UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
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
(219) 977-7823
(Registrant's address and telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days.
Yes [X] No [ ]
Shares outstanding of each of the registrant's classes of common stock as of
September 30, 1998:
Class Number of shares
- ----- ----------------
Not applicable Not applicable
<PAGE> THE MAJESTIC STAR CASINO, LLC
Index
Part I FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements
Balance Sheets, as of September 30, 1998
(Unaudited) and December 31, 1997 1
Statements of Income (Unaudited) for the three
and nine months ended September 30, 1998 and 1997 2
Statements of Cash Flows (Unaudited) for the
nine months ended September 30, 1998 and 1997 3
Notes to Financial Statements (Unaudited) 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 17
Part II OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
<PAGE> 1
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
THE MAJESTIC STAR CASINO, LLC
Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
(Unaudited)
------------ -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 18,799,300 $ 8,083,594
Accounts receivable, less allowance for doubtful
accounts of $112,396 and $370,000, respectively 855,454 879,887
Inventories 35,827 33,717
Prepaid expenses 936,082 995,887
----------- -----------
Total current assets 20,626,663 9,993,085
----------- -----------
Property, equipment, and vessel improvements, net 57,231,673 61,206,890
Other Assets:
Organizational costs, less accumulated amortization
of $65,207 and $44,021, respectively 76,034 97,220
Deferred financing costs, less accumulated amortization
of $1,392,706 and $947,941, respectively 2,705,384 3,150,149
Deferred costs, less accumulated amortization of
$2,606,462 and $1,758,662, respectively 3,045,567 3,893,367
Investment in Buffington Harbor Riverboats, L.L.C. 41,348,843 43,541,985
Other assets and deposits 4,038,057 974,551
Restricted cash -- 11,904,716
----------- -----------
Total other assets 51,213,885 63,561,988
----------- -----------
Total Assets $129,072,221 $134,761,963
=========== ===========
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 1,890,360 $ 1,889,427
Short-term debt -- 100,696
Accounts payable 755,426 1,519,235
Other accrued liabilities:
Payroll and related 816,184 1,453,789
Interest 7,101,052 3,076,512
Other accrued liabilities 3,527,158 2,939,877
Due to Buffington Harbor Riverboats, L.L.C. 743,419 719,058
----------- -----------
Total current liabilities 14,833,599 11,698,594
Long-term debt, net of current maturities 108,971,899 110,828,515
Note to member 8,759,355 10,759,355
Commitments and contingencies -- --
----------- -----------
Total long-term liabilities 117,731,254 121,587,870
----------- -----------
Total Liabilities 132,564,853 133,286,464
----------- -----------
Members' Equity:
Members' contributions 24,000,000 24,000,000
Retained earnings (Accumulated deficit) (27,492,632) (22,524,501)
----------- -----------
Total members' equity (3,492,632) 1,475,499
----------- -----------
Total Liabilities and Members' Equity $129,072,221 $134,761,963
=========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 2
THE MAJESTIC STAR CASINO, LLC
Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended September 30, Ended September 30, Ended September 30, Ended September 30,
1998 1997 1998 1997
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Revenues:
Casino $27,358,289 $22,413,821 $82,577,717 $68,643,630
Food and beverage 385,717 346,619 1,243,858 1,098,545
Other 219,312 138,061 1,037,204 571,114
---------- ---------- ---------- ----------
Gross revenues 27,963,318 22,898,501 84,858,779 70,313,289
---------- ---------- ---------- ----------
less promotional allowances (61,632) (57,677) (272,489) (93,023)
Net revenues 27,901,686 22,840,824 84,586,290 70,220,266
---------- ---------- ---------- ----------
Costs and Expenses:
Casino 4,850,343 4,152,513 13,820,706 12,285,076
Gaming and admission taxes 8,136,091 6,537,509 24,442,951 19,990,487
Food and beverage 582,209 438,807 1,758,573 1,372,643
Advertising and promotion 1,827,905 4,080,471 8,474,812 8,945,472
General and administrative 5,945,731 5,394,817 18,084,074 16,319,134
Economic incentive - City of Gary 857,951 679,976 2,564,468 2,068,421
Depreciation and amortization 1,931,037 1,833,329 5,763,454 5,437,064
Loss on disposition of assets 54,750 -- 958,425 --
---------- ---------- ---------- ----------
Total costs and expenses 24,186,017 23,117,422 75,867,463 66,418,297
---------- ---------- ---------- ----------
Operating income 3,715,669 (276,598) 8,718,827 3,801,969
---------- ---------- ---------- ----------
Other Income (Expense):
Loss on investment in
Buffington Harbor Riverboats,
L.L.C. (852,977) (866,735) (2,453,511) (2,576,980)
Interest income 182,595 509,819 642,285 1,668,824
Interest expense (3,819,693) (2,638,072) (11,449,356) (9,120,246)
Interest expense to affiliate (135,693) (155,025) (426,376) (466,239)
---------- ---------- ---------- ----------
Total other income (expense) (4,625,768) (3,150,013) (13,686,958) (10,494,641)
---------- ---------- ----------
Net Income (Loss) $ (910,099) $ (3,426,611) $ (4,968,131) $ (6,692,672)
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 3
The Majestic Star Casino, LLC
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the nine months For the nine months
Ended September 30, 1998 Ended September 30, 1997
------------------------- -------------------------
<S> <C> <C>
Cash Flows From Operating Activities
Net loss $(4,968,131) $(3,266,061)
Adjustment to reconcile net loss to net
cash provided by operating activities
Depreciation 4,449,706 2,647,040
Amortization 1,313,748 956,695
Loss on investment in Buffington Harbor
Riverboats, L.L.C. 2,453,511 1,710,245
Loss on disposal of assets 958,425 --
(Increase) decrease in accounts receivable, net 24,433 (50,040)
(Increase) decrease in inventories (2,110) 4,559
