SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Mark One
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 000-21430
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Riviera Holdings Corporation
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(Exact name of Registrant as specified in its charter)
Nevada 88-0296885 (State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)
2901 Las Vegas Boulevard South, Las Vegas, Nevada 89109
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code (702) 794-9527
- -------------------------------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes------No -------
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE LAST FIVE YEARS
Indicate by check mark whether the Registrant has filed all documentation
and reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes----- No ----
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
As of May 12, 2000, there were 3,933,021 shares of Common Stock, $.001 par value
per share, outstanding.
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RIVIERA HOLDINGS CORPORATION
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INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
<S> <C>
Independent Accountants' Report 2
Condensed Consolidated Balance Sheets at March 31, 2000 (Unaudited) and
December 31, 1998 3
Condensed Consolidated Statements of Operations (Unaudited) for the
Three Months ended March 31, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows (Unaudited) for the
Three Months ended March 31, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosure About Market Risk 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Signature Page 18
Exhibits 19
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INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors
Riviera Holdings Corporation
We have reviewed the accompanying condensed consolidated balance sheet of
Riviera Holdings Corporation (the "Company") and subsidiaries as of March 31,
2000, and the related condensed consolidated statements of operations and of
cash flows for the three months ended March 31, 2000 and 1999. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and of making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Riviera Holdings Corporation as of
December 31, 1999, and the related consolidated statements of operations,
shareholders' equity, and cash flows for the year then ended (not presented
herein); and in our report dated February 14, 2000, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of December 31, 1999, is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
DELOITTE & TOUCHE LLP
April 25, 2000
Las Vegas, Nevada
2
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RIVIERA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2000 and December 31, 1999
(In Thousands, except share amounts)
- ---------------------------------------------------------------------------------------------------------------
March 31, December 31,
2000 1999
ASSETS (Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $38,554 $42,804
Cash and cash equivalents - restricted 2,761 7,173
Short term investments 5,277 5,258
Short term investments - restricted 8,054 7,887
Accounts receivable, net 7,196 5,042
Inventories 3,032 3,432
Prepaid expenses and other assets 3,760 3,989
---------------- ----------------
Total current assets 68,634 75,585
PROPERTY AND EQUIPMENT, NET 212,734 202,659
OTHER ASSETS, NET 10,501 10,391
DEFERRED INCOME TAXES 355 355
---------------- ----------------
TOTAL $292,224 $288,990
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $2,535 $1,274
Accounts payable 12,617 11,498
Accrued interest 4,626 7,539
Accrued expenses 11,856 11,949
---------------- ----------------
Total current liabilities 31,634 32,260
---------------- ----------------
OTHER LONG-TERM LIABILITIES 5,600 5,286
---------------- ----------------
LONG-TERM DEBT, NET OF CURRENT PORTION 231,021 223,766
---------------- ----------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock ($.001 par value; 20,000,000 shares
authorized; 3,933,021 and 4,523,021 shares at
March 31, 2000 and December 31, 1999, respectively) 4 5
Additional paid-in capital 13,487 13,446
Treasury stock (1,173,755 shares and 583,755 shares at
March 31, 2000 and December 31, 1999, respectively) (7,540) (3,115)
Retained earnings 18,017 17,342
---------------- ----------------
Total stockholders' equity 23,968 27,678
---------------- ----------------
TOTAL $292,224 $288,990
================ ================
See notes to consolidated financial statements
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3
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RIVIERA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE QUARTERS ENDED MARCH 31, 2000 AND 1999
(Unaudited)
(In thousands, except per share amounts)
- ----------------------------------------------------------------------------------------------------------------------
2000 1999
REVENUES:
<S> <C> <C>
Casino $26,309 $18,916
Rooms 10,973 10,139
Food and beverage 7,389 6,356
Entertainment 6,281 5,612
Other 2,605 2,823
---------------- -----------------
Total revenues 53,557 43,846
Less promotional allowances 3,858 3,549
---------------- -----------------
Net revenues 49,699 40,297
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COSTS AND EXPENSES:
Direct costs and expenses of operating departments:
Casino 13,389 11,349
Rooms 5,627 5,249
Food and beverage 5,160 4,395
Entertainment 4,608 4,189
Other 723 802
Other operating expenses:
Selling, general and administrative 9,320 7,107
Preopening expenses-Black Hawk, Colorado project 1,221 14
Depreciation and amortization 4,289 3,333
---------------- -----------------
Total costs and expenses 44,337 36,438
