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 JUNE 30, 2003
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 333-81584
DELAWARE MAJESTIC INVESTOR HOLDINGS, LLC 36-4468392
DELAWARE MAJESTIC INVESTOR CAPITAL CORP. 36-4471622
(State or other (Exact name of registrant as (I.R.S. Employer
jurisdiction of specified in its charter) Identification No.)
incorporation or
organization)
ONE BUFFINGTON HARBOR DRIVE
GARY, INDIANA
46406-3000
(219) 977-7823
(Address of principal executive offices and telephone
number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to filing requirements
for the past 90 days.
Yes X No
----- -----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act)
Yes No X
----- -----
As of June 30, 2003, shares outstanding of each of the registrant's classes of
common stock:
Class Number of shares
- ----- ----------------
NOT APPLICABLE NOT APPLICABLE
MAJESTIC INVESTOR HOLDINGS, LLC
INDEX
PART I FINANCIAL INFORMATION PAGE NO.
--------
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of June 30, 2003
(Unaudited) and December 31, 2002 1
Consolidated Statement of Operations for the three and
six months ended June 30, 2003 and 2002 (Unaudited) 2
Consolidated Statement of Cash Flows for the six months
ended June 30, 2003 and 2002 (Unaudited) 3
Notes to Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 21
Item 3. Quantitative and Qualitative Disclosures About Market Risk 35
Item 4. Controls and Procedures 35
PART II OTHER INFORMATION
Item 1. Legal Proceedings 35
Item 6. Exhibits and Reports on Form 8-K 35
SIGNATURES 37
i
PART I FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
MAJESTIC INVESTOR HOLDINGS, LLC
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JUNE 30, DECEMBER 31,
2003 2002
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 16,134,826 $ 15,983,824
Restricted cash 500,000 250,000
Accounts receivable, net of allowance for doubtful accounts
of $154,877 and $239,066 as of June 30, 2003 and
December 31, 2002, respectively 1,074,068 1,241,183
Inventories 895,892 929,126
Prepaid expenses 1,595,652 1,644,735
Note receivable from related party - 700,000
Other 43,683 39,133
------------ ------------
Total current assets 20,244,121 20,788,001
------------ ------------
Property, equipment and improvements, net 115,542,992 117,297,506
Intangible assets, net 16,894,246 17,691,746
Goodwill 5,922,398 5,922,398
Other Assets:
Deferred financing costs, net of accumulated amortization
of $2,104,474 and $1,407,041 as of June 30, 2003 and
December 31, 2002, respectively 6,019,807 6,714,902
Restricted cash 1,000,000 1,000,000
Other assets, prepaid leases and deposits 1,688,076 1,624,359
------------ ------------
Total other assets 8,707,883 9,339,261
------------ ------------
Total Assets $167,311,640 $171,038,912
============ ============
LIABILITIES AND MEMBER'S EQUITY
Current Liabilities:
Current maturities of long-term debt $ 81,224 $ 134,084
Accounts payable 1,114,287 2,136,369
Other accrued liabilities:
Payroll and related 5,787,712 5,949,275
Interest 1,473,786 1,473,785
Progressive jackpots 2,398,650 2,476,543
Slot club liability 781,091 738,559
Other accrued liabilities 3,471,667 4,401,378
------------ ------------
Total current liabilities 15,108,417 17,309,993
------------ ------------
Long-term debt, net of current maturities
146,239,106 145,646,514
------------ ------------
Total Liabilities 161,347,523 162,956,507
Commitments and contingencies
Member's Equity: 5,964,117 8,082,405
------------ ------------
Total Liabilities and Member's Equity $167,311,640 $171,038,912
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
1
MAJESTIC INVESTOR HOLDINGS, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED JUNE 30, FOR THE SIX MONTHS ENDED JUNE 30,
2003 2002 2003 2002
------------ ------------ ------------- -------------
REVENUES:
Casino $ 39,541,474 $ 40,426,341 $ 78,977,181 $ 82,781,092
Rooms 3,584,913 3,938,875 7,383,698 8,027,386
Food and beverage 4,754,847 4,886,744 9,615,787 9,982,845
Other 832,638 977,512 1,633,476 1,866,002
------------ ------------ ------------- -------------
Gross revenues 48,713,872 50,229,472 97,610,142 102,657,325
Less promotional allowances (5,544,430) (5,754,298) (11,161,541) (11,877,753)
------------ ------------ ------------- -------------
Net revenues 43,169,442 44,475,174 86,448,601 90,779,572
------------ ------------ ------------- -------------
COSTS AND EXPENSES:
Casino 16,611,988 17,275,399 32,170,706 35,301,558
Rooms 1,641,287 1,863,809 3,187,183 3,632,309
Food and beverage 2,564,150 2,943,591 5,062,350 5,713,709
Other 410,449 396,601 820,057 775,255
Gaming taxes 4,459,307 4,779,074 9,034,620 9,798,828
Advertising and promotion 3,292,534 3,654,138 6,543,953 6,950,674
General and administrative 7,044,355 6,652,717 13,482,048 12,813,917
Depreciation and amortization 3,708,554 3,493,150 7,362,014 6,880,165
Pre-opening expenses - 6,103 - 13,390
------------ ------------ ------------- -------------
Total costs and expenses 39,732,624 41,064,582 77,662,931 81,879,805
------------ ------------ ------------- -------------
Operating income 3,436,818 3,410,592 8,785,670 8,899,767
------------ ------------ ------------- -------------
OTHER INCOME (EXPENSE):
Interest income 11,202 30,196 34,145 61,804
Interest expense (4,426,995) (4,593,471) (8,855,085) (9,108,858)
Gain (loss) on sale of assets 9,961 (5,964) 24,961 578
Other non-operating expense (9,421) (9,883) (18,900) (27,375)
------------ ------------ ------------- -------------
Total other expense (4,415,253) (4,579,122) (8,814,879) (9,073,851)
------------ ------------ ------------- -------------
Net loss $ (978,435) $ (1,168,530) $ (29,209) $ (174,084)
============ ============ ============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
2
MAJESTIC INVESTOR HOLDINGS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30,
2003 2002
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (29,209) $ (174,084)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation 5,232,958 4,810,511
Amortization 2,129,056 2,069,654
Gain on sale of assets (24,961) (578)
Changes in operating assets and liabilities:
Decrease in accounts receivable 167,115 340,435
Decrease in inventories 33,233 43,289
Decrease (increase) in prepaid expenses 49,083 (657,752)
(Increase) decrease in other assets (68,269) 285,901
Decrease in accounts payable (1,022,082) (664,656)
(Increase) decrease in amounts due to related parties,
net 29,197 (17,983)
(Decrease) increase in accrued payroll and related
expenses (181,564) 108,543
Increase in accrued interest - 287,025
Decrease in other accrued liabilities (974,264) (150,582)
------------- -------------
Net cash provided by operating activities 5,340,293 6,279,723
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in restricted cash (250,000) (250,000)
Acquisition of property, equipment and improvements (3,487,472) (2,734,791)
Payment of acquisition related costs - (986,158)
Proceeds from seller from purchase price adjustment - 3,800,000
Proceeds from sale of equipment 33,989 33,867
------------- -------------
Net cash used in investing activities (3,703,483) (137,082)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit - 2,500,000
Repayment of line of credit - (7,007,565)
Payment of 11.653% Senior Secured Notes issuance costs (2,337) (1,084,355)
Cash paid to reduce long-term debt (94,392) (65,140)
Repayment of loan to Barden Development, Inc. 700,000 -
Distribution to Barden Development, Inc. (2,089,079) (1,065,542)
------------- -------------
Net cash used in financing activities (1,485,808) (6,722,602)
------------- -------------
Net increase (decrease) in cash and cash equivalents 151,002 (579,961)
Cash and cash equivalents, beginning of period 15,983,824 17,704,815
------------- -------------
Cash and cash equivalents, end of period $ 16,134,826 $ 17,124,854
============= =============
INTEREST PAID:
Equipment Debt $ 8,787 $ 8,361
Senior Secured Notes - Fixed Interest 11.653% 8,842,704 8,707,126
Line of credit 94 98,168
------------- -------------
Total $ 8,851,585 $ 8,813,655
============= =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
3
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
Majestic Investor Holdings, LLC (the "Company") is a Delaware limited
liability company formed on September 14, 2001. The Company owns and operates
three Fitzgeralds brand casinos through its wholly-owned subsidiaries, Barden
Mississippi Gaming, LLC or Fitzgeralds Tunica, Barden Colorado Gaming, LLC or
Fitzgeralds Black Hawk and Barden Nevada Gaming, LLC or Fitzgeralds Las Vegas,
each of which is a "restricted subsidiary" of the Company under the Indenture
relating to the Company's 11.653% Senior Secured Notes (the "Notes"). Majestic
Investor Capital Corp. ("MICC"), another wholly-owned subsidiary of the Company,
was formed specifically to facilitate the offering of the Company's Notes and
does not have any assets or operations.
The Company is a wholly-owned subsidiary of Majestic Investor, LLC and
an indirect wholly-owned subsidiary of The Majestic Star Casino, LLC ("Majestic
Star"), owner and operator of the Majestic Star Casino, a riverboat casino
located at Buffington Harbor in Gary, Indiana. The Company is indirectly
wholly-owned and controlled by Don H. Barden, the Company's Member, Chairman,
President and Chief Executive Officer.
Except where otherwise noted, the words "we," "us," "our" and similar
terms, as well as the "Company," refer to Majestic Investor Holdings, LLC and
all of its subsidiaries.
The accompanying consolidated financial statements are unaudited and
include the accounts of the Company and the guarantor subsidiaries: Barden
Mississippi Gaming, LLC, Barden Colorado Gaming, LLC and Barden Nevada Gaming,
LLC. MICC, a wholly-owned subsidiary of the Company, is a non-guarantor
subsidiary. However, MICC does not have any assets, obligations or operations.
All significant intercompany transactions and balances have been eliminated.
These financial statements have been prepared in accordance with accounting
principles generally accepted in the United States ("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 prepared in accordance with GAAP 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 amount
of revenues and expenses during the reporting period. Significant estimates
incorporated into our condensed financial statements include the estimated
usefulness of depreciable and amortizable assets, the estimated allowance for
doubtful accounts receivable, estimated cash flows in assessing the
recoverability of long-lived assets, estimated liabilities for our self-insured
medical plan, slot bonus 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 statement of the results
for the interim period have been made. The results for the three and six months
ended June 30, 2003 are not necessarily indicative of results to be expected for
the full fiscal year. The financial statements should be read in conjunction
with the financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2002.
4
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
The consolidated financial statements and footnotes for the prior year
reflect certain reclassifications to conform to the current year presentation,
which has no effect on previously reported net income.
NOTE 2. Recently Issued Accounting Pronouncements
In April 2002, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 145 ("SFAS 145"). Among other
matters, SFAS 145 addresses the presentation for gains and losses on early
retirements of debt in the statement of operations. SFAS 145 is effective for
fiscal years beginning after May 15, 2003. Adoption of SFAS 145 did not have a
material impact on the Company's financial condition or results of operations.
In November 2002, the Financial Accounting Standards Board issued FASB
Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Guarantees of Indebtedness of Others."
FIN 45 elaborates on the disclosures to be made by a guarantor in its interim
and annual financial statements about its obligations under certain guarantees
that it has issued. It also clarifies (for guarantees issued after January 1,
2003) that a guarantor is required to recognize at the inception of a guarantee,
a liability for the fair value of the obligations undertaken in issuing the
guarantee. At June 30, 2003, the Company did not have any guarantees outside of
its consolidated group. Adoption of FIN 45 did not have a material impact on the
Company's financial condition or results of operations.
In January 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities."
FIN 46 addresses the requirements for business enterprises to consolidate
related entities in which they are determined to be the primary economic
beneficiary as a result of their variable economic interests. FIN 46 is intended
to provide guidance in judging multiple economic interest in an entity and in
determining the primary beneficiary. FIN 46 outlines disclosure requirements for
Variable Interest Entities ("VIEs") in existence prior to January 31, 2003,
and outlines consolidation requirement for VIEs created after January 31, 2003.
The Company has reviewed its major relationships and its overall economic
interests with other companies consisting of related parties, companies in which
it has an equity position and other suppliers to determine the extent of its
variable economic interest in these parties. The review has not resulted in a
determination that the Company would be judged to be the primary economic
beneficiary in any material relationships, or that any material entities would
be judged to be VIEs of the Company. The Company believes it has appropriately
reported the economic impact and its share of risks of its commercial
relationships through its equity accounting along with appropriate disclosure of
its commitments.
5
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. COMMITMENTS AND CONTINGENCIES
Gaming Regulations
The ownership and operation of our casino gaming facilities are subject
to various state and local laws and regulations in the jurisdictions where they
are located. In Nevada, our gaming operations are subject to the Nevada Gaming
Control Act, and to the licensing and regulatory control of the Nevada Gaming
Commission, the Nevada State Gaming Control Board and various local ordinances
and regulations, including, without limitation, applicable city and county
gaming and liquor licensing authorities. In Mississippi, our gaming operations
are subject to the Mississippi Gaming Control Act, and to the licensing and/or
regulatory control of the Mississippi Gaming Commission, the Mississippi State
Tax Commission and various state and local regulatory agencies, including liquor
licensing authorities. In Colorado, our gaming operations are subject to the
Limited Gaming Act of 1991, which created the Division of Gaming within the
Colorado Department of Revenue and the Colorado Limited Gaming Control
Commission to license, implement, regulate and supervise the conduct of limited
gaming. Our operations are also subject to the Colorado Liquor Code and the
state and local liquor licensing authorities. In addition, as Majestic Star does
business in the State of Indiana, the Company is subject to certain reviews by
the Indiana Gaming Commission.
Pursuant to new legislation signed into law by the Governor of Nevada
on July 23, 2003, the license fees on the number of gaming devices operated has
been increased effective immediately, the tax on gross revenues will be
increased effective on August 1, 2003, and the range of events covered by the
casino entertainment tax will be expanded effective September 1, 2003.
