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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, 2001.
[ ] Transition report pursuant to sections 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
For the transition period from to
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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
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Securities registered pursuant to Section 12(b) of the Act: None
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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 March 18, 2002, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was approximately $18,546,950. As of March 18,
2002 the number of outstanding shares (net of treasury shares) of the
Registrant's Common Stock was 3,566,721.
Documents incorporated by reference:
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Page 1 of 40 pages
Exhibit Index Appears on Page 35 hereof.
1
RIVIERA HOLDINGS CORPORATION AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 2001
TABLE OF CONTENTS
Item 1. Business.....................................................................................3
General ..................................................................................3
Riviera Las Vegas.........................................................................3
Riviera Black Hawk........................................................................7
Geographical Markets......................................................................8
Management Activities.....................................................................9
Competition............................................................................. 10
Employees and Labor Relations............................................................11
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
2001 Compared to 2000....................................................................23
2000 Compared to 1999....................................................................25
Liquidity and Capital Resources..........................................................27
Critical Accounting Policies.............................................................29
Accounting pronouncements................................................................29
Item 7A. Qualitative and Quantitative Disclosure About Market Risk...................................31
Forward Looking Statements...............................................................31
Item 8. Financial Statements and Supplementary Data.................................................32
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........32
Item 10. Directors and Executive Officers of the Registrant..........................................32
Item 11. Executive Compensation......................................................................32
Item 12. Principal Shareholders......................................................................32
Item 13. Certain Relationships and Related Transactions .............................................32
Item 14. Exhibits and Reports on Form 8-K............................................................33
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
Las Vegas 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,
Riviera Black Hawk, Inc., owns and operates the Riviera Black Hawk Casino
(Riviera Black Hawk) a limited-stakes casino in Black Hawk, Colorado which
opened on February 4, 2000.
Riviera Las Vegas
General
Riviera Las Vegas is located on the corner of Las Vegas Boulevard and
Riviera Boulevard in Clark County, Nevada, 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 1,500 slot machines and 34 gaming tables, including
blackjack, craps, roulette, pai gow poker, Caribbean Stud(R) poker, Let It
Ride(R) and mini-baccarat. The casino also includes a keno lounge and a 200-seat
race and sports book.
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 maintain a 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 the baccarat
room. 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 6% in 2001. Also, in 2001, revenues from slots and
tables were approximately 78% and 22% of total gaming revenue, respectively, as
compared to 60% and 34%, respectively, in 1993.
During 2001, we continued a number of initiatives at Riviera Las
Vegas to increase slot play, including the replacement of older slot machines
and maintaining our slot host program. 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 "Slot Frenzy" 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.
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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 2001 we completed refurbishment of all of our approximately
2,100 hotel rooms and suites. Despite the significant increase in rooms on the
Las Vegas Strip since 1997, 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, 97.5% for
1999, 96.6% for 2000 and 91.5% for 2001 (based on available rooms). The average
occupancy rate citywide was 88.9% in 2001 according to the Las Vegas Convention
and Visitors Authority.
Restaurants
The quality, value and variety of food services are critical to
attracting Las Vegas visitors. Riviera Las Vegas offers five (5) bars and four
(4) restaurants and serves an average of approximately 5,312 meals per day,
including banquets and room service. Riviera completely remodeled its buffet in
2001 upgrading the ambiance and food quality, featuring cuisine from various
countries as well as a carving station. 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
Ristorante Italiano Italian 126
World's Fare Buffet All-you-can-eat 366
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944
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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, including Burger
King(R), Pizza Hut(R), Panda Express(R), Quiznos(R) and La Salsa(R).
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 hosted approximately 382 conventions in 2001.
The hotel currently has over 740,000 convention related advance bookings of
rooms through 2005 consisting of approximately 490,700 definite bookings and
approximately 249,360 tentative bookings. In 2001 approximately 30.4% of the
rooms were occupied for conventions, and management estimates that 32.5% of its
rooms will be occupied for conventions in 2002.
The Royal Pavilion portion of the convention center, which opened in
February 1999, and represents approximately 60,000 square feet of our convention
facility, features state-of-the-art convention, meeting and banquet facilities,
teleconferencing and satellite uplink capability and twelve (12) skyboxes.
