UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
------------------
OR
- ---- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to _________________
Commission File Number: 0-21736
-------
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
---------------------------------------------
(Exact name of registrant as specified in its charter)
Colorado 84-115848
------------ -------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 21
240 Main Street
Black Hawk, Colorado 80422
--------------------------------- --------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303) 582-1117
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No_______
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock 4,154,400 shares
- ------------- ----------------
Class Outstanding as of November 13, 2001
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
Index to Form 10-Q
September 30, 2001
PART I. FINANCIAL INFORMATION Page No.
--------
Item 1. Consolidated Financial Statements:
Unaudited Consolidated Balance Sheets as of
September 30, 2001 and December 31, 2000 1
Unaudited Consolidated Statements of Income for
the three and nine months ended September 30,
2001 and 2000 2-3
Unaudited Consolidated Statement of Stockholders'
Equity for the nine months ended September 30, 2001 4
Unaudited Consolidated Statements of Cash Flows
for the nine months ended September 30, 2001 and 2000 5
Unaudited Notes to Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-25
Item 3. Quantitative and Qualitative Disclosure
About Market Risk 26
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 27
Item 2. Changes in Securities 27
Item 3. Defaults Upon Senior Securities 27
Item 4. Submission of Matters to a Vote of
Security Holders 27
Item 5. Other Information 27
Item 6. Exhibits and Reports on Form 8-K 27
SIGNATURES 28
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2001 AND DECEMBER 31, 2000
- --------------------------------------------------------------------------------
September 30, December 31,
2001 2000
------------------- -------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 14,312,579 $ 8,518,464
Accounts receivable 201,455 740,804
Inventories 552,858 535,231
Prepaid expenses 1,580,979 671,546
Deferred income tax 440,470 440,470
------------------- -------------------
Total current assets 17,088,341 10,906,515
LAND 18,799,427 15,239,426
GAMING FACILITIES:
Building and improvements 63,644,375 58,283,231
Equipment 23,235,894 18,487,936
Accumulated depreciation (17,674,155) (14,134,293)
------------------- -------------------
Total gaming facilities 69,206,114 62,636,874
OTHER ASSETS:
Goodwill, net of accumulated amortization of $2,496,664
and $1,369,615, respectively 19,381,930 5,374,461
Other assets 3,185,396 3,318,973
Deferred income tax 872,990
------------------- -------------------
TOTAL $ 128,534,198 $ 97,476,249
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 4,810,523 $ 5,320,255
Accrued payroll 793,174 760,297
Gaming taxes payable 2,928,927 2,673,927
Property taxes payable 712,148 526,931
Slot club liability 946,468 940,655
Current portion of long-term debt 374,811 783,587
------------------- -------------------
Total current liabilities 10,566,051 11,005,652
LONG-TERM DEBT AND OTHER LIABILITIES
Reducing and revolving credit facility 58,800,000 29,900,000
Bonds payable 5,108,355 5,298,624
------------------- -------------------
Total long-term debt 63,908,355 35,198,624
Interest rate swap liability 2,174,974
Deferred tax liability 814,334 469,920
------------------- -------------------
Total liabilities 77,463,714 46,674,196
------------------- -------------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 7,241,827 8,739,694
STOCKHOLDERS' EQUITY:
Preferred stock; $.001 par value; 10,000,000 shares authorized;
none issued and outstanding
Common stock; $.001 par value; 40,000,000 shares authorized;
4,134,400 and 4,126,757 shares issued and outstanding, respectively 4,134 4,127
Additional paid-in capital 18,629,439 18,569,538
Accumulated other comprehensive loss (1,302,311)
Retained earnings 26,497,395 23,488,694
------------------- -------------------
Total stockholders' equity 43,828,657 42,062,359
------------------- -------------------
TOTAL $ 128,534,198 $ 97,476,249
=================== ===================
1
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
- --------------------------------------------------------------------------------
THREE MONTHS ENDED PERCENTAGE
SEPTEMBER 30, INCREASE
2001 2000 DIFFERENCE (DECREASE)
------------- ------------ ----------- ------------
REVENUES:
Casino revenue $ 26,686,174 $ 20,984,093 $ 5,702,081 27 %
Food and beverage revenue 3,233,656 2,363,538 870,118 37 %
Hotel revenue 404,878 290,991 113,887 39 %
Other 179,462 190,393 (10,931) (6)%
------------- ------------ -----------
Total revenues 30,504,170 23,829,015 6,675,155 28 %
Promotional allowances 4,477,799 3,474,923 1,002,876 29 %
------------- ------------ -----------
Net revenues 26,026,371 20,354,092 5,672,279 28 %
------------- ------------ -----------
COSTS AND EXPENSES:
Casino operations 8,198,686 6,605,047 1,593,639 24 %
Food and beverage operations 2,838,479 2,123,444 715,035 34 %
Hotel operations 251,940 191,883 60,057 31 %
Marketing, general and administrative 8,294,069 6,310,730 1,983,339 31 %
Privatization and other non-recurring costs 150,967 150,967
Depreciation and amortization 1,964,058 1,458,687 505,371 35 %
------------- ------------ -----------
Total costs and expenses 21,698,199 16,689,791 5,008,408 30 %
------------- ------------ -----------
OPERATING INCOME 4,328,172 3,664,301 663,871 18 %
Interest income 30,791 68,326 (37,535) (55)%
Interest expense (1,266,098) (795,187) (470,911) 59 %
------------- ------------ -----------
INCOME BEFORE MINORITY INTEREST AND INCOME TAXES 3,092,865 2,937,440 155,425 5 %
MINORITY INTEREST 572,752 590,669 (17,917) (3)%
------------- ------------ -----------
INCOME BEFORE INCOME TAXES 2,520,113 2,346,771 173,342 7 %
INCOME TAXES 974,241 844,823 129,418 15 %
------------- ------------ -----------
NET INCOME $ 1,545,872 $ 1,501,948 $ 43,924 3 %
============= ============ ===========
BASIC EARNINGS PER SHARE $ 0.38 $ 0.37 $ 0.01 3 %
Dilutive effect of outstanding options (0.02) (0.01) (0.01) 100 %
------------- ------------ -----------
DILUTED EARNINGS PER SHARE $ 0.36 $ 0.36 $ .00 0 %
------------- ------------ -----------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
BASIC 4,132,798 4,126,257
------------- ------------
Dilutive effect of outstanding options 210,965 72,043
------------- ------------
DILUTED 4,343,763 4,198,300
============= ============
2
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
- --------------------------------------------------------------------------------
NINE MONTHS ENDED PERCENTAGE
SEPTEMBER 30, INCREASE
2001 2000 DIFFERENCE (DECREASE)
------------ ------------ ------------ -------------
REVENUES:
Casino revenue $ 75,135,875 $ 63,180,345 $ 11,955,530 19 %
Food and beverage revenue 8,970,487 7,023,088 1,947,399 28 %
Hotel revenue 1,075,574 826,057 249,517 30 %
Other 1,114,727 490,472 624,255 127 %
------------ ------------ ------------
Total revenues 86,296,663 71,519,962 14,776,701 21 %
Promotional allowances 12,678,935 10,778,681 1,900,254 18 %
------------ ------------ ------------
Net revenues 73,617,728 60,741,281 12,876,447 21 %
------------ ------------ ------------
COSTS AND EXPENSES:
Casino operations 23,343,011 19,458,361 3,884,650 20 %
Food and beverage operations 7,968,260 6,215,362 1,752,898 28 %
Hotel operations 707,459 539,580 167,879 31 %
Marketing, general and administrative 23,833,439 18,374,982 5,458,457 30 %
Privatization and other non-recurring costs 1,265,956 1,265,956
Depreciation and amortization 5,724,710 4,266,481 1,458,229 34 %
------------ ------------ ------------
Total costs and expenses 62,842,835 48,854,766 13,988,069 29 %
------------ ------------ ------------
OPERATING INCOME 10,774,893 11,886,515 (1,111,622) (9)%
Interest income 145,387 228,863 (83,476) (36)%
Interest expense (4,088,064) (2,702,293) (1,385,771) 51 %
------------ ------------ ------------
INCOME BEFORE MINORITY INTEREST AND INCOME TAXES 6,832,216 9,413,085 (2,580,869) (27)%
MINORITY INTEREST 1,458,160 1,843,578 (385,418) (21)%
------------ ------------ ------------
INCOME BEFORE INCOME TAXES 5,374,056 7,569,507 (2,195,451) (29)%
INCOME TAXES 2,365,355 2,725,023 (359,668) (13)%
------------ ------------ ------------
NET INCOME $ 3,008,701 $ 4,844,484 $ (1,835,783) (38)%
============ ============ ============
BASIC EARNINGS PER SHARE $ 0.73 $ 1.18 $ (0.45) (38)%
Dilutive effect of outstanding options (0.03) (0.01) (0.02) 200 %
------------ ------------ ------------
DILUTED EARNINGS PER SHARE $ 0.70 $ 1.17 $ (0.47) (40)%
============ ============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
BASIC 4,131,095 4,116,407
Dilutive effect of outstanding options 189,516 38,705
============ ============