Fitzgeralds Las Vegas will also become subject to a payroll tax based on the
wages paid to its employees effective October 1, 2003.
In addition, in Colorado a statewide ballot measure has been announced
which would allow the installation of up to five hundred video lottery terminals
at each of five designated dog and horse racetracks along Colorado's front
range. Proponents of the initiative have submitted the necessary signatures for
the measure to appear on the November 2003 ballot and the Colorado secretary of
state is reviewing the validity of those signatures; however, we are unable to
predict whether such referendum will actually appear on the November ballot. If
the measure does appear on the ballot, and if installation of the video lottery
terminals is approved, our operations in Black Hawk could be adversely affected.
The Company's directors, officers, managers and key employees are
required to hold individual licenses. These requirements vary from jurisdiction
to jurisdiction. Licenses and permits for gaming operations and of individual
licensees are subject to revocation or non-renewal for cause. Under certain
circumstances, holders of our securities are required to secure independent
licenses and permits.
Legal Proceedings
On December 17, 2002, a complaint was filed in the U.S. District Court
for the Northern District of Mississippi against Fitzgeralds Tunica and the
former owner of Fitzgeralds Tunica, alleging among certain state law claims,
violation of Title VII of the Civil Rights Act of 1964 and violation of 42
U.S.C. Section 1981. The plaintiff is seeking back pay, front pay,
6
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. COMMITMENTS AND CONTINGENCIES (CONTINUED)
compensatory damages and punitive damages in excess of $3 million. The Company
intends to vigorously defend the lawsuit. However, it is too early to determine
the outcome of this matter and the effect, if any, on the Company's financial
position and results of operations.
On June 27, 2003, a complaint was filed in the U.S. District Court for
the Northern District of Mississippi against several Tunica-area casino owners
and operators, including Fitzgeralds Tunica. The plaintiffs claim that the
defendants conspired to agree not to enter into any advertising or other
agreements with the plaintiffs, in violation of federal and state antitrust
laws, as well as various other tort and contract claims. The plaintiffs are
seeking treble, compensatory and punitive damages totaling approximately $33.0
million, plus interest and attorney's fees. The Company intends to vigorously
defend against this lawsuit. However, it is too early to determine the outcome
and the effect, if any, on the Company's financial position and results of
operations.
Various legal proceedings are pending against the Company. Management
considers all such pending proceedings, comprised primarily of personal injury
and equal employment opportunity (EEO) claims, to be routine litigation
incidental to the Company's business. Management believes that the resolution of
these proceedings will not individually or in the aggregate, have a material
effect on the Company's financial condition or results of operations.
Other Contingencies
The Company received assessments of additional amounts due related to
insurance premiums paid for the period December 6, 2001 through December 6,
2002. These premiums, totaling $160,000, relate to an audit by the insurance
carrier of our workers compensation and general liability plans. The Company had
the right to dispute the audit. The Company exercised its right. The Company is
disputing the payroll numbers used in the audit and the use of a new higher
rated labor category in calculating workers compensation premiums. This category
was not used when the premiums were originally estimated. The Company has not
established an accrual for the assessment.
NOTE 4. RESTRICTED CASH
At June 30, 2003 and December 31, 2002, restricted cash of $1.0 million
represents U.S. Treasury Notes held in an escrow account for the benefit of
certain owners of land leased to Fitzgeralds Las Vegas. Also, at December 31,
2002, restricted cash of $250,000 at the Company represents a letter of credit
for self-insured workers compensation at Fitzgeralds Tunica and Fitzgeralds
Black Hawk. At June 30, 2003, this amount has been increased to $500,000 when
Fitzgeralds Las Vegas was added to the self-insured workers compensation
program.
NOTE 5. INTANGIBLE ASSETS
Intangible assets primarily include $9.8 million for customer
relationships, $3.7 million for tradename and $5.2 million for gaming licenses.
Intangible assets for customer relationships and tradenames are being amortized
over a period of 8-10 years. In accordance with SFAS 142, goodwill, and other
indefinite lived intangible assets, such as the Company's gaming license, are
not amortized but instead are subject to impairment tests at least annually.
The gross carrying amount and accumulated amortization of the Company's
intangible assets, other than goodwill, as of June 30, 2003, are as follows:
7
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. INTANGIBLE ASSETS (CONTINUED)
Gross Carrying Accumulated Net Amount
Amount Amortization June 30, 2003
-------------- -------------- --------------
(in thousands) (in thousands) (in thousands)
Amortized intangible assets:
Customer relationships $ 9,800 $ (1,926) $ 7,874 8 yrs
Tradename 3,700 (580) 3,120 10 yrs
Riverboat excursion license 700 - 700 15 yrs
-------------- -------------- --------------
Total 14,200 (2,506) 11,694
-------------- -------------- --------------
Unamortized intangible assets:
Gaming license 5,200 - 5,200
-------------- -------------- --------------
Total 5,200 - 5,200
-------------- -------------- --------------
Total intangible assets $ 19,400 $ (2,506) $ 16,894
============== ============== ============
The amortization expense recorded on the intangible assets for the
three and six month periods ended June 30, 2003 and 2002 were both $0.4 million
and $0.8 million, respectively.
NOTE 6. GOODWILL
The carrying amount of goodwill as of June 30, 2003 and December 31,
2002 was approximately $5,922,000. Goodwill is not amortized but instead subject
to impairment tests at least annually.
NOTE 7. LONG -- TERM DEBT
On December 6, 2001, the Company and MICC, as co-issuer, issued $152.6
million of Notes due 2007. The net proceeds of $145,000,400 from the offering,
together with an equity contribution from our member, were utilized to complete
the acquisition of the Fitzgeralds properties.
The Notes bear interest at a fixed rate of 11.653% per annum payable
May 31 and November 30 each year, commencing May 31, 2002. Substantially all of
the Company's current and future assets other than certain excluded assets are
pledged as collateral. The Notes rank senior in right of payment to any of the
Company's subordinated indebtedness and equally with any of the Company's senior
indebtedness.
8
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. LONG -- TERM DEBT (CONTINUED)
In connection with the issuance by the Company and MICC of $152,632,000
of unregistered 11.653% Senior Secured Notes due 2007 (the "Unregistered Notes")
on December 6, 2001, the Company entered in a registration rights agreement
pursuant to which the Company agreed to file with the Securities and Exchange
Commission ("SEC") a registration statement (the "Registration Statement") to
exchange up to $152,632,000 principal amount of 11.653% Senior Secured Notes due
2007 registered under the Securities Act of 1933 (the "Registered Notes") for
any and all of its outstanding Unregistered Notes. The registration rights
agreement requires the Company to pay liquidated damages to the holders of the
Unregistered Notes if the Registration Statement was not declared effective by
the SEC on or prior to April 5, 2002. The Registration Statement was declared
effective by the SEC on August 8, 2002 and the Company was required to pay
liquidated damages pursuant to the terms of the registration rights agreement
for the period from April 6, 2002 until August 8, 2002, at an amount per week
per $1,000 principal amount of Registrable Securities equal to $0.05 for the
first 90-day period following April 5, 2002, increasing by an additional $0.05
per week with respect to each subsequent 90-day period, up to a maximum amount
of $0.20 per week. On May 31, 2002, in connection with the first scheduled
interest payment on the Unregistered Notes, the Company made its initial
liquidated damages payment of $61,053 to the holders of the Unregistered Notes.
The final liquidated damages payment of $114,474 was paid to the holders of the
Unregistered Notes with the scheduled interest payment on November 30, 2002.
Pursuant to the Registration Statement, the offer to exchange the Registered
Notes for any or all of the Unregistered Notes commenced on August 8, 2002 and
was completed on September 6, 2002.
On or after November 30, 2005, the Company has the right to redeem the
Notes from time to time at a price that will decrease over time from 105.827% of
the principal amount in 2005 to 100% of the principal amount in 2006, plus, in
each case, accrued and unpaid interest. Prior to November 30, 2004, the Company
may, at its option, apply part of the net proceeds from certain equity
offerings, as defined, to redeem up to 35% of the principal amount of the Notes
at 111.653% of their face amount, plus accrued and unpaid interest.
The Indenture contains covenants, which among other things, restrict
the Company's ability to (i) make certain distributions and payments, (ii) incur
additional indebtedness, (iii) enter into transactions with affiliates, (iv)
sell assets or stock, and (v) merge, consolidate or transfer substantially all
of its assets.
During 2002, the Company purchased for $759,037, plus accrued interest
Notes with a face value of $865,000. The Notes, net of unamortized original
issue discount, were being carried at value of $827,994. The resulting gain was
$68,957.
Credit Facility
On December 6, 2001, the Company established a $15.0 million four-year
credit facility. The credit facility is collateralized by substantially all of
the Company's current and future assets, other than the excluded assets. The
lien on the collateral securing the Company's credit facility is senior to the
lien on the collateral securing the Notes. The credit facility also contains
financial covenants and restrictions on, among other things, indebtedness,
investments, distributions and
9
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. LONG -- TERM DEBT (CONTINUED)
mergers. The interest rate can be at the Company's choice of LIBOR plus 2.0%, or
the base rate, which approximates the prime.
Intercreditor Agreement
In connection with the Company entering into its credit facility, the
trustee under the indenture (as collateral agent) entered into an intercreditor
agreement with Wells Fargo Foothill, Inc. as the lender under the Company's
credit facility, which, among other things, subordinates the liens securing
the Notes to the liens securing the indebtedness under the Majestic Investor
Holdings, LLC Credit Facility ("Holdings Credit Facility").
The intercreditor agreement, among other things, limits the trustee's
rights in an event of default under the Notes. Under the intercreditor
agreement, if the Notes become due and payable prior to the stated maturity or
are not paid in full at the stated maturity at a time during which we have
indebtedness outstanding under the Holdings Credit Facility, the trustee will
not have the right to foreclose upon the collateral unless and until the lenders
under the Holdings Credit Facility fail to take steps to exercise remedies with
respect to or in connection with the collateral within 180 days following notice
to such lenders of the occurrence of an event of default under the indenture. In
addition, the intercreditor agreement prevents the trustee and the holders of
the Notes from pursuing remedies with respect to the collateral in an insolvency
proceeding. The intercreditor agreement also provides that the net proceeds from
the sale of collateral will first be applied to repay indebtedness outstanding
under the Holdings Credit Facility and thereafter to the holders of the Notes.
NOTE 8. SEGMENT INFORMATION
The Company owns and operates three properties as follows: a casino and
hotel located in downtown Las Vegas, Nevada; a casino and hotel located in
Tunica, Mississippi; and a casino located in Black Hawk, Colorado (collectively,
the "Properties").
The Company identifies its business in three segments based on
geographic location. The Properties, in each of their segments, market primarily
to middle-income guests, emphasizing their Fitzgeralds brand and their
"Fitzgerald Irish Luck" theme. The major products offered in each segment are as
follows: casino, hotel rooms (except in Black Hawk, Colorado) and food and
beverage.
The accounting policies of each business segment are the same as those
described in the summary of significant accounting policies previously described
in the Company's Annual Report on Form 10-K for the year ended December 31,
2002. There are minimal inter-segment sales. Corporate costs are allocated to
the business segment through management fees and are reflected in "General and
Administrative" expense.
A summary of the Properties' operations by business segment for the
three and six months ended June 30, 2003 and June 30, 2002 is presented below:
10
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. SEGMENT INFORMATION (CONTINUED)
As of and for the Three Months Ended As of and for the Six Months Ended
June 30, 2003 June 30, 2002 June 30, 2003 June 30, 2002
-------------- -------------- -------------- --------------
(In thousands) (In thousands) (In thousands) (In thousands)
Net revenues:
Fitzgeralds Tunica $ 22,688 $ 23,574 $ 45,654 $ 47,922
Fitzgeralds Black Hawk 8,535 8,313 16,450 17,275
Fitzgeralds Las Vegas 11,946 12,588 24,345 25,583
-------------- -------------- -------------- --------------
Total $ 43,169 $ 44,475 $ 86,449 $ 90,780
-------------- -------------- -------------- --------------
Income (loss) from operations:
Fitzgeralds Tunica $ 2,891 $ 3,310 $ 7,439 $ 7,939
Fitzgeralds Black Hawk 1,559 1,530 2,790 2,788
Fitzgeralds Las Vegas (325) (659) (89) (419)
Unallocated and other (1) (688) (770) (1,354) (1,408)
-------------- -------------- -------------- --------------
Total $ 3,437 $ 3,411 $ 8,786 $ 8,900
-------------- -------------- -------------- --------------
Segment depreciation and
amortization
Fitzgeralds Tunica $ 1,928 $ 1,835 $ 3,833 $ 3,615
Fitzgeralds Black Hawk 412 364 823 727
Fitzgeralds Las Vegas 703 648 1,374 1,265
Unallocated and other (1) 666 646 1,332 1,273
-------------- -------------- -------------- --------------
Total $ 3,709 $ 3,493 $ 7,362 $ 6,880
-------------- -------------- -------------- --------------
Expenditures for additions to long-lived
assets:
Fitzgeralds Tunica $ 1,529 $ 983 $ 1,795 $ 1,496
Fitzgeralds Black Hawk 523 335 772 439
Fitzgeralds Las Vegas 372 245 920 800
-------------- -------------- -------------- --------------
Total $ 2,424 $ 1,563 $ 3,487 $ 2,735
-------------- -------------- -------------- --------------
Segment assets:
Fitzgeralds Tunica $ 85,475 $ 92,495
Fitzgeralds Black Hawk 30,146 30,943
Fitzgeralds Las Vegas 37,457 45,709
Unallocated and other (1) 153,865 162,140
-------------- --------------
Total 306,943 331,287
Less: Intercompany (139,631) (153,723)
-------------- --------------
Total $ 167,312 $ 177,564
-------------- --------------
(1) Unallocated and other include corporate items and eliminations that are not
allocated to the operating segments.
