UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 333-06489
THE MAJESTIC STAR CASINO, LLC
(Exact Name of Registrant as Specified in its Charter)
Indiana 43-1664986
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Buffington Harbor Drive
Gary, Indiana
46406-3000
(Address of principal executive offices)
(Zip Code)
(219) 977-7777
(Registrant's telephone number, including area code)
Indicate check by mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to filing requirements for the past 90 days.
Yes X No ______
Shares outstanding of each of the registrant's classes of common
stock as of June 30, 1997:
Class Number of shares
----- ----------------
Not applicable Not applicable
<PAGE>
THE MAJESTIC STAR CASINO, LLC
Index
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets, as of June 30, 1997 (Unaudited)
and December 31, 1996
Statements of Income (Unaudited) For the
Three Months and Six Months
Ended June 30, 1997 and 1996
Statements of Cash Flows (Unaudited) For the
Six Months Ended June 30, 1997 and 1996
Notes to Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Part II OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits on Form 8-K
SIGNATURES
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
The Majestic Star Casino, LLC
Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
(Unaudited)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 11,535,146 $ 8,935,999
Accounts receivable, less allowance for doubtful accounts
of $270,000 and $190,000 respectively 607,856 557,816
Inventories 20,092 24,651
Prepaid expenses 1,106,656 1,169,868
----------- -----------
Total current assets 13,269,750 10,688,334
----------- -----------
Property, equipment, and vessel improvements, net 42,094,383 24,124,802
----------- -----------
Other Assets:
Organization costs, less accumulated amortization
of $29,897 and $15,772, respectively 111,344 125,469
Deferred financing costs, less accumulated amortization
of $651,430 and $357,640, respectively 3,446,660 3,757,667
Deferred costs, less accumulated amortization
of $2,779,946 and $2,131,166, respectively 4,583,938 5,023,767
Investment in Buffington Harbor Riverboats, L.L.C. 44,946,051 44,946,852
Other assets and deposits 2,071,035 2,028,260
Restricted cash 27,682,702 51,688,854
----------- -----------
Total other assets 82,841,730 107,570,869
----------- -----------
Total Assets $138,205,863 $142,384,005
=========== ===========
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 2,211,599 $ 2,211,599
Accounts payable 566,955 544,154
Other accrued liabilities:
Payroll and related 896,899 593,492
Interest 2,905,658 2,468,698
Other accrued liabilities 1,539,892 1,496,758
Due to Buffington Harbor Riverboats, L.L.C. 381,212 826,512
----------- -----------
Total current liabilities 8,502,215 8,141,213
----------- -----------
Long-term debt, net of current maturities 106,847,660 108,120,746
Note to member 10,759,355 10,759,355
Commitments and Contingencies (3) - -
----------- -----------
Total Long-term liabilities 117,607,015 118,880,101
----------- -----------
Total Liabilities 126,109,230 127,021,314
----------- -----------
Members' Equity:
Members' contributions 24,000,000 24,000,000
Retained earnings (Accumulated deficit) (11,903,367) (8,637,309)
------------ -----------
Total members' equity 12,096,633 15,362,691
------------ -----------
Total Liabilities and Members' Equity $138,205,863 $142,384,005
=========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
The Majestic Star Casino, LLC
Statement of Income
(Unaudited)
Three months 21 Days Six Months 21 Days
Ended June 30, Ended June 30, Ended June 30, Ended June 30,
1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Casino $ 22,600,741 $ 5,478,869 $ 46,229,809 $ 5,478,869
Food and beverage 362,630 90,520 751,926 90,520
Other 218,625 17,540 433,053 17,540
------------ ------------ ------------ -------------
Gross Revenues 23,181,996 5,586,929 47,414,788 5,586,929
------------ ------------ ------------ -------------
Costs and Expenses:
Casino 3,967,178 985,105 8,132,563 985,105
Gaming and admission taxes 6,603,209 1,638,756 13,452,978 1,638,756
Food and beverage 478,938 105,557 969,182 105,557
Advertising and promotion 2,675,787 580,514 4,865,001 580,514
General and administrative 5,165,134 893,174 10,924,317 893,174
Economic incentive - City of Gary 678,123 165,907 1,388,445 165,907
Depreciation and amortization 1,830,323 339,943 3,603,735 339,943
Pre-opening costs - 4,586,879 - 4,586,879
------------ ------------ ----------- -------------
Total costs and expenses 21,398,692 9,295,835 43,336,221 9,295,835
------------ ------------ ----------- -------------
Operating Income (Loss) 1,783,304 (3,708,906) 4,078,567 (3,708,906)
------------ ------------ ----------- -------------
Other income (Expense):
Loss on investment in Buffington
Harbor Riverboats, L.L.C. (1,074,931) (582,860) (1,710,245) (582,860)
Interest income 425,761 231,390 1,159,005 231,390
