UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 333-06489
THE MAJESTIC STAR CASINO, LLC
(Exact Name of Registrant as Specified in its Charter)
Indiana 43-1664986
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Buffington Harbor Drive
Gary, Indiana
46406-3000
(Address of principal executive offices)
(Zip Code)
(219) 977-7777
(Registrant's telephone number, including area code)
Indicate check by mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to filing requirements for the past 90 days.
Yes X No
Shares outstanding of each of the registrant's classes of common stock as of
September 30, 1997:
Class Number of shares
- ----- ----------------
Not applicable Not applicable
THE MAJESTIC STAR CASINO, LLC
Index
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets, as of September 30,
1997 (Unaudited) and December 31, 1996
Statements of Income (Unaudited) For the
Three Months and Nine Months Ended
September 30, 1997 and 1996
Statements of Cash Flows (Unaudited)
For the Nine Months Ended September 30,
1997 and 1996
Notes to Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations
Part II OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
The Majestic Star Casino, LLC
Balance Sheets
September 30, December 31,
1997 1996
(Unaudited)
- ----------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 10,401,438 $ 8,935,999
Accounts receivable, less allowance
for doubtful accounts of $290,000 and
$190,000, respectively 568,003 557,816
Inventories 23,309 24,651
Prepaid expenses 1,385,550 1,169,868
---------- ----------
Total current assets 12,378,300 10,688,334
---------- ----------
Property, equipment, and vessel improvements,
net 57,128,930 24,124,802
---------- ----------
Other Assets:
Organizational costs, less accumulated
amortization of $36,959 and $15,772,
respectively 104,283 125,469
Deferred financing costs, less accumulated
amortization of $799,686 and $357,640,
respectively 3,298,404 3,757,667
Deferred costs, less accumulated amortization
of $3,125,231 and $2,131,166, respectively 4,238,652 5,023,767
Investment in Buffington Harbor Riverboats,
L.L.C. 44,412,948 44,946,852
Other assets and deposits 2,091,767 2,028,260
Restricted Cash 18,231,885 51,688,854
---------- ----------
Total other assets 72,377,939 107,570,869
---------- -----------
Total Assets $141,885,169 $142,384,005
=========== ===========
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 1,837,808 $ 2,211,599
Accounts payable 546,049 544,154
Other accrued liabilities:
Payroll and related 1,053,633 593,492
Interest 6,358,318 2,468,698
Other accrued liabilities 1,740,423 1,496,758
Due to Buffington Harbor Riverboats, L.L.C. 427,615 826,512
---------- ---------
Total Current Liabilities 11,963,846 8,141,213
Long-term debt, net of current maturities 110,491,947 108,120,746
Note to member 10,759,355 10,759,355
Commitments and Contingencies (3) - -
----------- -----------
Total Long-term Liabilities 121,251,302 118,880,101
----------- -----------
Total Liabilities 133,215,148 127,021,314
----------- -----------
Members' Equity:
Member's contributions 24,000,000 24,000,000
Retained earnings (Accumulated deficit) (15,329,979) ( 8,637,309)
----------- -----------
Total members' equity 8,670,021 15,362,691
----------- -----------
Total Liabilities and Member's Equity $141,885,169 $142,384,005
=========== ===========
The accompanying notes are an integral part of these financial statements.
The Majestic Star Casino, LLC
Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Three Months Nine Months 113 Days
Ended September 30, Ended September 30, Ended September 30, Ended September 30,
1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------
Revenues:
Casino $ 22,413,821 $ 24,338,786 $ 68,643,630 $ 29,817,655
Food and beverage 346,619 389,587 1,098,545 480,107
Other 138,061 258,777 571,114 276,317
---------- ---------- ---------- ----------
Gross Revenues 22,898,501 24,987,150 70,313,289 30,574,079
---------- ---------- ---------- ----------
Costs and Expenses:
Casino 4,152,513 4,115,062 12,285,076 5,100,167
Gaming and admission
taxes 6,537,509 7,246,987 19,990,487 8,885,743
Food and beverage 496,484 489,439 1,465,666 594,996
Advertising and promotion 4,080,471 2,205,617 8,945,472 2,786,131
General and administrative 5,394,817 5,243,565 16,319,134 6,136,739
Economic incentive - City of Gary 679,976 730,256 2,068,421 896,163
Depreciation and amortization 1,833,329 1,705,393 5,437,064 2,045,336
Pre-opening costs - - - 4,586,879
---------- ---------- ---------- ----------
Total costs and expenses 23,175,099 21,736,319 66,511,320 31,032,154
---------- ---------- ---------- ----------
Operating Income (Loss) (276,598) 3,250,831 3,801,969 (458,075)
Other Income (Expense)
Loss on investment in Buffington
Harbor Riverboats, L.L.C. (866,735) (613,556) (2,576,980) (1,196,416)
Interest income 509,819 326,290 1,668,824 557,680
Interest expense (2,638,072) (2,128,733) (9,120,246) (3,021,739)
Interest expense to affiliate (155,025) (160,200) (466,239) (196,163)
---------- --------- --------- ---------
Total other income (expense) (3,150,013) (2,576,199) (10,494,641) (3,856,638)
---------- ---------- ---------- ---------
Net Income (Loss) $(3,426,611) $ 674,632 $ (6,692,672) $(4,314,713)
========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
The Majestic Star Casino, LLC
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
For the nine months For the 113 Days
Ended September 30, Ended September 30,
1997 1996
- -----------------------------------------------------------------------------------------------
Cash Flows From Operating Activities:
Net loss $ (6,692,672) $ (4,314,713)
Adjustment to reconcile net loss to net cash provided
by operating activities
Depreciation 3,979,769 2,045,336
Amortization 1,457,296 -
Deferred expenses (191,734) -
Loss on investment in Buffington Harbor Riverboats,
L.L.C. 2,576,980 1,196,416
