FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2007
------------------------------------------------
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
--------------------- -------------
Commission file number 000-21430
------------
Riviera Holdings Corporation
-----------------------------
(Exact name of registrant as specified in its charter)
Nevada 88-0296885
-------------------------------------------------------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
2901 Las Vegas Boulevard South, Las Vegas, Nevada 89109
-------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code (702) 794-9527
---------------------------------------------------------------------
--------------------------------------------
(former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. (Check One)
Large accelerated filer ___ Accelerated filer _X_ Non-accelerated filer ___
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). YES ___ NO _X__
-
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documentation and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
---- -----
APPLICABLE ONLY TO CORPORATE ISSURERS
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
As of November 2, 2007, there were 12,463,755 shares of Common Stock, $.001 par
value per share, outstanding.
RIVIERA HOLDINGS CORPORATION
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited) at September 30,
2007 and December 31, 2006 3
Condensed Consolidated Statements of Operations (Unaudited) for the
Three and Nine Months Ended September 30, 2007 and 2006 4
Condensed Consolidated Statements of Cash Flows (Unaudited) for the
Nine Months Ended September 30, 2007 and 2006 5
Notes to Condensed Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 21
Item 4. Controls and Procedures 22
PART II. OTHER INFORMATION 22
Item 1. Legal Proceedings 22
Item 1A. Risk Factors 22
Item 6. Exhibits 23
Signature Page 24
Exhibits 25
1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying unaudited Condensed Consolidated Financial Statements of
Riviera Holdings Corporation have been prepared in accordance with the
instructions to Form 10-Q, and therefore, do not include all information and
notes necessary for complete financial statements in conformity with generally
accepted accounting principles in the United States. The results from the
periods indicated are unaudited, but reflect all adjustments (consisting only of
normal recurring adjustments) that management considers necessary for a fair
presentation of operating results.
The results of operations for the three and nine months ended September 30, 2007
and 2006 are not necessarily indicative of the results for the entire year.
These financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto for the year ended December
31, 2006, included in our Annual Report on Form 10-K.
2
RIVIERA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands, except share amounts) September 30 December 31
-------------------------------------------------------------------------------
2007 2006
------------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 32,975 $ 25,285
Restricted cash and investments 2,772 -
Accounts receivable, net of allowance for
doubtful accounts of $214 and $163 4,435 3,063
Inventories 1,479 1,792
Prepaid expenses and other assets 3,981 4,002
------------- -----------
Total current assets 45,642 34,142
PROPERTY AND EQUIPMENT, Net 168,056 171,320
OTHER ASSETS, Net 2,992 5,774
DEFERRED INCOME TAXES, net of valuation
allowance of $17,081 and $17,081 2,446 2,446
------------- -----------
TOTAL $ 219,136 $ 213,682
============= ===========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Current portion of long-term debt $ 211 $ 879
Current portion of obligation to officers 1,000 1,000
Accounts payable 8,457 9,126
Accrued interest 153 1,063
Accrued expenses 17,840 13,167
------------- -----------
Total current liabilities 27,661 25,235
------------- -----------
OBLIGATIONS TO OFFICERS - Net of current portion 1,320 2,094
------------- -----------
OTHER LONG-TERM DEBT 6,644 2,763
------------- -----------
LONG-TERM DEBT - Net of current portion 225,405 214,124
------------- -----------
Commitments & Contingencies (Note 6)
SHAREHOLDERS' DEFICIENCY:
Common stock ($.001 par value; 60,000,000
shares authorized, 17,131,824 and
17,131,824 shares issued at September 30,
2007 and December 31, 2006, respectively, and 17 17
12,463,755 and 12,369,431 shares outstanding at
September 30, 2007 and December 31, 2006,
respectively)
Additional paid-in capital 18,717 18,165
Treasury stock (4,668,069 and 4,762,393 shares at
September 30, 2007 and December 31, 2006,
respectively) (9,635) (9,841)
Accumulated Deficit (50,993) (38,875)
------------- -----------
Total shareholders' deficiency (41,894) (30,534)
------------- -----------
TOTAL $ 219,136 $ 213,682
============= ===========
See notes to condensed consolidated financial statements
3
RIVIERA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30 September 30
---------------------------------------------------------------------------------
REVENUES 2007 2006 2007 2006
---------- --------- ---------- ---------
Casino $ 28,935 $ 28,262 $ 87,941 $ 85,206
Rooms 14,812 13,996 46,276 43,085
Food and beverage 7,976 8,110 24,937 25,754
Entertainment 4,102 3,625 9,959 11,166
Other 1,684 1,534 5,041 4,970
---------- --------- ---------- ---------
Total revenues 57,509 55,527 174,154 170,181
Less - promotional allowances (5,129) (5,178) (16,082) (15,706)
---------- --------- ---------- ---------
Net revenues 52,380 50,349 158,072 154,475
---------- --------- ---------- ---------
COSTS AND EXPENSES
Direct costs and expenses of
operating departments
Casino 13,849 14,267 42,460 42,989
Rooms 7,520 6,995 21,619 20,616
Food and beverage 6,129 6,210 18,608 18,662
Entertainment 2,684 2,392 6,353 7,735
Other 368 338 1,043 1,137
Other operating expenses
General and administrative
Equity-based compensation 206 183 759 589
Other general and administrative 11,496 10,660 31,924 31,446
Mergers, acquisitions and development
costs, net 160 281 448 1,159
Asset impairment - - - 16
Depreciation and amortization 3,304 3,035 9,794 9,454
---------- --------- ---------- ---------
Total costs and expenses 45,716 44,361 133,008 133,803
