Unassociated Document
FORM
10-Q
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Mark
One
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ý
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
quarterly period ended March 31, 2010
OR
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¨
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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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)
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Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes ý No ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes
¨ No
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer”,
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check One)
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Large
accelerated filer ¨
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Accelerated
filer ¨
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Non-accelerated
filer ¨
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Smaller
reporting company ý
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(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 ý
As of May
14, 2010, there were 12,452,355 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 March 31, 2010 (Unaudited) and
December 31, 2009
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2
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Condensed
Consolidated Statements of Operations for the Three Months Ended March 31,
2010 and 2009 (Unaudited)
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3
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Condensed
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 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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17
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Item
3.
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Quantitative
and Qualitative Disclosure About Market Risk
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30
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Item
4.
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Controls
and Procedures
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30
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PART
II.
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OTHER
INFORMATION
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31
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Item
1.
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Legal
Proceedings
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31
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Item
3.
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Defaults
Upon Senior Securities
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31
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Item
6.
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Exhibits
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31
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Signature
Page
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31
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Exhibits
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32
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PART
I – FINANCIAL INFORMATION
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Item
1.
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Financial
Statements
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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 months ended March 31, 2010 and 2009 are not
necessarily indicative of the results for the entire year. These
condensed consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto for the year
ended December 31, 2009, included in our Annual Report on Form
10-K.
RIVIERA
HOLDINGS CORPORATION
CONDENSED
CONSOLIDATED BALANCE SHEETS
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(In
thousands, except share amounts)
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ASSETS
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March
31,
2010
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December
31,
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CURRENT
ASSETS:
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Cash
and cash equivalents
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$ |
21,785 |
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$ |
19,056 |
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Restricted
cash
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2,772 |
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2,772 |
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Accounts
receivable-net of allowances of $545 and $239,
respectively
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2,221 |
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2,063 |
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Inventories
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512 |
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571 |
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Prepaid
expenses and other assets
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3,343 |
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2,940 |
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Total
current assets
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30,633 |
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27,402 |
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PROPERTY
AND EQUIPMENT-net
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166,179 |
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168,967 |
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OTHER
ASSETS-net
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2,363 |
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2,581 |
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TOTAL
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$ |
199,175 |
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$ |
198,950 |
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LIABILITIES
AND STOCKHOLDERS' DEFICIENCY
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CURRENT
LIABILITIES:
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Current
portion of long-term debt
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$ |
227,544 |
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$ |
227,544 |
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Current
portion of fair value of interest rate swap liabilities
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22,148 |
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22,148 |
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Accounts
payable
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5,742 |
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5,413 |
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Accrued
interest
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21,637 |
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17,825 |
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Accrued
expenses
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9,525 |
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8,979 |
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Total
current liabilities
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286,596 |
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281,909 |
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CAPITAL
LEASES-net of current portion
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104 |
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114 |
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Total
liabilities
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286,700 |
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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 ($.001 par value; 60,000,000 shares authorized, 17,120,424 and
17,141,124 shares issued at March 31, 2010 and December 31, 2009,
respectively, and 12,452,355 and 12,473,055 shares outstanding at March
31, 2010 and December 31, 2009, respectively)
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17 |
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17 |
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Additional
paid-in capital
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20,479 |
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20,399 |
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Treasury
stock (4,668,069 shares at March 31, 2010 and
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December
31, 2009)
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(9,635 |
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(9,635 |
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Accumulated
deficit
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(98,386 |
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(93,854 |
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Total
stockholders' deficiency
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(87,525 |
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(83,073 |
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TOTAL
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$ |
199,175 |
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$ |
198,950 |
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The
accompanying notes are an integral part of these condensed consolidated
financial statements.
RIVIERA
HOLDINGS CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In
thousands, except per share amounts)
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Three
Months Ended
March
31,
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REVENUES:
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Casino
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$ |
18,850 |
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$ |
20,231 |
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Rooms
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8,433 |
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10,336 |
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Food
and beverage
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5,350 |
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5,564 |
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Entertainment
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876 |
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2,043 |
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Other
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1,045 |
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1,600 |
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Total
revenues
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34,554 |
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39,774 |
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Less-promotional
allowances
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(3,740 |
) |
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(5,118 |
) |
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Net
revenues
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30,814 |
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34,656 |
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COSTS
AND EXPENSES:
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Direct
costs and expenses of operating departments:
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Casino
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10,071 |
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10,635 |
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Rooms
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4,663 |
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4,888 |
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Food
and beverage
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3,627 |
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3,640 |
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Entertainment
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601 |
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933 |
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Other
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279 |
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296 |
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Other
operating expenses:
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Share-based
compensation
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81 |
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185 |
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Other
general and administrative
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8,536 |
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8,710 |
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Restructuring
fees
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119 |
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91 |
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Depreciation
and amortization
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3,466 |
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3,899 |
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Total
costs and expenses
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31,443 |
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33,277 |
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(LOSS)
INCOME FROM OPERATIONS
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(629 |
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1,379 |
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OTHER
EXPENSE:
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Change
in value of derivative instrument
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- |
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1,672 |
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Gain
on extinguishment of debt
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- |
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|
146 |
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Interest
expense-net
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(3,903 |
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(4,234 |
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Total
other expense-net
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(3,903 |
) |
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(2,416 |
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NET
LOSS
|
|
$ |
(4,532 |
) |
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$ |
(1,037 |
) |
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NET
LOSS PER SHARE DATA:
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Basic
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$ |
(0.36 |
) |
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$ |
(0.08 |
) |
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Diluted
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$ |
(0.36 |
) |
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$ |
(0.08 |
) |
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Weighted-average
common shares outstanding
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12,470 |
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|
12,492 |
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Weighted-average
common and common equivalent shares
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|
12,470 |
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|
12,492 |
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The
accompanying notes are an integral part of these condensed consolidated
financial statements.
