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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002
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 (Exact name of registrant as specified in its charter) (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
ONE BUFFINGTON HARBOR DRIVE
GARY, INDIANA
46406-3000
(219) 977-7823
(Registrant's address and telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to filing requirements
for the past 90 days.
Yes [X] No [ ]
Shares outstanding of each of the registrant's classes of common stock as of
September 30, 2002:
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, 2002
and December 31, 2001................................................1
Consolidated Statements of Operations for the three and nine months
ended September 30, 2002 and 2001....................................2
Consolidated Statements of Cash Flows for the nine months
ended September 30, 2002 and 2001....................................3
Notes to Financial Statements.................................................4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................22
Item 3. Quantitative and Qualitative Disclosures About Market Risk...................33
Item 4. Controls and Procedures......................................................33
PART II OTHER INFORMATION
Item 1. Legal Proceedings............................................................34
Item 6. Exhibits and Reports on Form 8-K.............................................34
SIGNATURES.....................................................................................35
CERTIFICATIONS.................................................................................36
i
PART 1 - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
THE MAJESTIC STAR CASINO, LLC
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
2002 2001
ASSETS
Current Assets:
Cash and cash equivalents $ 32,339,313 $ 25,925,291
Accounts receivable, less allowance for doubtful accounts
of $369,019 and $359,702, respectively 2,998,541 3,079,523
Inventories 858,501 995,708
Prepaid expenses 3,237,211 2,190,255
Note receivable due from affiliate 700,000 700,000
Due from Buffington Harbor Riverboats, L.L.C 152,637 333,838
----------------------------------
Total current assets 40,286,203 33,224,615
----------------------------------
Property, equipment and improvements, net 166,846,883 170,195,013
Intangible assets, net 18,090,497 19,290,753
Goodwill 5,521,620 10,602,250
Other Assets:
Deferred financing costs, net of accumulated amortization
of $3,813,582 and $2,202,831, respectively 9,895,390 10,530,426
Investment in Buffington Harbor Riverboats, L.L.C 32,131,035 33,898,771
Restricted cash 1,000,000 1,000,000
Other assets, prepaid leases and deposits 12,513,386 12,317,704
----------------------------------
Total other assets 55,539,811 57,746,901
----------------------------------
Total Assets $286,285,014 $291,059,532
==================================
LIABILITIES AND MEMBERS' DEFICIT
Current Liabilities:
Current maturities of long-term debt $ 142,714 $ 6,656,574
Accounts payable 2,638,211 2,978,502
Payroll and related 5,408,925 6,194,601
Accrued interest 9,465,323 8,294,312
Other accrued liabilities 13,160,072 13,020,097
----------------------------------
Total current liabilities 30,815,245 37,144,086
----------------------------------
Long-term debt, net of current maturities 274,981,984 273,896,933
----------------------------------
Total Liabilities 305,797,229 311,041,019
Commitments and contingencies
Members' Deficit:
Members' contributions 29,000,000 29,000,000
Accumulated deficit (48,512,215) (48,981,487)
----------------------------------
Total Members' Deficit (19,512,215) (19,981,487)
----------------------------------
Total Liabilities and Member's Deficit $286,285,014 $291,059,532
==================================
The accompanying notes are an integral part of
these consolidated financial statements.
1
THE MAJESTIC STAR CASINO, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
2002 2001 2002 2001
REVENUES:
Casino $ 77,690,257 $30,881,266 $223,250,545 $ 93,812,489
Rooms 3,809,375 -- 11,836,762 --
Food and beverage 5,340,626 384,987 16,157,349 1,210,326
Other 1,528,812 449,846 4,341,279 1,317,041
----------------------------------------------------------------------------
Gross Revenues 88,369,070 31,716,099 255,585,935 96,339,856
less promotional allowances (11,552,945) (1,702,574) (32,312,620) (4,798,170)
----------------------------------------------------------------------------
Net Revenues 76,816,125 30,013,525 223,273,315 91,541,686
COSTS AND EXPENSES:
Casino 21,691,035 5,954,375 63,528,133 18,126,914
Rooms 2,342,772 -- 6,784,231 --
Food and beverage 3,435,986 578,333 10,197,664 1,764,562
Other 396,134 -- 1,171,573 --
Gaming taxes 13,908,520 8,638,565 40,933,961 26,148,146
Advertising and promotion 5,109,333 1,829,984 15,239,909 5,335,866
General and administrative 13,311,515 5,698,251 37,083,273 17,587,757
Economic incentive - City of Gary 1,072,350 926,963 2,959,492 2,815,998
Depreciation and amortization 5,555,340 1,992,645 15,789,459 6,439,641
Loss on disposal of assets 9,889 -- 461 12,114
Pre-opening expenses -- -- 124,269 --
----------------------------------------------------------------------------
Total costs and expenses 66,832,874 25,619,116 193,812,425 78,230,998
----------------------------------------------------------------------------
Operating income 9,983,251 4,394,409 29,460,890 13,310,688
OTHER INCOME (EXPENSE):
Loss on investment in
Buffington Harbor Riverboats, L.L.C (600,304) (636,751) (1,808,204) (2,185,746)
Interest income 57,212 89,124 135,182 333,548
Interest expense (8,071,962) (3,880,266) (24,356,423) (11,123,541)
Other non-operating expense (49,524) (40,165) (141,815) (87,644)
----------------------------------------------------------------------------
Total other income (expense) (8,664,578) (4,468,058) (26,171,260) (13,063,383)
Net income (loss) $ 1,318,673 $ (73,649) $ 3,289,630 $ 247,305
============================================================================
The accompanying notes are an integral part of
these consolidated financial statements.
2
THE MAJESTIC STAR CASINO, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30,
2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,289,630 $ 247,305
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 11,489,565 5,007,549
Amortization 4,299,894 1,432,092
Loss on investment in Buffington Harbor Riverboats, L.L.C 1,808,204 2,185,746
Loss on sale of assets 461 12,114
Changes in operating assets and liabilities:
Decrease in accounts receivable 200,668 349,692
Decrease in inventories 137,208 20,028
(Increase) decrease in prepaid expenses (1,241,104) 136,683
(Increase) decrease in other assets 869,913 (1,204,280)
Decrease in accounts payable (536,664) (281,380)
Decrease in related party payables -- --
Increase (decrease) in accrued payroll and related expenses (872,124) 341,893
Increase (decrease) in accrued interest 1,171,011 (3,285,642)
Increase (decrease) in other accrued liabilities 1,573,976 (80,934)
--------------------------
Net cash provided by operating activities 22,190,638 4,880,866
--------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment of acquisition related costs (986,158) --
Proceeds from seller from purchase price adjustment 3,800,000 --
Acquisition of property, equipment and vessel improvements (8,194,614) (4,826,140)
Distribution from Buffington Harbor Riverboats, L.L.C -- 8,825,416
Decrease in prepaid lease and deposits 428,005 (6,213,615)
Purchase of naming rights -- (1,000,000)
Investment in Buffington Harbor Riverboats, L.L.C (40,455) (171,117)
Proceeds from sale of equipment 52,717 1,850
--------------------------
Net cash used in investing activities (4,940,505) (3,383,606)
CASH FLOWS FROM FINANCING ACTIVITIES:
Line of credit, net (6,500,000) (5,300,000)
Payment of 11.653% Senior Secured Notes issuance costs (1,410,945) --
Cash advances to/from affiliates, net -- --
Cash paid to reduce long-term debt (104,808) (977,715)
Distribution to Barden Development, Inc. (2,820,358) --
---------------------------
Net cash used in financing activities (10,836,111) (6,277,715)
---------------------------
Net increase in cash and cash equivalents 6,414,022 (4,780,455)
Cash and cash equivalents, beginning of period 25,925,291 16,119,512
---------------------------
Cash and cash equivalents, end of period $ 32,339,313 $11,339,057
============================
INTEREST PAID:
Equipment Debt $38,510 $ 33,817
Senior Secured Notes - Fixed Interest 10-7/8% $ 14,137,500 $14,137,500
Senior Secured Notes - Fixed Interest 11.653% $ 8,707,126 $ --
Lines of credit $ 301,649 $ 237,886
SUPPLEMENTAL NONCASH OPERATING AND FINANCING ACTIVITIES:
Elimination of slot based progressives $ 400,000 $ --
Elimination of slot club $ 1,300,000 $ --
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 to provide gaming and related entertainment to the public. The Company
commenced gaming operations in the City of Gary ("Gary") at Buffington Harbor,
located in Lake County, Indiana on June 7, 1996. Majestic Investor, LLC was
formed on September 12, 2000 as an "unrestricted subsidiary" of the Company
under the Indenture relating to the Company's 10-7/8% Senior Secured Notes.
Majestic Investor, LLC was initially formed to satisfy the Company's off-site
development obligations under the Development Agreement with Gary.
Majestic Investor, LLC entered into a definitive purchase and sale
agreement dated as of November 22, 2000, as amended December 4, 2000, with
Fitzgeralds Gaming Corporation ("Fitzgeralds") and certain of its affiliates to
purchase substantially all of the assets of three of its subsidiaries for
approximately $149.0 million in cash, subject to adjustment in certain
circumstances, plus assumption of certain liabilities. Majestic Investor, LLC
assigned all of its rights and obligations to Majestic Investor Holdings, LLC, a
wholly-owned subsidiary of Majestic Investor, LLC, following the formation of
Majestic Investor Holdings, LLC. Majestic Investor Holdings, LLC completed the
purchase of the Fitzgeralds assets on December 6, 2001 and commenced operations
on December 7, 2001. The three Fitzgeralds brand casinos are "restricted
subsidiaries" of Majestic Investor Holdings, LLC under the Indenture relating to
Majestic Investor Holdings, LLC's 11.653% Senior Secured Notes and "unrestricted
subsidiaries" under the Company's Indenture relating to the Company's 10-7/8%
Senior Secured Notes.
Except where otherwise noted, the words "we," "us," "our," and similar
terms, as well as the "Company," refer to The Majestic Star Casino, LLC and all
of its subsidiaries.
The accompanying consolidated financial statements are unaudited and
include the accounts of the Company and its wholly-owned subsidiary, Majestic
Investor, LLC. All intercompany transactions and balances have been eliminated.
Investments in affiliates in which the Company has the ability to exercise
significant influence, but not control, are accounted for by the equity method.
These financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (which include normal recurring adjustments)
considered necessary for a fair presentation of the results for the interim
periods have been made. The results for the nine months ended September 30,
2002, are not necessarily indicative of results to be expected for the full
fiscal year. The financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 2001.
Certain reclassifications have been made to the 2001 financial
statements to conform to the 2002 presentation. These reclassifications have no
effect on previously reported net income.
4
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In April 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 145, "Rescission of
FASB statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and
Technical Corrections" which is effective for fiscal years beginning after May
15, 2002. SFAS No. 145 updates, clarifies, and simplifies existing accounting
pronouncements. Management does not expect SFAS No. 145 to have a material
impact on the Company's consolidated financial position, results of operations
or cash flows.
