From time to time, various proposals are introduced in the Michigan legislature that, if enacted, could adversely affect the regulatory, operational or other aspects of the gaming industry and our company. Legislation of this type may be enacted in the future that may impact our operations. We are subject to compliance with a regulatory fixed charge coverage ratio maintenance covenant required by the MGCB. In connection with our emergence from Chapter 11, the MGCB order granting approval of our new ownership structure, capitalization and management provides that we must comply with a minimum fixed charge coverage ratio maintenance covenant.
The covenant requires us to maintain a ratio of EBITDA to fixed charges each as defined in the order on the last day of each calendar quarter of not less than:. The fixed charge coverage ratio is measured from the Effective Date until the applicable determination date for all fiscal quarters ending on or before March 31, and on a trailing twelve month basis thereafter. We are required to comply with this covenant for so long as any indebtedness is outstanding under our Revolving Loan and the Notes.
The MGCB order also contains a limitation on certain restricted payments. If we fail to comply with these requirements and we are not able to obtain a waiver from the MGCB, we could be subject to additional restrictions on our ability to operate our casino business, fines and suspension or revocation of our gaming license.
The suspension or revocation of our gaming license in excess of certain specified periods could result in an event of default under the indenture governing the Exchange Notes and could materially adversely affect or eliminate our ability to generate revenue from our casino operations. A smoking ban in casinos located in the state of Michigan or the city of Detroit could have a negative impact on our business and operations.
From time to time, individual jurisdictions have considered legislation or referendums, such as bans on smoking in casinos and other entertainment and dining facilities. Such bans have been implemented in jurisdictions in which gaming facilities are located and such bans have had a negative impact on business and operations. Although the smoking ban adopted by the state of Michigan on December 10, , which became effective May 1, , exempts the gaming area the smoking ban applies to our bars and restaurants of the Detroit Commercial Casinos, if a more expansive ban were implemented in the state of Michigan or the city of Detroit, such a ban could adversely impact our business and operations.
We have not evaluated our internal controls over financial reporting for purposes of compliance with Section of the Sarbanes-Oxley Act. If we are unable to achieve and maintain effective internal controls, our business, financial position and results of operations could be adversely affected.
We have not previously been required to comply with the requirements of the Sarbanes-Oxley Act, including the internal control evaluation and certification requirements of Section of that statute, and we will not be required to comply with all of those requirements until after we have been subject to the reporting requirements of the Securities Exchange Act of , as amended, for a specified period of time.
Accordingly, we have not determined whether or not our existing internal controls over financial reporting systems comply with Section The internal control evaluation required by Section will divert internal resources and will take a significant amount of time, effort and expense to complete.
If it is determined that we are not in compliance with Section , we will be required to implement remedial procedures and re-evaluate our internal control over financial reporting. We may experience higher than anticipated operating expenses as well as higher independent auditor and consulting fees during the implementation of these changes and thereafter.
If we are unable to implement any necessary changes effectively or efficiently, our operations, financial reporting or financial results could be adversely affected and we could obtain an adverse report on internal controls from our independent registered public accountants. We will be subject to all operating risks common to the hotel business, which may adversely affect our hotel occupancy and rental rates.
The hotel built in connection with the Expanded Complex is the first hotel at Greektown Casino. The hotel business is highly competitive and generally will be subject to greater volatility than our gaming business. Operating risks common to the hotel business could adversely affect hotel occupancy and the rates that can be charged for hotel rooms, as well as increase our operating expenses, and generally include:.
MGM Detroit, MotorCity and Caesars Windsor all have hotels connected to their gaming facilities and other new hotel projects in our vicinity have recently opened. This competition may adversely affect our occupancy and rental rates. We face the risk of fraud or cheating commonly faced by the gaming business, which could adversely affect our revenues and profitability. Players in our casino may commit fraud or cheat in order to increase their winnings. Acts of fraud or cheating could involve the use of counterfeit chips or other tactics, possibly in collusion with our employees.
Internal acts of cheating could also be conducted by employees through collusion with dealers, surveillance staff, floor managers or other casino or gaming area staff. Failure to discover such acts or schemes in a timely manner would negatively impact our gaming revenues. In addition, negative publicity related to such schemes could have an. We may be unable to retain management personnel or hire additional qualified personnel, which would impair our ability to execute our business strategy.
Since such date, our business has been managed solely by our internal management team, led by Cliff Vallier. For an undetermined amount of time, our business will continue to be managed solely by our internal management team, led by Clifford J.
The responsibilities of the position of Executive Chairman of the Board include i leading the management of the Company in strategic, marketing and operational issues consistent with the direction of the Board, ii liaising between the management of the Company and the Board and providing a monthly update to the Board, and iii leading a search to supplement the existing management team. However, the Company was granted a 90 day extension to complete the process. We cannot assure you that we will be able to obtain the necessary approval from the MGCB, any applicable approval from the City of Detroit, or that obtaining such approvals will not result in an adverse expense or delay.
