BDI dated December 5, 2001.
Interest of $185,750 on a $2.0 million note made by Majestic Investor, LLC
to BDI, which was later assigned to Majestic Investor Holdings, LLC remains
outstanding at March 31, 2002. BDI paid the principal of the note in conjunction
with the closing of the acquisition on December 6, 2001.
In December 2001, Majestic Investor Holdings, LLC issued a $700,000 note to
BDI. The note bears interest at a rate of 7% annum and is due and payable in
full on December 12, 2002.
Note 10. Supplemental Financial Information
The Company's $130.0 million, 10 7/8% Senior Secured Notes are secured by
substantially all of the assets of the Majestic Star Casino, but not the assets
of Majestic Investor Holdings, LLC and its wholly-owned subsidiaries which
include the three Fitzgeralds casino properties acquired on December 6, 2001.
Majestic Investor Holdings, LLC's $152.6 million, 11.653% Senior Secured
Notes are unconditionally and irrevocably guaranteed, jointly and severally, by
all of the restricted subsidiaries of Majestic Investor Holdings, LLC (the
"Guarantor Subsidiaries"). The guarantees rank senior in right of payment to all
existing and future subordinated indebtedness of these restricted subsidiaries
and equal in right of payment with all existing and future senior indebtedness
of these restricted subsidiaries.
The following condensed consolidating information presents condensed
consolidating balance sheets, as of March 31, 2002 and December 31, 2001 and
condensed consolidating statements of income and cash flows for the three months
ended March 31, 2002 and 2001, for The Majestic Star Casino, LLC, Majestic
Investor Holdings, LLC, and the restricted subsidiaries of Majestic Investor
Holdings, LLC (on a combined and individual basis) and the elimination entries
necessary to combine such entities on a consolidated basis. The Majestic Star
Casino Capital Corp. ("MSCCC") and Majestic Investor, LLC, wholly-owned
subsidiaries of The Majestic Star Casino, LLC, and Majestic Investor Capital
Corp. ("MICC"), a wholly-owned subsidiary of Majestic Investor, LLC, do not have
any material assets, obligations or operations. Therefore, no information has
been presented below for these subsidiaries.
11
Condensed consolidating balance sheets as of March 31, 2002
Majestic Star Majestic Investor Guarantor Eliminating Total
Casino, LLC Holdings, LLC Subsidiaries Entries Consolidated
ASSETS
Current Assets:
Cash and cash equivalents $ 6,917,463 $ 1,270,853 $ 16,053,673 $ - $ 24,241,989
Accounts receivable (net) 1,720,149 3,422,233 1,189,076 (3,268,055) 3,063,403
Inventories 60,407 - 886,482 - 946,889
Prepaid expenses and other current assets 964,223 705,467 1,888,596 - 3,558,286
-----------------------------------------------------------------------------------
Total current assets 9,662,242 5,398,553 20,017,827 (3,268,055) 31,810,567
-----------------------------------------------------------------------------------
Property and equipment, net 47,561,625 - 121,236,901 - 168,798,526
Intangible assets, net - - 18,892,928 - 18,892,928
Due from related parties 1,328,987 145,209,023 - (146,538,010) -
Investment in Buffington Harbor Riverboats, L.L.C. 33,316,327 - - - 33,316,327
Other assets 23,656,633 14,923,746 5,603,863 (9,000,500) 35,183,742
-----------------------------------------------------------------------------------
Total Assets $115,525,814 $165,531,322 $165,751,519 $(158,806,565) $288,002,090
===================================================================================
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
Current Liabilities:
Current maturities of long-term debt $ - $ 1,700,000 $ 136,099 $ - $ 1,836,099
Accounts payable, accrued and other 9,641,571 6,070,253 14,639,514 - 30,351,338
-----------------------------------------------------------------------------------
Total current liabilities 9,641,571 7,770,253 14,775,613 - 32,187,437
-----------------------------------------------------------------------------------
Due to related parties 32,061 6,094,291 143,679,713 (149,806,065) -
Long-term debt, net of current maturities 128,637,414 145,404,301 220,165 - 274,261,880
-----------------------------------------------------------------------------------
Total Liabilities 138,311,046 159,268,845 158,675,491 (149,806,065) 306,449,317
Contingencies and commitments
Members' Equity (Deficit) (22,785,232) 6,262,477 7,076,028 (9,000,500) (18,447,227)
-----------------------------------------------------------------------------------
Total Liabilities and Member's Equity
(Deficit) $115,525,814 $165,531,322 $165,751,519 $(158,806,565) $288,002,090
===================================================================================
12
Condensed consolidating balance sheets as of December 31, 2001
Majestic
Majestic Star Investor Guarantor Eliminating Consolidated
ASSETS Casino, LCC Holdings, LLC Subsidiaries Entries Total
Current Assets:
Cash and cash equivalents $ 8,220,476 $ 498,363 $ 17,206,452 $ - $ 25,925,291