Decrease in accounts receivable, net (10,187) (1,406,905)
(Increase) decrease in inventories 1,342 (29,836)
Increase in prepaid expenses (215,682) (1,324,730)
Increase in other assets - (1,822,175)
Increase in accounts payable 1,895 1,457,302
Increase in accrued payroll and other expenses 460,141 676,588
Increase in accrued interest 3,888,463 5,269,297
Decrease in other accrued liabilities (161,071) 1,794,454
---------- ----------
Net cash provided by operating activities 5,269,958 3,541,034
---------- ----------
Cash Flows From Investing Activities:
Acquisition of property, equipment and vessel
improvements (36,983,897) (19,897,505)
Increase in Chartered Vessel deposit (56,507) (1,434,201)
Deferred Income - 66,224
Investment in Buffington Harbor Riverboats, L.L.C. ( 2,043,075) (23,888,080)
(Increase) decrease in restricted cash 33,456,969 (64,057,577)
---------- -----------
Net cash used by investment activities (5,626,510) (109,211,139)
---------- -----------
Cash Flows From Financing Activities
Proceeds from issuance of 12.75% Senior Secured Notes - 105,000,000
Proceeds from equipment financing 3,960,415 6,624,426
Cash paid to reduce long-term debt (1,963,007) (875,916)
Payment of Senior Secured Notes issuance costs - (3,880,680)
---------- -----------
Net cash provided by financing activities 1,821,991 106,867,830
---------- -----------
Net increase in cash and cash equivalents 1,465,439 1,197,726
Cash and cash equivalents, beginning of period 8,935,999 8,446,389
---------- -----------
Cash and cash equivalents, end of period $ 10,401,438 $ 9,644,114
========== ===========
</TABLE>
SUPPLEMENTAL NONCASH FINANCING ACTIVITIES INCLUDE THE FOLLOWING:
On March 31, 1996, contributions totaling $10,759,355 were converted
from Members' Equity to Long-term debt.
For the period ended June 30, 1996, the Company obtained financing
of $6,310,590 for gaming equipment.
The accompanying notes are an integral part of the financial statements.
THE MAJESTIC STAR CASINO, LLC
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
Note 1 Basis of Presentation
The Majestic Star Casino, LLC (the "Company"), was formed on December 8,
1993, as an Indiana limited liability company, to provide gaming related
entertainment to the public. The Company commenced gaming operations in the
City of Gary (the "City") at Buffington Harbor, located in Lake County in
the State of Indiana on June 7, 1996.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (which include normal recurring adjustments) considered
necessary for a fair presentation of the results for the interim periods
have been made. To the extent included, comparative information for the
period ended September 30, 1996 is for the period of June 7, 1996 (the
date the Company commenced operations) through September 30, 1996. The
results for the three and nine months ended September 30, 1997 are not
necessarily indicative of results to be expected for the full fiscal year.
The financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1996.
Note 2 Investment in Buffington Harbor Riverboats, L.L.C. ("BHR"):
The following financial information is presented for BHR, a joint venture
with Trump Indiana, Inc. (the "Joint Venture Partner") in which the Company
holds a 50% equity interest. BHR owns and operates the gaming complex from
which the Company operated a vessel chartered from a subsidiary of President
Casino's, Inc. (the "Chartered Vessel") for the period of June 7, 1996
through October 20, 1997.
Buffington Harbor Riverboats, L.L.C.
Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Three Months Nine Months 113 Days
Ended September 30, Ended September 30, Ended September 30, Ended September 30,
1997 1996 1997 1996
----------------------------------------------------------------------------------
Gross Revenue $5,285,030 $5,208,318 $17,017,373 $6,663,128
Operating Loss $ 285,713 $ 471,119 $ 860,033 $ 341,085
Net Loss $1,751,262 $1,277,827 $ 5,171,753 $2,753,908
</TABLE>
THE MAJESTIC STAR CASINO, LLC
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
Note 3 Commitments and Contingencies:
Legal Proceedings
The Company may, from time to time, be subject to legal proceedings and
claims. Litigation involves many uncertainties. Management is currently
unaware of any significant pending litigation affecting the Company, other
than those discussed below.
On May 1, 1996, a class action complaint was filed in the Lake Superior
Court in Gary, Indiana, against the Joint Venture Partner and certain of its
affiliates, the Company and its affiliates, the Indiana Gaming Commission
(the "IGC"), the City and the Mayor of the City and certain other parties
affiliated with the City . The plaintiffs were comprised of two local
contractors, a former city employee, and five persons who claim that they
were to be investors in the riverboat casinos to be operated in Gary,
Indiana. The complaint alleged, among other things, that the Joint Venture
Partner and the Company each have failed to meet certain obligations with
respect to minority hiring goals, utilization of minority and/or women
contractors, investment in city projects and providing certain residents of
the City with the right to acquire a 15% equity interest in their respective
projects. Plaintiffs sought various remedies including damages and
injunctive relief in the form of an order to enjoin the IGC from issuing
gaming licenses to the Company and the Joint Venture Partner until they have
complied with these conditions. On July 11, 1996, the court granted a
motion filed by the defendants and the lawsuit was dismissed with prejudice.
In December 1996, an order was entered by the trial judge limiting the
original dismissal to only matters regarding the injunctive relief. In
April 1997, the order that purported to reinstate the suit was dismissed and
the July 11, 1996 order dismissing the suit with prejudice was reinstated.
