SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Mark One
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2004
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission file number 000-21430
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Riviera Holdings Corporation
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(Exact name of Registrant as specified in its charter)
Nevada 88-0296885
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2901 Las Vegas Boulevard South, Las Vegas, Nevada 89109
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code (702) 794-9527
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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
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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 July 31, 2004,
there were 3,614,585 shares of Common Stock, $.001 par value per share,
outstanding.
RIVIERA HOLDINGS CORPORATION
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm 2
Condensed Consolidated Balance Sheets (Unaudited) at June 30, 2004 and
December 31, 2003 3
Condensed Consolidated Statements of Operations (Unaudited) for the
Three and Six Months ended June 30, 2004 and 2003 4
Condensed Consolidated Statements of Cash Flows (Unaudited) for the
Three and Six Months ended June 30, 2004 and 2003 5
Notes to Condensed Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk 23
Item 4. Controls and Procedures 24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 24
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
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTING FIRM
To the Board of Directors
Riviera Holdings Corporation
We have reviewed the accompanying condensed consolidated balance sheet of
Riviera Holdings Corporation (the "Company") and subsidiaries as of June 30,
2004, and the related condensed consolidated statements of operations and of
cash flows for the three and six months ended June 30, 2004 and 2003. These
financial statements are the responsibility of the Company's management.
We conducted our review, in accordance with standards of the Public Company
Accounting Oversight Board (United States). 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 standards of the Public Company Accounting Oversight Board (United States),
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 standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet of
Riviera Holdings Corporation as of December 31, 2003, 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 March 12,
2004, 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, 2003, is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
DELOITTE & TOUCHE LLP
July 19, 2004
Las Vegas, Nevada
2
RIVIERA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, except share amounts) June 30 December 31
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2004 2003
ASSETS (unadited)
CURRENT ASSETS:
Cash and cash equivalents $ 19,679 $ 19,344
Accounts receivable, net 2,292 2,990
Inventories 1,937 2,026
Prepaid expenses and other assets 3,253 3,001
------------ ------------
Total current assets 27,161 27,361
PROPERTY AND EQUIPMENT, Net 179,151 180,293
OTHER ASSETS, Net 10,796 11,438
DEFERRED INCOME TAXES 2,446 2,446
------------ ------------
TOTAL $ 219,554 $ 221,538
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Current portion of long-term debt $ 2,199 $ 3,750
Accounts payable 9,234 8,072
Line of Credit 2,000
Accrued interest 1,071 1,096
Accrued expenses 14,864 14,870
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Total current liabilities 27,368 29,788
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OTHER LONG-TERM LIABILITIES 5,252 5,912
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LONG-TERM DEBT, Net of current portion 215,547 215,875
------------ ------------
SHAREHOLDERS' DEFICIENCY:
Common stock ($.001 par value;
20,000,000 shares authorized; 5,170,608
and 5,166,208 shares issued at June 30, 2004
and December 31, 2003, respectively) 5 5
Additional paid-in capital 13,751 13,733
Treasury stock (1,682,358 shares
and 1,687,957 shares at June 30, 2004 and
December 31, 2003, respectively) (11,283) (11,320)
Accumulated Deficit (31,086) (32,455)
------------ ------------
Total stockholders' deficiency (28,613) (30,037)
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TOTAL $ 219,554 $ 221,538
============ ============
See notes to condensed consolidated financial statements
3
RIVIERA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS (unaudited)
FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 2004 AND 2003 Three Months Ended Six Months Ended
(In thousands, except per share amounts) June 30, June 30,
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REVENUES: 2004 2003 2004 2003
Casino 29,550 27,091 56,629 53,468
Rooms 11,679 11,229 24,217 22,454
Food and beverage 9,066 8,529 17,866 16,542
Entertainment 5,571 4,471 10,227 8,870
Other 2,119 2,059 4,166 4,010
---------- --------- ---------- ---------
Total revenues 57,985 53,379 113,105 105,344
Less promotional allowances 5,191 5,051 9,851 9,525
---------- --------- ---------- ---------
Net revenues 52,794 48,328 103,254 95,819
---------- --------- ---------- ---------
COSTS AND EXPENSES:
Direct costs and expenses of
operating departments:
Casino 13,782 13,897 27,336 27,967
Rooms 6,656 6,491 13,020 12,344
Food and beverage 6,166 5,749 11,967 11,053
Entertainment 3,725 2,919 6,777 5,875
Other 724 709 1,439 1,358
Other operating expenses:
General and administrative 10,824 9,980 21,076 19,700
Depreciation and amortization 3,354 4,151 6,702 8,381
---------- --------- ---------- ---------
Total costs and expenses 45,231 43,896 88,317 86,678
---------- --------- ---------- ---------
INCOME FROM OPERATIONS 7,563 4,432 14,937 9,141
---------- --------- ---------- ---------
OTHER (EXPENSE) INCOME :
Interest expense (6,738) (6,879) (13,578) (13,760)
Interest income 4 11 10 24
---------- --------- ---------- ---------
Total other expense (6,734) (6,868) (13,568) (13,736)
---------- --------- ---------- ---------
INCOME (LOSS) BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES 829 (2,436) 1,369 (4,595)
PROVISION (BENEFIT) FOR INCOME TAXES 0 0 0 0
---------- --------- ---------- ---------
NET INCOME (LOSS) $ 829 $ (2,436) $ 1,369 $ (4,595)
========== ========= ========== =========
INCOME (LOSS) PER SHARE DATA:
Income (Loss) per share:
Basic $ 0.24 $ (0.70) $ 0.39 $ (1.32)
