<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 333-06489
INDIANA THE MAJESTIC STAR CASINO, LLC 43-1664986
INDIANA THE MAJESTIC STAR CASINO CAPITAL CORP. 35-2100872
(State or other (Exact name of registrant (I.R.S. Employer
jurisdiction of as specified in its charter) Identification No.)
incorporation or
organization)
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
June 30, 2000:
Class Number of shares
----- ----------------
Not applicable Not applicable
<PAGE>
THE MAJESTIC STAR CASINO, LLC
INDEX
PART I FINANCIAL INFORMATION PAGE NO.
--------
Item 1. Financial Statements
Balance Sheets, as of June 30, 2000 (Unaudited)
and December 31, 1999..........................................1
Statements of Income (Unaudited) for the three
and six months ended June 30, 2000 and 1999....................2
Statements of Cash Flows (Unaudited) for the six months
ended June 30, 2000 and 1999...................................3
Notes to Financial Statements (Unaudited)......................4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................7
Item 3. Quantitative and Qualitative Disclosures About Market Risk....17
PART II OTHER INFORMATION
Item 1. Legal Proceedings.............................................17
Item 2. Changes in Securities and Use of Proceeds.....................17
Item 3. Defaults Upon Senior Securities...............................17
Item 4. Submission of Matters to a Vote of Security Holders...........17
Item 5. Other Information.............................................17
Item 6. Exhibits and Reports on Form 8-K..............................17
SIGNATURES....................................................................18
i
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE MAJESTIC STAR CASINO, LLC
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
(UNAUDITED)
--------------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents....................................... $ 19,365,922 $ 20,145,044
Accounts receivable, less allowance for doubtful accounts.......
of $120,420 and $36,548, respectively....................... 1,458,993 1,995,904
Inventories..................................................... 50,937 67,049
Prepaid expenses................................................ 1,411,810 1,041,748
Restricted Cash................................................. -- 7,357,874
Due from affiliate.............................................. 2,000,000 --
--------------- -------------
Total current assets......................................... 24,287,662 30,607,619
--------------- -------------
Property, equipment, and vessel improvements, net................. 51,441,051 53,550,817
Other Assets:
Deferred financing costs, less accumulated amortization
of $844,602 and $419,823, respectively..................... 4,831,890 5,205,917
Deferred costs, less accumulated amortization
of $4,546,862 and $3,994,262, respectively.................. 1,105,167 1,657,767
Investment in Buffington Harbor Riverboats, L.L.C............... 36,854,289 38,146,213
Other assets and deposits....................................... 4,152,129 3,981,710
--------------- -------------
Total other assets...................................... 46,943,475 48,991,607
--------------- -------------
Total Assets............................................ $ 122,672,188 $ 133,150,043
=============== =============
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities:
Current maturities of long-term debt............................ $ 1,911,608 $ 8,208,002
Accounts payable................................................ 657,876 859,087
Other accrued liabilities:
Payroll and related.......................................... 674,419 936,608
Interest..................................................... 7,068,750 7,903,260
Other accrued liabilities.................................... 3,122,756 3,227,147
Due to Buffington Harbor Riverboats, L.L.C................... 196,848 176,861
--------------- -------------
Total current liabilities............................... 13,632,257 21,310,965
Long-term debt, net of current maturities......................... 128,263,685 128,922,062
Commitments and contingencies..................................... -- --
--------------- -------------
Total long-term liabilities............................. 128,263,685 128,922,062
--------------- -------------
Total Liabilities....................................... 141,895,942 150,233,027
--------------- -------------
Members' Equity:
Members' contributions......................................... 24,000,000 24,000,000
Retained earnings (Accumulated deficit)......................... (43,223,754) (41,082,984)
--------------- -------------
Total members' (deficit)............................... (19,223,754) (17,082,984)
--------------- -------------
Total Liabilities and Members' Equity................... $ 122,672,188 $ 133,150,043
=============== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
THE MAJESTIC STAR CASINO, LLC
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30, ENDED JUNE 30, ENDED JUNE 30,
