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, 2001
------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------------ ----------------
Commission file number 000-21430
----------------------------
Riviera Holdings Corporation
- -------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Nevada 88-0296885
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
2901 Las Vegas Boulevard South, Las Vegas, Nevada 89109
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code (702) 794-9527
- -------------------------------------------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes ------- 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 April 27, 2001, there were 3,692,172 shares of Common Stock, $.001 par
value per share, outstanding.
RIVIERA HOLDINGS CORPORATION
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Independent Accountants' Report 2
Condensed Consolidated Balance Sheets at March 31, 2001 (Unaudited) and
December 31, 2000 3
Condensed Consolidated Statements of Operations (Unaudited) for the
Three Months ended March 31, 2001 and 2000 4
Condensed Consolidated Statements of Cash Flows (Unaudited) for the
Three Months ended March 31, 2001 and 2000 5
Notes to Condensed Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Signature Page 19
Exhibits - None 20
1
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,
2001, and the related condensed consolidated statements of operations and of
cash flows for the three months ended March 31, 2001 and 2000. 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, 2000, 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,
2001, 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, 2000, is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
DELOITTE & TOUCHE LLP
April 23, 2001
Las Vegas, Nevada
2
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands, except share amounts) March 31, December 31,
- --------------------------------------------------------------------------------
2001 2000
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $43,463 $52,174
Accounts receivable, net 6,093 5,548
Inventories 3,083 3,342
Prepaid expenses and other assets 4,207 4,599
--------------- ------------------
Total current assets 56,846 65,663
PROPERTY AND EQUIPMENT, Net 205,490 207,030
OTHER ASSETS, Net 7,730 8,128
DEFERRED INCOME TAXES, Net 3,189 2,889
--------------- ------------------
TOTAL $273,255 $283,710
=============== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $2,937 $2,871
Accounts payable 9,090 9,731
Accrued interest 4,582 7,727
Accrued expenses 13,811 16,731
--------------- ------------------
Total current liabilities 30,420 37,060
--------------- ------------------
OTHER LONG-TERM LIABILITIES 6,567 6,533
--------------- ------------------
LONG-TERM DEBT, Net of current portion 220,003 223,172
--------------- ------------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock ($.001 par value; 20,000,000
shares authorized; 5,106,776 shares and
and 5,110,275 shares issued at December 31, 2000
and March 31, 2001, respectively) 5 5
Additional paid-in capital 13,456 13,446
Treasury stock (1,431,648 shares
and 1,435,170 shares at December 31,
2000 and March 31, 2001, respectively) (9,665) (9,633)
Retained earnings 12,469 13,127
--------------- ------------------
Total stockholders' equity 16,265 16,945
--------------- ------------------
TOTAL $273,255 $283,710
=============== ==================
See notes to condensed consolidated financial statements
3
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 2001 AND 2000 Three Months Ended
(In thousands, except per share amounts) March 31,
- -------------------------------------------------------------------------------------------------
REVENUES: 2001 2000
Casino $27,270 $25,799
Rooms 12,735 10,973
Food and beverage 7,917 7,389
Entertainment 5,900 6,281
Other 2,426 2,605
------------------- -------------------
Total revenues 56,248 53,047
Less promotional allowances 4,049 3,858
------------------- -------------------
Net revenues 52,199 49,189
------------------- -------------------
COSTS AND EXPENSES:
Direct costs and expenses of operating departments:
Casino 15,320 12,879
Rooms 5,986 5,627
Food and beverage 5,312 5,160
Entertainment 4,261 4,608
Other 754 723
Other operating expenses:
General and administrative 10,861 9,320
Preopening expenses-Black Hawk, Colorado project 0 1,221
Depreciation and amortization 4,260 4,289
------------------- -------------------
Total costs and expenses 46,754 43,827
------------------- -------------------
INCOME FROM OPERATIONS 5,445 5,362
------------------- -------------------
OTHER (EXPENSE) INCOME :
Interest expense (6,785) (6,504)
Interest income 386 473
Interest capitalized 0 641
Other, net (4) 1,104
------------------- -------------------
Total other expense (6,403) (4,286)
------------------- -------------------
INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME TAXES (958) 1,076
PROVISION (BENEFIT) FOR INCOME TAXES (300) 401
------------------- -------------------
NET INCOME (LOSS) ($658) $675
=================== ===================
EARNINGS (LOSS) PER SHARE DATA:
Earnings (loss) per share:
Basic $ (0.18) $ 0.16
------------------- -------------------
Diluted $ (0.18) $ 0.15
------------------- -------------------
