Attached files
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EX-31.1 - EX-31.1 - River Rock Entertainment Authority | a11-14009_1ex31d1.htm |
EXCEL - IDEA: XBRL DOCUMENT - River Rock Entertainment Authority | Financial_Report.xls |
EX-32 - EX-32 - River Rock Entertainment Authority | a11-14009_1ex32.htm |
EX-31.2 - EX-31.2 - River Rock Entertainment Authority | a11-14009_1ex31d2.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 2011
OR
o 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: 333-115186
RIVER ROCK ENTERTAINMENT AUTHORITY
(Exact name of registrant as specified in its charter)
Not Applicable |
|
68-0490898 |
(State or other jurisdiction of |
|
(I.R.S. Employer |
incorporation or organization) |
|
Identification No.) |
3250 Highway 128 East
Geyserville, California 95441
(707) 857-2777
(Address, including zip code, and telephone number,
including area code, of registrants principal executive offices)
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 o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, 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 x No o
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 definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o |
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Accelerated filer o |
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Non-accelerated filer x |
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Smaller reporting company o |
(Do not check if a 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 o No x
RIVER ROCK ENTERTAINMENT AUTHORITY
Item |
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Description |
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PART I FINANCIAL INFORMATION |
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4 | ||
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Condensed Balance Sheets-June 30, 2011 (unaudited) and December 31, 2010 |
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4 |
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5 | |
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Unaudited Condensed Statements of Cash Flows Six Months Ended June 30, 2011 and 2010 |
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6 |
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8 | |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
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18 | |
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32 | ||
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33 | ||
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33 | ||
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33 | ||
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37 | ||
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38 | |||
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38 |
CAUTIONARY STATEMENT
Except for the historical financial information contained herein, the matters discussed in this report on Form 10-Q (as well as documents incorporated herein by reference) may be considered forward-looking statements within the meaning of 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). Such forward-looking statements are based upon current expectations that involve risks and uncertainties and include declarations regarding the intent, belief or current expectations of us and our management and may be signified by the words believes, anticipates, plans, expects, intends and similar expressions. Our actual results and the timing of certain events may differ significantly from the results discussed in the forward-looking statements. All forward-looking statements in this document are based on information available to us as of the date hereof, and we assume no obligation to update any such forward-looking statements, whether as a result of new information, future events, or otherwise. All discussion in this report should be read in conjunction with our financial statements and the accompanying notes contained in this report.
References in this Form 10-Q to the Authority and the Tribe are to the River Rock Entertainment Authority and the Dry Creek Rancheria Band of Pomo Indians, respectively. The terms we, us and our refer to the Authority.
Our key risks are described in our annual report on Form 10-K filed with the Securities and Exchange Commission.
RIVER ROCK ENTERTAINMENT AUTHORITY
(A Governmental Instrumentality of the Dry Creek Rancheria Band of Pomo Indians)
(Dollars in Thousands)
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June 30, 2011 |
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December 31, 2010 |
| ||
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(Unaudited) |
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|
| ||
ASSETS |
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CURRENT ASSETS: |
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|
|
|
| ||
Cash and cash equivalents |
|
$ |
37,160 |
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$ |
36,713 |
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Accounts receivable |
|
32 |
|
290 |
| ||
Inventories |
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90 |
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96 |
| ||
Prepaid expenses and other current assets |
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4,546 |
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1,402 |
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|
|
|
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Total current assets |
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41,828 |
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38,501 |
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RESTRICTED CASH |
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4,332 |
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4,330 |
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CAPITAL ASSETS: |
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|
|
|
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Buildings and building improvements |
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137,762 |
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132,907 |
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Furniture, fixtures and equipment |
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35,462 |
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33,786 |
| ||
Accumulated depreciation |
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(70,570 |
) |
(66,348 |
) | ||
Construction in progress |
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74,249 |
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77,296 |
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|
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Capital assets |
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176,903 |
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177,641 |
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DEPOSITS AND OTHER ASSETS |
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1,347 |
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1,680 |
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TOTAL ASSETS |
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$ |
224,410 |
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$ |
222,152 |
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LIABILITIES AND NET ASSETS |
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CURRENT LIABILITIES: |
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Accounts payable |
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$ |
1,773 |
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$ |
1,884 |
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Payable to Tribe, net |
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1,037 |
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5,823 |
| ||
Accrued liabilities |
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7,943 |
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7,977 |
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Current maturities of long-term debt |
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199,888 |
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199,719 |
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Total current liabilities |
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210,641 |
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215,403 |
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COMMITMENTS AND CONTINGENCIES |
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NET ASSETS |
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Invested in capital assets-net of related debt |
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(22,985 |
) |
(22,078 |
) | ||
Restricted for capital projects |
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4,332 |
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4,330 |
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Unrestricted |
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32,422 |
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24,497 |
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Total net assets |
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13,769 |
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6,749 |
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TOTAL LIABILITIES AND NET ASSETS |
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$ |
224,410 |
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$ |
222,152 |
|
The accompanying notes are an integral part of these unaudited interim financial statements.
RIVER ROCK ENTERTAINMENT AUTHORITY
(A Governmental Instrumentality of the Dry Creek Rancheria Band of Pomo Indians)
CONDENSED STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS
(Dollars in Thousands)
(Unaudited)
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Three-Month Period Ended |
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Six-Month Period Ended |
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June 30, |
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June 30, |
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2011 |
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2010 |
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2011 |
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2010 |
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OPERATING REVENUES: |
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Casino |
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$ |
30,031 |
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$ |
31,141 |
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$ |
60,123 |
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$ |
62,077 |
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Food and beverage |
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1,565 |
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1,484 |
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3,135 |
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2,923 |
| ||||
Other |
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206 |
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250 |
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426 |
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507 |
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Gross revenues |
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31,802 |
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32,875 |
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63,684 |
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65,507 |
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Promotional allowances |
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(610 |
) |
(440 |
) |
(1,158 |
) |
(819 |
) | ||||
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Net revenues |
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31,192 |
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32,435 |
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62,526 |
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64,688 |
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OPERATING EXPENSES: |
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Casino |
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4,198 |
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4,052 |
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8,533 |
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7,885 |
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Food and beverage |
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1,466 |
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1,702 |
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3,076 |
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3,506 |
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Selling, general, and administrative |
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9,968 |
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10,140 |
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19,628 |
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20,703 |
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Depreciation |
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2,587 |
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2,335 |
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4,953 |
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4,794 |
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Gaming commission and surveillance expenses |
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730 |
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767 |
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1,429 |
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1,535 |
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Compact revenue sharing trust fund |
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334 |
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334 |
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668 |
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668 |
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Gain on sale of assets |
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(56 |
) |
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(56 |
) |
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Total Operating expenses |
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19,227 |
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19,330 |
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38,231 |
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39,091 |
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INCOME FROM OPERATIONS |
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11,965 |
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13,105 |
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24,295 |
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25,597 |
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NON-OPERATING EXPENSE-Net: |
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Interest expense |
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(5,183 |
) |
(5,214 |
) |
(10,340 |
) |
(10,430 |
) | ||||
Interest income |
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6 |
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15 |
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13 |
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28 |
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Non-operating expense-net |
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(5,177 |
) |
(5,199 |
) |
(10,327 |
) |
(10,402 |
) | ||||
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INCOME BEFORE DISTRIBUTIONS TO TRIBE |
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6,788 |
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7,906 |
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13,968 |
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15,195 |
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DISTRIBUTIONS TO TRIBE |
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(3,474 |
) |
(3,398 |
) |
(6,948 |
) |
(6,796 |
) | ||||
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CHANGES IN NET ASSETS |
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3,314 |
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4,508 |
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7,020 |
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8,399 |
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NET ASSETS (DEFICIT) -Beginning of period |
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10,455 |
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(1,433 |
) |
6,749 |
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(5,324 |
) | ||||
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NET ASSETS -End of period |
|
$ |
13,769 |
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$ |
3,075 |
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$ |
13,769 |
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$ |
3,075 |
|
The accompanying notes are an integral part of these unaudited interim financial statements.
RIVER ROCK ENTERTAINMENT AUTHORITY
(A Governmental Instrumentality of the Dry Creek Rancheria Band of Pomo Indians)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
|
|
Six-Month Period Ended |
| ||||
|
|
2011 |
|
2010 |
| ||
CASH FLOWS FROM OPERATING ACTIVITIES: |
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|
|
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Cash received from gaming winnings and concessions |
|
$ |
62,584 |
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$ |
64,796 |
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Cash paid for salaries and benefits |
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(14,409 |
) |
(13,101 |
) | ||
Cash paid to suppliers |
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(17,322 |
) |
(20,312 |
) | ||
Cash paid for compact revenue sharing trust fund |
|
(668 |
) |
(668 |
) | ||
Cash paid to Sonoma County |
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(3,500 |
) |
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|
|
|
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Net cash provided by operating activities |
|
26,685 |
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30,715 |
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CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: |
|
|
|
|
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Payments of debt |
|
|
|
(492 |
) | ||
Payments of offering cost in connection with refinancing of debt |
|
(94 |
) |
|
| ||
Purchases of capital assets |
|
(3,974 |
) |
(4,063 |
) | ||
Proceeds from sale of assets |
|
56 |
|
|
| ||
Transfers to the Tribe for development costs |
|
(4,200 |
) |
(5,300 |
) | ||
Transfers to the Tribe for slope reinforcement |
|
(1,339 |
) |
|
| ||
Change in restricted cash |
|
(2 |
) |
(4 |
) | ||
Interest paid |
|
(9,750 |
) |
(9,750 |
) | ||
Other |
|
|
|
(26 |
) | ||
|
|
|
|
|
| ||
Net cash used in capital and related financing activities |
|
(19,303 |
) |
(19,635 |
) | ||
|
|
|
|
|
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CASH FLOWS PROVIDED BY INVESTING ACTIVITIES: |
|
|
|
|
| ||
Interest income |
|
13 |
|
28 |
| ||
|
|
|
|
|
| ||
CASH FLOWS USED IN NON-CAPITAL FINANCING ACTIVITIES: |
|
|
|
|
| ||
|
|
|
|
|
| ||
Distributions to Tribe |
|
(6,948 |
) |
(6,796 |
) | ||
|
|
|
|
|
| ||
CHANGE IN CASH AND CASH EQUIVALENTS |
|
447 |
|
4,312 |
| ||
|
|
|
|
|
| ||
CASH AND CASH EQUIVALENTS, Beginning of the period |
|
36,713 |
|
31,618 |
| ||
|
|
|
|
|
| ||
CASH AND CASH EQUIVALENTS, End of the period |
|
$ |
37,160 |
|
$ |
35,930 |
|
The accompanying notes are an integral part of these unaudited interim financial statements.
RIVER ROCK ENTERTAINMENT AUTHORITY
(A Governmental Instrumentality of the Dry Creek Rancheria Band of Pomo Indians)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
|
|
Six-Month Period Ended |
| ||||
|
|
2011 |
|
2010 |
| ||
RECONCILIATION OF INCOME FROM OPERATIONS TO NET CASH PROVIDED BY OPERATING ACTIVITIES: |
|
|
|
|
| ||
|
|
|
|
|
| ||
Income From Operations |
|
$ |
24,295 |
|
$ |
25,597 |
|
|
|
|
|
|
| ||
Adjustments to reconcile operating income to net cash provided by operating activities: |
|
|
|
|
| ||
Depreciation |
|
4,953 |
|
4,794 |
| ||
(Gain) on sale of assets |
|
(56 |
) |
|
| ||
Changes in operating assets and liabilities: |
|
|
|
|
| ||
Accounts receivable |
|
258 |
|
124 |
| ||
Inventories |
|
6 |
|
14 |
| ||
Prepaid expenses and other current assets |
|
(3,144 |
) |
3 |
| ||
Deposit and other assets |
|
(82 |
) |
(183 |
) | ||
Accounts payable |
|
37 |
|
(600 |
) | ||
Related party payable |
|
452 |
|
|
| ||
Accrued liabilities |
|
(34 |
) |
966 |
| ||
Total adjustments |
|
2,390 |
|
5,118 |
| ||
|
|
|
|
|
| ||
NET CASH PROVIDED BY OPERATING ACTIVITIES |
|
$ |
26,685 |
|
$ |
30,715 |
|
|
|
|
|
|
| ||
SUPPLEMENTARY SCHEDULE OF NONCASH CAPITAL AND RELATED FINANCING ACTIVITIES: |
|
|
|
|
| ||
|
|
|
|
|
| ||
Acquisition of property and equipment through accounts payable |
|
$ |
81 |
|
$ |
277 |
|
Acquisition of property and equipment through transfers to Tribe for development costs |
|
$ |
|
|
$ |
10,197 |
|
Acquisition of property and equipment through transfers to Tribe for slope reinforcement |
|
$ |
242 |
|
$ |
|
|
The accompanying notes are an integral part of these unaudited interim financial statements.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
River Rock Entertainment Authority (the Authority) is a governmental instrumentality of the Dry Creek Rancheria Band of Pomo Indians (the Tribe), a federally recognized Indian tribe. River Rock Casino (the Casino) is a governmental development project of the Authority. The Casino offers Class III gaming (as defined by the Indian Gaming Regulatory Act of 1988, as amended) on tribal land located in Geyserville, California. The legal authority for slot machines and table games is provided by the Tribes gaming compact with the State of California (the Compact), which was entered into in September 1999 and became effective upon approval by the Secretary of Interior on May 5, 2000. The Compact expires on December 31, 2020.
