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 March 31, 1999
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
March 31, 1999:
Class Number of shares
- ----- ----------------
Not applicable Not applicable
<PAGE>
<PAGE>
THE MAJESTIC STAR CASINO, LLC
Index
Page No.
--------
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets, as of March 31, 1999 (Unaudited)
and December 31, 1998
Statements of Income (Unaudited) for the three months
ended March 31, 1999 and 1998
Statements of Cash Flows (Unaudited) for the three months
ended March 31, 1999 and 1998
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Part II OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
THE MAJESTIC STAR CASINO, LLC
Balance Sheets
March 31, December 31,
1999 1998
(Unaudited)
- ----------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 24,107,999 $ 17,295,401
Accounts receivable, less allowance for
doubtful accounts of $65,859 and $148,608,
respectively 697,497 850,086
Inventories 37,385 41,948
Prepaid expenses 718,860 984,512
------------ ------------
Total current assets 25,561,741 19,171,947
------------ ------------
Property, equipment, and vessel improvements,
net 55,355,947 55,953,220
Other Assets:
Deferred financing costs, less accumulated
amortization of $1,697,382 and $1,544,086,
respectively 2,503,833 2,657,129
Deferred costs, less accumulated amortization
of $3,165,362 and $2,899,062, respectively 2,486,667 2,762,967
Investment in Buffington Harbor Riverboats,
L.L.C. 40,012,198 40,748,887
Other assets and deposits 3,966,710 3,966,710
------------ ------------
Total other assets 48,969,408 50,135,693
------------ ------------
Total Assets $129,887,096 $125,260,860
============ ============
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 2,211,069 $ 1,945,724
Accounts payable 587,223 428,070
Other accrued liabilities:
Payroll and related 813,396 1,073,801
Interest 7,849,140 4,216,422
Other accrued liabilities 4,103,110 3,039,970
Due to Buffington Harbor Riverboats,
L.L.C. 440,787 405,010
------------ ------------
Total current liabilities 16,004,725 11,108,997
Long-term debt, net of current maturities 107,649,839 108,390,332
Note to member 8,759,355 8,759,355
Commitments and contingencies -- --
------------ ------------
Total long-term liabilities 116,409,194 117,149,687
------------ ------------
Total Liabilities 132,413,919 128,258,684
------------ ------------
Members' Equity:
Members' contributions 24,000,000 24,000,000
Retained earnings (Accumulated deficit) (26,526,823) (26,997,824)
------------ ------------
Total members' equity (2,526,823) (2,997,824)
------------ ------------
Total Liabilities and Members' Equity $129,887,096 $125,260,860
============ ============
The accompanying notes are an integral part of these financial statements.
THE MAJESTIC STAR CASINO, LLC
Statements of Income
(Unaudited)
Three Months Three Months
Ended March 31, Ended March 31,
1999 1998
- ----------------------------------------------------------------------------
Revenues:
Casino $ 28,886,072 $ 27,583,884
Food and beverage 467,901 466,516
Other 219,403 563,540
------------ ------------
Gross revenues 29,573,376 28,613,940
------------ ------------
less promotional allowances (62,348) (132,262)
Net revenues 29,511,028 28,481,678
Costs and Expenses:
Casino 5,158,220 4,879,020
Gaming and admission taxes 8,147,090 8,130,253
Food and beverage 620,469 597,919
Advertising and promotion 1,508,096 2,912,010
General and administrative 6,183,100 6,526,337
Economic incentive - City of Gary 893,571 852,276
Depreciation and amortization 1,942,720 1,930,691
Loss on disposition of assets -- 734,992
------------ ------------
Total costs and expenses 24,453,266 26,563,498
------------ ------------
Operating income 5,057,762 1,918,180
------------ ------------
Other Income (Expense):
Loss on investment in Buffington
Harbor Riverboats, L.L.C. (804,014) (926,548)
Interest income 194,325 223,007
Interest expense (3,877,872) (3,819,460)
Interest expense to affiliate (99,200) (145,521)
------------ ------------
Total other income (expense) (4,586,761) (4,668,522)
------------ ------------
Net Income (Loss) $ 471,001 $ (2,750,342)
============ ============
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
The Majestic Star Casino, LLC
Statements of Cash Flows
(Unaudited)
For the three months For the three months
Ended March 31, 1999 Ended March 31, 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities
Net Income (loss) $ 471,001 $(2,750,342)
Adjustment to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation 1,513,124 1,492,775
Amortization 429,596 437,916
Loss on investment in Buffington Harbor Riverboats, L.L.C. 804,014 926,548
Loss on disposal of chartered vessel improvements -- 734,992
(Increase) decrease in accounts receivable, net 152,589 (152,968)
