SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Mark One
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2001
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission file number 333-8163
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Riviera Black Hawk, Inc.
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(Exact name of Registrant as specified in its charter)
Colorado 86-0886265
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
2901 Las Vegas Boulevard South, Las Vegas, Nevada 89109
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code (702) 794-9527
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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----- No-----
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE LAST FIVE YEARS
Indicate by check mark whether the Registrant has filed all
documentation and reports required to be filed by Section 12, 13, or 15(d) of
the Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court.
Yes No
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APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
The Registrant's Common Stock is owned 100% indirectly by its ultimate
parent Riviera Holdings Corporation, a reporting company. As of November 9,
2001, the number of outstanding shares of the Registrant's Common Stock was
1,000.
Riviera Black Hawk, Inc.
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Independent Accountants' Report 2
Condensed Balance Sheets at September 30, 2001 (Unaudited) and
December 31, 2000 3
Condensed Statements of Operations (Unaudited) for the
Three Months and Nine Months ended September 30, 2001 and 2000 4
Condensed Statements of Cash Flows (Unaudited) for the
Three Months and Nine Months ended September 30, 2001 and 2000 5
Notes to Condensed Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosure About Market Risk 16
PART II. OTHER INFORMATION
Signature Page 18
1
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors
Riviera Black Hawk, Inc.
We have reviewed the accompanying condensed balance sheet of Riviera Black Hawk,
Inc., (the "Company") as of September 30, 2001, and the related condensed
statements of operations and of cash flows for the three months and nine months
ended September 30, 2001 and 2000. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed financial statements for them to be in conformity with
accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the balance sheet of Riviera Black
Hawk, Inc. as of December 31, 2000, and the related statements of operations,
stockholders' equity, and cash flows for the year then ended (not presented
herein); and in our report dated February 14, 2001, we expressed an unqualified
opinion on those financial statements. In our opinion, the information set forth
in the accompanying condensed balance sheet as of December 31, 2000, is fairly
stated, in all material respects, in relation to the balance sheet from which it
has been derived.
DELOITTE & TOUCHE LLP
October 24, 2001
Las Vegas, Nevada
2
RIVIERA BLACK HAWK, INC.
BALANCE SHEETS
(In Thousands, except share amounts)
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September 30, December 31,
2001 2000
ASSETS (unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 10,727 $ 7,744
Accounts receivable, Net 299 165
Inventories 182 270
Prepaid expenses and other assets 486 565
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Total current assets 11,694 8,744
PROPERTY AND EQUIPMENT, Net 67,946 68,505
OTHER ASSETS, Net 2,121 2,085
DEFERRED INCOME TAXES 2,031 2,125
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TOTAL $ 83,792 $ 81,459
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LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,910 $ 1,770
Accounts payable 4,392 4,213
Accrued interest 2,536 1,162
Accrued expenses 1,861 1,180
Payable to Parent 2,753 1,064
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Total current liabilities 13,452 9,389
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LONG-TERM DEBT, Net of Current Portion 40,861 45,777
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COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S EQUITY:
Common stock ($.001 par value; 10,000 shares
authorized; 1,000 shares issued and outstanding)
Additional paid-in capital 32,758 29,713
Accumulated deficit (3,279) (3,420)
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Total stockholders' equity 29,479 26,293
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TOTAL $ 83,792 $ 81,459
=================================
See notes to condensed financial statements
3
RIVIERA BLACK HAWK, INC.
STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
REVENUES: 2001 2000 2001 2000
Casino $ 12,693 $8,981 $ 34,640 $ 24,434
Food and beverage 1,431 1,076 3,938 3,069
Entertainment 134 0 225 0
Other 116 103 350 249
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Total revenues 14,374 10,160 39,153 27,752
Less promotional allowances 896 666 2,715 2,082
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Net revenues 13,478 9,494 36,438 25,670
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COSTS AND EXPENSES:
Direct costs and expenses of operating departments:
Casino 5,939 5,247 17,041 12,686
Food and beverage 697 403 1,492 1,248
Entertainment 36 0 67 0
Other 0 1 0 1
Other operating expenses:
General and administrative 3,157 2,820 8,829 7,005
Preopening expenses 0 0 0 1,222
Management fees to parent 390 183 992 532
Depreciation and amortization 962 787 2,766 2,016
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Total costs and expenses 11,181 9,440 31,187 24,710
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INCOME FROM OPERATIONS 2,297 54 5,251 960
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OTHER (EXPENSE) INCOME
Interest expense (1,616) (1,870) (5,089) (5,638)
Interest income 20 226 73 390
Interest capitalized 0 0 0 576
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Total other expense (1,596) (1,644) (5,016) (4,672)
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INCOME (LOSS) BEFORE BENEFIT (PROVISION) FOR
INCOME TAXES 701 (1,590) 235 (3,712)
BENEFIT (PROVISION) FOR INCOME TAXES INCLUDING
COLORADO STATE INCOME TAX 280 (636) 94 (1,485)
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NET INCOME (LOSS) $ 421 $ (954) $ 141 $ (2,227)
=================================================
See notes to condensed financial statements
4
RIVIERA BLACK HAWK, INC.
STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
CASH FLOWS FROM OPERATING ACTIVITIES: September 30, September 30, September 30, September 30,
2001 2000 2001 2000
Net income (loss) $ 421 $ (954) $ 141 $ (2,227)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 962 787 2,766 2,016
Provision for bad debts 47 8 64 31
Interest expense 1,616 1,870 5,089 5,638
Interest paid (232) (232) (3,153) (3,534)
Capitalized interest on construction projects (577)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (111) (172) (198) (428)
Decrease (increase) in inventories 27 (19) 89 (152)
Decrease (increase) in prepaid expenses
and other assets 68 182 78 163
Increase (decrease) in accounts payable 721 (661) (245) (823)
Increase (decrease) in payable to parent 465 183 1,552 532
Increase (decrease) in accrued liabilities 873 2,238 681 2,926
Increase (decrease) in current income taxes payable
Increase (decrease) in deferred income taxes 281 (2,334) 94 (1,485)
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Net cash provided by operating activities 5,138 896 6,958 2,081
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (613) (525) (2,207) (13,953)
Capitalized interest on construction projects 577
Decrease (increase) restricted funds 1,689 9,992
Decrease (increase) in other assets 379 794 (36) 801
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Net cash provided by (used in) investing activities (234) 1,958 (2,243) (2,583)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 212 9,831
Payments on long-term borrowings (428) (713) (1,277) (1,115)
Purchases of 1st Mortgage Notes - Black Hawk (1,000) (3,500)
Additional paid in capital 3,045 39
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Net cash provided by (used in) financing activities (1,428) (501) (1,732) 8,755
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INCREASE IN CASH AND CASH EQUIVALENTS 3,476 2,353 2,983 8,251
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $ 7,251 $ 7,708 $ 7,744 $ 1,810
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 10,727 $ 10,061 $ 10,727 $ 10,061
==================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Paid for Colorado State Income Tax $ 100
==============
See notes to condensed financial statements
5
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
On August 18, 1997, Riviera Black Hawk, Inc. (the "Company" or "RBH") was
formed. The Company is a wholly-owned indirect subsidiary of Riviera Holdings
Corporation. The parent of the Company is Riviera Operating Corporation. Riviera
Black Hawk, Inc. was in the development stage during the first quarter of 2000
until February 4, 2000 when it opened the casino. Accordingly, the results of
operations for the fiscal 2001 and 2000 periods may not be comparable.
Nature of Operations
The primary line of business of the Company is the operation of the Riviera
Black Hawk Casino in Black Hawk, Colorado. Casino operations are subject to
extensive regulation in the State of Colorado by the Colorado Limited Gaming
Control Commission and various other state and local regulatory agencies.
Principles of Presentation
The financial information at September 30, 2001, and for each of the three
months and nine months ended September 30, 2001 and 2000 is unaudited. However,
such information reflects all adjustments (consisting solely of normal recurring
adjustments) that are, in the opinion of management, necessary for a fair
presentation of the financial position, results of operations, and cash flows
for those interim periods. The results of operations for the three months and
nine months ended September 30, 2001 are not necessarily indicative of the
results that will be achieved for the entire year.
These financial statements should be read in conjunction with the audited
financial statements and notes thereto as of and for the year ended December 31,
2000, included in the Company's Annual Report on Form-10K.
Earnings Per Share
The Company is a wholly-owned subsidiary of Riviera Holdings Corporation. There
are no publicly traded shares of the Company's stock. In accordance with
Financial Accounting Standards No. 128 "Earnings Per Share", no earnings per
share data is presented herein.
