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, 1997
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 000-21430
Riviera Holdings Corporation
(Exact name of Registrant as specified in its charter)
Nevada 88-0296885
(State or other jurisdiction of incorporation) (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 REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE LAST FIVE YEARS
Indicate by check mark whether the Registrant has filed all documentation
and reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. 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.
As of September 30, 1997 there were 4,908,180 shares of Common Stock, $.001 par
value per share, outstanding.
<PAGE>
1
RIVIERA HOLDINGS CORPORATION
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Independent Accountants' Report 2
Condensed Consolidated Balance Sheets at September 30, 1997 (Unaudited) and 3
December 31, 1996
Condensed Consolidated Statements of Operations (Unaudited) for the
Three Months and Nine Months ended September 30, 1996 and 1997 4
Condensed Consolidated Statements of Cash Flows (Unaudited) for the
Three Months and Nine Months ended September 30, 1996 and 1997 5
Notes to Condensed Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors
Riviera Holdings Corporation
We have reviewed the accompanying condensed consolidated balance sheet of
Riviera Holdings Corporation (the "Company") and subsidiaries as of September
30, 1997, and the related condensed consolidated statements of operations and of
cash flows for the three and nine month periods ended September 30, 1996 and
1997. 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 generally accepted auditing standards, 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 consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Riviera Holdings Corporation as of
December 31, 1996, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the year then ended (not presented
herein); and in our report dated February 28, 1997, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of December 31, 1996, is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
October 31, 1997
<PAGE>
<TABLE>
<CAPTION>
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and September 30, 1997
(in thousands, except share data)
December 31, September 30
1996 1997
ASSETS (Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $25,747 $62,407
Accounts receivable, net 5,113 5,117
Inventories 3,039 3,191
Prepaid expenses and other assets 2,692 3,554
----------------- -----------------
Total current assets 36,591 74,269
----------------- -----------------
U.S. TREASURY BILLS HELD TO RETIRE $100 MILLION NOTES 110,602
----------------- -----------------
PROPERTY AND EQUIPMENT, NET 127,760 146,440
----------------- -----------------
OTHER ASSETS 2,853 10,376
----------------- -----------------
RESTRICTED CASH FOR PERIODIC SLOT PAYMENTS 461 208
----------------- -----------------
TOTAL ASSETS $167,665 $341,895
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $1,297 $356
Accounts payable 8,674 7,168
Current income taxes payable 413
Accrued Interest on $100 million notes 2,750
Accrued Interest, Other 33 2,195
Accrued Expenses - Other 9,580 9,872
----------------- -----------------
Total current liabilities 19,997 22,341
----------------- -----------------
Deferred Income Taxes 4,626 4,665
----------------- -----------------
$100 Million Notes to be retired by U.S. Treasury Bills 100,000 100,000
----------------- -----------------
Other Long-Term Liabilities 3,210 3,837
----------------- -----------------
LONG-TERM DEBT, NET OF CURRENT PORTION 4,581 173,453
----------------- -----------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock ($.001 par value; 20,000,000 shares authorized;
4,940,980 shares issued and outstanding at December 31, 1996
and 4,908,180 issued and outstanding at September 30, 1997) 5 5
Additional paid-in capital 13,919 13,751
Notes receivable from Employee Shareholders (853) (353)
Retained earnings 22,180 24,196
----------------- -----------------
Total shareholders' equity 35,251 37,599
----------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $167,665 $341,895
================= =================
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1997 1996 1997
------------ ------------ ------------ ------------
REVENUES:
<S> <C> <C> <C> <C>
Casino $20,996 $16,989 $61,378 $55,123
Rooms 9,098 9,211 30,869 30,635
Food and beverage 5,185 5,012 17,228 16,260
Entertainment 5,714 5,475 16,961 16,233
Other 2,884 2,663 7,636 7,904
------------ ------------ ------------ -------------
43,877 39,350 134,072 126,155
Less promotional allowances 2,946 2,967 9,867 9,670
------------ ------------ ------------ -------------
Net revenues 40,931 36,383 124,205 116,485
------------ ------------ ------------ -------------