The Authority was formed as an unincorporated instrumentality of the Tribe on November 5, 2003 pursuant to a reorganization whereby the Tribes gaming business became owned and operated by the Authority. This reorganization was accounted for as a reorganization of entities under common control. Accordingly, after the reorganization, the assets and liabilities of the Casinos operating property were presented by the Authority on a historical-cost basis.
The Authority operates as a separate, wholly owned operating unit of the Tribe and is not a separate legal entity. These financial statements reflect the financial position and activity of the Authority only and do not purport to represent the financial position and activity of the Tribe.
2. BASIS OF PRESENTATION, UNAUDITED INTERIM FINANCIAL STATEMENTS
The unaudited condensed financial statements of the Authority, presented herein are presented on the same basis and can be compared to the audited financial statements reported in the Authoritys 2010 Annual Report on Form 10-K, filed with the Securities and Exchange Commission (SEC). The accompanying condensed balance sheet as of December 31, 2010 has been derived from the audited financial statements included in the Authoritys Annual Report on Form 10-K for the year ended December 31, 2010.
River Rock Entertainment Authority has made its disclosures in accordance with accounting principles generally accepted in the United States of America as they apply to interim reporting, but condensed or omitted certain information and disclosures normally included in notes to financial statements in accordance with the SECs rules and regulations. The unaudited condensed financial statements should be read in conjunction with the financial statements and the notes thereto in the Authoritys Annual Report on Form 10-K for the year ended December 31, 2010.
In the opinion of the Authoritys management, the accompanying unaudited interim condensed financial statements contain all adjustments (consisting of normal recurring adjustments) to fairly present the Authoritys condensed financial position as of June 30, 2011 and the condensed statements of revenues, expenses and changes in net assets for the three and six month periods ended June 30, 2011 and 2010. The condensed statements of revenues, expenses and changes in net assets and condensed cash flows for all periods presented are not necessarily indicative of the results of operations or cash flows expected for the year or any other period.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting StandardsThe Authority prepares its financial statements in accordance with accounting principles generally accepted in the United States of America (GAAP) applicable to State and local government agencies and, as such, the Authority is accounted for as a proprietary fund. The financial statements presented are prepared on the accrual basis of accounting from the accounts and financial transactions of the Authority. GAAP requires the Authority to apply all applicable pronouncements of the Governmental Accounting Standards Board (GASB). The Authority is also required to follow the Accounting Standards Codification issued by the Financial Accounting Standards Board (FASB) for topics issued on or before November 30, 1989, unless those topics
conflict with or contradict GASB pronouncements. The Authority is given the option whether to apply the FASB topics issued after November 30, 1989, except for those that conflict with or contradict GASB pronouncements. Accordingly, the Authority has elected to implement non-conflicting FASB topics issued after November 30, 1989.
There are differences between financial statements prepared in accordance with GASB pronouncements and those prepared in accordance with the FASB Codification. The statements of revenues, expenses and changes in net assets are a combined statement under GASB pronouncements. The FASB Codification allows a statement of income or operations and a separate statement of owners or shareholders equity, which is where distributions to owners would be presented. The amount shown as income before distributions to Tribe would be the most comparable amount to net income computed under the FASB Codification. The Authority is a separate enterprise fund of the Tribe, a governmental entity, and as such there is no owners or shareholders equity as traditionally represented under the FASB Codification. The most comparable measure of owners equity is presented on the Authoritys balance sheet as net assets.
FASB has issued Accounting Standards Update No. 2010-16, Entertainment Casinos (Topic 924) Accruals for Casino Jackpot Liabilities. This ASU addresses the accounting for casino base jackpot liabilities, specifically, whether an entity accrues liabilities for a base jackpot before it is won if the entity is not required to award the base jackpot. This ASU clarifies that an entity should not accrue jackpot liabilities (or portions thereof) before a jackpot is won if the entity can avoid paying that jackpot. Jackpots should be accrued and charged to revenue when an entity has the obligation to pay the jackpot. This guidance applies to both base and progressive jackpots. This ASU is effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption of this statement did not have a material impact on the Authoritys financial position or results of operations.
In December 2010, the GASB issued Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements. The Statement incorporates into GASBs authoritative literature the applicable guidance previously presented in the following pronouncements issued before November 30, 1989:
· FASB Statements and Interpretation.
· Accounting Principles Board Opinions.
· Accounting Research Bulletins of the American Institute of Certified Public Accountants (AICPA) Committee on Accounting Procedure.
While the guidance included largely has been taken as is from the original FASB and AICPA pronouncements, it has been modified when appropriate to relate specifically to the governmental environment to increase its usefulness to this audience. By incorporating and maintaining this guidance in a single source, the Statement reduces the complexity of locating and using authoritative literature needed to prepare state and local government financial reports. It also eliminates the need for the financial statement preparers and auditors to determine which FASB and AICPA pronouncement provisions apply to state and local governments. The requirements of Statement No. 62 are effective for financial statements for periods beginning after December 15, 2011, which for the Authority will be the beginning of fiscal year 2012. We do not expect the adoption of this statement to have a material impact on the Authoritys financial statements.
Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures 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 include legal and other contingencies, obligations under players club programs and useful lives and recoverability of long-lived assets. Actual results could differ from these estimates.
Cash and Cash Equivalents The Authority considers all highly liquid investments with a maturity of three months or less at date of purchase as cash equivalents. The carrying amount of cash and cash equivalents approximates its fair value. Cash and cash equivalents include cash on hand, cash on deposit with banks and highly liquid investments. The Federal Deposit Insurance Corporation (FDIC) has insured $0.3 million of the cash on deposit at FDIC member banks. The Authority believes that there is little risk of loss regarding the uninsured amounts of cash and cash equivalents on deposit with the banks.
Restricted Cash Restricted cash accounts were established from net proceeds from the Notes Offering and investment earnings thereon set aside in construction financing accounts, for construction costs for related infrastructure improvements and construction contingencies. It also included funds that were reserved for construction contingencies and the funds for the development of the Dugan Property, an approximately 18-acre parcel of land adjacent to the Tribes reservation. The restricted cash is held in escrow accounts that can only be used for authorized construction disbursements until the related projects are completed. These escrow accounts are invested in money market accounts, which generate interest on a monthly basis. The FDIC insures $0.3 million of this balance. The Authority believes that there is little risk of loss regarding the uninsured amounts of restricted cash held in the escrow accounts. Restricted cash was $4.3 million at June 30, 2011 and December 31, 2010. At June 30, 2011, restricted cash includes funds available for land development, more specifically the emergency access road, which will be used to further develop either the Dugan Road or an alternate access road that will meet the requirement of the Memorandum of Agreement (MOA) with Sonoma County.
Inventories Inventories, consisting principally of gaming supplies and food and beverage items, are stated at the lower of cost (first-in, first-out) or market value.
Capital Assets Capital Assets are stated at cost. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets as follows:
Buildings and improvements: |
|
5-21 years |
|
Furniture, fixtures and equipment: |
|
5 years |
|
The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend the life of the asset are not capitalized.
Major outlays of capital assets and improvements are capitalized as construction-in-progress as projects are constructed.
Evaluation of Long-Lived Assets We evaluate our capital assets for impairment in accordance with accounting pronouncement GASB No. 42, Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries. The Authoritys capital assets consist of building and improvements, and furniture, fixtures and equipment, including slot machines. A capital asset is considered impaired if both the decline in service utility of the capital asset is large in magnitude and the event or change in circumstances is outside the normal life cycle of the capital asset. The Authority is required to evaluate prominent events or changes in circumstances affecting capital assets to determine whether impairment of a capital asset has occurred rather than as part of the ongoing depreciation expense for the capital asset or upon disposal of the capital asset, and to account for insurance recoveries in the same manner. Common indicators of impairment include evidence of physical damage where restoration efforts are needed to restore service utility, enactment or approval of laws or regulations setting standards that the capital asset would not be able to meet, technological development or evidence of obsolescence, a change in the manner or expected duration of use of a capital asset or construction stoppage. The Authoritys management has determined that no impairment of capital assets currently exists.
Capitalized Interest The interest cost associated with major development and construction projects is capitalized and included in the cost of the asset. Capitalization of interest ceases when the project is substantially
complete or when development activity is suspended. The Authority capitalized interest of approximately $0.1 million for the six months ended June 30, 2011 and none during the six months ended June 30, 2010.
Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets were $4.5 million and $1.4 million as of June 30, 2011 and December 31, 2010, respectively, which includes the prepaid MOA fee to the County, prepaid insurance, prepaid supplies and prepaid service contracts.
Deposits and Other Assets As of June 30, 2011 and December 31, 2010, respectively, deposits and other assets mainly represent $0.3 million and $0.9 million in remaining legal fees and other issuance costs related to the issuance of the Authoritys 9 ¾% Senior Notes due 2011 (the Senior Notes) under the Indenture, dated November 7, 2003 (the Indenture). The June 30, 2011 and December 31, 2010 balances also includes $0.8 million and $0.7 million respectively of capitalized costs incurred in connection with efforts to refinance the Senior Notes.
Accrued Liabilities Accrued liabilities consist of accrued interest, accrued payroll and other accrued liabilities.
Progressive Jackpots Liabilities The Casino has a number of progressive jackpot slot machines. As bets are made, the amount available to win increases and will be paid out when the appropriate winning combination occurs. The Casino has recorded the progressive jackpots as a liability, with a corresponding charge against gaming revenue of $1.1 million and $1.5 million as of June 30, 2011 and December 31, 2010, respectively. Also, the Casino has available for customer play wide area progressive slot machines that are interlinked with other unrelated casinos. These machines are monitored and maintained by the vendor and the Casino is required to remit a percentage of coin-in to the respective vendor. The Casino records a charge against revenue for the portion of the fee applied to the wide area progressive jackpots. Amounts recorded against revenue for the portion of the fee applied to the wide area progressive jackpots were approximately $0.2 million and $0.3 million for the three months ended June 30, 2011 and 2010, respectively; and approximately $0.5 million for each of the six months ended June 30, 2011 and 2010. All other administrative charges are recorded in operating expenses.
Accrued Players Club The Authority has recorded a liability related to free play and prizes earned by the members of our Players Club. The Authority has recorded the estimated redemption of the liability as contra-revenue in the accompanying statements of revenues, expenses and changes in net assets.
Contingencies The Authority assesses its exposure to loss contingencies, including legal matters, and provides for an exposure if it is judged to be probable and estimable. If the actual loss from a contingency differs from managements estimate, operating results could be materially impacted. As of June 30, 2011, management determined that no accruals for claims and legal actions are required. If circumstances surrounding claims and legal actions change, the addition of accruals for such items in future periods may be required and such accruals may be material.
Authority Net Assets Investments in capital assets, net of related debt, consist of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowings used for the acquisition, construction or improvement of those assets. Investment in capital assets, net of related debt, excludes unspent debt proceeds. Restricted net assets represent amounts that are appropriated or are legally segregated for a specific purpose. The Authoritys net assets are reported as restricted when there are limitations imposed on their use, either through the enabling legislation adopted by the Authority or through external restrictions imposed by creditors, laws, or regulations of other governments.
Casino RevenuesThe Authority recognizes as casino revenue the net win from gaming activities, which is the difference between gaming wins and losses. Casino revenues are net of accruals for anticipated payouts of progressive slot jackpots and certain player incentives, when earned by the customer.
Food and Beverage Revenues The Authority recognizes as food and beverage revenues the proceeds from its food and beverage venues. The Authority continues to distribute non-alcoholic beverages without cost in the gaming area for playing guests.
Other Revenues Other revenues are comprised of commissions on ATM and vending machine transactions.
Promotional Allowances The retail value of food and non-alcoholic beverages provided to customers without charge or at a discount is included in food and beverage revenues and then deducted as promotional allowances. Such amounts included in food and beverage revenues for the three months ended June 30, 2011 and 2010 were $0.6 million and $0.4 million, respectively. These amounts included in food and beverage revenues for the six months ended June 30, 2011 and 2010 totaled $1.2 million and $0.8 million respectively.
Food and Beverage Expenses Food and beverage expenses include cost of goods sold related to providing food and beverage to our customers. The estimated costs of providing complimentary products and services are reflected in Casino expenses.
Advertising Costs Advertising costs are expensed as incurred or when an advertisement is first aired or circulated. Advertising costs included in selling, general and administrative expenses for the three months ended June 30, 2011 and 2010 were $1.0 million and $1.5 million, respectively. Advertising costs for the six months ended June 30, 2011 and 2010 were $1.9 and $3.0 million respectively.
