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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 000-21430
Riviera Holdings Corporation
(Exact name of Registrant as specified in its charter)
Nevada 88-0296885
(State or other jurisdiction of (IRS Employer Identification No.)
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 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 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 March 31, 1999 there were 5,068,376 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, 1999 (Unaudited) and
December 31, 1998 3
Condensed Consolidated Statements of Operations (Unaudited) for the
Three Months ended March 31, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows (Unaudited) for the
Three Months ended March 31, 1999 and 1998 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,
1999, and the related condensed consolidated statements of operations and of
cash flows for the three months ended March 31, 1999 and 1998. 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, 1998, 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 19, 1999, 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, 1998, is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
DELOITTE & TOUCHE LLP
April 19, 1999
Las Vegas, Nevada
<PAGE>
<TABLE>
<CAPTION>
RIVIERA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, except share amounts)
March 31, December 31,
1999 1998
(Unaudited)
------------------ ------------------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $39,805 $48,883
Accounts receivable, net 5,192 5,390
Inventories 2,385 2,726
Prepaid expenses and other assets 3,470 4,028
------------------ ------------------
Total current assets 50,852 61,027
PROPERTY AND EQUIPMENT, NET 183,854 175,622
OTHER ASSETS, NET 8,029 8,260
------------------ ------------------
TOTAL ASSETS $242,735 $244,909
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $337 $363
Accounts payable 13,222 11,865
Accrued Interest, Other 2,194 6,563
Accrued Expenses - Other 9,987 10,053
------------------ ------------------
Total current liabilities 25,740 28,844
------------------ ------------------
Deferred Income Taxes 3,209 3,123
------------------ ------------------
Other Long-Term Liabilities 5,624 4,933
------------------ ------------------
LONG-TERM DEBT, NET OF CURRENT PORTION 174,518 174,506
------------------ ------------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock ($.001 par value; 20,000,000 shares authorized; 5,073,376 issued
and outstanding at December 31, 1998
and 5,068,376 at March 31, 1999) 5 5
Additional paid-in capital 13,454 13,457
Treasury stock (34,300 shares at December 31, 1998, and
39,100 shares at March 31, 1999) (189) (167)
Notes receivable from Employee Shareholders (1) (3)
Retained earnings 20,375 20,211
------------------ ------------------
Total shareholders' equity 33,644 33,503
------------------ ------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $242,735 $244,909
================== ==================
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(Unaudited)
(In Thousands, Except Per Share Amounts)
- ------------------------------------------------------------------------------------------------------------------------
1999 1998
REVENUES:
<S> <C> <C>
Casino $18,916 $18,691
Rooms 10,139 9,944
Food and beverage 6,356 5,767
Entertainment 5,612 5,345
Other 2,823 2,795
------------------ -------------------
43,846 42,542
Less promotional allowances 3,549 3,375
------------------ -------------------
Net revenues 40,297 39,167
------------------ -------------------
COSTS AND EXPENSES:
Direct costs and expenses of operating departments:
Casino 11,349 10,976
Rooms 5,249 4,861
Food and beverage 4,395 3,985
Entertainment 4,189 4,202
Other 802 774
Other operating expenses:
General and administrative 7,121 6,550
Depreciation and amortization 3,333 2,975
------------------ -------------------
Total costs and expenses 36,438 34,323
------------------ -------------------
INCOME FROM OPERATIONS 3,859 4,844
------------------ -------------------
OTHER INCOME (EXPENSE)
Interest expense on $100 million notes (2,767)
Interest income on Treasury Bills held to retire $100 million notes 1,414
Interest expense, other (4,870) (4,946)
Interest income, other 353 673
Interest capitalized 961 440
Other, net (51) (149)
------------------ -------------------
Total other income (expense) (3,607) (5,335)
------------------ -------------------
INCOME (LOSS) BEFORE PROVISION (BENEFIT)
FOR INCOME TAXES 252 (491)
PROVISION (BENEFIT) FOR INCOME TAXES 86 (172)
------------------ -------------------
NET INCOME (LOSS) $166 ($319)
================== ===================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 5,070 4,902
------------------ -------------------
