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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 JUNE 30, 2004
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 (I.R.S. Employer
jurisdiction of specified in its charter) Identification No.)
incorporation or
organization)
301 FREMONT STREET
LAS VEGAS, NEVADA 89101
(702) 388-2224
(Address of principal executive offices and telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to filing requirements
for the past 90 days.
Yes __X__ No _____
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act)
Yes _____ No __X__
As of June 30, 2004, shares outstanding of each of the registrant's classes of
common stock:
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 June 30, 2004 (unaudited)
and December 31, 2003......................................................1
Consolidated Statements of Operations for the three and six months
ended June 30, 2004 and 2003 (unaudited)...................................2
Consolidated Statements of Changes in Member's Deficit for the six
months ended June 30, 2004 (unaudited) and the year ended
December 31, 2003..........................................................3
Consolidated Statements of Cash Flows for the six months ended
June 30, 2004 and 2003 (unaudited).........................................4
Notes to Consolidated Financial Statements.................................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................................32
Item 3. Quantitative and Qualitative Disclosures About Market Risk.................50
Item 4. Controls and Procedures....................................................50
PART II OTHER INFORMATION
Item 1. Legal Proceedings..........................................................52
Item 5. Other Information..........................................................53
Item 6. Exhibits and Reports on Form 8-K...........................................54
SIGNATURES..........................................................................S-1
PART I
FINANCIAL INFORMATION
ITEM 1
CONSOLIDATED FINANCIAL STATEMENTS
THE MAJESTIC STAR CASINO, LLC
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, December 31,
2004 2003
------------- -------------
ASSETS
Current Assets:
Cash and cash equivalents $ 20,712,582 $ 22,058,016
Restricted cash 1,790,008 1,400,000
Accounts receivable, less allowance for doubtful accounts of $361,159 and
$258,546 as of June 30, 2004 and December 31, 2003, respectively 2,746,775 2,212,546
Inventories 721,527 707,685
Prepaid expenses 5,116,977 2,126,583
Receivable from affiliate 120,698 210,135
Note receivable due from related party 66,000 133,000
------------- -------------
Total current assets 31,274,567 28,847,965
------------- -------------
Property, equipment and improvements, net 164,853,654 142,167,931
Intangible assets, net 8,575,080 9,249,247
Goodwill 5,922,398 5,922,398
Other assets:
Deferred financing costs, net of accumulated amortization of $1,140,649 and
$552,079 as of June 30, 2004 and December 31, 2003, respectively 5,810,502 6,289,187
Investment in Buffington Harbor Riverboats, LLC 28,566,851 29,733,594
Other assets 8,847,871 11,004,456
------------- -------------
Total other assets 43,225,224 47,027,237
------------- -------------
Total Assets $ 253,850,923 $ 233,214,778
============= =============
LIABILITIES AND MEMBER'S DEFICIT
Current Liabilities:
Accounts payable $ 2,602,657 $ 6,387,955
Payable to related party -- 247
Accrued liabilities:
Payroll and related 6,648,146 6,487,107
Interest 5,661,579 6,023,703
Progressive jackpots 3,147,238 2,673,662
Slot club liabilities 766,081 498,070
Other accrued liabilities 14,794,891 11,595,665
------------- -------------
Total current liabilities 33,620,592 33,666,409
------------- -------------
Long-term debt, net of current maturities 321,464,897 301,715,324
------------- -------------
Total Liabilities 355,085,489 335,381,733
------------- -------------
Member's Deficit (101,234,566) (102,166,955)
------------- -------------
Total Liabilities and Member's Deficit $ 253,850,923 $ 233,214,778
============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
1
THE MAJESTIC STAR CASINO, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For The Three Months Ended For The Six Months Ended
June 30, June 30,
------------------------------ ------------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------
OPERATING REVENUES:
Casino $ 70,609,286 $ 63,802,275 $ 141,651,789 $ 129,058,478
Rooms 1,919,669 1,960,836 3,793,506 3,886,505
Food and beverage 3,124,713 3,142,537 6,469,173 6,362,735
Other 1,155,236 1,049,370 2,214,880 1,984,535
------------- ------------- ------------- -------------
Gross revenues 76,808,904 69,955,018 154,129,348 141,292,253
Less promotional allowances 5,087,860 4,480,749 10,115,635 8,961,707
------------- ------------- ------------- -------------
Net operating revenues 71,721,044 65,474,269 144,013,713 132,330,546
------------- ------------- ------------- -------------
OPERATING COSTS AND EXPENSES:
Casino 22,264,933 21,656,312 45,372,451 41,933,831
Rooms 467,054 660,398 932,296 1,263,235
Food and beverage 1,376,421 1,378,337 2,833,863 2,678,940
Other 323,551 267,487 565,084 519,658
Gaming taxes 15,327,424 15,166,124 30,511,538 28,741,745
Advertising and promotion 4,183,041 3,565,906 7,932,297 7,267,844
General and administrative 10,308,799 9,327,378 23,734,381 18,646,500
Corporate expense 874,680 777,843 1,680,286 1,661,030
Economic incentive - City of Gary 1,159,082 1,011,164 2,336,237 2,071,411
Depreciation and amortization 4,595,487 4,400,462 9,095,333 8,796,965
Loss on investment in Buffington Harbor Riverboats, LLC 625,507 595,159 1,238,348 1,199,180
Loss (gain) on disposal of assets 18,302 (8,762) 19,357 100,958
------------- ------------- ------------- -------------
Total operating costs and expenses 61,524,281 58,797,808 126,251,471 114,881,297
------------- ------------- ------------- -------------
Operating income 10,196,763 6,676,461 17,762,242 17,449,249
------------- ------------- ------------- -------------
OTHER INCOME (EXPENSE)
Interest income 5,289 26,266 10,403 62,008
Interest expense (7,196,240) (7,955,890) (14,254,285) (15,911,688)
Other non-operating expense (95,639) (46,640) (123,847) (94,454)
------------- ------------- ------------- -------------
Total other expense (7,286,590) (7,976,264) (14,367,729) (15,944,134)
------------- ------------- ------------- -------------
Income (loss) from continuing operations 2,910,173 (1,299,803) 3,394,513 1,505,115
DISCONTINUED OPERATION
Loss from discontinued operation -- (329,694) -- (99,395)
------------- ------------- ------------- -------------
Net income (loss) $ 2,910,173 $ (1,629,497) $ 3,394,513 $ 1,405,720
============= ============= ============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
2
THE MAJESTIC STAR CASINO, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER'S DEFICIT
For the Six Months Ended June 30, 2004 and the Year Ended December 31, 2003
(unaudited)
Member's Deficit
----------------
BALANCE, DECEMBER 31, 2002 $ (24,174,562)
Net loss (43,851,974)
Distributions to Barden Development, Inc. (6,065,213)
Distribution of Barden Nevada Gaming, LLC to Barden
Development, Inc. (27,515,400)
Cash paid in excess of historical cost for land purchased from a related party (559,806)
----------------
BALANCE, DECEMBER 31, 2003 $ (102,166,955)
Net income 3,394,513
Distribution to Barden Development, Inc. (2,462,124)
----------------
BALANCE, JUNE 30, 2004 $ (101,234,566)
================
The accompanying notes are an integral part of these
consolidated financial statements.
3
THE MAJESTIC STAR CASINO, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the six months ended
June 30,
------------------------------------
2004 2003 (1)
----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,394,513 $ 1,405,720
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 7,764,091 7,489,647
Amortization 1,331,242 2,681,069
Loss on investment in Buffington Harbor Riverboats, LLC 1,238,348 1,199,180
Loss on disposal of assets 19,357 100,958
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable, net (534,229) 16,325
(Increase) decrease in inventories (13,842) 23,788
Increase in prepaid expenses (3,021,845) (1,307,754)
Decrease in other assets 680,752 292,229
Decrease in accounts payable (3,785,298) (576,759)
Increase in related parties payables 89,189 --
Increase in accrued payroll and other expenses 161,039 58,616
(Decrease) increase in accrued interest (362,124) 7,068,756
Increase in other accrued liabilities 3,940,375 114,280
------------ ------------
Net cash provided by operating activities 10,901,568 18,566,055
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in restricted cash (390,008) (250,000)
Acquisition of property and equipment (29,160,744) (5,823,805)
Cash paid in excess of historical cost for land purchased from a related party -- (559,806)
Decrease in prepaid leases and deposits 7,284 --
Investment in Buffington Harbor Riverboats, LLC (71,606) 3,500
Proceeds from disposal of equipment 191,573 48,739
------------ ------------
Net cash used in investing activities (29,423,501) (6,581,372)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance cost for the 9 1/2% senior secured notes (58,652) --
Issuance cost for the 11.653% senior secured notes (2) -- (2,337)
Issuance cost for the $80.0 million secured credit facility (51,232) --
Proceeds from line of credit 27,901,293 --
Repayment of line of credit (8,219,786) --
Repayment of notes from related parties 67,000 1,067,000
Repayment of long-term debt -- (94,392)
Distribution to Barden Development, Inc. (2,462,124) (3,565,980)
------------ ------------
Net cash provided by (used in) financing activities 17,176,499 (2,595,709)
------------ ------------
Net (decrease) increase in cash and cash equivalents (1,345,434) 9,388,974
Cash and cash equivalents, beginning of period 22,058,016 24,547,881
------------ ------------
Cash and cash equivalents, end of period $ 20,712,582 $ 33,936,855
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
4
THE MAJESTIC STAR CASINO, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(unaudited)
For the six months ended
June 30,
-------------------------------
2004 2003 (1)
----------- ------------
NON-CASH INVESTING ACTIVITIES:
Credit received from Naming Rights Agreement and applied to acquisition
of 170 acres of property from an affiliate $ 1,500,000 $ --
=========== ============
(1) Contained within the June 30, 2003 consolidated statement of cash flows
are the cash flow activities of Barden Nevada Gaming, LLC, whose equity
interests were spun off to Barden Development, Inc. on December 31, 2003.
(2) Effective on October 7, 2003, with the purchase and retirement of all but
$16.3 million of the 11.653% Senior Secured Notes, the remaining 11.653%
notes that were not purchased became unsecured obligations of the Company
(See Note 6, Long-term debt).
The accompanying notes are an integral part of these
consolidated financial statements.
5
THE MAJESTIC STAR CASINO, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION
The Majestic Star Casino, LLC (the "Company") was formed on December 8,
1993 as an Indiana limited liability company to provide gaming and related
entertainment to the public. The Company commenced gaming operations in the City
of Gary at Buffington Harbor, located in Lake County, Indiana on June 7, 1996.
Majestic Investor, LLC ("Investor") was formed in September 2000 to satisfy the
Company's off-site development obligations under the Development Agreement with
the City of Gary.
As a result of the acquisition of three additional casino properties in
December of 2001 from Fitzgeralds Gaming Corporation and certain of its
affiliates, The Majestic Star Casino, LLC is a multi-jurisdictional gaming
company that directly owns and operates one riverboat gaming facility located in
Gary, Indiana ("Majestic Star") and through its wholly-owned subsidiary,
Majestic Investor Holdings, LLC ("Majestic Investor Holdings" or "Investor
Holdings") owns two Fitzgeralds-brand casino-hotels located in Tunica County,
Mississippi ("Barden Mississippi Gaming, LLC", "Barden Mississippi" or
"Fitzgeralds Tunica"), Black Hawk, Colorado (casino only) ("Barden Colorado
Gaming, LLC", "Barden Colorado" or "Fitzgeralds Black Hawk"), and prior to
January 1, 2004, owned a third Fitzgeralds-brand casino-hotel located in Las
Vegas, Nevada ("Barden Nevada Gaming, LLC", "Barden Nevada" or "Fitzgeralds Las
Vegas"). See Note 2 for further discussion of the spin-off of Fitzgeralds Las
Vegas on December 31, 2003.
The Majestic Star Casino Capital Corp., a wholly-owned subsidiary of The
Majestic Star Casino, LLC, was originally formed for the purpose of facilitating
the offering of The Majestic Star Casino, LLC's $130.0 million 10 7/8% senior
secured notes due 2006 (the "10 7/8% notes") and Majestic Investor Capital
Corp., a wholly-owned subsidiary of Investor Holdings, was formed specifically
to facilitate the offering of Investor Holdings' $152.6 million 11.653% senior
secured notes due 2007 (the "11.653% notes"). Both The Majestic Star Casino
Capital Corp. and Majestic Investor Capital Corp. do not have any assets or
operations. On October 7, 2003, the Company issued $260.0 million 9 1/2% senior
secured notes (the "9 1/2% notes") and entered into an $80.0 million credit
facility (the"$80.0 million credit facility"). The proceeds from the 9 1/2%
notes and $28.0 million from the $80.0 million credit facility were used to
purchase and redeem all of the 10 7/8% notes and purchase approximately 89.3%,
or $135.5 million, of the 11.653% notes (see Note 6 for a further discussion of
the debt refinancing and the 9 1/2% 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 direct and indirect subsidiaries.
NOTE 2. BASIS OF PRESENTATION
The accompanying consolidated financial statements are unaudited. All
inter-company transactions and balances have been eliminated. Investments in
affiliates in
6
THE MAJESTIC STAR CASINO, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 accounting principals generally accepted in the
United States of America, or "GAAP" for interim financial information and with
the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
certain information and footnote disclosures normally included in financial
statements have been condensed or omitted. The preparation of financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Significant estimates incorporated into our consolidated
financial statements include the estimated useful lives of depreciable and
amortizable assets, the estimated allowance for doubtful accounts receivable,
estimated cash flow in assessing the recoverability of long-lived assets,
estimated liabilities for our self-insured medical plan, slot club point
programs, and litigation, claims and assessments. Actual results could differ
from those estimates.
In the opinion of management, all adjustments (which include normal
recurring adjustments) considered necessary for a fair presentation of the
results for the interim periods have been made. The results for the three and
six months ended June 30, 2004 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
Majestic Star Casino, LLC's Annual Report on Form 10-K for the year ended
December 31, 2003.
SPIN-OFF
The spin-off of Fitzgeralds Las Vegas to Barden Development, Inc.
("BDI"), our member, occurred on December 31, 2003. As such, the assets,
liabilities and equity of Fitzgeralds Las Vegas are not included in our
consolidated balance sheets as of June 30, 2004 or at December 31, 2003. The
consolidated statements of operations and cash flows for the three and six
months ended June 30, 2004 do not include the activities of Fitzgeralds Las
Vegas. However, the consolidated statement of operations recognizes Fitzgeralds
Las Vegas as a discontinued operation for the three and six months ended June
30, 2003.
RECLASSIFICATIONS
The consolidated financial statements and footnotes for the prior year
reflect certain reclassifications to conform to the current year presentation,
which have no effect on previously reported net income.
PROMOTIONAL ALLOWANCES
Cash discounts and other cash incentives related to gaming play and the
retail value of accommodations, food and beverage, and other services furnished
to hotel/casino guests
7
THE MAJESTIC STAR CASINO, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
without charge are included in gross revenue and then deducted as promotional
allowances. The estimated departmental cost of providing such promotional
allowances is included primarily in casino operating expenses as follows:
For the three months ended June 30, For the six months ended June 30,
--------------------------------------- ---------------------------------------
2004 2003 2004 2003
----------------- ----------------- ----------------- -----------------
Hotel $ 584,717 $ 377,503 $ 1,148,384 $ 726,649
Food and Beverage 2,141,247 2,266,507 4,318,654 4,354,984
Other 114,616 109,937 236,038 211,388
----------------- ----------------- ----------------- -----------------
Total $ 2,840,580 $ 2,753,947 $ 5,703,076 $ 5,293,021
================= ================= ================= =================
The estimated retail value of such promotional allowances is included in
operating revenues as follows:
For the three months ended June 30, For the six months ended June 30,
--------------------------------------- ---------------------------------------
2004 2003 2004 2003
----------------- ----------------- ----------------- -----------------
Hotel $ 1,249,775 $ 843,340 $ 2,431,230 $ 1,669,299
Food and Beverage 2,073,771 2,246,790 4,393,272 4,550,359
Other 337,383 285,527 651,183 584,012
----------------- ----------------- ----------------- -----------------
Total $ 3,660,929 $ 3,375,657 $ 7,475,685 $ 6,803,670
================= ================= ================= =================
RECENT ACCOUNTING PRONOUNCEMENTS
In May 2003, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 150 ("SFAS 150") "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity."
Provisions of SFAS 150 became effective for financial instruments entered into
or modified after May 31, 2003. The Company adopted SFAS 150 on January 1, 2004.
The adoption had no impact on its financial position, results of operations or
cash flows.