DILUTED 4,320,611 4,155,112
============ ============
3
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
- --------------------------------------------------------------------------------
Additional
Common Stock Paid-in Retained
Shares Amount Capital Earnings
---------- ------- ------------ ------------
BALANCES,
JANUARY 1, 2001 4,126,757 $ 4,127 $ 18,569,538 $ 23,488,694
Stock issued for compensation 3,476 4 25,996
Exercise of stock options 4,167 3 33,905
Comprehensive income:
Transition adjustment as a result of
the adoption of Statement of Financial
Accounting Standards No. 133
Unrealized loss on interest rate swap
Reclassification adjustment for amortization
of cumulative transition adjustment, included
in net income
Net income 3,008,701
---------- ------- ------------ ------------
Total Comprehensive Income
BALANCES,
SEPTEMBER 30, 2001 4,134,400 $ 4,134 $ 18,629,439 $ 26,497,395
========== ======= ============ ============
Accumulated
Other
Comprehensive
Income
(Loss) Total
------------- ------------
BALANCES,
JANUARY 1, 2001 $ 42,062,359
Stock issued for compensation 26,000
Exercise of stock options 33,908
Comprehensive income:
Transition adjustment as a result of
the adoption of Statement of Financial
Accounting Standards No. 133 367,941 367,941
Unrealized loss on interest rate swap (1,551,984) (1,551,984)
Reclassification adjustment for amortization
of cumulative transition adjustment, included
in net income (118,268) (118,268)
Net income 3,008,701
------------- -------------
Total Comprehensive Income 1,706,390
-------------
BALANCES,
SEPTEMBER 30, 2001 $ (1,302,311) $ 43,828,657
============= ============
4
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
- --------------------------------------------------------------------------------
2001 2000
------------------ -----------------
OPERATING ACTIVITIES:
Net income $ 3,008,701 $ 4,844,484
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,724,710 4,266,481
Change in fair value of interest rate swap, net 135,718
Loss (Gain) on sale of equipment 113,058 (10,470)
Minority interest 1,458,160 1,843,578
Noncash compensation 7,750
Changes in operating assets and liabilities, net of the effects of
acquisition:
Accounts receivable 539,349 (75,771)
Inventories 30,984 (8,304)
Prepaid expenses and other assets (1,222,474) (386,143)
Accounts payable and accrued expenses 176,066 (934,605)
----------------- ----------------
Net cash provided by operating activities 9,964,272 9,547,000
----------------- ----------------
INVESTING ACTIVITIES:
Proceeds from sale of equipment 73,183 77,812
Equipment purchases and additions to gaming facilities (3,074,544) (1,390,463)
Acquisition costs related to the Gold Dust West (2,384) (535,600)
Deposit related to the Gold Dust West (500,000)
Acquisition of the Gold Dust West, net of cash acquired (26,000,000)
Other (6,498)
----------------- ----------------
Net cash used in investing activities (29,003,745) (2,354,749)
----------------- ----------------
FINANCING ACTIVITIES:
Proceeds from reducing and revolving credit facility 36,500,000
Payments on bonds (178,136) (175,000)
Payments on long term debt and note payable (8,020,910) (7,301,508)
Payments to amend reducing and revolving credit facility (571,247)
Distributions to minority interest owner (2,956,029) (1,111,284)
Other 59,910 102,850
----------------- ----------------
Net cash provided by (used in) financing activities 24,833,588 (8,484,942)
----------------- ----------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ 5,794,115 $ (1,292,691)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 8,518,464 10,239,735
---------------- ----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 14,312,579 $ 8,947,044
================ ================
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 3,682,296 $ 2,693,364
Cash paid for income taxes $ 1,312,000 $ 2,463,334
5
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001
1. BUSINESS
Black Hawk Gaming & Development Company, Inc. ("BHWK" or the "Company")
was incorporated on January 10, 1991. The Company is a holding company, which
owns, develops and operates gaming properties. Currently the Company operates
the Gilpin Hotel Casino ("GHC") and The Lodge Casino at Black Hawk ("The
Lodge"), both located in Black Hawk, Colorado, and The Gold Dust West Casino
("GDW") located in Reno, Nevada.
GHC is a 37,000 square foot facility located in the Black Hawk gaming
district and was the Company's first casino project. Originally built in the
1860's, the Gilpin Hotel was one of the oldest in Colorado; however, due to
space limitations, the casino offers no hotel or lodging facilities. The Gilpin
Hotel Casino commenced operations in October 1992, and was expanded through the
acquisition of an adjacent casino in late 1994. Prior to April 24, 1998, the
Company owned a 50% interest in the Gilpin Hotel Venture, which owned GHC. On
April 24, 1998, the Company acquired the other 50% interest in GHC and related
land. It now offers customers approximately 460 slot machines, 4 table games,
two restaurants, four bars and parking for approximately 200 cars.
The Lodge is a $74 million hotel/casino/parking complex and is one of
Colorado's largest casinos. The 250,000 square foot facility which opened on
June 24, 1998, presently offers customers 877 slot machines, 27 table games, 50
hotel rooms, three restaurants, four bars and parking for approximately 600
cars. The Company and its strategic partner, Jacobs Entertainment Ltd.,
developed and co-manage The Lodge, through an LLC, in which the Company owns a
75% interest and affiliates of Jacobs Entertainment Ltd. own 25%.
On January 4, 2001, the Company purchased the assets and operating
business of GDW for $26.5 million. The 24,000 square foot gaming and dining
facility is located on 4.6 acres, a few blocks west of Reno's downtown gaming
district. The casino has been catering to the "locals" market for the past 23
years and currently offers customers 500 slot machines, 106 motel rooms, one
restaurant, four bars and parking for 277 cars.
The Lodge, GHC, and GDW are sometimes referred to as the "Casinos."
2. SIGNIFICANT ACCOUNTING POLICIES
Unaudited Consolidated Financial Statements --- In the opinion of
management, the accompanying unaudited consolidated financial statements reflect
all adjustments, consisting of normal recurring accruals, which are necessary
for the fair presentation of the financial position of the Company at September
30, 2001 and the results of its operations for the three and nine months then
ended. The accompanying unaudited consolidated financial statements include the
accounts of BHWK, its wholly owned subsidiaries Gilpin Ventures, Inc. ("GVI")
and GDW, and its 75% owned subsidiary, Black Hawk/Jacobs Entertainment, LLC. All
significant inter-company transactions and balances have been eliminated in
consolidation.
The accompanying unaudited consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes thereto
contained in the Company's Form 10-K for the year ended December 31, 2000. The
results of interim periods are not necessarily indicative of results to be
expected for the year.
Reclassifications - Certain amounts have been reclassified within the
2000 financial statements to conform to the presentation used in 2001.
3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations." SFAS No. 141 improves the transparency of the accounting and
reporting for business combinations by requiring that all business combinations
be accounted for under a single method - the purchase method. This Statement is
effective for all business combinations initiated after June 30, 2001. The
adoption of the statement did not have a material impact on the Company's
financial position or results of operations.
In July 2001, FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets". This statement applies to intangibles and goodwill acquired after June
30, 2001, as well as goodwill and intangibles previously acquired. Under this
statement, goodwill as well as other intangibles determined to have an
indefinite life will no longer be amortized; however, these assets will be
reviewed for impairment on a periodic basis. This statement is effective for the
Company for the first quarter in the fiscal year ended December 31, 2002.
Management is currently evaluating the impact that this statement may have on
the Company's financial statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" (SFAS No. 144). SFAS No. 144
supercedes current accounting guidance relating to impairment of long-lived
assets and provides a single accounting methodology for long-lived assets to be
disposed of, and also supercedes existing guidance with respect to reporting the
effects of the disposal of a business. SFAS No. 144 is effective beginning
January 1, 2002, with earlier adoption encouraged. Management is currently
evaluating the impact that this statement may have on the Company's financial
statements upon adoption.