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INCOME FROM OPERATIONS 5,362 3,859
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OTHER (EXPENSE) INCOME
Interest expense (6,504) (4,870)
Interest income 473 353
Interest capitalized 641 961
Other, net 1,104 (51)
---------------- -----------------
Total other expense (4,286) (3,607)
---------------- -----------------
INCOME BEFORE PROVISION FOR TAXES 1,076 252
PROVISION FOR INCOME TAXES 401 86
---------------- -----------------
NET INCOME $675 $166
================ =================
EARNINGS PER SHARE DATA:
Earnings per share:
Basic $ 0.16 $ 0.03
---------------- -----------------
Diluted $ 0.15 $ 0.03
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Weighted-average common shares outstanding 4,327,000 5,070,000
---------------- -----------------
Weighted-average common and common equivalent shares 4,369,000 5,082,000
---------------- -----------------
See notes to condensed consolidated financial statements
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4
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RIVIERA HOLDINGS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) For the Quarter Ended
March 31,
2000 1999
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income $675 $166
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,289 3,333
Provision for bad debts 36 315
Provision for gaming discounts 194 21
Interest expense 6,504 4,870
Interest paid (8,951) (8,766)
Capitalized interest on construction projects (641) (961)
Changes in operating assets and liabilities:
Increase in US Treasury Bills purchased to retire $100 million notes
Decrease (increase) in accounts receivable (2,384) (139)
Decrease (increase) in inventories 400 341
Decrease (increase) in prepaid expenses
and other assets 229 559
Increase (decrease) in accounts payable 480 1,406
Increase (decrease) in accrued liabilities (494) (297)
Increase (decrease) in current income taxes payable 401
Increase (decrease) in deferred income taxes 86
Increase in non-qualified pension plan obligation
to CEO upon retirement 314 259
------------------ ------------------
Net cash provided by operating activities 1,052 1,193
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment, Las Vegas, Nevada (1,543) (5,227)
Capital expenditures - Black Hawk, Colorado project (12,677) (6,338)
Capitalized interest on construction projects 641 961
Purchase of short term investments (185)
Decrease (increase) Black Hawk, Colorado restricted funds 4,415 (60)
Decrease (increase) in other assets (6) 75
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Net cash provided by (used in) investing activities (9,355) (10,589)
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 8,719 411
Payments on long-term borrowings (279) (71)
Purchase of treasury stock (4,425) (22)
Increase in Paid-in Capital 38
------------------ ------------------
Net cash provided by financing activities 4,053 318
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DECREASE IN CASH AND CASH EQUIVALENTS ($4,250) ($9,078)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $42,804 $48,883
------------------ ------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $38,554 $39,805
================== ==================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION --
Income taxes paid-Colorado Income Tax $100
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING
ACTIVITIES:
Property acquired with debt and accounts payable $716 $3,418
------------------- -------------------
See notes to condensed consolidated financial statements
</TABLE>
5
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 August 1995, Riviera Gaming Management, Inc. ("RGM") incorporated in the
State of Nevada as a wholly owned subsidiary of ROC for the purpose of obtaining
management contracts in Nevada and other jurisdictions. In March 1997 Riviera
Gaming Management of Colorado was incorporated in the State of Colorado, and in
August 1997 Riviera Black Hawk, Inc. ("RBH") was incorporated in the State of
Colorado for the purpose of developing a casino in Black Hawk, Colorado.
Nature of Operations
The Company owns and operates the Riviera Hotel & Casino ("Riviera Las Vegas")
on the Strip in Las Vegas, Nevada and in February of 2000, opened its casino in
Black Hawk, Colorado ("Riviera Black Hawk"). Riviera Black Hawk is owned 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
manages the casino. RGM provides services to Peninsula Gaming Partners LLC with
respect to that company's riverboat, Diamond Jo, operating in Dubuque, Iowa. RGM
also managed the Four Queens Hotel and Casino (owned by Elsinore Corporation) in
downtown Las Vegas from August 1996 until September 1999 when it received notice
of the contract termination, effective December 30, 1999.
Casino operations are subject to extensive regulation in the states of Nevada
and Colorado and various 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 subsidiary ROC and various indirect wholly owned subsidiaries. All
material intercompany accounts and transactions have been eliminated.
The financial information at March 31, 2000, and for the three months ended
March 31, 2000 and 1999 is unaudited. However, such information reflects all
adjustments (consisting solely of normal recurring adjustments) that are, in the
opinion of management, necessary for a fair presentation of the financial
position, results of operations, and cash flows for the interim periods. The
results of operations for the three months ended March 31, 2000, are not
necessarily indicative of the results that will be achieved for the entire year.
These financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto for the year ended December
31, 1999, included in the Company's Annual Report on Form 10K.
