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, 2002
------------------------------------------------
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, 2002, there were 3,571,273 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 (Unaudited) March 31, 2002
and December 31, 2001 3
Condensed Consolidated Statements of Operations (Unaudited) for the
Three Months ended March 31, 2002 and 2001 4
Condensed Consolidated Statements of Cash Flows (Unaudited) for the
Three Months ended March 31, 2002 and 2001 5
Notes to Condensed Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Signature Page 20
Exhibits - None 21
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,
2002, and the related condensed consolidated statements of operations and of
cash flows for the three months ended March 31, 2002 and 2001. 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, 2001, 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 12,
2002, 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, 2001, is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
DELOITTE & TOUCHE LLP
April 22, 2002
Las Vegas, Nevada
2
RIVIERA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(In Thousands, except share amounts) March 31, December 31,
- -------------------------------------------------------------------------------------------------------
2002 2001
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $41,544 $46,606
Accounts receivable, net 3,861 3,528
Inventories 1,797 2,253
Prepaid expenses and other assets 3,289 3,083
-------------------- -------------------
Total current assets 50,491 55,470
PROPERTY AND EQUIPMENT, Net 197,427 200,531
OTHER ASSETS, Net 7,424 6,728
DEFERRED INCOME TAXES, Net 5,089 5,089
-------------------- -------------------
TOTAL $260,431 $267,818
==================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $3,227 $3,151
Accounts payable 8,092 8,200
Accrued interest 4,943 8,084
Accrued expenses 14,000 14,740
-------------------- -------------------
Total current liabilities 30,262 34,175
-------------------- -------------------
OTHER LONG-TERM LIABILITIES 7,472 7,391
-------------------- -------------------
LONG-TERM DEBT, Net of current portion 216,492 217,288
-------------------- -------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock ($.001 par value; 20,000,000 shares
authorized; 5,106,776 issued at December 31, 2001
and March 31, 2002, respectively) 5 5
Additional paid-in capital 13,485 13,485
Treasury stock (1,674,144 shares and 1,658,365 shares at
December 31, 2001 and March 31, 2002, respectively) (11,171) (11,246)
Retained earnings 3,886 6,720
-------------------- -------------------
Total stockholders' equity 6,205 8,964
-------------------- -------------------
TOTAL $260,431 $267,818
==================== ===================
See notes to condensed consolidated financial statements
3
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
FOR THE QUARTER ENDED MARCH 31, 2002 AND 2001 Three Months Ended
(In thousands, except per share amounts) March 31,
- ---------------------------------------------------------------------------------------------------
REVENUES: 2002 2001
Casino $26,063 $27,270
Rooms 10,719 12,735
Food and beverage 7,859 7,917
Entertainment 4,208 5,900
Other 2,051 2,426
----------------- ------------------
Total revenues 50,900 56,248
Less promotional allowances 4,402 4,049
----------------- ------------------
Net revenues 46,498 52,199
----------------- ------------------
COSTS AND EXPENSES:
Direct costs and expenses of operating departments:
Casino 14,372 15,320
Rooms 5,454 5,986
Food and beverage 5,090 5,312
Entertainment 2,787 4,261
Other 680 754
Other operating expenses:
General and administrative 9,934 10,861
Depreciation and amortization 4,494 4,260
----------------- ------------------
Total costs and expenses 42,811 46,754
----------------- ------------------
INCOME FROM OPERATIONS 3,687 5,445
----------------- ------------------
OTHER (EXPENSE) INCOME :
Interest expense (6,688) (6,785)
Interest income 179 386
Other, net (12) (4)
----------------- ------------------
Total other expense, net (6,521) (6,403)
----------------- ------------------
(LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME TAXES (2,834) (958)
PROVISION (BENEFIT) FOR INCOME TAXES 0 (300)
----------------- ------------------
NET (LOSS) ($2,834) ($658)
================= ==================
(LOSS) PER SHARE DATA:
(Loss) per share:
Basic $ (0.82) $ (0.18)
----------------- ------------------
Diluted $ (0.82) $ (0.18)
----------------- ------------------
Weighted-average common shares outstanding 3,437 3,675
----------------- ------------------
Weighted-average common and common equivalent shares 3,437 3,675
----------------- ------------------
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,
2002 2001
------------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) ($2,834) ($658)
Adjustments to reconcile net income(loss) to net cash (used in) and
provided by operating activities:
Depreciation and amortization 4,494 4,260
Provision for bad debts (367) 81
Provision for gaming discounts 0 71
Interest expense 6,688 6,785
Interest paid (9,038) (9,122)
Capitalized interest on construction projects