6
Estimates and Assumptions
The preparation of condensed financial statements in conformity with accounting
principles generally accepted in the United States of America 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. Significant estimates used by the Company
include accrued liabilities. Actual results may differ from estimates.
Cash and cash equivalents
Amounts related to the Riviera Black Hawk casino project in Black Hawk, Colorado
were restricted in use to that project or for the related 13% First Mortgage
Notes interest payments. The restrictions were removed in August 2000.
Revenue Recognition
Casino Revenue - The Company recognizes, as gross revenue, the net win from
gaming activities, which is the difference between gaming wins after deducting
losses, participation payments and loyalty club points and incentive coupon
payments paid in cash.
Reclassifications
Certain amounts have been reclassified in the accompanying financial statements
to conform with the current period presentation.
Recently Adopted Accounting Standards
Recently Issued Accounting Standards - The Financial Accounting Standards Board,
("FASB") issued Statement of Financial Accounting Standard, ("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 adopted SFAS No. 133 in the quarter ending March 31,
2001. The adoption of this SFAS 133 had no impact on the Company or the
Company's consolidated financial statements.
The Emerging Issues Task Force ("EITF") of the American Institute of Certified
Public Accountants issued EITF No. 00-22 Titled "Accounting for "Points" and
Certain Other Timed-Based Sales Incentive Offers, and Offers for Free Products
or Services to Be Delivered in the Future" on January 18, 2001. The EITF
concluded that when a company or vendor offers to a customer (a) free or
discounted products or services that will be delivered (either by the vendor or
by another unrelated entity) at a future date (1) as a result of a single
revenue transaction with the customer or (2) only if the customer completes a
specified cumulative level of revenue transactions with the vendor or remains a
customer of the vendor for a specified time period and (b) a rebate or refund of
a determinable cash amount only if the customer completes a specified cumulative
level of revenue transactions with the vendor or remains a customer of the
7
vendor for a specified time period, such rebates should be reported as a
reduction of revenues. This EITF was required to be adopted by the Company
during the first quarter of 2001. As a result of adopting EITF 00-22, the
Company reclassified approximately $1.5 million of such "Points" from Casino
operating expense to net against Casino revenues for the nine months ended
September 30, 2000 and $1.1 million for the three months ended September 30,
2000.
The EITF of the American Institute of Certified Public Accountants issued EITF
No. 00-14 titled "Accounting for Certain Sales Incentives" on April 18,2001. The
EITF concluded that when a company or vendor offers its customers sales
incentives including discounts, coupons, rebates and free products or services,
such sales incentives should be reported as a reduction of revenues. The EITF
concluded that when a company or vendor offers its customers sales incentives
including discounts, coupons, rebates, and free products or services, such sales
incentives should be reported as a reduction of revenues. This EITF was required
to be adopted by the Company during the fourth quarter of 2001. Early adoption
is permitted. The Company chose to adopt this EITF in the first quarter of 2001.
As a result of adopting EITF 00-14, the Company reclassified approximately
$896,200 of such sales incentive offers "Cash Vouchers" from Casino operating
expense to net against Casino revenues for the nine months ended September 30,
2000 and $653,600 for the three months ended September 30, 2000.
Recently Issued Accounting Standards
In July 2001, the FASB issued SFAS No. 141, "Business Combinations." SFAS 141
requires the purchase method of accounting for business combinations initiated
after June 30, 2001 and eliminates the pooling-of-interests method. The Company
does not believe that the adoption of SFAS 141 will have a significant impact on
its financial statements.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets", which is effective January 1, 2002. SFAS 142 requires, among other
things, the discontinuance of goodwill amortization. In addition, the standard
includes provisions for the reclassification of certain existing recognized
intangibles as goodwill, reassessment of the useful lives of existing recognized
intangibles, reclassification of certain intangibles out of previously reported
goodwill and the identification of reporting units for purposes of assessing
potential future impairments of goodwill. SFAS 142 also requires the Company to
complete a transitional goodwill impairment test six months from the date of
adoption. The Company is currently assessing but has not yet determined the
impact of SFAS 142 on its financial position and results of operations.
The FASB issued SFAS No. 143 "Accounting for Asset Retirement Obligations" in
June of 2001. This Statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This Statement applies to all entities. It
applies to legal obligations associated with the retirement of long-lived assets
that result from the acquisition, construction, development and (or) the normal
operation of a long-lived asset, except for certain obligations of lessees. This
Statement is effective for financial statements issued for fiscal years
beginning after June 15, 2002. The Company is currently assessing, but has not
yet determined the impact of SFAS No. 143 on its financial position and results
of operations.