---------- --------- ---------- ---------
INCOME FROM OPERATIONS 6,664 5,988 25,064 20,672
---------- --------- ---------- ---------
OTHER EXPENSE
Interest expense, net (4,569) (6,420) (17,660) (19,406)
Loss on retirement of debt (12,878) - (12,878) -
Unrealized loss on derivatives (7,471) - (6,644) -
---------- --------- ---------- ---------
Other expense, net (24,918) (6,420) (37,182) (19,406)
---------- --------- ---------- ---------
NET INCOME (LOSS) $ (18,254) $ (432) $ (12,118) $ 1,266
========== ========= ========== =========
INCOME (LOSS) PER SHARE DATA
Income (loss) per share
Basic $ (1.48) $ (0.04) $ (0.98) $ 0.10
---------- --------- --------- ---------
Diluted $ (1.48) $ (0.04) $ (0.98) $ 0.10
---------- --------- --------- ---------
Weighted-average common shares
outstanding 12,326 12,170 12,303 12,122
---------- -------- ---------- --------
Weighted-average common and common
equivalent shares 12,326 12,170 12,303 12,374
---------- -------- ---------- --------
See notes to condensed consolidated financial statements
4
RIVIERA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006 Nine Months Ended
(in thousands) September 30
---------------------------------------------------------------------------------
2007 2006
------------ ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ($12,118) $1,266
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 9,794 9,454
Provision for bad debts, net 214 305
Stock Compensation - Restricted Stock 588 547
Stock Compensation - Stock Options 171 42
Asset Impairment - 16
Loss on retirement of debt 12,878 -
Amortization of deferred loan fees 868 1,507
Decrease on swap fair value 6,644 -
Changes in operating (assets) and liabilities
Accounts receivable (1,586) (93)
Inventories 313 529
Prepaid expenses 21 (218)
Other assets 220 27
Accounts payable (980) (1,980)
Accrued interest (910) 5,887
Accrued liabilities 1,910 1,282
Deferred compensation plan liability (24) (2)
Obligation to officers (750) (750)
------------ ---------
Net cash provided by operating activities 17,253 17,819
------------ ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures - Las Vegas, Nevada (4,530) (3,695)
Capital expenditures - Black Hawk, Colorado (1,561) (2,779)
Restricted cash and investments (2,772) -
------------ ---------
Net cash used in investing activities (8,863) (6,474)
------------ ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term borrowings (223,798) (597)
Payments incurred for deferred loan costs (1,902) -
Proceeds from exercise of stock options - 257
Proceeds from issuance of long-term debt 225,000 -
------------ ---------
Net cash used in financing activities (700) (340)
------------ ---------
INCREASE IN CASH AND CASH EQUIVALENTS 7,690 11,005
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $ 25,285 $ 20,571
------------ ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 32,975 $ 31,576
============ =========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES
Property acquired with debt and accounts payable $ 439 $ 356
Cash paid for interest $ 17,958 $ 12,390
See notes to condensed consolidated financial statements
5
RIVIERA HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Nature of Operations
Riviera Holdings Corporation ("RHC") and its wholly-owned subsidiary, Riviera
Operating Corporation ("ROC") (together with their wholly-owned subsidiaries,
the "Company"), were incorporated on January 27, 1993, in order to acquire all
assets and liabilities of Riviera, Inc. Casino-Hotel Division on June 30, 1993,
pursuant to a plan of reorganization. The Company operates the Riviera Hotel &
Casino (the "Riviera Las Vegas") on the Strip in Las Vegas, Nevada.
In February 2000, the Company opened its casino in Black Hawk, Colorado, which
is owned through Riviera Black Hawk, Inc. ("RBH"), a wholly-owned subsidiary of
ROC.
Casino operations are subject to extensive regulation in the states of Nevada
and Colorado by the respective Gaming Control Boards and various other state and
local regulatory agencies. Our management believes that the Company's procedures
comply, in all material respects, with the applicable regulations for
supervising casino operations, recording casino and other revenues, and granting
credit.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its direct and indirect wholly-owned subsidiaries. All material intercompany
accounts and transactions have been eliminated.
Restricted Cash and Investments
Restricted cash consists of Certificates of Deposit held pursuant to
self-insured Nevada Workers Compensation requirements.
Earnings Per Share
Basic per-share amounts are computed by dividing net income (loss) by weighted
average shares outstanding during the period. Diluted net income per share
amounts are computed by dividing net income by weighted average shares
outstanding plus the dilutive effect of common share equivalents. 267,801 and
427,200 potentially dilutive options and nonvested restricted shares have been
excluded from the calculations for the three months ended September 30, 2007 and
2006, respectively, and 266,385 for the nine months ended September 30, 2007, as
their effect would have been antidilutive since the Company incurred a loss.
There were 24,000 potentially dilutive options excluded from the calculation for
the three and nine months ended September 30, 2006 and 2007, respectively.
6
Income Taxes
The income tax provisions, if any, for the three and nine months ended September
30, 2007 and 2006, were fully offset by the utilization of loss carryforwards
for which a valuation allowance had been previously provided. Based on the
history of net operating losses, and current year losses, it is not more likely
than not that we will be able to recognize the deferred assets. As such, the
valuation allowance is appropriate and the current year tax benefit has not been
recognized through the financial statements.
We adopted the provisions of Financial Accounting Standards Board ("FASB")
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48") on
January 1, 2007. There was no effect on our financial condition or results of
operations as a result of implementing FIN 48. We do not believe there will be
any material changes in our unrecognized tax positions over the next 12 months.
