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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C 20549
FORM 10-K
[Mark One]
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15d OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 [FEE REQUIRED] OR [ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM____TO_________.
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 or (I.R.S. Employer
incorporation or organization) Identification No.)
One Buffington Harbor Drive
Gary, Indiana 46406-3000
(219) 977-7777
(Registrant's address and telephone number, including area code)
Securities registered pursuant to section 12(b) of the act: None
Securities registered pursuant to section 12(g) of the act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
-----
Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant: Not Applicable. The Company has no publicly traded equity
securities.
The number of shares of Common Stock issued and outstanding: Not Applicable
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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THE MAJESTIC STAR CASINO, LLC
1996 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
Page Number
Item 1. Business......................................... 1
Item 2. Properties ...................................... 6
Item 3. Legal Proceedings................................ 7
Item 4. Submission of Matters to a Vote of
Security Holders................................. 8
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters...................... 9
Item 6. Selected Financial Data.......................... 10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 11
Item 8. Financial Statements and Supplementary Data...... 16
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure........... 16
PART III
Item 10. Directors and Executive Officers of Registrant... 17
Item 11. Executive Compensation........................... 19
Item 12. Security Ownership of Certain Beneficial
Owners and Management............................ 21
Item 13. Certain Relationships and Related Transactions... 21
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K.......................... 24
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PART I
ITEM 1. BUSINESS
GENERAL
The Majestic Star Casino, LLC (the "Company") operates the Majestic Star
Casino, a riverboat gaming facility located at Buffington Harbor in Gary,
Indiana, pursuant to a license granted to it by the Indiana Gaming Commission
(the "IGC").
The Majestic Star Casino commenced operations in June 1996, and operates on
a chartered vessel which is leased (the "Chartered Vessel") until a new vessel
to be owned by the Company (the "Permanent Vessel") is delivered. The Company
anticipates that the Permanent Vessel which is presently under construction will
be delivered in late 1997. The Chartered Vessel currently has 932 slot machines
and 50 table games and can accommodate 1,700 passengers and a crew of 200
employees. The Majestic Star Casino is part of a gaming complex (the "Gaming
Complex") which has been developed at Buffington Harbor, and is owned, by
Buffington Harbor Riverboats, L.L.C. (the "BHR Joint Venture"), a joint venture
which is owned equally by the Company and its joint venture partner. The
Company and its joint venture partner each operates its own riverboat casino at
the Gaming Complex on a staggered cruise schedule which reduces waiting times to
board a riverboat casino.
The Company was formed in December 1993, as an Indiana limited liability
company. The executive offices of the Company are located at One Buffington
Harbor Drive, Gary, Indiana 46406-3000, and the Company's telephone number is
(219) 977-7777.
OPERATING STRATEGY
The Company's operating strategy is characterized by several principal
elements including those described below.
Middle Income Customer Focus
The Company focuses primarily on middle-income customers which it believes
constitute the largest segment of potential gaming customers. The Company
utilizes high-volume marketing techniques to attract middle income customers,
whom it is then able to qualify and target for direct marketing activities. To
assist the Company with its direct marketing activities, the Company has
established the Club M-Star Slot Club. Club M-Star enables the Company to
maintain a comprehensive database of information about its customers,
including their gaming levels, duration of play and preferences and to utilize
such information to tailor marketing programs to encourage repeat visits by
these customers.
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Emphasis on Slot Play
The Company emphasizes slot machine wagering, which it believes is the
fastest growing and most profitable segment of the casino entertainment
business. In order to maximize revenue, the Company intends to continue to
invest in state-of-the-art gaming machines and related equipment, by the
continuous replacement of older models with the most current product offerings.
The Company monitors its mix of slot machines to satisfy the demands of its
customer base and tracks payout percentages to remain competitive.
Emphasis on Attributes of Buffington Harbor
The Company emphasizes the attributes of the Buffington Harbor Gaming
Complex, including the ability to park once and play twice (at two casinos),
direct highway access and abundant surface parking.
GROWTH STRATEGY
The Company anticipates placing into service, at Buffington Harbor, the
Permanent Vessel in late 1997. The Permanent Vessel will replace the Chartered
Vessel and is expected to contain approximately 43,000 square feet of casino
gaming on three decks. The floor configuration is anticipated to contain
approximately 1,600 slot machines and 71 table games. The Permanent Vessel
will substantially expand the Company's current number of slot machines and
table games and will significantly increase passenger capacity from 1,700
passengers to an estimated 3,000 passengers per cruise.
COMPETITION
The Majestic Star Casino is dependent primarily on adults residing
within 150 miles of the Buffington Harbor Gaming Complex, which includes the
Chicago metropolitan area. Currently, five riverboat casinos, excluding the
Company and its joint venture partner, operate in northern Illinois and
northwest Indiana, within 50 miles of the Buffington Harbor Gaming Complex.
The Company expects additional competition in northern Indiana from two
riverboat casinos which have been authorized and are expected to commence
operations during 1997 in East Chicago and Michigan City, Indiana. The Company
also expects to compete in Indiana, to a lesser extent, with the six additional
riverboats authorized to operate in southern Indiana.
The Company believes that competition in the gaming industry is based on
the quality and location of the gaming facilities, the effectiveness of
marketing efforts and overall levels of customer service and satisfaction.
Although management believes that the location and amenities of the Majestic
Star Casino will enable the Company to compete effectively with other casinos
in the immediate area, the Company expects intense competition to develop in
its market area.
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There can be no assurance that Indiana or Illinois will not authorize
additional gaming licenses in the future. Legislation has been introduced on
numerous occasions in recent years in Illinois to provide for land-based
casinos in Chicago and most recently in East St. Louis and to expand riverboat
gaming in Illinois, including authorization of additional operators or the
authorization of existing operators to move to new sites or otherwise to modify
existing regulations to decrease or eliminate certain restrictions, such as
limitations on the number of gaming positions or to remain dockside. To date,
no such legislation has been enacted. The Company is unable to predict whether
any such legislation, in Illinois, Indiana or elsewhere, will be enacted or
whether, if passed, it would have a material adverse impact on the results of
operations or financial condition of the Company.
The Company also expects future competition from a federally recognized
Indian tribe which is negotiating with various cities in southwestern Michigan
and/or Indiana to develop land-based casinos as well as three land-based
casinos to be developed in Detroit, Michigan, pursuant to a November 1996 voter
initiative.
Many of the Company's competitors, including its joint venture partner and
Showboat Marina, the owner of the casino anticipated to be opened during the
second quarter of 1997 in East Chicago, Indiana, will have larger and, prior to
the delivery of the Permanent Vessel, more modern casino vessels. In addition,
many of such competitors will have greater gaming industry management
experience and financial resources. The Company believes that its ability to
compete successfully in the riverboat gaming industry will be primarily based
on the quality and location of its gaming facilities, the effectiveness of its
marketing efforts, and overall levels of customer service and satisfaction.
These factors will become more important as competition in the casino gaming
industry becomes more intense with the opening of additional casino operations.
EMPLOYEES
At December 31, 1996, the Company employed approximately 929 persons and
the BHR Joint Venture employed approximately 512 persons. The Company and the
BHR Joint Venture have collective bargaining agreements with Local 1 of the
Hotel Employees and Restaurant Employees International Union, which cover
approximately 98 individuals employed by the Company and 231 individuals
employed by the BHR Joint Venture in food and beverage service positions. The
agreements are each for a term of five years. The Company is also currently
engaged in discussions with The Seafarers International Union with respect to
approximately 30 employees in the marine operations department.
In recruiting personnel, the Company is obligated, under the terms of an
agreement with the City of Gary, to use its best efforts to have an employee
base which is comprised of fifty-two percent women, seventy percent from
racially ethnic minority groups, sixty-seven percent residents of the City of
Gary and ninety percent residents of Lake County, Indiana.
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SEASONALITY
The Company's financial results were adversely affected during the winter
months. Because of the climate in the Chicago metropolitan and northern
Indiana areas, the Company's operations are expected to be seasonal with
stronger results expected during the period from May through September.
Accordingly, the Company's results of operations are expected to fluctuate from
quarter to quarter and the results for any fiscal quarter may not be indicative
of results for future fiscal quarters.
GOVERNMENTAL REGULATION
The ownership and operation of the Majestic Star Casino is subject to
regulation by the State of Indiana. The following is a summary of the
applicable provisions of the Riverboat Gambling Act of the State of Indiana and
certain other laws and regulations. It does not purport to be a full
description thereof and is qualified in its entirety by reference to the
Riverboat Gambling Act and such other laws and regulations.
In 1993, the State of Indiana passed the Riverboat Gambling Act which
created the Indiana Gaming Commission (the "IGC"). The IGC is given extensive
powers and duties for the purposes of administering, regulating and enforcing
riverboat gaming in Indiana and has been authorized to award up to eleven
gaming licenses to operate riverboat casinos in the State of Indiana, including
five to counties contiguous to Lake Michigan in northern Indiana, five to
counties contiguous to the Ohio River in Southern Indiana and one to a county
contiguous to Patoka Lake in southern Indiana.
Referenda required by the Riverboat Gambling Act to authorize the five
licenses to be issued for counties continguous to Lake Michigan have been
conducted and gaming has been authorized for the cities of Hammond and East
Chicago (in addition to Gary) in Lake County, Indiana, and for Michigan City in
LaPorte County, to the east of Lake County.
The IGC has jurisdiction and supervision over all riverboat gaming
operations in Indiana and all persons on riverboats where gaming operations are
conducted. These powers and duties include authority to (i) investigate all
applicants for riverboat gaming licenses, (ii) select licensees from competing
applicants, (iii) establish fees for licenses and (iv) prescribe all forms used
by applicants. The IGC is authorized to adopt rules for administering the
gaming statute and the conditions under which riverboat gaming in Indiana may
be conducted. The IGC may suspend or revoke the license of a licensee or impose
civil penalties, in some cases without notice or hearing, for any act in
violation of the Riverboat Gambling Act or for any other fraudulent act.
The Riverboat Gambling Act requires an extensive disclosure of records and
other information concerning an applicant, including disclosure of all
directors, officers and persons holding a five percent or more direct or
indirect beneficial interest in an applicant.
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In determining whether to grant an owner's license to an applicant, the
IGC considers a number of factors, including (i) the character, reputation,
experience and financial integrity of the applicant, (ii) the facilities or
proposed facilities for the conduct of riverboat gaming, (iii) the prospective
revenue to be collected by the state from the conduct of riverboat gaming, (iv)
the good faith affirmative action plan to recruit, train and upgrade minorities
in all employment classifications, (v) the financial ability of the applicant
to purchase and maintain adequate liability and casualty insurance, (vi)
whether the applicant has adequate capitalization to provide and maintain the
riverboat for the duration of the license and (vii) the extent to which the
applicant meets or exceeds other standards adopted by the IGC. The IGC may
also give favorable consideration to applicants for economically depressed
areas and applicants who provide for significant development of a large
geographic area. A person holding an owner's gaming license issued by the IGC
may not own more than a ten percent interest in another such license. An
owner's license expires five years after the effective date of the license
(unless earlier terminated or revoked) and may be renewed for one year periods
by the IGC upon satisfaction of certain statutory and regulatory requirements.
A gaming license is a revocable privilege and is not a property right pursuant
to the Riverboat Gambling Act. On June 3, 1996 the Majestic Star Casino
obtained a gaming license from the IGC.
