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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, 2001.
[ ] 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 88-0886265
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(State of Incorporation) (IRS. Employer ID Number)
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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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act: None
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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 X NO
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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 March 16, 2002
the number of outstanding shares of the Registrant's Common Stock was 1,000.
Documents incorporated by reference:
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Page 1 of 23 Pages
Exhibit Index Appears on Page 22 hereof.
RIVIERA BLACK HAWK, INC.
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 2001
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..........................12
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.......................................................................15
Recently Adopted Accounting Standards.................................................................16
Recently Issued Accounting Standards..................................................................16
Forward Looking Statements............................................................................18
Item 7a. Quantitative and Qualitative Market Risk Disclosure...................................................18
Item 8. Financial Statements .................................................................................19
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..................19
Item 10. Directors and Executive Officers of the Registrant (not applicable....................................19
Item 11. Executive Compensation (not applicable)...............................................................19
Item 12. Security Ownership of certain Beneficial Owners and Management (not applicable).......................19
Item 13. Certain Relationships and Related Transactions .......................................................19
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8K........................................19
2
PART I
General
Riviera Black Hawk, Inc., a Colorado corporation, was formed on August
18, 1997 and 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, also owns and operates the Riviera
Hotel & Casino ("Riviera Las Vegas") located on "The Strip," Las Vegas
Boulevard, in Las Vegas, Nevada. Opened in 1955, Riviera Las Vegas has developed
a long-standing reputation for delivering high quality, traditional Las
Vegas-style gaming, entertainment and other amenities.
The Riviera Black Hawk Casino (Riviera Black Hawk) opened on February
4, 2000. Located in Black Hawk, Colorado, approximately forty (40) miles west of
Denver, our casino is one of the first three encountered when traveling from
Denver to the adjacent gaming cities of Black Hawk and Central City. It is
located on the corner of Mill and Main Streets, across from both the Isle of
Capri casino and the Colorado Central Station casino. Riviera Black Hawk offers
parking for 520 vehicles, of which ninety-two percent (92%) are covered, with
convenient and free self-park and valet options.
Gaming
Our casino features the fourth largest number of gaming devices in the
Black Hawk / Central City market with 986 slot machines and 12 blackjack tables.
In Colorado, each slot machine and each table game is considered one gaming
device.
Restaurants
The quality, value and variety of food served are critical to
attracting Black Hawk visitors. Riviera Black Hawk offers two restaurants, the
World's Fare Buffet, a casual buffet style restaurant located on the second
floor of the facility with a seating capacity of up to 252 people and a Pizza
Hut. 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.
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 440 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 the growth of this market. Subsequently,
larger casinos offering such amenities have entered the market and have been
gaining market share, contributing to the consistent growth in the overall
market. As of December 31, 2001, there were 25 casinos in the Black Hawk market,
with eleven casinos each offering more than 400 gaming devices. Isle of Capri,
located across the street from our casino with approximately 1,145 gaming
machines and 1,000 covered parking spaces, has been the market leader in terms
of win per gaming device. The Hyatt Casino with 1,332 gaming machines and 22
table games opened on December 20, 2001.
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We attract customers to our casino by implementing marketing
strategies and promotions designed specifically for this market. In so doing, 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 "Elite" 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, such as parties,
professional sporting events and concerts. "Elite" 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 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 have and
continue 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 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, comedians and boxing.
We 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 use the current database to
identify and stratify slot players living primarily in Colorado for appropriate
incentives. Approximately 150,000 of these slot players have been identified as
of December 31, 2001. In addition, we promote our casino by advertising in
newspapers, on billboards and on the radio in the local areas.
Geographical Markets
The Black Hawk 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
$5. 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 25 as of December 31, 2001.
The Black Hawk/Central City market primarily caters to "day-trip"
customers from Denver, Boulder, Fort Collins and Golden as well as Cheyenne,
Wyoming. We believe an estimated adult population exceeding 2.4 million people
resides within this 100-mile radius of Black Hawk. In addition, we believe that
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 2001.
Since 1992, the number of gaming devices in the Black Hawk/Central City market
has grown approximately 78% from 7,252 devices in 1992 to 12,907 devices in
2001. Win per gaming device per day has continued to grow despite the increase
in the number of gaming devices. Gaming revenues in the Black Hawk/Central City
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market grew by 8.2% in 2001 over 2000. The City of Black Hawk itself experienced
a 10.3% increase in gaming revenue in 2001.
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 of 783% since 1992 compared
to a negative growth for Central City of 16% over the same period. The number of
gaming devices in the City of Black Hawk has increased 242% since 1992, while
the number of gaming devices in Central City has declined 43% over the same
period.
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, promotional incentives, hotel rooms, 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, 2001
there were 25 gaming facilities in the Black Hawk / Central City market with
11 casinos each offering more than 400 gaming positions. The Hyatt Casino,
which features 1,335 slot machines, opened on December 20, 2001. Other projects
have also been announced, proposed, discussed or rumored for the Black Hawk/
Central City market.
The gaming facilities near the intersection of Main and Mill Streets
provide significant competition to our casino. Colorado Central Station, which
has been one of the most successful casinos 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, the most
successful casino in Colorado, which opened in December 1998, is located
directly across the street from our casino and features approximately 1,145
slot machines, 14 table games, 1,000 parking spaces, and 235 hotel rooms.