Interest expense (2,963,116) (893,006) (6,482,174) (893,006)
Interest expense to affiliate (160,314) (35,963) (311,214) (35,963)
------------ ----------- ---------- -------------
Total other income (expense) (3,772,600) (1,280,439) (7,344,628) (1,280,439)
------------ ----------- ---------- -------------
Net Income (Loss) $ (1,989,296) $ (4,989,345) $(3,266,061) $ (4,989,345)
------------ ----------- ---------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
The Majestic Star Casino, LLC
Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the six months For the 21 Days
Ended June 30, Ended June 30,
1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss $ (3,266,061) $ (4,989,345)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 2,647,040 339,943
Amortization 956,695 -
Deferred expenses (191,734) -
Loss on investment in Buffington Harbor
Riverboats, L.L.C. 1,710,245 582,860
Decrease in accounts receivable, net (50,040) (526,548)
(Increase) decrease in inventories 4,559 (85,761)
(Increase) decrease in prepaid expenses 63,212 (1,728,539)
Decrease in other assets - (1,171,720)
Increase in accounts payable 22,801 552,940
Increase in accrued payroll and other expenses 303,407 -
Increase in accrued interest 436,960 -
Increase (decrease) in other accrued liabilities (402,163) 6,963,441
----------- ------------
Net cash (used) provided by operating activities 2,234,921 (62,729)
----------- ------------
Cash Flows From Investing Activities:
Acquisition of property, equipment and vessel
improvements (20,616,621) (16,290,692)
Increase in Chartered Vessel deposit (42,775) (1,417,035)
Investment in Buffington Harbor Riverboats, L.L.C. (1,709,443) (18,993,415)
(Increase) decrease in restricted cash 24,006,152 (70,765,322)
---------- -----------
Net cash (used) provided by investment
activities 1,637,313 (107,466,464)
---------- -----------
Cash Flows From Financing Activities:
Proceeds of loan from Member - 18,097,299
Proceeds from issuance of 12.75% Senior Secured Notes - 105,000,000
Proceeds from equipment financing - 6,310,590
Repayment of short-term loan debt - (18,097,299)
Cash paid to reduce long-term debt (1,273,087) (330,646)
Payment of Senior Secured Notes issuance costs - (3,805,352)
---------- -----------
Net cash (used) provided by financing
activities (1,273,087) (107,174,592)
----------
Net increase (decrease) in cash and cash equivalents 2,599,147 (354,600)
Cash and cash equivalents, beginning of period 8,935,999 8,446,389
---------- -----------
Cash and cash equivalents, end of period $ 11,535,146 $ 8,091,788
========== ===========
</TABLE>
SUPPLEMENTAL NONCASH FINANCING ACTIVITIES INCLUDE THE FOLLOWING:
On March 31, 1996, contributions totaling $10,759,355 were converted
from Members' Equity to Long-term debt.
For the period ended June 30, 1996, the Company obtained financing of
$6,310,590 for gaming equipment.
The accompanying notes are an integral part of the financial statements.
<PAGE>
Note 1 Basis of Presentation
The Majestic Star Casino, LLC (the "Company") was formed on December 8,
1993, as an Indiana limited liability company, to provide gaming related
entertainment to the public. The Company commenced gaming operations in the
City of Gary (the "City") at Buffington Harbor, located in Lake County in
the State of Indiana on June 7, 1996.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
(which include normal recurring adjustments) considered necessary for a fair
presentation of the results for the interim periods have been made. To the
extent included, comparative information for the period ended June 30, 1996
is for the period of June 7, 1996 (the date the Company commenced
operations) through June 30, 1996. The results for the three and six months
ended June 30, 1997 are not necessarily indicative of results to be expected
for the full fiscal year. The financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
Note 2 Investment in Buffington Harbor Riverboats L.L.C. ("BHR"):
The following financial information is presented for BHR, a joint
venture in which the Company holds a 50% equity interest. BHR owns and
operates the gaming complex from which the Company operates a vessel
chartered from a subsidiary of President Casino's, Inc. (the "Chartered
Vessel").
Buffington Harbor Riverboats, L.L.C.
Statements of Income
(unaudited)
Three Months Ended Six Months Ended 21 Days Ended
June 30, 1997 June 30, 1997 June 30, 1996
------------------ ---------------- -------------
Gross Revenue $4,987,443 $10,309,928 $ 652,473
Operating Loss $ 310,712 $ 574,320 $ 441,358
Net Loss $1,731,618 $ 3,420,491 $ 1,165,720
<PAGE>
MAJESTIC STAR CASINO, LLC
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
Note 3 Commitments and Contingencies:
Legal Proceedings
The Company may, from time to time, be subject to legal proceedings and
claims. Litigation involves many uncertainties. Management is currently
unaware of any significant pending litigation affecting the Company, other
than those discussed below.
