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 June 30, 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 of (IRS Employer Identification No.)
incorporation or organization)
2901 Las Vegas Boulevard South, Las Vegas, Nevada 89109
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code (702) 794-9527
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes___ No___
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE LAST FIVE YEARS
Indicate by check mark whether the Registrant has filed all documentation
and reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes____ No_____
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
As of August 9, 2001, there were 3,550,800 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 June 30, 2001 (Unaudited)
and December 31, 2000 3
Condensed Consolidated Statements of Operations (Unaudited) for the
Three and Six months ended June 30, 2001 and 2000 4
Condensed Consolidated Statements of Cash Flows (Unaudited) for the
Three and Six Months ended June 30, 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 16
Item 3. Quantitative and Qualitative Disclosures about Market Risk 27
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 28
Signature Page 29
Exhibits - None 30
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 June 30,
2001, and the related condensed consolidated statements of operations and of
cash flows for the three and six months ended June 30, 2001 and 2000. These
financial statements are the responsibility of the Companys 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
July 24, 2001
Las Vegas, Nevada
2
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
June 30 December 31
2001 2000
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 49,530 $ 52,174
Accounts receivable, net 3,630 5,548
Inventories 2,547 3,342
Prepaid expenses and other assets 4,308 4,599
--------------- --------------
Total current assets 60,015 65,663
PROPERTY AND EQUIPMENT, Net 204,672 207,030
OTHER ASSETS, Net 7,270 8,128
DEFERRED INCOME TAXES 3,244 2,889
--------------- --------------
TOTAL $ 275,201 $ 283,710
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 3,009 $ 2,871
Accounts payable 9,683 9,731
Accrued interest 7,917 7,727
Accrued expenses 11,989 16,731
--------------- --------------
Total current liabilities 32,598 37,060
--------------- --------------
OTHER LONG-TERM LIABILITIES 7,153 6,533
--------------- --------------
LONG-TERM DEBT, Net of current portion 219,319 223,172
--------------- --------------
SHAREHOLDERS' EQUITY:
Common stock ($.001 par value; 20,000,000 shares
authorized; 5,106,776 and 5,106,776 shares issued at
December 31, 2000 and June 30, 2001, respectively) 5 5
Additional paid-in capital 13,486 13,446
Treasury stock (1,431,648 shares and 1,440,379 shares at
December 31, 2000 and June 30, 2001, respectively) (9,759) (9,633)
Retained earnings 12,399 13,127
--------------- --------------
Total stockholders' equity 16,131 16,945
--------------- --------------
TOTAL $ 275,201 $ 283,710
=============== ==============
See notes to condensed consolidated financial statements
3
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000 Three Months Ended Six Months Ended
(In thousands, except per share amounts) June 30, June 30,
REVENUES: 2001 2000 2001 2000
Casino $ 31,045 $ 28,632 $ 58,314 $ 54,431
Rooms 11,736 11,580 24,471 22,553
Food and beverage 8,493 8,659 16,410 16,048
Entertainment 5,864 6,282 11,763 12,563
Other 2,500 2,812 4,928 5,417
------------ -------------- ---------- ------------
Total revenues 59,638 57,965 115,886 111,012
Less promotional allowances 4,810 4,521 8,858 8,379
------------ -------------- ---------- ------------
Net revenues 54,828 53,444 107,028 102,633
------------ -------------- ---------- ------------
COSTS AND EXPENSES:
Direct costs and expenses of operating departments:
Casino 16,790 15,456 32,111 28,335
Rooms 6,242 6,229 12,228 11,856
Food and beverage 5,690 5,635 11,002 10,795
Entertainment 4,126 4,976 8,386 9,584
Other 854 861 1,609 1,584
Other operating expenses:
General and administrative 10,557 10,365 21,420 19,684
Preopening expenses-Black Hawk, Colorado 1,222
Depreciation and amortization 4,287 4,353 8,546 8,642
------------ -------------- ---------- ------------
Total costs and expenses 48,546 47,875 95,302 91,702
------------ -------------- ---------- ------------
INCOME FROM OPERATIONS 6,282 5,569 11,726 10,931
------------ -------------- ---------- ------------
OTHER (EXPENSE) INCOME :
Interest expense (6,747) (7,340) (13,531) (13,844)
Interest income 368 660 753 1,133
Interest capitalized 0 616
Other, net (27) 60 (31) 1,189
------------ -------------- ---------- ------------
Total other expense (6,406) (6,620) (12,809) (10,906)
------------ -------------- ---------- ------------
INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME TAXES (124) (1,051) (1,083) 25
(BENEFIT) FOR INCOME TAXES (54) (498) (355) (97)
------------ -------------- ---------- ------------
NET INCOME (LOSS) $ (70) $ (553) $ (728) $ 122
============ ============== ========== ============
EARNINGS (LOSS) PER SHARE DATA:
Earnings (loss) per share:
Basic $ (0.02) $ (0.14) $ (0.20) $ 0.03
------------ --------------- --------- ------------
Diluted $ (0.02) $ (0.14) $ (0.20) $ 0.03
------------ -------------- ---------- ------------
Weighted-average common shares outstanding 3,668 3,933 3,670 4,031
------------ -------------- ---------- ------------
Weighted-average common and common equivalent shares 3,668 3,933 3,670 4,081
------------ -------------- ---------- ------------
See notes to condensed consolidated financial statements
4
RIVIERA HOLDINGS CORPORATION AND SUBSIDIARY Three Months Ended Six Months Ended
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS June 30, June 30,
(Unaudited) 2001 2000 2001 2000
------------ ------------ ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ (70) $ (553) $ (728) $ 122
Adjustments to reconcile net income(loss) to net cash
(used in) and
provided by operating activities:
Depreciation and amortization 4,287 4,353 8,546 8,642
Provision for bad debts 57 (73) 139 158
Provision for gaming discounts (92) (21)
Interest expense 6,747 7,340 13,531 13,844
Interest paid (2,752) (3,361) (11,874) (12,312)
Capitalized interest on construction projects (616)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 2,499 2,762 1,802 378
Decrease (increase) in inventories 537 168 795 568
Decrease (increase) in prepaid expenses and other assets (88) (48) 304 181
Increase (decrease) in accounts payable 593 (2,001) (48) (1,521)
Increase (decrease) in accrued liabilities (1,387) 765 (4,820) 246
Increase (decrease) in current income taxes payable (401)
Increase (decrease) in deferred income taxes (55) (31) (355) (31)
Increase in deferred compensation plan liability 494 494
Increase (decrease) in non-qualified pension plan
obligation to CEO upon retirement (283) 318 (250) 632
------------ -------------------------- -------------
Net cash provided by operating activities 10,487 9,241 7,515 10,293
------------ -------------------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment, Las
Vegas, Nevada (2,451) (2,079) (4,595) (3,622)
Capital expenditures - Black Hawk, Colorado (1,022) (751) (1,594) (13,428)
Capitalized Interest on construction projects 616
Purchase of short term investments 5,443 5,258
Decrease Black Hawk, Colorado restricted funds 3,974 8,389
Decrease (increase) in other assets (196) 516 (15) 535
------------ -------------- ----------- -------------
Net cash provided by (used in) investing activities (3,669) 7,103 (6,204) (2,252)
------------ -------------- ----------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 0 799 9,518
Payments on long-term borrowings (690) (501) (1,370) (780)
Purchase of treasury stock (17) (49) (4,425)
Increase in paid-in capital 41 (38) 41
Purchase of deferred comp treasury stock (193) (193)
Purchase of Black Hawk 13% 1st Mortgage Notes 0 (2,500)
Issuance of restricted stock 108 116
------------ -------------- ----------- -------------
Net cash (used in) provided by financing activities (751) 260 (3,955) 4,313
------------ -------------- ----------- -------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 6,067 $ 16,604 $ (2,644) $ 12,354
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 43,463 38,554 52,174 42,804
------------ -------------- ----------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 49,530 $ 55,158 $ 49,530 $ 55,158
============ ============= =========== =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION --
Income Taxes paid - Colorado Income Tax $ 40 $ 140
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
Property acquired with debt and accounts payable $ 232 $ 230 $ 232 $ 230
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 when the contract was terminated.
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 June 30, 2001 and for the three months and six
months ended June 30, 2001 and 2000 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 those interim
periods. The results of operations for the three months and six months ended
June 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 and six months
ended June 30, 2001 and 2000 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
7
requires qualitative disclosure of certain financial and descriptive information
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 $534,000 and $841,000 respectively of such
sales incentive offers (Points) from Casino operating expense to net against
Casino revenues for the three months and six months ending June 30, 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 Company offers such sales incentives as Cash
Vouchers. 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 of 2001. As a result of adopting EITF 00-14, the Company
reclassified approximately $40,000 and $243,000 respectively of such sales
incentive offers (Cash Vouchers) from Casino operating expense to net against
Casino revenues for the three months and six months ending June 30, 2000.
Recently Issued Accounting Standards
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations."
SFAS 141 requires the purchase method of accounting for business combinations
initiated after June 30, 2001 and eliminates the pooling-of-interests method.