2000 1999 2000 1999
--------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
REVENUES:
Casino ............................................ $ 29,115,712 $ 30,527,21 $ 59,746,813 $ 59,413,287
Food and beverage ................................. 460,080 500,081 990,003 967,982
Other ............................................. 282,967 248,596 504,045 467,999
------------ ------------ ------------ ------------
Gross revenues .............................. 29,858,759 31,275,892 61,240,861 60,849,268
------------ ------------ ------------ ------------
less promotional allowances ................. (90,897) (76,943) (192,029) (139,291)
Net revenues ................................ 29,767,862 31,198,949 61,048,832 60,709,977
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Casino ............................................ 6,251,717 5,057,329 12,173,478 10,215,549
Gaming and admission taxes ........................ 8,110,737 8,515,879 16,691,532 16,662,969
Food and beverage ................................. 615,417 615,620 1,178,057 1,236,089
Advertising and promotion ......................... 1,908,997 1,810,690 4,251,642 3,318,786
General and administrative ........................ 6,278,485 6,196,377 12,894,928 12,379,477
Economic incentive - City of Gary ................. 900,255 941,821 1,847,026 1,835,392
Depreciation and amortization ..................... 2,289,274 1,971,806 4,549,150 3,914,526
------------ ------------ ------------ ------------
Total costs and expenses .................... 26,354,882 25,109,522 53,585,813 49,562,788
------------ ------------ ------------ ------------
Operating income ............................ 3,412,980 6,089,427 7,463,019 11,147,189
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Loss on investment in
Buffington Harbor Riverboats, L.L.C ......... (720,663) (599,977) (1,451,837) (1,403,991)
Interest income ................................... 241,184 201,805 432,466 396,130
Interest expense .................................. (3,700,107) (3,880,151) (7,526,208) (7,758,023)
Interest expense to affiliate ..................... -- (68,254) -- (167,454)
Other non-operating expense ....................... (26,131) -- (78,100) --
------------ ------------ ------------ ------------
Total other income (expense) ................ (4,205,717) (4,346,577) (8,623,679) (8,933,338)
------------ ------------ ------------ ------------
Income (loss) before extraordinary item .... (792,737) 1,742,850 (1,160,660) 2,213,851
EXTRAORDINARY ITEM:
Loss on bond redemption ............................ (382,500) (15,238,156) (382,500) (15,238,156)
Net Loss .................................... $ (1,175,237) $(13,495,306) $ (1,543,160) $(13,024,305)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
THE MAJESTIC STAR CASINO, LLC
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, 2000 ENDED JUNE 30, 1999
------------------- -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss .............................................................................$ (1,543,160) $ (13,024,305)
Adjustment to reconcile net loss to net cash provided by operating activities
Depreciation ....................................................................... 3,411,026 3,071,850
Amortization ....................................................................... 1,138,124 842,676
Loss on investment in Buffington Harbor Riverboats, L.L.C .......................... 1,451,837 1,403,991
Loss on bond redemption ............................................................ 382,500 15,238,156
Decrease in accounts receivable, net .............................................. 578,911 32,285
(Increase) decrease in inventories ................................................. 16,112 (9,201)
(Increase) decrease in prepaid expenses ............................................ (370,062) 20,430
Increase in other assets ........................................................... (263,171) (2,597,702)
Increase (decrease) in accounts payable ........................................... (201,211) 382,924
Decrease in accrued payroll and other expenses .................................... (262,189) (218,778)
Decrease in accrued interest ...................................................... (834,510) (3,457,918)
Increase (decrease) in other accrued liabilities .................................. (113,028) 1,278,209
------------ -------------
Net cash provided by operating activities ..................................... 3,391,179 2,962,617
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, equipment and vessel improvements ......................... (1,301,260) (2,067,414)
Increase in deposits .............................................................. -- (15,000)
Investment in Buffington Harbor Riverboats, L.L.C ............................... (159,912) (73,011)
------------ -------------