On May 1, 1996, a class action complaint was filed in the Lake Superior
Court in Gary, Indiana, against Trump Indiana, Inc. (the "Joint Venture
Partner") and certain of its affiliates, the Company and its affiliates, the
Indiana Gaming Commission (the "IGC"), the City and the Mayor of the City
and certain other parties affiliated with the City. The plaintiffs were
comprised of two local contractors, a former city employee, and five persons
who claim that they were to be investors in the riverboat casinos to be
operated in Gary, Indiana. The complaint alleged, among other things, that
the Joint Venture Partner and the Company each have failed to meet certain
obligations with respect to minority hiring goals, utilization of minority
and/or women contractors, investment in city projects and providing certain
residents of the City with the right to acquire a 15% equity interest in
their respective projects. Plaintiffs sought various remedies including
damages and injunctive relief in the form of an order to enjoin the IGC from
issuing gaming licenses to the Company and the Joint Venture Partner until
they have complied with these conditions. On July 11, 1996, the court
granted a motion filed by the defendants and the lawsuit was dismissed with
prejudice. In December 1996, an order was entered by the trial judge
limiting his original dismissal to only matters regarding the injunctive
relief. In April 1997, the order that purported to reinstate the suit was
dismissed and the July 11, 1996 order dismissing the suit with prejudice was
reinstated. Plaintiffs did not commence a timely appeal of such action by
the court and, as a result, the case is concluded.
On 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 attorney's 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 BHR, from the Joint Venture Partner with
Lehigh Portland Cement Co. ("Lehigh Cement"), BHR has leased certain
property which is integral to the gaming operations of the Company. The
lease places certain restrictions on the use of the harbor by the Company
and requires the reimbursement of certain costs which may be incurred by
Lehigh Cement. The lease is rent free through December 29, 1997, and
provided BHR is pursuing the necessary regulatory permits for a new harbor
facility, but has been unable to obtain the necessary regulatory permits,
the term of the lease shall be extended beyond December 29, 1997 to the
earlier of December 21, 2005 or to such time as BHR has obtained requisite
regulatory permits and completed construction of its permanent harbor. If
the lease is extended, BHR will be required to pay $125,000 per month
beginning January 1998. If the regulatory permits are obtained, BHR may be
required to construct a new harbor, berthing and guest facilities. The
level of expenditures required for such new facilities cannot be accurately
estimated at this time.
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Statement on Forward-Looking Information
This quarterly report includes various "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which
represent the Company's expectations or beliefs concerning future events.
Statements containing expressions such as "believes", "anticipates" or
"expects" used in the Company's press release and reports filed with the
Securities and Exchange Commission (including periodic reports on Form 10-K
and Form 10-Q) are intended to identify forward-looking statements. All
forward-looking statements involve risks and uncertainties. Although the
Company believes its expectations are based upon reasonable assumptions
within the bounds of its knowledge of its business and operations, there can
be no assurances that actual results will not materially differ from
expected results. The Company cautions that these and similar statements
included in this report and in previously filed periodic reports are further
qualified by important factors that could cause actual results to differ
materially from those in the forward-looking statements. Such factors
include without limitations, the following: risks associated with the
development and construction of the Permanent Vessel, as well as the
placement of same into service in the fourth quarter of 1997; the purchase
of real estate for, and the design and construction of, a new covered
parking facility located at the Company's gaming complex; the ability to
fund planned development needs and to service debt from existing operations
and from new financing; increased competition in existing markets or the
opening of new gaming jurisdictions; a decline in the public acceptance of
gaming; the limitation, conditioning or suspension of the Company's gaming
license; increases in or new taxes imposed on gaming revenues or gaming
devices; a finding of unsuitability by regulatory authorities with respect
to the Company's officers, directors or key employees; loss or retirement of
key executives; significant increase in fuel or transportation prices;
adverse economic conditions in the Company's markets; severe and unusual
weather in the Company's markets; and adverse results of significant
litigation matters.
Readers are cautioned not to place undue reliance on forward-looking
statements, which speak only as of the date thereof. The Company undertakes
no obligation to publicly release any revisions to such forward-looking
statements to reflect events or circumstances after the date hereof.
Overview
The Company was formed in December 1993 as an Indiana limited liability
company, to develop a riverboat casino in the City as its sole operation.
The Company's efforts resulted in the IGC granting the Company a five year
riverboat owner's license on June 3, 1996. The Company's operations began
on June 7, 1996. During the month of June 1996, the Company operated 21
days.
The Company's operations are currently conducted on the Chartered Vessel.