6
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001
(Continued)
3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (Continued)
In January 2001, FASB announced that the Emerging Issues Task Force
("EITF") had reached a final consensus on EITF 00-22 "Accounting for `Points'
and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers
for Free Products or Services to Be Delivered in the Future." EITF 00-22
requires that certain sales incentives provided by vendors that entitle a
customer to receive a reduction in the price of a product or service based on a
specified cumulative level of transactions be recognized as a reduction in
revenue. This issue is scoped broadly to include all industries that utilize
point or other loyalty programs, including the hospitality industry. Effective
January 1, 2001, the Company adopted this standard resulting in a
reclassification of player point and coupon cash redemption expenses from
marketing, general and administrative expense to promotional allowances in the
amount of $2,339,000 and $1,829,000 for the three months ended September 30,
2001 and 2000, respectively, and $6,579,000 and $5,780,000 for the nine months
ended September 30, 2001 and 2000, respectively.
4. ACCOUNTING CHANGE
Effective January 1, 2001, BHWK adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. All
derivatives, whether designated in hedging relationships or not, are required to
be recorded on the balance sheet at fair value. If the derivative is designated
as a fair-value hedge, the changes in the fair value of the derivative and of
the hedged item attributable to the hedged risk are recognized in earnings. If
the derivative is designated as a cash-flow hedge, changes in the fair value of
the derivative are recorded in other comprehensive income ("OCI") net of taxes,
and are recognized in the income statement when the hedged item affects
earnings. SFAS No. 133 defines requirements for designation and documentation of
hedging relationships as well as ongoing effectiveness assessments in order to
use hedge accounting.
The Company uses derivative instruments to manage its exposure to
interest rate risk. The Company's objective for holding derivatives is to
minimize the risks associated with fluctuating interest rates by using the most
effective methods available. Variable-rate debt is subject to interest rate
risk. The Company uses Interest Rate Swaps, as cash flow hedging instruments, to
manage its exposure to interest rate risk on its variable-rate debt.
The adoption of SFAS No. 133 on January 1, 2001, resulted in the
Company recording a $368,000 gain (net of $200,000 in taxes) in accumulated
other comprehensive income/(loss) as a transition adjustment for its derivative
instrument which had been designated as a cash flow hedge prior to adopting of
SFAS No. 133.
On February 16, 2001, the Company terminated this interest rate swap
agreement and simultaneously entered into a new interest rate swap agreement and
designated the new swap as a cash flow hedge as defined by SFAS No. 133. From
January 1, 2001 through February 16, 2001, the Company recorded a $318,000
charge to interest expense due to the devaluation of the original interest rate
swap. Although the transition adjustment was reflected in other comprehensive
loss, subsequent changes in the value of the original interest rate swap are
reflected in the income statement because the swap was not designated as a
hedging instrument as defined by SFAS No. 133. In, addition, the Company
reclassified $118,000 (net of $64,000 in taxes) of the transition gain from OCI
to interest expense representing the amortization of the transition gain due to
terminating the interest rate swap agreement during the nine months ended
September 30, 2001. The amortization of the transition adjustment will continue
through April 16, 2003 (the expiration date of the original interest rate swap
agreement). Derivative losses included in OCI for the nine months ended
September 30, 2001 amounted to $1,552,000 net of $873,000 in taxes reflecting
the decline in market value of the interest rate swap entered into on February
16, 2001 through September 30, 2001. No event is expected to result in a
reclassification of losses reported in OCI over the next twelve months due to
the interest rate swap's effectiveness in off setting the variable rate cash
flows of the debt.
5. BUYOUT OF COMMON STOCK
On April 27, 2001, BHWK announced the execution of a merger agreement.
Pursuant to the merger agreement, Gameco, Inc., an entity owned and controlled
by Jeffrey P. Jacobs, Chairman of the Board and Chief Executive Officer of BHWK,
has agreed to pay $12.00 per share, in cash, for each share of common stock of
BHWK not currently owned by Mr. Jacobs or his affiliates and BHWK will become a
wholly-owned subsidiary of Gameco. Consummation of the transaction is subject to
various conditions, including, among other things, the approval by BHWK's
stockholders and the obtaining of various regulatory approvals. On November 9,
2001, the Board of Directors granted to Gameco an extension until April 1, 2002
in which to arrange for financing and close the transaction. All other terms and
conditions of the merger agreement remain in place. If the transaction fails to
close by April 1, 2002 through no fault of BHWK, BHWK may terminate the merger
agreement and will be entitled to liquidated damages of $2 million.
6. SEGMENT DISCLOSURE
As of January 4, 2001, BHWK acquired the Gold Dust West Casino in Reno, Nevada.
This acquisition expanded BHWK's operations into another gaming jurisdiction
other than Black Hawk, Colorado. As defined by SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information", the following segment
information is presented after the elimination of inter-segment transactions.
Adjusted EBITDA (earnings before interest, taxes, depreciation, amortization,
minority interest in The Lodge, and privatization and other non-recurring costs)
has been included as a supplemental disclosure to facilitate a more complete
analysis of our casinos' financial performance. We believe this disclosure
enhances the understanding of the financial performance of a company, such as
ours, with substantial interest, taxes, depreciation and amortization.
7
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001
(continued)
6. SEGMENT DISCLOSURE (continued)
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
UNAUDITED SEGMENT INFORMATION
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
- --------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2001 2000 2001 2000
------------- ------------- ------------- -------------
NET REVENUE
Black Hawk, Colorado $ 21,149,701 $ 20,354,092 $ 59,817,275 $ 60,741,281
Reno, Nevada 4,876,670 13,800,453
------------- ------------- ------------- -------------
Total net revenue 26,026,371 20,354,092 73,617,728 60,741,281
============= ============= ============= =============
ADJUSTED EBITDA
Black Hawk, Colorado 5,744,482 5,750,154 15,759,987 17,783,889
Reno, Nevada 1,198,061 3,670,100
Net corporate overhead (499,346) (627,166) (1,664,528) (1,630,893)
------------- ------------- ------------- -------------
ADJUSTED EBITDA 6,443,197 5,122,988 17,765,559 16,152,996
============= ============= ============= =============
ADJUSTED EBITDA
Black Hawk, Colorado 27% 28% 26% 29%
Reno, Nevada 25% 0% 27% 0%
------------- ------------- ------------- -------------
ADJUSTED EBITDA 25% 25% 24% 27%
============== ============= ============= =============
Operating Income
Black Hawk, Colorado 4,304,383 4,287,567 11,470,980 13,517,408
Reno, Nevada 677,531 2,243,951
Net corporate overhead, privatization
and other non-recurring costs (653,742) (623,266) (2,940,038) (1,630,893)
-------------- ------------- ------------- -------------
Operating Income $ 4,328,172 $ 3,664,301 $ 10,774,893 $ 11,886,515
============= ============= ============= =============
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------- -------------
Assets:
Black Hawk, Colorado $ 92,803,186 $ 92,159,769
Reno, Nevada 29,906,654
Corporate 5,824,358 5,316,480
------------- -------------
Total Assets $ 128,534,198 $ 97,476,249
============= =============
7. ACQUISITION OF GOLD DUST WEST
Assuming the Gold Dust West acquisition had occurred on January 1,
2000, for the three and nine months ended September 30, 2000, net revenues
would have been $25,110,000 and $75,010,000 respectively, net income would
have been $1,711,000 and $5,470,000 respectively, and earnings per share
would have been $.41 and $1.32 per share respectively. The pro forma
financial information is not necessarily indicative of either the results
of operations that would have occurred had this agreement been effective on
January 1, 2000 or of future operations. See BHWK's 8-K filing dated March
19, 2001 for other information on pro-forma results.
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- ------- -----------------------------------------------------------------------
This Report contains certain forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934 and we intend that
such forward-looking statements be subject to the safe harbors created thereby.
These forward-looking statements include our plans and objectives for future
operations, including plans and objectives relating to our gaming operations and
future economic performance, and our plans with respect to the buyout described
in Note 5 above. The forward-looking statements are based on current
expectations that involve a number of risks and uncertainties that might
adversely affect our operating results in the future in a material way:
intensity of competition, particularly the opening of new casinos in our
immediate market area in 2000 and those planned to be opened in 2001 and 2002,
levels of gaming activity in general and in Black Hawk in particular, our
ability to meet debt obligations, regulatory compliance, taxation levels,
effects of national and regional economic and market conditions, labor and
marketing costs, success of our diversification plans, the proposed buyout and
the ultimate outcome of litigation matters.