EARNINGS (LOSS) PER SHARE-BASIC $ 0.03 $ (0.07)
------------------ -------------------
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 5,082 4,902
------------------ -------------------
EARNINGS (LOSS) PER SHARE-DILUTED $ 0.03 $ (0.07)
------------------ -------------------
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
RIVIERA HOLDINGS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
1999 1998
------------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income (loss) $166 ($319)
Adjustments to reconcile net income to net cash
used in operating loss:
Depreciation and amortization 3,333 2,975
Interest income on Tbills to defease $100M Bonds (1,414)
Interest expense, $100M Bonds 2,767
Interest expense, other 4,870 4,946
Interest paid, other (8,766) (8,871)
Capitalized Interest on construction projects (961) (440)
Other expense, net 51 149
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable, net 197 965
Decrease (increase) in inventories 341 627
Decrease (increase) in prepaid expenses
and other assets 559 (253)
Increase (decrease) in accounts payable (2,063) (4,308)
Increase (decrease) in accrued liabilities (297) 328
Increase (decrease) in deferred income taxes 86
Increase in non-qualified pension plan obligation
to CEO upon retirement 259 240
------------------- ------------------
Net cash used in operating activities (2,225) (2,608)
------------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment, Las Vegas, Nevada (5,227) (1,588)
Capital expenditures - Black Hawk, Colorado project (6,338) (809)
Property acquired with accounts payable - Black Hawk, Colorado project 3,418
Capitalized Interest on construction projects 961 440
Increase in other assets - Black Hawk, Colorado (60) (17)
Decrease (increase) in other assets 75 349
------------------- ------------------
Net cash used in investing activities (7,171) (1,625)
------------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 411
Payments on long-term borrowings (71) (88)
Purchase of treasury stock (22)
Net collections, cancellations employee stock purchase plan
and exercise of employee stock options (101)
------------------- ------------------
Net cash provided by (used in) financing activities 318 (189)
------------------- ------------------
DECREASE IN CASH AND CASH EQUIVALENTS ($9,078) ($4,422)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $48,883 $65,151
------------------- ------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $39,805 $60,729
=================== ==================
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Riviera Holdings Corporation (the "Company") and its wholly-owned subsidiary
Riviera Operating Corporation ("ROC") were incorporated on January 27, 1993, in
order to acquire all assets and liabilities of Riviera, Inc. Casino-Hotel
Division on June 30, 1993, pursuant to a plan of reorganization.
In July 1994, management established a new division, Riviera Gaming Management,
Inc. ("RGM") for the purpose of obtaining management contracts in Nevada and
other jurisdictions. In August 1996, RGM incorporated in the State of Nevada as
a wholly owned subsidiary of ROC. In March 1997 Riviera Gaming Management of
Colorado was incorporated in the State of Colorado, and in August 1997 Riviera
Black Hawk, Inc. was incorporated in the State of Colorado for the purpose of
developing a casino in Black Hawk, Colorado.
Nature of Operations
The primary line of business of the Company is the operation of the Riviera
Hotel & Casino on the "Strip" in Las Vegas, Nevada, including the operation of a
hotel/casino with restaurants and related facilities. The Company also manages
the Four Queens Hotel/Casino in downtown Las Vegas and is developing a casino in
Black Hawk, Colorado.
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. All
material intercompany accounts and transactions have been eliminated.
The financial information at March 31, 1999 and for the three months ended March
31, 1999 and 1998 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, 1999 and 1998, 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, 1998, 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. (See also Note 4 - Paulson Merger, Contingent Value Rights
and Related Regulations).
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 per share amounts are computed by dividing net income
by average shares outstanding plus the dilutive effect of common share
equivalents. Additionally, the effect of stock options outstanding is not
included in diluted net loss per share calculations. Since the Company incurred
net income from continuing operations during the three-month period ended March
31, 1999, diluted per share calculations are based upon average shares
outstanding during this period and the effect of dilutive securities of $12,378.
