UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 (I.R.S. Employer
incorporation or organization) specified in its charter) 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
September 30, 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 September 30, 2001
and December 31, 2000 (Unaudited) ................................. 1
Consolidated Statements of Income for the three months and nine months
ended September 30, 2001 and 2000 (Unaudited) ..................... 2
Consolidated Statements of Cash Flows for the nine months
ended September 30, 2001 and 2000 (Unaudited) ..................... 3
Notes to Financial Statements ............................................. 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................... 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk ............... 24
Part II OTHER INFORMATION
Item 1. Legal Proceedings ......................................................... 25
Item 6. Exhibits and Reports on Form 8-K .......................................... 25
SIGNATURES .................................................................................. 26
PART 1 - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
THE MAJESTIC STAR CASINO, LLC
Consolidated Balance Sheets
(Unaudited)
September 30, December 31,
2001 2000
ASSETS
Current Assets:
Cash and cash equivalents $ 11,339,057 $ 16,119,512
Accounts receivable, less allowance for doubtful accounts
of $72,631 and $120,420, respectively 1,709,885 2,059,577
Inventories 33,451 53,479
Prepaid expenses 499,654 636,337
Note due from affiliate 2,000,000 2,000,000
Restricted cash 2,000,000 2,000,000
------------------ ------------------
Total current assets 17,582,047 22,868,905
------------------ ------------------
Property, equipment, and vessel improvements, net 48,963,192 49,158,571
Other Assets:
Deferred financing costs, less accumulated amortization
of $1,906,545 and $1,269,380, respectively 5,932,768 5,840,448
Deferred costs, less accumulated amortization
of $ -0- and $5,099,462, respectively - 552,553
Investment in Buffington Harbor Riverboats, L.L.C. 34,467,216 43,924,033
Other assets, prepaid lease and deposits 10,557,970 4,252,799
------------------ ------------------
Total other assets 50,957,954 54,569,833
Total Assets $117,503,193 $ 126,597,309
================== ==================
LIABILITIES AND MEMBERS' DEFICIT
Current Liabilities:
Current maturities of long-term debt $ 2,500,000 $ 8,811,719
Accounts payable 507,913 789,293
Accrued payroll and related 1,449,959 1,108,066
Accrued interest 3,821,416 7,107,058
Other accrued liabilities 3,931,730 3,597,924
Due to Buffington Harbor Riverboats, L.L.C. - 380,736
------------------ ------------------
Total current liabilities 12,211,018 21,794,796
Long-term debt, net of current maturities 128,475,843 128,233,486
------------------ ------------------
Total long-term liabilities 128,475,843 128,233,486
------------------ ------------------
Total Liabilities 140,686,861 150,028,282
------------------ ------------------
Members' Deficit:
Members' contributions 24,000,000 24,000,000
Accumulated deficit (47,183,668) (47,430,973)
------------------ ------------------
Total members' deficit (23,183,668) (23,430,973)
------------------ ------------------
Total Liabilities and Members' Deficit $117,503,193 $ 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 Nine Months
Ended September 30, Ended September 30,
2001 2000 2001 2000
Revenues:
Casino $ 30,881,266 $ 28,202,683 $ 93,812,490 $ 87,949,496
Food and beverage 517,368 478,993 1,587,246 1,468,996
Other 317,465 275,570 940,122 779,615
-------------- -------------- -------------- --------------
Gross Revenues 31,716,099 28,957,246 96,339,858 90,198,107
-------------- -------------- -------------- --------------
less promotional allowances (163,179) (110,449) (442,698) (302,478)
Net Revenues 31,552,920 28,846,797 95,897,160 89,895,629
-------------- -------------- -------------- --------------
Costs and Expenses:
Casino 6,512,406 6,467,501 19,858,025 18,640,979
Gaming and admission taxes 8,638,565 8,013,444 26,148,146 24,704,976
Food and beverage 595,216 632,403 1,839,058 1,810,460
Advertising and promotion 2,088,028 2,096,364 5,821,634 6,348,006
General and administrative 6,404,688 6,151,040 19,651,858 19,045,968
Economic incentive - City of Gary 926,963 873,875 2,815,996 2,720,901
Depreciation and amortization 1,992,645 2,284,267 6,439,641 6,833,417
Loss on disposal of assets - 301,658 12,114 301,658
-------------- -------------- -------------- --------------
Total costs and expenses 27,158,511 26,820,552 82,586,472 80,406,365
-------------- -------------- -------------- --------------
Operating income 4,394,409 2,026,245 13,310,688 9,489,264
-------------- -------------- -------------- --------------
Other Income (Expense):
Loss on investment in
Buffington Harbor Riverboats, L.L.C. (636,751) (738,699) (2,185,746) (2,190,536)
Interest income 89,124 260,331 333,548 692,797
Interest expense (3,880,266) (3,655,441) (11,123,541) (11,181,649)
Other non-operating expense (40,165) (25,539) (87,644) (103,639)
-------------- -------------- -------------- --------------
Total other income (expense) (4,468,058) (4,159,348) (13,063,383) (12,783,027)
-------------- -------------- -------------- --------------
Income (loss) before extraordinary item (73,649) (2,133,103) 247,305 (3,293,763)
Extraordinary Item:
Loss on bond redemption - - - (382,500)
-------------- -------------- -------------- --------------
Net income (loss) $ (73,649) $ (2,133,103) $ 247,305 $ (3,676,263)
============== ============== ============== ==============
The accompanying notes are an integral part of these financial statements.
