Unassociated Document
FORM
10-Q
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Mark
One
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
quarterly period ended September 30, 2010
OR
¨
|
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
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(Exact
name of Registrant as specified in its charter)
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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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(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 x 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 ¨
|
Non-accelerated
filer ¨
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Smaller
reporting company x
|
(Do
not check if smaller reporting company)
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|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). YES ¨ NO x
Indicate
by check mark whether the registrant has filed all documents and reports
required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yes ¨ No ¨
As of
November 12, 2010, there were 12,447,555 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.
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Financial
Statements
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1
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Condensed
Consolidated Balance Sheets at September 30, 2010 (Unaudited) and
December 31, 2009
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2
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Condensed
Consolidated Statements of Operations for the Three and Nine Months Ended
September 30, 2010 and 2009 (Unaudited)
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3
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Condensed
Consolidated Statements of Cash Flows for the Nine Months Ended September
30, 2010 and 2009 (Unaudited)
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4
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Notes
to Condensed Consolidated Financial Statements (Unaudited)
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5
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Item
2.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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22
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Item
3.
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Quantitative
and Qualitative Disclosure About Market Risk
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45
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Item
4.
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Controls
and Procedures
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45
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PART
II.
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OTHER
INFORMATION
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46
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Item
1.
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Legal
Proceedings
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46
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Item
1A.
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Risk
Factors
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46
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Item
3.
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Defaults
Upon Senior Securities
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48
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Item
6.
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Exhibits
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48
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Signature
Page
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49
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Exhibits
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50
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PART
I – FINANCIAL INFORMATION
Item
1.
|
Financial
Statements
|
The
accompanying unaudited Condensed Consolidated Financial Statements of Riviera
Holdings Corporation and subsidiaries 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 U.S.
generally accepted accounting principles. 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, 2010 and
2009 are not necessarily indicative of the results for the entire year.
These unaudited condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
for the year ended December 31, 2009, included in our Annual Report on Form
10-K.
RIVIERA
HOLDINGS CORPORATION
(Debtor
and Debtor-in-Possession)
CONDENSED
CONSOLIDATED BALANCE SHEETS
(In
thousands, except share amounts)
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September 30,
2010
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December 31,
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ASSETS
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CURRENT
ASSETS:
|
|
|
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Cash
and cash equivalents
|
|
$ |
26,001 |
|
|
$ |
19,056 |
|
Restricted
cash
|
|
|
272 |
|
|
|
2,772 |
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Accounts
receivable-net of allowances of $265 and $239,
respectively
|
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|
1,694 |
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|
2,063 |
|
Inventories
|
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|
615 |
|
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|
571 |
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Prepaid
expenses and other assets
|
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|
3,222 |
|
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|
2,940 |
|
Total
current assets
|
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|
31,804 |
|
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27,402 |
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PROPERTY
AND EQUIPMENT-net
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161,641 |
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168,967 |
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OTHER
ASSETS-net
|
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1,544 |
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2,581 |
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TOTAL
|
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$ |
194,989 |
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$ |
198,950 |
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LIABILITIES
AND STOCKHOLDERS' DEFICIENCY
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CURRENT
LIABILITIES:
|
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|
|
|
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Current
portion of long-term debt
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|
$ |
44 |
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|
$ |
227,544 |
|
Current
portion of fair value of interest rate swap liabilities
|
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|
- |
|
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|
22,148 |
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Accounts
payable
|
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|
7,211 |
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|
5,413 |
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Accrued
interest
|
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|
- |
|
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|
17,825 |
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Accrued
expenses
|
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|
9,881 |
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8,979 |
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Total
current liabilities
|
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|
17,136 |
|
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281,909 |
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CAPITAL
LEASES-net of current portion
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|
82 |
|
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114 |
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Total
liabilities not subject to compromise
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17,218 |
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282,023 |
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Liabilities
subject to compromise
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276,367 |
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- |
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Total
liabilities
|
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293,585 |
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282,023 |
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COMMITMENTS
and CONTINGENCIES (Note 8)
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STOCKHOLDERS' DEFICIENCY:
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Common
stock ($.001 par value; 60,000,000 shares authorized, 17,115,624 and
17,141,124 shares issued at September 30, 2010 and December 31, 2009,
respectively, and 12,447,555 and 12,473,055 shares outstanding at
September 30, 2010 and December 31, 2009, respectively)
|
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|
17 |
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17 |
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Additional
paid-in capital
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|
20,502 |
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20,399 |
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Treasury
stock (4,668,069 shares at September 30, 2010 and
|
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|
|
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December
31, 2009)
|
|
|
(9,635 |
) |
|
|
(9,635 |
) |
Accumulated
deficit
|
|
|
(109,480 |
) |
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|
(93,854 |
) |
Total
stockholders' deficiency
|
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|
(98,596 |
) |
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|
(83,073 |
) |
TOTAL
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$ |
194,989 |
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|
$ |
198,950 |
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
RIVIERA
HOLDINGS CORPORATION
(Debtor
and Debtor-in-Possession)
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In
thousands, except per share amounts)
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Three Months Ended
September 30,
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|
Nine Months Ended
September 30,
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REVENUES: |
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Casino
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$ |
17,425 |
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$ |
21,437 |
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$ |
57,132 |
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$ |
63,501 |
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Rooms
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8,188 |
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8,668 |
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25,153 |
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27,677 |
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Food
and beverage
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4,440 |
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|
6,184 |
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15,272 |
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|
17,959 |
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Entertainment
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|
1,160 |
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2,554 |
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2,967 |
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6,511 |
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Other
|
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|
1,061 |
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|
1,346 |
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|
3,287 |
|
|
|
4,294 |
|
Total
revenues
|
|
|
32,274 |
|
|
|
40,189 |
|
|
|
103,811 |
|
|
|
119,942 |
|
Less-promotional
allowances
|
|
|
(4,058 |
) |
|
|
(5,557 |
) |
|
|
(12,446 |
) |
|
|
(16,011 |
) |
Net
revenues
|
|
|
28,216 |
|
|
|
34,632 |
|
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|
91,365 |
|
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|
103,931 |
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COSTS
AND EXPENSES:
|
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Direct
costs and expenses of operating departments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casino
|
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|
9,926 |
|
|
|
11,671 |
|
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|
30,547 |
|
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|
33,411 |
|
Rooms
|
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|
4,885 |
|
|
|
4,800 |
|
|
|
14,076 |
|
|
|
14,484 |
|
Food
and beverage
|
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|
3,471 |
|
|
|
4,249 |
|
|
|
10,969 |
|
|
|
12,042 |
|
Entertainment
|
|
|
615 |
|
|
|
813 |
|
|
|
1,753 |
|
|
|
2,613 |
|
Other
|
|
|
284 |
|
|
|
297 |
|
|
|
852 |
|
|
|
891 |
|
Other
operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based
compensation
|
|
|
8 |
|
|
|
153 |
|
|
|
103 |
|
|
|
425 |
|
Other
general and administrative
|
|
|
9,712 |
|
|
|
9,497 |
|
|
|
26,775 |
|
|
|
26,883 |
|
Restructuring
fees
|
|
|
228 |
|
|
|
569 |
|
|
|
1,245 |
|
|
|
2,106 |
|
Depreciation
and amortization
|
|
|
3,347 |
|
|
|
3,590 |
|
|
|
10,180 |
|
|
|
11,300 |
|
Total
costs and expenses
|
|
|
32,476 |
|
|
|
35,639 |
|
|
|
96,500 |
|
|
|
104,155 |
|
LOSS
FROM OPERATIONS
|
|
|
(4,260 |
) |
|
|
(1,007 |
) |
|
|
(5,135 |
) |
|
|
(224 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
EXPENSE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in value of derivative instrument
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(5,320 |
) |
Gain
on extinguishment of debt
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
146 |
|
Interest
expense-net (contractual interest expense for the three and nine months
ended September 30, 2010 was $1,198 and $9,056,
respectively)
|
|
|
(458 |
) |
|
|
(3,666 |
) |
|
|
(8,316 |
) |
|
|
(13,815 |
) |
Total
other expense
|
|
|
(458 |
) |
|
|
(3,666 |
) |
|
|
(8,316 |
) |
|
|
(18,989 |
) |
LOSS BEFORE
REORGANIZATION ITEMS
|
|
|
(4,718 |
) |
|
|
(4,673 |
) |
|
|
(13,451 |
) |
|
|
(19,213 |
) |
Reorganization
items
|
|
|
(2,175 |
) |
|
|
- |
|
|
|
(2,175 |
) |
|
|
- |
|
NET
LOSS
|
|
$ |
(6,893 |
) |
|
$ |
(4,673 |
) |
|
$ |
(15,626 |
) |
|
$ |
(19,213 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS PER SHARE DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
(0.55 |
) |
|
$ |
(0.38 |
) |
|
$ |
(1.25 |
) |
|
$ |
(1.54 |
) |
Diluted
|
|
$ |
(0.55 |
) |
|
$ |
(0.38 |
) |
|
$ |
(1.25 |
) |
|
$ |
(1.54 |
) |
Weighted-average
common shares outstanding
|
|
|
12,448 |
|
|
|
12,340 |
|
|
|
12,456 |
|
|
|
12,480 |
|
Weighted-average
common and common equivalent shares
|
|
|
12,448 |
|
|
|
12,340 |
|
|
|
12,456 |
|
|
|
12,480 |
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
RIVIERA
HOLDINGS CORPORATION
(Debtor
and Debtor-in-Possession)
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
|
|
|
OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(15,626 |
) |
|
$ |
(19,213 |
) |
Adjustments
to reconcile net loss to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
10,180 |
|
|
|
11,543 |
|
Provision
for bad debts
|
|
|
26 |
|
|
|
(29 |
) |
Stock
based compensation-restricted stock
|
|
|
67 |
|
|
|
358 |
|
Stock
based compensation-stock options
|
|
|
36 |
|
|
|
67 |
|
Change
in value of derivative instrument
|
|
|
- |
|
|
|
5,320 |
|
Gain
on extinguishment of debt
|
|
|
- |
|
|
|
(146 |
) |
Reorganization
items
|
|
|
2,175 |
|
|
|
- |
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
344 |
|
|
|
513 |
|
Inventories
|
|
|
(44 |
) |
|
|
228 |
|
Prepaid
expenses and other assets
|
|
|
43 |
|
|
|
(420 |
) |
Accounts
payable
|
|
|
2,236 |
|
|
|
(1,722 |
) |
Accrued
interest
|
|
|
8,159 |
|
|
|
13,558 |
|
Accrued
expenses
|
|
|
903 |
|
|
|
506 |
|
Obligation
to officers
|
|
|
- |
|
|
|
(775 |
) |
Net
cash provided by operating activities before reorganization
items
|
|
|
8,499 |
|
|
|
9,788 |
|
Net
cash used for reorganization items
|
|
|
(1,322 |
) |
|
|
- |
|
Net
cash provided by operating activities
|
|
|
7,177 |
|
|
|
9,788 |
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Capital
expenditures-Las Vegas
|
|
|
(2,364 |
) |
|
|
(408 |
) |
Capital
expenditures-Black Hawk
|
|
|
(336 |
) |
|
|
(1,565 |
) |
Release
of restricted cash
|
|
|
2,500 |
|
|
|
- |
|
Net
cash used in investing activities
|
|
|
(200 |
) |
|
|
(1,973 |
) |
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Payments
on capitalized leases
|
|
|
(32 |
) |
|
|
(32 |
) |
|
|
|
|
|
|
|
|
|
INCREASE
IN CASH AND CASH EQUIVALENTS
|
|
|
6,945 |
|
|
|
7,783 |
|
CASH
AND CASH EQUIVALENTS-BEGINNING OF PERIOD
|
|
|
19,056 |
|
|
|
13,461 |
|
CASH
AND CASH EQUIVALENTS-END OF PERIOD
|
|
$ |
26,001 |
|
|
$ |
21,244 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Property
acquired with debt and accounts payable
|
|
$ |
295 |
|
|
$ |
480 |
|
Cash
paid for interest
|
|
$ |
49 |
|
|
$ |
6 |
|
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.
Recent
Developments
Bankruptcy
Proceedings
On July
12, 2010 (the “Petition Date”), RHC, RBH and ROC (collectively the “Debtors”)
filed voluntary petitions in the United States Bankruptcy Court for the District
of Nevada (the “Bankruptcy Court”) for reorganization of its business and to
have the Chapter 11 cases (the “Chapter 11 Cases”) jointly administered, as
disclosed in a Form 8-K filed with the SEC on July 14, 2010 (the “July 14th
8-K”).
A webpage
has been established which provides access to all pleadings filed in the Chapter
11 Cases. The web address is
http://www.gardencitygroup.com/cases/riviera.
On the
Petition Date and prior to the commencement of the Chapter 11 Cases, the Company
entered into a restructuring and lock-up letter agreement (the “Lock-Up
Agreement”) with holders (the “Consenting Lenders”), in the aggregate, of in
excess of 66 2/3% in the amount of all of the outstanding claims under the
Company’s credit and fixed rate swap agreements which are described in detail in
Note 4 below. Pursuant to the Lock-Up Agreement, the Consenting Lenders
are contractually obligated to support the restructuring of the Company in
accordance with the Debtor’s Joint Plan of Reorganization (as amended, the “Plan
of Reorganization”) together with the proposed disclosure statement (as amended,
the “Disclosure Statement”), which supports the Plan of Reorganization.
Moreover, the Lock-Up Agreement contractually obligates the parties to move
forward with the Plan of Reorganization for each of the Debtors. The
original Joint Plan of Reorganization, together with the Disclosure Statement,
was filed with the Bankruptcy Court on the Petition Date. The First
Amended Joint Plan of Reorganization and Disclosure Statement to Accompany
Debtors’ First Amended Joint Plan of Reorganization were filed with the
Bankruptcy Court on September 7, 2010 and the Second Amended Joint Plan of
Reorganization and Disclosure Statement to Accompany Debtors’ Second Amended
Joint Plan of Reorganization were filed with the Bankruptcy Court on September
17, 2010.
