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 September 30, 2005
-------------------------
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________________ to ____________________
Commission file number 000-21430
Riviera Holdings Corporation
----------------------------
(Exact name of registrant as specified in its charter)
Nevada 88-0296885
----------------------------------- ----------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2901 Las Vegas Boulevard South, Las Vegas, Nevada 89109
---------------------------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (702) 794-9527
---------------------------------------------------------- ---------------------
----------------------------------------------
(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 a shell company
(as defined in Rule 12b-2 of the Exchange Act. Yes |_| No|X|
Indicate by check mark whether the Registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|
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 |_|
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 October 31, 2005, there
were 12,414,255 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 September 30,
2005 and December 31, 2004 3
Condensed Consolidated Statements of Operations (Unaudited) for the
Three and Nine Months ended September 30, 2005 and 2004 4
Condensed Consolidated Statements of Cash Flows (Unaudited) for the
Three and Nine Months ended September 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 22
Item 4. Controls and Procedures 23
PART II.OTHER INFORMATION 23
Item 1. Legal Proceedings 23
Item 6. Exhibits 23
Signature Page 24
Exhibits 25
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 September
30, 2005, and the related condensed consolidated statements of operations and of
cash flows for the three and nine months ended September 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
November 10, 2005
Las Vegas, Nevada
2
RIVIERA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, except share amounts) September 30 December 31
-------------------------------------------------------------------------------
2005 2004
ASSETS (unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 26,359 $ 18,886
Accounts receivable, net 3,695 3,898
Inventories 2,357 2,047
Prepaid expenses and other assets 4,430 4,101
--------------- --------------
Total current assets 36,841 28,932
PROPERTY AND EQUIPMENT, Net 173,687 177,115
OTHER ASSETS, Net 7,781 9,043
DEFERRED INCOME TAXES 2,446 2,446
--------------- --------------
TOTAL $ 220,755 $ 217,536
=============== ==============
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Current portion of long-term debt $ 814 $ 1,441
Accounts payable 8,061 8,872
Accrued interest 6,994 1,089
Accrued expenses 14,605 16,197
--------------- --------------
Total current liabilities 30,474 27,599
--------------- --------------
OTHER LONG-TERM LIABILITIES 3,383 4,203
--------------- --------------
LONG-TERM DEBT, Net of current portion 214,745 215,026
--------------- --------------
SHAREHOLDERS' DEFICIENCY:
Common stock ($.001 par value;
60,000,000 shares authorized;
17,074,824 and 16,548,324 shares
issued at September 30, 2005 and
December 31, 2004, respectively) 17 16
Additional paid-in capital 21,219 15,692
Deferred Compensation - Restricted Stock (3,945)
Treasury stock (4,688,069 shares at
September 30, 2005 and
December 31, 2004, respectively) (10,459) (10,459)
Accumulated Deficit (34,679) (34,541)
--------------- --------------
Total shareholders' deficiency (27,847) (29,292)
--------------- --------------
TOTAL $ 220,755 $ 217,536
=============== ==============
See notes to condensed consolidated financial statements
3
RIVIERA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
Three Months Ended Nine Months Ended
(In thousands, except per share amounts) September 30, September 30,
-------------------------------------------------------------------------------
REVENUES: 2005 2004 2005 2004
Casino $ 26,695 $ 27,548 $ 82,755 $ 84,177
Rooms 12,872 11,672 40,067 35,889
Food and beverage 8,434 8,588 26,645 26,454
Entertainment 4,470 5,499 13,582 15,726
Other 2,219 1,971 6,504 6,137
---------- ---------- ---------- ---------
Total revenues 54,690 55,278 169,553 168,383
Less promotional allowances 4,353 4,661 13,495 14,512
---------- ---------- ---------- ---------
Net revenues 50,337 50,617 156,058 153,871
---------- ---------- ---------- ---------
COSTS AND EXPENSES:
Direct costs and expenses of
operating departments:
Casino 13,816 13,550 42,676 40,886