Decrease in inventories 4,563 11,903
(Increase) decrease in prepaid expenses 265,652 (200,685)
Increase in other assets -- (5,621)
Increase (decrease) in accounts payable 159,153 (664,229)
Decrease in accrued payroll and other expenses (260,405) (439,494)
Increase in accrued interest 3,632,718 3,607,388
Increase (decrease) in other accrued liabilities 1,098,917 (28,782)
----------- -----------
Net cash provided by operating activities 8,270,922 2,969,401
----------- -----------
Cash Flows From Investing Activities
Acquisition of property, equipment and vessel improvements (556,490) (228,298)
Decrease in Chartered Vessel deposit -- 609,274
Investment in Buffington Harbor Riverboats, L.L.C. (67,325) (177,126)
Construction-in-progress (359,361) --
Decrease in restricted cash -- 11,904,716
----------- -----------
Net cash provided (used) by investment activities (983,176) 12,108,566
----------- -----------
Cash Flows From Financing Activities
Cash paid to reduce short-term debt -- (39,765)
Cash paid to reduce long-term debt (475,148) (469,236)
----------- -----------
Net cash used by financing activities (475,148) (509,001)
----------- -----------
Net increase in cash and cash equivalents 6,812,598 14,568,966
Cash and cash equivalents, beginning of period 17,295,401 8,083,594
----------- -----------
Cash and cash equivalents, end of period $24,107,999 $22,652,560
=========== ===========
Interest paid:
Principal Member $ 99,200 $ 145,521
Equipment Debt $ 146,100 $ 207,140
The accompanying notes are an integral part of these financial statements.
</TABLE>
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 months ended March 31, 1999 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, 1998.
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, gift shop, and valet operations,
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)
Three Months Three Months
Ended March 31, 1999 Ended March 31, 1998
Gross Revenue $ 4,599,333 $ 4,815,103
Operating Loss $ 111,704 $ 374,783
Net Loss $ 1,608,024 $ 1,853,131
<PAGE>
<PAGE>
THE MAJESTIC STAR CASINO, LLC
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
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. The tax is payable in semiannual
installments due in May and November 1998. Payments totaling approximately
$560,000 in the aggregate have been paid based upon an estimate provided to
the Company by legal counsel.
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 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, the case is in the discovery
phase and it is too early to predict 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 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>
<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 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's operations began
on June 7, 1996.
The Company and Trump Indiana, Inc. (the "Joint Venture Partner"), the
holder of a second gaming license to operate from the City, formed
Buffington Harbor Riverboats, L.L.C. ("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.
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.
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 1,424 slot machines and
61 table games on three decks. The Permanent Vessel has an atrium,
escalators and elevators. The Company to date has expended approximately
$52.6 million, excluding capitalized interest, on the Permanent 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 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 were 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 left on board
the Chartered Vessel that had 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 to
winter weather conditions during the first quarter of 1999, 1998, and 1997,
the Company conducted virtually all of its gaming operations with the
Permanent Vessel or the Chartered Vessel, respectively docked. The Company
anticipates resuming a regular cruising schedule during the second quarter
of 1999.
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 March 31, 1999 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 estimated to be approximately
$300,000 to $400,000 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.
Because of the climate in the Chicago metropolitan area, the Company's
operations are expected to be 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
Due to winter weather conditions the Company did not operate all or part of
two days during the quarter ended March 31, 1999 and for three days during
the quarter ended March 31, 1998. The discussions of results of operations
contained herein provides a comparison of the three month period ended March
31, 1999, with the three month period ended March 31, 1998. Gross revenues
were approximately $29.6 million and $28.6 million during the three months
ended March 31, 1999, and 1998, respectively.
