====================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 [No Fee Required]
For the fiscal year ended December 31, 2001.
[ ] Transition report pursuant to sections 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
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 of Incorporation) (I.R.S. Employer Identification No.)
2901 Las Vegas Boulevard South
Las Vegas, Nevada 89109
- --------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (702) 734-5110
--------------
Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO _____
-----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or amendment
to this Form 10-K.
Based on the average bid price for the Registrant's Common Stock as
of March 18, 2002, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was approximately $18,546,950. As of March 18,
2002 the number of outstanding shares (net of treasury shares) of the
Registrant's Common Stock was 3,566,721.
Documents incorporated by reference:
====================================================================
Page 1 of 40 pages
Exhibit Index Appears on Page 35 hereof.
1
RIVIERA HOLDINGS CORPORATION AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 2001
TABLE OF CONTENTS
Item 1. Business.....................................................................................3
General ..................................................................................3
Riviera Las Vegas.........................................................................3
Riviera Black Hawk........................................................................7
Geographical Markets......................................................................8
Management Activities.....................................................................9
Competition............................................................................. 10
Employees and Labor Relations............................................................11
Regulation and Licensing.................................................................12
Federal Registration.....................................................................20
Item 2. Properties..................................................................................20
Item 3. Legal Proceedings...........................................................................21
Item 4. Submission of Matters to a Vote of Security Holders.........................................21
Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters................22
Item 6. Selected Financial Data.....................................................................22
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.......23
Results of Operations....................................................................23
2001 Compared to 2000....................................................................23
2000 Compared to 1999....................................................................25
Liquidity and Capital Resources..........................................................27
Critical Accounting Policies.............................................................29
Accounting pronouncements................................................................29
Item 7A. Qualitative and Quantitative Disclosure About Market Risk...................................31
Forward Looking Statements...............................................................31
Item 8. Financial Statements and Supplementary Data.................................................32
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........32
Item 10. Directors and Executive Officers of the Registrant..........................................32
Item 11. Executive Compensation......................................................................32
Item 12. Principal Shareholders......................................................................32
Item 13. Certain Relationships and Related Transactions .............................................32
Item 14. Exhibits and Reports on Form 8-K............................................................33
2
PART I
Item 1. Business
General
Riviera Holdings Corporation, a Nevada corporation (the Company),
through its wholly owned subsidiary, Riviera Operating Corporation, a Nevada
corporation, owns and operates the Riviera Hotel & Casino (Riviera Las Vegas)
located on Las Vegas Boulevard in Las Vegas, Nevada. Opened in 1955, the Riviera
Las Vegas has developed a long-standing reputation for delivering high quality,
traditional Las Vegas-style gaming, entertainment and other amenities.
Riviera Holdings Corporation, through its wholly owned subsidiary,
Riviera Black Hawk, Inc., owns and operates the Riviera Black Hawk Casino
(Riviera Black Hawk) a limited-stakes casino in Black Hawk, Colorado which
opened on February 4, 2000.
Riviera Las Vegas
General
Riviera Las Vegas is located on the corner of Las Vegas Boulevard and
Riviera Boulevard in Clark County, Nevada, across from Circus Circus. Riviera
Las Vegas targets slot and mid-level table game customers with a focus on
creating repeat customers and increasing walk-in traffic. Key elements of this
strategy include offering a value-oriented experience by providing a variety of
hotel rooms, restaurants and entertainment, with some of Las Vegas' most popular
shows, all at reasonable prices.
Gaming
Riviera Las Vegas has 110,000 square feet of casino space. The casino
currently has approximately 1,500 slot machines and 34 gaming tables, including
blackjack, craps, roulette, pai gow poker, Caribbean Stud(R) poker, Let It
Ride(R) and mini-baccarat. The casino also includes a keno lounge and a 200-seat
race and sports book.
Gaming operations at Riviera Las Vegas are continually updated to
respond to both changing market conditions and customer demand in an effort to
attract new customers and encourage repeat customer business through player
tracking and database management. We maintain a slot players club, through which
members receive special promotions and targeted mailings. New and innovative
slot and table games have been introduced based on customer feedback. Management
devotes substantial time and attention to the type, location and player activity
of all its slot machines. We maintain a capital investment program for the
upgrade of our slot machines.
Our current management team redirected our business away from
high-stakes wagerers in favor of the less volatile mid-level gaming customers.
In order to effectively pursue this strategy, we made several strategic changes
including reconfiguring the casino space, installing new slot machines and bill
acceptors, reducing the number of gaming tables and eliminating the baccarat
room. In addition, we implemented stricter credit policies. As a result, the
percentage of table game dollar volume represented by credit play declined from
approximately 24% in 1993 to 6% in 2001. Also, in 2001, revenues from slots and
tables were approximately 78% and 22% of total gaming revenue, respectively, as
compared to 60% and 34%, respectively, in 1993.
During 2001, we continued a number of initiatives at Riviera Las
Vegas to increase slot play, including the replacement of older slot machines
and maintaining our slot host program. Slot hosts are our employees who interact
with patrons as goodwill ambassadors to generate loyalty. Our strategy is to
continue to increase slot play through marketing programs and other
improvements, including (i) our ongoing slot upgrade program, (ii) addition of
new signage, (iii) promotion of the Riviera Las Vegas Player's Club, (iv)
sponsorship of slot tournaments, (v) creation of promotional programs, (vi)
marketing of the "Slot Frenzy" and "$40 for $20(R)" slot promotions, and (vii)
"Nickel Town(R)". At the end of 1997, we opened Nickel Town on the corner of Las
Vegas Boulevard and Riviera Boulevard at the crosswalk from Circus Circus and
the local Las Vegas Boulevard bus stop. Nickel Town is comprised primarily of
nickel slot machines, the fastest growing segment of the Las Vegas slot market.
3
Hotel
Riviera Las Vegas' hotel is comprised of five hotel towers with
approximately 2,100 guest rooms, including 169 suites. Built in 1955 as part of
the original casino/hotel, the nine-story North Tower features 391 rooms and 11
suites. In 1967, the 12-story South Tower was built with 147 rooms and 31
suites. Another 220 rooms and 72 suites, including penthouse suites, were added
to the property through the construction of the 17-story Monte Carlo Tower in
1974. In 1977, the six-story San Remo Tower added 243 rooms and six suites to
the south side of the resort. The most recent phase of hotel expansion was
completed in 1988 upon the opening of the 930 room, 49 suite, 24-story Monaco
Tower. By the end of 2001 we completed refurbishment of all of our approximately
2,100 hotel rooms and suites. Despite the significant increase in rooms on the
Las Vegas Strip since 1997, we believe Riviera Las Vegas has attained room
occupancy rates that are among the highest on the Las Vegas Strip with 97.5% for
1994, 97.0% for 1995, 98.2% for 1996, 95.7% for 1997, 95.2% for 1998, 97.5% for
1999, 96.6% for 2000 and 91.5% for 2001 (based on available rooms). The average
occupancy rate citywide was 88.9% in 2001 according to the Las Vegas Convention
and Visitors Authority.
Restaurants
The quality, value and variety of food services are critical to
attracting Las Vegas visitors. Riviera Las Vegas offers five (5) bars and four
(4) restaurants and serves an average of approximately 5,312 meals per day,
including banquets and room service. Riviera completely remodeled its buffet in
2001 upgrading the ambiance and food quality, featuring cuisine from various
countries as well as a carving station. The following table outlines, for each
restaurant, the type of service provided and total seating capacity:
Seating Capacity
Name Type
Kady's Coffee Shop 290
Kristofer's Steak and Seafood 162
Ristorante Italiano Italian 126
World's Fare Buffet All-you-can-eat 366
---
944
===
In addition, Riviera Las Vegas operates a snack bar and continental
breakfast buffet as well as a fast-food court operated by a third party. The
food court has 200 seats and several fast-food restaurants, including Burger
King(R), Pizza Hut(R), Panda Express(R), Quiznos(R) and La Salsa(R).
Convention Center
Riviera Las Vegas features 160,000 square feet of convention, meeting
and banquet space. The convention center is one of the largest in Las Vegas and
is an important feature that attracts customers. The facility can be
reconfigured for multiple meetings of small groups or large gatherings of up to
5,000 people. Riviera Las Vegas hosted approximately 382 conventions in 2001.
The hotel currently has over 740,000 convention related advance bookings of
rooms through 2005 consisting of approximately 490,700 definite bookings and
approximately 249,360 tentative bookings. In 2001 approximately 30.4% of the
rooms were occupied for conventions, and management estimates that 32.5% of its
rooms will be occupied for conventions in 2002.
The Royal Pavilion portion of the convention center, which opened in
February 1999, and represents approximately 60,000 square feet of our convention
facility, features state-of-the-art convention, meeting and banquet facilities,
teleconferencing and satellite uplink capability and twelve (12) skyboxes.
Entertainment
Riviera Las Vegas has one of the most extensive entertainment
programs in Las Vegas, offering five different regularly scheduled shows and
special appearances by headline entertainers in concert. We believe
entertainment provides an attractive marketing tool to attract customers to the
Riviera. Riviera Las Vegas' entertainment program includes such well received
shows as Splash(R) (a variety show), An Evening at La Cage(R) (a female
impersonation show), Crazy Girls(R) (an adult revue), as well as featured
comedians at the Riviera Comedy Club. We update our shows continually in
response to customer surveys and to keep them fresh. Tickets for the shows are
offered at reasonable prices in keeping with our emphasis on mid-level
customers. The Riviera Mardi Gras shows of "La Cage" and the "Comedy Club"
received First Place and Third Place awards, respectively, for "Best Las Vegas
Shows" from What's On Magazine.
4
The following table outlines, for each entertainment center, the type
of service provided and total seating capacity:
Name Type Seating Capacity
Splash Variety 875
La Cage Female impersonation 575
Crazy Girls Adult Revue 375
Comedy Club Comedy 350
Le Bistro Variety 190
-----
2,365
=====
In addition, Riviera Las Vegas presents major concerts which since
1998 have included performers such as The Beach Boys, Billy Ray Cyrus, Rich
Little, Drew Carey, Damon Wayans, Titus, Brett Butler and D.L. Hughley. The
addition of the Royale Pavilion has enabled us to increase attendance at special
events since, in the past, the then existing facilities could not accommodate
the demand for tickets.
We believe that our substantial entertainment revenue is attributable
to the popularity of the in-house productions supplemented by focused marketing
and consistent advertising messages.
Future Expansions
We continue to explore the possible development of an approximately
60,000 square-foot entertainment complex to be constructed directly over the
casino, which could contain a specialty themed restaurant, and entertainment
that will appeal to the Riviera Las Vegas' main target audience, adults aged 45
to 65. The exit from the complex would be by an escalator delivering patrons to
the casino. We would require partners to finance, develop and operate the
entertainment attraction and restaurant. To date no such partners have been
identified.
We are exploring a number of options for the development of our
existing 26-acre site. These options include a joint venture for the development
of a time-share condominium tower or an additional hotel tower and parking
garage. Under the terms of our $175 million Bond Indenture, we could contribute
up to 6 acres of land to such projects and if we decide to develop a time-share
tower a third party would construct and sell time-share units and arrange
financing. We believe that additional rooms adjacent to the Las Vegas Convention
Center would be particularly attractive to business customers and would provide
a base for additional casino customers. The development of a time-share tower,
hotel tower or parking facility would require additional financing and, in the
case of the time-share tower, a joint venture partner, none of which we have in
place at this time.
Marketing Strategies-Las Vegas
We have developed a marketing program intended to develop a loyal
following of repeat slot and mid-level table game customers. We believe we have
been able to successfully attract these patrons using Riviera Las Vegas'
restaurants, hotel accommodations and entertainment and by focusing on customer
service. We have adopted a selective approach to the extension of credit to
these customers in order to reduce volatility of operating results. We use our
research data to tailor promotional offers to the specific tastes of targeted
customers. All slot and table players are encouraged to join the Riviera Las
Vegas Player's Club and to fill out surveys that provide us with personal
information and preferences and tracks their level of play. Members of the
Riviera Las Vegas Player's Club earn bonus points based upon their level of
play, redeemable for free gifts, complimentary services or cash rebates.
Promotional offers are made to qualifying customers through direct mail and
telemarketing.
Riviera Las Vegas will continue to emphasize marketing programs that
appeal to slot and mid-level table game customers with a focus on creating
repeat customers and increasing walk-in traffic. In addition, a key marketing
focus is expanding Riviera Las Vegas' core conventioneer customer base. In
developing an overall marketing program, we conduct extensive, ongoing research
of our target customers' preferences through surveys, one-on-one interviews and
focus groups.
Create Repeat Customers
Generating customer loyalty is a critical component of our business
strategy as retaining customers is less expensive than attracting new ones. We
have developed a focused and coordinated marketing program intended to develop a
5
loyal customer base which emphasizes (i) providing a high level of service to
our customers to ensure an enjoyable experience while at the Riviera Las Vegas,
(ii) responding to customer surveys and (iii) focusing marketing efforts and
promotional programs on customers with positive gaming profiles. We use our
research data to tailor promotional offers to the specific tastes of targeted
customers. All slot and table players are encouraged to join the Riviera Las
Vegas Player's Club which tracks their level of play, and to fill out surveys
that provide the Riviera Las Vegas with personal information and preferences.
Members of the Riviera Las Vegas Player's Club earn bonus points based upon
their level of play, redeemable for free gifts, complimentary services or cash
rebates. Promotional offers are made to qualifying customers through direct mail
and telemarketing. We design promotional offers targeted at certain mid-level
gaming patrons that are expected to provide significant revenues based upon
their historical gaming patterns. We contact these customers through a
combination of direct mail and telemarketing by an in-house marketing staff and
independent representatives located in major cities. Riviera Las Vegas uses a
proprietary database which is linked to our player tracking system to help
identify customers' requirements and preferences, thereby allowing Riviera Las
Vegas to customize promotions to attract repeat visitors. We offer customers
personalized service, credit availability and access to a variety of
complimentary or reduced-rate room, dinner and entertainment reservations. We
use a specialized multi-tiered marketing approach to attract customers in each
of our major markets. Slot and table game tournaments and special events are
designed for specific levels of play. Utilizing our proprietary database our
marketing department then targets and invites the customers most appropriate for
the customized events. In addition, we host an array of special events,
including slot and table tournaments, designed to attract customers for an
extended stay. We have found that this individualized marketing approach has
provided significant revenues and profitable repeat business.
Provide Extensive Entertainment Options
We also focus on attracting our guests through a range of
entertainment opportunities. Riviera Las Vegas has one of the most extensive
entertainment programs in Las Vegas with four different regularly scheduled
shows and special appearances by headline entertainers. In addition to providing
a positive impact on our profitability, the shows attract additional gaming
revenue. Surveys indicate that approximately 30% of the show patrons come from
outside the hotel and approximately 67% of these individuals gamble at Riviera
Las Vegas before or after the shows.
Attract Walk-In Traffic
We seek to maximize the number of people who patronize the Riviera
Las Vegas who are not guests in the hotel by capitalizing on Riviera Las Vegas'
prime Strip location, convention center proximity and the Riviera's several
popular in-house productions. Riviera Las Vegas is well situated on the Las
Vegas Strip near Circus Circus, Stardust Hotel & Casino, Westward Ho Casino &
Hotel, Sahara Hotel & Casino, Las Vegas Hilton and the Las Vegas Convention
Center. We strive to attract customers from those facilities, as well as
capitalize on the visitors in Las Vegas in general, with the goal of increasing
walk-in traffic by (i) the development and promotion of Nickel Town, (ii)
providing a variety of quality, value-priced entertainment and dining options,
and (iii) promoting "Slot Frenzy," the "Free Pull" and the "$40 for $20" slot
promotions, and placing them inside the casino.
Focus on Convention Customers
This market consists of two groups: (i) those trade organizations and
groups that hold their events in the banquet and meeting space provided by a
single hotel and (ii) those attending city-wide events, usually held at the Las
Vegas Convention Center. Riviera Las Vegas targets convention business because
it typically provides patrons willing to pay higher room rates and we are able
to provide certain advance planning benefits, since conventions are usually
booked two years in advance of the event date. We focus our marketing efforts on
conventions whose participants have the most active gaming profile and higher
room rate, banquet and function spending habits. Riviera Las Vegas also benefits
from our proximity to the Las Vegas Convention Center which makes us attractive
to city-wide conventioneers looking to avoid the congestion that occurs during a
major convention, particularly at the south end of the Las Vegas Strip. In 2001
we derived approximately 30.4% of our hotel occupancy from convention customers
and consider them a critical component of our customer base. We believe that the
completed expansion of the Riviera Las Vegas' convention facility in February
1999, from 100,000 to 160,000 square feet, has accommodated the growth in size
and number of groups that presently use the facility, attracted new convention
groups and increased the percentage of rooms occupied by conventioneers.
Tour and Travel Operators
We have found that many of our customers use tour and travel
"package" options to reduce the cost of travel, lodging and entertainment. These
packages are produced by wholesale operators and travel agents and emphasize
6
mid-week stays. Tour and travel patrons often book at off-peak periods enabling
us to maintain occupancy rates at the highest levels throughout the year. We
have developed specialized marketing programs and cultivated relationships with
wholesale operators, travel agents and major domestic air carriers to expand
this market. Our four largest tour and travel operators currently account for
approximately 26.3% of the available 2,100 room bookings per night. We make an
effort to convert many tour and travel customers who meet our target customer
gaming profile into repeat slot customers.
Riviera Black Hawk
Business
Our wholly owned subsidiary, Riviera Black Hawk, opened on February
4, 2000. Located in Black Hawk, Colorado, approximately 40 miles west of Denver,
our casino is one of the first three encountered when traveling from Denver to
the adjacent gaming cities of Black Hawk and Central City. Our casino features
the fourth largest number of gaming devices in the market with approximately 986
slot machines and 12 blackjack tables. In Colorado, each slot machine and each
table game is considered one gaming device.
We also offer a variety of non-gaming amenities designed to further
differentiate our casino including:
o parking for 520 vehicles, of which 92% are covered, with convenient and
free self-park and valet options;
o a newly remodeled 252-seat casual buffet-styled restaurant;
o a Pizza Hut(R);
o two themed bars; and
o an entertainment center with seating for approximately 440 people.
The initial participants in this market were small, privately held
gaming facilities whose inability to offer convenient parking and a full range
of traditional casino amenities limited the growth of this market. Subsequently,
larger casinos offering such amenities have entered the market, have been
gaining market share and have contributed to the consistent growth in the
overall market. As of December 31, 2001, there were 25 casinos in the Black
Hawk/Central City market, with 11 casinos each offering more than 400 gaming
devices. Isle of Capri, located across the street from our casino with
approximately 1,145 gaming machines and 1,000 covered parking spaces, has been
the market leader in terms of win per gaming device. The Hyatt Casino with 1,332
gaming machines and 22 table games opened on December 20, 2001.
Marketing strategy
We attract customers to our casino by implementing marketing
strategies and promotions designed specifically for this market. In so doing, we
hope to create customer loyalty and benefit from repeat visits by our customers.
Specific marketing programs to support this strategy include the Riviera Black
Hawk Player's Club and "V.I.P." services offered to repeat gaming customers. The
Riviera Black Hawk Player's Club is a promotion that rewards casino play and
repeat visits to the casino with various privileges and amenities such as cash
bonuses, logo gift items and invitations to special events, such as parties and
concerts. We have used the Player's Club promotion in our casino in Las Vegas
and, in our capacity as manager of the Riviera Black Hawk, are tailoring it for
the Black Hawk/Central City market to implement at our casino. "V.I.P." services
are available to the highest level of players and include special valet and
self-parking services, complimentary food and entertainment offerings and
special events specifically designed for this group of customers.
We benefit from strong "walk-in" traffic due to the proximity of our
casino to the Colorado Central Station and the Isle of Capri Casino. We have and
continue to develop specific marketing programs designed to attract these
"walk-in" customers. We emphasize quality food and beverage amenities with
customer friendly service as a marketing tool. In addition, we provide
entertainment programs designed to meet the tastes of the Black Hawk/Central
City market, such as live music performances by popular regional and national
groups, comedians and boxing.
7
We rely on database marketing in order to best identify target
customer segments of the population and to tailor the casino's promotions and
amenities to our core group of customers. We use the current database to
identify and stratify slot players living primarily in Colorado for appropriate
incentives. Approximately 150,000 of these slot players have been identified as
of December 31, 2001. In addition, we promote our casino by advertising in
newspapers, on billboards and on the radio in the local areas.
Geographical Markets
The Las Vegas Market
Las Vegas is one of the largest and fastest growing entertainment
markets in the country. According to the Las Vegas Convention and Visitors
Authority, the number of visitors who traveled to Las Vegas during the 14-year
period from 1986 through 2000 increased at a steady and significant rate from
15.2 million in 1986 to 35.8 million in 2000, a compound annual growth rate of
6.3%. Just over 35 million people visited Las Vegas in 2001, a 2.3% decline from
2000. Visitor volume dropped drastically following the September 11 terrorist
attacks. Clark County gaming continued to be a strong and growing business with
Clark County gaming revenues increasing at a compound annual growth rate of 8.7%
from $2.4 billion in 1986 to just under $7.7 billion in 2000. Clark County
gaming revenues dropped 0.1% to just over $7.6 billion in 2001. The terrorist
attacks of September 11, 2001 have had, and may continue to have, an adverse
effect on the number of visitors traveling to Las Vegas.
Gaming and tourism are the major attractions of Las Vegas,
complemented by warm weather and the availability of many year-round
recreational activities. Although Las Vegas' principal markets are the western
region of the United States, most significantly Southern California and Arizona,
Las Vegas also serves as a destination resort for visitors from all over the
world. A significant percentage of visitors originate from Latin America and
Pacific Rim countries such as Japan, Taiwan, Hong Kong and Singapore. The events
of September 11, 2001 have had, and may continue to have, an adverse impact on
the number of Latin American and Pacific Rim visitors coming to Las Vegas. Japan
Air Lines ceased its daily non-stop service between Tokyo and Las Vegas after
September 11 but has plans of reinstituting that service in March 2002.
Historically, Las Vegas has had one of the strongest hotel markets in
the country. The number of hotel and motel rooms in Las Vegas has increased by
over 85% from approximately 67,000 at the end of 1989 to 126,610 at the end of
2001, giving Las Vegas the most hotel and motel rooms of any metropolitan area
in the world. Despite this significant increase in the supply of rooms, the Las
Vegas hotel occupancy rate exceeded 84% for each of the years from 1993 through
2001. During the calendar year 2001 approximately 2,340 hotel rooms opened as a
result of the opening of the Palms and Green Valley Ranch casinos, which are off
the strip.
We believe that the growth in the Las Vegas market has been enhanced
as a result of (i) a dedicated program by the Las Vegas Convention and Visitors
Authority and major Las Vegas casino/hotels to promote Las Vegas as a major
convention site, (ii) the increased capacity of McCarran Airport and (iii) the
introduction of large themed "must see" destination resorts in Las Vegas. In
1988, approximately 1.7 million delegates attended conventions in Las Vegas and
generated approximately $1.3 billion of economic impact. Even though the
terrorist attacks negatively impacted major city-wide conventions, the number of
convention delegates had increased to 4.0 million in 2001 with in excess of $4.8
billion of economic impact.
During the past eight years, McCarran Airport has expanded its
facilities to accommodate the increased number of airlines and passengers which
it services. The number of passengers traveling through McCarran Airport has
increased from approximately 22.5 million in 1993 to an estimated 35.2 million
in 2001. Construction has recently been completed on numerous roadway
enhancements to improve access to the Airport. McCarran Airport is ranked among
the 10 busiest airports in the world based on passenger activity.
The Black Hawk/Central City Market
Gaming was first introduced to the Black Hawk/Central City market in
October 1991 following a state-wide referendum where Colorado voters approved
limited stakes gaming for three historic mining towns, namely Black Hawk,
Central City and Cripple Creek. Limited stakes gaming is defined as a maximum
single bet of $5. Black Hawk and Central City are contiguous cities located
approximately 40 miles west of Denver and about 10 miles north of Interstate
Highway 70, the main east-west artery from Denver. Historically, these two gold
8
mining communities were popular tourist towns. However, since the inception of
casino gaming in October 1991, gaming establishments has displaced many of the
former tourist-related businesses.
