-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PKFWlQDTAGBp6EeByetIVfUPPkAjII4E/lI3FHh/5gpj1L/m40fXl3S+5VQkDVb7 IJMy5dCKwG1s0ZW1rpxWwg== 0000899647-99-000006.txt : 19990510 0000899647-99-000006.hdr.sgml : 19990510 ACCESSION NUMBER: 0000899647-99-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990507 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIVIERA HOLDINGS CORP CENTRAL INDEX KEY: 0000899647 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 880296885 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21430 FILM NUMBER: 99613928 BUSINESS ADDRESS: STREET 1: 2901 LAS VEGAS BLVD SOUTH CITY: LAS VEGAS STATE: NV ZIP: 89109 BUSINESS PHONE: 7027345110 MAIL ADDRESS: STREET 1: 2901 LAS VEGAS BLVD S CITY: LAS VEGAS STATE: NV ZIP: 89109 10-Q 1 RIVIERA 1999 FIRST QUARTER 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Mark One [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 000-21430 Riviera Holdings Corporation (Exact name of Registrant as specified in its charter) Nevada 88-0296885 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 2901 Las Vegas Boulevard South, Las Vegas, Nevada 89109 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (702) 794-9527 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE LAST FIVE YEARS Indicate by check mark whether the Registrant has filed all documentation and reports required to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No APPLICABLE ONLY TO CORPORATE REGISTRANTS Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date. As of March 31, 1999 there were 5,068,376 shares of Common Stock, $.001 par value per share, outstanding. RIVIERA HOLDINGS CORPORATION INDEX Page PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Independent Accountants' Report 2 Condensed Consolidated Balance Sheets at March 31, 1999 (Unaudited) and December 31, 1998 3 Condensed Consolidated Statements of Operations (Unaudited) for the Three Months ended March 31, 1999 and 1998 4 Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months ended March 31, 1999 and 1998 5 Notes to Condensed Consolidated Financial Statements (Unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 INDEPENDENT ACCOUNTANTS' REPORT To the Board of Directors Riviera Holdings Corporation We have reviewed the accompanying condensed consolidated balance sheet of Riviera Holdings Corporation (the "Company") and subsidiaries as of March 31, 1999, and the related condensed consolidated statements of operations and of cash flows for the three months ended March 31, 1999 and 1998. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, 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 generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Riviera Holdings Corporation as of December 31, 1998, and the related consolidated statements of operations, stockholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated February 19, 1999, 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, 1998, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. DELOITTE & TOUCHE LLP April 19, 1999 Las Vegas, Nevada
RIVIERA HOLDINGS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands, except share amounts) March 31, December 31, 1999 1998 (Unaudited) ------------------ ------------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $39,805 $48,883 Accounts receivable, net 5,192 5,390 Inventories 2,385 2,726 Prepaid expenses and other assets 3,470 4,028 ------------------ ------------------ Total current assets 50,852 61,027 PROPERTY AND EQUIPMENT, NET 183,854 175,622 OTHER ASSETS, NET 8,029 8,260 ------------------ ------------------ TOTAL ASSETS $242,735 $244,909 ================== ================== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $337 $363 Accounts payable 13,222 11,865 Accrued Interest, Other 2,194 6,563 Accrued Expenses - Other 9,987 10,053 ------------------ ------------------ Total current liabilities 25,740 28,844 ------------------ ------------------ Deferred Income Taxes 3,209 3,123 ------------------ ------------------ Other Long-Term Liabilities 5,624 4,933 ------------------ ------------------ LONG-TERM DEBT, NET OF CURRENT PORTION 174,518 174,506 ------------------ ------------------ COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Common stock ($.001 par value; 20,000,000 shares authorized; 5,073,376 issued and outstanding at December 31, 1998 and 5,068,376 at March 31, 1999) 5 5 Additional paid-in capital 13,454 13,457 Treasury stock (34,300 shares at December 31, 1998, and 39,100 shares at March 31, 1999) (189) (167) Notes receivable from Employee Shareholders (1) (3) Retained earnings 20,375 20,211 ------------------ ------------------ Total shareholders' equity 33,644 33,503 ------------------ ------------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $242,735 $244,909 ================== ==================