11
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. RELATED PARTY TRANSACTIONS
On September 19, 2001, the Company entered into an LLC Manager
Agreement with Barden Development, Inc. ("BDI"), which was amended and restated
effective December 6, 2001, pursuant to which BDI acts as the Manager of the
Company. Distribution of profits to BDI are limited by the Indenture for the
Notes for any fiscal quarter and shall not exceed 1% of net revenues plus 5% of
consolidated cash flow for the immediately preceding fiscal quarter, provided
that the payment of such distributions shall be subordinated to the payment in
full of principal, interest and liquidated damages, as defined, if any, then due
on the Notes. During the six months ended June 30, 2003, distributions of
$1,751,000 related to the fourth quarter of 2002 and first quarter of 2003 were
paid to BDI in accordance with the LLC Manager Agreement.
In December 2001, the Company issued a $700,000 note to BDI. The note
bore interest at a rate of 7% per annum. The principal and accrued but unpaid
interest were due and payable in full on December 12, 2002. The principal and
accrued interest was paid on March 17, 2003.
In April 2003, the Company, as authorized by the Indenture for the
Notes, made a $338,000 distribution to it's sole member for income taxes. The
calculation for the distribution was based on the Company's net income during
the three-month period ended March 31, 2003.
NOTE 10. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION
The Company's $151.8 million of 11.653% Senior Secured Notes are
unconditionally and irrevocably guaranteed, jointly and severally, by all of the
restricted subsidiaries of the Company. The guarantees rank senior in right of
payment to all existing and future subordinated indebtedness of these restricted
subsidiaries and equal in right of payment with all existing and future senior
indebtedness of these restricted subsidiaries.
The following consolidating information presents financial statements
as of June 30, 2003 and December 31, 2002 and for the three and six months ended
June 30, 2003 and 2002, of the Company, the guarantor subsidiaries and the
elimination entries necessary to combine such entities on a consolidated basis.
MICC, a wholly-owned subsidiary of the Company, is a non-guarantor subsidiary.
However, MICC does not have any assets, obligations or operations. Therefore, no
non-guarantor subsidiary information has been presented.
12
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)
CONSOLIDATING BALANCE SHEET AS OF JUNE 30, 2003
Barden Barden Barden
Mississippi Colorado Nevada
Parent Gaming, LLC Gaming, LLC Gaming, LLC Eliminating
Non-Guarantor Guarantor Guarantor Guarantor Entries Consolidated
------------- ----------- ----------- ----------- ------------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 2,435,280 $ 7,287,884 $ 2,330,813 $ 4,080,849 $ - $ 16,134,826
Restricted cash 500,000 - - - - 500,000
Accounts receivable (net) - 442,253 81,051 550,764 - 1,074,068
Inventories - 391,357 216,956 287,579 - 895,892
Prepaid expenses and other 81,418 345,475 224,105 988,337 - 1,639,335
Receivable from related party 334,085 1,720 - 1,330 (337,135) (a) -
------------ ----------- ----------- ----------- ------------- ------------
Total current assets 3,350,783 8,468,689 2,852,925 5,908,859 (337,135) 20,244,121
------------ ----------- ----------- ----------- ------------- ------------
Property and equipment, net - 66,036,727 21,836,255 27,670,010 - 115,542,992
Intangible assets, net 5,200,000 6,520,778 3,390,968 1,782,500 - 16,894,246
Goodwill - 3,997,904 1,924,494 - - 5,922,398
Other Assets:
Deferred financing costs, net 6,019,807 - - - - 6,019,807
Restricted cash - - - 1,000,000 - 1,000,000
Due from related parties 109,173,530 - - - (109,173,530) (a) -
Other assets and deposits - 450,616 141,361 1,096,099 - 1,688,076
Investment in subsidiaries 30,120,472 - - - (30,120,472) (b) -
------------ ----------- ----------- ----------- ------------- ------------
Total other assets 145,313,809 450,616 141,361 2,096,099 (139,294,002) 8,707,883
------------ ----------- ----------- ----------- ------------- ------------
Total Assets $153,864,592 $85,474,714 $30,146,003 $37,457,468 $(139,631,137) $167,311,640
============ =========== =========== =========== ============= ============
LIABILITIES AND MEMBER'S DEFICIT
Current Liabilities:
Current maturities of
long-term debt $ - $ - $ - $ 81,224 $ - $ 81,224
Accounts payable - 692,274 422,013 - - 1,114,287
Other accrued liabilities:
Payroll and related - 2,638,722 1,033,848 2,115,142 - 5,787,712
Interest 1,473,786 - - - - 1,473,786
Progressive jackpots - 887,914 1,254,819 255,917 - 2,398,650
Slot club liabilities - 124,771 348,603 307,717 - 781,091
Other accrued
liabilities 261,117 1,993,095 372,600 1,181,991 (337,136) (a) 3,471,667
------------ ----------- ----------- ----------- ------------- ------------
Total current
liabilities 1,734,903 6,336,776 3,431,883 3,941,991 (337,136) 15,108,417
------------ ----------- ----------- ----------- ------------- ------------
Due to related parties - 56,700,000 16,542,454 35,931,075 (109,173,529) (a) -
Long-term debt, net of current
maturities 146,165,572 - - 73,534 - 146,239,106
------------ ----------- ----------- ----------- ------------- ------------
Total Liabilities 147,900,475 63,036,776 19,974,337 39,946,600 (109,510,665) 161,347,523
Member's Equity 5,964,117 22,437,938 10,171,666 (2,489,132) (30,120,472) (b) 5,964,117
------------ ----------- ----------- ----------- ------------- ------------
Total Liabilities and
Member's Equity $153,864,592 $85,474,714 $30,146,003 $37,457,468 $(139,631,137) $167,311,640
============ =========== =========== =========== ============= ============
(a) To eliminate intercompany receivables and
payables.
(b) To eliminate intercompany accounts and investment in subsidiaries.
13
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)
CONSOLIDATING BALANCE SHEET AS OF DECEMBER 31, 2002
Barden Barden Barden
Mississippi Colorado Nevada
Parent Gaming, LLC Gaming, LLC Gaming, LLC Eliminating
Non-Guarantor Guarantor Guarantor Guarantor Entries Consolidated
------------- ----------- ----------- ----------- ------------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 1,007,660 $ 7,852,914 $ 2,727,644 $ 4,395,606 $ - $ 15,983,824
Restricted cash 250,000 - - - - 250,000
Accounts receivable (net) 52,695 547,541 48,168 592,779 - 1,241,183
Inventories - 426,658 183,439 319,029 - 929,126
Prepaid expenses and other 125,620 420,317 161,487 976,444 - 1,683,868
Receivable form related party 4,748,371 15,670 - 1,760 (4,765,801) (a) -
Note receivable from related
party 700,000 - - - - 700,000
------------ ----------- ----------- ----------- ------------- ------------
Total current assets 6,884,346 9,263,100 3,120,738 6,285,618 (4,765,801) 20,788,001
------------ ----------- ----------- ----------- ------------- ------------
Property and equipment, net - 67,655,754 21,646,773 27,994,979 - 117,297,506
Intangible assets, net 5,200,000 6,939,404 3,634,842 1,917,500 - 17,691,746
Goodwill - 3,997,904 1,924,494 - - 5,922,398
Other Assets:
Deferred financing costs, net 6,714,902 - - - - 6,714,902
Restricted cash - - - 1,000,000 - 1,000,000
Due from related parties 116,816,043 - - - (116,816,043) (a) -
Other assets, prepaid lease
and deposits - 450,616 141,363 1,032,380 - 1,624,359
Investment in subsidiaries 19,959,009 - - - (19,959,009) (b) -
------------ ----------- ----------- ----------- ------------- ------------
Total other assets 143,489,954 450,616 141,363 2,032,380 (136,775,052) 9,339,261
------------ ----------- ----------- ----------- ------------- ------------
Total Assets $155,574,300 $88,306,778 $30,468,210 $38,230,477 $(141,540,853) $171,038,912
============ =========== =========== =========== ============= ============
LIABILITIES AND MEMBER'S DEFICIT
Current Liabilities:
Current maturities of
long-term debt $ - $ - $ - $ 134,084 $ - $ 134,084
Accounts payable - 574,366 457,238 1,104,765 - 2,136,369
Other accrued liabilities:
Payroll and related - 2,929,467 984,890 2,034,918 - 5,949,275
Accrued interest 1,473,785 - - - - 1,473,785
Progressive jackpots - 760,975 1,475,807 239,761 - 2,476,543
Slot club liabilities - 268,737 343,048 126,774 - 738,559
Other accrued
liabilities 486,662 2,258,123 965,151 691,442 - 4,401,378
------------ ----------- ----------- ----------- ------------- ------------
Total current
liabilities 1,960,447 6,791,668 4,226,134 4,331,744 - 17,309,993
------------ ----------- ----------- ----------- ------------- ------------
Due to related parties - 66,543,493 18,864,947 36,173,404 (121,581,844) (a) -
Long-term debt, net of current
maturities 145,531,448 - - 115,066 - 145,646,514
------------ ----------- ----------- ----------- ------------- ------------
Total Liabilities 147,491,895 73,335,161 23,091,081 40,620,214 (121,581,844) 162,956,507
Member's Equity: 8,082,405 14,971,617 7,377,129 (2,389,737) (19,959,009) (b) 8,082,405
------------ ----------- ----------- ----------- ------------- ------------
Total Liabilities and
Member's Equity $155,574,300 $88,306,778 $30,468,210 $38,230,477 $(141,540,853) $171,038,912
============ =========== =========== =========== ============= ============
(a) To eliminate intercompany receivables and payables.
(b) To eliminate intercompany accounts and investment in subsidiaries.
14
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)
CONSOLIDATING STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2003
BARDEN BARDEN BARDEN
MISSISSIPPI COLORADO NEVADA
PARENT GAMING, LLC GAMING, LLC GAMING, LLC ELIMINATING
NON-GUARANTOR GUARANTOR GUARANTOR GUARANTOR ENTRIES CONSOLIDATED
------------- ----------- ----------- ----------- ------------- ------------
REVENUES:
Casino $ - $21,430,097 $ 8,773,386 $ 9,337,991 $ - $ 39,541,474
Rooms - 1,960,836 - 1,624,077 - 3,584,913
Food and beverage - 2,292,361 506,613 1,955,873 - 4,754,847
Other - 355,725 64,494 412,419 - 832,638
------------ ----------- ----------- ----------- ------------- ------------
Gross revenues - 26,039,019 9,344,493 13,330,360 - 48,713,872
Less promotional allowances - (3,350,861) (809,833) (1,383,736) - (5,544,430)
------------ ----------- ----------- ----------- ------------- ------------
Net revenues - 22,688,158 8,534,660 11,946,624 - 43,169,442
------------ ----------- ----------- ----------- ------------- ------------
COSTS AND EXPENSES:
Casino - 9,625,916 2,899,532 4,086,540 - 16,611,988
Rooms - 660,398 - 980,889 - 1,641,287
Food and beverage - 692,629 265,982 1,605,539 - 2,564,150
Other - 109,983 157,504 142,962 - 410,449
Gaming taxes - 2,365,428 1,372,942 720,937 - 4,459,307
Advertising and promotion - 1,452,453 625,558 1,214,523 - 3,292,534
General and administrative 22,687 2,961,635 1,242,489 2,817,544 - 7,044,355
Depreciation and amortization 665,819 1,928,336 411,700 702,699 - 3,708,554
------------ ----------- ----------- ----------- ------------- ------------
Total costs and expenses 688,506 19,796,778 6,975,707 12,271,633 - 39,732,624
------------ ----------- ----------- ----------- ------------- ------------
Operating income (loss) (688,506) 2,891,380 1,558,953 (325,009) - 3,436,818
------------ ----------- ----------- ----------- ------------- ------------
OTHER INCOME (EXPENSE):
Interest income 6,973 3,358 - 871 - 11,202
Interest expense (4,421,439) - - (5,556) - (4,426,995)
Gain on sale of assets - 5,700 4,261 - - 9,961
Other non-operating expense (9,421) - - - - (9,421)
Equity in net income of
subsidiaries 4,133,958 - - - (4,133,958)(a) -
------------ ----------- ----------- ----------- ------------- ------------
Total other income (expense) (289,929) 9,058 4,261 (4,685) (4,133,958) (4,415,253)
------------ ----------- ----------- ----------- ------------- ------------
Net income (loss) $ (978,435) $ 2,900,438 $ 1,563,214 $ (329,694) $ (4,133,958) $ (978,435)
============ =========== =========== =========== ============= ============
(a) To eliminate equity in net income of subsidiaries.