The first casino in the Black Hawk/Central City market was opened in
October 1991 with 14 casinos open by the end of that year. The pace of expansion
increased further in 1992 with the number of casinos in the market peaking at 42
casinos. However, due to a trend of consolidation in the market and the
displacement of small casinos by the entry of larger, better capitalized
operators, the number of casinos has declined to 25 as of December 31, 2001.
The Black Hawk/Central City market primarily caters to "day-trip"
customers from Denver, Boulder, Fort Collins and Golden as well as Cheyenne,
Wyoming. We believe an estimated adult population exceeding 2.4 million people
resides within this 100-mile radius of Black Hawk. In addition, we believe that
residents within a 100-mile radius of the City of Black Hawk had an estimated
average household income in excess of $50,000 per annum in 2001.
Since 1992, the number of gaming devices in the Black Hawk/Central
City market has grown approximately 78% from 7,252 devices in 1992 to 12,907
devices in 2001. Win per gaming device per day has continued to grow despite the
increase in the number of gaming devices. Gaming revenues in the Black
Hawk/Central City market grew by 8.2% in 2001 over 2000. The City of Black Hawk
itself experienced a 10.3% increase in gaming revenue in 2001.
The City of Black Hawk has experienced more significant growth in
gaming revenues than Central City since 1992. The popularity of Black Hawk in
comparison to Central City is due primarily to Black Hawk's superior access to
major highways, as patrons must first pass through Black Hawk to access Central
City from Denver. Due to this superior location, larger casino operators have
focused on building in the City of Black Hawk. As a result, casinos in Black
Hawk now generally feature a larger average number of gaming devices, a wider
variety of amenities and convenient free parking for patrons. These factors have
contributed to growth in Black Hawk gaming revenues of 783% since 1992 compared
to a negative growth for Central City of 16% over the same period. The number of
gaming devices in the City of Black Hawk has increased 242% since 1992, while
the number of gaming devices in Central City has declined 43% over the same
period.
Management Activities
In order to capitalize on our expertise and reputation as successful
operators of casino properties, we formed Riviera Gaming Management, Inc., our
wholly owned subsidiary, for the primary purpose of obtaining casino management
contracts in Nevada and other jurisdictions. Riviera Gaming Management provides
services such as assisting new venue licensee applicants in designing and
planning their gaming operations and managing the start-up of new gaming
operations. These services include casino design, equipment selection, employee
recruitment and training, control and accounting systems development and
marketing programs. We believe that management contracts provide high margin
income with limited additional overhead and little or no capital expenditure
requirements. We are continually evaluating opportunities to manage other
casinos/hotels. Our objective is to obtain the right to a substantial equity
position in projects we would manage as part of the compensation for our
services.
Four Queens Management Agreement
Riviera Gaming Management-Elsinore, Inc., our indirect wholly owned
subsidiary, operated the Four Queens Hotel and Casino, located adjacent to the
Golden Nugget on Fremont Street in Downtown Las Vegas, pursuant to a Management
Agreement effective as of February 27, 1997. This agreement terminated on
December 30, 1999.
Other Management Opportunities
We are continuously reviewing opportunities to expand and become a
multi-jurisdictional casino company with greater capital resources to enable us
to compete more effectively. The jurisdictions include, but are not limited to,
California, Mississippi, Pennsylvania, Missouri, New Mexico and Iowa. We may
also become involved in financially distressed casino properties where we
believe we may be able to effect a turn-around (similar to that which we
achieved at Riviera Las Vegas) and can obtain a significant equity stake. On
September 29, 1999, Riviera Gaming Management entered into an agreement with
Peninsula Gaming LLC to provide consulting services to Diamond Jo's Riverboat
Casino in Dubuque, Iowa. This agreement terminated on September 30, 2000.
9
Competition
Las Vegas, Nevada
Intense competition exists among companies in the gaming industry,
many of which have significantly greater resources than our Company. Riviera Las
Vegas faces competition from all other casinos and hotels in the Las Vegas area.
We believe that our most direct competition comes from certain large
casino/hotels located on or near the Las Vegas Strip which offer amenities and
marketing programs similar to those offered by the Riviera Las Vegas.
At December 31, 2001, the Las Vegas Convention and Visitors Authority
indicated that there were 24 casinos on the Las Vegas Strip which had over 1,000
available hotel rooms. Riviera Las Vegas is ranked as the 20th largest Las Vegas
Strip hotel/casino, based upon number of available hotel rooms.
Las Vegas gaming square footage and room capacity are continuing to
grow and are expected to continue to increase during the next several years.
During calendar year 2001, approximately 2,340 new hotel rooms opened, and as of
December 31, 2001, there were no hotel rooms under construction. Existing and
future expansions, additions and enhancements to existing properties and
construction of new properties by our competitors could divert additional
business from our facilities. There can be no assurance that we will compete
successfully in the Las Vegas market in the future.
During 2001, available room nights in the Las Vegas market increased
from 44.7 million to 45.6 million or 2.1%, while total room nights occupied
decreased from 39.8 million to an estimated 38.6 million, or 2.9%. The ending
room inventory at December 31, 2001 was 126,610 compared to 124,270 at December
31, 2000, an increase of 2,340 rooms or 1.9%. This has had the effect of
intensifying competition. At Riviera Las Vegas, room occupancy decreased from
96.7% in 2000 to 91.6% in 2001 (still much higher than the Las Vegas Strip
average). However, room rates increased by $3.52, or 6.0% from $58.86 in 2000 to
$62.46 in 2001, due primarily to an increase in convention rooms sold and a
reduction in tour and travel rooms sold as a result of the September 11th
terrorist attacks.
We also compete to some extent with casinos in other states,
riverboat and Native American gaming ventures, state-sponsored lotteries, on-
and off-track wagering, card parlors and other forms of legalized gaming in the
United States, as well as with gaming on cruise ships and international gaming
operations. In addition, certain states have recently legalized or are
considering legalizing casino gaming in specific geographical areas within those
states. Any future development of casinos, lotteries or other forms of gaming in
other states, particularly areas close to Nevada, such as California, could have
a material adverse effect on our results of operations.
The number of casinos on Indian lands has increased since the
enactment of the Indian Gaming Regulatory Act of 1988. The voters in the State
of California addressed this issue on March 7, 2000 when they voted in favor of
Proposition 1A, an amendment to the California State constitution that allows
Las Vegas-style gambling on Indian lands in the state. While new gaming
jurisdictions have traditionally not materially impacted Las Vegas, the
expansion of gaming into California poses a more serious threat to the continued
growth of Las Vegas.
Our current business is highly dependent on gaming in Las Vegas.
Riviera Las Vegas derives a substantial percentage of its business from
tourists, principally from Southern California and the southwestern United
States. Weakness in the economy of Southern California has in the past, and
could in the future, adversely affect our financial results. Recent power
shortages, and possible utility rate increases in California could also
adversely affect our financial results. The events of September 11, 2001 have
had the most serious effect, and could continue to have an adverse effect on our
financial results.
Black Hawk, Colorado
The Black Hawk/Central City gaming market is characterized by intense
competition. The primary competitive factors in the market are location,
availability and convenience of parking, number of slot machines and gaming
tables, promotional incentives, hotel rooms, types and pricing of non-gaming
amenities, name recognition and overall atmosphere. Our main competitors are the
larger gaming facilities, particularly those with considerable on-site or nearby
parking and established reputations in the local market. As of December 31, 2001
there were 25 gaming facilities in the Black Hawk market with 11 casinos each
offering more than 400 gaming positions. The Hyatt Casino, which features 1,335
slot machines, opened on December 20, 2001. Other projects have also been
10
announced, proposed, discussed or rumored for the Black Hawk/Central City
market.
The gaming facilities near the intersection of Main and Mill Streets
provide significant competition to our casino. Colorado Central Station, which
has been one of the most successful casinos in Colorado, is located across the
street from our casino and has approximately 700 slot machines, 20 gaming tables
and approximately 700 valet parking spaces. The Isle of Capri Casino, the most
successful casino in Colorado, operated by Casino America, which opened in
December 1998, is located directly across the street from our casino and
features approximately 1,145 slot machines, 14 table games, 1,000 parking
spaces, and 235 hotel rooms.
The number of hotel rooms currently in the Black Hawk/Central City
market is approximately 450, with only three gaming facilities providing hotel
accommodations to patrons. These include Harvey's Wagon Wheel Casino Hotel with
approximately 120 rooms, the Lodge at Black Hawk with approximately 50 rooms and
the Isle of Capri Casino with 235 rooms. Casinos offering hotel accommodations
for overnight stay may have a competitive advantage over our casino. However, we
believe that self-parking is a more effective utilization of our available space
and that providing hotel accommodations will not be a significant factor, but
instead will contribute to growth in the overall market.
Historically, the city of Black Hawk has enjoyed an advantage over
Central City because customers have to drive through Black Hawk to reach Central
City. Central City has received approval for the development of a road directly
connecting Central City and Black Hawk with Interstate 70 which would allow
customers to reach Central City without driving by or through Black Hawk. There
remain significant financial obstacles to the development of this road and it is
uncertain whether it will be developed over the near to intermediate term, or
developed at all.
Currently, limited stakes gaming in Colorado is constitutionally
authorized in Central City, Black Hawk, Cripple Creek and two Native American
reservations in southwest Colorado. However, gaming could be approved in other
Colorado communities in the future. The legalization of gaming closer to Denver
would likely have a material adverse effect on our future results of operations.
We also compete with other forms of gaming in Colorado, including lottery
gaming, and horse and dog racing as well as other forms of entertainment.
It is also possible that new forms of gaming could compete with our
casino. Currently, Colorado law does not authorize video lottery terminals.
However, Colorado law permits the legislature, with executive approval, to
authorize new types of lottery gaming, such as video lottery terminals. Video
lottery terminals are games of chance, similar to slot machines, in which the
player pushes a button that causes a random set of numbers or characters to be
displayed on a video screen. The player may be awarded a ticket, which can be
exchanged for cash or credit play. This form of gaming could compete with slot
machine gaming.
Pursuant to a license agreement, Riviera Las Vegas licenses the use
at the Black Hawk casino of all of the trademarks, service marks and logos used
by Riviera Las Vegas. In addition, the license agreement provides that
additional trademarks, service marks and logos acquired or developed by us and
used at our other facilities will be subject to the license agreement.
Employees and Labor Relations
Riviera Las Vegas
As of December 31, 2001 Riviera Las Vegas had approximately 1,411
full-time equivalent employees and had collective bargaining contracts with
eight unions covering approximately 813 of such employees including food and
beverage employees, rooms department employees, carpenters, engineers, stage
hands, musicians, electricians, painters and teamsters. Our agreements with the
Southern Nevada Culinary and Bartenders Union and Stage Hands Union, which cover
the majority of our unionized employees, were renegotiated in 1998 and expire in
the year 2002. Collective Bargaining Agreements with the Operating Engineers and
Musicians expired in 1999. The Operating Engineers approved a new agreement that
expires in the year 2004. We are currently in negotiations with the Musicians
Union. The Agreements with the Carpenters and Painters expired in 2000. New
agreements, which expire in 2005, were negotiated with the Painters in 2000 and
Carpenters in 2001. New agreements were negotiated with the Teamsters in 1998
and Electricians in 1999 and expire in 2003 and 2004, respectively. On November
27, 2000, the Transport Workers Union filed a petition with the NLRB to
represent the Blackjack, Dice and Poker Dealers (or, the "Dealers"). On February
11
8 and 9, 2001, the Dealers voted against representation by this Union by a vote
of 107 to 61. This group totaled 190 at the time of the vote. Although unions
have been active in Las Vegas, we consider our employee relations to be
satisfactory. There can be no assurance, however, that new agreements will be
reached without union action or will be on terms satisfactory to us.
Riviera Black Hawk
Riviera Black Hawk opened on February 4, 2000 with approximately 450
employees. As of December 31, 2001, the total number of employees was 371. The
Black Hawk/Central City labor market is very competitive. Riviera Black Hawk
believes that it will be able to maintain its current employee level. There can
be no assurance, however, that new and existing casinos will not affect Riviera
Black Hawk's ability to maintain its current employee level.
There are currently no collective bargaining agreements in Black Hawk casinos.
Regulation and Licensing
Nevada
Nevada Gaming Authority
The ownership and operation of casino gaming facilities in Nevada are
subject to: (i) The Nevada Gaming Control Act and the regulations promulgated
thereunder (collectively, the "Nevada Act") and (ii) various local ordinances
and regulations. Our gaming operations are subject to the licensing and
regulatory control of the Nevada Gaming Commission (the "Nevada Commission"),
the State of Nevada Gaming Control Board, the Clark County Business Department
(collectively, the "Clark County Board"), collectively referred to as the
"Nevada Gaming Authorities."
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time and in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping and requiring the filing of periodic
reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and
fraudulent practices; and (v) providing a source of state and local revenues
through taxation and licensing fees. Changes in such laws, regulations and
procedures could have an adverse effect on our gaming operations.
Riviera Operating Corporation is required to be licensed by the
Nevada Gaming Authorities. The gaming license held by Riviera Operating
Corporation requires the periodic payment of fees and taxes and is not
transferable. Riviera Operating Corporation is also licensed as a manufacturer
and distributor of gaming devices. Such licenses also require the periodic
payment of fees and are not transferable. We are registered by the Nevada
Commission as a publicly traded corporation (a "Registered Corporation") and
have been found suitable to own the stock of Riviera Operating Corporation.
Riviera Operating Corporation is also registered by the Nevada Commission as an
intermediary company and has been found suitable to own the stock of Riviera
Gaming Management, which has been registered by the Nevada Commission as an
Intermediary company and has been found suitable to own the stock of its
subsidiary Riviera Gaming Management-Elsinore. Riviera Gaming
Management-Elsinore was licensed as the manager of the Four Queens. Riviera
Operating Corporation is, and Riviera Gaming Management-Elsinore was corporate
licensee ("Corporate Licensee") under the terms of the Nevada Act. As a
Registered Corporation, we are required periodically to submit detailed
financial and operating reports to the Nevada Commission and to furnish any
other information which the Nevada Commission may require. No person may become
a stockholder of, or receive any percentage of profits from, a Corporate
Licensee (a licensed casino) without first obtaining licenses and approvals from
the Nevada Gaming Authorities. We and Riviera Operating Corporation have
obtained, and Riviera Gaming Management and Riviera Gaming Management-Elsinore
previously obtained, from the Nevada Gaming Authorities, the various
registrations, approvals, permits, findings of suitability and licenses required
in order to engage in gaming activities and manufacturing and distribution
activities in Nevada. The management agreement for Riviera Gaming
Management-Elsinore to manage the Four Queens terminated December 30, 1999 and
therefore the registration and license of Riviera Gaming Management-Elsinore are
no longer in effect after that date.
12
All gaming devices that are manufactured, sold or distributed for use
or play in Nevada, or for distribution outside of Nevada, must be manufactured
by licensed manufacturers, distributed or sold by licensed distributors and
approved by the Nevada Commission. The approval process includes rigorous
testing by the Nevada Board, a field trial and a determination as to whether the
gaming device meets strict technical standards that are set forth in the
regulations of the Nevada Gaming Authorities. Associated equipment must be
administratively approved by the Chairman of the Nevada Board before it is
distributed for use in Nevada.
The Nevada Gaming Authorities may investigate any individual who has
a material relationship to, or material involvement with, us or Riviera
Operating Corporation in order to determine whether such individual is suitable
or should be licensed as a business associate of a gaming licensee. Officers,
directors and certain key employees of Riviera Operating Corporation must file
applications with the Nevada Gaming Authorities and may be required to be
licensed or found suitable by the Nevada Gaming Authorities. Our officers,
directors and key employees who are actively and directly involved in the gaming
activities of Riviera Operating Corporation may be required to be licensed or
found suitable by the Nevada Gaming Authorities. The Nevada Gaming Authorities
may deny an application for licensing for any cause which they deem reasonable.
A finding of suitability is comparable to licensing, and both require submission
of detailed personal and financial information followed by a thorough
investigation. The applicant for licensing or a finding of suitability must pay
all the costs of the investigation. Any change in a corporate position by a
licensed person must be reported to the Nevada Gaming Authorities and, in
addition to their authority to deny an application for a finding of suitability
or licensure, the Nevada Gaming Authorities have jurisdiction to disapprove a
change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director or
key employee unsuitable for licensing or unsuitable to continue having a
relationship with us or Riviera Operating Corporation, the companies involved
would have to sever all relationships with such person. In addition, the Nevada
Commission may require us or Riviera Operating Corporation to terminate the
employment of any person who refuses to file appropriate applications.
Determinations of suitability or of questions pertaining to licensing are not
subject to judicial review in Nevada.
We and Riviera Operating Corporation are required to submit detailed
financial and operating reports to the Nevada Commission. Substantially all
material loans, leases, sales of securities and similar financing transactions
by Riviera Operating Corporation must be reported to or approved by the Nevada
Commission.
If it were determined that the Nevada Act was violated by Riviera
Operating Corporation, the gaming license it holds could be limited,
conditioned, suspended or revoked, subject to compliance with certain statutory
and regulatory procedures. In addition, we or Riviera Operating Corporation and
the persons involved could be subject to substantial fines for each separate
violation of the Nevada Act at the discretion of the Nevada Commission. Further,
a supervisor could be appointed by the Nevada Commission to operate the casino
and, under certain circumstances, earnings generated during the supervisor's
appointment (except for reasonable rental value of the casino) could be
forfeited to the State of Nevada. Limitation, conditioning or suspension of the
gaming license of Riviera Operating Corporation or the appointment of a
supervisor could (and revocation of any gaming license would) materially
adversely affect our gaming operations.
Any beneficial holder of our voting securities, regardless of the
number of shares owned, may be required to file an application, be investigated,
and have his suitability as a beneficial holder of our voting securities
determined if the Nevada Commission has reason to believe that such ownership
would otherwise be inconsistent with the declared policies of the State of
Nevada. The applicant must pay all costs of investigation incurred by the Nevada
Gaming Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires more than 5% of a
Registered Corporation's (a corporate licensee) voting securities to report the
acquisition to the Nevada Commission. The Nevada Act requires that beneficial
owners of more than 10% of our voting securities apply to the Nevada Commission
for a finding of suitability within thirty days after the Chairman of the Nevada
Board mails the written notice requiring such filing. Under certain
circumstances, an "institutional investor," as defined in the Nevada Act, which
acquires more than 10%, but not more than 15%, of our voting securities may
apply to the Nevada Commission for a waiver of such finding of suitability if
such institutional investor holds our voting securities for investment purposes
only. An institutional investor shall not be deemed to hold our voting
securities for investment purposes unless the voting securities were acquired
and are held in the ordinary course of business as an institutional investor and
not for the purpose of causing, directly or indirectly, the election of a
majority of the members of our board of directors, any change in our corporate
charter, bylaws, management, policies or operations, or any of our gaming
affiliates, or any other action which the Nevada Commission finds to be
inconsistent with holding our voting securities for investment purposes only.
Activities which are deemed to be consistent with holding our voting securities
13
for investment purposes only include: (i) voting on all matters voted on by
stockholders; (ii) making financial and other inquiries of management of the
type normally made by securities analysts for informational purposes and not to
cause a change in its management, policies or operations; and (iii) such other
activities as the Nevada Commission may determine to be consistent with such
investment intent. If the beneficial holder of our voting securities who must be
found suitable is a corporation, partnership or trust, it must submit detailed
business and financial information including a list of beneficial owners. The
applicant is required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of suitability
or a license within thirty days after being ordered to do so by the Nevada
Commission or the Chairman of the Nevada Board, may be found unsuitable. The
same restrictions apply to a record owner if the record owner, after request,
fails to identify the beneficial owner. Any stockholder found unsuitable and who
holds, directly or indirectly, any beneficial ownership of the common stock
beyond such period of time as may be prescribed by the Nevada Commission may be
guilty of a criminal offense. We are subject to disciplinary action if, after we
receive notice that a person is unsuitable to be a stockholder or to have any
other relationship with us or Riviera Operating Corporation, we (i) pay that
person any dividend or interest upon voting our securities, (ii) allow that
person to exercise, directly or indirectly, any voting right conferred through
securities held by that person, (iii) pay remuneration in any form to that
person for services rendered or otherwise, or (iv) fail to pursue all lawful
efforts to require such unsuitable person to relinquish his voting securities
including, if necessary, the immediate purchase of said voting securities for
cash at fair market value. Additionally, the Clark County Board has the
authority to approve all persons owning or controlling the stock of any
corporation controlling a gaming licensee.
The Nevada Commission may, in its discretion, require the holder of
any of our debt security to file applications, be investigated and be found
suitable to own our debt security of a Registered Corporation, if it has reason
to believe that such ownership would be inconsistent with the declared policies
of the State of Nevada. If the Nevada Commission determines that a person is
unsuitable to own such security, then pursuant to the Nevada Act, we can be
sanctioned, including the loss of our approvals, if without the prior approval
of the Nevada Commission, we (i) pay to the unsuitable person any dividend,
interest, or any distribution whatsoever; (ii) recognize any voting right by
such unsuitable person in connection with such securities; (iii) pay the
unsuitable person remuneration in any form; or (iv) make any payment to the
unsuitable person by way of principal, redemption, conversion, exchange,
liquidation, or similar transaction.
We are required to maintain a current stock ledger in Nevada which
may be examined by the Nevada Gaming Authorities at any time. If any securities
are held in trust by an agent or by a nominee, the record holder may be required
to disclose the identity of the beneficial owner to the Nevada Gaming
Authorities. A failure to make such disclosure may be grounds for finding the
record holder unsuitable. We are also required to render maximum assistance in
determining the identity of the beneficial owner. The Nevada Commission has the
power to require our stock certificates to bear a legend indicating that the
securities are subject to the Nevada Act. However, to date, the Nevada
Commission has not imposed such a requirement on us.
We may not make a public offering of our securities without the prior
approval of the Nevada Commission if the securities or proceeds therefrom are
intended to be used to construct, acquire or finance gaming facilities in
Nevada, or to retire or extend obligations incurred for such purposes. In
addition, (i) a Corporate Licensee may not guarantee a security issued by a
Registered Corporation pursuant to a public offering, or hypothecate its assets
to secure the payment or performance of the obligations evidenced by such a
security, without the prior approval of the Nevada Commission, (ii) the pledge
of the stock of a Corporate Licensee ("Stock Pledge"), such as Riviera Operating
Corporation, is void without the prior approval of the Nevada Commission, and
(iii) restrictions upon the transfer of an equity security issued by a Corporate
Licensee or Intermediary company and agreements not to encumber such securities
(collectively, "Stock Restrictions") are ineffective without the prior approval
of the Nevada Commission.
Changes in control of Riviera Holdings Corporation through merger,
consolidation, stock or asset acquisitions, management or consulting agreements,
or any act or conduct by a person whereby he obtains control, may not occur
without the prior approval of the Nevada Commission. Entities seeking to acquire
control of a Registered Corporation must satisfy the Nevada Board and Nevada
Commission in a variety of stringent standards prior to assuming control of such
Registered Corporation. The Nevada Commission may also require controlling
stockholders, officers, directors and other persons having a material
relationship or involvement with the entity proposing to acquire control, to be
investigated and licensed as part of the approval process relating to the
transaction.
The Nevada legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and corporate defense
tactics affecting Nevada corporate gaming Licensees and Registered Corporations
14
that are affiliated with those operations, may be injurious to stable and
productive corporate gaming. The Nevada Commission has established regulations
to ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming Licensees and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly governance of corporate
affairs. Approvals are, in certain circumstances, required from the Nevada
Commission before the Registered Corporation can make exceptional repurchases of
voting securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada Act also
requires prior approval of a plan of recapitalization proposed by the Registered
Corporation's Board of Directors in response to a tender offer made directly to
the Registered Corporation's stockholders for the purposes of acquiring control
of the Registered Corporation.
License fees and taxes, computed in various ways depending on the
type of gaming or activity involved, are payable to the State of Nevada and to
the County in which the Riviera Operating Corporation, Riviera Gaming Management
and Riviera Gaming Management-Elsinore operations are conducted. Depending upon
the particular fee or tax involved, these fees and taxes are payable either
monthly, quarterly or annually and are based upon either: (i) a percentage of
the gross revenues received; (ii) the number of gaming devices operated; or
(iii) the number of table games operated. A casino entertainment tax is also
paid by casino operations where entertainment is furnished in connection with
the selling of food, refreshments or merchandise. Nevada Licensees that hold a
license to manufacture and distribute slot machines and gaming devices, such as
Riviera Operating Corporation, also pay certain fees and taxes to the State of
Nevada.
