Attached files

file filename
EX-31.1 - SECTION 302 CEO CERTIFICATION - COLONY RESORTS LVH ACQUISITIONS LLCdex311.htm
EX-32.1 - SECTION 906 CEO CERTIFICATION - COLONY RESORTS LVH ACQUISITIONS LLCdex321.htm
EX-31.2 - SECTION 302 CFO CERTIFICATION - COLONY RESORTS LVH ACQUISITIONS LLCdex312.htm
EX-32.2 - SECTION 906 CFO CERTIFICATION - COLONY RESORTS LVH ACQUISITIONS LLCdex322.htm
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2009

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number 000-50635

 

 

COLONY RESORTS LVH ACQUISITIONS, LLC

(Exact Name of Registrant as Specified in its Charter)

 

 

 

NEVADA   41-2120123

(State or Other Jurisdiction

of Incorporation)

 

(I.R.S. Employer

Identification Number)

3000 PARADISE ROAD

LAS VEGAS, NEVADA

  89109
(Address of Principal Executive Offices)   (Zip Code)

702-732-5111

(Registrant’s Telephone Number, Including Area Code)

 

 

Indicate by check mark whether the Registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No

As of November 1, 2009 there were 1.5 Class A Membership Units outstanding and there were 1,500,000 Class B Membership Units outstanding.

 

 

 


Table of Contents

COLONY RESORTS LVH ACQUISITIONS, LLC

FORM 10-Q

TABLE OF CONTENTS

 

          Page

PART I.

   FINANCIAL INFORMATION    1

ITEM 1.

   FINANCIAL STATEMENTS    1
   COLONY RESORTS LVH ACQUISITIONS, LLC   
   CONDENSED INTERIM FINANCIAL STATEMENTS:   
   CONDENSED BALANCE SHEETS    1
   UNAUDITED CONDENSED STATEMENTS OF OPERATIONS    2
   UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS    4
   NOTES TO UNAUDITED CONDENSED STATEMENTS OF OPERATIONS    5

ITEM 2.

   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS    10

ITEM 3.

   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK    19

ITEM 4.

   CONTROLS AND PROCEDURES    20

PART II.

   OTHER INFORMATION    21

ITEM 1A.

   RISK FACTORS    21

ITEM 6.

   EXHIBITS    22


Table of Contents

PART I. FINANCIAL INFORMATION

 

ITEM 1. CONDENSED INTERIM FINANCIAL STATEMENTS

COLONY RESORTS LVH ACQUISITIONS, LLC

CONDENSED BALANCE SHEETS

(in thousands)

 

     September 30,
2009
   December 31,
2008*
     (Unaudited)     
Assets      

CURRENT ASSETS:

     

Cash and equivalents

   $ 11,892    $ 32,444

Restricted cash

     4,984      8,107

Accounts receivable, net of allowance for doubtful accounts of $6,473 at September 30, 2009 and $7,153 at December 31, 2008

     9,986      11,942

Inventories

     2,781      3,047

Prepaid expenses and other current assets

     5,809      5,238
             

Total current assets

     35,452      60,778

PROPERTY AND EQUIPMENT, NET

     331,368      342,267

RESTRICTED CASH

     3,549      2,549

OTHER ASSETS, NET

     2,204      958
             

Total assets

   $ 372,573    $ 406,552
             
Liabilities and Members’ Equity      

CURRENT LIABILITIES:

     

Accounts payable

   $ 6,459    $ 7,589

Current portion of long-term debt

     5,000      —  

Accrued expenses

     29,287      27,136

Due to affiliates

     1,461      767
             

Total current liabilities

     42,207      35,492

TERM LOAN

     230,000      250,000

LONG TERM DEPOSITS

     61      61
             

Total liabilities

     272,268      285,553

COMMITMENTS AND CONTINGENCIES

     

REDEEMABLE MEMBERS’ EQUITY

     60,000      60,000

MEMBERS’ EQUITY

     40,305      60,999
             

Total liabilities and members’ equity

   $ 372,573    $ 406,552
             

 

* Condensed from audited financial statements.

See notes to the unaudited condensed financial statements.

 

1


Table of Contents

COLONY RESORTS LVH ACQUISITIONS, LLC

UNAUDITED CONDENSED STATEMENTS OF OPERATIONS

(in thousands, except unit data)

 

     For the three
months ended
September 30,
2009
    For the three
months ended
September 30,
2008
 

Revenues:

    

Casino

   $ 18,085      $ 21,832   

Rooms

     15,786        25,620   

Food and beverage

     14,211        17,977   

Other revenue

     2,142        5,012   
                

Total revenue

     50,224        70,441   

Less: promotional allowances

     (6,214     (6,973
                

Net revenues

     44,010        63,468   
                

Expenses:

    

Casino

     15,262        19,271   

Rooms

     6,947        8,355   

Food and beverage

     9,802        13,139   

Other expense

     1,965        3,518   

General and administrative

     14,874        16,838   

Depreciation and amortization

     5,222        5,123   
                

Total expense

     54,072        66,244   
                

Operating loss

     (10,062     (2,776

Interest expense

     3,106        3,395   
                

Net loss

   $ (13,168   $ (6,171
                

Net loss allocation

    

Allocable to Class A

   $ —        $ —     

Allocable to Class B

   $ (13,168   $ (6,171

Basic weighted average Class A membership units outstanding

     1.50        1.50   

Basic weighted average Class B membership units outstanding

     1,500,000.00        1,500,000.00   

Diluted weighted average membership units outstanding

     1,500,000.00        1,500,000.00   

Net loss per Class A membership unit-basic

   $ (8.78   $ (4.11

Net loss per Class B membership unit-basic

   $ (8.78   $ (4.11

Per membership unit-diluted

   $ (8.78   $ (4.11

See notes to the unaudited condensed financial statements.

 

2


Table of Contents

COLONY RESORTS LVH ACQUISITIONS, LLC

NOTES TO UNAUDITED CONDENSED STATEMENTS OF OPERATIONS

(in thousands, except unit data)

 

     For the nine
months ended
September 30,
2009
    For the nine
months ended
September 30,
2008
 

Revenues:

    

Casino

   $ 58,380      $ 73,085   

Rooms

     55,824        91,973   

Food and beverage

     44,775        59,263   

Other revenue

     8,826        17,256   
                

Total revenue

     167,805        241,577   

Less: promotional allowances

     (18,491     (22,035
                

Net revenues

     149,314        219,542   
                

Expenses:

    

Casino

     46,843        58,248   

Rooms

     21,000        25,921   

Food and beverage

     30,436        42,120   

Other expense

     6,645        11,102   

General and administrative

     41,793        51,674   

Depreciation and amortization

     15,712        15,242   
                

Total expense

     162,429        204,307   
                

Operating (loss) / income

     (13,115     15,235   

Interest expense

     7,579        11,384   
                

Net (loss) / income

   $ (20,694   $ 3,851   
                

Net (loss) / income allocation

    

Allocable to Class A

   $ —        $ —     

Allocable to Class B

   $ (20,694   $ 3,851   

Basic weighted average Class A membership units outstanding

     1.50        1.50   

Basic weighted average Class B membership units outstanding

     1,500,000.00        1,500,000.00   

Diluted weighted average membership units outstanding

     1,500,000.00        1,500,001.50   

Net (loss) / income per Class A membership unit-basic

   $ (13.80   $ 2.57   

Net (loss) / income per Class B membership unit-basic

   $ (13.80   $ 2.57   

Per membership unit-diluted

   $ (13.80   $ 2.57   

See notes to the unaudited condensed financial statements.

