SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 2)
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] Annual report pursuant to section 13 or 15(d)
of the Securities Exchange Act of 1934 [No Fee Required]
For the fiscal year ended December 31, 1998
[ ] Transition report pursuant to sections 13 or 15(d)
of the Securities Exchange Act of 1934 [Fee Required]
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 of Incorporation) (I.R.S. Employer Identification No.)
2901 Las Vegas Boulevard South
Las Vegas, Nevada 89109
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (702) 734-5110
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
(Title of class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or amendment
to this Form 10-K. [ ]
Based on the average bid price for the Registrant's Common Stock as
of February 26, 1999, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was approximately $27,560,382. As of February
26, 1999 the number of outstanding shares of the Registrant's Common Stock was
5,068,576.
Documents incorporated by reference:
Page 1 of 67 Pages
Exhibit Index Appears on Page 63 hereof.
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RIVIERA HOLDINGS CORPORATION AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1998
TABLE OF CONTENTS
<S> <C>
Item 1. Business................................................................................................3
General .............................................................................................3
The Abandoned Merger.................................................................................3
The Riviera Hotel & Casino...........................................................................3
The Black Hawk Project...............................................................................8
Geographical Markets.................................................................................8
Management Activities................................................................................9
Competition........................................................................................ 10
Employees and Labor Relations.......................................................................11
Regulation and Licensing............................................................................11
Federal Registration................................................................................18
Item 2. Properties.............................................................................................19
Item 3. Legal Proceedings......................................................................................19
Item 4. Submission of Matters to a Vote of Security Holders....................................................19
Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters...........................20
Item 6. Selected Financial Data................................................................................20
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..................21
Results of Operations...............................................................................21
1998 Compared to 1997...............................................................................22
1997 Compared to 1996...............................................................................23
Liquidity and Capital Resources.....................................................................24
Year 2000 ..........................................................................................25
Forward Looking Statements..........................................................................26
Recently Adopted Accounting Standards...............................................................26
Recently Issued Accounting Standards................................................................26
Item 8. Financial Statements and Supplementary Data............................................................27
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...................49
Item 10. Directors and Executive Officers of the Registrant.....................................................50
Item 11. Executive Compensation.................................................................................53
Item 12. Principal Shareholders.................................................................................57
Item 13. Certain Relationships and Related Transactions ........................................................59
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8K.........................................61
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This Amendment is being filed to report the information contained in Part III.
PART I
Item 1. Business
General
Riviera Holdings Corporation, a Nevada corporation (the "Company"),
through its wholly-owned subsidiary, Riviera Operating Corporation, a Nevada
corporation ("ROC"), owns and operates the Riviera Hotel & Casino (the
"Riviera") located on Las Vegas Boulevard (the "Las Vegas Strip") in Las Vegas,
Nevada. Opened in 1955, the Riviera has developed a long-standing reputation for
delivering high quality, traditional Las Vegas-style gaming, entertainment and
other amenities. The Company, through its wholly owned subsidiary Riviera Gaming
Management, Inc. ("RGM"), manages the Four Queens Hotel/Casino in downtown Las
Vegas.
The Company, through its wholly-owned subsidiary, Rivera Black Hawk,
Inc., is currently constructing a limited-stakes casino in Black Hawk, Colorado.
The successful completion and opening of the casino will be contingent upon a
number of factors including regulatory approval and the Company's ability to
obtain additional financing. The Company believes the casino will begin
operations in the first quarter of 2000.
The Abandoned Merger
In March 1998 the Company was notified by Allen E. Paulson
("Paulson") that he was terminating the merger agreement dated as of September
of 1997 among the Company, and R & E Gaming Corp. and Riviera Acquisition Sub,
Inc., affiliates of Paulson. Pursuant to the merger agreement a company
controlled by Paulson was to have acquired 100% of the Company's common stock
for $15 per share, plus an interest factor. Approximately $5.8 million is being
held in an escrow account for the holders of 1,770,000 Riviera Contingent Value
Rights ("CVR's"). The escrow account was established by Mr. Paulson in
connection with the original terms of the merger. The CVR's entitle their
holders to share only in the proceeds of the funds currently in escrow. Excluded
from participating in the CVR's are Morgens Waterfall, SunAmerica, Keyport Life
and Paulson, and their affiliates and associates, who own an aggregate 3,355,000
Riviera shares.
The Company, three major stockholders of the Company and other
defendants involved in the terminated merger are in litigation with Paulson
relating to the merger agreement and related issues.
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 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 were Morgens
Waterfall, SunAmerica, Keyport Life and Paulson, and their affiliates and
associates, who own an aggregate 3,355,000 Riviera shares.
The Company is paying the expenses of such litigation but will not share in any
recovery of the escrow funds.
The Riviera Hotel & Casino
General
The Riviera is located on the corner of the Las Vegas Strip and
Riviera Boulevard, across from Circus Circus. The Riviera targets slot and
mid-level table game customers with a focus on creating repeat customers and
increasing walk-in traffic. Key elements of this strategy include offering a
value-oriented experience by providing a variety of hotel rooms, restaurants and
entertainment, with some of Las Vegas' most popular shows, all at reasonable
prices.
Gaming
The Riviera has 115,000 square feet of casino space. The casino
currently has approximately 1,600 slot machines and 46 gaming tables, including
blackjack, craps, roulette, pai gow poker, Caribbean Stud(R) poker, baccarat,
Let It Ride(R) and poker. The casino also includes a keno lounge and a 200-seat
race and sports book.
Gaming operations at the Riviera are continually updated to respond
to both changing market conditions and customer demand in an effort to attract
new customers and encourage repeat customer business through player tracking and
database management. The Company maintains a slot players club, through which
members receive special promotions and targeted mailings. New and innovative
slot and table games have been introduced based on customer feedback. Management
devotes substantial time and attention to the type, location and player activity
of all its slot machines. The Company recently completed an extensive capital
investment program for the upgrade of its slot machines.
The current management team redirected its business away from
high-stakes wagerers in favor of the less volatile mid-level gaming customers.
In order to effectively pursue this strategy, management has made several
strategic changes including reconfiguring the casino space, installing new slot
machines and bill acceptors, reducing the number of gaming tables and
de-emphasizing baccarat. In addition, management implemented stricter credit
policies and reduced baccarat table limits. As a result, the percentage of table
game dollar volume represented by credit play declined from approximately 24% in
1993 to13% in 1998. Also, in 1998, revenues from slots and tables were
approximately 76% and, 24% respectively, as compared to 55% and 45%,
respectively, in 1992.
During 1998, management continued a number of initiatives at the Riviera to
increase slot play, including the replacement of old slot machines, the
installation of bill acceptors and the addition of slot hosts. Slot hosts are
employees of the Company who interact with patrons as goodwill ambassadors to
generate loyalty. The Company's strategy is to continue to increase slot play
through marketing programs and other improvements, including (i) the Company's
slot upgrade program, which was completed in December 1997, (ii) addition of new
signage, (iii) promotion of the Riviera Player's Club, (iv) sponsorship of slot
tournaments, (v) creation of promotional programs, (vi) marketing of the
"World's Loosest Corner of Slots" and "$40 for $20(R)" slot promotions, and
(vii) the opening of "Nickel Town(R)" at the end of 1997. The Company developed
Nickel Town on the corner of the Las Vegas Strip and Riviera Boulevard at the
crosswalk from Circus Circus and the local Strip bus stop for approximately $5
million. The 10,000 square foot facility contains approximately 300 slot
machines, a bar, snack bar and souvenir shop. Food and beverage items are priced
very attractively and promoted extensively. Dramatic signage and lighting
effects compatible with the property's existing facade facing the Las Vegas
Strip create a "must see" effect for passers by on both sides of the Las Vegas
Strip. The Company believes that the nickel player represents the most rapidly
growing portion of the Las Vegas gaming market and was frequently neglected by
the Company's major competitors who focus their slot products on higher
denominations. Currently 78% of the devices in Nickel Town are nickel slot
machines.
Casino segment revenues were $77,676,000, $71,624,000 and $80,384,000
in 1998, 1997 and 1996, respectively.
Hotel
The Riviera's hotel is comprised of five hotel towers with approximately 2,100
guest rooms, including 169 suites. Built in 1955 as part of the original
casino/hotel, the nine-story North Tower features 391 rooms and 11 suites. In
1967, the 12-story South Tower was built with 147 rooms and 31 suites. Another
220 rooms and 72 suites, including penthouse suites, were added to the property
through the construction of the 17-story Monte Carlo Tower in 1974. In 1977, the
six-story San Remo Tower added 243 rooms and six suites to the south side of the
resort. The most recent phase of hotel expansion was completed in 1988 upon the
opening of the 930 room, 49 suite, 24-story Monaco Tower. By the end of 1997 the
Company completed refurbishment of all of its approximately 2,100 hotel rooms
except for 65 one-bedroom suites in the Monte Carlo Building. Despite the
significant increase in rooms on the Las Vegas Strip in the last three years,
management believes that the Riviera has attained room occupancy rates that are
among the highest on the Las Vegas Strip with 97.5% for 1994, 97.0% for 1995,
98.2% for 1996, 96.8% for 1997 and 95.2% for 1998 (based on available rooms).
The average occupancy rate citywide was 85.8% in 1998 according to the Las Vegas
Convention and Visitors Authority (the "LVCVA"). Management believes that this
performance can be attributed to its targeted and coordinated marketing
strategy, particularly its focus on conventioneers.
Rooms segment revenues were $36,626,000, $39,153,000 and $40,078,000
in 1998, 1997 and 1996, respectively.
Restaurants
The quality, value and variety of food services are critical to
attracting Las Vegas visitors. The Riviera offers five bars and five restaurants
and serves an average of approximately 5,000 meals per day, including banquets
and room service. The following table outlines, for each restaurant, the type of
service provided and total seating capacity:
Seating
Name Type Capacity
- ---- ---- --------
Kady's Coffee Shop 290
Kristofer's Steak and Seafood 162
Rik' Shaw Chinese 124
Ristorante Italiano Italian 126
World's Fare Buffet All-you-can-eat 432
------
1,134
In addition, the Riviera operates a snack bar and continental
breakfast buffet as well as a fast food court operated by a third party. The
food court has 200 seats and several fast-food restaurants.
Food and Beverage segment revenues were $17,635,000, $15,916,000 and
$16,262,000 in 1998, 1997 and 1996, respectively.
Convention Center
The Riviera features 160,000 square feet of convention, meeting and
banquet space. The convention center is one of the largest in Las Vegas and is
an important feature that attracts customers. The facility can be reconfigured
for multiple meetings of small groups or large gatherings of up to 5,000 people.
The Riviera hosts approximately 175 conventions per year. The hotel currently
has over 1.15 million convention related advance bookings of rooms totaled
approximately 620,000 definite bookings and approximately 530,000 tentative
bookings. On average, approximately 25% of the rooms are occupied for
conventions.
In March 1998 the Company commenced construction to expand its
convention center from 100,000 square feet to 160,000. The new expanded
facilities include new, state-of-the-art convention, meeting and banquet
facilities, teleconferencing and satellite uplink capability, and 66,000 square
feet of additional parking. The new facilities connect to the existing
convention facility and the main hotel buildings to form one integrated
structure. The new addition known as the Royale Pavilion opened February 12,
1999, with a concert performed by the popular musical group, Air Supply.
Entertainment
The Riviera has one of the most extensive entertainment programs in
Las Vegas, offering four different regularly scheduled shows and special
appearances by headline entertainers in concert. The Company believes
entertainment provides an attractive marketing tool to attract customers to the
Riviera. The Riviera offers one of the most extensive entertainment programs in
Las Vegas, including such well received shows as Splash(R) (a variety show), An
Evening at La Cage(sm) (a female impersonation show), Crazy Girls(sm) (an adult
revue) as well as featured comedians at the Riviera Comedy Club. The Company
updates its shows continually in response to customer surveys and to keep them
fresh. Tickets for the shows are offered at reasonable prices in keeping with
the Company's emphasis on mid-level customers. The readers of the Las Vegas
Review Journal voted the Riviera Comedy Club the number one comedy club in Las
Vegas and the Crazy Girls bronze sculpture in front of the Hotel as the best
visitor photo opportunity in Las Vegas in the most recently released "Best of
Las Vegas" readers' survey.
Other entertainment includes the 200-seat Le Bistro entertainment
lounge located in the casino, which offers live performances every night. In
addition, the Riviera presents major concerts which since 1996 have included
performers such as the Beach Boys, the Pointer Sisters, Drew Carey, Air Supply,
Frankie Avalon, Bobby Vee, Dion, the Doobie Brothers and Billy Ray Cyrus. The
Company believes the recently completed Royale Pavilion will enable it to
increase attendance at special events since, in the past, the then existing
facilities could not accommodate the demand for tickets.
Entertainment revenues including complementaries have increased from
$16.5 million in 1993 to $21.5 million in 1998, a 30% increase. Management
believes that this increase is attributable to the popularity of the in-house
productions supplemented by focused marketing and consistent advertising
messages.
Entertainment segment revenues (which exclude complimentary revenues) were
$19,764,000, $19,855,000 and $20,714,000 in 1998, 1997 and 1996, respectively.
"All Other" segment revenues, derived primarily from telephone
revenue, sales of retail merchandise and store rentals totaled $8,254,000,
$7,244,000 and $6,960,000 in 1998, 1997 and 1996, respectively.
Future Expansions
The Company is exploring the possible development of an approximately
60,000 square-foot domed shopping center and entertainment complex to be
constructed directly over the casino which will contain stores and entertainment
that will appeal to the Riviera's main target audience, adults aged 45 to 65.
The exit from the complex would be by an escalator which will deliver patrons to
the casino. The Company would require partners to finance, develop and operate
the entertainment attraction and retail stores. To date no such partners have
been identified.
The Company is exploring a number of options for the development of
its existing 26 acre site. These options include a joint venture for the
development of a time-share condominium tower or an additional hotel tower and
parking garage. Under the terms of the Company's Bond Indenture, the Company
could contribute up to 6 acres of land to such projects and if the Company
decides to develop a time share tower a third party would construct and sell
time-share units and arrange financing. Management believes that additional
rooms adjacent to the Las Vegas Convention Center would be particularly
attractive to business customers and would provide a base for additional casinos
customers. The development of a time-share tower or parking facility would
require additional financing and, in the case of the time-share tower, a joint
venture partner, none of which the Company has in place at this time.
Marketing Strategies
The Company has developed a marketing program intended to develop a
loyal following of repeat slot and mid-level table game customers. Management
believes it has been able to successfully attract these patrons using the
Riviera's restaurants, hotel accommodations and entertainment and by focusing on
customer service. Management has adopted a selective approach to the extension
of credit to these customers in order to reduce volatility of operating results.
The Company uses its research data to tailor promotional offers to the specific
tastes of targeted customers. All slot and table players are encouraged to join
the Riviera Player's Club and to fill out surveys that provide the Riviera with
personal information and preferences and tracks their level of play. Members of
the Riviera Player's Club earn bonus points based upon their level of play,
redeemable for free gifts, complimentary services or cash rebates. Promotional
offers are made to qualifying customers through direct mail and telemarketing.
The Riviera will continue to emphasize marketing programs that appeal
to slot and mid-level table game customers with a focus on creating repeat
customers and increasing walk-in traffic. In addition, a key marketing focus is
maintaining and expanding Riviera's core conventioneer customer base. In
developing its overall marketing programs, the Company conducts extensive,
ongoing research of its target customers' preferences through surveys,
one-on-one interviews and focus groups.
Create Repeat Customers
Generating customer loyalty is a critical component of management's
business strategy as retaining customers is less expensive than attracting new
ones. The Company has developed a focused and coordinated marketing program
intended to develop a loyal customer base which emphasizes (i) providing a high
level of service to its customers to ensure an enjoyable experience while at the
Riviera, (ii) responding to customer surveys and (iii) focusing marketing
efforts and promotional programs on customers with positive gaming profiles. The
Company uses its research data to tailor promotional offers to the specific
tastes of targeted customers. All slot and table players are encouraged to join
the Riviera Player's Club which tracks their level of play, and to fill out
surveys that provide the Riviera with personal information and preferences.
Members of the Riviera Player's Club earn bonus points based upon their level of
play, redeemable for free gifts, complimentary services or cash rebates.
Promotional offers are made to qualifying customers through direct mail and
telemarketing. The Company designs promotional offers targeted at certain
mid-level gaming patrons that are expected to provide significant revenues based
upon their historical gaming patterns. The Company contacts these customers
through a combination of direct mail and telemarketing by an in-house marketing
staff and independent representatives located in major cities. The Riviera uses
a proprietary database which is linked to its player tracking system to help
identify customers' requirements and preferences; thereby allowing the Riviera
to customize promotions to attract repeat visitors. The Company offers customers
personalized service, credit availability and access to a variety of
complimentary or reduced-rate room, dinner and entertainment reservations.
Management uses a specialized multi-tiered marketing approach to attract
customers in each of its major markets. Slot and table game tournaments and
special events are designed for specific levels of play. Utilizing its
proprietary database the Company's marketing department then targets and invites
the customers most appropriate for the customized events. In addition, the
Company hosts an array of special events, including slot and table tournaments,
designed to attract customers for an extended stay. Management has found that
this individualized marketing approach has provided significant revenues and
profitable repeat business.
Provide Extensive Entertainment Options
The Company also focuses on attracting its guests through a range of
entertainment opportunities. The Riviera has one of the most extensive
entertainment programs in Las Vegas with four different regularly scheduled
shows and special appearances by headline entertainers. In addition to providing
a positive impact on the Company's profitability, the shows attract additional
gaming revenue. Surveys indicate that approximately 80% of the show patrons come
from outside the hotel and approximately 66% of these individuals gamble at the
Riviera before or after the shows.
Attract Walk-In Traffic
The Company seeks to maximize the number of people who patronize the
Riviera that are not guests in the hotel by capitalizing on Riviera's prime
Strip location, convention center proximity and the Riviera's several popular
in-house productions. The Riviera is well situated on the Las Vegas Strip near
Circus Circus, Stardust Hotel & Casino, Westward Ho Casino & Hotel, Sahara Hotel
& Casino, Las Vegas Hilton and the Las Vegas Convention Center. Management
strives to attract customers from those facilities, as well as capitalize on the
visitors in Las Vegas in general, with the goal of increasing walk-in traffic by
(i) the development and promotion of Nickel Town, (ii) providing a variety of
quality, value-priced entertainment and dining options, and (iii) promoting the
"World's Loosest Corner of Slots," the "Free Pull" and "$40 for $20" slot
promotions, and placing them inside the casino.
Focus on Convention Customers
This market consists of two groups: (i) those trade organizations and
groups that hold their events in the banquet and meeting space provided by a
single hotel and (ii) those attending city-wide events, usually held at the Las
Vegas Convention Center. The Riviera targets convention business because it
typically provides patrons willing to pay higher room rates and it provides
certain advance planning benefits, since conventions are usually booked two
years in advance of the event date. Management focuses its marketing efforts on
conventions whose participants have the most active gaming profile and higher
room rate, banquet and function spending habits. The Riviera also benefits from
its proximity to the Las Vegas Convention Center which makes it attractive to
city-wide conventioneers looking to avoid the congestion that occurs during a
major convention, particularly at the south end of the Las Vegas Strip. The
Company derives approximately 25.5% of its hotel occupancy from convention
customers and considers them a critical component of its customer base.
Management believes that the recently completed expansion of the Riviera's
Convention Center from 100,000 to 160,000 square feet will accommodate the
growth in the size and number of groups that presently use the facility, attract
new convention groups and increase the percentage of rooms occupied by
conventioneers.
Tour and Travel Operators
Management has found that many of its customers use tour and travel
"package" options to reduce the cost of travel, lodging and entertainment. These
packages are produced by wholesale operators and travel agents and emphasize
mid-week stays. Tour and travel patrons often book at off-peak periods enabling
the Company to maintain occupancy rates at the highest levels throughout the
year. Management has developed specialized marketing programs and cultivated
relationships with wholesale operators, travel agents and major domestic air
carriers to expand this market. The Company's four largest tour and travel
operators, currently account for approximately 500 of the available 2,100 room
bookings per night. The Company makes an effort to convert many tour and travel
customers who meet the Company's target customer gaming profile into repeat slot
customers.
The Black Hawk Project
The Company's indirect wholly-owned subsidiary, Riviera Black Hawk, Inc.
("Riviera Black Hawk") is constructing a casino in Black Hawk, Colorado. This
property will be the third largest casino with entertainment and parking
facilities in Black Hawk, Colorado, approximately 40 miles west of Denver. It
will be one of the first three casinos encountered when traveling from Denver to
the Black Hawk/Central City market. The casino will feature approximately 1,000
slot machines and 12 gaming tables. A variety of other amenities will be
offered, which are designed to differentiate this casino, including on-site
parking for approximately 520 vehicles, an approximately 265 seat casual dining
restaurant with two themed bars, and an entertainment center with seating for up
to 600 people.
The casino is expected to be completed and open in the first quarter
of 2000. The Company presently estimates that the total cost to develop and open
the casino, excluding capitalized interest and financing related costs, will be
approximately $63.0 million, which includes: (i) $15.1 million for the purchase
of the land on which the casino is being developed, (ii) $27.5 million bonded
"Guaranteed Maximum Price" construction cost, (iii) $10.6 million for furniture,
fixtures and equipment, (iv) $7.7 million for project and development costs,
fees and permits and (v) $2.1 million for pre-opening costs and initial working
capital. As of December 31, 1998, the Company had spent $25.0 million on this
project (excluding capitalized interest).
Geographical Markets
The Las Vegas Market
Las Vegas is one of the largest and fastest growing entertainment
markets in the country. According to the LVCVA, the number of visitors traveling
to Las Vegas has increased at a steady and significant rate for the last twelve
years from 15.2 million in 1986 to 30.6 million in 1998, a compound annual
growth rate of 6.0%. Clark County gaming has continued to be a strong and
growing business with Clark County gaming revenues increasing at a compound
annual growth rate of 8.4% from $2.4 billion in 1986 to $6.3 billion in 1998.
Gaming and tourism are the major attractions of Las Vegas,
complemented by warm weather and the availability of many year-round
recreational activities. Although Las Vegas' principal markets are the western
region of the United States, most significantly Southern California and Arizona,
Las Vegas also serves as a destination resort for visitors from all over the
world. A significant percentage of visitors originate from Latin America and
Pacific Rim countries such as Japan, Taiwan, Hong Kong and Singapore.
Historically, Las Vegas has had one of the strongest hotel markets in
the country. The number of hotel and motel rooms in Las Vegas has increased by
over 63% from approximately 67,000 at the end of 1989 to 109,365 at the end of
1998, giving Las Vegas the most hotel and motel rooms of any metropolitan area
in the country. Despite this significant increase in the supply of rooms, the
Las Vegas hotel occupancy rate exceeded 85% for each of the years from 1993
through 1998. Since January 1, 1998 approximately 4,500 new hotel rooms opened,
and as of December 31, 1998 there were 12,476 hotel rooms under construction.
The LVCVA states that an additional approximately 3,500 rooms will be completed
by the end of the year 2000. The new rooms under construction are primarily
being designed to attract the high-end gaming and convention customers, and
based on construction costs, will be priced at rates well above those which have
been or can be charged by the Riviera based on the investment in its facility.