In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs
Associated with Exit or Disposal Activities" which will become effective for
exit or disposal activities initiated after December 31, 2002. SFAS No. 146
supersedes Emerging Issues Task Force Issue No. 94-3 "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity." SFAS
No. 146 requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred and states that an
entity's commitment to an exit plan, by itself, does not create a present
obligation that meets the definition of a liability. SFAS No. 146 also
establishes that fair value is the objective for initial measurement of the
liability. Adoption of SFAS No. 146 will have no impact on our historical
consolidated financial position or results of operations.
In October 2002, the FASB issued SFAS No. 147, "Acquisition of Certain
Financial Institutions," which is not applicable to the Company.
NOTE 3. INVESTMENT IN BUFFINGTON HARBOR RIVERBOATS, L.L.C. ("BHR")
On October 31, 1995, the Company and Trump Indiana, Inc. (the "Joint
Venture Partner") entered into the First Amended and Restated Operating
Agreement of BHR for the purpose of acquiring and developing certain facilities
for the gaming operations in the City of Gary, Indiana ("BHR Property"). BHR is
responsible for the management, development and operation of the BHR Property.
The Company and the Joint Venture Partner have each entered into an agreement
with BHR (the "Berthing Agreement") to use BHR Property for their respective
gaming operations and have committed to pay cash operating losses of BHR as
additional berthing fees. The Company and the Joint Venture Partner share
equally in the operating expenses relating to the BHR Property, except for costs
associated with food and beverage and gift shop, which are allocated based on
percentage of use by the casino customers of the Company and the Joint Venture
Partner. The Company accounts for its 50% interest in BHR under the equity
method, whereby the initial investments are recorded at cost and then adjusted
for the Company's share of BHR's net income or loss.
5
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 Operations
(Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
2002 2001 2002 2001
------------------------------------------------------------------------
Gross Revenue $ 3,950,620 $ 4,351,336 $11,873,207 $12,690,559
Operating Income $ 28,769 $ 7,661 $ 36,289 $ 23,831
Net Loss $(1,199,488) $(1,273,498) $(3,612,758) $(4,371,488)
NOTE 4. ACQUISITIONS
On December 6, 2001, the Company, through certain indirect wholly-owned
subsidiaries, completed the acquisition of substantially all of the assets and
assumed certain liabilities of Fitzgeralds Las Vegas, Inc. ("Fitzgeralds Las
Vegas"), Fitzgeralds Mississippi Inc. ("Fitzgeralds Tunica") and 101 Main Street
Limited Liability Company ("Fitzgeralds Black Hawk") (the "Fitzgeralds assets")
for approximately $152.7 million in cash, which includes the purchase price of
$149.0 million and professional fees and other expenses related to the
acquisition. Pursuant to the terms of the purchase and sale agreement, the
parties agreed to a $3.8 million purchase price reduction on May 9, 2002, based
upon a negotiated settlement of the value of working capital at December 6,
2001. We are accounting for the acquisition under the purchase method.
Accordingly, the purchase price is allocated to the assets acquired and
liabilities assumed based upon their estimated fair values at the date of
acquisition. We determined the estimated fair value of property and equipment
and intangible assets based upon third-party valuations.
The purchase price was determined based upon estimates of future cash
flows and the net worth of the assets acquired. Majestic Investor Holdings, LLC
funded the acquisition through the issuance of its 11.653% Senior Secured Notes.
The following table summarizes the estimated fair value of the assets acquired
and the liabilities assumed at the acquisition date.
6
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 4. ACQUISITIONS (CONTINUED)
At December 6, 2001
-------------------
(in millions)
Current assets $ 12.2
Property and equipment 122.9
Intangible assets 19.4
Goodwill 10.6
Other noncurrent assets 2.0
------
Total assets acquired 167.1
------
Current liabilities 14.0
Other noncurrent liabilities 0.4
------
Total liabilities assumed 14.4
------
Net $152.7
======
The Company (Gary property only) has no intangible assets. Intangible
assets at Majestic Investor Holdings, LLC primarily include $9.8 million for
customer relationships, $3.7 million for tradename and $5.2 million for gaming
licenses. Intangible assets for customer relationships and tradenames are being
amortized over a period of 8-10 years. In accordance with SFAS No. 142, goodwill
and other indefinite lived intangible assets, such as the Barden Nevada Gaming,
LLC's gaming license, are not amortized but instead are subject to impairment
tests at least annually.
NOTE 5. OTHER INTANGIBLE ASSETS
The gross carrying amount and accumulated amortization of the
intangible assets, other than goodwill, as of September 30, 2002, are as
follows:
Gross Carrying Accumulated
Amount Amortization
(in thousands) (in thousands)
-------------- --------------
Amortized intangible assets:
Customer relationships $ 9,800 $(1,007)
Tradename 3,700 (302)
Riverboat excursion license 700 --
------- -------
Total $14,200 $(1,309)
======= =======
Unamortized intangible assets:
Gaming license $ 5,200 $ --
------- -------
Total $ 5,200 $ --
======= =======
7
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The amortization expense recorded on the intangible assets for the
three and nine months ended September 30, 2002 was $0.4 million and $1.2
million, respectively. The estimated amortization expense for each of the five
succeeding fiscal years is as follows (amounts in thousands):
For the year ending December 31,
--------------------------------
2002 $1,595
2003 $1,642
2004 $1,642
2005 $1,642
2006 $1,642
NOTE 6. GOODWILL
The changes in the carrying amount of goodwill for the nine months
ended September 30, 2002 are as follows:
(In thousands)
Balance as of January 1, 2002 $10,602
Goodwill acquired 296
-------
Balance as of March 31, 2002 10,898
Purchase price adjustment (3,800)
Goodwill adjustments (549)
Goodwill acquired 164
-------
Balance as of June 30, 2002 6,713
Goodwill adjustments (1,191)
-------
Balance as of September 30, 2002 $ 5,522
-------
The increase in goodwill acquired primarily relates to professional
fees incurred by the Company related to the acquisition of Fitzgeralds Tunica,
Fitzgeralds Black Hawk, and Fitzgeralds Las Vegas. The decrease in goodwill is
primarily due to a $3.8 million purchase price adjustment resulting from the
final purchase price settlement of the acquired assets and liabilities of the
Fitzgeralds Las Vegas, Fitzgeralds Tunica and Fitzgeralds Black Hawk properties
and adjustments of estimates of liabilities for slot based programs.
In accordance with SFAS No. 142, goodwill is not amortized but instead
is subject to impairment testing at least annually.
8
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 7. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
There have been no significant changes in the legal proceedings
previously described in the Company's Annual Report on Form 10-K for the year
ended December 31, 2001.
Gaming Regulations
The ownership and operation of riverboat gaming operations in Indiana
are subject to strict state regulation under the Riverboat Gambling Act ("Act")
and the administrative rules promulgated thereunder. The Indiana Gaming
Commission ("IGC") is empowered to administer, regulate and enforce the system
of riverboat gaming established under the Act and has jurisdiction and
supervision over all riverboat gaming operations in Indiana, as well as all
persons on riverboats where gaming operations are conducted. The IGC is
empowered to regulate a wide variety of gaming and nongaming related activities,
including the licensing of supplies to, and employees at, riverboat gaming
operations and to approve the form of entity qualifiers and intermediary and
holding companies. Indiana is a relatively new jurisdiction and the emerging
regulatory framework is not yet complete. The IGC has adopted certain final
rules and has published others in proposed or draft form, which are proceeding
through the review and final adoption process. The IGC has broad rulemaking
power, and it is impossible to predict what effect, if any, the amendment of
existing rules or the finalization of currently new rules might have on the
Company's operations.
A change in the Indiana state law governing gaming took effect on July
1, 2002 which enables Indiana's riverboat casinos to operate dockside. The IGC
approved Majestic Star's flexible boarding plan that allows the continuous
ingress and egress of patrons for the purpose of gambling while the riverboat is
docked. The plan went into effect on August 5, 2002 and imposes a graduated
wagering tax based upon adjusted gross receipts. The graduated wagering tax will
have a starting rate of 15% with a top rate of 35% for adjusted gross receipts
in excess of $150 million. For the period July 1 through August 4, 2002, the
wagering tax was raised by statute to 22.5% of adjusted gross receipts. Prior to
July 1, 2002, Indiana gaming taxes were levied on adjusted gross receipts, as
defined by Indiana gaming laws, at the rate of 20%. In addition to the wagering
tax, an admissions tax of $3 per turnstile count is assessed. Prior to August
5, 2002, Indiana imposed an admissions tax of $3 per patron turnstile count at
every boarding time plus the count of the patrons that stayed over on the
vessel from a previous boarding time period.
The ownership and operation of our other casino gaming facilities in
Nevada, Mississippi and Colorado are also subject to various state and local
regulations in the jurisdictions where they are located. In Nevada, our gaming
operations are subject to the Nevada Gaming Control Act, and to the licensing
and regulatory control of the Nevada Gaming Commission, the Nevada State Gaming
Control Board and various local ordinances and regulations, including, without
limitation, applicable city and county gaming and liquor licensing authorities.
In Mississippi, our gaming operations are subject to the Mississippi Gaming
Control Act, and to the licensing and/or regulatory control of the Mississippi
Gaming Commission, the Mississippi State Tax Commission and various state and
local regulatory agencies, including liquor licensing authorities. In Colorado,
our gaming operations are subject to the Limited Gaming Act of 1991, which
created the Division of Gaming within the Colorado Department of Revenue and the
Colorado Limited Gaming Control Commission to license, implement, regulate and
supervise the conduct of limited gaming. Our operations are also subject to the
Colorado Liquor Code and the state and local liquor licensing authorities.
The Company's directors, officer, managers and key employees are
required to hold individual licenses, the requirements for which vary from
jurisdiction to jurisdiction. Licenses and permits for gaming operations and of
individual licensees are subject to revocation or non-renewal for cause. Under
certain circumstances, holders of our securities are required to secure
independent licenses and permits.
Other Contingencies
Buffington Harbor Parking Associates ("BHPA") was formed by the Joint
Venture Partner and AMB Parking, LLC (a company indirectly owned by Don H.
Barden, Chairman and CEO of the Company) to construct and operate the 2,000
space covered parking garage. BHPA opened the parking garage in June 2002. The
Company and the Joint Venture Partner each entered into identical leases with
BHPA with lease payments sufficient to service the debt incurred by BHPA to
construct the parking garage. Each party is required to make monthly lease
payments equal to 50 percent of BHPA's debt service requirement for the
following month. In the event that the Joint Venture Partner fails to make its
lease payment for any given month, upon notice by BHPA, the Company is obligated
to make additional lease payment for such month equal to the remaining 50
percent of BHPA's debt service requirement.
