FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2005
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to_______________
Commission file number 000-21430
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Riviera Holdings Corporation
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(Exact name of registrant as specified in its charter)
Nevada 88-0296885
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2901 Las Vegas Boulevard South, Las Vegas, Nevada 89109
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code (702) 794-9527
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(former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark whether the Registrant is an accelerated
filer (as defined in Rule 12b-2 of the Exchange Act). Yes No X
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APPLICABLE ONLY TO ISSUER'S INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documentation and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes -----No ----
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APPLICABLE ONLY TO CORPORATE ISSURERS
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
As of July 31, 2005, there were 12,406,755 shares of Common Stock, $.001 par
value per share, outstanding.
RIVIERA HOLDINGS CORPORATION
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Report of Independent Registered Public Accounting Firm 2
Condensed Consolidated Balance Sheets (Unaudited) at June 30, 2005 and
December 31, 2004 3
Condensed Consolidated Statements of Operations (Unaudited) for the
Three and Six Months ended June 30, 2005 and 2004 4
Condensed Consolidated Statements of Cash Flows (Unaudited) for the
Three and Six Months ended June 30, 2005 and 2004 5
Notes to Condensed Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk 23
Item 4. Controls and Procedures 24
PART II. OTHER INFORMATION 24
Item 1. Legal Proceedings 24
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 6. Exhibits 25
Signature Page 26
Exhibits 27
PART I - FINANCIAL INFORMATION
1. Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Riviera Holdings Corporation
We have reviewed the accompanying condensed consolidated balance sheet of
Riviera Holdings Corporation (the "Company") and subsidiaries as of June 30,
2005, and the related condensed consolidated statements of operations and of
cash flows for the three and six months ended June 30, 2005 and 2004. These
financial statements are the responsibility of the Company's management.
We conducted our reviews, in accordance with standards established by the Public
Company Accounting Oversight Board (United States). A review of interim
financial information consists principally of applying analytical procedures to
financial data and of making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards of the Public Company Accounting Oversight
Board (United States), the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
We have previously audited, in accordance with auditing standards of the Public
Company Accounting Oversight Board (United States), the consolidated balance
sheet of Riviera Holdings Corporation as of December 31, 2004, and the related
consolidated statements of operations, shareholders' equity, and of cash flows
for the year then ended (not presented herein); and in our report dated March
24, 2005, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 2004, is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
DELOITTE & TOUCHE LLP
August 5, 2005
Las Vegas, Nevada
2
RIVIERA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, except share amounts) June 30 December 31
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2005 2004
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 20,723 $ 18,886
Accounts receivable, net 2,551 3,898
Inventories 2,280 2,047
Prepaid expenses and other assets 3,897 4,101
--------------- -------------
Total current assets 29,451 28,932
PROPERTY AND EQUIPMENT, Net 176,128 177,115
OTHER ASSETS, Net 8,205 9,043
DEFERRED INCOME TAXES 2,446 2,446
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TOTAL $ 216,230 $ 217,536
=============== =============
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Current portion of long-term debt $ 803 $ 1,441
Accounts payable 8,102 8,872
Accrued interest 1,071 1,089
Accrued expenses 14,589 16,197
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Total current liabilities 24,565 27,599
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OTHER LONG-TERM LIABILITIES 3,639 4,203
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LONG-TERM DEBT, Net of current portion 214,822 215,026
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SHAREHOLDERS' DEFICIENCY:
Common stock ($.001 par value; 60,000,000
shares authorized; 17,074,824 and
16,548,324 shares issued at June 30, 2005
and December 31, 2004, respectively) 17 16
Additional paid-in capital 21,219 15,692
Deferred Compensation - Restricted Stock (4,167)
Treasury stock (4,688,069 shares at June 30,
2005 and December 31, 2004) (10,459) (10,459)
Accumulated Deficit (33,406) (34,541)
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Total shareholders' deficiency (26,796) (29,292)
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TOTAL $ 216,230 $ 217,536
=============== =============
See notes to condensed consolidated financial statements
3
RIVIERA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS (unaudited)
FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 2005 AND 2004 Three Months Ended Six Months Ended
(In thousands, except per share amounts) June 30, June 30,
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REVENUES: 2005 2004 2005 2004
Casino $28,577 $29,550 $56,060 $56,629
Rooms 13,770 11,679 27,195 24,217
Food and beverage 9,368 9,066 18,211 17,866
Entertainment 4,230 5,571 9,112 10,227
Other 2,248 2,119 4,285 4,166
--------- ---------- -------- ---------
Total revenues 58,193 57,985 114,863 113,105
Less promotional allowances 4,936 5,191 9,142 9,851
--------- ---------- -------- ---------
Net revenues 53,257 52,794 105,721 103,254
--------- ---------- -------- ---------
COSTS AND EXPENSES:
Direct costs and expenses of operating
departments:
Casino 14,996 13,782 28,860 27,336
Rooms 7,196 6,656 13,754 13,020
Food and beverage 6,581 6,166 12,634 11,967
Entertainment 3,525 3,725 7,195 6,777
Other 814 724 1,493 1,439
Other operating expenses:
General and administrative:
Equity Compensation 932 0 985 0
Other general and administrative 9,587 10,476 19,592 20,728
Mergers, Acquisitions and Development
costs, net 165 348 (502) 348
Sarbanes Oxley Expenses 270 0 270 0
Asset Impairment 0 0 198 0
Depreciation and amortization 3,584 3,354 6,878 6,702
--------- ---------- -------- ---------
Total costs and expenses 47,650 45,231 91,357 88,317
--------- ---------- -------- ---------
INCOME FROM OPERATIONS 5,607 7,563 14,364 14,937
--------- ---------- -------- ---------
OTHER (EXPENSE) INCOME :
Interest expense (6,654) (6,738) (13,313) (13,578)
Interest income 44 4 84 10
--------- ---------- -------- ---------
Total other expense (6,610) (6,734) (13,229) (13,568)
--------- ---------- -------- ---------
(LOSS) BEFORE PROVISION (BENEFIT)
FOR INCOME TAXES (1,003) 829 1,135 1,369
(BENEFIT) FOR INCOME TAXES 0 0 0 0
--------- ---------- -------- ---------
NET (LOSS) $ (1,003) $ 829 $ 1,135 $ 1,369
========= ========== ======== =========
INCOME (LOSS) PER SHARE DATA:
Income (Loss) per share:
Basic $ (0.08) $ 0.08 $ 0.09 $ 0.13
--------- ---------- -------- ---------
Diluted $ (0.08) $ 0.08 $ 0.09 $ 0.13
--------- ---------- -------- ---------
Weighted-average common shares outstanding 12,182 10,464 11,986 10,461
--------- ---------- -------- ---------
Weighted-average common and common
equivalent shares 12,182 11,016 12,267 10,830
--------- ---------- -------- ---------
See notes to condensed consolidated financial statements
4
RIVIERA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Unaudited)
FOR THE THREE AND SIX MONTHS ENDED Three Months Ended Six Months Ended
JUNE 30, 2005 AND 2004 June 30, June 30,
(in thousands) 2005 2004 2005 2004
--------- --------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($1,003) $829 $1,135 $1,369
Adjustments to reconcile net income (loss)
to net cash (used in)
provided by operating activities:
Depreciation and amortization 3,584 3,354 6,878 6,702
Provision for bad debts, net 24 (99) 95 (23)
Amortization of Deferred Compensation -
Restricted Stock 932 985