Weighted-average common shares outstanding 3,675,000 4,327,000
------------------- -------------------
Weighted-average common and common equivalent shares 3,675,000 4,369,000
------------------- -------------------
See notes to condensed consolidated financial statements
4
RIVIERA HOLDINGS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) Three Months Ended
March 31,
2001 2000
------------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) ($658) $675
Adjustments to reconcile net income(loss) to net cash (used in) and
provided by operating activities:
Depreciation and amortization 4,260 4,289
Provision for bad debts 81 36
Provision for gaming discounts 71 194
Interest expense 6,784 6,504
Interest paid (9,122) (8,951)
Capitalized interest on construction projects (641)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (697) (2,384)
Decrease (increase) in inventories 258 400
Decrease (increase) in prepaid expenses
and other assets 390 229
Increase (decrease) in accounts payable (641) 480
Increase (decrease) in accrued liabilities (3,434) (494)
Increase (decrease) in current income taxes payable 401
Increase (decrease) in deferred income taxes (300)
Increase in non-qualified pension plan obligation
to CEO upon retirement 33 314
---------------- ------------------
Net cash provided by (used in) operating activities (2,973) 1,052
---------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment, Las Vegas, Nevada (2,144) (1,543)
Capital expenditures - Black Hawk, Colorado (572) (12,677)
Capitalized Interest on construction projects 641
Purchase of short term investments (185)
Decrease Black Hawk, Colorado restricted funds 4,415
Decrease (increase) in other assets 182 (6)
---------------- ------------------
Net cash provided by (used in) investing activities (2,534) (9,355)
---------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 8,719
Payments on long-term borrowings (679) (279)
Purchase of treasury stock, net (33) (4,387)
Purchase of Black Hawk 13% 1st Mortgage Notes (2,500)
Issuance of restricted stock 8
---------------- ------------------
Net cash (used in) provided by financing activities (3,204) 4,053
---------------- ------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ($8,711) ($4,250)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $52,174 $42,804
---------------- ------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $43,463 $39,554
================ ==================
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 $293 $716
See notes to condensed consolidated financial statements
5
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 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 the third quarter of 2000.
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.
Special Factors Affecting Comparability of Results of Operations
The Riviera Black Hawk was in the development stage during the first quarter of
2000 until February 4, 2000 when it opened the casino. Accordingly, the results
of operations for the fiscal 2001 and fiscal 2000 results may not be comparable.
6
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, 2001 and for the three months ended
March 31, 2000 is unaudited. However, such information reflects all adjustments
(consisting solely of 2001 and 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, 2001 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, 2000, 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.
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 for the three months ended March 31,
2001 since the Company incurred a net loss.
Reclassifications
Certain amounts have been reclassified in the accompanying financial statement
to conform with current year presentation.
Recently Adopted 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
7
about a company's derivatives. The Company adopted SFAS No. 133 in the quarter
ending March 31, 2001. The adoption of SFAS 133 had no impact on the Company or
the Company's consolidated financial statements.
The Emerging Issues Task Force of the American Institute of Certified Public
Accountants ("EITF") issued EITF No. 00-22 Titled "Accounting for "Points" and
Certain Other Timed-Based Sales Incentive Offers, and Offers for Free Products
or Services to Be Delivered in the Future" on January 18, 2001. The EITF
concluded that when a company or vendor offers to a customer (a) free or
discounted products or services that will be delivered (either by the vendor or
by another unrelated entity) at a future date (1) as a result of a single
revenue transaction with the customer or (2) only if the customer completes a
specified cumulative level of revenue transactions with the vendor or remains a
customer of the vendor for a specified time period and (b) a rebate or refund of
a determinable cash amount only if the customer completes a specified cumulative
level of revenue transactions with the vendor or remains a customer of the
vendor for a specified time period, such rebates should be reported as a
reduction of revenues. This EITF was required to be adopted by the Company
during the first quarter of 2001. As a result of adopting EITF 00-22, the
Company reclassified approximately $307,000 of such sales incentive offers from
Casino operating expense to net against Casino revenues for the first quarter of
2000.