Plaintiffs did not commence a timely appeal of such action by the court and,
as a result, the case is concluded.
On August 18, 1997, a lawsuit filed on March 5, 1997 in Lake Circuit Court,
Crown Point, Lake County, Indiana, naming Don H. Barden and the Company as
defendants was dismissed. Plaintiffs did not commence a timely appeal of
such action by the court and, as a result, the case is concluded. The suit
alleged that the defendants failed to enter into an agreement to sell five
percent of the Company to the three plaintiffs. The plaintiffs requested
unspecified damages and attorney's fees.
THE MAJESTIC STAR CASINO, LLC
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
Harbor Lease
Under a lease agreement assumed by BHR, from the Joint Venture Partner with
Lehigh Portland Cement Co. ("Lehigh Cement"), BHR has leased certain
property which is integral to the gaming operations of the Company. The
lease places certain restrictions on the use of the harbor by the Company
and requires the reimbursement of certain costs which may be incurred by
Lehigh Cement. The lease is rent free through December 29, 1997, and
provided BHR is pursuing the necessary regulatory permits for a new harbor
facility, but has been unable to obtain the necessary regulatory permits,
the term of the lease shall be extended beyond December 29, 1997 to the
earlier of December 21, 2005 or to such time as BHR has obtained requisite
regulatory permits and completed construction of its permanent harbor. If
the lease is extended, BHR will be required to pay $125,000 per month
beginning January 1998. If the regulatory permits are obtained, BHR may be
required to construct a new harbor, berthing and guest facilities. The
level of expenditures required for such new facilities cannot be accurately
estimated at this time.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Statement on Forward-Looking Information
This quarterly report includes various "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which
represent the Company's expectations or beliefs concerning future events.
Statements containing expressions such as "believes", "anticipates" or
"expects" used in the Company's press releases and reports filed with the
Securities and Exchange Commission (including periodic reports on Form 10-K
and Form 10-Q) are intended to identify forward-looking statements. All
forward-looking statements involve risks and uncertainties. Although the
Company believes its expectations are based upon reasonable assumptions
within the bounds of its knowledge of its business and operations, there can
be no assurances that actual results will not materially differ from
expected results. The Company cautions that these and similar statements
included in this report and in previously filed periodic reports are further
qualified by important factors that could cause actual results to differ
materially from those in the forward-looking statements. Such factors
include, without limitation, the following: the purchase of real estate for,
and the design and construction of, a new covered parking facility located
at the Company's gaming complex; the ability to fund planned development
needs and to service debt from existing operations and from new financing;
increased competition in existing markets or the opening of new gaming
jurisdictions; a decline in the public acceptance of gaming; the limitation,
conditioning or suspension of the Company's gaming license; increases in or
new taxes imposed on gaming revenues or gaming devices; a finding of
unsuitability by regulatory authorities with respect to the Company's
officers, directors or key employees; loss or retirement of key executives;
significant increase in fuel or transportation prices; adverse economic
conditions in the Company's markets; severe and unusual weather in the
Company's markets; adverse results of significant litigation matters.
Readers are cautioned not to place undue reliance on forward-looking
statements, which speak only as of the date thereof. The Company undertakes
no obligation to publicly release any revisions to such forward-looking
statements to reflect events or circumstances after the date hereof.
Overview
The Company was formed in December 1993 as an Indiana limited liability
company, to develop a riverboat casino in the City, as its sole operation.
The Company's efforts resulted in the IGC granting the Company a five year
riverboat owner's license on June 3, 1996. The Company's operations began
on June 7, 1996. During the month of June 1996 and the period of June 7,
1996 through September 30, 1996, the Company operated 21 days and 113 days,
respectively.
The Company's operations during the three and nine months ended September
30, 1997 and September 30, 1996 were conducted on the Chartered Vessel.
The Chartered Vessel is chartered pursuant to a five year lease, which
began in May 1996, and contains approximately 26,000 square feet of gaming
space, 932 slot machines and 50 table games. The federal law that
prohibited cruising on federal waterways was amended during the fourth
quarter of 1996 to allow cruises and, as a result, the IGC advised the
Company that cruising could commence November 15, 1996, subject to winter
weather conditions. However, due to winter weather conditions during the
first quarter of 1997, the Company conducted all gaming operations with the
Chartered Vessel docked. Effective April 1, 1997, the Company resumed a
regular cruising schedule. Gross revenues for the three month and nine
month periods ended September 30, 1997 were approximately $22,899,000 and
$70,313,000, respectively.
The Company entered into various agreements for the design, engineering and
construction of a vessel (the "Permanent Vessel") to replace the Chartered
Vessel. The Permanent Vessel is owned by the Company and contains
approximately 43,000 square feet of casino space on three decks, 1,550 slot
machines and 60 table games. The Company anticipates increasing the number
of table games to 71 later during the fourth quarter. The Permanent Vessel
has an atrium, escalators and elevators. The Company had the Permanent
Vessel constructed at a fixed cost of $33 million. The Company has
expended, in addition to such fixed cost, approximately $7 million for
design, engineering, and owner furnished materials, excluding additional
gaming-related equipment, and the cost of additional gaming-related
equipment expenditures will approximate $10 million. The company will pay
the fixed costs aggregating $40 million for the construction of the
Permanent Vessel from the cash collateral acccount. The $10 million cost of
the additional gaming-related equipment expenditures is being funded through
available cash flow from the casino's operations and through certain
equipment financing.