RIVIERA
HOLDINGS CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
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(in
thousands)
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Three
Months Ended
March
31,
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OPERATING
ACTIVITIES:
|
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Net
loss
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$ |
(4,532 |
) |
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$ |
(1,037 |
) |
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Adjustments
to reconcile net loss to net cash provided
by operating activities:
|
|
|
|
|
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Depreciation
and amortization
|
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|
3,466 |
|
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|
3,899 |
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Provision
for bad debts
|
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|
307 |
|
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|
88 |
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Stock
based compensation-restricted stock
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|
67 |
|
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|
151 |
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Stock
based compensation-stock options
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|
14 |
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|
34 |
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Change
in value of derivative instrument
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|
- |
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(1,672 |
) |
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Loss
on disposal of equipment
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109 |
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- |
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Gain
on extinguishment of debt
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- |
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(146 |
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Changes
in operating assets and liabilities:
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Accounts
receivable
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(464 |
) |
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(446 |
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Inventories
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59 |
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211 |
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Prepaid
expenses and other assets
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(185 |
) |
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(306 |
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Accounts
payable
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|
133 |
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(2,207 |
) |
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Accrued
interest
|
|
|
3,812 |
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|
4,119 |
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Accrued
expenses
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|
544 |
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|
684 |
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Obligation
to officers
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- |
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(261 |
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Net
cash provided by operating activities
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|
3,330 |
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|
3,111 |
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INVESTING
ACTIVITIES:
|
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Capital
expenditures-Las Vegas
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|
|
(524 |
) |
|
|
(151 |
) |
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Capital
expenditures-Black Hawk
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|
(67 |
) |
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|
(114 |
) |
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Net
cash used in investing activities
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(591 |
) |
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|
(265 |
) |
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FINANCING
ACTIVITIES:
|
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Payments
on capitalized leases
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|
(10 |
) |
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|
(7 |
) |
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Net
cash used in financing activities
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|
(10 |
) |
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|
(7 |
) |
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INCREASE
IN CASH AND CASH EQUIVALENTS
|
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|
2,729 |
|
|
|
2,839 |
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CASH
AND CASH EQUIVALENTS-BEGINNING OF PERIOD
|
|
|
19,056 |
|
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|
13,461 |
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CASH
AND CASH EQUIVALENTS-END OF PERIOD
|
|
$ |
21,785 |
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|
$ |
16,300 |
|
|
|
|
|
|
|
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SUPPLEMENTAL
DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
|
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Property
acquired with debt and accounts payable
|
|
$ |
196 |
|
|
$ |
103 |
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|
Cash
paid for interest
|
|
$ |
36 |
|
|
$ |
142 |
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
RIVIERA
HOLDINGS CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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1.
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BASIS
OF PRESENTATION AND NATURE OF
OPERATIONS
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Riviera
Holdings Corporation (“RHC”) and its wholly-owned subsidiary, Riviera Operating
Corporation (“ROC”) (together with their wholly-owned subsidiaries, the
“Company”), were incorporated on January 27, 1993, in order to acquire all
assets and liabilities of Riviera, Inc. Casino-Hotel Division on June 30, 1993,
pursuant to a plan of reorganization. The Company operates the
Riviera Hotel & Casino (the “Riviera Las Vegas”) on the Strip in Las Vegas,
Nevada.
In
February 2000, the Company opened its casino in Black Hawk, Colorado, which is
owned through Riviera Black Hawk, Inc. (“RBH”), a wholly-owned subsidiary of
ROC.
Casino
operations are subject to extensive regulation in the states of Nevada and
Colorado by the respective Gaming Control Boards and various other state and
local regulatory agencies. Our management believes that the Company’s
procedures comply, in all material respects, with the applicable regulations for
supervising casino operations, recording casino and other revenues, and granting
credit.
Principles of
Consolidation
The
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.
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.
In
connection with our Credit Facility (defined in Note 5 below), we agreed to
several affirmative and negative covenants. The Company is currently
not in compliance with certain affirmative and negative covenants including its
obligation to make payments under the Credit Facility (see “2009 Credit
Defaults” within Note 5 below). With the aid of our financial
advisors and outside counsel, the Company is continuing to negotiate with its
various creditor constituencies to refinance or restructure its
debt. There is no assurance that the Company will be successful in
completing a refinancing or consensual out-of-court restructuring and if it is
unable to do so, the Company will likely be compelled to seek protection under
Chapter 11 of the U. S. Bankruptcy Code. The conditions and events
described above raise substantial doubt about the Company’s ability to continue
as a going concern. The accompanying consolidated financial statements do not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classifications
of liabilities that may result should the Company be unable to continue as a
going concern. 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.
|
3.
|
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 March 31, 2010 and 2009, our
potentially dilutive share based awards consisted of grants of stock
options.
For each
of the three months ended March 31, 2010 and 2009, we recorded a net loss.
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 months ended March 31,
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 bases 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.
Our
income tax returns are subject to examination by the Internal Revenue Service
(“IRS”) and other tax authorities in the locations where we
operate. Authoritative guidance for accounting for uncertainty in
income taxes prescribes a minimum recognition threshold a tax position is
required to meet before being recognized in the financial statements and
requires that we utilize a two-step approach for evaluating tax
positions. Recognition (Step I) occurs when we conclude that a tax
position, based on its technical merits, is more likely than not to be sustained
upon examination. Measurement (Step II) is only addressed if the position is
deemed to be more likely than not to be sustained. Under Step II, the tax
benefit is measured as the largest amount of benefit that is more likely than
not to be realized upon settlement. Note that authoritative guidance
for accounting for uncertainty in income taxes uses the term “more likely than
not” when the likelihood of occurrence is greater than 50%.
The tax
positions failing to qualify for initial recognition is to be recognized in the
first subsequent interim period that they meet the “more likely than not”
standard. If it is subsequently determined that a previously recognized tax
position no longer meets the “more likely than not” standard, it is required
that the tax position is derecognized. Authoritative guidance for
uncertainty in accounting for income taxes specifically prohibits the use of a
valuation allowance as a substitute for derecognition of tax positions. As
applicable, we will recognize accrued penalties and interest related to
unrecognized tax benefits in the provision for income taxes. During the three
months ended March 31, 2010 and the year ended December 31, 2009, we
recognized no amounts for interest or penalties.
Estimates and
Assumptions
The
preparation of condensed consolidated financial statements in conformity with
U.S. generally accepted accounting principles requires our management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Significant estimates used by the Company
include estimated useful lives for depreciable and amortizable assets, certain
accrued liabilities and the estimated allowances for receivables, estimated fair
value for stock-based compensation, estimated fair value of derivative
instruments and deferred tax assets. Actual results may differ from
estimates.
Restricted
Cash
This cash
is held as a certificate of deposit for the benefit of the State of Nevada
Workers Compensation Division as a requirement of our being self-insured for
Workers Compensation. The cash is held in a one-year certificate of
deposit which matures August 2010. 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 cash is no longer restricted and is included in cash and cash
equivalents effective May 11, 2010.
Interest Rate
Swaps
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 March 31, 2010,
the Company reflects a $27.4 million liability related to the interest rate swap
which includes $5.3 million in accrued interest ($5.3 million in accrued
interest includes $0.9 million in accrued default interest). The
Company determined the interest rate swap does not meet the requirements to
qualify for hedge accounting. As a result, the Company recorded a
gain of $1.7 million as a result of change in value of derivative instrument
during the three months ended March 31, 2009. No change in fair value
of our derivative instrument was recorded during the three months ended March
31, 2010 due to the early termination of the instrument.
Restructuring
Fees
During
each of the three months ended March 31, 2010 and 2009, the Company incurred
restructuring fees of $0.1 million. These professional fees are
associated with a potential restructuring of the Company’s Credit Facility (see
Note 5).
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 June
2009, the Financial Accounting Standards Board (“FASB”) issued Accounting
Standards Codification (“ASC”) Topic 810 (originally issued as Statement of
Financial Accounting Standards No. 167, “Amendments to FASB Interpretation No.
((“FIN”) 46(R)). Among other items, ASC 810 responds to concerns
about an enterprise’s application of certain key provisions of FIN 46(R)
including those regarding the transparency of the enterprise’s involvement with
variable interest entities. ASC 810 is effective for calendar year
end companies beginning on January 1, 2010. The Company adopted the
standard for the interim period ended March 31, 2010. There was no
impact on the Company’s consolidated financial statements.
