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 June 30, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to _________________
Commission File Number: 0-21736
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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
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
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 August 7, 2000
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BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
INDEX TO FORM 10-Q
JUNE 30, 2000
PAGE NO.
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets as of June 30, 2000
and December 31, 1999 1
Consolidated Statements of Income for the three
and six months ended June 30, 2000 and 1999 2
Consolidated Statements of Cash Flows for the six
months ended June 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
JUNE 30, 2000 AND DECEMBER 31, 1999
JUNE 30, DECEMBER 31,
2000 1999
------------- -------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 8,416,904 $ 10,239,735
Accounts receivable 167,877 190,044
Inventories 555,412 557,182
Prepaid expenses 739,078 699,899
Deferred income tax 417,323 417,323
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Total current assets 10,296,594 12,104,183
LAND 15,248,092 15,235,092
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GAMING FACILITIES:
Building and improvements 58,282,988 58,098,219
Equipment 17,894,864 17,342,370
Accumulated depreciation (12,165,750) (10,310,295)
------------- -------------
Total gaming facilities 64,012,102 65,130,294
OTHER ASSETS:
Goodwill, net of accumulated amortization of $1,144,813
and $931,729, respectively 5,599,264 5,812,347
Other assets 3,513,294 2,724,609
Deferred income tax 73,417 73,417
------------- -------------
TOTAL $ 98,742,763 $ 101,079,942
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 7,595,700 $ 10,547,256
Current portion of long-term debt 959,346 737,740
------------- -------------
Total current liabilities 8,555,046 11,284,996
LONG-TERM DEBT AND OTHER LIABILITIES:
Reducing and revolving credit facility 36,000,000 39,000,000
Bonds payable 5,470,000 5,645,000
Other notes payable 416,860
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Total long-term debt 41,470,000 45,061,860
Deferred tax liability 119,248 119,248
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Total liabilities 50,144,294 56,466,104
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COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 8,747,382 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 21,370,272 18,027,736
------------- -------------
Total stockholders' equity 39,851,087 36,498,551
------------- -------------
TOTAL $ 98,742,763 $ 101,079,942
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4
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
THREE MONTHS ENDED PERCENTAGE
JUNE 30, INCREASE
2000 1999 (DECREASE)
------------ ------------ ------------
REVENUES:
Casino revenue $ 20,924,449 $ 20,233,838 3%
Food and beverage revenue 2,286,263 2,093,382 9%
Hotel revenue 280,502 278,698 1%
Interest and other 262,427 179,487 46%
------------ ------------ ------------
Total revenues 23,753,641 22,785,405 4%
------------ ------------ ------------
Promotional allowances 1,623,829 1,440,105 13%
------------ ------------ ------------
Net revenues 22,129,812 21,345,300 4%
------------ ------------ ------------
COSTS AND EXPENSES:
Casino operations 6,466,405 6,290,489 3%
Food and beverage operations 2,053,969 2,053,641 0%
Hotel operations 176,558 143,502 23%
Marketing, general and administrative 8,331,737 8,715,810 (4)%
Interest 886,916 1,069,774 (17)%
Depreciation and amortization 1,206,867 1,269,781 (5)%
------------ ------------ ------------
Total costs and expenses 19,122,452 19,542,997 (2)%
------------ ------------ ------------
MINORITY INTEREST (597,395) (349,903) 71%
INCOME BEFORE INCOME TAXES 2,409,965 1,452,400 66%
------------ ------------ ------------
INCOME TAXES 867,600 522,850 66%
------------ ------------ ------------
NET INCOME $ 1,542,365 $ 929,550 66%
============ ============ ============
BASIC EARNINGS PER SHARE $ 0.37 $ 0.23 61%
Dilutive effect of outstanding options (0.01)
------------ ------------ ------------
DILUTED EARNINGS PER SHARE $ 0.37 $ 0.22 68%
============ ============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
BASIC 4,111,757 4,094,611
Dilutive effect of outstanding options 53,487 79,153
------------ ------------
DILUTED 4,165,244 4,173,764
============ ============
SIX MONTHS ENDED PERCENTAGE
JUNE 30, INCREASE
2000 1999 (DECREASE)
------------ ------------ ------------
REVENUES:
Casino revenue $ 42,196,252 $ 38,869,018 9%
Food and beverage revenue 4,659,550 4,205,833 11%