The number of hotel rooms currently in the Black Hawk/Central City
market is approximately 450, with only three gaming facilities providing hotel
accommodations to patrons. These include Harvey's Wagon Wheel Casino Hotel with
approximately 120 rooms, the Lodge at Black Hawk with approximately 50 rooms and
the Isle of Capri Casino with 235 rooms. 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 received approval for 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 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.
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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 Las Vegas licenses 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
full time equivalent employees. As of December 31, 2001, the total number of
full time equivalent employees was 371. 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 Gaming and Liquor Regulation
Summary
In general we, 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 original retail gaming license was approved by the Colorado Gaming
Commission on November 18, 1999, and has been successfully renewed each
subsequent year.
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
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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 Act 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 annually.
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 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 affirmative commission
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:
o slot machine manufacturer or distributor,
o operator,
o retail gaming,
o support, and
o 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.
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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.
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 Act 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
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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.
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. Annually during April, May and June, the Colorado
Commission, as mandated by the Colorado Regulations, shall conduct rule-making
hearings concerning the gaming tax rate and device fee rate for the subsequent
gaming year. However, rigid compliance with the Colorado Regulations is not
mandatory and shall in no way be construed to limit the time periods or subject
matters which the Colorado Commission may consider in determining the various
tax rates. Currently, the gaming tax is:
o .25% on the first $2 million of these amounts;
o 2% on amounts from $2 million to $4 million;
o 4% on amounts from $4 million to $5 million;
o 11% on amounts from $5 million to $10 million;
o 16% on amounts from $10 million to $15 million; and
o 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
$62.50 per device on all devices exceeding 50. 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 $7.42 per device and a monthly transportation authority device fee of
$8.84 per device also may apply depending upon the location of the licensed
premises in Black Hawk.
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. Significant increases in these fees and taxes,
or the imposition of new taxes and fees, may occur.
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.
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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.
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
o 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
o 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.
10
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.
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.
Item 2. Property
Riviera Black Hawk is located on 1.63 acres of land at 400 Main
Street, Black Hawk, Colorado. The buildings include approximately 325,000 square
feet and comprise 32,000 square feet of gaming space, parking for approximately
520 vehicles (substantially all of which are covered), a 252-seat buffet, two
bars and an entertainment center with seating for approximately 440 people.
The entire Riviera Black Hawk complex is encumbered by a first deed
of trust securing the 13% Notes.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
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
The following table sets forth a summary of selected financial data for
the Company for the years ended December 31, in thousands:
- -------------------------------------------------------------------------------
2001 2000 1999 1998
- -------------------------------------------------------------------------------
Net Operating Revenue $49,046 $35,261 (a) (a)
Net Income (Loss) 589 (2,946) $(474) $0
Total Assets 83,477 81,884 72,950 28,128
Long-Term Debt $40,777 $45,777 $45,742 $687
- -------------------------------------------------------------------------------
(1) The Company was in the development stage from its inception on August
18, 1997 through February 4, 2000. During fiscal 2000 and 1999, the Company
recognized $1,222,000 and $595,000 in preopening expenses, respectively.
There were no operations in 1999.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations Results of Operations
2001 Compared to 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.
The following table sets forth, for the periods indicated, certain
operating data for Riviera Black Hawk. EBITDA for the purposes of this table
excludes, pre-opening expense and inter-company management fees. Operating
income is presented as shown on the Statement of Operations.
Change % Change
Year Ended December 31, Incr/(Decr) Incr/(Decr)
(In thousands) 2001 2000 ---------- ----------
---- ----
Net revenues $49,046 $35,261 $13,785 39.1%
Income(Loss) from operations $7,622 $1,881 $5,741 305%
EBITDA(2) $12,722 $6,597 $6,125 92.8%
EBITDA Margin(3) 25.9% 18.7% 9.3%
(2) EBITDA consists of Earnings Before Interest, income Taxes, Depreciation,
Amortization, preopening expenses, intercomany management fees and other,
net. While EBITDA should not be construed as a substitute for operating
income or a better indicator of liquidity than cash flows from operating
activities, which are determined in accordance with generally accepted
accounting principles ("GAAP"), it is included herein to provide
additional information with respect to the ability of the Company to
meet its future debt service, capital expenditures and working capital
requirements. Although EBITDA is not necessarily a measure of the
Company's ability to fund its cash needs, management believes that
certain investors find EBITDA to be a useful tool for measuring the
ability of the Company to service its debt. EBITDA margin is EBITDA as
a percent of net revenues. The Company's definition of EBITDA may not be
comparable to other companies' definitions.
(3) Shown as a percentage of net revenue.
12
Revenues
Riviera Black Hawk net revenues increased by approximately $13.8
million, or 39.1%, from $35.3 million in the 11 months of 2000 to $49.0 million
in the 12 months ended December 31, 2001 as the operation gained market share
and was unaffected by the events of September 11. Casino revenues, primarily
slot machines, increased by approximately $13.0 million, or 38.7%, from $33.6
million in the 11 months of 2000 to $46.7 million in the 12 months ended
December 31, 2001. Average slot machine win per unit increased from $114 per day
in 2000 to $148 in 2001. Food and beverage revenues increased by approximately
$1.5 million, or 38.3%, from $4.0 million in the 11 months of 2000 to $5.6
million in the 12 months ended December 31, 2001. The remodeled buffet and
related marketing efforts resulted in a 45.6% increase in covers (customers) and
a 26.4% increase in average check (price).