The effect of stock options outstanding to purchase approximately 509,000 shares
was not included in diluted per share calculations during the three-month period
ended March 31, 1999 as the average exercise price of such options was greater
than the average price of the Company's common stock.
Recently Adopted Accounting Standards
The American Institute of Certified Public Accountants' Accounting Standards
Executive Committee recently issued Statement of Position No. 98-5, Reporting on
the Costs of Start Up Activities. This standard provides guidance on the
financial reporting for start-up costs and organization costs. This standard
requires costs of start-up activities and organization costs to be expensed as
incurred, and is effective for fiscal years beginning after December 15, 1998,
although earlier application is encouraged. We adopted this standard effective
January 1, 1999. The impact has been to record a general expense of $15,000 for
the three months ended March 31, 1999, that we would have otherwise deferred as
pre-opening costs.
Reclassifications
Certain amounts in the prior periods have been reclassified to conform to 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. The Notes were issued at a
discount in the amount of $2.2 million. The discount is being amortized over the
life of the 10% Notes 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 $109.8
million which were deposited into an irrevocable trust. The proceeds from these
securities, together with interest that was 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 on
Treasury Bills held to retire $100 million notes." The interest expense from the
10% Notes is included in "Interest expense, other", and from the 11% Notes is
included in "Interest expense on $100 million notes".
The $100 million notes, which were contractually defeased in August 1997, were
redeemed 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 March 31, 1999
the Company has made $26.6 million in cash contributions to finance the cost of
land and construction.
As a result of the scheduled opening of several new Las Vegas Strip properties
in 1999 and 2000, an estimated 38,000 jobs must be filled, including
approximately 5,000 supervisory positions. Because of the Company's performance
and reputation, its employees are prime candidates to fill these positions. In
the third quarter of 1998 management instituted an employee retention plan which
covers approximately 85 executive, supervisory and technical support positions
and includes a combination of employment contracts, stay put agreements, bonus
arrangements and salary adjustments. The period costs associated with the Plan
are being accrued as additional payroll costs and included approximately
$150,000 in the first quarter of 1999. The total cost of the Plan is estimated
to be approximately $2.0 million over the period July 1, 1998 through June 30,
2001.
4. PAULSON MERGER, CONTINGENT VALUE RIGHTS AND RELATED LITIGATION
Riviera Holdings is a defendant in an action commenced on April 9, 1998, by
Allen Paulson, R&E Gaming Corp. and other Paulson-controlled entities
(collectively, "Paulson") in the United States District Court for the Central
District of California. The other defendants in the action include Jefferies &
Company, Inc. (the initial Purchaser of the notes), as well as Morgens,
Waterfall, Vintiadis & Company, Inc., Keyport Life Insurance Company, Sun
America Life Insurance Company and others. Paulson's claims arise from a merger
agreement between Riviera Holdings and Paulson which was terminated in the first
half of 1998. Paulson has requested a refund of the amounts deposited in escrow
for the minority shareholders in connection with the proposed merger as well as
other damages. We believe there is no merit to Paulson's damage claims against
Riviera Holdings. Riviera Holdings has vigorously contested counterclaims
against Paulson, including a claim for the collection of the escrow funds.
However, no assurance can be given regarding the outcome of this lawsuit.
<PAGE>
5. SEGMENT DISCLOSURES
The Company provides Las Vegas-style gaming, amenities and entertainment. The
Company's four reportable segments are based upon the type of service provided:
Casino, rooms, food and beverage, and entertainment. The casino segment provides
customers with gaming activities through traditional table games and slot
machines. The rooms segment provides hotel services. The food and beverage
segment provides restaurant and drink services through a variety of themed
restaurants and bars. The entertainment segment provides customers with a
variety of live Las Vegas-style shows, reviews and concerts. All other segment
activity consists of rent income, retail store income, telephone and other
activity. The Company evaluates each segment's performance based on segment
operating profit. The accounting policies of the operating segments are the same
as those described in the summary of significant accounting policies.