Any person who is licensed, required to be licensed, registered,
required to be registered, or is under common control with such persons
(collectively, "Licensees"), and who proposes to become involved in a gaming
venture outside of Nevada, is required to deposit with the Nevada Board, and
thereafter maintain, a revolving fund in the amount of $10,000 to pay the
expenses of investigation by the Nevada Board of their participation in such
foreign gaming. The revolving fund is subject to increase or decrease in the
discretion of the Nevada Commission. Thereafter, Licensees are required to
comply with certain reporting requirements imposed by the Nevada Act. Licensees
are also subject to disciplinary action by the Nevada Commission if they
knowingly violate any laws of the foreign jurisdiction pertaining to the foreign
gaming operation, fail to conduct the foreign gaming operation in accordance
with the standards of honesty and integrity required of Nevada gaming
operations, engage in activities or enter into associations that are harmful to
the State of Nevada or its ability to collect gaming taxes and fees, or employ,
have contact with or associate with a person in the foreign operation who has
been denied a license or finding of suitability in Nevada on the ground of
personal unsuitability.
Other Nevada Regulation
The sale of alcoholic beverages at Riviera Las Vegas is subject to
licensing, control and regulation by the Clark County Board. All licenses are
revocable and are not transferable. The Clark County Board has full power to
limit, condition, suspend or revoke any such license, and any such disciplinary
action could (and revocation would) have a material adverse affect upon the
operations of Riviera Operating Corporation.
Colorado
Colorado Gaming and Liquor Regulation
Summary
In general we, Riviera Black Hawk, our principal executive officers and
those of Riviera Holdings, and any of our employees who are involved in our
gaming operations, are required to be found suitable for licensure by the
Colorado Gaming Commission. Colorado also requires that significant stockholders
of 5% or more of our stock be certified as suitable for licensure. Riviera Black
Hawk's original retail gaming license was approved by the Colorado Gaming
Commission on November 18, 1999, and has been successfully renewed each
subsequent year.
Background
Pursuant to an amendment to the Colorado Constitution, limited stakes
gaming became lawful in the cities of Central City, Black Hawk and Cripple Creek
on October 1, 1991. Limited stakes gaming means a maximum single bet of five
dollars on slot machines and in the card games of blackjack and poker.
15
Limited stakes gaming is confined to the commercial districts of
these cities as defined by Central City on October 7, 1981, by Black Hawk on May
4, 1978, and by Cripple Creek on December 3, 1973. In addition, the Colorado
Amendment restricts limited stakes gaming to structures that conform to the
architectural styles and designs that were common to the areas prior to World
War I, and which conform to the requirements of applicable city ordinances
regardless of the age of the structures. Under the Colorado Amendment, no more
than 35% of the square footage of any building and no more than 50% of any one
floor of any building may be used for limited stakes gaming. Persons under the
age of 21 cannot participate in limited stakes gaming. The Colorado Amendment
also prohibits limited stakes gaming between the hours of 2:00 a.m. and 8:00
a.m., and allows limited stakes gaming to occur in establishments licensed to
sell alcoholic beverages.
Further, the Colorado Act provides that, in addition to any other
applicable license fees, up to a maximum of 40% of the total amounts wagered
less payouts to players may be payable by a licensee for the privilege of
conducting limited stakes gaming. Such percentage is to be established by the
Colorado Commission annually.
The Colorado Act declares public policy on limited stakes gaming to
be that: (1) the success of limited stakes gaming is dependent upon public
confidence and trust that licensed limited stakes gaming is conducted honestly
and competitively; the rights of the creditors of licensees are protected;
gaming is free from criminal and corruptive elements; (2) public confidence and
trust can be maintained only by strict regulation of all persons, locations,
practices, associations and activities related to the operation of licensed
gaming establishments and the manufacture or distribution of gaming devices and
equipment; (3) all establishments where limited gaming is conducted and where
gambling devices are operated, and all manufacturers, sellers and distributors
of certain gambling devices and equipment must therefore be licensed, controlled
and assisted to protect the public health, safety, good order and the general
welfare of the inhabitants of the state to foster the stability and success of
limited stakes gaming and to preserve the economy, policies and free competition
in Colorado; and (4) no applicant for a license or other affirmative commission
approval has any right to a license or to the granting of the approval sought.
Any license issued or other commission approval granted pursuant to the
provisions of this Article is a revocable privilege, and no holder acquires any
vested rights therein.
Regulatory Structure
The Colorado Act subjects the ownership and operation of limited
stakes gaming facilities in Colorado to extensive licensing and regulation by
the Colorado Commission. The Colorado Commission has full and exclusive
authority to promulgate, and has promulgated, rules and regulations governing
the licensing, conducting and operating of limited stakes gaming. The Colorado
Act also created the Colorado Division of Gaming within the Colorado Revenue
Department to license, regulate and supervise the conduct of limited stakes
gaming in Colorado. The division is supervised and administered by the Director
of the Division of Gaming.
Gaming licenses
The Colorado Commission may issue:
o slot machine manufacturer or distributor,
o operator,
o retail gaming,
o support, and
o key employee gaming licenses.
The first three licenses require annual renewal by the Colorado
Commission. Support and key employee licenses are issued for two-year periods
and are renewable by the Division Director. The Colorado Commission has broad
discretion to condition, suspend for up to six months, revoke, limit or restrict
a license at any time and also has the authority to impose fines.
16
An applicant for a gaming license must complete comprehensive
application forms, pay required fees and provide all information required by the
Colorado Commission and the Division of Gaming. Prior to licensure, applicants
must satisfy the Colorado Commission that they are suitable for licensing.
Applicants have the burden of proving their qualifications and must pay the full
cost of any background investigations. There is no limit on the cost of such
background investigations.
Gaming employees must hold either a support or key employee license.
Every retail gaming licensee must have a key employee licensee in charge of all
limited stakes gaming activities when limited stakes gaming is being conducted.
The Colorado Commission may determine that a gaming employee is a key employee
and, require that such person apply for a key employee license.
A retail gaming license is required for all persons conducting
limited stakes gaming on their premises. In addition, an operator license is
required for all persons who engage in the business of placing and operating
slot machines on the premises of a retailer. However, a retailer is not required
to hold an operator license. No person may have an ownership interest in more
than three retail gaming licenses. A slot machine manufacturer or distributor
license is required for all persons who manufacture, import and distribute slot
machines in Colorado.
The Colorado Regulations require that every officer, director, and
stockholder of private corporations or equivalent office or ownership holders
for non-corporate applicants, and every officer, director or stockholder holding
either a 5% or greater interest or controlling interest of a publicly traded
corporation or owners of an applicant or licensee shall be a person of good
moral character and submit to a full background investigation conducted by the
Division of Gaming and the Colorado Commission. The Colorado Commission may
require any person having an interest in a license to undergo a full background
investigation and pay the cost of investigation in the same manner as an
applicant.
Persons found unsuitable by the Colorado Commission may be required
immediately to terminate any interest, association, or agreement with or
relationship to a licensee. A finding of unsuitability with respect to any
officer, director, employee, associate, lender or beneficial owner of a licensee
or applicant also may jeopardize the licensee's license or the applicant's
application. A license approval may be conditioned upon the termination of any
relationship with unsuitable persons. A person may be found unsuitable because
of prior acts, associations or financial conditions. Acts that would lead to a
finding of unsuitability are those that would violate the Colorado Act or the
Colorado Regulations or that contravene the legislative purpose of the Colorado
Act.
Duties of licensees
An applicant or licensee must report to the Division of Gaming or
Colorado Commission all leases not later than 30 days after the effective date
of the lease. Also, an applicant or a licensee, upon the request of the Colorado
Commission or the Division Director, must submit copies of all written gaming
contracts and summaries of all oral gaming contracts to which it is or intends
to become a party. The Division Director or the Colorado Commission may require
changes in the lease or gaming contract before an applicant is approved or
participation in such agreement is allowed or may require termination of the
lease or gaming contract.
The Colorado Act and the Colorado Regulations require licensees to
maintain detailed records that account for all business transactions. Records
must be furnished upon demand to the Colorado Commission, the Division of Gaming
and other law enforcement authorities. The Colorado Regulations also establish
extensive playing procedures and rules of play for poker, blackjack and slot
machines. Retail gaming licenses must adopt comprehensive internal control
procedures. Such procedures must be approved in advance by the Division of
Gaming and include the areas of accounting, surveillance, security, cashier
operations, key control and fill and drop procedures, among others. No gaming
devices may be used in limited stakes gaming without the approval of the
Division Director or the Colorado Commission.
Licensees have a continuing duty to immediately report to the
Division of Gaming the name, date of birth and social security number of all
persons who obtain an ownership, financial or equity interest in the licensee of
5% or greater, who have the ability to control the licensee, who have the
ability to exercise significant influence over the licensee or who loan any
money or other thing of value to the licensee. Licensees must report to the
Division of Gaming all gaming licenses, and all applications for gaming
licenses, in foreign jurisdictions.
17
With limited exceptions applicable to licensees that are publicly
traded entities, no person may sell, lease, purchase, convey or acquire any
interest in a retail gaming or operator license or business without the prior
approval of the Colorado Commission.
All agreements, contracts, leases, or arrangements in violation of
the Colorado Amendment, the Colorado Act or the Colorado Regulations are void
and unenforceable.
Taxes, fees and fines
The Colorado Amendment requires an annual tax of up to 40% on the
total amount wagered less all payouts to players. With respect to games of
poker, the tax is calculated based on the sums wagered which are retained by the
licensee as compensation. Annually during April, May and June, the Colorado
Commission, as mandated by the Colorado Regulations, shall conduct rule-making
hearings concerning the gaming tax rate and device fee rate for the subsequent
gaming year. However, rigid compliance with the Colorado Regulations is not
mandatory and shall in no way be construed to limit the time periods or subject
matters which the Colorado Commission may consider in determining the various
tax rates. Currently, the gaming tax is:
o .25% on the first $2 million of these amounts;
o 2% on amounts from $2 million to $4 million;
o 4% on amounts from $4 million to $5 million;
o 11% on amounts from $5 million to $10 million;
o 16% on amounts from $10 million to $15 million; and
o 20% on amounts over $15 million.
The Colorado Commission has eliminated the annual device fee for
gaming device machines, blackjack tables and poker tables.
The municipality of Black Hawk assesses an annual device fee of
$62.50 per device on all devices exceeding 50. There is no statutory limit on
state or city device fees, which may be increased at the discretion of the
Colorado Commission or the city. In addition, a business improvement fee of as
much as $7.42 per device and a monthly transportation authority device fee of
$8.84 per device also may apply depending upon the location of the licensed
premises in Black Hawk.
Black Hawk also imposes taxes and fees on other aspects of the
businesses of gaming licensees, such as parking, alcoholic beverage licenses and
other municipal taxes and fees. Significant increases in these fees and taxes,
or the imposition of new taxes and fees, may occur.
Violation of the Colorado Gaming Act or the Colorado Regulations
constitutes a class 1 misdemeanor which may subject the violator to fines or
incarceration or both. A licensee who violates the Colorado Gaming Act or
Colorado Regulations is subject to suspension of the license for a period of up
to six months, fines or both, or to license revocation.
Requirements for publicly traded corporations
The Colorado Commission has enacted Rule 4.5, which imposes
requirements on publicly traded corporations holding gaming licenses in Colorado
and on gaming licenses owned directly or indirectly by a publicly traded
corporation, whether through a subsidiary or intermediary company. The term
"publicly traded corporation" includes corporations, firms, limited liability
companies, trusts, partnerships and other forms of business organizations. Such
requirements automatically apply to any ownership interest held by a publicly
traded corporation, holding company or intermediary company thereof, where the
ownership interest directly or indirectly is, or will be upon approval of the
Colorado Commission, 5% or more of the entire licensee. In any event, if the
Colorado Commission determines that a publicly traded corporation, or a
subsidiary, intermediary company or holding company has the actual ability to
18
exercise influence over a licensee, regardless of the percentage of ownership
possessed by said entity, the Colorado Commission may require the entity to
comply with the disclosure regulations contained in Rule 4.5.
Under Rule 4.5, gaming licensees, affiliated companies and
controlling persons commencing a public offering of voting securities must
notify the Colorado Commission no later than ten business days after the initial
filing of a registration statement with the Securities and Exchange Commission.
Licensed publicly traded corporations are also required to send proxy statements
to the Division of Gaming within 5 days after their distribution. Licensees to
whom Rule 4.5 applies must include in their charter documents provisions that:
restrict the rights of the licensees to issue voting interests or securities
except in accordance with the Colorado Gaming Act and the Colorado Regulations;
limit the rights of persons to transfer voting interests or securities of
licensees except in accordance with the Colorado Gaming Act and the Colorado
Regulations; and provide that holders of voting interests or securities of
licensees found unsuitable by the Colorado Commission may, within 60 days of
such finding of unsuitability, be required to sell their interests or securities
back to the issuer at the lesser of the cash equivalent of the holders'
investment or the market price as of the date of the finding of unsuitability.
Alternatively, the holders may, within 60 days after the finding of
unsuitability, transfer the voting interests or securities to a suitable person,
as determined by the Colorado Commission. Until the voting interests or
securities are held by suitable persons, the issuer may not pay dividends or
interest, the securities may not be voted, they may not be included in the
voting or securities of the issuer, and the issuer may not pay any remuneration
in any form to the holders of the securities.
Pursuant to Rule 4.5, persons who acquire direct or indirect beneficial
ownership of
o 5% or more of any class of voting securities of a publicly traded
corporation that is required to include in its articles of organization
the Rule 4.5 charter language provisions or
o 5% or more of the beneficial interest in a gaming licensee directly or
indirectly through any class of voting securities of any holding company
or intermediary company of a licensee, referred to as qualifying persons,
shall notify the Division of Gaming within 10 days of such acquisition,
are required to submit all requested information and are subject to a
finding of suitability as required by the Division of Gaming or the
Colorado Commission. Licensees also must notify any qualifying persons
of these requirements. A qualifying person other than an institutional
investor whose interest equals 10% or more must apply to the Colorado
Commission for a finding of suitability within 45 days after acquiring
such securities. Licensees must also notify any qualifying persons of
these requirements. Whether or not notified, qualifying persons are
responsible for complying with these requirements.
A qualifying person who is an institutional investor under Rule 4.5
and who, individually or in association with others, acquires, directly or
indirectly, the beneficial ownership of 15% or more of any class of voting
securities must apply to the Colorado Commission for a finding of suitability
within 45 days after acquiring such interests.
The Colorado Regulations also provide for exemption from the
requirements for a finding of suitability when the Colorado Commission finds
such action to be consistent with the purposes of the Colorado Act.
Pursuant to Rule 4.5, persons found unsuitable by the Colorado
Commission must be removed from any position as an officer, director, or
employee of a licensee, or from a holding or intermediary company. Such
unsuitable persons also are prohibited from any beneficial ownership of the
voting securities of any such entities. Licensees, or affiliated entities of
licensees, are subject to sanctions for paying dividends or distributions to
persons found unsuitable by the Colorado Commission, or for recognizing voting
rights of, or paying a salary or any remuneration for services to, unsuitable
persons. Licensees or their affiliated entities also may be sanctioned for
failing to pursue efforts to require unsuitable persons to relinquish their
interest. The Colorado Commission may determine that anyone with a material
relationship to, or material involvement with, a licensee or an affiliated
company must apply for a finding of suitability or must apply for a key employee
license.
19
Alcoholic Beverage Licenses
The sale of alcoholic beverages in gaming establishments is subject
to strict licensing, control and regulation by state and local authorities.
Alcoholic beverage licenses are revocable and nontransferable. State and local
licensing authorities have full power to limit, condition, suspend for as long
as six months or revoke any such licenses. Violation of state alcoholic beverage
laws may constitute a criminal offense resulting in incarceration, fines, or
both.
There are various classes of retail liquor licenses which may be
issued under the Colorado Liquor Code. A gaming licensee may sell malt, vinous
or spirituous liquors only by the individual drink for consumption on the
premises. Even though a retail gaming licensee may be issued various classes of
retail liquor licenses, such gaming licensee may only hold liquor licenses of
the same class. An application for an alcoholic beverage license in Colorado
requires notice, posting and a public hearing before the local liquor licensing
authority prior to approval of the same. The Colorado Department of Revenue's
Liquor Enforcement Division must also approve the application. Riviera Black
Hawk's hotel and restaurant license has been approved by both the local
licensing authority and the State Division of Liquor Enforcement.
Federal Registration
Riviera Operating Corporation is required to annually file with the
Attorney General of the United States in connection with the sales,
distribution, or operations of slot machines. All requisite filings for the
present year have been made.
Item 2. Properties
Riviera Hotel and Casino
The Riviera Las Vegas complex is located on the Las Vegas Strip, at
2901 Las Vegas Boulevard South, Las Vegas, Nevada and occupies approximately 26
acres. The buildings comprise approximately 1.8 million square feet, including
110,000 square feet of casino space, a 160,000 square foot convention, meeting
and banquet facility, approximately 2,100 hotel rooms (including approximately
169 luxury suites) in five towers, three restaurants, a buffet, four showrooms,
a lounge and approximately 2,300 parking spaces. In addition, executive and
other offices for Riviera Las Vegas are located on the property.
There are 40 food and retail concessions operated under individual
leases with third parties. The leases are for periods from one year to ten years
and expire over the next five years.
The entire Riviera Las Vegas complex is encumbered by a first deed of
trust securing the 10% Notes.
Riviera Black Hawk
Riviera Black Hawk is located on 1.63 acres of land at 400 Main
Street, Black Hawk, Colorado. The buildings include approximately 325,000 square
feet and comprise 32,000 square feet of gaming space, parking for approximately
520 vehicles (substantially all of which are covered), a 252-seat buffet, two
bars and an entertainment center with seating for approximately 440 people.
The entire Riviera Black Hawk complex is encumbered by a first deed
of trust securing the 13% Notes.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
20
Item 3. Legal Proceedings
Paulson, et al. v. Jefferies, Riviera Holdings Corporation, et al.,
United States District Court for the Central District of California, No. CV
98-2644 (ABC) (the "California Action"). We and the plaintiffs to this action
entered into a Settlement Agreement dated as of July 2, 1999. The Settlement
Agreement was conditioned upon the United States District Court for the Central
District of California (the "Court") entering a Settlement Bar Order and Final
Judgment and provided that upon the entering of such an Order: (i) we would pay
plaintiff Allen E. Paulson (and his heirs or successors) ("Paulson") $3,477,412
($7.50 per share) for the 463,655 shares of Riviera Holdings Corporation common
stock owned by Paulson, (ii) Paulson would receive $1,522,587.50 from the funds
being held in escrow for the benefit of holders of Riviera Holdings
Corporation's Contingent Value Rights ("CVRs"), (iii) the remainder of the
escrow of approximately $4,340,000 would be distributed to the holders of the
CVRs, and (iv) Paulson would file an amended complaint which eliminated
allegations of wrongdoing against us.
On October 7, 1999, the Court entered a Settlement Bar Order and
Final Judgment which dismissed the California Action against us with prejudice,
and barred the other defendants to the lawsuit from seeking indemnification
against us for claims arising under the federal securities laws or for state law
claims arising out of the transactions underlying the plaintiffs' federal
security law claims.
Shortly after the entry of the Settlement Bar Order, we acquired
Paulson's stock, and funds were disbursed from escrow as per the terms of the
Settlement Agreement.
Morgens, Waterfall, Vintiadis & Company, Inc., v. Riviera Holdings Corporation,
- -------------------------------------------------------------------------------
William L. Westerman, Robert R. Barengo, Richard L. Barovick and James N. Land,
- -------------------------------------------------------------------------------
Jr., as Directors of Riviera Holdings Corporation, United States District
- ----------------------------------------------------
Court for the District of Nevada (CV-S-99-1383-JBR (RLH)) (the "Nevada Action").
The plaintiff in this action ("Morgens, Waterfall") is a shareholder of Riviera
Holdings Corporation and a defendant to the California Action. On September
30, 1999, Morgens, Waterfall commenced this action in Nevada state court,
where it sought an order enjoining us from obtaining a Settlement Bar Order in
the California Action. We and the other defendants to the Nevada Action removed
the action to the United States District Court for the District of Nevada on
October 1, 1999. This removal to federal court divested the state court of
jurisdiction to consider Morgens, Waterfall's motion for injunctive relief.
Morgens, Waterfall filed a complaint with the court, but it did not serve the
complaint on any of the defendants.
On November 1, 1999, Morgens, Waterfall served a notice of motion to
remand the Nevada Action from the Nevada federal court back to Nevada state
court. We and the other defendants opposed the motion, and on May 24, 2000, the
Court denied Morgens, Waterfall's motion.
On January 31, 2000, Morgens, Waterfall served an Amended Summons and
a First Amended Verified Complaint on Riviera Holdings Corporation with
subsequent service on directors. The Amended Complaint asserted four claims for
relief.
On April 17, 2000, the Company and its directors moved to dismiss
Morgens, Waterfall's Amended Complaint. In response, Morgens, Waterfall opposed
the directors' motion but "conceded" its claim against the Company. As a
consequence, Morgens, Waterfall no longer asserted any claim against the
Company, but it has opposed dismissing the Company from the action on the ground
that the Company was a "nominal defendant" with respect to the derivative claims
asserted by Morgens, Waterfall against the directors.
On October 1, 2001 Morgens, Waterfall, the Company and the directors
entered into a Settlement Agreement settling the Nevada Action. That Settlement
Agreement provides that plaintiff would release its claims with prejudice
against each defendant and each defendant would release its claims with
prejudice against plaintiff conditioned upon Mr. Westerman accepting service of
a subpoena to personally appear and testify at the trial of the California
Action and that Mr. Westerman appear and testify at the trial of the California
Action.
We are also a party to several routine lawsuits both as plaintiff and
as defendant arising from the normal operations of a hotel. We do not believe
that the outcome of such litigation, in the aggregate, will have a material
adverse effect on the financial position or results of our operations.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
21
PART II
Item 5. Market for the Registrant's Common Stock and Related Security Holder
Matters
The Company's Common Stock began trading on the American Stock
Exchange on May 13, 1996 and was reported on the NASDAQ Bulletin Board prior to
that date. As of March 2, 2002, based upon information available to it, the
Company believes that there were approximately 600 beneficial holders of the
Company's Common Stock.
The Company has never paid any dividends on its Common Stock and does
not currently expect to pay any dividends (cash or otherwise) on its Common
Stock for the foreseeable future. The Company's ability to pay dividends is
primarily dependent upon receipt of dividends and distributions from Riviera
Operating Corporation. In addition, the indenture for the First Mortgage Notes
restricts the Company's ability to pay dividends on its Common Stock.
The table below sets forth the bid and ask sales prices by quarter
for the years ended December 31, 2001 and 2000, based on information provided by
certain brokers who have had transactions in the Company's Common Stock during
the year:
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- ------- ------- -------
2001
----
HIGH $7.38 $6.70 $6.35 $4.35
LOW 6.00 5.96 4.00 3.15
2000
----
HIGH $7.88 $8.13 $8.13 $7.63
LOW 5.88 6.75 6.75 6.50
On March 18, 2002, (the most recent trade date of the Company's
common stock), 1,500 shares were traded closing at $5.20 per share.
Item 6. Selected Financial Data
The following table sets forth a summary of selected financial data
for the Company for the years ended December 31, in thousands (except Net Income
(Loss) per Common Share):
---------------------------------- ------------ ------------ ----------- ------------ ------------
2001 2000 1999 1998 1997
---------------------------------- ------------ ------------ ----------- ------------ ------------
Net Operating Revenue $202,031 $201,531 $157,268 $159,955 $153,793
Net Income (Loss) (6,407) (4,215) (2,869) (4,057) 2,088
Net Income (Loss) Per Diluted
Common Share ($1.79) ($1.05) ($0.58) ($0.81) $0.40
Total Assets 267,818 283,710 288,990 244,909 347,866
Long-Term Debt 220,439 226,043 229,052 179,439 175,512
---------------------------------- ------------ ------------ ----------- ------------ ------------
22
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
2001 Compared to 2000
Special Factors Effecting Comparability of Results of Operations
Riviera Black Hawk was in the development stage during the first
quarter of 2000 until February 4, 2000 when it opened the casino. Accordingly,
the results of operations for the fiscal 2001 and fiscal 2000 results may not be
comparable.
