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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, 1998
[ ] 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. [X]
Based on the average bid price for the Registrant's Common Stock as
of February 26, 1999, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was approximately $27,560,382. As of February
26, 1999 the number of outstanding shares of the Registrant's Common Stock was
5,068,576.
Documents incorporated by reference: The Company's Proxy Statement relating to
the Annual Meeting of Stockholders to be held June 2, 1999 is incorporated by
reference in Part III hereof.
Page 1 of 35 Pages
Exhibit Index Appears on Page 31 hereof.
1
RIVIERA HOLDINGS CORPORATION AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1998
TABLE OF CONTENTS
Item 1. Business................................................................................................3
General .............................................................................................3
The Abandoned Merger.................................................................................3
The Riviera Hotel & Casino...........................................................................3
The Black Hawk Project...............................................................................8
Geographical Markets.................................................................................8
Management Activities................................................................................9
Competition........................................................................................ 10
Employees and Labor Relations.......................................................................11
Regulation and Licensing............................................................................11
Federal Registration................................................................................18
Item 2. Properties.............................................................................................19
Item 3. Legal Proceedings......................................................................................19
Item 4. Submission of Matters to a Vote of Security Holders....................................................19
Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters...........................20
Item 6. Selected Financial Data................................................................................20
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..................21
Results of Operations...............................................................................21
1998 Compared to 1997...............................................................................22
1997 Compared to 1996...............................................................................23
Liquidity and Capital Resources.....................................................................24
Year 2000 ..........................................................................................25
Forward Looking Statements..........................................................................26
Recently Adopted Accounting Standards...............................................................26
Recently Issued Accounting Standards................................................................26
Item 8. Financial Statements and Supplementary Data............................................................27
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...................27
Item 10. Directors and Executive Officers of the Registrant.....................................................28
Item 11. Executive Compensation.................................................................................28
Item 12. Principal Shareholders.................................................................................28
Item 13. Certain Relationships and Related Transactions ........................................................28
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8K.........................................29
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 ("ROC"), owns and operates the Riviera Hotel & Casino (the
"Riviera") located on Las Vegas Boulevard (the "Las Vegas Strip") in Las Vegas,
Nevada. Opened in 1955, the Riviera has developed a long-standing reputation for
delivering high quality, traditional Las Vegas-style gaming, entertainment and
other amenities. The Company, through its wholly owned subsidiary Riviera Gaming
Management, Inc. ("RGM"), manages the Four Queens Hotel/Casino in downtown Las
Vegas.
The Company, through its wholly-owned subsidiary, Rivera Black Hawk,
Inc., is currently constructing a limited-stakes casino in Black Hawk, Colorado.
The successful completion and opening of the casino will be contingent upon a
number of factors including regulatory approval and the Company's ability to
obtain additional financing. The Company believes the casino will begin
operations in the first quarter of 2000.
The Abandoned Merger
In March 1998 the Company was notified by Allen E. Paulson
("Paulson") that he was terminating the merger agreement dated as of September
of 1997 among the Company, and R & E Gaming Corp. and Riviera Acquisition Sub,
Inc., affiliates of Paulson. Pursuant to the merger agreement a company
controlled by Paulson was to have acquired 100% of the Company's common stock
for $15 per share, plus an interest factor. Approximately $5.8 million is being
held in escrow for the holders of 1,770,000 Riviera Contingent Value Rights
("CVR's"). The CVR's entitle their holders to share only in the proceeds of the
funds currently in escrow. Excluded from participating in the CVR's are Morgens
Waterfall, SunAmerica, Keyport Life and Paulson, and their affiliates and
associates, who own an aggregate 3,355,000 Riviera shares.
The Company, three major stockholders of the Company and other
defendants involved in the terminated merger are in litigation with Paulson
relating to the merger agreement and related issues. The Company is paying the
expenses of such litigation but will not share in any recovery of the escrow
funds. See "Legal Proceedings" for further information concerning this
litigation. There can be no assurance that the Company will be successful in
collecting all or any part of the funds currently held in the escrow fund.
The Riviera Hotel & Casino
General
The Riviera is located on the corner of the Las Vegas Strip and
Riviera Boulevard, across from Circus Circus. The Riviera 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
The Riviera has 115,000 square feet of casino space. The casino
currently has approximately 1,600 slot machines and 46 gaming tables, including
blackjack, craps, roulette, pai gow poker, Caribbean Stud(R) poker, baccarat,
Let It Ride(R) and poker. The casino also includes a keno lounge and a 200-seat
race and sports book.
Gaming operations at the Riviera 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. The Company maintains 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
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to the type, location and player activity of all its slot machines. The Company
recently completed an extensive capital investment program for the upgrade of
its slot machines.
The current management team redirected its business away from
high-stakes wagerers in favor of the less volatile mid-level gaming customers.
In order to effectively pursue this strategy, management has made several
strategic changes including reconfiguring the casino space, installing new slot
machines and bill acceptors, reducing the number of gaming tables and
de-emphasizing baccarat. In addition, management implemented stricter credit
policies and reduced baccarat table limits. As a result, the percentage of table
game dollar volume represented by credit play declined from approximately 24% in
1993 to13% in 1998. Also, in 1998, revenues from slots and tables were
approximately 76% and, 24% respectively, as compared to 55% and 45%,
respectively, in 1992.
During 1998, management continued a number of initiatives at the
Riviera to increase slot play, including the replacement of old slot machines,
the installation of bill acceptors and the addition of slot hosts. The Company's
strategy is to continue to increase slot play through marketing programs and
other improvements, including (i) the Company's slot upgrade program, which was
completed in December 1997, (ii) addition of new signage, (iii) promotion of the
Riviera Player's Club, (iv) sponsorship of slot tournaments, (v) creation of
promotional programs, (vi) marketing of the "World's Loosest Corner of Slots"
and "$40 for $20(R)" slot promotions, and (vii) the opening of "Nickel Town(R)"
at the end of 1997. The Company developed Nickel Town on the corner of the Las
Vegas Strip and Riviera Boulevard at the crosswalk from Circus Circus and the
local Strip bus stop for approximately $5 million. The 10,000 square foot
facility contains approximately 300 slot machines, a bar, snack bar and souvenir
shop. Food and beverage items are priced very attractively and promoted
extensively. Dramatic signage and lighting effects compatible with the
property's existing facade facing the Las Vegas Strip create a "must see" effect
for passers by on both sides of the Las Vegas Strip. The Company believes that
the nickel player represents the most rapidly growing portion of the Las Vegas
gaming market and was frequently neglected by the Company's major competitors
who focus their slot products on higher denominations. Currently 78% of the
devices in Nickel Town are nickel slot machines.
Casino segment revenues were $77,676,000, $71,624,000 and $80,384,000
in 1998, 1997 and 1996, respectively.
Hotel
The Riviera's 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 1997 the Company completed refurbishment of all of its
approximately 2,100 hotel rooms except for 65 one-bedroom suites in the Monte
Carlo Building. Despite the significant increase in rooms on the Las Vegas Strip
in the last three years, management believes that the Riviera 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, 96.8% for 1997 and 95.2% for 1998 (based
on available rooms). The average occupancy rate citywide was 85.8% in 1998
according to the Las Vegas Convention and Visitors Authority (the "LVCVA"). Room
revenue has increased from $35.4 million in 1993 to $39.1 million in 1998, an
increase of 10.5%. Management believes that this performance can be attributed
to its targeted and coordinated marketing strategy, particularly its focus on
conventioneers.
Rooms segment revenues were $36,626,000, $39,153,000 and $40,078,000
in 1998, 1997 and 1996, respectively.
4
Restaurants
The quality, value and variety of food services are critical to
attracting Las Vegas visitors. The Riviera offers five bars and five restaurants
and serves an average of approximately 5,000 meals per day, including banquets
and room service. The following table outlines, for each restaurant, the type of
service provided and total seating capacity:
Seating
Name Type Capacity
- ---- ---- --------
Kady's Coffee Shop 290
Kristofer's Steak and Seafood 162
Rik' Shaw Chinese 124
Ristorante Italiano Italian 126
World's Fare Buffet All-you-can-eat 432
------
1,134
In addition, the Riviera 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.
Food and Beverage segment revenues were $17,635,000, $15,916,000 and
$16,262,000 in 1998, 1997 and 1996, respectively.
Convention Center
The Riviera 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.
The Riviera hosts approximately 175 conventions per year. The hotel currently
has over 1.15 million convention related advance bookings of rooms totaled
approximately 620,000 definite bookings and approximately 530,000 tentative
bookings. On average, approximately 25% of the rooms are occupied for
conventions.
In March 1998 the Company commenced construction to expand its
convention center from 100,000 square feet to 160,000. The new expanded
facilities include new, state-of-the-art convention, meeting and banquet
facilities, teleconferencing and satellite uplink capability, and 66,000 square
feet of additional parking. The new facilities connect to the existing
convention facility and the main hotel buildings to form one integrated
structure. The new addition known as the Royale Pavilion opened February 12,
1999, with a concert performed by the popular musical group, Air Supply.
Entertainment
The Riviera has one of the most extensive entertainment programs in
Las Vegas, offering four different regularly scheduled shows and special
appearances by headline entertainers in concert. The Company believes
entertainment provides an attractive marketing tool to attract customers to the
Riviera. The Riviera offers one of the most extensive entertainment programs in
Las Vegas, including such well received shows as Splash(R) (a variety show), An
Evening at La Cage(sm) (a female impersonation show), Crazy Girls(sm) (an adult
revue) as well as featured comedians at the Riviera Comedy Club. The Company
updates its shows continually in response to customer surveys and to keep them
fresh. Tickets for the shows are offered at reasonable prices in keeping with
the Company's emphasis on mid-level customers. The readers of the Las Vegas
Review Journal voted the Riviera Comedy Club the number one comedy club in Las
Vegas and the Crazy Girls bronze sculpture in front of the Hotel as the best
visitor photo opportunity in Las Vegas in the most recently released "Best of
Las Vegas" readers' survey.
Other entertainment includes the 200-seat Le Bistro entertainment
lounge located in the casino, which offers live performances every night. In
addition, the Riviera presents major concerts which since 1996 have included
performers such as the Beach Boys, the Pointer Sisters, Drew Carey, Air Supply,
Frankie Avalon, Bobby Vee, Dion, the Doobie Brothers and Billy Ray Cyrus. The
Company believes the recently completed Royale Pavilion will enable it to
increase attendance at special events since, in the past, the then existing
facilities could not accommodate the demand for tickets.
5
Entertainment revenues including complimentaries have increased from
$16.5 million in 1993 to $21.5 million in 1998, a 30% increase. Management
believes that this increase is attributable to the popularity of the in-house
productions supplemented by focused marketing and consistent advertising
messages.
Entertainment segment revenues were $19,764,000, $19,855,000 and
$20,714,000 in 1998, 1997 and 1996, respectively.
"All Other" segment revenues, derived primarily from telephone
revenue, sales of retail merchandise and store rentals totaled $8,254,000,
$7,244,000 and $6,960,000 in 1998, 1997 and 1996, respectively.
Future Expansions
The Company is exploring the possible development of an approximately
60,000 square-foot domed shopping center and entertainment complex to be
constructed directly over the casino which will contain stores and entertainment
that will appeal to the Riviera's main target audience, adults aged 45 to 65.
The exit from the complex would be by an escalator which will deliver patrons to
the casino. The Company would require partners to finance, develop and operate
the entertainment attraction and retail stores. To date no such partners have
been identified.
The Company is exploring a number of options for the development of
its 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 the Company's Bond Indenture, the Company
could contribute up to 6 acres of land to such projects and if the Company
decides to develop a time share tower a third party would construct and sell
time-share units and arrange financing. Management believes that additional
rooms adjacent to the Las Vegas Convention Center would be particularly
attractive to business customers and would provide a base for additional casinos
customers. The development of a time-share tower or parking facility would
require additional financing and, in the case of the time-share tower, a joint
venture partner, none of which the Company has in place at this time.
Marketing Strategies
The Company has developed a marketing program intended to develop a
loyal following of repeat slot and mid-level table game customers. Management
believes it has been able to successfully attract these patrons using the
Riviera's restaurants, hotel accommodations and entertainment and by focusing on
customer service. Management has adopted a selective approach to the extension
of credit to these customers in order to reduce volatility of operating results.
The Company uses its research data to tailor promotional offers to the specific
tastes of targeted customers. All slot and table players are encouraged to join
the Riviera Player's Club and to fill out surveys that provide the Riviera with
personal information and preferences and tracks their level of play. Members of
the Riviera 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.
The Riviera 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
maintaining and expanding Riviera's core conventioneer customer base. In
developing its overall marketing programs, the Company conducts extensive,
ongoing research of its target customers' preferences through surveys,
one-on-one interviews and focus groups.
Create Repeat Customers
Generating customer loyalty is a critical component of management's
business strategy as retaining customers is less expensive than attracting new
ones. The Company has developed a focused and coordinated marketing program
intended to develop a loyal customer base which emphasizes (i) providing a high
level of service to its customers to ensure an enjoyable experience while at the
Riviera, (ii) responding to customer surveys and (iii) focusing marketing
efforts and promotional programs on customers with positive gaming profiles. The
Company uses its research data to tailor promotional offers to the specific
tastes of targeted customers. All slot and table players are encouraged to join
the Riviera Player's Club which tracks their level of play, and to fill out
surveys that provide the Riviera with personal information and
6
preferences. Members of the Riviera 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. The Company designs promotional offers targeted at certain
mid-level gaming patrons that are expected to provide significant revenues based
upon their historical gaming patterns. The Company contacts these customers
through a combination of direct mail and telemarketing by an in-house marketing
staff and independent representatives located in major cities. The Riviera uses
a proprietary database which is linked to its player tracking system to help
identify customers' requirements and preferences; thereby allowing the Riviera
to customize promotions to attract repeat visitors. The Company offers customers
personalized service, credit availability and access to a variety of
complimentary or reduced-rate room, dinner and entertainment reservations.