The following discussion is qualified in its entirety by the unaudited
financial statements and should be read in conjunction with the consolidated
financial statements and notes thereto contained in the Company's Form 10-K for
the year ended December 31, 2000.
Results of Operations
- ---------------------
Introduction
- ------------
BHWK's results of operations for the three and nine months ended
September 30, 2001 and 2000 reflect the consolidated operations of our
subsidiaries (GHC, GDW and The Lodge for 2001 and GHC and The Lodge for 2000
respectively) and the net corporate overhead of BHWK.
BHWK owns 100% of GHC and GDW and 75% of The Lodge. The remaining 25%
ownership in The Lodge is held by affiliates of our chief executive officer, and
is reflected as "Minority Interest" in the consolidated financial statements.
The net corporate overhead incurred at BHWK is the result of directing the
overall operations of our Company including the specific efforts related to
being a publicly traded company.
We continually review the overall operational aspects of our Casinos
and attempt to modify our operations, when and if necessary, in an attempt to
remain competitive and to maintain our market share. Generally, our overall
market strategy is to focus on our existing customer base while we develop
marketing programs that increase new customer visits. Our vision is to be the
best "locals casino" in each market by offering the best customer service, slot
selection, player club benefits, and food and beverage service available in the
market.
Increased Competition in the Black Hawk Market
On February 4, 2000 a casino opened in Black Hawk with approximately
950 devices and a 550-car valet/self-parking garage. A second casino opened next
door to The Lodge on March 6, 2000 with approximately 750 devices and parking
for 500 cars. A third project recommenced construction with a projected opening
date sometime in the fourth quarter of 2001. A fourth project has begun various
predevelopment efforts and submittals to the City of Black Hawk and other
agencies. Based upon the level of development activity in the City of Black
Hawk, it is apparent that increased competition within this market continues to
be a certainty.
We believe the new casinos have expanded the City of Black Hawk's
gaming market; however, it is extremely difficult, if not impossible, to
accurately predict the extent of the future growth of this market. In any event,
we expect some of our previous and existing market share has been and will be
lost to increased competition. We believe that the competition within this
market will continue to increase and intensify. As a result, our marketing
costs, our personnel costs and other costs at our properties will more than
likely increase while we attempt to maintain our market share.
GHC's operations have been most noticeably impacted due to the
additional competition in Black Hawk, which also includes The Lodge. We are
currently investigating possible expansion opportunities for the Gilpin in order
to provide a more competitive single floor casino environment.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
The following is an analysis of the results of our unaudited
consolidated operations for the three and nine months ended September 30,
2001 and 2000. Adjusted EBITDA is included in the discussion of the
unaudited results of operations. Adjusted EBITDA should not be considered
to be an alternative to operating income or net income as defined by
accounting principles generally accepted in the United States of America.
It also should not be construed to be an indicator of our operating
performance, nor as an alternative to cash flows from operational
activities and hence, a measure of our liquidity. We have presented
Adjusted EBITDA as a supplemental disclosure element, which will facilitate
a more complete analysis of our casinos' financial performance. We believe
this disclosure enhances the understanding of the financial performance of
a company, such as ours, with substantial interest, taxes, depreciation and
amortization.
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
- --------------------------------------------------------------------------------
THREE MONTHS ENDED PERCENTAGE
SEPTEMBER 30, SEPTEMBER 30, INCREASE
2001 2000 DIFFERENCE (DECREASE)
------------ ------------ ----------- ------------
NET REVENUE
Lodge $ 15,619,556 $ 14,711,285 $ 908,271 6 %
GHC 5,530,145 5,642,807 (112,662) (2)%
GDW 4,876,670 4,876,670
------------ ------------ -----------
Total net revenue 26,026,371 20,354,092 5,672,279 28 %
COSTS AND EXPENSES
Lodge 11,245,880 10,414,264 831,616 8 %
GHC 4,159,339 4,189,674 (30,335) (1)%
GDW 3,678,609 3,678,609
Corporate 499,346 627,166 (127,820) (20)%
------------ ------------ -----------
Total costs and expenses 19,583,174 15,231,104 4,352,070 29 %
ADJUSTED EBITDA
Lodge 4,373,676 4,297,021 76,655 2 %
GHC 1,370,806 1,453,133 (82,327) (6)%
GDW 1,198,061 1,198,061
Net corporate overhead (499,346) (627,166) 127,820 (20)%
------------ ------------ -----------
ADJUSTED EBITDA 6,443,197 5,122,988 1,320,209 26 %
------------ ------------ -----------
Interest income (30,791) (68,326) 37,535 (55)%
Interest expense 1,266,098 795,187 470,911 59 %
Income taxes 974,241 844,823 129,418 15 %
Privatization and other non-recurring costs 150,967 150,967
Depreciation and amortization 1,964,058 1,458,687 505,371 35 %
Minority Interest in The Lodge 572,752 590,669 (17,917) (3)%
------------ ------------ -----------
Net income $ 1,545,872 $ 1,501,948 $ 43,924 3 %
============ ============ ===========
BASIC EARNINGS PER SHARE $ 0.38 $ 0.37 $ 0.01 3 %
============ ============ ===========
DILUTED EARNINGS PER SHARE $ 0.36 $ 0.36 $ .00 0 %
============ ============ ===========
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
- --------------------------------------------------------------------------------
NINE MONTHS ENDED PERCENTAGE
SEPTEMBER 30, SEPTEMBER 30, INCREASE
2001 2000 DIFFERENCE (DECREASE)
-------------- ------------- ---------- ------------
NET REVENUE
Lodge $ 44,254,531 $ 43,958,072 $ 296,459 1 %
GHC 15,562,744 16,783,209 (1,220,465) (7)%
GDW 13,800,453 13,800,453
------------ ------------ ------------
Total net revenue 73,617,728 60,741,281 12,876,447 21 %
COSTS AND EXPENSES
Lodge 32,072,636 30,645,451 1,427,185 5 %
GHC 11,984,652 12,311,941 (327,289) (3)%
GDW 10,130,353 10,130,353
Corporate 1,664,528 1,630,893 33,635 2 %
------------ ------------ ------------
Total costs and expenses 55,852,169 44,588,285 11,263,884 25 %
ADJUSTED EBITDA
Lodge 12,181,895 13,312,621 (1,130,726) (8)%
GHC 3,578,092 4,471,268 (893,176) (20)%
GDW 3,670,100 3,670,100
Net corporate overhead (1,664,528) (1,630,893) (33,635) 2 %
------------ ------------ ------------
ADJUSTED EBITDA 17,765,559 16,152,996 1,612,563 10 %
------------ ------------ ------------
Interest income (145,387) (228,863) 83,476 (36)%
Interest expense 4,088,064 2,702,293 1,385,771 51 %
Income taxes 2,365,355 2,725,023 (359,668) (13)%
Privatization and other non-recurring costs 1,265,956 1,265,956
Depreciation and amortization 5,724,710 4,266,481 1,458,229 34 %
Minority Interest in The Lodge 1,458,160 1,843,578 (385,418) (21)%
------------ ------------ ------------
Net income $ 3,008,701 $ 4,844,484 $ (1,835,783) (38)%
============ ============ ============
BASIC EARNINGS PER SHARE $ 0.73 $ 1.18 $ (0.45) (38)%
============ ============ ============
DILUTED EARNINGS PER SHARE $ 0.70 $ 1.17 $ (0.47) (40)%
============ ============ ============
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
UNAUDITED CONSOLIDATED RESULTS OF OPERATIONS - FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2001 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2000.
Net Revenues
We generated net revenues of $26,026,000 during the three months ended
September 30, 2001 compared to $20,354,000 for the same period of 2000. The
increase in net revenues of $5,672,000 or 28% is the result of net revenues
generated from GDW (acquired January 4, 2001) of $4,877,000 and an increase in
net revenues at The Lodge of $908,000. These increases were offset by a decrease
in net revenues at the Gilpin casino of $113,000. Generally we believe the
primary reason for the decrease in net revenues at the Gilpin facility for the
comparable three months periods ending September 30, 2001 and 2000 was due to
the continued intense level of competition created by the newer and larger
casinos in the City of Black Hawk including The Lodge.