The following table sets forth, for the periods indicated, certain
operating data for Riviera Las Vegas and Riviera Black Hawk. Net revenues
displayed in this table and discussed in this section are net of promotional
allowances. Operating income from properties is presented as shown on the
Consolidated Statement of Operations. EBITDA from properties for the purposes of
this table excludes corporate expense, pre-opening expense and inter-company
management fees.
Year Ended December 31, $ Change % Change
(In Thousands) 2001 2000 Inc/(Decr) Incr/(Decr)
Net revenues:
Riviera Las Vegas $ 152,985 $ 166,038 $(13,053) (7.9)%
Riviera Black Hawk 49,046 35,261 13,785 39.1 %
Riviera Gaming Management - 232 (232) (100.0)%
--------- --------- --------- --------
Total Net Revenues $ 202,031 $ 201,531 $ 500 0.2 %
========= ========= ========= ========
Operating Income
Riviera Las Vegas $ 9,350 $ 14,910 $ (5,560) (37.2)%
Riviera Black Hawk 7,622 1,881 5,741 305.2 %
Riviera Gaming Management (1) 88 (89) (101.1)%
--------- --------- --------- --------
Total Operating Income $ 16,971 $ 16,879 $ 92 0.5 %
========= ========= ========= ========
EBITDA:(1)
Riviera Las Vegas $ 21,493 $ 29,243 $ (7,750) (26.5)%
Riviera Black Hawk 12,722 6,597 6,125 92.8 %
Riviera Gaming Management (1) 88 (89) (101.1)%
--------- --------- --------- --------
Total EBITDA $ 34,214 $ 35,928 $ (1,714) (4.8)%
========= ========= ========= ========
EBITDA margin
Riviera Las Vegas 14.0 % 17.5 % (3.5)%
Riviera Black Hawk 25.9 % 18.7 % 9.3 %
Riviera Gaming Management 37.8 % (37.8)%
------ ------ -------
Total EBITDA Margin 16.9 % 17.4 % (0.5)%
====== ====== =======
(1) EBITDA consists of Earnings Before Interest, income Taxes, Depreciation,
Amortization, preopening expenses, and other, net. While EBITDA should not
be construed as a substitute for operating income or a better indicator of
liquidity than cash flows 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
expenditures 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.
23
Riviera Las Vegas
Revenues
Riviera Las Vegas net revenues decreased by approximately $13.1
million, or 7.9%, from $166.0 million in 2000 to $153.0 million in 2001
primarily due to the effects of the recession and the September 11 terrorist
attacks. Casino revenues decreased approximately $6.7 million or 9.0%, from
$74.1 million during 2000 to $67.4 million during 2001. Slot revenues were down
7.0%, while table games revenues were down 13.6%. The hold percentages were
comparable for both table games and slot machines in 2001 and 2000. Room
revenues were comparable to the prior year, as the average room rate increased
$3.50 or 6% from $59.00 to $62.50 and hotel occupancy decreased from 96.6% to
91.6%. The decrease in air travel, especially long-haul flights from the east
coast, affected Riviera Las Vegas more than many of its competitors. The
Company's marketing efforts had been concentrated on airline customers who
traveled longer distances, paid more for their tickets and had a larger gaming
and entertainment budget. While this strategy was successful in prior years, the
effects of the September 11th terrorist attacks were devastating to this market
segment. Subsequent to September 11th, gaming marketing expenditures were
increased to protect and promote the slot customer base. Increased room
marketing efforts focus on customers in the western United States and these
efforts appear to be successful, based on the pace of advance bookings. Call
volumes, booking patterns and occupancy began to normalize in mid-January 2002.
In February 2002 Super Bowl, Chinese New Year and Presidents' Day weekend were
successful and occupancy is expected to increase steadily during the first and
second quarter of 2002. Although occupancy is recovering on the weekends, the
midweek occupancy rates vary significantly from day to day primarily due to
competitive pressures. Entertainment revenues decreased by approximately $4.1
million, or 16.7%, from $24.5 million during 2000 to $20.4 million during 2001
as attendance decreased approximately 27%, which was partially offset by a 13.6%
increase in ticket price. Competition for Riviera show customers, while
significant all year, intensified after September 11th. Tour and travel room
sales were down approximately 50% in the fourth quarter of 2001, which is an
important producer of show ticket sales and slot revenues. Other revenues
decreased by approximately $1.4 million, or 13.9%, from $9.9 million during 2000
to $8.5 million during 2001 due primarily to lower telephone revenues.
Income from Operations
Income from operations decreased $5.6 million or 37.2% from $14.9
million in 2000 to $9.3 million in 2001 due to the decreased revenues, which
were partially offset by lower entertainment contract expenses and a 9.4% or
$1.4 million reduction in depreciation expense. Entertainment costs are tied to
revenues and as a result of this relationship, the departmental results were
similar to the prior year. Depreciation decreased, as $20 million of equipment
purchased in 1993 became fully depreciated in 2000. In addition, the September
11th terrorist attacks caused management to accelerate the timing and magnitude
of staffing reductions. In excess of 300 full-time equivalent employees were
laid off, based on the reduction in volumes. These events have caused the
industry to reevaluate their cost structures and adjust payrolls accordingly.
EBITDA
Riviera Las Vegas EBITDA, as defined, decreased by approximately $7.8
million, or 26.5%, from $29.2 million in 2000 to $21.5 million in 2001. During
the same periods, EBITDA margin decreased from 17.5 % to 14.0% of net revenues.
Riviera Black Hawk
Special Factors Effecting Comparability of Results of Operations
Riviera Black Hawk was in the development stage during 1999 and until February
4, 2000 when the casino opened. Accordingly, the consolidated results of
operations for fiscal 2001 and 2000 may not be comparable.
Revenues
Riviera Black Hawk net revenues increased by approximately $13.8
million, or 39.1%, from $35.3 million in the 11 months of 2000 to $49.0 million
in the 12 months ended December 31, 2001 as the operation gained market share
and was, for the most part, unaffected by the events of September 11. Casino
revenues, primarily slot machines, increased by approximately $13.0 million, or
38.7%, from $33.6 million in the 11 months of 2000 to $46.7 million in the 12
months ended December 31, 2001. Average slot machine win per unit increased from
$114 per day in 2000 to $148 in 2001. Food and beverage revenues increased by
24
approximately $1.5 million, or 38.3%, from $4.0 million in the 11 months of 2000
to $5.6 million in the 12 months ended December 31, 2001. The remodeled buffet
and related marketing efforts resulted in a 45.6% increase in covers (customers)
and a 26.4% increase in average check (price).
Income from Operations
Income from operations increased $5.7 million or 305% from $1.9 million in the
11 months of 2000 to $7.6 million in the 12 months ended December 31, 2001 due
to the increase in revenues and better margins as marketing costs were
stabilized. Staffing was also optimized as full-time equivalent employees were
reduced from 450 at the opening in February 2000 to 350 at the end of 2001.
Although general and administrative costs increased $1.7 million, they were
23.5% of revenues in the current year compared with 27% in 2000. Depreciation
increased $809,000 or 27.5% in 2001 compared with the 11 months of operations in
2000.
EBITDA
Riviera Black Hawk EBITDA, as defined, increased by approximately $6.1
million, or 92.8%, from $6.6 million in the 11 months of 2000 to $12.7 million
in the 12 months ended December 31, 2001. During the same periods, EBITDA margin
increased from 18.7% to 25.9% of net revenues.
Consolidated Operations
Other Income (Expense)
Interest expense on the $175 million 10% First Mortgage Notes issued by
the Company of $17.5 million plus related amortization of loan fees and
equipment and other financing costs totaled approximately $20.1 million in 2001
and 2000. Interest expense on the $45 million 13% First Mortgage Notes issued by
Riviera Black Hawk in June 1999 combined with its interest from capital leases
totaled $6.7 million in 2001 compared with $7.7 million in 2000. Capitalized
interest of $616,000 in 2000 was primarily from the Black Hawk, Colorado
project.
Other expenses, net include an insurance reimbursement of Paulson
litigation costs of $1.2 million in 2000.
Net Loss
The consolidated net loss increased approximately $2.2 million from
$4.2 million in 2000 to $6.4 million in 2001. The effective income tax benefit
rates decreased from 37.2% in 2000 to 25.9% in 2001 because of permanent timing
differences for certain travel and entertainment expenses, along with
adjustments for tax credits which were considered deductions in prior years.
EBITDA
Consolidated EBITDA, as defined, decreased approximately $1.7
million, or 4.8%, from $35.9 million in 2000 to $34.2 million in 2000. During
the same periods, EBITDA margin decreased from 17.4% to 16.9% of net revenues.
Revenues
2000 Compared to 1999
Special Factors Effecting Comparability of Results of Operations
Riviera Black Hawk was in the development stage during 1999 and until
February 4, 2000 when the casino opened. Accordingly, the consolidated results
of operations for fiscal 2000 and 1999 may not be comparable.
25
The following table sets forth, for the periods indicated, certain operating
data for Riviera Las Vegas and Riviera Black Hawk. EBITDA from properties for
the purposes of this table excludes corporate expense, preopening expense and
intercompany management fees. Operating income from properties is presented as
shown on the Consolidated Statement of Operations.
Year Ended December 31, $ Change % Change
(In Thousands) 2000 1999 Inc/(Decr) Incr/(Decr)
Net revenues:
Riviera Las Vegas $ 166,038 $ 156,204 $ 9,834 6.2 %
Riviera Black Hawk 35,261 0 35,261
Riviera Gaming Management 232 1,064 (832) (78.2)%
--------- --------- -------- ------
Total Net Revenues $ 201,531 $ 157,268 $ 45,263 29.0 %
========= ========= ======== =======
Income (loss) from Operations
Riviera Las Vegas $ 14,910 $ 10,641 $ 4,269 40.1 %
Riviera Black Hawk 1,881 (595) 2,476 (416.0)%
Riviera Gaming Management 88 1,047 (959) (91.6)%
-------- -------- ------- ------
Total Operating Income $ 16,879 $ 11,093 $ 5,786 (52.1)%
======== ======== ======= ======
EBITDA:(1)
Riviera Las Vegas $ 29,243 $ 24,631 $ 4,612 18.7 %
Riviera Black Hawk 6,597 1 6,596
Riviera Gaming Management 88 1,047 (959) (91.6)%
-------- -------- -------- ------
Total EBITDA $ 35,928 $ 25,679 $ 10,249 39.9 %
======== ======== ======== ======
EBITDA margin
Riviera Las Vegas 17.61% 15.87% 2.00% 11.00%
Riviera Black Hawk 18.71%
Riviera Gaming Management 37.93% 98.40% (60.0)% (61.5)%
------- ------- ------ -------
Total EBITDA Margin 17.83% 16.33% 1.00% 8.50%
======= ======= ====== =======
Riviera Las Vegas
Revenues
Net revenues increased by approximately $9.8 million, or 6.2%, from
$156.2 million in 1999 to $166.0 million in 2000 due primarily to increased room
and entertainment revenues as described below. Casino revenues increased by
approximately $0.8 million, or 1.1%, from $73.2 million during 1999 to $74.0
million during 2000 due to an increase in slot machine revenue. Room revenues
increased by approximately $3.9 million, or 9.8% from $39.9 million during 1999
to $43.8 million during 2000 as a result of an increase in average room rate of
$5.16, or 10%, which was offset by a slight decrease in hotel occupancy from
97.5% to 96.6%. Food and beverage revenues increased approximately $1.7 million,
or 6.4%, from $25.1 million during 1999 to $26.8 million during 2000 due to
higher cover counts and modestly increased prices. Entertainment revenues
increased by approximately $3.5 million, or 16.7, from $21.0 million during 1999
to $24.5 million during 2000 due primarily to the increase in Splash revenues as
a result of the showroom renovation and the new show which opened in late 1999.
Other revenues decreased by approximately $0.7 million, or 6.7%, from $10.6
million during 1999 to $9.9 million during 2000 due primarily to decreased
management fees from Riviera Gaming Management-Elsinore's contract which expired
December 30, 1999. Promotional allowances decreased by approximately $0.6
million, or 4.4%, from $13.6 million during 1999 to $13.0 million during 2000
primarily due to decreases in comps related to lower table games activity.
26
Income from Operations
Income from operations increased $4.2 million, or 40.1%, from $10.6
million in 1999 to $14.9 million in 2000 due to the increased revenues.
EBITDA
Riviera Las Vegas EBITDA, as defined, increased by approximately $4.6
million, or 18.7%, from $24.6 million in 1999 to $29.2 million in 2000. During
the same periods, EBITDA margin increased from 15.7 % to 17.5% of net revenues.
Riviera Black Hawk
Revenues
Riviera Black Hawk opened on February 4, 2000. It had net revenues of
approximately $35.3 million for the approximate eleven-month period in 2000.
Casino revenues were $33.6 million, including $31.9 million in slot revenue and
$1.7 million in table games revenue.
Food and beverage revenues were approximately $4.0 million, of which
$2.8 million were complimentary (promotional allowance). Other revenues were
approximately $0.4 million primarily from ATM transaction fees.
EBITDA
Riviera Black Hawk EBITDA, as defined, was $6.6 million, or 18.7%, of
net revenues.
Consolidated Operations
Other Income (Expense)
Interest expense on the $175 million 10% First Mortgage Notes issued
by the Company of $17.5 million plus related amortization of loan fees and
equipment and other financing costs totaled approximately $20.1 million in 2000
and 1999. Interest expense on the $45 million 13% First Mortgage Notes issued by
Riviera Black Hawk in June 1999 combined with its interest from capital leases
totaled $7.7 million in 2000. Capitalized interest was $616,000 in 2000, which
was primarily from the Black Hawk, Colorado project, decreased approximately
$2.4 million from 1999.
In 2000, Other expenses, net include an insurance reimbursement of
Paulson litigation costs of $1.2 million which were incurred in 1999.
Net Loss
The consolidated net loss increased approximately $1.3 million from
$2.9 million in 1999 to $4.2 million in 2000 due primarily to higher total
interest expense offset by lower capitalized interest in 2000. Federal income
tax benefits as a percent of losses were lower in 2000 because the Company
reflected the results of an audit by the Internal Revenue Service in 1999. The
audit resulted in the release of reserves of $2.2 million for taxes on employee
meals and other items, which were settled favorably to the Company.
EBITDA
Consolidated EBITDA, as defined, increased by approximately $10.2
million, or 39.9%, from $25.7 million in 1999 to $35.9 million in 2000. During
the same periods, EBITDA margin increased from 16.3% to 17.8% of net revenues.
Liquidity and Capital Resources
The Company had cash and short-term investments of $46.6 million at
December 31, 2001, which was a decrease of $5.6 million from 2000, which
represents approximately the net reduction of long-term debt. Cash balances
include amounts that may be required to fund the Chairman's pension obligation
in a rabbi trust with 5 days notice. (See Note 7 to the financial statements,
Other Long-Term Liabilities.) Although there is no current intention to require
this funding, under certain circumstances, approximately $6.8 million could be
disbursed in a short period. In addition, 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,
27
the Company would have to fund a $2.5 million bond with the State or obtain
workmen's compensation insurance at a significantly higher rate. The aggregate
potential cash usage for these two items could approach $10 million, which would
reduce the amounts available for other corporate purposes.
For 2001, the Company's net cash provided by operating activities was
$12.5 million compared to $19.4 million in 2000. Cash flows used in investing
activities were $10.2 million in 2001 compared to $4.2 million in 2000. Net cash
used in financing was $7.9 million in 2001 and $5.8 million in 2000, primarily
due to the repurchase of treasury stock and Black Hawk First Mortgage Notes.
EBITDA, as defined, for 2001 and 2000 was $34.2 million and $35.9 million,
respectively. Management believes that cash flow from operations, combined with
the $46.6 million cash and short-term investments, will be sufficient to cover
the Company's debt service and enable investment in budgeted capital
expenditures of $9 million for the next twelve months.
Cash flow from operations is not expected to be sufficient to pay 100%
of the principal of the $175 million 10% Notes at maturity on August 15, 2004
and the $45 million 13% Notes at maturity on May 1, 2005. Accordingly, the
ability of the Company and its subsidiary to repay the Notes at maturity will be
dependent upon its ability to refinance those notes. There can be no assurance
that the Company and its subsidiary will be able to refinance the principal
amount of the Notes at maturity. The 10% Notes were redeemable at the option of
the Company beginning August 15, 2001, at premiums beginning at 105.0% and
declining each subsequent year to par in 2003. Riviera Black Hawk, Inc. 13%
Notes are redeemable beginning May 1, 2002 at premiums beginning at 106.5% and
declining each subsequent year to par in 2004.
The 10% and 13% Note Indentures provide that, in certain circumstances,
the Company and its subsidiary must offer to repurchase the 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 Notes without a
refinancing.
The 10% Note Indenture contains certain covenants, which limit the
ability of the Company and its restricted subsidiaries (and its unrestricted
subsidiary Riviera Black Hawk, Inc. under the 13% Notes Indenture), 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 of
their capital expenditure programs under these circumstances, which could have
an adverse effect on operations. At December 31, 2001, the Company believes that
it is in compliance with the covenants. In March 2002, the assets of Black Hawk
became secondary collateral for the 10% Notes.
Contractual Obligations
The following table summarizes our contractual obligations and commitments as of
December 31, 2001:
Payments Due by Period
-------------------------------------------------------------------
Total 2002 2003 2004 2005 and Thereafter
-------------------------------------------------------------------
Contractual obligations
Long-term debt $ 220,439 3,151 3,125 178,168 35,995
Operating leases 52 52
Other long-term obligations 230 150 22 19 38
-------------------------------------------------------------------
Total contractual cash obligations $ 220,721 $ 3,353 $ 3,147 $ 178,187 $ 36,033
28
Other long-term obligations consist primarily of maintenance contracts, which
extend for more than one year on equipment such as signage, elevators, copiers,
etc.
Critical Accounting Policies
The preparation of the Company's consolidated financial statements requires the
Company's management to adopt accounting policies and to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenue and
expenses. Management periodically evaluates its policies, estimates and
assumptions related to, these policies. The Company operates in a highly
regulated industry. For both our Las Vegas, Nevada and Black Hawk, Colorado
operations we are subject to regulations that describe and regulate operating
and internal control procedures. The majority of our casino revenue is in the
form of cash, personal checks or gaming chips and tokens, which by their nature
do not require complex estimations. We estimate certain liabilities with payment
periods that extend for longer than several months. Such estimates include
customer loyalty liabilities, self-insured medical and workers compensation
costs and litigation costs. We believe that these estimates are reasonable based
upon our past experience with the business and based upon our assumptions
related to possible outcomes in the future. Future actual results will likely
differ from these estimates.
The Company has determined that the following accounting policies and related
estimates are critical to the preparation of the Company's consolidated
financial statements:
Long-lived Assets:
The Company has a significant investment in long-lived property and equipment.
The Company estimates that the undiscounted future cash flows expected to result
from the use of these assets exceeds the current carrying value of these assets.
Any adverse change to the estimate of these undiscounted future cash flows could
necessitate an impairment charge that would adversely affect operating results.
The Company estimates useful lives for its assets based on historical
experience, estimates of assets' commercial lives, and the likelihood of
technological obsolescence. Should the actual useful life of a class of assets
differ from the estimated useful life, the Company would record an impairment
charge. The Company reviews useful lives, obsolescence, and assesses commercial
viability of these assets periodically.
We utilize estimates related to cash flow projections related to the application
of SFAS 109 for the realization of deferred tax assets. Our estimates 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 negatively impacted
by numerous unforeseen events including changes to regulations affecting how we
operate our business, changes in the labor market or economic downturns in the
areas where we operate.
Provision for Credit Losses
The Company maintains a provision for estimated credit losses based on
historical experience and specific customer collection issues. Any unforeseen
change in customer liquidity or financial condition could adversely affect the
collectibility of that account and the Company's operating results.
Recently Adopted Accounting Standards
The Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivatives,
which is effective for fiscal years beginning after June 15, 2000. SFAS No. 133
defines derivatives and requires qualitative disclosure of certain financial
and descriptive information about a company's derivatives. The Company adopted
SFAS No. 133 in the quarter ending March 31, 2001. The adoption of SFAS No.
133 had no impact on the Company or the Company's consolidated financial
statements.
29
The Emerging Issues Task Force of the American Institute of Certified
Public Accountants ("EITF") issued EITF No. 00-22, Accounting for `Points' and
Certain Other Timed-Based Sales Incentive Offers, and Offers for Free Products
or Services to Be Delivered in the Future, on January 18, 2001. EITF 00-22
concluded that when a company or vendor offers to a customer (a) free or
discounted products or services that will be delivered (either by the vendor or
by another unrelated entity) at a future date (1) as a result of a single
revenue transaction with the customer or (2) only if the customer completes a
specified cumulative level of revenue transactions with the vendor or remains a
customer of the vendor for a specified time period and (b) a rebate or refund of
a determinable cash amount only if the customer completes a specified cumulative
level of revenue transactions with the vendor or remains a customer of the
vendor for a specified time period, such rebates should be reported as a
reduction of revenues. EITF 00-22 was required to be adopted by the Company
during the first quarter of 2001. As a result of adopting EITF 00-22, the
Company reclassified approximately $3.4 million and $905,000 of such sales
incentive "Points" from Casino operating expense to net against Casino revenues
for the twelve months ending December 31, 2000 and 1999, respectively.
The EITF issued EITF No. 00-14, Accounting for Certain Sales
Incentives, on April 18, 2001. The Company offers such sales incentives as "Cash
Vouchers." EITF No. 00-14 concluded that when a company or vendor offers its
customers sales incentives including discounts, coupons, rebates, and free
products or services, such sales incentives should be reported as a reduction of
revenues. EITF No. 00-14 is required to be adopted by the Company during the
first quarter of 2002 and early adoption is permitted. The Company chose to
adopt EITF No. 00-14 in the first quarter of 2001. As a result of adopting EITF
No. 00-14, the Company reclassified approximately $1.9 million and $0 of such
sales incentive "Cash Vouchers" from Casino operating expense to net against
Casino revenues for the twelve months ending December 31, 2000 and 1999,
respectively.
Recently Issued Accounting Standards
In July 2001, the FASB issued SFAS No. 141, Business Combinations.
SFAS No.141 requires the purchase method of accounting for business combinations
initiated after June 30, 2001 and eliminates the pooling-of-interests method.
The Company does not believe that the adoption of SFAS No. 141 will have a
significant impact on its financial statements.
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, reclassification of certain intangibles out of previously reported
goodwill and 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. The Company is currently assessing but has not yet determined the
impact of SFAS No. 142 on its financial position and results of operations.
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. SFAS No. 143 applies to all
entities. It applies to legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction, development
and (or) the normal operation of a long-lived asset, except for certain
obligations of lessees. SFAS No. 143 is effective for financial statements
issued for fiscal years beginning after June 15, 2002. The Company is currently
assessing, but has not yet determined the impact of SFAS No. 143 on its
financial position and results of operations.
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 is currently assessing, but has not yet determined the impact
of SFAS No. 144 on its financial position and results of operations.
30
Item 7A Disclosure
Market risks relating to our operations result primarily from changes interest
rates. We invest our cash and cash equivalents in U.S. Treasury Bills with
maturities of 90 days or less. Our equipment loans, leases and Special
Improvement District debt is not subject to significant valuations adjustment
due to interest rate changes. Although the Company's 13% and 10% Notes are
publicly traded, it is not known how significantly these bonds react to market
interest rate changes.
Interest Rate Sensitivity
Principal (Notational Amount by Expected Maturity)
Average Interest Rate
(Amounts in Thousands) Fair Value
2002 2003 2004 2005 2006 Thereafter Total At 12/31/01
Long Term Debt
Including Current Portion
Equipment loans and
capital leases-Las Vegas $1,198 $1,326 $988 $11 $3,523 $3,523
Average interest rate 7.8% 7.8% 8.4% 8.4%
10% First Mortgage Note $174,193 $174,193 $140,000
Average interest rate 10.0%
Equipment loans,
Black Hawk, Colorado $8 $8 $8
Average interest rate 11.2%
Capital leases,
Black Hawk, Colorado $1,848 $2,045 $2,263 $658 $6,814 $6,814
Average interest rate 10.8% 10.8% 10.8% 10.8%
Special Improvement
District Bonds-Black Hawk,
Colorado casino project $97 $103 $109 $116 $124 $411 $960 $960
Average interest rate 5.5% 5.5% 5.5% 5.5% 5.5% 5.5%
13% First Mortgage Note,
Black Hawk, Colorado casino
project $34,941 $34,941 $34,941
Average interest rate 13.0%
Forward Looking Statements
The Private Securities Litigation Reform Act of 1998 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.