Hotel revenue 535,066 539,512 (1)%
Interest and other 455,437 404,225 13%
------------ ------------ ------------
Total revenues 47,846,305 44,018,588 9%
------------ ------------ ------------
Promotional allowances 3,352,225 2,911,566 15%
------------ ------------ ------------
Net revenues 44,494,080 41,107,022 8%
------------ ------------ ------------
COSTS AND EXPENSES:
Casino operations 12,852,011 12,364,527 4%
Food and beverage operations 4,091,918 4,189,190 (2)%
Hotel operations 347,697 277,057 25%
Marketing, general and administrative 16,462,019 16,154,872 2%
Interest 1,840,316 2,176,627 (15)%
Depreciation and amortization 2,424,474 2,428,671 (0)%
------------ ------------ ------------
Total costs and expenses 38,018,435 37,590,944 1%
------------ ------------ ------------
MINORITY INTEREST (1,252,909) (559,194) 124%
INCOME BEFORE INCOME TAXES 5,222,736 2,956,884 77%
------------ ------------ ------------
INCOME TAXES 1,880,200 1,064,500 77%
------------ ------------ ------------
NET INCOME $ 3,342,536 $ 1,892,384 77%
============ ============ ============
BASIC EARNINGS PER SHARE $ 0.81 $ 0.46 76%
Dilutive effect of outstanding options (0.01)
------------ ------------ ------------
DILUTED EARNINGS PER SHARE $ 0.81 $ 0.45 80%
============ ============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
BASIC 4,111,482 4,091,182
Dilutive effect of outstanding options 38,821 72,722
------------ ------------
DILUTED 4,150,303 4,163,904
============ ============
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5
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
2000 1999
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OPERATING ACTIVITIES:
Net income $ 3,342,536 $ 1,892,384
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,424,474 2,428,671
(Gain) on sale of equipment (23,813)
Minority interest 1,252,909 559,194
Noncash compensation 7,750 2,750
Changes in operating assets and liabilities:
Accounts receivable 22,167 98,155
Inventories 1,770 27,003
Prepaid expenses and other assets 158,844 (339,123)
Accounts payable and accrued expenses (2,959,307) (1,832,288)
------------ ------------
Net cash provided by operating activities 4,227,330 2,836,746
------------ ------------
INVESTING ACTIVITIES:
Proceeds from sale of equipment 27,950 48,967
Equipment purchases and additions to gaming facilities (1,122,901) (3,565,967)
Proceeds from the City of Black Hawk for public improvements 380,000
Acquisition costs related to Gold Dust West (974,143)
Other (990)
------------ ------------
Net cash used in investing activities (2,069,094) (3,137,990)
------------ ------------
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 revolving line of credit
Payments on long term debt and note payable (3,195,254) (5,975,974)
Payments to refinance debt (2,222,015)
Distributions to minority interest owner (620,813) (773,952)
Other 10,000 139,275
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Net cash used in financing activities (3,981,067) (2,216,785)
------------ ------------
NET (DECREASE) IN CASH
AND CASH EQUIVALENTS $ (1,822,831) $ (2,518,029)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 10,239,735 10,887,602
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 8,416,904 $ 8,369,573
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 1,897,247 $ 2,392,274
Cash paid for income taxes $ 1,875,750 $ 716,500
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BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000
1. BUSINESS
Black Hawk Gaming & Development Company, Inc. ("BHWK") 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 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 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 June 30,
2000 and the results of its operations for the three and six 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 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 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.
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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, our proposed acquisition 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
Black Hawk Gaming & Development Company Inc.'s ("BHWK") results of
operations for the three and six months ended June 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 sometime 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
these 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.
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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 six months ended June 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 generally accepted accounting principles. 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.