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
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
------------------ ------------------
Gross Revenues (1) $29,573,000 $28,614,000
Operating Income (2) (3) $ 5,058,000 $ 1,918,000
EBITDA (4) $ 7,000,000 $ 5,336,000
<PAGE>
<PAGE>
Statements of Income - - Percentage of Gross Revenues
- -----------------------------------------------------
For the Three Months For the Three Months
Ended March 31, 1999 Ended March 31, 1998
-------------------- --------------------
Revenues:
- --------
Casino 97.7% 96.4%
Food and beverage 1.6% 1.6%
Other (1) 0.7% 2.0%
Gross Revenues 100.0% 100.0%
less promotional allowances (0.2)% (0.5)%
Net Revenues 99.8% 99.5%
Costs and Expenses:
- ------------------
Casino 17.5% 17.0%
Gaming and admission taxes 27.5% 28.4%
Food and beverage 2.1% 2.1%
Advertising and promotion 5.1% 10.2%
General and administrative (2) 20.9% 22.8%
Economic incentive-City of Gary 3.0% 3.0%
Depreciation and amortization 6.6% 6.7%
Loss on disposition of assets (3) -- 2.6%
------ ------
Total 82.7% 92.8%
Operating Income (Loss): 17.1% 6.7%
- -----------------------
Other Income (Expense):
- ----------------------
Loss on investment in BHR (2.7)% (3.2)%
Interest income 0.6% 0.8%
Interest expense (13.1)% (13.4)%
Interest expense to affiliate (0.3)% (0.5)%
Total (15.5)% (16.3)%
------- -------
Net Income (Loss): 1.6% (9.6)%
- ----------------- ------- -------
EBITDA: (4) 23.7% 18.6%
------ ------- -------
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 a loss on disposal during the three months ended March 1998, of
approximately $735,000 for assets previously used on the Chartered Vessel.
4. 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 March 31, 1999 and 1998
Gross revenues for the first quarter ended March 31, 1999, amounted to
approximately $29,573,000, an increase of approximately $959,000 or 3.4%
from gross revenues recorded in the first quarter ended March 31, 1998. The
increase was attributable to the increased capacity associated with the
Permanent Vessel combined with an aggressive marketing strategy designed to
increase the total number of passengers. Gross revenues during the first
quarter ended March 31, 1998, includes a lump sum payment 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. Also, due to severe
winter weather conditions during the first ten days of January 1999,
combined with the fact the Company did not operate all or part of two days
during this period is estimated that revenues were down approximately $1.5
to $2.0 million.
Casino revenues during the three months ended March 31, 1999, totaled
approximately $28,886,000, of which slot machines accounted for
approximately $22,145,000 (76.7%) and table games accounted for
approximately $6,741,000 (23.3%). The average number of slot machines in
operation decreased to 1,463 during the three months ended March 31, 1999,
from 1,532 during the three months ended March 31, 1998. The average win
per slot machine per day increased to approximately $172 for the three
months ended March 31, 1999, from approximately $153 during the three months
ended March 31, 1998. The average number of table games in operation during
the three months ended March 31, 1999, and 1998, was 61. The average win
per table game per day during the three months ended March 31,1999, declined
to approximately $1,211 compared to approximately $1,277 during the three
months ended March 31, 1998. The average daily win per state passenger count
was $37 and the average daily win per patron was $67 during the three months
ended March 31, 1999, compared to an average daily win per state passenger
count of $32 and an average daily win per patron of $56 for the three months
ended March 31, 1998. During the three months ended March 31, 1998, the
Company operated 8 poker tables. The Poker Room was closed in mid-March 1999
in order to convert this area to a VIP Lounge.
Food and beverage revenues for the three months ended March 31, 1999,
totaled approximately $468,000 or 1.6% of gross revenues, compared to
approximately $467,000 or 1.6% of gross revenues for the three months ended
March 31, 1998. Other revenue totaling approximately $219,000, or 0.7% of
gross revenues, consisted primarily of commission income during the three
months ended March 31, 1999 compared to approximately $564,000 during the
three months ended March 31, 1998. Other revenue during the three months
ended March 31, 1998 included 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, and commission income of approximately
$250,000.