We do not have any accrued interest or penalties associated with any
unrecognized tax benefits.
Estimates and Assumptions
The preparation of condensed consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America
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
and deferred tax assets, estimated fair value for stock-based compensation and
estimated fair value of derivative instrument. Actual results may differ from
estimates.
Mergers, Acquisitions and Development Costs
Mergers, acquisitions and development costs consist of legal fees and other
expenses associated with the on-going potential sale of the Company.
Derivative Instruments
We account for derivative instruments in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities," and all amendments and interpretations thereto. SFAS
No. 133 requires that all derivative instruments be recognized in the financial
statements at fair value. Any changes in fair value are recorded in the income
statement or in other comprehensive income, depending on whether the derivative
is designated and qualifies for hedge accounting, the type of hedge transaction
and the effectiveness of the hedge. The estimated fair value of our derivative
instruments is based on market prices obtained from dealer quotes. Such quotes
represent the estimated amounts we would receive or pay to terminate the
contracts. We use an interest rate swap to manage the mix of our debt between
fixed and variable rate instruments, which were entered into on June 8, 2007. As
of September 30, 2007, we have one interest rate swap agreement for a notional
amount of $223 million. We have determined that the interest rate swap does not
meet the requirements to qualify for hedge accounting and have therefore
recorded a $7.5 million and $6.6 million loss for the change in fair value of
this derivative instrument in our condensed consolidated statements of
operations for the three-month and nine month periods ended September 30, 2007,
respectively.
8
2. OTHER ASSETS
Other assets at September 30, 2007 include deferred loan fees of approximately
$1.8 million associated with the refinancing of our debt in 2007, which will be
amortized over seven years, which is the life of the loan. Other assets at
December 31, 2006, includes deferred loan fees of approximately $4.6 million,
which were written-off in July 2007.
3. LONG TERM DEBT AND COMMITMENTS
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 "New Credit Facility") with Wachovia
Bank, National Association ("Wachovia"), as administrative agent.
The New Credit Facility includes a $225 million seven-year term loan ("Term
Loan"), with no amortization for the first three years, a one percent
amortization for each of years four through six, and a full payoff in year
seven, in addition to an annual mandatory pay down of 50% of excess cash flows,
as defined. The New Credit Facility also includes a $20 million five-year
revolving credit facility ("Revolving Credit Facility") under which RHC can
obtain extensions of credit in the form of cash loans or standby letters of
credit ("Standby L/Cs"). RHC is permitted to prepay the New Credit Facility
without premium or penalties except for payment of any funding losses resulting
from prepayment of any LIBOR rate loans. The rate for the Term Loan was LIBOR
plus 2.0%. Pursuant to a floating rate to fixed rate swap agreement that became
effective June 29, 2007 that RHC entered into under the New Credit Facilities,
substantially the entire Term Loan, 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 New Credit Facility is
guaranteed by the Subsidiaries and is secured by a first priority lien on
substantially all of RHC's and the Subsidiaries' 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 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.
The interest rate on loans under the Revolving Credit Facility will depend on
whether they are in the form of revolving loans or swingline loans. For each
revolving loan, the interest rate will depend on whether RHC elects to treat the
loan as an "Alternate Base Rate" loan ("ABR Loan") or a LIBOR Rate loan.
Swing line loans will bear interest at a per annum rate equal to the Alternative
Base Rate plus the Applicable Percentage for revolving loans that are ABR Loans.
RHC will also pay fees under the Revolving Credit Facility as follows: (i) a
commitment fee in an amount equal to either .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, RHC will pay an annual administrative fee of
$35,000.
The New Credit Facility contains affirmative and negative covenants customary
for financings of this nature including, but not limited to, restrictions on
RHC's incurrence of other indebtedness.
The New Credit Facility contains events of default customary for financings of
this nature including, but not limited to: nonpayment of principal, interest,
fees or other amounts when due; violation of covenants; failure of any
representation or warranty to be true in all material respects; cross-default
and cross-acceleration under RHC's other indebtedness or certain other material
obligations; certain events under federal law governing employee benefit plans;
a "change of control" of RHC; dissolution; insolvency; bankruptcy events;
material judgments; uninsured losses; actual or asserted invalidity of the
guarantees or the security documents; and loss of any gaming licenses. Some of
these events of default provide for grace periods and materiality thresholds.
For purposes of these default provisions, a "change in control" of RHC includes:
a person's acquisition of beneficial ownership of 35% or more of RHC's stock
coupled with a gaming license and/or approval to direct any of RHC's gaming
operations, a change in a majority of the members of RHC's board of directors
other than as a result of changes supported by RHC's current board members or by
successors who did not stand for election in opposition to RHC's current board,
or RHC's failure to maintain 100% ownership of the Subsidiaries.
4. STOCK REPURCHASES
There were no shares of our common stock purchased by our Deferred Compensation
Plan for the nine months ended September 30, 2007 or 2006. The Deferred
Compensation Plan distributed to participants 94,324 and 96,698 shares for the
nine months ended September 30, 2007 and 2006, respectively.
5. SHARE-BASED PAYMENTS
During the three months ended September 30, 2007, we recorded share-based
compensation of $206,000 compared to $183,000 in 2006 and for the nine months
ended September 30, 2007 we recorded share-based compensation of $759,000
compared to $589,000 in 2006. No options were exercised during the three and
nine months ended September 30, 2007. We granted 24,000 options to non-employee
directors during the nine months ended September 30, 2007 and 2006.
