Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] For the fiscal year ended December 31,
1999
[ ] Transition report pursuant to sections 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
For the transition period from to
Commission file number 000-21430
RIVIERA HOLDINGS CORPORATION
(Exact name of Registrant as specified in its charter)
Nevada 88-0296885
- ------------------------------- -------------
(State of Incorporation) (I.R.S. Employer Identification No.)
2901 Las Vegas Boulevard South
Las Vegas, Nevada 89109
- ------------------------------------------------- --------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (702) 734-5110
--------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO _____
-----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or amendment
to this Form 10-K.
Based on the average bid price for the Registrant's Common Stock as
of February 28, 2000, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was approximately $24,089,754. As of February
28, 2000 the number of outstanding shares of the Registrant's Common Stock was
3,933,021.
Documents incorporated by reference:
Page 1 of 37 Pages
Exhibit Index Appears on Page 33 hereof.
1
RIVIERA HOLDINGS CORPORATION AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
Item 1. Business................................................................................................3
General .............................................................................................3
The Riviera Hotel & Casino...........................................................................3
Riviera Black Hawk...................................................................................6
Geographical Markets.................................................................................8
Management Activities................................................................................9
Competition........................................................................................ 10
Employees and Labor Relations.......................................................................12
Regulation and Licensing............................................................................12
Federal Registration................................................................................20
Item 2. Properties.............................................................................................20
Item 3. Legal Proceedings......................................................................................21
Item 4. Submission of Matters to a Vote of Security Holders....................................................21
Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters...........................22
Item 6. Selected Financial Data................................................................................22
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..................23
Results of Operations...............................................................................23
1999 Compared to 1998...............................................................................24
1998 Compared to 1997...............................................................................26
Liquidity and Capital Resources.....................................................................27
Item 7a. Quantitative and Qualitative Disclosure about Market Risk
Year 2000 ..........................................................................................30
Forward Looking Statements..........................................................................30
Item 8. Financial Statements and Supplementary Data............................................................30
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...................30
Item 10. Directors and Executive Officers of the Registrant.....................................................30
Item 11. Executive Compensation.................................................................................30
Item 12. Principal Shareholders.................................................................................31
Item 13. Certain Relationships and Related Transactions ........................................................31
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8K.........................................31
2
PART I
Item 1. Business
General
Riviera Holdings Corporation, a Nevada corporation, (the Company) through
its wholly-owned subsidiary, Riviera Operating Corporation, a Nevada
corporation, owns and operates the Riviera Hotel & Casino (Riviera Las Vegas)
located on Las Vegas Boulevard in Las Vegas, Nevada. Opened in 1955, the Riviera
has developed a long-standing reputation for delivering high quality,
traditional Las Vegas-style gaming, entertainment and other amenities.
Riviera Holdings Corporation, through its wholly-owned subsidiary,
Rivera Black Hawk, Inc., operates a limited-stakes casino in Black Hawk,
Colorado which opened on February 4, 2000.
The Riviera Hotel & Casino
General
Riviera Las Vegas is located on the corner of Las Vegas Boulevard and
Riviera Boulevard, across from Circus Circus. Riviera Las Vegas targets slot and
mid-level table game customers with a focus on creating repeat customers and
increasing walk-in traffic. Key elements of this strategy include offering a
value-oriented experience by providing a variety of hotel rooms, restaurants and
entertainment, with some of Las Vegas' most popular shows, all at reasonable
prices.
Gaming
Riviera Las Vegas has 110,000 square feet of casino space. The casino
currently has approximately 1,520 slot machines and 46 gaming tables, including
blackjack, craps, roulette, pai gow poker, Caribbean Stud(R) poker,Let It
Ride(R) and poker. The casino also includes a keno lounge, a 200-seat race and
sports book and a 160 seat bingo parlor.
Gaming operations at Riviera Las Vegas are continually updated to
respond to both changing market conditions and customer demand in an effort to
attract new customers and encourage repeat customer business through player
tracking and database management. We maintain a slot players club, through which
members receive special promotions and targeted mailings. New and innovative
slot and table games have been introduced based on customer feedback. Management
devotes substantial time and attention to the type, location and player activity
of all its slot machines. We recently completed an extensive capital investment
program for the upgrade of our slot machines.
Our current management team redirected our business away from
high-stakes wagerers in favor of the less volatile mid-level gaming customers.
In order to effectively pursue this strategy, we made several strategic changes
including reconfiguring the casino space, installing new slot machines and bill
acceptors, reducing the number of gaming tables and eliminating baccarat. In
addition, we implemented stricter credit policies. As a result, the percentage
of table game dollar volume represented by credit play declined from
approximately 24% in 1993 to 9.1% in 1999. Also, in 1999, revenues from slots
and tables were approximately 70.5% and, 29.5% respectively, as compared to 55%
and 45%, respectively, in 1992.
During 1999, we continued a number of initiatives at Riviera Las
Vegas to increase slot play, including the replacement of older slot machines
and the employment of additional slot hosts. Slot hosts are our employees who
interact with patrons as goodwill ambassadors to generate loyalty. Our strategy
is to continue to increase slot play through marketing programs and other
improvements, including (i) our ongoing slot upgrade program, (ii) addition of
new signage, (iii) promotion of the Riviera Las Vegas Player's Club, (iv)
sponsorship of slot tournaments, (v) creation of promotional programs, (vi)
marketing of the "World's Loosest Corner of Slots" and "$40 for $20(R)" slot
promotions, and (vii) "Nickel Town(R)". At the end of 1997, we opened Nickel
Town on the corner of Las Vegas Boulevard and Riviera Boulevard at the crosswalk
from Circus Circus and the local Las Vegas Boulevard bus stop. Nickel Town is
comprised primarily of nickel slot machines, the fastest growing segment of the
Las Vegas slot market.
Casino segment revenues were $74,086,000, $77,676,000, and
$71,624,000 in 1999, 1998 and 1997, respectively.
3
Hotel
Riviera Las Vegas' hotel is comprised of five hotel towers with
approximately 2,100 guest rooms, including 169 suites. Built in 1955 as part of
the original casino/hotel, the nine-story North Tower features 391 rooms and 11
suites. In 1967, the 12-story South Tower was built with 147 rooms and 31
suites. Another 220 rooms and 72 suites, including penthouse suites, were added
to the property through the construction of the 17-story Monte Carlo Tower in
1974. In 1977, the six-story San Remo Tower added 243 rooms and six suites to
the south side of the resort. The most recent phase of hotel expansion was
completed in 1988 upon the opening of the 930 room, 49 suite, 24-story Monaco
Tower. By the end of 1999 we completed refurbishment of all of our approximately
2,100 hotel rooms except for 65 one-bedroom suites in the Monte Carlo Building
which are in the process of being remodeled and will be completed by the end of
the second quarter 2000. Despite the significant increase in rooms on the Las
Vegas Strip in the last three years, we believe Riviera Las Vegas has attained
room occupancy rates that are among the highest on the Las Vegas Strip with
97.5% for 1994, 97.0% for 1995, 98.2% for 1996, 95.7% for 1997, 95.2% for 1998
and 97.5 % in 1999 (based on available rooms). The average occupancy rate
citywide was 88.0% in 1999 according to the Las Vegas Convention and Visitors
Authority.
Rooms segment revenues were $35,947,000, $35,513,000 and $38,190,000
in 1999, 1998 and 1997, respectively.
Restaurants
The quality, value and variety of food services are critical to
attracting Las Vegas visitors. Riviera Las Vegas offers five bars and five
restaurants and serves an average of approximately 5,900 meals per day,
including banquets and room service. The following table outlines, for each
restaurant, the type of service provided and total seating capacity:
Seating Capacity
Name Type
Kady's Coffee Shop 290
Kristofer's Steak and Seafood 162
Rik' Shaw Chinese 124
Ristorante Italiano Italian 126
World's Fare Buffet All-you-can-eat 432
---
1,134
In addition, Riviera Las Vegas operates a snack bar and continental
breakfast buffet as well as a fast food court operated by a third party. The
food court has 200 seats and several fast-food restaurants.
Food and beverage segment revenues were $18,081,000, $16,818,000 and
$15,550,000 in 1999, 1998 and 1997, respectively.
Convention Center
Riviera Las Vegas features 160,000 square feet of convention, meeting
and banquet space. The convention center is one of the largest in Las Vegas and
is an important feature that attracts customers. The facility can be
reconfigured for multiple meetings of small groups or large gatherings of up to
5,000 people. Riviera Las Vegas hosts approximately 200 conventions per year.
The hotel currently has over 650,000 convention related advance bookings of
rooms through 2003 consisting of approximately 458,000 definite bookings and
approximately 192,000 tentative bookings. In 1999 approximately 23% of the rooms
were occupied for conventions and management estimates that 30% of its rooms
will be occupied for conventions in 2000.
In February 1999 we expanded our convention center from 100,000
square feet to 160,000 with the addition of the Royal Pavilion. The new expanded
facilities include new, state-of-the-art convention, meeting and banquet
facilities, teleconferencing and satellite uplink capability, 12 skyboxes and
66,000 square feet of additional parking. The new facilities connect to the
existing convention facility and the main hotel buildings to form one integrated
structure.
4
Entertainment
Riviera Las Vegas has one of the most extensive entertainment
programs in Las Vegas, offering four different regularly scheduled shows and
special appearances by headline entertainers in concert. We believe
entertainment provides an attractive marketing tool to attract customers to the
Riviera. Riviera Las Vegas' entertainment program includes such well received
shows as Splash(R) (a variety show)which opened a new more spectacular version
at the end of 1999, An Evening at La Cage(R) (a female impersonation show),
Crazy Girls(R) (an adult revue) as well as featured comedians at the Riviera
Comedy Club. We update our shows continually in response to customer surveys and
to keep them fresh. Tickets for the shows are offered at reasonable prices in
keeping with our emphasis on mid-level customers. The readers of the Las Vegas
Review Journal voted the Riviera Comedy Club the number one comedy club in Las
Vegas and the Crazy Girls bronze sculpture in front of the Hotel as the best
visitor photo opportunity in Las Vegas in the most recently released "Best of
Las Vegas" readers' survey.
Other entertainment includes the 200-seat Le Bistro entertainment
lounge located in the casino, which offers live performances every night. In
addition, Riviera Las Vegas presents major concerts which since 1997 have
included performers such as The Beach Boys, Billy Ray Cyrus, Rich Little, Drew
Carey, and Damon Wayans. We believe the recently completed Royale Pavilion will
enable us to increase attendance at special events since, in the past, the then
existing facilities could not accommodate the demand for tickets.
We believe that our substantial entertainment revenue is attributable
to the popularity of the in-house productions supplemented by focused marketing
and consistent advertising messages.
Entertainment segment revenues (which exclude complimentary revenues)
were $18,346,000, $18,793,000 and $17,873,000 in 1999, 1998 and 1997,
respectively. Complimentaries are rooms, food, beverage and other items that are
offered as an incentive to customers to patronize our casino.
"All Other" segment revenues, derived primarily from telephone
revenue, sales of retail merchandise and store rentals totaled $11,713,000,
$11,155,000, and $10,556,000 in 1999, 1998 and 1997, respectively.
Future Expansions
We are exploring the possible development of an approximately 60,000
square-foot domed shopping center and entertainment complex to be constructed
directly over the casino which will contain stores and entertainment that will
appeal to the Riviera Las Vegas's main target audience, adults aged 45 to 65.
The exit from the complex would be by an escalator which will deliver patrons to
the casino. We would require partners to finance, develop and operate the
entertainment attraction and retail stores. To date no such partners have been
identified.
We are exploring a number of options for the development of our
existing 26 acre site. These options include a joint venture for the development
of a time-share condominium tower or an additional hotel tower and parking
garage. Under the terms of our $175 million Bond Indenture, we could contribute
up to 6 acres of land to such projects and if we decide to develop a time share
tower a third party would construct and sell time-share units and arrange
financing. We believe that additional rooms adjacent to the Las Vegas Convention
Center would be particularly attractive to business customers and would provide
a base for additional casinos customers. The development of a time-share tower
or parking facility would require additional financing and, in the case of the
time-share tower, a joint venture partner, none of which we have in place at
this time.
Marketing Strategies-Las Vegas
We have developed a marketing program intended to develop a loyal
following of repeat slot and mid-level table game customers. We believe we have
been able to successfully attract these patrons using Riviera Las Vegas's
restaurants, hotel accommodations and entertainment and by focusing on customer
service. We have adopted a selective approach to the extension of credit to
these customers in order to reduce volatility of operating results. We use our
research data to tailor promotional offers to the specific tastes of targeted
customers. All slot and table players are encouraged to join the Riviera Las
Vegas Player's Club and to fill out surveys that provide us with personal
information and preferences and tracks their level of play. Members of the
Riviera Las Vegas Player's Club earn bonus points based upon their level of
play, redeemable for free gifts, complimentary services or cash rebates.
Promotional offers are made to qualifying customers through direct mail and
telemarketing.
5
Riviera Las Vegas will continue to emphasize marketing programs that
appeal to slot and mid-level table game customers with a focus on creating
repeat customers and increasing walk-in traffic. In addition, a key marketing
focus is maintaining and expanding Riviera Las Vegas's core conventioneer
customer base. In developing an overall marketing program, we conduct extensive,
ongoing research of our target customers' preferences through surveys,
one-on-one interviews and focus groups.
Create Repeat Customers
Generating customer loyalty is a critical component of our business
strategy as retaining customers is less expensive than attracting new ones. We
have developed a focused and coordinated marketing program intended to develop a
loyal customer base which emphasizes (i) providing a high level of service to
our customers to ensure an enjoyable experience while at the Riviera Las Vegas,
(ii) responding to customer surveys and (iii) focusing marketing efforts and
promotional programs on customers with positive gaming profiles. We use our
research data to tailor promotional offers to the specific tastes of targeted
customers. All slot and table players are encouraged to join the Riviera Las
Vegas Player's Club which tracks their level of play, and to fill out surveys
that provide the Riviera Las Vegas with personal information and preferences.
Members of the Riviera Las Vegas Player's Club earn bonus points based upon
their level of play, redeemable for free gifts, complimentary services or cash
rebates. Promotional offers are made to qualifying customers through direct mail
and telemarketing. We design promotional offers targeted at certain mid-level
gaming patrons that are expected to provide significant revenues based upon
their historical gaming patterns. We contact these customers through a
combination of direct mail and telemarketing by an in-house marketing staff and
independent representatives located in major cities. Riviera Las Vegas uses a
proprietary database which is linked to our player tracking system to help
identify customers' requirements and preferences; thereby allowing Riviera Las
Vegas to customize promotions to attract repeat visitors. We offer customers
personalized service, credit availability and access to a variety of
complimentary or reduced-rate room, dinner and entertainment reservations. We
use a specialized multi-tiered marketing approach to attract customers in each
of our major markets. Slot and table game tournaments and special events are
designed for specific levels of play. Utilizing our proprietary database our
marketing department then targets and invites the customers most appropriate for
the customized events. In addition, we host an array of special events,
including slot and table tournaments, designed to attract customers for an
extended stay. We have found that this individualized marketing approach has
provided significant revenues and profitable repeat business.
Provide Extensive Entertainment Options
We also focus on attracting our guests through a range of
entertainment opportunities. Riviera Las Vegas has one of the most extensive
entertainment programs in Las Vegas with four different regularly scheduled
shows and special appearances by headline entertainers. In addition to providing
a positive impact on our profitability, the shows attract additional gaming
revenue. Surveys indicate that approximately 80% of the show patrons come from
outside the hotel and approximately 66% of these individuals gamble at Riviera
Las Vegas before or after the shows.
Attract Walk-In Traffic
We seek to maximize the number of people who patronize the Riviera
Las Vegas that are not guests in the hotel by capitalizing on Riviera Las
Vegas's prime Strip location, convention center proximity and the Riviera's
several popular in-house productions. Riviera Las Vegas is well situated on the
Las Vegas Strip near Circus Circus, Stardust Hotel & Casino, Westward Ho Casino
& Hotel, Sahara Hotel & Casino, Las Vegas Hilton and the Las Vegas Convention
Center. We strive to attract customers from those facilities, as well as
capitalize on the visitors in Las Vegas in general, with the goal of increasing
walk-in traffic by (i) the development and promotion of Nickel Town, (ii)
providing a variety of quality, value-priced entertainment and dining options,
and (iii) promoting the "World's Loosest Corner of Slots," the "Free Pull" and
the "$40 for $20" slot promotions, and placing them inside the casino.
Focus on Convention Customers
This market consists of two groups: (i) those trade organizations and
groups that hold their events in the banquet and meeting space provided by a
single hotel and (ii) those attending city-wide events, usually held at the Las
Vegas Convention Center. Riviera Las Vegas targets convention business because
it typically provides patrons willing to pay higher room rates and we are able
to provide certain advance planning benefits, since conventions are usually
6
booked two years in advance of the event date. We focus our marketing efforts on
conventions whose participants have the most active gaming profile and higher
room rate, banquet and function spending habits. Riviera Las Vegas also benefits
from our proximity to the Las Vegas Convention Center which makes us attractive
to city-wide conventioneers looking to avoid the congestion that occurs during a
major convention, particularly at the south end of the Las Vegas Strip. In 1999
we derived approximately 22.7% of our hotel occupancy from convention customers
and consider them a critical component of our customer base. We believe that the
recently completed expansion of the Riviera Las Vegas's convention facility from
100,000 to 160,000 square feet will accommodate the growth in the size and
number of groups that presently use the facility, attract new convention groups
and increase the percentage of rooms occupied by conventioneers.
Tour and Travel Operators
We have found that many of our customers use tour and travel
"package" options to reduce the cost of travel, lodging and entertainment. These
packages are produced by wholesale operators and travel agents and emphasize
mid-week stays. Tour and travel patrons often book at off-peak periods enabling
us to maintain occupancy rates at the highest levels throughout the year. We
have developed specialized marketing programs and cultivated relationships with
wholesale operators, travel agents and major domestic air carriers to expand
this market. Our four largest tour and travel operators currently account for
approximately 500 of the available 2,100 room bookings per night. We make an
effort to convert many tour and travel customers who meet our target customer
gaming profile into repeat slot customers.
Riviera Black Hawk
Business
Our wholly-owned subsidiary, Riviera Black Hawk, opened on February
4, 2000. Located in Black Hawk, Colorado, approximately 40 miles west of Denver,
our casino is one of the first three encountered when traveling from Denver to
the adjacent gaming cities of Black Hawk and Central City. Our casino features
the third largest number of gaming devices in the market with approximately
1,000 slot machines and 12 blackjack tables. In Colorado, each slot machine and
each table game is considered one gaming device.
We also offer a variety of non-gaming amenities designed to further
differentiate our casino including:
o parking for 520 vehicles, of which 92% are covered, with convenient and
free self-park and valet options;
o a 265-seat casual dining restaurant;
o two themed bars; and
o an entertainment center with seating for approximately 500 people.
The initial participants in this market were small, privately held
gaming facilities whose inability to offer convenient parking and a full range
of traditional casino amenities limited the growth of this market. Subsequently,
larger casinos offering such amenities have entered the market, have been
gaining market share and have contributed to the consistent growth in the
overall market. As of December 31, 1999, there were 30 casinos in the Black
Hawk/Central City market, with eight casinos each offering more than 400 gaming
devices. Isle of Capri, located across the street from our casino with
approximately 1,100 gaming machines and 1,000 covered parking spaces, has been
the market leader in terms of win per gaming device.
Marketing strategy
We plan to attract customers to our casino by implementing marketing
strategies and promotions designed specifically for this market. In doing so, we
hope to create customer loyalty and benefit from repeat visits by our customers.
Specific marketing programs to support this strategy include the Riviera Black
Hawk Player's Club and "V.I.P." services offered to repeat gaming customers. The
Riviera Black Hawk Player's Club is a promotion that rewards casino play and
repeat visits to the casino with various privileges and amenities such as cash
7
bonuses, logo gift items and invitations to special events, including free slot
tournaments and parties. We have used the Player's Club promotion in our casino
in Las Vegas and, in our capacity as manager of the Riviera Black Hawk, are
tailoring it for the Black Hawk/Central City market to implement at our casino.
"V.I.P." services are available to the highest level of players and include
special valet and self-parking services, complimentary food and entertainment
offerings and special events specifically designed for this group of customers.
We believe that we will benefit from strong "walk-in" traffic due to
the proximity of our casino to the Colorado Central Station and the Isle of
Capri Casino. We intend to develop specific marketing programs designed to
attract these "walk-in" customers. We emphasize quality food and beverage
amenities with customer friendly service as a marketing tool. In addition, we
will provide entertainment programs designed to meet the tastes of the Black
Hawk/Central City market, such as live music performances by popular regional
and national groups.
We will utilize proven database marketing techniques previously
implemented by our casino in Las Vegas. We plan to rely on database marketing in
order to best identify target customer segments of the population and to tailor
the casino's promotions and amenities to our core group of customers. We will
use the current database maintained by Riviera Las Vegas to identify and
stratify slot players living in Colorado for appropriate incentives.
Approximately 7,500 of these slot players have been identified as of December
31, 1999. In addition, we will promote our casino by advertising in newspapers
and on billboards in the local areas.
Geographical Markets
The Las Vegas Market
Las Vegas is one of the largest and fastest growing entertainment
markets in the country. According to the Las Vegas Convention and Visitors
Authority, the number of visitors traveling to Las Vegas has increased at a
steady and significant rate for the last thirteen years from 15.2 million in
1986 to an estimated 34 million in 1999, a compound annual growth rate of 12.4%.
Clark County gaming has continued to be a strong and growing business with Clark
County gaming revenues increasing at a compound annual growth rate of 8.8% from
$2.4 billion in 1986 to $7.2 billion in 1999.
Gaming and tourism are the major attractions of Las Vegas,
complemented by warm weather and the availability of many year-round
recreational activities. Although Las Vegas' principal markets are the western
region of the United States, most significantly Southern California and Arizona,
Las Vegas also serves as a destination resort for visitors from all over the
world. A significant percentage of visitors originate from Latin America and
Pacific Rim countries such as Japan, Taiwan, Hong Kong and Singapore.
Historically, Las Vegas has had one of the strongest hotel markets in
the country. The number of hotel and motel rooms in Las Vegas has increased by
over 79% from approximately 67,000 at the end of 1989 to 120,300 at the end of
1999, giving Las Vegas the most hotel and motel rooms of any metropolitan area
in the country. Despite this significant increase in the supply of rooms, the
Las Vegas hotel occupancy rate exceeded 85% for each of the years from 1993
through 1999. Since January 1, 1999 approximately 10,900 new hotel rooms opened,
and as of December 31, 1999 there were 4,300 hotel rooms under construction. The
new rooms are primarily being designed to attract the high-end gaming and
convention customers, and based on construction costs, should be priced at rates
well above those which have been or need to be charged by Riviera Las Vegas
based on the investment in our facility.
We believe that the growth in the Las Vegas market has been enhanced
as a result of (i) a dedicated program by the Las Vegas Convention and Visitors
Authority and major Las Vegas casino/hotels to promote Las Vegas as a major
convention site, (ii) the increased capacity of McCarran Airport and (iii) the
introduction of large themed "must see" destination resorts in Las Vegas. In
1988, approximately 1.7 million delegates attended conventions in Las Vegas and
generated approximately $1.3 billion of economic impact. In 1999, the number of
convention delegates had increased to 3.8 million with in excess of $4 billion
of economic impact.