Under IGC regulations, minimum and maximum wagers on games are left to the
discretion of the licensee. Wagering is required to be conducted with tokens,
chips or electronic cards instead of cash or coins. Each riverboat gaming
excursion is limited to a maximum duration of four hours unless a longer
excursion is expressly approved by the IGC.
Effective November 1996, riverboat casinos operating on Lake Michigan were
granted an exemption to the Johnson Act, a federal statute, which prohibited
casino gambling on federal waterways. Prior to this time the riverboat casinos
operating on Lake Michigan, including the Majestic Star Casino, remained
dockside and simulated cruising. No gaming may be conducted while the boat is
docked except (i) for 30-minute time periods at the beginning and end of a
cruise while the passengers are embarking and disembarking, (ii) if the master
of the riverboat reasonably determines that specific weather or water conditions
present a danger to the riverboat, its passengers or crew, or other vessels on
the water ,(iii) if either the vessel or the docking facility is undergoing
mechanical or structural repair, (iv) if water traffic conditions present a
danger to the riverboat, its passengers or crew, or other vessels on the water,
or (v) if the master has been notified that a condition exists that would cause
a violation of federal law if the riverboat were to cruise.
An Indiana admission tax of $3.00 for each person admitted to the
gaming excursion is imposed upon each license owner. Recently, legislation has
been introduced that would increase the admission tax from $3.00 for each
person admitted to $4.00 per person. The Company at this time is unable to
predict whether this or any other legislation introduced in Indiana will be
enacted. If the legislation is enacted to increase the admission tax, the
effect of such an increase could have a material impact on the results of
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operations or financial condition of the Company. An additional twenty percent
tax is imposed on the "adjusted gross receipts" received from gaming operations,
which is defined under the Riverboat Gambling Act as the total of all cash and
property (including checks received by the licensee whether or not collected)
received, less the total of all cash paid out as winnings to patrons and
uncollected gaming receivables (not to exceed two percent). The gaming license
owner must remit the admission and wagering taxes before the close of business
on the day following the day on which the taxes were incurred. Indiana laws also
permit the imposition of real property taxes on Indiana riverboats at rates to
be determined by local taxing authorities of the jurisdiction in which a
riverboat operates.
The IGC is authorized to license suppliers and certain occupations related
to riverboat gaming. Gaming equipment and supplies customarily used in
conducting riverboat gaming may be purchased or leased only from licensed
suppliers.
The Riverboat Gambling Act places special emphasis upon minority and
women business enterprise participation in the riverboat industry. Any person
issued a gaming owner's license must establish goals of expending at least ten
percent of the total dollar value of the licensee's contracts for goods and
services with minority business enterprises and five percent of the total
dollar value of the licensee's contracts for goods and services with women's
business enterprises. The IGC may suspend, limit or revoke a gaming owner's
license or impose a fine for failure to comply with these statutory
requirements.
ITEM 2. PROPERTIES
The Company operates the Majestic Star Casino, a riverboat gaming facility
located at Buffington Harbor in Gary, Indiana, approximately 23 miles southeast
of downtown Chicago. Buffington Harbor is located at the interchange of US 12
and Indiana State Highway 912, a divided freeway which connects Interstate
Highways 90 and 80/94.
The Majestic Star Casino operates at and from the Gaming Complex, which was
developed, and is owned and operated, by the BHR Joint Venture. The Gaming
Complex is situated on an approximately one-hundred acre site containing
approximately 3,000 surface parking spaces and includes a 90,000 square foot
land based Pavilion which contains, in its common areas, a 352 seat buffet, a
110 seat steakhouse, two cocktail lounges, a gift shop, a ticketing area for
each casino and administrative offices.
The Chartered Vessel currently contains approximately 26,000 square feet
of gaming space on four levels, with approximately 932 slot machines and 50
table games. The Majestic Star Casino is certified to accommodate 1,700
passengers and 200 employees and crew members and also contains food, beverage
and bar facilities. The casino area of the Chartered Vessel contains a large
two-story atrium which, with the casino's conveniently placed elevators and
stairwells, encourages traffic flow to other levels of the casino.
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In October 1996, the Company entered into various agreements for the
design, engineering and construction of the Permanent Vessel. The Permanent
Vessel is anticipated to contain approximately 43,000 square feet of casino
space on three decks, 1,600 slot machines and 71 table games. The Permanent
Vessel will feature an atrium, and will have escalators in addition to
elevators and stair towers to move passengers more freely between the various
levels. After the Permanent Vessel is placed in service, the Company believes
that its facility will meet its operating needs for the foreseeable future.
The Permanent Vessel construction project entails significant construction
risks, including possible shortages of materials or skilled labor, unforeseen
engineering problems, work stoppages, fire or other natural disasters,
construction scheduling problems, and weather interference, any of which, if
they occurred, could delay construction and/or delivery of the Permanent
Vessel. Such delay, if extensive, would have an adverse effect on the
Company's results of operations.
ITEM 3. 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 certain of its affiliates, the IGC, the City of
Gary and the Mayor of the City of Gary and certain other parties affiliated
with the City of Gary. 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 of Gary 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 his original dismissal to only
matters regarding the injunctive relief. The Company is taking steps to set
aside and/or appeal such decision. The Company believes that this lawsuit is
without merits; however, at the present time, the Company cannot predict the
outcome of this matter and the effect, if any, of a judicial decision adverse
to the Company.
On March 5, 1997, three individuals filed a lawsuit in Lake Circuit
Court, Crown Point, Lake County, Indiana, naming Don H. Barden and the Company
as defendants. The suit alleges that the defendants failed to enter into an
agreement to sell five percent of the Company to the plaintiffs. The
plaintiffs are requesting unspecified damages and attorneys' fees. The Company
intends to vigorously defend against such suit. However, it is too early to
determine the outcome of such suit and the effect, if any, on the Company's
financial position and results of operations.
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The Company is not a party to any additional lawsuits.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company is a privately owned Indiana limited liability company and, as
such, there is no public market for the registrant's equity securities.
The Company has not paid any cash dividends to its members. The ability
of the Company to pay dividends is restricted by the Indenture (the
"Indenture") dated May 22, 1996 by and between the Company and IBJ Schroder, as
Trustee, which governs the Company's 12.75% Senior Secured Notes due 2003, with
contingent interest (the "Senior Secured Notes").
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS)
----------------------------------------
<TABLE>
<CAPTION>
DECEMBER 8, 1993
(DATE OF INCEPTION) TO
DECEMBER 31, DECEMBER 31,
1996 1995
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Operating Revenues (1) $ 54,221 $ --
Pre-opening costs 4,587 --
Loss from Operations (48) --
Interest Expense, Net 6,399 $ 249
Net Income (Loss) (8,887) 249
Ratio of Earnings to Fixed
Charges --(3) --
OTHER DATA
Adjusted EBITDA: (2) 10,738 --
BALANCE SHEET DATA:
Cash and Cash Equivalents $ 8,936 $ 8,446
Restricted Cash 51,689 --
Investment in BHR, Net 44,947 21,823
Total Assets 142,384 35,128
Current Liabilities 8,141 120
Long-Term Debt 118,880 --
Total Liabilities 127,021 120
Members' Equity 15,363 35,009
</TABLE>
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1. The Majestic Star Casino commenced operations in June 1996.
2. Adjusted EBITDA, or "earnings before interest, income taxes,
depreciation, amortization and chartered vessel
lease payments," is a supplemental financial measurement used by the
Company in the evaluation of its gaming business and by many gaming
industry analysts. Adjusted EBITDA should only be read in conjunction
with all of the Company's financial data summarized above and its
financial statements prepared in accordance with generally accepted
accounting principles ("GAAP") appearing elsewhere herein, and should
not be construed as an alternative either to income from operations
(as determined in accordance with GAAP) as an indication
of the Company's operating performance or to cash flows from operating
activities (as determined in accordance with GAAP) as a measure of
liquidity. Adjusted EBITDA for 1996 excludes preopening expenses
of Majestic Star Casino of $4,586,879.
3. The ratio is less than one-to-one coverage. The Company's earnings
are inadequate to cover fixed charges and the amount of coverage
deficiency is $9,099,604.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The discussions regarding proposed developments and operations of the
Company included in Management's Discussion and Analysis of Financial Condition
and Results of Operations contain forward looking statements that involve a
number of risks and uncertainties. These proposed developments and operations
include the construction and placing in service of the Permanent Vessel during
the fourth quarter of 1997, resolution of the need for a new harbor and the
Company's ability to fund planned developments and service its debt with
currently available cash, marketable securities and cash flow from operations.
These risks and uncertainties could significantly and adversely affect
anticipated results in the future and, accordingly, results may differ from
those expressed in any forward-looking statement made herein.
The following discussions should be read in conjunction with, and is
qualified in its entirety by, the Company's financial statements, including the
notes thereto, appearing elsewhere herein.
RESULTS OF OPERATIONS
The Company commenced operations in June 1996, and accordingly has a
limited operating history and no comparable fiscal year of operations.
Therefore, the discussion of operations herein will focus on events and the
Company's revenues and expenses during the fiscal year ended December 31, 1996.
Management believes that it is too early to determine whether the results of
operations for fiscal year 1996 provide any discernible trends; however, the
Company expects intense competition in the Northern Illinois/Indiana market to
continue with the anticipated opening of two additional riverboat casinos
during 1997.
Future operating results will be subject to significant business,
economic, regulatory and competitive uncertainties and contingencies, including
new and existing casino operations, many of which are beyond the control of the
Company. While the Company believes that the Majestic Star Casino will be able
to attract a sufficient number of customers and generate a sufficient amount of
revenue to meet its debt obligations as they become due, there can be no
assurance with respect thereto.
Fiscal 1996
Operations for the year ended December 31, 1996 reflect the operation of
the riverboat casino for 205 days during 1996. Prior to commencing operations
in June 1996, the Company was in the development stage and capitalized costs
associated with obtaining the license to operate a riverboat casino at the
Gaming Complex. The capitalized costs consist primarily of development
obligation payments, vessel design costs, financing and commitment fees, gaming
application fees and other pre-opening costs. Pre-opening costs of $4,587,000
were charged to operations during 1996.
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The Company in 1996 generated net operating revenues of approximately
$54,221,000. Casino revenues in 1996 totaled approximately $52,788,000, of
which slot machines accounted for approximately $37,456,000 (71.0%) and table
games accounted for approximately $15,332,000 (29.0%). The average number of
slot machines operated in 1996 was approximately 924, with an average win per
slot machine per day of $198. The average number of table games operated in
1996 was approximately 50, with an average win per table game per day of
$1,496. The average win per state passenger count was approximately $32 and
the average win per patron was approximately $53.
Promotional allowances (complimentaries) included in the Company's 1996
gross food revenues were approximately $12,000. Promotional allowances
provided to the Company's gaming patrons at facilities located in, and owned by
the BHR Joint Venture, totaled approximately $288,000 and are characterized in
the financial statements as an expense to the casino. The BHR Joint Venture
invoices the Company monthly for these promotional allowances at cost, which
approximates the retail value of these promotional allowances.
Food and beverage revenue for 1996 totaled approximately $809,000 and
other revenue, consisting primarily of commission income, totaled approximately
$636,000.
Casino expenses in 1996 totaled approximately $9,257,000 or 17.1% of net
revenues.
Gaming and admission taxes totaled approximately $15,538,000 in 1996.