The Chartered Vessel is chartered pursuant to a five year lease and contains
approximately 26,000 square feet of gaming space, 932 slot machines and 50
table games. The federal law that prohibited cruising on federal waterways
was amended during the fourth quarter of 1996 to allow cruises and, as a
result, the IGC advised the Company that cruising could commence November
15, 1996, subject to winter weather conditions. However, due to winter
weather conditions during the first quarter of 1997, the Company conducted
all gaming operations with the Chartered Vessel docked. Effective April 1,
1997, the Company resumed a regular cruising schedule. Gross revenues for
the three month and six month periods ended June 30, 1997 were approximately
$23,182,000 and $47,415,000, respectively.
The Company has entered into various agreements for the design, engineering
and construction of a vessel (the "Permanent Vessel") to replace the
Chartered Vessel. The Permanent Vessel will be owned by the Company and is
anticipated to contain approximately 43,000 square feet of casino space on
three decks, 1,550 slot machines and 71 table games. The Permanent Vessel
will have an atrium, escalators and elevators. The Company has entered into
<PAGE>
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 million. The
Company estimates that, in addition to such fixed cost, the design,
engineering and owner furnished materials will cost approximately $7
million, excluding additional gaming-related equipment, and the cost of
additional gaming-related equipment expenditures will approximate $10
million. It is anticipated that these additional gaming-related equipment
expenditures will be funded through available cash flow from the casino's
future operations and through certain equipment financing.
The Company expects to complete the outfitting of the Permanent Vessel and
to place it in service during the month of October 1997. The Company has
committed under the terms of its Senior Exchange Secured Notes due 2003 (the
"Senior Secured Notes") to replace the Chartered Vessel with the Permanent
Vessel no later than June 30, 1998. The Company anticipates returning the
Chartered Vessel to President Casino's, Inc. once the Permanent Vessel is
placed into service.
The Company and the Joint Venture Partner, the holder of a second gaming
license to operate from the City, formed BHR to own and operate certain
common facilities at Buffington Harbor (the "Gaming Complex") such as the
guest pavilion, vessel berths, parking lots and other infrastructure. The
Company and the Joint Venture Partner each have a fifty-percent ownership
interest in BHR.
Results of Operations
Due to the fact that the Company commenced operations on June 7, 1996, the
Company has limited operating history and lacks any comparable periods of
operations for prior years with respect to the six and three month periods
ended June 30, 1997. Nonetheless, the discussion of results of operations
contained herein provides a comparison of the full six and three month
periods ended June 30, 1997 with the 21 day stub-period ended June 30, 1996.
The following two tables contain, for the periods indicated, the following
information: (i) summary information from the Company's statements of
income, as well as information relative to EBITDA (as defined below) derived
therefrom; and (ii) the Company's statements of income, as well as
information relative to EBITDA, expressed as a percentage of gross revenues.
Statements of Income -- Summary Information
Three Months 21 Days Six Months 21 Days
Ended June 30, Ended June 30, Ended June 30, Ended June 30,
1997 1996 1997 1996
-------------- -------------- -------------- --------------
(dollars in thousands)
Revenues (1) $23,182 $ 5,587 $47,415 $ 5,587
Operating Income
(Loss) $ 1,783 $(3,709) (2) $ 4,079 $(3,709) (2)
EBITDA (3) $ 4,007 $ 1,218 $ 8,470 $ 1,218
<PAGE>
Statements of Income -- Percentage of Gross Revenues
<TABLE>
<CAPTION>
Three Months 21 Days Six Months 21 Days
Ended June 30, Ended June 30, Ended June 30, Ended June 30,
1997 1996 (1) 1997 1996 (1)
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Casino 97.5% 98.1% 97.5% 98.1%
Food and beverage 1.6 1.6 1.6 1.6
Other 0.9 0.3 0.9 0.3
----- ----- ----- -----
Gross Revenues 100.0 100.0 100.0 100.0
Costs and Expenses:
Casino 17.1 17.6 17.2 17.6
Gaming and admission taxes 28.5 29.3 28.4 29.3
Food and beverage 2.1 1.9 2.0 1.9
Advertising and promotion 11.5 10.4 10.3 10.4
General and administrative 22.3 16.0 23.0 16.0
Economic inventive-City of Gary 2.9 3.0 2.9 3.0
Depreciation and amortization 7.9 6.1 7.6 6.1
Pre-opening costs -- 82.1 (2) -- 82.1 (2)
----- ----- ----- -----
Total 92.3 166.4 91.4 166.4
Operating Income (Loss): 7.7 (66.4) 8.6 (66.4)
Other Income (Expense):
Loss on investment in BHR (4.6) (10.4) (3.6) (10.4)
Interest income 1.8 4.1 2.4 4.1
Interest expense (12.8) (16.0) (13.7) (16.0)
Interest expense to affiliate (0.7) (0.6) (0.7) (0.6)
Total (16.3) (22.9) (15.5) (22.9)
----- ----- ----- -----
Net Income (Loss): (8.6)% (89.3)% (6.9)% (89.3)%
===== ===== ===== =====
EBITDA: (3) 17.3% 21.8% 17.9% 21.8%
===== ===== ===== =====
</TABLE>
- ------------
(1) The Company commenced operations on June 7, 1996.