During the past six years, McCarran Airport has expanded its
facilities to accommodate the increased number of airlines and passengers which
it services. The number of passengers traveling through McCarran Airport has
increased from approximately 22.5 million in 1993 to an estimated 33.6 million
in 1999. Construction has recently been completed on numerous roadway
enhancements to improve access to the Airport. An additional runway has also
been completed. The Airport has additional long-term expansion plans underway
which will provide three new satellite concourses, 60 additional gates and other
facilities.
8
The Black Hawk/Central City Market
Gaming was first introduced to the Black Hawk/Central City market in
October 1991 following a state-wide referendum where Colorado voters approved
limited stakes gaming for three historic mining towns - Black Hawk, Central City
and Cripple Creek. Limited stakes gaming is defined as a maximum single bet of
$5. Black Hawk and Central City are contiguous cities located approximately 40
miles west of Denver and about ten miles north of Interstate Highway 70, the
main east-west artery from Denver. Historically, these two gold mining
communities were popular tourist towns. However, since the inception of casino
gaming in October 1991, many of the former tourist-related businesses have been
displaced by gaming establishments.
The first casino in the Black Hawk/Central City market was opened in
October 1991 with 14 casinos open by the end of that year. The pace of expansion
increased further in 1992 with the number of casinos in the market peaking at 42
casinos. However, due to a trend of consolidation in the market and the
displacement of small casinos by the entry of larger, better capitalized
operators, the number of casinos has declined to 30 as of December 31, 1999.
The Black Hawk/Central City market primarily caters to "day-trip"
customers from Denver, Boulder, Fort Collins and Golden as well as Cheyenne,
Wyoming. An estimated adult population exceeding 2.3 million people reside
within this 100-mile radius of Black Hawk. In addition, residents within a 100
mile radius of the City of Black Hawk had an estimated average household income
in excess of $50,000 per annum in 1999..
Since 1992, the number of gaming devices in the Black Hawk/Central
City market has grown approximately 33.9% from 7,252 devices in 1992 to 9,711
devices in 1999. The total number of slot machines has increased 34.9% since
1992 to 9,555 in 1999 while the total number of tables in the market has
decreased with 156 tables in the market at the end of 1999. Win per gaming
device per day has continued to grow despite the increase in the number of
gaming devices.
The City of Black Hawk has experienced more significant growth in
gaming revenues than Central City since 1992. The popularity of Black Hawk in
comparison to Central City is due primarily to Black Hawk's superior access to
major highways, as patrons must first pass through Black Hawk to access Central
City from Denver. Due to this superior location, larger casino operators have
focused on building in the City of Black Hawk. As a result, casinos in Black
Hawk now generally feature a larger average number of gaming devices, a wider
variety of amenities and convenient free parking for patrons. These factors have
contributed to growth in Black Hawk gaming revenues at a compound annual rate of
29.1% since 1992 compared to a more moderate growth for Central City of 5% over
the same period. The number of slot machines and tables in the City of Black
Hawk have increased 119.5% and 41.0%, respectively since 1992, while the number
of slot machines and tables in Central City have declined 39.5% and 57.1%,
respectively over the same period.
The City of Black Hawk experienced a 30.5% increase in gaming revenue
in 1999, the greatest of any gaming venue in the United States.
Management Activities
In order to capitalize on our expertise and reputation as successful
operators of casino properties, we formed Riviera Gaming Management, Inc., our
wholly-owned subsidiary, for the primary purpose of obtaining casino management
contracts in Nevada and other jurisdictions. Riviera Gaming Management provides
services such as assisting new venue licensee applicants in designing and
planning their gaming operations and managing the start-up of new gaming
operations. These services include casino design, equipment selection, employee
recruitment and training, control and accounting systems development and
marketing programs. We believe that management contracts provide high margin
income with limited additional overhead and little or no capital expenditure
requirements. We are continually evaluating opportunities to manage other
casinos/hotels. Our objective is to obtain the right to a substantial equity
position in projects we would manage as part of the compensation for our
services.
Four Queens Management Agreement
Riviera Gaming Management-Elsinore, Inc., our indirect wholly-owned
subsidiary, operated the Four Queens Hotel and Casino, located adjacent to the
Golden Nugget on Fremont Street in Downtown Las Vegas, pursuant to a Management
Agreement effective as of February 27, 1997. This agreement terminated on
December 30, 1999.
9
Other Management Opportunities
We are continuously reviewing opportunities to expand and become a
multi-jurisdictional casino company with greater capital resources to enable us
to compete more effectively. The jurisdictions include, but are not limited to,
Mississippi, Pennsylvania and Iowa. We may also become involved in financially
distressed casino properties where we believe we may be able to effect a
turn-around (similar to that which we achieved at Riviera Las Vegas) and can
obtain a significant equity stake. On September 29, 1999, Riviera Gaming
Management entered into an agreement with Peninsula Gaming LLC to provide
consulting services to Diamond Jo's Riverboat Casino in Dubuque, Iowa.
Competition
Las Vegas, Nevada
Intense competition exists among companies in the gaming industry,
many of which have significantly greater resources than us. Riviera Las Vegas
faces competition from all other casinos and hotels in the Las Vegas area. We
believe that our most direct competition comes from certain large casino/hotels
located on or near the Las Vegas Strip which offer amenities and marketing
programs similar to those offered by the Riviera Las Vegas.
At December 31, 1999, the Las Vegas Convention and Visitors Authority
indicated that there were 34 operational casinos on the Las Vegas Strip. Of
these Las Vegas Strip casinos, 24 casinos had over 1,000 available hotel rooms.
Riviera Las Vegas is ranked as the 20th largest Las Vegas Strip hotel/casino,
based upon number of available hotel rooms.
Las Vegas gaming square footage and room capacity are continuing to
grow and are expected to continue to increase significantly during the next
several years.
Since January 1, 1999 approximately 10,900 new hotel rooms opened,
and as of December 31, 1999 there were approximately 4,300 hotel rooms under
construction. Existing and future expansions, additions and enhancements to
existing properties and construction of new properties by our competitors could
divert additional business from the our facilities. There can be no assurance
that we will compete successfully in the Las Vegas market in the future.
During 1999, available room nights in the Las Vegas market increased
from 39.9 million to 43.9 million or 10%, while total room nights occupied
increased from 33.4 million to an estimated 37.4 million, or 12%. The ending
room inventory at December 31, 1999 was 120,294 compared to 109,365 at December
31, 1998, an increase of 10,929 rooms or 9.9 %. This has had the effect of
intensifying competition. At Riviera Las Vegas, room occupancy increased from
95.2% in 1998 to 97.5% in 1999 (still much higher than the Las Vegas Strip
average). However room rates decreased by $1.04, or 1.9% from $54.82 in 1998 to
$53.78 in 1999.
We also compete to some extent with casinos in other states,
riverboat and Native American gaming ventures, state-sponsored lotteries, on-
and off-track wagering, card parlors and other forms of legalized gaming in the
United States, as well as with gaming on cruise ships and international gaming
operations. In addition, certain states have recently legalized or are
considering legalizing casino gaming in specific geographical areas within those
states. Any future development of casinos, lotteries or other forms of gaming in
other states, particularly areas close to Nevada, such as California, could have
a material adverse effect on our result of operations.
The number of casinos on Indian lands has increased since the
enactment of the Indian Gaming Regulatory Act of 1988. The voters in the State
of California addressed this issue on March 7, 2000 when they voted in favor of
Proposition 1A, an amendment to the California State constitution that allows
Las Vegas-style gambling on Indian lands in the state. While new gaming
jurisdictions have traditionally not materially impacted Las Vegas, the
potential expansion of gaming into California poses a more serious threat to the
continued growth of Las Vegas.
Our current business is highly dependent on gaming in Las Vegas.
Riviera Las Vegas derives a substantial percentage of its business from
tourists, principally from Southern California and the southwestern United
States. Weakness in the economy of Southern California has in the past, and
could in the future, adversely affect our financial results.
10
Black Hawk, Colorado
The Black Hawk/Central City gaming market is characterized by intense
competition. The primary competitive factors in the market are location,
availability and convenience of parking, number of slot machines and gaming
tables, types and pricing of non-gaming amenities, name recognition and overall
atmosphere. Our main competitors are the larger gaming facilities, particularly
those with considerable on-site or nearby parking and established reputations in
the local market. As of December 31, 1999 there were 19 gaming facilities in the
Black Hawk market with seven casinos each offering more than 400 gaming
positions. Construction has also begun on the "Mardi Gras" casino due to open in
March 2000, which is expected to feature over 600 slot machines, and on a hotel
addition to the casino of one of our principal competitors. Other projects have
also been announced, proposed, discussed or rumored for the Black Hawk/Central
City market.
We expect that the gaming facilities near the intersection of Main
and Mill Streets will provide significant competition to our casino. Colorado
Central Station, which has been the most successful casino in Colorado, is
located across the street from our casino and has approximately 700 slot
machines, 20 gaming tables and approximately 700 valet parking spaces. The Isle
of Capri Casino, operated by Casino America, which opened in December 1998, is
located directly across the street from our casino and features approximately
1,100 slot machines, 14 table games and 1,100 parking spaces, and had an
extremely successful first year of operation.
The number of hotel rooms currently in the Black Hawk/Central City
market is approximately 170, with only two gaming facilities providing hotel
accommodations to patrons. These include Harvey's Wagon Wheel Casino Hotel with
approximately 120 rooms and the Lodge at Black Hawk with approximately 50 rooms.
In addition, the Isle of Capri Casino began construction in 1999 of an
approximately 235 room hotel on top of its recently completed casino. Casinos
offering hotel accommodations for overnight stay may have a competitive
advantage over our casino. However, we believe that self-parking is a more
effective utilization of our available space and that providing hotel
accommodations will not be a significant factor, but instead will contribute to
growth in the overall market.
Historically, the city of Black Hawk has enjoyed an advantage over
Central City because customers have to drive through Black Hawk to reach Central
City. Central City has proposed the development of a road directly connecting
Central City and Black Hawk with Interstate 70 which would allow customers to
reach Central City without driving by or through Black Hawk. There remain
significant financial and legal obstacles to the development of this road and it
is uncertain whether it will be developed over the near to intermediate term, or
developed at all.
Currently, limited stakes gaming in Colorado is constitutionally
authorized in Central City, Black Hawk, Cripple Creek and two Native American
reservations in southwest Colorado. However, gaming could be approved in other
Colorado communities in the future. The legalization of gaming closer to Denver
would likely have a material adverse effect on our future results of operations.
We also compete with other forms of gaming in Colorado, including lottery
gaming, and horse and dog racing as well as other forms of entertainment.
It is also possible that new forms of gaming could compete with our
casino. Currently, Colorado law does not authorize video lottery terminals.
However, Colorado law permits the legislature, with executive approval, to
authorize new types of lottery gaming, such as video lottery terminals. Video
lottery terminals are games of chance, similar to slot machines, in which the
player pushes a button that causes a random set of numbers or characters to be
displayed on a video screen. The player may be awarded a ticket, which can be
exchanged for cash or credit play. This form of gaming could compete with slot
machine gaming.
Pursuant to a license agreement, license the use at the Black Hawk
casino of all of the trademarks, service marks and logos used by Riviera Las
Vegas. In addition, the license agreement provides that additional trademarks,
service marks and logos acquired or developed by us and used at our other
facilities will be subject to the license agreement.
11
Employees and Labor Relations
Riviera Las Vegas
As of December 31, 1999 Riviera Las Vegas had approximately 1,922
full time equivalent employees and had collective bargaining contracts with
eight unions covering approximately 1,092 of such employees including food and
beverage employees, rooms department employees, carpenters, engineers, stage
hands, musicians, electricians, painters and teamsters. Our agreements with the
Southern Nevada Culinary and Bartenders Union and Stage Hands Union, which cover
the majority of our unionized employees, were renegotiated in 1998 and expire in
the year 2002. Collective Bargaining Agreements with the Operating Engineers and
Musicians expired in 1999. The Agreements with the Carpenters and Painters will
expire in 2000. The Operating Engineers approved a new agreement that expires in
the year 2004. We are currently in negotiations with the Musicians Union. On
June 15,1999, the hard count workers (employees who collect and count the coins
and tokens from slot machines) voted to join the Teamsters Union. This group
totaled seven at the time of the vote. We are currently negotiating a Teamsters
Agreement with the Hard Count workers that is separate to our Teamster
Agreements. A new agreement was negotiated with the Teamsters and Electricians
and expire in 2003 and 2004 respectively. Although unions have been active in
Las Vegas, we consider our employee relations to be satisfactory. There can be
no assurance, however, that new agreements will be reached without union action
or will be on terms satisfactory to us.
Riviera Black Hawk
Riviera Black Hawk opened on February 4, 2000 with approximately 450
employees and plans to maintain that employee level. The Black Hawk/Central City
labor market is very competitive. Riviera Black Hawk believes that it will be
able to maintain its current employee level. There can be no assurance, however,
that new and existing casinos will not affect Riviera Black Hawk's ability to
maintain its current employee level.
There are currently no collective bargaining agreements in Black Hawk casinos.
Regulation and Licensing
Nevada
Nevada Gaming Authority
The ownership and operation of casino gaming facilities in Nevada are
subject to: (i) The Nevada Gaming Control Act and the regulations promulgated
thereunder (collectively the "Nevada Act") and (ii) various local ordinances and
regulations. Our gaming operations are subject to the licensing and regulatory
control of the Nevada Commission, the Nevada Board, the Clark County Board, and
during 1999, the City of Las Vegas. The Nevada Commission, the Nevada Board, the
Clark County Board and the City of Las Vegas are collectively referred to as the
"Nevada Gaming Authorities."
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time and in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping and requiring the filing of periodic
reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and
fraudulent practices; and (v) providing a source of state and local revenues
through taxation and licensing fees. Change in such laws, regulations and
procedures could have an adverse effect on our gaming operations.
Riviera Operating Corporation is required to be licensed by the
Nevada Gaming Authorities. The gaming license held by Riviera Operating
Corporation requires the periodic payment of fees and taxes and is not
transferable. Riviera Operating Corporation is also licensed as a manufacturer
and distributor of gaming devices. Such licenses also require the periodic
payment of fees and are not transferable. We are registered by the Nevada
Commission as a publicly traded corporation (a "Registered Corporation") and
have been found suitable to own the stock of Riviera Operating Corporation.
Riviera Operating Corporation is also registered by the Nevada Commission as an
intermediary company and has been found suitable to own the stock of Riviera
Gaming Management which has been registered by the Nevada Commission as an
Intermediary company and has been found suitable to own the stock of its
subsidiary Riviera Gaming Management Elsinore. Riviera Gaming Management
12
Elsinore was licensed as the manager of the Four Queens. Riviera Operating
Corporation is, and Riviera Gaming Management Elsinore was corporate licensee
("Corporate Licensee") under the terms of the Nevada Act. As a Registered
Corporation, we are required periodically to submit detailed financial and
operating reports to the Nevada Commission and to furnish any other information
which the Nevada Commission may require. No person may become a stockholder of,
or receive any percentage of profits from, a Corporate Licensee without first
obtaining licenses and approvals from the Nevada Gaming Authorities. We and
Riviera Operating Corporation have obtained, and Riviera Gaming Management and
Riviera Gaming Management Elsinore previously obtained from the Nevada Gaming
Authorities the various registrations, approvals, permits, findings of
suitability and licenses required in order to engage in gaming activities and
manufacturing and distribution activities in Nevada. The management agreement
for Riviera Gaming Management Elsinore to manage the Four Queens terminated
effective December 30, 1999 and therefore the registration and license of
Riviera Gaming Management are no longer in effect after that date.
All gaming devices that are manufactured, sold or distributed for use
or play in Nevada, or for distribution outside of Nevada, must be manufactured
by licensed manufacturers, distributed or sold by licensed distributors and
approved by the Nevada Commission. The approval process includes rigorous
testing by the Nevada Board, a field trial and a determination as to whether the
gaming device meets strict technical standards that are set forth in the
regulations of the Nevada Gaming Authorities. Associated equipment must be
administratively approved by the Chairman of the Nevada Board before it is
distributed for use in Nevada.
The Nevada Gaming Authorities may investigate any individual who has
a material relationship to, or material involvement with us or Riviera Operating
Corporation in order to determine whether such individual is suitable or should
be licensed as a business associate of a gaming licensee. Officers, directors
and certain key employees of Riviera Operating Corporation must file
applications with the Nevada Gaming Authorities and may be required to be
licensed or found suitable by the Nevada Gaming Authorities. Our officers,
directors and key employees who are actively and directly involved in the gaming
activities of Riviera Operating Corporation may be required to be licensed or
found suitable by the Nevada Gaming Authorities. The Nevada Gaming Authorities
may deny an application for licensing for any cause which they deem reasonable.
A finding of suitability is comparable to licensing, and both require submission
of detailed personal and financial information followed by a thorough
investigation. The applicant for licensing or a finding of suitability must pay
all the costs of the investigation. Any change in a corporate position by a
licensed person must be reported to the Nevada Gaming Authorities and, in
addition to their authority to deny an application for a finding of suitability
or licensure, the Nevada Gaming Authorities have jurisdiction to disapprove a
change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director or
key employee unsuitable for licensing or unsuitable to continue having a
relationship with us orRiviera Operating Corporation, the companies involved
would have to sever all relationships with such person. In addition, the Nevada
Commission may require us or Riviera Operating Corporation to terminate the
employment of any person who refuses to file appropriate applications.
Determinations of suitability or of questions pertaining to licensing are not
subject to judicial review in Nevada.
We and Riviera Operating Corporation are required to submit detailed
financial and operating reports to the Nevada Commission. Substantially all
material loans, leases, sales of securities and similar financing transactions
by Riviera Operating Corporation must be reported to or approved by the Nevada
Commission.
If it were determined that the Nevada Act was violated by Riviera
Operating Corporation the gaming license it holds could be limited, conditioned,
suspended or revoked, subject to compliance with certain statutory and
regulatory procedures. In addition, we or Riviera Operating Corporation and the
persons involved could be subject to substantial fines for each separate
violation of the Nevada Act at the discretion of the Nevada Commission. Further,
a supervisor could be appointed by the Nevada Commission to operate the casino
and, under certain circumstances, earnings generated during the supervisor's
appointment (except for reasonable rental value of the casino) could be
forfeited to the State of Nevada. Limitation, conditioning or suspension of the
gaming license of Riviera Operating Corporation or the appointment of a
supervisor could (and revocation of any gaming license would) materially
adversely affect our gaming operations.
Any beneficial holder of our voting securities, regardless of the
number of shares owned, may be required to file an application, be investigated,
and have his suitability as a beneficial holder of our voting securities
determined if the Nevada Commission has reason to believe that such ownership
would otherwise be inconsistent with the declared policies of the State of
Nevada. The applicant must pay all costs of investigation incurred by the Nevada
Gaming Authorities in conducting any such investigation.
13
The Nevada Act requires any person who acquires more than 5% of a
Registered Corporation's voting securities to report the acquisition to the
Nevada Commission. The Nevada Act requires that beneficial owners of more than
10% of a Registered Corporation's voting securities apply to the Nevada
Commission for a finding of suitability within thirty days after the Chairman of
the Nevada Board mails the written notice requiring such filing. Under certain
circumstances, an "institutional investor," as defined in the Nevada Act, which
acquires more than 10%, but not more than 15%, of a Registered Corporation's
voting securities may apply to the Nevada Commission for a waiver of such
finding of suitability if such institutional investor holds the voting
securities for investment purposes only. An institutional investor shall not be
deemed to hold voting securities for investment purposes unless the voting
securities were acquired and are held in the ordinary course of business as an
institutional investor and not for the purpose of causing, directly or
indirectly, the election of a majority of the members of the board of directors
of the Registered Corporation, any change in the corporate charter, bylaws,
management, policies or operations of the Registered Corporation, or any of its
gaming affiliates, or any other action which the Nevada Commission finds to be
inconsistent with holding the Registered Corporation's voting securities for
investment purposes only. Activities which are deemed to be consistent with
holding voting securities for investment purposes only include: (i) voting on
all matters voted on by stockholders; (ii) making financial and other inquiries
of management of the type normally made by securities analysts for informational
purposes and not to cause a change in its management, policies or operations;
and (iii) such other activities as the Nevada Commission may determine to be
consistent with such investment intent. If the beneficial holder of voting
securities who must be found suitable is a corporation, partnership or trust, it
must submit detailed business and financial information including a list of
beneficial owners. The applicant is required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of suitability
or a license within thirty days after being ordered to do so by the Nevada
Commission or the Chairman of the Nevada Board, may be found unsuitable. The
same restrictions apply to a record owner if the record owner, after request,
fails to identify the beneficial owner. Any stockholder found unsuitable and who
holds, directly or indirectly, any beneficial ownership of the common stock
beyond such period of time as may be prescribed by the Nevada Commission may be
guilty of a criminal offense. We are subject to disciplinary action if, after we
receive notice that a person is unsuitable to be a stockholder or to have any
other relationship with us or Riviera Operating Corporation, we (i) pay that
person any dividend or interest upon voting our securities, (ii) allow that
person to exercise, directly or indirectly, any voting right conferred through
securities held by that person, (iii) pay remuneration in any form to that
person for services rendered or otherwise, or (iv) fail to pursue all lawful
efforts to require such unsuitable person to relinquish his voting securities
including, if necessary, the immediate purchase of said voting securities for
cash at fair market value. Additionally, the Clark County Board has the
authority to approve all persons owning or controlling the stock of any
corporation controlling a gaming licensee.
The Nevada Commission may, in its discretion, require the holder of
any debt security of a Registered Corporation to file applications, be
investigated and be found suitable to own the debt security of a Registered
Corporation, if it has reason to believe that such ownership would be
inconsistent with the declared policies of the State of Nevada. If the Nevada
Commission determines that a person is unsuitable to own such security, then
pursuant to the Nevada Act, the Registered Corporation can be sanctioned,
including the loss of its approvals, if without the prior approval of the Nevada
Commission, it: (i) pays to the unsuitable person any dividend, interest, or any
distribution whatsoever; (ii) recognizes any voting right by such unsuitable
person in connection with such securities; (iii) pays the unsuitable person
remuneration in any form; or (iv) makes any payment to the unsuitable person by
way of principal, redemption, conversion, exchange, liquidation, or similar
transaction.
We are required to maintain a current stock ledger in Nevada which
may be examined by the Nevada Gaming Authorities at any time. If any securities
are held in trust by an agent or by a nominee, the record holder may be required
to disclose the identity of the beneficial owner to the Nevada Gaming
Authorities. A failure to make such disclosure may be grounds for finding the
record holder unsuitable. We are also required to render maximum assistance in
determining the identity of the beneficial owner. The Nevada Commission has the
power to require our stock certificates to bear a legend indicating that the
securities are subject to the Nevada Act. However, to date, the Nevada
Commission has not imposed such a requirement on us.
We may not make a public offering of our securities without the prior
approval of the Nevada Commission if the securities or proceeds therefrom are
intended to be used to construct, acquire or finance gaming facilities in
Nevada, or to retire or extend obligations incurred for such purposes. In
addition, (i) a Corporate Licensee may not guarantee a security issued by a
Registered Corporation pursuant to a public offering, or hypothecate its assets
to secure the payment or performance of the obligations evidenced by such a
security, without the prior approval of the Nevada Commission, (ii) the pledge
14
of the stock of a Corporate Licensee ("Stock Pledge"), such as Riviera Operating
Corporation, is void without the prior approval of the Nevada Commission, and
(iii) restrictions upon the transfer of an equity security issued by a Corporate
Licensee or Intermediary company and agreements not to encumber such securities
(collectively, "Stock Restrictions") are ineffective without the prior approval
of the Nevada Commission.