Decrease in prepaid expenses 59,805 63,212
Increase in other assets (1,425) --
Increase (decrease) in accounts payable (763,809) 22,801
Increase (decrease) in accrued payroll and other
expenses (637,605) 303,407
Increase in accrued interest 4,024,540 436,960
Increase (decrease) in other accrued liabilities 599,677 (402,163)
---------- ----------
Net cash provided by operating activities 7,510,765 2,426,655
---------- ----------
Cash Flows From Investing Activities
Acquisition of property, equipment and vessel
improvements (1,852,177) (20,616,621)
(Increase) decrease in Chartered Vessel deposit 609,274 (42,775)
Increase in Letter of Credit deposit (3,671,348) --
Investment in Buffington Harbor Riverboats, L.L.C. (260,369) (1,709,443)
Deferred expenses -- (191,734)
Decrease in restricted cash 11,904,716 24,006,152
---------- ----------
Net cash provided by investment activities 6,730,096 1,445,579
---------- ----------
Cash Flows From Financing Activities
Cash paid to reduce short-term debt (100,694) --
Cash paid to reduce long-term debt (1,424,461) (1,273,087)
Payment of loan to Member (2,000,000) --
---------- ----------
Net cash used by financing activities (3,525,155) (1,273,087)
---------- ----------
Net increase in cash and cash equivalents 10,715,706 2,599,147
Cash and cash equivalents, beginning of period 8,083,594 8,935,999
---------- ----------
Cash and cash equivalents, end of period $18,799,300 $11,535,146
========== ==========
Interest paid:
Principal Member $576,827 $466,418
Equipment Debt $580,613 $366,076
Senior Secured Note $6,693,750 $6,693,750
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 4
THE MAJESTIC STAR CASINO, LLC
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Note 1 Basis of Presentation
The Majestic Star Casino, LLC (the "Company"), was formed on December 8,
1993, as an Indiana limited liability company, to provide gaming 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 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. The results for the three and nine months ended September
30, 1998, 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, 1997.
Note 2 Investment in Buffington Harbor Riverboats, L.L.C. ("BHR"):
On October 31, 1995, the Company and Trump Indiana, Inc. (the "Joint Venture
Partner") entered into the First Amended and Restated Operating Agreement of
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
the Joint Venture Partner 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 the Joint Venture Partner share
equally in the operating expenses relating to the BHR Property, except for
costs associated with food and beverage and gift shop, which are allocated
on a percentage of use by the casino customers of the Company and the Joint
Venture Partner.
The following represents selected financial information of BHR:
Buffington Harbor Riverboats, L.L.C.
Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
September 30, 1998 September 30, 1997 September 30, 1998 September 30,1997
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Gross Revenue $4,692,332 $5,285,030 $14,592,853 $17,017,373
Operating Income (Loss) (262,549) (285,713) (507,545) (860,033)
Net Loss (1,739,485) (1,751,262) (4,940,554) (5,171,753)
</TABLE>
<PAGE> 5
Note 3 Commitments and Contingencies:
Legal Proceedings
On January 15, 1998, the Company filed a petition for "Correction of an
Error" and on January 20, 1998, filed an appeal to the March 1, 1997,
property tax assessment of the Chartered Vessel. The Company believes it
was not given proper notice of the 1997 property tax assessment in
accordance with the general assessment provisions of the property tax law
and the Company further believes the assessment of approximately $1.2
million was incorrectly calculated. According to legal counsel, the
probable 1998 property tax liability is estimated not to exceed
approximately $641,000. The tax is payable in semiannual installments due
in May and November 1998. The first semiannual installment of approximately
$280,000 was paid in May.
On March 27, 1998, a complaint was filed in the Lake County Superior Court
in East Chicago, Indiana, against BHR, the Joint Venture Partner and the
Company. The plaintiff, a former employee of the Company, claims to have
been assaulted in the BHR parking lot on June 25, 1997, and is requesting
compensatory and punitive damages totaling approximately $11.0 million. The
suit alleges that the Joint Venture Partner and the Company failed to
provide adequate security to prevent assaults. 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 with Lehigh Portland Cement Company ("Lehigh
Cement"), BHR has leased certain property which is integral to the gaming
operations of the Joint Venture Partner and the Company. The lease places
certain restrictions on the use of the harbor by the Joint Venture Partners,
requires the reimbursement of certain costs which may be incurred by Lehigh
Cement and requires BHR to pursue permitting of and building of a new
harbor. The lease was rent free through December 29, 1997, and subject to
certain conditions, primarily continuing progress toward permitting of and
then building of a new harbor, the lease has been extended until the earlier
of December 31, 2005, or the completion of a new harbor. Starting in
January 1998, under the lease, the BHR Joint Venture pays rent of $125,000
per month. A new harbor may require new guest facilities. The level of
expenditures required for such new facilities cannot be accurately estimated
at this time.
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 entity qualifiers and
intermediary and holding companies. Indiana is a relatively 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 Company's operations.
<PAGE> 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Statement on Forward-Looking Information
This quarterly report includes various "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which
represent the Company's expectations or beliefs concerning future events.