See notes to condensed consolidated financial statements
RIVIERA HOLDINGS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (Unaudited) (In Thousands, Except Per Share Amounts) - ------------------------------------------------------------------------------------------------------------------------ 1999 1998 REVENUES: Casino $18,916 $18,691 Rooms 10,139 9,944 Food and beverage 6,356 5,767 Entertainment 5,612 5,345 Other 2,823 2,795 ------------------ ------------------- 43,846 42,542 Less promotional allowances 3,549 3,375 ------------------ ------------------- Net revenues 40,297 39,167 ------------------ ------------------- COSTS AND EXPENSES: Direct costs and expenses of operating departments: Casino 11,349 10,976 Rooms 5,249 4,861 Food and beverage 4,395 3,985 Entertainment 4,189 4,202 Other 802 774 Other operating expenses: General and administrative 7,121 6,550 Depreciation and amortization 3,333 2,975 ------------------ ------------------- Total costs and expenses 36,438 34,323 ------------------ ------------------- INCOME FROM OPERATIONS 3,859 4,844 ------------------ ------------------- OTHER INCOME (EXPENSE) Interest expense on $100 million notes (2,767) Interest income on Treasury Bills held to retire $100 million notes 1,414 Interest expense, other (4,870) (4,946) Interest income, other 353 673 Interest capitalized 961 440 Other, net (51) (149) ------------------ ------------------- Total other income (expense) (3,607) (5,335) ------------------ ------------------- INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME TAXES 252 (491) PROVISION (BENEFIT) FOR INCOME TAXES 86 (172) ------------------ ------------------- NET INCOME (LOSS) $166 ($319) ================== =================== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 5,070 4,902 ------------------ ------------------- EARNINGS (LOSS) PER SHARE-BASIC $ 0.03 $ (0.07) ------------------ ------------------- WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 5,082 4,902 ------------------ ------------------- EARNINGS (LOSS) PER SHARE-DILUTED $ 0.03 $ (0.07) ------------------ -------------------
See notes to condensed consolidated financial statements
RIVIERA HOLDINGS CORPORATION AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31, 1999 1998 ------------------- ------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (loss) $166 ($319) Adjustments to reconcile net income to net cash used in operating loss: Depreciation and amortization 3,333 2,975 Interest income on Tbills to defease $100M Bonds (1,414) Interest expense, $100M Bonds 2,767 Interest expense, other 4,870 4,946 Interest paid, other (8,766) (8,871) Capitalized Interest on construction projects (961) (440) Other expense, net 51 149 Changes in operating assets and liabilities: Decrease (increase) in accounts receivable, net 197 965 Decrease (increase) in inventories 341 627 Decrease (increase) in prepaid expenses and other assets 559 (253) Increase (decrease) in accounts payable (2,063) (4,308) Increase (decrease) in accrued liabilities (297) 328 Increase (decrease) in deferred income taxes 86 Increase in non-qualified pension plan obligation to CEO upon retirement 259 240 ------------------- ------------------ Net cash used in operating activities (2,225) (2,608) ------------------- ------------------ CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures for property and equipment, Las Vegas, Nevada (5,227) (1,588) Capital expenditures - Black Hawk, Colorado project (6,338) (809) Property acquired with accounts payable - Black Hawk, Colorado project 3,418 Capitalized Interest on construction projects 961 440 Increase in other assets - Black Hawk, Colorado (60) (17) Decrease (increase) in other assets 75 349 ------------------- ------------------ Net cash used in investing activities (7,171) (1,625) ------------------- ------------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term borrowings 411 Payments on long-term borrowings (71) (88) Purchase of treasury stock (22) Net collections, cancellations employee stock purchase plan and exercise of employee stock options (101) ------------------- ------------------ Net cash provided by (used in) financing activities 318 (189) ------------------- ------------------ DECREASE IN CASH AND CASH EQUIVALENTS ($9,078) ($4,422) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $48,883 $65,151 ------------------- ------------------ CASH AND CASH EQUIVALENTS, END OF PERIOD $39,805 $60,729 =================== ==================
