1
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, 2000
------------------
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 -1158484
-------------------------------- -----------------
(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 4,126,757 shares
- ------------ ----------------
Class Outstanding as of November 8, 2000
2
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
INDEX TO FORM 10-Q
SEPTEMBER 30, 2000
PART I. FINANCIAL INFORMATION PAGE NO.
--------
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets as of September 30, 2000
and December 31, 1999 1
Unaudited Consolidated Statements of Income for the three
and nine months ended September 30, 2000 and 1999 2
Unaudited Consolidated Statements of Cash Flows for the nine
months ended September 30, 2000 and 1999 3
Notes to Unaudited Consolidated Financial Statements 4-5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6-20
Item 3. Quantitative and Qualitative Disclosure
about Market Risk 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of
Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
3
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
- -------------------------------------------------------------------------------
September 30, December 31,
2000 (Unaudited) 1999
--------------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 8,947,044 $ 10,239,735
Accounts receivable 265,815 190,044
Inventories 565,486 557,182
Prepaid expenses 864,373 699,899
Deferred income tax 417,323 417,323
------------- -------------
Total current assets 11,060,041 12,104,183
LAND 15,239,426 15,235,092
------------- -------------
GAMING FACILITIES:
Building and improvements 58,283,230 58,098,219
Equipment 18,033,086 17,342,370
Accumulated depreciation (13,252,363) (10,310,295)
------------- -------------
Total gaming facilities 63,063,953 65,130,294
OTHER ASSETS:
Goodwill, net of accumulated amortization of $1,257,214
and $931,729, respectively 5,486,862 5,812,347
Other assets 3,432,507 2,724,609
Deferred income tax 73,417 73,417
------------- -------------
TOTAL $ 98,356,206 $ 101,079,942
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 9,620,399 $ 10,547,256
Current portion of long-term debt 853,092 737,740
------------- -------------
Total current liabilities 10,473,491 11,284,996
LONG-TERM DEBT AND OTHER LIABILITIES:
Reducing and revolving credit facility 32,000,000 39,000,000
Bonds payable 5,470,000 5,645,000
Other notes payable 416,860
------------- -------------
Total long-term debt 37,470,000 45,061,860
Deferred tax liability 119,248 119,248
------------- -------------
Total liabilities 48,062,739 56,466,104
------------- -------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 8,847,582 8,115,287
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;
4,126,757 and 4,110,209 shares issued and outstanding, respectively 4,127 4,110
Additional paid-in capital 18,569,538 18,466,705
Retained earnings 22,872,220 18,027,736
------------- -------------
Total stockholders' equity 41,445,885 36,498,551
------------- -------------
TOTAL $ 98,356,206 $ 101,079,942
============= =============
1
4
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
- --------------------------------------------------------------------------------
THREE MONTHS ENDED PERCENTAGE
SEPTEMBER 30, DOLLAR INCREASE
2000 1999 DIFFERENCE (DECREASE)
------------ ------------ ------------ ------------
REVENUES:
Casino revenue $ 20,984,093 $ 22,037,488 $ (1,053,395) (5)%
Food and beverage revenue 2,363,538 2,368,881 (5,343) (0)%
Hotel revenue 290,991 306,398 (15,407) (5)%
Interest and other 263,898 221,005 42,893 19%
------------ ------------ ------------ ------------
Total revenues 23,902,520 24,933,772 (1,031,252) (4)%
------------ ------------ ------------ ------------
Promotional allowances 1,646,038 1,591,609 54,429 3%
------------ ------------ ------------ ------------
Net revenues 22,256,482 23,342,163 (1,085,681) (5)%
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Casino operations 6,606,350 6,328,646 277,704 4%
Food and beverage operations 2,123,444 2,275,800 (152,356) (7)%
Hotel operations 191,883 153,773 38,110 25%
Marketing, general and administrative 8,362,140 8,430,028 (67,888) (1)%
Interest 769,891 1,076,471 (306,580) (28)%
Depreciation and amortization 1,265,334 1,253,323 12,011 1%
------------ ------------ ------------ ------------
Total costs and expenses 19,319,042 19,518,041 (198,999) (1)%
------------ ------------ ------------ ------------
MINORITY INTEREST 590,669 684,176 (93,507) (14)%
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 2,346,771 3,139,946 (793,175) (25)%
INCOME TAXES 844,823 1,090,000 (245,177) (22)%
------------ ------------ ------------ ------------
NET INCOME $ 1,501,948 $ 2,049,946 $ (547,998) (27)%
============ ============ ============ ============
BASIC EARNINGS PER SHARE $ 0.37 $ 0.50 $ (0.13) (26)%
Dilutive effect of outstanding options (0.01) (0.01) 0%
------------ ------------ ------------ ------------
DILUTED EARNINGS PER SHARE $ 0.36 $ 0.49 $ (0.13) (27)%
============ ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:
BASIC 4,126,257 4,110,557
Dilutive effect of outstanding options 72,043 54,331
------------ ------------
DILUTED 4,198,300 4,164,888
------------ ------------
NINE MONTHS ENDED PERCENTAGE
SEPTEMBER 30, DOLLAR INCREASE
2000 1999 DIFFERENCE (DECREASE)
------------ ------------ ------------ ------------
REVENUES:
Casino revenue $ 63,180,345 $ 60,906,507 $ 2,273,838 4%
Food and beverage revenue 7,023,088 6,574,715 448,373 7%
Hotel revenue 826,057 845,911 (19,854) (2)%
Interest and other 719,335 625,229 94,106 15%
------------ ------------ ------------ ------------
Total revenues 71,748,825 68,952,362 2,796,463 4%
------------ ------------ ------------ ------------
Promotional allowances 4,998,263 4,503,176 495,087 11%
------------ ------------ ------------ ------------
Net revenues 66,750,562 64,449,186 2,301,376 4%