Interest expense 6,654 6,738 13,313 13,578
Interest paid (12,052) (12,209) (12,332) (12,595)
Changes in operating assets and liabilities:
Decrease in accounts receivable 2,080 2,816 1,252 720
Decrease (increase) in inventories (203) 32 (233) 90
Decrease (increase) in prepaid expenses
and other assets 66 350 205 (252)
Increase (decrease) in accounts payable (409) 654 (771) 1,162
Increase (decrease) in accrued liabilities (7) 226 (1,607) (7)
Increase in deferred compensation
plan liability (1) 1 (48) (155)
Decrease in non-qualified pension
plan obligation
to CEO upon retirement (250) (250) (500) (500)
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Net cash (used in) provided by
operating activities (585) 2,442 8,372 10,089
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - Las Vegas, Nevada (1,462) (2,592) (3,224) (4,240)
Capital expenditures - Black Hawk, Colorado (2,017) (714) (2,921) (1,307)
Capitalized Interest on construction projects 59 59
Decrease (increase) in other assets 20 (16) 218 (181)
--------- --------- --------- ---------
Net cash (used in) investing activities (3,400) (3,322) (5,868) (5,728)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term borrowings (165) (1,170) (1,044) (2,081)
Proceeds from exercise of stock options 88 18 377 18
Purchase of deferred comp treasury stock 0 0 0 37
Increase (decrease) in notes payable (2,000)
--------- --------- --------- ---------
Net cash (used in) financing activities (77) (1,152) (667) (4,026)
--------- --------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (4,062) (2,032) 1,837 335
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $ 24,785 $ 21,711 $ 18,886 $ 19,344
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 20,723 $ 19,679 $ 20,723 $ 19,679
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
Property acquired with debt and accounts payable $397 $865 $397 $865
See notes to condensed consolidated financial statements
5
RIVIERA HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Nature of Operations
Riviera Holdings Corporation ("RHC") and its wholly-owned subsidiary, Riviera
Operating Corporation ("ROC") (together with their wholly-owned subsidiaries,
the "Company"), were incorporated on January 27, 1993, in order to acquire all
assets and liabilities of Riviera, Inc. Casino-Hotel Division on June 30, 1993,
pursuant to a plan of reorganization. The Company operates the Riviera Hotel &
Casino (the "Riviera Las Vegas") on the Strip in Las Vegas, Nevada.
In August 1995, Riviera Gaming Management, Inc. ("RGM") was incorporated in the
State of Nevada as a wholly-owned subsidiary of ROC for the purpose of obtaining
management contracts in Nevada and other jurisdictions.
In February 2000, the Company opened its casino in Black Hawk, Colorado, which
is owned through Riviera Black Hawk, Inc. ("RBH"), a wholly-owned subsidiary of
ROC. Riviera Gaming Management of Colorado, Inc. is a wholly-owned subsidiary of
RGM and manages the Black Hawk casino.
On March 15, 2002, Riviera Gaming Management of New Mexico, Inc. ("RGMNM") was
incorporated in the State of New Mexico. On June 5, 2002, Riviera Gaming
Management of Missouri, Inc. ("RGMM") was incorporated in the State of Missouri.
Each of these is a wholly-owned subsidiary of ROC.
Casino operations are subject to extensive regulation in the states of Nevada
and Colorado by the respective Gaming Control Boards and various other state and
local regulatory agencies. Our management believes that the Company's procedures
comply, in all material respects, with the applicable regulations for
supervising casino operations, recording casino and other revenues, and granting
credit.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its direct and indirect wholly-owned subsidiaries. All material intercompany
accounts and transactions have been eliminated.
The financial information at June 30, 2005 and for the three and six months
ended June 30, 2005 and 2004 is unaudited. However, our management believes such
information reflects all adjustments (consisting solely of normal and recurring
adjustments) that are necessary for a fair presentation of the financial
position, results of operations, and cash flows for the interim periods.
The results of operations for the six months ended June 30, 2005 and 2004 are
not necessarily indicative of the results for the entire year. These financial
statements should be read in conjunction with the audited consolidated financial
statements and notes thereto for the year ended December 31, 2004, included in
our Annual Report on Form 10-K.
6
Earnings Per Share
Basic per-share amounts are computed by dividing net income by weighted average
shares outstanding during the period. Diluted net income per share amounts are
computed by dividing net income by weighted average shares outstanding plus the
dilutive effect of common share equivalents. The effect of 273,652 options
outstanding was not included in diluted calculations for the three months ended
June 30, 2005 since the Company incurred a net loss and their affect would have
been antidilutive. The number of potentially dilutive options excluded from the
calculation was 36,778 for the six months ended June 30, 2005 and 12,000 and
18,000 for the three and six months ended June 30, 2004, respectively.
Income Taxes
The income tax provisions of $397,250 and $479,255 for the six months ended June
30, 2005 and 2004, respectively, as well as $290,150 for the three months ended
June 30, 2004 were fully offset by the utilization of loss carryforwards for
which a valuation allowance had been previously provided. The estimates used to
determine the remaining valuation allowance are based upon recent operating
results and budgets for future operating results. These estimates are made using
assumptions about the economic, social and regulatory environments in which we
operate. These estimates could be impacted by numerous unforeseen events
including changes to regulations affecting how we operate the business, changes
in the labor market or economic downturns in the areas where we operate.
Estimates and Assumptions
The preparation of condensed consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America
requires our 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.
Stock-Based Compensation
As of June 30, 2005, we had outstanding options under two stock option plans.
The effect of stock options in our income statement is reported in accordance
with Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations. We have adopted the
disclosure-only provisions of Statement of Financial Accounting Standards
("SFAS") No. 123, Accounting for Stock-Based Compensation. Accordingly, we have
recognized no compensation cost for stock options.
Had compensation cost for our stock options been determined based on the fair
value at the date of grant for awards consistent with the provisions of SFAS No.
123, our net income and pro forma net income per common share and common share
equivalent would have been increased to the pro forma amounts indicated below
for the three months ended June 30, 2004 and six months ended June 30, 2005 and
2004 (in thousands, except per-share amounts). Our net loss and pro forma net
loss per common share and common share equivalent would have been increased to
the pro forma amounts indicated below for the three months ended June 30, 2005
(in thousands, except per-share amounts):
7
Three months ended Six months ended
June 30, June 30,
2005 2004 2005 2004
Net income (loss) as reported $ (1,003) $ 829 $ 1,135 $ 1,369
Deduct: Total stock-based employee compensation
expense determined under fair value-based
methods for awards net of related tax effects (11) (51) (22) (101)
------ ------ ------- -------
Net Income (loss) pro forma $ (1,014) $ 778 $ 1,113 $1,268
Basic income (loss) per common share as reported $ (0.08) $ 0.24 $ 0.09 $ 0.39
Basic income (loss) per common share pro forma $ (0.08) $ 0.22 $ 0.09 $ 0.36
Diluted income (loss) per common and common
share equivalent as reported $ (0.08) $ 0.23 $ 0.09 $ 0.38
Diluted income (loss) per common and common share
equivalent pro forma $ (0.08) $ 0.21 $ 0.09 $ 0.35
We estimated 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 2003: dividend yield of 0% for both years;
expected volatility of 32.3% and 52%; risk-free interest rates of 4.49% and
4.49%; and expected lives of 10 years for all years. There have been no options
granted in 2005 and 2004.