Changes in control of Riviera Holdings Corporation through merger,
consolidation, stock or asset acquisitions, management or consulting agreements,
or any act or conduct by a person whereby he obtains control, may not occur
without the prior approval of the Nevada Commission. Entities seeking to acquire
control of a Registered Corporation must satisfy the Nevada Board and Nevada
Commission in a variety of stringent standards prior to assuming control of such
Registered Corporation. The Nevada Commission may also require controlling
stockholders, officers, directors and other persons having a material
relationship or involvement with the entity proposing to acquire control, to be
investigated and licensed as part of the approval process relating to the
transaction.
The Nevada legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and corporate defense
tactics affecting Nevada corporate gaming Licensees and Registered Corporations
that are affiliated with those operations, may be injurious to stable and
productive corporate gaming. The Nevada Commission has established regulations
to ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming Licensees and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly governance of corporate
affairs. Approvals are, in certain circumstances, required from the Nevada
Commission before the Registered Corporation can make exceptional repurchases of
voting securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada Act also
requires prior approval of a plan of recapitalization proposed by the Registered
Corporation's Board of Directors in response to a tender offer made directly to
the Registered Corporation's stockholders for the purposes of acquiring control
of the Registered Corporation.
License fees and taxes, computed in various ways depending on the
type of gaming or activity involved, are payable to the State of Nevada and to
the County in which the Riviera Operating Corporation, Riviera Gaming Management
and Riviera Gaming Management Elsinore operations are conducted. Depending upon
the particular fee or tax involved, these fees and taxes are payable either
monthly, quarterly or annually and are based upon either: (i) a percentage of
the gross revenues received; (ii) the number of gaming devices operated; or
(iii) the number of table games operated. A casino entertainment tax is also
paid by casino operations where entertainment is furnished in connection with
the selling of food, refreshments or merchandise. Nevada Licensees that hold a
license to manufacture and distribute slot machines and gaming devices, such as
Riviera Operating Corporation, also pay certain fees and taxes to the State of
Nevada.
Any person who is licensed, required to be licensed, registered,
required to be registered, or is under common control with such persons
(collectively, "Licensees"), and who proposes to become involved in a gaming
venture outside of Nevada, is required to deposit with the Nevada Board, and
thereafter maintain, a revolving fund in the amount of $10,000 to pay the
expenses of investigation by the Nevada Board of their participation in such
foreign gaming. The revolving fund is subject to increase or decrease in the
discretion of the Nevada Commission. Thereafter, Licensees are required to
comply with certain reporting requirements imposed by the Nevada Act. Licensees
are also subject to disciplinary action by the Nevada Commission if they
knowingly violate any laws of the foreign jurisdiction pertaining to the foreign
gaming operation, fail to conduct the foreign gaming operation in accordance
with the standards of honesty and integrity required of Nevada gaming
operations, engage in activities or enter into associations that are harmful to
the State of Nevada or its ability to collect gaming taxes and fees, or employ,
have contact with or associate with a person in the foreign operation who has
been denied a license or finding of suitability in Nevada on the ground of
personal unsuitability.
Other Nevada Regulation
The sale of alcoholic beverages at Riviera Las Vegas is subject to
licensing, control and regulation by the Clark County Board. All licenses are
revocable and are not transferable. The Clark County Board has full power to
limit, condition, suspend or revoke any such license, and any such disciplinary
action could (and revocation would) have a material adverse affect upon the
operations of Riviera Operating Corporation.
15
Colorado
Colorado Gaming and Liquor Regulation
Summary
In general we, Riviera Black Hawk, our principal executive officers and
those of Riviera Holdings, and any of our employees who are involved in our
gaming operations, are required to be found suitable for licensure by the
Colorado Gaming Commission. Colorado also requires that significant stockholders
of 5% or more of our stock be certified as suitable for licensure. Riviera Black
Hawk's retail gaming license was approved by the Colorado Gaming Commission on
November 18, 1999.
Background
Pursuant to an amendment to the Colorado Constitution, limited stakes
gaming became lawful in the cities of Central City, Black Hawk and Cripple Creek
on October 1, 1991. Limited stakes gaming means a maximum single bet of five
dollars on slot machines and in the card games of blackjack and poker.
Limited stakes gaming is confined to the commercial districts of
these cities as defined by Central City on October 7, 1981, by Black Hawk on May
4, 1978, and by Cripple Creek on December 3, 1973. In addition the Colorado
Amendment restricts limited stakes gaming to structures that conform to the
architectural styles and designs that were common to the areas prior to World
War I, and which conform to the requirements of applicable city ordinances
regardless of the age of the structures. Under the Colorado Amendment, no more
than 35% of the square footage of any building and no more than 50% of any one
floor of any building may be used for limited stakes gaming. Persons under the
age of 21 cannot participate in limited stakes gaming. The Colorado Amendment
also prohibits limited stakes gaming between the hours of 2:00 a.m. and 8:00
a.m., and allows limited stakes gaming to occur in establishments licensed to
sell alcoholic beverages.
Further, the Colorado Amendment provides that, in addition to any
other applicable license fees, up to a maximum of 40% of the total amounts
wagered less payouts to players may be payable by a licensee for the privilege
of conducting limited stakes gaming. Such percentage is to be established by the
Colorado Commission on July 1 annually.
The Colorado Act declares public policy on limited stakes gaming to
be that: (1) the success of limited sakes gaming is dependent upon public
confidence and trust that licensed limited stakes gaming is conducted honestly
and competitively; the rights of the creditors of licensees are protected;
gaming is free from criminal and corruptive elements (2) public confidence and
trust can be maintained only by strict regulation of all persons, locations,
practices, associations and activities related to the operation of licensed
gaming establishments and the manufacture or distribution of gaming devices and
equipment; (3) all establishments where limited gaming is conducted and where
gambling devices are operated, and all manufacturers, sellers and distributors
of certain gambling devices and equipment must therefore be licensed, controlled
and assisted to protect the public health, safety, good order and the general
welfare of the inhabitants of the state to foster the stability and success of
limited stakes gaming and to preserve the economy, policies and free competition
in Colorado; and (4) no applicant for a license or other approval has any right
to a license or to the granting of the approval sought. Any license issued or
other commission approval granted pursuant to the provisions of this Article is
a revocable privilege, and no holder acquires any vested rights therein.
Regulatory Structure
The Colorado Act subjects the ownership and operation of limited
stakes gaming facilities in Colorado to extensive licensing and regulation by
the Colorado Commission. The Colorado Commission has full and exclusive
authority to promulgate, and has promulgated, rules and regulations governing
the licensing, conducting and operating of limited stakes gaming. The Colorado
Act also created the Colorado Division of Gaming within the Colorado Revenue
Department to license, regulate and supervise the conduct of limited stakes
gaming in Colorado. The division is supervised and administered by the Director
of the Division of Gaming.
16
Gaming licenses
The Colorado Commission may issue:
o slot machine manufacturer or distributor,
o operator,
o retail gaming,
o support and
o key employee gaming licenses.
The first three licenses require annual renewal by the Colorado
Commission. Support and key employee licenses are issued for two year periods
and are renewable by the Division Director. The Colorado Commission has broad
discretion to condition, suspend for up to six months, revoke, limit or restrict
a license at any time and also has the authority to impose fines.
An applicant for a gaming license must complete comprehensive
application forms, pay required fees and provide all information required by the
Colorado Commission and the Division of Gaming. Prior to licensure, applicants
must satisfy the Colorado Commission that they are suitable for licensing.
Applicants have the burden of proving their qualifications and must pay the full
cost of any background investigations. There is no limit on the cost of such
background investigations.
Gaming employees must hold either a support or key employee license.
Every retail gaming licensee must have a key employee licensee in charge of all
limited stakes gaming activities when limited stakes gaming is being conducted.
The Colorado Commission may determine that a gaming employee is a key employee
and, require that such person apply for a key employee license.
A retail gaming license is required for all persons conducting
limited stakes gaming on their premises. In addition, an operator license is
required for all persons who engage in the business of placing and operating
slot machines on the premises of a retailer. However, a retailer is not required
to hold an operator license. No person may have an ownership interest in more
than three retail gaming licenses. A slot machine manufacturer or distributor
license is required for all persons who manufacture, import and distribute slot
machines in Colorado.
The Colorado Regulations require that every officer, director, and
stockholder of private corporations or equivalent office or ownership holders
for non-corporate applicants, and every officer, director or stockholder holding
either a 5% or greater interest or controlling interest of a publicly traded
corporation or owners of an applicant or licensee shall be a person of good
moral character and submit to a full background investigation conducted by the
Division of Gaming and the Colorado Commission. The Colorado Commission may
require any person having an interest in a license to undergo a full background
investigation and pay the cost of investigation in the same manner as an
applicant.
Persons found unsuitable by the Colorado Commission may be required
immediately to terminate any interest, association, or agreement with or
relationship to a licensee. A finding of unsuitability with respect to any
officer, director, employee, associate, lender or beneficial owner of a licensee
or applicant also may jeopardize the licensee's license or the applicant's
application. A license approval may be conditioned upon the termination of any
relationship with unsuitable persons. A person may be found unsuitable because
of prior acts, associations or financial conditions. Acts that would lead to a
finding of unsuitability are those that would violate the Colorado Act or the
Colorado Regulations or that contravene the legislative purpose of the Colorado
Act.
Duties of licensees
An applicant or licensee must report to the Division of Gaming or
Colorado Commission all leases not later than 30 days after the effective date
of the lease. Also, an applicant or a licensee, upon the request of the Colorado
Commission or the Division Director, must submit copies of all written gaming
contracts and summaries of all oral gaming contracts to which it is or intends
17
to become a party. The Division Director or the Colorado Commission may require
changes in the lease or gaming contract before an applicant is approved or
participation in such agreement is allowed or may require termination of the
lease or gaming contract.
The Colorado Amendment and the Colorado Regulations require licensees
to maintain detailed records that account for all business transactions. Records
must be furnished upon demand to the Colorado Commission, the Division of Gaming
and other law enforcement authorities. The Colorado Regulations also establish
extensive playing procedures and rules of play for poker, blackjack and slot
machines. Retail gaming licenses must adopt comprehensive internal control
procedures. Such procedures must be approved in advance by the Division of
Gaming and include the areas of accounting, surveillance, security, cashier
operations, key control and fill and drop procedures, among others. No gaming
devices may be used in limited stakes gaming without the approval of the
Division Director or the Colorado Commission.
Licensees have a continuing duty to immediately report to the
Division of Gaming the name, date of birth and social security number of all
persons who obtain an ownership, financial or equity interest in the licensee of
5% or greater, who have the ability to control the licensee, who have the
ability to exercise significant influence over the licensee or who loan any
money or other thing of value to the licensee. Licensees must report to the
Division of Gaming all gaming licenses, and all applications for gaming
licenses, in foreign jurisdictions.
With limited exceptions applicable to licensees that are publicly
traded entities, no person may sell, lease, purchase, convey or acquire any
interest in a retail gaming or operator license or business without the prior
approval of the Colorado Commission.
All agreements, contracts, leases, or arrangements in violation of
the Colorado Amendment, the Colorado Act or the Colorado Regulations are void
and unenforceable.
Taxes, fees and fines
The Colorado Amendment requires an annual tax of up to 40% on the
total amount wagered less all payouts to players. With respect to games of
poker, the tax is calculated based on the sums wagered which are retained by the
licensee as compensation. Effective July 1 of each year, the Colorado Commission
establishes the gaming tax for the following 12 months. Currently, the gaming
tax is:
o .25% on the first $2 million of these amounts;
o 2% on amounts from $2 million to $4 million;
o 4% on amounts from $4 million to $5 million;
o 11% on amounts from $5 million to $10 million;
o 16% on amounts from $10 million to $15 million; and
o 20% on amounts over $15 million.
The Colorado Commission has eliminated the annual device fee for
gaming device machines, blackjack tables and poker tables.
The municipality of Black Hawk assesses an annual device fee of $750
per device. There is no statutory limit on state or city device fees, which may
be increased at the discretion of the Colorado Commission or the city. In
addition, a business improvement fee of as much as $102 per device and a
transportation authority device fee of $77.04 per device also may apply
depending upon the location of the licensed premises in Black Hawk. The current
annual business improvement fee is $89.04.
Black Hawk also imposes taxes and fees on other aspects of the
businesses of gaming licensees, such as parking, alcoholic beverage licenses and
other municipal taxes and fees. Significant increases in these fees and taxes,
or the imposition of new taxes and fees, may occur.
18
Violation of the Colorado Gaming Act or the Colorado Regulations
constitutes a class 1 misdemeanor which may subject the violator to fines or
incarceration or both. A licensee who violates the Colorado Gaming Act or
Colorado Regulations is subject to suspension of the license for a period of up
to six months, fines or both, or to license revocation.
Requirements for publicly traded corporations
The Colorado Commission has enacted Rule 4.5, which imposes
requirements on publicly traded corporations holding gaming licenses in Colorado
and on gaming licenses owned directly or indirectly by a publicly traded
corporation, whether through a subsidiary or intermediary company. The term
"publicly traded corporation" includes corporations, firms, limited liability
companies, trusts, partnerships and other forms of business organizations. Such
requirements automatically apply to any ownership interest held by a publicly
traded corporation, holding company or intermediary company thereof, where the
ownership interest directly or indirectly is, or will be upon approval of the
Colorado Commission, 5% or more of the entire licensee. In any event, if the
Colorado Commission determines that a publicly traded corporation, or a
subsidiary, intermediary company or holding company has the actual ability to
exercise influence over a licensee, regardless of the percentage of ownership
possessed by said entity, the Colorado Commission may require the entity to
comply with the disclosure regulations contained in Rule 4.5.
Under Rule 4.5, gaming licensees, affiliated companies and
controlling persons commencing a public offering of voting securities must
notify the Colorado Commission no later than ten business days after the initial
filing of a registration statement with the Securities and Exchange Commission.
Licensed publicly traded corporations are also required to send proxy statements
to the Division of Gaming within 5 days after their distribution. Licensees to
whom Rule 4.5 applies must include in their charter documents provisions that:
restrict the rights of the licensees to issue voting interests or securities
except in accordance with the Colorado Gaming Act and the Colorado Regulations;
limit the rights of persons to transfer voting interests or securities of
licensees except in accordance with the Colorado Gaming Act and the Colorado
Regulations; and provide that holders of voting interests or securities of
licensees found unsuitable by the Colorado Commission may, within 60 days of
such finding of unsuitability, be required to sell their interests or securities
back to the issuer at the lesser of the cash equivalent of the holders'
investment or the market price as of the date of the finding of unsuitability.
Alternatively, the holders may, within 60 days after the finding of
unsuitability, transfer the voting interests or securities to a suitable person,
as determined by the Colorado Commission. Until the voting interests or
securities are held by suitable persons, the issuer may not pay dividends or
interest, the securities may not be voted, they may not be included in the
voting or securities of the issuer, and the issuer may not pay any remuneration
in any form to the holders of the securities.
Pursuant to Rule 4.5, persons who acquire direct or indirect beneficial
ownership of
o 5% or more of any class of voting securities of a publicly traded
corporation that is required to include in its articles of organization the Rule
4.5 charter language provisions or
o 5% or more of the beneficial interest in a gaming licensee directly or
indirectly through any class of voting securities of any holding company or
intermediary company of a licensee, referred to as qualifying persons, shall
notify the Division of Gaming within 10 days of such acquisition, are required
to submit all requested information and are subject to a finding of suitability
as required by the Division of Gaming or the Colorado Commission. Licensees also
must notify any qualifying persons of these requirements. A qualifying person
other than an institutional investor whose interest equals 10% or more must
apply to the Colorado Commission for a finding of suitability within 45 days
after acquiring such securities. Licensees must also notify any qualifying
persons of these requirements. Whether or not notified, qualifying persons are
responsible for complying with these requirements.
A qualifying person who is an institutional investor under Rule 4.5
and who individually or in association with others, acquires, directly or
indirectly, the beneficial ownership of 15% or more of any class of voting
securities must apply to the Colorado Commission for a finding of suitability
within 45 days after acquiring such interests.
19
The Colorado Regulations also provide for exemption from the
requirements for a finding of suitability when the Colorado Commission finds
such action to be consistent with the purposes of the Colorado Act.
Pursuant to Rule 4.5, persons found unsuitable by the Colorado
Commission must be removed from any position as an officer, director, or
employee of a licensee, or from a holding or intermediary company. Such
unsuitable persons also are prohibited from any beneficial ownership of the
voting securities of any such entities. Licensees, or affiliated entities of
licensees, are subject to sanctions for paying dividends or distributions to
persons found unsuitable by the Colorado Commission, or for recognizing voting
rights of, or paying a salary or any remuneration for services to, unsuitable
persons. Licensees or their affiliated entities also may be sanctioned for
failing to pursue efforts to require unsuitable persons to relinquish their
interest. The Colorado Commission may determine that anyone with a material
relationship to, or material involvement with, a licensee or an affiliated
company must apply for a finding of suitability or must apply for a key employee
license.
Alcoholic Beverage Licenses
The sale of alcoholic beverages in gaming establishments is subject
to strict licensing, control and regulation by state and local authorities.
Alcoholic beverage licenses are revocable and nontransferable. State and local
licensing authorities have full power to limit, condition, suspend for as long
as six months or revoke any such licenses. Violation of state alcoholic beverage
laws may constitute a criminal offense resulting in incarceration or fines or
both.
There are various classes of retail liquor licenses which may be
issued under the Colorado Liquor Code. A gaming licensee may sell malt, vinous
or spirituous liquors only by the individual drink for consumption on the
premises. Even though a retail gaming licensee may be issued various classes of
retail liquor licenses, such gaming licensee may only hold liquor licenses of
the same class. An application for an alcoholic beverage license in Colorado
requires notice, posting and a public hearing before the local liquor licensing
authority prior to approval of the same. The Colorado Department of Revenue's
Liquor Enforcement Division must also approve the application. Riviera Black
Hawk's hotel and restaurant license has been approved by both the local
licensing authority and the State Division of Liquor Enforcement.
Federal Registration
Riviera Operating Corporation is required to annually file with the
Attorney General of the United States in connection with the sales,
distribution, or operations of slot machines. All requisite filings for the
present year have been made.
Item 2. Properties
Riviera Hotel and Casino
The Riviera Las Vegas complex is located on the Las Vegas Strip,
occupies approximately 26 acres and comprises approximately one-million square
feet, including 110,000 square feet of casino space, 160,000 square foot
convention, meeting and banquet facility, approximately 2,100 hotel rooms
(including approximately 169 luxury suites) in five towers, four restaurants, a
buffet, four showrooms, a lounge and approximately 2,300 parking spaces. In
addition, executive and other offices for Riviera Las Vegas are located on the
property.
There are 41 food and retail concessions operated under individual
leases with third parties. The leases are for periods from one year to ten years
and expire over the next five years.
The entire Riviera Las Vegas complex is encumbered by a first deed of
trust securing the Notes. See, "Management's Discussion And Analysis of
Financial Condition And Results of Operations."
Riviera Black Hawk
Riviera Black Hawk owns the Black Hawk land, which is located on a
71,000 square foot parcel of real property in Black Hawk, Colorado and comprises
of approximately 32,000 square feet of gaming space and parking for
approximately 520 vehicles (substantially all of which are covered), a 265 seat
casual dining restaurant, two bars and an entertainment center with seating for
approximately 500 people.
20
Item 3. Legal Proceedings
Paulson, et al. v. Jefferies, Riviera Holdings Corporation, et al.,
United States District Court for the Central District of California, No. CV
98-2644 (ABC) (the "California Action"). We and the plaintiffs to this action
entered into a Settlement Agreement dated as of July 2, 1999. The Settlement
Agreement was conditioned upon the United States District court for the Central
District of California (the "Court") entering a Settlement Bar Order and Final
Judgment and provided that upon the entering of such an Order: (i) we would pay
plaintiff Allen E. Paulson ("Paulson") $3,477,412 ($7.50 per share) for the
463,655 shares of Riviera Holdings Corporation common stock owned by Paulson,
(ii) Paulson would receive $1,1522,587.50 from the funds being held in escrow
for the benefit of holders of Riviera Holdings Corporation's Contingent Value
Rights ("CVRs"), (iii) the remainder of the escrow of approximately $4,340,000
would be distributed to the holders of the CVRs, and (iv) Paulson would file an
amended complaint which eliminated allegations of wrongdoing against us.
On October 7, 1999, the Court entered a Settlement Bar Order and
Final Judgment which dismissed the California Action as against us with
prejudice, and barred the other defendants to the lawsuit from seeking
indemnification against us for claims arising under the federal securities laws
or for state law claims arising out of the transactions underlying the
plaintiffs' federal security law claims.
Shortly after the entry of the Settlement Bar Order, we acquired
Paulson's stock, and funds were disbursed from escrow as per the terms of the
Settlement Agreement.
Morgens, Waterfall, Vintiadis & Company, Inc., v. Riviera Holdings
Corporation, William L. Westerman, Robert R. Barengo,
Richard L. Barovick and James N. Land, Jr., as Directors of Riviera Holdings
Corporation, United States District court for the
District of Nevada (CV-S-99-1383-JBR(RLH)) (the "Nevada Action"). The plaintiff
in this action ("Morgens, Waterfall") is a shareholder of Riviera Holdings
Corporation and a defendant to the California Action. On September 30, 1999,
Morgens, Waterfall commenced this action in Nevada state court, where it sought
an order enjoining us from obtaining a Settlement Bar Order in the California
Action. We and the other defendants to the Nevada Action removed the action to
the United States District Court for the district of Nevada on October 1, 1999.
This removal to federal court divested the state court of jurisdiction to
consider Morgens, Waterfall's motion for injunctive relief. Morgens, Waterfall
filed a complaint with the court, but it did not serve the complaint on any of
the defendants.
On November 1, 1999, Morgens, Waterfall served a notice of motion to
remand the Nevada Action from the Nevada federal court back to Nevada state
court. We and the other defendants opposed the motion, and the motion is
presently pending before the federal court.
On January 31, 2000, Morgens, Waterfall purported to serve an Amended
Summons and a First Amended Verified Complaint on Riviera Holdings Corporation
with subsequent service on directors. The Amended Complaint asserts four claims
for relief. In the first claim for relief, Morgens, Waterfall asserts that there
is a dispute as to the meaning of the amended complaint filed by Paulson in the
California Action pursuant to the Settlement Agreement. Morgens, Waterfall seeks
an affirmation injunction requiring Riviera Holdings Corporation to seek
clarification from Paulson as to the meaning of this amended complaint. In its
second claim for relief, Morgens, Waterfall seeks indemnification from Riviera
Holdings Corporation for all damages and costs incurred in the California Action
by reason of any misconduct alleged by Paulson against Riviera Holdings
Corporation. In its third claim for relief, Morgens, Waterfall claims that
Riviera Holdings corporation and the director defendants breached its fiduciary
duties to Morgens, Waterfall when it consummated the Settlement Agreement and
secured the settlement Bar Order because it left Morgens, Waterfall unprotected
from claims based on Riviera Holdings Corporation's alleged misconduct and, in
addition, harmed Morgens, Waterfall because Riviera Holdings Corporation
allegedly paid too much for Paulson's stock. Morgens, Waterfall styles its
fourth claim for relief as a "derivative claim" and assets it only against the
director defendants. Morgens, Waterfall claims that the director defendants
violated their fiduciary duties by entering into the Settlement Agreement and
securing the Settlement Bar Order. We believe all these claims are without merit
and intend to vigorously defend against them.
