====================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
The Registrant meets the conditions set forth in General Instruction I(1)
- -------------------------------------------------------------------------------
(a) and (b) of Form 10-K and is therefore filing this Form with the reduced
- -------------------------------------------------------------------------------
disclosure format.
- -----------------
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] For the fiscal year ended December 31,
1999
[ ] Transition report pursuant to sections 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required] For the transition period from
- -------- to ---------
Commission file number 333-8163
RIVIERA BLACK HAWK, INC.
(Exact name of Registrant as specified in its charter)
Colorado IRS Employer ID Number
- --------------------- (88-0886265)
(State of Incorporation)
2901 Las Vegas Boulevard South
Las Vegas, Nevada 89109
- ---------------------------------------- --------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (702) 794-9527
--------------
Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(g) of the Act: None
----
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 such
filing requirements for the past 90 days.
YES X NO
----- ------
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or amendment
to this Form 10-K.
The Registrant's Common Stock is owned 100% indirectly by its
ultimate parent Riviera Holdings Corporation, a reporting company. As of
February 28, 2000 the number of outstanding shares of the Registrant's Common
Stock was 1,000.
Documents incorporated by reference:
====================================================================
Page 1 of 29 Pages
Exhibit Index Appears on Page 28 hereof.
RIVIERA BLACK HAWK, INC.
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
Item 1. Business................................................................................................3
General ...............................................................................................3
The Riviera Black Hawk Casino..........................................................................3
Geographical Markets...................................................................................4
Competition............................................................................................5
Employees and Labor Relations..........................................................................6
Regulation and Licensing...............................................................................6
Federal Registration..................................................................................11
Item 2. Property...............................................................................................11
Item 3. Legal Proceedings......................................................................................11
Item 4. Submission of Matters to a Vote of Security Holders....................................................11
Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters...........................11
Item 6. Selected Financial Data................................................................................12
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..................12
Results of Operations...............................................................................12
Liquidity and Capital Resources.....................................................................12
Recently Adopted Accounting Standards...............................................................12
Recently Issued Accounting Standards................................................................13
Year 2000 ..........................................................................................13
Forward Looking Statements..........................................................................13
Item 7a. Quantitative and Qualitative Market Risk Disclosure....................................................14
Item 8. Financial Statements ..................................................................................14
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...................14
Item 10. Directors and Executive Officers of the Registrant (not applicable)....................................14
Item 11. Executive Compensation (not applicable)................................................................14
Item 12. Security Ownership of certain Beneficial Owners and Management (not applicable)........................14
Item 13. Certain Relationships and Related Transactions ........................................................15
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8K.........................................15
2
PART I
General
Riviera Black Hawk, Inc., a Colorado corporation,formed on August 18, 1997
is wholly owned by Riviera Operating Corporation, a Nevada corporation, which
is, in turn, wholly owned by Riviera Holdings Corporation, a Nevada corporation.
Riviera Holdings Corporation, through its wholly owned subsidiary, Riviera
Operating Corporation, owns and operates the Riviera Hotel & Casino (Riviera Las
Vegas) located on "The Strip" Las Vegas Boulevard in Las Vegas, Nevada. Opened
in 1955, the Riviera Las Vegas has developed a long-standing reputation for
delivering high quality, traditional Las Vegas-style gaming, entertainment and
other amenities. The Company is a development stage enterprise at December 31,
1999 that had not commenced operations. Riviera Black Hawk, Inc. (Riviera Black
Hawk) operates a limited-stakes casino in Black Hawk, Colorado which opened on
February 4, 2000. Riviera Gaming Management of Colorado, Inc. an indirect wholly
owned subsidiary of Riviera Holdings Corporation will manage the casino through
a subsidiary.
Riviera Black Hawk is located at the entrance of the City of Black
Hawk, Colorado, about forty miles west of Denver and is one of the first casinos
encountered when traveling from Denver to the Black Hawk/Central City market. It
is located on the corner of Mill and Main Street, across from Colorado Central
Station, which has been the most successful casino in Colorado. In addition,
Riviera Black Hawk is located across the street from the Isle of Capri Casino,
which is of similar size to our casino in terms of gaming positions. Riviera
Black Hawk offers parking for 520 vehicles, of which 92% are covered, with
convenient and free self-park and valet options.
Gaming
Riviera Black Hawk has 30,000 square feet of casino space. The
casino has approximately 1,000 slot machines and 12 gaming tables, including
blackjack, three card poker, Let It Ride(R) and Bonus 6(R).
Restaurants
The quality, value and variety of food served are critical to
attracting Black Hawk visitors. Riviera Black Hawk offers one restaurant, the
Red Rose, a full-service, casual dining restaurant located on the second floor
of the facility with a seating capacity of up to 265 people. The flexible design
of the restaurant allows for the conversion of a portion of the dining area
into private seating for up to 88 people for private parties and special events.
In addition to the restaurant, our casino also includes two bars, one located in
the entertainment area and the other one on the casino floor. There is also a
coffee bar, the Coffee Bean, on the ground floor near valet parking.
Entertainment
Riviera Black Hawk includes a 7,000 square feet, multi-use entertainment
center located on the second level of the facility with the capacity to seat
approximately 500 people. This is one of the largest facilities in the Black
Hawk market enabling us to feature entertainment performances and special
events. When not in use, the entertainment center is available for
meetings, parties and other promotional events.
Marketing strategy
The initial participants in this market were small, privately held gaming
facilities whose inability to offer convenient parking and a full range of
traditional casino amenities limited market growth. Subsequently, larger casinos
offering such amenities have entered the market, have been gaining market share
and have contributed to the consistent growth in the overall market. As of
December 31, 1999, there were 30 casinos in the Black Hawk/Central City market,
with eight casinos each offering more than 400 gaming devices. Isle of Capri,
located across the street from our casino with approximately 1,100 gaming
machines and 1,000 covered parking spaces, has been the market leader in terms
of win per gaming device.
3
We plan to attract customers to our casino by implementing marketing
strategies and promotions designed specifically for this market. In doing so, we
hope to create customer loyalty and benefit from repeat visits by our customers.
Specific marketing programs to support this strategy include the Riviera Black
Hawk Player's Club and "V.I.P." services offered to repeat gaming customers. The
Riviera Black Hawk Player's Club is a promotion that rewards casino play and
repeat visits to the casino with various privileges and amenities such as cash
bonuses, logo gift items and invitations to special events, including free slot
tournaments and parties. We have used the Player's Club promotion in our casino
in Las Vegas and, in our capacity as manager of the Riviera Black Hawk, are
tailoring it for the Black Hawk/Central City market to implement at our casino.
"V.I.P." services are available to the highest level of players and include
special valet and self-parking services, complimentary food and entertainment
offerings and special events specifically designed for this group of customers.
We believe that we will benefit from strong "walk-in" traffic due to
the proximity of our casino to the Colorado Central Station and the Isle of
Capri Casino. We intend to develop specific marketing programs designed to
attract these "walk-in" customers. We emphasize quality food and beverage
amenities with customer friendly service as a marketing tool. In addition, we
will provide entertainment programs designed to meet the tastes of the Black
Hawk/Central City market, such as live music performances by popular regional
and national groups.
We will utilize proven database marketing techniques previously
implemented by our casino in Las Vegas. We plan to rely on database marketing in
order to best identify target customer segments of the population and to tailor
the casino's promotions and amenities to our core group of customers. We will
use the current database maintained by Riviera Las Vegas to identify and
stratify slot players living in Colorado for appropriate incentives.
Approximately 7,500 of these slot players have been identified as of December
31, 1999. In addition, we will promote our casino by advertising in newspapers
and on billboards in the local areas.
Geographical Markets
The Black Hawk/Central City Market
Gaming was first introduced to the Black Hawk/Central City market in
October 1991 following a state-wide referendum where Colorado voters approved
limited stakes gaming for three historic mining towns - Black Hawk, Central City
and Cripple Creek. Limited stakes gaming is defined as a maximum single bet of
five dollars. Black Hawk and Central City are contiguous cities located
approximately 40 miles west of Denver and about ten miles north of Interstate
Highway 70, the main east-west artery from Denver. Historically, these two gold
mining communities were popular tourist towns. However, since the inception of
casino gaming in October 1991, many of the former tourist-related businesses
have been displaced by gaming establishments.
The first casino in the Black Hawk/Central City market was opened in
October 1991 with 14 casinos open by the end of that year. The pace of expansion
increased further in 1992 with the number of casinos in the market peaking at 42
casinos. However, due to a trend of consolidation in the market and the
displacement of small casinos by the entry of larger, better capitalized
operators, the number of casinos has declined to 30 as of December 31, 1999.
