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 March 31, 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 (Zip Code)
offices)
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 4,111,757 shares
------------- ----------------
Class Outstanding as of May 5, 2000
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BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
INDEX TO FORM 10-Q
MARCH 31, 2000
PART I. FINANCIAL INFORMATION PAGE NO.
--------
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets as of March 31, 2000
and December 31, 1999 1
Consolidated Statements of Income for the three
months ended March 31, 2000 and 1999 2
Consolidated Statements of Cash Flows for the three
months ended March 31, 2000 and 1999 3
Notes to Consolidated Financial Statements 4-5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 6-14
Item 3. Quantitative and Qualitative Disclosure about Market Risk 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
3
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 AND DECEMBER 31, 1999
- --------------------------------------------------------------------------------
MARCH 31, DECEMBER 31,
2000 (UNAUDITED) 1999
---------------- ----------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 11,489,422 $ 10,239,735
Accounts receivable 175,682 190,044
Inventories 574,190 557,182
Prepaid expenses 874,797 699,899
Deferred income tax 417,323 417,323
---------------- ----------------
Total current assets 13,531,414 12,104,183
LAND 15,235,092 15,235,092
---------------- ----------------
GAMING FACILITIES:
Building and improvements 58,203,802 58,098,219
Equipment 17,148,210 17,342,370
Accumulated depreciation (11,062,715) (10,310,295)
---------------- ----------------
Total gaming facilities 64,289,297 65,130,294
OTHER ASSETS:
Goodwill, net of accumulated amortization of $1,045,888
and $931,729, respectively 5,698,188 5,812,347
Other assets 3,182,597 2,724,609
Deferred income tax 73,417 73,417
---------------- ----------------
TOTAL $ 102,010,005 $ 101,079,942
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 9,555,880 $ 10,547,256
Current portion of long-term debt 879,336 737,740
---------------- ----------------
Total current liabilities 10,435,216 11,284,996
LONG-TERM DEBT AND OTHER LIABILITIES:
Reducing and revolving credit facility 39,000,000 39,000,000
Bonds payable 5,645,000 5,645,000
Other notes payable 416,860
---------------- ----------------
Total long-term debt 44,645,000 45,061,860
Deferred tax liability 119,248 119,248
---------------- ----------------
Total liabilities 55,199,464 56,466,104
---------------- ----------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 8,501,818 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;
4,111,757 and 4,110,209 shares issued and outstanding, respectively 4,112 4,110
Additional paid-in capital 18,476,703 18,466,705
Retained earnings 19,827,908 18,027,736
---------------- ----------------
Total stockholders' equity 38,308,723 36,498,551
---------------- ----------------
TOTAL $ 102,010,005 $ 101,079,942
================ ================
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BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
FOR THREE MONTHS ENDED MARCH 31, 2000 AND 1999
- --------------------------------------------------------------------------------
THREE MONTHS ENDED PERCENTAGE
MARCH 31, INCREASE
2000 1999 (DECREASE)
------------ ------------ ------------
REVENUES:
Casino revenue $ 21,271,803 $ 18,635,180 14 %
Food and beverage revenue 2,373,287 2,150,376 10 %
Hotel revenue 254,564 260,814 (2)%
Interest and other 193,010 186,812 3 %
------------ ------------ ------------
Total revenues 24,092,664 21,233,182 13 %
------------ ------------ ------------
Promotional allowances 1,728,396 1,471,461 17 %
------------ ------------ ------------
Net revenues 22,364,268 19,761,721 13 %
------------ ------------ ------------
COSTS AND EXPENSES:
Casino operations 6,385,606 6,074,038 5 %
Food and beverage operations 2,037,949 2,135,547 (5)%
Hotel operations 171,139 133,555 28 %
Marketing, general and administrative 8,130,282 7,439,063 9 %
Interest 953,400 1,106,853 (14)%
Depreciation and amortization 1,217,607 1,158,890 5 %
------------ ------------ ------------
Total costs and expenses 18,895,983 18,047,946 5 %
------------ ------------ ------------
MINORITY INTEREST (655,514) (209,291) 213 %
INCOME BEFORE INCOME TAXES 2,812,771 1,504,484 87 %
------------ ------------ ------------
INCOME TAXES 1,012,600 541,650 87 %
------------ ------------ ------------
NET INCOME $ 1,800,171 $ 962,834 87 %
============ ============ ============
BASIC EARNINGS PER SHARE: $ 0.44 $ 0.24 83 %
------------
Dilutive effect of outstanding options (0.01)
------------ ------------
DILUTED EARNINGS PER SHARE: $ 0.44 $ 0.23 91 %