In December 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46R ("FIN46R"), "Consolidation of Variable Interest Entities
- -- an interpretation of Accounting Research Bulletin No. 51" (revised December
2003). FIN46R addresses consolidation by business enterprises of certain
variable interest entities. Application of FIN46R is required in financial
statements of public entities that have interests in variable interest entities
for periods ending December 15, 2003. The Company has reviewed its major
relationships and its overall economic interests with other companies consisting
of related parties, companies in which it has an equity position, and other
suppliers to determine the extent of its variable economic interests in these
parties. Adoption of FIN46R did not have a material impact on the Company's
financial statements for the period ending June 30, 2004
NOTE 3. RESTRICTED CASH
As of December 31, 2003, restricted cash relating to the Company's
self-insured workers compensation programs totaled $1.4 million. The Majestic
Star Casino, LLC
8
THE MAJESTIC STAR CASINO, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
purchased a $0.9 million certificate of deposit to secure a letter of credit
related to the Majestic Star workers compensation program. The certificate of
deposit is recorded as restricted cash. Investor Holdings maintains a letter of
credit in the amount of $0.5 million for the self-insured workers compensation
programs at Fitzgeralds Tunica, Fitzgeralds Black Hawk and Fitzgeralds Las
Vegas. The bank that issued the $0.5 million letter of credit has restricted the
cash of Investor Holdings in an equivalent amount as security for the letter of
credit.
Restricted cash increased to $1.8 million as of June 30, 2004. The
Company was required to post a bond in the amount of $0.4 million to appeal an
award rendered against the Company in the U.S. District Court for the Northern
District of Mississippi (see Note 7). The insurance company that issued the bond
on behalf of the Company required that the bond be secured. The Company secured
the bond with a $0.4 million letter of credit. The bank that issued the letter
of credit restricted the cash of the Company by the same amount.
NOTE 4. INTANGIBLE ASSETS
Intangible assets at Investor Holdings primarily include $7.8 million for
customer relationships and $3.4 million for trade names. The $0.7 million
intangible asset represents an excursion license for a riverboat, which
commenced full operations on March 18, 2004. Intangible assets for customer
relationships and trade names are being amortized over periods of 8 and 10
years, respectively. The riverboat excursion license is being amortized over 15
years, the period of the license. In accordance with SFAS 142, goodwill is not
amortized but instead subject to impairment tests at least annually.
The gross carrying amount and accumulated amortization of the Company's
intangible assets, other than goodwill, as of June 30, 2004 and December 31,
2003 are as follows:
As of June 30, 2004 Gross Carrying Accumulated Net Amount Expected
- --------------------- Amount Amortization June 30, 2004 Life
----------------- ----------------- -------------------- -----------
Amortized intangible assets: (in thousands)
Customer relationship $ 7,840 $ (2,517) $ 5,323 8 yrs
Trade names 3,450 (886) 2,564 10 yrs
Riverboat excursion license 700 (12) 688 15 yrs
----------------- ----------------- --------------------
Total intangible assets $ 11,990 $ (3,415) $ 8,575
================= ================= ====================
As of December 31, 2003 Gross Carrying Accumulated Net Amount Expected
- ------------------------- Amount Amortization December 31, 2003 Life
----------------- ----------------- -------------------- -----------
Amortized intangible assets: (in thousands)
Customer relationship $ 7,840 $ (2,033) $ 5,807 8 yrs
Tradename 3,450 (708) 2,742 10 yrs
Riverboat excursion license 700 - 700 15 yrs
----------------- ----------------- --------------------
Total intangible assets $ 11,990 $ (2,741) $ 9,249
================= ================= ====================
The amortization expense recorded on the intangible assets was $0.3 million and
$0.7
9
THE MAJESTIC STAR CASINO, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
million, respectively, for the three-month and six-month periods ended June 30,
2004 and for the same periods in 2003.
NOTE 5. INVESTMENT IN BUFFINGTON HARBOR RIVERBOATS, L.L.C.
On October 31, 1995, the Company and Trump Indiana, Inc., our Joint
Venture Partner ("Trump"), entered into the First Amended and Restated Operating
Agreement of Buffington Harbor Riverboats, LLC ("BHR") for the purpose of
acquiring and developing certain facilities for the gaming operations in the
City of Gary ("BHR Property"). BHR is responsible for the management,
development and operation of the BHR Property. The Company and Trump 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 the
cash operating losses of BHR as additional berthing fees. All expenditures
requiring a cash outlay by BHR are billed to Trump and the Company at cost.
Accordingly, BHR records as expenses the cost of providing such services and
records as other revenues the amounts billed to Trump and the Company.
On August 9, 2004, Trump Hotels and Casino Resorts, Inc. ("THCR")
announced a plan to restructure THCR's public indebtedness and recapitalize
THCR. THCR is the parent to Trump. According to the announcement, in order to
accomplish the restructuring, THCR intends to enter into a pre-negotiated plan
of reorganization under Chapter 11 of the U.S. Bankruptcy Code at the end of
September 2004. THCR also stated that it intends to maintain its current level
of operations during the Chapter 11 proceedings.
The Company has paid to BHR approximately $1.2 million and $3.9 million
of berthing fees for the three and six months ended June 30, 2004, respectively,
and $1.3 million and $2.5 million for the three and six months ended June 30,
2003, respectively. Such amounts are recorded in general and administrative
expense in the consolidated statement of operations. During the six months ended
June 30, 2004, substantially all of the restaurants and food and beverage
services at BHR were operated by third parties. During the first six months of
2003, BHR owned and operated a buffet, which closed in February 2003 and
re-opened in December 2003 as Passports -- A World Class Buffet ("Passports")
and South Shore Grill, which closed at the end of 2003 and later re-opened as
Koko Taylor's Blues Cafe. Passports and Koko Taylor's Blues Cafe are owned and
operated by a third party. The Company sends guests to these restaurants, and
food and beverage operators and the proprietors of these businesses charge the
Company for the meals served. The Company paid approximately $0.6 million and
$1.1 million to these restaurants and the other food and beverage operators at
BHR in the three and six month periods ended June 30, 2004. In addition, the
Company has reimbursed BHR for valet services in the amount of $14,000 and
$40,000 in the three and six month periods ended June 30, 2004. Food, beverage
and valet costs are recorded in casino expense in the Company's Consolidated
Statements of Operations. The Company paid approximately $0.2 million and $0.4
million for food, beverage and valet services in the three and six months ended
June 30, 2003, respectively. After the Company and Trump reimburse
10
THE MAJESTIC STAR CASINO, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
BHR for all cash operational losses, the remaining net loss of BHR results from
depreciation expense associated with the BHR property. The allocated net losses
are approximately $0.6 million and $1.2 million for the three and six month
periods ended June 30, 2004 and 2003, and are classified as "Loss on investment
in Buffington Harbor Riverboats, LLC" on the Company's Consolidated Statements
of Operations.
The following represents selected financial information for BHR as of June
30, 2004 and December 31, 2003 and for the three and six months ended June 30,
2004 and 2003, respectively:
June 30, December 31,
BALANCE SHEETS 2004 2003
-------------- ---------------
Cash $ 215,574 $ 82,639
Current assets, excluding cash 3,232,694 5,013,217
Property, plant and equipment, net 59,484,632 61,881,975
Other assets 98,511 101,248
-------------- ---------------
Total assets $ 63,031,411 $ 67,079,079
============== ===============
Current liabilities $ 5,509,218 $ 7,223,402
Capital lease obligation, net of current 388,491 388,491
-------------- ---------------
Total liabilities 5,897,709 7,611,893
Total members' equity 57,133,702 59,467,186
-------------- ---------------
Total liabilities and members' equity $ 63,031,411 $ 67,079,079
============== ===============
The Majestic Star Casino, LLC member's equity $ 28,566,851 $ 29,733,593
============== ===============
For the three months ended For the six months ended
June 30, June 30,
------------------------------- -------------------------------
STATEMENTS OF INCOME 2004 2003 2004 2003
-------------- --------------- --------------- --------------
Gross revenue $ 3,629,217 $ 3,338,168 $ 5,584,238 $ 6,715,976
Gross profit $ 2,979,554 $ 2,872,688 $ 4,349,936 $ 5,703,692
Operating loss $ (1,250,813) $ (1,189,306) $ (2,476,358) $ (2,393,046)
Net loss $ (1,251,015) $ (1,190,326) $ (2,476,694) $ (2,398,367)
11
THE MAJESTIC STAR CASINO, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. LONG-TERM DEBT
June 30, December 31,
2004 2003
--------------- ----------------
Long-term debt outstanding at June 30, 2004 and December 31, 2003 is as follows:
$260,000,000 senior secured notes, bearing interest of 9 1/2% payable
semi-annually on October 15 and April 15, with a final payment of principal and
interest due on October 15, 2010; collateralized by The Majestic Star Casino,
LLC's equity interests, and its equity interests in the subsidiary guarantors,
and substantially all of the assets of The Majestic Star Casino, LLC and the
assets of its subsidiary guarantors, other than the excluded assets. $ 260,000,000 $ 260,000,000
$80,000,000 credit facility, which expires in October 2007, bears interest at
the Company's choice of LIBOR plus a range of 3.00% to 3.50% or Wells Fargo
Foothill, Inc.'s base rate plus a range of 0.25% to 0.75%. The range is based on
the Company's EBITDA (as defined in the Loan and Security Agreement). The credit
facility is secured by The Majestic Star Casino, LLC's equity interests and its
equity interests in the subsidiary guarantors, and substantially all the assets
of The Majestic Star Casino, LLC and the assets of its subsidiary guarantors,
other than the excluded assets. 45,640,000 25,958,493
$16,290,000 unsecured notes payable, net of unamortized discount of $465,103 and
$533,169 at June 30, 2004 and December 31, 2003, respectively. Investor Holdings
pays interest at a rate of 11.653% on the notes. Interest is paid semi-annually
on May 31 and November 30, with a final payment of principal and interest due on
November 30, 2007. On October 7, 2003, the notes became unsecured obligations of
Investor Holdings. 15,824,897 15,756,831
--------------- ----------------
Long-term debt $ 321,464,897 $ 301,715,324
Less current maturities - -
--------------- ----------------
Total long-term debt $ 321,464,897 $ 301,715,324
=============== ================
9 1/2% NOTES
The 9 1/2% notes bear interest at a fixed annual rate of 9.5% payable on
April 15 and October 15 of each year. The first payment was due and paid on
April 15, 2004. The 9 1/2% notes will mature on October 15, 2010. The 9 1/2%
notes are secured by a pledge of substantially all of the Company's current and
future assets, other than the assets of Fitzgeralds Las Vegas (which became an
unrestricted and non-guarantor subsidiary effective October 7, 2003 and was
subsequently spun off to BDI on December 31, 2003) and certain other excluded
assets. The 9 1/2% notes are also collateralized by our equity interests held by
BDI and our equity interests in the subsidiary guarantors.
The indenture governing the 9 1/2% notes contains covenants which, among
other things, restrict the Company's ability to (i) make certain payments to, or
investments in, third parties; (ii) incur additional indebtedness or liens on
any assets; (iii) enter into transactions with affiliates; and (iv) sell any
restricted subsidiaries' assets. In addition, upon a Change of Control as
defined in the indenture governing the 9 1/2% notes, the
12
THE MAJESTIC STAR CASINO, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Company will be required to offer to repurchase all of the outstanding 9 1/2%
notes at a cash price equal to 101% of the principal amount thereof, plus
accrued and unpaid interest to the date of repurchase.
Concurrent with the closing of the 9 1/2% notes, the Company established
the $80.0 million credit facility with Wells Fargo Foothill, Inc., and
terminated two existing credit facilities with Wells Fargo Foothill, Inc.
Subject to certain exceptions, the $80.0 million credit facility is secured by a
pledge of our equity held by BDI and the equity of our subsidiary guarantors and
a first priority lien on substantially all of the assets of the Company (which
excludes the assets of Fitzgeralds Las Vegas). Borrowings under the $80.0
million credit facility bear interest at the Company's choice of LIBOR plus a
range of 3.00% to 3.50% or Wells Fargo Foothill, Inc.'s base rate (which
approximates the prime rate) plus a range of 0.25% to 0.75%. The range is based
on the Company's EBITDA (as defined in the Loan and Security Agreement). Full
payment of any outstanding balance under the $80.0 million credit facility is
due upon maturity of the agreement in October 2007. The $80.0 million credit
facility includes covenants similar to those set forth in the indenture
governing the 9 1/2% notes, and also requires the Company to maintain, as
defined in the covenants, minimum EBITDA and interest coverage ratios, which
increase periodically, and an annual limit on capital expenditures. During the
six months ended June 30, 2004, the Company paid interest on borrowings ranging
from 4.61% to 5.00%.
At June 30, 2004 and at December 31, 2003, the Company had available
borrowing capacity under the $80.0 million credit facility of approximately
$34.4 million and $54.0 million, respectively.
On May 4, 2004, The Company entered into Amendment Number One to Loan and
Security Agreement ("Amendment") with the lenders to the $80.0 million credit
facility. The main item addressed in the Amendment was the definition of EBITDA,
which was amended to specifically clarify that it was acceptable to add back up
to $2.5 million of charges related to a retroactive property tax adjustment at
Majestic Star (see Note 7). The modified definition of EBITDA is effective as of
December 31, 2003.
11.653% NOTES
At June 30, 2004 and at December 31, 2003, Investor Holdings had debt
outstanding of $15.8 million related to its 11.653% notes, net of unamortized
discount of $0.5 million. The 11.653% notes bear interest at a fixed rate of
11.653% per annum payable May 31 and November 30 each year. The 11.653% notes
will mature on November 30, 2007. There are no guarantees related to the 11.653%
notes, and the liens on the collateral have been released.
OLD CREDIT FACILITIES
During the first quarter of 2003, The Majestic Star Casino, LLC had a
$20.0 million credit facility (the "Majestic credit facility") and Investor
Holdings had a $15.0 million
13
THE MAJESTIC STAR CASINO, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
credit facility (the "Majestic Investor Holdings credit facility"). There were
no borrowings against either of these lines of credit during the six months
ended June 30, 2003, and therefore, there was minimal interest expense. However,
there were non-usage fees charged during the first and second quarters of 2003,
which totaled $94,000. These credit facilities were replaced in October 2003
with the $80.0 million credit facility. There were no borrowings on the Majestic
credit facility or the Majestic Investor Holdings credit facility on the date
that both facilities were terminated, October 7, 2003.
NOTE 7. COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS
Various legal proceedings are pending against the Company. Management
considers all such pending proceedings, comprised primarily of personal injury
and equal employment opportunity (EEO) claims, to be routine litigation
incidental to the Company's business. Except as described below, 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,
results of operations or cash flows.
On April 19, 2004 the Indiana Tax Court ruled on the matter of Aztar
Indiana Gaming Corporation ("Aztar") v. Indiana Department of State Revenue
("Department of Revenue"). Aztar operates a riverboat casino in Indiana. The
ruling denied Aztar's deductions claimed on its Indiana income tax returns for
taxes paid on gaming revenues to the state. This ruling has significant
implications for all Indiana casinos. Majestic Star has been issued notices of
proposed assessments by the Department of Revenue totaling $2.6 million for the
years 1996 and 1998, and the period January 1, 1999 to June 18, 2001. While The
Majestic Star Casino, LLC is a limited liability company and its income and
expenses pass to its member, the Department of Revenue has taken the position
that The Majestic Star Casino, LLC had a requirement to withhold and remit state
income tax. The Company has filed an administrative protest and demand for
hearing to challenge the proposed assessments for which it received notice. No
assessment has been issued by the Department of Revenue for any tax periods
subsequent to June 18, 2001, but the Company estimates that if the assessments
were extended through the latest reporting date of June 30, 2004, there would be
an additional tax liability of approximately $3.1 million, plus interest. This
additional tax liability amount would be adjusted against any net taxable income
or losses previously reported to the state by our member. In addition, to date,
the Company has not been charged a penalty for failing to withhold and remit the
taxes to the state. Aztar requested a rehearing by the Indiana Tax Court. The
Indiana Tax Court declined to rehear the matter. Aztar has now appealed to the
Indiana Supreme Court. The Indiana Supreme Court has not yet announced whether
it will grant review. The Indiana Supreme Court has allowed Majestic Star and
other Indiana casinos to submit Amici Curiae in support of Aztar. Under its
indenture governing the 9 1/2% notes and the Loan and Security Agreement
governing the $80.0 million credit facility, the Company is allowed to make
distributions to its member for tax purposes. Any payments would be recorded as
distributions in Member's Deficit. However, the Company does not intend to make
any distributions unless the Company believes that the matter would be resolved
against it.
In December 2002, a complaint was filed in the U.S. District Court for
the Northern
14
THE MAJESTIC STAR CASINO, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
District of Mississippi against Barden Mississippi and the former owner of
Fitzgeralds Tunica, alleging violation of Title VII of the Civil Rights Act of
1964 and violation of 42 U.S.C. Section 1981, as well as certain other state law
claims. The former owner of Fitzgeralds Tunica was dismissed from the case. On
May 6, 2004, the Judge awarded the plaintiff $312,000, which incorporates back
pay, emotional distress and punitive damages plus an additional sum for
reasonable attorney fees. The Company established a reserve of $427,000 at March
31, 2004 for the plaintiff's award, the estimated plaintiff's attorney fees and
the Company's attorney fees. Our insurance carrier has agreed to extend coverage
over the claim and share past and current expenses with the Company. Based upon
the agreement with the insurance carrier the Company has reduced its reserve by
$95,000. The Company is in the process of appealing the plaintiff's award and as
required by the court has posted an appeal bond in the amount of $0.4 million
(see, Letter of Credit/Surety Bond, below, within this Note).