COSTS AND EXPENSES:
Direct costs and expenses of operating departments:
Casino 12,116 10,604 36,592 32,809
Rooms 4,787 4,516 14,155 13,685
Food and beverage 3,837 3,798 11,924 11,801
Entertainment 4,361 4,203 12,262 11,752
Other 742 827 2,194 2,300
Other operating expenses:
Selling, general and administrative 8,153 7,085 23,755 22,923
Depreciation and amortization 2,097 2,690 5,959 7,700
------------ ------------ ------------ -------------
Total costs and expenses 36,093 33,723 106,841 102,970
------------ ------------ ------------ -------------
INCOME FROM OPERATIONS 4,838 2,660 17,364 13,515
OTHER INCOME (EXPENSE)
Interest expense on $100 million notes (2,750) (2,767) (8,250) (8,300)
Interest income on Treasury Bills held to retire $100 million notes 0 773 0 773
Interest expense, other (265) (2,505) (865) (3,015)
Interest income, other 264 551 857 1,175
Write off of secondary offering costs and other (220) (1,070)
------------ ------------ ------------ -------------
Total other income (expense) (2,751) (4,168) (8,258) (10,437)
------------ ------------ ------------ -------------
INCOME (LOSS) BEFORE PROVISION (BENEFIT)
FOR INCOME TAXES 2,087 (1,508) 9,106 3,078
PROVISION (BENEFIT) FOR INCOME TAXES 670 (520) 3,072 1,062
------------ ------------ ------------ -------------
NET INCOME (LOSS) $1,417 ($988) $6,034 $2,016
============ ============ ============ =============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 5,227 5,234 5,127 5,241
============ ============ ============ =============
NET INCOME (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE-PRIMARY AND FULLY DILUTED $ 0.27 $ (0.19) $ 1.18 $ 0.38
============ ============ ============ =============
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1997 1996 1997
----------- ------------ ----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
Net Income (Loss) $1,417 ($988) $6,034 $2,016
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,097 2,690 5,959 7,700
Provision for bad debts 123 67 363 5
Provision for gaming discounts 19 (12) 33 (78)
Write off of secondary offering costs and other 0 220 0 1,070
Interest expense, $100 Million Notes 2,750 2,767 8,250 8,300
Interest paid (102) (265) (6,222) (5,899)
Interest expense, other 265 2,505 865 3,015
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 65 (726) (16) 69
Decrease (increase) in inventories (333) (400) (660) (153)
Decrease (increase) in prepaid expenses
and other assets (34) (622) (864) (196)
Decrease (increase) in restricted cash for
slot periodic payments 325 0 577 253
Increase (decrease) in accounts payable (87) 621 (996) (1,169)
Increase (decrease) in accrued liabilities 526 1,155 573 (549)
Increase (decrease) in current income taxes payable - (1,244) (51) (1,079)
Increase (decrease) in deferred income taxes 281 (219) 1,289 39
Increase in non-qualified pension plan obligation
to CEO upon retirement 107 240 319 880
----------- ------------ ----------- ------------
Net cash provided by operating activities 7,419 5,789 15,453 14,224
----------- ------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment (4,242) (4,494) (9,502) (11,379)
Purchase of land - Black Hawk, Colorado - (15,000) - (15,000)
Decrease (increase) in other assets-Black Hawk, Colorado (531) (531)
Decrease (increase) in other assets (8) (6,742) 2,691 (7,842)
----------- ------------ ----------- ------------
Net cash used in investing activities (4,250) (26,767) (6,811) (34,752)
----------- ------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 56 172,886 154 172,886
US Treasury Bills purchased to retire $100 million Notes - (110,602) - (110,602)
Payments on long-term borrowings (511) (4,601) (2,132) (5,427)
Proceeds from issuance of stock to employees and directors 1,511 (77) 1,523 (168)
Collections of notes receivable from employees (1,323) 154 (1,163) 499
----------- ------------ ----------- ------------
Net cash provided by (used in) financing activities (267) 57,760 (1,618) 57,188
----------- ------------ ----------- ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $2,902 $36,782 $7,024 $36,660
=========== ============ =========== ============
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $26,083 $25,625 $21,962 $25,747
=========== ============ =========== ============
CASH AND CASH EQUIVALENTS, END OF PERIOD $28,985 $62,407 $28,986 $62,407
=========== ============ =========== ============
INCOME TAXES PAID $2,032 $1,860
----------- ------------
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Riviera Holdings Corporation (the "Company") and its wholly-owned subsidiary
Riviera Operating Corporation ("ROC") were incorporated on January 27, 1993, in
order to acquire all assets and liabilities of Riviera, Inc. Casino-Hotel
Division on June 30, 1993, pursuant to a plan of reorganization.