 

3


Table of Contents

COLONY RESORTS LVH ACQUISITIONS, LLC

UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS

(in thousands)

 

     For the nine
months ended
September 30,
2009
    For the nine
months ended
September 30,
2008
 

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net (loss) / income

   $ (20,694   $ 3,851   

Adjustments to reconcile net (loss) / income to net cash (used in) / provided by operating activities:

    

Depreciation and amortization

     15,712        15,242   

Valuation change in interest rate cap agreement

     38        6   

Amortization of deferred financing costs

     389        819   

Provision for doubtful accounts

     (412     1,654   

Changes in operating assets and liabilities:

    

Accounts receivable

     2,368        2,157   

Inventories

     265        110   

Prepaid expenses and other current assets

     (851     (665

Other assets

     150        1,263   

Accounts payable

     (1,130     (6,215

Accrued expenses

     2,151        1,018   

Due to affiliates

     694        837   

Long term deposits

     —          30   
                

Net cash (used in) / provided by operating activities

     (1,320     20,107   
                

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Additions to property and equipment

     (4,813     (7,889

(Decrease) / increase in restricted cash

     2,123        (2,297
                

Net cash used in investing activities

     (2,690     (10,186
                

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Proceeds from Term Loan

     —          5,752   

Repayment of Term Loan Principal

     (15,000     —     

Debt issuance costs

     (1,542     (671
                

Net cash (used in) / provided by financing activities

     (16,542     5,081   
                

(Decrease) / increase in cash and equivalents

     (20,552     15,002   

Cash and equivalents at beginning of year

     32,444        23,645   
                

Cash and equivalents at end of period

   $ 11,892      $ 38,647   
                

Supplemental Cash Flow Disclosure:

    

Cash paid for interest

   $ 6,346      $ 10,181   
                

See notes to the unaudited condensed financial statements.

 

4


Table of Contents

COLONY RESORTS LVH ACQUISITIONS, LLC

NOTES TO UNAUDITED CONDENSED STATEMENTS OF OPERATIONS

1. ORGANIZATION AND BASIS OF PRESENTATION

1. ORGANIZATION AND BASIS OF PRESENTATION

Colony Resorts LVH Acquisitions, LLC, a Nevada limited liability company (the “Company”), was formed under the laws of the State of Nevada on December 18, 2003. The Company owns and operates the Las Vegas Hilton, a casino resort located in Las Vegas, Nevada (the “Hotel” or the “Property”). The Company licenses from HLT Existing Franchise Holding, LLC, an affiliate of Hilton Hotels Corporation (“Hilton”) the right to participate in Hilton’s reservation system and Hilton’s HHonors Programs™.

The Company’s members consist of (1) Colony Resorts LVH Holdings, LLC (“Holdings”), which is a wholly owned subsidiary of Colony VI, a discrete investment fund managed by an affiliate of Colony Capital, (2) Colony Resorts LVH Co-Investment Partners, L.P. (“Co-Investment Partners”), (3) Colony Resorts LVH Coinvestment Voteco, LLC (“Coinvestment Voteco”) and (4) Colony Resorts LVH Voteco, LLC (“Voteco”), each of which purchased Class A or Class B Membership Units on June 18, 2004 in connection with the equity financing described in Note 5, (5) WH/LVH Managers Voteco, LLC (“Whitehall Voteco”) which acquired certain Class A Membership Units from Co-Investment Voteco on July 19, 2006 and (6) Nicholas L. Ribis (“Mr. Ribis”) who acquired certain Class A and Class B Membership Units from Voteco and Holdings, respectively, on November 21, 2006.

Prior to June 18, 2004, the Company had conducted no business other than in connection with the execution of the Purchase and Sale Agreement, relating to the acquisition of substantially all of the assets and certain liabilities of LVH Corporation, a Nevada corporation (“LVH”) (the “Acquisition”). LVH is a wholly owned subsidiary of Caesars Entertainment, Inc., formerly Park Place Entertainment Corporation (“Caesars”) that prior to the Acquisition operated the Hotel. Commencing June 18, 2004, the operations, assets and liabilities of the Property are included in the Company’s financial statements.

Interim Financial Statements

The accompanying condensed financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. The Company believes that the disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments (which include normal recurring adjustments) necessary for the fair presentation of the financial position, results of operations and cash flows for the interim periods have been made. The results for the nine-months ended September 30, 2009, are not necessarily indicative of results to be expected for the full fiscal year.

These financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2008, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

In preparing the accompanying unaudited condensed consolidated financial statements, the Company has reviewed, as determined necessary by the Company’s management, events that have occurred after September 30, 2009, up until the issuance of the financial statements which occurred on November 13, 2009.

Use of Estimates

The preparation of the unaudited condensed financial statements in accordance with accounting principles generally accepted in the United States of America requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses; including related disclosure of contingent assets and liabilities. On an on-going basis, management evaluates those estimates, including those related to asset impairments, accruals for slot and table game marketing points, compensation and related benefits, revenue recognition, allowance for doubtful accounts, and contingencies and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

5


Table of Contents

COLONY RESORTS LVH ACQUISITIONS, LLC

NOTES TO UNAUDITED CONDENSED STATEMENTS OF OPERATIONS—(Continued)

 

Recent Accounting Pronouncements

In the third quarter of 2009, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Coficiation (“ASC”). The ASC is the single official source of authoritative, nongovernmental GAAP, other than guidance issued by the SEC. The adoption of the ASC did not have a material impact on the financial Statements included herein.

In March 2008, the FASB issued SFAS No. 161, (Topic 815), “Disclosures About Derivative Instruments and Hedging Activities, an amendment of SFAS No. 133”. This amendment is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. This statement was adopted January 1, 2009 and did not have a material impact on the Company’s financial position, results of operations or cash flows.

On April 9, 2009, the Financial Accounting Standards Board issued Staff Position SFAS 107-1 and Accounting Principles Board (APB) Opinion No. 28-1, (Topic 825) “Interim Disclosures about Fair Value of Financial Instruments” (FSP 107-1 and APB 28-1). Topic 825 requires disclosures about fair value of financial instruments in interim financial statements as well as in annual financial statements. Provisions under the related sections of ASC 825 were effective for interim periods ended after June 15, 2009 and the Company adopted them in second quarter 2009. This guidance did not have a significant impact on the Company’s financial position, results of operations, cash flows, or disclosures.

On April 9, 2009, the FASB issued Staff Position SFAS 157-4, (Topic 820) “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly”. Under ASC Topic 820 additional guidance is given in estimating fair value when the volume and level of transaction activity for an asset or liability have significantly decreased in relation to normal market activity for the asset or liability. ASC 820 also provides additional guidance on circumstances that may indicate a transaction is not orderly. This section of the topic was effective for interim periods ended after June 15, 2009, and the Company adopted its provisions during second quarter 2009. This guidance did not have a significant impact on the Company’s financial position, results of operations, cash flows, or disclosures.

On April 9, 2009, the FASB issued Staff Position SFAS 115-2 and SFAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (FSP 115-2) (Topic 320). Under Topic 320 guidance is given in determining whether impairments in debt securities are other than temporary, and modifies the presentation and disclosures surrounding such instruments. Provisions of this topic were effective for interim periods ended after June 15, 2009, and the Company adopted its provisions for second quarter 2009. This guidance did not have a significant impact on the Company’s financial position, results of operations, cash flows, or disclosures.

In June 2009, the FASB issued statement No. 167, “Amendments to FASB Interpretation No. 46(R)” (SFAS 167) (Topic 810). Among other items, the related sections of ASC 810 respond to concerns about the application of certain key provisions of FIN 46(R), including those regarding the transparency of the involvement with variable interest entities. The related sections of ASC 810 are effective for calendar year companies beginning on January 1, 2010. The Company has not yet determined the impact these provisions will have on its financial position, results of operations, cash flows, or disclosures.

In May 2009, the FASB issued Statement No. 165, “Subsequent Events” (SFAS 165) (Topic 855). ASC 855 modifies the definition of what qualifies as a subsequent event – those events or transactions that occur following the balance sheet date, but before the financial statements are issued, or are available to be issued – and requires companies to disclose the date through which it has evaluated subsequent events and the basis for determining that date. The Company adopted these provisions during the second quarter 2009, in accordance with the effective date. This guidance did not have a significant impact on the Company’s financial position, results of operations, cash flows, or disclosures.