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 34 (697)
Decrease (increase) in inventories 456 258
Decrease (increase) in prepaid expenses
and other assets (206) 390
Increase (decrease) in accounts payable (145) (641)
Increase (decrease) in accrued liabilities (792) (3,434)
Increase (decrease) in deferred income taxes 0 (300)
Increase in non-qualified pension plan obligation
to CEO upon retirement (125) 33
------------------- ------------------
Net cash provided by (used in) operating activities (1,835) (2,973)
------------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment, Las Vegas, Nevada (931) (2,144)
Capital expenditures - Black Hawk, Colorado (459) (572)
Decrease (increase) in other assets (1,115) 182
------------------- ------------------
Net cash provided by (used in) investing activities (2,505) (2,534)
------------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term borrowings (797) (679)
Purchase of treasury stock, net 0 (33)
Purchase of Black Hawk 13% 1st Mortgage Notes 0 (2,500)
Issuance of restricted stock 75 8
------------------- ------------------
Net cash (used in) provided by financing activities (722) (3,204)
------------------- ------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (5,062) ($8,711)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $46,606 $52,174
------------------- ------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $41,544 $43,463
=================== ==================
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
Property acquired with debt and accounts payable $299 $293
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.
On March 15, 2002 Riviera Gaming Management of New Mexico, Inc. was incorporated
in the State of New Mexico.
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.
Casino operations are subject to extensive regulation in the states of Nevada
and Colorado and various state and local regulatory agencies. Management
believes that the Company's procedures for supervising casino operations,
recording casino and other revenues, and granting credit comply, in all material
respects, with the applicable regulations.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, its
wholly owned subsidiary ROC and various indirect wholly owned subsidiaries. All
material intercompany accounts and transactions have been eliminated.
The financial information at March 31, 2002 and for the three months ended March
31, 2002 and 2001 is unaudited. However, such information reflects all
adjustments (consisting solely of normal and 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
6
results of operations for the three months ended March 31, 2002 and 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, 2001, 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,
2002 and 2001 since the Company incurred a net loss. The number of potentially
dilutive options was 117,000 and 125,000 for the three months ended March 31,
2002 and 2001, respectively.
Income Taxes
The cash flow projections used by the Company in the application of SFAS 109 for
the realization of deferred tax assets indicate that a valuation allowance
should be recorded on the tax benefit earned by the Company in the first quarter
of 2002. The estimates used are based upon recent operating results and budgets
for future operating results. These estimates are made using assumptions about
the economic, social and regulatory environments in which we operate. These
estimates could be impacted by numerous unforeseen events including changes to
regulations affecting how the Company operates the business, changes in the
labor market or economic downturns in the areas where the Company operates.
Recently Issued Accounting Standards
In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets, which is effective January 1, 2002. SFAS No. 142 requires, among other
things, the discontinuance of goodwill amortization. In addition, SFAS No. 142
includes provisions for the reclassification of certain existing recognized
intangibles as goodwill, reassessment of the useful lives of existing recognized
intangibles, the identification of reporting units for purposes of assessing
potential future impairments of goodwill. SFAS No. 142 also requires the Company
7
to complete a transitional goodwill impairment test six months from the date of
adoption. As of March 31, 2002 the Company has determined that it has no
intangible assets or goodwill recorded on its balance sheet, however the Company
is currently assessing but has not yet determined the impact of SFAS No. 142 on
its financial position and results of operations.
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. SFAS No. 143 applies to all entities. It
applies to legal obligations associated with the retirement of long-lived assets
that result from the acquisition, construction, development and (or) the normal
operation of a long-lived asset, except for certain obligations of lessees. SFAS
No. 143 is effective for financial statements issued for fiscal years beginning
after June 15, 2002. The Company is currently assessing, but has not yet
determined the impact of SFAS No. 143 on its financial position and results of
operations.