In July 1994, management established a new division, Riviera Gaming Management,
Inc. ("RGM") for the purpose of obtaining management contracts in Nevada and
other jurisdictions. In August 1996, RGM incorporated in the state of Nevada as
a wholly owned subsidiary of ROC. In March 1997 Riviera Gaming Management of
Colorado was incorporated in the state of Colorado, and in August 1997 Riviera
Colorado Holdings, Inc. and Riviera Black Hawk, Inc. were incorporated in the
state of Colorado for the purpose of building and operating a casino in Black
Hawk, Colorado.
Nature of Operation
The primary line of business of the Company is the operation of the Riviera
Hotel & Casino on the "Strip" in Las Vegas, Nevada. The Company is engaged in a
single industry segment, the operation of a hotel/casino with restaurants and
related facilities. The Company also manages the Four Queens Hotel/Casino in
downtown Las Vegas.
Casino operations are subject to extensive regulation in the State of Nevada by
the Gaming Control Board and various other state and local regulatory agencies.
Management believes that the Company's procedures for supervising casino
operations, for recording casino and other revenues and for granting credit
comply, in all material respects, with the applicable regulations.
Principles of Consolidation - The consolidated financial statements include the
accounts of the Company, its wholly owned subsidiary ROC and various indirect
wholly owned subsidiaries including RGM. All material intercompany accounts and
transactions have been eliminated.
The financial information at September 30, 1997 and for the three months and
nine months ended September 30, 1996 and 1997 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, 1997 and 1996, 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
consolidated financial statements and notes thereto for the year ended December
31, 1996, included in the Company's Annual Report on Form 10-K.
Legal Proceedings
The company is a party to several routine lawsuits both as plaintiff and as
defendant arising from the normal operations of a hotel. Management does not
believe that the outcome of such litigation, in the aggregate, will have a
material adverse effect on the financial position or results of operations of
the Company or ROC.
Estimates and Assumptions
The preparation of condensed consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and 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. Actual results may differ from estimates.
Earnings Per Share
Earnings per common and common equivalent share and earnings per common shares
are computed using the weighted average number of shares outstanding adjusted
for the incremental shares attributed to outstanding options to purchase common
stock. Fully diluted earnings per share amounts are substantially the same as
primary per share amounts for the periods presented.
Secondary Offering Costs
During the first quarter of 1997 the Company withdrew its secondary offering due
to market conditions and, as a result, charged costs totaling $850,000 to
earnings for the quarter ended March 31, 1997.
Recently Issued Accounting Standards
The Financial Accounting Standards Board ("FASB") recently issued SFAS No. 128,
Earnings per Share. This statement establishes standards for computing and
presenting earnings per share and is effective for financial statements issued
for periods ending after December 15, 1997. Earlier application of this
statement is not permitted and upon adoption requires restatement (as
applicable) of all prior-period earnings per share data presented. Management
has not determined the effect of this statement on earnings per share as
presented.
In February 1997, FASB issued SFAS No. 129, Disclosure of Information about
Capital Structure. This statement establishes standards for disclosing
information about an entity's capital structure. Management intends to comply
with the disclosure requirements of this statement which are effective for
periods ending after December 15, 1997.
On June 30, 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income.
This statement requires companies to classify items of other comprehensive
income by their nature in a financial statement and display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of a statement of financial
position, and is effective for financial statements issued for fiscal years
beginning after December 15, 1997. Management does not believe this new FASB
will have material impact on their financial statements.
On June 30, 1997, the FASB issued SFAS No. 131, Disclosure About Segments of an
Enterprise and Related Information. This statement establishes additional
standards for segment reporting in the financial statements and is effective for
fiscal years beginning after December 15, 1997. The Company believes the segment
information required to be disclosed under SFAS No. 131 will be more
comprehensive than previously provided, including expanded disclosure of income
statement and balance sheet items for each of its reportable segments under SFAS
No. 131. However, the Company has not yet completed its analysis of which
operating segments it will report on.
Reclassifications
Certain amounts in the prior periods have been reclassified to conform with the
current period presentation.