We are also a party to several routine lawsuits both as plaintiff and
as defendant arising from the normal operations of a hotel. We do not believe
that the outcome of such litigation, in the aggregate, will have a material
adverse effect on the financial position or results of our operations.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
21
.PART II
Item 5. Market for the Registrant's Common Stock and Related Security Holder
Matters
The Company's Common Stock began trading on the American Stock
Exchange on May 13, 1996 and was reported on the NASDAQ Bulletin Board prior to
that date. As of February 28, 2000, based upon information available to it, the
Company believes that there were approximately 600 beneficial holders of the
Company's Common Stock.
The Company has never paid any dividends on its Common Stock and does
not currently expect to pay any dividends (cash or otherwise) on its Common
Stock for the foreseeable future. The Company's ability to pay dividends is
primarily dependent upon receipt of dividends and distributions from Riviera
Operating Corporation. In addition, the indenture for the First Mortgage Notes
restricts the Company's ability to pay dividends on its Common Stock.
The table below sets forth the bid and ask sales prices by quarter
for the years ended December 31, 1999, 1998 and 1997, based on information
provided by certain brokers who have had transactions in the Company's Common
Stock during the year:
First Second Third Fourth
1999 Quarter Quarter Quarter Quarter
HIGH $7.25 $6.38 $6.13 $6.63
LOW $4.00 $3.94 $4.00 $3.94
1998
HIGH $ 15.06 $ 10.81 $ 8.13 $ 5.81
LOW 10.75 6.00 5.75 3.88
1997
HIGH $ 14.50 $ 14.13 $ 15.50 $ 14.94
LOW 12.88 12.25 12.13 12.75
On February 28, 2000, (the most recent trade date of the Company's
common stock), 34,500 shares were traded closing at $6.125 per share.
Item 6. Selected Financial Data
The following table sets forth a summary of selected financial data
for the Company and its predecessor for the years ended December 31, in
thousands (except Net Income (Loss) per Common Share):
1999 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
Net Operating Revenue $158,173 $159,955 $153,793 $164,409 $151,146 $153,921
Net Income (Loss) (2,869) (4,057) 2,088 8,440 6,344 4,790
Net Income (Loss) Per Diluted Common ($0.58) ($0.81) $0.40 $1.63 $1.26 $1.00
Share
Total Assets 288,990 244,909 347,866 167,665 157,931 151,925
Long-Term Debt 229,052 179,439 177,512 109,088 110,571 113,155
22
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
The following table sets forth the Company's income statement data
as a percentage of net revenues (unless otherwise noted) for the Company
for the periods indicated:
1999 1998 1997
Revenues:
Casino 46.8% 48.6% 46.6%
Rooms 25.2% 24.8% 27.2%
Food and Beverage 15.9% 15.0% 14.0%
Entertainment 13.3% 13.5% 13.6%
Other 7.4% 7.0% 6.9%
Less promotional allowances (8.6%) (8.7%) (8.3%)
------ ------ ------
Net revenues 100.0% 100.0% 100.0%
Costs and Expenses:
Casino(1) 58.3% 58.3% 56.7%
Rooms(1) 54.9% 52.7% 50.8%
Food and Beverage(1). 72.9% 73.3% 74.6%
Entertainment(1) 77.5% 78.3% 82.5%
Other(1) 27.6% 29.7% 28.5%
General and administrative 18.7% 16.9% 17.0%
Corporate expenses, Severance Pay 0.0% 0.3% 0.3%
--- ---- ----
Depreciation and amortization 8.8% 7.6% 6.8%
Total Costs and Expenses 93.0% 89.8% 87.7%
----- ----- -----
Income from operations 7.0% 10.2% 12.3%
Interest expense on $100 million notes 0.0% (2.9%) (7.2%)
Interest income on Treasury Bills to retire $100 million notes 0.0% 1.5% 1.5%
Interest expense, other (14.8%) (12.2%) (4.6%)
Interest income, other 1.4% 1.5% 1.3%
Interest, capitalized 3.0% 1.7% 0.5%
Other (income) expense, net (1.2%) (0.8%) (1.0%)
------ ------ ------
Income before provision (benefit) for income taxes (4.6%) (1.0%) 2.2%
(Benefit) provision for income taxes (2.8%) (0.3%) 0.9%
Net Income (loss) before extraordinary item (1.8%) (0.7%) 1.4%
Extraordinary item, net of income taxes of $1.6 million 0.0% (1.9%) 0.0%
Net Income (Loss) (1.8%) (2.5%) 1.4%
====== ====== ====
EBITDA (2) margin 16.2% 18.2% 19.1%
(1) Shown as a percentage of corresponding departmental revenue.
(2) EBITDA consists of earnings before interest, income taxes,
depreciation and amortization (excluding corporate expenses,
preopening expense, severance pay and Paulson Merger/litigation
costs included in Other, net.) While EBITDA should not be
construed as a substitute for operating income or a better
indicator of liquidity than cash flow from operating activities,
which are determined in accordance with generally accepted
accounting principles ("GAAP"), it is included herein to provide
23
additional information with respect to the ability of the Company
to meet its future debt service, capital expenditure and working
capital requirements. Although EBITDA is not necessarily a
measure of the Company's ability to fund its cash needs,
management believes that certain investors find EBITDA to be a
useful tool for measuring the ability of the Company to service
its debt. The Company's computation of EBITDA may not be
comparable to other similarly titled measures of other companies.
1999 Compared to 1998
Revenues
Net revenues decreased by approximately $1.8 million, or 1.1%, from
$159.9 million in 1998 to $158.2 million in 1999. Casino revenues decreased by
approximately $3.6 million, or 4.6%, from $77.7 million during 1998 to $74.1
million during 1999 due primarily to a 2.4% fall in table games hold percentage
from 1998 which decreased win by approximately $2.1 million. Table games drop
was $6.6 million down from 1998 resulting in a loss of $1.2 million in tables
games revenue. Slot coin-in, however, increased $10.6 million from 1998 which
contributed an additional $700,000 in slot revenue. Room revenues increased by
approximately $300,000, or 0.7%. from $39.6 million 1998 to $39.9 million during
1999 as a result of an increase in hotel occupancy from 95.2% to 97.5% (based on
available rooms) offset by a slight decrease in average room rate of $1.04, or
1.9%. Food and beverage revenues increased approximately $1.2 million, or 4.9%,
from $23.9 million in 1998 to $25.1 million during 1999 due primarily to the
expansion of the convention center banquet facilities in February 1999.
Entertainment revenues decreased by approximately $550,000, or 2.6%, from $21.5
million during 1998 to $21.0 million during 1999 due primarily to the closing of
Splash in early November 1999 until December 25, 1999 for renovation. Other
revenues increased by approximately $550,000, or 5.0%, from $11.2 million during
1998 to $11.7 million during 1999 due primarily to increased telephone and gift
shop revenues. Promotional allowances decreased by approximately $300,000, or
2.4%, from $14.0 million during 1998 to $13.7 million during 1999 consistent
with the decrease in table games play.
Direct Costs and Expenses of Operating Departments
Total direct costs and expenses of operating departments decreased by
approximately $1.0 million, or 0.9%, from $103.8 million in 1998 to $102.9
million in 1999. Casino expense decreased by approximately $2.1 million, or
4.6%, from $45.3 million during 1998 to $43.2 million during 1999 and casino
expenses as a percent of casino revenue remained constant at 58.3% in 1998 and
1999, due to decreased casino marketing costs. Room costs increased $1.1
million, or 5.0% from $20.8 million in 1998 to $21.9 million in 1999, and, room
costs as a percentage of room revenues increased from 52.7% during 1998 to 54.9%
during 1999 due to additions to hotel operations staff in an effort to better
accommodate our guests. Food and beverage costs increased by approximately
$800,000, or 4.4%, from $17.5 million during 1998 to $18.3 million during the
1999 period resulting from a corresponding increase in revenues. Food and
beverage costs as a percentage of food and beverage revenues decreased from
73.3% during 1998 to 72.9% during 1999 because food and beverage revenue
increased while payroll and other costs remained relatively constant.
Entertainment costs decreased by approximately $600,000, or 3.5%, from $16.9
million during 1998 to $16.3 million during 1999 and entertainment expense as a
percentage of entertainment revenues decreased from 78.3% during 1998 to 77.5%
in 1999 due to the increase in revenues in special events and the box office
operation. Other expenses decreased by approximately $100,000, or 2.4%, from
$3.3 million to $3.2 million due to reduced costs of long distance telephone
service.
24
Other Operating Expenses
General and administrative expenses increased by approximately $2.5
million, or 9.4%, from $27.0 million for 1998 to $29.5 million 1999 due
primarily to increased incentive and employee retention plan costs required to
retain personnel in the competitive gaming environment. As a percentage of total
net revenues, general and administrative expenses increased from 16.9% during
the 1998 period to 18.7% during the 1999 period. Additionally, utility costs
have increased approximately $600,000 from 1998 to 1999 due to the expansion of
the convention center. Depreciation and amortization increased by approximately
$1.9 million, or 15.3%, from $12.1 million during the 1998 period to $14.0
million during the 1999 period due to a significant increase in depreciable
capital expenditures for depreciable operating assets in the twelve months
ended December 31, 1999 totaling approximately $31.1 million.
Other Income (Expense)
Interest expense on $100 million notes of $4.6 million, less interest
income on U.S. Treasury Bills of $2.3 million was recorded in 1998 until the
notes were redeemed on June 1, 1998. Interest expense, other increased by $3.9
million due to the 13% First Mortgage Notes issued by Riviera Black Hawk in June
1999. Interest income, other decreased $200,000 because of the decrease in
investment balances for the period as the proceeds of the $175 million notes
were utilized in the Convention Center Pavilion in early 1999 and the proceeds
of the $45 million notes were utilized in the Black Hawk, Colorado project in
the second half of 1999. Capitalized interest increased $2.1 million primarily
on the Black Hawk, Colorado, project but also on the Convention Center Pavilion
and Pavilion Sky Box projects.
Other expenses, net include Paulson litigation and settlement costs of
$1.9 million in 1999. Of this amount $1.2 million represents the spread on the
repurchase of Mr. Paulson's shares in connection with the settlement of the
litigation. Riviera agreed to pay $7.50 per share in July 1999 when the market
price was $5.00 per share.
Extraordinary Item, Net of Taxes in 1998
The $100 million notes, for which retirement monies were put
into trust in August 1997, were retired on June 1, 1998. The call premium of
$4.3 million and unamortized deferred financing costs totaling $300,000 were
recorded net of the 35% income tax effect of $1.6 million resulting in an
extraordinary loss of $3.0 million.
Net Income (Loss)
Net loss decreased approximately $1.2 million from a loss of
$4.1 million in 1998 to a loss of $2.9 million in 1999 due primarily to the
extraordinary item in 1998. Federal income tax benefits exceed the normal 35
percent because the Company settled an Internal Revenue Service audit through
1996. The audit resulted in the release of reserves of $2.2 million for taxes on
employee meals and other items, which were settled favorably to the Company.
EBITDA
EBITDA, as defined, decreased by approximately $3.4 million, or
11.7%, from $29.1 million in 1998 to $25.7 million in 1999. During the same
periods, EBITDA margin decreased from 18.2% to 16.2% of net revenues.
25
1998 Compared to 1997
Revenues
Net revenues increased by approximately $6.2 million, or 4.0%, from
$153.8 million in 1997 to $159.9 million in 1998. Casino revenues increased by
approximately $6.0 million, or 8.4%, from $71.7 million during 1997 to $77.7
million during 1998 due primarily to a $5.5 million, or 11.9%, increase in slot
revenues as a result of the opening of Nickel Town in late 1997. Nickel Town is
designed to offer value oriented slot customers an attractive location to play
and is attracting additional walk-in customers from the Las Vegas Strip because
it competes with Circus Circus, Slots-of-Fun and Westward Ho with value oriented
food, beverage and merchandise. Table games revenue increased as the result of
significant play from selected regular customers. Room revenues decreased by
approximately $2.2 million, or 5.3%. from $41.8 million 1997 to $39.6 million
during 1998 as a result of a slight decrease in hotel occupancy from 96.8% to
95.2% and a decrease in average room rate of $3.43, or 5.8%, from $58.25 in 1997
to $54.82 in 1998. Food and beverage revenues increased approximately $2.3
million, or 10.8%, from $21.6 million 1997 to $23.9 million during 1998 due to
additional covers in the bars and restaurants. Entertainment revenues increased
by approximately $650,000, or 3.1%, from $20.9 million during 1997 to $21.5
million during 1998 due to 27,000 increased covers from 737,000 in 1997 to
764,000 in 1998. Other revenues increased by approximately $600,000, or 5.7%,
from $10.6 million during 1997 to $11.2 million during 1998 due primarily to the
Nickel Town gift shop revenues. Promotional allowances increased by
approximately $1.3 million, or 10.0%, from $12.7 million during 1997 to $14.0
million during 1998 due to competition for gaming revenues on the Las Vegas
Strip.
Direct Costs and Expenses of Operating Departments
Total direct costs and expenses of operating departments increased by
approximately $5.6 million, or 5.7%, from $98.2 million in 1997 to $103.8
million in 1998. Casino expense increased by approximately $4.7 million, or
11.5%, from $40.6 million during 1997 to $45.3 million during 1998 and casino
expenses as a percent of casino revenue increased from 56.7% to 58.3%, due to
increased marketing costs. Room costs decreased $400,000 or 1.8% from $21.2
million in 1997 to $20.8 million in 1998, however, room costs as a percentage of
room revenues increased from 50.8% during 1997 to 52.7% during 1998 as room
revenue decreased. Food and beverage costs increased by approximately $1.4
million, or 8.8%, from $16.1 million during 1997 to $17.5 million during the
1998 period resulting from a corresponding increase in revenues. Food and
beverage costs as a percentage of food and beverage revenues decreased from
74.6% during 1997 to 73.3% during 1998 because food and beverage revenue
increased while payroll and other costs remained relatively constant.
Entertainment costs decreased by approximately $400,000, or 2.2%, from $17.2
million during 1997 to $16.8 million during 1998 and entertainment expense as a
percentage of entertainment revenues decreased from 82.5% during 1997 to 78.3%
in 1998 due to the increase in revenues in all Mardi Gras shows, special events
and the box office operation. Other expenses increased by approximately
$300,000, or 9.9%, from $3.0 million to $3.3 million due to the corresponding
increase in Nickel Town gift shop sales.
Other Operating Expenses
General and administrative expenses increased by approximately
$800,000, or 3.1%, from $26.2 million for 1997 to $27.0 million 1998 due
primarily to increased incentive and employee retention plan costs required to
retain personnel in the competitive gaming environment. As a percentage of total
net revenues, general and administrative expenses decreased from 17.0% during
the 1997 period to 16.9% during the 1998 period. Corporate expenses for
severance settlements caused by changes in the composition of the Board of
Directors and executive staff totaled $550,000 in 1998. Included were payments
for the spread on options, consulting agreements and other compensation.
Depreciation and amortization increased by approximately $1.7 million, or 15.8%,
from $10.5 million during the 1997 period to $12.1 million during the 1998
period due to a significant increase in depreciable capital expenditures for
operating assets in the twelve months ended December 31, 1998 totaling
approximately $20,000,000.
26
Other Income (Expense)
Interest expense, other increased by $12.4 million because the
Company issued 10% First Mortgage Notes in the amount of $175.0 million on
August 13, 1997, in addition to carrying the now defeased 11%, $100 million
notes until June 1, 1998, when the 11%, $100 million notes were redeemed. The
Company used part of the proceeds of the 10% First Mortgage Notes to purchase
United States Government securities, which were deposited into an irrevocable
trust held to retire the 11%, $100 million notes. Interest income on these
securities was $2.3 million in 1998. Interest income, other, increased $500,000
because of the increased cash balances from the remaining proceeds of the $175.0
million notes. Capitalized interest increased $1.9 million primarily on the
Black Hawk, Colorado, and Riviera Convention Center Expansion projects.
During 1997 the Company withdrew a secondary offering due to market
conditions and, as a result, charged costs totaling $850,000 to other expense.
Also, during 1997, approximately $400,000 in merger and acquisition costs
related to the R&E Gaming Corporation Plan of Merger was charged to other
expense. In 1998, $1.2 million in costs related to the abandoned Paulson Merger
were charged to other expense.
Extraordinary Item
The 11%, $100 million notes, for which retirement monies were put
into trust in August 1997, were retired on June 1, 1998. The call premium of
$4.3 million and unamortized deferred financing costs totaling $300,000 were
recorded net of the 35% income tax effect of $1.6 million resulting in an
extraordinary loss of $3.0 million.
Net Income
As a result of the additional depreciation, interest and
extraordinary item, net income decreased by approximately $6.1 million, from
$2.0 million in 1997 to a loss of $4.1 million in 1998.
EBITDA
EBITDA, as defined, decreased by approximately $300,000, or 1.0%, from
$29.4 million in 1997 to $29.1 million in 1998. During the same periods, EBITDA
margin decreased from 19.1% to 18.2% of net revenues
Liquidity and Capital Resources
The Company had cash and short term investments of $48.1 million at
December 31, 1999, which was a decrease of $800,000 from the balances at
December 31, 1998.
For 1999, the Company's net cash provided by operating activities was
$6.7 million compared to $8.5 million in 1998. Cash flows used in investing
activities were $57.9 million in 1999 and $28.8 million in 1998. Net cash
provided by financing was $45.1 million in 1999 and $4.0 million in 1998.
EBITDA, as defined, for 1999 and 1998 was $25.7 million and $29.1 million,
respectively. Management believes that cash flow from operations, combined with
the $48.1 million cash and short term investments, will be sufficient to cover
the Company's debt service and enable investment in budgeted capital
expenditures for the next twelve months including completion of the Black Hawk
casino development.
Cash flow from operations is not expected to be sufficient to pay 100%
of the principal of the $175 million 10% Notes at maturity on August 15, 2004
and the $45 million 13% Notes at maturity on May 1, 2005. Accordingly, the
ability of the Company and its subsidiary to repay the Notes at maturity will be
dependent upon its ability to refinance those notes. There can be no assurance
that the Company and its subsidiary will be able to refinance the principal
amount of the Notes at maturity. The 10% Notes are not redeemable at the option
of the Company until August 15, 2001, and thereafter are redeemable at premiums
beginning at 105.0% and declining each subsequent year to par in 2003. Although
27
Riviera Black Hawk, Inc. can, at any time prior to May 1, 2001, redeem up to 35%
of the aggregate principal amount of the 13% notes at 113% with the proceeds of
a qualified public offering, the subsidiary may not redeem 100% of the 13% Notes
until May 1, 2002, at premiums beginning at 106.5% and declining each subsequent
year to par in 2004.
The 10% and 13% Note Indentures provide that, in certain circumstances,
the Company and its subsidiary must offer to repurchase the Notes upon the
occurrence of a change of control or certain other events. In the event of such
mandatory redemption or repurchase prior to maturity, the Company and its
subsidiary would be unable to pay the principal amount of the Notes without a
refinancing.
The 10% Note Indenture contains certain covenants, which limit the
ability of the Company and its restricted subsidiaries (and its unrestricted
subsidiary Riviera Black Hawk, Inc. under the 13% Notes Indenture), subject to
certain exceptions, to : (i) incur additional indebtedness; (ii) pay dividends
or other distributions, repurchase capital stock or other equity interests or
subordinated indebtedness; (iii) enter into certain transactions with
affiliates; (iv) create certain liens; sell certain assets; and (v) enter into
certain mergers and consolidations. As a result of these restrictions, the
ability of the Company and its subsidiaries to incur additional indebtedness to
fund operations or to make capital expenditures is limited. In the event that
cash flow from operations is insufficient to cover cash requirements, the
Company and its subsidiaries would be required to curtail or defer certain of
their capital expenditure programs under these circumstances, which could have
an adverse effect on operations. At December 31, 1999, the Company believes that
it is in compliance with the covenants.
In August 1997, the Company, through its indirect 100% owned
subsidiary, Riviera Black Hawk, Inc., purchased approximately 70,000 square feet
of land in Black Hawk, Colorado, which is entirely zoned for gaming. On February
4, 2000, the Company opened its casino containing 1,000 slot machines, 12
table games, a 520-space covered parking garage, and entertainment and food
service amenities. As of December 31, 1999, the company had invested $20.0
million in cash (exclusive of capitalized interest) in the Black Hawk, Colorado
project and the total project costs at December 31, 1999 including capitalized
interest were $56.7 million.
Recently Adopted Accounting Standards - The American Institute of Certified
Public Accountants' Accounting Standards Executive Committee issued Statement of
Position No. 98-5, "Reporting on the Costs of Start-up Activities." This
standard provides guidance on the financial reporting for start-up costs and
organization costs. This standard requires costs of start-up activities and
organization costs to be expensed as incurred, and is effective for fiscal years
beginning after December 15, 1998, although earlier application is encouraged.
The Company adopted this standard in 1999 and recognized preopening costs of
$595,000 that would have otherwise been deferred until the opening of the
Riviera Black Hawk Casino in fiscal 2000.
Recently Issued Accounting Standards -The Financial Accounting Standards
Board issued SFAS No. 133, "Accounting for Derivatives," which is effective for
fiscal years beginning after June 15, 2000. This statement defines derivatives
and requires qualitative disclosure of certain financial and descriptive
information about a company's derivatives. The Company will adopt SFAS No. 133
in the year ending December 31, 2001. Management has not finalized its analysis
of this SFAS or the impact of this SFAS on the Company or the Company's future
consolidated financial statements.
Item 7a. 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 60 days or less.
As of December 31, 1999, we had $225.0 million in borrowings. The
borrowings include $175 million in notes maturing in 2004, $45 million notes
maturing in 2006 and capital leases maturing at various dates through 2005.
Interest under the $175 million notes is based on a fixed rate of 10%. Interest
on the $45 million notes is 13% with contingent interest if certain operating
results are achieved. The capital leases have interest rates ranging from 5.2%
to 13.5%. The borrowings also include $7 million in a special improvement
district bond offering with the City of Black Hawk. The Company's share of the
debt on the SID bonds of $1,120,000 when the project is complete, is payable
over ten years beginning in 2000. The special improvement district bonds bear
interest at 5.5%. Other borrowings relate to leases.
