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 September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ----------- to ------------
Commission file number 000-21430
Riviera Holdings Corporation
(Exact name of Registrant as specified in its charter)
Nevada 88-0296885
(State or other jurisdiction of incorporation (IRS Employer Identification No.)
or organization)
2901 Las Vegas Boulevard South, Las Vegas, Nevada 89109
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code (702) 794-9527
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes---- No----
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE LAST FIVE YEARS
Indicate by check mark whether the Registrant has filed all documentation
and reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes---- No----
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
As of November 2, 2000, there were 3,768,022 shares of Common Stock, $.001 par
value per share, outstanding.
1
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RIVIERA HOLDINGS CORPORATION
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
<S> <C>
Independent Accountants' Report 2
Condensed Consolidated Balance Sheets at September 30, 2000 (Unaudited) and
December 31, 1999 3
Condensed Consolidated Statements of Operations (Unaudited) for the
Three Months and Nine Months ended September 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows (Unaudited) for the
Three Months and Nine Months ended September 30, 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 Disclosures About Market Risk 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 22
Signature Page 23
Exhibits - None 24
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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 September
30, 2000, and the related condensed consolidated statements of operations and of
cash flows for the three months and nine months ended September 30, 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 auditing standards generally
accepted in the United States of America, 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
October 24, 2000
Las Vegas, Nevada
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RIVIERA HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and September 30, 2000
(In Thousands, except share amounts)
-----------------------------------------------------------------------------------------------------
2000 1999
ASSETS (Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $56,440 $42,804
Cash and cash equivalents - restricted 7,173
Short term investments 5,258
Short term investments - restricted 7,887
Accounts receivable, net 5,773 5,042
Inventories 2,855 3,432
Prepaid expenses and other assets 4,072 3,989
----------------- -----------------
Total current assets 69,140 75,585
PROPERTY AND EQUIPMENT, NET 208,626 202,659
OTHER ASSETS, NET 8,769 10,391
DEFERRED INCOME TAXES 1,875 355
----------------- -----------------
TOTAL $288,410 $288,990
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $2,689 $1,274
Accounts payable 8,706 11,498
Accrued interest 4,860 7,539
Accrued expenses 15,379 11,949
----------------- -----------------
Total current liabilities 31,634 32,260
----------------- -----------------
OTHER LONG-TERM LIABILITIES 6,217 5,286
----------------- -----------------
LONG-TERM DEBT, NET OF CURRENT PORTION 230,404 223,766
----------------- -----------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock ($.001 par value; 20,000,000 shares
authorized; 3,818,021 and 4,523,021 shares at
September 30, 2000 and December 31, 1999, respectively) 4 5
Additional paid-in capital 13,447 13,446
Treasury stock (1,288,755 and 583,755 shares at
September 30, 2000 and December 31, 1999, respectively) (8,402) (3,115)
Retained earnings 15,106 17,342
----------------- -----------------
Total stockholders' equity 20,155 27,678
----------------- -----------------
TOTAL $288,410 $288,990
================= =================
See notes to consolidated financial statements
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RIVIERA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(In thousands, except per share amounts)
-------------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
REVENUES:
<S> <C> <C> <C> <C>
Casino $28,859 $18,654 $84,373 $56,934
Rooms 9,861 8,726 32,414 28,926
Food and beverage 7,630 6,253 23,678 19,289
Entertainment 6,008 5,561 18,571 16,629
Other 2,572 2,777 7,989 8,558
---------------------------------------------------------------
Total revenues 54,930 41,971 167,025 130,336
Less promotional allowances 3,573 3,067 11,952 10,485
---------------------------------------------------------------
Net revenues 51,357 38,904 155,073 119,851
---------------------------------------------------------------
COSTS AND EXPENSES:
Direct costs and expenses of operating departments:
Casino 16,789 10,523 46,207 33,218
Rooms 5,769 5,473 17,625 16,335
Food and beverage 5,398 4,761 16,192 13,721
Entertainment 4,731 4,353 14,316 12,733
Other 832 863 2,416 2,501
Other operating expenses:
General and administrative 10,806 7,897 30,490 22,242
Preopening expenses-Black Hawk, Colorado project 46 1,222 119
Depreciation and amortization 4,601 3,550 13,243 10,404
---------------------------------------------------------------
Total costs and expenses 48,926 37,466 141,711 111,273
---------------------------------------------------------------
INCOME FROM OPERATIONS 2,431 1,438 13,362 8,578
---------------------------------------------------------------
OTHER (EXPENSE) INCOME
Interest expense (6,919) (6,546) (20,764) (16,788)
Interest income 787 899 1,921 1,598
Interest capitalized 1,261 616 3,032
Other, net (40) (1,524) 1,150 (1,804)
---------------------------------------------------------------
Total other expense (6,172) (5,910) (17,077) (13,962)
---------------------------------------------------------------
LOSS BEFORE BENEFIT FOR INCOME TAXES 3,741 4,472 3,715 5,384
BENEFIT FOR INCOME TAXES 1,383 2,300 1,481 2,566
---------------------------------------------------------------
NET LOSS $2,358 $2,172 $2,234 $2,818
===============================================================