9
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 8. SEGMENT INFORMATION
The Company owns and operates four properties as follows: a riverboat
casino located in Gary, Indiana; a casino and hotel located in downtown Las
Vegas, Nevada; a casino and hotel located in Tunica, Mississippi; and a casino
located in Black Hawk, Colorado (collectively, the "Properties"). The Company
identifies its business in four segments based on geographic location. The
Properties, in each of their segments, market primarily to middle-income slot
customers. The major products offered in each segment are as follows: casino,
hotel rooms (except in Gary, Indiana and Black Hawk, Colorado) and food and
beverage.
The accounting policies of each business segment are the same as those
described in the summary of significant accounting policies previously described
in Note 1 to the audited financial statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2001. There are minimal
inter-segment sales. Corporate costs are allocated to the business segment
through a management service fee from Majestic Star and are fully reflected in
the expense line titled "General and Administrative" expenses.
A summary of the Properties' operations by business segment for the
three and nine months ended September 30, 2002 and 2001 is presented below (in
thousands):
10
FOR THE AS OF AND FOR THE
(a) (a)
THREE MONTHS ENDED THREE MONTHS ENDED NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2002 SEPTEMBER 30, 2001 SEPTEMBER 30, 2002 SEPTEMBER 30, 2001
------------------------------------------------------------------------------
Net revenues:
Majestic Star Casino $33,510 $30,013 $ 94,268 $ 91,542
Fitzgeralds Tunica 22,409 21,113 66,515 63,176
Fitzgeralds Black Hawk 9,062 9,525 24,969 25,916
Fitzgeralds Las Vegas 11,835 12,675 37,521 40,600
------------------------------------------------------------------
$76,816 $73,326 $ 223,273 $221,234
-------------------------------------------------------------------
Income (loss) from operations:
Majestic Star Casino $ 5,450 $ 4,412 $ 16,027 $ 13,332
Fitzgeralds Tunica 3,867 5,249 11,812 15,579
Fitzgeralds Black Hawk 2,254 2,649 5,037 6,217
Fitzgeralds Las Vegas (922) (281) (1,341) 2,227
Unallocated and other(1) (666) 980 (2,074) (21)
-------------------------------------------------------------------
$ 9,983 $13,009 $ 29,461 $ 37,334
-------------------------------------------------------------------
Segment depreciation and amortization
Majestic Star Casino $ 1,730 $ 1,993 $ 5,084 $ 6,440
Fitzgeralds Tunica 1,866 -- 5,481 --
Fitzgeralds Black Hawk 364 -- 1,091 --
Fitzgeralds Las Vegas 938 -- 2,203 --
Unallocated and other(1) 657 -- 1,930 --
-------------------------------------------------------------------
$ 5,555 $ 1,993 $ 15,789 $ 6,440
-------------------------------------------------------------------
Expenditures for additions to long-lived assets:
Majestic Star Casino $ 772 $ 3,129 4,276 $ 4,824
Fitzgeralds Tunica 324 97 1,820 627
Fitzgeralds Black Hawk 524 3 963 156
Fitzgeralds Las Vegas 335 13 1,135 161
-------------------------------------------------------------------
$ 1,955 $ 3,242 $ 8,194 $ 5,768
-------------------------------------------------------------------
Segment assets:
Majestic Star Casino $ 118,011
Fitzgeralds Tunica 89,832
Fitzgeralds Black Hawk 30,896
Fitzgeralds Las Vegas 43,464
Unallocated and other(1) 147,358
---------
$ 429,561
Less: intercompany (143,276)
---------
$ 286,285
---------
Goodwill:
Majestic Star Casino $ --
Fitzgeralds Tunica 3,998
Fitzgeralds Black Hawk 1,524
Fitzgeralds Las Vegas --
---------
$ 5,522
---------
(1) Unallocated and other include corporate items and eliminations that are
not allocated to the operating segments.
(a) The segment information provided for the Fitzgeralds properties is
derived from prior year consolidated financial information provided by
the predecessor company and is for the quarter and three quarters ended
September 30, 2001.
11
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 9. RELATED PARTY TRANSACTIONS
During the nine months ended September 30, 2002, the Company made
distributions of approximately $976,000 to Barden Development, Inc. ("BDI").
These distributions were made in accordance with the Management Agreement
between the Company and BDI dated June 18, 1999.
During the nine months ended September 30, 2002, Majestic Investor
Holdings, LLC made distributions of approximately $1,844,000 to BDI. These
distributions were made in accordance with the Management Agreement between
Majestic Investor Holdings, LLC and BDI dated December 5, 2001.
In December 2001, Majestic Investor Holdings, LLC issued a $700,000
note to BDI. The note bears interest at a rate of 7% per annum and is due and
payable in full on December 12, 2002.
NOTE 10. EMPLOYEE LOANS
During 2001, The Majestic Star Casino, LLC made a $300,000 employee
loan to Mr. Barden. This loan bears interest at a rate of 7% per annum and is
due and payable in full on December 12, 2002.
On January 31, 2002, The Majestic Star Casino, LLC made a $200,000
employee loan to Mr. Kelly. This loan bears no interest and is due and payable
in full on January 31, 2005.
NOTE 11. SUPPLEMENTAL FINANCIAL INFORMATION
The Company's $130.0 million, 10 7/8% Senior Secured Notes are secured
by substantially all of the assets of the Majestic Star Casino, but not the
assets of Majestic Investor Holdings, LLC and its wholly-owned subsidiaries
which include the three Fitzgeralds' casino properties acquired on December 6,
2001.
Majestic Investor Holdings, LLC's $152.6 million, 11.653% Senior
Secured Notes are unconditionally and irrevocably guaranteed, jointly and
severally, by all of the restricted subsidiaries (the "Guarantor Subsidiaries")
of Majestic Investor Holdings, LLC. The guarantees rank senior in right of
payment to all existing and future subordinated indebtedness of these restricted
subsidiaries and equal in right of payment with all existing and future senior
indebtedness of these restricted subsidiaries.
The following condensed consolidating information presents condensed
consolidating balance sheets as of September 30, 2002 and December 31, 2001, and
condensed consolidating statements of operations for the three and nine months
ended September 30, 2002 and 2001, and condensed consolidating statements of
cash flows for the nine months ended September 30, 2002 and 2001 for The
Majestic Star Casino, LLC, Majestic Investor Holdings, LLC, and the restricted
12
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 11. SUPPLEMENTAL FINANCIAL INFORMATION (CONTINUED)
subsidiaries of Majestic Investor Holdings, LLC (on a combined and individual
basis) and the elimination entries necessary to combine such entities on a
consolidated basis. The Majestic Star Casino Capital Corp. ("MSCCC") and
Majestic Investor, LLC, wholly-owned subsidiaries of The Majestic Star Casino,
LLC, and Majestic Investor Capital Corp. ("MICC"), a wholly-owned subsidiary of
Majestic Investor, LLC, do not have any material assets, obligations or
operations. Therefore, no information has been presented below for these
subsidiaries.
13
Condensed consolidating balance sheets as of September 30, 2002 (Unaudited)
Majestic Star Majestic Investor Guarantor Eliminating Total
Casino, LLC Holdings, LLC Subsidiaries Entries Consolidated
ASSETS
Current Assets:
Cash and cash equivalents $ 10,673,090 $ 6,309,143 $ 15,357,080 $ $ 32,339,313
Accounts receivable (net) 1,813,221 43,919 1,141,401 2,998,541
Inventories 48,567 -- 809,934 858,501
Prepaid expenses and other current assets 1,691,006 4,863,078 1,704,102 (4,168,338)(a) 4,089,848
--------------------------------------------------------------------------------
Total current assets 14,225,884 11,216,140 19,012,517 (4,168,338) 40,286,203
--------------------------------------------------------------------------------
Property, equipment and vessel improvements, net 47,838,933 -- 119,007,950 166,846,883
Intangible assets, net -- -- 18,090,497 18,090,497
Due from related parties 992,165 129,116,043 -- (130,108,208)(b) --
Investment in Buffington Harbor Riverboats, L.L.C 32,131,035 -- -- 32,131,035
Other assets 13,822,890 7,025,837 8,081,669 28,930,396
Investment in subsidiaries 10,606,903 16,459,909 -- (27,066,812)(b) --
--------------------------------------------------------------------------------
Total Assets $119,617,810 $163,817,929 $164,192,633 $(161,343,358) $286,285,014
================================================================================
LIABILITIES AND MEMBERS' DEFICIT
Current Liabilities:
Current maturities of long-term debt $ -- $ -- $ 142,714 $ $ 142,714
Accounts payable, accrued and other 10,331,039 6,176,822 14,164,670 30,672,531
--------------------------------------------------------------------------------
Total current liabilities 10,331,039 6,176,822 14,307,384 -- 30,815,245
--------------------------------------------------------------------------------
Due to related parties -- 992,165 133,284,381 (134,276,546)(a)(b) --
Long-term debt, net of current maturities 128,798,986 146,042,039 140,959 274,981,984
--------------------------------------------------------------------------------
Total Liabilities 139,130,025 153,211,026 147,732,724 (134,276,546) 305,797,229
Commitments and contingencies
Members' Equity (Deficit): (19,512,215) 10,606,903 16,459,909 (27,066,812)(b) (19,512,215)
--------------------------------------------------------------------------------
Total Liabilities and Member's Equity (Deficit) $119,617,810 $163,817,929 $164,192,633 $(161,343,358) $286,285,014
================================================================================
(a) To eliminate intercompany receivables and payables.
(b) To eliminate intercompany accounts and investment in subsidiaries.
14
Condensed consolidating balance sheets as of December 31, 2001
Majestic Star Majestic Investor Guarantor Eliminating Total
Casino, LLC Holdings, LLC Subsidiaries Entries Consolidated
ASSETS
Current Assets:
Cash and cash equivalents $ 8,220,476 $ 498,363 $ 17,206,452 $ $ 25,925,291
Accounts receivable, net 1,642,462 269,501 1,196,044 (28,484)(a) 3,079,523
Inventories 38,144 -- 957,564 995,708
Prepaid expenses and other current assets 1,213,056 707,467 1,303,570 -- 3,224,093
------------------------------------------------------------------------------
Total current assets 11,114,138 1,475,331 20,663,630 (28,484) 33,224,615
------------------------------------------------------------------------------
Property and equipment, net 47,767,051 -- 122,427,962 170,195,013
Intangible assets, net -- -- 19,290,753 19,290,753
Due from related parties 1,177,829 150,855,685 -- (152,033,514)(b) --
Investment in Buffington Harbor Riverboats, L.L.C 33,898,771 -- -- 33,898,771
Other assets 14,869,249 14,545,956 5,025,618 9,557 (a) 34,450,380
Investment in subsidiaries 12,532,295 935,731 -- (13,468,026)(b) --
------------------------------------------------------------------------------
Total Assets $121,359,333 $167,812,703 $167,407,963 $(165,520,467) $291,059,532
==============================================================================
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
Current Liabilities:
Current maturities of long-term debt $ -- $ 6,500,000 $ 156,574 $ $ 6,656,574
Accounts payable, accrued and other 12,784,191 2,526,703 15,195,545 (18,927)(a) 30,487,512
------------------------------------------------------------------------------
Total current liabilities 12,784,191 9,026,703 15,352,119 (18,927) 37,144,086
------------------------------------------------------------------------------
Due to related parties -- 1,168,273 150,865,241 (152,033,514)(b) --
Long-term debt, net of current maturities 128,556,629 145,085,432 254,872 273,896,933
------------------------------------------------------------------------------
Total Liabilities 141,340,820 155,280,408 166,472,232 (152,052,441) 311,041,019
Commitments and contingencies -- -- -- -- --
Members' Equity (Deficit): (19,981,487) 12,532,295 935,731 (13,468,026)(b) (19,981,487)
------------------------------------------------------------------------------
Total Liabilities and Member's Equity (Deficit) $ 121,359,333 $ 167,812,703 $ 167,407,963 $(165,520,467) $291,059,532
==============================================================================
(a) To eliminate intercompany receivables and payables.