15
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)
CONSOLIDATING STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2002
BARDEN BARDEN BARDEN
MISSISSIPPI COLORADO NEVADA
PARENT GAMING, LLC GAMING, LLC GAMING, LLC ELIMINATING
NON-GUARANTOR GUARANTOR GUARANTOR GUARANTOR ENTRIES CONSOLIDATED
------------- ----------- ----------- ----------- ------------- ------------
REVENUES:
Casino $ - $22,299,988 $ 8,556,874 $ 9,569,479 $ - $ 40,426,341
Rooms - 2,075,539 - 1,863,336 - 3,938,875
Food and beverage - 2,314,354 452,951 2,119,439 - 4,886,744
Other - 385,403 58,654 533,455 - 977,512
------------ ----------- ----------- ----------- ------------- ------------
Gross revenues - 27,075,284 9,068,479 14,085,709 - 50,229,472
Less promotional allowances - (3,501,279) (755,589) (1,497,430) - (5,754,298)
------------ ----------- ----------- ----------- ------------- ------------
Net revenues - 23,574,005 8,312,890 12,588,279 - 44,475,174
------------ ----------- ----------- ----------- ------------- ------------
COSTS AND EXPENSES:
Casino - 9,863,864 2,734,007 4,677,528 - 17,275,399
Rooms - 919,408 - 944,401 - 1,863,809
Food and beverage - 794,577 270,474 1,878,540 - 2,943,591
Other - 82,759 158,928 154,914 - 396,601
Gaming taxes - 2,653,370 1,362,580 763,124 - 4,779,074
Advertising and promotion - 1,542,658 841,754 1,269,726 - 3,654,138
General and administrative 118,377 2,571,693 1,051,794 2,910,853 - 6,652,717
Depreciation and amortization 646,178 1,835,362 363,668 647,942 - 3,493,150
Pre-opening expenses 6,103 - - - - 6,103
------------ ----------- ----------- ----------- ------------- ------------
Total costs and expenses 770,658 20,263,691 6,783,205 13,247,028 - 41,064,582
------------ ----------- ----------- ----------- ------------- ------------
Operating income (loss) (770,658) 3,310,314 1,529,685 (658,749) - 3,410,592
------------ ----------- ----------- ----------- ------------- ------------
OTHER INCOME (EXPENSE):
Interest income 18,286 7,553 1,747 2,610 - 30,196
Interest expense (4,585,293) - (625) (7,553) - (4,593,471)
Loss on sale of assets - - (5,964) - - (5,964)
Other non-operating expense (9,883) - - - (9,883)
Equity in net income of
subsidiaries 4,179,018 - - - (4,179,018) (a) -
------------ ----------- ----------- ----------- ------------- ------------
Total other income (expense) (397,872) 7,553 (4,842) (4,943) (4,179,018) (4,579,122)
------------ ----------- ----------- ----------- ------------- ------------
Net income (loss) $ (1,168,530) $ 3,317,867 $ 1,524,843 $ (663,692) $ (4,179,018) $ (1,168,530)
============ =========== =========== =========== ============= ============
(a) To eliminate equity in net income of subsidiaries.
16
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)
CONSOLIDATING STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2003
BARDEN BARDEN BARDEN
MISSISSIPPI COLORADO NEVADA
PARENT GAMING, LLC GAMING, LLC GAMING, LLC ELIMINATING
NON-GUARANTOR GUARANTOR GUARANTOR GUARANTOR ENTRIES CONSOLIDATED
------------- ----------- ----------- ----------- ------------- ------------
REVENUES:
Casino $ - $43,240,166 $16,887,347 $18,849,668 $ - $ 78,977,181
Rooms - 3,886,505 - 3,497,193 - 7,383,698
Food and beverage - 4,637,252 989,998 3,988,537 - 9,615,787
Other - 657,846 126,740 848,890 - 1,633,476
------------ ----------- ----------- ----------- ------------- ------------
Gross revenues - 52,421,769 18,004,085 27,184,288 - 97,610,142
Less promotional allowances - (6,768,253) (1,553,928) (2,839,360) - (11,161,541)
------------ ----------- ----------- ----------- ------------- ------------
Net revenues - 45,653,516 16,450,157 24,344,928 - 86,448,601
------------ ----------- ----------- ----------- ------------- ------------
COSTS AND EXPENSES:
Casino - 18,530,793 5,469,104 8,170,809 - 32,170,706
Rooms - 1,263,235 - 1,923,948 - 3,187,183
Food and beverage - 1,327,314 548,038 3,186,998 - 5,062,350
Other - 191,201 328,457 300,399 - 820,057
Gaming taxes - 4,927,248 2,645,970 1,461,402 - 9,034,620
Advertising and promotion - 2,723,931 1,341,033 2,478,989 - 6,543,953
General and administrative 22,687 5,417,514 2,503,877 5,537,970 - 13,482,048
Depreciation and amortization 1,331,557 3,833,304 823,402 1,373,751 - 7,362,014
------------ ----------- ----------- ----------- ------------- ------------
Total costs and expenses 1,354,244 38,214,540 13,659,881 24,434,266 - 77,662,931
------------ ----------- ----------- ----------- ------------- ------------
Operating income (loss) (1,354,244) 7,438,976 2,790,276 (89,338) - 8,785,670
------------ ----------- ----------- ----------- ------------- ------------
OTHER INCOME (EXPENSE):
Interest income 25,271 6,645 - 2,229 - 34,145
Interest expense (8,842,799) - - (12,286) - (8,855,085)
Gain on sale of assets - 20,700 4,261 - - 24,961
Other non-operating expense (18,900) - - - - (18,900)
Equity in net income of
subsidiaries 10,161,463 - - - (10,161,463) (a) -
------------ ----------- ----------- ----------- ------------- ------------
Total other income (expense) 1,325,035 27,345 4,261 (10,057) (10,161,463) (8,814,879)
------------ ----------- ----------- ----------- ------------- ------------
Net income (loss) $ (29,209) $ 7,466,321 $ 2,794,537 $ (99,395) $ (10,161,463) $ (29,209)
============ =========== =========== =========== ============= ============
(a) To eliminate equity in net income of subsidiaries.
17
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)
CONSOLIDATING STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2002
BARDEN BARDEN BARDEN
MISSISSIPPI COLORADO NEVADA
PARENT GAMING, LLC GAMING, LLC GAMING, LLC ELIMINATING
NON-GUARANTOR GUARANTOR GUARANTOR GUARANTOR ENTRIES CONSOLIDATED
------------- ----------- ----------- ----------- ------------- ------------
REVENUES:
Casino $ - $45,656,947 $17,774,179 $19,349,966 $ - $ 82,781,092
Rooms - 4,161,059 - 3,866,327 - 8,027,386
Food and beverage - 4,789,455 959,011 4,234,379 - 9,982,845
Other - 721,382 117,238 1,027,382 - 1,866,002
------------ ----------- ----------- ----------- ------------- ------------
Gross revenues - 55,328,843 18,850,428 28,478,054 - 102,657,325
Less promotional allowances - (7,407,302) (1,575,761) (2,894,690) - (11,877,753)
------------ ----------- ----------- ----------- ------------- ------------
Net revenues - 47,921,541 17,274,667 25,583,364 - 90,779,572
------------ ----------- ----------- ----------- ------------- ------------
COSTS AND EXPENSES:
Casino - 19,772,855 6,278,505 9,250,198 - 35,301,558
Rooms - 1,641,176 - 1,991,133 - 3,632,309
Food and beverage - 1,473,493 541,594 3,698,622 - 5,713,709
Other - 167,799 325,344 282,112 - 775,255
Gaming taxes - 5,432,706 2,845,663 1,520,459 - 9,798,828
Advertising and promotion - 2,908,449 1,575,144 2,467,081 - 6,950,674
General and administrative 122,582 4,971,168 2,192,851 5,527,316 - 12,813,917
Depreciation and amortization 1,272,525 3,615,275 727,336 1,265,029 - 6,880,165
Pre-opening expenses 13,390 - - - - 13,390
------------ ----------- ----------- ----------- ------------- ------------
Total costs and expenses 1,408,497 39,982,921 14,486,437 26,001,950 - 81,879,805
------------ ----------- ----------- ----------- ------------- ------------
Operating income (loss) (1,408,497) 7,938,620 2,788,230 (418,586) - 8,899,767
------------ ----------- ----------- ----------- ------------- ------------
OTHER INCOME (EXPENSE):
Interest income 34,798 14,447 5,380 7,179 - 61,804
Interest expense (9,092,319) - (625) (15,914) - (9,108,858)
Gain (loss) on sale of assets - 6,542 (5,964) - - 578
Other non-operating expense (27,375) - - - (27,375)
Equity in net income of
subsidiaries 10,319,309 - - - (10,319,309) (a) -
------------ ----------- ----------- ----------- ------------- ------------
Total other income (expense) 1,234,413 20,989 (1,209) (8,735) (10,319,309) (9,073,851)
------------ ----------- ----------- ----------- ------------- ------------
Net income (loss) $ (174,084) $ 7,959,609 $ 2,787,021 $ (427,321) $ (10,319,309) $ (174,084)
============ =========== =========== =========== ============= ============
(a) To eliminate equity in net income of subsidiaries.
18
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)
CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2003
BARDEN BARDEN BARDEN
MISSISSIPPI COLORADO NEVADA
PARENT GAMING, LLC GAMING, LLC GAMING, LLC ELIMINATING
NON-GUARANTOR GUARANTOR GUARANTOR GUARANTOR ENTRIES CONSOLIDATED
------------- ----------- ----------- ----------- ------------- ------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ (29,209) $ 7,466,321 $ 2,794,537 $ (99,395) $ (10,161,463) (a) $ (29,209)
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
Depreciation - 3,414,679 579,528 1,238,751 - 5,232,958
Amortization 1,331,557 418,625 243,874 135,000 - 2,129,056
Income from wholly-owned
subsidiaries (10,161,463) - - - 10,161,463 (a) -
Gain on sale of assets - (20,700) (4,261) - - (24,961)
Changes in operating assets and
liabilities:
Decrease (increase) in accounts
receivable, net 52,695 105,288 (32,883) 42,015 - 167,115
Decrease (increase) in
inventories - 35,300 (33,517) 31,450 - 33,233
Decrease (increase) in prepaid
expenses 44,202 74,842 (58,068) (11,893) - 49,083
Increase in other assets - - (4,550) (63,719) - (68,269)
(Decrease) increase in accounts
payable - 117,908 (35,225) (1,104,765) - (1,022,082)
Increase (Decrease) in amounts
due to related parties, net 511,872 46,594 (353,721) (175,548) - 29,197
(Decrease) increase in accrued
payroll and other expenses - (290,746) 28,958 80,224 - (181,564)
(Decrease) increase in other
accrued liabilities (180,618) (458,189) (956,754) 621,297 - (974,264)
------------ ----------- ----------- ----------- ------------- ------------
Net cash provided by (used in)
operating activities (8,430,964) 10,909,922 2,167,918 693,417 - 5,340,293
------------ ----------- ----------- ----------- ------------- ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition of property, equipment
and improvements - (1,795,652) (771,774) (920,046) - (3,487,472)
Increase in restricted cash (250,000) - - - - (250,000)
Proceeds from sale of equipment - 20,700 7,025 6,264 - 33,989
------------ ----------- ----------- ----------- ------------- ------------
Net cash used in investing
activities (250,000) (1,774,952) (764,749) (913,782) - (3,703,483)
------------ ----------- ----------- ----------- ------------- ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payment of 11.653% Senior Secured
Notes issuance costs (2,337) - - - - (2,337)
Cash paid to reduce long-term debt - - - (94,392) - (94,392)
Repayment of loan to Barden
Development, Inc. 700,000 - - - - 700,000
Cash advances (to) from
affiliates, net 11,500,000 (9,700,000) (1,800,000) - - -
Distribution to Barden
Development, Inc. (2,089,079) - - - - (2,089,079)
------------ ----------- ----------- ----------- ------------- ------------
Net cash provided by (used in)
financing activities 10,108,584 (9,700,000) (1,800,000) (94,392) - (1,485,808)
------------ ----------- ----------- ----------- ------------- ------------
Net increase (decrease) in cash and
cash equivalents 1,427,620 (565,030) (396,831) (314,757) - 151,002
Cash and cash equivalents,
beginning of period 1,007,660 7,852,914 2,727,644 4,395,606 - 15,983,824
------------ ----------- ----------- ----------- ------------- ------------
Cash and cash equivalents, end of
period $ 2,435,280 $ 7,287,884 $ 2,330,813 $ 4,080,849 $ - $ 16,134,826
============ =========== =========== =========== ============= ============
(a) To eliminate intercompany investment in subsidiaries.
19
MAJESTIC INVESTOR HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)
CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2002
BARDEN BARDEN BARDEN
MISSISSIPPI COLORADO NEVADA
PARENT GAMING, LLC GAMING, LLC GAMING, LLC ELIMINATING
NON-GUARANTOR GUARANTOR GUARANTOR GUARANTOR ENTRIES CONSOLIDATED
------------- ----------- ----------- ----------- ------------- ------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ (174,084) $ 7,959,609 $ 2,787,021 $ (427,321) $ (10,319,309) (a) $ (174,084)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation - 3,196,650 483,462 1,130,399 - 4,810,511
Amortization 1,272,525 418,625 243,874 134,630 - 2,069,654
(Gain) loss on sale of assets - (6,542) 5,964 - - (578)
Income from wholly-owned
subsidiaries (10,319,309) - - - 10,319,309 (a) -
Changes in operating assets and
liabilities:
(Increase) decrease in accounts
receivable, net 242,415 119,249 31,880 (53,109) - 340,435
(Increase) decrease in inventories - (15,666) (23,684) 82,639 - 43,289
Increase in prepaid expenses (41,000) (85,288) (188,702) (342,762) - (657,752)
(Increase) decrease in other
assets 1,035,123 15,864 11,417 (776,503) - 285,901
Increase (decrease) in accounts
payable - (155,012) 142,423 (652,067) - (664,656)
Increase (decrease) in amounts
due to related parties, net 2,233,011 (298,400) (1,253,400) 22,373 (721,567) (b) (17,983)
Increase in accrued interest 287,025 - - - - 287,025
Increase (decrease) in accrued
payroll and related expenses - 223,256 (44,976) (69,737) - 108,543
Increase (decrease) in other
accrued liabilities (1,099,212) (387,003) 877,065 458,568 - (150,582)
------------ ----------- ----------- ----------- ------------- ------------
Net cash provided by (used in)
operating activities (6,563,506) 10,985,342 3,072,344 (492,890) (721,567) 6,279,723
------------ ----------- ----------- ----------- ------------- ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Payment for acquisition related
costs (986,158) - - - - (986,158)
Increase in restricted cash (250,000) - - - - (250,000)
Proceeds from seller for purchase
price adjustment 3,800,000 - - - - 3,800,000
Proceeds from sale of equipment - 6,542 27,325 - - 33,867
Acquisition of property, equipment
and improvements - (1,496,044) (438,835) (799,912) - (2,734,791)
------------ ----------- ----------- ----------- ------------- ------------
Net cash provided by (used in)
investing activities 2,563,842 (1,489,502) (411,510) (799,912) - (137,082)
------------ ----------- ----------- ----------- ------------- ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payment of 11.653% Senior Secured
Notes issuance costs (1,084,355) - - - - (1,084,355)
Cash advances (to) from affiliates 10,650,089 (8,786,096) (3,571,045) 985,485 721,567 (b) -
Line of credit, net (4,507,565) - - - - (4,507,565)
Distribution to Barden
Development, Inc. (1,065,542) - - - - (1,065,542)
Cash paid to reduce long-term debt - - - (65,140) - (65,140)
------------ ----------- ----------- ----------- ------------- ------------
Net cash provided by (used in)
financing activities 3,992,627 (8,786,096) (3,571,045) 920,345 721,567 (6,722,602)
------------ ----------- ----------- ----------- ------------- ------------
Net increase (decrease) in cash
and cash equivalents (7,037) 709,744 (910,211) (372,457) - (579,961)
Cash and cash equivalents,
beginning of period 498,363 8,452,344 3,795,722 4,958,386 - 17,704,815
------------ ----------- ----------- ----------- ------------- ------------
Cash and cash equivalents, end of
period $ 491,326 $ 9,162,088 $ 2,885,511 $ 4,585,929 $ - $ 17,124,854
============ =========== =========== =========== ============= ============
(a) To eliminate intercompany investment in subsidiaries.