See notes to condensed consolidated financial statements NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation Riviera Holdings Corporation (the "Company") and its wholly-owned subsidiary Riviera Operating Corporation ("ROC") 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 July 1994, management established a new division, Riviera Gaming Management, Inc. ("RGM") for the purpose of obtaining management contracts in Nevada and other jurisdictions. In August 1996, RGM incorporated in the State of Nevada as a wholly owned subsidiary of ROC. In March 1997 Riviera Gaming Management of Colorado was incorporated in the State of Colorado, and in August 1997 Riviera Black Hawk, Inc. was incorporated in the State of Colorado for the purpose of developing a casino in Black Hawk, Colorado. Nature of Operations The primary line of business of the Company is the operation of the Riviera Hotel & Casino on the "Strip" in Las Vegas, Nevada, including the operation of a hotel/casino with restaurants and related facilities. The Company also manages the Four Queens Hotel/Casino in downtown Las Vegas and is developing a casino in Black Hawk, Colorado. Casino operations are subject to extensive regulation in the State of Nevada by the Gaming Control Board and various other state and local regulatory agencies. Management believes that the Company's procedures for supervising casino operations, for recording casino and other revenues and for granting credit comply, in all material respects, with the applicable regulations. Principles of Consolidation The consolidated financial statements include the accounts of the Company, its wholly owned subsidiary ROC and various indirect wholly owned subsidiaries. All material intercompany accounts and transactions have been eliminated. The financial information at March 31, 1999 and for the three months ended March 31, 1999 and 1998 is unaudited. However, such information reflects all adjustments (consisting solely of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations, and cash flows for the interim periods. The results of operations for the three months ended March 31, 1999 and 1998, 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, 1998, included in the Company's Annual Report on Form 10-K. 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. Management does not believe that the outcome of such litigation, in the aggregate, will have a material adverse effect on the financial position or results of operations of the Company or ROC. (See also Note 4 - Paulson Merger, Contingent Value Rights and Related Regulations). Estimates and Assumptions The preparation of condensed consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates used by the Company include estimated useful lives for depreciable and amortizable assets, certain accrued liabilities and the estimated allowance for receivables. Actual results may differ from estimates. Earnings Per Share For the year ended December 31, 1997, the Company adopted SFAS No. 128 "Earnings per Share." SFAS No. 128 requires the presentation of basic net income (loss) per share and diluted net income (loss) per share. Basic per share amounts are computed by dividing net income (loss) by average shares outstanding during the period. Diluted net income per share amounts are computed by dividing net income by average shares outstanding plus the dilutive effect of common share equivalents. Additionally, the effect of stock options outstanding is not included in diluted net loss per share calculations. Since the Company incurred net income from continuing operations during the three-month period ended March 31, 1999, diluted per share calculations are based upon average shares outstanding during this period and the effect of dilutive securities of $12,378. The effect of stock options outstanding to purchase approximately 509,000 shares was not included in diluted per share calculations during the three-month period ended March 31, 1999 as the average exercise price of such options was greater than the average price of the Company's common stock. Recently Adopted Accounting Standards The American Institute of Certified Public Accountants' Accounting Standards Executive Committee recently issued Statement of Position No. 98-5, Reporting on the Costs of Start Up Activities. This standard provides guidance on the financial reporting for start-up costs and organization costs. This standard requires costs of start-up activities and organization costs to be expensed as incurred, and is effective for fiscal years beginning after December 15, 1998, although earlier application is encouraged. We adopted this standard effective January 1, 1999. The impact has been to record a general expense of $15,000 for the three months ended March 31, 1999, that we would have otherwise deferred as pre-opening costs. Reclassifications Certain amounts in the prior periods have been reclassified to conform to the current period presentation. 