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, 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 June 30, 1998 there were 5,108,176 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 June 30, 1998 (Unaudited) and 3
December 31, 1997
Condensed Consolidated Statements of Operations (Unaudited) for the
Three Months and Six Months ended June 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows (Unaudited) for the
Three Months and Six Months ended June 30, 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 June 30,
1998, and the related condensed consolidated statements of operations and of
cash flows for the three months and six months ended June 30, 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
August 3, 1998
<PAGE>
<TABLE>
<CAPTION>
RIVIERA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Amounts)
June 30, December 31,
1998 1997
--------------- -----------------
ASSETS (Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 62,690 $ 65,360
Accounts receivable, net 3,602 4,938
Inventories 3,192 3,509
Prepaid expenses and other assets 3,675 3,363
Prepaid federal income tax and refunds receivable 1,207 1,190
--------------- -----------------
Total current assets 74,366 78,360
U.S. TREASURY BILLS HELD TO RETIRE $100 MILLION NOTES - 106,596
PROPERTY AND EQUIPMENT, NET 158,592 153,611
OTHER ASSETS 8,324 9,299
--------------- -----------------
TOTAL ASSETS $ 241,282 $ 347,866
=============== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt 329 364
Accounts payable 9,038 10,890
Accrued Interest 6,563 6,570
Accrued Expenses - Other 8,451 8,796
--------------- -----------------
Total current liabilities 24,381 26,620
Deferred Income Taxes 4,006 5,958
$100 Million Notes to be retired by U.S. Treasury Bills - 100,000
Other Long-Term Liabilities 4,409 4,076
LONG-TERM DEBT, NET OF CURRENT PORTION 173,447 173,436
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock ($.001 par value; 20,000,000 shares authorized; 4,916,280 shares
issued and outstanding at December 31, 1997 and 5,108,176 issued and
outstanding at June 30, 1998) 5 5
Additional paid-in capital 13,462 13,711
Notes receivable from Employee Shareholders (9) (207)
Retained earnings 21,581 24,267
--------------- -----------------
Total shareholders' equity 35,039 37,776
--------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 241,282 $ 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 AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
(In Thousands Except Share Amounts)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
-------------- ------------- -------------- -------------
REVENUES:
<S> <C> <C> <C> <C>
Casino $ 20,788 $ 19,332 $ 39,479 $ 38,134
Rooms 10,351 10,930 20,130 21,424
Food and beverage 6,386 5,787 12,153 11,248
Entertainment 5,428 5,327 10,773 10,759
Other 2,949 2,670 5,909 5,241
-------------- ------------- -------------- -------------
Total 45,902 44,046 88,444 86,806
Less promotional allowances 3,713 3,424 7,088 6,703
-------------- ------------- -------------- -------------
Net revenues 42,189 40,622 81,356 80,103
-------------- ------------- -------------- -------------
COSTS AND EXPENSES:
Direct costs and expenses of operating departments:
Casino 11,869 10,930 22,907 22,187
Rooms 4,370 4,574 8,535 9,166
Food and beverage 4,237 4,015 8,289 8,002
Entertainment 4,065 3,790 8,037 7,571
Other 884 797 1,658 1,473
Other operating expenses:
Selling, general and administrative 7,860 8,164 15,207 15,839
Depreciation and amortization 3,016 2,578 5,990 5,010
-------------- ------------- -------------- -------------
Total costs and expenses 36,301 34,848 70,623 69,248
-------------- ------------- -------------- -------------
INCOME FROM OPERATIONS 5,888 5,774 10,733 10,855
-------------- ------------- -------------- -------------
OTHER INCOME (EXPENSE):
Interest expense on $100 million notes (1,875) (3,030) (4,642) (6,043)
Interest income on Treasury bills to retire $100 million 920 2,334
Interest expense, other (4,852) (9,798)
Interest income, other 679 328 1,352 623
Interest capitalized 563 1,003
Other, net (342) (491) (850)