Entertainment
Riviera Las Vegas has one of the most extensive entertainment
programs in Las Vegas, offering five 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), 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 Riviera Mardi Gras shows of "La Cage" and the "Comedy Club"
received First Place and Third Place awards, respectively, for "Best Las Vegas
Shows" from What's On Magazine.
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The following table outlines, for each entertainment center, the type
of service provided and total seating capacity:
Name Type Seating Capacity
Splash Variety 875
La Cage Female impersonation 575
Crazy Girls Adult Revue 375
Comedy Club Comedy 350
Le Bistro Variety 190
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2,365
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In addition, Riviera Las Vegas presents major concerts which since
1998 have included performers such as The Beach Boys, Billy Ray Cyrus, Rich
Little, Drew Carey, Damon Wayans, Titus, Brett Butler and D.L. Hughley. The
addition of the Royale Pavilion has enabled 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.
Future Expansions
We continue to explore the possible development of an approximately
60,000 square-foot entertainment complex to be constructed directly over the
casino, which could contain a specialty themed restaurant, and entertainment
that will appeal to the Riviera Las Vegas' main target audience, adults aged 45
to 65. The exit from the complex would be by an escalator delivering patrons to
the casino. We would require partners to finance, develop and operate the
entertainment attraction and restaurant. 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 casino customers. The development of a time-share tower,
hotel 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'
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.
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 expanding Riviera Las Vegas' 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
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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 30% of the show patrons come from
outside the hotel and approximately 67% 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 who are not guests in the hotel by capitalizing on Riviera Las Vegas'
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 "Slot Frenzy," 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
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 2001
we derived approximately 30.4% of our hotel occupancy from convention customers
and consider them a critical component of our customer base. We believe that the
completed expansion of the Riviera Las Vegas' convention facility in February
1999, from 100,000 to 160,000 square feet, has accommodated the growth in size
and number of groups that presently use the facility, attracted new convention
groups and increased 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
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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 26.3% 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 fourth largest number of gaming devices in the market with approximately 986
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 newly remodeled 252-seat casual buffet-styled restaurant;
o a Pizza Hut(R);
o two themed bars; and
o an entertainment center with seating for approximately 440 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, 2001, there were 25 casinos in the Black
Hawk/Central City market, with 11 casinos each offering more than 400 gaming
devices. Isle of Capri, located across the street from our casino with
approximately 1,145 gaming machines and 1,000 covered parking spaces, has been
the market leader in terms of win per gaming device. The Hyatt Casino with 1,332
gaming machines and 22 table games opened on December 20, 2001.
Marketing strategy
We attract customers to our casino by implementing marketing
strategies and promotions designed specifically for this market. In so doing, 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
bonuses, logo gift items and invitations to special events, such as parties and
concerts. 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 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 have and
continue 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 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, comedians and boxing.
7
We 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 use the current database to
identify and stratify slot players living primarily in Colorado for appropriate
incentives. Approximately 150,000 of these slot players have been identified as
of December 31, 2001. In addition, we promote our casino by advertising in
newspapers, on billboards and on the radio 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 who traveled to Las Vegas during the 14-year
period from 1986 through 2000 increased at a steady and significant rate from
15.2 million in 1986 to 35.8 million in 2000, a compound annual growth rate of
6.3%. Just over 35 million people visited Las Vegas in 2001, a 2.3% decline from
2000. Visitor volume dropped drastically following the September 11 terrorist
attacks. Clark County gaming continued to be a strong and growing business with
Clark County gaming revenues increasing at a compound annual growth rate of 8.7%
from $2.4 billion in 1986 to just under $7.7 billion in 2000. Clark County
gaming revenues dropped 0.1% to just over $7.6 billion in 2001. The terrorist
attacks of September 11, 2001 have had, and may continue to have, an adverse
effect on the number of visitors traveling to Las Vegas.
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. The events
of September 11, 2001 have had, and may continue to have, an adverse impact on
the number of Latin American and Pacific Rim visitors coming to Las Vegas. Japan
Air Lines ceased its daily non-stop service between Tokyo and Las Vegas after
September 11 but has plans of reinstituting that service in March 2002.