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Casino operations 19,458,361 18,693,175 765,186 4%
Food and beverage operations 6,215,362 6,464,989 (249,627) (4)%
Hotel operations 539,580 430,829 108,751 25%
Marketing, general and administrative 24,824,159 24,584,902 239,257 1%
Interest 2,610,207 3,253,098 (642,891) (20)%
Depreciation and amortization 3,689,808 3,681,993 7,815 0%
------------ ------------ ------------ ------------
Total costs and expenses 57,337,477 57,108,986 228,491 0%
------------ ------------ ------------ ------------
MINORITY INTEREST 1,843,578 1,243,370 600,208 48%
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 7,569,507 6,096,830 1,472,677 24%
INCOME TAXES 2,725,023 2,154,500 570,523 26%
------------ ------------ ------------ ------------
NET INCOME $ 4,844,484 $ 3,942,330 $ 902,154 23%
============ ============ ============ ============
BASIC EARNINGS PER SHARE $ 1.18 $ 0.96 $ 0.22 23%
Dilutive effect of outstanding options (0.01) (0.02) 0.01 (50)%
------------ ------------ ------------ ------------
DILUTED EARNINGS PER SHARE $ 1.17 $ 0.94 $ 0.23 24%
============ ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:
BASIC 4,116,407 4,097,641
38,705 75,470
------------ ------------
Dilutive effect of outstanding options
DILUTED 4,155,112 4,173,111
------------ ------------
2
5
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
- -------------------------------------------------------------------------------
2000 1999
------------ ------------
OPERATING ACTIVITIES:
Net income $ 4,844,484 $ 3,942,330
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,689,808 3,681,993
Deferred taxes 266,906
Gain on sale of equipment (10,470)
Minority interest 1,843,578 1,243,370
Noncash compensation 7,750 2,750
Changes in operating assets and liabilities:
Other 55,678
Accounts receivable (75,771) 66,858
Inventories (8,304) 17,827
Prepaid expenses and other assets 190,530 (126,752)
Accounts payable and accrued expenses (934,605) (36,436)
------------ ------------
Net cash provided by operating activities 9,547,000 9,114,524
------------ ------------
INVESTING ACTIVITIES:
Proceeds from sale of equipment 77,812 68,739
Equipment purchases and additions to gaming facilities (1,390,463) (3,837,841)
Proceeds from the City of Black Hawk for public improvements 380,000
Acquisition costs related to Gold Dust West (1,035,600)
Other (6,498) (990)
------------ ------------
Net cash used in investing activities (2,354,749) (3,390,092)
------------ ------------
FINANCING ACTIVITIES:
Proceeds from bond issue 6,000,000
Proceeds from GHC revolving line of credit 6,573,122
Payments on GHC revolving line of credit (8,874,275)
Payments to retire GHC revolving line of credit (12,706,000)
Payments to retire construction loan (32,317,500)
Proceeds from reducing and revolving credit facility 47,940,534
Payments on bonds (175,000)
Payments on long term debt and note payable (7,301,508) (10,070,578)
Payments to refinance debt (2,222,015)
Distributions to minority interest owner (1,111,284) (998,952)
Other 102,850 139,275
------------ ------------
Net cash used in financing activities (8,484,942) (6,536,389)
------------ ------------
NET DECREASE IN CASH
AND CASH EQUIVALENTS $ (1,292,691) $ (811,957)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 10,239,735 10,887,602
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 8,947,044 $ 10,075,645
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 2,693,364 $ 3,528,230
Cash paid for income taxes $ 2,463,334 $ 1,116,500
3
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BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000
1. BUSINESS
Black Hawk Gaming & Development Company, Inc. ("BHWK" or the
"Company") was incorporated on January 10, 1991. We are a holding Company that
owns, develops and operates gaming properties. Currently, we operate the Gilpin
Hotel Casino ("GHC") and The Lodge Casino at Black Hawk ("The Lodge"), both of
which are located in Black Hawk, Colorado.
GHC was the Company's first casino project. The 37,000 square foot
facility is located in the Black Hawk gaming district. Originally built in the
1860's, the Gilpin Hotel is one of the oldest in Colorado; however, 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 443 slot machines, 9 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 offers customers
870 slot machines, 27 table games, 50 hotel rooms, three restaurants, four bars
and parking for approximately 600 cars. The casino portion of The Lodge opened
for business on June 24, 1998. 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%. The Lodge and the Gilpin Hotel Casino 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, 2000 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 subsidiary Gilpin Ventures, Inc.
(GVI) 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,
1999. 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
1999 financial statements to conform to the presentation used in 2000.
4
7
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000
(CONTINUED)
3. OTHER MATTERS
Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS No. 133). SFAS No. 133 establishes
accounting and reporting standards for derivative instruments. The accounting
provisions for qualifying hedges allow gains and losses recognized related to a
hedged item in the income statement to be offset by the related derivative's
gains and losses, and requires us to formally document, designate, and assess
the effectiveness of transactions that qualify for hedge accounting. During
1999, the implementation of SFAS No. 133 was deferred until January 1, 2001 by
the issuance of SFAS No. 137 "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133."
Preliminarily, we have determined that the impact on our financial statements
of adopting SFAS No. 133 will be the recognition of the fair market value of
the interest rate swap as an asset with a corresponding credit to accumulated
other comprehensive income, a component of stockholders' equity.