(b) To eliminate intercompany receivables and payables.
20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
STATEMENT OF FORWARD-LOOKING INFORMATION
This report includes statements that constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and
are subject to the safe harbor provisions of those sections and the Private
Securities Litigation Reform Act of 1995. Words such as "believes",
"anticipates", "estimates", "plans", "intends", "expects", "will" or "could"
used in the Company's reports filed with the Securities and Exchange Commission
are intended to identify forward-looking statements. All forward-looking
statements involve risks and uncertainties. Although the Company believes its
expectations are based upon reasonable assumptions within the bounds of its
current knowledge of its business and operations, there can be no assurances
that actual results will not materially differ from expected results. The
Company cautions that these and similar statements included in this report and
in previously filed periodic reports are further qualified by important factors
that could cause actual results to differ materially from those in the
forward-looking statements. Such factors include, without limitation: the
ability to fund planned development needs and to service debt from existing
operations and from new financing; increased competition in existing markets or
the opening of new gaming jurisdictions; a decline in the public acceptance of
gaming; the limitation, conditioning or suspension of our gaming licenses;
increases in or new taxes imposed on gaming revenues and gaming devices;
admission taxes; a finding of unsuitability by regulatory authorities with
respect to the Company or its officers or key employees; loss and/or retirement
of key employees; significant increase in fuel or transportation prices; adverse
economic conditions in the Company's markets; severe and unusual weather in our
markets; adverse results of significant litigation matters; non-renewal of the
Company's gaming licenses from the appropriate governmental authorities in
Nevada, Mississippi and Colorado; and continuing effects of terrorist attacks
and any future occurrences of terrorist attacks or other destabilizing events.
For more information on these and other factors, see the Company's most
recently filed Form 10-K. We caution readers not to place undue reliance on
forward-looking statements, which speak only as of the date hereof. All
subsequent written and oral forward-looking statements attributable to us are
expressly qualified in their entirety by the cautionary statements and factors
that may affect future results contained throughout this report. The Company
undertakes no obligation to publicly release any revisions to such
forward-looking statements to reflect events or circumstances after the date
hereof.
The following discussion should be read in conjunction with, and is
qualified in its entirety by, our financial statements, including the notes
thereto listed in Item 1.
OVERVIEW
The Company was formed on September 14, 2001, commenced operations of
the Fitzgeralds casinos on December 7, 2001, and accordingly has a limited
operating history. The Company operates casino hotels (except in Black Hawk,
Colorado) in Tunica County, Mississippi ("Fitzgeralds Tunica"), Black Hawk,
Colorado ("Fitzgeralds Black Hawk") and Las Vegas, Nevada ("Fitzgeralds Las
Vegas"). The discussion of operations herein will
21
focus on events and the Company's revenues and expenses during the three and
six-month periods ended June 30, 2003 and 2002.
The gaming operations of the Company's properties may be seasonal and,
depending on the location and other circumstances, the effects of such
seasonality could be significant. The properties' results are affected by
inclement weather in relevant markets. For example, the Fitzgeralds Black Hawk
site, located in the Rocky Mountains of Colorado, is subject to snow and icy
road conditions during the winter months. Any such severe weather conditions may
discourage potential customers from visiting the Black Hawk facilities. Also, at
Fitzgeralds Las Vegas, business levels are generally weaker from Thanksgiving
through the middle of January (except during the week between Christmas and New
Year's) and throughout the summer, and generally stronger from mid-January
through Easter and from mid-September through Thanksgiving. At Fitzgeralds
Tunica and Fitzgeralds Black Hawk, business levels are typically weaker from
Thanksgiving through the end of the winter (except during the week between
Christmas and New Year's) and typically stronger from mid-June to mid-November.
Accordingly, the Company's results of operations are expected to fluctuate from
quarter to quarter and the results for any fiscal quarter may not be indicative
of results for future fiscal quarters.
RESULTS OF OPERATIONS
The following discussion provides a comparison of the results of
operations of the Company and its subsidiaries on a consolidated basis, for the
three and six months ended June 30, 2003, with the three and six months ended
June 30, 2002. On a consolidated basis, gross revenues decreased approximately
$1,516,000 or 3.0% to approximately $48,714,000 during the three months ended
June 30, 2003, compared to $50,230,000 during the three months ended June 30,
2002. For the six-months ending June 30, 2003, gross revenues decreased
$5,047,000 or 4.9% to $97,610,000 from $102,657,000 in the six-month period
ended June 30, 2002.
The following table sets forth information derived from the Company's
consolidated statements of operations for the three and six month periods ended
June 30, 2003 and 2002, expressed as a percentage of gross revenues.
22
CONSOLIDATED STATEMENTS OF OPERATIONS - SUMMARY INFORMATION
(IN THOUSANDS)
FOR THE THREE MONTHS ENDED JUNE 30, FOR THE SIX MONTHS ENDED JUNE 30,
2003 2002 2003 2002
------------ ----------- ----------- -------------
Gross revenues $ 48,714 $ 50,229 $ 97,610 $ 102,657
Operating income $ 3,437 $ 3,411 $ 8,786 $ 8,900
EBITDA (1) $ 7,145 $ 6,904 $ 16,148 $ 15,780
CONSOLIDATED STATEMENTS OF OPERATIONS - PERCENTAGE OF GROSS REVENUES
FOR THE THREE MONTHS ENDED JUNE 30, FOR THE SIX MONTHS ENDED JUNE 30,
2003 2002 2003 2002
------------ ----------- ----------- -------------
REVENUES:
Casino 81.2 % 80.5 % 80.9 % 80.7 %
Rooms 7.3 % 7.8 % 7.5 % 7.8 %
Food and beverage 9.8 % 9.7 % 9.9 % 9.7 %
Other 1.7 % 2.0 % 1.7 % 1.8 %
----------- ---------- ---------- ------------
Gross revenues 100.0 % 100.0 % 100.0 % 100.0 %
Less promotional allowances (11.4)% (11.5)% (11.4)% (11.6)%
----------- ---------- ---------- ------------
Net revenues 88.6 % 88.5 % 88.6 % 88.4 %
COSTS AND EXPENSES:
Casino 34.1 % 34.4 % 33.0 % 34.4 %
Rooms 3.4 % 3.7 % 3.3 % 3.5 %
Food and beverage 5.3 % 5.9 % 5.2 % 5.6 %
Other 0.8 % 0.8 % 0.8 % 0.8 %
Gaming taxes 9.1 % 9.5 % 9.3 % 9.5 %
Advertising and promotion 6.8 % 7.3 % 6.7 % 6.8 %
General and administrative 14.4 % 13.2 % 13.8 % 12.5 %
Depreciation and amortization 7.6 % 6.9 % 7.5 % 6.7 %
Pre-opening expenses - % - % - % - %
----------- ---------- ---------- ------------
Total costs and expenses 81.5 % 81.7 % 79.6 % 79.8 %
----------- ---------- ---------- ------------
Operating income 7.1 % 6.8 % 9.0 % 8.6 $
OTHER INCOME (EXPENSE):
Interest expense (9.1)% (9.1)% (9.0)% (8.8)%
----------- ---------- ---------- ------------
Total other expense (9.1)% (9.1)% (9.0)% (8.8)%
----------- ---------- ---------- ------------
Net income (loss) (2.0)% (2.3)% - % (0.2)%
=========== ========== ========== ============
EBITDA (1) 14.7 % 13.7 % 16.5 % 15.4 %
(1) EBITDA is defined as earnings from operations before interest, taxes,
depreciation and amortization. EBITDA is presented solely as a supplemental
disclosure because management believes that it is a widely used measure of
operating performance in the gaming industry, and a principal basis for
valuation of gaming companies. Other companies may calculate EBITDA
differently. Management uses EBITDA as a measure of the Company's operating
performance. EBITDA should not be construed as an alternative to operating
income, as an indicator of the Company's operating performance, or as an
alternative to cash flows from operating activities, as a measure of
liquidity, or any other measure determined in accordance with generally
accepted accounting principles. The Company has significant uses of cash
including capital expenditures, interest payments, taxes and debt principal
repayments, which are not reflected in EBITDA.
A reconciliation of operating income to EBITDA follows:
23
RECONCILIATION OF OPERATING INCOME TO EBITDA
(IN MILLIONS)
FOR THE THREE MONTHS ENDED JUNE 30, FOR THE SIX MONTHS ENDED JUNE 30,
2003 2002 2003 2002
------ ------ ------ ------
Operating income $ 3.4 $ 3.4 $ 8.8 $ 8.9
Depreciation and amortization 3.7 3.5 7.3 6.9
------ ------ ------ ------
EBITDA $ 7.1 $ 6.9 $ 16.1 $ 15.8
====== ====== ====== ======
THREE MONTHS ENDED JUNE 30, 2003 COMPARED TO THREE MONTHS ENDED JUNE 30, 2002
Consolidated gross revenues for the three months ended June 30, 2003
amounted to approximately $48,714,000, a decrease of approximately $1,516,000 or
3.0% from consolidated gross revenues recorded in the three months ended June
30, 2002. The 3.0% decrease in consolidated gross revenues was primarily
attributable to a $995,000 or 2.8% decrease in slot revenues and a $354,000 or
9.0% decrease in room revenues. For the three months ended June 30, 2003, gross
revenues for Fitzgeralds Tunica accounted for $26,039,000, or 53.5% of total
consolidated gross revenues, Fitzgeralds Black Hawk accounted for $9,345,000, or
19.2% of total consolidated gross revenues revenues, and Fitzgeralds Las Vegas
accounted for $13,330,000, or 27.3% of total consolidated gross revenues,
compared to $27,075,000, or 53.9%, $9,068,000, or 18.1% and $14,086,000, or
28.0%, respectively, for the three months ended June 30, 2002.
The Company's business can be separated into four operating departments: casino,
rooms (except Fitzgeralds Black Hawk), food and beverage, and other.
Consolidated casino revenues for the three months ended June 30, 2003 totaled
$39,541,000, or 81.2% of consolidated gross revenues, of which $34,919,000 or
88.3% were derived from slot machine revenues, and $4,622,000 or 11.7% were
derived from table game revenues, compared to consolidated casino revenues of
$40,426,000 or 80.5% of consolidated gross revenues, of which $35,914,000 or
88.8% were derived from slot machine revenues, and $4,512,000 or 11.2% were
derived from table games revenues for the three months ended June 30, 2002.
Casino revenues attributable to Fitzgeralds Tunica were $21,430,000, or 82.3% of
its gross revenues, of which $19,384,000 or 90.5% were derived from slot machine
revenues, and $2,046,000 or 9.5% were derived from table games revenues for the
three months ended June 30, 2003, compared to casino revenues of $22,300,000 or
82.4% of its gross revenues, of which $19,956,000 or 89.5% were derived from
slot machine revenues, and $2,344,000, or 10.5%, were derived from table games
revenues for the three months ended June 30, 2002. Casino revenues attributed to
Fitzgeralds Black Hawk were $8,773,000, or 93.9% of its gross revenues, of which
$8,606,000, or 98.1%, were derived from slot machine revenues and $167,000 or
1.9% were derived from table game revenues for the three months ended June 30,
2003, compared to casino revenues of $8,557,000, or 94.4% of its gross revenues,
of which $8,406,000 or 98.2% were derived from slot machine revenues and
$151,000, or 1.8%, were derived from table games revenues for the three months
ended June 30, 2002. Casino revenues attributable to Fitzgeralds Las Vegas were
$9,338,000, or 70.1% of its gross revenues, of which $6,928,000, or 74.2%, were
derived from slot machine revenues and $2,410,000, or 25.8%, were derived from
table game revenues for the three months ended June 30, 2003, compared to casino
revenues of $9,569,000, or 67.9% of its gross revenues, of which $7,552,000, or
78.9%, were derived from slot machine revenues and $2,017,000, or 21.1%, were
derived from table game revenues for the three months ended June 30, 2002.
24
The Company feels that the weakness in its revenues, particularly slot revenues,
can be attributed to a slow economy, attention drawn to the conflict with Iraq,
periods of poor weather and the competitive environment that exists in each of
its markets.