Recently Issued Accounting Standards
In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 123(R), Share-Based Payments, which establishes accounting standards for all
transactions in which an entity exchanges its equity instruments for goods and
services. SFAS No. 123(R) focuses primarily on accounting for transactions with
employees, and carries forward without change prior guidance for share-based
payments for transactions with non-employees.
SFAS No. 123(R) eliminates the intrinsic value measurement objective in APB
Opinion No. 25 and generally requires us to measure the cost of employee
services received in exchange for an award of equity instruments based on the
fair value of the award on the date of the grant. The standard requires grant
date fair value to be estimated using either an option-pricing model, which is
consistent with the terms of the award, or a market observed price, if such a
price exists. Such cost must be recognized over the period during which an
employee is required to provide service in exchange for the award in the
requisite service period (which is usually the vesting period). The standard
also requires us to estimate the number of instruments that will ultimately be
issued, rather than accounting for forfeitures as they occur.
We are required to apply SFAS No. 123(R) to all awards granted, modified or
settled in our first reporting period under U.S. generally accepted accounting
principles for fiscal years beginning after June 15, 2005. We are also required
to use either the "modified prospective method" or the "modified retrospective
method." Under the modified prospective method, we must recognize compensation
cost for all awards granted after we adopt the standard and for the unvested
portion of previously granted awards that are outstanding on that date.
Under the modified retrospective method, we must restate our previously issued
financial statements to recognize the amounts we previously calculated and
reported on a pro forma basis, as if the prior standard had been adopted. Under
both methods, we are permitted to use either a straight line or an accelerated
method to amortize the cost as an expense for awards with graded vesting. SFAS
No. 123(R) permits and encourages early adoption.
8
We have commenced our analysis of the impact of SFAS No. 123(R), but have not
yet decided: (1) whether we will elect to adopt early, (2) if we elect to adopt
early, then at what date we would do so, (3) whether we will use the modified
prospective method or elect to use the modified retrospective method, and (4)
whether we will elect to use straight line amortization or an accelerated
method.
In May 2005, FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections" (SFAS 154). SFAS requires retrospective application to prior
periods' financial statements of changes in accounting principle. It also
requires that the new accounting principle be applied to the balances of assets
and liabilities as of the beginning of the earliest period for which
retrospective application is practicable and that a corresponding adjustment be
made to the opening balance of retained earnings for that period rather than
being reported in an income statement. The statement will be effective for
accounting changes and corrections of errors made in fiscal years beginning
after December 15, 2005. We do not expect the adoption of SFAS 154 to have a
material effect on our consolidated financial position or results of operations.
On July 14, 2005, the Financial Accounting Standards Board (FASB) issued an
Exposure Draft, "Accounting for Uncertain Tax Positions," that would interpret
SFAS No. 109, "Accounting for Income Taxes." This proposal seeks to reduce the
diversity in practice associated with certain aspects of the recognition and
measurement requirements related to accounting for income taxes. Specifically,
the proposal would require that a tax position meet a "probable recognition
threshold" for the benefit of an uncertain tax position to be recognized in the
financial statements. The proposal would require recognition in the financial
statements the best estimate of the effect of a tax position only if that
position is probable of being sustained on audit by the appropriate taxing
authorities, based solely on the technical merits of the position. We are
currently reviewing the provisions of the Exposure Draft to determine the impact
it may have on us.
2. OTHER ASSETS
Other assets at June 30, 2005 and December 31, 2004 include deferred loan fees
of approximately $7.0 and $7.7 million respectively, associated with the
refinancing of our debt.
3. LONG TERM DEBT AND COMMITMENTS
On June 26, 2002, we issued 11% Senior Secured Notes with a principal amount of
$215 million, substantially all of which were later exchanged for our Securities
Act of 1933-registered Senior Secured Notes with substantially the same terms
(collectively, the "11% Notes"). The 11% Notes were issued at a discount of $3.2
million. The discount is being amortized over the life of the 11% Notes. We
incurred fees of approximately $9.3 million in connection with the issuance of
the 11% Notes, which are included in other assets and are being amortized to
interest expense over the life of the 11% Notes.
Effective July 26, 2002, we entered into a $30 million, five-year revolving
credit arrangement with a financial institution. Terms of the arrangement
include interest at prime plus .75 percent or a LIBOR-derived rate. There were
no advances outstanding on this revolver at June 30, 2005. We incurred loan fees
of approximately $1.5 million, which are being expensed over the life of the
arrangement. A monthly fee of .005 percent is charged on the unused portions of
the revolver plus a $3,000 monthly service fee.
4. LEGAL PROCEEDINGS
We are a party to routine lawsuits, either as plaintiff or as defendant, arising
from the normal operations of a hotel or casino. We do not believe that the
outcome of such litigation, in the aggregate, will have a material adverse
effect on our financial position or results of our operations.
5. STOCK REPURCHASES
There were no shares of our common stock purchased by our Deferred Compensation
Plan for the six months ended June 30, 2005 or 2004. For the six months ended
June 30, 2005, 187,983 shares were distributed to participants, as required by
our Deferred Compensation Plan (due in part to the retirement of one of the
participants).
6. ISSUANCE OF RESTRICTED STOCK
Effective March 10, 2005, we granted 337,500 shares of Common Stock under our
Restricted Stock Plan to 19 executives at no cost. We granted those shares in
substitution for stock options that we attempted to grant on July 15, 1993 under
our 1993 Employee Stock Option Plan. The 1993 Plan expired on July 1, 2003,
rendering those options null and void. The grant of restricted Common Stock was
intended to compensate those executives for the value of the options that we
attempted to grant. The restricted shares are subject to a five-year vesting
schedule, vesting 20% each March 10, commencing March 10, 2006. The Company is
amortizing the fair market value of the Restricted Stock ($4,584,000 based on
the market price on the grant date) over the vesting period of 60 months and
$917,776 was charged to expense in the second quarter of 2005 which included
amounts for restricted shares vested 100% due to retirement of plan
participants. The restricted shares immediately vest upon the death, disability,
retirement at age 62, termination of employment other than for cause, or in the
event of a change-in-control of the Company. The shares were issued April 7,
2005.
On May 27, 2005, we granted 30,000 shares of common stock to our four
non-employee directors in full substitution for stock options that we attempted
to grant to them in 2004 under our stock option plan that had previously
expired, which rendered those options null and void. These 30,000 shares were
issued without registration under the Securities Act of 1933, as amended ("the
Securities Act") in reliance on the exemption from registration provided by
Section 4(2) of the Securities Act. These shares are subject to a five-year
vesting schedule, with 20% of the shares vesting each May 27, commencing May 27,
2006. We are amortizing the fair market value of the shares ($567,000 based on
the market price on the grant date) over the vesting period of 60 months. We
charged $14,023 to expense in the second quarter of 2005.