In August 2003 a former employee of Majestic Star filed a complaint in the
U.S. District Court, Northern District of Indiana, Hammond Division seeking back
wages plus all other relief to which he may be entitled under the Fair Labor
Standards Act (the "August 2003 FLSA Seaman's Case"). Majestic Star's position
is that the plaintiff was employed as an able-bodied seaman and thus is exempt
from the overtime provisions of the FLSA. Plaintiff's counsel has indicated that
he may amend the complaint to a collective action. On or about July 20, 2004
another individual formerly employed with Majestic Star as an able-bodied seaman
filed a similar complaint in the same court on behalf of himself and a class of
employees similarly situated (the "July 2004 FLSA Seaman's Case") seeking back
wages, plus all other relief to which he may be entitled, at law or in
admiralty, including liquidated damages and attorney's fees under 29 U.S.C.
216(b). Potentially, the four seamen currently employed by Majestic Star and
approximately 19 former seamen could qualify for the class, if class action
status were to be granted. Due to the recent filing of the complaint, the
Company has no indication of whether such class action status would be granted
relating to this matter. The Company intends to vigorously defend both the
August 2003 FLSA Seaman's Case and the July 2004 FLSA Seaman's Case; however,
the August 2003 FLSA Seaman's case is in discovery and the July 2004 FLSA
Seaman's Case has not yet progressed to a formal discovery stage, and it is too
early to determine the likelihood of an unfavorable outcome or range of
potential loss in either matter.
PROPERTY TAXES
During January 2004, Majestic Star received a preliminary property tax
reassessment notice that increased the valuation of its riverboat vessel in Lake
County, Indiana, where Majestic Star is located. The valuation assessment was
part of a countywide reassessment, and these reassessments were retroactive to
March 1, 2002. The reassessment was a result of a 1998 Indiana Supreme Court
ruling that declared the method of property assessment previously used was
unconstitutional. Majestic Star followed administrative policies of the taxing
authorities and paid Lake County an amount equal to 70% of its 2001 property tax
liability, and had estimated an accrual for the balance due for 2002 and 2003.
In April 2004, tax rates on the real property within Lake County, Indiana were
issued. In addition, in April 2004, the State of Indiana issued final notices of
assessed valuations to property owners within Lake County. The Company used the
information provided in April to revise its estimate of the amounts due.
BHR, the Company's joint venture with Trump, also received a notice of
final assessed value of its real property. Similarly Buffington Harbor Parking
Associates ("BHPA"), the owner of a parking garage for which Majestic Star is a
lessee under an operating lease, received a notice reflecting final assessed
values. Majestic Star, through the joint venture agreement and the operating
lease agreement, would be liable for its portion of BHR's and BHPA's property
tax liabilities.
15
THE MAJESTIC STAR CASINO, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Based on the assessments and tax rates issued in April 2004, Majestic
Star increased its accrual for real property taxes on its vessel and its
proportionate share of liability for BHPA and BHR, by $2.2 million. At June 30,
2004, the accrual for all unpaid property taxes owed directly or indirectly by
Majestic Star is $8.6 million.
On July 12, 2004, Majestic Star paid its remaining 2002 property tax
bill. The balance due was the difference between the new assessed values times
the new tax rates less the provisional tax payments previously paid by Majestic
Star. Majestic Star anticipates paying its 2003 tax bill in September and
November; however, a citizens group in Lake County is challenging the method of
assessment of property in Lake County. At this time we cannot determine if there
will be any modifications to the current assessed value of real property. As
such, Majestic Star has made no reductions in its current accrual for 2003 and
2004 property taxes.
SALE OF FITZGERALDS BLACK HAWK
On July 12, 2004, the Company announced the sale of substantially all
of the assets of Fitzgeralds Black Hawk to Legends Gaming, LLC ("Legends").
The sale price is $66.0 million, subject to certain adjustments, including
adjustments for working capital, capital expenditures and reimbursement of
shared expenses in excess of $0.3 million. Closing is estimated to occur within
six to nine months, but cannot occur prior to Legends receiving all prerequisite
gaming and liquor licenses. In no event can the transaction close after May 1,
2005, unless such date is extended by the parties. The major classification of
assets being sold and liabilities being assumed by Legends, with balances
determined as of June 30, 2004, are current assets of $3.1 million, long term
assets of $27.2 million and current liabilities of $3.1 million.
Under the indenture governing the 9 1/2% notes and the Loan and Security
Agreement to the $80.0 million credit facility, the Company must invest the net
proceeds from the sale of the Fitzgeralds Black Hawk assets in fixed assets or
property that will be used in a related business of the Company, or repay
indebtedness under the $80.0 million credit facility and permanently reduce the
commitment thereunder in the amount so repaid, and with any excess proceeds
offer to purchase the 9 1/2% notes.
The Company has been aggressively seeking new growth opportunities in
numerous locations. Since many of these new gaming possibilities are still
evolving and being analyzed, or are part of a broader bidding process, it is
premature to indicate specifically and quantitatively when these opportunities
and the investments needed to bring these opportunities to fruition will
transpire, if at all.
The following represents selected pro forma balance sheet information as
if the transaction closed on June 30, 2004 and statement of income information
as if the transaction closed on January 1, 2003.
16
THE MAJESTIC STAR CASINO, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30,
BALANCE SHEET 2004
---------------
Cash $ 18,114,317
Current assets, excluding cash 10,311,485
Property, plant and equipment, net 142,683,693
Other assets 60,159,603
---------------
Total assets $ 231,269,098
===============
Current liabilities $ 30,540,773
Long-term debt 321,464,897
---------------
Total liabilities 352,005,670
Total member's deficit (120,736,572)
---------------
Total liabilities and member's deficit $ 231,269,098
===============
For the three months ended For the six months ended
June 30, June 30,
--------------------------------- ---------------------------------
STATEMENTS OF INCOME 2004 2003 2004 2003
--------------- ---------------- ---------------- ----------------
Gross revenue $ 65,872,885 $ 60,610,525 $ 133,515,515 $ 123,288,168
Operating income $ 7,396,066 $ 4,936,087 $ 12,919,356 $ 14,335,886
Net income (loss) $ 109,476 $ (3,369,871) $ (1,448,373) $ (1,707,643)
GAMING REGULATIONS
The ownership and operation of riverboat gaming operations in Indiana are
subject to strict state regulation under the Riverboat Gambling Act (the "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 over all
persons on riverboats where gaming operations are conducted. The IGC is
empowered to regulate a wide variety of gaming and non-gaming related
activities, including the licensing of suppliers to, and employees at, riverboat
gaming operations and to approve the form of entity qualifiers and intermediary
and holding companies. 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 proposed rules might have on the Company's operations.
In June 2004, Majestic Star's annual gaming license expired. Majestic
Star timely submitted the application for renewal of its gaming license and was
investigated by the IGC. On August 6, 2004, the IGC unanimously renewed Majestic
Star's gaming license for an additional year.
Effective July 1, 2003, a licensed riverboat owner who implements
flexible scheduling
17
THE MAJESTIC STAR CASINO, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
can conduct gambling operations for up to 24 hours per day upon receiving IGC
approval. Under prior IGC rules, riverboat casinos were required to close for
three hours daily. Majestic Star's plan for 24-Hour Dockside Gaming was
submitted to the IGC and approved. Majestic Star began operating on a 24-hour
basis on July 12, 2003.
In the second quarter of 2003, Majestic Star took a $2.1 million charge for
retroactive gaming taxes. This charge occurred when the State of Indiana
clarified the start date for recognizing gaming taxes under the current tiered
tax structure associated with the implementation of dockside gaming. Even though
Majestic Star did not implement dockside gaming until August 5, 2002, Majestic
Star, along with all other Indiana casinos, was required to begin paying taxes
under the tiered structure effective July 1, 2002, the effective date of the
legislation allowing dockside gaming. From the period July 1, 2002 to August 4,
2002, Majestic Star was paying taxes at a rate of 22.5%, none of which was
credited by the State of Indiana against the retroactive tax. An Indiana casino
("taxpayer") filed a protest with the State of Indiana Department of Revenue
("Department of Revenue") arguing that it was inappropriate for the Department
to collect taxes under both tax structures. On July 30, 2004, the Department of
Revenue denied the taxpayer's protest.
The ownership and operation of our casino gaming facilities in
Mississippi and Colorado are also subject to various state and local regulations
in the jurisdictions where they are located. 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, which is empowered to license, implement,
regulate and supervise the conduct of limited gaming. Our Colorado operations
are also subject to the Colorado Liquor Code and the state and local liquor
licensing authorities. The Company recently filed the application to renew the
gaming license for its Black Hawk, Colorado property. The license is due to
expire in October 2004. The Company does not anticipate any problems with
renewal of its Colorado gaming license.
The Company's directors, officers, managers and key employees are
required to hold individual licenses. These requirements vary from jurisdiction
to jurisdiction. Licenses and permits for gaming operations and for 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
The Company and Trump have each entered into parallel operating lease
agreements with Buffington Harbor Parking Associates, LLC ("BHPA"), each having
a term until December 31, 2018. The operating lease agreement calls for the
Company and Trump to make monthly lease payments equal to 100% of BHPA's debt
service requirement for the following month, although each party is entitled to
a credit for 50% of such payment if the other party makes its monthly payment.
Since the inception of the lease, neither the Company nor Trump has had to make
a payment greater than 50% of BHPA's debt service cost.
On August 9, 2004, THCR announced a plan to restructure THCR's public
indebtedness and recapitalize THCR. THCR is the parent to Trump. According to
the announcement, in order to
18
THE MAJESTIC STAR CASINO, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
accomplish the restructuring, THCR intends to enter into a pre-negotiated
plan of reorganization under Chapter 11 of the U.S. Bankruptcy Code at the end
of September 2004. THCR also stated that it intends to maintain its current
level of operations during the Chapter 11 proceedings.
LETTER OF CREDIT/SURETY BOND
As part of a self-insured workers compensation program at Majestic Star,
the Company was required to post a letter of credit in the amount of $0.9
million to secure payment of claims. To collateralize the letter of credit, the
bank required that Majestic Star purchase a $0.9 million certificate of deposit.
Such certificate of deposit is recorded in restricted cash on the Company's
consolidated balance sheet (see Note 3).
To secure payment of claims under the workers compensation programs at
Fitzgeralds Tunica, Fitzgeralds Black Hawk and Fitzgeralds Las Vegas, Investor
Holdings was required to post a letter of credit of $0.5 million. This letter of
credit is secured by restricted cash (see Note 3).
The State of Mississippi has required Fitzgeralds Tunica to post surety
bonds as security for current and future sales and gaming revenue tax
obligations. Fitzgeralds Tunica has four surety bonds: a $0.6 million bond in
place with the Mississippi State Tax Commission and three $5,000 bonds with the
Mississippi Alcoholic Beverage Control. These surety bonds are secured only by
personal guaranties of Don H. Barden. If Mr. Barden is required to make payments
to the bonding companies as a result of the guaranties, the Company will be
obligated to reimburse Mr. Barden for any such payments.
The Company has posted an appeal bond in the amount of $0.4 million in
order to proceed with its appeal regarding the unfavorable ruling against the
Company by the U.S. District Court for the Northern District of Mississippi (see
Legal Proceedings within this Note). This bond is secured by a letter of credit.
Investor Holdings in turn has restricted $0.4 million of its cash to secure the
letter of credit.
19
THE MAJESTIC STAR CASINO, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. RELATED PARTY TRANSACTIONS
LOANS TO RELATED PARTIES
In January 2002, the Company made a $200,000 employee loan to Mr. Michael
Kelly, Executive Vice President and Chief Operating Officer of the Company. This
loan bears no interest and is due and payable in full in January 2005. In both
March 2003 and March 2004, Mr. Kelly paid $67,000 in accordance with the loan
agreement. As of June 30, 2004, the outstanding balance was $66,000.
TRANSACTIONS BY OR WITH AFFILIATES
On February 11, 2004, the Company acquired approximately 170 acres of
land located adjacent to the Buffington Harbor gaming complex from an affiliate
(the "GNC Land"). The purchase price was approximately $21.9 million (net of a
deposit of $2.0 million and a credit of $1.5 million related to the naming
rights agreement discussed below).
Gary New Century, LLC ("GNC"), a company wholly-owned by Mr. Barden,
intended to develop an outdoor amphitheater on property it owned adjacent to
Majestic Star. The Company entered into a Naming Rights Agreement with GNC
effective in October 2001. Pursuant to the Naming Rights Agreement, GNC agreed
to use the name "The Majestic Star Amphitheater" as the name of the amphitheater
and the Company paid GNC $1.5 million during 2001 for such rights. The initial
term of the Naming Rights Agreement was three years commencing on the opening of
the amphitheater. The Naming Rights Agreement was terminated in connection with
the acquisition of the GNC Land by the Company and the Company received a credit
of $1.5 million against the purchase price of the GNC Land at closing.
In April 2003, the Company, as authorized by the indentures governing the
10 7/8% notes and the 11.653% notes, made income tax distributions totaling
$1.0 million to its sole member.
MANAGER AGREEMENT
During the six months ended June 30, 2004, Majestic Star made
distributions totaling $2.5 million to BDI pursuant to a new Manager Agreement
(see below). Majestic Star made distributions totaling $0.8 million for the six
months ended June 30, 2003 related to the prior Majestic Star manager agreement.
Investor Holdings made a distribution of $1.8 million for the six months
ended June 30, 2003 related to the prior Investor Holdings manager agreement.
On October 7, 2003, concurrent with the consummation of the offering of
the 9 1/2% notes, the Company entered into a new Manager Agreement with BDI.
Distributions to BDI under the new Manager Agreement are governed and limited by
the terms of the indenture governing the 9 1/2% notes and by the terms of the
$80.0 million credit facility. The distributions for each fiscal quarter may not
exceed 1% of the Company's consolidated net operating revenue and 5% of the
Company's consolidated cash flow (as defined in the indenture governing the 9
1/2% notes and the Loan and Security Agreement for the $80.0 million credit
facility) for the immediately preceding fiscal quarter.
20
THE MAJESTIC STAR CASINO, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
BARDEN NEVADA EXPENSE SHARING AGREEMENT
Concurrent with the consummation of the offering of the 9 1/2% notes, the
Company entered into an expense sharing agreement with Barden Nevada. The
expense sharing agreement provides for a fee from Barden Nevada to the Company
in the amount of the greater of (i) $0.5 million per year or (ii) the actual
amount of certain specified expenses incurred by the Company in connection with
providing management services to Barden Nevada. During the six months ended June
30, 2004, the expense sharing fees charged to Barden Nevada were $0.6 million.
NOTE 9. SEGMENT INFORMATION
The Majestic Star Casino, LLC either directly or indirectly through
wholly-owned subsidiaries owns and operates three properties as follows: a
riverboat casino located in Gary, Indiana; a casino and hotel located in Tunica,
Mississippi; and a casino located in Black Hawk, Colorado (collectively, the
"Properties").
The Company identifies its business in three segments based on geographic
location. The Properties, in each of their segments, market primarily to
middle-income guests. The major products offered in each segment are as follows:
casino, hotel rooms (in Tunica, Mississippi only), 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, 2003. There are minimal
inter-segment sales.
A summary of the Properties' operations by business segment for the three
and six months ended June 30, 2004 and 2003 and a summary of the Properties'
segment assets as of June 30, 2004 and December 31, 2003 are presented below:
21
THE MAJESTIC STAR CASINO, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the Three Months For the Six Months
Ended June 30, Ended June 30
-------------------------- --------------------------
2004 2003 2004 2003
--------- --------- --------- ---------
(in thousands)
Net revenues:
Majestic Star Casino $ 39,268 $ 34,251 $ 79,229 $ 70,227
Fitzgeralds Tunica 22,357 22,688 45,840 45,654
Fitzgeralds Black Hawk 10,096 8,535 18,945 16,450
--------- --------- --------- ---------
Total $ 71,721 $ 65,474 $ 144,014 $ 132,331
========= ========= ========= =========
Operating income (loss):
Majestic Star Casino $ 5,251 $ 3,326 $ 8,060 $ 9,571
Fitzgeralds Tunica 3,051 3,076 7,067 7,780
Fitzgeralds Black Hawk 2,801 1,740 4,843 3,113
Corporate (1) (875) (778) (1,680) (1,661)
Majestic Investor Holdings (31) (688) (528) (1,354)
--------- --------- --------- ---------
Total $ 10,197 $ 6,676 $ 17,762 $ 17,449
========= ========= ========= =========
Segment depreciation and amortization:
Majestic Star Casino $ 1,880 $ 1,394 $ 3,793 $ 2,809
Fitzgeralds Tunica 2,175 1,928 4,234 3,833
Fitzgeralds Black Hawk 471 412 929 823
Majestic Investor Holdings 69 666 139 1,332
--------- --------- --------- ---------
Total $ 4,595 $ 4,400 $ 9,095 $ 8,797
========= ========= ========= =========
Expenditure for additions to long-lived assets:
Majestic Star Casino $ 1,790 $ 1,413 $ 25,456 $ 2,336
Fitzgeralds Tunica 2,625 1,529 3,069 1,796
Fitzgeralds Black Hawk 581 523 636 772
Fitzgeralds Las Vegas (2) -- 373 -- 920
--------- --------- --------- ---------
Total $ 4,996 $ 3,838 $ 29,161 $ 5,824
========= ========= ========= =========
As of As of
June 30, December 31,
Segment assets: 2004 2003
--------- ---------
Majestic Star Casino $ 280,056 $ 269,926
Fitzgeralds Tunica 82,285 84,458
Fitzgeralds Black Hawk 30,425 30,498
Majestic Investor Holdings 51,623 64,639
--------- ---------
Total $ 444,389 $ 449,521
Less: Intercompany (190,538) (216,306)
--------- ---------
Total $ 253,851 $ 233,215
========= =========
(1) Corporate expenses reflect payroll, benefits, travel and other costs
associated with our corporate staff and are not allocated to the
properties.