5
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. 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, such as: the intensity of competition, particularly the opening of new
casinos by competitors in our immediate market area in 2000, the levels of
gaming activity in general and in Black Hawk in particular, our ability to meet
debt obligations, on-going regulatory compliance, taxation levels, effects of
national and regional economic and market conditions, labor and marketing
costs, the success of our diversification plans, our proposed acquisition of
the Gold Dust West 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, 1999.
RESULTS OF OPERATIONS
INTRODUCTION
BHWK's results of operations for the three and nine months ended
September 30, 2000 and 1999 reflect the consolidated operations of our
subsidiaries (GHC and The Lodge) and the net corporate overhead of BHWK.
BHWK owns 100% of GHC 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.
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 in late 2001 or early 2002, and 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 is 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 in this market. In any
event, we expect some of our existing market share to be lost to the new
casinos. The competition within this marketplace will continue to increase and
intensify as new casinos open. As a result, our marketing costs, our personnel
costs and other costs at our two properties in Black Hawk will more than likely
increase while we attempt to maintain our market share.
Generally speaking, we anticipated that the opening of the new casinos
in Black Hawk would have an impact on our overall operations during the first
half of 2000. These new casinos implemented very aggressive and expensive
marketing programs during the third quarter of 2000 in an effort to attempt to
establish a presence in this market place. While we feel that the marketing
programs implemented by the new casinos had an impact on our third quarter
operations for 2000 as compared to the third quarter of last year, we believe
our continuing marketing programs will, in the long run, continue to develop
and enhance our customer loyalty. Further, when our marketing programs are
combined with our gaming products and devices we will maintain more than our
fair share of this growing market.
6
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 operations for the
three and nine months ended September 30, 2000 and 1999. EBITDA (earnings
before interest, taxes, depreciation and amortization) and Minority Interest
are included in the discussion of the results of operations. EBITDA and
Minority Interest should not be considered an alternative to operating income
or net income as defined by accounting principles generally accepted in the
United States. It also should not be construed as 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 EBITDA and Minority
Interest 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
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BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
- --------------------------------------------------------------------------------
THREE MONTHS ENDED
PERCENTAGE
SEPTEMBER 30, SEPTEMBER 30, INCREASE
2000 1999 DIFFERENCE (DECREASE)
------------- ------------- ------------ ------------
NET REVENUE
Lodge $ 15,964,493 $ 16,550,925 $ (586,432) (4)%
GHC 6,286,650 6,787,213 (500,563) (7)%
Corporate 5,339 4,025 1,314 33%
------------- ------------- ------------ ------------
Total net revenue 22,256,482 23,342,163 (1,085,681) (5)%
COSTS AND EXPENSES
Lodge 11,772,425 11,801,795 (29,370) (0)%
GHC 4,884,226 4,912,911 (28,685) (1)%
Corporate 627,166 473,541 153,625 32%
------------- ------------- ------------ ------------
Total costs and expenses 17,283,817 17,188,247 95,570 1%
EBITDA & Minority Interest in The Lodge
Lodge 4,192,068 4,749,130 (557,062) (12)%
GHC 1,402,424 1,874,302 (471,878) (25)%
Net corporate overhead (621,827) (469,516) (152,311) 32%
------------- ------------- ------------ ------------
Total EBITDA & Minority Interest in The Lodge 4,972,665 6,153,916 (1,181,251) (19)%
------------- ------------- ------------ ------------
Interest expense 769,891 1,076,471 (306,580) (28)%
Income taxes 844,823 1,090,000 (245,177) (22)%
Depreciation and amortization 1,265,334 1,253,323 12,011 1%
Minority Interest in The Lodge 590,669 684,176 (93,507) (14)%
------------- ------------- ------------ ------------
Net income $ 1,501,948 $ 2,049,946 $ (547,998) (27)%
============= ============= ============ ============
Basic earnings per share $ 0.37 $ 0.50 $ (0.13) (26)%
============= ============= ============ ============
Diluted earnings per share $ 0.36 $ 0.49 $ (0.13) (27)%
============= ============= ============ ============
NINE MONTHS ENDED
PERCENTAGE
SEPTEMBER 30, SEPTEMBER 30, INCREASE
2000 1999 DIFFERENCE (DECREASE)
------------- ------------- ------------ ------------
NET REVENUE
Lodge $ 47,815,734 $ 44,223,656 $ 3,592,078 8%
GHC 18,919,279 20,210,753 (1,291,474) (6)%
Corporate 15,549 14,776 773 5%
------------- ------------- ------------ ------------
Total net revenue 66,750,562 64,449,185 2,301,377 4%
COSTS AND EXPENSES
Lodge 34,791,172 33,300,093 1,491,079 4%
GHC 14,615,397 15,286,096 (670,699) (4)%
Corporate 1,630,893 1,587,706 43,187 3%
------------- ------------- ------------ ------------
Total costs and expenses 51,037,462 50,173,895 863,567 2%
EBITDA & Minority Interest in The Lodge
Lodge 13,024,562 10,923,563 2,100,999 19%
GHC 4,303,882 4,924,657 (620,775) (13)%
Net corporate overhead (1,615,344) (1,572,930) (42,414) 3%
------------- ------------- ------------ ------------
Total EBITDA & Minority Interest in The Lodge 15,713,100 14,275,290 1,437,810 10%
------------- ------------- ------------ ------------
Interest expense 2,610,207 3,253,098 (642,891) (20)%
Income taxes 2,725,023 2,154,500 570,523 26%
Depreciation and amortization 3,689,808 3,681,993 7,815 0%
Minority Interest in The Lodge 1,843,578 1,243,370 600,208 48%
------------- ------------- ------------ ------------
Net income $ 4,844,484 $ 3,942,330 $ 902,154 23%
============= ============= ============ ============
Basic earnings per share $ 1.18 $ 0.96 $ 0.22 23%
============= ============= ============ ============
Diluted earnings per share $ 1.17 $ 0.94 $ 0.23 24%
============= ============= ============ ============
8
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
CONSOLIDATED RESULTS OF OPERATIONS--FOR THE THREE MONTHS ENDED SEPTEMBER 30,
2000 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1999
NET REVENUES
We generated net revenues of $22,256,000 during the three months ended
September 30, 2000 compared to $23,342,000 for the same period of 1999. The
decrease in net revenues of $1,086,000 or 5% is the result of a decrease in
revenues at The Lodge of $587,000, a decrease in revenues at GHC of $501,000
offset by an increase in other net revenues of $2,000.