Management uses a specialized multi-tiered marketing approach to attract
customers in each of its major markets. Slot and table game tournaments and
special events are designed for specific levels of play. Utilizing its
proprietary database the Company's marketing department then targets and invites
the customers most appropriate for the customized events. In addition, the
Company hosts an array of special events, including slot and table tournaments,
designed to attract customers for an extended stay. Management has found that
this individualized marketing approach has provided significant revenues and
profitable repeat business.
Provide Extensive Entertainment Options
The Company also focuses on attracting its guests through a range of
entertainment opportunities. The Riviera 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 the Company's profitability, the shows attract additional
gaming revenue. Surveys indicate that approximately 80% of the show patrons come
from outside the hotel and approximately 66% of these individuals gamble at the
Riviera before or after the shows.
Attract Walk-In Traffic
The Company seeks to maximize the number of people who patronize the
Riviera that are not guests in the hotel by capitalizing on Riviera's prime
Strip location, convention center proximity and the Riviera's several popular
in-house productions. The Riviera 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. Management
strives 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 the
"World's Loosest Corner of Slots," the "Free Pull" and "$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. The Riviera targets convention business because it
typically provides patrons willing to pay higher room rates and it provides
certain advance planning benefits, since conventions are usually booked two
years in advance of the event date. Management focuses its marketing efforts on
conventions whose participants have the most active gaming profile and higher
room rate, banquet and function spending habits. The Riviera also benefits from
its proximity to the Las Vegas Convention Center which makes it 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. The
Company derives approximately 25.5% of its hotel occupancy from convention
customers and considers them a critical component of its customer base.
Management believes that the recently completed expansion of the Riviera's
Convention Center from 100,000 to 160,000 square feet will accommodate the
growth in the size and number of groups that presently use the facility, attract
new convention groups and increase the percentage of rooms occupied by
conventioneers.
Tour and Travel Operators
Management has found that many of its 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
mid-week stays. Tour and travel patrons often book at off-peak periods enabling
the Company to maintain occupancy rates at the highest levels throughout the
year. Management has developed
7
specialized marketing programs and cultivated relationships with wholesale
operators, travel agents and major domestic air carriers to expand this market.
The Company's four largest tour and travel operators, currently account for
approximately 500 of the available 2,100 room bookings per night. The Company
makes an effort to convert many tour and travel customers who meet the Company's
target customer gaming profile into repeat slot customers.
The Black Hawk Project
The Company's indirect wholly-owned subsidiary, Riviera Black Hawk,
Inc. ("Riviera Black Hawk") is constructing a casino in Black Hawk, Colorado.
This property will be one of the largest integrated casino and parking
facilities in the state of Colorado and will be located at one of the premiere
gaming sites in Black Hawk, approximately 40 miles west of Denver. It will be
one of the first casinos encountered when traveling from Denver to the adjacent
gaming sites of Black Hawk and Central City. The casino will feature one of the
largest gaming selections in the market with approximately 1,000 slot machines
and 14 gaming tables. A variety of other amenities will be offered, which are
designed to differentiate this casino, including (1) on-site covered parking for
520 vehicles offering convenient safe parking and valet options, (2) an
approximately 265 seat casual dining restaurant with two themed bars, and (3) an
entertainment center with seating for up to 600 people. The Company believes
that its Black Hawk casino will be successful due to its premiere location,
single floor Las Vegas-style casino, convenient covered self-parking, superior
size and amenities.
The casino is expected to be completed and open in the first quarter
of 2000. The Company presently estimates that the total cost to develop and open
the casino, excluding capitalized interest and financing related costs, will be
approximately $63.0 million, which includes: (i) $15.1 million for the purchase
of the land on which the casino is being developed, (ii) $27.5 million bonded
"Guaranteed Maximum Price" construction cost, (iii) $10.6 million for furniture,
fixtures and equipment, (iv) $7.7 million for project and development costs,
fees and permits and (v) $2.1 million for pre-opening costs and initial working
capital. As of December 31, 1998, the Company had spent $25.0 million on this
project (excluding capitalized interest).
Geographical Markets
The Las Vegas Market
Las Vegas is one of the largest and fastest growing entertainment
markets in the country. According to the LVCVA, the number of visitors traveling
to Las Vegas has increased at a steady and significant rate for the last twelve
years from 15.2 million in 1986 to 30.6 million in 1998, a compound annual
growth rate of 6.0%. Clark County gaming has continued to be a strong and
growing business with Clark County gaming revenues increasing at a compound
annual growth rate of 8.4% from $2.4 billion in 1986 to $6.3 billion in 1998.
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.
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 63% from approximately 67,000 at the end of 1989 to 109,365 at the end of
1998, giving Las Vegas the most hotel and motel rooms of any metropolitan area
in the country. Despite this significant increase in the supply of rooms, the
Las Vegas hotel occupancy rate exceeded 85% for each of the years from 1993
through 1998. Since January 1, 1998 approximately 4,500 new hotel rooms opened,
and as of December 31, 1998 there were 12,476 hotel rooms under construction.
The LVCVA states that an additional approximately 3,500 rooms will be completed
by the end of the year 2000. The new rooms under construction are primarily
being designed to attract the high-end gaming and convention customers, and
based on construction costs, will be priced at rates well above those which have
been or can be charged by the Riviera based on the investment in its facility.
The Company believes that the growth in the Las Vegas market has been
enhanced as a result of (i) a dedicated program by the LVCVA 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
8
"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. In 1998, the number of convention delegates had
increased to 3.3 million with approximately $4.3 billion of economic impact.
During the past five 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 30.2 million in 1998.
Construction has recently been completed on numerous roadway enhancements to
improve access to the Airport. An additional runway has also been completed and
is now operational. The Airport has additional long-term expansion plans
underway which will provide three new satellite concourses, 60 additional gates
and other facilities.
The Colorado Market
In November 1990, Colorado voters approved limited-stakes gaming
($5.00 or less per wager) in three historic gold mining areas, Black
Hawk/Central City and Cripple Creek. Because of the $5.00 maximum bet, the
casinos in Colorado emphasize gaming machine play. Black Hawk and Central City
are contiguous, with Black Hawk being closer to Denver, and are located
approximately 40 miles west of Denver and 10 miles north of Interstate 70, the
main highway connecting Denver to many of Colorado's major ski resorts. Cripple
Creek is located approximately 45 miles from Colorado Springs and 75 miles from
Pueblo. Casinos located in the Black Hawk/Central City area serve primarily the
residents of Denver and Boulder, Colorado and surrounding communities.
Approximately three million people live within a 100-mile radius of the Black
Hawk/Central City area.
The proximity of the Black Hawk/Central City area to major population
centers has contributed to consistent growth in gaming revenues in the market
since the legalization of gaming in 1990. The Company also believes that the
Black Hawk/Central City gaming market has benefitted from the entry of larger,
well-capitalized gaming operators offering parking and superior amenities. As a
result, gaming revenues have grown from $127.6 million in 1992 to $366.0 million
in 1998, representing a 19% compound annual growth rate. As of December 31, 1998
there were 30 casinos and over 10,000 slot machines in operation in Black Hawk
and Central City.
Management Activities
In order to capitalize on management's expertise and reputation as
successful operators of casino properties, the Company formed RGM, a
wholly-owned subsidiary of the Company, for the primary purpose of obtaining
casino management contracts in Nevada and other jurisdictions. RGM 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. Management believes that management contracts provide high
margin income with limited additional overhead and little or no capital
expenditure requirements. Management is continually evaluating opportunities to
manage other casinos/hotels. The Company's objective is to obtain the right to a
substantial equity position in projects it would manage as part of the
compensation for its services.
Four Queens Management Agreement
Riviera Gaming Management-Elsinore, Inc. ("RGME"), an indirect
wholly-owned subsidiary of the Company, is operating 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. The
term of the agreement is approximately 40 months (subject to earlier termination
by either party on six months notice. RGME is paid a minimum annual management
fee of $1 million and a performance fee, which is payable only if cash flow
increases materially above current levels. RGME has warrants to purchase common
stock of Elsinore Corporation (the parent of the Four Queens Hotel/Casino) which
appears unlikely to have significant value.
Other Management Opportunities
The Company is continuously reviewing opportunities to expand and
become a multi-jurisdictional casino company with greater capital resources to
enable it to compete more effectively. The jurisdictions
9
include, but are not limited to, Mississippi, Pennsylvania and Iowa. The Company
may also become involved in financially distressed casino properties where it
believes it may be able to effect a turn-around (similar to that which current
management achieved at the Riviera) and can obtain a significant equity stake.
Competition
Las Vegas, Nevada
Intense competition exists among companies in the gaming industry,
many of which have significantly greater resources than the Company. The Riviera
faces competition from all other casinos and hotels in the Las Vegas area.
Management believes that the Riviera's 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 gaming square footage and room capacity are continuing to
grow and are expected to continue to increase significantly during the next
several years.
Since January 1, 1998 approximately 4,500 new hotel rooms opened, and
as of December 31, 1998 there were approximately 12,500 hotel rooms under
construction. The LVCVA states that an additional 3,537 rooms will be completed
by the end of the year 2000. Existing and future expansions, additions and
enhancements to existing properties and construction of new properties by the
Company's competitors could divert additional business from the Company's
facilities. There can be no assurance that the Company will compete successfully
in the Las Vegas market in the future.
During 1998, available room nights in the Las Vegas market increased
from 37.7 million to 39.0 million or 3.5%, while total room nights occupied
increased from 32.5 million to 33.4 million or 2.9%. The ending room inventory
at December 31, 1998 was 109,365 compared to 105,347 at December 31, 1997, an
increase of 4,018 rooms or 3.8 %. This has had the effect of intensifying
competition. At the Riviera, room occupancy fell from 96.8% in 1997 to 95.2% in
1998 (still much higher than the Strip average) and room rates decreased by
$3.43 or 5.8%, from $58.25 in 1997 to $54.82 in 1998.
The Company also competes, 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 the Company's results of
operations.
The current business of the Company is entirely dependent on gaming
in Las Vegas. The Riviera 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 the financial results of the Company.
Until the Black Hawk casino opens, the Company's operations will be primarily
dependent upon the results of operations achieved by the Riviera on the Las
Vegas Strip. Any significant disruption in operations at the Riviera would have
a material adverse effect on the Company.
Black Hawk, Colorado
The Black Hawk/Central City gaming market is characterized by intense
competition. The Company believes that the primary competitive factors in the
market are location, availability and convenience of parking, number of slot
machines and gaining tables, types and pricing of non-gaming amenities, name
recognition and overall atmosphere. The Company believes its main competitors
will be the larger gaming facilities in the City of Black Hawk, particularly
those with considerable on-site or proximate parking and established reputations
in the local market. Of the 30 gaming facilities currently operating in Black
Hawk/Central City, eight have over 400 gaming positions. The largest casinos in
terms of the number of gaming positions are respectively, the Isle of Capri,
Black Hawk, Harvey's Wagon Wheel Casino Hotel, Colorado Central Station,
Bullwhackers Black Hawk, Canyon Casino, Fitzgeralds Casino Black Hawk, the Lodge
and Gilpin Hotel Casino. Construction has also begun on the "Mardi Gras" casino,
which is expected to feature over 600 slot machines. Other projects have also
been announced, proposed,
10
discussed or rumored for the Black Hawk/Central City market, although the
Company is not aware of whether any of these projects are proceeding.
The Company expects the gaming facilities near the intersection of
Main and Mill Streets to provide significant competition, while at the same time
creating the greatest concentration of parking in the Black Hawk/Central City
market, as well as attracting a critical mass of customers to the area. Colorado
Central Station, one of the most successful casinos in the market, is located
across the street from the Company's Black Hawk casino and has approximately 700
slot machines, 20 gaming tables and approximately 700 valet-only parking spaces.
The Isle of Capri Black Hawk, operated by Casino America, which opened in
December 1998, is located directly across the street from the Company's Black
Hawk casino and features approximately 1,100 slot machines, 14 table games, and
1,000 parking spaces.
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, there can be no assurance that
gaming will not be approved in other Colorado communities in the future.
The Company will also compete with other forms of gaming in Colorado,
including lottery gaming, and horse and dog racing as well as other forms of
entertainment.
Pursuant to a license agreement, the Riviera will license the use at
the Black Hawk casino of all of the trademarks, service marks and logos used by
the Riviera Hotel & Casino in Las Vegas. In addition, the license agreement will
provide that additional trademarks, service marks and logos acquired or
developed by the Company and used at its other facilities will be subject to the
license agreement.
Employees and Labor Relations
As of December 31, 1998 the Riviera had approximately 2,100 full time
equivalent employees and had collective bargaining contracts with nine unions
covering approximately 1,200 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, Electricians and Musicians will expire in 1999, while the
Agreements with the Carpenters and Painters will expire in 2000. A new Agreement
was negotiated with the Teamsters and 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.
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. The Company's gaming operations are subject to the licensing and
regulatory control of the Nevada Commission, the Nevada Board, the Clark County
Board and the City of Las Vegas. The Nevada Commission, the Nevada Board, the
Clark County Board and the City of Las Vegas are 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. Change in such laws, regulations and
procedures could have an adverse effect on the Company's gaming operations.