2
THE MAJESTIC STAR CASINO, LLC
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months
Ended September 30,
2001 2000
Cash Flows From Operating Activities:
Net income (loss) $ 247,305 $ (3,676,263)
Adjustment to reconcile net income (loss) to net cash provided by operating activities
Depreciation 5,007,549 5,126,232
Amortization 1,432,092 1,707,185
Loss on investment in Buffington Harbor Riverboats, L.L.C. 2,185,746 2,190,536
Loss on disposal of assets 12,114 301,658
Loss on bond redemption - 382,500
Decrease in accounts receivable 349,692 507,543
Decrease in inventories 20,028 20,095
(Increase) decrease in prepaid expenses 136,683 (123,291)
Increase in other assets (1,204,280) (304,477)
Increase (decrease) in accounts payable (281,380) 182,428
Increase in accrued payroll and other expenses 341,893 149,585
Decrease in accrued interest (3,285,642) (4,299,798)
Increase (decrease) in other accrued liabilities (80,934) 466,867
---------------- ----------------
Net cash provided by operating activities 4,880,866 2,630,800
---------------- ----------------
Cash Flows From Investing Activities:
Acquisition of property, equipment and vessel improvements (4,826,140) (2,523,674)
Distribution from Buffington Harbor Riverboats, L.L.C. 8,825,416 -
(Increase) decrease in prepaid lease and deposits (6,213,615) 1,000,000
Proceeds from sale of equipment 1,850 135,100
Investment in Buffington Harbor Riverboats, L.L.C. (171,117) (8,651,027)
Purchase of naming rights (1,000,000) -
Purchase of 49% interest in Gary New Century - (9,000,000)
Sale of 49% interest in Gary New Century - 9,000,000
---------------- ----------------
Net cash used in investing activities (3,383,606) (10,039,601)
---------------- ----------------
Cash Flows From Financing Activities:
Redemption of 12 3/4% Senior Secured Notes - (6,382,500)
Decrease in restricted cash - 7,357,874
Line of credit, net (5,300,000) 10,300,000
Cash paid to reduce long-term debt (977,715) (1,613,342)
Issuance of loans to Barden Development, Inc. - (4,000,000)
Payment of loans from Barden Development, Inc. - 4,000,000
Distribution to Barden Development, Inc. - (597,610)
---------------- ----------------
Net cash provided (used) by financing activities (6,277,715) 9,064,422
---------------- ----------------
Net increase (decrease) in cash and cash equivalents (4,780,455) 1,655,621
Cash and cash equivalents, beginning of period 16,119,512 20,145,044
---------------- ----------------
Cash and cash equivalents, end of period $ 11,339,057 $ 21,800,665
================ ================
Interest paid:
Equipment Debt $ 33,817 $ 200,402
Senior Secured Notes - Fixed Interest, 10.875% $ 14,137,500 $ 14,648,021
Senior Secured Notes - Fixed Interest, 12.75% $ - $ 382,500
Senior Secured Notes - Contingent Interest, 12.75% $ - $ 246,138
Line of credit $ 237,886 $ -
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.
The Majestic Star Casino Capital Corp., a wholly-owned subsidiary of the Company
was incorporated on May 11, 1999 in the State of Indiana solely for the purpose
of serving as a co-issuer to facilitate the offering of the 10-7/8% Senior
Secured Notes and has no assets, liabilities, or operations. Majestic Investor,
LLC was formed as a Delaware limited liability company in September 2000 as an
"unrestricted subsidiary" of the Company under the Indenture relating to the
Company's 10-7/8% Senior Secured Notes and the Company's Credit Facility.
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 was a party to a Purchase Agreement to acquire certain assets of Fitzgeralds
Gaming Corporation. Majestic Investor, LLC in September 2001, assigned its
rights under the Purchase Agreement to Majestic Investor Holdings, LLC, a 100%
owned subsidiary of Majestic Investor, LLC. Majestic Investor Holdings, LLC was
formed in September 2001 for the express purpose of acquiring the Fitzgeralds
assets in accordance with the Purchase Agreement. Majestic Investor Holdings,
LLC plans to purchase Fitzgeralds casinos in Las Vegas, Nevada, Tunica,
Mississippi, and Black Hawk, Colorado. Majestic Investor Holdings, LLC has also
been designated as an "unrestricted subsidiary" under the Company's Indenture
and Credit Facility.
The accompanying consolidated financial statements are unaudited and include the
accounts of the Company, 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 nine months ended September
30, 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.
4
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
a berthing agreement with BHR to use the 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 to the Company and
the Joint Venture Partner.
The following represents selected financial information of BHR:
Buffington Harbor Riverboats, L.L.C.
Statements of Income
(Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
2001 2000 2001 2000
---------------------------------- --------------------------------
Gross Revenue $ 4,351,336 $ 4,903,030 $ 12,690,559 $ 14,975,783
Operating Income $ 7,661 $ 91,585 $ 23,831 $ 268,254
Net Loss $ (1,273,498) $ (1,480,986) $ (4,371,488) $ (4,384,661)
Note 3 Commitments and Contingencies:
Legal Proceedings
In September 2001, the Indiana Department of Revenue assessed the Company
for sales and use tax deficiencies for the years ended December 31, 1996
and December 31, 1997. The alleged deficiencies related primarily to
capital assets associated with the chartered vessel and to the construction
of the permanent vessel. The Company paid approximately $2,404,000 for
sales and use tax in September of 2001 and approximately $260,000 for the
accrued interest in October of 2001. In October 2001, the Company filed an
administrative refund claim and, ultimately, plans to pursue a refund
action in the Indiana Tax Court.
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,
5
and the Company's Quarterly Reports on Form 10-Q for the quarters ended March
31, 2001 and June 30, 2001.
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 gaming 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 Recently Issued Accounting Pronouncements
At the end of the third quarter 2001, the Emerging Issues Task Force ("EITF")
had not reached a consensus on the portion of Issue 00-22, "Accounting for
`Points' and Certain Other Time-Based Sales Incentive Offers, and Offers for
Free Products or Services to be Delivered in the Future", which addresses the
income statement classification of cash coupons or rebates provided under the
Company's Cash Back Program. Currently, the Company expenses such cash awards as
casino operating expenses. However, if the EITF were to reach a consensus that
cash coupons or rebates should be recorded as a reduction in revenue the Company
would be required to reclassify these operating expenses. Due to anticipated
additional consideration of EITF 00-22 by the EITF, the Company is currently
unable to quantify the impact of adoption. The Company presently expects that
adoption or subsequent application of EITF 00-22 will have no material effect on
its financial position or results of operations.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations" which amends SFAS No. 19, "Financial Accounting and Reporting by
Oil and Gas Producing Companies", and is effective for all companies. This
statement addresses the financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. SFAS No. 143 is effective for fiscal years beginning
after June 15, 2002. The Company is currently reviewing this statement to
determine its effect on the Company's financial statements.
