SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Mark One
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2003
-----------------------------------------------
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 X No
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
Yes____ No X
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 issuer's
classes of common stock, as of the latest practicable date.
As of October 27, 2003, there were 3,610,155 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 (Unaudited) at September 30, 2003
and December 31, 2002 3
Condensed Consolidated Statements of Operations (Unaudited) for the
Three and Nine Months ended September 30, 2003 and 2002 4
Condensed Consolidated Statements of Cash Flows (Unaudited) for the
Three and Nine Months ended September 30, 2003 and 2002 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 22
Item 4. Controls and Procedures 23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 6. Exhibits and Reports on Form 8-K 24
Signature Page 25
Exhibits 26
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 September
30, 2003, and the related condensed consolidated statements of operations and of
cash flows for the three and nine months ended September 30, 2003 and 2002.
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, 2002, 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,
2003, 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, 2002, is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
DELOITTE & TOUCHE LLP
October 21, 2003
Las Vegas, Nevada
2
RIVIERA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, except share amounts) September 30 December 31
-------------------------------------------------------------------------------
2003 2002
ASSETS (unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 25,601 $ 20,220
Accounts receivable, net 3,595 4,010
Inventories 1,551 1,824
Prepaid expenses and other assets 4,393 3,968
------------ -------------
Total current assets 35,140 30,022
PROPERTY AND EQUIPMENT, Net 179,381 188,233
OTHER ASSETS, Net 13,959 14,677
DEFERRED INCOME TAXES 2,446 2,964
------------ -------------
TOTAL $ 230,926 $ 235,896
============ =============
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Current portion of long-term debt $ 3,454 $ 3,430
Accounts payable 8,786 8,338
Accrued interest 6,964 1,065
Accrued expenses 14,508 15,576
------------ -------------
Total current liabilities 33,712 28,409
------------ -------------
OTHER LONG-TERM LIABILITIES 6,160 6,465
------------ -------------
LONG-TERM DEBT, Net of current portion 214,386 216,694
------------ -------------
SHAREHOLDERS' DEFICIENCY:
Common stock ($.001 par value; 20,000,000 shares
authorized; 5,166,208 and 5,135,773 shares
issued at September 30, 2003 and December 31,
2002, respectively) 5 5
Additional paid-in capital 13,732 13,638
Treasury stock (1,687,957 shares and 1,686,244
shares at September 30, 2003 and December 31,
2002, respectively) (11,321) (11,313)
Accumulated Deficit (25,748) (18,002)
------------ -------------
Total stockholders' deficiency (23,332) (15,672)
------------ -------------
TOTAL $ 230,926 $ 235,896
============ =============
See notes to condensed consolidated financial statements
3
RIVIERA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
Three Months Ended Nine Months Ended
(In thousands, except per share amounts) September 30, September 30,
--------------------------------------------------------------------------------
REVENUES: 2003 2002 2003 2002
Casino 27,215 26,806 80,683 81,732
Rooms 11,040 11,020 33,494 32,406
Food and beverage 8,567 8,455 25,109 24,833
Entertainment 4,981 4,698 13,851 13,278
Other 2,024 2,031 6,034 6,282
---------------------------------------
Total revenues 53,827 53,010 159,171 158,531
Less promotional allowances 4,854 4,560 14,379 13,916
---------------------------------------
Net revenues 48,973 48,450 144,792 144,615
---------------------------------------
COSTS AND EXPENSES:
Direct costs and expenses of operating
departments:
Casino 14,425 14,751 42,392 43,936
Rooms 6,377 5,908 18,721 17,476
Food and beverage 5,840 5,590 16,893 16,198
Entertainment 3,182 3,280 9,057 8,954
Other 747 708 2,105 2,129
Other operating expenses:
General and administrative 10,812 10,270 30,512 29,632
Depreciation and amortization 3,949 4,440 12,330 13,405
---------------------------------------
Total costs and expenses 45,332 44,947 132,010 131,730
---------------------------------------
INCOME FROM OPERATIONS 3,641 3,503 12,782 12,885
---------------------------------------
OTHER (EXPENSE) INCOME:
Interest expense (6,794) (6,863) (20,548) (19,975)
Interest expense-net due to defeasance 0 (2,328) 0 (2,692)
Loss on extinguishment of debt 0 (11,211) 0 (11,211)
Interest income 0 4 18 176
---------------------------------------
Total other expense (6,794) (20,398) (20,530) (33,702)
---------------------------------------
LOSS BEFORE BENEFIT FOR
INCOME TAXES (3,153) (16,895) (7,748) (20,817)
(BENEFIT) FOR INCOME TAXES 0 0 0 0
---------------------------------------
NET LOSS $ (3,153) $(16,895) $ (7,748) $(20,817)
=======================================
LOSS PER SHARE DATA:
Loss per share:
Basic & Diluted $ (0.91) $ (4.89) $ (2.23) $ (6.04)
---------------------------------------
Weighted-average common and common
equivalent shares 3,477 3,456 3,473 3,448
---------------------------------------
See notes to condensed consolidated financial statements
4
RIVIERA HOLDINGS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) Three Months Ended Nine Months Ended
FOR THE THREE AND NINE MONTHS ENDED September 30, September 30,
September 30, 2003 and 2002 2003 2002 2003 2002
---------- --------- --------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($3,153) ($16,895) ($7,748) ($20,817)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization 3,949 4,440 12,330 13,405
Provision for bad debts 69 127 225 (218)
Provision for gaming discounts 0 0 7 (48)
Interest expense 6,788 6,863 20,548 19,975
Interest paid (212) (216) (12,600) (12,339)
Interest expense, net, Bonds held for
retirement (220) 144
Loss on extinguishment of debt 11,211 11,211
Loss on extinguishment of debt paid (6,646) (6,646)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (719) (733) 183 267
Decrease (increase) in inventories (9) 151 274 596
Increase in prepaid expenses
and other assets (538) (515) (425) (926)
Increase (decrease)in accounts payable 992 (538) 448 862
Increase (decrease)in accrued liabilities 834 1,678 (1,068) 709
Increase in deferred compensation plan
liability 7 10 19 115
Increase in deferred income taxes 517 2,125 518 2,125
Decrease in non-qualified pension
plan obligation to CEO upon
retirement (426) (125) (916) (375)