 

6


Table of Contents

COLONY RESORTS LVH ACQUISITIONS, LLC

NOTES TO UNAUDITED CONDENSED STATEMENTS OF OPERATIONS—(Continued)

 

2. NEW TERM LOAN

On May 11, 2006, the Company entered into a Loan Agreement with Goldman Sachs Commercial Mortgage Capital, L.P. (the “Term Loan”). The Term Loan was for an initial principal amount of $209.2 million and for an initial term of two years. The Company has drawn an additional $40.8 million against the Term Loan, the maximum funding of the Term Loan. Covenants under the term loan restrict the Company’s future borrowing capacity.

The loan had an original two-year term and three, one-year extensions. The first one-year extension was exercised and the loan had a due date of June 2, 2009. The Company notified the lender of its intention to exercise the second, one-year extension.

The Company was granted two extensions through August 14, 2009 to renegotiate the terms of the second extension. On that date, the Company entered into an agreement which extends the loan until June 1, 2011. The Company was required to 1) pay an initial principal payment of $15 million, 2) pay an extension fee of $1.175 million, 3) pay an exit fee of $75,000 for the initial principal payment, 4) purchase an interest rate cap at a cost of $37,500, and 5) pay any out-of-pocket expenses incurred by the lender. On October 30, 2009 the Company was required to pay an additional payment of $5.0 million and an exit fee of $25,000 for the additional principal payment. Interest on the loan is based on LIBOR plus 2.9% with a minimum LIBOR rate of 1.5%. Interest will increment to LIBOR plus 3.5% from July 2009 through May 2010 and LIBOR plus 4.0% from June 2010 through May 2011.

The fair value of the Term Loan approximates its carrying amount based on the variable nature of the facility.

3. RELATED PARTY TRANSACTIONS

The Company entered into a Services Agreement, Joint Services Agreement and Joint Marketing Agreement with Resorts International Hotel, Inc. (“Resorts”) an affiliate of the Company (through common control) on June 18, 2004. On April 25, 2005, the Joint Services Agreement and the Joint Marketing Agreement were amended and restated to add RIH Resorts, LLC, an affiliate of the Company (through common control), as a party to the agreements. These agreements provide for an initial term of three years with automatic one year renewal periods. The agreements provide that the Company and Resorts will cooperatively develop and implement joint services and marketing programs.

The Company provides and/or receives services from affiliated companies. The total net value of services received from the affiliated companies was approximately $473,000 for the three months ended September 30, 2009 and $1,151,000 for the three months ended September 30, 2008. The total net value of services received from the affiliated companies was approximately $1,604,000 for the nine months ended September 30, 2009 and $4,068,000 for the nine months ended September 30, 2008.

4. REDEEMABLE MEMBERS’ EQUITY

In connection with the closing of the Acquisition, the Company, Voteco, Co-Investment Voteco, Co-Investment Partners and Holdings entered into a Sale Right Agreement, dated June 18, 2004 (the “Sale Right Agreement”). Pursuant to the terms of Co-Investment Partners’ partnership agreement, at any time after May 23, 2008, Whitehall (a limited partner in Co-Investment Partners and an affiliate of Goldman Sachs Commercial Mortgage Capital, L.P., the lender under the new Term Loan) has the right to request that Co-Investment Partners purchase all of Whitehall’s interest in Co-Investment Partners at a purchase price determined by Whitehall. Pursuant to the Sale Right Agreement, upon receiving notice from Whitehall that it has exercised the sale right the Company must, within forty-five days elect to either (i) purchase that portion of the Class B Membership Units which represent Whitehall’s interest in Co-Investment Partners or (ii) sell the Company in its entirety. If the Company elects not to redeem the Class B Membership Units, it must appoint Goldman Sachs & Co. as its sole and exclusive agent for a period of one year to seek to sell the Company at a price extrapolated from the price Whitehall established for its interest in Co-Investment Partners. In addition, on June 18, 2010, if the Company has not been sold pursuant to sale right above or otherwise, the Company shall appoint Goldman Sachs & Co. as its sole agent to seek to sell the Company at the best price obtainable unless Whitehall and Co-Investment Partners both agree not to sell the Company or to postpone such sale. For purposes of the diluted membership unit calculation, it is assumed that the redemption of Whitehall’s interest or sale of the property will be consummated at fair value. To date, Whitehall has chosen not to exercise its sale right.

 

7


Table of Contents

COLONY RESORTS LVH ACQUISITIONS, LLC

NOTES TO UNAUDITED CONDENSED STATEMENTS OF OPERATIONS—(Continued)

 

5. MEMBERSHIP INTERESTS

In connection with and immediately prior to the Acquisition, the Company issued Class A Membership Units (“Class A Units”) to Co-Investment Voteco and Voteco on a pro rata basis in proportion to the equity contributions made by each entity. In addition, the Company issued Class B Membership Units (“Class B Units” and together with the Class A Units, the “Membership Units”) to Co-Investment Partners and to Holdings, on a pro rata basis in proportion to the equity contributions made by each entity. All of these entities are existing affiliates of the Company. Pursuant to the Operating Agreement and following receipt of all required approvals from the Nevada Gaming Commission, Co-Investment Voteco transferred certain Class A Units to Whitehall Voteco, and as a result, Whitehall Voteco joined the Company as a member and became a party to the Operating Agreement effective July 19, 2006. Pursuant to an Option Agreement between Mr. Ribis, Voteco and Holdings, Mr. Ribis exercised options to acquire Class A Units and Class B Units directly from Voteco and Holdings, respectively, and as a result, Mr. Ribis joined the Company as a member and became a party to the Operating Agreement effective November 21, 2006.

As of September 30, 2009, Voteco owns 0.585 Class A Units, Co-Investment Voteco owns 0.30 Class A Units, Whitehall Voteco owns 0.60 Class A Units and Mr. Ribis owns 0.015 Class A Units. In addition, as of June 30, 2008, Holdings owns 585,000 Class B Units, Co-Investment Partners owns 900,000 Class B Units and Mr. Ribis owns 15,000 Class B Units. Pursuant to the Company’s Operating Agreement, holders of Class A Units are entitled to one vote per unit in all matters to be voted on by voting members of the Company. Holders of Class B Units are not entitled to vote, except as otherwise expressly required by law.

At the time of the closing of the Acquisition, a Transfer Restriction Agreement was executed by and among Thomas J. Barrack, Jr. (“Mr. Barrack”), Mr. Ribis, Co-Investment Partners and Co-Investment Voteco (the “Co-Investment Transfer Restriction Agreement”) and a Transfer Restriction Agreement was executed by and among Mr. Barrack, Voteco and Holdings (the “Voteco Transfer Restriction Agreement”). At the time of the transfer of certain Class A Units to Whitehall Voteco from Co-Investment Voteco, a Transfer Restriction Agreement was executed by and among Stuart Rothenberg (“Mr. Rothenberg”), Brahm Cramer (“Mr. Cramer”) and Jonathan Langer (“Mr. Langer”) and together with Mr. Rothenberg and Mr. Cramer, the “Whitehall Voteco Members”, Whitehall Voteco and Co-Investment Partners (the “Whitehall Voteco Transfer Restriction Agreement”).

The Company’s Class A Units issued to Co-Investment Voteco are subject to the Co-Investment Transfer Restriction Agreement, which provides, among other things, that:

 

   

Co-Investment Partners has the right to acquire Class A Units from Co-Investment Voteco on each occasion that Class B Units held by Co-Investment Partners would be transferred to a proposed purchaser who, in connection with such proposed sale, has obtained all licenses, permits, registrations, authorizations, consents, waivers, orders, findings of suitability or other approvals required to be obtained from, and has made all findings, notices or declarations required to be made with, all gaming authorities under all applicable gaming laws;

 

   

A specific purchase price, as determined in accordance with the Co-Investment Transfer Restriction Agreement, will be paid to acquire the Class A Units from Coinvestment Voteco; and

 

   

Co-Investment Voteco will not transfer ownership of Class A Units owned by it except pursuant to such option of Co-Investment Partners.

