(Address and telephone number of principal executive offices) (Zip Code)
Registrant’s
telephone number, including area code: (702) 318-6888
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
None.
Securities registered pursuant to Section 12(g) of the Act:
None.
(Title of each class)
(Title of each class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. Yes o No þ
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 þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
(§229.405 of this chapter) is not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated
filer,”“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Accelerated filer o
Non-Accelerated filer þ
Smaller reporting company o
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes o No þ
State the aggregate market value of the voting and non-voting common equity held by non-affiliates
computed by reference to the price at which the common equity was last sold, or the average bid and
asked price of such common equity, as of the last business day of the registrant’s most recently
completed second fiscal quarter.
Unless the context indicates otherwise, all references to the “Company”, “Black Gaming”, “we”,
“our” and “us” refer to Black Gaming, LLC and its direct and indirect wholly owned subsidiaries,
Virgin River Casino Corporation, RBG, LLC, B & B B, Inc., CasaBlanca Resorts, LLC, Oasis Interval
Ownership, LLC, Oasis Interval Management, LLC, Oasis Recreational Properties, Inc. and R. Black,
Inc.
Forward-looking Statements
Certain information included herein contains statements that may be considered
forward-looking, such as statements relating to projections of future results of operations or
financial condition, expectations for our casinos, and expectations of the continued availability
of capital resources. Any forward-looking statement made by us necessarily is based upon a number
of estimates and assumptions that, while considered reasonable by us, is inherently subject to
significant business, economic and competitive uncertainties and contingencies, many of which are
beyond our control, and are subject to change. Actual results of our operations may vary
materially from any forward-looking statement made by us or on our behalf. Forward-looking
statements should not be regarded as representation by us or any other person that the
forward-looking statements will be achieved. Readers are cautioned not to place undue reliance on
any forward-looking statements, which speak only as of the date thereof. We undertake no obligation
to publicly release any revisions to such forward-looking statements to reflect events or
circumstances after the date hereof. Some of the contingencies and uncertainties to which any
forward-looking statement contained herein are subject to include, but are not limited to, those
set forth below in the heading “Item 1A. Risk Factors.”
The Company
Black Gaming, LLC was organized as a limited-liability company in Nevada on August 4, 2006 in
anticipation of modifying the organizational structure of B & B B, Inc. and Virgin River Casino
Corporation through a holding company reorganization (“Reorganization”). The Reorganization, which
included a transfer of B & B B, Inc. and Virgin River Casino Corporation shares for membership
interests in Black Gaming, LLC, was completed on December 31, 2006.
We own and operate the CasaBlanca Hotel & Casino, or the CasaBlanca, the Oasis Hotel & Casino,
or the Oasis, and the Virgin River Hotel & Casino, or the Virgin River, in Mesquite, Nevada, which
is located approximately 80 miles north of Las Vegas, Nevada. In addition, we own the Virgin River
Convention Center (formally known as the Mesquite Star Hotel and Casino), also in Mesquite, Nevada,
which is currently used as a special events facility and for overflow hotel traffic from our other
properties. The websites for Black Gaming, LLC, the CasaBlanca, the Oasis and the Virgin River
properties are www.blackgaming.com, www.cassablancaresort.com, www.oasisresort.com and
www.virginriver.com, respectively. We do not have a website for the Virgin River Convention
Center.
We own three of the four casino hotels operating in Mesquite maintaining a gaming market share
of approximately 60%. Previous to December 5, 2008 we had full scale operations at the Oasis. Due
to deterioration of economic conditions, we temporarily suspended portions of the Oasis operations
on that date. See “Item 8. Financial Statements and Supplementary Data — Black Gaming, LLC and
Subsidiaries Consolidated Financial Statements, Footnote 11-Impairment of Long Lived Assets,
Goodwill and Intangibles”.
As of March 31, 2009, our operating properties collectively feature approximately 1,500 slot
machines, 40 table games, 2,100 hotel rooms, of which the Oasis currently represents approximately
900 rooms utilized for overflow needs, 97 timeshare units and offer extensive amenities including
championship golf courses, a full service spa, a bowling center, both gourmet and casual
restaurants, and banquet and conference facilities.
Casino Properties
CasaBlanca Hotel & Casino. The CasaBlanca is a full service entertainment and resort
destination located off of exit 120 on Interstate 15. The CasaBlanca targets middle market guests
looking for a high-quality gaming experience in a full service resort environment and a value
alternative to Las Vegas. The CasaBlanca offers approximately 480 tower rooms (includes 24 suites
with Jacuzzi tubs) and 24 timeshare units. The approximately 27,000 square foot casino offers 710
video poker and slot machines, 24 table games, a full service race and sports book, lounge
entertainment and dancing. The CasaBlanca offers various resort and entertainment amenities,
including championship golf, a full service spa, tennis courts, a lagoon swimming pool with a
waterfall and slide, a hot tub, a sand volleyball court and an arcade. In addition, the CasaBlanca
offers a 320-seat buffet restaurant, a 180-seat 24-hour café, a 136-seat fine dining restaurant, an
ice cream parlor, a Starbucks® coffee outlet, a gift shop, a 10,000 square foot banquet and
conference facilities and a 500 seat showroom. The CasaBlanca is situated on an approximately
43-acre site, containing a parking lot with a capacity for approximately 1,940 cars as well as a
45-unit full service R.V. park. Approximately one mile from the casino hotel, situated on a
221-acre site, is the CasaBlanca Golf Club featuring an 18-hole, 7,011 yard championship course
designed by Cal Olson. We lease the land on which the golf club is located pursuant to a 99-year
lease that expires in June 2094. We also own approximately 34 acres of unimproved land near the
golf club. For the twelve months ended December 31, 2008, the average daily room rate was
approximately $63 and the overall occupancy rate was 89%.
Oasis Hotel & Casino. The Oasis is a full service entertainment and resort destination
located off of exit 120 on Interstate 15 across Mesquite Boulevard from the CasaBlanca. As of
December 5, 2008 operations at the Oasis were significantly reduced on a temporary basis. Prior to
December 5, 2008, the Company had full scale operations at the Oasis offering approximately 900
rooms utilized for overflow hotel needs (which includes 32 suites) and 73 timeshare units. The
Oasis casino floor, under reduced operations, offers approximately 140 video poker and slot
machines. Additionally, the Oasis offers various resort and entertainment amenities, including
golf, swimming pools and hot tubs, tennis courts, arcade, go-kart track and a miniature golf range.
In addition, the Oasis houses a Denny’s® Restaurant and a Starbucks® coffee outlet. The Oasis is
situated on an approximately 26-acre site, containing a parking lot with a capacity for
approximately 1,800 cars as well as an 80 unit full-service R.V. park. Approximately four miles
from the casino hotel is the Palms Golf Course featuring an 18-hole, 7,008 yard championship
course. The Palms Golf Course straddles the Nevada/Arizona border and is located on a 256-acre
site, of which 180 acres is leased from the State of Arizona pursuant to a 10-year lease that
expired in May 2008. We are currently under negotiations to renew this lease. For the twelve months
ended December 31, 2008, the average daily room rate was approximately $42 and the occupancy rate
was 65%.
Until December 5, 2008 the Company had full scale operations at the Oasis. Due to
deterioration of economic conditions, the Company temporarily suspended portions of the Oasis
operations on that date. We continue to explore opportunities for resuming full scale operations at
the Oasis.
Virgin River Hotel & Casino. The Virgin River is located off of exit 122 on Interstate 15
across the highway from the Virgin River Convention Center. The Virgin River mostly attracts local
customers and drive-in middle market customers. The Virgin River offers approximately 710 rooms
(includes two suites) and a 36,000 square foot casino with approximately 689 video poker and slot
machines, 18 table games, a full service race and sports book, a 350-seat bingo parlor and live
keno. The Virgin River offers various resort and entertainment amenities, including swimming pools
and hot tubs, a 24-lane state-of-the art bowling center, an arcade and a lounge for entertainment
and dancing. In addition, the Virgin River offers a 182-seat 24-hour café, a 178-seat buffet
restaurant, a
Starbucks®
Coffee Outlet and a gift shop. The Virgin River is situated on an approximately 32-acre
site, containing a parking lot with a capacity for approximately 1,650 cars. We also own
approximately 31 acres of unimproved land adjacent to the Virgin River. For the twelve months
ended December 31, 2008, the average daily room rate was approximately $39 and the occupancy rate
was 84%.
Virgin River Convention Center. The Virgin River Convention Center is situated on an
approximately 14-acre site located off of exit 122 on Interstate 15 and the East Mesquite Boulevard
interchange. We acquired the Virgin River Convention Center out of its prior owner’s bankruptcy in
November 2000. The Virgin River Convention Center has 12,000 square feet of potential gaming space
and 210 hotel rooms. We currently use the Virgin River Convention Center as a special event
facility and for overflow hotel traffic from our other properties. At acquisition, the Virgin
River Convention Center had a gourmet restaurant, a cocktail lounge with a performance stage, one
coffee shop, an arcade and a gift shop, none of which is currently in operation. Although the
Virgin River Convention Center has 12,000 square feet of potential gaming space, we do not hold a
gaming license to operate a casino at the Virgin River Convention Center. We will only apply for a
gaming license at the Virgin River Convention Center if we decide to operate a casino at that
location.
Recent Developments
On January 15, 2009, we failed to make the $5.625 million semi-annual interest payment then
due to the holders (the “Senior Noteholders”) of our 9.00% Senior Secured Notes (the “Senior
Secured Notes”). We are in discussions with an ad hoc committee of Senior Noteholders regarding our
financial alternatives. We have also been in discussions with Wells Fargo Foothill, Inc. (“Wells
Fargo Foothill”) regarding the effect of the non-payment of interest and other defaults under our
senior secured credit facility, as amended (the “Foothill Facility”). The defaults under the
Senior Secured Notes and Foothill Facility may also constitute an event of default under our 12.75%
Senior Subordinated Discount Notes (the “Senior Subordinated Notes”) if our obligations under the
Senior Secured Notes or Foothill Facility are accelerated. The Senior Secured Notes and the Senior
Subordinated Notes are collectively referred to in this report as the “Notes.”
The global economic recession has adversely affected revenues across our businesses. In this
regard, we performed an impairment test on our long lived assets, goodwill and intangibles in the
fourth quarter of 2008 and recorded a non-cash impairment charge of approximately $10.9 million.
On December 5, 2008, we announced that we would significantly reduce operations at the Oasis
on a temporary basis. As part of this temporary reduction in operations, we temporarily scaled back
approximately 300 full-time positions representing approximately 18% of our total workforce. We
accrued restructuring and other non-recurring charges of approximately $1.0 million, associated
with our operating decisions at the Oasis as of December 31, 2008.
General. We face competition in the market in which our gaming facilities are located as well
as in or near any geographic area from which we attract or expect to attract a significant number
of our customers. As a result, our casino properties face direct competition from all other
casinos and hotels in the Las Vegas, Nevada region and the Wendover, Nevada region as well as the
California gaming market.
Many of our competitors have significantly greater name recognition and financial, marketing
and other resources than we do. We also compete, to some extent, with other forms of gaming on
both a local and national level, including state-sponsored lotteries, internet gaming, on- and
off-track wagering and card parlors. The recent and continued expansion of legalized casino gaming
to new jurisdictions throughout the United States has increased competition faced by us and will
continue to do so in the future. Additionally, if gaming were legalized or expanded in
jurisdictions near our properties or any geographic area from which we expect to attract a
significant number of our customers, we could face additional competition which could have a
material adverse impact on our business, financial condition and results of operations. There can
be no assurance that we will be able to continue to compete successfully in our existing markets or
that we will be able to compete successfully against any such future competition.
Mesquite, Nevada. There are four hotel-casinos in Mesquite, Nevada, three of which are owned
by us. We temporarily scaled back operations at one of our hotel-casinos, the Oasis, on December 5,2008. As of December 31, 2008 there were approximately 2,700 hotel rooms in Mesquite, Nevada.
Through our three properties, we own approximately 2,100 of those rooms. Also, within the four
hotel-casinos there are eleven dining options, nine of those dining options existed at our
properties prior to the scale back of Oasis operations. Currently seven dining options exist at our
properties. We also compete with free standing dining facilities in Mesquite, Nevada as a
restaurant option. The only other licensed resort gaming facility in Mesquite is the Eureka Casino
Hotel, or the Eureka. We believe that the hotel casinos are sufficiently distinct and diversified
such that each property caters to a different type of clientele. For instance, the CasaBlanca,
which contains a spacious casino floor and a tower hotel, appeals to the customer who seeks to
enjoy a mega resort type experience that is away from the hustle and bustle of Las Vegas. On the
other hand, the Virgin River caters to the local Mesquite customer who is more likely to be
attracted by the intimate gaming atmosphere and amenities such as a bowling alley. With 210 rooms
and 3 dining facilities, we believe the Eureka targets the local Mesquite customer and competes
directly with the Virgin River. There is no limit on the number of gaming licenses that may be
granted in Mesquite or in some of the other gaming markets in which we compete. In particular,
other than zoning limitations and licensing requirements of the City of Mesquite, there are no
restrictions on additional casinos being constructed and opened in Mesquite, including by
competitors that may have greater financial and other resources than we do. Currently a master
planned resort community of approximately 190 acres, Solstice Mesquite, is in the beginning phase
of construction. This project is designed to have a casino, hotel, water park, amphitheater and a
retail shopping center.
Las Vegas, Nevada. Many of our competitors in the Las Vegas market have significantly greater
name recognition and financial, marketing and other resources than we do. However, our focus on
providing value-oriented amenities with a quality casino experience attracts many of the Las Vegas
locals who want to enjoy a weekend getaway. In response to the recent economic downturn, many
properties in the Las Vegas market have significantly reduced their room rates, which has increased
our competition with those properties.
West Wendover, Nevada. West Wendover, Nevada is located on the eastern border of Nevada in
Elko County. The city is contiguous with Wendover, Utah and is approximately 120 miles west of
Salt Lake City, Utah, less than half the distance between Mesquite and Salt Lake City, Utah.
According to the Nevada State Gaming Control Board, the West Wendover casinos collectively contain
approximately 4,000 slot machines and 190 games and tables as of December 31, 2008. We compete
with these casinos for gaming customers located in Salt Lake City, Utah and the outlying areas.
Nonetheless, we believe our more favorable climate and more attractive amenities give us a
competitive advantage. In West Wendover, during October through January, the average number of
days with precipitation ranges from five to nine days with temperatures ranging from 27 to 51
degrees Fahrenheit. Mesquite, on the other hand, has on average two to three days of precipitation
with temperatures ranging from 44 to approximately 65 degrees Fahrenheit during the same months.
California Gaming Market. Voters in California approved an amendment to the California
constitution in 2000 that gave Native American tribes in California the right to offer a limited
number of slots machines and a range of house-banked card games. A number of Native American
tribes have already signed and others have begun signing gaming compacts with the State of
California. According to the National Indian Gaming Commission, there currently are approximately
62 operating tribal casinos in California. In addition, several Native American tribes in
California have reached agreements with the State of California that allow for an increased number
of gaming machines within the facilities operated by such tribes in exchange for a revenue-based
payment to the state. California voters have also approved increasing the number of gaming machines
in certain tribal casinos. The competitive impact on our gaming establishments from the continued
growth of gaming in California cannot be definitively determined but, depending on the nature,
extent and location of the growth, the impact could be material.
Employees
As of March 31, 2009, we employed approximately 1,700 employees. None of our employees are
covered by a collective bargaining agreement. We believe that our relationship with our employees
is good.
Environmental Matters
We are subject to various federal, state and local environmental laws, ordinances and
regulations, including those governing discharges to air and water, the generation, handling,
management and disposal of petroleum products and hazardous substances, and the health and safety
of our employees. Permits may be required for our operations and these permits are subject to
renewal, modification and, in some cases, revocation. In addition, as a property owner and
operator, we may be liable for the costs of investigating and remediating hazardous substances or
petroleum products on, under, or in our property, without regard to whether we knew of, or caused,
the presence of the contaminants, and regardless of whether the practices that resulted in the
contamination were legal at the time they occurred. The presence of, or failure to remediate
properly, the substances may adversely affect our ability to sell or rent our property or to borrow
funds using it as collateral. Additionally, we may be subject to claims by third parties based on
damages and costs resulting from environmental contamination emanating from our property.
We have reviewed environmental assessments, and limited soil and groundwater testing, relating
to our properties. As a result, we have become aware that there is contamination present on some
of our properties apparently due to past operations, which included a truck stop and a gas station.
In particular, groundwater contamination at our Oasis property (which appears to have migrated
onto our CasaBlanca property) is the subject of investigation and cleanup activities being
conducted by the prior owners of the Oasis. The water supply for the Oasis property and the
CasaBlanca properties does not come from ground water that has been contaminated. Although we
believe that the prior owners are responsible for such matters under an indemnity agreement we
negotiated at the time we purchased the Oasis, we cannot give assurance that we will not incur
costs related to this matter. Further, we could be held strictly liable for the environmental
clean up of the contaminated properties. In anticipation of marketing the golf course property
during 2006, Casablanca Resorts, LLC, entered into several agreements with WSR, Inc (“WSR”), the former owners
of the Oasis Hotel & Casino, to terminate WSR’s remaining rights in the golf course property, among
other matters, for approximately $1.1 million. Pursuant to the agreements, the funds paid to WSR
will be used by WSR to remediate the existing environmental liability at the Oasis Hotel & Casino
which continues to be an obligation of WSR. See “Item 8. Financial Statements and Supplementary
Data-Black Gaming, LLC and Subsidiaries Consolidated Financial Statements, Footnote 13-Commitments
and Contingencies”.
