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 March 31, 1998
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 April 24, 1998 there were 4,858,980 shares of Common Stock, $.001 par
value per share, outstanding.
<PAGE>
RIVIERA HOLDINGS CORPORATION
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Independent Accountants' Report 2
Condensed Consolidated Balance Sheets at March 31, 1998 (Unaudited) and
December 31, 1997 3
Condensed Consolidated Statements of Operations (Unaudited) for the
Three Months ended March 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows (Unaudited) for the
Three Months ended March 31, 1998 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 March 31,
1998, and the related condensed consolidated statements of operations and of
cash flows for the three ended March 31, 1998 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, 1997, 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 6, 1998, 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, 1997, 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
April 22 , 1998
<PAGE>
<TABLE>
<CAPTION>
RIVIERA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Amounts)
March 31, December 31,
1998 1997
ASSETS (Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $60,729 $65,151
Accounts receivable, net 3,974 4,938
Inventories 2,881 3,509
Prepaid expenses and other assets 4,807 4,554
----------------- -----------------
Total current assets 72,391 78,152
----------------- -----------------
U.S. TREASURY BILLS HELD TO RETIRE $100 MILLION NOTES 108,009 106,596
PROPERTY AND EQUIPMENT, NET 153,033 153,611
OTHER ASSETS 8,853 9,299
RESTRICTED CASH FOR PERIODIC SLOT PAYMENTS 208 208
----------------- -----------------
TOTAL ASSETS $342,494 $347,866
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $347 $364
Accounts payable 6,582 10,890
Accrued Interest on $100 million notes 2,750
Accrued Interest, Other 2,195 6,570
Accrued Expenses - Other 9,548 8,795
----------------- -----------------
Total current liabilities 21,422 26,619
----------------- -----------------
Deferred Income Taxes 5,958 5,958
$100 Million Notes to be retired by U.S. Treasury Bills 100,000 100,000
Other Long-Term Liabilities 4,316 4,076
LONG-TERM DEBT, NET OF CURRENT PORTION 173,442 173,436
----------------- -----------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock ($.001 par value; 20,000,000 shares
authorized; 4,916,280 shares issued and outstanding
at December 31, 1997 and 4,880,580 issued and
outstanding at March 31, 1998) 5 5
Additional paid-in capital 13,467 13,711
Notes receivable from Employee Shareholders (64) (207)
Retained earnings 23,948 24,268
----------------- -----------------
Total shareholders' equity 37,356 37,777
----------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $342,494 $347,866
================= =================
</TABLE>
See notes to Condensed Consolidated Financial Statements (Unaudited)
<PAGE>
<TABLE>
<CAPTION>
RIVIERA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
(In Thousands Except Share Amounts)
1998 1997
REVENUES:
<S> <C> <C>
Casino $18,691 $18,802
Rooms 9,779 10,494
Food and beverage 5,767 5,460
Entertainment 5,345 5,432
Other 2,960 2,570
----------- -----------
Total 42,542 42,758
Less promotional allowances 3,375 3,280
----------- -----------
Net revenues 39,167 39,478
----------- -----------
COSTS AND EXPENSES:
Direct costs and expenses of operating departments:
Casino 11,038 11,203
Rooms 4,165 4,616
Food and beverage 4,052 3,988
Entertainment 3,972 3,778
Other 774 673
Other operating expenses:
Selling, general and administrative 7,347 7,715
Depreciation and amortization 2,975 2,432
----------- -----------
Total costs and expenses 34,323 34,405
----------- -----------
INCOME FROM OPERATIONS 4,844 5,073
----------- -----------
OTHER INCOME (EXPENSE):
Interest expense on $100 million notes (2,767) (2,767)
Interest income on Treasury bills
to retire $100 million 1,414
Interest expense, other (4,506) (246)
Interest income, other 673 296
Other, net (149) (850)
----------- -----------
Total other income (expense) (5,335) (3,567)
----------- -----------
INCOME (LOSS) BEFORE PROVISION (CREDIT)
FOR INCOME TAXES (491) 1,506
----------- -----------
PROVISION (CREDIT) FOR INCOME TAXES (172) 527
----------- -----------
NET INCOME(LOSS) ($319) $979
=========== ===========
EARNINGS PER SHARE DATA:
Weighted average common shares outstanding 4,902,347 4,920,380
----------- -----------
Basic earnings per share $ (0.07) $ 0.20
----------- -----------
Weighted average common & common equivalent shares 4,902,347 5,222,257
----------- -----------
Diluted earnings per share $ (0.07) $ 0.19