6
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Estimates and Assumptions
The preparation of condensed consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Significant estimates used by the Company include
estimated useful lives for depreciable and amortizable assets, certain accrued
liabilities and the estimated allowance for receivables. Actual results may
differ from estimates.
Cash and cash equivalents and short term investments - restricted
Amounts related to the Riviera Black Hawk casino project in Black Hawk, Colorado
are restricted in use to that project or for the related 13% First Mortgage
Notes interest payments.
Earnings Per Share
Basic per share amounts are computed by dividing net income by weighted
average shares outstanding during the period. Diluted net income per share
amounts are computed by dividing net income by weighted average shares
outstanding plus the dilutive effect of common share equivalents.
Recently Issued Accounting Standards
Recently Issued Accounting Standards - The Financial Accounting Standards Board
issued SFAS No. 133, "Accounting for Derivatives," which is effective for fiscal
years beginning after June 15, 2000. 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, 2001. Management has not finalized its analysis of this SFAS
or the impact of this SFAS on the Company or the Company's future consolidated
financial statements.
2.LONG TERM DEBT
On August 13, 1997, the Company issued 10% First Mortgage Notes ("the 10%
Notes") with a principal amount of $175 million. The Notes were issued at a
discount in the amount of $2.2 million. The discount is being amortized over the
life of the 10% Notes on a straight-line basis.
On June 3, 1999, Riviera Black Hawk, Inc. ("RBH"), a wholly owned subsidiary,
closed a $45 million private placement of 13% First Mortgage Notes. The net
proceeds of the placement were used to fund the completion of RBH's casino
project in Black Hawk, Colorado. The Company has not guaranteed the $45 million
RBH Notes, but has agreed to a "Capital Completion Commitment" of up to $10
million and a "Keep Well" of $5 million per year (or an aggregate limited to $10
million) for the first 3 years of RBH operations to cover if (i) the $5.85
million interest on such Notes is not paid by RBH and (ii) the amount by which
RBH cash flow is less than $9.0 million per year.
During 1999 the Company obtained capital lease financing for $1.2 for 60 months
at approximately 8.3% of which used to date for general equipment purchases at
Riviera Las Vegas.
7
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During 1999, the Company entered into a $3.5 million equipment financing
arrangement for 60 months at approximately 9.1% for general equipment purchases
at Riviera Las Vegas.
During the first quarter of 2000, RBH, the Company's 100% owned subsidiary,
obtained $9.6 million in capital lease financing for 60 months at approximately
10.5% for Riviera Black Hawk equipment purchases.
3.COMMITMENTS
RBH has constructed a casino in Black Hawk, Colorado on a site which was
purchased for $15 million in August 1997. As of March 31, 2000 the Company had
made $20.0 million in cash contributions to RBH (excluding capitalized interest)
and the casino began operations on February 4, 2000.
Deposit Account - Pursuant to a deposit account agreement, dated as of June 3,
1999, among Bank of America as deposit bank, Riviera Holdings Corporation and
First American Title Insurance Company, Riviera Holdings Corporation has
deposited $5.0 million to insure First American against mechanics lien claims
against the Black Hawk property. If no mechanics liens are outstanding 30 days
after the casino opens, and the substantially all construction funds have been
disbursed, such $5.0 million deposit will be returned to Riviera Holdings
Corporation. These amounts are included in cash and cash equivalents,
restricted. The Company believes these restrictions will be removed in August
2000.
Keep-Well Agreement - RBH and Riviera Holdings Corporation entered a Keep-Well
Agreement wherein, if (1) RBH does not have the necessary funds to make a
payment of fixed interest on the notes during its first three years of
operations or (2) consolidated cash flow is less than $9.0 million in any of the
first three years of operations, Riviera Holdings Corporation will be obligated
to contribute cash to RBH to make up those amounts (up to a maximum of $5.0
million for any one operating year and $10.0 million in the aggregate).
As a result of the scheduled opening of several new Las Vegas Strip properties
in 1999 and 2000, an estimated 38,000 jobs had to be filled, including
approximately 5,000 supervisory positions. Because of the Company's performance
and reputation, its employees were prime candidates to fill these positions. In
the third quarter of 1998 management instituted an employee retention plan ("the
Plan") which covers approximately 85 executive, supervisory and technical
support positions and includes a combination of employment contracts, stay put
agreements, bonus arrangements and salary adjustments. The period costs
associated with the Plan are being accrued as additional payroll costs and
included approximately $300,000 in 1998, $875,000 in 1999, and $300,000 year to
date. The total cost of the Plan is estimated to be approximately $2.3 million
over the period July 1, 1998 through June 30, 2001.
4.TENDER OFFER
On February 8, 2000, the Company completed a tender offer wherein 590,000
shares of stock were purchased for $7.50 per share. The Company used its cash
and cash equivalents to purchase the tendered shares.