Gaming Commission and Surveillance Expenses The Authority pays for various expenses for the Tribal Gaming Commission and Surveillance. Such expenses include salaries and wages and related benefits for Regulatory, Surveillance and office staff, training, audit fees, background checks and licensing. Starting in 2011, audit fees are paid directly by the Casino and are included in selling, general and administrative expenses.
Income Taxes As a governmental instrumentality of the Dry Creek Rancheria Band of Pomo Indians, a federally recognized Indian tribe, the Authority is a non-taxable entity for purposes of federal and state income taxes.
Distributions to Tribe Distributions to Tribe are made up of permitted and service payments under the covenants of the Indenture. They are included in the Statements of Revenues, Expenses and Changes in Net Assets as distributions to Tribe allowed pursuant to the Indenture. Total distributions to the Tribe for the three months ended June 30, 2011 and 2010 were $3.5 million and $3.4 million respectively. Total distributions to the Tribe for the six months ended June 30, 2011 and 2010 were $6.9 million and $6.8 million respectively.
4. CERTAIN RISKS AND UNCERTAINTIES
The Authoritys operations are dependent on the continued licensing and qualification of the Authority by the Tribal Gaming Commission. Such licensing and qualification are reviewed periodically by the Tribal Gaming Commission and regulatory agencies of the State of California. The Authority believes that no events or circumstances have arisen that would have an adverse effect on the Authoritys ability to continue its licensing and qualification by the Tribal Gaming Commission or regulatory agencies of the State of California to operate the Casino.
5. RELATED PARTIES
The Casino has been constructed on federal land beneficially owned by the Tribe. The Authority does not pay the Tribe for the use of the land.
The Authority pays for various expenses for the following departments operated by the Tribe: Tribal Gaming Commission including surveillance, plant operations and human resources. These departmental expenses include but are not limited to, payroll and related expenses, legal and other operational expenses. Total amounts billed by the Tribe to the Casino for these departments, excluding Tribal Gaming Commission and surveillance, for the three months ended June 30, 2011 and 2010 were $1.1 million and $1.0 million, respectively. These amounts are recorded as a component of selling, general and administrative expenses. The expenses for these departments for the six months ended June 30, 2011 and 2010 were $2.0 million and $1.9 million respectively.
The Authority pays for various expenses for the Tribal Gaming Commission and surveillance. The Tribal Gaming Commission and surveillance expenses are recorded in Gaming Commission and surveillance expenses on the Statements of Revenues, Expenses and Changes in Net Assets. Gaming Commission and surveillance expenses for the three months ended June 30, 2011 and 2010 were $0.7 million and $0.8 million, respectively. Gaming Commission and surveillance expenses for the six months ended June 30, 2011 and 2010 were $1.4 million and $1.5 million, respectively.
The Tribe has incurred expenses on behalf of the Authority that relate to the development of the Dugan Property which is now a part of the Tribes Reservation. To date, the Authority capitalized approximately $1.5 million related to the Dugan Property.
The Tribe incurred approximately $67 million in total expenses on behalf of the Authority for master planning of the proposed resort and infrastructure improvements on the reservation that benefit the Casino. Almost all of such expenditures were incurred prior to 2009 before the construction was suspended. The Authority reimbursed the Tribe approximately $52.4 million through 2009. In January 2010, the Authoritys Board of Directors authorized the reimbursement of the Tribe in an amount not to exceed approximately $14.9 million of construction costs. The approval included a payment reimbursement schedule to the Tribe of $2.7 million on January 18, 2010, $0.4 million from February 1, 2010 through April 1, 2010 and $0.7 million monthly thereafter without exceeding the $14.9 million. The Authority reimbursed the Tribe $9.5 million during the fiscal year ended December 31, 2010 and $4.2 million for the six months ended June 30, 2011. A remaining balance of $0.5 million is included in Payable to Tribe in the Condensed Balance Sheet at June 30, 2011. When the reimbursement payments are made or accrued, the related amounts are capitalized and reflected in construction-in-progress. The reimbursed costs consist of engineering and design costs related to the proposed master plan development, including electrical, HVAC, landscaping, interior design services and consulting fees for legal and feasibility services, as well as the construction costs of the lower Acorn Road.
The Tribe incurred expenses related to the reinforcement of the slope on the northwest side of the Reservation near the Casino. During 2010, the Authoritys Board of Directors authorized the reimbursement to the Tribe not to exceed $3.5 million, and an additional $0.3 million was approved in March 2011 for a total of $3.8 million. As of June 30, 2011, the Authority capitalized approximately $3.8 million in construction costs, of which approximately $3.6 million has been paid to the Tribe. This project was completed in April 2011.
6. CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
Cash and cash equivalents and restricted cash consisted of the following as of June 30, 2011 and December 31, 2010 (Dollars in Thousands):
|
|
June 30, |
|
December 31, |
| ||
|
|
(unaudited) |
|
|
| ||
Operating accounts |
|
$ |
10,140 |
|
$ |
15,030 |
|
Money market accounts* |
|
22,135 |
|
15,123 |
| ||
Cash on hand |
|
4,885 |
|
6,560 |
| ||
Cash and cash equivalents |
|
37,160 |
|
36,713 |
| ||
|
|
|
|
|
| ||
Restricted cash |
|
4,332 |
|
4,330 |
| ||
|
|
|
|
|
| ||
Total cash and cash equivalents and restricted cash |
|
$ |
41,492 |
|
$ |
41,043 |
|
*Represents level 1 fair value measurement, quoted prices in active markets for identical items.
Deposits Custodial credit risk is the risk that in the event of a bank failure, the Authoritys deposits (cash in checking, sweep, and money market accounts held with its third-party administrator) may not be returned to it. The Authority does not have a deposit policy for custodial credit risk. As of June 30, 2011 and December 31, 2010 approximately $36.2 million and $34.3 million, respectively, of the Authoritys bank balance for deposits of $36.9 million and $34.8 million, respectively, were exposed to custodial credit risk, as it was uninsured and uncollateralized.
7. CAPITAL ASSETS
Capital Assets at December 31, 2010 and June 30, 2011 consisted of the following (Dollars in Thousands):
|
|
Balance as of |
|
Additions |
|
Dispositions |
|
Transfers |
|
Balance as of |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Building and improvements |
|
$ |
132,907 |
|
$ |
904 |
|
$ |
|
|
$ |
3,951 |
|
$ |
137,762 |
|
Furniture, fixtures and equipment |
|
33,786 |
|
2,379 |
|
(731 |
) |
28 |
|
35,462 |
| |||||
Less accumulated depreciation |
|
(66,348 |
) |
(4,953 |
) |
731 |
|
|
|
(70,570 |
) | |||||
|
|
100,345 |
|
(1,670 |
) |
|
|
3,979 |
|
102,654 |
| |||||
Construction in progress |
|
77,296 |
|
932 |
|
|
|
(3,979 |
) |
74,249 |
| |||||
Capital assets - net |
|
$ |
177,641 |
|
$ |
(738 |
) |
$ |
|
|
$ |
|
|
$ |
176,903 |
|
Construction in progress consists primarily of payments to the tribe and various vendors related to the Authoritys master plan development and land improvements. Substantially all of the Authoritys personal property is pledged as collateral to secure its debt.
8. ACCRUED LIABILITIES
Accrued liabilities consisted of the following as of June 30, 2011 and December 31, 2010 (Dollars in Thousands):
|
|
June 30, |
|
December 31, |
| ||
|
|
2011 |
|
2010 |
| ||
|
|
(unaudited) |
|
|
| ||
Accrued in-house progressive slot jackpots |
|
$ |
1,103 |
|
$ |
1,485 |
|
Accrued payroll and related benefits |
|
2,042 |
|
1,778 |
| ||
Accrued interest |
|
3,250 |
|
3,250 |
| ||
Accrued other expenses |
|
1,548 |
|
1,464 |
| ||
Total accrued liabilities |
|
$ |
7,943 |
|
$ |
7,977 |
|
9. LONG-TERM DEBT
Long-term debt consisted of the following as of June 30, 2011 and December 31, 2010 (Dollars in Thousands):
|
|
June 30, |
|
December 31, |
| ||
|
|
2011 |
|
2010 |
| ||
|
|
(Unaudited) |
|
|
| ||
|
|
|
|
|
| ||
9-3/4% Senior Notes, net of unamortized issue discount of $112,000 and $281,000. Due November 2011 |
|
$ |
199,888 |
|
$ |
199,719 |
|
|
|
|
|
|
| ||
Total Long-Term Debt |
|
199,888 |
|
199,719 |
| ||
Less: current portion |
|
(199,888 |
) |
(199,719 |
) | ||
|
|
|
|
|
| ||
Total long-term-debt - net of current maturities |
|
$ |
|
|
$ |
|
|
On November 7, 2003, the Authority issued the Senior Notes. The proceeds were utilized to fund an expansion project, which included three parking structures, related infrastructure improvements, repayment of various debt and advances and fund payment of various accruals and payables, as well as to increase cash on hand. The proceeds were also utilized to fund a land purchase (the Dugan Property) and settle litigation. The Senior Notes are collateralized by a first priority pledge of the Authoritys revenue and substantially all of the existing and future tangible and intangible personal property. The Authority may redeem the Senior Notes prior to maturity, in whole or in part, at a redemption price that is equal to par, plus accrued and unpaid interest. The $200 million principal payment is due November 1, 2011.
The Authoritys long-term debt is recorded at an amortized historical cost basis. The fair value of the Senior Notes was approximately $182.0 million as of June 30, 2011 based on level one inputs, quoted prices in active markets.
10. EMPLOYEE BENEFIT PLAN
The Authority participates in a 401(k) plan, a retirement plan (the Plan), which is qualified under Section 401(k) of the Internal Revenue Code. The Plan is a defined contribution plan which has a Trustee and Investment Advisors, and is available to all eligible employees of the Casino who have attained the age of 18 and have worked at least six months as defined in the Plan. Plan participants may contribute up to 100 percent of their eligible pretax compensation, subject to the annual maximums set forth by the Internal Revenue Service. The Authority currently matches at 3% but is authorized to match contributions up to a maximum of 5%. Participants become vested in employer contributions, as well as any earnings thereon, over a three-year period at the rate of 33 percent, 66 percent and 100 percent at the end of each year provided they have worked a minimum of 1,000 hours in
that year. Non-vested employer matching contributions are forfeited by employees upon termination and are held in a forfeiture account and used to offset plan expenses. Employee contributions to the Plan totaled $0.2 million and $0.1 million for the three months ended June 30, 2011, and 2010 respectively. Employee contributions to the Plan totaled $0.3 million for each of the six months ended June 30, 2011 and 2010. The Casino made matching contributions to the Plan of approximately $0.1 million during each of the three months ended June 30, 2011 and 2010, and $0.1 million for each of the six months ended June 30, 2011 and 2010.
11. RISK MANAGEMENT
The Casino is exposed to various risks of loss related to workers compensation and torts; theft of, damage to or destruction of assets; and errors or omissions. The Casino has purchased commercial insurance policies for said risks. There has been no significant reduction of insurance coverage, and settlements have not exceeded coverage in the past three years. The Casino retains the risk of dental claims subject to individual limits ranging from $2,000 to $3,000 per plan member.
12. LEASES
On January 12, 2011, the Authority purchased the sprung structure that houses the Casino operations for approximately $0.8 million resulting in the termination of the operating lease. Total rental expense was zero for the three months ended June 30, 2011 and $0.1 million for the three months ended June 30, 2010. Total rental expense was zero and $0.2 million for the six months ended June 30, 2011 and 2010 respectively.
Other operating leases include leases for office spaces and copiers.
13. LEGAL MATTERS
The Authority is involved in litigation and disputes from time to time in the ordinary course of business with vendors and patrons. The Authority believes that the aggregate liability, if any, arising from such litigation or disputes will not have a material adverse effect on its results of operations, financial condition or cash flows.
14. COMPACT REVENUE SHARING TRUST FUND
Under the Compact as entered into with the State of California in September 1999, the Tribe must pay annual license fees for Class III gaming devices, based on the number of gaming device licenses approved by the state gaming commission. The Compact does not require a license for the first 350 Class III gaming devices in use and does not require a license fee for an additional 350 machines. Payments are due on a quarterly basis and are remitted into a state revenue sharing trust fund. License fees expense totaled $0.3 million for each of the three months ended June 30, 2011 and 2010. License fees expense totaled $0.7 million for each of the six months ended June 30, 2011 and 2010 respectively.
15. COMMITMENTS AND CONTINGENCIES
The Authority is an unincorporated instrumentality of the Tribe formed pursuant to an adopted law of the Tribe. While the Authority is not a separate corporation or other legal entity distinct from the Tribe, this tribal law allows the Authority to own and operate its business. This tribal law also provides that the Authoritys obligations and other liabilities are not those of the Tribe and that the obligations and liabilities of the Tribe are not those of the Authority. This law is untested and generally has no direct counterpart in other areas of the law. If this law should prove to be ineffective at limiting the Authoritys liability, the Authoritys business and assets could become subject to claims asserted against the Tribe or its assets. Similarly, the Authority would be liable for such claims if the Tribe waived its sovereign immunity to an extent that allowed enforcement of such claims against the Authoritys business or assets.