---------- --------- ---------- ---------
Diluted $ 0.23 $ (0.70) $ 0.38 $ (1.32)
---------- --------- ---------- ---------
Weighted-average common shares
outstanding 3,488 3,474 3,487 3,471
---------- --------- ---------- ---------
Weighted-average common and common
equivalent shares 3,672 3,474 3,610 3,471
---------- --------- ---------- ---------
See notes to condensed consolidated financial statements
4
RIVIERA HOLDINGS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) Three Months Ended Six Months Ended
FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 2004 AND 2003 June 30, June 30,
2004 2003 2004 2003
--------- --------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $829 ($2,436) $1,369 ($4,595)
Adjustments to reconcile net income
(loss) to net cash (used in)
provided by operating activities:
Depreciation and amortization 3,354 4,151 6,702 8,381
Provision for bad debts (108) 75 (32) 155
Provision for gaming discounts 9 7 9 7
Interest expense 6,738 6,879 13,578 13,760
Interest paid (12,039) (12,077) (12,257) (12,388)
Changes in operating assets
and liabilities:
Decrease in accounts receivable 2,816 1,126 721 901
Decrease in inventories 32 99 89 283
Decrease (increase) in prepaid
expenses and other assets 350 86 (252) 115
Increase (decrease) in accounts
payable 654 161 1,162 (544)
Increase (decrease) in accrued
liabilities 226 (696) (7) (1,902)
Increase (decrease) in deferred
compensation plan liability 1 4 (155) 12
Decrease in non-qualified
pension plan obligation to
CEO upon retirement (420) (365) (838) (490)
--------- --------- --------- ---------
Net cash provided by (used in)
operating activities 2,442 (2,986) 10,089 3,695
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - Las Vegas,
Nevada (2,592) (344) (4,240) (783)
Capital expenditures - Black Hawk,
Colorado (714) (174) (1,307) (450)
Increase in other assets (16) (172) (181) (375)
--------- --------- --------- ---------
Net cash (used in) investing
activities (3,322) (690) (5,728) (1,608)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term borrowings (1,170) (828) (2,081) (1,689)
Payments on LOC (2,000)
Increase in paid-in capital 18 0 18 52
Purchase of deferred comp treasury
stock 0 0 37 (7)
Issuance of restricted stock 0 0 0 25
--------- --------- --------- ---------
Net cash (used in) financing
activities (1,152) (828) (4,026) (1,619)
--------- --------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (2,032) (4,504) 335 468
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD $ 21,711 $ 25,192 $ 19,344 $ 20,220
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 19,679 $ 20,688 $ 19,679 $ 20,688
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF NONCASH
FINANCING ACTIVITIES:
Property acquired with debt and
accounts payable $865 $101 $865 $101
See notes to condensed consolidated financial statements
5
RIVIERA HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Nature of Operations
Riviera Holdings Corporation ("RHC") 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 all
assets and liabilities of Riviera, Inc. Casino-Hotel Division on June 30, 1993,
pursuant to a plan of reorganization. The Company operates the Riviera Hotel &
Casino (the "Riviera Las Vegas") on the Strip in Las Vegas, Nevada.
In August 1995, Riviera Gaming Management, Inc. ("RGM") was 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 February 2000, the Company opened its casino in Black Hawk, Colorado, which
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 Black Hawk casino.
On March 15, 2002, Riviera Gaming Management of New Mexico, Inc. ("RGM New
Mexico") was incorporated in the State of New Mexico as a wholly owned
subsidiary of RHC. We filed an application with the New Mexico Racing Commission
in March of 2002 for a "racino" in Hobbs, New Mexico. We and three other
prospective licensees made presentations to the Commission in November of 2003.
The Commission awarded the racino license to one of the other applicants and we
wrote off $1.3 million of costs associated with the project in the fourth
quarter of 2003.
On June 5, 2002, Riviera Gaming Management of Missouri, Inc. ("RGM Missouri")
was incorporated in the State of Missouri a wholly owned subsidiary of RHC to
develop a casino project in Jefferson County, Missouri, approximately 27 miles
south of the center of St. Louis, Missouri. In July 2004 the Missouri Gaming
Commission indicated that it will need more time to evaluate the six competing
proposals for additional casino licenses in the St. Louis area and to render a
decision on whether to select one or more applications as a priority for
investigation. We believe that a more thorough evaluation of all current
proposals will further differentiate our project from the other proposals.
Studies have consistently shown that a casino entertainment complex in Jefferson
County would provide the most incremental benefit to the State of Missouri and
to the local host community. We are encouraged by the overwhelming support we
continue to receive from Jefferson County residents and local government
officials.
Casino operations are subject to extensive regulation in the states of Nevada
and Colorado by the respective Gaming Control Boards and various other state and
local regulatory agencies. Management believes that the Company's procedures
comply, in all material respects the applicable regulations for supervising
casino operations, recording casino and other revenues, and granting credit.
6
Principles of Consolidation
The consolidated financial statements include the accounts of RHC, its
wholly-owned subsidiary ROC, and various direct or indirect wholly owned
subsidiaries. All material intercompany accounts and transactions have been
eliminated.
The financial information at June 30, 2004 and for the three and six months
ended June 30, 2004 and 2003 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 six month periods ended June 30, 2004
and 2003, respectively, are not necessarily indicative of the results 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, 2003, included in the Company's Annual Report on Form 10-K.
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 six months ended June
30, 2003 since the Company incurred a net loss. The number of potentially
dilutive options was 12,000 and 18,000 for the three and six months ended June
30, 2004 and 446,500 and 446,500 for the three and six months ended June 30,
2003.