6
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS 141 requires, among
other things, that the purchase method of accounting for business combinations
be used for all business combinations initiated after June 30, 2001. SFAS 142
addresses the accounting for goodwill and other intangible assets subsequent to
their acquisition. SFAS 142 requires, among other things, that goodwill and
other indefinite-lived intangible assets no longer be amortized and that such
assets be tested for impairment at least annually. SFAS 142 is effective for
fiscal years beginning after December 15, 2001. The Company does not believe
that the adoption of these standards will have a material impact on its
financial position or results of operation.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" which supersedes SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
and the accounting and reporting provisions of APB No. 30, "Reporting the
Results of Operations--Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." SFAS No. 144 addresses financial accounting and reporting for the
impairment or disposal of long-lived assets and is effective for fiscal years
beginning after December 15, 2001, and interim periods within those fiscal
years. The Company is currently reviewing this statement to determine its effect
on the Company's financial statements.
Note 5 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.
7
THE MAJESTIC STAR CASINO, LLC
CONSOLIDATING BALANCE SHEETS
AS OF SEPTEMBER 30, 2001
(UNAUDITED)
UNRESTRICTED ELIMINATIONS/
PARENT SUBSIDIARY ADJUSTMENTS CONSOLIDATED
ASSETS
Current Assets:
Cash and cash equivalents $ 8,444,926 $ 2,894,131 $ - $ 11,339,057
Accounts receivable (net) 1,559,885 150,000 - 1,709,885
Intercompany accounts 250,000 (250,000) - -
Inventories 33,451 - - 33,451
Prepaid expenses 499,654 - - 499,654
Note due from affiliate - 2,000,000 - 2,000,000
Restricted cash - 2,000,000 - 2,000,000
---------------------------------------------------------------------
Total current assets 10,787,916 6,794,131 - 17,582,047
---------------------------------------------------------------------
Property, equipment, and vessel improvements, net 48,963,192 - - 48,963,192
Other Assets:
Deferred financing costs (net) 3,777,112 2,155,656 - 5,932,768
Investment in Buffington Harbor Riverboats, L.L.C. 34,467,216 - - 34,467,216
Investment in Majestor Investor 8,949,787 - (8,949,787) -
Other assets, prepaid lease and deposits 10,557,970 - - 10,557,970
---------------------------------------------------------------------
Total other assets 57,752,085 2,155,656 (8,949,787) 50,957,954
Total Assets $117,503,193 $ 8,949,787 $ (8,949,787) $ 117,503,193
=====================================================================
LIABILITIES AND MEMBERS' DEFICIT
Current Liabilities:
Current maturities of long-term debt $ 2,500,000 $ - $ - $ 2,500,000
Accounts payable 507,913 - 507,913
Other accrued liabilities:
Payroll and related 1,449,959 - - 1,449,959
Accrued interest 3,821,416 - - 3,821,416
Other accrued liabilities 3,931,730 - - 3,931,730
---------------------------------------------------------------------
Total current liabilities 12,211,018 - - 12,211,018
Long-term debt, net of current maturities 128,475,843 - - 128,475,843
---------------------------------------------------------------------
Total long-term liabilities 128,475,843 - - 128,475,843
---------------------------------------------------------------------
Total Liabilities 140,686,861 - - 140,686,861
---------------------------------------------------------------------
Members' Deficit:
Members' contributions 24,000,000 9,000,500 (9,000,500) 24,000,000
Accumulated income (deficit) (46,260,923) (50,713) 50,713 (46,260,923)
Members' distributions (922,745) - - (922,745)
---------------------------------------------------------------------
Total members' deficit (23,183,668) 8,949,787 (8,949,787) (23,183,668)
---------------------------------------------------------------------
Total Liabilities and Members' Deficit $117,503,193 $ 8,949,787 $ (8,949,787) $ 117,503,193
=====================================================================
8
THE MAJESTIC STAR CASINO, LLC
CONSOLIDATING BALANCE SHEETS
AS OF DECEMBER 31, 2000
(UNAUDITED)
UNRESTRICTED ELIMINATIONS/
PARENT SUBSIDIARY ADJUSTMENTS CONSOLIDATED
ASSETS
Current Assets:
Cash and cash equivalents $ 12,550,681 $ 3,568,831 $ - $ 16,119,512
Accounts receivable (net) 2,041,077 18,500 - 2,059,577
Intercompany accounts 250,000 (250,000) - -
Inventories 53,479 - - 53,479
Prepaid expenses 636,337 - - 636,337
Note due from affiliate - 2,000,000 - 2,000,000
Restricted cash - 2,000,000 - 2,000,000
---------------------------------------------------------------------
Total current assets 15,531,574 7,337,331 - 22,868,905
---------------------------------------------------------------------
Property, equipment, and vessel improvements, net 49,158,571 - - 49,158,571
Other Assets:
Deferred financing costs (net) 4,374,588 1,465,860 - 5,840,448
Deferred costs (net) 552,553 - - 552,553
Investment in Buffington Harbor Riverboats, L.L.C. 43,924,033 - - 43,924,033
Investment in Majestor Investor 8,803,191 - (8,803,191) -
Other assets and deposits 4,252,799 - - 4,252,799
---------------------------------------------------------------------
Total other assets 61,907,164 1,465,860 (8,803,191) 54,569,833
Total Assets $ 126,597,309 $ 8,803,191 $ (8,803,191) $ 126,597,309
=====================================================================
LIABILITIES AND MEMBERS' DEFICIT
Current Liabilities:
Current maturities of long-term debt $ 8,811,719 $ - $ - $ 8,811,719
Accounts payable 789,293 - - 789,293
Other accrued liabilities:
Payroll and related 1,108,066 - - 1,108,066
Accrued interest 7,107,058 - - 7,107,058
Other accrued liabilities 3,597,924 - - 3,597,924
Due to Buffington Harbor Riverboats, L.L.C. 380,736 - - 380,736
---------------------------------------------------------------------
Total current liabilities 21,794,796 - - 21,794,796
Long-term debt, net of current maturities 128,233,486 - - 128,233,486
---------------------------------------------------------------------
Total long-term liabilities 128,233,486 - - 128,233,486
---------------------------------------------------------------------
Total Liabilities 150,028,282 - - 150,028,282
---------------------------------------------------------------------
Members' Equity (Deficit):
Members' contributions 24,000,000 9,000,500 (9,000,500) 24,000,000
Accumulated income (deficit) (46,508,228) (197,309) 197,309 (46,508,228)
Members' distributions (922,745) - - (922,745)
---------------------------------------------------------------------
Total members' equity (deficit) (23,430,973) 8,803,191 (8,803,191) (23,430,973)
---------------------------------------------------------------------
Total Liabilities and Members' Equity (Deficit) $ 126,597,309 $ 8,803,191 $ (8,803,191) $ 126,597,309
=====================================================================
9
THE MAJESTIC STAR CASINO, LLC
CONSOLIDATING STATEMENTS OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 2001
(UNAUDITED) UNRESTRICTED
PARENT SUBSIDIARY CONSOLIDATED
Revenues:
Casino $ 30,881,266 $ - $ 30,881,266
Food and beverage 517,368 - 517,368
Other 317,465 - 317,465
---------------------------------------------------
Gross Revenues 31,716,099 - 31,716,099
---------------------------------------------------
less promotional allowances (163,179) - (163,179)
Net Revenues 31,552,920 - 31,552,920
---------------------------------------------------
Costs and Expenses:
Casino 6,512,406 - 6,512,406
Gaming and admission taxes 8,638,565 - 8,638,565
Food and beverage 595,216 - 595,216
Advertising and promotion 2,088,028 - 2,088,028
General and administrative 6,387,106 17,582 6,404,688
Economic incentive - City of Gary 926,963 - 926,963
Depreciation and amortization 1,992,645 - 1,992,645
---------------------------------------------------
Total costs and expenses 27,140,929 17,582 27,158,511
---------------------------------------------------
Operating income (loss) 4,411,991 (17,582) 4,394,409
---------------------------------------------------
Other Income (Expense):
Loss on investment in
Buffington Harbor Riverboats, L.L.C. (636,751) - (636,751)
Interest income 26,377 62,747 89,124
Interest expense (3,880,266) - (3,880,266)
Other non-operating expense (40,165) - (40,165)
---------------------------------------------------
Total other income (expense) (4,530,805) 62,747 (4,468,058)
Net income (loss) $ (118,814) $ 45,165 $ (73,649)
===================================================
10
THE MAJESTIC STAR CASINO, LLC
CONSOLIDATING STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 2001
(UNAUDITED) UNRESTRICTED
PARENT SUBSIDIARY CONSOLIDATED
Revenues:
Casino $ 93,812,490 $ - $ 93,812,490
Food and beverage 1,587,246 - 1,587,246
Other 940,122 - 940,122
----------------------------------------------------
Gross Revenues 96,339,858 - 96,339,858
----------------------------------------------------
less promotional allowances (442,698) - (442,698)
Net Revenues 95,897,160 - 95,897,160
----------------------------------------------------
Costs and Expenses:
Casino 19,858,025 - 19,858,025
Gaming and admission taxes 26,148,146 - 26,148,146
Food and beverage 1,839,058 - 1,839,058
Advertising and promotion 5,821,634 - 5,821,634
General and administrative 19,630,388 21,470 19,651,858
Economic incentive - City of Gary 2,815,996 - 2,815,996
Depreciation and amortization 6,439,641 - 6,439,641
Loss on disposal of assets 12,114 - 12,114
----------------------------------------------------
Total costs and expenses 82,565,002 21,470 82,586,472
----------------------------------------------------
Operating income (loss) 13,332,158 (21,470) 13,310,688
----------------------------------------------------
Other Income (Expense):
Loss on investment in
Buffington Harbor Riverboats, L.L.C. (2,185,746) - (2,185,746)
Interest income 165,483 168,065 333,548
Interest expense (11,123,541) - (11,123,541)
Other non-operating expense (87,644) - (87,644)
----------------------------------------------------
Total other income (expense) (13,231,448) 168,065 (13,063,383)
Net income $ 100,710 $ 146,595 $ 247,305
====================================================
11
THE MAJESTIC STAR CASINO, LLC
CONSOLIDATING STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2001
(UNAUDITED)
UNRESTRICTED
PARENT SUBSIDIARY CONSOLIDATED
Cash Flows From Operating Activities:
Net income $ 100,710 $ 146,595 $ 247,305
Adjustment to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation 5,007,549 - 5,007,549
Amortization 1,432,092 - 1,432,092
Loss on investment in Buffington Harbor Riverboats, L.L.C. 2,185,746 - 2,185,746
Loss on disposal of assets 12,114 - 12,114
(Increase) decrease in accounts receivable 482,192 (132,500) 349,692
Decrease in inventories 20,028 - 20,028
Decrease in prepaid expenses 136,683 - 136,683
Decrease in other assets (515,485) (688,795) (1,204,280)
Decrease in accounts payable (281,380) - (281,380)
Decrease in accrued payroll and other expenses 341,893 - 341,893
Decrease in accrued interest (3,285,642) - (3,285,642)
Decrease in other accrued liabilities (80,934) - (80,934)
-----------------------------------------------------
Net cash provided by (used in) operating activities 5,555,566 (674,700) 4,880,866
-----------------------------------------------------
Cash Flows From Investing Activities:
Acquisition of property, equipment and vessel improvements (4,826,140) - (4,826,140)
Distribution from Buffington Harbor Riverboats, L.L.C. 8,825,416 - 8,825,416
Increase in prepaid lease and deposits (6,213,615) - (6,213,615)
Purchase of naming rights (1,000,000) - (1,000,000)
Proceeds from sale of slot machines 1,850 - 1,850
Investment in Buffington Harbor Riverboats, L.L.C. (171,117) - (171,117)
-----------------------------------------------------
Net cash used in investing activities (3,383,606) - (3,383,606)
-----------------------------------------------------
Cash Flows From Financing Activities:
Line of credit, net (5,300,000) - (5,300,000)
Cash paid to reduce long-term debt (977,715) - (977,715)
-----------------------------------------------------
Net cash used in financing activities (6,277,715) - (6,277,715)
-----------------------------------------------------
Net decrease in cash and cash equivalents (4,105,755) (674,700) (4,780,455)
Cash and cash equivalents, beginning of period 12,550,681 3,568,831 16,119,512
-----------------------------------------------------
Cash and cash equivalents, end of period $ 8,444,926 $2,894,131 $11,339,057
=====================================================
12
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. Specific factors that
might cause actual results to differ from the Company's expectations, but are
not limited to:
. economic, competitive, demographic, business and other conditions in the
Company's local and regional markets;
. changes or developments in laws, regulations or taxes in the gaming
industry;
. actions taken or omitted to be taken by third parties, including the
Company's customers, suppliers, competitors and members as well as
legislative, regulatory, judicial and other governmental authorities;
. competition in the gaming industry, including the availability and
success of alternative gaming venues and other entertainment attractions;
. a decline in the public acceptance of gaming;
. changes in personnel, including the loss and/or retirement of key
executives, or compensation, including federal minimum wage requirements;
. the Company's failure to obtain, delays in obtaining or the loss of any
licenses, including the non-renewal of the Company's license from IGC,
permits or approvals, including gaming and liquor licenses, or the
limitation, conditioning, suspension or revocation of any such
licenses, permits or approvals, or its failure to obtain an
unconditional renewal of any such licenses, permits or approvals on a
timely basis;
. the loss of any of the Company's casino facilities due to casualty,
weather, mechanical failure or any extended or extraordinary maintenance
or inspection that may be required;
. other adverse conditions, such as adverse economic conditions, changes in
general customer confidence or spending, increased transportation costs,
travel concerns or weather-related factors, that may adversely affect the
economy in general and/or the casino industry in particular;
. the Company's substantial indebtedness, debt service requirements and
liquidity constraints;
. changes in the Company's business strategy, capital improvements or
development plans;
. the availability of additional capital to support capital improvements
and development;
. the Company's expectations for the proposed Fitzgeralds acquisition;
13
. factors relating to the current state of world affairs and any further
acts of terrorism or any other destabilizing events in the United States
or elsewhere;
. the construction of a covered parking facility adjacent to the Company's
gaming complex; and
. a finding of unsuitability by regulatory authorities with respect to the
Company's officers or key employees.