Rooms 7,056 6,602 20,810 19,622
Food and beverage 6,354 6,162 18,988 18,129
Entertainment 3,295 3,825 10,490 10,602
Other 774 755 2,267 2,194
Other operating expenses:
General and administrative:
Equity compensation - restricted stock 222 0 1,207 0
Other general and administrative 9,386 10,257 28,978 31,333
Mergers, Acquisitions and Development
costs, net 126 1,010 (376) 1,010
Sarbanes-Oxley Expenses 371 0 641 0
Asset Impairment 0 0 198 0
Depreciation and amortization 3,617 3,646 10,495 10,348
---------- ---------- ---------- ---------
Total costs and expenses 45,017 45,807 136,374 134,124
---------- ---------- ---------- ---------
INCOME FROM OPERATIONS 5,320 4,810 19,684 19,747
---------- ---------- ---------- ---------
OTHER (EXPENSE) INCOME :
Interest expense (6,651) (6,804) (19,964) (20,382)
Interest income 58 6 142 16
---------- ---------- ---------- ---------
Total other expense (6,593) (6,798) (19,822) (20,366)
---------- ---------- ---------- ---------
LOSS BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES (1,273) (1,988) (138) (619)
BENEFIT FOR INCOME TAXES 0 0 0 0
---------- ---------- ---------- ---------
NET LOSS $ (1,273) $ (1,988) $ (138) $ (619)
========== ========== ========== =========
INCOME LOSS PER SHARE DATA:
Income Loss per share:
Basic $ (0.11) $ (0.19) $ (0.01) $ (0.06)
---------- ---------- ---------- ---------
Diluted $ (0.11) $ (0.19) $ (0.01) $ (0.06)
---------- ---------- ---------- ---------
Weighted-average common
shares outstanding 11,848 10,464 11,795 10,461
---------- ---------- ---------- ---------
Weighted-average common and
common equivalent shares 11,848 10,464 11,795 10,461
---------- ---------- ---------- ---------
See notes to condensed consolidated financial statements
4
RIVIERA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands) 2005 2004 2005 2004
--------- --------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($1,273) ($1,988) ($138) ($619)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and amortization 3,617 3,646 10,495 10,348
Provision for bad debts, net 77 57 172 34
Amortization of deferred compensation
- restricted stock 222 1,207
Interest expense 6,651 6,804 19,964 20,382
Interest paid (225) (388) (12,557) (12,982)
Changes in operating assets and liabilities
(Increase) Decrease in accounts receivabl (1,222) (1,476) 30 (755)
Decrease (increase) in inventories (77) 7 (310) 97
Increase in prepaid expenses
and other assets (534) (998) (329) (1,250)
Increase (decrease) in accounts payable (41) (35) (812) 1,127
Increase (decrease) in accrued liabilities 15 1,096 (1,592) 1,089
Decrease in deferred compensation plan
liability (48) (118)
Decrease in non-qualified pension
plan obligation to CEO upon retirement (250) (250) (750) (750)
--------- --------- -------- --------
Net cash provided by operating activities 6,960 6,475 15,332 16,603
--------- --------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - Las Vegas, Nevada (1,070) (1,266) (4,294) (5,505)
Capital expenditures - Black Hawk, Colorado (104) (435) (3,025) (1,742)
Gain on disposition of fixed assets -
Colorado 59
Decrease in other assets 18 905 236 721
--------- --------- -------- --------
Net cash used in investing activities (1,156) (796) (7,024) (6,526)
--------- --------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term borrowings (168) (939) (1,212) (3,012)
Proceeds from exercise of stock options 377
Proceeds from long-term borrowings 58 50
Increase in Paid in Capital 18
Decrease in notes payable (2,000)
--------- --------- -------- --------
Net cash used in financing activities (168) (881) (835) (4,944)
--------- --------- -------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 5,636 4,798 7,473 5,133
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD $20,723 $ 19,679 $18,886 $19,344
--------- --------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 26,359 $ 24,477 $26,359 $24,477
========= ========= ======== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING
ACTIVITIES:
Property acquired with debt and accounts
payable $31 $447 $31 $447
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 direct and indirect
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 our 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
Our 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 September 30, 2005 and for the three and nine
months ended September 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 our
financial position, results of operations, and cash flows for the interim
periods.