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10
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
THREE MONTHS ENDED PERCENTAGE
JUNE 30, JUNE 30, INCREASE
2000 1999 (DECREASE)
------------ ------------ ------------
NET REVENUE
Lodge $ 15,824,288 $ 14,371,853 10%
GHC 6,301,946 6,968,376 (10)%
Corporate 3,578 5,072 (29)%
------------ ------------ ------------
Total net revenue 22,129,812 21,345,301 4%
COSTS AND EXPENSES
Lodge 11,542,326 10,964,872 5%
GHC 4,943,474 5,444,933 (9)%
Corporate 542,869 793,638 (32)%
------------ ------------ ------------
Total costs and expenses 17,028,669 17,203,443 (1)%
EBITDA & Minority Interest in The Lodge
Lodge 4,281,962 3,406,981 26%
GHC 1,358,472 1,523,443 (11)%
Net corporate overhead (539,291) (788,566) (32)%
------------ ------------ ------------
Total EBITDA & Minority Interest in The Lodge 5,101,143 4,141,858 23%
------------ ------------ ------------
Interest expense 886,916 1,069,774 (17)%
Income taxes 867,600 522,850 66%
Depreciation and amortization 1,206,867 1,269,781 (5)%
Minority Interest in The Lodge 597,395 349,903 71%
------------ ------------ ------------
Net income $ 1,542,365 $ 929,550 66%
============ ============ ============
Basic earnings per share $ 0.37 $ 0.23 61%
============ ============ ============
Diluted earnings per share $ 0.37 $ 0.22 68%
============ ============ ============
SIX MONTHS ENDED PERCENTAGE
JUNE 30, JUNE 30, INCREASE
2000 1999 (DECREASE)
------------ ------------ ------------
NET REVENUE
Lodge $ 31,851,241 $ 27,672,730 15%
GHC 12,632,629 13,423,540 (6)%
Corporate 10,210 10,752 (5)%
------------ ------------ ------------
Total net revenue 44,494,080 41,107,022 8%
COSTS AND EXPENSES
Lodge 23,018,747 21,498,299 7%
GHC 9,731,171 10,373,183 (6)%
Corporate 1,003,727 1,114,164 (10)%
------------ ------------ ------------
Total costs and expenses 33,753,645 32,985,646 2%
EBITDA & Minority Interest in The Lodge
Lodge 8,832,494 6,174,431 43%
GHC 2,901,458 3,050,357 (5)%
Net corporate overhead (993,517) (1,103,412) (10)%
------------ ------------ ------------
Total EBITDA & Minority Interest in The Lodge 10,740,435 8,121,376 32%
------------ ------------ ------------
Interest expense 1,840,316 2,176,627 (15)%
Income taxes 1,880,200 1,064,500 77%
Depreciation and amortization 2,424,474 2,428,671 (0)%
Minority Interest in The Lodge 1,252,909 559,194 124%
------------ ------------ ------------
Net income $ 3,342,536 $ 1,892,384 77%
============ ============ ============
Basic earnings per share $ 0.81 $ 0.46 76%
============ ============ ============
Diluted earnings per share $ 0.81 $ 0.45 80%
============ ============ ============
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11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
CONSOLIDATED RESULTS OF OPERATIONS -- FOR THE THREE MONTHS ENDED JUNE 30, 2000
COMPARED TO THE THREE MONTHS ENDED JUNE 30, 1999
NET REVENUES
We generated net revenues of $22,130,000 during the three months ended
June 30, 2000 compared to $21,345,000 for the same period of 1999. The increase
in net revenues of $785,000 or 4% is the result of an increase in casino
revenues at The Lodge of $1,331,000 offset by decreases in casino revenues at
GHC of $641,000 and an increase in other net revenues of $95,000.
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 an increase in our net revenues for
the three months ended June 30, 2000 over the same period of 1999 was due to a
21% 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 $17,029,000 for the three months
ended June 30, 2000 compared to $17,203,000 for the same period of 1999. The
overall decrease of $174,000 or 1% was the result of a decrease in gaming taxes
of $212,000 resulting from a change in gaming tax rates which became effective
on July 1, 1999, corporate overhead of $251,000 and bus program costs of
$692,000. These decreases were partially offset by increases in labor costs of
$367,000, slot game participation expenses of $224,000, player incentive
marketing costs of $322,000 and increases in other net expenses of $68,000.
EBITDA AND MINORITY INTEREST
When our total costs and expenses are subtracted from our net revenues,
the result is EBITDA and Minority Interest of $5,101,000 for the three months
ended June 30, 2000 compared to $4,142,000 for the same period of 1999. The
increase of $959,000 or 23% 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 23% for the three months ended June 30, 2000
compared to 19% for the same period of 1999.