The Black Hawk/Central City market primarily caters to "day-trip"
customers from Denver, Boulder, Fort Collins and Golden as well as Cheyenne,
Wyoming. An estimated adult population exceeding 2.3 million people reside
within this 100-mile radius of Black Hawk. In addition, residents within a 100
mile radius of the City of Black Hawk had an estimated average household income
in excess of $50,000 per annum in 1999.
Since 1992, the number of gaming devices in the Black Hawk/Central
City market has grown approximately 33.9% from 7,252 devices in 1992 to 9,711
devices in 1999. The total number of slot machines has increased 34.9% since
1992 to 9,555 in 1999 while the total number of tables in the market has
decreased with 156 tables in the market at the end of 1999. Win per gaming
device per day has continued to grow despite the increase in the number of
gaming devices.
4
The City of Black Hawk has experienced more significant growth in
gaming revenues than Central City since 1992. The popularity of Black Hawk in
comparison to Central City is due primarily to Black Hawk's superior access to
major highways, as patrons must first pass through Black Hawk to access Central
City from Denver. Due to this superior location, larger casino operators have
focused on building in the City of Black Hawk. As a result, casinos in Black
Hawk now generally feature a larger average number of gaming devices, a wider
variety of amenities and convenient free parking for patrons. These factors have
contributed to growth in Black Hawk gaming revenues at a compound annual rate of
29% since 1992 compared to a more moderate growth for Central City of 5% over
the same period. The number of slot machines and tables in the City of Black
Hawk have increased 119% and 41%, respectively since 1992, while the number of
slot machines and tables in Central City have declined 39% and 57%, respectively
over the same period.
The City of Black Hawk experienced a 30% increase in gaming revenue
in 1999, the greatest of any gaming venue in the United States.
The information contained in this discussion of the Black Hawk/ Central
City market was derived from publicly available data, except where stated
otherwise. While we believe these sources are reasonably reliable, no assurances
can be made regarding the accuracy of such information.
Competition
The Black Hawk/Central City gaming market is characterized by intense
competition. The primary competitive factors in the market are location,
availability and convenience of parking, number of slot machines and gaming
tables, types and pricing of non-gaming amenities, name recognition and overall
atmosphere. Our main competitors are the larger gaming facilities, particularly
those with considerable on-site or nearby parking and established reputations in
the local market. As of December 31, 1999 there were 19 gaming facilities in the
Black Hawk market with seven casinos each offering more than 400 gaming
positions. The "Mardi Gras" casino opened in March 2000 and features over 600
slot machines. In addition, Isle of Capri is constructing a hotel addition to
its casino. Other projects have also been announced, proposed, discussed or
rumored for the Black Hawk/Central City market.
We expect that the gaming facilities near the intersection of Main
and Mill Streets will provide significant competition to our casino. Colorado
Central Station, which has been the most successful casino in Colorado, is
located across the street from our casino and has approximately 700 slot
machines, 20 gaming tables and approximately 700 valet parking spaces. The Isle
of Capri Casino, operated by Casino America, which opened in December 1998, is
located directly across the street from our casino and features approximately
1,100 slot machines, 14 table games and 1,100 parking spaces, and had an
extremely successful first year of operation.
The number of hotel rooms currently in the Black Hawk/Central City
market is approximately 170, with only two gaming facilities providing hotel
accommodations to patrons. These include Harvey's Wagon Wheel Casino Hotel with
approximately 120 rooms and the Lodge at Black Hawk with approximately 50 rooms.
In addition, the Isle of Capri Casino began construction in 1999 of an
approximately 235 room hotel on top of its recently completed casino. Casinos
offering hotel accommodations for overnight stay may have a competitive
advantage over our casino. However, we believe that self-parking is a more
effective utilization of our available space and that providing hotel
accommodations will not be a significant factor, but instead will contribute to
growth in the overall market.
Historically, the city of Black Hawk has enjoyed an advantage over
Central City because customers have to drive through Black Hawk to reach Central
City. Central City has proposed the development of a road directly connecting
Central City and Black Hawk with Interstate 70 which would allow customers to
reach Central City without driving by or through Black Hawk. There remain
significant financial and legal obstacles to the development of this road and it
is uncertain whether it will be developed over the near to intermediate term, or
developed at all.
Currently, limited stakes gaming in Colorado is constitutionally
authorized in Central City, Black Hawk, Cripple Creek and two Native American
reservations in southwest Colorado. However, gaming could be approved in other
Colorado communities in the future. The legalization of gaming closer to Denver
would likely have a material adverse effect on our future results of operations.
We also compete with other forms of gaming in Colorado, including lottery
gaming, and horse and dog racing as well as other forms of entertainment.
5
It is also possible that new forms of gaming could compete with our
casino. Currently, Colorado law does not authorize video lottery terminals.
However, Colorado law permits the legislature, with executive approval, to
authorize new types of lottery gaming, such as video lottery terminals. Video
lottery terminals are games of chance, similar to slot machines, in which the
player pushes a button that causes a random set of numbers or characters to be
displayed on a video screen. The player may be awarded a ticket, which can be
exchanged for cash or credit play. This form of gaming could compete with slot
machine gaming.
Pursuant to a license agreement, Riviera Holdings Corporation licensed the
use at the Black Hawk casino of all of the trademarks, service marks and logos
used by Riviera Las Vegas. In addition, the license agreement provides that
additional trademarks, service marks and logos acquired or developed by us and
used at our other facilities will be subject to the license agreement.
Employees and Labor Relations
Riviera Black Hawk opened on February 4, 2000 with approximately 450
employees and plans to maintain that employee level. The Black Hawk/Central City
labor market is very competitive. Riviera Black Hawk believes that it will be
able to maintain its current employee level. There can be no assurance, however,
that new and existing casinos will not affect Riviera Black Hawk's ability to
maintain its current employee level. There are currently no collective
bargaining agreements in Black Hawk casinos.
Regulation and Licensing
Colorado
Colorado Gaming and Liquor Regulation
Summary
In general , Riviera Black Hawk, our principal executive officers and
those of Riviera Holdings, and any of our employees who are involved in our
gaming operations, are required to be found suitable for licensure by the
Colorado Gaming Commission. Colorado also requires that significant stockholders
of 5% or more of our stock be certified as suitable for licensure. Riviera Black
Hawk's retail gaming license was approved by the Colorado Gaming Commission on
November 18, 1999.
Background
Pursuant to an amendment to the Colorado Constitution, limited stakes
gaming became lawful in the cities of Central City, Black Hawk and Cripple Creek
on October 1, 1991. Limited stakes gaming means a maximum single bet of five
dollars on slot machines and in the card games of blackjack and poker.
Limited stakes gaming is confined to the commercial districts of
these cities as defined by Central City on October 7, 1981, by Black Hawk on May
4, 1978, and by Cripple Creek on December 3, 1973. In addition the Colorado
Amendment restricts limited stakes gaming to structures that conform to the
architectural styles and designs that were common to the areas prior to World
War I, and which conform to the requirements of applicable city ordinances
regardless of the age of the structures. Under the Colorado Amendment, no more
than 35% of the square footage of any building and no more than 50% of any one
floor of any building may be used for limited stakes gaming. Persons under the
age of 21 cannot participate in limited stakes gaming. The Colorado Amendment
also prohibits limited stakes gaming between the hours of 2:00 a.m. and 8:00
a.m., and allows limited stakes gaming to occur in establishments licensed to
sell alcoholic beverages.
Further, the Colorado Amendment provides that, in addition to any
other applicable license fees, up to a maximum of 40% of the total amounts
wagered less payouts to players may be payable by a licensee for the privilege
of conducting limited stakes gaming. Such percentage is to be established by the
Colorado Commission on July 1 annually.
6
The Colorado Act declares public policy on limited stakes gaming to be
that: (1) the success of limited stakes gaming is dependent upon public
confidence and trust that licensed limited stakes gaming is conducted honestly
and competitively; the rights of the creditors of licensees are protected;
gaming is free from criminal and corruptive elements (2) public confidence and
trust can be maintained only by strict regulation of all persons, locations,
practices, associations and activities related to the operation of licensed
gaming establishments and the manufacture or distribution of gaming devices and
equipment; (3) all establishments where limited stakes gaming is conducted and
where gambling devices are operated, and all manufacturers, sellers and
distributors of certain gambling devices and equipment must therefore be
licensed, controlled and assisted to protect the public health, safety, good
order and the general welfare of the inhabitants of the state to foster the
stability and success of limited stakes gaming and to preserve the economy,
policies and free competition in Colorado; and (4) no applicant for a license or
other approval has any right to a license or to the granting of the approval
sought. Any license issued or other commission approval granted pursuant to the
provisions of this Article is a revocable privilege, and no holder acquires any
vested rights therein.