(2) Includes approximately $4.6 million of pre-opening expenses.
(3) EBITDA (defined as earnings before interest, income taxes,
depreciation and amortization and, for purposes hereof, does not
include chartered vessel lease payments) is presented solely as a
supplemental disclosure to assist in the evaluation of the Company's
ability to generate cash flow. In particular, the Company believes
that an analysis of EBITDA enhances the understanding of the
financial performance of companies with substantial depreciation and
amortization. For the 21 day period ended June 30, 1996, EBITDA also
excludes approximately $4.6 million of pre-opening costs.
Results for any one or more periods are not necessarily indicative of annual
results or continuing trends.
Set forth below is a discussion, for the periods indicated, of the Company's
results of operations.
Comparison of the Three Months Ended June 30, 1997 and 21 Days Ended
June 30, 1996
Gross revenues for the second quarter ended June 30, 1997 amounted to
approximately $23,182,000, an increase of $17,595,000 over gross revenues
recorded in the second quarter ended June 30, 1996. The increase was
attributable to the Company operating the entire second quarter ended June
<PAGE>
30, 1997 compared to 21 days of operations in the second quarter ended June
30, 1996.
Casino revenues during the second quarter ended June 30, 1997 totaled
approximately $22,601,000, of which slot machines accounted for
approximately $17,710,000 (78.4%) and table games accounted for
approximately $4,891,000 (21.6%). The average number of slot machines in
operation increased to 932 during the second quarter ended June 30, 1997
from 924 during the second quarter ended June 30, 1996. The average win per
slot machine per day in both quarters ended June 30, 1997 and June 30, 1996
was $209. The average number of table games operated during both quarters
was 50. The average win per table game per day during the second quarter
ended June 30, 1997 declined to approximately $1,075 versus $1,363 in the
second quarter ended June 30, 1996, due primarily to a 4.7% decrease in the
table game hold percentage. The average daily win per state passenger count
was $55 and the average daily win per patron was $32 during the second
quarter ended June 30, 1997, an increase of 9.1% and 8.8%, respectively,
compared to the second quarter ended June 30, 1996.
Food and beverage revenue for the second quarter ended June 30, 1997 totaled
approximately $363,000 and other revenue, consisting primarily of commission
income, totaled approximately $218,000.
Casino operating expenses for the second quarter ended June 30, 1997 totaled
approximately $3,967,000, or 17.1% and 17.6% of gross revenues and casino
revenues, respectively, versus approximately $985,000, or 17.6% and 18.0% of
gross revenues and casino revenues, respectively, for the second quarter
ended June 30,1996. These expenses were primarily comprised of salaries,
wages and benefits, and operating and promotional expenses of the casino.
Gaming and admissions taxes totaled approximately $6,603,000 for the second
quarter ended June 30, 1997. These taxes are levied on adjusted gross
receipts, as defined by Indiana gaming laws, at the rate of 20%, plus $3 per
passenger per the state passenger count. An additional $678,000 was paid
during the second quarter ended June 30, 1997 to the City under an agreement
whereby the Company pays 3% of the adjusted gross receipts directly to the
City.
Advertising and promotion expenses for the second quarter ended June 30,
1997 totaled approximately $2,676,000, or 11.5% of gross revenues, versus
approximately $580,000, or 10.4% of gross revenues during the second quarter
ended June 30, 1996. Advertising and promotion expenses included salaries,
wages and benefits of the marketing and casino service departments, as well
as promotions, advertising and special events. The 1.1% increase in
advertising and promotion expenses as a percentage of gross revenues during
the second quarter ended June 30, 1997 over the comparable quarter last year
was primarily the result of increased expenditures associated with both the
slot club (i.e., promotions and rebates offered to customers using the slot
machines) and bus subsidiaries (i.e., promotions and discounts for
customers traveling by bus to the Company's Gaming Complex).
General and administrative expenses for the second quarter ended June 30,
1997 were approximately $5,165,000, or 22.3% of gross revenues, versus
$893,000, or 16.0% of gross revenues, during the 21 days ended June 30,
1996. These expenses included approximately $1,476,000 for berthing fees
paid to BHR, $1,560,000 for marine operations and $202,000 for security and
surveillance operations during the second quarter in 1997. The 6.3%
increase in general and administrative expenses as a percentage of gross
revenues during the second quarter ended June 30, 1997 over the comparable
quarter last year was primarily the result of a 3.9% increase in berthing
fees paid to BHR.