These taxes are based upon 20% of adjusted gross receipts, as defined by
Indiana Gaming laws, and a head tax of $3 per passenger count based on
1,657,308 passengers, as determined by the Commission's regulations. An
economic incentive of $1,586,000 was paid during 1996 to the City under an
economic development agreement pursuant to which the Company pays 3% of
adjusted gross receipts directly to the City.
General and administrative expenses totaled approximately $12,289,000 of
which approximately $4,026,000 represents berthing fees, $3,379,000 for marine
operations and $994,000 for security and surveillance operations.
Depreciation and amortization, net interest expense and other non-gaming
expenses, for 1996 were approximately $5,320,000, $6,399,000 and $5,692,000.
The non-gaming expenses of $5,692,000, include $4,563,000 and $1,129,000, for
marketing (advertising and promotion) and food and beverage operations,
respectively. Net interest expense includes accrued but unpaid contingent
interest of approximately $603,000.
The Company's loss in 1996 on its investment in the BHR Joint Venture was
approximately $2,440,000.
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As a result of the foregoing, the loss from operations in 1996 was
approximately $48,000, including the charge to operations of $4,587,000 of
pre-opening costs. The net loss was approximately $8,887,000.
Earnings Before Interest, Income Taxes, Depreciation and Amortization
("EBITDA")
EBITDA is presented solely as a supplemental disclosure. EBITDA is used
by the Company to assist in the evaluation of the cash generating ability of
its gaming business.
EBITDA (excluding pre-opening costs and the Chartered Vessel lease
payments) for 1996 was approximately $10,738,000 and represented 19.8% of net
revenues. EBITDA should be viewed only in conjunction with all of the
Company's financial data and statements, and should not be construed as an
alternative either to income from operations as an indicator of the Company's
operating performance or to cash flows from operating activities as a measure
of liquidity.
Consolidated cash flow as defined in the Indenture governing the Company's
Senior Secured Notes was approximately $12,057,000 during 1996 with $6,732,000
in the first semi-annual period and $5,325,000 in the second semi-annual
period.
LIQUIDITY AND CAPITAL RESOURCES
From December 8, 1993 (date of inception) through December 31, 1996, the
principal expenditures were approximately as follows: $47 million invested in
the BHR Joint Venture, $20 million expended on property (including construction
in progress relating to the Permanent Vessel), equipment and leasehold
interests, $5 million paid to the City of Gary, $4 million debt issuance costs,
and $7 million incurred on pre-opening, licensing and organizational costs.
The BHR Joint Venture owns (or leases) and operates the berthing facility for
the Company's casino vessel, the guest pavilion and associated infrastructure.
Property, equipment and leasehold interests primarily consist of slot machines
and associated equipment and leasehold improvements to the Chartered Vessel.
The Company has entered into a contract for the construction of the Permanent
Vessel and for the delivery of the vessel on September 27, 1997 at a fixed cost
of $33,000,000. The Company estimates that design, engineering, and owner
furnished materials will cost approximately $7,000,000, excluding additional
gaming related equipment. The cost of additional gaming equipment expenditures
is currently estimated to range between $9 million and $10 million and is
subject to the final configuration of the casino. It is anticipated that these
additional gaming related equipment expenditures will be funded through
available cash flow from the casino's future operations and certain equipment
(vendor provided) financing. As of December 31, 1996, approximately $9 million
has been expended on the design and construction of the Permanent Vessel.
As discussed below, the Company, to date, has met its capital requirements
through net cash from operations, capital contributions and loans.
13
<PAGE> 16
For the year ended December 31, 1996, net cash provided by operations
totaled approximately $2.9 million.
Net capital contributions through December 31, 1996 were approximately $24
million, compared to approximately $35 million through December 31, 1995. This
reduction was due to the Company's reassessment of its capital structure, which
resulted in the conversion of approximately of $11 of members' capital
contributions into a note payable to Barden Development, Inc. ("BDI"), a member
and the manager of the Company.
At December 31, 1996, loans included $105 million of Senior Secured Notes,
approximately $11 million borrowed from BDI and approximately $5 million of
equipment financing. At December 31, 1996, approximately $52 million of the
proceeds and interest earned thereon from the Senior Secured Notes were held in
escrow for future cash requirements of the Company and were allocated as
follows: $34 million for the Permanent Vessel, $7 million as an interest
reserve, and $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 conditions, primarily the completion of the Permanent Vessel, are met.
Until repaid, these funds are available, subject to certain limitations and
qualifications, to the Company for completion of the Permanent Vessel.
The Senior Secured Notes mature on May 15, 2003. The Senior Secured Notes
are redeemable at the option of the Company, in whole or part, at any time on
or after May 15, 2000, at various premiums. Holders of the Senior Secured
Notes have the right to require that the Company repurchase the notes at a
premium under certain conditions including a change in control of the Company.
The Senior Secured Notes carry a coupon interest rate of 12.75%, plus
contingent interest equal to 5% of the Company's Consolidated Cash Flow, as
defined, (not to exceed $3 million annually), both payable semi-annually. The
payment of contingent interest can be deferred under certain conditions. The
contingent interest ordinarily payable on November 15, 1996 was deferred, as
allowed under the terms of the Indenture. As of December 31, 1996, the Company
had accrued contingent interest of approximately $603,000. The Senior Secured
Notes are collateralized by essentially all the assets of the Company.
The Indenture contains financial and other covenants, which, among other
things, limits the Company's ability to (1) the issue indebtedness, (2) make
investments, (3) make distributions and equity repurchases, (4) enter into
merger, consolidation and asset sale transactions, (5) create liens and (6)
enter into transactions with affiliates. These restrictions are subject to a
number of qualifications and exceptions as described in the Indenture.
If the Company is determined to be in default under the Indenture, any
portion of the proceeds from the Senior Secured Notes held in escrow may no
longer be available to
14
<PAGE> 17
the Company and the Senior Secured Notes may be accelerated. Either event
could materially adversely affect the Company.
The Company, pursuant to the Indenture, completed in November 1996, an
offer to exchange a new issue of Senior Secured Notes for all outstanding
12.75% Senior Secured Notes due 2003, with Contingent Interest. These new
notes have the same terms and conditions as the Senior Secured Notes.
Under the terms of the lease relating to the harbor on which the Chartered
Vessel is docked, the BHR Joint Venture may be required within one year to
construct a new harbor, berthing and guest facilities for the Company's casino
vessel. The level of expenditures required for such new facilities cannot be
accurately estimated at this time.
Under the terms of its development agreement with the City, the Company is
committed to make development expenditures of $116 million for its casino and
associated infrastructure in the City over the next five years. Through
December 31, 1996, the Company has met or accrued a significant portion of
these commitments including: $47 million investment in BHR, $20 million as the
agreed to value of the Chartered Vessel, $5 million of economic development
obligation payments to the City, $20 million of gaming equipment and other
property, and other expenditures of $7 million prior to opening. The two
principal components of the remaining commitment are a follows: (1) $10
million for off-site development in the City and (2) $12 million (a substantial
portion of which was expended as of December 31, 1996, 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 and/or to the Gaming Complex.
The Company anticipates that additional capital contributions to the BHR
Joint Venture, currently estimated not to exceed $1 million, may be required
for the BHR Joint Venture facilities. The Company and its joint venture partner
are also reviewing the feasibility of purchasing additional property and of
constructing a covered parking facility at the Gaming Complex. The cost of the
property and designing and constructing a covered parking facility at the
Gaming Complex is undetermined at this time. The Company expects to fund such
further investments from working capital, from operations and/or from the funds
designated for the repayment of the note due to BDI.
The Company currently operates on a Chartered Vessel until the Permanent
Vessel, to be owned by the Company, is delivered and placed into service in
late 1997. Upon the expiration of the Charter, the Chartered Vessel is to be
redelivered afloat at the Company's sole cost and expense to the owner of the
Chartered Vessel. The Company must pay the cost of any repairs which are
necessary in order to bring the Chartered Vessel into the condition required on
redelivery under the Charter. The cost of these additional expenditures is
undetermined at this time.
Management anticipates that income from operations for the Company for the
first and second quarters of 1997 may be lower than those for the third and
fourth quarters of
15
<PAGE> 18
1996. The principal factors for the anticipated decline may be attributable to
adverse weather conditions in early 1997 as well as the anticipated opening of
an additional riverboat casino during the second quarter of 1997. The Company
expects to complete the outfitting of, and to place, the Permanent Vessel in
service during the fourth quarter of 1997. The Company has committed under the
terms of its Senior Secured Notes to replace the Chartered Vessel with the
Permanent Vessel no later than June 30, 1998. Failure to place the Permanent
Vessel into service on time and on budget would adversely affect anticipated
1997 results of operations.
Based upon the Company's anticipated future operations, management
believes that available cash flow from the casino's future operations and
certain equipment financing, together with the proceeds from the Senior Secured
Notes, will be adequate to meet the Company's anticipated future requirements
for working capital, funding the Company's portion of expenses associated with
the BHR Joint Venture, the remaining development obligations to the City,
capital expenditures, including the additional gaming equipment required for
the Permanent Vessel, and scheduled payments of interest and principal on the
Senior Secured Notes and other permitted indebtedness for fiscal 1997. No
assurance can be given, however, that operating cash flow will be sufficient
for such purposes. The Company intends to establish working capital reserves
to provide for anticipated short-term liquidity needs. 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. 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is listed under Item 14 of Part IV
of this Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
16
<PAGE> 19
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The following table sets forth certain information with respect to the
executive officers of the Company as of December 31, 1996:
EXECUTIVE OFFICERS
Name Age Position(s) Held
---------------- --- ----------------------------
Don H. Barden 53 Chairman, President, and CEO
Thomas C. Bonner 44 Executive Vice President
Paul W. Sykes 45 Vice President and Chief Operating
Officer
Michael E. Kelly 35 Vice President and Chief Financial
Officer
DON H. BARDEN is the Chairman, President, CEO of the Company and is
employed by the Company, with responsibility for key policy making functions.
Since 1981, Mr. Barden has also been the President and Chief Executive Officer
of a group of companies which are wholly-owned by Mr. Barden and which operate
in the real estate development, broadcast, and entertainment industries. Over
the past 25 years, Mr. Barden has successfully established and developed a
number of enterprises in the real estate, cable television and media
industries.
THOMAS C. BONNER is the Executive Vice President of the Manager and the
Company and has been employed by the Company since December 1995, with primary
responsibility for the overall operations of the Company. From March 1995 to
December 1995, Mr. Bonner was President and Chief Executive Officer of Showboat
Indiana, Inc.. From November 1993 to March 1995, Mr. Bonner was Vice President
of Project Development for Showboat Development Company and from October 1984
to November 1993, Mr. Bonner was Vice President and General Counsel to Atlantic
City Showboat, Inc.
PAUL W. SYKES is the Vice President of the Manager, General Manager and
Chief Operating Officer of the Company since December 1995 and is employed by
the Company. Mr. Sykes has responsibility for management of gaming operations
and related activities of the Company. From February 1995 to December 1995,
Mr. Sykes was Vice President-Operations of Showboat Indiana, Inc. with primary
responsibility for pre-opening activities relating to casino gambling, credit,
food and beverage, property and security operations. From December 1993 to
January 1995, Mr. Sykes was Vice President - Project Development where he was
responsible for identification and evaluation of new markets and related
legislative matters. From November 1991 to
17
<PAGE> 20
November 1993, Mr. Sykes was Vice President of Casino Marketing of Showboat
Atlantic City, where he was responsible for the direct mail, player
development, special events and complimentary services. Prior to 1991, Mr.