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 and nine month periods ended
September 30, 2001, with the three and nine month periods ended September 30,
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.
14
Consolidated Statements of Income-- Summary Information
(dollars in thousands)
Three Months Three Months Nine Months Nine Months
Ended September 30, Ended September 30, Ended September 30, Ended September 30,
2001 2000 2001 2000
---- ---- ---- ----
Gross Revenues $ 31,716 $ 28,957 $ 96,340 $ 90,198
Operating Income $ 4,394 $ 2,026 $ 13,311 $ 9,489
Adjusted EBITDA $ 6,387 $ 5,135 $ 19,762 $ 17,147
Consolidated Statements of Income -- Percentage of Gross Revenues
- ----------------------------------------------------------------------------------------
Three Months Three Months Nine Months Nine Months
Ended September 30, Ended September 30, Ended September 30, Ended September 30,
2001 2000 2001 2000
---- ---- ---- ----
Revenues:
Casino 97.4% 97.4% 97.4% 97.5%
Food and beverage 1.6% 1.7% 1.6% 1.6%
Other 1.0% 0.9% 1.0% 0.9%
---------------------------------------------------------------------------------
Gross revenues 100.0% 100.0% 100.0% 100.0%
less promotional allowances -0.5% -0.4% -0.5% -0.3%
---------------------------------------------------------------------------------
Net revenues 99.5% 99.6% 99.5% 99.7%
---------------------------------------------------------------------------------
Costs and Expenses:
Casino 20.5% 22.3% 20.6% 20.7%
Gaming and admission taxes 27.2% 27.7% 27.1% 27.4%
Food and beverage 1.9% 2.2% 1.9% 2.0%
Advertising and promotions 6.6% 7.2% 6.0% 7.0%
General and administrative 20.2% 21.3% 20.4% 21.1%
Economic incentive - City of Gary 2.9% 3.0% 2.9% 3.0%
Depreciation and amortization 6.3% 7.9% 6.7% 7.6%
Loss on disposal of assets 0.0% 1.0% 0.0% 0.4%
---------------------------------------------------------------------------------
Total costs and expenses 85.6% 92.6% 85.6% 89.2%
Operating income 13.9% 7.0% 13.9% 10.5%
---------------------------------------------------------------------------------
Other Income (Expense):
Loss on investment in
Buffington Harbor Riverboats, L.L.C. -2.0% -2.6% -2.3% -2.4%
Interest income 0.3% 0.9% 0.3% 0.7%
Interest expense -12.2% -12.6% -11.5% -12.4%
Other nonoperating expense -0.1% -0.1% -0.1% -0.1%
---------------------------------------------------------------------------------
Total other income (expense) -14.0% -14.4% -13.6% -14.2%
Income (loss) before extraordinary item -0.1% -7.4% 0.3% -3.7%
Extraordinary item:
Loss on bond redemption 0.0% 0.0% 0.0% -0.4%
Net Income (loss): -0.1% -7.4% 0.3% -4.1%
=================================================================================
Adjusted EBITDA: 20.1% 17.7% 20.5% 19.0%
NOTES:
1. Adjusted EBITDA (defined as earnings before interest, income taxes,
depreciation and amortization, other nonoperating expense, and loss on
disposal of assets) 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 for the nine months ended September
30, 2001 includes $21,470 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.
15
Comparison of the Three Months Ended September 30, 2001 with the Three Months
Ended September 30, 2000
Gross revenues for the third quarter ended September 30, 2001 amounted to
approximately $31,716,000, an increase of approximately $2,759,000 or 9.5% from
gross revenues recorded in the third quarter ended September 30, 2000. The
increase was principally attributable to a 12.1% increase in the slot win
combined with a 4.0% increase in the number of admissions.
Casino revenues totaled approximately $30,881,000, of which slot machines
accounted for approximately $26,179,000 (84.8%) and table games accounted for
approximately $4,702,000 (15.2%). Slot revenues increased $2,836,000 or 12.1% to
$26,179,000. The average number of slot machines in operation decreased by 27
units to 1,420 during the three months ended September 30, 2001, from 1,447
during the three months ended September 30, 2000. Coin-in increased by 6.5%
during the three months ended September 30, 2001, compared to the three months
ended September 30, 2000. The average win per slot machine per day increased to
approximately $200 for the three months ended September 30, 2001, from
approximately $175 for the three months ended September 30, 2000. Table games
revenues declined by $157,000, or 3.2%, due primarily to an 8.6% decrease in the
table drop. The average number of table games in operation during the three
months ended September 30, 2001 and 2000 was 49 and 54, respectively. The
average win per table game per day during the three months ended September 30,
2001 increased to approximately $1,043, compared to approximately $978 for the
three months ended September 30, 2000. The average daily win per state passenger
count was approximately $38 and the average daily win per patron was
approximately $66 for the three months ended September 30, 2001, compared to an
average daily win per state passenger count of $36 and an average daily win per
patron of $63 for the three months ended September 30, 2000.