INTEREST EXPENSE
We had interest expense totaling $887,000 during the three months ended
June 30, 2000 compared to $1,070,000 for the same period of 1999. Generally, the
decrease of $183,000 or 17% is the result of paying down our debt by
approximately $10,562,000 at various times since June 30, 1999.
DEPRECIATION AND AMORTIZATION
We had depreciation and amortization expense of $1,207,000 for the
three months ended June 30, 2000 compared to $1,270,000 for the same period of
1999. The decrease of $63,000 or 5% is generally due to fully depreciated assets
associated with the 1994 GHC expansion partially offset by increases in
depreciable assets. Depreciation and amortization primarily relates to
buildings, equipment, and intangible assets.
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12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
CONSOLIDATED RESULTS OF OPERATIONS -- FOR THE THREE MONTHS ENDED JUNE 30, 2000
COMPARED TO THE THREE MONTHS ENDED JUNE 30, 1999 (CONTINUED)
MINORITY INTEREST
Minority interest for the three months ended June 30, 2000 totaled
$597,000 compared to $349,000 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 June 30, 2000
and 1999 resulted in income tax expense of $868,000 and $523,000, respectively.
The 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
$1,542,000 for the three months ended June 30, 2000 compared to $930,000 for the
same period of 1999, an increase in net income of $612,000 or 66%.
EARNINGS PER SHARE
We reported basic earnings per share for the three months ended June
30, 2000 and 1999 of $.37 and $.23, respectively and diluted earnings per share
for the same time periods of $.37 and $.22, respectively. The increase in basic
and diluted earnings per share of $.14 or 61% and $.15 or 68%, respectively, are
primarily the result of increased profitability.
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13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
THE LODGE RESULTS OF OPERATIONS -- FOR THE THREE MONTHS ENDED JUNE 30, 2000
COMPARED TO THE THREE MONTHS ENDED JUNE 30, 1999
NET REVENUES
The Lodge generated net revenues of $15,824,000 during the three months
ended June 30, 2000 compared to $14,372,000 for the same period of 1999. The
increase in our net revenues at The Lodge of $1,452,000 or 10% is primarily due
to an increase in casino revenues of $1,331,000 or 10%, and an increase in other
combined net revenues of $121,000. The primary reason for our increased net
revenues is due to a 21% 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 $11,542,000 during the three months ended June 30, 2000
compared to $10,965,000 for the same period of 1999. The overall increase of
$577,000 or 5% is due to increases in labor costs of $347,000, an increase in
gaming taxes of $114,000, slot participation expense of $159,000, player
incentive marketing costs of $189,000 and increases in other net expenses of
$34,000 offset by a reduction in bus program costs of $266,000. The overall
increase in labor costs is the result of an increase in employee medical
insurance and an increase in wages paid to retain employees as a result of
increased competition that exists in the city.
EBITDA
When The Lodge's costs and expenses are subtracted from net revenues,
the result is EBITDA and Minority Interest of $4,282,000 for the three months
ended June 30, 2000 compared to $3,407,000 for the same period of 1999. The
increase in EBITDA of $875,000 or 26% is generally the result of increased
casino revenues offset by the increase in related expenses.
INTEREST EXPENSE
Interest expense at The Lodge was $679,000 for the three months ended
June 30, 2000 compared to $786,000 for the same period of 1999. The decrease of
$107,000 or 14% is primarily the result of paying down our debt by approximately
$6,919,000 at various times since June 30, 1999.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense of The Lodge totaled $842,000 for
the three months ended June 30, 2000 compared to $817,000 for the same period of
1999. The increase of $25,000 or 3% is due to an increase in depreciable assets.
INCOME BEFORE INCOME TAXES
As a result of the factors discussed above, The Lodge generated income
before income taxes (after eliminating inter-company transactions and before
minority interest) of $2,761,000 for the three months ended June 30, 2000
compared to $1,804,000 for the same period of 1999, an increase of $957,000 or
53%.
The Lodge successfully competed with the new casinos in the City of
Black Hawk during the three months ended June 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 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 and to be
responsive to the new and increased competition in the City.