On the
Petition Date, the Debtors filed several emergency motions with the Bankruptcy
Court, including a motion to have the Chapter 11 Cases jointly
administered. On July 15, 2010, the Bankruptcy Court granted the
motions. The Debtors also filed with the Bankruptcy Court on the Petition
Date a stipulation authorizing the use of cash collateral and granting adequate
protection (the “Cash Collateral Stipulation”). Under the Cash Collateral
Stipulation, the Debtors, the administrative agent and the signatories to the
Lock-up Agreement agreed that all disputes between the administrative agent,
Consenting Lenders and the Debtors regarding Debtors’ cash on hand and operating
cash flows and the use thereof as provided for by Section 363 of the Bankruptcy
Court are reserved. Furthermore, Debtors may use their operating cash
flows and cash on hand to fund their operations and capital expenditure needs
during the period commencing on the approval of the Cash Collateral Stipulation
by the Bankruptcy Court and ending on the date the Plan of Reorganization is
substantially consummated (the “Substantial Consummation Date”) in accordance
with the 13 week budget which accompanies the Cash Collateral Stipulation and is
updated for each 13 week period until the Substantial Consummation Date.
The Cash Collateral Stipulation was approved by the Bankruptcy Court on an
emergency basis on July 15, 2010 and was approved on a final basis on August 5,
2010 provided that subject to Bankruptcy Court order payments made to
professionals retained by either the holders of or the administrative agent of
the Debtors credit and fixed rate swap agreement as adequate protection may be
re-characterized as principal reductions against the credit and fixed rate swap
obligations.
Pursuant
to the approved Cash Collateral Stipulation, the Company is funding existing
operations and capital needs during the reorganization period from operating
cash flows and cash on hand. There can be no assurances that the Company
will have the ability to maintain sufficient funds to meet future obligations or
abide the requirements outlined in the Cash Collateral Stipulation. As a
result, the Company may be required to obtain debtor in possession, or DIP,
financing, which may be unavailable or only available on terms that are
prohibitive. The challenges of obtaining DIP financing are exacerbated by
adverse conditions in the general economy and the credit markets.
During
the Chapter 11 Cases, the Debtors, under the direction of the Company’s existing
management team, continue to manage their properties and operate their business
as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in
accordance with Title 11 of the United States Bankruptcy Code. The Debtors
anticipate that they will continue to pay employees and vendors, and honor
customer deposits and commitments without interruption or delay through the
Substantial Consummation Date of the Plan of Reorganization.
On the
Petition Date, in connection with the Lock-Up Agreement, the Debtors and
Backstop Lenders executed a Backstop Commitment Agreement (as amended, the
“Backstop Agreement”) to provide assurance that the Designated New Money
Investment will be funded in the aggregate amount of $20 million and the Working
Capital Facility will be committed in the aggregate principal amount of $10
million. The Backstop Agreement provides that the Backstop Lenders have
committed to fund their pro rata share of the Designated New Money Investment
and pro rata share of the Working Capital Facility, and, further, to backstop an
additional percentage of the Designated New Money Investment and Working Capital
Facility as specified therein to the extent that any Senior Secured Lender
(other than a Backstop Lender) elects not to participate according to its full
pro rata share in funding the Designated New Money Investment and Working
Capital Facility. The original Backstop Agreement was filed with the
Bankruptcy Court on the Petition Date. The First Amended Backstop
Agreement was filed with the Bankruptcy Court on September 14, 2010 and the
Second Amended Backstop Agreement was filed with the Bankruptcy Court on October
28, 2010.
Additionally,
the Backstop Agreement provides for the payment of commitment fees by Debtors,
as more fully described in the Backstop Agreement. If (i) the Budget
Contingency is satisfied, (ii) the Total New Money Investment Alternative is
effectuated under the Plan of Reorganization, (iii) the Substantial Consummation
Date occurs and (iv) the Series B Term Loan is fully funded and the entire
Working Capital Facility is made available as provided for in the Plan of
Reorganization, 5.0% of the Class B Shares (subject to dilution only under those
certain conditions specified in the Plan of Reorganization) will be fully
earned, payable and non-refundable to the Backstop Lenders. If the Budget
Contingency is satisfied, but either the Backstop Agreement is terminated
pursuant to its terms or the Substantial Consummation Date does not occur,
$1,000,000 in cash will be fully earned, payable and non-refundable upon such
date to the Backstop Lenders; provided, however, that to the extent (i) the
Backstop Agreement is materially breached by any Backstop Lender (ii) the
Backstop Agreement is terminated in connection with the Lockup Agreement having
been terminated solely as a result of a breach thereof by any Backstop Lender in
its capacity as a Designated Consenting Lender, or (iii) the Substantial
Consummation Date does not occur other than as a result of the actions and/or
inactions of the Debtors that are in breach of the Lockup Agreement, the Debtors
will not be required to pay the Backstop Lenders the $1,000,000 cash fee. If (i)
either the Budget Contingency is not satisfied or the Budget Contingency is
satisfied but the Designated New Money Election is not made, (ii) the Partial
New Money Investment Alternative is effectuated under the Plan of
Reorganization, (iii) the Substantial Consummation Date occurs and (iv) the
entire Working Capital Facility is made available as provided for in the Plan of
Reorganization, $300,000 in cash will be fully earned, non-refundable and
payable to the Backstop Lenders. The Budget Contingency was satisfied on
October 21, 2010.
On
September 21, 2010, the Bankruptcy Court found that the Disclosure Statement as
modified to reflect changes, if any, made or ordered on the record contained
“adequate information” within the meaning of Section 1125 of the Bankruptcy
Code. The Bankruptcy Court set a hearing to consider confirmation of the
Plan of Reorganization for November 8, 2010 (the "Confirmation Hearing").
Subsequently, ballots along with the Disclosure Statement and Plan of
Reorganization were distributed to classes of creditors entitled to vote on the
Plan of Reorganization. At the Confirmation Hearing, the Bankruptcy Court
concluded that the Plan of Reorganization, as modified at the Confirmation
Hearing, met the requirements for confirmation, including that the requisite
classes of creditors voted in favor of the Plan of Reorganization, and confirmed
the Plan of Reorganization, as modified at the Confirmation Hearing. The
entry of a formal order by the Bankruptcy Court confirming the Plan of
Reorganization, as modified at the Confirmation Hearing, is pending before the
Bankruptcy Court. Before the Plan of Reorganization can be substantially
consummated, various regulatory and third party approvals must be
obtained. There is no assurance that all regulatory and third party
approvals will be obtained. If the Plan of Reorganization is not
substantially consummated: (a) the Plan of Reorganization will be deemed null
and void and the Company will then seek to reorganize pursuant to a different
plan which will need to meet the confirmation standards of the Bankruptcy Code;
(b) the Lockup Agreement will no longer be in effect; and (c) the Company may be
required to obtain interim financing, if available, and liquidate its assets
which may have a material adverse effect on the financial position, results of
operations, or cash flows of the Company.
The
material terms of the confirmed Plan of Reorganization include the
following:
(Capitalized terms used in this subsection, but not defined herein, have
the meaning assigned to them by the Plan of Reorganization or the Backstop
Agreement, as applicable.)
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all
existing Equity Interests of the Company will be cancelled, and such
Equity Interest holders will receive
nothing;
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each
holder of a First Priority Senior Secured Claim, which are Claims (i)
arising under the Senior Secured Credit Agreement (also referred to in
this Quarterly Report on Form 10-Q as the “Credit Agreement”) for
prepetition interest and fees, and (ii) with respect to the periodic
payments due under the Swap Agreement and any interest accrued thereon,
will receive in full and final satisfaction of such Claim a portion of a
new $50 million term loan (the “Series A Term Loan”) in principal amount
equal to such First Priority Senior Secured Claim to be evidenced by a
first lien credit agreement;
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the
Company, as it exists on and after the Substantial Consummation Date
(“Reorganized Riviera”), will receive additional funding by way of a $20
Million term loan to be evidenced by a Series B Term Loan (the “Designated
New Money Investment”), subject to an affirmative election being made by
Reorganized Riviera within a certain time period and various other
conditions, and a $10 million working capital facility (the “Working
Capital Facility”);
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on
the Substantial Consummation Date, holders of the Senior Secured Claims
will receive: (i) a portion of the Series A Term Loan in a principal
amount up to such holder’s pro rata share of the Series A Term Loan less
the portion of the Series A Term Loan received by holders of the First
Priority Senior Secured Claims; and (ii) such holder’s pro rata share of
80% of the new limited-voting common stock to be issued by Reorganized
Riviera pursuant to the Plan of Reorganization (the “Class B
Shares”);
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since
both the $10 million Working Capital Facility will be made available and
the Designated New Money Investment will be effectuated, holders of Senior
Secured Claims participating in making the Series B Term Loan and the
loans under the Working Capital Credit Facility will receive: (i) a pro
rata share of the Series B Term Loan; and (ii) 15% of the Class B Shares
to be issued by Reorganized Riviera, subject to
dilution;
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holders
of Allowed General Unsecured Claims, other than with respect to any
deficiency claims of holders of Senior Secured Claims, will receive in
full and final satisfaction of such claim, payment in full thereof, but in
no event will the total payment to holders of Allowed General Unsecured
Claims exceed $3,000,000; if such total payment would exceed $3,000,000,
the holders of Allowed General Unsecured Claims will instead receive their
pro rata share of $3,000,000 in full satisfaction of their Allowed General
Unsecured Claims;
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the
receipt by Riviera Voteco, L.L.C. (“Voteco”) of 100% of new fully-voting
common stock to be issued by Reorganized Riviera pursuant to the Plan of
Reorganization;
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the
membership interests of Voteco (the “Voteco Interests”) will be issued as
follows: (i) 80.00% of the Voteco Interests ratably to those holders of
the Senior Secured Claims or their designees, as applicable, (ii) 15.0% of
the Voteco Interests ratably to those holders of Senior Secured Claims
(including the Backstop Lenders) electing to participate in the New Money
Investment or their designees, as applicable, and (iii) 5.0% of the Voteco
Interests ratably to the Backstop Lenders in accordance with the Backstop
Commitment Agreement or their designees, as applicable; provided however,
the above distributions are subject to such persons first obtaining all
applicable licensing from Gaming Authorities;
and
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for
approval of the Backstop Agreement.
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The
accompanying condensed consolidated financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classifications of assets or the amounts and classifications of liabilities
should an asset liquidation occur. The original Joint Plan of Reorganization,
Lock-Up Agreement and Backstop Agreement are filed as Exhibits to the July 14th
8-K. The Second Amended Joint Plan of Reorganization and Amendment No. 1
to the Backstop Agreement are filed as Exhibits to this Quarterly Report on Form
10-Q.
Going
Concern
The
accompanying unaudited condensed consolidated financial statements are prepared
assuming that the Company will continue as a going concern and contemplates the
realization of assets and satisfaction of liabilities in the ordinary course of
business. The ability of the Company, both during and after the
Chapter 11 Case, to continue as a going concern is contingent upon, among other
things; (i) the ability of the Company to generate cash from operations and
to maintain adequate cash on hand; (ii) the resolution of the uncertainty
as to the amount of claims that will be allowed; (iii) the ability of the
Company to confirm the Plan of Reorganization and obtain any debt and equity
financing which may be required to emerge from bankruptcy protection; and
(iv) the Company’s ability to achieve profitability. There can be no
assurance that the Company will be able to successfully achieve these objectives
in order to continue as a going concern. The accompanying consolidated financial
statements do not include any adjustments that might result should the Company
be unable to continue as a going concern.
We intend
to maintain business operations through the reorganization process. Our
liquidity and capital resources, however, are significantly affected by the
Chapter 11 Case. Our bankruptcy proceedings have resulted in various
restrictions on our activities, limitations on financing and a need to obtain
Bankruptcy Court approval for various matters. At this time, it is not possible
to predict with certainty the effect of the Chapter 11 Case on our business or
when we will emerge from these proceedings. Our future results depend upon our
confirming and successfully implementing, on a timely basis, our Plan of
Reorganization. The continuation of the Chapter 11 Case, particularly
if the Plan of Reorganization is not timely consummated, could further adversely
affect our operations.
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,
2009.
Principles of
Consolidation
The
accompanying unaudited, condensed 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 December
31, 2009 until the issuance of the financial statements.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Reclassifications
Certain
reclassifications, having no effect on net loss have been made to the previously
issued condensed consolidated financial statements to conform to the current
period’s presentation of the Company’s condensed consolidated financial
statements. The reclassifications relate to the manner in which the
Company classifies liabilities as either accounts payable or accrued
liabilities.
Earnings Per
Share
Diluted
earnings per share assume exercise of in-the-money stock options (those options
with exercise prices at or below the weighted average market price for the
periods presented) outstanding at the beginning of the period or at the date of
the issuance. We calculate the effect of dilutive securities using the
treasury stock method. As of September 30, 2010 and 2009, our potentially
dilutive share based awards consisted of grants of stock options.
For the
three and nine months ended September 30, 2010 and 2009, we recorded net losses.
Accordingly, the potential dilution from the assumed exercise of stock options
is zero (anti-dilutive). As a result, basic earnings per share were equal
to diluted earnings per share for the three and nine months ended September 30,
2010 and 2009.
Income
Taxes
We are
subject to income taxes in the United States. Authoritative guidance for
accounting for income taxes requires that we account for income taxes by
recognizing deferred tax assets, net of applicable reserves, and liabilities for
the estimated future tax consequences attributable to differences between
financial statement carrying amounts of existing assets and liabilities and
their respective tax basis and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the year in which those temporary differences are expected to be
recovered or settled. The effect of a change in tax rates on the income tax
provision and deferred tax assets and liabilities is recognized in the results
of operations in the period that includes the enactment date.