Net cash provided (used) by investing activities ............................... (1,461,172) (2,155,425)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Redemption of 12 3/4% of Senior Secured Notes ...................................... (6,382,500) (116,005,298)
Proceeds from issuance of 10 7/8% Senior Secured Notes ............................. -- 127,738,000
(Increase) decrease in restricted cash ............................................. 7,357,874 (7,491,175)
Payment of Senior Secured Notes issuance costs ..................................... -- (4,241,526)
Increase in short-term debt ........................................................ -- 6,000,000
Cash paid to reduce long-term debt ................................................. (1,086,893) (9,800,833)
Issuance of loan to Barden Development, Inc. ....................................... (2,000,000) --
Distribution of Management Fees .................................................... (597,610) --
------------ -------------
Net cash (used) by financing activities ......................................... (2,709,129) (3,800,832)
------------ -------------
Net decrease in cash and cash equivalents ........................................... (779,122) (2,993,640)
Cash and cash equivalents, beginning of period ....................................... 20,145,044 17,295,401
------------ -------------
Cash and cash equivalents, end of period .............................................$ 19,365,922 $ 14,301,761
============ =============
INTEREST PAID:
Principal Member ...................................................................$ -- $ 167,455
Equipment Debt .....................................................................$ 148,403 $ 254,360
Senior Secured Notes- Fixed Interest ...............................................$ 7,936,271 $ 7,844,438
Senior Secured Notes-Contingent Interest ...........................................$ 246,138 $ 3,018,090
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
THE MAJESTIC STAR CASINO, LLC
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 BASIS OF PRESENTATION
The Majestic Star Casino, LLC (the "Company"), was formed on December 8, 1993,
as an Indiana limited liability company, to provide gaming and related
entertainment to the public. The Company commenced gaming operations in the City
of Gary (the "City") at Buffington Harbor, located in Lake County, in the State
of Indiana on June 7, 1996.
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (which include normal recurring
adjustments) considered necessary for a fair presentation of the results for the
interim periods have been made. The results for the three and six months ended
June 30, 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 Six Months Six Months
Ended June 30, 2000 Ended June 30, 1999 Ended June 30, 2000 Ended June 30,1999
------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C> <C>
Gross Revenue...........$ 4,939,461 $ 4,930,317 $ 10,072,753 $ 9,529,650
Operating Income.(Loss).$ 87,367 $ 294,811 $ 176,669 $ 180,101
Net Loss................$ (1,460,888) $ (1,199,952) $ (2,903,675) $ (2,807,982)
</TABLE>
4
<PAGE>
THE MAJESTIC STAR CASINO, LLC
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
NOTE 3 DEBT REFINANCING
During the quarter ended June 30, 2000, the Company redeemed $6.0 million of
12-3/4% Senior Secured Notes, with Contingent Interest.
NOTE 4 EXTRAORDINARY ITEM - LOSS ON BOND REDEMPTION
In connection with the Company's redemption of the $6.0 million of 12-3/4%
Senior Secured Notes, the Company incurred a $383,000 charge, representing
premium paid on redemption. The charge was recorded as an extraordinary item.
NOTE 5 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
5
<PAGE>
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
THE MAJESTIC STAR CASINO, LLC
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
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.
6
<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. The Company's efforts resulted in the
IGC granting the Company a five year riverboat owner's license on June 3, 1996.
The Company began operations on June 7, 1996. The 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
7
<PAGE>
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.
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 currently contains approximately 43,000
square feet of casino space, 1,443 slot machines and 54 table games on three
decks.
The federal law that prohibited cruising on federal waterways was amended during
the fourth quarter of 1996 to allow cruises and, as a result, the IGC advised
the Company that cruising could commence November 15, 1996, subject to winter
weather conditions. However, due primarily 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,
respectively docked. The Company, for fiscal year 2000, resumed a regular
cruising schedule during April 2000. During mid-June, the U. S. Coast Guard
imposed a moratorium on cruising for all Lake Michigan casino vessels until
further notice. The Company currently is simulating a regular cruising schedule
with respect to the boarding of passengers during the moratorium.