31
Item 8. Financial Statements and Supplementary Data
See Financial Statements included in Item 14(a).
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information regarding this item is incorporated by reference in the
Company's Proxy Statement to be filed on or about April 9, 2002, relating to the
Annual Meeting of Stockholders to be held on May 14, 2002 and is made a part
hereof.
Item 11. Executive Compensation
Information regarding this item is incorporated by reference in the
Company's Proxy Statement to be filed on or about April 9, 2002, relating to the
Annual Meeting of Stockholders to be held on May 14, 2002 and is made a part
hereof.
Item 12. Principal Shareholders
Information regarding this item is incorporated by reference in the
Company's Proxy Statement to be filed on or about April 9, 2002, relating to the
Annual Meeting of Stockholders to be held on May 14, 2002 and is made a part
hereof.
Item 13. Certain Relationships and Related Transactions
Information regarding this item is incorporated by reference in the
Company's Proxy Statement to be filed on or about April 9, 2002, relating to the
Annual Meeting of Stockholders to be held on May 14, 2002 and is made a part
hereof.
32
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) List of Financial Statements
The following Independent Auditors' Report and the consolidated
Financial Statements of the Company are incorporated by reference into this Item
14 of Form 10-K by Item 8 hereof:
- Independent Auditor's Report.
- Consolidated Balance Sheets as of December 31, 2001 and 2000.
- Consolidated Statements of Operations for the Years Ended December
31, 2001, 2000 and 1999.
- Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 2001, 2000 and 1999.
- Consolidated Statements of Cash Flows for the Years Ended December
31, 2001, 2000 and 1999.
- Notes to Consolidated Financial Statements.
(a)(2) List of Financial Statement Schedules
No financial statement schedules have been filed herewith since they
are either not required, are not applicable, or the required information is
shown in the consolidated financial statements or related notes.
(a)(3) List of Exhibits
Exhibits required by Item 601 of Regulation S-K are listed in the
Exhibit Index herein, which information is incorporated by reference.
(b) Reports on Form 8-K
The Company filed the following current reports on Form 8-K:
- Form 8-K filed October 6, 2000, announcing that Robert Vannucci
was appointed President and Chief Operating Officer of the
Company's wholly owned subsidiary, Riviera Operating Corporation.
33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment to be signed
on its behalf by the undersigned, thereunto duly authorized.
RIVIERA HOLDINGS CORPORATION
By:/s/ WILLIAM L. WESTERMAN
------------------------------
William L. Westerman
Chief Executive Officer and President
(Principal Executive Officer)
March 19, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Amendment has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ WILLIAM L. WESTERMAN Chairman of the Board, Chief March 19, 2002
- ------------------------ Executive Officer and President
William L. Westerman
/s/ DUANE R. KROHN Treasurer (Principal Financial March 19, 2002
- ------------------------ and Accounting Officer)
Duane R. Krohn
/s/ ROBERT R. BARENGO Director March 19, 2002
- ------------------------
Robert R. Barengo
/s/ JAMES N. LAND, JR. Director March 19, 2002
- ------------------------
James N. Land, Jr.
/s/ JEFFREY A. SILVER Director March 19, 2002
- ------------------------
Jeffrey A. Silver
/s/ PAUL A. HARVEY Director March 19, 2002
- ------------------------
Paul A. Harvey
34
EXHIBIT INDEX
Exhibit Description
Number
2.1* Agreement and Plan of Merger, dated
September 15, 1997, by and among R&E
Gaming Corp., Riviera Acquisitions Sub,
Inc., and Riviera Holdings Corporation
(see Exhibit 10.1 to Current Report
on Form 8-K filed with the Commission
on September 29, 1997, Commission File
No. 0-21430)
3.1* Second Restated Articles of Incorporation
of the Company (see Exhibit 3.1 to
Registration Statement on Form S-4 filed
with the Commission on September 10,
1997, Commission File No. 0-21430)
3.2* Bylaws of the Company (see Exhibit 3.2 to
Registration Statement on Form S-4 filed
with the Commission on September 10,
1997, Commission File No. 0-21430)
3.3* Articles of Incorporation of Riviera
Operating Corporation (see Exhibit 3.3 to
Registration Statement on Form S-4 filed
with the Commission on September 10,
1997, Commission File No. 0-21430)
3.4* Bylaws of Riviera Operating Corporation
(see Exhibit 3.4 to Registration
Statement on Form S-4 filed with the
Commission on September 10, 1997,
Commission File No. 0-21430)
3.5* Articles of Incorporation of Riviera
Gaming Management, Inc. (see Exhibit 3.5
to Registration Statement on Form S-4
filed with the Commission on September
10, 1997, Commission File No. 0-21430)
3.6* Bylaws of Riviera Gaming Management, Inc.
(see Exhibit 3.6 to Registration
Statement on Form S-4 filed with the
Commission on September 10, 1997,
Commission File No. 0-21430)
3.7* Articles of Incorporation of Riviera
Gaming Management-Elsinore, Inc. (see
Exhibit 3.7 to Registration Statement
on Form S-4 filed with the Commission on
September 10, 1997, Commission File
No. 0-21430)
3.8* Bylaws of Riviera Gaming Management -
Elsinore, Inc. (see Exhibit 3.8 to
Registration Statement on Form S-4 filed
with the Commission on September 10,
1997, Commission File No. 0-21430)
3.9* Articles of Incorporation of Riviera
Gaming Management of Colorado, Inc.(see
Exhibit 3.9 to Amendment No. 1 to
Registration Statement on Form S-4 filed
with the Commission on December 9, 1997,
Commission File No. 0-21430)
35
3.10* Bylaws of Riviera Gaming Management of
Colorado, Inc. (see Exhibit 3.10 to
Amendment No. 1 to Registration Statement
on Form S-4 filed with the Commission
on December 9, 1997, Commission File
No. 0-21430)
4.1* Indenture dated as of August 13, 1997
between the Company and Norwest Bank
Minnesota, N.A., as trustee, the
Guarantors party thereto, Jefferies &
Company, Inc. and Ladenburg Thalmann &
Co. Inc. (see Exhibit 4.2 to Current
Report on Form 8-K filed with the
Commission on August 18, 1997,
Commission File No.0-21430)
4.2* Form of the Company's 10% Senior Notes
due 2004 (included in Exhibit 4.1)
5.1* Opinion of Dechert Price & Rhoads re:
legality (see Exhibit 5.1 to Amendment
No. 1 to Registration Statement on
Form S-4 filed with the Commission on
December 9, 1997, Commission File
No. 0-21430)
10.1* Registration Rights Agreement dated as
of August 13, 1997 by and among the
Company, the Guarantors party thereto,
Jefferies & Company, Inc. and Ladenburg
Thalmann & Co. Inc. (see Exhibit 4.1 to
Current Report on Form 8-K filed with
the Commission on August 18, 1997,
Commission File No. 0-21430)
10.2* Purchase Agreement dated August 8, 1997
among the Company, the Guarantors party
thereto, Jefferies & Company, Inc. and
Ladenburg Thalmann & Co., Inc. (see
Exhibit 1.1 to Current Report on Form
8-K filed with the Commission on August
18, 1997, Commission File No. 0-21430)
10.3* Lease Agreement between Riviera, Inc.
and Mardi Gras Food Court, Inc. dated
April 1, 1990 (see Exhibit 10.1 to Form
10, Commission File No. 0-21430)
10.4* Amendment to Lease Agreement between
Riviera, Inc. and Mardi Gras Food Court,
Inc. dated April 1, 1990 (see Exhibit
10.2 to Registration Statement on Form
S-1 filed with the Commission on August
11, 1993, File No. 33-67206)
10.5* Lease Agreement between Riviera, Inc.
and Leroy's Horse and Sports Place (see
Exhibit 10.3 to Form 10, Commission File
No. 0-21430)
10.6* Indemnity Agreement, dated June 30, 1993,
from Riviera, Inc. and Meshulam Riklis in
favor of the Company and Riviera
Operating Corporation (see Exhibit 10.7
to Registration Statement Form S-1 filed
with the Commission on August 11, 1993,
Commission File No. 33-67206)
10.7* Indemnity Agreement, dated June 30, 1993,
from the Company in favor of IBJ
Schroder Bank & Trust Company (see
Exhibit 10.8 to Registration Statement
Form S-1 filed with the Commission on
August 11, 1993, Commission File
No. 33-67206)
36
10.8* Equity Registration Rights Agreement
dated June 30, 1993, among the Company
and the Holders of Registerable Shares
(see Exhibit 10.9 to Registration
Statement on Form S-1 filed with the
Commission on August 11, 1993, Commission
File No. 33-67206)
10.9* Operating Agreement dated June 30, 1993,
between the Company and Riviera
Operating Corporation (see Exhibit 10.15
to Registration Statement on Form S-1
filed with the Commission on August 11,
1993, Commission File No. 33-67206)
10.10* Adoption Agreement regarding Profit
Sharing and 401(k) Plans of the Company
(see Exhibit 10.16 to Registration
Statement on Form S-1 filed with the
Commission on August 11, 1993, Commission
File No. 33-67206)
10.11* Howard Johnson & Company Regional Defined
Contribution Plan dated March 16, 1990
(adopted by the Company pursuant to the
Adoption Agreement filed as Exhibit 10.17
to Registration Statement on Form S-1
filed with the Commission on August 11,
1993, Commission File No. 33-67206)
10.12* Employment Agreement between Riviera,
Inc. and William L. Westerman, dated
January 6, 1993 (see Exhibit 10.18 to
Form 10, Commission File No. 0-21430)
10.13* Form of Agreement between the Company
and Directors (see Exhibit 10.19 to Form
10, Commission File No. 0-21430)
10.14* Form of Termination Fee Agreement (see
Exhibit 10.20 to Form 10, Commission
File No. 0-21430)
10.15* Restricted Account Agreement dated June
30, 1993, among Riviera Operating
Corporation, IBJ Schroder Bank & Trust
Company and Bank of America Nevada (see
Exhibit 10.22 to Registration Statement
on Form S-1 filed with the Commission on
August 11, 1993, Commission File No.
33-67206)
10.16* Disbursement Agreement dated June 30,
1993, between the Company and IBJ
Schroder Bank & Trust Company (see
Exhibit 10.23 to Registration Statement
on Form S-1 filed with the Commission on
August 11, 1993, Commission File No.
33-67206)
10.17* Tax Sharing Agreement between the Company
and Riviera Operating Corporation dated
June 30, 1993 (see Exhibit 10.24 to
Amendment No. 1 to Registration
Statement on Form S-1 filed with the
Commission on August 19, 1993, Commission
File No. 33-67206)
10.18* The Registrant's 1993 Stock Option Plan
(see Exhibit 10.25 to Amendment No. 1 to
Registration Statement on Form S-1 filed
with the Commission on August 19, 1993,
Commission File No. 33-67206)
10.19* Form of Stay Bonus Agreement (see Exhibit
10.27 to Form 10-Q filed with the
Commission on November 9, 1994,
Commission File No. 0-21430)
37
10.20* Amendment dated February 19, 1995 to
Lease Agreement between Riviera, Inc.
and Mardi Gras Food Court, Inc. (filed
with Exhibits 10.3 and 10.4)
10.21* Amendment dated September 30, 1994, to
Employment Agreement between Riviera,
Inc. and William L. Westerman (filed with
Exhibit 10.12)
10.22* Management Agreement by and between
Elsinore Corporation, Four Queens, Inc.
and Riviera Gaming Management Corp.-
Elsinore (see Exhibit 10.30 to Form 10-K
for the fiscal year ended December 31,
1996, Commission File No. 0-21430)
10.23* Employment Agreement dated as of November
21, 1996 by and between the Company,
Riviera Operating Corporation and
William L. Westerman (see Exhibit 10.31
to Form 10-K for the fiscal year ended
December 31, 1996, Commission File No.
0-21430)
10.24* Revolving Line of Credit Loan Agreement
dated February 28, 1997 by and between
the Company, Riviera Operating
Corporation and U.S. Bank of Nevada (see
Exhibit 10.32 to Form 10-K for the fiscal
year ended December 31, 1996, Commission
File No. 0-21430)
10.25* Letter of Intent dated March 4, 1997
between the Company and Eagle Gaming,
L.P.(see Exhibit 10.33 to Form 10-K for
the fiscal year ended December 31, 1996,
Commission File No. 0-21430)
10.26* Deed of Trust, Assignment of Rents,
Leases, Fixture Filing and Security
Agreement dated August 13, 1997, executed
by Riviera Holdings Corporation for the
benefit of Norwest Bank Minnesota,
National Association (see Exhibit 10.1 to
Form 8-K filed August 18, 1997,
Commission File No. 0-21430)
10.27* Security Agreement dated August 13, 1997,
by and among Riviera Holdings
Corporation, Riviera Operating
Corporation, Riviera Gaming Management,
Inc., Riviera Gaming Management of
Colorado, Inc., Riviera Gaming
Management - Elsinore, Inc. and Norwest
Bank Minnesota, National Association
(see Exhibit 10.2 to Form 8-K filed
August 18, 1997, Commission File No.
0-21430)
10.28* Stock Pledge and Security Agreement dated
August 13, 1997, executed by Riviera
Holdings Corporation (see Exhibit 10.3 to
Form 8-K filed August 18, 1997,
Commission File No. 0-21430)
10.29* Stock Pledge and Security Agreement dated
August 13, 1997, executed by Riviera
Operating Corporation (see Exhibit
10.4 to Form 8-K filed August 18, 1997,
Commission File No. 0-21430)
38
10.30* Stock Pledge and Security Agreement dated
August 13, 1997, executed by Riviera
Gaming Management, Inc. (see Exhibit
10.5 to Form 8-K filed August 18, 1997,
Commission File No. 0-21430)
10.31* Restricted Account Agreement dated August
13, 1997, by and among Riviera
Holdings Corporation, Norwest Bank
Minnesota, National Association and U.S.
Bank of Nevada (see Exhibit 10.6 to Form
8-K filed August 18, 1997, Commission
File No. 0-21430)
10.32* First Amendment to Revolving Line of
Credit Loan Agreement dated August 12,
1997, between Riviera Holdings
Corporation, Riviera Operating
Corporation and U.S. Bank (see Exhibit
10.7 to Form 8-K filed August 18, 1997,
Commission File No. 0-21430)
10.33* Escrow Agreement dated September 15,
1997, by and among R&E Gaming Corp.,
Riviera Holdings Corporation, and State
Street Bank and Trust Company of
California (see Exhibit 10.2 to Form 8-K
filed September 29, 1997, Commission File
No. 0-21430)
10.34* Employment Agreement between the Company
and Ronald P. Johnson effective July 1,
1998 (see Exhibit 10.34 to Form 10-Q
filed November 6, 1998)
10.35* Employment Agreement between the Company
and Duane R. Krohn effective July 1, 1998
(see Exhibit 10.35 to Form 10-Q filed
November 6, 1998)
10.36* Employment Agreement between the Company
and Robert A. Vannucci effective July 1,
1998 (see Exhibit 10.36 to Form 10-Q
filed November 6, 1998)
10.37* Employment Agreement between the Company
and Jerome P. Grippe effective July 1,
1998 (see Exhibit 10.37 to Form 10-Q
filed November 6, 1998)
10.38* Consulting Agreement between Riviera
Gaming Management, Inc. and Peninsula
Gaming Partners, LLC, dated January 1,
2000 (see Exhibit 10.38 to Form 10-K
filed March 20, 2000)
10.39* Amendment to Employment Agreement between
the Company and Robert A. Vannucci
effective October 1, 2000 (see Exhibit
10.39 to Form 10-K filed March 23,2001)
10.40* Amendment to Employment Agreement between
the Company and William L. Westerman
effective January 1, 2001 (see Exhibit
10.40 to Form 10-K filed March 23, 2001)
10.41* Deferred Compensation Plan dated November
1, 2000, adopted by the Company on
October 2, 2000 (see Registration
Statement on Form S-8 filed with the
Commission on February 14, 2001)
39
10.42* Restricted Stock Plan dated January 2,
2001, adopted by the Company on October
2, 2000 (see Registration Statement on
Form S-8 filed with the Commission on
February 14, 2001)
21.1* Subsidiaries of the Company (see Exhibit
21.1 to Registration Statement on Form
S-4 filed with the Commission on
September 10, 1997, Commission File No.
0-21430)
99.1* Letter dated March 20, 1998, from R&E
Gaming Corp. to the Company regarding the
Company's Agreement and Plan of Merger
* The exhibits thus designated are incorporated herein by reference as exhibits
hereto. Following the description of such exhibits is a reference to the copy of
the exhibit heretofore filed with the Commission, to which there have been no
amendments or changes.
(19094)
40
RIVIERA HOLDINGS CORPORATION
TABLE OF CONTENTS
- -------------------------------------------------------------------------------------------------------
Page
INDEPENDENT AUDITORS' REPORT F-1
CONSOLIDATED FINANCIAL STATEMENTS:
Balance Sheets as of December 31, 2001 and 2000 F-2
Statements of Operations for the Years Ended December 31, 2001, 2000, and 1999 F-3
Statements of Stockholders' Equity for the Years Ended December 31, 2001, 2000, and 1999 F-4
Statements of Cash Flows for the Years Ended December 31, 2001, 2000, and 1999 F-5
Notes to Consolidated Financial Statements F-7
Unaudited Quarterly Financial Data F-38
INDEPENDENT AUDITORS' REPORT
Riviera Holdings Corporation
Las Vegas, Nevada
We have audited the accompanying consolidated balance sheets of Riviera Holdings
Corporation and subsidiaries (the "Company") as of December 31, 2001 and 2000,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 2001.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2001
and 2000, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America.
Deloitte & Touche llp
Las Vegas, Nevada
February 12, 2002
F-1
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000 (In Thousands, Except Share Amounts)
- ------------------------------------------------------------------------------------------------------------------------
ASSETS 2001 2000
CURRENT ASSETS:
Cash and cash equivalents $ 46,606 $ 52,174
Accounts receivable, net 3,528 5,548
Inventories 2,253 3,342
Prepaid expenses and other assets 3,083 4,599
------- ------
Total current assets 55,470 65,663
PROPERTY AND EQUIPMENT, Net 200,531 207,030
OTHER ASSETS, Net 6,728 8,128
DEFERRED INCOME TAXES, Net 5,089 2,889
------- -------
TOTAL $ 267,818 $ 283,710
========= =========
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 3,151 $ 2,871
Accounts payable 8,200 9,731
Accrued interest 8,084 7,727
Accrued expenses 14,740 16,731
------- -------
Total current liabilities 34,175 37,060
------- -------
OTHER LONG-TERM LIABILITIES 7,391 6,533
------- -------
LONG-TERM DEBT, Net of current portion 217,288 223,172
------- -------
COMMITMENTS AND CONTINGENCIES (Note 12)
STOCKHOLDERS EQUITY:
Common stock ($.001 par value; 20,000,000 shares authorized;
5,106,776 shares issued at December 31, 2001 and 2000, respectively) 5 5
Additional paid-in capital 13,485 13,446
Treasury stock (1,674,144 and 1,431,648 shares at December 31, 2001 and 2000,
respectively) (11,246) (9,633)
Retained earnings 6,720 13,127
------- -------
Total stockholders equity 8,964 16,945
------- -------
TOTAL $ 267,818 $ 283,710
========= =========
See notes to consolidated financial statements.
F-2
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
(In Thousands, Except Per Share Amounts)
- ------------------------------------------------------------------------------------------------------------------
2001 2000 1999
REVENUES:
Casino $ 114,039 $ 107,693 $ 73,181
Rooms 44,255 43,819 39,899
Food and beverage 31,256 30,756 25,117
Entertainment 20,692 24,526 20,994
Other 9,119 10,538 11,713
------- ------- -------
Total revenues 219,361 217,332 170,904
Less promotional allowances 17,330 15,801 13,636
------- ------- -------
Net revenues 202,031 201,531 157,268
------- ------- -------
COSTS AND EXPENSES:
Direct costs and expenses of operating departments:
Casino 62,845 57,450 42,306
Rooms 23,339 23,364 21,909
Food and beverage 21,426 21,372 18,307
Entertainment 14,900 18,959 16,271
Other 3,068 3,146 3,228
Other operating expenses:
General and administrative 42,239 41,312 29,568
Preopening expenses - Black Hawk, Colorado project 1,222 595
Depreciation and amortization 17,243 17,827 13,991
------- ------- -------
Total costs and expenses 185,060 184,652 146,175
------- ------- -------
INCOME FROM OPERATIONS 16,971 16,879 11,093
------- ------- -------
OTHER (EXPENSE) INCOME:
Interest expense (26,864) (27,805) (23,448)
Interest income 1,274 2,429 2,255
Interest capitalized 616 4,733
Other, net (28) 1,171 (1,963)
------- ------- -------
Total other expense (25,618) (23,589) (18,423)
------- ------- -------
LOSS BEFORE BENEFIT FOR INCOME TAXES (8,647) (6,710) (7,330)
BENEFIT FOR INCOME TAXES (2,240) (2,495) (4,461)
------- ------- -------
NET LOSS $ (6,407) $ (4,215) $ (2,869)
======= ======= =======
EARNINGS PER SHARE DATA:
Loss per share
Basic and diluted $ (1.79) $ (1.05) $ (0.58)
======= ======= =======
Weighted-average common and common equivalent shares 3,573 4,013 4,978
======= ======= =======
See notes to consolidated financial statements.
F-3
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999 (Dollars In Thousands, Except Share Amounts)
- ------------------------------------------------------------------------------------------------------------------------------
Notes
Receivable
Common Stock Additional Treasury Stock from
----------------------- Paid-in Retained --------------------------- Employee
Shares Amount Capital Earnings Shares Amount Shareholders Total
BALANCE, JANUARY 1, 1999 5,107,676 $ 5 $ 13,457 $ 20,211 (34,300) $ (167) $ (3) $ 33,503
Refunds on employee stock
purchases (900) (11) 3 (8)
Purchase of treasury stock (549,455) (2,948) (2,948)
Net loss (2,869) (2,869)
--------- ---- ------- ------- --------- ------- ---- --------
BALANCE, DECEMBER 31, 1999 5,106,776 5 13,446 17,342 (583,755) (3,115) 27,678
Purchase of treasury stock (847,893) (6,518) (6,518)
Net loss (4,215) (4,215)
--------- ---- ------- ------- --------- ------- ---- --------
BALANCE, DECEMBER 31, 2000 5,106,776 5 13,446 13,127 (1,431,648) (9,633) 16,945
Purchase of treasury stock,
general (158,437) (993) (993)
Purchase of treasury stock,
deferred compensation trust (118,091) (786) (786)
Issuance of restricted stock 39 34,032 166 205
Net loss (6,407) (6,407)
--------- ---- ------- ------- --------- ------- ---- --------
BALANCE, DECEMBER 31, 2001 5,106,776 $ 5 $ 13,485 $ 6,720 (1,674,144) $ (11,246) $ $ 8,964
========= ==== ======= ======= ========= ======= ==== ========
See notes to consolidated financial statements.
F-4
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999 (In Thousands)
- ---------------------------------------------------------------------------------------------------------------------
2001 2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (6,407) $ (4,215) $ (2,869)
Adjustments to reconcile net loss to net cash provided by operating activities:
Gain on sale of equipment (55)
Depreciation and amortization 17,243 17,827 13,991
Provision for bad debts 225 326 297
Provision for gaming discounts (70) 45
Interest expense 26,864 27,805 23,448
Interest paid (23,490) (24,410) (20,132)
Interest capitalized on construction projects (616) (4,733)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable, net 1,865 (877) 50
Decrease (increase) in inventories 1,089 90 (705)
Decrease (increase) in prepaid expenses and other assets 1,516 (607) 39
Increase (decrease) in accounts payable (1,748) (2,071) (884)
Increase (decrease) in accrued expenses (2,420) 7,348 1,896
Increase (decrease) in deferred compensation plan obligation 579
Increase(decrease) in deferred tax asset (2,200) (2,534) (3,478)
Increase (decrease) in slot annuities payable (3) (55)
Increase (decrease) in non-qualified pension plan obligation to CEO upon
retirement (500) 1,247 (61)
------- ------- -------
Net cash provided by operating activities 12,546 19,355 6,749
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment, Las Vegas (7,622) (7,465) (11,735)
Capital expenditures for property and equipment, Black Hawk (2,640) (16,969) (27,291)
Interest capitalized on construction projects 616 4,733
Decrease (increase) in short-term investments 5,258 (5,258)
Decrease (increase) in restricted funds 15,060 (15,060)
Sale of equipment 174
Decrease (increase) in other assets 85 (661) (3,558)
------- ------- -------
Net cash used in investing activities (10,177) (4,161) (57,995)
------- ------- -------
See notes to consolidated financial statements.