8
The FASB issued SFAS No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets" in August of 2001. This Statement address financial
accounting and reporting for the impairment or disposal of long-lived assets and
supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, and the accounting and
reporting provisions of APB Opinion No. 30, Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for
the disposal of a segment of a business (as previously defined in that Opinion).
This Statement also amends ARB No. 51, Consolidated Financial Statements, to
eliminate the exception to consolidation for a subsidiary for which control is
likely to be temporary. The provisions of this Statement are effective for
financial statements issued for fiscal years beginning after December 15, 2001,
and interim periods within those fiscal years. The Company is currently
assessing, but has not yet determined the impact of SFAS No. 144 on its
financial position and results of operations.
2. LONG TERM DEBT AND COMMITMENTS
On June 3, 1999, the Company closed 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. The parent of RBH,
Riviera Holdings Corporation, has not guaranteed the $45 million RBH Notes, but
has agreed to a "Keep Well" of $5 million per year (or an aggregate limited to
$10 million) for the first 3 years of RBH operations to cover (i) the $5.85
million interest on such Notes if not paid by RBH and (ii) the amount by which
RBH cash flow is less than $9.0 million as follows:
Operating Period #1 April 1, 2000-December 31, 2000 $6.75 Million Operating
Period #2 January 1, 2001-December 31, 2001 $9.0 Million Operating Period #3
January 1, 2002-December 31, 2002 $9.0 Million Operating Period #4 January 1,
2003-March 31, 2003 $2.25 Million
On February 14, 2001, the Company contributed approximately $3.0 million to RBH
under this agreement for the Operating Period No. 1. The amount has been shown
as Additional Paid in Capital. The nine month results of 2001 indicate there
will be no Keep Well amounts due on an annualized basis.
The notes were issued at cost in the amount of $3.5 million. The deferred
financing costs included in other assets are being amortized over the life of
the notes on a straight-line basis which approximates, the effective interest
method.
The 13% First Mortgage Note Indenture provides that the Company must offer to
repurchase the 13% 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 13%
Notes without a refinancing. The Board of Directors has authorized management to
repurchase a portion of the 13% Notes on the open market or in negotiated
transactions from time to time under the Permitted Investments provisions of the
indenture.
9
The 13% First Mortgage Note Indenture contains certain covenants, which limit
the ability of the Company and its restricted subsidiaries, subject to certain
exceptions, to: (1) 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 the Company's
operations. At September 30, 2001, the Company believes that it is in compliance
with the covenants.
3. SEGMENT REPORTING
The Company is one of the reportable geographic segments of its parent, Riviera
Holdings Corporation, and markets directly to residents of metropolitan Denver,
Colorado. Accordingly, it operates in a single segment. Management believes that
substantially all revenues are derived from patrons visiting the Company from
the Denver metropolitan area. Revenues from a foreign country or region may
exceed 10 percent of all reported segment revenues; however, the Company cannot
identify such information, based upon the nature of gaming operations.
4. MANAGEMENT AGREEMENTS
RBH operates under a management agreement (the RBH Management Agreement) with
Riviera Gaming Management of Colorado, Inc. (the Manager), a wholly-owned
subsidiary of Riviera Holdings Corporation, which, in exchange for a fee,
manages RBH. The management fee consists of a revenue fee and a performance fee.
The revenue fee is based on 1 percent of net revenues (gross revenue less
complimentaries) and is paid quarterly in arrears. The performance fee is based
on the following percentages of EBITDA, whose components are derived from
amounts computed using 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 is based on the preceding quarterly installments subject to
year-end adjustment. The management fee began on February 4, 2000, the date of
the opening of the Riviera Black Hawk Casino. If there is any default under the
RBH Management Agreement, the Manager will not be entitled to receive management
fees but will still be entitled to inter-company service fees. At September 30,
2001, RBH had accrued but not paid, and the Manager had recognized, management
fees of $1.5 million. Management fees for the three and nine months ended
September 30, 2001 and 2000 were $389,900 and $182,400 (for the three months,
respectively) and $991,700 and $531,700 (for the nine months, respectively).