Depreciation and amortization for the second quarter ended June 30, 1997
was approximately $1,830,000, or 7.9% of gross revenues, compared with
approximately $340,000, or 6.1% of gross revenues, during the 21 days ended
June 31, 1996. The amount of depreciation and amortization, both in dollars
and as a percentage of gross revenues, is anticipated to increase
significantly once the Permanent Vessel is completed and placed into service
as the site for the Company's gaming operations.
<PAGE>
Operating income for the three months ended June 30, 1997 approximated
$1,783,000, or 7.7% of gross revenues, compared with an operating loss for
the 21 days ended June 30,1996 of $3,709,000, or 66.4% of gross revenues.
The results for the 21 days ended June 30, 1996 included pre-opening costs
of approximately $4,587,000.
Net interest expense for the second quarter of 1997 was approximately
$2,698,000, or 11.7% of gross revenues, versus approximately $698,000, or
12.5% of gross revenues, for the same quarter last year. Net interest
expense for the second quarter ended June 30, 1997 includes accrued but
unpaid contingent interest of approximately $202,000. No contingent
interest was paid during the second quarters ended June 30, 1997 and 1996.
The Company's loss in its investment in BHR for the second quarter ended
June 30, 1997 was approximately $1,075,000. The loss represents the
Company's 50% share of BHR's net loss for the second quarter ended June 30,
1997.
As a result of the foregoing, the Company experienced a net loss for the
second quarter ended June 30, 1997 of approximately $1,989,000.
Comparison of the Six Months Ended June 30, 1997 and 21 Days Ended
June 30, 1996
Gross revenues for the six months ended June 30, 1997 amounted to
approximately $47,415,000, an increase of $41,828,000 over gross revenues
recorded in the six months ended June 30, 1996. The increase was
attributable to the Company operating the entire six months ended June 30,
1997 compared to 21 days of operations in the six months ended June 30,
1996.
Casino revenues during the six months ended June 30, 1997 totaled
approximately $46,230,000, of which slot machines accounted for
approximately $34,911,000 (75.5%) and table games accounted for
approximately $11,319,000 (24.5%). The average number of slot machines in
operation increased to 930 during the six months ended June 30, 1997 from
924 for the 21 days ended June 30, 1996. The average win per slot machine
per day during the six months ended June 30, 1997 declined to approximately
$207 versus $209 during the 21 days ended June 30, 1996, due primarily to a
0.1% decrease in the slot hold percentage. The average number of table
games operated during both periods was 50. The average win per table game
per day during the six months ended June 30, 1997 declined to approximately
$1,251 versus $1,363 in the 21 days ended June 30, 1996 due primarily to a
2.8% decrease in the table game hold percentage. The average daily win per
state passenger count was $56 and the average daily win per patron was $33
during the six months ended June 30, 1997, an increase of 10.3% and 8.8%,
respectively, compared to the 21 days ended June 30, 1996.
Food and beverage revenue for the six months ended June 30, 1997 totaled
approximately $752,000 and other revenue, consisting primarily of commission
income, totaled approximately $433,000.
Casino operating expenses for the six months ended June 30, 1997 totaled
approximately $8,133,000, or 17.2% and 17.6% of gross revenues and casino
revenues, respectively, versus approximately $985,000, or 17.6% and 18.0%
gross revenues and casino revenues, respectively, for the 21 days ended June
30,1996. These expenses were primarily comprised of salaries, wages and
benefits, and operating and promotional expenses of the casino.
Gaming and admissions taxes totaled approximately $13,453,000 for the six
months ended June 30, 1997. These taxes are levied on adjusted gross
receipts, as defined by Indiana Gaming laws, at the rate of 20%, plus $3 per
passenger per the state passenger count. An additional $1,389,000 was paid
during the six months ended June 30, 1997 to the City under an agreement
whereby the Company pays 3% of the adjusted gross receipts directly to the
City.
Advertising and promotion expenses for the six months ended June 30, 1997
totaled approximately $4,865,000, or 10.3% of gross revenues, versus
approximately $580,000, or 10.4% of gross revenues, during the 21 days ended
June 30, 1996. Advertising and promotion expenses included salaries, wages
<PAGE>
and benefits of the marketing and casino service departments as well as
promotions, advertising and special events.
General and administrative expenses for the six months ended June 30, 1997
were approximately $10,924,000, or 23.0% of gross revenues, versus $893,000,
or 16.0% of gross revenues, during the 21 days ended June 30, 1996. These
expenses included approximately $3,287,000 for berthing fees paid to BHR,
$3,281,000 for marine operations and $955,000 for security and surveillance
operations. The increase in general and administrative expense is primarily
the result of a 4.4% increase in berthing fees paid to BHR.