2. DEBT On August 13, 1997, the Company issued 10% First Mortgage Notes ("the 10% Notes") with a principal amount of $175 million. The Notes were issued at a discount in the amount of $2.2 million. The discount is being amortized over the life of the 10% Notes on a straight-line basis. On August 13, 1997, under a contractual defeasance, the Company used part of these proceeds to purchase United States Government securities ("the Securities") at a cost of $109.8 million which were deposited into an irrevocable trust. The proceeds from these securities, together with interest that was earned by the Securities was used to pay the principal, interest and call premium due on the 11% First Mortgage Notes (the 11% Notes") on June 1, 1998, the earliest date the 11% Notes could be redeemed. Interest earned from the Securities is included in "Interest income on Treasury Bills held to retire $100 million notes." The interest expense from the 10% Notes is included in "Interest expense, other", and from the 11% Notes is included in "Interest expense on $100 million notes". The $100 million notes, which were contractually defeased in August 1997, were redeemed on June 1, 1998. The call premium of $4.3 million and unamortized deferred financing costs totaling $300,000 were recorded net of the 35% income tax effect of $1.6 million resulting in an extraordinary loss of $3.0 million. 3. COMMITMENTS The Company has begun construction of a casino in Black Hawk, Colorado on a site, which was purchased for $15 million in August 1997. As of March 31, 1999 the Company has made $26.6 million in cash contributions to finance the cost of land and construction. As a result of the scheduled opening of several new Las Vegas Strip properties in 1999 and 2000, an estimated 38,000 jobs must be filled, including approximately 5,000 supervisory positions. Because of the Company's performance and reputation, its employees are prime candidates to fill these positions. In the third quarter of 1998 management instituted an employee retention plan which covers approximately 85 executive, supervisory and technical support positions and includes a combination of employment contracts, stay put agreements, bonus arrangements and salary adjustments. The period costs associated with the Plan are being accrued as additional payroll costs and included approximately $150,000 in the first quarter of 1999. The total cost of the Plan is estimated to be approximately $2.0 million over the period July 1, 1998 through June 30, 2001. 4. PAULSON MERGER, CONTINGENT VALUE RIGHTS AND RELATED LITIGATION Riviera Holdings is a defendant in an action commenced on April 9, 1998, by Allen Paulson, R&E Gaming Corp. and other Paulson-controlled entities (collectively, "Paulson") in the United States District Court for the Central District of California. The other defendants in the action include Jefferies & Company, Inc. (the initial Purchaser of the notes), as well as Morgens, Waterfall, Vintiadis & Company, Inc., Keyport Life Insurance Company, Sun America Life Insurance Company and others. Paulson's claims arise from a merger agreement between Riviera Holdings and Paulson which was terminated in the first half of 1998. Paulson has requested a refund of the amounts deposited in escrow for the minority shareholders in connection with the proposed merger as well as other damages. We believe there is no merit to Paulson's damage claims against Riviera Holdings. Riviera Holdings has vigorously contested counterclaims against Paulson, including a claim for the collection of the escrow funds. However, no assurance can be given regarding the outcome of this lawsuit. 5. SEGMENT DISCLOSURES The Company provides Las Vegas-style gaming, amenities and entertainment. The Company's four reportable segments are based upon the type of service provided: Casino, rooms, food and beverage, and entertainment. The casino segment provides customers with gaming activities through traditional table games and slot machines. The rooms segment provides hotel services. The food and beverage segment provides restaurant and drink services through a variety of themed restaurants and bars. The entertainment segment provides customers with a variety of live Las Vegas-style shows, reviews and concerts. All other segment activity consists of rent income, retail store income, telephone and other activity. The Company evaluates each segment's performance based on segment operating profit. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies.