-------------- ------------- -------------- -------------
Total other income (expense) (4,907) (2,702) (10,242) (6,270)
-------------- ------------- -------------- -------------
INCOME BEFORE PROVISION FOR INCOME TAXES 981 3,072 491 4,585
-------------- ------------- -------------- -------------
PROVISION FOR INCOME TAXES 342 1,053 171 1,582
-------------- ------------- -------------- -------------
INCOME BEFORE EXTRAORDINARY ITEM 639 2,019 320 3,003
-------------- ------------- -------------- -------------
EXTRAORDINARY ITEM, NET OF INCOME TAX (3,006) (3,006)
-------------- ------------- -------------- -------------
NET INCOME(LOSS) $ (2,367) $ 2,019 $ (2,686) $ 3,003
============== ============= ============== =============
Earnings per share before extraordinary item:
Basic $ 0.13 $ 0.41 $ 0.06 $ 0.61
Diluted $ 0.13 $ 0.39 $ 0.06 $ 0.58
Earnings (loss) per share:
Basic $ (0.47) $ 0.41 $ (0.54) $ 0.61
Diluted $ (0.47) $ 0.39 $ (0.54) $ 0.58
Weighted average common shares outstanding
(used in the computation of basic earnings per share) 5,038,082 4,912,980 4,970,214 4,916,680
Effect of common stock options under the
treasury stock method 45,907 299,000 46,782 300,379
Weighted average common & common equivalent shares
(used in the computation of diluted earnings per share) 5,083,989 5,211,980 5,016,996 5,217,059
See notes to Condensed Consolidated Financial Statements (Unaudited)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RIVIERA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
(In Thousands)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
------------- ------------ ------------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
Net Income (loss) $ (2,367) $ 2,019 $ (2,686) $ 3,003
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 3,015 2,578 5,990 5,010
Extraordinary item, call premium to defease $100M Bonds 4,624 4,624
Interest income on T-Bills to defease $100M Bonds (920) (2,334)
Interest expense, $100M Bonds 1,875 2,767 4,642 5,534
Interest paid, $100M Bonds (4,614) (5,500) (4,614) (5,500)
Interest expense, other 5,292 263 9,798 509
Interest paid, other (30) (110) (8,901) (134)
Interest capitalized on construction projects (563) (1,003)
Other expense, net 342 491 850
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable, net 371 97 1,336 667
Decrease (increase) in inventories (311) 23 317 247
Decrease (increase) in prepaid expenses
and other assets (58) 248 (311) 426
Increase in prepaid income taxes and tax refunds (17) (17)
Increase (decrease) in accounts payable 2,456 (1,162) (1,852) (1,791)
Increase (decrease) in accrued liabilities 10 (946) (954) (1,450)
Increase (decrease) in current income taxes payable 97 165
Increase (decrease) in deferred income taxes (1,951) (4) (1,951) 258
Decrease in slot annuities payable (154) (253) (154) (253)
Increase in non-qualified pension plan obligation
to CEO upon retirement 245 235 485 641
------------- ------------ ------------- -----------
Net cash provided by operating activities 7,245 352 2,906 8,182
------------- ------------ ------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment, other (6,044) (2,644) (7,632) (6,885)
Capital expenditures - Black Hawk, Colorado project (2,531) (3,340)
Interest capitalized on construction projects 563 1,003
Increase in other assets - Black Hawk, Colorado (15) (32)
Decrease (increase) in other assets (428) (527) 35 (1,099)
------------- ------------ ------------- -----------
Net cash used in investing activities (8,455) (3,171) (9,966) (7,984)
------------- ------------ ------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from US Tbills invested to defease $100M Bonds 107,516 - 108,930 -
Payments to defease $100 M Bonds with call premium (104,313) (104,313)
Payments on long-term borrowings (89) (745) (177) (826)
Net collections, cancellations employee stock purchase plan
and exercise of employee stock options (151) 111 (50) 254
------------- ------------ ------------- -----------
Net cash provided by (used in) financing activities 2,963 (634) 4,390 (572)