LOSS PER SHARE DATA:
Loss per share
Basic and Diluted $ 0.61 $ (0.43) $ 0.55 $ (0.56)
---------------------------------------------------------------
Weighted-average common shares outstanding 3,895 5,068 4,060 5,069
---------------------------------------------------------------
See notes to condensed consolidated financial statements
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RIVIERA HOLDINGS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months and Nine Months Ended September 30, 2000 and 1999
(In Thousands)
(Unaudited) Three Months Ended Nine Months Ended
September 30, September 30,
CASH FLOWS FROM OPERATING ACTIVITIES: 2000 1999 2000 1999
------------------------------------------
<S> <C> <C> <C> <C>
Net loss ($2,358) ($2,172) ($2,234) ($2,818)
Adjustments to reconcile net loss to net cash
(used in)provided by operating activities:
Depreciation and amortization 4,601 3,550 13,243 10,404
Provision for bad debts (54) 175 103 1,012
Gain on sale of equipment (55) (55)
Interest expense 6,919 6,545 20,763 16,787
Interest paid (9,091) (8,836) (21,403) (17,627)
Capitalized interest on construction projects (1,261) (616) (3,032)
Other expense, net(primarily Paulson litigation and settlement) 1,566 1,919
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (1,213) (1,901) (834) (1,146)
Decrease (increase) in inventories 8 (112) 577 124
Decrease (increase) in prepaid expenses
and other assets (267) (644) (86) 5
Increase (decrease) in accounts payable (1,270) (4,893) (2,793) (3,834)
Increase (decrease) in accrued liabilities 2,027 1,440 2,272 (42)
Increase (decrease) in current income taxes payable
Increase (decrease) in deferred income taxes (1,489) (1,317) (1,520) (1,583)
Increase in non-qualified pension plan obligation
to CEO upon retirement 299 274 931 602
------------------------------------------
Net cash (used in) provided by operating activities (1,888) (7,641) 8,403 716
------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment, Las Vegas, (1,634) (2,373) (5,257) (9,017)
Nevada
Capital expenditures - Black Hawk, Colorado project (525) (9,381) (13,953) (22,205)
Property acquired with accounts payable-Black Hawk, Colorado 5,231 5,558
Capitalized Interest on construction projects 1,261 616 3,032
Net change in short-term investments 2,161 (230) 10,325 (15,452)
Decrease (increase) Black Hawk, Colorado restricted funds 4,509 8,023 9,992 (18,255)
Sale of equipment 174 174
Decrease (increase) in other assets 442 212 977 (2,754)
------------------------------------------
Net cash provided by (used in) investing activities 4,953 2,917 2,701 (58,919)
------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 34 2,515 9,552 48,780
Payments on long-term borrowings (952) (74) (1,732) (217)
Purchase of treasury stock (863) (5,288) (22)
Decrease in paid-in capital (7)
------------------------------------------
Net cash provided by (used in ) financing activities (1,781) 2,441 2,532 48,534
------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,284 (2,283) 13,636 (9,670)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $55,157 $41,496 $42,804 $48,883
------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $56,440 $39,213 $56,440 $39,213
==========================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION --
Income taxes paid $40
Income taxes paid - Colorado State Income Tax $100
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
</TABLE>
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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 which
opened February 4, 2000.
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 provided services to Peninsula Gaming Partners LLC with
respect to that Company's riverboat, Diamond Jo, operating in Dubuque, Iowa
until July 31, 2000. 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.
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The financial information at September 30, 2000 and for the three months and
nine months ended September 30, 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 and nine
months ended September 30, 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.
Estimates and Assumptions
The preparation of condensed consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America
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
were restricted in use to that project or for the related 13% First Mortgage
Notes interest payments. The restrictions were removed in August 2000.
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. The effect of options outstanding
was not included in diluted calculations during the period since the Company
incurred a net loss.
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.
7
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In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB
101 clarifies existing accounting principles related to revenue recognition in
financial statements. The Company is required to comply with the provisions of
SAB 101 by the fourth quarter of fiscal 2000. Due to the nature of the Company's
operations, management does not believe that SAB 101 will have a significant
impact on the Company's financial statements.
2. LONG TERM DEBT AND COMMITMENTS
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 13% 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 13% Notes, but has agreed to a "Keep Well" of $5
million per year (or an aggregate limited to $10 million) for the 3 years of RBH
operations beginning with the third quarter of 2000 to cover (i) the $5.85
million interest on such Notes if not paid by RBH and (ii) the amount by which
RBH cash flow is less than $9.0 million per year as follows:
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Operating Period #1 April 1, 2000-December 31, 2000 $6.75 Million
Operating Period #2 January 1, 2001-December 31, 2001 $9.0 Million
Operating Period #3 January 1, 2002-December 31, 2002 $9.0 Million
Operating Period #4 January 1, 2003-March 31, 2003 $2.25 Million
</TABLE>
In 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 10.8% for
RBH equipment purchases.