11
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
GILPIN HOTEL CASINO RESULTS OF OPERATIONS -- FOR THE THREE MONTHS ENDED JUNE 30,
2000 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 1999
NET REVENUES
GHC generated net revenues of $6,302,000 during the three months ended
June 30, 2000 compared to $6,968,000 for the same period of 1999. The decrease
in our net revenues at GHC of $666,000 or 10% is primarily due to a decrease in
casino revenues of $641,000 and a reduction in other combined net revenues of
$25,000. We believe the primary reasons for the decrease in the net revenues at
GHC is 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 $4,944,000 during the three months
ended June 30, 2000 compared to $5,444,000 for the same period of 1999. The
overall decrease of $500,000 or 9% is due to a decrease in gaming taxes of
$326,000 and bus program costs of $426,000, offset by an increase in slot
machine participation expenses of $65,000, labor of $20,000, player incentive
costs of $133,000 and other net expenses of $34,000. The decrease in gaming
taxes is the result of reduced casino revenues as well as a change in the gaming
tax rates, which became effective July 1, 1999.
EBITDA
When GHC's costs and expenses are subtracted from net revenues, the
result is EBITDA of $1,358,000 for the three months ended June 30, 2000 compared
to $1,523,000 for the same period of 1999. The decrease in EBITDA of $165,000 or
11% is primarily the result of a decrease in net revenues at GHC partially
offset by a decrease in gaming taxes and player incentive marketing program
costs.
INTEREST EXPENSE
Interest expense at GHC was $208,000 for the three months ended June
30, 2000 compared to $284,000 for the same period of 1999. The decrease of
$76,000 or 27% is the result of paying down our debt levels by approximately
$3,643,000 at various times since June 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 $363,000 for the
three months ended June 30, 2000 compared to $451,000 for the same period of
1999. The decrease of $88,000 or 20% is 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 $787,000 for the three months ended June 30, 2000 compared to
$789,000 for the same period of 1999, a decrease of $2,000 or less than 1%.
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.
12
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
CORPORATE RESULTS OF OPERATIONS -- FOR THE THREE MONTHS ENDED JUNE 30, 2000
COMPARED TO THE THREE MONTHS ENDED JUNE 30, 1999
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 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 $4,000 for the three months
ended June 30, 2000 compared to $5,000 for the same period of 1999. The decrease
of $1,000 is a result of a decrease in interest earned on corporate cash
balances.
COSTS AND EXPENSES
Our costs and expenses totaled $543,000 for the three months ended June
30, 2000 compared to $794,000 for the same period of 1999. The decrease of
$251,000 or 32% is due to a reduction in legal costs of $325,000 offset by
increases in travel costs of $38,000, insurance costs of $20,000 and other net
expenses $16,000. The significant reduction in legal fees in 2000 is due to
arbitration claims paid in 1999 during the second quarter.
NET CORPORATE OVERHEAD
When our corporate costs and expenses are subtracted from our net
revenues, the result is net corporate overhead of $539,000 for the three months
ended June 30, 2000 compared to $789,000 for the same period of 1999. As a
result of the decrease in our net corporate overhead of $250,000 or 32% for the
three months ended June 30, 2000 compared to the same period of 1999 our
consolidated EBITDA has increased.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization at the corporate level was $2,000 for the
three months ended June 30, 2000 and 1999.
13
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
CONSOLIDATED RESULTS OF OPERATIONS -- FOR THE SIX MONTHS ENDED JUNE 30, 2000
COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999
NET REVENUES
We generated net revenues of $44,494,000 during the six months ended
June 30, 2000 compared to $41,107,000 for the same period of 1999. The increase
in net revenues of $3,387,000 or 8% is the result of an increase in casino
revenues at The Lodge of $4,099,000 offset by decreases in casino revenues at
GHC of $772,000 and increases in other net revenues of $60,000.
The primary reason for our increased net revenues for the six months
ended June 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 $33,754,000 for the six months ended
June 30, 2000 compared to $32,985,000 for the same period of 1999. The overall
increase of $769,000 or 2% was the result of increases in labor of $529,000, in
gaming taxes of $54,000, slot participation expense of $295,000, player
incentive marketing costs of $956,000 and other net expenses of $100,000 offset
by reductions in corporate overhead of $110,000 and bus program costs of
$1,055,000.
EBITDA AND MINORITY INTEREST
When our total costs and expenses are subtracted from our net revenues,
the result is EBITDA and Minority Interest of $10,740,000 for the six months
ended June 30, 2000 compared to $8,121,000 for the same period of 1999. The
increase of $2,619,000 or 32% 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 six months ended June 30, 2000
compared to 20% for the same period of 1999.