The activities of all stock option plans are as follows:
Share Weighted Average Aggregate
Shares Exercise Remaining Intrinsic
Price Life Value
Outstanding, June 30, 2007 258,000 $7.33
No Activity -
------------
Outstanding, September 30, 2007 258,000 $7.33 5.67 years $5,346,000
============
Exercisable September 30, 2007 214,800 $2.78 4.83 years $5,428,000
============
We estimated the fair value of each director option grant on the date of grant
using the Black-Scholes option pricing model. We valued the options for each
director independently. The following weighted-average assumptions were used for
grants in 2007: dividend yield of 0%; risk-free interest rate of 4.97%; options
for two of the directors who have reached the age of 62 had an expected life of
one year and an expected volatility of 29%, options for one director who will
reach the age of 62 in 2008, had an expected life of two years and a risk
expected volatility of 43%; and options for one director had an expected life of
6.75 years and a risk expected volatility of 64%.
9
6. COMMITMENTS AND CONTINGENCIES
Salary Continuation Agreements
Approximately 60 executive officers and certain other employees (excluding Mr.
Westerman and Mr. Vannucci) of ROC and RBH have salary continuation agreements
effective through December 2008, pursuant to which they will be entitled to
receive (1) six months salary if their employment with the Company is
terminated, without cause, within 12 months of a change of control of the
Company; and (2) group health insurance for a period of 6 months. The base
salary payments are payable in biweekly installments, subject to the employee's
duty to mitigate by using his or her best efforts to find employment. In
addition, two executive officers and two significant employees have salary
continuation agreements effective through December 31, 2008, pursuant to which
each of them will be entitled to receive one year's base salary and health
insurance benefits for two years, if their employment is terminated without
cause within 24 months of a change of control of the Company. These four salary
continuation agreements are not subject to a duty to mitigate. The estimated
total amount payable under all such agreements was approximately $3.5 million,
which includes approximately $670,000 in benefits, as of September 30, 2007.
Legal Proceedings and Related Events
On April 17, 2007, a complaint for Declaratory Relief (the "Complaint")
was filed by Riviera Acquisition Holdings ("RAH") (the "Plaintiffs") in the
District Court of Clark County, Nevada (the "Court") (Case No. A539614). On May
2, 2007, the Complaint was amended and filed with the Court (the "Amended
Complaint") and was subsequently served upon the Company and its directors
(collectively, the "Defendants"). The Amended Complaint sought relief from the
Defendants' determination that Plaintiffs had violated the Nevada Business
Combination Law Statute ("BCL") and were thus prevented from engaging in any
business combination with the Company for the statutory three-year
disqualification period due to Plaintiffs entering into an option agreement with
Triple Five Investco LLC ("T5") for the purchase of all of T5's holdings of
Company stock ("T5 Option Agreement").
On August 10, 2007 a hearing on this matter was held. On August 22,
2007, the Court entered a summary judgment ruling in favor of RAH, holding that
(i) the three-year moratorium set forth in the BCL does not apply to RAH; (ii)
the voting limitations set forth in the Company's charter do not apply to RAH;
(iii) the acquisition of the Common Stock by the RAH Group that is the subject
of the T5 Option would not trigger the three-year moratorium set forth in the
BCL or the voting limitations set forth in the Company's charter and (iv) that
RAH does not have beneficial ownership of the Common Stock that is the subject
of the T5 Option. Accordingly, the Company is not prevented from negotiating
with or otherwise entering into any business combination with RAH prior to the
expiration of the three-year moratorium.
We are also a party to routine lawsuits, either as plaintiff or as
defendant, arising from the normal operations of a hotel or casino. We do not
believe that the outcome of such litigation, in the aggregate, will have a
material adverse effect on our financial position or results of our operations.
10
Guarantor Information
The New Credit Facility is guaranteed by the Subsidiaries, which are all of our
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 our financial position or results of operations, are
not guarantors of the New Credit Facility.
11
8. SEGMENT DISCLOSURES
We determine our segments based upon the review process of our chief operating
decision maker who reviews by geographic gaming market segments: Riviera Las
Vegas and Riviera Black Hawk. The key indicator reviewed by our chief decision
maker is "property EBITDA", as defined below. All intersegment revenues have
been eliminated. The chief operating decision maker for our company is the CEO.
Three months ended Nine months ended
September 30, September 30,
----------------------- ---------------------
(Dollars in thousands) 2007 2006 2007 2006
---------- --------- ---------- ---------
Net Revenues:
Riviera Las Vegas $37,940 $36,887 $116,597 $114,975
Riviera Black Hawk 14,440 13,462 41,475 39,500
---------- --------- ---------- ---------
Total net revenues $52,380 $ 50,349 $158,072 154,475
========== ========= ========== =========
Property EBITDA (1):
Riviera Las Vegas $6,131 $5,712 $24,143 $22,529
Riviera Black Hawk 5,440 4,870 15,132 12,774
Other Costs and Expenses
Corporate Expenses
Equity-based compensation 206 183 759 589
Other corporate expenses 1,237 1,095 3,210 3,413
Depreciation and amortization 3,304 3,035 9,794 9,454
Mergers, acquitions and
development costs 160 281 448 1,159
Asset impairment - - - 16
Other Expense, net 24,918 6,420 37,182 19,406
---------- --------- ---------- ---------
Total Other Costs and Expenses 29,825 11,014 51,393 34,037
---------- --------- ---------- ---------
Net Income (loss) $(18,254) $ (432) $(12,118) $ 1,266
========== ========= ========== =========
(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 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 reconcillation of property EBITDA to net income is included in
these financial schedules.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overall Outlook and Recent Developments
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 Colorado
("Riviera Black Hawk").