The results of operations for the nine months ended September 30, 2005 and 2004
are not necessarily indicative of the results for the entire year. These
financial statements should be read in conjunction with our 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 number of potentially dilutive
options excluded from the calculation as their effect would have been
antidilutive was 462,323 and 459,316 for the three and nine months ended
September 30, 2005, respectively and 194,739 and 147,118 for the three and nine
months ended September 30, 2004, respectively.
Income Taxes
No income tax provision was recorded for the three and nine months ended
September 30, 2005 and 2004, respectively, as the Company incurred a loss. The
Company has recorded a valuation allowance against substantially all of its
deferred tax assets. The estimates used to determine the 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.
Reclassifications
In our condensed consolidated statements of cash flows the CEO pension interest
has been reclassified from non-qualified pension plan obligation to CEO
upon retirement to interest paid in the prior period.
Stock-Based Compensation
As of September 30, 2005, we had outstanding 318,000 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
not recognized 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, consistently with the provisions of SFAS
No. 123, our net loss and pro forma net loss per common share and common share
equivalent would have been changed to the pro forma amounts indicated below for
the three and nine months ended September 30, 2005 and 2004 (in thousands,
except per-share amounts).
7
Three months ended Nine months ended
September 30, September 30,
2005 2004 2005 2004
---- ---- ---- ----
Net loss - as reported $ (1,273) $ (1,988) $ (138)$ (619)
Deduct: Total stock-based
employee compensation
expense determined under
fair value-based methods
for awards net of related
tax effects (11) (12) (33) (36)
---- ---- ----
Net loss-pro forma $ (1,284) $ (2,000) $ (171) $ (655)
--------- ---------- ------- -------
Basic loss per common share-as reported $ (0.10) $ (0.19) $ (0.01) (0.06)
Basic loss per common share-pro forma $ (0.11) $ (0.19) $ (0.01) (0.06)
Diluted loss per common and common share
equivalent-as reported $ (0.10) $ (0.19) $ (0.01) (0.06)
Diluted loss per common and common share $
equivalent-pro forma $ (0.11) $ (0.19) $ (0.01) (0.06)
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 2003: dividend yield of 0%; expected volatility
of 32.3% and; risk-free interest rates of 2.27%; and expected life of 10 years.
There have been no options granted in 2005 and 2004.
Recently Issued Accounting Standards
In December 2004, the Financial Accounting Standards Board (the"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 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 whether we will use the modified prospective method or elect to use
the modified retrospective method, and whether we will elect to use straight
line amortization or an accelerated method.
In May 2005, the 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 principles. It also
requires that the new accounting principles 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. SFAS No. 154 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 No. 154 to have a
material effect on our consolidated financial position or results of operations.
On July 14, 2005, the 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 of 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. The proposal, if
issued, would not be effective for 2005.
2. OTHER ASSETS
Other assets at September 30, 2005 and December 31, 2004 include deferred loan
fees of approximately $6.6 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 September 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 .5 percent is charged on the unused portions
of the revolver plus a $3,000 monthly service fee.
9
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. TREASURY STOCK TRANSACTIONS
There were no shares of our common stock purchased by our Deferred Compensation
Plan for the nine months ended September 30, 2005 or 2004. For the nine months
ended September 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
For the nine months ended September 30, 2005, we granted 337,500 shares of
Common Stock under our Restricted Stock Plan to 19 executives at no cost to
them. Also for the nine months ended September 30, 2005, we granted 30,000
shares of common stock to our four non-employee directors. Both grants have a
five-year vesting period with limited acceleration provisions.
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 RGMM and RGMNM do not have operations and do not significantly
contribute to our financial position or results of operations.
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 RHC
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 September 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.
9. SEGMENT DISCLOSURES
We determine 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.
