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, 2002
------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------------------- ----------------------
Commission file number 000-21430
-----------
Riviera Holdings Corporation
-------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Nevada 88-0296885
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
2901 Las Vegas Boulevard South, Las Vegas, Nevada 89109
-----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code (702) 794-9527
-----------------------------------------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
------- -----
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE LAST FIVE YEARS
Indicate by check mark whether the Registrant has filed all
documentation and reports required to be filed by Section 12, 13, or 15(d) of
the Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court.
Yes No
---- -------
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
As of July 31 , 2002, there were 3,575,372 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 June 30, 2002
and December 31, 2001 3
Condensed Consolidated Statements of Operations (Unaudited) for the
Three and Six Months ended June 30, 2002 and 2001 4
Condensed Consolidated Statements of Cash Flows (Unaudited) for the
Three and Six Months ended June 30, 2002 and 2001 5
Notes to Condensed Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk 23
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 26
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 June 30,
2002, and the related condensed consolidated statements of operations and of
cash flows for the three and six months ended June 30, 2002 and 2001. These
financial statements are the responsibility of the Company's management.
We conducted our reviews, in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and of making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of
Riviera Holdings Corporation as of December 31, 2001, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the year then ended (not presented herein); and in our report dated February 12,
2002, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 2001, is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
DELOITTE & TOUCHE LLP
July 30, 2002
Las Vegas, Nevada
2
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands, except share amounts) June 30 December 31
-----------------------------------------------------------------------------------------------------
2002 2001
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 21,974 $ 46,606
Accounts receivable, net 2,921 3,528
Inventories 1,807 2,253
Prepaid expenses and other assets 3,493 3,083
US Treasury bills held to retire bonds 226,632 0
------------- -------------
Total current assets 256,827 55,470
PROPERTY AND EQUIPMENT, Net 195,060 200,531
OTHER ASSETS, Net 18,638 6,728
DEFERRED INCOME TAXES 5,089 5,089
------------- -------------
TOTAL $ 475,614 $ 267,818
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 3,297 $ 3,151
Accounts payable 10,517 8,200
Accrued interest 343 8,084
Accrued expenses 13,040 14,740
Bonds (including accrued interest payable of
$7,434) to be retired by US Treasury bills 217,374 0
------------- -------------
Total current liabilities 244,571 34,175
------------- -------------
OTHER LONG-TERM LIABILITIES 7,666 7,391
------------- -------------
LONG-TERM DEBT, Net of current portion 218,234 217,288
------------- -------------
SHAREHOLDERS' EQUITY:
Common stock ($.001 par value; 20,000,000 shares
authorized; 5,106,776 shares issued at December 31, 2001
and June 30, 2002, respectively) 5 5
Additional paid-in capital 13,486 13,485
Treasury stock (1,674,144 shares and 1,653,594 shares at
December 31, 2001 and June 30, 2002, respectively) (11,146) (11,246)
Retained earnings 2,798 6,720
------------- -------------
Total stockholders' equity 5,143 8,964
------------- -------------
TOTAL $ 475,614 $ 267,818
============= =============
See notes to condensed consolidated financial statements
3
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001 Three Months Ended Six Months Ended
(In thousands, except per share amounts) June 30, June 30,
--------------------------------------------------------------------------------------------------------------------------
2002 2001 2002 2001
REVENUES:
Casino 28,863 31,045 54,926 58,314
Rooms 10,667 11,736 21,386 24,471
Food and beverage 8,519 8,493 16,378 16,410
Entertainment 4,372 5,864 8,580 11,763
Other 2,200 2,500 4,251 4,928
------------ ------------ ------------- -------------
Total revenues 54,621 59,638 105,521 115,886
Less promotional allowances 4,767 4,810 9,169 8,858
------------ ------------ ------------- -------------
Net revenues 49,854 54,828 96,352 107,028
------------ ------------ ------------- -------------
COSTS AND EXPENSES:
Direct costs and expenses of operating departments:
Casino 14,814 16,790 29,186 32,111
Rooms 6,272 6,242 11,726 12,228
Food and beverage 5,545 5,690 10,635 11,002
Entertainment 2,887 4,126 5,674 8,386
Other 741 854 1,421 1,609
Other operating expenses:
General and administrative 9,429 10,557 19,363 21,420
Depreciation and amortization 4,455 4,287 8,949 8,546
------------ ------------ ------------- -------------
Total costs and expenses 44,143 48,546 86,954 95,302
------------ ------------ ------------- -------------
INCOME FROM OPERATIONS 5,711 6,282 9,398 11,726
------------ ------------ ------------- -------------
OTHER (EXPENSE) INCOME:
Interest expense (6,568) (6,669) (13,169) (13,453)
Interest expense - bonds held for retirement (364) (364)
Interest income 137 290 229 675
Interest capitalized 0 0
Other, net (4) (27) (16) (31)
------------ ------------ ------------- -------------
Total other expense (6,799) (6,406) (13,320) (12,809)
------------ ------------ ------------- -------------
INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME TAXES (1,088) (124) (3,922) (1,083)
(BENEFIT) FOR INCOME TAXES 0 (54) 0 (355)
------------ ------------ ------------- -------------
NET INCOME (LOSS) $ (1,088) $ (70) $ (3,922) $ (728)
============ ============ ============= =============
EARNINGS (LOSS) PER SHARE DATA:
Earnings (loss) per share:
Basic & Diluted $ (0.32) $ (0.02) $ (1.14) $ (0.20)
------------ ------------ ------------- -------------
Weighted-average common and common equivalent shares 3,452 3,668 3,444 3,670
------------ ------------ ------------- -------------
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
June 30, June 30,
2002 2001 2002 2001
------------- -------------- ------------ -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) ($1,088) ($70) ($3,922) ($728)
Adjustments to reconcile net income(loss) to net cash (used in)
and provided by operating activities:
Depreciation and amortization 4,455 4,287 8,949 8,546
Provision for bad debts 22 57 (345) 139
Provision for gaming discounts (48) (92) (48) (21)
Interest expense 6,932 6,669 13,533 13,453
Interest paid (3,172) (2,674) (12,123) (11,796)
Changes in operating assets and liabilities:
Increase in interest receivable on US T-Bills purchased to
retire bonds (57) 0 (57) 0
Decrease (increase) in accounts receivable 966 2,499 1,000 1,802
Decrease (increase) in inventories (11) 537 445 795
Decrease (increase) in prepaid expenses
and other assets (204) (88) (410) 304
Increase (decrease) in accounts payable 1,545 593 1,400 (48)
Increase (decrease) in accrued liabilities (177) (1,387) (969) (4,820)
Increase (decrease) in deferred income taxes 0 (55) 0 (355)
Increase in deferred compensation plan liability 105 494 105 494
Increase (decrease) in non-qualified pension plan obligation