<TABLE>
<CAPTION>
Food and Entertain-
Three Months ended March 31, 1999 Casino Rooms Beverage ment All Other Total
<S> <C> <C> <C> <C> <C> <C>
Revenues from external customers $18,916 $10,139 $6,356 $5,612 $2,823 $43,846
Intersegment revenues 897 1,931 721 3,549
Segment profit 7,567 3,993 30 702 2,020 14,312
Three Months ended March 31, 1998
Revenues from external customers 18,691 9,944 5,767 5,345 2,795 42,542
Intersegment revenues 961 1,673 741 3,375
Segment profit 7,715 4,122 109 402 2,021 14,369
</TABLE>
<TABLE>
<CAPTION>
Reconciliation of segment profit to consolidated net income before taxes and
extraordinary items:
1999 1998
<S> <C> <C>
Segment profit $14,312 $14,369
Other operating expenses 10,454 9,525
Other expense 3,606 5,335
--------------------------
Net income (loss) before provision (benefit) for taxes $252 ($491)
==========================
</TABLE>
The Company does not have significant marketing programs for residents of Las
Vegas. Substantially all revenues are derived from patrons visiting the Company
from other parts of the United States and other countries. Revenues from a
foreign country or region may exceed 10% of all reported segment revenues,
however, the Company cannot precisely identify such information based upon the
nature of gaming operations.
<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, 1999 and 1998. Revenues and promotional
allowances are shown as a percentage of net revenues. Department costs are shown
as a percentage of departmental revenues. All other percentages are based on net
revenues.
<TABLE>
Three Months Ended
March 31,
Income Statement Data: 1999 1998
---- ----
Revenues:
<S> <C> <C>
Casino 46.9% 47.7%
Rooms 25.2% 25.4%
Food and beverage 15.8% 14.7%
Entertainment 13.9% 13.6%
Other 7.0% 7.1%
Less promotional allowances -8.8% -8.6%
Net Revenues 100.0% 100.0%
Costs and Expenses:
Casino 60.0% 58.7%
Rooms 51.8% 48.9%
Food and beverage 69.1% 69.1%
Entertainment 74.6% 78.6%
Other 28.4% 27.7%
General and administrative 17.7% 16.7%
Depreciation and amortization 8.3% 7.6%
Total costs and expenses 90.4% 87.6%
Income from operations 9.6% 12.4%
Interest expense on $100 million notes 0.0% -7.1%
Interest income on Treasury Bills to retire $100 million notes 0.0% 3.6%
Interest expense, other -12.1% -12.6%
Interest income, other 0.9% 1.7%
Interest, capitalized 2.4% 1.1%
Other, net -0.1% -0.4%
Income before (benefit) provision for income taxes 0.6% -1.3%
(Benefit) provision for income taxes -0.2% 0.4%
Net Income (Loss) 0.4% -0.8%
EBITDA Margin 17.8% 20.0%
</TABLE>
1EBITDA consists of earnings before interest, income taxes, depreciation,
amortization and Other, net. 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. The Company's
definition of EBITDA may not be comparable to other companies' definitions.
<PAGE>
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998
Revenues
Net revenues increased by $1.1 million, or 2.9%, from $39.2 million in the first
quarter of 1998 to $40.3 million in first quarter of 1999. Casino revenues
increased by $225,000, or 1.2%, from $18.7 million during 1998 to $18.9 million
during 1999 due primarily to a $197,000 increase in slot revenues due to
additional marketing efforts and the continued success of Nickel Town. Slot
revenues were up due an increase of $2.8 million in coin in and an increase of
0.1% in the hold percentage.
