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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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
For the fiscal year ended December 31, 2004
[ ] Transition report pursuant to sections 13 or 15(d) of the Securities
Exchange Act of 1934
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
(State of Incorporation) (I.R.S. Employer Identification No.)
2901 Las Vegas Boulevard South
Las Vegas, Nevada 89109
- ------------------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (702) 734-5110
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Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, $.001 par value American Stock Exchange
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. [X]
Indicate by check mark whether the Registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act).
YES ___ NO _X_
Based on the closing sale price of the Registrant's common stock on
the American Stock Exchange as June 30, 2004 the aggregate market value of the
common stock held by non-affiliates of the Registrant was approximately
$21,930,678. As of March 14, 2005 the number of outstanding shares of the
Registrant's Common Stock was 12,340,755.
Documents incorporated by reference: None
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Page 1 of 57 pages
Exhibit Index Appears on Page 52 hereof.
RIVIERA HOLDINGS CORPORATION AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 2004
TABLE OF CONTENTS
Item 1. Business..........................................................3
General .......................................................3
Riviera Las Vegas..............................................3
Riviera Black Hawk.............................................7
Geographical Markets...........................................8
Management Activities and New Venue Prospects ................10
Competition...................................................10
Employees and Labor Relations.................................12
Regulation and Licensing......................................13
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 Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities.......................................................22
Item 6. Selected Financial Data..........................................23
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation..........................23
Overall outlook and Recent Developments.......................23
Results of Operations.........................................24
2004 Compared to 2003.........................................24
2003 Compared to 2002.........................................26
Liquidity and Capital Resources...............................28
Critical Accounting Policies..................................29
Recently Issued Accounting Standards..........................30
Forward-Looking Statements....................................31
Item 7A. Qualitative and Quantitative Disclosure About Market Risk.........32
Item 8. Financial Statements and Supplementary Data......................33
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.........................................33
Item 9A. Controls and Procedures...........................................33
Item 9B. Other Information.................................................33
Item 10. Directors and Executive Officers of the Registrant...............33
Item 11. Executive Compensation...........................................38
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters..................................46
Item 13. Certain Relationships and Related Transactions ..................49
Item 14. Principal Accountant Fees and Services...........................49
Item 15. Exhibits and Financial Statement Schedules.......................50
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.
The Company, 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.
The Company determines segments based upon geographic gaming markets
and also reviews corporate expenses separately. The Company has two segments:
the Las Vegas, Nevada market and the Black Hawk, Colorado market. The segment
information can be found in Note 15 of the Notes to the Consolidated Financial
Statements included in this document.
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 and various convention
groups 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 1,365 slot machines and 35 gaming tables, including blackjack,
craps, roulette, pai gow poker, Caribbean Stud(R) poker, Three Card Poker, Let
It Ride(R) and mini-baccarat. The casino also includes a keno lounge and a 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. In 2004 we installed a new slot monitoring system
that will help us expand our marketing capabilities and allow us to accelerate
our commitment to provide our customers with the benefits that are now available
with ticket-in/ticket-out ("TITO")technology.
Our current marketing programs are directed at mid-level gaming
customers as opposed to high-stakes bettors. Mid-level gaming customers tend to
provide a less volatile, more consistent gaming revenue stream. Consistent with
our focus on mid-level gaming customers is our tendency to offer lower table
game limits, stricter credit policies and more emphasis on slot machine play.
During 2004, we continued a number of initiatives at Riviera Las
Vegas to increase slot play, including the replacement of older slot machines
with new machines utilizing the ticket-in/ticket-out technology to improve
service and convenience to our customers, completed installation of our new
player tracking system, and maintenance of 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 (1) our ongoing slot upgrade program,
(2) implementation of our new player tracking system, (3) addition of new
signage, (4) promotion of the Riviera Las Vegas Player's Club, (5) sponsorship
of slot tournaments, (6) creation of promotional programs, (7) marketing of the
"Slot Frenzy" and "$40 for $20(R)" slot promotions, and (8) "Penny Town". Penny
Town is comprised primarily of penny and nickel slot machines, which is one of
the fastest growing segments of the Las Vegas slot market.
3
Hotel
Riviera Las Vegas' hotel is comprised of five towers with 2,100 guest
rooms, including 169 suites.
Riviera Las Vegas
Latest
Year Std. Refurbish
Built Rooms Suites Total Year
---- ----- ------ ----- ----
North Tower 1955 391 11 402 2004
South Tower 1967 147 31 178 2004
Monte Carlo 1974 220 72 292 2005
San Remo 1977 243 6 249 1998
Monaco 1988 930 49 979 2004
--- --- ----
Total 1,898 169 2,075
Despite the significant increase in rooms on the Las Vegas Strip since
1997, the Company believes Riviera Las Vegas has attained room occupancy rates
that are among the highest on the Las Vegas Strip. From 1994 to 2000, the
occupancy rate ranged from 95.2% to 98.2%, and was 91.5% for 2001, 89.6% for
2002, 92.2% for 2003 and 92.6% for 2004 (based on available rooms). The average
occupancy rate citywide was 88.6% in 2004 according to the Las Vegas Convention
and Visitors Authority (the "LVCVA").
Restaurants
The quality, value and variety of food services are critical to
attracting Las Vegas visitors. Riviera Las Vegas offers five bars and four
restaurants and serves an average of approximately 4,900 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:
Name Type Seating Capacity
Kady's Coffee Shop 290
Kristofer's Steak and Seafood 162
Ristorante Italiano Italian 126
World's Fare Buffet All-you-can-eat 366
---
944
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 A&W/KFC
Express, Pizza Hut Express(R), Panda Express(R), Quiznos(R) and La Salsa(R).
Riviera Las Vegas contracted with a third party for the remodel, ownership and
operation of a fifth restaurant at Riviera Las Vegas. This third party leases
the former Chinese restaurant and serves breakfast, lunch and dinner, and
features trendy appetizers, wine and has an ala carte menu with a French flair.
4
Convention Center
Riviera Las Vegas features 160,000 square feet of convention, meeting and
banquet space. The convention center is one of the larger 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 319 conventions in 2004. The hotel currently has over
575,000 convention related advance bookings of rooms through 2008 consisting of
over 375,000 definite bookings and over 200,000 tentative bookings. In 2004
approximately 30% of the rooms were occupied for conventions, and based on
current bookings we estimate that 30% of the rooms will be occupied for
conventions in 2005.