Statements containing expressions such as "believes," "anticipates" or
"expects" used in the Company's press releases and reports filed with the
Securities and Exchange Commission (including periodic reports on Form 10-K
and Form 10-Q) are intended to identify forward-looking statements. All
forward-looking statements involve risks and uncertainties. Although the
Company believes its expectations are based upon reasonable assumptions
within the bounds of its knowledge of its business and operations, there can
be no assurances that actual results will not materially differ from
expected results. The Company cautions that these and similar statements
included in this report and in previously filed periodic reports are further
qualified by important factors that could cause actual results to differ
materially from those in the forward-looking statements. Such factors
include, without limitation, the following: the purchase of real estate
for, and the design and construction of, a 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, or key employees; loss and/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 began operations on
June 7, 1996. The Company's operations through October 19, 1997, were
conducted on the Chartered Vessel. The Chartered Vessel was chartered
pursuant to a five year lease, which began in May 1996, and contained
approximately 26,000 square feet of gaming space, 932 slot machines and 50
table games.
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.
In 1996, the Company entered into various agreements for the design,
engineering and construction of the Permanent Vessel. The Chartered Vessel
was replaced with the Permanent Vessel on October 27, 1997. The Permanent
Vessel, which is owned by the Company, contains approximately 43,000 square
feet of casino space on three decks, approximately 1,517 slot machines and
69 table games including 8 poker tables. The Permanent Vessel has an
atrium, escalators and elevators. The Company to date has expended
approximately $52.0 million, excluding capitalized interest on the Permanent
Vessel and related equipment including a recent slot upgrade in June 1998
of approximately $1.0 million.
<PAGE> 7
On March 30, 1998, the Company executed an amendment to the August 17, 1995,
charter agreement whereby New Yorker Acquisition Corporation, the lessor,
accepted re-delivery of the Chartered Vessel effective March 1, 1998, "as-
is, where-is" at Erie, Pennsylvania, from the Company, the lessee. The
Company also agreed to release a $500,000 escrow account with accrued
interest thereon, free and clear of any claims thereon, to New Yorker
Acquisition Corporation in lieu of restoring the Chartered Vessel back to
its original condition. As of March 1, 1998, all obligations of New
Yorker Acquisition Corporation and the Company have been fully satisfied
and the parties have no further obligations under the original charter
agreement. The Company during the three months ended March 31, 1998, and
the three months ended June 30, 1998, wrote-off assets previously utilized
and/or left on board the Chartered Vessel with a net book value of
approximately $735,000 and $20,000, respectively.
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
Indiana Gaming Commission advised the Company that cruising could commence
November 15, 1996, subject to winter weather conditions. However, due
primarily to winter weather conditions during the first and second quarters
of both 1998 and 1997, the Company conducted a significant amount of its
gaming operations with the Permanent Vessel or the Chartered Vessel,
respectively, docked. The Company resumed a regular cruising schedule
during June 1998. The Company anticipates that due to upcoming winter
weather conditions, it will conduct a significant amount of its gaming
operations with the Permanent Vessel docked beginning late fourth quarter.
The approach of the year 2000 has become a potential problem for businesses
utilizing computers in their operations since many computer programs are
date sensitive and will only recognize the last two digits of the year,
thereby recognizing the year 2000 as the year 1900 or not at all (the "Year
2000 Issue"). Management has undertaken a comprehensive assessment of the
Company's exposure to the Year 2000 Issue and what will be required to
ensure that the Company is year 2000 compliant. The primary computer
programs utilized in the Company's operations and financial reporting
systems have been acquired from independent software vendors. The Company
has contacted these vendors to determine whether their systems are year 2000
compliant, and, if not, establish timelines as to when the Company will
receive the required upgrades that assure that these systems will be year
2000 compliant. As of October 30, 1998 approximately 65% of the computer
programs utilized in the Company's operations have been upgraded and the
software vendors have represented that such programs are year 2000
compliant. Maintenance or modification costs associated with the Year 2000
Issue will be expensed as incurred, while the costs of any new software will
be capitalized and amortized over the software's useful life. The Company
does not expect to incur costs in connection with the Year 2000 Issue that
would have a material impact on operations. Although the Company presently
believes that all of its software programs will be year 2000 compliant,
there can be no assurances that the Company will not be adversely affected
by the Year 2000 Issue.
The Company competes, and expects to compete, with various gaming operations
on Native American lands, including those located, or to be located, in
Michigan, Wisconsin and possibly northern Indiana. The Pokagon Band of the
Potawatomi Indians have on several occasions proposed building a land-based
casino in northern Indiana, specifically in St. Joseph or Elkhart Counties.
In addition, the Saginaw Chippewa Tribe is currently operating one of the
largest Native American gaming complexes in the U.S. in Mt. Pleasant,
Michigan, approximately 250 miles northeast of Gary, Indiana. In addition,
the Governor of Michigan has recently signed a number of Indian compacts
that would allow land-based casinos in Michigan, including southwest
Michigan. The opening of land-based casinos, which generally have a
competitive advantage over cruising casinos in close proximity to the
Company, could have an adverse effect on the Company.
With respect to the State of Michigan, the Company also expects future
competition from three land-based casinos to be developed in Detroit,
Michigan, pursuant to a November 1996 voter initiative.
<PAGE> 8
The Company anticipates that competition will increase with the recent
purchase and pending sale of two area casinos to larger and stronger
competitors. Harrah's Entertainment, Inc., purchased Showboat, Inc.,
including the Showboat Mardi Gras Casino, located in East Chicago, Indiana.
Also, Horseshoe Gaming, LLC, has agreed to acquire Empress Entertainment.
Empress Entertainment owns two area riverboat gaming operations: one in
Hammond, Indiana and one in Joliet, Illinois. The Horseshoe Gaming
agreement must be approved by both the Illinois Gaming Board and the Indiana
Gaming Commission.
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. 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 continue in
its market area.
Because of the climate in the Chicago metropolitan area, the Company's
operations are expected to be somewhat seasonal with stronger results
expected during the period 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.