to CEO upon retirement (125) (283) (250) (250)
------------- -------------- ------------ -------------
Net cash provided by operating activities 9,143 10,487 7,308 7,515
------------- -------------- ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - Las Vegas, Nevada (1,337) (2,451) (2,268) (4,595)
Capital expenditures - Black Hawk, Colorado (749) (1,022) (1,208) (1,594)
Decrease (increase) in other assets (622) (196) (1,737) (15)
------------- -------------- ------------ -------------
Net cash provided by (used in) investing activities (2,708) (3,669) (5,213) (6,204)
------------- -------------- ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 211,781 0 211,781 0
US Treasury Bills purchased to retire bonds (226,576) 0 (226,576) 0
Increase in deferred loan fees (10,381) (10,381)
Payments on long-term borrowings (854) (690) (1,651) (1,370)
Purchase of treasury stock 0 0 0 (49)
Increase in paid-in capital 0 41 0 41
Purchase of deferred comp treasury stock 0 (193) 0 (193)
Purchase of Black Hawk 13% 1st Mortgage Notes 0 0 0 (2,500)
Issuance of restricted stock 25 91 100 116
------------- -------------- ------------ -------------
Net cash (used in) provided by financing activities (26,005) (751) (26,727) (3,955)
------------- -------------- ------------ -------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (19,570) 6,067 (24,632) (2,644)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $ 41,544 $ 43,463 $ 46,606 $ 52,174
------------- -------------- ------------ -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 21,974 $ 49,530 $ 21,974 $ 49,530
============= ============== ============ =============
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
Property acquired with debt and accounts payable $65 $232 $65 $232
See notes to condensed consolidated financial statements
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Riviera Holdings Corporation and its wholly owned subsidiary, Riviera Operating
Corporation ("ROC") (together, the "Company"), were incorporated on January 27,
1993, in order to acquire all assets and liabilities of Riviera, Inc.
Casino-Hotel Division on June 30, 1993, pursuant to a plan of reorganization.
In August 1995, Riviera Gaming Management, Inc. ("RGM") incorporated in the
State of Nevada as a wholly owned subsidiary of ROC for the purpose of obtaining
management contracts in Nevada and other jurisdictions. In March 1997 Riviera
Gaming Management of Colorado was incorporated in the State of Colorado, and in
August 1997 Riviera Black Hawk, Inc. ("RBH") was incorporated in the State of
Colorado for the purpose of developing a casino in Black Hawk, Colorado which
opened February 4, 2000.
On March 15, 2002 Riviera Gaming Management of New Mexico, Inc. was incorporated
in the State of New Mexico. 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
Riviera Black Hawk, Inc. ("RBH"), a wholly owned subsidiary of ROC. Riviera
Gaming Management of Colorado, Inc. is a wholly owned subsidiary of RGM, and
manages the casino.
Casino operations are subject to extensive regulation in the states of Nevada
and Colorado and various state and local regulatory agencies. Management
believes that the Company's procedures for supervising casino operations,
recording casino and other revenues, and granting credit comply, in all material
respects, with the applicable regulations.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, its
wholly owned subsidiary ROC and various indirect wholly owned subsidiaries. All
material intercompany accounts and transactions have been eliminated.
The financial information at June 30, 2002 and for the three and six months
ended June 30, 2002 and 2001 is unaudited. However, such information reflects
all adjustments (consisting solely of normal and recurring adjustments) that
are, in the opinion of management, necessary for a fair presentation of the
6
financial position, results of operations, and cash flows for the interim
periods. The results of operations for the six months ended June 30, 2002 and
2001 are not necessarily indicative of the results that will be achieved for the
entire year.
These financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto for the year ended December
31, 2001, included in the Company's Annual Report on Form 10-K.
Interest Expense on Bonds Held for Retirement
The Company reports interest expense separately for bonds to be retired when
funds have been segregated for that specific purpose.
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, 2002 and 2001 since the Company incurred a net loss. The number of
potentially dilutive options was 285,500 and 113,000 for the three and six
months ended June 30, 2002 and 283,500 for the three and six months ended June
30, 2001.
Income Taxes
The cash flow projections used by the Company in the application of SFAS 109 for
the realization of deferred tax assets indicate that a valuation allowance
should be recorded on the tax benefit earned by the Company in 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.
7
Recently Issued Accounting Pronouncements
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. SFAS No. 143 applies to all entities. It
applies to legal obligations associated with the retirement of long-lived assets
that result from the acquisition, construction, development and (or) the normal
operation of a long-lived asset, except for certain obligations of lessees. SFAS
No. 143 is effective for financial statements issued for fiscal years beginning
after June 15, 2002. The Company is currently assessing, but has not yet
determined the impact of SFAS No. 143 on its financial position and results of
operations.
In April 2002, the FASB issued Statement of Financial Accounting Standard No.
145, "Recission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections" ("SFAS No. 145"). SFAS No. 145
requires that gains and losses from extinguishment of debt be classified as
extraordinary items only if they meet the criteria in Accounting Principles
Board Opinion No. 30 ("Opinion No. 30"). Applying the provisions of Opinion No.
30 will distinguish transactions that are part of an entity's recurring
operations from those that are unusual and infrequent that meet criteria for
classification as an extraordinary item. SFAS No. 145 is effective for the
Company beginning January 1, 2003, but the Company may adopt the provisions of
SFAS No. 145 prior to this date. The effect on our consolidated financial
position and results of operations of the adoption of SFAS No. 145 will be that
we recognize and report bond retirement costs as an operating expense.
In June 2002, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard No. 146, Accounting for Costs Associated with
Exit or Disposal Activities ("SFAS No. 146"). SFAS No.146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force Issue No. 94-3, Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). SFAS No. 146 requires
that a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. A fundamental conclusion reached by
the FASB in this statement is that an entity's commitment to a plan, by itself,
does not create a present obligation to others that meets the definition of a
liability. SFAS No. 146 also establishes that fair value is the objective for
initial measurement of the liability. The provisions of this statement are
effective for exit or disposal activities that are initiated after December 31,
2002, with early application encouraged. The Company is currently assessing but
has not yet determined the impact of SFAS No. 146 on its financial position and
results of operations.