(b) To eliminate intercompany accounts and investment in subsidiaries.
15
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2002
(UNAUDITED)
MAJESTIC STAR MAJESTIC INVESTOR GUARANTOR ELIMINATING
CASINO, LLC HOLDINGS, LLC SUBSIDIARIES ENTRIES CONSOLIDATED
REVENUES:
Casino $35,847,438 $ -- $41,842,819 $ -- $ 77,690,257
Rooms -- -- 3,809,375 -- 3,809,375
Food and beverage 404,204 -- 4,936,422 -- 5,340,626
Other 501,110 -- 1,027,702 -- 1,528,812
---------------------------------------------------------------------------------
Gross Revenues 36,752,752 -- 51,616,318 -- 88,369,070
less promotional allowances (3,242,480) -- (8,310,465) -- (11,552,945)
---------------------------------------------------------------------------------
Net Revenues 33,510,272 -- 43,305,853 -- 76,816,125
COSTS AND EXPENSES:
Casino 6,619,298 -- 15,071,737 -- 21,691,035
Rooms -- -- 2,342,772 -- 2,342,772
Food and beverage 571,153 -- 2,864,833 -- 3,435,986
Other -- -- 396,134 -- 396,134
Gaming taxes 8,927,379 -- 4,981,141 -- 13,908,520
Advertising and promotion 2,258,415 -- 2,850,918 -- 5,109,333
General and administrative 6,882,000 8,175 6,421,340 -- 13,311,515
Economic incentive - City of Gary 1,072,350 -- -- -- 1,072,350
Depreciation and amortization 1,730,000 657,668 3,167,672 -- 5,555,340
Loss on disposal of assets -- -- 9,889 -- 9,889
---------------------------------------------------------------------------------
Total costs and expenses 28,060,595 665,843 38,106,436 -- 66,832,874
---------------------------------------------------------------------------------
Operating income 5,449,677 (665,843) 5,199,417 -- 9,983,251
OTHER INCOME (EXPENSE):
Loss on investment in
Buffington Harbor Riverboats, L.L.C (600,304) -- -- -- (600,304)
Interest income 23,992 19,190 14,030 -- 57,212
Interest expense (3,608,999) (4,454,389) (8,574) -- (8,071,962)
Other non-operating expense (38,593) (10,931) -- -- (49,524)
Equity in net income (loss)
of subsidiaries 92,900 5,204,873 -- (5,297,773)(a) --
---------------------------------------------------------------------------------
Total other income (expense) (4,131,004) 758,743 5,456 (5,297,773) (8,664,578)
Net income (loss) $ 1,318,673 $ 92,900 $ 5,204,873 $(5,297,773) $ 1,318,673
=================================================================================
(a) To eliminate equity in net income of subsidiaries.
16
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2001
(UNAUDITED)
UNRESTRICTED
PARENT SUBSIDIARY CONSOLIDATED
REVENUES:
Casino $30,881,266 $ -- $30,881,266
Food and beverage 384,987 -- 384,987
Other 449,846 -- 449,846
------------------------------------------------
Gross Revenues 31,716,099 -- 31,716,099
less promotional allowances (1,702,574) -- (1,702,574)
------------------------------------------------
Net Revenues 30,013,525 -- 30,013,525
COSTS AND EXPENSES:
Casino 5,954,375 -- 5,954,375
Food and beverage 578,333 -- 578,333
Gaming taxes 8,638,565 -- 8,638,565
Advertising and promotion 1,829,984 -- 1,829,984
General and administrative 5,680,669 17,582 5,698,251
Economic incentive - City of Gary 926,963 -- 926,963
Depreciation and amortization 1,992,645 -- 1,992,645
------------------------------------------------
Total costs and expenses 25,601,534 17,582 25,619,116
------------------------------------------------
Operating income 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)
================================================
17
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2002
(UNAUDITED)
MAJESTIC STAR MAJESTIC INVESTOR GUARANTOR ELIMINATING
CASINO, LLC HOLDINGS, LLC SUBSIDIARIES ENTRIES CONSOLIDATED
REVENUES:
Casino $ 98,626,635 $ -- $124,623,910 $ -- $223,250,545
Rooms -- -- 11,836,762 -- 11,836,762
Food and beverage 1,239,364 -- 14,917,985 -- 16,157,349
Other 1,446,292 -- 2,894,987 -- 4,341,279
----------------------------------------------------------------------------------
Gross Revenues 101,312,291 -- 154,273,644 -- 255,585,935
less promotional allowances (7,044,482) -- (25,268,138) -- (32,312,620)
----------------------------------------------------------------------------------
Net Revenues 94,267,809 -- 129,005,506 -- 223,273,315
COSTS AND EXPENSES:
Casino 18,329,449 -- 45,198,684 -- 63,528,133
Rooms -- -- 6,784,231 -- 6,784,231
Food and beverage 1,625,960 -- 8,571,704 -- 10,197,664
Other -- -- 1,171,573 -- 1,171,573
Gaming taxes 26,153,991 -- 14,779,970 -- 40,933,961
Advertising and promotion 5,335,363 -- 9,904,546 -- 15,239,909
General and administrative 18,761,477 19,878 18,301,918 -- 37,083,273
Economic incentive - City of Gary 2,959,492 -- -- -- 2,959,492
Depreciation and amortization 5,083,954 1,930,193 8,775,312 -- 15,789,459
(Gain)/loss on disposal of assets (8,850) -- 9,311 -- 461
Pre-opening expenses -- 124,269 -- -- 124,269
----------------------------------------------------------------------------------
Total costs and expenses 78,240,836 2,074,340 113,497,249 -- 193,812,425
----------------------------------------------------------------------------------
Operating income 16,026,973 (2,074,340) 15,508,257 -- 29,460,890
OTHER INCOME (EXPENSE):
Loss on investment in
Buffington Harbor Riverboats, L.L.C (1,808,204) -- -- -- (1,808,204)
Interest income 40,158 53,988 41,036 -- 135,182
Interest expense (10,784,602) (13,546,708) (25,113) -- (24,356,423)
Other non-operating expense (103,509) (38,306) -- -- (141,815)
Equity in net income (loss) of subsidiaries (81,186) 15,524,180 -- (15,442,994)(a) --
----------------------------------------------------------------------------------
Total other income (expense) (12,737,343) 1,993,154 15,923 (15,442,994) (26,171,260)
Net income (loss) $ 3,289,630 $ (81,186) $ 15,524,180 $(15,442,994) $ 3,289,630
==================================================================================
(a) To eliminate equity in net income of subsidiaries.
18
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2001
(UNAUDITED)
UNRESTRICTED
PARENT SUBSIDIARY CONSOLIDATED
REVENUES:
Casino $ 93,812,489 $ -- $ 93,812,489
Food and beverage 1,210,326 -- 1,210,326
Other 1,317,041 -- 1,317,041
------------------------------------------------
Gross Revenues 96,339,856 -- 96,339,856
less promotional allowances (4,798,170) -- (4,798,170)
------------------------------------------------
Net Revenues 91,541,686 -- 91,541,686
COSTS AND EXPENSES:
Casino 18,126,914 -- 18,126,914
Food and beverage 1,764,562 -- 1,764,562
Gaming taxes 26,148,146 -- 26,148,146
Advertising and promotion 5,335,866 -- 5,335,866
General and administrative 17,566,287 21,470 17,587,757
Economic incentive - City of Gary 2,815,998 -- 2,815,998
Depreciation and amortization 6,439,641 -- 6,439,641
Loss on disposal of assets 12,114 -- 12,114
------------------------------------------------
Total costs and expenses 78,209,528 21,470 78,230,998
------------------------------------------------
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
================================================
19
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2002 (UNAUDITED)
MAJESTIC STAR MAJESTIC INVESTOR GUARANTOR ELIMINATING CONSOLIDATED
CASINO, LLC HOLDINGS, LLC SUBSIDIARIES ENTRIES TOTAL
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: $ 7,308,679 $(10,568,902) $ 22,405,364 $ 3,045,497(a) $ 22,190,638
--------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition related costs -- (986,158) -- -- (986,158)
Proceeds from seller from purchase price adjustment -- 3,800,000 -- -- 3,800,000
Acquisition of property and equipment (4,276,313) -- (3,918,301) -- (8,194,614)
Increase in prepaid leases and deposits 428,005 -- -- -- 428,005
Investment in Buffington Harbor Riverboats, L.L.C (40,455) -- -- (40,455)
Proceeds from sale of equipment 8,850 -- 43,867 -- 52,717
--------------------------------------------------------------------------
Net cash provided by (used in) investing activities (3,879,913) 2,813,842 (3,874,434) -- (4,940,505)
--------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of 11.653% Senior Secured Notes issuance costs -- (1,410,945) -- -- (1,410,945)
Line of credit, net -- (6,500,000) -- -- (6,500,000)
Cash advances to/from affiliates -- 23,320,999 (20,275,494) (3,045,497)(a) --
Cash paid to reduce long-term debt -- -- (104,808) -- (104,808)
Distribution to Barden Development, Inc. (976,152) (1,844,206) -- -- (2,820,358)
--------------------------------------------------------------------------
Net cash provided by (used in) financing activities (976,152) 13,565,840 (20,380,302) (3,045,497) (10,836,111)
--------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 2,452,614 5,810,780 (1,849,372) -- 6,414,022
Cash and cash equivalents, beginning of period 8,220,476 498,363 17,206,452 -- 25,925,291
--------------------------------------------------------------------------
Cash and cash equivalents, end of period $10,673,090 $ 6,309,143 $ 15,357,080 $ -- $ 32,339,313
--------------------------------------------------------------------------
(a) To eliminate intercompany receivables and payables.
