SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Mark One
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to ____________
Commission file number 333-8163
Riviera Black Hawk, Inc.
(Exact name of Registrant as specified in its charter)
Colorado 86-0886265
(State or other jurisdiction of incorporation or organization) (IRS Employer
Identification No.)
2901 Las Vegas Boulevard South, Las Vegas, Nevada 89109
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code (702)794-9527
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---
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
The Registrant's Common Stock is owned 100% indirectly by its ultimate
parent Riviera Holdings Corporation, a reporting company. As of October 31,
2000, the number of outstanding shares of the Registrant's Common Stock was
1,000.
Riviera Black Hawk, Inc.
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Independent Accountants' Report 3
Condensed Balance Sheets at September 30, 2000 (Unaudited) and
December 31, 1999 4
Condensed Statements of Operations (Unaudited) for the
Three Months and Nine Months ended September 30, 2000 and 1999 5
Condensed Statements of Cash Flows (Unaudited) for the
Nine Months ended September 30, 2000 and 1999 6
Notes to Condensed Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART II. OTHER INFORMATION
Signature Page 18
2
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors
Riviera Black Hawk, Inc.
We have reviewed the accompanying condensed balance sheet of Riviera Black
Hawk, Inc., (the "Company") as of September 30, 2000, and the related condensed
statements of operations for the three months and nine months ended September
30, 2000 and 1999 and the condensed statemenst of cash flows for the nine months
ended September 30, 2000 and 1999. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed financial statements for them to be in conformity with
accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the balance sheet of Riviera Black
Hawk, Inc. as of December 31, 1999, and the related statements of operations,
stockholders' equity, and cash flows for the year then ended (not presented
herein); and in our report dated February 14, 2000 (March 6, 2000 with respect
to Note 6), we expressed an unqualified opinion on those financial statements.
In our opinion, the information set forth in the accompanying condensed balance
sheet as of December 31, 1999, is fairly stated, in all material respects, in
relation to the balance sheet from which it has been derived.
DELOITTE & TOUCHE LLP
October 24, 2000
Las Vegas, Nevada
3
RIVIERA BLACK HAWK, INC.
BALANCE SHEETS
September 30, 2000 and December 31, 1999
(In Thousands, except share amounts)
- --------------------------------------------------------------------------------------------------------
September 30, December 31,
2000 1999
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $10,061 $1,810
Cash and cash equivalents - restricted 7,173
Short term investments - restricted 2,820
Accounts receivable 397
Inventories 153
Prepaid expenses and other assets 632 795
----------------------------------------
Total current assets 11,243 12,598
PROPERTY AND EQUIPMENT, NET 68,671 56,734
DEFERRED FINANCING COSTS, Net 2,639 3,446
OTHER ASSETS 18 12
DEFERRED INCOME TAXES 1,645 160
----------------------------------------
TOTAL $84,216 $72,950
========================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $1,640 $69
Accounts payable 2,230 3,053
Management fees payable to parent 532
Accrued interest expense 2,644 976
Accrued other expenses 3,472 110
----------------------------------------
Total current liabilities 10,518 4,208
----------------------------------------
LONG-TERM DEBT, NET OF CURRENT PORTION 52,887 45,742
----------------------------------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock ($.001 par value; 10,000 shares
authorized; 1,000 shares issued and outstanding
Additional paid-in capital 23,513 23,474
Accumulated deficit (2,702) (474)
----------------------------------------
Total stockholders' equity 20,811 23,000
----------------------------------------
TOTAL $84,216 $72,950
========================================
See notes to condensed financial statements
4
RIVIERA BLACK HAWK, INC.