Regulatory Structure
The Colorado Act subjects the ownership and operation of limited
stakes gaming facilities in Colorado to extensive licensing and regulation by
the Colorado Commission. The Colorado Commission has full and exclusive
authority to promulgate, and has promulgated, rules and regulations governing
the licensing, conducting and operating of limited stakes gaming. The Colorado
Act also created the Colorado Division of Gaming within the Colorado Revenue
Department to license, regulate and supervise the conduct of limited stakes
gaming in Colorado. The division is supervised and administered by the Director
of the Division of Gaming.
Gaming licenses
The Colorado Commission may issue:
slot machine manufacturer or distributor,
operator,
retail gaming,
support and
key employee gaming licenses.
The first three licenses require annual renewal by the Colorado
Commission. Support and key employee licenses are issued for two year periods
and are renewable by the Division Director. The Colorado Commission has broad
discretion to condition, suspend for up to six months, revoke, limit or restrict
a license at any time and also has the authority to impose fines.
An applicant for a gaming license must complete comprehensive
application forms, pay required fees and provide all information required by the
Colorado Commission and the Division of Gaming. Prior to licensure, applicants
must satisfy the Colorado Commission that they are suitable for licensing.
Applicants have the burden of proving their qualifications and must pay the full
cost of any background investigations. There is no limit on the cost of such
background investigations.
Gaming employees must hold either a support or key employee license.
Every retail gaming licensee must have a key employee licensee in charge of all
limited stakes gaming activities when limited stakes gaming is being conducted.
The Colorado Commission may determine that a gaming employee is a key employee
and, require that such person apply for a key employee license.
7
A retail gaming license is required for all persons conducting
limited stakes gaming on their premises. In addition, an operator license is
required for all persons who engage in the business of placing and operating
slot machines on the premises of a retailer. However, a retailer is not required
to hold an operator license. No person may have an ownership interest in more
than three retail gaming licenses. A slot machine manufacturer or distributor
license is required for all persons who manufacture, import and distribute slot
machines in Colorado.
The Colorado Regulations require that every officer, director, and
stockholder of private corporations or equivalent office or ownership holders
for non-corporate applicants, and every officer, director or stockholder holding
either a 5% or greater interest or controlling interest of a publicly traded
corporation or owners of an applicant or licensee shall be a person of good
moral character and submit to a full background investigation conducted by the
Division of Gaming and the Colorado Commission. The Colorado Commission may
require any person having an interest in a license to undergo a full background
investigation and pay the cost of investigation in the same manner as an
applicant.
Persons found unsuitable by the Colorado Commission may be required
immediately to terminate any interest, association, or agreement with or
relationship to a licensee. A finding of unsuitability with respect to any
officer, director, employee, associate, lender or beneficial owner of a licensee
or applicant also may jeopardize the licensee's license or the applicant's
application. A license approval may be conditioned upon the termination of any
relationship with unsuitable persons. A person may be found unsuitable because
of prior acts, associations or financial conditions. Acts that would lead to a
finding of unsuitability are those that would violate the Colorado Act or the
Colorado Regulations or that contravene the legislative purpose of the Colorado
Act.
Duties of licensees
An applicant or licensee must report to the Division of Gaming or
Colorado Commission all leases not later than 30 days after the effective date
of the lease. Also, an applicant or a licensee, upon the request of the Colorado
Commission or the Division Director, must submit copies of all written gaming
contracts and summaries of all oral gaming contracts to which it is or intends
to become a party. The Division Director or the Colorado Commission may require
changes in the lease or gaming contract before an applicant is approved or
participation in such agreement is allowed or may require termination of the
lease or gaming contract.
The Colorado Amendment and the Colorado Regulations require licensees
to maintain detailed records that account for all business transactions. Records
must be furnished upon demand to the Colorado Commission, the Division of Gaming
and other law enforcement authorities. The Colorado Regulations also establish
extensive playing procedures and rules of play for poker, blackjack and slot
machines. Retail gaming licenses must adopt comprehensive internal control
procedures. Such procedures must be approved in advance by the Division of
Gaming and include the areas of accounting, surveillance, security, cashier
operations, key control and fill and drop procedures, among others. No gaming
devices may be used in limited stakes gaming without the approval of the
Division Director or the Colorado Commission.
Licensees have a continuing duty to immediately report to the
Division of Gaming the name, date of birth and social security number of all
persons who obtain an ownership, financial or equity interest in the licensee of
5% or greater, who have the ability to control the licensee, who have the
ability to exercise significant influence over the licensee or who loan any
money or other thing of value to the licensee. Licensees must report to the
Division of Gaming all gaming licenses, and all applications for gaming
licenses, in foreign jurisdictions.
With limited exceptions applicable to licensees that are publicly
traded entities, no person may sell, lease, purchase, convey or acquire any
interest in a retail gaming or operator license or business without the prior
approval of the Colorado Commission.
8
All agreements, contracts, leases, or arrangements in violation of
the Colorado Amendment, the Colorado Act or the Colorado Regulations are void
and unenforceable.
Taxes, fees and fines
The Colorado Amendment requires an annual tax of up to 40% on the
total amount wagered less all payouts to players. With respect to games of
poker, the tax is calculated based on the sums wagered which are retained by the
licensee as compensation. Effective July 1 of each year, the Colorado Commission
establishes the gaming tax for the following 12 months. Currently, the gaming
tax is:
.25% on the first $2 million of these amounts;
2% on amounts from $2 million to $4 million;
4% on amounts from $4 million to $5 million;
11% on amounts from $5 million to $10 million;
16% on amounts from $10 million to $15 million; and
20% on amounts over $15 million.
The Colorado Commission has eliminated the annual device fee for
gaming device machines, blackjack tables and poker tables.
The municipality of Black Hawk assesses an annual device fee of $750
per device. There is no statutory limit on state or city device fees, which may
be increased at the discretion of the Colorado Commission or the city. In
addition, a business improvement fee of as much as $102 per device and a
transportation authority device fee of $77.04 per device also may apply
depending upon the location of the licensed premises in Black Hawk. The current
annual business improvement fee is $89.04.
Black Hawk also imposes taxes and fees on other aspects of the businesses
of gaming licensees, such as parking, alcoholic beverage licenses and other
municipal taxes and fees. There can be no assurance that tax rates or fees
applicable to our casino will not be increased in the future, either by the
Colorado electorate, legislation or action by the Colorado Commission, reducing
the profitability of our operations. Additionally, from time to time, some
federal legislators have proposed the imposition of a federal tax on gaming
revenues. Any such tax increase or new tax would reduce our cash flow and could
have a material adverse effect.
Violation of the Colorado Gaming Act or the Colorado Regulations
constitutes a class 1 misdemeanor which may subject the violator to fines or
incarceration or both. A licensee who violates the Colorado Gaming Act or
Colorado Regulations is subject to suspension of the license for a period of up
to six months, fines, or both or to license revocation.
Requirements for publicly traded corporations
The Colorado Commission has enacted Rule 4.5, which imposes
requirements on publicly traded corporations holding gaming licenses in Colorado
and on gaming licenses owned directly or indirectly by a publicly traded
corporation, whether through a subsidiary or intermediary company. The term
"publicly traded corporation" includes corporations, firms, limited liability
companies, trusts, partnerships and other forms of business organizations. Such
requirements automatically apply to any ownership interest held by a publicly
traded corporation, holding company or intermediary company thereof, where the
ownership interest directly or indirectly is, or will be upon approval of the
Colorado Commission, 5% or more of the entire licensee. In any event, if the
Colorado Commission determines that a publicly traded corporation, or a
subsidiary, intermediary company or holding company has the actual ability to
exercise influence over a licensee, regardless of the percentage of ownership
possessed by said entity, the Colorado Commission may require the entity to
comply with the disclosure regulations contained in Rule 4.5.
9
Under Rule 4.5, gaming licensees, affiliated companies and
controlling persons commencing a public offering of voting securities must
notify the Colorado Commission no later than ten business days after the initial
filing of a registration statement with the Securities and Exchange Commission.