The Company’s Class A Units issued to Voteco are subject to the Voteco Transfer Restriction Agreement, which provides, among other things, that:

 

   

Holdings has the right to acquire Class A Units from Voteco on each occasion that Class B Units held by Holdings would be transferred to a proposed purchaser who, in connection with such proposed sale, has obtained all licenses, permits, registrations, authorizations, consents, waivers, orders, findings of suitability or other approvals required to be obtained from, and has made all findings, notices or declarations required to be made with, all gaming authorities under all applicable gaming laws;

 

   

A specific purchase price, as determined in accordance with the Voteco Transfer Restriction Agreement, will be paid to acquire the Class A Units from Voteco; and

 

8


Table of Contents

COLONY RESORTS LVH ACQUISITIONS, LLC

NOTES TO UNAUDITED CONDENSED STATEMENTS OF OPERATIONS—(Continued)

 

   

Voteco will not transfer ownership of Class A Units owned by it except pursuant to such option of Holdings.

The Company’s Class A Units issued to Whitehall Voteco are subject to the Whitehall Voteco Transfer Restriction Agreement, which provides, among other things, that:

 

   

Co-Investment Partners has the right to acquire Class A Units from Whitehall Voteco on each occasion that Class B Units held by Co-Investment Partners would be transferred to a proposed purchaser who, in connection with such proposed sale, has obtained all licenses, permits, registrations, authorizations, consents, waivers, orders, findings of suitability or other approvals required to be obtained from, and has made all findings, notices or declarations required to be made with, all gaming authorities under all applicable gaming laws;

 

   

A specific purchase price, as determined in accordance with the Whitehall Voteco Transfer Restriction Agreement, will be paid to acquire the Class A Units from Whitehall Voteco; and

 

   

Whitehall Voteco will not transfer ownership of Class A Units owned by it except pursuant to such option of Co-Investment Partners.

It is currently anticipated that any future holders of the Company’s Membership Units will become a party to the Operating Agreement.

6. COMMITMENTS AND CONTINGENCIES

Letters of Credit

Beginning in 2005 and annually thereafter, the Company was required to deliver irrevocable standby letters of credit in connection with its workers’ compensation insurance policies issued by its insurance carriers. In March 2009, the Company was required to deliver an irrevocable standby letter of credit to a new credit card processor. The letters of credit are secured by certificates of deposits in the same notional amounts as the corresponding letters of credit. The initial expiration dates of these letters of credit are for one year and are automatically extended for 90 days from their expiration date unless the issuing bank notifies the Company sixty days prior to such expiration dates that the letters of credit will not be renewed. As of September 30, 2009 and December 31, 2008, the certificates of deposit which secure the letters of credit total $3,538,750 and $2,538,750, respectively, and are included in restricted cash. As of September 30, 2009 and December 31, 2008, there were no amounts outstanding on the letters of credit.

Litigation

In the normal course of business, the Company is subject to various litigation, claims and assessments. The Company is not currently a party to any material litigation and, it is not aware of any material action, suit or proceeding against it that has been threatened by any person.

Sales and Use Tax on Complimentary Meals

In March 2008, the Nevada Supreme Court ruled, in the matter captioned Sparks Nugget, Inc. vs. the State of Nevada Ex Rel. Department of Taxation, that food and non-alcoholic beverages purchased for use in providing complimentary meals to customers and to employees was exempt from sales and use tax. In July 2008, the Court denied the State’s motion for rehearing. For the three year period ended February 2008, the Company paid use tax on these items and has filed for refunds for the periods March 2005 through February 2008. The amount subject to these refunds, excluding interest, is approximately $1.1 million. As of September 30, 2009, the Company has not recorded a receivable related to this matter.

7. SUBSEQUENT EVENT

Subsequent to September 30, 2009, $4.5 million of additional equity was received from the Company’s members.

 

9


Table of Contents

COLONY RESORTS LVH ACQUISITIONS, LLC

NOTES TO UNAUDITED CONDENSED STATEMENTS OF OPERATIONS—(Continued)

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements relating to future events and future performance of the Company within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, without limitation, statements regarding the Company’s expectations, beliefs, intentions or future strategies that are signified by the words “expects,” “anticipates,” “intends,” “believes” or similar language. Actual results could differ materially from those anticipated in such forward-looking statements.

All forward-looking statements included in this document are based on information available to the Company on the date hereof, and the Company assumes no obligation to update any forward-looking statements. The Company cautions investors that its business and financial performance are subject to substantial risks and uncertainties.

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the financial statements, the related notes to financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 and the unaudited interim condensed financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Overview

The following discussion of the Company’s results of operations compares the three months and nine months ended September 30, 2009 to the three months and nine months ended September 30, 2008 respectively.

Casino revenue is derived primarily from patrons wagering on slot machines, table games and other gaming activities. Table games generally include Blackjack or Twenty One, Craps, Baccarat and Roulette. Other gaming activities include the Race and Sports Book and Poker. Casino revenue is defined as the win from gaming activities, computed as the net difference between gaming wins and losses, not the total amounts wagered. “Table game volume,” “table game drop” (terms which are used interchangeably), and “slot handle” are casino industry specific terms that are used to identify the amount wagered by patrons for a casino table game or slot machine, respectively. “Table game hold” and “slot hold” represent the percentage of the total amount wagered by patrons that the casino has won. Hold is derived by dividing the amount won by the casino by the amount wagered by patrons. Casino revenue is recognized at the end of each gaming day.

Casino revenues vary from time to time due to general economic conditions, popularity of entertainment offerings, table game hold, slot hold, and occupancy percentages in the hotels. Casino revenues also vary depending upon the amount of gaming activity as well as variations in the odds for different games of chance. The Hotel uses technology, such as cashless wagering on slot machines, to increase revenues and/or decrease expenses. Casino revenues, room revenues, food and beverage revenues and other revenues vary due to general economic conditions and competition.

Room revenue is derived from rooms and suites rented to guests. “Average daily rate” is an industry specific term used to define the average amount of revenue per rented room per day. “Occupancy percentage” defines the total percentage of rooms occupied, and is computed by dividing the number of rooms occupied by the total number of rooms available. Room revenue is recognized at the time the room is provided to the guest.

Food and beverage revenues are derived from food and beverage sales in the food outlets of the Hotel, including restaurants, room service and banquets. Food and beverage revenue is recognized at the time the food and/or beverage is provided to the guest.

Other revenue includes retail sales, entertainment sales, telephone and other miscellaneous income at the Hotel. Such revenue is recognized at the time the goods or services are provided to the guest.

 

10


Table of Contents

Comparison of the Three Months Ended September 30, 2009 with the Three Months Ended September 30, 2008

Summary Financial Information

The Hotel offers hotel, gaming, dining, entertainment, retail and spa amenities at one location in Las Vegas and under one operating segment. Approximately 36% of the Hotel’s gross revenue is derived from gaming, while 31% is derived from room revenue. Room revenue is significant because of the Hotel’s location next to the Las Vegas Convention Center and its related emphasis on the group, convention, and trade show business.

The following table summarizes the Hotel’s results of operations (in thousands):

 

     Three Months Ended September 30,  
     2009     2008  

Net revenues

   $ 44,010      $ 63,468   

Operating loss

     (10,062     (2,776

Net loss

     (13,168     (6,171

Revenue Information

The breakdown of the Property’s net revenue is as follows (dollars in thousands):

 

     Three Months Ended September 30,  
     2009     2008     Percent
Change
 

Casino

   $ 18,085      $ 21,832      (17.2 )% 

Rooms

     15,786        25,620      (38.4 )% 

Food and beverage

     14,211        17,977      (20.9 )% 

Other revenue

     2,142        5,012      (57.3 )% 
                      
     50,224        70,441      (28.7 )% 

Less - promotional allowance

     (6,214     (6,973   (10.9 )% 
                      

Net revenues

   $ 44,010      $ 63,468      (30.7 )% 
                      

Casino

Casino revenue decreased $3.7 million, or 17.2%, to $18.1 million for the quarter ended September 30, 2009, compared to $21.8 million for the quarter ended September 30, 2008. The decrease in casino revenue was due to a $2.0 million decrease in the table games win, a $2.7 million decrease in slot win, and a $0.7 increase in race and sports book win. The decrease in slot and table game win is primarily a result of lower slot and table game drop for the quarter ended September 30, 2009 compared to the quarter ended September 30, 2008. The decrease in volume is due to the general economic downturn and fierce competition.