Results of Operations
The discussions of results of operations contained herein provides a
comparison of the nine and three month periods ended September 30, 1998,
with the nine and three month periods ended September 30, 1997. Gross
revenues were approximately $84.9 million and $28.0 million during the nine
month and three month periods ended September 30, 1998 compared to $70.3
million and $22.9 million during the nine and three month periods ended
September 30, 1997, respectively. Due to winter weather conditions and
mechanical difficulties earlier this year, the Company did not operate for
three days during the nine month period ended September 30, 1998.
The following table sets forth: (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
(dollars in thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
Gross Revenues (1) $27,963 $22,899 $84,859 $70,313
Operating Income (2), (3),(4) $ 3,716 $(277) $8,719 $3,802
EBITDA (5) $5,701 $1,950 $16,196 $10,420
</TABLE>
<PAGE> 9
STATEMENTS OF INCOME - -AS A PERCENTAGE OF GROSS REVENUES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
Revenues:
Casino 97.8% 97.9% 97.3% 97.6%
Food and beverage 1.4% 1.5% 1.5% 1.6%
Other (1) 0.8% 0.6% 1.2% 0.8%
----- ----- ----- -----
Gross Revenues 100.0% 100.0% 100.0% 100.0%
less promotional
allowances (0.2)% (0.3)% (0.3)% (0.1)%
Net Revenues 99.8% 99.7% 99.7% 99.9%
Costs and Expenses:
Casino 17.3% 18.1% 16.3% 17.5%
Gaming and admission taxes 29.1% 28.6% 28.8% 28.4%
Food and beverage 2.1% 1.9% 2.1% 2.0%
Advertising and promotion 6.5% 17.8% 10.0% 12.7%
General and
administrative (2) 21.3% 23.6% 21.3% 23.2%
Economic incentive-
City of Gary 3.1% 3.0% 3.0% 2.9%
Depreciation and
amortization 6.9% 8.0% 6.8% 7.7%
Loss on disposition of
assets (3) (4) 0.2% 0.0% 1.1% 0.0%
----- ----- ----- -----
Total 86.5% 101.0% 89.4% 94.4%
Operating Income (Loss): 13.3% (1.3)% 10.3% 5.5%
Other Income (Expense):
Loss on investment in BHR (3.1)% (3.8)% (2.9)% (3.7)%
Interest income 0.7% 2.2% 0.8% 2.4%
Interest expense (13.7)% (11.5)% (13.5)% (13.0)%
Interest expense to
affiliate (0.5)% (0.7)% (0.5)% (0.7)%
------ ------ ------ ------
Total (16.6)% (13.8)% (16.1)% (15.0)%
------ ------ ------ ------
Net Income (Loss): (3.3)% (15.1)% (5.8)% (9.5)%
------ ------ ------ ------
EBITDA: (5) 20.4% 8.5% 19.1% 14.8%
</TABLE>
NOTES:
1. Includes a lump sum payment in March 1998 of approximately $314,000 from
the Company's Joint Venture Partner to compensate the Company for the loss
of certain parking spaces to be utilized by the Joint Venture Partner for
the construction of a hotel facility.
2. Includes approximately $752,000 during the three months ended March 31,
1998 in expenses associated with the lease and subsequent termination of the
charter vessel lease agreement effective March 1, 1998.
3. Includes losses on disposal for assets previously utilized on the
Chartered Vessel during the three months ended March 31,1998 and the three
months ended June 30, 1998 of approximately $735,000 and $20,000,
respectively.
4. Includes losses on disposal during the three months ended June 30, 1998
and the three months ended September 30, 1998 of approximately $149,000 and
$55,000, respectively, for slot machines.
<PAGE> 10
5. EBITDA (defined as earnings before interest, income taxes, depreciation
and amortization and, for purposes hereof, does not include payments
associated with, and termination of, the Chartered Vessel lease) 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.
Results for any one or more periods are not necessarily indicative of annual
results or continuing trends.
Comparison of the Three Months Ended September 30, 1998 and 1997
Gross revenues for the three months ended September 30, 1998, amounted to
approximately $27,963,000, an increase of approximately $5,065,000 from
gross revenues recorded in the three months ended September 30, 1997. The
22.1% increase in gross revenues was attributable to an overall 30.5%
increase in the number of admissions attracted by the larger Permanent
Vessel.
Casino revenues during the three months ended September 30, 1998, totaled
approximately $27,358,000, of which slot machines accounted for
approximately $21,410,000 (78.3%) and table games accounted for
approximately $5,948,000 (21.7%). The average number of slot machines in
operation increased to 1,517 during the three months ended September 30,
1998, from 932 during the three months ended September 30, 1997. The
average win per slot machine per day decreased to approximately $153 for the
three months ended September 30, 1998, from approximately $194 during the
three months ended September 30, 1997. The average number of table games in
operation (excluding poker) during the three months ended September 30,
1998, increased to 61 from 50 during the three months ended September 30,
1997. The average win per table game per day during the three months ended
September 30, 1998, declined to approximately $982 compared to approximately
$1,259 during the three months ended September 30, 1997. During the three
months ended September 30, 1998, the Company operated 8 poker tables with an
average win per table per day of $590. The average daily win per state
passenger count was approximately $31 and the average daily win per patron
was approximately $55 during the three months ended September 30, 1998,
compared to an average daily win per state passenger count of approximately
$33 and an average daily win per patron of approximately $55 for the three
months ended September 30, 1997.
Food and beverage revenues for the three months ended September 30, 1998,
totaled approximately $386,000 or 1.4% of gross revenues, compared to
approximately $347,000 or 1.5% of gross revenues for the three months ended
September 30, 1997. Other revenue, consisted primarily of commission
income, totaling approximately $219,000, or 0.8% of gross revenues compared
to approximately $138,000 or 0.6% of gross revenues for the three months
ended September 30, 1997.