Depreciation and amortization for the six months ended June 30, 1997 was
approximately $3,604,000, or 7.6% of gross revenues, compared with
approximately $340,000, or 6.1% of gross revenues, during the 21 days ended
June 30, 1996. The amount of depreciation and amortization, both in dollars
and as a percentage of gross revenues, is anticipated to increase
significantly once the Permanent Vessel is completed and placed into service
as the site for the Company's gaming operations.
Operating income for the six months ended June 30, 1997 approximated
$4,079,000, or 8.6% of gross revenues, compared with an operating loss for
the 21 days ended June 30, 1996 of $3,709,000, or 66.4% of gross revenues.
The results for the 21 days ended June 30, 1996 included pre-opening costs
of approximately $4,587,000.
Net interest expense for the first half of 1997 was approximately
$5,634,000, or 11.9% of gross revenues, versus approximately $698,000, or
12.5% of gross revenues, for the same period last year. Net interest expense
for the six months ended June 30, 1997 includes accrued but unpaid
contingent interest of approximately $442,000. No contingent interest was
paid during the six months ended June 30, 1997 and the 21 days ended June
30, 1996.
The Company's loss in its investment in BHR for the six months ended June
30, 1997 was approximately $1,710,000. The loss represents the Company's
50% share of BHR's net loss for the six months ended June 30, 1997.
As a result of the foregoing, the Company experienced a net loss of
approximately $3,266,000 during the six months ended June 30, 1997.
Earnings Before Interest, Income Taxes, Depreciation and
Amortization ("EBITDA")
EBITDA is presented solely as a supplemental disclosure and is used by the
Company to assist in the evaluation of the cash generating ability of its
gaming business.
EBITDA (excluding Chartered Vessel lease payments of approximately $393,750)
was approximately $4,007,000, or 17.3% of gross revenues, during the second
quarter of 1997 compared to approximately $1,218,000, or 21.8% of gross
revenues, during the quarter ended June 30, 1996. The dollar increase in
EBITDA is due to a full three months of operations compared to 21 days in
the second quarter ended June 30, 1996. EBITDA (excluding Chartered Vessel
lease payments of approximately $787,500) for the six months ended June 30,
1997 was approximately $8,470,000, or 17.9% of gross revenues, compared to
approximately $1,218,000, or 21.8% of gross revenues, for the 21 days ended
June 30, 1996.
EBITDA should be viewed only in conjunction with all of the Company's
financial data and statements, and should not be construed as an alternative
either to income from operations (as an indicator of the Company's operating
performance) or to cash flows from operating activities (as a measure of
liquidity).
Liquidity and Capital Resources
At June 30, 1997, the Company had cash and cash equivalents of approximately
$11.5 million and restricted cash of approximately $27.7 million. For the
six months ended June 30, 1997, the Company invested approximately $20.6
million in property and equipment, primarily for the construction of the
Permanent Vessel. The Company has committed to spend approximately $50.0
<PAGE>
million on the Permanent Vessel, including gaming-related equipment. To
date, the Company has expended approximately $28.8 million for the
construction, design, engineering and equipping of the Permanent Vessel,
which includes approximately $1.1 million in capitalized interest. The
Company has also contributed approximately $1.7 million from working capital
to BHR for general enhancements.
The Company, to date, has met its capital requirements through net cash from
operations, capital contributions and loans. For the six months ended June
30, 1997, net cash provided from operations totaled approximately $2.2
million. Consolidated cash flow as defined in the Indenture governing the
Company's Senior Secured Notes was approximately $4.0 million and $8.8
million, respectively, during the three and six month periods ended June 30,
1997.
As of June 30, 1997, loans included: (i) $105 million 12.75% Senior Secured
Notes due 2003, with additional contingent interest equal to 5% of the
Company's consolidated cash flow (as defined in the underlying Indenture);
(ii) approximately $11 million borrowed from BDI; and (iii) approximately $4
million of equipment financing. At June 30, 1997, approximately $27.7
million of the proceeds from the Senior Secured Notes, together with
interest earned thereon, were held in escrow for future cash requirements of
the Company and were allocated approximately as follows: (a) $17 million
for the Permanent Vessel; and (b) $11 million designated to repay the loan
due to BDI. The portion designated for the repayment of the loan due to BDI
cannot be paid to BDI until certain remaining conditions, principally the
delivery of the Permanent Vessel, are met. Until repaid, these funds are
available, subject to certain limitations and qualifications, to the Company
for completion of the BHR's facilities and the Permanent Vessel.
If the Company is determined to be in default under the Indenture underlying
the Senior Secured Notes, the proceeds from the Senior Secured Notes held in
escrow may no longer be available to the Company and the Senior Secured
Notes may be accelerated. Either event could materially adversely affect
the Company.
