SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Mark
One
ý
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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|
|
For the
quarterly period ended September 30, 2009
OR
|
|
¨
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period from __________________ to __________________
Commission
file number 000-21430
Riviera
Holdings Corporation
|
(Exact
name of Registrant as specified in its
charter)
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|
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|
|
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(State
or other jurisdiction of incorporation or organization)
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(IRS
Employer Identification No.)
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2901
Las Vegas Boulevard South, Las Vegas, Nevada
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(Address
of principal executive offices)
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(Zip
Code)
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|
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(Registrant’s
telephone number, including area code)
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(Former
name, former address and former fiscal year, if changed since last
report)
|
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 ý No ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes
¨ No
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer”,
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check One)
Large
accelerated filer ¨
|
Accelerated
filer ý
|
Non-accelerated
filer ¨
(Do
not check if smaller reporting company)
|
Smaller
reporting company ý
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). YES ¨ NO ý
As of
November 6, 2009, there were 12,473,055 shares of Common Stock, $.001 par value
per share, outstanding.
RIVIERA
HOLDINGS CORPORATION
INDEX
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Page
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PART
I.
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FINANCIAL
INFORMATION
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1
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Item
1.
|
Financial
Statements
|
1
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|
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|
Condensed
Consolidated Balance Sheets at September 30, 2009 (Unaudited) and
December 31, 2008
|
2
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|
|
|
|
Condensed
Consolidated Statements of Operations (Unaudited) for the Three and Nine
Months Ended September 30, 2009 and 2008
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3
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|
|
|
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Condensed
Consolidated Statements of Cash Flows (Unaudited) for the Nine Months
Ended September 30, 2009 and 2008
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4
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|
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|
|
Notes
to Condensed Consolidated Financial Statements (Unaudited)
|
5
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Item
2.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
17
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Item
3.
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Quantitative
and Qualitative Disclosures About Market Risk
|
34
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Item
4.
|
Controls
and Procedures
|
36
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PART
II.
|
OTHER
INFORMATION
|
36
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Item
1.
|
Legal
Proceedings
|
36
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Item
3.
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Defaults
Upon Senior Securities
|
36
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Item
6.
|
Exhibits
|
36
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Signature
Page
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37
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Exhibits
|
38
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PART
I – FINANCIAL INFORMATION
Item
1.
|
Financial
Statements
|
The
accompanying unaudited Condensed Consolidated Financial Statements of Riviera
Holdings Corporation have been prepared in accordance with the instructions to
Form 10-Q, and therefore, do not include all information and notes necessary for
complete financial statements in conformity with generally accepted accounting
principles in the United States. The results from the periods
indicated are unaudited, but reflect all adjustments (consisting only of normal
recurring adjustments) that management considers necessary for a fair
presentation of operating results.
The
results of operations for the three and nine months ended September 30, 2009 and
2008 are not necessarily indicative of the results for the entire
year. These condensed consolidated financial statements should be
read in conjunction with the audited consolidated financial statements and notes
thereto for the year ended December 31, 2008, included in our Annual Report on
Form 10-K.
RIVIERA
HOLDINGS CORPORATION
CONDENSED
CONSOLIDATED BALANCE SHEETS
(In
thousands, except share amounts)
|
|
|
|
|
|
|
ASSETS
|
|
September
30,
2009
|
|
|
December
31,
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
21,244 |
|
|
$ |
13,461 |
|
Restricted
cash and investments
|
|
|
2,772 |
|
|
|
2,772 |
|
Accounts
receivable-net of allowances of $266 and $559,
respectively
|
|
|
1,973 |
|
|
|
2,457 |
|
Inventories
|
|
|
490 |
|
|
|
718 |
|
Prepaid
expenses and other assets
|
|
|
3,217 |
|
|
|
2,976 |
|
Total
current assets
|
|
|
29,696 |
|
|
|
22,384 |
|
|
|
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT-net
|
|
|
171,071 |
|
|
|
179,918 |
|
OTHER
ASSETS-net
|
|
|
2,594 |
|
|
|
2,658 |
|
TOTAL
|
|
$ |
203,361 |
|
|
$ |
204,960 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIENCY
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
|
Current
portion of long-term debt
|
|
$ |
227,543 |
|
|
$ |
227,689 |
|
Current
portion of mark to market and fair value of interest rate swap
liabilities
|
|
|
22,148 |
|
|
|
16,828 |
|
Current
portion of obligation to officers
|
|
|
253 |
|
|
|
1,028 |
|
Accounts
payable
|
|
|
6,509 |
|
|
|
7,751 |
|
Accrued
interest
|
|
|
13,656 |
|
|
|
98 |
|
Accrued
expenses
|
|
|
10,707 |
|
|
|
10,201 |
|
Total
current liabilities
|
|
|
280,816 |
|
|
|
263,595 |
|
LONG-TERM
DEBT-net of current portion
|
|
|
126 |
|
|
|
158 |
|
Total
liabilities
|
|
|
280,942 |
|
|
|
263,753 |
|
|
|
|
|
|
|
|
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COMMITMENTS
and CONTINGENCIES (Note 8)
|
|
|
|
|
|
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|
|
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|
|
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STOCKHOLDERS' DEFICIENCY:
|
|
|
|
|
|
|
|
|
Common
stock ($.001 par value; 60,000,000 shares authorized, 17,141,124 and
17,161,824 shares issued at September 30, 2009 and December 31, 2008,
respectively, and 12,473,055 and 12,493,755 shares outstanding at
September 30, 2009 and December 31, 2008, respectively)
|
|
|
17 |
|
|
|
17 |
|
Additional
paid-in capital
|
|
|
20,245 |
|
|
|
19,820 |
|
Treasury
stock (4,668,069 shares at September 30, 2009 and
|
|
|
|
|
|
|
|
|
December
31, 2008, respectively)
|
|
|
(9,635 |
) |
|
|
(9,635 |
) |
Accumulated
deficit
|
|
|
(88,208 |
) |
|
|
(68,995 |
) |
Total
stockholders' deficiency
|
|
|
(77,581 |
) |
|
|
(58,793 |
) |
TOTAL
|
|
$ |
203,361 |
|
|
$ |
204,960 |
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
RIVIERA
HOLDINGS CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In
thousands, except per share amounts)
|
|
Three
Months Ended
September
30,
|
|
|
Nine
Months Ended
September
30,
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Casino
|
|
$ |
21,437 |
|
|
$ |
21,516 |
|
|
$ |
63,501 |
|
|
$ |
71,062 |
|
Rooms
|
|
|
8,668 |
|
|
|
12,138 |
|
|
|
27,677 |
|
|
|
41,561 |
|
Food
and beverage
|
|
|
6,184 |
|
|
|
6,939 |
|
|
|
17,959 |
|
|
|
22,487 |
|
Entertainment
|
|
|
2,554 |
|
|
|
3,549 |
|
|
|
6,511 |
|
|
|
10,182 |
|
Other
|
|
|
1,346 |
|
|
|
1,657 |
|
|
|
4,294 |
|
|
|
5,136 |
|
Total
revenues
|
|
|
40,189 |
|
|
|
45,799 |
|
|
|
119,942 |
|
|
|
150,428 |
|
Less-promotional
allowances
|
|
|
(5,557 |
) |
|
|
(5,591 |
) |
|
|
(16,011 |
) |
|
|
(16,643 |
) |
Net
revenues
|
|
|
34,632 |
|
|
|
40,208 |
|
|
|
103,931 |
|
|
|
133,785 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
costs and expenses of operating departments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casino
|
|
|
11,671 |
|
|
|
11,494 |
|
|
|
33,411 |
|
|
|
36,333 |
|
Rooms
|
|
|
4,800 |
|
|
|
6,377 |
|
|
|
14,484 |
|
|
|
19,645 |
|
Food
and beverage
|
|
|
4,249 |
|
|
|
5,007 |
|
|
|
12,042 |
|
|
|
16,349 |
|
Entertainment
|
|
|
813 |
|
|
|
2,023 |
|
|
|
2,613 |
|
|
|
6,384 |
|
Other
|
|
|
297 |
|
|
|
315 |
|
|
|
891 |
|
|
|
971 |
|
Other
operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based
compensation
|
|
|
153 |
|
|
|
188 |
|
|
|
425 |
|
|
|
620 |
|
Other
general and administrative
|
|
|
9,497 |
|
|
|
10,631 |
|
|
|
26,883 |
|
|
|
30,561 |
|
Mergers,
acquisitions and development costs
|
|
|
— |
|
|
|
59 |
|
|
|
— |
|
|
|
104 |
|
Restructuring
fees
|
|
|
569 |
|
|
|
— |
|
|
|
2,106 |
|
|
|
— |
|
Depreciation
and amortization
|
|
|
3,590 |
|
|
|
3,919 |
|
|
|
11,300 |
|
|
|
10,879 |
|
Total
costs and expenses
|
|
|
35,639 |
|
|
|
40,013 |
|
|
|
104,155 |
|
|
|
121,846 |
|
(LOSS)
INCOME FROM OPERATIONS
|
|
|
(1,007 |
) |
|
|
195 |
|
|
|
(224 |
) |
|
|
11,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
EXPENSE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in value of derivative instrument
|
|
|
— |
|
|
|
615 |
|
|
|
(5,320 |
) |
|
|
1,617 |
|
Gain
on extinguishment of debt
|
|
|
— |
|
|
|
— |
|
|
|
146 |
|
|
|
— |
|
Interest
expense-net
|
|
|
(3,666 |
) |
|
|
(4,274 |
) |
|
|
(13,815 |
) |
|
|
(12,730 |
) |
Total
other expense-net
|
|
|
(3,666 |
) |
|
|
(3,659 |
) |
|
|
(18,989 |
) |
|
|
(11,113 |
) |
NET
(LOSS) INCOME
|
|
$ |
(4,673 |
) |
|
$ |
(3,464 |
) |
|
$ |
(19,213 |
) |
|
$ |
826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
(LOSS) INCOME PER SHARE DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
(0.38 |
) |
|
$ |
(0.28 |
) |
|
$ |
(1.54 |
) |
|
$ |
0.07 |
|
Diluted
|
|
$ |
(0.38 |
) |
|
$ |
(0.28 |
) |
|
$ |
(1.54 |
) |
|
$ |
0.07 |
|
Weighted-average
common shares outstanding
|
|
|
12,340 |
|
|
|
12,412 |
|
|
|
12,480 |
|
|
|
12,387 |
|
Weighted-average
common and common equivalent shares
|
|
|
12,340 |
|
|
|
12,412 |
|
|
|
12,480 |
|
|
|
12,547 |
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
RIVIERA
HOLDINGS CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
FOR
THE NINE MONTHS ENDED SEPTEMBER 30,
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
Net
(loss) income
|
|
$ |
(19,213 |
) |
|
$ |
826 |
|
Adjustments
to reconcile net (loss) income to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
11,543 |
|
|
|
11,134 |
|
Provision
for bad debts
|
|
|
(29 |
) |
|
|
222 |
|
Stock
based compensation-restricted stock
|
|
|
358 |
|
|
|
462 |
|
Stock
based compensation-stock options
|
|
|
67 |
|
|
|
158 |
|
Change
in value of derivative instruments
|
|
|
5,320 |
|
|
|
(1,617 |
) |
Gain
on extinguishment of debt
|
|
|
(146 |
) |
|
|
— |
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable-net
|
|
|
513 |
|
|
|
825 |
|
Inventories
|
|
|
228 |
|
|
|
487 |
|
Prepaid
expenses and other assets
|
|
|
(420 |
) |
|
|
539 |
|
Accounts
payable
|
|
|
(1,722 |
) |
|
|
(2,551 |
) |
Accrued
interest
|
|
|
13,558 |
|
|
|
(119 |
) |
Accrued
expenses
|
|
|
506 |
|
|
|
(2,389 |
) |
Obligation
to officers
|
|
|
(775 |
) |
|
|
(778 |
) |
Net
cash provided by operating activities
|
|
|
9,788 |
|
|
|
7,199 |
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Capital
expenditures-Las Vegas
|
|
|
(408 |
) |
|
|
(16,349 |
) |
Capital
expenditures-Black Hawk
|
|
|
(1,565 |
) |
|
|
(1,610 |
) |
Net
cash used in investing activities
|
|
|
(1,973 |
) |
|
|
(17,959 |
) |
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Payments
on long-term borrowings
|
|
|
(32 |
) |
|
|
(127 |
) |
Proceeds
from line of credit
|
|
|
— |
|
|
|
2,500 |
|
Proceeds
from exercise of stock options
|
|
|
— |
|
|
|
100 |
|
Net
cash (used in) provided by financing activities
|
|
|
(32 |
) |
|
|
2,473 |
|
|
|
|
|
|
|
|
|
|
INCREASE
(DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
7,783 |
|
|
|
(8,287 |
) |
CASH
AND CASH EQUIVALENTS-BEGINNING OF YEAR
|
|
|
13,461 |
|
|
|
28,819 |
|
CASH
AND CASH EQUIVALENTS-END OF PERIOD
|
|
$ |
21,244 |
|
|
$ |
20,532 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Property
acquired with debt and accounts payable
|
|
$ |
480 |
|
|
$ |
3,338 |
|
Cash
paid for interest
|
|
$ |
6 |
|
|
$ |
12,759 |
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
RIVIERA
HOLDINGS CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1.
|
BASIS
OF PRESENTATION AND NATURE OF
OPERATIONS
|
Riviera
Holdings Corporation (“RHC”) and its wholly-owned subsidiary, Riviera Operating
Corporation (“ROC”) (together with their wholly-owned subsidiaries, the
“Company”), were incorporated on January 27, 1993, in order to acquire all
assets and liabilities of Riviera, Inc. Casino-Hotel Division on June 30, 1993,
pursuant to a plan of reorganization. The Company operates the
Riviera Hotel & Casino (the “Riviera Las Vegas”) on the Strip in Las Vegas,
Nevada.
In
February 2000, the Company opened its casino in Black Hawk, Colorado, which is
owned through Riviera Black Hawk, Inc. (“RBH”), a wholly-owned subsidiary of
ROC.