Food and Entertain- Three Months ended March 31, 1999 Casino Rooms Beverage ment All Other Total Revenues from external customers $18,916 $10,139 $6,356 $5,612 $2,823 $43,846 Intersegment revenues 897 1,931 721 3,549 Segment profit 7,567 3,993 30 702 2,020 14,312 Three Months ended March 31, 1998 Revenues from external customers 18,691 9,944 5,767 5,345 2,795 42,542 Intersegment revenues 961 1,673 741 3,375 Segment profit 7,715 4,122 109 402 2,021 14,369
Reconciliation of segment profit to consolidated net income before taxes and extraordinary items: 1999 1998 Segment profit $14,312 $14,369 Other operating expenses 10,454 9,525 Other expense 3,606 5,335 -------------------------- Net income (loss) before provision (benefit) for taxes $252 ($491) ==========================
The Company does not have significant marketing programs for residents of Las Vegas. Substantially all revenues are derived from patrons visiting the Company from other parts of the United States and other countries. Revenues from a foreign country or region may exceed 10% of all reported segment revenues, however, the Company cannot precisely identify such information based upon the nature of gaming operations. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following tables set forth certain operating information for the Company for the three months ended March 31, 1999 and 1998. Revenues and promotional allowances are shown as a percentage of net revenues. Department costs are shown as a percentage of departmental revenues. All other percentages are based on net revenues. Three Months Ended March 31, Income Statement Data: 1999 1998 ---- ---- Revenues: Casino 46.9% 47.7% Rooms 25.2% 25.4% Food and beverage 15.8% 14.7% Entertainment 13.9% 13.6% Other 7.0% 7.1% Less promotional allowances -8.8% -8.6% Net Revenues 100.0% 100.0% Costs and Expenses: Casino 60.0% 58.7% Rooms 51.8% 48.9% Food and beverage 69.1% 69.1% Entertainment 74.6% 78.6% Other 28.4% 27.7% General and administrative 17.7% 16.7% Depreciation and amortization 8.3% 7.6% Total costs and expenses 90.4% 87.6% Income from operations 9.6% 12.4% Interest expense on $100 million notes 0.0% -7.1% Interest income on Treasury Bills to retire $100 million notes 0.0% 3.6% Interest expense, other -12.1% -12.6% Interest income, other 0.9% 1.7% Interest, capitalized 2.4% 1.1% Other, net -0.1% -0.4% Income before (benefit) provision for income taxes 0.6% -1.3% (Benefit) provision for income taxes -0.2% 0.4% Net Income (Loss) 0.4% -0.8% EBITDA Margin 17.8% 20.0%
1EBITDA 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. Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998 Revenues Net revenues increased by $1.1 million, or 2.9%, from $39.2 million in the first quarter of 1998 to $40.3 million in first quarter of 1999. Casino revenues increased by $225,000, or 1.2%, from $18.7 million during 1998 to $18.9 million during 1999 due primarily to a $197,000 increase in slot revenues due to additional marketing efforts and the continued success of Nickel Town. Slot revenues were up due an increase of $2.8 million in coin in and an increase of 0.1% in the hold percentage. Room revenues increased by $200,000, or 2.0% from $9.9 million in 1998 to $10.1 million in 1999 as the result of an increase in hotel occupancy from 92.1% to 97.0% which was partially offset by a decrease of $2.53 in average daily rate from $57.90 in 1998 to $55.37 in 1999. Convention room revenue increased $330,000 or 9.4% from $3.5 million in 1998 to $3.8 million in 1999 and was partially offset by a decrease in individual and tour operator revenues. Food and beverage revenues increased approximately $600,000, or 10.2%, from $5.8 million during 1998 to $6.4 million in 1999 due primarily to the expansion of the convention center banquet facilities. Banquet covers increased approximately 25,000, or 3.9%, from 65,000 in 1998 to 90,000 in 1999. Entertainment revenues increased by approximately $300,000, or 5.0%, from $5.3 million during 1998 to $5.6 million in 1999 due to a 5.0% increase in attendance. The number of cash tickets sold to entertainment venues increased 6.2% and was partially offset by a decrease in complimentary tickets. Promotional allowances increased $200,000, or 5.2%, from $3.3 million in 1998 to $3.5 million in 1999 due to competition for gaming revenues on the Las Vegas Strip. Direct Costs and Expenses of Operating Departments Total direct costs and expenses of operating departments increased by approximately $1.2 million, or 4.8%, from $24.8 million for the three months ended March 31, 1998 to $26.0 million for the three months ended March 31, 1999. Casino expenses increased by approximately $400,000, or 3.4%, from $10.9 million during 1998 to $11.3 million during 1999 due to casino marketing programs. Casino expenses as a percent of casino revenue increased from 58.7% to 60.0%. Although the marketing programs produced additional drop, the win was not adequate to cover the additional expenses. Room costs increased by approximately $400,000, or 8.0%, from $4.9 million during the 1998 period to $5.2 million during the 1999 period and room