Licensed publicly traded corporations are also required to send proxy statements
to the Division of Gaming within 5 days after their distribution. Licensees to
whom Rule 4.5 applies must include in their charter documents provisions that:
restrict the rights of the licensees to issue voting interests or securities
except in accordance with the Colorado Gaming Act and the Colorado Regulations;
limit the rights of persons to transfer voting interests or securities of
licensees except in accordance with the Colorado Gaming Act and the Colorado
Regulations; and provide that holders of voting interests or securities of
licensees found unsuitable by the Colorado Commission may, within 60 days of
such finding of unsuitability, be required to sell their interests or securities
back to the issuer at the lesser of the cash equivalent of the holders'
investment or the market price as of the date of the finding of unsuitability.
Alternatively, the holders may, within 60 days after the finding of
unsuitability, transfer the voting interests or securities to a suitable person,
as determined by the Colorado Commission. Until the voting interests or
securities are held by suitable persons, the issuer may not pay dividends or
interest, the securities may not be voted, they may not be included in the
voting or securities of the issuer, and the issuer may not pay any remuneration
in any form to the holders of the securities.
Pursuant to Rule 4.5, persons who acquire direct or indirect beneficial
ownership of
5% or more of any class of voting securities of a publicly traded corporation
that is required to include in its articles of organization the Rule 4.5 charter
language provisions or
5% or more of the beneficial interest in a gaming licensee directly or
indirectly through any class of voting securities of any holding company or
intermediary company of a licensee, referred to as qualifying persons, shall
notify the Division of Gaming within 10 days of such acquisition, are required
to submit all requested information and are subject to a finding of suitability
as required by the Division of Gaming or the Colorado Commission. Licensees also
must notify any qualifying persons of these requirements. A qualifying person
other than an institutional investor whose interest equals 10% or more must
apply to the Colorado Commission for a finding of suitability within 45 days
after acquiring such securities. Licensees must also notify any qualifying
persons of these requirements. Whether or not notified, qualifying persons are
responsible for complying with these requirements.
A qualifying person who is an institutional investor under Rule 4.5
and who individually or in association with others, acquires, directly or
indirectly, the beneficial ownership of 15% or more of any class of voting
securities must apply to the Colorado Commission for a finding of suitability
within 45 days after acquiring such interests.
The Colorado Regulations also provide for exemption from the
requirements for a finding of suitability when the Colorado Commission finds
such action to be consistent with the purposes of the Colorado Act.
Pursuant to Rule 4.5, persons found unsuitable by the Colorado
Commission must be removed from any position as an officer, director, or
employee of a licensee, or from a holding or intermediary company. Such
unsuitable persons also are prohibited from any beneficial ownership of the
voting securities of any such entities. Licensees, or affiliated entities of
licensees, are subject to sanctions for paying dividends or distributions to
persons found unsuitable by the Colorado Commission, or for recognizing voting
rights of, or paying a salary or any remuneration for services to, unsuitable
persons. Licensees or their affiliated entities also may be sanctioned for
failing to pursue efforts to require unsuitable persons to relinquish their
interest. The Colorado Commission may determine that anyone with a material
relationship to, or material involvement with, a licensee or an affiliated
company must apply for a finding of suitability or must apply for a key employee
license.
10
Alcoholic Beverage Licenses
The sale of alcoholic beverages in gaming establishments is subject
to strict licensing, control and regulation by state and local authorities.
Alcoholic beverage licenses are revocable and nontransferable. State and local
licensing authorities have full power to limit, condition, suspend for as long
as six months or revoke any such licenses. Violation of state alcoholic beverage
laws may constitute a criminal offense resulting in incarceration, fines or
both.
There are various classes of retail liquor licenses which may be
issued under the Colorado Liquor Code. A gaming licensee may sell malt, vinous
or spirituous liquors only by the individual drink for consumption on the
premises. Even though a retail gaming licensee may be issued various classes of
retail liquor licenses, such gaming licensee may only hold liquor licenses of
the same class. An application for an alcoholic beverage license in Colorado
requires notice, posting and a public hearing before the local liquor licensing
authority prior to approval of the same. The Colorado Department of Revenue's
Liquor Enforcement Division must also approve the application. Riviera Black
Hawk's hotel and restaurant license has been approved by both the local
licensing authority and the State Division of Liquor Enforcement.
Federal Registration
Riviera Black Hawk, Inc. is required to annually file with the Attorney
General of the United States in connection with the sales, distribution, or
operations of slot machines. All requisite filings for the present year have
been made.
Item 2. Property
Riviera Black Hawk owns the Black Hawk land, which is located on a 71,000
square foot parcel of real property in Black Hawk, Colorado and comprised of
approximately 32,000 square feet of gaming space and parking for approximately
520 vehicles (substantially all of which are covered), a 265 seat casual dining
restaurant, two bars and an entertainment center with seating for approximately
500 people.
Item 3. Legal Proceedings
We may be a party to several routine lawsuits both as plaintiff and
as defendant arising from the normal operations of a casino. We do not believe
that the outcome of such litigation, in the aggregate, will have a material
adverse effect on the financial position or results of our operations.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for the Registrant's Common Stock and Related Security Holder
Matters
Not applicable.
11
Item 6. Selected Financial Data
Not applicable
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations Results of Operations
Riviera Black Hawk, opened for business on February 4, 2000. Results
from Operations will be discussed in the Form 10Q for the period ending March
31, 2000. Preopening expenses for the year ending December 31, 1999, totaled
$595,000 including payroll, rent, travel and other expenses. Interest expense
not capitalized during construction was $606,000 during 1999. There were no
operating expenses in 1998 or 1997.
As of December 31, 1999, Riviera Holdings Corporation contributed $15.1
million to acquire land for the casino in Black Hawk and $4.9 million in cash
for developing the land for the casino, for a total cash capital contribution of
$20 million.
Future operating results are subject to significant business, economic,
regulatory and competitive uncertainties and contingencies, many of which are
beyond our control. We believe that the Riviera Black Hawk will be able to
attract a sufficient number of patrons and achieve the level of activity and
revenues necessary to permit us to meet our obligations. However, there can be
no assurance that we will be able to achieve these results.
Liquidity and Capital Resources
The Company had cash and short term investments of $11.8 million at
December 31, 1999. Restricted cash and cash equivalents totaled $7.1 million and
restricted short-term investments totaled $2.8 million. Restricted amounts are
for use in the completion of the Black Hawk casino project and for the related
13 percent First Mortgage Notes interest payments. Management believes that cash
flow from operations combined with the $11.8 million cash and short term
investments will be sufficient to cover the Company's debt service and enable
investment in budgeted capital expenditures for the next twelve months including
completion of the Black Hawk casino development.
On June 3, 1999, the Company completed a $45 million private placement of
13 % First Mortgage Notes. The net proceeds of the placement were used to fund
the completion of Riviera Black Hawk's casino project in Black Hawk, Colorado.
Riviera Holdings Corporation has not guaranteed the $45 million Riviera Black
Hawk notes, but has agreed to a "Keep Well Agreement" of $5 million per year (or
an aggregate limited to $10 million) for the first three years of Riviera Black
Hawk operations to cover if (i) the $5.85 million interest on such notes is not
paid by Riviera Black Hawk and (ii) the amount by which Riviera Black Hawk cash
flow is less than $9.0 million per year. The Company believes that Riviera
Holdings Corporation could satisfy this requirement if needed. In addition,
Riviera Holdings Corporation has agreed to a "Capital Completion Commitment" of
up to $10 million if the casino is not open by May 31, 2000. The opening of the
casino on February 4, 2000 satisfied the commitment which will be released in
August of 2000. The Company has registered securities identical to the 13% Notes
under the Securities Act of 1933, as amended. On January 4, 2000, the Company
completed an exchange offer for such registered securities.
Cash flow from operations may not be sufficient to pay 100% of the
principal of the $45 million 13% Notes at maturity on May 1, 2005. Accordingly,
the ability of Riviera Black Hawk to repay the Notes at maturity may be
dependent upon our future cash flows and our ability to refinance those notes.
There can be no assurance that the Company will be able to refinance the
principal amount of the Notes at maturity. Although Riviera Black Hawk, Inc.
can, at any time prior to May 1, 2001, redeem up to 35% of the aggregate
principal amount of the 13% notes at 113% with the proceeds of a qualified
public offering, the subsidiary may not redeem 100% of the 13% Notes until May
1, 2002, at premiums beginning at 106.5% and declining each subsequent year to
par in 2004.