Authoritative
guidance for accounting for income taxes also requires that we perform an
assessment of positive and negative evidence regarding the realization of the
deferred tax assets. This assessment included the evaluation of the reversal of
future temporary differences. As a result, we have concluded that it is
more likely than not that the net deferred tax assets will not be realized and
thus have provided an allowance against our entire net deferred tax asset
balance. The valuation allowance results in an effective tax rate equal to
0% for each of the three and nine months ended September 30, 2010 and 2009,
respectively.
The
Company has not recorded a reserve for uncertain tax positions and does not
anticipate that this will change over the next twelve months. Our income
tax returns are subject to examination by the Internal Revenue Service (“IRS”)
and other tax authorities in the locations where we operate.
The statute of limitations varies by jurisdiction. Generally,
because the Company has losses from prior years, the statute of limitations
remains open until the statute of limitations for the tax year in which the
losses are utilized expires.
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
$2.5
million in cash was 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. On May 11, 2010, the State of
Nevada Workers Compensation Division issued a letter informing the Company that
the division had released all interest in the aforementioned cash. As a
result, the $2.5 million in cash was reclassified to cash and cash equivalents
effective May 11, 2010. As of September 30, 2010, a security deposit in
the amount of $272,000 remains held for the benefit of the State of Nevada
Workers Compensation Division as a requirement of our being self-insured for
workers compensation.
Interest Rate Swaps –
Subject to Compromise
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 pronouncement requires us to recognize the
interest rate swaps as either assets or liabilities in the condensed
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 condensed 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 condensed 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 condensed
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 $22.1
million plus $4.4 million in accrued interest. As of September 30, 2010,
the Company reflects a $27.8 million liability related to the interest rate swap
which includes $5.7 million in accrued interest ($5.7 million in accrued
interest includes $1.3 million in accrued default interest). The Company
determined the interest rate swap did not meet the requirements to qualify for
hedge accounting. As a result, the Company recorded losses of $5.3 million
as a result of change in value of derivative instruments during the nine months
ended September 30, 2009. No change in fair value of our derivative
instrument was recorded during the three and nine months ended September 30,
2010 due to the early termination notice referenced above.
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.
The Company accrued default interest on the overdue amounts through the Petition
Date (see Note 5 below).
Accounting for
Reorganization
Accounting
Standards Codification (“ASC”) Topic 852, Reorganizations provides
accounting guidance for financial reporting by entities in reorganization under
the bankruptcy code including companies in chapter 11, and generally does not
change the manner in which financial statement are prepared. However, ASC
Topic 852 requires that the financial statements for periods subsequent to the
filing of the Chapter 11 Cases distinguish transactions and events that are
directly associated with the reorganization from the ongoing operations of the
business. Revenues, expenses, realized gains and losses and provisions for
losses that can be directly associated with the reorganization and restructuring
of the business must be reported separately as reorganization items in the
statement of operations beginning in the quarter ending September 30,
2010. ASC Topic 852 also requires that the balance sheet must distinguish
pre-petition liabilities subject to compromise from both those pre-petition
liabilities that are not subject to compromise and from post petition
liabilities and requires that cash used for reorganization items must be
disclosed separately in the statement of cash flows. The Company adopted
the ASC Topic 852 on July 12, 2010 and will segregate those items as outlined
above for all reporting periods subsequent to such date.
Restructuring
Costs
Restructuring
costs are comprised of expenses related to the evaluation of financial and
strategic alternatives and include special legal and other advisor fees
associated with the Company’s reorganization efforts prior to the Petition Date,
including preparation of the bankruptcy filing. During the three and nine
months ended September 30, 2010, the Company incurred restructuring fees of $0.2
million and $1.2 million, respectively, and during the three and nine months
ended September 30, 2009, the Company incurred restructuring fees of $0.6
million and $2.1 million, respectively.
Reorganization
Items
Reorganization
items are comprised of expenses incurred after the Petition Date.
Reorganization items include legal, advisory and trustee fees incurred in
connection with the Chapter 11 cases. During the quarter ended September
30, 2010, the Company incurred reorganization items expense of $2.2
million. The Petition Date was July 12, 2010. Therefore, no
reorganization items expense was recorded in the prior periods.
Recently Issued Accounting
Standards
In
January 2010, the FASB issued new authoritative guidance which updates ASC
820-10. The guidance requires for new fair value disclosures and
clarification of existing disclosures. The guidance is effective for
interim and annual reporting periods beginning after December 15, 2009.
The Company adopted the guidance during the three months ended March 31,
2010. The adoption of this guidance had no impact on the financial
statements included herein.
In April
2010, the FASB issued guidance on accruing for jackpot liabilities. The
guidance clarifies that an entity should not accrue jackpot liabilities (or a
portion thereof) before a jackpot is won if an entity can avoid paying that
jackpot. Jackpots should be accrued and charged to revenue when an entity
has the obligation to pay the jackpot. The guidance is effective for
fiscal years and interim periods within those fiscal years, beginning on or
after December 15, 2010. The Company adopted the guidance during the three
months ended June 30, 2010. The adoption of this guidance had no impact on the
financial statements included herein.
A variety
of proposed or otherwise potential accounting standards are currently under
review and study by standard-setting organizations and certain regulatory
agencies. Because of the tentative and preliminary nature of such proposed
standards, the Company has not yet determined the effect, if any, that the
implementation of any such proposed or revised standards would have on the
Company’s consolidated financial statements.
3.
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DEFERRED
FINANCING COSTS
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In
accordance with ASC Topic 852, the unamortized deferred loan fee balance as of
the Petition Date was written-off to reorganization items. The unamortized
deferred loan fee balance as of the Petition Date was $853,000. Prior to
the Petition Date, the Company included deferred loan fees in other assets and
amortized these fees over the term of the loan using a method approximating the
effective interest rate method.
4.
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LONG
TERM DEBT AND COMMITMENTS
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The Credit Facility –
Subject to Compromise
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 February 22, 2010, the Company received a notice
from Wachovia informing the Company that Wachovia was resigning as
administrative agent. The Company executed a Successor Agent Agreement
with Cantor Fitzgerald Securities (“Cantor”), the Company’s new administrative
agent, effective April 12, 2010.
The
Credit Facility includes a $225 million seven-year term loan (“Term Loan”) which
has no amortization for the first three years, a one percent amortization for
years four through six, and a full payoff in year seven, in addition to an
annual mandatory pay down during the term of 50% of excess cash flows, as
defined therein. The Credit Facility also includes a $20 million five-year
revolving credit facility (“Revolving Credit Facility”) 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 Revolving Credit Facility
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 LIBOR rate loans. The rate for the
Term Loan and Revolving Credit Facility is LIBOR plus 2.0%. Pursuant to a
floating rate to fixed rate swap agreement (the “Swap Agreement”) that became
effective June 29, 2007 that the Company entered into under the Credit Facility,
substantially the entire Term Loan portion of the Credit facility, with
quarterly step-downs, bears interest at an effective fixed rate of 7.485% per
annum (2.0% above the LIBOR Rate in effect on the lock-in date of the swap
agreement). 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 $186.5
million as of September 30, 2010. The Credit Facility is guaranteed by the
Subsidiaries and is secured by a first priority lien on substantially all of the
Company’s assets.
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 finalized on July 9, 2007.
Prior to
the 2009 Credit Defaults, the interest rate on loans under the Revolving Credit
Facility 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 elected 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. As a result of the 2009 Credit Defaults, the Company no
longer has the option to request the LIBOR Rate loans.
As of
September 30, 2010, the Company had $2.5 million outstanding against the
Revolving Credit Facility. The ABR Loan was elected as the amount drawn
was below the $5.0 million minimum threshold required for selecting a LIBOR Rate
Loan.
The
Company also pays fees under the Revolving Credit Facility as
follows: (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 Revolving Credit Facility; (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. In addition to the Revolving Credit Facility fees, the
Company pays Cantor an annual administrative fee of $50,000.
The
Credit Facility contains affirmative and negative covenants customary for
financings of this nature including, but not limited to, restrictions on
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 our 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” 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 our gaming operations, a change in a majority of the members of
our Board of Directors (the “Board”) other than as a result of changes supported
by its current Board members or by successors who did not stand for election in
opposition to our current Board, or our failure to maintain 100% ownership of
the Subsidiaries.
The
Credit Facility is guaranteed by the Subsidiaries, which are all of the
Company’s 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 Company’s financial
position or results of operations, are not guarantors of the Credit
Facility.
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. Consequently, we elected not to make these payments
during 2009 and for the nine months ended September 30, 2010. 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 alleged 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
stated 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 had not paid the March 31st Payments and the applicable grace period to
make these payments had expired. The April Default Notice stated 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 Revolving Credit Facility interest rate is
approximately 6.25% per annum.
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 alleged 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 had not paid the overdue amount and
the applicable grace period to make this payment had 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.
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 provided 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 included $4.4 million in accrued interest. As a result of
the Early Termination Notice, the interest rates for the Term Loan and Revolving
Credit Facility 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, 2010, our Term Loan and
Revolving Credit Facility bear interest at approximately 6.25%. As of
September 30, 2010, the interest rate swap liability was $22.1 million which
equals the mark to market amount reflected as due and payable on the Notice of
Amount Due Following Early Termination described above.
Additionally, accrued interest as of September 30, 2010 included $5.7
million in accrued interest related to the interest rate swap comprised of $4.4
million in accrued interest as reflected on the Notice of Amount Due Following
Early Termination plus $1.3 million in default interest pursuant to the Swap
Agreement termination.
Bankruptcy
Proceedings
On July
12, 2010, the RHC and its ROC and RBH subsidiaries filed voluntary petitions in
the Bankruptcy Court for reorganization of their business (see Note 1,
“Bankruptcy Proceedings”). The bankruptcy filings constitute an event of
default under the Credit Facility and obligations arising under the Credit
Agreement are automatically accelerated and all other amounts due become
immediately due and payable. Under bankruptcy law, actions by creditors to
collect upon liabilities of the Debtors incurred prior to the Petition Date are
stayed and certain other pre-petition contractual obligations may not be
enforced against the Debtors without approval of the Bankruptcy Court. In
accordance with ASC Topic 852, the Credit Facility and obligations arising under
the Credit Agreement are classified as liabilities subject to compromise in our
condensed consolidated balance sheets as of September 30, 2010 and are adjusted
to the expected amount of the allowed claims, even if they may be settled for
lesser amounts. Also, in accordance with ASC Topic 852, interest expense
is recognized only to the extent it will be paid during the bankruptcy
proceedings or that it will be an allowed claim. As a result, the Company
accrued interest on the Credit Facility and interest rate swap through the
Petition Date. No interest was accrued on the Credit Facility or the
interest rate swap after the Petition Date.
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. As a result, the $146,000 was recorded as a gain on
extinguishment of debt during the nine months ended September 30,
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.
5.
|
LIABILITIES
SUBJECT TO COMPROMISE
|
Liabilities
subject to compromise consists of the following;
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
Term
Loan
|
|
$ |
225,000 |
|
Revolving
Credit Facility
|
|
|
2,500 |
|
Interest
Rate Swap
|
|
|
22,148 |
|
Accrued
Interest
|
|
|
25,985 |
|
Accounts
Payable
|
|
|
734 |
|
|
|
|
|
|
Total
Liabilities Subject to Compromise
|
|
$ |
276,367 |
|
Under
bankruptcy law, actions by creditors to collect upon liabilities of the Debtors
incurred prior to the Petition Date are stayed and certain other pre-petition
contractual obligations may not be enforced against the Debtors without approval
of the Bankruptcy Court. In accordance with ASC Topic 852, these
liabilities are classified as liabilities subject to compromise in our condensed
consolidated balance sheets as of September 30, 2010 and are adjusted to the
expected amount of the allowed claims, even if they may be settled for lesser
amounts. Adjustments to the claims may result from negotiations, payments
authorized by the Bankruptcy Court, interest accruals, or other events. It
is anticipated that such adjustments, if any, could be material.
Liabilities subject to compromise are classified separately from long-term
obligations and current liabilities in the accompanying condensed consolidated
balance sheets.
In
accordance with ASC Topic 852, interest expense is recognized only to the extent
it will be paid during the bankruptcy proceedings or that it will be an allowed
claim. As a result, the Company accrued interest on the Credit Facility
and interest rate swap through the Petition Date. No interest was accrued
on the Credit Facility or the interest rate swap after the Petition
Date.
6.
SHARE-BASED
PAYMENTS
The
Company expensed $8,000 and $36,000 for options for the three and nine months
ended September 30, 2010, respectively, and $11,000 and $67,000 for the three
and nine months ended September 30, 2009. 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. The Company recognizes the fair
value of option grants as share-based compensation expense in conjunction with
the option vesting period.
Additionally,
the Company expensed $67,000 for restricted stock during the nine months ended
September 30, 2010 and $142,000 and $358,000 during the three and nine months
ended September 30, 2009, respectively. The Company recorded no restricted
stock during the three months ended September 30, 2010. The restricted
stock was issued to several key management team members and directors in 2005
and was recognized on a straight line basis over a five year vesting
period. The vesting period commenced on the issuance date and ending
during the first quarter of 2010. The activity for all stock options
currently outstanding is as follows;
|
|
|
|
|
|
|
|
|
|
|
Share
Exercise
|
|
Remaining
|
|
Intrinsic
|
|
Outstanding
as of December 31, 2009
|
|
|
216,000 |
|
|
$ |
7.82 |
|
|
|
|
|
Options
Granted
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Options
Exercised
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Options
Forfeited
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Outstanding
as of March 31, 2010
|
|
|
216,000 |
|
|
$ |
7.82 |
|
5.23
years
|
|
$ |
-0- |
|
Options
Granted
|
|
|
18,000 |
|
|
$ |
0.28 |
|
10.0
years
|
|
$ |
-0- |
|
Options
Exercised
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Options
Forfeited
|
|
|
(30,000 |
) |
|
$ |
2.56 |
|
none
|
|
$ |
-0- |
|
Outstanding
as of June 30, 2010
|
|
|
204,000 |
|
|
$ |
7.93 |
|
3.76
years
|
|
$ |
-0- |
|
Options
Granted
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Options
Exercised
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Options
Expired
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Outstanding
as of September, 2010
|
|
|
204,000 |
|
|
$ |
7.93 |
|
3.42
years
|
|
$ |
-0- |
|
Exercisable
September 30, 2010
|
|
|
150,000 |
|
|
$ |
7.23 |
|
3.54
Years
|
|
$ |
-0- |
|
7.
|
FAIR
VALUE MEASUREMENT
|
In 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 elected not to measure any financial assets or
liabilities at fair value that were not previously required to be measured at
fair value. The fair values of cash and cash equivalents, restricted cash,
accounts receivable and accounts payable approximate carrying values due to the
short maturity of these items.