STATEMENTS OF OPERATIONS (Unaudited)
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
REVENUES:
Casino $10,751 $26,848
Food and beverage 1,076 3,069
Other 103 249
----------------------------------------------------------
Total revenues 11,930 30,165
Less promotional allowances 666 2,082
----------------------------------------------------------
Net revenues 11,264 28,083
----------------------------------------------------------
COSTS AND EXPENSES:
Direct costs and expenses of operating departments:
Casino 7,017 15,100
Food and beverage 403 1,248
Other 1 1
Other operating expenses:
General and administrative 2,820 7,005
Preopening expenses 0 44 1,222 119
Management fees to parent 183 532
Depreciation and amortization 787 2,015
----------------------------------------------------------
Total costs and expenses 11,210 44 27,123 119
----------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS 54 (44) 960 (119)
----------------------------------------------------------
OTHER (EXPENSE) INCOME
Interest expense (1,870) (1,900) (5,638) (2,093)
Interest income 226 382 390 382
Interest capitalized 0 1,519 576 1,519
----------------------------------------------------------
Total other expense (1,644) 1 (4,672) (192)
----------------------------------------------------------
LOSS BEFORE BENEFIT FOR TAXES (1,590) (43) (3,712) (311)
BENEFIT FOR INCOME TAXES INCLUDING (636) (15) (1,485) (109)
----------------------------------------------------------
COLORADO STATE INCOME TAX
NET LOSS ($954) ($28) ($2,227) ($202)
==========================================================
See notes to condensed financial statements
5
RIVIERA BLACK HAWK, INC.
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2000
STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended Nine Months Ended
September 30, 2000 September 30, 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($2,227) ($202)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 2,016
Provision for bad debts 31
Interest expense 5,638
Interest paid (3,534)
Capitalized interest on construction projects (577)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (428)
Decrease (increase) in inventories (152)
Decrease (increase) in prepaid expenses
and other assets 163
Increase (decrease) in accounts payable (823)
Increase (decrease) in management fees payable 532
Increase (decrease) in accrued liabilities 2,926
Increase (decrease) in deferred income taxes (1,485)
----------------------------------------------
Net cash provided by (used in) operating activities 2,079 (202)
----------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - Black Hawk, Colorado project (13,953) (15,744)
Capitalized interest on construction projects 577 1,519
Decrease (increase) Black Hawk, Colorado restricted funds 9,992 (17,848)
Purchase of short-term investments (5,173)
Decrease (increase) in other assets 801 (3,718)
----------------------------------------------
Net cash provided by (used in) investing activities (2,583) (40,964)
----------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 9,831 45,000
Payments on long-term borrowings (1,115)
Advances from (payments to)Riviera Holdings Corporation (6,241)
Additional paid in capital 39 2,279
----------------------------------------------
Net cash provided by financing activities 8,755 41,038
----------------------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS $8,251 ($128)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,810 543
----------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $10,061 $415
==============================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for Colorado State Income Tax $100
==============================================
See notes to condensed financial statements
6
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
On August 18, 1997 (date of inception), Riviera Black Hawk, Inc. (the
"Company" or "RBH") was formed. The Company is a wholly owned indirect
subsidiary of Riviera Holdings Corporation. The Company pays a management fee to
Riviera Gaming Management, Inc. of Colorado, a wholly owned indirect subsidiary
of Riviera Holdings Corporation. The balance sheet as of December 31, 1999 and
Statement of Operations for the three months and nine months ended September 30,
1999 present information while the Company was in the development stage. RBH
commenced operations on February 4, 2000, with the opening of the Riviera Black
Hawk Casino in Black Hawk, Colorado.
Nature of Operations
The primary business activity of the Company is the operation of the Riviera
Black Hawk Casino in Black Hawk, Colorado,
Casino operations are subject to extensive regulation in the State of Colorado
by the Colorado Limited Gaming Control Commission and various other state and
local regulatory agencies.
Principles of Presentation
The financial information at September 30, 2000, and for the three months and
nine months ended September 30, 2000 and 1999 is unaudited. However, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) that are, in the opinion of management, necessary for a fair
presentation of the financial position, results of operations, and cash flows
for the interim periods. The results of operations for the three months and nine
months ended September 30, 2000 are not necessarily indicative of the results
that will be achieved for the entire year.
These financial statements should be read in conjunction with the audited
condensed financial statements and notes thereto for the year ended December 31,
1999, included in the Company's Annual Report on Form 10K.
Earnings Per Share
The Company is a wholly owned subsidiary of Riviera Holdings Corporation. There
are no publicly traded shares of the Company's stock. In accordance with
Financial Accounting Standards No. 128 "Earnings Per Share", no earnings per
share data is presented herein.