The Emerging Issues Task Force of the American Institute of Certified Public
Accountants ("EITF") issued EITF No.00-14 Titled "Accounting for Certain Sales
Incentives" on April 18, 2001. The EITF concluded that when a company or vendor
offers its customers sales incentives including discounts, coupons, rebates, and
free products or services, such sales incentives should be reported as a
reduction of revenues. This EITF is required to be adopted by the Company
during the fourth quarter of 2001 and early adoption is permitted. The Company
chose to adopt this EITF in the first quarter 2001. As a result of adopting EITF
00-14, the Company reclassified appoximately $203,000 of such sales incentive
offers from Casino operating expense to net against Casino revenues for the
first quarter of 2000.
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 second 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:
8
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
On February 14, 2001, the Company advanced approximately $3.0 million to
RBH under this agreement Operating Period #1 which was used to acquire $2.5
million of the 13% Black Hawk Bonds. Based upon first quarter 2001 results there
would be no additional Keep Well amounts due on an annualized basis.
3. LEGAL PROCEEDINGS
The Company is a party to several routine lawsuits, both as plaintiff and as
defendant, arising from the normal operations of a hotel. 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. STOCK REPURCHASES
Treasury stock purchases totaled 7,000 shares at $7.05 for the first quarter of
2001 and 590,000 shares at $7.50 as a resultof a tender offer consummated in the
first quarter of 2000.
5. ISSUANCE OF RESTRICTED STOCK
There were 3,478 shares of Treasury Stock at a cost of $4.83 issued under the
Restricted Stock Plan at a market value of $7.188 per share, for executive
compensation in the first quarter of 2001. The stock has restrictions as to when
it can be traded or sold by its holder, primarily the shares cannot be sold
until the executive terminates his employment with the Company.
6. OTHER (EXPENSE) INCOME, NET
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. Such costs were incurred in 1998 and 1999.
7. GUARANTOR INFORMATION
The Companys 10.0% First Mortgage Notes are guaranteed by a majority of
the Companys wholly owned existing significant subsidiaries. These guaranties
are full, unconditional, and joint and several. The following consolidating
schedules present separate condensed financial statement information on a
combined basis for the parent only, as well as the Companys guarantor
subsidiaries and non-guarantor subsidiaries, as of and for the year ended March
31, 2001.
9
RIVIERA HOLDINGS CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
MARCH 31, 2001
- -------------------------------------------------------------------------------------------------------------------
Combined
Parent Combined Non- Elimination Combined
Only Guarantors Guarantors Entries Totals
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 12,092 $ 22,227 $ 9,144 $ - $ 43,463
Current assets 12,437 948 13,385
Total current assets 12,092 34,664 10,092 56,848
PROPERTY AND EQUIPMENT, Net 134,620 2,674 68,194 205,488
OTHER ASSETS, NET 2,917 3,125 1,685 7,727
INVESTMENT IN SUBSIDIARIES 42,793 32,759 $ (75,551) (1) 0
DEFERRED INCOME TAXES 943 2,247 3,190
TOTAL $ 192,422 $ 74,164 $ 82,218 $ (75,551) $ 273,253
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ - $ 1,122 $ 1,815 $ - $ 2,937
Due to parent company 24,716 1,589 (26,305) (1)
Accounts payable 5,846 3,244 9,090
Accrued interest 2,188 2 2,393 4,582
Accrued expenses & Other . 12,505 1,306 13,811
Total current liabilities 2,188 44,191 10,347 (26,305) (1) 30,420
OTHER LONG-TERM LIABILITIES 6,567 6,567
LONG-TERM DEBT, NET OF CURRENT PORTION 173,962 3,241 42,800 220,003
STOCKHOLDERS EQUITY:
Common stock 5 5
Additional paid-in capital 12,809 17,134 32,759 (49,246) (1) 13,456