The Royal Pavilion portion of the convention center, which opened in
February 1999, and comprises approximately 60,000 square feet of our convention
facility, features state-of-the-art convention, meeting and banquet facilities,
teleconferencing, wireless Internet and satellite uplink capability and 12
skyboxes. The additional convention space at the Las Vegas and Mandalay
Convention Centers has enabled Las Vegas to attract and book new conventions
that may have had date and exhibit space conflicts in the past. Our flexibility
of meeting space and proximity to the Las Vegas Convention Center continue to
position us to increase our mix of small meetings and conventions, as well as
new multi-hotel conventions booked into the Las Vegas Convention Center.
Entertainment
Riviera Las Vegas has one of the most extensive entertainment
programs in Las Vegas, offering a variety of regularly scheduled shows and
special appearances by headline entertainers in concert. We believe
entertainment provides an attractive marketing tool to attract our customers.
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), and featured comedians at the Riviera
Comedy Club as well as a variety of regularly scheduled shows in our LeBistro
Theater. 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 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
---
2,365
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 have recently opened a nightclub, Syn City, which
operates five nights per week in our Le Bistro Theater. Syn City opens at 10:00
pm which allows us to continue to offer a variety of entertainment in the Le
Bistro Theater prior to 10:00 pm and during Syn City nights off.
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 Expansion Possibilities
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 specialty themed entertainment that will appeal to
the Riviera Las Vegas' main target audience, adults aged 45 to 65. The exit from
the complex would deliver patrons to the casino.
5
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 the indenture governing our $215 million 11% Senior
Secured Notes (the "Note 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.
On February 15, 2005, we announced that we have requested our financial
advisor, Jefferies & Company, Inc. ("Jefferies"), to explore strategic
alternatives for maximizing shareholder value, including development of our Las
Vegas property, refinancing, joint ventures, mergers and other methods of
realizing the value of our stock. We continue to work with Jefferies to explore
such alternatives.
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 track 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,
telemarketing and via e-mail.
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
loyal customer base which emphasizes (1) providing a high level of service to
our customers to ensure an enjoyable experience while at the Riviera Las Vegas,
(2) responding to customer surveys and (3) focusing marketing efforts and
promotional programs on customers with positive gaming profiles. We believe the
implementation of our new player tracking system will help us retain customers.
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, an outside consultant 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 targets and invites
the customers most appropriate for the customized events. In addition, we host
an array of special events, including slot and table game 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.
6
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 a variety of 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 conducted through June of 2004 indicate that approximately 67%
of the 2004 show patrons came from outside the hotel and approximately
two-thirds of these individuals gambled 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 but 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, the Las Vegas Convention
Center, the new Wynn Resort scheduled to open April 28, 2005, as well as
numerous non-gaming condominium and time share projects which are either planned
or under construction within walking distance of our casino. We do and will
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
(1) developing and promoting Penny Town, (2) providing a variety of quality,
value-priced entertainment and dining options, and (3) promoting "Slot Frenzy",
our daily slot tournament, 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: (1) those trade organizations and
groups that hold their events in the banquet and meeting space provided by a
single hotel and (2) 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 2004
we derived 30.3% 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
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 18% of total available rooms and 21% of occupied rooms. We make an
effort to convert many tour and travel customers who meet our target customer
gaming profile into repeat slot customers.
Internet
The Internet segment of our business remained stable in 2004. This
segment attracts customers in search of a bargain, those making last minute
travel arrangements and those who have the confidence in and find it convenient
to book rooms over the Internet. In both 2003 and 2004, our Internet bookings
accounted for approximately 12% of total available rooms and 14% of occupied
rooms.
Riviera Black Hawk
Business
Riviera Black Hawk opened on February 4, 2000. Located in Black Hawk,
Colorado, approximately 40 miles west of Denver, our casino is the first casino
encountered by patrons arriving from Denver on Highway 119. Our casino features
the third largest number of gaming devices in the market with approximately
1,000 slot machines and 10 blackjack tables. In Colorado, each slot machine and
each table game is considered one gaming device.
7
We also offer a variety of non-gaming amenities designed to help
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 252-seat casual buffet-styled restaurant;
o a new delicatessen;
o two themed bars; and
o an entertainment center with seating for approximately 400 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, 2004, there were 26 casinos in the Black
Hawk/Central City market, with 11 casinos each offering more than 400 gaming
devices. The Isle of Capri, located across the street from our casino, with
approximately 1,330 gaming machines and 1,000 covered parking spaces, has been
the market leader in terms of win per gaming device.
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, have tailored 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.
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 277,000 of these slot players have been identified as
of December 31, 2004. In addition, we promote our casino by advertising in
newspapers 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 LVCVA, the number of visitors who traveled to
Las Vegas during the 18-year period from 1986 through 2004 increased at a steady
and significant rate from approximately 15.2 million in 1986 to approximately
37.4 million in 2004, representing a 146.1% increase during that 18-year period.
Approximately 35 million people visited Las Vegas in 2001, 35.1 million in 2002,
35.5 million in 2003 and 37.4 million in 2004. Clark County gaming continued to
be a strong and growing business. Clark County gaming revenues increased from
$2.4 billion in 1986 to $8.7 billion in 2004, a 262.5% increase during that
period. Clark County gaming revenues were $7.6 billion in 2001 and 2002, $7.8
billion in 2003 and $8.7 billion in 2004. The terrorist attacks of September 11,
2001 had an adverse effect on the number of visitors traveling to Las Vegas.
Similar events in the future could have an adverse effect on the number of
visitors traveling to Las Vegas.
8
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 market is 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. Significant percentages 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 international visitors coming to Las Vegas.
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
95% from approximately 67,000 at the end of 1989 to approximately 131,500 at the
end of 2004, 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 met or exceeded 84% for each of the years from
1993 through 2004, with an occupancy rate of 88.6% in 2004. During 2004,
approximately 1,021 new hotel rooms opened in Las Vegas.
We believe that the growth in the Las Vegas market has been enhanced
as a result of: (1) a dedicated program by the LVCVA and major Las Vegas
casino/hotels to promote Las Vegas as a major convention site, (2) the increased
capacity of McCarran Airport and (3) 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 $1.2 billion of
economic impact. The number of convention delegates increased to over 5.7
million in 2004 with an economic impact in excess of $6.8 billion.