Income from Operations
Income from operations increased $5.7 million or 305% from $1.9 million in the
11 months of 2000 to $7.6 million in the 12 months ended December 31, 2001 due
to the increase in revenues and better margins as marketing costs were
stabilized. Staffing was also optimized as full-time equivalent employees were
reduced from 450 at the opening in February 2000 to 371 at the end of 2001.
Although general and administrative costs increased $1.7 million, they were
23.5% of revenues in the current year compared with 27% in 2000. Preopening
expense decreased $1.2 million and intercompany management fees based on revenue
and EBITDA increased $797,000. Depreciation increased $809,000 or 27.5% in
2001 compared with the 11 months of operations in 2000.
EBITDA
Riviera Black Hawk EBITDA, as defined, increased by approximately $6.1 million,
or 92.8%, from $6.6 million in the 11 months of 2000 to $12.7 million in the 12
months ended December 31, 2001. During the same periods, EBITDA margin increased
from 18.7% to 25.9% of net revenues.
Other Income (Expense)
Interest expense on the 13% First Mortgage Notes combined with its
interest on capital leases totaled $6.7 million in 2001 compared to $7.7 million
in 2000. Capitalized interest was $577,000 in 2000, which related to capitalized
amounts prior to the completion of the casino project.
Net Income
Net income increased approximately $3.5 million from a loss of $2.9
million in 2000 to a profit of $589,000 in 2001. Income from operations
accounted for $5.9 million of the increase and interest expense declined
$947,000 due to the repurchase of a portion of the 13% first Mortgage Notes.
These increases were partially offset by a $219,000 reduction of interest income
due to lower interest rates, $577,000 less capitalized interest and a $2.4
million increase in income taxes due to the increase in pretax income.
2000 Compared to 1999
Special Factors Effecting Comparability of Results of Operations
Riviera Black Hawk was in the development stage during 1999 and until
February 4, 2000 when the casino opened. Accordingly, the consolidated results
of operations for fiscal 2000 and 1999 may not be comparable.
13
The following table sets forth, for the periods indicated, certain
operating data for Riviera Black Hawk. EBITDA for the purposes of this table
excludes, pre-opening expense and inter-company management fees. Operating
income is presented as shown on the Statement of Operations.
Change % Change
Year Ended December 31, Incr/(Decr) Incr/(Decr)
(In thousands) 2000 1999 ---------- ----------
---- ----
Net revenues $35,261 $ n/a $35,261 100%
Income(Loss) from operations $1,881 $(595) $2,476 416%
EBITDA $6,597 $1 $6,596 n/a
EBITDA Margin 18.7% n/a n/a n/a
Revenues
Riviera Black Hawk opened on February 4, 2000. It had net revenues of
approximately $35.3 million for the approximate eleven-month period in 2000.
Casino revenues were $33.6 million, including $31.9 million in slot revenue and
$1.7 million in table games revenue.
Food and beverage revenues were approximately $4.0 million, of which
$2.8 million were complimentary (promotional allowance). Other revenues were
approximately $0.4 million primarily from ATM transaction fees.
EBITDA
Riviera Black Hawk EBITDA, as defined, was $6.6 million, or 18.7%, of
net revenues.
Other Income (Expense)
Interest expense on the $45 million 13% First Mortgage Notes issued
by Riviera Black Hawk in June 1999 combined with its interest from capital
leases totaled $7.7 million in 2000. Capitalized interest was $577,000 in 2000,
which was from the Black Hawk, Colorado project, decreased approximately $2.5
million from 1999.
Net Loss
The net loss increased approximately $2.4 million from $.5 million in
1999 to $2.9 million in 2000 due primarily to higher preopening expense and
higher interest expense offset by lower capitalized interest in 2000. Federal
income tax benefits as a percent of losses were higher in 2000 because the
Company had fewer permanent tax adjustments in fiscal 2000 compared to 1999,
when there were no operations.
14
Liquidity and Capital Resources
At December 31, 2001, RBH had cash and cash equivalents of $11.5
million. The Company may transfer the $3.3 million due to its parent if
demanded. During 2001, the payment of management fees totaling $2 million was
restricted wntil the fixed charge coverage ratio as defined, reached 1.5 to one.
As of December 31, 2001, there was no restriction on the payment of the
management fees to the parent. The Company had net shareholder's equity of $29.9
million.
The Company's net cash provided by operating activities was
approximately $8.6 million for the year ended December 31, 2001. Management
believes that the $11.5 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.
As of December 31, 2000, Riviera Holdings Corporation contributed $15.1
million to acquire land for the casino in Black Hawk and $14.9 million in cash
for developing the land for the casino. During 2001, Riviera Holdings made
additional contributions of $3,045,000 under the terms of the Keepwell
Agreement, for total cash contributions to date of $33 million.
During 2001, Riviera Black Hawk repurchased $3.5 million of the 13%
Notes on the open market at par.
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 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 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 December 31, 2001, the Company believes that it is in compliance
with the covenants.
