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EXCEL - IDEA: XBRL DOCUMENT - Greektown Superholdings, Inc.Financial_Report.xls
EX-32.1 - CERTIFICATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER - Greektown Superholdings, Inc.ex-32_1.htm
EX-31.2 - CERTIFICATION OF SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER - Greektown Superholdings, Inc.ex-31_2.htm
EX-31.1 - CERTIFICATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER - Greektown Superholdings, Inc.ex-31_1.htm
EX-10.24 - EMPLOYMENT AGREEMENT, DATED OCTOBER 12, 2011, BETWEEN GREEKTOWN SUPERHOLDINGS, INC AND GLEN TOMASZEWSKI. - Greektown Superholdings, Inc.ex-10_24.htm
EX-32.2 - CERTIFICATION OF SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER - Greektown Superholdings, Inc.ex-32_2.htm


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
 
FORM 10-Q

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2011
 
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from_________ to __________

Commission File Number 000-53921

GREEKTOWN SUPERHOLDINGS, INC.
(Exact name of registrant as specified in its charter)

Delaware
 
27-2216916
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer Identification Number)
 
 
 
555 East Lafayette, Detroit, Michigan
 (Address of principal executive offices)
 
48226
 (Zip Code)

Registrant’s telephone number, including area code: (313) 223-2999

Indicate by check mark whether the registrant (1) 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 such filing requirements for the past 90 days.   Yes x       No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes o       No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o
Accelerated filer   o
Non-accelerated filer o
Smaller reporting company x
 
(Do not check if a smaller reporting company)
 
Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No x

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes x    No o
 
The number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
As of November 14, 2011, there were 153,383 shares of Series A-1 Common Stock, $0.01 par value, and no shares of Series A-2 Common Stock, $0.01 par value, outstanding.
 
 
 

 
 
TABLE OF CONTENTS
 
PART – FINANCIAL INFORMATION     
       
Item 1.
Financial Statements:
   
       
 
4
 
 
 
   
 
5
 
       
 
6
 
 
 
   
 
7
 
       
 
8
 
 
 
   
30
 
 
 
   
49
 
 
 
   
49
 
 
 
   
   
       
50
 
 
     
51
 
 
 
2

 
 
 
Greektown Superholdings, Inc.
Consolidated Balance Sheets
(In Thousands, except share and per share data)

   
September 30,
   
December 31,
 
   
2011
   
2010
 
   
(unaudited)
       
Assets
           
Current assets:
           
Cash and cash equivalents
  $ 45,932     $ 30,195  
Restricted cash
          5,000  
Certificate of deposit
          534  
Accounts receivable – gaming, net
    604       712  
Accounts receivable – other, net
    1,295       1,824  
Note receivable
    1,900       2,000  
Property tax refund receivable
          3,451  
Inventories
    395       383  
Prepaid expenses
    4,421       2,106  
Prepaid Michigan Gaming Control Board annual fee
    1,125       8,754  
Prepaid municipal service fees
    137       3,434  
Deposits
    2,923       3,793  
Total current assets
    58,732       62,186  
                 
Property, building, and equipment, net
    316,325       335,608  
                 
Other assets:
               
Financing fees - net of accumulated amortization
    12,421       14,854  
Deposits and other assets
    30       30  
Casino development rights
    117,800       117,800  
Trade names
    26,300       26,300  
Rated player relationships - net of accumulated amortization
    51,750       62,100  
Goodwill
    110,252       110,252  
                 
Total assets
  $ 693,610     $ 729,130  

The accompanying notes are an integral part of the consolidated financial statements.
 
 
3

 

Greektown Superholdings, Inc.
(In Thousands, except share and per share data)

   
September 30,
   
December 31,
 
   
2011
   
2010
 
   
(unaudited)
       
Liabilities and shareholders' equity
           
Current liabilities:
           
Accounts payable
    12,337       12,068  
Taxes payable
    1,250       295  
Accrued interest
    12,551       25,164  
Unsecured distribution liability
          10,000  
Accrued expenses and other liabilities
    10,465       9,626  
Total current liabilities
    36,603       57,153  
                 
Long-term liabilities:
               
Other accrued income taxes
    8,797       8,887  
Senior secured notes - net
    366,829       364,218  
Obligation under capital lease
    2,492       2,510  
Deferred income taxes
    8,412       7,282  
Total long-term liabilities
    386,530       382,897  
                 
Total liabilities
    423,133       440,050  
                 
Shareholders’ equity:
               
Series A-1 preferred stock at $0.01 par value; 1,688,268 shares authorized, 1,463,535 shares issued and outstanding at September 30, 2011 and December 31, 2010
    185,396       185,396  
Series A-2 preferred stock at $0.01 par value; 645,065 shares authorized, 162,255 shares issued and outstanding at September 30, 2011 and December 31, 2010
    20,551       20,551  
Series A-1 preferred warrants at $0.01 par value; 202,511 shares issued and outstanding at September 30, 2011 and December 31, 2010
    25,651       25,651  
Series A-2 preferred warrants at $0.01 par value; 460,587 shares issued and outstanding at September 30, 2011 and December 31, 2010
    58,342       58,342  
Series A-1 common stock at $0.01 par value; 4,354,935 shares authorized, 144,231 and 140,291 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively
    1       1  
Series A-2 common stock at $0.01 par value; 645,065 shares authorized, no shares issued
           
Additional paid-in capital
    13,433       13,033  
Accumulated deficit
    (32,897 )     (13,894 )
Total shareholders’ equity
    270,477       289,080  
Total liabilities and shareholders' equity
  $ 693,610     $ 729,130  

The accompanying notes are an integral part of the consolidated financial statements.
 
 
4

 
 
Greektown Superholdings, Inc.
(In Thousands, except share and per share data)

    Successor    
Predecessor
 
   
Three Months Ended
   
Three Months Ended
   
Nine Months Ended
   
Six Months Ended
 
   
September 30,
   
September 30,
   
September 30,
   
June 30,
 
   
2011
   
2010
   
2011
   
2010
 
Revenues
                       
Casino
  $ 82,184     $ 87,094     $ 260,103     $ 177,429  
Food and beverage
    5,320       5,900       17,236       11,924  
Hotel
    2,848       2,569       8,240       4,628  
Other
    1,060       1,291       3,554       2,482  
Gross revenues
    91,412       96,854       289,133       196,463  
Less promotional allowances
    11,422       12,235       39,699       23,591  
Net revenues
    79,990       84,619       249,434       172,872  
                                 
Operating expenses
                               
Casino
    19,791       22,362       59,884       44,291  
Gaming taxes
    17,719       18,832       56,058       38,469  
Food and beverage
    4,070       3,916       14,320       7,817  
Hotel
    2,288       2,188       6,918       4,397  
Marketing, advertising, and entertainment
    1,732       1,496       5,429       4,146  
Facilities
    4,997       4,736       15,245       9,689  
Depreciation and amortization
    8,301       10,031       28,888       10,488  
General and administrative expenses
    11,525       11,018       34,694       21,437  
Other
    85       58       271       105  
Operating expenses
    70,508       74,637       221,707       140,839  
Income from operations
    9,482       9,982       27,727       32,033  
                                 
Other expenses
                               
Interest expense
    (12,632 )     (13,070 )     (37,853 )     (37,489 )
Amortization of finance fees
    (1,777 )     (1,633 )     (5,168 )     (2,079 )
Other income expense
    (2 )     (30 )     (11 )     (298 )
Net gain (loss) on Chapter 11 related reorganization items from fresh start adjustments
          378       (1,149 )     301,352  
Total other (expense) income, net
    (14,411 )     (14,355 )     (44,181 )     261,486  
                                 
(Loss) income before provisions for income taxes
    (4,929 )     (4,373 )     (16,454 )     293,519  
                                 
Income tax expense – current
    (556 )     (650 )     (1,419 )     (1,248 )
Income tax (expense) benefit – deferred
    (1,680 )     18       (1,130 )     (1,350 )
Net (loss) income
  $ (7,165 )   $ (5,005 )   $ (19,003 )   $ 290,921  
                                 
Loss per share:
                               
Basic
  $ (79.43 )   $ (66.41 )   $ (224.42 )     N/A  
Diluted
  $ (79.43 )   $ (66.41 )   $ (224.42 )     N/A  
                                 
Weighted average common shares outstanding
    144,231       140,000       142,048       N/A  
Weighted average common and common equivalent shares outstanding
    144,231       140,000       142,048       N/A  

The accompanying notes are an integral part of the consolidated financial statements.
 
 
5

 

Greektown Superholdings, Inc.
(In Thousands)

   
Successor
   
Predecessor
 
   
Nine months Ended
   
Three Months Ended
   
Six months Ended
 
   
September 30,
   
September 30,
   
June 30,
 
   
2011
   
2010
   
2010
 
Operating activities
                 
Net (loss) income
  $ (19,003 )   $ (5,005 )   $ 290,921  
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
                       
Depreciation and amortization
    28,888       10,031       10,488  
Amortization of finance fees and accretion of discount on senior notes
    5,168       1,633       2,079  
Chapter 11 related reorganization items
    1,149       (378 )     (301,354 )
Deferred income taxes
    1,130       (18 )     1,350  
Stock compensation
    400       79        
Changes in current assets and liabilities:
                       
Accounts receivable - gaming
    208       312       1,684  
Accounts receivable - other
    529       (93 )      
Property tax refund receivable
    3,451              
State of Michigan gaming tax refundable
          5,743       6,585  
Inventories
    (12 )     74       20  
Prepaid expenses
    9,481       2,180       4,748  
Notes receivables
                460  
Accounts payable
    1,519       7,355       (6,315 )
Accrued PIK interest
                (27,783 )
City of Detroit settlement agreement accrual
                (13,547 )
Unsecured distribution liability
    (10,000 )            
Accrued expenses and other liabilities
    (13,356 )     9,419       14,031  
Net cash provided by (used in) operating activities before reorganization costs
    9,552       31,332       (16,633 )
Operating cash flows for reorganization costs
          (4,216 )     (14,557 )
Net cash provided by (used in) operating activities
    9,552       27,116       (31,190 )
                         
Investing activities
                       
Decrease in restricted cash
    5,000              
Capital expenditures
    (9,946 )     (4,450 )     (5,566 )
Disposition of real estate
    10,681              
Redemption of (investment in) certificate of deposit
    534       (1 )     (2 )
Net cash provided by (used in) investing activities
    6,269       (4,451 )     (5,568 )
                         
Financing activities
                       
Proceeds from borrowings on long-term notes payable
                362,605  
Payments on long-term debt
                (516,328 )
Payments on notes payable
          (476 )     (913 )
Financing fees paid
    (84 )     (185 )     (16,702 )
Proceeds from issuance of stockholders’ equity
                196,000  
Net cash (used in) provided by financing activities
    (84 )     (661 )     24,662  
                         
Net increase (decrease) in cash and cash equivalents
    15,737       22,004       (12,096 )
Cash and cash equivalents at beginning of year
    30,195       13,596       25,692  
Cash and cash equivalents at end of period
  $ 45,932     $ 35,600     $ 13,596  
                         
Supplemental disclosure of cash flow information
                       
Cash paid during the period for interest
  $ 50,648     $ 103     $ 13,689  
Cash paid during the period for income taxes
  $ 556     $ 760     $ 475  

The accompanying notes are an integral part of the consolidated financial statements.
 