During the past ten 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 41.4 million
in 2004. Construction has recently been completed on numerous roadway
enhancements to improve access to the airport. McCarran Airport is ranked among
the 11th and 6th busiest airports in the world and North America, respectively,
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 $5.00. 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
mining communities were popular tourist towns. However, since the inception of
casino gaming in October 1991, gaming establishments have displaced many of the
former tourist-related businesses.
The first casino in the Black Hawk/Central City market opened in
October 1991, with 13 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 26 as of December 31, 2004.
The Black Hawk/Central City market primarily caters to "day-trip"
customers from Denver, Boulder, Fort Collins and Golden as well as Cheyenne,
Wyoming. As of December 31, 2003, the Denver Metropolitan Area had a population
of approximately 3.6 million and an average household income in excess of
$81,000.
Since 1992, the number of gaming devices in the Black Hawk/Central
City market has grown approximately 52% from 7,252 devices in 1992 to 11,000
devices in 2004. Gaming revenues in the Black Hawk/Central City market increased
by approximately 3.8% in 2004 over 2003. The City of Black Hawk itself
experienced an approximately 3.6% increase in gaming revenue in 2004.
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
9
major highways, as patrons must first pass through Black Hawk to access Central
City from Denver. There is, however, a new road that recently opened which links
Central City directly with Interstate 70 that allows customers to reach Central
City without driving through Black Hawk. Although this road will allow customers
to access Central City directly, we believe that most customers will continue to
frequent Black Hawk casinos because of the superior amenities Black Hawk casinos
offer. Due to this superior location, larger casino operators have focused on
building in 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.
Management Activities and New Venue Prospects
In order to capitalize on our expertise and reputation as a
successful operator 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 offers 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.
We filed an application with the Missouri Gaming Commission in
October of 2002 for a casino/hotel development project in Jefferson County,
Missouri, approximately 22 miles south of downtown St. Louis. Other applicants
had also filed applications for development projects in and around the St. Louis
metropolitan area. In August, 2004, the Missouri Gaming Commission granted two
licenses to another applicant.
We filed an application with the New Mexico Racing Commission in
March of 2002 for a "racino" in Hobbs, New Mexico. We and three other
prospective licensees made presentations to the Commission in November of 2003.
The Commission awarded the racino license to one of the other applicants.
The significant contribution of our Black Hawk property to our
shareholder value reinforces our effort to diversify into new venues. We are
regularly reviewing opportunities to expand and become a larger
multi-jurisdictional casino company. The jurisdictions include California,
Mississippi, Pennsylvania, Missouri, New Mexico, Iowa and Mexico. We will
continue to pursue contacts to manage other casino properties which may include
financially distressed casino properties where we believe we may be able to
effect a turn-around and which we can obtain a significant equity stake.
Competition
Las Vegas, Nevada
Intense competition exists among companies in the gaming industry,
many of which have significantly greater resources than we do. 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.
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 2004, approximately 1,000 new hotel rooms opened, and as of
December 31, 2004, there were approximately 4,000 hotel/motel rooms expected to
open in 2005. 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 2004, available room nights in the Las Vegas market increased
from approximately 46.8 million to approximately 47.4 million, or 1.2%, while
total room nights occupied increased from approximately 38.8 million to over
41.9 million, or 8.0%. The ending room inventory at December 31, 2004 was
approximately 131,500 compared to approximately 130,500 at December 31, 2003, an
increase of approximately 1,000 rooms or 0.8%. This has had the effect of
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intensifying competition. At Riviera Las Vegas, room occupancy increased from
92.2% in 2003 to 92.6% in 2004 (higher than the Las Vegas hotel average of
88.6%). Room rates increased by $4.41, or 7.3% from $60.40 in 2003 to $64.81 in
2004. Revenue per available room (Rev/Par) increased $4.33 or 7.8% from $55.66
in 2003 to $59.99 in 2004.
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 Native American lands has increased since the
enactment of the Indian Gaming Regulatory Act of 1988. California voters
addressed this issue on March 7, 2000 when they voted in favor of an amendment
to the California Constitution that allows Las Vegas-style gambling on Native
American lands in that state. While new gaming jurisdictions generally have 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, including customers 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. The events of
September 11, 2001 had the most serious effect on our financial results. Similar
events in the future could also 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,
2004, there were 21 gaming facilities in the Black Hawk market with 10 casinos
each offering more than 400 gaming positions. Additional projects have also been
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 765 slot machines, 10 gaming tables and
approximately 700 valet parking spaces. The Isle of Capri Casino, the most
successful casino in Colorado is located directly across the street from our
casino and features approximately 1,330 slot machines, 14 table games, 1,000
parking spaces, and 237 hotel rooms. Isle of Capri acquired Colorado Central
Station in 2003. The Isle of Capri is renovating Colorado Central Station by
adding a 1,400 space parking garage, a 165 room hotel and a restaurant on land
immediately across Main Street from Colorado Central Station and diagonally
across from our casino. We plan to construct an elevated walkway connecting our
property with the Isle of Capri. Also, Main Street is currently under
renovation. When completed ours will be the first property on Main Street to all
customers traveling to Black Hawk via State Route 119. Our parking garage will
be the first parking garage and will be easily accessible by way of a right hand
turn directly from Main Street. We believe that these renovations will increase
the probability that more customers will frequent the immediate area serviced by
Isle of Capri, Colorado Central Station and our casino. The renovations are
expected to be complete in 2005.
The number of hotel rooms currently in the Black Hawk/Central City
market is approximately 400, with only three gaming facilities providing hotel
accommodations to patrons. These include Fortune Valley, formerly 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 237 rooms. Casinos
offering hotel accommodations for overnight stay may have a competitive
advantage over our casino. However, we currently 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.
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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. However, there is a new road that recently opened, which links Central
City directly with Interstate 70 and allows customers to reach Central City
without driving through Black Hawk. Although this road allows customers to
directly access Central City, we believe that most customers will continue to
frequent Black Hawk casinos because of the superior amenities Black Hawk casinos
offer. This new road provides additional access to the Black Hawk/Central City
market, which is especially important on weekends when the traditional road
system is over burdened. We believe the new access road is important for the
continued growth of the market.
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. Voters of the State of Colorado have voted down a proposal which
would have authorized video lottery terminals in five race tracks in Colorado.
There is no guarantee that such or a similar proposal will not be approved in
the future.
