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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] For the fiscal year ended December 31,
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
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(State of Incorporation) (I.R.S. Employer Identification No.)
2901 Las Vegas Boulevard South
Las Vegas, Nevada 89109
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (702) 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 _____
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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
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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 f