The Company believes that the growth in the Las Vegas market has been
enhanced as a result of (i) a dedicated program by the LVCVA and major Las Vegas
casino/hotels to promote Las Vegas as a major convention site, (ii) the
increased capacity of McCarran Airport and (iii) the introduction of large
themed "must see" destination resorts in Las Vegas. In 1988, approximately 1.7
million delegates attended conventions in Las Vegas and generated approximately
$1.3 billion of economic impact. In 1998, the number of convention delegates had
increased to 3.3 million with approximately $4.3 billion of economic impact.
During the past five years, McCarran Airport has expanded its
facilities to accommodate the increased number of airlines and passengers which
it services. The number of passengers traveling through McCarran Airport has
increased from approximately 22.5 million in 1993 to 30.2 million in 1998.
Construction has recently been completed on numerous roadway enhancements to
improve access to the Airport. An additional runway has also been completed and
is now operational. The Airport has additional long-term expansion plans
underway which will provide three new satellite concourses, 60 additional gates
and other facilities.
The Colorado Market
In November 1990, Colorado voters approved limited-stakes gaming
($5.00 or less per wager) in three historic gold mining areas, Black
Hawk/Central City and Cripple Creek. Because of the $5.00 maximum bet, the
casinos in Colorado emphasize gaming machine play. Black Hawk and Central City
are contiguous, with Black Hawk being closer to Denver, and are located
approximately 40 miles west of Denver and 10 miles north of Interstate 70, the
main highway connecting Denver to many of Colorado's major ski resorts. Cripple
Creek is located approximately 45 miles from Colorado Springs and 75 miles from
Pueblo. Casinos located in the Black Hawk/Central City area serve primarily the
residents of Denver and Boulder, Colorado and surrounding communities.
Approximately three million people live within a 100-mile radius of the Black
Hawk/Central City area.
The proximity of the Black Hawk/Central City area to major population
centers has contributed to consistent growth in gaming revenues in the market
since the legalization of gaming in 1990. The Company also believes that the
Black Hawk/Central City gaming market has benefitted from the entry of larger,
well-capitalized gaming operators offering parking and superior amenities. As a
result, gaming revenues have grown from $127.6 million in 1992 to $366.0 million
in 1998, representing a 19% compound annual growth rate. As of December 31, 1998
there were 30 casinos and over 10,000 slot machines in operation in Black Hawk
and Central City.
Management Activities
In order to capitalize on management's expertise and reputation as
successful operators of casino properties, the Company formed RGM, a
wholly-owned subsidiary of the Company, for the primary purpose of obtaining
casino management contracts in Nevada and other jurisdictions. RGM provides
services such as assisting new venue licensee applicants in designing and
planning their gaming operations and managing the start-up of new gaming
operations. These services include casino design, equipment selection, employee
recruitment and training, control and accounting systems development and
marketing programs. Management believes that management contracts provide high
margin income with limited additional overhead and little or no capital
expenditure requirements. Management is continually evaluating opportunities to
manage other casinos/hotels. The Company's objective is to obtain the right to a
substantial equity position in projects it would manage as part of the
compensation for its services.
Four Queens Management Agreement
Riviera Gaming Management-Elsinore, Inc. ("RGME"), an indirect
wholly-owned subsidiary of the Company, is operating the Four Queens Hotel and
Casino, located adjacent to the Golden Nugget on Fremont Street in Downtown Las
Vegas, pursuant to a Management Agreement effective as of February 27, 1997. The
term of the agreement is approximately 40 months (subject to earlier termination
by either party on six months notice. RGME is paid a minimum annual management
fee of $1 million and a performance fee, which is payable only if cash flow
increases materially above current levels. RGME has warrants to purchase common
stock of Elsinore Corporation (the parent of the Four Queens Hotel/Casino) which
appears unlikely to have significant value.
Other Management Opportunities
The Company is continuously reviewing opportunities to expand and
become a multi-jurisdictional casino company with greater capital resources to
enable it to compete more effectively. The jurisdictions include, but are not
limited to, Mississippi, Pennsylvania and Iowa. The Company may also become
involved in financially distressed casino properties where it believes it may be
able to effect a turn-around (similar to that which current management achieved
at the Riviera) and can obtain a significant equity stake.
Competition
Las Vegas, Nevada
Intense competition exists among companies in the gaming industry,
many of which have significantly greater resources than the Company. The Riviera
faces competition from all other casinos and hotels in the Las Vegas area.
Management believes that the Riviera's most direct competition comes from
certain large casino/hotels located on or near the Las Vegas Strip which offer
amenities and marketing programs similar to those offered by the Riviera.
At December 31, 1998, the Las Vegas Convention and Visitors Authority ("LVCA")
indicated that there were 31 operational casinos on the Las Vegas Strip. Of
these Las Vegas Strip casinos, 21 casinos had over 1,000 available hotel rooms.
The Riviera is ranked as the 17th largest Las Vegas Strip hotel/casino, based
upon number of available hotel rooms.
Las Vegas gaming square footage and room capacity are continuing to
grow and are expected to continue to increase significantly during the next
several years.
Since January 1, 1998 approximately 4,500 new hotel rooms opened, and
as of December 31, 1998 there were approximately 12,500 hotel rooms under
construction. The LVCVA states that an additional 3,537 rooms will be completed
by the end of the year 2000. Existing and future expansions, additions and
enhancements to existing properties and construction of new properties by the
Company's competitors could divert additional business from the Company's
facilities. There can be no assurance that the Company will compete successfully
in the Las Vegas market in the future.
During 1998, available room nights in the Las Vegas market increased
from 37.7 million to 39.0 million or 3.5%, while total room nights occupied
increased from 32.5 million to 33.4 million or 2.9%. The ending room inventory
at December 31, 1998 was 109,365 compared to 105,347 at December 31, 1997, an
increase of 4,018 rooms or 3.8 %. This has had the effect of intensifying
competition. At the Riviera, room occupancy fell from 96.8% in 1997 to 95.2% in
1998 (still much higher than the Strip average) and room rates decreased by
$3.43 or 5.8%, from $58.25 in 1997 to $54.82 in 1998.
The Company also competes, to some extent, with casinos in other
states, riverboat and Native American gaming ventures, state-sponsored
lotteries, on- and off-track wagering, card parlors and other forms of legalized
gaming in the United States, as well as with gaming on cruise ships and
international gaming operations. In addition, certain states have recently
legalized or are considering legalizing casino gaming in specific geographical
areas within those states. Any future development of casinos, lotteries or other
forms of gaming in other states, particularly areas close to Nevada, such as
California, could have a material adverse effect on the Company's results of
operations.
The current business of the Company is entirely dependent on gaming
in Las Vegas. The Riviera derives a substantial percentage of its business from
tourists, principally from Southern California and the southwestern United
States. Weakness in the economy of Southern California has in the past, and
could in the future, adversely affect the financial results of the Company.
Until the Black Hawk casino opens, the Company's operations will be primarily
dependent upon the results of operations achieved by the Riviera on the Las
Vegas Strip. Any significant disruption in operations at the Riviera would have
a material adverse effect on the Company.
Black Hawk, Colorado
The Black Hawk/Central City gaming market is characterized by intense
competition. The Company believes that the primary competitive factors in the
market are location, availability and convenience of parking, number of slot
machines and gaining tables, types and pricing of non-gaming amenities, name
recognition and overall atmosphere. The Company believes its main competitors
will be the larger gaming facilities in the City of Black Hawk, particularly
those with considerable on-site or proximate parking and established reputations
in the local market. Of the 30 gaming facilities currently operating in Black
Hawk/Central City, eight have over 400 gaming positions. The largest casinos in
terms of the number of gaming positions are respectively, the Isle of Capri,
Black Hawk, Harvey's Wagon Wheel Casino Hotel, Colorado Central Station,
Bullwhackers Black Hawk, Canyon Casino, Fitzgeralds Casino Black Hawk, the Lodge
and Gilpin Hotel Casino. Construction has also begun on the "Mardi Gras" casino,
which is expected to feature over 600 slot machines. Other projects have also
been announced, proposed, discussed or rumored for the Black Hawk/Central City
market, although the Company is not aware of whether any of these projects are
proceeding.
The Company expects the gaming facilities near the intersection of
Main and Mill Streets to provide significant competition, while at the same time
creating the greatest concentration of parking in the Black Hawk/Central City
market, as well as attracting a critical mass of customers to the area. Colorado
Central Station, one of the most successful casinos in the market, is located
across the street from the Company's Black Hawk casino and has approximately 700
slot machines, 20 gaming tables and approximately 700 valet-only parking spaces.
The Isle of Capri Black Hawk, operated by Casino America, which opened in
December 1998, is located directly across the street from the Company's Black
Hawk casino and features approximately 1,100 slot machines, 14 table games, and
1,000 parking spaces.
Currently, limited stakes gaming in Colorado is constitutionally
authorized in Central City, Black Hawk, Cripple Creek and two Native American
reservations in southwest Colorado. However, there can be no assurance that
gaming will not be approved in other Colorado communities in the future.
The Company will also compete with other forms of gaming in Colorado,
including lottery gaming, and horse and dog racing as well as other forms of
entertainment.
Pursuant to a license agreement, the Riviera will license the use at
the Black Hawk casino of all of the trademarks, service marks and logos used by
the Riviera Hotel & Casino in Las Vegas. In addition, the license agreement will
provide that additional trademarks, service marks and logos acquired or
developed by the Company and used at its other facilities will be subject to the
license agreement.
Employees and Labor Relations
As of December 31, 1998 the Riviera had approximately 2,100 full time
equivalent employees and had collective bargaining contracts with nine unions
covering approximately 1,200 of such employees including food and beverage
employees, rooms department employees, carpenters, engineers, stage hands,
musicians, electricians, painters and teamsters. The Company's agreements with
the Southern Nevada Culinary and Bartenders Union and Stage Hands Union, which
cover the majority of the Company's unionized employees, were renegotiated in
1998 and expire in the year 2002. Collective Bargaining Agreements with the
Operating Engineers, Electricians and Musicians will expire in 1999, while the
Agreements with the Carpenters and Painters will expire in 2000. A new Agreement
was negotiated with the Teamsters and expires in 2003. Although unions have been
active in Las Vegas, management considers its employee relations to be
satisfactory. There can be no assurance, however, that new agreements will be
reached without union action or will be on terms satisfactory to the Company.
Regulation and Licensing
Nevada
Nevada Gaming Authority
The ownership and operation of casino gaming facilities in Nevada are
subject to: (i) The Nevada Gaming Control Act and the regulations promulgated
thereunder (collectively the "Nevada Act") and (ii) various local ordinances and
regulations. The Company's gaming operations are subject to the licensing and
regulatory control of the Nevada Commission, the Nevada Board, the Clark County
Board and the City of Las Vegas. The Nevada Commission, the Nevada Board, the
Clark County Board and the City of Las Vegas are collectively referred to as the
"Nevada Gaming Authorities."
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time and in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping and requiring the filing of periodic
reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and
fraudulent practices; and (v) providing a source of state and local revenues
through taxation and licensing fees. Change in such laws, regulations and
procedures could have an adverse effect on the Company's gaming operations.
ROC is required to be licensed by the Nevada Gaming Authorities. The
gaming license held by ROC requires the periodic payment of fees and taxes and
is not transferable. ROC is also licensed as a manufacturer and distributor of
gaming devices. Such licenses also require the periodic payment of fees and are
not transferable. The Company is registered by the Nevada Commission as a
publicly traded corporation (a "Registered Corporation") and has been found
suitable to own the stock of ROC. ROC is also registered by the Nevada
Commission as an intermediary company and has been found suitable to own the
stock of RGM which has been registered by the Nevada Commission as an
Intermediary company and has been found suitable to own the stock of its
subsidiary RGME. RGME has been licensed as the manager of the Four Queens and
such license is not transferable. ROC and RGME are each a Corporate Licensee
(collectively, the "Corporate Licensees") under the terms of the Nevada Act. As
a Registered Corporation, the Company is required periodically to submit
detailed financial and operating reports to the Nevada Commission and to furnish
any other information which the Nevada Commission may require. No person may
become a stockholder of, or receive any percentage of profits from, the
Corporate Licensees without first obtaining licenses and approvals from the
Nevada Gaming Authorities. The Company, ROC, RGM and RGME have obtained from the
Nevada Gaming Authorities the various registrations, approvals, permits,
findings of suitability and licenses required in order to engage in gaming
activities and manufacturing and distribution activities in Nevada.
All gaming devices that are manufactured, sold or distributed for use
or play in Nevada, or for distribution outside of Nevada, must be manufactured
by licensed manufacturers, distributed or sold by licensed distributors and
approved by the Nevada Commission. The approval process includes rigorous
testing by the Nevada Board, a field trial and a determination as to whether the
gaming device meets strict technical standards that are set forth in the
regulations of the Nevada Gaming Authorities. Associated equipment must be
administratively approved by the Chairman of the Nevada Board before it is
distributed for use in Nevada.
The Nevada Gaming Authorities may investigate any individual who has
a material relationship to, or material involvement with, the Company, ROC, RGM
or RGME in order to determine whether such individual is suitable or should be
licensed as a business associate of a gaming licensee. Officers, directors and
certain key employees of ROC and RGME must file applications with the Nevada
Gaming Authorities and may be required to be licensed or found suitable by the
Nevada Gaming Authorities. Officers, directors and key employees of the Company
and RGM who are actively and directly involved in the gaming activities of ROC
or RGME may be required to be licensed or found suitable by the Nevada Gaming
Authorities. The Nevada Gaming Authorities may deny an application for licensing
for any cause which they deem reasonable. A finding of suitability is comparable
to licensing, and both require submission of detailed personal and financial
information followed by a thorough investigation. The applicant for licensing or
a finding of suitability must pay all the costs of the investigation. Any change
in a corporate position by a licensed person must be reported to the Nevada
Gaming Authorities and, in addition to their authority to deny an application
for a finding of suitability or licensure, the Nevada Gaming Authorities have
jurisdiction to disapprove a change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director or
key employee unsuitable for licensing or unsuitable to continue having a
relationship with the Company, ROC, RGM or RGME the companies involved would
have to sever all relationships with such person. In addition, the Nevada
Commission may require the Company, ROC, RGM or RGME to terminate the employment
of any person who refuses to file appropriate applications. Determinations of
suitability or of questions pertaining to licensing are not subject to judicial
review in Nevada.
The Company, ROC and RGME are required to submit detailed financial
and operating reports to the Nevada Commission. Substantially all material
loans, leases, sales of securities and similar financing transactions by ROC
must be reported to or approved by the Nevada Commission.
If it were determined that the Nevada Act was violated by ROC or
RGME, the gaming licenses they hold could be limited, conditioned, suspended or
revoked, subject to compliance with certain statutory and regulatory procedures.
In addition, the Company, ROC, RGM and RGME and the persons involved could be
subject to substantial fines for each separate violation of the Nevada Act at
the discretion of the Nevada Commission. Further, a supervisor could be
appointed by the Nevada Commission to operate the casino and, under certain
circumstances, earnings generated during the supervisor's appointment (except
for reasonable rental value of the casino) could be forfeited to the State of
Nevada. Limitation, conditioning or suspension of the gaming licenses of ROC or
RGME or the appointment of a supervisor could (and revocation of any gaming
license would) materially adversely affect the Company's gaming operations.
Any beneficial holder of the Company's voting securities, regardless
of the number of shares owned, may be required to file an application, be
investigated, and have his suitability as a beneficial holder of the Company's
voting securities determined if the Nevada Commission has reason to believe that
such ownership would otherwise be inconsistent with the declared policies of the
State of Nevada. The applicant must pay all costs of investigation incurred by
the Nevada Gaming Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires more than 5% of a
Registered Corporation's voting securities to report the acquisition to the
Nevada Commission. The Nevada Act requires that beneficial owners of more than
10% of a Registered Corporation's voting securities apply to the Nevada
Commission for a finding of suitability within thirty days after the Chairman of
the Nevada Board mails the written notice requiring such filing. Under certain
circumstances, an "institutional investor," as defined in the Nevada Act, which
acquires more than 10%, but not more than 15%, of a Registered Corporation's
voting securities may apply to the Nevada Commission for a waiver of such
finding of suitability if such institutional investor holds the voting
securities for investment purposes only. An institutional investor shall not be
deemed to hold voting securities for investment purposes unless the voting
securities were acquired and are held in the ordinary course of business as an
institutional investor and not for the purpose of causing, directly or
indirectly, the election of a majority of the members of the board of directors
of the Registered Corporation, any change in the corporate charter, bylaws,
management, policies or operations of the Registered Corporation, or any of its
gaming affiliates, or any other action which the Nevada Commission finds to be
inconsistent with holding the Registered Corporation's voting securities for
investment purposes only. Activities which are deemed to be consistent with
holding voting securities for investment purposes only include: (i) voting on
all matters voted on by stockholders; (ii) making financial and other inquiries
of management of the type normally made by securities analysts for informational
purposes and not to cause a change in its management, policies or operations;
and (iii) such other activities as the Nevada Commission may determine to be
consistent with such investment intent. If the beneficial holder of voting
securities who must be found suitable is a corporation, partnership or trust, it
must submit detailed business and financial information including a list of
beneficial owners. The applicant is required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of suitability
or a license within thirty days after being ordered to do so by the Nevada
Commission or the Chairman of the Nevada Board, may be found unsuitable. The
same restrictions apply to a record owner if the record owner, after request,
fails to identify the beneficial owner. Any stockholder found unsuitable and who
holds, directly or indirectly, any beneficial ownership of the common stock
beyond such period of time as may be prescribed by the Nevada Commission may be
guilty of a criminal offense. The Company is subject to disciplinary action if,
after it receives notice that a person is unsuitable to be a stockholder or to
have any other relationship with the Company, ROC, RGM or RGME, the Company (i)
pays that person any dividend or interest upon voting securities of the Company,
(ii) allows that person to exercise, directly or indirectly, any voting right
conferred through securities held by that person, (iii) pays remuneration in any
form to that person for services rendered or otherwise, or (iv) fails to pursue
all lawful efforts to require such unsuitable person to relinquish his voting
securities including, if necessary, the immediate purchase of said voting
securities for cash at fair market value. Additionally, the Clark County Board
has the authority to approve all persons owning or controlling the stock of any
corporation controlling a gaming licensee.
The Nevada Commission may, in its discretion, require the holder of
any debt security of a Registered Corporation to file applications, be
investigated and be found suitable to own the debt security of a Registered
Corporation, if it has reason to believe that such ownership would be
inconsistent with the declared policies of the State of Nevada. If the Nevada
Commission determines that a person is unsuitable to own such security, then
pursuant to the Nevada Act, the Registered Corporation can be sanctioned,
including the loss of its approvals, if without the prior approval of the Nevada
Commission, it: (i) pays to the unsuitable person any dividend, interest, or any
distribution whatsoever; (ii) recognizes any voting right by such unsuitable
person in connection with such securities; (iii) pays the unsuitable person
remuneration in any form; or (iv) makes any payment to the unsuitable person by
way of principal, redemption, conversion, exchange, liquidation, or similar
transaction.
The Company is required to maintain a current stock ledger in Nevada
which may be examined by the Nevada Gaming Authorities at any time. If any
securities are held in trust by an agent or by a nominee, the record holder may
be required to disclose the identity of the beneficial owner to the Nevada
Gaming Authorities. A failure to make such disclosure may be grounds for finding
the record holder unsuitable. The Company is also required to render maximum
assistance in determining the identity of the beneficial owner. The Nevada
Commission has the power to require the Company's stock certificates to bear a
legend indicating that the securities are subject to the Nevada Act. However, to
date, the Nevada Commission has not imposed such a requirement on the Company.
The Company may not make a public offering of its securities without
the prior approval of the Nevada Commission if the securities or proceeds
therefrom are intended to be used to construct, acquire or finance gaming
facilities in Nevada, or to retire or extend obligations incurred for such
purposes. In addition, (i) a Corporate Licensee may not guarantee a security
issued by a Registered Corporation pursuant to a public offering, or hypothecate
its assets to secure the payment or performance of the obligations evidenced by
such a security, without the prior approval of the Nevada Commission, (ii) the
pledge of the stock of a Corporate Licensee or Intermediary company ("Stock
Pledge"), such as ROC, RGM and RGME, is void without the prior approval of the
Nevada Commission, and (iii) restrictions upon the transfer of an equity
security issued by a Corporate Licensee or Intermediary company and agreements
not to encumber such securities (collectively, "Stock Restrictions") are
ineffective without the prior approval of the Nevada Commission.
Changes in control of the Company through merger, consolidation,
stock or asset acquisitions, management or consulting agreements, or any act or
conduct by a person whereby he obtains control, may not occur without the prior
approval of the Nevada Commission. Entities seeking to acquire control of a
Registered Corporation must satisfy the Nevada Board and Nevada Commission in a
variety of stringent standards prior to assuming control of such Registered
Corporation. The Nevada Commission may also require controlling stockholders,
officers, directors and other persons having a material relationship or
involvement with the entity proposing to acquire control, to be investigated and
licensed as part of the approval process relating to the transaction.
The Nevada legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and corporate defense
tactics affecting Nevada corporate gaming Licensees and Registered Corporations
that are affiliated with those operations, may be injurious to stable and
productive corporate gaming. The Nevada Commission has established regulations
to ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming Licensees and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly governance of corporate
affairs. Approvals are, in certain circumstances, required from the Nevada
Commission before the Registered Corporation can make exceptional repurchases of
voting securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada Act also
requires prior approval of a plan of recapitalization proposed by the Registered
Corporation's Board of Directors in response to a tender offer made directly to
the Registered Corporation's stockholders for the purposes of acquiring control
of the Registered Corporation.
License fees and taxes, computed in various ways depending on the
type of gaming or activity involved, are payable to the State of Nevada and to
the County in which the ROC, RGM and RGME operations are conducted. Depending
upon the particular fee or tax involved, these fees and taxes are payable either
monthly, quarterly or annually and are based upon either: (i) a percentage of
the gross revenues received; (ii) the number of gaming devices operated; or
(iii) the number of table games operated. A casino entertainment tax is also
paid by casino operations where entertainment is furnished in connection with
the selling of food, refreshments or merchandise. Nevada Licensees that hold a
license to manufacture and distribute slot machines and gaming devices, such as
ROC, also pay certain fees and taxes to the State of Nevada.
Any person who is licensed, required to be licensed, registered,
required to be registered, or is under common control with such persons
(collectively, "Licensees"), and who proposes to become involved in a gaming
venture outside of Nevada, is required to deposit with the Nevada Board, and
thereafter maintain, a revolving fund in the amount of $10,000 to pay the
expenses of investigation by the Nevada Board of their participation in such
foreign gaming. The revolving fund is subject to increase or decrease in the
discretion of the Nevada Commission. Thereafter, Licensees are required to
comply with certain reporting requirements imposed by the Nevada Act. Licensees
are also subject to disciplinary action by the Nevada Commission if they
knowingly violate any laws of the foreign jurisdiction pertaining to the foreign
gaming operation, fail to conduct the foreign gaming operation in accordance
with the standards of honesty and integrity required of Nevada gaming
operations, engage in activities that are harmful to the State of Nevada or its
ability to collect gaming taxes and fees, or employ a person in the foreign
operation who has been denied a license or finding of suitability in Nevada on
the ground of personal unsuitability.