The Company temporarily ceased all gaming operations on the Chartered Vessel
for seven (7) days beginning October 20, 1997. The temporary shutdown of
operations allowed the Company to transfer all 932 slot machines and other
gaming related equipment operating on the Chartered Vessel to the Permanent
Vessel. Effective October 26, 1997, the Company completed the outfitting
of the Permanent Vessel and pursuant to IGC regulations conducted a thirteen
(13) hour live test of the Company's gaming operations on October 27, 1997.
Also in accordance with various IGC Regulations, the Company again
temporarily ceased operations for two (2) days at the conclusion of the
thirteen (13) hours of testing to allow the IGC to review the Company's
accounting and internal controls. On Thursday, October 30, 1997, at 8:00am,
the IGC officially approved the Permanent Vessel for gaming operations and
the Permanent Vessel was then opened to the public. The Company had
committed under the terms of its Senior Exchange Secured Notes due 2003 (the
"Senior Exchange Secured Notes") to replace the Chartered Vessel with the
Permanent Vessel no later than June 30, 1998. The Company anticipates
returning the Chartered Vessel to the lessor, President Casino's, Inc.,
prior to May 1998.
The Company and the Joint Venture Partner, the holder of a second gaming
license to operate from the City, formed BHR to own and operate certain
common facilities at Buffington Harbor (the "Gaming Complex") such as the
guest pavilion, vessel berths, parking lots and other infrastructure. The
Company and Trump each have a fifty-percent ownership interest in BHR.
Results of Operations
Since the Company commenced operations on June 7, 1996, the Company has
limited operating history and lacks a comparable period for prior years with
respect to the nine month period ended September 30, 1997. Nonetheless, the
discussion of results of operations contained herein provides a comparison
of the full nine month period ended September 30, 1997 with the 113 day
stub-period ended September 30, 1996.
The following table contains, for the periods indicated, the following
information: (i) summary information from the Company's statements of
income, as well as information relative to EBITDA (as defined below) derived
therefrom; and (ii) the Company's statements of income, as well as
information relative to EBITDA, expressed as a percentage of gross revenues.
Statements of Income - - Summary Information
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Three Months Nine Months 113 Days
Ended September 30, Ended September 30, Ended September 30, Ended September 30,
1997 1996 1997 1996
------------------ -------------------- ------------------ ------------------
(dollars in thousands)
Revenues (1) $ 22,899 $24,987 $70,313 $30,574
Operating Income (Loss) $ (277) $ 3,251 (2) $ 3,802 $ (458) (2)
EBITDA (3) $ 1,950 $ 5,350 $10,420 $ 6,660
</TABLE>
Statements of Income - Percentage of Gross Revenues
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Three Months Nine Months 113 Days
Ended September 30, Ended September 30, Ended September 30, Ended September 30,
1997 1996 1997 1996
------------------ ------------------ ------------------ ----------------
Revenues:
Casino 97.9% 97.4% 97.6% 97.5%
Food and beverage 1.5 1.6 1.6 1.6
Other 0.6 1.0 0.8 0.9
---- ---- ---- ----
Gross Revenues 100.0 100.0 100.0 100.0
Costs and Expenses:
Casino 18.1 16.5 17.5 16.7
Gaming and admission
taxes 28.5 29.0 28.4 29.1
Food and beverage 2.2 2.0 2.1 1.9
Advertising and promotion 17.8 8.8 12.7 9.1
General and administrative 23.6 21.0 23.2 20.1
Economic incentive-City of Gary 3.0 2.9 2.9 2.9
Depreciation and amortization 8.0 6.8 7.7 6.7
Pre-opening costs 0.0 0.0 (2) 0.0 15.0 (2)
---- ---- ---- ----
Total 101.2 87.0 94.6 101.5
Operating Income (Loss): (1.2) 13.0 5.4 (1.5)
Other Income (Expense):
Loss on investment in BHR (3.8) (2.5) (3.7) (3.9)
Interest income 2.2 1.3 2.4 1.8
Interest expense (11.5) (8.5) (13.0) (9.9)
Interest expense to affiliate (0.7) (0.6) (0.7) (0.6)
Total (13.8) (10.3) (14.9) (12.6)
---- ---- ---- ----
Net Income (Loss): (15.0)% 2.7% (9.5)% (14.1)%
---- ---- ---- ----
EBITDA: (3) 8.5% 21.4% 14.8% 21.8%
---- ---- ---- ----
</TABLE>
- ----------------
(1) The Company commenced operations on June 7, 1996.
(2) Includes approximately $4.6 million of pre-opening expenses.
(3) EBITDA (defined as earnings before interest, income taxes,
depreciation and amortization and, for purposes hereof, does not
include chartered vessel lease payments) is presented solely as a
supplemental disclosure to assist in the evaluation of the Company's
ability to generate cash flow. In particular, the Company believes
that an analysis of EBITDA enhances the understanding of the
financial performance of companies with substantial depreciation and
amortization. For the 113 day period ended September 30, 1996,
EBITDA also excludes approximately $4.6 million of pre-opening
costs.
Results for any one or more periods are not necessarily indicative of annual
results or continuing trends.
Set forth below is a discussion, for the periods indicated, of the Company's
results of operations.