Treasury stock (9,665) (9,665)
Retained earnings 13,123 3,032 (3,688) 12,467
Total stockholders equity 16,272 20,166 29,071 (49,246) 16,263
TOTAL $ 192,422 $ 74,164 $ 82,218 $ (75,551) $ 273,253
Elimination entries -
(1) To eliminate investment in and advances to subsidiaries
10
RIVIERA HOLDINGS CORPORATION
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS INFORMATION
MARCH 31, 2001
- -------------------------------------------------------------------------------------------------------------
Combined
Parent Combined Non- Elimination Combined
Only Guarantors Guarantors Entries Totals
REVENUES:
Casino $ 16,747 $10,523 $ 27,270
Rooms 12,735 12,735
Food and beverage 6,775 1,142 7,917
Entertainment 5,878 22 5,900
Other 2,317 109 2,426
Management fee 7,504 0 $ (7,504)(1)
Total revenues 7,504 44,451 11,797 (7,504) 56,248
Less promotional allowances 3,222 827 4,049
Net revenues 7,504 41,229 10,970 (7,504) 52,199
COSTS AND EXPENSES:
Direct costs and expenses of
operating departments:
Casino 9,993 5,327 15,320
Rooms 5,986 5,986
Food and beverage 4,992 320 5,312
Entertainment 4,246 15 4,261
Other 752 2 754
Other operating expenses:
General and administrative 8,098 2,763 10,861
Management fees 7,180 324 (7,504) (1) 0
Preopening expenses Black Hawk,
Colorado 0 0
Depreciation and amortization 2,920 457 883 4,260
Total costs and expenses 2,920 41,704 9,634 (7,504) 46,754
INCOME FROM OPERATIONS 4,584 (475) 1,336 5,445
OTHER (EXPENSE) INCOME:
Interest expense (4,734) (293) (1,758) (6,785)
Interest income 150 204 33 386
Interest capitalized 0 0 0
Other, net (4) (4)
Total other (expense) income (4,584) (94) (1,726) (6,403)
LOSS BEFORE INCOME TAX BENEFIT (568) (390) (958)
(BENEFIT) FOR INCOME TAXES (178) (122) (300)
NET LOSS $ - $ (390) $ (268) $ - $ (658)
Elimination entries -
(1) To eliminate intercompany revenue and expense.
11
CONDENSED CONSOLIDATED STATEMENTS Combined
OF CASH FLOWS INFORMATION AS OF Parent Combined Non- Elimination Combined
MARCH 31, 2001 Only Guarantors Guarantors Entries Total
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss - $ (390) $ (268) $ - $ (658)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization $ 2,920 457 883 4,260
Provision for bad debts 76 5 81
Provision for gaming discounts 71 71
Interest expense 4,734 293 1,759 6,786
Interest paid (8,750) (107) (265) (9,122)
Changes in operating assets and liabilities:
Increase (decrease) in accounts receivable, net (667) (30) (697)
Decrease (increase) in inventories 324 (66) 258
Increase (decrease) in prepaid expenses and other assets (15) 405 390
Increase (decrease) in accounts payable (480) (161) (881)
Increase (decrease) in accrued expenses (3,154) (280) (3,434)
Increase in deferred income taxes (178) (122) (300)
Increase in non-qualified pension plan obligation to CEO upon
retirement 33 33
Net cash provided by operating activities (1,096) (3,737) 1,860 (2,973)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment - Las Vegas (2,144) (2,144)
Capital expenditures for property and equipment - Black Hawk (572) (572)
Decrease (increase) in other assets 1,231 (1,049) 182
Net cash used in investing activities 1,231 (3,193) (572) 0 (2,534)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings
Payments on long-term borrowings (247) (433) (680)
Purchase of treasury stock (33) (33)
Advances to/from subsidiaries 33 (33) 0
Purchase of 1st Mortgage Notes - Black Hawk (2,500) (2,500)
Contribution of capital to Black Hawk, Inc. (3,037) 3,045 8
Net cash (used in) provided by financing activities 0 (3,317) 112 0 (3,205)
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 135 (10,246) 1,400 (8,711)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 11,957 32,473 7,744 52,174
CASH AND CASH EQUIVALENTS, END OF YEAR $12,092 $ 22,227 $ 9,144 $ - $ 43,328
12
8. SEGMENT DISCLOSURES
At December 31, 2000, the Company adopted a management review process by
its geographic gaming market segments: Riviera Las Vegas and Riviera Black Hawk.