Other Nevada Regulation
The sale of alcoholic beverages at the Riviera is subject to
licensing, control and regulation by the Clark County Board. All licenses are
revocable and are not transferable. The Clark County Board has full power to
limit, condition, suspend or revoke any such license, and any such disciplinary
action could (and revocation would) have a material adverse affect upon the
operations of ROC.
Colorado
Colorado Gaming Regulation
Pursuant to an amendment to the Colorado Constitution (the "Colorado
Amendment"), limited stakes gaming became lawful in the cities of Central City,
Black Hawk and Cripple Creek on October 1, 1991. The Colorado Amendment defines
limited stakes gaming as the use of slot machines and the card games of
blackjack and poker, with a maximum single bet of five dollars.
Limited stakes gaming is confined to the commercial districts of
these cities as defined by Central City on October 7, 1981, by Black Hawk on May
4, 1978, and by Cripple Creek on December 3, 1973. In addition, the Colorado
Amendment restricts limited stakes gaming to structures that conform to the
architectural styles and designs that were common to the areas prior to World
War 1, and which conform to the requirements of applicable city ordinances
regardless of the age of the structures. The Colorado Amendment provides that no
more than 35% of the square footage of any building and no more than 50% of any
one floor of any building may be used for limited stakes gaming. The Colorado
Amendment prohibits limited stakes gaming between the hours of 2:00 a.m. and
8:00 a.m., and allows limited stakes gaming to occur in establishments licensed
to sell alcoholic beverages.
Further, the Colorado Amendment provides that, in addition to any
other applicable license fees, up to a maximum of 40% of the total amounts
wagered less payouts to players may be payable by a licensee for conducting
limited stakes gaming. Such percentage is to be established by the Colorado
Limited Gaming Act of 1991 (the "Colorado Act").
The Colorado legislature promulgated the Colorado Act to implement
the provisions of the Colorado Amendment. The Colorado Act became effective on
June 4, 1991 and has been amended subsequently.
The Colorado Act declares public policy on limited stakes gaming to
be that: (i) the success of limited stakes gaming is dependent upon public
confidence and trust that licensed limited stakes gaming is conducted honestly
and competitively; the rights of the creditors of licensees are protected;
gaming is free from criminal and corruptive elements; (ii) public confidence and
trust can be maintained only by strict regulation of all persons, locations,
practices, associations and activities related to the operation of licenses
gaming establishments and the manufacture or distribution of gaming devices and
equipment; (iii) all establishments where limited stakes gaming is conducted and
where gambling devices and equipment must be licensed, controlled and assisted
to protect the inhabitants of the state to foster the stability and success of
limited stakes gaming and to preserve the economy and free competition in
Colorado; and (iv) no applicant for a license of other approval has any right to
a license or to the granting of the approval sought.
The Colorado Act subjects the ownership and operation of limitation
stakes gaming facilities in Colorado to extensive regulation by the Colorado
Limited Gaming Control Commission (the "Colorado Commission") and prohibits
persons under the age of 21 from participating in limited stakes gaming. No
limited stakes gaming may be conducted in Colorado unless all appropriate gaming
licenses are approved by and obtained from the Colorado Commission. The Colorado
Commission has full and exclusive authority to promulgate, and has promulgated,
rules and regulations governing the licensing, conducting and operating of
limited stakes gaming (the "Colorado Regulations"). Such authority does not
require any approval by or delegation of authority from the Colorado Department
of Revenue (the "Colorado Revenue Department"). The Colorado Act also created
the Division of Gaming within the Colorado Revenue Department to license,
implement, regulate and supervise the conduct of limited stakes gaming in
Colorado, supervised and administered by the Director of the Division of Gaming
(the "Division Director").
The Colorado Commission may issue: (i) slot machine or distributor,
(ii) operator, (iii) retail gaming, (iv) support and (v) key employee gaming
licenses. The first three licenses require annual renewal by the Colorado
Commission. Support and key employee licenses are issued for two year periods
and are renewable by the Division Director. The Colorado Commission has broad
discretion to condition, suspend for up to six months, revoke, limit or restrict
a license at any time and also has the authority to impose fines.
An applicant for a gaming license must complete comprehensive
application forms, pay required fees and provide all information required by the
Colorado Commission and the Division of Gaming. Prior to licensure, applicants
must satisfy the Colorado Commission that they are suitable for licensing.
Applicants have the burden of proving their qualifications and must pay the full
cost of any background investigations.
There is no limit on the cost of such background investigations.
Gaming employees must hold either a support or key employee license.
Every retail gaming licensee must have a key employee license in charge of all
limited stakes gaming activities when limited stakes gaming is being conducted.
The Colorado Commission may determine that a gaming employee is a key employee
and, require that such person apply for a key employee license.
A retail gaming license is required for all persons conducting
limited stakes gaming on their premises. In addition, an operator license is
required for all persons who engage in the business of placing and operating
slot machines on the premises of a retailer. However, a retailer is not required
to hold an operator license. No person may have an ownership interest in more
than three retail licenses. A slot machine manufacturer or distributor license
is required for all persons who manufacture, import or distribute slot machines
in Colorado.
The Colorado Act requires that every officer, director, and
stockholder of private corporations or equivalent office or ownership holders
for non-corporate applicants, and every officer, director or stockholder holding
either a 5% or greater interest or controlling interest of a publicly traded
corporation or owners of an applicant or licensee shall be a person of good
moral character and submit to a full background investigation conducted by the
Division of Gaming and the Colorado Commission. The Colorado Commission may
require any person having an interest in a license to undergo a full background
investigation and pay the cost of investigation in the same manner as an
applicant.
Persons found unsuitable by the Colorado Commission may be required
immediately to terminate any interest, association, or agreement with or
relationship to a licensee. A finding of unsuitability with respect to any
officer, director, employee, associate, lender or beneficial owner of a licensee
or applicant also may jeopardize the licensee's license or the applicant's
application. A license approval may be conditioned upon the termination of any
relationship with unsuitable persons.
An applicant or licensee must report to the Division of Gaming or
Colorado Commission all leases not later than 30 days after the effective date
of the lease. Also, an applicant or a license, upon the request of the Colorado
Commission or the Division Director, must submit copies of all written gaming
contracts and summaries of all oral gaming contracts to which it is or intends
to become a party. The Division Director or the Colorado Commission may require
changes in the lease or gaming contract before an applicant is approved or
participation in such agreement is allowed or may require termination of the
lease or gaming contract.
The Colorado Act and the Colorado Regulations require licensees to
maintain detailed records that account for all business transactions. Records
must be furnished upon demand to the Colorado Commission, the Division of Gaming
and other law enforcement authorities. The Colorado Regulations also establish
extensive playing procedures and rules of play for poker, blackjack and slot
machines. Retail gaming licenses must adopt comprehensive internal control
procedures. Such procedures must be approved in advance by the Division of
Gaming and include the areas of accounting, surveillance, security, cashier
operations, key control and fill and drop procedures, among others. No gaming
devices may be used in limited stakes gaming without the approval of the
Division Director or the Colorado Commission.
Licensees have a continuing duty to immediately report to the
Division of Gaming the name, date of birth and social security number of all
persons who obtain an ownership, financial or equity interest in the licensee of
five (5) percent or greater, or who have the ability to control the licensee, or
who have the ability to exercise significant influence over the licensee, or who
loan any money or other thing of value to the licensee. Licensees must report to
the Division of Gaming all licenses, and all applications for licenses, in
foreign jurisdictions.
With limited exceptions applicable to licensees that are publicly
traded entities, no person may sell, lease, purchase, convey or acquire any
interest in a retail gaming or operator license or business without the prior
approval of the Colorado Commission.
All agreement, contracts, leases, or arrangements in violation of the
Colorado Act or the Colorado Regulations are void and unenforceable.
The Colorado Amendment requires an annual tax of as much as 40% on
the total amount wagered less all payouts to players. With respect to games of
poker, the tax is calculated based on the sums wagered which are retained by the
licensee as compensation. Effective October 1 of each year, the Colorado
Commission establishes the gaming tax for the following 12 months. Currently,
the gaming tax is: 2% on the first $2 million of these amounts; 4% on amounts
from $2 million to $4 million; 14% on amounts from $4 million to $5 million; 18%
on amounts from $5 million to $10 million; and 20% on amounts over $10 million.
The Colorado Commission requires all gaming licensees to pay an
annual device fee for each slot machine, blackjack table and poker table of $75.
The municipality of Black Hawk assesses an annual device fee of $750 per device.
There is no statutory limit on state or city device fees, which may be increased
at the discretion of the Colorado Commission or the city. In addition, a
business improvement fee of as much as $102 per device and a transportation
authority device fee of $77 per device also may apply depending upon the
location of the licensed premises in Black Hawk. The current annual business
improvement fee is $89.04.
Black Hawk also imposes taxes and fees on other aspects of the
businesses of gaming licensees, such as parking, alcoholic beverage licenses and
other municipal taxes and fees. Significant increases in these fees and taxes,
or the imposition of new taxes and fees, may occur.
Violation of the Colorado Act constitutes a class 1 misdemeanor which
may subject the violator to fines or incarceration or both. A licensee who
violates the Colorado Act or Colorado Regulations is subject to suspension of
the license for a period of up to six months, fines or both, or to license
revocation.
The Colorado Commission has enacted rule 4.5, which imposes
requirements on publicly traded corporations holding gaming licenses in Colorado
and on gaming licenses owned directly or indirectly by a publicly traded
corporation, whether through a subsidiary or intermediary company. The term
"publicly traded corporation" includes corporations, firms, limited liability
companies, trusts, partnerships and other forms of business organizations even
if created under the laws of a foreign country. Such requirements shall
automatically apply to any ownership interest held by a publicly traded
corporation, holding company or intermediary company thereof, where such
ownership interest directly or indirectly is, or will be upon approval of the
Colorado Commission, 5% or more of the entire licensee. In any event, if the
Colorado Commission determines that a publicly traded corporation, or a
subsidiary, intermediary company or holding company has the actual ability to
exercise influence over a licensee, regardless of the percentage of ownership
possessed by said entity, the Colorado Commission may require that entity to
comply with the disclosure regulations contained in Rule 4.5.
Under Rule 4.5, gaming licensees, affiliated companies and
controlling persons commencing a public offering of voting securities must
notify the Colorado Commission within 10 days of the initial filing of a
registration statement with the Securities and Exchange Commission. Licensed
publicly traded corporations are also required to send proxy statements to the
Division of Gaming within 5 days after distribution of such statement. Licensees
to whom Rule 4.5 applies must include in their articles of organization or
similar charter documents provisions that: restrict the rights of the licensees
to issue voting interests or securities except in accordance with the Colorado
Act and the Colorado Regulations; limit the rights of persons to transfer voting
interests or securities of licensees except in accordance with the Colorado Act
and the Colorado Regulations; and provide that holders of voting interests or
securities of licensees found unsuitable by the Colorado commission may, within
60 days of such finding of unsuitability, be required to sell their interests or
securities back to the issuer at the lesser of the cash equivalent of the
holders' investment or the market price as of the date of the finding of
unsuitability. Alternatively, the holders may, within 60 days after the finding
of unsuitability, transfer the voting interests or securities to a suitable
person (as determined by the Colorado Commission). Until the voting interests or
securities are held by suitable persons, the issuer may not pay dividends or
interest, the securities may not be voted, they may not be included in the
voting or securities of the issuer, and the issuer may not pay any remuneration
in any form to the holders of the securities.
Pursuant to Rule 4.5, persons who acquire direct or indirect
beneficial ownership of (i) 5% or more of any class of voting securities of a
publicly traded corporation required to include in its articles of organization
the Rule 4.5 charter language provisions, or (ii) 5% or more of the beneficial
interest in a gaming licensee directly or indirectly through any class of voting
securities of any holding company or intermediary company of a licensee (all
such persons hereinafter referred to as "qualifying persons"), shall notify the
Division of Gaming within 10 days of such acquisition, are required to submit
all requested information and are subject to a finding of suitability as
required by the Division of Gaming or the Colorado Commission. Licensees also
must notify any qualifying persons of these requirements. A qualifying person
whose interest equals 10% or more must apply to the Colorado Commission for a
finding of suitability within 45 days after acquiring such securities. Licensees
must also notify any qualifying persons of these requirements. Whether or not
notified, qualifying persons are responsible for complying with these
requirements.
A qualifying person who is an institutional investor under Rule 4.5
and who individually or in association with others, acquires, directly or
indirectly, the beneficial ownership of 15% or more of any class of voting
securities must apply to the Colorado Commission for a finding of suitability
within 45 days after acquiring such interests.
The Regulation also provides for exemption from the requirements for
a finding of suitability when the Colorado Commission finds such action to be
consistent with the purposes of the Act.
Pursuant to Rule 4.5, persons found unsuitable by the Colorado
Commission must be removed from any position as an officer, director, or
employee of a licensee, or from a holding or intermediary company. Such
unsuitable persons also are prohibited from any beneficial ownership of the
voting securities of any such entities. Licensees, or affiliated entities of
licensees, are subject to sanctions for paying dividends or distributions to
persons found unsuitable by the Colorado Commission, or for recognizing voting
rights of, or paying a salary or any remuneration for services to, unsuitable
persons. Licensees or their affiliated entities also may be sanctioned for
failing to pursue efforts to require unsuitable persons to relinquish their
interest. The Colorado Commission may determine that anyone with a material
relationship to, or material involvement with, a licensee or an affiliated
company must apply for a finding of suitability or must apply for a key employee
licensee.
The sale of alcoholic beverages in gaming establishments is subject
to strict licensing, control and regulation by state and local authorities and
requires a liquor license. Alcoholic beverage licenses are revocable and
nontransferable. State and local licensing authorities have full power to limit,
condition, suspend for as long as six months or revoke any such licenses.
Violation of state alcoholic beverage laws may constitute a criminal offense
resulting in incarceration or fines or both.
There are various classes of retail liquor licenses under the
Colorado Liquor Code. A gaming licensee may sell malt, vinous or spirituous
liquors only by the individual drink for consumption on the premises. Even
though a retail gaming licensee may be issued various classes of retail liquor
licenses, such gaming licensee may only hold liquor licenses of the same class.
An application for an alcoholic beverage license in Colorado requires notice,
posting and a public hearing before the local liquor licensing authority prior
to approval of the same. The Colorado Department of Revenue's Liquor Enforcement
Division must also approve the application.
Currently, no gaming or liquor licenses in Colorado have been granted
in connection with the Black Hawk Project. Applications have been made for a
retail gaming license and for a hotel and restaurant liquor license.
Applications for key employee gaming licenses have also been made. Associate
Person license applications have been submitted for some related companies as
required by the Division Director. Additional gaming and support license
applications will have to be made and approved prior to the opening of the
casino. Certain stockholders of the Company owning more than 5% of the common
stock are submitting information relevant to the requirement for a finding of
suitability, or exemption from such finding.
Federal Registration
ROC is required to annually file with the Attorney General of the
United States in connection with the sales, distribution, or operations of slot
machines. All requisite filings for the present year have been made.
Item 2. Properties
The Riviera complex is located on the Las Vegas Strip, occupies
approximately 26 acres and comprises approximately one-million square feet,
including 115,000 square feet of casino space, 160,000 square foot convention,
meeting and banquet facility, approximately 2,100 hotel rooms (including
approximately 169 luxury suites) in five towers, four restaurants, a buffet,
four showrooms, a lounge and approximately 2,300 parking spaces. In addition,
executive and other offices for the Riviera are located on the property.
There are 41 food and retail concessions operated under individual
leases with third parties. The leases are for periods from one year to ten years
and expire over the next five years.
The entire Riviera complex is encumbered by a first deed of trust
securing the Notes. See, "Management's Discussion And Analysis of Financial
Condition And Results of Operations."
The Company also owns the Black Hawk Land, which is a 71,000 square
foot parcel of real property in Black Hawk, Colorado.
Item 3. 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.
In March 1998 the Company was notified by Allen E. Paulson
("Paulson") that he was terminating the merger agreement dated as of September
of 1997 among the Company, and R & E Gaming Corp. and Riviera Acquisition Sub,
Inc., affiliates of Paulson. Pursuant to the merger agreement a company
controlled by Paulson was to have acquired 100% of the Company's common stock
for $15 per share, plus an interest factor. Approximately $5.8 million is being
held in an escrow account for the holders of 1,770,000 Riviera Contingent Value
Rights ("CVR's"). The escrow account was established by Mr. Paulson in
connection with the original terms of the merger. The CVR's entitle their
holders to share only in the proceeds of the funds currently in escrow. Excluded
from participating in the CVR's are Morgens Waterfall, SunAmerica, Keyport Life
and Paulson, and their affiliates and associates, who own an aggregate 3,355,000
Riviera shares.
The Company, three major stockholders of the Company and other
defendants involved in the terminated merger are in litigation with Paulson
relating to the merger agreement and related issues.
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 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 were Morgens
Waterfall, SunAmerica, Keyport Life and Paulson, and their affiliates and
associates, who own an aggregate 3,355,000 Riviera shares.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock
and Related Security Holder Matters
The Company's Common Stock began trading on the American Stock
Exchange on May 13, 1996 and was reported on the NASDAQ Bulletin Board prior to
that date. As of February 26, 1999, based upon information available to it, the
Company believes that there were approximately 1,000 beneficial holders of the
Company's Common Stock.
The Company has never paid any dividends on its Common Stock and does
not currently expect to pay any dividends (cash or otherwise) on its Common
Stock for the foreseeable future. The Company's ability to pay dividends is
primarily dependent upon receipt of dividends and distributions from ROC. In
addition, the indenture for the First Mortgage Notes restricts the Company's
ability to pay dividends on its Common Stock.
The table below sets forth the bid and ask sales prices by quarter
for the years ended December 31, 1998, 1997 and 1996, based on information
provided by certain brokers who have had transactions in the Company's Common
Stock during the year:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1998
<S> <C> <C> <C> <C>
LOW BID $10.75 $6.00 $5.75 $3.88
HIGH ASK 15.06 10.81 8.13 5.81
1997
LOW BID $ 12.88 $ 12.25 $ 12.13 $ 12.75
HIGH ASK 14.50 14.13 15.50 14.94
1996
LOW BID $ 7.50 $11.00 $14.00 $12.94
HIGH ASK 9.75 17.75 17.13 15.63
</TABLE>
On February 26, 1999, (the most recent trade date of the Company's
common stock), 4,300 shares were traded closing at $5.4375 per share.
Item 6. Selected Financial Data
The following table sets forth a summary of selected financial data
for the Company for the years ended December 31 in thousands (in thousands
except Net Income (Loss) Per Common Share):
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total Operating Revenue $159,955 $153,793 $164,409 $151,146 $153,921
Net Income (Loss) (4,057) 2,088 8,440 6,344 4,790
Net Income (Loss) Per Diluted
Common Share ($0.81) $0.40 $1.63 $1.26 $1.00
Total Assets 244,909 347,866 167,665 157,931 151,925
Long-Term Debt 179,439 177,512 109,088 110,571 113,155
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
The following table sets forth the Company's income statement data as
a percentage of net revenues (unless otherwise noted) for the Company for the
periods indicated:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
Revenues:
<S> <C> <C> <C>
Casino 48.6% 46.6% 48.9%
Rooms 24.8% 27.2% 25.7%
Food and Beverage 15.0% 14.0% 13.8%
Entertainment 13.5% 13.6% 13.2%
Other 7.0% 6.9% 6.1%
Less promotional allowances (8.7%) (8.3%) (7.7%)
------- ------- -------
Net revenues 100.0% 100.0% 100.0%
Costs and Expenses:
Casino1 58.3% 56.7% 56.9%
Rooms1 52.7% 50.8% 52.9%
Food and Beverage1 73.3% 74.6% 71.7%
Entertainment1 78.3% 82.5% 82.4%
Other1 29.7% 28.5% 29.2%
General and administrative 16.9% 17.0% 16.9%
Corporate expenses, severance pay 0.3% 0.0% 0.0%
Depreciation and amortization 7.6% 6.8% 5.0%
Total Costs and Expenses 89.8% 87.7% 85.8%
Income from operations 10.2% 12.3% 14.2%
Interest expense on 11%, $100 million notes -2.9% -7.2% -6.7%
Interest income on Treasury Bills to retire 11%, $100 million notes 1.5% 1.5% 0.0%
Interest expense, other -12.2% -4.6% -0.6%
Interest income, other 1.5% 1.3% 0.7%
Interest, capitalized 1.7% 0.5% 0.0%
Other (income) expense, net -0.8% -1.0% -0.3%
------- ------- -------
Income before provision for income taxes -1.0% 2.2% 7.8%
(Benefit) provision for income taxes -0.3% 0.9% -2.7%
------- ------ -------
Net Income before extraordinary item -0.7% 1.4% 5.1%
Extraordinary item, net of income taxes of $1.6 million -1.9% 0.0% 0.0%
------- ------- -------
Net Income (Loss) -2.5% 1.4% 5.1%
======= ======= =======
EBITDA2 margin 18.2% 19.1% 19.2%
</TABLE>
- -----------------------
1 Shown as a percentage of corresponding departmental revenue.
2 EBITDA consists of earnings before interest, income taxes, depreciation and
amortization (excluding corporate financing, severance and Paulson
Merger/litigation costs.) 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. The Company's computation of EBITDA may not be comparable
to other similarly titled measures of other companies.
<PAGE>
1998 Compared to 1997
Revenues
Net revenues increased by approximately $6.2 million, or 4.0%, from $153.8
million in 1997 to $159.9 million in 1998. Casino revenues increased by
approximately $6.0 million, or 8.4%, from $71.7 million during 1997 to $77.7
million during 1998 due primarily to a $5.5 million, or 11.9%, increase in slot
revenues as a result of the opening of Nickel Town in late 1997. Nickel Town is
designed to offer value oriented slot customers an attractive location to play
and is attracting additional walk-in customers from the Las Vegas Strip because
it competes with Circus Circus, Slots-of Fun and Westward Ho with value oriented
food, beverage and merchandise. Table games revenue increased approximately $0.9
million as the result of significant play from selected regular customers. Room
revenues decreased by approximately $2.2 million, or 5.3%. from $41.8 million
1997 to $39.6 million during 1998 as a result of a slight decrease in hotel
occupancy from 96.8% to 95.2% and a decrease in average room rate of $3.43, or
5.8%, from $58.25 in 1997 to $54.82 in 1998. Food and beverage revenues
increased approximately $2.3 million, or 10.8%, from $21.6 million 1997 to $23.9
million during 1998 due to additional covers in the bars and restaurants.
Entertainment revenues increased by approximately $650,000, or 3.1%, from $20.9
million during 1997 to $21.5 million during 1998 due to 27,000 increased covers
from 737,000 in 1997 to 764,000 in 1998. Other revenues increased by
approximately $600,000, or 5.7%, from $10.6 million during 1997 to $11.2 million
during 1998 due primarily to the Nickel Town gift shop revenues. Promotional
allowances increased by approximately $1.3 million, or 10.0%, from $12.7 million
during 1997 to $14.0 million during 1998 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 $5.6 million, or 5.7%, from $98.2 million in 1997 to $103.8
million in 1998. Casino expense increased by approximately $4.7 million, or
11.5%, from $40.6 million during 1997 to $45.3 million during 1998 and casino
expenses as a percent of casino revenue increased from 56.7% to 58.3%, due to
increased marketing costs. Room costs decreased $400,000 or 1.8% from $21.2
million in 1997 to $20.8 million in 1998, however, room costs as a percentage of
room revenues increased from 50.8% during 1997 to 52.7% during 1998 as room
revenue decreased. Food and beverage costs increased by approximately $1.4
million, or 8.8%, from $16.1 million during 1997 to $17.5 million during the
1998 period resulting from a corresponding increase in revenues. Food and
beverage costs as a percentage of food and beverage revenues decreased from
74.6% during 1997 to 73.3% during 1998 because food and beverage revenue
increased while payroll and other costs remained relatively constant.