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 85% from approximately 67,000 at the end of 1989 to 126,610 at the end of
2001, giving Las Vegas the most hotel and motel rooms of any metropolitan area
in the world. Despite this significant increase in the supply of rooms, the Las
Vegas hotel occupancy rate exceeded 84% for each of the years from 1993 through
2001. During the calendar year 2001 approximately 2,340 hotel rooms opened as a
result of the opening of the Palms and Green Valley Ranch casinos, which are off
the strip.
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. Even though the
terrorist attacks negatively impacted major city-wide conventions, the number of
convention delegates had increased to 4.0 million in 2001 with in excess of $4.8
billion of economic impact.
During the past eight 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 35.2 million
in 2001. Construction has recently been completed on numerous roadway
enhancements to improve access to the Airport. McCarran Airport is ranked among
the 10 busiest airports in the world based on passenger activity.
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, namely 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 10 miles north of Interstate
Highway 70, the main east-west artery from Denver. Historically, these two gold
8
mining communities were popular tourist towns. However, since the inception of
casino gaming in October 1991, gaming establishments has displaced many of the
former tourist-related businesses.
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 25 as of December 31, 2001.
The Black Hawk/Central City market primarily caters to "day-trip"
customers from Denver, Boulder, Fort Collins and Golden as well as Cheyenne,
Wyoming. We believe an estimated adult population exceeding 2.4 million people
resides within this 100-mile radius of Black Hawk. In addition, we believe that
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 2001.
Since 1992, the number of gaming devices in the Black Hawk/Central
City market has grown approximately 78% from 7,252 devices in 1992 to 12,907
devices in 2001. Win per gaming device per day has continued to grow despite the
increase in the number of gaming devices. Gaming revenues in the Black
Hawk/Central City market grew by 8.2% in 2001 over 2000. The City of Black Hawk
itself experienced a 10.3% increase in gaming revenue in 2001.
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 of 783% since 1992 compared
to a negative growth for Central City of 16% over the same period. The number of
gaming devices in the City of Black Hawk has increased 242% since 1992, while
the number of gaming devices in Central City has declined 43% over the same
period.
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.
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,
California, Mississippi, Pennsylvania, Missouri, New Mexico 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. This agreement terminated on September 30, 2000.
9
Competition
Las Vegas, Nevada
Intense competition exists among companies in the gaming industry,
many of which have significantly greater resources than our Company. 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, 2001, the Las Vegas Convention and Visitors Authority
indicated that there were 24 casinos on the Las Vegas Strip which 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 during the next several years.
During calendar year 2001, approximately 2,340 new hotel rooms opened, and as of
December 31, 2001, there were no 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 our facilities. There can be no assurance that we will compete
successfully in the Las Vegas market in the future.
During 2001, available room nights in the Las Vegas market increased
from 44.7 million to 45.6 million or 2.1%, while total room nights occupied
decreased from 39.8 million to an estimated 38.6 million, or 2.9%. The ending
room inventory at December 31, 2001 was 126,610 compared to 124,270 at December
31, 2000, an increase of 2,340 rooms or 1.9%. This has had the effect of
intensifying competition. At Riviera Las Vegas, room occupancy decreased from
96.7% in 2000 to 91.6% in 2001 (still much higher than the Las Vegas Strip
average). However, room rates increased by $3.52, or 6.0% from $58.86 in 2000 to
$62.46 in 2001, due primarily to an increase in convention rooms sold and a
reduction in tour and travel rooms sold as a result of the September 11th
terrorist attacks.
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 results 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
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. Recent power
shortages, and possible utility rate increases in California could also
adversely affect our financial results. The events of September 11, 2001 have
had the most serious effect, and could continue to have an adverse effect on our
financial results.
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, promotional incentives, hotel rooms, 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, 2001
there were 25 gaming facilities in the Black Hawk market with 11 casinos each
offering more than 400 gaming positions. The Hyatt Casino, which features 1,335
slot machines, opened on December 20, 2001. Other projects have also been
10
announced, proposed, discussed or rumored for the Black Hawk/Central City
market.