10
Three months ended Nine months ended
September 30, September 30,
(Dollars in thousands) 2005 2004 2005 2004
Net revenues:
Riviera Las Vegas $ 37,143 $ 36,815 $ 116,991 $ 113,575
Riviera Black Hawk 13,194 13,802 39,067 40,296
------------ ---------- ---------- ---------
Total net revenues $ 50,337 $ 50,617 $ 156,058 $ 153,871
============ ========== ========== =========
Property EBITDA (1):
Riviera Las Vegas $ 5,790 $ 5,709 $ 22,259 $ 21,352
Riviera Black Hawk 4,721 4,418 12,748 12,926
------------ ---------- ---------- ---------
Total property EBITDA $ 10,511 $ 10,127 $ 35,007 $ 34,278
============ ========== ========== =========
Other Costs and Expenses
Corporate Expenses
Equity compensation 222 1,207
Other corporate expenses 855 661 3,158 3,173
Depreciation and amortization 3,617 3,646 10,495 10,348
Mergers, Acquitions and Development
Costs, net 126 1,010 (376) 1,010
Sarbanes-Oxley Expenses 371 641
Asset Impairment - 198
Interest Expense 6,651 6,804 19,964 20,382
Interest Income (58) (6) (142) (16)
------------ ---------- ---------- ---------
Total Other Costs and Expenses 11,784 12,115 35,145 34,897
------------ ---------- ---------- ---------
Net Income (loss) $ (1,273) $ (1,988) $ (138) $ (619)
============ ========== ========== =========
(1) Property EBITDA consists of earnings before interest, income taxes,
depreciation, amortization, equity compensation, asset impairment,
Sarbanes-Oxley expenses and mergers, acquisitions and development costs, net.
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 our 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 principle repayments, which are not
reflected in property EBITDA. Also, other companies that report property EBITDA
information may calculate it 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 and Recent Events
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").
11
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 September 30, 2005 approximately 743 (57%) of
our slot machines in Las Vegas were on the TITO system. We do not intend to add
additional machines to the TITO system in the fourth quarter of 2005. 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 644 (66%) of our slot machines on the
TITO system as of September 30, 2005. By the end of 2005 we anticipate having
approximately 690 slot machines, or 71% of our slot machines in Black Hawk, on
TITO.
On November 8,2005, we reported the conclusion of the process we announced on
February 15, 2005 to explore strategic alternatives to maximize shareholders
value, because the process did not produce opportunities that were satisfactory
to our board of directors. During that process, alternatives that we explored
included development of our Las Vegas property, refinancing, joint ventures,
mergers, and realizing the value of our stock through other means. Although this
formal process has been concluded, we will continue to consider strategic
opportunities if and when they arise and we consider them to be in our and our
shareholders' best interests.
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.
The expansion of Riviera Black Hawk and the construction of a pedestrian bridge
to Isle of Capri, which was to begin May of 2005, have been put on hold. We have
has expended approximately $600,000 as of September 30, 2005, which are included
in construction in progress. Although the City of Black Hawk has endorsed the
construction of a bridge over Main Street connecting Riviera Black Hawk to the
Isle of Capri Casino and drafted the agreements necessary between the parties to
proceed, to date Riviera Black Hawk and the Isle of Capri have not yet
negotiated a construction easement agreement acceptable to both parties. Riviera
Black Hawk intends to go forward with the project and believes an agreement will
be reached.
Sarbanes-Oxley - On June 30, 2005, the applicable measurement date for
accelerated filer status, our public float market cap exceeded $75 million.
Consequently, we will become an accelerated filer as of December 31, 2005 and we
will be required to comply with the reporting requirements of Section 404 of the
Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act") for the year ended
December 31, 2005. We anticipate we will incur additional first year costs of
appoximately $1.0 million to comply with the Act. We have incurred $641,000 of
these costs to date. These costs are shown separately in the income statement.
Three Months Ended September 30, 2005 Compared to Three Months Ended September
30, 2004
The following table sets forth, for the periods indicated, certain operating
data for Riviera Las Vegas and Riviera Black Hawk. Income from Operations
includes intercompany management fees.
12
Third Quarter Incr Incr
(In Thousands) 2005 2004 (Decr) (Decr)%
---- ---- ------ -------
Net revenues:
Riviera Las Vegas $37,143 $36,815 $328 0.9%
Riviera Black Hawk 13,194 13,802 (608) -4.4%
------ ------ -----
Total Net Revenues $50,337 $50,617 $(280) -0.6%
======= ======= ======
Income (Loss) from Operations
Riviera Las Vegas $3,797 $3,592 $205 5.7%
Riviera Black Hawk 3,097 2,889 208 7.2%
----- ----- ---
Property Income from Operations 6,894 6,481 413 6.4%
Corporate Expenses
Equity Compensation - Restricted Stock (222) 0 (222)
Other Corporate Expenses (855) (661) (194) -29.3%
Mergers acquisitions and development
costs, net (126) (1,010) 884 87.5%
Sarbanes-Oxley Expenses (371) 0 (371)
----- - -----
Total Income from Operations $5,320 $4,810 $510 10.6%
====== ====== ====
Operating Margins (1)
Riviera Las Vegas 10.2% 9.8% 0.4%
Riviera Black Hawk 23.5% 20.9% 2.6%
(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 $328,000 or 0.9% in the third quarter compared to the
same period last year.