The 13% Note Indentures provide that, in certain circumstances, Riviera
Black Hawk must offer to repurchase the Notes upon the occurrence of a change of
control or certain other events. In the event of such mandatory redemption or
repurchase prior to maturity, the Company would be unable to pay the principal
amount of the Notes without a refinancing.
The Note Indenture contains certain covenants, which limit the ability
of Riviera Black Hawk, Inc. subject to certain exceptions, to : (i) incur
additional indebtedness; (ii) pay dividends or other distributions, repurchase
capital stock or other equity interests or subordinated indebtedness; (iii)
enter into certain transactions with affiliates; (iv) create certain liens; sell
certain assets; and (v) enter into certain mergers and consolidations. As a
result of these restrictions, the ability of the Company to incur additional
indebtedness to fund operations or to make capital expenditures is limited. In
the event that cash flow from operations is insufficient to cover cash
requirements, the Company would be required to curtail or defer certain of their
capital expenditure programs under these circumstances, which could have an
adverse effect on operations. At December 31, 1999, the Company believes that it
is in compliance with the covenants.
In July 1999, the Company committed to a $11.1 million capital lease line
for 60 months at approximately 11.2 percent for gaming equipment, furniture and
fixtures at the Black Hawk, Colorado casino.
The Company made draws on the capital lease line beginning in February
through March 6 of 2000 in the amount of $9,500,000 at a weighted average
interest rate of 10.5 percent. The Company does not expect to make further draws
on the lease line.
Recently Adopted Accounting Standards - The American Institute of Certified
Public Accountants' Accounting Standards Executive Committee issued Statement of
Position No. 98-5, Reporting on the Costs of Start-Up Activities. This standard
provides guidance on the financial reporting for start-up costs and organization
costs. This standard requires costs of start-up activities and organization
costs to be expensed as incurred, and is effective for fiscal years beginning
after December 15, 1998, although earlier application is encouraged. Management
adopted this standard in 1999. The effect was to recognize approximately
$595,000 of pre-opening expenses in the current year that would otherwise have
been deferred.
12
Recently Issued Accounting Standards - The Financial Accounting Standards
Board issued SFAS No. 133, "Accounting for Derivatives," which is effective for
fiscal years beginning after June 15, 2000. This statement defines derivatives
and requires qualitative disclosure of certain financial and descriptive
information about a company's derivatives. The Company will adopt SFAS No. 133
in the year ending December 31, 2001. Management has not finalized its analysis
of this SFAS or the impact of this SFAS on the Company or the Company's future
consolidated financial statements.
Year 2000
The Company conducted a comprehensive review of its computer systems
and other systems for the purpose of assessing its potential Year 2000 Problem,
and modified or replaced those systems which were not Year 2000 compliant. Based
upon this review, systems were compliant by December 1999. However, if
modifications had not been made or completed on schedule, the Year 2000 Problem
could have had a significant impact on the Company's operations.
All costs related to the Year 2000 Problem were expensed as incurred,
while the cost of new hardware and software was capitalized and amortized over
its expected useful life. The costs associated with Year 2000 compliance were
not material to the Company's financial position or results of operations. As of
December 31, 1999, the Company has incurred costs of approximately $2,000
(primarily for internal labor) related to the system applications.
In addition, the Company communicated with its major vendors and
suppliers to determine their state of readiness relative to the Year 2000
problem and the company's possible exposure to Year 2000 issues of such third
parties. The Company, through correspondence from major vendors or statements
obtained at Year 2000 disclosure sites of major vendors, was advised that such
vendors' software or products were Year 2000 compliant. The Company experienced
no failure of a major vendor or supplier which impacted operations.
Forward Looking Statements
The Private Securities Litigation Reform Act of 1998 provides a "safe
harbor" for certain forward-looking statements. Certain matters discussed in
this filing could be characterized as forward-looking statements such as
statements relating to plans for future expansion, as well as other capital
spending, financing sources and effects of regulation and competition. Such
forward-looking statements involve important risks and uncertainties that could
cause actual results to differ materially from those expressed in such
forward-looking statements
13
Item 7a. Quantitative and Qualitative Disclosure about Market Risk
Market risks relating to our operations result primarily from changes
in interest rates. We invest our cash and cash equivalents in U.S. Treasury
Bills with maturities of 90 days or less.
As of December 31, 1999, we had $45.7 million in borrowings. The
borrowings include $45 million notes maturing in 2006 and a vehicle loan
maturing in 2004. Interest on the $45 million notes is 13%
with contingent interest if certain operating results are achieved. The
vehicle loan has an interest rate of 9.0%. The borrowings
also include $.7 million in a special improvement district bond offering with
the City of Black Hawk. The Company's share of the debt on the SID bonds of
$1,120,000 when the project is complete, is payable over ten years beginning in
2000. The special improvement district bonds bear interest at 5.5%.
Interest Rate Sensitivity
Principal (Notational Amount by Expected Maturity)
Average Interest Rate
(Amounts in Thousands) Fair Value
2000 2001 2002 2003 2004 Thereafter Total At 12/31/99
Assets
Short term investments $2,820 $2,820 $2,820
Average interest rate 4.75%
Long Term Debt
Including Current Portion
Vehicle loan - Black Hawk,
Colorado casino project $9 $10 $8 $27 $27
Average interest rate 9.0% 9.0% 9.0%
Special Improvement
District Bonds-Black Hawk,
Colorado casino project $60 $64 $68 $71 $76 $445 $784 $784
Average interest rate 5.5% 5.5% 5.5% 5.5% 5.5% 5.5%
13% First Mortgage Note
Black Hawk, Colorado casino
project $45,000 $45,000 $48,600
Average interest rate 13.0%
Item 8. Financial Statements and Supplementary Data
See financial statements included in Item 14 (a).
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
Item 10. Directors and Executive Officers of the Registrant (not applicable)
Item 11. Executive Compensation (not applicable)
Item 12. Security Ownership of certain Beneficial Owners and Management
(not applicable)
14
Item 13. Certain Relationships and Related Transactions
The Company has entered into a management agreement (the "Management
Agreement") with Riviera Gaming Management of Colorado, Inc., (the "Manager") an
indirect wholly owned subsidiary of Riviera Holdings Corporation, which will
manage the Company. The management fee will consist of a revenue fee and a
performance fee. The revenue fee will be based on one percent of net revenues
(gross revenues less complimentaries) and is payable quarterly in arrears. The
performance fee will be based on the following percentages of EBITDA (earnings
before interest, taxes, depreciation and amortization, whose components are
based on generally accepted accounting principles): (1) 10 percent of EBITDA
from $5 million to $10 million, (2) 15 percent of EBITDA from $10 million to $15
million and (3) 20 percent of EBITDA in excess of $15 million. The performance
fee will be based on the preceding quarter's EBITDA, paid in quarterly
installments subject to year-end adjustment. The management fee will go into
effect on the date of the opening of the Riviera Black Hawk casino.
PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) List of Financial Statements
The following Independent Auditor's Report and the Financial Statements
of the Company are incorporated by reference into this item 14 of Form 10-k by
Item 8 hereof:
Independent Auditor's Report dated February 14, 2000, except for Note 6,
as to which the date is March 6, 2000.
Balance Sheets as of December 31, 1999 and 1998
Statements of Operations for the Year Ended December 31, 1999 and Cumulative
from August 18, 1997 (Date of Inception) through December 31, 1999
Statements of Stockholder's Equity for the Years Ended December 31, 1999 and
1998 and for the Period from August 18, 1997 (Date of Inception) through
December 31, 1997
Statements of Cash Flows and for the Years Ended December 31, 1999 and 1998
and for the Period from August 18, 1997 (Date of Inception) through
December 31, 1997 and cumulative from August 18, 1997 (Date of Inception)
through December 31, 1999
Notes to Financial Statements
(a)(2) List of Financial Statement Schedules
No financial statement schedules have been filed herewith since they are either
not required, are not applicable, or the required information is shown in the
consolidated financial statements or related notes.
(a)(3) List of Exhibits
Exhibits required by Item 601 of Regulation S-K are
listed in the Exhibit Index herein, which information is incorporated by
reference.
(b) Reports on Form 8-K- No reports of Form 8-K were filed in the fourth
quarter of 1999.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
15
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of Las
Vegas, State of Nevada, on the 28th day of March, 2000.
RIVIERA BLACK HAWK, INC.
By: /s/ WILLIAM L. WESTERMAN
William L. Westerman Chief
Executive Officer and Director
March 28, 2000
Pursuant to the requirement of the Securities Exchange Act of 1934, this
Amendment has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dated indicated.