Since substantially all of our net revenues are derived from casino
operations, we try to enhance our casino revenues through the offering of a
wide variety of the latest gaming equipment accompanied by an inviting
atmosphere, including fine dining with a heavy emphasis on customer service.
We believe the primary reason for the decrease in our net revenues for
the three months ended September 30, 2000 compared to the same period of 1999
was due primarily to increased competition and the implementation of marketing
programs and efforts initiated by other casinos in the City of Black Hawk
gaming market during the third quarter.
COSTS AND EXPENSES
Our total costs and expenses were $17,283,000 for the three months
ended September 30, 2000 compared to $17,188,000 for the same period of 1999.
The overall net increase of $95,000 was due to: an increase in labor costs of
$123,000; slot game participation expenses of $381,000; corporate overhead
expenses of $153,000; and marketing related expenses of $8,000. These increases
were offset by a decrease in gaming taxes of $151,000 resulting from reduced
gaming revenues; bus program costs of $323,000; food and beverage cost of sales
of $94,000; and other net expenses of $2,000.
EBITDA AND MINORITY INTEREST
When our total costs and expenses are subtracted from our net
revenues, the result is EBITDA and Minority Interest of $5,074,000 for the
three months ended September 30, 2000 compared to $6,154,000 for the same
period of 1999. The decrease of $1,080,000 or 18% is generally the combined
result of the factors discussed above. Our EBITDA and Minority Interest margin
(EBITDA and Minority Interest divided by our net revenues) was 23% for the
three months ended September 30, 2000 compared to 26% for the same period of
1999.
INTEREST EXPENSE
We had interest expense totaling $770,000 during the three months
ended September 30, 2000 compared to $1,077,000 for the same period of 1999.
Generally, the decrease of $307,000 or 28% is the result of paying down our
debt by approximately $10,600,000 at various times since September 30, 1999.
DEPRECIATION AND AMORTIZATION
We had depreciation and amortization expense of $1,265,000 for the
three months ended September 30, 2000 compared to $1,253,000 for the same
period of 1999. The increase of $12,000 or 1% is generally due to increases in
depreciation expense due to fixed asset additions. The majority of depreciation
and amortization costs relate to buildings, equipment, and intangible assets.
9
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
CONSOLIDATED RESULTS OF OPERATIONS--FOR THE THREE MONTHS ENDED SEPTEMBER 30,
2000 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1999 (CONTINUED)
MINORITY INTEREST
Minority Interest for the three months ended September 30, 2000
totaled $591,000 compared to $684,000 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.
INCOME TAXES
Our effective income tax rate for the three months ended September 30,
2000 and 1999 resulted in income tax expense of $845,000 and $1,090,000,
respectively. The tax characteristics of the individual components of our
income before income taxes determine our overall effective tax rate. Assuming
profitability at our current levels, we would expect our effective income tax
rate to remain in the 35% to 37% range.
NET INCOME
As a result of the factors discussed above, we reported net income of
$1,502,000 for the three months ended September 30, 2000 compared to $2,050,000
for the same period of 1999, a decrease of $548,000 or 27%.
EARNINGS PER SHARE
We reported basic earnings per share for the three months ended
September 30, 2000 and 1999 of $.37 and $.50, respectively and diluted earnings
per share for the same periods of $.36 and $.49, respectively.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
THE LODGE RESULTS OF OPERATIONS--FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000
COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1999
NET REVENUES
The Lodge generated net revenues of $15,964,000 during the three months
ended September 30, 2000 compared to $16,551,000 for the same period of 1999.
The decrease in our net revenues at The Lodge of $587,000 or 4% is primarily due
to a decrease in casino revenues of $541,000 or 3%, and a decrease in other
combined net revenues of $46,000. The primary reason for the decreased net
revenues during the three months ended is due to a significant reduction in
customer bussing activity as well as an expensive marketing drive pursued by our
major competitors in the Black Hawk market.
COSTS AND EXPENSES
The Lodge's costs and expenses (after eliminating inter-company
transactions) totaled $11,772,000 during the three months ended September 30,
2000 compared to $11,801,000 for the same period of 1999. The overall decrease
of $29,000 is due to decreases in gaming tax of $47,000, bus program costs of
$303,000, food and beverage cost of sales of $81,000, and other net expenses of
$21,000. The decreases in expenses were offset by increases in labor costs of
$100,000, slot participation expenses of $254,000 and marketing related costs
(excluding bussing) of $69,000.