 
6

 

Greektown Superholdings, Inc.
(In Thousands)

   
Common
 
Common
 
Preferred
 
Preferred
 
Preferred
 
Preferred
 
Additional
       
Total
 
   
Stock
 
Stock
 
Stock
 
Stock
 
Warrants
 
Warrants
 
Paid-in
 
Accumulated
   
Shareholders’
 
      A-1     A-2     A-1     A-2     A-1     A-2  
Capital
 
Deficit
   
Equity
 
Balance at December 31, 2010
  $ 1   $   $ 185,396   $ 20,551   $ 25,651   $ 58,342   $ 13,033   $ (13,894 )   $ 289,080  
Net (loss)
                                            $ (19,003 )   $ (19,003 )
Stock based compensation
                                      $ 400             400  
Balance at September 30, 2011
  $ 1   $   $ 185,396   $ 20,551   $ 25,651   $ 58,342   $ 13,433   $ (32,897 )   $ 270,477  

 
7

 
 
Greektown Superholdings, Inc.
For the Quarterly Period ended September 30, 2011

Note 1. Organization, Background and Bankruptcy Considerations
 
Organization

Greektown Holdings, L.L.C. (“Greektown Holdings”) was formed in September 2005 as a limited liability company owned by Kewadin Greektown Casino, L.L.C. (“Kewadin Greektown”), which was 100% owned by the Sault Ste. Marie Tribe of Chippewa Indians (the “Tribe”) and Monroe Partners, L.L.C. (“Monroe”). Greektown Holdings owns Greektown Casino, L.L.C. (“Greektown LLC”), which is engaged in the operation of a hotel and casino gaming facility known as Greektown Casino Hotel (“Greektown Casino”) located in the downtown of the City of Detroit that opened November 10, 2000 under a license granted by the Michigan Gaming Control Board (“MGCB”) and a Development Agreement with the City of Detroit.

On May 29, 2008, Greektown Holdings, together with its direct and indirect subsidiaries and certain affiliates, filed voluntary petitions to reorganize their businesses under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Eastern District of Michigan. As contemplated by a plan of reorganization (the “Plan”) approved by the Bankruptcy Court, Greektown Superholdings, Inc. (“Greektown Superholdings,” and together with its subsidiaries “we,” “our,” “us,” “the Company,” or “Greektown,” unless the context otherwise required) was incorporated under the laws of the State of Delaware on March 17, 2010. As of the Effective Date on June 30, 2010, each of Greektown Superholdings and its wholly-owned subsidiary, Greektown Newco Sub, Inc. (the “Greektown Sub”), hold 50% of the outstanding membership interests of Greektown Holdings. Greektown Superholdings is a holding company that has no other operating assets. Through its direct and indirect ownership of Greektown Holdings, Greektown Superholdings owns and operates Greektown Casino. Greektown LLC also holds all the ownership interest in Contract Builders Corporation (“Contract Builders”) and Realty Equity Company, Inc. (“Realty Equity”), each of which owns real estate near Greektown Casino. The assets of Trappers GC Partners, LLC (“Trappers”) were transferred to Greektown Casino and Trappers has been dissolved pursuant to the Plan. Unless otherwise indicated or the context otherwise requires, the following discussion describes the business and operations of Greektown Superholdings after the Effective Date. Greektown Superholdings’ corporate headquarters are located at 555 East Lafayette, Detroit, Michigan 48226.

Pursuant to the Plan, the sale of 1,850,000 shares of Preferred Stock in a rights offering (the “Rights Offering”), together with the direct purchase of 150,000 shares of Preferred Stock by certain of the Put Parties, all at a purchase price of $100 per share, provided approximately $196 million in net proceeds. Such net amount reflects the determination of the Put Parties to receive $4 million of the Cash Put Premium from Greektown Superholdings in cash and 66,666 shares of Preferred Stock in lieu of the remaining $6 million of the Cash Put Premium. All of the purchases of Preferred Stock were completed on the Effective Date and the shares of Preferred Stock were issued on the Effective Date or as soon as reasonably practicable thereafter. Each party who agreed to purchase Preferred Stock was given the option to purchase Preferred Stock with regular or reduced voting rights. However, certain parties that elected to purchase Preferred Stock and were concerned that they might acquire more than 4.9% of the capital stock of Greektown Superholdings, or certain parties that qualified as “Institutional Investors” under Michigan gaming law that were concerned that they may acquire more than 14.9% of the capital stock of Greektown Superholdings, elected to receive Warrants to purchase Preferred Stock at an exercise price of $0.01 per share representing a portion of the Preferred Stock that they had elected to purchase. As a result, the holders of Old Senior Notes and the Put Parties own all of the outstanding equity interests of Greektown Superholdings as of the Effective Date. In addition, under the Plan, at the end of the day on the Effective Date, Greektown Holdings’ existing members’ capital deficit was extinguished and no distributions were made to existing members. Certain of the Put Parties assigned their Put Commitment and certain of their other rights and obligations under the Purchase and Put Agreement to other Put Parties pursuant to an Assignment and Assumption Agreement dated as of March 31, 2010.
 
The Plan was confirmed on January 22, 2010. On the Effective Date, Greektown Superholdings issued $385 million in 13% Senior Secured Notes (the “New Senior Secured Notes”) and entered into a $30 million revolving credit facility with Comerica Bank (the “Revolving Loan” and, together with the New Senior Secured Notes, the “Exit Financing”). On the Effective Date, the proceeds of the Rights Offering, the proceeds of the direct purchase of Preferred Stock, and the proceeds from the sale of the New Senior Secured Notes were used to pay all outstanding borrowings under our DIP financing facility (the “DIP Facility”), to repay the pre-petition secured claims, and to make other payments required upon exit from bankruptcy. The proceeds from the sale of the New Senior Secured Notes remaining after the foregoing payments were made, as well as the Revolving Loan, were used to provide ongoing liquidity to conduct our operations.
 
 
8

 
 
Greektown Superholdings, Inc.
Notes to the Consolidated Financial Statements (Unaudited)
 For the Quarterly Period ended September 30, 2011

Note 2. Summary of Significant Accounting Policies

Presentation and Basis of Accounting

The accompanying consolidated financial statements present the financial position and results of operations of Greektown Superholdings and its wholly owned subsidiaries as of and for the three and nine months ended September 30, 2011. The accompanying consolidated statements of operations and cash flows of Greektown Superholdings (the “Successor”) and Greektown Holdings (the “Predecessor”) are presented for the three months ended September 30, 2010 and six months ended June 30, 2010, respectively.

The accompanying consolidated financial statements have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, the consolidated financial statements do not include all of the disclosures required by U.S. generally accepted accounting principles. However, they do contain all adjustments (consisting of normal recurring adjustments) that, in the opinion of management, are necessary to present fairly the Company’s financial position, results of operations and cash flows for the interim periods included therein. The interim results reflected in these financial statements are not necessarily indicative of results to be expected for the full fiscal year.

Certain reclassifications, which have no effect on previously reported net (loss) income, have been made to the consolidated statements of operations for the three and six months ended September 30, 2010 to conform to the 2011 presentation. Pursuant to the guidance in the recently issued AICPA Audit and Accounting Gaming Guide, the Company reclassified certain amounts paid under slot participation agreements from a reduction in casino revenue to casino expense. Slot participation fees were $1.6 million and $4.9 million in the successor three and nine months ended September 30, 2011, respectively, and $2.0 million in the successor three months ended September 30, 2010 and $3.9 million in the predecessor six months ended June 30, 2010, respectively.

Use of Estimates
 
The preparation of the consolidated financial statements in accordance with U.S. generally accepted accounting principles requires management of the Company to make estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Significant items subject to such estimates and assumptions include valuation allowances for receivables, tax obligations and certain other accrued liabilities. Actual results could differ from those estimates.
 
Casino Revenues
 
Greektown Casino recognizes as casino revenues the net win from gaming activities, which is the difference between gaming wins and losses. Revenues from food and beverage and hotel operations are recognized at the time of sale or upon the provision of service.
 
 
9

 

Greektown Superholdings, Inc.
Notes to the Consolidated Financial Statements (Unaudited)
For the Quarterly Period ended September 30, 2011

Promotional Allowances

The retail value of food, beverage, and other complimentary items furnished to customers without charge is included in revenues and then deducted as promotional allowances. The estimated costs of providing such promotional allowances for the three and nine months ended September 30, 2011 and the three months ended September 30, 2010 and six months ended June 30, 2010, are approximately as follows (in thousands):
 
   
Successor
   
Predecessor
 
   
Three Months
Ended
September 30,
   
Three Months
Ended
September 30,
   
Nine Month
Ended
September 30,
   
Six Months
Ended
June 30,
 
   
2011
   
2010
   
2011
   
2010
 
                         
Food and beverage
  $ 2,348     $ 3,013     $ 7,376     $ 6,045  
Hotel
    492       649       1,406       1,489  
    $ 2,840     $ 3,662     $ 8,782     $ 7,534  
 
Cash and Cash Equivalents
 
The Company considers all highly liquid investment instruments with original maturities of three months or less to be cash equivalents.

Restricted Cash

The terms of the Litigation Trust required the Company to fund $10.0 million in four equal quarterly installments of $2.5 million commencing on September 30, 2010. The Company has fulfilled its obligation under the Litigation Trust and has transferred an aggregate of $10.0 million to the trustee as of September 30, 2011.

Goodwill and Intangible Assets

In accordance with accounting guidance related to goodwill and other indefinite-lived intangible assets, we test for impairment of goodwill and indefinite-lived intangible assets annually in the fourth quarter of each year, as of October 1, and in certain situations between the annual dates, if interim indicators of impairment arise. For the nine months ended September 30, 2011, no interim indicators of impairment arose.

Goodwill is tested for impairment using a discounted cash flow model based on the estimated future results of the Company, discounted using the market participant based weighted-average cost of capital and market indicators of terminal year capitalization rates. The Company then compares the carrying value of its reporting unit to the estimated fair value of the reporting unit.

Indefinite-lived intangible assets are not subject to amortization but are tested for impairment annually, as of October 1.

Intangible assets with a definite life are amortized over their useful lives, which is the period over which an asset is expected to contribute directly or indirectly to future cash flows. Management periodically assesses the amortization period of intangible assets with definite lives based upon estimated future cash flows from related operations.
 
Inherent in the reviews of the fair values of goodwill and intangible assets are various estimates. Future cash flow estimates are, by their nature, subjective and actual results may differ materially from our estimates. If our ongoing estimates of future cash flows are not met, we may have to record impairment charges in future accounting periods. Our estimates of cash flows are based on the current regulatory, political and economic climates, recent operating information and budgets of the various properties where we conduct operations. These estimates could be negatively impacted by changes in federal, state or local regulations, economic downturns, or other events affecting various forms of travel and access to our properties.
 
 
10

 

Greektown Superholdings, Inc.
Notes to the Consolidated Financial Statements (Unaudited)
For the Quarterly Period ended September 30, 2011
 
Fair Value of Financial Instruments

The carrying amount of cash and cash equivalents, certificates of deposit, accounts receivable, note receivable, and accounts payable approximates fair value because of the short-term maturity of these instruments. As of September 30, 2011, the fair value of the senior secured notes was approximately $387.9 million, as determined by the Company using available market information.
 
