<PAGE> 1
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, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 333-06489
<TABLE>
<S> <C> <C>
INDIANA THE MAJESTIC STAR CASINO, LLC 43-1664986
INDIANA THE MAJESTIC STAR CASINO CAPITAL CORP. 35-2100872
(State or other jurisdiction of (Exact name of registrant as specified in its charter) (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
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, 2000:
<TABLE>
<CAPTION>
Class Number of shares
- ----- ----------------
<S> <C>
Not applicable Not applicable
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THE MAJESTIC STAR CASINO, LLC
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE NO.
<S> <C> <C> <C>
Item 1. Financial Statements
Balance Sheets, as of March 31, 2000 (Unaudited)
and December 31, 1999......................................1
Statements of Income (Unaudited) for the three months
ended March 31, 2000 and 1999..............................2
Statements of Cash Flows (Unaudited) for the three months
ended March 31, 2000 and 1999..............................3
Notes to Financial Statements.......................................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.........14
PART II OTHER INFORMATION
Item 1. Legal Proceedings..................................................15
Item 2. Changes in Securities and Use of Proceeds..........................15
Item 3. Defaults Upon Senior Securities....................................15
Item 4. Submission of Matters to a Vote of Security Holders................15
Item 5. Other Information..................................................15
Item 6. Exhibits and Reports on Form 8-K...................................15
SIGNATURES...............................................................................16
</TABLE>
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PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE MAJESTIC STAR CASINO, LLC
<TABLE>
<CAPTION>
BALANCE SHEETS
MARCH 31, DECEMBER 31,
2000 1999
(UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................... $ 18,150,236 $ 20,145,044
Accounts receivable, less allowance for doubtful accounts
of $94,830 and $36,548, respectively..................... 1,374,723 1,995,904
Inventories................................................. 70,848 67,049
Prepaid expenses............................................ 856,688 1,041,748
Restricted cash .......................................... 7,357,874 7,357,874
--------------- -------------
Total current assets..................................... 27,810,369 30,607,619
--------------- -------------
Property, equipment, and vessel improvements, net............. 52,731,964 53,550,817
Other Assets:
Deferred financing costs, less accumulated amortization
of $632,214 and $419,823, respectively................... 5,059,240 5,205,917
Deferred costs, less accumulated amortization
of $4,270,562 and $3,994,262, respectively............... 1,381,467 1,657,767
Investment in Buffington Harbor Riverboats, L.L.C........... 37,520,535 38,146,213
Other assets and deposits................................... 3,981,710 3,981,710
--------------- -------------
Total other assets.................................. 47,942,952 48,991,607
--------------- -------------
Total Assets........................................ $ 128,485,285 $ 133,150,043
=============== =============
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities:
Current maturities of long-term debt........................ $ 8,185,808 $ 8,208,002
Accounts payable............................................ 541,939 859,087
Other accrued liabilities:
Payroll and related...................................... 714,963 936,608
Interest................................................. 4,068,165 7,903,260
Other accrued liabilities................................ 4,236,249 3,227,147
Due to Buffington Harbor Riverboats, L.L.C............... 37,746 176,861
--------------- -------------
Total current liabilities........................... 17,784,870 21,310,965
Long-term debt, net of current maturities..................... 128,433,436 128,922,062
Commitments and contingencies................................. -- --
--------------- -------------
Total long-term liabilities......................... 128,433,436 128,922,062
--------------- -------------
Total Liabilities................................... 146,218,306 150,233,027
--------------- -------------
Members' Equity:
Members' contributions...................................... 24,000,000 24,000,000
Retained earnings (Accumulated deficit)..................... (41,733,021) (41,082,984)
--------------- -------------
Total members' equity............................... (17,733,021) (17,082,984)
--------------- -------------
Total Liabilities and Members' Equity............... $ 128,485,285 $ 133,150,043
=============== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
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THE MAJESTIC STAR CASINO, LLC
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
2000 1999
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES:
Casino.......................................................$ 30,631,101 $ 28,886,072
Food and beverage............................................. 529,923 467,901
Other ........................................................ 221,078 219,403
-------------- --------------
Gross revenues.......................................... 31,382,102 29,573,376
less promotional allowances............................. (101,132) (62,348)
-------------- --------------
Net revenues............................................ 31,280,970 29,511,028
-------------- --------------
COSTS AND EXPENSES:
Casino........................................................ 5,921,761 5,158,220
Gaming and admission taxes.................................... 8,580,795 8,147,090
Food and beverage............................................. 562,640 620,469
Advertising and promotion..................................... 2,342,645 1,508,096
General and administrative.................................... 6,616,443 6,183,100