In April
2010, the Financial Accounting Standards Board (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. This guidance should be applied by recording a cumulative
effect adjustment to opening retained earnings in the period of
adoption. The Company is currently determining the impact of the
guidance on its consolidated financial statements.
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.
|
4.
|
DEFERRED
FINANCING COSTS
|
Deferred
loan fees of $1.0 million were included in other assets as of March 31, 2010 and
December 31, 2009. The deferred loan fees were associated with
refinancing our debt on June 8, 2007. The Company is amortizing the
deferred loan fees over the term of the loan using a method approximating the
effective interest rate method. The Company recorded $0.1 million in
deferred financing costs amortization expense during the three months ended
March 31, 2010.
|
5.
|
LONG
TERM DEBT AND COMMITMENTS
|
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 (“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 $196.0 million as of March 31, 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
March 31, 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.
2009 Credit
Defaults
As
previously disclosed on a Form 8-K filed with the SEC on March 4, 2009, the
Company received a notice of default on February 26, 2009 (the “February
Notice”) from Wachovia with respect to the Credit Facility in connection with
the Company’s failure to provide a Deposit Account Control Agreement, or DACA,
from each of the Company’s depository banks per a request made by Wachovia to
the Company on October 14, 2008. The DACA that Wachovia requested the
Company to execute was in a form that the Company ultimately determined to
contain unreasonable terms and conditions as it would enable Wachovia to access
all of the Company’s operating cash and order it to be transferred to a bank
account specified by Wachovia. The Notice further provided that as a
result of the default, the Company would no longer have the option to request
the LIBOR Rate loans described above. Consequently, the Term Loan was
converted to an ABR Loan effective March 31, 2009.
On March
25, 2009, the Company engaged XRoads Solution Group LLC as our financial
advisor. Based on an extensive analysis of our current and projected
liquidity, and with our financial advisor’s input, we determined it was in the
best interests of the Company to not pay the Credit Facility and Swap Agreement
accrued interest. Consequently, we elected not to make these payments
during 2009 and for the three months ended March 31, 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 alleges that
subsequent to the Company’s receipt of the February Notice,
additional defaults and events of default had occurred and were continuing under
the terms of the Credit Agreement including, but not limited to: (i) the
Company’s failure to deliver to Wachovia audited financial statements without a
“going concern” modification; (ii) the Company’s failure to deliver Wachovia a
certificate of an independent certified public accountant in conjunction with
the Company’s financial statement; and (iii) the occurrence of a default or
breach under a secured hedging agreement. The April Default Notice
also states that in addition to the foregoing events of default that there were
additional potential events of default as a result of, among other things, the
Company’s failure to pay: (i) accrued interest on the Company’s LIBOR rate loan
on March 30, 2009 (the “LIBOR Payment”), (ii) the commitment fee on March 31,
2009 (the “Commitment Fee Payment”), and (iii) accrued interest on the Company’s
ABR Loans on March 31, 2009 (the “ABR Payment” and together with the LIBOR
Payment and Commitment Fee Payment, the “March 31st Payments”). The
Company has not paid the March 31st Payments and the applicable grace period to
make these payments has expired. The April Default Notice states that
as a result of these events of defaults, (a) all amounts owing under the Credit
Agreement thereafter would bear interest, payable on demand, at a rate equal to:
(i) in the case of principal, 2% above the otherwise applicable rate; and (ii)
in the case of interest, fees and other amounts, the ABR Default Rate (as
defined in the Credit Agreement), which as of April 1, 2009 was 6.25%; and (b)
neither Swingline Loans nor additional Revolving Loans are available to the
Company at this time.
As a
result of the February Notice and the April Default Notice, effective March 31,
2009, the Term Loan interest rate increased to approximately 10.5% per annum and
effective April 1, 2009, the 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 alleges that (a) an event of default exists due to the occurrence
of an event of default(s) under the Credit Agreement and (b) that the Company
failed to make payments to Wachovia with respect to one or more transactions
under the Swap Agreement. The Company has not paid the overdue amount
and the applicable grace period to make this payment has expired. As
previously announced by the Company, any default under the Swap Agreement
automatically results in an additional default interest of 1% on any overdue
amounts under the Swap Agreement. This default rate was in addition
to the interest rate that would otherwise be applicable under the Swap
Agreement.
On July
23, 2009, the Company received a Notice of Early Termination for Event of
Default (the “Early Termination Notice”) from Wachovia in connection with an
alleged event of default that occurred under the Swap
Agreement. Receipt of the Early Termination Notice was previously
disclosed on a Form 8-K filed with the SEC on July 29, 2009. The Early
Termination Notice alleges that an event of default has occurred and is
continuing pursuant to Sections 5(a)(i) and 5(a)(vi)(1) of the Swap
Agreement. Section 5(a)(i) of the Swap Agreement addresses payments
and deliveries specified under the Swap Agreement and Section 5(a)(vi)(1) of the
Swap Agreement addresses cross defaults. The Early Termination Notice provides
that Wachovia designated an early termination date of July 27, 2009 in respect
of all remaining transactions governed by the Swap Agreement, including an
interest rate swap transaction with a trade date of May 31,
2007.
On July
28, 2009, in connection with the Early Termination Notice, the Company received
a Notice of Amount Due Following Early Termination from Wachovia that claimed
the amount due and payable to Wachovia under the Swap Agreement is $26.6
million, which 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 March 31, 2010,
our Term Loan and Revolving Credit Facility bear interest at approximately
6.25%. As of March 31, 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 March 31, 2010
includes $5.3 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 $0.9 million in default interest
pursuant to the Swap Agreement termination.
With the
aid of our financial advisors and outside counsel, we are continuing to
negotiate with our various creditor constituencies to refinance or restructure
our debt. We cannot assure you that we will be successful in
completing a refinancing or consensual out-of-court restructuring, if
necessary. If we were unable to do so, we would likely be compelled
to seek protection under Chapter 11 of the U. S. Bankruptcy Code.
The
conditions and events described above raise a substantial doubt about the
Company’s ability to continue as a going concern. The accompanying consolidated
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classifications of liabilities that may result should the Company be unable
to continue as a going concern.
Special Improvement District
Bonds
In 2000,
the Company incurred debt totaling $1.2 million associated with Special
Improvement District Bonds issued by the City of Black Hawk, Colorado for road
improvements and other infrastructure projects benefiting Riviera Black Hawk and
neighboring casinos. The remaining balance of the debt was $146,000
at December 31, 2008 and this amount was forgiven by the City of Black Hawk in
February 2009. As a result, the $146,000 was recorded as a gain on
extinguishment during the three months ended March 31, 2009.
Guarantor
Information
The
Credit Facility is guaranteed by the Subsidiaries, which are all of the
restricted subsidiaries. These guaranties are full, unconditional,
and joint and several. RHC’s unrestricted subsidiaries, which have no
operations and do not significantly contribute to the financial position or
results of operations, are not guarantors of the Credit Facility.