Income Taxes
The cash flow projections used by the Company in the application of Statement of
Accounting Financial Standards ("SFAS") No. 109 for the realization of deferred
tax assets indicate that a valuation allowance should be recorded on the tax
benefits earned by the Company in 2003. The Company's results of operations for
the quarter and six months ended June 30, 2004 indicated that a portion of the
deferred tax asset would be realized. As such, an adjustment to the valuation
allowance of $290,150 for the quarter and $479,150 for the first six months were
recorded to offset income tax expense. The estimates used to determine the
remaining valuation allowance 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.
7
Stock-Based Compensation
As of June 30, 2004, 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.
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
consistently with the provisions of SFAS No. 123 (using an intrinsic value
method), the Company's net income (loss) and pro forma net income (loss) per
common share and common share equivalent would have been decreased to the pro
forma amounts indicated below for three and six months ended June 30 (in
thousands, except per share amounts):
Three months ended Six months ended
June 30, June 30,
2004 2003 2004 2003
------ ------ ----- ------
Net income (loss) as reported $ 829 $ (2,436) $1,369 $(4,595)
Deduct: Total stock-based employee
compensation expense determined under
fair value-based methods for awards net
of related tax effects (51) (57) (101) (117)
----- ------- ------ ------
Net income (loss) pro forma $ 778 $(2,493) $1,268 $(4,712)
----- -------- ------- --------
Basic income (loss) per common share-as
reported $0.24 $(0.70) $0.39 $(1.32)
Basic income (loss) per common share-
pro forma $0.22 $(0.72) $0.36 $(1.36)
Diluted income (loss) per common and common
share equivalent as reported $0.23 $(0.70) $0.38 $(1.32)
Diluted income (loss) per common and common
share equivalent pro forma $0.21 $(0.72) $0.35 $(1.36)
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 2004 and 2003 respectively: dividend yield of 0%
for both years; expected volatility of 32.3% and 52%; risk-free interest rates
of 2.25% and 2.27%; and expected lives of 10 years for all years. The weighted
fair value of options granted in 2004 and 2003 was $4.09 and $2.69,
respectively.
Recently Issued Accounting Standards
The Financial Accounting Standards Board ("FASB") has issued a proposed
standard that will impact the accounting for share-based payments. The standard,
which is proposed to be effective for fiscal years beginning after December 15,
2004, would require that we recognize an expense for our share-based payments,
including stock options. We are currently evaluating the provisions of this
proposed standard to determine its impact on our future financial statements.
In December 2003, the FASB issued Interpretation No. 46 ("FIN 46R"),
Consolidation of Variable Interest Entities (revised December 2003), clarifying
Interpretation No. 46 and exempting certain entities from the provisions of FIN
46R. Generally, application of FIN 46R is required in financial statements of
public entities that have interests in certain structures, commonly referred to
as special-purpose entities, for periods ending after December 15, 2003, and,
for other types of variable interest entities, for periods ending after March
15, 2004. FIN 46R addresses the consolidation by business enterprises of
variable interest entities under either of the following circumstances: (1) the
8
entity does not have sufficient equity investment at risk to permit it to
finance its activities without additional subordinated financial support, or (2)
the reporting company will hold a significant variable interest in, or have
significant involvement with, such variable interest entity. The adoption of FIN
46R did not have a material impact on the Company's financial position or
results of operations.
2. OTHER ASSETS
Other assets at June 30, 2004 and 2003 include deferred loan fees of
approximately $8.5 million and $10.1 million, respectively, associated with the
2002 refinancing of the Company's debt and capitalized costs of approximately
$600,000 associated with the RGM Missouri proposed venture. RGM Missouri is an
unrestricted subsidiary of RHC (as defined in the Company's loan documents).
3. LONG-TERM DEBT AND COMMITMENTS
On June 26, 2002, we issued 11% Senior Secured Notes with a principal amount of
$215 million, substantially all of which were later exchanged for our Securities
Act of 1933-registered Notes 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 11%
Notes, which are included in other assets and are being amortized to interest
expense over the life of the indebtedness.
Effective July 26, 2002, we 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 June 30, 2004. The Company incurred
loan fees of approximately $1.5 million which are being expensed over the life
of the arrangement.
4. LEGAL PROCEEDINGS
The Company is a party to several routine lawsuits, either as plaintiff or as
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 no shares of treasury stock purchased by the Deferred Compensation
Plan (the "Plan") during the six months ended June 30, 2004 and 1,703 shares
purchased at $4.27 per share during the six months ended June 30, 2003. The Plan
distributed 5,569 shares to participants during the six months ended June 30,
2004 as required by the terms of the Plan.
6. ISSUANCE OF RESTRICTED STOCK
There were no shares of our stock issued under the Restricted Stock Plan for
executive compensation during the six months ended June 30, 2004 and 5,435
restricted shares issued at $4.60 per share during the six months ended June 30,
2003.
9
7. GUARANTOR INFORMATION
The 11% Notes and the $30 million line of credit are guaranteed by our
restricted subsidiaries. These guaranties are full, unconditional, and joint and
several. RGM Missouri and RGM New Mexico are unrestricted subsidiaries and are
not guarantors of the 11% Notes. Their financial position and results of
operations are not material to the Company's consolidated financial position or
results of operations.
