UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORTS PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 333-06489
Indiana THE MAJESTIC STAR CASINO, LLC 43-1664986
Indiana THE MAJESTIC STAR CASINO CAPITAL CORP. 35-2100872
(State or other jurisdiction of (Exact name of registrant as specified in its charter) (I.R.S. Employer
incorporation or organization) Identification No.)
One Buffington Harbor Drive
Gary, Indiana
46406-3000
(219) 977-7823
(Registrant's address and telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to filing requirements
for the past 90 days.
Yes X No
------------ ------------
Shares outstanding of each of the registrant's classes of common stock as of
March 31, 2001:
Class Number of shares
- ----- ----------------
Not applicable Not applicable
THE MAJESTIC STAR CASINO, LLC
Index
Part I FINANCIAL INFORMATION Page No.
--------
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets, as of March 31, 2001 (Unaudited)
and December 31, 2000 .................................................1
Consolidated Statements of Income for the three months
ended March 31, 2001 and 2000 (Unaudited) .............................2
Consolidated Statements of Cash Flows for the three months
ended March 31, 2001 and 2000 (Unaudited) .............................3
Notes to Financial Statements ..................................................4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ..................................10
Item 3. Quantitative and Qualitative Disclosures About Market Risk ...................17
Part II OTHER INFORMATION
Item 1. Legal Proceedings .............................................................17
Item 6. Exhibits and Reports on Form 8-K ..............................................18
SIGNATURES ......................................................................................19
i
PART 1 - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
THE MAJESTIC STAR CASINO, LLC
Consolidated Balance Sheets
March 31, December 31,
2001 2000
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 12,376,267 $ 16,119,512
Accounts receivable, less allowance for doubtful accounts
of $132,405 and $120,000, respectively 2,111,874 2,059,577
Inventories 45,657 53,479
Prepaid expenses 948,373 636,337
Note due from affiliate 2,000,000 2,000,000
Restricted Cash 2,000,000 2,000,000
------------------ -------------------
Total current assets 19,482,171 22,868,905
------------------ -------------------
Property, equipment, and vessel improvements, net 48,424,404 49,158,571
Other Assets:
Deferred financing costs, less accumulated amortization
of $1,481,768 and $1,269,390, respectively 5,772,382 5,840,448
Deferred costs, less accumulated amortization -
of $5,375,762 and $5,099,462, respectively 276,257 552,553
Investment in Buffington Harbor Riverboats, L.L.C. 43,303,646 43,924,033
Other assets and deposits 1,842,330 4,252,799
------------------ -------------------
Total other assets 51,194,615 54,569,833
Total Assets $ 119,101,190 $ 126,597,309
================== ===================
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 4,142,722 $ 8,811,719
Accounts payable 757,247 789,293
Other accrued liabilities:
Payroll and related 1,307,534 1,108,066
Interest 3,646,795 7,107,058
Other accrued liabilities 4,334,338 3,597,924
Due to Buffington Harbor Riverboats, L.L.C. 56,921 380,736
------------------ -------------------
Total current liabilities 14,245,557 21,794,796
Long-term debt, net of current maturities 128,314,271 128,233,486
------------------ -------------------
Total long-term liabilities 128,314,271 128,233,486
------------------ -------------------
Total Liabilities 142,559,828 150,028,282
------------------ -------------------
Members' Equity:
Members' contributions 24,000,000 24,000,000
Accumulated deficit (47,458,638) (47,430,973)
------------------ -------------------
Total members' equity (23,458,638) (23,430,973)
------------------ -------------------
Total Liabilities and Members' Equity $ 119,101,190 $ 126,597,309
================== ===================
The accompanying notes are an integral part of these
consolidated financial statements.
1
THE MAJESTIC STAR CASINO, LLC
Consolidated Statements of Income
(Unaudited)
Three Months Ended March 31,
2001 2000
Revenues:
Casino $ 31,920,176 $ 30,631,101
Food and beverage 543,903 529,923
Other 297,979 221,078
------------------- -------------------
Gross Revenues 32,762,058 31,382,102
------------------- -------------------
less promotional allowances (128,937) (101,132)
Net Revenues 32,633,121 31,280,970
------------------- -------------------
Costs and Expenses:
Casino 6,653,280 5,921,761
Gaming and admission taxes 8,878,140 8,580,795
Food and beverage 633,397 562,640
Advertising and promotion 2,118,308 2,342,645
General and administrative 6,735,967 6,616,443
Economic incentive - City of Gary 957,777 946,771
Depreciation and amortization 2,306,808 2,259,876
------------------- -------------------
Total costs and expenses 28,283,677 27,230,931
------------------- -------------------
Operating income 4,349,444 4,050,039
------------------- -------------------
Other Income (Expense):
Loss on investment in
Buffington Harbor Riverboats, L.L.C. (798,198) (731,174)
Interest income 138,766 191,282
Interest expense (3,694,886) (3,826,101)
Other non-operating expense (22,791) (51,969)
------------------- -------------------
Total other income (expense) (4,377,109) (4,417,962)
------------------- -------------------
Net loss $ (27,665) $ (367,923)
=================== ===================
The accompanying notes are an integral part of these financial statements.