Stock-Based Compensation
 
Stock-based compensation cost is estimated at the grant date based on the fair value of the award, and is expensed ratably over the service period of the award. Total compensation costs recognized under all share-based arrangements for the successor nine months ended September 30, 2011 was $0.4 million. The Company’s stock-based compensation expense for the successor three months ended September 30, 2010 was $0.1 million. The Company’s predecessor did not record a stock-based compensation expense for the predecessor six months ended June 30, 2010 as there was no stock-based compensation plan in place at that time (see Note 9).

Earnings per Share

Basic loss per common share (“EPS”) is computed by dividing the net loss available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution from securities that could share in the earnings of the Company. Anti-dilutive securities are excluded from the calculation of diluted EPS (see Note 10).
 
Income and Other Taxes
 
The Company is in a full valuation allowance and has not recorded a benefit on its losses during the periods ended September 30, 2011. The Company records income taxes for the Michigan Business Tax (MBT), which is considered an income tax under the provisions of the Income Taxes topic of the FASB ASC. The MBT has a gross receipts tax component and an income tax component as of September 30, 2011. Based on the State of Michigan tax reform, the Michigan Business Tax (MBT) will be eliminated effective January 1, 2012 and deferred taxes related to the MBT were adjusted in the second quarter of 2011. Any impact of deferred taxes related to the MBT from October 1, 2011 through December 31, 2011 is not expected to be significant. In lieu of the MBT, the State of Michigan has enacted a six percent corporate income tax. The Company did not record a State income tax benefit, as a valuation allowance was recorded at the Federal and State level for the entire valuation amount.
 
The Company has net deferred tax assets of approximately $18.1 million as of September 30, 2011 and has recorded a valuation allowance of approximately $18.1 million related to these deferred tax assets, as the Company believes that it is more likely than not it will not be able to realize the benefits of the deferred tax assets. The Company had a deferred tax liability of approximately $8.4 million as of September 30, 2011. The Company recorded an estimated income tax contingency of $8.8 million related to certain potential taxes that could be assessed in connection with the enactment of the Plan in other accrued income taxes. In addition, in connection with the emergence transaction, the Company has uncertainties regarding state tax attributes that could have a material impact on deferred taxes recorded in the consolidated balance sheet. The Company believes it is possible that such uncertainties may be resolved within the next twelve months.
 
 
11

 

Greektown Superholdings, Inc.
Notes to the Consolidated Financial Statements (Unaudited)
 For the Quarterly Period ended September 30, 2011

Impairment or Disposal of Long-Lived Assets

The Company accounts for long-lived assets in accordance with the provisions of the Property, Plant, and Equipment topic of the FASB ASC. The Property, Plant, and Equipment topic of the FASB ASC requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs to sell. No events or changes in circumstances indicated that the carrying amount of the assets will not be recoverable or that there will be costs related to dispositions.
 
Recently adopted accounting pronouncements

The following are accounting standards adopted or issued during 2011 that could have an impact on our Company.

The AICPA recently issued the Audit and Accounting Gaming Guide, as previously discussed; the Company reclassified certain amounts paid under slot participation agreements from a reduction in casino revenue to casino expense.

The FASB issued ASU No. 2011-08, Testing Goodwill for Impairment (Topic 350) which allows companies the option to perform a qualitative assessment to determine whether it is more likely than not (a likelihood of more than 50 percent) that the fair value of its reporting unit is less than its carrying amount. However, if a company concludes otherwise, then it would proceed to the current two-step approach to the annual test. Entities are permitted to apply guidance for annual and interim impairment tests performed as of a date before September 15, 2011, provided financial statements for the most recent annual or interim period have not been issued. The adoption of this standard will not have an effect on the Company’s consolidated financial statements.

The FASB issued ASU No. 2010-16, Entertainment-Casinos (Topic 924): Accruals for Casino Jackpot Liabilities. The guidance clarifies that an entity should not accrue jackpot liabilities (or portions thereof) before a jackpot is won if the entity can avoid paying that jackpot. Jackpots should be accrued and charged to revenue when an entity has the obligation to pay the jackpot. This guidance applies to both base jackpots and the incremental portion of progressive jackpots. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The adoption of this standard did not have an effect on the Company’s consolidated financial statements.

Recent Accounting Pronouncements
 
A variety of proposed or otherwise potential accounting standards are currently under consideration by standard-setting organizations and certain regulatory agencies. Because of the tentative and preliminary nature of such proposed standards, we have not yet determined the effect, if any, that the implementation of such proposed standards would have on our consolidated financial statements. The Company is currently considering the impact of this guidance on its consolidated financial statements.
 
 
12

 
 
Greektown Superholdings, Inc.
Notes to the Consolidated Financial Statements (Unaudited)
For the Quarterly Period ended September 30, 2011

Note 3.  Emergence from Chapter 11

Fresh Start Consolidated Balance Sheet

In accordance with the Reorganizations topic of the FASB ASC, the Company adopted fresh-start reporting upon the Effective Date. The Company was required to apply the provisions of fresh-start reporting to its financial statements because the reorganization value of the assets of the emerging entity immediately before the date of confirmation was less than the total of all post-petition liabilities and allowed claims, and the holders of the existing voting shares of the Predecessor’s common stock immediately before confirmation received less than 50% of the voting shares of the emerging entity. Under the accounting guidance, fresh-start reporting is required on the date on which the plan of reorganization is confirmed by the Bankruptcy Court, but further provides that fresh-start reporting should not be applied until all material conditions to the Plan are satisfied. All material conditions to the Plan were satisfied on the Effective Date.

Fresh-start reporting generally requires resetting the historical net book value of assets and liabilities to fair value by allocating the entity’s enterprise value as set forth in the plan of reorganization to its assets and liabilities pursuant to accounting guidance related to business combinations as of the Effective Date. As set forth in the Disclosure Statement, the Company’s enterprise value was estimated to be in the range of $626.7 million to $696.2 million, with a mid-point estimate of $662.7 million, based on financial projections. The Company’s enterprise value was estimated using various valuation methods, including (i) a calculation of the present value of projected free cash flows and a terminal value, using a range of discount rates (the “Discounted Cash Flow Analysis”); (ii) a comparison of the financial data of the reorganized Debtors with comparable publicly traded gaming companies (the “Comparable Companies Analysis”); and (iii) an analysis of comparable valuations indicated by precedent merger and acquisition transactions in the gaming industry (the “Precedent Transactions Analysis”).

The enterprise value using the Discounted Cash Flow Analysis was determined using the Predecessor’s financial projections for the periods through 2013.  The four year compounded annual growth rate used in the projections was 2.7%.  These financial projections were provided in the Disclosure Statement and included anticipated changes associated with the Company’s reorganization plans, general market conditions, as well as other pertinent economic factors. The discount rate applied was in the range of 9% to 10%, which was calculated using a weighted average cost of capital analysis based on comparable statistics of the Company’s peer group. The present value of all cash flows after 2013 were calculated using terminal values, which were calculated by applying exit multiples ranging from 7.0x to 8.0x the 2013 financial projections, which was then discounted in the range of 9% to 10%.  Exit multiples ranging from 7.0x to 8.0x were based upon comparable EBITDA multiples of the Company’s peer group.

Based upon an evaluation of relevant factors used in determining the range of enterprise value, including an assessment of the Company’s expected future cash flow projections, the Company concluded that the midpoint enterprise value estimate of $662.7 million should be used for fresh start reporting purposes, as it most closely approximates fair value.
 
In accordance with fresh start reporting, at June 30, 2010, the Company’s enterprise value has been allocated to existing assets using the measurement guidance provided in accounting guidance related to business combinations. In addition, liabilities, other than deferred taxes, have been recorded at the present value of amounts estimated to be paid. Finally, the Predecessor’s accumulated deficit has been eliminated and the Company’s new debt and equity have been recorded at fair value in accordance with the Plan. Deferred taxes have been determined in accordance with accounting guidance related to income taxes.

Estimates of fair value represent the Company’s best estimates, which are based on industry data and trends and by reference to relevant market rates and transactions, and discounted cash flow valuation methods, among other factors. The determination of the fair value of assets and liabilities is subject to significant estimation and assumptions and there can be no assurance that the estimates, assumptions and values reflected in the valuations will be realized and actual results could vary materially.
 
 
13

 

Greektown Superholdings, Inc.
Notes to the Consolidated Financial Statements (Unaudited)
For the Quarterly Period ended September 30, 2011

Note 3.  Emergence from Chapter 11 (continued)

Reorganization items and fresh start adjustments

Reorganization items represent amounts incurred as a direct result of the Chapter 11 cases and were comprised of the following for the successor three and nine months ended September 30, 2011 and the successor three months ended September 30, 2010 and predecessor six months ended June 30, 2010 (in thousands):

   
Successor
   
Predecessor
 
   
Three Months Ended September 30,
   
Three Months Ended September 30,
   
Nine Months Ended September 30,
   
Six Months
Ended
June 30,
 
   
2011
   
2010
   
2011
   
2010
 
Non- cash reorganization items
                       
Discharge of liabilities subject to compromise
  $     $ 2,100     $ 687     $ 130,937  
Revaluation of assets and liabilities
                      190,018  
Total non-cash reorganization items
          2,100       687       320,955  
Professional fees and expenses
                               
Legal professional fees
          (745 )     (1,376 )     (12,336 )
Consulting professional fees
          (763 )     (170 )     (6,758 )
U.S. Trustee fees and other expenses
          (214 )     (290 )     (509 )
Total professional fees and expenses
          (1,722 )     (1,836 )     (19,603 )
                                 
Net gain (loss) on reorganization items
  $     $ 378     $ (1,149 )   $ 301,352  

Professional fees include financial advisory, consulting, tax, legal, real estate and valuation services, among other items, that are directly associated with the Chapter 11 reorganization process.

Note 4. Property Tax Refund Receivable

The Company’s original hotel and parking structures property tax assessment for 2008 through 2010 was disputed by the Company. The Company recorded as an expense and paid the original amounts assessed by the City of Detroit.

During the quarter ended December 31, 2010, the Company and the City of Detroit entered into a settlement agreement to reduce the property tax basis going forward and provide a retroactive reduction to the basis resulting in a refund of approximately $3.5 million for 2008 through 2010. The Company received full payment from the City of Detroit in 2011.
 
 
14

 
 
Greektown Superholdings, Inc.
Notes to the Consolidated Financial Statements (Unaudited)
For the Quarterly Period ended September 30, 2011

 Note 5. Goodwill & Other Identifiable Intangible Assets

Goodwill represents the excess of the reorganization value of Greektown Superholdings over the fair value of tangible and identified intangible net assets upon emergence from bankruptcy. Greektown recorded goodwill of $110.3 million upon the application of fresh start reporting.

        Other identifiable intangible assets consist of the following (in thousands):
Other identifiable intangible assets
 
Gross Amount
   
Accumulated Amortization
   
 
Net Intangible Asset
 
Assumed Useful Life
                     
Trade names
  $ 26,300     $     $ 26,300  
Indefinite
Rated player relationships
    69,000       17,250       51,750  
5 years
Casino development rights
    117,800             117,800  
Indefinite
Total other identifiable intangible assets
  $ 213,100     $  17,250     $ 195,850    

Amortization expense related to the rated player relationships intangible asset for the three and nine months ended September 30, 2011 totaled $3.5 million and $10.4 million, respectively. Annual amortization expense for the years ended December 31, 2011, 2012, 2013 and 2014, is estimated to be $13.8 million for each of the respective years, and approximately $6.9 million for the year ended December 31, 2015.