We do not anticipate any material adverse effect on our earnings or competitive position
relating to environmental matters, but it is possible that future developments could lead to
material environmental compliance costs or other liabilities for us and that these costs could have
a material adverse effect on our business and financial condition.
Regulation and Licensing
The ownership and operation of casino gaming facilities in Nevada are subject to the Nevada
Gaming Control Act and the regulations promulgated thereunder, or the Nevada Act, and various local
regulations. In addition, our gaming operations are subject to the licensing and regulatory
control of the Nevada Gaming Commission, the Nevada State Gaming Control Board, the Clark County
Liquor and Gaming Licensing Board, or the City of Mesquite and other local authorities, or
collectively, the Nevada Gaming Authorities.
The laws, regulations and supervisory procedures of the Nevada Gaming Authorities are based
upon declarations of public policy which are concerned with, among other things:
•
the prevention of unsavory or unsuitable persons from having a direct or indirect
involvement with gaming at any time or in any capacity;
•
the establishment and maintenance of responsible accounting practices and
procedures;
•
the maintenance of effective controls over the financial practices of licensees,
including the establishment of minimum procedures for internal fiscal affairs and the
safeguarding of assets and revenues, providing reliable record keeping and requiring
the filing of periodic reports with the Nevada Gaming Authorities;
•
the prevention of cheating and fraudulent practices; and
•
providing a source of state and local revenues through taxation and licensing fees.
Changes in these laws, regulations and procedures could have an adverse effect on our
business, financial condition and results of operations.
Corporations and other entities that operate casinos in Nevada are required to be licensed by
the Nevada Gaming Authorities. A gaming license for such activities requires the periodic payment
of fees and taxes and is not transferable. In December 2004, Virgin River Casino Corporation,
RBG, LLC and B & B B, Inc., and in December 2006, Black Gaming, LLC, became registered by the
Nevada Gaming Commission as a publicly traded corporation, or registered corporation. As a
registered corporation, we are required to periodically submit detailed financial and operating
reports to the Nevada Gaming Commission and furnish any other information that the Nevada Gaming
Commission may require.
The Nevada Gaming Authorities may investigate any individual who has a material relationship
to, or material involvement with us in order to determine whether such individual is suitable or
should be licensed as a business associate of a gaming licensee. Our officers, directors and
certain key employees must file applications with the Nevada Gaming Authorities and are required to
be licensed by the Nevada Gaming Authorities. The Nevada Gaming Authorities may deny an
application for licensing for any cause that they deem reasonable. A finding of suitability is
comparable to licensing, and both require submission of detailed personal and financial information
followed by a thorough investigation. Changes in licensed positions must be reported to the Nevada
Gaming Authorities and, in addition to their authority to deny an application for a finding of
suitability or licensure, the Nevada Gaming Authorities have jurisdiction to disapprove a change in
a corporate position.
If the Nevada Gaming Authorities were to find an officer, director or key employee unsuitable
for licensing or unsuitable to continue having a relationship with us, we would have to sever all
relationships with that person. In addition, the Nevada Gaming Commission may require us to
terminate the employment of any person who refuses to file appropriate applications.
Determinations of suitability or of questions pertaining to licensing are not subject to judicial
review in Nevada.
We are required to submit detailed financial and operating reports to the Nevada Gaming
Commission. Substantially all material loans, leases, sales of securities and similar financing
transactions by us must be reported to the Nevada Gaming Commission.
If it were determined that we violated the Nevada gaming laws, our gaming licenses and
registrations with the Nevada Gaming Commission could be limited, conditioned, suspended or
revoked, subject to compliance with certain statutory and regulatory procedures. In addition, we
and the persons involved could be subject to substantial fines for each separate violation of the
Nevada laws at the discretion of the Nevada Gaming Commission. Further, the Nevada Gaming
Commission could appoint a supervisor to operate our gaming properties and, under certain
circumstances, earnings generated during the supervisor’s appointment (except for the reasonable
rental value of our gaming properties) could be forfeited to the State of Nevada. Limitation,
conditioning or suspension of any gaming license or the appointment of a supervisor could (and
revocation of any gaming license would) materially adversely affect our operations.
As a registered corporation, any beneficial holder of our voting securities, regardless of the
number of shares owned, may be required to file an application, be investigated, and have his
suitability as a beneficial holder of our voting securities determined if the Nevada Gaming
Commission has reason to believe that such ownership would otherwise be inconsistent with the
declared policies of the State of Nevada. No transfer or issuance of our voting securities can be
made without the prior approval of the Nevada Gaming Authorities. The applicant must pay all costs
of investigation incurred by the Nevada Gaming Authorities in conducting such investigation.
Although we do not intend to register or sell any equity securities, Nevada law requires any
person who acquires more than 5% of a registered corporation’s voting securities to report the
acquisition to the Nevada Gaming Commission. Nevada law requires that beneficial owners of more
than 10% of a registered corporation’s voting securities apply to the Nevada Gaming Commission for
a finding of suitability within 30 days after the Chairman of the Nevada State Gaming Control Board
mails the written notice requiring the filing for a finding of suitability. Under certain
circumstances, an “institutional investor,” as defined in the regulations of the Nevada Gaming
Commission, which acquires more than 10%, but not more than 15%, of our voting securities may apply
to the Nevada Gaming Commission for a waiver of such finding of suitability if that institutional
investor holds the voting securities for investment purposes only. An institutional investor will
not be deemed to hold voting securities for investment purposes unless the voting securities were
acquired and are held in the ordinary course of business as an institutional investor and not for
the purpose of causing, directly or indirectly, the election of a majority of the members of our
board of directors, any change in our corporate charter, bylaws, management, policies or
operations, or any of our gaming affiliates, or any other action which the Nevada Gaming Commission
finds to be inconsistent with holding our voting securities for investment purposes only.
Activities which are not deemed to be inconsistent with holding voting securities for investment
purposes only include:
•
voting on all matters voted on by stockholders;
•
making financial and other inquiries of management of the type normally made by
securities analysts for informational purposes and not to cause a change in its
management, policies or operations; and
•
other activities as the Nevada Gaming Commission may determine to be consistent with
such investment intent.
If the beneficial holder of voting securities who must be found suitable is a corporation,
partnership or trust, it must submit detailed business and financial information including a list
of beneficial owners. The applicant is required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of suitability or a license within
30 days after being ordered to do so by the Nevada Gaming Commission or the Chairman of the Nevada
State Gaming Control Board, may be found unsuitable. The same restrictions apply to a record owner
if the record owner, after request, fails to identify the beneficial owner. Any stockholder found
unsuitable and who holds, directly or indirectly, any beneficial ownership of the common stock of a
registered corporation beyond the period of time as may be prescribed by the Nevada Gaming
Commission may be guilty of a criminal offense. We may become subject to disciplinary action if,
after receipt of notice that a person is unsuitable to be a stockholder or to have any other
relationship with us, we:
•
pay that person any dividend or interest upon voting securities;
•
allow that person to exercise, directly or indirectly, any voting right conferred
through securities held by that person;
•
pay remuneration in any form to that person for services rendered or otherwise; or
•
fail to pursue all lawful efforts to require the unsuitable person to relinquish his
voting securities for cash at fair market value.
Additionally, the Clark County Liquor and Gaming Licensing Board has taken the position that
it has the authority to approve all persons owning or controlling the stock of any corporation
controlling a gaming license.
We also come under the jurisdiction of the Mesquite City Council which can terminate the
Company’s liquor and gaming licenses for various causes, one being a reduction in operations. On
February 10, 2009, the Mesquite City Council granted a 180-day extension of our liquor and gaming
licenses to allow the continued temporary reduction of operations at the Oasis. The extension runs
through July 31, 2009 at which time we will need to request another extension if we have not
sufficiently increased operations at the Oasis.
We may be required to disclose to the Nevada State Gaming Control Board and the Nevada Gaming
Commission the identities of all holders of our outstanding Notes. The Nevada Gaming Commission
may, in its discretion, require the holder of any debt security of a registered corporation to file
applications, be investigated and be found suitable to own the debt security of a registered
corporation. If the Nevada Gaming Commission determines that a person is unsuitable to own a debt
security, then pursuant to Nevada law, the registered corporation can be sanctioned, including the
loss of its approvals, if without the prior approval of the Nevada Gaming Commission, it:
•
pays to the unsuitable person any dividend, interest, or any distribution
whatsoever;
•
recognizes any voting right by the unsuitable person in connection with debt
securities;
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pays the unsuitable person remuneration in any form; or
•
makes any payment to the unsuitable person by way of principal, redemption,
conversion, exchange, liquidation or similar transaction.
We are required to maintain a current ledger in Nevada, which may be examined by the Nevada
Gaming Authorities at any time. If any securities are held in trust by an agent or by a nominee,
the record holder may be required to disclose the identity of the beneficial holder to the Nevada
Gaming Authorities. A failure to make such disclosure may be grounds for finding the record holder
unsuitable. We are also required to render maximum assistance in determining the identity of the
beneficial owner. The Nevada Gaming Commission has the power to require our securities to bear a
legend indicating that the securities are subject to the Nevada Act. However, to date, the Nevada
Gaming Commission has not imposed such a requirement on us.
We may not make a public offering of securities without the prior approval of the Nevada
Gaming Commission if the securities or proceeds from the securities are intended to be used to
construct, acquire or finance gaming facilities in Nevada, or to retire or extend obligations
incurred for the purposes of constructing, acquiring or financing gaming facilities. Furthermore,
any approval, if granted, does not constitute a finding, recommendation or approval by the Nevada
Gaming Commission or the Nevada State Gaming Control Board as to the accuracy or adequacy of the
prospectus or the investment merits of the securities offered. Any representation to the contrary
is unlawful.
Changes in our control through merger, consolidation, stock or asset acquisitions, management
or consulting agreements, or any act or conduct by a person whereby that person obtains control
(including foreclosure on the pledged shares), may not occur without the prior approval of the
Nevada Gaming Commission. Entities seeking to acquire control or ownership of a registered
corporation must satisfy the Nevada State Gaming Control Board and Nevada Gaming Commission in a
variety of stringent standards prior to assuming control of such registered corporation. The
Nevada Gaming Commission may also require the stockholders, officers, directors and other persons
having a material relationship or involvement with the entity proposing to acquire control, to be
investigated and licensed as part of the approval process relating to the transaction.
License fees and taxes, computed in various ways depending on the type of gaming or activity
involved, are payable to the State of Nevada and to the counties and cities in which the Nevada
licensee’s respective operations are conducted. Depending upon the particular fee or tax involved,
these fees and taxes are payable either monthly, quarterly or annually and are based upon either:
•
a percentage of the gross revenues received;
•
the number of gaming devices operated; or
•
the number of table games operated.
Any person who is licensed, required to be licensed, registered, required to be registered, or
is under common control with such persons, or licensees, and who is or who proposes to become
involved in a gaming venture outside of Nevada, is required to deposit with the Nevada State Gaming
Control Board, and thereafter maintain, a revolving fund in the amount of $10,000 to pay the
expenses of investigation by the Nevada State Gaming Control Board of the licensees’ participation
in foreign gaming. The revolving fund is subject to increase or decrease in the discretion of the
Nevada Gaming Commission. Thereafter, licensees are also required to comply with certain reporting
requirements imposed by the Nevada gaming laws. Licensees are also subject to disciplinary action
by the Nevada Gaming Commission if they knowingly violate any laws of the foreign jurisdiction
pertaining to a foreign gaming operation, fail to conduct the foreign gaming operation in
accordance with the standards of honesty and integrity required of Nevada gaming operations, engage
in activities or enter into associations that are harmful to the State of Nevada or its ability to
collect gaming taxes and fees, or employ, contract with or associate with a person in the foreign
operation who has been denied a license or a finding of suitability in Nevada on the ground of
personal unsuitability.
The Internal Revenue Code and Treasury Regulations require operators of casinos located in the
United States to file information returns for United States citizens, including names and addresses
of winners, for keno and slot machine winnings in excess of prescribed amounts and table game
winnings in which the payout is a certain amount greater than the wager. The Internal Revenue Code
and Treasury Regulations also require operators to withhold taxes on some keno, bingo, and slot
machine winnings of nonresident aliens. We are unable to predict the extent to which these
requirements, if extended, might impede or otherwise adversely affect operations of, and/or income
from, the other games.
Regulations adopted by the Financial Crimes Enforcement Network, or FinCEN, of the Treasury
Department and the Nevada Gaming Commission, require the reporting of currency transactions in
excess of $10,000 occurring within a gaming day, including identification of the patron by name and
social security number. This reporting obligation may have resulted in the loss of gaming revenues
to jurisdictions outside the United States, which are exempt from the ambit of these regulations.
In 2002 FinCEN implemented the suspicious activity reporting rule. This new reporting obligation
requires casinos to report suspicious monetary transactions when the casino knows, suspects, or has
reason to suspect that the transaction involves funds derived from illegal activity or is otherwise
intended to facilitate illegal activity. The new reporting obligations were effective in
March 2003.
Potential Changes in Tax and Regulatory Requirements
In the past, federal and state legislators and officials have proposed changes in tax law, or
in the administration of the laws, affecting the gaming industry. Regulatory commissions and state
legislatures sometimes consider limitations on the expansion of gaming in jurisdictions where we
operate and other changes in gaming laws and regulations. Proposals at the national level have
included a federal gaming tax and limitations on the federal income tax deductibility of the cost
of furnishing complimentary promotional items to customers, as well as various measures which would
require withholding on amounts won by customers or on negotiated discounts provided to customers on
amounts owed to gaming companies. It is not possible to determine with certainty the likelihood of
possible changes in tax or other laws or in the administration of the laws. The changes, if
adopted, could have a material adverse effect on our financial results.
Compliance with Other Laws and Regulations
In addition to the regulations described above, our operations are also subject to extensive
state and local laws, regulations and ordinances that apply to non-gaming businesses generally,
and, on a periodic basis, we must obtain various other licenses and permits, including those
required to sell alcoholic beverages. We have not incurred, and do not expect to incur, material
expenditures with respect to these laws and regulations. There can be no assurances, however, that
we will not incur material liability under these laws and regulations in the future. See also
“Item 1A. Risk Factors—Risks Related to Our Business—Governmental Regulation,”“—Factors Beyond Our
Control” and “—Environmental Matters”.
If any of the following risks actually occurs, our business, financial condition and/or
operating results could be materially adversely affected.
Risks Related to Our Business
Going Concern Opinion—The opinion of our independent registered public accounting firm with respect
to our financial statements for the year ended December 31, 2008 contains a “going concern”
qualification.
Our operations have been adversely affected by the general economic recession in the U.S.
economy and the continuing housing and credit crisis. As a result of the adverse change in our
results of operations and our significant outstanding indebtedness,
and our default status on our amended Foothill Facility and
Senior Secured Notes, the opinion of our independent registered public accounting firm contains a
going concern qualification. We are currently in discussions with an ad hoc committee of Senior
Noteholders regarding the Company’s financial alternatives. If we are not successful in obtaining
an extended forbearance agreement, a restructuring agreement or entering into a transaction to
address our liquidity and capital structure, we may be required to seek protection under Chapter 11
of the U. S. Bankruptcy Code. We can provide no assurances that our negotiations will be
successful. Refer to “Risks Related to Notes” for additional discussion of risks. The conditions
described above raise a substantial doubt about our ability to continue as a going concern. See
“Item 8. Financial Statements and Supplementary Data — Black Gaming, LLC and Subsidiaries
Consolidated Financial Statements, Footnote 15 — Going Concern”.
Oasis Hotel & Casino Temporary Closure—As of December 5, 2008 operations at the Oasis were
significantly reduced on a temporary basis.
The temporary reduction of operations at the Oasis continues through the date of this report.
We can provide no assurances that we will be able to reopen the facility or find alternative uses
for it. We are subject to a variety of rules and regulations, some of which require a minimum level
of operations to continue licensure. If we are unable to extend our current licenses under our
temporarily reduced levels we may lose our licensure. We may be unable to re-establish these
licenses in the event we want to reinstate full operations. This may have a material adverse effect on our
business, financial condition and results of operations.
Geographic Concentration of Properties—We are subject to greater risks than a geographically
diversified gaming company.
All of our properties are located in Mesquite, Nevada. Therefore, the impact of many economic
and other business factors in Mesquite, and Nevada in general, on our properties are more
significant to us than it would be to a geographically diversified gaming company, and we are
subject to more significant fluctuations in our operating results than a geographically diversified
gaming company would be due to factors such as:
•
a downturn in local or regional economic conditions;
•
an increase in competition in the surrounding area;
•
inaccessibility to our properties due to road construction or closure of Interstate
15; and
•
natural and other disasters in the surrounding area, including severe weather,
flooding, fire, and other casualty losses.
Any of the foregoing factors could limit or result in a decrease in the number of customers at
our properties or a decrease in the amount that customers are willing to wager. Although we
maintain insurance policies, which may cover certain casualties, insurance proceeds may not
adequately compensate us for all economic consequences of any such event. Due to the current
economic recession and lack of geographic diversity, we have been unable to generate sufficient
cash flow to meet our payment obligations under the Notes and our other indebtedness.
The current housing crisis and recent adverse conditions in the economy in general in the
United States has resulted in a significant decline in the amount of tourism and spending by gaming
patrons. If this decline continues, our financial condition, results of operations and cash flows
may be further adversely affected.
Competition—We face substantial competition in the gaming industry.