-------- --------- --------- ---------
Net cash provided by operating
activities 8,099 717 11,795 8,040
-------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - Las Vegas,
Nevada (1,512) (666) (2,294) (2,934)
Capital expenditures - Black Hawk,
Colorado (713) (387) (1,163) (1,595)
Increase in other assets (80) (147) (458) (1,899)
-------- --------- --------- ---------
Net cash used in investing
activities (2,305) (1,200) (3,915) (6,428)
-------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 0 0 0 211,781
US Treasury Bills purchased to retire
bonds 0 226,576 0 0
Decrease (increase) in deferred loan
fees 0 0 0 (10,381)
Payments on long-term borrowings (899) (220,674) (2,585) (222,325)
Increase in paid-in capital 18 0 69 0
Purchase of deferred comp treasury
stock 0 0 (8) 0
Issuance of restricted stock 0 25 25 125
-------- --------- --------- ---------
Net cash (used in) provided by
financing activities (881) 5,927 (2,499) (20,800)
-------- --------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 4,913 5,444 5,381 (19,188)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD $ 20,688 $ 21,974 $ 20,220 $ 46,606
-------- --------- --------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 25,601 $ 27,418 $ 25,601 $ 27,418
======== ========= ========= ========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
Property acquired with debt and accounts
payable $472 $65 $472 $65
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 with their wholly-owned subsidiaries, the
"Company"), were incorporated on January 27, 1993, in order to acquire the
assets and liabilities of Riviera, Inc. Casino-Hotel Division on June 30, 1993,
pursuant to a plan of reorganization.
Riviera Gaming Management, Inc. ("RGM") was incorporated in the State of Nevada
in August 1995 for the purpose of obtaining management contracts in Nevada and
other jurisdictions and is a wholly owned subsidiary of ROC. 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. On June 5, 2002 Riviera Gaming Management of
Missouri, Inc. was incorporated in the State of Missouri.
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
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 through 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 September 30, 2003 and for the three and nine
months ended September 30, 2003 and 2002 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 results of operations for the nine months ended September 30, 2003
and 2002 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, 2002, included in the Company's Annual Report on Form 10-K.
6
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 and nine months ended
September 30, 2003 and 2002 since the Company incurred a net loss. The number of
potentially dilutive options was 206,500 and 78,000 for the three and nine
months ended September 30, 2003 and 115,000 for the three and nine months ended
September 30, 2002.
Income Taxes
The cash flow projections used by the Company in the application of Statement of
Financial Accounting Standards ("SFAS") No. 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 2003 and 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.
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.
Reclassifications
Certain prior-period amounts in the condensed financial statements have been
reclassified to conform to the September 30, 2003 presentation. These
reclassification had no effect on the Company's net income.
Stock-Based Compensation
As of September 30, 2003, the Company has two stock-based employee compensation
plans. The effect of stock options in the income statement is reported in
accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations. The Company has adopted the
disclosure-only provisions of SFAS No. 123, Accounting for Stock-Based
Compensation. Accordingly, no compensation cost has been recognized for unissued
stock options in the stock option plan, as all options granted had an exercise
price equal to the market value of the underlying common stock on the date of
grant.
7
No compensation cost has been recognized for unexercised options remaining in
the stock option plans. Had compensation cost for the Company's stock option
plans been determined based on the fair value at the date of grant for awards
consistent with the provisions of SFAS No. 123 (using an intrinsic value
method), the Company's net loss and pro forma net loss per common share and
common share equivalent would have been increased to the pro forma amounts
indicated below for three and nine months ended September 30 (in thousands,
except per share amounts):
Three months ended Nine months ended
September 30, September 30,
2003 2002 2003 2002
Net loss as reported $ (3,153) $(16,895) $ (7,748) $(20,817)
Deduct: Total stock based employee
compensation expense determined
under fair value based methods
for awards net of related tax
effects (67) (74) (184) (222)
Net loss pro forma $ (3,220) $(16,969) $(7,932) $(21,039)
Basic loss per common share as
reported $ (0.91) $ (4.89) $ (2.23) $ (6.04)
Basic loss per common share pro
forma $ (0.93) $ (4.91) $ (2.28) $ (6.10)
Diluted loss per common and
common share equivalent as
reported $ (0.91) $ (4.89) $ (2.23) $ (6.04)
Diluted loss per common and
common share equivalent pro
forma $ (0.93) $ (4.91) $ (2.28) $ (6.10)
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 2003 and 2002 respectively: dividend yield of 0%
for both years; expected volatility of 34% and 52%; risk-free interest rates of
2.27% and 4.49%; and expected lives of 10 years for all years. The weighted fair
value of options granted in 2003 and 2002 was $2.53 and $4.96, respectively.
Due to the fact that the Company's stock option programs vest over several years
and additional awards are made each year, the above pro forma numbers are not
indicative of the financial impact had the disclosure provisions of SFAS No. 123
been applicable to all years of previous option grants. The above numbers do not
include the effect of options granted prior to 1995.
Recently Adopted Accounting Standards
In May 2003, the Financial Accounting Standards Board (FASB) issued SFAS No.150,
"Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity." SFAS No. 150 establishes standards for how an issuer
classifies and measures certain financial instruments with characteristics of
both liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances). SFAS No. 150 is effective for financial instruments entered into
or modified after May 31, 2003, and otherwise is effective at the beginning of
the first interim period beginning after June 15, 2003. The Company adopted SFAS
No. 150 for the third quarter beginning on July 1, 2003 and it had no effect on
its financial position or results of operations.