Pursuant to a license agreement, Riviera Las Vegas licenses the use
at Riviera Black Hawk 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, 2004 Riviera Las Vegas had 1,340 full-time equivalent
employees and had collective bargaining contracts with eight unions covering
approximately 775 of such employees, including food and beverage employees,
rooms department employees, carpenters, engineers, stagehands, musicians,
electricians, painters and teamsters. Riviera Las Vegas' agreements with the
Painters Union and Carpenters Union expire in May and July, respectively , of
2005. Agreements with the Southern Nevada Culinary and Bartenders Union,
covering the majority of our unionized employees, were renegotiated in 2002 and
expire in 2007 as does the agreement with the Stagehands Union. The agreement
with the Teamsters Union expires in 2008 while the Operating Engineers and
Electrician agreements expire in 2009. The collective bargaining agreement with
the Musicians Union expired in 1999. Riviera Las Vegas is currently in
negotiations with the Musicians Union. On June 17, 2002, the Teamsters Union
filed a petition with the National Labor Relations Board to represent the clerks
in the marketing department. On July 26, 2002, the marketing clerks voted in
favor of representation by the Teamsters Union by a vote of 5 to 1. On February
23, 2004, at the request of the affected employees, the Teamsters Union withdrew
its interest in the representation of the marketing clerks. Although unions have
been active in Las Vegas, Riviera Las Vegas considers its employee relations to
be satisfactory. There can be no assurance, however, that new agreements will be
reached without union action or on terms satisfactory to Riviera Las Vegas.
Riviera Black Hawk
As of December 31, 2004, the total number of full-time equivalent
employees was 299. 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.
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Regulation and Licensing
Nevada
Nevada Gaming Authorities
The ownership and operation of casino gaming facilities in Nevada are
subject to: (1) The Nevada Gaming Control Act and the regulations promulgated
thereunder (collectively, the "Nevada Act") and (2) 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 "Nevada Board"), the Clark County Business
Department and the Clark County liquor/gaming authorities (collectively, the
"Clark County Board"), all of which we 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: (1) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time and in any
capacity; (2) the establishment and maintenance of responsible accounting
practices and procedures; (3) 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; (4) the prevention of cheating and
fraudulent practices; and (5) 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 operations.
Riviera Operating Corporation is required to be and is licensed by
the Nevada Gaming Authorities (a "Corporate Licensee"). 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.
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, Riviera Operating
Corporation without first obtaining licenses and approvals from the Nevada
Gaming Authorities. We and Riviera Operating Corporation have 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 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, we 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 questions pertaining to licensing are not subject to judicial
review in Nevada.
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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 its 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 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 that has obtained a waiver may, in certain circumstances,
hold up to 19% of our voting securities and maintain its waiver for a limited
period of time. 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
for investment purposes only include: (1) voting on all matters voted on by
stockholders; (2) 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 (3) 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 business entity 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 (1) pay that
person any dividend or interest upon voting our securities, (2) allow that
person to exercise, directly or indirectly, any voting right conferred through
securities held by that person, (3) pay remuneration in any form to that person
for services rendered or otherwise, or (4) 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 securities to file applications, be investigated and be found
suitable to own such securities, 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 (1) pay to
the unsuitable person any dividend, interest, or any distribution whatsoever,
(2) recognize any voting right by such unsuitable person in connection with such
securities, (3) pay the unsuitable person remuneration in any form; or (4) make
any payment to the unsuitable person by way of principal, redemption,
conversion, exchange, liquidation, or similar transaction.
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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, (1) 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; (2) the pledge of
the stock of a Corporate Licensee, such as Riviera Operating Corporation, is
void without the prior approval of the Nevada Commission; and (3) restrictions
upon the transfer of an equity security issued by a Corporate Licensee and
agreements not to encumber such securities are ineffective without the prior
approval of the Nevada Commission.
Changes in control of a registered 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 meet a variety of stringent standards
of the Nevada Board and Nevada Commission prior to assuming control of such
Registered Corporation. The Nevada Commission may also require controlling
stockholders, officers, directors and other persons having a material
relationship or involvement with the entity proposing to acquire control, to be
investigated and licensed as part of the approval process relating to the
transaction.
The Nevada legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and corporate defense
tactics affecting Nevada corporate gaming licensees and Registered Corporations
that are affiliated with those operations may be injurious to stable and
productive corporate gaming. The Nevada Commission has established regulations
to ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to: (1) assure the
financial stability of corporate gaming licensees and their affiliates; (2)
preserve the beneficial aspects of conducting business in the corporate form;
and (3) 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 Riviera Operating Corporation's operations are conducted.
Depending upon the particular fee or tax involved, these fees and taxes are
payable monthly, quarterly or annually and are based upon either: (1) a
percentage of the gross revenues received; (2) the number of gaming devices
operated; or (3) the number of table games operated. A live entertainment tax is
also paid by casino operations where entertainment is furnished in connection
with admission charges, the serving or selling of food, refreshments or the
selling of 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, or
required to be registered, or a person who is under common control with and of
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.
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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 Gaming and Liquor Regulation
Summary
In general, Riviera Black Hawk, its principal executive officers and those
of Riviera Holdings Corporation, and any Riviera Black Hawk employees who are
involved in Colorado gaming operations are required to be found suitable for
licensure by the Colorado Gaming Commission (the "Colorado Commission").
Colorado also requires that owners 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
renewed each subsequent year.
Background
Pursuant to an amendment to the Colorado Constitution (the"Colorado
Amendment"), limited stakes gaming became lawful in the cities of Central City,
Black Hawk and Cripple Creek on October 1, 1991. Limited stakes gaming means a
maximum single bet of five dollars on slot machines and in the card games of
blackjack and poker.
Limited stakes gaming is confined to the commercial district of Black
Hawk, as defined by Black Hawk on May 4, 1978. 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 Gaming Act (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 Colorado Act 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
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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 the following license applicable to
the operation of Riviera Black Hawk:
o operator,
o retail gaming,
o support, and
o key employee gaming licenses.
The first two licenses require annual renewal by the Colorado
Commission. Support and key employee licenses are issued for two-year periods
and are renewable by the Division Director. The Colorado Commission has broad
discretion to condition, suspend for up to six months, revoke, limit or restrict
a license at any time and also has the authority to impose fines.
An applicant for a gaming license must complete comprehensive
application forms, pay required fees and provide all information required by the
Colorado Commission and the Division of Gaming. Prior to licensure, applicants
must satisfy the Colorado Commission that they are suitable for licensing.
Applicants have the burden of proving their qualifications and must pay the full
cost of any background investigations. There is no limit on the cost of such
background investigations.
Gaming employees must hold either a support or key employee license.