EBITDA
When The Lodge's costs and expenses are subtracted from net revenues,
the result is EBITDA and Minority Interest of $4,192,000 for the three months
ended September 30, 2000 compared to $4,749,000 for the same period of 1999. The
decrease in EBITDA of $557,000 or 12% is primarily the result of decreased
casino revenues offset by a slight decrease in operating expenses.
INTEREST EXPENSE
Interest expense at The Lodge was $589,000 for the three months ended
September 30, 2000 compared to $801,000 for the same period of 1999. The
decrease of $212,000 or 26% is primarily the result of paying down The Lodge
debt by approximately $7,417,000 at various times since September 30, 1999.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense of The Lodge totaled $867,000 for
the three months ended September 30, 2000 compared to $824,000 for the same
period of 1999. The increase of $43,000 or 5% is due to an increase in
depreciable assets acquired for the property.
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 $2,736,000 for the three months ended September 30, 2000
compared to $3,125,000 for the same period of 1999, a decrease of $389,000 or
12%.
Although new casinos in the Black Hawk market undertook significant
marketing endeavors during the three months ended September 30, 2000, we believe
that The Lodge continued to successfully compete. However, we can give no
assurance that The Lodge will be successful in the future at maintaining this
level of performance. We continually review the overall operational aspects of
The Lodge and we will modify our operations, when and if necessary, in an
attempt to remain competitive and maintain our market share. Generally, our
market strategy is to focus on our existing customer base at The Lodge while we
try to develop marketing programs that increase new customer visits. Our goal
for 2000 has been to continue to enhance the overall gaming products we offer at
The Lodge and to be responsive to the new and increased competition in Black
Hawk.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
GILPIN HOTEL CASINO RESULTS OF OPERATIONS--FOR THE THREE MONTHS ENDED SEPTEMBER
30, 2000 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1999
NET REVENUES
GHC generated net revenues of $6,286,000 during the three months ended
September 30, 2000 compared to $6,787,000 for the same period of 1999. The
decrease in net revenues at GHC of $501,000 or 7% is primarily due to a decrease
in casino revenues of $513,000 offset by an increase in other combined net
revenues of $12,000. We believe the primary reasons for the decrease in the net
revenues at GHC are attributable to the reduction in bussing programs as well as
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 $4,884,000 during the three months
ended September 30, 2000 compared to $4,913,000 for the same period of 1999. The
overall decrease of $29,000 or 1% is due to a decrease in gaming taxes of
$104,000, food and beverage cost of sales of $13,000, bus program costs and
other marketing related costs of $20,000 and $61,000 respectively. The decreases
in expenses were offset by an increase in labor costs of $23,000, slot machine
participation expenses of $127,000, and other net expenses $19,000.
EBITDA
When GHC's costs and expenses are subtracted from net revenues, the
result is EBITDA of $1,402,000 for the three months ended September 30, 2000
compared to $1,874,000 for the same period of 1999. The decrease in EBITDA of
$472,000 or 25% is primarily the result of a decrease in net revenues at GHC
partially offset by a decrease in operating expenses.
INTEREST EXPENSE
Interest expense at GHC was $181,000 for the three months ended
September 30, 2000 compared to $276,000 for the same period of 1999. The
decrease of $95,000 or 34% is the result of paying down our GHC debt levels by
approximately $3,157,000 at various times since September 30, 1999.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense of GHC totaled $395,000 for the
three months ended September 30, 2000 compared to $427,000 for the same period
of 1999. The decrease of $32,000 or 7% is due to fully depreciated assets
associated with the 1994 GHC expansion offset by the purchase of new depreciable
assets over the same period.
INCOME BEFORE INCOME TAXES
As a result of the factors discussed above, GHC generated income before
income taxes of $826,000 for the three months ended September 30, 2000 compared
to $1,171,000 for the same period of 1999, a decrease of $345,000 or 29%.
GHC's operations have been impacted due to the additional competition
in Black Hawk, which also includes The Lodge. We continually review the overall
operational aspects at GHC and adjust floor layout and/or change our amenities
in order to attempt to enhance GHC's operations. Our market strategy, similar to
that at The Lodge, is to focus on GHC's existing customer base while we try to
develop marketing programs that increase new customer visits. Like The Lodge,
our goal for 2000 has been to continue to build on the gaming product we offer
at GHC and to remain competitive with the new and increased competition in Black
Hawk.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
CORPORATE RESULTS OF OPERATIONS--FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000
COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1999
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 REVENUES
Net revenues generated at our corporate level (after eliminating
inter-company transactions) is primarily derived from interest earned on our
corporate cash balances. Interest income totaled $6,000 for the three months
ended September 30, 2000 compared to $4,000 for the same period of 1999.
COSTS AND EXPENSES
Our costs and expenses totaled $627,000 for the three months ended
September 30, 2000 compared to $474,000 for the same period of 1999. The
increase of $153,000 or 32% is due primarily to the write-off of $101,000 of
costs incurred in the pursuit of potential new gaming projects and
opportunities, and compensation costs totaling $54,000. These increases were
offset by a decrease in other net expenses of $2,000.
NET CORPORATE OVERHEAD
When our corporate costs and expenses are subtracted from our net
revenues, the result is net corporate overhead of $622,000 for the three months
ended September 30, 2000 compared to $470,000 for the same period of 1999. As a
result of the increase in our net corporate overhead of $152,000 or 32% for the
three months ended September 30, 2000 compared to the same period of 1999 our
consolidated EBITDA has decreased.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization at the corporate level was $3,000 for the
three months ended September 30, 2000 as compared to $2,000 for the three months
ended September 30, 1999.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
CONSOLIDATED RESULTS OF OPERATIONS--FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1999
NET REVENUES
We generated net revenues of $66,751,000 during the nine months ended
September 30, 2000 compared to $64,449,000 for the same period of 1999. The
increase in net revenues of $2,302,000 or 4% is the result of an increase in
revenues at The Lodge of $3,592,000 offset by a decrease in revenues at GHC of
$1,291,000 and an increase in other net revenues of $1,000.