2
THE MAJESTIC STAR CASINO, LLC
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended March 31,
2001 2000
Cash Flows From Operating Activities:
Net loss $ (27,665) $ (367,923)
Adjustment to reconcile net loss to net cash used in operating activities
Depreciation 1,737,333 1,690,813
Amortization 569,475 569,063
Loss on investment in Buffington Harbor Riverboats, L.L.C. 798,198 731,174
(Increase) decrease in accounts receivable (64,702) 621,181
(Increase) decrease in inventories 7,822 (3,799)
(Increase) decrease in prepaid expenses (312,036) 185,060
Increase in other assets (144,322) (65,714)
Decrease in accounts payable (32,046) (317,148)
Increase (decrease) in accrued payroll and other expenses 199,468 (221,645)
Decrease in accrued interest (3,460,263) (3,835,095)
Increase in other accrued liabilities 412,643 853,717
------------------ ------------------
Net cash used in operating activities (316,095) (160,316)
------------------ ------------------
Cash Flows From Investing Activities:
Acquisition of property, equipment and vessel improvements (1,003,166) (871,960)
Decrease in deposits 2,410,469 -
Investment in Buffington Harbor Riverboats, L.L.C. (177,806) (105,496)
------------------ ------------------
Net cash (used in) provided by investing activities 1,229,497 (977,456)
------------------ ------------------
Cash Flows From Financing Activities:
Line of credit, net (4,100,000) -
Cash paid to reduce long-term debt (556,647) (574,922)
Distribution to Barden Development, Inc. - (282,114)
------------------ ------------------
Net cash used in financing activities (4,656,647) (857,036)
------------------ ------------------
Net decrease in cash and cash equivalents (3,743,245) (1,994,808)
Cash and cash equivalents, beginning of period 16,119,512 20,145,044
------------------ ------------------
Cash and cash equivalents, end of period $ 12,376,267 $ 18,150,236
================== ==================
Interest paid:
Equipment Debt $ 21,802 $ 81,926
Senior Secured Notes - Fixed Interest 10-7/8% $ 7,068,750 $ 7,579,271
Line of credit $ 64,597 $ -
The accompanying notes are an integral part of these consolidated financial
statements.
3
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1 Basis of Presentation
The Majestic Star Casino, LLC (the "Company"), was formed on December 8, 1993 as
an Indiana limited liability company to provide gaming and related entertainment
to the public. The Company commenced gaming operations in the City of Gary (the
"City") at Buffington Harbor, located in Lake County, Indiana on June 7, 1996.
Majestic Investor, LLC was formed in September 2000 as an "unrestricted
subsidiary" of the Company under the Indenture relating to the Company's 10-7/8%
Senior Secured Notes. Majestic Investor, LLC was initially formed to satisfy the
Company's off-site development obligations under the Development Agreement with
the City of Gary and currently is a party to a Purchase Agreement to acquire
certain assets of Fitzgeralds Gaming Corporation.
The accompanying consolidated financial statements are unaudited and include the
accounts of The Majestic Star Casino, LLC, and its wholly-owned subsidiary,
Majestic Investor, LLC. All significant intercompany transactions and balances
have been eliminated. Investments in affiliates in which the Company has the
ability to exercise significant influence, but not control, are accounted for by
the equity method. These financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (which include normal recurring
adjustments) considered necessary for a fair presentation of the results for the
interim periods have been made. The results for the three months ended March 31,
2001 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, 2000.
Note 2 Investment in Buffington Harbor Riverboats, L.L.C. ("BHR"):
On October 31, 1995, the Company and Trump Indiana, Inc. (the "Joint Venture
Partner") entered into the First Amended and Restated Operating Agreement of BHR
for the purpose of acquiring and developing certain facilities for the gaming
operations in the City ("BHR Property"). BHR is responsible for the management,
development and operation of the BHR Property. The Company and the Joint Venture
Partner have each entered into an agreement with BHR (the "Berthing Agreement")
to use BHR Property for their respective gaming operations and have committed to
pay cash operating losses of BHR as additional berthing fees. The Company and
the Joint Venture Partner share equally in the operating expenses relating to
the BHR Property, except for costs associated with food and beverage and the
gift shop, which are allocated on a percentage of use by the casino customers of
the Company and the Joint Venture Partner.
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following represents selected financial information of BHR:
Buffington Harbor Riverboats, L.L.C.