Recently Adopted Accounting Pronouncements
In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets and
supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, and the accounting and
reporting provisions of Accounting Principles Bulletin Opinion No. 30, Reporting
the Results of Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions, for the disposal of a segment of a business (as previously defined
in that Opinion). SFAS No. 144 also amends Accounting Research Bulletin No. 51,
Consolidated Financial Statements, to eliminate the exception to consolidation
for a subsidiary for which control is likely to be temporary. The provisions of
SFAS No. 144 are effective for financial statements issued for fiscal years
beginning after December 15, 2001, and interim periods within those fiscal
years. The Company has determined that the implementation of SFAS No. 144 had no
effect on its financial position and results of operations upon implementation.
In April 2002, the FASB issued Statement of Financial Accounting Standard
No. 145, "Recission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections" ("SFAS No. 145"). SFAS No. 145
requires that gains and losses from extinguishment of debt be classified as
extraordinary items only if they meet the criteria in Accounting Principles
Board Opinion No. 30 ("Opinion No. 30"). Applying the provisions of Opinion No.
30 will distinguish transactions that are part of an entity's recurring
operations from those that are unusual and infrequent that meet criteria for
classification as an extraordinary item. SFAS No. 145 is effective for the
Company beginning January 1, 2003, but the Company may adopt the provisions of
SFAS No. 145 prior to this date. The Company has net yet evaluated the impact
from SFAS No. 145 on its financial position and results of operations.
8
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. During 2000 and 2001 the Company
repurchased approximately $10 million of these bonds. 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 $3.0 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 first quarter 2002 results
management believes there would be no additional Keep Well amounts due in 2002.
3. LEGAL PROCEEDINGS
We were party to an action filed in the United States District Court for the
Central District of California, (CV 98-2644 (ABC)), entitled Paulson, et al. v.
Jefferies, Riviera Holdings Corporation, et al. We and the plaintiffs to this
action entered into a settlement agreement effective July 2, 1999.
We and our then directors were parties to an action filed in the United States
District Court for the District of Nevada, (CV-S--99-1383-JBR (RLH)), entitled
Morgens, Waterfall, Vintiadis & Company, Inc., v. Riviera Holdings Corporation,
William L. Westerman, Robert R. Barengo, Richard L. Barovick and James N. Land,
Jr., as Directors of Riviera Holdings Corporation. We and the directors settled
with the plaintiffs to this action on October 1, 2001.
All parties to both of the above actions have since resolved all outstanding
issues and entered into settlement agreements, with each party dismissing all
actions against all other parties.
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.
9
4. STOCK REPURCHASES
There were no treasury stock purchases for the first quarter of 2002 and 7,000
shares were purchased at $7.05 in the first quarter of 2001.
5. ISSUANCE OF RESTRICTED STOCK
There were 15,779 shares of Treasury Stock issued at an average cost of $4.75
under the Restricted Stock Plan at an average market value of $4.75 per share,
for executive compensation in the first quarter of 2002. 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. On April 1, 2002 the Company issued 4,771 shares of Treasury Stock at
an average cost of $4.75 under the Restricted Stock Plan at an average market
value of $5.24 per share.
6. GUARANTOR INFORMATION
The Company's 10.0% First Mortgage Notes are guaranteed by all of the Company's
wholly owned existing significant subsidiaries effective March 2002. These
guaranties are full, unconditional, and joint and several.
10
7. SEGMENT DISCLOSURES
The Company determines its segments based upon review process of the chief
decission maker who reviews by geographic gaming market segments: Riviera Las
Vegas and Riviera Black Hawk. All intersegment revenues have been eliminated.