Accounts receivable (net) 1,642,462 269,501 1,196,044 (28,484) 3,079,523
Inventories 38,144 - 957,564 - 995,708
Prepaid and other current assets 1,213,056 707,467 1,303,570 - 3,224,093
------------------------------------------------------------------------------------------
Total current assets 11,114,138 1,475,331 20,663,630 (28,484) 33,224,615
------------------------------------------------------------------------------------------
Property and equipment, net 47,767,051 - 122,427,962 - 170,195,013
Intangible assets, net - - 19,290,753 - 19,290,753
Due from related parties 1,177,829 150,855,685 - (152,033,514) -
Investment in Buffington Harbor
Riverboats, LLC 33,898,771 - - - 33,898,771
Other assets 23,869,749 14,545,956 5,025,618 (8,990,943) 34,450,380
------------------------------------------------------------------------------------------
Total assets $ 117,827,538 $ 166,876,972 $ 167,407,963 $(161,052,941) $ 291,059,532
==========================================================================================
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
Current Liabilities:
Current maturities of long-term debt $ - $ 6,500,000 $ 156,574 $ - $ 6,656,574
Accounts payable, accrued and other 12,784,191 2,526,703 15,195,545 (18,927) 30,487,512
------------------------------------------------------------------------------------------
Total current liabilities 12,784,191 9,026,703 15,352,119 (18,927) 37,144,086
Due to related parties - 1,168,273 150,865,241 (152,033,514) -
Long-term debt, net of current portion 128,556,629 145,085,432 254,872 - 273,896,933
------------------------------------------------------------------------------------------
Total Liabilities 141,340,820 155,280,408 166,472,232 (152,052,441) 311,041,019
Members' Equity (Deficit): (23,513,282) 11,596,564 935,731 (9,000,500) (19,981,487)
------------------------------------------------------------------------------------------
Total Liabilities and Members'
Equity (Deficit) $ 117,827,538 $166,876,972 $ 167,407,963 $(161,052,941) $ 291,059,532
==========================================================================================
13
Condensed consolidating statements of income for the three months ended March 31, 2002
(Unaudited)
Majestic Star Majestic Investor Guarantor Eliminating Consolidated
Casino, LLC Holdings, LLC Subsidiaries Entries Total
Revenues:
Casino $ 31,138,665 $ - $ 42,354,751 $ - $ 73,493,416
Rooms - - 4,088,511 - 4,088,511
Food and beverage 548,895 - 5,096,101 - 5,644,996
Other 280,581 - 888,490 - 1,169,071
----------------------------------------------------------------------------------------------
Gross revenues 31,968,141 - 52,427,853 - 84,395,994
less promotional
allowances (1,779,692) - (9,115,301) - (10,894,993)
---------------------------------------------------------------------------------------------
Net revenues 30,188,449 - 43,312,552 - 73,501,001
----------------------------------------------------------------------------------------------
Costs and Expenses:
Casino 5,757,550 - 10,820,025 - 16,577,575
Rooms - - 3,412,439 - 3,412,439
Food and beverage 551,268 - 6,294,634 - 6,845,902
Other - - 512,960 - 512,960
Gaming taxes 8,576,832 - 5,019,754 - 13,596,586
Advertising and promotion 1,509,950 - 1,175,555 - 2,685,505
General and administrative 5,894,617 4,205 7,189,497 - 13,088,319
Economic incentive - City of Gary 938,260 - - - 938,260
Depreciation and amortization 1,671,678 626,347 2,760,668 - 5,058,693
Pre-opening expenses - 7,287 - - 7,287
----------------------------------------------------------------------------------------------
Total costs and expenses 24,900,155 637,839 37,185,532 - 62,723,526
-----------------------------------------------------------------------------------------------
Operating income (loss) 5,288,294 (637,839) 6,127,020 - 10,777,475
----------------------------------------------------------------------------------------------
Other Income (Expense):
Loss on investment in
Buffingon Harbor Riverboats,L.L.C. (605,960) - - - (605,960)
Gain on sale of assets - - 6,542 - 6,542
Interest income 7,874 16,512 15,096 - 39,482
Interest expense (3,648,625) (4,507,026) (8,361) - (8,164,012)
Other non-operating expense (33,501) (17,492) - - (50,993)
----------------------------------------------------------------------------------------------
Total other income (expense) (4,280,212) (4,508,006) 13,277 - (8,774,941)
----------------------------------------------------------------------------------------------
Net income (loss) $ 1,008,082 $ (5,145,845) $ 6,140,297 $ - $ 2,002,534
==============================================================================================
14
Condensed consolidating statements of income for the three months ended March
31, 2001 (Unaudited)
UNRESTRICTED
PARENT SUBSIDIARY CONSOLIDATED
Revenues:
Casino $ 31,920,176 - $ 31,920,176
Food and beverage 543,903 - 543,903
Other 297,979 - 297,979
------------------------------------------------------
Gross Revenues 32,762,058 - 32,762,058