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 $700,000 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.
3. LEGAL PROCEEDINGS
8
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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 (RHC), 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"), a shareholder of Riviera
Holdings Corporation, commenced this action in Nevada state court on September
30, 1999, where it sought an order enjoining the Company from obtaining a
Settlement Bar Order in a separate lawsuit pending in the United States District
Court for the Central District of California (the "California Action"). At the
time, both Morgens, Waterfall and the Company were defendants in the California
Action. On October 1, 1999, RHC and the other defendants to the Nevada Action
removed the Nevada Action to the United States District Court for the District
of Nevada . As a result, Morgens, Waterfall's effort to obtain an injunction
failed, and the Company settled the California Action.
On November 1, 1999, Morgens, Waterfall moved to remand the Nevada Action from
the Nevada federal court back to Nevada State court. The Nevada federal court
denied the motion.
On January 31, 2000, Morgens, Waterfall purported to serve an Amended Summons
and a Second Amended Verified Complaint on RHC with subsequent service on its
directors. RHC and its directors filed motions to dismiss the action. In
response, Morgens, Waterfall did not oppose the Company's motion and conceded
its claims against the Company. Morgens, Waterfall, however, asked the court for
permission to again amend its claims against the director defendants, which are
based on the allegation that the directors breached their fiduciary duty in
settling the California Action. The director defendants have opposed Morgens,
Waterfall's request to again amend its complaint.
The Company is also a party to several routine lawsuits, both as plaintiff and
as defendant, arising from the normal operations of a hotel. The Company does
not believe that the outcome of such litigation, in the aggregate, will have a
material adverse effect on its financial position or results of its operations.
4. TENDER OFFER AND OTHER STOCK REPURCHASES
On February 8, 2000, the Company completed a tender offer wherein 590,000
shares of stock were purchased for $7.50 per share. On August 31, 2000, the
Company purchased 119,000 shares of stock for $7.50 per share and on November 2,
2000, additional 50,000 shares were purchased in an unsolicited privately
negotiated transaction for $7.125 per share. The Company used its cash and cash
equivalents to purchase the tendered shares.
5. OTHER EXPENSE
Other (expense) income, net includes an insurance recovery of $1.2 million for
litigation costs on the Paulson litigation which was received in the first
quarter 2000 and an additional $100,000 in the third quarter. Such costs were
incurred in 1998 and 1999.
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5. SEGMENT DISCLOSURES
The Company provides Las Vegas-style gaming, amenities and entertainment.
The Company's four reportable segments are based upon the type of service
provided: Casino, rooms, food and beverage, and entertainment. The casino
segment provides customers with gaming activities through traditional Table
games and slot machines. The rooms segment provides hotel services in Las Vegas.
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 in
Las Vegas. 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.
Special Factors Effecting Comparability of Results of Operations
The Riviera Black Hawk was in the development stage during the second 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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Food and Entertain-
Three Months ended September 30, 2000 Casino Rooms Beverage ment All Other Total
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues from external customers $28,859 $9,150 $5,438 $5,338 $2,572 $51,357
Intersegment revenues 712 2,192 670 3,573
Segment profit 12,070 3,381 40 607 1,740 17,838
Three Months ended September 30, 1999
Revenues from external customers $18,654 $7,888 $4,708 $4,877 $2,777 $38,904
Intersegment revenues 838 1,545 684 3,067
Segment profit (loss) 8,131 2,415 (53) 524 1,914 12,931
Food and Entertain-
Nine Months ended September 30, 2000 Casino Rooms Beverage ment All Other Total
Revenues from external customers $84,373 $29,847 $16,459 $16,406 $7,989 $155,073
Intersegment revenues 2,567 7,219 2,166 11,952
Segment profit 38,166 12,222 267 2,090 5,573 58,317
Nine Months ended September 30, 1999
Revenues from external customers $56,934 $26,053 $13,798 $14,508 $8,558 $119,851
Intersegment revenues 2,873 5,491 2,121 10,485
Segment profit 23,716 9,718 77 1,775 6,057 41,343
</TABLE>
Reconciliation of segment profit to consolidated net loss before taxes:
<TABLE>
<CAPTION>
(In Thousands)
Three Months Ended Nine Months Ended
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Segment profit $17,838 $12,931 $58,317 $41,343
Other operating expenses 15,407 11,493 44,955 32,765
Other expense 6,172 5,910 17,077 13,962
---------------------------------------------
Net loss before benefit for taxes ($3,741) ($4,472) ($3,715) ($5,384)
</TABLE>
Riviera Las Vegas 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. Riviera Black Hawk derives significantly
all of its revenues from residents of metropolitan Denver, Colorado. 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 and nine months ended September 30, 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.