Recently Adopted Accounting Pronouncements
In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets, which is effective January 1, 2002. SFAS No. 142 requires, among other
things, the discontinuance of goodwill amortization. In addition, SFAS No. 142
includes provisions for the reclassification of certain existing recognized
intangibles as goodwill, reassessment of the useful lives of existing recognized
intangibles, the identification of reporting units for purposes of assessing
potential future impairments of goodwill. SFAS No. 142 also requires the Company
to complete a transitional goodwill impairment test six months from the date of
adoption. As of June 30, 2002 the Company has determined that it has no
intangible assets or goodwill recorded on its balance sheet, and accordingly the
adoption of SFAS No. 142 had no impact on its financial position or results of
operations.
8
In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets and
supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, and the accounting and
reporting provisions of Accounting Principles Bulletin Opinion No. 30, Reporting
the Results of Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions, for the disposal of a segment of a business (as previously defined
in that Opinion). SFAS No. 144 also amends Accounting Research Bulletin No. 51,
Consolidated Financial Statements, to eliminate the exception to consolidation
for a subsidiary for which control is likely to be temporary. The provisions of
SFAS No. 144 are effective for financial statements issued for fiscal years
beginning after December 15, 2001, and interim periods within those fiscal
years. The Company has determined that the implementation of SFAS No. 144 had no
effect on its financial position and results of operations upon implementation.
2. LONG TERM DEBT AND COMMITMENTS
On June 26, 2002, the Company issued 11% Senior Secured Notes ("the 11% Notes")
with a principal amount of $215 million. The 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
June 30, 2002 and are being amortized to interest expense over the life of the
indebtedness.
On August 13, 1997, the Company issued 10% First Mortgage Notes ("the 10%
Notes") with a principal amount of $175 million. The Notes were issued at a
discount in the amount of $2.2 million. The discount was being amortized over
the life of the 10% Notes on a straight-line basis. The Notes were defeased on
June 26, 2002 as part of our new $215 million dollar Senior Secured Note
offering and will be redeemed on August 15, 2002.
On June 3, 1999, Riviera Black Hawk, Inc. ("RBH"), a wholly owned subsidiary,
closed a $45 million private placement of 13% First Mortgage Notes, ("the 13%
Notes"). The net proceeds of the placement were used to fund the completion of
RBH's casino project in Black Hawk, Colorado. During 2000 and 2001 the Company
repurchased approximately $10 million of these bonds. The Notes were defeased on
June 26, 2002 as part of our new $215 million dollar Senior Secured Note
offering and were redeemed on July 26, 2002.
3. LEGAL PROCEEDINGS
The Company is a party to several routine lawsuits, both as plaintiff and as
defendant, arising from the normal operations of a hotel. The Company does not
believe that the outcome of such litigation, in the aggregate, will have a
material adverse effect on its financial position or results of its operations.
9
4. STOCK REPURCHASES
There were no treasury stock purchases for the second quarter of 2002 or 2001.
5. ISSUANCE OF RESTRICTED STOCK
There were 4,771 shares of Treasury Stock issued at an average cost of $4.75
under the Restricted Stock Plan at an average market value of $5,24 per share,
for executive compensation in the second quarter of 2002. The stock has
restrictions as to when it can be traded or sold by its holder, primarily the
shares cannot be sold until the executive terminates his employment with the
Company.
6. GUARANTOR INFORMATION
The Company's 11.0% Senior Secured Notes are guaranteed by all of the Company's
wholly owned existing significant restricted subsidiaries. These guaranties are
full, unconditional, and joint and several.
7. SUBSEQUENT EVENT
Effective July 26, 2002 the Company entered in to 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.
No advances on this revolver have been requested. The Company incurred loan fees
pf approximately $1.5 million which are being expensed over the life of the
agreement.
In July 2002, the Company received an income tax refund of approximately
$1.9 million.
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. All intersegment revenues have been eliminated.
Three months ended Six months ended
June 30, June 30,
(Dollars in thousands) 2002 2001 2002 2001
Net revenues:
Riviera Las Vegas $37,227 $42,838 $71,936 $84,068
Riviera Black Hawk 12,627 11,990 24,416 22,960
------------ -------------- -------------- -------------
Total net revenues $49,854 $ 54,828 $ 96,352 $ 107,028
============ ============== ============== =============
Income (loss) from operations:
Riviera Las Vegas $3,530 $4,662 $5,789 $8,770
Riviera Black Hawk 2,181 1,620 3,609 2,956
------------ -------------- -------------- -------------
Total income from operations $5,711 $6,282 $9,398 $11,726
============ ============== ============== =============
EBITDA (1):
Riviera Las Vegas $6,417 $7,750 $11,652 $14,910
Riviera Black Hawk 3,749 2,819 6,695 5,362
------------ -------------- -------------- -------------
Total EBITDA $10,166 $10,569 $18,347 $20,272
============ ============== ============== =============
EBITDA margin:
Riviera Las Vegas 17.2% 18.1% 16.2% 17.7%
Riviera Black Hawk 29.7% 23.5% 27.4% 23.4%
Total EBITDA 20.4% 19.3% 19.0% 18.9%
(1) EBITDA consists of earnings before interest, income taxes, depreciation,
amortization, and other, net. While EBITDA should not be construed as a
substitute for operating income or a better indicator of liquidity than cash
flow from operating activities, which are determined in accordance with
generally accepted accounting principles ("GAAP"), it is included herein to
provide additional information with respect to the ability of the Company to
meet its future debt service, capital expenditure and working capital
requirements. Although EBITDA is not necessarily a measure of the Company's
ability to fund its cash needs, management believes that certain investors find
EBITDA to be a useful tool for measuring the ability of the Company to service
its debt. EBITDA margin is EBITDA as a percent of net revenues. The Company's
definition of EBITDA may not be comparable to other companies' definitions.
11
June 30, December 31,
2002 2001
Assets (2): (in thousands)
Riviera Las Vegas $128,619 $ 132,982
Riviera Black Hawk 66,441 67,549
------------ --------------
Total assets $195,060 $ 200,531
============ ==============
(2)Asset represent property and equipment and intangible assets, net of
accumulated depreciation and amortization.
RIVIERA LAS VEGAS REVENUES
The primary marketing of the Riviera Las Vegas is not aimed toward residents of
Las Vegas, Nevada. Significantly all revenues derived from patrons visiting the
Riviera Las Vegas are from other parts of the United States and other countries.
Revenues for Riviera Las Vegas from a foreign country or region may exceed 10
percent of all reported segment revenues; however, the Riviera Las Vegas cannot
identify such information, based upon the nature of gaming operations.
RIVIERA BLACK HAWK REVENUES
The casino in Black Hawk, Colorado, primarily serves the residents of
metropolitan Denver, Colorado. As such, management believes that significantly
all revenues are derived from within 250 miles of that geographic area.