5.SUBSEQUENT EVENTS
On April 20, 2000, William L. Westerman, Chairman and Chief Executive
Officer, entered into an agreement to purchase, for his own account in a private
transaction, 346,030 shares of the Riviera's outstanding common stock from funds
managed by Morgens, Waterfall, Vintiadis & Company, Inc. Two of the Riviera's
key executives and a Riviera director also purchased an additional 120,000
shares from Morgens, Waterfall funds. The purchase price was $7.50 per share or
an aggregate of $3,495,255. The shares purchased amount to about 12 percent of
the Company's outstanding common stock.
8
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6.OTHER EXPENSE
Other income(expense), net includes an insurance recovery of $1.2 million
for litigation costs on the Paulson litigation. Such costs were incurred in 1998
and 1999.
9
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7.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. Intersegment revenues consist of revenues generated through
complimentary sales to customers by the casino segment. 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
The Riviera Black Hawk was in the development stage during the first quarter of
1999 and until February 4, 2000. Accordingly, the results of operations for the
fiscal 2000 and fiscal 1999 may not be comparable.
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<CAPTION>
Food and Entertain-
Three Months ended March 31, 2000 Casino Rooms Beverage ment All Other Total
<S> <C> <C> <C> <C> <C> <C>
Revenues from external customers $26,309 $10,189 $5,175 $5,421 $2,605 $49,699
Intersegment revenues 784 2,214 860 3,858
Segment profit 12,920 4,562 14 813 1,882 20,192
Three Months ended March 31, 1999
Revenues from external customers $18,916 $9,242 $4,425 $4,891 $2,823 $40,297
Intersegment revenues 897 1,931 721 3,549
Segment profit 7,567 3,993 30 702 2,021 14,313
</TABLE>
Reconciliation of segment profit to consolidated net income before taxes and
extraordinary items:
<TABLE>
<CAPTION>
Three Months Ended
2000 1999
<S> <C> <C>
Segment profit $20,192 $14,313
Other operating expenses 14,830 10,454
Other expense 4,286 3,607
Net income before provision for taxes $1,076 $252
======= ====
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In Las Vegas 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. In Black Hawk, Colorado,
the Company markets to residents of the Denver metropolitan area. 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.
10
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following tables set forth certain operating information for the Company for
the three months ended March 31, 2000 and 1999. Revenues and promotional
allowances are shown as a percentage of net revenues. Department costs are shown
as a percentage of departmental revenues. All other percentages are based on net
revenues.
The Riviera Black Hawk was in the development stage during the first quarter of
1999 and until February 4, 2000. Accordingly, the results of operations for the
fiscal 2000 and fiscal 1999 may not be comparable.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
Income Statement Data: 2000 1999
--------- --------
Revenues:
<S> <C> <C>
Casino 52.9% 46.9%
Rooms 22.1% 25.2%
Food and beverage 14.9% 15.8%
Entertainment 12.6% 13.9%
Other 5.2% 7.0%
Less promotional allowances -7.8% -8.8%
Net Revenues 100.0% 100.0%
Costs and Expenses:
Casino 50.9% 60.0%
Rooms 51.3% 51.8%
Food and beverage 69.8% 69.1%
Entertainment 73.4% 74.6%
Other 27.7% 28.4%
General and administrative 18.8% 17.6%
Preopening Expenses - Black Hawk, Colorado Project 2.5% 0.0%
Depreciation and amortization 8.6% 8.3%
Total costs and expenses 89.2% 90.4%
Income from operations 10.8% 9.6%
Interest expense -13.1% -12.1%
Interest income 1.0% 0.9%
Interest, capitalized 1.3% 2.4%
Other, net (primarily Paulson litigation and settlement) 2.2% -0.1%
Income before provision for income taxes 2.2% 0.6%
Provision for income taxes 0.8% 0.2%
Net Income 1.4% 0.4%
EBITDA (1) Margin 21.9% 17.9%
Net cash provided by operating activities 2.8% 3.0%
</TABLE>
1 EBITDA consists of earnings before interest, income taxes, depreciation,
amortization, preopening expenses, and Other, net. While EBITDA should not be
construed as a substitute for operating income or a better indicator of
liquidity than cash flow from operating activities, which are determined in
accordance with generally accepted accounting principles ("GAAP"), it is
included herein to provide additional information with respect to the ability of
the Company to meet its future debt service, capital expenditure and working
capital requirements. Although EBITDA is not necessarily a measure of the
Company's ability to fund its cash needs, management believes that certain
investors find EBITDA to be a useful tool for measuring the ability of the
Company to service its debt. EBITDA margin is EBITDA as a percent of net
revenues. The Company's definition of EBITDA may not be comparable to other
companies' definitions.