10
8. 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 Six months ended
June 30, June 30,
(Dollars in thousands) 2004 2003 2004 2003
Net revenues:
Riviera Las Vegas $39,437 $36,027 $76,760 $71,762
Riviera Black Hawk 13,357 12,301 26,494 24,057
------------ ---------- ----------- ---------
Total net revenues $ 52,794 $ 48,328 $ 103,254 $ 95,819
============ ========== =========== =========
Income (loss) from
operations:
Riviera Las Vegas $6,171 $3,703 $11,843 $7,953
Riviera Black Hawk 2,796 2,034 5,606 3,604
Corporate Expenses (1,404) (1,305) (2,512) (2,416)
------------ ---------- ----------- ---------
Total income from
operations $7,563 $4,432 $14,937 $9,141
============ ========== =========== =========
EBITDA (1):
Riviera Las Vegas $8,056 $6,378 $15,643 $13,403
Riviera Black Hawk 4,265 3,510 8,508 6,535
Corporate Expenses (1,404) (1,305) (2,512) (2,416)
------------ ---------- ----------- ---------
Total EBITDA $10,917 $8,583 $21,639 $17,522
============ ========== =========== =========
EBITDA margins (2):
Riviera Las Vegas 20.4% 17.7% 20.4% 18.7%
Riviera Black Hawk 31.9% 28.5% 32.1% 27.2%
------------ ---------- ----------- ---------
Total EBITDA 20.7% 17.8% 21.0% 18.3%
============= ========== =========== =========
(1)EBITDA consists of earnings before interest, income taxes, depreciation, and
amortization. EBITDA is presented solely as a supplemental disclosure because
management believes that it is 1) a widely used measure of operating performance
in the gaming industry, and 2) a principal basis for valuation of gaming
companies by certain analysts and investors. Management uses property-level
EBITDA (EBITDA before corporate expense) as the primary measure of the Company's
business segment properties' performance, including the evaluation of operating
personnel. EBITDA should not be construed as an alternative to operating income,
as an indicator of the Company's operating performance, as an alternative to
cash flows from operating activities, as a measure of liquidity, or as any other
measure determined in accordance with generally accepted accounting principles.
The Company has significant uses of cash flows, including capital expenditures,
interest payments and debt principal repayments, which are not reflected in
EBITDA. Also, other companies that report EBITDA information may calculate
EBITDA in a different manner than the Company. A reconciliation of EBITDA to net
income (loss) is included in the following financial schedules.
(2) EBITDA margin is EBITDA as a percent of net revenues.
11
Riviera Holdings Corporation
Reconciliation of Net Income (Loss) to EBITDA
($ in 000's)
Net Income Income Net Interest Operating Management
(Loss) Tax Expense(5) Income/(Loss) Depreciation Fee EBITDA
Second Quarter
2004
Riviera Las Vegas $4,006 $ 2,130 $ 35 $ 6,171 $ 2,357 $ (472) $8,056
Riviera Black Hawk 805 - 1,991 2,796 997 472 4,265
Corporate (3,982) (2,130) 4,708 (1,404) - - (1,404)
------------------------------------------------------------------
$ 829 - $ 6,734 $ 7,563 $ 3,354 - $10,917
-------------------------------------------------------------------
Second Quarter
2003
Riviera Las Vegas $2,317 $ 1,343 $ 43 $ 3,703 $ 3,059 $ (384) $6,378
Riviera Black Hawk (22) - 2,056 2,034 1,092 384 3,510
Corporate (4,731) (1,343) 4,769 (1,305) - - (1,305)
------------------------------------------------------------------
$(2,436) - $ 6,868 $ 4,432 $ 4,151 - $8,583
-------------------------------------------------------------------
Six Months ended
June 30, 2004
Riviera Las Vegas $7,642 $ 4,114 $ 87 $ 11,843 $ 4,724 $ (924) $15,643
Riviera Black Hawk 1,608 - 3,998 5,606 1,978 924 8,508
Corporate (7,881) (4,114) 9,483 (2,512) - - (2,512)
-------------------------------------------------------------------
$1,369 - $ 13,568 $ 14,937 $ 6,702 - $21,639
-------------------------------------------------------------------
Six Months ended
June 30, 2003
Riviera Las Vegas $4,980 $ 2,888 $ 85 $ 7,953 $ 6,180 $ (730) $13,403
Riviera Black Hawk (512) - 4,116 3,604 2,201 730 6,535
Corporate (9,063) (2,888) 9,535 (2,416) - - (2,416)
-------------------------------------------------------------------
$(4,595) - $ 13,736 $ 9,141 $ 8,381 - $17,522
-------------------------------------------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overall Outlook
We own and operate the Riviera Hotel and Casino on the Strip in Las Vegas,
Nevada ("Riviera Las Vegas"), and the Riviera Black Hawk Casino in Colorado
("Riviera Black Hawk").
Our capital expenditures for Las Vegas are geared to maintain the hotel rooms
and amenities in sufficient condition to compete for our customers in the
convention market and the mature adult customer. Room rates and slot revenues
are the primary factors driving our operating margins. We use technology to
maintain labor costs at a reasonable level, including kiosks for hotel check-in
and slot club redemptions. In addition, we are in the process of updating our
gaming monitoring computer systems, including the capability for
"ticket-in/ticket-out" ("TITO") on our slot machines. As of July 31, 2004
substantially all of our slot machines had been converted to the new gaming
monitoring system. At July 31, 2004 approximately 320 of our slot machines were
on a temporary EZ Pay TITO System. During the second half of 2004, we will be
converting those machines and adding approximately 240 additional slot machines
to our new system. By the end of 2004 we anticipate that we will have 560 slot
machines or approximately 40% of our slot machines in Las Vegas, on TITO.
Depending upon the success of these conversions, we may accelerate the
conversion of the remaining machines or we may convert them based on normal
replacement schedules. If we accelerate the process, we would have to finance
the additional slot machine purchases by using our revolving credit facility or
separate financing arrangements for $5 to $10 million.