less promotional allowances (1,492,322) - (1,492,322)
------------------------------------------------------
Net Revenues 31,269,736 - 31,269,736
------------------------------------------------------
Costs and Expenses:
Casino 6,043,179 - 6,043,179
Gaming and admission taxes 8,878,140 - 8,878,140
Food and beverage 607,967 - 607,967
Advertising and promotion 2,042,035 - 2,042,035
General and administrative 6,080,886 3,500 6,084,386
Economic incentive - City of Gary 957,777 - 957,777
Depreciation and amortization 2,306,808 - 2,306,808
------------------------------------------------------
Total costs and expenses 26,916,792 3,500 26,920,292
------------------------------------------------------
Operating income (loss) 4,352,944 (3,500) 4,349,444
------------------------------------------------------
Other Income (Expense):
Loss on investment in -
Buffington Harbor Riverboats, L.L.C. (798,198) - (798,198)
Interest income 86,266 52,500 138,766
Interest expense (3,694,886) - (3,694,886)
Other non-operating expense (22,791) - (22,791)
-------------------------------------------------------
Total other income (expense) (4,429,609) 52,500 (4,377,109)
Net income (loss) $ (76,665) $ 49,000 (27,665)
=======================================================
15
Condensed consolidating statements of cash flows for the three months ended
March 31, 2002 (Unaudited)
Majestic Star Majestic Investor Guarantor Eliminating Consolidated
Casino, LLC Holdings, LLC Subsidiaries Entries Total
Net Cash provided by (used in) Operating Activities: $ 340,025 $ (288,761) $ 7,253,171 $ 4,324 $ 7,308,759
-------------------------------------------------------------------------
Cash Flows From Investing Activities:
Acquisition related costs - (796,649) - - (796,649)
Acquisition of property and equipment (1,173,077) - (1,171,782) - (2,344,859)
Increase in deposits (5,000) - - - (5,000)
Investment in Buffington Harbor Riverboats, L.L.C. (23,503) - - - (23,503)
Proceeds from sale of equipment - - 6,542 - 6,542
-------------------------------------------------------------------------
Net cash used in investing activities (1,201,580) (796,649) (1,165,240) - (3,163,469)
-------------------------------------------------------------------------
Cash Flows From Financing Activities:
Payment of 11.653% Senior Secured Notes issuance costs - (505,136) - - (505,136)
Line of credit, net - (4,800,000) - - (4,800,000)
Cash advances to/from affiliates (161,426) 7,351,278 (7,185,528) (4,324) -
Cash paid to reduce long-term debt - - (55,182) - (55,182)
Distribution to Barden Development, Inc. (280,032) (188,242) - - (468,274)
-------------------------------------------------------------------------
Net cash provided by (used in) financing
activities (441,458) 1,857,900 (7,240,710) (4,324) (5,828,592)
-------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (1,303,013) 772,490 (1,152,779) - (1,683,302)
Cash and cash equivalents, beginning of period 8,220,476 498,363 17,206,452 - 25,925,291
-------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 6,917,463 $ 1,270,853 $16,053,673 $ - $24,241,989
=========================================================================
16
Condensed consolidating statements of cash flows for the three months ended
March 31, 2001 (Unaudited)
UNRESTRICTED
PARENT SUBSIDIARY CONSOLIDATED
Net Cash used in Operating Activities (189,547) (126,548) (316,095)
-------------------------------------------------
Cash Flows From Investing Activities:
Acquisition of property, equipment and vessel improvements (1,003,166) - (1,003,166)
Decrease in deposits 2,410,469 - 2,410,469
Investment in Buffington Harbor Riverboats, L.L.C. (177,806) - (177,806)
-------------------------------------------------
Net cash provided by investing activities 1,229,497 - 1,229,497
-------------------------------------------------
Cash Flows From Financing Activities:
Line of credit, net (4,100,000) - (4,100,000)
Cash paid to reduce long-term debt (556,647) - (556,647)
-------------------------------------------------
Net cash used in financing activities (4,656,647) - (4,656,647)
---------------------------------------------------
Net decrease in cash and cash equivalents (3,616,697) (126,548) (3,743,245)
Cash and cash equivalents, beginning of period 12,550,681 3,568,831 16,119,512
-------------------------------------------------
Cash and cash equivalents, end of period $ 8,933,984 $ 3,442,283 $ 12,376,267
=================================================
17
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Statement of Forward-Looking Information
This quarterly report includes statements that constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, and are subject to the safe harbor provisions of those sections and
the Private Securities Litigation Reform Act of 1995. Words such as "believes,"
"anticipates," "estimates" or "expects" used in the Company's press releases and
reports filed with the Securities and Exchange Commission are intended to
identify forward-looking statements. All forward-looking statements involve