The Company does not believe that the adoption of SFAS 141 will have a
significant impact on its financial statements.
In July 2001, the FASB issued Statement of Financial Accounting Standards No.
142 ("SFAS 142"), "Goodwill and Other Intangible Assets", which is effective
January 1, 2002. SFAS 142 requires, among other things, the discontinuance of
goodwill amortization. In addition, the standard includes provisions for the
reclassification of certain existing recognized intangibles as goodwill,
reassessment of the useful lives of existing recognized intangibles,
reclassification of certain intangibles out of previously reported goodwill and
the identification of reporting units for purposes of assessing potential future
impairments of goodwill. SFAS 142 also requires the Company to complete a
8
transitional goodwill impairment test six months from the date of adoption. The
Company is currently assessing but has not yet determined the impact of SFAS 142
on its financial position and results of operations.
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 which approximates the effective interest
method.
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
RBHs 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:
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 $3.2 million to RBH
under this agreement for Operating Period #1 which was used to acquire $2.5
million of the 13% Black Hawk Bonds. Based upon the six months results at June
30, 2001 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 per share for the first
six months of 2001. The Deferred Compensation Trust purchased 25,775 shares of
Company stock on the open market at a cost of $7.50 per share during the first
six months of 2001. See also note 9 Subsequent event.
9
5. ISSUANCE OF RESTRICTED STOCK
There were 20,566 shares of Treasury Stock at a cost of $4.83 per share issued
under the Restricted Stock Plan for executive compensation in the second quarter
of 2001. The stock has restrictions as to when it can be traded or sold by its
holders, primarily the shares cannot be sold until the executive terminates his
or her 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 and Morgens Waterfall litigation which was
received in the first quarter 2000.
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 six months ended
June 30, 2001.
10
RIVIERA HOLDINGS CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
JUNE 30, 2001
- -----------------------------------------------------------------------------------------------------------------------
Combined
Parent Combined Non- Elimination Combined
Only Guarantors Guarantors Entries Totals
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 12,163 $ 30,116 $ 7,251 $ - $ 49,530
Current assets 9,486 999 10,485
Total current assets 12,163 39,602 8,250 60,015
PROPERTY AND EQUIPMENT, Net 133,669 2,708 68,295 204,672
OTHER ASSETS, NET 2,701 2,352 2,217 7,270
INVESTMENT IN SUBSIDIARIES 42,793 32,758 $ (75,551) (1) (0)
DEFERRED INCOME TAXES 933 2,311 3,244
TOTAL $ 191,326 $ 78,353 $ 81,073 $ (75,551) $ 275,201
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ - $ 1,147 $ 1,862 $ - $ 3,009
Due to parent company 24,716 2,151 (26,867) (1) 0
Accounts payable 6,436 3,247 9,683
Accrued interest 6,563 1 1,353 7,917
Accrued expenses _ 10,922 1,067 11,989
Total current liabilities 6,563 43,222 9,680 (26,867) (1) 32,598
OTHER LONG-TERM LIABILITIES 7,153 7,153
LONG-TERM DEBT, NET OF CURRENT PORTION 174,039 2,945 42,335 219,319
STOCKHOLDERS EQUITY:
Common stock 5 5
Additional paid-in capital 7,352 22,060 32,758 (48,684) (1) 13,486
Treasury stock (9,759) (9,759)
Retained earnings 13,126 2,973 (3,700) 12,399
Total stockholders equity 10,724 25,033 29,058 (48,684) 16,131
TOTAL $ 191,326 $ 78,353 $ 81,073 $ (75,551) $ 275,201
Elimination entries -
(1) To eliminate investment in and advances to subsidiaries
11
RIVIERA HOLDINGS CORPORATION
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS INFORMATION
For the Six Months Ended JUNE 30, 2001
- --------------------------------------------------------------------------------------------------------------------------
Combined
Parent Combined Non- Elimination Combined
Only Guarantors Guarantors Entries Totals
REVENUES:
Casino $ 36,367 $ 21,947 $ 58,314
Rooms 24,471 24,471
Food and beverage 13,903 2,507 16,410
Entertainment 11,672 91 11,763
Other 4,694 234 4,928
Management fee $ 15,223 0 $ (15,223)(1) 0
Total revenues 15,223 91,107 24,779 (15,223) 115,886
Less promotional allowances 7,039 1,819 8,858
Net revenues 15,223 84,068 22,960 (15,223) 107,028
COSTS AND EXPENSES:
Direct costs and expenses of
operating departments:
Casino 21,009 11,102 32,111
Rooms 12,228 12,228
Food and beverage 10,207 795 11,002
Entertainment 8,356 30 8,386
Other 1,609 1,609
Other operating expenses:
General and administrative 15,749 5,671 21,420
Management fees 14,621 602 (15,223) (1) 0
Depreciation and amortization 5,934 808 1,804 8,546
Total costs and expenses 5,934 84,587 20,004 (15,223) 95,302
INCOME (LOSS) FROM OPERATIONS 9,289 (519) 2,956 11,726
OTHER (EXPENSE) INCOME:
Interest expense (9,469) (589) (3,473) (13,531)
Interest income 180 521 52 753
Other, net (31) (31)
Total other (expense) income (9,289) (99) (3,421) (12,809)
LOSS BEFORE INCOME TAX BENEFIT (618) (465) (1,083)
(BENEFIT) FOR INCOME TAXES (169) (186) (355)
NET LOSS $ - $ (449) $ (279) $ - $ (728)
Elimination entries -
(1) To eliminate intercompany revenue and expense.