Sykes served as Vice President of Customer Development for Trump's Taj Mahal.
MICHAEL E. KELLY joined the management team in April 1996 as Vice
President and Chief Financial Officer of the Manager, with overall
responsibility for the Company's financial reporting and investor relations
functions. Mr. Kelly is also employed by the Company. From June 1994 to April
1996, Mr. Kelly held various positions with Fitzgeralds Gaming Corporation
including Vice President of Finance. Mr. Kelly also was the Senior Director of
Operations and Chief Financial Officer of Fitzgeralds Tunica where he was
responsible for operations, finance, regulatory affairs, legal and strategic
planning and involved in the design and development of a new dockside gaming
facility in Robinsonville, Mississippi. From September 1991 to June 1994, Mr.
Kelly was Vice President and Chief Financial Officer of Empress River Casino
Corporation and its affiliates, with responsibility for finance, legal,
regulatory affairs and administration. Mr. Kelly also participated in the
design and development of riverboat casino operations at Joliet, Illinois, and
Hammond, Indiana, while employed by the Empress River Casino Corporation. From
1982 to 1991, Mr. Kelly was employed in various senior finance and
administrative functions by Harrah's Hotel & Casino in New Jersey and Nevada,
and the Fitzgeralds Group in Reno and Las Vegas, Nevada.
18
<PAGE> 21
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth all compensation earned for services
performed for the Company during the two fiscal years in the period ended
December 31, 1996 by the Company's Chief Executive Officer and each of its
other executive officers (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION(1)
--------------------------
<TABLE>
<CAPTION>
ALL OTHER
FISCAL COMPENSATION
NAME & POSITION YEAR SALARY($) BONUS($) ($)(2)
- ------------------------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C>
Don H. Barden(3) 1996 180,865 - -
President & Chief 1995 - - -
Executive Officer
Thomas C. Bonner(4) 1996 198,086 169,500 12,919
Executive Vice President 1995 7,635 - -
Paul W. Sykes(5) 1996 174,580 99,500 6,859
Vice President & COO 1995 6,731 - -
Michael E. Kelly(6) 1996 117,586 - 42,341
Vice President & CFO 1995 - - -
</TABLE>
----------------------
1. The incremental cost to the Company of providing perquisites and other
personal benefits during the past two fiscal years did not exceed,
as to any "Named Executive Officer", the lesser of $50,000
or 10% of the total salary and bonus paid to such executive officer
for any such year and, accordingly, is omitted from the table.
2. Amounts represent contractual payments under individual employment
agreements. In fiscal 1996, the Company paid $8,050 and $5,403,
respectively, to Messers Bonner, and Sykes in lieu of not having
established a 401(K) Plan. Messers Bonner and Sykes also were
reimbursed $4,869 and $1,456 respectively, for non-deductible medical
plan expenditures. Mr. Kelly received $18,341 for reimbursable
relocation expenses and $24,000 for non-vested stock options from a
previous employer.
3. Mr. Barden became a paid employee of the Company in April 1996.
4. Mr. Bonner joined the Company as Executive Vice President in December
1995. Mr. Bonner's 1996 contractual bonus and other payments
aggregating $169,500 were voluntarily deferred until calendar year
1997.
5. Mr. Sykes joined the Company as Vice President and COO in December
1995.
6. Mr. Kelly joined the Company as Vice President and CFO in April 1996.
19
<PAGE> 22
Employment Agreements
Mr. Barden serves as Chairman and President of the Manager and will
receive annual compensation of $275,000 as an employee of the Company, pursuant
to a letter agreement dated as of April 25, 1996.
Mr. Bonner serves as Executive Vice President of Gaming Operations
pursuant to an employment agreement with the Company, effective as of December
4, 1995. Under the terms of his employment agreement, Mr. Bonner will receive
base compensation of $348,700 per year and housing, car and meal allowances
aggregating $19,300 per year. Mr. Bonner can also earn incentive compensation
based on his performance and the performance of the Company. The employment
agreement is for a term of three years unless earlier terminated because of Mr.
Bonner's death, permanent disability, inability to obtain or maintain the
licenses required for the performance of his duties, or "for cause" (as defined
therein). The employment agreement also includes a non-competition provision
which generally provides that during the term of the employment agreement and
for 18 months thereafter, Mr. Bonner cannot directly or indirectly recruit or
solicit the Company's employees to work for another company or to compete with
the Company in specified portions of Illinois and Indiana (the "Non-Competition
Provision").
Mr. Sykes has entered into an employment agreement with the Company,
effective as of December 4, 1995, pursuant to which he has agreed to serve as
Vice President and General Manager of Operations for a three year term. Mr.
Sykes will receive base compensation of $247,000 per year and can also earn
incentive compensation based upon his performance and the performance of the
Company. Mr. Sykes' employment agreement contains terms substantially similar
to that of Mr. Bonner's, including the Non-Competition Provision.
Mr. Kelly services as Vice President and Chief Financial Officer pursuant
to a two-year employment agreement with the Company, effective as of April 22,
1996. Mr. Kelly will receive base compensation of $225,000 per year and can
also earn annual incentive compensation based on his performance and the
performance of the Company. Mr. Kelly's employment agreement contains other
terms substantially similar to that of Mr. Bonner's, including a
Non-Competition Provision with a duration of 12 months.
20
<PAGE> 23
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of March 15, 1997,
with regard to the beneficial ownership of the membership interests in the
Company.
<TABLE>
Name and Address of
Beneficial Owner % Ownership
- ---------------------------------- -----------
<S> <C>
Don H. Barden (1) 100.0%
400 Renaissance Center, Suite 2400
Detroit, Michigan 48243
</TABLE>
(1) includes the membership interests in the Company beneficially owned
directly by BDI and indirectly by BDI and Barden Management, Inc. ("BMI")
through Gary Riverboat Gaming, LLC ("GRG"). Mr. Barden is the beneficial owner
of 100% of BDI, BMI and GRG.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Note to and Advances from Principal Member
By December 31, 1995, the Company had been capitalized by its members with
$35.0 million, including interest earned thereon, of capital contributions.
Effective March 31, 1996, $10.8 million of the contributions of BDI was
reclassified as indebtedness payable to BDI, evidenced by the Note to Principal
Member. The Note to Principal Member is a non-transferable and subordinated
note which bears interest at a rate equal to the applicable short-term federal
rate, as set forth in Section 1274(d) of the Internal Revenue Code, adjusted on
the first day of each month that the Note to Principal Member is outstanding.
The net proceeds from the Senior Note Offering that have been designated
to repay the Note to Principal Member have been deposited in a completion
reserve account and $5.0 million may be released upon satisfaction of certain
conditions. Any funds remaining in the completion reserve account will be
disbursed to repay the Note to Principal member upon delivery of the Permanent
Vessel to the Company.
BDI loaned the Company additional amounts required to fund the ongoing
costs of completing the Majestic Star Casino and the Gaming Complex pursuant to
an additional promissory note. Such note aggregating $18,097,299 in principal
amount, was repaid with interest at 5% per annum at the Closing from the
proceeds of the offering of the Senior Secured Notes on May 22, 1996.
21
<PAGE> 24
IGC Bond
On May 20, 1996, the IGC agreed to accept a $12.5 million surety bond (the
"Bond") issued by United States Fidelity and Guaranty Company ("USF&G") in
place of a previously issued letter of credit, which was canceled on May 21,
1996 by NBD Bank, N.A. (Indiana) (the "Bank"), thereby releasing Don H.
Barden's pledge of $12.9 million of cash equivalents. However, to support the
Company's obligations to USF&G should there be a draft against the Bond, the
Company obtained on May 15, 1996 a $3.5 million letter of credit from the Bank
to benefit USF&G. Don H. Barden guaranteed the Company's obligations to USF&G
under the Bond and to the Bank under the $3.5 million letter of credit. To
secure the guaranty to the Bank, Mr. Barden pledged $3.6 million of cash
equivalents.
Reimbursement of Expenses to Manager
Pursuant to the terms of the Operating Agreement, the Manager receives no
compensation for its management of the Company, but is reimbursed for all
reasonable out-of-pocket expenses related therewith.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This document includes various "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Sections
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 release and periodic reports on Forms 10-K and 10-Q filed
with the Securities and Exchange Commission are intended to identify
forward-looking statements. All forward-looking statements involve risks and
uncertainties. Although the Company believes its expectations are based upon
reasonable assumptions within the bounds of its 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,
including reports filed on 10-Q, 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: risks associated with the development and construction of the
Permanent Vessel; 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
22
<PAGE> 25
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.
23
<PAGE> 26
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements of the Company. The following financial
statements are attached:
Report of Independent Accountants, F-1
Balance Sheets as of December 31, 1996 and 1995 F-2
Statements of Income for the year ended F-3
December 31, 1996 and for the period December 8, 1995
(date of inception) to December 31, 1995
Statements of Members' Equity for the year ended F-4
December 31, 1996 and for the period December 8, 1995
(date of inception) to December 31, 1995
Statements of Cash Flows for the year ended F-5
December 31, 1996 and for the period December 8, 1995
(date of inception) to December 8, 1995
Notes to the Financial Statements. F-6
2. Financial Statement Schedule for the year ended
December 31, 1996
Report of Independent Accountants F-17
Schedule II - Valuation and Qualifying Accounts F-18
3. Financial Statements of the BHR Joint Venture. The following
financial statements are attached:
Report of Independent Accountants, F-19
Balance Sheets at December 31, 1996 and 1995 F-20
Statements of Operations for the year ended F-21
December 31, 1996 and for the period September 27,
1995 to December 31, 1995
Statements of Members' Capital for the year ended F-22
December 31, 1996 and for the period September 27,
1995 to December 31, 1995
Statements of Cash Flows for the year ended F-23
December 31, 1996 and for the period September 27,
1995 to December 8, 1995
Notes to the Financial Statements. F-24
4. Exhibits Refer to (c) below
(b) Report on Form 8-K. None
24
<PAGE> 27
(c) Exhibits. Reference is made to the Index to Exhibits immediately preceding
the exhibits hereto.
25
<PAGE> 28
REPORT OF INDEPENDENT ACCOUNTANTS
To the Members of
The Majestic Star Casino, LLC:
We have audited the accompanying balance sheets of The Majestic Star Casino,
LLC (the "Company") as of December 31, 1996 and 1995 and the related statements
of income, changes in members' equity, and cash flows for the year ended
December 31, 1996 and for the period December 8, 1993 (date of inception) to
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
1996 and 1995 and the results of its operations, members' equity and cash flows
for the year ended December 31, 1996 and for the period December 8, 1993 (date
of inception) to December 31, 1995 in conformity with generally accepted
accounting principles.
Coopers & Lybrand, L.L.P.