Since the management division represents all other revenue, it is also shown.
Due to this change in management's review of operating results, all
corresponding prior years' data has been restated to reflect the current review
process. All intersegment revenues have been eliminated.
(In thousands) 2001 2000
(Restated)
Net revenues:
Riviera Las Vegas $41,299 $41,483
Riviera Black Hawk 10,970 7,603
Riviera Gaming Management 0 103
------------ ---------------
Total net revenues $ 52,199 $49,189
============ ===============
Income (loss) from operations:
Riviera Las Vegas $ 4,110 $ 4,113
Riviera Black Hawk 1,336 1,152
Riviera Gaming Management (1) 97
------------ ---------------
Total income from operations $ 5,445 $ 5,362
============ ===============
EBITDA:
Riviera Las Vegas $7,162 $7,599
Riviera Black Hawk 2,543 3,176
Riviera Gaming Management 0 97
------------ ---------------
Total EBITDA $9,705 $10,872
============ ===============
EBITDA margin (1):
Riviera Las Vegas 17.4% 18.3%
Riviera Black Hawk 23.2% 41.8%
Riviera Gaming Management 94.2%
------------ ---------------
Total EBITDA 18.7% 22.1%
============ ===============
(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.
March 31, December 31,
2001 2000
Assets (2):
Riviera Las Vegas $137,292 $138,525
Riviera Black Hawk 68,194 68,505
Riviera Gaming Management
------------ ---------------
Total assets $205,486 $207,030
============ ===============
(2)Asset represent property and equipment and intangible assets, net of
accumulated depreciation and amortization.
13
RIVIERA LAS VEGAS REVENUES
The primary marketing of the Riviera Las Vegas is not aimed toward
residents of Las Vegas, Nevada. Significantly all revenues derived from patrons
visiting the Riviera Las Vegas are from other parts of the United States and
other countries. Revenues for Riviera Las Vegas from a foreign country or
region may exceed 10 percent of all reported segment revenues; however, the
Riviera Las Vegas cannot identify such information, based upon the nature of
gaming operations.
RIVIERA BLACK HAWK REVENUES
The casino in Black Hawk, Colorado, primarily serves the residents of
metropolitan Denver, Colorado. As such, management believes that significantly
all revenues are derived from within 250 miles of that geographic area.
MANAGEMENT AGREEMENTS
RBH has entered into a management agreement (the RBH Management Agreement)
with Riviera Gaming Management of Colorado, Inc. (the Manager), a wholly owned
subsidiary of Riviera Holdings Corporation, which, in exchange for a fee,
manages RBH. The management fee consists of a revenue fee and a preformance fee.
The revenue fee is based on 1 percent of net revenues (gross revenue less
complimentaries) and is paid quarterly in arrears. The performance fee is based
on the following percentages of EBITDA, whose components are based on generally
accepted accounting principles: (1) 10 percent of EBITDA from $5 million to $10
million, (2) 15 percent of EBITDA from $10 million to $15 million, and (3) 20
percent of EBITDA in excess of $15 million. The performance fee is based on the
preceding quarterly installments subject to year-end adjustment. The management
fee began of February 4, 2000, the date of the opening of the Riviera Black Hawk
Casino. If there is any default under the RBH Management Agreement, the Manager
will not be entitled to receive management fees but will still be entitled to
inter-company service fees. At March 31, 2001, RBH had accrued but not paid, and
the Manager had recognized management fees of $882,000 of which $324,000 are for
the three months ended March 31, 2001and $334,000 are for the three months ended
March 31, 2000. These management fees are eliminated in consolidation.