20
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2001 (UNAUDITED)
UNRESTRICTED
PARENT SUBSIDIARY CONSOLIDATED
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
------------------------------------------------
NOTE 12. SUBSEQUENT EVENTS
At September 30, 2002, Majestic Star employed approximately 1,035
persons and the BHR Joint Venture ("BHR") employed approximately 234 persons.
Majestic Star and BHR have collective bargaining agreements with Local 1 of the
Hotel Employees and Restaurant Employees International Union ("H.E.R.E.")
covering approximately 66 employees of Majestic Star and approximately 110
employees of the BHR Joint Venture. Majestic Star's H.E.R.E. members are
exclusively in food and beverage positions. The agreements expired on June 30,
2001 and a new agreement was ratified on November 6, 2002 and expires on October
31, 2004 for Majestic Star employees. The annual incremental cost of the
contract is approximately $50,000 per year and the average annual wage increase
is 3.3% for the total bargaining unit. The agreement also includes retroactive
pay of approximately $49,000 for all employees that were on the payroll as of
the date of ratification. BHR's agreement is currently being negotiated.
On October 17, 2002, Majestic Investor Holdings, LLC redeemed
$865,000 of its 11.653% Senior Secured Notes at a discount to par of 87 3/4%,
plus accrued interest of $38,359.
21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
STATEMENT OF FORWARD-LOOKING INFORMATION
This quarterly report includes statements that constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, and are subject to the safe harbor provisions of those sections and
the Private Securities Litigation Reform Act of 1995. Words such as "believes,"
"anticipates," "estimates", "plans", "intends", "will", "could", or "expects"
used in the Company's press releases and reports filed with the Securities and
Exchange Commission are intended to identify forward-looking statements. All
forward-looking statements involve risks and uncertainties. Although the Company
believes its expectations are based upon reasonable assumptions within the
bounds of its current knowledge of its business and operations, there can be no
assurances that actual results will not materially differ from expected results.
The Company cautions that these and similar statements included in this report
and in previously filed periodic reports are further qualified by important
factors that could cause actual results to differ materially from those in the
forward-looking statements. Such factors include, without limitation, the
following: the risk of the Joint Venture Partner not making its lease payments
when due in connection with the parking facility constructed at the Company's
gaming complex; the ability to fund planned development needs and to service
debt from existing operations; increased competition in existing markets or the
opening of new gaming jurisdictions; a decline in the public acceptance of
gaming; the limitation, conditioning or suspension of the Company's gaming
license; increases in or new taxes imposed on gaming revenues; admission taxes;
taxes on gaming devices; a finding of unsuitability by regulatory authorities
with respect to the Company or its officers, or key employees; loss and/or
retirement of key executives; a significant increase in fuel or transportation
prices; adverse economic conditions in the Company's markets; severe and unusual
weather in the Company's markets; non-renewal of the Company's or any of its
operating subsidiaries' gaming license from the appropriate regulatory
authorities; adverse results of significant litigation matters; and future
occurrences of terrorist attacks or other destabilizing events.
We caution readers not to place undue reliance on forward-looking
statements, which speak only as of the date thereof. All subsequent written and
oral forward-looking statements attributable to us are expressly qualified in
their entirety by the cautionary statements and factors that may affect future
results contained throughout this report. The Company undertakes no obligation
to publicly release any revisions to such forward-looking statements to reflect
events or circumstances after the date hereof.
The following discussion should be read in conjunction with, and is
qualified in its entirety by, our financial statements, including the notes
thereto listed in Item 1.
OVERVIEW
The Majestic Star Casino ("Majestic Star"), the Company's riverboat
gaming facility located in Gary, Indiana, has been owned and operated by the
Company since 1996. On December 6, 2001, the Company, through certain
"unrestricted subsidiaries," acquired three Fitzgeralds brand casino-hotels.
22
The Company's 10 7/8% Senior Secured Notes (the "Notes") are secured
primarily by the assets of the riverboat casino. The Fitzgeralds assets are held
by the "unrestricted subsidiaries" and excluded from the collateral securing the
Notes. As the Company's noteholders have no recourse to the Fitzgeralds assets,
Management's Discussion and Analysis of Financial Condition and Results of
Operations focuses primarily on the results of the Majestic Star Casino as well
as the Company and its subsidiaries on a consolidated basis. For a discussion of
the results of the Fitzgeralds properties, please refer to the Majestic Investor
Holdings, LLC Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 2002, as filed with the Securities and Exchange Commission (the
"Investor Holdings 10-Q").
The gaming operations of Majestic Star may be affected by inclement
weather in the Chicago metropolitan market. Due to the climate in the Chicago
metropolitan area, Majestic Star's operations are expected to be seasonal with
stronger results generally expected during the period from May through
September. Accordingly, the Company's results of operations are expected to
fluctuate from quarter to quarter and the results for any fiscal quarter may not
be indicative of results for future fiscal quarters.
At September 30, 2002, Majestic Star employed approximately 1,035
persons and the BHR Joint Venture ("BHR") employed approximately 234 persons.
Majestic Star and BHR have collective bargaining agreements with Local 1 of the
Hotel Employees and Restaurant Employees International Union ("H.E.R.E.")
covering approximately 66 employees of Majestic Star and approximately 110
employees of the BHR Joint Venture. Majestic Star's H.E.R.E. members are
exclusively in food and beverage positions. The agreements expired on June 30,
2001 and a new agreement was ratified on November 6, 2002 and expires on October
31, 2004 for Majestic Star employees. The annual incremental cost of the
contract is approximately $50,000 per year and the average annual wage increase
is 3.3% for the total bargaining unit. The agreement also includes retroactive
pay of approximately $49,000 for all employees that were on the payroll as of
the date of ratification. BHR's agreement is currently being negotiated.
On October 18, 2002, Jon Bennett was named as the Company's Vice
President and Chief Financial Officer. Mr. Bennett will oversee all aspects of
the Company's financial management, accounting and reporting processes for its
four casinos and two hotels.
RESULTS OF OPERATIONS
The following discussion provides a comparison of the results of
operations of Majestic Star, and the Company and its subsidiaries on a
consolidated basis, for the three and nine month periods ended September 30,
2002, with the three and nine month periods ended September 30, 2001. On a
consolidated basis, gross revenues increased approximately $56,653,000 and
$159,246,000 (or 178.6% and 165.3%) to approximately $88,369,000 and
$255,586,000 during the three and nine months ended September 30, 2002, compared
to $31,716,000 and $96,340,000 during the three and nine months ended September
30, 2001. Such increase is primarily the result of the acquisition of the
Fitzgeralds casino properties on December 6, 2001.
The following table sets forth information derived from the Company's
consolidated statements of income for the three and nine months ended September
30, 2002 and 2001, expressed as a percentage of gross revenues.
23
CONSOLIDATED STATEMENTS OF OPERATIONS - SUMMARY INFORMATION
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
2002 2001 2002 2001
-------------------------------- -------------------------------
Gross Revenues $88,369 $31,716 $255,586 $96,340
Operating Income $ 9,983 $ 4,394 $ 29,461 $13,311
Adjusted EBITDA(1) $15,770 $ 6,387 $ 45,597 $19,762
CONSOLIDATED STATEMENTS OF OPERATIONS - PERCENTAGE OF GROSS REVENUES
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
2002 2001 2002 2001
-------------------------------- -------------------------------
REVENUES:
Casino 87.9% 97.4% 87.4% 97.3%
Rooms 4.3% -% 4.6% -%
Food and beverage 6.1% 1.2% 6.3% 1.3%
Other 1.7% 1.4% 1.7% 1.4%
----------------------------- -----------------------------
Gross Revenues 100.0% 100.0% 100.0% 100.0%
less promotional allowances (13.1)% (5.4)% (12.6)% (5.0)%
----------------------------- -----------------------------
Net Revenues 86.9% 94.6% 87.4% 95.0%
COSTS AND EXPENSES:
Casino 24.5% 18.8% 24.9% 18.8%
Rooms 2.7% -% 2.7% -%
Food and beverage 3.9% 1.8% 4.0% 1.8%
Other 0.4% -% 0.5% -%
Gaming taxes 15.7% 27.2% 16.0% 27.1%
Advertising and promotion 5.8% 5.8% 6.0% 5.5%
General and administrative 15.1% 18.0% 14.5% 18.3%
Economic incentive - City of Gary 1.2% 2.9% 1.2% 2.9%
Depreciation and amortization 6.3% 6.3% 6.2% 6.7%
(Gain)/loss on disposal of assets 0.0% -% 0.0% 0.0%
Pre-opening expenses -% -% 0.0% -%
----------------------------- -----------------------------
Total costs and expenses 75.6% 80.8% 76.0% 81.1%
----------------------------- -----------------------------
Operating income 11.3% 13.8% 11.4% 13.9%
OTHER INCOME (EXPENSE):
Loss on investment in
Buffington Harbor Riverboats, L.L.C (0.7)% (2.0)% (0.7)% (2.3)%
Interest income 0.1% 0.3% 0.1% 0.3%
Interest expense (9.1)% (12.2)% (9.5)% (11.5)%
Other non-operating expense (0.1)% (0.1)% (0.1)% (0.1)%
----------------------------- -----------------------------
Total other income (expense) (9.8)% (14.0)% (10.2)% (13.6)%
Net income (loss) 1.5% (0.2)% 1.2% 0.3%
============================= =============================
Adjusted EBITDA:(1) 17.8% 20.1% 17.8% 20.5%
NOTES:
(1) Adjusted EBITDA (defined as earnings before interest, income taxes,
depreciation and amortization, (gain)/loss on sale of assets, other
non-operating expenses and excluding pre-opening costs associated with the
acquisition of the Fitzgeralds casinos, reorganization items related to
the bankruptcy of the predecessor company and approximately $222,000 for
severance payments associated with dockside gaming) is presented solely as
a supplemental disclosure to assist in the evaluation of the Company's
ability to generate cash flow. In particular, the Company believes that an
analysis of Adjusted EBITDA enhances the understanding of the financial
performance of companies with substantial depreciation and amortization.
Results from any one or more periods are not necessarily indicative of
annual results or continuing trends.
24
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
Consolidated gross revenues for the three months ended September 30,
2002 amounted to approximately $88,369,000, an increase of approximately
$56,653,000, or 178.6% from consolidated gross revenues recorded in the three
months ended September 30, 2001. The increase was principally attributable to
the acquisition of the Fitzgeralds casino properties on December 6, 2001.
Majestic Star accounted for approximately $36,753,000, or 41.6% of gross
revenues for the three months ended September 30, 2002, which reflects an
increase of approximately $5,037,000 in Majestic Star's revenues on an
unconsolidated basis, or 15.9%, compared to the three months ended September 30,
2001. Effective August 5, 2002, Majestic Star commenced dockside gaming.
Dockside gaming eliminates the requirement to cruise and provides the guests
with continual access to the riverboat casino. The $5,037,000, or 15.9%,
increase in gross revenues at Majestic Star was primarily attributable to a
$4,926,000, or 18.8%, increase in slot revenues which resulted from increased
patronage after the commencement of dockside gaming and the recent opening of
the 2000 space parking garage at the gaming facility.