2. DEBT
On August 13, 1997, the Company issued 10% First Mortgage Notes ("the 10%
Notes") with a principal amount of $175 million dollars. The Notes were issued
at a discount in the amount of $2.2 million. The discount is being amortized
over the life of the note on a straight line basis. On August 13, 1997, the
Company used part of these proceeds to purchase United States Government
securities ("the Securities") at a cost of $109,828,870 which were deposited
into an irrevocable trust. These Securities, together with interest that will be
earned by the Securities will be used to pay the principal, interest and call
premium due on the 11% First Mortgage Notes (the 11% Notes") on June 1, 1998,
the earliest date the 11% Notes can be redeemed. Interest earned from the
Securities is included in interest income. The interest expense from the 10%
Notes and from the 11% Notes is included in interest expense. The 10% Note
Indenture contains 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 (vi) enter into certain mergers and consolidations. A
portion of the proceeds from the 10% Notes totaling $4.5 million was paid to a
bank to retire the Class 13/14 Notes.
3. COMMITMENTS
The Company has commitments under agreements for construction of a casino in
Black Hawk, Colorado on a site which was purchased for $15 million in August
1997. Portions of such agreements not completed at September 30, 1997, are not
reflected in the condensed consolidated financial statements. The Company must
meet certain licensing and building code requirements. As of September 30, 1997
the Company had expended approximately $15.5 million on the project.
4. MERGER
On September 15, 1997 the Company entered into a Agreement and Plan of Merger
with R&E Gaming Corp., an entity controlled by Allen E. Paulson, pursuant to
which Riviera would be acquired by R&E Gaming and Riviera shareholders would
receive $15 per share in cash for each share of Riviera common stock owned by
them, plus an amount equal to 7% per annum from June 1, 1997 to the date of the
closing. As part of its review of the transaction, Riviera's Board of Directors
received an opinion form its financial advisor, Ladenburg, Thalmann & Co., Inc.,
as to the fairness, from a financial point of view, of the consideration to be
received in the merger by Riviera's shareholders. In connection with the
execution of the merger agreement, shareholders owning approximately 56% of the
outstanding, fully diluted Riviera shares have granted R&E Gaming an option to
purchase their shares at the same price that all shareholders would receive in
the merger and have agreed to vote in favor of the transaction. Closing of the
merger is subject to a number of conditions, including approval by the holders
of at least 60% of the Riviera shares (excluding the shares owned by Mr. Paulson
or his affiliates) at a meeting of shareholders scheduled to be held in December
1997, and the receipt of all necessary approvals by the Nevada Gaming
Authorities. There can be no assurance that the conditions to the merger will be
met or that the merger will be consummated.
A subsidiary of R&E Gaming has entered into an agreement to purchase the
outstanding common stock of Elsinore Corporation, the primary asset of which is
the Four Queens Hotel and Casino in Downtown Las Vegas, Nevada. Since August
1996, Riviera Gaming Management-Elsinore, Inc. (RGME), an indirect subsidiary of
the Company , has been managing the Four Queens under a contract which
guarantees RGME a minimum management fee plus additional compensation based on
EBITDA improvement of the Four Queens, and warrants to purchase 1,125,000 shares
of Elsinore common stock (equal to 18.4% of the equity of Elsinore on a fully
diluted basis) at $1.00 per share. Upon consummation of the Elsinore Merger, the
Company would receive approximately $2.4 million, net of the exercise price of
the warrants.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following tables set forth certain operating information for the Company for
the three months and nine months ended September 30, 1996 and 1997. Revenues and
promotional allowances are shown as a percentage of net revenues. Departmental
costs are shown as a percentage of departmental revenues. All other percentages
are based on net revenues.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1997 1996 1997
Income Statement Data:
Revenues:
<S> <C> <C> <C> <C>
Casino 51.3% 46.7% 49.4% 47.3%
Rooms 22.2% 25.3% 24.9% 26.3%
Food and beverage 12.7% 13.8% 13.9% 14.0%
Entertainment 14.0% 15.0% 13.7% 13.9%
Other 7.0% 7.3% 6.1% 6.8%
Less promotional allowances -7.2% -8.1% -8.0% -8.4%