Entertainment costs decreased by approximately $400,000, or 2.2%, from $17.2
million during 1997 to $16.8 million during 1998 and entertainment expense as a
percentage of entertainment revenues decreased from 82.5% during 1997 to 78.3%
in 1998 due to the increase in revenues in all Mardi Gras shows, special events
and the box office operation. Other expenses increased by approximately
$300,000, or 9.9%, from $3.0 million to $3.3 million due to the corresponding
increase in Nickel Town gift shop sales.
Other Operating Expenses
General and administrative expenses increased by approximately
$800,000, or 3.1%, from $26.2 million for 1997 to $27.0 million 1998 due
primarily to increased incentive and employee retention plan costs required to
retain personnel in the competitive gaming environment. As a percentage of total
net revenues, general and administrative expenses decreased from 17.0% during
the 1997 period to 16.9% during the 1998 period. Corporate expenses for
severance settlements caused by changes in the composition of the Board of
Directors and executive staff totaled $550,000 in 1998. Included were payments
for the spread on options, consulting agreements and other compensation.
Depreciation and amortization increased by approximately $1.7 million, or 15.8%,
from $10.5 million during the 1997 period to $12.1 million during the 1998
period due to a significant increase in depreciable capital expenditures for
operating assets in the twelve months ended December 31, 1998 totaling
approximately $20,000,000.
Other Income (Expense)
Interest expense, other increased by $12.4 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 now defeased 11%, $100 million
notes until June 1, 1998, when the 11%, $100 million 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 11%, $100 million notes. Interest income on these
securities was $2.3 million in 1998. Interest income, other, increased $500,000
because of the increased cash balances from the remaining proceeds of the $175.0
million notes. Capitalized interest increased $1.9 million primarily on the
Black Hawk, Colorado, and Riviera Convention Center Expansion projects.
During 1997 the Company withdrew a secondary offering due to market
conditions and, as a result, charged costs totaling $850,000 to other expense.
Also, during 1997, approximately $400,000 in merger and acquisition costs
related to the R&E Gaming Corporation Plan of Merger was charged to other
expense. In 1998, $1.2 million in costs related to the abandoned Paulson Merger
were charged to other expense.
Extraordinary Item
The 11%, $100 million notes, for which retirement monies were put
into trust 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
As a result of the additional depreciation, interest and
extraordinary item, net income decreased by approximately $6.1 million, from
$2.0 million in 1997 to a loss of $4.1 million in 1998.
EBITDA
EBITDA, as defined, decreased by approximately $300,000, or 1.0%,
from $29.4 million in 1997 to $29.1 million in 1998. During the same periods,
EBITDA margin decreased from 19.1% to 18.2% of net revenues.
1997 Compared to 1996
Revenues
Net revenues decreased by approximately $10.6 million, or 6.5%, from
$164.4 million in 1996 to $153.8 million in 1997. Casino revenues decreased by
approximately $8.8 million, or 10.9%, from $80.4 million in 1996 to $71.6
million in 1997 due to a general softness in the gaming market in Las Vegas.
Room revenues decreased by approximately $400,000, or 1.0% from $42.2 million in
1996 to $41.8 million in 1997 as a result of a decrease in hotel occupancy from
98.2% to 96.8%. The decrease in occupancy was partially offset by an increase in
ADR from $57.07 in 1996 to $58.25 in 1997. Food and beverage revenues decreased
approximately $1.0 million, or 4.8%, from $22.6 million in 1996 to $21.6 million
during 1997 due to fewer covers in the bars and restaurants. Entertainment
revenues decreased by approximately $900,000, or 4.1%, from $21.8 million during
1996 to $20.9 million during 1997, due to the reduction in number of covers for
the Splash variety show. Other revenues increased by approximately $600,000, or
5.7%, from $10.0 million during 1996 to $10.6 million during 1997 due primarily
to management fees of approximately $1.0 million for operating the Four Queens
Hotel/Casino in downtown Las Vegas. In 1996 the Company received a refund of
$576,000 from a union health and welfare trust fund for reduced premiums.
Promotional allowances remained relatively unchanged at approximately $12.6
million during 1996 and $12.7 million in 1997.
Direct Costs and Expenses of Operating Departments
Total direct costs and expenses of operating departments decreased by
approximately $6.9 million, or 6.5%, from $105.3 million in 1996 to $98.2
million in 1997. Casino expenses decreased by approximately $5.0 million, or
11.1%, from $45.7 million in 1996 to $40.7 million in 1997, and casino expenses
as a percent of casino revenue decreased slightly from 56.9% to 56.7%. Room
costs decreased approximately $1.0 million, or 5.0%, from $22.3 million in 1996
to $21.3 million in 1997, and room costs as a percentage of room revenues
decreased from 52.9% during 1996 to $50.8% during 1997. Payroll and linen costs
were reduced due to the lower occupancy. Food and beverage cost decreased by
approximately $100,000, or 0.5%, from $16.2 million in 1996 to $16.1 million in
1997 resulting from a corresponding decrease in revenues. However, food and
beverage costs as a percentage of food and beverage revenues increased from
71.7% during 1996 to 74.6% during l997 because of reduced beverage promotional
revenue from the casino bars. Entertainment costs decreased by approximately
$700, 000, or 4.0% from $17.9 million during 1996 to $17.2 million during 1997
due to the reduced expenses associated with lower covers in Splash.
Entertainment expense as a percentage of entertainment revenues increased from
82.4% in 1996 to 82.5% in 1997 due to a decrease in revenues. Other expenses
increased by approximately $100,000, or 3.3% from $2.9 million to $3.0 million
due to the corresponding increase in other revenues.
Other Operating Expenses
General and administrative expenses decreased by approximately $1.6
million, or 5.6%, from $27.8 million in 1996 to $26.2 million in 1997 due to
decreased incentive plan costs associated with lower earnings. As a percentage
of total net revenues, general and administrative expenses increased from 16.9%
in 1996 to17.0% in l997 as a result of spreading of fixed costs over a smaller
revenue base in the 1997 period. Depreciation and amortization increased by
approximately $2.3 million, or 27.7%, from $8.2 million in 1996 to $10.5 million
in 1997 due to capital expenditures of $21.0 million during the 1997 period.
Other Income (Expense)
Interest expense, other, increased by $6.1 million because the
Company issued 10% First Mortgage Notes of $175.0 million on August13, 1997, in
addition to carrying the 11%, $100 million notes until June 1, 1998, when they
were redeemed. The Company used part of the proceeds of the 10% First Mortgage
Notes to purchase United States Government securities at a cost of $104.3
million which were deposited into an irrevocable trust held to retire the 11%,
$100 million notes. Interest income on these securities was $2.3 million in
1997. Interest income, other, increased approximately $759,000, or 65.0%, from
$1.2 million to $1.9 million 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 its secondary
offering due to market conditions and, as a result, charged costs totaling
$850,000 to other expenses. Also, during 1997 approximately $400,000 in merger
and acquisition costs related to the Paulson Merger were charged to other
expense.
Net Income
As a result of the factors discussed above and a decrease in income
taxes of approximately $3.1 million at a 34.5% effective rate, net income
decreased by approximately $6.4 million, or 75.3%, from $8.4 million during 1996
to $2.1 million during 1997.
EBITDA
EBITDA , as defined, decreased by approximately $2.1 million, or
6.8%, from $31.5 million in 1996 to $29.4 million in 1997. During the same
periods, EBITDA margins were 19.2% and 19.1% respectively.
Liquidity and Capital Resources
The Company had cash and cash equivalents of $48.9 million at
December 31, 1998, which was $16.3 million less than balances at December 31,
1997, due primarily to capital expenditures of $34.1 million.
The Company's net cash from operating activities was approximately $
8.1 million for 1998 compared to $18.6 million in 1997. Cash flows used in
investing activities were $28.8 million in 1998 and $42.8 million in 1997. Cash
flows from financing activities were $4.0 million in 1998 and $63.9 million in
1997. EBITDA, as defined, for 1998 and 1997 was $29.1 million and $29.4 million,
respectively. Management believes that cash flow from operations, combined with
the $48.9 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, assuming that $40 million in project and equipment financing is
available for the Black Hawk casino development. Should the Company not be able
to finance all of the $40 million required for Black Hawk, capital expenditures
in Las Vegas will be reduced or financed, if necessary.
Scheduled interest payments on the 11%, $100 million notes were
provided by the use of the U. S. Treasury Bills held to retire the 11%, $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%, $100 million notes in December 1997 and the interest, principal and
premium due June 1, 1998, when the retirement of the 11%, $100 million notes was
accomplished. Substantially all of the covenants on the 11%, $100 million notes
were released as a result of the "contractual defeasance" in August of 1997. The
debt was redeemed on June 1, 1998, resulting in an extraordinary charge, net of
tax, of $3 million.
On August 13, 1997, the Company raised $175 million in 10% Notes due
August 15, 2004. Cash flow from operations is not expected to pay 100% of the
principal at maturity. Repayment will be dependent upon refinancing, and 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; (v) 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 believes that as of December 31, 1998, the
Company was in compliance with the covenants.
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, $19.8 million in 1997 and $23.6 million in 1998 which
excludes the Black Hawk project expenditures of $27.1 million for 1997 and 1998.
Management has budgeted approximately $17.3 million for capital expenditures in
Las Vegas for 1999 including the completion of the convention center expansion.
The Company expects to finance the majority of such capital expenditures from
cash flow and equipment financing.
In August 1997, the Company, through its indirect 100% owned
subsidiary, Riviera Black Hawk, Inc., purchased approximately 71,000 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 early 2000. As of December 31,
1998, the company had invested $27.1 million 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 December 31, 1998, the Company has
incurred costs of approximately $75,000 (primarily for internal labor) related
to the system applications and anticipates spending an additional $200,000 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. The
Company, through correspondence from major vendors or statements obtained at
Year 2000 disclosure sites of major vendors, has been advised that such vendors'
software or products are either Year 2000 compliant or should be Year 2000
compliant before December 31, 1999. 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.
As a result of various external risk factors, the Company could be
adversely impacted and the effect could be material regardless of the readiness
of our own systems. The most reasonable worst case scenario - if one or more of
our utility providers (of electric, natural gas, water, sewer) experiences Year
2000 problems that impact their ability to provide their services, our
operations could be adversely impacted. Furthermore, disruption of services for
any of the markets for our customers could result in an adverse change in
customer visits from the affected market. Automobile and airline traffic to and
from the Las Vegas market could be disrupted by Year 2000 problems, which would
limit the ability of potential customers to visit our property. The possible
long-term disruption of banking services due to Year 2000 problems could
ultimately impair our daily financial transactions, including the deposit of
monies and processing of checks. Furthermore, credit card processing and
customers' access to cash via automated teller machines could also be disrupted.
The most likely worst case scenario is a failure of utility companies to deliver
services. Under that scenario, the entire Las Vegas hotel and casino industry
would be closed until the utilities were restored. The contingency plan is to
provide minimal services to the guests until the utilities can be restored.
Planning for the Year 2000 Problem, including contingency planning,
is significantly complete and will be revised, if necessary.
Forward Looking Statements
The Private Securities Litigation Reform Act of 1998 provides a "safe
harbor" for certain forward-looking statements. Certain matters discussed in
this filing could be characterized as forward-looking statements. These
forward-looking statements generally relate to the Company's plans and
objectives for future operations and are based upon management's reasonable
estimates of future results or trends. The factors that may affect the Company's
expectations of its operations, markets and services include, among others, the
following: local and regional economic and business conditions; changes or
developments in laws, regulations or taxes; actions taken or omitted to be taken
by third parties, including the Company's customers, suppliers, competitors and
stockholders, as well as legislative, regulatory, judicial and other
governmental authorities; competition; the loss of any licenses or permits or
the Company's failure to renew gaming or liquor licenses on a timely basis;
delays in completing the construction of the casino in Black Hawk, Colorado due
to casualty, weather or mechanical failure, or labor disputes or work stoppages;
changes in business strategy, capital improvements or development plans;
availability of additional capital to support capital improvements and
development; and other factors discussed under the captions "Business" or
"Management's Discussion and Analysis of Financial Condition and Results of
Operations,"or elsewhere in this Form 10-K.
Recently Adopted Accounting Standards
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," which is effective for fiscal years beginning after December 15, 1997.
This statement required businesses to disclose comprehensive income and its
components in their financial statements. The Company has no items of
comprehensive income.
The FASB issued SFAS No. 131, "Segment Reporting," which is effective
for fiscal years ending after December 31, 1997. This statement requires
companies to identify and disclose certain information regarding segments based
upon the operating decisions of certain of the Company's management. The Company
believes that it has complied with the requirements of the FASB.
Recently Issued Accounting Standards
The FASB issued SFAS No. 133, "Accounting for Derivatives," which is
effective for fiscal years beginning after June 15, 1999. This statement defines
derivatives and requires qualitative disclosure of certain financial and
descriptive information about a company's derivatives. The Company will adopt
SFAS No. 133 in the year ending December 31, 2000. Management has not finalized
its analysis of this SFAS or the impact on the Company.
The American Institute of Financial Accountants' Accounting Standards
Executive Committee issued Statement of Position No. 98-5, "Reporting on the
Costs of Start-Up Activities." This standard provides guidance on the financial
reporting costs for start-up costs and organization costs. This standard
requires cost of start-up and organization costs to be expensed as incurred, and
is effective for fiscal years beginning after December 15, 1998, although
earlier application is encouraged. Management is evaluating the impact that this
standard could have on the Company's consolidated financial statements.
Item 7a
Quantitative and Qualitative Disclosure About Market Risk
Market risks relating to our operations result primarily from changes in
interest rates. We invest our cash and cash equivalents in U.S. Treasury Bills
with maturaties of 30 days or less.
As of December 31, 1998, we had $174.5 million in borrowings. The borrowings
include $175 million in bonds maturing in 2004. Interest under the bonds is
based on a fixed rate of 10%. The borrowings also include $.7 million in a
special improvement district bond offering with the City of Black Hawk. The
Company's share of the debt on the SID bonds of $1,470,000 when the project is
complete, is payable over ten years beginning in January 2000. The special
improvement district bonds bear interest at 5%. Other borrowings relate to
leases.
<PAGE>
Interest rate Sensitivity
Principal (Notational Amount by Expected Maturity)
Average Interest Rate
Fair
(Amounts in Value at
thousands) 1999 2000 2001 2002 2003 Thereafter Total 12/31/98
- ---------------- ---- ---- ---- ---- ---- ---------- ----- --------
Long term
debt including
current portion
________________
Equipment
loans and
capital leases $363 $307 $110 $108 $82 $970 $970
------------------------------------------------------------
Average interest
rate 7.5% 7.5% 5.6% 5.6% 5.6%
________________
Special
Improvement
District Bonds $112 $120 $127 $132 $979 $1,470 $1,470
------------------------------------------------------------
Average interest
rates 5.0% 5.0% 5.0% 5.0% 5.0%
________________
10% First
Mortgage Notes $173,271 $173,271 $156,334
------------------------------------------------------------
Average interest
rate 10.0% 10.0%
________________
------------------------------------------------------------
<PAGE>
Item 8. Financial Statements and Supplementary Data
Financial Statements for the Years Ended
December 31, 1998, 1997 and 1996 and
Independent Auditors' Report
RIVIERA HOLDINGS CORPORATION
TABLE OF CONTENTS
Page
INDEPENDENT AUDITORS' REPORT 28
CONSOLIDATED FINANCIAL STATEMENTS:
Balance Sheets as of December 31, 1998 and 1997 29
Statements of Operations for the Years
Ended December 31, 1998, 1997 and 1996 30
Statements of Stockholders' Equity for Years
Ended December 31, 1998, 1997 and 1996 32
Consolidated Statements of Cash Flows for Years
Ended December 31, 1998, 1997 and 1996 33
Notes to Consolidated Financial Statements 35
<PAGE>
INDEPENDENT AUDITORS' REPORT
Riviera Holdings Corporation
Las Vegas, Nevada
We have audited the accompanying consolidated balance sheets of Riviera Holdings
Corporation and subsidiaries (the "Company") as of December 31, 1998 and 1997,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 1998
and 1997, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche, LLP
Las Vegas, Nevada
February 19, 1999
<PAGE>
<TABLE>
<CAPTION>
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(In thousands, except share amounts)
- -----------------------------------------------------------------------------------------------------------------------
ASSETS 1998 1997
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 48,883 $ 65,151
Accounts receivable, net 5,389 4,938
Inventories 2,727 3,509
Prepaid expenses and other assets 4,028 4,554
------------- -------------
Total current assets 61,027 78,152
U.S. TREASURY BILLS HELD TO RETIRE $100 MILLION NOTES 106,596
PROPERTY AND EQUIPMENT, Net 175,622 153,611
OTHER ASSETS, Net 8,260 9,507
------------- -------------
TOTAL $ 244,909 $ 347,866
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 363 $ 364
Accounts payable 11,865 10,890
Accrued interest, other 6,563 6,570
Accrued expenses 10,053 8,795
------------- -------------
Total current liabilities 28,844 26,619
------------- -------------
DEFERRED INCOME TAX LIABILITY, Net 3,123 5,958
------------- -------------
$100 MILLION NOTES TO BE RETIRED BY THE U.S. TREASURY BILLS 100,000
------------- -------------
OTHER LONG-TERM LIABILITIES 4,933 4,076
------------- -------------
LONG-TERM DEBT, Net of current portion 174,506 173,436
------------- -------------
COMMITMENTS AND CONTINGENCIES (Note 12)
STOCKHOLDERS" EQUITY:
Common stock ($.001 par value; 20,000,000 shares authorized; 5,073,376 and
4,903,680 shares at December 31, 1998 and 1997, respectively,
issued and outstanding 5 5
Additional paid-in capital 13,457 13,711
Treasury stock (34,300 shares at December 31, 1998) (167)
Notes receivable from employee stockholders (3) (207)
Retained earnings 20,211 24,268
------------- -------------
Total stockholders" equity 33,503 37,777
------------- -------------
TOTAL $ 244,909 $ 347,866
============= =============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1998, 1997 AND
1996 (In thousands, except per share and share amounts)
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
REVENUES:
<S> <C> <C> <C>
Casino $ 77,676 $ 71,624 $ 80,384
Rooms 39,607 41,812 42,246
Food and beverage 23,940 21,603 22,641
Entertainment 21,543 20,895 21,778
Other 11,155 10,556 9,987
-------------- ------------- -------------
Total 173,921 166,490 177,036
Less promotional allowances 13,966 12,697 12,627
-------------- ------------- -------------
Net revenues 159,955 153,793 164,409
-------------- ------------- -------------
COSTS AND EXPENSES:
Direct costs and expenses of operating departments:
Casino 45,293 40,620 45,699
Rooms 20,859 21,235 22,344
Food and beverage 17,539 16,118 16,223
Entertainment 16,861 17,235 17,956
Other 3,308 3,011 2,916
Other operating expenses:
General and administrative 27,028 26,211 27,778
Corporate expenses, severance pay 551
Depreciation and amortization 12,137 10,485 8,212
-------------- ------------- -------------
Total costs and expenses 143,576 134,915 141,128
-------------- ------------- -------------
INCOME FROM OPERATIONS 16,379 18,878 23,281
-------------- ------------- -------------
OTHER INCOME (EXPENSE):
Interest expense on $100 million notes (4,642) (11,067) (11,063)
Interest income on Treasury Bills held to retire $100 million notes 2,334 2,267
Interest expense, other (19,545) (7,908) (1,022)
Interest income, other 2,440 1,926 1,167
Interest capitalized 2,679 771
Other, net (1,229) (1,470) 505
-------------- ------------- -------------
Total other expense (17,963) (15,481) (10,413)
-------------- ------------- -------------
INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR TAXES AND
EXTRAORDINARY ITEM (1,584) 3,397 12,868
PROVISION (BENEFIT) FOR INCOME TAXES (533) 1,309 4,428
-------------- ------------- -------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (1,051) 2,088 8,440
EXTRAORDINARY ITEM (net of income tax of $1.6 million) (3,006)
-------------- ------------- -------------
NET INCOME (LOSS) $ (4,057) $ 2,088 $ 8,440
============== ============= =============
</TABLE>
See notes to consolidated financial statements (Continued)
<PAGE>
<TABLE>
<CAPTION>
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1998, 1997 AND
1996 (In thousands, except per share and share amounts)
- --------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
EARNINGS PER SHARE DATA:
Earnings (loss) per share before extraordinary item:
<S> <C> <C> <C>
Basic $ (0.21) $ 0.42 $ 1.73
============== ============= ==============
Diluted $ (0.21) $ 0.40 $ 1.63
============== ============= ==============
Earnings (loss) per share for extraordinary item:
Basic $ (0.60) $ - $ -
============== ============= ==============
Diluted $ (0.60) $ - $ -
============== ============= ==============
Earnings (loss) per share:
Basic $ (0.81) $ 0.42 $ 1.73
============== ============= ==============
Diluted $ (0.81) $ 0.40 $ 1.63
============== ============= ==============
Weighted-average common shares outstanding 5,037 4,913 4,880
============== ============= ==============
Weighted-average common and common equivalent shares 5,037 5,214 5,169
============== ============= ==============
</TABLE>
See notes to consolidated financial statements.
