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 June 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 (IRS Employer Identification No.)
of incorporation or organization)
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 June 30, 1997 there were 4,914,080 shares of Common Stock, $.001 par value
per share, outstanding.
<PAGE>
1
1
RIVIERA HOLDINGS CORPORATION
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Independent Accountants' Report 2
Condensed Consolidated Balance Sheets at June 30, 1997 (Unaudited) and 3
December 31, 1996
Condensed Consolidated Statements of Operations (Unaudited) for the
Three Months and Six Months ended June 30, 1996 and 1997 4
Condensed Consolidated Statements of Cash Flows (Unaudited) for the
Three Months and Six Months ended June 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 9
<PAGE>
2
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 June 30,
1997, and the related condensed consolidated statements of operations and of
cash flows for the three and six month periods ended June 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
<PAGE>
<TABLE>
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEETS December 31, 1996 and June 30, 1997 (in thousands,
except share data)
December 31, June 30,
ASSETS 1996 1997
(Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $25,747 $25,625
Accounts receivable, net 5,113 4,446
Inventories 3,039 2,792
Prepaid expenses and other assets 2,692 2,266
Total current assets 36,591 35,129
PROPERTY AND EQUIPMENT, NET 127,760 129,635
OTHER ASSETS 2,853 3,102
RESTRICTED CASH FOR PERIODIC
SLOT PAYMENTS 461 208
TOTAL ASSETS $167,665 $168,074
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $1,297 $1,119
Accounts payable 8,530 6,740
Current income taxes payable 413 578
Accrued expenses 9,757 8,462
Total current liabilities 19,997 16,899
DEFERRED INCOME TAXES 4,626 4,884
OTHER LONG-TERM LIABILITIES 3,210 3,597
LONG-TERM DEBT, NET OF
CURRENT PORTION 104,581 104,186
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock ($.001 par value; 20,000,000 shares
authorized; 4,940,980 shares issued and outstanding
at December 31, 1996 and 4,914,080 issued and
outstanding at June 30, 1997) 5 5
Additional paid-in capital 13,919 13,828
Notes receivable from Employee Stockholders (853) (508)
Retained earnings 22,180 25,183
Total stockholders' equity 35,251 38,508
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $167,665 $168,074
See notes to condensed consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1997 1996 1997
REVENUES:
<S> <C> <C> <C> <C>
Casino $20,217 $19,332 $40,382 $38,134
Rooms 10,514 10,930 21,771 21,424
Food and beverage 6,215 5,787 12,043 11,248
Entertainment 5,493 5,327 11,247 10,759
Other 2,398 2,670 4,752 5,241
44,837 44,046 90,195 86,806
Less promotional allowances 3,285 3,424 6,922 6,703
Net revenues 41,552 40,622 83,273 80,103
COSTS AND EXPENSES:
Direct costs and expenses of operating departments:
Casino 12,066 10,930 24,472 22,187
Rooms 4,701 4,574 9,365 9,166
Food and beverage 4,163 4,015 8,089 8,002
Entertainment 3,927 3,790 7,907 7,571
Other 738 797 1,451 1,473
Other operating expenses:
Selling, general and administrative 7,999 8,164 15,602 15,839
Depreciation and amortization 1,974 2,578 3,862 5,010
Total costs and expenses 35,568 34,848 70,748 69,248
INCOME FROM OPERATIONS 5,984 5,774 12,525 10,855
OTHER INCOME (EXPENSE)
Interest expense (3,039) (3,030) (6,100) (6,043)
Interest income 316 328 593 623
Write off of secondary offering costs (850)
Total other income (expense) (2,723) (2,702) (5,507) (6,270)
INCOME BEFORE PROVISION FOR INCOME TAXES 3,261 3,072 7,018 4,585
INCOME TAXES 1,116 1,053 2,402 1,582
NET INCOME $2,145 $2,019 $4,616 $3,003
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 5,132 5,208 5,109 5,212
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE-PRIMARY AND FULLY DILU $0.42 $0.39 $0.90 $0.58
See notes to condensed consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1997 1996 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