The primary reason for our increased net revenues for the nine months
ended September 30, 2000 over the same period of 1999 was due to a 23% increase
in gaming revenues in the Black Hawk market. We attribute the increased gaming
revenues in the Black Hawk market to the development of newer, larger, "themed"
casinos that offer customers a greater variety of amenities, similar to those
provided by The Lodge.
COSTS AND EXPENSES
Our total costs and expenses were $51,038,000 for the nine months ended
September 30, 2000 compared to $50,174,000 for the same period of 1999. The
overall increase of $864,000 or 2% was the result of increases in labor costs of
$652,000, slot participation expense of $676,000, marketing related costs
(excluding bussing) of $1,066,000, and corporate overhead of $44,000. Increased
costs and expenses were offset by reductions in gaming taxes of $96,000, bus
program costs of $1,379,000, food and beverage cost of sales of $94,000, and
other net expenses of $5,000.
EBITDA AND MINORITY INTEREST
When our total costs and expenses are subtracted from our net revenues,
the result is EBITDA and Minority Interest of $15,713,000 for the nine months
ended September 30, 2000 compared to $14,275,000 for the same period of 1999.
The increase of $1,438,000 or 10% is generally the result of the factors
discussed above. Our EBITDA and Minority Interest margin (EBITDA and Minority
Interest divided by our net revenues) was 24% for the nine months ended
September 30, 2000 compared to 22% for the same period of 1999.
INTEREST EXPENSE
We had interest expense totaling $2,610,000 during the nine months
ended September 30, 2000 compared to $3,253,000 for the same period of 1999. The
decrease of $643,000 or 20% is primarily the result of paying down our debt by
approximately $10,600,000 at various times since September 30, 1999.
DEPRECIATION AND AMORTIZATION
We had depreciation and amortization of $3,690,000 for the nine months
ended September 30, 2000 compared to $3,682,000 for the same period of 1999. The
increase of $8,000 or less than 1%, is generally due to the net increase in our
depreciable assets. Depreciation and amortization primarily relates to
buildings, equipment, and intangible assets.
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17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
CONSOLIDATED RESULTS OF OPERATIONS--FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (CONTINUED)
MINORITY INTEREST
Minority Interest for the nine months ended September 30, 2000 totaled
$1,844,000 compared to $1,243,000 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.
INCOME TAXES
Our effective income tax rate for the nine months ended September 30,
2000 and 1999 resulted in income tax expense of $2,725,000 and $2,155,000. The
tax characteristics of the individual components of our income before income
taxes determine our overall effective tax rate. Assuming profitability at our
current levels, we would expect our effective income tax rate to remain in the
35% to 37% range.
NET INCOME
As a result of the factors discussed above, we reported net income of
$4,844,000 for the nine months ended September 30, 2000 compared to $3,942,000
for the same period of 1999, an increase in net income of $902,000 or 23%.
EARNINGS PER SHARE
We reported basic earnings per share for the nine months ended
September 30, 2000 and 1999 of $1.18 and $.96, respectively and diluted earnings
per share for the same periods of $1.17 and $.94, respectively. The increase in
basic and diluted earnings per share of $.22 or 23% and $.23 or 24%,
respectively, is the result of increased profitability.
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18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
THE LODGE RESULTS OF OPERATIONS--FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1999
NET REVENUES
The Lodge generated net revenues of $47,816,000 during the nine months
ended September 30, 2000 compared to $44,224,000 for the same period of 1999.
The increase in our net revenues at The Lodge of $3,592,000 or 8% is primarily
due to an increase in casino revenues of $3,559,000 or 9% in addition to a net
increase in other combined net revenues of $33,000. We believe the primary
reason for our increased net revenues is due to a 23% increase in gaming
revenues in the Black Hawk market, which is generally attributable to the
opening of larger and newer gaming facilities, such as The Lodge.
COSTS AND EXPENSES
The Lodge's costs and expenses (after eliminating inter-company
transactions) totaled $34,791,000 during the nine months ended September 30,
2000 compared to $33,300,000 for the same period of 1999. The overall increase
of $1,491,000 or 4% is due to increases in labor costs of $639,000, slot
participation expense of $408,000, gaming taxes of $509,000, marketing costs
(excluding bussing) of $870,000. Increased expenses were offset by a reduction
in bus program costs of $767,000, food and beverage cost of sales of $133,000
and other net expenses of $35,000.
EBITDA
When The Lodge's costs and expenses are subtracted from net revenues,
the result is EBITDA and Minority Interest of $13,025,000 for the nine months
ended September 30, 2000 compared to $10,924,000 for the same period of 1999.
The increase in EBITDA of $2,101,000 or 19% is primarily the result of increased
casino revenues offset by the increase in related expenses.
INTEREST EXPENSE
Interest expense at The Lodge was $1,992,000 for the nine months ended
September 30, 2000 compared to $2,399,000 for the same period of 1999. The
decrease of $407,000 or 17% is primarily the result of paying down our Lodge
debt levels by approximately $7,400,000 at various times since September 30,
1999.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense of The Lodge totaled $2,535,000
for the nine months ended September 30, 2000 compared to $2,388,000 for the same
period of 1999. The increase of $147,000 or 6% 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 $8,498,000 for the nine months ended September 30, 2000
compared to $6,137,000 for the same period of 1999, an increase of $2,361,000 or
38%.