Casino
operations are subject to extensive regulation in the states of Nevada and
Colorado by the respective Gaming Control Boards and various other state and
local regulatory agencies. Our management believes that the Company’s
procedures comply, in all material respects, with the applicable regulations for
supervising casino operations, recording casino and other revenues, and granting
credit.
Principles of
Consolidation
The
consolidated financial statements include the accounts of RHC and its direct and
indirect wholly-owned subsidiaries. All material intercompany
accounts and transactions have been eliminated.
In
preparing the accompanying unaudited condensed consolidated financial
statements, the Company’s management reviewed events that occurred from
September 30, 2009 until the issuance of the financial statements on November 9,
2009.
The
financial statements have been prepared assuming that the Company will continue
as a going concern. As more fully discussed in Note 5 below, the
Company is currently in default on its Credit Facility (as defined in Note 5
below) as of September 30, 2009. As a result, there is substantial
doubt about the Company’s ability to continue as a going concern. If
the Company’s debt is accelerated and the Company’s long-term assets must be
liquidated, these assets may be impaired in comparison to current recovery
values. The Company is carrying long-term assets based upon
management’s assumptions related to its current intentions and
plans.
3.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Reclassifications
Certain
reclassifications, having no effect on net (loss) income have been made to the
previously issued consolidated financial statements to conform to the current
period’s presentation of the Company’s condensed consolidated financial
statements.
Earnings Per
Share
Basic net
(loss) income per share amounts are computed by dividing net (loss) income by
weighted average shares outstanding during the period. Diluted net
(loss) income per share amounts are computed by dividing net (loss) income by
weighted average shares outstanding, plus, the dilutive effect of common share
equivalents during the period. There were no potentially dilutive
common share equivalents as of September 30, 2009.
Income
Taxes
The
income tax provision, if any, for the three and nine months ended September 30,
2009 and 2008, were fully offset by the utilization of loss carryforwards for
which a valuation allowance had been previously provided. Based on
the history of net operating losses, it is more likely than not that the Company
will not be able to recognize the deferred assets. As such, a
valuation allowance has been established and the current year tax benefit has
not been recognized.
Commencing
January 1, 2007, the Company is subject to authoritative guidance pertaining to
accounting for uncertainty in income taxes. The Company believes that
its income tax filing positions and deductions will be sustained on audit and
does not anticipate any adjustments that will result in a material adverse
effect on the Company’s financial condition, results of operations, or cash
flow. Therefore, the Company has not established any reserves or
recorded a cumulative effect adjustment related to the adoption of the
guidance. Moreover, with respect to the adoption of the guidance,
management does not believe that there will be a settlement or change in the
Company’s tax liability related to uncertain tax positions or unrecognized tax
benefits within the next twelve months. With a few exceptions, we are
no longer subject to U.S. federal, state and local income tax examinations for
years before 1994.
Estimates and
Assumptions
The
preparation of condensed consolidated financial statements in conformity with
U.S. generally accepted accounting principles requires our management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Significant estimates used by the Company
include estimated useful lives for depreciable and amortizable assets, certain
accrued liabilities and the estimated allowances for receivables, estimated fair
value for stock-based compensation, estimated fair value of derivative
instruments and deferred tax assets. Actual results may differ from
estimates.
Restricted
Cash
This cash
is held as a certificate of deposit for the benefit of the State of Nevada
Workers Compensation Division as a requirement of our being self-insured for
Workers Compensation. The cash was held in a one-year certificate of
deposit which matured during the three months ended September 30,
2009. Subsequently, the cash was transferred into a similar one-year
certificate of deposit which matures August 2010.
Mergers, Acquisitions and
Development Costs
Mergers,
acquisitions and development costs consist of associated legal
fees.
Derivative
Instruments
From time
to time, the Company enters into interest rate swaps. The Company’s
objective in using derivatives is to add stability to interest expense and to
manage its exposure to interest rate movements or other identified risks.
To accomplish this objective, the Company primarily uses interest rate
swaps as part of its cash flow hedging strategy. Interest rate swaps
designated as cash flow hedges involve the receipt of variable-rate amounts in
exchange for fixed-rate payments over the life of the agreements without
exchange of the underlying principal amount. We do not use derivative
financial instruments for trading or speculative purposes. As such,
the Company has adopted Financial Accounting Standards Board Accounting
Standards Codification Topic 815, to account for
interest rate swaps. The pronouncements require us to recognize the
interest rate swaps as either assets or liabilities in the consolidated balance
sheets at fair value. The accounting for changes in fair value (i.e.
gains or losses) of the interest rate swap agreements depends on whether it has
been designated and qualifies as part of a hedging relationship and further, on
the type of hedging relationship. Additionally, the difference
between amounts received and paid under such agreements, as well as any costs or
fees, is recorded as a reduction of, or an addition to, interest expense as
incurred over the life of the swap.
For
derivative instruments that are designated and qualify as a cash flow hedge, the
effective portion of the gain or loss on the derivative instrument is reported
as a component of other comprehensive income (loss) and the ineffective portion,
if any, is recorded in the consolidated statement of operations.
Derivative
instruments that are designated as fair value hedges and qualify for the
“shortcut” method allow for an assumption of no ineffectiveness. As
such, there is no impact on the consolidated statement of operations from the
changes in the fair value of the hedging instrument. Instead, the
fair value of the instrument is recorded as an asset or liability on our balance
sheet with an offsetting adjustment to the carrying value of the related
debt.
On July
28, 2009, the Company received an early termination notice which claims a
termination amount due and payable under the swap agreement equal to $26.6
million, which includes $4.4 million in accrued interest (see Note
5). As a result, the Company adjusted its June 30, 2009 swap
liability to reflect the amount claimed due and payable at
termination.
The
Company recorded no gain or loss as a result of a change in the fair value of
derivative instruments for the three months ended September 30, 2009 in
comparison to a $0.6 million gain as a result of a change in the fair value of
derivative instruments for the comparable period in the prior
year. The Company recorded a $5.3 million loss as a result of the
change in the fair value of derivative instruments for the nine months ended
September 30, 2009 in comparison to a $1.6 gain million gain as a result of the
change in the value of derivative instruments for the comparable period in the
prior year.
Gain on Extinguishment of
Debt
In 2000,
the Company incurred debt totaling $1.2 million associated with Special
Improvement District Bonds issued by the City of Black Hawk, Colorado for road
improvements and other infrastructure projects benefiting Riviera Black Hawk and
neighboring casinos. The remaining balance of the debt was $146,000
at December 31, 2008 and this amount was forgiven by the City of Black Hawk in
February 2009. As a result, the $146,000 was recorded as a gain on
extinguishment of debt within the accompanying consolidated statement of
operations during the nine months ended September 30, 2009.
Restructuring
Fees
During
the three and nine months ended September 30, 2009, the Company incurred
restructuring fees of $0.6 million and $2.1 million,
respectively. These professional fees are associated with a potential
restructuring of the Company’s Credit Facility (see Note 5).
New Accounting
Pronouncements
In the
third quarter of 2009, the Company adopted the Financial Accounting Standards
Board (“FASB”) Accounting
Standards Codification (“ASC”). The ASC is the single official
source of authoritative, nongovernmental GAAP, other than guidance issued by the
SEC. The adoption of the ASC did not have an impact on the financial
statements included herein.
In August
2009, the FASB issued Accounting Standards Update No. 2009-05 (“ASC Update
2009-05”), an update to ASC 820, Fair Value Measurements and
Disclosures. This update provides amendments to reduce potential
ambiguity in financial reporting when measuring the fair value of
liabilities. Among other provisions, this update provides
clarification that in circumstances in which a quoted price in an active market
for the identical liability is not available, a reporting entity is required to
measure fair value using one or more of the valuation techniques described in
ASC Update 2009-05. ASC Update 2009-05 will become effective for the
Company’s annual financial statements for the year ended December 31,
2009. The Company has not determined the impact that this update may
have on its financial statements.
In June
2009, the FASB issued guidance related to accounting for transfers of financial
assets. This guidance improves the information that a reporting
entity provides in its financial reports about a transfer of financial assets;
the effects of a transfer on its financial position, financial performance and
cash flows; and a continuing interest in transferred financial
assets. In addition, this guidance amends various ASC concepts with
respect to accounting for transfers and servicing of financial assets and
extinguishments of liabilities, including removing the concept of qualified
special purpose entities. This guidance must be applied to transfers
occurring on or after the effective date. The Company will adopt this
guidance in its first annual and interim reporting periods beginning after
November 15, 2009. The adoption of this guidance does not have any
impact on the financial statements included herein.
In June
2009, the FASB issued guidance which amends certain ASC concepts related to
consolidation of variable interest entities. Among other accounting
and disclosure requirements, this guidance replaces the quantitative-based risks
and rewards calculation for determining which enterprise has a controlling
financial interest in a variable interest entity with an approach focused on
identifying which enterprise has the power to direct the activities of a
variable interest entity and the obligation to absorb losses of the entity or
the right to receive benefits from the entity. The adoption of this
guidance does not have any impact on the financial statements included
herein.
Other
Standards Recently Adopted
Effective
January 1, 2009, the Company prospectively adopted ASC guidance related to
disclosures about derivative instruments and hedging activities and new ASC
guidance related to fair value measurements required for the Company’s
nonfinancial assets and nonfinancial liabilities. See Note 7 for
disclosures related to the adoption of these ASC updates.
4.
|
DEFERRED
FINANCING COSTS
|
Deferred
loan fees of $1.2 million and $1.4 million were included in other assets as of
September 30, 2009 and December 31, 2008, respectively. The deferred
loan fees were associated with refinancing our debt on June 8,
2007. The Company is amortizing the deferred loan fees using the
effective interest method over the term of the loan.
5.
|
LONG
TERM DEBT AND COMMITMENTS
|
2007 Credit Facility and
Swap Agreement
On June
8, 2007, RHC and its restricted subsidiaries, namely ROC, Riviera Gaming
Management of Colorado, Inc. and RBH (collectively, the “Subsidiaries”) entered
into a $245 million Credit Agreement (the “Credit Agreement” together
with related security agreements and other credit-related agreements, the
“Credit Facility”) with Wachovia Bank, National Association (“Wachovia”), as
administrative agent. On June 29, 2007, in conjunction with the
Credit Facility, the Company entered into an interest rate swap agreement with
Wachovia as the counterparty that became effective June 29, 2007 (the “Swap
Agreement”).
The
Credit Facility includes a $225 million seven-year term loan (“Term Loan”), with
no amortization for the first three years, a one percent amortization for each
of years four through six, and a full payoff in year seven, in addition to an
annual mandatory pay down of 50% of excess cash flows, as defined
therein. The Credit Facility included a $20 million five-year
Revolver (“Revolver”) under which RHC could obtain extensions of credit in the
form of cash loans or standby letters of credit (“Standby
L/Cs”). Pursuant to Section 2.6 of the Credit Agreement, on June 5,
2009, the Company voluntarily reduced the Revolver commitment from $20 million
to $3 million. RHC is permitted to prepay the Credit Facility without
premium or penalties except for payment of any funding losses resulting from
prepayment of any LIBOR rate loans. The Credit Facility is guaranteed
by the Subsidiaries and is secured by a first priority lien on substantially all
of the Company’s assets.
Prior to
certain events of default that occurred in fiscal 2009 (the “2009 Credit
Defaults”) described below, the rate for the Term Loan was LIBOR plus
2.0%. Pursuant to the Swap Agreement that RHC entered into with
Wachovia under the Credit Facility, substantially the entire Term Loan, with
quarterly step-downs, bore interest at an effective fixed rate of 7.485% (7.405%
for 2008) per annum (2.0% above the LIBOR Rate in effect on the lock-in date of
the Swap Agreement) prior to the Credit Facility Defaults. The Swap
Agreement specifies that the Company pay an annual interest rate spread on a
notional balance that approximates the Term Loan balance and steps down
quarterly. The interest rate spread is the difference between the
LIBOR rate and 5.485% and the notional balance was $203.9 million as of
September 30, 2009.
RHC used
substantially all of the proceeds of the Term Loan to discharge its obligations
under the Indenture, dated June 26, 2002 (the “Indenture”), with The Bank of New
York as trustee (the “Trustee”), governing the Senior Secured Notes issued by
the Company on June 26, 2002 (the “11% Notes”). On June 8, 2007 RHC
deposited these funds with the Trustee and issued to the Trustee a notice of
redemption of the 11% Notes, which was executed on July 9, 2007.
Prior to
the 2009 Credit Defaults, the interest rate on loans under the Revolver depended
on whether they were in the form of revolving loans or swingline loans
(“Swingline Loans”). Prior to the 2009 Credit Defaults, the interest
rate for each revolving loan depended on whether RHC elects to treat the loan as
an “Alternate Base Rate” loan (“ABR Loan”) or a LIBOR Rate loan; and Swingline
Loans bore interest at a per annum rate equal to the Alternative Base Rate plus
the Applicable Percentage for revolving loans that were ABR
Loans. Prior to the 2009 Credit Defaults, the applicable percentage
for Swingline Loans ranged from 0.50% to 1% depending on the Consolidated
Leverage Ratio as defined in our Credit Facility Credit
Agreement. Our Consolidated Leverage Ratio was 14.99 for the four
quarters ending September 30, 2009, which exceeded the maximum allowable
Consolidated Leverage Ratio set forth in the Credit Agreement. This
ratio test is only applicable if we have more than $2.5 million in Revolver
borrowings at the end of the applicable quarter.
Fees
payable under the Revolver include: (i) a commitment fee in an amount equal to
either 0.50% or 0.375% (depending on the Consolidated Leverage Ratio) per annum
on the average daily unused amount of the Revolver; (ii) Standby L/C fees equal
to between 2.00% and 1.50% (depending on the Consolidated Leverage Ratio) per
annum on the average daily maximum amount available to be drawn under each
Standby L/C issued and outstanding from the date of issuance to the date of
expiration; and (iii) a Standby L/C facing fee in the amount of 0.25% per annum
on the average daily maximum amount available to be drawn under each Standby
L/C. An annual administrative fee of $35,000 is also payable in
connection with the Revolver.