Estimates and Assumptions
The preparation of condensed financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
7
assets and liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Significant estimates used by the Company
include accrued liabilities. Actual results may differ from estimates.
Cash and cash equivalents and short term investments - restricted
Amounts related to the Riviera Black Hawk casino project in Black Hawk, Colorado
were restricted in use to that project or for the related 13% First Mortgage
Notes interest payments. The restrictions were removed in August 2000.
Revenue Recognition
Casino Revenue - The Company recognizes, as gross revenue, the net win from
gaming activities, which is the difference between gaming wins and losses.
Food and beverage revenue, Entertainment Revenue and Other Revenue - The Company
recognizes food and beverage, entertainment revenue and other revenue at the
time that goods or services are provided.
Promotional Allowances - Promotional allowances consist primarily of food and
beverage, entertainment and other services furnished without charge to
customers. The retail value of such services is included in the respective
revenue classifications and is then deducted as promotional allowances.
Recently Issued Accounting Standards
Recently Issued Accounting Standards - The Financial Accounting Standards Board
issued SFAS No. 133, "Accounting for Derivatives," which is effective for fiscal
years beginning after June 15, 2000. This statement defines derivatives and
requires qualitative disclosure of certain financial and descriptive information
about a company's derivatives. The Company will adopt SFAS No. 133 in the year
ending December 31, 2001. Management has not finalized its analysis of this SFAS
or the impact of this SFAS on the Company or the Company's future consolidated
financial statements.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB
101 clarifies existing accounting principles related to revenue recognition in
financial statements. The Company is required to comply with the provisions of
SAB 101 by the fourth quarter of fiscal 2000. Due to the nature of the Company's
operations, management does not believe that SAB 101 will have a significant
impact on the Company's financial statements.
2. LONG TERM DEBT AND COMMITTMENTS
On June 3, 1999, the Company, closed a $45 million private placement of 13%
First Mortgage Notes(the 13% First Mortgage Notes). The net proceeds of the
placement were used to fund the completion of RBH's casino project in Black
Hawk, Colorado. As part of the registration rights agreement dated June 3, 1999
entered into with the initial purchaser of the Notes, the Company agreed to
offer to exchange an aggregate principal amount of up to $45 million of its 13%
First Mortgage Notes due 2005 (the 13% First Mortgage Notes) for a like
principal amount of its Notes outstanding (the Exchange Offer). The terms of the
13% First Mortgage Notes are identical in all matierial respects to those of the
Notes (including principle amount, interest rate and maturity), except for
certain transfer restrictions and registration rights relating to the Notes. The
Exchange Offer was completed on January 4, 2000. The parent of Riviera Black
Hawk, Riviera Holdings Corporation, has not guaranteed the 13% Notes, but has
agreed to a "Keep Well" of $5 million per year (or an aggregate limited to $10
million) for the first 3 years of Riviera Black Hawk operations to cover if
8
(i)the $5.85 million interest on such 13% First Mortgage Notes is not paid by
Riviera Black Hawk and (ii) the amount by which Riviera Black Hawk cash flow is
less than $9.0 million as follows:
Operating Period #1 April 1, 2000-December 31, 2000 $6.75 Million
Operating Period #2 January 1, 2001-December 31, 2001 $9.0 Million
Operating Period #3 January 1, 2002-December 31, 2002 $9.0 Million
Operating Period #4 January 1, 2003-March 31, 2003 $2.25 Million
The 13% First Mortgage Notes were issued at a cost in the amount of $3.5
million. The deferred financing costs are being amortized over the life of the
notes on a straight-line basis which approximates the effective interest method.
The 13% First Mortgage Notes provide that, in certain circumstances, the
Company must offer to repurchase the 13% First Mortgage Notes upon the
occurrence of a change of control or certain other events. In the event of such
mandatory redemption or repurchase prior to maturity, the Company would be
unable to pay the principal amount of the 13% First Mortgage Notes without a
refinancing.
The Board of Directors has authorized management to repurchase a portion of
the 13% First Mortgage Notes on the open market or in negotiated transactions
from time to time under the Permitted Investments provisions of the indenture.