Statements of Income
(Unaudited)
Three Months
Ended March 31,
2001 2000
----------------- ----------------
Gross Revenue $ 4,166,663 $ 5,133,292
Operating Income (Loss) $ 8,531 $ 89,302
Net Loss $ (1,596,396) $ (1,442,787)
Note 3 Commitments and Contingencies:
Legal Proceedings
On January 15, 1998, the Company filed a petition for "Correction of an Error"
and on January 20, 1998, filed an appeal to the March 1, 1997, county property
tax assessment of the Chartered Vessel. The Company believes it was not given
proper notice of the 1997 property tax assessment in accordance with the general
assessment provisions of the property tax law and the Company further believes
the assessment of approximately $1.2 million was excessive. The tax is payable
in semiannual installments due in May and November 1998. Payments totaling
approximately $560,000 in the aggregate have been paid based upon an estimate
provided to the Company by legal counsel. On March 15, 2001, the Lake County
Property Tax Assessment Board of Appeals granted the Company partial relief,
reducing the 1998 tax liability to approximately $660,000. The Company believes
the assessment is still excessive, and has filed a further appeal to the Indiana
State Board of Tax Commissioners. It is too early to determine the outcome of
this matter and the effect, if any, on the Company's financial position.
There have been no other material changes in the legal proceedings previously
described in the Company's Annual Report on Form 10-K for the year ended
December 31, 2000.
Indiana Gaming Regulations
The ownership and operation of riverboat gaming operations in Indiana are
subject to strict state regulation under the Riverboat Gambling Act ("Act") and
the administrative rules promulgated thereunder. The Indiana Gaming Commission
("IGC") is empowered to administer, regulate and enforce the system of riverboat
gaming established under the Act and has jurisdiction and supervision over all
riverboat gaming operations in Indiana, as well as all persons on riverboats
where gaming operations are conducted. The IGC is empowered to regulate a wide
variety of gaming and nongaming related activities, including the licensing of
supplies to, and employees at, riverboat gaming operations and to approve the
form of entity qualifiers and intermediary and holding companies. Indiana is a
relatively new jurisdiction and the emerging regulatory framework is not yet
complete. The IGC has adopted certain final rules and has published others in
proposed or draft form which are proceeding through the review and final
adoption process. The IGC has broad rulemaking power, and it is impossible to
predict what effect, if any, the amendment of existing rules or the finalization
of currently proposed rules might have on the Company's operations.
Note 4. Supplemental Consolidating Information
The following consolidating financial schedules are presented as supplemental
information. The "Unrestricted Subsidiary" balances relate to Majestic Investor,
LLC, a wholly-owned subsidiary of The Majestic Star Casino, LLC.
THE MAJESTIC STAR CASINO, LLC
CONSOLIDATING BALANCE SHEETS
AS OF MARCH 31, 2001
UNRESTRICTED ELIMINATIONS/
PARENT SUBSIDIARY ADJUSTMENTS CONSOLIDATED
ASSETS
Current Assets:
Cash and cash equivalents $ 8,933,984 $ 3,442,283 $ - $ 12,376,267
Accounts receivable (net) 2,040,874 71,000 - 2,111,874
Intercompany accounts 250,000 (250,000) - -
Inventories 45,657 - - 45,657
Prepaid expenses 948,373 - - 948,373
Note due from affiliate - 2,000,000 - 2,000,000
Restricted Cash - 2,000,000 - 2,000,000
------------------------------------------------------------------------
Total current assets 12,218,888 7,263,283 - 19,482,171
------------------------------------------------------------------------
Property, equipment, and vessel improvements, net 48,424,404 - - 48,424,404
Other Assets:
Deferred financing costs (net) 4,183,474 1,588,908 - 5,772,382
Deferred costs (net) 276,257 - - 276,257
Investment in Buffington Harbor Riverboats, L.L.C. 43,303,646 - - 43,303,646
Investment in Majestic Investor 8,852,191 - (8,852,191) -
Other assets and deposits 1,842,330 - - 1,842,330
------------------------------------------------------------------------
Total other assets 58,457,898 1,588,908 (8,852,191) 51,194,615
Total Assets $ 119,101,190 $ 8,852,191 $ (8,852,191) $ 119,101,190
========================================================================
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 4,142,722 $ - $ - $ 4,142,722
Accounts payable 757,247 - - 757,247
Other accrued liabilities:
Payroll and related 1,307,534 - - 1,307,534
Interest 3,646,795 - - 3,646,795
Other accrued liabilities 4,334,338 - - 4,334,338
Due to Buffington Harbor Riverboats, L.L.C. 56,921 - - 56,921
------------------------------------------------------------------------
Total current liabilities 14,245,557 - - 14,245,557
Long-term debt, net of current maturities 128,314,271 - - 128,314,271
------------------------------------------------------------------------
Total long-term liabilities 128,314,271 - - 128,314,271
------------------------------------------------------------------------
Total Liabilities 142,559,828 - - 142,559,828
------------------------------------------------------------------------
Members' Equity:
Members' contributions 24,000,000 9,000,500 (9,000,500) 24,000,000
Accumulated income (deficit) (46,535,893) (148,309) 148,309 (46,535,893)
Members' distributions (922,745) - - (922,745)
------------------------------------------------------------------------
Total members' equity (23,458,638) 8,852,191 (8,852,191) (23,458,638)