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<CAPTION>
Three Months Nine Months Ended
Ended
September 30, September 30,
Income Statement Data: 2000 1999 2000 1999
---------------------------------------
Revenues:
<S> <C> <C> <C> <C>
Casino 56.2% 47.9% 54.4% 47.5%
Rooms 19.2% 22.4% 20.9% 24.1%
Food and beverage 14.9% 16.1% 15.3% 16.1%
Entertainment 11.7% 14.3% 12.0% 13.9%
Other 5.0% 7.1% 5.2% 7.1%
Less promotional allowances -7.0% -7.9% 7.7% -8.7%
Net Revenues 100.0% 100.0% 100.0% 100.0%
Costs and Expenses:
Casino 58.2% 56.4% 54.8% 58.3%
Rooms 58.5% 62.7% 54.4% 56.5%
Food and beverage 70.7% 76.1% 68.4% 71.1%
Entertainment 78.7% 78.3% 77.1% 76.6%
Other 32.3% 31.1% 30.2% 29.2%
General and administrative 21.0% 20.3% 19.7% 18.6%
Preopening Expenses - Black Hawk, Colorado Project 0.0% 0.1% 0.8% 0.1%
Depreciation and amortization 9.0% 9.1% 8.5% 8.7%
Total costs and expenses 95.3% 96.9% 91.4% 92.8%
Income from operations 4.7% 3.7% 8.6% 7.2%
Interest expense, other -13.5% -16.8% -13.4% -14.0%
Interest income, other 1.5% 2.3% 1.2% 1.3%
Interest, capitalized 0.0% 3.2% 0.4% 2.5%
Other, net (primarily Paulson litigation and settlement) -0.1% -3.9% 0.7% -1.5%
Loss before provision for income taxes -7.3% -11.5% -2.4% -4.5%
Provision for income taxes -2.7% -5.9% -1.0% -2.1%
Net Loss -4.6% -5.6% -1.4% -2.4%
EBITDA (1) Margin 13.7% 12.9% 17.9% 15.9%
Net cash provided by operating activities -3.7% -6.2% 5.4% 5.2%
</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
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Three Months Ended September 30, 2000 Compared to Three Months Ended September
30, 1999
Special Factors Effecting Comparability of Results of Operations
The Riviera Black Hawk was in the development stage during the third quarter of
1999 and until February 4, 2000 when it opened the casino. Accordingly, the
results of operations for the fiscal 2000 and fiscal 1999 results 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 from properties
for the purposes of this table excludes corporate expense, including preopening
expense and intercompany management fees. Operating income from properties is
presented as shown on the Consolidated Statement of Operations.
<TABLE>
<CAPTION>
Third Quarter
(In Thousands) 2000 1999
Net revenues:
<S> <C> <C>
Riviera Las Vegas $40,063 $38,654
Riviera Black Hawk 11,264 0
Riviera Gaming Management 30 250
------ ------
Total Net Revenues $51,357 $38,904
====== ======
EBITDA:
Riviera Las Vegas $5,977 $4,785
Riviera Black Hawk 1,024 0
Riviera Gaming Management 30 249
------ ------
Total EBITDA $ 7,031 $6,834
====== ======
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
EBITDA Margin:
<S> <C> <C>
Riviera Las Vegas 14.9% 12.4%
Riviera Black Hawk 9.1%
Riviera Gaming Management 100.0% 100.0%
------ ------
Total EBITDA 13.7% 12.9%
====== ======
Operating Income (Loss)
Riviera Las Vegas $2,346 $1,235
Riviera Black Hawk 55 (44)
Riviera Gaming Management 30 247
------ ------
Total Operating Income $2,431 $1,438
====== ======
</TABLE>
Revenues
Net revenues increased by $12.5 million, or 32.0%, from $38.9 million in the
third quarter of 1999 to $51.4 million in the third quarter of 2000. Casino
revenues increased by $10.2 million, or 54.7%, from $18.7 million during 1999 to
$28.9 million during 2000 due primarily to the opening of Riviera Black Hawk on
February 4, 2000. For the third quarter of 2000, Riviera Black Hawk contributed
$10.8 million in casino revenues of which $10.3 million were slot revenues.
Riviera Las Vegas slot and table games revenue were comparable to the prior
year.
Riviera Las Vegas room revenues increased by approximately $1.1 million, or
13.0% from $8.7 million in 1999 to $9.8 million in 2000 as the result of an
increase of $5.91 in average daily rate from $45.89 in 1999 to $51.80 in 2000.
Hotel occupancy remained high at 98.3% in 2000. Convention room revenue
increased approximately $.8 million or 28.3% from $2.9 million in 1999 to $3.7
million in 2000. Convention room nights increased by 6,900. Convention revenues
increased due to higher attendance at recurring conventions and to special
events booked at the Riviera Convention Center Pavilion. Riviera Black Hawk has
no hotel rooms.