Room revenues increased by $200,000, or 2.0% from $9.9 million in 1998 to $10.1
million in 1999 as the result of an increase in hotel occupancy from 92.1% to
97.0% which was partially offset by a decrease of $2.53 in average daily rate
from $57.90 in 1998 to $55.37 in 1999. Convention room revenue increased
$330,000 or 9.4% from $3.5 million in 1998 to $3.8 million in 1999 and was
partially offset by a decrease in individual and tour operator revenues.
Food and beverage revenues increased approximately $600,000, or 10.2%, from $5.8
million during 1998 to $6.4 million in 1999 due primarily to the expansion of
the convention center banquet facilities. Banquet covers increased approximately
25,000, or 3.9%, from 65,000 in 1998 to 90,000 in 1999.
Entertainment revenues increased by approximately $300,000, or 5.0%, from $5.3
million during 1998 to $5.6 million in 1999 due to a 5.0% increase in
attendance. The number of cash tickets sold to entertainment venues increased
6.2% and was partially offset by a decrease in complimentary tickets.
Promotional allowances increased $200,000, or 5.2%, from $3.3 million in 1998
to $3.5 million in 1999 due to competition for gaming revenues on the Las Vegas
Strip.
Direct Costs and Expenses of Operating Departments
Total direct costs and expenses of operating departments increased by
approximately $1.2 million, or 4.8%, from $24.8 million for the three months
ended March 31, 1998 to $26.0 million for the three months ended March 31, 1999.
Casino expenses increased by approximately $400,000, or 3.4%, from $10.9 million
during 1998 to $11.3 million during 1999 due to casino marketing programs.
Casino expenses as a percent of casino revenue increased from 58.7% to 60.0%.
Although the marketing programs produced additional drop, the win was not
adequate to cover the additional expenses.
Room costs increased by approximately $400,000, or 8.0%, from $4.9 million
during the 1998 period to $5.2 million during the 1999 period and room costs as
a percentage of room revenue increased from 48.9% in 1998 to 51.8% in 1999 due
to the increase in occupancy and a decision to increase staffing to offer
greater service to our hotel guests.
Food and beverage costs increased approximately $400,000, or 10.3%, from $4.0
million during the 1998 period to $4.4 million for the 1999 period. However,
food and beverage costs as a percentage of revenues remained the same at 69.1%
in 1998 and 1999 because of the higher revenues.
Entertainment costs remained the same at approximately $4.2 million in 1998 and
1999. Entertainment expense as a percentage of entertainment revenues decreased
from 78.6% in 1998 to 74.6% in 1999 as a result of the increased revenues.
Other expenses remained at approximately $800,000 in 1998 and 1999. Increased
cost of sales and payroll for the gift shops were offset by reduced telephone
operating costs brought about by newly installed telecommunications systems.
Other Operating Expenses
General and administrative expenses increased $600,000, or 8.7%, from $6.5
million in 1998 to $7.1 million in 1999. These expenses increased from 16.7% of
total net revenues in 1998 to 17.7% during the 1999 period. As a result of the
scheduled opening of several new properties in 1999 and 2000, an estimated
38,000 jobs must be filled, including approximately 5,000 supervisory positions.
Because of the Riviera's performance and reputation, its employees are prime
candidates to fill these positions. In the third quarter of 1998 management
instituted an employee retention plan which covers approximately 85 executive,
supervisory and technical support positions and includes a combination of
employment contracts, stay put agreements, bonus arrangements and salary
adjustments. The period costs associated with the Plan are being accrued as
additional payroll costs and included approximately $150,000 in the first
quarter of 1999. The total cost of the Plan is estimated to be approximately
$2.0 million over the period July 1, 1998 through June 30, 2001.
Depreciation and amortization increased by approximately $350,000, or 12.0%,
from $2.9 million in 1998 to $3.3 million in 1999 due to capital expenditures
for the casino renovation, which was completed in December 1998, and the
Convention Center Pavilion, which was completed in February 1999.