------------------------------------------------------------------------
Total Liabilities and Members' Equity $ 119,101,190 $ 8,852,191 $ (8,852,191) $ 119,101,190
========================================================================
THE MAJESTIC STAR CASINO, LLC
CONSOLIDATING STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 2001
UNRESTRICTED
PARENT SUBSIDIARY CONSOLIDATED
Revenues:
Casino $ 31,920,176 $ - $ 31,920,176
Food and beverage 543,903 - 543,903
Other 297,979 - 297,979
------------------------------------------------------------
Gross Revenues 32,762,058 - 32,762,058
------------------------------------------------------------
less promotional allowances (128,937) - (128,937)
Net Revenues 32,633,121 - 32,633,121
------------------------------------------------------------
Costs and Expenses:
Casino 6,653,280 - 6,653,280
Gaming and admission taxes 8,878,140 - 8,878,140
Food and beverage 633,397 - 633,397
Advertising and promotion 2,118,308 - 2,118,308
General and administrative 6,732,467 3,500 6,735,967
Economic incentive - City of Gary 957,777 - 957,777
Depreciation and amortization 2,306,808 - 2,306,808
------------------------------------------------------------
Total costs and expenses 28,280,177 3,500 28,283,677
------------------------------------------------------------
Operating income (loss) 4,352,944 (3,500) 4,349,444
------------------------------------------------------------
Other Income (Expense):
Loss on investment in -
Buffington Harbor Riverboats, L.L.C. (798,198) - (798,198)
Interest income 86,266 52,500 138,766
Interest expense (3,694,886) - (3,694,886)
Other non-operating expense (22,791) - (22,791)
------------------------------------------------------------
Total other income (expense) (4,429,609) 52,500 (4,377,109)
Net income (loss) $ (76,665) $ 49,000 $ (27,665)
============================================================
THE MAJESTIC STAR CASINO, LLC
CONSOLIDATING STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2001
UNRESTRICTED
PARENT SUBSIDIARY CONSOLIDATED
Cash Flows From Operating Activities:
Net income (loss) $ (76,665) $ 49,000 $ (27,665)
Adjustment to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation 1,737,333 - 1,737,333
Amortization 569,475 - 569,475
Loss on investment in Buffington Harbor Riverboats, L.L.C. 798,198 - 798,198
Increase in accounts receivable (12,202) (52,500) (64,702)
Decrease in inventories 7,822 - 7,822
Increase in prepaid expenses (312,036) - (312,036)
Increase in other assets (21,274) (123,048) (144,322)
Decrease in accounts payable (32,046) - (32,046)
Increase in accrued payroll and other expenses 199,468 - 199,468
Decrease in accrued interest (3,460,263) - (3,460,263)
Increase in other accrued liabilities 412,643 - 412,643
------------------------------------------------------
Net cash used in operating activities (189,547) (126,548) (316,095)
------------------------------------------------------
Cash Flows From Investing Activities:
Acquisition of property, equipment and vessel improvements (1,003,166) - (1,003,166)
Decrease in deposits 2,410,469 - 2,410,469
Investment in Buffington Harbor Riverboats, L.L.C. (177,806) - (177,806)
------------------------------------------------------
Net cash provided by investing activities 1,229,497 - 1,229,497
------------------------------------------------------
Cash Flows From Financing Activities:
Line of credit, net (4,100,000) - (4,100,000)
Cash paid to reduce long-term debt (556,647) - (556,647)
------------------------------------------------------
Net cash used in financing activities (4,656,647) - (4,656,647)
------------------------------------------------------
Net decrease in cash and cash equivalents (3,616,697) (126,548) (3,743,245)
Cash and cash equivalents, beginning of period 12,550,681 3,568,831 16,119,512
------------------------------------------------------
Cash and cash equivalents, end of period $ 8,933,984 $ 3,442,283 $ 12,376,267
======================================================
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Statement on Forward-Looking Information
This quarterly report contains "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, which represent the Company's
expectations or beliefs concerning future events. Statements containing
expressions such as "believes", "anticipates" or "expects" used in the Company's
press releases and reports filed with the Securities and Exchange Commission
(including periodic reports on Form 10-K and Form 10-Q) 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 knowledge of its business and
operations, there can be no assurances that actual results will not materially
differ from expected results. The Company cautions that these and similar
statements included in this report and in previously filed periodic reports are
further qualified by important factors that could cause actual results to differ
materially from those in the forward-looking statements. Such factors include,
without limitation, the following: the design, construction and funding of, a
covered parking facility located at the Company's gaming complex; 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 the Company's gaming license;
increases in or new taxes imposed on gaming revenues, admission taxes or gaming
devices; a finding of unsuitability by regulatory authorities with respect to
the Company's officers, or key employees; loss and/or retirement of key
executives; significant increase in fuel or transportation prices; adverse
economic conditions in the Company's markets; severe and unusual weather in the
Company's markets and non-renewal of the Company's license from the IGC.