The gaming facilities near the intersection of Main and Mill Streets
provide significant competition to our casino. Colorado Central Station, which
has been one of the most successful casinos 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, the most
successful casino in Colorado, operated by Casino America, which opened in
December 1998, is located directly across the street from our casino and
features approximately 1,145 slot machines, 14 table games, 1,000 parking
spaces, and 235 hotel rooms.
The number of hotel rooms currently in the Black Hawk/Central City
market is approximately 450, with only three gaming facilities providing hotel
accommodations to patrons. These include Harvey's Wagon Wheel Casino Hotel with
approximately 120 rooms, the Lodge at Black Hawk with approximately 50 rooms and
the Isle of Capri Casino with 235 rooms. 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 received approval for 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 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, Riviera Las Vegas licenses 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.
Employees and Labor Relations
Riviera Las Vegas
As of December 31, 2001 Riviera Las Vegas had approximately 1,411
full-time equivalent employees and had collective bargaining contracts with
eight unions covering approximately 813 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 Operating Engineers approved a new agreement that
expires in the year 2004. We are currently in negotiations with the Musicians
Union. The Agreements with the Carpenters and Painters expired in 2000. New
agreements, which expire in 2005, were negotiated with the Painters in 2000 and
Carpenters in 2001. New agreements were negotiated with the Teamsters in 1998
and Electricians in 1999 and expire in 2003 and 2004, respectively. On November
27, 2000, the Transport Workers Union filed a petition with the NLRB to
represent the Blackjack, Dice and Poker Dealers (or, the "Dealers"). On February
11
8 and 9, 2001, the Dealers voted against representation by this Union by a vote
of 107 to 61. This group totaled 190 at the time of the vote. 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. As of December 31, 2001, the total number of employees was 371. 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 Gaming Commission (the "Nevada Commission"),
the State of Nevada Gaming Control Board, the Clark County Business Department
(collectively, the "Clark County Board"), 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. Changes 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-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 (a licensed casino) 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 December 30, 1999 and
therefore the registration and license of Riviera Gaming Management-Elsinore are
no longer in effect after that date.
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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 or Riviera 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.
The Nevada Act requires any person who acquires more than 5% of a
Registered Corporation's (a corporate licensee) voting securities to report the
acquisition to the Nevada Commission. The Nevada Act requires that beneficial
owners of more than 10% of our 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 our voting securities may
apply to the Nevada Commission for a waiver of such finding of suitability if
such institutional investor holds our voting securities for investment purposes
only. An institutional investor shall not be deemed to hold our 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 our board of directors, any change in our corporate
charter, bylaws, management, policies or operations, or any of our gaming
affiliates, or any other action which the Nevada Commission finds to be
inconsistent with holding our voting securities for investment purposes only.
Activities which are deemed to be consistent with holding our voting securities
13
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 our 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 of our debt security to file applications, be investigated and be found
suitable to own our 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, we can be
sanctioned, including the loss of our approvals, if without the prior approval
of the Nevada Commission, we (i) pay to the unsuitable person any dividend,
interest, or any distribution whatsoever; (ii) recognize any voting right by
such unsuitable person in connection with such securities; (iii) pay the
unsuitable person remuneration in any form; or (iv) make 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
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
14
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.
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 original retail gaming license was approved by the Colorado Gaming
Commission on November 18, 1999, and has been successfully renewed each
subsequent year.
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.
15
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 Act 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 annually.
The Colorado Act declares public policy on limited stakes gaming to
be that: (1) the success of limited stakes gaming is dependent upon public
confidence and trust that licensed limited stakes gaming is conducted honestly
and competitively; the rights of the creditors of licensees are protected;
gaming is free from criminal and corruptive elements; (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 affirmative commission
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.
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.
16
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
to become a party. The Division Director or the Colorado Commission may require
changes in the lease or gaming contract before an applicant is approved or
participation in such agreement is allowed or may require termination of the
lease or gaming contract.