Economic incentive - City of Gary............................. 946,771 893,571
Depreciation and amortization................................. 2,259,876 1,942,720
-------------- --------------
Total costs and expenses................................ 27,230,931 24,453,266
-------------- --------------
Operating income ....................................... 4,050,039 5,057,762
-------------- --------------
OTHER INCOME (EXPENSE):
Loss on investment in
Buffington Harbor Riverboats, L.L.C..................... (731,174) (804,014)
Interest income............................................... 191,282 194,325
Interest expense.............................................. (3,826,101) (3,877,872)
Interest expense to affiliate................................. -- (99,200)
Other nonoperating expense.................................... (51,969) --
-------------- --------------
Total other income (expense)............................ (4,417,962) (4,586,761)
-------------- --------------
Net Income (Loss)....................................$ (367,923) $ 471,001
================ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
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THE MAJESTIC STAR CASINO, LLC
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31, 2000 ENDED MARCH 31, 1999
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss) .......................................................$ (367,923) $ 471,001
Adjustment to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation............................................................. 1,690,813 1,513,124
Amortization............................................................. 569,063 429,596
Loss on investment in Buffington Harbor Riverboats, L.L.C................ 731,174 804,014
Decrease in accounts receivable, net..................................... 621,181 152,589
(Increase) decrease in inventories....................................... (3,799) 4,563
Decrease in prepaid expenses............................................. 185,060 265,652
Increase in other assets................................................. (65,714) --
Increase (decrease) in accounts payable................................. (317,148) 159,153
Decrease in accrued payroll and other expenses........................... (221,645) (260,405)
Increase (decrease) in accrued interest.................................. (3,835,095) 3,632,718
Increase in other accrued liabilities.................................... 853,717 1,098,917
-------- ------------
Net cash provided (used) by operating activities...................... (160,316) 8,270,922
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, equipment and vessel improvements............... (871,960) (915,851)
Investment in Buffington Harbor Riverboats, L.L.C........................ (105,496) (67,325)
--------- ----------
Net cash provided (used) by investment activities.................... (977,456) (983,176)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash paid to reduce long-term debt....................................... (574,922) (475,148)
Distribution to Barden Development, Inc.................................. (282,114) --
--------- ----------
Net cash used by financing activities................................. (857,036) (475,148)
--------- ----------
Net increase (decrease) in cash and cash equivalents...................... (1,994,808) 6,812,598
Cash and cash equivalents, beginning of period............................ 20,145,044 17,295,401
---------- -----------
Cash and cash equivalents, end of period.................................$ 18,150,236 $ 24,107,999
========== ==========
INTEREST PAID:
Principal Member........................................................$ -- $ 99,200
Equipment Debt..........................................................$ 81,926 $ 146,100
Senior Secured Notes - Fixed Interest 10-7/8%...........................$ 7,579,271 $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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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 ("LLC"), 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,
2000 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, 1999.
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 Three Months
Ended March 31, 2000 Ended March 31, 1999
-------------------- --------------------
<S> <C> <C>
Gross Revenue............................... $ 5,133,292 $ 4,599,333
Operating Income (Loss)..................... $ 89,302 $ (114,707)
Net Loss.................................... $ (1,442,787) $ (1,608,024)
</TABLE>
4
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THE MAJESTIC STAR CASINO, LLC
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
NOTE 3 COMMITMENTS AND CONTINGENCIES:
Legal Proceedings
There have been no material changes in the legal proceedings previously
described in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999.
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 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.
5
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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
Majestic Star Casino Capital Corp. ("Capital"), a wholly owned subsidiary of the
Company was incorporated on May 11, 1999 in the State of Indiana solely for the
purpose of serving as a co-issuer to facilitate the offering of the 10-7/8%
Senior Secured Notes and has no assets, liabilities, or operations.
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
6
<PAGE> 9
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.
On October 27, 1997, the Company replaced a leased vessel (the "Chartered
Vessel") with the current Majestic Star Casino vessel owned by the Company (the
"Permanent Vessel"). The Permanent Vessel was initially placed in service at a
cost of approximately $50.1 million and contains approximately 43,000 square
feet of casino space, 1,410 slot machines and 57 table games on three decks.
The federal law that prohibited cruising on federal waterways was amended in
1996 to allow cruises and, as a result, the IGC advised the Company that
cruising could commence November 15, 1996, subject to winter weather conditions.