Costs and Expenses
Our total costs and expenses were $19,583,000 for the three months
ended September 30, 2001 compared to $15,231,000 for the same period of 2000.
The overall increase of $4,352,000 or 29% was the result of costs and expenses
associated with GDW of $3,679,000 as well as increased costs and expenses at The
Lodge of $832,000. These expenses were partially offset by a reduction in costs
and expenses at GHC and Corporate of $31,000 and $128,000 respectively.
Adjusted EBITDA
When our total costs and expenses are subtracted from our net revenues,
the result is Adjusted EBITDA of $6,443,000 for the three months ended September
30, 2001 compared to $5,123,000 for the same period of 2000. The increase of
$1,320,000 or 26% is primarily the result of the factors discussed above. Our
Adjusted EBITDA ratio (Adjusted EBITDA divided by our net revenues) for each of
the three months ended September 30, 2001 and 2000 was 25%.
Interest Income
We had interest income totaling $31,000 during the three months ended
September 30, 2001 compared to $68,000 for the same period of 2000. The decrease
of $37,000 or 54% is due primarily to the reductions in interest rates and
invested cash balances.
Interest Expense
We had interest expense totaling $1,266,000 during the three months
ended September 30, 2001 compared to $795,000 for the same period of 2000. The
increase of $471,000 or 59% is primarily the result of interest on borrowings
associated with the acquisition of GDW of $458,000 and increases in interest
expense at The Lodge of $95,000. The increases were partially offset by
reductions in interest expense incurred at GHC of $82,000.
Privatization and other non-recurring costs
During the three months ended September 30, 2001, we incurred
privatization and other non-recurring costs of approximately $151,000. These
costs were associated with the buyout offer (See Item 1 Note 5 above) and
include fees paid to financial advisors hired to identify strategic alternatives
available to the Company as well as fees paid to legal counsel and financial
advisors hired by the Company and the Special Committee of the Board of
Directors in its analysis of the buyout offer.
Depreciation and Amortization
We had depreciation and amortization of $1,964,000 for the three months
ended September 30, 2001 compared to $1,459,000 for the same period of 2000. The
increase of $505,000 or 35% is primarily due to the depreciation and
amortization incurred by the GDW of $521,000 and an increase in depreciation and
amortization expense at The Lodge of $4,000 offset by a decrease in depreciation
and amortization expense at GHC of $20,000. Depreciation and amortization
primarily relates to buildings, equipment, and intangible assets.
Minority Interest
Minority interest for the three months ended September 30, 2001 totaled $573,000
compared to $590,000 for the same period of the prior year. Minority interest
represents the 25% share of The Lodge's income (before eliminating inter-company
transactions) that is owned by affiliates of our chief executive officer.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
UNAUDITED CONSOLIDATED RESULTS OF OPERATIONS - FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2001 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2000
(continued)
Income Taxes
Our effective income tax rate for the three months ended September 30,
2001 and 2000 resulted in income tax expense of $974,000 and $845,000. The
unique tax characteristics of the individual components of our income before
income taxes are what determine our overall effective tax rate. Due to the
significant costs incurred in association with the buyout offer (see
privatization and other non-recurring costs above) and the non-deductible nature
of a substantial portion of those costs, the Company's effective income tax rate
for the three months ended increased to 39% as compared to 36% for the
comparable quarter of the prior year. With the exception of costs associated
with the buyout offer and assuming continued profitability at our current levels
(and no change in the current tax law), we expect our effective income tax rate
to return to the 36% range next year.
Net Income
As a result of the factors discussed above, we reported net income of
$1,546,000 for the three months ended September 30, 2001 compared to $1,502,000
for the same period of 2000, an increase in net income of $44,000 or 3%.
Earnings Per Share
We reported basic earnings per share for the three months ended
September 30, 2001 and 2000 of $.38 and $.37, respectively and diluted earnings
per share for the same time periods of $.36 and $.36, respectively.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
THE LODGE UNAUDITED RESULTS OF OPERATIONS -- FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2001 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2000
Net Revenues
The Lodge generated net revenues of $15,619,000 during the three months
ended September 30, 2001 compared to $14,711,000 for the same period of 2000.
The increase in our net revenues at The Lodge of $908,000 or 6% is primarily due
to a an increase in casino revenue (net of cash redemptions) of $892,000 or 1%
and a net increase in other combined net revenue of $16,000. We believe the
primary reason for the increase in our net revenues for the three months period
ending September 30, 2001 and 2000 is due to an increase in our marketing
efforts as well as overall market growth in the City of Black Hawk.
Costs and Expenses
The Lodge's costs and expenses (after eliminating inter-company
transactions) totaled $11,246,000 during the three months ended September 30,
2001 compared to $10,414,000 for the same period of 2000. The overall increase
of $832,000 or 8% is due to increases in labor costs of $425,000, gaming taxes
of $202,000, marketing and media costs of $162,000, bus program costs of
$64,000, utilities of $11,000, and other net expenses of $9,000. These increases
were offset by a decrease in slot participation costs of $41,000.
Adjusted EBITDA
When The Lodge's costs and expenses are subtracted from net revenues,
the result is Adjusted EBITDA of $4,374,000 for the three months ended September
30, 2001 compared to $4,297,000 for the same period of 2000. The increase in
Adjusted EBITDA of $77,000 or 2% is primarily the result of market growth in the
City of Black Hawk offset by increased costs of competition.
Interest Expense
Interest expense at The Lodge was $702,000 for the three months ended
September 30, 2001 compared to $607,000 for the same period of 2000. The
increase of $95,000 or 16% is primarily due to increases in interest expense of
$144,000 on our increased average debt outstanding. This was partially offset by
a $49,000 credit to interest expense in connection with our interest rate swap
activity during the three months ended September 30, 2001 (see Item 1 Note 4
above).
Depreciation and Amortization
Depreciation and amortization of The Lodge totaled $996,000 for the
three months ended September 30, 2001 compared to $992,000 for the same period
of 2000. The increase of $4,000 is generally due to an increase in depreciable
assets.
Income before income taxes
As a result of the factors discussed above, The Lodge generated income
before income taxes (after eliminating inter-company transactions and before
minority interest) of $2,694,000 for the three months ended September 30, 2001
compared to $2,737,000 for the same period of 2000, a decrease of $43,000 or 2%.
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
THE GILPIN HOTEL CASINO UNAUDITED RESULTS OF OPERATIONS -- FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 2001 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2000
Net Revenues
GHC generated net revenues of $5,530,000 during the three months ended
September 30, 2001 compared to $5,643,000 for the same period of 2000. The
decrease in our net revenues at GHC of $113,000 or 2% is primarily due to a
decrease in casino revenue of $66,000 and a net decrease in other combined net
revenue of $47,000. The primary reason for the decrease in our overall casino
revenue at GHC is a result of the opening of larger and newer gaming facilities
in the City of Black Hawk, including The Lodge.
Costs and Expenses
GHC's costs and expenses totaled $4,159,000 during the three months
ended September 30, 2001 compared to $4,190,000 for the same period of 2000. The
overall decrease of $31,000 or 1% is due to decreases in gaming taxes of
$29,000, bus program costs of $24,000, slot participation costs of $46,000 and
other net costs and expenses of $28,000. These reductions were offset by an
increase in marketing related costs of $54,000 and labor costs of $42,000.
Adjusted EBITDA
When GHC's costs and expenses are subtracted from net revenues, the
result is Adjusted EBITDA of $1,371,000 for the three months ended September 30,
2001 compared to $1,453,000 for the same period of 2000. The decrease in
Adjusted EBITDA of $82,000 or 6% is the result of increased competition and the
opening of larger and newer gaming facilities in the City of Black Hawk,
including The Lodge.
Interest Expense
Interest expense at GHC was $106,000 for the three months ended
September 30, 2001 compared to $188,000 for the same period of 2000. The
decrease of $82,000 or 44% is primarily due to paying down our debt levels at
various times since September 30, 2000 as well as a $12,000 credit to interest
expense in connection with our interest rate swap activity during the three
months ended September 30, 2001 (see Item 1 Note 4 above).
Depreciation and Amortization
The depreciation and amortization of GHC totaled $444,000 for the three
months ended September 30, 2001 compared to $464,000 for the same period of
2000. The decrease of $20,000 or 4% is generally due to assets reaching full
amortization offset by an increase in other depreciated assets.
Income before income taxes
As a result of the factors discussed above, GHC generated income before
income taxes of $827,000 for the three months ended September 30, 2001 compared
to $825,000 for the same period of 2000, a decrease of $2,000.