The Colorado Act and the Colorado Regulations require licensees to
maintain detailed records that account for all business transactions. Records
must be furnished upon demand to the Colorado Commission, the Division of Gaming
and other law enforcement authorities. The Colorado Regulations also establish
extensive playing procedures and rules of play for poker, blackjack and slot
machines. Retail gaming licenses must adopt comprehensive internal control
procedures. Such procedures must be approved in advance by the Division of
Gaming and include the areas of accounting, surveillance, security, cashier
operations, key control and fill and drop procedures, among others. No gaming
devices may be used in limited stakes gaming without the approval of the
Division Director or the Colorado Commission.
Licensees have a continuing duty to immediately report to the
Division of Gaming the name, date of birth and social security number of all
persons who obtain an ownership, financial or equity interest in the licensee of
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.
17
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. Annually during April, May and June, the Colorado
Commission, as mandated by the Colorado Regulations, shall conduct rule-making
hearings concerning the gaming tax rate and device fee rate for the subsequent
gaming year. However, rigid compliance with the Colorado Regulations is not
mandatory and shall in no way be construed to limit the time periods or subject
matters which the Colorado Commission may consider in determining the various
tax rates. 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
$62.50 per device on all devices exceeding 50. 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 $7.42 per device and a monthly transportation authority device fee of
$8.84 per device also may apply depending upon the location of the licensed
premises in Black Hawk.
Black Hawk also imposes taxes and fees on other aspects of the
businesses of gaming licensees, such as parking, alcoholic beverage licenses and
other municipal taxes and fees. Significant increases in these fees and taxes,
or the imposition of new taxes and fees, may occur.
Violation of the Colorado 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
18
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.
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.
19
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, 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, at
2901 Las Vegas Boulevard South, Las Vegas, Nevada and occupies approximately 26
acres. The buildings comprise approximately 1.8 million square feet, including
110,000 square feet of casino space, a 160,000 square foot convention, meeting
and banquet facility, approximately 2,100 hotel rooms (including approximately
169 luxury suites) in five towers, three 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 40 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 10% Notes.
Riviera Black Hawk
Riviera Black Hawk is located on 1.63 acres of land at 400 Main
Street, Black Hawk, Colorado. The buildings include approximately 325,000 square
feet and comprise 32,000 square feet of gaming space, parking for approximately
520 vehicles (substantially all of which are covered), a 252-seat buffet, two
bars and an entertainment center with seating for approximately 440 people.
The entire Riviera Black Hawk complex is encumbered by a first deed
of trust securing the 13% Notes.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
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 (and his heirs or successors) ("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 $1,522,587.50 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 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 on May 24, 2000, the
Court denied Morgens, Waterfall's motion.
On January 31, 2000, Morgens, Waterfall served an Amended Summons and
a First Amended Verified Complaint on Riviera Holdings Corporation with
subsequent service on directors. The Amended Complaint asserted four claims for
relief.
On April 17, 2000, the Company and its directors moved to dismiss
Morgens, Waterfall's Amended Complaint. In response, Morgens, Waterfall opposed
the directors' motion but "conceded" its claim against the Company. As a
consequence, Morgens, Waterfall no longer asserted any claim against the
Company, but it has opposed dismissing the Company from the action on the ground
that the Company was a "nominal defendant" with respect to the derivative claims
asserted by Morgens, Waterfall against the directors.
On October 1, 2001 Morgens, Waterfall, the Company and the directors
entered into a Settlement Agreement settling the Nevada Action. That Settlement
Agreement provides that plaintiff would release its claims with prejudice
against each defendant and each defendant would release its claims with
prejudice against plaintiff conditioned upon Mr. Westerman accepting service of
a subpoena to personally appear and testify at the trial of the California
Action and that Mr. Westerman appear and testify at the trial of the California
Action.
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 March 2, 2002, 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, 2001 and 2000, based on information provided by
certain brokers who have had transactions in the Company's Common Stock during
the year:
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- ------- ------- -------
2001
----
HIGH $7.38 $6.70 $6.35 $4.35
LOW 6.00 5.96 4.00 3.15
2000
----
HIGH $7.88 $8.13 $8.13 $7.63
LOW 5.88 6.75 6.75 6.50
On March 18, 2002, (the most recent trade date of the Company's
common stock), 1,500 shares were traded closing at $5.20 per share.