Upon the Effective Date, in connection with fresh start reporting, the Company recognized Greektown Casino’s trade names, rated player relationships and casino development rights under the Development Agreement at estimated fair value as set forth in the table above. Intangible assets related to Greektown Casino were valued by valuation professionals who used income and cost- based methods, as appropriate. The Greektown trade name was valued based on the relief from royalty method, which is a function of projected revenue, the royalty rate that would hypothetically be charged by a licensor of an asset to an unrelated licensee, and a discount rate.

The royalty rate was based on factors such as age, market competition, absolute and relative profitability, market share and prevailing rates from similar assets to reach a 1% royalty rate.

Casino development rights were valued based on the Greenfield method, which is a function of the cost to build a new casino operation, the build out period, and projected cash flows attributable to the Casino once operational, at a discount rate. The value assigned to the rated player relationships is based on the present value of future earnings using the replacement cost method based on internally developed estimates.

The determination of fair value of assets and liabilities is subject to significant estimation and assumptions and there can be no assurances that the estimates, assumptions and values reflected in the valuations will be realized and actual results could vary materially.
 
 
15

 

Greektown Superholdings, Inc.
Notes to the Consolidated Financial Statements (Unaudited)
For the Quarterly Period ended September 30, 2011

Note 6. Debt

Exit Facility

Purchase Agreement; Indenture; Notes

On June 25, 2010, the Company entered into a purchase agreement (the “Purchase Agreement”), by and between the Company and Goldman, Sachs & Co. (the “Initial Purchaser”), pursuant to which the Company agreed to issue and sell, and the Initial Purchaser agreed to purchase, $280.2 million principal amount of its Series A 13% Senior Secured Notes due 2015 (the Series A Notes) and $104.8 million principal amount of its Series B 13% Senior Secured Notes due 2015 (the Series B Notes and, together with the Series A Notes, the “Notes”), which are guaranteed (the “Guarantees”) by substantially all of the Company’s domestic subsidiaries (the Guarantors and, together with the Company’s, the “Obligors”), which subsidiaries executed a joinder to the Purchase Agreement on June 30, 2010.

On the Effective Date, the Company consummated the issuance and sale of the New Senior Secured Notes under the Purchase Agreement in a private placement to qualified institutional buyers in the United States in reliance on Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and outside the United States in reliance on Regulation S under the Securities Act.

The New Senior Secured Notes were issued pursuant to an indenture, dated as of June 30, 2010 (the “Indenture”), among the Company, the Guarantors, and Wilmington Trust FSB, as trustee.

Maturity: The New Senior Secured Notes mature on July 1, 2015, and bear interest at a rate of 13.0% per annum. Interest on the New Senior Secured Notes is payable semi-annually on January 1 and July 1 of each year, beginning on January 1, 2011. Interest is computed on the basis of a 360-day year comprised of twelve 30-day months.

Guarantees: The obligations of the Obligors under the New Senior Secured Notes are fully and unconditionally guaranteed, jointly and severally, on a second-priority senior secured basis by all of the Company’s current and future domestic subsidiaries, subject to certain exceptions.

               Security The New Senior Secured Notes and the related Guarantees are secured by a second-priority lien on (i) substantially all of the properties and assets of the Company and each Guarantor, whether now owned or hereafter acquired, except certain excluded assets and (ii) a pledge of all the capital stock of all the subsidiaries of the Company, subject to certain limitations (in each case subject to certain permitted prior liens and liens securing certain permitted priority lien debt, including borrowings under the Company’s revolving credit facility described below).

               Optional Redemption: At any time prior to January 1, 2013, the Company may on any one or more occasions redeem all or a part of the New Senior Secured Notes, upon not less than 30 nor more than 60 days’ notice, at a redemption price equal to 100% of the principal amount of the New Senior Secured Notes redeemed, plus a specified premium as of, and accrued and unpaid interest and special interest, if any, to the date of redemption, subject to the rights of holders of New Senior Secured Notes on the relevant record date to receive interest due on the relevant interest payment date. On or after January 1, 2013, the Company may redeem some or all of the New Senior Secured Notes at any time at the redemption prices specified in the Indenture plus accrued and unpaid interest and special interest, if any, to the applicable redemption date.

Mandatory Redemption: The New Senior Secured Notes are subject to mandatory disposition or redemption following certain determinations by applicable gaming regulatory authorities.

The New Senior Secured Notes are subject to mandatory redemption, at 103% of their principal amount plus accrued and unpaid interest and special interest, if the Company has consolidated excess cash flow, as defined in the Indenture, for any fiscal year commencing with the fiscal year beginning on the date of the Indenture and ending December 31, 2010. No excess cash flow payments were required to be made by the Company for the fiscal year ended December 31, 2010.
 
 
16

 

Greektown Superholdings, Inc.
Notes to the Consolidated Financial Statements (Unaudited)
For the Quarterly Period ended September 30, 2011

Note 6. Debt (continued)

If the Company experiences certain change of control events, the Company must offer to repurchase the New Senior Secured Notes at 101% of their principal amount, plus accrued and unpaid interest and special interest, if any, to the applicable repurchase date. If the Company sells assets or experiences certain events of loss under certain circumstances and does not use the proceeds for specified purposes, the Company must offer to repurchase the New Senior Secured Notes at 100% of their principal amount, plus accrued and unpaid interest and special interest, if any, to the applicable repurchase date.

Covenants: The Indenture contains covenants limiting the ability of Greektown Superholdings and/or its direct and indirect subsidiaries to, among other things, (i) engage in businesses other than the operation of Greektown Casino; (ii) incur or guarantee additional indebtedness; (iii) create liens; (iv) make certain investments; (v) pay dividends on or make payments in respect of capital stock; (vi) consolidate or merge with other companies; (vii) sell certain assets; (viii) enter into transactions with affiliates; (ix) agree to negative pledge clauses and (x) enter into sales and leasebacks. Failure to comply with these covenants could result in a default under the Indenture unless Greektown Superholdings obtains a waiver of, or otherwise mitigates, the default.

Events of Default: The Indenture for the New Senior Secured Notes contains events of default, including (i) failure to pay principal, interest, fees or other amounts when due; (ii) breach of any covenants which are not cured within a stated cure period; (iii) default under certain other indebtedness; (iv) becoming subject to certain judgments; (v) failure to keep liens or security interests valid; (vi) certain events of bankruptcy or insolvency; (vii) impairment of any collateral to the loans; (viii) ceasing to own the casino complex; or (ix) loss of gaming or certain other licenses, or the legal authority to conduct gaming activities. A default could result in an acceleration of the amounts outstanding under the New Senior Secured Notes.

Revolving Credit Agreement

               On the Effective Date, the Company entered into a Credit Agreement with Comerica Bank for the Revolving Loan. On July 6, 2011, the Company together with Comerica Bank agreed to certain modifications to the Credit Agreement (as so amended, the "Credit Agreement").  

General: The Credit Agreement provides for the Revolving Loan, which is a three and one-half year revolving credit facility in an aggregate principal amount of up to $30 million, including $5 million for the issuance of standby letters of credit. The maximum expiration of individual letters of credit is twelve months after the issuance thereof or, if earlier, the maturity of the Revolving Loan.

Security and Guarantees. The Revolving Loan is secured by a perfected first priority lien and security interest on all the assets of the Company and all its direct and indirect subsidiaries, excluding, among other things, the Company’s gaming license. Additionally, effective July 2011, a requirement for a 45 day annual revolver “clean up period” was added to the Credit Agreement, during which the Company will be required to maintain a $0 balance under the revolver.

Interest and Fees. Borrowings under the Revolving Loan initially bear interest at an annual rate of LIBOR plus 2.50%, or the higher of Comerica Bank’s prime reference rate and 3.25%. Upon the Trappers Mortgage Release (as defined below), the Revolving Loan will bear interest at an annual rate of LIBOR plus 1.75% (if the Leverage Ratio (as defined below) is less than 4 to 1) or 2.25% (if the Leverage Ratio is greater than or equal to 4 to 1) or at an annual rate of (a) the higher of (i) Comerica Bank’s prime reference rate and (ii) 2.50% minus (b) 0.50% (if the Leverage Ratio is greater than or equal to 4 to 1) or 1% (if the Leverage Ratio is less than 4 to 1). There is a facility fee of 0.50% per annum on the aggregate revolving credit commitment amount payable quarterly in arrears commencing on July 1, 2010 (in respect of the prior fiscal quarter or portion thereof), and on the first day of each fiscal quarter thereafter. There is also a non-refundable letter of credit fee of 3.50% per annum on the face amount of each letter of credit payable quarterly in advance.
 
 
17

 

Greektown Superholdings, Inc.
Notes to the Consolidated Financial Statements (Unaudited)
For the Quarterly Period ended September 30, 2011

Note 6. Debt (continued)

Leverage Ratio” means as of the last day of any fiscal quarter of the Company, the ratio of an amount equal to, on a consolidated basis, the sum of all of the funded debt of the Company and its subsidiaries as of such date, excluding all subordinated debt, to EBITDA (as defined below) for the four fiscal quarters then ending. Adjustments to the interest rate and the applicable letter of credit fee rate are implemented quarterly based on the Leverage Ratio.

Prepayment. The Revolving Loan requires mandatory prepayments in an amount equal to (i) 100% of the net proceeds of the permitted sale of assets (subject to certain exclusions and permitted reinvestments), (ii) 100% of the net proceeds of any recovery from insurance arising from an event of loss (subject to certain exclusions and permitted reinvestments), and (iii) 100% of the net proceeds for the issuance of any debt or equity securities (subject to certain exclusions). Except with respect to certain asset sales, mandatory prepayments do not reduce revolving credit commitments.

Certain Covenants. The Credit Agreement contains a number of covenants that, among other things, restrict, subject to certain exceptions and materiality thresholds, the ability of the Company and its subsidiaries to sell assets and property, incur additional indebtedness, create liens on assets, make investments, loans, guarantees or advances, make distributions, dividends or payments on account of, or purchase, redeem or otherwise acquire, any of the Company’s capital stock, prepay certain indebtedness, engage in acquisitions, mergers or consolidations, engage in transactions with affiliates, amend agreements governing the Company’s indebtedness, including the New Senior Secured Notes, make capital expenditures, enter into negative pledges, change the fiscal year and change the Company’s or any subsidiary’s name, jurisdiction of incorporation, or the location at which any Collateral is stored. The Company has also agreed to complete the Trappers Mortgage Release by June 30, 2012.