Every retail gaming licensee must have a key employee licensee in charge of all
limited stakes gaming activities when limited stakes gaming is being conducted.
The Colorado Commission may determine that a gaming employee is a key employee
and require that such person apply for a key employee license.
A retail gaming license is required for all persons conducting
limited stakes gaming on their premises. In addition, an operator license is
required for all persons who engage in the business of placing and operating
slot machines on the premises of a retailer. However, a retailer is not required
to hold an operator license. No person may have an ownership interest in more
than three retail gaming licenses. A slot machine manufacturer or distributor
license is required for all persons who manufacture, import and distribute slot
machines in Colorado.
The Colorado Regulations require that every officer, director, and
stockholder of private corporations or equivalent office or ownership holders
for non-corporate applicants, and every officer, director or stockholder holding
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.
17
Duties of Licensees
A licensee must keep the Division of Gaming advised of its business
operations including, but not limited to, gaming contracts and leases. All rules
for conduct of gaming activity must be followed to the letter of Colorado
statute and regulations.
Licensees have a continuing duty to immediately report to the
Division of Gaming the name, date of birth and social security number of all
persons who obtain an ownership, financial or equity interest in the licensee of
5% or greater, who have the ability to control the licensee, who have the
ability to exercise significant influence over the licensee or who loan any
money or other thing of value to the licensee. Licensees must report to the
Division of Gaming all gaming licenses, and all applications for gaming
licenses, in foreign jurisdictions.
With limited exceptions applicable to licensees that are publicly
traded entities, no person may sell, lease, purchase, convey or acquire any
interest in a retail gaming or operator license or business without the prior
approval of the Colorado Commission.
All agreements, contracts, leases, or arrangements in violation of
the Colorado Amendment, the Colorado Act or the Colorado Regulations are void
and unenforceable.
Taxes, Fees and Fines
The Colorado Amendment requires an annual tax of up to 40% on the
total amount wagered less all payouts to players. With respect to games of
poker, the tax is calculated based on the sums wagered which are retained by the
licensee as compensation. 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 0.25% 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 municipality of Black Hawk assesses an annual device fee of
$750.00 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 Act or the Colorado Regulations generally
constitutes a class 1 misdemeanor, except as may be specifically otherwise
provided within the Colorado Act, which may subject the violator to fines or
incarceration or both. A licensee who violates the Colorado 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.
18
Requirements for Publicly Traded Corporations
The Colorado Commission has enacted Rule 4.5, which imposes
requirements on publicly traded corporations holding gaming licenses in Colorado
and on gaming licenses owned directly or indirectly by a publicly traded
corporation, whether through a subsidiary or intermediary company. The term
"publicly traded corporation" includes corporations, firms, limited liability
companies, trusts, partnerships and other forms of business organizations. Such
requirements automatically apply to any ownership interest held by a publicly
traded corporation, holding company or intermediary company thereof, where the
ownership interest directly or indirectly is, or will be upon approval of the
Colorado Commission, 5% or more of the entire licensee. In any event, if the
Colorado Commission determines that a publicly traded corporation, or a
subsidiary, intermediary company or holding company has the actual ability to
exercise influence over a licensee, regardless of the percentage of ownership
possessed by said entity, the Colorado Commission may require the entity to
comply with the disclosure regulations contained in Rule 4.5.
Under Rule 4.5, gaming licensees, affiliated companies and controlling
persons commencing a public offering of voting securities must notify the
Colorado Commission no later than ten business days after the initial filing of
a registration statement with the Securities and Exchange Commission. Licensed
publicly traded corporations are also required to send proxy statements to the
Division of Gaming within five 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 Act and the Colorado Regulations; limit
the rights of persons to transfer voting interests or securities of licensees
except in accordance with the Colorado 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
19
licensees, are subject to sanctions for paying dividends or distributions to
persons found unsuitable by the Colorado Commission, or for recognizing voting
rights of, or paying a salary or any remuneration for services to, unsuitable
persons. Licensees or their affiliated entities also may be sanctioned for
failing to pursue efforts to require unsuitable persons to relinquish their
interest. The Colorado Commission may determine that anyone with a material
relationship to, or material involvement with, a licensee or an affiliated
company must apply for a finding of suitability or must apply for a key employee
license.
Alcoholic Beverage Licenses
The sale of alcoholic beverages in gaming establishments is subject
to strict licensing, control and regulation by state and local authorities.
Alcoholic beverage licenses are revocable and nontransferable. State and local
licensing authorities have full power to limit, condition, suspend for as long
as six months or revoke any such licenses. Violation of state alcoholic beverage
laws may constitute a criminal offense resulting in incarceration, 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 Las Vegas
The Riviera Las Vegas 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, 2,070 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 approximately 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 Riviera Las Vegas and Riviera Black Hawk properties are
encumbered by deeds of trust securing our 11% Senior Secured Notes (the "11%
Notes") and our five-year senior secured credit facility, which matures in July
2007.
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 400 people.
The Riviera Las Vegas and Riviera Black Hawk properties are
encumbered by deeds of trust securing the 11% Notes and the senior secured
credit facility.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
20
Item 3. Legal Proceedings
We are a party to several routine lawsuits, either as plaintiff or as
defendant, arising from the normal operations of a hotel or casino. We do not
believe that the outcome of such litigation, in the aggregate, will have a
material adverse effect on our financial position or results of our operations.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
21
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
(a) Our common stock began trading on the American Stock Exchange
("AMEX") on May 13, 1996 and was reported on the Over-the-Counter Bulletin Board
prior to that date. As of March 21, 2005, based upon information available to us
from our stock transfer agent and non-objecting beneficial ownership list, we
believe there were approximately 600 beneficial holders of our common stock.
We have never paid any dividends on our common stock and do not
currently expect to pay any dividends (cash or otherwise) on our common stock
for the foreseeable future. Our ability to pay dividends is primarily dependent
upon receipt of dividends and distributions from our subsidiaries which
currently include the operations of Riviera Las Vegas and Riviera Black Hawk. In
addition, the Note Indenture and our secured credit facility materially restrict
our ability to pay dividends.
Our common stock is traded on AMEX under the symbol RIV. We do not
currently meet the earnings or net worth standards of AMEX. We have been
informed, however that according to AMEX policy, AMEX will not normally consider
suspending dealings in or delisting the securities of a company that does not
meet the earnings or net worth standards if the company's publicly held shares
have a market value of at least $15 million. However, we can not give any
assurance that Amex will follow that policy or that our share price will enable
us to meet that standard in the future. Based on the number of our publicly
held shares as of March 21, 2005, our share price would have to be at leaset
$1.22 in order for us to meet the $15 million standard If our shares were
eventually delisted from AMEX, the marketability and liquidity of our common
stock could be significantly reduced.