risks and uncertainties. Although the Company believes its expectations are
based upon reasonable assumptions within the bounds of its current knowledge of
its business and operations, there can be no assurances that actual results will
not materially differ from expected results. The Company cautions that these and
similar statements included in this report and in previously filed periodic
reports are further qualified by important factors that could cause actual
results to differ materially from those in the forward-looking statements. Such
factors include, without limitation, the following: the risk of the Joint
Venture Partner not making its lease payments when due in connection with the
parking facility constructed at the Company's gaming complex; the ability to
fund planned development needs and to service debt from existing operations;
increased competition in existing markets or the opening of new gaming
jurisdictions; a decline in the public acceptance of gaming; the limitation,
conditioning or suspension of the Company's gaming license; increases in or new
taxes imposed on gaming revenues; admission taxes; taxes on gaming devices; a
finding of unsuitability by regulatory authorities with respect to the Company
or its officers, or key employees; loss and/or retirement of key executives; our
inability to timely and cost effectively integrate operations of the Fitzgeralds
casinos; a significant increase in fuel or transportation prices; adverse
economic conditions in the Company's markets; severe and unusual weather in the
Company's markets; non-renewal of the Company's or any of its operating
subsidiaries' gaming license from the appropriate regulatory authorities;
adverse results of significant litigation matters; and the continuing effects of
recent terrorist attacks and any future occurrences of terrorist attacks or
other destabilizing events.
We caution readers not to place undue reliance on forward-looking
statements, which speak only as of the date thereof. All subsequent written and
oral forward-looking statements attributable to us are expressly qualified in
their entirety by the cautionary statements and factors that may affect future
results contained throughout this report. The Company undertakes no obligation
to publicly release any revisions to such forward-looking statements to reflect
events or circumstances after the date hereof.
The following discussion should be read in conjunction with, and is
qualified in its entirety by, our financial statements, including the notes
thereto listed in Item 1.
18
Overview
The Majestic Star Casino ("Majestic Star"), the Company's riverboat
gaming facility located in Gary, Indiana, has been owned and operated by the
Company since 1996. On December 6, 2001, the Company, through certain
"unrestricted subsidiaries," acquired three Fitzgeralds brand casino-hotels.
The Company's 10 7/8% Senior Secured Notes (the "Notes") are secured
primarily by the assets of the Gary, Indiana casino and gaming facility. The
Fitzgeralds assets are held by the "unrestricted subsidiaries" and specifically
excluded from the collateral securing the Notes. As the Company's noteholders
have no recourse to the Fitzgeralds assets, Management's Discussion and Analysis
of Financial Condition and Results of Operations focuses primarily on the
results of the Majestic Star Casino as well as the Company and it subsidiaries
on a consolidated basis. For a discussion of the results of the Fitzgeralds
properties, please refer to the Majestic Investor Holdings, LLC Quarterly Report
on Form 10-Q for the three months ended March 31, 2002, as filed with the
Securities and Exchange Commission (the "Investor Holdings 10-Q").
The gaming operations of Majestic Star are affected by inclement
weather in the Chicago metropolitan market. Due to the climate in the Chicago
metropolitan area, Majestic Star's operations are expected to be seasonal with
stronger results generally expected during the period from May through
September. Accordingly, the Company's results of operations are expected to
fluctuate from quarter to quarter and the results for any fiscal quarter may not
be indicative of results for future fiscal quarters.
Results of Operations
The following discussion provides a comparison of the results of
operations of the Majestic Star Casino, and the Company and its subsidiaries on
a consolidated basis, for the three months ended March 31, 2002, with the three
months ended March 31, 2001. On a consolidated basis, gross revenues increased
approximately $51,634,000 or 157.6% to approximately $84,396,000 during the
three months ended March 31, 2002, compared to $32,762,000 during the three
months ended March 31, 2001, primarily as a result of the acquisition of the
Fitzgeralds casino properties on December 6, 2001.
The following table sets forth information derived from the Company's
consolidated statements of income for the three months ended March 31, 2002 and
2001, expressed as a percentage of gross revenues.