Food and beverage revenues increased approximately $1.4 million, or 13.0%, from
$6.3 million during 1999 to $7.6 million in 1999 due primarily to the opening of
Riviera Black Hawk which contributed $1.1 million in food and beverage revenues
from one restaurant, a snack bar, and the casino bar. In Las Vegas, all
restaurants combined to provide an increase of approximately $300,000 over third
quarter 1999.
Riviera Las Vegas entertainment revenues increased approximately $400,000, or
8.0%, from $5.6 million in 1999 to $6.0 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 by 15,600 covers, or 18.3% over 1999.
Other revenues decreased approximately $200,000, or 7.4%, from $2.8 million in
1999 to $2.6 million in 2000 due primarily to the decrease in Riviera Gaming
Management revenues for consulting services which had been $250,000 in 1999 for
the Four Queens in Las Vegas. The consulting fees for Diamond Jo's Casino in
13
<PAGE>
Dubuque, Iowa for the third quarter 2000 were $30,000 and the contract
expired July 31, 2000. The contract expired July 31, 2000 and these fees
represent the last earnings expected from Diamond Jo's Casino.
Promotional allowances increased approximately $500,000, or 16.5%, from $3.1
million in 1999 to $3.6 million in 2000 due primarily to promotional activity at
Riviera Black Hawk which totaled approximately $700,000 for drinks and meals for
casino patrons. In Las Vegas, promotional allowances decreased approximately
$200,000 for rooms, entertainment and food and beverage.
Direct Costs and Expenses of Operating Departments
Total direct costs and expenses of operating departments increased approximately
$7.5 million, or 29.0%, from $25.9 million for the three months ended September
30, 1999 to $33.5 million for the three months ended September 30, 2000. Riviera
Black Hawk produced $7.4 million of the increase in direct costs and expenses.
Casino expenses increased $6.3 million, or 59.5%, of which $7.0 million was for
Riviera Black Hawk. In Las Vegas direct costs including payroll, promotional
allowances and provision for doubtful accounts decreased $700,000.
Riviera Las Vegas room costs increased approximately $300,000, or 5.4%, from
$5.5 million in 1999 to $5.8 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 62.7% in 1999
to 58.5% in 2000 due to the increased room revenues.
Food and beverage costs increased approximately $600,000, or 13.4%, from
$4.8 million during the 1999 period to $5.4 million for the 2000 period,of which
$400,000 was for Riviera Black Hawk. Further, food and beverage costs as a
percentage of revenues decreased from 76.1% to 70.7% because of the increased
revenues in Las Vegas and the Riviera Black Hawk revenue contributions.
Riviera Las Vegas entertainment costs increased $400,000, or 8.7%, from
$4.3 million during the 1999 period to $4.7 million in the 2000 period.
Entertainment expense as a percentage of entertainment revenues was 78.3% in
1999 and 78.7% in 2000.
Other Operating Expenses
General and administrative expenses increased approximately $2.9 million, or
36.8%, from $7.9 million in 1999 to $10.8 million in 2000. Of the increase
Riviera Black Hawk totaled $2.8 million. These expenses increased from 20.3% of
total net revenues in 1999 to 21.0% 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 in Las
Vegas and includes a combination of employment contracts, stay put agreements,
bonus arrangements and salary adjustments. The period costs associated with the
14
<PAGE>
plan are being accrued as additional payroll costs and included
approximately $200,000 in the third 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. The increased EBITDA in Las Vegas has resulted in an
increase to the Executive Incentive Plan compensation expense of approximately
$200,000 and group health insurance costs for non-union personnel have increased
approximately $200,000 due to the additions of Black Hawk, Colorado employees.
Depreciation and amortization increased by $1.1 million, or 29.6%, from $3.5
million in 1999 to $4.6 million in 2000 due to the capital expenditures for the
Black Hawk, Colorado project.
Other Income (Expense)
Interest expense increased approximately $400,000, or 5.7%, relating to the $9.6
million equipment financing in Black Hawk and additional interest expense
related to the equipment financing for the convention center expansion in Las
Vegas. Interest income decreased $100,000 because of the lower investment
balances in 2000 than during the construction period in 1999 at Black Hawk where
interest income was accruing on the unused proceeds of the 13% First Mortgage
Notes.
There was no capitalized interest for the third quarter of 2000 compared to 1999
when approximately $1.3 million was capitalized on the Black Hawk, Colorado
casino project.
Net Loss
The net loss for the quarter increased by $200,000 from a loss of
approximately $2.2 million for the quarter ended September 30, 1999 to
approximately $2.4 million for the quarter ended September 30, 2000.
Depreciation increased $1 million and interest expense increased $1.7 million.
These items were partially offset by the decrease in litigation and settlement
costs of $1.5 million associated with the aborted Paulson merger and the Morgens
litigation. Additionally, our income tax benefits were higher in 1999 because we
settled an IRS audit in the prior year. We had excess reserves of $2 million,
which were released in the last two quarters of 1999 as a result of the audit.