Net Income $2,145 $2,019 $4,616 $3,003
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,974 2,578 3,862 5,010
Provision for bad debts 97 (156) 240 -62
Provision for gaming discounts (69) 14 -66
Write off of secondary offering costs 850
Interest expense 3,039 3,030 6,100 6,043
Interest paid (5,979) (5,610)(6,120) -5,634
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (31) 97 (81) 795
Decrease (increase) in inventories 152 23 (327) 247
Decrease (increase) in prepaid expenses
and other assets (935) 248 (830) 426
Decrease (increase) in restricted cash for
slot periodic payments 253 253 253 253
Increase (decrease) in accounts payable 268 (1161) (909) (1,790)
Increase (decrease) in accrued liabilities 168 (1184) 46 (1,704)
Increase (decrease) in current income taxe (747) 97 (51) 165
Increase (decrease) in deferred income tax 468 (4) 1,008 258
Increase in non-qualified pension plan
obligation to CEO upon retirement 106 235 212 641
Net cash provided by (used in) operating act. 978 397 8,033 8,434
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for prop.and equipt. (3025)(2644) (5,259) (6,885)
Decrease (increase) in other assets 1,052 (527) 2,699 (1,099)
Net cash used in investing activities (1,973)(3171) (2,561) (7,984)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 49 98
Payments on long-term borrowings (1,030) (745) (1,622) (826)
Proceeds from issuance of stock to
employees and directors 12 (23) 12 (91)
Collections of notes receivable from employees 160 134 160 345
Net cash used in financing activities (809) (634) (1,351) (572)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ($1,804)(3408) 4,121 (122)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $27,887 29033 21,962 25,747
CASH AND CASH EQUIVALENTS, END OF PERIOD $26,083 25625 26,083 25,625
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION-
INCOME TAXES PAID $1,982 $960 $2,032 $1,160
See notes to condensed consolidated financial statements.
</TABLE>
<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.
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 and its wholly owned subsidiaries ROC and RGM. All
material intercompany accounts and transactions have been eliminated.
The financial information at June 30, 1997 and for the three months and six
months ended June 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 six months ended
June 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
The Company has withdrawn 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. Management believes that the
implementation of this standard will not have a material impact on earnings per
share.
<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 six months ended June 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.
Three Months Ended Six Months Ended
June 30, June 30,
1996 1997 1996 1997
Income Statement Data:
Revenues:
Casino 48.7% 47.6% 48.5% 47.6%
Rooms 25.3% 26.9% 26.1% 26.7%
Food and beverage 15.0% 14.2% 14.5% 14.0%
Entertainment 13.2% 13.1% 13.5% 13.4%
Other 5.8% 6.6% 5.7% 6.5%
Less promotional allowances(-7.9%) (-8.4%) (-8.3%) (-8.4%)
Net Revenues 100.0% 100.0% 100.0% 100.0%
Costs and Expenses:
Casino 59.7% 56.5% 60.6% 58.2%
Rooms 44.7% 41.8% 43.0% 42.8%
Food and beverage 67.0% 69.4% 67.2% 71.1%
Entertainment 71.5% 71.1% 70.3% 70.4%
Other 30.8% 29.9% 30.5% 28.1%
Selling, general and admin 19.3% 20.1% 18.7% 19.8%
Depreciation and amortizat 4.8% 6.3% 4.6% 6.3%
Total costs and expenses 85.6% 85.8% 85.0% 86.4%
Income from operations 14.4% 14.2% 15.0% 13.6%
Interest expense, net (-6.6%) (-6.7%) (-6.6%) (-6.8%)
Write off of secondary offering 0.0% 0.0% 0.0% 1.1%
Income before provision for taxes7.8% 7.6% 8.4% 5.7%
Provision for income taxes 2.7% 2.6% 2.9% 2.0%
Net income 5.2% 5.0% 5.5% 3.8%
EBITDA Margin 19.2% 20.6% 19.7% 19.8%
<PAGE>
Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996
Revenues
Net revenues decreased by approximately $900,000, or 2.2% from $41.5 million for
the three months ended June 30, 1996 to $40.6 million for the three months ended
June 30, 1997.