12
Our capital expenditures for Riviera Las Vegas are geared to maintain the hotel
rooms and amenities in sufficient condition to compete for customers in the
convention market and the mature adult customer. Room rates and slot revenues
are the primary factors driving our operating margins. We use technology to
maintain labor costs at a reasonable level, including kiosks for hotel check-in,
slot club and slot ticket redemptions.
In Black Hawk, the $5 maximum bet restricts table games to a minimum, and the
area is basically a "locals" slot customer market. Our capital expenditures in
Black Hawk are geared to maintain a competitive gaming floor compared to the
market.
Three Months Ended September 30, 2007 Compared to Three Months Ended September
30, 2006
The following table sets forth, for the periods indicated, certain operating
data for Riviera Las Vegas and Riviera Black Hawk. Property EBITDA does not
include intercompany management fees.
Third Quarter
(Dollars in thousands) 2007 2006 Incr Incr %
---- ---- ---- ------
Net Revenues:
Riviera Las Vegas $37,940 $36,887 $1,053 2.9%
Riviera Black Hawk 14,440 13,462 978 7.3%
------ ------ ------
Total Net Revenues $52,380 $50,349 $2,031 4.0%
======= ======= ========
Property EBITDA
Riviera Las Vegas $6,131 $5,712 $419 7.3%
Riviera Black Hawk 5,440 4,870 570 11.7%
----- ----- ---------
Property EBITDA $11,571 $10,582 $989 9.3%
------- ------- ---------
Property EBITDA Margins (1)
Riviera Las Vegas 16.2% 15.5% 0.7%
Riviera Black Hawk 37.7% 36.2% 1.5%
(1) Property EBITDA margins represent property EBITDA as a percentage of net
revenues by property.
Riviera Las Vegas
Revenues
Net revenues increased $1.1 million or 2.9% in the third quarter 2007
compared to the same period last year.
Casino revenues decreased $332,000 or 2.2% due to a decrease in slot
revenue, driven by decreased coin-in as a result of lower casino activity.
Room revenue increased $816,000 or 5.8%, from $14.0 million in 2006 to
$14.8 million in 2007 due mainly to an increase in average daily rate. Average
daily room rate increased $4.85 or 6.5% from $74.28 in 2006 to $79.13 in 2007.
Hotel occupancy decreased slightly to 93.9%, down from last year's 94.9%. Rev
Par (revenue per available room) increased 5.3% or $3.76 to $74.28 for the three
months ended September 30, 2007.
13
Food and beverage revenue decreased $294,000, or 4.3%, from $6.8
million in 2006 to $6.5 million mainly due to an overall decrease in covers in
our outlets, drinks served on the casino floor and the closure of our snack bar.
Entertainment revenue increased $477,000, or 13.2%, from $3.6 million
in 2006 to $4.1 million in 2007 primarily due to higher ticket sales in our
Versailles Theater and other entertainment venues.
Promotional allowances decreased by approximately $226,000, or 5.5%,
from $4.1 million during 2006 to $3.9 million during 2007 primarily due to
decreases in the number of complimentary rooms related to casino activity.
Costs and Expenses
Casino expenses decreased $502,000, or 6.0% from $8.4 million in 2006
to $7.9 million in 2007, due primarily to the reduction in casino marketing
programs during the period.
Hotel expenses increased $539,000, or 7.7% due to payroll and benefit
cost increases primarily associated with new union contract increases and
increased hotel marketing expenses.
Entertainment departmental costs and expenses increased by $324,000, or
13.7% in the quarter.
Property EBITDA
Property EBITDA in Las Vegas increased $419,000, or 7.3%, from $5.7
million in 2006 to $6.1 million in 2007 due principally to increased room
revenues as discussed above and decreased casino marketing expense. EBITDA
margins increased from 15.5% in 2006 to 16.2 % in 2007.
Riviera Black Hawk
Revenues
Net revenues increased $978,000 or 7.3% from $13.5 million in 2006 to
$14.4 million in 2007. The increase was related to an increase in slot revenue
as a result of an increase in the slot hold percentage as the slot volumes in
the lower denomination slot machines exceeded the prior year.
Food and beverage revenues were approximately $1.5 million in 2007, of
which $1.2 million was complimentary (promotional allowance).
Property EBITDA
Property EBITDA at Riviera Black Hawk increased $570,000, or 11.7%,
from $4.9 million in 2006 to $5.4 million in 2007, primarily due to the
increased slot revenues, reduced payroll and marketing expenses. Our EBITDA
margins increased from 36.2% in the third quarter of 2006 to 37.7% in the third
quarter of 2007.
14
Consolidated Operations
Other Expense
Other expense increased $18.5 million due primarily to our
recording an unrealized loss on the fair value of our interest rate swap of $7.4
million and the loss on retirement of debt of $12.9, which consisted of a non
cash charge of $5.0 million of unamortized deferred loan costs and discounts and
$7.9 million for prepayment premium related to the old bonds, which was offset
by a decrease in net interest expense of $1.9 million.
Net Loss
Net loss increased $17.8 million from $432,000 in 2006 to $18.3
million in 2007 due primarily to the factors described above associated with the
retirement of debt and a decrease in our swap fair value, offset slightly by an
increase in operating income.
Nine Months Ended September 30, 2007 Compared to Nine Months Ended
September 30, 2006
The following table sets forth, for the periods indicated, certain operating
data for Riviera Las Vegas and Riviera Black Hawk. Property EBITDA does not
include intercompany management fees.