15
Recently Adopted 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 SEAS
No. 133 in the quarter ended March 31, 2001. The adoption of this SEAS 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 $2.6
million of such "Points" from Casino operating expense to net against Casino
revenues for the period ended December 31, 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 $1.8 million of such sales incentive offers "cash vouchers" from
Casino operating expense to net against Casino revenues for the period ended
December 31, 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
16
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.
Critical Accounting Policies
The preparation of the Company's consolidated financial statements requires the
Company's management to adopt accounting policies and to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenue and
expenses. Management periodically evaluates its policies, estimates and
assumptions related to, these policies. The Company operates in a highly
regulated industry. For both our Las Vegas, Nevada and Black Hawk, Colorado
operations we are subject to regulations that describe and regulate operating
and internal control procedures. The majority of our casino revenue is in the
form of cash, personal checks or gaming chips and tokens, which by their nature
do not require complex estimations. We estimate certain liabilities with payment
periods that extend for longer than several months. Such estimates include
customer loyalty liabilities, self-insured medical and workers compensation
costs and litigation costs. We believe that these estimates are reasonable based
upon our past experience with the business and based upon our assumptions
related to possible outcomes in the future. Future actual results will likely
differ from these estimates.
The Company has determined that the following accounting policies and related
estimates are critical to the preparation of the Company's consolidated
financial statements:
Long-lived Assets:
The Company has a significant investment in long-lived property and equipment.
The Company estimates that the undiscounted future cash flows expected to result
from the use of these assets exceeds the current carrying value of these assets.
Any adverse change to the estimate of these undiscounted future cash flows could
necessitate an impairment charge that would adversely affect operating results.
The Company estimates useful lives for its assets based on historical
experience, estimates of assets' commercial lives, and the likelihood of
technological obsolescence. Should the actual useful life of a class of assets
differ from the estimated useful life, the Company would record an impairment
charge. The Company reviews useful lives, obsolescence, and assesses commercial
viability of these assets periodically.
We utilize estimates related to cash flow projections related to the application
of SFAS 109 for the realization of deferred tax assets. Our estimates are based
upon recent operating results and budgets for future operating results. These
estimates are made using assumptions about the economic, social and regulatory
environments in which we operate. These estimates could be negatively impacted
by numerous unforeseen events including changes to regulations affecting how we
operate our business, changes in the labor market or economic downturns in the
areas where we operate.
17
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.
Interest Rate Sensitivity
Principal (Notational Amount by Expected Maturity)
Average Interest Rate
(Amounts in Thousands) Fair Value
2002 2003 2004 2005 2006 Thereafter Total At
12/31/01
Long Term Debt
Including Current Portion
Equipment loans
Black Hawk, Colorado $8 $8 $8
Average interest rate 11.2%
Capital leases
Black Hawk, Colorado $1,848 $2,044 $2,263 $658 $6,814 $6,814
Average interest rate 10.8% 10.8% 10.8% 10.8%
Special Improvement
District Bonds-Black Hawk,
Colorado casino project $97 $103 $109 $116 $124 $411 $960 $960
Average interest rate 5.5% 5.5% 5.5% 5.5%
13% First Mortgage Note
Black Hawk, Colorado casino
Project $34,941 $34,941 $34,941
Average interest rate 13.0%
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
18
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)
Item 13. Certain Relationships and Related Transactions
The Company has 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 consists of a revenue fee and a performance fee. The
revenue fee is based on one percent of net revenues (gross revenues less
complimentaries) and is payable quarterly in arrears. The performance fee is
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 is based on the preceding
quarter's EBITDA, paid in quarterly installments subject to year-end adjustment.
Under the 13% bond indenture, the management fees cannot be paid to the parent
unless the fixed charge coverage ratio exceeds 1.5 to one. Therefore, subsequent
to the first quarter of 2000, these fees totaling approximately $1.9 million
have not been paid. In addition, inter-company charges for the cost of labor,
goods and services provided by the parent totaling approximately $1.4 million
remain unpaid at December 31, 2001 and are evidenced by notes receivable. It is
anticipated that these advances will be repaid in 2002.
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 12, 2002
Balance Sheets as of December 31, 2001 and 2000
Statements of Operations for the Three years Ended December 31, 2001
Statements of Stockholder's Equity for the Three Years Ended December 31, 2001
Statements of Cash Flows and for the Three Years Ended December 31, 2001
19
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 2001.
20
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 22, 2002
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 22, 2002
By:/s/ RONALD P. JOHNSON
Ronald P. Johnson President and Director March 22, 2002
By: /s/ DUANE R. KROHN
Duane R. Krohn Treasurer, Chief Financial Officer
and Director March 22, 2002
21
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.*
22
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.
23
RIVIERA BLACK HAWK, INC.