EBITDA
EBITDA, as defined, increased by $2.0 million, or 39.7%, from $5.0 million in
1999 to $7.0 million in 2000 due to the increased revenues contributed by
Riviera Black Hawk and Las Vegas
Nine Months Ended September 30, 2000 Compared to Nine Months Ended September
30, 1999
Special Factors Effecting Comparability of Results of Operations
The Riviera Black Hawk was in the development stage during 1999 and until
February 4, 2000. Accordingly, the results of operations for the fiscal 2000 and
fiscal 1999 results may not be comparable.
15
<PAGE>
The following table sets forth, for the periods indicated, certain
operating data for the Riviera Las Vegas and Riviera Black Hawk. EBITDA from
properties for the purposes of this table excludes corporate expense, including
preopening expense and intercompany management fees. Operating income (loss)
from properties is presented as shown on the Condensed Consolidated Statement of
Operations.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
(In thousands) 2000 1999
Net revenues:
<S> <C> <C>
Riviera Las Vegas $126,758 $119,101
Riviera Black Hawk 28,083 0
Riviera Gaming Management 232 750
Total Net Revenues $155,073 $119,851
EBITDA:
Riviera Las Vegas $23,009 $18,352
Riviera Black Hawk 4,730 0
Riviera Gaming Management 88 749
Total EBITDA $27,827 $19,101
EBITDA Margin:
Riviera Las Vegas 18.2% 15.4%
Riviera Black Hawk 16.8%
Riviera Gaming Management 38.1% 99.9%
Total EBITDA 17.9% 15.9%
Income(loss) from Operations
Riviera Las Vegas $12,314 $7,948
Riviera Black Hawk 960 (119)
Riviera Gaming Management 88 749
Total Operating Income $13,362 $8,578
</TABLE>
Revenues
Net revenues increased by $35.2 million, or 29.4%, from $119.8 million in 1999
to $155.1 million in 2000. Casino revenues increased by $27.4 million, or 48.2%,
from $56.9 million during 1999 to $84.4 million during 2000 due primarily to the
opening of Riviera Black Hawk on February 4, 2000. For the period February 4
through September 30, 2000, Riviera Black Hawk contributed $26.9 million in
casino revenues of which $25.5 million were slot revenues. Riviera Las Vegas
posted strong slot revenue of $41.6 million, which increased approximately $1.8
16
<PAGE>
million due to the success of the lower denomination slot machines and marketing
programs. Las Vegas table games drop was down $6.4 million, or 9.4%, from $68.8
million in 1999 to $62.3 million in 2000 but table games hold percentage was up
1.2% from 16.6% to 17.8%. The net result was a decrease in table games win of
approximately $300,000.
Riviera Las Vegas room revenues increased by approximately $3.5 million, or
12.1% from $28.9 million in 1999 to $32.4 million in 2000 as the result of an
increase of $6.01 in average daily rate from $51.67 in 1999 to $57.68 in 2000.
Hotel occupancy was 97.7% in 2000 compared to 98.2% in 1999. Convention room
revenue increased approximately $2.5 million or 24.0% from $10.5 million in 1999
to $13.0 million in 2000. Convention revenues increased due to higher attendance
at recurring conventions and to special events booked at the Riviera Convention
Center Pavilion. Riviera Black Hawk has no hotel rooms.
Food and beverage revenues increased approximately $4.4 million, or 22.8%, from
$19.3 million during 1999 to $23.7 million in 2000 due primarily to the opening
of Riviera Black Hawk which contributed $3.1 million 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 $600,000 while all other restaurants provided
an additional $700,000 increase in revenues.
Riviera Las Vegas entertainment revenues increased approximately $1.9 million,
or 11.7%, from $16.6 million in 1999 to $18.5 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 66,000 covers, 28.4% over 1999.
Other revenues decreased approximately $600,000, or 6.6%, from $8.6 million
in 1999 to $8.0 million in 2000 due primarily to the decrease in Riviera Gaming
Management revenues for consulting services which had been $750,000 in the nine
months for 1999 for the Four Queens, Las Vegas project and are $232,000 for the
Dubuque, Iowa, Diamond Jo's contract which expired July 31, 2000.
Promotional allowances increased approximately $1.5 million, or 14.0%, from
$10.5 million in 1999 to $12.0 million in 2000 due primarily to promotional
activity at Riviera Black Hawk which totaled approximately $2.1 million for
drinks and meals for casino patrons. In Las Vegas, promotional allowances for
rooms, entertainment and food and beverage were down approximately $600,000.
Direct Costs and Expenses of Operating Departments
Total direct costs and expenses of operating departments increased approximately
$18.2 million, or 23.2%, from $78.5 million for the nine months ended September
30, 1999 to $96.7 million for the nine months ended September 30, 2000. Riviera
Black Hawk produced $16.4 million of the increase in direct costs and expenses.