The Company's business can be separated into four operating
departments: casino, hotel rooms (except Fitzgeralds Black Hawk and Majestic
Star), food and beverage and other. Consolidated casino revenues for the three
months ended September 30, 2002 totaled approximately $77,690,000, of which slot
machines accounted for approximately $68,549,000, or 88.2%, and table games
accounted for approximately $9,141,000, or 11.8%. Majestic Star's casino
revenues during the three months ended September 30, 2002 totaled approximately
$35,847,000, an increase of approximately $4,966,000, or 16.1%, of which slot
machines accounted for approximately $31,105,000, or 86.8%, and table games
accounted for approximately $4,742,000, or 13.2%. The average number of slot
machines in operation at Majestic Star increased to 1,546 during the three
months ended September 30, 2002, from 1,420 during the three months ended
September 30, 2001. The average win per slot machine per day at Majestic Star
increased to approximately $219 for the three months ended September 30, 2002,
from approximately $200 during the three months ended September 30, 2001. The
average number of table games in operation at Majestic Star during the three
months ended September 30, 2002 and 2001, was 54 and 49, respectively. The
average win per table game per day during the three months ended September 30,
2002 decreased to approximately $961, compared to approximately $1,043 during
the three months ended September 30, 2001. The average daily win per patron was
approximately $58 during the three months ended September 30, 2002, compared to
an average daily win per patron of $66 for the three months ended September 30,
2001.
Consolidated hotel room revenues totaled $3,809,000, or 4.3% of the
gross revenues for the three months ended September 30, 2002 and was attributed
to operations of two of the Fitzgeralds properties. Majestic Star does not
operate a hotel.
Consolidated food and beverage revenues for the three months ended
September 30, 2002 totaled approximately $5,341,000, or 6.1% of gross revenues,
compared to approximately $385,000, or 1.2% of gross revenues for the three
months ended September 30, 2001. Majestic Star accounted for approximately
$404,000, or 7.6% of consolidated food and beverage revenues for the three
months ended September 30, 2002, which reflects an increase of approximately
$19,000 in such revenues at Majestic Star, or 4.9%, compared to the three months
ended September 30, 2001.
Consolidated other revenues for the three months ended September 30,
2002 totaled approximately $1,529,000, or 1.7% of consolidated gross revenues,
compared to approximately $450,000, or 1.4% of consolidated gross revenues
during the three months ended September 30, 2001. Majestic Star accounted for
approximately $501,000, or 32.8% of consolidated other
25
revenues for the three months ended September 30, 2002, an increase of $51,000,
or 11.4%, compared to the three months ended September 30, 2001. Other revenue
at Majestic Star consisted primarily of commission income.
Consolidated promotional allowances deducted from the Company's
consolidated gross revenues for the three months ended September 30, 2002 and
2001 were approximately $11,553,000, or 13.1% of consolidated gross revenues,
and $1,703,000, or 5.4% of consolidated gross revenues, respectively. Of this
amount, Majestic Star accounted for approximately $3,242,000, or 28.1% of
consolidated promotional allowances, an increase of $1,539,000, or 90.4%,
compared to the three months ended September 30, 2001. The increase in
promotional allowances is primarily attributed to a 21.2 % increase in rated
slot play and associated incentives. Promotional allowances provided to the
Majestic Star's gaming patrons at facilities located in and/or owned by BHR for
the three months ended September 30, 2002 and 2001 were approximately $285,000
and $197,000, respectively, and are characterized in the financial statements as
an expense. BHR and other third party operators of food kiosks invoice the
Company monthly for these promotional allowances at cost, which approximates
retail value.
Consolidated casino operating expenses for the three months ended
September 30, 2002 totaled approximately $21,691,000, or 24.5% of consolidated
gross revenues and 27.9% of consolidated casino revenues, respectively, compared
to approximately $5,954,000, or 18.8% of gross revenues and 19.3% of casino
revenues, respectively, for the three months ended September 30, 2001. These
expenses were primarily comprised of salaries, wages and benefits, and operating
expenses of the casinos. Majestic Star's casino operating expenses accounted for
approximately $6,619,000, or 18.0% of Majestic Star gross revenues and 18.5% of
Majestic Star casino revenues, compared to approximately $5,954,000, or 18.8% of
Majestic Star gross revenues and 19.3% of Majestic Star casino revenues,
respectively, for the three months ended September 30, 2001.
Consolidated gaming taxes totaled approximately $13,909,000 for the
three months ended September 30, 2002, compared to approximately $8,639,000 for
the three months ended September 30, 2001. During the three months ended
September 30, 2002, in Indiana gaming taxes were levied on adjusted gross
receipts, as defined by Indiana gaming laws, at a flat rate of 22.5% of adjusted
gross receipts for the period July 1, 2002 through August 4, 2002. Beginning
August 5, 2002, in connection with the commencement of dockside gaming, Majestic
Star began using an effective rate to calculate gaming tax expense associated
with adjusted gross receipts. On August 5, 2002, a graduated tax structure with
a starting rate of 15% and a top rate of 35% for adjusted gross receipts in
excess of $150 million was implemented by the State of Indiana and Majestic
Star accounted for approximately $8,927,000 and $8,639,000 of gaming taxes
during the three months ended September 30, 2002 and 2001, respectively. An
additional $1,072,000 was paid during the three months ended September 30,
2002, compared to approximately $927,000 in the three months ended
September 30, 2001, to the City of Gary under an agreement whereby Majestic
Star pays 3% of the adjusted gross receipts directly to the city.
Advertising and promotion expenses included salaries, wages and
benefits of the marketing and casino service departments, as well as promotions,
advertising and special events. Consolidated advertising and promotion expenses
for the three months ended September 30, 2002 totaled approximately $5,109,000,
or 5.8% of gross revenues, compared to approximately $1,830,000, or 5.8% of
gross revenues during the three months ended September 30, 2001. Of this amount,
Majestic Star accounted for approximately $2,258,000 for the three months ended
26
September 30, 2002, and approximately $1,830,000 for the three months ended
September 30, 2001. The $428,000, or 23.4%, increase in advertising and
promotion expenses during the three months ended September 30, 2002, was
primarily the result of an increase in marketing expenditures associated with
flexible boarding and the newly opened parking garage.
Consolidated general and administrative expenses for the three months
ended September 30, 2002 were approximately $13,312,000, or 15.1% of gross
revenues, compared to $5,698,000, or 18.0% of gross revenues, during the three
months ended September 30, 2001. Majestic Star accounted for approximately
$6,882,000 for the three months ended September 30, 2002 and $5,681,000 for the
three months ended September 30, 2001. These expenses included approximately
$1,422,000 for berthing fees paid to BHR and $1,592,000 for marine operations,
including housekeeping during the three months ended September 30, 2002. The
$1,201,000, or 21.1%, increase in these expenses is primarily attributed to an
increase of approximately $390,000 for the parking garage lease, approximately
$361,000 for corporate expenses which did not exist in the prior year,
approximately $314,000 for property insurance and taxes and a special charge of
approximately $222,000 for severance payments related to implementing dockside
during the three months ended September 30, 2002.
Consolidated depreciation and amortization for the three months ended
September 30, 2002 was approximately $5,555,000, or 6.3% of gross revenues,
compared to approximately $1,993,000, or 6.3% of gross revenues, during the
three months ended September 30, 2001. Depreciation and amortization attributed
to Majestic Star for the three months ended September 30, 2002 was approximately
$1,730,000, of which approximately $1,437,000 relates to depreciation expense
and approximately $293,000 relates to amortization expense, compared to
approximately $1,993,000 during the three months ended September 30, 2001. The
dollar decrease totaled approximately $263,000, or 13.2%. The decrease for the
three months ended September 30, 2002 is primarily attributable to machinery and
equipment being fully depreciated and deferred licensing fees being fully
amortized.
Consolidated operating income for the three months ended September 30,
2002 was $9,983,000, or 11.3% of gross revenues, compared to an operating income
for the three months ended September 30, 2001 of $4,394,000, or 13.9% of gross
revenues. Operating income attributed to Majestic Star for the three months
ended September 30, 2002 was approximately $5,450,000, or 14.8% of gross
Majestic Star revenues, compared to $4,412,000, or 13.9% of gross revenues,
during the three months ended September 30, 2001. The $1,038,000, or 23.5%,
increase in operating income is principally attributed to an 11.7% increase in
net revenues and a $263,000, or 13.2%, decrease in depreciation and
amortization.
The consolidated net interest expense for the three months ended
September 30, 2002 was approximately $8,015,000, or 9.0% of gross revenues,
compared to approximately $3,791,000, or 11.9% of gross revenues for the same
period last year. Net interest expense attributed to Majestic Star for the three
months ended September 30, 2002 was approximately $3,585,000, or 9.8% of gross
revenues, compared to $3,854,000, or 12.2% of gross revenues for the same period
last year, a decrease of $269,000, or 7.0%.
The Company's loss relating to its investment in BHR, principally for
depreciation and amortization, for the three months ended September 30, 2002 and
2001, was approximately $600,000 and $637,000, respectively. Costs of
approximately $1,422,000 and $1,511,000 associated with operating BHR are
included in the operating expense line "General and Administrative" and are
fully reflected in operating income for the three months ended September 30,
2002 and 2001, respectively. Other non-operating expenses attributed to Majestic
Star of
27
$39,000 and $40,000 for the three months ended September 30, 2002 and 2001,
respectively, represent fees associated with the Majestic Star Credit Facility.
As a result of the foregoing, the Company realized consolidated net
income of approximately $1,319,000 for the three months ended September 30, 2002
compared to a consolidated net loss of approximately $74,000 during the three
months ended September 30, 2001. Majestic Star (Gary property only) realized net
income of $1,226,000 during the three months ended September 30, 2002, compared
to a net loss of $119,000 during the three months ended September 30, 2001. The
$1,345,000 increase in net income is principally attributed to an increase in
net revenues combined with a decrease as previously discussed in depreciation,
amortization and loss on investment in BHR.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
Consolidated gross revenues for the nine months ended September 30,
2002 amounted to approximately $255,586,000 an increase of approximately
$159,246,000, or 165.3%, from consolidated gross revenues recorded in the nine
months ended September 30, 2001. The increase was principally attributable to
the acquisition of the Fitzgeralds casino properties on December 6, 2001.
Majestic Star accounted for approximately $101,312,000, or 39.6% of consolidated
gross revenues for the nine months ended September 30, 2002, which reflects an
increase of $4,972,000 in Majestic Star's revenues on an unconsolidated basis
compared to the nine months ended September 30, 2001. Effective August 5, 2002,
Majestic Star commenced dockside gaming. Dockside gaming eliminates the
requirement to cruise and provides the guests with continual access to the
riverboat casino. Management believes dockside gaming will result in increased
patronage of its riverboat gaming facility.