We do not maintain any key person life insurance policies on any of our executive officers. Any delays could have a materially negative impact on our operations and financial results. Our business and result of operations could be adversely affected by weather-related factors and seasonality. Our results of operations may be adversely affected by weather-related and seasonal factors. Adverse weather conditions in the Detroit metropolitan area may discourage potential customers from visiting us.
We believe we have also experienced downturns in customer volume as a consequence of nearby road repairs and construction, which generally occur in the spring, summer and fall, as well as various sporting or entertainment events in downtown Detroit. We are subject to non-gaming regulation, and any instances of non-compliance with these laws and regulations could have a material adverse effect on our business, financial condition and results of operations.
We are subject to certain federal, state and local environmental laws, regulations and ordinances that apply to non-gaming businesses generally, including the Clean Air Act, the Clean Water Act, the Resource Conservation Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act and the Oil Pollution Act of Under various federal, state and local laws and regulations, an owner or operator of real property may be held liable for the costs of removal or remediation of certain hazardous or toxic substances or wastes located on its property, regardless of whether or not the present owner or operator knows of, or is responsible for, the presence of hazardous or toxic substances or wastes.
In addition, if we discover any significant environmental contamination affecting any of our properties, we could face material remediation costs or additional development costs for future expansion activities. The existence or discovery of an environmental hazard on any of our properties could have a significant adverse effect on our business, results of operations, financial condition and cash flows.
Substantial penalties can be imposed against us if we fail to comply with these regulations. We are also subject to a variety of other federal, state and local laws and regulations, including those relating to zoning, construction, land use, employment, advertising and the sale of alcoholic beverages.
If we are not in compliance with these laws and regulations, it could have a material adverse effect on our business, financial condition and results of operations. The imposition of a substantial penalty or the loss of service of a gaming facility for a significant period of time could have a material adverse effect on our business.
We are or may become involved in legal or regulatory proceedings that if adversely adjudicated or settled, could impact our financial condition. From time to time, we are defendants in various lawsuits and gaming regulatory proceedings relating to matters incidental to our business. The AOV included four complaints addressing procurement, kiosks, electronic gaming device meters, and signage.
Contingent fines for similar future violations could be higher. The nature of our business also subjects us to the risk of lawsuits filed by customers, past and present employees, competitors, business partners, Native American tribes and others in the ordinary course of business. As with all litigation, no assurance can be provided as to the outcome of these matters and in general, litigation can be expensive and time consuming.
We may not be successful in the defense or prosecution of these lawsuits, which could result in settlements or damages that could significantly impact our business, financial condition and results of operations.
Our revenues may be negatively impacted by volatility in our hold percentage. Casino revenue is recorded as the difference between gaming wins and losses or net win from gaming activities. Net win is impacted by variations in the hold percentage the ratio of net win to total amount wagered , or actual outcome, on our slot machines and table games and all other games we provide to our customers.
Although each game generally performs within a defined statistical range of outcomes, actual outcomes may vary for any given period. The hold percentage and actual outcome on our games can be impacted by errors made by our employees, the number of games played, faults within the computer programs that operate our slot machines and the random nature of slot machine payouts.
If our games perform below their expected range of outcomes, our cash flow may suffer. In addition, although not the major focus of our marketing efforts, we have selectively targeted high-end players. Should one or more of these high-end players win large sums in our casino, or should a material amount of credit extended to players not be repaid, our revenues could be adversely affected. Work stoppages and other labor problems could have an adverse effect on our business.
A lengthy strike or work stoppage at our casino or increases in our labor costs resulting from any new agreement could have an adverse effect on our business and results of operations. Our insurance coverage may not be adequate to cover all possible losses we could suffer, and, in the future, our insurance costs may increase significantly or we may not be able to obtain the same level of insurance coverage.
We may suffer damage to our property caused by a casualty loss such as fire, natural disasters, acts of war or terrorism , that could severely disrupt our business or subject us to claims by third parties who are injured or harmed. Although we maintain insurance customary in our industry including property, casualty, terrorism and business interruption insurance , that insurance may not be adequate or available to cover all the risks to which our business and assets may be subject.
The lack of sufficient insurance for these types of acts could expose us to heavy losses if any damages occur, directly or indirectly, that could have a significant adverse impact on our operations. We renew our insurance policies on an annual basis. If the cost of coverage becomes too high, we may need to reduce our policy limits or agree to certain exclusions from our coverage in order to reduce the premiums to an acceptable amount.
Among other factors, homeland security concerns, other catastrophic events or any change in the current U. Among other potential future adverse changes, in the future we may elect to not, or may not be able to, obtain any coverage for losses due to acts of terrorism. Some of our material agreements require us to maintain a certain minimum level of insurance. Failure to satisfy these requirements could result in an event of default under these agreements, which, depending on the nature of the agreement, could cause cross-defaults to other agreements, any of which could materially and adversely affect our business and results of operations.