The table below sets forth the high and low closing prices by quarter
for the years ended December 31, 2004 and 2003, based on AMEX reported prices by
certain brokers who have had transactions in our common stock during the year,
after giving effect to the three-for-one stock split effective March 11, 2005:
First Second Third Fourth
Quarter Quarter Quarter Quarter
2004
HIGH $2.68 $3.27 $6.43 $13.93
LOW 1.80 2.64 2.88 6.18
2003
HIGH $1.66 $2.10 $1.88 $ 1.90
LOW 1.22 1.32 1.69 1.78
On March 21, 2005, 43,700 shares of our common stock were traded on
AMEX, with a reported closing price of $12.57 per share.
22
Equity Compensation Plan Information (as of December 31, 2004)
- --------------------------------------------------------------
A B C
Plan category Number of securities to Weighted-average Number of securities
- ------------- be issued upon exercise exercise price of remaining available
of outstanding options, outstanding options, for future issuance
warrants and rights warrants and rights under equity compensation
---------------------- ------------------- plans (excluding
securities reflected
in column A)
---------------
Equity compensation
plans approved by
security holders 477,000 $2.42 -0-
Equity compensation
plans not approved
by security holders -0- -0- 440,538(1)
Total 477,000 $2.42 440,538
(1) Of the 440,538 shares referenced in column C of the above table,
394,518 are from the Company's Restricted Stock Plan and 46,020 are from the
Company's Stock Compensation Plan for Directors Serving on the Compensation
Committee, which are described in Notes 1 and 13, respectively, of the Company's
consolidated financial statements.
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 Loss
Per Diluted Common Share, and adjusted for three-for-one stock split):
------------------------ ---------- ---------- --------- ---------- ---------
2004 2003 2002 2001 2000
------------------------ ---------- ---------- --------- ---------- ---------
Net Operating Revenue $201,350 $190,159 $188,292 $202,031 $201,531
Net Loss (2,086) (14,453) (24,722) (6,407) (4,215)
Net Loss Per Diluted
Common Share ($0.20) ($1.39) ($2.39) ($.60) ($.35)
Total Assets 217,536 221,538 235,896 267,818 283,710
Long-Term Debt 216,467 219,625 220,124 220,439 226,043
------------------------ ---------- ---------- --------- ---------- ---------
The net losses for 2003 and 2004 were impacted by $2.4 million or ($0.23) per
share and $1.1 million or ($0.10) per share, respectively, for development and
project costs.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overall Outlook and Recent Developments
We own and operate the Riviera Las Vegas on the Las Vegas Strip in
Las Vegas, Nevada, and the Riviera Black Hawk in Black Hawk, Colorado.
Our capital expenditures for Las Vegas are geared to maintain the
hotel rooms and amenities in sufficient condition to compete for our customers
in the convention market and the mature adult customer. Room rates and slot
revenues are the primary factors driving our operating margins. We use
technology to maintain labor costs at a reasonable level, including kiosks for
hotel check-in and slot club redemptions. In addition, we are in the process of
updating our gaming monitoring systems, including TITO capability on our slot
machines. At December 31, 2004 substantially all of our slot machines had been
converted to the new gaming monitoring system. As of December 31, 2004 we had
485 slot machines, or approximately 36% of our slot machines in Las Vegas, on
TITO. Depending upon the success of these conversions, we may accelerate the
conversion of the remaining machines or we may convert them based on normal
23
replacement schedules. If we accelerate the process, we would have to finance
the additional slot machine purchases by using our revolving credit facility or
separate financing arrangements for approximately $10 million.
In Black Hawk, the $5 maximum bet restricts table games to a minimum
and the area is basically a "locals" slot customer market. Our capital
expenditures in Black Hawk are geared to maintain competitive slot machines
compared to the market. The gaming authorities approved TITO systems in Colorado
for Riviera Black Hawk on December 16, 2003 and we had 35 of our slot machines
on the TITO system as of December 31, 2003. By the end of 2004 we had 515 slot
machines, or 51% of our slot machines in Black Hawk, on TITO. Again, depending
upon the success of these conversions, we may accelerate the conversion of the
remaining machines or we may convert them based on normal replacement schedules.
If we accelerate the process, we would have to finance the additional slot
machine purchases by using our revolving credit facility or separate financing
arrangements for approximately $6 million.
Effective March 11, 2005, we effected a three-for-one split of our
common stock. This increased the number of outstanding shares of our common
stock (net of treasury shares) to 12,340,755. All per share -related information
in this Form 10-K has been adjusted to reflect the stock split.
On February 15, 2005, we announced that we have requested our Jefferies
to explore strategic alternatives for maximizing shareholder value, including
development of our Las Vegas property, refinancing, joint ventures, mergers
and other methods of realizing the value of our stock. We continue to work
with Jefferies to explore such alternatives.
In 2004, we entered into confidential discussions regarding a potential
sale of our company to a third party. Discussions with one third party, which
commenced in 2004, ended in 2005 and we retained a one million dollar fee paid
to us by that third party. Such amount will be reflected in our 2005 first
quarter results.
Subject to stockholder approval at our 2005 annual meeting, we intend to
implement two new stock option plans and allocate a total of 1,150,000 shares to
them. We will grant options for 6,000 shares to each non-emplyee director on
the effective date of the plan. The option exercise price will be the closing
market price of our stock on the date of the option grant. The options will
vest over five years at 20% per year, commencing on the first anniversary of the
grant.
We will allocate one million shares to a new incentive stock option plan
for our officers and key employees. Our Compensation Committee will have
discrestion as to whom those options will be granted and the number of shares
to be allocated to each option grant. The option exercise price will be the
closing market price of our stock on the date of the option grant. The options
will vest over four years, with 20% vesting on the date of grant, and an
additional 20% on each anniversary of the grant.
At our 2005 annual meeting, we also intend to ask for shareholder
approval to issue 30,000 shares of stock to our four non-employee directors. In
April and May of 2004, we attempted to grant to those directors stock options
for a total of 30,000 shares. However, we later determined that our stock
option plan had expired before the attempted grant, rendering those options null
and void.