Promotional allowances (complementaries) included in the Company's gross
food revenues for the three months ended March 31, 1999, and 1998, were
approximately $62,000 and $132,000, respectively. The decrease in
promotional allowances on board the vessel was partially offset by increased
complementaries provided at BHR operated facilities. Promotional allowances
provided to the Company's gaming patrons at facilities located in, and/or
owned by BHR for the three months ended March 31, 1999, and 1998, totaled
approximately $182,000 and $133,000, 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 March 31, 1999,
totaled approximately $5,158,000, or 17.4% of gross revenues and 17.9% of
casino revenues, respectively, compared to approximately $4,879,000, or
17.1% of gross revenues and 17.7% of casino revenues, respectively, for the
three months ended March 31, 1998. These expenses were primarily comprised
of salaries, wages and benefits, and operating and promotional expenses of
the casino. The dollar increase of $279,000 or 5.7% in casino operating
expenses is primarily attributed to an increase of approximately $235,000
for gaming equipment rental.
Gaming and admissions taxes totaled approximately $8,147,000 for the three
months ended March 31, 1999, compared to approximately $8,130,000 for the
three months ended March 31, 1998. 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 $894,000 was paid
during the three months ended March 31, 1999, compared to approximately
$852,000 in the three months ended March 31, 1998, 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 three months ended March 31,
1999, totaled approximately $1,508,000, or 5.1% of gross revenues, compared
to approximately $2,912,000, or 10.2% of gross revenues during the three
months ended March 31, 1998. 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
$1,404,000 or 48.2% decrease in advertising and promotion expenses as a
percentage of gross revenues during the three months ended March 31, 1999,
was primarily the result of the Company redirecting its marketing dollars to
target or direct marketing from mass marketing and also significantly
reducing the amount of chartered bus passengers.
General and administrative expenses for the three months ended March 31,
1999, were approximately $6,183,000, or 20.9% of gross revenues, compared to
$6,526,000, or 22.8% of gross revenues, during the three months ended March
31, 1998. These expenses included approximately $1,656,000 for berthing
fees paid to BHR, $1,337,000 for marine operations and $524,000 for security
and surveillance operations during the first quarter of 1999. The $343,000
or 5.3% decrease in these expenses is primarily attributed to a decrease of
$752,000 in marine operations as a result of the termination of the
chartered vessel lease on March 1, 1998, a decrease of $195,000 in berthing
fees offset by an increase of approximately $600,000 in general and
administrative expenses, including approximately $310,000 in various
property, and sales and use taxes.
Depreciation and amortization for the first quarter ended March 31, 1999,
was approximately $1,943,000, or 6.6% of gross revenues, compared to
approximately $1,931,000, or 6.7% of gross revenues, during the three months
ended March 31, 1998.
Operating income for the three months ended March 31, 1999, was
approximately $5,058,000, or 17.1% of gross revenues, compared to an
operating income for the three months ended March 31, 1998 of $1,918,000, or
6.7% of gross revenues. During the three months ended March 31, 1998, the
Company wrote-off assets used on the Chartered Vessel with a net book value
of approximately $735,000. The increase in operating income is principally
attributable to the increase of the average daily win per patron to $67
during the three months ended March 31, 1999 from $56 during the three
months ended March 31, 1998, combined with a 5.1% decrease in marketing
expenses.
Net interest expense for the three months ended March 31, 1999, was
$3,783,000, or approximately 12.8% of gross revenues, compared to
$3,742,000, or approximately 13.1% for the same period last year. As of
March 31, 1999, and 1998, the Company had accrued contingent interest to
date of approximately $2,829,000 and $1,518,000, respectively. No
contingent interest was paid during the three months ended March 31, 1999,
or 1998.
The Company's loss relating to its investment in BHR for the three months
ended March 31, 1999, was approximately $804,000. The loss represents the
Company's 50% share of BHR's non-cash net loss.
As a result of the foregoing, the Company experienced net income of
approximately $471,000 compared to a net loss of approximately $2,750,000
during the three months ended March 31, 1999, and 1998, respectively.
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 during the three months ended March 31, 1999 was approximately
$7,000,000 or 23.7% of gross revenues, compared to EBITDA (excluding loss on
disposal of assets in 1998 of $735,000 and Chartered Vessel lease and
termination payments of approximately $752,000 in 1998) of approximately
$5,336,000, or 18.6% of gross revenues, for the three months ended March 31,
1998. The $1,664,000 or 31.2% increase in EBITDA during the first quarter
ended March 31, 1999 compared to first quarter ended March 31, 1998, is
primarily the result of an aggressive marketing strategy and strong
operating margins.