============ ============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
BASIC 4,111,600 4,087,346
Dilutive effect of outstanding options 25,364 98,507
------------ ------------
DILUTED 4,136,964 4,185,853
============ ============
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BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
- ---------------------------------------------------------------------------------------
2000 1999
------------ ------------
OPERATING ACTIVITIES:
Net income $ 1,800,171 $ 962,834
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,217,607 1,158,890
(Gain) Loss on sale of equipment (19,496)
Minority interest 655,514 209,291
Changes in operating assets and liabilities:
Accounts receivable 14,362 (97,226)
Inventories (17,008) 47,363
Prepaid expenses and other assets (52,666) (246,931)
Accounts payable and accrued expenses (991,376) (746,715)
------------ ------------
Net cash provided by operating activities 2,607,108 1,287,506
------------ ------------
INVESTING ACTIVITIES:
Proceeds from sale of equipment 19,950 36,967
Equipment purchases and additions to gaming facilities (261,231) (2,801,828)
Acquisition costs related to Gold Dust West (581,894)
Other (990)
------------ ------------
Net cash used in investing activities (823,175) (2,765,851)
------------ ------------
FINANCING ACTIVITIES:
Proceeds from bond issue 6,000,000
Proceeds from revolving line of credit 5,073,182
Payments on bonds (175,000)
Payments on revolving line of credit (8,106,715)
Payments on long term debt and note payable (100,264) (3,973,873)
Payments to refinance debt (561,758)
Distributions to minority interest owner (268,982)
Other 10,000
------------ ------------
Net cash used in financing activities (534,246) (1,569,164)
------------ ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ 1,249,687 $ (3,047,509)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 10,239,735 10,887,602
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 11,489,422 $ 7,840,093
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 1,065,082 $ 1,119,918
Cash paid for income taxes None $ 11,000
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BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
1. BUSINESS
Black Hawk Gaming & Development Company, Inc. ("BHWK") was incorporated
on January 10, 1991. We are a holding company, which 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 was 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 approximately 447 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
872 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 March 31,
2000 and the results of its operations for the three 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.
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BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 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 at the end of the interest rate swap reporting period as an
asset with a corresponding credit to accumulated other comprehensive income, a
component of stockholders' equity.
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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:
intensity of competition, particularly the opening of new casinos by competitors
in our immediate market area in 2000, 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 and our proposed acquisition and the ultimate outcome of litigation
matters.
The following discussion should be read in conjunction with and is
qualified in its entirety by the unaudited financial statements included herein
and 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
Black Hawk Gaming & Development Company Inc. ("BHWK") results of
operations for the three-months ended March 31, 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. Plans are underway for a third project to recommence
construction with a projected opening date sometime in late 2001 or early 2002.
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 of 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
these new casinos open. 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.
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9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
The following is an analysis of the results of our operations for the
three-months ended March 31, 2000 and 1999. EBITDA (earnings before interest,
taxes, depreciation and amortization) and Minority Interest is included in the
discussion of the results of operations. EBITDA and Minority Interest should not
be considered to be an alternative to operating income or net income as defined
by generally accepted accounting principles. 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 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.