Risks Related to our Emergence from Bankruptcy. Certain contingent claims against the Debtors in bankruptcy remain outstanding and additional claims may be filed and are subject to adjustment before we are able to satisfy such claims. A number of contingent claims were filed against the Debtors in their bankruptcy proceedings. The Company believes such amount substantially exceeds the amount to which Moelis is entitled under its engagement letter.
The Company may become involved in disputes over the nature and amount of such claims. To the extent that these claims are allowed by the Bankruptcy Court in amounts greater than anticipated, the amount of capital that we will have to operate and conduct our business will be reduced and could have a material adverse effect on our financial condition. Our historical consolidated financial information will not be comparable to financial information for future periods due to our emergence from bankruptcy.
During the course of the Chapter 11 proceedings, our financial results were volatile as asset impairments, government regulations, reductions in discretionary consumer spending as a result of the downturns in the general economy, bankruptcy professional fees, contract terminations and rejections and claims assessments, among other things, significantly impacted our consolidated financial statements.
The amounts reported in consolidated financial statements subsequent to our emergence from bankruptcy will materially change relative to historical consolidated financial statements. Our future financial condition and results of operations will be affected by the adoption of fresh start accounting.
Accordingly, our assets and liabilities have been adjusted to fair value, and certain assets and liabilities not previously recognized in our financial statements have been recognized under fresh start accounting. Our reported assets and liabilities at June 30, give effect to the adjustments resulting from the adoption of fresh start accounting.
Accordingly, our financial condition and results of operations from and after the Effective Date are not comparable to the financial condition and results of operations reflected in our historical consolidated financial statements. We are subject to certain potential tax liabilities.
The Company has an estimated liability for Michigan business taxes of approximately 0. In addition, in connection with the emergence from bankruptcy, the Company has uncertainties regarding state tax attributes that could have a material impact on deferred taxes recorded in the consolidated balance sheet.
The Company failed to receive a favorable ruling. In response, the Company has asked the Bankruptcy Court to issue a determination as to these matters. We cannot be certain that the Chapter 11 proceedings will not adversely affect our operations going forward.
Although we have emerged from bankruptcy upon consummation of the Plan, we cannot assure you that having been subject to bankruptcy protection will not adversely affect our operations going forward, including our ability to negotiate favorable terms from suppliers, hedging counterparties and others and to attract and retain customers.
The failure to obtain such favorable terms and retain customers could adversely affect our financial performance. The indenture governing the New Senior Secured Notes and the credit agreement governing our Revolving Loan impose significant operating and financial restrictions on us and our restricted subsidiaries, which may prevent us from capitalizing on business opportunities. The indenture governing the New Senior Secured Notes and the credit agreement governing our Revolving Loan impose significant operating and financial restrictions on us and our restricted subsidiaries.
These restrictions limit our ability, among other things, to:. As a result of these covenants and restrictions, we and our restricted subsidiaries are limited in how we conduct our business, and we may be unable to raise additional debt or equity financing to compete effectively or to take advantage of new business opportunities.
The terms of any future indebtedness we may incur could include more restrictive covenants. Our failure to comply with the restrictive covenants described above, including our failure as a result of events beyond our control, could result in an event of default, which, if not cured or waived, could result in our being required to repay these borrowings before their due date.
If we are forced to refinance these borrowings on less favorable terms, our results of operations and financial condition could be adversely affected. Our assets and cash flow would likely be insufficient to fully repay borrowings under our outstanding debt instruments if accelerated upon an event of default. Further, if we are unable to repay, refinance or restructure our indebtedness under our Revolving Loan or other indebtedness secured by first-priority liens, the holders of such debt could proceed against the collateral securing that indebtedness.
In addition, any event of default or declaration of acceleration under one debt instrument could also result in an event of default under one or more of our other debt instruments. General economic conditions, industry conditions and other events beyond our control may impact our ability to comply with the above provisions.
As a result, we cannot assure you that we will be able to comply with these covenants. To service our indebtedness, we require a significant amount of cash, our ability to generate cash depends on many factors beyond our control, and any failure to meet our debt service obligations could harm our business, financial condition and results of operations. Our ability to make scheduled payments on and to refinance our indebtedness, including the New Senior Secured Notes, and to fund working capital needs and planned capital expenditures will depend on our ability to generate cash in the future.
This is subject to general economic and competitive conditions and to certain financial, competitive, business, legislative, regulatory and other factors that are beyond our control. We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to fund our day-to-day operations or to pay the principal, premium, if any, and interest on our indebtedness. If our business does not generate sufficient cash flow from operations or if future borrowings are not available to us in an amount sufficient to enable us to pay our indebtedness, including the New Senior Secured Notes, or to fund our other liquidity needs, we may need to refinance all or a portion of our indebtedness on or before the maturity thereof, sell assets, reduce or delay capital investments or seek to raise additional capital, any of which could have a material adverse effect on our operations.