8
2. OTHER ASSETS
Other assets at September 30, 2003 include deferred loan fees of approximately
$9.7 million associated with the refinancing of the Company's debt and
capitalized costs associated with the RGM Missouri proposed venture of
approximately $1.5 million and the RGM New Mexico proposed venture of
approximately $1.2 million.
3. LONG TERM DEBT AND COMMITMENTS
On June 26, 2002, the Company issued 11% Senior Secured Notes due 2010 with a
principal amount of $215 million, substantially all of which were later
exchanged for Securities Act of 1933-registered Notes of the Company with
substantially the same terms (collectively, the "11% Notes"). The 11% Notes were
issued at a discount in the amount of $3.2 million. The discount is being
amortized over the life of the 11% Notes. The Company incurred fees of
approximately $9.3 million with the issuance of the $215 million 11% Notes which
are included in other assets at September 30, 2002 and 2003 and are being
amortized to interest expense over the life of the indebtedness.
Effective July 26, 2002 the Company entered into a $30 million, five year
revolving credit arrangement with a financial institution. Terms of the
arrangement include interest at prime plus .75 percent or a LIBOR derived rate.
There were no advances outstanding on this revolver at September 30, 2003. In
connection with this agreement the Company incurred loan fees of approximately
$1.5 million, which are being expensed over the life of the agreement.
4. LEGAL PROCEEDINGS
On April 15, 2003, a class action complaint was filed in the Clark County,
Nevada District Court (Case No. A466204) in the name of Brian Placzek, on behalf
of himself and all others similarly situated, against the Company and Company
directors William L. Westerman, Robert R. Barengo, Jeffrey A. Silver and Paul A.
Harvey (the "Placzek Action"). The complaint was served on the Company on April
28, 2003. The named plaintiff was a shareholder of the Company. In the
complaint, the plaintiff sought an order requiring the individual defendants to
take the following actions, among others: cooperate with any individual who
makes a bona fide offer to acquire the Company, take steps that are calculated
to result in a buy-out or takeover of the Company at the highest price, comply
with their fiduciary duties, and reimburse the plaintiff's class for damages,
costs and disbursements related to the lawsuit. The complaint also sought to
have all of the Company's public shareholders, excluding the defendants,
certified as a class for purposes of the class action suit and sought plaintiff
to be the representative of the class. On July 10, 2003, the defendants filed a
Motion to Dismiss the Placzek Action on the grounds that the Placzek Action was
filed without the authorization of the plaintiff. Prior to this Motion to
Dismiss being heard, the plaintiff agreed to dismiss the lawsuit with prejudice
and on August 28, 2003, a Stipulation and Order For Dismissal was entered
dismissing the Placzek Action with prejudice.
On May 2, 2003, a class action complaint was filed in the Clark County, Nevada
District Court (Case No. A467159) in the name of Paul Rosa against the Company
and Company directors William L. Westerman, Robert R. Barengo, Jeffrey A.
Silver, Paul A. Harvey and Vincent L. DiVito (the "Rosa Action"). The named
plaintiff in this action was a shareholder of the Company and sought to have all
of the Company's public shareholders, excluding defendants and related
9
shareholders, certified as a class for purposes of the class action suit. The
complaint also sought substantially the same relief sought in the Placzek
Action. On July 21, 2003, the defendants filed a Motion to Dismiss the Rosa
Action on the grounds that the complaint failed to state a claim upon which
relief may be granted. Prior to this Motion to Dismiss being heard, the
plaintiff agreed to dismiss the lawsuit with prejudice and on October 10, 2003,
a Stipulation and Order For Dismissal was entered dismissing the Rosa Action
with prejudice.
The Company is a party to routine lawsuits, either as plaintiff or defendant,
arising from the normal operations of a hotel or casino. 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.
5. STOCK REPURCHASES
There were 1,703 shares of treasury stock purchased by the Deferred Compensation
Plan Trustee at $4.27 for the nine months ended September 30, 2003.
6. ISSUANCE OF RESTRICTED STOCK
There were 5,435 shares of stock issued at an average price of $4.60 under the
Restricted Stock Plan in the first nine months ended September 30, 2003 for
executive compensation earned in the last quarter of 2002.
7. GUARANTOR INFORMATION
The 11% Notes and the $30 million line of credit are guaranteed by all of the
Company's restricted subsidiaries. These guaranties are full, unconditional, and
joint and several. RGM Missouri and RGM New Mexico are unrestricted subsidiaries
of RHC and are not guarantors of the 11% Notes. Each of these entities is in the
development stage, and has no operating results. Their assets totaled $2.7
million (RGM Missouri $1.5 million and RGM New Mexico $1.2 million in 2002 and
2003), which assets were created through advances from RHC.
8. SUBSEQUENT EVENTS
On October 13, 2003, Riviera Las Vegas finalized an agreement with Alliance
Gaming to provide ACSC slot systems, including ticket-in, ticket-out capability.
In Colorado Amendment 33 to establish Racinos in the state was defeated in the
November 4, 2003 general election by a four to one vote.
10
9. SEGMENT DISCLOSURES
The Company determines its segments based upon review process of the chief
decision maker who reviews by geographic gaming market segments: Riviera Las
Vegas and Riviera Black Hawk. The key indicator reviewed by the chief decision
maker is EBITDA as defined below. All intersegment revenues have been
eliminated.