As previously stated, The Lodge competed successfully with the new
casinos in Black Hawk during the nine months ended September 30, 2000. However,
we can give no assurance that The Lodge will be successful in the future at
maintaining this level of performance. We continually review the overall
operational aspects of The Lodge and will modify our operations, when and if
necessary, in an attempt to remain competitive and maintain our gaming market
share. Generally, our market strategy is to focus on our existing customer base
at The Lodge while we try to develop marketing programs that increase new
customer visits. Our goal for 2000 has been to continue to enhance the overall
product and services we offer at The Lodge in order to be responsive to the new
and increased competition in Black Hawk.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
GILPIN HOTEL CASINO RESULTS OF OPERATIONS--FOR THE NINE MONTHS ENDED SEPTEMBER
30, 2000 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1999
NET REVENUES
GHC generated net revenues of $18,919,000 during the nine months ended
September 30, 2000 compared to $20,210,000 for the same period of 1999. The
decrease in the net revenues at GHC of $1,291,000 or 6% is primarily due to a
decrease in casino revenues of $1,285,000 in addition to a net decrease in other
combined net revenues of $6,000. We believe the primary reasons for our decrease
in net revenues at GHC is attributable to the reduction of bussing programs as
well as 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 $14,615,000 during the nine months
ended September 30, 2000 compared to $15,286,000 for the same period of 1999.
The overall decrease of $671,000 or 4% is due to a decrease in gaming taxes of
$605,000, and bus program costs of $612,000. The overall decrease in expenses
was offset by increases in labor costs of $13,000, food and beverage cost of
sales of $39,000, slot participation expense of $268,000, marketing related
costs (excluding bussing) of $196,000, and other net expenses of $30,000.
EBITDA
When GHC's costs and expenses are subtracted from net revenues, the
result is EBITDA of $4,304,000 for the nine months ended September 30, 2000
compared to $4,925,000 for the same period of 1999. The decrease in EBITDA of
$621,000 or 13% is primarily the result of a decrease in net revenue at GHC
partially offset by a decrease in gaming taxes and marketing costs.
INTEREST EXPENSE
Interest expense at GHC was $618,000 for the nine months ended
September 30, 2000 compared to $854,000 for the same period of 1999. The
decrease of $236,000 or 28% is the result of paying down our GHC debt levels by
approximately $3,200,000 at various times since September 30, 1999 as well as
refinancing GHC's fixed rate revolving credit facility with a variable rate
reducing and revolving credit facility.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense of GHC totaled $1,148,000 for the
nine months ended September 30, 2000 compared to $1,288,000 for the same period
of 1999. The decrease of $140,000 or 11% is generally due to fully depreciated
assets associated with the 1994 GHC expansion.
INCOME BEFORE INCOME TAXES
As a result of the factors discussed above, GHC generated income before
income taxes of $2,538,000 for the nine months ended September 30, 2000 compared
to $2,782,000 for the same period of 1999, a decrease of $244,000 or 9%.
As stated in the three-month comparisons, GHC's operations have been
impacted due to the additional competition in Black Hawk, which also includes
The Lodge. We continually review the overall operational aspects at GHC and add
or eliminate areas and/or amenities in order to attempt to enhance GHC's
operations. Our market strategy, similar to that at The Lodge, is to focus on
GHC's existing customer base while we try to develop marketing programs that
increase new customer visits. Like the Lodge, our goal for 2000 has been to
continue to build on the gaming product and services we offer at GHC and to
remain competitive with the new and increased competition in Black Hawk.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
CORPORATE RESULTS OF OPERATIONS--FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1999
NET REVENUES
Net revenues generated at our corporate level (after eliminating
inter-company transactions) are primarily derived from interest earned on our
corporate cash balances. Interest income totaled $10,000 for the nine months
ended September 30, 2000 compared to $11,000 for the same period of 1999.
COSTS AND EXPENSES
Our costs and expenses totaled $1,632,000 for the nine-months ended
September 30, 2000 compared to $1,588,000 for the same period of 1999. The
increase of $44,000 or 3% is primarily due to increases in consulting,
compensation, and benefit costs of $193,000, travel costs of $41,000, insurance
costs of $31,000, and the write-off of $101,000 of costs incurred in the pursuit
of potential new gaming projects and opportunities. These increase in costs were
offset by a decrease in legal expenses and claims of $324,000. The significant
reduction in legal expenses and claims in 2000 is due to an arbitration award
paid during the second quarter of 1999.
NET CORPORATE OVERHEAD
When our corporate costs and expenses are subtracted from our net
revenues, the result is net corporate overhead of $1,615,000 for the nine months
ended September 30, 2000 compared to $1,573,000 for the same period of 1999. The
increase in our net corporate overhead of $42,000 or 3% decreases our
consolidated EBITDA.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization at the corporate level was $7,000 and
$6,000 for the nine months ended September 30, 2000 and 1999 respectively.
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21
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $9,547,000 during the
nine-months ended September 30, 2000 compared to net cash provided by operating
activities of $9,115,000 for the same period of 1999.