Comparison of the Three Months Ended September 30, 1997 and 1996
Gross revenues for the third quarter ended September 30, 1997 amounted to
approximately $22,899,000, a decrease of approximately $2,089,000 from
gross revenues recorded in the third quarter ended September 30, 1996. The
decrease was attributable to two additional competitors operating in the
marketplace during the three months ended September 30, 1997. With the
addition of these two competitors, all five riverboat licenses, including
the Company, designated for Northwest Indiana are now operational and no
additional licenses are to be issued under the original Riverboat Gambling
Act. The Chartered Vessel, at 26,000 square feet of gaming space, was
susceptible to such a decline in gross revenues due to the fact that the
Chartered Vessel was the smallest facility in the marketplace, was twenty-
five years old and lacked many of the amenities which the competitors
introduced in the martketplace. The Company, on October 27, 1997, opened
the Permanent Vessel to the public. The Permanent Vessel contains
approximately 43,000 square feet of casino space on three decks, an increase
of approximately 65% over the Chartered Vessel. The Company has also
correspondingly increased the number of gaming positions by approximately
65%. The Permanent Vessel has an atrium, escalators and elevators. With
the increased capacity and additional amenities, the Company anticipates
that gross revenues and cash flow will increase. No assurance, however, can
be given that such an increase will occur.
Casino revenues during the third quarter ended September 30, 1997 totaled
approximately $22,414,000, of which slot machines accounted for
approximately $16,623,000 (74.2%) and table games accounted for
approximately $5,791,000 (25.8%). The average number of slot machines in
operation increased to 932 during the third quarter ended September 30, 1997
from 924 during the third quarter ended September 30, 1996. The average win
per slot machine per day decreased to $194 for the third quarter ended
September 30, 1997 from $202 during the third quarter ended September 30,
1996. The average number of table games operated during both quarters was
50. The average win per table game per day during the third quarter ended
September 30, 1997 declined to approximately $1,259 versus $1,551 in the
third quarter ended September 30, 1996, due primarily to a 21.8% decrease in
the table drop. The average daily win per state passenger count was $55 and
the average daily win per patron was $33 during the third quarter ended
September 30, 1997, an increase of 8.2% and 6.6%, respectively, compared to
the third quarter ended September 30, 1996.
Food and beverage revenue for the third quarter ended September 30, 1997
totaled approximately $347,000 and other revenue, consisting primarily of
commission income, totaled approximately $138,000.
Casino operating expenses for the third quarter ended September 30, 1997
totaled approximately $4,153,000, or 18.1% and 18.5% of gross revenues and
casino revenues, respectively, versus approximately $4,115,000, or 16.5% and
16.9% of gross revenues and casino revenues, respectively, for the third
quarter ended September 30,1996. These expenses were primarily comprised of
salaries, wages and benefits, and operating and promotional expenses of the
casino. The 1.6% increase in casino operating expenses as a percentage of
gross revenues and casino revenues during the third quarter ended September
30, 1997 over the comparable quarter last year was primarily the result of
a slight increase in payroll combined with a 7.9% decline in casino
revenues.
Gaming and admissions taxes totaled approximately $6,538,000 for the third
quarter ended September 30, 1997. These taxes are levied on adjusted gross
receipts, as defined by Indiana gaming laws, at the rate of 20%, plus $3 per
passenger per the state passenger count. An additional $680,000 was paid
during the third quarter ended September 30, 1997 to the City under an
agreement whereby the Company pays 3% of the adjusted gross receipts
directly to the City.
Advertising and promotion expenses for the third quarter ended September 30,
1997 totaled approximately $4,080,000, or 17.8% of gross revenues, versus
approximately $2,206,000, or 8.8% of gross revenues during the third
quarter ended September 30, 1996. Advertising and promotion expenses
included salaries, wages and benefits of the marketing and casino service
departments, as well as promotions, advertising and special events. The 9.0%
increase in advertising and promotion expenses as a percentage of gross
revenues during the third quarter ended September 30, 1997 over the
comparable quarter last year was primarily the result of increased
expenditures associated with direct mail (i.e., promotions and rebates
offered to customers using the slot machines), bus subsidies (i.e.,
promotions and discounts for customers traveling by bus to the Company's
gaming complex) and an increase in general media, including billboards,
print and radio, to heighten the Company's overall presence within the
marketplace in light of additional competition, as well as the anticipated
opening of the Permanent Vessel in late October 1997.
General and administrative expenses for the third quarter ended September
30, 1997 were approximately $5,395,000, or 23.6% of gross revenues, versus
$5,244,000, or 21.0% of gross revenues, during the third quarter ended
September 30, 1996. These expenses included approximately $1,570,000 for
berthing fees paid to BHR, $1,729,000 for marine operations and $453,000 for
security and surveillance operations during the third quarter in 1997. The
$151,000, or 2.6% increase is primarily the result of a 4.5% increase in
marine operations associated with housekeeping (cleaning) expenses.
Depreciation and amortization for the third quarter ended September 30,
1997 was approximately $1,833,000, or 8.0% of gross revenues, compared with
approximately $1,705,000, or 6.8% of gross revenues, during the third
quarter ended September 30, 1996. The amount of depreciation and
amortization, both in dollars and as a percentage of gross revenues, is
anticipated to increase significantly now that the Permanent Vessel is
completed and has been placed into service as the site for the Company's
gaming operations.
The operating loss for the three months ended September 30, 1997 was
approximately $277,000, or 1.2% of gross revenues, compared with an
operating income for the three months ended September 30,1996 of
$3,251,000, or 13.0% of gross revenues. The decrease is principally
attributable to an 8.4% decrease in gross revenues combined with a 9.0%
increase in advertising and promotion expenses for the three months ended
September 30, 1997 compared to the period ended September 30, 1996.
Net interest expense for the third quarter ended September 30, 1997 was
$2,283,000, or approximately 10.0% of gross revenues, versus $1,963,000, or
approximately 7.9% of gross revenues, for the same period last year. The
increase of $320,000, or 2.1% of gross revenues is principally the result of
a decrease in capitalized interest associated with the construction of the
Permanent Vessel. Net interest expense for the three months ended September
30, 1997 includes accrued but unpaid contingent interest due under the
Senior Exchange Secured Notes of approximately $103,000. No contingent
interest was paid under the Senior Exchange Secured Notes during the third
quarter ended September 30, 1997 and 1996.