The
Credit Facility contains affirmative and negative covenants customary for
financings of this nature including, but not limited to, restrictions on RHC’s
incurrence of other indebtedness.
The
Credit Facility contains events of default customary for financings of this
nature including, but not limited to, nonpayment of principal, interest, fees or
other amounts when due; violation of covenants; failure of any representation or
warranty to be true in all material respects; cross-default and
cross-acceleration under RHC’s other indebtedness or certain other material
obligations; certain events under federal law governing employee benefit plans;
a “change of control” of RHC; dissolution; insolvency; bankruptcy events;
material judgments; uninsured losses; actual or asserted invalidity of the
guarantees or the security documents; and loss of any gaming
licenses. Some of these events of default provide for grace periods
and materiality thresholds. For purposes of these default provisions,
a “change in control” of RHC includes: a person’s acquisition of beneficial
ownership of 35% or more of RHC’s stock coupled with a gaming license and/or
approval to direct any of RHC’s gaming operations, a change in a majority of the
members of RHC’s board of directors other than as a result of changes supported
by RHC’s current board members or by successors who did not stand for election
in opposition to RHC’s current board, or RHC’s failure to maintain 100%
ownership of the Subsidiaries.
2009 Credit
Defaults
As
previously disclosed on a Form 8-K filed with the SEC on March 4, 2009, the
Company received a notice of default on February 26, 2009 (the “February
Notice”), from Wachovia with respect to the Credit Facility in connection with
the Company’s failure to provide a Deposit Account Control Agreement, or DACA,
from each of the Company’s depository banks per a request made by Wachovia to
the Company on October 14, 2008. The DACA that Wachovia requested the
Company to execute was in a form that the Company ultimately determined to
contain unreasonable terms and conditions as it would enable Wachovia to access
all of the Company’s operating cash and order it to be transferred to a bank
account specified by Wachovia. The Notice further provided that as a
result of the default, the Company would no longer have the option to request
the LIBOR Rate loans described above. Consequently, the Term Loan was
converted to an ABR Loan effective March 31, 2009.
On March
25, 2009, the Company engaged XRoads Solution Group LLC as our financial
advisor. Based on an extensive analysis of our current and projected
liquidity, and with our financial advisor’s input, we determined it was in the
best interests of the Company to not pay the Credit Facility and Swap Agreement
accrued interest of $13.7 million for the nine months ended September 30,
2009. Consequently, we elected not to make these
payments. The Company’s failure to pay interest due on any loan
within our Credit Facility within a three-day grace period from the due date was
an event of default under our Credit Facility. As a result of these
events of default, the Company’s lenders have the right to seek to charge
additional default interest on the Company’s outstanding principal and interest
under the Credit Agreement, and automatically charge additional default interest
on any overdue amounts under the Swap Agreement. These default rates
are in addition to the interest rates that would otherwise be applicable under
the Credit Agreement and Swap Agreement.
As
previously disclosed on a Form 8-K filed with the SEC on April 6, 2009, the
Company received an additional notice of default on April 1, 2009 (the “April
Default Notice”) from Wachovia. The April Default Notice alleges that
subsequent to the Company’s receipt of the February Notice,
additional defaults and events of default had occurred and were continuing under
the terms of the Credit Agreement including, but not limited to: (i) the
Company’s failure to deliver to Wachovia audited financial statements without a
“going concern” modification; (ii) the Company’s failure to deliver Wachovia a
certificate of an independent certified public accountant in conjunction with
the Company’s financial statement; and (iii) the occurrence of a default or
breach under a secured hedging agreement. The April Default Notice
also states that in addition to the foregoing events of default that there were
additional potential events of default as a result of, among other things, the
Company’s failure to pay: (i) accrued interest on the Company’s LIBOR rate loan
on March 30, 2009 (the “LIBOR Payment”), (ii) the commitment fee on March 31,
2009 (the “Commitment Fee Payment”), and (iii) accrued interest on the Company’s
ABR Loans on March 31, 2009 (the “ABR Payment” and together with the LIBOR
Payment and Commitment Fee Payment, the “March 31st Payments”). The
Company has not paid the March 31st Payments and the applicable grace period to
make these payments has expired. The April Default Notice states that
as a result of these events of defaults, (a) all amounts owing under the Credit
Agreement thereafter would bear interest, payable on demand, at a rate equal to:
(i) in the case of principal, 2% above the otherwise applicable rate; and (ii)
in the case of interest, fees and other amounts, the ABR Default Rate (as
defined in the Credit Agreement), which as of April 1, 2009 was 6.25%; and (b)
neither Swingline Loans nor additional Revolving Loans are available to the
Company at this time.
As a
result of the February Notice and the April Default Notice, effective March 31,
2009, the Term Loan interest rate increased to approximately 10.5% per annum and
effective April 1, 2009, the Revolver interest rate is approximately 6.25% per
annum. Consequently, the Company has incurred approximately $3
million in default interest related to the Credit Facility and Swap Agreement
for the nine months ended September 30, 2009.
On April
1, 2009, we also received Notice of Event of Default and Reservation of Rights
(the “Swap Default Notice”) in connection with an alleged event of default under
our Swap Agreement. Receipt of the Swap Default Notice was previously
disclosed on a Form 8-K filed with the SEC on April 6, 2009. The Swap
Default Notice alleges that (a) an event of default exists due to the occurrence
of an event of default(s) under the Credit Agreement and (b) that the Company
failed to make payments to Wachovia with respect to one or more transactions
under the Swap Agreement. The Company has not paid the overdue amount
and the applicable grace period to make this payment has expired. As
previously announced by the Company, any default under the Swap Agreement
automatically results in an additional default interest of 1% on any overdue
amounts under the Swap Agreement. This default rate was in addition
to the interest rate that would otherwise be applicable under the Swap
Agreement. As of September 30, 2009, the amount
outstanding under the Swap Agreement was $22.1 million.
On July
23, 2009, the Company received a Notice of Early Termination for Event of
Default (the “Early Termination Notice”) from Wachovia in connection with an
alleged event of default that occurred under the Swap
Agreement. Receipt of the Early Termination Notice was previously
disclosed on a Form 8-K filed with the SEC on July 29, 2009. The Early
Termination Notice alleges that an event of default has occurred and is
continuing pursuant to Sections 5(a)(i) and 5(a)(vi)(1) of the Swap
Agreement. Section 5(a)(i) of the Swap Agreement addresses payments
and deliveries specified under the Swap Agreement and Section 5(a)(vi)(1) of the
Swap Agreement addresses cross defaults. The Early Termination Notice provides
that Wachovia designated an early termination date of July 27, 2009 in respect
of all remaining transactions governed by the Swap Agreement, including an
interest rate swap transaction with a trade date of May 31,
2007.
On July
28, 2009, in connection with the Early Termination Notice, the Company received
a Notice of Amount Due Following Early Termination from Wachovia that claimed
the amount due and payable to Wachovia under the Swap Agreement is $26.6
million, which includes $4.4 million in accrued interest. As a result
of the Early Termination Notice, the interest rates for the Term Loan and
Revolver balances are no longer locked and are now subject to changes in
underlying LIBOR rates and vary based on fluctuations in the Alternative Base
Rate and Applicable Margins. As of September 30, 2009, our Term Loan
and Revolver bear interest at approximately 6.25%.
With the
aid of our financial advisors and outside counsel, we are continuing to
negotiate with our various creditor constituencies to refinance or restructure
our debt. We cannot assure you that we will be successful in
completing a refinancing or consensual out-of-court restructuring, if
necessary. If we were unable to do so, we would likely be compelled
to seek protection under Chapter 11 of the U. S. Bankruptcy Code.
As a
result of the defaults discussed above and the potential risk of Bankruptcy,
there is substantial doubt about the Company’s ability to continue as a going
concern.
Special Improvement District
Bonds
In 2000,
the Company incurred debt totaling $1.2 million associated with Special
Improvement District Bonds issued by the City of Black Hawk, Colorado for road
improvements and other infrastructure projects benefiting Riviera Black Hawk and
neighboring casinos. The remaining balance of the debt was $146,000
at December 31, 2008 and this amount was forgiven by the City of Black Hawk in
February 2009 and recorded within our consolidated statement of operations
during first quarter 2009.
Guarantor
Information
The
Credit Facility is guaranteed by the Subsidiaries, which are all of the
restricted subsidiaries. These guaranties are full, unconditional,
and joint and several. RHC’s unrestricted subsidiaries, which have no
operations and do not significantly contribute to the financial position or
results of operations, are not guarantors of the Credit Facility.
The
Company expensed $11,000 and $67,000 for options during the three and nine
months ended September 30, 2009, respectively, and $34,000 and $158,000 for
options during the three and nine months ended September 30, 2008,
respectively. To recognize the cost of option grants, the Company
estimates the fair value of each director or employee option grant on the date
of the grant using the Black-Scholes option pricing model.
Additionally,
the Company expensed $142,000 and $358,000 for restricted stock during the three
and nine months ended September 30, 2009, respectively, and $154,000 and
$462,000 for restricted stock during the three and nine months ended September
30, 2008, respectively. Restricted stock was issued to several key
management team members and directors in 2005 and is recognized on a straight
line basis over a five year vesting period commencing on the date of
issuance.
The
activity for all stock options currently outstanding is as follows;
|
|
|
|
|
|
|
|
|
|
|
Share
Exercise
|
|
Remaining
|
|
Intrinsic
|
|
Outstanding,
December 31, 2008
|
|
|
240,000 |
|
|
$ |
8.99 |
|
|
|
|
|
Options
Granted
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Options
Exercised
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Options
Forfeited
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Outstanding,
March 31, 2009
|
|
|
240,000 |
|
|
$ |
8.99 |
|
6.75
years
|
|
$ |
-0- |
|
Options
Granted
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Options
Exercised
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Options
Forfeited
|
|
|
(42,000 |
) |
|
$ |
(0.49 |
) |
|
|
|
|
|
Outstanding,
June 30, 2009
|
|
|
198,000 |
|
|
$ |
8.50 |
|
6.55
years
|
|
$ |
-0- |
|
Options
Granted
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Options
Exercised
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Options
Forfeited
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Outstanding,
September 30, 2009
|
|
|
198,000 |
|
|
$ |
8.50 |
|
6.30
years
|
|
$ |
-0- |
|
Exercisable
September 30, 2009
|
|
|
144,000 |
|
|
$ |
-0- |
|
|
|
$ |
-0- |
|
7.
|
FAIR
VALUE MEASUREMENT
|
Effective
January 1, 2008 and October 10, 2008, the Company adopted authoritative guidance
for fair value measurements and the fair value option for financial assets and
financial liabilities. The adoption did not have a material effect on the
Company’s results of operations.
The
guidance for the fair value option for financial assets and financial
liabilities provides companies the irrevocable option to measure many financial
assets and liabilities at fair value with changes in fair value recognized in
earnings. The Company has not elected to measure any financial assets or
liabilities at fair value that were not previously required to be measured at
fair value.
Fair
value is defined as the exit price, or the amount that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between
market participants as of the measurement date. The guidance also establishes a
hierarchy for inputs used in measuring fair value that maximizes the use of
observable inputs and minimizes the use of unobservable inputs by requiring that
the most observable inputs be used when available. Observable inputs are inputs
market participants would use in valuing the asset or liability and are
developed based on market data obtained from sources independent of the Company.
Unobservable inputs are inputs that reflect the Company’s assumptions about the
factors market participants would use in valuing the asset or liability. The
guidance establishes three levels of inputs that may be used to measure fair
value:
Level 1—Observable inputs that
reflect quoted prices (unadjusted) for identical assets or liabilities in active
markets.
Level 2—Include other inputs
that are directly or indirectly observable in the marketplace.
Level 3—Unobservable inputs
that are supported by little or no market activity.
The fair
value hierarchy also requires an entity to maximize the use of observable inputs
and minimize the use of unobservable inputs when measuring fair
value.
Our
investments are classified within Level 2. This is because
investments are valued using quoted market prices or alternative pricing sources
and models utilizing market observable inputs.
Assets
and liabilities measured at fair value on a recurring basis are summarized below
(in thousands):
|
|
Balance
at
September
30,
2009
|
|
|
Quoted
prices
in
Active
Markets
For
Identical
Assets
(Level
1)
|
|
|
Significant
Other
Observable
Inputs
(Level
2)
|
|
|
Significant
Unobservable
Inputs
(Level
3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
$ |
2,772 |
|
|
$ |
— |
|
|
$ |
2,772 |
|
|
$ |
— |
|
The fair
values of investments are based on quoted prices in active markets.
In
connection with the Swap Agreement, on July 23, 2009 the Company received from
Wachovia a Notice of Early Termination for Event of Default and on July 27,
2009, the Company received from Wachovia a Notice of Amount Due Following Early
Termination. The Notice of Amount Due Following Early Termination
claimed that the Company owed Wachovia an amount due and payable under the Swap
Agreement of $26.6 million, which included $4.4 million in accrued interest (see
Note 5 above). As of September 30, 2009, the Company’s swap liability
is $22.1 million, equaling the amount reflected as due and payable on the Notice
of Amount Due Following Early Termination described above.
8.
|
COMMITMENTS
AND CONTINGENCIES
|
Salary Continuation
Agreements
56
executive officers and certain other employees (excluding Mr. Vannucci) of RHC,
ROC and RBH have salary continuation agreements effective through December 31,
2010. The agreements entered into with 51 significant ROC and RBH
employees, respectively, entitles such employees to six months of base salary
and health insurance benefits, subject to such employees’ duty to mitigate by
obtaining similar employment elsewhere, in the event ROC or RBH, as applicable,
terminated their employment without cause (a “Company Termination”) within 12
months after a change in control. One ROC and one RBH employee are
entitled to 12 months of base salary and 24 months of health insurance benefits
in the event of a Company Termination within 24 months after a change in control
with no duty to mitigate. In addition, the Company entered into
salary continuation agreements with William Westerman, RHC’s Chief Executive
Officer, Tullio J. Marchionne, RHC’s Secretary and General Counsel and ROC’s
Secretary and Executive Vice President and Phillip B. Simons, RHC’s Treasurer
and CFO and ROC’s Vice President of Finance which entitles each of them to 12
months of base salary and 24 months of health insurance benefits in the event of
a Company Termination within 24 months after a change of control of RHC with no
duty to Mitigare. The estimated total amount payable under all such
agreements was approximately $4.2 million, which includes $533,000 in benefits,
as of September 30, 2009.