Chicago, Illinois
March 28, 1997
F-1
<PAGE> 29
THE MAJESTIC STAR CASINO, LLC
BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 8,935,999 $ 8,446,389
Accounts receivable, less allowance for doubtful accounts of $190,000 557,816 -
Inventories 24,651 -
Prepaid expenses 1,169,868 -
------------ -----------
Total current assets 10,688,334 8,446,389
Property, equipment, and vessel improvements, net 24,124,802 74,846
Organizational costs, less accumulated amortization of $ 15,772 and $ -0-,
respectively 125,469 141,241
Deferred financing costs, less accumulated amortization of $ 357,640 3,757,667 -
Deferred costs, less accumulated amortization of $ 2,131,166 and $ -0-, respectively 5,023,767 4,392,729
Investment in Buffington Harbor Riverboats, L.L.C. 44,946,852 21,823,018
Other assets and deposits 2,028,260 250,000
Restricted cash 51,688,854 -
------------ -----------
Total Assets $142,384,005 $35,128,223
============ ===========
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $2,211,599 $ -
Accounts payable 544,154 119,573
Accrued liabilities:
Payroll and related 593,492 -
Interest 2,468,698 -
Other accrued liabilities 1,496,758 -
Due to joint venture 826,512
------------ -----------
Total current liabilities 8,141,213 119,573
Long-term debt, net of current maturities 108,120,746 -
Note to member 10,759,355
Commitments - -
------------ -----------
Total Liabilities 127,021,314 119,573
------------ -----------
Members' Equity:
Members' contributions 24,000,000 34,759,355
Retained earnings (Accumulated deficit) (8,637,309) 249,295
------------ -----------
Total members' equity 15,362,691 35,008,650
------------ -----------
Total Liabilities and Members' Equity $142,384,005 $35,128,223
============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE> 30
THE MAJESTIC STAR CASINO, LLC
STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996 AND FOR THE PERIOD
DECEMBER 8, 1993 (DATE OF INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE DECEMBER 8, 1993
YEAR ENDED (DATE OF INCEPTION)
DECEMBER 31, 1996 TO DECEMBER 31, 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES
Casino $52,788,009
Food and beverage 808,567
Other 636,071
-------------
Gross Revenues 54,232,647
-------------
less promotional allowances (12,088)
Net Revenues 54,220,559
-------------
COSTS AND EXPENSES
Casino 9,256,597
Gaming and admission taxes 15,537,905
Food and beverage 1,128,868
Advertising and promotion 4,563,096
General and administrative 12,289,291
Economic incentive - City of Gary 1,586,351
Depreciation & amortization 5,319,682
Pre-opening costs 4,586,879
-------------
Total costs and expenses 54,268,669
-------------
Operating income (loss) (48,110)
-------------
Other income (expense)
Loss on investment in Buffington Harbor Riverboats, L.L.C. (2,439,581)
Interest income 2,198,929 $249,295
Interest expense (8,246,565)
Interest expense to affiliate (351,277)
------------- -----------
Total other income (expense) (8,838,494) 249,295
------------- -----------
NET INCOME (LOSS) $ (8,886,604) $ 249,295
============= ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 31
THE MAJESTIC STAR CASINO, LLC
STATEMENTS OF CHANGES IN MEMBERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996 AND FOR THE PERIOD
DECEMBER 8, 1993 (DATE OF INCEPTION) TO DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RETAINED
EARNINGS TOTAL
CAPITAL (ACCUMULATED MEMBERS'
CONTRIBUTIONS DEFICIT) EQUITY
------------- ------------- -----------
<S> <C> <C> <C>
Balance, December 8, 1993
Members' contributions $ 32,547,090 - $32,547,090
Non-cash contributions 2,212,265 - 2,212,265
Net income - $ 249,295 249,295
------------- ------------- -----------
Balance, December 31, 1995 34,759,355 249,295 35,008,650
Conversion of capital contribution to debt (10,759,355) - (10,759,355)
Net loss - (8,886,604) (8,886,604)
------------- ------------- -----------
Balance, December 31, 1996 $ 24,000,000 $(8,637,309) $15,362,691
============= ============= ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 32
THE MAJESTIC STAR CASINO, LLC
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND FOR THE PERIOD
DECEMBER 8, 1993 (DATE OF INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE DECEMBER 8, 1993
YEAR ENDED (DATE OF INCEPTION)
DECEMBER 31, 1996 TO DECEMBER 31, 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (Loss) ($8,886,604) $249,295
Adjustment to reconcile net income to net cash provided by operating activities
Depreciation 2,815,104
Amortization 2,504,578
Deferred expenses 234,796 (2,585,863)
Organizational costs (141,241)
Loss on investment in Buffington Harbor Riverboats, L.L.C. 2,439,581
Increase in accounts receivable, net (557,816)
Increase in inventories (24,651)
Increase in prepaid expenses (1,169,868)
Increase in other assets (310,722) (250,000)
Increase in accounts payable 424,581 119,573
Increase in accrued payroll and other expenses 593,492
Increase in accrued interest 2,468,698
Increase in other accrued liabilities 2,323,270
-------------------------------------
Net cash provided by (used in) operating activities $2,854,439 ($2,608,236)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, equipment and leasehold interest (20,241,855) (74,846)
Licensing and local initiative expenditures (2,747,000)
Increase in Chartered Vessel deposit (1,717,538)
Investment in Buffington Harbor Riverboats, L.L.C. (25,563,415) (21,417,619)
Increase in restricted cash (51,688,854)
-------------------------------------
Net cash used in investing activities (101,958,662) (21,492,465)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of loan from Member 18,097,299 32,547,090
Proceeds from issuance of 12.75% Senior Secured Notes - 105,000,000
Repayment of short term loan debt (18,097,299)
Cash paid to reduce long-term debt (1,290,860)
Payment of Senior Secured Notes issuance costs (4,115,307)
-------------------------------------
Net cash provided by financing activities 99,593,833 32,547,090
Net increase in cash and cash equivalents 489,610 8,446,389
Cash and cash equivalents, beginning of year 8,446,389 -
-------------------------------------
Cash and cash equivalents, end of year $8,935,999 $ 8,446,389
=====================================
</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.
During 1996, the Company obtained financing of $6,623,205 for gaming
equipment and paid interest of $382,231.
During 1995, deferred expenses of $918,286 were paid by a former member on
behalf of the Company and $888,580 were contributed to the Company by a
current member.
In 1995, the Investment in Buffington Harbor Riverboats, L.L.C. of $87,167
was paid by a former member on behalf of the Company and $318,232 was
contributed to the Company by a current member.
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 33
THE MAJESTIC STAR CASINO, LLC
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The Majestic Star Casino, LLC (the "Company") was formed on December 8,
1993, as an Indiana limited liability company, to provide gaming and
related entertainment to the public. The Company commenced gaming
operations in the City of Gary (the "City") at Buffington Harbor, located
in Lake County, in the State of Indiana in June 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS - The Company considers cash equivalents to
include short-term investments with original maturities of ninety days or
less. At December 31, 1996 and 1995, the Company had bank deposits in
excess of federally insured limits by approximately $4,907,000 and
$8,346,000, respectively.
INVENTORIES - are stated at the lower of cost or market, cost being
determined principally on a first in, first out basis. The estimated
cost of normal operating quantities (base stock) of uniforms has been
recorded as an asset and is not being depreciated. Costs of base stock
replacements are expensed as incurred. Other assets in the accompanying
balance sheets include $310,722 of base stock inventories at December 31,
1996.
PROPERTY AND EQUIPMENT - are stated at cost. Depreciation and
amortization are computed utilizing the straight line method over the
estimated useful lives of the assets. Costs of major improvements are
capitalized; costs of normal repairs and maintenance are charged to
expense as incurred. Gains or losses on disposals are recognized when
incurred.
CAPITALIZED INTEREST - The Company capitalizes interest costs associated
with debt incurred in connection with major construction projects. When
no debt is specifically identified as being incurred in connection with
such construction projects, the Company capitalizes interest on amounts
expended on the project at the Company's average cost of borrowed money.
F-6
<PAGE> 34
THE MAJESTIC STAR CASINO, LLC
NOTES TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED:
For the period ended December 31, 1996, interest expense capitalized for
the construction of a new riverboat casino (the "Permanent Vessel") to
replace a leased vessel amounted to approximately $213,000.
DEFERRED FINANCING COSTS - represent agent's commission, closing costs
and professional fees incurred in connection with the Senior Secured
Notes. Such costs are being amortized over the seven year term of the
notes.
ORGANIZATIONAL COSTS - are costs incurred in connection with the
formation of the limited liability company. These costs have been
capitalized and are being amortized over a period of five years.
INVESTMENT IN BUFFINGTON HARBOR RIVERBOATS, L.L.C. - the Company accounts
for its 50 percent interest in Buffington Harbor Riverboats, L.L.C.
("BHR") under the equity method, whereby the initial investments are
recorded at cost and then adjusted for the Company's share of BHR's net
income or loss or distributions. The Company's investment will not be
reduced below zero as a result of such adjustments.
DEFERRED COSTS - include development obligation payments to the City and
licensing costs. Such payments and costs, which represent direct costs
associated with the development of the riverboat casino, were deferred
until operations commenced in June 1996, and are currently being
amortized over five years, the life of the gaming license. At December
31, 1995, deferred costs also included pre-opening costs which were
charged to operations during 1996.
RESTRICTED CASH - at December 31, 1996 represents cash and investments of
approximately $51,689,000 to fund future cash requirements of the Company
as required by the Indenture discussed in Note 10. The funds are
invested primarily in securities of the U.S. government and its agencies,
with original maturities less than 180 days and are held in collateral
accounts pursuant to disbursement agreements of the Senior Secured Notes.
CASINO REVENUE - is the net win from gaming activities, which is the
difference between gaming wins and losses.
F-7
<PAGE> 35
THE MAJESTIC STAR CASINO, LLC
NOTES TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED:
PROMOTIONAL ALLOWANCES - operating revenues include the retail value of
food provided to customers without charge; corresponding charges have
been deducted from revenue in the accompanying statements of income as
promotional allowances in the determination of net operating revenues.
The estimated costs of providing the complimentary services are charged
to the casino department and are as follows:
1996 1995
Food $13,026 - 0 -
FEDERAL INCOME TAXES - the Company has elected status as an LLC under the
Internal Revenue Code. Under this election, income of the Company is
taxed directly to the members and, accordingly, there is no provision for
federal income taxes.
LONG-LIVED ASSETS - during 1995, the Company adopted the provisions of
Statement of Financial Accounting Standard No. 121, "Accounting for the
Impairment of Long-Lived Assets" ("SFAS No. 121"). SFAS No. 121
requires, among other things, that an entity review its long-lived and
certain related intangibles for impairment whenever changes in
circumstances indicate that the carrying amount of an asset may not be
fully recoverable. Impairment of long-lived assets exists, if, at a
minimum the future expected cash flows (undiscounted and without interest
charges) from an entity's operation are less than the carrying value of
these assets. As a result of its review, the Company does not believe
that any impairment exists in the recoverability of its long-lived
assets.
FAIR VALUE OF FINANCIAL INSTRUMENTS - the Company believes, based upon
current information, that the carrying value of the Company's cash and
cash equivalents, restricted cash, accounts receivable and accounts
payable approximates fair value because of the short term maturity of
those instruments. The Company estimates the fair value of its long-term
debt and notes payable approximates their carrying value based on
quotations received from investment bankers or because interest rates on
the debt approximate market rates.
USE OF ESTIMATES - the preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the period. Actual results could
differ from those estimates.
F-8
<PAGE> 36
THE MAJESTIC STAR CASINO, LLC
NOTES TO FINANCIAL STATEMENTS
3. CERTIFICATE OF SUITABILITY:
On December 9, 1994, the Indiana Gaming Commission (the "Commission")
awarded the Company one of two certificates (the "Certificate") for a
riverboat owner's license for a riverboat casino to be docked in the
City. Having complied with certain statutory and regulatory requirements
and other conditions of the Commission, the Company received a five year
riverboat owner's license on June 3, 1996.