costs as a percentage of room revenue increased from 48.9% in 1998 to 51.8% in 1999 due to the increase in occupancy and a decision to increase staffing to offer greater service to our hotel guests. Food and beverage costs increased approximately $400,000, or 10.3%, from $4.0 million during the 1998 period to $4.4 million for the 1999 period. However, food and beverage costs as a percentage of revenues remained the same at 69.1% in 1998 and 1999 because of the higher revenues. Entertainment costs remained the same at approximately $4.2 million in 1998 and 1999. Entertainment expense as a percentage of entertainment revenues decreased from 78.6% in 1998 to 74.6% in 1999 as a result of the increased revenues. Other expenses remained at approximately $800,000 in 1998 and 1999. Increased cost of sales and payroll for the gift shops were offset by reduced telephone operating costs brought about by newly installed telecommunications systems. Other Operating Expenses General and administrative expenses increased $600,000, or 8.7%, from $6.5 million in 1998 to $7.1 million in 1999. These expenses increased from 16.7% of total net revenues in 1998 to 17.7% during the 1999 period. As a result of the scheduled opening of several new properties in 1999 and 2000, an estimated 38,000 jobs must be filled, including approximately 5,000 supervisory positions. Because of the Riviera's performance and reputation, its employees are prime candidates to fill these positions. In the third quarter of 1998 management instituted an employee retention plan which covers approximately 85 executive, supervisory and technical support positions and includes a combination of employment contracts, stay put agreements, bonus arrangements and salary adjustments. The period costs associated with the Plan are being accrued as additional payroll costs and included approximately $150,000 in the first quarter of 1999. The total cost of the Plan is estimated to be approximately $2.0 million over the period July 1, 1998 through June 30, 2001. Depreciation and amortization increased by approximately $350,000, or 12.0%, from $2.9 million in 1998 to $3.3 million in 1999 due to capital expenditures for the casino renovation, which was completed in December 1998, and the Convention Center Pavilion, which was completed in February 1999. Other Income (Expense) Interest expense on the $100 million notes of $2.8 million, less interest income on U.S. Treasury Bills of $1.4 million was recorded in 1998 until the notes were redeemed on June 1, 1998. Interest income, other decreased $320,000 because of the decrease in investment balances as the proceeds of the $175 million notes were utilized in the Convention Center Pavilion and the Black Hawk, Colorado project. Capitalized interest for the first quarter of 1999 was $961,000 on the Black Hawk, Colorado, and Riviera Convention Center Pavilion projects compared to $440,000 in 1998. Net Income (Loss) Net income increased by $484,000 from a loss of $319,000 for the three months ended March 1998 to a profit of $166,000 for the three months ended March 1999 due to a combination of the above factors. EBITDA EBITDA decreased by approximately $600,000, or 8.0%, from $7.8 million in 1998 to $7.2 million in 1999. Net revenues increased by $1.1 million or 2.9%; however, the increase was offset by a $2.1 million or 5.5% increase in operating expenses of which $1.1 million was payroll and related benefits costs associated with the increased volume and the employee retention plan. Liquidity and Capital Resources The Company had cash and cash equivalents of $39.8 million at March 31, 1999, which was $9.0 million less than balances at December 31, 1998 due to payments of bond interest on February 15, of $8.8 million and capital expenditures of $7.9 million, net of construction payables. The Company's net cash used in operating activities was approximately $2.2 million for the three months ended March 31, 1999 compared to $2.6 million in 1998. Management believes that cash flow from operations, combined with the $39.8 million cash on hand, will be sufficient to cover the Company's debt service and enable investment in budgeted capital expenditures for 1999, assuming that project and equipment financing is available for the Black Hawk casino development. Should the Company not be able to finance a portion of the amounts required for Black Hawk, capital expenditures in Las Vegas will be reduced if necessary. The Company's capital budget for 1999 in Las Vegas is approximately $17.0 million. Cash flow from operations is not expected to be sufficient to pay 100% of the principal of the 10% Notes at maturity on August 15, 2004. Accordingly, the ability of the Company to repay the 10% Notes at maturity will be dependent upon its ability to refinance those Notes. There can be no assurance that the Company will be able to refinance the principal amount of the 10% Notes at maturity. The 10% Notes are not redeemable at the option of the Company until August 15, 2001, and thereafter are redeemable at premiums beginning at 105.0% and declining each subsequent year to par in 