In addition, we may not be able to affect any of these actions, if necessary, on commercially reasonable terms or at all. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. The terms of existing or future debt instruments, may limit or prevent us from taking any of these actions.
In addition, any failure to make scheduled payments of interest and principal on our outstanding indebtedness would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness on commercially reasonable terms or at all.
Our inability to generate sufficient cash flow to satisfy our debt service obligations, or to refinance or restructure our obligations on commercially reasonable terms or at all, would have an adverse effect, which could be material, on our business, financial condition and results of operations. Not applicable. We believe that all of our current facilities are in good condition and are suitable and adequate for the purposes for which they are used.
In the past, we have also entered into non-cancelable operating leases, primarily for office and for warehouse space, equipment and vehicles; certain of these leases include escalation clauses relating to the Consumer Price Index, utilities, taxes and other operating expenses. We lease certain portions of our owned facilities to third parties under operating leases, primarily for retail use. The Company is a defendant in various other pending litigations.
Market Information. We have never paid a dividend and do not anticipate paying one in the foreseeable future. The Company may not pay any dividends unless such dividends are approved by, and issued in compliance with the regulations and restrictions imposed by, the MGCB. The following discussion should be read in conjunction with the Consolidated Financial Statements, and the accompanying notes presented in Item 8 of this report.
Except for historical information, the discussion in this section contains forward-looking statements that involve risks and uncertainties. Background and Overview. Greektown Superholdings was incorporated under the laws of the State of Delaware on March 17, Greektown Superholdings was formed to hold, directly and indirectly through Greektown Sub, all outstanding membership interests of Greektown LLC, as of the effective date of its emergence from bankruptcy protection.
The following significant factors and trends should be considered in analyzing our operating performance:. Economic Downturn: Our business has been and may continue to be adversely affected by the economic downturn currently being experienced in the United States, and more particularly in the Detroit metropolitan area, as we are highly dependent on discretionary spending by our patrons. Factors such as increased unemployment, population decline, the current housing market crisis, the current credit crisis, perceived or actual decline in disposable consumer income and wealth, the recent global economic recession and changes in consumer confidence in the economy may continue to reduce customer demand for the leisure activities we offer and may continue to adversely affect our business.
More specifically, the economic downturn has impacted the automotive industry in the United States as much as, if not more than, other similarly situated sectors of the U. As many of the manufacturers of automobiles and automobile parts and components are based in Detroit or the Detroit metropolitan area, we believe that our geographic location may be susceptible to continuing volatility in the automotive industry.
However, commencing in late , the automotive industry has begun showing signs of improvement. Chapter 11 Reorganization Efforts: During the pendency of our bankruptcy, we implemented a number of business improvement initiatives that we believe have and will continue to result in improved operating performance for our business.
The following discusses the most significant business improvement initiatives that have been implemented since the Petition Date:. The Expanded Complex includes our room hotel that opened in February We also opened several additional food and beverage outlets, such as the International Buffet. Other Business Improvement Initiatives: We have implemented a number of business improvement initiatives marketing and operational , which we believe will result in improved revenue and profitability for our business, including the remodeling of the high-limit gaming area, purchase of additional slot machines, the remodeling of the valet parking entrance, and replacement of the carpet throughout the entire casino.
We have also instituted a number of cost-saving initiatives, including headcount and salary reductions to our associates, the rejection or re-negotiation of various contracts as part of our reorganization and the implementation of several successful promotional campaigns and other marketing initiatives by Greektown Casino.
In addition, we compete with other gaming facilities throughout Michigan and surrounding states as well as nationwide, including casinos located on Native American reservations and other land-based casinos. Twenty one Native American-owned casinos are currently operating in western, central and northern Michigan, the closest of which is miles from Greektown.
We also compete, to some extent, with other forms of gaming on both a local and national level, including State of Michigan-sponsored lotteries, Internet gaming, on- and off-track wagering, card parlors, and charity casinos. For example, on November 3, , a casino initiative passed in the State of Ohio authorizing casino-style gaming at four locations within the State: Cincinnati, Cleveland, Columbus and Toledo.
We anticipate that they will compete with the Detroit Casinos,. Presentation and Basis of Accounting. All other literature became non-authoritative. As previously discussed, on May 29, , the Debtors filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code. The Consolidated Financial Statements for the six months ended June 30, and the year ended December 31, presented in this report have been prepared in accordance with the Reorganizations topic of the FASB ASC and on a going-concern basis which contemplates continuity of operations and realization of assets and liquidation of liabilities in the ordinary course of business.
The Reorganizations topic of the FASB ASC as applied to companies operating in Chapter 11 generally does not change the manner in which financial statements are prepared. However, it does require that the financial statements for periods subsequent to the filing of the Chapter 11 petition distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business.
Revenues, expenses, realized gains and losses and provisions for losses that can be directly associated with the reorganization of the business must be reported separately as reorganization items in the statement of operations for the six months ended June 30, and the year ended December 31, The balance sheet must distinguish pre-petition liabilities subject to compromise from both those pre-petition liabilities that are not subject to compromise and from post-petition liabilities.