The consolidated average number of slot machines in operation was 2,830
during the three months ended June 30, 2003, compared to 2,844 during the three
months ended June 30, 2002. Fitzgeralds Tunica accounted for 1,350, or 47.7%,
Fitzgeralds Black Hawk accounted for 592, or 20.9%, and Fitzgeralds Las Vegas
accounted for 888, or 31.4%. The consolidated average win per slot machine per
day was approximately $136 for the three months ended June 30, 2003, with an
average of approximately $158, $160 and $86 at Fitzgeralds Tunica, Fitzgeralds
Black Hawk and Fitzgeralds Las Vegas, respectively, compared to the consolidated
average win per slot machine per day of $139 for the three months ended June 30,
2002 with an average of approximately $159, $156 and $95 at Fitzgeralds Tunica,
Fitzgeralds Black Hawk and Fitzgeralds Las Vegas, respectively. The consolidated
average number of table games in operation during the three months ended June
30, 2003 was 66, of which Fitzgeralds Tunica accounted for 34, or 51.5%,
Fitzgeralds Black Hawk accounted for 6, or 9.1%, and Fitzgeralds Las Vegas
accounted for 26, or 39.4%. The consolidated average win per table game per day
during the three months ended June 30, 2003 was approximately $719, with an
average of approximately $661, $306, and $891 at Fitzgeralds Tunica, Fitzgeralds
Black Hawk and Fitzgeralds Las Vegas, respectively, compared to the consolidated
average win per table game per day of $712 for the three months ended June 30,
2002 with an average of approximately $743, $276 and $776 at Fitzgeralds Tunica,
Fitzgeralds Black Hawk and Fitzgeralds Las Vegas, respectively. With respect to
Fitzgeralds Black Hawk the maximum wager is limited to $5.00.
Consolidated room revenues for the three months ended June 30, 2003 was
$3,585,000, or 7.3% of consolidated gross revenues, compared to $3,939,000, or
7.8% of consolidated gross revenues for the three months ended June 30, 2002. Of
this amount, Fitzgeralds Tunica accounted for $1,961,000, or 54.7%, with 507
rooms and Fitzgeralds Las Vegas accounted for $1,624,000, or 45.3%, with 638
rooms, compared to $2,076,000, or 52.7%, with 507 rooms at Fitzgeralds Tunica
and $1,863,000, or 47.3%, with 638 rooms at Fitzgeralds Las Vegas during the
three months ended June 30, 2002. During the three months ended June 30, 2003,
at Fitzgeralds Tunica the average daily rate was $46 and the occupancy rate was
92.3% and at Fitzgeralds Las Vegas the average daily rate was $34 and the
occupancy rate was 81.3%, compared to $49 and 92.0%, respectively, at
Fitzgeralds Tunica and $34 and 93.4%, respectively, at Fitzgeralds Las Vegas
during the three months ended June 30, 2002.
Consolidated food and beverage revenues for the three months ended June
30, 2003 amounted to $4,755,000, or 9.8% of consolidated gross revenues,
compared to $4,887,000, or 9.7% of consolidated gross revenues for the three
months ended June 30, 2002. Of this amount, Fitzgeralds Tunica accounted for
$2,292,000, or 48.2%, Fitzgeralds Black Hawk accounted for $507,000, or 10.7%
and Fitzgeralds Las Vegas accounted for $1,956,000, or 41.1%, compared to
$2,314,000, or 47.4%, $453,000, or 9.2%, and $2,120,000, or 43.4% at Fitzgeralds
Tunica, Fitzgeralds Black Hawk and Fitzgeralds Las Vegas, respectively, during
the three months ended June 30, 2002.
Other consolidated revenues consisted primarily of commission and
retail income and totaled approximately $833,000, or 1.7% of consolidated gross
revenues for the three months ended June 30, 2003, compared to $978,000, or 2.0%
of consolidated gross revenues
25
for the three months ended June 30, 2002. Of this amount, Fitzgeralds Tunica
accounted for $356,000 or 42.7%, Fitzgeralds Black Hawk accounted for
approximately $65,000 or 7.8%, and Fitzgeralds Las Vegas accounted for $412,000,
or 49.5% during the three months ended June 30, 2003, compared to $385,000, or
39.4%, $59,000, or 6.0%, and $534,000, or 54.6%, at Fitzgeralds Tunica,
Fitzgeralds Black Hawk and Fitzgeralds Las Vegas, respectively, during the three
months ended June 30, 2002.
Consolidated promotional allowances included in consolidated gross
revenues for the three months ended June 30, 2003 were $5,544,000, or 11.4% of
consolidated gross revenues compared to $5,754,000, or 11.5% of consolidated
gross revenues during the three months ended June 30, 2002. Of this amount,
Fitzgeralds Tunica accounted for $3,351,000, or 60.4%, Fitzgeralds Black Hawk
accounted for $810,000, or 14.6%, and Fitzgeralds Las Vegas accounted for
$1,383,000, or 25.0% during the three months ended June 30, 2003, compared to
$3,501,000, or 60.8%, $756,000, or 13.2%, and $1,497,000, or 26.0%, at
Fitzgeralds Tunica, Fitzgeralds Black Hawk and Fitzgeralds Las Vegas,
respectively, during the three months ended June 30, 2002. The decline in
promotional allowances is directly associated with the decline in casino
revenues. The most substantial portion of the decline in promotional allowances
comes from reduced complimentaries to our casino guests and a reduction in slot
club points earned.
Consolidated casino operating expenses for the three months ended June
30, 2003 were $16,612,000, or 34.1% of consolidated gross revenues and 42.0% of
consolidated casino revenues, compared to $17,275,000, or 34.4% of consolidated
gross revenues and 42.7% of consolidated casino revenues for the three months
ended June 30, 2002. For the three months ended June 30, 2003 and June 30, 2002,
these expenses were primarily comprised of salaries, wages and benefits, and
operating expenses of the casino. Of the consolidated casino operating expenses,
Fitzgeralds Tunica accounted for $9,626,000, or 57.9%, Fitzgeralds Black Hawk
accounted for $2,899,000, or 17.5%, and Fitzgeralds Las Vegas accounted for
$4,087,000, or 24.6% during the three months ended June 30, 2003, compared to
$9,864,000 or 57.1%, $2,734,000 or 15.8% and $4,677,000 or 27.1% at Fitzgeralds
Tunica, Fitzgeralds Black Hawk and Fitzgeralds Las Vegas, respectively, during
the three months ended June 30, 2002. The decline in casino operating expenses
is the result of lower slot machine lease and participation expenses of
$382,000, reduced cost of complimentaries of $326,000 and lower promotional
related expenses of $145,000.
Consolidated rooms expenses for the three months ended June 30, 2003,
were $1,641,000, or 3.4% of consolidated gross revenues, compared to $1,864,000,
or 3.7% of consolidated gross revenues during the three months ended June 30,
2002. These expenses were primarily comprised of salaries, wages and benefits,
and operating expenses of the hotels. Of the consolidated rooms operating
expenses, Fitzgeralds Tunica accounted for $660,000 or 40.2% and Fitzgeralds Las
Vegas accounted for $981,000 or 59.8% during the three months ended June 30,
2003, compared to $919,000 or 49.3% and $945,000 or 50.7% at Fitzgeralds Tunica
and Fitzgeralds Las Vegas, respectively, during the three months ended June 30,
2002. Room expenses were generally lower in the three-month period ended June
30, 2003 compared to the same period in 2002 due to lower room occupancies at
both Fitzgeralds Tunica and Fitzgeralds Las Vegas.
Consolidated food and beverage expenses for the three months ended June
30, 2003 were $2,564,000, or 5.3% of consolidated gross revenues, compared to
$2,944,000, or 5.9% of consolidated gross revenues during the three months ended
June 30, 2002. Of the consolidated food and beverage expenses, Fitzgeralds
Tunica accounted for $693,000, or 27.0%, Fitzgeralds Black Hawk accounted for
$266,000, or 10.4% and Fitzgeralds Las
26
Vegas accounted for $1,605,000, or 62.6% during the three months ended June 30,
2003, compared to $795,000, or 27.0%, $270,000, or 9.2% and $1,879,000, or 63.8%
at Fitzgeralds Tunica, Fitzgeralds Black Hawk and Fitzgeralds Las Vegas,
respectively, during the three months ended June 30, 2002. The decline in food
and beverage expenses is primarily attributable to labor cost savings and
reduced cost of sales.
Consolidated gaming taxes totaled $4,459,000, or 9.1% of consolidated
gross revenues and 11.3% of consolidated casino revenues for the three months
ended June 30, 2003, compared to $4,779,000, or 9.5% of consolidated gross
revenues and 11.8% of consolidated casino revenues during the three months ended
June 30, 2002. During the three months ended June 30, 2003, Fitzgeralds Tunica
accounted for $2,365,000, or 53.0%, Fitzgeralds Black Hawk accounted for
$1,373,000, or 30.8%, and Fitzgeralds Las Vegas accounted for $721,000, or
16.2%, compared to $2,653,000, or 55.5%, $1,363,000, or 28.5% and $763,000, or
16.0% at Fitzgeralds Tunica, Fitzgeralds Black Hawk and Fitzgeralds Las Vegas,
respectively, during the three months ended June 30, 2002. The decline in gaming
taxes is directly associated with the decline in casino revenues. Pursuant to
new leglislation signed into law by the Govenor of Nevada on July 23, 2003, the
license fees on the number of gaming devices operated has been increased
effective immediately. The tax on gross revenues will be increased effective on
August 1, 2003 and the range of events covered by the casino entertainment tax
will be expanded effective September 1, 2003. Fitzgeralds Las Vegas will also
become subject to a payroll tax based on the wages paid to its Fitzgeralds Las
Vegas employees effective October 1, 2003.
Consolidated advertising and promotion expenses totaled $3,293,000, or
6.8% of consolidated gross revenues for the three months ended June 30, 2003,
compared to $3,654,000, or 7.3% of consolidated gross revenues during the three
months ended June 30, 2002. Fitzgeralds Tunica accounted for $1,452,000, or
44.1%, Fitzgeralds Black Hawk accounted for $626,000, or 19.0%, and Fitzgeralds
Las Vegas accounted for $1,215,000 or 36.9%, respectively, during the three
months ended June 30, 2003, compared to $1,542,000, or 42.2%, $842,000, or 23.0%
and $1,270,000, or 34.8% at Fitzgeralds Tunica, Fitzgeralds Black Hawk and
Fitzgeralds Las Vegas, respectively, during the three months ended June 30,
2002.
Consolidated general and administrative expenses for the three months
ended June 30, 2003 were $7,044,000, or 14.4% of consolidated gross revenues,
compared to $6,653,000, or 13.2% for the three months ended June 30, 2002.
During the three months ended June 30, 2003, Fitzgeralds Tunica accounted for
$2,961,000, or 42.0%, Fitzgeralds Black Hawk accounted for $1,242,000, or 17.7%,
and Fitzgeralds Las Vegas accounted for $2,818,000, or 40.0%, compared to
$2,572,000, or 38.7%, $1,052,000, or 15.8% and $2,911,000, or 43.7%, at
Fitzgeralds Tunica, Fitzgeralds Black Hawk and Fitzgeralds Las Vegas
respectively, for the three months ended June 30, 2002. Also, unallocated
corporate expenses accounted for $23,000 and $118,000 during the three months
ended June 30, 2003 and 2002, respectively.
Consolidated depreciation and amortization for the three months ended
June 30, 2003 were approximately $3,709,000, or 7.6% of consolidated gross
revenues, compared to $3,493,000, or 6.9% of consolidated gross revenues during
the three months ended June 30, 2002. Fitzgeralds Tunica accounted for
$1,928,000, or 52.0%, Fitzgeralds Black Hawk accounted for $412,000, or 11.1%,
and Fitzgeralds Las Vegas accounted for $703,000 or 18.9% during the three
months ended June 30, 2003, compared to $1,835,000, or 52.5%, $364,000, or 10.4%
and $648,000, or 18.6%, respectively, during the three months ended June 30,
2002. Corporate amortization of deferred financing costs and the discount on the
Notes accounted for $666,000, or 18.0% of consolidated depreciation and
amortization during the three months ended June 30, 2003 compared to $646,000,
or 18.5% during the
27
three months ended June 30, 2002. Of the consolidated depreciation and
amortization expense, $2,644,000, or 71.3%, is depreciation expense, and
$1,065,000, or 28.7% is amortization expense during the three months ended June
30, 2003, compared to $2,448,000, or 70.1% and $1,045,000, or 29.9%,
respectively, during the three months ended June 30, 2002.
Consolidated operating income for the three months ended June 30, 2003
was $3,437,000, or 7.1% of consolidated gross revenues compared to $3,411,000,
or 6.8% of consolidated gross revenues during the three months ended June 30,
2002. Fitzgeralds Tunica accounted for operating income of $2,891,000, or 84.1%,
Fitzgeralds Black Hawk accounted for operating income of $1,559,000, or 45.4%,
and Fitzgeralds Las Vegas accounted for an operating loss of $325,000, or (9.5)%
for the three months ended June 30, 2003 compared to $3,310,000, or 97.0%,
$1,530,000, or 44.9% and an operating loss of $659,000, or (19.3)%, at
Fitzgeralds Tunica, Fitzgeralds Black Hawk and Fitzgeralds Las Vegas,
respectively, for the three months ended June 30, 2002. The unallocated
corporate loss principally for amortization was $688,000 or (20.0)% of
consolidated operating income for the three months ended June 30, 2003 compared
to $770,000, or (22.6)% for the three months ended June 30, 2002.
Consolidated net interest expense for the three months ended June 30,
2003 was $4,416,000, or 9.1% of consolidated gross revenues compared to
$4,563,000, or 9.1% of consolidated gross revenues during the three months ended
June 30, 2002. Fitzgeralds Tunica accounted for interest income of $3,000 and
Fitzgeralds Las Vegas accounted for net interest expense of $5,000 during the
three months ended June 30, 2003, compared to net interest income of $8,000 at
Fitzgeralds Tunica, net interest income of $1,000 at Fitzgeralds Black Hawk and
net interest expense of $5,000 at Fitzgeralds Las Vegas during the three months
ended June 30, 2002. The unallocated corporate net interest expense primarily
associated with the Notes was $4,414,000 during the three months ended June 30,
2003 compared $4,567,000 during the three months ended June 30, 2002.