28
Interest Rate Sensitivity
Principal (Notational Amount by Expected Maturity)
Average Interest Rate
(Amounts in Thousands) Fair Value
2000 2001 2002 2003 2004 Thereafter Total At
12/31/99
Assets
Short term investments $40,036 $40,036 $40,036
Average interest rate 4.75%
Long Term Debt
Including Current Portion
Equipment loans and
capital leases $1,204 $1,072 $1,171 $1,254 $949 $5,650 $5,650
Average interest rate 7.7% 8.0% 7.8% 7.8% 7.8%
10% First Mortgage Note $173,579 $173,579 $154,000
Average interest rate 10.0%
Equipment loans and
capital leases-Black Hawk,
Colorado casino casino $9 $10 $8 $27 $27
Average interest rate 11.2% 11.2% 11.2%
Special Improvement
District Bonds-Black Hawk,
Colorado casino project $60 $64 $68 $71 $76 $445 $784 $784
Average interest rate 5.5% 5.5% 5.5% 5.5% 5.5% 5.5%
13% First Mortgage Note
Black Hawk, Colorado casino
project $45,000 $45,000 $48,600
Average interest rate 13.0%
29
Year 2000
The Company conducted a comprehensive review of its computer systems
and other systems for the purpose of assessing its potential Year 2000 Problem,
and modified or replaced those systems which were not Year 2000 compliant. Based
upon this review, systems were compliant by December 1999. However, if
modifications had not been made or completed on schedule, the Year 2000 Problem
could have had a significant impact on the Company's operations.
All costs related to the Year 2000 Problem were expensed as incurred,
while the cost of new hardware and software was capitalized and amortized over
its expected useful life. The costs associated with Year 2000 compliance were
not material to the Company's financial position or results of operations. As of
December 31, 1999, the Company has incurred costs of approximately $200,000
(primarily for internal labor) related to the system applications.
In addition, the Company communicated with its major vendors and
suppliers to determine their state of readiness relative to the Year 2000
problem and the Company's possible exposure to Year 2000 issues of such third
parties. The Company, through correspondence from major vendors or statements
obtained at Year 2000 disclosure sites of major vendors, was advised that such
vendors' software or products were Year 2000 compliant. The Company experienced
no failure of a major vendor or supplier which impacted operations.
Forward Looking Statements
The Private Securities Litigation Reform Act of 1998 provides a "safe
harbor" for certain forward looking statements. Certain matters discussed in
this filing could be characterized as forward-looking statements such as
statements relating to plans for future expansion, as well as other capital
spending, financing sources and effects of regulation and competition. Such
forward-looking statements involve important risks and uncertainties that could
cause actual results to differ materially from those expressed in such
forward-looking statements.
Item 8. Financial Statements and Supplementary Data
See financial Statements included in Item 14(a).
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
- -------------------------------------------------------------------------------
PART III
- -------------------------------------------------------------------------------
Item 10. Directors and Executive Officers of the Registrant.
Information regarding this item is incorporated by reference to the
Company's Proxy Statement dated March 17, 2000, relating to the Annual Meeting
of Stockholders to be held on April 25, 2000 and is made a part hereof.
Item 11. Executive Compensation
Information regarding this item is incorporated by reference to the
Company's Proxy Statement dated March 17, 2000, relating to the Annual Meeting
of Stockholders to be held on April 25, 2000 and is made a part hereof.
30
Item 12. Principal Shareholders
Information regarding this item is incorporated by reference to the
Company's Proxy Statement dated March 17, 2000, relating to the Annual Meeting
of Stockholders to be held on April 25, 2000 and is made a part hereof.
Item 13. Certain Relationships and Related Transactions
Information regarding this item is incorporated by reference to the
Company's Proxy Statement dated March 17, 2000, relating to the Annual Meeting
of Stockholders to be held on April 25, 2000 and is made a part hereof.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) List of Financial Statements
The following Independent Auditor's Report and the consolidated
Financial Statements of the company are incorporated by reference into this Item
14 of Form 10-K by Item 8 hereof:
- - Independent Auditors' Report dated Febraury 14, 2000.
- - Consolidated Balance Sheets as of December 31, 1998 and 1999.
- - Consolidated Statements of Operations for the Years Ended December 31,
1999, 1998, and 1997.
- - Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1999, 1998 and 1997.
- - Consolidated Statements of Cash Flows for the Years Ended December
31, 1999, 1998 and 1997
- - Notes to Consolidated Financial Statements.
(a)(2) List of Financial Statement Schedules
No financial statement schedules have been filed herewith since they
are either not required, are not applicable, or the required
information is shown in the consolidated financial statements or
related notes.
(a)(3) List of Exhibits
Exhibits required by Item 601 of Regulation S-K are listed in the
Exhibit Index herein, which information is incorporated by reference.
(b) Reports on Form 8-K
The Company filed a current report on Form 8-K dated October 18,
1999, to announce the court approval of the settlement of the
Paulson litigation.
31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment to be signed
on its behalf by the undersigned, thereunto duly authorized.
RIVIERA HOLDINGS CORPORATION
By:/s/ WILLIAM L.WESTERMAN
----------------
William L. Westerman
Chief Executive Officer and President
(Principal Executive Officer)
March 14, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Amendment has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title
Date
/s/ WILLIAM L. WESTERMAN Chairman of the Board, Chief March 14, 2000
- ------------------------
William L. Westerman Executive Officer and President
/s/ DUANE R. KROHN Treasurer (Principal Financial March 14, 2000
- -------------------------
Duane R. Krohn and Accounting Officer)
/s/ ROBERT R. BARENGO Director March 14, 2000
- -------------------------
Robert R. Barengo
/s/ RICHARD L. BAROVICK Director March 14, 2000
- -------------------------
Richard. L. Barovick
/s/ JAMES N. LAND, JR. Director March 14, 2000
- -------------------------
James N. Land, Jr.
32
EXHIBIT INDEX Description
Exhibit
Number
2.1*Agreement and Plan of Merger, dated September 15, 1997, by and among
R&E Gaming Corp., Riviera Acquisitions Sub, Inc., and Riviera Holdings
Corporation (see Exhibit 10.1 to Current Report on Form 8-K filed with the
Commission on September 29, 1997, Commission File No. 0-21430)
3.1* Second Restated Articles of Incorporation of the Company (see Exhibit
3.1 to Registration Statement on Form S-4 filed with the Commission on September
10, 1997, Commission File No. 0-21430)
3.2* Bylaws of the Company (see Exhibit 3.2 to Registration Statement on
Form S-4 filed with the Commission on September 10, 1997, Commission File No.
0-21430)
3.3* Articles of Incorporation of Riviera Operating Corporation (see
Exhibit 3.3 to Registration Statement on Form S-4 filed with the Commission on
September 10, 1997, Commission File No. 0-21430)
3.4* Bylaws of Riviera Operating Corporation (see Exhibit 3.4 to
Registration Statement on Form S-4 filed with the Commission on September 10,
1997, Commission File No. 0-21430)
3.5* Articles of Incorporation of Riviera Gaming Management, Inc. (see
Exhibit 3.5 to Registration Statement on Form S-4 filed with the Commission on
September 10, 1997, Commission File No. 0-21430)
3.6* Bylaws of Riviera Gaming Management, Inc. (see Exhibit 3.6 to
Registration Statement on Form S-4 filed with the Commission on September 10,
1997, Commission File No. 0-21430)
3.7* Articles of Incorporation of Riviera Gaming Management - Elsinore,
Inc. (see Exhibit 3.7 to Registration Statement on Form S-4 filed with the
Commission on September 10, 1997, Commission File No. 0-21430)
3.8* Bylaws of Riviera Gaming Management - Elsinore, Inc. (see Exhibit 3.8
to Registration Statement on Form S-4 filed with the Commission on September 10,
1997, Commission File No. 0-21430)
3.9* Articles of Incorporation of Riviera Gaming Management of Colorado,
Inc. (see Exhibit 3.9 to Amendment No. 1 to Registration Statement on Form S-4
filed with the Commission on December 9, 1997, Commission File No. 0-21430)
3.10* Bylaws of Riviera Gaming Management of Colorado, Inc. (see Exhibit
3.10 to Amendment No. 1 to Registration Statement on Form S-4 filed with the
Commission on December 9, 1997, Commission File No. 0-21430)
33
4.1* Indenture dated as of August 13, 1997 between the Company and Norwest
Bank Minnesota, N.A., as trustee, the Guarantors party thereto, Jefferies &
Company, Inc. and Ladenburg Thalmann & Co. Inc. (see Exhibit 4.2 to Current
Report on Form 8-K filed with the Commission on August 18, 1997, Commission File
No. 0-21430)
4.2* Form of the Company's 10% Senior Notes due 2004 (included in Exhibit
4.1)
5.1* Opinion of Dechert Price & Rhoads re: legality (see Exhibit 5.1 to
Amendment No. 1 to Registration Statement on Form S-4 filed with the Commission
on December 9, 1997, Commission File No. 0-21430)
10.1* Registration Rights Agreement dated as of August 13, 1997 by and
among the Company, the Guarantors party thereto, Jefferies & Company, Inc. and
Ladenburg Thalmann & Co. Inc. (see Exhibit 4.1 to Current Report on Form 8-K
filed with the Commission on August 18, 1997, Commission File No. 0-21430)
10.2* Purchase Agreement dated August 8, 1997 among the Company, the
Guarantors party thereto, Jefferies & Company, Inc. and Ladenburg Thalmann &
Co., Inc. (see Exhibit 1.1 to Current Report on Form 8-K filed with the
Commission on August 18, 1997, Commission File No. 0-21430)
10.3* Lease Agreement between Riviera, Inc. and Mardi Gras Food Court, Inc.
dated April 1, 1990 (see Exhibit 10.1 to Form 10, Commission File No. 0-21430)
10.4* Amendment to Lease Agreement between Riviera, Inc. and Mardi Gras
Food Court, Inc. dated April 1, 1990 (see Exhibit 10.2 to Registration Statement
Form S-1 filed with the Commission on August 11, 1993, File No. 33-67206)
10.5* Lease Agreement between Riviera, Inc. and Leroy's Horse and Sports
Place (see Exhibit 10.3 to Form 10, Commission File No. 0-21430)
10.6* Indemnity Agreement, dated June 30, 1993, from Riviera, Inc. and
Meshulam Riklis in favor of the Company and Riviera Operating Corporation (see
Exhibit 10.7 to Registration Statement Form S-1 filed with the Commission on
August 11, 1993, File No. 33-67206)
10.7* Indemnity Agreement, dated June 30, 1993, from the Company in favor
of IBJ Schroder Bank & Trust Company (see Exhibit 10.8 to Registration Statement
Form S-1 filed with the Commission on August 11, 1993, File No. 33-67206)
10.8* Equity Registration Rights Agreement, dated June 30, 1993, among the
Company and the Holders of Registerable Shares (see Exhibit 10.9 to Registration
Statement Form S-1 filed with the Commission on August 11, 1993, File No.
33-67206)
34
10.9* Operating Agreement, dated June 30, 1993, between the Company and
Riviera Operating Corporation (see Exhibit 10.15 to Registration Statement Form
S-1 filed with the Commission on August 11, 1993, File No. 33-67206).
10.10* Adoption Agreement regarding Profit Sharing and 401(k) Plans of the
Company (see Exhibit 10.16 to Registration Statement Form S-1 filed with the
Commission on August 11, 1993, File No. 33-67206)
10.11* Howard Johnson & Company Regional Defined Contribution Plan, dated
March 16, 1990 (adopted by the Company pursuant to the Adoption Agreement filed
as Exhibit 10.17 to Registration Statement Form S-1 filed with the Commission on
August 11, 1993, File No. 33-67206)
10.12* Employment Agreement between Riviera, Inc. and William L. Westerman,
dated January 6, 1993 (see Exhibit 10.18 to Form 10, Commission File No.
0-21430)
10.13* Form of Agreement between the Company and Directors (see Exhibit
10.19 to Form 10, Commission File No. 0-21430)
10.14* Form of Termination Fee Agreement (see Exhibit 10.20 to Form 10,
Commission File No. 0-21430)
10.15* Restricted Account Agreement, dated June 30, 1993, among Riviera
Operating Corporation, IBJ Schroder Bank & Trust Company and Bank of America
Nevada (see Exhibit 10.22 to Registration Statement Form S-1 filed with the
Commission on August 11, 1993, File No. 33-67206)
10.16* Disbursement Agreement, dated June 30, 1993, between the Company and
IBJ Schroder Bank & Trust Company (see Exhibit 10.23 to Registration Statement
Form S-1 filed with the Commission on August 11, 1993, File No. 33-67206)
10.17* Tax Sharing Agreement between the Company and Riviera Operating
Corporation dated June 30, 1993 (see Exhibit 10.24 to Amendment No. 1 to
Registration Statement Form S-1 filed with the Commission on August 19, 1993,
File No. 33-67206)
10.18* The Registrant's 1993 Stock Option Plan (see Exhibit 10.25 to
Amendment No. 1 to Registration Statement Form S-1 filed with the Commission on
August 19, 1993, File No. 33-67206)
10.19* Form of Stay Bonus Agreement (see Exhibit 10.27 to Form 10-Q filed
with the Commission on November 9, 1994, Commission File No. 0-21430)
10.20* Amendment dated February 19, 1995, to Lease Agreement between
Riviera, Inc. and Mardi Gras Food Court, Inc. (filed with Exhibits 10.3 and
10.4)
35
10.21* Amendment dated September 30, 1994, to Employment Agreement between
Riviera, Inc. and William L. Westerman (filed with Exhibit 10.12)
10.22* Management Agreement by and between Elsinore Corporation, Four
Queens, Inc. and Riviera Gaming Management Corp. - Elsinore (see Exhibit 10.30
to Form 10-K for the fiscal year ended December 31, 1996, Commission File No.
000-21430)
10.23* Employment Agreement dated as of November 21, 1996 by and between
the Company, Riviera Operating Corporation and William L. Westerman (see Exhibit
10.31 to Form 10-K for the fiscal year ended December 31, 1996, Commission File
No. 000-21430)
10.24* Revolving Line of Credit Loan Agreement dated February 28, 1997 by
and between the Company, Riviera Operating Corporation and U.S. Bank of Nevada
(see Exhibit 10.32 to Form 10-K for the fiscal year ended December 31, 1996,
Commission File No. 000-21430)
10.25* Letter of Intent dated March 4, 1997 between the Company and Eagle
Gaming, L.P. (see Exhibit 10.33 to Form 10-K for the fiscal year ended December
31, 1996, Commission File No. 000-21430)
10.26* Deed of Trust, Assignment of Rents, Leases, Fixture Filing and
Security Agreement, dated August 13, 1997, executed by Riviera Holdings
Corporation for the benefit of Norwest Bank Minnesota, National Association (see
Exhibit 10.1 to Form 8-K filed August 18, 1997, Commission File No. 000-21430)
10.27* Security Agreement, dated August 13, 1997, by and among Riviera
Holdings Corporation, Riviera Operating Corporation, Riviera Gaming Management,
Inc., Riviera Gaming Management of Colorado, Inc., Riviera Gaming Management -
Elsinore, Inc. and Norwest Bank Minnesota, National Association (see Exhibit
10.2 to Form 8-K filed August 18, 1997, Commission File No. 000-21430)
10.28* Stock Pledge and Security Agreement, dated August 13, 1997, executed
by Riviera Holdings Corporation (see Exhibit 10.3 to Form 8-K filed August 18,
1997, Commission File No. 000-21430)
10.29* Stock Pledge and Security Agreement, dated August 13, 1997, executed
by Riviera Operating Corporation (see Exhibit 10.4 to Form 8-K filed August 18,
1997, Commission File No. 000-21430)
10.30* Stock Pledge and Security Agreement, dated August 13, 1997, executed
by Riviera Gaming Management, Inc. (see Exhibit 10.5 to Form 8-K filed August
18, 1997, Commission File No. 000-21430)
10.31* Restricted Account Agreement, dated August 13, 1997, by and among
Riviera Holdings Corporation, Norwest Bank Minnesota, National Association and
U.S. Bank of Nevada (see Exhibit 10.6 to Form 8-K filed August 18, 1997,
Commission File No. 000-21430)
36
10.32* First Amendment to Revolving Line of Credit Loan Agreement, dated
August 12, 1997, between Riviera Holdings Corporation, Riviera Operating
Corporation and U.S. Bank (see Exhibit 10.7 to Form 8-K filed August 18, 1997,
Commission File No. 000-21430)
10.33* Escrow Agreement, dated September 15, 1997, by and among R&E Gaming
Corp., Riviera Holdings Corporation, and State Street Bank and Trust Company of
California (see Exhibit 10.2 to Form 8-K filed September 29, 1997, Commission
File No. 000-21430)
10.34* Employment agreement between the Company and Ronald P. Johnson
effective July 1, 1998 (see, Exhibit 10.34 of Form 10Q filed November 6, 1998.)
10.35* Employment agreement between the Company and Duane R. Krohn
effective July 1, 1998 (see, Exhibit 10.35 of Form 10Q filed November 6, 1998.)
10.36* Employment agreement between the Company and Robert A. Vannucci
effective July 1, 1998 (see, Exhibit 10.36 of Form 10Q filed November 6, 1998.)
10.37* Employment agreement between the Company and Jerome P. Grippe
effective July 1, 1998 (see, Exhibit 10.37 of Form 10Q filed November 6, 1998.)
10.38 Consulting Agreement between Riviera Gaming Management, Inc. and
Peninsula Gaming Partners, LLC, dated January 1, 2000.
21.1* Subsidiaries of the Company (see Exhibit 21.1 to Registration
Statement on Form S-4 filed with the Commission on September 10, 1997,
Commission File No. 0-21430)
99.1* Letter, dated March 20, 1998, from R&E Gaming Corp. to the Company
regarding the Company's Agreement and Plan of Merger
o The exhibits thus designated are incorporated herein by reference as
exhibits hereto. Following the description of such exhibits is a
reference to the copy of the exhibit heretofore filed with the
Commission, to which there have been no amendments or changes.
37
EXHIBIT 10.38
AMENDED AND RESTATED CONSULTING AGREEMENT
Amended and Restated Consulting Agreement ("Agreement"), dated as of January 1,
2000, by and between Riviera Gaming Management, Inc. ("RGM"), and Peninsula
Gaming Partners, LLC, a Delaware limited liability company ("Peninsula").
Pursuant to a consulting agreement (the "Original Consulting
Agreement"), dated September 27, 1999, by and between RGM and Peninsula,
Peninsula has engaged RGM, and RGM has agreed to be engaged by Peninsula, to
provide consulting and other advisory services in connection with the operation
of the Diamond Jo riverboat casino (the "Facility") located in Dubuque, Iowa.
Peninsula and RGM each hereby agree to amend and restate the
terms of the Original Consulting Agreement on the terms and conditions
hereinafter set forth.
In consideration of the mutual agreements hereinafter set
forth, the parties hereto agree as follows: 1. This Agreement shall have an
initial term of six months from the date hereof (the "Initial Term") and shall
automatically renew for successive six-month terms (the Initial Term, and any
successive term, hereinafter the "Term") unless this Agreement is terminated
earlier as provided herein. Either party may terminate this Agreement at any
time after the Initial Term for any reason upon 60 days prior written notice to
the other party.
2. During the Term of this Agreement, RGM shall render consulting and other
advisory services hereunder at the sole direction of Mr. M. Brent Stevens;
provided, however, that RGM will have no responsibility for the operation of the
Facility or the management of the business or affairs of Peninsula.
3. In consideration for the services to be rendered hereunder, RGM shall be
entitled to compensation of $30,000 for each of the months of January and
February 2000 and $22,500 per month thereafter (the "Monthly Fee"), which
Monthly Fee shall be paid by Peninsula in advance on the first day of each
month, commencing March 1, 2000 (it being understood that the Monthly Fee shall
be in addition to and exclusive of the $7,500 monthly payment required to be
made under the Employee Sharing Agreement, a copy of which is attached hereto as
Exhibit A). During the Term of this Agreement, RGM shall be entitled to monthly
compensation in excess of the Monthly Fee to the extent such excess compensation
(hereinafter, "Additional Compensation") is approved in writing in advance by
Peninsula and is documented in writing by RGM on an hourly basis in a form
reasonably acceptable to Peninsula (it being understood that hourly rates for
services rendered under this Agreement shall not exceed the rates set forth on
Schedule A attached hereto). RGM hereby acknowledges and agrees that all amounts
due and owing RGM under (i) the Original Consulting Agreement and (ii) this
Agreement in respect of services rendered or to be rendered during the period
38
prior to March 1, 2000, in each case, have been paid in full by Peninsula. In
addition to the Monthly Fee (and Additional Compensation, if any), RGM shall be
entitled to reimbursement of reasonable out-of-pocket expenses incurred by RGM
in connection with its performance under this Agreement, which payments
(including Monthly Fees and Additional Compensation, if any) shall be (i)
invoiced by RGM on a monthly basis (which invoice shall be accompanied by a
written receipt or other documentation reasonably acceptable to Peninsula
evidencing such expenses) and (ii) paid by Peninsula within 10 days of receipt
thereof. Consulting and advisory services to be rendered by RGM hereunder shall
be provided by employees of RGM as needed from time to time at the direction of
Mr. William L. Westerman and Mr. Stevens. In addition to the services to be
provided by RGM under this Agreement, RGM acknowledges and agrees to the terms
and conditions set forth in that certain Employee Sharing Agreement, attached
hereto as Exhibit A, pursuant to which Peninsula Gaming Company, LLC has agreed
to employ Mr. Jerome Grippe, an employee of RGM, to provide certain additional
managerial services described therein. 4. Peninsula hereby agrees that prior to
any consulting services being rendered by RGM, Peninsula will obtain, at
Peninsula's expense, an opinion of Peninsula's Iowa gaming counsel to the effect
that rendition of such consulting services by RGM does not require that RGM be
licensed by the Iowa gaming authorities, provided however that if counsel shall
advise that any such license must be obtained, RGM reserves the right to either
terminate this Agreement or to require Peninsula to pay all costs and expenses
incurred in connection with obtaining any necessary gaming licenses. RGM hereby
agrees that as a condition to providing services hereunder it shall enter into a
confidentiality agreement, in form and substance reasonably acceptable to
Peninsula, in order to protect the proprietary and confidential information of
Peninsula made available or disclosed to RGM during the course of providing
services under this Agreement.
5. RGM, its affiliates and each of their respective officers, partners,
directors, employees and agents shall not be liable to the Peninsula or any
person who has acquired an interest in either or both of them, for any losses
sustained or liabilities incurred, including monetary damages, as a result of
any act or omission of RGM, its affiliates or any of their respective officers,
partners, directors, employees or agents, if the conduct of RGM or such other
person did not constitute actual fraud, gross negligence or willful or wanton
misconduct ("Consultant Conduct Standard"). The negative disposition of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere, or its equivalent, shall not, of itself, create a
presumption that RGM, its affiliate or any of their respective officers,
partners, directors, employees or agents acted in a manner contrary to the
Consultant Conduct Standard.