Promotional allowances (complementaries) included in the Company's gross
food revenues for the three months ended September 30, 1998, and 1997, were
approximately $62,000 and $58,000, respectively. Promotional allowances
provided to the Company's gaming patrons at facilities located in, and/or
owned by BHR for the three months ended September 30, 1998, and 1997,
totaled approximately $210,000 and $165,000, respectively, and are
characterized in the financial statements as an expense to the casino. BHR
invoices the Company monthly for these promotional allowances at cost, which
approximates the retail value of these promotional allowances.
Casino operating expenses for the three months ended September 30, 1998,
totaled approximately $4,850,000, or 17.3% of gross revenues and 17.7% of
casino revenues, respectively, compared to approximately $4,153,000, or
18.1% of gross revenues and 18.5% of casino revenues, respectively, for the
three months ended September 30, 1997. These expenses were primarily
comprised of salaries, wages and benefits, and operating and promotional
expenses of the casino. The dollar increase of $697,000 in casino operating
expenses is primarily attributed to an increase in payroll expense
associated with operating the larger Permanent Vessel.
<PAGE> 11
Gaming and admissions taxes totaled approximately $8,136,000 for the three
months ended September 30, 1998, compared to approximately $6,538,000 for
the three months ended September 30, 1997. These taxes are levied on
adjusted gross receipts, as defined by Indiana gaming laws, at the rate of
20%, plus $3 per passenger per the state passenger count. An additional
$858,000 was paid during the three months ended September 30, 1998, compared
to approximately $680,000 in the three months ended September 30, 1997, to
the City under an agreement whereby the Company principally pays 3% of the
adjusted gross receipts directly to the City. Both the dollar and
percentage increases are attributable to a 22.1% increase in gross revenues
during the three months ended September 30, 1998, compared to the three
month period ended September 30, 1997.
Advertising and promotion expenses for the three months ended September 30,
1998, totaled approximately $1,828,000, or 6.5% of gross revenues, compared
to approximately $4,080,000, or 17.8% of gross revenues during the three
months ended September 30, 1997. 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
$2,252,000 decrease in advertising and promotion expenses during the three
months ended September 30, 1998, was primarily the result of decreased
expenditures required to attract patrons to the larger, more attractive
Permanent Vessel during the summer months. Specifically, expenditures were
reduced in subsidies provided to charter bus operators and/or patrons,
special events and promotions, and general media (including billboards,
radio, and print).
General and administrative expenses for the three months ended September 30,
1998, were approximately $5,946,000, or 21.3% of gross revenues, compared to
$5,395,000, or 23.6% of gross revenues, during the three months ended
September 30, 1997. These expenses included approximately $1,786,000 for
berthing fees paid to BHR, $1,362,000 for marine operations and $476,000 for
security and surveillance operations during the third quarter of 1998. The
$551,000 increase in general and administrative expenses is primarily
attributed to an increase of approximately $385,000 for property taxes
during the three months ended September 30, 1998.
Depreciation and amortization for the third quarter ended September 30,
1998, was approximately $1,931,000, or 6.9% of gross revenues, compared to
approximately $1,833,000, or 8.0% of gross revenues, during the three months
ended September 30, 1997. The $98,000 increase in depreciation expense for
the three months ended September 30, 1998, is attributable to the increased
expense associated with the Permanent Vessel.
Operating income for the three months ended September 30, 1998, was
approximately $3,716,000, or 13.3% of gross revenues, compared to an
operating loss for the three months ended September 30, 1997 of $277,000, or
1.3% of gross revenues. During the three months ended September 30, 1998,
the Company disposed of assets (slot machines) that had a net book value of
approximately $55,000. The $3,993,000 increase in operating income is
attributable to a 22.1% increase in gross revenues associated with the
larger Permanent Vessel.
Net interest expense for the three months ended September 30, 1998, was
$3,773,000, or approximately 13.5% of gross revenues, compared to
$2,283,000, or approximately 10.0% for the same period last year. The
increase in net interest expense in both dollars and as a percentage of
gross revenues is attributed to the Permanent Vessel being placed into
service combined with the additional interest expense associated with the
financing of additional slot equipment in late 1997 for use on the Permanent
Vessel. During the three months ended September 30, 1997, approximately
$1,189,000 of interest expense was capitalized during the construction of
the Permanent Vessel. For the three months ended September 30, 1998, and
1997, the Company had accrued contingent interest of approximately $293,000
and $113,000, respectively. No contingent interest was paid during the
three months ended September 30, 1998, or 1997.
<PAGE> 12
The Company's loss relating to its investment in BHR for the three months
ended September 30, 1998, was approximately $853,000. The loss represents
the Company's 50% share of BHR's non-cash net loss (primarily depreciation
and amortization).
As a result of the foregoing, the Company experienced net losses of
approximately $910,000 and $3,427,000 during the three months ended
September 30, 1998, and 1997, respectively.
Comparison of the Nine Months Ended September 30, 1998 and 1997
Gross revenues for the nine months ended September 30, 1998, amounted to
approximately $84,859,000, an increase of $14,545,000 over gross revenues
recorded in the nine months ended September 30, 1997. The 20.7% increase in
gross revenues was attributable to an overall 27.0% increase in the number
of admissions attracted by the larger Permanent Vessel.
Casino revenues during the nine months ended September 30, 1998, totaled
approximately $82,578,000, of which slot machines accounted for
approximately $63,005,000 (76.3%) and table games accounted for
approximately $19,573,000 (23.7%). The average number of slot machines in
operation increased to 1,522 during the nine months ended September 30,
1998, from 930 during the nine months ended September 30, 1997. The average
win per slot machine per day decreased to approximately $153 for the nine
months ended September 30, 1998, from approximately $203 during the nine
months ended September 30, 1997. The average number of table games in
operation (excluding poker) during the nine months ended September 30, 1998,
increased to 61 from 50 during the nine months ended September 30, 1997.