The Company's loss in its investment in BHR for the third quarter ended
September 30, 1997 was approximately $867,000. The loss represents the
Company's 50% share of BHR's net loss for the third quarter ended September
30, 1997.
As a result of the foregoing, the company experienced a net loss for the
third quarter ended September 30, 1997 of approximately $3,427,000.
Comparison of the Nine Months Ended September 30, 1997 and 113 Days Ended
September 30, 1996
Gross revenues for the nine months ended September 30, 1997 amounted to
approximately $70,313,000, an increase of $39,739,000 over gross revenues
recorded in the nine months ended September 30, 1996. The increase was
attributable to the Company operating the entire nine months ended September
30, 1997 compared to 113 days of operations in the nine month period ended
September 30, 1996.
Casino revenues during the nine months ended September 30, 1997 totaled
approximately $68,644,000, of which slot machines accounted for
approximately $51,535,000 (75.1%) and table games accounted for
approximately $17,109,000 (24.9%). The average number of slot machines in
operation increased to 930 during the nine months ended September 30, 1997
from 924 during the nine months ended September 30, 1996. The average win
per slot machine per day slightly decreased to $203 for the nine months
ended September 30, 1997 from approximately $204 during the nine months
ended September 30, 1996. The average number of table games operated during
both periods was 50. The average win per table game per day during the nine
months ended September 30, 1997 declined to approximately $1,253 versus
$1,516 in the nine months ended September 30, 1996, due primarily to a
1.6% decrease in the table game hold percentage. The average daily win per
state passenger count was $56 and the average daily win per patron was $33
during the nine months ended September 30, 1997, an increase of 8.9% and
7.2%, respectively, compared to the nine months ended September 30, 1996.
Food and beverage revenue for the nine months ended September 30, 1997
totaled approximately $1,099,000 or 1.6% of gross revenues, versus
approximately $480,000 or 1.6% of gross revenues for the nine month period
ended September 30, 1996. Other revenue, consisting primarily of commission
income, totaled approximately $571,000 or .8% of gross revenues, versus
approximately $276,000 or .9% of gross revenues for the nine month period
ended September 30, 1996. The dollar increase in food and beverage revenue
as well as other revenue is the result of the Company operating the entire
nine months ended September 30, 1997 compared to 113 days of operations in
the nine month period ended September 30, 1996.
Casino operating expenses for the nine months ended September 30, 1997
totaled approximately $12,285,000, or 17.5% and 17.9% of gross revenues
and casino revenues, respectively, versus approximately $5,100,000, or 16.7%
and 17.1% gross revenues and casino revenues, respectively, for the nine
month period ended September 30, 1996. These expenses were primarily
comprised of salaries, wages and benefits, and operating and promotional
expenses of the casino. The slight increase in casino operating expenses
as a percentage of gross revenues and casino revenues was primarily the
result of an increase in payroll expenses combined with the Company
operating the entire nine months ended September 30, 1997 compared to 113
days of operations in the nine month period ended September 30, 1996.
Gaming and admissions taxes totaled approximately $19,990,000 for the nine
months ended September 30, 1997. These taxes are levied on adjusted gross
receipts, as defined by Indiana Gaming laws, at the rate of 20%, plus $3 per
passenger per the state passenger count. An additional $2,068,000 was paid
during the nine months ended September 30, 1997 to the City under an
agreement whereby the Company pays 3% of the adjusted gross receipts
directly to the City.
Advertising and promotion expenses for the nine months ended September 30,
1997 totaled approximately $8,945,000, or 12.7% of gross revenues, versus
approximately $2,786,000, or 9.1% of gross revenues, during the nine month
period ended September 30, 1996. Advertising and promotion expenses
included salaries, wages and benefits of the marketing and casino service
departments as well as promotions, advertising and special events. The 3.6%
increase in advertising and promotion expenses as a percentage of gross
revenues during the nine months ended September 30, 1997 compared to the
113 days of operations in the nine month period ended September 30, 1996 was
primarily the result of increased expenditures associated with direct mail
(i.e., promotions and rebates offered to customers using the slot machines)
bus subsidies (i.e., promotions and discounts for customers traveling by
bus to the Company's gaming complex), and an increase in general media
including billboards, print and radio to heighten the Company's overall
presence within the marketplace in light of additional competition as well
as the anticipated opening of the Permanent Vessel in late October 1997.
General and administrative expenses for the nine months ended September 30,
1997 were approximately $16,319,000, or 23.2% of gross revenues, versus
$6,137,000, or 20.1% of gross revenues for the nine month period ended
September 30, 1996. These expenses included approximately $4,857,000 for
berthing fees paid to BHR, $5,010,000 for marine operations and $1,408,000
for security and surveillance operations. The increase in these expenses is
attributed to an overall increase of approximately 1.5% in marine
operations as well as operating a full nine months for the period ended
September 30, 1997 compared to the 113 days for the period ended September
30, 1996.
Depreciation and amortization for the nine months ended September 30, 1997
was approximately $5,437,000, or 7.7% of gross revenues, compared with
approximately $2,045,000, or 6.7% of gross revenues, during the nine months
ended September 30, 1996. The amount of depreciation and amortization, both
in dollars and as a percentage of gross revenues, is anticipated to increase
significantly now that the Permanent Vessel is completed and has been
placed into service as the site for the Company's gaming operations.