12
In Black Hawk, the $5 maximum bet restricts table games to a minimum and the
area is basically a "locals" slot customer market. Our capital expenditures in
Black Hawk are geared to maintain competitive slot machines compared to the
market. The gaming authorities approved TITO systems in Colorado for Riviera on
December 16, 2003 and we had 360 of our slot machines on the TITO system as of
July 31, 2004. By the end of 2004 we anticipate that we will have approximately
500 slot machines, or 50% of our slot machines in Black Hawk, on TITO. Again,
depending upon the success of these conversions, we may accelerate the
conversion of the remaining machines or we may convert them based on normal
replacement schedules. If we accelerate the process, we would have to finance
the additional slot machine purchases by using our revolving credit facility or
separate financing arrangements for approximately $3 million.
We are continuing to seek regional diversification through our proposal to build
a casino/hotel/entertainment complex in Jefferson County, Missouri. Our project
would be located approximately 27 miles south of downtown St. Louis. We and
three other candidates made a formal presentation before the Missouri Gaming
Commission on March 31, 2004. On May 24, 2004, the Missouri Gaming Commission
held a public meeting to continue its examination of proposals for new casinos
in the St. Louis City metropolitan area. The meeting was primarily devoted to
hearing from government officials from St. Louis City, St. Louis County and
Jefferson County and from the public. In addition, we presented a St. Louis
Gaming Market Assessment Study and proposed to take a minority position in a
project in the City of St. Louis in exchange for giving up a minority position
in the Riviera Jefferson County, Missouri project. In July 2004 the Missouri
Gaming Commission indicated that it will need more time to evaluate the six
competing proposals for additional casino licenses in the St. Louis area and to
render a decision on whether to select one or more applications as a priority
for investigation. We believe that a more thorough evaluation of all current
proposals will further differentiate our project from the other proposals.
Studies have consistently shown that a casino entertainment complex in Jefferson
County would provide the most incremental benefit to the State of Missouri and
to the local host community. We are encouraged by the overwhelming support we
continue to receive from Jefferson County residents and local government
officials.
Three Months Ended June 30, 2004 Compared to Three Months Ended June 30, 2003
The following table sets forth, for the periods indicated, certain operating
data for Riviera Las Vegas and Riviera Black Hawk. Income from Operations
includes intercompany management fees.
Second Quarter Incr/ % Incr/
(In Thousands) 2004 2003 (Decr) (Decr)
---- ---- ------ ------
Net revenues:
Riviera Las Vegas $39,437 $36,027 $3,410 9.5%
Riviera Black Hawk 13,357 12,301 1,056 8.6%
------ ------ -----
Total Net Revenues $52,794 $48,328 $4,466 9.2%
======= ======= ======
Income (Loss) from Operations
Riviera Las Vegas $6,171 $3,703 $2,468 66.6%
Riviera Black Hawk 2,796 2,034 762 37.5%
----- ----- ---
Property Income from Operations 8,967 5,737 3,230 56.3%
Corporate Expenses (1,404) (1,305) (99) -7.6%
------- ------- ----
Total Income from Operations $7,563 $4,432 $3,131 70.6%
====== ====== ======
13
Operating Margins
Riviera Las Vegas 15.6% 10.3% 5.3%
Riviera Black Hawk 20.9% 16.5% 4.4%
Consolidated 14.3% 9.2% 5.1%
Riviera Las Vegas
Revenues
Riviera Las Vegas is following the trend on the Las Vegas Strip with
net revenues increasing $3.4 million or 9.5 percent in the second quarter
compared to the same period last year.
Casino revenues were up 8 percent over the second quarter of last year,
as the business mix of customers in the hotel rooms and attending shows included
more affinity groups (pool players and similar groups) with a better gaming
profile. We have invested $2.3 million in new slot machines this year and we had
our new slot monitoring system installed on approximately 80 percent of our
machines as of the end of the quarter. The system was connected to substantially
all of our slot machines by the end of July 2004 and we anticipate that we will
have approximately 560 machines (40 percent) converted to ticket-in, ticket-out
technology by the end of the year.
Room revenue increased $450,000, or 4.0%, from $11.2 million in 2003 to
$11.7 million in 2004 due to an increase in convention room nights. Hotel
occupancy increased to 95.3%, up from last year's 93.4% and average daily room
rate increased $2.19 from $60.44 in 2003 to $62.63 in 2004. Rev Par (revenue per
available room) increased 5.8% or $3.27 to $59.70. Convention room nights
represented 34.0% of total occupancy and 42 percent of the revenue, as the ADR
was over $80 for this sector of our business. Las Vegas city-wide convention
room nights, through May 2004, increased by 12.9% compared to the prior year
while leisure room nights increased by 5.9% over the same period. Average
airline seat capacity has grown by approximately 10,000 seats during the last
twelve months. Total air passengers have increased by 15.4% over the same
period. This has stimulated market demand, increased room sales activity and
improved convention block pick up and attendance. The increase in daily seat
capacity translates into a potential 15,000 additional occupied room nights per
day in the Las Vegas market (two persons per room staying three nights). If
every additional seat were sold, the demand created would fill approximately 10
percent of the available hotel rooms in Las Vegas.
Food and beverage revenue increased $575,000, or 8.1%, from $7.1
million in 2003 to $7.6 million in 2004 primarily due to increased hotel and
casino activity.
Entertainment revenue increased $1.2 million, or 26.7%, from $4.4
million in 2003 to $5.6 million in 2004 primarily due to an increase of 50,000
show tickets sold this quarter compared to the same quarter last year. This
additional traffic flow also enhanced casino revenues.
Promotional allowances increased by approximately $104,000, or 2.6%,
from $4.0 million during 2003 to $4.1 million during 2004 primarily due to
increases in complimentaries (promotional allowances) related to increased
casino activity.