12
RIVIERA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS Combined
OF CASH FLOWS INFORMATION FOR THE SIX Parent Combined Non- Elimination Combined
MONTHS ENDED JUNE 30, 2001 Only Guarantors Guarantors Entries Total
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (449) $ (279) $ - $ (728)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization $ 5,934 821 1,804 8,559
Provision for bad debts 122 17 139
Provision for gaming discounts (21) (21)
Interest expense 9,469 589 3,473 13,531
Interest paid (8,750) 268 (3,392) (11,874)
Changes in operating assets and liabilities:
Increase (decrease) in accounts receivable, net 1,889 (87) 1,802
Decrease (increase) in inventories 720 75 795
Increase (decrease) in prepaid expenses and other assets 282 9 291
Increase (decrease) in accounts payable (523) 475 (48)
Increase (decrease) in accrued expenses (4,313) (507) (4,820)
Increase in deferred income taxes (169) (186) (355)
Increase in deferred compensation plan liability 494 494
Increase in non-qualified pension plan obligation to CEO upon retirement (250) (250)
Increase in other long term liabilities
Net cash provided by (used in) operating activities 6,653 (540) 1,402 7,515
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment Las Vegas (4,595) (4,595)
Capital expenditures for property and equipment Black Hawk (1,594) (1,594)
Decrease (increase) in other assets (6,362) 6,342 5 (15)
Net cash (used in) provided by investing activities (6,362) 1,747 (1,589) 0 (6,204)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings
Payments on long-term borrowings (519) (851) (1,370)
Purchase of treasury stock (49) (49)
Increase in paid in capital 41 41
Purchase of deferred comp treasury stock (193) (193)
Issuance of restricted stock 116 116
Purchase of Black Hawk 13% 1st Mortgage Notes (2,500) (2,500)
Contribution of capital to Black Hawk, Inc. (3,045) 3,045 0
Net cash used in financing activities (85) (3,564) (306) 0 (3,955)
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 206 (2,357) (493) (2,644)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 11,957 32,473 7,744 52,174
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 12,163 $ 30,116 $ 7,251 $ - $ 49,530
13
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.
Three months ended Six months ended
June 30, June 30,
(Dollars in thousands) 2001 2000 2001 2000
(Restated) (Restated)
Net revenues:
Riviera Las Vegas $42,838 $44,771 $84,068 $86,255
Riviera Black Hawk 11,990 8,574 22,960 16,176
Riviera Gaming Management 0 99 0 202
------------ ---------------------------- -------------
Total net revenues $54,828 $53,444 $ 107,028 $102,633
============ ============================ =============
Income (loss) from operations:
Riviera Las Vegas $4,662 $5,711 $8,771 $9,968
Riviera Black Hawk 1,620 (248) 2,956 906
Riviera Gaming Management 0 (39) (1) 57
------------ ---------------------------- -------------
Total income from operations $6,282 $5,424 $11,726 $10,931
============ ============================ =============
EBITDA (1):
Riviera Las Vegas $7,750 $9,432 $14,912 $17,032
Riviera Black Hawk 2,819 529 5,362 3,706
Riviera Gaming Management 0 (39) (2) 57
------------ ---------------------------- -------------
Total EBITDA $10,569 $9,922 $20,272 $20,795
============ ============================ =============
EBITDA margin:
Riviera Las Vegas 18.1% 21.1% 17.7% 19.7%
Riviera Black Hawk 23.5% 6.2% 23.4% 22.9%
Riviera Gaming Management -39.4% 28.2%
------------ ---------------------------- -------------
Total EBITDA 19.3% 18.6% 18.9% 20.3%
============ ============================ =============
(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.