Fair
Value is defined in the authoritative guidance as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
guidance also establishes a framework for measuring fair value and expands
disclosures about fair value measurements. The fair value framework
requires the categorization of assets and liabilities into three levels based
upon assumptions (inputs) used to price the assets and liabilities. Level
1 provides the most reliable measure of fair value, whereas, Level 3 generally
requires significant management judgment. The three levels are defined as
follows:
|
·
|
Level
1: Quoted market prices in active markets for identical assets
or liabilities.
|
|
·
|
Level
2: Observable market-based inputs or unobservable inputs that
are corroborated by market data.
|
|
·
|
Level
3: Unobservable inputs that are not corroborated by market
data.
|
As of
September 30, 2010, the Company had no assets or liabilities measured at fair
value on a recurring basis.
On July
27, 2009, the Company received from Wachovia a Notice of Amount Due Following
Early Termination of our interest rate swap agreement (see “Credit Defaults”
within Note 4). As a result, the mark to market interest rate swap
liability was adjusted to $22.1 million which is the balance as of September 30,
2010 and reflects the amount due and payable on the Notice of Amount Due
Following Early Termination. In accordance with ASC Topic 852, the
interest rate swap liability was classified as a liability subject to compromise
in our condensed consolidated balance sheets as of September 30,
2010.
8.
|
COMMITMENTS
AND CONTINGENCIES
|
Salary Continuation
Agreements
45 key
employees (excluding Robert Vannucci, Co-Chief Executive Officer) of RHC, ROC
and RBH have salary continuation agreements effective through December 31,
2010. The agreements entered into with 43 significant ROC and RBH
employees 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 to the above, the Company entered into salary continuation agreements
with 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 mitigate. As of September 30, 2010, the estimated total amount
payable under all such agreements was approximately $2.9 million, which includes
$443,000 in benefits.
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, 2010, the Company had not recorded a receivable related to this
matter.
Legal Proceedings and
Related Events
On July
12, 2010, RHC and its ROC and RBH subsidiaries filed voluntary petitions in the
United States Bankruptcy Court for the District of Nevada for reorganization of
their business and to have the Chapter 11 Cases jointly administered. See
“Bankruptcy Proceedings” in Note 1 to the Notes to the Condensed Consolidated
Financial Statements in this Form 10-Q for a full description of Bankruptcy
Proceedings and material developments in connection therewith.
On
February 23, 2010, an individual commenced an action in the District Court of
Clark County, Nevada, against the Company and one other defendant.
The action stems from the death of a guest on February 24, 2008 in a Las
Vegas hospital. The complaint (“Complaint”) alleges, among other things,
that the Company negligently hired and supervised its then employee and failed
to seek necessary medical assistance for the decedent. The plaintiff is
seeking monetary damages in connection with this matter. We will
vigorously defend these allegations against the Company and do not believe that
the outcome of this action will have a material adverse effect on the financial
position, results of operations, or cash flows of the Company.
The
Company is also party to routine lawsuits arising from the normal operations of
a casino or hotel. We do not believe that the outcome of such litigation, in the
aggregate, will have a material adverse effect on the financial position,
results of operations, or cash flows of the Company.
The
Company has completed an evaluation of all subsequent events through the
issuance date of these condensed consolidated financial statements, and
concluded no subsequent events occurred that required recognition or disclosure
except as described below.
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
|
|
$ |
18,360 |
|
|
$ |
22,629 |
|
|
$ |
60,930 |
|
|
$ |
71,995 |
|
Riviera
Black Hawk
|
|
|
9,856 |
|
|
|
12,003 |
|
|
|
30,435 |
|
|
|
31,936 |
|
Total
Net Revenues
|
|
$ |
28,216 |
|
|
$ |
34,632 |
|
|
$ |
91,365 |
|
|
$ |
103,931 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
EBITDA (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Riviera
Las Vegas
|
|
$ |
(1,698 |
) |
|
$ |
1,599 |
|
|
$ |
1,850 |
|
|
$ |
8,467 |
|
Riviera
Black Hawk
|
|
|
1,873 |
|
|
|
2,639 |
|
|
|
6,950 |
|
|
|
7,902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Costs and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity-based
compensation
|
|
|
8 |
|
|
|
153 |
|
|
|
103 |
|
|
|
425 |
|
Other
corporate expenses
|
|
|
852 |
|
|
|
933 |
|
|
|
2,407 |
|
|
|
2,762 |
|
Depreciation
and amortization
|
|
|
3,347 |
|
|
|
3,590 |
|
|
|
10,180 |
|
|
|
11,300 |
|
Gain
on extinguishment of debt
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(146 |
) |
Restructuring
fees
|
|
|
228 |
|
|
|
569 |
|
|
|
1,245 |
|
|
|
2,106 |
|
Interest
Expense-net
|
|
|
458 |
|
|
|
3,666 |
|
|
|
8,316 |
|
|
|
13,815 |
|
Change
in fair value of derivatives
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,320 |
|
Total
Other Costs and Expenses
|
|
|
4,893 |
|
|
|
8,911 |
|
|
|
22,251 |
|
|
|
35,582 |
|
Loss
Before Reorganization Items
|
|
|
(4,718 |
) |
|
|
(4,673 |
) |
|
|
(13,451 |
) |
|
|
(19,213 |
) |
Reorganization
Items
|
|
|
(2,175 |
) |
|
|
- |
|
|
|
(2,175 |
) |
|
|
- |
|
Net
Loss
|
|
$ |
(6,893 |
) |
|
$ |
(4,673 |
) |
|
$ |
(15,626 |
) |
|
$ |
(19,213 |
) |
|
|
|
|
|
|
|
Total Assets
|
|
|
|
|
|
|
Las
Vegas
|
|
$ |
130,864 |
|
|
$ |
133,403 |
|
Black
Hawk
|
|
|
64,125 |
|
|
|
65,547 |
|
Total
Consolidated Assets
|
|
$ |
194,989 |
|
|
$ |
198,950 |
|
|
|
|
|
|
|
|
|
|
Property and Equipment-net
|
|
|
|
|
|
|
|
|
Las
Vegas
|
|
$ |
104,232 |
|
|
$ |
109,124 |
|
Black
Hawk
|
|
|
57,409 |
|
|
|
59,843 |
|
Total
Property and Equipment-net
|
|
$ |
161,641 |
|
|
$ |
168,967 |
|
|
|
|
|
|
|
|
|
|
|
|
Nine
months ended
|
|
|
Nine
months ended
|
|
|
|
|
|
|
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
Las
Vegas
|
|
$ |
2,496 |
|
|
$ |
587 |
|
Black
Hawk
|
|
|
499 |
|
|
|
1,866 |
|
Total
Capital Expenditures
|
|
$ |
2,995 |
|
|
$ |
2,453 |
|
(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 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 825
slot machines and 38 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.
Risks and
Uncertainties
Numerous
factors could affect our future operating results. These factors are discussed
under the heading “Risk Factors” in Item 1A of Part I of the 2009 Form
10-K. We have also included additional disclosures regarding the
bankruptcy proceedings and our liquidity under “Bankruptcy Proceedings” in this
Quarterly Report on Form 10-Q.
Results
of Operations
Three
Months Ended September 30, 2010 Compared to Three Months Ended September 30,
2009
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.
|
|
|
|
|
|
|
|
|
|
(In
Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Riviera
Las Vegas
|
|
$ |
18,360 |
|
|
$ |
22,629 |
|
|
$ |
(4,269 |
) |
|
|
(18.9 |
)% |
Riviera
Black Hawk
|
|
|
9,856 |
|
|
|
12,003 |
|
|
|
(2,147 |
) |
|
|
(17.9 |
)% |
Total
Net Revenues
|
|
$ |
28,216 |
|
|
$ |
34,632 |
|
|
$ |
(6,416 |
) |
|
|
(18.5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property (Loss) Income from
Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Riviera
Las Vegas
|
|
|
(3,976 |
) |
|
|
(696 |
) |
|
|
(3,280 |
) |
|
|
(471.3 |
)% |
Riviera
Black Hawk
|
|
|
804 |
|
|
|
1,344 |
|
|
|
(540 |
) |
|
|
(40.2 |
)% |
Total
Property (Loss) Income from Operations
|
|
|
(3,172 |
) |
|
|
648 |
|
|
|
(3,820 |
) |
|
|
(589.5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Corporate
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
Compensation
|
|
|
(8 |
) |
|
|
(153 |
) |
|
|
145 |
|
|
|
94.8 |
% |
Other
Corporate Expense
|
|
|
(852 |
) |
|
|
(933 |
) |
|
|
81 |
|
|
|
8.7 |
% |
Restructuring
Fees
|
|
|
(228 |
) |
|
|
(569 |
) |
|
|
341 |
|
|
|
59.9 |
% |
Total
Corporate Expenses
|
|
|
(1,088 |
) |
|
|
(1,655 |
) |
|
|
567 |
|
|
|
34.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Loss from Operations
|
|
$ |
(4,260 |
) |
|
$ |
(1,007 |
) |
|
$ |
(3,253 |
) |
|
|
(323.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Margins (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Riviera
Las Vegas
|
|
|
(21.7 |
)% |
|
|
(3.1 |
)% |
|
|
|
|
|
|
(18.6 |
)% |
Riviera
Black Hawk
|
|
|
8.1 |
% |
|
|
11.2 |
% |
|
|
|
|
|
|
(3.1 |
)% |
(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, 2010 were $18.4 million, a
decrease of $4.2 million, or 18.9%, from $22.6 million for the comparable period
in the prior year.
Casino
revenues for the three months ended September 30, 2010 were $7.8 million, a
decrease of $2.0 million, or 20.4%, from $9.8 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 $6.3 million, a decrease of $1.5 million, or
18.9%, from $7.8 million and table game revenue was $1.3 million, a decrease of
$0.5 million, or 26.4% from $1.8 million. Slot machine and table game
revenues decreased primarily due to less wagering as a result of the slower
economy and less walk-in customers due to reduced activity at the North end of
the Las Vegas Strip. Also, table game revenues decreased $0.2 million due
to a lower hold percentage. The table games hold percentage decreased from
21.1% to 18.5% for the three months ended September 30, 2010. Slot machine
win per unit per day for the three months ended September 30, 2010 was $84.38, a
decrease of $1.11, or 1.3%, from $85.49 for the comparable period in the prior
year. There were 817 slot machines on the floor, on average, during the
quarter ended September 30, 2010 compared with 994 slot machines on the floor,
on average, during the same period in the prior year. The slot machine
hold percentage was 8.3% compared with 8.5% for the same period in the prior
year. To add excitement to the casino floor and capture more gaming
revenues from hotel guests, we established a new table gaming pit with six table
games and two stages for exotic pole dancers. The exotic pole dancing
commenced October 2010, with performances primarily on the weekends and in
conjunction with expanded entertainment offerings in the Le Bistro Bar Lounge
adjacent to the casino floor.
Room
revenues for the three months ended September 30, 2010 were $8.2 million, a
decrease of $0.5 million, or 5.5%, from $8.7 million for the comparable period
in the prior year. The decrease in room revenues was due to lower
occupancy. Hotel room occupancy percentage (based on available rooms) for
the three months ended September 30, 2010 was 68.7%, a decrease of 5.0%, from
73.7% for the same period in the prior year. 7.4% of total hotel rooms
were unavailable during the three months ended September 30, 2010 in comparison
to 3.0% during the same period in the prior year. Hotel room occupancy
percentage (based on total rooms) for the three months ended September 30, 2010
was 76.1%, a decrease of 0.6%, from 76.7% for the same period in the prior
year.
Average
daily room rates, or ADR, were $60.26 for the three months ended September 30,
2010 compared with $59.51 for the same period in the prior year. Leisure
segment ADR increased $3.06, or 7.7%, to $42.74 from $39.68 for the same period
in the prior year. Convention segment ADR decreased $9.70, or 13.1%, to
$64.22 from $73.92 for the same period in the prior year. We have had to
lower our convention ADR to retain convention business and remain competitive.
Competition has increased in conjunction with the addition of new hotel rooms
and additional convention space. As a result, other properties have
aggressively marketed convention groups that have traditionally held their
functions at the Riviera Las Vegas. We are evaluating and identifying
possible new target markets and niches to offset eroding convention segment
demand. For the three months ended September 30, 2010, 61.5% of total
occupied rooms were comprised of leisure segment rooms while 24.2% of total
occupied rooms were comprised of convention segment occupancy.
Revenue
per available room, or RevPar, was $45.86 for the three months ended September
30, 2010, an increase of $0.25, or 0.5%, from $45.61 for the comparable period
in the prior year. The increase in RevPar was due mostly to the decrease
in the number of available rooms as described above. RevPar is total
revenue from hotel room rentals divided by total hotel rooms available for
sale. Room revenues included $1.5 million in revenues related
to hotel room nights offered to high-value guests on a complimentary
basis. These revenues are included in promotional allowances which are
deducted from total revenues to arrive at net revenues.
Food and
beverage revenues for the three months ended September 30, 2010 were $3.1
million, a decrease of $1.1 million, or 24.8%, from $4.2 million for the
comparable period in the prior year. The decrease was due to $0.8 million
decrease in food revenues and $0.3 million decrease in beverage revenues.