The Casino operating department margin was 15.6% for the quarter ended September 30, 2009. The operating department margin was 11.7% for the quarter ended September 30, 2008. The increasing margin was primarily due to lower promotional spending and bad debt expense for the quarter ended September 30, 2009 compared to the quarter ended September 30, 2008.

Rooms

For the quarter ended September 30, 2009, room revenue was $15.8 million, a decrease of $9.8 million from the quarter ended September 30, 2008. The decrease is primarily attributable to a decrease in the average daily room rate for the quarter ended September 30, 2009 compared to the average daily room rate for the quarter ended September 30, 2008.

The Room operating department margin was 56.0% for the three months ended September 30, 2009 and 67.4% for the three months ended September 30, 2008. Fixed payroll costs compared to declining room revenue was primarily the cause of the decline in operating margin from the three months ended September 30, 2009 compared to the three months ended September 30, 2008.

 

11


Table of Contents

Food and Beverage

Food and Beverage revenue for the quarter ended September 30, 2009 was $14.2 million and for the quarter ended September 30, 2008 was $18.0 million, a decrease of $3.8 million or 20.9%. The decrease was primarily in those outlets that rely on convention business which experienced a decline in revenue due to an unfavorable convention calendar. The operating margin was 32.3% for the quarter ended September 30, 2009 compared to an operating margin of 26.9% for the quarter ended September 30, 2008. The favorable increase in operating margin from the quarter ended September 30, 2009 compared to the quarter ended September 30, 2008 was primarily due to payroll efficiencies in relation to revenues.

Other

Other Revenue includes retail sales, entertainment sales and miscellaneous income. Other Revenue was approximately $2.1 million for the quarter ended September 30, 2009 or $2.9 million less than Other Revenue reported for the quarter ended September 30, 2008. Entertainment revenue was higher for the third quarter of 2008 compared to the third quarter of 2009 because of more scheduled performances from headliner entertainment during 2008.

Operating Cost and Expense Information

The breakdown of the Property’s operating costs and expenses is as follows (dollars in thousands):

 

     Three Months Ended September 30,  
     2009    2008    Percent
Change
 

Casino

   $ 15,262    $ 19,271    (20.8 )% 

Rooms

     6,947      8,355    (16.9 )% 

Food and beverage

     9,802      13,139    (25.4 )% 

Other

     1,965      3,518    (44.1 )% 

General and administrative

     14,874      16,838    (11.7 )% 

Depreciation and amortization

     5,222      5,123    (1.9 )% 
                    

Total

   $ 54,072    $ 66,244    (18.4 )% 
                    

Operating Expenses

Operating expenses (excluding depreciation and amortization) were lower for the quarter ended September 30, 2009 compared to the quarter ended September 30, 2008. The decrease is due to lower casino and food and beverage expenses, in particular payroll and employee benefits, marketing expenses and cost of sales.

Depreciation and amortization remained unchanged from $5.1 million for the quarter ended September 30, 2008 to $5.2 million for the quarter ended September 30, 2009. Few additions to property and equipment were made during the quarter ended September 30, 2009.

Interest Expense

For the three months ended September 30, 2009, interest expense totaled $3.1 million. For the three months ended September 30, 2008, interest expense totaled $3.4 million. There was a $15 million reduction in long-term debt between the two quarters; however, the debt was refinanced at a higher rate during the quarter ended September 30, 2009 compared to the quarter ended September 30, 2008.

 

12


Table of Contents

Comparison of the Nine Months Ended September 30, 2009 with the Nine Months Ended September 30, 2008

Summary Financial Information

The following table summarizes the Hotel’s results of operations (in thousands):

 

     Nine Months Ended September 30,
     2009     2008

Net revenues

   $ 149,314      $ 219,542

Operating (loss) / income

     (13,115     15,235

Net (loss) / income

     (20,694     3,851

Revenue Information

The breakdown of the Property’s net revenue is as follows (dollars in thousands):

 

     Nine Months Ended September 30,  
     2009     2008     Percent
Change
 

Casino

   $ 58,380      $ 73,085      (20.1 )% 

Rooms

     55,824        91,973      (39.3 )% 

Food and beverage

     44,775        59,263      (24.4 )% 

Other revenue

     8,826        17,256      (48.9 )% 
                      
     167,805        241,577      (30.5 )% 

Less: - promotional allowance

     (18,491     (22,035   (16.1 )% 
                      

Net revenues

   $ 149,314      $ 219,542      (32.0 )% 
                      

Casino

Casino revenue decreased $14.7 million, or 20.1%, to $58.4 million for the nine months ended September 30, 2009, compared to $73.1 million for the nine months ended September 30, 2008. The decrease was primarily from reduced slot win and table games win . Table games revenue decreased $7.5 million for the nine months of 2009 compared to the nine months of 2008. Slot revenue decreased $10.5 million for the nine months of 2009 compared to the nine months of 2008. The decrease in slot win and table game win was almost entirely due to a decrease in drop. The general economic downturn, a shift in casino marketing efforts away from high end players and a highly competitive environment resulted in less volume from 2008 to 2009.

The Casino operating department margin was unchanged at 19.8% for the nine months ended September 30, 2009. The Casino operating department margin was 20.3% for the nine months ended September 30, 2008.

Rooms

For the nine months ended September 30, 2009, room revenue was $55.8 million, a decrease of $36.2 million from the nine months ended September 30, 2008 when room revenue was $92.0 million. The decrease is attributable to both a decrease in the average daily room rate for the nine months ended September 30, 2009 compared to the average daily room rate for the nine months ended September 30, 2008 and a decrease in the number of occupied rooms between the two periods.

The Room operating margin for the nine months ended September 30, 2009 was 62.4%; the Room operating margin for the nine months ended September 30, 2008 was 71.8%. The unfavorable change in operating margin between the two periods was due to relatively fixed costs compared to proportionately lower revenue.

Food and Beverage

Food and Beverage revenue for the nine months ended September 30, 2009 was $44.8 million, a $14.5 million decrease compared to $59.3 million for the nine months ended September 30, 2008. The operating margin of 32.4% for the first nine months of 2009 was slightly improved from the operating margin of 28.9% for the nine months of 2008. Reduced labor costs in proportion to revenue were primarily responsible for the higher operating margins.

 

13


Table of Contents

Other

Other Revenue includes retail sales, entertainment sales and miscellaneous income. Other Revenue was approximately $8.8 million for the nine months ended September 30, 2009 or $8.4 million less than Other Revenue reported for the nine months ended September 30, 2008. Entertainment revenue was higher for the nine months ended September 30, 2008 compared to the nine months ended September 30, 2009 because of more scheduled performances from headliner entertainment and higher showroom occupancy in 2008 compared to 2009.

Operating Cost and Expense Information

The breakdown of the Property’s operating costs and expenses is as follows (dollars in thousands):

 

     Nine Months Ended September 30,  
     2009    2008    Percent
Change
 

Casino

   $ 46,843    $ 58,248    (19.6 )% 

Rooms

     21,000      25,921    (19.0 )% 

Food and beverage

     30,436      42,120    (27.7 )% 

Other expense

     6,645      11,102    (40.1 )% 

General and administrative

     41,793      51,674    (19.1 )% 

Depreciation and amortization

     15,712      15,242    (3.1 )% 
                    

Total

   $ 162,429    $ 204,307    (20.5 )% 
                    

Operating Expenses

Operating expenses were $162.4 million for the nine months ended September 30, 2009 compared to $204.3 million the nine months ended September 30, 2008. Lower operating costs were caused primarily by reduced volumes in the casino and the food and beverage operations mainly from payroll and benefits.