The 13% First Mortgage Notes contains certain covenants, which limit the
ability of the Company and its restricted subsidiaries, subject to certain
exceptions, to: (1) incur additional indebtedness; (ii) pay dividends or other
distributions, repurchase capital stock or other equity interests or
subordinated indebtedness, (iii) enter into certain transactions with
affiliates; (iv) create certain liens; sell certain assets; and (v) enter into
certain mergers and consolidations. As a result of these restrictions, the
ability of the Company to incur additional indebtedness to fund operations or to
make capital expenditures is limited.
In the event that cash flow from operations is insufficient to cover cash
requirements, the Company would be required to curtail or defer certain of their
capital expenditure programs under these circumstances, which could have an
adverse effect on the Company's operations. At September 30, 2000, the Company
believes that it is in compliance with the covenants.
The 13% First Mortgage Notes bear Contingent Interest based on 5% of cash flow
as defined and total approximately $200,000 as of September 30, 2000.
During the first quarter of 2000, Riviera Black Hawk obtained $9.6 million in
capital lease financing for 60 months at approximately 10.8% for equipment
purchases.
9
4. SEGMENT DISCLOSURES
RBH provides Las Vegas-style gaming, amenities and entertainment. The Company's
two reportable segments are based upon the type of service provided: Casino and
food and beverage. The casino segment provides customers with gaming activities
through traditional table games and slot machines. The food and beverage segment
provides restaurant and drink services.
All other segment activity consists of rent income, telephone and other
activity. Intersegment revenues consist of revenues generated through
complimentary sales to customers by the casino segment. The Company evaluates
each segment's performance based on segment operating profit. The accounting
policies of the operating segments are the same as those described in the
summary of significant accounting policies. The Company opened for business on
February 4, 2000. The Company was in the development stage at September 30,
1999, accordingly, no comparative data is provided for that period.
Food and
Three Months ended September 30, 2000 Casino Beverage All Other Total
Revenues from external customers $10,751 $410 $103 $11,264
Intersegment revenues 666 666
Segment profit 3,734 8 102 3,844
Food and
Nine Months ended September 30, 2000 Casino Beverage All Other Total
Revenues from external customers $26,848 $987 $249 $28,083
Intersegment revenues 2,082 2,082
Segment profit (loss) 11,748 (261) 248 11,734
Reconciliation of segment profit to consolidated net income before taxes:
Three Months Ended Nine Months Ended
2000 2000
Segment profit $3,844 $11,734
Other operating expenses 3,790 10,775
Other expense 1,644 4,671
-------------- -------------
Loss before benefit for taxes ($1,590) ($3,712)
The Company markets directly to residents of Denver, Colorado. Substantially all
revenues are derived from patrons visiting the Company from the Denver
metropolitan area. Revenues from a foreign country or region may exceed 10% of
all reported segment revenues; however, the Company cannot identify such
information based upon the nature of gaming operations.
10
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Special Factors Effecting Comparability
Riviera Black Hawk, Inc. was in the development stage at September 30, 1999.
Accordingly, no comparative data is provided. The following table sets forth
certain operating information for the Company for the three months and nine
months ended September 30, 2000. Revenues and promotional allowances are shown
as a percentage of net revenues. Department costs are shown as a percentage of
departmental revenues. All other percentages are based on net revenues.