Readers are cautioned not to place undue reliance on forward-looking statements,
which speak only as of the date thereof. The Company undertakes no obligation to
publicly release any revisions to such forward-looking statements to reflect
events or circumstances after the date hereof.
Results of Operations
The discussion of results of operations contained herein provides a comparison
of the results of operations for the three month period ended March 31, 2001,
with the three month period ended March 31, 2000.
The following table sets forth: (i) summary information from the Company's
consolidated statements of income; (ii) information relative to EBITDA (as
defined below) derived therefrom; and (iii) detailed information from the
Company's
consolidated statements of income, as well as information relative to EBITDA,
expressed as a percentage of gross revenues.
Consolidated Statements of Income-- Summary Information
(dollars in thousands)
Three Months Ended March 31,
2001 2000
---- ----
Gross Revenues $ 32,762 $ 31,382
Operating Income $ 4,349 $ 4,050
EBITDA (1) $ 6,656 $ 6,310
Consolidated Statements of Income -- Percentage of Gross Revenues
- --------------------------------------------------------------------------------
2001 2000
-----------------------------
Revenues:
Casino 97.4% 97.6%
Food and beverage 1.7% 1.7%
Other 0.9% 0.7%
-----------------------------
Gross revenues 100.0% 100.0%
less promotional allowances -0.4% -0.3%
-----------------------------
Net revenues 99.6% 99.7%
-----------------------------
Costs and Expenses:
Casino 20.3% 18.9%
Gaming and admission taxes 27.1% 27.3%
Food and beverage 1.9% 1.8%
Advertising and promotions 6.5% 7.5%
General and administrative 20.6% 21.1%
Economic incentive - City of Gary 2.9% 3.0%
Depreciation and amortization 7.0% 7.2%
-----------------------------
Total costs and expenses 86.3% 86.8%
Operating income 13.3% 12.9%
-----------------------------
Other Income (Expense):
Loss on investment in
Buffington Harbor Riverboats, L.L.C. -2.4% -2.3%
Interest income 0.4% 0.6%
Interest expense -11.3% -12.2%
Other nonoperating expense -0.1% -0.2%
-----------------------------
Total other income (expense) -13.4% -14.1%
-----------------------------
Net Income (Loss): -0.1% -1.2%
-----------------------------
EBITDA: (1) 20.3% 20.1%
-----------------------------
NOTES:
1. EBITDA (defined as earnings before interest, income taxes, depreciation and
amortization, and other nonoperating expense) is presented solely as a
supplemental disclosure to assist in the evaluation of the Company's
ability to generate cash flow. In particular, the Company believes that an
analysis of EBITDA enhances the understanding of the financial performance
of companies with substantial depreciation and amortization. EBITDA
includes $3,500 of general and administrative expenses associated with
Majestic Investor, LLC, an unrestricted subsidiary.
Results for any one or more periods are not necessarily indicative of annual
results or continuing trends.
11
Comparison of the Three Months Ended March 31, 2001 with the Three Months Ended
March 31, 2000
Gross revenues for the first quarter ended March 31, 2001, amounted to
approximately $32,762,000, an increase of approximately $1,380,000 or 4.4% from
gross revenues recorded in the first quarter ended March 31, 2000. The increase
was principally attributable to a 10.5% increase in the slot win.
Casino revenues for the three months ended March 31, 2001 were the highest since
the Company's inception. This record is primarily attributed to an 8.4% increase
in the "coin-in", the amount of coins put into a slot machine by players, during
the three months ended March 31, 2001, compared to the three months ended March
31, 2000. Casino revenues totaled approximately $31,920,000, of which slot
machines accounted for approximately $26,549,000 (83.2%) and table games
accounted for approximately $5,371,000 (16.8%). Slot revenues increased
$2,426,000, or 10.1%, to $26,549,000. The average number of slot
machines in operation increased to 1,435 during the three months ended March 31,
2001, from 1,417 during the three months ended March 31, 2000. The average win
per slot machine per day increased to approximately $206 for the three months
ended March 31, 2001, from approximately $187 for the three months ended March
31, 2000. Table games revenues declined by $1.1 million, or 17.5%, due primarily
to a 10.0% decrease in the table drop and a lower than anticipated table hold of
15.8%, compared to 17.2% in the prior year. The Company estimates that the lower
than anticipated table hold for the three months ended March 31, 2001 decreased
top line revenues by approximately $476,000 and negatively impacted EBITDA by
approximately $366,000. The average number of table games in operation during
the three months ended March 31, 2001 and 2000, was 52 and 57, respectively. The
average win per table game per day during the three months ended March 31, 2001
decreased to approximately $1,155, compared to approximately $1,255 for the
three months ended March 31, 2000. Admissions also rose to a new quarterly
record of 831,000 during the three months ended March 31, 2001. The average
daily win per state passenger count was approximately $38 and the average daily
win per patron was approximately $71 for the three months ended March 31, 2001,
compared to an average daily win per state passenger count of $38 and an average
daily win per patron of $67 for the three months ended March 31, 2000.