The
Company expensed $14,000 and $34,000 for options for the three months ended
March 31, 2010 and 2009, respectively. To recognize the cost of
option grants, the Company estimates the fair value of each director or employee
option grant on the date of the grant using the Black-Scholes option pricing
model.
Additionally,
the Company expensed $67,000 and $151,000 for restricted stock during the three
months ended March 31, 2010 and 2009, respectively. Restricted stock
was issued to several key management team members and directors in 2005 and is
recognized on a straight line basis over a five year vesting period commencing
on the date of issuance. As of March 31, 2010, the restricted stock
was fully vested and recognized as expense.
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- |
|
|
Exercisable
March 31, 2010
|
|
|
165,600 |
|
|
$ |
5.38 |
|
4.57
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 in 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
March 31, 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 “2009 Credit
Defaults” within Note 5). As a result, the mark to market interest
rate swap liability was adjusted to $22.1 million which is the balance as of
March 31, 2010 and reflects the amount due and payable on the Notice of Amount
Due Following Early Termination.
|
8.
|
COMMITMENTS
AND CONTINGENCIES
|
Salary Continuation
Agreements
54 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 49 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 William Westerman, RHC’s former Chief Executive Officer, Tullio J.
Marchionne, RHC’s Secretary and General Counsel and ROC’s Secretary and
Executive Vice President and Phillip B. Simons, RHC’s Treasurer and CFO and
ROC’s Vice President of Finance which entitles each of them to 12 months of base
salary and 24 months of health insurance benefits in the event of a Company
Termination within 24 months after a change of control of RHC with no duty to
mitigate. As of March 31, 2010, the estimated total amount payable
under all such agreements was approximately $4.1 million, which includes
$518,000 in benefits. As previously disclosed on a Form 8-K filed
with the SEC on April 19, 2010, the Company announced with great regret that
William L. Westerman, RHC’s Chief Executive Officer, passed away April 18,
2010. The estimated total amount payable under all such agreements
excluding Mr. Westerman is $3.1 million including benefits. In
accordance with ASC 715, Compensation-Retirement Benefits, the Company has not
recorded a liability for the salary continuation agreements as no triggering
events have occurred.
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 March 31, 2010, the Company had not recorded a receivable related to this
matter.
Legal Proceedings and
Related Events
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.
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 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
March
31,
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
Net
Revenues:
|
|
|
|
|
|
|
|
Riviera
Las Vegas
|
|
$ |
20,508 |
|
|
$ |
24,462 |
|
|
Riviera
Black Hawk
|
|
|
10,306 |
|
|
|
10,194 |
|
|
Total
Net Revenues
|
|
$ |
30,814 |
|
|
$ |
34,656 |
|
|
|
|
|
|
|
|
|
|
|
|
Property
EBITDA (1):
|
|
|
|
|
|
|
|
|
|
Riviera
Las Vegas
|
|
$ |
1,426 |
|
|
$ |
3,318 |
|
|
Riviera
Black Hawk
|
|
|
2,461 |
|
|
|
3,236 |
|
|
|
|
|
|
|
|
|
|
|
|
Other
Costs and Expenses
|
|
|
|
|
|
|
|
|
|
Equity-based
compensation
|
|
|
81 |
|
|
|
185 |
|
|
Other
corporate expenses
|
|
|
850 |
|
|
|
1,000 |
|
|
Depreciation
and amortization
|
|
|
3,466 |
|
|
|
3,899 |
|
|
Gain
on extinguishment of debt
|
|
|
- |
|
|
|
(146 |
) |
|
Restructuring
fees
|
|
|
119 |
|
|
|
91 |
|
|
Interest
Expense-net
|
|
|
3,903 |
|
|
|
4,234 |
|
|
Change
in fair value of derivatives
|
|
|
- |
|
|
|
(1,672 |
) |
|
Total
Other Costs and Expenses
|
|
|
8,419 |
|
|
|
7,591 |
|
|
Net
Loss
|
|
$ |
(4,532 |
) |
|
$ |
(1,037 |
) |
|
Total
Assets
|
|
|
|
|
|
|
|
Las
Vegas
|
|
$ |
134,826 |
|
|
$ |
133,403 |
|
|
Black
Hawk
|
|
|
64,349 |
|
|
|
65,547 |
|
|
Total
Consolidated Assets
|
|
$ |
199,175 |
|
|
$ |
198,950 |
|
|
|
|
|
|
|
|
|
|
|
|
Property and
Equipment-net
|
|
|
|
|
|
|
|
|
|
Las
Vegas
|
|
$ |
107,349 |
|
|
$ |
109,124 |
|
|
Black
Hawk
|
|
|
58,830 |
|
|
|
59,843 |
|
|
Total
Property and Equipment-net
|
|
$ |
166,179 |
|
|
$ |
168,967 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended
|
|
|
Three
months ended
|
|
|
|
|
|
|
|
|
|
|
Capital
Expenditures
|
|
|
|
|
|
|
|
|
|
Las
Vegas
|
|
$ |
715 |
|
|
$ |
249 |
|
|
Black
Hawk
|
|
|
72 |
|
|
|
119 |
|
|
Total
Capital Expenditures
|
|
$ |
787 |
|
|
$ |
368 |
|
|
(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 950
slot machines and 32 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 12
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.
On April
19, 2010, the Company announced with great regret that William L. Westerman, the
Company’s Chief Executive Officer (“CEO”), President and Chairman of its Board,
passed away on Sunday, April 18, 2010. Mr. Westerman also served as
Chairman of the Board of Directors and CEO of ROC and as Chairman of the Board
of Directors, CEO and President of RBH. On April 19, 2010, the Board
announced the creation of the Office of the CEO on an interim basis, which will
perform the functions of the RHC’s CEO and will be jointly held by Tullio J.
Marchionne, the RHC’s Secretary and General Counsel and ROC’s Secretary and
Executive Vice President; Robert A. Vannucci, the President and Chief Operating
Officer of ROC; and Phillip Simons, RHC’s Treasurer and Chief Financial Officer
(“CFO”) and ROC’s Treasurer, CFO and Vice President of
Finance. Messrs. Marchionne, Vannucci and Simons each continue in
their current positions with the Company. Additionally, Vincent L.
DiVito was elected Chairman of the Board effective April 19,
2010. Mr. DiVito is a current Board member and is also Chairman of
our Audit Committee. We have determined that Mr. DiVito is
independent based on NYSE Amex standards that previously applied to
us.