Three Months Ended Nine Months Ended
September 30, September 30,
Income Statement Data: 2000 2000
-----------------------------------------------
Revenues:
Casino 95.4% 95.6%
Food and beverage 9.6% 10.9%
Other 0.9% 0.9%
Less promotional allowances -5.9% -7.4%
-----------------------------------------------
Net Revenues 100.0% 100.0%
Costs and Expenses:
Casino 65.3% 56.2%
Food and beverage 37.4% 40.7%
Other 1.0% 0.4%
General and administrative 25.0% 24.9%
Management fees 1.6% 1.9%
Preopening Expenses - Black Hawk, Colorado Project 0.0% 4.4%
Depreciation and amortization 7.0% 7.2%
-----------------------------------------------
Total costs and expenses 99.5% 96.6%
Income from operations 0.5% 3.4%
-----------------------------------------------
Interest expense -16.6% -20.1%
Interest income 2.0% 1.4%
Interest, capitalized 0.0% 2.1%
Income before provision for income taxes -14.1% -13.2%
-----------------------------------------------
Provision for income taxes -5.6% -5.3%
Net Loss -8.5% -7.9%
-----------------------------------------------
-----------------------------------------------
EBITDA (1) Margin 9.1% 16.8%
-----------------------------------------------
-----------------------------------------------
Net cash provided by operating activities 8.0% 7.4%
-----------------------------------------------
(1) EBITDA consists of earnings before interest, income taxes,
depreciation, amortization, management fees and preopening expenses. While
EBITDA should not be construed as a substitute for operating income or a better
indicator of liquidity than cash flow from operating activities, which are
determined in accordance with accounting principles generally accepted in the
United States of America it is included herein to provide additional information
with respect to the ability of the Company to meet its future debt service,
capital expenditures and working capital requirements. Although EBITDA is not
necessarily a measure of the Company's ability to fund its cash needs,
management believes that certain investors find EBITDA to be a useful tool for
measuring the ability of the Company to service its debt. EBITDA margin is
EBITDA as a percent of net revenues. The Company's definition of EBITDA may not
be comparable to other companies' definitions.
11
Three Months Ended September 30, 2000 Compared to Three Months Ended September
30, 1999. Operations Commenced February 4, 2000
Special Factors Effecting Comparability
Riviera Black Hawk, Inc. was in the development stage at September 30, 1999.
Accordingly, no comparative operating data is provided.
Revenues
Riviera Black Hawk Casino opened for business in Black Hawk, Colorado, on
February 4, 2000. Net revenues for the third quarter ending September 30, 2000,
totaled $11.3 million. Casino revenues were $10.8 million or 95.4% of total net
revenues. In the casino $10.3 million of the total was slot machine revenues
with the balance of $500,000 provided by casino table games. Food and Beverage
revenues were approximately $1.1 million of which approximately $670,000 were
promotional allowances representing drinks and meals to casino patrons.
Direct Costs and Expenses of Operating Departments
Total direct costs and expenses of operating departments were $7.4 million.
Casino expenses were $7.0 million, or 65.3% of casino revenues. These expenses
were primarily payroll and related, gaming tax and license, and marketing. The
Colorado gaming tax is graduated beginning July 1 of the State's fiscal year.
Industry practice requires that the gaming taxes be spread over the twelve
months on an average basis. Based on an average rate for Riviera Black Hawk of
approximately 17 per cent, the amounts included in expense for the third quarter
are approximately $1 million more than the graduated rates. After promotional
allowances of approximately $800,000 were transferred to the casino, food and
beverage expenses were approximately $400,000, or 37.4% of gross food and
beverage revenues.
Other Operating Expenses
General and administrative expenses were $2.8 million, or 25.0% of net revenues.
General and administrative expenses consist mainly of payroll and related taxes
and benefits. Management fees to its parent were approximately $183,000. Those
fees are due to Riviera Holdings Corporation and are based on a percentage of
net revenues and EBITDA.
Other Income (Expense)
In June 1999, Riviera Black Hawk completed a $45 million private placement of
13% First Mortgage Notes. On January 4, 2000, the Exchange Offer to exchange
an aggregate principal amount of up to $45 million of 13 % First Mortgage Notes
for a like principal amount of the Notes was consummated. Interest expense on
those notes of approximately $1.9 million, was recorded in the third quarter of
2000 and 1999. In 1999, appoximately $1.5 million of interest expense was
capitalized. Interest income, on investments from the unused proceeds of the 13%
First Mortgage Notes, was approximately $230,000, a decrease of approximately
$150,000 from the same period in 1999.
12
Net Income (Loss)
The net loss for the three months ended September 30, 2000, was $950,000 or 8.5%
of net revenues. The benefit from income taxes includes the normal 35% benefit
for federal taxes and 5% for Colorado State Income Tax.
EBITDA
EBITDA for the three months ended September 30, 2000, was approximately $1.0
million, or 9.1% of net revenues.
Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30,
1999. Operations Commenced February 4, 2000
Special Factors Effecting Comparability
Riviera Black Hawk, Inc. was in the development stage at September 30, 1999.
Accordingly, no comparative operating data is provided.
Revenues
Riviera Black Hawk Casino opened for business in Black Hawk, Colorado, on
February 4, 2000. Net revenues for the period commencing February 4, 2000 and
ending September 30, 2000, totaled $28.1 million. Casino revenues were $26.8
million or 95.6% of total net revenues. In the casino $25.5 million of the total
was slot machine revenues with the balance of $1.3 million provided by casino
table games. Food and Beverage revenues were approximately $3.1 million of
which $2.1 million were promotional allowances representing drinks and
meals to casino patrons.
Direct Costs and Expenses of Operating Departments
Total direct costs and expenses of operating departments were $16.3
million. Casino expenses were $15.1 million, or 56.2% of casino revenues. These
expenses were primarily payroll and related taxes and benefits, gaming taxes and
licenses, and marketing. After promotional allowances of approximately $2.5
million were transferred to the casino, food and beverage expenses totaled
approximately $1.2 million, or 40.7% of gross food and beverage revenues.
Other Operating Expenses
General and administrative expenses were $7.0 million, or 24.9% of net revenues.
General and administrative expenses consist mainly of payroll and related taxes
and benefits. Preopening expenses totaled $1.2 million and were comprised mainly
of payroll and related taxes and benefits for the period January 1 through
February 3, 2000 when employee service training was provided. Management fees to
its parent were approximately $530,000. Those fees are due to Riviera Holdings
Corporation and are based on a percentage of net revenues and EBITDA.
Depreciation for the period was $2.0 million and was based on the total property
cost of approximately $54.0 million.
13
Other Income (Expense)
In June 1999, Riviera Black Hawk completed a $45 million private placement
of 13% First Mortgage Notes. On January 4, 2000 the Exchange Offer to exchange
an aggregate principal amount of up to $45 million of 13% First Mortgage Notes
for a like principal amount of the Notes was consummated. Interest expense on
those notes and other debt of approximately $5.6 million, was recorded in the
nine months of 2000 compared to $2.1 million for the nine months ended of 1999.
Contingent interest, based on 5% of cash flow as defined and totaling
approximately $200,000 is included in interest expense for the nine months of
2000. Interest income, on investments from the unused proceeds of the 13% First
Mortgage Notes, was $390,000 for the nine months of 2000 compared to $382,000
for the nine months of 1999.
Capitalized interest was $577,000 on the project for the period January 1, 2000
through February 3, 2000. Capitalized interest of $1.5 million in 1999
included capitalized interest realized by Riviera Holdings Corporation and is a
component of their investment in Riviera Black Hawk.
Net Loss
The net loss for the nine months ended September 30, 2000, was $2.2 million or
7.9% of net revenues. The benefit from income taxes includes the normal 35%
provision for federal taxes and 5% for Colorado State Income Tax.
EBITDA
EBITDA for the period ended September 30, 2000, was $4.7 million, or 16.8% of
net revenues. Preopening expenses of $1.2 million are not included in the EBITDA
calculation.
Liquidity and Capital Resources
At September 30, 2000, the RBH had cash and cash equivalents of $10.1 million.
The Company had working capital of approximately $1.0 million and shareholders
equity of $20.8 million.
The Company's net cash provided by operating activities was approximately $2.1
million for the period ending September 30, 2000. Management believes that the
$10.1 million in cash and cash equivalents, and the "keep well" commitments from
Riviera Holdings Corporation will be sufficient to cover the Company's
investment in budgeted capital expenditures for 2000 including completion of the
Black Hawk casino development and the working capital requirements to operate
the casino for the first twelve months of operations.
Cash flow from operations may not be sufficient to pay 100% of the
principal of the 13% First Mortgage Notes at maturity on May 1, 2005.
Accordingly, the ability of the Company to repay the 13% First Mortgage Notes at
maturity will be dependent upon its ability to refinance those notes. There can
be no assurance that the Company will be able to refinance the principal amount
of the 13% First Mortgage Notes at maturity. At any time prior to May 1, 2001,
the Company may redeem up to 35% of the aggregate principal amount of the 13%
First Mortgage Notes issued under the indenture at a redemption price of 113% of
the principal amount. On or after May 1, 2002, the Company may redeem all or a
part of the notes at premiums beginning at 106.5% and declining each subsequent
year to par in 2004.