As a result of the foregoing, the Company realized a consolidated net
loss of $978,000 for the three months ended June 30, 2003, compared to a
consolidated net loss of $1,169,000 for the three months ended June 30, 2002.
Fitzgeralds Tunica accounted for net income of $2,900,000, Fitzgeralds Black
Hawk accounted for net income of $1,563,000 and Fitzgeralds Las Vegas accounted
for a net loss of $329,000 during the three months ended June 30, 2003, compared
to $3,318,000, $1,525,000, and a net loss of $664,000, at Fitzgeralds Tunica,
Fitzgeralds Black Hawk and Fitzgeralds Las Vegas, respectively, during the three
months ended June 30, 2002. The unallocated loss at the corporate level was
$5,112,000 and $5,348,000 for the three months ended June 30,2003 and 2002,
respectively.
SIX MONTHS ENDED JUNE 30, 2003 COMPARED TO SIX MONTHS ENDED JUNE 30, 2002
Consolidated gross revenues for the six months ended June 30, 2003
amounted to approximately $97,610,000, a decrease of approximately $5,047,000 or
4.9% from consolidated gross revenues recorded in the six months ended June 30,
2002. The 4.9% decrease in consolidated gross revenues was primarily
attributable to a $3,686,000 or 5.0% decrease in slot revenues and a $644,000 or
8.0% decrease in room revenues. For the six months ended June 30, 2003,
Fitzgeralds Tunica accounted for $52,422,000, or 53.7% of total gross revenues,
Fitzgeralds Black Hawk accounted for $18,004,000, or 18.4% of total gross
revenues, and Fitzgeralds Las Vegas accounted for $27,184,000, or 27.9% of total
gross revenues, compared to $55,329,000, or 53.9%, $18,850,000, or 18.4% and
$28,478,000, or
28
27.7% at Fitzgeralds Tunica, Fitzgeralds Black Hawk and Fitzgeralds Las Vegas,
respectively for the six month period ended June 30, 2002.
The Company's business can be separated into four operating
departments: casino, rooms (except Fitzgeralds Black Hawk), food and beverage,
and other. Consolidated casino revenues for the six months ended June 30, 2003
totaled $78,977,000, or 80.9% of consolidated gross revenues, of which
$69,479,000 or 88.0% were derived from slot machine revenues, and $9,498,000 or
12.0% were derived from table game revenues, compared to consolidated casino
revenues of $82,781,000 or 80.7% of consolidated gross revenues, of which
$73,165,000 or 88.4% were derived from slot machine revenues, and $9,616,000 or
11.6% were derived from table games revenues for the six months ended June 30,
2002. Casino revenues attributed to Fitzgeralds Tunica were $43,240,000, or
82.5% of its gross revenues, of which $39,061,000 or 90.3% were derived from
slot machine revenues, and $4,179,000 or 9.7% were derived from table games
revenues for the six months ended June 30, 2003, compared to casino revenues of
$45,657,000 or 82.5% of its gross revenues, of which $40,823,000 or 89.4% were
derived from slot machine revenues, and $4,834,000 or 10.6% were derived from
table games revenues for the three months ended June 30, 2002. Casino revenues
attributed to Fitzgeralds Black Hawk were $16,887,000, or 93.8% of its gross
revenues, of which $16,575,000 or 98.1% were derived from slot machine revenues
and $312,000 or 1.9% were derived from table game revenues for the six months
ended June 30, 2003, compared to casino revenues of $17,774,000, or 94.3% of its
gross revenues, of which $17,426,000 or 98.0% were derived from slot machine
revenues and $348,000, or 2.0%, were derived from table games revenues for the
six months ended June 30, 2002. Casino revenues attributed to Fitzgeralds Las
Vegas were $18,850,000, or 69.3% of its gross revenues, of which $13,843,000, or
73.4%, were derived from slot machine revenues and $5,007,000, or 26.6%, were
derived from table game revenues for the six months ended June 30, 2003,
compared to casino revenues of $19,350,000, or 67.9% of its gross revenues, of
which $14,916,000, or 77.1%, were derived from slot machine revenues and
$4,434,000, or 22.9%, were derived from table game revenues for the six months
ended June 30, 2002. The Company feels that the weakness in its revenues,
particularly slot revenues, can be attributed to a slow economy, attention drawn
to the conflict with Iraq, periods of poor weather and competitive conditions in
each of the markets in which our Fitzgeralds properties operate.
The consolidated average number of slot machines in operation was 2,831
during the six months ended June 30, 2003, compared to 2,880 during the six
months ended June 30, 2002. Fitzgeralds Tunica accounted for 1,349, or 47.7%,
Fitzgeralds Black Hawk accounted for 592, or 20.9% and Fitzgeralds Las Vegas
accounted for 890, or 31.4%. The consolidated average win per slot machine per
day was approximately $136 for the six months ended June 30, 2003, with an
average of approximately $160, $155 and $86 at Fitzgeralds Tunica, Fitzgeralds
Black Hawk and Fitzgeralds Las Vegas, respectively, compared to the consolidated
average win per slot machine per day of $140 for the six months ended June 30,
2002 with an average of approximately $164, $162 and $91 at Fitzgeralds Tunica,
Fitzgeralds Black Hawk and Fitzgeralds Las Vegas, respectively. The consolidated
average number of table games in operation during the six months ended June 30,
2003 was 65, of which Fitzgeralds Tunica accounted for 34, or 52.3%, Fitzgeralds
Black Hawk accounted for 6, or 9.2%, and Fitzgeralds Las Vegas accounted for 25,
or 38.5%. The consolidated average win per table game per day during the six
months ended June 30, 2003 was approximately $752, with an average of
approximately $679, $288, and $960 at Fitzgeralds Tunica, Fitzgeralds Black Hawk
and Fitzgeralds Las Vegas, respectively,
29
compared to the consolidated average win per table game per day of $779 for the
six months ended June 30, 2002 with an average of approximately $778, $320 and
$896 at Fitzgeralds Tunica, Fitzgeralds Black Hawk and Fitzgeralds Las Vegas,
respectively. With respect to Fitzgeralds Black Hawk the maximum wager is
limited to $5.00.
Consolidated room revenues for the six months ended June 30, 2003 was
$7,384,000, or 7.5% of consolidated gross revenues, compared to $8,027,000, or
7.8% of consolidated gross revenues for the six months ended June 30, 2002. Of
this amount, Fitzgeralds Tunica accounted for $3,887,000, or 52.6%, with 507
rooms and Fitzgeralds Las Vegas accounted for $3,497,000, or 47.4%, with 638
rooms, compared to $4,161,000, or 51.8%, with 507 rooms at Fitzgeralds Tunica
and $3,866,000, or 48.2%, with 638 rooms at Fitzgeralds Las Vegas during the six
months ended June 30, 2002. During the six months ended June 30, 2003, at
Fitzgeralds Tunica the average daily rate was $47 and the occupancy rate was
91.3% and at Fitzgeralds Las Vegas the average daily rate was $37 and the
occupancy rate was 81.5%, compared to $49 and 93.8%, respectively, at
Fitzgeralds Tunica and $37 and 89.1%, respectively, at Fitzgeralds Las Vegas
during the six months ended June 30, 2002.
Consolidated food and beverage revenues for the six months ended June
30, 2003 amounted to $9,616,000, or 9.9% of consolidated gross revenues,
compared to $9,983,000, or 9.7% of consolidated gross revenues for the six
months ended June 30, 2002. Of this amount, Fitzgeralds Tunica accounted for
$4,637,000, or 48.2%, Fitzgeralds Black Hawk accounted for $990,000, or 10.3%
and Fitzgeralds Las Vegas accounted for $3,989,000, or 41.5%, compared to
$4,790,000, or 48.0%, $959,000, or 9.6%, and $4,234,000, or 42.4% at Fitzgeralds
Tunica, Fitzgeralds Black Hawk and Fitzgeralds Las Vegas, respectively, during
the six months ended June 30, 2002.
Other consolidated revenues consisted primarily of commission and
retail income and totaled approximately $1,634,000, or 1.7% of consolidated
gross revenues for the six months ended June 30, 2003, compared to $1,866,000,
or 1.8% of consolidated gross revenues for the six months ended June 30, 2002.
Of this amount, Fitzgeralds Tunica accounted for $658,000 or 40.3%, Fitzgeralds
Black Hawk accounted for approximately $127,000 or 7.8%, and Fitzgeralds Las
Vegas accounted for $849,000, or 51.9% during the six months ended June 30,
2003, compared to $722,000, or 38.7%, $117,000, or 6.2%, and $1,027,000, or
55.1% at Fitzgeralds Tunica, Fitzgeralds Black Hawk and Fitzgeralds Las Vegas,
respectively, during the six months ended June 30, 2002.
Consolidated promotional allowances included in consolidated gross
revenues for the six months ended June 30, 2003 were $11,162,000 or 11.4% of
consolidated gross revenues compared to $11,878,000 or 11.6% of consolidated
gross revenues during the six months ended June 30, 2002. Of this amount,
Fitzgeralds Tunica accounted for $6,768,000, or 60.7%, Fitzgeralds Black Hawk
accounted for $1,554,000, or 13.9%, and Fitzgeralds Las Vegas accounted for
$2,840,000, or 25.4% during the six months ended June 30, 2003, compared to
$7,407,000, or 62.3%, $1,576,000, or 13.3%, and $2,895,000, or 24.4% at
Fitzgeralds Tunica, Fitzgeralds Black Hawk and Fitzgeralds Las Vegas,
respectively, during the six months ended June 30, 2002. The decline in
promotional allowances is directly associated with the decline in casino
revenues. The most substantial portion of the decline in promotional allowances
comes from reduced complimentaries to our casino guests.
Consolidated casino operating expenses for the six months ended June
30, 2003 were $32,171,000, or 33.0% of consolidated gross revenues and 40.7% of
consolidated casino revenues, compared to $35,302,000, or 34.4% of consolidated
gross revenues and 42.6% of consolidated casino revenues for the six months
ended June 30, 2002. For the six months
30
ended June 30, 2003 and June 30, 2002, these expenses were primarily comprised
of salaries, wages and benefits, and operating expenses of the casinos. Of the
consolidated casino operating expenses, Fitzgeralds Tunica accounted for
$18,531,000, or 57.6%, Fitzgeralds Black Hawk accounted for $5,469,000, or
17.0%, and Fitzgeralds Las Vegas accounted for $8,171,000, or 25.4% during the
six months ended June 30, 2003, compared to $19,773,000 or 56.0%, $6,279,000 or
17.8% and $9,250,000 or 26.2% at Fitzgeralds Tunica, Fitzgeralds Black Hawk and
Fitzgeralds Las Vegas, respectively, during the six months ended June 30, 2002.
The decline in casino operating expenses is the result of lower slot machine
participation and lease expenses of $573,000, lower payroll and related expenses
of $319,000, lower progressive expenses of $228,000, lower casino promotional
expenses of $454,000 and lower cost of complimentaries of $669,000.
Consolidated rooms expenses for the six months ended June 30, 2003 were
$3,187,000, or 3.3% of consolidated gross revenues, compared to $3,632,000, or
3.5% of consolidated gross revenues during the six months ended June 30, 2002.
These expenses were primarily comprised of salaries, wages and benefits, and
operating expenses of the hotels. Of the consolidated rooms operating expenses,
Fitzgeralds Tunica accounted for $1,263,000 or 39.6% and Fitzgeralds Las Vegas
accounted for $1,924,000 or 60.4% during the six months ended June 30, 2003,
compared to $1,641,000 or 45.2% and $1,991,000 or 54.8% at Fitzgeralds Tunica
and Fitzgeralds Las Vegas, respectively, during the six months ended June 30,
2002. Room expenses were generally lower in the six-month period ended June 30,
2003, compared to the same period in 2002 due to lower room occupancies at
both Fitzgeralds Tunica and Fitzgeralds Las Vegas.
Consolidated food and beverage expenses for the six months ended June
30, 2003, were $5,062,000, or 5.2% of consolidated gross revenues, compared to
$5,714,000, or 5.6% of consolidated gross revenues during the six months ended
June 30, 2002. Of the consolidated food and beverage expenses, Fitzgeralds
Tunica accounted for $1,327,000, or 26.2%, Fitzgeralds Black Hawk accounted for
$548,000, or 10.8% and Fitzgeralds Las Vegas accounted for $3,187,000, or 63.0%
during the six months ended June 30, 2003, compared to $1,473,000, or 25.8%,
$542,000, or 9.5% and $3,699,000, or 64.7% at Fitzgeralds Tunica, Fitzgeralds
Black Hawk and Fitzgeralds Las Vegas, respectively, during the six months ended
June 30, 2002. The primary decline in food and beverage expenses comes from
reduced labor costs and lower costs of sales.
Consolidated gaming taxes totaled $9,035,000, or 9.3% of consolidated
gross revenues and 11.4% of consolidated casino revenues for the six months
ended June 30, 2003, compared to $9,799,000, or 9.5% of consolidated gross
revenues and 11.8% of consolidated casino revenues during the six months ended
June 30, 2002. During the six months ended June 30, 2003, Fitzgeralds Tunica
accounted for $4,927,000, or 54.5%, Fitzgeralds Black Hawk accounted for
$2,646,000, or 29.3%, and Fitzgeralds Las Vegas accounted for $1,462,000, or
16.2%, compared to $5,433,000, or 55.4%, $2,845,000, or 29.1% and $1,521,000, or
15.5% at Fitzgeralds Tunica, Fitzgeralds Black Hawk and Fitzgeralds Las Vegas,
respectively, during the six months ended June 30, 2002. The decline in gaming
taxes is directly associated with the decline in casino revenues. Pursuant to
new legislation signed into law by the Governor of Nevada on July 23, 2003, the
license fees on the number of gaming devices operated has been increased
effective immediately. The tax on gross revenues will be increased effective
August 1, 2003 and the range of events covered by the casino entertainment tax
will be expanded effective September 1, 2003. Fitzgeralds Las Vegas will also
become subject to a payroll tax based on the wages paid to its employees
effective October 1, 2003.