Food and beverage revenues for the three months ended March 31, 2001 totaled
approximately $544,000, or 1.7% of gross revenues, compared to approximately
$530,000, or 1.7% of gross revenues, for the three months ended March 31, 2000.
Other revenue totaled approximately $298,000, or 0.9% of gross revenues, and
consisted primarily of commission income during the three months ended March 31,
2001, compared to approximately $221,000, or 0.7% of gross revenues, during the
three months ended March 31, 2000.
Promotional allowances (complementaries) included in the Company's gross food
revenues for the three months ended March 31, 2001 and 2000, were approximately
$129,000 and $101,000, respectively. Promotional allowances provided to the
12
Company's gaming patrons at facilities located in, and/or owned by BHR for the
three months ended March 31, 2001 and 2000, were approximately $171,000 and
$75,000, respectively, and are characterized in the financial statements as an
expense. The increase in promotional allowances is directly attributable to
additional food kiosks being operated during the three months ended March 31,
2001. BHR and other third party operators of food kiosks invoice the Company
monthly for these promotional allowances at cost, which approximates retail
value.
Casino operating expenses for the three months ended March 31, 2001 totaled
approximately $6,653,000, or 20.3% of gross revenues and 20.8% of casino
revenues, respectively, compared to approximately $5,922,000, or 18.9% of gross
revenues and 19.3% of casino revenues, respectively, for the three months ended
March 31, 2000. These expenses were primarily comprised of salaries, wages and
benefits, and operating and promotional expenses of the casino. The dollar
increase of $731,000, or 12.3%, in casino operating expenses, is primarily
attributed to an increase of approximately $357,000 associated with Club
Majestic as a result of a 25% increase in rated slot wagering, approximately
$254,000 for gaming equipment rental primarily for participation games including
Wheel of Fortune(R), Jeopardy(R) and Monopoly(R), and approximately $113,000 for
complementaries.
Gaming and admissions taxes totaled approximately $8,878,000 for the three
months ended March 31, 2001, compared to approximately $8,581,000 for the three
months ended March 31, 2000. These taxes are levied on adjusted gross receipts,
as defined by Indiana gaming laws, at the rate of 20%, plus $3 per passenger per
the state passenger count. An additional $958,000 was paid during the three
months ended March 31, 2001, compared to approximately $947,000 in the three
months ended March 31, 2000, to the City under an agreement whereby the Company
pays 3% of the adjusted gross receipts directly to the City.
Advertising and promotion expenses for the three months ended March 31, 2001
totaled approximately $2,118,000, or 6.5% of gross revenues, compared to
approximately $2,343,000, or 7.5% of gross revenues, during the three months
ended March 31, 2000. Advertising and promotion expenses included salaries,
wages and benefits of the marketing and casino service departments, as well as
promotions, advertising and special events. The $225,000, or 9.6%, decrease in
advertising and promotion expenses during the three months ended March 31, 2001
was primarily the result of a decrease of approximately $253,000 in expenses
associated with the charter bus program offset by a slight increase of
approximately $28,000 in promotional expense.
General and administrative expenses for the three months ended March 31, 2001
were approximately $6,736,000, or 20.6% of gross revenues, compared to
$6,616,000, or 21.1% of gross revenues, during the three months ended March 31,
2000. These expenses included approximately $1,616,000 for berthing fees paid to
BHR, approximately $1,619,000 for marine operations including housekeeping, and
$652,000 for security and surveillance operations during the first quarter of
2001. These expenses also include approximately $3,500 for general and
administrative expenses associated with Majestic Investor.
13
Depreciation and amortization for the three months ended March 31, 2001 was
approximately $2,307,000, or 7.0% of gross revenues, compared to approximately
$2,260,000, or 7.2% of gross revenues, during the three months ended March 31,
2000.
Operating income for the three months ended March 31, 2001 was approximately
$4,349,000, or 13.3% of gross revenues, compared to an operating income for the
three months ended March 31, 2000 of $4,050,000, or 12.9% of gross revenues. The
$299,000 increase in operating income is principally attributed to an increase
in revenues partially offset by increased expenses as previously discussed.
Net interest expense for the three months ended March 31, 2001 was approximately
$3,556,000, or 10.9% of gross revenues, compared to approximately $3,635,000 or
11.6% of gross revenues for the same period last year. Net interest expense
includes approximately $53,000 of interest income accrued at Majestic Investor.
The Company's loss relating to its investment in BHR for the three months ended
March 31, 2001 was approximately $798,000. The loss represents the Company's 50%
share of BHR's non-cash net loss. Other nonoperating expense includes unused
line of credit fees of approximately $23,000 associated with the $20.0 million
credit facility.
As a result of the foregoing, the Company experienced a net loss of
approximately $28,000 compared to a net loss of approximately $368,000 during
the three months ended March 31, 2001, and 2000, respectively. The net loss
excluding Majestic Investor was approximately $77,000.
