UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 |
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| FORM 10-Q | |||||
| (Mark One) | |||||
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QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended September 30, 2004 |
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| OR | |||||
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TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from ____ to ____ |
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| Commission File Number: 333-115186 | |||||
| RIVER ROCK ENTERTAINMENT AUTHORITY (Exact name of registrant as specified in its charter) |
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| 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 registrant’s 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 No
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes No
RIVER ROCK ENTERTAINMENT AUTHORITY
(A Governmental Instrumentality of the Dry Creek Rancheria Band of Pomo Indians)
| BALANCE SHEETS (Unaudited) |
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| September 30, 2004 | December 31, 2003 | |||||
| ASSETS | ||||||
| CURRENT ASSETS: | ||||||
| Cash and cash equivalents | $ | 24,979,355 | $ | 16,897,644 | ||
| Restricted cash-current | 8,012,730 | 13,304,106 | ||||
| Accounts receivable | 76,618 | 106,748 | ||||
| Inventories | 351,036 | 149,401 | ||||
| Prepaid expenses and other current assets | 536,525 | 882,933 | ||||
| Total current assets | 33,956,264 | 31,340,832 | ||||
| RESTRICTED CASH-Net of Current | 25,224,915 | 56,762,374 | ||||
| PROPERTY AND EQUIPMENT: | ||||||
| Buildings and improvements | 41,731,224 | 40,345,177 | ||||
| Furniture, fixtures and equipment | 22,484,194 | 20,512,559 | ||||
| 64,215,418 | 60,857,736 | |||||
| Accumulated depreciation | (9,222,951 | ) | (4,610,859 | ) | ||
| Construction in progress | 60,904,707 | 17,965,694 | ||||
| Property and equipment-net | 115,897,174 | 74,212,571 | ||||
| DEPOSITS AND OTHER ASSETS | 7,343,864 | 7,864,059 | ||||
| TOTAL | $ | 182,422,217 | $ | 170,179,836 | ||
| LIABILITIES AND FUND DEFICIT | ||||||
| CURRENT LIABILITIES: | ||||||
| Accounts payable: | ||||||
| Trade | $ | 2,917,187 | $ | 6,185,353 | ||
| Construction | 8,012,730 | 3,285,658 | ||||
| Capital Leases payable | 533,286 | — | ||||
| Accrued liabilities | 11,849,806 | 5,634,797 | ||||
| Current maturities of long-term debt | 29,912 | 10,018,448 | ||||
| Total current liabilities | 23,342,921 | 25,124,256 | ||||
| LONG-TERM LIABILITIES: | ||||||
| Capital Lease payable | 95,745 | — | ||||
| Long-term debt - net of current maturities | 207,652,388 | 197,410,354 | ||||
| Total long-term liabilities | 207,748,133 | 197,410,354 | ||||
| FUND DEFICIT: | ||||||
| Invested in capital assets-net of related debt | (91,880,871 | ) | (133,216,231 | ) | ||
| Restricted for capital projects | 33,237,645 | 70,066,480 | ||||
| Unrestricted | 9,974,389 | 10,794,977 | ||||
| Total fund deficit | (48,668,837 | ) | (52,354,774 | ) | ||
| TOTAL | $ | 182,422,217 | $ | 170,179,836 | ||
The accompanying notes are an integral part of these unaudited financial statements.