------------- ------------ ------------- ------------
Net Revenues 100.0% 100.0% 100.0% 100.0%
Costs and Expenses:
Casino 57.7% 62.4% 59.6% 59.5%
Rooms 52.6% 49.0% 45.9% 44.7%
Food and beverage 74.0% 75.8% 69.2% 72.6%
Entertainment 76.3% 76.8% 72.3% 72.4%
Other 25.7% 31.1% 28.7% 29.1%
Selling, general and administrative 19.9% 19.5% 19.1% 19.7%
Depreciation and amortization 5.1% 7.4% 4.8% 6.6%
------------- ------------ ------------- ------------
Total costs and expenses 88.2% 92.7% 86.0% 88.4%
------------- ------------ ------------- ------------
Income from operations 11.8% 7.3% 14.0% 11.6%
Interest expense on $100 million notes -6.7% -7.6% -6.6% -7.1%
Interest income on Treasury Bills to retire $100 million notes 0.0% 2.1% 0.0% 0.7%
Interest expense, other -0.6% -6.9% -0.7% -2.6%
Interest income, other 0.6% 1.5% 0.7% 1.0%
Write off of secondary offering costs and other 0.0% -0.6% 0.0% -0.9%
Income (loss) before provision (benefit) for income taxes 5.1% -4.1% 7.3% 2.6%
Provision (benefit) for income taxes -1.6% 1.4% -2.5% -0.9%
------------- ------------ ------------- ------------
Net income (loss) 3.5% -2.7% 4.9% 1.7%
------------- ------------ ------------- ------------
EBITDA Margin 16.9% 14.7% 18.8% 18.2%
</TABLE>
<PAGE>
Three Months Ended September 30, 1997 Compared to Three Months Ended
September 30, 1996
Revenues
Net revenues decreased by approximately $4.5 million, or 11.1% from $40.9
million for the three months ended September 30, 1996 to $36.4 million for the
three months ended September 30, 1997 due to the general softness of the Las
Vegas market.
Casino revenues decreased by approximately $4.0 million, or 19.1%, from $21.0
million during 1996 to $17.0 million during 1997. Slot revenues decreased $1.8
million or 12.7% from $14.5 million in 1996 to $12.7 million in 1997 due to a
decrease in coin-in of $12.2 million, or 6.0% and a decrease in the hold
percentage from 6.4% to 6.0%. These decreases were primarily in the $1 and $5
slot machines due to competition from neighboring casinos. Table games win
decreased $1.7 million or 33.0% from $5.2 million in 1996 to $3.5 million in
1997 due to the competitive environment on the Las Vegas Strip. Table games drop
decreased $5.5 million, 21.0%, from $25.7 million in 1996 to $20.2 million in
1997. Table games win percentage decreased 3.1%, from an unusually high 20.5% in
1996 to a normal 17.5% in 1997. The decrease in drop accounted for $1.1 in lower
revenues and the decrease in hold percentage accounted for $600,000 in lower
revenues. Race book revenues decreased $390,000 due to the elimination of
rebates (to selected high volume customers) under revised agreements between the
casinos and the Nevada Pari Mutuel Association.
Room revenues increased by approximately $113,000, or 1.2%. from $9.1 million
during 1996 to $9.2 million during 1997 as a result of an increase of $0.81 in
average room rate from $49.14 in 1996 to $49.95 in 1997. Hotel occupancy
remained stable at 99.0% for 1996 and 98.4% in 1997.
Food and beverage revenues decreased approximately $170,000, or 3.3%, from $5.2
million during 1996 to $5.0 million during 1997 due primarily to reduced
complimentary beverage in the casino and a 6.0% reduction in covers in the
restaurants.
Entertainment revenues decreased by approximately $240,000, or 4.2%, from $5.7
million during 1996 to $5.5 million during 1997 due to a 10% decrease in covers
which was partially offset by a 7% increase in the average ticket price.
Other revenues decreased by approximately $220,000, or 7.6%, from $2.9 million
during 1996 to $2.7 million during 1997 due primarily to the $570,000 rebate
received in 1996 from a union health and welfare trust fund for reduced premiums
for prior periods. Fees earned for the Four Queens management contract totaled
$250,000 in 1997 compared to $142,000 in 1996.
Promotional allowances were unchanged at $2.9 million during 1996 and 1997.
Lower food and beverage complimentaries were offset by increased room
complimentaries .
Direct Costs and Expenses of Operating Departments
Total direct costs and expenses of operating departments decreased by
approximately $1.9 million, or 7.3%, from $25.8 million for the three months
ended September 30, 1996 to $23.9 million for the three months ended September
30, 1997.
Casino expenses decreased by approximately $1.5 million, or 12.5%, from $12.1
million during 1996 to $10.6 million during 1997 due to a corresponding decrease
in casino revenues. Casino expenses as a percent of casino revenue increased
from 57.7% to 62.4%, in spite of a 17.0% decrease in marketing expenses in 1997.