However, due to winter weather conditions during the first quarter of 2000, 1999
and 1998, the Company conducted virtually all of its gaming operations with the
Permanent Vessel or the Chartered Vessel docked. The Company resumed a regular
cruising schedule during April 2000.
The approach of the year 2000 was expected to be 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 in 1998 and 1999 undertook a comprehensive assessment of the
Company's exposure to the Year 2000 Issue and implemented initiatives to ensure
that the Company was 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 computer programs utilized in the
Company's operations were upgraded in 1999, and the software vendors have
represented that such programs are year 2000 compliant. Maintenance or
modification costs of approximately $110,000 associated with the Year 2000 Issue
were expensed as incurred during 1999, while the costs of any new software was
capitalized and is being amortized over the software's useful life. The Company
did not materially alter its expenditures while addressing the Year 2000 Issue,
nor was the Company affected by any material changes in revenues from customers
as a result of the Year 2000 Issue. The Company does not expect to incur any
additional 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 are 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. The discussions of results of
operations contained herein provides a comparison of the three month period
ended March 31, 2000, with the three month period
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ended March 31, 1999. Gross revenues were approximately $31.4 million and $29.6
million during the three months ended March 31, 2000, and 1999, respectively.
The following table sets forth: (i) summary information from the Company's
statements of income, as well as information relative to EBITDA (as defined
below) derived therefrom; and (ii) the Company's statements of income, as well
as information relative to EBITDA, expressed as a percentage of gross revenues.
Statements of Income - - Summary Information
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 2000 March 31, 1999
----------------------- ----------------------
<S> <C> <C>
Gross Revenues .....................................$ 31,382,000 $ 29,573,000
Operating Income....................................$ 4,050,000 $ 5,058,000
EBITDA (1).........................................$ 6,310,000 $ 7,000,000
</TABLE>
Statements of Income - - Percentage of Gross Revenues
<TABLE>
<CAPTION>
For the Three Months For the Three Months
Ended March 31, 2000 Ended March 31, 1999
-------------------- --------------------
<S> <C> <C>
Revenues:
Casino............................................ 97.6% 97.7%
Food and beverage................................. 1.7% 1.6%
Other............................................. 0.7% 0.7%
Gross Revenues.................................. 100.0% 100.0%
less promotional allowances..................... (0.3)% (0.2)%
Net Revenues.................................... 99.7% 99.8%
Costs and Expenses:
Casino............................................ 18.9% 17.4%
Gaming and admission taxes........................ 27.3% 27.6%
Food and beverage................................. 1.8% 2.1%
Advertising and promotion......................... 7.5% 5.1%
General and administrative........................ 21.1% 20.9%
Economic incentive-City of Gary................... 3.0% 3.0%
Depreciation and amortization..................... 7.2% 6.6%
---- ----
Total.................................... 86.8% 82.7%
Operating Income (Loss):............................ 12.9% 17.1%
Other Income (Expense):
Loss on investment in BHR......................... (2.3)% (2.7)%
Interest income................................... 0.6% 0.6%
Interest expense.................................. (12.2)% (13.1)%
Interest expense to affiliate..................... -- (0.3)%
Other nonoperating expense....................... (0.2)% --
------ -------
Total.......................................... (14.1)% (15.5)%
------- -------
Net Income (Loss):................................... (1.2)% 1.6%
------ ----
EBITDA: (1)................................. 20.1% 23.7%
----- -----
</TABLE>
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NOTES:
1. EBITDA (defined as earnings before interest, income taxes, depreciation and
amortization) 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, 2000 AND 1999
Gross revenues for the first quarter ended March 31, 2000, amounted to
approximately $31,382,000, an increase of approximately $1,809,000 or 6.1% from
gross revenues recorded in the first quarter ended March 31, 1999. The increase
was principally attributable to an 11.0% increase in "coin-in", which is the
amount of coins put into a slot machine by players.
Casino revenues during the three months ended March 31, 2000, totaled
approximately $30,631,000, of which slot machines accounted for approximately
$24,123,000 (78.8%) and table games accounted for approximately $6,508,000
(21.2%). The average number of slot machines in operation decreased to 1,417
during the three months ended March 31, 2000, from 1,463 during the three months
ended March 31, 1999. The average win per slot machine per day increased to
approximately $187 for the three months ended March 31, 2000, from approximately
$172 during the three months ended March 31, 1999. The average number of table
games in operation during the three months ended March 31, 2000, and 1999, was
57 and 61, respectively. The average win per table game per day during the three
months ended March 31,2000, increased to approximately $1,255 compared to
approximately $1,211 during the three months ended March 31, 1999. The average
daily win per state passenger count was $38 and the average daily win per patron
was $67 during the three months ended March 31, 2000, compared to an average
daily win per state passenger count of $37 and an average daily win per patron
of $67 for the three months ended March 31, 1999.