There were 26.6% fewer food covers with a reduction in food covers in every food
and beverage outlet in comparison to last year. However, the average check
increased 1.8% to $13.29. Our food and beverage revenues declined as our
new British Pub concessionaire that opened in June and our food court, which is
now fully leased, competed against us. Moreover, more hotel guests are
driving to the property. These guests are more likely to drive to another
location to dine. Beverage revenues decreased as a result of an 18.9%
reduction in drinks served due to 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. These revenues are
included in promotional allowances which are deducted from total revenues to
arrive at net revenues.
Entertainment
revenues for the three months ended September 30, 2010 were $1.2 million, a
decrease of $1.4 million, or 54.6%, from $2.6 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 $0.6 million in revenues related to show tickets
offered to high-value guests on a complimentary basis. These revenues are
included in promotional allowances which are deducted from total revenues to
arrive at net revenues.
Other
revenues for the three months ended September 30, 2010 were $1.0 million, a
decrease of $0.2 million, or 18.4%, from $1.2 million for the same period in the
prior year. Other revenues were higher in the prior year primarily due to
a reclassification of $0.2 million in outstanding chip liability to other
revenues.
Promotional
allowances were $3.0 million and $3.8 million for the three months ended
September 30, 2010 and 2009, 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
Costs and
expenses for the three months ended September 30, 2010 were $22.3 million, a
decrease of $1.0 million, or 4.2%, from $23.3 million for the comparable period
in the prior year.
Casino
costs and expenses for the three months ended September 30, 2010 were $4.5
million, a decrease of $0.7 million, or 13.1%, from $5.2 million for the
comparable period in the prior year. The decrease in casino expenses was
primarily due to a $0.3 million decline in casino marketing and promotional
costs, a $0.2 million reduction in slot and table games payroll and related
costs and a $0.2 million reduction in gaming taxes as result of reduced casino
revenues. Casino marketing and promotional costs declined primarily due to
less complimentary offering redemptions.
Room
rental costs and expenses for the three months ended September 30, 2010 were
$4.9 million, an increase of $0.1 million, or 1.8%, from $4.8 million for the
comparable period in the prior year. The increase was mostly due to
increases in various miscellaneous room rental sales and operational costs and
expenses and higher health insurance costs.
Food and
Beverage costs and expenses for the three months ended September 30, 2010 were
$3.1 million, a decrease of $0.6 million, or 16.3%, from $3.7 million for the
comparable period in the prior year. The decrease was primarily due to a
$0.5 million reduction in food and beverage payroll and related costs to
partially offset the $1.1 million decline in food and beverage
revenues.
Entertainment
department costs and expenses for the three months ended September 30, 2010 were
$0.6 million, a decrease of $0.2 million, or 24.4%, from $0.8 million for the
comparable period in the prior year. The decrease in entertainment
department costs and expenses is due to a $0.4 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 partially offset
by increases in entertainment related payroll and related costs and other
expenses.
General
and administrative expenses for the three months ended September 30, 2010 were
$6.6 million, an increase of $0.4 million, or 7.2%, from $6.2 million for the
comparable period in the prior year. The increase in other general and
administrative expenses was due primarily to higher workers compensation claims
reserves and higher health insurance costs.
Depreciation
and amortization expenses for the three months ended September 30, 2010 were
$2.4 million, a decrease of $0.2 million, or 4.8%, from $2.6 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 second quarter of 2009.
Loss from
Operations
Loss from
operations for the three months ended September 30, 2010 and 2009 was $4.0 and
$0.7 million, respectively. The increase in loss of $3.3 million was
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, 2010 and 2009 was negative 21.7%
and 3.1%, respectively. Operating margins decreased primarily due to the
$2.0 million decrease in high margin casino revenues and our inability to
significantly reduce fixed administrative and operating costs and
expenses.
Riviera
Black Hawk
Revenues
Net
revenues for the three months ended September 30, 2010 were $9.9 million, a
decrease of $2.1 million, or 17.9%, from $12.0 million for the comparable period
in the prior year. The decrease was due primarily to a $2.0 million
decrease in casino revenues to $9.6 million for the three months ended September
30, 2010 from $11.6 million for the same period in the prior year. Casino
revenues are comprised of revenues from slot machines and table
games.
Slot
machine revenues decreased $1.7 million, or 15.4%, to $9.2 million from $10.9
million for the comparable period in the prior year. Table games revenues
decreased $0.3 million to $0.4 million for the three months ended September 30,
2010. As noted above, 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.
Casino revenues surged in the initial months after we implemented these
changes. Since the third quarter of 2009, consumer interest in the changes
associated with the passage of Colorado Amendment 50 has waned and competition
has increased. As a result, slot machine and table gaming revenues
declined for the third quarter ended September 30, 2010 in comparison to the
same period in the prior year.
The Black
Hawk market total slot machine wagering, or coin-in, declined 4.8% in comparison
to the same period in the prior year. Riviera Black Hawk slot machine
coin-in declined 19.6% in comparison to the same period in the prior year.
Riviera Black Hawk’s market share of the Black Hawk Market total slot machine
coin-in was 9.3% for the third quarter in comparison to 11.1% for the same
period in the prior year. Our market share eroded as our competitors
utilized complimentary hotel stays and aggressive cash offers to entice
customers to play at their facilities. Ameristar Casinos Inc.
(“Ameristar”) added a 536 guestroom hotel tower to its Black Hawk
property. The guestrooms were available starting fall 2009 and Ameristar
has used the guestrooms as a tool to aggressively market their property.
Riviera Black Hawk’s slot machine coin-in declined $42.0 million, or 19.5%, to
$172.7 million for the three months ended September 30, 2010 compared to $214.7
million for the same period in the prior year. Our slot machine win per
unit per day was $133.45 in comparison to $157.42 for the same period in the
prior year. There were 748 slot machines on the casino floor, on
average, as of September 30, 2010 in comparison to 750 slot machines on the
casino floor, on average, as of September 30, 2009.
Food and
beverage revenues were $1.3 million and $2.0 million for each of the three
months ended September 30, 2010 and 2009, respectively. Food and
beverage revenues are comprised primarily of revenues related to food and
beverage offered to high-value guests on a complimentary basis. Food
and beverage revenues decreased $0.7 million during the three months ended
September 30, 2010 primarily due to more stringent requirements for earning
complimentary offerings and less customer volume resulting in less complimentary
offering redemptions. Food and beverage revenues for the three months
ended September 30, 2010 included $1.1 million in revenues related to food and
beverages offered to high-value guests on a complimentary basis.
Promotional
allowances were $1.1 million and $1.7 million for the three months ended
September 30, 2010 and 2009, respectively. Promotional allowances are
comprised of food and beverage items provided on a complimentary basis to our
high-value casino players. Promotional allowances were lower due to
reduced food and beverage complimentary offerings.
Costs and
Expenses
Costs and
expenses declined $1.6 million to $9.1 million for the three months ended
September 30, 2010 in comparison to $10.7 million for the same period in the
prior year. The $1.6 million decline was due primarily to a $1.1
million decrease in casino costs and expenses and a $0.2 million decrease in
food and beverage costs and expenses.
The $1.1
million decrease in casino cost and expenses was due to a $0.6 million marketing
costs and expenses reduction, a $0.4 million gaming tax reduction in conjunction
with less casino revenues and a $0.1 million reduction in casino payroll and
related costs. Marketing cost declined mostly due to a $0.4 million
reduction in advertising costs. Advertising costs were higher in the
third quarter of 2009 as a result of advertising campaigns promoting the
implementation of changes associated with the passage of Colorado Amendment 50
as described above. The $0.2 million decrease in food and beverage
costs and expenses was due to a reduction in variable costs correlating with the
$0.7 million food and beverage revenue decrease described above.
Income from
Operations
Income
from operations for the three months ended September 30, 2010 was $0.8 million,
a decrease of $0.5 million, or 40.3%, from $1.3 million for the same period in
the prior year. The decrease was due to lower total revenues with
insufficient offsetting costs and expenses as described above.
Operating
margins were 8.1% for the three months ended September 30, 2010 in comparison to
11.2% for the comparable period in the prior year. Operating margins declined
primarily as a result of the $2.0 million decrease in casino revenues without
correlating decreases in costs and expenses.
Consolidated
Operations
Loss from
Operations
Losses
from operations for the three months ended September 30, 2010 and 2009 were $4.3
million and $1.0 million, respectively. The $3.3 million increase in loss was
due primarily to the $3.3 million increase in loss from operations in Riviera
Las Vegas and the $0.5 million decrease in income from operations in Riviera
Black Hawk partially offset by a $0.3 million reduction in restructuring fees, a
$0.1 million decrease in other corporate expenses and a $0.1 million reduction
in equity compensation costs. The reduction in restructuring fees was due to
timing differences associated with restructuring related activities, the decline
in other corporate expenses was due primarily to lower payroll and related costs
and the decrease in equity compensation costs was the result of the final
amortization of the Company’s restricted stock plan during the first quarter of
2010.
Other
Expense
Other
expense was $0.5 million and $3.7 million for the three months ended September
30, 2010 and 2009, respectively. The $3.2 million reduction in other expense was
due to a $3.2 million interest expense decline in comparison to the same period
in the prior year. Interest expense declined due to fewer days accrued and lower
interest rates. Interest expense was accrued for 12 days during the three months
ended September 30, 2010 in comparison to 92 days during the same period in the
prior year. In accordance with ASC Topic 852, interest expense is recognized
only to the extent it will be paid during the bankruptcy proceedings or that it
will be an allowed claim. As a result, we accrued interest on the Credit
Facility and interest rate swap through the Petition Date of July 12, 2010.
Interest rates were lower due to the termination of our swap fixed interest rate
on July 27, 2009. Interest rates for the Term Loan and Revolving Credit Facility
balances are no longer locked and are now subject to changes in underlying
interest rates which were lower than our swap fixed interest rate during the
three months ended September 30, 2010.
Reorganization
Items
Reorganization
items are comprised of reorganization related expenses incurred after the
Petition Date. Reorganization items include legal, advisory and trustee fees
incurred in connection with the Chapter 11 cases. During the quarter ended
September 30, 2010, we recorded reorganization items expense of $2.2 million for
reorganization related expenses incurred after the Petition date which was July
12, 2010.
Net Loss
Net
losses for the three months ended September 30, 2010 and 2009 were $6.9 million
and $4.7 million, respectively. The $2.2 million additional net loss was due
primarily to the $3.3 additional loss from operations plus the $2.2 million
increase in reorganization items expense partially offset by the $3.2 million
reduction in other expense.
Nine
Months Ended September 30, 2010 Compared to Nine Months Ended September 30,
2009
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
|
|
|
|
|
|
|
|
(In
Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Riviera
Las Vegas
|
|
$ |
60,930 |
|
|
$ |
71,995 |
|
|
$ |
(11,065 |
) |
|
|
(15.4 |
)% |
Riviera
Black Hawk
|
|
|
30,435 |
|
|
|
31,936 |
|
|
|
(1,501 |
) |
|
|
(4.7 |
)% |
Total
Net Revenues
|
|
$ |
91,365 |
|
|
$ |
103,931 |
|
|
$ |
(12,566 |
) |
|
|
(12.1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property (Loss) Income
from Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Riviera
Las Vegas
|
|
|
(4,962 |
) |
|
|
891 |
|
|
|
(5,893 |
) |
|
|
(656.9 |
)% |
Riviera
Black Hawk
|
|
|
3,582 |
|
|
|
4,178 |
|
|
|
(596 |
) |
|
|
(14.2 |
)% |
Total
Property Income from Operations
|
|
|
(1,380 |
) |
|
|
5,069 |
|
|
|
(6,449 |
) |
|
|
(127.2 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Corporate
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
Compensation
|
|
|
(103 |
) |
|
|
(425 |
) |
|
|
322 |
|
|
|
75.8 |
% |
Other
Corporate Expense
|
|
|
(2,405 |
) |
|
|
(2,762 |
) |
|
|
357 |
|
|
|
12.9 |
% |
Restructuring
Fees
|
|
|
(1,245 |
) |
|
|
(2,106 |
) |
|
|
861 |
|
|
|
40.9 |
% |
Total
Corporate Expenses
|
|
|
(3,753 |
) |
|
|
(5,293 |
) |
|
|
1,540 |
|
|
|
29.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Loss from Operations
|
|
$ |
(5,133 |
) |
|
$ |
(224 |
) |
|
$ |
(4,909 |
) |
|
|
(2191.5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Margins (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Riviera
Las Vegas
|
|
|
(8.1 |
)% |
|
|
1.2 |
% |
|
|
|
|
|
|
(9.3 |
)% |
Riviera
Black Hawk
|
|
|
11.8 |
% |
|
|
13.1 |
% |
|
|
|
|
|
|
(1.3 |
)% |
(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, 2010 were $60.9 million, a
decrease of $11.1 million, or 15.4%, from $72.0 million for the comparable
period in the prior year.
Casino
revenues for the nine months ended September 30, 2010 were $27.4 million, a
decrease of $5.0 million, or 15.5%, from $32.4 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 $22.1 million, a decrease of $3.6 million, or 13.9%, from
$25.7 million and table game revenue was $4.7 million, a decrease of $1.2
million, or 19.9% from $5.9 million. Slot machine and table game revenues
decreased primarily due to less wagering as a result of the slower economy and
less walk-in customers due to reduced activity at the North end of the Las Vegas
Strip. Slot machine win per unit per day for the nine months ended September 30,
2010 was $90.94, a decrease of $8.63, or 8.7%, from $99.56 for the comparable
period in the prior year. There were 890 slot machines on the floor, on average,
during the nine months ended September 30, 2010 compared with 944 slot machines
on the floor, on average, during the same period in the prior year. To add
excitement to the casino floor and capture more gaming revenues from hotel
guests, we established a new table gaming pit with six table games and two
stages for exotic pole dancers. The exotic pole dancing commenced October 2010,
with performances primarily on the weekends and in conjunction with expanded
entertainment offerings in the Le Bistro Bar Lounge adjacent to the casino
floor.