11
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
Special Factors Effecting Comparability of Results of Operations
The Riviera Black Hawk was in the development stage during the first quarter of
1999 and until February 4, 2000. Accordingly, the results of operations for the
fiscal 2000 and fiscal 1999 may not be comparable.
The following table sets forth, for the periods indicated, certain operating
data for the Riviera Las Vegas and Riviera Black Hawk. EBITDA and Operating
income from properties for the purposes of this table excludes corporate
expense, including related depreciation, amortization and preopening expense.
<TABLE>
<CAPTION>
First Quarter
2000 1999
---- ----
Net revenues:
<S> <C> <C>
Riviera Las Vegas $41,712 $40,047
Riviera Black Hawk 7,884 0
Riviera Gaming Management 103 250
--- ---
Total Net Revenues $49,699 $40,297
EBITDA:
Riviera Las Vegas $7,599 $6,956
Riviera Black Hawk 3,176 0
Riviera Gaming Management 97 250
-- ---
Total EBITDA $10,872 $7,206
EBITDA Margin:
Riviera Las Vegas 18.2% 17.4%
Riviera Black Hawk 40.3%
Riviera Gaming Management 94.2% 100.0%
----- ------
Total EBITDA 21.9% 17.9%
Operating Income
Riviera Las Vegas $4,258 $3,623
Riviera Black Hawk 1,007 (14)
Riviera Gaming Management 97 250
-- ---
Total Operating Income $5,362 $3,859
</TABLE>
Revenues
Net revenues increased by $9.4 million, or 23.3%, from $40.3 million in the
first quarter of 1999 to $49.7 million in the first quarter of 2000. Casino
revenues increased by $7.4 million, or 39.1%, from $18.9 million during 1999 to
$26.3 million during 2000 due primarily to the opening of Riviera Black Hawk on
February 4, 2000. For the first quarter of 2000, RBH contributed $7.6 million in
casino revenues of which $7.2 million were slot revenues. Riviera Las Vegas
posted record first quarter slot revenue. Slot revenues increased approximately
$1.1 million due to the success of the lower denomination slot machines. In
addition, a marketing bus program was instrumental in increasing slot play. Las
Vegas table games drop was down $2.7 million, or 10.5%, from $25.4 million in
the first quarter of 1999 to $22.7 million in the first quarter of 2000. Table
games
12
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hold percentage was down 3.2% from 17.4% to 14.2% resulting in a decrease in
table games win of approximately $1.2 million.
Riviera Las Vegas room revenues increased by approximately $800,000, or
8.2% from $10.1 million in 1999 to $10.9 million in 2000 as the result of an
increase of $4.24 in average daily rate from $55.37 in 1999 to $59.61 in 2000.
Hotel occupancy decreased .6% from 97.0% in 1999 to 96.4% in 2000.Riviera Black
Hawk has no hotel rooms. Convention room revenue increased approximately
$350,000 or 8.9% from $3.8 million in 1999 to $4.1 million in 2000. Convention
revenues increased due to higher attendance at recurring conventions and to
special events booked at the Riviera Convention Center Pavilion.
Food and beverage revenues increased approximately $1.0 million, or 16.2%, from
$6.4 million during 1999 to $7.4 million in 1999 due primarily to the opening of
Riviera Black Hawk which contributed $700,000 in food and beverage revenues from
one restaurant, a snack bar, and the casino bar. In Las Vegas expansion of the
convention center banquet facilities provided additional banquet revenues of
approximately $200,000.
Riviera Las Vegas entertainment revenues increased approximately $700,000,
or 11.9%, from $5.6 million in 1999 to $6.3 million in 2000, due mainly to
increased ticket sales for Splash, which reopened with a new show on December
25, 1999. Splash attendance has increased 23,000 covers, 33.2% over 1999.
Promotional allowances increased approximately $300,000, or 8.7%, from $3.5
million in 1999 to $3.8 million in 2000 due primarily to promotional activity at
Riviera Black Hawk which totaled approximately $500,000 for drinks and meals for
casino patrons.
Direct Costs and Expenses of Operating Departments
Total direct costs and expenses of operating departments increased approximately
$3.5 million, or 13.6%, from $26.0 million for the three months ended March 31,
1999 to $29.5 million for the three months ended March 31, 2000. Riviera Black
Hawk produced $3.0 million of the increase in direct costs and expenses.