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
- --------------------------------------------------------------------------------
THREE MONTHS ENDED
PERCENTAGE
MARCH 31, MARCH 31, INCREASE
2000 1999 (DECREASE)
------------ ------------ ------------
NET REVENUE
Lodge $ 16,026,953 $ 13,300,877 20 %
GHC 6,330,683 6,455,164 (2)%
Corporate 6,632 5,680 17 %
------------ ------------ ------------
Total net revenue 22,364,268 19,761,721 13 %
COSTS AND EXPENSES
Lodge 11,476,421 10,533,427 9 %
GHC 4,787,697 4,928,250 (3)%
Corporate 460,858 320,526 44 %
------------ ------------ ------------
Total costs and expenses 16,724,976 15,782,203 6 %
EBITDA & Minority Interest in The Lodge
Lodge 4,550,532 2,767,450 64 %
GHC 1,542,986 1,526,914 1 %
Net corporate overhead (454,226) (314,846) 44 %
------------ ------------ ------------
Total EBITDA & Minority Interest in The Lodge 5,639,292 3,979,518 42 %
------------ ------------ ------------
Interest expense 953,400 1,106,853 (14)%
Income taxes 1,012,600 541,650 87 %
Depreciation and amortization 1,217,607 1,158,890 5 %
Minority Interest in The Lodge 655,514 209,291 213 %
------------ ------------ ------------
Net income $ 1,800,171 $ 962,834 87 %
============ ============ ============
Basic earnings per share $ 0.44 $ 0.24 83 %
============ ============ ============
Diluted earnings per share $ 0.44 $ 0.23 91 %
============ ============ ============
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS--BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
NET REVENUES
We generated net revenues of $22,364,000 during the three-months ended
March 31, 2000 compared to $19,762,000 for the same period of 1999. The increase
in net revenues of $2,602,000 or 13% is the result of an increase in casino
revenue at the Lodge of $2,768,000 offset by decreases in casino revenue at GHC
of $131,000 and other aggregated net revenues of $35,000.
Since the vast majority of our net revenues 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 and an emphasis on customer service.
We believe the primary reason for our increased net revenues for the
three-months ended March 31, 2000 over the same period of 1999 was due to a 26%
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 $16,725,000 for the three-months
ended March 31, 2000 compared to $15,782,000 for the same period of 1999. The
overall increase of $943,000 or 6% was the result of increases in gaming taxes
of $274,000, player incentive marketing costs of $398,000, corporate overhead of
$140,000 and increases in other net expenses of $131,000.
EBITDA AND MINORITY INTEREST
When our total costs and expenses are subtracted from our net revenues,
the result is EBITDA and Minority Interest of $5,639,000 for the three-months
ended March 31, 2000 compared to $3,980,000 for the same period of 1999. The
increase of $1,659,000 or 42% is a result of the factors discussed above. Our
EBITDA and Minority Interest ratio (EBITDA and Minority Interest divided by our
net revenues) is 25% for the three-months ended March 31, 2000 compared to 20%
for the same period of 1999.
INTEREST EXPENSE
We had interest expense totaling $953,000 during the three-months ended
March 31, 2000 compared to $1,107,000 for the same period of 1999. The decrease
of $154,000 or 14% is primarily the result of paying down our debt levels by
approximately $5,820,000 at various times since March 31, 1999.
DEPRECIATION AND AMORTIZATION
We had depreciation and amortization of $1,218,000 for the three-months
ended March 31, 2000 compared to $1,159,000 for the same period of 1999. The
increase of $59,000 or 5% is generally due to an increase in our depreciable
assets. Depreciation and amortization primarily relates to buildings, equipment,
and intangible assets.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS--BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC. (CONTINUED)
MINORITY INTEREST
Minority interest for the three-months ended March 31, 2000 totaled
$655,000 compared to $209,000 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 March 31, 2000
and 1999 resulted in income tax expense of $1,013,000 and $542,000. The unique
tax characteristics of the individual components of our income before income
taxes are what determine our overall effective tax rate. Assuming profitability
at our current levels, our effective income tax rate will remain in the 35% to
37% range.
NET INCOME
As a result of the factors discussed above, we reported net income of
$1,800,000 for the three-months ended March 31, 2000 compared to $963,000 for
the same period of 1999, an increase in net income of $837,000 or 87%.
EARNINGS PER SHARE
We reported basic earnings per share for the three-months ended March
31, 2000 and 1999 of $.44 and $.24, respectively and diluted earnings per share
for the same time periods of $.44 and $.23, respectively. The increase in basic
and diluted earnings per share of $.20 or 83% and $.21 or 91%, respectively, are
primarily the result of increased profitability.