(A Wholly Owned Subsidiary of Riviera Holdings Corporation)
TABLE OF CONTENTS
- -------------------------------------------------------------------------------------------------------------
Page
INDEPENDENT AUDITORS' REPORT F-1
FINANCIAL STATEMENTS:
Balance Sheets as of December 31, 2001 and 2000 F-2
Statements of Operations for the Years Ended December 31, 2001, 2000, and 1999 F-3
Statements of Stockholder's Equity for the Years Ended December 31, 2001, 2000, and 1999 F-4
Statements of Cash Flows for the Years Ended December 31, 2001, 2000, and 1999 F-5
Notes to Financial Statements F-6
Unaudited Quarterly Information F-15
INDEPENDENT AUDITORS' REPORT
Riviera Black Hawk, Inc.:
We have audited the accompanying balance sheets of Riviera Black Hawk, Inc. (a
wholly owned subsidiary of Riviera Holdings Corporation) (the "Company") as of
December 31, 2001 and 2000 and the related statements of operations,
stockholder's equity, and cash flows for each of the three years in the period
ended December 31, 2001. 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, 2001 and 2000
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America.
Deloitte & Touche LLP
Las Vegas, Nevada
February 12, 2002
F-1
RIVIERA BLACK HAWK, INC.
(A Wholly Owned Subsidiary of Riviera Holdings Corporation)
BALANCE SHEETS
DECEMBER 31, 2001 AND 2000 (In Thousands, Except Share Amounts)
- ---------------------------------------------------------------------------------
ASSETS 2001 2000
CURRENT ASSETS:
Cash and cash equivalents $11,459 $ 7,744
Accounts receivable, net 169 165
Inventories 184 270
Prepaid expenses 409 565
------ -----
Total current assets 12,221 8,744
PROPERTY AND EQUIPMENT, Net 67,549 68,505
DEFERRED FINANCING COSTS 1,930 2,492
OTHER ASSETS 44 18
DEFERRED INCOME TAXES 1,733 2,125
----- -----
TOTAL $83,477 $81,884
======== =======
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,953 $ 1,770
Accounts payable 2,035 2,565
Accrued interest 1,520 1,162
Accrued expenses 3,937 3,253
Payable to Parent 3,335 1,064
------ -----
Total current liabilities 12,780 9,814
LONG-TERM DEBT, Net of current portion 40,770 45,777
------ ------
Total liabilities 53,550 55,591
------ ------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS EQUITY:
Common stock, $.01 par value; 10,000 shares authorized;
1,000 shares issued and outstanding
Additional paid-in capital 32,758 29,713
Accumulated deficit (2,831) (3,420)
------ ------
Total stockholders equity 29,927 26,293
------- -------
TOTAL $83,477 $81,884
======= =======
See notes to financial statements.
F-2
RIVIERA BLACK HAWK, INC.
(A Wholly Owned Subsidiary of Riviera Holdings Corporation)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999 (In Thousands)
- -----------------------------------------------------------------------------------------
2001 2000 1999
REVENUES:
Casino $46,650 $33,636
Food and beverage 5,560 4,018
Entertainment 274
Other 572 374
------ ------
Total revenues 53,056 38,028
Less promotional allowances 4,010 2,767
------ ------
Net revenues 49,046 35,261
COSTS AND EXPENSES:
Direct costs and expense of operating departments:
Casino 22,648 17,286
Food and beverage 2,093 1,599
Entertainment 77 5
Other operating expenses:
General and administrative 11,506 9,774
Preopening expenses 1,222 $ 595
Intercompany management fees 1,354 557
Depreciation and amortization 3,746 2,937
------ ------ ----
Total costs and expenses 41,424 33,380 595
------ ------ ----
INCOME (LOSS) FROM OPERATIONS 7,622 1,881 (595)
------ ------ ----
OTHER (EXPENSE) INCOME:
Interest expense (6,740) (7,687) (3,717)
Interest income 99 318 567
Interest capitalized 577 3,111
------- ------- ------
Total other expense (6,641) (6,792) (39)
------- ------- ------
INCOME (LOSS) BEFORE PROVISION (BENEFIT)
FOR INCOME TAXES 981 (4,911) (634)
PROVISION (BENEFIT) FOR INCOME TAXES 392 (1,965) (160)
------ -------- -------
NET INCOME (LOSS) $ 589 $(2,946) $ (474)
====== ======== =======
See notes to financial statements.
F-3
RIVIERA BLACK HAWK, INC.
(A Wholly Owned Subsidiary of Riviera Holdings Corporation)
STATEMENTS OF STOCKHOLDERS EQUITY
YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
(In Thousands, Except Share Amounts)
- ----------------------------------------------------------------------------------------------------
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit Total
BALANCE, JANUARY 1, 1999 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
Contributed capital 6,239 6,239
Net loss (2,946) (2,946)
----- ----- ------ ------- -------
BALANCE, DECEMBER 31, 2000 1,000 29,713 (3,420) 26,293
Contributed capital 3,045 3,045
Net income 589 589
----- ----- ------ ------- ------
BALANCE, DECEMBER 31, 2001 1,000 $ - $ 32,758 $(2,831) $ 29,927
===== ===== ======= ======= ======
See notes to financial statements.
F-4
RIVIERA BLACK HAWK, INC.