(2) The equity interests in Fitzgeralds Las Vegas were spun off to BDI on
December 31, 2003. Prior to the spin-off, the assets of Fitzgeralds Las
Vegas were reflected as held for use.
22
THE MAJESTIC STAR CASINO, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION
The proceeds from the issuance of the 9 1/2% notes and approximately
$28.0 million of the $80.0 million credit facility were used to purchase and
redeem all of the 10 7/8% notes and purchase substantially all of the 11.653%
notes. Under the indenture governing the 9 1/2% notes and the Loan and Security
Agreement for the $80.0 million credit facility, Fitzgeralds Tunica and
Fitzgeralds Black Hawk remain as guarantors; however, Fitzgeralds Las Vegas
became an unrestricted and non-guarantor subsidiary and was subsequently spun
off to BDI on December 31, 2003.
The following condensed consolidating information presents condensed
consolidating balance sheets as of June 30, 2004 and December 31, 2003,
condensed consolidating statements of operations for the three and six months
ended June 30, 2004 and 2003 and condensed consolidating statements of cash
flows for the six months ended June 30, 2004 and 2003 for The Majestic Star
Casino, LLC, The Majestic Star Casino Capital Corp. (a co-issuer of the 9 1/2%
notes), the guarantor subsidiaries, our discontinued operation, and eliminating
entries necessary to consolidate such entities.
23
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEETS
As of June 30, 2004
(unaudited)
The Majestic The Majestic
Star Casino, Star Casino Guarantor Eliminating Total
LLC Capital Corp. Subsidiaries Entries Consolidated
--------------- --------------- --------------- ----------------- --------------
ASSETS
Current Assets:
Cash and cash equivalents $ 10,157,927 $ -- $ 10,554,655 $ -- $ 20,712,582
Restricted cash 900,000 -- 890,008 -- 1,790,008
Accounts receivable, net 2,133,770 -- 613,005 -- 2,746,775
Inventories 56,205 -- 665,322 -- 721,527
Prepaid expenses 4,342,751 -- 774,226 -- 5,116,977
Receivables from affiliate 380,373 -- 23,804 (283,479)(a) 120,698
Note receivable from related party 66,000 -- -- -- 66,000
------------- ------------- ------------- ---------------- -------------
Total current assets 18,037,026 -- 13,521,020 (283,479) 31,274,567
------------- ------------- ------------- ---------------- -------------
Property, equipment and improvements, net 78,365,237 -- 86,488,417 -- 164,853,654
Intangible assets, net -- -- 8,575,080 -- 8,575,080
Goodwill -- -- 5,922,398 -- 5,922,398
Other assets:
Deferred financing costs, net 5,326,145 -- 484,357 -- 5,810,502
Investment in Buffington Harbor
Riverboat, LLC 28,566,851 -- -- -- 28,566,851
Long term receivable - related party 132,545,427 -- -- (132,545,427)(a) --
Other assets 8,214,414 -- 633,457 -- 8,847,871
------------- ------------- ------------- ---------------- -------------
Total other assets 174,652,837 -- 1,117,814 (132,545,427) 43,225,224
------------- ------------- ------------- ---------------- -------------
Total Assets $ 271,055,100 $ -- $ 115,624,729 $ (132,828,906) $ 253,850,923
============= ============= ============= ================ =============
LIABILITIES AND MEMBER'S DEFICIT
Current Liabilities:
Accounts payable $ 1,310,757 $ -- $ 1,291,900 $ -- $ 2,602,657
Other accrued liabilities:
Payroll and related 2,533,541 -- 4,114,605 -- 6,648,146
Payable to related party -- -- 283,479 (283,479)(a) --
Interest 5,503,390 -- 158,189 -- 5,661,579
Progressive jackpots 862,443 -- 2,284,795 -- 3,147,238
Slot club liabilities 203,714 -- 562,367 -- 766,081
Other accrued liabilities 12,063,038 -- 2,731,853 -- 14,794,891
------------- ------------- ------------- ---------------- -------------
Total current liabilities 22,476,883 -- 11,427,188 (283,479) 33,620,592
------------- ------------- ------------- ---------------- -------------
Investment in subsidiaries 44,172,783 -- -- (44,172,783)(b) --
Due to related parties -- -- 132,545,427 (132,545,427)(a) --
Long-term debt, net of current maturities 305,640,000 260,000,000 15,824,897 (260,000,000)(c) 321,464,897
------------- ------------- ------------- ---------------- -------------
Total Liabilities 372,289,666 260,000,000 159,797,512 (437,001,689) 355,085,489
------------- ------------- ------------- ---------------- -------------
Member's Deficit (101,234,566) (260,000,000) (44,172,783) 304,172,783(b)(c) (101,234,566)
------------- ------------- ------------- ---------------- -------------
Total Liabilities and Member's Deficit $ 271,055,100 $ -- $ 115,624,729 $ (132,828,906) $ 253,850,923
============= ============= ============= ================ =============
(a) To eliminate intercompany receivables and payables.
(b) To eliminate intercompany accounts and investment in subsidiaries.
(c) As more fully described in Note 6, Long-Term Debt, The Majestic Star
Casino Capital Corp. is a co-obligor of the 9 1/2% notes issued by the
Company. Accordingly, such indebtedness has been presented as an
obligation of both the issuer and the co-obligor in the above balance
sheet.
24
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEETS
As of December 31, 2003
The Majestic The Majestic
Star Casino, Star Casino Guarantor Eliminating Total
LLC Capital Corp. Subsidiaries Entries Consolidated
-------------- ------------- ------------- --------------- -------------
ASSETS
Current Assets:
Cash and cash equivalents $ 10,929,430 $ -- $ 11,128,586 $ -- $ 22,058,016
Restricted cash 900,000 -- 500,000 -- 1,400,000
Accounts receivable, net 1,544,483 -- 668,063 -- 2,212,546
Inventories 77,312 -- 630,373 -- 707,685
Prepaid expenses 1,628,044 -- 498,539 -- 2,126,583
Receivable from affiliate 587,254 -- -- (377,119)(a) 210,135
Note receivable from related party 133,000 -- -- -- 133,000
-------------- ------------- ------------- -------------- -------------
Total current assets 15,799,523 -- 13,425,561 (377,119) 28,847,965
-------------- ------------- ------------- -------------- -------------
Property, equipment and improvements, net 54,849,742 -- 87,318,189 -- 142,167,931
Intangible assets, net -- -- 9,249,247 -- 9,249,247
Goodwill -- -- 5,922,398 -- 5,922,398
Other assets:
Deferred financing costs, net 5,734,214 -- 554,973 -- 6,289,187
Investment in Buffington Harbor
Riverboat, LLC 29,733,594 -- -- -- 29,733,594
Long term receivable - related party 144,395,427 -- -- (144,395,427)(a) --
Other assets 10,412,477 -- 591,979 -- 11,004,456
-------------- ------------- ------------- -------------- -------------
Total other assets 190,275,712 -- 1,146,952 (144,395,427) 47,027,237
-------------- ------------- ------------- -------------- -------------
Total Assets $ 260,924,977 $ -- $ 117,062,347 $ (144,772,546) $ 233,214,778
============== ============= ============= ============== =============
LIABILITIES AND MEMBER'S DEFICIT
Current Liabilities:
Accounts payable $ 5,457,108 $ -- $ 930,847 $ -- $ 6,387,955
Payable to related party -- -- 377,366 (377,119)(a) 247
Accrued liabilities:
Payroll and related 2,588,039 -- 3,899,068 -- 6,487,107
Interest 5,865,514 -- 158,189 -- 6,023,703
Progressive jackpots 608,234 -- 2,065,428 -- 2,673,662
Slot club liabilities -- -- 498,070 -- 498,070
Other accrued liabilities 8,003,123 -- 3,592,542 -- 11,595,665
------------- ------------- ------------- -------------- -------------
Total current liabilities 22,522,018 -- 11,521,510 (377,119) 33,666,409
------------- ------------- ------------- -------------- -------------
Investment in subsidiaries 54,611,421 -- -- (54,611,421)(b) --
Due to related parties -- -- 144,395,427 (144,395,427)(a) --
Long-term debt, net of current maturities 285,958,493 260,000,000 15,756,831 (260,000,000)(c) 301,715,324
------------- ------------- ------------- --------------- -------------
Total Liabilities 363,091,932 260,000,000 171,673,768 (459,383,967) 335,381,733
------------- ------------- ------------- --------------- -------------
Member's Deficit (102,166,955) (260,000,000) (54,611,421) 314,611,421 (b)(c) (102,166,955)
------------- ------------- ------------- --------------- -------------
Total Liabilities and Member's Deficit $ 260,924,977 $ - $ 117,062,347 $ (144,772,546) $ 233,214,778
============= ============= ============= =============== =============
(a) To eliminate intercompany receivables and payables.
(b) To eliminate intercompany accounts and investment in subsidiaries.
(c) As more fully described in Note 6, Long-Term Debt, The Majestic Star
Casino Capital Corp. is a co-obligor of the 9 1/2% notes issued by the
Company. Accordingly, such indebtedness has been presented as an
obligation of both the issuer and the co-obligor in the above balance
sheet.
25
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended June 30, 2004
(unaudited)
The Majestic The Majestic
Star Casino, Star Casino Guarantor Eliminating Total
LLC Capital Corp. Subsidiaries Entries Consolidated
----------- ------------ ------------ ------------ ------------
OPERATING REVENUES:
Casino $38,698,144 $ -- $ 31,911,142 $ -- $ 70,609,286
Rooms -- -- 1,919,669 -- 1,919,669
Food and beverage 451,048 -- 2,673,665 -- 3,124,713
Other 728,988 -- 426,248 -- 1,155,236
----------- ------------ ------------ ------------ ------------
Gross revenues 39,878,180 -- 36,930,724 -- 76,808,904
Less promotional allowances 609,888 -- 4,477,972 -- 5,087,860
----------- ------------ ------------ ------------ ------------
Net operating revenues 39,268,292 -- 32,452,752 -- 71,721,044
----------- ------------ ------------ ------------ ------------
OPERATING COSTS AND EXPENSES:
Casino 10,037,410 -- 12,227,523 -- 22,264,933
Rooms -- -- 467,054 -- 467,054
Food and beverage 510,863 -- 865,558 -- 1,376,421
Other 65,646 -- 257,905 -- 323,551
Gaming taxes 11,146,341 -- 4,181,083 -- 15,327,424
Advertising and promotion 2,416,376 -- 1,766,665 -- 4,183,041
General and administrative 6,176,934 -- 4,131,865 -- 10,308,799
Corporate expense 874,680 -- -- -- 874,680
Economic incentive - City of Gary 1,159,082 -- -- -- 1,159,082
Depreciation and amortization 1,880,122 -- 2,715,365 -- 4,595,487
Loss on investment in Buffington
Harbor Riverboats, LLC 625,507 -- -- -- 625,507
(Gain) loss on disposal of assets (746) -- 19,048 -- 18,302
----------- ------------ ------------ ------------ ------------
Total operating costs and expenses 34,892,215 -- 26,632,066 -- 61,524,281
----------- ------------ ------------ ------------ ------------
Operating income 4,376,077 -- 5,820,686 -- 10,196,763
----------- ------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income 2,597 -- 2,692 -- 5,289
Interest expense (6,721,673) -- (474,567) -- (7,196,240)
Other non-operating expense (95,639) -- -- -- (95,639)
Equity in net income of subsidiaries 5,348,811 -- -- (5,348,811)(a) --
----------- ------------ ------------ ------------ ------------
Total other expense (1,465,904) -- (471,875) (5,348,811) (7,286,590)
----------- ------------ ------------ ------------ ------------
Net income $ 2,910,173 $ -- $ 5,348,811 $ (5,348,811) $ 2,910,173
=========== ============ ============ ============ ============
(a) To eliminate equity in net income of subsidiaries.
26
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended June 30, 2003
(unaudited)
The Majestic The Majestic
Star Casino, Star Casino Guarantor Discontinued Eliminating Total
LLC Capital Corp. Subsidiaries Operation(b) Entries Consolidated
----------- ------------ ------------ ------------ ------------ -----------
OPERATING REVENUES:
Casino $33,598,792 $ -- $ 30,203,483 $ -- $ -- $63,802,275
Rooms -- -- 1,960,836 -- -- 1,960,836
Food and beverage 343,563 -- 2,798,974 -- -- 3,142,537
Other 629,151 -- 420,219 -- -- 1,049,370
----------- ------------ ------------ ------------ ------------ -----------
Gross revenues 34,571,506 -- 35,383,512 -- -- 69,955,018
Less promotional allowances 320,055 -- 4,160,694 -- -- 4,480,749
----------- ------------ ------------ ------------ ------------ -----------
Net operating revenues 34,251,451 -- 31,222,818 -- -- 65,474,269
----------- ------------ ------------ ------------ ------------ -----------
OPERATING COSTS AND EXPENSES:
Casino 9,130,864 -- 12,525,448 -- -- 21,656,312
Rooms -- -- 660,398 -- -- 660,398
Food and beverage 419,726 -- 958,611 -- -- 1,378,337
Other -- -- 267,487 -- -- 267,487
Gaming taxes 11,427,754 -- 3,738,370 -- -- 15,166,124
Advertising and promotion 1,487,895 -- 2,078,011 -- -- 3,565,906
General and administrative 5,456,459 -- 3,870,919 -- -- 9,327,378
Corporate expense 421,951 -- 355,892 -- -- 777,843
Economic incentive - City of Gary 1,011,164 -- -- -- -- 1,011,164
Depreciation and amortization 1,394,607 -- 3,005,855 -- -- 4,400,462
Loss on investment in Buffington
Harbor Riverboats, LLC 595,159 -- -- -- -- 595,159
Loss (gain) on disposal of assets 1,199 -- (9,961) -- -- (8,762)
----------- ------------ ------------ ------------ ------------ -----------
Total operating costs and expenses 31,346,778 -- 27,451,030 -- -- 58,797,808
----------- ------------ ------------ ------------ ------------ -----------
Operating income 2,904,673 -- 3,771,788 -- -- 6,676,461
----------- ------------ ------------ ------------ ------------ -----------
OTHER INCOME (EXPENSE):
Interest income 15,935 -- 10,331 -- -- 26,266
Interest expense (3,534,451) -- (4,421,439) -- -- (7,955,890)
Other non-operating expense (37,219) -- (9,421) -- -- (46,640)
Equity in net loss of subsidiaries (978,435) -- (329,694) -- 1,308,129 (a) --
----------- ------------ ------------ ------------ ------------ -----------
Total other expense (4,534,170) -- (4,750,223) -- 1,308,129 (7,976,264)
----------- ------------ ------------ ------------ ------------ -----------
Loss from continuing operations (1,629,497) -- (978,435) -- 1,308,129 (1,299,803)
Loss from discontinued operation -- -- (329,694) -- (329,694)
----------- ------------ ------------ ------------ ------------ -----------
Net loss $(1,629,497) $ -- $ (978,435) $ (329,694) $ 1,308,129 $(1,629,497)
=========== ============ ============ ============ ============ ===========
(a) To eliminate equity in net loss of subsidiaries.
(b) The Discontinued Operation reflects the operations of Fitzgeralds Las
Vegas, which is not a guarantor of the 9 1/2% notes and was spun off to
BDI on December 31, 2003.