Results
of Operations
Three
Months Ended March 31, 2010 Compared to Three Months Ended March 31,
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.
|
|
|
First
Quarter
|
|
|
|
|
|
|
|
|
(In
Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Riviera
Las Vegas
|
|
$ |
20,508 |
|
|
$ |
24,462 |
|
|
$ |
(3,954 |
) |
|
|
(16.2 |
%) |
|
Riviera
Black Hawk
|
|
|
10,306 |
|
|
|
10,194 |
|
|
|
112 |
|
|
|
1.1 |
% |
|
Total
Net Revenues
|
|
$ |
30,814 |
|
|
$ |
34,656 |
|
|
$ |
(3,842 |
) |
|
|
(11.1 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property Income from
Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Riviera
Las Vegas
|
|
|
(856 |
) |
|
|
743 |
|
|
|
(1,599 |
) |
|
|
(215.2 |
%) |
|
Riviera
Black Hawk
|
|
|
1,277 |
|
|
|
1,912 |
|
|
|
(635 |
) |
|
|
(33.2 |
%) |
|
Total
Property Income from Operations
|
|
|
421 |
|
|
|
2,655 |
|
|
|
(2,234 |
) |
|
|
(84.1 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Corporate
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
Compensation
|
|
|
(81 |
) |
|
|
(185 |
) |
|
|
104 |
|
|
|
56.2 |
% |
|
Other
Corporate Expense
|
|
|
(850 |
) |
|
|
(1,000 |
) |
|
|
150 |
|
|
|
15.0 |
% |
|
Restructuring
Fees
|
|
|
(119 |
) |
|
|
(91 |
) |
|
|
(28 |
) |
|
|
(30.8 |
%) |
|
Total
Corporate Expenses
|
|
|
(1,050 |
) |
|
|
(1,276 |
) |
|
|
226 |
|
|
|
17.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
(Loss) Income from Operations
|
|
$ |
(629 |
) |
|
$ |
1,379 |
|
|
$ |
(2,008 |
) |
|
|
(145.6 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Margins (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Riviera
Las Vegas
|
|
|
(4.2 |
%) |
|
|
3.0 |
% |
|
|
|
|
|
|
(7.2 |
%) |
|
Riviera
Black Hawk
|
|
|
12.4 |
% |
|
|
18.8 |
% |
|
|
|
|
|
|
(6.4 |
%) |
|
(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 March 31, 2010 were $20.5 million, a
decrease of $4.0 million, or 16.2%, from $24.5 million for the comparable period
in the prior year.
Casino
revenues for the three months ended March 31, 2010 were $8.7 million, a decrease
of $1.6 million, or 15.0%, from $10.3 million for the comparable period in the
prior year. Casino revenues are comprised primarily of slot machine
and table game revenues. In comparison to the same period in the
prior year, slot machine revenue was $7.0 million, a decrease of $1.1 million,
or 13.7%, from $8.1 million and table game revenue was $1.5 million, a decrease
of $0.4 million, or 23.1% from $1.9 million. Slot machine and table
game revenues decreased primarily due to less wagering as a result of the slower
economy and reduced retention, or hold, of amounts wagered. Slot
machine win per unit per day for the three months ended March 31, 2010 was
$80.74, a decrease of $19.20, or 19.2%, from $99.94 for the comparable period in
the prior year. There were 963 slot machines on the floor, on
average, during the quarter ended March 31, 2010 compared with 901 slot machines
on the floor, on average, during the same period in the prior
year. The table games hold percentage declined to 17.1% compared to
18.6% for the same period in the prior year and the slot machines hold
percentage declined to 8.0% compared to 8.1% for the same period in the prior
year. The decreased table games and slot machine hold resulted in a
$0.2 million reduction in casino revenues.
Room
revenues for the three months ended March 31, 2010 were $8.4 million, a decrease
of $1.9 million, or 18.4%, from $10.3 million for the comparable period in the
prior year. The decrease in room revenues was primarily due to a
$13.61, or 19.6%, reduction in average daily room rates, or ADR, to $55.69 for
the three months ended March 31, 2010 from $69.30 for the comparable period in
the prior year. The $13.61 decrease in ADR resulted in a $1.9 million
decline in room revenues. The decrease in ADR was largely the result
of a $6.40, or 14.1%, decrease in leisure segment room rates and a $37.75, or
30.4%, decrease in convention segment room rates. For the three
months ended March 31, 2010, leisure segment ADR was $38.87 and convention
segment ADR was $86.49. Leisure segment occupancy grew to 70.1% of
total occupied rooms during the three months ended March 31, 2010 from 61.6% of
total occupied rooms during the same period in the prior
year. Convention segment occupancy decreased to 17.6% of total
occupied rooms during the three months ended March 31, 2010 from 19.4% of total
occupied rooms during the same period in the prior year. Leisure and
convention segment demand continues to soften primarily due to increased
competition as a result of additional hotel room and convention space supply and
the weak economy.
Hotel
room occupancy percentage (per available room) for the three months ended March
31, 2010, was 82.2% compared to 76.8% for the same period in the prior
year. 3.8% of total hotel rooms were unavailable during the three
months ended March 31, 2010 in comparison to 1.1% during the same period in the
prior year. Revenue per available room, or RevPar, was $45.77 for the
three months ended March 31, 2010, a decrease of $7.46, or 14.0%, from $53.23
for the comparable period in the prior year. The decrease in RevPar
was due to the $13.61 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 $1.3 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 March 31, 2010 were $3.9 million, a
decrease of $0.4 million, or 8.5%, from $4.3 million for the comparable period
in the prior year. The decrease was due to $0.2 million decrease in
food revenues and $0.2 million decrease in beverage revenues. The
decrease in food revenues was due primarily to a 29.4% reduction in food
covers. Food covers decreased primarily as a result of
strategic closures of food and beverage outlets due to reduced
demand. The average check increased $3.36, or 29.3% to $14.81
primarily due to a proportionately higher number of high average check banquet
covers in comparison to the same period in the prior year. Beverage
revenues decreased as a result of an 11.3% reduction in drinks served, which was
primarily due to fewer complimentary drinks served from our casino bars
correlating with reduced casino patronage. Food and beverage revenues
include $0.9 million in revenues related to food and beverages offered to
high-value guests on a complimentary basis. 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 March 31, 2010 were $0.9 million, a decrease
of $1.1 million, or 57.1%, from $2.0 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 $0.3 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 three months ended March 31, 2010 were $1.1 million, a decrease
of $0.4 million, or 29.5%, from $1.5 million for the same period in the prior
year. The decrease in other revenues was due primarily to lower
tenant rental income as a result of vacancies and rent concessions.
Promotional
allowances were $2.5 million and $4.0 million for the three months ended March
31, 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 March 31, 2010 were $21.4 million, a
decrease of $2.3 million, or 9.9%, from $23.7 million for the comparable period
in the prior year.
Casino
costs and expenses for the three months ended March 31, 2010 were $4.9 million,
a decrease of $1.1 million, or 19.2%, from $6.0 million for the comparable
period in the prior year. The decrease in casino expenses was
primarily due to a $0.8 million reduction in gaming marketing and promotional
expenses and a $0.3 million reduction in slot and table game payroll and related
costs.
Room
rental costs and expenses for the three months ended March 31, 2010 were $4.7
million, a decrease of $0.2 million, or 4.6%, from $4.9 million for the
comparable period in the prior year. The decrease in room rental
costs and expenses was mostly due to a $0.5 million decrease in payroll and
related costs partially offset by a $0.2 million increase in room operating
costs mostly due to a $0.2 million increase in the provision for doubtful
accounts. Total occupied rooms increased by 3.5% in comparison to the
same period in the prior year.