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12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS--THE LODGE
NET REVENUES
The Lodge generated net revenues of $16,027,000 during the three-months
ended March 31, 2000 compared to $13,301,000 for the same period of 1999. The
increase in our net revenue at The Lodge of $2,726,000 or 20% is primarily due
to an increase in casino revenue of $2,768,000 or 22% offset by a net decrease
in other combined net revenue of $42,000. We believe the primary reason for our
increased net revenue is due to a 26% increase in gaming revenue 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 $11,476,000 during the three-months ended March 31, 2000
compared to $10,533,000 for the same period of 1999. The overall increase of
$943,000 or 9% is due to increases in gaming taxes of $449,000, player incentive
marketing costs of $398,000 and other net expenses of $96,000. The increase in
the overall expenses incurred at The Lodge is primarily a function of the
increase in casino revenue.
EBITDA
When the Lodge's costs and expenses are subtracted from net revenues,
the result is EBITDA and Minority Interest of $4,551,000 for the three-months
ended March 31, 2000 compared to $2,768,000 for the same period of 1999. The
increase in EBITDA of $1,783,000 or 64% is primarily the result of increased
casino revenue offset by the increase in related expenses.
INTEREST EXPENSE
Interest expense at The Lodge was $725,000 for the three-months ended
March 31, 2000 compared to $812,000 for the same period of 1999. The decrease of
$87,000 or 11% is primarily the result of paying down our debt levels by
approximately $3,138,000 at various times since March 31, 1999.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization of The Lodge totaled $826,000 for the
three-months ended March 31, 2000 compared to $746,000 for the same period of
1999. The increase of $80,000 or 11% is generally due to an increase in
depreciable assets.
INCOME BEFORE INCOME TAX
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 $3,000,000 for the three-months ended March 31, 2000
compared to $1,210,000 for the same period of 1999, an increase of $1,790,000 or
148%.
The Lodge competed successfully with the new casinos in the City of
Black Hawk during the three-months ended March 31, 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 continue to 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 is to continue to enhance the overall product we offer at The Lodge in
order to be responsive to the new and increased competition in the City.
10
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS--GILPIN HOTEL CASINO
NET REVENUES
GHC generated net revenues of $6,331,000 during the three-months ended
March 31, 2000 compared to $6,455,000 for the same period of 1999. The decrease
in our net revenue at GHC of $125,000 or 2% is primarily due to a decrease in
casino revenue of $131,000 offset by a net increase in other combined net
revenue of $7,000. We believe the primary reason for our decrease in net revenue
at GHC is attributable to 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 $4,788,000 during the three-months
ended March 31, 2000 compared to $4,928,000 for the same period of 1999. The
overall decrease of $140,000 or 3% is due to a decrease in gaming taxes of
$175,000 and was offset by an increase in other net expenses of $35,000. The
decrease in gaming taxes is primarily the result of a change in the gaming tax
rates, which have been in effect since July 1, 1999.
EBITDA
When GHC's costs and expenses are subtracted from net revenues, the
result is EBITDA of $1,542,000 for the three-months ended March 31, 2000
compared to $1,527,000 for the same period of 1999. The increase in EBITDA of
$15,000 or 1% is primarily the result of a decrease in net revenue at GHC mostly
offset by a decrease in gaming taxes.
INTEREST EXPENSE
Interest expense at GHC was $228,000 for the three-months ended March
31, 2000 compared to $295,000 for the same period of 1999. The decrease of
$67,000 or 23% is the result of paying down our debt levels by approximately
$2,682,000 at various times since March 31, 1999.
DEPRECIATION AND AMORTIZATION
The depreciation and amortization of GHC totaled $390,000 for the
three-months ended March 31, 2000 compared to $411,000 for the same period of
1999. The decrease of $21,000 or 5% is generally due to assets fully depreciated
assets associated with the 1994 GHC expansion.
INCOME BEFORE INCOME TAX
As a result of the factors discussed above, GHC generated income before
income tax of $924,000 for the three-months ended March 31, 2000 compared to
$821,000 for the same period of 1999, an increase of $103,000 or 13%.