14
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Three Months Ended March 31, 2001 Compared to Three Months Ended March 31, 2000
Special Factors Effecting Comparability of Results of Operations
The Riviera Black Hawk was in the development stage during the first quarter of
2000 until February 4, 2000 when it opened the casino. Accordingly, the results
of operations for the fiscal 2001 and fiscal 2000 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 includes preopening expense and intercompany
management fees. Operating income from properties is presented as shown on the
Consolidated Statement of Operations.
First Quarter Incr/ %Incr/
(In Thousands) 2001 2000 (Decr) (Decr)
---- ----
Net revenues:
Riviera Las Vegas $41,229 $41,483 ($254) -0.6%
Riviera Black Hawk 10,970 7,603 3,367 44.3%
Riviera Gaming Management 0 103 (103)
- --- ------ -----
Total Net Revenues $52,199 $49,189 $3,010 6.1%
======= ======= ======= =====
Operating Income (Loss)
Riviera Las Vegas $4,110 $4,113 ($ 3)
Riviera Black Hawk 1,336 1,152 184 16.0%
Riviera Gaming Management (1) 97 (98)
--- -- --- ----
Total Operating Income $5,445 $5,362 ($83) -0.2%
====== ====== ===== =====
EBITDA:(1)
Riviera Las Vegas $7,162 $7,599 ($437) -5.8%
Riviera Black Hawk 2,543 3,176 ( 633) -19.9%
Riviera Gaming Management 0 97 (97)
- -- ------ ------
Total EBITDA $ 9,705 $10,872 ($1,167) -10.7%
======= ======= ======= =======
EBITDA margin:
Riviera Las Vegas 17.4% 18.3% -0.9%
Riviera Black Hawk 23.2% 41.8% -18.6%
Riviera Gaming Management 94.2% -94.2%
------ ------- -------
Total EBITDA 18.6% 22.1% -3.4%
======= ======= =======
15
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.
Riviera Las Vegas
Revenues
Net revenues decreased by approximately $254,000, or 0.6%,
from $41.5 million in 2000 to $41.2 million in 2001 due primarily to decreased
casino and entertainment revenues offset by increased room revenues. Casino
revenues decreased by approximately $1.8 million, or 9.5%, from $18.5 million
during 2000 to $16.7 million during 2001 due to a decrease in slot machine
revenue. Entertainment revenues decreased by approximately $404,000, or 6.4%,
from $6.3 million during 2000 to $5.9 million during 2001 due primarily to a
decrease in Splash and Crazy Girls revenues as result of competition from the
openings of new shows on the Las Vegas Strip. During the first quarter of 2001,
the hotel room mix included more convention rooms and fewer tour and travel and
slot promotion rooms. In addition, management had tightened the criteria for
slot complimentaries begining in 2001 and there were fewer slot promotions,
tournaments and special events than the prior year. Late in the first quarter
2001management determined that these policies should be changed and the
appropriate adjustments were made to reduce the slot customer qualification
criteria, to add promotional events and to increase slot promotional rooms
without reducing convention rooms. Room revenues increased by approximately
$1.8 million, or 16.1%, from $11.0 million 2000 to $12.7 million during 2001 as
a result of an increase in average room rate of $8.53, or 16.0% while hotel
occupancy remained approximately the same, 96.4% in 2000 to 96.3% in 2001. Other
revenues decreased by approximately $123,000, or 5.0%, from $2.4 million during
2000 to $2.3 million during 2001 due primarily to decreased gift shop and
concession revenues. Promotional allowances decreased by approximately $168,000,
or 5.0%, from $3.4 million during 2000 to $3.2 million during 2001 primarily due
to decreases in comps related to lower casino activity.
Direct Costs and Expenses of Operating Departments
Casino expense decreased by approximately $535,000, or 5.1%,
from $10.5 million during 2000 to $10.0 million during 2001, due to decreased
casino marketing costs and bad debts expense. Room costs increased $359,000, or
6.4% from $5.6 million in 2000 to $6.0 million in 2001, due to increased payroll
under union contracts and additional convention sales commissions and expenses.