These management fees are eliminated in consolidation. Additionally, there are
approximately $1.2 million in intercompany charges and interest due to parent.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Three Months Ended September 30, 2001 Compared to Three Months Ended September
30, 2000
10
Special Factors Affecting Comparability
Riviera Black Hawk, Inc. was in the development stage during the first quarter
of 2000 until February 4, 2000 when it opened the casino. Accordingly, the
results of operations for the fiscal 2001 and fiscal 2000 results may not be
comparable.
Revenues
Net revenues increased by approximately $4.0 million or 42.0%, from $9.5 million
in 2000 to $13.5 million in 2001. Casino revenues were $9.0 million in 2000 and
$12.7 million in 2001 as win per slot machine per day increased from $118 in the
third quarter of 2000 to $155 in 2001.
Food and beverage revenues were approximately $1.4 million in 2001, of which
$803,000 was complimentary (promotional allowance). The World's Fare Buffet
restaurant replaced the coffee shop in the fourth quarter 2000 and has served as
a marketing tool increasing customer traffic and slot volume over the third
quarter of 2000 when the restaurant was a coffee shop. Entertainment revenue of
$134,000 was generated in the third quarter of 2001 for concerts and special
events. There were no concerts in 2000. Other revenues increased 12.6% to
$116,000.
Direct Costs and Expenses of Operating Departments
Casino expenses were approximately $5.9 million, or 46.5% of casino revenues in
the third quarter of 2001 compared with $5.2 million or 57.8% of casino revenues
in 2000. In 2001 the marketing effort was strengthened to target high
denomination slot players with additional VIP and direct mail marketing
resulting in increased membership in the slot club. Food and beverage
complimentary revenues are recorded as promotional allowances. The costs of food
and beverage complimentaries are allocated to the department authorizing the
complimentary.
Other Operating Expenses
General and administrative expenses were approximately $3.2 million, or 23.4% of
net revenues for 2001 compared with 29.7% of net revenues in 2000 due to
increased property tax and insurance expense for health insurance claims.
Depreciation and amortization increased from $787,000 in 2000 to $962,000 in
2001.
Income from Operations
Income from operations in Black Hawk, Colorado increased approximately $2.3
million as a result of increased direct marketing and promotion for the casino
in the third quarter of 2001. In 2000, these programs had not yet been
instituted because business volume was being generated solely by the "newness
factor" of the property.
11
EBITDA
Riviera Black Hawk EBITDA, as defined, was $3.6 million, or 27.1% of net
revenues in the third quarter of 2001 compared with $1.0 million, or 10.8%, of
net revenues in 2000 for the reasons discussed above.
Nine Months Ended September 30, 2001 Compared to Nine Months Ended September 30,
2000 including results of operations that commenced on February 4, 2000.
Special Factors Effecting Comparability of Results of Operations
The Riviera Black Hawk was in the development stage during the first half of
2000 until February 4, 2000 when it opened the casino. Accordingly, the results
of operations for the fiscal 2001 and fiscal 2000 results may not be comparable.
Revenues
Net revenues increased by approximately $10.8 million, or 42.0%, from $25.7
million in 2000 to $36.4 million in 2001. Casino revenues were $24.4 million in
2000 and $34.6 million in 2001 as win per slot machine per day increased from
$110 in the 2000 to $149 in 2001.
Food and beverage revenues were approximately $3.9 million in 2001, of which
$2.6 million was complimentary (promotional allowance). The World's Fare Buffet
restaurant replaced the coffee shop in fourth quarter 2000 and has served as a
marketing tool increasing customer traffic and slot volume over second quarter
of 2000 when the restaurant was a coffee shop. Entertainment revenue of $225,000
was generated in 2001 for concerts and special events. There were no concerts in
2000. Other revenues increased 40.8% to $350,000.
Direct Costs and Expenses of Operating Departments
Casino expenses were approximately $17.0 million, or 49.1% of casino revenues in
2001 compared with $12.7 million or 52.0% of casino revenues in 2000. In 2001
the marketing effort was strengthened to target higher end players with
additional VIP and direct mail marketing resulting in increased membership in
the slot club. Food and beverage complimentary revenues are recorded as
promotional allowances. The costs of food and beverage complimentaries are
allocated to the department authorizing the complimentary.
Other Operating Expenses
General and administrative expenses were approximately $8.8 million, or 24.2% of
net revenues for 2001 compared with $7.0 million or 27.3% of net revenues in
2000. Depreciation and amortization increased from $2.0 million in 2000 to $2.8
12
million in 2001. Results between fiscal 2001 and 2000 are not necessarily
comparable due to the fact that Riviera Black Hawk was in a development stage
until February 4, 2000.