Liabilities that may be affected by a plan of reorganization must be reported at the amounts expected to be allowed, even if they may be settled for lesser amounts. In addition, reorganization items must be disclosed separately in the statement of cash flows. The Debtors adopted the provisions of the Reorganizations topic of the FASB ASC applicable to companies operating in Chapter 11 effective on May 29, , and have segregated those items as outlined above for all reporting periods subsequent to May 29, Key Financial Statement Terms.
Our gross revenues are derived from casino revenues, food and beverage revenues, hotel revenues and other revenues. Our largest component of revenues is casino revenues, which represented approximately Gross casino revenues are comprised of revenues from our slot machines which was the source of approximately We lease a number of our slot machines and pay participation fees, which are calculated as a percentage of gross slot machine revenue, to our slot machine vendors. Those participation expenses are reflected as a reduction of gross casino revenues.
In accordance with the Revenue Recognition topic of the FASB ASC applicable to instances where consideration is given by a vendor to a customer, we expense the cash value of points earned by Club Greektown members and recognize a related liability for any unredeemed points. The following table reflects the composition of gross casino revenues for the successor six months ended December 31, , predecessor six months ended June 30, , and predecessor year ended December 31, In thousands.
Gross casino revenue:. Slot machines. Table games. Participation and club expenses. Total Gross casino revenue. Percent of Gross casino revenue. Other principal components of our revenues are our food and beverage revenue and hotel revenue, each of which is affected by customer volume and price. Gross Food and beverage and Hotel revenue:. Food and beverage. Total Gross revenue. Percent of Food and beverage and Hotel revenue:. Promotional Allowances. Our gross revenues are reduced by promotional allowances to arrive at net revenues.
Promotional allowances consist of the retail value of food, beverage and other complimentary items furnished to customers without charge. Direct Operating Expenses. Direct operating expenses are those that directly relate to our gaming, food and beverage and hotel operations. The following table illustrates the composition of direct operating expenses and their relationships to net revenues for the successor six months ended December 31, , predecessor six months ended June 30, , and predecessor year ended December 31, Six Months Ended.
December 31,. Six Months. Ended June 30,. Direct operating expenses:. Gaming taxes. Depreciation and amortization. Total direct operating expenses. Relationship to net revenues:. Total direct operating expenses as a percentage of net revenues. Casino expenses. Casino expenses consist of employee compensation labor, taxes and benefits , surveillance costs, gaming supplies, casino promotions including mailing and other ancillary costs as well as on-site hosting of our casino customers.
Gaming taxes include gaming taxes paid to the State of Michigan and City of Detroit, and municipal service fees paid to the City of Detroit. Food and beverage expenses relate to labor, taxes, benefits, cost of sales and operating supplies. Hotel expenses consist primarily of employee compensation and related expenses as well as facilities-related expenses such as maintenance and utilities.
Depreciation and amortization expenses consist primarily of the depreciation expense related to our gaming buildings and improvements, our gaming equipment and furnishings, our non-gaming buildings and improvements and our non-gaming office furniture and equipment. Refer to Note 2—Summary of Significant Accounting Policies and Note 4— Property, Building, and Equipment to the Consolidated Financial Statements as of December 31, and as presented in Item 8 of this report for additional details regarding our property, plant and equipment and depreciation policies.
Indirect Operating Expenses. Indirect operating expenses consist predominantly of general overhead expenses that support our overall business, including marketing, advertising and entertainment, non-hotel facilities expenses and other general and administrative expenses. The following table illustrates the composition of indirect operating expenses and their relationships to net revenues for the successor six months ended December 31, , predecessor six months ended June 30, , and the predecessor year ended December 31, Other operating expenses:.
Marketing advertising and entertainment. General and administrative. FPG Success fee. Pre-opening expenses. City of Detroit settlement agreement. Total other operating expenses. Marketing, advertising and entertainment. Marketing, advertising and entertainment expenses primarily reflect the costs of mass media advertising, including television, radio and billboards. General and administrative expenses include the costs of insurance, property taxes, regulatory fees paid to support the MGCB, tribal management fees of the predecessor, management fees of the successor, bonuses paid under union contracts, leases associated with various parking lots, rent, professional fees, donations and various employee costs relating to executives, security, compliance, finance, purchasing, human resources and information technology departments.
Other indirect operating expenses. Other indirect operating expenses are primarily costs associated with maintaining the various retail parking spaces and garages, including utilities and maintenance, related to rental income. Consulting Company Success Fees. The agreement expired as of December 31, and was not renewed. Pre-opening expenses consist primarily of start-up labor, training, marketing, and advertising related to the hotel that was incurred prior to its opening in February City of Detroit settlement.