Casino revenues decreased $135,000 or 0.9% due to the customer mix in
the hotel during the period. We continue to book rooms to higher rated
convention groups over the tour and travel groups which normally have a better
gaming profile.
Room revenue increased $1.2 million, or 10.3%, from $11.7 million in
2004 to $12.9 million in 2005 due to an increase in convention room nights.
Hotel occupancy increased to 93.8%, up from last year's 90.6% and average daily
room rate increased $3.94 from $65.23 in 2004 to $69.17 in 2005. Rev Par
(revenue per available room) increased 9.7% or $5.76 to $64.88. Convention room
revenues increased $852,000 or 16% and made up 37% of the total room revenue.
Food and beverage revenue decreased $75,000, or 1.1%, from $7.1 million
in 2004 to $7.0 million in 2005 primarily due to decreased casino activity.
Entertainment revenue decreased $1.0 million, or 18.5%, from $5.5
million in 2004 to $4.5 million in 2005 primarily due to the cancellation of the
Amazing Jonathan and Keyboard Cabaret shows. We opened American Storm, a male
revue, on July 29, 2005 to recover some of the lost ticket sales.
13
Promotional allowances decreased by approximately $202,000, or 5.8%,
from $3.5 million during 2004 to $3.3 million during 2005 primarily due to
decreases in comps related to decreased casino activity.
Costs and Expenses
Casino expenses increased $546,000 or 7.2% due to higher promotional
costs.
Hotel expenses increased $454,000 or 6.9% 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 3.5% in
the quarter, due primarily to higher payroll costs under union contracts.
Entertainment departmental costs and expenses decreased by $529,000, or
13.9% in the quarter, due primarily to the cancellation of two of our shows.
Income from Operations
Income from operations in Las Vegas increased $205,000, or 5.7%,
from $3.6 million in 2004 to $3.8 million in 2005 due principally to the
increase in net revenues.
Riviera Black Hawk
Revenues
Net revenues decreased by approximately $608,000, or 4.4% from $13.8
million in 2004 to $13.2 million in 2005. Food and beverage revenues were
approximately $1.4 million in 2005, of which $1.1 million was complimentary
(promotional allowance).
Third quarter revenues were negatively impacted by a rock slide in June
that closed Highway 6 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, Highways 6/119 through Golden
is the preferred route taken by most gaming patrons. Highway 6 reopened on
September 12, 2005.
We were able to more than offset the reduction in revenues by
decreasing marketing, payroll and other variable expenses.
Income From Operations
Income from operations at Riviera Black Hawk increased $208,000, or
7.2%, from $2.9 million in 2004 to $3.1 million in 2005 due to decreased payroll
and payroll benefits in general and administration areas. Our operating margins
increased from 20.9% in the third quarter of 2004 to 23.5% in the third quarter
of 2005.
14
Consolidated Operations
Corporate Expenses
Corporate and other expenses decreased $97,000 or 5.8% from $1.7 million in
2004 to $1.6 million in 2005 as a result of reduced payroll and benefits.
Interest expense decreased $153,000, or 2.2%, as a result of decreased interest
on equipment financing, primarily from Black Hawk equipment leases.
Equity compensation expense of $222,000 in the quarter ended September 30, 2005
is associated with restricted stock issued in 2005 to 23 directors, officers and
employees which is being amortized over five years or expensed when executives
retire. Development costs were $1.0 million in last year's quarter resulting
from a write off of our costs associated with a prospective casino project in
Missouri.
Net (Loss)
Net loss decreased $715,000 from $2.0 million in 2004 to a net loss of
$1.3 million in 2005 due primarily to increased income from operations and a
reduction in interest expense.
