CRITICAL METRICS 1. Revenue (Promotional allowances and departmental revenue-Gaming, Hotel, Food and Beverage) 2. EBITDA 3. Balance sheet ratio analysis a. Debt structure and free cash flow generation b. Interest cover ratio 4. Departmental margins 5. Visitor numbers 6. Marketing - Total marketing expense spend per category (Promotions, advertising, etc.) a. Promotional spend per department 7. Complete list of expenditure incurred on a contract basis 8. Labour expense by department a. Head Count 9. Slot volume and win a. Yield optimization for slots 10. Table volume and win 11. Customer behaviour a. Player tracking-minutes played, point redemption for all facilities b. Repeat customer database mining 12. Perceived customer service level a. Customer satisfaction survey b. Mystery shopper 13. Employee turnover percentage (related statistics-absenteeism, sick leave) 14. Hiring and expansion of child-care services - number of “covers” expected at the facility HR POLICY AND STRATEGY Prior to 2008 2008 Going forward -Cut payroll costs by retrenching staff -No further staff retrenchments – should natural attrition take place, non-essential positions will not be replaced. This will help the property avoid union problems -Staff members required to perform multiple -Provide customized training to employees – Guest responsibilities outside of job descriptions management; promote internally by developing skill sets -No incentive plans, bonus structures -Develop an incentive program for employees based on their ability to provide excellent customer service -Lack of communication between management and -Improve communication with staff by holding employees regular weekly meetings and collecting feedback -Lack of staff participation and engagement in the -Employee recognition programs (intangible future of the operation, resulting in staff feeling less enhancement vs. tangible/monetary incentives), empowered round table forums/dinner with GM’s for departments performing well, employee of the month, incentives for hosts who achieve targets -Understaffed as a result of retrenchments resulting -Internal relationship marketing with employees in longer shifts and staff being unable to take leave (both annual and sick) Goals in sending out memo to associates: -Alleviate employees’ fear surrounding potential further retrenchments and/or lay-offs -Inform employees that the owners are dedicated to the property’s viability and continuity as a going concern and that the employees are an integral part of that success MEMORANDUM DATE: November 6, 2009 TO: All Staff FROM: Tarrin Wang DEPARTMENT: Human Resources CC: Department Heads Riviera Market Strategy As our organization continues to face declining revenue and income streams resulting from increased competition we seek to take what are sometimes difficult steps to not only regain share, but to ensure the long-term viability of the property and company. Over the past few years many of you have noticed a reduction in the number of employees working on property along with a declining customer-base and subsequent reductions in customer-spend. While we’ve strived to match our labor spend with revenue we also sought to more aggressively reward our gamers through increased comps. To date, the property has been successful in keeping labor expenses in line with revenue and in growing our spend on comps, unfortunately, that has not translated into growing profits. As a matter of fact, during 2009 our cash earnings before depreciation declined 19%. Many of you are aware of our recent decisions to forego multiple $4 million interest payments to our lender. This decision was made to ensure we maintain enough cash on property to meet both our operating expenses and regulatory requirements. Needless to say, our continued failure to meet interest obligations could result in the closure of the Riviera. Over the past several weeks the management team at this property has been crafting a new “Riviera Market Strategy” designed to grow current employment levels, increase free cash flow and bring some vibe back to this historic property. Based on extensive research, market studies, detailed analysis and feedback from our customers we’ve discovered some significant opportunities where the property can capitalize. These areas include: • Family-oriented customers who would find our arcade, movie theater, pool, bowling alley, close proximity to Circus Circus, kid-friendly restaurants, fun atmosphere, recently renovated rooms and low prices appealing. • Convention-goers who would appreciate our close proximity to the Sands Convention Center, recently renovated rooms, unpretentious restaurants, world class entertainment such as “Crazy Girls”, affordable gaming and Strip location. • Other customers who strongly desire to stay “on the Strip” without having to pay exhorbitant prices. The strategy we’ll be rolling out, based on these three core customer segments, is designed to increase the number of rooms occupied, albeit at lower prices; however, additional upside can be realized from increased