27
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2004
(unaudited)
The Majestic The Majestic
Star Casino, Star Casino Guarantor Eliminating Total
LLC Capital Corp. Subsidiaries Entries Consolidated
------------- ------------- ------------- ------------- -------------
OPERATING REVENUES:
Casino $ 77,904,303 $ -- $ 63,747,486 $ -- $ 141,651,789
Rooms -- -- 3,793,506 -- 3,793,506
Food and beverage 938,241 -- 5,530,932 -- 6,469,173
Other 1,341,886 -- 872,994 -- 2,214,880
------------- ------ ------------- ------------- -------------
Gross revenues 80,184,430 -- 73,944,918 -- 154,129,348
Less promotional allowances 955,552 -- 9,160,083 -- 10,115,635
------------- ------ ------------- ------------- -------------
Net operating revenues 79,228,878 -- 64,784,835 -- 144,013,713
------------- ------ ------------- ------------- -------------
OPERATING COSTS AND EXPENSES:
Casino 20,696,155 -- 24,676,296 -- 45,372,451
Rooms -- -- 932,296 -- 932,296
Food and beverage 1,061,900 -- 1,771,963 -- 2,833,863
Other 65,646 -- 499,438 -- 565,084
Gaming taxes 22,210,245 -- 8,301,293 -- 30,511,538
Advertising and promotion 4,407,442 -- 3,524,855 -- 7,932,297
General and administrative 15,361,415 -- 8,372,966 -- 23,734,381
Corporate expense 1,680,286 -- -- -- 1,680,286
Economic incentive - City of Gary 2,336,237 -- -- -- 2,336,237
Depreciation and amortization 3,792,530 -- 5,302,803 -- 9,095,333
Loss on investment in Buffington
Harbor Riverboats, LLC 1,238,348 -- -- -- 1,238,348
(Gain) loss on disposal of assets (1,662) -- 21,019 -- 19,357
------------- ------ ------------- ------------- -------------
Total operating costs and expenses 72,848,542 -- 53,402,929 -- 126,251,471
------------- ------ ------------- ------------- -------------
Operating income 6,380,336 -- 11,381,906 -- 17,762,242
------------- ------ ------------- ------------- -------------
OTHER INCOME (EXPENSE):
Interest income 4,535 -- 5,868 -- 10,403
Interest expense (13,305,149) -- (949,136) -- (14,254,285)
Other non-operating expense (123,847) -- -- -- (123,847)
Equity in net income of subsidiaries 10,438,638 -- -- (10,438,638) (a) --
------------- ------ ------------- ------------- -------------
Total other expense (2,985,823) -- (943,268) (10,438,638) (14,367,729)
------------- ------ ------------- ------------- -------------
Net income $ 3,394,513 $ -- $ 10,438,638 $ (10,438,638) $ 3,394,513
============= ====== ============= ============= =============
(a) To eliminate equity in net income of subsidiaries.
28
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2003
(unaudited)
The Majestic The Majestic
Star Casino, Star Casino Guarantor Discontinued Eliminating Total
LLC Capital Corp. Subsidiaries Operation (b) Entries Consolidated
------------ ------------ ------------ ------------ ---------- -------------
OPERATING REVENUES:
Casino $ 68,930,965 $ -- $ 60,127,513 $ -- $ -- $ 129,058,478
Rooms -- -- 3,886,505 -- -- 3,886,505
Food and beverage 735,485 -- 5,627,250 -- -- 6,362,735
Other 1,199,949 -- 784,586 -- -- 1,984,535
------------- -------- ------------- ------------- ------------- -------------
Gross revenues 70,866,399 -- 70,425,854 -- -- 141,292,253
Less promotional allowances 639,526 -- 8,322,181 -- -- 8,961,707
------------- -------- ------------- ------------- ------------- -------------
Net operating revenues 70,226,873 -- 62,103,673 -- -- 132,330,546
------------- -------- ------------- ------------- ------------- -------------
OPERATING COSTS AND EXPENSES:
Casino 17,933,934 -- 23,999,897 -- -- 41,933,831
Rooms -- -- 1,263,235 -- -- 1,263,235
Food and beverage 803,588 -- 1,875,352 -- -- 2,678,940
Other -- -- 519,658 -- -- 519,658
Gaming taxes 21,168,527 -- 7,573,218 -- -- 28,741,745
Advertising and promotion 3,202,880 -- 4,064,964 -- -- 7,267,844
General and administrative 11,341,646 -- 7,304,854 -- -- 18,646,500
Corporate expense 1,021,806 -- 639,224 -- -- 1,661,030
Economic incentive - City of Gary 2,071,411 -- -- -- -- 2,071,411
Depreciation and amortization 2,808,702 -- 5,988,263 -- -- 8,796,965
Loss on investment in Buffington
Harbor Riverboats, LLC 1,199,180 -- -- -- -- 1,199,180
Loss (gain) on disposal of assets 125,919 -- (24,961) -- -- 100,958
------------- -------- ------------- ------------- ------------- -------------
Total operating costs and expenses 61,677,593 -- 53,203,704 -- -- 114,881,297
------------- -------- ------------- ------------- ------------- -------------
Operating income 8,549,280 -- 8,899,969 -- -- 17,449,249
------------- -------- ------------- ------------- ------------- -------------
OTHER INCOME (EXPENSE):
Interest income 30,092 -- 31,916 -- -- 62,008
Interest expense (7,068,889) -- (8,842,799) -- -- (15,911,688)
Other non-operating expense (75,554) -- (18,900) -- -- (94,454)
Equity in net loss of subsidiaries (29,209) -- (99,395) -- 128,604 (a) --
------------- -------- ------------- ------------- ------------- -------------
Total other expense (7,143,560) -- (8,929,178) -- 128,604 (15,944,134)
------------- -------- ------------- ------------- ------------- -------------
Income (loss) from continuing
operations 1,405,720 -- (29,209) -- 128,604 1,505,115
Loss from discontinued operation -- -- (99,395) -- (99,395)
------------- -------- ------------- ------------- ------------- -------------
Net income (loss) $ 1,405,720 $ -- $ (29,209) $ (99,395) $ 128,604 $ 1,405,720
============= ======== ============= ============= ============= =============
(a) To eliminate equity in net loss of subsidiaries.
(b) The Discontinued Operation reflects the operations of Fitzgeralds Las
Vegas, which is not a guarantor of the 9 1/2% notes and was spun off to
BDI on December 31, 2003.
29
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 2004
(unaudited)
The Majestic The Majestic
Star Casino, Star Casino Guarantor Eliminating Total
LLC Capital Corp. Subsidiaries Entries Consolidated
------------ ------------ ------------ ------------ ------------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES: $ (4,445,270) $ -- $ 15,346,838 $ -- $ 10,901,568
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition of property and equipment (25,455,822) -- (3,704,922) -- (29,160,744)
Increase in restricted cash -- -- (390,008) -- (390,008)
Decrease in prepaid leases and deposits 7,284 -- -- -- 7,284
Investment in Buffington Harbor
Riverboats, LLC
(71,606) -- -- -- (71,606)
Proceeds from disposal of equipment 167,412 -- 24,161 -- 191,573
------------ ------------ ------------ ------------ ------------
Net cash used in investing activities (25,352,732) -- (4,070,769) -- (29,423,501)
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance cost for the 9-1/2% senior
secured notes (58,652) -- -- -- (58,652)
Issuance cost for credit facility (51,232) -- -- -- (51,232)
Proceeds from line of credit 27,901,293 -- -- -- 27,901,293
Repayment of line of credit (8,219,786) -- -- -- (8,219,786)
Cash received from (advanced to)
related parties 11,917,000 (11,850,000) -- 67,000
Distribution to Barden Development, Inc. (2,462,124) -- -- -- (2,462,124)
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
financing activities 29,026,499 -- (11,850,000) -- 17,176,499
------------ ------------ ------------ ------------ ------------
Net decrease in cash and cash equivalents (771,503) -- (573,931) -- (1,345,434)
Cash and cash equivalents, beginning of period 10,929,430 -- 11,128,586 -- 22,058,016
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents, end of period $ 10,157,927 $ -- $ 10,554,655 $ -- $ 20,712,582
============ ============ ============ ============ ============
30
THE MAJESTIC STAR CASINO, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE. 10 SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 2003
(unaudited)
The Majestic The Majestic
Star Casino, Star Casino Guarantor Discontinued Eliminating Total
LLC Capital Corp. Subsidiaries Operation(a) Entries Consolidated
------------ ------------- ------------ ------------ ------------- ------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES: $ 13,225,762 $ -- $ 4,646,876 $ 693,417 $ -- $ 18,566,055
------------ ----------- ------------ ------------ ------------- ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Increase in restricted cash -- -- (250,000) -- -- (250,000)
Acquisition of property and equipment (2,336,333) -- (2,567,426) (920,046) -- (5,823,805)
Cash paid in excess of historical cost
for land purchased from a related party (559,806) -- -- -- -- (559,806)
Investment in Buffington Harbor
Riverboats, LLC 3,500 -- -- -- -- 3,500
Proceeds from disposal of equipment 14,750 -- 27,725 6,264 -- 48,739
------------ ----------- ------------ ------------ ------------- ------------
Net cash used in investing activities (2,877,889) -- (2,789,701) (913,782) -- (6,581,372)
------------ ----------- ------------ ------------ ------------- ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payment of 11.653% notes issuance costs -- -- (2,337) -- -- (2,337)
Repayment of long-term debt -- -- -- (94,392) -- (94,392)
Repayment of notes from related parties 367,000 -- 700,000 -- -- 1,067,000
Distribution to Barden Development, Inc. (1,476,901) -- (2,089,079) -- -- (3,565,980)
------------ ----------- ------------ ------------ ------------- ------------
Net cash used in financing activities (1,109,901) -- (1,391,416) (94,392) -- (2,595,709)
Net increase (decrease) in cash and cash
equivalents 9,237,972 -- 465,759 (314,757) -- 9,388,974
Cash and cash equivalents, beginning
of period 8,564,057 -- 11,588,218 4,395,606 -- 24,547,881
------------ ----------- ------------ ------------ ------------- ------------
Cash and cash equivalents, end of period $ 17,802,029 $ -- $ 12,053,977 $ 4,080,849 $ -- $ 33,936,855
============ =========== ============ ============ ============= ============
(a) The Discontinued Operation reflects the operations of Fitzgeralds Las
Vegas, which is not a guarantor of the 9 1/2% notes and was spun off to
BDI on December 31, 2003.
31
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
STATEMENT ON FORWARD-LOOKING INFORMATION
Throughout this report we make forward-looking statements. Forward-looking
statements include the words "may," "will," "would," "could," "likely,"
"estimate," "intend," "plan," "continue," "believe," "expect" or "anticipate"
and other similar words and include all discussions about our acquisition and
development plans. We do not guarantee that the transactions and events
described in this report will happen as described or that any positive trends
noted in this report will continue. The forward-looking statements contained in
this report are generally located in the material set forth under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," but may be found in other locations as well. These forward-looking
statements generally relate to our plans, objectives and expectations for future
operations and are based upon management's reasonable estimates of future
results or trends. Although we believe that our plans and objectives reflected
in or suggested by such forward-looking statements are reasonable, we may not
achieve such plans or objectives. You should read this report completely and
with the understanding that actual future results may be materially different
from what we expect. We will not update forward-looking statements even though
our situation may change in the future.
Specific factors that might cause actual results to differ from our
expectations, or may cause us to modify our plans and objectives, include, but
are not limited to:
- - the availability and adequacy of our cash flow to meet our requirements,
including payment of amounts due under the $80.0 million credit facility,
the 11.653% notes and the 9 1/2% notes;
- - changes in our financial condition that may cause us to not be in
compliance with the covenants contained within the indenture governing the
9 1/2% notes or the Loan and Security Agreement governing the $80.0
million credit facility, and thus causing us to be in default with the
trustee for the 9 1/2% notes and the lenders to the $80.0 million credit
facility, requiring a payment acceleration on the debt obligations
outstanding;
- - changes or developments in laws, regulations or taxes in the casino and
gaming industry including increases in new taxes imposed on gaming
revenues, gaming devices or admission taxes;
- - increased competition in existing markets or the opening of new gaming
jurisdictions;
- - our failure to obtain, delays in obtaining or the loss of any licenses,
permits or approvals, including gaming and liquor licenses, or the
limitation or conditioning of any such licenses, permits or approvals, or
our failure to obtain an unconditional renewal of any such licenses,
permits or approvals on a timely basis;
- - adverse determinations of issues related to disputed taxes, particularly
in Indiana, as evidenced by the charge in the current year of retroactive
property taxes and the recent ruling in the Aztar case, which denied
Aztar's deductions of taxes paid on its casino revenue
32
on its Indiana state income tax return for which Majestic Star's member
faces a similar issue;
- - other adverse conditions, such as adverse weather and economic conditions
in the Company's markets, changes in general customer confidence or
spending, increased fuel and transportation costs, or travel concerns
that may adversely affect the economy in general and/or the casino and
gaming industry in particular;
- - the ability to fund capital improvements and development needs from
existing operations, available credit, or new financing;
- - risk of our joint venture partner, Trump Indiana, Inc., not making its
lease payments when due in connection with the parking facility in Gary,
Indiana or failing to fund the BHR joint venture, and potential adverse
effects from THCR's announced restructuring plans;
- - the failure of the purchaser to close on the sale of our casino in Black
Hawk, Colorado thus restricting the ability of the Company to invest in
new projects or the inability of the Company to find an economically
viable project to invest the net proceeds after closing, thus causing the
Company to pay down on the $80.0 million credit facility and take a
permanent reduction in the $80.0 million credit facility by the amount of
the pay down and to purchase the Company's 9 1/2% notes with any remaining
proceeds;
- - the potential disruption to our casino operation in Black Hawk, Colorado
if rocks on a cliff wall adjacent to our parking garage should become
dislodged and thus damage our property;
- - the loss of key employees or our managers;
- - factors relating to the current state of world affairs and any further
acts of terrorism or any other destabilizing events in the United States
or elsewhere;
- - other factors discussed under "Factors that May Affect Future Results" in
our December 31, 2003 Form 10-K in Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" or elsewhere in
that report or that may be disclosed from time to time in filings we make
with the SEC or otherwise.
All future written and verbal forward-looking statements attributable to us
or any person acting on our behalf are expressly qualified in their entirety by
the cautionary statements contained or referred to in this section. In light of
these risks, uncertainties and assumptions, the forward-looking events discussed
in this report might not occur.
The following discussion should be read in conjunction with, and is
qualified in its entirety by, our financial statements, including the notes
thereto.
EXECUTIVE OVERVIEW
The Company
The Majestic Star Casino, LLC and its subsidiaries (collectively, the
"Company"), operate a riverboat gaming facility located in Gary, Indiana
("Majestic Star") and two Fitzgeralds-brand casino-hotels located in Tunica
County, Mississippi ("Barden Mississippi" or "Fitzgeralds
33
Tunica") and Black Hawk, Colorado (casino only) ("Barden Colorado" or
"Fitzgeralds Black Hawk"). Fitzgeralds Tunica and Fitzgeralds Black Hawk are
collectively referred to herein as the "Fitzgeralds Casinos." The Company, for a
fee, manages the operations of Barden Nevada Gaming, LLC ("Barden Nevada" or
"Fitzgeralds Las Vegas"). Fitzgeralds Las Vegas was spun off to Barden
Development, Inc. ("BDI"), the Company's parent, effective on December 31, 2003.
Because the spin-off of Fitzgeralds Las Vegas was effective December 31, 2003,
the discussion of our historical operating results in this section does not
include the financial results of Fitzgeralds Las Vegas except to the extent it
is a discontinued operation.
Overall Operating Results
Consolidated gross operating revenues in the three-month period ended June
30, 2004 of $76.8 million increased $6.9 million or 9.8% over consolidated gross
operating revenues of $70.0 million in the three-month period ended June 30,
2003. The increase is primarily due to the implementation and establishment of
new marketing programs, focus on providing our casino guests with the newest and
most appealing slot products, and disruption to competitors in the Black Hawk
market, which we believe is causing some of their casino customers to play at
our Black Hawk facility. Second quarter 2004 gross revenues at Fitzgeralds Black
Hawk were a property record. At Majestic Star, second quarter gross revenues
represent the second best quarter in the property's history trailing only the
gross revenues from the first quarter of this year. For the six-month period
ended June 30, 2004, gross revenues were $154.1 million, a 9.1% increase or
$12.8 million over the $141.3 million generated in the prior year. In addition
to the items above, our gross revenues were positively impacted by greater
promotional and complimentary awards, better weather conditions, particularly in
and around the Black Hawk area and public acceptance of remodeling and
improvements at our facilities. Both Majestic Star and Fitzgeralds Black Hawk
set property records for gross revenues in the six-month period ended June 30,
2004. We had a consolidated net income of $2.9 million during the three-month
period ended June 30, 2004 compared to a consolidated net loss of $1.6 million
during the same period in 2003. The improvement in quarterly net income was $4.5
million or 278.6%. The increase in net income is primarily due to our strong
gross revenues of which casino revenues were the primary contributor. Casino
revenues for the quarter increased $6.8 million or 10.7%. For the six-month
period ended June 30, 2004, net income increased to $3.4 million from $1.4
million in the prior year. Our $2.0 million or 141.5% increase in net income was
again driven by our substantial gross revenue growth, of which casino revenues
were again the primary contributor. Casino revenues for the six-month period
ended June 30, 2004 were $141.7 million compared to $129.1 million in the prior
year, an increase of $12.6 million or 9.8%.
An overview of the developments that affected our results during the three-
and six-month periods ended June 30, 2004, or that may affect future results are
listed below and discussed in greater detail in our discussion of operating
results:
- On July 12, 2004, the Company announced the sale of substantially all
of the assets of Fitzgeralds Black Hawk to Legends Gaming, LLC for
$66.0 million, subject to certain adjustments. It is anticipated that
the Company will utilize the net proceeds from the sale for investment
in its existing facilities, an acquisition of an existing casino
operation, development of a casino project in another jurisdiction,
repayment of amounts borrowed on the $80.0 million credit facility and
9 1/2% notes, or some combination of the above.
- On October 7, 2003, the Company completed a refinancing of
substantially all of its debt.
34
As a result of the refinancing, the Company was able to issue debt and
enter into a credit agreement with significantly lower interest rates,
which resulted in reduced interest expense of $0.8 million and $1.7
million for the three- and six- month periods ended June 30, 2004 when
compared to the same prior year periods.