(Continued)
F-5
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999 (In Thousands)
- ------------------------------------------------------------------------------------------------------------
2001 2000 1999
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings $ - $ 9,552 $ 48,764
Payments on long-term borrowings (2,865) (2,299) (641)
Purchase of treasury stock, general (993) (6,518) (2,948)
Purchase of treasury stock, deferred compensation trust (786)
Purchase of 13% Mortgage Notes - Black Hawk (3,500) (6,559)
Issuance of restricted stock 166
Net cancellations of employee stock purchase plan, and exercise of
employee stock options 41 (8)
------- ------- -------
Net cash (used in) provided by financing activities (7,937) (5,824) 45,167
------- ------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (5,568) 9,370 (6,079)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 52,174 42,804 48,883
------- ------- -------
CASH AND CASH EQUIVALENTS, END OF YEAR $46,606 $52,174 $ 42,804
======== ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Income taxes (refunded) paid, State of Colorado $ (110) $ 110
======== =======
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
Property acquired with accounts payable, Las Vegas, Nevada $ 132
========
Property acquired with debt, Black Hawk, Colorado $ 454 $ 126
======== =====
Property acquired with accounts payable, Black Hawk, Colorado $ 90 $ 304 $ 2,566
======== ======= ======
Property acquired with debt, Las Vegas, Nevada $ 1,614
======
See notes to consolidated financial statements.
(Concluded)
F-6
RIVIERA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Nature of Operations - 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.
The primary line of business of the Company is the operation of the
Riviera Hotel & Casino (the "Riviera Las Vegas") on the Strip in Las
Vegas, Nevada. The Company, through its gaming management subsidiary, also
managed the Four Queens Hotel and Casino (owned by Elsinore Corporation)
in downtown Las Vegas through December 1999 (see Note 13). RGM also
provided services to Peninsula Gaming Partners LLC through September 2000
with respect to that company's riverboat, Diamond Jo, operating in
Dubuque, Iowa.
In February 2000, the Company opened its casino in Black Hawk, Colorado,
which is owned through Riviera Black Hawk, Inc. ("RBH"), a wholly owned
subsidiary of ROC. Riviera Gaming Management of Colorado, Inc. is a wholly
owned subsidiary of RGM, and manages the Black Hawk casino.
Casino operations are subject to extensive regulation in the states of
Nevada and Colorado by the respective Gaming Control Boards and various
other state and local regulatory agencies. Management believes that the
Company's procedures comply, in all material respects, with the applicable
regulations for supervising casino operations, recording casino and other
revenues, and granting credit.
Principles of Consolidation - The consolidated financial statements
include the accounts of the Company, its wholly owned subsidiaries, ROC
and RGM, and their related subsidiary entities. All material intercompany
accounts and transactions have been eliminated.
Cash and Cash Equivalents - All highly liquid investment securities with a
maturity of three months or less when acquired are considered to be cash
equivalents. The Company accounts for investment securities in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
The Company's investment securities, along with certain cash and cash
equivalents that are not deemed securities under SFAS No. 115, are carried
on the consolidated balance sheets in the cash and cash equivalents
category. SFAS No. 115 addresses the accounting and reporting for
investments in equity securities that have readily determinable fair
values and for all investments in debt securities, and requires such
securities to be classified as either held to maturity, trading, or
available for sale.
F-7
Management determines the appropriate classification of its investment
securities at the time of purchase, including the determination as to
restricted versus nonrestricted assets, and re-evaluates such
determination at each balance sheet date. Held-to-maturity securities are
required to be carried at amortized cost. At December 31, 2001 and 2000,
securities classified as held to maturity comprised debt securities issued
by the U.S. Treasury and other U.S. government corporations and agencies,
and repurchase agreements, with an amortized cost of $27,449,767 and
$34,754,983, respectively, maturing in three months or less.
Inventories - Inventories consist primarily of food, beverage, gift shop,
and promotional inventories, and are stated at the lower of cost
(determined on a first-in, first-out basis) or market.
Property and Equipment - Property and equipment are stated at cost, and
capitalized lease assets are stated at the present value of future minimum
lease payments at the date of lease inception. Interest incurred during
construction of new facilities or major additions to facilities is
capitalized and amortized over the life of the asset. Depreciation is
computed by the straight-line method over the shorter of the estimated
useful lives or lease terms, if applicable, of the related assets, which
range from 5 years for certain gaming equipment to 40 years for buildings.
The costs of normal maintenance and repairs are charged to expense as
incurred. Gains or losses on disposals are recognized as incurred.
The Company periodically assesses the recoverability of property and
equipment and evaluates such assets for impairment whenever events or
circumstances indicate that the carrying amount of an asset may not be
recoverable. Asset impairment is determined to exist if estimated future
cash flows, undiscounted and without interest charges, are less than the
carrying amount.
Other Assets - Other assets include bond offering costs and commissions,
which are amortized over the life of the debt. Such amortized costs are
included in interest expense.
Restricted Cash and Short-Term Investments - Amounts related to the
Riviera Black Hawk Casino project in Black Hawk, Colorado, are restricted
in use to that project or for the related 13% First Mortgage Notes
interest payments.
Stock-Based Compensation - The effect of stock options in the income
statement is reported in accordance with Accounting Principles Board
Statement No. 25, "Accounting for Stock Issued to Employees." The Company
has adopted the disclosures-only provision of SFAS No. 123, "Accounting
for Stock-Based Compensation." Accordingly, no compensation cost has been
recognized for unissued stock options in the stock option plan (see Note
15).
Fair Value Disclosures
Cash and Cash Equivalents, Accounts Receivable, Accounts Payable, and
Accrued Expenses - The carrying value of these items is a reasonable
estimate of their fair value.
Long-Term Debt - The fair value of the Company's long-term debt is
estimated based on the quoted market prices for the same or similar
issues or on the current rates offered to the Company for debt of the
same remaining maturities. Based on the borrowing rates currently
available to the Company for debt with similar terms and average
maturities, the estimated fair value of long-term debt outstanding is
approximately $186,246,000 and $202,628,000 in 2001 and 2000,
respectively.
F-8
Revenue Recognition:
Casino Revenue - The Company recognizes, as gross revenue, the net win
from gaming activities, which is the difference between gaming wins and
losses.
Room Revenue, Food and Beverage Revenue, Entertainment Revenue, and
Other Revenue - The Company recognizes room, food and beverage,
entertainment revenue, and other revenue at the time that goods or
services are provided
Preopening Costs - The Company recognizes preopening costs when incurred.
Promotional Allowances - Revenues include the estimated retail value of
rooms, food and beverage, and entertainment provided to customers on a
complimentary basis. Such amounts are then deducted as promotional
allowance. The estimated cost of providing these promotional allowances is
charged to the casino department in the following amounts:
Year Ended December 31
----------------------------------
2001 2000 1999
Food and beverage $ 9,560 $ 9,007 $6,266
Rooms 1,195 1,297 1,676
Entertainment 1,950 1,319 1,312
------- -------- -------
Total costs allocated to casino departments $12,705 $11,623 $9,254
======= ======== ======
Federal Income Taxes - The Company and its subsidiaries file a
consolidated federal tax return. The Company accounts for income taxes in
accordance with SFAS No. 109, "Accounting for Income Taxes." SFAS No. 109
requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Deferred income taxes reflect the net
tax effects of: (i) temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes; and (ii) operating loss and tax credit
carryforwards.
Estimates and Assumptions - The preparation of 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,
realizability of deferred tax assets and liabilities, and the estimated
allowances for receivables. Actual results may differ from estimates.
Recently Adopted Accounting Standards - The Financial Accounting Standards
Board ("FASB") issued SFAS No. 133, Accounting for Derivatives, which is
effective for fiscal years beginning after June 15, 2000. This statement
defines derivatives and requires qualitative disclosure of certain
financial and descriptive information about a company's derivatives. The
Company adopted SFAS No. 133 in the quarter ending March 31, 2001. The
adoption of SFAS No. 133 had no impact on the Company or the Company's
consolidated financial statements.
F-9
The Emerging Issues Task Force ("EITF") of the American Institute of
Certified Public Accountants issued EITF No. 00-22, Accounting for
`Points' and Certain Other Timed-Based Sales Incentive Offers, and Offers
for Free Products or Services to Be Delivered in the Future, on January
18, 2001. EITF No. 00-22 concluded that when a company or vendor offers to
a customer (a) free or discounted products or services that will be
delivered (either by the vendor or by another unrelated entity) at a
future date (1) as a result of a single revenue transaction with the
customer or (2) only if the customer completes a specified cumulative
level of revenue transactions with the vendor or remains a customer of the
vendor for a specified time period and (b) a rebate or refund of a
determinable cash amount only if the customer completes a specified
cumulative level of revenue transactions with the vendor or remains a
customer of the vendor for a specified time period, such rebates should be
reported as a reduction of revenues. This EITF No. 00-22 was required to
be adopted by the Company during the first quarter of 2001. As a result of
adopting EITF No. 00-22, the Company reclassified approximately $3.4
million and $905,000 of such "Points" from casino operating expense
reducing casino revenues for the years ended December 31, 2000 and 1999,
respectively.
The EITF of the American Institute of Certified Public Accountants issued
EITF No. 00-14, Accounting for Certain Sales Incentives, on April 18,
2001. EITF No. 00-14 concluded that when a company or vendor offers its
customers sales incentives including discounts, coupons, rebates and free
products or services, such sales incentives should be reported as a
reduction of revenues. EITF No. 00-14 concluded that when a company or
vendor offers its customers sales incentives including discounts, coupons,
rebates, and free products or services, such sales incentives should be
reported as a reduction of revenues. EITF No. 00-14 is required to be
adopted by the Company during the first quarter of 2002. Early adoption is
permitted. The Company chose to adopt EITF No. 00-14 in the first quarter
of 2001. As a result of adopting EITF No. 00-14, the Company reclassified
approximately $1.9 million and $0 of such sales incentive "Cash Vouchers"
from casino operating expense to net against casino revenues for the years
ended December 31, 2000 and 1999, respectively.
Recently Issued Accounting Standards - In July 2001, the FASB issued SFAS
No. 141, Business Combinations. SFAS No. 141 requires the purchase method
of accounting for business combinations initiated after June 30, 2001 and
eliminates the pooling-of-interests method. The Company does not believe
that the adoption of SFAS No. 141 will have a significant impact on its
financial statements.
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,
the standard includes provisions for the reclassification of certain
existing recognized intangibles as goodwill, reassessment of the useful
lives of existing recognized intangibles, reclassification of certain
intangibles out of previously reported goodwill and 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. The Company has determined that the adoption of SFAS No. 142
will not have a material effect on its financial position and results of
operations.
F-10
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 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 August of 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 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
Board ("APB") 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 APB 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 period within those fiscal years. The Company is currently
assessing, but has not yet determined the impact of SFAS No. 144 on its
financial position and results of operations.
2. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following at December 31 (in
thousands):
2001 2000
Casino $ 1,761 $ 2,066
Hotel 3,252 4,812
------- -------
Total 5,013 6,878
Allowance for bad debts and discounts (1,485) (1,330)
------- -------
Ending balance $ 3,528 $ 5,548
======= =======
Changes in the casino and hotel allowance for bad debts and discounts for
the years ended December 31, 2001, 2000, and 1999 consist of the following
(in thousands):
2001 2000 1999
Beginning balance $1,330 $1,611 $1,314
Write-offs (122) (220) (872)
Recoveries 45 29 107
Provision for bad debts and gaming discounts 232 (90) 1,062
------- ------- -------
Ending balance $1,485 $1,330 $1,611
======= ======= =======
F-11
3. PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other assets consist of the following at December 31
(in thousands):
2001 2000
Prepaid gaming taxes $ 939 $ 1,440
Prepaid insurance 413 749
Other prepaid expenses 1,731 2,410
------ ------
Total $3,083 $ 4,599
====== ======
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31 (in
thousands):
2001 2000
Land and improvements $ 38,130 $ 37,718
Buildings and improvements 143,414 142,115
Equipment, furniture, and fixtures 113,366 104,361
------- -------
Total property and equipment 294,910 284,194
Accumulated depreciation (94,379) (77,164)
------- -------
Net property and equipment $200,531 $207,030
======= =======
Approximately $0, $616,000 and $4,733,000 in interest costs were
capitalized on construction projects in 2001, 2000, and 1999,
respectively. Substantially all of the Company's property and equipment is
pledged as collateral to secure debt (see Note 8). Repairs and maintenance
that do not significantly improve the life of fixed assets are expensed as
incurred. Costs for significant improvements that extend the expected life
of fixed assets more than one year are capitalized and depreciated over
the remaining extended life, using a straight-line method of depreciation.
Property under capital leases totaled $11,242,000 and $11,242,000 with
accumulated amortization of $4,507,000 and $2,258,000 at December 31, 2001
and 2000, respectively.
5. OTHER ASSETS
Other assets consist of the following at December 31 (in thousands):
2001 2000
Deposits $ 177 $ 152
Bond offering costs and commissions, net of accumulated
amortization of $6,756 and $5,187, respectively 4,916 6,585
Other 1,635 1,391
------ -----
Total $6,728 $8,128
====== =====
F-12
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable consist of the following at December 31 (in thousands):
2001 2000
Outstanding chip and token liability $ 597 $ 563
Slot club liabilities 1,283 1,115
Progressive liabilities 312 419
Casino account deposits and miscellaneous gaming 139 146
----- -----
Total liabilities related to gaming activities 2,331 2,263
Accounts payable to vendors 4,406 5,196
Hotel deposits 1,032 1,189
Construction payables 304
Other 431 779
----- -----
Total $8,200 $9,731
===== =====
Accrued expenses consist of the following at December 31 (in thousands):
2001 2000
Payroll, related payroll taxes, and employee benefits $ 7,907 $ 7,999
Incentive, retention, and ESOP 2,639 4,831
Other 4,194 3,901
------ ------
Total $14,740 $16,731
====== ======
7. OTHER LONG-TERM LIABILITIES
Other long-term liabilities consist of the nonqualified pension plan
obligation to the CEO of the Company, payable upon expiration of his
employment contract or with a change of control including accrued interest
and deferred compensation plan liabilities for eligible employees.
See Note 14 for a description of these plans.
2001 2000
Non qualified pension obligation, CEO, unfunded $ 4,163 $ 4,663
Accrued interest on pension, CEO, unfunded 2,649 1,870
Deferred compensation, funded 579
------- -------
Total $ 7,391 $ 6,533
======= =======
F-13
8. LONG-TERM DEBT
Long-term debt consists of the following at December 31 (in thousands):
2001 2000
10% First Mortgage Notes maturing on August 15, 2004, bearing
interest, payable semiannually on February 15 and August 15 of
each year, redeemable beginning August 1, 2001 at 105%; 2002
at 102.5%; and 2003 and thereafter at 100%. These notes are
collateralized by the land and physical structures comprising the
Riviera Hotel and Casino and secondarily the assets of
Riviera Black Hawk beginning in March 2002 $174,193 $173,885
13% First Mortgage Notes maturing on June 3, 2005, bearing
interest, payable semiannually on November 3 and June 3
of each year; redeemable beginning May 1, 2002 at 106.5%;
2003 at 103.25%; and after 2004 at 100%. These notes are
collateralized by the land and physical structures comprising the
Riviera Black Hawk Casino 34,941 38,441
5.6% to 9% Notes collateralized by equipment and vehicles, payable
monthly, including interest, maturing through October 2004 2,424 3,227
Capitalized lease obligations (see Note 10) 7,921 9,887
5.5% Special Improvement District Bonds - issued by the City of
Black Hawk, Black Hawk, Colorado, interest and principal
payable monthly over 10 years beginning in 2000 960 603
------- -------
Total long-term debt 220,439 226,043
Current maturities by terms of debt (3,151) (2,871)
-------- --------
Total $217,288 $223,172
======== ========
Maturities of long-term debt for the years ending December 31 are as
follows (in thousands):
2002 $ 3,151
2003 3,474
2004 177,553
2005 35,726
2006 124
Thereafter 411
--------
Total $ 220,439
========
In February 1997, the Company entered into a $15.0 million, five-year
reducing revolving line of credit (the "Credit Facility"). The Credit
Facility bears interest at prime plus 0.5% or the London Interbank Offered
Rate ("LIBOR") plus 2.9%. The Company has not utilized this line of credit
because it does not meet the requirements under the ratio of the allowable
funded debt to earnings before interest, taxes, depreciation, and
amortization ("EBITDA") of 4.75 to one. The Credit Facility is callable
upon a change in control and expired in February 2002.
F-14
On August 13, 1997, the Company issued 10% Notes with a principal amount
of $175 million dollars. The 10% Notes were issued at a discount in the
amount of $2.2 million. The discount is being accreted over the life of
the notes on a straight-line basis, which approximates the effective
interest method. The 10% Note Indenture contains certain covenants that
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 and repurchase capital stock or other
equity interests or subordinated indebtedness; (iii) enter into certain
transactions with affiliates; (iv) create certain liens; (v) sell certain
assets; and (vi) enter into certain mergers and consolidations. The
Company has registered securities identical to the 10% Notes, under the
Securities Act of 1933, as amended. On January 8, 1998, the Company
completed an exchange offer for such registered securities for the 10%
Notes effective January 1, 1998.
The 10% Notes are unconditionally guaranteed by all existing and future
restricted subsidiaries of the Company, which did not initially include
RBH. RBH became collateral for the 10% Notes upon the filing of their
financial statements with the Securities and Exchange Commission because
certain consolidated operating ratios as defined in the 10% Notes were met
as of December 31, 2001 which causes RBH to become a restricted
subsidiary.
On June 3, 1999, RBH completed a $45 million private placement of 13%
First Mortgage Notes. The net proceeds of the placement were used to fund
the completion of RBH's casino project in Black Hawk, Colorado. Riviera
Holdings Corporation has not guaranteed the $45 million RBH notes, but has
agreed to a "Keep Well Agreement" of $5 million per year (or an aggregate
limited to $10 million) for the first three years of RBH operations to
cover if (i) the $5.85 million interest on such notes is not paid by RBH
and (ii) the amount by which RBH cash flow is less than $9.0 million per
year. RBH has registered securities identical to the 13% Notes under the
Securities Act of 1933, as amended. On January 4, 2000, RBH completed an
exchange offer for such registered securities.
The 13% First Mortgage Notes were issued at a cost in the amount of $3.5
million. The deferred financing cost is being amortized over the life of
the notes on a straight-line basis, which approximates the effective
interest method.
The 13% First Mortgage Note Indenture provides that, in certain
circumstances, RBH must offer to repurchase the 13% 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, RBH would be
unable to pay the principal amount of the 13% Notes without a refinancing.
The 13% First Mortgage Note Indenture contains certain covenants, which
limit the ability of RBH and its restricted subsidiaries, subject to
certain exceptions, to: (i) incur additional indebtedness; (ii) pay
dividends or other distributions and repurchase capital stock or other
equity interests or subordinated indebtedness; (iii) enter into certain
transactions with affiliates; (iv) create certain liens and sell certain
assets; and (v) enter into certain mergers and consolidations. As a result
of these restrictions, the ability of the Company 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 would be required to curtail or defer
certain of their capital expenditure programs under these circumstances,
which could have an adverse effect on RBH's operations. At December 31,
2001, RBH believes that it is in compliance with the covenants.
The Company has a credit facility totaling $1,500,000 for letters of
credit issued periodically to foreign vendors for purchases of
merchandise. The letters require payment upon presentation of a valid
voucher.
F-15
The 5.5% Special Improvement District Bonds were issued by the City of
Black Hawk, Colorado, in July 1998 for $2,940,000. The proceeds were used
for road improvements and other infrastructure projects benefiting the
Riviera Black Hawk Casino and another nearby casino. The projects were
substantially completed in 2000 at a cost of $2,240,000, including
interest and reserves. During 2001, another phase was completed. RBH's
share of the final phase was $454,000. The excess proceeds have been
returned to the bondholders by the City of Black Hawk, Colorado. RBH is
responsible for 50 percent of the debt payable over 10 years beginning in
2000.
9. GUARANTOR INFORMATION
The Company's 10.0% First Mortgage Notes (see Note 8) are guaranteed by a
majority of the Company's wholly owned existing significant subsidiaries.
These guaranties are full, unconditional, and joint and several. The
following consolidating schedules present separate condensed financial
statement information on a combined basis for the parent only, as well as
the Company's guarantor subsidiaries and non-guarantor subsidiaries, as of
and for the years ended December 31, 2001 and 2000. As of December 31,
1999, RBH had no operations as defined in the notes to consolidated
financial statements. At December 31, 1999, RBH had total assets of
approximately $72.8 million, which represented primarily cash and
restricted cash and investments, other assets, the cost of the land for
the Black Hawk Casino project, and construction in progress. Therefore,
the Company has not included separate financial information for the
guarantors as of December 31, 1999.
The management fee to Riviera Holdings Corporation from guarantors
represents cost to the Company of depreciation and interest expense on the
10% First Mortgage Notes.
F-16
RIVIERA HOLDINGS CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
DECEMBER 31, 2001
- ------------------------------------------------------------------------------------------------------------
Combined
Parent Combined Non- Elimination Combined
ASSETS Only Guarantors Guarantors Entries Totals
CURRENT ASSETS:
Cash and cash equivalents $ 10,237 $ 24,910 $ 11,459 $ $ 46,606
Current assets 8,102 762 8,864
------- ------ ------ ------- -------
Total current assets 10,237 33,012 12,221 55,470
PROPERTY AND EQUIPMENT, Net 130,938 2,044 67,549 200,531
OTHER ASSETS, NET 2,269 2,485 1,974 6,728
INVESTMENT IN SUBSIDIARIES 51,189 24,946 $ (76,135) (1) -
DEFERRED INCOME TAXES 3,356 1,733 5,089
------- ------ ------ ------- -------
TOTAL $ 194,633 $ 65,843 $ 83,477 $ (76,135) $ 267,818
======= ====== ====== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ $ 1,198 $ 1,953 $ $ 3,151
Due to parent company 24,716 3,335 (28,051) (1) -
Accounts payable 3,876 4,324 8,200
Accrued interest 6,563 1 1,520 8,084
Accrued expenses 13,092 1,648 14,740
------- ------ ------ ------- -------
Total current liabilities 6,563 42,883 12,780 (28,051) (1) 34,175
------- ------ ------ ------- -------
OTHER LONG-TERM LIABILITIES 7,391 7,391
------- ------ ------ ------- -------
Long-term debt, Net of current portion 174,116 2,402 40,770 217,288
------- ------ ------ ------- -------
STOCKHOLDERS EQUITY:
Common stock 5 5
Additional paid-in capital 11,283 17,528 32,758 (48,084) (1) 13,485
Treasury stock (10,460) (786) (11,246)
Retained earnings 13,126 (3,575) (2,831) 6,720
------- ------ ------ ------- -------
Total stockholders equity 13,954 13,167 29,927 (48,084) 8,964
------- ------ ------ ------- -------
TOTAL $ 194,633 $ 65,843 $ 83,477 $ (76,135) $ 267,818
======= ====== ====== ======== =======
Elimination entries -
(1) To eliminate investment in and advances to subsidiaries
F-17
RIVIERA HOLDINGS CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
DECEMBER 31, 2000
- -------------------------------------------------------------------------------------------------------------
Combined
Parent Combined Non- Elimination Combined
ASSETS Only Guarantors Guarantors Entries Totals
CURRENT ASSETS:
Cash and cash equivalents $ 11,957 $ 32,473 $ 7,744 $ 52,174
Current assets 12,489 1,000 13,489
------- ------ ------ ------- -------
Total current assets 11,957 44,962 8,744 65,663
PROPERTY AND EQUIPMENT, Net 135,542 2,983 68,505 207,030
OTHER ASSETS, Net 3,156 2,887 2,510 $ (425) (1) 8,128
INVESTMENT IN SUBSIDIARIES 46,737 32,869 (79,606) (1)
DEFERRED INCOME TAXES 764 2,125 2,889
------- ------ ------ ------- -------
TOTAL $ 197,392 $ 84,465 $ 81,884 $ (80,031) $ 283,710
======== ====== ====== ======= =======
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,101 $ 1,770 $ 2,871
Due to parent company 29,713 $ (29,713) (1)
Accounts payable 6,565 3,591 (425) (1) 9,731
Accrued interest $ 6,563 2 1,162 7,727
Accrued expenses 13,440 3,291 16,731
------- ------ ------ ------- -------
Total current liabilities 6,563 50,821 9,814 (30,138) (1) 37,060
------- ------ ------ ------- -------
OTHER LONG-TERM LIABILITIES 6,533 6,533
------- ------ ------ ------- -------
LONG-TERM DEBT, Net of current portion 173,885 3,510 45,777 223,172
------- ------ ------ ------- -------
STOCKHOLDERS EQUITY:
Common stock 5 5
Additional paid-in capital 13,447 20,179 29,713 (49,893) (1) 13,446
Treasury stock (9,633) (9,633)
Retained earnings 13,125 3,422 (3,420) 13,127
------- ------ ------ ------- -------
Total stockholders equity 16,944 23,601 26,293 (49,893) 16,945
------- ------ ------ ------- -------
TOTAL $ 197,392 $ 84,465 $ 81,884 $ (80,031) $ 283,710
======== ====== ====== ======= =======
Elimination entries -
(1) To eliminate investment in and advances to subsidiaries.