On March 18, 2008, the Tribe and the Sonoma County Board of Supervisors entered into a memorandum of agreement (MOA) which settled several long-standing legal disputes between Sonoma County (the County) and the Tribe and provides a binding framework for resolving future disputes. Pursuant to the MOA, as amended, the Tribe has agreed to pay the County up to $75 million in mitigation fees over a 12 year period to offset impacts of the potential losses and impacts to the County resulting from the Tribes various ongoing projects and is intended to support the services being provided by the County. In addition to the mitigation fees, the Tribe will pay a fee in lieu of the Countys Transient Occupancy Tax in the amount of 9% of the rental collected on occupied hotel rooms, to be paid quarterly and continuing for five years after the later to occur of the termination of the MOA, as may be extended, or the Tribes Compact with the State (which is now terminable in 2020 at the earliest), which fees may be applied to programs and services that serve to promote tourism in the County. Such in lieu fees could total as much as $25 million during the term of the MOA. The Tribe has made the prior payments to the County in the total amount of $10.3 million and is not currently seeking reimbursement from the Authority. Effective 2011, the Authority has begun making annual payments toward the remaining balance of the $75 million.
In May 2011, the Sonoma County Board of Supervisors approved a revision to the payment terms of the MOA. The Authority will pay, on behalf of the Tribe, to the County $3.5 million per year commencing June 30, 2011 and continuing each June 30 until the date of the opening of the first phase of an expanded resort facility (the Opening Date). Each annual payment will be recognized over the successive twelve month period. In the event the Opening Date occurs less than one year prior to the end of the term of the MOA (the Term), on the Opening Date the parties to the MOA shall calculate the difference between $75.0 million and the sum of all payments made from the beginning of the MOA (the Deferred Amount) through the Opening Date and the Tribe shall be obligated to pay to the County one-half of the Deferred Amount on the Opening Date and the balance at the end of the Term. If more than one year remains between the Opening Date and the end of the Term, the Deferred Amount shall be amortized into equal annual payments over the number of years remaining, plus one if the Opening Date occurs before June 30 of that year, and the Tribe shall be obligated to pay the first annual payment on the Opening Date and the remaining annual payments commencing on the June 30 next following the Opening Date and on each June 30 thereafter through the end of the Term. If the Opening Date does not occur prior to the end of the Term, the Deferred Amount shall be payable by June 30, 2020, unless the MOA is properly reopened as provided for therein and an alternative payment schedule is agreed upon by the parties thereto. As of June 30, 2011, $13.8 million has been paid pursuant to the MOA and the Deferred Amount is $61.2 million. Pursuant to the MOA, the future payment schedule is open to renegotiation by either party due to unforeseen circumstances, including the inability to open the first phase of an expanded resort facility.
16. SUBSEQUENT EVENT
On August 3, 2011, the Authority entered into a Grant of Temporary Emergency Vehicle Access Easement (the Easement) with a group of individuals and family trusts (the Grantors) that will allow the Authority to construct an emergency vehicle access road that is required pursuant to the terms of the MOA The Authority paid $9.0 million (the Easement Acquisition Price) to the Grantors pursuant to the Easement. The Easement is effective until July 31, 2016 (the Easement Expiration Date). In a separate agreement (the Purchase Agreement), the Tribe has agreed to acquire from the Grantors an approximately 310-acre parcel of land (the Property) contiguous to the Tribes reservation that includes the land that is the subject of the Easement. The Authority, the Tribe and the Grantors have agreed that the Easement Acquisition Price will be credited towards the purchase price for the Property. The Tribe has agreed to pay the balance of the purchase price for the Property to the Grantors over five years pursuant to a note from the Grantors that requires a final payment by the Easement Expiration Date.
The Authority expects to commence construction of the emergency vehicle access road in the near future so as to complete the construction in 2012 within the timeframes required by the MOA.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying unaudited condensed financial statements and related notes included in Item 1 of this report.
Overview
We are an unincorporated governmental instrumentality of the Tribe that owns and operates the Casino. We offer Class III slot and video poker gaming machines, house banked table games (including Blackjack and Mini-baccarat), and a wide range of food and beverage offerings.
Recent Operational Highlights
As part of the effort to enhance the overall appeal of our casino, we completed a reconfiguration of our gaming floor in April 2009. This effort has resulted in the reduction of approximately 300 slot machines and 2 table games. The Tribe maintained our contractual rights under the Compact to operate a total of 1,600 slot machines in our casino. We considered many factors such as peak period demand, per unit productivity and player comfort in our analysis to ensure that the reduction of gaming devices will not adversely impact our revenues. Throughout 2011 we continued to refine the configuration of our gaming floor.
A targeted, cost-efficient renovation project was completed in our fiscal year ended December 31, 2009 as part of an overall strategic operating plan for the casino. In previous anticipation of building a new casino resort, the current facility had not been upgraded for several years. In addition to the physical plant of the gaming operation, furniture, fixtures, equipment and gaming software was neither replaced nor repaired to adequately service the needs of the business. The overall appearance and appeal of the casino was insufficient to meet basic customer requirements. Major components of the renovation project included upgrading slot accounting software, slot and table player tracking software, adding new carpeting, new slot chairs, interior and exterior signage and the replacement of paint and wallpaper. To further enhance the overall gaming experience and appeal to a broader spectrum of potential gamers, two additional food amenities were constructed. Fortune Café, with 64 seats, offers a quick service, cook-to-order Asian-themed menu and is designed to be a high-margin, high-volume, quick turn restaurant and the Center Stage Bar & Grill, with 64 seats, offering bar top video poker games, was recently expanded to include a casual dining area and an upgraded stage and sound system that hosts live music and entertainment on the weekends.
In an ongoing effort to improve the overall appearance and appeal of the Casino to meet customer requirements, we completed two additional renovation projects in 2010. The first project, a high-limit room offering high-limit slot machines and table games, comfortable seating, a bar with food and beverage service, and a private restroom was directed to appeal to a higher end player. The second project, Lucky Dogz, is a 24-hour snack shop serving hot dogs, sandwiches, salads, snacks and drinks.
In January 2011, the poker tables were removed to make way for approximately 60 penny denomination slot machines that were placed in service in February 2011.
The construction of our new casino resort has temporarily been postponed due to lack of available financing. We are actively reviewing our financing options and remain shovel ready to proceed.
We have a significant amount of debt coming due in fiscal 2011 that we may not be able to repay. Our $200.0 million of Senior Notes mature in November 2011. We have been exploring our options to refinance our Senior Notes and expect to propose a refinancing transaction in the near future. While we expect to be able to
refinance this debt, there can be no assurances that this in fact will occur. In such case, failure to refinance or extend the maturity date of this debt will give the holders of such debt certain rights under our indenture which are limited by the terms of our indenture, our waiver of sovereign immunity and remedies available to creditors to Native American gaming operators under federal law and by our Compact. In addition, it is uncertain whether we or the Tribe may be a debtor in a case under the U.S. Bankruptcy Code. Without bankruptcy court protection, other creditors might receive preferential payments or otherwise obtain more than they would have under a bankruptcy court proceeding. If we commence a case under the U.S. Bankruptcy Code and the bankruptcy court does not dismiss the case, payments from the debtor would cease. It is uncertain how long payments under the Senior Notes could be delayed following commencement of a bankruptcy case.
FASB Codification Discussion
Over the years, the Financial Accounting Standards Board (FASB) and other designated GAAP-setting bodies, have issued standards in the form of FASB Statements, Interpretations, FASB Staff Positions, EITF consensuses, AICPA Statements of Position, etc. The FASB recognized the complexity of its standard-setting process and embarked on a revised process in 2004 resulting in the release of the FASB Accounting Standards Codification (the ASC) on July 1, 2009. The ASC was effective for financial statements for interim or annual reporting periods ending after September 15, 2009.
The ASC became the source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date of this Statement, the ASC superseded all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the ASC became nonauthoritative.
Following the ASC, FASB does not issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts. Instead, it issues Accounting Standards Updates. FASB does not consider Accounting Standards Updates as authoritative in their own right. Accounting Standards Updates serve only to update the ASC, provide background information about the guidance, and provide the bases for conclusions on the change(s) in the ASC.
Critical Accounting Policies and Estimates
We have identified certain critical accounting policies and estimates that affect our more significant judgments and estimates used in the preparation of our financial statements. The preparation of our financial statements, in conformity with GAAP, requires that we make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate those estimates, including those related to asset impairment, accruals for our promotional slot club, compensation and related benefits, revenue recognition, contingencies and litigation. These estimates are based on the information that is currently available to us and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could vary from those estimates under different assumptions or conditions. We believe that the following critical accounting policies affect significant judgments and estimates used in the preparation of our financial statements:
· Casino Revenues Casino revenue is recognized as the net win from gaming activities, which is the difference between gaming wins and losses. Casino revenues are net of accruals for anticipated payouts of progressive slot jackpots and certain player incentives, when earned by the customer.
· Capital Assets Capital assets are stated at cost. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets as follows:
Buildings and improvements: |
|
5-21 years |
|
Furniture, fixtures and equipment: |
|
5 years |
|
We evaluate our capital assets for impairment in accordance with the Accounting pronouncement GASB No. 42, Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries. GASB No. 42 establishes accounting and financial reporting standards for impairment of capital assets. Our capital assets include building and improvements, furniture, fixtures and equipment. A capital asset is considered impaired if both the decline in service utility of the capital asset is large in magnitude and the event or change in circumstances is outside the normal life cycle of the capital asset. We are required to evaluate prominent events or changes in circumstances affecting capital assets to determine whether impairment of a capital asset has occurred. Common indicators of impairment include evidence of physical damage where restoration efforts are needed to restore service utility, enactment or approval of laws or regulations setting standards that the capital asset would not be able to meet, technological development or evidence of obsolescence, a change in the manner or expected duration of use of a capital asset or construction stoppage. GASB No. 42 requires us to report the effects of capital asset impairment in our financial statements when they occur, rather than as part of the ongoing depreciation expense for the capital asset or upon disposal of the capital asset, and to account for insurance recoveries in the same manner.
· Accrued Progressive Slot Jackpots Accrued progressive slot jackpots consist of estimates for prizes relating to various games that have accumulated jackpots. We have recorded the anticipated payouts as a reduction of casino revenues and as a component of accrued liabilities. We do not accrue for the base jackpot.
· Contingencies We assess our exposure to loss contingencies, including legal matters, and provide for an exposure if it is judged to be probable and estimable. If the actual loss from a contingency differs from managements estimate, operating results could be materially impacted. As of June 30, 2011, we have determined that no accruals for claims and legal actions are required. If circumstances surrounding claims and legal actions change materially, the addition of accruals for such items in future periods may be required.
Codification There are differences between financial statements prepared in accordance with GASB pronouncements and those prepared in accordance with the Codification issued by the FASB. The statements of revenues, expenses and changes in net assets are a combined statement under GASB pronouncements. The FASB Codification allows a statement of income or operations and a separate statement of owners or shareholders equity, which is where distributions to owners would be presented. The amount shown as income before distributions to the Tribe would be the most comparable amount to net income computed under the FASB Codification. We are a separate enterprise fund of the Tribe, a governmental entity, and as such there is no owners or shareholders equity as traditionally represented under the FASB Codification. The most comparable measure of owners equity is presented on our balance sheet as net assets.
The SEC has issued a final rule, Internal Control Over Financial Reporting in Exchange Act Periodic Reports of Non-Accelerated Filers that is applicable to us. This rule provides a permanent exemption for nonaccelerated filers from the requirement to obtain an external audit on the effectiveness of internal financial reporting controls provided in Section 404(b) of the Sarbanes-Oxley Act of 2002 (SOX). Specifically, this rule adopts amendments to SEC rules and forms to conform them to Section 404(c) of SOX, as added by Section 989G of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Section 404(c) provides that Section 404(b) of SOX does not apply with respect to any audit report prepared for an issuer that is neither an accelerated filer nor a large accelerated filer as defined in Rule 12b-2 under the Securities Exchange Act of 1934.
Recent Developments
On August 3, 2011, we entered into a Grant of Temporary Emergency Vehicle Access Easement (the Easement) with a group of individuals and family trusts (the Grantors) that will allow us to construct an emergency vehicle access road that is required pursuant to the terms of the Memorandum of Agreement, as amended (the MOA), dated March 18, 2008, between Sonoma County (the County) and the Tribe. We paid $9.0 million (the Easement Acquisition Price) to the Grantors pursuant to the Easement. The Easement is effective until July 31, 2016 (the Easement Expiration Date). In a separate agreement (the Purchase Agreement), the Tribe has agreed to acquire from the Grantors an approximately 310-acre parcel of land (the Property) contiguous to the Tribes reservation that includes the land that is the subject of the Easement. We, the Tribe and the Grantors have agreed that the Easement Acquisition Price will be credited towards the purchase price for the Property. The Tribe has agreed to pay the balance of the purchase price for the Property to the Grantors over five years pursuant to a note from the Grantors that requires a final payment by the Easement Expiration Date.
We expect to commence construction of the emergency vehicle access road in the near future so as to complete the construction in 2012 within the timeframes required by the MOA.