14
June 30, December 31,
2001 2000
Assets (2):
Riviera Las Vegas $136,377 $ 138,525
Riviera Black Hawk 68,295 68,505
Riviera Gaming Management
------------ --------------
Total assets $204,672 $ 207,030
============ ==============
(2) Asset represent property and equipment and intangible assets, net of
accumulated depreciation and amortization.
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 performance 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 derived from
amounts calculated using 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 intercompany service fees.
At June 30, 2001, RBH had accrued but not paid, and the Manager had recognized
management fees of $1.2 million of which $278,000 are for the three months ended
June 30, 2001 and $16,000 are for the three months ended June 30, 2000. These
management fees are eliminated in consolidation.
15
9. Subsequent events
On July 10, 2001, RHC announced that it had purchased, from unsolicited offers
in three private transactions, 233,000 shares of its outstanding stock at an
average purchase price of $6.29 per share. Of the shares purchased, 87,563 were
allocated to the Companys deferred compensation plan. On August 8, 2001 the
Company repurchased $1.0 million of the 13% First Mortgage Notes at par.
Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations
Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 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.
Second Quarter Incr/ % Incr/
(In Thousands) 2001 2000 (Decr) (Decr)
Net revenues:
Riviera Las Vegas $42,838 $44,771 ($1,933) -4.3%
Riviera Black Hawk 11,990 8,574 3,416 39.8%
Riviera Gaming Management 0 99 (99) 0
Total Net Revenues $54,828 $53,444 $1,384 2.6%
Operating Income (Loss)
Riviera Las Vegas $4,662 $5,711 ($1,049) -18.4%
Riviera Black Hawk 1,620 (248) 1,868 753%
Riviera Gaming Management 0 (39) 39 0
Total Operating Income $6,282 $5,424 $858 15.8%
EBITDA:(1)
Riviera Las Vegas $7,750 $9,432 ($1,682) -17.8%
Riviera Black Hawk 2,819 529 2,290 432.9%
Riviera Gaming Management 0 (39) 39 0
Total EBITDA $ 10,569 $9,922 $647 6.5%
EBITDA margin
Riviera Las Vegas 18.1% 21.1% -3.0%
Riviera Black Hawk 23.5% 6.2% 17.3%
Riviera Gaming Management 0 -39.4% 39.4%
Total EBITDA 19.3% 18.6% 0.7%
16
(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 Companys definition of EBITDA may not be comparable to other
companies definitions.
Riviera Las Vegas
Revenues
Net revenues decreased by approximately $1.9 million, or 4.3%, from $44.8
million in 2000 to $42.8 million in 2001 due primarily to decreased casino and
entertainment revenues which were partially offset by increased room revenues.
Casino revenues decreased by approximately $854,000, or 4.2%, from $20.5 million
during 2000 to $19.6 million during 2001 due to a decrease in slot machine
coin-in and table game drop. Entertainment revenues decreased by approximately
$487,000, or 7.8%, from $6.3 million during 2000 to $5.8 million during 2001 due
primarily to a decrease in Splash revenue as a result of competition from the
openings of new shows on the Las Vegas Strip. Room revenues increased by
approximately $156,000, or 1.3%, from $11.6 million 2000 to $11.7 million during
2001 as a result of a small increase in average room rate while hotel occupancy
remained approximately the same at 98.5% in both quarters. Other revenues
decreased by approximately $254,000, or 9.7%, from $2.6 million during 2000 to
$2.4 million during 2001 due primarily to decreased telephone revenues as a
result of guests using cell phones with unlimited long distance programs instead
of using phones provided in the hotel. Promotional allowances increased by
approximately $243,000, or 6.8%, from $3.6 million during 2000 to $3.8 million
during 2001 due primarily to a higher number of complimentary entertainment
tickets issued to promote sales volume in 2001.
Direct Costs and Expenses of Operating Departments
Casino expense increased by approximately $639,000, or 6.2%, from $10.4
million during 2000 to $11.0 million during 2001, due to increased casino
payroll and promotional expense. Entertainment costs decreased by approximately
$861,000, or 17.3%, from $5.0 million during 2000 to $4.1 million during 2001.
Entertainment expense decreased due to revenue sharing arrangements with show
producers which decline in conjunction with decreasing revenues.