Three Months Three Months
Ended Ended
March 31, March 31,
(In thousands) 2002 2001
Net revenues:
Riviera Las Vegas $34,709 $41,229
Riviera Black Hawk 11,789 10,970
--------------- ---------------
Total net revenues $ 46,498 $52,199
=============== ===============
Income (loss) from operations:
Riviera Las Vegas $2,259 $4,109
Riviera Black Hawk 1,428 1,336
--------------- ---------------
Total income from operations $3,687 $5,445
=============== ===============
EBITDA (1):
Riviera Las Vegas $5,235 $7,162
Riviera Black Hawk 2,946 2,543
--------------- ---------------
Total EBITDA $8,181 $9,705
=============== ===============
EBITDA margin:
Riviera Las Vegas 15.1% 17.4%
Riviera Black Hawk 25.0% 23.2%
--------------- ---------------
Total EBITDA 17.6% 18.6%
=============== ===============
(1)EBITDA consists of earnings before interest, income taxes, depreciation,
amortization, and other, net. While EBITDA should not be construed as a
substitute for operating income or a better indicator of liquidity than cash
flow from operating activities, which are determined in accordance with
generally accepted accounting principles ("GAAP"), it is included herein to
provide additional information with respect to the ability of the Company to
meet its future debt service, capital expenditure and working capital
requirements. Although EBITDA is not necessarily a measure of the Company's
ability to fund its cash needs, management believes that certain investors find
EBITDA to be a useful tool for measuring the ability of the Company to service
its debt. EBITDA margin is EBITDA as a percent of net revenues. The Company's
definition of EBITDA may not be comparable to other companies' definitions.
11
March 31, December 31,
2002 2001
Assets (2): (in thousands)
Riviera Las Vegas $ 130,578 $ 132,982
Riviera Black Hawk 66,849 67,549
--------------- ---------------
Total assets $ 197,427 $ 200,531
=============== ===============
(2)Asset represent property and equipment, net of accumulated depreciation and
amortization.
RIVIERA LAS VEGAS REVENUES
The primary marketing effort 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 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 as 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, 2002, RBH had accrued but
not paid, and the Manager had recognized management fees of $2.3 million of
which $359,000 are for the three months ended March 31, 2002 and $324,000 are
for the three months ended March 31, 2001. These management fees are eliminated
in consolidation.
12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Three Months Ended March 31, 2002 Compared to Three Months Ended March 31, 2001
The following table sets forth, for the periods indicated, certain operating
data for the Riviera Las Vegas and Riviera Black Hawk. Intercompany management
fees have been eliminated from EBITDA from properties for the purpose of this
table. Operating Income includes intercompany management fees.
First Quarter Incr/ % Incr/
(In Thousands) 2002 2001 (Decr) (Decr)
---- ---- ------ ------
Net revenues:
Riviera Las Vegas $34,709 $41,229 ($6,520) -15.8%
Riviera Black Hawk 11,789 10,970 819 7.5%
------ ------ ---
Total Net Revenues $46,498 $52,199 ($5,701) -10.9%
======= ======= ======== ======
Operating Income (Loss)
Riviera Las Vegas $2,259 $4,109 ($1,850) -45.0%
Riviera Black Hawk 1,428 1,336 92 6.9%
----- ----- --
Total Operating Income $3,687 $5,445 ($1,758) -32.3%
====== ====== ======== ======
EBITDA:(1)
Riviera Las Vegas $5,235 $7,162 ($1,927) -26.9%
Riviera Black Hawk 2,946 2,543 403 15.8%
----- ----- ---
Total EBITDA $ 8,181 $9,705 ($1,524) -15.7%
======= ====== ======== ======
EBITDA margin
Riviera Las Vegas 15.1% 17.4% -2.3%
Riviera Black Hawk 25.0% 23.2% 1.8%
Total EBITDA 17.6% 18.6% -1.0%
===== ===== ========
1 EBITDA consists of earnings before interest, income taxes, depreciation,
amortization, and others, 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.
13
Riviera Las Vegas
Revenues
Net revenues decreased by approximately $6.5 million, or
15.8%, from $41.2 million in 2001 to $34.7 million in 2002 due primarily to
decreased casino, rooms and entertainment revenues. Casino revenues decreased by
approximately $1.9 million, or 11.3%, from $16.7 million during 2001 to $14.8
million during 2002 due to a decrease in slot machine revenue. Room revenue
decreased $2.0 million, or 15.8%, from $12.7 million in 2001 to $10.7 million in
2002 due to the continued effects of a slower economy and the events of
September 11, 2001. Hotel occupancy fell 8.4% from 96.3% in 2001 to 87.9% in
2002 and average daily room rate fell $5.82 from $68.14 in 2001 to $62.32 in
2002. Hotel occupancy improved each month during the first quarter of 2002, from
74.5% in January to 89.5% in February and 99.6% in March. The Company has been
able to bring occupancy back to normal levels, however, the average daily rate
remained 9% below historical levels in March 2002. Entertainment revenues
decreased by approximately $1.7 million, or 29.3%, from $5.9 million during 2001
to $4.2 million during 2002 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 and a slower economy. Other revenues decreased by approximately
$371,000, or 16.0%, from $2.3 million during 2001 to $1.9 million during 2002
due primarily to decreased gift shop and telephone revenues. Promotional
allowances decreased by approximately $89,000, or 2.8%, from $3.2 million during
2001 to $3.1 million during 2002 primarily due to decreases in comps related to
lower casino activity.