RIVER ROCK ENTERTAINMENT AUTHORITY
(A Governmental Instrumentality of the Dry Creek Rancheria Band of Pomo Indians)
RESULTS OF OPERATIONS
For the Three Months Ended June 30, 2011 and 2010
(Dollars in Millions)
|
|
|
|
|
|
Dollar |
|
Percentage |
|
|
|
June 30, |
|
Variance |
|
Variance |
| ||
|
|
2011 |
|
2010 |
|
2011 vs. 2010 |
|
2011 vs. 2010 |
|
OPERATING REVENUES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casino |
|
30.0 |
|
31.1 |
|
(1.1 |
) |
-3.6 |
% |
Food and beverage |
|
1.6 |
|
1.5 |
|
0.1 |
|
5.5 |
% |
Other |
|
0.2 |
|
0.3 |
|
|
|
-17.6 |
% |
|
|
|
|
|
|
|
|
|
|
Gross revenues |
|
31.8 |
|
32.9 |
|
(1.1 |
) |
-3.3 |
% |
|
|
|
|
|
|
|
|
|
|
Promotional allowances |
|
(0.6 |
) |
(0.4 |
) |
(0.2 |
) |
-38.6 |
% |
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
31.2 |
|
32.4 |
|
(1.2 |
) |
-3.8 |
% |
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
Casino |
|
4.2 |
|
4.1 |
|
0.1 |
|
3.6 |
% |
Food and beverage |
|
1.5 |
|
1.7 |
|
(0.2 |
) |
-13.7 |
% |
Selling, general, and administrative |
|
10.0 |
|
10.1 |
|
(0.2 |
) |
-1.7 |
% |
Depreciation |
|
2.6 |
|
2.3 |
|
0.3 |
|
10.8 |
% |
Gaming commission and surveillance expense |
|
0.7 |
|
0.8 |
|
|
|
-4.8 |
% |
Compact revenue sharing trust fund |
|
0.3 |
|
0.3 |
|
|
|
|
|
Gain on sale of assets |
|
(0.1 |
) |
|
|
(0.1 |
) |
-100.0 |
% |
Total Operating expenses |
|
19.2 |
|
19.3 |
|
(0.1 |
) |
-0.5 |
% |
|
|
|
|
|
|
|
|
|
|
INCOME FROM OPERATIONS |
|
12.0 |
|
13.1 |
|
(1.1 |
) |
-8.7 |
% |
|
|
|
|
|
|
|
|
|
|
NON-OPERATING EXPENSE-Net: |
|
|
|
|
|
|
|
|
|
Interest expense |
|
(5.2 |
) |
(5.2 |
) |
|
|
-0.6 |
% |
Interest income |
|
|
|
|
|
|
|
-60.0 |
% |
|
|
|
|
|
|
|
|
|
|
Non-operating expense-net |
|
(5.2 |
) |
(5.2 |
) |
|
|
-0.4 |
% |
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE DISTRIBUTIONS TO TRIBE |
|
6.8 |
|
7.9 |
|
(1.1 |
) |
-14.1 |
% |
Results of Operations
Comparison of the three months ended June 30, 2011 and 2010
Net revenues. Net revenues for the three months ended June 30, 2011 decreased by $1.2 million to $31.2 million, from $32.4 million for the three months ended June 30, 2010. We believe the decrease in net revenues is attributable to the decline of slot coin-in between the second quarter of 2011 and the second quarter of 2010. We believe that this decline can be attributed to the increase in gasoline prices that resulted in fewer visits from our drive-up patrons. Approximately 96.3% of our net revenues were from our gaming activities in the first quarter of 2011, as compared to 96.0% in the comparable prior year period.
We generated $27.8 million or 89.1% of our net revenues from gaming devices, and $2.2 million, or 7.2% of our net revenues from table games for the three months ended June 30, 2011, as compared to $28.4 million or 87.5% of our net revenues from gaming devices, and $2.7 million or 8.5% of net revenues, from table games and poker for the three months ended June 30, 2010. Casino revenue is net of player incentives of $3.2 million for each of the three months ended June 30, 2011 and 2010.
Our win per slot machine per day was $238 for the three months ended June 30, 2011, which decreased by $18 from $256 for the three months ended June 30, 2010. We had an average number of slot machines of 1,286 for the three months ended June 30, 2011, compared to 1,217 for the three months ended June 30, 2010. At June 30, 2011, we had 1,285 slot machines on the gaming floor. In January 2011, the poker room was closed and converted to space for approximately 60 penny denomination slot machines that were placed in service in February 2011.
We generated $1.0 million, net of promotional allowances in food and beverage sales for each of the three months ended June 30, 2011, and 2010. The retail value of our food and beverage provided to customers without charge is included in gross revenues and then deducted as promotional allowances. We do not provide complimentary alcoholic beverages to our patrons.
Promotional allowances. Promotional allowances for the three months ended June 30, 2011 were $0.6 million, or 2.0% of net revenues, compared to $0.4 million, or 1.4% of net revenues, for the three months ended June 30, 2010.
Operating expenses. Operating expenses for the three months ended June 30, 2011 were $19.2 million, or 61.6% of net revenues, compared to $19.3 million, or 59.6% of net revenues, for the three months ended June 30, 2010.
Casino expense includes costs associated with our gaming operations and an allocation of food and beverage expense related to the cost of complimentary activities. Casino expense for the three months ended June 30, 2011 was $4.2 million, or 14.0% of Casino revenues compared to $4.1 million, or 13.0% of casino revenues, for the three months ended June 30, 2010.
Food and beverage expense for the three months ended June 30, 2011 was $1.5 million, or 153.5% of food, beverage and retail revenue, net of promotional allowances, compared to $1.7 million, or 163.0% of food and beverage revenue, net of promotional allowances for the three months ended June 30, 2010. Our food and beverage expense ratio is significantly higher than the industry average because we have utilized these amenities as an opportunity to build customer loyalty rather than as a source of income.
Selling, general and administrative expense for the three months ended June 30, 2011 decreased by $0.2 million to $10.0 million, or 32.0% of net revenues, from $10.1 million, or 31.3% of net revenues, for the three months ended June 30, 2010. The decrease in selling, general and administrative expense is attributable primarily to a decrease in advertising expenses.
Depreciation expense for the three months ended June 30, 2011 was $2.6 million compared to $2.3 million for the three months ended June 30, 2010. Depreciation expense was computed using the straight-line method over the useful lives of capital assets. The increase in depreciation expense is due to the purchase of new slot machines.
Gaming Commission and surveillance expense for the three months ended June 30, 2011 was $0.7 million compared to $0.8 million for the three months ended June 30, 2010. The decrease is due to reduction in staff and related payroll expenses and benefits.
The Compact requires us to pay a quarterly fee to the State of Californias revenue sharing trust fund, based on the number of licensed gaming devices we are allowed to operate. Revenue sharing trust fund fees assessed were $0.3 million for each of the three months ended June 30, 2011 and 2010.
Income from operations. Income from operations for the three months ended June 30, 2011 was $12.0 million, or 38.4% of net revenues, compared to $13.1 million, or 40.4% of net revenues, for the three months ended June 30, 2010. The decrease in income from operations is primarily attributable to a drop in revenues due to a reduction in revenues caused by higher gasoline prices which have resulted in fewer drive-up patrons.
Non-operating expense, net. Non-operating expense, net for the three months ended June 30, 2011 was $5.2 million, or 16.6% of net revenues, compared to $5.2 million or 16.0% of net revenues, for the three months ended June 30, 2010, primarily representing interest expense for both periods. Interest costs capitalized in the three months ended June 30, 2011 was $29,000. No interest costs were capitalized during the three months ended June 30, 2010.
Income before distributions to Tribe. Income before distributions to the Tribe for the three months ended June 30, 2011 was $6.8 million, or 21.8% of net revenues, compared to $7.9 million, or 24.4% of net revenues, for the three months ended June 30, 2010.
Distributions to the Tribe. Distributions to the Tribe for the three months ended June 30, 2011 were $3.5 million compared to $3.4 million for the three months ended June 30, 2010.
RIVER ROCK ENTERTAINMENT AUTHORITY
(A Governmental Instrumentality of the Dry Creek Rancheria Band of Pomo Indians)
RESULTS OF OPERATIONS
For the Six Months Ended June 30, 2011 and 2010
(Dollars in Millions)
|
|
|
|
|
|
Dollar |
|
Percentage |
|
|
|
June 30, |
|
Variance |
|
Variance |
| ||
|
|
2011 |
|
2010 |
|
2011 vs. 2010 |
|
2011 vs. 2010 |
|
OPERATING REVENUES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casino |
|
60.1 |
|
62.1 |
|
(2.0 |
) |
-3.1 |
% |
Food and beverage |
|
3.1 |
|
2.9 |
|
0.2 |
|
7.3 |
% |
Other |
|
0.4 |
|
0.5 |
|
(0.1 |
) |
-16.0 |
% |
|
|
|
|
|
|
|
|
|
|
Gross revenues |
|
63.7 |
|
65.5 |
|
(1.8 |
) |
-2.8 |
% |
|
|
|
|
|
|
|
|
|
|
Promotional allowances |
|
(1.2 |
) |
(0.8 |
) |
(0.3 |
) |
-41.4 |
% |
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
62.5 |
|
64.7 |
|
(2.2 |
) |
-3.3 |
% |
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
Casino |
|
8.5 |
|
7.9 |
|
0.6 |
|
8.2 |
% |
Food and beverage |
|
3.1 |
|
3.5 |
|
(0.4 |
) |
-12.2 |
% |
Selling, general, and administrative |
|
19.6 |
|
20.7 |
|
(1.1 |
) |
-5.2 |
% |
Depreciation |
|
5.0 |
|
4.8 |
|
0.2 |
|
3.3 |
% |
Gaming commission and surveillance expense |
|
1.4 |
|
1.5 |
|
(0.1 |
) |
-6.9 |
% |
Compact revenue sharing trust fund |
|
0.7 |
|
0.7 |
|
|
|
0.0 |
% |
Gain on sale of equipment |
|
(0.1 |
) |
|
|
(0.1 |
) |
-100.0 |
% |
Total Operating expenses |
|
38.2 |
|
39.1 |
|
(0.9 |
) |
-2.2 |
% |
|
|
|
|
|
|
|
|
|
|
INCOME FROM OPERATIONS |
|
24.3 |
|
25.6 |
|
(1.3 |
) |
-5.1 |
% |
|
|
|
|
|
|
|
|
|
|
NON-OPERATING EXPENSE-Net: |
|
|
|
|
|
|
|
|
|
Interest expense |
|
(10.3 |
) |
(10.4 |
) |
(0.1 |
) |
-0.9 |
% |
Interest income |
|
|
|
|
|
|
|
-53.6 |
% |
|
|
|
|
|
|
|
|
|
|
Non-operating expense-net |
|
(10.3 |
) |
(10.4 |
) |
(0.1 |
) |
-0.7 |
% |
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE DISTRIBUTIONS TO TRIBE |
|
14.0 |
|
15.2 |
|
(1.2 |
) |
-8.1 |
% |
Comparison of the six months ended June 30, 2011 and 2010
Net revenues. Net revenues for the six months ended June 30, 2011 decreased by $2.2 million to $62.5 million, from $64.7 million for the six months ended June 30, 2010. We believe the decrease in net revenues is attributable to the decline of slot coin-in between the first six months of 2011 and the first six months of 2010. We believe that this decline is attributable to an increase in gasoline prices that resulted in fewer visits from our drive-up patrons. Approximately 96.2% of our net revenues were from our gaming activities in the first six months of 2011, as compared to 96.0% in the comparable prior year period.
We generated $55.2 million or 88.3% of our net revenues from gaming devices, and $4.9 million, or 7.9% of our net revenues from table games and poker for the six months ended June 30, 2011, as compared to $56.4 million or 87.1% of our net revenues from gaming devices, and $5.7 million or 8.8% of net revenues from table games and poker for the six months ended June 30, 2010. Casino revenue is net of player incentives of $6.4 million and $6.1 million for the six months ended June 30, 2011 and 2010, respectively.
Our win per slot machine per day was $239 for the six months ended June 30, 2011, which decreased by $18 from $257 for the six months ended June 30, 2010. We had an average number of slot machines of 1,277 for the six months ended June 30, 2011, compared to 1,214 for the six months ended June 30, 2010. At June 30, 2011, we had 1,285 slot machines on the gaming floor. In January 2011, the poker room was closed and converted to space for approximately 60 penny denomination slot machines that were placed in service in February 2011.
We generated $2.0 million in food and beverage sales for the six months ended June 30, 2011 net of promotional allowances, compared to $2.1 million for the six months ended June 30, 2010 net of promotional allowances. The retail value of our food and beverage provided to customers without charge is included in gross revenues and then deducted as promotional allowances. We do not provide complimentary alcoholic beverages to our patrons.
Promotional allowances. Promotional allowances for the six months ended June 30, 2011 were $1.2 million, or 1.9% of net revenues, compared to $0.8 million, or 1.3% of net revenues, for the six months ended June 30, 2010.