Under the terms of its development agreement with the City, the Company
committed, among other things, to make development expenditures of $116
million for its casino and associated infrastructure in the City over the
next five years. The Company has met or accrued a significant portion of
these commitments. The two principal components of the remaining portion of
the Company's commitment are as follows: (1) $10 million for off-site
development in the City by 1998/1999 with the particular project(s) to be
agreed to by the City; and (2) $12 million (a substantial portion of which
has been expended through June 30, 1997, with the exact amount to be agreed
upon by the City and the Company) to be expended over the five years
following the June 1996 opening of the casino for enhancements to the
Company's operations at Buffington Harbor and/or BHR's facilities.
The Company anticipates that additional capital contributions to BHR,
currently estimated not to exceed $500,000, may be required for the BHR
facilities. The Company and the Joint Venture Partner are continuing to
review the feasibility of purchasing additional property for and of
constructing a covered parking facility at the Gaming Complex. The cost of
purchasing the additional property and of constructing a covered parking
facility at the Gaming Complex is undetermined at this time. The Company
expects to fund such further investments from operations and/or from the
funds designated for the repayment of the note due to BDI, provided that the
proceeds from the note due to BDI have not been utilized and are available.
There can be no assurance that such facility will be constructed or that
sufficient funds will be available for such construction.
The Company currently conducts its gaming operations on the Chartered Vessel
which, upon the expiration of the underlying lease agreement, must be
redelivered afloat at the Company's cost and expense to the owner of the
Chartered Vessel in accordance with the terms of such lease agreement. The
Company currently anticipates returning the Chartered Vessel once the
Company's Permanent Vessel is placed into service (which is expected to
occur in the fourth quarter of 1997). The Company must pay the cost of any
repairs which are necessary to bring the Chartered Vessel into the condition
<PAGE>
required on redelivery under the lease agreement. The cost of these
additional expenditures is undetermined at this time.
It is the Company's intention to transfer all 932 slot machines currently
operating on the Chartered Vessel to the Permanent Vessel. The Company is
currently exploring various methods of transferring these slot machines to
the Permanent Vessel with the IGC. It is anticipated that a temporary
shutdown of the Chartered Vessel may be required to accomplish this
transfer. The duration and financial impact of such a shut down is
undetermined at this time. A lengthy shut-down could have a material and
adverse affect on the Company. The Company anticipates purchasing
additional slot machines and gaming equipment for use on the Permanent
Vessel for an approximate aggregate cost of $4 million to $5 million, with
the financing for such purchase to be provided by the manufacturer of such
machines and equipment and/or by a third party financing source.
In addition, the Company is currently exploring its options with respect to
refinancing the terms of its current equipment financing arrangements for
the slot machines and equipment currently used on the Chartered Vessel in an
effort to take advantage of more favorable market conditions.
Based upon the Company's anticipated future operations and capital
expenditures, 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 and the note due to BDI, will be
adequate to meet the Company's anticipated future requirements for working
capital, the remaining development obligations to the City, capital
expenditures (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 1997. No
assurance can be given, however, that operating cash flow and such other
proceeds will be sufficient for such purposes or that the Company will be
successful in obtaining more favorable terms with respect to a refinancing
for the machines and equipment currently used on the Chartered Vessel or in
obtaining favorable terms with respect to the financing for the additional
machines and equipment to be used on the Permanent Vessel. The Company will
seek, if necessary and to the extent permitted under the Indenture,
additional financing through borrowings and debt or equity financing. There
can be no assurance that additional financing, if needed, will be available
to the Company, or that, if available, the financing will be on terms
favorable to the Company. In addition, there is no assurance that the
Company's estimate of its reasonably anticipated liquidity needs is accurate
or that unforeseen events will not occur, resulting in the need to raise
additional funds.
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
On May 1, 1996, a class action complaint was filed in the Lake Superior
Court in Gary, Indiana, against the Joint Venture Partner and certain of its
affiliates, the Company and its affiliates, the Indiana Gaming Commission
(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. In April 1997 the order that purported to reinstate the
suit was dismissed and the July 11, 1996 order dismissing the suit with
prejudice was reinstated. Plaintiffs did not commence a timely appeal of
such action by the court and, as a result, the case is concluded.
On 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 attorney's 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.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit 27 -- Financial Data Schedule (EDGAR filing only).
(b) Reports on Form 8-K.
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized officers.
THE MAJESTIC STAR CASINO, LLC
Date: August 14 ,1997 By: /s/ Don H. Barden
----------------------------------------
DON H. BARDEN,
President and Chief Executive Officer
(principal executive officer)
Date: August 14, 1997 By: /s/ Michael E. Kelly
----------------------------------------
MICHAEL E. KELLY,
Vice President and Chief Financial
Officer
(principal financial and accounting
officer)
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<PERIOD-END> JUN-30-1997
<CASH> 11,535,146
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<RECEIVABLES> 877,856
<ALLOWANCES> 270,000
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