Item 6. Selected Financial Data
The following table sets forth a summary of selected financial data
for the Company for the years ended December 31, in thousands (except Net Income
(Loss) per Common Share):
---------------------------------- ------------ ------------ ----------- ------------ ------------
2001 2000 1999 1998 1997
---------------------------------- ------------ ------------ ----------- ------------ ------------
Net Operating Revenue $202,031 $201,531 $157,268 $159,955 $153,793
Net Income (Loss) (6,407) (4,215) (2,869) (4,057) 2,088
Net Income (Loss) Per Diluted
Common Share ($1.79) ($1.05) ($0.58) ($0.81) $0.40
Total Assets 267,818 283,710 288,990 244,909 347,866
Long-Term Debt 220,439 226,043 229,052 179,439 175,512
---------------------------------- ------------ ------------ ----------- ------------ ------------
22
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
2001 Compared to 2000
Special Factors Effecting Comparability of Results of Operations
Riviera Black Hawk was in the development stage during the first
quarter of 2000 until February 4, 2000 when it opened the casino. Accordingly,
the results of operations for the fiscal 2001 and fiscal 2000 results may not be
comparable.
The following table sets forth, for the periods indicated, certain
operating data for Riviera Las Vegas and Riviera Black Hawk. Net revenues
displayed in this table and discussed in this section are net of promotional
allowances. Operating income from properties is presented as shown on the
Consolidated Statement of Operations. EBITDA from properties for the purposes of
this table excludes corporate expense, pre-opening expense and inter-company
management fees.
Year Ended December 31, $ Change % Change
(In Thousands) 2001 2000 Inc/(Decr) Incr/(Decr)
Net revenues:
Riviera Las Vegas $ 152,985 $ 166,038 $(13,053) (7.9)%
Riviera Black Hawk 49,046 35,261 13,785 39.1 %
Riviera Gaming Management - 232 (232) (100.0)%
--------- --------- --------- --------
Total Net Revenues $ 202,031 $ 201,531 $ 500 0.2 %
========= ========= ========= ========
Operating Income
Riviera Las Vegas $ 9,350 $ 14,910 $ (5,560) (37.2)%
Riviera Black Hawk 7,622 1,881 5,741 305.2 %
Riviera Gaming Management (1) 88 (89) (101.1)%
--------- --------- --------- --------
Total Operating Income $ 16,971 $ 16,879 $ 92 0.5 %
========= ========= ========= ========
EBITDA:(1)
Riviera Las Vegas $ 21,493 $ 29,243 $ (7,750) (26.5)%
Riviera Black Hawk 12,722 6,597 6,125 92.8 %
Riviera Gaming Management (1) 88 (89) (101.1)%
--------- --------- --------- --------
Total EBITDA $ 34,214 $ 35,928 $ (1,714) (4.8)%
========= ========= ========= ========
EBITDA margin
Riviera Las Vegas 14.0 % 17.5 % (3.5)%
Riviera Black Hawk 25.9 % 18.7 % 9.3 %
Riviera Gaming Management 37.8 % (37.8)%
------ ------ -------
Total EBITDA Margin 16.9 % 17.4 % (0.5)%
====== ====== =======
(1) EBITDA consists of Earnings Before Interest, income Taxes, Depreciation,
Amortization, preopening expenses, and other, net. While EBITDA should not
be construed as a substitute for operating income or a better indicator of
liquidity than cash flows from operating activities, which are determined
in accordance with generally accepted accounting principles ("GAAP"), it
is included herein to provide additional information with respect to the
ability of the Company to meet its future debt service, capital
expenditures 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. EBITDA
margin is EBITDA as a percent of net revenues. The Company's definition of
EBITDA may not be comparable to other companies' definitions.