11
ROC is required to be licensed by the Nevada Gaming Authorities. The
gaming license held by ROC requires the periodic payment of fees and taxes and
is not transferable. ROC is also licensed as a manufacturer and distributor of
gaming devices. Such licenses also require the periodic payment of fees and are
not transferable. The Company is registered by the Nevada Commission as a
publicly traded corporation (a "Registered Corporation") and has been found
suitable to own the stock of ROC. ROC is also registered by the Nevada
Commission as an intermediary company and has been found suitable to own the
stock of RGM which has been registered by the Nevada Commission as an
Intermediary company and has been found suitable to own the stock of its
subsidiary RGME. RGME has been licensed as the manager of the Four Queens and
such license is not transferable. ROC and RGME are each a Corporate Licensee
(collectively, the "Corporate Licensees") under the terms of the Nevada Act. As
a Registered Corporation, the Company is 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, the
Corporate Licensees without first obtaining licenses and approvals from the
Nevada Gaming Authorities. The Company, ROC, RGM and RGME have 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.
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, the Company, ROC, RGM
or RGME 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 ROC and RGME must file applications with the Nevada
Gaming Authorities and may be required to be licensed or found suitable by the
Nevada Gaming Authorities. Officers, directors and key employees of the Company
and RGM who are actively and directly involved in the gaming activities of ROC
or RGME 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 the Company, ROC, RGM or RGME the companies involved would
have to sever all relationships with such person. In addition, the Nevada
Commission may require the Company, ROC, RGM or RGME 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.
The Company, ROC and RGME 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 ROC
must be reported to or approved by the Nevada Commission.
If it were determined that the Nevada Act was violated by ROC or
RGME, the gaming licenses they hold could be limited, conditioned, suspended or
revoked, subject to compliance with certain statutory and regulatory procedures.
In addition, the Company, ROC, RGM and RGME 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 licenses of ROC or
RGME or the appointment of a supervisor could (and revocation of any gaming
license would) materially adversely affect the Company's gaming operations.
12
Any beneficial holder of the Company's 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 the Company's
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 voting securities to report the acquisition to the
Nevada Commission. The Nevada Act requires that beneficial owners of more than
10% of a Registered Corporation's 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 a Registered Corporation's
voting securities may apply to the Nevada Commission for a waiver of such
finding of suitability if such institutional investor holds the voting
securities for investment purposes only. An institutional investor shall not be
deemed to hold 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 the board of directors
of the Registered Corporation, any change in the corporate charter, bylaws,
management, policies or operations of the Registered Corporation, or any of its
gaming affiliates, or any other action which the Nevada Commission finds to be
inconsistent with holding the Registered Corporation's voting securities for
investment purposes only. Activities which are deemed to be consistent with
holding voting securities 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 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. The Company is subject to disciplinary action if,
after it receives notice that a person is unsuitable to be a stockholder or to
have any other relationship with the Company, ROC, RGM or RGME, the Company (i)
pays that person any dividend or interest upon voting securities of the Company,
(ii) allows that person to exercise, directly or indirectly, any voting right
conferred through securities held by that person, (iii) pays remuneration in any
form to that person for services rendered or otherwise, or (iv) fails 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 debt security of a Registered Corporation to file applications, be
investigated and be found suitable to own the 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, the Registered Corporation can be sanctioned,
including the loss of its approvals, if without the prior approval of the Nevada
Commission, it: (i) pays to the unsuitable person any dividend, interest, or any
distribution whatsoever; (ii) recognizes any voting right by such unsuitable
person in connection with such securities; (iii) pays the unsuitable person
remuneration in any form; or (iv) makes any payment to the unsuitable person by
way of principal, redemption, conversion, exchange, liquidation, or similar
transaction.
The Company is 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. The Company is also required to render maximum
assistance in determining the identity of the beneficial owner. The Nevada
Commission has the power to require the Company's stock certificates to bear a
legend
13
indicating that the securities are subject to the Nevada Act. However, to date,
the Nevada Commission has not imposed such a requirement on the Company.
The Company may not make a public offering of its 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 or Intermediary company ("Stock
Pledge"), such as ROC, RGM and RGME, 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 the Company 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
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 ROC, RGM and RGME 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
ROC, 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 that are harmful to the State of Nevada or its
ability to collect gaming taxes and fees, or employ a person in the foreign
operation who has been denied a license or finding of suitability in Nevada on
the ground of personal unsuitability.
14
Other Nevada Regulation
The sale of alcoholic beverages at the Riviera 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 ROC.
Colorado
Colorado Gaming Regulation
Pursuant to an amendment to the Colorado Constitution (the "Colorado
Amendment"), limited stakes gaming became lawful in the cities of Central City,
Black Hawk and Cripple Creek on October 1, 1991. The Colorado Amendment defines
limited stakes gaming as the use of slot machines and the card games of
blackjack and poker, with a maximum single bet of five dollars.
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 1, and which conform to the requirements of applicable city ordinances
regardless of the age of the structures. The Colorado Amendment provides that 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. The Colorado
Amendment 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 Amendment 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 conducting
limited stakes gaming. Such percentage is to be established by the Colorado
Limited Gaming Act of 1991 (the "Colorado Act").
The Colorado legislature promulgated the Colorado Act to implement
the provisions of the Colorado Amendment. The Colorado Act became effective on
June 4, 1991 and has been amended subsequently.
The Colorado Act declares public policy on limited stakes gaming to
be that: (i) 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; (ii) public confidence and
trust can be maintained only by strict regulation of all persons, locations,
practices, associations and activities related to the operation of licenses
gaming establishments and the manufacture or distribution of gaming devices and
equipment; (iii) all establishments where limited stakes gaming is conducted and
where gambling devices and equipment must be licensed, controlled and assisted
to protect the inhabitants of the state to foster the stability and success of
limited stakes gaming and to preserve the economy and free competition in
Colorado; and (iv) no applicant for a license of other approval has any right to
a license or to the granting of the approval sought.
The Colorado Act subjects the ownership and operation of limitation
stakes gaming facilities in Colorado to extensive regulation by the Colorado
Limited Gaming Control Commission (the "Colorado Commission") and prohibits
persons under the age of 21 from participating in limited stakes gaming. No
limited stakes gaming may be conducted in Colorado unless all appropriate gaming
licenses are approved by and obtained from 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 Regulations"). Such authority does not
require any approval by or delegation of authority from the Colorado Department
of Revenue (the "Colorado Revenue Department"). The Colorado Act also created
the Division of Gaming within the Colorado Revenue Department to license,
implement, regulate and supervise the conduct of limited stakes gaming in
Colorado, supervised and administered by the Director of the Division of Gaming
(the "Division Director").
The Colorado Commission may issue: (i) slot machine or distributor,
(ii) operator, (iii) retail gaming, (iv) support and (v) 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
15
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.
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 license 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 licenses. A slot machine manufacturer or distributor license
is required for all persons who manufacture, import or distribute slot machines
in Colorado.
The Colorado Act requires 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.
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 license, 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
five (5) percent or greater, or who have the ability to control the licensee, or
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 licenses, and all applications for licenses, in
foreign jurisdictions.
16
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 agreement, contracts, leases, or arrangements in violation of the
Colorado Act or the Colorado Regulations are void and unenforceable.
The Colorado Amendment requires an annual tax of as much as 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. Effective October 1 of each year, the Colorado
Commission establishes the gaming tax for the following 12 months. Currently,
the gaming tax is: 2% on the first $2 million of these amounts; 4% on amounts
from $2 million to $4 million; 14% on amounts from $4 million to $5 million; 18%
on amounts from $5 million to $10 million; and 20% on amounts over $10 million.
The Colorado Commission requires all gaming licensees to pay an
annual device fee for each slot machine, blackjack table and poker table of $75.
The municipality of Black Hawk assesses an annual device fee of $750 per device.
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 $102 per device and a transportation
authority device fee of $77 per device also may apply depending upon the
location of the licensed premises in Black Hawk. The current annual business
improvement fee is $89.04.
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 Act constitutes a class 1 misdemeanor which
may subject the violator to fines or incarceration or both. A licensee who
violates the Colorado 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.
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 even
if created under the laws of a foreign country. Such requirements shall
automatically apply to any ownership interest held by a publicly traded
corporation, holding company or intermediary company thereof, where such
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
exercise influence over a licensee, regardless of the percentage of ownership
possessed by said entity, the Colorado Commission may require that 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 within 10 days of 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 distribution of such statement. Licensees
to whom Rule 4.5 applies must include in their articles of organization or
similar charter documents provisions that: restrict the rights of the licensees
to issue voting interests or securities except in accordance with the Colorado
Act and the Colorado Regulations; limit the rights of persons to transfer voting
interests or securities of licensees except in accordance with the Colorado 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.
17
Pursuant to Rule 4.5, persons who acquire direct or indirect
beneficial ownership of (i) 5% or more of any class of voting securities of a
publicly traded corporation required to include in its articles of organization
the Rule 4.5 charter language provisions, or (ii) 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 (all
such persons hereinafter 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
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 Regulation also provides 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 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
licensee.
The sale of alcoholic beverages in gaming establishments is subject
to strict licensing, control and regulation by state and local authorities and
requires a liquor license. 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 or fines or both.
There are various classes of retail liquor licenses 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.
Currently, no gaming or liquor licenses in Colorado have been granted
in connection with the Black Hawk Project. Applications have been made for a
retail gaming license and for a hotel and restaurant liquor license.
Applications for key employee gaming licenses have also been made. Associate
Person license applications have been submitted for some related companies as
required by the Division Director. Additional gaming and support license
applications will have to be made and approved prior to the opening of the
casino. Certain stockholders of the Company owning more than 5% of the common
stock are submitting information relevant to the requirement for a finding of
suitability, or exemption from such finding.
Federal Registration
ROC 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.
18
Item 2. Properties
The Riviera complex is located on the Las Vegas Strip, occupies
approximately 26 acres and comprises approximately one-million square feet,
including 115,000 square feet of casino space, 160,000 square foot convention,
meeting and banquet facility, approximately 2,100 hotel rooms (including
approximately 169 luxury suites) in five towers, four restaurants, a buffet,
four showrooms, a lounge and approximately 2,300 parking spaces. In addition,
executive and other offices for the Riviera are located on the property.
There are 41 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 complex is encumbered by a first deed of trust
securing the Notes. See, "Management's Discussion And Analysis of Financial
Condition And Results of Operations."
The Company also owns the Black Hawk Land, which is a 71,000 square
foot parcel of real property in Black Hawk, Colorado.
Item 3. Legal Proceedings
The Company is a party to several routine lawsuits both as plaintiff
and as defendant arising from the normal operations of a hotel. Management does
not believe that the outcome of such litigation, in the aggregate, will have a
material adverse effect on the financial position or results of operations of
the Company.
On April 9, 1998, Paulson, R&E Gaming Corp. and other
Paulson-controlled entities (collectively, "Paulson") commenced an action in the
United States District Court for the Central District of California against the
Company, Jefferies & Company, Inc., Morgens, Waterfall,Vintiadis & Company,
Inc., Keyport Life Insurance Company, SunAmerica Life Insurance Company and
others, asserting various claims for the return of his down payment and damages.
The Company believes there is no merit to Paulson's damage claims against the
Company. The Company has vigorously contested, and will continue to contest,
Paulson's claims. The Company has asserted counterclaims against Paulson,
including a claim for the collection of the Escrow Funds for the benefit of the
holders of CVRs. See, "Business - The Abandoned Merger" for further information.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
19
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 February 26, 1999, based upon information available to it, the
Company believes that there were approximately 1,000 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 ROC. 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, 1998, 1997 and 1996, 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
- -------------------------------------------------------------------------------------------------------------------
1998
- -------------------------------------------------------------------------------------------------------------------
HIGH BID $10.75 $6.00 $5.75 $3.88
- -------------------------------------------------------------------------------------------------------------------
LOW ASK 15.06 10.81 8.13 5.81
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
1997
- -------------------------------------------------------------------------------------------------------------------
HIGH BID $ 12.88 $ 12.25 $ 12.13 $ 12.75
- -------------------------------------------------------------------------------------------------------------------
LOW ASK 14.50 14.13 15.50 14.94
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
1996
- -------------------------------------------------------------------------------------------------------------------
HIGH BID $ 7.50 $11.00 $14.00 $12.94
- -------------------------------------------------------------------------------------------------------------------
LOW ASK 9.75 17.75 17.13 15.63
- -------------------------------------------------------------------------------------------------------------------
On February 26, 1999, (the most recent trade date of the Company's
common stock), 4,300 shares were traded closing at $5.4375 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 (in thousands
except Net Income (Loss) Per Common Share):
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Total Operating Revenue $159,955 $153,793 $164,409 $151,146 $153,921
Net Income (Loss) (4,057) 2,088 8,440 6,344 4,790
Net Income (Loss) Per Diluted
Common Share ($0.81) $0.40 $1.63 $1.26 $1.00
Total Assets 244,909 347,866 167,665 157,931 151,925
Long-Term Debt 179,439 177,512 109,088 110,571 113,155
20
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
The following table sets forth the Company's income statement data as
a percentage of net revenues (unless otherwise noted) for the Company for the
periods indicated:
1998 1997 1996
---- ---- ----
Revenues:
Casino 48.6% 46.6% 48.9%
Rooms 24.8% 27.2% 25.7%
Food and Beverage 15.0% 14.0% 13.8%
Entertainment 13.5% 13.6% 13.2%
Other 7.0% 6.9% 6.1%
Less promotional allowances (8.7%) (8.3%) (7.7%)
------- -------
Net revenues 100.0% 100.0% 100.0%
Costs and Expenses:
Casino1 58.3% 56.7% 56.9%
Rooms1 52.7% 50.8% 52.9%
Food and Beverage1 73.3% 74.6% 71.7%
Entertainment1 78.3% 82.5% 82.4%
Other1 29.7% 28.5% 29.2%
General and administrative 16.9% 17.0% 16.9%
Corporate expenses, severance pay 0.3% 0.0% 0.0%
Depreciation and amortization 7.6% 6.8% 5.0%
Total Costs and Expenses 89.8% 87.7% 85.8%
Income from operations 10.2% 12.3% 14.2%
Interest expense on 11%, $100 million notes -2.9% -7.2% -6.7%
Interest income on Treasury Bills to retire 11%, $100 million notes 1.5% 1.5% 0.0%
Interest expense, other -12.2% -4.6% -0.6%
Interest income, other 1.5% 1.3% 0.7%
Interest, capitalized 1.7% 0.5% 0.0%
Other (income) expense, net -0.8% -1.0% -0.3%
------- ------- -------
Income before provision for income taxes -1.0% 2.2% 7.8%
(Benefit) provision for income taxes -0.3% 0.9% -2.7%
------- ------ -------
Net Income before extraordinary item -0.7% 1.4% 5.1%
Extraordinary item, net of income taxes of $1.6 million -1.9% 0.0% 0.0%
------- ------- -------
Net Income (Loss) -2.5% 1.4% 5.1%
======= ======= =======
EBITDA2 margin 18.2% 19.1% 19.2%
- -----------------------
1 Shown as a percentage of corresponding departmental revenue.
2 EBITDA consists of earnings before interest, income taxes, depreciation and
amortization (excluding corporate financing, severance and Paulson
Merger/litigation costs.) While EBITDA should not be construed as a
substitute for operating income or a better indicator of liquidity than cash
flow from operating activities, which are determined in accordance with
generally accepted accounting principles ("GAAP"), it is included herein to
provide additional information with respect to the ability of the Company to
meet its future debt service, capital expenditure and working capital
requirements. Although EBITDA is not necessarily a measure of the Company's
ability to fund its cash needs, management believes that certain investors
find EBITDA to be a useful tool for measuring the ability of the Company to
service its debt.