- We spent $29.2 million on capital expenditures in the first half of
2004, principally for the acquisition of approximately 170 acres of
land from an affiliate. The purchase price of the land was $21.9
million and we paid $22.1 million, which includes capitalized legal
fees and other costs associated with consummating the transaction. We
also continue to invest in slot machine technology. At Majestic Star,
approximately one-half of our casino floor or over 850 slot machines is
now equipped with ticket-in ticket-out ("TITO") technology. We
anticipate the implementation of TITO on the majority of Majestic
Star's slot machines by year-end. We also plan to install TITO
technology on approximately 200 slot machines at Fitzgeralds Tunica and
approximately 120 slot machines at Fitzgeralds Black Hawk during the
second half of the year. We believe that TITO technology should lead to
greater efficiency on our casino floor and longer slot machine playing
times by our customers without interruptions.
- We continue to purchase the latest slot machine product at all of our
properties. We feel that the new slot machine product provides the game
features and entertainment that our slot customers are looking for.
- Impacting our 2004 and 2003 operating results are two non-recurring
charges. First, in March of this year, Majestic Star took a charge of
$2.2 million for retroactive property taxes. In May and June of 2003
Majestic Star took charges totaling $2.1 million for retroactive
gaming taxes.
- In the second quarter of 2004, Majestic Star's multimedia campaign
featuring Mike Ditka as the property's celebrity spokesperson was fully
implemented. In conjunction with the Mike Ditka marketing campaign, we
re-branded Majestic Star as the "Winning Place to Play". As a result of
our marketing efforts, we lead the market in growth and increased our
market share.
- The City of Gary is starting construction on new roads that will
provide better access to Majestic Star, Buffington Harbor and the 170
acres of property Majestic Star acquired from an affiliate in February
2004. Road construction costs will be paid from public funds. Road
construction is the first step to developing the 170 acres and is
scheduled to be completed in April of 2005.
- Within the Majestic Star vessel, construction of the new Don and Mike's
Sports Bar was completed and the bar opened on May 5, 2004. The Sports
Bar offers sports entertainment on 13 flat screen TV's, coupled with a
food and beverage operation. The Sports Bar contains 39 slot machines
and was constructed in the third floor players lounge. The new Sports
Bar has allowed us to close our first floor snack bar so that we can
expand our casino floor and add additional slot machines.
- The Majestic Star festival area has been completed and the first event
took place in mid-June 2004. We have tentatively scheduled numerous
additional events into October 2004.
35
Majestic Star intends to utilize the festival area to expand its market
reach.
- Majestic Star implemented a new, more competitive players club loyalty
program and remodeled the VIP lounge and its high limit table games
area known as the Monte Carlo Room.
- The matter of Aztar Indiana Gaming Corporation ("Aztar") v. Indiana
Department of State Revenue ("Department of Revenue") is now pending
before the Indiana Supreme Court. Earlier in the year, the Indiana Tax
Court denied Aztar's deduction of taxes paid on casino revenues when
computing Indiana state income tax. While The Majestic Star Casino, LLC
is a limited liability company and its income and expenses pass to its
member, the Department of Revenue has taken the position that The
Majestic Star Casino, LLC had a requirement to withhold and remit state
income tax. For the years 1996 and 1998, and the period January 1, 1999
to June 18, 2001, The Majestic Star Casino, LLC has been assessed $2.6
million by the Department of Revenue, exclusive of interest. The
Majestic Star Casino, LLC has estimated potential additional tax
liabilities of $3.1 million from the date of last assessment through
June 30, 2004, exclusive of interest. Under the indenture governing the
Company's 9 1/2% notes, the Company can and will make distributions to
fund its member's unpaid tax liabilities if necessary.
- In February 2004, Fitzgeralds Tunica completed a room remodeling
project with improvements to approximately 100 of the property's 507
hotel rooms. In June 2004, the property completed improvements to the
second floor of its casino, which includes larger restrooms, enhanced
cage and guest service areas and an expanded casino floor that provided
space for 90 additional slot machines, which became operational on July
9, 2004. The property also implemented a new slot monitoring and player
tracking system in June 2004 and is currently in the process of
converting slot machines from the old slot system to the new slot
system. We anticipate completion of the conversion process within the
next sixty days. The new system gives the property the ability to
better track and promote to its slot players.
- The Tunica River Park had its grand opening on March 18, 2004. The Park
is adjacent to our Fitzgeralds Tunica property. In addition, a
sightseeing riverboat recommenced operations concurrent with the grand
opening. Fitzgeralds Tunica can promote directly to passengers of the
riverboat. The property is refining its strategies to get park visitors
into the property.
- Starting in mid-September, there will be major bridge repair work on
U.S. Highway 6, the main road into Black Hawk, Colorado. We have been
advised that the road is expected to be closed for as long as 30 days,
thus impacting those gamblers coming to Black Hawk and Fitzgeralds
Black Hawk. The Black Hawk Casino Association is putting together a
multi-media campaign to educate those in the surrounding areas on other
routes to Black Hawk and to provide incentives for coming to Black Hawk
during this period. In addition, Fitzgeralds Black Hawk will be
increasing its marketing efforts to attract players; however, there can
be no assurance as to the success of these enhanced efforts during the
period of road closure nor that the repair work will be completed
within the time period scheduled.
36
- On July 1, 2004 Harrahs Entertainment Inc. ("Harrahs") completed its
acquisition of Horseshoe Gaming Holding Corp. ("Horseshoe"). Harrahs
and Horseshoe both operate casinos in northwest Indiana and Tunica,
Mississippi. The Company also operates casinos (Majestic Star and
Fitzgeralds Tunica) within these markets. While it is difficult
to determine the actual effects of the acquisition, the Harrahs
organization will have acquired the top competitor in these markets,
will have expanded its database of players and market share
significantly, and may be able to recognize operating synergies within
both markets.
- The recent announcements of Harrahs' proposed acquisition of Caesars
Entertainment, Inc. and MGM Mirage's ("MGM") proposed acquisition
announcement of Mandalay Resorts Group would give Harrahs and MGM
significant properties in and around the Company's properties and would
give these two large national gaming companies an even greater presence
in gaming on a national scale. As an example of property concentration,
Harrahs would now own five of the nine casinos in Tunica, Mississippi.
While it is difficult to determine the actual effects of these
acquisitions, both Harrahs and MGM will have acquired numerous casinos
providing an expanded database of players and greater market share in
many regions of the country, plus the potential to recognize operating
and administrative synergies.
- In early May 2004, the Ho-Chunk Indian Tribe unveiled plans to develop
a casino hotel complex in the south suburbs of Chicago. In addition,
discussions have occurred on granting three to four new casino licenses
in Illinois. These projects, if they materialize, could have a direct
impact on Majestic Star. The Company will monitor this situation as it
develops and will work to continue to enhance its gaming interests in
the region and the economic benefits that it brings to the surrounding
community.
- The Pokagon Band of Potawatomi Indians, a Federally recognized Native
American tribe, previously announced its desire to build a land-based
gaming operation in or around the City of New Buffalo, Michigan. In
August 2004, the Pokagons received a favorable ruling from the Michigan
Supreme Court regarding the validity of their compact with the State of
Michigan. While the Pokagons have other remaining legal and regulatory
matters that must be resolved prior to constructing a gaming facility,
if these matters are resolved by the Pokagons and a gaming facility is
constructed, then competition will most likely intensify in the
northwest Indiana market, for which Majestic Star competes for casino
customers.
- In June 2004, Myriad World Resorts of Tunica was granted permission by
the Mississippi Gaming Commission to build a $900.0 million, 540 acre
resort in Tunica, Mississippi. The resort will contain a hotel, golf
course, convention center and retail shops, and if constructed, could
greatly increase competition in the Tunica market, for which
Fitzgerald's Tunica competes for casino customers.
- The information contained above under "Statement on Forward Looking
Information" and the competitive factors set forth in Item 1. Business,
under the caption "Competition", in our December 31, 2003 Form 10-K
have had and will continue to have an effect on our operations.
37
RESULTS OF OPERATIONS
The following table sets forth information derived from the Company's
statements of operations expressed as a percentage of gross operating revenues.
CONSOLIDATED STATEMENTS OF OPERATIONS - PERCENTAGE OF GROSS OPERATING REVENUES
For the For the
Three months ended Six months ended
June 30, June 30,
------------------------------ ------------------------------
2004 2003 2004 2003
------------- -------------- ------------- -------------
OPERATING REVENUES:
Casino 91.9% 91.2% 91.9% 91.3%
Rooms 2.5% 2.8% 2.5% 2.8%
Food and beverage 4.1% 4.5% 4.2% 4.5%
Other 1.5% 1.5% 1.4% 1.4%
------------- -------------- ------------- -------------
Gross operating revenues 100.0% 100.0% 100.0% 100.0%
Less promotional allowances 6.6% 6.4% 6.6% 6.3%
------------- -------------- ------------- -------------
Net operating revenues 93.4% 93.6% 93.4% 93.7%
------------- -------------- ------------- -------------
OPERATING COSTS AND EXPENSES:
Casino 29.0% 31.0% 29.4% 29.7%
Rooms 0.6% 0.9% 0.6% 0.9%
Food and beverage 1.8% 2.0% 1.8% 1.9%
Other 0.4% 0.4% 0.4% 0.4%
Gaming taxes (1) 20.0% 21.7% 19.8% 20.3%
Advertising and promotion 5.5% 5.1% 5.2% 5.1%
General and administrative (2) 13.4% 13.3% 15.4% 13.2%
Corporate expenses 1.1% 1.1% 1.1% 1.2%
Economic incentive - City of Gary 1.5% 1.4% 1.5% 1.5%
Depreciation and amortization 6.0% 6.3% 5.9% 6.2%
Loss on investment in Buffington Harbor
Riverboats, LLC 0.8% 0.9% 0.8% 0.9%
Loss on sale of assets 0.0% 0.0% 0.0% 0.1%
------------- -------------- ------------- -------------
Total operating costs and expenses 80.1% 84.1% 81.9% 81.4%
------------- -------------- ------------- -------------
Operating income 13.3% 9.5% 11.5% 12.3%
------------- -------------- ------------- -------------
OTHER INCOME (EXPENSES):
Interest income -- 0.0% 0.0% 0.1%
Interest expense -9.4% -11.3% -9.2% -11.3%
Other non-operating expense -0.1% -0.1% -0.1% -0.1%
------------- -------------- ------------- -------------
Total other expenses -9.5% -11.4% -9.3% -11.3%
------------- -------------- ------------- -------------
Income (loss) from continuing operations 3.8% -1.9% 2.2% 1.0%
Loss from discontinued operations -- -0.4% -- 0.0%
------------- -------------- ------------- -------------
Net income (loss) 3.8% -2.3% 2.2% 1.0%
============= ============== ============= =============
(1) Gaming taxes includes the $2.1 million retroactive property charge in the
three- and six-month periods end June 30, 2003.
(2) General and administrative expenses for the six-months ended June 30, 2004
includes the $2.2 million retroactive property tax charge.
38
The following table provides certain selected financial information from our
consolidated statements of operations.
Consolidated
For the For the
Three months ended Six months ended
June 30, Percentage June 30, Percentage
----------------------- Increase ----------------------- Increase
2004 2003 (Decrease) 2004 2003 (Decrease)
----------- ---------- ------------- ---------- ---------- -------------
(in millions) (in millions)
Casino revenues $ 70.6 $ 63.8 10.7% $ 141.6 $ 129.0 9.8%
Room revenues 1.9 2.0 -2.1% 3.8 3.9 -2.4%
Food and beverage revenues 3.1 3.1 -0.6% 6.5 6.4 1.7%
Other revenues 1.2 1.1 10.1% 2.2 2.0 11.6%
----------- ---------- ------------- ---------- ---------- -------------
Gross operating revenues 76.8 70.0 9.8% 154.1 141.3 9.1%
Less promotional allowances 5.1 4.5 13.5% 10.1 9.0 12.9%
----------- ---------- ------------- ---------- ---------- -------------
Net operating revenues 71.7 65.5 9.5% 144.0 132.3 8.8%
Operating expenses 61.5 58.8 4.6% 126.3 114.9 9.9%
----------- ---------- ------------- ---------- ---------- -------------
Operating income 10.2 6.7 52.7% 17.7 17.4 1.8%
Other expenses (7.3) (8.0) -8.6% (14.3) (15.9) -9.9%
----------- ---------- ------------- ---------- ---------- -------------
Income (loss) from continuing
operations 2.9 (1.3) 323.9% 3.4 1.5 125.5%
Loss from discontinued operation -- (0.3) -100.0% -- (0.1) -100.0%
----------- ---------- ------------- ---------- ---------- -------------
Net income (loss) $ 2.9 $ (1.6) 278.6% $ 3.4 $ 1.4 141.5%
=========== ========== ============= ========== ========== =============
The following tables provide certain selected segment financial information
for each of the Majestic Star, Fitzgeralds Tunica, and Fitzgeralds Black Hawk,
as well as Majestic Investor Holdings (an intermediate holding company that owns
Fitzgeralds Tunica and Fitzgeralds Black Hawk). All amounts are shown before
corporate overhead.
Majestic Star
For the For the
Three months ended Six months ended
June 30, Percentage June 30, Percentage
----------------------- Increase ----------------------- Increase
2004 2003 (Decrease) 2004 2003 (Decrease)
---------- ---------- -------------- ----------- ---------- -------------
(in millions) (in millions)
Casino revenues $ 38.7 $ 33.6 15.2% $ 77.9 $ 68.9 13.0%
Room revenues -- -- 0.0% -- -- 0.0%
Food and beverage revenues 0.5 0.4 31.3% 0.9 0.7 27.6%
Other revenues 0.7 0.6 15.9% 1.4 1.2 11.8%
---------- ---------- -------------- ----------- ---------- -------------
Gross operating revenues 39.9 34.6 15.3% 80.2 70.8 13.1%
Less promotional allowances 0.6 0.3 90.6% 1.0 0.6 49.4%
---------- ---------- -------------- ----------- ---------- -------------
Net operating revenues 39.3 34.3 14.6% 79.2 70.2 12.8%
Operating expenses 34.0 30.9 9.9% 71.2 60.6 17.3%
---------- ---------- -------------- ----------- ---------- -------------
Operating income 5.3 3.4 66.2% 8.0 9.6 -15.8%
Other expense (6.8) (3.6) 91.7% (13.4) (7.1) 88.7%
---------- ---------- -------------- ----------- ---------- -------------
Net (loss) income $ (1.5) $ (0.2) 205.0% $ (5.4) $ 2.5 -318.3%
========== ========== ============== =========== ========== =============
39
Fitzgeralds Tunica
For the For the
Three months ended Six months ended
June 30, Percentage June 30, Percentage
----------------------- Increase ----------------------- Increase
2004 2003 (Decrease) 2004 2003 (Decrease)
---------- ---------- -------------- ----------- ---------- -------------
(in millions) (in millions)
Casino revenues $ 21.6 $ 21.4 0.9% $ 44.4 $ 43.2 2.7%
Room revenues 1.9 2.0 -2.1% 3.8 3.9 -2.4%
Food and beverage revenues 2.2 2.3 -7.4% 4.4 4.6 -4.2%
Other revenues 0.3 0.4 -10.2% 0.7 0.7 2.6%
---------- ---------- -------------- ----------- ---------- -------------
Gross operating revenues 26.0 26.1 -0.2% 53.3 52.4 1.7%
Less promotional allowances 3.6 3.4 8.6% 7.5 6.7 10.7%
---------- ---------- -------------- ----------- ---------- -------------
Net operating revenues 22.4 22.7 -1.5% 45.8 45.7 0.4%
Operating expenses 19.3 19.6 -1.5% 38.7 37.9 2.4%
---------- ---------- -------------- ----------- ---------- -------------
Operating income 3.1 3.1 -0.9% 7.1 7.8 -9.2%
Other income (expense) 0.0 0.0 -40.7% 0.0 0.0 -28.9%
---------- ---------- -------------- ----------- ---------- -------------
Net income $ 3.1 $ 3.1 -0.9% $ 7.1 $ 7.8 -9.2%
========== ========== ============== =========== ========== =============
Fitzgeralds Black Hawk
For the For the
Three months ended Six months ended
June 30, Percentage June 30, Percentage
----------------------- Increase ----------------------- Increase
2004 2003 (Decrease) 2004 2003 (Decrease)
---------- ---------- -------------- ----------- ---------- -------------
(in millions) (in millions)
Casino revenues $ 10.3 $ 8.7 17.1% $ 19.3 $ 16.9 14.5%
Room revenues -- -- -- -- -- --
Food and beverage revenues 0.5 0.5 8.9% 1.1 1.0 9.8%
Other revenues 0.1 0.1 65.6% 0.2 0.1 56.0%
---------- ---------- ------------- ----------- ----------- -------------
Gross operating revenues 10.9 9.3 17.0% 20.6 18.0 14.5%
Less promotional allowances 0.8 0.8 3.7% 1.7 1.6 7.4%
---------- ---------- -------------- ----------- ---------- -------------
Net operating revenues 10.1 8.5 18.3% 18.9 16.4 15.2%
Operating expenses 7.3 6.8 7.2% 14.1 13.3 5.7%
---------- ---------- -------------- ----------- ---------- -------------
Operating income 2.8 1.7 67.8% 4.8 3.1 55.6%
Other income (expense) -- -- -- -- -- --
---------- ---------- -------------- ----------- ---------- -------------
Net income $ 2.8 $ 1.7 67.8% $ 4.8 $ 3.1 55.6%
========== ========== ============== =========== ========== =============
40
Majestic Investor Holdings
For the For the
Three months ended Six months ended
June 30, Percentage June 30, Percentage
----------------------- Increase ----------------------- Increase
2004 2003 (Decrease) 2004 2003 (Decrease)
---------- ----------- ------------- ---------- ---------- -------------
(in millions) (in millions)
Casino revenues $ -- $ -- -- $ -- $ -- --
Room revenues -- -- -- -- -- --
Food and beverage revenues -- -- -- -- -- --
Other revenues -- -- -- -- -- --
---------- ----------- ------------- ---------- ---------- -------------
Gross operating revenues -- -- -- -- -- --
Less promotional allowances -- -- -- -- -- --
---------- ----------- ------------- ---------- ---------- -------------
Net operating revenues -- -- -- -- -- --
Operating expenses -- 0.7 -95.5% 0.5 1.4 -61.0%
---------- ----------- ------------- ---------- ---------- -------------
Operating loss -- (0.7) -95.5% (0.5) (1.4) -61.0%
Other expenses (0.5) (4.4) -89.3% (1.0) (8.8) -89.3%
---------- ----------- ------------- ---------- ---------- -------------
Loss from continuing operations (0.5) (5.1) -90.1% (1.5) (10.2) -85.5%
Loss from discontinued operation -- (0.3) -100.0% -- (0.1) -100.0%
---------- ----------- ------------- ---------- ---------- -------------
Net loss $ (0.5) $ (5.4) -90.7% $ (1.5) $ (10.3) -85.7%
========== =========== ============= ========== ========== =============
The following tables reflect selected financial information as a percentage
of consolidated gross operating revenues at the Majestic Star, Fitzgeralds
Tunica, Fitzgeralds Black Hawk and Majestic Investor Holdings. All percentage
calculations are shown before corporate overhead.