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
The following discussions of results of operations provides a comparison of the
six and three month periods ended June 30, 2000, with the six and three month
periods ended June 30, 1999. Gross revenues were approximately $61.2 million and
$29.9 million during the six and three month periods ended June 30, 2000
compared to $60.9 million and $31.3 million during the six and three months
ended June 30, 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
--------------------------------------------
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended June 30, Ended June 30, Ended June 30, Ended June 30,
2000 1999 2000 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Gross Revenues $ 29,859 $ 31,276 $ 61,241 $ 60,849
Operating Income $ 3,413 $ 6,089 $ 7,463 $ 11,147
EBITDA (1) $ 5,702 $ 8,061 $ 12,012 $ 15,062
</TABLE>
8
<PAGE>
STATEMENTS OF INCOME - -AS A PERCENTAGE OF GROSS REVENUES
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended June 30, Ended June 30, Ended June 30, Ended June 30,
-------------- -------------- -------------- -------------
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Revenues:
Casino 97.5% 97.6% 97.6% 97.6%
Food and beverage 1.5% 1.6% 1.6% 1.6%
Other 1.0% 0.8% 0.8% 0.8%
-------- ------- ------- -------
Gross Revenues 100.0% 100.0% 100.0% 100.0%
less promotional allowances (0.3)% (0.2)% (0.3)% (0.2)%
Net Revenues 99.7% 99.8% 99.7% 99.8%
Costs and Expenses:
Casino 20.9% 16.2% 19.9% 16.8%
Gaming and admission taxes 27.2% 27.2% 27.3% 27.4%
Food and beverage 2.1% 2.0% 1.9% 2.0%
Advertising and promotion 6.4% 5.8% 6.9% 5.5%
General and administrative 21.0% 19.8% 21.1% 20.4%
Economic incentive-City of Gary 3.0% 3.0% 3.0% 3.0%
Depreciation and amortization 7.7% 6.3% 7.4% 6.4%
-------- ------- ------- -------
Total 88.3% 80.3% 87.5% 81.5%
Operating Income (Loss): 11.4% 19.5% 12.2% 18.3%
------------------------
Other Income (Expense):
Loss on investment in BHR (2.4)% (1.9)% (2.4)% (2.3)%
Interest income 0.8% 0.6% 0.7% 0.7%
Interest expense (12.4)% (12.4)% (12.4)% (12.8)%
Interest expense to affiliate -- (0.2)% -- (0.3)%
Other nonoperating expense (0.1)% -- (0.1)% --
-------- ------- ------- -------
Total (14.1)% (13.9)% (14.2)% (14.7)%
-------- ------- ------- -------
Net income(loss) before
extraordinary item (2.7)% 5.6% (2.0)% 3.6%
Extraordinary Item:
-------------------
Loss on bond redemption (1.3)% (48.7)% (0.6)% (25.0)%
Net (Loss): (4.0)% (43.1)% (2.6)% (21.4)%
----------- -------- ------- ------- -------
EBITDA: (1) 19.10% 25.77% 19.62% 24.75%
-------
</TABLE>
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.
9
<PAGE>
Results for any one or more periods are not necessarily indicative of annual
results or continuing trends.
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999
Gross revenues for the second quarter ended June 30, 2000, amounted to
approximately $29,859,000, a decrease of approximately $1,417,000 from gross
revenues recorded in the second quarter ended June 30, 1999. The 4.5% decrease
in gross revenues was primarily attributable to a decrease in the table hold of
2.1% combined with a 7.2% decrease in table drop, which is the amount wagered at
a gaming table.
Casino revenues during the three months ended June 30, 2000, totaled
approximately $29,116,000, of which slot machines accounted for approximately
$23,128,000 (79.4%) and table games accounted for approximately $5,988,000
(20.6%). The slot coin-in for the three months ended June 30, 2000 increased
approximately $956,000 compared to the three month period ended June 30, 1999.