Casino revenues decreased by approximately $900,000, or 4.5%, from $20.2 million
during 1996 to $19.3 million during 1997 due to a general softness in the gaming
market in Las Vegas. Slot revenues decreased approximately $800,000 due to a
decrease in the hold percent from 6.5% to 6.1% on comparable coin-in volumes.
Although the table games drop was down approximately $3.2 million or 11.0%, the
table games win percentage increased 4.1%, which resulted in an increase in
table games revenues of $658,000. Race book revenues decreased $520,000 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 $400,000, or 4.0%. from $10.5 million
during 1996 to $10.9 million during 1997 as a result of an increase of $2.82 in
average room rate from $56.83 in 1996 to $59.65 in 1997. Hotel occupancy
remained at 99.2% for both years although there was a decrease in rooms
available for sale of 1,700 rooms in 1997 due to remodeling projects.
Food and beverage revenues decreased approximately $400,000, or 6.5%, from $6.2
million during 1996 to $5.8 million during 1997 due primarily to reduced
complimentary revenues.
Entertainment revenues decreased by approximately $200,000, or 3.6%, from $5.5
million during 1996 to $5.3 million during 1997 due to a decrease in the average
ticket price for Splash resulting from discounts given to maintain volume.
Other revenues increased by approximately $300,000, or 12.5%, from $2.4 million
during 1996 to $2.7 million during 1997 due primarily to the management fees for
operating the Four Queens Hotel/Casino in downtown Las Vegas which began in
August 1996.
Promotional allowances increased by approximately $100,000, or 3.0%, from $3.3
million during 1996 to $3.4 million during 1997 due to increased room
complimentaries of $200,000 which were partially offset by lower food and
beverage complimentaries of $100,000. The additional room complimentaries were
offered in connection with the June gaming tournaments.
Direct Costs and Expenses of Operating Departments
Total direct costs and expenses of operating departments decreased by
approximately $1.5 million, or 5.9%, from $25.6 million for the three months
ended June 30, 1996 to $24.1 million for the three months ended June 30, 1997.
Casino expenses decreased by approximately $1.2 million, or 9.9%, from $12.1
million during 1996 to $10.9 million during 1997 due to a corresponding decrease
in casino revenues. Casino expenses as a percent of casino revenue decreased
from 59.7% to 56.5%, primarily due to a 13.4% 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 $100,000, or 2.1%, from $4.7 million
during the 1996 period to $4.6 million during the 1997 period and room costs as
a percentage of room revenue decreased from 44.7% in 1996 to 41.8% in 1997
because costs transferred to the casino department for promotional allowances
increased.
Food and beverage costs decreased by approximately $200,000, or 4.8%, from $4.2
million in 1996 to $4.0 million in 1997. However, food and beverage costs as a
percentage of revenues increased from 67.0% in 1996 to 69.4% in 1997 because the
costs transferred to the casino department for promotional allowances decreased.
Entertainment costs decreased by approximately $100,000, or 2.6%, from $3.9
million in 1996 to $3.8 million in 1997 as a direct result of the lower revenues
in all shows. Entertainment expense as a percentage of entertainment revenues
fell slightly from 71.5% in 1996 to 71.1% in 1997.
Other expenses as a percentage of revenues decreased from 30.8% in 1996 to 29.9%
in 1997 because of the limited costs associated with management fee revenues
from the RGM (Four Queens) contract.
Other Operating Expenses
Selling, general and administrative expenses increased by approximately
$200,000, or 2.5%, from $8.0 million for the three months ended June 30, 1996 to
$8.2 million for the three months ended June 30, 1997. As a percentage of total
net revenues, selling, general and administrative expenses increased from 19.3%
during the 1996 period to 20.1% during the 1997 period as a result of the
spreading of fixed costs over a lower revenue base in the 1997 period.