Room
revenues for the nine months ended September 30, 2010 were $25.2 million, a
decrease of $2.5 million, or 9.1%, from $27.7 million for the comparable period
in the prior year. The decrease in room revenues was primarily due to a $5.51,
or 8.8%, reduction in average daily room rates, or ADR, to $56.76 for the nine
months ended September 30, 2010 from $62.27 for the comparable period in the
prior year. The $5.51 decrease in ADR resulted in a $2.4 million decline in room
revenues. The decrease in ADR was largely the result of a $1.73, or 4.1%,
decrease in leisure segment room rates and a $16.85, or 17.0%, decrease in
convention segment room rates. We have had to lower our convention ADR to retain
convention business and remain competitive. Increased hotel room and convention
space supply has weakened demand. As market conditions soften, other properties
have aggressively marketed convention groups that have traditionally held their
functions at the Riviera Las Vegas. We are evaluating and identifying possible
new target markets and niches to offset eroding convention segment demand. For
the nine months ended September 30, 2010, leisure segment ADR was $40.28 and
convention segment ADR was $82.52.
Hotel
room occupancy percentage (based on available room) for the nine months ended
September 30, 2010, was 81.0% compared to 74.7% for the same period in the prior
year. 5.2% of total hotel rooms were unavailable during the nine months ended
September 30, 2010 in comparison to 0.2% during the same period in the prior
year. Hotel room occupancy percentage (based on total rooms) for the nine months
ended September 30, 2010, was 75.8% compared to 74.9% for the same period in the
prior year. The number of leisure segment occupied rooms increased by 7.0% while
the number of rooms provided to our convention customers and to our casino
customers on a complimentary or discounted basis declined by 3.5% and 14.3%,
respectively. Revenue per available room, or RevPar, was $45.99 for the nine
months ended September 30, 2010, a decrease of $1.74, or 3.6%, from $47.73 for
the comparable period in the prior year. The decrease in RevPar was due to the
$5.51 decrease in ADR as described above. RevPar is total revenue from hotel
room rentals divided by total hotel rooms available for sale. Room revenues
include $4.9 million in revenues related to hotel room nights offered to
high-value guests on a complimentary basis. These revenues are included in
promotional allowances which are deducted from total revenues to arrive at net
revenues.
Food and
beverage revenues for the nine months ended September 30, 2010 were $11.3
million, a decrease of $2.0 million, or 15.3%, from $13.3 million for the
comparable period in the prior year. The decrease was due to $1.4 million
decrease in food revenues and $0.6 million decrease in beverage revenues. The
decrease in food revenues was due primarily to reduced demand ultimately
resulting in strategic closures of select food and beverage outlets. Food covers
decreased 28.0% compared to the prior year. Conversely, the average check
increased $2.21, or 18.1% to $14.44. Beverage revenues decreased as a result of
a 14.0% reduction in drinks served, which was primarily due to fewer drinks
served from our casino bars correlating with reduced casino patronage. Food and
beverage revenues include $2.8 million in revenues related to food and beverages
offered to high-value guests on a complimentary basis. These revenues are
included in promotional allowances which are deducted from total revenues to
arrive at net revenues.
Entertainment
revenues for the nine months ended September 30, 2010 were $3.0 million, a
decrease of $3.5 million, or 54.4%, from $6.5 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 $1.3 million in revenues related to show tickets
offered to high-value guests on a complimentary basis. These revenues are
included in promotional allowances which are deducted from total revenues to
arrive at net revenues.
Other
revenues for the nine months ended September 30, 2010 were $3.2 million, a
decrease of $0.8 million, or 21.0%, from $4.0 million for the same period in the
prior year. The decrease in other revenues was primarily due a $0.6 million
decline in tenant rental income as a result of vacancies and rent
concessions.
Promotional
allowances were $9.0 million and $11.9 million for the nine months ended
September 30, 2010 and 2009, 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
Costs and
expenses for the nine months ended September 30, 2010 were $65.9 million, a
decrease of $5.2 million, or 7.3%, from $71.1 million for the comparable period
in the prior year.
Casino
costs and expenses for the nine months ended September 30, 2010 were $14.8
million, a decrease of $2.4 million, or 13.8%, from $17.2 million for the
comparable period in the prior year. The decrease in casino expenses was
primarily due to a $1.6 million decrease in gaming marketing and promotional
costs, a $0.6 million reduction in slot and table game payroll and related costs
and a $0.3 million reduction in gaming taxes due to the decline in gaming
revenues. The decline in gaming marketing and promotional costs was due
primarily to less redemptions of direct mail and other offerings and the
reduction in slot and table game payroll was due to a concerted effort to reduce
costs to offset gaming revenue declines.
Room
rental costs and expenses for the nine months ended September 30, 2010 were
$14.1 million, a decrease of $0.4 million, or 2.8%, from $14.5 million for the
comparable period in the prior year. The decrease in room rental costs and
expenses was mostly due to a $0.9 million decrease in payroll and related costs
partially offset by a $0.4 million increase in marketing costs and expenses and
a $0.1 million increase in rooms department operating costs and expenses. The
reduction in payroll and related costs was due to a concerted effort to reduce
costs despite a 1.2% increase in the number of occupied hotel rooms. The
increase in marketing costs and expenses was related to additional complimentary
offerings and higher convention and leisure segment sales related
costs.
Food and
beverage costs and expenses for the nine months ended September 30, 2010 were
$10.1 million, a decrease of $0.9 million, or 7.8%, from $11.0 million for the
comparable period in the prior year. The decrease was primarily due to a $0.8
million reduction in food and beverage payroll and related costs to offset the
decrease in food and beverage revenues.
Entertainment
department costs and expenses for the nine months ended September 30, 2010 were
$1.8 million, a decrease of $0.8 million, or 32.9%, from $2.6 million for the
comparable period in the prior year. The decrease in entertainment department
costs and expenses is primarily due to a $1.2 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 partially offset
by higher payroll and related costs and other entertainment costs.
General
and administrative expenses for the nine months ended September 30, 2010 were
$17.5 million, an increase of $0.1 million, or 0.6%, from $17.4 million for the
comparable period in the prior year. The increase in other general and
administrative expenses was due primarily to various increases in payroll and
related and other administrative cost and expenses.
Depreciation
and amortization expenses for the nine months ended September 30, 2010 were $7.4
million, a decrease of $0.8 million, or 10.2%, from $8.2 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 September 30, 2009.
(Loss) Income from
Operations
Loss from
operations for the nine months ended September 30, 2010 was $5.0 million
compared to income from operations of $0.9 million for the comparable period in
the prior year. The decline of $5.9 million was principally due to decreased net
revenues that were not offset with equivalent reductions in costs and
expenses.
Operating
margin for the nine months ended September 30, 2010 was a negative 8.1% due to
the loss from operations. Operating margin for the nine months ended September
30, 2009 was 1.2%. Operating margins decreased primarily due to the $5.51, or
8.8%, reduction in average daily room rates and the $5.0 million decrease in
casino revenues.
Riviera
Black Hawk
Revenues
Net
revenues for the nine months ended September 30, 2010 were $30.4 million, a
decrease of $1.5 million, or 4.7%, from $31.9 million for the comparable period
in the prior year. The decrease was due primarily to a $1.3 million decrease in
casino revenues to $29.8 million for the nine months ended September 30, 2010
from $31.1 million for the same period in the prior year. Casino revenues are
comprised of revenues from slot machines and table games.
Slot
machine revenues decreased $1.5 million, or 5.2%, to $28.5 million from $30.0
million for the comparable period in the prior year. As noted above, 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. Slot machine revenues surged in the initial
months after we implemented these changes. Since the third quarter of 2009,
consumer interest in the changes associated with the passage of Colorado
Amendment 50 has waned and competition has increased. As a result, slot machine
revenues declined for the nine months ended September 30, 2010.
The Black
Hawk market slot machine coin-in grew 2.1% for the nine months ended September
30, 2010 in comparison to the same period in the prior year. However, Riviera
Black Hawk’s slot machine coin-in declined by 5.7% for the nine months ended
September 30, 2010 in comparison to the same period in the prior year. Riviera
Black Hawk’s share of the Black Hawk Market slot machine coin-in for the nine
months ended September 30, 2010 was 9.9% in comparison to 10.8% for the same
period in the prior year. Our market share eroded as our competitors utilized
complimentary hotel stays and aggressive cash offers to entice customers to play
at their facilities. Ameristar added a 536 guestroom hotel tower to its Black
Hawk property. The guestrooms were available starting fall 2009 and Ameristar
has used the guestrooms as a tool to aggressively market their
property.
Our total
slot machine coin-in decreased $32.6 million, or 5.7%, to $542.4 million for the
nine months ended September 30, 2010 compared to $575.0 million for the same
period in the prior year. Slot machine win per unit per day declined $4.97, or
3.4%, to $141.83 from $146.80 for the same period in the prior year. The
decrease in slot win per unit per day was due to the $1.5 million decline in
slot machine revenues. There were 735 slot machines, on average, on the casino
floor during the nine months ended September 30, 2010.
Table
games revenues increased $0.2 million to $1.3 million for the nine months ended
September 30, 2010 from $1.1 million for the same period in the prior year.
Table games revenues increased as a result of nine months of increased limits,
extended hours and roulette gaming in the current year in comparison to three
months in the prior year. As noted above, 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.
Food and
beverage revenues were $4.0 million and $4.6 million for the nine months ended
September 30, 2010 and 2009, respectively. Food and beverage revenues for the
nine months ended September 30, 2010 included $3.4 million in revenues related
to food and beverages offered to high-value guests on a complimentary basis.
Food and beverage revenues declined primarily due to more stringent requirements
for earning complimentary offerings and less customer volume resulting in less
complimentary offering redemptions.
Promotional
allowances were $3.4 million for each of the nine months ended September 30,
2010 and 2009. Promotional allowances are comprised of food and beverage items
provided on a complimentary basis to our high-value casino players.
Costs and
Expenses
Costs and
expenses for the nine months ended September 30, 2010 were $26.9 million, a
decrease of $0.9 million, or 3.3%, from $27.8 million for the comparable period
in the prior year.
Costs and
expenses decreased primarily due to a $0.5 million decrease in casino costs and
expenses, a $0.2 million decrease in food and beverage costs and expenses and a
$0.3 million decrease in depreciation and amortization expenses. Casino costs
and expenses decreased primarily due to decreased marketing costs and expenses
and decreased gaming taxes due to lower casino revenues. Marketing costs and
expenses declined as a result of lower advertising and food and beverage
complimentary costs. Depreciation and amortization expenses declined due to
assets fully depreciating since the third quarter of 2009.
Income from
Operations
Income
from operations was $3.6 million and $4.2 million for the nine months ended
September 30, 2010 and 2009, respectively.
Operating
margins were 11.8% for the nine months ended September 30, 2010 in comparison to
13.1% for the comparable period in the prior year. Operating margins decreased
due to the decrease in net revenues without correlating decreases in costs and
expenses.
Consolidated
Operations
Loss from
Operations
Losses
from operations for the nine months ended September 30, 2010 and 2009 were $5.1
million and $0.2 million, respectively. The $4.9 million in additional loss from
operations was due to the $5.9 million additional loss from operations in
Riviera Las Vegas and the $0.6 million decline in income from operations in
Riviera Black Hawk partially offset by a $0.9 million reduction in restructuring
fees, a $0.4 million decline in other corporate expenses and a $0.3 million
decrease in equity compensation expense. The reduction in restructuring fees was
due to a decline in restructuring related activities, the decline in other
corporate expenses was due primarily to lower payroll and related costs and
miscellaneous expenses and the decrease in equity compensation costs was due
primarily to the full amortization of the Company’s restricted stock plan during
the first quarter of 2010.
Other
Expense
Other
expense was $8.3 million and $19.0 million for the nine months ended September
30, 2010 and 2009, respectively. The $10.7 million decrease in other expense was
due primarily to a $5.5 million decrease in interest expense during the nine
months ended September 30, 2010 and a $5.3 million loss in value of derivative
recorded during the nine months ended September 30, 2009. Interest expense
declined due to fewer days accrued and lower interest rates. Interest expense
was accrued for 193 days during the nine months ended September 30, 2010 in
comparison to 273 days during the same period in the prior year. In accordance
with ASC Topic 852, interest expense is recognized only to the extent it will be
paid during the bankruptcy proceedings or that it will be an allowed claim. As a
result, we accrued interest on the Credit Facility and interest rate swap
through the Petition Date of July 12, 2010. Interest rates were lower due to the
termination of our swap fixed interest rate on July 27, 2009. Interest rates for
the Term Loan and Revolving Credit Facility balances are no longer locked and
are now subject to changes in underlying interest rates which were lower than
our swap fixed interest rate during the nine months ended September 30,
2010.
No change
in fair value of our derivative instrument was recorded during the nine months
ended September 30, 2010 due to the early termination of the instrument (see
Note 2 above).
Net Loss
Net
losses for the nine months ended September 30, 2010 and 2009 were $15.6 million
and $19.2 million, respectively. The $3.6 million in additional net loss was due
to the $4.9 million additional loss from operations and the $2.2 million
reorganization items expense partially offset by the $10.7 million reduction 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,
2009. 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 our existing indebtedness pursuant to
the Plan of Reorganization referenced in Recent Developments within Note 1
above, which raises substantial doubt about our ability to continue as a going
concern. The accompanying unaudited, 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 $26.0 million and $19.1 million as of September 30,
2010 and December 31, 2009, respectively. Our cash and cash equivalents
increased $6.9 million during the nine months ended September 30, 2010 due to
$7.1 million in net cash provided by operating activities less $0.2 million in
net cash used in by investing activities.
The $7.2
million in net cash provided by operating activities was due primarily to $15.6
million in net loss plus $10.2 million in non-cash depreciation and amortization
expense, $8.2 million in interest expense recorded but not paid, $0.9 million in
reorganization items recorded but not paid and $3.5 million in increases in
operating assets and liabilities (excluding changes in accrued interest
liability). Increases in operating assets and liabilities were due primarily to
a $2.4 million increase in our accounts payable and accrued expense liabilities
due to timing of payments.