(A Wholly Owned Subsidiary of Riviera Holdings Corporation)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999 (In Thousands)
- --------------------------------------------------------------------------------------------------------------------
Years Ended December 31,
-------------------------------------
2001 2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 589 $ (2,946) $ (474)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Amortization of bond offering costs 562 576 338
Depreciation and amortization 3,746 2,937
Provision for bad debts 136 43
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (140) (208)
Decrease (increase) in inventories 86 (270)
Decrease (increase) in prepaid expenses 156 230 (722)
Increase (decrease) in accounts payable (10) 3,847 487
Increase (decrease) in accrued payroll and benefits 468 1,070 110
Increase (decrease) in accrued interest expense 358 186 976
Increase (decrease) in payable to Parent 2,271 1,064
Decrease (increase) in other assets (26) 371 (9)
Decrease (increase) in deferred tax asset 392 (1,965) (160)
----- ----- -----
Net cash provided by operating activities 8,588 4,935 546
----- ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (2,640) (16,969) (27,291)
Decrease (increase) in cash and restricted and short-term investments 7,173 (6,766)
Decrease (increase) in short-term investments 2,820 (2,820)
------- ------ ------
Net cash used in investing activities (2,640) (6,976) (36,877)
------- ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on long-term debt (1,778) (1,223) (2)
Payments to Riviera Holdings Corporation (6,241)
Purchase of 13% First Mortgage Notes (3,500) (6,559)
Proceeds from long-term borrowings net of financing costs of $0, $0, and $3,784 9,518 41,216
Contribution of capital 3,045 6,239 2,625
----- ----- -----
Net cash (used in) provided by financing activities (2,233) 7,975 37,598
----- ----- -----
INCREASE IN CASH AND CASH EQUIVALENTS 3,715 5,934 1,267
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 7,744 1,810 543
----- ----- -----
CASH AND CASH EQUIVALENTS, END OF YEAR $ 11,459 $ 7,744 $ 1,810
====== ===== =====
INTEREST PAID $ 6,382 $ 6,714 $ 2,403
====== ===== =====
INCOME TAXES PAID $ 110
=====
SUPPLEMENTAL DISCLOSURE OF NONCASH INFORMATION:
Property acquired using special improvement district bonds $ 454 $ 97
===== ====
Property and equipment purchased using accounts payable $ 90 $ 304 $ 2,566
===== ===== =====
Capitalized interest, other $ 577 $ 2,262
===== =====
Property acquired with debt $ 29
====
Capitalized interest contributed by Riviera Holdings Corporation $ 849
====
See notes to financial statements.
F-5
RIVIERA BLACK HAWK, INC.
(A Wholly Owned Subsidiary of Riviera Holdings Corporation)
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
"Parent"). The Company owns a casino and entertainment complex in Black
Hawk, Colorado. The Company was in the development stage at December 31,
1999 and commenced its principal operations on February 4, 2000. The
Company began construction on this casino in Black Hawk, Colorado, on a
site that was purchased for $15.1 million in August 1997. There was no
statement of operations activity for the year ended December 31, 1999, as
the Company was in the development stage and had no operating results for
that period.
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 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, 2001 and 2000,
securities classified as held to maturity comprised debt securities issued
by the U.S. Treasury and other U.S. government agencies and corporations,
and repurchase agreements, with an amortized cost of $4.3 million and $2.8
million, respectively, maturing in 12 months or less.
Inventories - Inventories consist primarily of food, beverage, gift, and
promotional inventories and are stated at the lower of cost (determined
on a first-in, first-out basis) or market.
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 is
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, which range from 5
years for certain gaming equipment to 40 years for buildings. The costs of
normal maintenance and repairs are charged to expense as incurred. Gains
or losses on disposals are recognized as incurred.
F-6
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 - Other assets include organizational costs amortized over a
five-year period. Organizational costs consist primarily of legal fees
associated with establishing the gaming licenses for business.
Deferred Financing Costs - Bond offering costs and commissions are
amortized over the life of the debt. Such amortized costs are included in
interest expense.
Restricted Cash and Short-Term Investments - 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.
Fair Value Disclosure as of December 31, 2001 and 2000:
Cash and Cash Equivalents, Short-Term Investments (including
restricted), and 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
$42,723,000 and $47,547,000 in 2001 and 2000, respectively.
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 and loyalty club points and incentive coupon
payments paid in cash.
Food and Beverage Revenue and Entertainment Revenue - The Company
recognizes food and beverage and entertainment revenue at the time that
goods or services are provided.
Promotional Allowances - Revenues include the estimated retail value of
food and beverage and entertainment provided to customers on a
complimentary basis. Such amounts are then deducted as promotional
allowance. The estimated cost of providing these promotional allowances
charged to the casino department was $3,575,000 and $2,639,000 in 2001 and
2000, respectively.
Preopening Costs - The Company recognizes preopening costs when incurred.
Federal and State Income Taxes - The Company and its subsidiaries file a
consolidated federal tax return. The Company accounts for income taxes in
accordance with SFAS No. 109, Accounting for Income Taxes.
F-7
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 tax sharing agreement provides that
receivables for tax benefits are not due from Riviera Holdings
Corporation, and the Parent records no liability to the subsidiary for
these tax items.
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.
Estimates and Assumptions - The preparation of 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, depreciable
lives, 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.
Recently Adopted Accounting Standards - The Financial Accounting Standards
Board ("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 SFAS No. 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, 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. EITF No. 00-22 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. EITF No. 00-22 was required to be
adopted by the Company during the first quarter of 2001. As a result of
adopting EITF No. 00-22, the Company reclassified approximately $2.6
million of such "Points" from casino operating expense to net against
casino revenues for the year ended December 31, 2000.