The average win per table game per day during the nine months ended
September 30,1998, declined to approximately $1,105, compared to
approximately $1,253 during the nine months ended September 30, 1997.
During the nine months ended September 30, 1998, the Company operated 8
poker tables with an average win per table per day of $608. The average
daily win per state passenger count was approximately $31 and the average
daily win per patron was approximately $55 during the nine months ended
September 30, 1998, compared to an average daily win per state passenger
count of approximately $33 and an average daily win per patron of
approximately $56 for the nine months ended September 30, 1997.
Food and beverage revenues for the nine months ended September 30, 1998,
totaled approximately $1,244,000 or 1.5% of gross revenues, compared to
approximately $1,099,000 or 1.6% of gross revenues for the nine months ended
September 30, 1997. The $145,000 increase in food and beverage revenues is
attributed to an overall increase in the number of customers attracted to
the Permanent Vessel. Other revenue totaling approximately $1,037,000, or
1.2% of gross revenues for the nine months ended September 30, 1998,
consisted primarily of commission income of approximately $723,000 and a
lump sum payment of $314,000 from the Company's Joint Venture Partner to
compensate the Company for the loss of certain parking spaces to be utilized
by the Joint Venture Partner for the construction of a hotel facility.
Promotional allowances (complementaries) included in the Company's gross
food revenues for the nine months ended September 30, 1998, and 1997, were
approximately $273,000 and $93,000, respectively. The $180,000 increase was
attributable to the increase in the number of customers attracted to the
larger Permanent Vessel. Promotional allowances provided to the Company's
gaming patrons at facilities located in, and/or owned by BHR for the nine
months ended September 30, 1998, and 1997, totaled approximately $384,000
and $359,000, respectively, and are characterized in the financial
statements as an expense to the casino. BHR invoices the Company monthly
for these promotional allowances at cost, which approximates the retail
value of these promotional allowances.
Casino operating expenses for the nine months ended September 30, 1998,
totaled approximately $13,821,000, or 16.3% of gross revenues and 16.7% of
casino revenues, respectively, compared to approximately $12,285,000, or
17.5% of gross revenues and 17.9% of casino revenues, respectively, for the
nine months ended September 30, 1997. These expenses were primarily
comprised of salaries, wages and benefits, and operating and promotional
expenses of the casino. The dollar increase of $1,536,000 in casino
operating expenses is primarily attributed to an increase in payroll expense
associated with operating the larger Permanent Vessel.
<PAGE> 13
Gaming and admissions taxes totaled approximately $24,443,000 for the nine
months ended September 30, 1998, compared to approximately $19,990,000 for
the nine months ended September 30, 1997. These taxes are levied on
adjusted gross receipts, as defined by Indiana gaming laws, at the rate of
20%, plus $3 per passenger per the state passenger count. An additional
$2,564,000 was paid during the nine months ended September 30, 1998,
compared to approximately $2,068,000 in the nine months ended September 30,
1997, to the City under an agreement whereby the Company principally pays 3%
of the adjusted gross receipts directly to the City.
Advertising and promotion expenses for the nine months ended September 30,
1998, totaled approximately $8,475,000, or 10.0% of gross revenues, compared
to approximately $8,945,000, or 12.7% of gross revenues during the nine
months ended September 30, 1997. 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
$470,000 decrease in advertising and promotion expenses during the nine
months ended September 30, 1998, was primarily the result of decreased
expenditures during the third quarter required to attract patrons to the
larger, more attractive Permanent Vessel during the summer months.
General and administrative expenses for the nine months ended September 30,
1998, were approximately $18,084,000, or 21.3% of gross revenues, compared
to $16,319,000, or 23.2% of gross revenues, during the nine months ended
September 30, 1997. These expenses included approximately $5,306,000 for
berthing fees paid to BHR, $4,668,000 for marine operations and $1,398,000
for security and surveillance operations during the nine months ended
September 30, 1998. The dollar increase of $1,765,000 in these expenses is
primarily attributed to an increase of approximately $935,000 for property
taxes and approximately $449,000 for berthing fees paid to BHR during the
nine months ended September 30, 1998.
Depreciation and amortization for the nine months ended September 30, 1998,
was approximately $5,763,000, or 6.8% of gross revenues, compared to
approximately $5,437,000, or 7.7% of gross revenues, during the nine months
ended September 30, 1997. The dollar increase of $326,000 in depreciation
expense for the nine months ended September 30, 1998, is principally
attributable to the increased expense associated with the Permanent Vessel.
Operating income for the nine months ended September 30, 1998, was
approximately $8,719,000, or 10.3% of gross revenues, compared to an
operating income for the nine months ended September 30, 1997 of
$3,802,000, or 5.5% of gross revenues. During the nine months ended
September 30, 1998, the Company had a net loss on the disposition of assets
totaling approximately $958,000.
Net interest expense for the nine months ended September 30, 1998, was
$11,233,000, or approximately 13.2% of gross revenues, compared to
$7,918,000, or approximately 11.3% for the same period last year. The
$3,315,000 increase in net interest expense is attributed to the Permanent
Vessel being placed into service combined with the additional interest
expense associated with the financing of new gaming equipment in late 1997
for the Permanent Vessel. During the nine months ended September 30, 1997,
approximately $2,328,000 of interest expense was capitalized during the
construction of the Permanent Vessel. For the nine months ended September
30, 1998, and 1997, the Company had accrued contingent interest of
approximately $828,000 and $545,000, respectively. No contingent interest
was paid during the nine months ended September 30, 1998, or 1997.