Operating income for the nine months ended September 30, 1997 approximated
$3,802,000, or 5.4% of gross revenues, compared with an operating loss in
nine months ended September 30, 1996 of $458,000, or 1.5% of gross
revenues. The results for the nine months ended September 30, 1996 included
pre-opening costs of approximately $4,587,000.
Net interest expense for the nine months ended September 30, 1997 was
approximately $7,918,000, or 11.3% of gross revenues, versus approximately
$2,660,000, or 8.7% of gross revenues, for the same period last year. The
increase is attributed to operating a full nine months for ther period ended
September 30, 1997 compared to the 113 days for the period ended September
30, 1996. Net interest expense for the three months ended September 30,
1997 includes accrued but unpaid contingent interest due under the Senior
Exchange Secured Notes of approximately $545,000. No contingent interest
was paid under the Senior Exchange Secured Notes during the nine months
ended September 30, 1997 and the nine months ended September 30, 1996 .
The Company's loss in its investment in BHR for the nine months ended
September 30, 1997 was approximately $2,577,000. The loss represents the
Company's 50% share of BHR's net loss for the nine months ended September
30, 1997. As a result of the foregoing, the Company experienced a net loss
of approximately $6,693,000.
Earnings Before Interest, Income Taxes, Depreciation and Amortization
("EBITDA")
EBITDA is presented solely as a supplemental disclosure and is used by the
Company to assist in the evaluation of the cash generating ability of its
gaming business.
EBITDA (excluding Chartered Vessel lease payments of approximately $393,750)
was approximately $1,950,000, or 8.5% of gross revenues, during the third
quarter of 1997 compared to approximately $5,350,000, or 21.4% of gross
revenues, during the quarter ended September 30, 1996. The dollar decrease
in EBITDA is primarily due to an 8.4% decline in gross revenues combined
with an increase in advertising and promotion expense.
EBITDA (excluding Chartered Vessel lease payments of approximately
$1,181,250) for the nine months ended September 30, 1997 was approximately
$10,420,000, or 14.8% of gross revenues, compared to $6,660,000, or 21.8% of
gross revenues, for the 113 days ended September 30, 1996. The dollar
increase is due to operating a full nine months during the period ended
September 30, 1997 compared to the 113 days for the period ended September
30, 1996.
EBITDA should be viewed only in conjunction with all of the Company's
financial data and statements, and should not be construed as an alternative
either to income from operations (as an indicator of the Company's operating
performance) or to cash flows from operating activities (as a measure of
liquidity).
Liquidity and Capital Resources
At September 30, 1997, the Company had cash and cash equivalents of
approximately $10.4 million and restricted cash of approximately $18.2
million. For the nine months ended September 30, 1997, the Company invested
approximately $37 million in property and equipment, primarily for the
construction of the Permanent Vessel. The Company has committed to spend
approximately $50 million, excluding capitalized interest, on the Permanent
Vessel. To date, the Company has expended approximately $45.2 million for
the construction, design, engineering and equipping of the Permanent Vessel,
which includes approximately $2 million in capitalized interest. The
Company has also contributed approximately $2 million from working capital
to BHR for general enhancements.
The Company, to date, has met its capital requirements through net cash from
operations, capital contributions and loans. For the nine months ended
September 30, 1997, net cash provided from operations totaled approximately
$5.3 million. Consolidated cash flow as defined in the Indenture governing
the Company's Senior Secured Notes was approximately $2.1 million for the
quarter ended September 30, 1997 and $6.1 million for the semiannual
period.
As of September 30, 1997, loans included: (i) $105 million 12.75% Senior
Exchange Secured Notes due 2003, with additional contingent interest equal
to 5% of the Company's consolidated cash flow (as defined in the underlying
Indenture); (ii) approximately $11 million borrowed from BDI; and (iii)
approximately $7.3 million of equipment financing.
At September 30, 1997, approximately $18.2 million of the proceeds from the
Senior Secured Notes, together with interest earned thereon, were held in
escrow for future cash requirements of the Company and were allocated
approximately as follows: (a) $7 million for the Permanent Vessel; and (b)
$11 million designated to repay the loan due to BDI. The portion designated
for the repayment of the loan due to BDI cannot be paid to BDI until certain
remaining conditions, principally the delivery of the Permanent Vessel, (as
defined in the Indenture) are met. The conditions for the repayment of the
loan due to BDI are expected to be met during the fourth quarter of 1997.
Until repaid, these funds are available, subject to certain limitations and
qualifications, to the Company for capital contributions to the BHR
facilities and the Permanent Vessel.
If the Company is determined to be in default under the Indenture
underlying the Senior Secured Notes, the proceeds from the Senior Secured
Notes held in escrow may no longer be available to the Company and the
Senior Secured Notes may be accelerated. Either event could materially
adversely affect the Company.
Under the terms of its development agreement with the City, the Company
committed, among other things, to make development expenditures of $116
million for its casino and associated infrastructure in the City over the
next five years. The Company has met or accrued a significant portion of
these commitments. The two principal components of the remaining portion of
the Company's commitment are as follows: (1) $10 million for off-site
development in the City by 1998/1999 with the particular project(s) to be
agreed to by the City; and (2) $12 million (a substantial portion of which
has been expended through September 30, 1997, with the exact amount to be
agreed upon by the City and the Company) to be expended over the five years
following the June 1996 opening of the casino for enhancements to the
Company's operations at Buffington Harbor and/or BHR's facilities.