Casino expenses increased $2.0 million, or 18.0%, of which $2.6 million was
provided by Riviera Black Hawk, while in Las Vegas overall table games revenues
declined and the related direct costs such as payroll, promotional allowances
and taxes decreased $600,000. Casino expenses as a percentage of revenues
decreased from 60.0% in 1999 to 50.9% in 2000 due to the Riviera Black Hawk
revenue contributions.
Riviera Las Vegas room costs increased approximately $400,000, or 7.2%, from
$5.2 million in 1999 to $5.6 million in 2000 due to increased payroll costs for
the expanded Convention Center Pavilion and other convention commissions and
rebates. Room costs as a percentage of room revenue decreased from 51.8% in 1999
to 51.3% in 2000 due to the increased room revenues.
Food and beverage costs increased approximately $800,000, or 17.4%, from $4.4
million during the 1999 period to $5.2 million for the 2000 period. Further,
food and beverage costs as a percentage of revenues increased from 69.1% to
69.8% because of the increased union wage scales, and an increase in personnel
to staff the new convention center banquet facilities in Las Vegas. In Riviera
Black Hawk, food and beverage costs as a percentage of revenues is 50%.
Riviera Las Vegas entertainment costs increased $400,000, or 10.0%, from $4.2
million during the 1999 period to $4.6 million in the 2000 period. Entertainment
expense as a percentage of entertainment revenues increased from 74.6% in 1999
to 73.4% in 2000 as a result of increased Splash revenues.
13
<PAGE>
Other departmental expenses decreased approximately $100,000 (9.9%) from
$800,000 in 1999 to $700,000 in 2000 and remained the same at approximately 28%
of other operating revenues.
Other Operating Expenses
Selling, general and administrative expenses increased approximately $2.3
million, or 31.1%, from $7.1 million in 1999 to $9.3 million in 2000. Of the
increase Riviera Black Hawk totaled $1.7 million. These expenses increased from
17.6% of total net revenues in 1999 to 18.8% during the 2000 period. In the
third quarter of 1998 management instituted an employee retention plan which
covers approximately 85 executive, supervisory and technical support positions
and includes a combination of employment contracts, stay put agreements, bonus
arrangements and salary adjustments. The period costs associated with the plan
are being accrued as additional payroll costs and included approximately
$300,000 in the first quarter of 2000. The total cost of the plan is estimated
to be approximately $2.3 million over the period July 1, 1998 through June 30,
2001.
Preopening expense for the Riviera Black Hawk casino totaled $1.2 million for
the first quarter of 2000. These costs were comprised many of payroll and
related expense for the hiring and training of the five hundred employees to
operate the Black Hawk property.
Depreciation and amortization increased by $1.0 million, or 28.7%, from $3.3
million in 1999 to $4.3 million in 2000 due to capital expenditures in Black
Hawk for the casino and in Las Vegas for the Convention Center Pavilion, which
was completed in February 1999.
Other Income (Expense)
Interest expense increased $1.6 million, or 33.5%, due to the issuance of
the $45 million 13% First Mortgage Notes on the Black Hawk, Colorado, project
effective June 1999. Interest income increased $120,000 because of the higher
investment balances for the period from the proceeds of the 13% First Mortgage
Notes on RBH. Other income(expense), net include an insurance recovery of
litigation and settlement costs of $1.2 million in 2000 for the Paulson
litigation which was settled in late 1999.
Capitalized interest for the first quarter of 2000 was approximately
$600,000 on the Black Hawk, Colorado project compared to $1.0 million in 1999
(which also included the Riviera Las Vegas Convention Center Pavilion).
Net Income
Net Income increased by approximately $500,000 from approximately $200,000 for
the three months ended March 31, 1999 to approximately $700,000 for the three
months ended March 31, 2000 due primarily to the increased revenues and other
fluctuations discussed above. Provision for income taxes includes the normal 35%
provision for federal taxes and 5% for Colorado State Income Tax for the Black
Hawk property.
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $100,000 from $1.2 million
in 1999 to $1.1 million in 2000 for the reasons described above and net changes
in the components of working capital.
EBITDA
EBITDA increased by $3.7 million, or 50.9%, from $7.2 million in 1999 to $10.9
million in 2000 due to the increased revenues contributed by Riviera Black Hawk
and Las Vegas. Preopening expenses of $1.2 million are not included in the
EBITDA calculation.
14
<PAGE>
Liquidity and Capital Resources
At March 31, 2000, the Company had cash and short term investments of $54.6
million, including $10.8 million restricted for the Black Hawk project. The
Company had working capital of $37.0 million and shareholders equity of $24.0
million. The cash and short term investments decreased $4.2 million during the
first three months of 2000 as a result of the $12.7 million in capital
expenditures at Riviera Black Hawk, Inc. of which $8.7 million was funded with
proceeds from long-term borrowings. The Company also purchased $4.4 million in
treasury stock in a tender offer during the first quarter of 2000.