7. GUARANTOR INFORMATION
The 11% Notes and the $30 million line of credit are guaranteed by all of our
restricted subsidiaries. These guaranties are full, unconditional, and joint and
several. RGMM and RGMNM are unrestricted subsidiaries of RHC, are not guarantors
of the 11% Notes and do not significantly contribute to our financial position
or results of operations.
10
8. SALARY CONTINUATION AGREEMENTS
Approximately 60 officers and significant employees (excluding Mr. Westerman and
Mr. Vannucci) of ROC have salary continuation agreements effective through
December 31, 2006, pursuant to which each of them will be entitled to receive
(1) either six months' or one year's base salary if his or her employment is
terminated, without cause, within 12 or 24 months of a change of control of the
Company or ROC; and (2) certain benefits for periods of either one or two years.
The base salary is payable in bi-weekly installments subject to the employee's
duty to mitigate by using his or her best efforts to find other employment. In
addition, four officers and significant employees have salary continuation
agreements effective through December 31, 2006, pursuant to which each of them
will be entitled to receive two year's base salary and certain benefits for two
years, if their employment is terminated without cause within 24 months of a
change of control of RHC or ROC. These four salary continuation agreements are
not subject to a duty to mitigate. As of June 30, 2005, the total amount that
would be payable under all such agreements if all payment obligations were to be
triggered was approximately $6.7 million, including $1.5 million in estimated
benefits.
11
9. SEGMENT DISCLOSURES
We determines our segments based upon the review process of our chief decision
maker who reviews by geographic gaming market segments: Riviera Las Vegas and
Riviera Black Hawk. The key indicator reviewed by our chief decision maker is
EBITDA, as defined below. All intersegment revenues have been eliminated.
Three months ended Six months ended
June 30, June 30,
(Dollars in thousands) 2005 2004 2005 2004
Net revenues:
Riviera Las Vegas $40,501 $39,437 $79,848 $76,760
Riviera Black Hawk 12,756 13,357 25,873 26,494
---------- --------- ---------- ----------
Total net revenues $ 53,257 $ 52,794 $ 105,721 $ 103,254
========== ========= ========== ==========
EBITDA (1):
Riviera Las Vegas $7,616 $8,056 $16,469 $15,643
Riviera Black Hawk 4,088 4,265 8,027 8,508
---------- --------- ---------- ----------
Total property EBITDA $11,704 $12,321 $24,496 $24,151
========== ========= ========== ==========
Other Costs and Expenses
Corporate Expenses
Equity compensation 932 985
Other corporate expenses 1,146 1,056 2,303 2,164
Depreciation and amortization 3,584 3,354 6,878 6,702
Mergers, Acquitions and
Development Costs, net 165 348 (502) 348
Sarabanes Oxley Expenses 270 270
Asset Impairment - 198
Interest Expense 6,654 6,738 13,313 13,578
Interest Income (44) (4) (84) (10)
---------- --------- ---------- ----------
Total Other Costs
and Expenses 12,707 11,492 23,361 22,782
---------- --------- ---------- ----------
Net Income (loss) $ (1,003) $ 829 $ 1,135 $ 1,369
========== ========= ========== ==========
(1)Property EBITDA consists of earnings before interest, income taxes,
depreciation, and amortization. Property EBITDA is presented solely as a
supplemental disclosure because our management believes that it is 1) a widely
used measure of operating performance in the gaming industry, and 2) a principal
basis for valuation of gaming companies by certain analysts and investors. Our
management uses property-level EBITDA (EBITDA before corporate expense) as the
primary measure of the Company's business segment properties' performance,
including the evaluation of operating personnel. Property EBITDA should not be
construed as an alternative to operating income, as an indicator of our
operating performance, as an alternative to cash flows from operating
activities, as a measure of liquidity, or as any other measure determined in
accordance with generally accepted accounting principles. We have significant
uses of cash flows, including capital expenditures, interest payments and debt
principal repayments, which are not reflected in property EBITDA. Also, other
companies that report property EBITDA information may calculate property EBITDA
in a different manner than we do. A reconciliation of property EBITDA to net
income (loss) is included in the following financial schedules.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overall Outlook
We own and operate the Riviera Hotel and Casino on the Strip in Las Vegas,
Nevada ("Riviera Las Vegas"), and the Riviera Black Hawk Casino in Colorado
("Riviera Black Hawk").
12
Our capital expenditures for Las Vegas are geared to maintain the hotel rooms
and amenities in sufficient condition to compete for customers in the convention
market and the mature adult customer. Room rates and slot revenues are the
primary factors driving our operating margins. We use technology to maintain
labor costs at a reasonable level, including kiosks for hotel check-in and slot
club redemptions. In addition, we are in the process of updating our gaming
monitoring computer systems, including the capability for "ticket-in/ticket-out"
("TITO") on our slot machines. At June 30, 2005 approximately 600 (46%) of our
slot machines in Las Vegas were on the TITO system. By the end of 2005 we
anticipate that we will have 700 slot machines or approximately 54% of our slot
machines in Las Vegas, on TITO. Depending upon the success of these conversions,
we may accelerate the conversion of the remaining machines or we may convert
them based on normal replacement schedules.
In Black Hawk, the $5 maximum bet restricts table games to a minimum and the
area is basically a "locals" slot customer market. Our capital expenditures in
Black Hawk are geared to maintain competitive slot machines compared to the
market. The gaming authorities approved TITO systems in Colorado for Riviera
Black Hawk on December 16, 2003 and we had 631 (64%) of our slot machines on the
TITO system as of June 30, 2005. By the end of 2005 we anticipate that we will
have approximately 735 slot machines, or 75% of our slot machines in Black Hawk,
on TITO. Again, depending upon the success of these conversions, we may
accelerate the conversion of the remaining machines or we may convert them based
on normal replacement schedules.
On February 15, 2005, we announced that we have requested our financial advisor,
Jefferies & Company, Inc. ("Jefferies"), to explore strategic alternatives for
maximizing shareholder value, including development of our Las Vegas property,
refinancing, joint ventures, mergers and other methods of realizing the value of
our stock. We are continuing to work with Jefferies to explore such
alternatives.
On March 10, 2005, we granted a total of 337,500 shares of our common stock
under our Restricted Stock Plan to 19 of our executives and on May 27, 2005, we
granted a total of 30,000 shares of our common stock to our four non-employee
directors. The grants were in full substitution for stock options that we
attempted, but were unable, to grant in prior years due to expiration of our
stock option plans. These grants of common stock are discussed further in the
"Compensation of Directors and Executive Officers - Option and Stock Grants" and
"Approval of our Issuance of Stock to Non-Employee Directors" sections of our
April 22, 2005 annual meeting proxy statement.
Effective March 11, 2005, we effected a three-for-one split of our common stock.
All per share -related information in this Form 10-Q has been adjusted to
reflect the stock split.