Interest Expense

For the nine months ended September 30, 2009, interest expense totaled $7.6 million. For the nine months ended September 30, 2008, interest expense totaled $11.4 million. The decrease of $3.8 million is due to a decline in the LIBOR rate between the two periods in the first six months of the year. The long-term debt was reduced and re-financed in the last quarter of the period.

Liquidity and Capital Resources

Cash flows of the Company for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008 consisted of the following:

Cash Flow—Operating Activities

Cash flow used by operations was $1.3 million for the nine months ended September 30, 2009 compared to $20.1 million provided by operations for the nine months ended September 30, 2008. A net loss of $20.5 million for the nine months ended September 30, 2009 compared to net income of $3.9 million for the nine months ended September 30, 2008 was the primary cause of the change. Depreciation and amortization increased cash flow from operations by $15.7 million and $15.2 million for the first nine months ended September 30, 2009 and 2008 respectively.

As of September 30, 2009, the Company had cash and equivalents of $11.9 million of which $4.5 million was cash in the casino used to fund daily operations. For the remainder of 2009, the Company expects to fund property operations, capital expenditures, and debt service requirements from existing cash balances, operating cash flow and $4.5 million of additional equity contributed by the Members on October 30, 2009.

 

14


Table of Contents

Cash Flows—Investing Activities

For the nine months ended September 30, 2009, $2.7 million of cash was used to fund investing activities of which $4.8 million was used for additions for property and equipment. For the nine months ended September 30, 2008, $10.2 million was used to fund investing activities of which $7.9 million was used for additions to property and equipment.

Cash Flows—Financing Activities

For the nine months ended September 30, 2009, $16.5 million of cash was used for financing activities of which $15.0 million was used to pay down the term loan debt and the remaining amount was used for costs to refinance the new term loan. During the nine months ended September 30, 2008, $5.8 million was borrowed and used for renovations and the purchase of property and equipment.

Other Factors Affecting Liquidity

The Company believes that the cash provided by its cash flows from operations together with cash on hand and the contribution of additional equity, will be adequate to fund its activities, including any capital expenditures that the Company plans to make. However, no assurances can be made that such sources will be sufficient to meet such requirements. Covenants under the term loan restrict the Company’s future borrowing capacity. If circumstances warrant, the Company may seek a working capital line of credit, as permitted under the term loan.

A further downturn in the economy, an increase in revenue or wagering taxes, acts of terrorism, war or military actions would impact the Company’s operations and negatively impact its cash flows from operations. If this were to occur, the Company would be required to adjust its capital spending plans.

Contractual Obligations and Other Commitments

The following table summarizes the Company’s contractual obligations and commitments (amount in thousands):

 

     Payments Due by Period
     Less than
1 Year
   1-3 Years    3-5
Years
   More than
5 Years
   Total
     (In Thousands)

Long-Term Debt Obligation

              

Term Loan (a)

   $ 5,000    $ 230,000    $ —      $ —      $ 235,000

Variable interest payments (b)

     11,750      12,650      —        —        24,400

Contractual Obligations

              

Employment agreements (c)

     1,971      1,314      —        —        3,285

Licensing agreement (d)

     —        —        —        —        —  

Operating leases(e)

     327      344      —           671

Entertainment contracts (f)

     2,043      —        —        —        2,043

Severance agreement (g)

     1,089      —        —        —        1,089

Consulting agreement (h)

     250      188      —        —        438
                                  
   $ 22,430    $ 244,496    $ —      $ —      $ 266,926
                                  

 

(a) The Term Loan, with an initial funding of $209,200,000 originated May 11, 2006. The Company has drawn an additional $40.8 million under the Term Loan and had an outstanding balance of $250,000,000. The Company has extended the loan providing for a new maturity date of June 1, 2011. The company was required to make a principal payment of $15.0 million, pay fees totaling $1.25 million, purchase an interest rate cap and pay any out-of-pocket expenses of the lender. On October 30, 2009, the Company was required to make an additional principal payment of $5.0 million and pay fees of $25,000. Interest on the extension accrues at LIBOR plus 3.5% through May 2010 and LIBOR plus 4.0% from June 2010 through May 2011. The LIBOR rate will have a floor of 1.5%. The loan is collateralized by a first priority deed of trust on the property.
(b) Based on the LIBOR floor of 1.5% plus 3.5% for year one and LIBOR floor of 1.5% plus 4.0% for year two.
(c) The Company is party to employment agreements with 15 of its senior executives, with terms of one to three years.
(d)

The Company signed a new agreement with Hilton commencing January 1, 2009. The agreement expires December 31, 2015 and allows the Hotel to use the Hilton name, advertise on the Hilton Hotels website, and utilize the Hilton reservation system and other Hilton amenities. In exchange, the Hotel is required to make certain capital improvements and will pay varying percentage fees of Food and Beverage Revenue (as defined in the agreement) and Hotel Revenue (as defined in the agreement) and also is obligated to participate in the “HHonors Program TM” reward program. For the year ending December 31, 2009 the Company will expense 1% of defined Food and Beverage and 4.25% of defined Hotel Revenue in accordance with this agreement. For the three months ended September 30, 2009, $901thousand was expensed in accordance with this agreement. For the nine months ended September 30, 2009, $3.1 million was expensed.

(e) The Company is party to operating leases for office and telephone equipment with original terms of three to five years.
(f) The Company is party to certain contracts to retain specific entertainers for recurring performances. These agreements expire during 2009.
(g) The Company has entered into a severance agreement with the former CEO which will be paid out in monthly installments.
(h) The Company has entered into a consulting agreement for hotel yield management and hotel and administrative cost control.

 

15


Table of Contents

Off-Balance Sheet Arrangements

The Company is not currently subject to any off-balance sheet arrangements which it believes will have a material adverse impact on its financial condition.

Debt Instruments

The following table provides information about the Company’s long-term debt at September 30, 2009 (amounts in thousands):

 

     Maturity
Date
   Face
amount
   Carrying
value
   Estimated
fair value

Term Loan

   June 2011    $ 230,000    $ 230,000    $ 195,500
                         

The Term Loan originated May 11, 2006 and had an initial principal amount of $209.2 million with interest accruing at a rate of one month LIBOR plus 2.9%. The initial term was two years with three, one-year extension options. The Company exercised the first, one-year extension which expired June, 2009. The Company entered into an amendment to the Term Loan which was effective as of June 1, 2009 which extended the maturity date of the Term Loan until June 1, 2011. Interest accrues at LIBOR plus 3.5% for the first year and LIBOR plus 4.0% for the second year. LIBOR will be the greater of the current monthly rate or 1.5%. The Company was also required to make principal payments totaling $20.0 million. The Company also was required to pay fees totaling $1.275 million, purchase an interest rate cap and pay any out-of-pocket expenses of the lender. The Term Loan contains certain restrictions that, among other things, limit the ability of the Company to incur additional indebtedness, create certain liens, enter into certain transactions with affiliates, enter into certain mergers or consolidations or sell assets of the Company without prior approval of the lenders or noteholders.

Litigation Contingencies and Available Resources

In the normal course of business, the Company is subject to various litigation, claims and assessments. The Company is not currently a party to any material litigation and it is not aware of any material action, suit or proceedings against it that has been threatened by any person.

Critical Accounting Policies

Significant Accounting Policies and Estimates

The Company prepares its financial statements in conformity with accounting principles generally accepted in the United States. Certain of its accounting policies, including the determination of slot club promotion liability, the estimated useful lives assigned to its assets, asset impairment, insurance reserves, and allowance for doubtful accounts require that it apply significant judgment in defining the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. The Company’s judgments are based on its historical experience, terms of existing contracts, observance of trends in the gaming industry and information available from other outside sources. There can be no assurance that actual results will not differ from the Company’s estimates. To provide an understanding of the methodology the Company applies, its significant accounting policies and basis of presentation are discussed below, as well as where appropriate in this discussion and analysis and in the notes to the Company’s financial statements.