Nine Months
(Dollars in thousands) 2007 2006 Incr Incr %
---- ---- ---- ----
Net Revenues:
Riviera Las Vegas $116,597 $114,975 $1,622 1.4%
Riviera Black Hawk 41,475 39,500 1,975 5.0%
------ ------ -----
Total Net Revenues $158,072 $154,475 $3,597 2.3%
======== ======== ======
Property EBITDA
Riviera Las Vegas $24,143 $22,529 $1,614 7.2%
Riviera Black Hawk 15,132 12,774 2,358 18.5%
------ ------ ------
Property EBITDA 39,275 35,303 3,972 11.3%
------ ------ ------
Property EBITDA Margins (1)
Riviera Las Vegas 20.7% 19.6% 1.1%
Riviera Black Hawk 36.5% 32.3% 4.2%
(1) Property EBITDA margins represent EBITDA as a percentage of net revenues by
property.
Riviera Las Vegas
Revenues
Net revenues increased $1.6 million, or 1.4%, from $115.0 million in
2006 to $116.6 million in 2007 due primarily to increased hotel and slot
revenues.
Casino revenue increased $618,000 or 1.3% over the prior year due to in
increased slot hold percentage brought about by increased marketing programs,
which provided additional complimentary hotel rooms and cash back to slot
players.
15
Room revenue increased $3.2 million, or 7.4%, from $43.1 million in
2006 to $46.3 million in 2007 due to an overall increase in the average room
rate. Hotel occupancy increased to 94.1%, from last year's 94.0% and the average
daily room rate increased $5.28 to $83.13 in 2007 from $77.85 in 2006. Rev Par
(revenue per available room) increased 7.0% or $5.10 to $78.24.
Food and beverage revenues decreased $816,000, or 3.7%, from $21.8
million in 2006 to $21.0 million in 2007, due to a decrease in banquets covers,
which were down 8.9%.
Entertainment revenues decreased by approximately $1.2 million, or
10.9%, from $11.2 million during 2006 to $10.0 million during 2007 due primarily
to the Versailles Theater closure for four months and a decrease in ticket sales
associated with our other entertainment venues.
Promotional allowances increased by approximately $315,000 or 2.5%,
from $12.5 million during 2006 to $12.8 million during 2007 primarily due to
increases in complimentary room revenue as a result of an increase in slot
marketing activity, which occurred in the first six months of the periods.
Costs and Expenses
Casino expenses decreased $205,000 or 0.8% from $25.2 million in 2006
to $25.0 million in 2007 due to reduced casino marketing costs.
Entertainment costs decreased $1.3 million, or 17.4%, primarily due to
lower ticket sales associated with the closure of our Versailles Theater for
four months, which resulted in reduced payments to producers and costs
associated with the opening of our new show in April in the Versailles Theater.
Property EBITDA
Property EBITDA in Las Vegas increased $1.6 million, or 7.2%, from
$22.5 million in 2006 to $24.1 million in 2007 due to increased room and casino
revenue as discussed above. EBITDA margins in Las Vegas increased from 19.6% in
2006 to 20.7% in 2007 as a result of the factors described above.
Riviera Black Hawk
Revenues
Net revenues increased by approximately $2.0 million, or 5.0%, from
$39.5 million in 2006 to $41.5 million in 2007. Casino revenues increased $2.1
million, or 5.5%, from $38.3 million in 2006 and $40.4 million in 2007. The
increase was primarily related to an increase in slot revenue as a result of
improved hold percentage on lower denomination slot machines. These new machines
were installed in late 2006.
16
Property EBITDA
Property EBITDA in Black Hawk increased $2.4 million, or 18.5%, from
$12.8 million in 2006 to $15.1 million in 2007 primarily due to the increase
slot revenue discussed above and reduced casino expenses from the benefits from
converting the floor to TITO in late 2006. EBITDA margins in Black Hawk
increased from 32.3% in 2006 to 36.5% in 2007 as a result of more targeted
marketing promotions and the benefits of TITO.
Consolidated Operations
Other Expense
Other expenses increased $17.8 million due primarily to our recording
an unrealized loss on the fair value of our interest rate swap of $6.7 million,
which was entered into in June 2007, and the loss on the retirement of debt of
$12.9 million, which consisted of a non cash charge of $5.0 million to write-off
unamortized costs and discounts and $7.9 million for the prepayment premium
related to the old bonds which were extinguished on July 9, 2007 as a result of
our refinancing in June. These two items were offset by reduced net interest
expense for the year also as a result of our refinancing in June.
Net Loss
Net loss increased $13.4 million from $1.3 million of net income in
2006 to $12.1 million net loss in 2007 due primarily to the loss on the fair
value of the swap and the loss on the retirement of debt as discussed above
offset by the increased income from operations of $4.4 million.
Liquidity and Capital Resources
At September 30, 2007, we had cash and cash equivalents of $33.0 million. Our
cash and cash equivalents increased $7.7 million during the first nine months of
2007, as a result of $17.3 million of cash provided by operations, $8.9 million
of cash outflow for investing activities including $2.8 million of restricted
cash and $700,000 decrease for financing activities including proceeds from of
our $225 million Term Loan. Our cash balances include amounts that could be
required, upon five days' notice, to fund our CEO's (Mr. Westerman's) pension
obligation in a rabbi trust. We pay Mr. Westerman $250,000 per quarter from his
pension plan. In exchange for these payments, Mr. Westerman has agreed to
forbear on his right to receive full transfer of his pension fund balance to the
rabbi trust. This does not limit his ability to give the five-day notice at any
time. Although Mr. Westerman has expressed no current intention to require this
funding, under certain circumstances we may be required to disburse
approximately $2.3 million for this purpose in a short period.