The slot win for the corresponding period, however, decreased by approximately
$129,000 due to a lower than expected slot hold of 6.8% versus 6.9% in the prior
year period. The average number of slot machines in operation increased by 22
units to 1,432 during the three months ended June 30, 2000, from 1,410 during
the three months ended June 30, 1999. The average win per slot machine per day
slightly decreased to approximately $178 for the three months ended June 30,
2000, from approximately $179 during the three months ended June 30, 1999. The
average number of table games in operation during the three months ended June
30, 2000 and 1999 was 56. The average win per table game per day during the
three months ended June 30, 2000, decreased to approximately $1,175 compared to
approximately $1,425 during the three months ended June 30, 1999, principally
due to a lower than normal hold percentage. The average daily win per state
passenger count was approximately $38 and the average daily win per patron was
approximately $67 during the three months ended June 30, 2000, compared to an
average daily win per state passenger count of approximately $38 and an average
daily win per patron of approximately $69 for the three months ended June 30,
1999.
Food and beverage revenues for the three months ended June 30, 2000, totaled
approximately $460,000, or 1.5% of gross revenues, compared to approximately
$500,000, or 1.6% of gross revenues, for the three months ended June 30, 1999.
Other revenue totaling approximately $283,000, or 1.0% of gross revenues,
consisted primarily of commission income during the three months ended June 30,
2000, compared to approximately $249,000 or 0.8% of gross revenues for the three
months ended June 30, 1999.
Promotional allowances (complementaries) included in the Company's gross food
revenues for the three months ended June 30, 2000, and 1999, were approximately
$91,000 and $77,000, respectively. Promotional allowances provided to the
Company's gaming patrons at facilities located in, and/or owned by BHR for the
three months ended June 30, 2000, and 1999, totaled approximately $127,000 and
$204,000, respectively, and are characterized in the financial statements as an
expense to the casino. BHR invoices the Company monthly for these promotional
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allowances at cost.
Casino operating expenses for the three months ended June 30, 2000, totaled
approximately $6,252,000, or 20.9% of gross revenues and 21.5% of casino
revenues, respectively, compared to approximately $5,057,000, or 16.2% of gross
revenues and 16.6% of casino revenues, respectively, for the three months ended
June 30, 1999. These expenses were primarily comprised of salaries, wages and
benefits, and operating and promotional expenses of the casino. The dollar
increase of $1,195,000 or 23.6% in casino operating expenses is primarily
attributed to an increase of approximately $730,000 in cashback to slot guests
as a result of a 26% increase in Club Majestic enrollments due to our planned
marketing campaign to aggressively attract new guests to the property,
approximately $197,000 in payroll expenses, and approximately $135,000 in
progressive expense for slot jackpots.
Gaming and admissions taxes totaled approximately $8,111,000 for the three
months ended June 30, 2000, compared to approximately $8,516,000 for the three
months ended June 30, 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 $900,000 was paid during the three
months ended June 30, 2000, compared to approximately $942,000 in the three
months ended June 30, 1999, to the City under an agreement whereby the Company
pays approximately 3% of the adjusted gross receipts directly to the City.
Advertising and promotion expenses for the three months ended June 30, 2000,
totaled approximately $1,909,000, or 6.4% of gross revenues, compared to
approximately $1,811,000, or 5.8% of gross revenues during the three months
ended June 30, 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 $98,000 or 5.4% increase in
advertising and promotion expenses during the three months ended June 30, 2000,
was primarily the result of an increase in costs associated with the undertaking
of an aggressive and integrated brand campaign combined with an increase in
costs associated with junket transportation.
General and administrative expenses for the three months ended June 30, 2000,
were approximately $6,279,000, or 21.0% of gross revenues, compared to
$6,196,000, or 19.8% of gross revenues, during the three months ended June 30,
1999. These expenses included approximately $1,848,000 for berthing fees paid to
BHR, $1,621,000 for marine operations and $644,000 for security and surveillance
operations during the second quarter of 2000. The $83,000 increase in these
expenses is primarily attributed to an increase in payroll and payroll related
expenses for Human Resources, Marine and Security operations.