On May 17, 2005, our 2005 Incentive Stock Option Plan ("Employee Plan") and 2005
Nonqualified Stock Option Plan for Non-Employee Directors ("Directors Plan")
were approved by our shareholders and thereby became effective. We have reserved
1,000,000 shares of our common stock for issuance under our Employee Plan and
150,000 shares for issuance under our Director Plan. We have not granted options
under either of these option plans. The Employee Plan and the Director Plan are
further described in our April 22, 2005 annual meeting proxy statement.
The expansion of our Black Hawk casino and the construction of a pedestrian
bridge to Isle of Capri, which was to begin May of 2005, have been put on hold.
The Company has expended approximately $600,000 on preliminary costs as of June
30, 2005, which is included in construction in progress.
Sarbanes Oxley - On June 30, 2005, the measurement date for accelerated filiers,
Riviera's public float market cap exceeded $75 million and we will become an
accelerated filer as of December 31, 2005. Accordingly we will be required to
comply with the reporting requirements of Section 404 of the Sarbanes Oxley Act
of 2002 (the "Act") for the year ended December 31, 2005. We anticipate we will
incur additional operating costs of $600,000 to $900,000 to comply with the Act.
13
Three Months Ended June 30, 2005 Compared to Three Months Ended June 30, 2004
The following table sets forth, for the periods indicated, certain operating
data for the Riviera Las Vegas and Riviera Black Hawk. Income from Operations
includes intercompany management fees.
Second Quarter Incr Incr
(In Thousands) 2005 2004 (Decr) (Decr)%
---- ---- ------ -------
Net revenues:
Riviera Las Vegas $40,501 $39,437 $1,064 2.7%
Riviera Black Hawk 12,756 13,357 (601) -4.5%
------ ------ -----
Total Net Revenues $53,257 $52,794 $463 0.9%
======= ======= ====
Income (Loss) from Operations
Riviera Las Vegas $5,647 $6,171 $(524) -8.5%
Riviera Black Hawk 2,473 2,796 (323) -11.6%
----- ----- -------
Property Income from Operations 8,120 8,967 (847) -9.4%
Corporate Expenses
Equity Compensation -
Restricted Stock (932) 0 (932)
Other Corporate Expenses (1,146) (1,404) 258 18.4%
Mergers acquisitions and development
costs, net (165) 0 (165)
Sarbanes Oxley Expenses (270) 0 (270)
----- ------- ------
Total Income from Operations $5,607 $7,563 $(1,956) -25.9%
====== ======= ========
Operating Margins (1)
Riviera Las Vegas 13.9% 15.6% -1.7%
Riviera Black Hawk 19.4% 20.9% -1.5%
(1) Operating margins represent income from operations as percentage of net
revenues by property.
Riviera Las Vegas
Revenues
Riviera Las Vegas is following the trend on the Las Vegas Strip with
net revenues increasing $1.1 million or 2.7% in the second quarter compared to
the same period last year.
Casino revenues decreased $436,000 or 2.6% due to the customer mix in
the hotel during the period.
Room revenue increased $2.1 million, or 17.9%, from $11.7 million in
2004 to $13.8 million in 2005 due to an increase in convention room nights.
Hotel occupancy decreased to 94.5%, down from last year's 95.3% and average
daily room rate increased $10.41 from $62.63 in 2004 to $73.04 in 2005. Rev Par
(revenue per available room) increased 15.7% or $9.35 to $69.05. Convention room
revenues increased $1.5 million or 34% and made up 46% of the total room
revenue.
14
Food and beverage revenue increased $413,000, or 5.4%, from $7.6
million in 2004 to $8.1 million in 2005 primarily due to increased hotel
activity.
Entertainment revenue decreased $1.3 million, or 24.2%, from $5.6
million in 2004 to $4.2 million in 2005 primarily due to the cancellation of the
Amazing Jonathan and Keyboard Cabaret shows. We are opening American Storm, a
male revue, on July 29, 2005 to replace the Amazing Jonathan.
Promotional allowances decreased by approximately $266,000, or 6.4%,
from $4.1 million during 2004 to $3.9 million during 2005 primarily due to
decreases in comps related to decreased casino activity.
Costs and Expenses
Casino expenses increased $1.1 million or 13.2% due to higher
promotional costs for our 50th anniversary celebration.
Hotel expenses increased $540,000, or 8.1% due to higher payroll costs
under union contracts, operating supplies and convention expenses associated
with the increased convention revenues.
Food and beverage departmental costs and expenses increased by 8.7% in
the quarter, due primarily to increased activity in this area.
Entertainment departmental costs and expenses decreased by $191,000, or
5.1% in the quarter, due primarily to the cancellation of two of our shows.
Income from Operations
Income from operations in Las Vegas decreased $524,000, or 8.5%,
from $6.2 million in 2004 to $5.6 million in 2005 due principally to the
increase in casino promotional expenses.
Riviera Black Hawk
Revenues
Net revenues decreased by approximately $601,000, or 4.5% from $13.4
million in 2004 to $12.8 million in 2005. Food and beverage revenues were
approximately $1.3 million in 2005, of which $1.1 million was complimentary
(promotional allowance).
Second quarter results were negatively impacted by a rock slide in June
that closed down Highway 119 between the city of Golden and the intersection of
Highway 119 and Highway 6, approximately 10 miles east of Black Hawk. Although
there are four routes to the Black Hawk/Central City area, Highway 119 through
Golden is the route taken by most gaming patrons. Highway 119 remains closed and
is not expected to reopen until sometime in late September.
Income From Operations
Income from operations at Riviera Black Hawk decreased $323,000, or
11.6%, from $2.8 million in 2004 to $2.5 million in 2005 due to the $601,000
decrease in net revenues. Our operating margins decreased from 20.9% in the
second quarter of 2004 to 19.4% in the second quarter of 2005.
15
Consolidated Operations
Other Income (Expense)
Corporate expenses decreased $258,000 or 18.4% from $1.4
million in 2004 to $1.1 million in 2005 as a result of additional professional
fees and costs associated with our Missouri project in 2004. Interest expense
decreased $84,000, or 1.2%, as a result of decreased interest on equipment
financing, primarily from Black Hawk equipment leases.
Net Income (Loss)
Net income decreased $1.8 million from net income of $829,000 in
2004 to a net loss of $1.0 million in 2005 due primarily to expenses associated
with mergers and acquisition cost, Sarbanes-Oxley expenses associated with
becoming an accelerated filer and equity compensation amortization on an
issuance of restricted shares of our common stock.
Six Months Ended June 30, 2005 Compared to Six Months Ended June 30, 2004
The following table sets forth, for the periods indicated, certain operating
data for Riviera Las Vegas and Riviera Black Hawk. Operating Income includes
intercompany management fees.
Six Months Incr Incr
(In Thousands) 2005 2004 (Decr) (Decr)%
---- ---- ------ -----
Net revenues:
Riviera Las Vegas $79,848 $76,760 $3,088 4.0%
Riviera Black Hawk 25,873 26,494 (621) -2.3%
------ ------ -----
Total Net Revenues $105,721 $103,254 $2,467 2.4%
======== ======== ======
Income (Loss) from Operations
Riviera Las Vegas $12,755 $11,843 $912 7.7%
Riviera Black Hawk 4,863 5,606 (743) -13.3%
----- ----- ---------
Property Income from Operations 17,618 17,449 169 0.9%
Corporate Expenses
Equity Compensation -
Restricted Stock (985) 0 (985)
Other Corporate Expenses (2,303) (2,164) (139) -6.4%
Mergers, acquisitions and development
costs, net 502 (348) 850 244.3%
Asset Impairment (198) 0 (198)
Sarbanes Oxley Expenses (270) 0 (270)
----- - -----
Total Income from Operations $14,364 $14,937 $(573) -3.8%
========= ========= ======
Operating Margins (1)
Riviera Las Vegas 16.0% 15.4% 0.6%
Riviera Black Hawk 18.8% 21.2% -2.4%
(1) Operating margins represent income from operations as a percentage of net
revenues by property.