The Company's business can be separated into four operating
departments: casino, hotel rooms (except Fitzgeralds Black Hawk and Majestic
Star), food and beverage and other. Consolidated casino revenues for the nine
months ended September 30, 2002 totaled approximately $223,251,000, of which
slot machines accounted for approximately $195,787,000, or 87.7%, and table
games accounted for approximately $27,464,000, or 12.3%. Majestic Star's casino
revenues during the nine months ended September 30, 2002 totaled approximately
$98,627,000, an increase of approximately $4,815,000, or 5.1%, of which slot
machines accounted for approximately $85,178,000, or 86.4%, and table games
accounted for approximately $13,449,000, or 13.6%. The average number of slot
machines in operation at Majestic Star increased to 1,498 during the nine months
ended September 30, 2002, from 1,426 during the nine months ended September 30,
2001. The average win per slot machine per day at Majestic Star increased
slightly to approximately $208 for the nine months ended September 30, 2002,
from approximately $203 during the nine months ended September 30, 2001. The
average number of table games in operation at Majestic Star during the nine
months ended September 30, 2002 and 2001, was 52 and 50, respectively. The
average win per table game per day during the nine months ended September 30,
2002, decreased to approximately $941 compared to approximately $1,073 during
the nine months ended September 30, 2001. The average daily win per patron was
approximately $65 during the nine months ended September 30, 2002, compared to
an average daily win per patron of $68 for the nine months ended September 30,
2001.
Consolidated hotel room revenues totaled $11,837,000, or 4.6% of the
gross revenues for the nine months ended September 30, 2002 and was attributed
to operations of two of the Fitzgeralds properties. Majestic Star does not
operate a hotel.
Consolidated food and beverage revenues for the nine months ended
September 30, 2002, totaled approximately $16,157,000, or 6.3% of gross
revenues, compared to approximately
28
$1,210,000, or 1.3% of gross revenues, for the nine months ended September 30,
2001. Majestic Star accounted for approximately $1,239,000, or 7.7% of
consolidated food and beverage revenues for the nine months ended September 30,
2002, which reflects an increase of $29,000 in such revenues at Majestic Star,
or 2.4%, compared to the nine months ended September 30, 2001.
Consolidated other revenues for the nine months ended September 30,
2002 totaled approximately $4,341,000, or 1.7% of gross revenues, compared to
approximately $1,317,000, or 1.4% of gross revenues during the nine months ended
September 30, 2001. Majestic Star accounted for approximately $1,446,000, or
33.7% of consolidated other revenues for the nine months ended September 30,
2002, an increase of $129,000, or 9.8%, compared to the nine months ended
September 30, 2001. Other revenue at Majestic Star consisted primarily of
commission income.
Consolidated promotional allowances deducted from the Company's gross
revenues for the nine months ended September 30, 2002 and 2001, were
approximately $32,313,000, or 12.6% of gross revenues, and $4,798,000, or 5.0%
of gross revenues, respectively. Of this amount, Majestic Star accounted for
approximately $7,044,000, or 21.8% of consolidated promotional allowances, an
increase of $2,246,000, or 46.8%, compared to the nine months ended September
30, 2001. The increase in promotional allowances is primarily attributed to a
7.6% increase in rated slot play and associated incentives. Promotional
allowances provided to the Majestic Star's gaming patrons at facilities located
in and/or owned by BHR for the nine months ended September 30, 2002 and 2001
were approximately $688,000 and $578,000, respectively, and are characterized in
the financial statements as an expense. BHR and other third party operators of
food kiosks invoice the Company monthly for these promotional allowances at
cost, which approximates retail value.
Consolidated casino operating expenses for the nine months ended
September 30, 2002 totaled approximately $63,528,000, or 24.9% of gross revenues
and 28.5% of casino revenues, respectively, compared to approximately
$18,127,000, or 18.8% of gross revenues and 19.3% of casino revenues,
respectively, for the nine months ended September 30, 2001. These expenses were
primarily comprised of salaries, wages and benefits, and operating expenses of
the casinos. Majestic Star's casino operating expenses accounted for
approximately $18,329,000, or 18.1% of Majestic Star gross revenues and 18.6% of
Majestic Star casino revenues, compared to approximately $18,127,000, or 18.8%
of Majestic Star gross revenues and 19.3% of Majestic Star casino revenues,
respectively, for the nine months ended September 30, 2001. The dollar increase
of approximately $202,000, or 1.1% is primarily attributed to an increase in
casino expenses of $414,000 for progressive expense, $221,000 in payroll and
related benefits and $164,000 for the cost of complementaries which was
partially offset by various operating expenses.
Consolidated gaming taxes totaled approximately $40,934,000 for the
nine months ended September 30, 2002, compared to approximately $26,148,000 for
the nine months ended September 30, 2001. During the six months ended June 30,
2002, Indiana gaming taxes were 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. During the three months ended September 30, 2002, in Indiana,
gaming taxes were levied on adjusted gross receipts, as defined by Indiana
gaming laws, at a flat rate of 22.5% of adjusted gross receipts for the period
July 1, 2002 through August 4, 2002. Beginning August 5, 2002, in connection
with the commencement of dockside gaming, Majestic Star began using an effective
rate to calculate gaming tax expense associated with adjusted gross receipts. On
August 5, 2002 a graduated tax structure with a starting rate of 15% and a top
rate of 35% for adjusted gross receipts in excess of $150 million was
implemented by the State of Indiana and Majestic Star accounted for
approximately $26,154,000 and
29
$26,148,000 of gaming taxes during the nine months ended September 30, 2002 and
2001, respectively. An additional $2,959,000 was paid during the nine months
ended September 30, 2002, compared to approximately $2,816,000 in the nine
months ended September 30, 2001, to Gary under an agreement whereby Majestic
Star pays 3% of the adjusted gross receipts directly to the City of Gary.
Consolidated advertising and promotion expenses includes salaries,
wages and benefits of the marketing and casino service departments, as well as
promotions, advertising and special events. Consolidated advertising and
promotion expenses for the nine months ended September 30, 2002 totaled
approximately $15,240,000, or 6.0% of gross revenues, compared to approximately
$5,336,000, or 5.5% of gross revenues during the nine months ended September 30,
2001. Of this amount, Majestic Star accounted for approximately $5,335,000 for
the nine months ended September 30, 2002 and approximately $5,336,000 for the
nine months ended September 30, 2001.
Consolidated general and administrative expense for the nine months
ended September 30, 2002, were approximately $37,194,000, or 14.6% of gross
revenues, compared to $17,588,000, or 18.3% of gross revenues, during the nine
months ended September 30, 2001. Majestic Star accounted for approximately
$18,761,000 for the nine months ended September 30, 2002 and $17,566,000 for the
nine months ended September 30, 2001. These expenses included approximately
$4,372,000 for berthing fees paid to BHR and $4,727,000 for marine operations,
including housekeeping during the nine months ended September 30, 2002.
Consolidated depreciation and amortization for the nine months ended
September 30, 2002, was approximately $15,789,000, or 6.2% of gross revenues,
compared to approximately $6,440,000, or 6.7% of gross revenues, during the nine
months ended September 30, 2001. Depreciation and amortization attributed to
Majestic Star for the nine months ended September 30, 2002 was approximately
$5,084,000, or 5.0% of Majestic Star's gross revenues, of which approximately
$4,204,000 is depreciation expense and approximately $880,000 is amortization
expense, compared to approximately $6,440,000, or 6.7% for the nine months ended
September 30, 2001. The dollar decrease totaled approximately $1,356,000, or
21.1% for the nine months ended September 30, 2002 and is primarily attributable
to machinery and equipment being fully depreciated and deferred licensing fees
being fully amortized.
Consolidated operating income for the nine months ended September 30,
2002 was $29,461,000, or 11.4% of gross revenues, compared to an operating
income for the nine months ended September 30, 2001 of $13,311,000, or 13.9% of
gross revenues. Operating income attributed to Majestic Star for the nine months
ended September 30, 2002 was approximately $16,027,000, or 15.8% of gross
Majestic Star revenues, compared to $13,332,000, or 13.9% of gross revenues,
during the nine months ended September 30, 2001. The $2,695,000, or 20.2%
increase in operating income is principally attributed to a $2,726,000, or 3.0%
increase in net revenues and a decrease in depreciation and amortization as
previously discussed.
The consolidated net interest expense for the nine months ended
September 30, 2002 was approximately $24,221,000, or 9.4% of gross revenues,
compared to approximately $10,790,000, or 11.2% of gross revenues for the same
period last year. Net interest expense attributed to Majestic Star for the nine
months ended September 30, 2002 was approximately $10,744,000, or 10.6% of gross
revenues, compared to $10,958,000, or 11.4% of gross revenues for the same
period last year.
The Company's loss relating to its investment in BHR, principally for
depreciation and amortization, for the nine months ended September 30, 2002 and
2001 was approximately
30
$1,808,000 and $2,186,000, respectively. Costs of approximately $4,372,000 and
$4,718,000 associated with operating BHR are included in the operating expense
line "General and Administrative" and are fully reflected in operating income
for the nine months ended September 30, 2002 and 2001, respectively. Other
non-operating expenses attributed to Majestic Star of $104,000 and $88,000 for
the nine months ended September 30, 2002 and 2001, respectively, represent fees
associated with the Majestic Star Credit Facility.
As a result of the foregoing, the Company realized consolidated net
income of approximately $3,290,000 for the nine months ended September 30, 2002
compared to consolidated net income of approximately $247,000 during the nine
months ended September 30, 2001. Majestic Star realized net income of $3,371,000
during the nine months ended September 30, 2002, compared to net income of
$101,000 during the nine months ended September 30, 2001, an increase of
$3,270,000, or 3,237.6%. The increase in net income is principally attributed to
an increase in net revenues combined with a decrease as previously discussed in
depreciation, amortization and loss on investment in BHR.
Adjusted EBITDA is presented solely as a supplemental disclosure and is
used by the Company to assist in the evaluation of the cash generating ability
of its gaming business. Consolidated Adjusted EBITDA represents earnings before
interest, income taxes, depreciation and amortization, (gain)/loss on sale of
assets, other non-operating expenses and excluding pre-opening costs associated
with the acquisition of the Fitzgeralds casinos, reorganization items related to
the bankruptcy of the predecessor company and approximately $222,000 for
severance payments associated with dockside gaming. Consolidated Adjusted EBITDA
during the three and nine months ended September 30, 2002 was approximately
$15,770,000 and $45,597,000, respectively, or 17.8% and 17.8% of gross revenues.