The EITF of the American Institute of Certified Public Accountants issued
EITF No. 00-14, Accounting for Certain Sales Incentives, on April 18,
2001. EITF No. 00-14 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. EITF No. 00-14 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. EITF No. 00-14 is required to be
adopted by the Company during the first quarter of 2002. Early adoption is
permitted. The Company chose to adopt EITF No. 00-14 in the first quarter
of 2001. As a result of adopting EITF 00-14, the Company reclassified
approximately $1.9 million of such sales incentive offers "Cash Vouchers"
from Casino operating expense to net against casino revenues for the year
ended December 31, 2000.
F-8
Recent Issued Accounting Standards -In July 2001, the FASB issued SFAS No.
141, Business Combinations. SFAS No. 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 No. 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 No. 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 identification of
reporting units for purposes of assessing potential future impairments of
goodwill. SFAS No. 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 adopting SFAS No. 142 on its financial position and results
of operations.
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. SFAS No. 143
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 long-lived
asset, except for certain obligations of lessees. SFAS No. 143 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 adopting SFAS No. 143 on its financial position
and results of operations.
In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS No. 144 addresses
financial accounting and reporting for the impairment or disposal of
long-lived assets and supersedes SFAS 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 Accounting Principles
Board 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). SFAS No.
144 also amends Accounting Research Board 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 SFAS No.
144 are effective for financial statements issued for fiscal years
beginning after December 15, 2001 and for the interim period within those
fiscal years. The Company is currently assessing but has not yet
determined the impact of adopting SFAS No. 144 on its financial position
and results of operations.
Reclassifications - Certain amounts in prior years have been reclassified
to conform with the current year presentation. Such reclassifications have
no effect on net income.
2. RELATED-PARTY TRANSACTIONS
The Company was formed by Riviera Holdings Corporation to develop and
operate a casino in Black Hawk, Colorado. In 1997, Rivera Holdings
Corporation contributed capital of $16.6 million to the Company, which was
used to purchase the land for the casino site. During 1999 and 2000,
Riviera Holdings Corporation has made additional capital contributions to
the Company consisting of cash of $1.4 million and $2.6 million,
respectively, and allocated capitalized interest expense of $2.0 million
and $0.8 million, respectively. In 2001, Riviera Holdings Corporation
contributed an additional $3.0 million in cash to the Company, which was
used to buy back Company debt.
F-9
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 5.
The Company has a management agreement (the "Management Agreement") with
Riviera Gaming Management of Colorado, Inc. (the "Manager"), an indirect
wholly owned subsidiary of Riviera Holdings Corporation, to manage the
Company for a fee. The management fee consists of a revenue fee and a
performance fee. The revenue fee is based on one percent of net gaming
revenues (gross gaming revenues less complimentaries) and is payable
quarterly in arrears. The performance fee is based on the following
percentages of EBITDA (earnings before interest, taxes, depreciation, and
amortization, whose components are based on accounting principles
generally accepted in the United States of America): (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 quarter's EBITDA,
paid in quarterly installments subject to year-end adjustment. The
management fee began on February 4, 2000, the opening date of the Riviera
Black Hawk Casino. At December 31, 2001 and 2000, the Company had
$2,031,712 and $557,000, respectively, in management fee and interest
payable under this contract, which is included in payable to Parent.
Charges for the cost of labor, goods, and services provided by Riviera
Operating Corporation and the related interest totaling approximately
$1,303,424 and $507,000 were payable at December 31, 2001 and 2000,
respectively, and included in payable to Parent.
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):
2001 2000
Land and improvements $16,204 $15,792
Buildings and improvements 43,758 43,752
Equipment, furniture, and fixtures 14,270 11,898
------ ------
Total property and equipment 74,232 71,442
Accumulated depreciation (6,683) (2,937)
------ ------
Net property and equipment $67,549 $68,505
====== ======
Property under capital leases totaled $9,517,000 and $9,517,000 with
accumulated amortization of $3,649,000 and $1,745,000 at December 31, 2001
and 2000, respectively.
In 2000 and 1999, $0.6 million and $3.1 million, respectively, in interest
costs were capitalized on the construction project.