INTEREST EXPENSE
We had interest expense totaling $1,840,000 during the six months ended
June 30, 2000 compared to $2,177,000 for the same period of 1999. The decrease
of $337,000 or 15% is primarily the result of paying down our debt by
approximately $10,562,000 at various times since June 30, 1999.
DEPRECIATION AND AMORTIZATION
We had depreciation and amortization of $2,424,000 for the six months
ended June 30, 2000 compared to $2,429,000 for the same period of 1999. The
increase of $5,000 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.
14
17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
CONSOLIDATED RESULTS OF OPERATIONS -- FOR THE SIX MONTHS ENDED JUNE 30, 2000
COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999 (CONTINUED)
MINORITY INTEREST
Minority interest for the six months ended June 30, 2000 totaled
$1,253,000 compared to $559,000 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 six months ended June 30, 2000
and 1999 resulted in income tax expense of $1,880,000 and $1,065,000. The 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
$3,343,000 for the six months ended June 30, 2000 compared to $1,892,000 for the
same period of 1999, an increase in net income of $1,451,000 or 77%.
EARNINGS PER SHARE
We reported basic earnings per share for the six months ended June 30,
2000 and 1999 of $.81 and $.46, respectively and diluted earnings per share for
the same periods of $.81 and $.45, respectively. The increase in basic and
diluted earnings per share of $.35 or 76% and $.36 or 80%, respectively, is
primarily the result of increased profitability.
15
18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
THE LODGE RESULTS OF OPERATIONS -- FOR THE SIX MONTHS ENDED JUNE 30, 2000
COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999
NET REVENUES
The Lodge generated net revenues of $31,851,000 during the six months
ended June 30, 2000 compared to $27,673,000 for the same period of 1999. The
increase in our net revenues at The Lodge of $4,178,000 or 15% is primarily due
to an increase in casino revenues of $4,099,000 or 16% in addition to a net
increase in other combined net revenues of $79,000. 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 $23,019,000 during the six months ended June 30, 2000
compared to $21,498,000 for the same period of 1999. The overall increase of
$1,521,000 or 7% is due to increases in labor of $540,000, slot participation
expense of $154,000, gaming taxes of $555,000, player incentive marketing costs
of $715,000 and other net expenses of $20,000. These increased expenses were
offset by a reduction in bus program costs of $463,000. The increase in the
overall expenses incurred at The Lodge is primarily a function of the increase
in casino revenues.
EBITDA
When The Lodge's costs and expenses are subtracted from net revenues,
the result is EBITDA and Minority Interest of $8,832,000 for the six months
ended June 30, 2000 compared to $6,174,000 for the same period of 1999. The
increase in EBITDA of $2,658,000 or 43% is primarily the result of increased
casino revenues offset by the increase in related expenses.
INTEREST EXPENSE
Interest expense at The Lodge was $1,403,000 for the six months ended
June 30, 2000 compared to $1,599,000 for the same period of 1999. The decrease
of $196,000 or 12% is primarily the result of paying down our debt levels by
approximately $6,919,000 at various times since June 30, 1999.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization of The Lodge totaled $1,667,000 for the
six months ended June 30, 2000 compared to $1,564,000 for the same period of
1999. The increase of $103,000 or 7% 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 $5,762,000 for the six months ended June 30, 2000 compared
to $3,012,000 for the same period of 1999, an increase of $2,750,000 or 91%.
As previously stated, The Lodge competed successfully with the new
casinos in the City of Black Hawk during the six months ended June 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 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.
16
19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
GILPIN HOTEL CASINO RESULTS OF OPERATIONS -- FOR THE SIX MONTHS ENDED JUNE 30,
2000 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999
NET REVENUES
GHC generated net revenues of $12,633,000 during the six months ended
June 30, 2000 compared to $13,423,000 for the same period of 1999. The decrease
in our net revenues at GHC of $790,000 or 6% is primarily due to a decrease in
casino revenues of $772,000 in addition to a net increase in other combined net
revenues of $18,000. 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 $9,731,000 during the six months ended
June 30, 2000 compared to $10,373,000 for the same period of 1999. The overall
decrease of $642,000 or 6% is due to a decrease in gaming taxes of $501,000, bus
program costs of $592,000 and labor of $11,000. These decreases were offset by
an increase in slot game participation expense of $141,000, player incentive
marketing costs of $241,000 and other net expenses of $80,000. The decrease in
gaming taxes is primarily the result of a reduction in gaming revenues and
change in the gaming tax rates, which became effective July 1, 1999.