The Company's net cash provided by operating activities was approximately $1.4
million for the three months ended March 31, 2000 compared to $1.2 million in
1999. Management believes that cash flow from operations, combined with the
$54.6 million cash and short term investments will be sufficient to cover the
Company's debt service and enable investment in budgeted capital expenditures
for 2000 for both the Las Vegas and Black Hawk properties.
Cash flow from operations is not expected to be sufficient to pay 100% of the
principal of the $175 million 10% Notes at maturity on August 15, 2004 and may
not be sufficient to pay the $45 million 13% Notes at maturity on May 1, 2005.
Accordingly, the ability of the Company and its subsidiary to repay the Notes at
maturity will be dependent upon its ability to refinance those notes. There can
be no assurance that the Company and its subsidiary will be able to refinance
the principal amount of the 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. Riviera Black Hawk, Inc. may redeem 100% of the 13% Notes beginning
May 1, 2002, at premiums beginning at 106.5% and declining each subsequent year
to par in 2004.
The 10% and 13% Note Indentures provide that, in certain circumstances, the
Company and its subsidiary must offer to repurchase the 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 and its
subsidiary would be unable to pay the principal amount of the Notes without a
refinancing.
The 10% Note Indenture contains certain covenants, which limit the ability of
the Company and its restricted subsidiaries (and its unrestricted subsidiary
Riviera Black Hawk, Inc. under the 13% Notes Indenture), 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. As a result of these restrictions, the
ability of the Company and its subsidiaries 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 its subsidiaries would be required to curtail or defer certain of
their capital expenditure programs under these circumstances, which could have
an adverse effect on operations. At March 31, 2000, the Company believes that it
is in compliance with the covenants.
Forward Looking Statements
The Private Securities Litigation Reform Act of 1997 provides a "safe harbor"
for certain forward-looking statements. Certain matters discussed in this filing
could be characterized as forward-looking statements such as statements relating
to plans for future expansion, as well as other capital spending, financing
sources and effects of regulation and competition. Such forward-looking
statements involve important risks and uncertainties that could cause actual
results to differ materially from those expressed in such forward-looking
statements.
15
<PAGE>
Item 3. 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 maturities of 90 days or less.
As of March 31, 2000, we had $233.5 million in borrowings. The borrowings
include $175 million in bonds maturing in 2004. Interest under the $175 million
bonds is based on a fixed rate of 10%. The borrowings also include $45 million
in bonds maturing in 2005 for the Black Hawk, Colorado casino project. Interest
under the $45 million bonds is based on a rate of 13% excluding contingent
interest. The borrowings also include $.7 million in a special improvement
district bond offering with the City of Black Hawk, Colorado. The Company's
share of the debt on the SID bonds of $1,120,000 when the project is complete is
payable over ten years beginning in January 2000. The Special improvement
district bonds bear interest at 5.5%.
During the first quarter 2000, RHB obtained $9.6 million in capital lease
financing for 60 months at appoximately 10.5% for equipment purchases.
<TABLE>
<CAPTION>
Interest Rate Sensitivity
Principal (Notational Amount by Expected Maturity)
Average Interest Rate
(Amounts in Fair Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thousands) 2000 2001 2002 2003 2004 Thereafter Total at 3/31/00
Assets
Short term investments $13,300 $13,300 $13,300
Average interest rate 5.00%
Long Term Debt Including Current Portion
Equipment loans and
capital leases Las Vegas $1,204 $1,072 $1,171 $1,254 $949 $5,650 $5,650
Average interest rate 7.7% 8.0% 7.8% 7.8% 8.4%
10% First Mortgage Note Las Vegas $173,579 $173,579 $157,500
Average interest rate 10.0%
Equipment loans
Black Hawk, Colorado $ 9 $ 10 $ 8 $ 27 $ 27
Average interest rate 11.2% 11.2% 11.2%
Capital leases
Black Hawk, Colorado $ 1,051 $ 1,588 $ 1,766 $ 1,959 $ 2,161 $ 255 $ 8,780 $ 8,780
Average interest rate 10.5% 10.5% 10.5% 10.5% 10.5% 10.5%
Special Improvement District Bonds
Black Hawk, Colorado $ 60 $ 64 $ 68 $ 71 $ 76 $ 445 $ 784 $ 784
Average interest rate 5.5% 5.5% 5.5% 5.5% 5.5% 5.5%
13% First Mortgage Note
Black Hawk, Colorado casino
project $ 45,000 $ 45,000 $ 48,600
Average interest rate 13.0%
</TABLE>
16
<PAGE>
Part II. OTHER INFORMATION
Legal Proceedings
Morgens, Waterfall, Vintiadis & Company, Inc., v. Riviera Holdings
Corporation, William L. Westerman, Robert R. Barengo, Richard L. Barovick and
James N. Land, Jr., as Directors of Riviera Holdings Corporation, United States
District court for the District of Nevada (CV-S-99-1383-JBR(RLH)) (the "Nevada
Action"). The plaintiff in this action ("Morgens, Waterfall") is a shareholder
of Riviera Holdings Corporation and a defendant to the California Action. On
September 30, 1999, Morgens, Waterfall commenced this action in Nevada state
court, where it sought an order enjoining us from obtaining a Settlement Bar
Order in the California Action. RHC and the other defendants to the Nevada
Action removed the action to the United States District Court for the district
of Nevada on October 1, 1999. This removal to federal court divested the state
court of jurisdiction to consider Morgens, Waterfall's motion for injunctive
relief. Morgens, Waterfall filed a complaint with the court, but it did not
serve the complaint on any of the defendants.