1
RIVER ROCK ENTERTAINMENT AUTHORITY
(A Governmental Instrumentality of the Dry Creek Rancheria Band
of
Pomo Indians)
STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN FUND DEFICIT
(Unaudited)
| Three-Month | Nine-Month | |||||||||||
| Period Ended | Period Ended | |||||||||||
| September 30, | September 30, | |||||||||||
| 2004 | 2003 | 2004 | 2003 | |||||||||
| REVENUES: | ||||||||||||
Casino |
$ | 27,177,352 | $ | 21,391,186 | $ | 76,462,311 | $ | 45,272,989 | ||||
Food,
beverage & retail |
1,513,930 | 696,568 | 3,911,778 | 1,403,343 | ||||||||
Other |
151,768 | 113,071 | 421,816 | 245,694 | ||||||||
Gross
revenues |
28,843,050 | 22,200,825 | 80,795,905 | 46,922,026 | ||||||||
Promotional allowance |
(709,718 | ) | (488,792 | ) | (1,740,532 | ) | (735,966 | ) | ||||
Net
revenues |
28,133,332 | 21,712,033 | 79,055,373 | 46,186,060 | ||||||||
| OPERATING EXPENSES: | ||||||||||||
Casino |
5,180,163 | 4,458,648 | 15,574,001 | 9,379,149 | ||||||||
Food,
beverage & retail |
1,245,366 | 434,913 | 3,457,893 | 1,542,488 | ||||||||
Selling,
general and administrative |
10,384,146 | 8,321,208 | 26,598,177 | 17,579,531 | ||||||||
Depreciation |
1,588,670 | 1,438,558 | 4,658,349 | 2,894,562 | ||||||||
Credit
enhancement fee |
1,061,711 | 1,408,750 | 3,806,665 | 1,709,208 | ||||||||
Gaming
commission expense |
418,237 | 391,640 | 1,315,785 | 1,051,942 | ||||||||
Compact
revenue sharing trust fund |
333,750 | 333,750 | 1,001,250 | 1,001,250 | ||||||||
Total
Operating expenses |
20,212,043 | 16,787,467 | 56,412,120 | 35,158,130 | ||||||||
| INCOME FROM OPERATIONS | 7,921,289 | 4,924,566 | 22,643,253 | 11,027,930 | ||||||||
| OTHER EXPENSE-Net | ||||||||||||
Interest
expense |
(4,267,150 | ) | (1,396,818 | ) | (13,848,312 | ) | (3,139,877 | ) | ||||
Interest
income |
113,665 | — | 396,953 | — | ||||||||
Gain
(Loss) on sale of assets |
(4,605 | ) | — | (59,122 | ) | — | ||||||
Other
expense |
(416 | ) | — | (637 | ) | — | ||||||
Other
expense-net |
(4,158,506 | ) | (1,396,818 | ) | (13,511,118 | ) | (3,139,877 | ) | ||||
| INCOME BEFORE DISTRIBUTION TO TRIBE | 3,762,783 | 3,527,748 | 9,132,135 | 7,888,053 | ||||||||
| DISTRIBUTIONS TO TRIBE | (2,421,198 | ) | (1,492,525 | ) | (5,446,198 | ) | (2,603,737 | ) | ||||
| NET INCOME AFTER DISTRIBUTIONS TO TRIBE | 1,341,585 | 2,035,223 | 3,685,937 | 5,284,316 | ||||||||
| FUND DEFICIT-Beginning of period | (50,010,422 | ) | (3,087,348 | ) | (52,354,774 | ) | (6,336,410 | ) | ||||
| FUND DEFICIT-End of period | $ | (48,668,837 | ) | $ | (1,052,125 | ) | $ | (48,668,837 | ) | $ | (1,052,094 | ) |
The accompanying notes are an integral part of these unaudited financial statements.
2
RIVER ROCK ENTERTAINMENT AUTHORITY
(A Governmental Instrumentality of the Dry Creek Rancheria Band of Pomo Indians)
STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine-Month | ||||||
| Period Ended | ||||||
| September 30, | ||||||
| 2004 | 2003 | |||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||
Cash
received from gaming winnings and concessions |
$ | 79,058,173 | $ | 46,676,332 | ||
Cash
paid for salaries and benefits |
(19,681,716 | ) | (12,543,269 | ) | ||
Cash
paid to suppliers |
(29,467,234 | ) | (11,988,217 | ) | ||
Cash
paid for compact revenue sharing trust fund |
(1,001,250 | ) | (1,001,250 | ) | ||
Net
cash provided by operating activities |
28,907,973 | 21,143,596 | ||||
| CASH FLOWS FROM CAPITAL AND RELATED | ||||||
| FINANCING ACTIVITIES: | ||||||
Proceeds
from long-term financing |
— | 17,952,896 | ||||
Payments
of long-term debt |
(60,973 | ) | (4,436,758 | ) | ||
Purchases
of property and equipment |
(38,561,391 | ) | (27,537,241 | ) | ||
Change
in restricted cash |
36,828,835 | 1,811,604 | ||||
Interest
paid |
(10,054,200 | ) | (3,295,819 | ) | ||
Credit
enhancement fee |
(3,403,382 | ) | — | |||
Proceeds
on sale of assets |
122,580 | — | ||||
Other |
(251,533 | ) | (414,822 | ) | ||
Net
cash (used in) capital and related financing activities |
(15,380,064 | ) | (15,920,140 | ) | ||
| CASH FLOW FROM NON-CAPITAL FINANCING ACTIVITIES- | ||||||
Distributions
to Tribe |
(5,446,198 | ) | (2,603,737 | ) | ||
| CHANGE IN CASH AND CASH EQUIVALENTS | 8,081,711 | 2,619,719 | ||||
| CASH AND CASH EQUIVALENTS, Beginning of the period | 16,897,644 | 872,168 | ||||
| CASH AND CASH EQUIVALENTS, End of the period | $ | 24,979,355 | $ | 3,491,887 | ||
| RECONCILIATION OF INCOME BEFORE DISTRIBUTIONS TO TRIBE TO NET CASH PROVIDED | ||||||
| BY OPERATING ACTIVITIES: | ||||||
Income
before Distributions to Tribe |
$ | 9,132,135 | $ | 7,888,052 | ||
Adjustments
to reconcile income before distributions to Tribe to net cash provided
by operating activities: |
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Depreciation |
4,658,349 | 2,894,562 | ||||
Interest
Expense, net |
13,848,312 | 3,139,877 | ||||
Credit
enhancement fee |
3,806,665 | — | ||||
Loss
on sales of assets |
59,122 | — | ||||
Changes
in operating assets and liabilities: |
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Accounts
receivable |
30,130 | (23,055 | ) | |||
Inventories |
(201,635 | ) | (182,269 | ) | ||
Prepaid
expenses and other current assets |
346,400 | (475,155 | ) | |||
Accounts
payable-trade |
(3,268,166 | ) | 5,622,004 | |||