Food and beverage revenues for the three months ended March 31, 2000, totaled
approximately $530,000, or 1.7% of gross revenues, compared to approximately
$468,000, or 1.6% of gross revenues, for the three months ended March 31, 1999.
Other revenue totaling approximately $221,000, or 0.7% of gross revenues,
consisted primarily of commission income during the three months ended March 31,
2000 compared to approximately $219,000 during the three months ended March 31,
1999.
Promotional allowances (complementaries) included in the Company's gross food
revenues for the three months ended March 31, 2000, and 1999, were approximately
$101,000 and $62,000, respectively. The increase in promotional allowances on
board the vessel was offset by decreased 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, 2000, and 1999, totaled approximately $75,000 and $182,000,
respectively, and are characterized in the financial statements as an expense to
the casino. BHR invoices the
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<PAGE> 12
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, 2000, totaled
approximately $5,922,000, or 18.9% of gross revenues and 19.3% of casino
revenues, respectively, compared to approximately $5,158,000, or 17.4% of gross
revenues and 17.9% of casino revenues, respectively, for the three months ended
March 31, 1999. These expenses were primarily comprised of salaries, wages and
benefits, and operating and promotional expenses of the casino. The dollar
increase of $764,000 or 14.8% in casino operating expenses is primarily
attributed to an increase of approximately $600,000 in cashback to slot guests
as the result of an 11.0% increase in coin-in and an increased enrollment in
Club Majestic.
Gaming and admissions taxes totaled approximately $8,581,000 for the three
months ended March 31, 2000, compared to approximately $8,147,000 for the three
months ended March 31, 1999. 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 $947,000 was paid during the three
months ended March 31, 2000, compared to approximately $894,000 in the three
months ended March 31, 1999, 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, 2000,
totaled approximately $2,343,000, or 7.5% of gross revenues, compared to
approximately $1,508,000, or 5.1% of gross revenues during the three months
ended March 31, 1999. 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 $835,000 or 55.4% increase in
advertising and promotion expenses as a percentage of gross revenues during the
three months ended March 31, 2000, was primarily the result of a $405,000
increase in costs associated with junket transportation including charter bus
passengers and an increase of $267,000 in television and radio as part of
undertaking an aggressive and integrated brand image campaign that began in
mid-February.
General and administrative expenses for the three months ended March 31, 2000,
were approximately $6,616,000, or 21.1% of gross revenues, compared to
$6,183,000, or 20.9% of gross revenues, during the three months ended March 31,
1999. These expenses included approximately $1,784,000 for berthing fees paid to
BHR, $1,596,000 for marine operations including housekeeping, and $641,000 for
security and surveillance operations during the first quarter of 2000. The
$433,000 or 7.0% increase in these expenses is primarily attributed to an
increase of approximately $190,000 in payroll expenses for security, MIS, and
human resources, $110,000 for vessel berthing fees, $60,000 for fuel and
utilities and $50,000 for professional fees during the three months ended March
31, 2000.
Depreciation and amortization for the first quarter ended March 31, 2000, was
approximately $2,260,000, or 7.2% of gross revenues, compared to approximately
$1,943,000, or 6.6% of gross revenues, during the three months ended March 31,
1999. The dollar increase of $317,000 in depreciation and amortization expense
is primarily attributable to the increased expense associated with machinery and
equipment placed into service during the past year and the increase in
10
<PAGE> 13
amortization of deferred financing costs associated with the issuance of the
$130.0 million of 10-7/8% Senior Secured Notes.
Operating income for the three months ended March 31, 2000, was approximately
$4,050,000, or 12.9% of gross revenues, compared to an operating income for the
three months ended March 31, 1999 of $5,058,000, or 17.1% of gross revenues. The
decrease in operating income is principally attributable to increased
expenditures for Club Majestic and marketing expenditures as a result of
increased competition resulting primarily from dockside gaming in Illinois as
well as expenditures associated with a branding campaign initiated in February,
2000. The Company's customer base includes the Chicago metropolitan area.
Net interest expense for the three months ended March 31, 2000, was $3,635,000,
or approximately 11.6% of gross revenues, compared to $3,783,000, or
approximately 12.8% for the same period last year.