The $0.2
million in net cash used in investing activities was due to cash outlays of $2.4
million for maintenance and safety related capital expenditures at Riviera Las
Vegas and $0.3 million for maintenance related capital expenditures at Riviera
Black Hawk partially offset by a cash increase of $2.5 million due to the
release of formerly restricted cash effective May 11, 2010. On May 11, 2010, the
State of Nevada Workers Compensation Division issued a letter informing us that
the division had released all interest in our $2.5 million certificate of
deposit previously reflected in restricted cash on our balance
sheet.
Our cash
and cash equivalents increased $7.8 million during the nine months ended
September 30, 2009 primarily 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 related capital expenditures at both
Riviera Las Vegas and Black Hawk. The $9.8 million in net cash provided by
operating activities was due primarily to $19.2 million in net loss plus $11.5
million in non-cash depreciation and amortization expense, $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 $1.7 million in changes in
operating assets and liabilities (excluding changes in accrued interest
liability).
The Credit
Facility
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
February 22, 2010, the Company received a notice from Wachovia informing the
Company that Wachovia was resigning as administrative agent. The Company
executed a Successor Agent Agreement with Cantor Fitzgerald Securities (Cantor),
the Company’s new administrative agent, effective April 12,
2010.
The
Credit Facility includes a $225 million seven-year term loan (the Term Loan)
which has no amortization for the first three years, a one percent amortization
for years four through six, and a full payoff in year seven, in addition to an
annual mandatory pay down during the term of 50% of excess cash flows, as
defined therein. The Credit Facility also includes a $20 million five-year
revolving credit facility (Revolving Credit Facility) under which RHC could
obtain extensions of credit in the form of cash loans or standby letters of
credit (the Standby L/Cs). Pursuant to Section 2.6 of the Credit Agreement, on
June 5, 2009, the Company voluntarily reduced the Revolving Credit Facility
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 LIBOR rate loans. The rate for the Term Loan and
Revolving Credit Facility is LIBOR plus 2.0%. Pursuant to a floating rate to
fixed rate swap agreement (the Swap Agreement) that became effective June 29,
2007 that the Company entered into under the Credit Facility, substantially the
entire Term Loan portion of the Credit facility, with quarterly step-downs,
bears interest at an effective fixed rate of 7.485% per annum (2.0% above the
LIBOR Rate in effect on the lock-in date of the swap agreement). 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 $186.5 million as of September 30, 2010. The
Credit Facility is guaranteed by the Subsidiaries and is secured by a first
priority lien on substantially all of the Company’s assets.
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 finalized on July 9, 2007.
Prior to
the 2009 Credit Defaults, the interest rate on loans under the Revolving Credit
Facility depended on whether they were in the form of revolving loans or
swingline loans (the Swingline Loans). Prior to the 2009 Credit Defaults, the
interest rate for each revolving loan depended on whether RHC elected to treat
the loan as an “Alternate Base Rate” loan (the 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. As a result of the 2009 Credit Defaults, the Company no longer has the
option to request the LIBOR Rate loans.
As of
September 30, 2010, the Company had $2.5 million outstanding against the
Revolving Credit Facility. The ABR Loan was elected as the amount drawn was
below the $5.0 million minimum threshold required for selecting a LIBOR Rate
Loan.
The
Company also pays fees under the Revolving Credit Facility as follows: (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
Revolving Credit Facility; (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. In addition to the
Revolving Credit Facility fees, the Company pays Cantor an annual administrative
fee of $50,000.
The
Credit Facility contains affirmative and negative covenants customary for
financings of this nature including, but not limited to, restrictions on
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 our 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” 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 our gaming
operations, a change in a majority of the members of our Board other than as a
result of changes supported by its current Board members or by successors who
did not stand for election in opposition to our current Board, or our failure to
maintain 100% ownership of the Subsidiaries.
The
Credit Facility is guaranteed by the Subsidiaries, which are all of the
Company’s 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 Company’s financial position or results
of operations, are not guarantors of the Credit Facility.
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. Consequently, we elected not to make these payments during
2009 and for the nine months ended September 30, 2010. 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 alleged 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 stated 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 had not paid the March 31st
Payments and the applicable grace period to make these payments had expired. The
April Default Notice stated 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 Revolving Credit Facility interest rate is
approximately 6.25% per annum.
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
alleged 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 had not paid the overdue amount and the applicable grace
period to make this payment had 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.
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 alleged that an event of
default had 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 provided 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 included $4.4 million in accrued interest. As a result of the
Early Termination Notice, the interest rates for the Term Loan and Revolving
Credit Facility 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, 2010, our Term Loan and
Revolving Credit Facility bear interest at approximately 6.25%. As of September
30, 2010, the interest rate swap liability was $22.1 million which equals the
mark to market amount reflected as due and payable on the Notice of Amount Due
Following Early Termination described above. Additionally, accrued interest as
of September 30, 2010 includes $5.7 million in accrued interest related to the
interest rate swap comprised of $4.4 million in accrued interest as reflected on
the Notice of Amount Due Following Early Termination plus $1.3 million in
default interest pursuant to the Swap Agreement termination.
Bankruptcy
Proceedings
As
disclosed on a Form 8-K filed with the SEC on July 14, 2010 (the July 14th 8-K),
the Debtors (RHC, RBH and ROC) filed voluntary petitions in the Bankruptcy Court
for reorganization of its business on the Petition Date (July 12, 2010). The
bankruptcy filings constitute an event of default under the Credit Facility and
obligations arising under the Credit Agreement are automatically accelerated and
all other amounts due become immediately due and payable. Under bankruptcy law,
actions by creditors to collect upon liabilities of the Debtors incurred prior
to the Petition Date are stayed and certain other pre-petition contractual
obligations may not be enforced against the Debtors without approval of the
Bankruptcy Court. In accordance with ASC Topic 852, the Credit Facility and
obligations arising under the Credit Agreement are classified as liabilities
subject to compromise in our condensed consolidated balance sheet as of
September 30, 2010 and are adjusted to the expected amount of the allowed
claims, even if they may be settled for lesser amounts (see Note 5 to the
Condensed Consolidated Financial Statements in this Form 10-Q).
On the
Petition Date and prior to the commencement of the Chapter 11 Cases, the Company
entered into the Lock-Up Agreement with holders (the Consenting Lenders), in the
aggregate, of in excess of 66 2/3% in the amount of all of the outstanding
claims under the Company’s credit and fixed rate swap agreements which are
described in detail in Note 4 to the Condensed Consolidated Financial Statements
in this Form 10-Q. Pursuant to the Lock-Up Agreement, the Consenting Lenders are
contractually obligated to support the restructuring of the Company in
accordance with the Debtor’s Joint Plan of Reorganization together with the
proposed disclosure statement, which supports the Plan of Reorganization.
Moreover, the Lock-Up Agreement contractually obligates the parties to move
forward with the Plan of Reorganization for each of the Debtors. The original
Joint Plan of Reorganization, together with the Disclosure Statement, was filed
with the Bankruptcy Court on the Petition Date. The First Amended Joint Plan of
Reorganization and Disclosure Statement to Accompany Debtors’ First Amended
Joint Plan of Reorganization were filed with the Bankruptcy Court on September
7, 2010 and the Second Amended Joint Plan of Reorganization and Disclosure
Statement to Accompany Debtors’ Second Amended Joint Plan of Reorganization were
filed with the Bankruptcy Court on September 17, 2010.
On the
Petition Date, in connection with the Lock-Up Agreement, the Debtors and
Backstop Lenders executed the Backstop Agreement to provide assurance that the
Designated New Money Investment will be funded in the aggregate amount of $20
million and the Working Capital Facility will be committed in the aggregate
principal amount of $10 million. The Backstop Agreement provides that the
Backstop Lenders have committed to fund their pro rata share of the Designated
New Money Investment and pro rata share of the Working Capital Facility, and,
further, to backstop an additional percentage of the Designated New Money
Investment and Working Capital Facility as specified therein to the extent that
any Senior Secured Lender (other than a Backstop Lender) elects not to
participate according to its full pro rata share in funding the Designated New
Money Investment and Working Capital Facility. The original Backstop Agreement
was filed with the Bankruptcy Court on the Petition Date. The First Amended
Backstop Agreement was filed with the Bankruptcy Court on September 14, 2010 and
the Second Amended Backstop Agreement was filed with the Bankruptcy Court on
October 28, 2010.
Additionally,
the Backstop Agreement provides for the payment of commitment fees by Debtors,
as more fully described in the Backstop Agreement. If (i) the Budget Contingency
is satisfied, (ii) the Total New Money Investment Alternative is effectuated
under the Plan of Reorganization, (iii) the Substantial Consummation Date occurs
and (iv) the Series B Term Loan is fully funded and the entire Working Capital
Facility is made available as provided for in the Plan of Reorganization, 5.0%
of the Class B Shares (subject to dilution only under those certain conditions
specified in the Plan of Reorganization) will be fully earned, payable and
non-refundable to the Backstop Lenders. If the Budget Contingency is satisfied,
but either the Backstop Agreement is terminated pursuant to its terms or the
Substantial Consummation Date does not occur, $1,000,000 in cash will be fully
earned, payable and non-refundable upon such date to the Backstop Lenders;
provided, however, that to the extent (i) the Backstop Agreement is materially
breached by any Backstop Lender (ii) the Backstop Agreement is terminated in
connection with the Lockup Agreement having been terminated solely as a result
of a breach thereof by any Backstop Lender in its capacity as a Designated
Consenting Lender, or (iii) the Substantial Consummation Date does not occur
other than as a result of the actions and/or inactions of the Debtors that are
in breach of the Lockup Agreement, the Debtors will not be required to pay the
Backstop Lenders the $1,000,000 cash fee. If (i) either the Budget Contingency
is not satisfied or the Budget Contingency is satisfied but the Designated New
Money Election is not made, (ii) the Partial New Money Investment Alternative is
effectuated under the Plan of Reorganization, (iii) the Substantial Consummation
Date occurs and (iv) the entire Working Capital Facility is made available as
provided for in the Plan of Reorganization, $300,000 in cash will be fully
earned, non-refundable and payable to the Backstop Lenders. The Budget
Contingency was satisfied on October 21, 2010.
On
September 21, 2010, the Bankruptcy Court found that the Disclosure Statement as
modified to reflect changes, if any, made or ordered on the record contained
“adequate information” within the meaning of Section 1125 of the Bankruptcy
Code. Subsequently, ballots along with the Disclosure Statement and Plan of
Reorganization were distributed to classes of creditors entitled to vote on the
Plan of Reorganization. At the Confirmation Hearing on November 8, 2010, the
Bankruptcy Court concluded that the Plan of Reorganization, as modified at the
Confirmation Hearing, met the requirements for confirmation, including that the
requisite classes of creditors voted in favor of the Plan of Reorganization, and
confirmed the Plan of Reorganization, as modified at the Confirmation Hearing.
The entry of a formal order by the Bankruptcy Court confirming the Plan of
Reorganization is pending before the Bankruptcy Court. Before the Plan of
Reorganization can be substantially consummated, various regulatory and third
party approvals must be obtained. There is no assurance that all regulatory and
third party approvals will be obtained. If the Plan of Reorganization is not
substantially consummated: (a) the Plan of Reorganization will be deemed null
and void and the Company will then seek to reorganize pursuant to a different
plan which will need to meet the confirmation standards of the Bankruptcy Code;
(b) the Lockup Agreement will no longer be in effect; and (c) the Company may be
required to obtain interim financing, if available, and liquidate its assets
which may have a material adverse effect on the financial position, results of
operations, or cash flows of the Company.
The
material terms of the confirmed Plan of Reorganization:
(Capitalized
terms used in this subsection, but not defined herein, have the meaning assigned
to them by the Plan of Reorganization or Backstop Commitment Agreement, as
applicable.)
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all
existing Equity Interests of the Company will be cancelled, and such
Equity Interest holders will receive
nothing;
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each
holder of a First Priority Senior Secured Claim, which are Claims (i)
arising under the Senior Secured Credit Agreement (also referred to in
this Quarterly Report on Form 10-Q as the “Credit Agreement”) for
prepetition interest and fees, and (ii) with respect to the periodic
payments due under the Swap Agreement and any interest accrued thereon,
will receive in full and final satisfaction of such Claim a portion of a
new $50 million term loan (the “Series A Term Loan”) in principal amount
equal to such First Priority Senior Secured Claim to be evidenced by a
first lien credit agreement;
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·
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the
Company, as it exists on and after the Substantial Consummation Date
(“Reorganized Riviera”), will receive additional funding by way of a $20
Million term loan to be evidenced by a Series B Term Loan (the “Designated
New Money Investment”), subject to an affirmative election being made by
Reorganized Riviera within a certain time period and various other
conditions, and a $10 million working capital facility (the “Working
Capital Facility”);
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·
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on
the Substantial Consummation Date, holders of the Senior Secured Claims
will receive: (i) a portion of the Series A Term Loan in a principal
amount up to such holder’s pro rata share of the Series A Term Loan less
the portion of the Series A Term Loan received by holders of the First
Priority Senior Secured Claims; and (ii) such holder’s pro rata share of
80% of the new limited-voting common stock to be issued by Reorganized
Riviera pursuant to the Plan of Reorganization (the “Class B
Shares”);
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since
both the $10 million Working Capital Facility will be made available and
the Designated New Money Investment will be effectuated, holders of Senior
Secured Claims participating in making the Series B Term Loan and the
loans under the Working Capital Credit Facility will receive: (i) a pro
rata share of the Series B Term Loan; and (ii) 15% of the Class B Shares
to be issued by Reorganized Riviera, subject to
dilution;
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holders
of Allowed General Unsecured Claims, other than with respect to any
deficiency claims of holders of Senior Secured Claims, will receive in
full and final satisfaction of such claim, payment in full thereof, but in
no event will the total payment to holders of Allowed General Unsecured
Claims exceed $3,000,000; if such total payment would exceed $3,000,000,
the holders of Allowed General Unsecured Claims will instead receive their
pro rata share of $3,000,000 in full satisfaction of their Allowed General
Unsecured Claims;
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the
receipt by Riviera Voteco, L.L.C. (“Voteco”) of 100% of new fully-voting
common stock to be issued by Reorganized Riviera pursuant to the Plan of
Reorganization;
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the
membership interests of Voteco (the “Voteco Interests”) will be issued as
follows: (i) 80.00% of the Voteco Interests ratably to those holders of
the Senior Secured Claims or their designees, as applicable, (ii) 15.0% of
the Voteco Interests ratably to those holders of Senior Secured Claims
(including the Backstop Lenders) electing to participate in the New Money
Investment or their designees, as applicable, and (iii) 5.0% of the Voteco
Interests ratably to the Backstop Lenders in accordance with the Backstop
Commitment Agreement or their designees, as applicable; provided however,
the above distributions are subject to such persons first obtaining all
applicable licensing from Gaming Authorities;
and
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for
approval of the Backstop Agreement.