Depreciation and amortization increased by approximately $600,000, or 30.0%,
from $2.0 million in 1996 to $2.6 million in 1997 and from 4.8% to 6.3% of net
revenues due to the significant capital expenditures in the twelve months ended
June 30, 1997.
Other Income (Expense)
Interest expense and interest income remained relatively constant in both years
at $2.7 million and 6.6% and 6.7% of net revenues.
Net Income
As a result of the factors discussed above, net income decreased by
approximately $100,000, or 4.8%, from $2.1 million during the three months ended
June 30, 1996 to $2.0 million during the three months ended June 30, 1997.
EBITDA
EBITDA increased by approximately $400,000, or 5.0%, from $8.0 million during
the three months ended June 30, 1996 to $8.4 million during the three months
ended June 30, 1997. During the same periods, EBITDA margin increased from 19.2%
to 20.6% of net revenues. This was accomplished even though revenues decreased
by $900,000.
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
- ----------------------------------------------------------------------------
Revenues
Net revenues decreased by approximately $3.2 million, or 3.8%, from $83.3
million for the six months ended June 30, 1996 to $80.1 million for the six
months ended June 30, 1997.
Casino revenues decreased by approximately $2.3 million, or 5.7%, from $40.4
million during 1996 to $38.1 million during 1997 due to a general softness in
the gaming market in Las Vegas. Slot revenues decreased approximately $1.4
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 $9.4 million or 15.1%, the win
percentage increased 3.4%, which resulted in an increase in table games revenues
of approximately $500,000. 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 $850,000 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 decreased by approximately $400,000, or 1.8%. from $21.8 million
during 1996 to $21.4 million during 1997 due primarily to 5,000 more rooms being
out of order for refurbishing. Hotel occupancy remained relatively constant at
99.0% in 1997 as compared to 98.2% in 1996 (based on available rooms). The
average room rate increased $0.34, or 0.5%, from $59.03 to $59.37 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 $800,000, or 6.6%, from $12.0
million during 1996 to $11.2 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 $400,000, or 3.6%, from $11.2
million during 1996 to $10.8 million during 1997 due to a 5.8% decrease in
covers in the Splash production show and a decrease in the average Splash ticket
price resulting from discounts given to maintain volume.
Other revenues increased by approximately $500,000, or 10.6%, from $4.7 million
during 1996 to $5.2 million during 1997 due to the management fees for operating
the Four Queens Hotel/Casino in downtown Las Vegas which began in August 1996.
Promotional allowances decreased by approximately $200,000, or 2.9%, from $6.9
million during 1996 to $6.7 million during 1997 due to lower food and beverage
complimentaries of $450,000 which were partially offset by increased room
complimentaries of $250,000.
Direct Costs and Expenses of Operating Departments
Total direct costs and expenses of operating departments decreased by
approximately $2.9 million, or 5.7%, from $51.3 million for the six months ended
June 30, 1996 to $48.4 million for the six months ended June 30, 1997.
Casino expenses decreased by approximately $2.3 million, or 9.4%, from $24.5
million during 1996 to $22.2 million during 1997 due to a corresponding decrease
in casino revenues. Casino expenses as a percent of casino revenue decreased
from 60.6% to 58.2%, primarily due to a 14.4% 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 $200,000, or 2.1%, from $9.4 million
during the 1996 period to $9.2 million during the 1997 period and room costs as
a percentage of room revenue decreased from 43.0% in 1996 to 42.8% 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 67.2% in 1996
to 71.1% in 1997 because the costs transferred to the casino department for
promotional allowances decreased.
Entertainment costs decreased by approximately $300,000, or 3.8%, from $7.9
million in 1996 to $7.6 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 70.3% for 1996 and 1997.
Other expenses as a percentage of revenues decreased from 30.5% in 1996 to 28.1%
in 1997 because of the limited costs associated with management fee revenues
from the RGM (Four Queens) contract.