Accrued
liabilities |
496,661 | 2,279,580 | ||||
3
RIVER ROCK ENTERTAINMENT AUTHORITY
(A Governmental Instrumentality of the Dry Creek Rancheria Band of Pomo Indians)
STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine-Month | ||||||
| Period Ended | ||||||
| September 30, | ||||||
| 2004 | 2003 | |||||
Total
adjustments |
19,775,838 | 13,255,544 | ||||
NET
CASH PROVIDED BY OPERATING ACTIVITIES |
$ | 28,907,973 | $ | 21,143,596 | ||
SUPPLEMENTARY
SCHEDULE OF NONCASH CAPITAL AND RELATED FINANCING ACTIVITIES: |
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Acquisition
of property and equipment through third party financing |
$ | 690,566 | $ | 6,937,240 | ||
Acquisition
of property and equipment through accounts payable construction |
4,727,072 | 2,584,972 | ||||
Capitalized
interest included in purchases of property and equipment |
2,545,626 | 1,091,413 | ||||
The accompanying notes are an integral part of these unaudited financial statements.
4
RIVER ROCK ENTERTAINMENT AUTHORITY
(A Governmental Instrumentality of the Dry Creek Rancheria Band of Pomo Indians)
NOTES TO UNAUDITED 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) on tribal land located in Geyserville, California. The legal authority for slot machines and table games is provided by the Tribe’s 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 Tribe opened a portion of the Casino, while construction was being completed, on September 14, 2002. Following completion of construction, the Casino was fully opened on April 1, 2003. | |
| The Authority was formed as an unincorporated instrumentality of the Tribe on November 5, 2003 pursuant to a reorganization whereby the Tribe’s 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 casino 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 only the Authority and do not purport to represent the financial position and activity of the Tribe. | |
| The Authority is in the initial stages of operations. Income before distributions to Tribe was $3,762,783 for the three months ended September 30, 2004 and $9,132,135 for the nine months ended September 30, 2004. A fund deficit of $48,668,837 exists as of September 30, 2004. The Authority’s current assets exceeded its current liabilities by $10,613,343. On November 7, 2003, the Authority issued $200,000,000 in 9¾% Senior Notes, due 2011 (the “Notes”), and used a portion of the proceeds to reduce current payables, accruals and debt. The Authority’s ability to fund future debt service payments is dependent upon the success of the Casino. Management believes that the full-scale casino will attract sufficient patronage levels to achieve profitability and to repay its indebtedness. The Authority currently generates significant cash flow from operations and expects that its cash flow will increase substantially upon completion of construction of the enhanced parking structures. In addition, the Authority has not been subject to any local, state or federal income taxes. | |
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
| Accounting Standards—The Authority prepares its financial statements in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles”). The financial statements presented are prepared on the accrual basis of accounting from the accounts and financial transactions of the Authority. Generally accepted accounting principles require the Authority to apply all applicable pronouncements of the Governmental Accounting Standards Board (“GASB”). The Authority is also required to follow Financial Accounting Standards Board (“FASB”) Statements and Interpretations, Accounting Principles Board Opinions and Accounting Research Bulletins issued on or before November 30, 1989, unless those pronouncements conflict with or contradict GASB pronouncements. The Authority is given the option whether to apply all FASB Statements and Interpretations 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 Statements and Interpretations issued after November 30, 1989. | |
5
RIVER ROCK ENTERTAINMENT AUTHORITY
(A Governmental Instrumentality of the Dry Creek Rancheria Band of Pomo Indians)
NOTES TO UNAUDITED FINANCIAL STATEMENTS – (Continued)
There are differences between financial statements prepared in accordance with GASB pronouncements and those prepared in accordance with FASB pronouncements. The statements of revenues, expenses and changes in fund deficit is a combined statement under GASB pronouncements, FASB pronouncements allow a statement of income or operations and a separate statement of owners’ or shareholders’ equity deficit, which is where distributions to owners would be presented under FASB pronouncements. The amount shown as income (loss) before distributions to Tribe would not be different if the Authority followed all FASB pronouncements to determine net income and would be the most comparable amount to net income computed under FASB pronouncements. The Authority is a separate fund of the Tribe, a governmental entity, and as such there is no owners’ or shareholders’ equity deficit as traditionally represented under FASB pronouncements. The most comparable measure of owners’ equity deficit is presented on the Authority’s balance sheet as fund deficit.