2003. The 10% Note Indenture provides that, in certain circumstances, the Company must offer to repurchase the 10% 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 would be unable to pay the principal amount of the 10% Notes without a refinancing. The 10% Note Indenture contains 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 (vi) enter into certain mergers and consolidations. As a result of these restrictions, the ability of the Company and ROC 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 ROC would be required to curtail or defer certain of their capital expenditure programs under these circumstances, which could have an adverse effect on the Company's operations. At March 31, 1999, the Company believes that it is in compliance with the covenants. In August 1997, the Company, through its indirect 100% owned subsidiary, Riviera Black Hawk, Inc., purchased approximately 70,000 square feet of land in Black Hawk, Colorado, which is entirely zoned for gaming. The Company is constructing a casino containing 1,000 slot machines, 14 table games; a 520-space covered parking garage, and entertainment and food service amenities. Management intends to finance the project with a portion of the unused proceeds from the new First Mortgage Notes, equipment leases and project (first mortgage) financing. The casino is scheduled to open in January 2000. As of March 31, 1999, the company had invested $26.6 million in cash in the Black Hawk, Colorado project. Year 2000 In the past, many computer software programs were written using two digits rather than four to define the applicable year. As a result, date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This situation is generally referred to as the "Year 2000 Problem". If such situation occurs, the potential exists for computer system failures or miscalculations by computer programs, which could disrupt operations. The Company has conducted a comprehensive review of its computer systems and other systems for the purpose of assessing its potential Year 2000 Problem, and is in the process of modifying or replacing those systems which are not Year 2000 compliant. Based upon this review, management believes such systems will be compliant by mid-calendar 1999. However, if modifications are not made or not completed timely, the Year 2000 Problem could have a significant impact on the Company's operations. All costs related to the Year 2000 Problem are expensed as incurred, while the cost of new hardware and software is capitalized and amortized over its expected useful life. The costs associated with Year 2000 compliance have not been and are not anticipated to be material to the Company's financial position or results of operations. As of March 31, 1999, the Company has incurred costs of approximately $75,000 (primarily for internal labor) related to the system applications and anticipates spending an additional $125,000 to become Year 2000 compliant. The estimated completion date and remaining costs are based upon management's best estimates, as well as third party modification plans and other factors. However, there can be no guarantee that such estimates will occur and actual results could differ. In addition, the Company has communicated with its major vendors and suppliers to determine their state of readiness relative to the Year 2000 Problem and the Company's possible exposure to Year 2000 issues of such third parties. However, there can be no guarantee that the systems of other companies, which the Company's systems may rely upon, will be timely converted or representations made to the Company by these parties are accurate. As a result the failure of a major vendor or supplier to adequately address their Year 2000 Problem could have a significant adverse impact on the Company's operations. Planning for the Year 2000 Problem, including contingency planning, is significantly complete and will be revised, if necessary. Forward Looking Statements The Private Securities Litigation Reform Act of 1997 provides a "safe harbor" for certain forward-looking statements. Certain matters discussed in this filing could be characterized as forward-looking statements such as statements relating to plans for future expansion, as well as other capital spending, financing sources and effects of regulation and competition. Such forward-looking statements involve important risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - None (b) Reports on Form 8-K - none. Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. RIVIERA HOLDINGS CORPORATION By: /s/ William L. Westerman William L. Westerman Chairman of the Board and Chief Executive Officer By:/s/ Duane Krohn Duane Krohn Treasurer and Chief Financial Officer Date: May 7, 1999 EX-27 2 RIVIERA FIRST QUARTER 1999 FDS
5 1 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 39,805,000 0 6,842,700 1,650,700 2,385,000 50,852,000 232,905,000 49,050,600 242,735,000 25,740,000 175,000,000 0 0 5,068,000 0 242,735,000 43,846,000 40,297,000 0 36,438,000 51,000 0 3,556,000 252,000 87,000 0 0 0 0 166,000 0.03 0.03
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