The Settlement Payment was expensed in its entirety by Greektown Holdings during the year ended December 31, Reorganization Expenses. Reorganization expenses consist predominantly of gains from the settlement of liabilities subject to compromise and fair value adjustments recorded in connection with fresh start accounting net of fees paid to restructuring professionals, as well as other costs directly associated with the bankruptcy process.
The following table illustrates the composition of reorganization expenses and the total net gain loss on reorganization items and fresh start adjustments to net revenues for the successor six months ended December 31, , predecessor six months ended June 30, , and predecessor year ended December 31, Six Month. Non-cash reorganization items and fresh start adjustments:. Discharge of liabilities subject to compromise. Revaluation of assets and liabilities.
Total non-cash reorganization items and fresh start adjustments. Reorganization expenses:. Legal professional fees. Consulting professional fees. Trustee fees and other expenses. Total reorganization expenses. Net gain loss on reorganization items and fresh start adjustments.
Relationship to net revenue:. Other Expenses. Other expenses consist primarily of interest on our indebtedness and the amortization of deferred financing costs. The following table illustrates the components of other income expense and their relationships to net revenues for the successor six months ended December 31, , predecessor six months ended June 30, , and predecessor year ended December 31, June 30,. Other income expense :. Interest expense.
Amortization of finance fees and accretion of discount on senior notes. Total income expenses :. Total other income expenses :. Provision for Income Taxes. The following table illustrates the components of the provision for the income taxes and their relationships to net revenues for the successor six months ended December 31, , predecessor six months ended June 30, , and predecessor year ended December 31, Provision for income taxes:.
Tax expense — current. Results of Operations. The following is a discussion of the principal trends in our operating performance for the successor six months ended December 31, , predecessor six months ended June 30, , and predecessor years ended December 31, Periods Ended December 31, Compared to December 31, The consolidated financial statements of the Company for the six months ended December 31, , are not comparable to the consolidated financial statements of the predecessor six months ended June 30, and year ended December 31, , due to the effects of the fresh start accounting and plan of reorganization.
Net revenues. Net revenues are impacted by the general economic condition of the region, the seasonality of our business, and our ability to attract customers in the Detroit Commercial Market. Casino revenue represented Table games as a percentage of gross casino revenue were In addition, promotional allowance as a percentage of gross revenue was Direct operating expenses. Direct operating expenses as a percentage of net revenue were The following is a discussion of the principal drivers of trends in direct operating expenses:.
Casino-related expenses as a percentage of net revenue were The increase in casino expenses as a percentage of net revenue during the successor and predecessor periods of , as compared to primarily relates to increases in casino payroll costs, and postage expense incurred related to promotions and advertisements to patrons.
Gaming taxes as a percentage of net revenue were Gaming taxes as a percentage of revenue remained consistent during the successor and predecessor periods of , as compared to Food and beverage expenses. The increase in food and beverage expenses during the successor and predecessor periods , as compared to was primarily due to an increase in payroll compensation expenses, as union employees received a pay rate increase, under the terms of the collective bargaining agreements in the fourth quarter of Hotel expenses.
Hotel expenses as a percentage of net revenue were 2. The increase in hotel expenses as a percentage of net revenue during the successor and predecessor periods , as compared to primarily related to the hotel being completed and opened in February , resulting in operating costs being incurred.
Additionally, the increase in hotel expenses as a percentage of net revenue during successor six months ended December 31, , as compared to predecessor six months ended June 30, was primarily related to an increase in payroll compensation expenses, as union employees received a pay rate increase, under the terms of the collective bargaining agreements in the fourth quarter of Depreciation and amortization expense. Depreciation and amortization expense as a percentage of net revenue were Indirect operating expenses.
Indirect operating expenses as a percentage of net revenue were The following is a discussion of the principal drivers of trends in indirect operating expenses:. Marketing, advertising and entertainment expenses as a percentage of net revenue were 2. The decrease in marketing, advertising and entertainment expenses as a percentage of net revenue during the successor and predecessor periods , as compared to , primarily related to a decrease in TV and radio advertising costs, as the Company commenced a new marketing initiative during the successor six months period ended December 31, Facilities expenses as a percentage of net revenue were 6.
The increase in facilities expenses as a percentage of net revenue during the successor and predecessor periods , as compared to , are primarily due to an increase in union payroll, engineering department, and the environmental service costs. General and administrative expenses as a percentage of net revenue were The increase in general and administrative expenses as a percentage of net revenue during the predecessor six month period ended June 30, , as compared to predecessor year ended period December 31, , is primarily related an increase in union payroll costs, legal costs, and human resource costs.
Other expenses as a percentage of revenue were 0. Other expenses as a percentage of revenue remained consistent during the successor and predecessor periods of , as compared to ; however, the other expenses decreased during the successor and predecessor periods of , as compared to , primarily due to the closing of the Gift Shop during the predecessor year ended December 31, Consulting Company Success fees.