Slot Club Promotions

The Company’s Slot Club allows customers to redeem points earned from their gaming activity for cash and complimentary food, beverage, rooms, entertainment and merchandise. At the time redeemed, the retail value of complimentaries is recorded as revenue with a corresponding offsetting amount included in promotional allowances. The cost associated with complimentary food, beverage, rooms, entertainment and merchandise redeemed is recorded in casino costs and expenses. The Company also records a liability for the estimated cost of the outstanding points that it believes will ultimately be redeemed.

Self-Insurance Reserve

The Company is self insured up to certain stop loss amounts for workers’ compensation and guest liability claims. In estimating this accrual, the Company considers historical loss experience and makes judgments about the expected levels of costs per claim. The Company believes its estimates of future liability are reasonable based upon its methodology; however, changes in accident frequency and severity and other factors could materially affect the estimate for this liability.

 

16


Table of Contents

Derivative Investments and Hedging Activities

The Company’s Term Loan requires it to enter into interest rate caps in order to manage interest rate risks associated with this borrowing. The Company has adopted SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (ASC Topic 815), to account for its interest rate cap arrangement.

Allowance for Doubtful Accounts

The Company’s receivables balances relate primarily to its hotel and casino operations. The Company reserves an estimated amount for receivables that may not be collected. The Company estimates the allowance for doubtful accounts by applying standard reserve percentages to aged account balances under a specific dollar amount and specifically analyzing the collectability of each account with a balance over the specified dollar amount, based on the age of the account, the customer’s financial condition, collection history and any other known information.

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, while costs of normal repairs and maintenance are charged to expense as incurred.

Long-Lived Assets

Long-lived assets, which are not to be disposed of, including intangibles and property and equipment, are periodically reviewed by management for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. For assets to be held and used, the Company reviews these assets for impairment whenever indicators of impairment exist. If an indicator of impairment exists, the Company compares the estimated future cash flows of the asset, on an undiscounted basis, to the carrying value of the asset. If the undiscounted cash flows exceed the carrying value, no impairment is indicated. If the undiscounted cash flows do not exceed the carrying value, then impairment is measured as the difference between fair value and carrying value, with fair value typically based on a discounted cash flow model. If an asset is still under development, future cash flows include remaining construction costs.

Recent Accounting Pronouncements

In the third quarter of 2009, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Coficiation (“ASC”). The ASC is the single official source of authoritative, nongovernmental GAAP, other than guidance issued by the SEC. The adoption of the ASC did not have a material impact on the financial Statements included herein.

In March 2008, the FASB issued SFAS No. 161, (Topic 815), “Disclosures About Derivative Instruments and Hedging Activities, an amendment of SFAS No. 133”. This amendment is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. This statement was adopted January 1, 2009 and did not have a material impact on the Company’s financial position, results of operations or cash flows.

On April 9, 2009, the Financial Accounting Standards Board issued Staff Position SFAS 107-1 and Accounting Principles Board (APB) Opinion No. 28-1, (Topic 825) “Interim Disclosures about Fair Value of Financial Instruments” (FSP 107-1 and APB 28-1). Topic 825 requires disclosures about fair value of financial instruments in interim financial statements as well as in annual financial statements. Provisions under the related sections of ASC 825 were effective for interim periods ended after June 15, 2009 and the Company adopted them in second quarter 2009. This guidance did not have a significant impact on the Company’s financial position, results of operations, cash flows, or disclosures.

On April 9, 2009, the FASB issued Staff Position SFAS 157-4, (Topic 820) “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly”. Under ASC Topic 820 additional guidance is given in estimating fair value when the volume and level of transaction activity for an asset or liability have

 

17


Table of Contents

significantly decreased in relation to normal market activity for the asset or liability. ASC 820 also provides additional guidance on circumstances that may indicate a transaction is not orderly. This section of the topic was effective for interim periods ended after June 15, 2009, and the Company adopted its provisions during second quarter 2009. This guidance did not have a significant impact on the Company’s financial position, results of operations, cash flows, or disclosures.

On April 9, 2009, the FASB issued Staff Position SFAS 115-2 and SFAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (FSP 115-2) (Topic 320). Under Topic 320 guidance is given in determining whether impairments in debt securities are other than temporary, and modifies the presentation and disclosures surrounding such instruments. Provisions of this topic were effective for interim periods ended after June 15, 2009, and the Company adopted its provisions for second quarter 2009. This guidance did not have a significant impact on the Company’s financial position, results of operations, cash flows, or disclosures.

In June 2009, the FASB issued statement No. 167, “Amendments to FASB Interpretation No. 46(R)” (SFAS 167) (Topic 810). Among other items, the related sections of ASC 810 respond to concerns about the application of certain key provisions of FIN 46(R), including those regarding the transparency of the involvement with variable interest entities. The related sections of ASC 810 are effective for calendar year companies beginning on January 1, 2010. The Company has not yet determined the impact these provisions will have on its financial position, results of operations, cash flows, or disclosures.

In May 2009, the FASB issued Statement No. 165, “Subsequent Events” (SFAS 165) (Topic 855). ASC 855 modifies the definition of what qualifies as a subsequent event – those events or transactions that occur following the balance sheet date, but before the financial statements are issued, or are available to be issued – and requires companies to disclose the date through which it has evaluated subsequent events and the basis for determining that date. The Company adopted these provisions during the second quarter 2009, in accordance with the effective date. This guidance did not have a significant impact on the Company’s financial position, results of operations, cash flows, or disclosures.

 

18


Table of Contents
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. The Company’s primary exposure to market risk is interest rate risk associated with its variable rate long-term debt. If LIBOR were to increase 100 basis points and there were no additional borrowings, interest expense would increase approximately $1.8 million annually. The Company attempts to manage its interest rate risk by entering into interest rate cap agreements. The Company does not hold or issue financial instruments for trading purposes and does not enter into derivative transactions that would be considered speculative positions. The derivative financial instruments consist exclusively of interest rate cap agreements. Differentials resulting from these agreements are recorded on an accrual basis as an adjustment to interest expenses.

To manage counterparty credit risk in interest rate cap agreements, the Company only enters into agreements with highly rated institutions that can be expected to perform under terms of such agreements.

 

19


Table of Contents
ITEM 4. CONTROLS AND PROCEDURES

Our management, including our Executive Vice President of Finance and our Chief Executive Officer and General Manager, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13(a) – 15(e) and 15(d) – 15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on this evaluation, our principal executive and principal financial officers concluded our disclosure controls and procedures are effective in alerting them in a timely manner to material information required to be included in our SEC reports. There has been no change in our internal control over financial reporting (as defined in Rules 13(a) – 15(e) and 15(d) – 15(e) under the Securities Exchange Act of 1934, as amended) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

20


Table of Contents

PART II. OTHER INFORMATION

 

ITEM 1A. RISK FACTORS

In addition to those risk factors noted in our annual Form 10-Kfiling, the following additional risks have been identified.

Continued disruption in the world financial markets may adversely impact the spending patterns of our customers and the availability and cost of borrowing.

Continued disruptions in the world financial and credit markets and the resulting affect on the economies of the United States and certain foreign countries may result in fewer customers visiting, or customers spending less at our Property which would adversely impact our revenues while some of our costs remain fixed resulting in decreased earnings. The current situation in the world credit markets and the disruptions in the normal flow of credit among financial institutions may adversely impact the availability and cost of credit in the future. There can be no assurances that government responses to the disruptions of the financial and credit markets will restore consumer confidence, stabilize the markets or increase liquidity and the availability of credit.

Travel patterns may be adversely affected by fear of a widespread pandemic such as may be caused by the H1N1virus.

The public may become cautious of travel should the H1N1 virus become widespread or if the public fears the H1N1virus will be widespread. A further downturn in air travel would adversely affect the Las Vegas hospitability market and our Property in particular.