MANAGEMENT AGREEMENTS
RBH has entered into a management agreement (the RBH Management Agreement)
with Riviera Gaming Management of Colorado, Inc. (the Manager), a wholly-owned
subsidiary of Riviera Holdings Corporation, which, in exchange for a fee,
manages RBH. The management fee consists of a revenue fee and a performance fee.
The revenue fee is based on 1 percent of net revenues (gross revenue less
complimentaries) and is paid quarterly in arrears. The performance fee is based
on the following percentages of EBITDA, whose components are derived from
amounts calculated using. generally accepted accounting principles: (1) 10
percent of EBITDA from $5 million to $10 million, (2) 15 percent of EBITDA from
$10 million to $15 million, and (3) 20 percent of EBITDA in excess of $15
million. The performance fee is based on the preceding quarterly installments
subject to year-end adjustment. The management fee began of February 4, 2000,
the date of the opening of the Riviera Black Hawk Casino. If there is any
default under the RBH Management Agreement, the Manager will not be entitled to
receive management fees but will still be entitled to intercompany service fees.
At June 30, 2002, RBH had accrued but not paid, and the Manager had recognized
management fees of $2.7 million of which $411,000 are for the three months ended
June 30, 2002 and $278,000 are for the three months ended June 30, 2001. These
management fees are eliminated in consolidation.
12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001
The following table sets forth, for the periods indicated, certain operating
data for the Riviera Las Vegas and Riviera Black Hawk. Intercompany management
fees have been eliminated from EBITDA from properties for the purpose of this
table. Operating Income includes intercompany management fees.
Second Quarter Incr/ % Incr/
(In Thousands) 2002 2001 (Decr) (Decr)
---- ---- ------ ------
Net revenues:
Riviera Las Vegas $37,227 $42,838 ($5,611) -13.1%
Riviera Black Hawk 12,627 11,990 637 5.3%
------ ------ ---
Total Net Revenues $49,854 $54,828 ($4,974) -9.1%
======= ======= ======== =====
Operating Income (Loss)
Riviera Las Vegas $3,530 $4,662 ($1,132) -24.3%
Riviera Black Hawk 2,181 1,620 561 34.6%
----- ----- ---
Total Operating Income $5,711 $6,282 ($571) -9.1%
====== ====== ====== =====
EBITDA:(1)
Riviera Las Vegas $6,417 $7,750 ($1,333) -17.2%
Riviera Black Hawk 3,749 2,819 930 33.0%
----- ----- ---
Total EBITDA $ 10,166 $10,569 ($403) -3.8%
======== ======= ====== =====
EBITDA margin
Riviera Las Vegas 17.2% 18.1% -0.9%
Riviera Black Hawk 29.7% 23.5% 6.2%
Total EBITDA 20.4% 19.3% 1.1%
(1) EBITDA consists of earnings before interest, income taxes, depreciation,
amortization, and other, net. While EBITDA should not be construed as a
substitute for operating income or a better indicator of liquidity than cash
flow from operating activities, which are determined in accordance with
generally accepted accounting principles ("GAAP"), it is included herein to
provide additional information with respect to the ability of the Company
to meet its future debt service, capital expenditure and working capital
requirements. Although EBITDA is not necessarily a measure of the Company's
ability to fund its cash needs, management believes that certain investors find
EBITDA to be a useful tool for measuring the ability of the Company to service
its debt. EBITDA margin is EBITDA as a percent of net revenues. The Company's
definition of EBITDA may not be comparable to other companies' definitions.
13
Riviera Las Vegas
Revenues
Net revenues decreased by approximately $5.6 million, or
13.1%, from $42.8 million in 2001 to $37.2 million in 2002 due primarily to
decreased casino, rooms and entertainment revenues. Casino revenues decreased by
approximately $2.6 million, or 13.1%, from $19.6 million during 2001 to $17.0
million during 2002 due to a 7.7% decrease in slot machine revenue. Room revenue
decreased $1.1 million, or 9.1%, from $11.7 million in 2001 to $10.6 million in
2002 due to the continued effects of a slower economy and the events of
September 11, 2001. Hotel occupancy fell 2.8% from 98.5% in 2001 to 95.8% in
2002 and average daily room rate fell $5.32 from $62.02 in 2001 to $56.70 in
2002. The Company has been able to bring occupancy back to normal levels,
however, the average daily rate remained 8.6% below historical levels in June
2001. Entertainment revenues decreased by approximately $1.5 million, or 26.4%,
from $5.8 million during 2001 to $4.3 million during 2002 due primarily to a
decrease in Splash and Crazy Girls revenues as result of competition from the
openings of new shows on the Las Vegas Strip and a slower economy. Other
revenues decreased by approximately $402,000, or 16.9%, from $2.4 million during
2001 to $2.0 million during 2002 due primarily to decreased gift shop and
telephone revenues. Promotional allowances decreased by approximately $141,000,
or 3.7%, from $3.8 million during 2001 to $3.7 million during 2002 primarily due
to decreases in comps related to lower casino activity.
Income from Operations
Income from operations in Las Vegas declined $1.1 million,
or 24.3%, from $4.6 million in 2001 to $3.5 million in 2002 due to the 13.1%
decrease in net revenues which was partially offset by an 11.7% decrease in
expenses. Rooms department fixed expenses did not decline in proportion to
revenues which accounted for the decline in income from operations.
EBITDA
Riviera Las Vegas EBITDA, as defined, decreased by approximately
$1.3 million, or 17.2%, from $7.7 million in 2001 to $6.4 million in 2002 for
reasons described above. During the same periods, EBITDA margin decreased from
18.1% to 17.2% of net revenues. Margins in Las Vegas continue to be pressured by
the economy and competitor actions, but have improved each month. The Las Vegas
operation is spending more marketing dollars to increase demand and will
continue to focus and grow incentive programs through the rest of the year and
into 2003.
Riviera Black Hawk
Revenues
Net revenues increased by approximately $637,000, or 5.3%,
from $12.0 million in 2001 to $12.6 million in 2002. Casino revenues increased
$390,000, or 3.4%, from $11.4 million in 2001 and $11.8 million in 2002 . This
continues a historical trend of growth for the Black Hawk market as new casinos
offering a variety of new amenities have expanded the market's appeal to a
14
broader base of customers. The Black Hawk market grew by a healthy 12.5% in the
second quarter of 2002 compared to the second quarter of 2001.
Food and beverage revenues were approximately $1.6 million in
2002, of which $1.1 million was complimentary (promotional allowance). Riviera
Black Hawk continues to refine its marketing efforts by constantly measuring the
success rates of its programs, while monitoring the offerings of competitors.