------------- ------------ ------------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 1,753 $ (3,453) $ (2,670) $ (374)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $ 60,937 $ 29,286 $ 65,360 $ 26,208
------------- ------------ ------------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 62,690 $ 25,833 $ 62,690 $ 25,834
============= ============ ============= ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION-
INCOME TAXES PAID $960 $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. 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 June 30, 1998 and for the three months and six
months ended June 30, 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 and six months ended
June 30, 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 SFAS No. 128 "Earnings
per Share." SFAS No. 128 requires the presentation of basic net income (loss)
per share and diluted net income (loss) per share. Basic per share amounts are
computed by dividing net income (loss) by average shares outstanding during the
period. Diluted net income (loss) per share amounts are computed by dividing net
income (loss) by average shares outstanding plus the dilutive effect of common
share equivalents. Since the Company incurred net income before extraordinary
loss during the three-month and six-month periods ended June 30, 1998, diluted
per share calculations are based upon average shares outstanding during these
periods. Accordingly the effect of stock options outstanding for approximately
58,000 shares at June 30, 1998, was not included in diluted net loss per share
calculations. The effect of stock options outstanding to purchase approximately
420,000 shares was not included in diluted per share calculations during the
three-month and six-month periods ended June 30, 1998 as the average exercise
price of such options was greater than the average price of the Company's common
stock.
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, under a
contractual defeasance, 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. The proceeds from these
securities, together with interest that earned by the Securities was 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 could 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. 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. 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..
The $100 million notes which were defeased in August 1997, were retired on June
1, 1998. The call premium of $4.3 million and unamortized deferred financing
costs totaling $300,000 were recorded net of the 35% income tax effect of $1.6
million resulting in an extraordinary loss of $3.0 million.
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 June 30, 1998 the
Company had expended approximately $ 19.8 million on the project including the
cost of the land.
4. PAULSON MERGER, CONTINGENT VALUE RIGHTS AND RELATED LITIGATION
On September 15, 1997, 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, 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, Sun America 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 was to
expire on June 10, 1998. The letters of credit were extended for one year and
automatically renew for an additional year if not replaced or cashed.
The Riviera Board of Directors 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. In June 1998 the Company issued approximately
1,770,000 Contingent Value Rights (CVR's) to the May 1, 1998 stockholders of
record. 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. Riviera is currently engated in litigation with R&E
Gaming and its affiliates and there can be no assurance that Riviera will be
successful in collecting all or any part of the funds currently held in the
escrow account. It is possible that Riviera will not recover any of the escrow
funds. The Contingent Value Rights alone will not entitle their holders to vote
in the election of Riviera's directors or to any other benefits available to
stockholders of Riviera. The Contingent Value Rights entitle their holders to
share only in the proceeds of the funds currently in escrow.
<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, 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.