Consulting company success fees as a percentage of revenue were 1. The decrease in consulting company success fees as a percentage of revenue during the successor and predecessor periods , as compared to , was related to the expiration of the management consulting contract during the predecessor year ended December 31, Pre-opening expenses as a percentage of revenue were 0. The decrease in pre-opening expenses as a percentage of revenue during the successor and predecessor periods , as compared to was primarily reflecting the hotel opening in February All hotel related expenses from that point forward are reflected within hotel expense under direct operating expenses.
City of Detroit Settlement. City of Detroit settlement as a percentage of revenue were 0. Reorganization gain loss expenses. Reorganization gain loss expenses as a percentage of net revenue were 0. The gain from reorganization items during the successor period ended June 30, related to the settlement of liabilities subject to compromise and fair value adjustment partially offset by fees directly related to the bankruptcy.
Other expenses. Other expenses as a percentage of net revenue were The following is a discussion of the principal drivers of trends in other expenses:. Interest expense as a percentage of net revenue were Amortization of finance fees and accretion of discount on senior notes as a percentage of net revenue were 2.
Amortization of finance fees and accretion of discount on senior notes expenses as a percentage of net revenue decreased during the successor and predecessor periods , as compared to , primarily as a result of lower capitalized financing fees related to the Exit Financing and the subsequent lower amortization of such fees.
Provision for income taxes. Provision for income taxes as a percentage of net revenue were 3. Provision for income taxes as a percentage of net revenue increased during the successor period , primarily as a result of the recognition of a deferred tax liability related to indefinite lived intangibles assets.
Liquidity and Capital Resources. Our cash requirements have historically been for working capital, obligations under the Development Agreement, gaming taxes, debt service, the improvement of our facilities, including the Expanded Complex, the payment of management fees, tax distributions and, more recently, the funding of reorganization expenses associated with our bankruptcy. In connection with the reorganization, we are required to fund the Litigation Trust. Management fees were discontinued with the termination of the management agreement as of December 31, The borrowings were subsequently repaid with cash generated from operating activities.
Our cash flows for the successor six months ended December 31, , predecessor six months ended June 30, , and predecessor year ended December 31, consisted of the following:. Cash flows:. Net cash provided by used in operating activities. Net cash used in investing activities. Net cash provided by used in financing activities. Net increase decrease in cash and cash equivalents. Net cash provided by operating activities. Net cash provided by operating activities increased for the successor six months ended December 31, , as compared to the predecessor periods.
The increase was primarily related to a decreased cash outflow for reorganization costs and interest payments, as reorganization payments were paid out during predecessor six months ended June 30, In addition, the City of Detroit settlement was paid out during the predecessor year ended December 31, Net cash provided by financing activities. Exit Financing. The net proceeds of the New Senior Secured Notes reflect a combination of a commitment fee and an original issue discount apply.
Pre-petition and DIP Financing. However, in connection with our temporary waiver agreement with the lenders under the Pre-petition Credit Facility, we agreed to reduce the commitments under the incremental delayed term loan to zero. The funds from the delayed draw term loan facility were only available to be used for construction related expenditures, while the funds from the revolving credit facility were available to pay operational and construction related expenses.
The DIP Facility bore interest at a fixed rate of Revolving Loan. The maximum expiration of individual letters of credit is twelve months after the issuance thereof or, if earlier, the maturity of the Revolving Loan. The Revolving Loan was executed on the Effective Date and was undrawn as of such date. The Revolving Loan is secured by a perfected first priority lien and security interest on all the assets of Greektown Superholdings and all its direct and indirect subsidiaries, excluding, among other things, our gaming license.
There is a facility fee of 0. There is also a non-refundable letter of credit fee of 3. Adjustments to the interest rate and the applicable letter of credit fee rate are implemented quarterly based on the Leverage Ratio. Except with respect to certain asset sales, mandatory prepayments will not reduce revolving credit commitments. The Revolving Loan contains a number of covenants that, among other things, restrict, subject to certain exceptions and materiality thresholds, our ability and the ability of our subsidiaries to sell assets and property, incur additional indebtedness, create liens on assets, make investments, loans, guarantees or advances, make distributions, dividends or payments on account of, or purchase, redeem or otherwise acquire, any of our capital stock, prepay certain indebtedness, engage in acquisitions, mergers or consolidations, engage in transactions with affiliates, amend agreements governing our indebtedness, including the notes, make capital expenditures, enter into negative pledges, change our fiscal year and change our name, jurisdiction of incorporation or location at which any Collateral is stored.
In addition, the Revolving Loan contains a financial covenant pursuant to which Greektown Superholdings must maintain as of each Test Date, a Fixed Charge Coverage Ratio of not less than 1. A default could result in, among other things, a termination of the revolving credit commitment and acceleration of amounts outstanding under the Revolving Loan. While the Company believes that these third party liens are discharged pursuant to the terms of the Plan, the liens established by these mortgages were not removed from the title record or insured by the title company prior to the Effective Date.