EBITDA
When GHC's costs and expenses are subtracted from net revenues, the
result is EBITDA of $2,901,000 for the six months ended June 30, 2000 compared
to $3,050,000 for the same period of 1999. The decrease in EBITDA of $149,000 or
5% is primarily the result of a decrease in net revenue at GHC, which was
partially offset by a decrease in gaming taxes and marketing costs.
INTEREST EXPENSE
Interest expense at GHC was $437,000 for the six months ended June 30,
2000 compared to $578,000 for the same period of 1999. The decrease of $141,000
or 24% is the result of paying down our debt levels by approximately $3,643,000
at various times since June 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 $753,000 for the
six months ended June 30, 2000 compared to $861,000 for the same period of 1999.
The decrease of $108,000 or 13% 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 $1,712,000 for the six months ended June 30, 2000 compared to
$1,611,000 for the same period of 1999, an increase of $101,000 or 6%.
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 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.
17
20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
CORPORATE RESULTS OF OPERATIONS -- FOR THE SIX MONTHS ENDED JUNE 30, 2000
COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999
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 $10,000 for the six months
ended June 30, 2000 compared to $11,000 for the same period of 1999.
COSTS AND EXPENSES
Our costs and expenses totaled $1,004,000 for the six-months ended June
30, 2000 compared to $1,114,000 for the same period of 1999. The decrease of
$110,000 or 10% is due to increases in compensation costs of $110,000,
consulting fees of $15,000, travel costs of $45,000, insurance costs of $20,000
and other general and administrative expenses totaling $18,000. These increases
were offset by a decrease in legal expenses of $318,000. The significant
reduction in legal fees in 2000 is due to arbitration claims paid in 1999 during
the second quarter.
NET CORPORATE OVERHEAD
When our corporate costs and expenses are subtracted from our net
revenues, the result is net corporate overhead of $994,000 for the six months
ended June 30, 2000 compared to $1,103,000 for the same period of 1999. The
decrease in our net corporate overhead of $109,000 or 10% increases our
consolidated EBITDA.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization at the corporate level was $4,000 for the
six months ended June 30, 2000 and 1999.
18
21
LIQUIDITY AND CAPITAL RESOURCES
The net cash provided by operating activities was $4,227,000 during the
six-months ended June 30, 2000 compared to net cash provided by operating
activities of $2,837,000 for the same period of 1999.
Net cash used in investing activities for the six-months ended June 30,
2000 was $2,069,000. These uses of funds included payments for equipment
additions to our casinos of $1,123,000 and acquisition costs related to the Gold
Dust West of $974,000. These uses of funds were partially offset by the proceeds
from the sale of equipment totaling $28,000. Net cash used in investing
activities for the six-months ended June 30, 1999 was $3,138,000. These uses of
funds included payments for equipment purchases and additions to our casinos
totaling $3,566,000 and other investing activities of $1,000 and were partially
offset by the proceeds from the sale of equipment totaling $49,000 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 six-months ended
June 30, 2000 totaled $3,981,000. These uses of funds included payments on bonds
totaling $175,000, payments on long-term debt of $3,195,000 and distributions to
the minority interest owner of The Lodge totaling $621,000 and were partially
offset by other financing activities of $10,000. The net cash used in our
financing activities during the six-months ended June 30, 1999 totaled
$2,217,000. 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 the 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 $5,976,000
against our debt, payments against the 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 $774,000.
As of June 30, 2000 the Company had working capital of approximately
$1,742,000 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 9% at June 30, 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.
19
22
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 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 $36 million at June 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 June 30, 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 interest rate payment on a
notional amount of $35 million. This has reduced the Company's exposure to
interest rate risk to $1 million of debt not hedged with the interest rate swap
at June 30, 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 June
30, 2000, would be approximately $9,000.
20
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
21
24
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: August 7, 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
25
INDEX TO EXHIBITS
Exhibit
No. Description
------- -----------
27 Financial Data Schedule