We believe that cash flow from operations, combined with the $33.0 million cash
and cash equivalents and the $20 million Revolving Credit Facility, will be
sufficient to cover our current debt service and enable investment in budgeted
capital expenditures of $12.5 million for 2007 for both Riviera Las Vegas and
Riviera Black Hawk including planned capital improvements and assessments for
the Main Street expansion in Black Hawk.
On June 8, 2007, we and our Subsidiaries entered into the New Credit Facility.
17
The New Credit Facility includes a $225 million seven-year term loan ("Term
Loan"), and has no amortization for the first three years, and 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. The New Credit Facility also includes a $20 million five-year
revolving credit facility ("Revolving Credit Facility") under which we can
obtain extensions of credit in the form of cash loans or standby letters of
credit ("Standby L/Cs"). We are permitted to prepay the New 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 that became effective June 29, 2007 that we entered into under
the New Credit Facility, substantially the entire Term Loan portion of the New
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 New Credit Facility is guaranteed by the
Subsidiaries and is secured by a first priority lien on substantially all of our
assets.
We used substantially all of the proceeds of the Term Loan to discharge our
obligations under the Indenture, dated June 26, 2002 (the "Indenture"), with The
Bank of New York as trustee (the "Trustee"), governing the 11% Notes. On June 8,
2007 we 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.
We utilize derivative instruments for a substantial portion of our Term Loan to
manage certain interest rate risk. Our interest rate swap agreement has a rate
of 5.48% compared to the three month LIBOR rate of 5.20% as of September 30,
2007.
The interest rate on loans under the Revolving Credit Facility will depend on
whether they are in the form of revolving loans or swingline loans. For each
revolving loan, the interest rate will depend on whether we elect to treat the
loan as an "Alternate Base Rate" loan ("ABR Loan") or a LIBOR Rate loan.
Swing line loans will bear interest at a per annum rate equal to the Alternative
Base Rate plus the Applicable Percentage for revolving loans that are ABR Loans.
We will also pay fees under the Revolving Credit Facility as follows: (i) a
commitment fee in an amount equal to either .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, we will pay an annual administrative fee of
$35,000.
The New Credit Facility contains affirmative and negative covenants customary
for financings of this nature including, but not limited to, restrictions on our
incurrence of other indebtedness.
The New 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"; 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 our 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 other than as a result of
changes supported by our 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.
19
For a further description of the New Credit Facility, see Item 1.01 of the Form
8-K that we filed on June 14, 2007.
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, 2006. We have had no
changes to our critical accounting policies since December 31, 2006.
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 Securities 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" or "anticipate"
and similar words as well as our acquisition, development and expansion plans,
objectives or expectations and our liquidity projections. These forward-looking
statements generally relate to our plans, objectives, prospects and expectations
for future operations and results and are based upon what we consider to be
reasonable future estimates. Although we believe that our plans, objectives,
prospects and expectations reflected in, or suggested by, such forward-looking
statements are reasonable at the present time, we may not achieve or we may
modify them from time to time. Furthermore, there is no assurance that any
positive trends suggested or referred to in this report will continue. 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 them, or might affect our
ability to achieve them, include, but are not limited to:
o the results of our previously announced strategic process to explore
alternatives for maximizing shareholder value;
o fluctuations in the value of our real estate, particularly in Las Vegas;
o the availability and adequacy of our cash flow to meet our requirements,
funding and debt obligations;
o our substantial indebtedness, debt service requirements and liquidity
constraints;
o the smoking ban in Colorado on our Riviera Black Hawk property which becomes
effective on January 1, 2008;
o the availability of additional capital to support capital improvements and
development;
o the ability to renegotiate union contracts in Las Vegas;
o competition in the gaming industry, including the availability and
success of alternative gaming venues and other entertainment attractions;
o retirement or other loss of any of our senior officers;
o economic, competitive, demographic, business and other conditions in our
local and regional markets;
o changes or developments in laws, regulations or taxes in the gaming industry;
o 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;
o changes in our personnel or their compensation, including those
resulting from changes in minimum wage requirements;
o 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;
o 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;
o 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;
o changes in our business strategy, capital improvements or development plans;
o the consequences of the war in Iraq and other military conflicts
in the Middle East and any future security alerts or terrorist
attacks such as the attacks that occurred on September 11, 2001;
and
o other risk factors and uncertainties discussed elsewhere in this report.
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.
20
ITEM 3. Quantitative and Qualitative Disclosure About Market Risk
Market risks relating to our operations result primarily from changes in
interest rates. We invest our cash and cash equivalents in U.S. Treasury Bills
with maturities of 30 days or less. Such investments are generally not affected
by changes in interest rates.
As of September 30, 2007, we had $225.6 million in borrowings. The borrowings
include a $225 million Term Loan maturing in 2014 and a capital lease maturing
in 2009. The equipment capital lease has a fixed interest rate of 5.5%. The
borrowings also include $348,000 in a special improvement district ("SID") bond
offering with the City of Black Hawk. Our share of the debt on the SID bonds of
$1.2 million, is payable over ten years beginning in 2000. The SID bonds bear
interest at 5.5%. We are not susecptible to interest rate risk because our
outstanding debt is at fixed rates. As of September 30, 2007, we had no
borrowing outstanding under our Revoling Credit Facility. As of September 30,
2007, we have one interest rate swap arrangement to hedge the underlying
interest rate risk on a total of $225 million of borrowings under the Term Loan,
which bears interest at LIBOR plus 2.0%. Under this interest rate swap
arrangement, we receive payments at a variable rate of LIBOR and pay a fixed
rate of 5.485% on the $225 million notional amount which expires on June 8,
2014. Although this interest rate swap is highly effective economically in
fixing the interest rate on this borrowing under the Term Loan at approximately
7.485%, changes in fair value of our interest rate swap for each reporting
period are, and will continue to be, recorded as an increase/(decrease) in swap
fair value as the swap does not qualify for hedge accounting. A hypothetical one
percent change in interest rate would have an immaterial effect on our financial
statements as of September 30, 2007.