Nine Months Ended September 30, 2005 Compared to Nine Months Ended September 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.
Nine Months Incr Incr
(In Thousands) 2005 2004 (Decr) (Decr)%
---- ---- ------ ------
Net revenues:
Riviera Las Vegas $116,991 $113,575 $3,416 3.0%
Riviera Black Hawk 39,067 40,296 (1,229) -3.0%
------ ------ -------
Total Net Revenues $156,058 $153,871 $2,187 1.4%
======== ======== ======
Income (Loss) from Operations
Riviera Las Vegas $16,552 $15,435 $1,117 7.2%
Riviera Black Hawk 7,960 8,495 (535) -6.3%
----- ----- -----
Property Income from Operations 24,512 23,930 582 2.4%
Corporate Expenses
Equity Compensation - Restricted Stock (1,207) 0 (1,207)
Other Corporate Expenses (3,158) (3,173) 15 0.5%
Mergers acquisitions and development costs,
net 376 (1,010) 1,386 137.2%
Asset Impairment (198) 0 (198)
Sarbanes-Oxley Act Expenses (641) 0 (641)
----- - -----
Total Income from Operations $19,684 $19,747 $ (63) -0.3%
======= ======= ======
Operating Margins (1)
Riviera Las Vegas 14.1% 13.6% 0.5%
Riviera Black Hawk 20.4% 21.1% -1.2%
(1) Operating margins represent income from operations as a percentage of net
revenues by property.
15
Riviera Las Vegas
Revenues
Net revenues increased approximately $3.4 million, or 3.0%, from $113.6
million in 2004 to $117.0 million in 2005 due primarily to increased hotel
revenues.
Room revenue increased $4.2 million, or 11.6%, from $35.9 million in
2004 to $40.1 million in 2005 due to an increase in convention room nights and
an overall increase in average room rate. Hotel occupancy increased to 94.0%,
from last year's 93.6% and average daily room rate increased $6.76 to $71.68 in
2005 from $64.92 in 2004. Rev Par (revenue per available room) increased 10.9%
or $6.62 to $67.38.
Food and beverage revenues increased $332,000, or 1.5%, from $22.1
million in 2004 to $22.5 million in 2005 due to an increase in our banquet
operations associated with increased convention activity.
Entertainment revenues decreased by approximately $2.1 million, or
13.5%, from $15.7 million during 2004 to $13.6 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 $1.1 million or 9.5%,
from $11.3 million during 2004 to $10.2 million during 2005 primarily due to
decreases in comps related to lower casino and entertainment activity.
Costs and Expenses
Casino expenses increased $1.4 or 6.0% from $23.7 million in 2004 to
$25.1 million in 2005 due to increased promotional costs for our 50th
anniversary celebration of approximately $600,000.
Rooms departmental costs and expenses increased $1.2 million or 6.1% do
to wage scale and benefit increases under the renewed union contracts.
Food and beverage costs increased $1.0 million, or 6.1%, as a result
of increased revenues.
Entertainment costs decreased $91,000, or 0.9%, as a result of the
cancellation of two of our shows.
Income from Operations
Income from operations in Las Vegas increased $1.1 million, or 7.2%,
from $15.4 million in 2004 to $16.6 million in 2005 based on increased net
revenues of $3.4 million as discussed above. Operating margins in Las Vegas
increased from 13.6% in 2004 to 14.1% in 2005.
Riviera Black Hawk
Revenues
Net revenues decreased by approximately $1.2 million, or 3.0%, from
$40.3 million in 2004 to $39.1 million in 2005. Casino revenues decreased $1.2
million, or 3.1%, from $38.8 million in 2004 and $37.6 million in 2005.
16
With the reopening of Highway 6, we expect business to return to recent
historical levels as we go forward. Over the long term, we believe that we have
the number one location in the market and that our corner will soon benefit from
the expansion of one of our competitors, providing additional garage parking and
hotel rooms to our immediate area. The extension of Main Street, currently
scheduled for completion in the first quarter of 2006, will provide easier
access to Main Street and make our parking garage the first and most convenient
parking opportunity for patrons entering the Black Hawk market by way of
Highways 6/119.