The operation is attempting to strike a balance between player incentives,
gaming product, food offerings and entertainment in order to implement a more
cost effective marketing plan that will have a positive impact on profitability.
Income from Operations
Income from operations in Black Hawk, Colorado increased
$561,000, or 34.6%, from $1.6 million in 2001 to
$2.2 million in 2002 due to increased revenues as a result of refining our
direct marketing and promotional programs for the casino in the second quarter
of 2002.
EBITDA
Riviera Black Hawk EBITDA, as defined, increased $930,000, or
33.0%, from $2.8 million in 2001 to $3.7 million in 2002. EBITDA margin for the
second quarter increased to 29.7% from 23.5% in the same quarter of the prior
year.
Consolidated Operations
Other Income (Expense)
Interest expense on the $175 million 10% First Mortgage Notes
issued by Riviera Holdings Corporation of $4.4 million plus related amortization
of loan fees and equipment and other financing costs totaled approximately $5
million in 2001 and 2002. Interest expense on the remaining $35 million of the
13% First Mortgage Notes issued by Riviera Black Hawk in June 1999 combined with
its interest from capital leases totaled $1.7 million in the second quarter of
2002 compared to $1.7 million for the second quarter of 2001. In addition a new
offering of $215 million Senior Secured Notes (refinancing the 10% and 13%
notes) incurred interest of $353,000 in the second quarter of 2002.
Net Income (Loss)
The results of operations decreased $1.0 million from net loss
of $70,000 in 2001 to a net loss of $1.1 million in 2002 due primarily to the
continuing effects of a slower economy and the events of September 11, 2001.
EBITDA
Consolidated EBITDA, as defined, decreased by approximately
$403,000, or 3.8%, from $10.6 million in 2001 to $10.2 million in 2002. During
the same periods, EBITDA margin increased from 19.3% to 20.4% of net revenues
for the reasons described above.
15
Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001
The following table sets forth, for the periods indicated, certain operating
data for the Riviera Las Vegas and Riviera Black Hawk. Intercompany management
fees have been eliminated from EBITDA from properties for the purpose of this
table. Operating Income includes intercompany management fees.
Six Months Ended Incr/ % Incr/
(In Thousands) 2002 2001 (Decr) (Decr)
---- ---- ------ ------
Net revenues:
Riviera Las Vegas $71,936 $84,068 ($12,132) -14.4%
Riviera Black Hawk 24,416 22,960 1,456 6.3%
------ ------ ----- ----
Total Net Revenues $96,352 $107,028 ($10,676) -10.0%
======= ======== ========= ======
Operating Income (Loss)
Riviera Las Vegas $5,789 $8,770 ($2,981) -34.0%
Riviera Black Hawk 3,609 2,956 653 22.1%
----- ----- --- -----
Total Operating Income $9,398 $11,726 ($2,328) -19.9%
====== ======= ======== ======
EBITDA:(1)
Riviera Las Vegas $11,652 $14,910 ($3,258) -21.9%
Riviera Black Hawk 6,695 5,362 1,333 24.9%
----- ----- ----- -----
Total EBITDA $ 18,347 $20,272 ($1,925) -9.5%
======== ======= ======== =====
EBITDA margin
Riviera Las Vegas 16.2% 17.7% -1.5%
Riviera Black Hawk 27.4% 23.4% 4.0%
Total EBITDA 19.0% 18.9% 0.1%
1 EBITDA consists of earnings before interest, income taxes, depreciation,
amortization, and others, net. While EBITDA should not be construed as a
substitute for operating income or a better indicator of liquidity than cash
flow from operating activities, which are determined in accordance with
generally accepted accounting principles ("GAAP"), it is included herein to
provide additional information with respect to the ability of the Company
to meet its future debt service, capital expenditure and working capital
requirements. Although EBITDA is not necessarily a measure of the Company's
ability to fund its cash needs, management believes that certain investors
find EBITDA to be a useful tool for measuring the ability of the Company to
service its debt. EBITDA margin is EBITDA as a percent of net revenues. The
Company's definition of EBITDA may not be comparable to other companies'
definitions.
16
Riviera Las Vegas
Revenues
Net revenues decreased by approximately $12.1 million, or
14.4%, from $84.1 million in 2001 to $72.0 million in 2002 due primarily to
decreased casino, rooms and entertainment revenues. Casino revenues decreased by
approximately $4.5 million, or 12.3%, from $36.4 million during 2001 to $31.9
million during 2002 due to a decrease in slot machine revenue. Room revenue
decreased $3.1 million, or 12.6%, from $24.5 million in 2001 to $21.4 million in
2002 due to the continued effects of a slower economy and the events of
September 11, 2001. Hotel occupancy fell 5.6% from 97.4% in 2001 to 91.8% in
2002 and average daily room rate fell $5.65 from $65.02 in 2001 to $59.37 in
2002. The Company has been able to bring occupancy back to normal levels,
however, the average daily rate remained 8.6% below historical levels in June
2002. Entertainment revenues decreased by approximately $3.3 million, or 27.9%,
from $11.7 million during 2001 to $8.4 million during 2002 due primarily to a
decrease in Splash and Crazy Girls revenues as result of competition from the
openings of new shows on the Las Vegas Strip and a slower economy. Other
revenues decreased by approximately $775,000, or 16.5%, from $4.7 million during
2001 to $3.9 million during 2002 due primarily to decreased gift shop and
telephone revenues. Promotional allowances decreased by approximately $229,000,
or 3.3%, from $7.0 million during 2001 to $6.8 million during 2002 primarily due
to decreases in comps related to lower casino activity.
Income from Operations
Income from operations in Las Vegas declined $3.0 million, or
34.0%, from $8.8 million in 2001 to $5.8 million in 2002 due to the 14.4%
decrease in net revenues which was partially offset by a 12.2% decrease in
expenses. Fixed costs in the rooms department and general administrative costs
were not reduced in sufficient proportion to compensate for the decline in
revenue. Room revenues fell 12.6% while costs were down 4.1%.
EBITDA
Riviera Las Vegas EBITDA, as defined, decreased by approximately
$3.3 million, or 21.9%, from $14.9 million in 2001 to $11.6 million in 2002 for
reasons described above. During the same periods, EBITDA margin decreased from
17.7% to 16.2% of net revenues. Margins in Las Vegas continue to be pressured by
the economy and competitor actions, but have improved each month. The Las Vegas
operation is spending more marketing dollars to increase demand and will
continue to focus and grow incentive programs through the rest of the year and
into 2003.