In addition, the Credit Agreement contains a financial covenant pursuant to which the Company must maintain, as of each Test Date, a specified minimum earnings before interest, taxes, depreciation and amortization during twelve month periods ending on each fiscal year during the term, applicable Test Dates, and as of each fiscal year end, a Fixed Charge Coverage Ratio of not less than 1.05 to 1 (measured from the Effective Date until the applicable determination date for all fiscal quarters ending on or before June 30, 2011, and thereafter, on a trailing twelve month basis). “Test Date” means (i) the last day of each fiscal year of the Company, and (ii) the last day of each fiscal quarter, if the sum of the average daily outstanding advances plus the aggregate undrawn face amount of all issued, outstanding and unexpired letters of credit under the Revolving Loan exceeded $7.5 million during such quarter or if there are any advances outstanding under the Revolving Loan on the last day of such fiscal quarter. “Fixed Charges” shall mean, for any period, the sum, without duplication, of (i) all cash Interest Expense paid or payable in respect of such period on the Funded Debt of Borrower and its Subsidiaries on a Consolidated basis, plus (ii) all installments of principal or other sums paid or due and payable during such period by Borrower or any of its Consolidated Subsidiaries with respect to Funded Debt (other than the Advances and the original principal payment made with respect to Permitted Refinancing Indebtedness), plus (iii) all Income Taxes paid or payable in cash during such period, plus (iv) all Restricted Payments paid or payable in cash in respect of such period by Borrower (other than dividends on Capital Stock of the Borrower that were accrued and not paid), plus (v) all unfinanced Capital Expenditures of Borrower and its Consolidated Subsidiaries for such period (except the Excluded Capital Expenditures), plus (vi) all capitalized rent and lease expense of Borrower and its Consolidated Subsidiaries for such period, all as determined in accordance with GAAP. For the Measuring Periods ending on September 30, 2010, December 31, 2010 and March 31, 2011, the unfinanced Capital Expenditures included in the calculation of Fixed Charges will not exceed $3.0 million, $6.0 million and $9.0 million, respectively.
 
 
18

 

Greektown Superholdings, Inc.
Notes to the Consolidated Financial Statements (Unaudited)
For the Quarterly Period ended September 30, 2011

Note 6. Debt (continued)

“EBITDA” shall mean Net Income for the applicable period plus, without duplication and only to the extent deducted in determining Net Income, (i) depreciation and amortization expense for such period, (ii) Interest Expense, whether paid or accrued, for such period, (iii) all Income Taxes for such period, (iv) reasonable legal, accounting, consulting, advisory and other out-of-pocket expenses incurred in connection with on-going bankruptcy court proceedings related to the bankruptcy of Greektown Holdings, L.L.C., and (v) for any fiscal quarter ending on or before June 30, 2011 and June 30, 2012, non-recurring expenses as defined within the amendment to the credit agreement may be added back to EBITDA during the period beginning July 1, 2010 and ending June 30, 2012, so as long as the dollar value does not exceed $5.5 million.

Event of Default. The Revolving Loan contains certain events of default, including failure to make required payments; breaches of covenants which are not cured within a stated cure period or any representations and warranties in any material adverse respect; defaults under certain other indebtedness; certain judgments against the Company for the payment of money; failure to keep any material provision of any loan document valid, binding and enforceable; a change of control; an event of bankruptcy or insolvency; loss of the Company’s gaming licenses to the extent such loss is reasonably likely to cause a material adverse effect; the Company becomes the subject of certain enforcement actions if such enforcement action has not been dismissed or terminated within 60 days after commencement; or the Company becomes prohibited from conducting gaming activities for a period of greater than thirty consecutive days. A default could result in, among other things, a termination of the revolving credit commitment and acceleration of amounts outstanding under the Revolving Loan.

Trappers Mortgage Release. A small parcel of real property underlying a portion of our casino operations (the “Trappers Parcel”) is encumbered by mortgages which secure indebtedness owed to entity and third parties. While the Company believes that these third party liens are discharged pursuant to the terms of the Plan, the liens established by these mortgages were not removed from the title record or insured by the title company prior to the Effective Date. Historical subordination agreements from the third parties holding such mortgages exist whereby such parties have agreed not to exercise remedies until Casino has exercised such remedies under a mortgage in favor of Casino on the same parcel.

Further, the Company and its subsidiaries have agreed to collaterally assign the mortgage in favor of the Company as well as a mortgage under which a pre-bankruptcy affiliate of the Company is the borrower (but as to which the Company is also the beneficiary of a collateral assignment to secure the mortgage in favor of us) to the lenders under the Revolving Loan on a first-priority basis and to the holders of the New Senior Secured Notes on a second-priority basis. However, if the subordination agreements and the collateral assignment of the mortgage in favor of the Company and under which the Company’s pre-bankruptcy affiliate is the borrower were determined not to be enforceable, such mortgages could be deemed to have a higher priority than the mortgage on such property that the Company is granting to holders of the notes. In the event that the holders of such mortgages are able to exercise their rights under such mortgages, they would be entitled, among other remedies, to foreclose such liens which could result in the Company’s loss of title to such property. Pending the discharge of the liens on the Trappers Parcel (the “Trappers Mortgage Release”), availability under the Revolving Loan is limited to $30 million pursuant to the July 2011 Amendment, and the failure to resolve the issue by June 30, 2012 will result in a default under the Credit Agreement unless otherwise waived.

As of September 30, 2011, the Company had approximately $0.9 million of letters of credit outstanding.
 
 
19

 
 
Greektown Superholdings, Inc.
Notes to the Consolidated Financial Statements (Unaudited)
For the Quarterly Period ended September 30, 2011

Note 7. Shareholders’ Equity

Common Stock

Greektown Superholdings is authorized to issue 5 million shares of Common Stock, of which 153,383 shares were issued and outstanding as of September 30, 2011, including 9,152 unvested restricted shares, a total of 4,354,935 shares of Greektown Superholdings’ Common Stock are designated as Series A-1 Common Stock, par value $0.01 per share (the “Series A-1 Common Stock”), and a total of 645,065 shares of Greektown Superholdings’ Common Stock are designated as Series A-2 Common Stock, par value $0.01 per share (the “Series A-2 Common Stock”). On July 1, 2011 under the terms of the restricted share unit program, the Company’s President and Chief Executive Officer was granted 7,000 restricted share units. The restricted share units were not included in the computation of Diluted EPS, as their inclusion would have been anti-dilutive, or into the Basic EPS calculation, as the restricted share units were not considered to be outstanding as of September 30, 2011 (see Note 9 and 10). Each share of Series A-1 Common Stock represents the same economic interest in Greektown Superholdings as each share of Series A-2 Common Stock and such shares differ only with respect to voting rights, as set forth below.

Preferred Stock

Greektown Superholdings is authorized to issue 2,333,333 shares of Preferred Stock. A total of 1,688,268 shares of Greektown Superholdings’ Preferred Stock are designated as Series A-1 Convertible Preferred Stock, par value $0.01 per share (the “Series A-1 Preferred Stock”), of which 1,463,535 were issued and outstanding as of June 30, 2011. A total of 645,065 shares of Greektown Superholdings’ Preferred Stock are designated as Series A-2 Participating Convertible Preferred Stock, par value $0.01 per share (the “Series A-2 Preferred Stock,” and together with the Series A-1 Preferred Stock, the “Series A Preferred Stock”), of which 162,255 shares were issued and outstanding as of September 30, 2011. A holder’s shares of Series A Preferred Stock are voluntarily convertible at the election of such holder at any time after December 31, 2010 and all shares of Series A Preferred Stock are mandatory convertible upon the vote or written consent of 66 2/3% of the then outstanding shares of Series A Preferred Stock voting together as a single class (with each holder of Series A-1 Preferred Stock and each holder of Series A-2 Preferred Stock entitled to cast one vote with respect to each share of Series A-1 Preferred Stock or Series A-2 Preferred Stock held by such holder). Each share of Series A-1 Preferred is convertible into the lesser of (i) such number of fully paid and nonassessable shares of Series A-1 Common Stock as is determined by dividing (A) the sum of $100 per share of Series A Preferred Stock plus an amount equal to the aggregate amount of accrued but unpaid dividends per share of Series A Preferred Stock whether or not declared and subject to certain adjustments (the “Series A Reference Price”) by (B) the Series A Conversion Price (defined below) in effect at the time of conversion, and (ii) the maximum number of shares of Series A-1 Common Stock that can be issued to such holder in accordance with the Certificate of Incorporation of Greektown Superholdings and in compliance with the requirements of the MGCB. Each share of Series A-2 Preferred Stock is convertible into the lesser of (i) such number of fully paid and nonassessable shares of Series A-2 Common Stock as is determined by dividing the Series A Reference Price by the Series A Conversion Price in effect at the time of conversion and (ii) the maximum number of shares of Series A-2 Common Stock that can be issued to such holder in accordance with the Certificate of Incorporation and in compliance with the requirements of the MGCB. The “Series A Conversion Price” means an amount initially equal to $100 but which is subject to adjustment for stock splits, combinations, certain dividends and distributions and with respect to mergers, reorganizations and similar transactions as set forth in the Certificate of Incorporation. Each share of Series A-1 Preferred Stock represents the same economic interest in Greektown Superholdings as each share of Series A-2 Preferred Stock and such shares differ only with respect to voting rights, as set forth below.
 
 
20

 

Greektown Superholdings, Inc.
Notes to the Consolidated Financial Statements (Unaudited)
For the Quarterly Period ended September 30, 2011

Note 7. Shareholders’ Equity (continued)

Summary of Stock Terms

Issuance of Additional Stock. The Board does not have the right to (i) authorize additional shares of Common Stock without the vote of the holders of shares of capital stock of Greektown Superholdings representing a majority of the votes represented by all outstanding shares of capital stock (on an as-converted basis) of Greektown Superholdings entitled to vote, voting together as a single class, (ii) authorize or issue additional shares of Common Stock or Preferred Stock if such authorization or issuance would adversely affect (A) the Series A-1 Preferred Stock in a manner different than it would affect the Series A-2 Preferred Stock without the separate consent of a majority of the outstanding shares of Series A-1 Preferred Stock and (B) the Series A-2 Preferred Stock in a manner different than it would affect the Series A-1 Preferred Stock without the separate consent of a majority of the outstanding shares of Series A-2 Preferred Stock or (iii) cause Greektown Superholdings to issue or sell to any person (including holders of shares of capital stock and affiliates of holders of shares of capital stock) more than five percent (5%) of any Common Stock, Preferred Stock or other voting securities, voting interests or equity interests of Greektown Superholdings except in accordance with the provisions of the Michigan Gaming Act and the rules promulgated thereunder. Greektown Superholdings may not issue any class of non-voting equity securities unless and solely to the extent permitted by section 1123(a)(6) of the title 11 of the Bankruptcy Code; provided, however that such restriction (A) will have no further force and effect beyond that required under section 1123(a)(6) of the Bankruptcy Code; (B) will have such force and effect, if any, only for so long as section 1123(a)(6) of the Bankruptcy Code is in effect and applicable to Greektown Superholdings; and (C) in all events may be amended or eliminated in accordance with applicable law from time to time in effect.

Transfer Restrictions. No stockholder may transfer its shares of Common Stock, Preferred Stock or other voting securities, voting interests or equity interests of Greektown Superholdings unless such transfer is in accordance with the Michigan Gaming Act and the rules promulgated there under.