covers in our food outlets, a busier casino floor resulting in increased gaming win and a more “alive” casino. To achieve this strategy we need your help. I firmly believe, as a team, we can pull together and bring the Riviera back to its glory days. For many years this property has positioned itself, incorrectly, as a strictly adult business. The reality of it is, as you know, we have many kid-friendly assets that, when utilized properly, can generate cash flow for the property. While we recognize it may be difficult to do an about- face and now embrace the families who choose the Riviera, we know it’s possible and not only in the best interest of our guests and management, but you as well. To ensure our guests are satisfied with this largely untested product, we will be investing a small amount of money into renovating the child-care facility. Additionally, based on research suggesting customers don’t feel safe at our property, we will be installing additional surveillance cameras and hiring additional security guards to ensure safety issues are dealt with quickly and professionally. Because we can expect a new “type” of customer going forward we’ll be conducting new customer service courses and implementing new incentive programs to get all of our associates involved and engaged. These include: • Highly customized in-house customer service courses for all front-line associates • Implementation of the “Riviera Associate Recognition Program” to reward our most important asset – you – when you successfully execute tactics designed to achieve our strategy • Implementation of an incentive program for all associates when our property achieves specific targets – more information on this program later We’re very excited to begin executing our new strategy and hope you see the potential in it. Success will not only come from management’s ability to reposition this property but will also come from all of you – the very people about whom we hope to be able to one day say “helped us keep the Riviera alive for another 50 years”. Thank you, Tarrin Wang Director of Human Resources BACKGROUND ♦ Developed in 1955 as the Strip’s first high-rise and ninth resort, the Riviera was seen as an innovator in terms of design as well as a renowned property in the industry with an established brand. ♦ Targeted the mid-market gambler with an offering geared towards adults and actively discouraged children from visiting the resort. ♦ Property boasts a diverse range of fully-equipped facilities including the following, which are considered to be pivotal in our objective to increase cash flows over the next 9 months: 5 restaurants, including a food court. 100,000 square-foot casino, including sports book and poker room. 160,000 square-foot convention facilities, including business centre. Hotel accommodations with 4 of the 5 towers recently refurbished to executive-level rooms offering a revitalized product. Child-care facilities, including an arcade, movie theatre and bowling alley Shopping centre. ♦ The Riviera’s isolated location toward the north end of the Strip and its inability to provide attractions to tourists, potentially made the 26-acre property more valuable as vacant land mass for development by one of the surrounding Mega casinos than as a dated stand-alone hotel and casino operator. ♦ Current customer perception: a tired property past its “sell-by date”, attracting low-brow or undesirable clientele and offering outdated or “kitsch” adult-focused entertainment. ♦ Not considered to be competitively priced as a result of price-undercutting strategies employed by operators offering more luxurious accommodations. ♦ Unclear positioning regarding target market: even though children are discouraged from visiting the casino, many of the facilities are aimed at children (i.e. child-care facility, arcade, movie theatre). CURRENT SITUATION ♦ Macro-economic environment: The economic recession and resulting increase in unemployment levels has negatively impacted the disposable income and discretionary spend of the consumer leading to substantial negative revenue growth rates in the gaming and leisure industry Signs of slow but strengthening national economic recovery, with the weak US dollar stimulating foreign tourism. ♦ On the Las Vegas Strip: The successful opening of CityCenter has increased tourism, ended a long-run of negative growth in gaming revenues and increased visitation and spending on non- gaming amenities. Apparent over-supply of hotel rooms with competitors such as Circus Circus and Excalibur reducing room prices to increase occupancy thus resulting in a price war; smaller competitors followed suit via decreased room rates. ♦ Company situation: Finance: Revenue across all departments has decreased from 2008 to 2009, ranging from -7% in the beverage division to -18% in the rooms division. Gaming, food and other revenue all showed a 9% decrease in revenue from 2008 to 2009. As a result of aggressive cost-cutting initiatives, operations departments were able maintain their margins. Automation in the food & beverage