=========== ===========
</TABLE>
See notes to Condensed Consolidated Financial Statements (Unaudited)
<PAGE>
<TABLE>
<CAPTION>
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(In thousands)
- --------------
1998 1997
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income (Loss) ($319) $979
Adjustments to reconcile net income (loss) to net cash
provided by (used in ) operating activities:
Depreciation and amortization 2,975 2,432
Provision for bad debts 123 154
Provision for gaming discounts (18) 2
Other expenses, net 149 850
Interest expense, $100 Million Notes 2,767 2,767
Interest paid (8,871) (23)
Interest expense, other 4,506 246
Changes in operating assets and liabilities:
Increase in U.S.Treasury Bills purchased to retire $100 million notes
Decrease (increase) in accounts receivable 860 638
Decrease (increase) in inventories 628 224
Decrease (increase) in prepaid expenses and other assets (253) 178
Increase (decrease) in accounts payable (4,308) (419)
Increase (decrease) in accrued liabilities (963) (731)
Increase (decrease) in current income taxes payable 68
Increase (decrease) in deferred income taxes payable 262
Increase in non-qualified pension plan obligation
to CEO upon retirement 240 405
------------ -----------
Net cash (used in) provided by operating activities (2,484) 8,032
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment, other (1,588) (4,241)
Capital expenditures-Black Hawk, Colorado (809)
Increase in other assets-Black Hawk, Colorado (17)
Decrease (increase) in other assets 463 (572)
------------ -----------
Net cash used in investing activities (1,951) (4,813)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term borrowings (88) (81)
Net collections, cancellations (refunds) employee stock purchase plan 101 143
------------ -----------
Net cash provided by (used in) financing activities 13 62
------------ -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ($4,422) $3,281
============ ===========
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $65,151 $25,747
============ ===========
CASH AND CASH EQUIVALENTS, END OF PERIOD $60,729 $29,028
============ ===========
Supplemental disclosure of cash flow information-Income taxes paid $0 $200
------------ -----------
</TABLE>
See notes to Condensed Consolidated Financial Statements (Unaudited)
<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
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 March 31, 1998 and for the three months ended March
31, 1998 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 ended March 31, 1998 and 1997, 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, 1997, 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, 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
estimated useful lives for depreciable and amortizable assets, certain accrued
liabilities and the estimated allowance for receivables. Actual results may
differ from estimates.
Earnings Per Share
For the year ended December 31, 1997, the Company adopted FASB Statement No.
128, Earnings per Share. This statement established standards for computing and
presenting earnings per share ("EPS") and required restatement of all
prior-period EPS data presented. Basic EPS is computed by dividing net income by
the weighted average number of common shares outstanding for the period. Diluted
EPS is computed by dividing net income by the weighted number of common and
common equivalent shares outstanding for the period. Options to purchase common
stock, whose exercise price was greater than the average market price for the
period, have been excluded from the computation of diluted EPS. There were no
excluded options for the quarter ended March 1997. A reconciliation of income
and shares for basic and diluted EPS is as follows:
<TABLE>
For the quarter at March 31, 1998
Per-share
(Loss) Shares Amount
Basic EPS
<S> <C> <C> <C>
(Loss) available to common stockholders $(319) 4,902 $(.07)
------ ------ ------
Effective of dilutive securities
Options , antidilutive 0 0 0
------ ------ -----
Diluted EPS
(Loss)available to common stockholders plus
assumed conversions $(319) 4,902 $(.07)
------ ------ ------
For the quarter at March 31, 1997
Per-share
Income Shares Amount
Basic EPS
Income available to common stockholders $ 979 4,920 $.20
------ ------ -----
Effective of dilutive securities
Options 302
------
Diluted EPS
Income available to common stockholders plus
assumed conversions $ 979 5,222 $.19
------ ------ -----
</TABLE>
Recently Adopted Accounting Standards
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 has adopted this FASB and the
impact was not material.