F-18
RIVIERA HOLDINGS CORPORATION
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS INFORMATION
YEAR ENDED DECEMBER 31, 2001
- -------------------------------------------------------------------------------------------------------------------------
Combined
Parent Combined Non- Elimination Combined
Only Guarantors Guarantors Entries Totals
REVENUES:
Casino $ 67,389 $ 46,650 $ 114,039
Rooms 44,255 44,255
Food and beverage 25,696 5,560 31,256
Entertainment 20,418 274 20,692
Other 8,547 572 9,119
Management fee $ 30,113 $(30,113)(1) -
------- ------ ------ ------- -------
Total revenues 30,113 166,305 53,056 (30,113) 219,361
Less promotional allowances 13,320 4,010 17,330
------- ------ ------ ------- -------
Net revenues 30,113 152,985 49,046 (30,113) 202,031
COSTS AND EXPENSES:
Direct costs and expenses of
operating departments:
Casino 40,197 22,648 62,845
Rooms 23,339 23,339
Food and beverage 19,333 2,093 21,426
Entertainment 14,823 77 14,900
Other 3,068 3,068
Other operating expenses:
General and administrative 30,733 11,506 42,239
Management fees 28,759 1,354 (30,113) (1) -
Depreciation and amortization 11,431 2,066 3,746 17,243
------- ------ ------ ------- -------
Total costs and expenses 11,431 162,318 41,424 (30,113) 185,060
------- ------ ------ ------- -------
INCOME (LOSS) FROM OPERATIONS 18,682 (9,333) 7,622 16,971
------- ------ ------ ------- -------
OTHER (EXPENSE) INCOME:
Interest expense (18,938) (1,186) (6,740) (26,864)
Interest income 256 919 99 1,274
Other, net (28) (28)
------- ------ ------ ------- -------
Total other expense (18,682) (295) (6,641) (25,618)
------- ------ ------ ------- -------
LOSS BEFORE INCOME TAX BENEFIT (9,628) 981 (8,647)
BENEFIT FOR INCOME TAXES (2,632) 392 (2,240)
------- ------ ------ ------- -------
NET LOSS $ $ (6,996) $ 589 $ $ (6,407)
======= ====== ====== ======= =======
Elimination entries -
(1) To eliminate intercompany revenue and expense.
F-19
RIVIERA HOLDINGS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
YEAR ENDED DECEMBER 31, 2000
Combined
Parent Combined Non- Elimination Combined
Only Guarantors Guarantors Entries Totals
REVENUES:
Casino $ 74,057 $ 33,636 $ 107,693
Rooms 43,819 43,819
Food and beverage 26,738 4,018 30,756
Entertainment 24,526 24,526
Other 9,607 374 $ 557 10,538
Management fee $ 31,140 557 (31,697)(1)
------ ------- ------ ------- -------
Total revenues 31,140 179,304 38,028 (31,140) 217,332
Less promotional allowances 13,034 2,767 15,801
------ ------- ------ ------- -------
Net revenues 31,140 166,270 35,261 (31,140) 201,531
------ ------- ------ ------- -------
COSTS AND EXPENSES:
Direct costs and expenses of
operating departments:
Casino 40,174 17,286 57,450
Rooms 23,364 23,364
Food and beverage 19,773 1,599 21,372
Entertainment 18,954 5 18,959
Other 3,144 2 3,146
Other operating expenses:
General and administrative 31,540 9,772 41,312
Management fees 30,583 557 (31,140) (1)
Preopening expenses Black Hawk,
Colorado 1,222 1,222
Depreciation and amortization 13,090 1,800 2,937 17,827
------ ------- ------ ------- -------
Total costs and expenses 13,090 169,332 33,380 (31,140) 184,652
------ ------- ------ ------- -------
INCOME FROM OPERATIONS 18,050 (3,052) 1,881 16,879
------ ------- ------ ------- -------
OTHER (EXPENSE) INCOME:
Interest expense (18,550) (1,568) (7,687) (27,805)
Interest income 500 1,611 318 2,429
Interest capitalized 39 577 616
Other, net 1,171 1,171
------ ------- ------ ------- -------
Total other (expense) income (18,050) 1,253 (6,792) (23,589)
------ ------- ------ ------- -------
LOSS BEFORE BENEFIT FOR (1,799) (4,911) (6,710)
INCOME TAXES
BENEFIT FOR INCOME TAXES (530) (1,965) (2,495)
------ -------- ------- ------- -------
NET LOSS $ - $ (1,269) $ (2,946) $ - $ (4,215)
====== ======== ======= ======= =======
Elimination entries -
(1) To eliminate intercompany revenue and expense.
F-20
RIVIERA HOLDINGS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2001
Combined
Parent Combined Non- Elimination Combined
Only Guarantors Guarantors Entries Total
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (6,996) $ 589 $ $ (6,407)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization $ 11,431 2,066 3,746 17,243
Provision for bad debts 89 136 225
Provision for gaming discounts (70) (70)
Interest expense 18,938 1,186 6,740 26,864
Interest paid (17,500) (170) (5,820) (23,490)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable, net 2,005 (140) 1,865
Decrease (increase) in inventories 1,003 86 1,089
Decrease (increase) in prepaid expenses
and other assets 1,360 156 1,516
Increase (decrease) in accounts payable (1,738) (10) (1,748)
Increase (decrease) in accrued expenses (2,888) 468 (2,420)
Increase (decrease) in deferred compensation
plan obligation 579 579
Increase (decrease) in deferred tax asset (2,592) 392 (2,200)
Increase (decrease) in other long term liabilities (500) (500)
------- ------- ------ ------ -------
Net cash provided by (used in) operating activities 12,869 (6,666) 6,343 12,546
------- ------- ------ ------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment (7,622) (2,640) (10,262)
Decrease (increase) in other assets (13,800) 13,911 (26) 85
------- ------- ------ ------ -------
Net cash used in investing activities (13,800) 6,289 (2,666) (10,177)
------- ------- ------ ------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term borrowings (1,087) (1,778) (2,865)
Purchase of treasury stock, general (993) (993)
Increase in paid in capital 41 41
Purchase of treasury stock, deferred compensation trust (786) (786)
Issuance of restricted stock 166 166
Advances to/from subsidiaries (2,271) 2,271
Purchase of 13% Mortgage Notes - Black Hawk (3,500) (3,500)
Contribution of capital to Black Hawk, Inc. (3,045) 3,045
------- ------- ------ ------ -------
Net cash (used in) provided by financing activities (786) (7,189) 38 (7,937)
------- ------- ------ ------ -------
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (1,717) (7,566) 3,715 (5,568)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 11,957 32,473 7,744 52,174
------- ------- ------ ------ -------
CASH AND CASH EQUIVALENTS, END OF
YEAR $ 10,240 $ 24,907 $ 11,459 $ $ 46,606
======= ====== ====== ======= ======
F-21
RIVIERA HOLDINGS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
YEAR ENDED DECEMBER 31, 2000
- ------------------------------------------------------------------------------------------------------------------------------
Combined
Parent Combined Non- Elimination Combined
Only Guarantors Guarantors Entries Totals
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,269) $ (2,946) $ - $ (4,215)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization $ 13,090 1,800 2,937 17,827
Provision for bad debts 283 43 326
Provision for gaming discounts 45 45
Interest expense 18,550 1,568 7,687 27,805
Interest paid (17,500) (1,566) (5,344) (24,410)
Interest capitalized on construction projects (39) (577) (616)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable, net (669) (208) (877)
(Increase) decrease in inventories 360 (270) 90
(Increase) decrease in prepaid expenses
and other assets (1,226) 619 (607)
(Increase) decrease in accounts payable (5,918) 3,847 (2,071)
(Increase) decrease in accrued expenses 6,278 1,070 7,348
(Increase) decrease in deferred tax asset (569) (1,965) (2,534)
(Increase) decrease in slot annuities payable (3) (3)
(Increase) decrease in other long-term liabilities 1,247 1,247
------- ------- ------ -------
Net cash provided by (used in) operating activities 14,140 322 4,893 19,355
------- ------- ------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment (7,465) (16,969) (24,434)
Interest capitalized on construction projects 39 577 616
Decrease in short-term investments 2,438 2,820 5,258
Decrease in restricted funds 7,887 7,173 15,060
Decrease (increase) in other assets 1,389 (2,044) (6) (661)
------- ------- ------ -------
Net cash provided by (used in) investing activities 1,389 855 (6,405) (4,161)
------- ------- ------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 34 9,518 9,552
Payments on long-term borrowings (1,076) (1,223) (2,299)
Purchase of treasury stock (6,518) (6,518)
Advances to/from subsidiaries (4,772) 5,301 (529)
Purchase of 13% Mortgage Notes - Black Hawk (6,559) (6,559)
Contribution of capital to Black Hawk, Inc. (6,239) 6,239
------- ------- ------ -------
Net cash (used in) provided by financing activities (17,529) 4,259 7,446 (5,824)
------- ------- ------ -------
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (2,000) 5,436 5,934 - 9,370
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 13,957 27,037 1,810 42,804
------- ------- ------ -------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 11,957 $ 32,473 $ 7,744 $ - $ 52,174
======= ======= ====== ===== =======
F-22
10. LEASING ACTIVITIES
The Company leases certain equipment under capital leases. These
agreements have been capitalized at the present value of the future
minimum lease payments at lease inception and are included with property
and equipment. Management estimates that the fair market value of the
property and equipment, subject to the leases, approximates the net
present value of the leases.
The following is a schedule by year of the minimum rental payments due
under capital leases, as of December 31, 2001 (in thousands).
2002 $ 2,979
2003 2,979
2004 2,979
2005 677
Total minimum lease payments 9,611
Taxes, maintenance, and insurance (295)
Interest portion of payments (1,395)
Present value of net minimum lease payments $ 7,921
Rental expense under operating leases for the years ended December 31,
2001, 2000, and 1999 was approximately $903,555, $1,133,983 and $453,772,
respectively. Such leases were year to year in nature.
In addition, the Company leases retail space (primarily to retail shops
and fast food vendors) to third parties under terms of noncancelable
operating leases that expire in various years through 2004. Rental income,
which is included in other income, for the years ended December 31, 2001,
2000, and 1999, was approximately $1,800,000, $1,584,300 and $1,803,000,
respectively.
At December 31, 2001, the Company had future minimum annual rental income
due under noncancelable operating leases as follows (in thousands):
2002 $ 1,356
2003 1,358
2004 1,358
2005 1,358
2006 1,358
Total $ 6,788
11. FEDERAL INCOME TAXES
The Company computes deferred income taxes based upon the difference
between the financial statement and tax basis of assets and liabilities
using enacted tax rates in effect in the years in which the differences
are expected to reverse.
F-23
The effective income tax rates on income attributable to continuing
operations differ from the statutory federal income tax rates for the year
ended December 31 as follows (in thousands):
2001 2000 1999
------------------------ ------------------------ ------------------------
Amount Rate Amount Rate Amount Rate
Benefit for income taxes
at federal statutory rate $ (3,026) (35.0)% $ (2,349) (35.0)% $ (2,565) (35.0)%
Taxes, state, other 392 4.5 %
Benefit from outcome of
IRS examination (1,874) (25.6)
Other 394 4.6 % (146) (2.2) (22) (0.2)
-------- ------- ------- ------ -------- -------
Benefit for income taxes $ (2,240) (25.9)% $ (2,495) (37.2)% $ (4,461) (60.8)%
======== ======= ======= ====== ======== =======
Comparative analysis of the benefit for income taxes is as follows:
2001 2000 1999
Current $ 157 $ 1,223 $ (984)
Deferred (2,397) (3,718) (3,477)
------- ------- -------
Total $(2,240) $(2,495) $(4,461)
======= ======= =======
The tax effects of the items composing the Company's net deferred tax
(asset) liability consist of the following at December 31 (in thousands):
2001 2000
Deferred tax liabilities:
Reserve differential for hospitality and gaming activities $ 559 $ 1,393
Difference between book and tax-depreciable property 4,845 5,217
Other 579 560
------ ------
Total 5,983 7,170
------ ------
Deferred tax assets:
Net operating loss carryforward 4,383 3,309
Reserves not currently deductible 2,647 2,416
Bad debt reserves 583 483
AMT and other credits 3,459 3,851
------ ------
Total 11,072 10,059
------- ------
Net deferred tax asset $ 5,089 $ 2,889
======== =======
The Company has $3,453,000 of alternative minimum tax ("AMT") credit and
$7,000 of general business credit available to offset future income tax
liabilities. The AMT credit has no expiration date. The credit will not
begin to expire until 2012.
The Company performed an analysis of the realizability of its deferred tax
assets at December 31, 2001. The realizability of the assets related to
Rivera Las Vegas is dependent upon future earnings and tax strategies
which the Company may transact in 2002 and 2003.
F-24
12. COMMITMENTS AND CONTINGENCIES
The Company is party to several routine lawsuits, both as plaintiff and
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, results of
operations, or cash flows of the Company.
Allen Paulson Merger/Litigation - The Company and the plaintiffs to this
action entered into a Settlement Agreement dated as of July 2, 1999. The
Settlement Agreement was conditioned upon the United States District Court
for the Central District of California (the "Court") entering a Settlement
Bar Order and Final Judgment and provided that upon the entering of such
an Order: (i) The Company would pay plaintiff Allen E. Paulson (and his
heirs or successors) ("Paulson") $3,477,412 ($7.50 per share) for the
463,655 shares of Riviera Holdings Corporation common stock owned by
Paulson, (ii) Paulson would receive $1,522,587.50 from the funds being
held in escrow for the benefit of holders of Riviera Holdings
Corporation's Contingent Value Rights ("CVRs"), (iii) the remainder of the
escrow of approximately $4,340,000 would be distributed to the holders of
the CVRs, and (iv) Paulson would file an amended complaint which
eliminated allegations of wrongdoing against us.
On October 7, 1999, the Court entered a Settlement Bar Order and Final
Judgment which dismissed the California Action against us with prejudice,
and barred the other defendants to the lawsuit from seeking
indemnification against the Company for claims arising under the federal
securities laws or for state law claims arising out of the transactions
underlying the plaintiffs' federal security law claims.
Shortly after the entry of the Settlement Bar Order, the Company acquired
Paulson's stock, and funds were disbursed from escrow as per the terms of
the Settlement Agreement.
Morgens, Waterfall, Vintiadis Litigation (the "Nevada Action") - The
plaintiff in this action ("Morgens, Waterfall") is a shareholder of
Riviera Holdings Corporation and a defendant to the California Action. On
September 30, 1999, Morgens, Waterfall commenced this action in Nevada
state court, where it sought an order enjoining the Company from obtaining
a Settlement Bar Order in the California Action. The Company and the other
defendants to the Nevada Action removed the action to the United States
District Court for the District of Nevada on October 1, 1999. This removal
to federal court divested the state court of jurisdiction to consider
Morgens, Waterfall's motion for injunctive relief. Morgens, Waterfall
filed a complaint with the court, but it did not serve the complaint on
any of the defendants.
On November 1, 1999, Morgens, Waterfall served a notice of motion to
remand the Nevada Action from the Nevada federal court back to Nevada
state court. The Company and the other defendants opposed the motion, and
on May 24, 2000, the Court denied Morgens, Waterfall's motion.
On January 31, 2000, Morgens, Waterfall served an Amended Summons and a
First Amended Verified Complaint on Riviera Holdings Corporation with
subsequent service on directors. The Amended Complaint asserted four
claims for relief.
On April 17, 2000, the Company and its directors moved to dismiss Morgens,
Waterfall's Amended Complaint. In response, Morgens, Waterfall opposed the
directors' motion but "conceded" its claim against the Company. As a
consequence, Morgens, Waterfall no longer asserted any claim against the
F-25
Company, but it has opposed dismissing the Company from the action on the
ground that the Company was a "nominal defendant" with respect to the
derivative claims asserted by Morgens, Waterfall against the directors.
On October 1, 2001 Morgens, Waterfall, the Company and the directors
entered into a Settlement Agreement dated as of settling the Nevada
Action. That Settlement Agreement provides that plaintiff would release
its claims with prejudice against each defendant and each defendant would
release its claims with prejudice against plaintiff conditioned upon Mr.
Westerman accepting service of a subpoena to personally appear and testify
at the trial of the California Action and that Mr. Westerman appear and
testify at the trial of the California Action.
Employees and Labor Relations - As of December 31, 2001, the Riviera had
approximately 1,782 full-time equivalent employees and had collective
bargaining contracts with eight unions covering approximately 813 of such
employees, including food and beverage employees, rooms department
employees, carpenters, engineers, stage hands, musicians, electricians,
painters, and teamsters. The Company's agreements with the Southern Nevada
Culinary and Bartenders Union and Stage Hands Union, which cover the
majority of the Company's unionized employees, were renegotiated in 1998
and expire in the year 2002. Collective bargaining agreements with the
operating engineers, painters, and electricians were renegotiated in 2000
and expire in 2004, 2005, and 2004, respectively. A new agreement was
negotiated with the carpenters which expires in 2005. The Company is also
in negotiations with the Musicians Union. A new agreement was negotiated
with the Teamsters, which expires in 2003. Although unions have been
active in Las Vegas, management considers its employee relations to be
satisfactory. There can be no assurance, however, that new agreements will
be reached without union action or will be on terms satisfactory to the
Company.
Keep-Well Agreement - RBH and Riviera Holdings Corporation entered a
Keep-Well Agreement wherein, if (1) RBH does not have the necessary funds
to make a payment of fixed interest on the notes during its first three
years of operations or (2) consolidated cash flow is less than $9.0
million in any of the first three years of operations, Riviera Holdings
Corporation will be obligated to contribute cash to RBH to make up those
amounts (up to a maximum of $5.0 million for any one operating year and
$10.0 million in the aggregate). On February 14, 2001, the Company
advanced approximately $3.1 million to RBH under this agreement. As of
December 31, 2001, Riviera Holdings Corporation does not owe amounts under
the Keep-Well Agreement.
13. MANAGEMENT AGREEMENTS
From August 1996 until December 1999, RGM operated the Four Queens in
downtown Las Vegas under a management agreement for a minimum annual
management fee of $1.0 million. The Company completed its requirements
under the agreement, and the Four Queens Management Agreement was
terminated December 30, 1999.
RBH has entered into a management agreement in principle (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 revenues less complimentaries) and is
payable quarterly in arrears. The performance fee is based on the
following percentages of EBITDA, whose components are based on generally
accepted accounting principles): (1) 10 percent of EBITDA from $5 million
to $10 million, (2) 15 percent of EBITDA from $10 million to $15 million,
and (3) 20 percent of EBITDA in excess of $15 million. The performance fee
is based on the preceding quarterly installments subject to year-end
adjustment. The management fee began on February 4, 2000, the date of the
F-26
opening of the Riviera Black Hawk Casino. If there is any default under
the RBH Management Agreement, the Manager will not be entitled to receive
management fees but will still be entitled to inter-company service fees.
At December 31, 2001, RBH had accrued but not paid, and the Manager had
recognized management fees of $1,911,229 which are eliminated in
consolidation.
14. EMPLOYMENT AGREEMENTS AND EMPLOYEE BENEFIT PLANS
Chairman - William L. Westerman serves as Chairman of the Board, President
and Chief Executive Officer of the Company, and as Chairman of the Board
and Chief Executive Officer of ROC.
Under Mr. Westerman's existing employment agreement with the Company,
which was last amended on December 6, 2000, Mr. Westerman shall be
employed by the Company for an indefinite period subject to termination
by either the Company or Mr. Westerman on not less than 120 days prior
written notice. Mr. Westerman's base compensation is $600,000.
Under his employment agreement, Mr. Westerman is entitled to participate
in the Company's Senior Management Compensation Plan or such other
executive bonus plan as shall be established by the Company's Board of
Directors (collectively the "Plan"). If at least 80% of targeted net
income, as defined by the Plan, is met, Mr. Westerman shall be entitled to
receive a bonus under the Plan expressed as a percentage of his $600,000
base salary depending on the percentage of targeted net income realized by
the Company in a particular year, with a maximum bonus of $900,000.
Pursuant to the December 6, 2000 amendment, to the extent Mr. Westerman's
bonus exceeds $400,000 in 2001 and each succeeding year, such excess
amount shall be deducted from the principal balance of his retirement
account at the time the bonus is paid. Mr. Westerman received an incentive
bonus of $900,000 for 2001, $500,000 of which was deducted from the
principal balance of his retirement account resulting in a net bonus of
$400,000.
The employment agreement provides that the Company fund a retirement
account for Mr. Westerman. Pursuant to the employment agreement, an
aggregate of $6,812,000 had been credited to the retirement account from
its inception through December 31, 2001. Under the employment agreement,
each year that Mr. Westerman continues to be employed, an amount equal to
Mr. Westerman's base salary for that year was credited to the account on
January 1 of that year. Pursuant to the December 6, 2000, amendment to Mr.
Westerman's employment agreement, the January 1, 2001 contribution was the
final principal contribution to the retirement account. As of December 31,
2001, none of this account has been funded.
The Company retains beneficial ownership of all monies in the retirement
account, which monies are earmarked to pay Mr. Westerman's retirement
benefits. However, upon (i) the vote of a majority of the outstanding
shares of Common Stock approving a "Change of Control" (as defined below),
(ii) the occurrence of a Change of Control without Mr. Westerman's
consent, (iii) a breach by the Company of a material term of the
employment agreement or (iv) the expiration or earlier termination of the
term of the employment agreement for any reason other than cause, Mr.
Westerman has the right to require the Company to establish a "Rabbi
Trust" for the benefit of Mr. Westerman. He also has the right to require
the Company to fund such trust with an amount of cash equal to the amount
then credited to the retirement account, including any amount to be
credited to the retirement account upon a Change of Control.
F-27
On February 5, 1998, the stockholders of the Company by a majority vote
approved the Agreement and the Plan of Merger with R&E Gaming Corp. and
its wholly-owned subsidiary Riviera Acquisition Sub, Inc. Such stockholder
approval constituted a Change of Control. On March 5, 1998, subsequent to
this Change of Control, Mr. Westerman exercised his right to require the
Company to establish and fund a Rabbi Trust for his benefit. On March 20,
1998, Mr. Westerman and the Company entered into an agreement whereby Mr.
Westerman waived his right to have the Company fund the Rabbi Trust in
exchange for the Company agreeing to fund such Rabbi Trust within five
business days after notice from Mr. Westerman. The merger agreement was
subsequently terminated and litigation ensued.
In the event that Mr. Westerman is no longer employed by the Company
(except for termination for cause, in which case Mr. Westerman would
forfeit all rights to monies in the retirement account), Mr. Westerman
will be entitled to receive the amount in the retirement account
(principal and current interest) in 20 equal quarterly installments as of
the date he ceases to be employed by the Company. In the event that Mr.