Three months ended Nine months ended
September 30, September 30,
(Dollars in thousands) 2003 2002 2003 2002
Net revenues:
Riviera Las Vegas $35,944 $35,412 $107,706 $107,161
Riviera Black Hawk 13,029 13,038 37,086 37,454
----------- ------------ ---------- --------
Total net revenues $ 48,973 $ 48,450 $ 144,792 $ 144,615
=========== ============ ========== ========
Income (loss) from operations:
Riviera Las Vegas $2,556 $2,821 $10,509 $10,732
Riviera Black Hawk 2,147 1,802 5,751 5,411
Corporate Expenses(3) (1,062) (1,120) (3,478) (3,258)
------------ ----------- ----------- --------
Total income from operations $3,641 $3,503 $12,782 $12,885
============ =========== =========== ========
EBITDA (1):
Riviera Las Vegas $5,073 $5,753 $18,476 $19,543
Riviera Black Hawk 3,579 3,310 10,114 10,005
Corporate Expenses (3) (1,062) (1,120) (3,478) (3,258)
------------ ----------- ----------- --------
Total EBITDA $7,590 $7,943 $25,112 $26,290
============ =========== =========== ========
EBITDA margins (2):
Riviera Las Vegas 14.1% 16.2% 17.2% 18.2%
Riviera Black Hawk 27.5% 25.4% 27.3% 26.7%
(1)EBITDA consists of earnings before interest, income taxes, depreciation, and
amortization. EBITDA is presented solely as a supplemental disclosure because
management believes that it is 1) a widely used measure of operating performance
in the gaming industry, and 2) a principal basis for valuation of gaming
companies by certain analysts and investors. Management uses property-level
EBITDA (EBITDA before corporate expense) as the primary measure of the Company's
business segment properties' performance, including the evaluation of operating
personnel. EBITDA should not be construed as an alternative to operating income,
as an indicator of the Company's operating performance, as an alternative to
cash flows from operating activities, as a measure of liquidity, or as any other
measure determined in accordance with generally accepted accounting principles.
The Company has significant uses of cash flows, including capital expenditures,
interest payments and debt principal repayments, which are not reflected in
EBITDA. Also, other companies that report EBITDA information may calculate
EBITDA in a different manner than the Company. A reconciliation of EBITDA to
operating income is included in the following financial schedules.
(2) EBITDA margin is EBITDA as a percent of net revenues.
(3) Year to date corporate expenses increased in 2003 as due to additional
professional fees and costs associated with corporate governance, business
proposals and the shareholder vote on the removal of certain voting restrictions
in the Company's articles of incorporation.
11
Riviera Holdings Corporation
Reconciliation of Operating Income (Loss) to EBITDA
($ in 000's)
Net Income Net Interest Operating Management
(Loss) Expense(5) Income/(Loss) Depreciation Fee EBITDA
Third Quarter 2003
Riviera Las Vegas $ 2,513 $ (43) $ 2,556 $ 2,871 $ (354) $ 5,073
Riviera Black Hawk 114 (2,033) 2,147 1,078 354 3,579
Corporate (5,780) (4,718) (1,062) - - (1,062)
--------------------------------------------------------------
$ (3,153) $ (6,794) $ 3,641 $ 3,949 - $ 7,590
--------------------------------------------------------------
Third Quarter 2002
Riviera Las Vegas $ 2,826 $ 5 $ 2,821 $ 3,276 $ (344) $ 5,753
Riviera Black Hawk 930 (872) 1,802 1,164 344 3,310
Corporate (20,651) (19,531) (1,120) - - (1,120)
--------------------------------------------------------------
$ (16,895)$ (20,398) $ 3,503 $ 4,440 - $ 7,943
--------------------------------------------------------------
Nine Months ended
September 30, 2003
Riviera Las Vegas $ 10,381 $ (128) $ 10,509 $ 9,051 $ (1,084) $18,476
Riviera Black Hawk (398) (6,149) 5,751 3,279 1,084 10,114
Corporate (17,731) (14,253) (3,478) - - (3,478)
--------------------------------------------------------------
$ (7,748)$ (20,530) $ 12,782 $ 12,330 - $ 25,112
--------------------------------------------------------------
Nine Months ended
September 30, 2002
Riviera Las Vegas $ 10,906 $ 174 $ 10,732 $ 9,925 $ (1,114) $19,543
Riviera Black Hawk 1,333 (4,078) 5,411 3,480 1,114 10,005
Corporate (33,056) (29,798) (3,258) - - (3,258)
--------------------------------------------------------------
$ (20,817)$ (33,702) $ 12,885 $ 13,405 - $ 26,290
--------------------------------------------------------------
September 30, December 31,
2003 2002
Assets (4): (in thousands)
Riviera Las Vegas $ 117,004 $ 123,740
Riviera Black Hawk 62,377 64,493
-----------------------
Total assets $ 179,381 $ 188,233
=======================
(4)Assets represent property and equipment, net of
accumulated depreciation.
(5)Interest expense net of interest income
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.
12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Three Months Ended September 30, 2003 Compared to Three Months Ended
September 30, 2002
The following table sets forth, for the periods indicated, certain operating
data for the Riviera Las Vegas and Riviera Black Hawk. Income from Operations
includes intercompany management fees.
Third Quarter
Incr/ % Incr/
(In Thousands) 2003 2002 (Decr) (Decr)
---- ---- ------ ------
Net revenues:
Riviera Las Vegas $35,944 $35,412 $ 532 1.5%
Riviera Black Hawk 13,029 13,038 (9) -0.1%
------ ------ ---
Total Net Revenues $48,973 $48,450 $523 1.1%
======= ======= ====
Income (Loss) from Operations
Riviera Las Vegas $2,556 $2,821 $(265) -9.4%
Riviera Black Hawk 2,147 1,802 345 19.1%
----- ----- ---
Property Income from Operations 4,703 4,623 80 1.7%
Corporate Expenses (1,062) (1,120) 58 5.2%
------- ------- --
Total Income from Operations $3,641 $3,503 $138 3.9%
====== ====== ====
Operating Margins
Riviera Las Vegas 7.1% 8.0% -0.9%
Riviera Black Hawk 16.5% 13.8% 2.7%
Consolidated 7.4% 7.2% 0.2%
Riviera Las Vegas
Revenues
Net revenues increased by approximately $532,000, or 1.5%, from $35.4
million in 2002 to $34.9 million in 2003 due primarily to increased casino, food
and beverage and entertainment revenues, which were partially offset by
increased promotional allowances.