16
Riviera Las Vegas
Revenues
Net revenues increased approximately $3.1 million, or 4.0%, from $76.8
million in 2004 to $79.8 million in 2005 due primarily to increased hotel
revenues.
Room revenue increased $3.0 million, or 12.3%, from $24.2 million in
2004 to $27.2 million in 2005 due to an increase in convention room nights and
an overall increase in average room rate. Hotel occupancy decreased to 94.1%,
from last year's 95.0% and average daily room rate increased $8.17 to $72.94 in
2005 from $64.77 in 2004. Rev Par (revenue per available room) increased 11.4%
or $7.05 to $68.64.
Food and beverage revenues increased $407,000, or 2.7%, from $15.1
million in 2004 to $15.5 million in 2005 due to an increase in our banquet
operations associated with increased convention activity.
Entertainment revenues decreased by approximately $1.1 million, or
10.8%, from $10.2 million during 2004 to $9.1 million during 2005 due primarily
to a decrease in ticket sales associated with the cancellation of two of our
shows (The Amazing Jonathan and Keyboard Cabaret).
Promotional allowances decreased by approximately $869,000 or 11.1%,
from $7.8 million during 2004 to $6.9 million during 2005 primarily due to
decreases in comps related to lower casino and entertainment activity.
Costs and Expenses
Casino expenses increased $884,000 or 5.5% from $16.1 million in 2004
to $17.0 million in 2005 due to increased promotional costs for our 50th
anniversary celebration.
Rooms departmental costs and expenses increased by 5.6% do to wage
scale and benefit increases under the renewed union contracts.
Food and beverage costs increased $832,000, or 7.5%, as a result of
increased revenues.
Entertainment costs decreased $438,000, or 6.5%, as a result of the
cancellation of two of our shows.
Income from Operations
Income from operations in Las Vegas increased $912,000, or 7.7%, from
$11.8 million in 2004 to $12.8 million in 2005 based on increased net revenues
of $3.1 million as discussed above. Operating margins in Las Vegas increased
from 15.4% in 2004 to 16.0% in 2005
Riviera Black Hawk
Revenues
Net revenues decreased by approximately $621,000, or 2.3%, from $26.5
million in 2004 to $25.9 million in 2005. Casino revenues increased $469,000, or
1.8%, from $25.5 million in 2004 and $25.0 million in 2005.
17
Riviera Black Hawk continues to refine its marketing efforts by
measuring the success rates of its programs, while monitoring the offerings of
competitors. The operation is attempting to strike a balance between player
incentives, gaming product, food offerings and entertainment as its primary
marketing programs.
Income from Operations
Income from operations in Black Hawk, Colorado decreased $743,000, or
13.3%, from $5.6 million in 2004 to $4.9 million in 2005 primarily as a result
of the rock slide that impacted revenues as stated above. Operating margins in
Black Hawk decreased from 21.2% in 2004 to 18.8% in 2005.
Consolidated Operations
Other Income (Expense)
Interest expense decreased $265,000 due to reduced interest
associated with equipment financing. Interest expense on our $215 million 11%
Senior Secured Notes issued by the Company (the "11% Notes") of $11.8 million
plus related amortization of loan fees and other financing costs totaled
approximately $13.0 million in 2005. Interest expense on equipment and other
financing totaled approximately $313,000 for the first six months of 2005.
Interest income increased $74,000 from $10,000 in 2004 to $84,000 in
2005 as a result of the higher cash balances available for investment.
Net Income (Loss)
Net income decreased $234,000 from net income of $1.4 million in
2004 to net income of $1.1 million in 2005 due primarily to Sarbanes-Oxley
expenses associated with becoming an accelerated filer, equity compensation
amortization, asset impairment costs (net of mergers and acquisition cost
recoveries).
Liquidity and Capital Resources
At June 30, 2005, we had cash and cash equivalents of $20.7 million. Our cash
and cash equivalents increased $1.8 million during the first six months of 2005,
as a result of $8.4 million of cash provided by operations, $5.9 million of cash
outflow for investing activities and $ 667,000 outflow for financing activities.
Our cash balances include amounts that could be required, upon five days'
notice, to fund the Chief Executive Officer's (Mr. Westerman's) pension
obligation in a rabbi trust. (See Note 12 to the 2004 annual consolidated
financial statements, Employment Agreement and Employee Benefit Plans, included
in our Form 10-K as filed with the Securities and Exchange Commission ("SEC").)
We continue to pay Mr. Westerman $250,000 per quarter from his pension plan. In
exchange for these payments, Mr. Westerman has agreed to continue his
forbearance of his right to receive full transfer of his pension fund balance to
the rabbi trust. This does not limit his ability to give the five-day notice at
any time. Although Mr. Westerman has expressed no current intention to require
this funding, under certain circumstances we might have to disburse
approximately $4.6 million for this purpose in a short period. We believe that
cash flow from operations, combined with the $20.7 million cash and cash
equivalents and the $30 million revolving credit facility, will be sufficient to
cover our debt service and enable investment in budgeted capital expenditures
for the balance of 2005 for both the Riviera Las Vegas ($4.9 million) and
Riviera Black Hawk ($700,000).
18
Cash flow from operations may not to be sufficient to pay 100% of the principal
of the 11% Notes at maturity on June 15, 2010. Accordingly, our ability to repay
the 11% Notes at maturity may be dependent upon our ability to refinance them.
There can be no assurance that we will be able to refinance the principal amount
of the 11% Notes at maturity.
The 11% Notes provide that, in certain circumstances, we must offer to
repurchase the 11% Notes, upon the occurrence of a change of control, at 101% of
the principal amount. Each holder of the 11% Notes has the right but not the
obligation to accept this offer. In the event of such mandatory redemption or
repurchase prior to maturity, we would be unable to pay the principal amount of
the 11% Notes without a refinancing.
The 11% Notes are not redeemable at our option prior to June 15, 2006.
On or after June 15, 2006, the Company may redeem all or part of the 11% Notes
upon not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below plus accrued and
unpaid interest and liquidated damages, if any, on the 11% Notes redeemed, to
the applicable redemption date, if redeemed during the twelve-month period
beginning on June 15 of the years indicated below:
Year Percentage
2006 ................................105.500%
2007.................................103.667%
2008.................................101.833%
2009 and thereafter..................100.000%
The 11% Notes contain certain covenants, which limit our ability, subject to
certain exceptions, to do, among other things, the following: (i) incur
additional indebtedness; (ii) pay dividends or other distributions, repurchase
capital stock or other equity interests or subordinated indebtedness; (iii)
enter into certain transactions with affiliates; (iv) create certain liens or
sell certain assets; and (v) enter into certain mergers and consolidations. As a
result of these restrictions, our ability 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, we would
be required to curtail or defer certain capital expenditure programs under these
circumstances, which could have an adverse effect on operations.