Voting Rights. The holders of Series A-1 Common Stock are entitled to ten (10) votes for each outstanding share of Series A-1 Common Stock. The holders of Series A-2 Common Stock are entitled to one (1) vote for each outstanding share of Series A-2 Common Stock; provided, however, that, except as otherwise required by law, holders of Common Stock are not entitled to vote on any amendment to the Certificate of Incorporation that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to the Certificate of Incorporation or pursuant to the General Corporation Law of the State of Delaware. Except as provided below, the holders of Series A-1 Preferred Stock are entitled a number of votes equal to ten (10) times the number of shares of Series A-1 Common Stock into which each such share of Series A-1 Preferred Stock is then convertible. Except as provided below, the holders of Series A-2 Preferred Stock are entitled to a number of votes equal to one (1) times the number of shares of Series A-2 Common Stock into which each such share of Series A-2 Preferred Stock is then convertible. Except as provided by law and as set forth below, holders of Series A-1 Preferred Stock and holders of Series A-2 Preferred Stock will vote together with the holders of Common Stock as a single class. The approval of a majority of the votes of Series A-1 Preferred Stock are required in order to amend, alter or repeal any provision of the Certificate of Incorporation or Bylaws of Greektown Superholdings if such amendment, alteration or repeal would adversely affect the Series A-1 Preferred Stock in a manner different than it would affect the Series A-2 Preferred Stock. The approval of a majority of the votes of Series A-2 Preferred Stock are required in order to amend, alter or repeal any provision of the Certificate of Incorporation or Bylaws of Greektown Superholdings if such amendment, alteration or repeal would adversely affect the Series A-2 Preferred Stock in a manner different than it would affect the Series A-2 Preferred Stock. Any of the rights, powers, preferences and other terms of the Series A Preferred Stock set forth in the Certificate of Incorporation may be waived on behalf of all holders of Series A Preferred Stock by the affirmative written consent or vote of the holders of sixty six and two thirds percent (66 2/3%) of the shares of Series A Preferred Stock then outstanding (with each holder of Series A-1 Preferred Stock and each holder of Series A-2 Preferred Stock entitled to cast one vote with respect to each share of Series A-1 Preferred Stock or Series A-2 Preferred Stock held by such holder) voting together as a single class.
 
 
21

 

Greektown Superholdings, Inc.
Notes to the Consolidated Financial Statements (Unaudited)
For the Quarterly Period ended September 30, 2011

Note 7. Shareholders’ Equity (continued)

Dividends. Each share of Series A Preferred Stock (including unissued shares) accrues dividends on a daily basis at a rate equal to 7.5% per annum of the Series A Reference Price (whether or not declared), subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series A Preferred Stock. Such dividends are cumulative; provided, however, that such dividends shall be payable only when, as, and if declared by the Board, and for so long as Greektown Superholdings is subject to the jurisdiction of the MGCB, Greektown Superholdings may not pay any dividends unless such dividends are approved by, and issued in compliance with the regulations and restrictions imposed by, the MGCB. Greektown Superholdings may not declare, pay or set aside any dividends on shares of any other class or series of capital stock of Greektown Superholdings (other than dividends on shares of Common Stock payable in shares of Common Stock) unless the holders of the Series A Preferred Stock then outstanding will first receive, or simultaneously receive, a dividend equal to (i) the amount of accrued but unpaid dividends with respect to each share of Series A Preferred Stock plus (ii) either (A) in the case of a dividend on Common Stock or any class or series of capital stock convertible into Common Stock, the amount that would have been payable with respect to each share of Series A Preferred Stock if such share had been converted to Common Stock on the record date for payment of such dividend or (B) in the case of a dividend on any class or series of capital stock that is not convertible into Common Stock, an amount determined by (x) dividing the amount of the dividend payable on each share of such class or series of capital stock by the original issuance price of each share of such class or series of capital stock and (y) multiplying such fraction by the Series A Reference Price; provided that, if Greektown Superholdings declares, pays or sets aside, on the same date, a dividend on more than one class or series of capital stock, the holders of Series A Preferred Stock will receive an amount calculated based on the dividend on the class or series of capital stock that would result in the highest Series A Preferred Stock dividend.
 
Distributions. All distributions to the shareholders of Greektown Superholdings upon a voluntary or involuntary liquidation, dissolution or winding up of Greektown Superholdings, if any, will be made in accordance with the order and priority set forth in the Certificate of Incorporation.

Warrants to Purchase Series A Preferred Stock

On the effective date, Greektown Superholdings issued warrants to purchase shares of Series A-1 Preferred Stock and warrants to purchase shares of Series A-2 Preferred Stock, in each case, at an initial purchase price per share equal to $0.01 (the “Warrant Shares”), subject to adjustment as set forth in the Warrant to Purchase Series A Convertible Preferred Stock (the “Warrant”), which is the form of warrant used for both warrants to purchase the Series A-1 Preferred Stock and warrants to purchase the Series A-2 Preferred Stock. Greektown Superholdings entered into such warrants with any Put Party and/or holder of Old Senior Notes who elected to purchase Preferred Stock representing more than 4.9% of the capital stock of Greektown Superholdings as of the Effective Date, or if such party that qualified as an “Institutional Investor” under Michigan gaming law elected to purchase more than 14.9% of the capital stock of Greektown Superholdings as of the Effective Date.

Voting Rights. The holders of Warrants have no voting rights prior to exercise of the Warrant.

Dividends. The holder of a Warrant is entitled to receive any and all dividends and other distributions paid to the holders of shares of Series A Preferred Stock in accordance with the Certificate of Incorporation. However, such dividends or distributions are payable only upon exercise of the Warrant. In accordance with the Certificate of Incorporation, from the date on which Greektown Superholdings first issues Series A Preferred Stock, each Warrant Share (including unissued Warrant Shares) will accrue dividends on a daily basis at the rate equal to 7.5% per annum of the Series A Reference Price (whether or not declared), subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series A Preferred Stock.
 
 
22

 

Greektown Superholdings, Inc.
Notes to the Consolidated Financial Statements (Unaudited)
For the Quarterly Period ended September 30, 2011

Note 7. Shareholders’ Equity (continued)

Early Termination. In the event of any capital reorganization, or any reclassification of the capital stock of Greektown Superholdings (other than a change in par value or from par value to no par value or no par value to par value or as a result of a stock dividend or subdivision, split-up or combination of shares), or the consolidation or merger of Greektown Superholdings with or into another corporation (other than a merger solely to effect a reincorporation of Greektown Superholdings into another state), or the sale, lease, transfer, exclusive license or other disposition in a single transaction or series of related transactions of all or substantially all of its assets to any other person and such transaction results in a liquidation, dissolution or winding up of Greektown Superholdings pursuant to Section B.3 of Article 4 of Greektown Superholdings’ Certificate of Incorporation, at any time prior to the earlier of the expiration of a Warrant or the exercise in full of a Warrant, each holder of a Warrant will be entitled to receive, subject to the consummation of such event, the cash, securities and other property that such holder would have received in respect of the Warrant Shares had such holder exercised its Warrant immediately prior to the effective time of such event less an amount equal to (i) the number of Warrant Shares then subject to the applicable Warrant multiplied by (ii) the purchase price per share of such Warrant in effect at the time of such event.

Limitations on Exercise. The exercise of each Warrant and the issuance of the Warrant Shares by Greektown Superholdings upon such exercise are subject to Article Twelfth of the Certificate of Incorporation, which prohibits the issuance of shares of capital stock of Greektown Superholdings in certain circumstances.

Note 8. Gaming Taxes and Fees

Under the provisions of the Michigan Gaming Control and Revenue Act (the “Act”), casino licenses are subject to the following gaming taxes and fees on an ongoing basis:

 
An annual licensing fee;
     
 
Annual payments are due in November, together with the other two casino licensees, of all MGCB regulatory and enforcement costs. The Company prepaid $10.2 million for its portion of the 2011 annual assessment in 2010, and will prepay its portion of the 2012 annual assessment in November of 2011;
     
 
A wagering tax, calculated based on adjusted gross gaming receipts, payable daily, of 19%; and
     
 
A municipal services fee in an amount equal to the greater of 1.25% of adjusted gross gaming receipts or $4 million annually.

These gaming taxes and fees are in addition to the taxes, fees, and assessments customarily paid by business entities conducting business in the State of Michigan and the City of Detroit. The Company recorded $17.7 million, $18.8 million, $56.1 million, and $38.5 million as gaming tax expense for the successor three months ended September 30, 2011, sucessor three months ended September 30, 2010, successor nine months ended September 30, 2011, and predecessor six months ended June 30, 2010, respectively.

The Company is also required to pay a daily fee to the City of Detroit (City) in the amount of 1% of adjusted gross receipts, increasing to 2% of adjusted gross receipts if adjusted gross receipts exceed $400 million in any one calendar year. Additionally, if and when adjusted gross receipts exceed $400 million, the Company will be required to pay $4 million to the City of Detroit. The Company does not anticipate its adjusted gross receipts to exceed $400 million during the calendar year 2011.
 
 
23

 

Greektown Superholdings, Inc.
Notes to the Consolidated Financial Statements (Unaudited)
For the Quarterly Period ended September 30, 2011

Note 9: Stock Based Compensation

On August 11, 2010 (supplemented on September 29, 2010), the Compensation Committee approved a director compensation program for members of the Company’s Board of Directors. Under the terms of the compensation program, the Chairman of the Board shall receive an annual retainer of $225,000, the Vice Chairman of the Board shall receive an annual retainer of $125,000, and all other board members shall receive an annual retainer of $75,000. In addition, the Chairmen of the Audit Committee, the Nominating and Corporate Governance Committee, the Regulatory Compliance Committee and the Compensation Committee shall each receive an additional $25,000, and each member of the Board of Directors that serves on a committee in a non-chair capacity shall receive an additional $10,000. In addition, certain members of the Company’s executive team are eligible to receive restricted share units under the terms of the Company’s restricted share unit program. On July 1, 2011 under the terms of the restricted share unit program, the Company’s President and Chief Executive Officer was granted 7,000 restricted share units, of which 2,333 restricted share units vest on each of the first two anniversaries of the grant date and the remaining 2,334 restricted share units vest on June 15, 2014. The units will be settled as shares of the Series A-1 Common Stock within 30 days of the final vesting date, subject to acceleration in the event of a change of control, or certain other circumstances. Additionally, in October 1, 2011, the Senior Vice President and Chief Financial Officer was granted 3,000 restricted share units, of which 1,000 restricted share units vest on each of the three anniversaries of the grant date.

All annual retainers will be paid half in cash and half in restricted shares of Series A-1 Common Stock, vesting in quarterly increments over a one year period. Each director may elect annually to receive all or part of the equity portion of the award in cash. Such cash payments will be made when the equity would have vested.

The director compensation program provides that each member of the Company’s Board of Directors is entitled to receive restricted shares of the Company’s Series A-1 Common Stock. In addition to the annual retainer, upon joining the Company’s Board of Directors, the Chairman of the Board became entitled to $275,000 of such stock, the Vice Chairman of the Board became entitled to $150,000 of such stock, and all other directors are entitled to $125,000 of such stock. All such restricted shares will vest in three equal annual installments.

The Company accounts for its stock based compensation in accordance with ASC Topic 718. Stock based compensation expense for the successor three and nine months ended September 30, 2011 totaled $0.2 million and $0.4 million, respectively. Stock based compensation expense for the successor three months ended September 30, 2010 was $0.1 million.

The weighted-average fair value at the grant date of the restricted stock and restricted share units granted during the quarter ended September 30, 2011 was approximately $90.