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
GOLD DUST WEST UNAUDITED RESULTS OF OPERATIONS -- FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2001 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2000
On January 4, 2001, BHWK purchased the assets and operating business of
the Gold Dust West Casino with operations beginning January 5, 2001. Therefore,
there are no comparisons to the prior periods presented. See BHWK's 8-K filing
dated March 19, 2001 for pro-forma results.
Net Revenues
GDW generated net revenues of $4,877,000 during the three months ended
September 30, 2001. The revenues by operating department included casino revenue
of $4,366,000 or 90%, food and beverage revenue of $375,000 (net of $345,000 in
promotional allowances) or 8%, hotel revenue of $119,000 (net of $13,000 in
promotional allowances) or 2% and other revenues of $17,000.
Costs and Expenses
GDW's costs and expenses totaled $3,679,000 during the three months
ended September 30, 2001. The costs and expenses by operating departments
included casino operations of $1,319,000 or 36%, food and beverage operations of
$625,000 or 17%, hotel operations of $64,000 or 2%, marketing, general, and
administrative of $1,671,000 or 45%.
Adjusted EBITDA
When GDW's costs and expenses are subtracted from net revenues, the
result is Adjusted EBITDA of $1,198,000 for the three months ended September 30,
2001.
Interest Expense
Interest expense at GDW was $458,000 for the three months ended
September 30, 2001 resulting from borrowings associated with its acquisition by
BHWK.
Depreciation and Amortization
Depreciation and amortization at GDW totaled $520,000 for the three
months ended September 30, 2001. Depreciation and amortization primarily relates
to buildings, equipment, and intangible assets.
Income before income taxes
As a result of the factors discussed above, GDW generated income before
income taxes of $223,000 for the three months ended September 30, 2001
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
CORPORATE UNAUDITED RESULTS OF OPERATIONS -- FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2001 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2000
Generally, our corporate operations are not a profit center, but rather
a managerial division that directs the overall operations of the Company,
including the specific efforts related to being a publicly traded company.
Net Revenue
No net revenue is generated at our corporate level after elimination of
inter-company transactions.
Costs and Expenses
Our costs and expenses totaled $499,000 for the three months ended
September 30, 2001 compared to $627,000 for the same period of 2000. The
decrease of $128,000 or 20% is due to a prior year $101,000 non-recurring write
off of costs incurred in the pursuit of potential new gaming projects and
opportunities as well as a current year decrease in consulting costs of $34,000,
and shareholder relations costs of $30,000. These decreases in costs were
partially offset by increases in legal costs of $20,000, travel and
entertainment costs of $11,000 and other net costs of $6,000.
Net Corporate Overhead
As no revenues are generated at the corporate level, our net corporate
overhead is equal to our total corporate costs and expenses. The decrease in our
net corporate overhead of $128,000 or 20% serves to increase our consolidated
Adjusted EBITDA.
Depreciation and Amortization
Depreciation and amortization at the corporate level was $3,000 for
both the three months ended September 30, 2001 and 2000.
Privatization and other non-recurring costs
See the discussion under unaudited consolidated results of operations -
for the three months ended September 30, 2001 compared to the three months ended
September 30, 2000 above.
17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
UNAUDITED CONSOLIDATED RESULTS OF OPERATIONS - FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2001 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2000.
Net Revenues
We generated net revenues of $73,618,000 during the nine months ended
September 30, 2001 compared to $60,741,000 for the same period of 2000. The
increase in net revenues of $12,877,000 or 21% is the result of net revenues
generated from GDW (acquired January 4, 2001) of $13,800,000 and an increase in
net revenues generated at The Lodge of $297,000, offset by decreases in net
revenues at GHC of $1,220,000.
Generally, we believe the primary reason for the decrease in net
revenues at GHC for the nine months ended September 30, 2001 over the same
period of 2000 is the result of the opening of larger and newer gaming
facilities in the City of Black Hawk, including The Lodge. The increase in net
revenues at The Lodge, despite the intense competition within the City is
generally attributable to the overall growth in the market.
Costs and Expenses
Our total costs and expenses were $55,852,000 for the nine months ended
September 30, 2001 compared to $44,588,000 for the same period of 2000. The
overall increase of $11,264,000 or 25% was the result of costs and expenses
associated with GDW of $10,130,000 as well as increases in costs and expenses at
The Lodge, and BHWK of $1,427,000 and $34,000 respectively. These expenses were
partially offset by a reduction in costs and expenses at GHC of $327,000.
Adjusted EBITDA
When our total costs and expenses are subtracted from our net revenues,
the result is Adjusted EBITDA of $17,766,000 for the nine months ended September
30, 2001 compared to $16,153,000 for the same period of 2000. The increase of
$1,613,000 or 10% is primarily the result of the factors discussed above. Our
Adjusted EBITDA ratio (Adjusted EBITDA divided by our net revenues) is 24% for
the nine months ended September 30, 2001 compared to 27% for the same period of
2000.
Interest Income
We had interest income totaling $145,000 during the nine months ended
September 30, 2001 compared to $229,000 for the same period of 2000. The
decrease of $84,000 or 36% is due primarily to the reductions in interest rates
and invested cash balances.
Interest Expense
We had interest expense totaling $4,088,000 during the nine months
ended September 30, 2001 compared to $2,702,000 for the same period of 2000. The
increase of $1,386,000 or 51% is primarily the result of interest on borrowings
associated with the acquisition of GDW of $1,378,000 and increases in interest
expense at The Lodge of $272,000. The increases were partially offset by
reductions in interest expense incurred at GHC of $264,000.
Privatization and other non-recurring costs
During the current nine months ended September 30, 2001, we incurred
privatization and other non-recurring costs of approximately $1,266,000. The
costs associated with the buyout offer (See Item 1 Note 5 above) through
September 30, 2001 were $1,131,000. These costs include fees paid to financial
advisors hired to identify strategic alternatives and consult with the Company
regarding those alternatives as well as fees paid to legal counsel and the
Special Committee of the Board of Directors in its analysis of the buyout offer.
In addition, included in these costs is a total of $135,000 in fines ($75,000 on
behalf of GHC and $60,000 on behalf of The Lodge) assessed by the Colorado
Division of Gaming pursuant to the issuance of a stipulation and agreement for
each property alleging certain violations of Internal Control Minimum
Procedures.
Depreciation and Amortization
We had depreciation and amortization of $5,725,000 for the nine months
ended September 30, 2001 compared to $4,266,000 for the same period of 2000. The
increase of $1,459,000 or 34% is primarily due to the depreciation and
amortization incurred by the GDW of $1,426,000 and an increase in depreciation
and amortization expense at The Lodge and Corporate of $42,000, $3,000
respectively. These increases were offset by a decrease in total depreciation
and amortization at GHC of $12,000. Depreciation and amortization primarily
relates to buildings, equipment, and intangible assets.
Minority Interest
Minority interest for the nine months ended September 30, 2001 totaled
$1,458,000 compared to $1,844,000 for the same period of the prior year.
Minority interest represents the 25% share of The Lodge's income (before
eliminating inter-company transactions), which is owned by affiliates of our
chief executive officer.
18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
UNAUDITED CONSOLIDATED RESULTS OF OPERATIONS - FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2001 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(continued)
Income Taxes
Our effective income tax rate for the nine months ended September 30,
2001 and 2000 resulted in income tax expense of $2,365,000 and $2,725,000. The
unique tax characteristics of the individual components of our income before
income taxes are what determine our overall effective tax rate. Due to the
significant costs incurred in association with the buyout offer (see
privatization and other non-recurring costs above) and the non-deductible nature
of a substantial portion of those costs, the Company's effective income tax rate
for the nine months ended increased to 44% as compared to 36% for the comparable
period of the prior year. With the exception of costs associated with the buyout
offer and assuming continued profitability at our current levels (and no change
in current tax law), we expect that our effective income tax rate to return to
the 36% range next year.
Net Income
As a result of the factors discussed above, we reported net income of
$3,009,000 for the nine months ended September 30, 2001 compared to $4,844,000
for the same period of 2000, a decrease in net income of $1,836,000 or 38%.
Earnings Per Share
We reported basic earnings per share for the nine months ended
September 30, 2001 and 2000 of $.73 and $1.18, respectively and diluted earnings
per share for the same time periods of $.70 and $1.17, respectively. The
decrease in basic and diluted earnings per share of $.45 or 38% and $.47 or 40%
respectively, are the result of significant privatization costs as well as
reduced profitability.