Food and
Beverage costs and expenses for the three months ended March 31, 2010 were $3.3
million, a decrease of $0.1 million, or 1.2%, from $3.4 million for the
comparable period in the prior year. The decrease was primarily due
to a $0.2 million reduction in food and beverage payroll and related
costs.
Entertainment
department costs and expenses for the three months ended March 31, 2010 were
$0.6 million, a decrease of $0.3 million, or 35.6%, from $0.9 million for the
comparable period in the prior year. The decrease in entertainment
department costs and expenses is primarily 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.
General
and administrative expenses for the three months ended March 31, 2010 were $5.3
million, a decrease of $0.3 million, or 5.1%, from $5.6 million for the
comparable period in the prior year. The decrease in other general
and administrative expenses was due primarily to a $0.3 million reduction in
general and administrative and property maintenance payroll and related costs
due to continued workforce reductions to offset revenue declines.
Depreciation
and amortization expenses for the three months ended March 31, 2010 were $2.5
million, a decrease of $0.4 million, or 13.3%, from $2.9 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 first quarter of 2009.
Income (Loss) from
Operations
Loss from
operations for the three months ended March 31, 2010 was $0.9 million compared
to income from operations of $0.7 million for the comparable period in the prior
year. The decline of $1.6 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 March 31, 2010 was a negative 4.2% due to the
loss from operations. Operating margin for the three months ended
March 31, 2009 was 3.0%. Operating margins decreased primarily due to
the $13.61, or 19.6%, reduction in average daily room rates and the $1.6 million
decrease in casino revenues.
Riviera
Black Hawk
Revenues
Net
revenues for the three months ended March 31, 2010 were $10.3 million, an
increase of $0.1 million, or 1.1%, from $10.2 million for the comparable period
in the prior year. The increase was due primarily to a $0.1 million
increase in casino revenues to $10.1 million for the three months ended March
31, 2010 from $10.0 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 $0.1 million, or 1.6%, to $9.7 million from $9.8
million for the comparable period in the prior year. Slot machine
revenues decreased primarily due to additional cash incentives given to our slot
machine players. Cash incentives given to slot machine players, which
are deducted from slot machine winnings to arrive at slot machine revenues,
increased $0.2 million, or 10.4%, to $2.6 million for the three months ended
March 31, 2010 compared to $2.4 million for the same period in the prior
year. Cash incentives increased as a result of a concerted effort to
retain our market share. Our share of the total Black Hawk market
slot machine amounts wagered, or coin-in, was 10.52% which was in line with the
previous quarter. Total Black Hawk market first quarter slot machine
coin-in increased $69.6 million in comparison to the same period in the prior
year. Riviera Black Hawk captured $5.2 million of the Black Hawk
market year over year coin-in increase. Slot machine win per unit per
day increased $4.47, or 3.2%, to $142.31 from $137.84 for the same period in the
prior year. The increase in slot win per unit per day was due
primarily to additional amounts wagered and approximately 40 less slot machines
during the first quarter of 2010 in comparison to the same period in the prior
year. There were 754 slot machines on the casino floor as of March
31, 2010.
Table
games revenues increased $0.3 million to $0.5 million for the three months ended
March 31, 2010 from $0.2 million for the same period in the prior year primarily
as a result of increased wagering due to the July 2, 2009 implementation of
increased betting limits, extended hours and roulette gaming as permitted with
the passage of Colorado Amendment 50.
Food and
beverage revenues were $1.4 million and $1.3 million for the three months ended
March 31, 2010 and 2009, respectively. Food and beverage revenues for
the three months ended March 31, 2010 included $1.2 million in revenues related
to food and beverages offered to high-value guests on a complimentary
basis. Food and beverage revenues increased primarily as a result of
additional complimentary offerings to high-value guests in an effort to increase
visitations and casino revenues.
Promotional
allowances were $1.2 million and $1.0 million for the three months ended March
31, 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 increased due to additional
food and beverage items provided to high-value guests on a complimentary basis
as described above.
Costs and
Expenses
Costs and
expenses for the three months ended March 31, 2010 were $9.0 million, an
increase of $0.7 million, or 9%, from $8.3 million for the comparable period in
the prior year.
Costs and
expenses increased primarily due to a $0.6 million increase in casino costs and
expenses. Casino costs and expenses increased due to a $0.2 million
increase in payroll and related costs, a $0.2 million increase in marketing,
advertising and promotional expenses, a $0.1 million increase in casino other
operating costs and expenses and a $0.1 million increase in gaming
taxes. These increases were due to increased competition and
additional operating demands associated with the implementation of increased
betting limits, extended hours and roulette gaming pursuant to the passage of
Colorado Amendment 50 as described above.
Income from
Operations
Income
from operations for the three months ended March 31, 2010 was $1.3 million, a
decline of $0.6 million, or 33.2%, from $1.9 million for the same period in the
prior year. The decline was due to higher costs and expenses as
described above.
Operating
margins were 12.4% for the three months ended March 31, 2010 in comparison to
18.8% for the comparable period in the prior year. Operating margins
decreased due to increased costs and expenses as described
above. Decreased margins were also attributable to a reduction in
slot revenues and an increase in table games revenues. Slot revenues
yield higher operating income due to lower operating costs and expenses while
table games revenues yield lower operating income due to higher operating costs
and expenses.
Consolidated
Operations
(Loss) Income from
Operations
Loss from
operations for the three months ended March 31, 2010 was $0.6 million, a decline
of $2.0 million, or 145.6%, from income from operations of $1.4 million for the
same period in the prior year. The decline was due to a $3.9 million
decrease in consolidated net revenues partially offset by a $1.9 million
decrease in consolidated costs and expenses. Consolidated net
revenues decreased as a result of a $4.0 million net revenue decrease in Riviera
Las Vegas partially offset by a $0.1 million net revenues increase in Riviera
Black Hawk. The decrease in consolidated costs and expenses was due
to costs and expenses reductions of $2.3 million in Riviera Las Vegas and $0.2
million in Corporate partially offset by costs and expenses increases of $0.7
million in Riviera Black Hawk.
Other
Expense
Other
expense was $3.9 million and $2.4 million for the three months ended March 31,
2010 and 2009, respectively. The $1.5 million increase in other
expense was due primarily to a $1.7 million gain in value of derivative recorded
during the three months ended March 31, 2009 partially offset by an interest
expense decrease of $0.3 million. The interest expense decline was
the result of lower interest rates 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 March 31, 2010.
Net Loss
Net
losses for the three months ended March 31, 2010 and 2009 were $4.5 million and
$1.0 million, respectively. The $3.5 million increase in net loss was
due to the $2.0 decline in (loss) income from operations plus the $1.5 million
increase in other expense.
Liquidity
and Capital Resources
Our
independent registered public accounting firm included an explanatory paragraph
that expresses doubt as to our ability to continue as a going concern in their
audit report contained in our Form 10-K report for the year ended December 31,
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 or negotiate waivers on our existing
indebtedness and to generate sufficient revenue to cover our operating
expenses. 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 $21.8 million and $19.1 million as of March 31,
2010 and December 31, 2009, respectively. Our cash and cash
equivalents increased $2.7 million during the three months ended March 31, 2010
primarily due to $3.3 million in net cash provided by operating activities
partially offset by $0.6 million in net cash used in investing activities due to
maintenance capital expenditures at both Riviera Las Vegas and Black Hawk.