New Accounting Pronouncements—In June 1997, GASB issued Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, which becomes effective for the Authority for the year ending December 31, 2004. The statement modifies the reporting requirements for basic financial statements and the required supplementary information for general-purpose governments. In June 2001, GASB also issued Statement No. 37, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments: Omnibus, and Statement No. 38, Certain Financial Statement Disclosures. These also become effective for the fiscal year ending December 31, 2004. The adoption of these statements on the financial statements did not have a material impact on the financial statements of the Authority.
In March 2003, GASB issued Statement No. 40, Deposit and Investment Risk Disclosures—an amendment of GASB Statement No. 3, which becomes effective for the Authority for the year ending December 31, 2005. This statement requires state and local governments to communicate key information about deposit and investment risks. The impact of adoption of this statement on the financial statements of the Authority has not yet been determined.
In November 2003, the GASB issued Statement No. 42, Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries, effective for periods beginning after December 15, 2004. Earlier application is encouraged. This statement establishes accounting and financial reporting standards for impairment of capital assets. This statement also clarifies and establishes accounting requirements for insurance recoveries. The impact of adoption of this statement on the financial statements of the Authority has not yet been determined.
Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those 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 $100,000 of the cash on deposit with the bank. The Authority believes that there is little risk of loss regarding the uninsured amounts of cash and cash equivalents on deposit with the bank.
Inventories—Inventories, consisting principally of gaming supplies and concession items, are stated at the lower of cost (first-in, first-out) or market.
6
RIVER ROCK ENTERTAINMENT AUTHORITY
(A Governmental Instrumentality of the Dry Creek Rancheria Band of Pomo Indians)
NOTES TO UNAUDITED FINANCIAL STATEMENTS – (Continued)
Restricted Cash—Restricted cash consists of estimated construction expenses for three parking structures, related infrastructure improvements and construction contingencies. It also includes funds that are reserved for additional construction contingencies and the funds necessary to develop an approximately 18-acre parcel of land adjacent to the Tribe's reservation, which is expected to be used primarily to build an additional access road to the Tribe’s reservation. These funds are held in escrow accounts which are restricted for authorized construction disbursements. These escrow accounts are invested in Certificates of Deposit, which generate interest on a monthly basis. The FDIC has insured $100,000 of this balance. The Authority believes that there is little risk of loss regarding the uninsured amounts of restricted cash held in the escrow account. Restricted cash was $33,237,645 and $70,066,480 at September 30, 2004 and December 31, 2003, respectively.
Property and Equipment—Property and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets as follows:
| Building and Improvements | 10-39 years | ||
| Furniture, fixtures and equipment | 5-7 years | ||
The Authority evaluates its property and equipment for impairment in accordance with the FASB’s Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. When events or circumstances indicate that an asset should be reviewed for impairment, the Authority compares the undiscounted cash flows derived from the asset or asset group to the net carrying value. If impairment is indicated, the impairment loss is measured by the amount in which the carrying value of the asset or asset group exceeds its fair value. Fair value is measured by comparable sales, solicited offers or discounted cash flow models.
Capitalized Interest—The interest cost associated with major development and construction projects is capitalized and included in the cost of the Authority. Capitalization of interest ceases when the project is substantially complete or development activity is suspended. Capitalized interest for the nine-months ended September 30, 2004 and 2003 was $2,545,626 and $1,091,413