Operating expenses. Operating expenses for the six months ended June 30, 2011 were $38.2 million, or 61.1% of net revenues, compared to $39.1 million, or 60.4% of net revenues, for the six months ended June 30, 2010. The decrease in operating expenses is attributable to expense reductions due to cost saving measures we adopted to adjust for a slight decline in customer demand.
Casino expense includes costs associated with our gaming operations and an allocation of food and beverage expense related to the cost of complimentary activities. Casino expense for the six months ended June 30, 2011 was $8.5 million, or 14.2% of Casino revenues compared to $7.9 million, or 12.7% of casino revenues, for the six months ended June 30, 2010.
Food and beverage expense for the six months ended June 30, 2011 was $3.1 million, or 155.7% of food and beverage revenue, net of promotional allowances, compared to $3.5 million, or 166.6% of food and beverage revenue, net of promotional allowances, for the six months ended June 30, 2010. Our food and beverage expense ratio is significantly higher than the industry average because we have utilized these amenities as an opportunity to build customer loyalty rather than as a source of income.
Selling, general and administrative expense for the six months ended June 30, 2011 decreased by $1.1 million to $19.6 million, or 31.4% of net revenues, from $20.7 million, or 32.0% of net revenues, for the six months ended June 30, 2010. The decrease in selling, general and administrative expense is attributable primarily to a decrease in advertising expenses.
Depreciation expense for the six months ended June 30, 2011 was $5.0 million compared to $4.8 million for the six months ended June 30, 2010. Depreciation expense was computed using the straight-line method over the useful lives of capital assets. The increase in depreciation expense is due to the purchase of new slot machines.
Gaming Commission and surveillance expense for the six months ended June 30, 2011 was $1.4 million compared to $1.5 million for the six months ended June 30, 2010. The decrease is due to reduction in staff and related payroll expenses and benefits.
The Compact requires us to pay a quarterly fee to the State of Californias revenue sharing trust fund, based on the number of licensed gaming devices we are allowed to operate. Revenue sharing trust fund fees assessed were $0.7 million for each of the six months ended June 30, 2011 and 2010.
Income from operations. Income from operations for the six months ended June 30, 2011 was $24.3 million, or 38.9% of net revenues, compared to $25.6 million, or 39.6% of net revenues, for the six months ended June 30, 2010.
Non-operating expense, net. Non-operating expense, net for the six months ended June 30, 2011 was $10.3 million, or 16.5% of net revenues, compared to $10.4 million or 16.1% of net revenues, for the six months ended June 30, 2010, primarily representing interest expense for both periods. Interest costs capitalized in the six months ended June 30, 2011 was $0.1 million. There was no capitalized interest expense for 2010.
Income before distributions to Tribe. Income before distributions to the Tribe for the six months ended June 30, 2011 was $14.0 million, or 22.3% of net revenues, compared to $15.2 million, or 23.5% of net revenues, for the six months ended June 30, 2010
Distributions to the Tribe. Distributions to the Tribe for the six months ended June 30, 2011 were $6.9 million, compared to $6.8 million for the six months ended June 30, 2010.
Liquidity and Capital Resources
Since our inception, we have funded our capital expenditures and working capital requirements primarily through debt financing, gaming equipment supplier financing, other financing, and operating cash flow.
Construction of our Casino and infrastructure improvements commenced on April 1, 2002. As of June 30, 2011, we had spent approximately $247.5 million, net of disposals, on the planning, development and construction of our casino, infrastructure and furniture, fixtures and equipment. We financed the development with borrowings and development advances.
On March 18, 2008, the Tribe and the Sonoma County Board of Supervisors entered into the MOA that, among other things, settled several long-standing legal disputes between Sonoma County and the Tribe and provides a binding framework for resolving future disputes. Sonoma County agreed to drop its opposition to the Tribes application for a liquor license subject to the agreement by the Tribe to construct an emergency access road that meets Sonoma Countys approval.
Pursuant to the MOA, as amended, the Tribe has agreed to pay Sonoma County up to $75 million in mitigation fees over a 12 year period to offset impacts of the potential losses and impacts to Sonoma County resulting from the Tribes various ongoing and proposed development projects and is intended to support the services being provided by Sonoma County. In addition to the mitigation fees, the Tribe will pay a fee in lieu of Sonoma Countys Transient Occupancy Tax in the amount of 9% of the rental collected on occupied hotel rooms that may be developed by the Tribe, to be paid quarterly and continuing for five years after the later to occur of the termination of the MOA, as may be extended, or the Tribes Compact with the State (which is now terminable in 2020 at the earliest), which fees may be applied to programs and services that serve to promote tourism in Sonoma County. Such in lieu fees could total as much as $25 million during the term of the MOA. The Tribe has made the prior payments to the County in the total amount of $10.3 million and is not currently seeking reimbursement from us. Effective 2011, the Authority has begun making annual payments toward the remaining balance of the $75 million.
In May 2011, the Sonoma County Board of Supervisors approved a revision to the payment terms of the MOA. The Authority will pay, on behalf of the Tribe, to the County $3.5 million per year commencing June 30, 2011 and continuing each June 30 until the date of the opening of the first phase of an expanded resort facility (the Opening Date). Each annual payment will be recognized over the successive twelve month period. In the event the Opening Date occurs less than one year prior to the end of the term of the MOA (the Term), on the Opening Date the parties to the MOA shall calculate the difference between $75.0 million and the sum of all payments made from the beginning of the MOA (the Deferred Amount) through the Opening Date and the Tribe shall be obligated to pay
to the County one-half of the Deferred Amount on the Opening Date and the balance at the end of the Term. If more than one year remains between the Opening Date and the end of the Term, the Deferred Amount shall be amortized into equal annual payments over the number of years remaining, plus one if the Opening Date occurs before June 30 of that year, and the Tribe shall be obligated to pay the first annual payment on the Opening Date and the remaining annual payments commencing on the June 30 next following the Opening Date and on each June 30 thereafter through the end of the Term. If the Opening Date does not occur prior to the end of the Term, the Deferred Amount shall be payable by June 30, 2020, unless the MOA is properly reopened as provided for therein and an alternative payment schedule is agreed upon by the parties thereto. As of June 30, 2011, $13.8 million has been paid pursuant to the MOA and the Deferred Amount is $61.2 million. Pursuant to the MOA, the future payment schedule is open to renegotiation by either party due to unforeseen circumstances, including the inability to open the first phase of an expanded resort facility.
To date, access to the Tribes reservation and our casino has been over a single, two-lane road. Under the MOA, the Tribe covenanted as a condition to the issuance of our liquor license to construct an emergency access road from the casino over either the Dugan Property or at an alternative site subject to approval by Sonoma County. The MOA requires that road construction commence no later than 60 days after the Dugan Property is taken into trust by the United States for the benefit of the Tribe, the effective date of which was November 2010 (the Trust Date) and to be completed no later than 365 days after the Trust Date, subject to an extension if such commencement date occurs during the rainy season (approximately October 15th through April 15th).
In May 2011, the Sonoma County Board of Supervisors approved a revision to the construction schedule for the emergency access road. The Tribe has been given time to acquire property on which to construct the emergency access road. Construction must begin the later of 30 days after the end of the rainy season as determined by National Oceanic and Atmospheric Administration Fisheries Service, or 60 days after the Tribe acquires the property, whichever is later. In any event the construction of the emergency access road must commence no later than June 30, 2012. The cost of the road construction is projected to be $3.8 million. The construction will be financed either by free cash or as part of our upcoming refinancing.
On August 3, 2011, the Authority entered into a Grant of Temporary Emergency Vehicle Access Easement (the Easement) with a group of individuals and family trusts (the Grantors) that will allow us to construct an emergency vehicle access road that is required pursuant to the terms of the Memorandum of Agreement, as amended (the MOA), dated March 18, 2008, between Sonoma County (the County) and the Tribe. The Authority paid $9.0 million (the Easement Acquisition Price) to the Grantors pursuant to the Easement. The Easement is effective until July 31, 2016 (the Easement Expiration Date). In a separate agreement (the Purchase Agreement), the Tribe has agreed to acquire from the Grantors an approximately 310-acre parcel of land (the Property) contiguous to the Tribes reservation that includes the land that is the subject of the Easement. The Authority, the Tribe and the Grantors have agreed that the Easement Acquisition Price will be credited towards the purchase price for the Property. The Tribe has agreed to pay the balance of the purchase price for the Property to the Grantors over five years pursuant to a note from the Grantors that requires a final payment by the Easement Expiration Date.
On June 28, 2007, we and the Tribe announced plans to build a destination resort. The proposed project includes the construction of a casino, hotel and spa, several food and beverage venues, parking and storage, administrative facilities, a garden and terrace plaza, balconies and terraces, a retail area, conference facilities, and back of house facilities. The proposed project includes three above-ground levels and a hotel tower (up to eight levels) and four below-ground levels. We and the Tribe have suspended preliminary construction relating to this expansion project. We will be unable to proceed with the expansion project for the foreseeable future due to the unavailability of capital and lack of cash flow.
Prior to the suspension of the master planning and related infrastructure improvements on the reservation relating to the expansion project in early 2009, the Tribe incurred approximately $67 million in total expenses on our behalf for the expansion project. We reimbursed the Tribe approximately $52.4 million through FY 2009. In
January 2010, our Board of Directors authorized the reimbursement to the Tribe in an amount not to exceed approximately $14.9 million of costs incurred by the Tribe for the master planning of the proposed resort and our allocable share of infrastructure improvements on the Tribes reservation. The approval included a payment reimbursement schedule to the Tribe of $2.7 million on January 18, 2010, $0.4 million monthly from February 1, 2010 through April 1, 2010 and $0.7 million monthly thereafter without exceeding $14.9 million. We reimbursed the Tribe $9.5 million for the fiscal year ended December 31, 2010 and $4.2 million for the six months ended June 30, 2011. A remaining balance of $0.5 million is included in Payable to Tribe in the Condensed Balance Sheet at June 30, 2011. When the reimbursement payments are made or accrued, the related amounts are capitalized and reflected as construction-in-progress. The reimbursed costs consist of engineering and design costs related to the proposed master plan development, including electrical, HVAC, landscaping, interior design services and consulting fees for legal, and feasibility services, as well as the construction costs of the lower Acorn Road.
Our capital expenditures for the six months ended June 30, 2011 and 2010 were $9.5 million and $9.4 million, respectively. The addition to capital expenditures for the six months ended June 30, 2011 consisted of construction-in-progress related to the slope reinforcement of which approximately $1.3 million was reimbursed to the Tribe, the master plan development of our resort of which $4.2 million was reimbursed to the Tribe, and costs relating to remodels of our Casino and restaurants, and acquisitions of slot machines, vehicles and equipment of $4.0 million.
The Tribe incurred expenses related to the reinforcement of the slope on the northwest side of the Tribes Reservation near the Casino. During 2010, our Board of Directors authorized the reimbursement to the Tribe not to exceed $3.5 million, and an additional $0.3 million was approved in March 2011 for a total of $3.8 million. As of June 30, 2011, we capitalized approximately $3.8 million in construction costs, of which approximately $3.6 million has been paid to the Tribe. This project was completed in April 2011.
As part of the effort to enhance the overall appeal of our Casino, we completed a reconfiguration of our gaming floor in April 2009. This effort has resulted in the reduction of approximately 300 slot machines and 2 table games. We will maintain our contractual rights under the Compact to operate a total of 1,600 slot machines in our casino and pay the related RSTF payments. We considered many factors such as peak period demand, per unit productivity, and player comfort in our analysis to ensure that the reduction of gaming devices will not adversely impact our revenues. The reduction of gaming units on the casino floor has provided us an opportunity to upgrade current amenities, improve player comfort and enhance entertainment value. We are confident that these improvements, targeted at improving product appeal, will ultimately open up a greater spectrum of potential consumers within our designated market area. In combination with our continuing effort to improve operational efficiency, upgrading our gaming technology, and refocusing our marketing efforts, we are confident that we will have set a solid foundation for improved and sustained cash flows. Throughout 2011 we continued to refine the configuration of our gaming floor.
In an ongoing effort to improve the overall appearance and appeal of the Casino to meet customer requirements, we completed two additional renovation projects in 2010. The first project, a high-limit room offering high-limit slot machines and table games, comfortable seating, a bar with food and beverage service, and a private restroom was directed to appeal to a higher end player. The second project, Lucky Dogz, is a 24-hour snack shop serving hot dogs, sandwiches, salads, snacks and drinks. In January 2011, our poker room was converted to space for approximately 60 penny denomination slot machines that were placed in service in February 2011.
As of June 30, 2011, we had cash and cash equivalents, net of restricted cash of $37.2 million, compared to $36.7 million as of December 31, 2010. We had restricted cash of $4.3 million as of June 30, 2011 and December 31, 2010, respectively. Our principal source of liquidity during the six months ended June 30, 2011 consisted of cash flows from operating activities.