Income from Operations
Income from operations in Black Hawk, Colorado increased approximately $4.3
million due to increased revenues as a result of increased direct costs for
marketing and promotion for the casino in 2001. In 2000, these programs had not
yet been instituted because business volume was being generated solely by the
"newness factor" of the property.
EBITDA
Riviera Black Hawk EBITDA, as defined, was $9.0 million, or 24.7% of net
revenues for nine months ended September 30, 2001 compared with $4.7 million, or
18.4% of net revenues in 2000.
Liquidity and Capital Resources
At September 30, 2001, RBH had cash and cash equivalents of $10.7 million. The
Company had net shareholder's equity of $29.5 million.
The Company's net cash provided by operating activities was approximately $7.0
million for the nine months ended September 30, 2001. Management believes that
the $10.7 million in cash and cash equivalents will be sufficient to cover the
Company's budgeted capital expenditures for the next 12 months of approximately
$2.4 million.
Cash flow from operations may not be sufficient to pay 100% of the principal of
the 13% Notes at maturity on May 1, 2005. Accordingly, the ability of the
Company to repay the 13% Notes at maturity will be dependent upon its ability to
refinance those notes. There can be no assurance that the Company will be able
to refinance the principal amount of the 13% Notes at maturity. At any time
prior to May 1, 2001, the Company may redeem up to 35% of the aggregate
principal amount of the 13% notes issued under the indenture at a redemption
price of 113% of the principal amount. On or after May 1, 2002, the Company may
redeem all or a part of the notes at premiums beginning at 106.5% and declining
each subsequent year to par in 2004.
The 13% Note Indenture provides that, the Company must offer to repurchase the
13% 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 13% Notes without
refinancing.
The 13% Note Indenture contains certain covenants, which limit the ability of
the Company and its restricted subsidiaries, 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
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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 the Company's operations. At September 30, 2001, the
Company believes that it is in compliance with the covenants.
During the first nine months of 2001, the company repurchased $3.5 million of
the 13% First Mortgage Notes at par.
Recently Adopted Accounting Standards
Recently Issued Accounting Standards - The FASB 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 adopted SFAS No. 133 in the quarter ended March 31, 2001. The adoption
of this SFAS 133 had no impact on the Company or the Company's consolidated
financial statements.
The EITF of the American Institute of Certified Public Accountants issued EITF
No. 00-22 Titled "Accounting for "Points" and Certain Other Timed-Based Sales
Incentive Offers, and Offers for Free Products or Services to Be Delivered in
the Future" on January 18, 2001. The EITF concluded that when a company or
vendor offers to a customer (a) free or discounted products or services that
will be delivered (either by the vendor or by another unrelated entity) at a
future date (1) as a result of a single revenue transaction with the customer or
(2) only if the customer completes a specified cumulative level of revenue
transactions with the vendor or remains a customer of the vendor for a specified
time period and (b) a rebate or refund of a determinable cash amount only if the
customer completes a specified cumulative level of revenue transactions with the
vendor or remains a customer of the vendor for a specified time period, such
rebates should be reported as a reduction of revenues. This EITF was required to
be adopted by the Company during the first quarter of 2001. As a result of
adopting EITF 00-22, the Company reclassified approximately $1.5 million of such
"Points" from Casino operating expense to net against Casino revenues for the
nine months ended September 30, 2000 and $1.1 million for the three months ended
September 30, 2000.
The EITF of the American Institute of Certified Public Accountants issued EITF
No. 00-14 titled "Accounting for Certain Sales Incentives" on April 18,2001. The
EITF concluded that when a company or vendor offers its customers sales
incentives including discounts, coupons, rebates and free products or services,
such sales incentives should be reported as reduction of revenues. The EITF
concluded that when a company or vendor offers its customers sales incentives
including discounts, coupons, rebates, and free products or services, such sales
incentives should be reported as a reduction of revenues. This EITF was required
to be adopted by the Company during the fourth quarter of 2001. Early adoption
is permitted. The Company chose to adopt this EITF in the first quarter of 2001.
As a result of adopting EITF 00-14, the Company reclassified approximately
$896,000 of such sales incentive offers "cash vouchers" from Casino operating
expense to net against Casino revenues for the nine months ended September 30,
2000 and $653,600 for the three months ended September 30, 2000.