Westerman's Rabbi Trust has not yet been funded, the balance of principal
and interest of the retirement account shall be paid directly to Mr.
Westerman upon his retirement, termination (except for cause) or upon a
change in control of the Company. As of December 31, 2001, none of the
Trust has been funded.
Pursuant to the employment agreement, the retirement account was credited
quarterly with interest and shall be credited with additional amounts on
the first day of each succeeding calendar quarter equal to the product of
(i) the Company's average borrowing cost for the immediately preceding
fiscal year, as determined by the Company's chief financial officer and
(ii) the average outstanding balance in the retirement account during the
preceding calendar quarter. This interest continues to accrue pursuant to
the December 6, 2000 amendment. Total interest earned was $779,000 for
2001, $647,418 for 2000 and $487,729 for 1999. In the event the Rabbi
Trust has been funded, upon Mr. Westerman's death, an amount equal to the
applicable federal estate tax on the retirement account will be pre-paid
prior to the date or dates such taxes are due.
Mr. Westerman's employment agreement provides (a) that the sum of Mr.
Westerman's base salary, bonus, and credits to his Retirement Account in
any one year shall not exceed that which would have been payable under his
previous employment agreement with the Company, and (b) that Mr. Westerman
shall instruct the Company of any reductions in base salary, bonus, and
credits to his retirement account necessary to comply with this
limitation. The Company determined that for the year 1999, a reduction of
$467,000 was necessary to comply with this provision. For 1998 the Company
determined a reduction of $194,000 was necessary to comply with this
provision. Prior to December 31, 1999, and December 31, 1998, Mr.
Westerman instructed the Company that this be applied to reduce the amount
to be credited to his retirement account from $600,000 to $133,000 and to
$406,000 respectively. No such reductions under this provision were
required in 2001 or 2000.
Incentive Plan - The Company has an incentive compensation plan, covering
employees of the Company who, in the opinion of the Chairman of the Board,
either serve in key executive, administrative, professional, or technical
capacities with the Company, or other employees who also have made a
significant contribution to the successful and profitable operation of the
Company. The amount of the bonus is based on operating earnings before
depreciation, amortization, interest expense, provision for income taxes,
extraordinary losses and gains, any provisions or payments made pursuant
F-28
to the plan, and any provisions or payments made pursuant to the incentive
compensation of the Chairman and Chief Executive Officer. During the years
ended December 31, 2001, 2000, and 1999, the Company recorded accrued
bonuses of $1,873,939, $2,258,500 and $1,871,632, respectively, based upon
the above incentive compensation plan and the incentive compensation plan
established for the Chairman of the Board under his employment agreement.
Pension Plan Contributions - The Company contributes to multi-employer
pension plans under various union agreements to which the Company is a
party. Contributions, based on wages paid to covered employees, were
approximately $1,672,000, $1,688,000 and $1,637,000, for the years ended
December 31, 2001, 2000, and 1999, respectively. These contributions were
for approximately 813 employees, including food and beverage employees,
room department employees, carpenters, engineers, stagehands,
electricians, painters, and teamsters. The Company's share of any unfunded
liability related to multi-employer plans, if any, is not determinable.
Profit Sharing and 401(k) Plans - On June 30, 1993, the Company and ROC
assumed the combined profit sharing and 401(k) plans of Riviera, Inc. (the
"Profit Sharing and 401(k) Plans") and the Company and ROC have continued
the Profit Sharing and 401(k) Plans after June 30, 1993. The Company and
ROC have amended the Adoption Agreement to provide that all current
employees of Riviera Las Vegas who were employed on April 1, 1992, who
were at least 21 years of age and who are not covered by a collective
bargaining agreement are immediately eligible to participate in the Profit
Sharing and 401(k) Plans. The amendment provides further that all current
employees who were employed by Riviera Las Vegas after April 1, 1992, who
are at least 21 years of age and who are not covered by a collective
bargaining agreement are eligible to participate after one year of service
at the Riviera Las Vegas.
The Company has identical plans for its 100% indirectly owned subsidiary,
Riviera Black Hawk, Inc., which operates its casino in Black Hawk,
Colorado. Employees hired prior to June 30, 2000, who were at least 21
years of age and who were not covered by a collective bargaining agreement
were immediately eligible to participate in the Profit Sharing and 401(k)
Plans. After June 30, 2000, all new employees who are at least 21 years of
age and who are not covered by a collective bargaining agreement are
eligible to participate after one year of service at Riviera Black Hawk.
The Company may make a contribution to the 401(k) component of the Plan in
an amount not to exceed twenty-five percent (25%) of the first eight
percent (8%) of each participant's compensation, which is contributed as a
salary deferral. The Company also paid administrative costs of the Plan of
$24,343, $25,000 and $21,851 for each of the three years ending December
31, 2001.
The profit sharing component of the Profit Sharing and 401(k) Plans
provides that the Company will make a contribution equal to 1% of each
eligible employee's annual compensation if a prescribed annual operating
earnings target is attained and an additional 1% thereof for each $2
million by which operating earnings is exceeded, up to a maximum of 3%
thereof. The Company may elect not to contribute to the Profit Sharing and
401(k) Plans if it notifies its employees by January of the Profit Sharing
and 401(k) Plans year. An employee will become vested in the Company's
contributions based on the employee's years of service. An employee will
receive a year of vesting service for each plan year in which the employee
completed 1,000 hours of service. Vesting credit will be allocated in 20%
increments for each year of service commencing with the attainment of two
years of service. An employee will be fully vested following the
completion of six years of service.
F-29
Effective January 1, 2000, the Company suspended contributions to the
Profit Sharing Plan and substituted contributions to an Employee Stock
Ownership Plan ("ESOP"), (see "Employee Stock Ownership Plan", directly
below).
Employee Stock Ownership Plan - On October 2, 2000, the Board of Directors
adopted an Employee Stock Ownership Plan ("ESOP"). The ESOP was
established effective January 1, 2000 and replaces the profit sharing
contribution component of the Profit Sharing and 401(k) Plans. The 401(k)
component remains unchanged. The ESOP provides that all employees of
Riviera Las Vegas and Riviera Black Hawk employed in the Plan Year who had
completed a minimum of one thousand hours of service in that Plan Year,
were employed through December 31 of that Plan Year, were at least 21
years of age and were not covered by a collective bargaining agreement are
eligible to participate in the ESOP. The ESOP provides that the Company
will make a contribution to the ESOP's participants of its Las Vegas and
Black Hawk properties relative to the economic performance of each
property. For Riviera Las Vegas, the Company will make a contribution
equal to 1% of each eligible employee's annual compensation if a
prescribed annual operating earnings target is attained and an additional
1% thereof for each $2 million by which operating earnings is exceeded, up
to a maximum of 4% for 2000 and 5% thereafter. For Riviera Black Hawk, the
Company will make a contribution equal to 1% of each eligible employee's
annual compensation if a prescribed annual operating earnings target is
attained and an additional 1% thereof for each $1 million by which
operating earnings is exceeded, up to a maximum of 4% for 2000 and 5%
thereafter. Under the ESOP, the Company contribution will be made in cash
which will be used to buy Company common stock.
Deferred Compensation Plan - On October 2, 2000, the Board of Directors
adopted a Deferred Compensation Plan (the "Plan"). The purpose of the Plan
is to provide eligible employees of the Company with the opportunity to
defer the receipt of cash compensation. Participation in the non-qualified
Plan is limited to highly compensated employees who receive compensation
of at least $100,000. The deferred funds are maintained on the Company
books as unfunded liabilities. All elections to defer the receipt of
compensation must be made no later than the December 1st preceding the
Plan Year to which the election relates and are irrevocable for the
duration of that Plan Year. Six Company executives are currently
participating in the Plan.
Restricted Stock Plan - On October 2, 2000, the Board of Directors adopted
a Restricted Stock Plan to provide incentives which will attract and
retain highly competent persons as officers and key employees by providing
them opportunities to receive restricted shares of the Company's Common
Stock. Participants will consist of such officers and key employees of the
Company as the Company's Compensation Committee determines to be
significantly responsible for the success and future growth and
profitability of the Company. Awards of restricted stock are subject to
such terms and conditions as the Company determines to be appropriate at
the time of the grant, including restrictions on the sale or other
disposition of such shares and the provisions for the forfeiture of such
shares for partial or no consideration upon termination of the
participant's employment within specified periods or under certain
conditions. Mr. Robert Vannucci and Mr. Jerome P. Grippe, President and
Executive Vice President, respectively, of the Company's wholly-owned
subsidiary, Riviera Operating Corporation, are currently the only
participants in the Restricted Stock Plan.
F-30
Key Employee Retention Plan - As a result of the scheduled openings of
several new Las Vegas Strip properties in 1998, 1999 and 2000, an
estimated 38,000 jobs had to be filled on the Las Vegas Strip, including
approximately 5,000 supervisory positions. Because of the Riviera's
performance and reputation, its employees were 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.
Stay Bonus Agreements - Approximately 85 executive officers and
significant employees (excluding Mr. Westerman) of ROC were party to
agreements pursuant to which each such employee was entitled to receive a
"stay bonus" (varying amounts) if the employee was discharged without
cause (as defined in the stay bonus agreements), or continued to be
employed by the Company on each of January 1, 2000, January 1, 2001 and
June 30, 2001. The total amount that was payable under all such agreements
was approximately $2.2 million, of which approximately $610,000 was paid
in January, 2000, $1,068,000 was paid in January, 2001 and $462,500 was
paid on June 30, 2001.
Termination Fee Agreements - Approximately 85 executive officers and
significant employees (excluding Mr. Westerman) of ROC have termination
fee agreements effective through December 2001, pursuant to which each of
such employees will be entitled to receive (1) either six months' or one
year's base salary if their employment with the Company is terminated,
without cause, within 12 or 24 months of a change of control of the
Company or ROC; and (2) group health insurance for periods of either one
or two years. The base salary payments are payable in biweekly
installments subject to the employee's duty to mitigate by using his or
her best efforts to find employment. The estimated total amount payable
under all such agreements was approximately $5 million including $1.2
million in benefits, as of December 31, 2001.
15. STOCK OPTION PLANS
Stock Compensation Plans - At December 31, 2001, the Company has three
stock-based compensation plans, which are described below. The Company
accounts for the fair value of its grants under those plans in accordance
with APB 25. The compensation cost that has been charged against income
for those plans was $142,977, $250,988, and $357,118 for 2001, 2000 and
1999, respectively. Under the 1993 Employee Stock Option Plan, the Company
may grant options to its employees for up to one million shares of common
stock. Under the 1996 Non-Qualified Stock Option Plan, the Company may
grant options to non-employee directors for up to 50,000 shares of common
stock. Under the 1996 Stock Compensation Plan, the Company may grant
options to Directors serving on the Compensation Committee for up to
50,000 shares of common stock. Under these plans, the exercise price of
each option equals the market price of the Company's stock on the date of
grant and an option's maximum term is 10 years (5 years in the case of an
incentive option granted to a stockholder owning more than 10 percent of
the common stock). Under the 1993 plan, options vest 25 percent on the
date of grant and 25 percent each subsequent year. Under the 1996 plans,
options vest over 5 years.
Option Surrenders - On November 26, 1996, 414,000 stock options were
granted to eighteen (18) Riviera executives at an option price of $13.625
per share, 320,000 of which were granted to Mr. Westerman. Two (2) of
these executives' options totaling 11,000 shares have since been cancelled
due to those executives leaving the Company, resulting in a balance of
403,000 options at $13.625 per share held by sixteen (16) Company
executives. These options were vested in their entirety for these sixteen
(16) executives.
F-31
On January 16, 2001, the Board approved a Stock Option Surrender Plan (the
"Surrender Plan"). Pursuant to the Surrender Plan, each executive could
surrender all or any portion of his/her $13.625 options. Further, the
Company may, but is not obligated, grant new options in an amount no less
than the shares surrendered, to be issued no sooner than six (6) months
and a day after the surrender of the $13.625 options. Any new options
granted will be at the price of the Company's common stock on the date of
grant and are subject to the vesting requirements of the Company's
Employee Stock Option Plan.
All sixteen (16) Company executives surrendered the entire balance of
403,000 of the $13.625 options effective January 31, 2001.
The activity of the Stock Option Plan and the Non-Qualified Stock Option
Plan is as follows:
Weighted-
Average
Per Share
Exercise
Stock Option Plan Shares Price
---------------- -------------
Outstanding at January 1, 2000 619,000 $ 10.75
Grants 97,000 $ 7.69
Cancelled (4,000) $ 7.69
---------
Outstanding at December 31, 2000 712,000 $ 10.35
Grants 170,500 $ 6.00
Cancelled (423,000) $ 13.28
---------
Outstanding at December 31, 2001 459,500 $ 6.04
=========
Non-Qualified Stock Option Plan
Outstanding at January 1, 2000 14,000 $ 8.70
Automatic grant to directors 6,000 $ 7.75
Cancelled (6,000) $ 7.67
---------
Outstanding at December 31, 2000 14,000 $ 9.09
Automatic grant to directors 6,000 $ 6.55
Cancelled (4,000) $ 13.37
---------
Outstanding at December 31, 2001 16,000 $ 7.07
=========
Options Outstanding Options Exercisable
----------------------------------------- ------------------------
Number Weighted- Number
Outstanding Average Weighted- Exercisable Weighted-
at Remaining Average at Average
Range of December 31, Contractual Exercise December 31, Exercise
Exercise Prices 2001 Life Price 2001 Price
$ 4.00 to $ 6.00 285,500 1.4 years $4.18 44,000 $4.32
$ 6.55 to $ 9.00 190,000 1.4 years $7.26 44,000 $7.13
F-32
No compensation cost has been recognized for unexercised options remaining
in the stock option plan. Had compensation cost for the Company's stock
option plan been determined based on the fair value at the date of grant
for awards consistent with the provisions of SFAS No. 123, the Company's
net loss and pro forma net loss per common share and common share
equivalent would have been increased to the pro forma amounts indicated
below at December 31 (in thousands, except per share amounts):
2001 2000 1999
Net loss - as reported $ (6,407) $ (4,215) $ (2,869)
Net loss - pro forma $ (6,550) $ (4,466) $ (3,226)
Basic loss per common share - as reported $ (1.79) $ (1.05) $ (0.58)
Basic loss per common share - pro forma $ (1.83) $ (1.11) $ (0.65)
Diluted loss per common and common
share equivalent - as reported $ (1.79) $ (1.05) $ (0.58)
Diluted loss per common and common share
equivalent - pro forma $ (1.83) $ (1.11) $ (0.65)
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following
weighted-average assumptions used for grants in 2001, 2000, and 1999,
respectively: dividend yield of 0 percent for all years; expected
volatility of 44 percent, 60 percent, and 62 percent; risk-free interest
rates of 5.00 percent, 5.00 percent, and 5.46 percent; and expected lives
of five years for all years. The weighted fair value of options granted in
2001, 2000, and 1999, was $2.34, $3.56 and $4.57, respectively.
Due to the fact that the Company's stock option programs vest over many
years and additional awards are made each year, the above pro forma
numbers are not indicative of the financial impact, had the disclosure
provisions of SFAS No. 123 been applicable to all years of previous option
grants. The above numbers do not include the effect of options granted
prior to 1995.
17. EARNINGS PER SHARE
Basic EPS is computed by dividing net income by the weighted-average
number of common shares outstanding for the period. Diluted EPS is
computed by dividing net income by the weighted number of common and
common equivalent shares outstanding for the period. Options to purchase
common stock, whose exercise price was greater than the average market
price for the period, have been excluded from the computation of diluted
EPS. Such antidilutive options outstanding for the years ended December
31, 2001, 2000, and 1999, were 495,500, 732,000 and 633,000, respectively.
F-33
A reconciliation of income and shares for basic and diluted EPS is as
follows (amounts in thousands, except per share amounts):
Year Ended 2001
------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic EPS -
Loss available to common stockholders $(6,407) 3,573 $(1.79)
Effect of dilutive securities -
Options
----------- --------- ---------
Diluted EPS -
Loss available to common stockholders plus
assumed conversions $(6,407) 3,573 $(1.79)
=========== ========= =========
Year Ended 2000
------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic EPS -
Loss available to common stockholders $(4,215) 4,013 $(1.05)
Effect of dilutive securities -
Options
----------- --------- ---------
Diluted EPS -
Loss available to common stockholders plus
assumed conversions $(4,215) 4,013 $(1.05)
=========== ========== =========
Year Ended 1999
------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic EPS -
Loss available to common stockholders $(2,869) 4,978 $(0.58)
Effect of dilutive securities -
Options
----------- --------- ---------
Diluted EPS -
Loss available to common stockholders plus
assumed conversions $(2,869) 4,978 $(0.58)
=========== ========== =========
During 2001, 2000, and 1999, the Company purchased 276,528, 257,893 and
4,800 shares of treasury stock on the open market for approximately
$1,779,000, $2,093,000 and $22,000, respectively. In addition to the
purchase of stock from Paulson as described in Note 12, the Company
purchased 81,000 of its shares from SunAmerica at $7.50 per share on
October 18, 1999. This transaction reduced SunAmerica's ownership of the
Company to under 15 percent. On February 8, 2000, the Company completed a
tender offer wherein approximately 590,000 shares of stock were purchased
for $7.50 per share. During 2001, the Company completed various tender
offers wherein approximately 277,000 shares of stock were purchased at an
average price of $6.43 per share. The Company used its cash and cash
equivalents to purchase the shares. After giving effect to such share
repurchases, the Company had 3,432,632 shares of common stock outstanding.
Approximately 118,100 shares of treasury stock are held in the deferred
compensation trust at December 31, 2001.
F-34
18. SEGMENT DISCLOSURES
The Company reviews its operations by its geographic gaming market
segments: Riviera Las Vegas and Riviera Black Hawk. Since the management
division represents all other revenue, it is also shown. All intersegment
revenues have been eliminated.
(In thousands) 2001 2000 1999
Net revenues:
Riviera Las Vegas $152,985 $166,037 $156,204
Riviera Black Hawk 49,046 35,261
Riviera Gaming Management 233 1,064
-------- -------- --------
Total net revenues $202,031 $201,531 $157,268
======== ======== ========
Income (loss) from operations:
Riviera Las Vegas $ 9,350 $ 14,910 $ 10,641
Riviera Black Hawk (Loss pertains to
preopening expenses in 1999) 7,622 1,881 (595)
Riviera Gaming Management (1) 88 1,047
-------- -------- --------
Total income from operations $ 16,971 $ 16,879 $ 11,093
======== ======== ========
EBITDA:
Riviera Las Vegas $ 21,493 $ 29,243 $ 24,631
Riviera Black Hawk 12,722 6,597 1
Riviera Gaming Management (1) 88 1,047
-------- -------- --------
Total EBITDA $ 34,214 $ 35,928 $ 25,679
======== ======== ========
EBITDA margin (1):
Riviera Las Vegas 14.0 % 17.5 % 15.7 %
Riviera Black Hawk 25.9 16.6
Riviera Gaming Management 37.8 98.4
-------- -------- --------
Total EBITDA 16.9 % 17.4 % 16.2 %
======== ======== ========
December 31,
--------------------------------
2001 2000
Assets (2):
Riviera Las Vegas $132,982 $138,525
Riviera Black Hawk 67,549 68,505
Riviera Gaming Management - -
-------- --------
Total assets $200,531 $207,030
======== ========
(1) Shown as a percentage of corresponding departmental revenue.
(2) Assets represent property and equipment and intangible assets, net of accumulated depreciation and amortization.
F-35
EBITDA consists of earnings before interest, income taxes, depreciation
and amortization (excluding preopening expense - Black Hawk, Colorado
project, and Other, net, which includes expense and insurance recoveries
from Paulson Merger and litigation activity in 1999 and 2000.) While
EBITDA should not be construed as a substitute for operating income or a
better indicator of liquidity than cash flows 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. The Company's computation of EBITDA may not be
comparable to other similarly titled measures of other companies.
RIVIERA LAS VEGAS
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 the 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
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.
19. RELATED PARTY TRANSACTIONS
Robert R. Barengo, a member of the Board of Directors of the Company, is a
former director of American Wagering, Inc. ("AWI") and owns 7 percent of
the outstanding stock of AWI, which leases approximately 12,000 square
feet of the Riviera Hotel & Casino's casino floor. AWI is the operator of
the Riviera Hotel & Casino's sport book operations and has operated under
a lease arrangement since before Mr. Barengo was appointed to the board.
The lease provides for rental payments based upon the monthly and annual
revenues derived by AWIfrom the location. AWI paid aggregate rent to ROC
of approximately $144,500, $188,000 and $250,000 in each of the years
ended December 31, 2001, 2000, and 1999, respectively. The Company
believes that the terms of the lease with AWI are at least as favorable
to the Company and ROC as could have been obtained from unaffiliated
third parties and are at lease as favorable as terms obtained by other
casino hotels in Las Vegas.
The Company entered into a letter agreement with Mr. Barengo, a member of
the Bar of the State of Nevada, pursuant to which Mr. Barengo has been
assisting the Company and its outside counsel in enforcing the Company's
rights under the litigation related to the Paulson merger, the Morgens
Waterfall litigation, and with related matters. Under such letter
agreement, Mr. Barengo received a fee of $10,000 per month for his
counseling services. Fees paid under this agreement were $0, $120,000 and
$120,000 for the years ended December 31, 2001, 2000, and 1999,
respectively. Mr. Barengo became an employee director in January 2001. He
and the Company mutually terminated the agreement effective December 31,
2000.
F-36
Jeffrey A. Silver, a member of the Board, is a shareholder in the law firm
of Gordon & Silver, Ltd. ("Gordon & Silver"). Gordon & Silver has been
engaged by the Company for the defense of various personal injury matters
since 1993 and for general corporate matters in 2001. From January 1, 2001
through December 31, 2001, the Company paid fees to Gordon & Silver in the
amount of $106,000 for the defense of various personal injury claims and
handling of corporate matters. As Mr. Silver was not appointed to the
Board until February 26, 2001, the fees incurred in 2001 were pursuant to
a business relationship established prior to Mr. Silver's Board
appointment. Additionally, Mr. Silver does not supervise the attorneys
working on Company matters. Although the Company continues to utilize
the services of Gordon & Silver, the Company believes that the fee
arrangement is at least as favorable to the Company as in previous years.
Peninsula Gaming Partners LLC ("PGP") engaged RGM to assist, on an interim
basis in 2000, with transitional matters relating to the operations of the
Diamond Jo gaming riverboat in Dubuque, Iowa. Such services included
assisting in the selection of a new chief operating officer to oversee
riverboat casino operations and other matters. RGM earned fees and
expenses in the amount of $232,000 for the year ended December 31, 2000.
PGP terminated its agreement with RGM in September 2000. Mr. Westerman
served as a manager on the board of managers of Peninsula Gaming Partners,
LLC until his resignation effective December 31, 2000. The Company
believes that the fees were no less favorable than would have been paid in
an arm's-length transaction.
F-37
RIVIERA HOLDINGS CORPORATION
UNAUDITED QUARTERLY FINANCIAL DATA
(Amounts in thousands, except per share data)
- ---------------------------------------------------------------------------------------------------------------------------
March 31 June 30 September 30 December 31
Year Ended December 31, 2001:
Net Revenues $ 52,199 $ 54,828 $ 51,045 $ 43,959
Operating Income 5,445 6,282 3,013 2,233
Loss Before Tax Benefit (958) (124) (3,319) (4,246)
Net Loss (658) (70) (2,500) (3,179)
Loss Per Share, Basic $ (0.18) $ (0.02) $ (0.71) $ (0.92)
Loss Per Share, Diluted $ (0.18) $ (0.02) $ (0.71) $ (0.92)
Year Ended December 31, 2000:
Net Revenues $ 49,699 $ 54,017 $ 51,357 $ 51,714
Operating Income 5,362 5,569 2,431 3,517
Income (Loss) Before Taxes (Benefit) 1,076 (1,051) (3,741) (2,994)
Net Income (Loss) 675 (553) (2,358) (1,979)
Earnings (Loss) Per Share, Basic $ 0.16 $ (0.14) $ (0.61) $ (0.53)
Earnings (Loss) Per Share, Diluted $ 0.15 $ (0.14) $ (0.61) $ (0.53)
F-38
(19096)