Other nonoperating expense includes unused line of credit fees of approximately
$52,000 associated with the $20.0 million credit facility that was undrawn and
fully available as of March 31, 2000.
The Company's loss relating to its investment in BHR for the three months ended
March 31, 2000, was approximately $731,000. The loss represents the Company's
50% share of BHR's non-cash net loss.
As a result of the foregoing, the Company experienced a net loss of
approximately $368,000 compared to net income of approximately $471,000 during
the three months ended March 31, 2000, and 1999, 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, 2000 was approximately $6,310,000
or 20.1% of gross revenues, compared to EBITDA of approximately $7,000,000, or
23.7% of gross revenues, for the three months ended March 31, 1999. The $690,000
or 9.9% decrease in EBITDA during the first quarter ended March 31, 2000
compared to first quarter ended March 31, 1999, is primarily the result of
increased casino expenses associated with Club Majestic and increased marketing
expenditures during the three months ended March 31, 2000 compared to the three
months ended March 31, 1999.
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.
11
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, the Company had cash and cash equivalents of approximately
$18.2 million, excluding both the restricted cash of $7.4 million being held to
defease the remaining $6.0 million of 12-3/4% Senior Secured Notes and $3.6
million of cash being held as a deposit for a letter of credit securing a surety
bond to satisfy off-site obligations. During the three months ended March 31,
2000, the Company expended approximately $872,000 for property and equipment
including approximately $464,000 for slot equipment. The Company also
contributed approximately $106,000 from working capital to BHR for general
enhancements during this period.
The Company has met its capital requirements to date through net cash from
operations, capital contributions and loans. For the three months ended March
31, 2000, net cash used by operating activities totaled approximately $160,000,
compared to net cash provided by operating activities of approximately $8.3
million during the three months ended March 31, 1999. The principal reason for
this change is attributed to the $7.6 million interest payment being made in
January, 2000 on the $130.0 million 10-7/8% Senior Secured Notes. For the three
months ended March 31, 2000, cash used by investing activities totaled
approximately $977,000, compared to $983,000 during the three months ended March
31, 1999. For the three months ended March 31, 2000, cash used by financing
activities totaled approximately $857,000, compared to $475,000 during the three
months ended March 31, 1999. The principal cause for this change is attributed
to approximately $282,000 in management fees being paid to Barden Development,
Inc. ("BDI").
As of March 31, 2000, outstanding debt included: (i) $130.0 million principal
amount of 10-7/8% Senior Secured Notes due 2006; (ii) $6.0 million principal
amount of 12-3/4% Senior Secured Notes; and (iii) approximately $2.6 million of
equipment financing obligations, including related use taxes. The 10-7/8% Senior
Secured Notes are secured by substantially all current and future assets other
than certain excluded assets. The $6.0 million principal amount of 12-3/4%
Senior Secured Notes are expected to be redeemed on May 15, 2000, at their first
call date. The first priority liens on the collateral that secures the 12-3/4%
Senior Secured Notes will be released as a result of the defeasance of those
notes. On August 2, 1999, the Company established a new $20.0 million credit
facility, which is also secured by substantially all current and future assets
other than to the lien securing the 10-7/8% Senior Secured Notes. The $20.0
million credit facility was undrawn and fully available as of March 31, 2000.
Under the terms of its development agreement with the City, the Company
committed, among other things, to make development expenditures of $116.0
million for its casino and associated infrastructure in the City over a five
year period. The Company has met this commitment. The remaining portion of the
development commitment is $10.0 million for off-site development in the City
with the particular projects to be agreed to by the City. With respect to this
off-site development commitment, the Company arranged for a $12.5 million surety
bond which provides collateral for the completion of this obligation. The
Company has deposited $3.6 million with a bank to guarantee a letter of credit
which benefits the bonding company that provided the surety bond. The date for
the Company's off-site development commitment has been mutually extended by the
Company and the City to 2000. Don H. Barden, Chairman and CEO of the Company,
through an affiliated company known as Gary New Century, LLC ("GNC") has entered
into an agreement with the City to purchase approximately 190 acres of land
including the harbor adjacent
12
<PAGE> 15
to the Buffington Harbor Complex. The off-site development commitment is
anticipated to be satisfied with the purchase of this land. Mr. Barden has
already funded $1.0 million of the $25.0 million purchase price The initial
purchase of the ground is subject to various approvals and is expected to close
during the second quarter of 2000. GNC is in the process of conducting an
economic feasibility study with respect to the development of the land. Future
development on the land by GNC may include hotels, retail and other
entertainment facilities. The $3.6 million deposited by the Company to guarantee
a letter of credit is anticipated to be returned to the Company upon
satisfaction of the off-site development obligations.