19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
THE LODGE UNAUDITED RESULTS OF OPERATIONS -- FOR THE NINE MONTHS ENDED SEPTEMBER
30, 2001 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2000
Net Revenues
The Lodge generated net revenues of $44,255,000 during the nine months
ended September 30, 2001 compared to $43,958,000 for the same period of 2000.
The increase in our net revenues at The Lodge of $297,000 or 1% is primarily due
to an increase in casino revenue (net of cash redemptions) of $120,000, one time
sales tax and workers compensation refunds of $247,000 and $57,000 respectively,
and a net increase in other combined net revenue of $6,000. These increases were
offset by a decrease in net hotel revenue of $133,000. As discussed above, we
believe the slight increase in casino revenue is primarily due to market growth
in the City of Black Hawk.
Costs and Expenses
The Lodge's costs and expenses (after eliminating inter-company
transactions) totaled $32,073,000 during the nine months ended September 30,
2001 compared to $30,645,000 for the same period of 2000. The overall increase
of $1,427,000 or 5% is due to increases in labor costs of $814,000, marketing
and media costs of $458,000, gaming taxes of $59,000, bus program costs of
$34,000, utilities of $51,000, and other net costs and expenses of $72,000.
These increases were offset by a reduction in slot participation expenses of
$61,000.
Adjusted EBITDA
When The Lodge's costs and expenses are subtracted from net revenues,
the result is Adjusted EBITDA of $12,182,000 for the nine months ended September
30, 2001 compared to $13,313,000 for the same period of 2000. The decrease in
Adjusted EBITDA of $1,131,000 or 8% is primarily the result of a more
competitive market and increased marketing efforts within the City of Black
Hawk.
Interest Expense
Interest expense at The Lodge was $2,333,000 for the nine months ended
September 30, 2001 compared to $2,061,000 for the same period of 2000. The
increase of $272,000 or 13% is primarily due to a net $110,000 charge to
interest expense in connection with our interest rate swap activity during the
nine months ended September 30, 2001 (see Item 1 Note 4 above). An additional
$162,000 in interest expense was incurred due to increase in average debt levels
held during the current year as compared to the prior year.
Depreciation and Amortization
Depreciation and amortization of The Lodge totaled $2,949,000 for the
nine months ended September 30, 2001 compared to $2,907,000 for the same period
of 2000. The increase of $42,000 or 1% is generally due to an increase in
depreciable assets.
Income before income taxes
As a result of the factors discussed above, The Lodge generated income
before income tax (after eliminating inter-company transactions and before
minority interest) of $6,977,000 for the nine months ended September 30, 2001
compared to $8,498,000 for the same period of 2000, a decrease of $1,521,000 or
18%.
20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
THE GILPIN HOTEL CASINO UNAUDITED RESULTS OF OPERATIONS -- FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 2001 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2000
Net Revenues
GHC generated net revenues of $15,563,000 during the nine months ended
September 30, 2001 compared to $16,783,000 for the same period of 2000. The
decrease in our net revenues at GHC of $1,220,000 or 7% is primarily due to a
decrease in casino revenue (net of cash redemption) of $1,440,000 and a net
decrease in other combined net revenue of $88,000. Sales tax and workers
compensation refunds of $287,000 and $21,000 respectively partially offset the
reductions in revenue. The primary reason for the decrease in our casino revenue
at GHC is a result of the opening of larger and newer gaming facilities in the
City of Black Hawk, including The Lodge.
Costs and Expenses
GHC's costs and expenses totaled $11,985,000 during the nine months
ended September 30, 2001 compared to $12,312,000 for the same period of 2000.
The overall decrease of $327,000 or 3% is due to decreases in gaming taxes of
$339,000, bus program costs of $122,000, slot participation expenses of $52,000,
and other net costs and expenses of $62,000. These reductions were offset by
increases in marketing costs of $225,000 and utilities of $23,000.
Adjusted EBITDA
When GHC's costs and expenses are subtracted from net revenues, the
result is Adjusted EBITDA of $3,578,000 for the nine months ended September 30,
2001 compared to $4,471,000 for the same period of 2000. The decrease in
Adjusted EBITDA of $893,000 or 20% is primarily the result of increased
competition and the opening of larger and newer gaming facilities in the City of
Black Hawk, including The Lodge.
Interest Expense
Interest expense at GHC was $377,000 for the nine months ended
September 30, 2001 compared to $641,000 for the same period of 2000. The
decrease of $264,000 or 41% is primarily due to paying down our debt levels at
various times since September 30, 2000 offset by a net $26,000 charge to
interest expense in connection with interest rate swap activity during the nine
months ended September 30, 2001 (see Item 1 Note 4 above).
Depreciation and Amortization
The depreciation and amortization of GHC totaled $1,340,000 for the
nine months ended September 30, 2001 compared to $1,352,000 for the same period
of 2000. The decrease of $12,000 or 1% is generally due to assets reaching full
amortization offset by an increase in other depreciated assets.
Income before income taxes
As a result of the factors discussed above, GHC generated income before
income taxes of $1,891,000 for the nine months ended September 30, 2001 compared
to $2,538,000 for the same period of 2000, a decrease of $647,000 or 25%.
21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
GOLD DUST WEST UNAUDITED RESULTS OF OPERATIONS -- FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2001 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2000
On January 4, 2001, BHWK purchased the assets and operating business of
the Gold Dust West Casino with operations beginning January 5, 2001. Therefore,
there are no comparisons to the prior periods presented. See BHWK's 8-K filing
dated March 19, 2001 for pro-forma results.
Net Revenues
GDW generated net revenues of $13,800,000 during the nine months ended
September 30, 2001. The revenues by operating department included casino revenue
of $12,477,000 or 90%, food and beverage revenue of $956,000 (net of $959,000 in
promotional allowances) or 7%, hotel revenue of $319,000 (net of $35,000 in
promotional allowances) or 2% and other revenues of $48,000.
Costs and Expenses
GDW's costs and expenses totaled $10,130,000 during the nine months
ended September 30, 2001. The costs and expenses by operating departments
included casino operations of $3,749,000 or 37%, food and beverage operations of
$1,706,000 or 17%, hotel operations of $179,000 or 2%, marketing, general, and
administrative of $4,496,000 or 44%.
Adjusted EBITDA
When GDW's costs and expenses are subtracted from net revenues, the
result is Adjusted EBITDA of $3,670,000 for the nine months ended September 30,
2001.
Interest Expense
Interest expense at GDW was $1,378,000 for the nine months ended
September 30, 2001 resulting from borrowings associated with its acquisition by
BHWK.
Depreciation and Amortization
Depreciation and amortization at GDW totaled $1,426,000 for the nine
months ended September 30, 2001. Depreciation and amortization primarily relates
to buildings, equipment, and intangible assets.
Income before income taxes
As a result of the factors discussed above, GDW generated income before
income taxes of $884,000 for the nine months ended September 30, 2001
22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
CORPORATE UNAUDITED RESULTS OF OPERATIONS -- FOR THE NINE MONTHS ENDED SEPTEMBER
30, 2001 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2000
Generally, our corporate operations are not a profit center, but rather
a managerial entity, which directs the overall operations of the Company,
including the specific efforts related to being a publicly traded company.
Net Revenue
No net revenue is generated at our corporate level after elimination of
inter-company transactions.
Costs and Expenses
Our costs and expenses totaled $1,665,000 for the nine months ended
September 30, 2001 compared to $1,631,000 for the same period of 2000. The
increase of $34,000 or 2% is due to increases in compensation related costs of
$57,000, travel and entertainment of $48,000, director's fees of $24,000, and
other net costs and expenses of $6,000. These increases were offset by a prior
year $101,000 non-recurring write off of costs incurred in the pursuit of
potential new gaming projects and opportunities.
Net Corporate Overhead
As no revenues are generated at the corporate level, net corporate
overhead is equal to costs and expenses. The increase in our net corporate
overhead of $34,000 or 2% decreases our consolidated Adjusted EBITDA.
Depreciation and Amortization
Depreciation and amortization at the corporate level was $10,000 and
$7,000 for the nine months ended September 30, 2001 and 2000 respectively.
Privatization and other non-recurring costs
See the discussion under unaudited consolidated results of operations -
for the nine months ended September 30, 2001 compared to the nine months ended
September 30, 2000 above.