19
Consolidated Statements of Income-- Summary Information
(dollars in thousands)
Three Months Ended March 31,
2002 2001
---- ----
Gross Revenue $ 84,396 $ 32,762
Operating Income $ 10,777 $ 4,349
Adjusted EBITDA (1) $ 15,843 $ 6,656
Consolidated Statements of Income -- Percentage of Gross Revenues
- -------------------------------------------------------------------------------
2002 2001
-----------------------
Revenues:
Casino 87.1% 97.4%
Rooms 4.8% -
Food and beverage 6.7% 1.7%
Other 1.4% 0.9%
-----------------------
Gross revenues 100.0% 100.0%
less promotional allowances -12.9% -4.6%
-----------------------
Net revenues 87.1% 95.4%
-----------------------
Costs and Expenses:
Casino 19.6% 18.4%
Rooms 4.1% -
Food and beverage 8.2% 1.9%
Other 0.6% -
Gaming taxes 16.1% 27.1%
Advertising and promotions 3.1% 6.2%
General and administrative 15.5% 18.6%
Economic incentive - City of Gary 1.1% 2.9%
Depreciation and amortization 6.0% 7.0%
Pre-opening expenses - -
-----------------------
Total costs and expenses 74.3% 82.1%
Operating income 12.8% 13.3%
-----------------------
Other Income (Expense):
Loss on investment in
Buffington Harbor Riverboats, L.L.C. -0.7% -2.4%
Gain on sale of assets - -
Interest income - 0.4%
Interest expense -9.6% -11.3%
Other nonoperating expense -0.1% -0.1%
-----------------------
Total other income (expense) -10.4% -13.4%
-----------------------
Net Income (Loss): 2.4% -0.1%
-----------------------
Adjusted EBITDA:(1) 18.8% 20.3%
-----------------------
NOTES:
(1)Adjusted EBITDA (defined as earnings before interest, income taxes,
depreciation and amortization, and excludes pre-opening costs of $7,300
associated with the acquisition of the Fitzgeralds casinos) is presented
solely as a supplemental disclosure to assist in the evaluation of the
Company's ability to generate cash flow. In particular, the Company believes
that an analysis of Adjusted EBITDA enhances the understanding of the
financial performance of companies with substantial depreciation and
amortization.
Results for any one or more periods are not necessarily indicative of annual
results or continuing trends.
20
Comparison of the Three Months Ended March 31, 2002 and 2001
Consolidated gross revenues for the three months ended March 31, 2002
amounted to approximately $84,396,000, an increase of approximately $51,634,000,
or 157.6% from consolidated gross revenues recorded in the three months ended
March 31, 2001. The increase was principally attributable to the acquisition of
the Fitzgeralds casino properties on December 6, 2001. Majestic Star accounted
for approximately $31,968,000 or 37.9% of gross revenues for the three months
ended March 31, 2002, which reflects a decrease of $794,000 in Majestic Star's
revenues on an unconsolidated basis, or 2.4% compared to the three months ended
March 31, 2001. The 2.4% decrease in gross revenues at Majestic Star was
primarily attributable to a $793,000 or 14.8% decrease in table revenues.
The Company's business can be separated into four operating
departments: casino, hotel rooms (except Fitzgeralds Black and Majestic Star),
food and beverage and other. Consolidated casino revenues for the three months
ended March 31, 2002 totaled approximately $73,493,000, of which slot machines
accounted for approximately $63,811,000 or 86.8% and table games accounted for
approximately $9,682,000 or 13.2%. Majestic Star's casino revenues during the
three months ended March 31, 2002 totaled approximately $31,139,000, a decrease
of approximately $781,000, or 2.5%, of which slot machines accounted for
approximately $26,560,000, or 85.3%, and table games accounted for approximately
$4,579,000 or 14.7%. The average number of slot machines in operation at
Majestic Star decreased to 1,428 during the three months ended March 31, 2002,
from 1,435 during the three months ended March 31, 2001. The average win per
slot machine per day at Majestic Star increased to approximately $207 for the
three months ended March 31, 2002, from approximately $206 during the three
months ended March 31, 2001. The average number of table games in operation at
Majestic Star during the three months ended March 31, 2002 and 2001, was 51 and
52, respectively. The average win per table game per day during the three months
ended March 31, 2002, decreased to approximately $991 compared to approximately
$1,155 during the three months ended March 31, 2001. The average daily win per
state passenger count at Majestic Star was approximately $40 and the average
daily win per patron was approximately $71 during the three months ended March
31, 2002, compared to an average daily win per state passenger count of $38 and
an average daily win per patron of $71 for the three months ended March 31,
2001.
Consolidated hotel room revenues totaled $4,089,000, or 4.8% of the
gross revenues for the three months ended March 31, 2002 and was attributed to
operations of the Fitzgeralds properties. Majestic Star does not operate a
hotel.
Consolidated food and beverage revenues for the three months ended
March 31, 2002, totaled approximately $5,645,000, or 6.7% of gross revenues,
compared to approximately $544,000, or 1.7% of gross revenues, for the three
months ended March 31, 2001. Majestic Star accounted for approximately $549,000,
or 9.7% of consolidated food and beverage revenues for the three months ended
March 31, 2002, which reflects an increase of $5,000 in such revenues at
Majestic Star, or 0.9%, compared to the three months ended March 31, 2001.