Riviera Las Vegas occupancy was 96.7 percent compared with 92.5 percent
in 2002; ADR (average daily room rate) decreased $2.66 to $57.32. RevPar
(revenue per available room) was comparable to the third quarter of 2002 At
$55.45. Convention rooms decreased from 36.7 percent to 31.9 percent of total
occupancy while leisure and gaming increased from 55.4 percent to 59.8 percent
and Internet sales rose from 7.8 percent to 12.2 percent. The decline in
Convention room nights was partially caused by conventioneers booking via the
Internet which circumvent traditional hotel room blocks. While occupancy levels
may not have been affected, the ADR has been impacted. Leisure and Asian
segments are rebooking and the fall looks encouraging for overall bookings.
Casino revenues increased by approximately $278,000, or 1.9%, from
$14.6 million during 2002 to $14.9 million during 2003 due primarily to a 6.2%
increase in slot machine revenue. Slot machine coin-in, or volume, increased 3.9
percent for the quarter.
13
Food and beverage revenues increased $399,000 or 5.9% from $6.8 million
in 2002 to $7.2 million in 2003 due to a 14.6% increase in food covers for the
quarter.
Entertainment revenues increased $311,000 or 6.8% from $4.6 million in
2002 to $4.9 million in 2003 due to a 14.0% increase in entertainment covers for
the quarter.
Promotional allowances increased by approximately $475,000, or 13.9%,
from $3.4 million during 2002 to $3.9 million during 2003 primarily due to
increases in comps related to increased casino activity.
Costs and Expenses
Rooms departmental costs and expenses increased by 7.9% in the quarter,
due primarily to the wage scale increases under the renewed union contracts.
Food and Beverage expenses increased $326,000 or 6.6% in the quarter,
due primarily to increased revenues as discussed above.
General and administrative expenses increased $470,000 or 7.2% in
the quarter, due primarily to increased health insurance costs for non-union
employees.
Income from Operations
Income from operations in Las Vegas decreased $265,000, or 9.4%,
from $2.8 million in 2002 to $2.6 million in 2003 due to the increase in Rooms
expenses and General and Administrative expenses as explained above.
Riviera Black Hawk
Revenues
Net revenues were $13.0 million in the third quarter 2003 and 2002.
Slot volume measured by coin-in was up 3.5% in the third quarter compared to the
Black Hawk Market coin-in, which was down 3.7%. Food and beverage revenues were
down $287,000 or 16.9% due to decreased covers in our buffet outlet . Changes in
the focus of our marketing programs introduced in November of last year appear
to be strengthening our position in the Black Hawk market by reducing
complementaries and increasing cash rebates to slot customers.
Income from Operations
Income from operations in Black Hawk, Colorado increased $345,000, or
19.1%, from $1.8 million in 2002 to $2.1 million in 2003 primarily due to the
$315,000 decrease in casino expenses.
Consolidated Operations
Other Income (Expense)
Interest expense decreased $2.4 million or 26.1% from $9.2
million in 2002 to $6.8 million in 2003 primarily as a result of interest
expense due to defeasance charge in 2002. Also as a result of the Company's
refinancing of their debt in 2002 the Company realized a one time charge for
loss on extinguishment of debt of $11.2 million.
14
Net Income (Loss)
The net loss decreased $13.7 million from a net loss of $16.9
million in 2002 to a net loss of $3.2 million in 2003 due primarily to decreased
expenses as a result of refinancing the Company's debt in 2002 as discussed
above.
Nine Months Ended September 30, 2003 Compared to Nine Months Ended September 30,
2002
The following table sets forth, for the periods indicated, certain operating
data for the Riviera Las Vegas and Riviera Black Hawk. Income from Operations
includes intercompany management fees.
Nine Months Ended
Incr/ % Incr/
(In Thousands) 2003 2002 (Decr) (Decr)
---- ---- ------ ------
Net revenues:
Riviera Las Vegas $107,706 $107,161 $545 0.5%
Riviera Black Hawk 37,086 37,454 (368) -1.0%
------ ------ -----
Total Net Revenues $144,792 $144,615 $177 0.1%
======== ======== ====
Income (Loss) from Operations
Riviera Las Vegas $10,509 $10,732 $(223) -2.1%
Riviera Black Hawk 5.751 5,411 340 6.3%
----- ----- ---
Property Income from Operations 16,260 16,143 117 0.7%
Corporate Expenses (3,478) (3,258) (220) -6.8%
------- ------- -----
Total Income from Operations $12,782 $12,885 $(103) -0.8%
======= ======= ======
Operating Margins
Riviera Las Vegas 9.8% 10.0% -0.2%
Riviera Black Hawk 15.5% 14.5% 1.0%
Consolidated 8.8% 8.9% -0.1%
Riviera Las Vegas
Revenues
Net revenues increased $545,000 or 0.5% from $107.2 million 2002 to
$107.7 in 2003 due primarily to increased hotel, food and beverage and
entertainment revenues which were partially offset by decreased casino revenues.
Casino revenues decreased by approximately $911,000, or 2.0%, from
$46.5 million during 2002 to $45.6 million during 2003 primarily due to a
decrease of $383,000 or 4.2% in table game revenue as a result of lower drop and
lower hold percentage and a decrease of $220,000 or 0.6% in slot machine
revenues as a result of lower hold percentage.
Room revenue increased $1.1 million, or 3.4%, from $32.4 million in
2002 to $33.5 million in 2003 due to an increase in leisure room nights. Hotel
occupancy increased to 94.1%, up from last year's 92.1% and average daily room
rate increased $0.23 to $59.81 in 2003 from $59.58 in 2002. Rev Par (revenue per
available room) increased 2.6% or $1.40 to $56.26.
15
Food and Beverage revenues increased $857,000, or 4.3%, from $19.9
million in 2002 to $20.7 million in 2003 due primarily to increased covers in
our buffet and coffee shop.