Costs and Expenses
Food and beverage departmental costs and expenses increased by 10.0% in
the 2004 quarter, due primarily to increased activity in this area.
14
Entertainment departmental costs and expenses increased by 30.5% in the
quarter, due primarily to increased show ticket sales.
Income from Operations
Income from operations in Las Vegas increased $2.5 million, or 66.6%,
from $3.7 million in 2003 to $6.2 million in 2004 due to the $3.4 million or
9.5% increase in net revenues as explained above and a $700,000 decrease in
depreciation expenses due to assets becoming fully depreciated.
Riviera Black Hawk
Revenues
Net revenues increased by approximately $1.1 million, or 8.6% from
$12.3 million in 2003 to $13.4 million in 2004. Food and beverage revenues were
approximately $1.4 million in 2004, of which $1.1 million was complimentary
(promotional allowance). The second quarter benefited from the continued
strength of our marketing programs. Also the Black Hawk market continued to grow
during the quarter as the result of improved economic conditions in the Denver
Metro area.
The Riviera slot volume as measured by coin-in increased by 17.0% or
$42 million during the second quarter. Our share of the Black Hawk market
increased to 13.2%. Our fair share increased to 127%, the sixth consecutive
quarter we have shown improvement in fair share. (Fair share is the relationship
between the volume (coin-in) in the market and the number of slot machines in
the market, compared to the Riviera volume and number of machines.) We believe
there were several factors impacting second quarter results:
o First and foremost is the continued strength of our marketing
plan. We believe we are efficiently spending our Marketing
Dollars as evidenced by the fact that, even though we are
aggressively growing revenues and market share, our marketing
expense as a percentage of revenues remains the same.
o Our marketing department placed special emphasis on building
midweek business during the second quarter, which resulted in
a 21% gain in slot volume during this traditionally softer
period of the week.
o We continue to modernize our slot product. Currently about 36%
of our slot equipment is equipped with ticket-in, ticket-out
technology. We expect to be about 50% ticket-in, ticket-out by
year end.
It is encouraging to note that gaming revenues in the Black
Hawk/Central City Market grew by 1.6 % during the second quarter. Black Hawk
itself grew by 2.1%. We expect modest growth to continue during the balance of
the year as the local economy continues to improve.
The only negative we see over the remainder of this year is scheduled
to occur in September and October when the Colorado Department of Transportation
will be closing a segment of HWY 119 for about four weeks for bridge repairs.
HWY 119 is a major route into the Black Hawk area.
A study commissioned by the Black Hawk Casino Association estimated
that the closure of HWY 119 for four weeks would result in about a 9% decline in
visitor volume to the Black Hawk market during this period. We believe we can
overcome most, if not all, of the projected decline in September business with
15
increases that we are already experienced in July and anticipate seeing in
August.
We are taking a pro-active stance by providing maps and advising our
customers of alternative routes to take during this period in our mailings. We
are also planning to offer special incentives to attract additional customer
visits to help mitigate the negative impact of the road closure.
Income From Operations
Income from operations in Black Hawk, Colorado increased $762,000, or
37.5%, from $2.0 million in 2003 to $2.8 million in 2004 due to the $1.1 million
increase in net revenues. Our operating margins increased from 16.5% in the
second quarter of 2003 to 20.9% in the second quarter of 2004. We were able to
bring over 70% of our increase in revenues to Income From Operations.
Consolidated Operations
Other Income (Expense)
Corporate expenses increased $99,000 or 7.6% from $1.3 million in 2003
to $1.4 million in 2004 as a result of additional professional fees and costs
associated with our plans for a Missouri project. Interest expense decreased
$141,000, or 2.0%, as a result of decreased interest on equipment financing.
Net Income (Loss)
Net income increased $3.3 million from a net loss of $2.4 million in
2003 to net income of $829,000 in 2004 due primarily to increased net revenues
and $800,000 less depreciation in the quarter.
Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003
The following table sets forth, for the periods indicated, certain operating
data for Riviera Las Vegas and Riviera Black Hawk. Operating Income includes
intercompany management fees.
Six Months Ended % Incr/
Incr/ Incr/
(In Thousands) 2004 2003 (Decr) (Decr)
---- ---- ------ ------
Net revenues:
Riviera Las Vegas $76,760 $71,762 $4,998 7.0%
Riviera Black Hawk 26,494 24,057 2,437 10.1%
------ ------ -----
Total Net Revenues $103,254 $95,819 $7,435 7.8%
======== ======= ======
Income (Loss) from Operations
Riviera Las Vegas $11,843 $7,953 $3,890 48.9%
Riviera Black Hawk 5,606 3,604 2,002 55.5%
----- ----- -----
Property Income from Operations 17,449 11,557 5,892 51.0%
Corporate Expenses (2,512) (2,416) (96) -4.0%
------- ------- ----
Total Income from Operations $14,937 $9,141 $5,796 63.4%
======= ====== ======
16
Operating Margins
Riviera Las Vegas 15.4% 11.1% 4.3%
Riviera Black Hawk 21.2% 15.0% 6.2%
Consolidated 14.5% 9.5% 5.0%
Riviera Las Vegas
Revenues
Net revenues increased approximately $5.0 million, or 7.0%, from $71.8
million in 2003 to $76.8 million in 2004 due primarily to increased revenues in
all areas.
Casino revenues increased by approximately $436,000, or 1.4%, from
$30.7 million in 2003 to $31.1 million during 2004 primarily due to a increase
of $538,000 or 8.8% in table game revenue. The increase in table games drop
(volume) accounted for $118,000 of the increase, while the increase in hold
percentage of 1.2% represented $427,000 of the increased revenues.