Income from Operations
Income from operations in Black Hawk, Colorado decreased $535,000, or
6.3%, from $8.5 million in 2004 to $8.0 million in 2005 primarily as a result of
the rock slide that impacted revenues as stated above. Operating margins in
Black Hawk decreased from 21.1% in 2004 to 20.4% in 2005.
Consolidated Operations
Other Income (Expense)
Interest expense decreased $418,000 due to reduced interest
associated with equipment financing. Interest expense on our $215 million 11%
Senior Secured Notes (the "11% Notes") of $17.7 million plus related
amortization of loan fees and other financing costs totaled approximately $19.3
million in 2005. Interest expense on equipment and other financing totaled
approximately $700,000 for the first nine months of 2005.
Equity compensation expense of $1.2 million in the nine months ended
September 30, 2005 is associated with restricted stock issued in 2005 to 23
directors, officers and employees which is being amortized over five years or
expensed when executives retire. Asset impairment expense of $198,000 is a
write off of costs associated with the Las Vegas Monorail extension, which may
not be developed due to various factors, including ridership requirements of
the original monorail. The Company expended $641,000 of first year
Sarbanes-Oxley related expenses in 2005.
Interest income increased $126,000 from $16,000 in 2004 to $142,000 in
2005 as a result of the higher cash balances available for investment.
Net (Loss)
Net loss decreased $481,000 from $619,000 in 2004 to $138,000 in
2005 due primarily to decreased interest expense on equipment financing and
increased interest income.
Liquidity and Capital Resources
At September 30, 2005, we had cash and cash equivalents of $26.4 million. Our
cash and cash equivalents increased $7.5 million during the first nine months of
2005, as a result of $15.3 million of cash provided by operations, $7.0 million
of cash outflow for investing activities and $ 835,000 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 Agreements 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 and
Mr. Westerman has continued 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 $4.4 million for this
purpose in a short period. We believe that cash flow from operations, combined
with the $26.4 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.
17
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 indenture governing 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, we 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 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, which could
have an adverse effect on operations.
At September 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
Statement of Financial Accounting Standards ("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.
18
SFAS No. 123(R) eliminates the intrinsic value measurement objective in
Accounting Principles Board 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 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 whether we will use the modified prospective method or elect to use
the modified retrospective method, and whether we will elect to use straight
line amortization or an accelerated method.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections," which requires retrospective application to prior periods'
financial statements of changes in accounting principles. It also requires that
the new accounting principles 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 No. 154 to have a material effect on
our consolidated financial position or results of operations.
On July 14, 2005, the 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 of 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. The proposal, if
issued, would not be effective for 2005.
19
Critical Accounting Policies
A description of our critical accounting policies and estimates can be found in
Part I, 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 of 1933, as amended, 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
and expansion 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 plans,
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 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- related costs associated with becoming an
accelerated filer as of December 31, 2005, including costs
relating to internal control evaluation and reporting;
o economic, competitive, demographic, business and other conditions
in our local and regional markets;
20
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;
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.
21
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 September 30, 2005, we had $215.6 million in borrowings. The borrowings
include $215 million (before deduction of unamortized discount) 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 September 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 9/30/05
Long-Term Debt, Including
Current Portion
Equipment loans and
capital leases - Las Vegas $ 171 $ 707 $ 751 $ 187 $ 54 $1,870 $1,870
Average interest rate 5.9% 5.9% 5.9% 5.9% 5.5%
11% Notes $215,000 $215,000 $232,200
Less unamortized Discount $(1,905) $(1,905) $(1,905)
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 $ 229 $ 831 $ 880 $ 324 $ 199 $213,095 $215,558 $232,758
Other Long-Term Liabilities,
Including Current Portions
CEO pension plan obligation $250 $1,000 $1,000 $1,000 $1,000 $ 130 $4,380 $4,380
11.8% 11.8% 11.8% 11.8% 11.8% 11.8%
Total long-term obligations $479 $1,831 $1,880 $1,324 $1,199 $213,225 $219,938 $237,138
22
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 September 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 6. Exhibits.
See list of exhibits on page 25.
23
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: November 10, 2005
24
Exhibits
Exhibits:
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.
25