21
1998 Compared to 1997
Revenues
Net revenues increased by approximately $6.2 million, or 4.0%, from
$153.8 million in 1997 to $159.9 million in 1998. Casino revenues increased by
approximately $6.0 million, or 8.4%, from $71.7 million during 1997 to $77.7
million during 1998 due primarily to a $5.5 million, or 11.9%, increase in slot
revenues as a result of the opening of Nickel Town in late 1997. Nickel Town is
designed to offer value oriented slot customers an attractive location to play
and is attracting additional walk-in customers from the Las Vegas Strip because
it competes with Circus Circus, Slots-of Fun and Westward Ho with value oriented
food, beverage and merchandise. Table games revenue increased as the result of
significant play from selected regular customers. Room revenues decreased by
approximately $2.2 million, or 5.3%. from $41.8 million 1997 to $39.6 million
during 1998 as a result of a slight decrease in hotel occupancy from 96.8% to
95.2% and a decrease in average room rate of $3.43, or 5.8%, from $58.25 in 1997
to $54.82 in 1998. Food and beverage revenues increased approximately $2.3
million, or 10.8%, from $21.6 million 1997 to $23.9 million during 1998 due to
additional covers in the bars and restaurants. Entertainment revenues increased
by approximately $650,000, or 3.1%, from $20.9 million during 1997 to $21.5
million during 1998 due to 27,000 increased covers from 737,000 in 1997 to
764,000 in 1998. Other revenues increased by approximately $600,000, or 5.7%,
from $10.6 million during 1997 to $11.2 million during 1998 due primarily to the
Nickel Town gift shop revenues. Promotional allowances increased by
approximately $1.3 million, or 10.0%, from $12.7 million during 1997 to $14.0
million during 1998 due to competition for gaming revenues on the Las Vegas
Strip.
Direct Costs and Expenses of Operating Departments
Total direct costs and expenses of operating departments increased by
approximately $5.6 million, or 5.7%, from $98.2 million in 1997 to $103.8
million in 1998. Casino expense increased by approximately $4.7 million, or
11.5%, from $40.6 million during 1997 to $45.3 million during 1998 and casino
expenses as a percent of casino revenue increased from 56.7% to 58.3%, due to
increased marketing costs. Room costs decreased $400,000 or 1.8% from $21.2
million in 1997 to $20.8 million in 1998, however, room costs as a percentage of
room revenues increased from 50.8% during 1997 to 52.7% during 1998 as room
revenue decreased. Food and beverage costs increased by approximately $1.4
million, or 8.8%, from $16.1 million during 1997 to $17.5 million during the
1998 period resulting from a corresponding increase in revenues. Food and
beverage costs as a percentage of food and beverage revenues decreased from
74.6% during 1997 to 73.3% during 1998 because food and beverage revenue
increased while payroll and other costs remained relatively constant.
Entertainment costs decreased by approximately $400,000, or 2.2%, from $17.2
million during 1997 to $16.8 million during 1998 and entertainment expense as a
percentage of entertainment revenues decreased from 82.5% during 1997 to 78.3%
in 1998 due to the increase in revenues in all Mardi Gras shows, special events
and the box office operation. Other expenses increased by approximately
$300,000, or 9.9%, from $3.0 million to $3.3 million due to the corresponding
increase in Nickel Town gift shop sales.
Other Operating Expenses
General and administrative expenses increased by approximately
$800,000, or 3.1%, from $26.2 million for 1997 to $27.0 million 1998 due
primarily to increased incentive and employee retention plan costs required to
retain personnel in the competitive gaming environment. As a percentage of total
net revenues, general and administrative expenses decreased from 17.0% during
the 1997 period to 16.9% during the 1998 period. Corporate expenses for
severance settlements caused by changes in the composition of the Board of
Directors and executive staff totaled $550,000 in 1998. Included were payments
for the spread on options, consulting agreements and other compensation.
Depreciation and amortization increased by approximately $1.7 million, or 15.8%,
from $10.5 million during the 1997 period to $12.1 million during the 1998
period due to a significant increase in depreciable capital expenditures for
operating assets in the twelve months ended December 31, 1998 totaling
approximately $20,000,000.
Other Income (Expense)
Interest expense, other increased by $12.4 million because the
Company issued 10% First Mortgage Notes in the amount of $175.0 million on
August 13, 1997, in addition to carrying the now defeased 11%, $100 million
notes until June 1, 1998, when the 11%, $100 million notes were redeemed. The
Company used part of the proceeds of the 10% First Mortgage Notes to purchase
United States Government securities, which were deposited into an irrevocable
trust held to retire the 11%, $100 million notes. Interest income on these
securities
22
was $2.3 million in 1998. Interest income, other, increased $500,000 because of
the increased cash balances from the remaining proceeds of the $175.0 million
notes. Capitalized interest increased $1.9 million primarily on the Black Hawk,
Colorado, and Riviera Convention Center Expansion projects.
During 1997 the Company withdrew a secondary offering due to market
conditions and, as a result, charged costs totaling $850,000 to other expense.
Also, during 1997, approximately $400,000 in merger and acquisition costs
related to the R&E Gaming Corporation Plan of Merger was charged to other
expense. In 1998, $1.2 million in costs related to the abandoned Paulson Merger
were charged to other expense.
Extraordinary Item
The 11%, $100 million notes, for which retirement monies were put
into trust in August 1997, were retired on June 1, 1998. The call premium of
$4.3 million and unamortized deferred financing costs totaling $300,000 were
recorded net of the 35% income tax effect of $1.6 million resulting in an
extraordinary loss of $3.0 million.
Net Income
As a result of the additional depreciation, interest and
extraordinary item, net income decreased by approximately $6.1 million, from
$2.0 million in 1997 to a loss of $4.1 million in 1998.
EBITDA
EBITDA, as defined, decreased by approximately $300,000, or 1.0%,
from $29.4 million in 1997 to $29.1 million in 1998. During the same periods,
EBITDA margin decreased from 19.1% to 18.2% of net revenues.
1997 Compared to 1996
Revenues
Net revenues decreased by approximately $10.6 million, or 6.5%, from
$164.4 million in 1996 to $153.8 million in 1997. Casino revenues decreased by
approximately $8.8 million, or 10.9%, from $80.4 million in 1996 to $71.6
million in 1997 due to a general softness in the gaming market in Las Vegas.
Room revenues decreased by approximately $400,000, or 1.0% from $42.2 million in
1996 to $41.8 million in 1997 as a result of a decrease in hotel occupancy from
98.2% to 96.8%. The decrease in occupancy was partially offset by an increase in
ADR from $57.07 in 1996 to $58.25 in 1997. Food and beverage revenues decreased
approximately $1.0 million, or 4.8%, from $22.6 million in 1996 to $21.6 million
during 1997 due to fewer covers in the bars and restaurants. Entertainment
revenues decreased by approximately $900,000, or 4.1%, from $21.8 million during
1996 to $20.9 million during 1997, due to the reduction in number of covers for
the Splash variety show. Other revenues increased by approximately $600,000, or
5.7%, from $10.0 million during 1996 to $10.6 million during 1997 due primarily
to management fees of approximately $1.0 million for operating the Four Queens
Hotel/Casino in downtown Las Vegas. In 1996 the Company received a refund of
$576,000 from a union health and welfare trust fund for reduced premiums.
Promotional allowances remained relatively unchanged at approximately $12.6
million during 1996 and $12.7 million in 1997.
Direct Costs and Expenses of Operating Departments
Total direct costs and expenses of operating departments decreased by
approximately $6.9 million, or 6.5%, from $105.3 million in 1996 to $98.2
million in 1997. Casino expenses decreased by approximately $5.0 million, or
11.1%, from $45.7 million in 1996 to $40.7 million in 1997, and casino expenses
as a percent of casino revenue decreased slightly from 56.9% to 56.7%. Room
costs decreased approximately $1.0 million, or 5.0%, from $22.3 million in 1996
to $21.3 million in 1997, and room costs as a percentage of room revenues
decreased from 52.9% during 1996 to $50.8% during 1997. Payroll and linen costs
were reduced due to the lower occupancy. Food and beverage cost decreased by
approximately $100,000, or 0.5%, from $16.2 million in 1996 to $16.1 million in
1997 resulting from a corresponding decrease in revenues. However, food and
beverage costs as a percentage of food and beverage revenues increased from
71.7% during 1996 to 74.6% during l997 because of reduced beverage promotional
revenue from the casino bars. Entertainment costs decreased by approximately
$700, 000, or 4.0% from $17.9 million during 1996 to $17.2 million during 1997
due to the reduced expenses associated with lower covers in Splash.
Entertainment expense as a percentage of entertainment revenues increased from
82.4% in 1996 to 82.5% in 1997 due to a decrease in revenues. Other expenses
increased by
23
approximately $100,000, or 3.3% from $2.9 million to $3.0 million due to the
corresponding increase in other revenues.
Other Operating Expenses
General and administrative expenses decreased by approximately $1.6
million, or 5.6%, from $27.8 million in 1996 to $26.2 million in 1997 due to
decreased incentive plan costs associated with lower earnings. As a percentage
of total net revenues, general and administrative expenses increased from 16.9%
in 1996 to17.0% in l997 as a result of spreading of fixed costs over a smaller
revenue base in the 1997 period. Depreciation and amortization increased by
approximately $2.3 million, or 27.7%, from $8.2 million in 1996 to $10.5 million
in 1997 due to capital expenditures of $21.0 million during the 1997 period.
Other Income (Expense)
Interest expense, other, increased by $6.1 million because the
Company issued 10% First Mortgage Notes of $175.0 million on August13, 1997, in
addition to carrying the 11%, $100 million notes until June 1, 1998, when they
were redeemed. The Company used part of the proceeds of the 10% First Mortgage
Notes to purchase United States Government securities at a cost of $104.3
million which were deposited into an irrevocable trust held to retire the 11%,
$100 million notes. Interest income on these securities was $2.3 million in
1997. Interest income, other, increased approximately $759,000, or 65.0%, from
$1.2 million to $1.9 million because of the increased cash balances from the
remaining proceeds of the $175.0 million notes.
During the first quarter of 1997, the Company withdrew its secondary
offering due to market conditions and, as a result, charged costs totaling
$850,000 to other expenses. Also, during 1997 approximately $400,000 in merger
and acquisition costs related to the Paulson Merger were charged to other
expense.
Net Income
As a result of the factors discussed above and a decrease in income
taxes of approximately $3.1 million at a 34.5% effective rate, net income
decreased by approximately $6.4 million, or 75.3%, from $8.4 million during 1996
to $2.1 million during 1997.
EBITDA
EBITDA , as defined, decreased by approximately $2.1 million, or
6.8%, from $31.5 million in 1996 to $29.4 million in 1997. During the same
periods, EBITDA margins were 19.2% and 19.1% respectively.
Liquidity and Capital Resources
The Company had cash and cash equivalents of $48.9 million at
December 31, 1998, which was $16.3 million less than balances at December 31,
1997, due primarily to capital expenditures of $34.1 million.
The Company's net cash from operating activities was approximately $
8.1 million for 1998 compared to $18.6 million in 1997. Cash flows used in
investing activities were $28.8 million in 1998 and $42.8 million in 1997. Cash
flows from financing activities were $4.0 million in 1998 and $63.9 million in
1997. EBITDA, as defined, for 1998 and 1997 was $29.1 million and $29.4 million,
respectively. Management believes that cash flow from operations, combined with
the $48.9 million cash on hand, will be sufficient to cover the Company's debt
service and enable investment in budgeted capital expenditures for the next
twelve months, assuming that $40 million in project and equipment financing is
available for the Black Hawk casino development. Should the Company not be able
to finance all of the $40 million required for Black Hawk, capital expenditures
in Las Vegas will be reduced or financed, if necessary.