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
Income Statement Data: 1998 1997 1998 1997
Revenues:
<S> <C> <C> <C> <C>
Casino 49.3% 47.6% 48.5% 47.6%
Rooms 24.5% 26.9% 24.7% 26.7%
Food and beverage 15.1% 14.2% 14.9% 14.0%
Entertainment 12.9% 13.1% 13.2% 13.4%
Other 7.0% 6.6% 7.3% 6.5%
Less promotional allowances -8.8% -8.4% -8.7% -8.4%
Net Revenues 100.0% 100.0% 100.0% 100.0%
Costs and Expenses:
Casino 57.1% 56.5% 58.0% 58.2%
Rooms 42.2% 41.8% 42.4% 42.8%
Food and beverage 66.3% 69.4% 68.2% 71.1%
Entertainment 74.9% 71.1% 74.6% 70.4%
Other 30.0% 29.9% 28.1% 28.1%
Selling, general and administrative 18.6% 20.1% 18.7% 19.8%
Depreciation and amortization 7.1% 6.3% 7.4% 6.3%
Total costs and expenses 86.0% 85.8% 86.8% 86.4%
Income from operations 14.0% 14.2% 13.2% 13.6%
Interest expense on $100 million notes -4.4% -7.5% -5.7% -7.5%
Interest income on Treasury Bills to retire $100 million bonds 2.2% 0.0% 2.9% 0.0%
Interest expense, other -11.5% 0.0% -12.0% 0.0%
Interest income, other 1.6% 0.8% 1.7% 0.8%
Interest, capitalized 1.3% 0.0% 1.2% 0.0%
Other, net -0.8% 0.0% -0.6% -1.1%
Income before provision for income taxes 2.3% 7.6% 0.6% 5.7%
Provision for income taxes 0.8% 2.6% 0.2% 2.0%
Net income before extraordinary item 1.5% 0.0% 0.4% 3.7%
Extraordinary item, net of income taxes -7.1% 0.0% -3.7% 0.0%
Net Income (Loss) -5.6% 5.0% -3.3% 3.7%
EBITDA Margin 21.1% 20.6% 20.6% 19.8%
</TABLE>
<PAGE>
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.
Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997
Revenues
Net revenues increased by $1.6 million, or 3.9%, from $40.6 million in the
second quarter of 1997 to $42.2 million in second quarter of 1998. Casino
revenues increased by $1.5 million, or 7.5%, from $19.3 million during 1997 to
$20.8 million during 1998 due to a $1.3 million increase in slot revenues and a
$200,000 increase in tables games and other casino revenues. 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 $500,000, or 5.3% from $10.9 million in 1997 to $10.4
million in 1998 as the result of a decrease in hotel occupancy from 99.2% to
97.4% and a decrease of $2.90 in average daily rate from $59.60 in 1997 to
$56.70 in 1998. Room revenue from tour operator bookings was down 25% due to the
economic slow down in the Far East and competition from other Las Vegas Strip
hotels.
Food and beverage revenues increased approximately $600,000, or 10.4%, from $5.8
million during 1997 to $6.4 million during 1998 due primarily to the addition of
the Flying R Bar and Hound Doggies snack bar in Nickel Town and increased
revenues in other bars in the main casino area.
Entertainment revenues increased by approximately $100,000, or 1.9%, from $5.3
million during 1997 to $5.4 million during 1998 due to a 1.2% increase in
attendance. The number of cash tickets sold increased 5% while the number of
complimentary tickets decreased 20%.
Other revenues increased by approximately $300,000, or 10.5%, from $2.7 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 $300,000, or 8.4%, from $3.4 million in 1997 to
$3.7 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 increased by
approximately $1.3 million, or 5.5%, from $24.1 million for the three months
ended June 30, 1997 to $25.4 million for the three months ended June 30, 1998.
Casino expenses increased by approximately $1.0 million, or 8.6%, from $10.9
million during 1997 to $11.9 million during 1998 due to slot marketing and
tournament costs. Casino expenses as a percent of casino revenue increased from
56.5% to 57.1% due to the marketing programs.
Room costs decreased by approximately $200,000, or 4.6%, from $4.6 million
during the 1997 period to $4.4 million during the 1998 period and room costs as
a percentage of room revenue increased from 41.8% in 1997 to 42.2% in 1998 due
to the decrease in average room rate and 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
69.4% in 1997 to 66.3% 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 $300,000, or 7.3%, from $3.8
million in 1997 to $4.1 million in 1998 because of a reduction in the allocation
of fixed entertainment costs to the casino. The number of entertainment
complimentary tickets used by the casino decreased 20% from 29,000 in 1997 to
23,000 in 1998. Entertainment expense as a percentage of entertainment revenues
increased from 71.1% in 1997 to 74.9% in 1998.
Other expenses increased $100,000, or 10.9%, from $800,000 in 1997 to $900,000
in 1998 because of the corresponding increase in Nickel Town gift shop revenues
and telephone revenues.