Casino expenses increased $13.0 million, or 39.1%, of which $15.1 million was
provided by Riviera Black Hawk, while in Las Vegas direct costs such as payroll,
17
<PAGE>
promotional allowances and provision for doubtful accounts decreased $2.1
million. Casino expenses as a percentage of revenues decreased from 58.3% in
1999 to 54.8% in 2000.
Riviera Las Vegas room costs increased approximately $1.3 million, or 7.9%, from
$16.3 million in 1999 to $17.6 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 56.5% in 1999
to 54.4% in 2000 due to the increased room revenues.
Food and beverage costs increased approximately $2.5 million, or 18.0%, from
$13.7 million during the 1999 period to $16.2 million for 2000. Further, food
and beverage costs as a percentage of revenues decreased from 71.1% to 68.4%
because of the increased revenues which offset the 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 45%.
Riviera Las Vegas entertainment costs increased $1.6 million, or 12.4%, from
$12.7 million during the 1999 period to $14.3 million in the 2000 period.
Entertainment expense as a percentage of entertainment revenues increased from
76.6% in 1999 to 77.1% in 2000 because the casino is utilizing fewer promotional
allowances for entertainment.
Other departmental expenses remained the same at approximately $2.5 million but
costs as a percentage of revenues increased slightly from 29.2% in 1999 to 30.2%
in 2000 due to the decrease in other revenues.
Other Operating Expenses
General and administrative expenses increased approximately $8.2 million, or
37.1%, from $22.2 million in 1999 to $30.4 million in 2000. Of the increase
Riviera Black Hawk totaled $7.0 million. These expenses increased from 18.6% of
total net revenues in 1999 to 19.7% 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 in Las
Vegas 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 totaled approximately
$700,000 in 2000. The total cost of the plan is estimated to be approximately
$2.3 million over the period July 1, 1998 through September 30, 2001. The
increased EBITDA in Las Vegas has resulted in an increase to the Executive
Incentive Plan Compensation Expense of approximately $400,000 and group health
insurance costs for non-union personnel have increased approximately $500,000 as
a result of additional Black Hawk employees and increased health care costs in
Las Vegas.
Preopening expense for the Riviera Black Hawk casino totaled $1.2 million for
2000. These costs were comprised many of payroll and related expense for the
hiring and training of the employees to operate the Black Hawk property.
Depreciation and amortization increased by $2.8 million, or 27.3%, from
$10.4 million in 1999 to $13.2 million in 2000 due to capital expenditures for
the casino in Black Hawk for the casino and in Las Vegas for the Convention
Center Pavilion, which was completed in February 1999.
18
<PAGE>
Other Income (Expense)
Interest expense increased $4.0 million, or 23.7%, due to the issuance of the
$45 million 13% First Mortgage Notes on the Black Hawk, Colorado, project
effective June 1999. Interest income increased $300,000 because of the higher
investment balances for the period from the unused proceeds of the 13% First
Mortgage Notes on Riviera Black Hawk. Other expenses, 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 2000 was approximately $600,000 on the Black Hawk,
Colorado casino project compared to $3.0 million in 1999 (which also included
the Riviera Las Vegas Convention Center Pavilion).
Net Loss
The net loss decreased by approximately $600,000 from a loss of
approximately $2.8 million for the nine months ended September 30, 1999 to a
loss of approximately $2.2 million for the nine months ended September 30, 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. However, in
1999, our income tax benefits were higher because we settled an IRS audit. We
had tax reserves of $2 million, which were released in the last two quarters of
1999.
EBITDA
EBITDA, as defined, increased by $8.7 million, or 45.7%, from $19.1 million in
1999 to $27.8 million in 2000 due to the $4.7 million contributed by
Riviera Black Hawk and $4.6 million increase in Las Vegas. Preopening expenses
of $1.2 million are not included in the EBITDA calculation.
Liquidity and Capital Resources
At September 30, 2000, the Company had cash and cash equivalents of $56.4
million. The Company had working capital of $37.5 million and shareholders
equity of $20.2 million. The cash and cash equivalents increased $13.6 million
during the nine months of 2000 as a result of the $8.4 million provided by
operations, reduced by $14.0 million in capital expenditures at Riviera Black
Hawk, Inc. of which $9.6 million was funded with proceeds from long-term
borrowings and an additional $5.3 million in capital expenditures in Las Vegas.
The Company also purchased $5.3 million in treasury stock in a tender offer and
in private transactions during 2000.
19
<PAGE>
The Company's net cash provided by operating activities was approximately
$8.4 million for the nine months ended September 30, 2000 compared to $700,000
in the period in 1999. Management believes that cash flow from operations,
combined with the $56.4 million cash and cash equivalents 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 (the 10% notes) at maturity on
August 15, 2004 and may not be sufficient to pay the $45 million 13% Notes (the
13% notes) at maturity on May 1, 2005. Accordingly, the ability of the Company
and its subsidiary to repay the 10% and 13% 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
10% and 13% 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% Notes provide that, in certain circumstances, the Company
and its subsidiary must offer to repurchase the 10% and 13% 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 10% and 13% Notes
without a refinancing.