F-10
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable consist of the following at December 31 (in thousands):
2001 2000
Outstanding chip and token liability $ 40 $ 138
Slot club liabilities 516 429
Miscellaneous gaming 214 290
----- -----
Total liabilities related to gaming activities 770 857
Accounts payable to vendors 1,219 1,334
Construction payables 304
Other 46 70
----- ------
Total $2,035 $2,565
===== =====
Accrued expenses consist of the following at December 31 (in thousands)
Payroll, related payroll taxes, and employee benefits $1,378 $1,036
Incentive, retension and profit-sharing plans 270 144
Other 2,289 2,073
------ ------
Total $3,937 $3,253
====== ======
5. LONG-TERM DEBT
Long-term debt consists of the following at December 31 (in thousands):
2001 2000
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% $34,941 $38,441
9% Note collateralized by vehicle, payable monthly, including interest,
maturing through October 2004 8 18
Capitalized lease obligations (Note 6) 6,814 8,485
5.5% Special Improvement District Bonds - issued by the City of
Black Hawk, Colorado, interest and principal payable
monthly over 10 years beginning in 2000 960 603
------ ------
Total long-term debt 42,723 47,547
Current maturities by terms of debt (1,953) (1,770)
------ ------
Total long-term debt, net of current portion $40,770 $45,777
====== ======
F-11
Maturities of long-term debt for the years ending December 31 are as
follows (in thousands):
2002 $ 1,953
2003 2,148
2004 2,372
2005 35,715
2006 124
Thereafter 411
--------
Total $ 42,723
========
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 Casino project in Black Hawk,
Colorado. Riviera Holdings Corporation has not guaranteed the $45 million
in Riviera Black Hawk, Inc. notes but has agreed to a "Keep-Well
Agreement" in which Riviera Holdings Corporation would pay up to $5
million per year (or an aggregate limited to $10 million) to the Company
during the first three years of the Company's operations, if (i) the $5.85
million minimum interest on such notes is not paid by the Company and/or
(ii) the amount by which the Company's cash flow is less than $9.0 million
per year. On February 14, 2001, Riviera Holdings Corporation advanced
approximately $3.1 million to Riviera Black Hawk, Inc. under this
agreement. No amounts were due on the Keep-Well in 2001 and, based on
current operations, it is not anticipated that there will be any amounts
during 2002. In addition, Riviera Holdings Corporation 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 capital completion commitment, which was released in August
2000. The Company registered securities identical to the 13% First
Mortgage 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-line 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% First Mortgage
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% First
Mortgage Notes without a refinancing.
The 13% First Mortgage Note Indenture contains certain covenants, which
limit the ability of Riviera Black Hawk, Inc. 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 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 its capital expenditure
programs under these circumstances, which could have an adverse effect on
the Company's operations. At December 31, 2001, the Company believes that
it is in compliance with the covenants.
F-12
During 2001 and 2000, the Company purchased $3,500,000 and $6,559,000,
respectively, of the 13% First Mortgage Notes on the open market at face
value.
The 5.5% 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 were
substantially completed in 2000 at a cost of $1,878,000, including
interest and reserves. During 2001, another phase of the project was
completed at a cost of $908,000. The excess proceeds have been returned to
the bondholders by the City of Black Hawk, Colorado. The Company is
responsible for 50 percent of the debt payable over 10 years beginning in
2000.
6. LEASING ACTIVITIES
The Company leases certain equipment under capital leases. These
agreements have been capitalized at the present value of the future
minimum lease payments at lease inception and are included in property and
equipment. Management estimates that the fair market value of the property
and equipment, subject to the leases, approximates the net present value
of the leases.
The following is a schedule by year of the minimum rental payments due
under capital leases as of December 31, 2001 (in thousands).
2002 $ 2,458
2003 2,458
2004 2,458
2005 876
-----
Total minimum lease payments 8,250
Taxes, maintenance, and insurance (216)
Interest portion included in payments (1,220)
-------
Present value of net minimum lease payments (Note 5) $ 6,814
=======
Rental expense under operating leases the years ended December 31, 2001
and 2000 was approximately $401,580 and $611,661, respectively. Such
leases were year to year in nature.
7. 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 1999, 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 years ended December
31, 2001 and 2000, as follows (in thousands):
F-13
2001 2000
----------------------- ---------------------------
Amount Rate Amount Rate
Provision (benefit) for income taxes at
federal statutory rate $343 35.0 % $(1,719) (35.0)%
State income taxes 49 5.0 (246) (5.0)
---- ---- -------- ------
Provision (benefit) for income taxes $392 40.0 % $(1,965) (40.0)%
==== ==== ======== ======
Comparative analysis of the provision (benefit) for income taxes is as
follows:
2001 2000
Current $ 1,437 $ (223)
Deferred (1,045) (1,742)
------ ------
Total $ 392 $(1,965)
====== =======
The tax effects of the items composing the Company's net deferred tax
asset consist of the following at December 31 (in thousands):
2001 2000
Deferred tax asset -
Net operating loss carryforward $ 1,733 $2,125
------- ------
Net deferred tax asset $ 1,733 $2,125
======= ======
8. COMMITMENTS AND CONTINGENCES
Legal Proceedings - Riviera Black Hawk, Inc. may be a party to several
routine lawsuits both as plaintiff and as defendant arising from the
normal operations of a casino. Management does not believe that the
outcome of such litigation, in the aggregate, will have a material adverse
effect on the financial position or results of operations.
******
F-14
RIVIERA BLACK HAWK, INC.
(A Wholly Owned Subsidiary of Riviera Holdings Corporation)
UNAUDITED QUARTERLY INFORMATION (1)
(Amounts in Thousands, Except Per Share Data)
- ------------------------------------------------------------------------------------------------------------------------
March 31 June 30 September 30 December 31
Year Ended December 31, 2001:
Operating revenues $10,970 $11,990 $13,478 $12,608
Operating income 1,336 1,620 2,297 2,369
(Loss) income before income taxes (390) (75) 701 745
Net (loss) income (268) (11) 421 447
Year Ended December 31, 2000:
Operating revenues $ 7,603 $ 8,573 $ 9,494 $ 9,591
Operating income (loss) 1,152 (102) 54 777
Income (loss) before income taxes 154 (2,277) (1,590) (1,198)
Net income (loss) 76 (1,350) (954) (718)
(1) The common stock of the Company is not publicly traded; therefore, no
earnings per share data are presented.
(17179)
F-15