Net cash used in investing activities for the nine-months ended
September 30, 2000 was $2,355,000. These uses of funds included payments for
equipment additions to our casinos of $1,390,000 and acquisition costs related
to the Gold Dust West of $1,036,000 (which amount includes a $500,000 earnest
money deposit, $300,000 paid to the Nevada Gaming Control Board as a down
payment for our licensing costs, and other costs and expenses, primarily legal
totaling approximately $236,000). These uses of funds were partially offset by
the proceeds from the sale of equipment totaling $78,000. Net cash used in
investing activities for the nine-months ended September 30, 1999 was
$3,390,000. These uses of funds included payments for equipment purchases and
additions to our casinos totaling $3,838,000 and other investing activities of
$1,000 and were partially offset by the proceeds from the sale of equipment
totaling $69,000 and proceeds from the City of Black Hawk for its share of
public improvements totaling $380,000.
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 Minority Interest owner of The Lodge totaling $1,111,000
and were partially offset by other financing activities of $103,000. The net
cash used in our financing activities during the nine-months ended September 30,
1999 totaled $6,536,000. The sources of cash we generated in financing our
activities included proceeds from bonds issued by the Business Improvement
District of $6,000,000, borrowings against GHC's revolving line of credit of
$6,573,000, proceeds from a syndicated bank loan of $47,941,000 and other
proceeds of $139,000. These various sources of cash were reduced by payments of
$10,070,000 against our debt, payments against GHC's revolving line of credit of
$8,874,000, payments to retire GHC's revolving line of credit of $12,706,000,
payments to retire The Lodge's construction loan of $32,318,000, payments to
refinance debt of $2,222,000 and distributions to the Minority Interest owner of
The Lodge of $999,000.
As of September 30, 2000 the Company had working capital of
approximately $587,000 compared to $819,000 at December 31, 1999.
In March 1999, The Lodge closed on bond financing with the Black Hawk
Business Improvement District, which is a quasi-municipal corporation and
political subdivision of the State of Colorado, organized for the purpose, among
others, of providing financing for public improvements and services primarily
benefiting the commercial properties within the District. The Bonds were issued
in two series with an aggregate principal amount of $6,000,000. The purpose of
the bonds was to finance the Company's costs of various infrastructure
improvements made for the benefit of the City of Black Hawk and The Lodge. The
proceeds from the sale of the Bonds were used to pay down existing debt at The
Lodge. The Bonds carry an interest rate varying between 6.25% and 6.50% and
mature at various times up to and including December of 2011.
In April 1999, the Company closed financing, with a bank syndication group led
by Wells Fargo Bank, ("Wells Fargo"). Some of the more important terms of the
Credit Agreement are: (i) the facility is a four year reducing commitment in the
aggregate amount of $65 million ($45,286,000 was drawn at closing to pay
existing debt at The Lodge totaling $32,508,000 and $12,778,000 was disbursed to
pay existing debt at GHC); (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 financial ratios maintained by
the Company (all of which resulted in a total interest cost of approximately 9%
at September 30, 2000); (iv) the scheduled reductions in the availability of the
commitment will be made on a quarterly basis and commenced on July 1, 2000 (the
first four quarterly reductions in availability are $1,300,000, the next four
quarterly reductions in availability will be $2,275,000 and the following four
quarterly reductions in availability will be $3,250,000 until January 1, 2003
when the outstanding balance of the facility will be due); (v) the Credit
Agreement contains a number of affirmative and negative covenants which, among
other things, require the Company to maintain certain financial ratios
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22
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
and refrain from certain actions without the syndicate group's concurrence; and
(vi) substantially all of the assets of the Company, Gilpin Hotel Venture, GVI
and The Lodge Casino are pledged as security for repayment of the credit
facility. The Credit Agreement also contains customary events of default
provisions.
During the third quarter of 2000, the Company began negotiations with
Wells Fargo as the bank syndication agent, to refinance and extend the scheduled
quarterly reductions in availability of the loan commitment by at least a year
and to increase the commitment from $65 million to $75 or $80 million. While the
approval of this refinance and increase in the commitment is not crucial to the
acquisition of the Gold Dust West Casino (discussed below), the Company is
seeking the increased flexibility within its existing credit facility to allow
for a smooth transition into the operations of the Gold Dust West Casino as well
as to allow the Company to have availability to additional sources of funds for
future opportunities and corporate uses as they arise.
GOLD DUST WEST CASINO ACQUISITION
On January 7, 2000 the Company entered into an agreement to purchase
the assets and operating business of a casino and motel located in Reno, Nevada
known as the Gold Dust West. The purchase price is $26,500,000 and closing is
anticipated to take place after we obtain Nevada gaming approvals, which include
licensing of the Company and certain of our officers and directors. We are
hopeful that the Company will obtain its Nevada gaming license in December 2000.
Other conditions to closing require the Gold Dust West Casino to achieve at
least $5,100,000 of EBITDA for the trailing 12-month period ending 30 days prior
to the closing date. As of September 2000, the Gold Dust West Casino is on an
EBITDA run-rate that presently appears to meet and exceed the minimum.
We believe our current working capital position; earnings from our
existing operations and the remaining availability from our revolving credit
facility are sufficient to meet our short-term cash requirements, which are
generally operating expenses and interest payments on indebtedness. It is our
intention to fund the Gold Dust West Casino acquisition out of our existing or
revised reducing revolving credit facility and cash flow generated from
operations during the licensing and due diligence process. However, any
significant development of other projects by us may require additional
financing, other joint venture partners, or both.
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 $32 million at September 30,
2000. 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 decrease.
At September 30, 2000 we had hedged our exposure to interest rate risk
by participating in an interest rate swap, under which we receive a variable
rate interest payment and pay a fixed interest rate payment on a notional amount
of $35 million.
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23
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See Item 3. of our report on form 10-K for our fiscal year
ended December 31, 1999.
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:
No. Description
--- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K
None
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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 8, 2000 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
22
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
27 Financial Data Schedule