Cash and cash equivalents would have decreased by approximately $1.1 million had
we paid accrued interest related to our Credit Facility (see Note 5 above) of
$3.8 million for the three months ended March 31, 2010. The $3.3
million in net cash provided by operating activities was due primarily to $4.5
million in net loss plus $3.5 million in non-cash depreciation and amortization,
$3.8 million in interest expense recorded but not paid, $0.3 million in
provision for bad debts and $0.1 million in loss from disposal of
equipment.
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 included in restricted cash on our balance sheet as of
March 31, 2010. As a result, the $2.5 million is no longer restricted
and is included in our cash and cash equivalents effective May 11,
2010.
Cash
and cash equivalents increased $2.8 million during the three months ended March
31, 2009 due to $3.1 million in net cash provided by operating activities
partially offset by $0.3 million in net cash used in investing activities due to
maintenance capital expenditures at both Riviera Las Vegas and Black Hawk.
Cash and cash equivalents would have decreased by approximately $1.3 million had
we paid accrued interest related to our Credit Facility (see Note 5 above) of
$4.1 million for the three months ended March 31, 2009. The $3.1
million in net cash provided by operating activities was due primarily to $1.0
million in net loss plus $3.9 million in non-cash depreciation and amortization
and $4.1 million in interest expense recorded but not paid partially offset by a
$2.3 million decline due to changes in operating assets and liabilities
(excluding changes in accrued interest liability) and a $1.7 million decline as
a result of change in value of derivative instrument. The $2.3
million decline as a result of changes in operating assets and liabilities
(excluding changes in accrued interest liability) was due mostly to a $2.2
million reduction in our accounts payable balance primarily mostly due to final
payments related to our hotel room upgrade project in 2008.
The Credit
Facility
On June
8, 2007, the Company 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 (the 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 $196.0 million as of March 31, 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
March 31, 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 non-financial 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.
2009 Credit
Defaults
As
previously disclosed on a Form 8-K filed with the SEC on March 4, 2009, the
Company received a notice of default on February 26, 2009 (the “February
Notice”) from Wachovia with respect to the Credit Facility in connection with
the Company’s failure to provide a Deposit Account Control Agreement, or DACA,
from each of the Company’s depository banks per a request made by Wachovia to
the Company on October 14, 2008. The DACA that Wachovia requested the
Company to execute was in a form that the Company ultimately determined to
contain unreasonable terms and conditions as it would enable Wachovia to access
all of the Company’s operating cash and order it to be transferred to a bank
account specified by Wachovia. The Notice further provided that as a
result of the default, the Company would no longer have the option to request
the LIBOR Rate loans described above. Consequently, the Term Loan was
converted to an ABR Loan effective March 31, 2009.
On March
25, 2009, the Company engaged XRoads Solution Group LLC as our financial
advisor. Based on an extensive analysis of our current and projected
liquidity, and with our financial advisor’s input, we determined it was in the
best interests of the Company to not pay the Credit Facility and Swap Agreement
accrued interest. Consequently, we elected not to make these payments
during 2009 and for the three months ended March 31, 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 is an event of default under
our Credit Facility. As a result of these events of default, the
Company’s lenders have the right to seek to charge additional default interest
on the Company’s outstanding principal and interest under the Credit Agreement,
and automatically charge additional default interest on any overdue amounts
under the Swap Agreement. These default rates are in addition to the
interest rates that would otherwise be applicable under the Credit Agreement and
Swap Agreement.
As
previously disclosed on a Form 8-K filed with the SEC on April 6, 2009, the
Company received an additional notice of default on April 1, 2009 (the “April
Default Notice”) from Wachovia. The April Default Notice alleges that
subsequent to the Company’s receipt of the February Notice,
additional defaults and events of default had occurred and were continuing under
the terms of the Credit Agreement including, but not limited to: (i) the
Company’s failure to deliver to Wachovia audited financial statements without a
“going concern” modification; (ii) the Company’s failure to deliver Wachovia a
certificate of an independent certified public accountant in conjunction with
the Company’s financial statement; and (iii) the occurrence of a default or
breach under a secured hedging agreement. The April Default Notice
also states that in addition to the foregoing events of default that there were
additional potential events of default as a result of, among other things, the
Company’s failure to pay: (i) accrued interest on the Company’s LIBOR rate loan
on March 30, 2009 (the “LIBOR Payment”), (ii) the commitment fee on March 31,
2009 (the “Commitment Fee Payment”), and (iii) accrued interest on the Company’s
ABR Loans on March 31, 2009 (the “ABR Payment” and together with the LIBOR
Payment and Commitment Fee Payment, the “March 31st Payments”). The
Company has not paid the March 31st Payments and the applicable grace period to
make these payments has expired. The April Default Notice states that
as a result of these events of defaults, (a) all amounts owing under the Credit
Agreement thereafter would bear interest, payable on demand, at a rate equal to:
(i) in the case of principal, 2% above the otherwise applicable rate; and (ii)
in the case of interest, fees and other amounts, the ABR Default Rate (as
defined in the Credit Agreement), which as of April 1, 2009 was 6.25%; and (b)
neither Swingline Loans nor additional Revolving Loans are available to the
Company at this time.
As a
result of the February Notice and the April Default Notice, effective March 31,
2009, the Term Loan interest rate increased to approximately 10.5% per annum and
effective April 1, 2009, the 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 alleges that (a) an event of default exists due to the occurrence
of an event of default(s) under the Credit Agreement and (b) that the Company
failed to make payments to Wachovia with respect to one or more transactions
under the Swap Agreement. The Company has not paid the overdue amount
and the applicable grace period to make this payment has expired. As
previously announced by the Company, any default under the Swap Agreement
automatically results in an additional default interest of 1% on any overdue
amounts under the Swap Agreement. This default rate was in addition
to the interest rate that would otherwise be applicable under the Swap
Agreement.
On July
23, 2009, the Company received a Notice of Early Termination for Event of
Default (the “Early Termination Notice”) from Wachovia in connection with an
alleged event of default that occurred under the Swap
Agreement. Receipt of the Early Termination Notice was previously
disclosed on a Form 8-K filed with the SEC on July 29, 2009. The Early
Termination Notice alleges that an event of default has occurred and is
continuing pursuant to Sections 5(a)(i) and 5(a)(vi)(1) of the Swap
Agreement. Section 5(a)(i) of the Swap Agreement addresses payments
and deliveries specified under the Swap Agreement and Section 5(a)(vi)(1) of the
Swap Agreement addresses cross defaults. The Early Termination Notice provides
that Wachovia designated an early termination date of July 27, 2009 in respect
of all remaining transactions governed by the Swap Agreement, including an
interest rate swap transaction with a trade date of May 31,
2007.