Earnings Before Interest, Income Taxes, Depreciation and Amortization ("EBITDA")
Consolidated EBITDA is presented solely as a supplemental disclosure and is used
by the Company to assist in the evaluation of the cash generating ability of its
gaming business.
Consolidated EBITDA represents "earnings before interest, income taxes,
depreciation and amortization, and nonoperating expenses." Consolidated EBITDA
during the three months ended March 31, 2001 was approximately $6,656,000, or
20.3% of gross revenues. The EBITDA related to the Company only was
approximately $6,660,000, or 20.3% of gross revenues, compared to EBITDA of
approximately $6,310,000, or 20.1% of gross revenues, for the three months ended
March 31, 2000. The $350,000, or 5.5%, increase in EBITDA during the first
quarter ended March 31, 2001 compared to first quarter ended March 31, 2000 is
primarily the result of increased gaming revenues combined with a reduction in
marketing expenditures during the three months ended March 31, 2001 compared to
the three months ended March 31, 2000.
EBITDA should be viewed only in conjunction with all of the Company's financial
data and statements, and should not be construed as an alternative either to
income from operations (as an indicator of the Company's operating performance)
or to cash flows from operating activities as a measure of liquidity.
14
Liquidity and Capital Resources
At March 31, 2001, the Company had cash, cash equivalents and restricted cash of
approximately $14.4 million, including $5.4 million at Majestic Investor, LLC.
During the three months ended March 31, 2001, the Company's capital expenditures
were approximately $1.0 million, which included approximately $924,000 for slot
machines and other gaming equipment and approximately $76,000 for other
furniture and equipment. The Company also made a capital contribution of
approximately $178,000 to BHR during the three months ended March 31, 2001.
The Company has met its capital requirements to date through net cash from
operations, capital contributions and equipment loans. For the three months
ended March 31, 2001, net cash used by operating activities totaled
approximately $316,000, compared to net cash used by operating activities of
approximately $160,000 during the three months ended March 31, 2000. For the
three months ended March 31, 2001, cash provided by investing activities totaled
approximately $1,229,000, compared to approximately $977,000 used by investing
activities during the three months ended March 31, 2000. For the three months
ended March 31, 2001, cash used by financing activities totaled approximately
$4,657,000 which included net repayments of $4.1 million under the line of
credit facility, compared to $857,000 used by financing activities during the
three months ended March 31, 2000. As of April 30, 2001, the borrowings under
the credit facility have been further reduced to approximately $2.7 million.
The Company anticipates entering into a lease in the second quarter of 2001 with
Buffington Harbor Parking Associates, LLC ("BHPA") for a parking garage on land
adjacent to the Gaming Complex. BHPA was formed by the Joint Venture Partner and
ABM Parking, LLC (a company wholly-owned by Mr. Barden) to construct and operate
a parking garage. The parking project is estimated to cost approximately $34.0
million, including approximately $14.2 million for the land. The Company
anticipates that BHPA will close the financing necessary to construct the
parking garage late in the second quarter of 2001. Construction should be
completed approximately 7 to 8 months from the closing of the loan facility.
Lease payments are intended to be sufficient to service the debt on the BHPA
financing. To date, the Company has made prepayments on its lease to BHPA
aggregating approximately $8.4 million. In addition, the Company contributed a
deposit of approximately $183,000 to BHR during the three months ended March 31,
2001, to be utilized by BHR to make certain advances to BHPA for the
construction of the parking garage. The Company believes that the convenience of
the new parking structure will attract a significant number of new customers to
Buffington harbor, thereby providing opportunities to increase its net revenues
and cash flow.
Concurrently with the formation of BHPA, Don H. Barden purchased, through an
affiliate company, 190 acres of land adjacent to the Gaming Complex, a portion
of which was subsequently sold to BHPA. The land purchased included land that
had formerly been leased by BHR from Lehigh Portland Cement. As a result of the
purchase, the lease agreement between Lehigh and BHR was terminated which
relieves BHR of the remaining 62 monthly payments of $125,000 each and the need
to construct a new harbor.
15
Majestic Investor entered into a definitive purchase agreement dated as of
November 22, 2000, as amended December 4, 2000, with Fitzgeralds Gaming
Corporation to purchase three of Fitzgeralds brand casinos. Majestic Investor,
LLC plans to purchase Fitzgeralds casinos in Las Vegas, Nevada; Tunica,
Mississippi; and Black Hawk, Colorado for $149.0 million in cash, subject to
adjustment in certain circumstances, plus assumption of certain liabilities. It
is anticipated that Majestic Investor, LLC will be capitalized with
approximately $20.0 million of which $13.0 million will be funded by Don H.
Barden or entities controlled by Mr. Barden. Mr. Barden is the Chairman, CEO and
beneficial owner of the Company and Majestic Investor, LLC. Majestic Investor,
LLC also anticipates raising approximately $135.0 million through a 144A Private
Placement. The sale is consistent with the reorganization that Fitzgeralds
Gaming Corporation has negotiated with a committee representing its noteholders.