The second certificate was issued to Trump Indiana, Inc. ("Trump"). The
Company and Trump have committed to a joint development and operation of
a docking location from which the entities are conducting their
respective riverboat gaming operations in the City.
4. CITY OF GARY, INDIANA DEVELOPMENT OBLIGATION:
On September 7, 1995, the Company and the City entered into an agreement
for the purpose of summarizing procedures regarding the acquisition of a
certain parcel of land in accordance with the Certificate. The Company
paid the City $250,000 under the terms of this agreement.
On September 29, 1995, the Company, Trump and the City entered into an
agreement. In accordance with this agreement, the Company paid the City
$5,000,000. As of December 31, 1996, $5,250,000 of deferred costs
represents the Company's development obligation to the City, which is
being amortized over 5 years, the life of the gaming license.
As of March 26, 1996, the City and the Company entered into a development
agreement which supersedes the September 7, 1995 agreement between the
City and the Company. The development agreement ("Development
Agreement") requires the Company, among other things, (1) to invest $116
million in various on-site improvements over the next five years, (2) pay
the City an economic incentive equal to 3% of the Company's adjusted
gross receipts, as defined by the Riverboat Gaming Act and (3) pay a
default payment in the amount of damages for failure to complete certain
on-site developments, which amount is capped at $12 million.
F-9
<PAGE> 37
THE MAJESTIC STAR CASINO, LLC
NOTES TO FINANCIAL STATEMENTS
5. PROPERTY, EQUIPMENT AND VESSEL IMPROVEMENTS:
Property and equipment at December 31, 1996 and 1995 consist of the
following:
<TABLE> Estimated
<CAPTION> Service
Life
1996 1995 (Years)
<S> <C> <C> <C>
Buildings and improvements $ 28,789 - 5
Vessel improvements 5,051,258 - 2
Furniture, fixtures and
equipment 13,211,824 - 5
----------- --------
18,291,871 -
Less accumulated depreciation
and amortization (2,815,104)
------------- --------
15,476,767
Construction in progress 8,648,035 $74,846
------------- --------
Total $24,124,802 $74,846
------------ --------
</TABLE>
Substantially all property and equipment are pledged as collateral on
long-term debt. See Note 8.
6. INVESTMENT IN BUFFINGTON HARBOR RIVERBOAT, L.L.C.:
On October 31, 1995, the Company and Trump entered into the First
Amended and Restated Operating Agreement of Buffington Harbor Riverboat,
L.L.C. ("BHR") for the purpose of acquiring and developing certain
facilities for the gaming operations in the City ("BHR Property"). BHR is
responsible for the management, development and operation of the BHR
Property. The Company and Trump have each entered into an agreement with
BHR (the "Berthing Agreement") to use BHR Property for their respective
gaming operations and have committed to pay cash operating losses of BHR as
additional berthing fees. The Company and BHR share equally in the
operating expenses relating to the BHR Property, except for costs associated
with food and beverage operations, which is allocated on a percentage of use
by the casino customers of the Company and the joint venture partner.
F-10
<PAGE> 38
THE MAJESTIC STAR CASINO, LLC
NOTES TO FINANCIAL STATEMENTS
6. INVESTMENT IN BUFFINGTON HARBOR RIVERBOAT, L.L.C." - CONTINUED:
The following represents selected financial information of BHR:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
BALANCE SHEET
Cash and cash equivalents $ 68,380 $14,056,869
Current Assets 2,663,868 14,056,869
Property, equipment and
construction in progress, net 90,854,327 32,603,593
Deferred pre-opening costs - 571,440
Other assets 49,075
Total assets 93,567,270 47,231,902
Current Liabilities 1,941,459 2,940,645
Total liabilities 3,655,768 3,512,085
Members' Equity-
Majestic Star Casino, LLC 44,946,852 21,823,018
Total members' equity 89,911,502 43,719,817
INCOME STATEMENT
Gross revenue 12,764,460 -
Operating income (loss) (5,138,192) -
Net income (loss) $(4,935,145) $ 73,781
</TABLE>
Promotional allowances provided to the Company's gaming patrons at BHR
facilities totaled approximately $288,000 in 1996, and are characterized
in the Company's financial statements as an expense of the casino. BHR
invoices the Company monthly for these promotional allowances at cost
which approximates the retail value of the promotional allowances.
At December 31, 1996 the Company's income statement reflects
approximately $4,314,000 in vessel berthing fee's and promotional
allowances payable to BHR of which $3,487,000 were paid in 1996.
7. CHARTER AGREEMENT:
On August 17, 1995, the Company entered into a Charter Agreement
("Agreement") with New Yorker Acquisition Corporation ("Owner") and
President Casino, Inc. for the purpose of leasing the Owner's casino
gaming vessel together, with all improvements, furniture, fixtures and
equipment.
F-11
<PAGE> 39
THE MAJESTIC STAR CASINO, LLC
NOTES TO FINANCIAL STATEMENTS
7. CHARTER AGREEMENT: - CONTINUED
The Agreement became effective on May 3, 1996, and expires on May 3,
2001, subject to early termination options. Under the terms of the
Agreement, the Company will pay the Owner $125,000 plus 5% use tax
monthly for the first 24 months. The total amount of rent expense
included in the Company's Statement of Income was approximately $879,000
for 1996. The monthly rate for the final three years will be negotiated
based on market rates. The Company is responsible for certain
refurbishing and expenses to operate the vessel during the charter and
upon the return of the vessel to its owners.
As required by the Agreement, the Company has placed a security deposit
in escrow with a financial institution. As of December 31, 1996 and
December 31, 1995, the amount in escrow including accrued interest was
approximately $1.7 million and $250,000 respectively. The security
deposit is refundable pursuant to the terms of the escrow agreement.
8. LONG -TERM DEBT:
There was no long-term debt at December 31, 1995. Long-term debt at
December 31, 1996 is as follows:
<TABLE>
<CAPTION>
1996
<S> <C>
Senior secured notes payable; collateralized
by a first priority lien on substantially
all of the assets of the Company, due
in semi-annual installments of interest
at 12.75% together with contingent
interest payable on May 15 and
November 15; with a final payment of
principal and interest due on May 15, 2003.
(See Note 10). $105,000,000
Contracts payable collateralized by gaming
equipment; due in aggregate monthly
installments of approximately $184,300
plus interest, with varying maturity
dates through April 1999. 5,332,345
-------------
Total long-term debt 110,332,345
Less current portion (2,211,599)
-------------
Long-term portion $108,120,746
-------------
</TABLE>
F-12
<PAGE> 40
THE MAJESTIC STAR CASINO, LLC
NOTES TO FINANCIAL STATEMENTS
8. LONG - TERM DEBT: - CONTINUED
The scheduled maturities of long-term debt are as follows:
<TABLE>
<S> <C>
Year Ending
December 31,
1997 $ 2,211,599
1998 2,211,599
1999 909,147
2000
2001
Thereafter 105,000,000
-------------
Total $110,332,345
Equipment Financing
</TABLE>
At December 31, 1996, approximately $5.3 million of equipment financing
was outstanding of which $2.2 million represents current maturities of
long-term debt. This debt, which carries a floating interest rate of 3%
over prime (prime was 8.25% at December 31, 1996), is collateralized by
certain gaming equipment and the remaining balance will be repaid in equal
monthly principal payments of approximately $184,300.
9. NOTE TO MEMBER
At December 31, 1996, approximately $10.8 million was owed to a member
of the Company. This note carries a floating interest rate equal to
the applicable federal short term note, as set forth in Section 1274(d) of
the Internal Revenue Code of 1986 (5.6% at December 31, 1996) and cannot be
repaid, under the Indenture, until the completion of the Permanent Vessel.
This note resulted from the conversion of members' Contributions into debt
on March 31, 1996. There is no set term for the Note to member.
10. SENIOR SECURED NOTES:
On May 22, 1996, the Company completed a private offering of $105,000,000
of Senior Secured Notes due May 15, 2003. These notes were exchanged in
November, 1996 by the Senior Exchange Secured Notes, which are registered
under the Securities Exchange Act of 1933., but which notes are otherwise
substantially identical in all material respects to the privately placed
notes.
The Senior Secured Notes bear interest at a fixed rate of 12.75% per annum
payable May 15 and November 15 of each year commencing November 15, 1996.
Contingent
F-13
<PAGE> 41
THE MAJESTIC STAR CASINO, LLC
NOTES TO FINANCIAL STATEMENTS
10. SENIOR SECURED NOTES: - CONTINUED
interest is payable on the Senior Secured Notes, on each such interest
payment date, in an aggregate amount equal to 5.0% of the Company's
Consolidated Cash Flow, as defined in the Indenture between the Company and
IBJ Schroder Bank & Trust Company, as Trustee, dated May 22, 1996 (the
"Indenture"), for the six month period ending on March 31 or September 30
(each, a "Semiannual Period") most recently completed prior to such
interest payment date, based on maximum of $60.0 million of the Company's
Consolidated Cash Flow during any two consecutive Semiannual Periods;
provided that no contingent interest shall be payable with respect to any
period prior to the first day of the operation of the Majestic Star Casino,
as defined in the Indenture. Under certain circumstances, the Company, at
its option, may defer payment of all or a portion of any installment of
contingent interest. Contingent interest accrued as of December 31, 1996
was approximately $603,000. A portion of the proceeds from the Senior
Secured Notes will be used to construct a new casino vessel to replace the
Chartered Vessel. These amounts are characterized as Restricted Cash on
the accompanying balance sheet as further discussed in Note 2.
The Senior Secured Notes are collateralized by, among other things
(i) a pledge of the Company's 50% membership interest in BHR, (ii) a
collateral assignment of the Company's interest in the Berthing
Agreement, (iii) a pledge of all funds in the collateral accounts into
which the proceeds from the Senior Secured Notes were deposited pending
their use and (iv) upon delivery of the Permanent Vessel to the Company,
a duly perfected first preferred ship mortgage on such Permanent Vessel.
The Indenture contains covenants, which among other things, restrict the
Company's ability to (i) make certain distributions and payments, (ii)
incur additional indebtedness, (iii) enter into transactions with
affiliates, (iv) sell assets or stock, and (v) merge, consolidate or
transfer substantially all of its assets.
11. LETTER OF CREDIT/SURETY BOND
In May 1996, the Company arranged for a $12.5 million five year surety
bond (the "Bond") to be issued to the Commission. The Bond's primary
purpose is to provide collateral for completion of the Company's off-site
development obligations under the Development Agreement. To support the
Company's obligations to the bonding company, the Company obtained a $3.5
million letter of credit from a bank to benefit the bonding company. The
beneficial owner of the Company (the "Owner") guaranteed the Company's
obligations to the bonding company under the Bond and to the bank under
the $3.5 million letter of credit.
F-14
<PAGE> 42
THE MAJESTIC STAR CASINO, LLC
NOTES TO FINANCIAL STATEMENTS
11. LETTER OF CREDIT/SURETY BOND - CONTINUED:
If the Owner is required to make payments to the bank or the bonding
company as a result of the guaranty, the Company will be obligated to
reimburse the Owner for any such payments.
12. COMMITMENTS AND CONTINGENT LIABILITIES:
CONSTRUCTION CONTRACT
The Company has executed a contract with Atlantic Marine, Inc. for
the construction of the Permanent Vessel and for the delivery of the vessel
on September 27, 1997 at a fixed cost of $33,000,000.