Restricted cash accounts were established from net proceeds from the Notes Offering and investment earnings thereon set aside in construction financing accounts reserved for land development, more specifically the emergency access road which will be used to further develop either the Dugan Property or an alternate access road. Our restricted cash is held in escrow accounts that can only be used for authorized construction disbursements until the related projects are completed. The balance of our restricted cash is reserved for the development of an emergency access road from our Casino to Highway 128. Our operating account is pledged to the Trustee for the benefit of itself and the holders of the Senior Notes until disbursed in accordance with the terms of the Cash Collateral and Disbursement Agreement. Funds may generally be disbursed by our bank from the operating account for all purposes permitted by the Indenture.
Net cash used in capital and related financing activities for the six months ended June 30, 2011 was $19.3 million, compared to $19.6 million for the six months ended June 30, 2010. This decrease was attributable to a decrease in debt service payments.
Cash flows provided by investing activities consisting of interest income for the six months ended June 30, 2011 and 2010 was negligible.
Cash flows used in non-capital financing activities for the six months ended June 30, 2011 was $6.9 million, compared to $6.8 million for the six months ended June 30, 2010. Cash flows used in non-capital financing activities consist of distributions to the Tribe.
We believe that existing cash balances, cash from operations, as well as permitted disbursements from our restricted cash escrow accounts will provide adequate funds for our working capital needs, planned capital expenditures and debt service requirements for the foreseeable future. However, our ability to fund our operations, make planned capital expenditures, make scheduled debt payments and refinance our indebtedness depends on our future operating performance and cash flow, which, in turn, are subject to prevailing economic conditions and to financial, business and other factors, some of which are beyond our control. Additionally, the Indenture limits our ability to incur additional indebtedness.
We have a significant amount of debt coming due in fiscal 2011 that we may not be able to repay. Our $200.0 million of Senior Notes mature in November 2011. We have been exploring our options to refinance our Senior Notes and expect to propose a refinancing transaction in the near future. While we expect to be able to refinance this debt, there can be no assurances that this in fact will occur. In such case, failure to refinance or extend the maturity date of this debt will give the holders of such debt certain rights under our indenture which are limited by our waiver of sovereign immunity and remedies available to creditors to Native American gaming operators under federal law. In addition, it is uncertain whether we or the Tribe may be a debtor in a case under the U.S. Bankruptcy Code. Without bankruptcy court protection, other creditors might receive preferential payments or otherwise obtain more than they would have under a bankruptcy court proceeding. If we commence a case under the U.S. Bankruptcy Code and the Bankruptcy court does not dismiss the case, payments from the debtor would cease. It is uncertain how long payments under the Senior Notes could be delayed following commencement of a bankruptcy case.
Contractual Obligations as of June 30, 2011
The following table summarizes our contractual obligations and commitments as of June 30, 2011, excluding those obligations and commitments to the Tribe (Dollars in Thousands):
|
|
Total |
|
1 Year |
|
2-3 Years |
|
4-5 Years |
|
Over 5 Years |
| |||||
Long-term debt obligations (a) |
|
$ |
200,000 |
|
$ |
200,000 |
|
$ |
|
|
$ |
|
|
$ |
|
|
Operating lease obligations |
|
1,385 |
|
314 |
|
624 |
|
447 |
|
|
| |||||
Payments to County under MOA |
|
61,200 |
|
3,500 |
|
7,000 |
|
7,000 |
|
43,700 |
| |||||
Total obligations (b) |
|
$ |
262,585 |
|
$ |
203,814 |
|
$ |
7,624 |
|
$ |
7,447 |
|
$ |
43,700 |
|
(a) Excluded from long-term debt obligations above are interest payments of $9.8 million payable through the maturity of the Senior Notes. The Senior Notes mature on November 1, 2011. If refinancing were to take place prior to the maturity of our Senior Notes, we will calculate the interest due on a prorated basis.
(b) The Compact requires us to pay a quarterly fee of $0.3 million to the RSTF based on the number of our licensed gaming devices. Total obligations do not include the RSTF payments.
In January 2010, our Board of Directors authorized the reimbursement of the Tribe in an amount not to exceed $14.9 million for expenses that the Tribe incurred on our behalf for master planning of the proposed resort and our allocable share of infrastructure improvements on the reservation. The approval included a payment schedule under which we agreed to reimburse the Tribe $0.4 million monthly from February 1, 2010 through April 1, 2010, and $0.7 million monthly until paid (see Note 5 of our unaudited condensed financial statements) which are not included in total obligations above.
Regulation and Taxes
We are subject to extensive regulation by the Tribes Gaming Commission, the California Gambling Control Commission and the National Indian Gaming Commission. Changes in applicable laws or regulations could have a significant impact on our operations.
On March 18, 2008, the Tribe and the Sonoma County Board of Supervisors entered into the MOA that, among other things, settled several long-standing legal disputes between Sonoma County and the Tribe, and provides a binding framework for resolving future disputes. Under the MOA, the County agreed to drop its opposition to the Tribes application for a liquor license. In a related action, the Alexander Valley Association (AVA), a local business and residents association which has long objected to the issuance of a liquor license, agreed to withdraw its objections to the license and has persuaded its members and a number of other protestors to do likewise.
On May 29, 2008, the California Department of Alcoholic Beverage Control (ABC) issued a liquor license to our gaming and entertainment facility. However, the Tribe has agreed to restrict the sale of alcohol to wine and beer between the hours of 11 a.m. and 5 p.m. on weekdays, and to stop serving alcohol altogether at midnight except for Friday and Saturday nights and the nights before holidays. The Tribe has also agreed not to serve liquor on the Casino floor, although patrons may bring drinks purchased at the restaurant or bar on to the Casino floor. The restrictions may be renegotiated following the first to occur of the three year anniversary of the MOA or the opening of a hotel.
On May 24, 2011 the Sonoma County Board of Supervisors extended the current restrictions on the sale and consumption of alcoholic beverages until January 2015.
In addition, the MOA commits the County Sheriffs Department and Fire Marshall to providing public safety and fire services to the Casino and the Tribes future gaming projects on the Tribes reservation, provides detailed agreements on off reservation impact mitigation measures, and permits the Tribes application to take the Dugan Property into trust to proceed without further opposition by Sonoma County.
Pursuant to the MOA, the Tribe has agreed to pay the County up to $75 million in mitigation fees over a 12 year period to offset impacts of the potential losses and impacts to the County resulting from the Tribes various ongoing projects and is intended to support the services being provided by Sonoma County. In addition to the mitigation fees, the Tribe will pay a fee in lieu of the Countys Transient Occupancy Tax in the amount of 9% of the rental collected on occupied hotel rooms, that may be developed by the Tribe, to be paid quarterly and continuing for five years after the later to occur of the termination of the MOA, as may be extended, or the Tribes Compact with the State (which is now terminable in 2020 at the earliest), which fees may be applied to programs and services that serve to promote tourism in Sonoma County. Such in lieu fees could total as much as $25 million during the term of the MOA. The Tribe has made the prior payments to the County in the total amount of $10.3 million and is not currently seeking reimbursement from us. Effective 2011, the Authority has begun making annual payments toward the remaining balance of the $75 million.
In May 2011, the Sonoma County Board of Supervisors approved a revision to the payment terms of the MOA. The Authority will pay, on behalf of the Tribe, to the County $3.5 million per year commencing June 30, 2011 and continuing each June 30 until the date of the opening of the first phase of an expanded resort facility (the Opening Date). Each annual payment will be recognized over the successive twelve month period. In the event the Opening Date occurs less than one year prior to the end of the term of the MOA (the Term), on the Opening Date the parties to the MOA shall calculate the difference between $75.0 million and the sum of all payments made from the beginning of the MOA (the Deferred Amount) through the Opening Date and the Tribe shall be obligated to pay to the County one-half of the Deferred Amount on the Opening Date and the balance at the end of the Term. If more than one year remains between the Opening Date and the end of the Term, the Deferred Amount shall be amortized into equal annual payments over the number of years remaining, plus one if the Opening Date occurs before June 30 of that year, and the Tribe shall be obligated to pay the first annual payment on the Opening Date and the remaining annual payments commencing on the June 30 next following the Opening Date and on each June 30 thereafter through the end of the Term. If the Opening Date does not occur prior to the end of the Term, the Deferred Amount shall be payable by June 30, 2020, unless the MOA is properly reopened as provided for therein and an alternative payment schedule is agreed upon by the parties thereto. As of June 30, 2011, $13.8 million has been paid pursuant to the MOA and the Deferred Amount is $61.2 million. Pursuant to the MOA, the future payment schedule is open to renegotiation by either party due to unforeseen circumstances, including the inability to open the first phase of an expanded resort facility.
We believe the MOA has had significant positive impacts on the conduct of our business and our and the Tribes ability to develop our expansions plans and construct our proposed hotel and casino resort.
Since we are an unincorporated governmental instrumentality of the Tribe located on reservation land held in trust by the United States of America, we are not subject to federal or state income taxes. Various efforts have been made in Congress over the past several years to enact legislation that would subject the income of tribal governmental business entities, such as us, to federal income tax. Although no such legislation has been enacted, similar legislation could be passed in the future. It is not possible to determine with certainty the likelihood of possible changes in tax law or in the administration of such law. Such changes, if adopted, could have a material adverse effect on our operating results and cash flow from operations.
Impact of Inflation
Absent changes in competitive and economic conditions or in specific prices affecting the casino industry, we do not expect that inflation will have a significant impact on our Casino operations. Changes in specific prices, such as fuel and transportation prices, relative to the general rate of inflation may have a material adverse effect on the casino industry in general.
Seasonality
We anticipate that activity at our Casino may be modestly seasonal with stronger results expected during the summer due in part to the relatively higher levels of tourism during such times of the year. In addition, our operations may be impacted by adverse weather conditions and fluctuations in the tourism business. Accordingly, our results may fluctuate from quarter to quarter and the results of one quarter may not be indicative of results expected from future quarters.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices.
Through June 30, 2011, we had not invested in derivative or foreign currency-based financial instruments. We primarily have invested in money markets. As such, we do not believe we have material exposure to market risk.
ITEM 4T. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, management performed, with the participation of our Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in the report we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SECs forms, and that such information is accumulated and communicated to our management including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosures. Based on the evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of June 30, 2011, our disclosure controls and procedures were effective.
Changes to Internal Controls Over Financial Reporting
There have been no changes in internal control over financial reporting during the period covered by this report that has materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We are involved in litigation and disputes from time to time in the ordinary course of business with vendors and patrons. We believe that the aggregate liability, if any, arising from such litigation or disputes will not have a material adverse effect on its results of operations, financial condition or cash flows.
There have been no material changes from the risk factors previously disclosed in our most recent Form 10-K other than the following:
We face competition from other California Indian casinos, casinos located in Nevada and elsewhere and other forms of gaming.
The gaming industry is very competitive. We face or will face competition from existing and proposed California Indian gaming facilities in the surrounding area and elsewhere in California, and with casino gaming in Nevada, including gaming facilities that could be located closer to the San Francisco Bay area. We also compete with card rooms located in the surrounding area, and other forms of gaming that are legal in California, including on- and off-track wagering and the California State Lottery, as well as with non-gaming leisure activities. The availability of such alternative gaming and non-gaming activities may increase in the future. Many of our competitors have substantially greater resources and name recognition than our casino. In addition, we may also face competition in our market from new facilities that may be built by other Indian tribes in the future.
Federal and California law currently permit Class III casino gaming only on certain tribal lands pursuant to compacts negotiated with the State of California and approved by the U.S. Secretary of the Interior. Class II gaming for tribes is permitted only on certain federally recognized tribal lands. There are currently 55 tribes operating 56 compacted gaming facilities in the State of California. The closest existing tribal competitors are the Hopland Sho-ka-
wah Casino, located approximately 35 miles and 40 minutes north of the Tribes reservation; the Konocti Vista Casino, located approximately 45 miles and one hour and ten minutes northeast of the Tribes reservation; the Cache Creek Indian Casino and Bingo, located approximately 95 miles and two hours and fifteen minutes east of the Tribes reservation; and the Thunder Valley Casino, located approximately 124 miles and two hours and forty-five minutes east of the Tribes reservation. In addition, several potential competitors are attempting to develop and open casinos near our casino. Non-tribal card rooms that offer poker and some other games that would be classified as Class II games if conducted by an Indian tribe exist within 50 miles of the Tribes reservation.
The most significant competition may come from the proposed Graton Rancheria casino. In April 2003, the Federated Indians of the Graton Rancheria, also known as the Coast Miwoks, announced plans to purchase land in Sonoma County near Highway 37 and Lakeville Highway, approximately 20 miles south of our casino and closer to San Francisco than the Tribes reservation. The proposed location would lie directly between our casino and the majority of the 7 million population base of the San Francisco Bay area. The announced plans included construction of a casino-hotel complex that would be managed by Station Casinos, Inc., based in Las Vegas, Nevada, and would house approximately 2,000 slot machines, 120 card tables and bingo, as well as a 300-room hotel, five restaurants and a theater with up to 2,000 seats. As a result of environmental opposition to the development of such location, the Federated Indians of the Graton Rancheria announced plans to move the proposed casino-hotel complex to a site near Rohnert Park, California. The Rohnert Park City Council has approved an agreement with the Graton Tribe to share revenues with Rohnert Park and various community groups, approximately $200.0 million over 20 years, to offset the impact of the proposed project.