23
Riviera Las Vegas
Revenues
Riviera Las Vegas net revenues decreased by approximately $13.1
million, or 7.9%, from $166.0 million in 2000 to $153.0 million in 2001
primarily due to the effects of the recession and the September 11 terrorist
attacks. Casino revenues decreased approximately $6.7 million or 9.0%, from
$74.1 million during 2000 to $67.4 million during 2001. Slot revenues were down
7.0%, while table games revenues were down 13.6%. The hold percentages were
comparable for both table games and slot machines in 2001 and 2000. Room
revenues were comparable to the prior year, as the average room rate increased
$3.50 or 6% from $59.00 to $62.50 and hotel occupancy decreased from 96.6% to
91.6%. The decrease in air travel, especially long-haul flights from the east
coast, affected Riviera Las Vegas more than many of its competitors. The
Company's marketing efforts had been concentrated on airline customers who
traveled longer distances, paid more for their tickets and had a larger gaming
and entertainment budget. While this strategy was successful in prior years, the
effects of the September 11th terrorist attacks were devastating to this market
segment. Subsequent to September 11th, gaming marketing expenditures were
increased to protect and promote the slot customer base. Increased room
marketing efforts focus on customers in the western United States and these
efforts appear to be successful, based on the pace of advance bookings. Call
volumes, booking patterns and occupancy began to normalize in mid-January 2002.
In February 2002 Super Bowl, Chinese New Year and Presidents' Day weekend were
successful and occupancy is expected to increase steadily during the first and
second quarter of 2002. Although occupancy is recovering on the weekends, the
midweek occupancy rates vary significantly from day to day primarily due to
competitive pressures. Entertainment revenues decreased by approximately $4.1
million, or 16.7%, from $24.5 million during 2000 to $20.4 million during 2001
as attendance decreased approximately 27%, which was partially offset by a 13.6%
increase in ticket price. Competition for Riviera show customers, while
significant all year, intensified after September 11th. Tour and travel room
sales were down approximately 50% in the fourth quarter of 2001, which is an
important producer of show ticket sales and slot revenues. Other revenues
decreased by approximately $1.4 million, or 13.9%, from $9.9 million during 2000
to $8.5 million during 2001 due primarily to lower telephone revenues.
Income from Operations
Income from operations decreased $5.6 million or 37.2% from $14.9
million in 2000 to $9.3 million in 2001 due to the decreased revenues, which
were partially offset by lower entertainment contract expenses and a 9.4% or
$1.4 million reduction in depreciation expense. Entertainment costs are tied to
revenues and as a result of this relationship, the departmental results were
similar to the prior year. Depreciation decreased, as $20 million of equipment
purchased in 1993 became fully depreciated in 2000. In addition, the September
11th terrorist attacks caused management to accelerate the timing and magnitude
of staffing reductions. In excess of 300 full-time equivalent employees were
laid off, based on the reduction in volumes. These events have caused the
industry to reevaluate their cost structures and adjust payrolls accordingly.
EBITDA
Riviera Las Vegas EBITDA, as defined, decreased by approximately $7.8
million, or 26.5%, from $29.2 million in 2000 to $21.5 million in 2001. During
the same periods, EBITDA margin decreased from 17.5 % to 14.0% of net revenues.
Riviera Black Hawk
Special Factors Effecting Comparability of Results of Operations
Riviera Black Hawk was in the development stage during 1999 and until February
4, 2000 when the casino opened. Accordingly, the consolidated results of
operations for fiscal 2001 and 2000 may not be comparable.
Revenues
Riviera Black Hawk net revenues increased by approximately $13.8
million, or 39.1%, from $35.3 million in the 11 months of 2000 to $49.0 million
in the 12 months ended December 31, 2001 as the operation gained market share
and was, for the most part, unaffected by the events of September 11. Casino
revenues, primarily slot machines, increased by approximately $13.0 million, or
38.7%, from $33.6 million in the 11 months of 2000 to $46.7 million in the 12
months ended December 31, 2001. Average slot machine win per unit increased from
$114 per day in 2000 to $148 in 2001. Food and beverage revenues increased by
24
approximately $1.5 million, or 38.3%, from $4.0 million in the 11 months of 2000
to $5.6 million in the 12 months ended December 31, 2001. The remodeled buffet
and related marketing efforts resulted in a 45.6% increase in covers (customers)
and a 26.4% increase in average check (price).