Majestic Star
For the For the
Three months ended Six months ended
June 30, June 30,
------------------------------ ------------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------
Casino revenues 50.4% 48.0% 50.5% 48.8%
Room revenues -- -- -- --
Food and beverage revenues 0.6% 0.5% 0.6% 0.6%
Other revenues 0.9% 0.9% 0.9% 0.8%
------------- ------------- ------------- -------------
Gross operating revenues 51.9% 49.4% 52.0% 50.2%
Less promotional allowances 0.8% 0.4% 0.6% 0.5%
------------- ------------- ------------- -------------
Net operating revenues 51.1% 49.0% 51.4% 49.7%
Operating expenses 44.3% 44.2% 46.2% 42.9%
------------- ------------- ------------- -------------
Operating income 6.8% 4.8% 5.2% 6.8%
Other expenses -8.9% -5.1% -8.7% -5.1%
------------- ------------- ------------- -------------
Net (loss) income -2.1% -0.3% -3.5% 1.7%
============= ============= ============= =============
41
Fitzgeralds Tunica
For the For the
Three months ended Six months ended
June 30, June 30,
------------------------------ ------------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------
Casino revenues 28.1% 30.6% 28.8% 30.6%
Room revenues 2.5% 2.8% 2.5% 2.8%
Food and beverage revenues 2.8% 3.3% 2.9% 3.3%
Other revenues 0.4% 0.5% 0.4% 0.4%
------------- ------------- ------------- -------------
Gross operating revenues 33.8% 37.2% 34.6% 37.1%
Less promotional allowances 4.7% 4.8% 4.9% 4.8%
------------- ------------- ------------- -------------
Net operating revenues 29.1% 32.4% 29.7% 32.3%
Operating expenses 25.1% 28.0% 25.1% 26.8%
------------- ------------- ------------- -------------
Operating income 4.0% 4.4% 4.6% 5.5%
Other expenses 0.0% 0.0% 0.0% 0.0%
------------- ------------- ------------- -------------
Net income 4.0% 4.4% 4.6% 5.5%
============= ============= ============= =============
Fitzgeralds Black Hawk
For the For the
Three months ended Six months ended
June 30, June 30,
------------------------------ ------------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------
Casino revenues 13.4% 12.6% 12.5% 12.0%
Room revenues -- -- -- --
Food and beverage revenues 0.7% 0.7% 0.7% 0.6%
Other revenues 0.1% 0.1% 0.1% 0.1%
------------- ------------- ------------- -------------
Gross operating revenues 14.2% 13.4% 13.3% 12.7%
Less promotional allowances 1.1% 1.2% 1.1% 1.1%
------------- ------------- ------------- -------------
Net operating revenues 13.1% 12.2% 12.2% 11.6%
Operating expenses 9.5% 9.7% 9.1% 9.4%
------------- ------------- ------------- -------------
Operating income 3.6% 2.5% 3.1% 2.2%
Other expenses -- -- -- --
------------- ------------- ------------- -------------
Net income 3.6% 2.5% 3.1% 2.2%
============= ============= ============= =============
42
Majestic Investor Holdings
For the For the
Three months ended Six months ended
June 30, June 30,
--------------------------- ---------------------------
2004 2003 2004 2003
----------- ------------ ------------ ------------
Casino revenues -- -- -- --
Room revenues -- -- -- --
Food and beverage revenues -- -- -- --
Other revenues -- -- -- --
----------- ------------ ------------ ------------
Gross operating revenues -- -- -- --
Less promotional allowances -- -- -- --
----------- ------------ ------------ ------------
Net operating revenues -- -- -- --
Operating expenses 0.1% 1.0% 0.4% 1.0%
----------- ------------ ------------ ------------
Operating loss -0.1% -1.0% -0.4% -1.0%
Other expenses -0.6% -6.3% -0.6% -6.2%
----------- ------------ ------------ ------------
Loss from continuing operations -0.7% -7.3% -1.0% -7.2%
Loss from discontinued operations -- -0.4% -- -0.0%
----------- ------------ ------------ ------------
Net loss -0.7% -7.7% -1.0% -7.2%
=========== ============ ============ ============
SECOND QUARTER 2004 COMPARED TO SECOND QUARTER 2003
Consolidated gross operating revenues for the second quarter of 2004
increased $6.9 million or 9.8% over consolidated gross operating revenues
recorded in the second quarter of 2003. The Company's higher gross operating
revenues were the result of strong growth at both Majestic Star and Fitzgeralds
Black Hawk. Implementation and establishment of new marketing programs, focus on
providing our casino guests with the newest and most appealing slot products,
implementation of the latest slot technology, and displacement of customers from
competitors that are undergoing remodeling and construction in Black Hawk,
Colorado, all contributed to our strong revenue growth.
Consolidated casino revenues increased $6.8 million or 10.7% to $70.6
million during the second quarter of 2004 as compared to the second quarter of
2003. Majestic Star accounted for 74.9% of the increase to consolidated casino
revenues, which primarily resulted from the March implementation of a multimedia
advertising campaign featuring former Chicago Bears player and coach, Mike Ditka
as the property's celebrity spokesperson, more aggressive direct mail and cash
promotional efforts, which, when combined with our other marketing programs
generated a 12.1% increase in slot coin-in, continued focus on the Asian and
middle market for table games players and increased table game limits, a higher
table games win percentage to 16.1% from 14.8% in the same quarter last year,
and the impact of the new Koko Taylor's Blues Cafe and Passports - A World
43
Class Buffet at Buffington Harbor along with acceptance of our remodel projects
and new entertainment options.
Casino revenue at Fitzgeralds Black Hawk increased $1.5 million or 17.1%
because of management's continued focus on maximizing yield on marketing and
promotional activities, a 0.4% increase in slot and a 1.6% increase in table
game win percentages, and displacement of customers from competitors that are
undergoing remodeling and construction. With respect to Fitzgeralds Black Hawk,
the maximum wager is $5.00.
Consolidated promotional allowances increased $0.6 million or 13.5% in the
second quarter of 2004 as compared to the second quarter of 2003, primarily due
to increases at Fitzgeralds Tunica and Majestic Star. A new, more competitive,
slot club program contributed to a $0.3 million increase in promotional
allowances at Majestic Star. Fitzgeralds Tunica also had a $0.3 million increase
in promotional allowances as a result of providing more complimentary hotel
rooms. During the second quarter, Fitzgeralds Tunica was providing complimentary
rooms to our better gamblers in order to generate greater levels of activity on
the casino floor. This strategy was implemented to combat the highly competitive
Tunica market.
Total consolidated operating expenses increased $2.7 million or 4.6% in the
second quarter of 2004 as compared to the second quarter of 2003, due primarily
to company wide increases in gaming taxes of $0.2 million, general and
administrative expenses of $1.0 million and depreciation and amortization
expenses of $0.2 million. In addition, both consolidated casino and advertising
and promotional expenses increased $0.6 million. The increases were driven
primarily by activities at Majestic Star.
Consolidated casino expenses were $22.3 million in the three months ended
June 30, 2004, an increase of $0.6 million or 2.8% from the three months ended
June 30, 2003. The increase in casino expenses is almost entirely due to
increased business volumes at Majestic Star. Casino expenses were higher due to
greater levels of cash promotional activities directed toward our casino guests
and increased costs of food and beverages provided on a complimentary basis to
our casino guests at the Buffington Harbor food facilities.
Consolidated gaming taxes increased only $0.2 million or 1.1% to $15.3
million in the three months ended June 30, 2004 from the three months ended June
30, 2003. However, the increase would have been $2.3 million had it not been for
the Indiana retroactive gaming tax assessment of $2.1 million during the second
quarter of 2003 (see Note 7 to the notes for our consolidated financial
statements). This $2.2 million increase (exclusive of the effect of the
retroactive gaming tax assessment) is primarily because of the increased casino
revenues at all of our properties, with the greatest increase coming at Majestic
Star, where our increased casino revenues resulted in a $1.8 million increase in
gaming and admission taxes (exclusive of the retroactive gaming tax assessment).
The tax structures and rates were similar at all of our casinos in the three
months ended June 30, 2004 and the three months ended June 30, 2003.
Consolidated advertising and promotion expenses increased $0.6 million or
17.3% to $4.2 million primarily due to increases at Majestic Star in newspaper,
radio and television expense in connection with the new advertising campaign
which began in March of 2004 featuring former Chicago Bears player and coach,
Mike Ditka, as the property's celebrity spokesperson.
Consolidated general and administrative expenses increased $1.0 million or
10.5% to $10.3
44
million in the second quarter of 2004 from the second quarter of 2003. Majestic
Star accounted for $0.7 million of the increase, which resulted from greater
berthing fee expenses related to the operations of BHR, higher current quarter
property taxes, and higher insurance and claim costs. Fitzgeralds Tunica took a
charge in the second quarter of $0.1 million to fund the audit expenses of the
Mississippi Gaming Commission. In Mississippi, casino operators are required to
fund the costs associated with their compliance audits performed by the
Mississippi Gaming Commission.
Consolidated other expenses consist primarily of interest expense, which
declined by $0.8 million in the second quarter of 2004 as compared to the same
period in 2003. The reduced interest expense is the result of the October 7,
2003 purchase and redemption of all of The Majestic Star Casino, LLC's $130.0
million 10 7/8% notes and purchase of 89.3% of Majestic Investor Holdings LLC's
$151.8 million 11.653% notes. To purchase and redeem these notes, and pay the
related premium thereon, the Company issued $260.0 million of 9 1/2% notes and
entered into an $80.0 million credit facility. During the quarter ended June 30,
2004, the Company paid interest on advances under the credit facility at
interest rates ranging from 4.61% to 5.00%.
The Company recognized income from discontinued operations of $0.3 million
in the second quarter of 2003. The income from discontinued operations relates
to Fitzgeralds Las Vegas, which was spun off to BDI on December 31, 2003.
SIX MONTHS ENDED JUNE 30, 2004 COMPARED TO SIX MONTHS ENDED JUNE 30, 2003
Consolidated gross operating revenues for the six months ended June 30, 2004
increased $12.8 million or 9.1% over consolidated gross operating revenues
recorded in the six months ended June 30, 2003. This increase is primarily
attributable to increases in consolidated casino revenues at all three of our
casinos. Consolidated casino revenues were up $9.0 million at Majestic Star,
$1.2 million at Fitzgeralds Tunica and $2.4 million at Fitzgeralds Black Hawk
for the six months ended June 30, 2004 as compared to the six months ended June
30, 2003. The increase in our consolidated casino revenues represents 98.1% of
the increase in our consolidated gross operating revenues.
Consolidated casino revenues increased $12.6 million or 9.8% to $141.7
million during the six months ended June 30, 2004 as compared to the six months
ended June 30, 2003. Majestic Star accounted for 71.2% of the increase to
consolidated casino revenues, which primarily resulted from the continuing
success of the March 2004 kick-off of a multimedia advertising campaign
featuring former Chicago Bears player and coach, Mike Ditka, as the property's
celebrity spokesperson, which, when combined with our other marketing programs
generated a 9.1% increase in coin-in, continued focus on the Asian and middle
market for table games players and increased table game limits, a higher table
games win percentage to 17.3% from 15.4% in the same six month period last year,
and the positive impact of the new Koko Taylor's Blues Cafe and Passports World
Class Buffet at Buffington Harbor along with acceptance of our remodel projects
and new entertainment options.
Casino revenue was higher at Fitzgeralds Black Hawk because of management's
continued focus on maximizing yield on marketing and promotional activities,
improved weather conditions particularly in March of this year, and displacement
of customers from competitors that are undergoing remodeling and construction.
With respect to Fitzgeralds Black Hawk, the
45
maximum wager is $5.00. Fitzgeralds Tunica's increase in casino revenue resulted
from increases in direct mail and patron complimentary allowances. Higher levels
of direct mail and patron complimentary allowances reflect a shift in strategy
from the six months ended June 30, 2003 and were implemented to address the
increasing competitiveness of the market.
Consolidated promotional allowances increased $1.2 million or 12.9% in the
six months ended June 30, 2004 as compared to the six months ended June 30,
2003, primarily due to increases in casino related promotional cash activities
and higher levels of complimentaries at Fitzgeralds Tunica in an effort to
increase revenues and to remain competitive in the Tunica market. Promotional
allowances at Fitzgeralds Tunica increased $0.7 million in the six months ended
June 30, 2004 or 10.7% as compared to the six months ended June 30, 2003.
Majestic Star's promotional allowances also increased $0.3 million from the six
months ended June 30, 2003 due to a new and more competitive slot club program
this year.
Total consolidated operating expenses increased $11.4 million or 9.9% in the
six months ended June 30, 2004 as compared to the six months ended June 30,
2003, due primarily to increases in casino expenses of $3.4 million, gaming and
incentive taxes of $2.0 million, advertising and promotion expenses of $0.7
million and general and administrative expenses of $5.1 million.
Consolidated casino expenses were $45.4 million in the six months ended June
30, 2004, an increase of $3.4 million or 8.2% from the six months ended June 30,
2003. The increase in casino expenses is directly related to the increased
business volumes at all three of our casinos. Majestic Star comprised
approximately 80.3%, or $2.8 million, of our increased consolidated casino
expenses as a result of the $9.0 million increase in casino revenues. At
Majestic Star casino expenses were higher due to greater levels of cash
promotional activities directed toward our casino guests, increased payroll and
related expenses, higher progressive expenses and increased costs of providing
complimentary food and beverage services to our casino guests at the food
operations within BHR.
Consolidated gaming taxes increased $1.8 million or 6.2% to $30.5 million in
the six months ended June 30, 2004 from the six months ended June 30, 2003.
However, the increase would have been $3.9 million had it not been for the
Indiana retroactive gaming tax assessment of $2.1 million during the second
quarter of 2003 (see Note 7 of the notes to our consolidated financial
statements). This $3.8 million increase (exclusive of the effect of the
retroactive gaming tax assessment) is primarily because of the increased casino
revenues at all of our properties, with the greatest increase coming at Majestic
Star, where our increased casino revenues resulted in a $3.1 million increase in
gaming and admission taxes (exclusive of the retroactive gaming tax assessment).
Consolidated general and administrative expenses increased $5.1 million or
27.3% to $23.7 million in the six months ended June 30, 2004 from the six months
ended June 30, 2003. The increase in general and administrative expense in the
six months ended June 30, 2004 was mostly due to events occurring at Majestic
Star, which comprised $4.0 million of the increase. The most significant item
affecting general and administrative expense at Majestic Star was a $2.2 million
increase due to retroactive property tax accruals for the years 2002 and 2003
(see discussion on retroactive property taxes immediately below). Majestic Star
also incurred higher current year to date property taxes of $0.6 million,
greater berthing fee expenses of $0.2 million related to the operations of BHR,
$0.3 in increased insurance and claim costs, and $0.2 million in increased
46
payroll and benefits. Fitzgeralds Tunica recognized greater costs of $0.6
million, which primarily resulted from payroll and benefit expenses, higher
insurance and claim costs, and a charge in the second quarter of 2004 of $0.1
million to fund the audit expenses of the Mississippi Gaming Commission. In
Mississippi, casino operators are required to fund the costs associated with
their compliance audits performed by the Mississippi Gaming Commission. Also,
increasing consolidated general and administrative expense was a $0.3 million
reserve at Investor Holding's for a recent judgment in a lawsuit against
Fitzgeralds Tunica pertaining to certain events relating to the acquisition of
Fitzgeralds Tunica from its former owner (see Part II, Item 1. Legal
Proceedings).