17
Riviera Black Hawk
Revenues
Net revenues increased by approximately $1.5 million, or 6.3%,
from $22.9 million in 2001 to $24.4 million in 2002. Casino revenues increased
$1.1 million, or 4.9%, from $21.9 million in 2001 and $23.0 million in 2002 .
Food and beverage revenues were approximately $3.3 million in
2002, of which $2.4 million was complimentary (promotional allowance). Riviera
Black Hawk continues to refine its marketing efforts by constantly measuring the
success rates of its programs, while monitoring the offerings of competitors.
The operation is attempting to strike a balance between player incentives,
gaming product, food offerings and entertainment as its primary marketing
programs.
Income from Operations
Income from operations in Black Hawk, Colorado increased
$653,000, or 22.1%, from $3.0 million in 2001 to $3.6 million in 2002 due to
increased revenues as a result of refining direct marketing and promotional
programs for the casino in the six months of 2002.
EBITDA
Riviera Black Hawk EBITDA, as defined, increased $1.3 million,
or 24.9%, from $5.4 million in 2001 to $6.7 million in 2002. EBITDA margin for
the six months increased to 27.4% from 23.4% for the same period last year.
Consolidated Operations
Other Income (Expense)
Interest expense on the $175 million 10% First Mortgage
Notes issued by Riviera Holdings Corporation of $8.8 million plus related
amortization of loan fees and equipment and other financing costs totaled
approximately $10.0 million in 2001 and 2002. Interest expense on the remaining
$35 million of the 13% First Mortgage Notes issued by Riviera Black Hawk in June
1999 combined with its interest from capital leases totaled $3.3 million in the
first six months of 2002 compared to $3.5 million for the first six months of
2001. Additionally the new offering of $215 million Senior Secured Notes
incurred interest expense of $353,000 for the first six months of 2002.
Net Income (Loss)
The results of operations decreased $3.2 million from net loss
of $728,000 in 2001 to a net loss of $3.9 million in 2002 due primarily to the
continuing effects of a slower economy and the events of September 11, 2001.
18
EBITDA
Consolidated EBITDA, as defined, decreased by approximately $1.9
million, or 9.5%, from $20.3 million in 2001 to $18.3 million in 2002. During
the same periods, EBITDA margin increased from 18.9% to 19.0% of net revenues
for the reasons described above.
Liquidity and Capital Resources
In June 2002, the Company issued $215 million 11% Senior Secured Notes due 2010.
The proceeds along with cash on hand was used to defease our 10% First Mortgage
Notes due 2004 and Riviera Black Hawk's remaining 13% First Mortgage Notes due
2005 with contingent interest.
On July 26, 2002 the Company entered into a $30 million, five-year senior
secured revolving credit facility. The credit facility is secured by
substantially the same collateral that secures the 11% Notes. The lien on the
collateral securing the credit facility is senior to the lien on the collateral
securing the 11% Notes. The credit facility contains customary conditions to
borrowing and certain representations and warranties customary in gaming-related
financing. The credit facility also contains financial covenants and
restrictions regarding, among other things, indebtedness, capital expenditures,
minimum EBITDA levels throughout the five-year term, investments, distributions
and changes in control of the Company. Under the credit facility, the Company
can obtain extensions of credit in the forms of cash advances and letters of
credit. The Company is required to pay interest on all outstanding cash advances
at the rate of interest announced by Wells Fargo at its principal office in San
Francisco as its prime rate plus 0.75% or at the rate at which major
international banks in London charge each other for borrowings in U.S. dollars
plus 3.00%. However, the minimum interest rate the Company will be charged on
outstanding cash advances is 4.50%. The Company is required to pay a fee on all
outstanding letters of credit equal to their face value times an annual
percentage rate of 2.5%. Additionally, if the Company is in default under the
credit facility (which would include a default under the 11% Notes), the credit
facility lender may increase the interest rate and letter of credit fee by an
additional 2.00% per year during the period of the default.
At June 30, 2002, the Company had cash and cash equivalents of $22 million. The
cash and cash equivalents decreased $19.6 million during the first six months of
2002, including, $7.3 million of cash provided by operations, $5.2 million
of cash outflow for investing activities and $ 26.7 million outflow for
financing activities.
Cash balances include amounts that may be required to fund the Chairman's
pension obligation in a rabbi trust with 5 days notice. (See Note 7 to the
financial statements, Other Long-Term Liabilities included in Form 10K as filed
with the SEC.) Although there is no current intention to require this funding,
the company might need to disburse, approximately $7.0 million for this purpose
in a short period.
The Las Vegas operations are self insured for workmen's compensation claims. The
State of Nevada requires that Riviera Holdings Corporation maintain a $2.5
million tangible net worth, as defined in the statute. If tangible net worth
were to fall below $2.5 million, the Company would have to fund a $2.5 million
bond with the State or obtain workmen's compensation insurance at a
significantly higher cost than its current cost structure. The State has
notified the Company that it qualifies for self insurance through April of 2003.
Management believes that cash flow from operations, combined with the $22
million cash and cash equivalents and the new $30 million revolving credit
facility will be sufficient to cover the Company's debt service and enable
investment in budgeted capital expenditures for 2002 for both the Las Vegas and
Black Hawk properties 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 $215 million 11% Notes ("the 11% Notes") at maturity on June 15, 2010.
Accordingly, the ability of the Company to repay Notes at maturity may be
dependent upon our ability to refinance those notes. There can be no assurance
that the Company 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
subsidiary must offer to repurchase the 11% Notes upon the occurrence of a
change of control or certain other events. In the event of such mandatory
redemption or repurchase prior to maturity, the Company and its subsidiary would
be unable to pay the principal amount of the 11% Notes without a refinancing.
19
The 11% Notes contain certain covenants, which limit the ability of the Company
and its restricted subsidiaries subject to certain exceptions, to: (i) incur
additional indebtedness; (ii) pay dividends or other distributions, repurchase
capital stock or other equity interests or subordinated indebtedness; (iii)
enter into certain transactions with affiliates; (iv) create certain liens; sell
certain assets; and (v) enter into certain mergers and consolidations. As a
result of these restrictions, the ability of the Company 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, 2002, the Company believes that it is in compliance with the
covenants of the 10% Notes, the 13% Notes and the 11% Notes.
Recently Issued Accounting Pronouncements
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. SFAS No. 143 applies to all entities. It
applies to legal obligations associated with the retirement of long-lived assets
that result from the acquisition, construction, development and (or) the normal
operation of a long-lived asset, except for certain obligations of lessees. SFAS
No. 143 is effective for financial statements issued for fiscal years beginning
after June 15, 2002. The Company is currently assessing, but has not yet
determined the impact of SFAS No. 143 on its financial position and results of
operations.