Scheduled interest payments on the 11%, $100 million notes were
provided by the use of the U. S. Treasury Bills held to retire the 11%, $100
million notes and the related interest income. A portion of the proceeds of the
10% Notes was used to acquire U.S. Treasury Bills sufficient to pay the interest
on the 11%, $100 million notes in December 1997 and the interest, principal and
premium due June 1, 1998, when the retirement of the 11%, $100 million notes was
accomplished. Substantially all of the covenants on the 11%, $100 million notes
were released as a result of the "contractual defeasance" in August of 1997. The
debt was redeemed on June 1, 1998, resulting in an extraordinary charge, net of
tax, of $3 million.
24
On August 13, 1997, the Company raised $175 million in 10% Notes due
August 15, 2004. Cash flow from operations is not expected to pay 100% of the
principal at maturity. Repayment will be dependent upon refinancing, and there
can be no assurance that the Company will be able to refinance the principal
amount of the 10% Notes at maturity. The 10% Notes are not redeemable at the
option of the Company until August 15, 2001, and thereafter are redeemable at
premiums beginning at 105.0% and declining each subsequent year to par in 2003.
The 10% Note Indenture provides that, in certain circumstances, the
Company must offer to repurchase the 10% Notes upon the occurrence of a change
of control or certain other events. In the event of such mandatory redemption or
repurchase prior to maturity, the Company would be unable to pay the principal
amount of the 10% Notes without a refinancing. The proposed Paulson Merger was
specifically excluded from the defined transactions which would be considered a
change in control.
The 10% Note Indenture contains certain covenants, which limit the
ability of the Company and its restricted subsidiaries, subject to certain
exceptions, to: (i) incur additional indebtedness; (ii) pay dividends or other
distributions, repurchase capital stock or other equity interests or
subordinated indebtedness; (iii) enter into certain transactions with
affiliates; (iv) create certain liens; (v) sell certain assets; and (vi) enter
into certain mergers and consolidations. As a result of these restrictions, the
ability of the Company and ROC to incur additional indebtedness to fund
operations or to make capital expenditures is limited. In the event that cash
flow from operations is insufficient to cover cash requirements, the Company and
ROC would be required to curtail or defer certain of their capital expenditure
programs under these circumstances, which could have an adverse effect on the
Company's operations. Management believes that as of December 31, 1998, the
Company was in compliance with the covenants.
Management considers it important to the competitive position of the
Riviera that expenditures be made to upgrade the property. Capital expenditures
in Las Vegas totaled approximately $8.9 million in 1994, $7.8 million in 1995,
$14.9 million in 1996, $19.8 million in 1997 and $23.6 million in 1998 which
excludes the Black Hawk project expenditures of $27.1 million for 1997 and 1998.
Management has budgeted approximately $17.3 million for capital expenditures in
Las Vegas for 1999 including the completion of the convention center expansion.
The Company expects to finance the majority of such capital expenditures from
cash flow and equipment financing.
In August 1997, the Company, through its indirect 100% owned
subsidiary, Riviera Black Hawk, Inc., purchased approximately 71,000 square feet
of land in Black Hawk, Colorado, which is entirely zoned for gaming. The Company
is constructing a casino containing 1,000 slot machines, 14 table games, a
520-space covered parking garage, and entertainment and food service amenities.
Management intends to finance the project with a portion of the unused proceeds
from the new First Mortgage Notes, equipment leases and project (first mortgage)
financing. The casino is scheduled to open in early 2000. As of December 31,
1998, the company had invested $27.1 million in the Black Hawk, Colorado
project.
Year 2000
In the past, many computer software programs were written using two
digits rather than four to define the applicable year. As a result,
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This situation is generally referred to as the "Year 2000
Problem." If such situation occurs, the potential exists for computer system
failures or miscalculations by computer programs, which could disrupt
operations.
The Company has conducted a comprehensive review of its computer
systems and other systems for the purpose of assessing its potential Year 2000
Problem, and is in the process of modifying or replacing those systems which are
not Year 2000 compliant. Based upon this review, management believes such
systems will be compliant by mid-calendar 1999. However, if modifications are
not made or not completed timely, the Year 2000 Problem could have a significant
impact on the Company's operations.
All costs related to the Year 2000 Problem are expensed as incurred,
while the cost of new hardware and software is capitalized and amortized over
its expected useful life. The costs associated with Year 2000 compliance have
not been and are not anticipated to be material to the Company's financial
position or results of operations. As of December 31, 1998, the Company has
incurred costs of approximately $75,000 (primarily for internal labor) related
to the system applications and anticipates spending an additional $200,000 to
become Year 2000 compliant. The estimated completion date and remaining costs
are based upon management's best estimates, as well as third party modification
plans and other factors. However, there can be no guarantee that such estimates
will occur and actual results could differ.
25
In addition, the Company has communicated with its major vendors and
suppliers to determine their state of readiness relative to the Year 2000
Problem and the Company's possible exposure to Year 2000 issues of such third
parties. However, there can be no guarantee that the systems of other companies,
which the Company's systems may rely upon, will be timely converted or
representations made to the Company by these parties are accurate. As a result
the failure of a major vendor or supplier to adequately address their Year 2000
Problem could have a significant adverse impact on the Company's operations.
Planning for the Year 2000 Problem, including contingency planning,
is significantly complete and will be revised, if necessary.
Forward Looking Statements
The Private Securities Litigation Reform Act of 1998 provides a "safe
harbor" for certain forward-looking statements. Certain matters discussed in
this filing could be characterized as forward-looking statements. These
forward-looking statements generally relate to the Company's plans and
objectives for future operations and are based upon management's reasonable
estimates of future results or trends. The factors that may affect the Company's
expectations of its operations, markets and services include, among others, the
following: local and regional economic and business conditions; changes or
developments in laws, regulations or taxes; actions taken or omitted to be taken
by third parties, including the Company's customers, suppliers, competitors and
stockholders, as well as legislative, regulatory, judicial and other
governmental authorities; competition; the loss of any licenses or permits or
the Company's failure to renew gaming or liquor licenses on a timely basis;
delays in completing the construction of the casino in Black Hawk, Colorado due
to casualty, weather or mechanical failure, or labor disputes or work stoppages;
changes in business strategy, capital improvements or development plans;
availability of additional capital to support capital improvements and
development; and other factors discussed under the captions "Business" or
"Management's Discussion and Analysis of Financial Condition and Results of
Operations,"or elsewhere in this Form 10-K.
Recently Adopted Accounting Standards
The Financial Accounting Standards Board ("FASB") issued Statement of
FinancialAccounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," which is effective for fiscal years beginning after December 15, 1997.
This statement required businesses to disclose comprehensive income and its
components in their financial statements. The Company has no items of
comprehensive income.
The FASB issued SFAS No. 131, "Segment Reporting," which is effective
for fiscal years ending after December 31, 1997. This statement requires
companies to identify and disclose certain information regarding segments based
upon the operating decisions of certain of the Company's management. The Company
believes that it has complied with the requirements of the FASB.
Recently Issued Accounting Standards
The FASB issued SFAS No. 133, "Accounting for Derivatives," which is
effective for fiscal years beginning after June 15, 1999. This statement defines
derivatives and requires qualitative disclosure of certain financial and
descriptive information about a company's derivatives. The Company will adopt
SFAS No. 133 in the year ending December 31, 2000. Management has not finalized
its analysis of this SFAS or the impact on the Company.
The American Institute of Financial Accountants' Accounting Standards
Executive Committee issued Statement of Position No. 98-5, "Reporting on the
Costs of Start-Up Activities." This standard provides guidance on the financial
reporting costs for start-up costs and organization costs. This standard
requires cost of start-up and organization costs to be expensed as incurred, and
is effective for fiscal years beginning after December 15, 1998, although
earlier application is encouraged. Management is evaluating the impact that this
standard could have on the Company's consolidated financial statements.
26
Item 8. Financial Statements and Supplementary Data
Riviera Holdings Corporation
Financial Statements for the Years Ended
December 31, 1998, 1997 and 1996 and
Independent Auditors' Report
RIVIERA HOLDINGS CORPORATION
TABLE OF CONTENTS
- ------------------------------------------------------------------------------------------------------------------------------------
Page
INDEPENDENT AUDITORS' REPORT F-1
CONSOLIDATED FINANCIAL STATEMENTS:
Balance Sheets as of December 31, 1998 and 1997 F-2
Statements of Operations for the Years Ended December 31, 1998, 1997 and 1996 F-3
Statements of Stockholders' Equity for Years Ended December 31, 1998, 1997 and 1996 F-5
Consolidated Statements of Cash Flows for Years Ended December 31, 1998, 1997 and 1996 F-6
Notes to Consolidated Financial Statements F-8
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, 1998 and 1997,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1998.
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 generally accepted auditing
standards. 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, 1998
and 1997, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
Las Vegas, Nevada
February 19, 1999
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(In thousands, except share amounts)
- -------------------------------------------------------------------------------------------------------------
ASSETS 1998 1997
CURRENT ASSETS:
Cash and cash equivalents $ 48,883 $ 65,151
Accounts receivable, net 5,389 4,938
Inventories 2,727 3,509
Prepaid expenses and other assets 4,028 4,554
------ ------
Total current assets 61,027 78,152
U.S. TREASURY BILLS HELD TO RETIRE $100 MILLION NOTES 106,596
PROPERTY AND EQUIPMENT, Net 175,622 153,611
OTHER ASSETS, Net 8,260 9,507
------ ------
TOTAL $ 244,909 $ 347,866
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 363 $ 364
Accounts payable 11,865 10,890
Accrued interest, other 6,563 6,570
Accrued expenses 10,053 8,795
------- ------
Total current liabilities 28,844 26,619
------- ------
DEFERRED INCOME TAX LIABILITY, Net 3,123 5,958
------ -----
$100 MILLION NOTES TO BE RETIRED BY THE U.S. TREASURY BILLS 100,000
-------
OTHER LONG-TERM LIABILITIES 4,933 4,076
------ -----
LONG-TERM DEBT, Net of current portion 174,506 173,436
-------- -------
COMMITMENTS AND CONTINGENCIES (Note 12)
STOCKHOLDERS' EQUITY:
Common stock ($.001 par value; 20,000,000 shares authorized; 5,073,376 and
4,903,680 shares at December 31, 1998 and 1997, respectively,
issued and outstanding 5 5
Additional paid-in capital 13,457 13,711
Treasury stock (34,300 shares at December 31, 1998) (167)
Notes receivable from employee stockholders (3) (207)
Retained earnings 20,211 24,268
------ ------
Total stockholders' equity 33,503 37,777
------ ------
TOTAL $ 244,909 $ 347,866
========= =========
See notes to consolidated financial statements.
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1998, 1997 AND
1996 (In thousands, except per share and share amounts)
- ---------------------------------------------------------------------------------------------------------------------
1998 1997 1996
REVENUES:
Casino $ 77,676 $ 71,624 $ 80,384
Rooms 39,607 41,812 42,246
Food and beverage 23,940 21,603 22,641
Entertainment 21,543 20,895 21,778
Other 11,155 10,556 9,987
------- ------- ------
Total 173,921 166,490 177,036
Less promotional allowances 13,966 12,697 12,627
------- ------- -------
Net revenues 159,955 153,793 164,409
------- -------- --------
COSTS AND EXPENSES:
Direct costs and expenses of operating departments:
Casino 45,293 40,620 45,699
Rooms 20,859 21,235 22,344
Food and beverage 17,539 16,118 16,223
Entertainment 16,861 17,235 17,956
Other 3,308 3,011 2,916
Other operating expenses:
General and administrative 27,028 26,211 27,778
Corporate expenses, severance pay 551
Depreciation and amortization 12,137 10,485 8,212
------- ------- ------
Total costs and expenses 143,576 134,915 141,128
-------- -------- -------
INCOME FROM OPERATIONS 16,379 18,878 23,281
------- ------- -------
OTHER INCOME (EXPENSE):
Interest expense on $100 million notes (4,642) (11,067) (11,063)
Interest income on Treasury Bills held to retire $100 million notes 2,334 2,267
Interest expense, other (19,545) (7,908) (1,022)
Interest income, other 2,440 1,926 1,167
Interest capitalized 2,679 771
Other, net (1,229) (1,470) 505
-------- -------- ------
Total other expense (17,963) (15,481) (10,413)
--------- --------- --------
INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR TAXES AND
EXTRAORDINARY ITEM (1,584) 3,397 12,868
(BENEFIT) PROVISION FOR INCOME TAXES (533) 1,309 4,428
------ ------ -----
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (1,051) 2,088 8,440
EXTRAORDINARY ITEM (net of income tax of $1.6 million) (3,006)
------- ------ ------
NET INCOME (LOSS) $ (4,057) $ 2,088 $ 8,440
========== ======== =======
See notes to consolidated financial statements
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1998, 1997 AND
1996 (In thousands, except per share and share amounts)
- ------------------------------------------------------------------------------------------------------------
1998 1997 1996
EARNINGS PER SHARE DATA:
Earnings (loss) per share before extraordinary item:
Basic $ (0.21) $ 0.42 $ 1.73
========= ======= ======
Diluted $ (0.21) $ 0.40 $ 1.63
========= ======= ======
Earnings (loss) per share before extraordinary item:
Basic $ (0.60) $ - $ -
========= ==== ===
Diluted $ (0.60) $ - $ -
========= ==== ===
Earnings (loss) per share:
Basic $ (0.81) $ 0.42 $ 1.73
========= ======= ======
Diluted $ (0.81) $ 0.40 $ 1.63
========= ======= ======
Weighted-average common shares outstanding 5,037 4,913 4,880
====== ====== =====
Weighted-average common and common equivalent shares 5,037 5,214 5,169
====== ====== =====
See notes to consolidated financial statements.