Consolidated other revenues for the three months ended March 31, 2002
totaled approximately $1,169,000, or 1.4% of gross revenues, compared to
approximately $298,000, or 0.9% of gross revenues during the three months ended
March 31, 2001. Majestic Star accounted for approximately $281,000, or 24.0% of
consolidated other revenues for the three months ended March 31, 2002, a
decrease of $17,000 or 5.7%, compared to the three months ended March 31, 2001.
Other revenue at Majestic Star consisted primarily of commission income.
21
Consolidated promotional allowances deducted from the Company's gross
revenues for the three months ended March 31, 2002 and 2001, were approximately
$10,895,000, or 12.9% of gross revenues, and $1,492,000, or 4.6% of gross
revenues, respectively. Of this amount, Majestic Star accounted for
approximately $1,780,000 or 16.3% of consolidated promotional allowances, an
increase of $288,000, or 19.3%, compared to the three months ended March 31,
2001. The increase in promotional allowances is primarily attributed to an
increase in rated slot play and associated incentives. Promotional allowances
provided to the Majestic Star's gaming patrons at facilities located in, and/or
owned by BHR for the three months ended March 31, 2002, and 2001, were
approximately $203,000 and $171,000, respectively, and are characterized in the
financial statements as an expense. BHR and other third party operators of food
kiosks invoice the Company monthly for these promotional allowances at cost,
which approximates retail value.
Consolidated casino operating expenses for the three months ended March 31,
2002, totaled approximately $16,578,000, or 19.6% of gross revenues and 22.6% of
casino revenues, respectively, compared to approximately $6,043,000, or 18.4% of
gross revenues and 18.9% of casino revenues, respectively, for the three months
ended March 31, 2001. These expenses were primarily comprised of salaries, wages
and benefits, and operating expenses of the casinos. Majestic Star's casino
operating expenses accounted for approximately $5,758,000, or 18.0% of Majestic
Star gross revenues and 18.5% of Majestic Star casino revenues, compared to
approximately $6,043,000 or 18.4% of Majestic Star gross revenues and 18.9% of
Majestic Star casino revenues, respectively, for the three months ended March
31, 2001. The dollar decrease of $285,000 or 4.7%, is primarily attributed to
reduced expenses of $154,000 in casino gaming equipment rental, $69,000 in bad
debt expenses and $64,000 in other equipment rental.
Consolidated gaming taxes totaled approximately $13,597,000 for the three
months ended March 31, 2002, compared to approximately $8,878,000 for the three
months ended March 31, 2001. In Indiana, gaming taxes are levied on adjusted
gross receipts, as defined by Indiana gaming laws, at the rate of 20% plus $3
per passenger per the state passenger count. Majestic Star accounted for
approximately $8,577,000 and $8,878,000 of gaming taxes during the three months
ended March 31, 2002 and 2001, respectively. An additional $938,000 was paid
during the three months ended March 31, 2002, compared to approximately $958,000
in the three months ended March 31, 2001, to the City under an agreement whereby
Majestic Star pays 3% of the adjusted gross receipts directly to the City.
Advertising and promotion expenses included salaries, wages and benefits of
the marketing and casino service departments, as well as promotions, advertising
and special events. Consolidated advertising and promotion expenses for the
three months ended March 31, 2002 totaled approximately $2,686,000, or 3.1% of
gross revenues, compared to approximately $2,042,000, or 6.2% of gross revenues
during the three months ended March 31, 2001. Of this amount, Majestic Star
accounted for approximately $1,510,000 for the three months ended March 31, 2002
and approximately $2,042,000 for the three months ended March 31, 2001. The
$532,000 or 26.1% decrease in advertising and promotion expenses during the
three months ended March 31, 2002, was primarily the result of a decrease in
mass marketing expenditures.
Consolidated general and administrative expense for the three months ended
March 31, 2002, were approximately $13,088,000, or 15.5% of gross revenues,
compared to $6,084,000, or 18.6% of gross revenues, during the three months
ended March 31, 2001. Majestic Star accounted for approximately $5,895,000 for
the three months ended March 31, 2002 and $6,084,000 for the three months ended
March 31, 2001. These expenses included approximately $1,612,000 for berthing
fees paid to BHR and $1,554,000 for marine operations, including housekeeping,
during
22
the three months ended March 31, 2002. The $189,000 or 3.1% decrease in these
expenses is primarily attributed to lower insurance and professional fees
during the three months ended March 31, 2002
Consolidated depreciation and amortization for the three months ended
March 31, 2002, was approximately $5,059,000, or 6.0% of gross revenues,
compared to approximately $2,307,000, or 7.0% of gross revenues, during the
three months ended March 31, 2001. Depreciation and amortization attributed to
Majestic Star for the three months ended March 31, 2002 was approximately
$1,672,000 compared to approximately $2,307,000 during the three months ended
March 31, 2001. The dollar decrease totaled approximately $635,000, of which
approximately $359,000 is depreciation expense and approximately $276,000 is
amortization expense. The decrease for the three months ended March 31, 2002 is
primarily attributable to machinery and equipment being fully depreciated and
deferred licensing fees being fully amortized.