Sales and Use Tax on
Complimentary Meals
In March
2008, the Nevada Supreme Court ruled, in the matter captioned Sparks Nugget, Inc. vs. The State of
Nevada Ex Rel. Department of Taxation, that food and non-alcoholic
beverages purchased for use in providing complimentary meals to customers and to
employees was exempt from sales and use tax. In July 2008, the Court
denied the State’s motion for rehearing. ROC had paid use tax on these items and
has filed for refunds for the periods from January 2002 through February 2008.
The amount subject to these refunds is approximately $1.1 million. As
of September 30, 2009, the Company had not recorded a receivable related to this
matter.
Legal Proceedings and
Related Events
On
February 9, 2009, multiple plaintiffs commenced an action in the Superior Court
of the State of California, Los Angeles County, against the Company and seven
other defendants. The action stems from a tour bus accident
that occurred in Arizona on January 30, 2009, in which 7 passengers died and 10
other passengers were injured. On May 12, 2009, the plaintiffs filed
a First Amended Complaint for Damages (the “Complaint”) in which the plaintiffs
allege, among other things, that the Company had a contractual relationship with
the other defendants, including the tour bus operator. The plaintiffs
are seeking monetary damages in connection with this matter. On June 23, 2009,
the Company filed a Motion to Quash the matter on a jurisdictional
basis. The hearing on this Motion took place on July 27, 2009, at
which time the Plaintiffs requested an opportunity to file a supplemental brief
after conducting additional discovery. The Court reheard this Motion
on September 28, 2009, and granted the Company’s Motion to Quash at that
time.
The
Company is also a party to routine lawsuits, either as plaintiff or as
defendant, arising from the normal operations of a hotel and
casino. We do not believe that the outcome of such litigation, in the
aggregate, will have a material adverse effect on the Company’s financial
position or results of operations.
The
Company determines our segments based upon the review process of the Company's
Chief Financial Officer who reviews by geographic gaming market
segments: Riviera Las Vegas and Riviera Black Hawk. The
key indicator reviewed by the Company's Chief Financial Officer is "property
EBITDA", as defined below. All intersegment revenues and expenses
have been eliminated.
|
|
Three
months ended
September
30,
|
|
|
Nine
months ended
September
30,
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Riviera
Las Vegas
|
|
$ |
22,629 |
|
|
$ |
30,231 |
|
|
$ |
71,995 |
|
|
$ |
101,206 |
|
Riviera
Black Hawk
|
|
|
12,003 |
|
|
|
9,977 |
|
|
|
31,936 |
|
|
|
32,579 |
|
Total
net revenues
|
|
$ |
34,632 |
|
|
$ |
40,208 |
|
|
$ |
103,931 |
|
|
$ |
133,785 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
EBITDA (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Riviera
Las Vegas
|
|
$ |
1,599 |
|
|
$ |
2,931 |
|
|
$ |
8,467 |
|
|
$ |
16,551 |
|
Riviera
Black Hawk
|
|
|
2,639 |
|
|
|
2,458 |
|
|
|
7,902 |
|
|
|
9,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Costs and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity-based
compensation
|
|
|
153 |
|
|
|
188 |
|
|
|
425 |
|
|
|
620 |
|
Other
corporate expenses
|
|
|
933 |
|
|
|
1,028 |
|
|
|
2,762 |
|
|
|
2,900 |
|
Depreciation
and amortization
|
|
|
3,590 |
|
|
|
3,919 |
|
|
|
11,300 |
|
|
|
10,879 |
|
M&A
and development costs
|
|
|
— |
|
|
|
59 |
|
|
|
— |
|
|
|
104 |
|
Gain
on extinguishment of debt
|
|
|
— |
|
|
|
— |
|
|
|
(146 |
) |
|
|
— |
|
Restructuring
fees
|
|
|
569 |
|
|
|
— |
|
|
|
2,106 |
|
|
|
— |
|
Interest
Expense-net
|
|
|
3,666 |
|
|
|
4,274 |
|
|
|
13,815 |
|
|
|
12,730 |
|
Change
in fair value of derivatives
|
|
|
— |
|
|
|
(615 |
) |
|
|
5,320 |
|
|
|
(1,617 |
) |
Total
Other Costs and Expenses
|
|
|
8,911 |
|
|
|
8,853 |
|
|
|
35,582 |
|
|
|
25,616 |
|
Net
(Loss) Income
|
|
$ |
(4,673 |
) |
|
$ |
(3,464 |
) |
|
$ |
(19,213 |
) |
|
$ |
826 |
|
|
|
September
30,
|
|
|
December
31,
|
|
Total
Assets
|
|
|
|
|
|
|
Las
Vegas
|
|
$ |
137,832 |
|
|
$ |
139,200 |
|
Black
Hawk
|
|
|
65,529 |
|
|
|
65,760 |
|
Total
Consolidated Assets
|
|
$ |
203,361 |
|
|
$ |
204,960 |
|
|
|
|
|
|
|
|
|
|
Property and
Equipment-net
|
|
|
|
|
|
|
|
|
Las
Vegas
|
|
$ |
111,511 |
|
|
$ |
119,155 |
|
Black
Hawk
|
|
|
59,560 |
|
|
|
60,763 |
|
Total
Property and Equipment-net
|
|
$ |
171,071 |
|
|
$ |
179,918 |
|
|
|
|
|
|
|
|
|
|
|
|
Nine
months ended
|
|
|
Nine
months ended
|
|
|
|
|
|
|
|
|
Capital
Expenditures
|
|
|
|
|
|
|
|
|
Las
Vegas
|
|
$ |
587 |
|
|
$ |
19,358 |
|
Black
Hawk
|
|
|
1,866 |
|
|
|
1,939 |
|
Total
Capital Expenditures
|
|
$ |
2,453 |
|
|
$ |
21,297 |
|
(1)
|
Property
EBITDA consists of earnings before interest, income taxes, depreciation,
and amortization. Property EBITDA is presented solely as a
supplemental disclosure because we believe that it is 1) a widely used
measure of operating performance in the gaming industry, and 2) a
principal basis for valuation of gaming companies by certain analysts and
investors. We use property-level EBITDA (property EBITDA before
corporate expense) as the primary measure of our business segment
properties' performance, including the evaluation of operating
personnel. Property EBITDA should not be construed as an
alternative to operating income, as an indicator of our
operating performance, as an alternative to cash flows from operating
activities, as a measure of liquidity, or as any other
measure determined in accordance with U.S. Generally Accepted
Accounting Principles. We have significant uses of cash flows,
including capital expenditures, interest payments and debt principal
repayments, which are not reflected in property EBITDA. Also,
other companies that report property EBITDA information may calculate
property EBITDA in a different manner than we do. A
reconciliation of property EBITDA to net income (loss) is included to
evaluate items not included in EBITDA and their affect on the operations
of the Company.
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
General
We own
and operate the Riviera Hotel and Casino on the Strip in Las Vegas, Nevada
(“Riviera Las Vegas”), and the Riviera Black Hawk Casino in Black Hawk, Colorado
(“Riviera Black Hawk”).
Riviera
Las Vegas’ is comprised of a hotel with 2,075 guest rooms, a convention, meeting
and banquet space totaling 160,000 square feet, a casino with approximately 950
slot machines and 33 gaming tables, a poker room, a race and sports book and
various bars and restaurants. Our capital expenditures for Riviera
Las Vegas are primarily geared toward maintaining competitive slot machines in
comparison to the market and maintaining the hotel rooms and amenities in
sufficient condition to compete for customers in the convention and mature adult
markets. Room rental rates and slot revenues are the primary factors
driving our operating margins.
Riviera
Black Hawk is comprised of a casino with approximately 750 slot machines and 9
gaming tables, a buffet, a delicatessen, a casino bar and a
ballroom. Riviera Black Hawk caters primarily to the “locals” slot
customer. Until recently, only limited stakes gaming, which is
defined as a maximum single bet of $5, was legal in the Black Hawk/Central City
market. However, Colorado Amendment 50, which was approved by voters
on November 4, 2008, allowed residents of Black Hawk and Central City to vote to
extend casino hours, approve additional games, and increase the maximum bet
limit. On January 13, 2009, residents of Black Hawk voted to enable
Black Hawk casino operators to extend casino hours, add craps and roulette
gaming and increase the maximum betting limit to $100. On July 2,
2009, the first day permissible to implement the changes associated with the
passage of Colorado Amendment 50, we increased betting limits, extended hours
and commenced roulette gaming. Our capital expenditures in Black Hawk
are primarily geared toward maintaining competitive slot machines in comparison
to the market. We also made limited capital expenditures in Black
Hawk associated with the implementation of increased betting limits, extended
hours and new games in accordance with the approval of Amendment 50 as
referenced above.
Results
of Operations
Three
Months Ended September 30, 2009 Compared to Three Months Ended September 30,
2008
The
following table sets forth, for the periods indicated, certain operating data
for Riviera Las Vegas and Riviera Black Hawk. Income from operations
does not include intercompany management fees.
|
|
Third
Quarter
|
|
|
Incr
|
|
|
Incr
|
|
(In
Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Riviera
Las Vegas
|
|
$ |
22,629 |
|
|
$ |
30,231 |
|
|
$ |
(7,602 |
) |
|
|
(25.1 |
%) |
Riviera
Black Hawk
|
|
|
12,003 |
|
|
|
9,977 |
|
|
|
2,026 |
|
|
|
20.3 |
% |
Total
Net Revenues
|
|
$ |
34,632 |
|
|
$ |
40,208 |
|
|
$ |
(5,576 |
) |
|
|
(13.9 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property Income from
Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Riviera
Las Vegas
|
|
|
(696 |
) |
|
|
229 |
|
|
|
(925 |
) |
|
|
(403.9 |
%) |
Riviera
Black Hawk
|
|
|
1,344 |
|
|
|
1,241 |
|
|
|
103 |
|
|
|
8.3 |
% |
Total
Property Income from Operations
|
|
|
648 |
|
|
|
1,470 |
|
|
|
(822 |
) |
|
|
(55.9 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Corporate
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
Compensation
|
|
|
(153 |
) |
|
|
(188 |
) |
|
|
35 |
|
|
|
18.6 |
% |
Other
Corporate Expense
|
|
|
(933 |
) |
|
|
(1,028 |
) |
|
|
95 |
|
|
|
9.2 |
% |
M&A
and Development Costs
|
|
|
— |
|
|
|
(59 |
) |
|
|
59 |
|
|
|
100.0 |
% |
Restructuring
Fees
|
|
|
(569 |
) |
|
|
— |
|
|
|
(569 |
) |
|
|
(100.0 |
%) |
Total
Corporate Expenses
|
|
|
(1,655 |
) |
|
|
(1,275 |
) |
|
|
(380 |
) |
|
|
(29.8 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
(Loss) Income from Operations
|
|
$ |
(1,007 |
) |
|
$ |
195 |
|
|
$ |
(1,202 |
) |
|
|
(616.4 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Margins (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Riviera
Las Vegas
|
|
|
(3.1 |
%) |
|
|
0.8 |
% |
|
|
|
|
|
|
(3.9 |
%) |
Riviera
Black Hawk
|
|
|
11.2 |
% |
|
|
12.4 |
% |
|
|
|
|
|
|
(1.2 |
%) |
(1)
|
Operating
margins represent income from operations by property as a percentage of
net revenues by property.
|
Riviera
Las Vegas
Revenues
Net
revenues for the three months ended September 30, 2009 were $22.6 million, a
decrease of $7.6 million, or 25.1%, from $30.2 million for the comparable period
in the prior year.
Casino
revenues for the three months ended September 30, 2009 were $9.8 million, a
decrease of $2.0 million, or 16.9%, from $11.8 million for the comparable period
in the prior year. Casino revenues are comprised primarily of slot
machine and table game revenues. In comparison to the same period in
the prior year, slot machine revenue was $7.8 million, a decrease of $1.3
million, or 13.7%, from $9.1 million and table game revenue was $1.8 million, a
decrease of $0.6 million, or 27.3% from $2.4 million. Slot machine
and table game revenues decreased primarily due to less wagering as a result of
the slower economy. Slot machine win per unit per day for the three
months ended September 30, 2009 was $85.49, a decrease of $22.19, or 20.6%, from
$107.68 for the comparable period in the prior year. There were 994
slot machines on the floor, on average, during the quarter ended September 30,
2009 compared with 914 slot machines on the floor, on average, during the same
period in the prior year.
Room
revenues for the three months ended September 30, 2009 were $8.7 million, a
decrease of $3.4 million, or 28.6%, from $12.1 million for the comparable period
in the prior year. The decrease in room revenues was primarily due to
a $15.66, or 20.8%, reduction in average daily room rates, or ADR, to $59.51 for
the three months ended September 30, 2009 from $75.17 for the comparable period
in the prior year. The decrease in ADR was largely the result of a
$13.26, or 25.0%, decrease in leisure segment room rates and a $7.23, or 7.3%,
decrease in convention segment room rates. Moreover, average daily
room rates decreased as a result of a shift in the occupied room mix from higher
rated convention segment occupancy to lower rated leisure segment
occupancy. During the three months ended September 30, 2009, leisure
segment and convention segment occupied rooms were 62.4% and 25.4% of total
occupied rooms, respectively and during the three months ended September 30,
2008, leisure segment and convention segment occupied rooms were 49.5% and 35.0%
of total occupied rooms, respectively. Convention segment demand
decreased due to the effects of the ongoing recession and increased
competition.