On October 1, 2010, the U.S. Department of the Interior took the proposed Rohnert Park site into federal trust on behalf of the Graton Tribe. The Department initially published notice of its intent to take the land into trust in May 2008, but withheld action on the trust acquisition due to a lawsuit filed by a citizens group opposed to the proposed casino. After the U.S. Court of Appeals for the Ninth Circuit upheld the district courts dismissal of the lawsuit on June 3, 2010, the Interior Department moved forward with taking the land into trust. The lands going into trust represents a significant step toward the development of a casino at Rohnert Park, as do the separate agreements negotiated between the Graton Tribe and Sonoma County and Marin County, whereby the counties pledged not to challenge the land-into-trust decision and the Graton Tribe agreed not to build any additional casinos in Sonoma or Marin Counties.
Also on October 1, 2010, the National Indian Gaming Commission (NIGC) approved a management contract between the Graton Tribe and SC Sonoma Management, LLC, an entity owned by Station Casinos, Inc. As part of its approval of the management contract, the NIGC also concluded its environmental review of and approved the environmental impact statement for the proposed casino, but for a reduced intensity project that includes a 317,750 square-foot casino with 65,000 square feet of gaming space and a 6-story, 200-room hotel, and that does not include the initially-proposed 2,000-seat theater. A spokesperson for the citizens group that filed the lawsuit challenging the fee-to-trust acquisition has stated publicly that the group will challenge the adequacy of the environmental review and approval, but no lawsuit has yet been filed.
Before the Graton Tribe may conduct gaming at the Rohnert Park site, the NIGC must issue an opinion finding that the lands at the Rohnert Park site are eligible for gaming under the Indian Gaming Regulatory Act. The NIGC approved the Graton Tribes gaming ordinance in August 2008. Because the management contract approved by the NIGC was for Class II gaming, the Graton Tribe can operate electronic bingo machines at the proposed casino without a tribal-state compact with the State of California. Before the Graton Tribe can operate Class III gaming at the Rohnert Park site, however, a tribal-state compact will be required. The Graton Tribe must also obtain financing for the proposed Rohnert Park casino project.
The Hopland Sho-ka-wah Casino is located several miles east of U.S. Highway 101 on Route 175. The facility features a 40,000 square foot casino offering 540 slot machines and eight table games, consisting of poker,
Pai Gow, and blackjack. The facility contains a bar and grill offering, a small cafe-type food and beverage area, and a fine-dining steak house. Hopland operates a small bus program but does not operate a hotel.
East of the Sho-ka-wah Casino is the Konocti Vista Casino in Lakeport, California. Lakeport is located approximately 37 miles from Cloverdale with access off Highway 20. The casino currently houses 349 slot machines and 6 table games. The facility also offers an 80-room hotel and marina with a small pool as well as a 74-space recreational vehicle park. The food and beverage program includes a restaurant and a bar.
The Thunder Valley Casino opened in June 2003 and is located at the intersection of Highway 65 and Interstate 80 just outside of Sacramento, California. The Nevada-style property offers approximately 3,000 slot machines and 125 table games that include blackjack, baccarat, and a variety of poker games including Let It Ride and Pai Gow. The facility features a salon, private dining rooms, bars and butler service. In addition, it houses a 500-seat buffet and various fast food options. The facility also features a nightclub. In 2008, the Thunder Valley Casino announced plans to build a new 650-room, 23-story hotel featuring a spa, family center and other amenities. Thunder Valley also planned to construct a 3,000-seat performing arts center, and to expand the casino to include three new restaurants, more gaming space and new poker room, and a parking structure capable of holding 5,000 cars. The expansion began in July 2008 but was halted in November 2008. In May 2009, the casino resumed work on a scaled-down expansion project that includes a 17-story hotel with 297 rooms; a 700-seat, 10,000-square-feet multipurpose entertainment center in place of the performing arts center; and a 7-story parking structure with approximately 3,800 spaces. The hotel opened in June 2010. Thunder Valley also added 40,000 square feet of space to and renovated its casino floor. The casino now has 144,500 square feet of gaming space.
The Cache Creek Casino is located approximately 50 miles west of Sacramento and offers over 2,000 slot machines. The casino has a 14-table poker room and houses 122 table games including blackjack, Texas Holdem, Pai Gow and mini-baccarat. The facility also includes a 200-room luxury hotel, 9 restaurant outlets, an entertainment pavilion with seating for 600, a spa and outdoor pool, an 18-hole golf course and a 1,883 spot parking structure. In 2007, Cache Creek announced plans to add more shops and parking and expand its gaming floor, and to add a 10-story, 467-room hotel tower, and a 62,500 square-foot convention center capable of seating 2,300 people. These expansion plans were put on hold in early October 2009 but were resumed in January 2010 when the Cache Creek Casino announced plans to resume the expansion, proposing to add over 20,000 square-feet of casino space, a 52,440 square-foot convention center, and a 900-car six-story garage. The construction of the event center and parking garage was halted in September 2010, though the renovation of the existing 200-room hotel has continued and is expected to be completed in September 2011.
The Lytton Band of Pomo Indians currently operates a 70,000 square-foot casino with over 1,300 Class II electronic bingo machines and 11 table games on a 9-acre site in a card room in San Pablo, near Oakland, California, on land that was placed in trust for the tribe through congressional legislation. The Lytton Band signed a compact with the Governor of California for operating Class III casino gaming on the San Pablo site in 2004, but in 2005 the state legislature withheld its approval of this compact. In May 2007, legislation was introduced in the U.S. Senate that would require the Lytton Band to forego any Class III machines at the San Pablo site and limit itself to operating its existing Class II machines. This legislation was passed by the Senate in November 2007 and referred to the U.S. House of Representatives Committee on Natural Resources, but no further action was taken. The legislation was again introduced in the U.S. Senate in January 2009, and the Senate passed the bill in March 2009, but no further action was taken during that session of Congress. The legislation was introduced in the Senate again on May 4, 2011.
The Twin Pine Casino and Hotel, owned and operated by the Middletown Rancheria of Pomo Indians, is located on Highway 29 in Lake County, approximately 34 miles from our casino. The Twin Pine Casino and Hotel includes a 60-room hotel, three food areas and a wine tasting room, as well as 50,000 square feet of gaming space with approximately 520 slot machines and 12 table games consisting of blackjack and poker.
There are a number of other Indian tribes, including the Guidiville Band of Pomo Indians and the Scotts Valley Band of Pomo Indians, that have announced preliminary plans to develop gaming projects in the San Francisco Bay area.
The Guidiville Band has plans to operate a 240,000 square-foot casino with 124,000 square-feet of gaming space, along with two hotels, a conference center, retail shops, restaurants and two parking structures on land currently owned by the City of Richmond at the former Point Molate Naval Base in Richmond, California. The project is still in its early stages, as no land transfer has been approved and the environmental review must be completed. The draft environmental impact study for the proposed project was released in July 2009, and the Bureau of Indian Affairs held a public hearing on the draft study in August 2009 and took public comments on the study until September 23, 2009. The environmental study has two components. A final environmental impact report, prepared by the City of Richmond pursuant to the California Environmental Quality Act, was released in February 2011 and certified by the Richmond City Council on March 8, 2011 as being accurate and complete. A separate final environmental impact statement, prepared under the National Environmental Policy Act, is being prepared by the Bureau of Indian Affairs.
On April 5, 2011, the Richmond City Council voted 5-2 not to continue with plans to develop the proposed casino at Point Molate. This vote poses significant problems for the project, as the City Council must approve the transfer of the Point Molate land to the Guidiville Band. The City Councils vote followed a November 2010 vote on a city-wide advisory measure in which a majority of voters opposed the casino. After voting against the proposed casino at its April 5, 2011 meeting, the City Council directed its staff to begin a 120-day negotiation with the project developer for a non-gaming alternative for the Point Molate land.
The Scotts Valley Band hopes to build a 225,000 square-foot casino complex and five-story parking garage on a 30-acre site in unincorporated Contra Costa County, near Richmond, California. In March 2008, the Bureau of Indian Affairs announced the filing of the Final Environmental Impact Statement for the proposed project. A municipal services agreement between the City of Richmond and the Scotts Valley Band was challenged in court on environmental review grounds, and the agreements validity was upheld in February 2010.
The Cloverdale Rancheria has announced preliminary plans to build a 596,000 square-foot hotel/spa and casino resort some ten miles north of our casino on U.S. Highway 101, and they and their financial backers have purchased approximately 79 acres for the proposed facility. The Cloverdale Rancherias financial partner was issued a default notice in March 2010 for failure to keep up with payments on the land, but a spokesperson for the Cloverdale Rancheria stated publicly that the project is still moving forward as planned. In December 2008, the DOI issued an opinion stating that if the lands were taken into trust, they would be eligible for gaming under the Indian Gaming Regulatory Act. The environmental review process for the proposed Cloverdale Rancheria project began in July 2008. The Draft Environmental Impact Statement for the project was issued August 6, 2010, a public hearing was held on September 15, 2010, and comments were accepted through October 20, 2010.
Each of these proposed projects faces numerous obstacles in addition to environmental approvals, including the negotiation and approval of a tribal-state gaming compact with the State of California, approval from the DOI to take the land on which the project would be located into federal trust on behalf of the tribe, and, for the Guidiville and Scotts Valley projects, determinations from appropriate federal agencies that the tribes may conduct gaming on these lands pursuant to IGRA.
In June 2009, the Mishewal Wappo Tribe of Alexander Valley, a tribe with aboriginal lands and a former rancheria located in Sonoma County that was terminated by the federal government under the 1958 California Rancheria Act, filed suit against the United States Secretary of the Interior seeking to have its federally-recognized status restored. The Chairman of the Mishewal Wappo Tribe has stated publicly that the tribe has no plans for a casino, but the tribe could have the right to conduct gaming under IGRA if its federally-recognized status is restored.
We also compete with other forms of gaming such as statewide lotteries, live and simulcast pari-mutuel wagering and card rooms. Initiatives expanding competitive forms of gaming have been proposed and may, from time to time, be approved by state or local authorities in California. Examples include state legislation passed in 2007 expanding off-site betting on horse races through expanded advance deposit wagering and increased satellite wagering sites, state legislation passed in September 2010 allowing for exchange wagering on horse races, a legislative proposal in the California Assembly in February 2007 to amend the California Penal Code to expand permitted bingo games by charitable organizations to include electronic bingo cards, proposals put forth by former Governor Arnold Schwarzenegger in 2007 and 2009, respectively, to authorize the use of instant lottery video terminals at horse racing tracks and card rooms and to dedicate a higher percentage of California State Lottery revenues to player winnings, and bills introduced in the California State Senate in May 2010 and January 2011 to authorize online intrastate poker in California.
In August 2009, a U.S. district court judge issued an order, in ongoing litigation regarding the proper number of total slot machines allowed under the 1999 tribal-state gaming compacts, requiring that the State of California issue an additional 10,549 slot machine licenses. A drawing was held on October 5, 2009, and 3,548 licenses were awarded to eleven different Indian tribes, leaving 7,001 slot machine licenses available in the statewide pool. On August 20, 2010, the U.S. Court of Appeals for the Ninth Circuit reduced the number of additional slot machine licenses from 10,549 to 8,050, and the court denied the State of Californias petition for a rehearing on January 28, 2011. The State of California did not appeal the decision, and thus the appeals courts decision is final. As a result, there are 4,502 slot machine licenses not awarded in the October 2009 draw that remain available, and the Tribe or any other Indian tribe(s) could request California to hold a draw for some or all of these licenses.
The Exhibit Index filed herewith is incorporated herein by reference.
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.
Dated: August 15, 2011 |
RIVER ROCK ENTERTAINMENT AUTHORITY | |
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(Registrant) | |
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By: |
/s/ David Fendrick |
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David Fendrick, |
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Chief Executive Officer |
Exhibit No. |
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Exhibit |
31.1 |
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Certification by David Fendrick, Chief Executive Officer, pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a) (filed herewith) |
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31.2 |
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Certification by Joseph R. Callahan, Chief Financial Officer, pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a) (filed herewith) |
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32* |
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Certification by David Fendrick, Chief Executive Officer, and by Joseph R. Callahan, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith) |
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101 |
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The following financial statements from the Companys 10-Q for the quarter ended June 30, 2011, formatted in XBRL: (i) Condensed Balance Sheets - June 30, 2011 (unaudited) and December 31, 2010, (ii) Unaudited Condensed Statements of Revenues, Expenses and Changes in Net Assets Thee and Six Months Ended June 30,2011 and 2010, (iii) Unaudited Condensed Statements of Cash Flows - Six Months Ended June 30, 2011 and 2010, (iv) Notes to Unaudited Condensed Financial Statements. |
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This certification is being furnished solely to accompany this quarterly report pursuant to 18 U.S.C. Section 1350, and is not being filed for purposes of Section 18 of the Exchange Act and is not to be incorporated by reference into any filing of River Rock Entertainment Authority whether made before or after the date hereof, regardless of any general incorporation language in such filing. |