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 certain of its affiliates, the
IGC, the City of Gary and the Mayor of the City of Gary and certain other
parties affiliated with the City of Gary. 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 of Gary 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 his original
dismissal to only matters regarding the injunctive relief. The Company
is taking steps to set aside and/or appeal such decision. The Company
believes that this lawsuit is without merits; however, at the present
time, the Company cannot to predict the outcome of this matter and the
effect, if any, of a judicial decision adverse to the Company.
F-15
<PAGE> 43
THE MAJESTIC STAR CASINO, LLC
NOTES TO FINANCIAL STATEMENTS
12. COMMITMENTS AND CONTINGENT LIABILITIES - CONTINUED:
On March 5, 1997, three individuals filed a lawsuit in Lake Circuit
Court, Crown Point, Lake County, Indiana, naming Don H. Barden and the
Company as defendants. The suit alleges that the defendants failed to
enter into an agreement to sell five percent of the Company to the
plaintiffs. The plaintiffs are requesting unspecified damages and
attorneys' fees. The Company intends to vigorously defend against such
suit. However, it is too early to determine the outcome of such suit and
the effect, if any, on the Company's financial position and results of
operations.
HARBOR LEASE
Under a lease agreement assumed by the BHR Joint Venture from Trump
Indiana with Lehigh Portland Cement Company ("Lehigh Cement"), The BHR
Joint Venture has leased certain property which is integral to the gaming
operations of Trump Indiana and the Company. The lease places certain
restrictions on the use of the harbor by the joint venture partners and
requires the reimbursement of certain costs which may be incurred by
Lehigh Cement. The lease is rent free through December 29, 1997 and
subject to obtaining the necessary regulatory permits, the lease will be
extended beyond December 23, 1997 until December 31, 2005. The BHR Joint
Venture will be required to pay $125,000 per month beginning January,
1998. If the regulatory permits are not obtained, the BHR Joint Venture
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.
F-16
<PAGE> 44
REPORT OF INDEPENDENT ACCOUNTANTS
To the Members of
The Majestic Star Casino, LLC:
Our report on the financial statements of The Majestic Star Casino, LLC (the
"Company") is included in Part IV, Item 14 to this Form 10-K. In connection
with our audits of such financial statements, we have also audited the related
financial statement schedule listed in Part IV of Form 10-K, Item 14(a) 2 as of
and for the year ended December 31, 1996.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
Coopers & Lybrand, L.L.P.
Chicago, Illinois
March 28, 1997
F-17
<PAGE> 45
SCHEDULE II
THE MAJESTIC STAR CASINO, LLC
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
ADDITIONS
---------------------------
Balance at Charged to Balance at
beginning costs and Cash end
Description of year expenses Recoveries Deductions of year
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
Year ended December 31, 1996 $ - $190,000 $ - $ - $190,000
</TABLE>
F-18
<PAGE> 46
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Members of
Buffington Harbor Riverboats, L.L.C.:
We have audited the accompanying balance sheets of Buffington Harbor
Riverboats, L.L.C. (a Delaware limited liability company) as of December 31,
1996 and 1995, and the related statements of operations, members' capital and
cash flows for the year ended December 31, 1996 and for period from September
27, 1995 through December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Buffington Harbor Riverboats,
L.L.C. as of December 31, 1996 and 1995, and the results of its operations and
its cash flows for year ended December 31, 1996 and for the period from
September 27, 1995 through December 31, 1995 in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Roseland, New Jersey
March 27, 1997
F-19
<PAGE> 47
BUFFINGTON HARBOR RIVERBOATS, L.L.C.
BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (Note 2) $ 68,380 $ 14,056,869
Trade receivable 15,264 -
Due from members' (Note 5) 1,928,390 -
Inventory 560,272 -
Prepaid expense and other current assets 91,562 -
------------ ------------
Total Current Assets 2,663,868 14,056,869
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, NET (Note 2 and 3) 90,854,327 32,603,593
DEFERRED PREOPENING COSTS (Notes 5) - 571,440
OTHER ASSETS 49,075 -
------------ ------------
Total assets $ 93,567,270 $ 47,231,902
LIABILITIES AND MEMBERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable $ 1,081,317 $ 2,940,645
Accrued expense 460,142 -
Deferred Income (Note 4) 400,000 -
------------ ------------
Total current liabilities 1,941,459 2,940,645
DEFERRED RENT EXPENSE (Notes 5) 1,714,309 571,440
COMMITMENTS AND CONTINGENCIES (Notes 5)
MEMBERS' CAPITAL 89,911,502 43,719,817
------------ ------------
Total liabilities and members' capital $ 93,567,270 $ 47,231,902
============ ============
</TABLE>
The accompanying notes to financial statements
are an integral part of this statement
F-20
<PAGE> 48
BUFFINGTON HARBOR RIVERBOATS, L.L.C.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND FOR THE PERIOD FROM
SEPTEMBER 27, 1995 THROUGH DECEMBER 31, 1995
<TABLE>
<CAPTION>
1996 1995
------------- --------------
<S> <C> <C>
REVENUES
Food and Beverage $ 3,576,492 $ -
Other (Note 4) 9,187,968 -
------------- --------------
Gross Revenue 12,764,460 -
------------- --------------
COSTS AND EXPENSES
Food and Beverage 2,894,437 -
General and administrative 9,768,871 -
Depreciation 3,039,708 -
Other 328,046 -
Preopening expenses 1,871,590 -
------------- --------------
17,902,652 -
------------- --------------
Loss from Operations (5,138,192)
INCOME - Interest income, net 203,047 73,781
------------- --------------
Net (Loss) Income ($4,935,145) $ 73,781
============= ==============
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-21
<PAGE> 49
BUFFINGTON HARBOR RIVERBOATS, L.L.C.
Statement of Members' Capital
FOR THE YEAR ENDED DECEMBER 31, 1996 AND FOR
THE PERIOD FROM SEPTEMBER 27, 1995 THROUGH DECEMBER 31, 1995
<TABLE>
<CAPTION>
RETAINED
MEMBER EARNINGS
CONTRIBUTIONS (DEFICIT) TOTAL
------------- -------------- -------------------
<S> <C> <C> <C>
Balance, September 27, 1995
$0 $0 $0
Capital contribution made by Trump Indiana, Inc. 21,823,018 0 21,823,018
Capital contribution made by
The Majestic Star Casino, LLC 21,823,018 0 21,823,018
Net income 0 73,781 73,781
----------- ----------- -----------
Balance, December 31, 1995 43,646,036 73,781 43,719,817
Capital contribution made by Trump Indiana, Inc. 25,563,415 0 25,563,415
Capital contribution made by
The Majestic Star Casino, LLC 25,563,415 0 25,563,415
Net loss 0 (4,935,145) ($4,935,145)
----------- ----------- -----------
Balance, December 31, 1996 $94,772,866 ($4,861,364) $89,911,502
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of this financial statement.
F-22
<PAGE> 50
BUFFINGTON HARBOR RIVERBOATS, L.L.C.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND FOR THE PERIOD FROM
SEPTEMBER 27, 1996 THROUGH DECEMBER 31, 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income ($4,935,145) $ 73,781
Adjustments to reconcile net (loss) income to
net cash flows (used in) provided by
operating activities-
Depreciation 3,039,708 -
Deferred rent expense 1,714,309 -
Deferred income 400,000 -
Changes in operating assets and liabilities-
Increase in accounts receivable (15,264) -
Increase in inventory (560,272) -
Increase in due from members' (1,928,390) -
Increase in prepaid expenses and other
current assets (91,562) -
Increase in other assets (49,075) -
Increase in accounts payable (1,859,328) 2,940,645
Increase in accrued expenses 460,142 -
----------- -----------
Net cash flows (used in) provided by
operating activities (3,824,877) 3,014,426
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES - Purchases
of property, plant and equipment (61,290,442) (32,603,593)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributed capital- 51,126,830 43,646,036
----------- -----------
Net (decrease) increase in cash and
cash equivalents (13,988,489) 14,056,869
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD 14,056,869 -
----------- -----------
CASH AND CASH EQUIVALENTS END OF PERIOD $ 68,380 $14,056,869
=========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of this statement
F-23
<PAGE> 51
BUFFINGTON HARBOR RIVERBOATS, L.L.C.
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION AND OPERATIONS:
Trump Indiana, Inc. ("Trump Indiana") and The Majestic Star Casino, LLC
("Barden"), the two holders of certificates of suitability for the Gary,
Indiana riverboats casinos, formed Buffington Harbor Riverboats, L.L.C.
("BHR") on September 27, 1995 and have entered into an agreement (the
"BHR Agreement") relative to the joint ownership, development and
operation of all common land based and waterside operations in support of
the Trump Indiana and Barden riverboat casinos. Under the BHR agreement,
BHR acquired property and constructed common roadways, utilities and
other infrastructure improvements on BHR's property.
(2) SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
USE OF ESTIMATES-
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
PROPERTY, PLANT AND EQUIPMENT-
Property, plant and equipment is carried at cost. At December 31 1995,
substantially all of the property and equipment represented construction
in progress; accordingly no depreciation was recorded for the period from
September 27, 1995 through December 31, 1995. Property and equipment is
depreciated on the straight-line method using rates based on the
following useful lives:
<TABLE>
<S> <C>
Land improvements 15 years
Buildings 40 years
Building improvements 5 - 10 years
Harbor improvements 10 - 15 years
Furniture, fixtures and equipment 5 years
</TABLE>
INCOME TAXES -
BHR makes no provision for income taxes since taxable income is allocated
to the members for inclusion in their tax returns.
F-24
<PAGE> 52
BUFFINGTON HARBOR RIVERBOATS, L.L.C.
NOTES TO FINANCIAL STATEMENTS
LONG-LIVED ASSETS-
During 1995, BHR adopted the provisions of Statement of Financial
Accounting Standard No.121, "Accounting for the Impairment of Long-Lived
Assets" (SFAS No.121"). SFAS No.121 requires, among other things, that
an entity review its long-lived assets and certain related intangibles
for impairment whenever changes in circumstances indicate that the
carrying amount of an asset may not be fully recoverable. Impairment of
long-lived assets exists, if, at a minimum the future expected cash flows
(undiscounted and without interest charges) from an entity's operations
are less than the carrying value of these assets. As a result of its
review, BHR does not believe that any impairment exists in the
recoverability of its long-lived assets.
STATEMENT OF CASH FLOWS-
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months
or less at the time of acquisition to be cash equivalents.
(3) PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment is comprised of the following-
<TABLE>
1996 1995
----------- -----------
<S> <C> <C>
Land and land improvements $34,167,743 $22,988,872
Building and building improvements 37,184,893 1,435,684
Harbor improvements 16,582,189 8,179,037
Furniture, fixtures and equipment 5,959.210 0
----------- -----------
93,894,035 32,603,593
Less: Accumulated depreciation 3,039,708 0
----------- -----------
Total property, plant and
equipment, net $90,854,327 $32,603,593
=========== ===========
</TABLE>
(4) OTHER INCOME:
Under the terms of BHR Agreement, Trump Indiana and Barden pay berthing
and other fees to BHR for the services provided by and the utilization of
BHR's common area facilities. Services provided by and BHR to customers
of its members are charged to the members at cost.
At December 31, 1996, deferred income represents prepaid berthing fees.
F-25
<PAGE> 53
BUFFINGTON HARBOR RIVERBOATS, L.L.C.