There is substantial competition among companies in the gaming industry, which includes
land-based casinos, dockside casinos, riverboat casinos, casinos located on Native American land
and other forms of legalized gaming. If other casinos operate more successfully, if existing
properties are enhanced or expanded, or if additional hotels and casinos are established in and
around the locations where we conduct business, we may lose market share. We also compete, to some
extent, with other forms of gaming on both a local and national level, including state-sponsored
lotteries, internet gaming, on- and off-track wagering and card parlors. In particular, the
legalization of gaming or the expansion of legalized gaming in or near any geographic area from
which we attract or expect to attract a significant number of our customers could have a
significant adverse effect on our business, financial condition and results of operations. In
addition, there is no limit on the number of gaming licenses that may be granted in Mesquite or in
some of the other gaming markets in which we compete. In particular, other than zoning limitations
and licensing requirements of the City of Mesquite, there are no restrictions on additional casinos
being constructed and opened in Mesquite, including by competitors that may have greater financial
and other resources than we do.
Our casino properties face direct competition from all other casinos and hotels in the
southern Nevada region, including, to some degree, from each other. In addition, we also face
competition from all other types of entertainment, recreational activities and other attractions in
and near Las Vegas. Future visits to our properties may be negatively affected as customers who
have previously visited our properties may choose to experience Las Vegas casinos and hotels with
greater name recognition, different attractions, amenities and entertainment options. Additionally,
in response to the recent economic downturn, many Las Vegas properties have significantly reduced
room rates, which has increased our competition with these properties. Further, many of our
competitors have greater financial, selling and marketing, technical and other resources than we
do. We must continually attract customers to our properties, which requires us to maintain a high
level of investment in marketing and customer service. We may not be able to compete effectively
with our competitors.
Currently, in Mesquite Nevada, a master planned resort community of approximately 190-acres,
Solstice Mesquite, is in the beginning phase of construction. This project is designed to have a
casino, hotel, water park, amphitheater and a retail shopping center.
Increased competition also may require us to make substantial capital expenditures to maintain
and enhance the competitive positions of our properties, including updating slot machines to
reflect changing technology, refurbishing rooms and public service areas periodically, replacing
obsolete equipment on an ongoing basis and making other expenditures to increase the attractiveness
and add to the appeal of our properties. Because we are highly leveraged, after satisfying our
obligations under our outstanding indebtedness, there can be no assurance that we will have
sufficient funds to undertake these expenditures or that we will be able to obtain sufficient
financing to fund such expenditures. If we are unable to make such expenditures, our competitive
position and our results of operations could be materially adversely affected.
Dependence on Management—We rely on our Chairman of the Board, Chief Executive Officer and
President, the loss of whose services could materially and adversely affect our business.
Our success is substantially dependent upon the efforts and skills of Robert R. Black, Sr.,
our Chairman of the Board, Chief Executive Officer and President. Mr. Black is important to our
success because he has been instrumental in setting our strategic direction, operating our
business, identifying, recruiting and training personnel, identifying opportunities and arranging
financing. If we were to lose his services, our business, financial condition and results of
operations could be materially adversely affected.
Governmental Regulations—We face extensive regulation from gaming and other government authorities.
As owners and operators of gaming facilities, we are subject to extensive Nevada state and
local regulation. Nevada state and local government authorities require us and our subsidiaries to
obtain gaming licenses and require our officers and key employees to demonstrate suitability to
hold gaming licenses. The Nevada state and local government authorities may limit, condition,
suspend or revoke a license for any cause deemed reasonable by the respective licensing agency.
They may also levy substantial fines against us or our subsidiaries or the individuals involved in
violating any gaming laws or regulations. The occurrence of any of these events could have a
material adverse effect on our business, financial condition and results of operations.
No assurances can be given that any new licenses, registrations, findings of suitability,
permits and approvals, including for any proposed expansion of our properties, will be given or
that existing ones will be renewed when they expire. Any failure to renew or maintain our licenses
or receive new licenses when necessary would have a material adverse effect on us.
We are subject to a variety of other rules and regulations, including zoning, environmental,
construction and land-use laws and regulations governing the serving of alcoholic beverages. We
also pay substantial taxes and fees in connection with our operations as a gaming company, which
taxes and fees are subject to increase or other change at any time. Any changes to these laws
could have a material adverse effect on our business, financial condition and results of
operations.
The compliance costs associated with these laws, regulations and licenses are significant. A
change in the laws, regulations and licenses applicable to our business or a violation of any
current or future laws or regulations or our gaming licenses could require us to make material
expenditures or could otherwise materially adversely affect our business, financial condition or
results of operations. For more detailed information, see “Item 1. Business — Regulation and
Licensing.”
Gaming Taxes and Fees — If the State of Nevada or Clark County increases gaming taxes and fees, our
results of operations could be adversely affected.
State and local authorities raise a significant amount of revenue through taxes and fees on
gaming activities. From time to time, legislators and officials have proposed changes in tax laws,
or in the administration of such laws, affecting the gaming industry. In addition, worsening
economic conditions could intensify the efforts of state and local governments to raise revenues
through increases in gaming taxes. If the State of Nevada or Clark County, Nevada were to increase
gaming taxes and fees, our results of operations could be adversely affected. There are several
gaming tax increase proposals currently circulating in Nevada. One such proposal, a 3% increase in
the room tax, was recently approved by the Nevada legislature. These proposals would take the form
of voter referendum. If successfully implemented, such an increase would have a material adverse
affect on our financial condition, results of operations or cash flows.
Concentration of Ownership—Our Chairman of the Board, Chief Executive Officer and President owns a
substantial majority of the Company and could have interests that conflict with the noteholders.
Robert R. Black, Sr., our majority member and sole manager, directly owns 99.03% of the
Company. There can be no assurance that the interests of Mr. Black will not conflict with the
interests of holders of the Notes. Because of his controlling interests, he has the power to elect
all or a majority of our board, appoint new management and approve any action requiring the
approval of holders of our Notes, including adopting amendments to our organizational documents,
approving mergers or sales of substantially all of our assets or changes to our capital structure,
or pursuing other transactions which may increase the value of his equity investment even though
these transactions may involve risks to the holders of the Notes.
Union Efforts to Organize Employees—Our business, financial condition, and results of operation may
be harmed by union efforts to organize our employees.
Our employees are not covered by collective bargaining agreements. However, the Industrial
Technical and Professional Employees Union has twice sought to organize the workers at our
properties. If the Industrial Technical and Professional Employees Union or any other union seeks
to organize any of our employees, we could experience disruption in our business and incur
significant costs, both of which could have a material adverse effect on our results of operation
and financial condition. If a union were successful in organizing any of our employees we could
experience significant increases in our labor costs which could also have a material adverse effect
on our business, financial condition, and results of operations.
Factors Beyond Our Control—Our business, financial condition and results of operations are
dependent in part on a number of factors that are beyond our control.
The economic health of our business is generally affected by a number of factors that are
beyond our control, including:
•
continued increases in healthcare costs;
•
general economic conditions and economic conditions specific to our primary markets;
•
levels of disposable income of casino customers;
•
increases in transportation costs;
•
local conditions in key gaming markets, including seasonal and weather-related
factors;
•
increase in gaming taxes or fees;
•
decline in tourism and travel due to occurrences or threats of terrorism or other
destabilizing events;
•
substantial increases in the cost of electricity, natural gas and other forms of
energy;
competitive conditions in the gaming industry, including the effect of such
conditions on the pricing of our games and products;
•
the relative popularity of entertainment alternatives to casino gaming that compete
for the leisure dollar;
•
the adoption of additional anti-smoking regulations;
•
an outbreak or suspicion of an outbreak of an infectious communicable disease;
•
environmental disaster; and
•
unionization of workforce
Any of these factors could negatively impact our properties or geographic location in
particular or the casino industry generally, and as a result, our business, financial condition and
results of operations.
Environmental Matters—We are subject to environmental laws and potential exposure to environmental
liabilities. This may cause us to incur costs or affect our ability to develop, sell or rent our
property or to borrow money where such property is required to be used as collateral.
We are subject to various federal, state and local environmental laws, ordinances and
regulations, including those governing discharges to air and water, the generation, handling,
management and disposal of petroleum products and hazardous substances, and the health and safety
of our employees. Permits may be required for our operations and these permits are subject to
renewal, modification and, in some cases, revocation. In addition, as a property owner and
operator, we may be liable for the costs of investigating and remediating hazardous substances or
petroleum products on, under, or in our property, without regard to whether we knew of, or caused,
the presence of the contaminants, and regardless of whether the practices that resulted in the
contamination were legal at the time they occurred. The presence of, or failure to remediate
properly, the substances may adversely affect our ability to sell or rent our property or to borrow
funds using it as collateral. Additionally, we may be subject to claims by third parties based on
damages and costs resulting from environmental contamination emanating from our property.
We have reviewed environmental assessments, and limited soil and groundwater testing, relating
to our properties. As a result, we have become aware that there is contamination present on some
of our properties apparently due to past operations, which included a truck stop and a gas station.
In particular, groundwater contamination at our Oasis property (which appears to have migrated
onto our CasaBlanca property) is the subject of investigation and cleanup activities being
conducted by WSR, Inc. (“WSR”), the prior owners of the Oasis. The water supply for the Oasis
property and the CasaBlanca property does not come from ground water that has been contaminated.
Although we believe that the prior owners are responsible for such matters under an indemnity
agreement we negotiated at the time we purchased the Oasis, we cannot assure note holders that we
will not incur costs related to this matter. Further, we could be held strictly liable for the
environmental clean-up of the contaminated properties. In anticipation of marketing the golf course
property during 2006, Resorts, LLC, entered into several agreements with WSR to terminate WSR’s
remaining rights in the golf course property, among other matters, for approximately $1.1 million.
Pursuant to the agreements, the funds paid to WSR will be used by WSR to remediate the existing
environmental liability at the Oasis Hotel & Casino which continues to be an obligation of WSR.
We do not anticipate any material adverse effects on our earnings or competitive position
relating to environmental matters, but it is possible that future developments could lead to
material environmental compliance costs or other liabilities for us and that these costs could have
a material adverse effect on our business and financial condition. See “Item 8. Financial
Statements and Supplementary Data — Black Gaming, LLC and Subsidiaries Consolidated Financial
Statements, Footnote 13 — Commitments and Contingencies”.
Risks Associated with Construction Projects—Expansion and renovation efforts are inherently subject
to significant development and construction risks.
Expansion projects and periodic renovations will be subject to the many risks in expanding or
renovating an existing enterprise or developing new projects, including unanticipated design,
construction, regulatory, environmental and operating problems, and the significant risks commonly
associated with implementing an expansion strategy. In particular, any such projects are subject
to the risks associated with the following:
•
the availability of financing and the terms and covenants in our Foothill Facility
and other debt;
•
shortages in materials;
•
insufficient public infrastructure improvements or maintenance;
•
shortages of skilled labor or work stoppages;
•
unforeseen construction, scheduling, engineering, environmental or geological
problems;
•
weather interference, floods, fires or other casualty losses;
•
the failure to obtain required licenses, permits or approvals;
•
regulatory or private litigation arising out of projects; and
•
unanticipated cost increases and budget overruns.
In addition, although we design our projects for existing facilities to minimize disruption of
business operations, expansion and renovation projects require, from time to time, portions of the
existing operations to be closed or disrupted. Any extended disruptions in our operations could
have a material adverse affect on our business, financial condition or results of operations.
Uninsured Losses—We may incur losses that are not adequately covered by insurance which may harm
our financial condition and results of operations.
Although we maintain insurance which we believe is customary and appropriate for our business,
we cannot give assurance that insurance will be available or adequate to cover all loss and damage
to which our business and our assets might be subjected. In connection with insurance renewals
subsequent to the events of September 11, 2001, the insurance coverage for certain types of damages
or occurrences has been diminished substantially and is unavailable at commercial rates. The lack
of adequate insurance for certain types or levels of risk could expose us to significant losses in
the event that a catastrophe occurred for which we are uninsured or underinsured. Any losses we
incur that are not adequately covered by insurance may decrease our future operating income,
require us to find replacements or repairs for destroyed property and reduce the funds available
for payment of our obligations on the Foothill Facility or Notes.
Economic Developments—The global financial crisis may have an impact on our business and
financial condition in ways that we currently cannot predict.
The continued credit crisis and related turmoil in the global financial system has had, and
may continue to have, an impact on our business and our financial condition. For example, the
credit crisis could impact our ability to renegotiate our Foothill Facility and Senior Secured
Notes and Senior Subordinated Notes.
Please refer to our discussion under “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations—Liquidity and Capital Resources for Black Gaming, LLC—Cash
Flows.”
Default status—We are currently in default under our amended Foothill Facility and our Senior
Secured Notes.
We are currently in default under our amended Foothill Facility and our Senior Secured Notes.
We currently do not have forbearance agreements in place regarding these defaults. Therefore, our
obligations under the Foothill Facility and the Senior Secured Notes could be accelerated. In such
event, we would be in default under our Senior Subordinated Notes, and our obligations under our
Senior Subordinated Notes could be accelerated. We continue our evaluation of financial and
strategic alternatives, which may include a recapitalization, refinancing, restructuring or
reorganization of our obligations, our businesses or a sale of some or all of our businesses.
Substantial Debt—Our substantial level of debt could adversely affect our financial condition and
prevent us from fulfilling our obligations under the Notes and our other debt.
We have substantial debt. As of December 31, 2008 we have total debt of $205.5 million. On
January 15, 2009, we failed to make the $5.625 million semi-annual interest payment then due to the
Senior Noteholders. We are in discussions with an ad hoc committee of Senior Noteholders regarding
the Company’s financial alternatives. We cannot assure you that we will be successful in
undertaking any such alternatives in the near term. This could result in the declaration of events
of default under the Foothill Facility, the Senior Secured Notes and Senior Subordinated Notes or
any combination of such debt instruments and certain adversarial actions, including foreclosure on
our assets, or other actions that may ultimately result in our inability to continue as a going
concern. At December 31, 2008, our debt included approximately $125 million of our Senior Secured
Notes and approximately $65.7 million of our Senior Subordinated Notes and approximately
$14.8 million related to our Foothill Facility. After giving effect to indebtedness under our
Senior Secured Note and Senior Subordinated Notes and borrowings under our Foothill Facility, our
total debt is approximately $205.5 million. Our ability to service our debt will be dependent on
our future performance and the availability of additional funds or amendments to or refinancing
sources for our outstanding indebtedness, which will be affected by, among other things, prevailing
economic conditions and financial, business and other factors, certain of which are beyond our
control.
Access to Capital—The volatility and disruption of the capital and credit markets and adverse
changes in the global economy may negatively impact our ability to access financing.
The success of any recapitalization, refinancing, restructuring or reorganization of our
obligations, our business, or the sale of some or all of our business depends on the stability of
the capital and credit markets and the health of the global economy. Due to the existing
uncertainty in the capital and credit markets and current adverse changes in the global economy,
our access to capital, or the access to capital of potential purchasers of our assets, may not be
available on terms feasible to us, or potential purchasers, if at all.
Value of Collateral Securing the Senior Secured Notes—The fair market value of the collateral
securing our Senior Secured Notes may not be sufficient to pay the amounts owed under our Senior
Secured Notes. As a result, holders of our Senior Secured Notes may not receive full payment
following an event of default.
Our Senior Secured Notes and the guarantees thereof are secured by a security interest in
substantially all of our existing and future assets (other than certain excluded assets) and a
pledge of the equity interests owned by Robert R. Black, Sr. in Black Gaming, LLC, subject to
certain limitations.
The proceeds of any sale of collateral following an event of default with respect to our
Senior Secured Notes may not be sufficient to satisfy, and may be substantially less than, amounts
due under the Senior Secured Notes. The total value of the collateral may be less than the amount
due under the Senior Secured Notes.
The value of the collateral in the event of liquidation will depend upon market and economic
conditions, the availability of buyers and similar factors. The collateral does not include
contracts, agreements, licenses (including gaming, and liquor licenses) and other rights that by
their express terms prohibit the assignment thereof or the grant of a security interest therein.
Some of these may be material to us and such exclusion could have a material adverse effect on the
value of the collateral. By its nature, some or all of the collateral may not have a readily
ascertainable market value or may not be saleable or, if saleable, there may be substantial delays
in its liquidation. To the extent that liens, security interests and other rights granted to other
parties (including the lenders under the Foothill Facility) encumber assets owned by us, those parties
have or may exercise rights and remedies with respect to the property subject to their liens that
could adversely affect the value of that collateral and the ability of the trustee under the
indenture governing the Senior Secured Notes or the holders of the Senior Secured Notes to realize
or foreclose on that collateral. Consequently, we cannot assure note holders that liquidating the
collateral securing the Senior Secured Notes would produce proceeds in an amount sufficient to pay
any amounts due under the Senior Secured Notes after also satisfying the obligations to pay any
creditors with prior claims on the collateral.
In addition, under the intercreditor agreement between the trustee under the Senior Secured
Note indenture and the lenders under our Foothill Facility, described below, the right of the
lenders to exercise remedies with respect to the collateral could delay liquidation of the
collateral. The gaming licensing process, along with bankruptcy laws and other laws relating to
foreclosure and sale, as discussed below, also could substantially delay or prevent the ability of
the trustee or any holder of the Senior Secured Notes to obtain the benefit of any collateral
securing the Senior Secured Notes. Such delays could have a material adverse effect on the value
of the collateral.
The indenture governing the Senior Secured Notes and the agreements governing our other
secured debt also permit us to designate one or more of our restricted subsidiaries as an
unrestricted subsidiary. If we designate a restricted subsidiary as an unrestricted subsidiary,
all of the liens on any collateral owned by the unrestricted subsidiary or any of its subsidiaries
and any guarantees of the Senior Secured Notes by the unrestricted subsidiary or any of its
subsidiaries will be released under the Senior Secured Note indenture but not necessarily under our
Foothill Facility. Designation of an unrestricted subsidiary will reduce the aggregate value of
the collateral securing the Senior Secured Notes to the extent that liens on the assets of the
unrestricted subsidiary and its subsidiaries are released. In addition, the creditors of the
unrestricted subsidiary and its subsidiaries will have a prior claim (ahead of the Senior Secured
Notes) on the assets of such unrestricted subsidiary and its subsidiaries.