Income from Operations
Income from operations increased $5.7 million or 305% from $1.9 million in the
11 months of 2000 to $7.6 million in the 12 months ended December 31, 2001 due
to the increase in revenues and better margins as marketing costs were
stabilized. Staffing was also optimized as full-time equivalent employees were
reduced from 450 at the opening in February 2000 to 350 at the end of 2001.
Although general and administrative costs increased $1.7 million, they were
23.5% of revenues in the current year compared with 27% in 2000. Depreciation
increased $809,000 or 27.5% in 2001 compared with the 11 months of operations in
2000.
EBITDA
Riviera Black Hawk EBITDA, as defined, increased by approximately $6.1
million, or 92.8%, from $6.6 million in the 11 months of 2000 to $12.7 million
in the 12 months ended December 31, 2001. During the same periods, EBITDA margin
increased from 18.7% to 25.9% of net revenues.
Consolidated Operations
Other Income (Expense)
Interest expense on the $175 million 10% First Mortgage Notes issued by
the Company of $17.5 million plus related amortization of loan fees and
equipment and other financing costs totaled approximately $20.1 million in 2001
and 2000. Interest expense on the $45 million 13% First Mortgage Notes issued by
Riviera Black Hawk in June 1999 combined with its interest from capital leases
totaled $6.7 million in 2001 compared with $7.7 million in 2000. Capitalized
interest of $616,000 in 2000 was primarily from the Black Hawk, Colorado
project.
Other expenses, net include an insurance reimbursement of Paulson
litigation costs of $1.2 million in 2000.
Net Loss
The consolidated net loss increased approximately $2.2 million from
$4.2 million in 2000 to $6.4 million in 2001. The effective income tax benefit
rates decreased from 37.2% in 2000 to 25.9% in 2001 because of permanent timing
differences for certain travel and entertainment expenses, along with
adjustments for tax credits which were considered deductions in prior years.
EBITDA
Consolidated EBITDA, as defined, decreased approximately $1.7
million, or 4.8%, from $35.9 million in 2000 to $34.2 million in 2000. During
the same periods, EBITDA margin decreased from 17.4% to 16.9% of net revenues.
Revenues
2000 Compared to 1999
Special Factors Effecting Comparability of Results of Operations
Riviera Black Hawk was in the development stage during 1999 and until
February 4, 2000 when the casino opened. Accordingly, the consolidated results
of operations for fiscal 2000 and 1999 may not be comparable.
25
The following table sets forth, for the periods indicated, certain operating
data for Riviera Las Vegas and Riviera Black Hawk. EBITDA from properties for
the purposes of this table excludes corporate expense, preopening expense and
intercompany management fees. Operating income from properties is presented as
shown on the Consolidated Statement of Operations.
Year Ended December 31, $ Change % Change
(In Thousands) 2000 1999 Inc/(Decr) Incr/(Decr)
Net revenues:
Riviera Las Vegas $ 166,038 $ 156,204 $ 9,834 6.2 %
Riviera Black Hawk 35,261 0 35,261
Riviera Gaming Management 232 1,064 (832) (78.2)%
--------- --------- -------- ------
Total Net Revenues $ 201,531 $ 157,268 $ 45,263 29.0 %
========= ========= ======== =======
Income (loss) from Operations
Riviera Las Vegas $ 14,910 $ 10,641 $ 4,269 40.1 %
Riviera Black Hawk 1,881 (595) 2,476 (416.0)%
Riviera Gaming Management 88 1,047 (959) (91.6)%
-------- -------- ------- ------
Total Operating Income $ 16,879 $ 11,093 $ 5,786 (52.1)%
======== ======== ======= ======
EBITDA:(1)
Riviera Las Vegas $ 29,243 $ 24,631 $ 4,612 18.7 %
Riviera Black Hawk 6,597 1 6,596
Riviera Gaming Management 88 1,047 (959) (91.6)%
-------- -------- -------- ------
Total EBITDA $ 35,928 $ 25,679 $ 10,249 39.9 %
======== ======== ======== ======
EBITDA margin
Riviera Las Vegas 17.61% 15.87% 2.00% 11.00%
Riviera Black Hawk 18.71%
Riviera Gaming Management 37.93% 98.40% (60.0)% (61.5)%