Entertainment costs decreased by approximately $360,000, or 7.8%, from $4.6
million during 2000 to $4.2 million during 2001 due to a decrease in
entertainment special events.
16
Other Operating Expenses
General and administrative expenses increased by
approximately $501,000, or 6.6%, from $7.6 million for 2000 to $8.1 million in
2001 due primarily to higher energy costs. Riviera Las Vegas depreciation and
amortization decreased by approximately $299,000, or 8.1%, from $3.7 million
during the 2000 period to $3.4 million during the 2001 period as the $22 million
of furniture and equipment acquired in 1993 became fully depreciated.
Income from Operations
Income from operations in Las Vegas remained the same at
approximately $4.1 million due to decreased net revenues and increased energy
costs offset by decreased depreciation expense.
EBITDA
Riviera Las Vegas EBITDA, as defined, decreased by approximately
$437,000, or 5.8%, from $7.6 million in 2000 to $7.2 million in 2001 for reasons
described above. During the same periods, EBITDA margin decreased from 18.3 % to
17.4% of net revenues.
Riviera Black Hawk
Revenues
Net revenues increased by approximately $3.4 million, for
a full three months of operations in 2001 versus two months in 2000. Casino
revenues were $7.3 million in 2000 and $10.5 million in 2001 as win per slot
machine per day increased from $130 in the first quarter of 2000 to $142 in
2001.
Food and beverage revenues were approximately $1.1 million in
2001, of which $827,000 was complimentary (promotional allowance). The World's
Fare Buffet restaurant replaced the coffee shop in fourth quarter 2000 and has
served as a marketing tool increasing customer traffic and slot volumn over
first quarter 2000. Other revenues increased 76% to $109,000 primarily from ATM
transaction fees.
Direct Costs and Expenses of Operating Departments
Casino expenses were approximately $5.3 million, 48.6% of
casino revenues in the first quarter of 2001 compared with $2.4 million of 32.2%
of casino revenues in 2000. In 2001 the marketing effort was strengthened
to target higher end players with additional VIP and direct mail marketing
resulting in increased membership in the slot club. Gaming taxes were recorded
on an actual basis (5%) in the first quarter of 2000 and on an annualized basis
(17%) in the first quarter of 2001. Consequently, gaming tax expense in first
quarter 2000 was $900,000 less than 2001. Food and beverage costs of
complimentary revenues are recorded as promotional allowances under GAAP. From
an operational standpoint these expenses are recorded in th food and beverage
department and matched with the total cash and complimentary revenues. In the
first quarter of 2001 the food and beverage department results increased
approximately $100,000 from a loss to breakeven.
17
Other Operating Expenses
General and administrative expenses were approximately $2.8
million, or 25.2% of net revenues for 2001 compared with 22.6% of net revenues
in 2000 due to increased property taxes and energy costs. Depreciation and
amortization increased from $469,000 in 2000 to $883,000 in 2001, due to the
additional month of operations.
Income from Operations
Income from operations in Black Hawk, Colorado increased approximately
$184,000 or 16.0% due to increased revenues as a result of increased direct
costs for marketing and promotion for the casino in the first quarter of 2001.
In 2000, these programs had not yet been instituted because business was
generated by the "newness factor" of the property.
EBITDA
Riviera Black Hawk EBITDA, as defined, was $2.5 million, or
23.2% of net revenues in the first quarter of 2001 compared with $3.2 million or
41.8% of net revenues in 2000. The 41.8% margin was unusually high in 2000 due
to the extraordinary grand opening volumes.
Consolidated Operations
Other Income (Expense)
Interest expense on the $175 million 10% First Mortgage Notes
issued by Rivera Holdings Corporation of $4.4 million plus related amortization
of loan fees and equipment and other financing costs totaled approximately $5
million in 2001 and 2000. Interest expense on the $45 million 13% First Mortgage
Notes issued by Riviera Black Hawk in June 1999 combined with its interest from
capital leases totaled $1.8 million in 2001 compared to $1.5 million for the
first quarter of 2000.