If the proceeds of any sale of collateral are not sufficient to repay all amounts due on the
Senior Secured Notes, the holders of the Senior Secured Notes (to the extent not repaid from the
proceeds of the sale of the collateral), would have only an unsecured claim against our remaining
assets.
Lien Subordination of Senior Secured Notes—The lien on the collateral securing the Senior Secured
Notes is contractually subordinated pursuant to the intercreditor agreement to the liens securing
our Foothill Facility and also is subject to the prior claim of purchase money lenders and holders
of mechanics’ liens.
The security interests securing the Senior Secured Notes and the guarantees of the Senior
Secured Notes are contractually subordinated to up to $15.0 million principal amount of debt (plus
related interest, fees, indemnities, costs and expenses) that may be incurred under our Foothill
Facility, pursuant to an intercreditor agreement between the trustee under the Senior Secured Note
indenture and the lenders under our Foothill Facility. In addition, lenders of furniture, fixtures
and equipment financing and other purchase money debt have a security interest in the assets
securing that debt, although those assets, so long as they secure only such debt, do not secure the
Senior Secured Notes. As a result, upon any distribution to our creditors, whether or not in
bankruptcy, liquidation, reorganization or similar proceedings, or following acceleration of our
debt or an event of default under such debt, the lenders under our Foothill Facility and the
lenders of furniture, fixtures and equipment financing and other purchase money debt will be
entitled to be repaid in full from the proceeds of the assets securing such debt before any payment
is made to holders of Senior Secured Notes from such proceeds.
Consequently, it is unlikely that the liquidation of the collateral securing the Senior
Secured Notes would produce proceeds in an amount sufficient to pay the amounts due under the
Senior Secured Notes after also satisfying the obligations to pay our Foothill Facility lenders and
purchase money lenders, even if the fair market value of the collateral securing the Senior Secured
Notes would be sufficient, absent our Foothill Facility and purchase money debt, to pay all amounts
due under the Senior Secured Notes. If the proceeds of any sale of collateral are not sufficient
to repay all amounts due under the Senior Secured Notes, the holders of the Senior Secured Notes
(to the extent not repaid from the proceeds of the sale of the collateral), would have only an
unsecured claim against our remaining assets.
Limited Ability of Holders of Senior Secured Notes to Exercise Remedies—The rights of the trustee
and holders of Senior Secured Notes to exercise remedies under the indenture are limited by an
intercreditor agreement between the trustee and the lenders under our Foothill Facility.
A number of the rights and remedies of the trustee and the holders of the Senior Secured Notes
are significantly limited under the intercreditor agreement. For instance, if the Senior Secured
Notes become due and payable prior to the stated maturity or are not paid in full at the stated
maturity at a time during which we have debt outstanding under our Foothill Facility, the trustee
and holders of the Senior Secured Notes will not have the right to foreclose upon the collateral
unless and until the lenders under our Foothill Facility fail to take steps to exercise remedies
with respect to or in connection with the collateral within 120 days following notice to such
lenders of the occurrence of an event of default under the indenture. In addition, the
intercreditor agreement prevents the trustee and the holders of the Senior Secured Notes from
pursuing remedies with respect to the collateral in an insolvency proceeding.
The rights and remedies of the trustee and holders of the Senior Secured Notes also are
subject to additional practical limitations with respect to certain collateral so long as such
collateral also secures our Foothill Facility. The trustee and holders of the Senior Secured Notes
will not have possession of the equity interests of the guarantors or the equity interests owned by
Robert R. Black, Sr. in the issuers and in Black Gaming, LLC (even though such equity interests
constitute Senior Secured Note collateral), so long as such equity interests also secure our
Foothill Facility. As a result, so long as such equity interests also secure our Foothill
Facility, (although it does have a perfected security interest in such equity interests) the
trustee and holders of the Senior Secured Notes will not be able to take possession of such equity
interests upon the occurrence of an event of default under the indenture governing the Senior
Secured Notes. In addition, the trustee and holders of the Senior Secured Notes do not have a
perfected security interest in certain other portions of the Senior Secured Note
collateral—including deposit accounts—that consist of assets that are not perfected by filing a
Uniform Commercial Code financing statement, or that require that the issuers or any guarantor, as
applicable, cause the trustee to obtain “control” (as defined in the Uniform Commercial Code) or
possession of such assets (and, after commercially reasonable efforts, the issuers or such
guarantor, as applicable, are unable to cause the trustee to obtain such control or possession).
Limited Ability of Holders of Senior Secured Notes to Realize on Collateral—Gaming laws, bankruptcy
laws and other factors may delay or otherwise impede the trustee’s ability to foreclose on the
collateral securing the Senior Secured Notes.
In addition to our intercreditor arrangements with lenders under our Foothill Facility,
described above, the gaming laws of the State of Nevada and the licensing processes, along with
other laws relating to foreclosure and sale, could substantially delay or prevent the ability of
the trustee or any holder of the Senior Secured Notes to obtain the benefit of any collateral
securing the Senior Secured Notes. For example, if the trustee sought to operate, or retain an
operator for, any of our gaming properties, the trustee would be required to obtain Nevada gaming
licenses. Potential purchasers of our gaming properties or the gaming equipment would also be
required to obtain a Nevada gaming license. This could limit the number of potential purchasers in
a sale of our gaming properties or gaming equipment, which may delay the sale of and reduce the
price paid for the collateral.
In addition, the trustee’s ability to repossess and dispose of collateral is subject to the
procedural and other restrictions of state real estate, commercial and gaming law, as well as the
prior approval of the lenders under our Foothill Facility. Among other things, if the trustee did
conduct a foreclosure sale, and if the proceeds of the sale were insufficient, after expenses, to
pay all amounts due under the Senior Secured Notes, the trustee might, under certain circumstances,
be permitted to assert a deficiency claim against us. There can be no assurance that the trustee
would be able to obtain a judgment for the deficiency or that we would have sufficient other assets
to pay a deficiency judgment.
Federal bankruptcy law also could impair the trustee’s ability to foreclose upon the
collateral. If we or a guarantor become a debtor in a case under the United States Bankruptcy
Code, as amended, or the Bankruptcy Code, the automatic stay, imposed by the Bankruptcy Code upon
the commencement of a case, would prevent the trustee from foreclosing upon the collateral or (if
the trustee has already taken control of the collateral) from disposing of it, without prior
bankruptcy court approval.
The bankruptcy court might permit us to continue to use the collateral while the bankruptcy
case was pending, even with the Senior Secured Notes being in default. Under the Bankruptcy Code,
holders of Senior Secured Notes and the trustee would be entitled to “adequate protection” of the
interest of holders of Senior Secured Notes in the collateral, if necessary to protect against any
diminution in value during the case. Because the Bankruptcy Code does not define “adequate
protection,” and because the bankruptcy court has broad discretion, however, there can be no
assurance that the court would require us to provide holders of Senior Secured Notes with any form
of “adequate protection,” or that any protection so ordered would, in fact, be adequate.
In a bankruptcy case, the court would allow a claim for all amounts due under the Senior
Secured Notes, including all accrued and unpaid interest through the date of bankruptcy. Under the
Bankruptcy Code, interest stops accruing on the date of bankruptcy except under certain specified
circumstances, and there can be no assurance that the court would allow a claim for post-bankruptcy
interest. If the court held that the value of the collateral securing the Senior Secured Notes was
less than the amount due, the trustee would be permitted to assert a secured claim in an amount
equal to the collateral’s value and an unsecured claim for the deficiency.
For these and other reasons, if we or our subsidiaries become debtors in cases under the
Bankruptcy Code, there can be no assurance:
•
whether any payments under the notes would be made;
•
whether or when the trustee could foreclose upon or sell the collateral;
•
whether the term or other conditions of the Notes or any rights of the holders could
be altered in a bankruptcy case without the trustee’s or the noteholders’ consent;
•
whether the trustee or Note holders would be able to enforce the noteholders’ rights
against the guarantors under their guarantees; or
•
whether or to what extent holders of the Senior Secured Notes would be compensated
for any delay in payment or decline in the collateral’s value.
Finally, the trustee’s ability to foreclose on the collateral on behalf of the holders of
Senior Secured Notes may be subject to the consent of third parties, prior liens (as discussed
above) and practical problems associated with the realization of the trustee’s security interest in
the collateral.
Senior Subordinated Notes Are Unsecured—If we fail to meet our payment or other obligations under
our secured debt, including the Senior Secured Notes and our Foothill Facility, the holders of our
secured debt could foreclose on, and acquire control of, substantially all of our assets.
The Senior Subordinated Notes and the guarantees thereof are unsecured. The Senior Secured
Notes and our Foothill Facility are secured by a security interest in substantially all of our
existing and future assets (other than certain excluded assets) and a pledge of the equity
interests owned by Robert R. Black, Sr. in Black Gaming, LLC, subject to certain limitations. As a
result of these security interests, if we fail to meet our payment or other obligations under such
secured debt, the trustee of the Senior Secured Notes and the lenders under our Foothill Facility
would be entitled to foreclose on all of our assets and liquidate those assets in accordance with
the intercreditor agreement. Similarly, in a bankruptcy or liquidation note holders may not
receive any payment on the Senior Subordinated Notes, except to the extent that the value of our
assets exceeds our secured debt. Accordingly, we may not have sufficient funds to pay amounts due
under the Senior Subordinated Notes. As a result note holders may lose a portion of or the entire
value of an investment in the Senior Subordinated Notes.
Subordination of Senior Subordinated Notes—The right to receive payments on the Senior Subordinated
Notes or under the guarantees thereof is subordinated to our senior debt, including the Senior
Secured Notes and our Foothill Facility.
The Senior Subordinated Notes and the guarantees thereof are subordinated in right of payment
to all of our existing and future senior debt, including the Senior Secured Notes and our Foothill
Facility. As a result, upon any distribution to our creditors or the creditors of any of the
guarantors in a bankruptcy, liquidation or reorganization or similar proceeding relating to us or
any of the guarantors or our or their property, the holders of our or the guarantor’s senior debt,
including the Senior Secured Notes and our Foothill Facility, will be entitled to be paid in full
before any payment may be made with respect to the Senior Subordinated Notes or the guarantees
thereof. In such case, holders of the Senior Subordinated Notes will participate with trade
creditors, other holders of unsecured debt, and any secured creditor not already paid in full in
the assets remaining after we and the guarantors have paid all of the senior debt. In these cases,
we and the guarantors may not have sufficient funds to pay all of our creditors, and holders of the
Senior Subordinated Notes may receive less, ratably, than the holders of our senior debt.
In addition, all payments on the Senior Subordinated Notes and the guarantees thereof,
including the principal of and premium, if any, and interest (and Liquidated Damages, if any) on
the Senior Subordinated Notes, or on account of the redemption provisions of the Senior
Subordinated Notes or any repurchases of Senior Subordinated Notes, will be blocked in the event of
a payment default on our designated senior debt and may be blocked for up to 179 of 360 consecutive
days in the event of certain non-payment defaults on our designated senior debt.
As of December 31, 2008, the Senior Subordinated Notes and the guarantees thereof were
subordinated to approximately $140.1 million of senior debt, consisting of $125 million aggregate
principal amount of the Senior Secured Notes, $14.8 million outstanding on our Foothill Facility,
and $0.3 million of gaming equipment financing. Additionally, as of December 31, 2008,
approximately $0.2 million was available for borrowing as additional senior debt under our Foothill
Facility. We are permitted to borrow substantial additional debt, including senior debt, in the
future under the terms of the indenture governing the Senior Subordinated Notes.
Restrictive Covenants—The indentures governing the Notes and our Foothill Facility contain
covenants that significantly restrict our operations.
The indentures governing the Notes and the agreement governing our Foothill Facility contain,
and any other future debt agreements may contain, numerous covenants imposing financial and
operating restrictions on our business. These restrictions may affect our ability to operate our
business, may limit our ability to take advantage of potential business opportunities as they arise
and may adversely affect the conduct of our current business. These covenants restrict our ability
and the ability of our restricted subsidiaries to, among other things:
•
pay dividends, redeem stock or make other distributions or restricted payments;
•
incur debt or issue preferred equity interests;
•
make certain investments;
•
create liens;
•
agree to payment restrictions affecting the subsidiary guarantors;
•
consolidate or merge;
•
sell or otherwise transfer or dispose of assets, including equity interests of our
restricted subsidiaries;
•
enter into transactions with our affiliates;
•
designate our subsidiaries as unrestricted subsidiaries; and
•
use the proceeds of permitted sales of our assets.
The indentures governing the Notes do not allow us to incur additional debt unless the debt is
classified as permitted indebtedness or we meet certain financial ratios. Permitted indebtedness
includes, among other things:
•
indebtedness evidenced by the Notes or refinancing of the Notes;
•
indebtedness to finance purchases of furniture, fixture and equipment, or FF&E, so
long as the financing does not exceed $2.5 million for non-gaming FF&E;
indebtedness to finance our general liability insurance premium so long as the
amount does not exceed $1.0 million;
•
indebtedness secured by our contracts between us and owners of timeshare interests
in our timeshare units so long as the amount does not exceed $1.0 million; and
•
other indebtedness in an amount not to exceed $1.0 million.
We may also incur additional indebtedness that does not qualify as permitted indebtedness if we are
not in default under our existing indebtedness and we meet certain financial ratios after incurring
such additional indebtedness. In addition, we may incur a maximum of $15.0 million in indebtedness
under our Foothill Facility of which we are drawn to $14.8 million at December 31, 2008. Our
organizational documents do not contain any limitations on the amount or percentage of indebtedness
we may incur. As of December 31, 2008, we have incurred $1.1 million in additional indebtedness in
compliance with these restrictions in order to finance our general liability insurance premium and
to finance our purchases of FF&E.
Our Foothill Facility also requires us to meet certain financial ratios and tests. Compliance
with these financial ratios and tests may adversely affect our ability to adequately finance our
operations or capital needs in the future or to pursue attractive business opportunities that may
arise in the future. Our ability to meet these ratios and tests and to comply with other
provisions governing our debt may be adversely affected by our operations and by changes in
economic or business conditions or other events beyond our control. Our failure to comply with our
debt-related obligations could result in an event of default under the Notes and our other debt.
Ability to Repurchase Notes—Our ability to repurchase the Notes upon a change of control or an
asset sale may be limited.
Upon the occurrence of specific “change of control” events and “asset sale” events, in each
case as defined in the indentures, we will be required to offer to repurchase all outstanding Notes
at 101% of the principal amount (in the case of a change of control) and 100% of the principal
amount (in the case of an asset sale), in each case, plus accrued and unpaid interest to the date
of repurchase. The lenders under our Foothill Facility have a similar right to be repaid upon a
change of control. Any of our future debt agreements may contain similar provisions with respect
to a change of control or asset sale. However, we may not have sufficient funds at the time of the
change of control or asset sale to make the required repurchase of Notes or repayment of our other
debt. The terms of our Foothill Facility also limit our ability to purchase the Notes until all
debt under our Foothill Facility is paid in full. Any of our future debt agreements may contain
similar restrictions. If we fail to repurchase any Notes submitted in a change of control or asset
sale offer, it would constitute an event of default under the indentures which would, in turn,
constitute an event of default under our Foothill Facility and could constitute an event of default
under our other debt, even if the change of control itself would not cause a default.
In addition, all payments under the Senior Subordinated Notes and the guarantees thereof,
including on account of any repurchases of Senior Subordinated Notes, are blocked in the event of a
payment default on our designated senior debt. See “Item 1A. Risk Factors—Subordination of Senior
Subordinated Notes.” Under the Senior Subordinated Note indenture, prior to complying with any of
the provisions of the change of control or asset sale covenants, but in any event within 90 days
following a change in control or an asset sale, respectively, we are required either to repay all
outstanding senior debt or obtain the requisite consents, if any, under all agreements governing
outstanding senior debt to permit the repurchase of Senior Subordinated Notes required by the
change of control or asset sale covenants, respectively.
Important corporate events, such as takeovers, recapitalizations or similar transactions, may
not constitute a change of control under the indentures governing the Notes and thus not permit the
holders of the Notes to require us to repurchase or redeem the Notes.
Required Regulatory Redemption—Noteholders may be required to be licensed by a gaming authority
and, if not so licensed, their Notes will be subject to redemption.
We are required to notify the Nevada State Gaming Control Board as to the identity of, and may
be required to submit background information regarding, each record or beneficial owner of the
Notes. For purposes of these rules, “beneficial interest” includes all direct and indirect forms
of ownership or control, voting power or investment power held through any contract, lien, lease,
partnership, stockholding, syndication, joint venture, understanding, relationship, present or
reversionary right, title or interest, or otherwise. The Nevada State Gaming Control Board may
determine that holders of the Notes have a “beneficial interest” in the issuers.
If the Nevada Gaming Authorities require any person, including a record or beneficial owner of
the Notes, to be licensed, qualified or found suitable, that person must apply for a license,
qualification or finding of suitability within the time period specified by the Nevada Gaming
Authorities. The person would be required to pay all costs of obtaining a license, qualification
or finding of suitability. If such person is unable or unwilling to obtain such license,
qualification or finding of suitability, such agencies and authorities may not grant us or, if
already granted, may suspend or revoke our licenses unless we terminate our relationship with such
person. Under these circumstances, we would be required to repurchase the relevant Notes. There
can be no assurance that we will have sufficient funds or otherwise will be able to repurchase any
or all of the Notes. See “Item 1. Business-Regulation and Licensing.”