Signature Title Date
By: /s/ WILLIAM L. WESTERMAN
William L. Westerman Chief Executive Officer and Director March 28, 2000
By:/s/ RONALD P. JOHNSON
Ronald P. Johnson President and Director March 28, 2000
By: /s/ DUANE R. KROHN
Duane R. Krohn Treasurer, Chief Financial Officer
and Director March 28, 2000
16
RIVIERA BLACK HAWK, INC.
(A Development Stage Company)
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Balance Sheets as of December 31, 1999 and 1998 2
Statements of Operations for the Year Ended December 31, 1999 and Cumulative
from August 18, 1997 (Date of Inception) through December 31, 1999 3
Statements of Stockholder's Equity for the Years Ended December 31, 1999 and
1998 and for the Period from August 18, 1997 (Date of Inception) through
December 31, 1997 4
Statements of Cash Flows and for the Years Ended December 31, 1999 and 1998
and for the Period from August 18, 1997 (Date of Inception) through
December 31, 1997 and cumulative from August 18, 1997 (Date of Inception)
through December 31, 1999 5
Notes to Financial Statements 6-10
INDEPENDENT AUDITORS' REPORT
Riviera Black Hawk, Inc.
(A Development Stage Company):
We have audited the accompanying balance sheets of Riviera Black Hawk, Inc. (a
Development Stage Company) (the "Company") as of December 31, 1999 and 1998, and
the related statements of operations for the year ended December 31, 1999 and
for the period from August 18, 1997 (date of inception) through December 31,
1999, and of cash flows for the year ended December 31, 1999, and for the period
from August 18, 1997 (date of inception) through December 31, 1999 and the
statements of stockholder's equity for the years ended December 31, 1999 and
1998, for the period from August 18, 1997 (date of inception) through December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1999 and
1998, and the results of its operations for the year ended December 31, 1999 and
for the period from August 18, 1997 (date of inception) through December 31,
1999, and its cash flows for the years ended December 31, 1999 and 1998, for the
period from August 18, 1997 (date of inception) through December 31, 1999, in
conformity with accounting principles generally accepted in the United States of
America.
The Company is in the development stage at December 31, 1999. As discussed in
Note 1 to the financial statements, successful completion of the Company's
development program and, ultimately, the attainment of profitable operations is
dependent upon future events, including achieving a level of revenues adequate
to support the Company's cost structure.
Deloitte & Touche LLP
February 14, 2000, except for Note 6.
as to which the date is March 6, 2000
F-1
RIVIERA BLACK HAWK, INC.
(A Development Stage Company)
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(In thousands, except share amounts)
- --------------------------------------------------------------------------------
ASSETS 1999 1998
CURRENT ASSETS:
Cash and cash equivalents $ 1,810 $ 543
Cash and cash equivalents, restricted 7,173
Short-term investments, restricted 2,820
Prepaid expenses 795 73
Total current assets 12,598 616
PROPERTY AND EQUIPMENT, NET 56,734 27,112
DEFERRED FINANCING COSTS, Net 3,446
OTHER ASSETS 12 3
CASH, RESTRICTED 407
DEFERRED INCOME TAXES 160
TOTAL $72,950 $28,138
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 487
Accrued payroll and benefits 110
Accrued interest expense 976
Construction accounts payable 2,566 $ 1,210
Current portion of long-term debt 69
Total current liabilities 4,208 1,210
NONCURRENT LIABILITIES:
Due to Riviera Holdings Corporation 6,241
13% First Mortgage Notes 45,000
Special improvement district bonds 724 687
Other long-term debt 18
Total noncurrent liabilities 45,742 6,928
Total liabilities 49,950 8,138
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS EQUITY:
Common stock, $.01 par value; 10,000 shares authorized;
1,000 shares issued and outstanding
Additional paid-in capital 23,474 20,000
Accumulated deficit (474)
Total stockholders equity 23,000 20,000
TOTAL $72,950 $28,138
See notes to financial statements.
F-2
RIVIERA BLACK HAWK, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM AUGUST 18, 1997
(DATE OF INCEPTION) THROUGH DECEMBER 31, 1999 (In thousands)
- ------------------------------------------------------------------------------
Cumulative
from
August 8,
1997
(Date of
Year Inception)
Ended through
December 31, December 31,
1999 1999
Selling, general and administrative $ 595 $ 595
Other income (expense):
Interest expense (2,868) (2,868)
Interest capitalized 2,262 2,262
Interest income 567 567
Total other income (expense) (39) (39)
Loss before benefit for income taxes (634) (634)
Benefit for income taxes (160) (160)
Net loss $ (474) $ (474)
See notes to financial statements.
F-3
RIVIERA BLACK HAWK, INC.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS EQUITY
PERIOD FROM AUGUST 18, 1997 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1997
AND YEARS ENDED DECEMBER 31, 1999 AND 1998 (In thousands, except share amounts)
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit Total
BALANCE, AUGUST 18, 1997
(Date of Inception) - $ - $ - $ -
Common stock issued 1,000
Contributed capital 16,625 16,625
BALANCE,
DECEMBER 31, 1997 1,000 16,625 16,625
Contributed capital 3,375 3,375
BALANCE,
DECEMBER 31, 1998 1,000 20,000 20,000
Contributed capital 3,474 3,474
Net loss (474) (474)
BALANCE,
DECEMBER 31, 1999 1,000 $ - $ 23,474 $(474) $ 23,000
See notes to financial statements.
F-4
RIVIERA BLACK HAWK, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
PERIOD FROM AUGUST 18, 1997 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1997 AND
YEARS ENDED DECEMBER 31, 1999 AND 1998 AND CUMULATIVE FROM
AUGUST 18, 1997 (INCEPTION) THROUGH DECEMBER 31, 1999 (In thousands)
- -------------------------------------------------------------------------------
Cumulative
from
August 18, August 18,
1997 1997
(Date of (Date of
Year Year Inception) Inception)
Ended Ended through through
December 31, December 31, December 31, December 31,
1999 1998 1997 1999
CASH FLOWS FROM OPERATING ACTIVITIES -
Net loss $ (474) $ (474)
Adjustments to reconcile net loss to net cash used in
operating activities -
Amortization of bond offering costs 338 338
Changes in operating assets and liabilities:
Increase in prepaid expenses (722) $ (73) (795)
Increase in accounts payable and accrued
expenses 487 487
Increase in accrued payroll and benefits 110 110
Increase in accrued interest expense 976 976
Decrease in other assets (9) (3) (12)
Increase in deferred tax asset (160) (160)
Net cash used in operating activities 546 (76) 470
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (27,291) (6,667) $(15,923) (49,881)
Increase in cash - restricted (6,766) (407) (7,173)
Purchase of short-term investments (2,820) (2,820)
Deferred financing costs (3,784) (3,784)
Net cash used in investing activities (40,661) (7,074) (15,923) (63,658)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on long term debt (2) (2)
Advances from (payments to) Riviera Holdings Corp. (6,241) 6,241
Proceeds from long-term borrowings 45,000 45,000
Contribution of paid-in capital 2,625 1,403 15,972 20,000
Net cash provided by financing activities 41,382 7,644 15,972 64,998
INCREASE IN CASH AND CASH EQUIVALENTS 1,267 494 49 1,810
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 543 49
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,810 $ 543 $ 49 $ 1,810
INTEREST PAID $(2,403) $ - $ - $(2,403)
SUPPLEMENTAL DISCLOSURE OF NONCASH INFORMATION:
Property and equipment purchased using accounts
payable $ 2,566 $ 1,203 $ 7 $ 2,566
Property acquired using special improvement district
bonds $ 97 $ 687 $ - $ 784
Capitalized interest contributed by Riviera Holdings
Corp. $ 843 $1,972 $ 659 $ 3,474
Property acquired with debt $ 29 $ 29
Capitalized interest, other $ 2,262 $ 2,262
See notes to financial statements.
F-5
RIVIERA BLACK HAWK, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation - On August 18, 1997 (date of
inception), Riviera Black Hawk,Inc.(the "Company") was formed. The Company is a
wholly owned subsidiary of Riviera Holdings Corporation. The Company is a
development stage enterprise at December 31, 1999 that had not commenced
operations. The principal purpose of the Company is to develop a casino and
entertainment complex in Black Hawk, Colorado, which commenced operations on
February 4, 2000. The Company bagan construction on this casino in Black Hawk,
Colorado, on a site that was purchased for $15.1 million in August 1997.