(Concluded)
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1998,
1997 AND 1996 (In thousands, except share amounts)
- -----------------------------------------------------------------------------------------------------------------------------
Notes
Receivable
Additional from
Shares Common Paid-In Retained Treasury Employee
Outstanding Stock Capital Earnings Stock Shareholders Total
BALANCES,
JANUARY 1, 1996 4,800,000 $ 5 $ 12,537 $ 13,740 $ 26,282
Stock issued under employee
stock purchase plan 137,000 1,543 $ (1,383) 160
Collections of stockholders'
receivables 332 332
Refunds on employee
stock purchases (17,600) (198) 198
Director compensation plan 3,103 37 37
Net income - 8,440 8,440
-- ------ -----
BALANCES,
DECEMBER 31, 1996 4,922,503 5 13,919 22,180 (853) 35,251
Stock issued under employee
stock purchase plan 6,200 71 (71)
Collections of stockholders'
receivables 425 425
Refunds on employee
stock purchases (25,900) (292) 292
Director compensation plan 877 13 13
Net income 2,088 2,088
------ -----
BALANCES,
DECEMBER 31, 1997 4,903,680 5 13,711 24,268 (207) 37,777
Stock issued under executive
option plan 269,096 480 480
Collections and refunds of
stockholders' receivables, net (530) (530)
Purchase of treasury stock (34,300) $ (167) (167)
Refunds on employee stock
purchases (65,100) (734) 734
Net loss (4,057) (4,057)
-------- -------
BALANCES,
DECEMBER 31, 1998 5,073,376 $ 5 $ 13,457 $ 20,211 $ (167) $(3) $ 33,503
========== ==== ========= ========= ======== ====== ========
See notes to consolidated financial statements.
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (In thousands)
- -------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (4,057) $ 2,088 $ 8,440
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 12,137 10,485 8,212
Provision for bad debts 782 (16) 524
Provision for gaming discounts (76) (84) 232
Gain on disposition of long-term debt, net (505)
Extraordinary item, call premium to retire $100 million notes 4,624
Interest income on U.S. Treasury Bills to retire $100 million notes (2,334)
Interest expense, $100 million notes 4,642 11,067 12,085
Interest paid on $100 million notes (4,614) (11,420) (12,072)
Interest expense, other 19,545 7,874
Interest paid, other (17,688)
Interest capitalized on construction projects (2,679) (771)
Changes in operating assets and liabilities:
Increase in U.S. Treasury Bills purchased to retire $100 million notes (2,267)
(Increase) decrease in accounts receivable, net (1,157) 276 (1,535)
Decrease (increase) in inventories 782 (470) (853)
Decrease (increase) in prepaid expenses and other assets 526 (1,862) (90)
(Decrease) increase in accounts payable (774) 2,167 166
Increase (decrease) in accrued expenses 1,258 (726) 104
Increase (decrease) in current income taxes payable (413) 362
(Decrease) increase in deferred income taxes payable (2,835) 1,332 1,603
Decrease in slot annuities payable (153) 253 578
Increase in non-qualified pension plan obligation to CEO upon retire 600 755 1,039
---- ---- -----
Net cash provided by operating activities 8,529 18,268 18,290
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment, other (21,432) (19,752) (14,923)
Capital expenditures - Black Hawk, Colorado (9,842) (17,353)
Interest capitalized on construction projects 2,679 771
Increase in other assets - Black Hawk, Colorado (27) (100)
(Increase) decrease in other assets (208) (6,346) 1,906
------ -------- -----
Net cash used in investing activities (28,830) (42,780) (13,017)
--------- -------- --------
See notes to consolidated financial statements.
(Continued)
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (In thousands)
- -------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings $ 172,848 $ 209
U.S. Treasury Bills sold (purchased) to retire $100 million notes $ 108,930 (104,329)
Payments to retire $100 million notes with call premium (104,313)
Payments on long-term borrowings (364) (5,041) (2,226)
Purchase of treasury stock (167)
Proceeds from issuance of stock to employees and directors 13 197
Net collections, cancellations employee stock purchase plan and exercise of employee
stock options (50) 425 332
---- ---- ---
Net cash provided by (used in) financing activities 4,036 63,916 (1,488)
------ ------- -------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (16,268) 39,404 3,785
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 65,151 25,747 21,962
------- ------- ------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 48,883 $ 65,151 $ 25,747
========= ========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Income taxes paid $ - $ 1,860 $ 2,463
==== ======== =======
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
Stock issued to employees for notes receivable $ - $ 71 $ 1,383
==== ===== =======
Noncash reductions of long-term debt $ - $ 845
==== =====
Property acquired with debt and accounts payable $ 2,874
=======
See notes to consolidated financial statements.
(Concluded)
RIVIERA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - Riviera Holdings Corporation and its wholly owned
subsidiary, Riviera Operating Corporation ("ROC"), (together, the
"Company"), were incorporated on January 27, 1993, in order to acquire all
assets and liabilities of Riviera, Inc. Casino-Hotel Division on June 30,
1993, pursuant to a plan of reorganization.
In July 1994, management established a new division, Riviera Gaming
Management, Inc. ("RGM") for the purpose of obtaining management contracts
in Nevada and other jurisdictions. In August 1995, RGM incorporated in the
state of Nevada as a wholly owned subsidiary of ROC.
All significant subsidiaries are consolidated and inter company
transactions eliminated in this presentation.
Nature of Operations - The primary line of business of the Company is the
operation of the Riviera Hotel and Casino (the "Riviera") on the "Strip"
in Las Vegas, Nevada. The Company, through its gaming management
subsidiary, also manages the Four Queens Hotel and Casino (owned by
Elsinore Corporation) in downtown Las Vegas (see Note 13). Currently, the
Company is developing a casino in Black Hawk, Colorado, 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 will
manage the casino when completed.
Casino operations are subject to extensive regulation in the State of
Nevada by the Gaming Control Board and various other state and local
regulatory agencies. Management believes that the Company's procedures for
supervising casino operations, recording casino and other revenues, and
granting credit comply, in all material respects, with the applicable
regulations.
Principles of Consolidation - The consolidated financial statements
include the accounts of the Company, its wholly owned 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 investments 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.
Management determines the appropriate classification of its investment
securities at the time of purchase 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, 1998 and 1997, 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 $35,781,000 and
$50,534,000, 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 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, plant
and equipment and evaluates such assets for impairment whenever events or
circumstances indicate that 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, and are included in
interest expense.
Restricted Cash for Periodic Slot Payments - At December 31, 1998 and
1997, the Company had interest-bearing deposits with a commercial bank in
the amount of $55,000 and $208,000, respectively, which are restricted as
to use. These amounts represent deposits required by the State of Nevada
Gaming Control Board to fund periodic slot payments due customers through
the year 2000 and are included in other noncurrent assets.
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 Disclosure as of December 31, 1998 and 1997:
Cash and Cash Equivalents, Accounts Receivable, Restricted Cash for
Periodic Slot Payments, Accounts Payable, and Accrued Liabilities -
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
(including the $100 million Notes to be retired by the U.S. Treasury
Bills) 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 is
approximately $158,774,000 and $276,638,000 in 1998 and 1997,
respectively.
Casino Revenue - The Company recognizes, as gross revenue, the net win
from gaming activities, which is the difference between gaming wins and
losses.
Promotional Allowances - Promotional allowances consist primarily of
accommodations, entertainment, and food and beverage services furnished
without charge to customers. The retail value of such services is included
in the respective revenue classifications and is then deducted as
promotional allowances.
The estimated costs of providing promotional allowances are classified as
costs of the casino operating department through interdepartmental
allocations. These allocations for the years ended December 31, 1998, 1997
and 1996, are as follows (amounts in thousands):
1998 1997 1996
Food and beverage $ 6,271 $ 5,759 $ 6,364
Rooms $ 1,698 $ 1,442 $ 1,209
Entertainment $ 1,518 $ 903 $ 922
-------- ------ -----
Total costs allocated to casino $ 9,487 $ 8,104 $ 8,495
======= ======= =======
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 generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Significant
estimates used by the Company include estimated useful lives for
depreciable and amortizable assets, certain accrued liabilities, and the
estimated allowance for receivables. Actual results may differ from
estimates.
Reclassifications - Certain reclassifications have been made to the 1997
and 1996 financial statements to conform to the current year presentation.
These reclassifications had no effect on the Company's net income.
Recently Adopted Accounting Standards - The Financial Accounting Standards
Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income,"
which is effective for fiscal years beginning after December 15, 1997.
This statement required businesses to disclose comprehensive income and
its components in their financial statements. The Company has no items of
comprehensive income.
The FASB issued SFAS No. 131, "Segment Reporting," which is effective for
fiscal years ending after December 31, 1997. This statement requires
companies to identify and disclose certain information regarding segments
based upon the operating decisions of certain of the Company's management.
The Company believes that it has complied with the requirements of this
SFAS.
Recently Issued Accounting Standards - The FASB issued SFAS No. 133,
"Accounting for Derivatives," which is effective for fiscal years
beginning after June 15, 1999. This statement defines derivatives and
requires qualitative disclosure of certain financial and descriptive
information about a company's derivatives. The Company will adopt SFAS No.
133 in the year ending December 31, 2000. Management has not finalized its
analysis of this SFAS or the impact on the Company.
The American Institute of Certified Public Accountants' Accounting
Standards Executive Committee issued Statement of Position No. 98-5,
"Reporting on the Costs of Start-Up Activities." This standard provides
guidance on the financial reporting for start-up costs and organization
costs. This standard requires costs of start-up activities and
organization costs to be expensed as incurred, and is effective for fiscal
years beginning after December 15, 1998, although earlier application is
encouraged.
Management is evaluating the impact that this standard could have on the
Company's future consolidated financial statements.
2. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following at December 31 (in
thousands):
1998 1997
Casino $ 3,492 $ 2,211
Hotel $ 3,211 $ 3,115
Other $ - $ 158
---- -----
Total 6,703 5,484
Allowance for bad debts and discounts (1,314) (546)
------- -----
Ending balance 5,389 4,938
====== =====
Changes in the casino and hotel allowance for bad debts and discounts for
the years ended December 31, 1998, 1997 and 1996, consist of the following
(in thousands):
1998 1997 1996
Beginning balance $ 546 $646 $741
Write-offs $(391) $(438) $(912)
Recoveries $ 81 $ 49 $ 61
Provision for bad debts $ 1,154 $372 $524
Provision for gaming discounts $ (76) $(83) $232
------ ----- ----
Ending balance $ 1,314 $ 546 $ 646
======== ===== ====
3. PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other assets consist of the following at December 31
(in thousands):
1998 1997
Prepaid gaming taxes $ 1,209 $ 1,286
Prepaid federal income taxes $ 1,092 $ 1,190
Prepaid insurance $ 431 $ 263
Other prepaid expenses $ 1,296 $ 1,815
------- -------
Total $ 4,028 $ 4,554
======= =======
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31 (in
thousands):
1998 1997
Land and improvements $37,638 $36,751
Buildings and improvements $80,381 $80,322
Equipment, furniture, and fixtures $71,238 $67,793
Construction in progress $32,083 $ 2,326
-------- -------
Total property and equipment $ 221,340 $ 187,192
Accumulated depreciation $ (45,718) $ (33,581)
---------- ----------
Net property and equipment $ 175,622 $ 153,611
========== =========
In 1998 and 1997, approximately $2,679,000 and $771,000, respectively, in
interest costs were capitalized on construction projects. Substantially
all of the Company's property and equipment is pledged as collateral to
secure debt (see Note 8).
5. OTHER ASSETS
Other assets consist of the following at December 31 (in thousands):
1998 1997
Deposits $ 163 $ 725
Bond offering costs and commissions, net $ 6,366 $ 7,327
Other $ 1,676 $ 1,247
Restricted cash for periodic slot payments $ 55 $ 208
----- -----
Total $ 8,260 $ 9,507
======== =======
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable consist of the following at December 31 (in thousands):
1998 1997
Outstanding chip and token liability $ 495 $ 681
Casino account deposits $1,055 $ 203
Miscellaneous gaming $ 589 $ 716
------ -----
Total liabilities related to gaming activities $2,139 $1,600
Accounts payable to vendors $6,516 $7,944
Hotel deposits $1,119 $ 969
Construction payables $1,749
Other $ 342 $ 377
------ -----
Total $ 11,865 $ 10,890
========= ========
Accrued expenses consist of the following at December 31 (in thousands):
1998 1997
Payroll, related payroll taxes, and employee benefits $5,919 $ 5,593
Incentive, retention, and profit sharing plans $2,797 $ 1,982
Other $1,337 $ 1,220
------- -------
Total $ 10,053 $ 8,795
========= =======
7. OTHER LONG-TERM LIABILITIES
Other long-term liabilities consist of the following at December 31 (in
thousands):
1998 1997
Periodic slot payments due to customers through 2000, pre-funded by
restricted cash (see Note 1) $ 55 $ 208
Nonqualified pension plan obligation to the CEO of the Company, payable
in 20 quarterly installments upon expiration of his employment contract,
plus accrued interest $ 4,878 $ 3,868
-------- -------
Total other long-term liabilities $ 4,933 $ 4,076
======= =======
8. LONG-TERM DEBT
Long-term debt consists of the following at December 31 (in thousands):
1998 1997
10% First Mortgage Notes maturing on August 15, 2004, bearing interest payable
semi-annually 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 $ 173,271 $ 172,963
5%Special Improvement District Bonds - issued by the City of Black Hawk, Black
Hawk, Colorado, in the amount of $2,940,000 in July 1998. Bond proceeds will
be used to finance certain road improvements and other infrastructure projects
that will benefit the Riviera BlackHawk property and the Isle of Capri, an
adjacent casino. As of December 31, 1998, approximately $1,370,000 had been
expended. Riviera BlackHawk is responsible to repay 50%
of the obligation 687
Capitalized lease obligations (see Note 11) 473 741
5.6% note payable to computer manufacturer in monthly installments of $8,835,
including interest through August 2003, for a computer
system and related peripherals 438
8.5% unsecured, promissory notes in the original principal amount of
$441,262, payable monthly and maturing December 31, 1998 - 96
-- --
Total long-term debt 174,869 173,800
Current maturities by terms of debt (363) (364)
----- -----
Total 174,506 173,436
======== =======
Maturities of long-term debt for the year ending December 31, 1998 are as
follows (in thousands):
1999 $ 363
2000 $ 419
2001 $ 230
2002 $ 235
2003 $ 214
2004 $ 173,271
Thereafter $ 137
-----
Total $ 174,869
=========
During the fourth quarter of 1996 the Company restructured and retired
certain of its long-term debt resulting in recognition of other income,
net, of $505,000.