Fraudulent Transfer—Under certain circumstances, a court could cancel the guarantees of our
subsidiaries or limit the obligations of an individual issuer under the Notes.
Unless designated as an unrestricted subsidiary, each domestic subsidiary we form or acquire
will be required to guarantee the Notes and grant a security interest in certain of its assets
(junior to the security interest granted to the lenders under our Foothill Facility) to secure its
guarantee. Under federal bankruptcy law and comparable provisions of state and federal
non-bankruptcy fraudulent transfer laws, under certain circumstances a court could avoid (i.e.,
cancel) a guarantee and the security interest in the guarantor’s assets, and order the return of
any payments made thereunder to the guarantor or to a fund for the benefit of its other creditors.
A court might take these actions if it found that when the guarantor entered into its
guarantee (or, in some jurisdictions, when payments became due on its guarantee), (i) it received
less than reasonably equivalent value or fair consideration for its guarantee, and (ii) any of the
following conditions was then satisfied:
•
the guarantor was insolvent or rendered insolvent by reason of incurring its
obligations under its guarantee or granting a security interest in its assets;
•
the guarantor was engaged in a business or transaction for which its remaining
assets constituted unreasonably small capital; or
•
the guarantor intended to incur, or believed (or reasonably should have believed)
that it would incur, debts beyond its ability to pay as those debts matured.
In applying these factors, a court would likely find that a subsidiary guarantor did not
receive fair consideration or reasonably equivalent value for its guarantee, except to the extent
that it benefited directly or indirectly from the Notes’ issuance. The determination of whether a
subsidiary was or was rendered “insolvent” would vary depending on the law of the jurisdiction
being applied. Generally, an entity would be considered insolvent if the sum of its debts
(including contingent or unliquidated debts) is greater than all of its property at a fair
valuation or if the present fair salable value of its assets is less than the amount that will be
required to pay its probable liability on its existing debts (including contingent or unliquidated
debts) as they become absolute and matured.
A court might also avoid a guarantor’s guarantee and the security interest in its assets, if
the court concluded that the guarantor entered into the guarantee with actual intent to hinder,
delay, or defraud creditors. If a court avoided a guarantor’s guarantee, note holders would no
longer have a claim against that subsidiary, and the claims of creditors of the subsidiary
generally would be entitled to payment in full before the subsidiary paid any dividends or made any
distributions to us for the purpose of our satisfying any claims under the Notes.
Similarly, under federal bankruptcy law and comparable provisions of state and federal
non-bankruptcy fraudulent transfer laws, under certain circumstances a court could limit or avoid
the issuers’ obligations under the Notes and the security interest in the issuers’ assets, and
order the return of any payments made thereunder to the issuers or to a fund for the benefit of
their other creditors.
The Notes are joint and several obligations of each of the three issuers. However, none of
the issuers, individually, has sufficient cash flow to service the Notes or assets that exceed the
aggregate principal amount of the Notes. To prevent the obligations of an issuer under the Notes
being subject to avoidance as a fraudulent obligation, each of the indentures provides that the
obligations under such indenture and the Notes are allocated among each of the issuers, pro rata,
based on their respective asset book values as of the issue date of the Notes. Each issuer has
agreed in the indentures to be responsible for its pro rata share of such obligations and to
reimburse the other issuers to the extent that any issuer pays more than its pro rata share of such
obligations. However, there can be no assurances that each of the issuers will be able to pay its
pro rata share of such obligations or that any issuer will be able to reimburse any other issuer
that pays more than its pro rata share. In that case, under federal bankruptcy laws, a court could
order the avoidance of all or a portion of an individual issuer’s obligations under the Notes and
order the return of any payments made by an issuer in excess of its pro rata share either to such
issuer or to a fund for the benefit of such issuer’s other creditors.
In addition, a substantial portion of the net proceeds from the offering of the old notes was
used to redeem and purchase equity interests in us not owned by Robert R. Black, Sr. or his
affiliates and a minority owner. Although we cannot predict how a court would rule in this case,
courts have found that an issuer did not receive reasonably equivalent value or fair consideration
if the proceeds of the issuance were paid to such issuer’s equity holders.
Regardless of the factors identified above, a court might also avoid the obligations of the
issuers under the Notes and the security interest in their assets and order the return of any
payments made under the Notes either to the issuers or to a fund for the benefit of the issuers’
other creditors if the court found that the issuers incurred the obligations under the Notes with
actual intent to hinder, delay, or defraud creditors of the issuers.
Limited Existing Trading Market for the Notes—There is currently a limited trading market for the
Notes, and an active trading market may not develop for the Notes. The failure of a market to
develop for the Notes could affect the liquidity and value of the Notes.
There is a limited trading market for the Notes. An active market may not develop for the
Notes, and there can be no assurance as to the liquidity of any market that may develop for the
Notes. If an active market does not develop, the market price and liquidity of the Notes may be
adversely affected. The Notes may trade at a discount from their purchase price. See “Item 7A.
Quantitative and Qualitative Disclosures About Market Risk” for more detail in regards to our Notes
and their current discount.
The liquidity of the trading market, if any, and future trading prices of the Notes will
depend on many factors, including, among other things, prevailing interest rates, our operating
results, financial performance and prospects, the market for similar securities and the overall
securities market, and may be adversely affected by unfavorable changes in these factors.
Historically, the market for high-yield debt has been subject to disruptions that have caused
substantial fluctuations in the prices of these securities. In addition, securities of gaming
companies historically have been more volatile than securities of other companies. The Notes and
any markets for the Notes may be subject to such disruptions and volatility, either of which could
have an adverse effect on the price and liquidity of the Notes.
Original Issue Discount on Senior Subordinated Notes—The Senior Subordinated Notes have significant
original issue discount, or OID, for United State federal income tax purposes, and accordingly,
United States holders of the Senior Subordinated Notes will be required to include OID in income in
advance of the receipt of cash attributable to such income.
Because the Senior Subordinated Notes do not provide for cash payment of stated interest prior
to July 15, 2009, the Senior Subordinated Notes have significant OID for United States federal
income tax purposes. United States holders generally must include OID income for United States
federal income tax purposes under a constant yield accrual method regardless of their regular
method of tax accounting. As a result, United States holders of the Senior Subordinated Notes will
include OID in income in advance of the receipt of cash attributable to such income.
Redemption—We may choose to redeem the Notes at anytime on or after January 15, 2009.
The Notes are redeemable at our option on or after January 15, 2009. This means that we have
the right, without our noteholder’s consent, to redeem or “call” all or a portion of the Notes at
any time on or after January 15, 2009. This does not mean that note holders have a similar right
to require us to repay their Notes. We may choose to redeem the Notes, for example, when
prevailing interest rates are lower than the rate then borne by the Notes. In that case an
investor would not be able to reinvest the redemption proceeds in a comparable security at an
effective interest rate as high as the interest rate on the Notes being redeemed. Any such
redemption right also may adversely impact an investor’s ability to sell its Notes, and/or the
price at which it could sell its Notes, as the redemption date approaches.
Our corporate office is located at 10777 West Twain Avenue, Las Vegas, Nevada in approximately
5,100 square feet of space leased from an affiliate. The following table provides an overview of
our owned and leased real properties all of which secure our obligations under our Senior Secured
Notes and our Foothill Facility:
Location and Function(s)
Ownership Structure
CasaBlanca Hotel & Casino
Main Site and Improvements
Owned
Timeshare Units
Owned by us and unrelated third parties
Timeshare Unit Land
Owned(1)
CasaBlanca Golf Club
Leased(2)
Unimproved Land
Owned
Oasis Hotel & Casino
Main Site and Improvements
Owned
Palms Golf Course
Arizona Land Owned (76 acres) / Arizona Land Leased (180 acres)(3)
Oasis Recreational Facility
Owned(4)
Timeshare Units
Owned by us and unrelated third parties(5)
Timeshare Units Land
Owned by us and unrelated third parties
Virgin River Hotel, Casino & Bingo
Main Site and Improvements
Owned(6)
Unimproved Land
Owned
Virgin River Convention Center Hotel & Casino
Main Site and Improvements
Owned
Unimproved Land
Owned
(1)
In addition to land owned, we formerly leased the land on which some of our former timeshare
units are situated pursuant to a 50-year lease with our affiliate, MDW Mesquite, LLC.
Pursuant to an agreement which became effective December 15, 2004, RBG, LLC and MDW Mesquite,
LLC terminated the lease. See “Item 13. Certain Relationships and Related Transactions.”
(2)
We lease the land on which the golf club is located pursuant to a 99-year lease with River
View, LLC that expires in June 2094.
(3)
The Palms Golf Course is located on a 256-acre site in Arizona, of which 180 acres are leased
from the State of Arizona pursuant to a 10-year lease that expired in May 2008. Currently we
are in the process of renegotiating this lease.
(4)
The Oasis Recreational Facility consists of a gun club as well as motocross and equestrian
facilities in Arizona.
(5)
In January 2006, Oasis Interval Ownership, LLC entered into an agreement with Global Exchange
Development Corp. to sell substantially all of the unsold time share intervals at the Oasis
Hotel and Casino.
(6)
Title to the main site and related improvements is held by the Virgin River Casino Corporation.
From time to time, we are a party to various claims arising in the normal course of business.
However, management believes that there are no proceedings pending or threatened against us which,
if determined adversely, would have a material adverse effect on our financial condition, results
of operations or liquidity.
As discussed in “Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations-Liquidity and Capital Resources for Black Gaming, LLC-Default Status”, we are
currently in default under our Foothill Facility and our Senior Secured Notes. Our obligations
under the Foothill Facility and the Senior Secured Notes could be accelerated. In such event, we
would be in default under our Senior Subordinated Notes. We have been in active discussions with
Wells Fargo Foothill and the ad hoc committee of the Senior Noteholders. Should we not resolve
these various default issues, we anticipate that one or all classes of these lenders/Noteholders
will likely initiate some form of action or proceeding to seek remedies under the respective class
of debt.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES.
Not applicable.
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data of Black Gaming, LLC is set forth below as of and for each of the
years ended December 31, 2008, 2007, 2006, 2005 and 2004. On December 31, 2006, we completed a
holding company reorganization (“Reorganization”) of entities under common control whereby each of
Virgin River Casino Corporation (“VRCC”), RBG, LLC (“RBG”) and B & B B, Inc. (“B&BB”) became a
directly or indirectly wholly owned subsidiary of Black Gaming, LLC. After a series of transactions
related to the Reorganization, Black Gaming, LLC purchased the minority interest of Glenn Teixeira
by exchanging his interest in VRCC for an interest in Black Gaming, LLC. Prior to the transaction,
VRCC, RBG and B&BB each filed as a Registrant. As a result of the Reorganization Black Gaming,
LLC, became a registrant. The selected financial data reflects the operations and financial
condition of Black Gaming, LLC as though the Reorganization took
place on January 1, 2004 similar
to a pooling of interest. The acquisition of the minority interest was accounted for as a purchase
on the date the transaction closed on December 31, 2006. Prior to the closing date the minority
interest was accounted for as minority interest in the selected financial data. The information
presented below summarizes certain selected financial data of previously separate entities which
has been combined, except for 2006, 2007 and 2008 which have been consolidated and, which should be
read in conjunction with “Item 8. Financial Statements and Supplementary Data” and with “Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Black Gaming, LLC has elected to be taxed under the provisions of Subchapter S of the Internal
Revenue Code of 1986, as amended, which permits the owners of our companies to pay income taxes on
our taxable income. Accordingly, a provision for income taxes is not included in our financial
data.
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction with “Item 6. Selected
Financial Data” of Black Gaming, LLC and Subsidiaries, and the Consolidated financial statements
and related notes of Black Gaming, LLC included, see “Item 8. Financial Statements and
Supplementary Data — Black Gaming, LLC and Subsidiaries Consolidated Financial Statements”.
Overview
We own and operate the CasaBlanca, the Oasis and the Virgin River in Mesquite, Nevada, which
is located approximately 80 miles north of Las Vegas, Nevada. We own three of the four operating casinos in
Mesquite and our properties collectively have a dominant market share in Mesquite. Our properties
are well established, each having been in operation for at least ten years, and serve as
significant drive-in gaming and resort destinations. Our operating properties collectively feature
approximately 1,500 slot machines, 40 table games, and 2,100 hotel rooms, and offer extensive
amenities, including championship golf courses, a full service spa, a bowling center, restaurants,
and banquet and conference facilities. With each of our properties, we leverage our extensive
value-oriented amenities and emphasis on slot play to target middle market gaming customers.
Our revenues are primarily derived from gaming revenues, which include revenues from slot
machines, table games, live keno, race and sports book wagering and bingo. Gaming revenues are
generally defined as gaming wins less gaming losses. In addition, we derive a significant amount of
revenue from our hotel rooms and our food and beverage outlets. We also derive revenues from our
golf courses, spa facilities, timeshare units, bowling center and other amenities. Promotional
allowances consist primarily of hotel and food and beverages furnished gratuitously to customers.
The retail value of such services is included in the respective revenue classifications and is then
deducted as promotional allowances. We calculate operating income as net revenues less total
operating costs and expenses. Operating income represents only those amounts that relate to our
operations and excludes interest income, interest expense, and other non-operating income and
expenses.
We are classified as “flow-through” entity under the partnership or Subchapter S provisions of
the Internal Revenue Code of 1986, as amended. Under those provisions, the owners of the companies
pay or are responsible for reporting our taxable income on their separate returns. Accordingly, a
provision for income taxes is not included in our financial data.
Black Gaming, LLC was organized as a limited-liability company in Nevada on August 4, 2006 in
anticipation of modifying B&BB’s and VRCC’s organizational structure through a holding company
reorganization (“Reorganization”). The Reorganization, which included a transfer of B&BB and VRCC
shares for membership interests in us, was completed on December 31, 2006. As a result of the
Reorganization, the Robert R. Black, Sr. Gaming Properties Trust (the “Black Trust”) owns 99.03% of
our membership interests and Glenn Teixeira owns 0.97% of our membership interests. The transfer
of shares of B&BB and VRCC for membership interests has been accounted for as a reorganization of
entities under common control in a manner similar to a pooling-of-interests. Accordingly, the
contributed assets and assumed liabilities were recorded at B&BB’s and VRCC’s historical cost
basis.
Immediately prior to the Reorganization, VRCC acquired, directly and indirectly, an additional
aggregate 11.2% ownership in RBG as a result of the following transaction:
•
VRCC received 100 shares of R. Black, Inc. (“RBI”) from the Black Trust. The Black Trust
owns 100% of the outstanding shares of VRCC. The 100 shares of RBI representing 100% of the
outstanding capital stock of RBI, was exchanged for 3.68 shares of VRCC held by the Black
Trust, representing 3.68% of the outstanding capital stock of VRCC. RBI does not have any
material operations, liabilities or assets other than a 5.47% ownership in RBG. The
transfer of shares of RBI to VRCC was accounted for at the historical cost of RBG as RBI
and VRCC were under common control.
•
VRCC received a 3.8% membership interest in RBG from the Black Trust in exchange for
2.57 shares of VRCC held by the Black Trust, representing 2.57% of the outstanding capital
stock of VRCC. The transfer of membership interests of RBG to VRCC was accounted for at
historical cost as the Black Trust and VRCC were under common control.
•
VRCC received a 1.92% membership interest in RBG from Glenn Teixeira in exchange for 1.29
shares of VRCC held by the Black Trust, representing 1.29% of the outstanding capital stock
of VRCC. The acquisition of the membership interests from RBG from Glenn Teixeira was
accounted for at fair value as it was considered an acquisition of a minority interest of a
subsidiary. Based upon an internal analysis the fair value of Glenn Teixeira’s interest
approximated book value.
The Reorganization, predicated on the transfer of shares of B&BB and VRCC for membership
interests in us, represented a transaction between entities under common control and is accounted
for in a manner similar to a pooling-of-interests. Accordingly, the contributed assets and assumed
liabilities were recorded at B&BB and VRCC’s historical cost basis and the financials are prepared
as though the reorganization of entities under common control took place as of January 1, 2006. As
a result of the Reorganization, B&BB and VRCC became our majority owned subsidiaries and we own
100%, directly or indirectly, of each subsidiary operating Company. The acquisition of Glenn
Teixeira’s interest was presented as of the date the exchange occurred on December 31, 2006. In
addition, Black Gaming, LLC, VRCC, RBG and B&BB are jointly managed and share resources.
RBG directly owns and operates the CasaBlanca, and through its wholly-owned subsidiary, owns
and operates the Oasis. In May 2001, CasaBlanca Resorts, LLC formed three subsidiaries—Oasis
Interval Ownership, LLC, a Nevada limited-liability company; Oasis Recreational Properties, Inc., a
Nevada corporation; and Oasis Interval Management, LLC, a Nevada limited-liability company. Oasis
Interval Ownership, LLC and Oasis Interval Management, LLC were formed in connection with the
operation and management of time share operations. Oasis Recreational Properties, Inc. owns the
recreational facility that is associated with the Oasis.
B&BB operates the hotel casino and owns certain personal property including furniture and
fixtures, leasehold improvements and gaming equipment within the casino. VRCC currently owns the
land and buildings associated with the Virgin River as well as the Virgin River Convention Center.
VRCC generates income from rents received from B&BB which operates the Virgin River.
The Virgin River Convention Center is currently a non-operating casino, which we acquired out
of the prior owner’s bankruptcy for $6.3 million in November 2000. The Virgin River Convention
Center has 12,000 square feet of gaming space and 210 hotel rooms. We are presently using the
property as a special events facility and for overflow hotel traffic from our other properties. We
believe that the Virgin River Convention Center gives us a competitive advantage in the Mesquite
market because it allows us the flexibility of opening the casino to meet market demand and to
maintain our market share in the future on a cost-effective basis.