Recently Issued Accounting Standards
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 begun construction of a casino in Black Hawk, Colorado on a site
which was purchased for $15 million in August 1997. As of March 31, 1998 the
Company had expended approximately $17.4 million on the project including the
cost of the land.
4. MERGER
The Company entered into an Agreement and Plan of Merger (the "Merger
Agreement") with R&E Gaming Corp. ("R&E Gaming") and its wholly-owned subsidiary
RAS Acquisition Sub, Inc. ("RAS"), certain entities controlled by Allen E.
Paulson, a California businessman ("Paulson"), pursuant to which one of such
entities would be merged with and into the Company (the "Merger"). On February
25, 1998, the Company announced that it had been advised by Paulson, President
of R&E Gaming, that R&E Gaming was preserving its right not to proceed with its
acquisition of Elsinore and that an Option and Voting agreement relating to
Elsinore between R&E Gaming and Morgens Waterfall was void by reason of certain
alleged misrepresentations.
On March 20, 1998, the Company was notified (the "Termination Notice") by
Paulson on behalf of R&E Gaming and its wholly-owned subsidiary RAS that the
Merger Agreement, dated as of September 15, 1997, among the Company, R&E Gaming
and RAS is void and unenforceable against R&E Gaming and RAS, or alternatively,
of their intention to terminate the Merger Agreement. Riviera has disputed the
factual and legal assertions in the Termination Notice and intends to vigorously
pursue its rights against Paulson, including collection of the approximately
$5.8 million being held in escrow (the "Escrow Funds") by State Street Bank and
Trust Company of California, N.A. as escrow agent under an Escrow Agreement
dated as of September 15, 1997. The Escrow Funds consist of : (I) $3.00 per
share (20%) down payment for shares of the Company's common stock, which are not
owned by the Morgans, Waterfall, Vintiadis & Company, Inc. managed funds,
SunAmerica Life Insurance Company, Keyport Life Insurance Company or Paulson and
his affiliates, and (ii) interest at the rate of 7% pre annum on the $15.00
purchase price for such shares from June 1, 1997 to February 14, 1998. The
escrowed funds include cash of $654,000 and a letter of credit in the amount of
$5.2 million which expires on June 10, 1998.
The Riviera Board of Directors has set the close of business on May 1, 1998, as
the record date for the Riviera minority stockholders entitled to receive
anything Riviera collects from the escrow. Excluded from participating are
Morgens Waterfall, SunAmerica, Keyport Life and Paulson, and their affiliates
and associates, who own an aggregate 3,355,000 Riviera shares. There can be no
assurance that Riviera will be successful in collecting the escrow funds or how
long it will take to finally resolve the dispute as to the escrow and related
matters.
<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 ended March 31, 1998 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.
1998 1997
---- ----
Income Statement Data:
Revenues:
Casino 47.7% 47.6%
Rooms 25.0% 26.6%
Food and beverage 14.7% 13.8%
Entertainment 13.6% 13.8%
Other 7.6% 6.5%
Less promotional allowances -8.6% -8.3%
-------------------
Net Revenues 100.0% 100.0%
-------------------
Costs and Expenses:
Casino 59.1% 59.6%
Rooms 42.6% 44.0%
Food and beverage 70.3% 73.0%
Entertainment 74.3% 69.6%
Other 26.1% 26.2%
Selling, general and administrative 18.8% 19.5%
Depreciation and amortization 7.6% 6.2%
-------------------
Total costs and expenses 87.6% 87.2%
-------------------
Income from operations 12.4% 12.8%
Interest expense on $100 million notes -7.1% -7.0%
Interest income on Treasury Bills
to retire $100 million notes 3.6% 0.0%
Interest expense, other -11.5% -0.6%
Interest income, other 1.7% 0.8%
Other, net -0.4% -2.2%
Income (loss) before provision (credit) for income taxes -1.3% 3.8%
Provision (credit) for income taxes 0.4% 1.3%
Net income (loss) -0.8% 2.5%
-------------------
EBITDA Margin 20.0% 19.0%
-------------------
1 EBITDA consists of earnings before interest, income taxes, depreciation and
amortization (excluding Paulson Merger costs and write off costs associated with
a secondary offering which was withdrawn in the first quarter 1997.) 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 generally accepted accounting principles ("GAAP"),
it is included herein to provide additional information with respect to the
ability of the Company to meet its future debt service, capital expenditure 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.