division through the use of Quick Cuisine machines had the greatest effect on costs and resulted in margin increases of 7 points from 10% in 2008 to 17% in 2009. In total, costs decreased by 11% during the period. In spite of the use of technology to drive margins the shortfall in revenue led to EBITDA decreases of 19% from 2008 to 2009. With a debt burden of $245 million owing to Wachovia Bank and faced with declining cash flows, the company has been unable to meet its interest obligations. Failure to reach an agreement with Wachovia concerning debt restructuring will likely result in a bankruptcy filing for the Riviera. The primary objective is to restructure debt and negotiate a concession from the bank regarding repayment terms over the next nine months so the property may focus on generating free cash flow in order to deleverage. Human resources: No management stock options, no bonus, staff morale is low as a result of no incentives, job rotation and the need to take on additional responsibilities. Marketing: Customer perceptions of the service levels have degraded because of lay-offs and continuous hotel room price-cutting and restaurant closures. SWOT ANALYSIS STRENGTHS WEAKNESSES OPPORTUNITY THREATS -Childcare, family facilities -Age & location of property -With existing childcare and - Facing potential and convention are already family-oriented facilities we bankruptcy and inability in place can take advantage of the to restructure debt could conferencing opportunities result in costly and family vacation professional fees being business incurred in legal proceedings -4 out of 5 hotel towers -Branded as a adult-themed -Competitors (Circus -Surrounded by Mega renovated casino, actively Circus, Excalibur) have not Casinos & will experience discouraging children upgraded to the level we difficulty in competing have, giving us an with properties that opportunity to grow/steal provide diverse product market share and position offerings ourselves as a value-for- money property -Service oriented slots staff -Casino floor is poorly laid - Opportunity to upgrade -Lower ADR strategy is out and confusing and earn rental from retail easily duplicated by competitors -Crazy Girl show and -Staff morale is low as a -Hire additional professional established restaurants result of lay-offs, lack of childcare staff and security communication with staff personnel to compliment regarding job security and our positioning and their requirement to fulfill eliminate concerns multiple responsibilities regarding safety -Opportunity to renegotiate supplier (participation fees) and union contracts in order to save costs in various departments -Opportunity to four-wall the theatre to generate a steady stream of rental revenue and more appropriately appeal to our target market MARKETING STRATEGY Riviera’s marketing strategy pre-2008 included the following: • Target market consisted of older clientele who were mature gamblers • Property positioned as an alternative for grown-ups with an adult oriented hotel • Well-know shows such as Crazy Girls were actively promoted • Crazy Leroy’s sportsbook and the deli were promoted as places to smoke and eat • No active focus on marketing promotions • High levels of reinvestment were used to drive play 2008+ Marketing Strategy Going forward, the Riviera’s marketing strategy will take a two-pronged approach: conventioneers who may or may not be traveling with children and families. Specifically, these two segments would be value- conscious but still demand a Strip experience. Communication regarding our upgraded facilities, particularly our soon-to-be renovated childcare facility will be conveyed to the Las Vegas Convention and Visitors Authority. Additionally, the property will position itself as the best family value on the Strip. Print media targeting family vacationers and convention-goers will be produced to generate interest and buzz in what our property has to offer. Besides media print our property will utilize the Internet, particularly social networking sites, to deliver our message to our target audience. Family oriented aspects of our property including the movie theatre, arcade and pool will be heavily publicized while aggressive marketing of conference and childcare facilities will shift our property position in the eyes of consumers. Complimentary expenditures will be brought down to historical levels for this property so margins may be maintained. CAPITAL EXPENDITURE -Upgrade childcare facilities -Add additional surveillance and security systems -Upgrade the ventilation system -Critical maintenance capital expenditure as required -Signage on casino floor to resolve the confusing layout POSITION STRATEGY -The Riviera will actively target conventioneers and families who are looking for a value-for-money offering while providing a clean, safe and friendly resort experience on the Las Vegas Strip, with quality entertainment, conferencing and childcare facilities in an environment that focuses on excellent customer care provided by highly-trained and motivated staff.