On November 1, 1999, Morgens, Waterfall served a notice of motion to remand the
Nevada Action from the Nevada federal court back to Nevada state court. RHC and
the other defendants opposed the motion, and the motion is presently pending
before the federal court.
On January 31, 2000, Morgens, Waterfall purported to serve an Amended
Summons and a First Amended Verified Complaint on RHC with subsequent service on
directors. The Amended Complaint asserts four claims for relief. In the first
claim for relief, Morgens, Waterfall asserts that there is a dispute as to the
meaning of the amended complaint filed by Paulson in the California Action
pursuant to the Settlement Agreement. Morgens, Waterfall seeks an affirming
injunction requiring RHC to seek clarification from Paulson as to the meaning of
this amended complaint. In its second claim for relief, Morgens, Waterfall seeks
indemnification from RHC for all damages and costs incurred in the California
Action by reason of any misconduct alleged by Paulson against RHC. In its third
claim for relief, Morgens, Waterfall claims that RHC and the director defendants
breached their fiduciary duties to Morgens, Waterfall when it consummated the
Settlement Agreement and secured the settlement Bar Order because it left
Morgens, Waterfall unprotected from claims based on RHC's alleged misconduct
and, in addition, harmed Morgens, Waterfall because RHC allegedly paid too much
for Paulson's stock. Morgens, Waterfall styles its fourth claim for relief as a
"derivative claim" and assets it only against the director defendants. Morgens,
Waterfall claims that the director defendants violated their fiduciary duties by
entering into the Settlement Agreement and securing the Settlement Bar Order.
RHC and its directors have filed motions to dismiss this action. These motions
are presently pending before the Federal Court. The Company believes all these
claims are without merit and intend to vigorously defend against them.
The Company is also a party to several routine lawsuits both as plaintiff
and as defendant arising from the normal operations of a hotel. We do not
believe that the outcome of such litigation, in the aggregate, will have a
material adverse effect on the financial position or results of our operations.
17
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RIVIERA HOLDINGS CORPORATION
By: /s/ William L. Westerman
William L. Westerman
Chairman of the Board and
Chief Executive Officer
By: /s/ Duane Krohn
Duane Krohn
Treasurer and
Chief Financial Officer
Date: May 12, 2000
18
<PAGE>
Riviera Holdings Corporation
Form 10Q
March 31, 2000
Exhibits
99.1 Verified Complaint of Morgens, Waterfall, Vintiadis & Company, Inc.
vs. Riviera Holdings Corporation and Riviera Directors, September 30, 1999.
19
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-2000
<PERIOD-START> Jan-01-2000
<PERIOD-END> Mar-31-2000
<CASH> 41,315,000
<SECURITIES> 13,331,000
<RECEIVABLES> 8,650,401
<ALLOWANCES> 1,454,401
<INVENTORY> 3,032,000
<CURRENT-ASSETS> 68,634,000
<PP&E> 276,241,108
<DEPRECIATION> 63,506,709
<TOTAL-ASSETS> 292,224,000
<CURRENT-LIABILITIES> 31,634,000
<BONDS> 220,000,000
0
0
<COMMON> 3,933,021
<OTHER-SE> 13,487,000
<TOTAL-LIABILITY-AND-EQUITY> 292,224,000
<SALES> 53,557,000
<TOTAL-REVENUES> 49,699,000
<CGS> 0
<TOTAL-COSTS> 44,337,000
<OTHER-EXPENSES> 1,104,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,390,000
<INCOME-PRETAX> 1,076,000
<INCOME-TAX> 401,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 675,000
<EPS-BASIC> 0.16
<EPS-DILUTED> 0.15
</TABLE>