Cash and Cash Equivalents and Short-Term Investments - All highly liquid
investment securities with a maturity of three months or less when acquired are
considered to be cash equivalents. The Company accounts for investment
securities in accordance with Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities."
The Company's investment securities, along with certain cash and cash
equivalents that are not deemed securities under SFAS No. 115, are carried on
the consolidated balance sheets in the cash and cash equivalents category. SFAS
No. 115 addresses the accounting and reporting for investments in equity
securities that have readily determinable fair values and for all investments in
debt securities, and requires such securities to be classified as either held to
maturity, trading, or available for sale.
Management determines the appropriate classification of its investment
securities at the time of purchase, including the determination as to restricted
versus nonrestricted assets, and re-evaluates such determination at each balance
sheet date. Held-to-maturity securities are required to be carried at amortized
cost. At December 31, 1999 and 1998, securities classified as held to maturity
comprised debt securities issued by the U.S. Treasury and other U.S. government
corporations and agencies, and repurchase agreements, with an amortized cost of
$2,820,000 and $0, respectively, maturing in three months or less.
Property and Equipment - Property and equipment are stated at cost, and
capitalized lease assets are stated at the present value of future minimum lease
payments at the date of lease inception. Interest incurred during construction
of new facilities or major additions to facilities is capitalized and amortized
over the life of the asset. Depreciation will be computed, upon the commencement
of gaming operations, using the straight-line method over the shorter of the
estimated useful lives or lease terms, if applicable, of the related assets. The
costs of normal maintenance and repairs will be charged to expense as incurred.
Gains or losses on disposals will be recognized as incurred.
The Company periodically assesses the recoverability of property and
equipment and evaluates such assets for impairment whenever events or
circumstances indicate that the carrying amount of an asset may not be
recoverable. Asset impairment is determined to exist if estimated future cash
flows, undiscounted and without interest charges, are less than the carrying
amount.
Other Assets - The Company is in the development stage and incurred
organizational costs, which are capitalized until operations of the casino
commence, at which time such organizational costs will be amortized over a
five-year period. Organizational costs consist primarily of legal fees
associated with establishing the gaming licenses for business.
Restricted Cash and Short-term Investments - Amounts related to the Riviera
Black Hawk Casino project in Black Hawk, Colorado, are restricted in use to that
project or for the related 13 percent First Mortgage Notes interest payments.
Fair Value Disclosure as of December 31, 1999 and 1998:
Cash and Cash Equivalents, Short-term Investments (including restricted),
Accounts Payable and Accrued Expenses - The carrying value of these items is a
reasonable estimate of their fair value.
Long-Term Debt -The fair value of the Company's long-term debt is estimated
based on the quoted market prices for the same or similar issues or on the
current rates offered to the Company for debt of the same remaining maturities.
Based on the borrowing rates currently available to the Company for debt with
similar terms and average maturities, the estimated fair value of long-term debt
is approximately $49,413,000 and $687,000 in 1999 and 1998, respectively.
Estimates and Assumptions - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results may differ from estimates.
F-6
Recently Adopted Accounting Standards - The American Institute of Certified
Public Accountants' Accounting Standards Executive Committee issued Statement of
Position No. 98-5, Reporting on the Costs of Start-Up Activities. This standard
provides guidance on the financial reporting for start-up costs and organization
costs. This standard requires costs of start-up activities and organization
costs to be expensed as incurred, and is effective for fiscal years beginning
after December 15, 1998, although earlier application is encouraged. Management
adopted this standard in 1999. The effect was to recognize approximately
$595,000 of pre-opening expenses in the current year that would otherwise have
been deferred.
Recently Issued Accounting Standards - The Financial Accounting Standards
Board issued SFAS No. 133, "Accounting for Derivatives," which is effective for
fiscal years beginning after June 15, 2000. This statement defines derivatives
and requires qualitative disclosure of certain financial and descriptive
information about a company's derivatives. The Company will adopt SFAS No. 133
in the year ending December 31, 2001. Management has not finalized its analysis
of this SFAS or the impact of this SFAS on the Company or the Company's future
consolidated financial statements.
Federal Income Taxes - Riviera Holdings Corporation allocated income tax
expense or benefit to the Company as if the Company were filing separate tax
returns pursuant to a tax sharing arrangement. The Company accounts for income
taxes in accordance with Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accounting for Income Taxes."
2. RELATED-PARTY TRANSACTIONS
As of December 31, 1999, Riviera Holdings Corporation contributed $15.1
million to acquire land for the casino in Black Hawk and $4.9 million in cash
for developing the land for the casino, for a total cash capital contribution of
$20 million.
At December 31, 1998, the Company owed approximately $6.2 million to
Riviera Holdings Corporation, representing advances made by Riviera Holdings
Corporation for costs related to the development of the Riviera Black Hawk
casino. The advances were repaid from the proceeds of the $45 million bond
offering discussed in Note 4.
The Company has entered into a management agreement (the "Management
Agreement") with Riviera Gaming Management of Colorado, Inc., (the "Manager") an
indirect wholly owned subsidiary of Riviera Holdings Corporation, which will
manage the Company. The management fee will consist of a revenue fee and a
performance fee. The revenue fee will be based on one percent of net revenues
(gross revenues less complimentaries) and is payable quarterly in arrears. The
performance fee will be based on the following percentages of EBITDA (earnings
before interest, taxes, depreciation and amortization, whose components are
based on generally accepted accounting principles): (1) 10 percent of EBITDA
from $5 million to $10 million, (2) 15 percent of EBITDA from $10 million to $15
million and (3) 20 percent of EBITDA in excess of $15 million. The performance
fee will be based on the preceding quarter's EBITDA, paid in quarterly
installments subject to year-end adjustment. The management fee will go into
effect on the date of the opening of the Riviera Black Hawk casino.
If there is any default under the management agreement, the manager will
not be entitled to receive management fees, but the manager will still be
entitled to intercompany service fees billed at cost.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31
(amounts in thousands):
1999 1998
Land and improvements $15,774 $15,790
Vehicles 29
Construction in progress 40,931 11,322
Total property and equipment $56,734 $27,112
In 1999 and 1998 and 1997, $3.1 million and $2.0 million and $0.7 million,
respectively, in interest costs were capitalized on the construction project.
F-7
4. LONG-TERM DEBT
Long-term debt consists of the following at December 31 (in thousands):
1999 1998
13% First Mortgage Notes maturing on June 3, 2005, bearing interest,
payable semiannually on November 3 and June 3 of each year;
redeemable beginning May 1, 2002 at 106.5%; 2003 at 103.25%; and
after 2004 at 100% $ 45,000
9% Notes collateralized by vehicles, payable monthly,
including interest, maturing through October 2004 27
5.5% Special Improvement District Bonds - issued by the City of Black
Hawk, Black Hawk, Colorado, interest and principal payable monthly
over 10 years beginning in 2000 784 $ 687
Total long-term debt 45,811 687
Current maturities by terms of debt (69)
Total $ 45,742 $ 687
Maturities of long-term debt for the years ending December 31 are as follows
(in thousands):
2000 $ 69
2001 74
2002 76
2003 71
2004 76
Thereafter 45,445
Total $45,811
On June 3, 1999, the Company completed a $45 million private placement of
13 % First Mortgage Notes. The net proceeds of the placement were used to fund
the completion of RBH's casino project in Black Hawk, Colorado. Riviera Holdings
Corporation has not guaranteed the $45 million RBH notes, but has agreed to a
"Keep Well Agreement" of $5 million per year (or an aggregate limited to $10
million) for the first three years of RBH operations to cover if (i) the $5.85
million interest on such notes is not paid by RBH and (ii) the amount by which
RBH cash flow is less than $9.0 million per year. In addition, Riviera Holdings
Corporation has agreed to a "Capital Completion Commitment" of up to $10 million
if the casino is not open by May 31, 2000. The opening of the casino on February
4, 2000 satisfied the commitment which will be released in August of 2000. The
Company has registered securities identical to the 13% Notes under the
Securities Act of 1933, as amended. On January 4, 2000, the Company completed an
exchange offer for such registered securities.
The notes were issued at a cost in the amount of $3.5 million. The deferred
financing cost is being amortized over the life of the notes on a straight-lines
basis, which approximates the effective interest method.
The 13% First Mortgage Note Indenture provides that, in certain
circumstances, the Company must offer to repurchase the 13 percent Notes upon
the occurrence of a change of control or certain other events. In the event of
such mandatory redemption or repurchase prior to maturity, the Company would be
unable to pay the principal amount of the 10 percent Notes without a
refinancing.