17
Other Operating Expenses
General and administrative expenses decreased by approximately $105,000, or
1.4%, from $7.8 million for 2000 to $7.7 million in 2001 due primarily to higher
energy costs offset by lower corporate incentive and ESOP costs which are tied
to EBITDA. Riviera Las Vegas depreciation and amortization decreased by
approximately $371,000, or 9.9%, from $3.7 million during the 2000 period to
$3.4 million during the 2001 period as $22 million of furniture and equipment
acquired in 1993 became fully depreciated in the third quarter of 2000.
Income from Operations
Income from operations in Las Vegas decreased by approximately $1.0 million due
to decreased net revenues, increased casino expense and increased energy costs
which were partially offset by decreased depreciation and entertainment expense.
EBITDA
Riviera Las Vegas EBITDA, as defined, decreased by approximately $1.7 million,
or 17.8%, from $9.4 million in 2000 to $7.8 million in 2001 for reasons
described above. During the same periods, EBITDA margin decreased from 21.1 % to
18.1% of net revenues.
Riviera Black Hawk
Revenues
Net revenues increased by approximately $3.4 million or 39.8%, from $8.6 million
in 2000 to $12.0 million in 2001. Casino revenues were $8.2 million in 2000 and
$11.4 million in 2001 as win per slot machine per day increased from $90 in the
second quarter of 2000 to $150 in 2001.
Food and beverage revenues were approximately $1.4 million in 2001, of which
$938,000 was complimentary (promotional allowance). The Worlds Fare Buffet
restaurant replaced the coffee shop in the fourth quarter 2000 and has served as
a marketing tool increasing customer traffic and slot volume over the second
quarter of 2000 when the restaurant was a coffee shop. Other revenues increased
48.8% to $125,000 due to ATM commissions.
Direct Costs and Expenses of Operating Departments
Casino expenses were approximately $5.8 million, or 48.2% of casino revenues in
the second quarter of 2001 compared with $5.1 million or 59.2% 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. Food and beverage complimentary revenues are
recorded as promotional allowances under GAAP. The costs of food and beverage
complimentaries are allocated to the casino department.
18
Other Operating Expenses
General and administrative expenses were approximately $2.9 million, or 24.3% of
net revenues for 2001 compared with 28.8% of net revenues in 2000 due to
increased property tax and insurance expense for health insurance claims.
Depreciation and amortization increased from $761,000 in 2000 to $921,000 in
2001.
Income from Operations
Income from operations in Black Hawk, Colorado increased approximately $1.9
million as a result of increased direct marketing and promotion for the casino
in the second quarter of 2001. In 2000, these programs had not yet been
instituted because business volume was being generated solely by the newness
factor of the property.
EBITDA
Riviera Black Hawk EBITDA, as defined, was $2.8 million, or 23.5% of net
revenues in the second quarter of 2001 compared with $529,000 or 6.2% of net
revenues in 2000 for the reasons discussed above.
Consolidated Operations
Other Income (Expense)
Interest expense on the $175 million 10% First Mortgage Notes issued by Riviera
Holdings Corporation of $4.4 million plus related amortization of loan fees,
interest on equipment leases 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 $1.7 million in the second quarter of 2001 compared to
$2.3 million for the second quarter of 2000. Approximately $9.1 million of the
13% First Mortgage Notes have been repurchased since January of 2000.
Net Income (Loss)
Net loss decreased $483,000 or 87.3% from a net loss of $553,000 in 2000 to a
net loss of $70,000 in 2001 due primarily to increased net revenues and other
matters discussed above.
EBITDA
Consolidated EBITDA, as defined, increased by approximately $647,000, or 6.5%,
from $9.9 million in 2000 to $10.6 million in 2001. During the same periods,
EBITDA margin increased from 18.6% to 19.3% of net revenues.
19
Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 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.
Six Months Ended Incr/ %
(In Thousands) 2001 2000 (Decr) Incr/(Decr)
Net revenues:
Riviera Las Vegas $84,068 $86,255 ($2,187) -2.5%
Riviera Black Hawk 22,960 16,176 6,784 41.9%
Riviera Gaming Management 0 202 (202) 0
Total Net Revenues $107,028 $102,633 $4,395 4.3%
Operating Income (Loss)
Riviera Las Vegas $8,771 $9,968 ($1,197) -12.0%
Riviera Black Hawk 2,956 906 2,050 226.3%
Riviera Gaming Management (1) 57 (58) -101.8%
Total Operating Income $11,726 $10,931 $795 7.3%
EBITDA:(1)
Riviera Las Vegas $14,912 $17,032 ($2,120) -12.4%
Riviera Black Hawk 5,362 3,706 1,656 44.7%
Riviera Gaming Management (2) 57 (59) -101.8%
Total EBITDA $ 20,272 $20,795 ($523) -2.5%
EBITDA margin
Riviera Las Vegas 17.7% 19.7% -2.0%
Riviera Black Hawk 23.4% 22.9% .5%
Riviera Gaming Management 0 28.2% -28.2%
Total EBITDA 18.9% 20.3% -1.4%
(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.