Other Operating Expenses
Selling, general and administrative expenses decreased $300,000, or 3.7%, from
$8.2 million in 1997 to $7.9 million in 1998. Selling, general and
administrative expenses decreased from 20.1% of total net revenues in 1997 to
18.6% during the 1998 period.
Depreciation and amortization increased by approximately $400,000, or 17.0%,
from $2.6 million in 1997 to $3.0 million in 1998 and from 6.3% to 7.1% of net
revenues due to a significant increase in depreciable capital expenditures for
operating assets in the twelve months ended June 30, 1998 totaling approximately
$ 12.1 million.
Other Income (Expense)
Interest expense, other increased by $4.9 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 were 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 $900,000 in 1998. Interest income, other
increased $700,000 because of the increased cash balances from the remaining
proceeds of the $175.0 million notes. Capitalized interest increased $600,000 on
the Black Hawk, Colorado, and Riviera Convention Center Expansion projects which
commenced in late 1997.
During the second quarter of 1998, $342,000 in merger, acquisition and
litigation costs related to the R&E Gaming Corporation Plan of Merger (Paulson
Merger and related litigation) were charged to other expense as required under
GAAP.
Extraordinary Item
The $100 million notes which were defeased in August 1997, were retired on June
1, 1998. The call premium of $4.3 million and unamortized deferred financing
costs totaling $300,000 were recorded net of the 35% income tax effect of $1.6
million resulting in an extraordinary loss of $3.0 million.
Net Income (Loss)
As a result of the additional depreciation, interest and extraordinary item, net
income decreased by approximately $4.4 million, from $2.0 million during the
three months ended June 30, 1997 to a loss of $ 2.4 million during the three
months ended June 30, 1998.
EBITDA
EBITDA increased by approximately $500,000, or 6.6%, from $8.4 million in 1997
to $8.9 million in 1998. Management believes that these results are encouraging
in light of the results of many of its direct competitors on the Las Vegas
Strip. This is the third consecutive quarter which has shown stability and
growth. 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.
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
Revenues
Net revenues increased by $1.3 million, or 1.6%, from $80.1 million in 1997 to
$81.4 million in 1998. Casino revenues increased by $1.4 million, or 3.5%, from
$38.1 million during 1997 to $39.5 million during 1998 due to a $2.0 million
increase in slot revenues which was partially offset by a $700,000 decrease in
table games and other casino revenue. Table games revenue is down due to a $5.2
million decrease in drop resulting from the increased competition on the Las
Vegas Strip.
Room revenues decreased by $1.3 million, or 6.0% from $21.4 million in 1997 to
$20.1 million in 1998 as the result of a decrease in hotel occupancy from 98.2%
to 94.8% and a decrease of $2.10 in average daily rate from $59.40 in 1997 to
$57.30 in 1998. Room revenue from tour operator bookings was down 22% 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 $900,000, or 8.0%, from $11.2
million during 1997 to $12.1 million during 1998 due primarily to the addition
of the Flying R Bar and Hound Doggies snack bar in Nickel Town.
Entertainment revenues remained at $10.8 million for 1997 and 1998, and, the
number of cash tickets remained the same at 327,000 while the number of
complimentary tickets decreased 15%.
Other revenues increased by approximately $700,000, or 12.8%, from $5.2 million
during 1997 to $5.9 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 $400,000, or 5.7%, from $6.7 million in 1997 to
$7.1 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 increased by
approximately $1.0 million, or 2.1%, from $48.4 million for 1997 to $49.4
million for 1998.
Casino expenses increased by approximately $700,000, or 3.2%, from $22.2 million
during 1997 to $22.9 million during 1998 due to slot marketing and tournament
costs. Casino expenses as a percent of casino revenue decreased from 58.2% to
58.0% due to the resulting revenue increases.