Food and beverage revenues for the three months ended September 30, 2001 totaled
approximately $517,000, or 1.6% of gross revenues, compared to approximately
$479,000, or 1.7% of gross revenues, for the three months ended September 30,
2000. Other revenue totaled approximately $317,000, or 1.0% of gross revenues,
and consisted primarily of commission income during the three months ended
September 30, 2001, compared to approximately $276,000, or 1.0% of gross
revenues, during the three months ended September 30, 2000.
Promotional allowances (complementaries) included in the Company's gross food
and beverage revenues for the three months ended September 30, 2001 and 2000,
were approximately $163,000 and $110,000, respectively. Promotional allowances
provided to the Company's gaming patrons at facilities located on the BHR
Property for the three months ended September 30, 2001 and 2000, were
approximately $197,000 and $118,000, 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 September 30, 2001 and a 4.0% increase in overall admissions. BHR
and other third party operators of food kiosks invoice the
16
Company monthly for these promotional allowances at cost, which approximates
retail value.
Casino operating expenses for the three months ended September 30, 2001 totaled
approximately $6,512,000, or 20.5% of gross revenues and 21.1% of casino
revenues, compared to approximately $6,468,000, or 22.3% of gross revenues and
22.9% of casino revenues, for the three months ended September 30, 2000. These
expenses were primarily comprised of salaries, wages and benefits, and operating
and promotional expenses of the casino.
Gaming and admissions taxes totaled approximately $8,639,000 for the three
months ended September 30, 2001, compared to approximately $8,013,000 for the
three months ended September 30, 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 $927,000 was paid during
the three months ended September 30, 2001, compared to approximately $874,000 in
the three months ended September 30, 2000, to the City under an agreement
whereby the Company pays 3% of adjusted gross receipts directly to the City.
Advertising and promotion expenses for the three months ended September 30, 2001
totaled approximately $2,088,000, or 6.6% of gross revenues, compared to
approximately $2,096,000, or 7.2% of gross revenues, during the three months
ended September 30, 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.
General and administrative expenses for the three months ended September 30,
2001 were approximately $6,405,000, or 20.2% of gross revenues, compared to
$6,151,000, or 21.2% of gross revenues, during the three months ended September
30, 2000. These expenses included approximately $1,511,000 for berthing fees
paid to BHR, approximately $1,526,000 for marine operations including
housekeeping, and $706,000 for security and surveillance operations during the
third quarter of 2001. The $254,000 or 4.1% increase in general and
administrative expenses is primarily attributed to higher expenditures for
payroll and property taxes.
Depreciation and amortization for the three months ended September 30, 2001 was
approximately $1,993,000, or 6.3% of gross revenues, compared to approximately
$2,284,000, or 7.9% of gross revenues, during the three months ended September
30, 2000. The $291,000 or 12.8 % difference is primarily attributed to
approximately $276,000 for the amortization of pre-opening expenses, which
became fully amortized during the second quarter of 2001.
Operating income for the three months ended September 30, 2001 was approximately
$4,394,000, or 13.9% of gross revenues, compared to operating income for the
three months ended September 30, 2000 of $2,026,000, or 7.0% of gross revenues.
The $2,368,000 or 116.9% increase in operating income is principally attributed
to a 9.5%
17
increase in gross revenues partially offset by changes in expenses as previously
discussed.
Net interest expense for the three months ended September 30, 2001 was
approximately $3,791,000, or 12.0% of gross revenues, compared to approximately
$3,395,000 or 11.7% of gross revenues for the same period last year. Net
interest expense includes approximately $63,000 of interest income earned at the
Company's unrestricted subsidiary, Majestic Investor, LLC.
The Company's loss relating to its investment in BHR for the three months ended
September 30, 2001 was approximately $637,000. The loss represents the Company's
50% share of BHR's non-cash net loss (primarily depreciation and amortization).
Other non-operating expense includes unused line of credit fees of approximately
$40,000 associated with the Company's $20.0 million credit facility.
As a result of the foregoing, the Company experienced a net loss of
approximately $74,000 and $2,133,000 during the three months ended September 30,
2001 and 2000, respectively. The net loss for the three months ended September
30, 2001, excluding the accounts of Majestic Investor, LLC, was approximately
$119,000.
Comparison of the Nine Months Ended September 30, 2001 with the Nine Months
Ended September 30, 2000
Gross revenues for the nine months ended September 30, 2001, amounted to
approximately $96,340,000, an increase of approximately $6,142,000 or 6.8% from
gross revenues recorded in the nine months ended September 30, 2000. The
increase was principally attributable to a $8,476,000 or 12.0% increase in the
slot win during the nine months ended September 30, 2001 compared to the same
period in the prior year, partially offset by a decline in table revenues.
Casino revenues totaled approximately $93,812,000, of which slot machines
accounted for approximately $79,069,000 (84.3%) and table games accounted for
approximately $14,743,000 (15.7%). Slot revenues increased $8,476,000 or 12.0%.
The average number of slot machines in operation slightly decreased by 6 units
to 1,426 during the nine months ended September 30, 2001, from 1,432 during the
nine months ended September 30, 2000. The average win per slot machine per day
increased 12.8% to approximately $203 for the nine months ended September 30,
2001, from approximately $180 for the nine months ended September 30, 2000.
Table games revenues declined by approximately $2,613,000, or 15.1%, due
primarily to a 9.6% decrease in the table drop and a decline in the table hold
from 16.4% to 15.4%. The average number of table games in operation during the
nine months ended September 30, 2001 and 2000, was 50 and 56, respectively. The
average win per table game per day during the nine months ended September 30,
2001 decreased to approximately $1,073, compared to approximately $1,140 for the
nine months ended September 30, 2000. The average daily win per state passenger
count was approximately $38 and the average daily win per patron was
approximately $68 for the nine months ended September 30, 2001, compared to an
18
average daily win per state passenger count of $37 and an average daily win per
patron of $66 for the nine months ended September 30, 2000.
Food and beverage revenues for the nine months ended September 30, 2001 totaled
approximately $1,587,000, or 1.6% of gross revenues, compared to approximately
$1,469,000, or 1.6% of gross revenues, for the nine months ended September 30,
2000. Other revenue totaled approximately $940,000, or 1.0% of gross revenues,
and consisted primarily of commission income during the nine months ended
September 30, 2001, compared to approximately $780,000, or 0.9% of gross
revenues, during the nine months ended September 30, 2000.