(Concluded)
<PAGE>
<TABLE>
<CAPTION>
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1998,
1997 AND 1996 (In thousands, except share amounts)
- -----------------------------------------------------------------------------------------------------------------------
Notes
Receivable
Additional from
Shares Common Paid-In Retained Treasury Employee
Outstanding Stock Capital Earnings Stock Shareholders Total
BALANCES,
<S> <C> <C> <C> <C> <C> <C> <C>
JANUARY 1, 1996 4,800,000 $ 5 $ 12,537 $ 13,740 $ 26,282
Stock issued under employee
stock purchase plan 137,000 1,543 $ (1,383) 160
Collections of stockholders"
receivables 332 332
Refunds on employee
stock purchases (17,600) (198) 198
Director compensation plan 3,103 37 37
Net income 8,440 8,440
---------- ------ ----------- ----------- ---------- -----------
BALANCES,
DECEMBER 31, 1996 4,922,503 5 13,919 22,180 (853) 35,251
Stock issued under employee
stock purchase plan 6,200 71 (71)
Collections of stockholders'
receivables 425 425
Refunds on employee
stock purchases (25,900) (292) 292
Director compensation plan 877 13 13
Net income 2,088 2,088
---------- ------ ----------- ----------- ---------- -----------
BALANCES,
DECEMBER 31, 1997 4,903,680 5 13,711 24,268 (207) 37,777
Stock issued under executive
option plan 269,096 480 480
Collections and refunds of
stockholders' receivables, net (530) (530)
Purchase of treasury stock (34,300) $ (167) (167)
Refunds on employee stock
purchases (65,100) (734) 734
Net loss (4,057) (4,057)
---------- ------ ----------- ----------- --------- ---------- -----------
BALANCES,
DECEMBER 31, 1998 5,073,376 $ 5 $ 13,457 $ 20,211 $ (167) $ (3) $ 33,503
========== ====== =========== =========== ========= ========== ===========
</TABLE>
See notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (In thousands)
- -----------------------------------------------------------------------------------------------------------------------
1998 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (Loss) $ (4,057) $ 2,088 $ 8,440
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 12,137 10,485 8,212
Provision for bad debts 782 (16) 524
Provision for gaming discounts (76) (84) 232
Gain on disposition of long-term debt, net (505)
Extraordinary item, call premium to retire $100 million notes 4,624
Interest income on U.S. Treasury Bills to retire $100 million notes (2,334)
Interest expense, $100 million notes 4,642 11,067 12,085
Interest paid on $100 million notes (4,614) (11,420) (12,072)
Interest expense, other 19,545 7,874
Interest paid, other (17,688)
Interest capitalized on construction projects (2,679) (771)
Changes in operating assets and liabilities:
Increase in U.S. Treasury Bills purchased to retire $100 million notes (2,267)
(Increase) decrease in accounts receivable, net (1,157) 276 (1,535)
Decrease (increase) in inventories 782 (470) (853)
Decrease (increase) in prepaid expenses and other assets 526 (1,862) (90)
(Decrease) increase in accounts payable (774) 2,167 166
Increase (decrease) in accrued expenses 1,258 (726) 104
Increase (decrease) in current income taxes payable (413) 362
(Decrease) increase in deferred income taxes payable (2,835) 1,332 1,603
Decrease in slot annuities payable (153) 253 578
Increase in non-qualified pension plan obligation to CEO upon retire 600 755 1,039
------------- --------------- -------------
Net cash provided by operating activities 8,529 18,268 18,290
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment, other (21,432) (19,752) (14,923)
Capital expenditures - Black Hawk, Colorado (9,842) (17,353)
Interest capitalized on construction projects 2,679 771
Increase in other assets - Black Hawk, Colorado (27) (100)
(Increase) decrease in other assets (208) (6,346) 1,906
------------ ---------------- -------------
Net cash used in investing activities (28,830) (42,780) (13,017)
------------ ---------------- -------------
</TABLE>
See notes to consolidated financial statements.
(Continued)
<PAGE>
<TABLE>
<CAPTION>
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (In thousands)
- -----------------------------------------------------------------------------------------------------------------------
1998 1997 1996
CASH FLOWS FROM FINANCING ACTIVITIES:
<S> <C> <C> <C>
Proceeds from long-term borrowings $ 172,848 $ 209
U.S. Treasury Bills sold (purchased) to retire $100 million notes $ 108,930 (104,329)
Payments to retire $100 million notes with call premium (104,313)
Payments on long-term borrowings (364) (5,041) (2,226)
Purchase of treasury stock (167)
Proceeds from issuance of stock to employees and directors 13 197
Net collections, cancellations employee stock purchase plan and exercise of employee
stock options (50) 425 332
------------- ------------- -----------
Net cash provided by (used in) financing activities 4,036 63,916 (1,488)
------------- ------------- -----------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (16,268) 39,404 3,785
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 65,151 25,747 21,962
------------- ------------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 48,883 $ 65,151 $ 25,747
============= ============= ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Income taxes paid $ - $ 1,860 $ 2,463
============= ============= ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
Stock issued to employees for notes receivable $ - $ 7 $ 1,383
============= ============= ===========
Noncash reductions of long-term debt $ - $ 845
============= ===========
Property acquired with debt and accounts payable $ 2,874
=============
</TABLE>
See notes to consolidated financial statements.
(Concluded)
<PAGE>
RIVIERA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - Riviera Holdings Corporation and its wholly owned
subsidiary, Riviera Operating Corporation ("ROC"), (together, the "Company"),
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 1995, RGM incorporated in the state of Nevada as
a wholly owned subsidiary of ROC.
All significant subsidiaries are consolidated and inter company transactions
eliminated in this presentation.
Nature of Operations - The primary line of business of the Company is the
operation of the Riviera Hotel and Casino (the "Riviera") on the Strip in Las
Vegas, Nevada. The Company, through its gaming management subsidiary, also
manages the Four Queens Hotel and Casino (owned by Elsinore Corporation) in
downtown Las Vegas (see Note 13). Currently, the Company is developing a casino
in Black Hawk, Colorado, through Riviera Black Hawk, Inc., ("RBH") a wholly
owned subsidiary of ROC. Riviera Gaming Management of Colorado, Inc. is a wholly
owned subsidiary of RGM, and will manage the casino when completed.
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, recording casino and other revenues, and 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 subsidiaries, ROC and RGM, and their
related subsidiary entities. All material intercompany accounts and transactions
have been eliminated.
Cash and Cash Equivalents - All highly liquid investments securities with a
maturity of three months or less when acquired are considered to be cash
equivalents. The Company accounts for investment securities in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities."
The Company's investment securities, along with certain cash and cash
equivalents that are not deemed securities under SFAS No. 115, are carried on
the consolidated balance sheets in the cash and cash equivalents category. SFAS
No. 115 addresses the accounting and reporting for investments in equity
securities that have readily determinable fair values and for all investments in
debt securities, and requires such securities to be classified as either held to
maturity, trading, or available for sale.
Management determines the appropriate classification of its investment
securities at the time of purchase and reevaluates such determination at each
balance sheet date. Held-to-maturity securities are required to be carried at
amortized cost. At December 31, 1998 and 1997, securities classified as held to
maturity comprised debt securities issued by the U.S. Treasury and other U.S.
government corporations and agencies, and repurchase agreements, with an
amortized cost of $35,781,000 and $50,534,000, respectively, maturing in three
months or less.
Inventories - Inventories consist primarily of food, beverage, gift shop, and
promotional inventories; and are stated at the lower of cost (determined on a
first-in, first-out basis) or market.
Property and Equipment - Property and equipment are stated at cost, and
capitalized lease assets are stated at the present value of future minimum lease
payments at the date of lease inception. Interest incurred during construction
<PAGE>
of new facilities or major additions to facilities is capitalized and amortized
over the life of the asset. Depreciation is computed by the straight-line method
over the shorter of the estimated useful lives or lease terms, if applicable, of
the related assets, which range from 5 for certain gaming equipment to 40 years
for buildings. The costs of normal maintenance and repairs are charged to
expense as incurred. Gains or losses on disposals are recognized as incurred.
The Company periodically assesses the recoverability of property, plant and
equipment and evaluates such assets for impairment whenever events or
circumstances indicate that carrying amount of an asset may not be recoverable.
Asset impairment is determined to exist if estimated future cash flows,
undiscounted and without interest charges, are less than the carrying amount.
Other Assets - Other assets include bond offering costs and commissions, which
are amortized over the life of the debt, and are included in interest expense.
Restricted Cash for Periodic Slot Payments - At December 31, 1998 and 1997, the
Company had interest-bearing deposits with a commercial bank in the amount of
$55,000 and $208,000, respectively, which are restricted as to use. These
amounts represent deposits required by the State of Nevada Gaming Control Board
to fund periodic slot payments due customers through the year 2000 and are
included in other noncurrent assets.
Stock-Based Compensation - The effect of stock options in the income statement
is reported in accordance with Accounting Principles Board Statement No. 25,
"Accounting for Stock Issued to Employees." The Company has adopted the
disclosures-only provision of SFAS No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized for
unissued stock options in the stock option plan (see Note 15).
Fair Value Disclosure as of December 31, 1998 and 1997:
Cash and Cash Equivalents, Accounts Receivable, Restricted Cash for Periodic
Slot Payments, Accounts Payable, and Accrued Liabilities - The carrying
value of these items is a reasonable estimate of their fair value.
Long-Term Debt - The fair value of the Company's long-term debt (including
the $100 million Notes to be retired by the U.S. Treasury Bills) is
estimated based on the quoted market prices for the same or similar issues
or on the current rates offered to the Company for debt of the same
remaining maturities. Based on the borrowing rates currently available to
the Company for debt with similar terms and average maturities, the
estimated fair value of long-term debt is approximately $158,774,000 and
$276,638,000 in 1998 and 1997, respectively.
Revenue Recognition
Casino Revenue - The Company recognizes, as gross revenue, the net win
from gaming activities, which is the difference between gaming wins and
losses.
Room Revenue, Food and Beverage Revenue, Entertainment Revenue and Other
Revenue - The Company recognizes room, food and beverage, entertainment and
other revenue at the time that goods or services are provided.
Promotional Allowances - Promotional allowances consist primarily of
accommodations, entertainment, and food and beverage services furnished without
charge to customers. The retail value of such services is included in the
respective revenue classifications and is then deducted as promotional
allowances.
The estimated costs of providing promotional allowances are classified as costs
of the casino operating department through interdepartmental allocations. These
allocations for the years ended December 31, 1998, 1997 and 1996, are as follows
(amounts in thousands):
1998 1997 1996
Food and beverage $ 6,271 $ 5,759 $ 6,364
Rooms 1,698 1,442 1,209
Entertainment 1,518 903 922
--------- ----------- -----------
Total costs allocated to casino $ 9,487 $ 8,104 $ 8,495
========= =========== ===========
Federal Income Taxes - The Company and its subsidiaries file a consolidated
federal tax return. The Company accounts for income taxes in accordance with
SFAS No. 109, "Accounting for Income Taxes." SFAS No. 109 requires
<PAGE>
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Deferred income taxes reflect the net tax effects of (i) temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes; and (ii)
operating loss and tax credit carryforwards.
Estimates and Assumptions - The preparation of 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.
Reclassifications - Certain reclassifications have been made to the 1997 and
1996 financial statements to conform to the current year presentation. These
reclassifications had no effect on the Company's net income.
Recently Adopted Accounting Standards - The Financial Accounting Standards Board
("FASB") issued SFAS No. 130, "Reporting Comprehensive Income," which is
effective for fiscal years beginning after December 15, 1997. This statement
required businesses to disclose comprehensive income and its components in their
financial statements.
The Company has no items of comprehensive income.
The FASB issued SFAS No. 131, "Segment Reporting," which is effective for fiscal
years ending after December 31, 1997. This statement requires companies to
identify and disclose certain information regarding segments based upon the
operating decisions of certain of the Company's management. The Company believes
that it has complied with the requirements of this SFAS.
Recently Issued Accounting Standards - The FASB issued SFAS No. 133, "Accounting
for Derivatives," which is effective for fiscal years beginning after June 15,
1999. This statement defines derivatives and requires qualitative disclosure of
certain financial and descriptive information about a company's derivatives. The
Company will adopt SFAS No. 133 in the year ending December 31, 2000. Management
has not finalized its analysis of this SFAS or the impact on the Company.
The American Institute of Certified Public Accountants' Accounting Standards
Executive Committee 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.
Management is evaluating the impact that this standard could have on the
Company's future consolidated financial statements.
2. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following at December 31 (in thousands):
1998 1997
Casino $ 3,492 $ 2,211
Hotel 3,211 3,115
Other 158
--------- ---------
Total 6,703 5,484
Allowance for bad debts and discounts (1,314) (546)
Ending balance $ 5,389 $ 4,938
========= =========
<PAGE>
Changes in the casino and hotel allowance for bad debts and discounts for the
years ended December 31, 1998, 1997 and 1996, consist of the following (in
thousands):
1998 1997 1996
Beginning balance $ 546 $ 646 $ 741
Write-offs (391) (438) (912)
Recoveries 81 49 61
Provision for bad debts 1,154 372 524
Provision for gaming discounts (76) (83) 232
---------- ---------- ----------
Ending balance $ 1,314 $ 546 $ 646
========== ========== ==========
3. PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other assets consist of the following at December 31 (in
thousands):
1998 1997
Prepaid gaming taxes $ 1,209 $ 1,286
Prepaid federal income taxes 1,092 1,190
Prepaid insurance 431 263
Other prepaid expenses 1,296 1,815
--------- ---------
Total $ 4,028 $ 4,554
========= =========
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31 (in thousands):
1998 1997
Land and improvements $ 37,638 $ 36,751
Buildings and improvements 80,381 80,322
Equipment, furniture, and fixtures 71,238 67,793
Construction in progress 32,083 2,326
------------ ------------
Total property and equipment 221,340 187,192
Accumulated depreciation (45,718) (33,581)
------------ ------------
Net property and equipment $ 175,622 $ 153,611
============ ============
In 1998 and 1997, approximately $2,679,000 and $771,000, respectively, in
interest costs were capitalized on construction projects. Substantially all of
the Company's property and equipment is pledged as collateral to secure debt
(see Note 8). Repairs and maintenance that do not significantly improve the life
of fixed assets are expensed as incurred. Costs for significant improvements
that extend the expected life of fixed assets more than one year are capitalized
and depreciated over the remaining extended life using a straight line method of
depreciation.
<PAGE>
5. OTHER ASSETS
Other assets consist of the following at December 31 (in thousands):
1998 1997
Deposits $ 163 $ 725
Bond offering costs and commissions, net 6,366 7,327
Other 1,676 1,247
Restricted cash for periodic slot payments 55 208
---------- ----------
Total $ 8,260 $ 9,507
========== ==========
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable consist of the following at December 31 (in thousands):
1998 1997
Outstanding chip and token liability $ 495 $ 681
Casino account deposits 1,055 203
Miscellaneous gaming 589 716
Total liabilities related to gaming activities 2,139 1,600
Accounts payable to vendors 6,516 7,944
Hotel deposits 1,119 969
Construction payables 1,749
Other 342 377
----------- ------------
Total $ 11,865 $ 10,890
=========== ============
Accrued expenses consist of the following at December 31 (in thousands):
1998 1997
Payroll, related payroll taxes, and employee benefits $ 5,919 $ 5,593
Incentive, retention, and profit sharing plans 2,797 1,982
Other 1,337 1,220
----------- ---------
Total $ 10,053 $ 8,795
=========== =========
7. OTHER LONG-TERM LIABILITIES
Other long-term liabilities consist of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>
1998 1997
Periodic slot payments due to customers through 2000, pre-funded by
<S> <C> <C>
restricted cash (see Note 1) $ 55 $ 208
Nonqualified pension plan obligation to the CEO of the Company, payable
in 20 quarterly installments upon expiration of his employment contract,
plus accrued interest 4,878 3,868
----------- -----------
Total other long-term liabilities $ 4,933 $ 4,076
=========== ===========
</TABLE>
<PAGE>
8. LONG-TERM DEBT
Long-term debt consists of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1998 1997
10% First Mortgage Notes maturing on August 15, 2004, bearing interest payable
semi-annually on February 15 and August 15 of each year, redeemable beginning
August 1, 2001, at 105%; 2002 at 102.5%; and 2003 and thereafter at 100%.
These notes are collateralized by the land and physical structures comprising
the
<S> <C> <C>
Riviera Hotel and Casino $ 173,271 $ 172,963
5%Special Improvement District Bonds - issued by the City of Black Hawk, Black
Hawk, Colorado, in the amount of $2,940,000 in July 1998. Bond proceeds will
be used to finance certain road improvements and other infrastructure projects
that will benefit the Riviera Black Hawk property and the Isle of Capri, an
adjacent casino. As of December 31, 1998, approximately $1,370,000 had been
expended. Riviera Black Hawk is responsible to repay 50%
of the obligation 687
Capitalized lease obligations (see Note 11) 473 741
5.6% note payable to computer manufacturer in monthly installments of $8,835,
including interest through August 2003, for a computer
system and related peripherals 438
8.5% unsecured, promissory notes in the original principal amount of
$441,262, payable monthly and maturing December 31, 1998 96
----------- -----------
Total long-term debt 174,869 173,800
Current maturities by terms of debt (363) (364)
----------- -----------
Total $ 174,506 $ 173,436
=========== ===========
</TABLE>
Maturities of long-term debt for the year ending December 31, 1998 are as
follows (in thousands):
1999 $ 363
2000 419
2001 230
2002 235
2003 214
2004 173,271
Thereafter 137
---------------
Total $ 174,869
===============
During the fourth quarter of 1996 the Company restructured and retired certain
of its long-term debt resulting in recognition of other income, net, of
$505,000.
Other income (expense) for the year ended December 31, 1997, includes $850,000
of costs for a canceled secondary offering.
In February 1997, the Company entered into a $15.0 million, five-year reducing
revolving line of credit (the "Credit Facility"). The Credit Facility bears
interest at prime plus 0.5% or LIBOR plus 2.9%. The Company has not utilized
this line of credit. The Credit Facility was modified as a result of the 10%
First Mortgage Notes and the proposed Paulson Merger (see Note 12). The
modifications included an increase in the allowable funded debt-to-EBITDA ratio
to 4.75 to one. The Company is not currently meeting this requirement and,
therefore, cannot draw down on the Credit Facility at this time. The Credit
Facility is callable upon a change in control other than the Merger.
On August 13, 1997, the Company issued 10% First Mortgage Notes (the "10%
Notes") with a principal amount of $175 million dollars. The 10% Notes were
issued at a discount in the amount of $2.2 million. The discount is being
accreted over the life of the note on a straight-line basis. The 10% Note
Indenture contains certain covenants that 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 (v) 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 certain long-term debt. As described in Note 9, a portion of the proceeds
was invested in U.S. Treasury Notes to pay the 11% $100 Million Notes. The
Company has registered under the Securities Act of 1933, as amended, securities
identical to the 10% Notes. On January 8, 1998, the Company completed an
exchange offer for such registered securities for the 10% Notes effective
January 1, 1998.
The 10% Notes are unconditionally guaranteed by all existing and future
restricted subsidiaries of the Company, which will not initially include Riviera
Black Hawk, Inc. ("RBH"). RBH will become collateral for the 10% First Mortgage
Notes if certain consolidated operating ratios are met. As of December 31, 1998,
RBH had no operations. At December 31, 1998, RBH only had assets of
approximately $27.1 million, which represents the cost of the land for the Black
Hawk Casino project and construction in progress. Therefore, the Company has not
included separate financial information for the guarantors as of December 31,
1998. The Company intends to disclose such additional information in the future
as the subsidiary develops.
The Company has credit facilities totaling $1,100,000 for letters of credit
issued periodically to foreign vendors for purchases of merchandise. The letters
require payment upon presentation of a valid voucher.
9. $100 MILLION NOTES RETIRED BY THE U.S. TREASURY BILLS
On August 13, 1997, the Company used part of the proceeds from the 10% Notes to
purchase United States Government Securities (the "Securities") at a cost of
$109.8 million, which was deposited into an irrevocable trust. These Securities,
together with interest that was earned by the Securities, was used to pay the
principal, interest from August 13, 1997 to June 1, 1998, and call premium of
$4,313,000 due on the 11% $100 Million Notes on June 1, 1998, which was the
earliest date the 11% $100 Million 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 expenses from the 10% Notes and from the 11%
$100 Million Notes are reported separately on the consolidated statements of
income. As a part of the funding for the retirement of these notes,
substantially all the covenants (other than payment of principal and interest)
were released. 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.
10. FEDERAL INCOME TAXES
SFAS No. 109 requires the Company to compute deferred income taxes based upon
the difference between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse.
<PAGE>
The effective income tax rates on income attributable to continuing operations
differ from the statutory federal income tax rates for the year ended December
31, 1998, 1997, and 1996, as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
Amount Rate Amount Rate Amount Rate
Taxes (benefit) at federal
<S> <C> <C> <C> <C> <C> <C>
statutory rate $ (2,164) (35.0)% $ 1,189 35.0 % $ 4,504 35.0 %
Other 21 0.3 % 120 3.5 % (76) (1.0)%
----------- ------- ----------- -------- ----------- ------
Provision (benefit) for
income taxes $ (2,143) (34.7)% $ 1,309 38.5 % $ 4,428 34.0 %
=========== ======= =========== ======== =========== ======
</TABLE>
<TABLE>
<CAPTION>
Comparative analysis of the provision (benefit) for income taxes is as follows:
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current 691 (23) 5,831
Deferred (2,835) 1,332 (1,603)
------- ------ -------
Total $(2,143) $1,309 $4,428
======== ======= =======
</TABLE>
The tax effects of the items comprising the Company's net deferred tax liability
consist of the following at December 31 (in thousands):
1998 1997
Deferred tax liabilities:
Basis in long-term debt obligations $ 150
Reserve differential for hospitality and gaming activities $ 1,208 1,214
Difference between book and tax depreciable property 6,299 6,955
Other 928 867
--------- ---------
Total 8,435 9,186
--------- ---------
Deferred tax assets:
Reserves not currently deductible 2,899 1,845
Bad debt reserves 460 191
AMT and other credits 1,953 1,192
--------- ---------
Total 5,312 3,228
--------- ---------
Net deferred tax liability $ 3,123 $ 5,958
========= =========
The Company has $1,953,000 of alternative minimum tax credit available to offset
future income tax liabilities. The credit has no expiration date.
<PAGE>
11. LEASING ACTIVITIES
The Company leases certain equipment under capital leases. These agreements have
been capitalized at the present value of the future minimum lease payments at
lease inception and are included with property and equipment. Management
estimates the fair market value of the property and equipment, subject to the
leases, approximates the net present value of the leases. The leased property
and equipment consist primarily of signs and air conditioning equipment.
The following is a schedule by year of the minimum rental payments due under
capital leases, as of December 31, 1998 (in thousands).
1999 $ 462
2000 232
----------
Total minimum lease payments 694
Taxes, maintenance, and insurance (177)
Interest portion of payments (44)
----------
Present value of net minimum lease payments $ 473
==========
Rental expense for the years ended December 31, 1998, 1997 and 1996, was
approximately $287,000, $275,000 and $334,000, respectively.
In addition, the Company leases retail space (primarily to retail shops and fast
food vendors) to third parties under terms of noncancelable operating leases
that expire in various years through 2003. Rental income, which is included in
other income, for the years ended December 31, 1998, 1997, and 1996, was
approximately $1,615,000, $1,555,000, and $1,573,000, respectively.
At December 31, 1998, the Company had future minimum annual rental income due
under noncancelable operating leases as follows (in thousands):
1999 $ 1,183
2000 647
2001 428
2002 276
2003 150
-----------
Total $ 2,684
===========
12. COMMITMENTS AND CONTINGENCIES
The Company is party to several routine lawsuits, both as plaintiff and
defendant, arising from 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, results of operations, or
cash flows of the Company.
Allen Paulson Merger/Litigation - In March 1998, the Company was notified by
Allen E. Paulson ("Paulson") that he was terminating the Merger Agreement
entered into in September of 1997, whereby a company controlled by Paulson would
acquire 100% of the Company's stock for $15 per share, plus an interest factor.
Approximately $5.8 million is being held in escrow for the holders of 1,770,000
Riviera Contingent Value Rights ("CVRs"). The CVRs entitle their holders to
share only in the proceeds of the funds currently in escrow. Excluded from
participating in the CVRs are Morgens Waterfall, SunAmerica, Keyport Life, and
Paulson, and their affiliates and associates, who own an aggregate 3,355,000
Riviera shares.
The Company (and three major stockholders of the Company and other defendants
involved in the terminated merger) is involved in litigation with Paulson
relating to the Merger Agreement and related issues. The Company is paying the
expenses of such litigation, but will not share in any recovery of the escrow
funds. 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.
Other income (expense) for the year ended December 31, 1998 and 1997, includes
$1,231,000 and $400,000, respectively, in costs relating to the Allen Paulson
merger/litigation. These specific legal expenses were incurred for the
collection of funds due to shareholders in connection with the terminated merger
agreement (Contingent Value Rights) and as such have been excluded from income
from operations.