6. a. Subject to the provisions of Section 6(b) hereof, Peninsula shall
indemnify and hold harmless RGM, its affiliates and any of their respective
officers, partners, directors, employees and agents (each individually, an
"Indemnitee"), from and against anyand all losses, claims, damages, liabilities,
expenses (including reasonable legal fees and expenses), judgments, fines,
settlements and other amounts arising from any and all claims, demands, actions,
39
suits or proceedings, civil, criminal, administrative or investigative, in
which an Indemnitee may be involved, or threatened to be involved, as a party or
otherwise, which relates to, or arises out of, the performance of any duties and
services for or on behalf of the Peninsula pursuant to the terms and within the
scope of this Agreement. The negative disposition of any action, suit or
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere, or its equivalent, shall not, of itself, create a presumption that
an Indemnitee acted in a manner contrary to the Consultant Conduct Standard.
b. An Indemnitee shall not be entitled to indemnification under this Section 6
with respect to any claim, issue or matter in which it has been finally
adjudged in a nonappealable order that such Indemnitee has breached the
Consultant Conduct Standard unless
and only to the extent that the court in which such action was brought, or
another court of competent jurisdiction, determines upon application that,
despite the adjudication of liability, in view of all of the circumstances of
the case, the Indemnitee is fairly
and reasonably entitled to indemnification for such liabilities and
expenses as the court may deem proper. In addition, notwithstanding anything
to the contrary contained in this Section 6, an Indemnitee shall not be
entitled to indemnification under this Section 6 against losses sustained or
liabilities incurred if such losses or liabilities are finally determined by a
court of competent jurisdiction to have been the direct result of breach of
the Consultant Conduct Standard by such Indemnitee.
c. In the event that any legal proceedings shall be instituted or any claim
or demand shall be asserted by any person in respect of which payment may be
sought by an Indemnitee under the provisions of this Section 6, the Indemnitee
shall promptly cause written notice of the assertion of any such proceeding or
claim of which it has actual knowledge to be forwarded to Peninsula. Upon
receipt of such notice, Peninsula shall have the right, at its option and
expense, to be represented by counsel of its choice, and to defend against,
negotiate, settle or otherwise deal with any proceeding, claim or demand which
relates to any loss, liability, damage or deficiency indemnified against
hereunder; provided, however, that no settlement shall be made without prior
written consent of the Indemnitee, which consent shall not be unreasonably
withheld; and provided further, that the Indemnitee may participate in any such
proceeding with counsel of its choice and at its expense. The Indemnitee and
Peninsula agree to cooperate fully with each other in connection with the
defense, negotiation or settlement of any such legal proceeding, claim or
demand.
7. This Agreement shall be governed by and interpreted in accordance with
the laws of the State of Nevada without giving effect to conflict of laws.
8. Peninsula and RGM hereby agree that any dispute arising under or with respect
to this Agreement shall be determined by arbitration in Las Vegas, Nevada
pursuant to the rules of the American Arbitration Association ("AAA") by a panel
of three arbitrators with experience in the gaming business, one of whom shall
be appointed by RGM, one of whom shall be appointed by Peninsula and the third
of whom shall be appointed by the first two arbitrators and shall act as
Chairman, provided that if a party shall fail to appoint an arbitrator within 20
days after commencement of the arbitration or the Chairman shall not be
appointed within 40 days of the commencement of the arbitration, the same shall
be appointed by the AAA. Such arbitrators may award legal fees and expenses to
the party prevailing in such arbitration. The decision of such arbitrators shall
be binding upon the parties hereto. 9. This Agreement represents the entire
understanding of the parties with respect to its subject matter and may be
amended or modified only by a written instrument duly signed by the parties
hereto.
40
10.Any notice required or permitted to be given hereunder shall be given as
follows:
a. Peninsula:
-- ----------
M. Brent Stevens
c/o Jefferies & Company, Inc.
11100 Santa Monica Boulevard, Tenth Floor
Los Angeles, CA 90025
b. RGM:
-- ----
William L. Westerman
Riviera Hotel & Casino
2901 Las Vegas Boulevard South
Las Vegas, NV 89109
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date
written above.
RIVIERA GAMING MANAGEMENT, INC.
By:_________________________________
Name:
Title:
PENINSULA GAMING PARTNERS, LLC
By:__________________________________
Name: M. Brent Stevens
Title: President and CEO
41
EMPLOYEE SHARING AGREEMENT
Employee Sharing Agreement ("Agreement"), dated as of February 15, 2000, by
and between Riviera Gaming Management, Inc. ("RGM"), Jerome Grippe ("Grippe")
and Peninsula Gaming Company, LLC, a Delaware limited liability company
("Peninsula"). WHEREAS, Peninsula desires to engage the services of Grippe, an
employee of RGM, and RGM and Grippe agree to such employment, in each case,
pursuant to the terms and conditions set forth herein; NOW, THEREFORE, in
consideration of the mutual agreements hereinafter set forth, for good and
valuable consideration, the adequacy and receipt of which are hereby
acknowledged, the parties hereby agree as follows:
1. This Agreement shall have an initial term commencing on the date hereof
through June 30, 2000 (the "Initial Term") and shall automatically renew for
successive six-month terms (the Initial Term, and any successive term,
hereinafter, the "Term") unless this Agreement is terminated earlier as provided
herein. Any party may terminate this Agreement at any time after the Initial
Term for any reason upon 60 days prior written notice to the other party;
provided, however, that Peninsula may terminate Grippe's employment hereunder at
any time for just cause. For purposes of this Section 1, "just cause" means (i)
a material breach of this Agreement by Grippe (after notice and a 10-day cure
period); (ii) a breach of Grippe's duty of loyalty to Peninsula or any act of
dishonesty with respect to Peninsula or its members, customers or suppliers;
(iii) Grippe's continued failure or refusal to perform any material duty to
Peninsula which is normally attached to his position (after notice and a 10-day
cure period); (iv) Grippe's gross negligence or willful misconduct in performing
those duties which are normally attached to his position; (v) the commission by
Grippe of an act of fraud, conversion, misappropriation (including the
unauthorized use or disclosure of confidential or proprietary information of
Peninsula) or embezzlement or crime of moral turpitude; (vi) a conviction of or
guilty plea or confession by Grippe to any fraud, conversion, misappropriation,
embezzlement or felony; (vii) the exposure of Peninsula to any criminal
liability or regulatory sanction or adverse action substantially caused by the
conduct of Grippe which results in a material adverse effect upon Peninsula's
business, operations, financial condition or results of operations or the
exposure of Peninsula to any civil liability caused by Grippe's unlawful
harassment in employment; or (viii) the repeated taking of any action prohibited
(x) by the board of managers or any of the executive officers of Peninsula,
provided that Grippe has received at least one written notice of having taken an
action so prohibited, or (y) by this Agreement; or (ix) Grippe's failure to
obtain and/or maintain an appropriate license to serve as General Manager of the
Diamond Jo riverboat casino located in Dubuque, Iowa (the "Facility").
2. During the Term of this Agreement, Peninsula hereby agrees to employ Grippe,
Grippe agrees to be employed by Peninsula, and RGM agrees to offer the services
of Grippe to Peninsula, in each case, as set forth herein to carry out such
duties and responsibilities as directed by the Chief Executive Officer of
42
Peninsula, which duties and responsibilities shall include, but are not limited
to, (i) managing the day-to-day operations of the Facility, (ii) functioning as
the General Manager of the Facility with all authority and responsibility
inherent therein; and (iii) assisting Peninsula in the selection of a permanent
General Manager and Chief Financial Officer and coordinating the integration of
such individuals with Peninsula's business operations, all of which are subject
to the further delineation at the direction of M. Brent Stevens, President and
CEO of Peninsula. Grippe shall report directly and solely to Mr. Stevens,
Peninsula's Chief Executive Officer, and shall perform his services hereunder at
the Facility three (3) days every two weeks and be available by telephone, email
or fax at all other times. RGM shall have no supervisory or directive control
over Grippe while he is functioning as an employee of Peninsula under the terms
of this Agreement. During the Term of this Agreement, Grippe shall remain an
employee of RGM, and Grippe's employment by Peninsula hereunder shall not
otherwise limit or affect in any manner whatsoever the benefits otherwise
accorded Grippe as an employee of RGM; provided, however, that, except as
expressly provided in this Agreement, Grippe shall not be entitled to any
compensation or benefits of any kind as an employee of Peninsula.
3. During the Term of this Agreement, Peninsula shall pay to RGM the sum of
seven thousand five hundred dollars ($7,500) per month, or a pro-rata portion
thereof in respect of any partial month during which Grippe is employed
hereunder (the "Monthly Fee"), for services performed hereunder, which Monthly
Fee shall be paid in advance on the first day of each month, commencing March 1,
2000. In addition to the Monthly Fee, Grippe and RGM, if advanced by RGM, shall
be entitled to reimbursement of reasonable out-of-pocket expenses incurred by
him or it in connection with his performance under this Agreement, which
payments shall be (i) submitted by Grippe or RGM on a monthly basis (together
with written documentation reasonably acceptable to Peninsula evidencing such
expenses) and (ii) paid by Peninsula within 10 days of receipt thereof.
4. Peninsula hereby agrees that RGM will have no responsibility for managing the
gaming operations of the Diamond Jo riverboat casino or the management of the
business or affairs of Peninsula. 5. Grippe and RGM acknowledge that the
information, observations and data obtained by or available to Grippe during the
course of employment with Peninsula concerning the business and affairs of
Peninsula are and will be the property of Peninsula. Therefore, Grippe and RGM
agree, during the Term of this Agreement and following the termination of
Grippe'semployment for any reason whatsoever, not to disclose or induce or
assist in the use or disclosure, to any person or entity, or use for the account
of any person or entity other than Peninsula, any such information, observations
or data including, without limitation, any business secrets or methods,
processes, formulas, designs, inventories, techniques, marketing plans,
strategies, forecasts, new products, blueprints, specifications, maps, computer
software programs, promotional ideas, unpublished financial statements, budget
projections, licenses, prices, costs, policies, manuals or instructions,
reports, lists of names and/or addresses of customers, prospective customers or
suppliers, other customer or prospective customer information or requirements,
43
personnel information, the terms of any Company contract, lease or other
arrangement with any customer or leasing information (including without
limitation, expiration dates, renewal dates, pricing information, other data
used by Peninsula in connection with its gaming operations, special
requirements, referral lists or other data setting forth names and addresses of
customers) or any other of its confidential or proprietary information, records,
observations or data (whether or not patented, copyrighted or otherwise
protected under applicable law) or information created, discovered, developed,
or made known to Peninsula (including, without limitation, information created,
discovered, developed, or made known by Grippe to Peninsula during his period of
employment by Peninsula) along with any reports, analyses, compilations,
memoranda, notes and other writings or recordings prepared by Grippe or any
other employee, agent or representative of Peninsula, which contain, reflect or
are based upon such information, observations or data (collectively,
"Confidential Information") without Peninsula's prior written consent, unless
and to the extent that the aforementioned matters become generally known to and
available for use by the public other than as a result of RGM's or Grippe's acts
or omissions to act, and except as required by law or legal process. In the
event Grippe's employment with Peninsula is terminated for any reason
whatsoever, Grippe and RGM will promptly return and surrender to Peninsula any
and all Confidential Information made available to either Grippe or RGM by
Peninsula or otherwise in the possession of Grippe or RGM in the course of
Grippe's employment with Peninsula.
6. Grippe and RGM each further agree that, for a period of six months following
any termination of Grippe's employment for any reason whatsoever, neither Grippe
nor RGM will, directly or indirectly, either for themselves or for any other
person, firm, company or corporation, in any capacity, induce or attempt to
induce or call upon or solicit any of Peninsula's employees, consultants,
customers, prospective customers, suppliers, landlords or other business
relations of Peninsula to leave or cease doing business with Peninsula or in any
way interfere with the relationship between Peninsula and any of its employees,
customers, prospective customers, suppliers, landlords or other business
relations thereof or hire or solicit for employment any employee of Peninsula.
If, at the time of enforcement of this Section 6, a court holds that the
restrictions stated herein are unreasonable under circumstances then existing,
the parties hereto agree that the maximum duration, scope and geographical area
reasonable under such circumstances shall be substituted for the stated period,
scope and area and that the court shall be allowed to reduce the restrictions
contained herein to cover the maximum duration, scope and area permitted by law.
Grippe and RGM each acknowledge that a violation of the provisions of this
Agreement will cause irreparable harm to Peninsula's business, the exact amount
of which will be difficult to ascertain, and that the remedies at law for any
such breach will be inadequate. Accordingly, Grippe and RGM agree that, in the
event of such violation or threatened violation by either of them, Peninsula
shall be entitled, in addition to any other remedy which may be available at law
or in equity, to specific performance and injunctive relief, without posting
bond or other security. Grippe and RGM further agree that, in the event of the
voluntary or involuntary termination of Grippe's employment with Peninsula for
44
any reason whatsoever, Grippe and RGM shall promptly deliver to Peninsula all
documents, photocopies, notes, drawings, data and other materials of any nature
pertaining to Grippe's employment with Peninsula, and neither Grippe nor RGM
shall take with them, or allow any third party to take, any of the foregoing or
any reproduction of any of the foregoing.
7. This agreement shall be governed by and interpreted in accordance with the
laws of the State of Iowa without giving effect to conflicts of law provisions
thereof.
8. Peninsula, RGM and Grippe hereby agree that any dispute arising under or with
respect to this Agreement shall be determined by arbitration in Las Vegas,
Nevada pursuant to the rules of the American Arbitration Association ("AAA") by
a panel of three arbitrators with experience in the gaming business, one of whom
shall be appointed by RGM, one of whom shall be appointed by Peninsula and the
third of whom shall be appointed by the first two arbitrators and shall act as
Chairman, provided that if a party shall fail to appoint an arbitrator within 20
days after commencement of the arbitration or the Chairman shall not be
appointed within 40 days of the commencement of the arbitration, the same shall
be appointed by the AAA. Such arbitrators may award legal fees and expenses to
the party prevailing in such arbitration. The decision of such arbitrators shall
be binding upon the parties hereto. 9. This Agreement represents the entire
understanding of the parties with respect to its subject matter and may be
amended or modified only by a written instrument duly signed by the parties
hereto.
10.Any notice required or permitted to be given hereunder shall be given as
follows:
a. Peninsula:
-- ---------
M. Brent Stevens
c/o Jefferies & Company, Inc.
11100 Santa Monica Boulevard, Tenth Floor
Los Angeles, CA 90025
b. RGM:
-- ----
William L. Westerman
Riviera Hotel & Casino
2901 Las Vegas Boulevard South
Las Vegas, NV 89109
c. Grippe:
-- -------
Jerome Grippe
Riviera Hotel & Casino
2901 Las Vegas Boulevard South
Las Vegas, NV 89109
45
11. Notwithstanding anything to the contrary set forth herein, this Agreement is
subject to, and shall become effective upon, the approval of the Iowa Racing and
Gaming Commission and appropriate licensure by RGM and Grippe pursuant to the
rules and regulations of the Iowa Racing and Gaming Commission.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date written above.
RIVIERA GAMING MANAGEMENT, INC.
By:_________________________________
Name:
Title:
------------------------------------
JEROME GRIPPE
PENINSULA GAMING COMPANY, LLC
By:__________________________________
Name: M. Brent Stevens
Title: President and CEO
46
F-20
SCHEDULE A
CONSULTING FEES
Employee Hourly Rate
W. Westerman $200
J. Grippe $150
R. Johnson $150
D. Krohn $150
R. Vannucci $150
Associates and others $125
47
ITEM 14a(.)FINANCIAL STATEMENTS
RIVIERA HOLDINGS CORPORATION
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
INDEPENDENT AUDITORS' REPORT F-1
CONSOLIDATED FINANCIAL STATEMENTS:
Balance Sheets as of December 31, 1999 and 1998 F-2
Statements of Operations for the Years Ended December 31, 1999, 1998, and 1997 F-3
Statements of Stockholders' Equity for the Years Ended December 31, 1999, 1998, and 1997 F-5
Statements of Cash Flows for the Years Ended December 31, 1999, 1998, and 1997 F-6
Notes to Consolidated Financial Statements F-8
48
INDEPENDENT AUDITORS' REPORT
Riviera Holdings Corporation
Las Vegas, Nevada
We have audited the accompanying consolidated balance sheets of Riviera
Holdings Corporation and subsidiaries (the "Company") as of December 31, 1999
and 1998, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
1999 and 1998, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1999, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
February 14, 2000
F-1
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998 (In Thousands, Except Share Amounts)
- --------------------------------------------------------------------------------
ASSETS 1999 1998
CURRENT ASSETS:
Cash and cash equivalents $ 42,804 $ 48,883
Cash and cash equivalents, restricted 7,173
Short-term investments 5,258
Short-term investments, restricted 7,887
Accounts receivable, net 5,042 5,389
Inventories 3,432 2,727
Prepaid expenses and other assets 3,989 4,028
Total current assets 75,585 61,027
PROPERTY AND EQUIPMENT, Net 202,659 175,622
OTHER ASSETS, Net 10,391 8,260
DEFERRED INCOME TAXES 355
TOTAL $ 288,990 $ 244,909
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,274 $ 363
Accounts payable 11,498 11,865
Accrued interest 7,539 6,563
Accrued expenses 11,949 10,053
Total current liabilities 32,260 28,844
DEFERRED INCOME TAX LIABILITY, Net 3,123
OTHER LONG-TERM LIABILITIES 5,286 4,933
LONG-TERM DEBT, Net of current portion 223,766 174,506
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS EQUITY:
Common stock issued and outstanding ($.001 par value
; 20,000,000 shares authorized; 4,523,021 and
5,073,376 shares at December 31, 1999 and 1998,
respectively) 5 5
Additional paid-in capital 13,446 13,457
Treasury stock (583,755 and 34,300 shares at
December 31, 1999 and 1998,respectively) (3,115) (167)
Notes receivable from employee stockholders (3)
Retained earnings 17,342 20,211
Total stockholders equity 27,678 33,503
TOTAL $ 288,990 $ 244,909
See notes to consolidated financial statements.
F-2
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997 (In Thousands)
- -------------------------------------------------------------------------------
1999 1998 1997
REVENUES:
Casino 74,086 77,676 71,624
Rooms 39,899 39,607 41,812
Food and beverage 25,117 23,940 21,603
Entertainment 20,994 21,543 20,895
Other 11,713 11,155 10,556
Total revenues 171,809 173,921 166,490
Less promotional allowances 13,636 13,966 12,697
Net revenues 158,173 159,955 153,793
COSTS AND EXPENSES:
Direct costs and expenses of operating departments:
Casino 43,211 45,293 40,620
Rooms 21,909 20,859 21,235
Food and beverage 18,307 17,539 16,118
Entertainment 16,271 16,861 17,235
Other 3,228 3,308 3,011
Other operating expenses:
General and administrative 29,568 27,028 26,211
Preopening expenses - Black Hawk, Colorado project 595
Corporate expenses - severance pay 551
Depreciation and amortization 13,991 12,137 10,485
Total costs and expenses 147,080 143,576 134,915
INCOME FROM OPERATIONS 11,093 16,379 18,878
OTHER (EXPENSE) INCOME:
Interest expense on $100 million notes (4,642) (11,067)
Interest income on U.S. Treasury bills held to
retire $100 million notes 2,334 2,267
Interest expense - other (23,448) (19,545) (7,908)
Interest income - other 2,255 2,440 1,926
Interest capitalized 4,733 2,679 771
Other, net (1,963) (1,229) (1,470)
Total other expense (18,423) (17,963) (15,481)
(LOSS) INCOME BEFORE (BENEFIT) PROVISION
FOR TAXES AND EXTRAORDINARY ITEM (7,330) (1,584) 3,397
(BENEFIT) PROVISION FOR INCOME TAXES (4,461) (533) 1,309
(LOSS) INCOME BEFORE EXTRAORDINARY ITEM (2,869) (1,051) 2,088
EXTRAORDINARY ITEM (net of income tax of $1.6 million) (3,006)
NET (LOSS) INCOME $ (2,869) $ (4,057) $ 2,088
See notes to consolidated financial statements.
F-3
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
(In Thousands, Except Share Amounts)
- --------------------------------------------------------------------------------
1999 1998 1997
EARNINGS PER SHARE DATA:
(Loss) earnings per share before extraordinary item:
Basic $ (0.58) $ (0.21) $ 0.42
Diluted $ (0.58) $ (0.21) $ 0.40
Earnings (loss) per share for extraordinary item:
Basic $ - $ (0.60) $ -
Diluted $ - $ (0.60) $ -
(Loss) earnings per share:
Basic $ (0.58) $ (0.81) $ 0.42
Diluted $ (0.58) $ (0.81) $ 0.40
Weighted-average common shares outstanding 4,978 5,037 4,913
Weighted-average common and common
equivalent shares 4,978 5,037 5,214
See notes to consolidated financial statements.
F-4
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997 (In Thousands, Except Share Amounts)
- --------------------------------------------------------------------------------------------------------------------------------
Notes
Receivable
Additional from
Shares Common Paid-in Retained Treasury Employee
Outstanding Stock Capital Earnings Stock Shareholders Total
BALANCE, JANUARY 1, 1996 4,922,503 $ 5 $ 13,919 $ 22,180 $ (853) $ 35,251
Stock issued under employee stock purchase plan 6,200 71 (71)
Collections of stockholders receivables 425 425
Refunds on employee stock purchases (25,900) (292) 292
Director compensation plan 877 13 13
Net income 2,088 2,088
BALANCE, DECEMBER 31, 1997 4,903,680 5 13,711 24,268 (207) 37,777
Stock issued under executive option plan 269,096 480 480
Collections and refunds of stockholders
receivables, net (530) (530)
Purchase of treasury stock (34,300) $(167) (167)
Refunds on employee stock purchases (65,100) (734) 734
Net loss (4,057) (4,057)
BALANCE, DECEMBER 31, 1998 5,073,376 5 13,457 20,211 (167) (3) 33,503
Refunds on employee stock purchases (900) (11) 3 (8)
Purchase of treasury stock (549,455) (2,948) (2,948)
Net loss (2,869) (2,869)
BALANCE, DECEMBER 31, 1999 4,523,021 $ 5 $ 13,446 $ 17,342 $(3,115) $ - $ 27,678
See notes to consolidated financial statements.
F-5
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997 (In Thousands)
- -------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(2,869) $(4,057) $ 2,088
Adjustments to reconcile net (loss) income to net cash provided by operating
activities:
Gain on sale of equipment (55)
Depreciation and amortization 13,991 12,137 10,485
Provision for bad debts 297 782 (16)
Provision for gaming discounts (76) (84)
Extraordinary item, call premium to retire $100 million notes 4,624
Interest income on U.S. Treasury bills to retire $100 million notes (2,334)
Interest expense, $100 million notes 4,642 11,067
Interest paid on $100 million notes (4,614) (11,420)
Interest expense - other 23,448 19,545 7,874
Interest paid - other (20,132) (17,688)
Interest capitalized on construction projects (4,733) (2,679) (771)
Changes in operating assets and liabilities:
Increase in U.S. Treasury bills purchased to retire $100 million notes (2,267)
Decrease (increase) in accounts receivable, net 50 (1,157) 276
(Increase) decrease in inventories (705) 782 (470)
Decrease (increase) in prepaid expenses and other assets 39 526 (1,862)
(Decrease) increase in accounts payable (884) (774) 2,167
Increase (decrease) in accrued expenses 1,896 1,258 (726)
Decrease in current income taxes payable (413)
(Decrease) increase in deferred income taxes payable (3,478) (2,835) 1,332
(Decrease) increase in slot annuities payable (55) (153) 253
(Decrease) increase in non-qualified pension plan obligation to CEO upon retirement (61) 600 755
Net cash provided by operating activities 6,749 8,529 18,268
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment - Las Vegas, Nevada (10,892) (21,432) (19,752)
Capital expenditures - Black Hawk, Colorado (28,134) (9,842) (17,353)
Interest capitalized on construction projects 4,733 2,679 771
Increase in short-term investments (5,258)
Increase in Black Hawk, Colorado, restricted funds (15,060) (27) (100)
Sale of equipment 174
Increase in other assets (3,558) (208) (6,346)
Net cash used in investing activities (57,995) (28,830) (42,780)
See notes to consolidated financial statements.