Management is reviewing the competition and may increase marketing expenditures
somewhat to stimulate additional revenues. However, the Company does not intend
to significantly discount its gaming product or substantially increase its
promotional allowances.
Room costs decreased by approximately $270,000, or 5.7%, from $4.8 million
during the 1996 period to $4.5 million during the 1997 period and room costs as
a percentage of room revenue decreased from 52.6% in 1996 to 49.0% in 1997 due
to decreased payroll and direct operating costs.
Food and beverage costs decreased by approximately $40,000, or 1.0%, from $3.8
million in 1996 to $3.8 million in 1997. However, food and beverage costs as a
percentage of revenues increased from 74.0% in 1996 to 75.8% in 1997 because the
costs transferred to the casino department for promotional allowances decreased
from 1996.
Entertainment costs decreased by approximately $200,000, or 3.6%, from $4.4
million in 1996 to $4.2 million in 1997 as a direct result of the lower revenues
in all shows. Entertainment expense as a percentage of entertainment revenues
increased slightly from 76.3% in 1996 to 76.8% in 1997.
Other expenses as a percentage of revenues increased from 25.7% in 1996 to 31.1%
in 1997 because of the one time union premium refund recorded in 1996 with no
associated costs.
Other Operating Expenses
Selling, general and administrative expenses decreased by approximately $1.1
million, or 13.1%, from $8.2 million for the three months ended September 30,
1996 to $7.1 million for the three months ended September 30, 1997 due to
reduced management incentives and company profit sharing plan contributions.
Selling, general and administrative expenses decreased from 19.9% of total net
revenues during the 1996 period to 19.5% in 1997.
Depreciation and amortization increased by approximately $600,000, or 28.0%,
from $2.1 million in 1996 to $2.7 million in 1997 and from 5.1% to 7.4% of net
revenues due to the significant capital expenditures in the twelve months ended
September 30, 1997 totaling $16.8 million.
Other Income (Expense)
Interest income on Treasury Bills held to retire the $100 million notes was
$773,000 in 1997. Interest income, other increased $300,000 in the Third Quarter
1997 because of the increased cash balances from the proceeds of the $175.0
million notes.
Net Income (Loss)
As a result of the factors discussed above, net income decreased by
approximately $2.4 million, from $1.4 million during the three months ended
September 30, 1996 to a loss of $988,000 during the three months ended September
30, 1997.
EBITDA
EBITDA decreased by approximately $1.6 million, or 22.9%, from $6.9 million
during the three months ended September 30, 1996 to $5.3 million during the
three months ended September 30, 1997. During the same periods, EBITDA margin
decreased from 16.9% to 14.7% of net revenues. Although management reduced
direct costs and operating expenses by 7.3%, such reduction was not sufficient
to offset the $4 million decrease in casino revenues in 1997 and the $570,000
union health and welfare premium rebate received in September 1996.
Nine Months Ended September 30, 1997 Compared to Nine Months Ended
September 30, 1996
- --------------------------------------------------------------------------------
Revenues
Net revenues decreased by approximately $7.7 million, or 6.2%, from $124.2
million for the nine months ended September 30, 1996 to $116.5 million for the
nine months ended September 30, 1997.
Casino revenues decreased by approximately $6.3 million, or 10.2%, from $61.4
million during 1996 to $55.1 million during 1997 due to a general softness in
the gaming market in Las Vegas. Slot revenues decreased approximately $3.0
million primarily in the dollar denomination due to competition from casinos at
the north end of the Las Vegas Strip. This effected both coin in and revenue as
the hold percent was reduced in response to the competitive pressure. Although
the table games drop was down approximately $15.7 million or 17.4%, the win
percentage increased 1.5%, which resulted in a net decrease in table games
revenues of approximately $1.4 million. Elimination of three times odds on craps
and single deck blackjack games were major factors contributing to the increase
in win percentage. Race book revenues decreased approximately $1.2 million due
to the elimination of rebates (to selected high volume customers) under revised
agreements between the casinos and the Nevada Pari Mutuel Association.
Room revenues decreased by approximately $300,000, or 0.8%. from $30.9 million
during 1996 to $30.6 million during 1997 due primarily to 4,600 more rooms being
out of order for refurbishing. Hotel occupancy remained relatively constant at
98.3% in 1997 as compared to 99.0% in 1996 (based on available rooms). The
average room rate increased $0.46, or 0.9%, from $55.73 to $56.19 recovering
from first quarter 1997 when the average room rate had fallen $2.15 because of
the shift of a major convention from the first quarter of 1997 to the second
quarter.