Depreciation and amortization for the second quarter ended June 30, 2000, was
approximately $2,289,000, or 7.7% of gross revenues, compared to approximately
$1,972,000, or 6.3% of gross revenues, during the three months ended June 30,
1999. The $317,000 increase in depreciation expense for the three months ended
June 30, 2000, is attributable to the increased expense associated with
machinery and equipment placed into service during the past year and
amortization of the debt issue costs incurred in June 1999.
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Operating income for the three months ended June 30, 2000, was approximately
$3,413,000, or 11.4% of gross revenues, compared to an operating income for the
three months ended June 30, 1999 of $6,089,000, or 19.5% of gross revenues. The
$2,676,000 or 44.0% decrease in operating income is primarily attributable to
increased expenditures associated with casino operations and increased
depreciation and amortization as previously discussed.
Net interest expense for the three months ended June 30, 2000, was approximately
$3,459,000, or 11.6% of gross revenues, compared to approximately $3,747,000, or
12.0% for the same period last year. The $288,000 decrease in net interest
expense is principally attributed to the elimination of the contingent interest
on the refinanced 12-3/4% Senior Secured Notes and the repayment of the $8.8
million demand note to Barden Development, Inc. ("BDI"), an affiliate, both of
which occurred in 1999.
Other non-operating expense includes unused line of credit fees of approximately
$26,000 associated with the $20.0 million credit facility that was undrawn and
available as of June 30, 2000.
The Company's loss relating to its investment in BHR for the three months ended
June 30, 2000, was approximately $721,000. The BHR loss represents the Company's
50% share of BHR's non- cash net loss (primarily depreciation and amortization).
As a result of the foregoing, the Company experienced a loss of approximately
$793,000 before the loss on the bond redemption of approximately $383,000 and
income of $1,743,000, before the loss on the bond redemption of approximately
$15,238,000 during the three months ended June 30, 2000 and 1999, respectively.
Net losses were approximately $1,175,000 and $13,495,000 during the three months
ended June 30, 2000, and 1999, respectively.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
Gross revenues for the six months ended June 30, 2000, amounted to approximately
$61,241,000, an increase of $392,000 over gross revenues recorded in the six
months ended June 30, 1999. The increase in gross revenues is principally
attributable to an increase of approximately $1,842,000 in slot revenues offset
by a decline in table revenues of $1,508,000. Table revenues declined
principally due to a 2.1% decrease in the table hold despite a slight increase
of $201,000 in the table drop.
Casino revenues during the six months ended June 30, 2000, totaled approximately
$59,747,000, of which slot machines accounted for approximately $47,251,000
(79.1%) and table games accounted for approximately $12,496,000 (20.9%). The
slot coin-in for the six months ended June 30, 2000 increased approximately
$35.2 million compared to the six month period ended June 30, 1999. The average
number of slot machines in operation slightly decreased to 1,424 during the six
months ended June 30, 2000, from 1,442 during the six months ended June 30,
1999. The average win per slot machine per day increased to approximately $182
for the six months ended June 30, 2000, from approximately $176 during the six
months ended June 30, 1999. The average number of table games in operation
during the six months ended June 30, 2000, decreased to 56 from 59
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during the six months ended June 30, 1999. The average win per table game per
day during the six months ended June 30, 2000, decreased to approximately
$1,219, compared to approximately $1,315 during the six months ended June 30,
1999. The average daily win per state passenger count was approximately $38 and
the average daily win per patron was approximately $67 during the six months
ended June 30, 2000, compared to an average daily win per state passenger count
of approximately $37 and an average daily win per patron of approximately $68
for the six months ended June 30, 1999.
Food and beverage revenues for the six months ended June 30, 2000, totaled
approximately $990,000 or 1.6% of gross revenues, compared to approximately
$968,000 or 1.6% of gross revenues for the six months ended June 30, 1999. Other
revenue totaling approximately $504,000, or 0.8% of gross revenues for the six
months ended June 30, 2000, consisted primarily of commission income compared to
approximately $468,000 during the six months ended June 30, 1999.
Promotional allowances (complementaries) included in the Company's gross food
revenues for the six months ended June 30, 2000, and 1999, were approximately
$192,000 and $139,000, respectively. Promotional allowances provided to the
Company's gaming patrons at facilities located in, and/or owned by BHR for the
six months ended June 30, 2000, and 1999, totaled approximately $202,000 and
$387,000, 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.