F-6
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997 (In Thousands)
- --------------------------------------------------------------------------------------------------------------------
1999 1998 1997
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings $ 48,764 $ 172,848
U.S. Treasury bills sold (purchased) to retire $100 million notes $ 108,930 (104,329)
Payments to retire $100 million notes with call premium (104,313)
Payments on long-term borrowings (641) (364) (5,041)
Purchase of treasury stock (2,948) (167)
Proceeds from issuance of stock to employees and directors 13
Net collections, cancellations of employee stock purchase plan, and exercise of
employee stock options (8) (53) 425
-- --- ---
Net cash provided by financing activities 45,167 4,033 63,916
------ ----- ------
( DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (6,079) (16,268) 39,404
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 48,883 65,151 25,747
------ ------ ------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 42,804 $ 48,883 $ 65,151
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Income taxes paid $ 1,860
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
Stock issued to employees for notes receivable $ 77
Property acquired with accounts payable, Las Vegas, Nevada $ 984
Property acquired with accounts payable, Black Hawk, Colorado $ 2,566 $ 1,203
Property acquired with debt, Las Vegas, Nevada $ 1,614
Property acquired with debt, Black Hawk, Colorado $ 126 $ 687
See notes to consolidated financial statements.
F-7
RIVIERA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - Riviera Holdings Corporation and its wholly owned
subsidiary, Riviera Operating Corporation ("ROC") (together, the "Company"),
were incorporated on January 27, 1993, in order to acquire all assets and
liabilities of Riviera, Inc. Casino-Hotel Division on June 30, 1993, pursuant to
a plan of reorganization.
In August 1995, Riviera Gaming Management, Inc. ("RGM") incorporated in the
State of Nevada as a wholly owned subsidiary of ROC for the purpose of obtaining
management contracts in Nevada and other jurisdictions.
Nature of Operations - The primary line of business of the Company is the
operation of the Riviera Hotel & Casino (the "Riviera") on the Strip in Las
Vegas, Nevada. The Company, through its gaming management subsidiary, also
managed the Four Queens Hotel and Casino (owned by Elsinore Corporation) in
downtown Las Vegas (see Note 14). RGM is also providing services to Peninsula
Gaming Partners LLC with respect to that company's riverboat, Diamond Jo,
operating in Dubuque, Iowa. In February of 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 casino.
Casino operations are subject to extensive regulation in the states of
Nevada and Colorado by the respective Gaming Control Boards and various other
state and local regulatory agencies. Management believes that the Company's
procedures for supervising casino operations, recording casino and other
revenues, and granting credit comply, in all material respects, with the
applicable regulations.
Principles of Consolidation - The consolidated financial statements include
the accounts of the Company, its wholly owned subsidiaries, ROC and RGM, and
their related subsidiary entities. All material intercompany accounts and
transactions have been eliminated.
Cash and Cash Equivalents - All highly liquid investment securities with a
maturity of three months or less when acquired are considered to be cash
equivalents. The Company accounts for investment securities in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities."
The Company's investment securities, along with certain cash and cash
equivalents that are not deemed securities under SFAS No. 115, are carried on
the consolidated balance sheets in the cash and cash equivalents category. SFAS
No. 115 addresses the accounting and reporting for investments in equity
securities that have readily determinable fair values and for all investments in
debt securities, and requires such securities to be classified as either held to
maturity, trading, or available for sale.
F-8
Management determines the appropriate classification of its investment
securities at the time of purchase, including the determination as to restricted
versus nonrestricted assets, and re-evaluates such determination at each balance
sheet date. Held-to-maturity securities are required to be carried at amortized
cost. At December 31, 1999 and 1998, securities classified as held to maturity
comprised debt securities issued by the U.S. Treasury and other U.S. government
corporations and agencies, and repurchase agreements, with an amortized cost of
$26,891,000 and $35,781,000, respectively, maturing in three months or less.
Inventories - Inventories consist primarily of food, beverage, gift shop,
and promotional inventories, and are stated at the lower of cost (determined on
a first-in, first-out basis) or market.
Property and Equipment - Property and equipment are stated at cost, and
capitalized lease assets are stated at the present value of future minimum lease
payments at the date of lease inception. Interest incurred during construction
of new facilities or major additions to facilities is capitalized and amortized
over the life of the asset. Depreciation is computed by the straight-line method
over the shorter of the estimated useful lives or lease terms, if applicable, of
the related assets, which range from 5 years for certain gaming equipment to 40
years for buildings. The costs of normal maintenance and repairs are charged to
expense as incurred. Gains or losses on disposals are recognized as incurred.
The Company periodically assesses the recoverability of property, plant,
and equipment and evaluates such assets for impairment whenever events or
circumstances indicate that the carrying amount of an asset may not be
recoverable. Asset impairment is determined to exist if estimated future cash
flows, undiscounted and without interest charges, are less than the carrying
amount.
Other Assets - Other assets include bond offering costs and commissions,
which are amortized over the life of the debt. Such amortized costs are included
in interest expense.
Restricted Cash and Short-term Investments - Amounts related to the Riviera
Black Hawk Casino project in Black Hawk, Colorado, are restricted in use to that
project or for the related 13% First Mortgage Notes interest payments.
Restricted Cash for Periodic Slot Payments - At December 31, 1999 and 1998,
the Company had interest-bearing deposits with a commercial bank in the amount
of $3,000 and $55,000, respectively, which are restricted as to use. These
amounts represent deposits required by the State of Nevada Gaming Control Board
to fund periodic slot payments due customers through the year 2000 and are
included in other current assets.
Stock-Based Compensation - The effect of stock options in the income
statement is reported in accordance with Accounting Principles Board Statement
No. 25, "Accounting for Stock Issued to Employees." The Company has adopted the
disclosures-only provision of SFAS No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized for
unissued stock options in the stock option plan (see Note 16).
F-9
Fair Value Disclosure as of December 31, 1999 and 1998:
Cash and Cash Equivalents, Short-term Investments (including restricted),
Accounts Receivable, Accounts Payable, and Accrued Expenses - The carrying value
of these items is a reasonable estimate of their fair value.
Long-TermDebt - The fair value of the Company's long-term debt is estimated
based on the quoted market prices for the same or similar issues or on the
current rates offered to the Company for debt of the same remaining maturities.
Based on the borrowing rates currently available to the Company for debt with
similar terms and average maturities, the estimated fair value of long-term debt
is approximately $209,061,000 and $158,774,000 in 1999 and 1998, respectively.
Revenue Recognition:
Casino Revenue - The Company recognizes, as gross revenue, the net win from
gaming activities, which is the difference between gaming wins and losses.
Room Revenue, Food and Beverage Revenue, Entertainment Revenue, and Other
Revenue - The Company recognizes room, food and beverage, entertainment revenue,
and other revenue at the time that goods or services are provided.
Promotional Allowances - Promotional allowances consist primarily of
accommodations, entertainment, and food and beverage services furnished without
charge to customers. The retail value of such services is included in the
respective revenue classifications and is then deducted as promotional
allowances.
The estimated costs of providing promotional allowances are classified as
costs of the casino operating department through interdepartmental allocations.
These allocations for the years ended December 31, 1999, 1998, and 1997 are as
follows (amounts in thousands):
1999 1998 1997
Food and beverage $6,266 $6,271 $5,759
Rooms 1,676 1,698 1,442
Entertainment 1,312 1,518 903
Total costs allocated to casino $9,254 $9,487 $8,104
Federal Income Taxes - The Company and its subsidiaries file a consolidated
federal tax return. The Company accounts for income taxes in accordance with
SFAS No. 109, "Accounting for Income Taxes." SFAS No. 109 requires recognition
of deferred tax assets and liabilities for the expected future tax consequences
of events that have been included in the financial statements or tax returns.
Deferred income taxes reflect the net tax effects of: (i) temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes; and (ii) operating loss
and tax credit carryforwards.
F-10
Estimates and Assumptions - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Significant estimates used by the Company include
estimated useful lives for depreciable and amortizable assets, certain accrued
liabilities, and the estimated allowance for receivables. Actual results may
differ from estimates.
Recently Adopted Accounting Standards - The American Institute of Certified
Public Accountants' Accounting Standards Executive Committee issued Statement of
Position No. 98-5, "Reporting on the Costs of Start-up Activities." This
standard provides guidance on the financial reporting for start-up costs and
organization costs. This standard requires costs of start-up activities and
organization costs to be expensed as incurred, and is effective for fiscal years
beginning after December 15, 1998, although earlier application is encouraged.
The Company adopted this standard in 1999 and recognized preopening costs of
$595,000 that would have otherwise been deferred until the opening of the
Riviera Black Hawk Casino in fiscal 2000.
Recently Issued Accounting Standards - The Financial Accounting Standards
Board issued SFAS No. 133, "Accounting for Derivatives," which is effective for
fiscal years beginning after June 15, 2000. This statement defines derivatives
and requires qualitative disclosure of certain financial and descriptive
information about a company's derivatives. The Company will adopt SFAS No. 133
in the year ending December 31, 2001. Management has not finalized its analysis
of this SFAS or the impact of this SFAS on the Company or the Company's future
consolidated financial statements.
2. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following at December 31 (in thousands):
1999 1998
Casino $ 2,405 $ 3,492
Hotel 4,248 3,211
Total 6,653 6,703
Allowance for bad debts and discounts (1,611) (1,314)
Ending balance $ 5,042 $ 5,389
Changes in the casino and hotel allowance for bad debts and discounts for
the years ended December 31, 1999, 1998, and 1997 consist of the following (in
thousands):
1999 1998 1997
Beginning balance $1,314 $ 546 $ 646
Write-offs (872) (391) (438)
Recoveries 107 81 49
Provision for bad debts 1,062 1,154 372
Provision for gaming discounts (76) (83)
Ending balance $1,611 $1,314 $ 546
F-11
3. PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other assets consist of the following at December 31
(in thousands):
1999 1998
Prepaid gaming taxes $ 800 $1,209
Prepaid insurance 560 431
Other prepaid expenses 2,629 2,388
Total $3,989 $4,028
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31 (in thousands):
1999 1998
Land and improvements $ 37,701 $ 37,638
Buildings and improvements 98,363 80,381
Equipment, furniture, and fixtures 85,027 71,238
Construction in progress, primarily in Black Hawk, Colorado 40,931 32,083
Total property and equipment 262,022 221,340
Accumulated depreciation (59,363) (45,718)
Net property and equipment $202,659 $175,622
In 1999 and 1998, approximately $4,733,000 and $2,679,000, respectively, in
interest costs were capitalized on construction projects. Substantially all of
the Company's property and equipment is pledged as collateral to secure debt
(see Note 8). Repairs and maintenance that do not significantly improve the life
of fixed assets are expensed as incurred. Costs for significant improvements
that extend the expected life of fixed assets more than one year are capitalized
and depreciated over the remaining extended life, using a straight-line method
of depreciation.
5. OTHER ASSETS
Other assets consist of the following at December 31 (in thousands):
1999 1998
Deposits $ 292 $ 163
Bond offering costs and commissions, net 8,716 6,366
Other 1,383 1,731
Total $10,391 $8,260
F-12
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable consist of the following at December 31 (in thousands):
1999 1998
Outstanding chip and token liability $ 665 $ 495
Casino account deposits 108 310
Miscellaneous gaming 875 745
Total liabilities related to gaming activities 1,648 1,550
Accounts payable to vendors 5,394 6,725
Hotel deposits 1,637 1,340
Construction payables 2,566 2,187
Other 253 63
Total $11,498 $11,865
Accrued expenses consist of the following at December 31 (in thousands):
1999 1998
Payroll, related payroll taxes, and employee benefits $ 6,253 $ 5,981
Incentive, retention, and profit-sharing plans 3,687 2,736
Other 2,009 1,336
Total $11,949 $10,053
7. OTHER LONG-TERM LIABILITIES
Other long-term liabilities consist of the following at December 31
(in thousands):
1999 1998
Periodic slot payments due to customers through 2000,
pre-funded by restricted cash (see Notes 1 and 5) $ - $ 55
Nonqualified pension plan obligation to the CEO of the
Company, payable in 20 quarterly installments upon
expiration of his employment contract, plus accrued interest 5,286 4,878
Total other long-term liabilities $5,286 $4,933
F-13
8. LONG-TERM DEBT
Long-term debt consists of the following at December 31 (in thousands):
1999 1998
10% First Mortgage Notes maturing on August 15, 2004, bearing
interest, payable semiannually on February 15 and August 15 of
each year, redeemable beginning August 1, 2001 at 105%; 2002
at 102.5%; and 2003 and thereafter at 100%. These notes are
collateralized by the land and physical structures comprising the
Riviera Hotel and Casino $173,579 $173,271
13% First Mortgage Notes maturing on June 3, 2005, bearing
interest, payable semiannually on November 3 and June 3
of each year; redeemable beginning May 1, 2002 at 106.5%;
2003 at 103.25%; and after 2004 at 100%. These notes are 45,000
collateralized by the land and physical structures comprising the
Riviera Black Hawk Casino
5.6% to 9% Notes collateralized by equipment and vehicles, payable
monthly, including interest, maturing through October 2004 3,962 438
Capitalized lease obligations (see Note 10) 1,715 473
5.5% Special Improvement District Bonds - issued by the City of
Black Hawk, Black Hawk, Colorado, interest and principal
payable monthly over 10 years beginning in 2000 784 687
Total long-term debt 225,040 174,869
Current maturities by terms of debt (1,274) (363)
Total $223,766 $174,506
Maturities of long-term debt for the years ending December 31 are as follows
(in thousands):
2000 $ 1,274
2001 1,146
2002 1,248
2003 1,324
2004 174,603
Thereafter 45,445
------
Total $225,040
Other (expense) income for the year ended December 31, 1997 includes
$850,000 of costs for a canceled secondary offering in the item "other, net."
F-14
In February 1997, the Company entered into a $15.0 million, five-year
reducing revolving line of credit (the "Credit Facility"). The Credit Facility
bears interest at prime plus 0.5 percent or the London Interbank Offered Rate
("LIBOR") plus 2.9 percent. The Company has not utilized this line of credit.
The Credit Facility was modified as a result of the 10% First Mortgage Notes
(the "10% Notes"). The modifications included an increase in the ratio of the
allowable funded debt to earnings before interest, taxes, depreciation, and
amortization ("EBITDA") to 4.75 to one. The Company is not currently meeting
this requirement and, therefore, cannot draw down on the Credit Facility at this
time. The Credit Facility is callable upon a change in control.
On August 13, 1997, the Company issued 10% Notes with a principal amount of
$175 million dollars. The 10% Notes were issued at a discount in the amount of
$2.2 million. The discount is being accreted over the life of the notes on a
straight-line basis, which approximates the effective interest method. The 10%
Note Indenture contains certain covenants that limit the ability of the Company
and its restricted subsidiaries, subject to certain exceptions, to: (i) incur
additional indebtedness; (ii) pay dividends or other distributions and
repurchase capital stock or other equity interests or subordinated indebtedness;
(iii) enter into certain transactions with affiliates; (iv) create certain
liens; (v) sell certain assets; and (vi) enter into certain mergers and
consolidations. At December 31, 1999, the Company believes that it is in
compliance with such covenants. A portion of the proceeds from the 10% Notes
totaling $4.5 million was paid to a bank to retire certain long-term debt. As
described in Note 11, a portion of the proceeds was invested in U.S. Treasury
notes to pay the 11% $100 million notes. The Company has registered securities
identical to the 10% Notes, under the Securities Act of 1933, as amended. On
January 8, 1998, the Company completed an exchange offer for such registered
securities for the 10% Notes effective January 1, 1998.
The 10% Notes are unconditionally guaranteed by all existing and future
restricted subsidiaries of the Company, which will not initially include RBH.
RBH will become collateral for the 10% Notes if certain consolidated operating
ratios are met. As of December 31, 1999, RBH had no operations as defined in the
notes to consolidated financial statements. At December 31, 1999, RBH had total
assets of approximately $72.8 million, which represent primarily cash and
restricted cash and investments, other assets, the cost of the land for the
Black Hawk Casino project, and construction in progress. Therefore, the Company
has not included separate financial information for the guarantors as of
December 31, 1999. The Company intends to disclose such additional information
in the future as the subsidiary develops.
On June 3, 1999, RBH completed a $45 million private placement of 13% First
Mortgage Notes. The net proceeds of the placement were used to fund the
completion of RBH's casino project in Black Hawk, Colorado. Riviera Holdings
Corporation has not guaranteed the $45 million RBH notes, but has agreed to a
"Capital Completion Commitment" of up to $10 million and a "Keep Well Agreement"
of $5 million per year (or an aggregate limited to $10 million) for the first
three years of RBH operations to cover if (i) the $5.85 million interest on such
notes is not paid by RBH and (ii) the amount by which RBH cash flow is less than
$9.0 million per year. RBH has registered securities identical to the 13% Notes
under the Securities Act of 1933, as amended. On January 4, 2000, RBH completed
an exchange offer for such registered securities.
The notes were issued at a cost in the amount of $3.5 million. The deferred
financing cost is being amortized over the life of the notes on a straight-lines
basis, which approximates the effective interest method.
F-15
The 13% First Mortgage Note Indenture provides that, in certain
circumstances, RBH must offer to repurchase the 13% Notes upon the occurrence of
a change of control or certain other events. In the event of such mandatory
redemption or repurchase prior to maturity, RBH would be unable to pay the
principal amount of the 13% Notes without a refinancing.
The 13% First Mortgage Note Indenture contains certain covenants, which
limit the ability of RBH and its restricted subsidiaries, subject to certain
exceptions, to: (i) incur additional indebtedness; (ii) pay dividends or other
distributions and repurchase capital stock or other equity interests or
subordinated indebtedness; (iii) enter into certain transactions with
affiliates; (iv) create certain liens and sell certain assets; and (v) enter
into certain mergers and consolidations. As a result of these restrictions, the
ability of the Company to incur additional indebtedness to fund operations or to
make capital expenditures is limited. In the event that cash flow from
operations is insufficient to cover cash requirements, the Company would be
required to curtail or defer certain of their capital expenditure programs under
these circumstances, which could have an adverse effect on RBH's operations. At
December 31, 1999, RBH believes that it is in compliance with the covenants.
The Company has credit facilities totaling $1,600,000 for letters of credit
issued periodically to foreign vendors for purchases of merchandise. The letters
require payment upon presentation of a valid voucher.
The 5.5% Special Improvement District Bonds were issued by the City of
Black Hawk, Colorado, in July 1998 for $2,940,000. The proceeds were used for
road improvements and other infrastructure projects benefiting the Riviera Black
Hawk Casino and another nearby casino. The projects are expected to be completed
in 2000 at an estimated cost of $2,240,000, including interest and reserves. The
excess proceeds have been returned to the bondholders by the City of Black Hawk,
Colorado. RBH is responsible for 50 percent of the debt payable over 10 years
beginning in 2000.
10. LEASING ACTIVITIES
The Company leases certain equipment under capital leases. These agreements
have been capitalized at the present value of the future minimum lease payments
at lease inception and are included with property and equipment. Management
estimates the fair market value of the property and equipment, subject to the
leases, approximates the net present value of the leases.
The following is a schedule by year of the minimum rental payments due under
capital leases, as of December 31, 1999 (in thousands).
2000 $ 698
2001 595
2002 595
2003 595
2004 439
Total minimum lease payments 2,922
Taxes, maintenance, and insurance (240)
Interest portion of payments (967)
Present value of net minimum lease payments $1,715
F-16
Rental expense under operating leases for the years ended December 31,
1999, 1998, and 1997 was approximately $329,117, $287,000, and $275,000,
respectively. Such leases were year to year in nature.
In addition, the Company leases retail space (primarily to retail shops and
fast food vendors) to third parties under terms of noncancelable operating
leases that expire in various years through 2004. Rental income, which is
included in other income, for the years ended December 31, 1999, 1998, and 1997,
was approximately $1,803,000, $1,615,000, and $1,555,000, respectively.
At December 31, 1999, the Company had future minimum annual rental income
due under noncancelable operating leases as follows (in thousands):
2000 $ 989
2001 849
2002 671
2003 535
2004 383
Total $3,427
======
11. $100 MILLION NOTES RETIRED BY U.S. TREASURY BILLS
On August 13, 1997, the Company used part of the proceeds from the 10%
Notes to purchase U.S. government securities (the "Securities") at a cost of
$109.8 million, which were deposited into an irrevocable trust. These
Securities, together with interest that was earned by the Securities, were used
to pay the principal, interest from August 13, 1997 to June 1, 1998, and call
premium of $4,313,000 due on the 11% $100 million notes on June 1, 1998, which
was the earliest date the 11% $100 million notes could be redeemed. Interest
earned from the Securities is included in interest income on U.S. Treasury bills
held to retire $100 million notes. The interest expenses from the 10% Notes and
from the 11% $100 million notes are reported separately on the consolidated
statements of income. As a part of the funding for the retirement of these
notes, substantially all the covenants (other than payment of principal and
interest) were released. The call premium of $4.3 million and unamortized
deferred financing costs totaling $300,000 were recorded net of the 35 percent
income tax effect of $1.6 million, resulting in an extraordinary loss of $3.0
million.
12. FEDERAL INCOME TAXES
The Company computes deferred income taxes based upon the difference
between the financial statement and tax basis of assets and liabilities using
enacted tax rates in effect in the years in which the differences are expected
to reverse.
F-17
The effective income tax rates on income attributable to continuing
operations differ from the statutory federal income tax rates for the year ended
December 31, 1999, 1998, and 1997 as follows (in thousands):
1999 1998 1997
Amount Rate Amount Rate Amount Rate
(Provision) benefit for
income taxes at federal
statutory rate $ (2,565) (35.0)% $ (2,164) (35.0)% $ 1,189 35.0 %
Benefit from outcome of
IRS examination (1,874) (25.6)%
Other (22) (0.2)% 21 0.3 % 120 3.5 %
(Benefit) provision for
income taxes $ (4,461) (60.8)% $ (2,143) (34.7)% $ 1,309 38.5 %
Comparative analysis of the (benefit) provision for income taxes is as follows:
1999 1998 1997
Current $ (984) $ 692 $ (23)
Deferred (3,477) (2,835) 1,332
Total $(4,461) $(2,143) $1,309
The tax effects of the items composing the Company's net deferred tax
(asset) liability consist of the following at December 31 (in thousands):
1999 1998
Deferred tax liabilities:
Reserve differential for hospitality and gaming activities $ 968 $1,208
Difference between book and tax-depreciable property 6,174 6,299
Other 430 928
Total $7,572 $8,435
------ ------
Deferred tax assets:
Net operating loss carryforward $3,064
Reserves not currently deductible 1,162 $2,899
Bad debt reserves 564 460
AMT and other credits 3,137 1,953
Total 7,927 5,312
Net deferred tax (asset) liability $ (355) $3,123
The Company has $2,739,000 of alternative minimum tax ("AMT") credit and
$398,000 of general business credit available to offset future income tax
liabilities. The AMT credit has no expiration date. The general business credit
will not begin to expire until 2009.
F-18
13. COMMITMENTS AND CONTINGENCIES
The Company is party to several routine lawsuits, both as plaintiff and
defendant, arising from the normal operations of a hotel. Management does not
believe that the outcome of such litigation, in the aggregate, will have a
material, adverse effect on the financial position, results of operations, or
cash flows of the Company.