On July
28, 2009, in connection with the Early Termination Notice, the Company received
a Notice of Amount Due Following Early Termination from Wachovia that claimed
the amount due and payable to Wachovia under the Swap Agreement is $26.6
million, which 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 March 31, 2010,
our Term Loan and Revolving Credit Facility bear interest at approximately
6.25%. As of March 31, 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 March 31, 2010
includes $5.3 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 $0.9 million in default interest
pursuant to the Swap Agreement termination.
With the
aid of our financial advisors and outside counsel, we are continuing to
negotiate with our various creditor constituencies to refinance or restructure
our debt. We cannot assure you that we will be successful in
completing a refinancing or consensual out-of-court restructuring, if
necessary. If we were unable to do so, we would likely be compelled
to seek protection under Chapter 11 of the U. S. Bankruptcy Code.
The
conditions and events described above raise a substantial doubt about the
Company’s ability to continue as a going concern. The accompanying consolidated
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classifications of liabilities that may result should the Company be unable
to continue as a going concern.
Current Economic and
Operating Environment
We
believe that due to a number of factors affecting consumers, including but not
limited to a slowdown in global economies, contracting credit markets and
reduced consumer spending, the outlook for the gaming and hospitality industries
remains highly uncertain. Based on these adverse circumstances, we
believe that the Company will continue to experience lower than expected hotel
occupancy rates and casino volumes.
As a
result of the economic factors and the defaults on the Credit Facility, there is
substantial doubt about our ability to continue as a going concern.
Off-Balance Sheet
Arrangements
It is not
our usual business practice to enter into off-balance sheet arrangements such as
guarantees on loans and financial commitments, indemnification arrangements and
retained interests in assets transferred to an unconsolidated entity for
securitization purposes. Consequently, we have no off-balance sheet
arrangements.
Critical Accounting
Policies
A
description of our critical accounting policies and estimates can be found in
Item 7 of our Form 10-K for the year ended December 31, 2009. For a
further discussion of our accounting policies, see Note 3, Summary of
Significant Accounting Policies, in the Notes to the Condensed Consolidated
Financial Statements in this Form 10-Q. There were no newly
identified significant changes during the three months ended March 31, 2010, nor
were there any material changes to the critical accounting policies and
estimates discussed in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2009.
Forward-Looking
Statements
Throughout
this report we make “forward-looking statements,” as that term is defined in
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Exchange Act of 1934, as amended (the “Exchange Act”). Forward
looking statements include the words “may,” “would,” “could,” “likely,”
“estimate,” “intend,” “plan,” “continue,” “believe,” “expect,” “project” or
“anticipate” and similar words and our discussions about our ongoing or future
plans, objectives or expectations and our liquidity projections. We
do not guarantee that any of the transactions or events described in this report
will happen as described or that any positive trends referred to in this report
will continue. These forward looking statements generally relate to
our plans, objectives and expectations for future operations and results and are
based upon what we consider to be reasonable estimates. Although we
believe that our forward looking statements are reasonable at the present time,
we may not achieve or we may modify our plans, objectives and
expectations. You should read this report thoroughly and with the
understanding that actual future results may be materially different from what
we expect. We do not plan to update forward looking statements even
though our situation or plans may change in the future, unless applicable law
requires us to do so. Specific factors that might cause our actual
results to differ from our plans, objectives or expectations, might cause us to
modify our plans or objectives, or might affect our ability to meet our
expectations include, but are not limited to:
|
·
|
the
effect of the 2009 Credit Defaults (see Note 5
above);
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|
·
|
the
possibility that the Company may have to seek protection under Chapter 11
of the U. S. Bankruptcy Code;
|
|
·
|
the
effect of our independent auditors expressing doubt about our ability to
continue as a going concern;
|
|
·
|
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;
|
|
·
|
fluctuations
in the value of our real estate, particularly in Las
Vegas;
|
|
·
|
the
effect of significant increases in Clark County facilities inspection fees
and resulting remedial actions;
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|
·
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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;
|
|
·
|
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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|
·
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the
availability of additional capital to support capital improvements and
development;
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|
·
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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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|
·
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competition
in the gaming industry, including the availability and success of
alternative gaming venues, and other entertainment attractions, and the
approval of an initiative that would allow slot machines in Colorado race
tracks;
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|
·
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retirement
or other loss of our senior
officers;
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|
·
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economic,
competitive, demographic, business and other conditions in our local and
regional markets;
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|
·
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the
effects of a continued or worsening global and national economic
recession;
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|
·
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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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|
·
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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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|
·
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changes
in personnel or compensation, including federal minimum wage
requirements;
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·
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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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|
·
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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;
|
|
·
|
changes
in our business strategy, capital improvements or development
plans;
|
|
·
|
the
consequences of the war in Iraq and other military conflicts in the Middle
East, concerns about homeland security and any future security alerts or
terrorist attacks such as the attacks that occurred on September 11,
2001;
|
|
·
|
other
risk factors discussed elsewhere in this report;
and
|
|
·
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a
decline in the public acceptance of
gaming.
|
All
future written and oral forward-looking statements attributable to us or any
person acting on our behalf are expressly qualified in their entirety by the
cautionary statements contained or referred to in this section. In light of
these and other risks, uncertainties and assumptions, the forward-looking events
discussed in this report might not occur.
|
Item
3.
|
Quantitative
and Qualitative Disclosure About Market
Risk
|
|
Item
4.
|
Controls
and Procedures
|
We
maintain disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) that are designed to ensure that information required
to be disclosed in our Exchange Act reports is recorded, processed, summarized
and reported within the time periods specified in the rules and forms of the
Securities and Exchange Commission, and that such information is accumulated and
communicated to our management, including our chief executive officer (“CEO”)
and chief financial officer (“CFO”), as appropriate, to allow timely decisions
regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, our management recognized that any controls
and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and our
management necessarily was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.
As of
March 31, 2010, we carried out an evaluation, under the supervision and with the
participation of our management, including our CEO and CFO, of the effectiveness
of the design and operation of our disclosure controls and
procedures. Based on the foregoing, our CEO and CFO concluded that
our disclosure controls and procedures were effective.
During
our last fiscal quarter there were no changes in our internal control over
financial reporting, (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)),
that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
PART
II – OTHER INFORMATION
|
Item
1.
|
Legal
Proceedings
|
We are
party to routine lawsuits, either as plaintiff or as defendant, arising from the
normal operations of a hotel and casino. We do not believe that the
outcome of such litigation, in the aggregate, will have a material adverse
effect on the Company’s financial position or results of
operations.
|
Item 3.
|
Defaults
Upon Senior Securities
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|
|
See
Note 5 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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|
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|
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Tullio
J. Marchionne
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|
|
Co-Chief
Executive Officer,
Secretary
and General Counsel
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|
|
|
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By:
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|
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|
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Robert
A. Vannucci
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|
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Co-Chief
Executive Officer
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|
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|
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By:
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|
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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:
May 17, 2010
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Exhibits
|
Exhibits:
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10.1
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Successor
Agent Agreement, dated April 8, 2010 between Riviera Holdings Corporation
and Cantor Fitzgerald Securities.
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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