Income from Operations
Income from operations in Las Vegas declined $1.8 million, or 45%,
from $4.1 million in 2001 to $2.3 million in 2002 due to the 15.8% decrease in
net revenues which was partially offset by a 12.6% decrease in expenses.Fixed
costs in the rooms department and general administrative costs were not reduced
in sufficient proportion to compensate for the decline in revenue. Room
revenues fell 15.8% while costs were down 8.9%. Total net revenues were down
15.8% while general and administrative costs were down 12.4%.
EBITDA
Riviera Las Vegas EBITDA, as defined, decreased by approximately
$1.9 million, or 26.9%, from $7.2 million in 2001 to $5.2 million in 2002 for
reasons described above. During the same periods, EBITDA margin decreased from
17.4% to 15.1% of net revenues. Margins in Las Vegas continue to be pressured by
the economy and competitor actions, but have improved each month. The Las Vegas
operation is spending more marketing dollars to increase demand and will
continue to focus and grow incentive programs through the rest of the year and
into 2003.
14
Riviera Black Hawk
Revenues
Net revenues increased by approximately $819,000, or 7.5%,
from $11 million in 2001 to $11.8 million in 2002. Casino revenues increased
$693,000, or 6.6%, from $10.5 million in 2001 and $11.2 million in 2002 . Gaming
revenues in the Black Hawk market grew by a healthy 15.7% in the first quarter
of 2002 compared to the first quarter of 2001, more than offsetting the 12%
increase in gaming devices as a result of the opening of the Hyatt Casino in
December, 2001. This continues a historical trend of growth for the Black Hawk
market as new casinos offering a variety of new amenities have expanded the
market's appeal to a broader base of customers.
Food and beverage revenues were approximately $1.7 million in
2002, of which $1.2 million was complimentary (promotional allowance). Riviera
Black Hawk continues to refine its marketing efforts by constantly measuring the
success rates of its programs, while monitoring the offerings of competitors.
The operation is attempting to strike a balance between player incentives,
gaming product, food offerings and entertainment as its primary marketing
programs.
Income from Operations
Income from operations in Black Hawk, Colorado increased $92,000,
or 6.9%, from $1.3 million in 2001 to $1.4 million in 2002 due to increased
revenues as a result of refi ning our direct marketing and promotional
programs for the casino in the first quarter of 2002.
EBITDA
Riviera Black Hawk EBITDA, as defined, increased $403,000, or
15.8%, from $2.5 million in 2001 to $2.9 million in 2002. EBITDA margin for the
first quarter increased to 25% from 23% in the same quarter of the prior year.
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 and equipment and other financing costs totaled approximately $5
million in first quarter of 2001 and 2002. Interest expense on the remaining
$35 million of the 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
first quarter of 2002 compared to $1.8 million for the first quarter of 2001.
Net Income (Loss)
The results of operations decreased $2.1 million from a net loss
of $658,000 in 2001 to a net loss of $2.8 million in 2002 due primarily to the
continuing effects of a slower economy and the events of September 11, 2001.
15
EBITDA
Consolidated EBITDA, as defined, decreased by approximately $1.5
million, or 15.7%, from $9.7 million in 2001 to $8.2 million in 2002. During the
same periods, EBITDA margin decreased from 18.6% to 17.6% of net revenues for
the reasons described above.
Liquidity and Capital Resources
At March 31, 2002, the Company had cash and cash equivalents of $41.5 million.
The cash and cash equivalents decreased $5.1 million during the first three
months of 2002 as a result of $1.8 million of cash used in operations, $459,000
in capital expenditures at Riviera Black Hawk, $931,000 in capital expenditures
for Riviera Las Vegas and payment of $797,000 of debt.