Black Hawk Project - The Company is constructing a casino in Black Hawk,
Colorado, on a site that was purchased for $15.1 million in August 1997. As of
December 31, 1998, the Company had expended approximately $27.1 million on the
project. The Company entered into a contract for a gross maximum price of $27.5
million for the construction of the casino. The Company estimated the cost of
the project at $65 million. The Company believes that it has, or can raise,
sufficient funds to complete the project.
Employees and Labor Relations - As of December 31, 1998 the Riviera had
approximately 2,100 full-time equivalent employees and had collective bargaining
contracts with nine unions covering approximately 1,200 of such employees
including food and beverage employees, rooms department employees, carpenters,
engineers, stage hands, musicians, electricians, painters and teamsters. The
Company's agreements with the Southern Nevada Culinary and Bartenders Union and
Stage Hands Union, which cover the majority of the Company's unionized
employees, were renegotiated in 1998 and expire in the year 2002. Collective
Bargaining Agreements with the Operating Engineers, Electricians and Musicians
will expire in 1999, while the Agreements with the Carpenters and Painters will
expire in 2000. A new Agreement was negotiated with the Teamsters and expires in
2003. Although unions have been active in Las Vegas, management considers its
employee relations to be satisfactory. There can be no assurance, however, that
new agreements will be reached without union action or will be on terms
satisfactory to the Company.
13. MANAGEMENT AGREEMENTS
From August 1996 until February 1997, RGM was operating the Four Queens in
downtown Las Vegas under an interim management agreement for a fee of $83,333
per month. A long-term management agreement (the "Management Agreement") with
Elsinore Corporation ("Elsinore"), the owner of the Four Queens, went into
effect on February 28, 1997, the effective date of the Chapter 11 plan of
reorganization of Elsinore. The Company believes that the terms of the
Management Agreement are no less favorable to the Company than if the Company
had negotiated with an independent party.
The term of the Management Agreement is approximately 40 months, subject to
earlier termination or extension. Either party may terminate the Agreement if
cumulative earnings before interest, taxes, depreciation, and amortization
("EBITDA") for the first two fiscal years are less than $12.8 million. The Four
Queens EBITDA for the 24 months ending February 28, 1999 will approximate $10.7
million. Management and the Board of Directors of Elsinore have agreed to
continue the agreement for its original term provided, however, that it could be
terminated by either party on six month's notice. RGM is paid a minimum annual
management fee of $1.0 million, payable in equal monthly installments. In
addition, RGM is entitled to a fee of 25% of the amount by which the Four Queens
EBITDA exceeds $8 million in any fiscal year. Based upon current historical and
projected EBITDA, it is unlikely that the $8 million threshold will be met. RGM
has received warrants to purchase 1,125,000 shares of common stock of Elsinore,
exercisable during the term or extended term of the Management Agreement at an
exercise price of $1 per share. In consideration of Four Queens' failure to meet
the $12.8 million EBITDA threshold for the first two years of the agreement,
RGME and Elsinore are negotiating a revised termination bonus.
Either party can terminate the Management Agreement if (i) substantially all the
Four Queens' assets are sold; (ii) the Four Queens is merged; or (iii) a
majority of the Four Queens' or Elsinore's shares are sold. Upon such
termination RGM will receive a $2.0 million termination bonus minus any amount
realized or realizable upon exercise of the warrants.
RGM has entered into a management agreement, in principle with Riviera Black
Hawk, Inc. wherein RGM will receive management fees for operating Riviera Black
Hawk, Inc. for a percentage of revenues and EBITDA.
14. EMPLOYMENT AGREEMENTS AND EMPLOYEE BENEFIT PLANS
The Company has an employment agreement with Mr. Westerman, Chairman of the
Board and Chief Executive Officer of the Company. This agreement includes an
annual base salary, an incentive bonus based upon the extent of adjusted
operating earnings, contributions to a Non-Qualified Pension Plan, and
contributions to a Profit Sharing and 401(k) Plan. While employed by the
company, contributions to the pension plan are in amounts equal to Mr.
Westerman's salary each year plus interest on accrued amounts of a rate equal to
the current effective interest rate of the Company (10.6% at December 31, 1998).
In addition, the Company has termination fee agreements with each of the
Directors, Executive Officers, and Significant Employees pursuant to which each
of such employees will be entitled to receive one year's salary and health
insurance benefits if their employment with the Company is terminated within one
year of a change of control of the Company and without cause, or the involuntary
termination of Mr. Westerman.
On March 20, 1998, Mr. Westerman exercised a clause in the Agreement that
requires the Company to establish a trust for the money in his retirement fund
as permitted in his employment agreement following shareholder approval of a
"change in control." The approval by the shareholders of the merger on February
5, 1998, constituted a change of control (see Note 12). The Company has entered
into an agreement with Mr. Westerman to permit funding the trust amount at his
option.
The Company has an incentive compensation plan, covering employees of the
Company who, in the opinion of the Chairman of the Board, either serve in key
executive, administrative, professional, or technical capacities with the
Company or other employees who also have made a significant contribution to the
successful and profitable operation of the Company. The amount of the bonus is
based on operating earnings before depreciation, amortization, interest expense,
provision for income taxes, extraordinary losses and gains, any provisions or
payments made pursuant to the Plan, and any provisions or payments made pursuant
to the incentive compensation of the Chairman and Chief Executive Officer.
During the years ended December 31, 1998, 1997 and 1996, the Company recorded
accrued bonuses of $1,593,475, $920,000 and $2,588,000, respectively, based upon
the above incentive compensation plan and the incentive compensation plan
established for the Chairman of the Board under his employment agreement.
The Company contributes to multi-employer pension plans under various union
agreements to which the Company is a party. Contributions, based on wages paid
to covered employees, were approximately $1,657,605, $1,604,199 and $1,650,000
for the years ended December 31, 1998, 1997, and 1996. These contributions were
for approximately 1,400 employees, including food and beverage employees, room
department employees, carpenters, engineers, stage hands, electricians,
painters, and teamsters. The Company's share of any unfunded liability related
to multi-employer plans, if any, is not determinable.
The Company sponsors a Profit Sharing and 401(k) Plan that incurred
administrative expenses of approximately $36,000, $44,000 and $34,000 for the
years ended 1998, 1997, and 1996, respectively.
The profit sharing component of the Profit Sharing and 401(k) Plan provides that
the Company will make a contribution equal to one percent of each eligible
employee's annual compensation if a prescribed annual operating earnings target
is attained and an additional 1/10th of one percent thereof for each $200,000 by
which operating earnings is exceeded, up to a maximum of three percent thereof.
The Company may elect not to contribute to the Profit Sharing and 401(k) Plan if
it notifies its employees by the first day of January of the Profit Sharing and
401(k) Plan year. An employee will become vested in the Company's contributions
based on the employee's years of service. An employee will receive a year of
vesting service for each plan year in which the employee completed 1,000 hours
of service. Vesting credit will be allocated in 20% increments for each year of
service commencing with the attainment of two years of service. An employee will
be fully vested following the completion of six years of service.
The 401(k) component of the Profit Sharing and 401(k) Plan provides that each
eligible employee may contribute up to 15% of such employee's annual
compensation, and that the Company will contribute 1% of each employee's annual
compensation for each 4% of compensation contributed by the employee, up to a
maximum of 2%. All non-union employees of the Company are eligible to
participate in the Profit Sharing and 401(k) Plan after 12 consecutive months of
service with the Company.
As a result of the scheduled opening of several new Las Vegas Strip properties
in 1998, 1999, and 2000, an estimated 38,000 jobs must be filled, including
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 (the
"Plan"), which covers approximately 90 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 $287,000 in 1998. The total cost of the
Plan is estimated to be approximately $2.0 million over the period July 1, 1998,
through June 30, 2001.
15. STOCK OPTION PLANS
At a meeting held on July 27, 1993, the Company's Board of Directors adopted a
stock option plan providing for the issuance of both nonqualified and incentive
stock options (as defined in the Internal Revenue Code). This stock option plan
was ratified by the Company's stockholders at the April 26, 1994, annual
meeting. The number of shares available for purchase under the Stock Option Plan
as adopted was 120,000 (as adjusted pursuant to antidilution provisions). The
stockholders approved a four-for-one stock split, increasing the number of
shares of Common Stock available for purchase under the Stock Option Plan to
480,000. Options were granted for 228,000 shares for 1993; 132,000 shares for
1994; none for 1995; and 110,000 for 1996. No options were exercised in 1996, or
1997. On November 21, 1996, the Company amended the Stock Option Plan, which was
approved at the annual meeting held on May 8, 1997, to increase the number of
shares available under the Stock Option Plan from 480,000 shares to 1,000,000
shares and granted options to purchase 300,000 additional shares to Mr.
Westerman. During 1998, 95,000 options were issued for 1997 to executives
excluding Mr. Westerman. Also during 1998, 284,000 options were exercised by
executives. In connection with the resignation of a board member and an
employee, the Company paid approximately $258,000 (included in non-recurring
corporate expenses) on 54,000 options for the difference between the weighted
average option price of $2.22 compared to the weighted average, market price of
$7.00 on the dates of exercise. On January 21, 1999, 95,000 options were issued
for 1998 to executives excluding Mr. Westerman. Options vest 25% on the date of
grant and 25% each subsequent year. The term of an option can in no event be
exercisable more than 10 years (five years in the case of an incentive option
granted to a shareholder owning more than 10% of the Common Stock), or such
shorter period, if any, as may be necessary to comply with the requirements of
state securities laws, from the date such option is granted.
On March 5, 1996, the Board of Directors adopted an employee stock purchase plan
(the "Stock Purchase Plan"), which was approved by the stockholders on May 10,
1996. A total of 300,000 shares of common stock (subject to adjustment for
capital changes) in the aggregate may be granted under the stock purchase plan.
The Stock Purchase Plan is administered by the compensation committee. The
purchase price per share of stock shall be 85% of per share market value of the
common stock on the purchase date. Employees may require the Company to
repurchase the stock prior to fulfillment upon termination or the request of the
employee. Refunds represent the return of payroll deductions to employees for
persons exiting the Plan. On May 31, 1996, approximately 560 union and non-union
employees participated in the 1996 employee stock purchase plan. Under the plan,
137,000 shares were issued to employees at $11.26 (85% of market price at May
10, 1996), for $160,000 cash and the balance in notes receivable of $1,383,000,
which are payable over two years via payroll deduction. During 1997, 25,900
shares were returned through the plan as the result of refunds to the employees.
During 1997, 6,200 shares were issued at $11.47 for notes receivable of $71,145.
During 1998, 65,100 shares of stock were returned to the Plan due to employee
refunds.
On May 10, 1996, the stockholders approved a Nonqualified Stock Option Plan for
Non-Employee Directors (the "Nonqualified Stock Option Plan") and a Stock
Compensation Plan for Directors serving on the Compensation Committee (the
"Stock Compensation Plan"). The total number of shares available for purchase
under each plan is 50,000. Pursuant to the Nonqualified Stock Option Plan,
directors were granted options to purchase 10,000 shares at exercise prices of
$13.25 and $13.50, which represented fair market value in 1996. As of December
31, 1997, 3,980 shares were issued pursuant to the Stock Compensation Plan at
$12.08 per share. In May and August of 1998, an additional 2,000 options were
issued at the market price on the respective dates of issuance, of $9.00 and
$7.50 per share. As a result of the departure of board members, 6,000 non-vested
options were extinguished.
The activity of the two stock option plans (1994 Incentive Stock Option Plan and
1996 Non-Employee Director Stock Compensation Plan) is as follows:
<TABLE>
<CAPTION>
Per Share
Exercise Price
1994 Incentive Stock Option Plan
<S> <C> <C>
Outstanding at January 1, 1996 360,000 $2.08 to $2.50
Grants 410,000 $13.63
Exercised
Canceled
-------------
Outstanding at December 31, 1996 770,000 $2.08 to $13.63
Grants
Exercised
Canceled
-------------
Outstanding at December 31, 1997 770,000 $2.08 to $13.63
Grants 95,000 $7.00
Exercised (284,000) $7.00
Purchased from option holder by Company (54,000) $7.00
Canceled (7,000) $7.00
-------------
Outstanding at December 31, 1998 520,000
1996 Non-Employee Director Stock Compensation Plan
Outstanding at January 1, 1996
Grants 4,000 $13.25
Exercised
Canceled
-------------
Outstanding at December 31, 1996 4,000 $13.25
Grants 6,000 $13.50
Exercised
Canceled
-------------
Outstanding at December 31, 1997 10,000 $13.25 to $13.50
Automatic grant to directors 8,000 $7.50 to $9.00
Exercised
Canceled (10,000) $9.00 to $13.50
-------------
Outstanding at December 31, 1998 8,000 $9.00 to $13.50
</TABLE>
No compensation cost has been recognized for unexercised options remaining in
the stock option plan. Had compensation cost for the Company's stock option plan
been determined based on the fair value at the date of grant for awards
consistent with the provisions of SFAS No. 123, the Company's net income and pro
forma net income common share and common share equivalent would have been
decreased to the pro forma amounts indicated below at December 31 (in thousands,
except per share amounts).
<TABLE>
1998 1997 1996
<S> <C> <C> <C>
Net income (loss) - as reported $ (4,057) $ 2,088 $ 8,440
Net income (loss) - pro forma $ (4,548) $ 2,058 $ 8,380
Basic income (loss) per common share - as reported $ (1) $ 0 $ 2
Basic earnings (loss) per common share - pro forma $ (1) $ 0 $ 2
Diluted earnings (loss) per common and common
share equivalent - as reported $ (1) $ 0 $ 2
Diluted earnings (loss) per common and common share
equivalent - pro forma $ (1) $ 0 $ 2
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1998, 1997 and 1996, respectively: dividend yield
of 0% for all years; expected volatility of 62%, 72% and 77%; risk-free interest
rates of 5.46%, 6.50% and 5.70%; and expected lives of five years for all years.
The weighted fair value of options granted in 1998, 1997 and 1996 was $7.21,
$6.81 and $3.08, respectively.
Due to the fact that the Company's stock option programs vest over many years
and additional awards are made each year, the above pro forma numbers are not
indicative of the financial impact had the disclosure provisions of SFAS No. 123
been applicable to all years of previous option grants. The above numbers do not
include the effect of options granted prior to 1995.
16. EARNINGS PER SHARE
For the year ended December 31, 1997, the Company adopted SFAS 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. Such antidilutive
options outstanding for the 12 months ended December 31, 1998, 1997 and 1996,
were 531,000, 410,000 and 414,000, respectively.
<PAGE>
A reconciliation of income and shares for basic and diluted EPS is as follows
(amounts in thousands, except per share amounts):
<TABLE>
<CAPTION>
Year Ended 1998
-----------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
Basic EPS -
<S> <C> <C> <C>
Loss available to common stockholders $ (4,057) 5,037 $ (0.81)
============
Effect of dilutive securities -
Options ---------- -------
Diluted EPS -
Loss available to common stockholders plus
assumed conversions $ (4,057) 5,037 $ (0.81)
============= ============= ===========
Year Ended 1997
-----------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
Basic EPS -
Income available to common stockholders $ 2,088 4,913 $ 0.42
===========
Effect of dilutive securities -
Options 301
---------- -------
Diluted EPS -
Income available to common stockholders plus
assumed conversions $ 2,088 5,214 $ 0.40
============== ============= ===========
Year Ended 1996
-----------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
Basic EPS -
Income available to common stockholders $ 8,440 4,880 $ 1.73
===========
Effect of dilutive securities -
Options 289
---------- --------
Diluted EPS -
Income available to common stockholders plus
assumed conversions $ 8,440 5,169 $ 1.63
============== ============= ===========
</TABLE>
On November 16, 1995, the stockholders of the Company approved an amendment to
the Company's Amended and Restated Articles of Incorporation to increase the
authorized shares of common stock from 5,000,000 to 20,000,000 and a
four-for-one stock split. Accordingly, per share information, average number of
shares outstanding, and number of shares outstanding in the accompanying
consolidated financial statements have been adjusted for the stock split as of
the earliest date presented (January 1, 1996).
17. 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
1998 Casino Rooms Beverage Entertainment All Other Total
<S> <C> <C> <C> <C> <C> <C>
Revenues from external customers $ 77,676 $ 36,626 $ 17,635 $ 19,764 $ 8,254 $ 159,955
Intersegment revenues 2,981 6,305 1,779 2,901 13,966
Segment profit 32,382 15,767 96 2,903 4,946 56,094
1997
Revenues from external customers 71,624 39,153 15,916 19,855 7,244 153,792
Intersegment revenues 2,659 5,687 1,040 3,312 12,698
Segment profit 31,004 17,918 (202) 2,620 4,233 55,573
1996
Revenues from external customers 80,384 40,078 16,262 20,714 6,970 164,408
Intersegment revenues 2,168 6,379 1,064 3,017 12,628
Segment profit 34,685 17,734 39 2,758 4,054 59,270
</TABLE>
Reconciliation of segment profit to consolidated net income before taxes and
extraordinary items:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Segment profit $ 56,094 $ 55,573 $ 59,270
Other operating expenses 39,715 36,695 35,989
Other expense 17,963 15,481 10,413
---------- ---------- ----------
Net income (loss) before provision (benefit)
for taxes and extraordinary items $ (1,584) $ 3,397 $ 12,868
========== ========== ==========
</TABLE>
The Company does not market to residents of Las Vegas. Significantly 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
identify such information based upon the nature of gaming operations.
18. SUBSEQUENT EVENTS (Unaudited)
On June 3, 1999, the registrant's wholly-owned subsidiary, Riviera Black Hawk,
Inc., closed a private placement of $45 million 13% First Mortgage Notes due
2005. The proceeds will be used for Riviera Black Hawk's casino project.
The Company entered into a Settlement Agreement, dated as of July 1, 1999 (the
"Settlement Agreement"), by and among Allen E. Paulson ("Paulson"), R&E Gaming
Corp. ("Gaming"), Riviera Acquisition Sub, Inc. ("RAS"), Elsinore Acquisition
Sub, Inc. ("EAS"), and Carlo Corporation ("Carlo," and collectively with
Paulson, Gaming, EAS and RAS, the "Paulson Plaintiffs"), and the Company
("RHC").
On Friday, October 8, 1999, the Federal District Court for the Central District
of California approved a bar order as part of a settlement of the lawsuit
brought by Allen Paulson against the Company. Pursuant to the terms of the
Settlement Agreement, the Company purchased 463,655 shares from Mr. Paulson for
$7.50 per share. By a letter dated October 13, 1999, the Company's Chairman
advised holders of Contingent Value Rights ("CVR's") that they would receive
from an escrow established by Mr. Paulson in connection with the aborted
Paulson-Riviera merger $2.46 for each CVR. On Friday, October 8, 1999, there
were 1,770,000 CVR's outstanding.
On October 18, 1999, the Company purchased 81,000 of its shares from Sun
America, Inc. at $7.50 per share. This transaction reduced Sun America's
ownership of the Company below 15% of the Company's outstanding stock to
facilitate the licensing by the Colorado Gaming Commission of the Company's
subsidiary, Riviera Black Hawk, Inc. After giving effect to such share
repurchases, the Company had 4,523,021 shares of common stock outstanding.
In a letter dated September 1, 1999, Elsinore Corporation and Four Queens, Inc.
(the "Companies") terminated a Management Agreement, dated as of February 28,
1996, by and among the Companies and Riviera Gaming Management Corp.-Elsinore
("Manager"), effective 120 days from the date of such letter (December 30,
1999). In a letter, dated September 3, 1999, William L. Westerman, acting on
behalf of the Manager (1) accepted the termination but pointed out that it would
have no effect on the rights of the Manager and its affiliates to continue to
receive the management fee and to receive other monies from the Companies for
services performed or goods supplied prior to December 30, 1999 by the Manager
and its affiliates, (2) noted that Mr. Dual Cooper had been appointed General
Manager of the Companies and requested that the Companies confirm (which they
did by executing such September 3rd letter) that the Manager is no longer
responsible for management of the Four Queens and that its role until December
30, 1999 will be limited to (i) providing such consulting services on the same
basis as at present and (iii) using its best efforts to separate the computer
systems in an orderly fashion but that the Manager will assume no responsibility
for the effectiveness thereof and (3) indicated that the Companies were to
exculpate and indemnify the Manager from any responsibility for operation of the
Four Queens from and after September 3, 1999 (which they did by executing such
September 3rd letter).
The Financial Accounting Standards Board recently issued FAS No. 137, 'Deferral
of FAS 133 Accounting for Derivatives' which delays the implementation of that
pronouncement to September 15, 2000. The Company has not determined what effect,
if any, that FAS 133 may have on its results of operations.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
Directors
The following table sets forth certain information as of April 5, 1999
regarding the directors of the Company:
Name Age Position
William L. Westerman 67 Chairman of the Board and Chief Executive
Officer of the Company and Riviera Operating
Corporation ("ROC"), a wholly-owned
subsidiary of the Company,
and President of the Company
Robert R. Barengo 57 Director of the Company and ROC
Richard. L. Barovick 69 Director of the Company and ROC
James N. Land, Jr. 69 Director of the Company and ROC
William L. Westerman has been Chairman of the Board and Chief Executive
Officer of the Company since February 1993. Mr. Westerman was a consultant to
Riviera, Inc. from July 1, 1991 until he was appointed Chairman of the Board and
Chief Executive Officer of Riviera, Inc. (the Company's predecessor) on January
1, 1992. From 1973 to June 30, 1991, Mr. Westerman was President and Chief
Executive Officer of Cellu-Craft Inc., a manufacturer of flexible packaging
primarily for food products, and then later had several positions with
Alusuisse, a multi-national aluminum and chemical company, following its
acquisition of Cellu-Craft in 1989.
Robert R. Barengo has been a Director of the Company and ROC since
February 1993. Mr. Barengo was a consultant to Riviera, Inc. from January 1993
until June 30, 1993. Since 1972, Mr. Barengo has been engaged in the private
practice of law in Reno, Nevada. From 1978 to 1993, Mr. Barengo was Speaker Pro
Tempore and Speaker of the Nevada Assembly. From October 1992 to May 1996, Mr.
Barengo was a director and 10% shareholder of Leroy's Horse & Sports Place, Inc.
("Leroy's"). In May 1996, Leroy's became a wholly owned subsidiary of American
Wagering, Inc. ("AWI"), a publicly held corporation listed on NASDAQ. Since May
1996, Mr. Barengo has been a director of AWI and currently owns 7% of the
outstanding stock of AWI. Since 1993, Mr. Barengo has been the President and the
sole stockholder of Silver State Disseminators Company, a company licensed by
Nevada gaming authorities to disseminate racing information in the State of
Nevada and Chairman of the Nevada Dairy Commission.
Richard L. Barovick is currently a private investor and a founder and
member of the board of the Bank of Westport, in Westport, Connecticut. Mr.
Barovick was elected a director of the Company and ROC on August 4, 1998. Mr.
Barovick was Chief Executive Officer of Grundy Worldwide from 1994 until it was
acquired by Pearson plc in May, 1995. From 1991 to 1994, Mr. Barovick was
Managing Director and a member of the Board of Grundy. Mr. Barovick graduated
from the Harvard Law School and shortly thereafter joined the legal department
of MCA/Universal, where he was involved in the financial and administrative
aspects of television packaging. Thereafter, Mr. Barovick was in private
practice and served, at various times, as General Counsel to the New York Jets
and Association of Tennis Professionals, special counsel to IBM, Time
Incorporated, The William Morris Agency, Reader's Digest Entertainment, MCA,
Inc., and HBO, among others.