Other Income (Expense)
Interest expense on the $100 million notes of $2.8 million, less interest income
on U.S. Treasury Bills of $1.4 million was recorded in 1998 until the notes were
redeemed on June 1, 1998. Interest income, other decreased $320,000 because of
the decrease in investment balances as the proceeds of the $175 million notes
were utilized in the Convention Center Pavilion and the Black Hawk, Colorado
project.
Capitalized interest for the first quarter of 1999 was $961,000 on the Black
Hawk, Colorado, and Riviera Convention Center Pavilion projects compared to
$440,000 in 1998.
Net Income (Loss)
Net income increased by $484,000 from a loss of $319,000 for the three months
ended March 1998 to a profit of $166,000 for the three months ended March 1999
due to a combination of the above factors.
EBITDA
EBITDA decreased by approximately $600,000, or 8.0%, from $7.8 million in 1998
to $7.2 million in 1999. Net revenues increased by $1.1 million or 2.9%;
however, the increase was offset by a $2.1 million or 5.5% increase in operating
expenses of which $1.1 million was payroll and related benefits costs associated
with the increased volume and the employee retention plan.
Liquidity and Capital Resources
The Company had cash and cash equivalents of $39.8 million at March 31, 1999,
which was $9.0 million less than balances at December 31, 1998 due to payments
of bond interest on February 15, of $8.8 million and capital expenditures of
$7.9 million, net of construction payables.
The Company's net cash used in operating activities was approximately $2.2
million for the three months ended March 31, 1999 compared to $2.6 million in
1998. Management believes that cash flow from operations, combined with the
$39.8 million cash on hand, will be sufficient to cover the Company's debt
service and enable investment in budgeted capital expenditures for 1999,
assuming that project and equipment financing is available for the Black Hawk
casino development. Should the Company not be able to finance a portion of the
amounts required for Black Hawk, capital expenditures in Las Vegas will be
reduced if necessary. The Company's capital budget for 1999 in Las Vegas is
approximately $17.0 million.
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 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.
At March 31, 1999, the Company believes that it is in compliance with the
covenants.
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 January 2000. As of March 31, 1999, the company
had invested $26.6 million in cash in the Black Hawk, Colorado project.
Year 2000
In the past, many computer software programs were written using two digits
rather than four to define the applicable year. As a result, date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This situation is generally referred to as the "Year 2000 Problem". If
such situation occurs, the potential exists for computer system failures or
miscalculations by computer programs, which could disrupt operations.
The Company has conducted a comprehensive review of its computer systems and
other systems for the purpose of assessing its potential Year 2000 Problem, and
is in the process of modifying or replacing those systems which are not Year
2000 compliant. Based upon this review, management believes such systems will be
compliant by mid-calendar 1999. However, if modifications are not made or not
completed timely, the Year 2000 Problem could have a significant impact on the
Company's operations.
All costs related to the Year 2000 Problem are expensed as incurred, while the
cost of new hardware and software is capitalized and amortized over its expected
useful life. The costs associated with Year 2000 compliance have not been and
are not anticipated to be material to the Company's financial position or
results of operations. As of March 31, 1999, the Company has incurred costs of
approximately $75,000 (primarily for internal labor) related to the system
applications and anticipates spending an additional $125,000 to become Year 2000
compliant. The estimated completion date and remaining costs are based upon
management's best estimates, as well as third party modification plans and other
factors. However, there can be no guarantee that such estimates will occur and
actual results could differ.
In addition, the Company has communicated with its major vendors and suppliers
to determine their state of readiness relative to the Year 2000 Problem and the
Company's possible exposure to Year 2000 issues of such third parties. However,
there can be no guarantee that the systems of other companies, which the
Company's systems may rely upon, will be timely converted or representations
made to the Company by these parties are accurate. As a result the failure of a
major vendor or supplier to adequately address their Year 2000 Problem could
have a significant adverse impact on the Company's operations.
Planning for the Year 2000 Problem, including contingency planning, is
significantly complete and will be revised, if necessary.
<PAGE>
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.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - none.
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 7, 1999
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