Hotel
room occupancy percentage (per available room) for the three months ended
September 30, 2009, was 76.7% compared to 87.1% for the same period in the prior
year. During the third quarter of 2008, on average, approximately 7%
of the hotel rooms were unavailable due to construction related to our room
renovation project. Hotel room occupancy, including rooms unavailable
due to construction, was 79.8% for the three months ended September 30,
2008. Revenue per available room, or RevPar, was $45.61 for the
three months ended September 30, 2009, a decrease of $19.83, or 30.3%, from
$65.44 for the comparable period in the prior year. RevPar is total
revenue from hotel room rentals divided by total hotel rooms available for
sale. The decrease in RevPar was the result of decreases in occupied
rooms and average daily room rates as described above. Room revenues
include $1.4 million in revenues related to hotel room nights offered to
high-value guests on a complimentary basis.
Food and
beverage revenues for the three months ended September 30, 2009 was $4.2
million, a decrease of $1.4 million, or 24.9%, from $5.6 million for the
comparable period in the prior year. The decrease was due to $0.8
million decrease in food revenues and $0.6 million decrease in beverage
revenues. The decrease in food revenues was due to a 22.1% reduction
in food covers and a 2.1% reduction in the average check compared to the same
period in the prior year. Food covers decreased primarily as a result
of strategic closures of food and beverage outlets in conjunction with periods
of low hotel occupancy. Beverage revenues decreased as a result
of a 28.4% reduction in drinks served, which was primarily due to fewer
complimentary drinks served from our casino bars correlating with reduced casino
patronage. Food and beverage revenues include $0.9 million in
revenues related to food and beverages offered to high-value guests on a
complimentary basis.
Entertainment
revenues for the three months ended September 30, 2009 were $2.6 million, a
decrease of $0.9 million, or 28.0%, from $3.5 million for the comparable period
in the prior year. The decrease in entertainment revenues is
primarily due to weak economic conditions resulting in the closure of select
entertainment acts and an overall reduction in ticket sales at all entertainment
venues. Entertainment revenues include $1.4 million in revenues
related to show tickets offered to high-value guests on a complimentary
basis.
Other
revenues for the three months ended September 30, 2009 were $1.2 million, a
decrease of $0.3 million, or 19.5%, from $1.5 million for the same period in the
prior year. The decrease in other revenues was due primarily to lower
tenant rental income as a result of vacancies and rent concessions.
Promotional
allowances were $3.8 million and $4.4 million for the three months ended
September 30, 2009 and 2008, respectively. Promotional allowances are
comprised of food, beverage, hotel room nights and other items provided on a
complimentary basis primarily to our high-value casino players and convention
guests. Promotional allowances decreased due to a concerted effort to
reduce promotional costs and due to less complimentary offering
redemptions.
Costs and
Expenses
Casino
costs and expenses for the three months ended September 30, 2009 were $5.2
million, a decrease of $1.5 million, or 22.0%, from $6.7 million for the
comparable period in the prior year. The decrease in casino expenses
was primarily due to a $0.7 million reduction in gaming marketing and
promotional expenses, a $0.6 million reduction in slot and table game payroll
and related costs and a $0.1 million reduction in gaming taxes.
Room
rental costs and expenses for the three months ended September 30, 2009 were
$4.8 million, a decrease of $1.6 million, or 24.7%, from $6.4 million for the
comparable period in the prior year. The decrease in room rental
expenses partially offsets the $3.4 million decrease in room rental revenues and
correlates with the 7.6% reduction in occupied rooms. The decrease is
primarily due to a $1.3 million reduction in room division payroll and related
costs and a $0.2 million reduction in convention rebates and credit card
processing fees.
Food and
Beverage costs and expenses for the three months ended September 30, 2009 were
$3.7 million, a decrease of $0.9 million, or 20.1%, from $4.6 million for the
comparable period in the prior year. The decrease was primarily due
to a $0.8 million food and beverage payroll and related costs
reduction.
Entertainment
department costs and expenses for the three months ended September 30, 2009 were
$0.8 million, a decrease of $1.2 million, or 59.8%, from $2.0 million for the
comparable period in the prior year. The decrease in entertainment
department costs and expenses is primarily due to a $1.0 million reduction in
contractual payments to the entertainment producers as a result of less ticket
sales due to the weak economy and the closure of select entertainment
acts.
Other
general and administrative expenses for the three months ended September 30,
2009 were $6.2 million, a decrease of $1.0 million, or 14.6%, from $7.2 million
for the comparable period in the prior year. The decrease in other
general and administrative expenses was due primarily to a $0.7 million
reduction in general and administrative and property maintenance payroll and
related costs due primarily to workforce reductions and the elimination of the
401k matching contribution and a $0.3 million reduction in insurance, legal and
professional costs.
Depreciation
and amortization expenses for the three months ended September 30, 2009 were
$2.6 million, a decrease of $0.2 million, or 9.7%, from $2.8 million for the
comparable period in the prior year. The decrease in depreciation and
amortization expenses was due primarily to the full depreciation of select
assets since the third quarter of 2008.
Income (Loss) from
Operations
Loss from
operations for the three months ended September 30, 2009 was $0.7 million
compared to income from operations of $0.2 million for the comparable period in
the prior year. The decrease of $0.9 million is principally due to
decreased net revenues that were not offset with equivalent reductions in costs
and expenses.
Operating
margin for the three months ended September 30, 2009 was a negative 3.1% due to
the loss from operations. Operating margin for the three months ended
September 30, 2008 was 0.8%. Operating margins decreased primarily
due to the $15.66, or 20.8%, reduction in average daily room rates and the $1.3
million decrease in slot machine revenues.
Riviera
Black Hawk
Revenues
Net
revenues for the three months ended September 30, 2009 were $12.0 million, an
increase of $2.0 million, or 20.3%, from $10.0 million for the comparable period
in the prior year. The increase was primarily due to a $1.9 million
increase in casino revenues to $11.6 million for the three months ended
September 30, 2009 from $9.7 million for the same period in the prior
year. Casino revenues are comprised of revenues from slot machines
and table games.
Slot
machine revenues increased $1.4 million, or 14.8%, to $10.9 million from $9.5
million for the comparable period in the prior year. Slot machine
revenues increased primarily due to additional wagering as a result of the
passage of Colorado Amendment 50 permitting increased betting limits and
extended hours. Increased betting and extended hours were implemented
July 2, 2009. Amounts wagered on slot machines increased $33.7
million to $214.7 million from $181.0 million for the comparable period in the
prior year. Additionally, slot machine win per unit per day increased
$32.18, or 25.7%, to $157.42 from $125.24 for the same period in the prior
year. The increase in slot win per unit per day was due primarily to
additional amounts wagered and approximately 70 less slot machines during the
third quarter of 2009 in comparison to the same period in the prior
year. There were 750 slot machines on the casino floor as of
September 30, 2009. Cash incentives given to slot machine players,
which are deducted from slot machine winnings to arrive at slot machine
revenues, increased $1.1 million, or 56.0%, to $3.2 million for the three months
ended September 30, 2009 compared to $2.1 million for the same period in the
prior year. Cash incentives increased as a result of a concerted
effort to retain and build our market share.
Table
games revenue increased $0.5 million from $0.2 million to $0.7 million for the
three months ended September 30, 2009 primarily as a result of increased
wagering due to the July 2, 2009 implementation of increased betting limits,
extended hours and roulette gaming as permitted with the passage of Colorado
Amendment 50.
Food and
beverage revenues were $2.0 million and $1.4 million for the three months ended
September 30, 2009 and 2008, respectively. Food and beverage revenues
for the three months ended September 30, 2009 include $1.6 million in revenues
related to food and beverages offered to high-value guests on a complimentary
basis. Food and beverage revenues improved primarily as a result of
additional complimentary offerings to high-value guests in an effort to increase
visitations and casino revenues.
Promotional
allowances were $1.7 million and $1.2 million for the three months ended
September 30, 2009 and 2008, respectively. Promotional allowances are
comprised of food and beverage and other items provided on a complimentary basis
primarily to our high-value casino players. Promotional allowances
increased due to additional food and beverage items provided to high-value
guests on a complimentary basis as described above.
Costs and
Expenses
Costs and
expenses for the three months ended September 30, 2009 were $10.7 million, an
increase of $2.0 million, or 22%, from $8.7 million for the comparable period in
the prior year.
Costs and
expenses increased primarily due to a $1.7 million increase in casino costs and
expenses and a $0.2 million increase in food and beverage costs and
expenses.
Casino
costs and expenses increased primarily due to a $1.0 million increase in
marketing, advertising and promotional expenses and a $0.5 million increase in
gaming taxes as a result of higher casino revenues. The increase in
marketing, advertisement and promotional expenses was due to additional costs
associated with implementing increased betting limits, extended hours and
roulette gaming on July 2, 2009 as permitted with the passage of Colorado
Amendment 50 and additional costs associated with efforts to retain and grow our
slot machine player customer base.
Food and
beverage costs and expenses increased primarily as a result of higher food costs
and payroll and related expenses correlating with the $0.6 million increase in
food and beverage revenues.
Income from
Operations
Income
from operations for the three months ended September 30, 2009 were $1.3 million,
an increase of $0.1 million, or 8.3%, from $1.2 million for the comparable
period in the prior year. The increase is related primarily to
increased casino revenues as described above.
Operating
margins were 11.2% for the three months ended September 30, 2009 in comparison
to 12.4% for the comparable period in the prior year. Operating
margins decreased primarily due to increased costs associated with the
implementation of increased betting limits, extended hours and roulette gaming
as permitted with the passage of Colorado Amendment 50 as described
above.
Consolidated
Operations
(Loss) Income from
Operations
Loss from
operations for the three months ended September 30, 2009 was $1.0 million, a
decline of $1.2 million, or 616.4%, from income from operations of $0.2 million
for the same period in the prior year. The decline was due to a $5.6
million decrease in consolidated net revenues partially offset by a $4.4 million
decrease in consolidated costs and expenses. Consolidated net
revenues decreased as a result of a $7.6 million net revenue decrease in Riviera
Las Vegas partially offset by a $2.0 million net revenues increase in Riviera
Black Hawk. The decrease in consolidated costs and expenses was due
primarily to a costs and expenses reduction of $6.7 million in Riviera Las Vegas
partially offset by costs and expenses increases of $2.0 million and $0.4
million in Riviera Black Hawk and Corporate, respectively. Corporate
costs and expenses increased primarily due to restructuring fees of $0.6 million
incurred during the three months ended September 30, 2009 (see Notes 3 and 5 to
the Condensed Consolidated Financial Statements).
Other
Expense
Other
expense was of $3.7 million for the three months ended September 30, 2009 and
the three months ended September 30, 2008. Interest expense decreased
$0.6 million during the three months ended September 30, 2009 but was fully
offset by a $0.6 million gain in the fair value of derivative instruments during
the three months ended September 30, 2008. The decrease in interest
expense was the result of lower interest rates primarily due to the termination
of our swap fixed interest rate on July 27, 2009. Interest
rates for the Term Loan and Revolver balances are no longer locked and are now
subject to changes in underlying LIBOR rates and vary based on fluctuations in
the Alternative Base Rate and Applicable Margins which were lower than our swap
fixed interest rate during the three months ended September 30,
2009.
Net Loss
Net
losses for the three months ended September 30, 2009 and 2008 were $4.7 million
and $3.5 million, respectively. The $1.2 million additional loss in
comparison to the same period in the prior year was due to the $1.2 decline in
(loss) income from operations.
Nine
Months Ended September 30, 2009 Compared to Nine Months Ended September 30,
2008
The
following table sets forth, for the periods indicated, certain operating data
for Riviera Las Vegas and Riviera Black Hawk. Income from operations
does not include intercompany management fees.
|
|
Nine
Months
|
|
|
Incr
|
|
|
Incr
|
|
(In
Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Riviera
Las Vegas
|
|
$ |
71,995 |
|
|
$ |
101,206 |
|
|
$ |
(29,211 |
) |
|
|
(28.9 |
%) |
Riviera
Black Hawk
|
|
|
31,936 |
|
|
|
32,579 |
|
|
|
(643 |
) |
|
|
(2.0 |
%) |
Total
Net Revenues
|
|
$ |
103,931 |
|
|
$ |
133,785 |
|
|
$ |
(29,854 |
) |
|
|
(25.9 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property Income from
Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Riviera
Las Vegas
|
|
|
891 |
|
|
|
9,983 |
|
|
|
(9,092 |
) |
|
|
(91.1 |
%) |
Riviera
Black Hawk
|
|
|
4,178 |
|
|
|
5,580 |
|
|
|
(1,402 |
) |
|
|
(25.1 |
%) |
Total
Property Income from Operations
|
|
|
5,069 |
|
|
|
15,563 |
|
|
|
(10,494 |
) |
|
|
(67.4 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Corporate
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
Compensation
|
|
|
(425 |
) |
|
|
(620 |
) |
|
|
195 |
|
|
|
31.5 |
% |
M&A
and Development Costs
|
|
|
— |
|
|
|
(104 |
) |
|
|
104 |
|
|
|
100 |
% |
Other
Corporate Expense
|
|
|
(2,762 |
) |
|
|
(2,900 |
) |
|
|
138 |
|
|
|
4.8 |
% |
Restructuring
Fees
|
|
|
(2,106 |
) |
|
|
— |
|
|
|
(2,106 |
) |
|
|
(100 |
%) |
Total
Corporate Expenses
|
|
|
(5,293 |
) |
|
|
(3,624 |
) |
|
|
(1,669 |
) |
|
|
(46.1 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Income from Operations
|
|
$ |
(224 |
) |
|
$ |
11,939 |
|
|
$ |
(12,163 |
) |
|
|
(101.9 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Margins (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Riviera
Las Vegas
|
|
|
1.2 |
% |
|
|
9.9 |
% |
|
|
|
|
|
|
(8.7 |
%) |
Riviera
Black Hawk
|
|
|
13.1 |
% |
|
|
17.1 |
% |
|
|
|
|
|
|
(4.0 |
%) |
(1)
|
Operating
margins represent income from operations by property as a percentage of
net revenues by property.
|
Riviera
Las Vegas
Revenues
Net
revenues for the nine months ended September 30, 2009 were $72.0 million, a
decrease of $29.2 million, or 28.9%, from $101.2 million for the comparable
period in the prior year.