At June 30, 2005, we believe that we are in compliance with the covenants of the
11% Notes and the $30 million revolving credit facility.
Recently Issued Accounting Standards
In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 123(R), Share-Based Payments, which establishes accounting standards for all
transactions in which an entity exchanges its equity instruments for goods and
services. SFAS No. 123(R) focuses primarily on accounting for transactions with
employees, and carries forward without change prior guidance for share-based
payments for transactions with non-employees.
19
SFAS No. 123(R) eliminates the intrinsic value measurement objective in APB
Opinion No. 25 and generally requires us to measure the cost of employee
services received in exchange for an award of equity instruments based on the
fair value of the award on the date of the grant. The standard requires grant
date fair value to be estimated using either an option-pricing model, which is
consistent with the terms of the award, or a market observed price, if such a
price exists. Such cost must be recognized over the period during which an
employee is required to provide service in exchange for the award in the
requisite service period (which is usually the vesting period). The standard
also requires us to estimate the number of instruments that will ultimately be
issued, rather than accounting for forfeitures as they occur.
We are required to apply SFAS No. 123(R) to all awards granted, modified or
settled in our first reporting period under U.S. generally accepted accounting
principles for fiscal years beginning after June 15, 2005. We are also required
to use either the "modified prospective method" or the "modified retrospective
method." Under the modified prospective method, we must recognize compensation
cost for all awards granted after we adopt the standard and for the unvested
portion of previously granted awards that are outstanding on that date.
Under the modified retrospective method, we must restate our previously issued
financial statements to recognize the amounts we previously calculated and
reported on a pro forma basis, as if the prior standard had been adopted. Under
both methods, we are permitted to use either a straight line or an accelerated
method to amortize the cost as an expense for awards with graded vesting. SFAS
No. 123(R) permits and encourages early adoption.
We have commenced our analysis of the impact of SFAS No. 123(R), but have not
yet decided: (1) whether we will elect to adopt early, (2) if we elect to adopt
early, then at what date we would do so, (3) whether we will use the modified
prospective method or elect to use the modified retrospective method, and (4)
whether we will elect to use straight line amortization or an accelerated
method.
In May 2005, FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections" (SFAS 154). SFAS requires retrospective application to prior
periods' financial statements of changes in accounting principle. It also
requires that the new accounting principle be applied to the balances of assets
and liabilities as of the beginning of the earliest period for which
retrospective application is practicable and that a corresponding adjustment be
made to the opening balance of retained earnings for that period rather than
being reported in an income statement. The statement will be effective for
accounting changes and corrections of errors made in fiscal years beginning
after December 15, 2005. We do not expect the adoption of SFAS 154 to have a
material effect on our consolidated financial position or results of operations.
On July 14, 2005, the Financial Accounting Standards Board (FASB) issued an
Exposure Draft, "Accounting for Uncertain Tax Positions," that would interpret
SFAS No. 109, "Accounting for Income Taxes." This proposal seeks to reduce the
diversity in practice associated with certain aspects of the recognition and
measurement requirements related to accounting for income taxes. Specifically,
the proposal would require that a tax position meet a "probable recognition
threshold" for the benefit of an uncertain tax position to be recognized in the
financial statements. The proposal would require recognition in the financial
statements the best estimate of the effect of a tax position only if that
position is probable of being sustained on audit by the appropriate taxing
authorities, based solely on the technical merits of the position. We are
currently reviewing the provisions of the Exposure Draft to determine the impact
it may have on us.
20
Critical Accounting Policies
A description of our critical accounting policies and estimates can be found in
Item 7 of our Form 10-K for the year ended December 31, 2004. For a further
discussion of our accounting policies, see Note 1, Summary of Significant
Accounting Policies, in the Notes to the Condensed Consolidated Financial
Statements in this Form 10-Q.
Forward-Looking Statements
Throughout this report we make "forward-looking statements," as that term is
defined in Section 27A of the Securities Act, and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking
statements include the words "may," "would," "could," "likely," "estimate,"
"intend," "plan," "continue," "believe," "expect" or "anticipate" and similar
words and include all discussions about our acquisition, development, expansion
and shareholder value plans, objectives or expectations. We do not guarantee
that any of the transactions or events described in this report will happen as
described or that any positive trends suggested or referred to in this report
will continue. These forward-looking statements generally relate to our plans,
objectives and expectations for future operations and results and are based upon
what we consider to be reasonable future estimates. Although we believe that our
plans, objectives and expectations reflected in, or suggested by, such
forward-looking statements are reasonable at the present time, we may not
achieve or we may modify them from time to time. You should read this report
thoroughly and with the understanding that actual future results may be
materially different from what we expect. We do not plan to update
forward-looking statements even though our situation or plans may change in the
future, unless applicable law requires us to do so.
Specific factors that might cause our actual results to differ from our plan
objectives or expectations, might cause us to modify them, or might affect our
ability to achieve them, include, but are not limited to:
o the availability and adequacy of our cash flow to meet our requirements,
including payment of amounts due under our debt instruments;
o our substantial indebtedness, debt service requirements and liquidity
constraints;
o the results of our previously announced plan to explore strategic alternatives
for maximizing shareholder value;
o the availability of additional capital to support capital improvements and
development;
o fluctuations in the value of our real estate, particularly in Las Vegas;
o competition in the gaming industry, including the availability and success of
alternative gaming venues and other entertainment attractions;
o Sarbanes-Oxley Act of 2002 - related costs associated with becoming an
accelerated filer, including costs relating to internal control evaluation and
reporting;
o economic, competitive, demographic, business and other conditions in our local
and regional markets;
o changes or developments in laws, regulations or taxes in the gaming industry;
o actions taken or not taken by third parties, such as our customers, suppliers,
and competitors, as well as legislative, regulatory, judicial and other
governmental authorities;
o retirement or other loss of our of senior officers;
o other changes in our personnel or their compensation, including those
resulting from changes in minimum wage requirements;
o our failure to obtain, delays in obtaining, or the loss of, any licenses,
permits or approvals, including gaming and liquor licenses, or the limitation,
conditioning, suspension or revocation of any such licenses, permits or
approvals, or our failure to obtain an unconditional renewal of any of our
licenses, permits or approvals on a timely basis;
21
o a decline in the public acceptance of gaming;
o the loss of any of our casino facilities due to terrorist acts, casualty,
weather, mechanical failure or any extended or extraordinary maintenance or
inspection that may be required;
o other adverse conditions, such as economic downturns, changes in general
customer confidence or spending, increased transportation costs, travel
concerns or weather-related factors, that may adversely affect the economy in
general or the casino industry in particular;
o changes in our business strategy, capital improvements or development plans;
o the consequences of the war in Iraq and other military conflicts in the Middle
East and any future security alerts or terrorist attacks such as the attacks
that occurred on September 11, 2001; and
o other risk factors discussed elsewhere in this report.