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Recently Issued Accounting Standards
In July 2001, the FASB issued SFAS No. 141, "Business Combinations." SFAS 141
requires the purchase method of accounting for business combinations initiated
after June 30, 2001 and eliminates the pooling-of-interests method. The Company
does not believe that the adoption of SFAS 141 will have a significant impact on
its financial statements.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets", which is effective January 1, 2002. SFAS 142 requires, among other
things, the discontinuance of goodwill amortization. In addition, the standard
includes provisions for the reclassification of certain existing recognized
intangibles as goodwill, reassessment of the useful lives of existing recognized
intangibles, reclassification of certain intangibles out of previously reported
goodwill and the identification of reporting units for purposes of assessing
potential future impairments of goodwill. SFAS 142 also requires the Company to
complete a transitional goodwill impairment test six months from the date of
adoption. The Company is currently assessing but has not yet determined the
impact of SFAS 142 on its financial position and results of operations.
The FASB issued SFAS No. 143 "Accounting for Asset Retirement Obligations" in
June of 2001. This Statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This Statement applies to all entities. It
applies to legal obligations associated with the retirement of long-lived assets
that result from the acquisition, construction, development and (or) the normal
operation of a long-lived asset, except for certain obligations of lessees. This
Statement is effective for financial statements issued for fiscal years
beginning after June 15, 2002. The Company is currently assessing, but has not
yet determined the impact of SFAS No. 143 on its financial position and results
of operations.
The FASB issued SFAS No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets" in August of 2001. This Statement address financial
accounting and reporting for the impairment or disposal of long-lived assets and
supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, and the accounting and
reporting provisions of APB Opinion No. 30, Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for
the disposal of a segment of a business (as previously defined in that Opinion).
This Statement also amends ARB No. 51, Consolidated Financial Statements, to
eliminate the exception to consolidation for a subsidiary for which control is
likely to be temporary. The provisions of this Statement are effective for
financial statements issued for fiscal years beginning after December 15, 2001,
and interim periods within those fiscal years. The Company is currently
assessing, but has not yet determined the impact of SFAS No. 144 on its
financial position and results of operations.
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ITEM 3. 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 not needed for immediate
operating activities in U.S. Treasury Bills with maturities of 60 days or less.
As of September 30, 2001, we had $42.8 million in borrowings. The borrowings
include $35 million in bonds maturing in 2005. Interest under the bonds is based
on a rate of 13% excluding contingent interest. Also included is $.6 million in
a special improvement district bond offering with Black Hawk, Colorado. The
Company's share of the debt on the Special Improvement District bonds is payable
over ten years through December of 2009. The Special Improvement District bonds
bear interest at 5.5%. Other borrowings include a vehicle loan of $20,000
maturing in 2004 with an interest rate of 9.0% and capital leases in the amount
of $7.2 million at a weighted average interest rate of 10.8% payable over sixty
months.
Interest Rate Sensitivity
Principal (in 000's) (Notational Amount by Expected Maturity)
Average Interest Rate
Fair Value
2001 2002 2003 2004 2005 Thereafter Total at 9/30/01
Long Term Debt Including Current Portion
Equipment loans
Black Hawk, Colorado $ 3 $ 8 $ 11 $ 11
Average interest rate 11.2% 11.2%
Capital leases
Black Hawk, Colorado $ 434 $ 1,848 $ 2,044 $ 2,263 $ 658 $ 7,247 $ 7,247
Average interest rate 10.8% 10.8% 10.8% 10.8% 10.8%
Special Improvement District Bonds
Black Hawk, Colorado $ 55 $ 68 $ 71 $ 76 $ 81 $ 221 $ 572 $ 572
Average interest rate 5.5% 5.5% 5.5% 5.5% 5.5% 5.5%
13% First Mortgage Note
Black Hawk, Colorado $ 34,941 $ 34,941 $ 34,941
Average interest rate 13.0%
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Forward Looking Statements
The Private Securities Litigation Reform Act of 1997 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.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RIVIERA BLACK HAWK, INC.
By: /s/ William L. Westerman
William L. Westerman
Chief Executive Officer and Director
By: /s/Ronald P. Johnson
Ronald P. Johnson
President and Director
By: /s/ Duane Krohn
Duane Krohn
Treasurer,
Chief Financial Officer
And Director
Date: November 11, 2001
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