In order to offer our customers attractive and modern facilities, we plan to continue to
renovate and maintain our facilities.
Key Performance Indicators
Our operating results are highly dependent on the volume of customers at our properties, which
in turn impacts the price we can charge for our hotel rooms and other amenities. We generate a
significant portion of our operating income from the gaming and hotel portions of our operations.
Key performance indicators in our gaming and hotel operations are as follows:
Gaming revenue indicators — table games drop and slot handle (volume indicators); “win” or
“hold” percentage, which is not fully controllable by us. Our historical table games win percentage
is in the range of 16% to 19% of table games drop and our historical slot win percentage is in the
range of 6% to 7% of slot handle.
Hotel revenue indicators — hotel occupancy (volume indicator); average daily rate, or ADR,
price indicator; revenue per available room, or REVPAR, a summary measure of hotel results,
combining ADR and occupancy rate.
Most of our revenue is essentially cash-based, through customers wagering with cash or paying
for non-gaming services with cash or credit cards. Our industry is capital intensive and we rely
heavily on the ability of our properties to generate operating cash flow to repay debt financing,
fund maintenance capital expenditures and provide excess cash for future development.
Our results of operations tend to be seasonal in nature. During the year ended December 31,2008, approximately 63% of our operating income (less depreciation and amortization and other
non-cash items) was generated in the first quarter, approximately 41% was generated in the second
quarter, and we generated losses during the final half of the year.
Consolidated Net Revenues. Consolidated net revenues decreased by 19.3% to $131.6 million for
the year ended December 31, 2008 as compared to $163.2 million for the year ended December 31,2007. The decrease was primarily due to a $25.3 million decrease in casino revenues, $9.5 million
decrease in food and beverage revenues, a $5.1 million decrease in hotel revenues and a $3.6
million decrease in other revenues offset by a $11.9 million decrease in promotional allowances.
Consolidated Operating Income. Consolidated operating income decreased by 1078% to a loss of
$33.3 million for the year ended December 31, 2008 as compared to operating income of $3.4 million
for the prior year. This was principally due to a $27.3 million non-cash charge for impairments of
assets, goodwill and intangibles, a $0.8 million increase in hotel expenses offset by a $10.3
million decrease in casino expenses, a decrease of $1.7 million in food and beverage expenses, a
decrease of $2.4 million in other expenses, a $8.4 million decrease in general and administrative
expenses and a $0.2 million decrease in depreciation and amortization expenses. Operating margin
decreased to (20.8%) of net revenues for the year ended December 31, 2008 as compared to 2.1% in
the prior year.
Casino. Casino revenues decreased 23.6% to $81.8 million for the year ended December 31, 2008
as compared to $107.1 million for the year ended December 31, 2007. The decrease in casino
revenues was due to a $22.1 million decrease in slot revenues during the year ended December 31,2008 compared to the same period in the prior year. Table games revenues decreased $2.1 million for
the year ended December 31, 2008 as compared to the same period in the prior year. Other gaming
revenue decreased $1.1 million due to decreases in all games, the majority of which was in poker
revenue. Casino profit margin decreased to 47.8% for the year ended December 31, 2008 as compared
to 50.5% for the year ended December 31, 2007. Casino expenses decreased 19.4% to $42.7 million
for the year ended December 31, 2008 as compared to $53.0 million for the year ended December 31,2007. The decrease was primarily attributable to decreased advertising and promotional expenses
related to servicing casino guests, reduced gaming taxes as a result of reduced revenues and
reduced usage of contract labor as compared to the prior year.
Food and Beverage. Food and beverage revenues decreased by 23.0% to $31.8 million for the
year ended December 31, 2008 as compared to $41.3 million for the year ended December 31, 2007.
Revenues decreased due to a reduction in covers combined with the effect of reduced pricing in all
of our outlets. Food and beverage expenses decreased 7.6% to $20.5 million for the year ended
December 31, 2008 as compared to $22.2 million for the year ended December 31, 2007. The decrease
in food and beverage expenses was mainly due to a reduction in salaries and benefits and a
reduction in direct food costs associated with decreases in covers. Food and beverage profit
margin decreased to 35.6% for the year ended December 31, 2008 as compared to 46.3% for the year
ended December 31, 2007. The decrease in food and beverage profit margin is primarily due to
decreased pricing.
Hotel. Hotel revenues decreased by 15.0% to $29.1 million for the year ended December 31,2008 as compared to $34.3 million for the year ended December 31, 2007. Revenues decreased due to
decreased ADR on decreased number of occupied rooms. Hotel expenses increased 12.2% for the same
time period to $7.1 million from $6.3 million primarily due to an increased reliance on contract
labor. As a result of the lower ADR and increased expenses, hotel profit margin decreased to 75.7%
for the year ended December 31, 2008 as compared to 81.6% for the prior year.
Other Revenues. Other revenues decreased by 17.9% to $16.3 million for the year ended
December 31, 2008 as compared to $19.9 million for the year ended December 31, 2007. Revenue
decreases were primarily due to decreases in spa and salon services and concert and special event
revenues. Other expenses decreased 20.4% to $9.3 million for the year ended December 31, 2008 as
compared to $11.6 million for the year ended December 31, 2007 due principally to reduced costs for
concert and special event entertainers, reduced salaries and benefits as well as reduced direct
costs associated with declines in revenues.
Promotional Allowances. Promotional allowances decreased by 30.2% to $27.5 million for the
year ended December 31, 2008 as compared to $39.5 million for the year ended December 31, 2007. As
a percent of gross revenues, promotional allowances decreased to 17.3% for the year ended December31, 2008 as compared to 19.5% for the year ended December 31, 2007 primarily due to decreased
expenses attributable to servicing casino guests.
General and Administrative (“G&A”). G&A expenses decreased by 17.0% to $41.3 million for the
year ended December 31, 2008 as compared to $49.7 million for the year ended December 31, 2007. As
a percent of net revenues, G&A expenses increased to 31.4% for the year ended December 31, 2008 as
compared to 30.5% for the year ended December 31, 2007. G&A expenses decreased primarily due to a
reduction in salaries and benefits related to a reduction in employee head count, a decrease in
professional fees and a reduction in supplies.
Depreciation and Amortization. Depreciation and amortization decreased to $16.6 million for
the year ended December 31, 2008 compared to $16.8 million for the year ended December 31, 2007.
Goodwill and Intangible Asset Impairment. Goodwill and other intangible assets are reviewed
for impairment annually, or more frequently if indicators of impairment exist. During the second
quarter of 2008 we felt that such indicators existed. See “Item 8. Financial Statements and
Supplementary Data-Black Gaming, LLC and Subsidiaries Consolidated Financial Statements, Footnote
11-Impairment of Long Lived Assets, Goodwill and Intangibles” for a more detailed discussion of our
approach. We recognized approximately $12.5 million of goodwill impairment. This impairment was
driven mainly by continuing operating losses, the economic recession and depressed consumer
sentiment. No impairment to goodwill was recognized during the year ended December 31, 2007. Also
recognized during 2008, in the fourth quarter, was a charge of $4.3 million related to our various
trademarks.
Impairment of Long Lived Assets. Long-lived assets, including intangible assets other than
goodwill are amortized over their useful lives, unless these lives are determined to be indefinite.
Intangible assets are carried at cost less accumulated amortization. Long-lived assets are reviewed
for impairment in accordance with Statement of Financial Accounting Standards No. 144, “Accounting
for the Impairment or Disposal of Long-Lived Assets”, (“FAS 144”). See “Item 8. Financial
Statements and Supplementary Data-Black Gaming, LLC and Subsidiaries Consolidated Financial
Statements, Footnote 11-Impairment of Long Lived Assets, Goodwill and Intangibles” for a more
detailed discussion of our approach. As a result of the temporary reduction in operations at the
Oasis, we recorded an impairment charge in the fourth quarter of 2008 of $5.0 million on equipment
and buildings related to the Oasis facility, a $1.3 million impairment charge related to the Oasis’
customer lists and approximately $0.3 million related to the value of our property held for
vacation interval sales.
During the second quarter of 2008, we re-assessed our plans to build a 37,000 square foot
event center. As a result of the decision to indefinitely postpone the event center project, we
recognized a non-cash write off of approximately $2.8 million which is included as a component of
operating expenses under the caption “Impairment of long lived assets”.
In conjunction with our original plan to expand the Casablanca with a 180-room hotel tower, we
incurred costs associated with the architectural design and planning of this project. These plans
were re-evaluated and abandoned during the first quarter of 2008. As a result, we recognized a
non-cash write-off of these assets of approximately $1.0 million which is included as a component
of operating expenses under the caption “Impairment of long lived assets”.
Interest Expense. Interest expense increased to $21.6 million for the year ended December 31,2008 as compared to $20.6 million for the year ended December 31, 2007. The increase in interest
expense was due to increased outstanding debt during the year ended December 31, 2008 compared to
the year ended December 31, 2007.
Year 2007 Compared to Year 2006
Consolidated Net Revenues. Consolidated net revenues decreased by 3.0% to $163.2 million for
the year ended December 31, 2007 as compared to $168.2 million for the year ended December 31,2006. The decrease was primarily due to a $1.8 million decrease in food and beverage revenues, a
$0.8 million decrease in hotel revenues, a $0.4 million decrease in other revenues and a $3.4
million increase in promotional allowances offset by a $1.4 million increase in casino revenues.
Consolidated Operating Income. Consolidated operating income decreased by 49.7% to $3.4
million for the year ended December 31, 2007 as compared to $6.8 million for the prior year. This
was mainly due to a $5.6 million increase in casino expenses and a decrease of $5.0 million in net
revenues offset by a $3.5 million decrease in food and beverage expenses, a $0.8 million decrease
in hotel expenses, a $0.7 million decrease in other expense, a $0.3 million decrease in general and
administrative expenses and a $0.5 million decrease in depreciation and amortization expenses.
Operating income margin decreased to 2.1% of net revenues for the year ended December 31, 2007 as
compared to 4.0% in the prior year.
Casino. Casino revenues increased 1.3% to $107.1 million for the year ended December 31, 2007
as compared to $105.8 million for the year ended December 31, 2006. The increase in casino
revenues was due to a $2.1 million increase in slot revenues during the year ended December 31,2007 compared to the same period in the prior year and a slight increase in other gaming revenues,
primarily driven by Keno play. Table games revenues decreased $0.7 million for the year ended
December 31, 2007 as compared to the same period in the prior year. Casino profit margin decreased
to 50.5% for the year ended December 31, 2007 as compared to 55.1% for the year ended December 31,2006. Casino expenses increased 11.7% to $53.0 million for the year ended December 31, 2007 as
compared to $47.4 million for the year ended December 31, 2006. The increase was primarily
attributable to increased advertising and promotional expenses related to servicing casino guests,
increased credit services fees and an increase in salaries and benefits for casino employees.
Food and Beverage. Food and beverage revenues decreased by 4.2% to $41.3 million for the year
ended December 31, 2007 as compared to $43.2 million for the year ended December 31, 2006.
Revenues decreased primarily due to a reduction in covers caused by construction disruption,
including the Virgin River casino remodel, and additionally due to the closure of the Oasis coffee
shop in the first half of the year. Food and beverage expenses decreased 13.6% to $22.2 million
for the year ended December 31, 2007 as compared to $25.7 million for the year ended December 31,2006. The decrease in food and beverage expenses was mainly due to a reduction in salaries and
benefits and a reduction in direct food costs associated with decreases in covers. Food and
beverage profit margin increased to 46.3% for the year ended December 31, 2007 as compared to
40.4% for the year ended December 31, 2006. The increase in food and beverage profit margin is
primarily due to increased pricing.
Hotel. Hotel revenues decreased by 2.2% to $34.3 million for the year ended December 31, 2007
as compared to $35.1 million for the year ended December 31, 2006. Revenues decreased due to
increased ADR on decreased number of occupied rooms. Hotel expenses decreased 11.2% for the same
time period to $6.3 million from $7.1 million primarily due to a decrease in laundry and utility
charges associated with decreased occupancy. As a result of the higher ADR on decreased expenses,
hotel profit margin increased to 81.6% for the year ended December 31, 2007 as compared to 79.8%
for the prior year.
Other Revenues. Other revenues decreased by 1.8% to $19.9 million for the year ended December31, 2007 as compared to $20.3 million for the year ended December 31, 2006. Revenue decreases were
primarily due to a bulk time share sale that occurred in the prior year that did not occur in the
twelve month period ended December 31, 2007, in addition to decreases in spa and golf revenues.
Other expenses decreased 5.8% to $11.6 million for the year ended December 31, 2007 as compared to
$12.4 million for the year ended December 31, 2006 due mainly to reduced salaries and benefits as
well as reduced direct costs associated with declines in utilization.
Promotional Allowances. Promotional allowances increased by 9.5% to $39.5 million for the
year ended December 31, 2007 as compared to $36.0 million for the year ended December 31, 2006. As
a percent of gross revenues, promotional allowances increased to 19.5% for the year ended December31, 2007 as compared to 17.7% for the year ended December 31, 2006 primarily due to increased
expenses attributable to servicing casino guests.
General and Administrative (“G&A”). G&A expenses decreased by 0.6% to $49.7 million for the
year ended December 31, 2007 as compared to $50.0 million for the year ended December 31, 2006. As
a percent of net revenues, G&A expenses increased to 30.5% for the year ended December 31, 2007 as
compared to 29.7% for the year ended December 31, 2006. G&A expenses decreased primarily due to a
reduction in employee incentives and awards and a decrease in professional fees related to
entertainment expenses.
Depreciation and Amortization. Depreciation and amortization decreased to $16.8 million for
the year ended December 31, 2007 compared to $17.3 million for the year ended December 31, 2006.
Change in Fair Value of Swaps. The interest rate swaps terminated on June 30, 2006. During
the year ended December 31, 2006 the change in fair value of swaps resulted in income of $0.2
million.
Interest Expense. Interest expense increased to $20.6 million for the year ended December 31,2007 as compared to $19.8 million for the year ended December 31, 2006. The increase in interest
expense was due to increased outstanding debt during the year ended December 31, 2007 compared to
the year ended December 31, 2006.
Impairment of Long Lived Assets. No impairment charges were recognized during the year ended
December 31, 2007. During the year ended December 31, 2006 the Company recorded an impairment loss
of approximately $1.4 million to adjust the carrying value of land due to contested ownership
rights related to the land.
Liquidity
and Capital Resources for Black Gaming, LLC.
The following liquidity and capital resources discussion contains certain forward-looking
statements with respect to our business, financial condition, results of operations, expansion
projects and our subsidiaries, which involve risks and uncertainties that cannot be predicted or
quantified, and consequently, actual results may differ materially from those expressed or implied
herein. Such risks and uncertainties include, but are not limited to, financial market risks, the
ability to maintain existing management, competition within the gaming industry, the cyclical
nature of the hotel business and gaming business, economic conditions, regulatory matters and
litigation and other risks. In addition, construction and renovation projects entail significant
risks, including shortages of materials or skilled labor, unforeseen regulatory problems, work
stoppages, weather interference, and unanticipated cost increases. All forward-looking statements
are based on our current expectations and projections about future events. Some of the
contingencies and uncertainties which any forward looking statement set forth below are subject to
include, but are not limited to, those set forth above in the heading “Item 1A. Risk Factors.”
Default status
We
are currently in default under our amended Foothill Facility and our
Senior Secured Notes. Therefore, our obligations under the Foothill
Facility and the Senior Secured Notes could be accelerated. In such
event, we would be in default under our Senior Subordinated Notes.
We continue to evaluate our financial and strategic alternatives, which may include a
recapitalization, refinancing, restructuring or reorganization of our obligations, our business or
a sale of some or all of our businesses. As outlined in “Item 8. Financial Statements and
Supplementary Data-Black Gaming, LLC and Subsidiaries Consolidated Financial Statements, Footnote
8-Long term debt”, we are currently in negotiations with our lenders to restructure our
indebtedness. We and our advisors are actively working toward such a transaction that would
address the decline in our operating results and our capital structure, including our outstanding
indebtedness. If we fail to enter into a restructuring agreement, our lenders will be able to
exercise all their rights and remedies as secured creditors; including acceleration of our
obligations under our Foothill Facility, Senior Secured Notes and Senior Subordinated Notes. As the
success of any restructuring of our indebtedness will depend on the stability of and access to the
capital and credit markets and agreements with and the consent of requisite numbers and percentages
of lenders and holders of Notes, we cannot assure you that we will be successful in agreeing upon a
restructuring. Whether or not we are able to agree upon restructuring of our outstanding
indebtedness with our lenders and/or holders of Notes, we will likely be required to seek
protection under Chapter 11 of the U.S. Bankruptcy Code in order to successfully complete a restructuring of our outstanding indebtedness.
The conditions and events described above raise a substantial doubt about the our ability to
continue as a going concern. See “Item 8. Financial Statements and Supplementary Data-Black
Gaming, LLC and Subsidiaries Consolidated Financial Statements, Footnote 15-Going Concern”.
Our primary sources of liquidity and capital resources have been cash flow from operations and
our credit facilities. As of December 31, 2008 and December 31, 2007, cash and cash equivalents
were $11.5 million and $9.5 million, respectively.
Operating Activities
Cash provided by operating activities for the year ended December 31, 2008 was $0.1 million
compared to $9.1 million for the year ended December 31, 2007. The $9 million decrease was
primarily due to a $9.5 million decrease in operating income (excluding depreciation and
amortization expense and other non-cash charges).
Cash provided by operating activities for the year ended December 31, 2007 was $9.1 million
compared to $13.4 million for the year ended December 31, 2006. The $4.3 million decrease was
primarily due to a $5.3 million decrease in operating income (excluding depreciation and
amortization expense and other non-cash charges).