In March 2005, we granted to 19 of our executives a total of 337,500
shares of stock under our Restricted Stock Plan in substitution for options
for 337,500 shares that we attempted to grant to them in July 2003. We later
determined that our stock option plan had expired before our attempted grant of
the options, which rendered them null and void. The shares are subject to a 20%
annual vesting schedule, commencing March 10, 2006. The shares vest immediately
upon death, disability, retirement at age 62, termination of employment by us
other than for cause, an event of hardship as approved by the Compensation
Committee, or in the event of a change in control of our company.
Results of Operations
2004 Compared to 2003
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 cash rebates
and promotional allowances. Operating income from properties is presented as
shown on the Consolidated Statement of Operations.
24
Year Ended December 31, $ Change % Change
(In Thousands) 2004 2003 Incr/(Decr) Incr/(Decr)
Net revenues:
Riviera Las Vegas $ 147,949 $ 140,963 $ 6,986 5.0 %
Riviera Black Hawk 53,401 49,196 4,205 8.5 %
------- ------- ------ -------
Total Net revenues $ 201,350 $ 190,159 $ 11,191 5.9 %
======= ======= ====== =====
Operating income:
Riviera Las Vegas $ 19,271 $ 12,373 $ 6,898 55.8 %
Riviera Black Hawk 10,919 7,377 3,542 48.0 %
Development and Project Costs (1,193) (2,365) 1,172 (49.6)%
Corporate Expenses (4,038) (4,485) 447 (10.0)%
------- ------- ------ -------
Total Operating income $ 24,959 $ 12,900 $ 12,059 93.5 %
======= ======= ======= =======
Riviera Las Vegas
Revenues
Riviera Las Vegas net revenues increased by approximately $7.0
million, or 5.0%, from $141.0 million in 2003 to $148.0 million in 2004
primarily due to increased average daily rate for our rooms, higher average
check in our restaurants and increased covers in our entertainment venues. Room
revenues increased $2.6 million, as the average room rate increased $4.41 or
7.3% from $60.40 to $64.81 and hotel occupancy increased from 92.2% to 92.6%.
Revenue per available room (Rev Par) increased $4.33 from $55.66 to $59.99 or
7.8%. The increase is due to a 3.0% increase in Convention room revenue, which
made up 40% of total room revenue. Food and Beverage revenue increased by $1.4
million, or 5.3% due to higher menu prices resulting in higher average check in
all restaurants. Entertainment revenues increased by approximately $2.3 million
or 12.5% from $18.4 million during 2003 to $20.7 million during 2004 due to the
addition of new shows and popularity of some of our existing shows resulting in
an overall attendance increase of 17.6%.
Operating Income
Operating income increased $6.9 million or 55.8% from $12.4 million
in 2003 to $19.3 million in 2004 primarily due to the increased revenues as
discussed above. During 2004, casino marketing and other expenses decreased $2.5
million which contributed to approximately 4% of the increase in margin. Room
operating income increased $1.3 million and the margin increased slightly. Food,
beverage and entertainment costs increased $4.0 million, which caused margins to
decrease approximately 3%. Depreciation was down $1.9 million as significant
equipment purchases five to seven years earlier became fully depreciated.
Riviera Black Hawk
Revenues
Riviera Black Hawk net revenues increased $4.2 million, or 8.5% from
$49.2 million in 2003 to $53.4 million in 2004, as the operation increased
market share despite increased competition. Casino revenues, primarily from slot
machines, increased by $4.7 million, or 10.0% from $46.4 million in 2003 to
$51.4 million in 2004 due to higher win per customer. Average slot machine win
per unit increased from $149 per day in 2003 to $177 per day in 2004.
Operating Income
Operating income increased by $3.5 million, or 48.0% from $7.4 million
in 2003 to $10.9 million in 2004. Due to increased incentive and ESOP
contributions as a result of increased profits, general and administrative costs
increased by $488,000. However, general and administrative expense as a percent
of revenue decreased from 22.7% in 2003 to 21.8% in 2004.
25
Consolidated Operations
Other Income (Expense)
Interest expense for 2004 was $27.1 million, of which $25.3 million
related to interest and amortized loan fees on the 11% Notes. In 2003 our
interest expense was $27.4 million. Corporate expenses decreased from $4.5
million in 2003 to $4.0 million in 2004 due to expenses incurred in 2003
associated with a shareholder vote to amend our articles of incorporation.
Net Loss
The consolidated net loss decreased approximately $12.4 million from
$14.5 million in 2003 to $2.1 million in 2004 mainly due to increased income
from operations as explained above. Results for 2003 were impacted by
development and projects costs totaling $2.4 million. We filed an application
with the New Mexico Racing Commission in March of 2002 for a "racino" in Hobbs,
New Mexico. We and three other prospective licensees made presentations to the
Commission in November of 2003. The Commission awarded the racino license to one
of the other applicants and we wrote off $1.3 million of costs associated with
the project. In addition during 2003 we wrote off development and project costs
associated with our Missouri project totaling $1.1 million. In August 2004, the
Missouri Gaming Commission awarded the license to one of the other applicants
and we wrote off an additional $1.0 million in development and project costs
associated with the project. The Missouri cost coupled with New Mexico wind-up
costs of $100,000 incurred in 2004 resulted in a total write off of $1.1 million
in 2004.
Results of Operations
2003 Compared to 2002
The following table sets forth, for the periods indicated, certain
operating data for the Riviera Las Vegas and Riviera Black Hawk. Net revenues
displayed in this table and discussed in this section are net of cash rebates
and promotional allowances. Operating income from properties is presented as
shown on the Consolidated Statement of Operations.
- ----------------------------------------------------------- -------------------
Year Ended December 31, $ Change % Change
(In Thousands) 2003 2002 Incr/(Decr) Incr/(Decr)
Net Revenues:
Rivera Las Vegas $140,963 $139,159 $1,804 1.2%
Riviera Black Hawk 49,196 49,133 63 0.1%
------ ------ ----- ----
Total Net revenues $190,159 $188,292 $1,867 1.0%
-------- -------- ------ ----
Operating Income:
Riviera Las Vegas $12,373 $12,265 $108 0.9%
Riviera Black Hawk 7,377 7,350 27 0.4%
Development and Project Costs (2,365) (2,365) -
Corporate Expenses (4,485) (3,762) (723) (19.2)%
------- ------- ----- -------
Total Operating Income $12,900 $15,853 $(2,953) (18.6)%
------- ------- -------- -------
26
Riviera Las Vegas
Revenues
Riviera Las Vegas net revenues increased by approximately $1.8
million, or 1.3%, from $139.2 million in 2002 to $141.0 million in 2003
primarily due to increased hotel occupancy and increased average daily rate.