Interest Rate Sensitivity
Principal (Notational Amount by Expected Maturity)
Average Interest Rate Fair Value
(Dollars in thousands) 2007 2008 2009 2010 2011 Thereafter Total at 9/30/07
Long-Term Debt, Including
Current Portion
Equipment loans and
capital leases - Las Vegas $ 23 $ 95 $ 81 $ 26 $ 26 $ 17 $ 268 $ 268
Average interest rate 5.5% 5.5% 5.5% 5.5% 5.5% 5.5%
$225,000 Term Loan $1,125 $ 2,250 $221,625 $225,000 $ 218,356
Average interest rate 7.5% 7.5% 7.5%
SID Bonds -
Black Hawk, Colorado $ 66 $ 137 $ 145 $ 348 $ 348
Average interest rate 5.5% 5.5% 5.5%
Total long-term debt,
including current portions $ 89 $ 232 $ 226 $1,151 $ 2,276 $221,642 $225,616 $ 218,972
Other Long-Term Liabilities
Including Current Portions
CEO pension plan obligation $250 $1,000 $1,000 $ 70 $ 2,320 $ 2,320
Approximate Interest Rate 11.8% 9.0% 7.5% 7.5%
--------------------------------------------------------- -----------------------
Total long-term obligations $ 339 $1,232 $1,226 $1,221 $ 2,276 $221,642 $227,936 $ 221,292
========================================================= =======================
21
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
SEC, and that such information is accumulated and communicated to our
management, including our chief executive officer ("CEO") and chief financial
officer ("CFO"), as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and procedures,
our management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and our management necessarily was required to apply
its judgment in evaluating the cost-benefit relationship of possible controls
and procedures.
As of September 30, 2007, 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 15(d)-
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
Please see Note 6 to the Financial Statements included in this Quarterly Report
on Form 10-Q.
Item 1A. Risk Factors.
Our annual report on Form 10-K for the fiscal year ended December 31, 2006 (our
"2006 Form 10-K") as updated by our first and second quarterly reports for the
periods ending March 31, 2007 and June 30, 2007, respectively, contains a
detailed discussion of our risk factors. The information below updates and
should be read in conjunction with the risk factors and other information
disclosed in our 2006 Form 10-K and subsequent updates.
The Strategic Process That We Announced On May 11, 2007 Provides
No Assurance Of Success, Especially In Light Of Other Recent Events.
Although we are working with Jefferies on our strategic process to explore
alternatives for maximizing shareholder value, including a possible sale of our
entire company, there is substantial uncertainty as to whether we will be
successful in this process and how long the process will take. That uncertainty
has been heightened by at least two recent events. First, RAH and its related
parties (collectively, the "RAH Parties") prevailing in the Declaratory Action
lawsuit and its subsequent exercise of its option to purchase all of Triple Five
Investco LLC's 1,147,550 shares of our common stock might make other parties
unwilling to bid for our company. As a result of this acquisition we believe the
RAH Parties now beneficially own approximately 18.5% of our stock and are our
largest shareholder. Second, the trading price of our stock, which has been
volatile in recent years, has declined materially in recent months. This might
cause prospective bidders to defer or withdraw takeover proposals or to make
proposals at prices below the $30 and $34 per share proposals that were
announced in May 2007.
22
As a Result of the Lawsuit The RAH Parties Might Be Able To
Corner The Market For Our Shares.
The RAH Parties acquisition of the T5 shares could preclude competitive bidding
or other strategic plans for our company that conflict with their own objective
of acquiring our company at the lowest possible price.
Uncertainties Concerning The Results Of Our Strategic Process Might Make It
More Difficult For Us To Replace Any Key Personnel If We Lose Them.
These uncertainties might add to the difficulties that we discussed in the Risk
Factors section (Part I, Item 1A) of our 2006 Form 10-K concerning replacement
of any key personnel if we lose them.
Uncertainties Concerning the Fight Against Higher Gaming Taxes In Nevada
If new proposals in 2008, that seek increases in Nevada gaming taxes, succeed it
would have an adverse effect on the profitability of the company.
Item 6. Exhibits.
See list of exhibits on page 25.
23
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RIVIERA HOLDINGS CORPORATION
By:/s/ William L. Westerman
William L. Westerman
Chairman of the Board and
Chief Executive Officer
By: /s/ Mark Lefever
Mark Lefever
Treasurer and
Chief Financial Officer
Date: November 7, 2007
24
Exhibits
Exhibits:
3.1 Bylaws of the Company with amendments
31.1 Certification of the Principal Executive Officer of the Registrant
pursuant to Exchange Act Rule 13a-14(a).
31.2 Certification of the Principal Financial Officer of the Registrant
pursuant to Exchange Act Rule 13a-14(a).
32.1 Certification of the Principal Executive Officer of the Registrant
pursuant to Exchange Act Rule 13a-14(b) and 18 U.S.C. 1350.
32.2 Certification of the Principal Financial Officer of the Registrant
pursuant to Exchange Act Rule 13a-14(b) and 18 U.S.C. 1350.
25