Casino
revenues for the nine months ended September 30, 2009 were $32.4 million, a
decrease of $6.9 million, or 17.6%, from $39.3 million for the comparable period
in the prior year. Casino revenues are comprised primarily of slot
machine and table game revenues. In comparison to the same period in
the prior year, slot machine revenue was $25.7 million, a decrease of $3.8
million, or 13.0%, from $29.5 million and table game revenue was $5.9 million, a
decrease of $2.3 million, or 28.4%, from $8.2 million. Slot machine
and table game revenues decreased primarily due to less wagering as a result of
the slower economy and less walk-in business. Slot machine win per
unit per day for the nine months ended September 30, 2009 was $99.56, a decrease
of $18.30, or 15.5%, from $117.86 for the comparable period in the prior
year.
Room
revenues for the nine months ended September 30, 2009 were $27.7 million, a
decrease of $13.9 million, or 33.4%, from $41.6 million for the comparable
period in the prior year. The decrease in room rental revenues was
primarily due to a decrease in average daily room rates. The average daily room
rate, or ADR, was $62.27, a decrease of $26.02, or 29.5%, from $88.29 for the
comparable period in the prior year. The decrease in ADR was due
mostly to lower leisure segment rates in the first nine months of 2009 in
comparison to the same period in the prior year and a shift in the occupied room
mix from higher rated convention segment occupancy to lower rated leisure
segment occupancy. Leisure segment average daily room rates were
$42.01 for the nine months ended September 30, 2009, a decrease of $28.45, or
40.4%, from $70.46 for the same period in the prior
year. Additionally, leisure segment and convention segment occupied
rooms comprised 61.1% and 21.5% of total occupied rooms, respectively, for the
nine months ended September 30, 2009 in comparison to 41.3% and 40.2%,
respectively, for the same period in the prior year. Convention
segment demand decreased substantially due to the effects of the ongoing
recession and increased competition.
Hotel
room occupancy per available room for the nine months ended September 30, 2009
was 76.7% compared to 84.4% for the same period in the prior
year. During the nine months ended September 30, 2008, on average,
approximately 7% of the hotel rooms were unavailable due to construction related
to our room renovation project. Hotel room occupancy, including rooms
unavailable due to construction, was 77.9% for the nine months ended September
30, 2008. Revenue per available room, or RevPar, was $47.73 a
decrease of $26.78, or 35.9%, from $74.51 for the comparable period in the prior
year. RevPar is total revenue from hotel room rentals divided by
total hotel rooms available for sale. The decrease in RevPar was the
result of decreases in occupied rooms and average daily room rates as described
above. Room revenues include $5.3 million in revenues related to
hotel room nights offered to high-value guests on a complimentary
basis.
Food and
beverage revenues for the nine months ended September 30, 2009 was $13.3
million, a decrease of $5.3 million, or 28.3%, from $18.6 million for the
comparable period in the prior year. The decrease was due to a $3.7
million decrease in food revenues and a $1.6 million decrease in beverage
revenues. Food covers decreased 14.8% and the average check decreased
15.6% from the comparable period in the prior year as a result of the weak
economy, reduced hotel occupancy and the strategic closure of select food and
beverage outlets during low hotel occupancy periods. Beverage
revenues decreased primarily as a result of less complimentary drinks served
from our casino bars due to reduced casino patronage. Food and
beverage revenues include $3.3 million in revenues related to food and beverages
offered to high-value guests on a complimentary basis.
Entertainment
revenues for the nine months ended September 30, 2009 were $6.5 million, a
decrease of $3.7 million, or 36.1%, from $10.2 million for the comparable period
in the prior year. The decrease in entertainment revenues is
primarily due to weak economic conditions resulting in closure of select
entertainment acts and an overall reduction in ticket sales at all entertainment
venues. Entertainment revenues include $2.8 million in revenues
related to show tickets offered to high-value guests on a complimentary
basis.
Other
revenues for the nine months ended September 30, 2009 were $4.0 million, a
decrease of $0.8 million, or 16.4%, from $4.8 million for the same period in the
prior year. The decrease in other revenues was due primarily to a
$0.4 million reduction in tenant rental income as a result of vacancies and rent
concessions and a $0.2 million reduction in telephone revenues as a result of
less occupancy and call volume. Additionally, the nine months ended
September 30, 2008 included $0.2 million in income from the reclassification of
unclaimed slot token liabilities and the sale of fully depreciated
equipment.
Promotional
allowances were $11.9 million and $13.3 million for the nine months ended
September 30, 2009 and 2008, respectively. Promotional allowances are
comprised of food, beverage, hotel room nights and other items provided on a
complimentary basis primarily to our high-value casino players and convention
guests. Promotional allowances decreased due to a concerted effort to
reduce promotional costs and as a result of less complimentary offering
redemptions.
Costs and
Expenses
Casino
costs and expenses for the nine months ended September 30, 2009 were $17.2
million, a decrease of $4.4 million, or 20.5%, from $21.6 million for the
comparable period in the prior year. The decrease in casino expenses
was due primarily to a $2.6 million reduction in slot and table game payroll and
related costs, a $1.3 million decrease in marketing and promotional costs and a
$0.5 million reduction in gaming related taxes.
Room
rental costs and expenses for the nine months ended September 30, 2009 were
$14.5 million, a decrease of $5.1 million, or 26.3%, from $19.6 million for the
comparable period in the prior year. The decrease in room rental
costs and expenses is primarily due to a decrease of $3.3 million in room
division payroll and related costs, a reduction of $0.9 million in convention
commissions and rebates, a decrease of $0.4 million in rooms division and
convention services operating expenses, a decline of $0.3 million in credit card
processing fees and a reduction of $0.1 million in travel agent
commissions.
Food and
Beverage costs and expenses for the nine months ended September 30, 2009 were
$11.0 million, a decrease of $4.3 million, or 28.5%, from $15.3 million for the
comparable period in the prior year. The decrease was due primarily
to a $3.3 million decrease in food and beverage payroll and related costs, a
$0.6 million reduction in food and beverage cost of sales and a $0.4 million
reduction in food and beverage operating expenses. To manage costs
during low occupancy periods, select food and beverage venues were
closed.
Entertainment
department costs and expenses for the nine months ended September 30, 2009 were
$2.6 million, a decrease of $3.8 million, or 59.1%, from $6.4 million for the
comparable period in the prior year. The decrease in entertainment
department costs and expenses is primarily due to a $2.9 million reduction in
contractual payments to the entertainment producers and reductions in payroll
and related costs as a result of less ticket sales due to the weak economy and
the closure of select entertainment acts.
Other
general and administrative expenses for the nine months ended September 30, 2009
were $17.4 million, a decrease of $3.3 million, or 16.1%, from $20.7 million for
the comparable period in the prior year. The decrease in other
general and administrative expenses was due primarily to a $2.0 million
reduction in general and administrative and property maintenance payroll and
related costs primarily due to workforce reductions and the elimination of the
401k matching contribution, a $0.4 million reduction in utilities expenses
primarily due to lower natural gas costs and a $0.6 million reduction in various
general and administrative and property maintenance operating
expenses.
Depreciation
and amortization expenses for the nine months ended September 30, 2009 were $8.2
million, an increase of $0.5 million, or 7.5%, from $7.7 million for the
comparable period in the prior year. The increase in depreciation and
amortization expenses was due primarily to asset additions during 2008 related
to our hotel room renovation.
Income from
Operations
Income
from operations for the nine months ended September 30, 2009 were $0.9 million,
a decrease of $9.1 million, or 91.1%, from $10.0 million for the comparable
period in the prior year. The decrease is principally due to the
$29.2 million decrease in net revenues with insufficient offsetting reductions
in costs and expenses.
Operating
margins were 1.2% for the nine months ended September 30, 2009 in comparison to
9.9% for the comparable period in the prior year. Operating margins
decreased primarily due to the $26.02 decrease in ADR and a $3.8 million
decrease in revenue in the high margin slot profit center.
Riviera
Black Hawk
Revenues
Net
revenues for the nine months ended September 30, 2009 were $31.9 million, a
decrease of $0.7 million, or 2.0%, from $32.6 million for the comparable period
in the prior year. The decrease was primarily due to a $0.6 decrease
in casino revenues to $31.1 million from $31.7 million in the comparable period
in the prior year. Casino revenues are comprised of revenues from
slot machines and revenues from table games.
Slot
machine revenues were $30.0 million, a decrease of $0.9 million, or 2.9%, from
$30.9 million for the comparable period in the prior year. Slot
machine revenues decreased primarily as a result of higher cash incentives to
our high-value slot machine players. Cash incentives given to slot
machine players, which are deducted from slot machine winnings, increased $1.7
million, or 25.6%, to $8.1 million for the nine months ended September 30,
2009. Cash incentives increased as a result of a concerted effort to
retain and build market share. Amounts wagered on slot machines
during the nine months ended September 30, 2009 were $575.0 million, an increase
of $4.4 million, or 0.8%, from $570.6 million for the comparable period in the
prior year. Additionally, slot machine win per unit per day increased
$13.34, or 10.2%, to $144.68 from $131.34 for the same period in the prior
year. The increase in slot win per unit per day was the result of
approximately 100 fewer slot machines on the casino floor during the nine months
ended September 30, 2009 in comparison to the same period in the prior year.
There were 750 slot machines on the casino floor as of September 30,
2009.
Table
games revenue increased $0.3 million to $1.1 million for million for the nine
months ended September 30, 2009 from $0.8 million for the comparable period in
the prior year. The increase was the result of increased wagering due
to the July 2, 2009 implementation of increased betting limits, extended hours
and roulette gaming as permitted with the passage of Colorado Amendment
50.
Food and
beverage revenues were $4.6 million for the nine months ended September 30, 2009
and were $3.9 million for the comparable period in the prior
year. Food and beverage revenues increased due to additional
items offered to high-value casino customers on a complimentary
basis. Food and beverage revenues related to items offered on a
complimentary basis were $3.7 million and $3.0 million for the nine months ended
September 30, 2009 and 2008, respectively. The increase was the
result of a concerted effort to increase customer visitations and casino
revenues.
Promotional
allowances were $4.1 million for the nine months ended September 30, 2009 and
$3.4 million for the comparable period in the prior year. Promotional
allowances are comprised of food and beverage and other items provided on a
complimentary basis primarily to our high-value casino
players. Promotional allowances increased primarily due to additional
food and beverage items provided to high-value casino customers on a
complimentary basis as referenced above.
Costs and
Expenses
Costs and
expenses for the nine months ended September 30, 2009 were $27.8 million, an
increase of $0.8 million, or 2.8%, from $27.0 million for the comparable period
in the prior year.
Costs and
expenses increased primarily as a result of a $1.5 million increase in casino
costs and expenses offset by lower general and administrative costs and
expenses.
Casino
costs and expenses increased as a result of a $0.9 million increase in
advertising expenses, a $0.2 million increase in payroll and related expenses, a
$0.1 million increase in gaming taxes and a $0.1 million increase in contract
labor. Advertising expenses increased as a result of additional costs
associated with a marketing awareness campaign to launch increased betting
limits, extended hours and roulette gaming on July 2, 2009 as permitted with the
passage of Colorado Amendment 50.
General
and administrative expenses decreased primarily due to the elimination of the
401k matching contribution, reduced legal and consulting fees and the
realization of a workers compensation insurance refund.
Income from
Operations
Income
from operations for the nine months ended September 30, 2009 were $4.2 million,
a decrease of $1.4 million, or 25.1%, from $5.6 million for the comparable
period in the prior year. The decrease is related primarily to the
lower casino revenues and higher casino costs as described above.
Operating
margins were 13.1% for the nine months ended September 30, 2009 in comparison to
17.1% for the comparable period in the prior year. Operating margins
decreased primarily due to increased implementation costs associated with
increasing betting, extending hours and commencing roulette gaming on July 2,
2009 as permitted with the passage of Colorado Amendment 50.
Consolidated
Operations
(Loss) Income from
Operations
Loss from
operations for the nine months ended September 30, 2009 was $0.2 million, a
decline of $12.1 million, or 101.9%, from income from operations of $11.9
million for the same period in the prior year.
The
decrease in income from operations was due to a $29.9 million decrease in
consolidated net revenues partially offset by a $17.8 million decrease in
consolidated costs and expenses. Consolidated net revenues decreased
as a result of a $29.2 million net revenue decrease in Riviera Las Vegas and a
$0.6 million net revenues increase in Riviera Black Hawk. The
decrease in consolidated costs and expenses was due primarily to a costs and
expenses reduction of $20.1 million in Riviera Las Vegas partially offset by
costs and expenses increases of $0.8 million and $1.7 million in Riviera Black
Hawk and Corporate, respectively. Corporate costs and expenses
increased primarily due to restructuring fees of $2.1 million incurred during
the nine months ended September 30, 2009 (see Notes 3 and 5 to the Condensed
Consolidated Financial Statements).
Other
Expense
Other
expense was $19.0 million and $11.1 million for the nine months ended September
30, 2009 and 2008, respectively. The primary reason for the $7.9
million increase in other expense was a decrease in the fair value of
derivatives of $6.9 million and a $1.1 million increase in interest
expense. During the nine month period ended September 30, 2009, the
change in the fair value of derivatives resulted in a loss of $5.3 million
compared to a gain of $1.6 million for the comparable period in the prior
year. The increase in interest expense was due primarily to the
assessment of default interest expense as described in Note 5 to the Condensed
Consolidated Financial Statements in this Form 10-Q.
Net (Loss)
Income
Net loss
for the nine months ended September 30, 2009 was $19.2 million, a decline of
$20.0 million, from net income of $0.8 million for the comparable period in the
prior year. The decline was due to the $12.1 million decrease in
consolidated income from operations combined with the $7.9 million increase in
other expense.
Liquidity
and Capital Resources
Our
independent registered public accounting firm included an explanatory paragraph
that expresses doubt as to our ability to continue as a going concern in their
audit report contained in our Form 10-K report for the year ended December 31,
2008. We cannot provide any assurance that we will in fact operate
our business profitably, maintain existing financings, or obtain sufficient
financing in the future to sustain our business in the event we are not
successful in our efforts to generate sufficient revenue and operating cash
flow.
Our
ability to continue as a going concern will be determined by our ability to
obtain additional funding or restructure or negotiate waivers on our existing
indebtedness and to generate sufficient revenue to cover our operating
expenses. The accompanying condensed consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or amounts of liabilities that might be
necessary should we be unable to continue in existence.