Casino operating expenses for the six months ended June 30, 2000, totaled
approximately $12,174,000, or 19.9% of gross revenues and 20.4% of casino
revenues, respectively, compared to approximately $10,216,000, or 16.8% of gross
revenues and 17.2% of casino revenues, respectively, for the six months ended
June 30, 1999. These expenses were primarily comprised of salaries, wages and
benefits, and operating and promotional expenses of the casino. The dollar
increase of $1,958,000 or 19.2% in casino operating expenses is primarily
attributed to an increase of approximately $1,354,000 in cashback to slot guests
as the result of a 5.4% increase in coin-in and a 14.0% year-to-date increase in
Club Majestic enrollments due to our planned marketing campaign to aggressively
attract new guests to the property beginning in mid-February, 2000.
Gaming and admissions taxes totaled approximately $16,692,000 for the six months
ended June 30, 2000, compared to approximately $16,663,000 for the six months
ended June 30, 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 $1,847,000 was paid during the six
months ended June 30, 2000, compared to approximately $1,835,000 in the six
months ended June 30, 1999, to the City under an agreement whereby the Company
pays approximately 3% of the adjusted gross receipts directly to the City.
Advertising and promotion expenses for the six months ended June 30, 2000,
totaled approximately $4,252,000, or 6.9% of gross revenues, compared to
approximately $3,319,000, or 5.5% of gross revenues during the six months ended
June 30, 1999. Advertising and promotion expenses included salaries, wages and
benefits of the marketing and casino service departments, as
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well as promotions, advertising and special events. The $933,000 or 28.1%
increase in advertising and promotion expenses during the six months ended June
30, 2000, was primarily the result of an increase of approximately $600,000 in
advertising as part of undertaking an aggressive and integrated brand image
campaign that began in mid-February and approximately $400,000 associated with
junket transportation including charter bus passengers.
General and administrative expenses for the six months ended June 30, 2000, were
approximately $12,895,000, or 21.1% of gross revenues, compared to $12,379,000,
or 20.3% of gross revenues, during the six months ended June 30, 1999. These
expenses included approximately $3,632,000 for berthing fees paid to BHR,
$3,217,000 for marine operations and housekeeping and $1,285,000 for security
and surveillance operations during the six months ended June 30, 2000. The
$516,000 increase in these expenses is primarily attributed to an increase in
payroll and payroll related expenses for Security, Human Resources and Marine
operations.
Depreciation and amortization for the six months ended June 30, 2000, was
approximately $4,549,000, or 7.4% of gross revenues, compared to approximately
$3,915,000, or 6.4% of gross revenues, during the six months ended June 30,
1999. The $634,000 increase in depreciation expense for the six months ended
June 30, 2000, is principally attributable to the increased expense associated
with machinery and equipment placed into service during the past year and
amortization of the debt issue costs associated with the June 1999 issuance of
the 10 7-8% Senior Secured Notes.
Operating income for the six months ended June 30, 2000, was approximately
$7,463,000, or 12.2% of gross revenues, compared to an operating income for the
six months ended June 30, 1999 of $11,147,000, or 18.3% of gross revenues. The
$3,684,000 or 33.1% decrease in operating income is principally attributable to
increased expenditures associated with casino operations, marketing expenses and
increased depreciation and amortization as previously discussed.
Net interest expense for the six months ended June 30, 2000, was $7,094,000, or
approximately 11.6% of gross revenues, compared to $7,529,000, or approximately
12.4% for the same period last year. The decrease in interest expense is
primarily attributed to the refinancing of the 12-3/4% Senior Secured Notes with
Contingent Interest and the repayment of the $8.8 million demand note due to
BDI.
The loss relating to its investment in BHR for the six months ended June 30,
2000, was approximately $1,452,000. The BHR loss represents the Company's 50%
share of BHR's non- cash net loss (primarily depreciation and amortization).