<PAGE>
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997
Revenues
Net revenues decreased by $311,000, or 1%, from $39.5 million in the first
quarter of 1997 to $39.2 million in first quarter if 1998. Casino revenues
decreased by $111,000, or 1%, from $18.8 million during 1997 to $18.7 million
during 1998 due to an $818,000 decrease in tables games, race, sports, keno and
poker revenues which was partially offset by a $707,000 increase in slot
revenues. Table games revenues decreased because drop was down $2.9 million due
to the continued general softness in the Last Vegas market and competition for
table games players. Slot revenues were up due to the opening of Nickel Town
which is designed to offer value oriented slot customers an attractive location
to play. Nickel Town is attracting additional walk-in customers from the Las
Vegas Strip and it competes with Slots-of-Fun and Westward Ho with value
oriented food, beverage and merchandise.
Room revenues decreased by $715,000, or 7% from $10.5 million in 1997 to $9.8
million in 1998 as the result of a decrease in hotel occupancy from 97.2% to
92.1% and a decrease of $1.20 in average daily rate from $59.10 in 1997 to
$57.90 in 1998. Room revenue from tour operator bookings was down 18.8% due to
the economic slow down in the Far East, however some of this decrease was made
up with aggressive marketing.
Food and beverage revenues increased approximately $300,000, or 5.6%, from $5.5
million during 1997 to $5.8 million during 1998 due primarily to the addition of
the Flying R Bar and Hound Doggies snack bar in Nickel Town.
Entertainment revenues decreased by approximately $100,000, or 1.6%, from $5.4
million during 1997 to $5.3 million during 1998 due to a 12% decrease in
attendance at Splash.
Other revenues increased by approximately $400,000, or 15.3%, from $2.6 million
during 1997 to $3.0 million during 1998 due primarily to the Company operating
its own pay phones. Prior to June 1997, pay phones were operated through a
concession leased to a third party. In addition, a gift shop for discounted
merchandise was opened in Nickel Town.
Promotional allowances increased $100,000, or 2.9%, from $3.3 million in 1997 to
$3.4 million in 1998. Increased room, food and beverage complimentaries were
partially offset by lower entertainment complimentaries.
Direct Costs and Expenses of Operating Departments
Total direct costs and expenses of operating departments decreased by
approximately $300,000, or 1.1%, from $24.3 million for the three months ended
March 31, 1997 to $24.0 million for the three months ended March 31, 1998.
Casino expenses decreased by approximately $200,000, or 1.5%, from $11.2 million
during 1997 to $11.0 million during 1998 due to a corresponding decrease in
casino revenues. Casino expenses as a percent of casino revenue decreased from
59.6% to 59.1% due to increased slot revenues which have lower direct costs.
Room costs decreased by approximately $400,000, or 9.8%, from $4.6 million
during the 1997 period to $4.2 million during the 1998 period and room costs as
a percentage of room revenue decreased from 44.0% in 1997 to 42.6% in 1998 due
to decreased payroll and direct operating costs corresponding to the lower
occupancy.
Food and beverage costs were approximately $4.0 million for each period.
However, food and beverage costs as a percentage of revenues decreased from
73.0% in 1997 to 70.3% in 1998 because of increased beverage promotional revenue
from the casino bars to promote casino play. Beverage revenues produce a higher
profit margin than food revenues.
Entertainment costs increased by approximately $200,000, or 5.1%, from $3.8
million in 1997 to $4.0 million in 1998 due to a temporary increase in the
contract payments for the Splash show marketing in an effort to increase ticket
sales. Entertainment expense as a percentage of entertainment revenues increased
from 69.6% in 1997 to 74.3% in 1998.
Other expenses increased $100,000, or 14.9%, from $700,000 in 1997 to $800,000
in 1998 because of the corresponding increase in gift shop revenues.
Other Operating Expenses
Selling, general and administrative expenses decreased by approximately
$400,000, or 4.8%, from $7.7 million in 1997 to $7.3 million for 1998 due to a
reduction in temporary personnel, and general corporate, administrative and
legal expenses brought about by the effective utilization of in-house resources.