All future written and oral forward-looking statements attributable to us or any
person acting on our behalf are expressly qualified in their entirety by the
cautionary statements contained or referred to in this section. In light of
these and other risks, uncertainties and assumptions, the forward-looking events
discussed in this report might not occur.
22
ITEM 3. Quantitative and Qualitative Disclosure About Market Risk
Market risks relating to our operations result primarily from changes in
interest rates. We invest our cash and cash equivalents in U.S. Treasury Bills
with maturities of 30 days or less. Such investments are generally not affected
by changes in interest rates.
As of June 30, 2005, we had $215.6 million in borrowings. The borrowings include
$215 million in 11% Notes maturing in 2010 and capital leases maturing at
various dates through 2005. Interest under the $215 million 11% Notes is based
on a fixed rate of 11%. The equipment loans and capital leases have interest
rates ranging from 5.5% to 6.1%. The borrowings also include $593,000 in a
special improvement district bond offering with the City of Black Hawk. Our
share of the debt on the SID bonds of $1.2 million when the project is complete,
is payable over ten years beginning in 2000. The SID bonds bear interest at
5.5%. We are not susecptible to interest rate risk because our outstanding debt
is at fixed rates. Our $30 million senior secured revolving credit facility is
at prime plus three-quarters of one percent and would not subject us to a
material interest rate fluctuation. As of June 30, 2005, we had no borrowing
outstanding under our senior secured credit facility.
Interest Rate Sensitivity
Principal (Notational Amount by Expected Maturity)
Average Interest Rate
(Dollars in Fair Value
thousands) 2005 2006 2007 2008 2009 Thereafter Total at 6/30/05
Long-Term Debt, Including
Current Portion
Equipment loans and
capital leases - Las Vegas $ 339 $ 707 $ 751 $ 187 $ 54 $ 2,038 $ 2,038
Average interest rate 5.9% 5.9% 5.9% 5.9% 5.5%
11% Notes $ 215,000 $ 215,000 $ 236,500
Less unamortized Discount $ (2,006) $ (2,006) $(2,006)
Average interest rate 11.8%
Special Improvement District
Bonds - Black Hawk, Colorado $ 58 $ 124 $ 129 $ 137 $ 145 $ - $ 593 $ 593
Average interest rate 5.5% 5.5% 5.5% 5.5% 5.5% 5.5%
Total long-term debt,
including current portions $ 397 $ 831 $ 880 $ 324 $ 199 $ 212,994 $ 215,625 $ 237,125
Other Long-Term Liabilities,
Including Current Portions
CEO pension plan obligation $500 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 142 $ 4,642 $ 4,642
11.8% 11.8% 11.8% 11.8% 11.8% 11.8%
Total long-term obligations $ 897 $ 1,831 $ 1,880 $ 1,324 $ 1,199 $ 213,136 $ 220,267 $ 241,767
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ITEM 4. Controls and Procedures
We maintain disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) that are designed to ensure that information required
to be disclosed in our Exchange Act reports is recorded, processed, summarized
and reported within the time periods specified in the rules and forms of the
SEC, and that such information is accumulated and communicated to our
management, including our chief executive officer and chief financial officer,
as appropriate, to allow timely decisions regarding required disclosure. In
designing and evaluating the disclosure controls and procedures, our management
recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives, and our management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.
As of June 30, 2005, we carried out an evaluation, under the supervision and
with the participation of our management, including our chief executive officer
and chief financial officer, of the effectiveness of the design and operation of
our disclosure controls and procedures. Based on the foregoing, our chief
executive officer and chief financial officer concluded that our disclosure
controls and procedures were effective.
During our last fiscal quarter there were no changes in our internal control
over financial reporting that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
We are a party to routine lawsuits, either as plaintiff or as
defendant, arising from the normal operations of a hotel or casino. We do not
believe that the outcome of such litigation, in the aggregate, will have a
material adverse effect on our financial position or results of our operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
a) On May 27, 2005, we granted a total of 30,000 shares of our common
stock to our four non-employee directors. The shares were accepted
by our non-employee directors in full substitution for stock
options that we attempted, but were unable, to grant to them in
2004 due to expiration of our stock option plan. We issued the
shares without registration under the Securities Act in reliance
on the exemption from registration provided by Section 4(2) of the
Securities Act.
b) Not applicable
c) Not applicable
Item 4. Submission of Matters to a Vote of Security Holders.
At our annual meeting of stockholders on May 17, 2005, stockholders
elected our board of directors and approved our Employee Plan, Director Plan and
issuance of 30,000 shares of common stock to our four non-employee directors, as
discussed elsewhere in this Form 10-Q.
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The number of votes cast for each director nominee, the number of votes
cast against or withheld, and the number of abstentions or broker nonvotes were
as follows:
Against or Abstentions or
For Withheld Broker Nonvotes
--- ------------ --------------
William L. Westerman 10,064,092 1,785,229 -0-
Jeffrey A. Silver 10,046,626 1,802,695 -0-
Paul A. Harvey 11,557,640 291,681 -0-
Vincent L. Divito 11,478,098 371,223 -0-
James N. Land, Jr. 11,560,125 289,196 -0-
The number of votes cast for the Employee Plan was 6,435,848, the
number of votes cast against it or withheld was 1,272,741, and the number of
abstentions or broker nonvotes was 4,140,732.
The number of votes cast for the Directors Plan was 6,418,496, the
number of votes cast against it or withheld was 1,284,876, and the number of
abstentions or broker nonvotes was 4,145,949.
The number of votes cast for the issuance of shares to our non-employee
directors was 7,450,974, the number of votes cast against it or withheld was
244,016, and the number of abstentions or broker nonvotes was 4,154,331.
Item 6. Exhibits.
See list of exhibits on page 27.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RIVIERA HOLDINGS CORPORATION
By: /s/ William L. Westerman
William L. Westerman
Chairman of the Board and
Chief Executive Officer
By: /s/ Duane Krohn
Duane Krohn
Treasurer and
Chief Financial Officer
Date: August 10, 2005
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Exhibits
Exhibits:
10.1*(A) 2005 Incentive Stock Option Plan (see Exhibit A to Schedule
14A filed with Commission on April 22, 2005 (Commission File
No.0-21430)
10.2*(A) 2005 Non-Qualified Stock Option Plan for Non-Employee
Directors (see Exhibit B to Schedule 14A filed with the
on on April 22, 2005 (Commission File No. 0-21430)
31.1 Certification of the Principal Executive Officer of the Registrant
pursuant to Exchange Act Rule 13a-14(a).
31.2 Certification of the Principal Financial Officer of the Registrant
pursuant to Exchange Act Rule 13a-14(a).
32.1 Certification of the Chief Executive Officer of the Registrant pursuant
to Exchange Act Rule 13a-14(b) and 18 U.S.C. 1350.
32.2 Certification of the Chief Financial Officer of the Registrant pursuant
to Exchange Act Rule 13a-14(b) and 18 U.S.C. 1350.
* These are incorporated herein by reference as exhibits hereto. Following the
description of each such exhibit is a reference to it as it appeared in a
specified document previously filed with the Commission, to which there have
been no amendments or changes.
(A) Management contract or compensatory plan or arrangement.
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