Adjusted EBITDA attributed to Majestic Star during the three and nine months
ended September 30, 2002 was approximately $7,401,000 and $21,324,000,
respectively, or 20.1% and 21.0% of gross Majestic Star revenues, compared to
approximately $6,405,000 and $19,784,000, respectively, or 20.2% or 20.5% of
gross Majestic Star revenues during the three and nine months ended September
30, 2001. The increases of $996,000 and $1,540,000, or 15.6% and 7.8%,
respectively, in Adjusted EBITDA at Majestic Star is primarily the result of an
increase in net revenues. The growth in net revenues and Adjusted EBITDA in the
third quarter ended September 30, 2002 is a result of dockside gaming combined
with the new 2,000 space parking garage, each of which the Company believes
resulted in increased patronage of its riverboat gaming facility. Adjusted
EBITDA for Majestic Star during the three and nine months ended September 30,
2002 and 2001 excludes loss on investment in BHR, gain or loss on disposal of
assets and certain non-operating items, including a special charge of $222,000
for severance payments related to dockside gaming. Adjusted EBITDA should be
viewed only in conjunction with all of the Company's financial data and
statements, and should not be construed as an alternative either to income from
operations (as an indicator of the Company's operating performance) or to cash
flows from operating activities as a measure of liquidity.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2002, the Company had cash and cash equivalents of
approximately $32.3 million. This amount included $21.6 million at Majestic
Investor Holdings, LLC and $10.7 million at Majestic Star. During the nine
months ended September 30, 2002, the Company's capital expenditures were
approximately $8.2 million, which included approximately $4.3 million at
Majestic Star primarily for vessel improvements and gaming equipment.
The Company has met its capital requirements to date through net cash
from operations and proceeds of $3.8 million from Fitzgeralds Gaming Corporation
related to the purchase price adjustment on certain assets and liabilities
acquired by Majestic Investor Holdings, LLC on December 6, 2001. For the nine
months ended September 30, 2002, on a consolidated basis, net cash provided by
operating activities totaled approximately $22.2 million and cash used by
investing activities totaled approximately $4.9 million, compared to net cash
provided by
31
operating activities of approximately $4.9 million and cash used by investing
activities of approximately $3.4 million, on a consolidated basis, during the
nine months ended September 30, 2001. At Majestic Star for the nine months ended
September 30, 2002, net cash provided by operating activities totaled
approximately $7.3 million and cash used by investing activities totaled
approximately $3.9 million, compared to approximately $5.6 million provided by
operating activities and $3.4 million used by investing activities, during the
nine months ended September 30, 2001. On a consolidated basis, for the nine
months ended September 30, 2002, cash used by financing activities totaled
approximately $10.8 million, compared to $6.3 million used in financing
activities during the nine months ended September 30, 2001. At Majestic Star for
the nine months ended September 30, 2002, cash used by financing activities
totaled approximately $976,000, compared to $6.3 million used in financing
activities during the nine months ended September 30, 2001. At September 30,
2002, this amount includes distributions made to Barden Development, Inc. of
$976,000 in accordance with the Management Agreement between the Company and BDI
dated June 18, 1999.
In connection with the issuance by Majestic Investor Holdings, LLC
("Majestic Investor Holdings") of $152,632,000 of unregistered 11.653% Senior
Secured Notes due 2007 (the "Unregistered Notes") on December 6, 2001, Majestic
Investor Holdings entered in a registration rights agreement pursuant to which
it agreed to file with the Securities and Exchange Commission ("SEC") a
registration statement (the "Registration Statement") to exchange up to
$152,632,000 principal amount of 11.653% Senior Secured Notes due 2007
registered under the Securities Act of 1933 (the "Registered Notes") for any and
all of its outstanding Unregistered Notes. The registration rights agreement
requires Majestic Investor Holdings to pay liquidated damages to the holders of
the Unregistered Notes if the Registration Statement was not declared effective
by the SEC on or prior to April 5, 2002. The Registration Statement was declared
effective by the SEC on August 8, 2002 and Majestic Investor Holdings is
required to pay liquidated damages pursuant to the terms of the registration
rights agreement for the period from April 6, 2002 until August 8, 2002. On May
31, 2002, in connection with the first scheduled interest payment on the
Unregistered Notes, Majestic Investor Holdings made its initial liquidated
damages payment of $61,053 to the holders of the Notes. The final liquidated
damages payment of $114,474 will be paid to the holders of the Unregistered
Notes with the next scheduled interest payment on November 30, 2002. Pursuant to
the Registration Statement, the offer to exchange the Registered Notes for any
or all of the Unregistered Notes commenced on August 8, 2002 and completed on
Friday, September 6, 2002 at 5 p.m. Eastern Standard Time. On October 17, 2002,
Majestic Investor Holdings redeemed $865,000 of the 11.653% Senior Secured Notes
at a discount to par of 87 3/4%, plus accrued interest of $38,359.
Management believes that the Company's cash flow from operations and
its current lines of credit will be adequate to meet the Company's anticipated
future requirements for working capital, its capital expenditures and scheduled
payments of interest and principal on its 10 7/8% Senior Secured Notes, lease
payments to Buffington Harbor Parking Associates, a joint venture between Trump
Indiana and AMB Parking (a company indirectly owned by Don H. Barden, Chairman
and CEO of the Company) and other permitted indebtedness for the year 2002. No
assurance can be given, however, that such proceeds and operating cash flow, in
light of increased competition, principally barge/dockside gambling in Illinois,
the purchase of certain Indiana gaming facilities by larger more recognized
brand names, and the potential of new Native American operated casinos in our
general vicinity will be sufficient for such purposes. If necessary and to the
extent permitted under the Indenture, the Company will seek additional financing
through borrowings and debt or equity financing. There can be no assurance that
additional financing, if needed, will be available to the Company, or that, if
available, the financing will be on terms favorable to the Company. In addition,
there is no assurance that the Company's estimate of its reasonably anticipated
liquidity needs is accurate or that unforeseen events will not occur, resulting
in the need to raise additional funds.
32
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In April 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 145, "Rescission of FASB statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13 and Technical Corrections" which is effective for fiscal years
beginning after May 15, 2002. SFAS No. 145 updates, clarifies, and simplifies
existing accounting pronouncements. Management does not expect SFAS No. 145 to
have a material impact on the Company's consolidated financial position, results
of operations or cash flows.
In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs
Associated with Exit or Disposal Activities" which will become effective for
exit or disposal activities initiated after December 31, 2002. SFAS No. 146
supersedes Emerging Issues Task Force Issue No. 94-3 "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity." SFAS
No. 146 requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred and states that an
entity's commitment to an exit plan, by itself, does not create a present
obligation that meets the definition of a liability. SFAS No. 146 also
establishes that fair value is the objective for initial measurement of the
liability. Adoption of SFAS No. 146 will have no impact on our historical
consolidated financial position or results of operations.
In October 2002, the FASB issued SFAS No. 147, "Acquisition of Certain
Financial Institutions," which is not applicable to the Company.
RECENTLY ENACTED LEGISLATION AND TAX STRUCTURE
A change in the Indiana state law governing gaming took effect on July
1, 2002 which enables Indiana's riverboat casinos to operate dockside. The IGC
approved Majestic Star's flexible boarding plan that allows the continuous
ingress and egress of patrons for the purpose of gambling while the riverboat is
docked. The plan went into effect on August 5, 2002 and imposes a graduated
wagering tax based upon adjusted gross receipts. The graduated wagering tax will
have a starting rate of 15% with a top rate of 35% for adjusted gross receipts
in excess of $150 million. For the period July 1 through August 4, 2002, the
wagering tax was raised by statute to 22.5% of adjusted gross receipts. Prior to
July 1, 2002, Indiana gaming taxes were levied on adjusted gross receipts, as
defined by Indiana gaming laws, at the rate of 20%. Majestic Star has forecasted
its gaming revenues for the period August 5, 2002 through December 31, 2002, and
based upon those forecasted revenues, determined an estimated effective gaming
tax rate for that period of time. Gaming revenue tax expenses for the period
August 5, 2002 through September 30, 2002 were calculated at the effective rate.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes from the information reported in
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2001.
ITEM 4. CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this report, the Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, including its Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures pursuant to Rule 15d-15 of the
Securities Exchange Act of 1934. Based upon that evaluation, the Company's Chief
Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective in timely alerting them to
material information related to the Company required to be disclosed in the
Company's periodic SEC reports. There have been no significant
33
changes in the Company's internal controls or in other factors which could
significantly affect internal controls subsequent to the date the Company
carried out its evaluation.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Various legal proceedings are pending against the Company. Management
considers all such pending proceedings, primarily personal injury and equal
employment opportunity (EEO) claims, to be ordinary litigation incidental to the
character of the Company's business. Management believes that the resolution of
these proceedings will not, individually or in the aggregate, have a material
effect on the Company's financial condition or results of operations.
There have been no material changes in the legal proceedings
previously described in the Company's Annual Report on Form 10-K for the year
ended December 31, 2001.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibit numbers in the following list correspond to the number assigned to
such exhibits in the Exhibit Tables of Item 601 of Regulation S-K:
Exhibit Numbers Descriptions
10.1 Employment Agreement dated as of October 21, 2002
by and between the Company and Jon Scott Bennett,
filed herewith.
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, filed herewith.
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, filed herewith.
(b) There were no reports on Form 8-K filed during the quarter ended September
30, 2002
34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
THE MAJESTIC STAR CASINO, LLC
By: /s/ Don H. Barden November 13, 2002
----------------------------------------------------
Don H. Barden, President and Chief Executive Officer
By: /s/ Jon S. Bennett November 13, 2002
----------------------------------------------------
Jon S. Bennett, Vice President and Chief Financial
Officer (Principal Financial and Accounting Officer)
THE MAJESTIC STAR CASINO CAPITAL CORP.
By: /s/ Don H. Barden November 13, 2002
----------------------------------------------------
Don H. Barden, President and Chief Executive Officer
By: /s/ Jon S. Bennett November 13, 2002
----------------------------------------------------
Jon S. Bennett, Vice President and Chief Financial
Officer (Principal Financial and Accounting Officer)
35
CERTIFICATIONS
I, Don H. Barden, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Majestic Star
Casino, LLC and The Majestic Star Casino Capital Corp.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact necessary to make the statements
made, in light of the circumstances under with such statements were
made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a - 14 and 15d - 14) for the registrant
and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 13, 2002
/s/ Don H. Barden
- -------------------------------------
Don H. Barden
President and Chief Executive Officer
36
I, Jon S. Bennett, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Majestic Star
Casino, LLC and The Majestic Star Casino Capital Corp.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact necessary to make the statements
made, in light of the circumstances under with such statements were
made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a - 14 and 15d - 14) for the registrant
and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 13, 2002
/s/ Jon S. Bennett
- ------------------------------------------
Jon S. Bennett
Vice President and Chief Financial Officer
37
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
10.1 Employment Agreement dated as of October 21, 2002
by and between the Company and Jon Scott Bennett,
filed herewith.
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, filed herewith.
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, filed herewith.