Investing Activities
Cash used in investing activities for the year ended December 31, 2008 was $0.6 million
compared to $14.4 million for the year ended December 31, 2007. For the year ended December 31,2008, the majority of cash used in investing activities consisted of $1.0 million in capital
expenditures directed mainly towards our race and sports book at the Virgin River and gaming
equipment purchases at the properties offset by proceeds of $0.3 million received from sale of
assets.
Cash used in investing activities for the year ended December 31, 2007 was $14.4 million
compared to $12.0 million for the year ended December 31, 2006. For the year ended December 31,2007, the majority of cash used in investing activities consisted of $14.5 million in capital
expenditures directed toward the Virgin River floor renovations, CasaBlanca buffet remodel and
other exterior hotel improvements, Oasis room remodels and purchases related to the CasaBlanca
Event Center and our temporary concert space.
Financing Activities
Cash provided by financing activities for the year ended December 31, 2008 was $2.5 million
compared to cash provided by financing activities of $3.7 million for the year ended December 31,2007. For the year ended December 31, 2008, $9.0 million related to payments on long-term debt
associated with equipment and our Foothill Facility, $1.9 million related to payments on gaming
equipment financing, $0.2 million related to payments of financing costs and a $0.8 million
reduction in the bank overdraft balance. These financing outflows were offset by $14.3 million of
borrowings.
Cash provided by financing activities for the year ended December 31, 2007 was $3.7 million
compared to cash used in financing activities of $5.9 million for the year ended December 31, 2006.
For the year ended December 31, 2007, $6.0 million related to payments on long-term debt associated
with equipment and our Foothill Facility, $4.9 million related to payments on gaming equipment
financing, and a $0.9 million reduction in the bank overdraft balance. These financing outflows
were offset by $15.5 million of borrowings.
We have no significant commitments for capital expenditures in 2009. We anticipate spending on
general capital improvements across our properties in order to provide a fresh, high quality
product to our guests. We believe that existing cash, cash flows from operations and equipment
financing will be adequate to satisfy our anticipated uses of capital during 2009 as we are
currently not servicing our debt obligations under our Senior Secured Notes. See “Item 1A. Risk
Factors” for discussion of risks related to the Notes.
Off Balance Sheet Arrangements for Black Gaming, LLC.
We are not currently subject to any off-balance sheet arrangements which we believe will have
a material adverse impact on our financial condition.
Contractual Obligations and Commitments for Black Gaming, LLC.
The following table summarizes our contractual obligations and commitments as of December 31,2008:
Payments Due by Period
Less than
After
Total
1 Year
1-3 Years
4-5 Years
5 Years
(dollars in thousands)
Contractual obligations:
Long-term debt(1)
$
205,836
$
205,836
$
—
$
—
$
—
Gaming equipment financing
246
121
125
—
—
Capital leases
328
173
155
—
—
Operating leases
24,520
545
816
816
22,343
Total contractual obligations
$
230,930
$
206,675
$
1,096
$
816
$
22,343
(1)
We are currently in default
under our Foothill Facility and Senior Secured Notes. Therefore, our
obligations under the Foothill Facility and Senior Secured Notes
could be accelerated. In such event, we would be in default under our
Senior Subordinated Notes, and our obligations under our Senior
Subordinated Notes could be accelerated. Therefore, these amounts have been
displayed as current liabilities.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Market risk is the risk of loss arising from adverse changes in market rates and prices, such
as interest rates, foreign currency exchange rates and commodity prices. Our primary exposure to
market risk is interest rate risk associated with our long-term debt. Historically, we have
attempted to limit our exposure to interest rate risk by managing the mix of our long-term
fixed-rate borrowings, which include the Notes and short-term borrowings under our Foothill
Facility. Borrowings under our Foothill Facility bear interest at a margin above the Base Rate
plus Base Rate Margin or the LIBOR rate plus LIBOR Rate Margin (each, as defined) as selected by
us. However, the amount of outstanding borrowings is not expected to fluctuate and may be reduced
from time to time. Our Foothill Facility was operating under a forbearance agreement which expired
on March 9, 2009. The Company is currently in breach of the Foothill Facility, and Wells Fargo
Foothill has the right to exercise any and all rights and remedies under the Foothill Facility,
including the acceleration of the Company’s obligations under the Foothill Facility of
approximately $14.8 million. Our Senior Secured Notes bear interest at 9% and mature in January
2012 and our Senior Subordinated Notes bear interest at 12 3/4% and mature in January 2013 however,
due to current defaults, the holders of the Notes or the trustee could accelerate the maturity
sooner than the stated maturity date. Our Senior Subordinated Notes accrue interest in the form of
increased accreted value until January 2009 when the carrying value of the Senior Subordinated
Notes will be $66.0 million. See “Item 8. Financial Statements and Supplementary Data-Black
Gaming, LLC and Subsidiaries Consolidated Financial Statements, Footnote 8-Long term debt” for more
detail in regards to our forbearance agreement and other debt.
The following table provides information about our long-term debt at December 31, 2008:
Estimated
Maturity
Face
Carrying
Fair
Date
Amount
Value
Value
(in thousands)
Foothill
Facility at an average interest rate of 8.9%
December 2008
*
$
15,000
$
14,836
$
14,836
9% Senior Secured Notes
January 2012
*
125,000
125,000
37,038
12 3/4 % Senior Subordinated Notes
January 2013
*
66,000
65,683
3,056
Total
$
206,000
$
205,519
$
54,930
*
Due to current defaults, our obligations under the Foothill Facility and our Senior Notes could
be accelerated prior to their stated maturity dates. In such event there would be a default under
our Senior Subordinated Notes and these obligations could be accelerated as well.
We are also exposed to market risk in the form of fluctuations in interest rates and their
potential impact upon our debt. Historically, this market risk is managed by utilizing derivative
financial instruments in accordance with established policies and procedures. We evaluate our
exposure to market risk by monitoring interest rates in the marketplace, and do not utilize
derivative financial instruments for trading purposes. We currently do not enter into rate swap
agreements.
The following table provides information about our financial instruments that are sensitive to
changes in interest rates:
As of the date of this report our forbearance periods have expired and have not been renewed;
therefore our debt is being presented as due within a year. We continue to evaluate our financial
and strategic alternatives. Refer to our discussion under “Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources for Black
Gaming, LLC”.
Our $15 million Foothill Facility carries an average interest rate of 8.9% as of December 31,2008. As of December 31, 2008, approximately $14.8 million was drawn on the Facility. The gaming
equipment financing is separate to our debt agreements but because of their long-term nature we
impute interest expense for accounting purposes. Contractually these agreements carry no interest,
therefore we believe that there is no exposure to interest rate risk and therefore have excluded
those contracts from the presentation above.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Members of Black Gaming LLC:
We have audited the accompanying consolidated balance sheets of Black Gaming LLC and subsidiaries
(the “Company”) as of December 31, 2008 and 2007, and the related consolidated statements of
operations, members’ deficit, and cash flows for each of the three years in the period
ended December 31, 2008. Our audits also included the financial statement schedule listed in the
index at Item 15(a)(2). These financial statements and financial statement schedule are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. We
were not engaged to perform an audit of the Company’s internal control over financial reporting.
Our audits included consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Black Gaming LLC and subsidiaries at December 31,2008 and 2007, and the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 2008, in conformity with U.S. generally accepted
accounting principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
The accompanying consolidated financial statements have been prepared assuming that the Company
will continue as a going concern. As more fully described in Note 15, the Company has incurred
recurring operating losses, has a working capital deficiency and an accumulated deficit. In
addition, the Company is in default under its Foothill Facility and
Senior Secured Notes. The defaults under the Foothill Facility and
Senior Secured Notes may also constitute an event of default under
the Company’s Senior Subordinated Notes if the obligations under
the Foothill Facility or Senior Secured Notes are accelerated. These conditions raise substantial doubt about the Company’s ability
to continue as a going concern. Management’s plans in regard to these matters also are described in
Note 15. The 2008 consolidated financial
statements do not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.
1. Organization, Description of Business, Basis of Presentation, Liquidity and Capital Resources
Black Gaming, LLC (“BG LLC”), through its wholly owned subsidiaries, B & B B, Inc. (doing business
as Virgin River Hotel/Casino/Bingo) (“B&BB”) and Virgin River Casino Corporation (“VRCC”) and its
wholly owned subsidiary RBG, LLC (doing business as CasaBlanca Resort/Casino/Golf/Spa) (“RBG”) and
its wholly owned subsidiary CasaBlanca Resorts, LLC (doing business as Oasis Resort & Casino)
(“Resorts LLC”) (collectively the “Company”) is engaged in the hotel casino industry in Mesquite,
Nevada.
BG LLC was organized in Nevada on August 4, 2006 in anticipation of modifying B&BB’s and VRCC’s
organizational structure through a holding company reorganization (“Reorganization”) for B&BB and
VRCC. The Reorganization, which included a transfer of B&BB and VRCC shares for membership
interests in BG LLC, was completed on December 31, 2006. As a result of the Reorganization, the
Robert R. Black, Sr. Gaming Properties Trust (the “Black Trust”) owns 99.03% of the membership
interests of BG LLC and Glenn Teixeira owns 0.97% of the membership interests of BG LLC. The
members’ liability is limited to the amount of capital contributions they are required to make
pursuant to BG LLC’s operating agreement.
Immediately prior to the Reorganization, VRCC acquired, directly and indirectly, an additional
aggregate 11.2% ownership in RBG as a result of the following transaction:
•
VRCC received 100 shares of R. Black, Inc. (“RBI”) from the Black
Trust. The Black Trust owns 100% of the outstanding shares of VRCC.
The 100 shares of RBI representing 100% of the outstanding capital
stock of RBI, was exchanged for 3.68 shares of VRCC held by the Black
Trust, representing 3.68% of the outstanding capital stock of VRCC.
RBI does not have any material operations, liabilities or assets other
than a 5.47% ownership in RBG. The transfer of shares of RBI to VRCC
was accounted for at the historical cost of RBG as RBI and VRCC were
under common control.
•
VRCC received a 3.8% membership interest in RBG from the Black Trust
in exchange for 2.57 shares of VRCC held by the Black Trust,
representing 2.57% of the outstanding capital stock of VRCC. The
transfer of membership interests of RBG to VRCC was accounted for at
historical cost as the Black Trust and VRCC were under common control.
•
VRCC received a 1.92% membership interest in RBG from Glenn Teixeira
in exchange for 1.29 shares of VRCC held by the Black Trust,
representing 1.29% of the outstanding capital stock of VRCC. The
acquisition of the membership interests from RBG from Glenn Teixeira
was accounted for at fair value as it was considered an acquisition of
a minority interest of a subsidiary. Based upon an internal analysis
the fair value of Glenn Teixeira’s interest approximated book value.
The accompanying consolidated financial statements as of and for the years ended December 31, 2008,
2007 and 2006 include the accounts of the Company and all of its majority-owned subsidiaries and
are maintained in accordance with U.S. generally accepted accounting principles. The
Reorganization, predicated on the transfer of shares of B&BB and VRCC for membership interests in
BG LLC, represented a transaction between entities under common control and is accounted for in a
manner similar to a pooling-of-interests. Accordingly, the contributed assets and assumed
liabilities were recorded at B&BB and VRCC’s historical cost basis. As a result of the
Reorganization, B&BB and VRCC became majority owned subsidiaries of BG LLC which owns 100%,
directly or
indirectly, in each subsidiary operating Company. Because of this majority ownership, the financial
statements are consolidated.
The acquisition of Glenn Teixeira’s interest was presented as of the date the exchange occurred on
December 31, 2006. All significant intercompany balances and transactions have been eliminated.
BLACK GAMING, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company’s operations have been adversely affected by the general economic downturn in the U.S.
economy. As a result of the adverse change in results of operations and the significant outstanding
indebtedness, and default status on the Foothill Facility and the Senior Secured Notes, the opinion of the Company’s
independent registered public accounting firm contains a going concern qualification. The Company
is currently in discussions with an ad hoc committee of Senior Noteholders regarding its financial
alternatives. The Company is also in discussions with Wells Fargo
Foothill regarding the effect of the default under its Foothill
Facility. If the Company is not successful in obtaining an extended forbearance agreement, a
restructuring agreement or entering into a transaction to address its liquidity and capital
structure, the Company may be required to seek protection under Chapter 11 of the U. S. Bankruptcy
Code. The conditions described above raise a substantial doubt about the Company’s ability to
continue as a going concern. See “Footnote 15 — Going Concern”.
2. Summary of Significant Accounting Policies
Casino Revenue and Promotional Allowances—The Company recognizes as casino revenue the net win from
gaming activities, which is the difference between gaming wins and losses. The retail value of
rooms, food and beverage furnished to customers without charge is included in gross revenues and
then deducted as promotional allowances. The estimated departmental costs of providing such
promotional allowances are included in casino costs and expenses and consist of the following (in
thousands):
The Company’s One Card Slot Program (the “Slot Program”) allows customers to redeem points earned
from their gaming activity at all the Company’s properties for complimentary food, beverage, rooms,
entertainment and merchandise. At the time redeemed, the retail value of complimentaries under the
Slot Program 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 under the Slot Program is recorded in casino expenses. The Company also
records a liability for the estimated cost of the outstanding points related to the Slot Program.
Vacation Interval Sales—The Company recognizes revenue on the sale of vacation intervals when a
minimum of 10% of the sales price has been received in cash, collectibility of the receivable
representing the remainder of the sales price is reasonably assured, and the Company has completed
substantially all of the obligations with respect to any development related to the real estate
sold.
Cash and Cash Equivalents—The Company considers all highly liquid investments with purchased
maturities of three months or less to be cash equivalents. Bank overdraft represents a negative
cash balance that has been reclassified to current liabilities.
Inventories—Inventories are stated at the lower of cost or market value. Cost is determined by the
first-in, first-out method.
BLACK GAMING, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Property Held for Vacation Interval Sales—Property held for vacation interval sales includes the
acquisition costs of the vacation intervals and renovations and the cost of land, development and
construction of the vacation interval project. As intervals are sold, the cost of the interval and
the estimated cost of renovations or the estimated total costs at completion for the project are
charged ratably to cost of vacation interval sales. Interest on renovations or development and
construction of vacation intervals is capitalized or charged to expense depending on the duration
of the renovations. In the fourth quarter of 2008 the Company recognized an impairment charge of approximately
$0.3 million related to the entire value of the vacation interval inventory. See “Note 11, Impairment of
Long Lived Assets, Goodwill and Intangibles” for details.
Notes and Accounts Receivable—The Company’s notes receivables originate from the Company’s time
share operations and are considered homogenous and are evaluated for impairment collectively,
except for individual receivables placed on nonaccrual status, in which case receivables are
reviewed individually for impairment. In January of 2006, the Company adopted the provisions of
SFAS 152, “Accounting for Real Estate Time-Sharing Transactions"(“SFAS 152”). SFAS 152 amends
existing accounting guidance to reference the financial accounting and reporting guidance for real
estate time-sharing transactions provided in AICPA Statement of Position 04-02, “Accounting for
Real Estate Time-Sharing Transactions.” In determining the allowance for possible credit losses,
the Company, in accordance with SFAS 152, uses a technique referred to as static pool analysis,
which tracks uncollectible notes receivable based on each year’s sales over the entire life of
those notes. The Company considers whether the historical economic conditions are comparable to
current economic conditions. If current economic conditions differ from the economic conditions in
effect when the historical experience was generated, the Company adjusts the allowance for possible
credit losses to reflect the expected effects of current economic conditions on uncollectibility.
The Company groups all notes receivables in one pool for analytical purposes based on historical
collectibility and customer demographics. As a result of the change in accounting for the
allowance for possible credit losses, the Company has recorded in the accompanying consolidated
statement of operations for the year ended December 31, 2006, a cumulative effect of a change in
accounting principle of $196,000 to increase the allowance for possible credit losses.
The Company’s accounts receivable represent amounts due from patrons for gaming activities, hotel
and other in addition to amounts due from on-line wholesalers.
Bad debt expense for notes and accounts receivable totaled $371,000, $126,000 and $59,000 for the
years ended December 31, 2008, 2007 and 2006, respectively.
Fair Value of Financial Instruments—The carrying value of the Company’s cash and cash equivalents,
receivables, accounts payable and debt, other than the Company’s Notes (see Note 8, Long term
debt), approximates fair value primarily because of the short maturities of these instruments. The
fair value on the Notes is based on quoted market prices.
Property and Equipment—Property and equipment is stated at cost, including interest capitalized on
internally constructed assets calculated at the overall weighted-average borrowing rate of
interest.
Depreciation and amortization is provided on a straight-line basis over the assets’ estimated
useful lives. The estimated useful lives are as follows:
Buildings
31.5 to 39.5 years
Land improvements
15 years
Leasehold improvements
5 to 10 years
Furniture, fixtures and equipment
5 years
The Company evaluates the carrying value for long-lived assets to be held and used, including
property held for vacation interval sales, in accordance with FASB Statement No. 144, Accounting
for the Impairment or Disposal of Long-lived Assets (SFAS 144). SFAS 144 requires that when events
or changes in circumstances indicate that the carrying amount of an asset may not be recoverable,
companies should evaluate the need for an impairment write-down. If an indicator of impairment
exists, we compare 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 an
impairment is measured based on fair value less cost of disposal, compared to carrying value, with
fair value typically based on a discounted cash flow model. When an impairment write-down is
required, the related assets are adjusted to their estimated fair value less costs to sell. See
Note 11, Impairment of Long Lived Assets, Goodwill and Intangibles.
BLACK GAMING, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Income Taxes—The Company is a limited liability company. As such, federal income taxes are an
obligation of the individual owners and no provision for income taxes is reflected in the
accompanying consolidated financial statements.