Room revenue increased $1.8 million, or 7.9%, from $22.5 million in
2003 to $24.2 million in 2004 due to an increase in convention room nights and
an overall increase in average room rate. Hotel occupancy increased to 95.0%, up
from last year's 92.7% and average daily room rate increased $3.64 to $64.77 in
2004 from $61.13 in 2003. Rev Par (revenue per available room) increased 8.7% or
$4.92 to $61.59. We believe airline seat capacity increases and the general
improvement of the economy are driving these increases.
Food and beverage revenues increased $1.5 million, or 11%, from $13.6
million in 2003 to $15.1 million in 2004 due to increased average check in all
our outlets.
Entertainment revenues increased by approximately $1.4 million, or
16.4%, from $8.8 million during 2003 to $10.2 million during 2004 due primarily
to a 27% increase in ticket sales. The increased traffic flow also enhanced
casino revenues.
Promotional allowances increased by approximately $307,000 or 4.1%,
from $7.5 million during 2003 to $7.8 million during 2004 primarily due to
increases in comps related to higher casino and convention activity.
Costs and Expenses
Casino expenses decreased $883,000 or 5.2% from $17.0 million in 2003
to $16.1 million in 2004 due to reduced casino marketing costs of approximately
$500,000 and payroll reductions of approximately $400,000.
Rooms departmental costs and expenses increased by 5.5% as occupancy
increased, requiring more variable labor costs. In addition, wage scale
increases under the renewed union contracts contributed to the increased costs.
Food and beverage costs increased $1.2 million, or 11.7%, as a result
of increased covers in all outlets.
Entertainment costs increased $983,000, or 17.0%, as a result of
increased show ticket sales.
17
Income from Operations
Income from operations in Las Vegas increased $3.9 million, or 48.9%,
from $8.0 million in 2003 to $11.8 million in 2004 based on increased net
revenues of $5.0 million and a decrease in depreciation of approximately $1.5
million due to assets becoming fully depreciated.
Riviera Black Hawk
Revenues
Net revenues increased by approximately $2.4 million, or 10.1%, from
$24.1 million in 2003 to $26.5 million in 2004. Casino revenues increased $2.7
million, or 12.0%, from $22.8 million in 2003 and $25.5 million in 2004.
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 $2.0 million,
or 55.5%, from $3.6 million in 2003 to $5.6 million in 2004 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 decreased $182,000 due to reduced interest
associated with equipment financing. Interest expense on the $215 million 11%
Senior Secured Notes issued by the Company (the "11% Notes") of $11.8 million
plus related amortization of loan fees and other financing costs totaled
approximately $13.0 million in 2004. Interest expense on equipment and other
financing totaled approximately $578,000 for the first six months of 2004.
Interest income decreased $14,000 from $24,000 in 2003 to $10,000 in
2004 as a result of the lower cash balances available for investment and low
interest rates.
Net Income (Loss)
Net income increased $6.0 million from a net loss of $4.6 million in
2003 to net income of $1.4 million in 2004 due primarily to the $5.8 million
increase in operating income and the $182,000 decrease in net interest costs.
Liquidity and Capital Resources
At June 30, 2004, the Company had cash and cash equivalents of $19.7 million.
The cash and cash equivalents increased $335,000 during the first six months of
2004, as a result of $10.0 million of cash provided by operations, $5.7 million
of cash outflow for investing activities and $4.0 million outflow for financing
18
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 2003 annual consolidated financial statements, Other
Long-Term Liabilities included in Form 10-K as filed with the Securities and
Exchange Commission (the "SEC"). The Company continues to pay 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 $5.7 million for this purpose in a short period.
Management believes that cash flow from operations, combined with the $19.7
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 the balance of 2004 for both the Las Vegas
($3.8 million) and Black Hawk ($1.5 million) properties and provide initial
investments in the potential project in Missouri.
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 Bondholder 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%
19
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 June 30, 2004, the Company believes that it is in compliance with the
covenants of the 11% Notes and the $30 million revolving credit facility.
Las Vegas Land Valuation
Our location on the Las Vegas Strip will continue to see more foot traffic as
the Hilton Grand Vacations Club time shares, Wynn Las Vegas and recently
announced luxury condominium projects draw more people to the north end. Riviera
Las Vegas is located on 26 acres of prime real estate on the north end of the
Las Vegas Strip. Recent land transactions on the Las Vegas Strip are indicators
that the land in our financial statements has a fair market value well in excess
of its $21 million recorded book value.
Recently Issued Accounting Standards
The Financial Accounting Standards Board ("FASB") has issued a proposed
standard that will impact the accounting for share-based payments. The standard,
which is proposed to be effective for fiscal years beginning after December 15,
2004, would require that we recognize an expense for our share-based payments,
including stock options. We are currently evaluating the provisions of this
proposed standard to determine its impact on our future financial statements.
In December 2003, the FASB issued Interpretation No. 46 ("FIN 46R"),
Consolidation of Variable Interest Entities (revised December 2003), clarifying
Interpretation No. 46 and exempting certain entities from the provisions of FIN
46R. Generally, application of FIN 46R is required in financial statements of
public entities that have interests in certain structures, commonly referred to
as special-purpose entities for periods ending after December 15, 2003, and, for
other types of variable interest entities for periods ending after March 15,
2004. FIN 46R addresses the consolidation by business enterprises of variable
interest entities under either of the following circumstances: (1) the entity
does not have sufficient equity investment at risk to permit it to finance its
activities without additional subordinated financial support, or (2) the
reporting company will hold a significant variable interest in, or have
significant involvement with, such existing variable interest entity. The
adoption of FIN 46R did not have a material impact on the Company's financial
position or results of operations.