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 is to continue to build on the product we offer at GHC and to remain
competitive with the new and increased competition in the City.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS--CORPORATE
Generally, corporate operations is 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
Net revenue generated at our corporate level (after eliminating
inter-company transactions) is primarily derived from interest earned on our
corporate cash balances. Interest income totaled $7,000 for the three-months
ended March 31, 2000 compared to $6,000 for the same period of 1999. The
increase of $1,000 or 17% is due to a federal corporate income tax refund, which
included $4,000 of interest income, and was offset by a decrease in interest
earned on corporate cash balances of $3,000.
COSTS AND EXPENSES
Our costs and expenses totaled $461,000 for the three-months ended
March 31, 2000 compared to $321,000 for the same period of 1999. The increase of
$140,000 or 44% is due to increases in compensation costs of $83,000, consulting
fees of 18,000, shareholder relations fees of $16,000 and other general and
administrative expenses totaling $23,000.
NET CORPORATE OVERHEAD
When our corporate costs and expenses are subtracted from our net
revenue, the result is net corporate overhead of $454,000 for the three-months
ended March 31, 2000 compared to $315,000 for the same period of 1999. The
increase in our net corporate overhead of $139,000 or 44% decreases our
consolidated EBITDA.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization at the corporate level was $2,000 for the
three-months ended March 31, 2000 and 1999.
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LIQUIDITY AND CAPITAL RESOURCES
The net cash provided by operating activities was $2,607,000 during the
first three-months ended March 31, 2000 compared to net cash provided by
operating activities of $1,288,000 for the same period of 1999.
Net cash used in investing activities for the three-months ended March
31, 2000 was $823,000. The uses of funds included payments for equipment
additions to our casinos of $261,000, acquisition costs related to the Gold Dust
West of $582,000. These uses of funds were partially offset by the proceeds from
the sale of equipment totaling $20,000. Net cash used in investing activities
for the three-months ended March 31, 1999 was $2,766,000. The uses of funds
included payments for equipment purchases and additions to our casinos totaling
$2,802,000 and other investing activities of $1,000. These uses of funds were
partially offset by the proceeds from the sale of equipment totaling $37,000.
The net cash used in financing activities during the three-months ended
March 31, 2000 totaled $534,000. These uses of funds included payments on bonds
totaling $175,000, payments on long term debt of $100,000 and distributions to
the minority interest owner of The Lodge totaling $269,000. These uses of funds
were partially offset by other financing activities of $10,000. The net cash
used in financing activities during the three-months ended March 31, 1999
totaled $1,569,000. These sources of funds included proceeds from the sale of
bonds totaling $6,000,000 and draws against GHC's revolving line of credit of
$5,073,000. These sources were reduced by debt payments of $3,973,000, payments
against GHC's revolving line of credit of $8,107,000 and payments to refinance
existing debt of $562,000.
As of March 31, 2000 the Company had working capital of approximately
$3,100,000 compared to $819,000 at December 31, 1999.
In March 1999, the LLC 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 the Gilpin); (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 at a rate 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, (approximately 8.9% at March 31,
2000); (iv) the scheduled reductions in the availability of the commitment will
be made on a quarterly basis commencing on July 1, 2000. The first four
quarterly reductions in availability will be $1,300,000, the next four quarterly
reductions in availability will be $2,275,000 and the following four reductions
in availability will be $3,250,000 per quarter 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, requires the Company to maintain certain financial ratios 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.
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LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
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. The purchase price is $26,500,000 and closing is
anticipated to take place after we obtain Nevada gaming approvals, which include
licensing of our Company and certain of our officers and directors. We believe
this will take several months to complete. Other conditions to closing require
Gold Dust West to achieve at least $5,100,000 of EBITDA for the trailing
12-month period ending 30 days prior to the closing date.
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 acquisition out of our existing 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 $39 million at March 31, 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 March 31, 2000 we had partially 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 rate interest payment on a
notional amount of $35 million. This has reduced the Company's exposure to
interest rate risk to $4 million of debt not hedged with the interest rate swap
at March 31, 2000.
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 March
31, 2000, would be approximately $36,000.
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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:
No. Description
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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: May 4, 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
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
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27 Financial Data Schedule