Historical subordination agreements from the third parties holding such mortgages exist whereby such parties have agreed not to exercise remedies until Greektown LLC has exercised such remedies under a mortgage in favor. Further, the Company and its subsidiaries have agreed to collaterally assign the mortgage in favor of Greektown LLC as well as a mortgage under which a pre-bankruptcy affiliate of the Company is the borrower but as to which Greektown LLC is also the beneficiary of a collateral assignment to secure the mortgage in favor of us to the lenders under the Revolving Loan on a first-priority basis and to the holders of the Notes on a second-priority basis.
New Senior Secured Notes. The New Senior Secured Notes bear interest at a rate of Interest will be computed on the basis of a day year comprised of twelve day months. The New Senior Secured Notes are secured by a perfected lien and security interest on all the assets of Greektown and all its direct and indirect subsidiaries, excluding, among other things, our gaming license, junior only to the lien and security interest granted to lenders under the Revolving Loan.
On or after January 1, , the Company may redeem some or all of the New Senior Secured Notes at any time at the redemption prices specified in the Indenture plus accrued and unpaid interest and special interest, if any, to the applicable redemption date. Failure to comply with the covenants under the New Senior Secured Notes or the Revolving Loan could result in a default under the applicable documents unless Greektown obtains a waiver of, or otherwise mitigates, the default.
The Indenture for the New Senior Secured Notes contains certain events of default, including i failure to pay principal, interest, fees or other amounts when due; ii breach of any covenants which are not cured within a stated cure period; iii default under certain other indebtedness; iv becoming subject to certain judgments; v failure to keep liens or security interests valid; vi certain events of bankruptcy or insolvency; vii impairment of any collateral to the loans; viii ceasing to own the casino complex; or ix loss of gaming or certain other licenses,.
A default could result in an acceleration of the New Senior Secured Notes and acceleration of amounts outstanding there under. Contractual Obligations and Commercial Commitments. As of December 31, , the Company had the following contractual obligations and commercial commitments:.
Payment Due By Period. Less than. Interest on New Senior Secured Notes 2. Exit Financing—Revolving Loan 3. Development Agreement 5. Capital Lease Obligations 6. We did not include anticipated principal amortization based on Consolidated Excess Cash Flow in this schedule as these amounts are conditioned on Greektown Superholdings achieving future EBITDA figures that are not determinable at this time.
Rather, all principal amortization for purposes of this calculation is assumed to take place upon expiration of the New Senior Secured Notes five years from the Effective Date. Amounts listed are based on the payment of the full commitment amount upon expiration of the Revolving Loan. We did not include anticipated interest on the Revolving Loan in this schedule as interest payments are based on amounts outstanding under the Revolving Loan which may vary and, therefore, such interest payments are not determinable at this time.
We have not included these amounts in the table as the payments are conditioned on future adjusted gross receipts that are not determinable at this time. We lease a portion of the Expanded Complex known as the St. The amounts listed reflect the minimum contractual lease payments from the Effective Date forward under the lease agreement.
The Company expects that cash flow from operations together with our unused borrowing capacity under the Revolving Credit Facility will be sufficient to meet our obligations and commitments. The proceeds were used to fund operational expenses, including the semi-annual interest payments on the Senior Secured Notes. Additionally, the Company anticipates that it will draw down additional funds under the Revolving Credit Facility from time to time during to meet its working capital demands.
The Company is in compliance with all financial covenants as of December 31, We believe that general inflation had no significant impact on our business, results of operations, financial condition or cash flows during the years ended December 31, and Absent changes in competitive and economic conditions in Detroit or specific events affecting the hotel and casino industry generally, we do not expect that inflation will have a significant impact on our operations in the future.
Changes in specific prices, such as fuel and transportation prices, relative to the general rate of inflation may have a material adverse effect on the hotel and casino industry in general and, therefore, our business, results of operations, financial condition and cash flows.
Critical Accounting Policies, Judgments and Estimates. The preparation of these consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates. An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that. We believe that the following critical accounting policies reflect the more significant estimates and assumptions used in the preparation of the consolidated financial statements.
Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of our Board. In addition, there are other items within our financial statements that require estimation, but are not deemed critical as defined above. Changes in estimates used in these and other items could have a material impact on our financial statements.
We believe our application of accounting policies, and the estimates inherently required by the policies, are reasonable. These accounting policies and estimates are constantly reevaluated and adjustments are made when facts and circumstances dictate a change. See Note 2— Summary of Significant Accounting Policies to the Consolidated Financial Statements presented in Item 8 of this report a summary of our significant accounting policies.
Net Revenues. The Company recognizes as casino revenues the net win from gaming activities, which is the difference between gaming wins and losses. Revenues from food and beverage and hotel operations are recognized at the time of sale or upon the provision of service.
In accordance with the Revenue Recognition topic of the FASB ASC applied to circumstances where consideration is given by a vendor to a customer, the retail value of food, beverage, and other complimentary items furnished to customers without charge is included in revenues and then deducted as promotional allowances to arrive at net revenues.
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