Allen Paulson Merger/Litigation - In September 1997, the Company entered
into an agreement (the "Merger Agreement") with Allen E. Paulson ("Paulson"),
whereby a company controlled by Paulson would acquire 100 percent of the
Company's stock for $15 per share, plus an interest factor. The stockholders of
the Company approved the Merger Agreement on February 8, 1998. As a condition of
the Merger Agreement, approximately $5.8 million was placed in escrow for the
holders of 1,770,000 Riviera Contingent Value Rights ("CVRs"). The CVRs entitled
their holders to share only in the proceeds of the funds in escrow. Excluded
from participating in the CVRs were Morgens Waterfall, SunAmerica, Inc.
("SunAmerica"), Keyport Life, and Paulson, and their affiliates and associates,
who owned an aggregate 3,355,000 Riviera shares.
In March 1998, the Company was notified by Paulson that he was terminating
the Merger Agreement and filed a lawsuit against the Company.
The Company entered into a Settlement Agreement, dated as of July 1, 1999
(the "Settlement Agreement"), by and among Paulson, R&E Gaming Corp. ("Gaming"),
Riviera Acquisition Sub, Inc. (RAS"), Elsinore Acquisition Sub, Inc. ("EAS"),
Carlo Corporation ("Carlo," and collectively with Paulson, Gaming, EAS, and RAS,
the "Paulson Plaintiffs"), and the Company, subject to approval by the courts.
On October 8, 1999, the Federal District Court for the Central District of
California approved a bar order as part of a settlement of the lawsuit brought
by Paulson against the Company. Pursuant to the terms of the Settlement
Agreement, the Company purchased 463,655 shares from Paulson for $7.50 per
share. The purchased shares are included in treasury stock at December 31, 1999.
Holders of the 1,770,000 CVRs received $2.46 for each CVR, and all related suits
between the Paulson Plaintiffs and the Company were dropped.
Other (expense) income for the year ended December 31, 1999, 1998, and 1997
includes $1,964,000, $1,231,000 and $400,000, respectively, in costs relating to
the Paulson merger/litigation. The 1999 amount of $1,964,000 includes $1,159,000
or $2.00 per share in the purchase of the 463,655 shares from Paulson, which was
the difference between the $7.50 and the market price of the Company's stock on
July 1, 1999.
Morgens, Waterfall, Vintiadis Litigation - Morgens, Waterfall, Vintiadis &
Company, Inc. ("Morgens Waterfall"), a stockholder of the Company, filed a
complaint against the Company and its directors seeking indemnification from the
Company for costs related to the Paulson litigation. It also seeks other relief
and makes other claims stemming from the Settlement Agreement. The Company
believes that the claims are without merit and intends to vigorously defend
against them.
Employees and Labor Relations - As of December 31, 1999, the Riviera had
approximately 1,900 full-time equivalent employees and had collective bargaining
contracts with nine unions covering approximately 1,100 of such employees,
including food and beverage employees, rooms department employees, carpenters,
engineers, stage hands, musicians, electricians, painters, and teamsters. The
F-19
Company's agreements with the Southern Nevada Culinary and Bartenders Union and
Stage Hands Union, which cover the majority of the Company's unionized
employees, were renegotiated in 1998 and expire in the year 2002. Collective
bargaining agreements with the operating engineers, electricians, and musicians
expired in 1999, whereas the agreements with the carpenters and painters will
expire in 2000. The Company completed contract negotiations with the operating
engineers, which extends the contract to 2004. The Company is in negotiations
with the Musicians Union and expects to complete negotiations in 2000. A new
agreement was negotiated with the Teamsters, which expires in 2003. The Company
is also negotiating with the Teamsters Union for a hard count agreement with
seven employees. Although unions have been active in Las Vegas, management
considers its employee relations to be satisfactory. There can be no assurance,
however, that new agreements will be reached without union action or will be on
terms satisfactory to the Company.
Black Hawk Project - The Company completed the construction of its casino
in Black Hawk, Colorado, on a site that was purchased for $15.1 million in
August 1997. As of December 31, 1999, the Company had expended approximately
$56.7 million on the project. The Company estimated the total cost of the
project at $78 million. The casino was opened on February 4, 2000.
Deposit Account - Pursuant to a deposit account agreement, dated as of June
3, 1999, among Bank of America as deposit bank, Riviera Holdings Corporation and
First American Title Insurance Company, Riviera Holdings Corporation has
deposited $5.0 million to insure First American against mechanics lien claims
against the Black Hawk property. If no mechanics liens are outstanding 30 days
after the casino opens, such $5.0 million deposit will be returned to Riviera
Holdings Corporation. These amounts are included in cash and cash equivalents,
restricted.
Keep-Well Agreement - RBH and Riviera Holdings Corporation entered a
Keep-Well Agreement wherein, if (1) RBH does not have the necessary funds to
make a payment of fixed interest on the notes during its first three years of
operations or (2) consolidated cash flow is less than $9.0 million in any of the
first three years of operations, Riviera Holdings Corporation will be obligated
to contribute cash to RBH to make up those amounts (up to a maximum of $5.0
million for any one operating year and $10.0 million in the aggregate).
14. MANAGEMENT AGREEMENTS
From August 1996 until February 1997, RGM was operating the Four Queens in
downtown Las Vegas under an interim management agreement for a fee of $83,333
per month. A long-term management agreement (the "Four Queens Management
Agreement") with Elsinore Corporation ("Elsinore"), the owner of the Four
Queens, went into effect on February 28, 1997, the effective date of the Chapter
11 plan of reorganization of Elsinore. The Company believes that the terms of
the Four Queens Management Agreement were no less favorable to the Company than
if the Company had negotiated with an independent party. RGM was paid the
minimum annual management fee of $1.0 million. In a letter dated September 1,
1999, Elsinore and Four Queens, Inc. terminated the Four Queens Management
Agreement December 30, 1999. The Company completed its requirements under the
agreement, and the Four Queens Management Agreement was terminated December 30,
1999.
RBH has entered into a management agreement in principle (the "RBH
Management Agreement") with Riviera Gaming Management of Colorado, Inc., (the
"Manager") a wholly owned subsidiary of Riviera Holdings Corporation, which, in
exchange for a fee, will manage RBH. The management fee will consist of a
revenue fee and a performance fee. The revenue fee will be based on 1 percent of
net revenues (gross revenues less complimentaries) and is payable quarterly in
arrears. The performance fee will be based on the following percentages of
EBITDA, whose components are based on generally accepted accounting principles):
(1) 10 percent of EBITDA from $5 million to $10 million, (2) 15 percent of
F-20
EBITDA from $10 million to $15 million, and (3) 20 percent of EBITDA in excess
of $15 million. The performance fee will be based on the preceding quarterly
installments subject to year-end adjustment. The management fee began on
February 4, 2000, the date of the opening of the Riviera Black Hawk Casino. If
there is any default under the RBH Management Agreement, the Manager will not be
entitled to receive management fees but will still be entitled to inter-company
service fees.
15. EMPLOYMENT AGREEMENTS AND EMPLOYEE BENEFIT PLANS
The Company has an employment agreement with Mr. Westerman, Chairman of the
Board and Chief Executive Officer of the Company. This agreement includes an
annual base salary, an incentive bonus based upon the extent of adjusted
operating earnings, contributions to a non-qualified pension plan, and
contributions to a Profit Sharing and 401(k) Plan. While employed by the
Company, contributions to the pension plan are in amounts equal to Mr.
Westerman's salary each year, plus interest on accrued amounts of a rate equal
to the current effective interest rate of the Company (10.6 percent at December
31, 1999).
On March 20, 1998, Mr. Westerman exercised a clause in the agreement that
requires the Company to establish a trust for the money in his retirement fund,
as permitted in his employment agreement, following stockholder approval of a
"change in control." The approval by the stockholders of the merger on February
5, 1998 constituted a change of control (see Note 13). The Company has entered
into an agreement with Mr. Westerman to permit funding the trust amount at his
option.
In addition to Mr. Westerman, four executives have employment contracts with the
Company for fixed terms of either two or three years. The Company has an
incentive compensation plan, covering employees of the Company who, in the
opinion of the Chairman of the Board,
either serve in key executive, administrative, professional, or
technical capacities with the Company, or other employees who
also have made a significant contribution to the successful and
profitable operation of the Company. The amount of the bonus is
based on operating earnings before depreciation, amortization,
interest expense, provision for income taxes, extraordinary
losses and gains, any provisions or payments made pursuant to
the plan, and any provisions or payments made pursuant to the
incentive compensation of the Chairman and Chief Executive
Officer. During the years ended December 31, 1999, 1998, and
1997, the Company recorded accrued bonuses of $1,871,632,
$1,593,475, and $920,000, respectively, based upon the above
incentive compensation plan and the incentive compensation plan
established for the Chairman of the Board under his employment
agreement.
The Company contributes to multi-employer pension plans under various union
agreements to which the Company is a party. Contributions, based on wages paid
to covered employees, were approximately $1,637,000, $1,658,000, and $1,604,000
for the years ended December 31, 1999, 1998, and 1997, respectively. These
contributions were for approximately 1,400 employees, including food and
beverage employees, room department employees, carpenters, engineers, stage
hands, electricians, painters, and teamsters. The Company's share of any
unfunded liability related to multi-employer plans, if any, is not determinable.
The Company sponsors a Profit Sharing and 401(k) Plan that incurred
administrative expenses of approximately $21,851, $36,000, and $44,000 for the
years ended 1999, 1998, and 1997, respectively.
The profit-sharing component of the Profit Sharing and 401(k) Plan provides
that the Company will make a contribution equal to one percent of each eligible
F-21
employee's annual compensation, if a prescribed annual operating earnings target
is attained, and an additional one-tenth of one percent thereof for each
$200,000 by which operating earnings is exceeded, up to a maximum of three
percent thereof. The Company may elect not to contribute to the Profit Sharing
and 401(k) Plan if it notifies its employees by the first day of January of the
Profit Sharing and 401(k) Plan year. An employee will become vested in the
Company's contributions based on the employee's years of service. An employee
will receive a year of vesting service for each plan year in which the employee
completed 1,000 hours of service. Vesting credit will be allocated in 20 percent
increments for each year of service commencing with the attainment of two years
of service. An employee will be fully vested following the completion of six
years of service.
The 401(k) component of the Profit Sharing and 401(k) Plan provides that
each eligible employee may contribute up to 15 percent of such employee's annual
compensation, and that the Company will contribute 1 percent of each employee's
annual compensation for each 4 percent of compensation contributed by the
employee, up to a maximum of 2 percent. All non-union employees of the Company
are eligible to participate in the Profit Sharing and 401(k) Plan after 12
consecutive months of service with the Company.
As a result of the scheduled opening of several new Las Vegas Strip
properties in 1998, 1999, and 2000, an estimated 38,000 jobs must be filled,
including 5,000 supervisory positions. Because of the Riviera's performance and
reputation, its employees are prime candidates to fill these positions. In the
third quarter of 1998, management instituted an employee retention plan (the
"Plan"), which covers approximately 90 executive, supervisory, and technical
support positions, and includes a combination of employment contracts, stay-put
agreements, bonus arrangements, and salary adjustments. The period costs
associated with the Plan are being accrued as additional payroll costs and
included approximately $1,000,000 and $287,000 in fiscal 1999 and 1998,
respectively. The total cost of the Plan is estimated to be approximately $2.0
million over the period July 1, 1998 through June 30, 2001.
16. STOCK OPTION PLANS
At a meeting held on July 27, 1993, the Company's Board of Directors
adopted a stock option plan (the "Stock Option Plan") providing for the issuance
of both non-qualified and incentive stock options (as defined in the Internal
Revenue Code). The Stock Option Plan was ratified by the Company's stockholders
at the April 26, 1994 annual meeting. Options vest 25 percent on the date of
grant and 25 percent each subsequent year. The term of an option can in no event
be exercisable more than 10 years (5 years in the case of an incentive option
granted to a stockholder owning more than 10 percent of the Common Stock), or
such shorter period, if any, as may be necessary to comply with the requirements
of state securities laws, from the date such option is granted. Options are
granted at market value on the date of the grant. The number of shares initially
available for purchase under the Stock Option Plan as adopted was 120,000 (as
adjusted pursuant to antidilution provisions). The stockholders approved a
four-for-one stock split, increasing the number of shares of common stock
available for purchase under the Stock Option Plan to 480,000. On November 21,
1996, the Company amended the Stock Option Plan, which was approved at the
annual meeting held on May 8, 1997, to increase the number of shares available
under the Stock Option Plan from 480,000 shares to 1,000,000 shares.
In connection with the resignation of a board member and an employee, the
Company paid approximately $258,000 (included in non-recurring corporate
expenses in fiscal 1998) on 54,000 options for the difference between the
weighted-average option price of $2.22, compared to the weighted-average market
price of $7.00 on the dates of exercise.
F-22
On March 5, 1996, the Board of Directors adopted an employee stock purchase
plan (the "Stock Purchase Plan"), which was approved by the stockholders on May
10, 1996. A total of 300,000 shares of common stock (subject to adjustment for
capital changes), in the aggregate, may be granted under the Stock Purchase
Plan. The Stock Purchase Plan is administered by the compensation committee. The
purchase price per share of stock shall be 85 percent of per share market value
of the common stock on the purchase date. Employees may require the Company to
repurchase the stock prior to fulfillment under certain conditions. Refunds
represent the return of payroll deductions to employees for persons exiting the
Plan. On May 31, 1996, approximately 560 union and non-union employees
participated in the 1996 Stock Purchase Plan. Under the plan, 137,000 shares
were issued to employees at $11.26 (85 percent of market price at May 10, 1996)
for $160,000 cash and the balance in notes receivable of $1,383,000, which are
payable over two years via payroll deductions. During 1997, 25,900 shares were
returned through the plan as the result of refunds to the employees. During
1997, 6,200 shares were issued at $11.47 for notes receivable of $71,145. During
1999, 1998, and 1997, 900, 65,100, and 25,900 shares, respectively, of stock
were returned to the plan due to employee refunds.
On May 10, 1996, the stockholders approved a Non-qualified Stock Option
Plan for Non-employee Directors (the "Non-qualified Stock Option Plan") and a
Stock Compensation Plan for Directors serving on the Compensation Committee (the
"Stock Compensation Plan"). The total number of shares available for purchase
under each plan is 50,000. Options are granted at market value on the date of
the grant. The options vest over five years. As a result of the departure
of board members, 6,000 non-vested options were extinguished during 1998.
F-23
The activity of the Stock Option Plan and the Non-Qualified Stock Option Plan is
as follows:
Per Share
Exercise
Stock Option Plan Price
Outstanding at January 1, 1997 $ 470,000 $2.08 to $13.63
Grants 300,000 $13.63
Exercised
Canceled
Outstanding at December 31, 1997 770,000 $2.08 to $13.63
Grants 95,000 $7.00
Exercised (284,000) $2.08 to $2.50
Purchased from option holder by Company (54,000) $2.08 to $2.50
Canceled (7,000) $13.63
Outstanding at December 31, 1998 520,000 $2.08 to $13.63
Grants 99,000 $4.50 to $5.25
Exercised
Canceled
Outstanding at December 31, 1999 619,000 $2.08 to $13.63
Non-Qualified Stock Option Plan
Outstanding at January 1, 1997 4,000 $13.25
Grants 6,000 $13.50
Exercised
Canceled
Outstanding at December 31, 1997 10,000 $13.25 to $13.50
Automatic grant to directors 8,000 $7.50 to $9.00
Exercised
Canceled (10,000) $9.00 to $13.50
Outstanding at December 31, 1998 8,000 $7.50 to $13.50
Automatic grant to directors 6,000 $4.88 to $7.50
Exercised
Outstanding at December 31, 1999 14,000 $4.88 to $13.50
F-24
No compensation cost has been recognized for unexercised options remaining
in the stock option plan. Had compensation cost for the Company's stock option
plan been determined based on the fair value at the date of grant for awards
consistent with the provisions of SFAS No. 123, the Company's net income and pro
forma net income common share and common share equivalent would have been
decreased to the pro forma amounts indicated below at December 31 (in thousands,
except per share amounts):
1999 1998 1997
Net (loss) income - as reported $ (2,869) $ (4,057) $ 2,088
Net (loss) income - pro forma $ (3,226) $ (4,548) $ 2,058
Basic (loss) income per common share - as reported $ (0.58) $ (0.81) $ 0.42
Basic (loss) earnings per common share - pro forma $ (0.65) $ (0.90) $ 0.42
Diluted (loss) earnings per common and common
share equivalent - as reported $ (0.58) $ (0.81) $ 0.40
Diluted (loss) earnings per common and common share
equivalent - pro forma $ (0.65) $ (0.90) $ 0.39
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 1999, 1998, and 1997, respectively: dividend
yield of 0 percent for all years; expected volatility of 60 percent, 62 percent,
and 72 percent; risk-free interest rates of 5.00 percent, 5.46 percent, and 6.50
percent; and expected lives of five years for all years. The weighted fair value
of options granted in 1999, 1998, and 1997 was $4.57, $7.21, and $6.81,
respectively.
Due to the fact that the Company's stock option programs vest over many
years and additional awards are made each year, the above pro forma numbers are
not indicative of the financial impact, had the disclosure provisions of SFAS
No. 123 been applicable to all years of previous option grants. The above
numbers do not include the effect of options granted prior to 1995.
17. EARNINGS PER SHARE
Basic EPS is computed by dividing net income by the weighted-average number
of common shares outstanding for the period. Diluted EPS is computed by dividing
net income by the weighted number of common and common equivalent shares
outstanding for the period. Options to purchase common stock, whose exercise
price was greater than the average market price for the period, have been
excluded from the computation of diluted EPS. Such antidilutive options
outstanding for the 12 months ended December 31, 1999, 1998, and 1997, were
633,000, 531,000, and 410,000, respectively.
F-25
A reconciliation of income and shares for basic and diluted EPS is as follows
(amounts in thousands, except per share amounts):
Year Ended 1999
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic EPS -
Loss available to common stockholders $(2,869) 4,978 $(0.58)
Effect of dilutive securities -
Options
Diluted EPS -
Loss available to common stockholders plus
assumed conversions $(2,869) 4,978 $(0.58)
Year Ended 1998
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic EPS -
Loss available to common stockholders $(4,057) 5,037 $(0.81)
Effect of dilutive securities -
Options
Diluted EPS -
Loss available to common stockholders plus
assumed conversions $(4,057) 5,037 $(0.81)
Year Ended 1997
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic EPS -
Income available to common stockholders $ 2,088 4,913 $ 0.42
Effect of dilutive securities -
Options 301
Diluted EPS -
Income available to common stockholders plus
assumed conversions $ 2,088 5,214 $ 0.40
In January 1999, the Company purchased 4,800 shares of treasury stock on
the open market for approximately $22,000. In addition to the purchase of stock
from Paulson as described in Note 13, the Company purchased 81,000 of its shares
from SunAmerica at $7.50 per share on October 18, 1999. This transaction reduced
SunAmerica's ownership of the Company to under 15 percent. After giving effect
to such share repurchases, the Company had 4,523,021 shares of common stock
outstanding. The purchases were recorded in treasury stock.
F-26
18. SEGMENT DISCLOSURES
The Company provides Las Vegas-style gaming, amenities, and entertainment.
The Company's four reportable segments are based upon the type of service
provided: casino, rooms, food and beverage, and entertainment. The casino
segment provides customers with gaming activities primarily through traditional
table games and slot machines. The rooms segment provides hotel services. The
food and beverage segment provides restaurant and drink services through a
variety of themed restaurants and bars. The entertainment segment provides
customers with a variety of live Las Vegas-style shows, reviews, and concerts.
All other segment activity consists of rent income, retail store income,
telephone, and other activity. The Company evaluates each segment's performance
based on segment operating profit. The accounting policies of the operating
segments are the same as those described in the summary of significant
accounting policies.
(amounts in thousands) Food and
1999 Casino Rooms Beverage Entertainment All Other Total
Revenues from external
customers $ 74,086 $ 35,947 $ 18,081 $ 18,346 $ 11,713 $ 158,173
Intersegment revenues 3,952 7,036 2,648 13,636
Segment profit (loss) 30,875 14,038 (225) 2,075 8,485 55,247
1998
Revenues from external
customers $ 77,676 $ 35,513 $ 16,818 $ 18,793 $ 11,155 $ 159,955
Intersegment revenues 4,094 7,122 2,750 13,966
Segment profit (loss) 32,383 14,654 (721) 1,932 7,847 56,095
1997
Revenues from external
customers $ 71,624 $ 38,190 $ 15,550 $ 17,873 $ 10,556 $ 153,793
Intersegment revenues 3,622 6,053 3,022 12,697
Segment profit (loss) 31,004 16,955 (568) 638 7,545 55,574
Reconciliation of segment profit to consolidated net income before taxes and
extraordinary item:
1999 1998 1997
Segment profit $55,247 $56,095 $55,574
Other operating expenses 44,154 39,716 36,696
Other expense 18,423 17,963 15,481
Net (loss) income before (benefit)
provision for taxes and extraordinary item $(7,330) $(1,584) $ 3,397
The Company's primary marketing is not aimed toward residents of Las Vegas.
Significantly all revenues are derived from patrons visiting the Company from
other parts of the United States and other countries. Revenues from a foreign
country or region may exceed 10 percent of all reported segment revenues;
however, the Company cannot identify such information, based upon the nature of
gaming operations.
F-27
19. RELATED PARTY TRANSACTIONS
Robert R. Barengo, a member of the Board of Directors of the Company, is a
director of American Wagering, Inc. ("AWI") and owns 7 percent of the
outstanding stock of AWI, which leases approximately 12,000 square feet of the
Riviera Hotel & Casino's casino floor. AWI is the operator of the Riviera Hotel
& Casino's sport book operations. The lease provides for rental payments based
upon the monthly and annual revenues derived by AWI from the location. AWI paid
aggregate rent to ROC of approximately $250,000, $212,000, and $234,000 in each
of the three years ended December 31, 1999, 1998 and 1997, respectively. The
Company believes that the terms of the lease with AWI are at least as favorable
to the Company and ROC as could have been obtained from unaffiliated third
parties and are at lease as favorable as terms obtained by other casino hotels
in Las Vegas.
The Company entered into a letter agreement with Mr. Barengo, a member of the
Bar of the State of Nevada, pursuant to which Mr. Barengo has been assisting the
Company and its outside counsel in enforcing the Company's rights under the
litigation related to the Paulson merger, the Morgens Waterfall litigation and
with related matters. Under such letter agreement, Mr. Barengo receives a fee of
$10,000 per month for his counseling services. Fees paid under this agreement
were $120,000 and $90,000 for the years ended December 31, 1999 and 1998,
respectively. Either party may terminate the letter agreement on no less than
seven days prior written notice.
Peninsula Gaming Partners LLC engaged RGM to assist, on an interim basis,
with transitional matters relating to the operations of the Diamond Jo gaming
riverboat in Dubuque, Iowa. Such services include assisting in the selection of
a new chief operating officer to oversee riverboat casino operations and other
matters. RGM has earned fees and expenses in the amount of $64,000 for the year
ended December 31, 1999. Mr. Westerman serves as a manager on the board of
managers of Peninsula Gaming Partners, LLC. The Company believes that the fees
are no less favorable than would have been paid in an arms-length transaction.
20. SUBSEQUENT EVENTS
On February 8, 2000, the Company completed a tender offer wherein
approximately 590,000 shares of stock were purchased for $7.50 per share. The
Company used its cash and cash equivalents to purchase the tendered shares.
F-28
******
(16732)