Food and beverage revenues decreased approximately $900,000, or 5.6%, from $17.2
million during 1996 to $16.3 million during 1997 primarily due to reduced
complimentary beverage in the casino as well as lower food covers in the
restaurants.
Entertainment revenues decreased by approximately $800,000, or 4.3%, from $17.0
million during 1996 to $16.2 million during 1997 due to a 7.2% decrease in
covers with only Crazy Girls showing an increase in covers and revenues in 1997.
Splash revenues decreased approximately $600,000.
Other revenues increased by approximately $270,000, or 3.5%, from $7.6 million
during 1996 to $7.9 million during 1997 due to the management fees of $745,000
for operating the Four Queens Hotel/Casino in downtown Las Vegas which began in
August 1996. These revenues were offset by a $570,000 union premium refund which
was recognized in September 1996.
Promotional allowances decreased by approximately $200,000, or 2.0%, from $9.9
million during 1996 to $9.7 million during 1997 due to lower food and beverage
complimentaries of $600,000 which were partially offset by increased room
complimentaries of $400,000.
Direct Costs and Expenses of Operating Departments
Total direct costs and expenses of operating departments decreased by
approximately $4.8 million, or 6.2%, from $77.1 million for the nine months
ended September 30, 1996 to $72.3 million for the nine months ended September
30, 1997.
Casino expenses decreased by approximately $3.8 million, or 10.3%, from $36.6
million during 1996 to $32.8 million during 1997 due to a corresponding decrease
in casino revenues. Casino expenses as a percent of casino revenue decreased
from 59.6% to 59.5%, primarily due to a 15.2% decrease in marketing expenses in
1997. Management has reviewed the competition and has increased marketing
expenditures somewhat to drive additional revenues. However, the Company does
not intend to significantly discount its gaming product or substantially
increase its promotional allowances.
Room costs decreased by approximately $470,000, or 3.3%, from $14.2 million
during the 1996 period to $13.7 million during the 1997 period and room costs as
a percentage of room revenue decreased from 45.9% in 1996 to 44.7% in 1997
because of increased costs transferred to the casino department for promotional
allowances.
Food and beverage costs were relatively flat for 1997 compared to 1996, however,
food and beverage costs as a percentage of revenues increased from 69.2% in 1996
to 72.6% in 1997 because the costs transferred to the casino department for
promotional allowances decreased.
Entertainment costs decreased by approximately $500,000, or 4.2%, from $12.3
million in 1996 to $11.8 million in 1997 due to fewer concerts and special
events in 1997 and the lower payments to the Splash producer. Entertainment
expense as a percentage of entertainment revenues remained flat at 72.3% for
1996 and 1997.
Other expenses as a percentage of revenues increased from 28.7% in 1996 to 29.1%
in 1997 because of the union premium refund of $570,000 recognized in September
1996 other revenues.
Other Operating Expenses
Selling, general and administrative expenses decreased by approximately
$800,000, or 3.5%, from $23.8 million for the nine months ended September 30,
1996 to $22.9 million for the nine months ended September 30, 1997 due to
reductions in management incentives and profit sharing contributions. As a
percentage of total net revenues, selling, general and administrative expenses
increased from 19.1% during the 1996 period to 19.7% during the 1997 period as a
result of spreading of fixed costs over a lower revenue base in the 1997 period.
Depreciation and amortization increased by approximately $1.7 million, or 29.2%,
from $6.0 million in 1996 to $7.7 million in 1997 and from 4.8.6% to 6.6% of net
revenues due to the significant capital expenditures in the twelve months ended
September 30, 1997, totaling $16.8 million.
Other Income (Expense)
Interest income on Treasury Bills held to retire the $100 million notes was
$773,000 in 1997. Interest income, other increased $300,000 because of the
increased cash balances from the proceeds of the $175.0 million notes.
Net Income
As a result of the factors discussed above, net income decreased by
approximately $4.0 million, or 66.5%, from $6.0 million during the nine months
ended September 30, 1996 to $2.0 million during the nine months ended September
30, 1997.
EBITDA
EBITDA decreased by approximately $2.1 million, or 9.0%, from $23.3 million
during the nine months ended September 30, 1996 to $21.2 million during the nine
months ended September 30, 1997. Moreover, during the same periods, EBITDA
margin decreased from 18.8% to 18.2% of net revenues.