The Company's loss relating to its investment in BHR for the nine months
ended September 30, 1998, was approximately $2,454,000. The loss represents
the Company's 50% share of BHR's non-cash net loss (primarily depreciation
and amortization).
As a result of the foregoing, the Company experienced net losses of
approximately $4,968,000 and $6,693,000 during the nine months ended
September 30, 1998, and 1997, respectively.
Earnings Before Interest, Income Taxes, Depreciation and Amortization
("EBITDA")
<PAGE> 14
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 loss on disposal of assets and Chartered Vessel lease and
termination payments) during the three and nine month periods ended
September 30, 1998 was approximately $5,701,000 and $16,196,000,
respectively, or 20.4% and 19.1%, respectively, of gross revenues, compared
to approximately $1,950,000 and $10,420,000, respectively, or 8.5% and
14.8%, respectively, of gross revenues, during the three and nine month
periods ended September 30, 1997. The increase in EBITDA for both the
quarter and nine months ended September 30, 1998 was primarily due to an
increase in casino revenue associated with operating the larger Permanent
Vessel.
EBITDA should be viewed only in conjunction with all of the Company's
financial data and statements, and should not be construed as an alternative
either to income from operations (as an indicator of the Company's operating
performance) or to cash flows from operating activities as a measure of
liquidity.
Liquidity and Capital Resources
At September 30, 1998, the Company had cash and cash equivalents of
approximately $18.8 million. During the nine months ended September 30,
1998, the Company expended approximately $1.9 million for property and
equipment, including approximately $982,000 for new slot equipment acquired
in June 1998 and approximately $869,000 associated with the initial
equipping of the Permanent Vessel. The Company also contributed
approximately $260,000 from working capital to BHR for general enhancements
during this period.
The Company, to date, has met its capital requirements through net cash from
operations, capital contributions and loans. For the nine months ended
September 30, 1998, net cash provided from operations totaled approximately
$7.5 million compared to approximately $5.3 million for the nine months
ended September 30, 1997. Net cash provided by investment activities was
$6.7 million for the nine months ended September 30, 1998. The consolidated
cash flow as defined in the Indenture governing the Company's Senior Secured
Notes was approximately $5.9 million for the quarter ended September 30,
1998 and $10.2 million for the semiannual period (April through September).
As of September 30, 1998, loans included: (i) $105 million principal amount
of 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 $8.8 million borrowed from
BDI; and (iii) approximately $6.3 million of equipment financing.
During September 1998, $2.0 million was repaid to a member of the Company,
BDI. This note resulted from the conversion of members' contributions into
debt on March 31, 1996. There is no set term for repayment of the remaining
balance totaling approximately $8.8 million as of September 30, 1998.
During January 1998, approximately $10.8 million of the proceeds from the
Senior Secured Notes, together with interest of $1.1 million earned thereon,
were reclassified from restricted cash to operating cash as the proceeds
were not required to complete the Permanent Vessel.
The Senior Secured Notes mature on May 15, 2003 and 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.
<PAGE> 15
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, May 15,
1997, November 15, 1997, and May 15, 1998, was deferred, as allowed under
the terms of the Indenture. During the nine month period ended September
30, 1998, the Company accrued contingent interest payable of approximately
$828,000. 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) 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, the
Senior Secured Notes may be accelerated, which would 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 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 these commitments
are $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
(which amount has been expended through September 30, 1998, with the exact
allocation between committed projects to be agreed upon by the City and the
Company) for enhancements to the Company's operations at Buffington Harbor
and/or BHR's facilities.
In May 1996, the Company arranged for a $12.5 million five year surety bond
(the "Bond") to be issued to the IGC. The Bond's primary purpose was to
provide collateral for completion of the Company's off-site development
obligations under the Development Agreement. In 1996 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 (the "Owner") of the Company guaranteed the Company's
obligations to the bonding company under the Bond and to the bank under the
$3.5 million letter of credit. During May 1998, the Company replaced the
Owner's financial guarantee by depositing $3.6 million with the bank to
guarantee the letter of credit to benefit the bonding company.
The Company anticipates that additional capital contributions to BHR,
including capital for the expansion of the valet parking area, and
modifications to the boarding area are currently estimated not to exceed
$350,000, may be required for the BHR facilities. The Company and the Joint
Venture Partner continue to review the feasibility of purchasing additional
property for the construction of a covered parking facility at the Gaming
Complex. The timing and 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 previously 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.
Under a lease agreement with Lehigh Portland Cement Company ("Lehigh
Cement"), BHR has leased certain property which is integral to the gaming
operations of the Company and its Joint Venture Partner. The lease places
certain restrictions on the use of the harbor by the Company and its Joint
Venture Partner and requires the reimbursement of certain costs which may be
incurred by Lehigh Cement. The lease was rent free through December 29,
1997 and, subject to certain conditions, such as progress toward permits for
a new harbor, has been extended 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, with a monthly payment of $125,000.
<PAGE> 16
BHR anticipates filing the requisite regulatory permits during 1998. If the
regulatory permits are 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.
Through October 19, 1997, the Company conducted its gaming operations on the
Chartered Vessel. On March 30, 1998, the Company executed an amendment to
the August 17, 1995 Charter Agreement whereby New Yorker Acquisition
Corporation, the lessor, accepted re-delivery of the Chartered Vessel
effective March 1, 1998, "as is where is" at Erie, Pennsylvania from the
Company. The Company also agreed to release to New Yorker Acquisition
Corporation a $500,000 escrow account with accrued interest thereon, free
and clear of any claims in lieu of restoring the Chartered Vessel back to
its original condition. The Company during the nine months ended September
30, 1998 wrote-off assets previously utilized on the chartered vessel that
had a net book value of approximately $755,000. As of March 1, 1998, all
obligations of the Company and New Yorker Acquisition Corporation have been
fully satisfied and the parties have no further obligations under the
original charter agreement.