The following table summarizes the Company’s restricted shares and restricted share units unvested stock activity for the nine months ended September 30, 2011:

   
Restricted Shares
   
Restricted Share Units
 
Unvested at December 31, 2010
    8,983        
Granted
    4,109       7,000  
Vested
    (3,940 )      
Unvested at September 30, 2011
    9,152       7,000  
 
 
24

 
 
Greektown Superholdings, Inc.
Notes to the Consolidated Financial Statements (Unaudited)
For the Quarterly Period ended September 30, 2011

Note 10: Earnings per share

EPS is computed by dividing the net loss available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if certain restrictions lapse on restricted stock awards and preferred stock and warrants are converted to common stock. Anti-dilutive securities are excluded from diluted EPS.

The following is a reconciliation of the number of shares used in the basic and diluted EPS computations for the successor three months ended September 30, 2011, the three months ended September 30, 2010, and the nine months ended September 30, 2011 (in thousands, except per share data):

   
Successor
 
   
Three Months Ended September 30, 2011
   
Three Months Ended September 30, 2010
   
Nine Months Ended September 30, 2011
 
                   
Net loss attributable to common stockholders for basic computation
  $ (7,165 )   $ (5,005 )   $ (19,003 )
                         
Less: Preferred stock dividends
    (3,048 )     (3,048 )     (9,145 )
                         
Less: Preferred stock dividends on shares underlying warrants
    (1,243 )     (1,248 )     (3,730 )
                         
Adjusted net loss available to common stockholders
  $ (11,456 )   $ (9,296 )   $ (31,878 )
                         
Basic loss per common share:
                       
                         
Weighted average common shares outstanding
    144,231       140,000       142,048  
                         
Basic and diluted loss per common share
  $ (79.43 )   $ (66.41 )   $ (224.42 )
 
Due to the Company’s net loss for the successor three and nine months ended September 30, 2011 and the successor three months ended September 30, 2010, the dilutive effect of the President and Chief Financial Officer’s restricted share units, convertible preferred stock, and warrants were not included in the computation of EPS, as their inclusion would have been anti-dilutive.
 
 
25

 

Greektown Superholdings, Inc.
Notes to the Consolidated Financial Statements (Unaudited)
For the Quarterly Period ended September 30, 2011

Note 11. Fair Value Measurements

The Fair Value Measurements topic of the FASB ASC establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under this guidance are described below:

Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the    Company has the ability to access.

Level 2: Inputs to the valuation methodology include;

 
Quoted prices for similar assets or liabilities in active markets;
 
Quoted prices for identical or similar assets or liabilities in inactive markets;
 
Inputs other than quoted prices that are observable for the asset or liability;
 
Inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

    The assets and liabilities fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The valuation methodologies for these can be found at Note 2.

    Valuation techniques used are designed to maximize the use of observable inputs and minimize the use of unobservable inputs. The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values.

    Furthermore, while the Company believes its valuation methods are appropriate and consistent with other similar cash and cash equivalents, restricted cash, certificates of deposit, account receivables, note receivable, and the senior secured notes the use of different methodologies or assumptions to determine the fair value of certain cash and cash equivalents, restricted cash, certificates of deposit, account receivables, note receivable, and the senior secured notes could result in a different fair value measurement at the reporting date.
 
 
26

 

Greektown Superholdings, Inc.
Notes to the Consolidated Financial Statements (Unaudited)
For the Quarterly Period ended September 30, 2011
 
Note 12. Michigan Gaming Control Board Covenant

On June 28, 2010, the MGCB approved Greektown’s new ownership structure, capitalization and management. The MGCB’s approval order (the “Order”) provides that the Company must demonstrate its continuing financial viability for so long as any indebtedness is outstanding under the Revolving Loan and the Notes by complying with a minimum fixed charge coverage ratio maintenance covenant and a limitation on certain restricted payments.

Minimum Fixed Charge Coverage Ratio

The Order requires the Company and its subsidiaries to maintain a ratio of EBITDA to Fixed Charges (each as defined below) on the last day of each calendar quarter of not less than:

 
(1)
1.00 to 1.00 (until March 31, 2011); and
     
 
(2)
1.05 to 1.00 (after March 31, 2011).

The fixed charge coverage ratio will be measured from the Effective Date until the applicable determination date for all fiscal quarters ending on or before March 31, 2011 and on a trailing twelve month basis thereafter.

The Order defines the ratio as the ratio of:

 
(1)
EBITDA for the measurement period then ending to
     
 
(2)
Fixed Charges for the measurement period.

For purposes of the Order:

“EBITDA” means, for any period of determination, net income for the applicable period plus, without duplication and only to the extent deducted in determining net income:

 
(1)
depreciation and amortization expense for such period;
     
 
(2)
interest expense, whether paid or accrued, for such period;
     
 
(3)
all income taxes for such period; and
     
 
(4)
for any fiscal quarter ending on or before June 30, 2011, specified non-recurring expenses for such period.

“Fixed Charges” means, for any period, the sum, without duplication, of:

 
(1)
all cash interest expense on funded debt paid or payable in respect of such period; plus
     
 
(2) 
all installments of principal with respect to funded debt, including excess cash flow recapture payments, or other sums paid or due and payable during such period by the Company with respect to all of its funded debt (other than the repayment of advances under a revolving credit facility and payments of principal in connection with any refinancing of any funded debt); plus
     
 
(3)
all preferred dividends paid in cash for such period; plus
     
 
(4)
all unfinanced capital expenditures for such period; plus
     
 
(5)
all capitalized rent and lease expense for such period.
 
 
27

 
 
Greektown Superholdings, Inc.
Notes to the Consolidated Financial Statements (Unaudited)
For the Quarterly Period ended September 30, 2011

Note 12. Michigan Gaming Control Board Covenant (continued)

The Company will be permitted to cure any anticipated non-compliance with this ratio with capital raised in an offering of equity securities. The Company may add to EBITDA the net proceeds of any offering of equity securities of the Company or its subsidiaries consummated before the date that a financial audit must be delivered to the MGCB for the applicable period with respect to which the fixed charge coverage ratio is measured under the order to make up the amount of any shortfall in the minimum fixed charge coverage ratio for the applicable period. Any equity proceeds exceeding those necessary to make up the shortfall will be available to make up shortfalls in the minimum fixed charge coverage ratio for any subsequent periods.
 
The Company is seeking approval of the MGCB to modify the fixed charge coverage ratio required to be maintained by it by the MGCB in order to exclude specified capital expenditures agreed to it by Comerica Bank pursuant to the July 2011 Amendment (see Note 6) and to test the covenant only on an annual basis. There can be no assurance that necessary MGCB approvals will be obtained.

Limitation on Certain Restricted Payments

The MGCB order also prohibits the Company from making any distributions or pay any dividends on account of the Company’s capital stock without the prior written approval of the MGCB, other than repurchases, redemptions or other acquisitions for value of any of the Company’s preferred stock or common stock held by any current or former officer, director or employee of the Company or its subsidiaries pursuant to any equity subscription agreement, stock option agreement, shareholders agreement or similar agreement, not to exceed $1.5 million in any twelve month period.

Note 13. Commitments and Contingencies

The Company is a defendant in various pending legal actions. In management’s opinion, the ultimate outcome of such litigation will not have a material adverse effect on the results of operations or the financial position of the Company.

Under the Revised Development Agreement, should a triggering event as defined, occur the Company must sell its assets, business, and operations as a going concern at their fair market value to a developer named by the City of Detroit. The Company noted that for the period ended September 30, 2011, no triggering event has occurred.

As part of the bankruptcy reorganization process, the Company engaged Moelis & Company, LLC (“Moelis”) to act as investment banker. The Moelis engagement letter provides for a success fee if certain requirements are met. Moelis asserted an administrative claim for fees and expenses totaling approximately $12.9 million, of which approximately $3 million was paid prior to the effective date of the reorganization. The Company believes such amount substantially exceeds the amount to which Moelis is entitled under its engagement letter. The Company has filed an objection to Moelis’s administrative claim, and a hearing on that matter before the United States Bankruptcy Court for the Eastern District of Michigan is pending.
 
The Company requested a ruling from the Michigan Department of Treasury regarding certain potential tax liabilities under the Michigan Business Tax (principally related to the survival of certain Michigan tax attributes such as net operating loss carryforwards and the tax basis of assets) arising from the June 30, 2010 restructuring transactions. The Company failed to receive a favorable ruling. In response, the Company has asked the Bankruptcy Court to issue a determination as to these matters. A hearing on the Company’s request for a determination was held on March 21, 2011, at which time the Bankruptcy Court requested that the parties submit further briefing. Such briefing was submitted and the Bankruptcy Court has not yet ruled.

Certain parties to contracts entered into prior to the commencement of the Debtors’ bankruptcy proceedings have asserted claims alleging that the Company assumed those contracts and is responsible for amounts necessary to cure prepetition defaults under such contracts. Certain of such claims have been withdrawn. There are currently additional claims that may still be asserted. The amounts of such claims are estimated at approximately $0.3 million.
 
 
28

 

Greektown Superholdings, Inc.
Notes to the Consolidated Financial Statements (Unaudited)
For the Quarterly Period ended September 30, 2011

Note 14. Subsequent Events

On October 24, 2011, the membership of the five unions constituting the Detroit Casino Council, which represents the majority of Greektown’s approximately 2,000 employees, ratified a four year labor agreement with Greektown. The final agreement has not been executed.

The Ratified Agreement provides for the following: In the first year of the Ratified Agreement, a first lump sum ratification payment (“Payment”) of $2,500 and $2,000 will be made to full time and part time employees, respectively. The payments will be paid in the fourth quarter of 2011. There are currently approximately 1,100 full time and 400 part time employees who would be eligible for the Payment. In the third year (after October 17, 2013) of the Ratified Agreement, a second payment of $1,000 and $800 will be made to full time and part time employees, respectively. The payments will be paid in the fourth quarter of 2013. In the fourth year of the Ratified Agreement (after October 17, 2014) full time and part time employees are to receive a 2% increase on their base wage or $0.30 cents per hour, whichever is greater. Under the Ratified Agreement, changes in compensation costs, inclusive of non wage benefits, are expected to increase at a 2.5% compounded annual growth rate over the life of the Ratified Agreement.

 
29

 
 

Background and Overview

Greektown Superholdings was incorporated under the laws of the State of Delaware on March 17, 2010. Greektown Superholdings was formed to hold, directly and indirectly through Greektown Sub, all outstanding membership interests of Greektown LLC, as of the effective date of its emergence from bankruptcy protection. Through Greektown LLC, we own and operate Greektown Casino. Greektown Casino opened in November 2000 in the downtown of the City of Detroit. In February 2009, Greektown Casino completed its Expanded Complex at a cost of approximately $336.3 million. Greektown Casino is one of only three commercial casinos licensed to operate in Michigan and our Expanded Complex offers a full range of gaming, dining and entertainment alternatives, including:

 
approximately 100,000 square-feet of gaming space with 2,600 slot machines and 63 table games, including an approximately 12,500 square-foot salon dedicated to high-limit gaming and the largest live poker room in the Metro Detroit Gaming Market (as defined below);
     
 
approximately 2,810 attached and 1,750 unattached parking spaces, including over 600 parking spaces for valet parking services;
     
 
10,000 square feet of convention space;
     
 
a 400-room hotel;
     
 
four restaurants, including a 180-seat “International Buffet”;
     
 
several food outlets on the gaming floor; and
     
 
seven bars and two entertainment facilities.