The 10% Notes contain 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), 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.
The 13% Notes also contain certain covenants, which limit the ability of
the company and its restricted subsidaries, 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 addiliates; (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 to incur addional
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 would be required to curtail or defer certain of
their capital expenditure programs under these circumstanes, which could have an
adverse effect on the Company's operations.
At September 30, 2000, the Company believes that it is in compliance with the
covenants of both the 10% Notes and the 13% Notes.
Forward Looking Statements
This report includes forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. Statements in
this report regarding future events or conditions, including statements
regarding industry prospects and the Company's expected financial position,
business and financing plans, are forward-looking statements. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to have been correct. Important factors that could cause actual results to
differ materially from the Company's expectations are disclosed in this report
as well as the Company's most recent annual report on Form 10-K, and include the
Company's substantial leverage, the risks associated with the expansion of the
Company's business, as well as factors that affect the gaming industry
generally. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of their dates. The Company
undertakes no obligations to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
20
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET MIX.
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 30 days or less.
As of September 30, 2000, we had $233.0 million in borrowings. The borrowings
include $175 million in notes maturing in 2004, $45 million notes maturing in
2006 and capital leases maturing at various dates through 2005. Interest under
the $175 million notes is based on a fixed rate of 10%. Interest on the $45
million notes is 13% with contingent interest if certain operating results are
achieved. The equipment loans and capital leases have interest rates ranging
from 5.2% to 13.5%. The borrowings also include $.6 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 $1.2 million when the project is complete,
is payable over ten years beginning in 2000. The special improvement district
bonds bear interest at 5.5%. Other borrowings relate to leases.
21
<PAGE>
<TABLE>
<CAPTION>
Interest Rate Sensitivity
Principal (Notational Amount by Expected Maturity)
Average Interest Rate
(Amounts in Fair Value
thousands) 2000 2001 2002 2003 2004 Thereafter Total at 9/30/00
Long Term Debt Including Current Portion
Equipment loans and
<S> <C> <C> <C> <C> <C> <C> <C> <C>
capital leases Las Vegas $ 313 $ 1,072 $ 1,171 $ 1,254 $ 949 $ 4,759 $ 4,759
Average interest rate 7.7% 8.0% 7.8% 7.8% 8.4%
10% First Mortgage Notes Las Vegas $ 173,808 $ 173,808 $ 157,500
Average interest rate 10.0%
Equipment loans
Black Hawk, Colorado $ 2 $ 10 $ 8 $ 20 $ 20
Average interest rate 11.2% 11.2% 11.2%
Capital leases
Black Hawk, Colorado $ 681 $ 1,600 $ 1,777 $ 1,973 $2,191 $ 656 $ 8,878 $ 8,878
Average interest rate 10.8% 10.8% 10.8% 10.8% 10.8% 10.8%
Special Improvement District Bonds
Black Hawk, Colorado $ - $ 64 $ 68 $ 71 $ 76 $ 349 $ 628 $ 628
Average interest rate 5.5% 5.5% 5.5% 5.5% 5.5% 5.5%
13% First Mortgage Note
Black Hawk, Colorado $ 45,000 $ 45,000 $ 46,125
Average interest rate 13.0%
</TABLE>
22
<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 (RHC), 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"), a shareholder of Riviera
Holdings Corporation, commenced this action in Nevada state court on September
30, 1999, where it sought an order enjoining the Company from obtaining a
Settlement Bar Order in a separate lawsuit pending in the United States District
Court for the Central District of California (the "California Action"). At the
time, both Morgens, Waterfall and the Company were defendants in the California
Action. On October 1, 1999, RHC and the other defendants to the Nevada Action
removed the Nevada Action to the United States District Court for the District
of Nevada . As a result, Morgens, Waterfall's effort to obtain an injunction
failed, and the Company settled the California Action.
On November 1, 1999, Morgens, Waterfall moved to remand the Nevada Action from
the Nevada federal court back to Nevada state court. The Nevada federal court
denied the motion.
On January 31, 2000, Morgens, Waterfall purported to serve an Amended Summons
and a Second Amended Verified Complaint on RHC with subsequent service on its
directors. RHC and its directors filed motions to dismiss the action. In
response, Morgens, Waterfall did not oppose the Company's motion and conceded
its claims against the Company. Morgens, Waterfall, however, asked the court for
permission to again amend its claims against the director defendants, which are
based on the allegation that the directors breached their fiduciary duty in
settling the California Action. The director defendants have opposed Morgens,
Waterfall's request to again amend its complaint.
The Company is also a party to several routine lawsuits, both as plaintiff and
as defendant, arising from the normal operations of a hotel. The Company does
not believe that the outcome of such litigation, in the aggregate, will have a
material adverse effect on its financial position or results of its operations.
23
<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: November 13, 2000
24
<PAGE>
Riviera Holdings Corporation
Form 10Q
September 30, 2000
Exhibits
None
25
<PAGE>