Other income (expense) for the year ended December 31, 1997, includes
$850,000 of costs for a canceled secondary offering.
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 LIBOR plus 2.9%. The Company
has not utilized this line of credit. The Credit Facility was modified as
a result of the 10% First Mortgage Notes and the proposed Paulson Merger
(see Note 12). The modifications included an increase in the allowable
funded debt-to-EBITDA ratio to 4.75 to one. The Company is not currently
meeting this requirement and, therefore, cannot draw down on the Credit
Facility at this time. The Credit Facility is callable upon a change in
control other than the Merger.
On August 13, 1997, the Company issued 10% First Mortgage Notes (the "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 note on a straight-line basis. 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, 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. A portion of the proceeds from
the 10% Notes totaling $4.5 million was paid to a bank to retire certain
long-term debt. As described in Note 9, a portion of the proceeds was
invested in U.S. Treasury Notes to pay the 11% $100 Million Notes. The
Company has registered under the Securities Act of 1933, as amended,
securities identical to the 10% Notes. 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 will not initially include
Riviera Black Hawk, Inc. ("RBH"). RBH will become collateral for the 10%
First Mortgage Notes if certain consolidated operating ratios are met. As
of December 31, 1998, RBH had no operations. At December 31, 1998, RBH
only had assets of approximately $27.1 million, which represents 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, 1998. The Company
intends to disclose such additional information in the future as the
subsidiary develops.
The Company has credit facilities totaling $1,100,000 for letters of
credit issued periodically to foreign vendors for purchases of
merchandise. The letters require payment upon presentation of a valid
voucher.
9. $100 MILLION NOTES RETIRED BY THE U.S. TREASURY BILLS
On August 13, 1997, the Company used part of the proceeds from the 10%
Notes to purchase United States Government Securities (the "Securities")
at a cost of $109.8 million, which was deposited into an irrevocable
trust. These Securities, together with interest that was earned by the
Securities, was used to pay the principal, interest from August 13, 1997
to June 1, 1998, and call premium of $4,313,000 due on the 11% $100
Million Notes on June 1, 1998, which was the earliest date the 11% $100
Million Notes could be redeemed. Interest earned from the Securities is
included in Interest income on Treasury Bills held to retire $100 million
notes. The interest expenses from the 10% Notes and from the 11% $100
Million Notes are reported separately on the consolidated statements of
income. As a part of the funding for the retirement of these notes,
substantially all the covenants (other than payment of principal and
interest) were released. The call premium of $4.3 million and unamortized
deferred financing costs totaling $300,000 were recorded net of the 35%
income tax effect of $1.6 million, resulting in an extraordinary loss of
$3.0 million.
10. FEDERAL INCOME TAXES
SFAS No. 109 requires the Company to compute 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.
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, 1998, 1997, and 1996, as follows (in thousands):
1998 1997 1996
Amount Rate Amount Rate Amount Rate
Taxes (benefit) at federal
statutory rate $ (2,164) (35.0)% $ 1,189 35.0 % $ 4,504 35.0 %
Other 21 0.3 % 120 3.5 % (76) (1.0)%
--- ----- ---- ----- ----- ------
Provision (benefit) for
income taxes $ (2,143) (34.7)% $ 1,309 38.5 % $ 4,428 34.0 %
========== ======= ======== ====== ======== ======
The tax effects of the items comprising the Company's net deferred tax
liability consist of the following at December 31 (in thousands):
1998 1997
Deferred tax liabilities:
Basis in long-term debt obligations $ 150
Reserve differential for hospitality and gaming activities $ 1,208 $ 1,214
Difference between book and tax depreciable property 6,299 6,955
Other 928 867
---- ---
Total 8,435 9,186
------ -----
Deferred tax assets:
Reserves not currently deductible 2,899 1,845
Bad debt reserves 460 191
AMT and other credits 1,953 1,192
------ -----
Total 5,312 3,228
----- -----
Net deferred tax liability $ 3,123 5,958
======= =====
The Company has $1,953,000 of alternative minimum tax credit available to
offset future income tax liabilities. The credit has no expiration date.
11. 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 the fair market value of the property
and equipment, subject to the leases, approximates the net present value
of the leases. The leased property and equipment consist primarily of
signs and air conditioning equipment.
The following is a schedule by year of the minimum rental payments due
under capital leases, as of December 31, 1998 (in thousands).
1999 $ 462
2000 $ 232
-----
Total minimum lease payments $ 694
Taxes, maintenance, and insurance $ (177)
Interest portion of payments $ (44)
------
Present value of net minimum lease payments $ 473
=====
Rental expense for the years ended December 31, 1998, 1997 and 1996, was
approximately $287,000, $275,000 and $334,000, respectively.
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 2003. Rental income,
which is included in other income, for the years ended December 31, 1998,
1997, and 1996, was approximately $1,615,000, $1,555,000, and $1,573,000,
respectively.
At December 31, 1998, the Company had future minimum annual rental income
due under noncancelable operating leases as follows (in thousands):
1999 $ 1,183
2000 $ 647
2001 $ 428
2002 $ 276
2003 $ 150
-----
Total $ 2,684
=======
12. COMMITMENTS AND CONTINGENCIES
The Company is party to several routine lawsuits, both as plaintiff and
defendant, arising from 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 - In March 1998, the Company was noti-
fied by Allen E. Paulson ("Paulson") that he was terminating the Merger
Agreement entered into in September of 1997, whereby a company controlled
by Paulson would acquire 100% of the Company's stock for $15 per share,
plus an interest factor. Approximately $5.8 million is being held in
escrow for the holders of 1,770,000 Riviera Contingent Value Rights
("CVRs"). The CVRs entitle their holders to share only in the proceeds
of the funds currently in escrow. Excluded from participating in the
CVRs are Morgens Waterfall, SunAmerica, Keyport Life, and Paulson, and
their affiliates and associates, who own an aggregate 3,355,000 Riviera
shares.
The Company (and three major stockholders of the Company and other
defendants involved in the terminated merger) is involved in litigation
with Paulson relating to the Merger Agreement and related issues. The
Company is paying the expenses of such litigation, but will not share in
any recovery of the escrow funds. There can be no assurance that Riviera
will be successful in collecting all or any part of the funds currently
held in the escrow account.
Other income (expense) for the year ended December 31, 1998 and 1997,
includes $1,231,000 and $400,000, respectively, in costs relating to the
Allen Paulson merger/litigation.
Black Hawk Project - The Company is constructing a casino in Black Hawk,
Colorado, on a site that was purchased for $15.1 million in August 1997.
As of December 31, 1998, the Company had expended approximately $27.1
million on the project. The Company entered into a contract for a gross
maximum price of $27.5 million for the construction of the casino. The
Company estimated the cost of the project at $65 million. The Company
believes that it has, or can raise, sufficient funds to complete the
project.
Employees and Labor Relations - As of December 31, 1998 the Riviera had
approximately 2,100 full-time equivalent employees and had collective
bargaining contracts with nine unions covering approximately 1,2000 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, Electricians and Musicians will expire in 1999, while
the Agreements with the Carpenters and Painters will expire in 2000. A new
Agreement was negotiated with the Teamsters and 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.
13. MANAGEMENT AGREEMENTS
From August 1996 until February 1997, RGM was operating the Four Queens in
downtown Las Vegas under an interim management agreement for a fee of
$83,333 per month. A long-term management agreement (the "Management
Agreement") with Elsinore Corporation ("Elsinore"), the owner of the Four
Queens, went into effect on February 28, 1997, the effective date of the
Chapter 11 plan of reorganization of Elsinore. The Company believes that
the terms of the Management Agreement are no less favorable to the Company
than if the Company had negotiated with an independent party.
The term of the Management Agreement is approximately 40 months, subject
to earlier termination or extension. Either party may terminate the
Agreement if cumulative earnings before interest, taxes, depreciation, and
amortization ("EBITDA") for the first two fiscal years are less than $12.8
million. The Four Queens EBITDA for the 24 months ending February 28, 1999
will approximate $10.7 million. Management and the Board of Directors of
Elsinore have agreed to continue the agreement for its original term
provided, however, that it could be terminated by either party on six
month's notice. RGM is paid a minimum annual management fee of $1.0
million, payable in equal monthly installments. In addition, RGM is
entitled to a fee of 25% of the amount by which the Four Queens EBITDA
exceeds $8 million in any fiscal year. Based upon current historical and
projected EBITDA, it is unlikely that the $8 million threshold will be
met. RGM has received warrants to purchase 1,125,000 shares of common
stock of Elsinore, exercisable during the term or extended term of the
Management Agreement at an exercise price of $1 per share. In
consideration of Four Queens' failure to meet the $12.8 million EBITDA
threshold for the first two years of the agreement, RGME and Elsinore are
negotiating a revised termination bonus.
Either party can terminate the Management Agreement if (i) substantially
all the Four Queens' assets are sold; (ii) the Four Queens is merged; or
(iii) a majority of the Four Queens' or Elsinore's shares are sold. Upon
such termination RGM will receive a $2.0 million termination bonus minus
any amount realized or realizable upon exercise of the warrants.
RGM has entered into a management agreement, in principle with Riviera
Black Hawk, Inc. wherein RGM will receive management fees for operating
Riviera Black Hawk, Inc. for a percentage of revenues and EBITDA.
14. EMPLOYMENT AGREEMENTS AND EMPLOYEE BENEFIT PLANS
The Company has an employment agreement with Mr. Westerman, Chairman of
the Board and Chief Executive Officer of the Company. This agreement
includes an annual base salary, an incentive bonus based upon the extent
of adjusted operating earnings, contributions to a Non-Qualified Pension
Plan, and contributions to a Profit Sharing and 401(k) Plan. While
employed by the company, contributions to the pension plan are in amounts
equal to Mr. Westerman's salary each year plus interest on accrued amounts
of a rate equal to the current effective interest rate of the Company
(10.6% at December 31, 1998). In addition, the Company has termination fee
agreements with each of the Directors, Executive Officers, and Significant
Employees pursuant to which each of such employees will be entitled to
receive one year's salary and health insurance benefits if their
employment with the Company is terminated within one year of a change of
control of the Company and without cause, or the involuntary termination
of Mr. Westerman.
On March 20, 1998, Mr. Westerman exercised a clause in the Agreement that
requires the Company to establish a trust for the money in his retirement
fund as permitted in his employment agreement following shareholder
approval of a "change in control." The approval by the shareholders of the
merger on February 5, 1998, constituted a change of control (see Note 12).
The Company has entered into an agreement with Mr. Westerman to permit
funding the trust amount at his option.
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
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, 1998, 1997 and
1996, the Company recorded accrued bonuses of $1,593,475, $920,000 and
$2,588,000, respectively, based upon the above incentive compensation plan
and the incentive compensation plan established for the Chairman of the
Board under his employment agreement.
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 $1,657,605, $1,604,199
and $1,650,000 for the years ended December 31, 1998, 1997, and 1996.
These contributions were for approximately 1,400 employees, including food
and beverage employees, room department employees, carpenters, engineers,
stage hands, electricians, painters, and teamsters. The Company's share of
any unfunded liability related to multi-employer plans, if any, is not
determinable.
The Company sponsors a Profit Sharing and 401(k) Plan that incurred
administrative expenses of approximately $36,000, $44,000 and $34,000 for
the years ended 1998, 1997, and 1996, respectively.
The profit sharing component of the Profit Sharing and 401(k) Plan
provides that the Company will make a contribution equal to one percent of
each eligible employee's annual compensation if a prescribed annual
operating earnings target is attained and an additional 1/10th of one
percent thereof for each $200,000 by which operating earnings is exceeded,
up to a maximum of three percent thereof. The Company may elect not to
contribute to the Profit Sharing and 401(k) Plan if it notifies its
employees by the first day of January of the Profit Sharing and 401(k)
Plan 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.
The 401(k) component of the Profit Sharing and 401(k) Plan provides that
each eligible employee may contribute up to 15% of such employee's annual
compensation, and that the Company will contribute 1% of each employee's
annual compensation for each 4% of compensation contributed by the
employee, up to a maximum of 2%. All non-union employees of the Company
are eligible to participate in the Profit Sharing and 401(k) Plan after 12
consecutive months of service with the Company.