23
Liquidity and Capital Resources
- -------------------------------
The net cash provided by operating activities was $9,964,000 during the
nine months ended September 30, 2001 compared to net cash provided by operating
activities of $9,547,000 for the same period of 2000.
Net cash used in investing activities for the nine months ended
September 30, 2001 was $29,004,000. The uses of funds included payments for
equipment purchases and additions to our casinos of $3,075,000 and payments to
acquire the Gold Dust West of $26,002,000. These uses of funds were partially
offset by the proceeds from the sale of equipment of $73,000. Net cash used in
investing activities for the nine months ended September 30, 2000 was
$2,355,000. The primary uses of funds included payments for equipment purchases
and additions to our casinos totaling $1,390,000 and payments related to the
acquisition of the Gold Dust West of $1,036,000 (including a $500,000 earnest
money deposit), and other investing activity payments of $7,000. These uses of
funds were partially offset by the proceeds from the sale of equipment totaling
$78,000.
The net cash provided by financing activities during the nine months
ended September 30, 2001 totaled $24,834,000. These sources of funds included
proceeds from the reducing and revolving line of credit of $36,500,000 and other
financing activities of $60,000. These sources were reduced by payments on bonds
of $178,000, payments on long-term debt of $8,021,000, payments to amend the
reducing and revolving credit facility of $571,000, and distributions to the 25%
minority interest owners of The Lodge of $2,956,000 representing the portion of
earnings of The Lodge which are applicable to the minority interest owners. The
net cash used in financing activities during the nine months ended September 30,
2000 totaled $8,485,000. These uses of funds included payments on bonds totaling
$175,000, payments on long-term debt of $7,302,000 and distributions to the 25%
minority interest owner of The Lodge of $1,111,000 representing the portion of
earnings of The Lodge which are applicable to the minority interest owners.
These uses of funds were partially offset by other financing activities of
$103,000.
As of September 30, 2001 the Company had working capital of
approximately $6,522,000 compared to a negative working capital of approximately
$99,000 at December 31, 2000.
We believe our current working capital position, earnings from our
existing operations and the remaining availability from our reducing and
revolving credit facility are sufficient to meet our short-term cash
requirements, which are generally operating expenses and interest payments on
indebtedness. However, any significant development of other projects by us may
require additional financing, other joint venture partners, or both.
Buyout of common stock
On April 27, 2001, BHWK executed a merger agreement with Gameco, Inc.
(see Item 1 Note 5 above). In connection with the merger agreement, BHWK has
incurred approximately $1,000,000 in privatization costs consisting principally
of investment banking, legal, accounting and other fees. Total privatization
costs are expected to be approximately $2,000,000. Pursuant to accounting
principles generally accepted in the United States of America ("GAAP") these
costs as well as future privatization costs will be expensed as incurred.
Furthermore, a majority of these costs are not deductible for income tax
purposes. On November 9, 2001, the Board of Directors granted to Gameco an
extension until April 1, 2002 in which to arrange for financing and closing of
the transaction.
Gold Dust West Acquisition
On January 7, 2000 we entered into an agreement to purchase the assets
and operating business of a gaming casino and motel located in Reno, Nevada
known as the Gold Dust West. On December 22, 2000 we obtained the appropriate
Nevada gaming approvals and licensing, and closed on the purchase transaction
January 4, 2001 for $27,198,000 including $698,000 in transaction costs.
Approximately $26,000,000 of the acquisition cost was funded from the amended
reducing and revolving credit facility described below.
Reducing and Revolving Credit Facility
On December 21, 2000, we entered into the first amendment to our
existing reducing and revolving credit facility with an effective date of
January 4, 2001 (the acquisition date of the assets and operating business of
the Gold Dust West Casino). The first amendment to our credit agreement
increased the aggregate reducing and revolving credit facility to $75,000,000
from $65,000,000. Some of the more important terms of the amended credit
agreement are: (i) the facility is a four year reducing commitment in the
aggregate amount of $75,000,000; (ii) the available balance of the facility may
be used for working capital and/or to finance other possible growth
opportunities; (iii) the facility bears interest which is based on either the
prime rate as published by Wells Fargo or the London Interbank Offering Rate
("LIBOR") each of which is added to an applicable margin based on our financial
ratios. The reduction schedule of the credit facility was amended as follows;
two quarterly reductions in availability will commence January 1, 2002 at
$1,875,000 each, the next four quarterly reductions in availability are
$2,812,500 each, with the following four quarterly reductions in availability of
$3,750,000 each until April 16, 2004 when the balance of the facility is due.
The credit agreement contains a number of affirmative and negative covenants
which, among other things, require us to maintain certain financial ratios and
refrain from certain actions without the syndicate group's concurrence; and (vi)
substantially all of our assets, and those of the Gilpin Hotel Venture, GVI, The
Lodge Casino, and Gold Dust West Casino are pledged as security for repayment of
the credit facility. The credit agreement also contains customary events of
default provisions.
24
Liquidity and Capital Resources (continued)
- -------------------------------------------
We are a party to an Interest Rate Swap Agreement. This derivative
financial instrument is used in the normal course of business to manage exposure
to fluctuations in interest rates and involves market risk, as the instrument is
subject to interest rate fluctuations and potential credit risk. This derivative
transaction is used to partially hedge interest rate risk in our variable rate
debt. Prior to February 16, 2001, the interest Rate Swap Agreement provided
that, on a quarterly basis, the Company pay a fixed rate of 5.18% on the
notional amount of $35,000,000 and receives a payment based on LIBOR applied to
the notional amount. Gains or losses on the interest rate exchange are included
in interest expense as realized or incurred.
On February 16, 2001, we terminated the interest rate swap agreement
and concurrently entered into a new interest rate swap agreement, with the same
counterparty, with an initial notional amount of $50,000,000 including scheduled
reductions of $10,000,000 each at December 31, 2002 and December 31, 2003 until
final maturity on April 16, 2004. The new interest rate swap agreement provides
that, on a quarterly basis, we pay a fixed rate of 5.46% on the notional amount
of $50,000,000 and receive a payment based on LIBOR applied to the notional
amount. The fair value of the $35,000,000 interest rate swap upon termination of
approximately $250,000 was used to pay down the fixed interest rate on the new
$50,000,000 interest rate swap. The new interest rate swap agreement has been
designated and documented as a cash-flow hedge, and therefore, the change in the
fair value of the hedge is recorded in accumulated other comprehensive income
(loss) net of taxes to the extent effectiveness (as defined by SFAS No. 133) has
been determined. All income or expense associated with the interest rate swap
affecting earnings is recognized in the income statement.
25
Item 3. Quantitative and Qualitative Disclosure about Market Risk.
- ------- ----------------------------------------------------------
Our primary exposure to market risks relates to our reducing and
revolving credit facility, which is variable rate debt. We are exposed to
interest rate risk on this debt, which totaled $59 million and $32 million at
September 30, 2001 and 2000 respectively. If market interest rates increase, our
cash requirements for interest would also increase. Conversely, if market
interest rates decrease, our cash requirements for interest would also decrease.
In an effort to minimize our exposure to interest rate risk on our
credit facility, at September 30, 2001 and 2000 we had partially hedged our
exposure to interest rate risk by participating in interest rate swaps. Under
the terms of the swap agreements, we receive a variable rate interest payment
and pay a fixed rate interest payment on a notional amount of $50 million and
$35 million at September 30, 2001 and 2000 respectively. This has reduced our
exposure to interest rate risk to $9 million not hedged with the interest rate
swap at September 30, 2001.
The annual increase or decrease in cash requirements for interest,
after considering the impact of the interest rate swap agreement, should market
rates increase or decrease by 10% compared to the interest rate levels at
September 30, 2001 would be approximately $51,000.
26
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
- -------
Not Applicable
Item 2. Changes in Securities
- -------
None
Item 3. Defaults Upon Senior Securities
- -------
None
Item 4. Submission of Matters to a Vote of Security Holders
- -------
None
Item 5. Other Information
- -------
None
Item 6. Exhibits and Reports on Form 8-K
- -------
( a ) Exhibits:
None
( b ) Reports on Form 8-K
Date Item No's. Reported
None -------------------
27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Black Hawk Gaming & Development Company, Inc.
Registrant
Date: November 13, 2001 By: /s/ Jeffrey P. Jacobs
---------------------
Jeffrey P. Jacobs, Chairman of the Board
of Directors and Chief Executive Officer
/s/ Stephen R. Roark
--------------------
Stephen R. Roark, President and Chief
Financial Officer
28