31
Consolidated advertising and promotion expenses totaled $6,544,000, or
6.7% of consolidated gross revenues for the six months ended June 30, 2003,
compared to $6,951,000, or 6.8% of consolidated gross revenues during the six
months ended June 30, 2002. Fitzgeralds Tunica accounted for $2,724,000, or
41.6%, Fitzgeralds Black Hawk accounted for $1,341,000, or 20.5%, and
Fitzgeralds Las Vegas accounted for $2,479,000 or 37.9%, respectively, during
the six months ended June 30, 2003, compared to $2,909,000, or 41.8%,
$1,575,000, or 22.7% and $2,467,000, or 35.5% at Fitzgeralds Tunica, Fitzgeralds
Black Hawk and Fitzgeralds Las Vegas, respectively, during the six months ended
June 30, 2002.
Consolidated general and administrative expenses for the six months
ended June 30, 2003 were $13,482,000, or 13.8% of consolidated gross revenues,
compared to $12,814,000, or 12.5% for the six months ended June 30, 2002. During
the six months ended June 30, 2003, Fitzgeralds Tunica accounted for $5,418,000,
or 40.2%, Fitzgeralds Black Hawk accounted for $2,504,000, or 18.6%, and
Fitzgeralds Las Vegas accounted for $5,538,000, or 41.0%, compared to
$4,971,000, or 38.8%, $2,193,000, or 17.1% and $5,527,000, or 43.1% at
Fitzgeralds Tunica, Fitzgeralds Black Hawk and Fitzgeralds Las Vegas,
respectively, for the six months ended June 30, 2002. Also, unallocated
corporate expenses accounted for $22,000 and $123,000 during the six months
ended June 30, 2003 and 2002, respectively.
Consolidated depreciation and amortization for the six months ended
June 30, 2003 were approximately $7,362,000, or 7.5% of consolidated gross
revenues, compared to $6,880,000, or 6.7% of consolidated gross revenues during
the six months ended June 30, 2002. Fitzgeralds Tunica accounted for $3,833,000,
or 52.1%, Fitzgeralds Black Hawk accounted for $823,000, or 11.2%, and
Fitzgeralds Las Vegas accounted for $1,374,000 or 18.6% during the six months
ended June 30, 2003, compared to $3,615,000, or 52.5%, $727,000, or 10.6% and
$1,265,000, or 18.4% at Fitzgeralds Tunica, Fitzgeralds Black Hawk and
Fitzgeralds Las Vegas, respectively, during the six months ended June 30, 2002.
Corporate amortization of deferred financing costs and the discount on the Notes
accounted for $1,332,000, or 18.1% of consolidated depreciation and amortization
during the six months ended June 30, 2003 compared to $1,273,000, or 18.5%
during the six months ended June 30, 2002. Of the consolidated depreciation and
amortization expense, $5,233,000, or 71.1%, is depreciation expense, and
$2,129,000, or 28.9% is amortization expense during the six months ended June
30, 2003, compared to $4,810,000, or 69.9%, $2,070,000, or 30.1%, respectively,
during the six months ended June 30, 2002.
Consolidated operating income for the six months ended June 30, 2003
was $8,786,000, or 9.0% of consolidated gross revenues compared to $8,900,000,
or 8.6% of consolidated gross revenues during the six months ended June 30,
2002. Fitzgeralds Tunica accounted for operating income of $7,439,000, or 84.7%,
Fitzgeralds Black Hawk accounted for operating income of $2,790,000, or 31.7%
and Fitzgeralds Las Vegas accounted for an operating loss of $89,000, or (1.0)%
for the six months ended June 30, 2003, compared to $7,939,000, or 89.2%,
$2,788,000, or 31.3%, an operating loss of $419,000, or (4.7)% at Fitzgeralds
Tunica, Fitzgeralds Black Hawk and Fitzgeralds Las Vegas, respectively, for the
six months ended June 30, 2002. The unallocated corporate loss principally for
amortization was $1,354,000 or (15.4)% of consolidated operating income for the
six months ended June 30, 2003 compared to $1,408,000, or (15.8)% for the six
months ended June 30, 2002.
Consolidated net interest expense for the six months ended June 30,
2003 was $8,821,000, or 9.0% of consolidated gross revenues compared to
$9,047,000, or 8.8% of
32
consolidated gross revenues during the six months ended June 30, 2002.
Fitzgeralds Tunica accounted for interest income of $7,000 and Fitzgeralds Las
Vegas accounted for net interest expense of $10,000 during the six months ended
June 30, 2003, compared to net interest income of $14,000 at Fitzgeralds Tunica,
net interest income of $5,000 at Fitzgeralds Black Hawk and net interest expense
of $9,000 at Fitzgeralds Las Vegas during the six months ended June 30, 2002.
The unallocated corporate net interest expense primarily associated with the
Company's Notes was $8,818,000 during the six months ended June 30, 2003
compared to $9,057,000 during the six months ended June 30, 2002.
As a result of the foregoing, the Company realized a consolidated net
loss of $29,000 for the six months ended June 30, 2003, compared to a
consolidated net loss of $174,000 for the six months ended June 30, 2002.
Fitzgeralds Tunica accounted for net income of $7,466,000, Fitzgeralds Black
Hawk accounted for net income of $2,795,000 and Fitzgeralds Las Vegas accounted
for a net loss of $99,000 during the six months ended June 30, 2003, compared to
$7,959,000, $2,787,000, and a net loss of $427,000 at Fitzgeralds Tunica,
Fitzgeralds Black Hawk and Fitzgeralds Las Vegas respectively, during the six
months ended June 30, 2002. The unallocated loss at the corporate level was
$10,191,000 and $10,493,000 for the six months ended June 30, 2003 and 2002,
respectively.
EBITDA (defined as earnings from operations before interest, taxes,
depreciation and amortization) for the three and six months ended June 30, 2003
was $7,145,000 and $16,148,000, respectively, compared to $6,904,000 and
$15,780,000, respectively, for the three and six months ended June 30, 2002, an
improvement of approximately $241,000 and $368,000, respectively. EBITDA at
Fitzgeralds Tunica, Fitzgeralds Black Hawk and Fitzgeralds Las Vegas were
$4,820,000, $1,971,000 and $378,000, respectively, for the three months ended
June 30, 2003, compared to $5,146,000, $1,893,000 and a negative $11,000 at
Fitzgeralds Tunica, Fitzgeralds Black Hawk and Fitzgeralds Las Vegas,
respectively, for the three months ended June 30, 2002. Fitzgeralds Tunica
accounted for $11,272,000, Fitzgeralds Black Hawk accounted for $3,614,000 and
Fitzgeralds Las Vegas accounted for $1,284,000 during the six months ended June
30, 2003, compared to $11,554,000, $3,516,000 and $846,000 at Fitzgeralds
Tunica, Fitzgeralds Black Hawk and Fitzgeralds Las Vegas, respectively, during
the six months ended June 30, 2002. EBITDA is presented solely as a supplemental
disclosure because management believes that it is a widely used measure of
operating performance in the gaming industry, and a principal basis for
valuation of gaming companies. Other companies may calculate EBITDA differently.
Management uses EBITDA as a measure of the Company's operating performance.
EBITDA should be not construed as an alternative to operating income, as an
indicator of the Company's operating performance, or as an alternative to cash
flows from operating activities, as a measure of liquidity, or as any other
measure determined in accordance with generally accepted accounting principles.
The Company has significant uses of cash including capital expenditures,
interest payments, taxes and debt principal repayments, which are not reflected
in EBITDA. A reconciliation of operating income/(loss) to EBITDA is included in
the Consolidated Statements of Operations Summary Information.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2003, the Company had cash and cash equivalents of
approximately $16,135,000. Cash and cash equivalents included $2,435,000 at the
Company, $7,288,000 at Fitzgeralds Tunica, $2,331,000 at Fitzgeralds Black Hawk
and $4,081,000 at Fitzgeralds Las Vegas.
The Company has met its capital requirements to date through net cash
from operations. For the six months ended June 30, 2003, net cash provided by
operating activities totaled approximately $5,340,000 and cash used by investing
activities totaled approximately $3,703,000. The Company invested $3,487,000
primarily for gaming and non-gaming equipment and restricted cash in the amount
of $250,000 as collateral for a letter of credit associated with worker's
compensation insurance. For the six months ended
33
June 30, 2002, cash provided by operating activities totaled approximately
$6,280,000 and cash used by investing activities totaled approximately $137,000.
The Company for the six months ended June 30, 2002, invested $2,735,000
primarily for gaming and non-gaming equipment and $986,000 for the payment of
professional fees related to the acquisition. In addition, the Company in the
six month period ended June 30, 2002 received $3,800,000 from Fitzgeralds Gaming
Corporation, seller of the assets and certain liabilities of the three
Fitzgeralds properties, as a purchase price adjustment to the acquisition. For
the six months ended June 30, 2003, cash used in financing activities totaled
$1,486,000. The primary financing activities were $2,089,000 paid to BDI
pursuant to the Company's management agreement with BDI and $700,000 received
from BDI in satisfaction of principal on an outstanding note. For the six months
ended June 30, 2002, cash used in financing activities totaled $6,723,000. The
primary financing activities were $4,508,000 repaid on the Company's credit
facility, $1,084,000 expended for professional fees related to the issuance of
the Notes, $1,066,000 paid to BDI pursuant to the Company's management agreement
with BDI.
Management believes that the Company's cash flow from operations and
its current lines of credit will be adequate to meet the Company's anticipated
future requirements for working capital, its capital expenditures and scheduled
payments of interest and principal on the Notes and other permitted indebtedness
for the year 2003. If necessary and to the extent permitted under the Indenture
for the Notes, the Company will seek additional financing through borrowings and
debt or equity financing. There can be no assurance that additional financing,
if needed, will be available to the Company, or that, if available, the
financing will be on terms favorable to the Company. In addition, there is no
assurance that the Company's estimate of its reasonably anticipated liquidity
needs is accurate or that unforeseen events will not occur, resulting in the
need to raise additional funds.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In April 2002, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 145 ("SFAS 145"). Among other
matters, SFAS 145 addresses the presentation for gains and losses on early
retirements of debt in the statement of operations. SFAS 145 is effective for
fiscal years beginning after May 15, 2003. Adoption of SFAS 145 did not have a
material impact on the Company's financial condition or results of operations.
In November 2002, the Financial Accounting Standards Board issued FASB
Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Guarantees of Indebtedness of Others."
FIN 45 elaborates on the disclosures to be made by a guarantor in its interim
and annual financial statement about its obligations under certain guarantees
that it has issued. It also clarifies (for guarantees issued after January 1,
2003) that a guarantor is required to recognize at the inception of a guarantee,
a liability for the fair value of the obligations undertaken in issuing the
guarantee. At June 30, 2003, the Company did not have any guarantees outside of
its consolidated group. Adoption of FIN 45 did not have a material impact on the
Company's financial condition or results of operations.
In January 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities."
FIN 46 addresses the requirements for business enterprises to consolidate
related entities in which they are determined to be the primary economic
beneficiary as a result of their variable
34
economic interests. FIN 46 is intended to provide guidance in judging multiple
economic interests in an entity and in determining the primary beneficiary. FIN
46 outlines disclosure requirements for Variable Interest Entities ("VIEs") in
existence prior to January 31, 2003, and outlines consolidation requirement for
VIEs created after January 31, 2003. The Company has reviewed its major
relationships and its overall economic interests with other companies consisting
of related parties, companies in which it has an equity position and other
suppliers to determine the extent of its variable economic interest in these
parties. The review has not resulted in a determination that the Company would
be judged to be the primary economic beneficiary in any material relationships,
or that any material entities would be judged to be VIEs of the Company. The
Company believes it has appropriately reported the economic impact and its share
of risks of its commercial relationships through its equity accounting along
with appropriate disclosure of its commitments.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes from the information reported in
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2002.
ITEM 4. CONTROLS AND PROCEDURES
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 Commission's rules and forms.
There have been no significant changes in the Company's internal controls or in
other factors which could significantly affect internal controls subsequent to
the date the Company carried out its evaluation.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On June 27, 2003, a complaint was filed in the U.S. District Court for
the Northern District of Mississippi against several Tunica-area casino owners
and operators, including Fitzgeralds Tunica. The plaintiffs claim that the
defendants conspired to agree not to enter into any advertising or other
agreements with the plaintiffs, in violation of federal and state antitrust
laws, as well as various other tort and contract claims. The plaintiffs are
seeking treble, compensatory and punitive damages totaling approximately $33.0
million, plus interest and attorney's fees. The Company intends to vigorously
defend against this lawsuit. However, it is too early to determine the outcome
and the effect, if any, on the Company's financial position and results of
operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this report:
Exhibit No. Description of Document
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.
35
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.
(b) The following reports on Form 8-K filed during the six months ended
June 30, 2003:
On May 8, 2003, the Company filed a report on Form 8-K under Items 7, 9 and 12
to furnish a press release announcing the Company's financial results for its
first quarter ended March 31, 2003.
36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MAJESTIC INVESTOR HOLDINGS, LLC
By: /s/ Don H. Barden August 14, 2003
-----------------------------------------------------
Don H. Barden, Member, Chairman, President and Chief Executive Officer
By: /s/ Jon S. Bennett August 14, 2003
-----------------------------------------------------
Jon S. Bennett, Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
MAJESTIC INVESTOR CAPITAL CORP.
By: /s/ Don H. Barden August 14, 2003
-----------------------------------------------------
Don H. Barden, Chairman, President and Chief Executive Officer
By: /s/ Jon S. Bennett August 14, 2003
-----------------------------------------------------
Jon S. Bennett, Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
37
EXHIBIT INDEX
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.