To facilitate this transaction, Fitzgeralds Gaming Corporation and its
subsidiaries voluntarily filed for Chapter 11 Bankruptcy in U. S. District Court
in Nevada on December 5, 2000. The sale was approved by the Bankruptcy Court on
March 19, 2001 but remains contingent on, among other things, licensing and
financing. Majestic Investor, LLC and its affiliates as of May 10, 2001 filed
all required licensing applications. Pending successful completion of financing
and licensing, it is anticipated that the transaction will close early in the
fourth quarter of 2001.
The Company had originally been required by the City of Gary to arrange for the
issuance of a Surety Bond in the amount of $12.5 million to guarantee the
remaining $10.0 million portion of its development commitment for off-site
improvements. The Surety Bond in turn was backed by a letter of credit issued by
an unaffiliated bank, and the Company was required to deposit cash collateral in
the amount of $3.6 million with the bank to guarantee its reimbursement
obligation to the bank if the letter of credit had to be drawn on by the bonding
company that provided the Surety Bond. In September 2000, the bank released $1.0
million of the deposit. Mr. Barden has provided a personal guarantee to the
bonding company which allowed the remaining $2.6 million of cash collateral to
be returned to the Company in March 2001. The Company utilized these funds to
partially repay its credit facility.
A loan of $2.0 million made by Majestic Investor to Barden Development, Inc.
(a company wholly-owned by Mr. Barden and a member of the Company) remains
outstanding. The loan has an annual interest rate of 10.5%.
Management believes that the Company's cash flow from operations, certain
planned equipment financing, and its current line 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
Senior Secured Notes, lease payments to BHPA (assuming construction funding) and
other permitted indebtedness for
16
the year 2001. No assurance can be given, however, that such proceeds and,
operating cash flow from the Permanent Vessel, in light of increased competition
principally dockside gambling in Illinois and the purchase of certain Indiana
gaming facilities by larger more recognized brand names, will be sufficient for
such purposes. If necessary and to the extent permitted under the Indenture, the
Company will seek additional financing through borrowings and debt or equity
financing. There can be no assurance that additional financing, if needed, will
be available to the Company, or that, if available, the financing will be on
terms favorable to the Company. In addition, there is no assurance that the
Company's estimate of its reasonable anticipated liquidity needs is accurate or
that unforeseen events will not occur, resulting in the need to raise additional
funds.
ITEM 3. Quantitative And Qualitative Disclosures About Market Risk
Interest Rate Risk
- ------------------
The Company does not have any financial instruments held for traditional
purposes and does not hedge any of its market risks with derivative instruments.
The Company's primary market risk exposure relates to interest risk exposure
through its borrowings. The fair value of the Company's debt obligations
approximates their carrying value.
Part II OTHER INFORMATION
Item 1. Legal Proceedings
Various legal proceedings are pending against the Company. Management considers
all such pending proceedings, primarily personal injury and equal employment
opportunity (EEO) claims, to be ordinary litigation incidental to the character
of the Company's business. Management believes that the resolution of these
proceedings will not, individually or in the aggregate, have a material effect
on the Company's financial condition or results of operations.
On January 15, 1998, the Company filed a petition for "Correction of an Error"
and on January 20, 1998, filed an appeal to the March 1, 1997, county property
tax assessment of the Chartered Vessel. The Company believes it was not given
proper notice of the 1997 property tax assessment in accordance with the general
assessment provisions of the property tax law and the Company further believes
the assessment of approximately $1.2 million was excessive. The tax is payable
in semiannual installments due in May and November 1998. Payments totaling
approximately $560,000 in the aggregate have been paid based upon an estimate
provided to the Company by legal counsel. On March 15, 2001, the Lake County
Property Tax Assessment Board of Appeals granted the Company partial relief,
reducing the 1998 tax liability to approximately $660,000. The Company believes
the assessment is still excessive, and has filed a further appeal to the Indiana
17
State Board of Tax Commissioners. It is too early to determine the outcome of
this matter and the effect, if any, on the Company's financial position.
There have been no other material changes in the legal proceedings previously
described in the Company's Annual Report on Form 10-K for the year ended
December 31, 2000.
Item 6. Exhibits and Reports on Form 8-K
(a) None
(b) The Company filed no reports on Form 8-K during the quarter
ended March 31, 2001.
18
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, on May 14, 2001.
THE MAJESTIC STAR CASINO, LLC
By: Barden Development Inc., Manager
By: /s/ Don H. Barden
-------------------------------------------------------
Don H. Barden, President and Chief Executive Officer
THE MAJESTIC STAR CASINO CAPITAL CORP.
By: /s/ Don H. Barden
-------------------------------------------------------
Don H. Barden, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrants and
in the capacities and on the date indicated.
Signature Title Date
- --------- ----- ----
/s/ Michael E. Kelly
- ---------------------- Vice President, Chief Operating and May 14, 2001
Michael E. Kelly Financial Officer of the Company and
The Majestic Star Casino Capital
Corp. (Principal Financial and Chief
Accounting Officer)
19