20
Riviera Las Vegas
Revenues
Net revenues decreased by approximately $2.2 million, or 2.5%, from $86.3
million in 2000 to $84.1 million in 2001 due primarily to decreased casino,
entertainment and other revenues offset by increased room revenues. Casino
revenues decreased by approximately $2.6 million, or 6.7%, from $39.0 million
during 2000 to $36.4 million during 2001 due to a decrease in slot machine
coin-in and table game drop. Entertainment revenues decreased by approximately
$891,000, or 7.1%, from $12.6 million during 2000 to $11.7 million during 2001
due primarily to a decrease in Splash revenue as result of competition from the
openings of new shows on the Las Vegas Strip. In 2001, room revenue increased as
result of higher convention room rates and occupancy. Convention room nights
were up 11.3% from 2000 and convention room rate was up 4.7%. Room revenues
increased by approximately $2.3 million, or 10.3%, from $22.2 million during
2000 to $24.5 million during 2001 as a result of an increase in average room
rate while hotel occupancy remained approximately the same at 97.4% for both
years. Other revenues decreased by approximately $741,000, or 13.6%, from $5.4
million during 2000 to $4.7 million during 2001 due primarily to decreased
telephone and retail shop revenues.
Direct Costs and Expenses of Operating Departments
Rooms expenses increased by approximately $372,000, or 3.1%, from $11.9 million
during 2000 to $12.2 million during 2001, due to increased payroll.
Entertainment costs decreased by approximately $1.2 million, or 12.8%, from $9.6
million during 2000 to $8.4 million during 2001 due to the corresponding
decrease in entertainment revenues.
Other Operating Expenses
General and administrative expenses increased by approximately $395,000, or
2.6%, from $15.4 million for 2000 to $15.7 million in 2001 due primarily to
higher energy costs. Riviera Las Vegas depreciation and amortization decreased
by approximately $670,000, or 9.0%, from $7.4 million during the 2000 period to
$6.7 million during the 2001 period as $22 million of furniture and equipment
acquired in 1993 became fully depreciated in the third quarter of 2000.
Income from Operations
Income from operations in Las Vegas decreased by approximately $1.2 million due
to decreased net revenues and increased energy costs offset by decreased
depreciation and entertainment expense.
21
EBITDA
Riviera Las Vegas EBITDA, as defined, decreased by approximately $2.1 million,
or 12.4%, from $17.0 million in 2000 to $14.9 million in 2001 for reasons
described above. During the same periods, EBITDA margin decreased from 19.7 % to
17.7% of net revenues.
Riviera Black Hawk
Revenues
Net revenues increased by approximately $6.8 million or 41.9%, from $16.2
million in 2000 to $23.0 million in 2001. Casino revenues were $15.5 million in
2000 and $21.9 million in 2001 as win per slot machine per day increased from
$105 in the 2000 to $146 in 2001.
Food and beverage revenues were approximately $2.5 million in 2001, of which
$1.8 million was complimentary (promotional allowance). The Worlds Fare Buffet
restaurant replaced the coffee shop in fourth quarter 2000 and has served as a
marketing tool increasing customer traffic and slot volume over second quarter
of 2000 when the restaurant was a coffee shop. Other revenues increased 59.2% to
$234,000 due to increased ATM fees.
Direct Costs and Expenses of Operating Departments
Casino expenses were approximately $11.1 million, or 48.4% of casino revenues in
2001 compared with $7.4 million or 45.9% 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. Food and beverage complimentary revenues are recorded as promotional
allowances under GAAP. The costs of Food and beverage complimentaries are
allocated to the casino department.
Other Operating Expenses
General and administrative expenses were approximately $5.7 million, or 24.7% of
net revenues for 2001 compared with $4.2 million or 25.9% of net revenues in
2000. Depreciation and amortization increased from $1.2 million in 2000 to $1.8
million in 2001.
Income from Operations
Income from operations in Black Hawk, Colorado increased approximately $2.1
million due to increased revenues as a result of increased direct costs for
marketing and promotion for the casino in the second quarter of 2001. In 2000,
these programs had not yet been instituted because business volume was being
generated solely by the newness factor of the property.
22
EBITDA
Riviera Black Hawk EBITDA, as defined, was $5.4 million, or 23.4% of net
revenues for six months ended June 30, 2001 compared with $3.7 million or 22.9%
of net revenues for the same period in 2000.