The Company during the month of June 1998 took delivery on 126 new slot
machines from various vendors. The Company anticipates financing a portion
of these new slot machines during the fourth quarter of 1998 whose aggregate
purchase price, excluding sales and use tax, was approximately $982,000.
The terms of the financing are anticipated to be similar in nature to
previous gaming equipment financing the Company undertook when additional
slot equipment was obtained for the Permanent Vessel in late 1997. The cost
of these new slot machines is categorized as a current payable on the
Company's balance sheet. There can be no assurance that the additional
financing will be available to the Company, or that, if available, the
financing will be on terms favorable to the Company.
The Company has notified Messrs. Thomas C. Bonner, Executive Vice President
and Paul Sykes, Chief Operating Officer, that their respective three year
employment agreements due to expire on or about December 4, 1998 will not be
renewed. The duties of Messrs. Bonner and Sykes effective October 17, 1998
have been assumed on an interim basis by Messr. Michael E. Kelly, Vice
President and Chief Financial Officer.
Although BDI initially contributed approximately $24 million to the Company,
the Members' Equity Account became negative during the first quarter of 1998
and continues to be negative as of September 30, 1998. The decline in the
Members' Equity Account is primarily attributed to start-up costs,
operating losses and the disposition of assets previously utilized on the
Chartered Vessel.
Based upon the Company's anticipated future operations on board the
Permanent Vessel and capital expenditures, management believes that the
available cash flow from the casino's future operations and certain
equipment financing, together with the proceeds from the Senior Secured
Notes and the note due to BDI, will be adequate to meet the Company's
anticipated future requirements for working capital, the remaining
development obligations to the City, capital expenditures and scheduled
payments of interest and principal on the Senior Secured Notes and other
permitted indebtedness for 1998. No assurance can be given, however, that
operating cash flow from the Permanent Vessel in light of increased
competition within the marketplace and such other proceeds will be
sufficient for such purposes. Also there is no guaranty that the Note due
to BDI of approximately $8.8 million at September 30, 1998 will be repaid in
1998. 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> 17
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Part II OTHER INFORMATION
Item 1. Legal Proceedings
Various legal proceedings are pending against the Company. Management
considers all such pending proceedings, primarily personal injury and
employment claims, to be ordinary litigation incidental to the character of
the Company's business. Management believes that the resolution of these
proceedings will not, individually or in the aggregate, have a material
effect on the Company's financial condition or results of operations.
On January 15, 1998, the Company filed a petition for "Correction of an
Error" and on January 20, 1998, filed an appeal to the March 1, 1997
property tax assessment of the Chartered Vessel. The Company believes it
was not given proper notice of the 1997 property tax assessment in
accordance with the general assessment provisions of the property tax law
and the Company further believes the assessment of approximately $1.2
million was incorrectly calculated. According to legal counsel, the
probable 1998 property tax liability is estimated not to exceed
approximately $641,000. The tax is payable in semiannual installments due
in May and November 1998. The first semiannual installment of $280,000 was
paid in May.
On March 27, 1998, a complaint was filed in the Lake County Superior Court
in East Chicago, Indiana, against BHR, Trump Indiana, Inc. (the "Joint
Venture Partner") and the Company. The plaintiff, a former employee of the
Company, claims to have been assaulted in the BHR parking lot on June 25,
1997 and is requesting compensatory and punitive damages totaling
approximately $11 million. The suit alleges that the Joint Venture Partner
and the Company failed to provide adequate security to prevent assaults.
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.
From time to time, the Company may be involved in routine administrative
proceedings involving alleged violations of certain provisions of the
Riverboat Gambling Act. Management believes that the outcome of any such
proceedings will not, either individually or in the aggregate, have a
material adverse effect on the Company or its ability to retain and/or renew
any license required under the Riverboat Gambling Act for the Company's
operations. In March 1998, the Company agreed to settle two such
proceedings with the payment of $120,000 in April 1998 to the IGC. No such
proceedings are pending at this time.
Item 6. Exhibits and Reports on Form 8-K
(a) EXHIBITS
No. Description
27 Financial Data Schedule (Edgar Version Only) (filed
herewith).
(b) REPORTS ON FORM 8-K
None filed during the quarter ended September 30, 1998.
<PAGE> 18
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
November 10, 1998.
The Majestic Star Casino, LLC
By: Barden Development Inc., Manager
By:/S/ DON H. BARDEN
Don H. Barden
President and Chief Executive Officer
(Principal Executive and Duly Authorized Officer)
And: /S/ MICHAEL E. KELLY
Michael E. Kelly
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 18,799,300
<SECURITIES> 0
<RECEIVABLES> 967,850
<ALLOWANCES> 112,396
<INVENTORY> 35,827
<CURRENT-ASSETS> 20,626,663
<PP&E> 65,837,994
<DEPRECIATION> 8,606,321
<TOTAL-ASSETS> 129,072,221
<CURRENT-LIABILITIES> 14,833,599
<BONDS> 105,000,000
<COMMON> 0
0
0
<OTHER-SE> (3,492,632)
<TOTAL-LIABILITY-AND-EQUITY> 129,072,221
<SALES> 84,858,779
<TOTAL-REVENUES> 84,858,779
<CGS> 0
<TOTAL-COSTS> 75,867,463
<OTHER-EXPENSES> 2,453,511
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,233,447
<INCOME-PRETAX> (4,968,131)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,968,131)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,968,131)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