In April 2002, the FASB issued Statement of Financial Accounting Standard No.
145, "Recission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections" ("SFAS No. 145"). SFAS No. 145
requires that gains and losses from extinguishment of debt be classified as
extraordinary items only if they meet the criteria in Accounting Principles
Board Opinion No. 30 ("Opinion No. 30"). Applying the provisions of Opinion No.
30 will distinguish transactions that are part of an entity's recurring
operations from those that are unusual and infrequent that meet criteria for
classification as an extraordinary item. SFAS No. 145 is effective for the
20
Company beginning January 1, 2003, but the Company may adopt the provisions of
SFAS No. 145 prior to this date. The effect on our consolidated financial
position and results of operations of the adoption of SFAS No. 145 will be that
we recognize and report bond retirement costs as an operating expense.
In June 2002, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard No. 146, Accounting for Costs Associated with
Exit or Disposal Activities ("SFAS No. 146"). SFAS No.146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force Issue No. 94-3, Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). SFAS No. 146 requires
that a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. A fundamental conclusion reached by
the FASB in this statement is that an entity's commitment to a plan, by itself,
does not create a present obligation to others that meets the definition of a
liability. SFAS No. 146 also establishes that fair value is the objective for
initial measurement of the liability. The provisions of this statement are
effective for exit or disposal activities that are initiated after December 31,
2002, with early application encouraged. The Company is currently assesing but
has not yet determined the impact of SFAS No. 146 on its financial position and
results of operations.
Recently Adopted Accounting Pronouncements
In June 2001, the FASB issued SFAS No.142, Goodwill and Other Intangible
Assets, which is effective January 1, 2002. SFAS No. 142 requires, among other
things, the discontinuance of goodwill amortization. In addition, SFAS No. 142
includes provisions for the reclassification of certain existing recognized
intangibles as goodwill, reassessment of the useful lives of existing recognized
intangibles, the identification of reporting units for purposes of assessing
potential future impairments of goodwill. SFAS No. 142 also requires the Company
to complete a transitional goodwill impairment test six months from the date of
adoption. As of June 30, 2002 the Company has determined that it has no
intangible assets or goodwill recorded on its balance sheet, and accordingly the
adoption of SFAS No. 142 had no impact on its financial position or results of
operations.
In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets and
supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, and the accounting and
reporting provisions of Accounting Principles Bulletin Opinion No. 30, Reporting
the Results of Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions, for the disposal of a segment of a business (as previously defined
in that Opinion). SFAS No. 144 also amends Accounting Research Bulletin No. 51,
Consolidated Financial Statements, to eliminate the exception to consolidation
for a subsidiary for which control is likely to be temporary. The provisions of
SFAS No. 144 are effective for financial statements issued for fiscal years
beginning after December 15, 2001, and interim periods within those fiscal
years. The Company has determined that the implementation of SFAS No. 144 had no
effect on its financial position and results of operations upon implementation.
Critical Accounting Policies
A description of our critical accounting policies and estimates can be found in
Item 7 of our 2001 Form 10-K and for a more extensive discussion of our
accounting policies, see Note 2, Summary of Significant Accounting Policies, in
the Notes to the Consolidated Financial Statements in our 2001 Form 10-K filed
on March 27, 2002.
Forward Looking Statements
This report includes "forward-looking statements" within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended. Statements in this
report regarding future events or conditions, including statements regarding
industry prospects and the Company's expected financial position, business and
financing plans, are forward-looking statements. Although the Company believes
that the expectations reflected in such forward-looking statements are
21
reasonable, it can give no assurance that such expectations will prove to have
been correct. Important factors that could cause actual results to differ
materially from the Company's expectations are disclosed in this report as well
as the Company's most recent annual report on Form 10-K, and include the
Company's substantial leverage, the risks associated with the expansion of the
Company's business, as well as factors that affect the gaming industry
generally. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of their dates. The Company
undertakes no obligations to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
22
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 June 30, 2002, we had $221.5 million in borrowings. The borrowings include
$215 million in notes maturing in 2010 and capital leases maturing at various
dates through 2005. Interest under the $215 million notes is based on a fixed
rate of 11%. The equipment loans and capital leases have interest rates ranging
from 5.2% to 13.5%. The borrowings also include $912,000 in a special
improvement district bond offering with the City of Black Hawk. The Company's
share of the debt on the SID bonds of $1.2 million when the project is complete,
is payable over ten years beginning in 2000. The special improvement district
bonds bear interest at 5.5%.
Interest Rate Sensitivity
Principal (Notational Amount by Expected Maturity)
Average Interest Rate
(Amounts in Fair Value
thousands) 2002 2003 2004 2005 2006 Thereafter Total at 6/30/02
Assets
Short term investments $ - $ -
Average interest rate
Long Term Debt Including Current Portion
Equipment loans and
capital leases Las Vegas $ 601 $ 1,326 $ 988 $ 11 $ 2,926 $ 2,926
Average interest rate 8.0% 7.8% 7.8% 8.4%
11% Senior Secured Notes $211,781 $211,781 $211,781
Average interest rate 11.6%
Capital leases
Black Hawk, Colorado $ 946 $ 2,045 $ 2,263 $ 658 $ 5,912 $ 5,912
Average interest rate 10.8% 10.8% 10.8% 10.8%
Special Improvement District Bonds
Black Hawk, Colorado $ 49 $ 103 $ 109 $ 116 $ 124 $ 411 $ 912 $ 912
Average interest rate 5.5% 5.5% 5.5% 5.5% 5.5% 5.5%
-----------------------------------------------------------------------------------------------------------------------
Bonds held for retirement
13% First Mortgage Note
Black Hawk, Colorado casino
project $34,941 $ 34,941 $ 34,941
Average interest rate 14.0%
10% First Mortgage Note
Las Vegas $ 175,000 $ 175,000 $ 175,000
Average interest rate 10.6%
23
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a party to several routine lawsuits, both as plaintiff and as
defendant, arising from the normal operations of a hotel. The Company does not
believe that the outcome of such litigation, in the aggregate, will have a
material adverse effect on its financial position or results of its operations.
Item 4. Submission of Matters to a Vote of Security Holders.
On May 14, 2002, the Company held its annual meeting of shareholders at
which the Company's board of directors was elected. The voting results as to
each director nominee were as follows (with no abstentions or broker nonvotes):
Votes Votes
For Against or Withheld
William L. Westerman 2,959,295 18,468
Robert R. Barengo 2,965,460 12,303
James N. Land, Jr. 2,965,460 12,303
Jeffrey A. Silver 2,963,923 13,840
Paul A. Harvey 2,963,818 13,945
Item 6. Exhibits and Reports on Form 8-K.