As a result of the foregoing, the Company experienced a loss before the
extraordinary item of $1,161,000 and income of $2,214,000, during the six months
ended June 30, 2000 and 1999, respectively. The Company's loss on the redemption
of its $6,000,000 12-3/4% Senior Secured Notes with Contingent Interest was
approximately $383,000. Net losses were approximately $1,543,000 and $13,024,000
during the six months ended June 30, 2000, and 1999, respectively. The Company's
prior year loss included $15,238,000 associated with the loss on the redemption
of its 12-3/4% Senior Secured Notes.
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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 and six month periods ended June 30, 2000 was
approximately $5,702,000 and $12,012,000, respectively, or 19.1% and 19.7%,
respectively, of gross revenues, compared to approximately $8,061,000 and
$15,062,000, respectively, or 25.8% and 24.8%, respectively, of gross revenues,
during the three and six month periods ended June 30, 1999. The decrease
respectively, in EBITDA for the three and six months ended June 30, 2000 is
primarily the result of an increase in casino and marketing expenditures
combined with a decrease in the table hold and table drop. 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
During the quarter ended June 30, 1999, the Company issued $130.0 million of
10-7/8% Senior Secured Notes due 2006. These bonds are registered with the
Securities and Exchange Commission. The net proceeds from the offering were
utilized to redeem $99.0 million principal amount of the Company's 12-3/4%
Senior Secured Notes with Contingent Interest due 2003. During June 1999,
approximately $7.5 million was classified as restricted cash to effect a
covenant defeasance of the $6.0 million of remaining 12-3/4% Senior Secured
Notes. During May 2000, the $6.0 million 12-3/4% Senior Secured Notes were
redeemed. Holders of the outstanding 10-7/8% 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.
At June 30, 2000, the Company had cash and cash equivalents of approximately
$19.4 million. During the six months ended June 30, 2000, the Company's capital
expenditures were approximately $1.3 million. Approximately $460,000 was
expended for slot machines, approximately $350,000 for computer equipment and
software, and approximately $300,000 for furniture, equipment, and vessel
improvements, and approximately $190,000 for other gaming equipment. On April
14, 2000, the Company loaned BDI $2.0 million. The loan to affiliate is
anticipated to be repaid during the third quarter of 2000 and carries a 10.5%
interest rate. The Company also contributed approximately $160,000 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 six months ended June 30,
2000, net cash provided from operations totaled approximately $3.4 million
compared to approximately $3.0 million for the six months ended June 30, 1999.
For the six months ended June 30, 2000, $1.5 million in cash was used by
investing activities, compared to $2.2 million used by investing activities for
the six months ended June 30, 1999. Net cash used by financing activities was
$2.7 million for the six month period ended June 30, 2000 which included a $2.0
million loan to BDI, compared to $3.8 million used by financing activities for
the six month period ended June 30, 1999.
15
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As of June 30, 2000, loans included: (i) $130.0 million principal amount of
10-7/8% Senior Secured Notes due 2006; and (ii) approximately $2.1 million of
equipment financing. The 10- 7/8% Senior Secured Notes are secured by
substantially all current and future assets other than certain excluded assets.
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 available as of June 30, 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 the next
five years. 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 the
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 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 by September 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.
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, and its capital
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expenditures and scheduled payments of interest and principal on the Senior
Secured Notes and other permitted indebtedness for the year 2000. No assurance
can be given, however, that such proceeds and, operating cash flow from the
Permanent Vessel, in light of increased competition principally, as a result of
dockside gambling in Illinois and the purchase of certain Indiana gaming
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.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Various legal proceedings are pending against the Company. Management considers
all such pending proceedings, which are primarily personal injury 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
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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 six month period ended June 30, 2000.
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 August 11, 2000.
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
/s/ Don H. Barden President and Chief Executive Officer August 11, 2000
----------------------- of the Manager and the Company
Don H. Barden (Principal Executive Officer)
/s/ Michael E. Kelly Vice President, Chief Operating August 11, 2000
----------------------- and Financial Officer
Michael E. Kelly (Principal Financial and Accounting
Officer of the Company)
18