About Riviera Holdings
Riviera Holdings Corporation owns and operates the Riviera Hotel and
Casino on the Las Vegas Strip and the Riviera Black Hawk Casino in Black Hawk,
Colorado. Riviera is traded on the American Stock Exchange ("AMEX") under the
symbol RIV. Informal discussions with AMEX staff indicate that the Company may
20
meet the standards of AMEX policy Sec. 1003(a). According to that policy, AMEX
will not normally consider suspending dealings in or delisting the securities of
a company, which is below the earnings or net worth standards if the Company is
in compliance with the following:
(1) Total value of market capitalization of at least $50,000,000; or total
assets and revenue of $50,000,000 each in its last fiscal year, or in
two of its last three fiscal years; and
(2) The company has at least 1,000,000 shares publicly held, a market value
of publicly held shares of at least $15,000,000 and at least 400 round
lot shareholders.
Critical Accounting Policies
A description of our critical accounting policies and estimates can be found in
Item 7 of our 2003 Form 10-K and for a more extensive discussion of our
accounting policies, see Note 1, Summary of Significant Accounting Policies, in
the Notes to the Consolidated Financial Statements in our 2003 Form 10-K filed
with the SEC on March 16, 2004.
Forward-Looking Statements
This report includes "forward-looking statements," as defined in Section 21E of
the Securities Exchange Act of 1934, as amended (the Exchange Act). Statements
in this report regarding future events or conditions, including statements
regarding industry prospects and our expected financial position and business
and financing plans, are forward-looking statements. Although we believe that
the expectations reflected in such forward-looking statements are reasonable, we
can give no assurance that such expectations will prove to be correct. Important
factors that could cause actual results to differ materially from our
expectations are disclosed in this report as well as in our most recent annual
report on Form 10-K, and include our substantial leverage, the risks associated
with the possible expansion of our business, as well as factors that affect the
gaming industry generally. We caution you not to place undue reliance on these
forward-looking statements, which speak only as of the date of this report. We
undertake 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;
21
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;
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
future acts of terrorism or any other destabilizing events in
the United States or elsewhere.
22
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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 June 30, 2004, we had $217.7 million in borrowings. The borrowings include
$215 million in 11% Notes maturing in 2010 and capital leases maturing at
various dates through 2005. Interest on the 11% Notes is at a fixed rate of 11%.
The equipment loans and capital leases have interest rates ranging from 5.4% to
13.5%. Our borrowings also include $705,000 in a special improvement district
bond offering with the City of Black Hawk. Our share of the debt on the SID
bonds of $1.2 million which 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) 2004 2005 2006 2007 2008 Thereafter Total at 6/30/04
Long Term Debt
Including Current
Portion
Equipment loans and
capital leases Las Vegas $454 $ 740 $ 645 $ 685 $ 109 $ 2,633 $2,633
Average interest rate 7.2% 6.4% 6.0% 6.0% 6.0%
11% Senior Secured Notes $215,000 $215,000 $235,425
Less unamortized Discount $(2,410) $(2,410) $(2,410)
Average interest rate 11.8%
Capital leases
Black Hawk, Colorado $1,160 $ 658 $ 1,818 $1,818
Average interest rate 10.8% 10.8%
Special Improvement
District Bonds
Black Hawk, Colorado $ 54 $ 116 $ 124 $ 129 $ 137 $ 145 $ 705 $705
Average interest rate 5.5% 5.5% 5.5% 5.5% 5.5% 5.5%
Total all long-term debt,
including current portion $217,746 $238,171
Other Long Term
Liabilities
CEO pension plan
obligation $500 $1,000 $1,000 $1,000 $1,000 $1,166 $5,666 $5,666
11.8% 11.8% 11.8% 11.8% 11.8% 11.8%
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Item 4. Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer have evaluated the
effectiveness of our disclosure controls and procedures (as such term is defined
in Rules 13a-14(c) and 15d-14(c) under the Exchange Act) as of the end of the
period covered by this quarterly report. Based on such evaluation, those
officers have concluded that, as of the end of the period, our disclosure
controls and procedures are effective.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a party to several routine lawsuits, either as plaintiff
or as 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 June 9, 2004,
stockholders elected the Company's board of directors. 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:
Against or Abstentions or
For Withheld Broker Nonvotes
William L. Westerman 2,574,843 528,403 -
Robert R. Barengo 2,575,248 527,998 -
Jeffrey A. Silver 2,574,677 528,569 -
Paul A. Harvey 3,070,119 33,127 -
Vincent L. Divito 3,070,119 33,127 -
James N. Land, Jr. 3,070,311 32,935 -
Item 6. Exhibits and Reports on Form 8-K.
(a) See list of exhibits on page 26.
(b) During the second quarter of 2004, the Company filed reports on
Form 8-K on April 15, April 20, and May 17, 2004. The Form 8-K filings on April
15 and May 17, 2004 reported Items 5 and 7. There were two Form 8-K filings on
April 20, 2004. One of them reported Items Nos. 7, 9 and 12 and contained
summary financial information for the Company's first quarter. The other one
reported Item 5.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RIVIERA HOLDINGS CORPORATION
By: /s/ William L. Westerman
William L. Westerman
Chairman of the Board and
Chief Executive Officer
By: /s/ Duane Krohn
Duane Krohn
Treasurer and
Chief Financial Officer
Date: August 9, 2004
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Exhibits
Exhibits:
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 Exchange Act Rule 13a-14(b) and 18 U.S.C. 1350.
32.2 Certification of the Principal Financial Officer of the Registrant
pursuant to Exchange Act Rule 13a-14(b) and 18 U.S.C. 1350.
26