Promotional allowances (complementaries) included in the Company's gross food
and beverage revenues for the nine months ended September 30, 2001 and 2000,
were approximately $443,000 and $302,000, respectively. Promotional allowances
provided to the Company's gaming patrons at facilities located on the BHR
Property for the nine months ended September 30, 2001 and 2000, were
approximately $578,000 and $320,000, 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 nine
months ended September 30, 2001 and a 4.0% increase in the number of admissions.
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 nine months ended September 30, 2001 totaled
approximately $19,858,000, or 20.6% of gross revenues and 21.2% of casino
revenues, respectively, compared to approximately $18,641,000, or 20.7% of gross
revenues and 21.2% of casino revenues, respectively, for the nine months ended
September 30, 2000. These expenses were primarily comprised of salaries, wages
and benefits, and operating and promotional expenses of the casino. The dollar
increase of approximately $1,217,000, or 6.5%, in casino operating expenses, is
primarily attributed to an increase of approximately $803,000 associated with
Club Majestic as a result of a 19.5% increase in rated slot wagering,
approximately $506,000 for complementaries, and approximately $211,000 for
casino gaming equipment rental of proprietary games such as Wheel of Fortune(R)
and Austin Powers(R), partially offset by decreased payroll of approximately
$77,000 and approximately $226,000 in other various operating expenses.
Gaming and admissions taxes totaled approximately $26,148,000 for the nine
months ended September 30, 2001, compared to approximately $24,705,000 for the
nine months ended September 30, 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 $2,816,000 was paid
during the nine months ended September 30, 2001, compared to approximately
$2,721,000 in the nine months ended September 30, 2000, to the City under an
agreement whereby the Company pays 3% of its adjusted gross receipts directly to
the City.
19
Advertising and promotion expenses for the nine months ended September 30, 2001
totaled approximately $5,822,000, or 6.0% of gross revenues, compared to
approximately $6,348,000, or 7.0% of gross revenues, during the nine months
ended September 30, 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 $526,000, or 8.3%, decrease in
advertising and promotion expenses during the nine months ended September 30,
2001 was primarily the result of a decrease in mass marketing expenditures
partially offset by an increase in promotional expenses associated with direct
mail and Club Majestic promotions.
General and administrative expenses for the nine months ended September 30, 2001
were approximately $19,652,000, or 20.4% of gross revenues, compared to
$19,046,000, or 21.1% of gross revenues, during the nine months ended September
30, 2000. These expenses included approximately $4,718,000 for berthing fees
paid to BHR, approximately $4,631,000 for marine operations including
housekeeping, and approximately $2,064,000 for security and surveillance
operations during the nine months ended September 30, 2001. These expenses also
include approximately $21,000 for general and administrative expenses associated
with Majestic Investor, LLC. The $606,000 or 3.2% increase in general and
administrative expenses was primarily due to increases in expenditures for
payroll, professional fees, property taxes, Indiana Gaming Commission fees
including relicensing fees and general insurance.
Depreciation and amortization for the nine months ended September 30, 2001 was
approximately $6,440,000, or 6.7% of gross revenues, compared to approximately
$6,833,000, or 7.6% of gross revenues, during the nine months ended September
30, 2000. The $393,000 or 5.8% difference is primarily attributed to
approximately $276,000 for the amortization of pre-opening expenses, which
became fully amortized during the second quarter of 2001 and a decrease of
approximately $409,000 in depreciation expense associated with slot equipment
that was fully depreciated. This amount is offset by approximately $292,000 for
additional depreciation expense associated with increased sales taxes assessed
and paid in September 2001 for the construction of the permanent vessel in 1997.
Operating income for the nine months ended September 30, 2001 was approximately
$13,311,000, or 13.8% of gross revenues, compared to an operating income for the
nine months ended September 30, 2000 of $9,489,000, or 10.5% of gross revenues.
The $3,822,000 or 40.3% increase in operating income is principally attributed
to a 6.8% increase in gross revenues partially offset by increased expenses as
previously discussed.
Net interest expense for the nine months ended September 30, 2001 was
approximately $10,790,000, or 11.2% of gross revenues, compared to approximately
$10,489,000 or 11.6% of gross revenues for the same period last year. Net
interest expense includes approximately $168,000 of interest income earned at
Majestic Investor, LLC during the nine months ended September 30, 2001.
20
The Company's loss relating to its investment in BHR for the nine months ended
September 30, 2001 was approximately $2,186,000. The loss represents the
Company's 50% share of BHR's non-cash net loss (primarily depreciation and
amortization). Other non-operating expense includes unused line of credit fees
of approximately $88,000 associated with the $20.0 million credit facility.
As a result of the foregoing, the Company experienced net income of
approximately $247,000 during the nine months ended September 30, 2001 and a net
loss before an extraordinary item of approximately $3,294,000 during the nine
months ended September 30, 2000. The net income for the nine months ended
September 30, 2001 excluding the accounts of Majestic Investor, LLC was
approximately $101,000. The Company's loss on the redemption of its 12-3/4%
Senior Secured Notes with Contingent Interest was approximately $383,000 during
the nine months ended September 30, 2000.
Earnings Before Interest, Income Taxes, Depreciation and Amortization ("EBITDA")
Adjusted EBITDA is presented solely as a supplemental disclosure and is used by
the Company to assist in the evaluation of the cash generating ability of its
gaming business. Adjusted EBITDA represents "earnings before interest, income
taxes, depreciation and amortization, nonoperating expenses, and loss on
disposal of assets." Adjusted EBITDA during the three and nine months ended
September 30, 2001 was approximately $6,387,000 and $19,762,000, respectively,
or 20.1% and 20.5% of gross revenues. The Adjusted EBITDA excluding Majestic
Investor, LLC for the three and nine months ended September 30, 2001 was
approximately $6,405,000 and $19,784,000, respectively, or 20.2% and 20.5% of
gross revenues, compared to Adjusted EBITDA of approximately $5,135,000 or
$17,147,000, respectively, or 16.2% or 17.8%, of gross revenues, for the three
and nine months ended September 30, 2000. The increases of $1,270,000 and
$2,637,000, or 24.7% and 15.4%, respectively, in Adjusted EBITDA during the
three and nine months ended September 30, 2001 compared to the three and nine
months ended September 30, 2000 are primarily the result of increased slot
revenues.