The Company anticipates that additional capital contributions to BHR,
currently estimated not to exceed $500,000, may be required for the BHR
facilities. The Company and the Joint Venture Partner are continuing to
review the feasibility of purchasing additional property for and of
constructing a covered parking facility at the Gaming Complex. The cost of
purchasing the additional property and of constructing a covered parking
facility at the Gaming Complex is undetermined at this time. The Company
expects to fund such further investments from operations and/or from the
funds designated for the repayment of the note due to BDI, provided that the
proceeds from the note due to BDI have not been utilized and are available.
There can be no assurance that such facility will be constructed or that
sufficient funds will be available for such construction.
The Company through October 19, 1996 conducted its gaming operations on the
Chartered Vessel which, upon the expiration of the underlying lease
agreement, must be redelivered afloat at the Company's cost and expense to
the owner of the Chartered Vessel in accordance with the terms of such lease
agreement. The Company anticipates returning the Chartered Vessel to the
lessor, President Casino's Inc., prior to May 1998 now that the Company's
Permanent Vessel has been placed into service. The Company must pay the
cost of any repairs which are necessary to bring the Chartered Vessel into
the condition required on redelivery under the lease agreement. The cost of
these additional expenditures is undetermined at this time.
Based upon the Company's anticipated future operations on board the
Permanent Vessel, and capital expenditures, management believes that the
available cash flow from the casino's future operations and certain
equipment financing, together with the proceeds from the Senior Secured
Notes and the note due to BDI, will be adequate to meet the Company's
anticipated future requirements for working capital, the remaining
development obligations to the City, capital expenditures and scheduled
payments of interest and principal on the Senior Secured Notes and other
permitted indebtedness for 1997. No assurance can be given, however, that
operating cash flow from the Permanent Vessel in light of increased
competition within the marketplace and such other proceeds will be
sufficient for such purposes or that the Company will be successful in
obtaining favorable terms with respect to the financing of additional
equipment to be used on the Permanent Vessel. The Company will seek, if
necessary and to the extent permitted under the Indenture, additional
financing through borrowings and debt or equity financing. There can be no
assurance that additional financing, if needed, will be available to the
Company, or that, if available, the financing will be on terms favorable to
the Company. In addition, there is no assurance that the Company's estimate
of its reasonably anticipated liquidity needs is accurate or that unforeseen
events will not occur, resulting in the need to raise additional funds.
Start-Up of Permanent Vessel
The Company temporarily ceased all gaming operations on the Chartered Vessel
for seven (7) days beginning October 20, 1997 and on the Permanent Vessel
for two (2) days beginning October 28, 1997. The temporary shutdown of
operations allowed the Company to transfer all 932 slot machines and other
gaming related equipment operating on the Chartered Vessel to the Permanent
Vessel as well as to complete required IGC compliance testing on the
Permanent Vessel. The Company estimates that the nine (9) day shutdown
caused the Company to lose approximately $2.0 million in gross gaming
revenues.
The Company has purchased additional slot machines for use on the Permanent
Vessel for an approximate aggregate cost of $4.2 million, with the
financing for such purchase provided by a third party. The Company also has
refinanced the terms of its current equipment financing arrangements for the
932 slot machines and related equipment previously used on the Chartered
Vessel in an effort to take advantage of more favorable market conditions.
Specifically, the refinancing of the Company's current equipment provided
for an 11.5% fixed rate of interest as opposed to a variable rate and the
term of the financing was extended by an additional twenty months. The
Company also anticipates during the fourth quarter of 1997 to finance
approximately $2.5 million of other gaming equipment associated with the
Permanent Vessel.
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
On May 1, 1996, a class action complaint was filed in the Lake Superior
Court in Gary, Indiana, against the Joint Venture Partner and certain of its
affiliates, the Company and its affiliates, the IGC, the City and the
Mayor of the City and certain other parties affiliated with the City. The
plaintiffs were comprised of two local contractors, a former city employee,
and five persons who claim that they were to be investors in the riverboat
casinos to be operated in Gary, Indiana. The complaint alleged, among other
things, that the Joint Venture Partner and the Company each have failed to
meet certain obligations with respect to minority hiring goals, utilization
of minority and/or women contractors, investment in city projects and
providing certain residents of the City with the right to acquire a 15%
equity interest in their respective projects. Plaintiffs sought various
remedies including damages and injunctive relief in the form of an order to
enjoin the IGC from issuing gaming licenses to the Company and the Joint
Venture Partner until they have complied with these conditions. On July 11,
1996, the court granted a motion filed by the defendants and the lawsuit was
dismissed with prejudice. In December 1996, an order was entered by the
trial judge limiting the original dismissal to only matters regarding the
injunctive relief. In April 1997, the order that purported to reinstate the
suit was dismissed and the July 11, 1996 order dismissing the suit with
prejudice was reinstated. Plaintiffs did not commence a timely appeal of
such action by the court and, as a result, the case is concluded.
On August 18, 1997, a lawsuit filed on March 5, 1997 in Lake Circuit Court,
Crown Point, Lake County, Indiana, naming Don H. Barden and the Company as
defendants was dismissed. Plaintiffs did not commence a timely appeal of
such action by the court and, as a result, the case is concluded. The suit
alleged that the defendants failed to enter into an agreement to sell five
percent of the Company to the three plaintiffs. The plaintiffs requested
unspecified damages and attorney's fees.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Date Schedule (EDGAR filing only).
(b) Reports on Form 8-K.
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized officers.
THE MAJESTIC STAR CASINO, LLC
Date: November 14, 1997 By: /s/ Don H. Barden
---------------------------
Don H. Barden
President and Chief Executive
Officer (principal executive
officer)
Date: November 14, 1997 By: /s/ Michael E. Kelly
---------------------------
Michael E. Kelly
Vice President and Chief
Financial Officer (principal
financial and accounting
officer)
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