Other expenses, net includes an insurance reimbursement of
Paulson litigation costs of $1.2 million in 2000.
Net Income (Loss)
The results of operations decreased $1.3 million from net
income of $675,000 in 2000 to a net loss of $658,000 in 2001 due primarily to
higher energy costs and not having the benefit of the insurance reimbursement of
Paulson litigation costs that were realized in 2000.
18
EBITDA
Consolidated EBITDA, as defined, decreased by approximately $1.2
million, or 10.7%, from $10.9 million in 2000 to $9.7 million in 2001. During
the same periods, EBITDA margin decreased from 22.1% to 18.6% of net revenues.
Liquidity and Capital Resources
At March 31, 2001, the Company had cash and cash equivalents of $43.5 million.
The cash and cash equivalents decreased $8.7 million during the three months of
2001 as a result of $3.0 million of cash used in operations, $600,000 in capital
expenditures at Riviera Black Hawk, $2.1 million in capital expenditures for
Riviera Las Vegas and payments of $680,000 of debt. Finally, Riviera Black Hawk
purchased $2.5 million of its 13% First Mortgage Bonds in a private transaction
during 2001.
Management believes that cash flow from operations, combined with the $43.5
million cash and cash equivalents will be sufficient to cover the Company's debt
service and enable investment in budgeted capital expenditures for 2001 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 remaining $36 million of 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
by the terms of its call provisions 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, by the terms of its call
provisions 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
19
cash requirements, the Company and its subsidiaries would be required to curtail
or defer certain 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 subsidiaries, subject to certain exceptions, to : (i)
incur additional indebtedness; (ii) pay dividends or other distributions,
repurchase capital stock or other equity interests or subordinated indebtedness;
(iii) enter into certain transactions with affiliates; (iv) create certain
liens; sell certain assets; and (v) enter into certain mergers and
consolidations. As a result of these restrictions, the ability of the Company 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 would be required to curtail or defer certain of
their capital expenditure programs which could have an adverse effect on the
Company's operations.
At March 31, 2001, 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
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 30 days or less.
As of March 31, 2001, we had $222.9 million in borrowings. The borrowings
include $175 million in notes maturing in 2004, $36 million remaining notes
maturing in 2005 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 $36 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.
Interest Rate Sensitivity
Principal (Notational Amount by Expected Maturity)
Average Interest Rate
(Amounts in Fair Value
thousands) 2001 2002 2003 2004 2005 Thereafter Total at 3/31/00
Assets
Short term investments $ - $ -
Average interest rate
Long Term Debt Including Current Portion
Equipment loans and
capital leases Las Vegas $ 855 $ 1,201 $ 1,285 $ 1,005 $ 17 $ 4,363 $ 4,363
Average interest rate 8.0% 7.8% 7.8% 8.4% 8.4%
10% First Mortgage Note Las Vegas $ 173,962 $ 173,962 $ 150,500
Average interest rate 10.0%
Equipment loans
Black Hawk, Colorado $ 8 $ 8 $ 16 $ 16
Average interest rate 11.2% 11.2%
Capital leases
Black Hawk, Colorado $1,270 $ 1,848 $ 2,044 $ 2,263 $ 658 $ 8,083 $ 8,083
Average interest rate 10.8% 10.8% 10.8% 10.8% 10.8%
Special Improvement District Bonds
Black Hawk, Colorado $ 58 $ 68 $ 71 $ 76 $ 81 $ 221 $ 575 $ 575
Average interest rate 5.5% 5.5% 5.5% 5.5% 5.5% 5.5%
13% First Mortgage Note
Black Hawk, Colorado casino
project $ 35,941 $ 35,941 $ 35,941
Average interest rate 13.0%
21
Part II. OTHER INFORMATION
Legal Proceedings
The Company is a party to several routine lawsuits, both as plaintiff and as
defendant, arising from the normal operations of a hotel. 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.
22
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 10, 2001
23
Riviera Holdings Corporation
Form 10Q
March 31, 2001
Exhibits
None
24