We had
cash and cash equivalents of $21.2 million and $13.5 million as of September 30,
2009 and December 31, 2008, respectively. Our cash and cash
equivalents increased $7.8 million during the nine months ended September 30,
2009 as a result of $9.8 million in net cash provided by operating activities
partially offset by $2.0 million in net cash used in investing activities due to
maintenance capital expenditures at both Riviera Las Vegas and Black Hawk.
Cash and cash equivalents would have decreased by approximately $5.9 million had
we paid accrued interest of $13.7 million related to our Credit Facility (see
Note 5 to the Condensed Consolidated Financial Statements). The $9.8
million in net cash provided by operating activities was due primarily to $19.2
million in net loss plus $11.3 million in non-cash depreciation and
amortization, $5.3 million in non-cash changes in the fair value of derivatives
and $13.6 million in interest expense recorded but not paid partially offset by
$1.4 million in changes in operating assets and liabilities (excluding changes
in accrued interest liability).
Cash and
cash equivalents decreased by $8.3 million during the nine months ended
September 30, 2008 due to $18.0 million in net cash used in investing activities
partially offset by $7.2 million in net cash provided by operating activities
and $2.5 million in net cash provided by financing activities. Net
cash used in investing activities included $16.3 million in capital expenditures
for Riviera Las Vegas primarily as a result of expenditures related to our hotel
room renovation project and $1.6 million in capital expenditure for Riviera
Black Hawk maintenance capital expenditures. The $7.2 million in net
cash provided by operating activities was due primarily to $0.8 million in net
income plus $11.1 million in non-cash depreciation and amortization and $0.6
million in non-cash stock based compensation partially offset by $1.6 million in
non-cash changes in the fair value of derivative instruments and $4.0 million in
changes in operating assets and liabilities due mostly to reductions in accounts
payable and accrued expense liabilities. The $2.5 million in net cash
provided by financing activities was primarily the result of a $2.5 million draw
on our revolving credit facility during the three months ended September 30,
2008.
Our cash
and cash equivalents includes amounts that could be required, upon five days’
notice, to fund our CEO’s (Mr. Westerman’s) pension obligation in a rabbi
trust. As of September 30, 2009, the pension obligation due Mr.
Westerman was $250,000 plus interest. The entire pension obligation,
plus interest, was paid to Mr. Westerman on October 2, 2009.
2007 Credit Facility and
Swap Agreement
On June
8, 2007, RHC and its restricted subsidiaries, namely ROC, Riviera Gaming
Management of Colorado, Inc. and RBH (collectively, the Subsidiaries) entered
into a $245 million Credit Agreement (the Credit Agreement together
with related security agreements and other credit-related agreements, the Credit
Facility) with Wachovia Bank, National Association (Wachovia), as administrative
agent. On June 29, 2007, in conjunction with the Credit Facility, the
Company entered into an interest rate swap agreement with Wachovia as the
counterparty that became effective June 29, 2007 (the Swap
Agreement).
The
Credit Facility includes a $225 million seven-year term loan (Term Loan), with
no amortization for the first three years, a one percent amortization for each
of years four through six, and a full payoff in year seven, in addition to an
annual mandatory pay down of 50% of excess cash flows, as defined
therein. The Credit Facility included a $20 million five-year
Revolver (Revolver) under which RHC could obtain extensions of credit in the
form of cash loans or standby letters of credit (Standby
L/Cs). Pursuant to Section 2.6 of the Credit Agreement, on June 5,
2009, the Company voluntarily reduced the Revolver commitment from $20 million
to $3 million. RHC is permitted to prepay the Credit Facility without
premium or penalties except for payment of any funding losses resulting from
prepayment of any LIBOR rate loans. The Credit Facility is guaranteed
by the Subsidiaries and is secured by a first priority lien on substantially all
of the Company’s assets.
Prior to
certain events of default that occurred in fiscal 2009 (the 2009 Credit
Defaults) described below, the rate for the Term Loan was LIBOR plus
2.0%. Pursuant to the Swap Agreement that RHC entered into with
Wachovia under the Credit Facility, substantially the entire Term Loan, with
quarterly step-downs, bore interest at an effective fixed rate of 7.485% (7.405%
for 2008) per annum (2.0% above the LIBOR Rate in effect on the lock-in date of
the Swap Agreement) prior to the Credit Facility Defaults. The Swap
Agreement specifies that the Company pay an annual interest rate spread on a
notional balance that approximates the Term Loan balance and steps down
quarterly. The interest rate spread is the difference between the
LIBOR rate and 5.485% and the notional balance was $203.9 million as of
September 30, 2009.
RHC used
substantially all of the proceeds of the Term Loan to discharge its obligations
under the Indenture, dated June 26, 2002 (the Indenture), with The Bank of New
York as trustee (the Trustee), governing the 11% Notes. On June 8,
2007 RHC deposited these funds with the Trustee and issued to the Trustee a
notice of redemption of the 11% Notes, which was executed on July 9,
2007.
Prior to
the 2009 Credit Defaults, the interest rate on loans under the Revolver depended
on whether they were in the form of revolving loans or swingline loans
(Swingline Loans). Prior to the 2009 Credit Defaults, the interest
rate for each revolving loan depended on whether RHC elects to treat the loan as
an Alternate Base Rate loan (ABR Loan) or a LIBOR Rate loan; and Swingline Loans
bore interest at a per annum rate equal to the Alternative Base Rate plus the
Applicable Percentage for revolving loans that were ABR Loans. Prior
to the 2009 Credit Defaults, the applicable percentage for Swingline Loans
ranged from 0.50% to 1% depending on the Consolidated Leverage Ratio as defined
in our Credit Facility Credit Agreement. Our Consolidated Leverage
Ratio was 14.99 for the four quarters ending September 30, 2009, which exceeded
the maximum allowable Consolidated Leverage Ratio set forth in the Credit
Agreement. This ratio test is only applicable if we have more than
$2.5 million in Revolver borrowings at the end of the applicable
quarter.
Fees
payable under the Revolver include: (i) a commitment fee in an amount equal to
either 0.50% or 0.375% (depending on the Consolidated Leverage Ratio) per annum
on the average daily unused amount of the Revolver; (ii) Standby L/C fees equal
to between 2.00% and 1.50% (depending on the Consolidated Leverage Ratio) per
annum on the average daily maximum amount available to be drawn under each
Standby L/C issued and outstanding from the date of issuance to the date of
expiration; and (iii) a Standby L/C facing fee in the amount of 0.25% per annum
on the average daily maximum amount available to be drawn under each Standby
L/C. An annual administrative fee of $35,000 is also payable in
connection with the Revolver.
The
Credit Facility contains affirmative and negative covenants customary for
financings of this nature including, but not limited to, restrictions on RHC’s
incurrence of other indebtedness.
The
Credit Facility contains events of default customary for financings of this
nature including, but not limited to, nonpayment of principal, interest, fees or
other amounts when due; violation of covenants; failure of any representation or
warranty to be true in all material respects; cross-default and
cross-acceleration under RHC’s other indebtedness or certain other material
obligations; certain events under federal law governing employee benefit plans;
a “change of control” of RHC; dissolution; insolvency; bankruptcy events;
material judgments; uninsured losses; actual or asserted invalidity of the
guarantees or the security documents; and loss of any gaming
licenses. Some of these events of default provide for grace periods
and materiality thresholds. For purposes of these default provisions,
a “change in control” of RHC includes: a person’s acquisition of beneficial
ownership of 35% or more of RHC’s stock coupled with a gaming license and/or
approval to direct any of RHC’s gaming operations, a change in a majority of the
members of RHC’s board of directors other than as a result of changes supported
by RHC’s current board members or by successors who did not stand for election
in opposition to RHC’s current board, or RHC’s failure to maintain 100%
ownership of the Subsidiaries.
2009 Credit
Defaults
As
previously disclosed on a Form 8-K filed with the SEC on March 4, 2009, the
Company received a notice of default on February 26, 2009 (the February Notice),
from Wachovia with respect to the Credit Facility in connection with the
Company’s failure to provide a Deposit Account Control Agreement, or DACA, from
each of the Company’s depository banks per a request made by Wachovia to the
Company on October 14, 2008. The DACA that Wachovia requested the
Company to execute was in a form that the Company ultimately determined to
contain unreasonable terms and conditions as it would enable Wachovia to access
all of the Company’s operating cash and order it to be transferred to a bank
account specified by Wachovia. The Notice further provided that as a
result of the default, the Company would no longer have the option to request
the LIBOR Rate loans described above. Consequently, the Term Loan was
converted to an ABR Loan effective March 31, 2009.
On March
25, 2009, the Company engaged XRoads Solution Group LLC as our financial
advisor. Based on an extensive analysis of our current and projected
liquidity, and with our financial advisor’s input, we determined it was in the
best interests of the Company to not pay the Credit Facility and Swap Agreement
accrued interest of $13.9 million for the nine months ended September 30,
2009. Consequently, we elected not to make these
payments. The Company’s failure to pay interest due on any loan
within our Credit Facility within a three-day grace period from the due date was
an event of default under our Credit Facility. As a result of these
events of default, the Company’s lenders have the right to seek to charge
additional default interest on the Company’s outstanding principal and interest
under the Credit Agreement, and automatically charge additional default interest
on any overdue amounts under the Swap Agreement. These default rates
are in addition to the interest rates that would otherwise be applicable under
the Credit Agreement and Swap Agreement.
As
previously disclosed on a Form 8-K filed with the SEC on April 6, 2009, the
Company received an additional notice of default on April 1, 2009 (the April
Default Notice) from Wachovia. The April Default Notice alleges that
subsequent to the Company’s receipt of the February Notice,
additional defaults and events of default had occurred and were continuing under
the terms of the Credit Agreement including, but not limited to: (i) the
Company’s failure to deliver to Wachovia audited financial statements without a
“going concern” modification; (ii) the Company’s failure to deliver Wachovia a
certificate of an independent certified public accountant in conjunction with
the Company’s financial statement; and (iii) the occurrence of a default or
breach under a secured hedging agreement. The April Default Notice
also states that in addition to the foregoing events of default that there were
additional potential events of default as a result of, among other things, the
Company’s failure to pay: (i) accrued interest on the Company’s LIBOR rate loan
on March 30, 2009 (the LIBOR Payment), (ii) the commitment fee on March 31, 2009
(the Commitment Fee Payment), and (iii) accrued interest on the Company’s ABR
Loans on March 31, 2009 (the ABR Payment and together with the LIBOR Payment and
Commitment Fee Payment, the March 31st Payments). The Company has not
paid the March 31st Payments and the applicable grace period to make these
payments has expired. The April Default Notice states that as a
result of these events of defaults, (a) all amounts owing under the Credit
Agreement thereafter would bear interest, payable on demand, at a rate equal to:
(i) in the case of principal, 2% above the otherwise applicable rate; and (ii)
in the case of interest, fees and other amounts, the ABR Default Rate (as
defined in the Credit Agreement), which as of April 1, 2009 was 6.25%; and (b)
neither Swingline Loans nor additional Revolving Loans are available to the
Company at this time.
As a
result of the February Notice and the April Default Notice, effective March 31,
2009, the Term Loan interest rate increased to approximately 10.5% per annum and
effective April 1, 2009, the Revolver interest rate is approximately 6.25% per
annum. Consequently, the Company has incurred approximately $3
million in default interest related to the Credit Facility and Swap Agreement
for the nine months ended September 30, 2009.
On April
1, 2009, we also received Notice of Event of Default and Reservation of Rights
(Swap Default Notice) in connection with an alleged event of default under our
Swap Agreement. Receipt of the Swap Default Notice was previously
disclosed on a Form 8-K filed with the SEC on April 6, 2009. The Swap
Default Notice alleges that (a) an event of default exists due to the occurrence
of an event of default(s) under the Credit Agreement and (b) that the Company
failed to make payments to Wachovia with respect to one or more transactions
under the Swap Agreement. The Company has not paid the overdue amount
and the applicable grace period to make this payment has expired. As
previously announced by the Company, any default under the Swap Agreement
automatically results in an additional default interest of 1% on any overdue
amounts under the Swap Agreement. This default rate is in addition to
the interest rate that would otherwise be applicable under the Swap
Agreement. As of September 30, 2009, the amount outstanding under the
Swap Agreement was $22.1 million.
On July
23, 2009, the Company received a Notice of Early Termination for Event of
Default (the Early Termination Notice) from Wachovia in connection with an
alleged event of default that occurred under the Swap
Agreement. Receipt of the Early Termination Notice was previously
disclosed on a Form 8-K filed with the SEC on July 29, 2009. The
Early Termination Notice alleges that an event of default has occurred and is
continuing pursuant to Sections 5(a)(i) and 5(a)(vi)(1) of the Swap
Agreement. Section 5(a)(i) of the Swap Agreement addresses payments
and deliveries specified under the Swap Agreement and Section 5(a)(vi)(1) of the
Swap Agreement addresses cross defaults. The Early Termination Notice provides
that Wachovia designated an early termination date of July 27, 2009 in respect
of all remaining transactions governed by the Swap Agreement, including an
interest rate swap transaction with a trade date of May 31,
2007.
On July
28, 2009, in connection with the Early Termination Notice, the Company received
a Notice of Amount Due Following Early Termination from Wachovia that claimed
the amount due and payable to Wachovia under the Swap Agreement is $26.6
million, which includes $4.4 million in accrued interest. As a result
of the Early Termination Notice, the interest rates for the Term Loan and
Revolver balances are no longer locked and are now subject to changes in
underlying LIBOR rates and vary based on fluctuations in the Alternative Base
Rate and Applicable Margins. As of September 30, 2009, our Term Loan
and Revolver bear interest at approximately 6.25%.
With
the aid of our financial advisors and outside counsel, we are continuing to
negotiate with our various creditor constituencies to refinance or restructure
our debt. We cannot assure you that we will be successful in
completing a refinancing or consensual out-of-court restructuring, if
necessary. If we were unable to do so, we would likely be compelled
to seek protection under Chapter 11 of the U. S. Bankruptcy Code.