Other Operating Expenses
Selling, general and administrative expenses increased by approximately
$200,000, or 1.5%, from $15.6 million for the six months ended June 30, 1996 to
$15.8 million for the six months ended June 30, 1997 due to increased
maintenance and repair expenses. As a percentage of total net revenues, selling,
general and administrative expenses increased from 18.7% during the 1996 period
to 19.8% 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 $1.1 million, or 28.2%,
from $3.9 million in 1996 to $5.0 million in 1997 and from 4.6% to 6.3% of net
revenues due to the significant capital expenditures in the twelve months ended
June 30, 1997.
Other Income (Expense)
Interest expense and interest income remained relatively constant in both years.
During the first quarter of 1997 the Company filed an updated registration
statement with the Securities and Exchange Commission for a secondary offering
of 1.75 million shares by the Company and 1.25 million shares by existing
shareholders. The Company withdrew its offering due to market conditions and, as
a result, wrote off costs totaling $850,000 in 1997.
Net Income
As a result of the factors discussed above, net income decreased by
approximately $1.6 million, or 34.9%, from $4.6 million during the six months
ended June 30, 1996 to $3.0 million during the six months ended June 30, 1997.
EBITDA
EBITDA decreased by approximately $500,000, or 3.0%, from $16.4 million during
the six months ended June 30, 1996 to $15.9 million during the six months ended
June 30, 1997. However, during the same periods, EBITDA margin increased from
19.7% to 19.8% of net revenues. This increase was accomplished in spite of the
3.8% decrease in net revenues.
Liquidity and Capital Resources
The Company had cash and cash equivalents of $25.6 million at June 30, 1997,
which was similar to balances at December 31, 1996.
The Company's net cash provided by operating activities was approximately
$400,000 and $8.4 million for the quarter and six months ended June 30, 1997,
and approximately $1.0 million and $8.0 million for the comparable prior year
periods, respectively. EBITDA for the first six months of 1996 and 1997 was
$16.4 million and $15.9 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 $15.0 million credit line, 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 First Mortgage Notes and other indebtedness
are $11.6 million in 1997 declining to $11.0 million in 2002. Cash flow from
operations is not expected to be sufficient to pay 100% of the principal of the
First Mortgage Notes at maturity in 2002. Accordingly, the ability of the
Company to repay the First Mortgage Notes at maturity will be dependent upon its
ability to refinance the First Mortgage Notes. There can be no assurance that
the Company will be able to refinance the principal amount of the First Mortgage
Notes at maturity. The First Mortgage Notes are not redeemable at the option of
the Company until June 1, 1998, and thereafter are redeemable at premiums
beginning at 104.3125% and declining each subsequent year to par in 2001.
The Note Indenture provides that, in certain circumstances, the Company must
offer to repurchase the 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 First Mortgage Notes without a refinancing.
The Note Indenture imposes certain financial covenants and restrictions on the
Company and ROC, including a minimum consolidated net worth requirement and
limitations on the payment of dividends, the incurrence of debt and granting of
liens, capital expenditures and mergers and sales of assets. 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 may not be able to obtain additional funds.
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.
Effective September 8, 1995, the Note Indenture was amended to permit the
Company's management team to utilize its expertise in turning around troubled
gaming properties which are either in, or on the verge of, bankruptcy and
managing casinos in "new venues."
In February 1997, the Company entered into a $15.0 million, five year reducing
revolving line of credit collateralized by equipment (the "Credit Facility").
The revolving line of credit bears interest at prime plus 0.5% or LIBOR plus
2.9%. The Company has not utilized this line of credit. The line of credit is
callable upon a change in control.
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 and $14.9 million in
1996. Management has budgeted approximately $14.6 million for capital
expenditures in 1997. The Company expects to finance such capital expenditures
from cash flow and the Credit Facility.
The Company has executed a letter of intent to purchase approximately 70,000
square feet of land in Black Hawk, Colorado, which is entirely zoned for gaming.
The Company intends to construct a casino containing 1,000 slot machines, 14
table games, a 500-space covered parking garage, and entertainment and food
service amenities. The project is estimated to cost approximately $55.0 million.
Management is currently reviewing financing alternatives with its investment
advisors.
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: July 25, 1997
Riviera Holdings Corporation 7/25/97
Form 10Q June 30, 1997
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