NOTES TO FINANCIAL STATEMENTS
(5) COMMENTS AND CONTINGENCIES:
INDIANA GAMING REGULATIONS-
The ownership and operation of riverboat gaming operations in Indiana are
subject to strict state regulation under the Riverboat Gambling Act
("Act") and the administrative rules promulgated thereunder. The Indiana
Gaming Commission ("IGC") is empowered to administer, regulate and
enforce the system of riverboat gaming established under the Act and has
jurisdiction and supervision over all riverboat gaming operations in
Indiana, as well as all persons on riverboats where gaming operations are
conducted. The IGC is empowered to regulate a wide variety of gaming and
nongaming related activities, including the licensing of supplies to, and
employees at, riverboat gaming operations and to approve the form of
ownership and financial structure of not only riverboats owner and
supplier licensees, but also their entity qualifiers and intermediary and
holding companies. Indiana is a new jurisdiction and the emerging
regulatory framework is not yet complete. The IGC has adopted certain
final rules and has published others in proposed or draft form which are
proceeding through the review and final adoption process. The IGC has
broad rulemaking power, and it is impossible to predict what effect, if
any, the amendment of existing rules or the finalization of currently new
rules might have on the operations of BHR, Trump Indiana and Barden.
LEASES-
Under a lease agreement assumed by BHR from Trump Indiana with Lehigh
Portland Cement Co. ("Lehigh Cement"), BHR has leased certain property
which is integral to the gaming operations of Trump Indiana and Barden.
The lease places certain restrictions on the use of the harbor by the
riverboats of Barden and Trump Indiana and requires the reimbursement of
certain costs which may be incurred by Lehigh Cement. The lease is rent
free through December 29, 1997 and subject to obtaining the necessary
regulatory permits, the lease will be extended beyond December 29, 1997
until December 31, 2005. BHR will be required to pay $125,000 per month
beginning January, 1998. As of December 31, 1996 and 1995, BHR has
recorded deferred rent expense of $1,714,309 and $571,440, respectively.
Minimum rental commitments under noncancelable operating leases are as
follows-
<TABLE>
<S> <C>
Years ended December 31-
1997 $ 0
1998 1,500,000
1999 1,500,000
2000 1,500,000
2001 1,500,000
Thereafter 6,000,000
-----------
$12,000,000
===========
</TABLE>
F-26
<PAGE> 54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on March 28, 1997.
The Majestic Star Casino, L.L.C.
By: Barden Development Inc., Manager
By: /s/ Don H. Barden
--------------------------------
Don H. Barden
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Signature Title Date
/s/ Don H. Barden President and March 28, 1997
- --------------------- Chief Executive Officer
Don H. Barden of the Manager and the
Company (Principal
Executive Officer)
/s/ Michael E. Kelly Vice President and March 28, 1997
- -------------------- Chief Financial Officer
Michael E. Kelly (Principal Financial and
Accounting Officer of the
Company)
<PAGE> 55
INDEX TO EXHIBITS
Exhibit
Number Document
- ----------------------------------------------------------------------------
3.1 Amended and Restated Articles of Organization of The Majestic Star
Casino, L.L.C., filed as Exhibit 3.1 to the Company's Registration
Statement, No. 333-06489, and incorporated herein by reference.
3.2 Third Amended and Restated Operating Agreement of The Majestic
Star Casino, L.L.C. dated as of March 29, 1996, filed as Exhibit 3.2
to the Company's Registration Statement, No. 333-06489, and
incorporated herein by reference.
4.1 Purchase Agreement, dated as of May 22, 1996, by and between The
Majestic Star Casino, L.L.C. and Wasserstein Perella Securities, Inc.,
filed as Exhibit 4.1 to the Company's Registration Statement, No.
333-06489, and incorporated herein by reference.
4.2 Indenture, dated as of May 22, 1996, by and between The Majestic
Star Casino, L.L.C., IBJ Schroder Bank & Trust Company, as Trustee,
with respect to the Senior Secured Notes due 2003 with Contingent
Interest (the "Senior Notes") and the holder of Senior Exchange
Secured Notes due May 15, 2003 with Contingent Interest (the "Senior
Exchange Notes"), filed as Exhibit 4.2 to the Company's Registration
Statement, No. 333-06489, and incorporated herein by reference.
4.3 Form of Senior Note and Senior Exchange Note (included in Exhibit
4.2), filed as Exhibit 4.3 to the Company's Registration Statement, No.
333-06489, and incorporated herein by reference.
4.4 Security Agreement, dated as of May 22, 1996, from The Majestic Star
Casino, L.L.C., in favor of the holders of Senior Notes and the Senior
Exchange Notes, filed as Exhibit 4.4 to the Company's Registration
Statement, No. 333-06489, and incorporated herein by reference.
4.5 Pledge Agreement, dated as of May 22, 1996, from Barden Development,
Inc. in favor of the holders of Senior Notes and the Senior Exchange Notes,
filed as Exhibit 4.5 to the Company's Registration Statement, No. 333-
06489, and incorporated herein by reference.
4.6 Pledge Agreement, dated as of May 22, 1996, from the Company in favor
of the holders of Senior Notes and the Senior Exchange Notes, filed as
Exhibit 4.6 to the Company's Registration Statement, No. 333-06489, and
incorporated herein by reference.
4.7 Trademark Security Agreement, dated as of May 22, 1996, from the Company
in favor of the holders of the Senior Notes and the Senior Exchange Notes,
filed as Exhibit 4.7 to the Company's Registration State, No. 333-06489,
and incorporated herein by reference.
E-1
<PAGE> 56
4.8 Cash Collateral Agreement, dated as of May 22, 1996, by and among the
Company, the Trustee and NBD Bank.
10.1(1) Employment Letter Agreement dated as of April 25, 1996 by and between
the Company and Don H. Barden, filed as Exhibit 10.1 to the Company's
Registration Statement, No. 333-06489, and incorporated herein by
reference.
10.2(1) Employment Letter Agreement effective as of December 4, 1995 by and
between the Company, and Thomas C. Bonner, filed as Exhibit 10.2 to
the Company's Registration Statement, No. 333-06489, and incorporated
herein by reference.
10.3(1) Employment Letter Agreement effective as of December 4, 1995 by and
between the Company, and Paul W. Sykes, filed as Exhibit 10.3 to the
Company's Registration Statement, No. 333-06489, and incorporated
herein by reference.
10.4(1) Employment Letter Agreement effective as of April 22, 1996 by and
between the Company and Michael E. Kelly, filed as Exhibit 10.4 to
the Company's Registration Statement, No. 333-06489, and
incorporated herein by reference.
10.5 Berthing Agreement, dated as of April 23, 1996, between the Company and
Buffington Harbor Riverboats, L.L.C. , filed as Exhibit 10.5 to the
Company's Registration Statement, No. 333-06489, and incorporated
herein by reference.
10.6 First Amended and Restated Operating Agreement of Buffington Harbor
Riverboats, L.L.C., made as of October 31, 1995, by and between Trump
Indiana, Inc. and the Company, as amended to date, filed as Exhibit
10.6 to the Company's Registration Statement, No. 333-06489, and
incorporated herein by reference.
10.7 Charter Agreement, dated August 17, 1995, by and among New Yorker
Acquisition Corporation, the Company and President Casinos, Inc., as
amended to date, filed as Exhibit 10.7 to the Company's Registration
Statement, No. 333-06489, and incorporated herein by reference.
10.8 Development Agreement, dated March 26, 1996, by and between the
Company and the City of Gary, Indiana, filed as Exhibit 10.8 to the
Company's Registration Statement, No. 333-06489, and incorporated
herein by reference.
10.9 Harbor Lease Agreement, dated June 29, 1995, by and between Trump
Indiana, Inc. and Lehigh Portland Cement Company, as assigned by
Trump Indiana, Inc. to Buffington Harbor Riverboats, L.L.C. pursuant
to the Assignment Agreement dated as of October 31, 1995, by and
between Trump Indiana, Inc. and Buffington Harbor Riverboats, L.L.C.,
filed as Exhibit 10.9 to the Company's Registration Statement, No.
333-06489, and incorporated herein by reference.
10.10 Equipment Financing Agreement dated April 5, 1996 by and between the
Company and International Game Technology, filed as Exhibit 10.10 to
the Company's Registration Statement, No. 333-06489, and
incorporated herein by reference.
10.11 Master Surety Agreement by and between Company and United States
Fidelity and Guaranty Company, filed as Exhibit 10.11 to the Company's
Registration Statement, No. 333-06489, and incorporated herein by
reference.
E-2
<PAGE> 57
10.12 Standby Letter of Credit Application and Reimbursement and Security
Agreement, filed as Exhibit 10.12 to the Company's Registration
Statement, No. 333-06489, and incorporated herein by reference.
10.10 Equipment Financing Agreement dated May 5, 1996 by and between the
Company and International Gaming Technology, filed as Exhibit 10.10
to the Company's Registration Statement, No. 333-06489, and
incorporated herein by reference.
10.13 Promissory Note dated March 31, 1996 from the Company to Barden
Development, Inc., filed as Exhibit 10.13 to the Company's
Registration Statement, No. 333-06489, and incorporated herein
by reference.
10.14 Vessel Construction Contract between Majestic Star and Atlantic Marine,
Inc. dated as of September 27, 1996 filed as Exhibit 10.14 to the
Company's Report on Form 10-Q for the period ended September 30, 1996
is incorporated herein by reference.
11* Computation of Ratio of Earnings to Fixed Charges for the year ended
December 31, 1996
27* Financial data Schedule (EDGAR Version Only)
- ---------------
*Filed herewith
(1) Denotes a management compensation arrangement.
E-3
<PAGE> 1
EXHIBIT 11
THE MAJESTIC STAR CASINO, LLC
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996
------
<S> <C>
Available earnings:
Net income (loss) ($8,886)
Add interest expense 8,598
-------
Available earnings (loss) ($288)
Fixed Charges:
Interest expense $ 8,598
Capitalized interest 213
-------
Total Fixed Charges $ 8,811
=======
Ratio of earnings to Fixed Charges (1)
</TABLE>
NOTES:
(1) The ratio of earnings to fixed charges for the year ended December 31,
1996 was less than one to one. The approximate dollar amount necessary
to cover the deficiency in this period was: 1996 -- $9,099.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 8,935,999
<SECURITIES> 0
<RECEIVABLES> 747,816
<ALLOWANCES> 190,000
<INVENTORY> 24,651
<CURRENT-ASSETS> 10,688,334
<PP&E> 26,939,906
<DEPRECIATION> 2,815,104
<TOTAL-ASSETS> 142,384,005
<CURRENT-LIABILITIES> 8,141,213
<BONDS> 118,880,101
0
0
<COMMON> 0
<OTHER-SE> 15,362,691
<TOTAL-LIABILITY-AND-EQUITY> 142,384,005
<SALES> 0
<TOTAL-REVENUES> 54,220,559
<CGS> 0
<TOTAL-COSTS> 49,681,790
<OTHER-EXPENSES> 4,586,879<F1>
<LOSS-PROVISION> 190,000
<INTEREST-EXPENSE> 6,398,913
<INCOME-PRETAX> (48,110)
<INCOME-TAX> 0
<INCOME-CONTINUING> (48,110)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,886,604)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Other costs represents pre-opening expenses written off upon commencement of
operations, previously deferred.
</FN>
</TABLE>