Access to Greektown Casino is facilitated by a nearby off-ramp from Interstate 375 and six interstate highways passing through downtown Detroit. We estimate that Greektown Casino attracts approximately 17,600 patrons per day on average, and we believe a significant number of these patrons make regular visits to our property. Our players club, known as “Club Greektown,” is a membership/loyalty program that attracts customers by offering incentives to frequent casino visitors. From inception we had approximately 1.1 million people in our database for Club Greektown. We believe the gaming market in the Detroit area, which consists of three commercial casinos in Michigan (the “Detroit Commercial Casinos”), together with the commercial casino in Windsor, Ontario (the “Metro Detroit Gaming Market”), is primarily a “drive-to” gaming market, with over 95% of patrons residing within 100 miles of Greektown Casino.

Key Financial Statement Terms

Revenues

Our gross revenues are derived from casino, food, beverage, hotel, and other revenues. Our largest component of revenues is casino revenues, which represent approximately 90% of our total gross revenues. Gross casino revenues are comprised of revenues from our slot machines and from table games, which are calculated as the difference between the amount wagered and the amount paid to customers.
 
 
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The expenses associated with our “Club Greektown” membership/loyalty program are reflected as a reduction of gross casino revenues. In accordance with the Revenue Recognition topic of the FASB ASC applicable to instances where consideration is given by a vendor to a customer, we expense the cash value of points earned by Club Greektown members and recognize a related liability for any unredeemed points.

The following table reflects the composition of gross casino revenues for the successor three months ended September 30, 2011, the three months ended September 30, 2010, the nine months ended September 30, 2011, and the predecessor six months ended June 30, 2010 (in thousands).

    Successor    
Predecessor
 
   
Three Months
   
Three Months
   
Nine Months
    Six Months  
   
Ended
   
Ended
   
Ended
   
 Ended
 
   
September 30,
   
September 30,
   
September 30,
   
June 30,
 
   
2011
   
2010
   
2011
   
2010
 
Gross casino revenue:
                       
Slot machines
  $ 72,521     $ 75,128     $ 226,919     $ 153,366  
Table games
    11,206       13,649       38,121       27,597  
Club point expense
    (1,543 )     (1,683 )     (4,937 )     (3,534 )
                                 
Total gross casino revenue
  $ 82,184     $ 87,094     $ 260,103     $ 177,429  
                                 
Percent of gross casino revenue
                               
Slot machines
    88.2 %     86.3 %     87.2 %     86.4 %
Table games
    13.6 %     15.7 %     14.7 %     15.6 %
Club point expense
    -1.8 %     -1.9 %     -1.9 %     -2.0 %
                                 
Total gross casino revenue
    100.0 %     100.0 %     100.0 %     100.0 %

 
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The other principal components of revenues are from food, beverage, and hotel revenue, each of which is affected by customer volume and price. The following table reflects the composition of food, beverage, and hotel revenue for the successor three months ended September 30, 2011, the three months ended September 30, 2010, the nine months ended September 30, 2011, and the predecessor six months ended June 30, 2010 (in thousands).

    Successor    
Predecessor
 
   
Three Months
   
Three Months
   
Nine Months
   
Six Months
 
   
Ended
   
Ended
   
Ended
   
Ended
 
   
September 30,
   
September 30,
   
September 30,
   
June 30,
 
   
2011
   
2010
   
2011
   
2010
 
Gross food and beverage and hotel revenue:
                       
Food and beverage
  $ 5,320     $ 5,900     $ 17,236     $ 11,924  
Hotel
    2,848       2,569       8,240       4,628  
                                 
Total gross revenue
  $ 8,168     $ 8,469     $ 25,476     $ 16,552  
                                 
Percent of gross revenue:
                               
Food and beverage
    5.8 %     6.1 %     6.0 %     6.1 %
Hotel
    3.1 %     2.7 %     2.8 %     2.4 %
                                 
Total gross revenue
    8.9 %     8.8 %     8.8 %     8.5 %

Promotional Allowances

Our gross revenues are reduced by promotional allowances to arrive at net revenues. Promotional allowances consist of the retail value of food, beverage and other complimentary items furnished to customers without charge.
 
 
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Direct Operating Expenses

Direct operating expenses are those that directly relate to our gaming, food, beverage, and hotel operations. The following table illustrates the composition of direct operating expenses and their relationships to net revenues for the successor three months ended September 30, 2011, the three months ended September 30, 2010, the nine months ended September 30, 2011, and the predecessor six months ended June 30, 2010 (in thousands).

    Successor    
Predecessor
 
   
Three Months Ended
   
Three Months Ended
   
Nine Months Ended
   
Six Months Ended
 
   
September 30,
   
September 30,
   
September 30,
   
June 30,
 
   
2011
   
2010
   
2011
   
2010
 
Direct operating expenses:
                       
Casino
  $ 19,791     $ 22,362     $ 59,884     $ 44,291  
Gaming taxes
    17,719       18,832       56,058       38,469  
Food and beverage
    4,070       3,916       14,320       7,817  
Hotel
    2,288       2,188       6,918       4,397  
Depreciation & amortization
    8,301       10,031       28,888       10,488  
                                 
Total direct operating expenses
  $ 52,169     $ 57,329     $ 166,068     $ 105,462  
                                 
Relationship to net revenues:
                               
Casino
    24.7 %     26.4 %     24.0 %     25.6 %
Gaming taxes
    22.2 %     22.3 %     22.5 %     22.3 %
Food and beverage
    5.1 %     4.6 %     5.7 %     4.5 %
Hotel
    2.9 %     2.6 %     2.8 %     2.5 %
Depreciation & amortization
    10.4 %     11.9 %     11.6 %     6.1 %
                                 
Total direct operating expenses
    65.3 %     67.8 %     66.6 %     61.0 %

Casino expenses. Casino expenses consist of employee compensation (labor, taxes and benefits), surveillance costs, gaming supplies, casino promotions (including mailing and other ancillary costs) as well as on-site hosting of our casino customers.

Gaming taxes. Gaming taxes include gaming taxes paid to the State of Michigan, City of Detroit, and municipal service fees paid to the City of Detroit.

Food and beverage. Food and beverage expenses relate to labor, taxes, benefits, cost of sales, and operating supplies.

Hotel. Hotel expenses consist primarily of employee compensation, and related expenses, as well as facilities-related expenses, such as maintenance and utilities.

Depreciation and amortization. Depreciation and amortization expenses consist primarily of the depreciation expense related to our gaming buildings and improvements, our gaming equipment and furnishings, our non-gaming buildings and improvements, and our non-gaming office furniture and equipment.
 
 
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Indirect Operating Expenses

Indirect operating expenses consist predominantly of general overhead expenses that support our overall business, including marketing, advertising and entertainment, non-hotel facilities expenses and other general and administrative expenses. The following table illustrates the composition of indirect operating expenses and their relationships to net revenues for the successor three months ended September 30, 2011, the three months ended September 30, 2010, the nine months ended September 30, 2011, and the predecessor six months ended June 30, 2010 (in thousands).

    Successor    
Predecessor
 
   
Three Months Ended
   
Three Months Ended
   
Nine Months Ended
   
Six Months Ended
 
   
September 30,
   
September 30,
   
September 30,
   
June 30,
 
   
2011
   
2010
   
2011
   
2010
 
Other operating expenses:
                       
Marketing, advertising and entertainment
  $ 1,732     $ 1,496     $ 5,429     $ 4,146  
Facilities
    4,997       4,736       15,245       9,689  
General and administrative
    11,525       11,018       34,694       21,437  
Other
    85       58       271       105  
                                 
Total other operating expenses
  $ 18,339     $ 17,308     $ 55,639     $ 35,377  
                                 
Relationship to net revenues:
                               
Marketing, advertising and entertainment
    2.2 %     1.8 %     2.2 %     2.4 %
Facilities
    6.2 %     5.6 %     6.1 %     5.6 %
General and administrative
    14.3 %     13.0 %     13.9 %     12.4 %
Other
    0.1 %     0.1 %     0.1 %     0.1 %
                                 
Total other operating expenses
    22.9 %     20.5 %     22.3 %     20.5 %

Marketing, advertising and entertainment. Marketing, advertising and entertainment expenses primarily reflect the costs of mass media advertising, including television, radio and billboards.

Facilities. Facility expenses consist of cleaning and maintaining our non-hotel properties, valet parking, the Private Branch Exchange (PBX) department and wardrobe department, the payroll and benefits to support these activities and casino utilities.

General and administrative. General and administrative expenses include the costs of insurance, property taxes, regulatory fees paid to support the MGCB, board management fees, bonuses paid under union contracts, leases associated with various parking lots, rent, professional fees, donations and various employee costs relating to executives, security, compliance, finance, purchasing, human resources and information technology departments.

Other indirect operating expenses. Other indirect operating expenses are primarily costs associated with maintaining the various retail parking spaces and garages, including utilities and maintenance, related to rental income.
 
 
34

 
 
Reorganization Expenses

Reorganization expenses consist primarily of gains from the settlement of liabilities subject to compromise net of fees paid to restructuring professionals, as well as other costs directly associated with the bankruptcy process. The following table illustrates the composition of reorganization expenses and the total net (loss) gain on reorganization items and fresh start adjustments to net revenues for the successor three months ended September 30, 2011, the three months ended September 30, 2010, the nine months ended September 30, 2011, and predecessor six months ended June 30, 2010 (in thousands).

   
Successor
   
Predecessor
 
   
Three Months
Ended
September 30,
   
Three Months
Ended
September 30,
   
Nine Months
Ended
September 30,
   
Six Months
Ended
June
30,
 
   
2011
   
2010
   
2011
   
2010
 
Non- cash reorganization items
                       
Discharge of liabilities subject to compromise
  $     $ 2,100     $ 687     $ 130,937  
Revaluation of assets and liabilities
                      190,018  
Total non-cash reorganization items
          2,100       687       320,955  
Professional fees and expenses:
                               
Legal professional fees
          (745 )     (1,376 )     (12,336 )
Consulting professional fees
          (763 )     (170 )     (6,758 )
U.S. Trustee fees and other  expenses
          (214 )     (290 )     (509 )
Total professional fees and expenses
          (1,722 )     (1,836 )     (19,603 )
Net gain (loss) on reorganization items
  $     $ 378     $ (1,149 )   $ 301,352  

 
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Other Expense

Other expense consists primarily of interest on our indebtedness and the amortization of deferred financing costs. The following table illustrates the components of other expense and their relationships to net revenues for the successor three months ended September 30, 2011, the three months ended September 30, 2010, the nine months ended September 30, 2011, and the predecessor six months ended June 30, 2010 (in thousands).

    Successor    
Predecessor
 
   
Three Months
    Three Months    
Nine Months
    Six Months  
   
Ended
   
Ended
   
Ended
   
Ended
 
   
September 30,
   
September 30,
   
September 30,
   
June 30,
 
   
2011
   
2010
   
2011
   
2010
 
Other expense:
                       
Interest expense
  $ (12,632 )   $ (13,070 )   $