Consolidated operating income for the three months ended March 31, 2002,
was $10,777,000, or 12.8% of gross revenues, compared to an operating income for
the three months ended March 31, 2001 of $4,349,000 or 13.3% of gross revenues.
Operating income attributed to Majestic Star for the three months ended
March 31, 2002 was approximately $5,288,000 or 16.5% of gross Majestic Star
revenues, compared to $4,353,000, or 13.3% of gross revenues, during the three
months ended March 31, 2001. The $939,000 or 21.6% increase in operating income
is principally attributed to a decrease in overall operating expenses, including
a $532,000 or 26.1% decrease in advertising and promotions and a $635,000 or
27.5% decrease in depreciation and amortization.
The consolidated net interest expense for the three months ended March 31,
2002, was approximately $8,125,000 or 9.6% of gross revenues, compared to
approximately $3,556,000 or 10.9% of gross revenues for the same period last
year. Net interest expense attributed to Majestic Star for the three months
ended March 31, 2002 was approximately $3,641,000 or 11.4% of gross revenues,
compared to $3,609,000, or 11.0% of gross revenues for the same period last
year.
The Company's loss relating to its investment in BHR, principally for
depreciation and amortization, for the three months ended March 31, 2002 and
2001, was approximately $606,000 and $798,000, respectively. Costs of
approximately $1,612,000 and $1,616,000 associated with operating BHR are
included in the operating expense line "General and Administrative" and are
fully reflected in operating income for the three months ended March 31, 2002
and 2001, respectively. Other non-operating expenses attributed to Majestic Star
of $33,000 and $23,000 for the three months ended March 31, 2002 and 2001,
respectively, represent fees associated with the Majestic Star Credit Facility.
As a result of the foregoing, the Company realized consolidated net income
of approximately $2,003,000 for the three months ended March 31, 2002 compared
to a consolidated net loss of approximately $28,000 during the three months
ended March 31, 2001. Majestic Star realized net income of $1,008,000 during the
three months ended March 31, 2002, compared to a net loss of $77,000 during the
three months ended March 31, 2001.
Adjusted EBITDA is presented solely as a supplemental disclosure and is
used by the Company to assist in the evaluation of the cash generating ability
of its gaming business. Consolidated Adjusted EBITDA during the three months
ended March 31, 2002 was approximately $15,843,000. Adjusted EBITDA attributed
to Majestic Star during the three
23
months ended March 31, 2002 was approximately $6,960,000 or 21.8% of gross
Majestic Star revenues, compared to approximately $6,660,000 or 20.3% of gross
Majestic Star revenues during the three months ended March 31, 2001. The
$300,000 increase in Adjusted EBITDA at Majestic Star is primarily the result of
a decrease in overall operating expenses. Adjusted EBITDA for Majestic Star
during the three months ended March 31, 2002 and 2001 excludes loss on
investment in BHR and line of credit fees. Adjusted EBITDA should be viewed only
in conjunction with all of the Company's financial data and statements, and
should not be construed as an alternative either to income from operations (as
an indicator of the Company's operating performance) or to cash flows from
operating activities as a measure of liquidity.
Liquidity and Capital Resources
At March 31, 2002, the Company had cash and cash equivalents of
approximately $24.2 million. This amount included $17.3 million at Majestic
Investor Holdings, LLC and $6.9 million at Majestic Star after paying the coupon
on the 10 7/8 % Senior Secured Notes at Majestic Star. During the three months
ended March 31, 2002, the Company's capital expenditures were approximately $2.3
million, which included approximately $1.2 million at Majestic Star primarily
for gaming equipment.
The Company has met its capital requirements to date through net cash from
operations, capital contributions and equipment loans. For the three months
ended March 31, 2002, net cash provided by operating activities totaled
approximately $7.3 million, compared to net cash used in operating activities of
approximately $316,000 during the three months ended March 31, 2001. At Majestic
Star for the three months ended March 31, 2002, net cash provided by operating
activities totaled approximately $340,000 and cash used by investing activities
totaled approximately $1.2 million, compared to approximately $190,000 used in
operating activities and $1.2 million provided by investing activities, during
the three months ended March 31, 2001. At the Majestic Star for the three months
ended March 31, 2002, cash used by financing activities totaled approximately
$441,000, compared to $4.7 million used in financing activities during the three
months ended March 31, 2001. This amount includes a distribution of $280,000
made to Barden Development, Inc. related to the fourth quarter of 2001 from
Majestic Star during the three months ended March 31, 2002. As of May 31, 2002,
there are no outstanding borrowings under the $20.0 million Majestic Star Credit
Facility.