Entertainment revenues increased by approximately $652,000, or 5.0%,
from $13 million during 2002 to $13.6 million during 2003 due primarily to an
increase in our Le Bistro Theater revenues.
Promotional allowances increased by approximately $967,000, or 9.3%,
from $10.4 million during 2002 to $11.4 million during 2003 primarily due to
increases in comps related to higher convention activity.
Costs and Expenses
Casino expenses decreased $1.1 million or 4.3% from $26.5
million in 2002 to $25.4 million in 2003 primarily
due to reduced casino activity.
Rooms departmental costs and expenses increased $1.2 or 7.1% from $17.5
million in 2002 to $18.7 million in 2003 as a result of increased occupancy,
requiring more variable labor costs. In addition, wage scale increases under the
renewed union contracts contributed to the increased costs.
General and administrative expenses increased $696,000, or 3.8% as a
result of increased health insurance costs for our non-union employees.
Income from Operations
Income from operations in Las Vegas decreased $223,000, or 2.1%, from
$10.7 million in 2002 to $10.5 million in 2003 based on comparable revenues and
increased costs as discussed above and the decrease in depreciation of $874,000
or 8.8%, as certain asset acquired five and seven years ago became fully
depreciated..
Riviera Black Hawk
Revenues
Net revenues decreased by approximately $368,000, or 1.0%, from $37.5
million in 2002 to $37.1 million in 2003. Casino revenues decreased $138,000, or
0.4%, from $35.3 million in 2002 and $35.1 million in 2003 due to increased slot
club point and cash voucher redemption.
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.
Food and Beverage revenue decreased $581,000, or 11.7% from $5.0
million in 2002 to $4.4 million in 2003 due primarily to reduced complimentary
covers in our buffet.
16
Income from Operations
Income from operations in Black Hawk, Colorado increased by $340,000
or 6.3% from $5.4 million in 2002 to $5.8 million in 2003 as a result of
refining direct marketing and promotional programs for the casino to match the
economic conditions in the Denver area.
Consolidated Operations
Other Income (Expense)
Interest expense, excluding interest expense incurred due to
debt defeasance, increased $573,000 due to costs associated with the $30 million
credit facility and increased amortization of loan fees.
Interest income decreased $158,000 from $176,000 in 2002 to $18,000
in 2003 as a result of the lower cash balances available for investment and
decreasing rates. Corporate expenses increased $270,000 or 8.4% from $3.2
million in 2002 to $3.5 million in 2003 as a result of additional professional
fees and costs associated with corporate governance, business proposals and the
shareholder vote on the removal of certain voting restrictions in the Company's
articles of incorporation.
Other Income (Expense) for the first nine months of 2002 was affected
by the loss on extinguishment of debt and additional interest expense totaling
$13.9 million or $4.03 per share.
Net Income (Loss)
Net income (loss) for the first nine months of 2002 was affected by
the loss on extinguishment of debt and additional interest expense totaling
$13.9 million or $4.03 per share. (Delete the following?) Net loss decreased
$13.1 million or 62.8% from a net loss of $20.8 million in 2002 to a net loss of
$7.7 million in 2003 due primarily to costs related to refinancing the Company's
debt in 2002.
Liquidity and Capital Resources
At September 30, 2003, the Company had cash and cash equivalents of $25.6
million. The cash and cash equivalents increased $5.4 million during the first
nine months of 2003, as a result of $11.8 million of cash provided by
operations, $3.9 million of cash outflow for investing activities and $2.5
million outflow for financing activities. Cash balances include amounts that
could be required to fund the Chief Executive Officer's pension obligation in a
rabbi trust with 5 days notice. (See Note 7 to the 2002 annual consolidated
financial statements, Other Long-Term Liabilities included in Form 10-K as filed
with the SEC on March 17, 2003.) Effective April 1, 2003, the Company began
paying Mr. Westerman $250,000 per quarter from his pension plan. In exchange for
these payments, Mr. Westerman has agreed to continue his forbearance of his
right to receive full transfer of his pension fund balance to the rabbi trust.
This does not limit his ability to give the five-day notice at any time.
Although there is no current intention to require this funding, under certain
circumstances the Company might have to disburse approximately $6.3 million for
this purpose in a short period.
17
Management believes that cash flow from operations, combined with the $25.6
million cash and cash equivalents and the $30 million revolving credit facility,
will be sufficient to cover the Company's debt service and enable investment in
budgeted capital expenditures for 2003 for both the Las Vegas and Black Hawk
properties and provide initial investments in the potential Missouri and New
Mexico projects.
Cash flow from operations may not to be sufficient to pay 100% of the principal
of the 11% Notes at maturity on June 15, 2010. Accordingly, our ability to repay
the 11% Notes at maturity may be dependent upon our ability to refinance them.
There can be no assurance that we will be able to refinance the principal amount
of the 11% Notes at maturity.
The 11% Notes provide that, in certain circumstances, the Company and its
subsidiaries must offer to repurchase the 11% Notes, upon the occurrence of a
change of control, at 101% of the principal amount. Each holder of the 11% Notes
has the right, but not the obligation, to accept this offer. In the event of
such mandatory redemption or repurchase prior to maturity, the Company and its
subsidiaries would be unable to pay the principal amount of the 11% Notes
without a refinancing.
At any time prior to June 15, 2005, the Company may on any one or more occasions
redeem up to 35% of the aggregate principal amount of the 11% Notes at a
redemption price of 111% of the principal amount, plus accrued and unpaid
interest and liquidated damages, if any, to the redemption date, with the net
cash proceeds of one or more public equity offerings; provided that:
(1) at least 65% of the aggregate principal amount of the 11% Notes remains
outstanding immediately after the occurrence of such redemption (excluding such
notes held by the Company or its subsidiaries); and
(2) the redemption occurs within 45 days of the date of the closing of such
public equity offering.