Room revenues increased $2.0 million, as the average room rate increased $0.47
or 0.8% from $59.93 to $60.40 and hotel occupancy increased from 89.6% to 92.2%.
Revenue per available room (Rev Par) increased $1.96 from $53.70 to $55.66 or
3.6%. The increase is due to a 3.4% increase in Convention room revenue, which
made up 41% of total room revenue and 30% of occupied rooms. A report by the
LVCVA indicates that visitor volume for 2003 was up 1.3% from 2002 levels.
Casino revenues decreased approximately $658,000 or 1.1%, from $59.6 million
during 2002 to $59.0 million during 2003. Slot revenues were up 1.3%, while
table games revenues were down 7.9%. The hold percentage was comparable for slot
machines in 2003 and 2002. Table games hold percentage was down 1.2% from 2002
to 2003. Entertainment revenues increased by approximately $827,000 or 4.7% from
$17.6 million during 2002 to $18.4 million during 2003 as attendance increased
3.8%, which was partially offset by a 1.7% decrease in average ticket price.
Operating Income
Operating income decreased $108,000 or 0.9% from $12.3 million in
2002 to $12.4 million in 2003. Although revenues increased, that increase was
offset by increased general and administrative expenses due to a change in the
structure of the CEO's compensation and additional professional fees associated
with corporate governance.
Riviera Black Hawk
Revenues
Riviera Black Hawk recorded similar net revenues in 2003 as it had in
2002, from $49.1 million in 2002 to $49.2 million in 2003 as the operation held
on to market share in the face of increased competition. Casino revenues,
primarily from slot machines, increased slightly by approximately $272,000 or
0.6% from $46.5 million in 2002 to $46.7 million in 2003. Average slot machine
win per unit increased from $142 per day in 2002 to $149 in 2003. Food and
beverage revenues decreased by approximately $1.0 million or 15.1% from $6.6
million in 2002 to $5.6 million in the 2003.
Operating Income
Operating income remained the same at $7.4 million in 2002 and 2003.
General and administrative costs increased $836,000. General and administrative
costs were 22.7% of revenues in 2003 compared with 22.1% in 2002 due to $419,000
in costs relating to our portion of the campaign to defeat Amendment 33, which
would have authorized slot machines at racetracks in the state of Colorado.
Consolidated Operations
Other Income (Expense)
Interest expense for 2003 was $27.4 million, of which $25.3 million
related to interest and amortized loan fees on the 11% Notes. Interest expense
on the 11% Notes of $12.2 million plus related amortization of loan fees totaled
approximately $13.0 million in 2002. In addition, the interest expenses on the
retired 10% First Mortgage Notes, the retired Black Hawk 13% First Mortgage
Notes, and equipment and other financing costs totaled approximately $13.8
million in 2002 for a combined total of interest expense of $26.8 million.
Fiscal 2002 results were affected by the loss on extinguishment of debt totaling
$11.2 million. The costs included the call premium on our refinanced 10% First
Mortgage Notes and Riviera Black Hawk's refinanced 13% First Mortgage Notes, the
write off of unamortized deferred loan costs associated with the refinanced
bonds and the balance of the original issue discount on the 10% First Mortgage
Notes. Furthermore, the results were affected by approximately $2.7 million of
additional net interest expense, incurred as a result of the defeasance /
retirement of the debt.
Net Loss
The consolidated net loss decreased approximately $10.2 million from
$24.7 million in 2002 to $14.5 million in 2003 mainly due to the cost of
extinguishment of debt of $11.2 million and defeasance interest of $2.7 million
in 2002 as explained above. Results for 2003 were impacted by development and
projects costs totaling $2.4 million. We filed an application with the New
Mexico Racing Commission in March of 2002 for a "racino" in Hobbs, New Mexico.
We and three other prospective licensees made presentations to the Commission in
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November of 2003. The Commission awarded the racino license to one of the other
applicants and we wrote off $1.3 million of costs associated with the project.
We filed an application with the Missouri Gaming Commission on October 9, 2002
for a casino/hotel development project in Jefferson County, Missouri. In
February 2004, St. Louis County endorsed another gaming operator for a
casino/hotel development project. St. Louis County is located directly to the
north of Jefferson County. In August 2004 the Missouri Gaming Commission awarded
the license to the St. Louis County-endorsed applicant. During 2003 we incurred
$1.1 million of development and project costs associated with the Missouri
project.
Liquidity and Capital Resources
We had cash and cash equivalents of $18.9 million at December 31, 2004,
which was a decrease of $458,000 from December 31, 2003. Cash balances include
amounts that may be required to fund our CEO's pension obligation in a rabbi
trust with 5 days notice. (See Note 7 to the financial statements, Other
Long-Term Liabilities.) Although we are aware of no current intention of our CEO
to require this funding, under certain circumstances, approximately $5.2 million
would have to be disbursed in a short period.
For 2004, our net cash provided by operating activities was $12.4
million compared to $6.2 million in 2003 due primarily to an increase in
operating income. Cash flows used in investing activities were $10.1 million in
2004 compared to $8.3 million in 2003 due to an increase in capital
expenditures. Net cash used in financing activities was $2.8 million in 2004
compared to cash provided by financing activities of $1.2 million in 2003. We
believe that cash flow from operations, combined with the $18.9 million cash and
the $30 million available on our Senior Secured Credit Facility discussed below,
will be sufficient to cover our annual debt service and enable our investment in
budgeted capital expenditures. Such expenditures include approximately $8.0
million in maintenance capital expenditures (approximately $4 million of which
will be used to purchase 330 TITO machines for both properties) and property
upgrades of approximately $11.4 million. Approximately $8.4 million of the
property upgrades are associated with the Riviera Black Hawk expansion project
which includes the expansion of Main Street in front of our casino, construction
of a pedestrian bridge connecting our property directly with the Isle of Capri,
and expansion of the front of the casino and the purchase of additional machines
at the Riviera Black Hawk. The remaining $3.0 million of property upgrades will
be used primarily to complete the room renovation program at Rivera Las Vegas.
On June 26, 2002, we secured new debt in the principal amount of $215
million in the form of the 11% Notes with a maturity date of June 15, 2010.
Interest on the 11% Notes is at the annual rate of 11% paid semiannually on each
June 15 and December 15, beginning December 15, 2002. The net proceeds of the
11% Notes, along with ca