Cash balances include amounts that may be required to fund the Chairman's
pension obligation in a rabbi trust with 5 days notice. (See Note 7 to the
financial statements, Other Long-Term Liabilities included in Form 10K as filed
with the SEC.) Although there is no current intention to require this funding,
under certain circumstances, approximately $6.9 million could be disbursed in a
short period.
The Las Vegas operations are self insured for workmen's compensation claims. The
State of Nevada requires that Riviera Holdings Corporation maintain a $2.5
million tangible net worth, as defined in the statute. If tangible net worth
were to fall below $2.5 million, the Company would have to fund a $2.5 million
bond with the State or obtain workmen's compensation insurance at a
significantly higher cost than its current cost structure.
The aggregate potential cash usage for these two items could approach $10
million, which would reduce the amounts available for other corporate purposes.
Management believes that cash flow from operations, combined with the $41.5
million cash and cash equivalents will be sufficient to cover the Company's debt
service and enable investment in budgeted capital expenditures for 2002 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 $35 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 their ability to refinance those notes. There can be no assurance
that either the Company or its subsidiary will be able to refinance the
principal amount of the 10% and 13% Notes at maturity. The 10% Notes were
previously not redeemable at the option of the Company until August 15, 2001,
and are now 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. could 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
16
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 subsidiary Riviera Black Hawk, Inc.
under the 13% Notes was unrestricted until 2002), 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.
In March 2002, the assets of Black Hawk became secondary collateral for the 10%
Notes.
At March 31, 2002, the Company believes that it is in compliance with the
covenants of both the 10% Notes and the 13% Notes.
Critical Accounting Policies
A description of our critical accounting policies and estimates can be found in
Item 7 of our 2001 Form 10-K and for a more extensive discussion of our
accounting policies, see Note 2, Summary of Significant Accounting Policies, in
the Notes to the Consolidated Financial Statements in our 2001 Form 10-K filed
on March 27, 2002.
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.
17
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. Such investments are generally not affected
by changes in interest rates.
As of March 31, 2002, we had $219.7 million in borrowings. The borrowings
include $175 million in notes maturing in 2004, $35 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 $35 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 $912,000 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 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) 2002 2003 2004 2005 2006 Thereafter Total at 3/31/02
Assets
Short term investments $ - $ -
Average interest rate
Long Term Debt Including Current Portion
Equipment loans and
capital leases Las Vegas $ 896 $ 1,326 $ 988 $ 11 $ 3,221 $ 3,221
Average interest rate 7.8% 7.8% 8.4% 8.4%
10% First Mortgage Note Las Vegas $ 174,270 $ 174,270 $ 164,500
Average interest rate 10.0%
Equipment loans
Black Hawk, Colorado $ 6 $ 6 $ 6
Average interest rate 11.2%
Capital leases
Black Hawk, Colorado $1,403 $ 2,045 $ 2,263 $ 658 $ 6,369 $ 6,369
Average interest rate 10.8% 10.8% 10.8% 10.8%
Special Improvement District Bonds
Black Hawk, Colorado $ 49 $ 103 $ 109 $ 116 $ 124 $ 411 $ 912 $ 912
Average interest rate 5.5% 5.5% 5.5% 5.5% 5.5% 5.5%
13% First Mortgage Note
Black Hawk, Colorado casino
project $ 34,941 $ 34,941 $ 34,941
Average interest rate 13.9%
18
Part II. OTHER INFORMATION
Legal Proceedings
We were party to an action filed in the United States District Court for the
Central District of California, (CV 98-2644 (ABC)), entitled Paulson, et al. v.
Jefferies, Riviera Holdings Corporation, et al. We and the plaintiffs to this
action entered into a settlement agreement effective July 2, 1999.
We and our then directors were parties to an action filed in the United States
District Court for the District of Nevada, (CV-S--99-1383-JBR (RLH)), entitled
Morgens, Waterfall, Vintiadis & Company, Inc., v. Riviera Holdings Corporation,
William L. Westerman, Robert R. Barengo, Richard L. Barovick and James N. Land,
Jr., as Directors of Riviera Holdings Corporation. We and the directors settled
with the plaintiffs to this action on October 1, 2001.
All parties to both of the above actions have since resolved all outstanding
issues and entered into settlement agreements, with each party dismissing all
actions against all other parties.
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.
19
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 13, 2002
20
Riviera Holdings Corporation
Form 10Q
March 31, 2002
Exhibits
None
21