Except pursuant to the preceding paragraph, the 11% Notes are not redeemable at
the Company's option prior to June 15, 2006.
On or after June 15, 2006, the Company may redeem all or part of the 11% Notes
upon not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below plus accrued and
unpaid interest and liquidated damages, if any, on the 11% Notes redeemed, to
the applicable redemption date, if redeemed during the twelve-month period
beginning on June 15 of the years indicated below:
Year Percentage
2006 .......................................105.500%
2007........................................103.667%
2008........................................101.833%
2009 and thereafter.........................100.000%
18
The 11% Notes contain certain covenants, which limit the ability of the Company
and its restricted subsidiaries, subject to certain exceptions, to do, among
other things, the following: (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 or 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.
At September 30, 2003, the Company believes that it is in compliance with the
covenants of the 11% Notes and the $30 million revolving credit facility.
Amendment of Articles of Incorporation
On July 15, 2003 the shareholders of the Company approved an amendment to
Article 3, Section 7, of our Articles of Incorporation. The amendment became
effective on July 18, 2003. Prior to the amendment, the Articles of
Incorporation contained two distinct limitations on common stock voting rights
of a "Substantial Stockholder", which is defined as a person who, within a three
year period, acquires beneficial ownership of more than 10% of the Company's
outstanding common stock.
The first limitation was that a Substantial Stockholder's voting power was
reduced by 99% for all shares of common stock owned in excess of 10% and up to
15% (the "10% Limit"). The second limitation was a nullification of the
Substantial Stockholder's ability to vote any of his shares of common stock that
exceeded 15% of the outstanding shares of common stock (the "15% Limit"). The
Substantial Stockholder was able to avoid the 10% Limit by either making a cash
tender offer for all outstanding shares of common stock, or by obtaining a
waiver by our Board of Directors. The Substantial Stockholder could only avoid
the 15% Limit by making a cash tender offer for all outstanding shares of common
stock.
The 15% Limit could not be waived by our Board of Directors, even if we
considered a particular person's infusion of new capital into the Company to be
in the best interests of the Company.
The amendment of the Articles of Incorporation, which eliminated the 15% Limit,
left the 10% Limit intact. Consequently, the Board of Directors now has the
authority to waive the voting limitations in the Articles of Incorporation when
the Board of Directors considers such a waiver to be appropriate for the
Company. This may include instances where the Board of Directors chooses to
pursue an opportunity to increase the Company's equity base or to attract a
strategic partner that could provide additional financial resources for the
Company.
Recently Adopted Accounting Standards
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). SFAS No. 150 is effective
for financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period beginning
after June 15, 2003. The Company adopted SFAS No. 150 for the third quarter
beginning on July 1, 2003 and it had no effect on its financial position or
results of operations.
19
Critical Accounting Policies
A description of our critical accounting policies and estimates can be found in
Item 7 of our 2002 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 2002 Form 10-K filed
with the SEC on March 17, 2003.
Forward-Looking Statements
This report includes "forward-looking statements," as defined in 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 be correct. Important
factors that could cause actual results to differ materially from the Company's
expectations are disclosed in this report as well as in 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 in 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 the date of this report. 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.
Specific factors that might cause actual results to differ from our expectations
or might cause us to modify our plans or objectives include, but are not limited
to:
o the availability and adequacy of our cash flow to meet our
requirements, including payment of amounts due under our
indebtness;
o our substantial indebtedness, debt service requirements and
liquidity constraints;
o risks related to our 11% Notes and to high-yield securities
and gaming securities generally;
o changes in our business strategy, capital improvements or
development plans;
o the need for additional capital to support capital
improvements and development;
o economic, competitive, demographic, business and other
conditions in our local and regional markets;
o changes or developments in laws, regulations or taxes in the
gaming industry;
o actions taken or omitted to be taken by third parties,
including our customers, suppliers, and competitors as well as
legislative, regulatory, judicial and other governmental
authorities;
20
o competition in the gaming industry, including the availability
and success of alternative gaming venues and other
entertainment attractions;
o a decline in the public acceptance of gaming;
o changes in personnel or compensation, including federal
minimum wage requirements;
o our failure to obtain, delays in obtaining, or the loss of
any, licenses, permits or approvals, including gaming and
liquor licenses, or the limitation, conditioning, suspension
or revocation of any such licenses, permits or approvals, or
our failure to obtain an unconditional renewal of any such
licenses, permits or approvals on a timely basis;
o the loss of any of our casino facilities due to terrorist
acts, casualty, weather, mechanical failure or any extended or
extraordinary maintenance or inspection that may be required;
o other adverse conditions, such as economic downturns, changes
in general customer confidence or spending, increased
transportation costs, travel concerns or weather-related
factors, that may adversely affect the economy in general
and/or the casino industry in particular; and
o factors relating to the current state of world affairs and any
further acts of terrorism or other destabilizing events in the
United States or elsewhere.
21
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 September 30, 2003, we had $217.8 million in borrowings. The borrowings
include $215 million in 11% Notes maturing in 2010 and capital leases maturing
at various dates through 2005. Interest under the $215 million 11% Notes is
based on a fixed rate of 11%. The equipment loans and capital leases have
interest rates ranging from 5.4% to 13.5%. The borrowings also include $761,000
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 when the project is
complete, is payable over ten years beginning in 2000. The SID bonds bear
interest at 5.5%.