(a) See list of exhibits on page 26.
(b) During the second quarter of 2002, the Company filed reports on Form
8-K on April 22, June 6, June 21, June 27, and June 28, 2002. Each Form 8-K
reported Item Nos. 5 and 7 which, in the April 22, 2002 filing, included summary
financial information for the Company's first 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: August 9, 2002
25
Riviera Holdings Corporation
Form 10Q
June 30, 2002
Exhibit No. Description
10.1*Registration Rights Agreement dated as of June 26, 2002 by and among the
Company, the Guarantors party thereto, and Jefferies & Company, Inc. (see
Exhibit 10.1 to Registration Statement on Form S-4 filed with the
Commission on August 9, 2002)
10.2*Purchase Agreement dated June 19, 2002 among the Company, the Guarantors
party thereto, and Jefferies & Company, Inc. (see Exhibit 10.2 to
Registration Statement on Form S-4 filed with the Commission on August 9,
2002)
10.3*Deed of Trust, Assignment of Rents, Leases, Fixture Filing and Security
Agreement dated June 26, 2002, executed by the Company for the benefit of
The Bank of New York (see Exhibit 10.21 to Registration Statement on Form
S-4 filed with the Commission on August 9, 2002)
10.4*Deed of Trust to Public Trustee, Security Agreement, Fixture Filing and
Assignment of Rents, Leases and Leasehold Interests dated as of June 26,
2002, by Riviera Black Hawk, Inc. for the benefit of The Bank of New York
(see Exhibit 10.22 to Registration Statement on Form S-4 filed with the
Commission on August 9, 2002)
10.5*Security Agreement dated June 26, 2002 by and among the Company, Riviera
Operating Corporation, Riviera Gaming Management, Inc., Riviera Gaming
Management of Colorado, Inc., Riviera Black Hawk, Inc, and The Bank of New
York (see Exhibit 10.23 to Registration Statement on Form S-4 filed with
the Commission on August 9, 2002)
10.6*Assignment of Rents, Leases and Leasehold Interests dated as of June 26,
2002 by Riviera Black Hawk, Inc. for the benefit of The Bank of New York
(see Exhibit 10.24 to Registration Statement on Form S-4 filed with the
Commission on August 9, 2002)
26
10.7*Stock Pledge and Security Agreement dated June 26, 2002, executed by the
Company (see Exhibit 10.25 to Registration Statement on Form S-4 filed with
the Commission on August 9, 2002)
10.8* Stock Pledge and Security Agreement dated June 26, 2002, executed by
Riviera Operating Corporation (see Exhibit 10.26 to Registration Statement
on Form S-4 filed with the Commission on August 9, 2002)
10.9* Stock Pledge and Security Agreement dated June 26, 2002, executed by
Riviera Gaming Management, Inc. (see Exhibit 10.27 to Registration
Statement on Form S-4 filed with the Commission on August 9, 2002)
10.10* Environmental Indemnity dated as of June 26, 2002 by and among the
Company and Riviera Black Hawk, Inc., as indemnitors, and The Bank of New
York, as trustee (see Exhibit 10.28 to Registration Statement on Form S-4
filed with the Commission on August 9, 2002)
10.11* Environmental Indemnity dated as of June 26, 2002 by and between the
Company, as indemnitor, and The Bank of New York, as trustee (see Exhibit
10.29 to Registration Statement on Form S-4 filed with the Commission on
August 9, 2002)
10.12* Loan and Security Agreement dated as of July 26, 2002 by and among the
Company and the other Borrower parties thereto, the Guarantors parties
thereto and Foothill Capital Corporation (see Exhibit 10.30 to Registration
Statement on Form S-4 filed with the Commission on August 9, 2002)
10.13* Intercreditor Agreement dated as of July 26, 2002 by and between The Bank
of New York, as trustee, and Foothill Capital Corporation (see Exhibit
10.31 to Registration Statement on Form S-4 filed with the Commission on
August 9, 2002)
10.14* Fee Letter, dated July 26, 2002, issued by the Company, Riviera Black
Hawk, Inc. and Riviera Operating Corporation to Foothill Capital
Corporation (see Exhibit 10.32 to Registration Statement on Form S-4 filed
with the Commission on August 9, 2002)
10.15* Intellectual Property Security Agreement dated as of July 26, 2002 by and
between the Company and the other Debtors parties thereto, and Foothill
Capital Corporation (see Exhibit 10.33 to Registration Statement on Form
S-4 filed with the Commission on August 9, 2002)
27
10.16* Environmental Indemnity dated July 26, 2002 from the Company in favor of
Foothill Capital Corporation (see Exhibit 10.35 to Registration Statement
on Form S-4 filed with the Commission on August 9, 2002)
10.17* Continuing Guaranty dated July 26, 2002 by and among the Company, the
other Borrowers parties thereto and the Guarantors parties thereto in favor
of Foothill Capital Corporation (see Exhibit 10.36 to Registration
Statement on Form S-4 filed with the Commission on August 9, 2002)
10.18* Subordination Agreement dated July 26, 2002 by and among the Company and
the other Creditors parties thereto in favor of Foothill Capital
Corporation (see Exhibit 10.37 to Registration Statement on Form S-4 filed
with the Commission on August 9, 2002)
10.19* Stock Pledge and Security Agreement dated July 26, 2002, executed by the
Company (see Exhibit 10.38 to Registration Statement on Form S-4 filed with
the Commission on August 9, 2002)
10.20* Stock Pledge and Security Agreement dated July 26, 2002, executed by
Riviera Operating Corporation (see Exhibit 10.39 to Registration Statement
on Form S-4 filed with the Commission on August 9, 2002)
10.21* Stock Pledge and Security Agreement dated July 26, 2002, executed by
Riviera Gaming Management, Inc. (see Exhibit 10.40 to Registration
Statement on Form S-4 filed with the Commission on August 9, 2002)
10.22* Environmental Indemnity dated July 26, 2002 from the Company and Riviera
Black Hawk, Inc. in favor of Foothill Capital Corporation (see Exhibit
10.42 to Registration Statement on Form S-4 filed with the Commission on
August 9, 2002)
99.1 CEO Officers Certification
99.2 CFO Officers Certification
* The exhibits thus designated are incorporated herein by reference as exhibits
hereto. Following the description of each such exhibit is a reference to it as
it appeared in the Company's Registration Statement on Form S-4 filed with the
Commission on the same date as the filing of this Form 10-Q.
28
26