Consolidated Operations
Other Income (Expense)
Interest expense on the $175 million 10% First Mortgage Notes issued by Rivera
Holdings Corporation of $8.8 million plus related amortization of loan fees and
equipment and other financing costs totaled approximately $10.1 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 $3.5 million for the six month period ended June 30, 2001 compared to
$3.8 million for the same period of 2000. Approximately $9.1 million in 13%
First Mortgage Notes have been repurchased as of June 30, 2001.
Net Income (Loss)
Net income decreased $850,000 from net income of $122,000 in 2000 to a net loss
of $728,000 in 2001 due primarily to increased utility costs, increased net
interest expense and decreased interest income.
EBITDA
Consolidated EBITDA, as defined, decreased by approximately $523,000, or 2.5%,
from $20.8 million in 2000 to $20.3 million in 2001 due primarily to increased
utility costs. During the same periods, EBITDA margin decreased from 20.3% to
18.9% of net revenues.
Liquidity and Capital Resources
At June 30, 2001, the Company had cash and cash equivalents of $49.5 million.
The cash and cash equivalents decreased $2.6 million during the six months of
2001 as a result of $1.6 million in capital expenditures at Riviera Black Hawk,
$4.6 million in capital expenditures for Riviera Las Vegas and scheduled
payments of $1.4 million of debt offset by $7.5 million provided from operating
activity. Finally, Riviera Black Hawk purchased $2.5 million of its 13% First
Mortgage Notes in a private transaction during 2001.
Management believes that cash flow from operations, combined with the $49.5
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.
23
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 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 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
Companys operations.
At June 30, 2001, the Company believes that it is in compliance with the
covenants of both the 10% Notes and the 13% Notes.
24
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
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 $534,000 and $841,000 respectively of such
sales incentive offers Points from Casino operating expense to net against
Casino revenues for the three months and six months ending June 30, 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 Company offers such sales incentives as Cash
Vouchers. 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 of 2001. As a result of adopting EITF 00-14, the Company
reclassified approximately $40,000 and $243,000 respectively of such sales
incentive offers Cash Vouchers from Casino operating expense to net against
Casino revenues for the three months and six months ending June 30, 2000.
Recently Issued Accounting Standards
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations."
SFAS 141 requires the purchase method of accounting for business combinations
initiated after June 30, 2001 and eliminates the pooling-of-interests method.
The Company does not believe that the adoption of SFAS 141 will have a
significant impact on its financial statements.
In July 2001, the FASB issued Statement of Financial Accounting Standards No.
142 ("SFAS 142"), "Goodwill and Other Intangible Assets", which is effective
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January 1, 2002. SFAS 142 requires, among other things, the discontinuance of
goodwill amortization. In addition, the standard includes provisions for the
reclassification of certain existing recognized intangibles as goodwill,
reassessment of the useful lives of existing recognized intangibles,
reclassification of certain intangibles out of previously reported goodwill and
the identification of reporting units for purposes of assessing potential future
impairments of goodwill. SFAS 142 also requires the Company to complete a
transitional goodwill impairment test six months from the date of adoption. The
Company is currently assessing but has not yet determined the impact of SFAS 142
on its financial position and results of operations.
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 Companys 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 Companys expectations are disclosed in this report as well
as the Companys most recent annual report on Form 10-K, and include the
Companys substantial leverage, the risks associated with the expansion of the
Companys 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.
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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 June 30, 2001, we had $222.3 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 payable 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 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 6/30/01
Assets
Short term investments $ - $ -
Average interest rate
Long Term Debt Including Current Portion
Equipment loans and
capital leases Las Vegas $ 584 $ 1,201 $ 1,285 $ 1,005 $ 17 $ 4,092 $ 4,092
Average interest rate 8.0% 7.8% 7.8% 8.4% 8.4%
10% First Mortgage Note Las Vegas $ 174,039 $ 174,039 $ 154,000
Average interest rate 10.0%
Equipment loans
Black Hawk, Colorado $ 5 $ 8 $ 13 $ 13
Average interest rate 11.2% 11.2%
Capital leases
Black Hawk, Colorado $ 858 $ 1,848 $ 2,044 $ 2,263 $ 658 $ 7,671 $ 7,671
Average interest rate 10.8% 10.8% 10.8% 10.8% 10.8%
Special Improvement District Bonds
Black Hawk, Colorado $ 55 $ 68 $ 71 $ 76 $ 81 $ 221 $ 572 $ 572
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%
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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.
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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: August 10, 2001
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Riviera Holdings Corporation
Form 10Q
June 30, 2001
Exhibits
None
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