 

21


Table of Contents
ITEM 6. EXHIBITS

 

EXHIBIT
NUMBER

     
  2.1    Purchase and Sale Agreement, dated as of December 24, 2003, by and among Colony Resorts LVH Acquisitions, LLC, LVH Corporation and Caesars Entertainment Corporation*
  3.1    Articles of Organization, dated as of December 18, 2003, for Colony Resorts LVH Acquisitions, LLC*
  3.2    Operating Agreement, dated as of December 22, 2003, for Colony Resorts LVH Acquisitions, LLC*
  3.3    Amended and Restated Operating Agreement, dated June 18, 2004, for Colony Resorts LVH Acquisitions, LLC+
  3.4    Amendment No. 1 to the Amended and Restated Operating Agreement, dated July 23, 2004, for Colony Resorts LVH Acquisitions, LLC****
  3.5    Amendment to Articles of Organization, dated June 25, 2004, for Colony Resorts LVH Acquisitions, LLC******
10.1    Deposit Escrow Agreement, dated as of December 24, 2003, by and among LVH Corporation, Colony Resorts LVH Acquisitions, LLC and Nevada Title Company*
10.2    Coinvestment Transfer Restriction Agreement, dated June 18, 2004, by and among Mr. Barrack, Mr. Ribis, Co-Investment Partners and Coinvestment Voteco+
10.3    Transfer Restriction Agreement, dated June 18, 2004, by and among Mr. Barrack, Holdings and Voteco+
10.4    Employment Agreement, dated as of March 9, 2004, by and between Colony Resorts LVH Acquisitions, LLC and Rodolfo Prieto*
10.5    Employment Agreement, dated as of March 9, 2004, by and between Colony Resorts LVH Acquisitions, LLC and Robert Schaffhauser*
10.6    Employment Agreement, dated as of March 9, 2004, by and between Colony Resorts LVH Acquisitions, LLC and Kenneth Ciancimino*
10.7    Letter Agreement, dated as of March 10, 2004, by and between Colony Resorts LVH Acquisitions, LLC and Rodolfo Prieto*
10.8    Letter Agreement, dated as of March 10, 2004, by and between Colony Resorts LVH Acquisitions, LLC and Robert Schaffhauser*
10.9    Letter Agreement, dated as of March 10, 2004, by and between Colony Resorts LVH Acquisitions, LLC and Kenneth Ciancimino*
10.10    Employment Agreement, dated as of May 17, 2004, by and between Colony Resorts LVH Acquisitions, LLC and Gonzalo De Varona.***
10.11    Employment Agreement, dated as of April 12, 2004, by and between Colony Resorts LVH Acquisitions, LLC and Robert Stewart.***
10.12    Vice Chairman Agreement, dated June 18, 2004, between Colony Resorts LVH Acquisitions, LLC and Nicholas L. Ribis.****
10.13    Colony Resorts LVH Acquisitions, LLC 2004 Incentive Plan****
10.14    Loan Agreement, dated June 18, 2004, by and between Colony Resorts LVH Acquisition, LLC and Archon Financial, L.P.+
10.15    Sale Right Agreement, dated June 18, 2004, by and among Colony Resorts LVH Acquisitions, LLC, Colony Resorts LVH Holdings, LLC, Colony Resorts LVH Coinvestment Voteco, LLC, Colony Resorts LVH Voteco, LLC and Colony Resorts LVH Co-Investment Partners, L.P.****
10.16    Services Agreement, dated June 18, 2004, between Colony Resorts LVH Acquisitions, LLC and Resorts International Hotel and Casino, Inc.****
10.17    Joint Marketing Agreement, by and between Colony Resorts LVH Acquisitions, LLC and Resorts International Hotel, Inc.****
10.18    Joint Services Agreement, by and between Colony Resorts LVH Acquisitions, LLC and Resorts International Hotel, Inc.****
10.19    Employment Agreement, dated as of May 11, 2003, between LVH Corporation and Thomas Page.****
10.20    Addendum to Employment Agreement, dated as of June 22, 2004, by and between Colony Resorts LVH Acquisitions, LLC and Thomas Page.****
10.21    Addendum to Employment Agreement, dated as of April 28, 2006, by and between Colony Resorts LVH Acquisitions, LLC and Robert Schaffhauser ++
10.22    Addendum to Employment Agreement, dated as of April 28, 2006, by and between Colony Resorts LVH Acquisitions, LLC and Ken Ciancimino ++

 

22


Table of Contents
10.23    Loan Agreement dated as of May 11, 2006, between Colony Resorts LVH Acquisitions, LLC and Goldman Sachs Commercial Mortgage Capital, L.P. +++
10.24    First Amendment to the Colony Resorts LVH Acquisitions, LLC 2004 Incentive Plan ++++
10.25    Amended and Restated Joint Services Agreement, dated as of April 26, 2005 by and between Colony Resorts LVH Acquisitions, LLC and Resorts International Hotel, Inc. +++++
10.26    Amended and Restated Joint Marketing Agreement, dated as of April 26, 2006 by and between Colony Resorts LVH Acquisitions, LLC and Resorts International Hotel, Inc. +++++
10.27    Employment Agreement dated as of October 15, 2007 by and between Colony Resorts LVH Acquisition, LLC and Joseph DeRosa ++++++
10.28    Amended and Restated License Agreement dated as of January 1, 2009 by and between Colony Resorts LVH Acquisitions, LLC and HLT Existing Franchise Holding, LLC+++++++
10.29    Second Addendum to Employment Agreement dated as of December 8, 2008 by and between Colony Resorts LVH Acquisitions, LLC and Robert E. Schaffhauser++++++++
10.30    Second Addendum to Employment Agreement dated as of December 8, 2008 by and between Colony Resorts LVH Acquisitions, LLC and Kenneth M. Ciancimino++++++++
10.31    First Amendment to Loan Agreement and Omnibus Loan Modification Agreement between Colony Resorts LVH Acquisitions, LLC. And Goldman Sachs Mortgage Company (incorporated by reference to 8-K filed August 19, 2009)
10.32    Employment Agreement dated as of September 8, 2009 by and between Colony Resorts LVH Acquisitions, LLC and David Monahan (incorporated by reference to 8-K filed September 14, 2009)
14.1    Code of Ethics*******
31.1    Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2    Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1    Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2    Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

METHOD OF FILING

 

*

   Incorporated by reference to the Registrant’s Form 10, filed March 15, 2004 (File Number 0-50635).

**

   Incorporated by reference to the Registrant’s Amendment No. 1 to Form 10, filed April 26, 2004 (File Number 0-50635).

***

   Incorporated by reference to the Registrant’s Post-Effective Amendment No. 1 to Form 10, filed June 17, 2004 (File Number 0-50635).

+

   Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q, filed June 28, 2004 (File Number 0-50635).

****

   Incorporated by reference to Registrant’s Post-Effective Amendment No. 2 to Form 10 filed August 13, 2004 (File Number 0-50635).

*****

   Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q filed August 23, 2004 (File Number 0-50635).

******

   Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q/A filed September 9, 2004 (File Number 0-50635).

******

   Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q filed November 15, 2004 (File Number 0-50635).

*******

   Incorporated by reference to Registrant’s Annual Report on Form 10-K filed March 31, 2005 (File Number 000-50635)

++

   Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q filed August 14, 2006.

 

23


Table of Contents

+++

   Incorporated by reference to Registrant’s Current Report on Form 8-K, filed May 19, 2006.

++++

   Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q filed November 14, 2006
+++++    Incorporated by reference to Registrant’s Annual Report on Form 10-K filed March 30, 2007 (File Number 000-50635)
+++++++    Incorporate by reference to Registrant’s Current Report on Form 8-K filed January 5, 2009

++++++++

   Incorporated by reference to Registrant’s Annual Report on Form 10-K filed March 26, 2009 (File Number 000-50635)

 

24


Table of Contents

SIGNATURES

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.

 

  COLONY RESORTS LVH ACQUISITIONS, LLC
Date: November 13, 2009   By:   /S/    DAVID MONAHAN        
    David Monahan
    Chief Executive Officer and General Manager
Date: November 13, 2009   By:   /S/    ROBERT SCHAFFHAUSER        
    Robert Schaffhauser
    Executive Vice President of Finance

 

25