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 March 31, 1999, the Company had cash and cash equivalents of
approximately $24.1 million. During the three months ended March 31, 1999,
the Company expended approximately $556,000 for property and equipment
primarily associated with the Permanent Vessel for the construction of two
lounge facilities of which one is to be located on the vessel. The lounge
on the vessel is located in the former Poker Room and is anticipated to open
late second quarter 1999. The second lounge is located adjacent to the
boarding area. The Company also contributed approximately $67,000 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 three months ended
March 31, 1999, net cash provided from operations totaled approximately $8.3
million. The consolidated cash flow as defined in the Indenture governing
the Company's Senior Secured Notes was approximately $7.2 million in the
three months ended March 31, 1999. The consolidated cash flow in the second
semiannual period (October through March) was approximately $14.4 million.
As of March 31, 1999, 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 Barden
Development, Inc. ("BDI"), and (iii) approximately $4.8 million of equipment
financing.
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.
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.
All contingent interest ordinarily payable on the Senior Secured Notes since
their issuance has been deferred, as allowed under the Indenture. At March
31, 1999, the Company had accrued contingent interest payable of
approximately $2,829,000. 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 (1) $10 million for off-site development in the City by 1999 with the
particular projects to be agreed to by the City; and (2) $12 million (which
amount has been invested as of March 31, 1999, with the exact allocation
between projects to be agreed upon by the City and the Company) for
enhancements to the Company's operations at Buffington Harbor and/or the BHR
Joint Venture 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. In May
1998, the Company deposited $3.6 million with the bank to guarantee this
letter of credit to benefit the bonding company. Upon completion of the
offsite development obligations the $3.6 million deposit will be returned to
the Company.
The Company anticipates that additional capital contributions to BHR,
including capital for an emergency back-up generator and upgrade of food
service areas are currently estimated to be approximately $500,000, may be
required for the BHR facilities. The Company and the Joint Venture Partner
continue to review the feasibility of purchasing additional property as well
as the harbor leased from Lehigh Cement 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 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 towards 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.
BHR anticipates filing the requisite regulatory permits during 1999. 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 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.
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 March 31, 1999. 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, the 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 1999. 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 will not be repaid in 1999. 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
<PAGE>
<PAGE>
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 equal
employment opportunity (EEO) 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. The tax is payable in semiannual
installments due in May and November 1998. Payments totaling approximately
$560,000 in the aggregate have been paid based upon an estimate provided to
the Company by legal counsel.
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 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, the case is in the discovery
phase and it is too early to predict the outcome of such suit and the
effect, if any on the Company's financial position and results of
operations.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) EXHIBITS
No. Description
10.18 * Employment Letter Agreement effective as of March
20, 1999 by and between the Company and David Wolf,
filed as Exhibit 10.18 to the Company's
Registration Statement, No. 333-06489, and
incorporated herein by reference.
27 Financial Data Schedule (Edgar Version Only (filed
herewith)
---------------------------------------
* Denotes a management compensation arrangement.
(b) REPORTS ON FORM 8-K
None filed during the quarter ended March 31, 1999.<PAGE>
<PAGE>
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 May
3, 1999.
The Majestic Star Casino, LLC
By: Barden Development Inc., Manager
By: /S/ DON H. BARDEN
---------------------------------
Don H. Barden
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Signature Title Date
President and Chief Executive Officer April 29, 1999
- -------------------- of the Manager and the Company
Don H. Barden (Principal Executive Officer)
Vice President, Chief Operating April 29, 1999
- -------------------- and Financial Officer
Michael E. Kelly (Principal Financial and Accounting
Officer of the Company)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 24,107,999
<SECURITIES> 0
<RECEIVABLES> 763,356
<ALLOWANCES> 65,859
<INVENTORY> 37,385
<CURRENT-ASSETS> 25,561,741
<PP&E> 66,615,964
<DEPRECIATION> 11,619,378
<TOTAL-ASSETS> 129,887,096
<CURRENT-LIABILITIES> 16,004,725
<BONDS> 105,000,000
<COMMON> 0
0
0
<OTHER-SE> (2,526,823)
<TOTAL-LIABILITY-AND-EQUITY> 129,887,096
<SALES> 29,573,376
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<TOTAL-COSTS> 24,515,614
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