F-8
The 13% First Mortgage Note Indenture contains certain covenants,
which limit the ability of RBH and its restricted subsidiaries, subject to
certain exceptions, to: (i) incur additional indebtedness; (ii) pay dividends or
other distributions and repurchase capital stock or other equity interests or
subordinated indebtedness; (iii) enter into certain transactions with
affiliates; (iv) create certain liens and sell certain assets; and (v) enter
into curtail mergers and consolidations. As a result of these restrictions, the
ability of the Company to incur additional indebtedness to fund operations or to
make capital expenditures is limited. In the event that cash flow from
operations is insufficient to cover cash requirements, the Company would be
required to curtail or defer certain of their capital expenditure programs under
these circumstances, which could have an adverse effect on RBH's operations. At
December 31, 1999, RBH believes that it is in compliance with the covenants.
The 5.5 percent Special Improvement District Bonds were issued by the City
of Black Hawk, Colorado, in July 1998 for $2,940,000. The proceeds were used for
road improvements and other infrastructure projects benefiting the Riviera Black
Hawk Casino and another nearby casino. The projects are expected to be completed
in 2000 at an estimated cost of $2,240,000, including interest and reserves. The
excess proceeds have been returned to the bondholders by the City of Black Hawk,
Colorado. RBH is responsible for 50 percent of the debt payable over 10 years
beginning in 2000.
5. FEDERAL INCOME TAXES
The Company computes deferred income taxes based upon the difference
between the financial statement and tax basis of assets and liabilities using
enacted tax rates in effect in the years in which the differences are expected
to reverse. The Company had no operations in 1998 and, accordingly, no income
tax amounts are presented for that year.
The effective income tax rates on income attributable to operations differ
from the statutory federal income tax rates for the year ended December 31,
1999, as follows (in thousands):
1999
--------------------
Amount Rate
(Provision) benefit for income taxes at federal
statutory rate $(234) (37.0)%
Other 74 11.6 %
(Benefit) provision for income taxes $(160) (25.2)%
Comparative analysis of the (benefit) provision for income taxes is as follows:
1999
Current
Deferred $(160)
Total $(160)
F-9
The tax effects of the items composing the Company's net deferred tax asset
consist of the following at December 31 (in thousands):
1999
Deferred tax assets:
Net operating loss carryforward $160
Net deferred tax asset $160
6. COMMITMENTS AND CONTINGENCES
Deposit Account - Pursuant to a deposit account agreement, dated as of June
3, 1999, among Bank of America as deposit bank, Riviera Holdings Corporation and
First American Title Insurance Company, Riviera Holdings Corporation has
deposited $5.0 million to insure First American against mechanics lien claims
against the Black Hawk property. If no mechanics liens are outstanding 30 days
after the casino opens and other conditions are met, such $5.0 million deposit
will be released to Riviera Holdings Corporation.
Keep-Well Agreement - RBH and Riviera Holdings Corporation entered a
Keep-Well Agreement wherein, if (1) RBH does not have the necessary funds to
make a payment of fixed interest on the notes during its first three years of
operations or (2) consolidated cash flow is less than $9.0 million in any of the
first three years of operations, Riviera Holdings Corporation will be obligated
to contribute cash to RBH to make up those amounts (up to a maximum of $5.0
million for any one operating year and $10.0 million in the aggregate).
In July 1999, the Company committed to a $11.1 million capital lease line
for 60 months at approximately 11.2 percent for gaming equipment, furniture and
fixtures at the Black Hawk, Colorado casino.
The Company made draws on the capital lease line beginning in February
through March 6 of 2000 in the amount of $9,500,000 at a weighted average
interest rate of 10.5 percent. The Company does not expect to make further draws
on the lease line.
******
F-10
Item 14a(3)
EXHIBIT INDEX
Exhibit No. Description
3.01 Articles of Amendment to the Articles of Incorporation of the Company.*
3.02 Articles of Incorporation of the Company.*
3.03 Bylaws of the Company.*
4.01 Indenture, dated as of June 3, 1999, among the Company, Riviera Holdings
and the Initial Purchaser.*
4.02 Form of 13% First Mortgage Note due 2005 with Contingent Interest (included
in Exhibit 4.01).*
4.03 Purchase Agreement, dated as of May 27, 1999, by and among the Company,
Riviera Holdings and the Initial Purchaser.*
4.04 Registration Rights Agreement, dated as of June 3, 1999, by and between the
Company and the Initial Purchaser.*
10.01 The Completion Capital Commitment, dated as of June 3, 1999, by and
between the Company and Riviera Holdings.*
10.02 The Keep-Well Agreement, dated as of June 3, 1999, by and between the
Company and Riviera Holdings.*
10.03 The Tax-Sharing Agreement, dated as of June 3, 1999, by and between the
Company and Riviera Holdings.*
10.04 The Management Agreement, dated as of June 3, 1999, by and between the
Company and Riviera Gaming Management of Colorado, Inc.*
10.05 The Trademark License Agreement, dated as of June 3, 1999, by and between
the Company and Riviera Operating Corporation.*
10.06 The Deed of Trust, dated as of June 3, 1999, made by the Company to the
Public Trustee of the County of Gilpin, Colorado, for the benefit of the
Trustee.*
10.07 The Assignment of Rents.*
10.08 The Environmental Indemnity, dated as of
June 3, 1999, between the Company and the Trustee.*
10.09 The Cash Collateral and Disbursement Agreement, dated as of June 3, 1999,
among the Company, the Trustee and CRSS Constructors, Inc.*
10.10 The Account Agreement, dated as of June 3, 1999, among the Company, the
Trustee and IBJ Whitehall Bank and Trust Company.*
10.11 The Security Agreement, dated as of June 3, 1999, made by the Company in
favor of the Trustee.*
10.12 The Manager Subordination Agreement, dated as of June 3, 1999, by Riviera
Gaming Management of Colorado in favor of the Trustee.*
10.13 The Collateral Assignment of Trademark, dated as of June 3, 1999, by and
between the Company and the Trustee.*
10.14 The Collateral Assignment, dated as of June 3, 1999, by and between the
Company and the Trustee.*
10.15 The Pledge and Assignment Agreement, dated as of June 3, 1999, by and
between the Company and the Trustee.*
10.16 Deposit Account Agreement, dated as of June 1999, among Bank of
America, Riviera Holdings and First American Title Insurance Company.*
10.17 Construction Contract, made as of December 29, 1997, among the Company,
Weitz-Cohen Construction Co. and Melick Associates, Inc.*
10.18 Letter Agreement, dated January 6, 1999, between Riviera Gaming Management
and Jim Davey.*
10.19 Letter Agreement, dated January 15, 1999, between Riviera Gaming
Management and Tom Guth.*
10.20 Master Lease Agreement dated December 13, 1999 between PDS Financial
Corporation-Colorado and Riviera Black Hawk, Inc. for furniture, fixtures,
gaming and other equipment.***
10.21 Lease Schedule No. 1 dated January 25, 2000 under Master Lease
Agreement dated December 13, 1999 between PDS Financial Corporation-Colorado and
Riviera Black Hawk, Inc. for furniture, fixtures, gaming and other equipment.***
10.22 Lease Schedule No. 2 dated January 25, 2000 under Master Lease
Agreement dated December 13, 1999 between PDS Financial Corporation-Colorado and
Riviera Black Hawk, Inc. for furniture, fixtures, gaming and other equipment.***
10.23 Lease Schedule No. 3 dated February 17, 2000 under Master Lease
Agreement dated December 13, 1999 between PDS Financial Corporation-Colorado and
Riviera Black Hawk, Inc. for furniture, fixtures, gaming and other equipment.***
10.24 Lease Schedule No. 4 dated February 17, 2000 under Master Lease
Agreement dated December 13, 1999 between PDS Financial Corporation-Colorado and
Riviera Black Hawk, Inc. for furniture, fixtures, gaming and other equipment.***
12.01 Statement in re Computation of Ratios.*
Pursuant to Item 601(b)(2) of Regulation S-K, the schedules to this Agreement
are omitted. The Exhibit contains a list identifying the contents of all
schedules and the Registrants agree to furnish supplementary copies of such
schedules to the Commission upon request.
* Previously filed.
** Filed herewith.
*** To be Filed in an amendment to this Form 10K.
(b) Financial Statement Schedules: Schedules not listed above
are omitted because of the absence of the conditions under which they are
required or because the information required by such omitted schedules is set
forth in the financial statements or the notes thereto.