Liquidity and Capital Resources
The Company had cash and cash equivalents of $62.4 million at September 30,
1997, which was $37.0 million greater than balances at December 31, 1996.
The Company's net cash provided by operating activities was approximately $5.8
million and $14.2 million for the quarter and nine months ended September 30,
1997, and approximately $7.4 million and $15.5 million for the comparable prior
year periods, respectively. EBITDA for the first nine months of 1996 and 1997
was $23.3 million and $21.2 million, respectively, which was adequate to cover
the Company's debt service and capital expenditures. Management believes that
cash flow from operations, combined with the $62.4 million cash on hand, will be
sufficient to cover the Company's debt service and enable investment in budgeted
capital expenditures for the next twelve months.
Scheduled interest payments on the 11% Mortgage Notes is provided by the
"contractual defeasance" whereby a portion of the proceeds from the new 10%
Notes was used to acquire U.S. Treasury Securities sufficient to pay the
interest on the 11% Notes in December 1997 and the interest, principal and
premium due June 1, 1998 when the final defeasance will be accomplished through
redemption of the 11% Notes. Substantially all of the covenants on the 11% Notes
were released as a result of the "contractual defeasance."
Cash flow from operations is not expected to be sufficient to pay 100% of the
principal of the 10% Notes at maturity on August 15, 2004. Accordingly, the
ability of the Company to repay the 10% 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 10% Notes at maturity. The
10% Notes are not redeemable at the option of the Company until August 15, 2001,
and thereafter are redeemable at premiums beginning at 105.0% and declining each
subsequent year to par in 2003.
The 10% Note Indenture provides that, in certain circumstances, the Company must
offer to repurchase the 10% 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 10% Notes without a refinancing. The Paulson Merger ( See Note 4 above) is
specifically excluded from the defined transactions which would be considered a
change in control.
The 10% Note Indenture contains 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 (vi) enter into certain mergers and
consolidations. As a result of these restrictions, the ability of the Company
and ROC 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 and ROC 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.
In February 1997, the Company entered into a $15.0 million, five year reducing
revolving line of credit (the "Credit Facility"). The Credit Facility bears
interest at prime plus 0.5% or LIBOR plus 2.9%. The Company has not utilized
this line of credit. The Credit Facility was modified as a result of the 10%
Notes and the Paulson Merger. The modifications included an increase in the
allowable funded debt to EBITDA ratio to 4.75 to one. The Company is not
currently meeting this requirement and therefore, cannot draw down on the Credit
Facility at this time. The Credit Facility is callable upon a change in control
other than the Paulson Merger.
Management considers it important to the competitive position of the Riviera
that expenditures be made to upgrade the property. Capital expenditures totaled
approximately $8.9 million in 1994, $7.8 million in 1995, $14.9 million in 1996,
and $11.4 million for the nine months ended September 30, 1997. Management has
budgeted approximately $21.0 million for capital expenditures in 1997. The
Company expects to finance such capital expenditures from cash flow and the
remaining proceeds from the 10% Notes.
In August 1997, the Company through its indirect 100% owned subsidiary, Black
Hawk, Inc. purchased approximately 70,000 square feet of land in Black Hawk,
Colorado, which is entirely zoned for gaming. (See Note 3 above) The Company
intends to construct a casino containing 1,000 slot machines, 14 table games, a
600-space covered parking garage, and entertainment and food service amenities.
The Company is presently finalizing design parameters in consideration of recent
changes in the competitive environment. Management intends to finance the
project with a portion of the remaining proceeds from the new First Mortgage
Notes, equipment leases and project (first mortgage) financing.
Forward Looking Statements
The Private Securities Litigation Reform Act of 1996 provides a "safe harbor"
for certain forward-looking statements. Certain matters discussed in this filing
could be characterized as forward-looking statements such as statements relating
to plans for future expansion, as well as other capital spending, financing
sources and effects of regulation and competition. Such forward-looking
statements involve important risks and uncertainties that could cause actual
results to differ materially from those expressed in such forward-looking
statements.
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 HOLDINGS CORPORATION
By: /s/ William L. Westerman
William L. Westerman
Chairman of the Board and
Chief Executive Officer
By:/s/ Duane Krohn
Duane Krohn
Treasurer and
Chief Financial Officer
Date: November 7, 1997
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