Selling, general and administrative expenses decreased from 19.5% of total net
revenues during the 1997 period to 18.8% in 1998.
Depreciation and amortization increased by approximately $500,000, or 22.0%,
from $2.4 million in 1997 to $2.9 million in 1998 and from 6.2% to 7.6% of net
revenues due to significant capital expenditures for operating assets in the
twelve months ended March 31, 1998 totaling approximately $18.0 million.
(excluding Black Hawk capital expenditures)
Other Income (Expense)
Interest expense, other increased by $4.3 million because the Company issued 10%
First Mortgage Notes in the amount of $175.0 million on August 13, 1997, in
addition to carrying the defeased 11% $100 million Notes until June 1, 1998,
when the 11% Notes will be redeemed. The Company used part of the proceeds of
the 10% First Mortgage Notes to purchase United States Government securities
which were deposited into an irrevocable trust held to retire the $100 million
notes. Interest income on these securities was $1.4 million in 1998. Interest
income, other increased $377,000 because of the increased cash balances from the
remaining proceeds of the $175.0 million notes.
During the first quarter of 1997 the Company withdrew a secondary offering due
to market conditions and, as a result, charged costs totaling $850,000 to other
expense. During the first quarter of 1998, $149,000 in merger and acquisition
costs related to the R&E Gaming Corporation Plan of Merger (Paulson Merger) were
charged to other expense as required under GAAP.
Net Income (Loss)
As a result of the factors discussed above, net income decreased by
approximately $1.3 million, from $979,000 during the three months ended March
31, 1997 to a loss of $319,000 during the three months ended March 31, 1998.
EBITDA
EBITDA increased by approximately $300,000, or 4.2%, from $7.5 million in 1997
to $7.8 million in 1998. During the same periods, EBITDA margins increased from
19.0% to 20.0%, respectively. Management believes that these results are
encouraging in light of the results of many of its direct competitors on the Las
Vegas Strip. However, competition remains intense in Las Vegas with an apparent
oversupply of rooms and significant logistical problems with regard to air and
ground transportation in the immediate future.
Liquidity and Capital Resources
The Company had cash and cash equivalents of $60.7 million at March 31, 1998,
which was $4.4 million less than balances at December 31, 1997 due to payment of
bond interest on February 15, 1998.
The Company's net cash used in operating activities was approximately $2.5
million for the three months ended March 31, 1998 compared to $8.0 million
provided by operations in 1997. EBITDA for the first three months of 1997 and
1998 was $7.5 million and $7.8 million, respectively. Management believes that
cash flow from operations, combined with the $60.7 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 defeased 11% Mortgage Notes is provided by
the use of the U. S. Treasury Bills held to retire the $100 million notes and
the related interest income. A portion of the proceeds of the 10% Notes was used
to acquire U.S. Treasury Bills sufficient to pay the interest on the 11% Notes
in December 1997 and the interest, principal and premium due June 1, 1998, when
the retirement of the $100 million notes will be accomplished. 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 proposed Paulson Merger was
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.
Management considers it important to the competitive position of the Riviera
that expenditures be made to upgrade the property. Capital expenditures in Las
Vegas totaled approximately $8.9 million in 1994, $7.8 million in 1995, $14.9
million in 1996, and $19.8 million in 1997 which excludes the Black Hawk project
expenditures of $16.6 million. Management has budgeted approximately $24.8
million for capital expenditures in Las Vegas for 1998 including the convention
center expansion. The Company expects to finance such capital expenditures from
cash flow and the unused proceeds from the 10% Notes.
In August 1997, the Company through its indirect 100% owned subsidiary, Riviera
Black Hawk, Inc. purchased approximately 70,000 square feet of land in Black
Hawk, Colorado, which is entirely zoned for gaming. The Company is constructing
a casino containing 1,000 slot machines, 14 table games, a 520-space covered
parking garage, and entertainment and food service amenities. The Company is
presently engaged in moving utilities from its property to the street and
intends to start dewatering and excavation in late May 1998. Management intends
to finance the project with a portion of the unused proceeds from the new First
Mortgage Notes, equipment leases and project (first mortgage) financing. The
casino is scheduled to open in 1999.
Forward Looking Statements
The Private Securities Litigation Reform Act of 1997 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: May 8, 1998
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