Room costs decreased by approximately $700,000, or 6.9%, from $9.2 million
during the 1997 period to $8.5 million during the 1998 period and room costs as
a percentage of room revenue decreased from 42.8% in 1997 to 42.4% in 1998 due
to reduced volume in the tour operator business segment.
Food and beverage costs increased $300,000, or 3.6%, from $8.0 million in 1997
to $8.3 million in 1998 due to the increased revenues. Food and beverage costs
as a percentage of revenues decreased from 71.1% in 1997 to 68.2% 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 $500,000, or 6.2%, from $7.6
million in 1997 to $8.0 million in 1998 because of a reduction in the allocation
of fixed entertainment costs to the casino. The number of entertainment
complimentary tickets used by the casino decreased 14.6% from 58,000 in 1997 to
50,000 in 1998. Entertainment expense as a percentage of entertainment revenues
increased from 70.4% in 1997 to 74.6% in 1998.
Other expenses increased $200,000, or 12.6%, from $1.5 million in 1997 to $1.7
million in 1998 because of the corresponding increase in gift shop revenues.
Other Operating Expenses
Selling, general and administrative expenses decreased by approximately $600,000
from $15.8 million in 1997 to $15.2 million in 1998. Selling, general and
administrative expenses decreased from 19.8% of total net revenues during 1997
to 18.7% in 1998 due to a reduction in corporate expenses and legal fees.
Depreciation and amortization increased by approximately $1.0 million, or 19.6%,
from $5.0 million in 1997 to $6.0 million in 1998 and from 6.3% to 7.4% of net
revenues due to a significant increase in depreciable capital expenditures for
operating assets in the twelve months ended June 30, 1998 totaling approximately
$ 12.1 million.
Other Income (Expense)
Interest expense, other increased by $9.8 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 were 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 $1.7 million in 1998. Interest income,
other increased $1.4 million because of the increased cash balances from the
remaining proceeds of the $175.0 million notes. Capitalized interest increased
$1.0 million on the Black Hawk, Colorado, and Riviera Convention Center
Expansion projects which commenced in late 1997.
During 1997 the Company withdrew a secondary offering due to market conditions
and, as a result, charged costs totaling $850,000 to other expense. During 1998,
$491,000 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.
Extraordinary Item
The $100 million notes which were defeased in August 1997, were retired on June
1, 1998. The call premium of $4.3 million and unamortized deferred financing
costs totaling $300,000 were recorded net of the 35% income tax effect of $1.6
million resulting in an extraordinary loss of $3.0 million.
Net Income (Loss)
As a result of the additional depreciation, interest and extraordinary items,
net income decreased by approximately $5.7 million, from $3.0 million during the
six months ended June 30, 1997 to a loss of $2.7 million during the six months
ended June 30, 1998.
EBITDA
EBITDA increased by approximately $800,000, or 5.4%, from $15.9 million in 1997
to $16.7 million in 1998. During the same periods, EBITDA margins increased from
19.8% to 20.6%, 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 $62.7 million at June 30, 1998,
which was $2.9 million less than balances at December 31, 1997 due to payment of
bond interest on February 15, 1998 and the capital expenditures.
The Company's net cash from operating activities was approximately $2.9 million
for the six months ended June 30, 1998 compared to $8.2 million provided by
operations in 1997. EBITDA for the first six months of 1997 and 1998 was $15.9
million and $16.7 million, respectively. Management believes that cash flow from
operations, combined with the $62.7 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 were 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 was accomplished. Substantially all of
the covenants on the 11% Notes were released as a result of the "contractual
defeasance" in August of 1997.
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 $19.9 million. Management has budgeted approximately $24.8
million for capital expenditures in Las Vegas for 1998 including the convention
center expansion. For the first six months of 1998 capital expenditures were
$7.6 million in Las Vegas and $3.3 million in Black Hawk. 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. 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. As of June 30, 1998, the company had
invested $19.9 million in the Black Hawk, Colorado project.
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.
<PAGE>
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: August 10, 1998
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