James N. Land, Jr. is currently a corporate consultant. Mr. Land was
elected a director of the Company and ROC on January 21, 1999. Mr. Land is a
director of Raytheon Company and E. W. Blanch Holdings, Inc. During the period
1956 to 1976, Mr. Land was employed by The First Boston Corporation in various
capacities, including Director, Senior Vice President, Co-Head of Corporate
Finance, and Head of International Operations. From 1971 through 1989, he served
as a director of various companies, including Kaiser Industries Corporation,
Marathon Oil Company, Castle & Cooke, Inc., Manville Corporation, NWA, Inc. and
Northwest Airlines, Inc. Since 1976, Mr. Land has been a financial consultant to
such companies as Castle & Cooke, Inc., Kaiser Cement Corporation, Kaiser Steel
Corporation, Scripps League Newspapers, Inc., Xerox Corporation, PPG Industries,
Inc., Mellon Bank, McLeod Young & Weir, Shilling & Co., Pollio Dairy Products,
Air Products and Chemicals, Inc. and Cellu-Craft, Inc.
<PAGE>
Executive Officers
The following table sets forth certain information as of March 31, 1999
regarding the executive officers of the Company and ROC:
Name Age Position
William L. Westerman 67 Chairman of the Board and Chief Executive
Officer of the Company and ROC, and
President of the Company
Duane R. Krohn 53 Treasurer of the Company, and Executive Vice
President of Finance and Treasurer of ROC
John A. Wishon, Esq. 54 Vice President and General Counsel of ROC,
Secretary of the Company and ROC
Ronald P. Johnson 50 Executive Vice President of Gaming
Operations of ROC
Robert A. Vannucci 51 Executive Vice President of Marketing and
Entertainment of ROC
Jerome P. Grippe 56 Senior Vice President of Operations of ROC
Robert E. Nickels, Sr. 69 Senior Vice President of Administration
of ROC
Michael L. Falba 56 Vice President of Casino Operations of ROC
For a description of the business experience of William L. Westerman,
see "Directors."
Duane R. Krohn, CPA, assumed the position of Treasurer of the Company
and ROC on June 30, 1993 and was elected Vice President of Finance of ROC on
April 26, 1994, and Executive Vice President of Finance of ROC on July 1, 1998.
Mr. Krohn was initially employed by Riviera, Inc. in April 1990, as Director of
Corporate Finance and served as Vice President-Finance from March 1992 to June
30, 1993. Mr. Krohn served as Chief Financial Officer of Imperial Palace, Inc.
(a casino/hotel operator in Las Vegas) from February 1987 to March 1990. Prior
to 1987, Mr. Krohn was Chief Financial Officer of the Mint and the Dunes in Las
Vegas, Nevada, and Bally's Park Place in Atlantic City, New Jersey.
John A. Wishon, Esq. was elected Secretary of the Company and ROC, and
General Counsel of ROC in September 1994, and was elected Vice President of ROC
in November 1996. Mr. Wishon was initially employed by ROC as a Marketing
Analyst in February 1994. From January 1992 to February 1994, Mr. Wishon was a
legal and management consultant to Gold River Gambling Hall & Resort, the
Bicycle Club Casino, and Tierra del Sol Casino Resort. From October 1990 to
January 1992, Mr. Wishon served as Vice President of Hotel Operations and later
as Vice President of Administration and Legal Affairs at the Sands Hotel Casino
in Las Vegas. Prior to December 1988, Mr. Wishon served as General Manager of
the Airtel Plaza and Westwood Plaza Hotels in Los Angeles, California. From 1976
until 1988, Mr. Wishon was Senior Vice President of the Hotel del Coronado
Corporation and held the positions of Resident Manager and General Counsel. Mr.
Wishon is a member of the Nevada and California Bars, has practiced law with
emphasis on real estate and contract law and has been employed in law
enforcement.
Ronald P. Johnson became Vice President of Gaming Operations of ROC in
September 1994, and Executive Vice President of Gaming Operations of ROC on July
1, 1998. Mr. Johnson became Director of Slots of ROC on June 30, 1993 and was
elected Vice President of Slot Operations and Marketing on April 26, 1994. Mr.
Johnson was Vice President-Slot Operations and Marketing of Riviera, Inc. from
April 1991 until June 30, 1993. Mr. Johnson was Vice President-Slot Operations
for Sands Hotel and Casino Inc. from September 1989 until he joined Riviera,
Inc. From September 1986 until September 1989, Mr. Johnson was Assistant Slot
Manager at Bally's Grand Las Vegas.
Robert A. Vannucci was elected Vice President of Marketing and
Entertainment of ROC on April 26, 1994, and Executive Vice President of
Marketing and Entertainment on July 1, 1998. Mr. Vannucci had been Director of
Marketing of ROC since July 19, 1993. Mr. Vannucci was Senior Vice President of
Marketing and Operations at the Sands Casino Hotel in Las Vegas from April 1991
to February 1993. Mr. Vannucci was Vice President and General Manager of
Fitzgerald's Las Vegas (a casino/hotel operator) from 1988 to January 1991.
<PAGE>
Jerome P. Grippe was elected Vice President of Operations of ROC on
April 26, 1994, and Senior Vice President of Operations of ROC on July 1, 1998.
Mr. Grippe became Director of Operations of ROC on June 30, 1993. Mr. Grippe was
Assistant to the Chairman of the Board of Riviera, Inc. from July 1990 until May
1993. Mr. Grippe had served in the United States Army from 1964 until his
retirement as a Colonel in July 1990.
Robert E. Nickels, Sr. was elected Vice President of Administration of
ROC on June 30, 1993, and Senior Vice President of Administration of ROC on July
1, 1998. From March 1992 until June 30, 1993, Mr. Nickels was Vice President of
Administration of Riviera, Inc. From November 1991 to February 1992, Mr. Nickels
was a self-employed business consultant. From March 1979 to April 1986, Mr.
Nickels was Director of Internal Audit for MGM-Reno. From April 1986 to November
1991, Mr. Nickels served as Vice President of Administration at Bally's Reno and
Las Vegas.
Michael L. Falba was elected Vice President of Casino Operations of ROC
on April 26, 1994. Mr. Falba became Director of Casino Operations of ROC on June
30, 1993. Mr. Falba was employed by Riviera, Inc. from March 1989 until November
1991 as Assistant Casino Manager, and from November 1991 to June 30, 1993 as
Vice President of Casino Operations.
Officers of each of the Company and ROC serve at the discretion of their
respective Boards of Directors and are also subject to the licensing
requirements of the Nevada Gaming Commission.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers and any persons who own more than ten percent of the
Company's Common Stock to file with the Securities and Exchange Commission
various reports as to ownership of such Common Stock. Such persons are required
by Securities and Exchange Commission regulation to furnish the Company with
copies of all Section 16(a) forms they file. To the Company's knowledge, based
solely on its review of the copies of such reports furnished to the Company and
written representations to the Company, during the last fiscal year (i) the Form
5 filed by Mr. Barengo for the fiscal year ending December 31, 1998 was not
timely filed, (ii) a Form 4 filed by Richard Barovick to report purchases of
Common Stock in August 1998 was 18 days late; (iii) a Form 4 filed by Michael
Falba to report dispositions of Common Stock in March 1998 was 13 days late; and
(iv) other than these specific exceptions, the aforesaid Section 16(a) filing
requirements of these and all other officers and directors were met on a timely
basis during 1998.
<PAGE>
Item 11. Executive Compensation
Compensation of Executive Officers
The following table sets forth a summary of the compensation paid by the
Company in the Years ended December 31, 1996, 1997 and 1998, to the Chief
Executive Officer of the Company and ROC, and to the Company's four most highly
compensated executive officers who received over $100,000 in compensation during
1997 from the Company (collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
Summary Compensation Table
Name and Other Annual All Other
Principal Position Year Salary Bonus Compensation(1) Compensation(2)
<S> <C> <C> <C> <C> <C>
William L. Westerman 1998 $600,000(5) $900,000(5) $413,300 (4)(5) $2,402
Chairman of the Board and 1997 600,000 ----- 782,175(4) 1,809
Chief Executive Officer of the 1996 400,000 1,213,969(3) 441,375(4) 1,566
Company and ROC
Ronald P. Johnson 1998 188,757 84,000 7,300 818
Executive Vice President of 1997 180,996 82,000 7,175 763
Gaming Operations of ROC 1996 170,961 100,000 6,875 791
Robert Vannucci 1998 183,710 84,000 7,300 818
Executive Vice President of 1997 167,055 82,000 7,175 681
Marketing and Entertainment 1996 145,961 100,000 6,875 536
of ROC
Duane R. Krohn 1998 160,040 84,000 7,300 563
Treasurer of the Company and 1997 123,351 82,000 7,175 394
Executive Vice President of 1996 117,715 100,000 6,875 408
Finance and Treasurer of ROC
Jerome P. Grippe 1998 134,196 84,000 7,300 469
Senior Vice President of 1997 122,580 82,000 7,175 394
Operations of ROC 1996 118,653 100,000 6,837 408
</TABLE>
(1) Includes amounts contributed by the Company under the Company's Profit
Sharing and 401(k) Plans. The Company contributed for the account of
each executive, $2,500 in 1998 and $2,375in each of 1997 and 1996.
(2) Includes premiums paid by the Company for excess life insurance.
(3) Includes $614,000 of Mr. Westerman's 1996 Incentive Bonus which was
credited to his retirement account pursuant to his employment agreement.
(4) Includes contributions to Mr. Westerman's retirement account of $406,000
in 1998, $775,000 in 1997, and
$425,000 in 1996. Does not include interest earned on retirement
account of $410,159 in 1998 and $343,914 in 1997. (See "Employment
Agreements")
(5) See "Employment Agreements" for a summary of certain of the provisions
of Mr. Westerman's employment agreement.
<PAGE>
Option Grants
The number of shares available for purchase under the Company's 1993
Employee Stock Option Plan, as amended (the "Stock Option Plan") is 1,000,000
(as adjusted pursuant to antidilution provisions). Options for an aggregate of
770,000 shares have been granted under the Stock Option Plan as of December 31,
1998. During the Company's 1998 fiscal year, 95,000 options were granted under
the Stock Option Plan.
Option Exercises, Year-End Options Values and Option Grants in 1998
The following table presents at December 31, 1998 the value of
unexercised in-the-money options held by the Named Executive Officers.
<TABLE>
<CAPTION>
Number of Value of Unexercised,
Unexercised Options In-The-Money Options
Name Vested Not Vested Vested Not Vested
- ---- ------ ---------- ------ -----------
<S> <C> <C> <C> <C>
William L. Westerman 240,000 80,000 $0 $0
Ronald P. Johnson 7,750 9,250 0 0
Duane R. Krohn 7,750 9,250 0 0
Robert Vannucci 7,750 9,250 0 0
Jerome P. Grippe 7,000 7,000 0 0
</TABLE>
The following table presents options granted during 1998.
<TABLE>
<CAPTION>
Individual Grants
Potential Realizable Value at
--------------------------------------------------------- Assumed Annual Rates of
Percent of Stock Price Appreciation for
Number of Total Options Exercise of Option Term
Underlying Granted to Exercise Price ------------------
Options Employees in Base Price Expiration
Name Granted 1998 Per Share Date 5% 10%
- ----- ------------ ------------ ------------ ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
Ronald P. Johnson 10,000 10.5% 7.000 6/11/08 $114,023 $181,562
Duane R. Krohn 10,000 10.5% 7.000 6/11/08 114,023 181,562
Robert Vannucci 10,000 10.5% 7.000 6/11/08 114,023 181,562
Jerome P. Grippe 7,000 7.4% 7.000 6/11/08 79,816 127,093
</TABLE>
The following table presents aggregated option exercises during 1998 and their
values as of December 31, 1998.
<TABLE>
<CAPTION>
Value of Unexercised
Number of Securities Underlying In-The-Money Options at
Options Exercised Unexercised Options at 12/31/98 12/31/98
Shares Value
Name Acquired Realized(1) Exercisable Unexercisable Exercisable Unexercisable
- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William L. Westerman 180,000 $1,400,000 240,000 80,000 $0.00 $0.00
Ronald P. Johnson 18,000 147,875 7,750 9,250 0.00 0.00
Duane R. Krohn 18,000 140,000 7,750 9,250 0.00 0.00
Robert Vannucci 14,168 116,461 7,750 9,250 0.00 0.00
Jerome P. Grippe 14,168 116,461 7,750 9,250 0.00 0.00
</TABLE>
- ----------------------
(1) Market value of the underlying securities at the exercise date or
year-end, as the case may be, less the exercise price of "in-the-money"
options. Messrs. Westerman, Johnson and Krohn paid cash for their
option shares, while Messrs. Vannucci and Grippe elected cashless
exercise and received 14,168 shares.
Employment Agreements
William L. Westerman serves as Chairman of the Board, President and
Chief Executive Officer of the Company, and as Chairman of the Board and Chief
Executive Officer of ROC.
Under Mr. Westerman's existing employment agreement with the Company,
which was last amended on June 24, 1998, Mr. Westerman shall be employed by the
Company for an indefinite period subject to termination by either the Company or
Mr. Westerman on not less than 120 days prior written notice. Mr. Westerman's
base compensation is $600,000.
Under the employment agreement, Mr. Westerman is entitled to participate
in the Company's Senior Management Compensation Plan or such other executive
bonus plan as shall be established by the Company's Board of Directors
(collectively the "Plan"). If at least 80% of targeted net income, as defined by
the Plan, is met, Mr. Westerman shall be entitled to receive a bonus under the
Plan expressed as a percentage of his $600,000 base salary depending on the
percentage of targeted net income realized by the Company in a particular year,
with a maximum bonus of $900,000. Mr. Westerman received an incentive bonus of
$900,000 for 1998.
The employment agreement provides that the Company fund a retirement
account for Mr. Westerman. Pursuant to the employment agreement, an aggregate of
$4,877,968 had been credited to the retirement account from its inception
through January 1, 1999. Under the employment agreement, each year that Mr.
Westerman continues to be employed, an amount equal to Mr. Westerman's base
salary for that year will be credited to the account on January 1 of that year
and in the event that Mr. Westerman is no longer employed by the Company (except
for termination for cause, in which case Mr. Westerman would forfeit all rights
to monies in the retirement account), Mr. Westerman will be entitled to receive
the amount in the retirement account as of the date he ceases to be employed by
the Company in 20 quarterly installments. Pursuant to the employment agreement,
the retirement account was credited quarterly with interest and shall be
credited with additional amounts on the first day of each succeeding calendar
quarter equal to the product of (i) the Company's average borrowing cost for the
immediately preceding fiscal year, as determined by the Company's chief
financial officer and (ii) the average outstanding balance in the retirement
account during the preceding calendar quarter. Total interest earned for 1998
and 1997 was $410,159 and $343,914, respectively. In the event of Mr.
Westerman's death, an amount equal to the applicable federal estate tax (now
60%) on the retirement account will be pre-paid prior to the date or dates such
taxes are due.
The Company retains beneficial ownership of all monies in the retirement
account, which monies are earmarked to pay Mr. Westerman's retirement benefits.
However, upon (i) the vote of a majority of the outstanding shares of Common
Stock approving a "Change of Control" (as defined below), (ii) the occurrence of
a Change of Control without Mr. Westerman's consent, (iii) a breach by the
Company of a material term of the employment agreement or (iv) the expiration or
earlier termination of the term of the employment agreement for any reason other
than cause, Mr. Westerman may require the Company to establish a "Rabbi Trust"
for the benefit of Mr. Westerman and to fund such trust with an amount of cash
equal to the amount then credited to the retirement account, including any
amount to be credited to the retirement account upon a Change of Control
discussed below.
On February 5, 1998, the shareholders of the Company by a majority vote
approved the Agreement and the Plan of Merger (the "Riviera Merger Agreement")
with R&E Gaming Corp. and its wholly-owned subsidiary Riviera Acquisition Sub,
Inc. (See,"Security Ownership of Certain Beneficial Owners and Management" for a
description of the Riviera Merger Agreement and events that have taken place
since the February 5, 1998 shareholder approval.) Such shareholder approval
constituted a Change of Control. On March 5, 1998, subsequent to this Change of
Control, Mr. Westerman exercised his right to require the Company to establish
and fund a Rabbi Trust for his benefit. On March 20, 1998, Mr. Westerman and the
Company entered into an agreement whereby Mr. Westerman waived his right to have
the Company fund the Rabbi Trust in exchange for the Company agreeing to fund
such Rabbi Trust within five business days after notice from Mr. Westerman.
Mr. Westerman's employment agreement provides (a) that the sum of Mr.
Westerman's base salary, bonus, and credits to his Retirement Account in any one
year shall not exceed that which would have been payable under his previous
employment agreement with the Company, and (b) that Mr. Westerman shall instruct
the Company of any reductions in base salary, bonus, and credits to his
Retirement Account necessary to comply with this limitation. The Company has
determined that for the year 1998, a reduction of $194,000 would be necessary to
comply with this provision. Prior to December 31, 1998, Mr. Westerman instructed
the Company that this be applied to reduce the amount to be credited to his
retirement account from $600,000 to $406,000.
In addition to Mr. Westerman, four executives have employment contracts
with the Company for fixed terms of either 2 or 3 years. Each of these
employment contracts contains a Termination Fee Agreement and a Stay Bonus
Agreement. See "Termination Fee Agreements" and "Stay Bonus Agreements." These
employment agreements also provide for a "Normal Incentive Bonus" entitling the
executive to participate in the Company's Senior Management Compensation Plan
(the "Plan") whereby the employee may share a portion of the Plan's pool which
provides for a target of $25 million EBITDA for the years 1999 and 2000 with
amounts being credited to the Plan's pool up to a maximum of $1.2 million. Three
of these employment agreements also provide for a "Special Incentive Bonus" in
an amount equal to one-third of any excess of $1.2 million.
Employee Stock Purchase Plan
On March 5, 1996, the Board of Directors adopted an employee stock
purchase plan (the "Stock Purchase Plan"), which was approved by the
stockholders on May 10, 1996. A total of 300,000 shares of Common Stock (subject
to adjustment for capital changes) in the aggregate may be granted under the
Stock Purchase Plan. The Stock Purchase Plan is administered by the Compensation
Committee. The purchase price per share of stock shall be 85% of per share
market value of the Common Stock on the purchase date. On May 31, 1996,
approximately 560 union and non-union employees participated in the Stock
Purchase Plan. Under the Stock Purchase Plan, 137,000 shares were issued to
employees at $11.26 (85% of market price at May 10, 1996), for $160,000 cash and
the balance in notes receivable of $1,383,000 which were payable over two years
via payroll deduction. During 1997, 6,200 shares were reissued at $11.47 for
notes receivable of $71,145. During 1996, 1997 and 1998 respectively, 17,600,
25,900 and 65,100 shares were returned to the Stock Purchase Plan, and 265,400
shares remained eligible to be issued under the plan at December 31, 1998.
The Company has registered the issuance of all the shares issuable under
the Stock Purchase Plan on Form S-8 under the Securities Act of 1933, as amended
(the "Securities Act").
Key Employee Retention Plan
As a result of the scheduled openings of several new Las Vegas Strip
properties in 1998, 1999 and 2000, an estimated 38,000 jobs must be filled,
including 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.
Termination Fee Agreements
Approximately 85 executive officers and significant employees (excluding
Mr. Westerman) of ROC have termination fee agreements effective through January
2000, pursuant to which each of such employees will be entitled to receive (1)
either six months' or one year's base salary if their employment with the
Company is terminated, without cause, within 12 or 24 months of a change of
control of the Company or ROC; and (2) group health insurance for periods of
either one or two years. The base salary payments are payable in bi-weekly
installments subject to the employee's duty to mitigate by using his or her best
efforts to find employment. The estimated total amount that would be payable
under all such agreements is approximately $5 million in salaries and $1.5
million in benefits as of December 31, 1998.
Stay Bonus Agreements
Approximately 85 executive officers and significant employees (excluding
Mr. Westerman) or ROC are party to agreements pursuant to which each such
employee is entitled to receive a "stay bonus" (varying amounts) if the employee
is discharged without cause (as defined in the stay bonus agreements), or
continues to be employed by the
Company on each of January 1, 2000, January 1, 2001 and June 30, 2001. The
estimated total amount that would be payable under all such agreements is
approximately $2.3 million.
Compensation of Directors
Each of Messrs. Barengo, Barovick and Land is paid an annual fee of
$50,000 for services as a director of the Company and ROC. Each director is also
reimbursed for expenses incurred in connection with attendance at meetings of
the Board of Directors. On March 5, 1996 the Board of Directors adopted a
Nonqualified Stock Option Plan for Non-Employee Directors (the "Directors'
Option Plan"), which was approved by the stockholders on May 10, 1996. Under the
Directors' Option Plan, each individual elected, re-elected or continuing as a
non-employee director will automatically receive a non-qualified stock option
for 2,000 shares of Common Stock, with an option exercise price equal to the
fair market value of the Common Stock on the date of grant. 50,000 shares have
been reserved for issuance under the Directors' Option Plan. Under the
Directors' Option Plans, options to purchase 2,000 shares at an exercise price
of $13.25 were granted to Mr. Barengo on May 10, 1996, options to purchase 2,000
shares at an exercise price of $13.50 were granted to Mr. Barengo on May 12,
1997, and options to purchase 2,000 shares at an exercise price of $9.00 were
granted to Mr. Barengo on May 11, 1998. Upon becoming Directors of the Company,
under the Directors' Option Plan Mr. Barovick was granted options to purchase
2,000 shares at an exercise price of $7.50 on August 4, 1998, and Mr. Land was
granted options to purchase 2,000 shares at an exercise price of $5.50 on
January 21,1999. Options to purchase 2,000 shares at an exercise price of $9.00
were granted to Phillip P. Hannifin on May 11, 1998. Options to purchase 2,000
shares at an exercise price of $9.00 were granted to William Friedman on May 11,
1998. Messrs. Hannifin and Friedman resigned from the Board of Directors on June
24, 1998 and July 27, 1998, respectively. Directors who are also officers or
employees of the Company or ROC do not receive any additional compensation for
services as a director. Currently, Mr. Westerman is the only such director. The
Board of Directors has granted the members of the Compensation Committee the
right to elect to receive all or part of their annual fees in the form of the
Company's Common Stock in a number of shares having a fair market value equal to
the cash compensation subject to such election pursuant to the Company's
Compensation Plan for Directors serving on the Compensation Committee. Of the
50,000 shares reserved for issuance under this plan, 3,103 shares were issued to
Mr. Barengo for a portion of his director's fees in 1996 and 877 shares were
issued to Mr. Barengo for a portion of his director's fees in 1997.
Item 12. Principal Shareholders
Security Ownership of Certain Beneficial Owners and Management
The Common Stock is traded on the American Stock Exchange. The following
table sets forth certain information regarding the beneficial ownership of the
Common Stock as of April 7, 1999, by (i) each person who, to the knowledge of
the Company, beneficially owns more than 5% of the outstanding Common Stock of
the Company (based on reports filed with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, or upon information furnished to the
Company), (ii) the directors and certain officers of the Company and (iii) all
directors and officers of the Company and ROC as a group. The percentages of
shares of Common Stock held or beneficially owned by any Stockholder or group of
Stockholders are based upon the total number of shares of Common Stock
outstanding as of April 7, 1999. Except as indicated, each person listed below
has sole voting and investment power with respect to the shares set forth
opposite such person's name.