The Company anticipates that additional capital contributions, currently
estimated to be between $300,000 to $500,000, for additional shuttle busses, and
a food service area upgrade may be required for the BHR facilities. It is also
anticipated that a portion of the land to be purchased by GNC will be sold or
leased by Mr. Barden to a joint venture to be formed by the Joint Venture
Partner and the Company in order to jointly construct and operate a multi-level
covered parking structure. The parking structure is expected to provide
customers with approximately 2,050 covered parking spaces and indoor access to
the BHR Gaming Complex. The parking project is estimated to cost approximately
$38.5 million, including approximately $15.0 million for the purchase of the
land. Customers currently either park their automobiles in a parking lot or use
valet parking services. The Company currently expects to contribute
approximately $3.5 to $5.0 million of capital toward the project and to fund
such further investments from operations and/or loans. The Company believes that
the convenience of the new parking structure will attract a significant number
of new customers to BHR, thereby providing opportunities to increase its net
revenues and cash flow. There can be no assurance that the harbor or the
property on which the garage is to be built will be acquired or that such a
facility will be constructed or that the garage will be built on terms favorable
to the Company at all.
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 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 rental payment of $125,000.
BHR anticipates filing the requisite regulatory permits during the coming year.
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.
The property leased by BHR is included as part of the 190 acres previously
discussed herein and the requirement to pursue certain regulatory permits would
no longer apply once the land has been purchased by GNC.
Management believes that the Company's cash flow from operations, certain
planned equipment financings, and its current line of credit, will be adequate
to meet the Company's anticipated future requirements for working capital, the
remaining development obligations to the City, its capital expenditures and the
scheduled payments of interest and principal on the Senior Secured Notes and
other permitted indebtedness during the year 2000. No assurance can be given,
however, that operating cash flow from the Permanent Vessel, in light of
increased competition principally, as a
13
<PAGE> 16
result of dockside gambling in Illinois and the purchase of certain Indiana
gambling facilities by larger more recognized brand names, will be sufficient
for such purposes. If necessary and to the extent permitted under the Indenture,
the Company will seek 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.
14
<PAGE> 17
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.
There have been no material changes in the legal proceedings previously
described in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999.
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
27 Financial Data Schedule (Edgar Version Only (filed herewith)
(b) REPORTS ON FORM 8-K
None filed during the quarter ended March 31, 2000.
15
<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 May 12, 2000.
THE MAJESTIC STAR CASINO, LLC
By: Barden Development Inc., Manager
By: /s/ Don H. Barden
--------------------------------------
Don H. Barden
President and Chief Executive Officer
THE MAJESTIC STAR CASINO CAPITAL CORP.
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.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Don H. Barden
- ------------------------- President and Chief Executive Officer May 12, 2000
Don H. Barden of the Manager and the Company, President and
sole director of The Majestic Star Casino
Capital Corp. (Principal Executive Officer)
/s/ Michael E. Kelly
- ------------------------- Vice President, Chief Operating May 12, 2000
Michael E. Kelly and Financial Officer of the Company and The
Majestic Star Casino Capital Corp.
(Principal Financial and Accounting Officer)
</TABLE>
16
<PAGE> 19
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 18,150,236
<SECURITIES> 0
<RECEIVABLES> 1,469,553
<ALLOWANCES> 94,830
<INVENTORY> 70,848
<CURRENT-ASSETS> 27,810,369
<PP&E> 70,851,394
<DEPRECIATION> 18,119,430
<TOTAL-ASSETS> 128,485,285
<CURRENT-LIABILITIES> 17,784,870
<BONDS> 130,000,000
0
0
<COMMON> 0
<OTHER-SE> (17,733,021)
<TOTAL-LIABILITY-AND-EQUITY> 128,485,285
<SALES> 31,382,102
<TOTAL-REVENUES> 31,382,102
<CGS> 0
<TOTAL-COSTS> 27,332,063
<OTHER-EXPENSES> 783,143
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,634,819
<INCOME-PRETAX> (367,923)
<INCOME-TAX> 0
<INCOME-CONTINUING> (367,923)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (367,923)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