Buffington Harbor Parking Associates, ("BHPA") a joint venture between
Trump Indiana and AMB Parking (a wholly-owned Barden Company) opened the newly
constructed 2,000 space covered parking garage on May 13, 2002. In conjunction
with the new parking garage, BHR has remodeled the entire second floor of the
pavilion, including new carpeting, wallcoverings, and lighting to enhance the
overall experience of the guest. BHR has also opened a new food outlet on the
second floor, which replaces a third-party operated food outlet. The Majestic
Star also is presently expanding the total number of slot units on its vessel to
take advantage of potentially increased visitor volumes as a result of the 2,000
space parking garage. The Majestic Star anticipates by mid June, 2002, its slot
unit count shall have increased by approximately 200 units compared to
December 31, 2001.
Management believes that the Company's cash flow from operations and its
current lines of credit will be adequate to meet the Company's anticipated
future requirements for working capital, its capital expenditures and scheduled
payments of interest and principal on its 10 7/8% Senior Secured Notes, lease
payments to BHPA and other permitted indebtedness for the year 2002. No
assurance can be given, however, that such proceeds and operating cash flow, in
light of
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increased competition, principally dockside gambling in Illinois, the purchase
of certain Indiana gaming facilities by larger more recognized brand names, and
the potential of new Native American operated casinos in our general vicinity
will be sufficient for such purposes. If necessary and to the extent permitted
under the Indenture, the Company will seek additional financing through
borrowings and debt or equity financing. There can be no assurance that
additional financing, if needed, will be available to the Company, or that, if
available, the financing will be on terms favorable to the Company. In addition,
there is no assurance that the Company's estimate of its reasonably anticipated
liquidity needs is accurate or that unforeseen events will not occur, resulting
in the need to raise additional funds.
Recently Issued Accounting Pronouncements
In April 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 145, "Rescission of FASB statements, No.4, 44 and 64, Amendment of FASB
Statement No. 13 and Technical Corrections." This Statement updates, clarifies,
and simplifies existing accounting pronouncements. Management does not expect
the standard to have any material impact on the Company's consolidated financial
position, results of operations and cash flows.
Item 3. Quantitative And Qualitative Disclosures About Market Risk
There have been no material changes from the information reported in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2001.
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Part II OTHER INFORMATION
Item 1. Legal Proceedings
Various legal proceedings are pending against the Company. Management
considers all such pending proceedings, primarily personal injury and equal
employment opportunity (EEO) claims, to be ordinary litigation incidental to the
character of the Company's business. Management believes that the resolution of
these proceedings will not, individually or in the aggregate, have a material
effect on the Company's financial condition or results of operations.
There have been no material changes in the legal proceedings previously
described in the Company's Annual Report on Form 10-K for the year ended
December 31, 2001.
Item 6. Exhibits and Reports on Form 8-K
(a) None
(b) On February 11, 2002, the Company filed an amendment to it Current
Report on Form 8-K filed December 13, 2001 to clarify the date by
which financial statements and information related to the acquisition
of substantially all of the assets of certain casino properties owned
and operated by Fitzgeralds Gaming Corporation would be filed. On
February 19, 2002, the Company filed a second amendment to its
Current Report on Form 8-K filed December 13, 2001 which amendment
included the following financial statements of the business acquired
and required pro forma financial information:
(i) Audited Historical Combined Financial Statements of
Fitzgeralds Las Vegas, Inc., Fitzgeralds Mississippi,
Inc. and 101 Main Street Limited Liability Company, with
Independent Auditors' Report thereon
(ii) Unaudited Pro Forma Consolidated Financial Statements of
The Majestic Star Casino, LLC
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
THE MAJESTIC STAR CASINO, LLC
By: Barden Development Inc., Manager
By: /s/ Don H. Barden May 15, 2002
---------------------------------------------------
Don H. Barden, President and Chief Executive Officer
THE MAJESTIC STAR CASINO CAPITAL CORP.
By: /s/ Don H. Barden May 15, 2002
----------------------------------------------------
Don H. Barden, President and Chief Executive Officer
By: /s/ Michael E. Kelly May 15, 2002
-----------------------------------------------------
Michael E. Kelly, Vice President, Chief Operating and
Financial Officer of the Company, the
Manager and The Majestic Star Casino
Capital Corp. (Principal Financial and
Accounting Officer.)
27