<TABLE>
<CAPTION>
Shares Beneficially Owned
Name Number Percentage**
- ---- ------ ----------
<S> <C> <C>
William L. Westerman(1)(2) 504,200 9.9%
Robert R. Barengo(1)(2) 5,180 *
Richard L. Barovick(1)(2) 10,000 *
James N. Land, Jr. 1,500 *
Ronald P. Johnson(1)(2) 39,250 *
Duane R. Krohn(1)(2) 36,050 *
Robert Vannucci(1)(2) 24,418 *
Jerome P. Grippe(1)(2) 22,918 *
Keyport Life Insurance Co.(3) 857,160 16.9
SunAmerica Life Insurance Company(4) 761,920 15.0
Morgens Entities:(5)
Betje Partners 29,360 0.6
Morgens Waterfall Income Partners 43,920 0.9
MWV Employee Retirement Plan Group Trust 7,760 0.2
Phoenix Partners, L.P. 79,440 1.6
Restart Partners, L.P. 282,000 5.8
Restart Partners II, L.P. 440,600 8.7
Restart Partners III, L.P. 298,600 5.9
The Common Fund 90,880 1.8
----------- ----
Total Morgens Entities 1,264,800 25.0
James D. Bennett(6) 497,065 9.8
Allen E. Paulson(7) 463,655 9.1
All executive officers and directors as a group 697,413 12.9
(11 persons).(1)(2)
</TABLE>
- --------------------------------
* Less than 1%.
** Based on 5,068,376 shares of Common Stock outstanding on April 7, 1999.
(1) The address for each director and officer of the Company or ROC is c/o
Riviera Holdings Corporation, 2901 Las Vegas Boulevard South, Las Vegas,
Nevada 89109.
(2) Includes vested portion of options to purchase shares of Common Stock
granted pursuant to the Stock Option Plan and Non-qualified Stock Option
Plan for Non-Employee Directors.
(3) The address for Keyport Life Insurance Company ("Keyport") is 125 High
Street, Boston Massachusetts 02110. Stein Roe & Farnham Incorporated, an
affiliate of Keyport, is Keyport's investment advisor, and, as such, has
the power and authority to direct the disposition of the securities, and
accordingly, could be deemed to be a "beneficial" owner within the meaning
of Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Stein Roe & Farnham Incorporated, however, disclaims
actual beneficial ownership of such securities.
(4) The address for SunAmerica Life Insurance Company ("SunAmerica") is One
SunAmerica Center, Los Angeles, California 90067.
(5) The address for Morgens, Waterfall, Vintiadis & Company, Inc. ("Morgens")
is 10 East 50th Street, New York, New York 10022. Morgens or its principals
are either investment advisors to, or trustees or general partners of, the
eight entities listed in the above table ("Morgens Entities") that are the
owners of the Common Stock of the Company. Morgens or its principals have
the power and authority to direct the disposition of these securities and,
accordingly, could be deemed to be "beneficial" owners within the meaning
of Rule l3d-3 of the Exchange Act. Each of Morgens, its principals and the
Morgens Entities, however, disclaims beneficial ownership with respect to
any securities not actually beneficially owned by it.
(6) The address for Mr. Bennett is 2 Stamford Plaza, Suite 1501, 281 Tresser
Boulevard, Stamford, Connecticut 06901. Includes 303,003 shares held by
Restructuring Capital Associates, L.P. ("Restructuring Capital") and
Bennett Restructuring Fund, L.P.
(7) The address for Mr. Paulson is Del Mar Country Club, 6001 Clubhouse Drive,
Rancho Santa Fe, California 92067.
The Company is a party to a registration rights agreement with, among
others, Morgens, Keyport, SunAmerica and affiliates of Restructuring Capital,
each of which owns more than 5% of the Common Stock. Pursuant to the Equity
Registration Rights Agreement dated June 30, 1993, among the Company and the
Holders of Registerable Shares referred to therein, each of the three largest
holders of Common Stock is entitled to cause the Company to file a registration
statement and holders of 51% or more of the shares of Common Stock then subject
to the Equity Registration Rights Agreement are entitled to cause the Company to
file two registration statements, registering under the Securities Act, the
offer and sale of Common Stock owned by such persons. All other Holders of
Registerable Shares will be entitled to have shares of Common Stock owned by
them included in any such registrations in addition, the agreement grants to
each party the right to have included, subject to certain limitations, all
shares of Common Stock owned by such party in any registration statement filed
by the Company under the Securities Act, including those filed on behalf of the
Company or security holders not party to the Equity Registration Rights
Agreement. Pursuant to the agreement, the Company will pay all costs and
expenses, other than underwriting discounts and commissions, in connection with
the registration and sale of Common Stock under the agreement.
Item 13. Certain Relationships and Related Transactions
Robert R. Barengo was formerly a director and 10% stockholder of
Leroy's. In May 1996, Leroy's became a wholly-owned subsidiary of AWI, a
publicly hold corporation listed on NASDAQ. Mr. Barengo is currently a director
of AWI and owns 7% of the outstanding stock of AWI, which leases approximately
12,000 square feet of the Riviera Hotel & Casino's casino floor. AWI is the
operator of the Riviera Hotel & Casino's sports book operations. This lease was
assumed by the Company from Riviera, Inc. and is still in effect. The lease
provides for rental payments based upon the monthly and annual revenues derived
by AWI from the location. From January 1, 1998 through December 31, 1998, AWI
paid aggregate rent to ROC of approximately $212,000 The Company believes that
the terms of the lease with AWI are at least as favorable to the Company and ROC
as could have been obtained from unaffiliated third parties and are at least as
favorable as terms obtained by other casino hotels in Las Vegas. AWI also owns
Howard Johnson Hotel & Casino located at the intersection of Tropicana Avenue
and Interstate 15 in Las Vegas, Nevada. The hotel's operations include an
International House of Pancakes restaurant, on-site food and beverage sales, 150
guest rooms (no suites) and approximately 53 gaming machines. The Company
believes that this casino/hotel's operations are not competitive with the
Riviera Hotel & Casino.
As of April 1, 1998, the Company entered into a letter agreement,
with Mr. Barengo, a member of the Bar of the State of Nevada, pursuant to which
Mr. Barengo has been assisting the Company and its outside counsel in enforcing
the Company's rights under the Riviera Merger Agreement and with related
matters. Under such letter agreement, Mr. Barengo receives a fee of $10,000 per
month for his consulting services, which services commenced on April 1, 1998.
Either party may terminate the letter agreement on no less than seven days prior
written notice.
From August 1996 until February 1997, Riviera Gaming
Management-Elsinore, Inc. ("RGME"), an indirect wholly-owned subsidiary of the
Company, operated the Four Queens located adjacent to the Golden Nugget on
Fremont Street in downtown Las Vegas under an interim management agreement for a
fee of $83,333 per month, A long-term management agreement (the "Management
Agreement") with Elsinore Corporation ("Elsinore"), which owns the Four Queens
through its wholly-owned subsidiary Four Queens, Inc., went into effect on
February 28, 1997, the effective date of the Chapter 11 plan of reorganization
of Elsinore. The Morgens Entities, beneficial owners of approximately 25% of the
common stock of the Company, own over 94% of the voting stock of Elsinore. The
Company believes that the terms of the Management Agreement are no less
favorable to the Company than if the Company had negotiated with an independent
third party. The term of the Management Agreement is approximately 40 months,
subject to earlier termination or extension. Either party can terminate the
Management Agreement if (i) substantially all the Four Queens' assets are sold;
(ii) the Four Queens is merged; or (iii) a majority of the Four Queens' or
Elsinore's shares are sold. Upon such termination RGME will receive a $2.0
million termination bonus minus any amount realized or realizable upon exercise
of the warrants. Either party may terminate the Agreement if cumulative earnings
before interest, taxes, depreciation, and amortization ("EBITDA") for the first
two fiscal years are less than $12.8 million. The Four Queens EBITDA for the 24
months ending March 31, 1999 was approximately $10.2 million. Management and the
Board of Directors of Elsinore have agreed to continue the agreement for its
original term provided, however, that it can be terminated by either party on
six month's notice. RGME is paid a minimum annual management fee of $1.0
million, payable in equal monthly installments. In addition, RGME is entitled to
a fee of 25% of the amount by which the Four Queens EBITDA exceeds $8 million in
any fiscal year. Based upon current historical and projected EBITDA, it is
unlikely that the $8 million threshold will be met. RGME has received warrants
to purchase 1,125,000 shares of common stock of Elsinore, exercisable during the
term or extended term of the Management Agreement at an exercise price of $1 per
share. In consideration of Four Queens' failure to meet the $12.8 million EBITDA
threshold for the first two years of the agreement, RGME and Elsinore are
negotiating a revised termination bonus.
Since March 5, 1997, Mr. Westerman has been the President and a
director of Four Queens, Inc. Mr. Westerman has also been a director of Darling
International Inc., a publicly held company, since June 23, 1997. Morgens
Entities own 46.13% of the stock of Darling International, Inc. which is
primarily in the business of processing animal and bakery waste by-products.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) List of Financial Statements.
The following Independent Auditors' Report and the Consolidated
Financial Statements of the Company are incorporated by reference into this Item
14 of Form 10-K by Item 8 hereof:
- - Independent Auditors' Report dated February 19, 1999.
- - Consolidated Balance Sheets as of December 31, 1998 and 1997.
- - Consolidated Statements of Income for the Years Ended December
31, 1998, 1997 and 1996
- - Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1998, 1997 and 1996.
- - Consolidated Statements of Cash Flows for the Years Ended December
31, 1998, 1997 and 1996.
- - Notes to Consolidated Financial Statements.
(a)(2) List of Financial Statement Schedules.
No financial statement schedules have been filed herewith since they
are either not required, are not applicable, or the required information is
shown in the consolidated financial statements or related notes.
(a)(3) List of Exhibits.
Exhibits required by Item 601 of Regulation S-K are listed in the
Exhibit Index herein, which information is incorporated by reference.
(b) Reports on Form 8-K
No reports on Form 8-K were filed with the Commission during the
fourth quarter ended December 31, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment to be signed
on its behalf by the undersigned, thereunto duly authorized.
RIVIERA HOLDINGS CORPORATION
By:/s/ WILLIAM L. WESTERMAN
William L. Westerman
Chief Executive Officer and President
(Principal Executive Officer)
April 30, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Amendment has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ WILLIAM L. WESTERMAN Chairman of the Board, Chief April 30, 1999
William L. Westerman Executive Officer and President
/s/ DUANE R. KROHN Treasurer (Principal Financial April 30, 1999
Duane R. Krohn and Accounting Officer)
/s/ ROBERT R. BARENGO Director April 30, 1999
Robert R. Barengo
/s/ RICHARD L. BAROVICK Director April 30, 1999
Richard. L. Barovick
/s/ JAMES N. LAND, JR. Director April 30, 1999
James N. Land, Jr.
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
2.1* Agreement and Plan of Merger, dated
September 15, 1997, by and among R&E
Gaming Corp., Riviera Acquisitions Sub,
Inc., and Riviera Holdings Corporation
(see Exhibit 10.1 to Current Report on
Form 8-K filed with the Commission on
September 29, 1997, Commission File No.
0-21430)
3.1* Second Restated Articles of Incorporation
of the Company (see Exhibit 3.1 to
Registration Statement on Form S-4 filed
with the Commission on September
10, 1997, Commission File No. 0-21430)
3.2* Bylaws of the Company (see Exhibit 3.2 to
Registration Statement on Form S-4
filed with the Commission on September
10, 1997, Commission File No. 0-21430)
3.3* Articles of Incorporation of Riviera
Operating Corporation (see Exhibit 3.3 to
Registration Statement on Form S-4 filed
with the Commission on September
10, 1997, Commission File No. 0-21430)
3.4* Bylaws of Riviera Operating Corporation
(see Exhibit 3.4 to Registration
Statement on Form S-4 filed with the
Commission on September 10, 1997,
Commission File No. 0-21430)
3.5* Articles of Incorporation of Riviera
Gaming Management, Inc. (see Exhibit 3.5
to Registration Statement on Form S-4
filed with the Commission on September
10, 1997, Commission File No. 0-21430)
3.6* Bylaws of Riviera Gaming Management, Inc.
(see Exhibit 3.6 to Registration
Statement on Form S-4 filed with the
Commission on September 10, 1997,
Commission File No. 0-21430)
3.7* Articles of Incorporation of Riviera
Gaming Management - Elsinore, Inc. (see
Exhibit 3.7 to Registration Statement on
Form S-4 filed with the Commission on
September 10, 1997, Commission File No.
0-21430)
3.8* Bylaws of Riviera Gaming Management -
Elsinore, Inc. (see Exhibit 3.8 to
Registration Statement on Form S-4 filed
with the Commission on September
10, 1997, Commission File No. 0-21430)
3.9* Articles of Incorporation of Riviera
Gaming Management of Colorado, Inc. (see
Exhibit 3.9 to Amendment No. 1 to
Registration Statement on Form S-4 filed
with the Commission on December 9, 1997,
Commission File No. 0-21430)
3.10* Bylaws of Riviera Gaming Management of
Colorado, Inc. (see Exhibit 3.10 to
Amendment No. 1 to Registration Statement
on Form S-4 filed with the
Commission on December 9, 1997, Commission
File No. 0-21430)
<PAGE>
4.1* Indenture dated as of August 13, 1997
between the Company and Norwest Bank
Minnesota, N.A., as trustee, the
Guarantors party thereto, Jefferies &
Company, Inc. and Ladenburg Thalmann &
Co. Inc. (see Exhibit 4.2 to Current
Report on Form 8-K filed with the
Commission on August 18, 1997, Commission
File No.
0-21430)
4.2* Form of the Company's 10% Senior Notes
due 2004 (included in Exhibit 4.1)
5.1* Opinion of Dechert Price & Rhoads re:
legality (see Exhibit 5.1 to Amendment
No. 1 to Registration Statement on Form
S-4 filed with the Commission on December
9, 1997, Commission File No. 0-21430)
10.1* Registration Rights Agreement dated as of
August 13, 1997 by and among the
Company, the Guarantors party thereto,
Jefferies & Company, Inc. and
Ladenburg Thalmann & Co. Inc. (see Exhibit
4.1 to Current Report on Form 8-K
filed with the Commission on August 18,
1997, Commission File No. 0-21430)
10.2* Purchase Agreement dated August 8, 1997
among the Company, the Guarantors party
thereto, Jefferies & Company, Inc. and
Ladenburg Thalmann & Co., Inc. (see
Exhibit 1.1 to Current Report on Form 8-K
filed with the Commission on August 18,
1997, Commission File No. 0-21430)
10.3* Lease Agreement between Riviera, Inc. and
Mardi Gras Food Court, Inc. dated
April 1, 1990 (see Exhibit 10.1 to Form
10, Commission File No. 0-21430)
10.4* Amendment to Lease Agreement between
Riviera, Inc. and Mardi Gras Food
Court, Inc. dated April 1, 1990 (see
Exhibit 10.2 to Registration Statement Form
S-1 filed with the Commission on August
11, 1993, File No. 33-67206)
10.5* Lease Agreement between Riviera, Inc. and
Leroy's Horse and Sports Place (see
Exhibit 10.3 to Form 10, Commission File
No. 0-21430)
10.6* Indemnity Agreement, dated June 30, 1993,
from Riviera, Inc. and Meshulam Riklis in
favor of the Company and Riviera
Operating Corporation (see Exhibit 10.7
to Registration Statement Form S-1 filed
with the Commission on August 11, 1993,
File No. 33-67206)
10.7* Indemnity Agreement, dated June 30, 1993,
from the Company in favor of IBJ Schroder
Bank & Trust Company (see Exhibit 10.8 to
Registration Statement Form S-1 filed
with the Commission on August 11, 1993,
File No. 33-67206)
10.8* Equity Registration Rights Agreement,
dated June 30, 1993, among the
Company and the Holders of Registerable
Shares (see Exhibit 10.9 to
Registration Statement Form S-1 filed with
the Commission on August 11, 1993,
File No. 33-67206)
10.9* Operating Agreement, dated June 30, 1993,
between the Company and Riviera
<PAGE>
Operating Corporation (see Exhibit 10.15
to Registration Statement Form S-1 filed
with the Commission on August 11, 1993,
File No. 33-67206).
10.10* Adoption Agreement regarding Profit
Sharing and 401(k) Plans of the Company
(see Exhibit 10.16 to Registration
Statement Form S-1 filed with the
Commission on August 11, 1993, File No.
33-67206)
10.11* Howard Johnson & Company Regional Defined
Contribution Plan, dated March 16, 1990
(adopted by the Company pursuant to the
Adoption Agreement filed as Exhibit 10.17
to Registration Statement Form S-1 filed
with the Commission on August 11, 1993,
File No. 33-67206)
10.12* Employment Agreement between Riviera, Inc.
and William L. Westerman, dated
January 6, 1993 (see Exhibit 10.18 to Form
10, Commission File No. 0-21430)
10.13* Form of Agreement between the Company and
Directors (see Exhibit 10.19 to
Form 10, Commission File No. 0-21430)
10.14* Form of Termination Fee Agreement (see
Exhibit 10.20 to Form 10,
Commission File No. 0-21430)
10.15* Restricted Account Agreement, dated June
30, 1993, among Riviera Operating
Corporation, IBJ Schroder Bank & Trust
Company and Bank of America Nevada (see
Exhibit 10.22 to Registration Statement
Form S-1 filed with the Commission on
August 11, 1993, File No. 33-67206)
10.16* Disbursement Agreement, dated June 30,
1993, between the Company and IBJ
Schroder Bank & Trust Company (see Exhibit
10.23 to Registration Statement
Form S-1 filed with the Commission on
August 11, 1993, File No. 33-67206)
10.17* Tax Sharing Agreement between the Company
and Riviera Operating Corporation dated
June 30, 1993 (see Exhibit 10.24 to
Amendment No. 1 to
Registration Statement Form S-1 filed
with the Commission on August 19, 1993,
File No. 33-67206)
10.18* The Registrant's 1993 Stock Option Plan
(see Exhibit 10.25 to Amendment No.
1 to Registration Statement Form S-1
filed with the Commission on August 19,
1993, File No. 33-67206)
10.19* Form of Stay Bonus Agreement (see Exhibit
10.27 to Form 10-Q filed with the
Commission on November 9, 1994,
Commission File No. 0-21430)
10.20* Amendment dated February 19, 1995, to
Lease Agreement between Riviera, Inc.
and Mardi Gras Food Court, Inc. (filed
with Exhibits 10.3 and 10.4)
10.21* Amendment dated September 30, 1994, to
Employment Agreement between
<PAGE>
Riviera, Inc. and William L. Westerman
(filed with Exhibit 10.12)
10.22* Management Agreement by and between
Elsinore Corporation, Four Queens,
Inc. and Riviera Gaming Management Corp.
- Elsinore (see Exhibit 10.30 to
Form 10-K for the fiscal year ended
December 31, 1996, Commission File No.
000-21430)
10.23* Employment Agreement dated as of November
21, 1996 by and between the Company,
Riviera Operating Corporation and William
L. Westerman (see Exhibit 10.31 to Form
10-K for the fiscal year ended December
31, 1996, Commission File No. 000-21430)
10.24* Revolving Line of Credit Loan Agreement
dated February 28, 1997 by and between
the Company, Riviera Operating
Corporation and U.S. Bank of Nevada (see
Exhibit 10.32 to Form 10-K for the fiscal
year ended December 31, 1996, Commission
File No. 000-21430)
10.25* Letter of Intent dated March 4, 1997
between the Company and Eagle Gaming,
L.P. (see Exhibit 10.33 to Form 10-K for
the fiscal year ended December 31,
1996, Commission File No. 000-21430)
10.26* Deed of Trust, Assignment of Rents,
Leases, Fixture Filing and Security
Agreement, dated August 13, 1997,
executed by Riviera Holdings Corporation
for the benefit of Norwest Bank
Minnesota, National Association (see
Exhibit 10.1 to Form 8-K filed August 18,
1997, Commission File No. 000-21430)
10.27* Security Agreement, dated August 13,
1997, by and among Riviera Holdings
Corporation, Riviera Operating
Corporation, Riviera Gaming Management,
Inc., Riviera Gaming Management of
Colorado, Inc., Riviera Gaming Management
- Elsinore, Inc. and Norwest Bank
Minnesota, National Association (see
Exhibit 10.2 to Form 8-K filed August 18,
1997, Commission File No. 000-21430)
10.28* Stock Pledge and Security Agreement,
dated August 13, 1997, executed by
Riviera Holdings Corporation (see Exhibit
10.3 to Form 8-K filed August 18,
1997, Commission File No. 000-21430)
10.29* Stock Pledge and Security Agreement,
dated August 13, 1997, executed by
Riviera Operating Corporation (see
Exhibit 10.4 to Form 8-K filed August 18,
1997, Commission File No. 000-21430)
10.30* Stock Pledge and Security Agreement,
dated August 13, 1997, executed by
Riviera Gaming Management, Inc. (see
Exhibit 10.5 to Form 8-K filed August
18, 1997, Commission File No. 000-21430)
10.31* Restricted Account Agreement, dated
August 13, 1997, by and among Riviera
Holdings Corporation, Norwest Bank
Minnesota, National Association and U.S.
Bank of Nevada (see Exhibit 10.6 to Form
8-K filed August 18, 1997, Commission
File No. 000-21430)
10.32* First Amendment to Revolving Line of
Credit Loan Agreement, dated August
<PAGE>
12, 1997, between Riviera Holdings
Corporation, Riviera Operating
Corporation and U.S. Bank (see Exhibit
10.7 to Form 8-K filed August 18, 1997,
Commission File No. 000-21430)
10.33* Escrow Agreement, dated September 15,
1997, by and among R&E Gaming Corp.,
Riviera Holdings Corporation, and State
Street Bank and Trust Company of
California (see Exhibit 10.2 to Form 8-K
filed September 29, 1997, Commission File
No. 000-21430)
10.34* Employment agreement between the Company
and Ronald P. Johnson effective July 1,
1998 (see, Exhibit 10.34 of Form 10Q
filed November 6, 1998.)
10.35* Employment agreement between the Company
and Duane R. Krohn effective
July 1, 1998 (see, Exhibit 10.35 of Form
10Q filed November 6, 1998.)
10.36* Employment agreement between the Company
and Robert A. Vannucci effective July 1,
1998 (see, Exhibit 10.36 of Form 10Q
filed November 6, 1998.)
10.37* Employment agreement between the Company
and Jerome P. Grippe effective July 1,
1998 (see, Exhibit 10.37 of Form 10Q
filed November 6, 1998.)
21.1* Subsidiaries of the Company (see Exhibit
21.1 to Registration Statement on
Form S-4 filed with the Commission on
September 10, 1997, Commission File
No. 0-21430)
99.1* Letter, dated March 20, 1998, from R&E
Gaming Corp. to the Company regarding
the Company's Agreement and Plan of Merger
* The exhibits thus designated are incorporated herein by reference as
exhibits hereto. Following the description of such exhibits is a reference
to the copy of the exhibit heretofore filed with the Commission, to which
there have been no amendments or changes.