EBITDA should be viewed only in conjunction with all of the Company's financial
data and statements, and should not be construed as an alternative either to
income from operations (as an indicator of the Company's operating performance)
or to cash flows from operating activities as a measure of liquidity.
Liquidity and Capital Resources
At September 30, 2001, the Company had cash, cash equivalents and restricted
cash of approximately $13.3 million, which includes approximately $4.9 million
at Majestic Investor, LLC. During the nine months ended September 30, 2001, the
Company's capital expenditures were approximately $4.8 million. These capital
expenditures include an additional $2.2 million for the settlement of disputed
use tax payments associated with the chartered vessel and the subsequent
construction of the permanent vessel. The Company also made capital
contributions of approximately $171,000 to BHR during the nine months ended
September 30, 2001.
21
The Company, including the accounts of Majestic Investor, LLC, has met its
capital requirements to date through net cash from operations, capital
contributions and equipment loans. For the nine months ended September 30, 2001,
net cash provided by operating activities totaled approximately $4.9 million,
compared to net cash provided by operating activities of approximately $2.6
million during the nine months ended September 30, 2000. For the nine months
ended September 30, 2001, cash used by investing activities totaled
approximately $3.4, compared to approximately $10.0 million used by investing
activities during the nine months ended September 30, 2000. For the nine months
ended September 30, 2001, cash used by financing activities totaled
approximately $6.3 million which included net repayments of $5.3 million under
the line of credit facility, compared to $9.1 million provided by financing
activities during the nine months ended September 30, 2000. As of November 13,
2001, the outstanding borrowings under the credit facility were approximately
$2.5 million. The Company as of September 30, 2001 has repaid all capital lease
obligations associated with the purchase of slot equipment.
Management believes that the Company's cash flow from operations and its current
line of credit will be adequate to meet the Company's anticipated future
requirements for working capital, its capital expenditures and scheduled
payments of interest and principal on the Senior Secured Notes, lease payments
to BHPA and other permitted indebtedness for the year 2001. No assurance can be
given, however, that such proceeds and operating cash flow, 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 reasonably anticipated liquidity
needs is accurate or that unforeseen events will not occur, resulting in the
need to raise additional funds.
Related Party Transactions
On September 14, 2000, Mr. Barden purchased through Gary New Century, LLC
("GNC"), an affiliated company, approximately 190 acres of land adjacent to the
gaming complex. On September 29, 2000, GNC sold a portion of the land to
Buffington Harbor Parking Associates, LLC ("BHPA") which portion had been
formerly leased by Lehigh Portland Cement to BHR. Simultaneously, BHPA sold a
small portion of the purchased land to BHR. As a result of these transactions,
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.
The Company entered into a lease in the second quarter of 2001 with BHPA for a
parking garage on land adjacent to the gaming complex. BHPA was formed by the
Joint Venture Partner and AMB Parking, LLC (a company indirectly owned by Don H.
Barden,
22
Chairman and CEO of the Company) to construct and operate a parking garage. The
parking project is budgeted to cost approximately $37.9 million, including
approximately $14.2 million for the land. BHPA closed the financing of
approximately $20.9 million necessary to construct the parking garage on June
19, 2001. Construction is anticipated to be completed by spring 2002. Lease
payments are intended to be sufficient to service the debt on the BHPA
financing. 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 the Company's net revenues
and cash flow.
A loan of $2.0 million made by Majestic Investor, LLC 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 9.75%. During the second
and third quarters of 2001, Gary New Century, LLC was advanced $1.0 million of
the $1.5 million total price for naming rights associated with the development
of an amphitheater to be built adjacent to the Company by Gary New Century, LLC.
The remaining $500,000 of the purchase price is due on the later of (i) June
30, 2002 or (ii) the opening of the facility.
Other Significant Transactions
Majestic Investor, LLC 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 in September 2001 assigned its rights to Majestic Investor Holdings, LLC, a
100% owned affiliate of Majestic Investor, LLC. Majestic Investor Holdings, LLC
plans to purchase Fitzgeralds casinos in Las Vegas, Nevada; Tunica, Mississippi;
and Black Hawk, Colorado for approximately $149.0 million in cash, subject to
adjustment in certain circumstances, plus assumption of certain liabilities. 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 of these properties to Majestic Investor was approved by the
Bankruptcy Court on March 19, 2001, but still remains contingent on, among other
things, licensing and financing. Majestic Investor, LLC and its affiliates
received regulatory approvals to purchase and operate the three Fitzgeralds
brand properties from Mississippi, Colorado and Nevada during the week of
October 15, 2001. The Company has filed for and received appropriate approvals
from the Federal Trade Commission with respect to the Hart-Scott Rodino Act. The
Company anticipates that the transaction, pending financing, should close during
the fourth quarter of 2001.
On August 23, 2001, the Company's riverboat ownership license was unanimously
renewed by the Indiana Gaming Commission for a one year period beginning June 7,
2001.
23
Item 3. Quantitative And Qualitative Disclosures About Market Risk
Interest Rate Risk
- ------------------
The Company does not have any financial instruments held for trading 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.
24
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 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.
In September 2001, the Indiana Department of Revenue assessed the Company for
sales and use tax deficiencies for the years ended December 31, 1996 and
December 31, 1997. The alleged deficiencies related primarily to capital assets
associated with the chartered vessel and to the construction of the permanent
vessel. The Company paid approximately $2,404,000 in September of 2001 and
approximately $260,000 in October of 2001. In October 2001, the Company filed an
administrative refund claim and, ultimately, plans to pursue a refund action in
the Indiana Tax Court.
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, and the Company's Quarterly Reports on Form 10-Q for the
quarters ended March 31, 2001 and June 30, 2001.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
No. Description
10 Parking Lease dated as of June 19, 2001 by and between
Buffington Harbor Parking Associates, LLC and The
Majestic Star Casino, LLC.
(b) The Company filed no reports on Form 8-K during the quarter
ended September 30, 2001.
25
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 November 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 November 14, 2001
- -------------------- Financial Officer of the Company and
Michael E. Kelly The Majestic Star Casino Capital
Corp. (Principal Financial and Chief
Accounting Officer)
26
Index to Exhibits
Exhibit
Number Description
------ -----------
10 Parking Lease dated as of June 19, 2001 by and between
Buffington Harbor Parking Associates, LLC and The
Majestic Star Casino, LLC.
27