As a result of the scheduled opening of several new Las Vegas Strip
properties in 1998, 1999, and 2000, an estimated 38,000 jobs must be
filled, including 5,000 supervisory positions. Because of the Riviera's
performance and reputation, its employees are prime candidates to fill
these positions. In the third quarter of 1998, management instituted an
employee retention plan (the "Plan"), which covers approximately 90
executive, supervisory, and technical support positions, and includes a
combination of employment contracts, stay put agreements, bonus
arrangements, and salary adjustments.
The period costs associated with the Plan are being accrued as additional
payroll costs and included approximately $287,000 in 1998. The total cost
of the Plan is estimated to be approximately $2.0 million over the period
July 1, 1998, through June 30, 2001.
15. STOCK OPTION PLANS
At a meeting held on July 27, 1993, the Company's Board of Directors
adopted a stock option plan providing for the issuance of both
nonqualified and incentive stock options (as defined in the Internal
Revenue Code). This stock option plan was ratified by the Company's
stockholders at the April 26, 1994, annual meeting. The number of shares
available for purchase under the Stock Option Plan as adopted was 120,000
(as adjusted pursuant to antidilution provisions). The stockholders
approved a four-for-one stock split, increasing the number of shares of
Common Stock available for purchase under the Stock Option Plan to
480,000. Options were granted for 228,000 shares for 1993; 132,000 shares
for 1994; none for 1995; and 110,000 for 1996. No options were exercised
in 1996, or 1997. On November 21, 1996, the Company amended the Stock
Option Plan, which was approved at the annual meeting held on May 8, 1997,
to increase the number of shares available under the Stock Option Plan
from 480,000 shares to 1,000,000 shares and granted options to purchase
300,000 additional shares to Mr. Westerman. During 1998, 95,000 options
were issued for 1997 to executives excluding Mr. Westerman. Also during
1998, 284,000 options were exercised by executives. In connection with the
resignation of a Board member and an employee, the Company paid approxi-
mately $258,000 (included in non-recurring corporate expenses) on 54,000
options for the difference between the weighted average option price of
$2.22 compared to the weighted average market price of $7.00 on the dates
of exercise. On January 21, 1999, 95,000 options were issued for 1998 to
executives excluding Mr. Westerman. Options vest 25% on the date of
grant and 25% each subsequent year. The term of an option can in no event
be exercisable more than 10 years (five years in the case of an
incentive option granted to a shareholder owning more than 10% of
the Common Stock), or such shorter period, if any, as may be necessary
to comply with the requirements of state securities laws, from the date
such option is granted.
On March 5, 1996, the Board of Directors adopted an employee stock
purchase plan (the "Stock Purchase Plan"), which was approved by the
stockholders on May 10, 1996. A total of 300,000 shares of common stock
(subject to adjustment for capital changes) in the aggregate may be
granted under the stock purchase plan. The Stock Purchase Plan is
administered by the compensation committee. The purchase price per share
of stock shall be 85% of per share market value of the common stock on the
purchase date. Employees may require the Company to repurchase the stock
prior to fulfillment under certain conditions. Refunds represent the
return of payroll deductions to employees for persons exiting the Plan. On
May 31, 1996, approximately 560 union and non-union employees participated
in the 1996 employee stock purchase plan. Under the plan, 137,000 shares
were issued to employees at $11.26 (85% of market price at May 10, 1996),
for $160,000 cash and the balance in notes receivable of $1,383,000, which
are payable over two years via payroll deduction. During 1997, 25,900
shares were returned through the plan as the result of refunds to the
employees. During 1997, 6,200 shares were issued at $11.47 for notes
receivable of $71,145. During 1998, 65,100 shares of stock were returned
to the Plan due to employee refunds.
On May 10, 1996, the stockholders approved a Nonqualified Stock Option
Plan for Non-Employee Directors (the "Nonqualified Stock Option Plan") and
a Stock Compensation Plan for Directors serving on the Compensation
Committee (the "Stock Compensation Plan"). The total number of shares
available for purchase under each plan is 50,000. Pursuant to the
Nonqualified Stock Option Plan, directors were granted options to
purchase 10,000 shares at exercise prices of $13.25 and $13.50, which
represented fair market value in 1996. As of December 31, 1997, 3,980
shares were issued pursuant to the Stock Compensation Plan at $12.08 per
share. In May and August of 1998, an additional 2,000 options were issued
at the market price, on the respective dates of issuance, of $9.00 and
$7.50 per share. As a result of the departure of Board members, 6,000
non-vested options were extinquished.
Accordingly, 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 income and pro forma net income common share and common
share equivalent would have been decreased to the pro forma amounts
indicated below at December 31 (in thousands, except per share amounts).
1998 1997 1996
Net (loss) income - as reported $ (4,057) $ 2,088 $ 8,440
Net (loss) income - pro forma $ (4,548) $ 2,058 $ 8,380
Basic (loss) income per common share - as reported $ (0.81) $ 0.42 $ 1.73
Basic (loss) earnings per common share - pro forma $ (0.90) $ 0.42 $ 1.72
Diluted (loss) earnings per common and common share equivalent -
as reported $ (0.81) $ 0.40 $ 1.63
Diluted (loss) earnings per common and common share equivalent -
pro forma $ (0.90) $ 0.39 $ 1.61
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 1998, 1997 and 1996,
respectively: dividend yield of 0% for all years; expected volatility of
62%, 72% and 77%; risk-free interest rates of 5.46%, 6.50% and 5.70%; and
expected lives of five years for all years. The weighted fair value of
options granted in 1998, 1997 and 1996 was $7.21, $6.81 and $3.08,
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.
16. EARNINGS PER SHARE
For the year ended December 31, 1997, the Company adopted SFAS No. 128,
"Earnings per Share." This statement established standards for computing
and presenting earnings per share ("EPS") and required restatement of all
prior-period EPS data presented. 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
12 months ended December 31, 1998, 1997 and 1996, were 531,000, 410,000
and 414,000, respectively.
A reconciliation of income and shares for basic and diluted EPS is as
follows (amounts in thousands, except per share amounts):
Year Ended 1998
------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
Basic EPS -
Loss available to common stockholders $ (4,057) $ 5,037 $(0.81)
Effect of dilutive securities -
Options - -
--------- --------
Diluted EPS -
Loss available to common stockholders plus
assumed conversions $ (4,057) $ 5,037 $(0.81)
========= ======== =======
Year Ended 1997
----------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
Basic EPS -
Income available to common stockholders $ 2,088 $ 4,913 $ 0.42
=======
Effect of dilutive securities -
Options - 301
------- -------
Diluted EPS -
Income available to common stockholders plus
assumed conversions $ 2,088 $ 5,214 $ 0.40
======== ======== =======
Year Ended 1996
-----------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
Basic EPS -
Income available to common stockholders $ 8,440 $ 4,880 $ 1.73
========
Effect of dilutive securities -
Options $ - $ 289
-------- ---------
Diluted EPS -
Income available to common stockholders plus
assumed conversions $ 8,440 $ 5,169 $ 1.63
On November 16, 1995, the stockholders of the Company approved an
amendment to the Company's Amended and Restated Articles of Incorporation
to increase the authorized shares of common stock from 5,000,000 to
20,000,000 and a four-for-one stock split. Accordingly, per share
information, average number of shares outstanding, and number of shares
outstanding in the accompanying consolidated financial statements have
been adjusted for the stock split as of the earliest date presented
(January 1, 1996).
17. SEGMENT DISCLOSURES
The Company provides Las Vegas-style gaming, amenities and entertainment.
The Company's four reportable segments are based upon the type of service
provided: Casino, rooms, food and beverage, and entertainment. The casino
segment provides customers with gaming activities through traditional
table games and slot machines. The rooms segment provides hotel services.
The food and beverage segment provides restaurant and drink services
through a variety of themed restaurants and bars. The entertainment
segment provides customers with a variety of live Las Vegas-style shows,
reviews, and concerts. All other segment activity consists of rent income,
retail store income, telephone, and other activity. The Company evaluates
each segment's performance based on segment operating profit. The
accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies.
Food and
1998 Casino Rooms Beverage Entertainment All Other Total
Revenues from external customers $ 77,676 $ 36,626 $ 17,635 $ 19,764 $ 8,254 $ 159,955
Intersegment revenues 2,981 6,305 1,779 2,901 13,966
Segment profit 32,382 15,767 96 2,903 4,946 56,094
1997
Revenues from external customers 71,624 39,153 15,916 19,855 7,244 153,792
Intersegment revenues 2,659 5,687 1,040 3,312 12,698
Segment profit 31,004 17,918 (202) 2,620 4,233 55,573
1996
Revenues from external customers 80,384 40,078 16,262 20,714 6,970 164,408
Intersegment revenues 2,168 6,379 1,064 3,017 12,628
Segment profit 34,685 17,734 39 2,758 4,054 59,270
Reconciliation of segment profit to consolidated net income before taxes
and extraordinary items:
1998 1997 1996
Segment profit $ 56,094 $ 55,573 $ 59,270
Other operating expenses $ 39,715 $ 36,695 $ 35,989
Other expense $ 17,963 $ 15,481 $ 10,413
--------- --------- --------
Net income (loss) before provision (benefit)
for taxes and extraordinary items $ (1,584) $ 3,397 $ 12,868
========= ======= ========
The Company does not market to residents of Las Vegas. Significantly all
revenues are derived from patrons visiting the Company from other parts of
the United States and other countries. Revenues from a foreign country or
region may exceed 10% of all reported segment revenues; however, the
Company cannot identify such information based upon the nature of gaming
operations.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
27
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information regarding this item is incorporated by reference to the
Company's Proxy Statement dated April 30, 1999, relating to the Annual Meeting
of Stockholders to be held on June 2, 1999 and is made a part hereof.
Item 11. Executive Compensation
Information regarding this item is incorporated by reference to the
Company's Proxy Statement dated April 30, 1999, relating to the Annual Meeting
of Stockholders to be held on June 2, 1999 and is made a part hereof.
Item 12. Principal Shareholders
Information regarding this item is incorporated by reference to the
Company's Proxy Statement dated April 30, 1999, relating to the Annual Meeting
of Stockholders to be held on June 2, 1999 and is made a part hereof.
Item 13. Certain Relationships and Related Transactions
Information regarding this item is incorporated by reference to the
Company's Proxy Statement dated April 30, 1999, relating to the Annual Meeting
of Stockholders to be held on June 2, 1999, and is made a part hereof.
28
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 Auditors' Report dated February 19, 1999.
- Consolidated Balance Sheets as of December 31, 1998 and 1997.
- Consolidated Statements of Income for the Years Ended December 31,
1998, 1997 and 1996 - Consolidated Statements of Stockholders' Equity
for the Years Ended December 31, 1998, 1997 and
1996.
- Consolidated Statements of Cash Flows for the Years Ended December
31, 1998, 1997 and 1996.
- 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
No reports on Form 8-K were filed with the Commission during the
fourth quarter ended December 31, 1998.
29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
RIVIERA HOLDINGS CORPORATION
By:/s/ WILLIAM L. WESTERMAN
William L. Westerman
Chief Executive Officer and President
(Principal Executive Officer)
March 4, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report 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 4,1999
William L. Westerman Executive Officer and President
/s/ DUANE R. KROHN Treasurer (Principal Financial March 4,1999
Duane R. Krohn and Accounting Officer
/s/ ROBERT R. BARENGO Director March 4,1999
Robert R. Barengo
/s/ RICHARD L. BAROVICK Director March 4, 1999
- -----------------------
Richard. L. Barovick
/s/ JAMES N. LAND, JR. Director March 4,1999
James N. Land, Jr.
30
EXHIBIT INDEX
Exhibit
Number Description
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)
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
31
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
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, 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, File No.
33-67206)
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 Form S-1
filed with the Commission on August 11,
1993, 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 Form S-1 filed with
the Commission on August 11, 1993, File No.
33-67206).
32
10.10* Adoption Agreement regarding Profit Sharing and 401(k) Plans of the
Company (see Exhibit 10.16 to Registration Statement Form S-1 filed with
the Commission on August 11, 1993, 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 Form S-1 filed
with the Commission on August 11, 1993, 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 Form S-1 filed
with the Commission on August 11, 1993, 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 Form S-1 filed with the Commission on August 11, 1993, 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 Form S-1 filed with the Commission on August 19,
1993, File No. 33-67206)
10.18* The Registrant's 1993 Stock Option Plan (see Exhibit 10.25 to Amendment
No. 1 to Registration Statement Form S-1 filed with the Commission on
August 19, 1993, 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)
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
33
Form 10-K for the fiscal year ended December 31, 1996, Commission File
No. 000-21430)
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. 000-21430)
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.
000-21430)
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. 000-21430)
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.
000-21430)
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.
000-21430)
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. 000-21430)
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. 000-21430)
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. 000-21430)
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.
000-21430)
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. 000-21430)
10.33* Escrow Agreement, dated September 15, 1997, by and among R&E Gaming
Corp., Riviera Holdings Corporation, and State Street Bank and Trust
34
Company of California (see Exhibit 10.2 to Form 8-K filed September 29,
1997, Commission File No. 000-21430)
10.34* Employment agreement between the Company and Ronald P. Johnson
effective July 1, 1998 (see, Exhibit 10.34 of Form 10Q filed November 6,
1998.)
10.35* Employment agreement between the Company and Duane R. Krohn effective
July 1, 1998 (see, Exhibit 10.35 of Form 10Q filed November 6, 1998.)
10.36* Employment agreement between the Company and Robert A. Vannucci
effective July 1, 1998 (see, Exhibit 10.36 of Form 10Q filed November 6,
1998.)
10.37* Employment agreement between the Company and Jerome P. Grippe
effective July 1, 1998 (see, Exhibit 10.37 of Form 10Q filed November 6,
1998.)
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.
35