The $2.2 million increase in retroactive property tax accruals at Majestic
Star discussed above resulted from events beginning in January 2004, when
Majestic Star received a preliminary property tax reassessment notice that
increased the valuation of its riverboat vessel in Lake County, Indiana, where
Majestic Star is located. The valuation assessment was part of a county-wide
reassessment, and these reassessments were retroactive to March 1, 2002. The
reassessment was a result of a 1998 Indiana Supreme Court ruling that declared
the method of property assessment previously used was unconstitutional. Majestic
Star followed administrative policies of the taxing authorities and paid Lake
County an amount equal to 70% of its 2001 property tax liability, and had
estimated an accrual for the balance due for 2002 and 2003. In April 2004, tax
rates on the real property within Lake County, Indiana were issued. In addition,
in April 2004, the State of Indiana issued final notices of assessed valuations
to property owners within Lake County. The Company used the information provided
in April to revise its estimate of the amounts due.
BHR, the Company's joint venture with Trump, also received a notice of final
assessed value of its real property. Similarly Buffington Harbor Parking
Associates ("BHPA"), the owner of a parking garage for which Majestic Star is a
lessee under an operating lease, received a notice reflecting final assessed
values. Majestic Star, through the joint venture agreement and the operating
lease agreement, would be liable for its portion of BHR's and BHPA's property
tax liabilities.
Based on the assessments and tax rates issued in April 2004, Majestic Star
increased its accrual for real property taxes on its vessel and its
proportionate share of liability for BHPA and BHR, by $2.2 million. At June 30,
2004, the accrual for all unpaid property taxes owed directly or indirectly by
Majestic Star is $8.6 million.
On July 12, 2004, Majestic Star paid its remaining 2002 property tax bill.
The balance due was the difference between the new assessed values times the new
tax rates less the provisional tax payments previously paid by Majestic Star.
Majestic Star anticipates paying its 2003 tax bill in September and November of
2004; however, a citizens group in Lake County is challenging the method of
assessment of property in Lake County. At this time we cannot determine if there
will be any modifications to the current assessed value of real property. As
such, Majestic Star has made no reductions in its current accruals for 2003 and
2004 property taxes.
Consolidated other expenses consist primarily of interest expense, which
declined by $1.7 million in the six months ended June 30, 2004 as compared to
the same period in 2003. The reduced interest expense is the result of the
October 7, 2003 purchase and redemption of all of The Majestic Star Casino,
LLC's $130.0 million 10 7/8% notes and 89.3% of Majestic Investor Holdings LLC's
$151.8 million 11.653% notes. To purchase and redeem these notes, and pay
47
the related premium thereon, the Company issued $260.0 million of 9 1/2% notes
and entered into an $80.0 million credit facility.
The Company recognized a loss from discontinued operations of $0.1 million
in the six months ended June 30, 2003. The loss from discontinued operations
relates to Fitzgeralds Las Vegas, which was spun off to BDI on December 31,
2003.
LIQUIDITY AND CAPITAL RESOURCES
To date, we have financed our operations with internal cash flows from our
operations and borrowings under our $80.0 million credit facility. We generate
substantial cash flows from operating activities. For the six months ended June
30, 2004 and 2003, we reported cash flows from operating activities of $10.9
million and $18.5 million, respectively. The timing of payments of interest on
our senior secured notes and the $80.0 million credit facility caused the
decrease in cash flow from operating activities between June 30, 2004 and 2003.
We use our cash flows to meet our financial obligations, which consist
principally of financing our operations, meeting our debt service requirements,
funding capital improvements and projects, and making distributions to BDI under
the manager agreement. During the six months ended June 30, 2004 we used our
line of credit to partially finance capital expenditures, including the
acquisition of 170 acres of land, plus associated legal fees and other costs,
from an affiliate.
At June 30, 2004, $45.6 million was outstanding under the $80.0 million
credit facility. The Company had unrestricted cash and cash equivalents of $20.7
million at June 30, 2004, compared to $22.1 million at December 31, 2003. For
the six months ended June 30, 2004, the Company spent $29.2 million for
property, plant and equipment, which consisted principally of the land
acquisition mentioned previously, the construction of a new administrative
building and integration of slot machines with ticket-in ticket-out technology
("TITO") at Majestic Star, expansion of our casino floor and implementation of a
new slot marketing and player tracking system at Fitzgeralds Tunica and our
continued investment in the newest and most entertaining slot machines and
gaming equipment at each of our properties. During the six months ended June 30,
2003, the Company spent $4.9 million, primarily on the purchase of land and a
building, technology enhancements and slot machines and gaming equipment. For
the remainder of 2004, the Company anticipates spending up to an additional $9.2
million on capital expenditures. This amount will be primarily directed toward
purchasing new slot machines, stabilizing a rock wall adjacent to the parking
garage at Fitzgeralds Black Hawk, the continued implementation of slot machines
on the new slot marketing and player tracking system at Fitzgeralds Tunica,
integrating the majority of Majestic Star's slot machines with TITO, and
installing TITO on selected slot machines at Fitzgeralds Tunica and Fitzgeralds
Black Hawk. We believe that TITO technology will lead to greater efficiency on
our casino floor, thus providing cost savings, and longer slot machine playing
times by our customers without interruptions, which should enhance our casino
revenues.
Management believes that the Company's cash flow from operations and its
current line of credit will be adequate to meet the Company's anticipated normal
operating requirements for working capital, its planned capital expenditures and
its significant contractual obligations with respect to amounts outstanding
under the $80.0 million credit facility, the 11.653% notes, the 9 1/2% notes,
payments to BHR, and lease payments to BHPA. The majority of principal payments
on our senior debt are not due until October 2010. However, the Company will be
48
required to pay $16.3 million still outstanding on the 11.653% notes, plus
accrued interest thereon, and any amounts outstanding on the $80.0 million
credit facility, plus accrued interest thereon, in 2007. No assurance can be
given that our operating cash flows or proceeds from additional financings, if
available, will be sufficient for such purposes.
While we continue to evaluate potential opportunities to expand our existing
casinos or to pursue other growth opportunities, we may not have sufficient
funds to finance such strategic projects under our existing debt agreements. In
addition, our existing debt agreements limit our ability to incur additional
debt unless we can meet certain financial ratios. The Company has entered into
an agreement to sell certain assets of its Black Hawk gaming facility for $66.0
million, subject to certain adjustments. Pursuant to the indenture governing the
9 1/2% notes and the Loan and Security Agreement for the $80.0 million credit
facility, the Company must invest the net proceeds from the sale in related
assets or businesses, or the Company will need to pay down the current
outstanding balance on the $80.0 million credit facility and take a permanent
reduction in the $80.0 million credit facility for such amounts paid and offer
to purchase the Company's 9 1/2 notes with any remaining proceeds. Should the
Company identify an asset or business acquisition, there is no guarantee that
any additional financing needed by the Company will be available on acceptable
terms or at all. In addition, we anticipate that the sale of the assets of
Fitzgeralds Black Hawk will generate a gain. The Majestic Star Casino, LLC is a
limited liability company and the income and expenses of the Company pass
through to its member. The indenture governing the 9 1/2% notes and the Loan and
Security Agreement to the $80.0 million credit facility allow for distributions
to our member to pay income taxes. Any gain will be included with other income
and expenses the Company passes through to its member. The Company's member will
need to determine, based on current year income and expense, and prior years tax
losses and benefit carry forwards, if a distribution is warranted and provide
the Company with a calculation of the distribution amount, if any.
The purchase of certain gaming facilities by larger more recognized brand
names or the expansion of gaming in jurisdictions in which gambling is already
legal or currently illegal could significantly increase competition for the
Company. If necessary and to the extent permitted under the indenture governing
the 9 1/2% notes, the Company will seek additional financing through borrowings
of debt or equity financing, subject to any governmental approvals. 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. The recent
retroactive property tax accrual as explained above and the ruling on the matter
of Aztar Indiana Gaming Corporation v. Indiana Department of State Revenue as
more fully described in Part II Item 1, Legal Proceedings, could have a material
impact on the Company's liquidity.
On May 4, 2004, the Company entered into Amendment Number One to Loan and
Security Agreement ("Amendment") with the lenders to the $80.0 million credit
facility. The main item addressed in the Amendment was the definition of EBITDA,
which was amended to specifically clarify that it was acceptable to add back up
to $2.5 million of charges related to the previously discussed retroactive
property tax adjustment at Majestic Star. The modified definition of EBITDA is
effective as of December 31, 2003. Without the Amendment, the Company would have
not met the required $13.9 million EBITDA covenant for the quarter ended March
31, 2004 as contained in the Loan and Security Agreement. For the six-month
period ended June 30, 2004, the Company was in compliance with all covenants to
the $80.0 million credit facility.
49
As of June 30, 2004, the Company had $34.4 million available on its $80.0
million credit facility.
RECENT ACCOUNTING PRONOUNCEMENTS
In May 2003, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 150 ("SFAS 150") "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity."
Provisions of SFAS 150 became effective for financial instruments entered into
or modified after May 31, 2003. The Company adopted SFAS 150 on January 1, 2004.
The adoption had no impact on its financial position, results of operations or
cash flows.
In December 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46R ("FIN46R"), "Consolidation of Variable Interest Entities
- -- an interpretation of Accounting Research Bulletin No. 51" (revised December
2003). FIN46R addresses consolidation by business enterprises of certain
variable interest entities. Application of FIN46R is required in financial
statements of public entities that have interests in variable interest entities
for periods ending December 15, 2003. The Company has reviewed its major
relationships and its overall economic interests with other companies consisting
of related parties, companies in which it has an equity position, and other
suppliers to determine the extent of its variable economic interests in these
parties. Adoption of FIN46R did not have a material impact on the Company's
financial statements for the period ending June 30, 2004
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,
2003.
ITEM 4.
CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the Company carried out
an evaluation, under the supervision and with the participation of the Company's
management, including its Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of the Company's disclosure
controls and procedures pursuant to Rule 15d-15 of the Securities Exchange Act
of 1934. Based upon that evaluation, the Company's Chief Executive Officer and
Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective to cause the material information required to be
disclosed by the Company in the reports that it files or submits under the
Securities Exchange Act of 1934 to be recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms.
We maintain disclosure controls and procedures that are designed to ensure
that information required to be disclosed in our Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control
50
objectives.
There have been no changes in the Company's disclosure controls during the
six months ended June 30, 2004 that have materially affected, or are reasonably
likely to materially affect the Company's financial reporting.
51
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Various legal proceedings are pending against the Company. Management
considers all such pending proceedings, comprised primarily of personal injury
and equal employment opportunity (EEO) claims, to be routine litigation
incidental to the Company's business. Except as described below, 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,
results of operations or cash flows.
On April 19, 2004 the Indiana Tax Court ruled on the matter of Aztar
Indiana Gaming Corporation ("Aztar") v. Indiana Department of State Revenue
("Department of Revenue"). Aztar operates a riverboat casino in Indiana. The
ruling denied Aztar's deductions claimed on its Indiana income tax returns for
taxes paid on gaming revenues to the state. This ruling has significant
implications for all Indiana casinos. Majestic Star has been issued notices of
proposed assessments by the Department of Revenue totaling $2.6 million for the
years 1996 and 1998 and the period January 1, 1999 to June 18, 2001. While The
Majestic Star Casino, LLC is a limited liability company and its income and
expenses pass to its member, the Department of Revenue has taken the position
that The Majestic Star Casino, LLC had a requirement to withhold and remit state
income tax. The Company has filed an administrative protest and demand for
hearing to challenge the proposed assessments for which it received notice. No
assessment has been issued by the Department of Revenue for any tax periods
subsequent to June 18, 2001, but the Company estimates that if the assessments
were extended through the latest reporting date of June 30, 2004, there would be
an additional tax liability of approximately $3.1 million, plus interest. This
additional tax liability amount would be adjusted against any net taxable income
or losses previously reported to the state by our member. In addition, to date,
the Company has not been charged a penalty for failing to withhold and remit the
taxes to the state. Aztar requested a rehearing by the Indiana Tax Court. The
Indiana Tax Court declined to rehear the matter. Aztar has now appealed to the
Indiana Supreme Court. The Indiana Supreme Court has not yet announced whether
it will grant review. The Indiana Supreme Court has allowed Majestic Star and
other Indiana casinos to submit Amici Curiae in support of Aztar. Under its
indenture governing the 9 1/2% notes and the loan agreement related to the $80.0
million credit facility, the Company is allowed to make distributions to its
member for tax purposes. Any payments would be recorded as distributions in
Member's Deficit. However, the Company does not intend to make any distributions
unless the Company believes the matter would be resolved against it.
In December 2002, a complaint was filed in the U.S. District Court for
the Northern District of Mississippi against Barden Mississippi and the former
owner of Fitzgeralds Tunica, alleging violation of Title VII of the Civil Rights
Act of 1964 and violation of 42 U.S.C. Section 1981, as well as certain other
state law claims. The former owner of Fitzgeralds Tunica was dismissed from the
case. On May 6, 2004, the Judge awarded the plaintiff $312,000, which
incorporates back pay, emotional distress and punitive damages plus an
additional sum for reasonable attorney fees. The Company established a reserve
of $427,000 at March 31, 2004 for the plaintiff's award, the estimated
plaintiff's attorney fees and the Company's attorney fees. Our insurance carrier
has agreed to extend coverage over the claim and share past and current expenses
with the Company. Based upon the agreement with the insurance carrier the
Company has reduced its reserve by $95,000. The Company is in the
process of appealing the plaintiff's award and as required by the court has
posted an appeal bond in the amount of $0.4 million.
52
In August 2003 a former employee of Majestic Star filed a complaint in
the U.S. District Court, Northern District of Indiana, Hammond Division seeking
back wages plus all other relief to which he may be entitled under the Fair
Labor Standards Act(the "August 2003 FLSA Seaman's Case"). Majestic Star's
position is that the plaintiff was employed as an able-bodied seaman and thus is
exempt from the overtime provisions of the FLSA. Plaintiff's counsel has
indicated that he may amend the complaint to a collective action. On or about
July 20, 2004 another individual formerly employed with Majestic Star as an
able-bodied seaman filed a similar complaint in the same court on behalf of
himself and a class of employees similarly situated (the "July 2004 FLSA
Seaman's Case") seeking back wages, plus all other relief to which he may be
entitled, at law or in admiralty, including liquidated damages and attorney's
fees under 29 U.S.C. 216(b). Potentially, the 4 seaman currently employed by
Majestic Star and approximately 19 former seamen could qualify for the class, if
class action status were to be granted. Due to the recent filing of the
complaint, the Company has no indication of whether such class action status
would be granted relating to this matter. The Company intends to vigorously
defend both the August 2003 FLSA Seaman's Case and the July 2004 FLSA Seaman's
Case; however, the August 2003 FLSA Seaman's case is in discovery and the July
2004 FLSA Seaman's Case has not yet progressed to a formal discovery stage, and
it is too early to determine the likelihood of an unfavorable outcome or range
of potential loss in either matter.
ITEM 5. OTHER INFORMATION
The United Steelworkers of America ("Union") held an election in May
2002 to represent 21 full and regular-part time slot mechanics at Majestic Star.
While the Union received a majority of the votes, the Company contested the
election results with the National Labor Relations Board ("NLRB"). The NLRB
reaffirmed the election results. The Company pursued this matter in the courts
and on July 13, 2004, the United States District Court of Appeals for the
District of Columbia Circuit affirmed the NLRB's decision. The Company has
elected not to appeal the matter further and has received notice from the Union
to bargain. It is anticipated that the Union will be representing 21 full and
regular-part time slot mechanics.
53
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this report:
Exhibit No. Description of Document
31.1 Certification of Chief Executive Officer pursuant to Rule
15d-14 of the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Rule
15d-14 of the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
(b) Reports on Form 8-K.
On May 4, 2004, the Company filed a report on Form 8-K under Items 7
and 12 to furnish a press release announcing the Company's financial
results for its first quarter ended March 31, 2004.
54
SIGNATURES
Pursuant to the requirements 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.
Dated: August 16, 2004
THE MAJESTIC STAR CASINO, LLC
/s/ Don H. Barden
- ------------------
Don H. Barden
Manager, Chairman, President and Chief Executive Officer
(Principal Executive Officer)
/s/ Jon S. Bennett
- -------------------
Jon S. Bennett
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
THE MAJESTIC STAR CASINO CAPITAL CORP.
/s/ Don H. Barden
- ------------------
Don H. Barden
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Jon S. Bennett
- -------------------
Jon S. Bennett
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
S-1
Exhibit Index
Exhibit No. Description of Document
----------- -----------------------
31.1 Certification of Chief Executive Officer pursuant to Rule
15d-14 of the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Rule 15d-14
of the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002