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During
the Chapter 11 process, the Company, under the direction of the its existing
management team, plans to continue to manage its properties and operate its
business as “debtors-in-possession” under the jurisdiction of the Bankruptcy
Court and in accordance with Title 11 of the United States Bankruptcy Code. The
Company anticipates that it will continue to pay employees and vendors, and
honor customer deposits and commitments without interruption or delay. However,
the Company’s management strongly believes that any recovery for equity holders
in the Chapter 11 process is highly unlikely, and under the terms of the Lock-Up
Agreement, the equity holders’ interests in the Company will be cancelled and
will receive no distributions. The accompanying condensed consolidated financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classifications of assets or the amounts and
classifications of liabilities should an asset liquidation occur. The Plan of
Reorganization, Lock-Up Agreement and Backstop Agreement are included as
Exhibits to the July 14th 8-K. The Second Amended Joint Plan of Reorganization
and Amendment No. 1 to the Backstop Agreement are filed as Exhibits to this
Quarterly Report on Form 10-Q.
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 absent a debt
restructuring under the Chapter 11 Cases.
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, 2009. For a further
discussion of our accounting policies, see Note 2, Summary of Significant
Accounting Policies, in the Notes to the Condensed Consolidated Financial
Statements in this Form 10-Q. During the nine months ended September 30, 2010,
there were no significant changes from the critical accounting policies
described in our Form 10-K for the year ended December 31, 2009 except for the
changes described below.
On July
12, 2010, the Debtors (RHC, RBH and ROC) filed voluntary petitions in the
Bankruptcy Court for reorganization of its business (see Note 1 in the Notes to
the Condensed Consolidated Financial Statements in this Form 10-Q). ASC Topic
852, Reorganizations
provides accounting guidance for financial reporting by entities in
reorganization under the bankruptcy code including companies in chapter 11, and
generally does not change the manner in which financial statement are prepared.
However, ASC Topic 852 requires that the financial statements for periods
subsequent to the filing of the Chapter 11 Cases distinguish transactions and
events that are directly associated with the reorganization from the ongoing
operations of the business. Revenues, expenses, realized gains and losses and
provisions for losses that can be directly associated with the reorganization
and restructuring of the business must be reported separately as reorganization
items in the statement of operations beginning in the quarter ending September
30, 2010. ASC Topic 852 also requires that the balance sheet must distinguish
pre-petition liabilities subject to compromise from both those pre-petition
liabilities that are not subject to compromise and from post petition
liabilities and requires that cash used for reorganization items must be
disclosed separately in the statement of cash flows. We adopted the ASC Topic
852 on July 12, 2010 and will segregate those items as outlined above for all
reporting periods subsequent to such date.
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:
·
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the
effect of the July 12, 2010 voluntary filing in the Bankruptcy Court for
reorganization of our business (see Note 1 to the Condensed Consolidated
Financial Statements in this Form
10-Q);
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the
effect of a breach in the Cash Collateral Stipulation (see Note 1 to the
Condensed Consolidated Financial Statements in this Form
10-Q);
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the
inability to obtain the third party and regulatory approvals necessary to
consummate the Plan of Reorganization (see Note 1 to the Condensed
Consolidated Financial Statements in this Form
10-Q);
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the
effect of the Credit Defaults (see Note 4 to the Condensed Consolidated
Financial Statements in this Form
10-Q);
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the
effect of the delisting from the NYSE
AMEX;
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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;
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fluctuations
in the value of our real estate, particularly in Las
Vegas;
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the
effect of significant increases in Clark County facilities inspection fees
and resulting remedial actions;
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the
availability and adequacy of our cash flow to meet our requirements,
including payment of amounts due under our debt
instruments;
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our
substantial indebtedness, debt service requirements and liquidity
constraints;
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our
ability to meet the affirmative and negative covenants set forth in our
Credit Facility;
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the
availability of additional capital to support capital improvements and
development;
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the
smoking ban in Colorado on our Riviera Black Hawk property which became
effective on January 1, 2008;
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competition
in the gaming industry, including the availability and success of
alternative gaming venues, and other entertainment attractions, and,
specifically, the approval of an initiative that would allow slot machines
in Colorado race tracks;
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retirement
or other loss of our senior
officers;
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economic,
competitive, demographic, business and other conditions in our local and
regional markets;
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the
effects of a continued or worsening global and national economic
recession;
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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;
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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;
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changes
in personnel or compensation, including federal minimum wage
requirements;
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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;
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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;
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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;
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changes
in our business strategy, capital improvements or development
plans;
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the
consequences of the wars in Iraq and Afghanistan 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;
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other
risk factors discussed elsewhere in this report;
and
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a
decline in the public acceptance of
gaming.
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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.
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Quantitative
and Qualitative Disclosure About Market
Risk
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Item
4.
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Controls
and Procedures
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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 co-chief executive officers
(“Co-CEOs”) 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, 2010, we carried out an evaluation, under the supervision and with
the participation of our management, including our Co-CEOs and CFO, of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on the foregoing, our Co-CEOs 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.
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Legal
Proceedings
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On July
12, 2010, RHC and its ROC and RBH subsidiaries filed voluntary petitions in the
United States Bankruptcy Court for the District of Nevada for reorganization of
their business and to have the Chapter 11 Cases jointly administered. See
“Bankruptcy Proceedings” in Note 1 to the Notes to the Condensed Consolidated
Financial Statements in this Form 10-Q for a full description of Bankruptcy
Proceedings and material developments in connection therewith.
On
February 23, 2010, an individual commenced an action in the District Court of
Clark County, Nevada, against the Company and one other defendant. The action
stems from the death of a guest on February 24, 2008 in a Las Vegas hospital.
The complaint (“Complaint”) alleges, among other things, that the Company
negligently hired and supervised its then employee and failed to seek necessary
medical assistance for the decedent. The plaintiff is seeking monetary damages
in connection with this matter. We will vigorously defend these allegations
against the Company and do not believe that the outcome of this action will have
a material adverse effect on the financial position, results of operations, or
cash flows of the Company.
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.
A
description of our risk factors can be found in Item 1A of our Annual Report on
Form 10-K for the year ended December 31, 2009. The information presented below
updates, and should be read in conjunction with, the risk factors and
information disclosed in our Form 10-K. Except as presented below, there have
been no material changes from the risk factors described in our Form
10-K.
Risk
Factors Specifically Related to our Current Reorganization cases under Chapter
11 of the U.S. Bankruptcy Code
On the
Petition Date (July 12, 2010), the Debtors (RHC, RBH and ROC) filed voluntary
petitions in the Bankruptcy Court for reorganization of its business and to have
the Chapter 11 Cases jointly administered, as disclosed on a Form 8-K filed with
the SEC on July 14, 2010. On the Petition Date and prior to the commencement of
the Chapter 11 Cases, the Company entered into the Lock-Up Agreement with
holders (the Consenting Lenders), in the aggregate, of in excess of 66 2/3% in
the amount of all of the outstanding claims under Debtors’ credit and fixed rate
swap agreements, which are described in detail in Note 4 to the Condensed
Consolidated Financial Statements in this Form 10-Q. Pursuant to the Lock-Up
Agreement, the Consenting Lenders are contractually obligated to support the
restructuring of the Debtors in accordance with the Plan of Reorganization.
Moreover, the Lock-Up Agreement contractually obligates the parties to move
forward with the Plan of Reorganization for each of the
Debtors.
At the
Confirmation Hearing on November 8, 2010, the Bankruptcy Court concluded that
the Plan of Reorganization, as modified at the Confirmation Hearing, met the
requirements for confirmation, including that the requisite classes of creditors
voted in favor of the Plan of Reorganization, and confirmed the Plan of
Reorganization, as modified at the Confirmation Hearing. The entry of a formal
order by the Bankruptcy Court confirming the Plan of Reorganization, as modified
at the Confirmation Hearing, is pending before the Bankruptcy Court. Before the
Plan of Reorganization can be substantially consummated, various regulatory and
third party approvals must be obtained. There is no assurance that all
regulatory and third party approvals will be obtained. If the Plan of
Reorganization is not substantially consummated: (a) the Plan of Reorganization
will be deemed null and void and the Company will then seek to reorganize
pursuant to a different plan which will need to meet the confirmation standards
of the Bankruptcy Code; (b) the Lockup Agreement will no longer be in effect;
and (c) the Company may be required to obtain interim financing, if available,
and liquidate its assets which may have a material adverse effect on the
financial position, results of operations, or cash flows of the
Company.
During
the Chapter 11 Cases, our operations are subject to the risks and uncertainties
associated with bankruptcy including, but not limited to, the
following:
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The
Chapter 11 Cases may adversely affect our business prospects and/or our
ability to operate during the
reorganization.
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·
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The
Chapter 11 Cases and expected difficulties of operating our properties
while attempting to reorganize the business in bankruptcy may make it more
difficult to maintain and promote our properties and attract customers to
our properties.
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·
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The
Chapter 11 Cases may cause our vendors and service providers to require
stricter terms and conditions.
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The
Chapter 11 Cases may adversely affect our ability to maintain our gaming
licenses in the jurisdictions in which we
operate.
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The
Chapter 11 Cases may adversely affect our ability to maintain, expand,
develop and remodel our properties.
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Transactions
by us outside the ordinary course of business are subject to the prior
approval of the Bankruptcy Court, which may limit our ability to respond
timely to certain events or take advantage of certain
opportunities.
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·
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We
may be unable to retain and motivate key executives and employees through
the process of reorganization, and we may have difficulty attracting new
employees. In addition, so long as the Chapter 11 Cases continues, our
senior management will be required to spend a significant amount of time
and effort dealing with the reorganization instead of focusing exclusively
on business operations.
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·
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There
can be no assurances as to our ability to maintain sufficient funds to
meet future obligations. We are currently sustaining ourselves with cash
flow from operations. If we are required to obtain a debtor in possession,
or DIP, financing, we have may be unable to obtain such financing and if
obtained, may not be able to operate pursuant to the terms. The challenges
of obtaining DIP financing are exacerbated by adverse conditions in the
general economy and the tightening in the credit
markets.
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·
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There
can be no assurance that we will be able to successfully consummate the
Plan of Reorganization with respect to the Chapter 11 Cases that is
acceptable to the Bankruptcy Court and the Company’s creditors and other
parties in interest. Additionally, third parties may seek and obtain
Bankruptcy Court approval to terminate the Plan of Reorganization or to
appoint a Chapter 11 Trustee, or to convert the cases to Chapter 7
cases.
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Even
assuming a successful emergence from Chapter 11, there can be no assurance as to
the overall long-term viability of our reorganized company.
The
uncertainty regarding the eventual outcome of our Chapter 11 Cases and the
effect of other unknown adverse factors could threaten our existence as a going
concern.
We
are currently operating as debtors-in-possession under Chapter 11 of the
Bankruptcy Code, and our continuation as a going concern is contingent upon,
among other things, confirming a reorganization plan, maintaining our gaming
licenses, complying with the terms of existing and future loan agreements,
returning to profitability, generating sufficient cash flows from operations,
obtaining financing sources to meet future obligations, maintaining the support
of key vendors and customers and retaining key personnel, along with financial,
business, and other factors, many of which are beyond our control. Further, it
is uncertain whether we will lose valuable contracts in the process of the
Chapter 11 Cases.
The
condensed consolidated financial statements of Riviera Holdings Corporation
contained in this Quarterly Report on Form 10-Q have been prepared assuming that
the Company will continue as a going concern. However, the report of our
independent registered public accounting firm on the financial statements of
Riviera Holdings Corporation as of and for the year ended December 31, 2009
includes an explanatory paragraph describing the existence of substantial doubt
about the ability of the Company to continue as a going concern. This report, as
well as our uncertain ability to pay our debt service obligations, may adversely
impact our ability to attract customers to our properties, attract and retain
key executive employees and maintain and promote our properties which could
materially adversely affect our results of operations.
Item
3. Defaults Upon Senior Securities
See Note
4 to the Condensed Consolidated Financial Statements in this Form
10-Q.
See list
of exhibits below.
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.
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RIVIERA
HOLDINGS CORPORATION
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By:
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Tullio
J. Marchionne
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Co-Chief
Executive Officer,
Secretary
and General Counsel
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By:
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Robert
A. Vannucci
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Co-Chief
Executive Officer
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By:
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Phillip
B. Simons
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Co-Chief
Executive Officer
Treasurer
and
Chief
Financial Officer
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Date:
November 12, 2010
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Exhibits
Exhibits:
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2.1
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Debtors’
Second Amended Joint Plan of Reorganization.
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10.1
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Amendment
No. 1 to Backstop Commitment Agreement dated as of September __,
2010
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31.1
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Certification
of Tullio J. Marchionne pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
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31.2
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Certification
of Robert A. Vannucci pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
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31.3
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Certification
of Phillip B. Simons pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
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32.1
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Certification
of Tullio J. Marchionne pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
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32.2
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Certification
of Robert A. Vannucci pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
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32.3
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Certification
of Phillip B. Simons pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
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(A)
Management contract or compensatory plan or arrangement