Current Economic and
Operating Environment
We
believe that due to a number of factors affecting consumers, including but not
limited to a slowdown in global economies, contracting credit markets and
reduced consumer spending, the outlook for the gaming and hospitality industries
remains highly uncertain. Based on these adverse circumstances, we
believe that the Company will continue to experience lower than expected hotel
occupancy rates and casino volumes.
As a
result of the economic factors and the defaults on the Credit Facility, there is
substantial doubt about our ability to continue as a going concern.
Off-Balance Sheet
Arrangements
It is not
our usual business practice to enter into off-balance sheet arrangements such as
guarantees on loans and financial commitments, indemnification arrangements and
retained interests in assets transferred to an unconsolidated entity for
securitization purposes. Consequently, we have no off-balance sheet
arrangements.
Critical Accounting
Policies
A
description of our critical accounting policies and estimates can be found in
Item 7 of our Form 10-K for the year ended December 31, 2008. For a
further discussion of our accounting policies, see Note 3, Summary of
Significant Accounting Policies, in the Notes to the Condensed Consolidated
Financial Statements in this Form 10-Q.
Forward-Looking
Statements
Throughout
this report we make “forward-looking statements,” as that term is defined in
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Exchange Act of 1934, as amended (the “Exchange Act”). Forward
looking statements include the words “may,” “would,” “could,” “likely,”
“estimate,” “intend,” “plan,” “continue,” “believe,” “expect,” “project” or
“anticipate” and similar words and our discussions about our ongoing or future
plans, objectives or expectations and our liquidity projections. We
do not guarantee that any of the transactions or events described in this report
will happen as described or that any positive trends referred to in this report
will continue. These forward looking statements generally relate to
our plans, objectives and expectations for future operations and results and are
based upon what we consider to be reasonable estimates. Although we
believe that our forward looking statements are reasonable at the present time,
we may not achieve or we may modify our plans, objectives and
expectations. You should read this report thoroughly and with the
understanding that actual future results may be materially different from what
we expect. We do not plan to update forward looking statements even
though our situation or plans may change in the future, unless applicable law
requires us to do so. Specific factors that might cause our actual
results to differ from our plans, objectives or expectations, might cause us to
modify our plans or objectives, or might affect our ability to meet our
expectations include, but are not limited to:
·
|
the
effect of events of default or alleged events of default associated with
our Credit Agreement, Credit Facility and Swap
Agreement;
|
·
|
the
effect of the Company’s announcement that trading of its common stock on
the NYSE AMEX LLC was suspended as of the close of trading on June 25,
2009 as previously disclosed on Form 8-K filed with the SEC on June 25,
2009. Effective June 26, 2009 the Company’s common stock was
available for quotation on the Pink OTC Markets, Inc. under the symbol
“RVHL”;
|
·
|
the
impact of Colorado Amendment 50, which enabled Black Hawk casino operators
to extend casino hours, add craps and roulette gaming and increase the
maximum betting limit to $100 effective July 2,
2009;
|
·
|
the
effect of the termination of our previously announced strategic process to
explore alternatives for maximizing stockholder value and the possible
resulting fluctuations in our stock price that will affect other parties’
willingness to make a proposal to acquire
us;
|
·
|
fluctuations
in the value of our real estate, particularly in Las
Vegas;
|
·
|
the
availability and adequacy of our cash flow to meet our requirements,
including payment of amounts due under our debt
instruments;
|
·
|
our
substantial indebtedness, debt service requirements and liquidity
constraints;
|
·
|
our
ability to meet the affirmative and negative covenants set forth in our
Credit Facility;
|
·
|
the
availability of additional capital to support capital improvements and
development;
|
·
|
the
smoking ban in Colorado on our Riviera Black Hawk property which became
effective on January 1, 2008;
|
·
|
competition
in the gaming industry, including the availability and success of
alternative gaming venues, and other entertainment attractions, and the
approval of an initiative that would allow slot machines in Colorado race
tracks;
|
·
|
retirement
or other loss of our senior
officers;
|
·
|
economic,
competitive, demographic, business and other conditions in our local and
regional markets;
|
·
|
the
effects of a continued or worsening global and national economic
recession;
|
·
|
changes
or developments in laws, regulations or taxes in the gaming industry,
specifically in Nevada where initiatives have been proposed to raise the
gaming tax;
|
·
|
actions
taken or not taken by third parties, such as our customers, suppliers and
competitors, as well as legislative, regulatory, judicial and other
governmental authorities;
|
·
|
changes
in personnel or their compensation, including federal minimum wage
requirements;
|
·
|
our
failure to obtain, delays in obtaining, or the loss of, any licenses,
permits or approvals, including gaming and liquor licenses, or the
limitation, conditioning, suspension or revocation of any such licenses,
permits or approvals, or our failure to obtain an unconditional renewal of
any of our licenses, permits or approvals on a timely
basis;
|
·
|
the
loss of any of our casino, hotel or convention facilities due to terrorist
acts, casualty, weather, mechanical failure or any extended or
extraordinary maintenance or inspection that may be
required;
|
·
|
other
adverse conditions, such as economic downturns, changes in general
customer confidence or spending, increased transportation costs, travel
concerns or weather-related factors, that may adversely affect the economy
in general or the casino industry in
particular;
|
·
|
changes
in our business strategy, capital improvements or development
plans;
|
·
|
the
consequences of the war in Iraq and other military conflicts in the Middle
East, concerns about homeland security and any future security alerts or
terrorist attacks such as the attacks that occurred on September 11,
2001;
|
·
|
other
risk factors discussed elsewhere in this report;
and
|
·
|
a
decline in the public acceptance of
gaming.
|
All
future written and oral forward-looking statements attributable to us or any
person acting on our behalf are expressly qualified in their entirety by the
cautionary statements contained or referred to in this section. In
light of these and other risks, uncertainties and assumptions, the
forward-looking events discussed in this report might not occur.
Item
3.
|
Quantitative
and Qualitative Disclosures About Market
Risk
|
Market
risks relating to our operations result primarily from changes in interest
rates. We invest our cash and cash equivalents in US Treasury Bills
with maturities of 30 days or less. Such investments are generally
not affected by changes in interest rates.
As of
September 30, 2009, we had $227.7 million in borrowings. The
borrowings include a balance of $225.0 million on our Term Loan and $2.5 million
outstanding on our $3.0 million Revolving Credit Facility both of which were in
default as of September 30, 2009. The borrowings also include a
balance on a capital equipment lease, which matures in 2013 and bears interest
at 5.5%.
Prior to
July 27, 2009, we were not susceptible to interest rate risk because our
outstanding debt was primarily at a fixed rate as a result of the interest rate
swap associated with our Term Loan. Under our Swap Agreement, we paid
a fixed rate of 5.485% plus 2% on the notional amount, which was $203.9 million
at September 30, 2009, with a June 8, 2014 expiration date.
On July
23, 2009, the Company received a Notice of Early Termination for Event of
Default (See Note 5 to the Condensed Consolidated Financial Statements) from
Wachovia in connection with an alleged event of default that occurred under our
Swap Agreement. The Early Termination Notice provides that Wachovia
designated an early termination date of July 27, 2009 (the “Early Termination
Date”). On July 28, 2009, in connection with the Early Termination
Notice, we received a Notice of Amount Due Following Early Termination from
Wachovia that claimed the amount due and payable to Wachovia under the Swap
Agreement is $26.6 million, which includes $4.4 million recorded in accrued
interest. Pursuant to the Swap Agreement, upon the occurrence of an
Early Termination Date, no further payments by either party under the Swap
Agreement are required to be made other than the total amounts owing to Wachovia
by the Company, which were accelerated and are due immediately.
Prior to
the Early Termination Date, for the reasons described in Note 5 to the Condensed
Consolidated Financial Statements in this Form 10-Q, effective March 31, 2009,
the Term Loan interest rate was increased to and locked at approximately 10.5%
per annum and effective April 1, 2009, the Revolver interest rate was locked at
approximately 6.25% per annum, plus the interest rate swap incurred additional
interest of 1% per annum on any overdue amounts under the Swap
Agreement. As a result of the Early Termination Notice, the interest
rates for the Term Loan and Revolver balances are no longer locked and are now
subject to changes in underlying LIBOR rates and vary based on fluctuations in
the Alternative Base Rate and Applicable Margins (see Note 5 to the Condensed
Consolidated Financial Statements). As of September 30, 2009, our
Term Loan and Revolver bear interest at approximately 6.25%.
As of the
Early Termination Date, a hypothetical one percent change in interest rates
would result in additional annual interest expense of approximately $2.3
million, which would have material effect on our financial
statements. Prior to receipt of the Early Termination Notice, a
hypothetical one percent change in interest rates would not have a material
effect on our financial statements as the borrowings bore interest primarily at
fixed interest rates as described above.
Changes
in value of our interest rate swap between the end of each reporting period were
recorded as an increase/(decrease) in swap fair value as the swap does not
qualify for hedge accounting.
In
addition, authoritative guidance for accounting for uncertainty in income taxes
requires that we book any future unrealized tax payments (see Note 3 to the
Condensed Consolidated Financial Statements above). However, the
Company does not have any reserves for uncertain tax positions at this
time.
Interest
Rate Sensitivity
Principal
(Notational Amount by Expected Maturity)
Average
Interest Rate
(Dollars
in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long
–Term Debt Including Current Portions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
loans and capital leases-Black Hawk
|
|
$ |
44 |
|
|
$ |
43 |
|
|
$ |
44 |
|
|
$ |
39 |
|
|
|
|
|
|
|
|
$ |
170 |
|
|
$ |
170 |
|
Average
interest rate
|
|
|
5.5 |
% |
|
|
5.5 |
% |
|
|
5.5 |
% |
|
|
5.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$225
million Term Loan
|
|
$ |
225,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
225,000 |
|
|
$ |
108,000 |
|
Average
interest rate
|
|
|
6.25 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
Payable
|
|
$ |
2,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,500 |
|
|
$ |
1,200 |
|
Average
interest rate
|
|
|
6.25 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
of all Long-Term Debt, Including Current Portions
|
|
$ |
227,544 |
|
|
$ |
43 |
|
|
$ |
44 |
|
|
$ |
39 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
227,670 |
|
|
$ |
109,370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
|
|
|
|
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|
|
Other
Long - Term Liabilities Including Current Portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
CEO
pension plan obligation
|
|
$ |
253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
253 |
|
|
$ |
253 |
|
Average
interest rate
|
|
|
5.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Interest
rate derivatives
|
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|
|
|
|
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|
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|
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|
Derivative
instrument
|
|
$ |
22,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
22,148 |
|
Average
receivable rate
|
|
|
1.25 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
payable rate
|
|
|
5.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
Expected
Interest
|
|
|
|
|
|
$ |
14,590 |
|
|
$ |
15,035 |
|
|
$ |
15,484 |
|
|
$ |
12,879 |
|
|
$ |
1,051 |
|
|
|
|
|
|
|
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|
Item
4.
|
Controls
and Procedures
|
We
maintain disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) that are designed to ensure that information required
to be disclosed in our Exchange Act reports is recorded, processed, summarized
and reported within the time periods specified in the rules and forms of the
Securities and Exchange Commission, and that such information is accumulated and
communicated to our management, including our chief executive officer (“CEO”)
and chief financial officer (“CFO”), as appropriate, to allow timely decisions
regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, our management recognized that any controls
and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and our
management necessarily was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.
As of
September 30, 2009, we carried out an evaluation, under the supervision and with
the participation of our management, including our CEO and CFO, of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on the foregoing, our CEO and CFO concluded that
our disclosure controls and procedures were effective.
During
our last fiscal quarter there were no changes in our internal control over
financial reporting, (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)),
that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
PART
II – OTHER INFORMATION
Item
1.
|
Legal
Proceedings
|
On
February 9, 2009, multiple plaintiffs commenced an action in the Superior Court
of the State of California, Los Angeles County, against the Company and seven
other defendants. The action stems from a tour bus accident
that occurred in Arizona on January 30, 2009, in which 7 passengers died and 10
other passengers were injured. On May 12, 2009, the plaintiffs filed
a First Amended Complaint for Damages (the Complaint) in which the plaintiffs
allege, among other things, that the Company had a contractual relationship with
the other defendants, including the tour bus operator. The plaintiffs
are seeking monetary damages in connection with this matter. On June 23, 2009,
the Company filed a Motion to Quash the matter on a jurisdictional
basis. The hearing on this Motion took place on July 27, 2009, at
which time the Plaintiffs requested an opportunity to file a supplemental brief
after conducting additional discovery. The Court reheard this Motion
on September 28, 2009, and granted the Company’s Motion to Quash at that
time.
We are
also party to routine lawsuits, either as plaintiff or as defendant, arising
from the normal operations of a hotel and casino. We do not believe
that the outcome of such litigation, in the aggregate, will have a material
adverse effect on the Company’s financial position or results of
operations.
Item 3.
|
Defaults
Upon Senior Securities
|
|
|
|
See
Note 5 to the Condensed Consolidated Financial Statements in this Form
10-Q.
|
See list
of exhibits below.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
RIVIERA
HOLDINGS CORPORATION
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
William
L. Westerman
|
|
|
|
Chairman
of the Board and Chief
Executive Officer
|
|
|
|
|
|
|
By:
|
|
|
|
|
Phillip
B. Simons
|
|
|
|
Treasurer
and Chief
Financial Officer
|
|
|
|
|
|
|
Date:
November 9, 2009
|
|
Exhibits
Exhibits:
|
|
31.1
|
Certification
of the Principal Executive Officer of the Registrant pursuant to Exchange
Act Rule 13a-14(a)
|
31.2
|
Certification
of the Principal Financial Officer of the Registrant pursuant to Exchange
Act Rule 13a-14(a)
|
32.1
|
Certification
of the Principal Executive Officer of the Registrant pursuant to Exchange
Act Rule 13a-14(b) and 18 U.S.C. 1350
|
32.2
|
Certification
of the Principal Financial Officer of the Registrant pursuant to Exchange
Act Rule 13a-14(b) and 18 U.S.C.
1350
|
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