14
The 13% First Mortgage Notes provide that, in certain circumstances, the
Company must offer to repurchase the 13% First Mortgage Notes upon the
occurrence of a change of control or certain other events. In the event of such
mandatory redemption or repurchase prior to maturity, the Company would be
unable to pay the principal amount of the 13% First Mortgage Notes without a
refinancing.
The 13% First Mortgage Notes contain certain covenants, which limit the
ability of the Company and its restricted subsidiaries, subject to certain
exceptions, to : (i) incur additional indebtedness; (ii) pay dividends or other
distributions, repurchase capital stock or other equity interests or
subordinated indebtedness; (iii) enter into certain transactions with
affiliates; (iv) create certain liens; sell certain assets; and (v) enter into
certain mergers and consolidations. As a result of these restrictions, the
ability of the Company to incur additional indebtedness to fund operations or to
make capital expenditures is limited. In the event that cash flow from
operations is insufficient to cover cash requirements, the Company would be
required to curtail or defer certain of their capital expenditure programs under
these circumstances, which could have an adverse effect on the Company's
operations.
At September 30, 2000, the Company believes that it is in compliance with the
covenants of the 13% First Mortgage Notes.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Market risks relating to our operations result primarily from changes in
interest rates. We invest our cash and cash equivalents in U.S. Treasury Bills
with maturities of 60 days or less.
As of September 30, 2000, we had $54.5 million in borrowings. The
borrowings include $45 million in bonds maturing in 2005. Interest under the
bonds is based on a rate of 13% excluding contingent interest. Also included is
$.6 million in a special improvement district bond offering with Black Hawk,
Colorado. The Company's share of the debt on the SID bonds is payable over ten
years beginning in January 2000. The special improvement district bonds bear
interst at 5.5%. Other borrowings include a vehicle loanof $20,000 maturing in
2004 with an interest rate of 9.0% and capital leases in the amount of $9.6
million at a weighted average interest rate of 10.8% payable over sixty months.
Interest Rate Sensitivity
Principal (Notational Amount by Expected Maturity)
Average Interest Rate
(000's) Fair Value
2000 2001 2002 2003 2004 Thereafter Total at 9/30/00
Long Term Debt Including Current Portion
Equipment loans
Black Hawk, Colorado $ 2 $ 10 $ 8 $ 20 $ 20
Average interest rate 11.2% 11.2% 11.2%
Capital leases
Black Hawk, Colorado $ 681 $ 1,600 $ 1,777 $ 1,973 $ 2,191 $ 656 $ 8,878 $ 8,878
Average interest rate 10.8% 10.8% 10.8% 10.8% 10.8% 10.8%
Special Improvement District Bonds
Black Hawk, Colorado $ 64 $ 68 $ 71 $ 76 $ 350 $ 629 $ 629
Average interest rate 5.5% 5.5% 5.5% 5.5% 5.5%
13% First Mortgage Note
Black Hawk, Colorado casino
project $ 45,000 $ 45,000 $ 46,125
Average interest rate 13.0%
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Forward Looking Statements
This report includes forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. Statements in
this report regarding future events or conditions, including statements
regarding industry prospects and the Company's expected financial position,
business and financing plans, are forward-looking statements. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to have been correct. Important factors that could cause actual results to
differ materially from the Company's expectations are disclosed in this report
as well as the Company's most recent annual report on Form 10-K, and include the
Company's substantial leverage, the risks associated with the expansion of the
Company's business, as well as factors that affect the gaming industry
generally. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of their dates. The Company
undertakes no obligations to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
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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.
RIVIERA BLACK HAWK, INC.
By: /s/ William L. Westerman
William L. Westerman
Chief Executive Officer and Director
By: /s/Ronald P. Johnson
Ronald P. Johnson
President and Director
By: /s/ Duane Krohn
Duane Krohn
Treasurer,
Chief Financial Officer
And Director
Date: November 13, 2000
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