Interest Rate Sensitivity
Principal (Notational Amount by Expected Maturity)
Average Interest Rate
(Amounts in Fair Value
thousands) 2003 2004 2005 2006 2007 Thereafter Total at 9/30/03
Long Term Debt Including
Current Portion
Equipment loans and
capital leases Las Vegas $ 312 $1,019 $ 11 $ 1,342 $ 1,342
Average interest rate 8.0% 7.8% 8.4%
11% Senior Secured Notes $215,000 215,000 212,850
Less unamortized Discount (2,714) (2,714) (2,714)
Average interest rate 11.8%
Capital leases
Black Hawk, Colorado 530 2,263 658 3,451 3,451
Average interest rate 10.8% 10.8% 10.8%
Special Improvement
District Bonds
Black Hawk, Colorado - 110 116 $ 124 $ 129 282 761 761
Average interest rate 5.5% 5.5% 5.5% 5.5% 5.5% 5.5% ------ -----
Total all long-term
debt, including
current portion 217,840 215,690
======= =======
Other Long Term Liabilities Including Current Portion
CEO pension plan obligation $475 $1,000 $1,000 $1,000 $ 1,000 $ 2,003 $ 6,428 $ 6,428
11.8% 11.8% 11.8% 11.8% 11.8% 11.8%
22
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures. The Company's Chief
Executive Officer and Chief Financial Officer have evaluated the effectiveness
of the Company's disclosure controls and procedures (as such term is defined in
Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"). Based on such evaluation,
such officers have concluded that, as of the Evaluation Date, the Company's
disclosure controls and procedures are effective in alerting them on a timely
basis to material information relating to the Company (including its
consolidated subsidiaries) required to be included in the Company's periodic
filings under the Exchange Act.
(b) Changes in Internal Controls. Since the Evaluation Date, there have not
been any significant changes in the Company's internal controls or in other
factors that could significantly affect such controls.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
On April 15, 2003, a class action complaint was filed in the Clark
County, Nevada District Court (Case No. A466204) in the name of Brian Placzek,
on behalf of himself and all others similarly situated, against the Company and
Company directors William L. Westerman, Robert R. Barengo, Jeffrey A. Silver and
Paul A. Harvey (the "Placzek Action"). The complaint was served on the Company
on April 28, 2003. The named plaintiff was a shareholder of the Company. In the
complaint, the plaintiff sought an order requiring the individual defendants to
take the following actions, among others: cooperate with any individual who
makes a bona fide offer to acquire the Company, take steps that are calculated
to result in a buy-out or takeover of the Company at the highest price, comply
with their fiduciary duties, and reimburse the plaintiff's class for damages,
costs and disbursements related to the lawsuit. The complaint also sought to
have all of the Company's public shareholders, excluding the defendants,
certified as a class for purposes of the class action suit and sought plaintiff
to be the representative of the class. On July 10, 2003, the defendants filed a
Motion to Dismiss the Placzek Action on the grounds that the Placzek Action was
filed without the authorization of the plaintiff. Prior to this Motion to
Dismiss being heard, the plaintiff agreed to dismiss the lawsuit and on August
28, 2003, a Stipulation and Order For Dismissal was entered dismissing the
Placzek action with prejudice.
On May 2, 2003, a class action complaint was filed in the Clark
County, Nevada District Court (Case No. A467159) in the name of Paul Rosa
against the Company and Company directors William L. Westerman, Robert R.
Barengo, Jeffrey A. Silver, Paul A. Harvey and Vincent L. DiVito (the "Rosa
Action"). The named plaintiff was a shareholder of the Company and sought to
have all of the Company's public shareholders, excluding defendants and related
shareholders, certified as a class for purposes of the class action suit. The
complaint also sought substantially the same relief that was sought in the
Placzek Action. On July 21, 2003, the defendants filed a Motion to Dismiss the
Rosa Action on the grounds that the complaint failed to state a claim upon which
relief may be granted. Prior to this Motion to Dismiss being heard, the
plaintiff agreed to dismiss the lawsuit with prejudice and on October 10, 2003,
a Stipulation and Order For Dismissal was entered dismissing the Rosa Action
with prejudice.
23
The Company is a party to routine lawsuits, either as plaintiff or
defendant, arising from the normal operations of a hotel or casino. 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.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's annual meeting of stockholders held on July 15,
2003, stockholders elected the Company's board of directors and approved an
amendment of the Company's Articles of Incorporation to eliminate certain voting
limitations on ownership of more than 15% of the Company's stock. The amendment
is described further in Part I Item 2 of this report under the caption"
Amendment of Articles of Incorporation."
The number of votes cast for each director nominee, the number of votes
cast against or withheld, and the number of abstentions or broker nonvotes were
as follows:
For Against or Abstentions or
--- Withheld Broker Nonvotes
--------- ---------------
William L. Westerman 3,057,656 238,517 0
Robert R. Barengo 3,057,875 238,298 0
Jeffrey A. Silver 3,190,061 106,112 0
Paul A. Harvey 3,189,759 106,414 0
Vincent L. DiVito 3,189,779 106,394 0
The number of votes cast for the amendment of the Articles of
Incorporation was 2,295,950 the number of votes cast against it or withheld was
114,479, and the number of abstentions or broker nonvotes was 885,744.
Item 6. Exhibits and Reports on Form 8-K.
(a) See list of exhibits on page 26.
(b) During the third quarter of 2003, the Company filed reports on Form
8-K on July 17 (Items 5 and 7), July 22, (Items 7,9 and 12) and September, 15
2003 (Items 5 and 7). The July 22, 2003 filing included summary financial
information for the Company's second quarter.
24
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RIVIERA HOLDINGS CORPORATION
By: /s/ William L. Westerman
William L. Westerman
Chairman of the Board and
Chief Executive Officer
By: /s/ Duane Krohn
Duane Krohn
Treasurer and
Chief Financial Officer
Date: November 7, 2003
25
Riviera Holdings Corporation
Form 10Q
September 30, 2003
Exhibit
No. Description
3 Articles of Incorporation
31.1 Certification of the Principal Executive Officer of the Registrant
pursuant to Exchange Act Rule 13a-14(a).
31.2 Certification of the Principal Financial Officer of the Registrant
pursuant to Exchange Act Rule 13a-14(a).
32.1 Certification of the Principal Executive Officer of the Registrant
pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of
Sarbanes-Oxley Act of 2002.
32.2 Certification of the Principal Financial Officer of the Registrant
pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of
Sarbanes-Oxley Act of 2002.
26