Advertising Costs—We expense advertising costs the first time the advertising takes place.
Advertising expense, which is generally included in selling, general and administrative expenses in
the accompanying consolidated statements of operations was approximately $4.1 million, $4.5 million
and $5.4 million for the years ended December 31, 2008, 2007 and 2006, respectively.
Deferred Financing Costs—Deferred financing costs are amortized to interest expense over the term
of the related financing.
Goodwill and Other Intangible Assets—Goodwill represents the amount of an acquired company’s
acquisition cost in excess of the fair value of assets acquired and liabilities assumed. The
Company evaluates goodwill for impairment annually and whenever events and circumstances indicate
that an impairment may have occurred, such as a significant adverse change in the business climate
or a decision to sell or dispose of a reporting unit. During the second quarter of 2008 such
indicators existed and an impairment charge was recorded. Goodwill was $0 and $12.5 million at
December 31, 2008 and 2007, respectively.
Other intangible assets represent acquired customer lists, which are stated at cost net of
accumulated amortization, and trademarks. Trademarks totaled $6.2 million and $10.5 million at
December 31, 2008 and 2007, respectively. Customer lists, originally valued at $21.3 million,
totaled $8.0 million and $12.8 million as of December 31, 2008 and 2007, respectively. These costs
are being amortized on a straight-line basis over the assets’ revised estimated useful life of
approximately 5.7 years effective January 1, 2006. Total accumulated amortization related to
customer lists was $12 million as of December 31, 2008. Amortization expense was $3.5 million for
the years ended December 31, 2008, 2007 and 2006. Future amortization expense of intangible assets
is estimated to be approximately $2.2 million per annum. During 2008 the Company recognized an
impairment charge of approximately $5.7 million related to its customer lists and trademarks. See
Note 11, Impairment of Long Lived Assets, Goodwill and Intangibles for a more detailed discussion
of the Company’s approach.
Interest Rate Swaps—The Company, from time to time, has used interest rate swaps and similar
financial instruments to assist in managing interest incurred on its long-term debt. The difference
between amounts received and amounts paid under such agreements, as well as any costs or fees, are
recorded as a reduction of, or addition to, interest expense as incurred over the life of the swap
or similar financial instrument. The Company accounts for interest rate swap agreements in
accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,”
(“SFAS 133”) and its corresponding amendments under SFAS 138 and SFAS 149. SFAS 133 requires the
Company to measure every derivative instrument (including certain derivative instruments embedded
in other contracts) at fair value and record them in the balance sheet as either an asset or
liability. Changes in fair value
of derivatives are recorded in earnings as a change in fair value of the swap unless special hedge
accounting criteria are met whereby the change is recorded as a component of other comprehensive
income. During the year ended December 31, 2004, the swaps became ineffective and, accordingly, the
change in fair value was accounted for in earnings on the consolidated statements of operations for
the year ending December 31, 2006. As of December 31, 2006 the swap had expired.
BLACK GAMING, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Use of Estimates—The preparation of financial statements in conformity with U.S. generally accepted
accounting principles (“GAAP”) requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Players Club Liability—The Company adopted the consensus provisions of EITF 00-22—“Accounting for
Points and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free
Products or Services to Be Delivered in the Future.” EITF 00-22 requires that the redemption of
points, such as points earned in slot players clubs, be recorded as a reduction of revenue.
Although the consensus reached in EITF 00-22 applies to a redemption of points for cash as opposed
to a redemption of points for free products and services, management believes the premise of
EITF 00-22 applies to the Company’s Slot Program, which provides for the redemption of points for
only free products and services (and not for cash).
The Company’s Slot Program allows customers to redeem points earned from their gaming activity at
all the Company’s properties for 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 related to the Slot Program.
Self-Insurance
Reserves—The Company reviews self-insurance reserves at least quarterly. The
amount of reserve is determined by reviewing actual expenditures for the previous twelve-month
period and reviewing reports prepared by the third party plan administrator for any significant
unpaid claims. The reserve is accrued at an amount that approximates the amount needed to pay both
reported and unreported claims as of the balance sheet date, which management believes are
adequate.
Segment Information—It is management’s belief that the Company’s operations are part of a single
segment which is the casino and hotel business and related amenities. The Company believes that it
meets the “economic similarity” criteria established by SFAS 131, and as a result, the Company
aggregates all of its properties into one operating segment. All of our properties offer similar
products, cater to the same customer base, are all located in the Mesquite, Nevada, area, have the
same regulatory and tax structure, share the same marketing techniques and are all directed by a
centralized management structure.
In addition, management believes that all of the Company’s ancillary operations such as golf course
operations, spa, timeshare and other amenities are in place to increase and enhance the casino and
hotel business.
Reclassifications—Certain balance sheet and income statement amounts reported in the prior years
have been reclassified to follow the Company’s current year’s reporting practice.
Recently Issued Accounting Standards—In September 2006, FASB issued SFAS No. 157, “Fair Value
Measurements” (“SFAS 157”). This statement defines fair value, establishes a framework for
measuring fair value, and expands disclosures about fair value measurements under other accounting
pronouncements that require or permit fair value measurements. Accordingly, this statement does not
require any new fair value measurements. In
February 2008, the FASB issued FASB Staff Position FAS 157-2, which defers the effective date of
SFAS 157 for non-financial assets and liabilities that are recognized or disclosed at fair value in
the entity’s financial statements on a recurring basis to fiscal years beginning after November 15,2008 and interim periods within those fiscal years. The adoption of SFAS No. 157 is not expected to
have a material impact on the Company’s financial position, results of operations or cash flows.
BLACK GAMING, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets
and Financial Liabilities Including an Amendment of FASB Statement No. 115"(“SFAS 159”). SFAS 159
permits entities to choose to measure many financial instruments and certain other items at fair
value, with unrealized gains and losses related to these financial instruments reported in earnings
at each subsequent reporting date. SFAS 159 is effective for fiscal years beginning after
November 15, 2007. The adoption of SFAS 159 is not expected to have a material impact on the
Company’s financial position, results of operations or cash flows.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS
141”). SFAS 141 (revised) establishes principles and requirements for how an acquirer recognizes
and measures in its financial statements the identifiable assets acquired, the liabilities assumed,
and non-controlling interest in the acquiree and the goodwill acquired. The revision is intended to
simplify existing guidance and converge rulemaking under U.S. GAAP with international accounting
rules. This statement applies prospectively to business combinations where the acquisition date is
on or after the beginning of the first annual reporting period beginning on or after December 15,2008. The adoption of SFAS 141 (revised) is not expected to have a material impact on the Company’s
financial position, results of operations or cash flows.
In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interest in Consolidated Financial
Statements, an amendment of ARB No. 51” (“SFAS 160”). This statement establishes accounting and
reporting standards for ownership interests in subsidiaries held by parties other than the parent
and for the deconsolidation of a subsidiary. It also clarifies that a non-controlling interest in a
subsidiary is an ownership interest in the consolidated entity that should be reported as equity in
the consolidated financial statements. SFAS 160 changes the way the consolidated income statement
is presented by requiring consolidated net income to be reported at amounts that include the amount
attributable to both the parent and the non-controlling interests. The statement also establishes
reporting requirements that provide sufficient disclosure that clearly identify and distinguish
between the interest of the parent and those of the non-controlling owners. This statement is
effective for fiscal years beginning on or after December 15, 2008. The adoption of SFAS 160 is not
expected to have a material impact on the Company’s financial position, results of operations or
cash flows.
In March 2008, the FASB issued SFAS No. 161, “Disclosures About Derivative Instruments and Hedging
Activities, an amendment of SFAS No. 133” (“SFAS 161”). SFAS 161 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 is effective for fiscal years beginning after
November 15, 2008. SFAS 161 is not expected to have a material impact on the Company’s financial
position, results of operations or cash flows.
In April 2008, the FASB issued FASB Staff Position (“FSP”) No. 142-3, Determination of the
Useful Life of Intangible Assets (“FSP 142-3”). FSP 142-3 amends the factors that should be
considered in developing renewal or extension assumptions used to determine the useful life of a
recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets”, and
requires enhanced related disclosures. FSP 142-3 must be applied prospectively to all intangible
assets acquired as of and subsequent to fiscal years beginning after December 15, 2008. The
adoption of FSP 142-3 is not expected to have a material impact on the Company’s financial
position, results of operations or cash flows.
In May 2008, the FASB issued SFAS No.162, “Hierarchy of Generally Accepted Accounting Principles”
(“SFAS 162”). This statement is intended to improve financial reporting by identifying a consistent
framework, or hierarchy, for selecting accounting principles to be used in preparing financial
statements of nongovernmental entities that are
presented in conformity with GAAP. This statement was effective November 15, 2008. SFAS 162 is not
expected to have a material impact on the Company’s financial position, results of operations or
cash flows.
In October 2008, the FASB issued FSP 157-3, Determining the Fair Value of a Financial Asset When
the Market for That Asset is Not Active (“FSP 157-3” ). FSP 157-3 clarifies the application of SFAS
No. 157 in a market that is not active. FSP 157-3 amends SFAS 157 to include an example that
illustrates key considerations when applying the principles in SFAS 157 to financial assets when
the market for these instruments is not active. FSP 157-3 is not expected to have a material impact
on the Company’s financial position, results of operations or cash flows.
BLACK GAMING, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In December 2008, the FASB issued FSP FAS 140-4 and FIN 46(R)-8, “Disclosures by Public Entities
(Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities”.
This FASB FSP amends SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities”, to require public entities to provide additional disclosures about
transfers of financial assets. It also amends FASB Interpretation No. 46 (R), “Consolidation of
Variable Interest Entities”, to require public enterprises, including sponsors that have a variable
interest in a variable interest entity, to provide additional disclosures about their involvement
with variable interest entities. Additionally, this FSP requires certain disclosures to be provided
by a public enterprise that is (a) a sponsor of a qualifying special purpose entity (“SPE”) that
holds a variable interest in the qualifying SPE but was not the transferor of financial assets to
the qualifying SPE, and (b) a servicer of a qualifying SPE that holds a significant variable
interest in the qualifying SPE but was not the transferor of financial assets to the qualifying
SPE. The disclosures required by this FSP are intended to provide greater transparency to financial
statement users about a transferor’s continuing involvement with transferred financial assets and
an enterprise’s involvement with variable interest entities and qualifying SPEs. This FSP is
effective for the first reporting period ending after December 15, 2008, and shall apply for each
annual and interim reporting period thereafter. The adoption of FAS 140-4 is not expected to have a
material impact on the Company’s financial position, results of operations or cash flows not have a
material impact on our consolidated financial statements.
3. Discontinued Operations
In October 2006, the Company moved forward with plans to dispose of the Palm’s Golf Course and
Oasis Gun Club operations. In accordance with SFAS 144, “Accounting for the Impairment or Disposal
of Long-Lived Assets”, the Company accounted for this endeavor as discontinued operations. At
December 31, 2007 the Company determined that it no longer met the criteria to continue to classify
the operations as discontinued. As such, previously presented financial data has been
re-characterized and presented as part of continuing operations.
The following table sets forth the operations for the year ended December 31, 2006 related to Oasis
Recreational Properties, Inc.’s assets previously shown as held for sale that have been included as
part of continuing operations (in thousands):
The Company owns the Virgin River Convention Center which is opened as needed during the year to
provide additional rooms for the Company’s operations. As of December 31, 2008 and 2007, these
assets are reported in the accompanying consolidated balance sheets at $4.7 million and
$5.0 million, net of accumulated depreciation, respectively.
As part of construction activities related to certain projects of the Company, the Company
capitalized approximately $94,000 in interest for the year ended December 31, 2006. There was no
capitalized interest for the years ended December 31, 2008 and 2007.
5. Notes Receivable
Notes receivable consist of the following (in thousands):
Notes generated from the sale of vacation intervals generally bear interest at annual rates ranging
from 12.75% to 14.75% and have terms of 5 to 7 years. The vacation interval notes receivable are
collateralized by the right to use and deeds of trust on the vacation interval sold.
BLACK GAMING, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
7. Gaming Equipment Financing
The Company from time to time enters into agreements with gaming manufacturers to finance the
purchase of gaming equipment. Contractual terms of the agreements with the gaming manufacturers
consist of payment terms of less than one year to up to three years without interest. In the event
that an agreement with a gaming manufacturer extends past a year, the Company will impute interest
at a rate of 8%.
Gaming equipment financing consists of the following (in thousands):
Revolving credit facility totaling $15
million with Wells Fargo Foothill,
Inc. at a margin above prime or LIBOR,
as defined; collateralized by
substantially all assets of the
Company as defined
12 3/4 % senior subordinated notes,
non-cash interest will accrue at an
annual rate of 12 3/4 % in the form
of increase accreted value until
January 15, 2009. Beginning July 15,2009, interest payable semiannually,
principal due January 15, 2013,
callable January 15, 2009
65,683
58,047
205,519
192,547
Less: current portion — debt in default
(205,519
)
(9,500
)
Total long-term debt
$
—
$
183,047
Revolving Facility
The Wells Fargo Foothill, Inc. credit facility (“Foothill Facility”) is secured by substantially
all the assets of the Company. During the life of the Foothill Facility, the Company may borrow up
to the lesser of (1) $15.0 million less the Letter of Credit Usage, as defined, less the Bank
Product Reserve, as defined, or (2) the Borrowing Base, as defined, less the Letter of Credit
Usage.
Under the terms of the Foothill Facility, interest accrues on the outstanding principal balance at
LIBOR plus the LIBOR Rate Margin, which is 3.5%, or the Base Rate, as defined, plus the Base Rate
Margin, which is 2%. LIBOR was approximately 1.1% and prime was 3.25% at December 31, 2008. The
Foothill Facility also contains certain financial and other covenants. These include a minimum
trailing twelve-month Earnings before Interest, Taxes, Depreciation and Amortization (“EBITDA”) of
$15 million for the Company and limitations on other indebtedness and capital expenditures, as
defined.
On June 20, 2008, the Company entered into a Second Amendment (“Second Amendment”) to the Foothill
Facility. The Second Amendment extended the maturity date of the Foothill Facility from December20, 2008 to June 30, 2011. The Second Amendment reduced the Company’s allowable capital
expenditures and modified the definition of EBITDA. The Company was not in compliance with
covenants of maintaining a minimum trailing twelve-month
EBITDA set by the Foothill Facility at September 30, 2008. As a result on November 3, 2008, the
Company entered into a Forbearance, Consent and Third Amendment to Credit Agreement (“Forbearance
Agreement”) with respect to the amended Foothill Facility.
BLACK GAMING, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Forbearance Agreement amended the Foothill Facility and provided that the lender would forbear
from exercising certain rights and remedies under the amended Foothill Facility and other loan
documents as a result of the existing default described above, and modifies certain financial
covenants, calculations and rates of the Foothill Facility through January 15, 2009 (“Forbearance
Period”) or earlier upon the occurrence of one or more events of default. The Forbearance
Agreement provides, among other things, for the following:
1.
The LIBOR Rate Margin has been increased to 5% from 3.50%, and the Base Rate
Margin has been increased to 5% from 2%. Therefore, the interest rate premium payable
in respect of loans available under the Credit Agreement has been increased accordingly;
2.
The minimum EBITDA covenant has been reduced from $15.0 million to $10.0 million
for the September 2008 through December 2008 reporting periods;
3.
The Borrowing Base multiple has been increased from 1.0x to 1.5x from the
execution of the Forbearance Agreement until January 15, 2009;
4.
The Company has been allowed to temporarily reduce operations at the Oasis during
the Forbearance Period.
At December 31, 2008, $14.8 million was drawn under the Foothill Facility, and such amount has been
classified as a current liability in the accompanying balance sheet. The Company was not in
compliance with covenants of maintaining a minimum trailing twelve-month EBITDA set by the Foothill
Facility at December 31, 2008. Accordingly, the availability under the Foothill Facility at
December 31, 2008 was limited to approximately $0.2 million. The outstanding balance on the
Foothill Facility is a joint and several obligation of the Company. The Company is continuing to
evaluate its financial and strategic alternatives, which may include a recapitalization,
refinancing, restructuring or reorganization of its obligations or a sale of some or all of its
businesses. The Company and its advisors are actively working toward one or more such transactions
that would address the decline in operating results and enhance the capital structure.
As part of the cost of extending the maturity date of the Foothill Facility the Company incurred
approximately $0.2 million of deferred financing fees that are being amortized over the extended
life of the facility.
Subsequent Events
•
On January 15, 2009, the Company entered into a First Amendment to Forbearance, Consent
and Third Amendment to Credit Agreement (“First Amendment to Forbearance”). The First
Amendment to Forbearance extended the Forbearance Period from January 15, 2009 to
February 2, 2009. No other provisions of the Forbearance Agreement were amended, the terms
of the Forbearance Agreement remained in full force and effect in accordance with their
respective terms.
•
On February 2, 2009, the Company entered into a Second Amendment to Forbearance, Consent
and Third Amendment to Credit Agreement (“Second Amendment to Forbearance”). The Second
Amendment to Forbearance extended the Forbearance Period from February 2, 2009 to
February 12, 2009. Section 3 of the Forbearance Agreement was also amended to allow the
Company to transfer slot machines and video poker machines from the Suspended Location, as
defined in the Forbearance Agreement, to one of the Company’s other operating casino
locations. No other provisions of the Forbearance Agreement were amended, and the
terms of the Forbearance Agreement remained in full force and effect in accordance with their
respective terms.
BLACK GAMING, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
•
On February 12, 2009, the Company entered into the Amended and Restated Forbearance
Agreement with respect to the Foothill Facility. Pursuant to the Amended and Restated
Forbearance Agreement, during the Forbearance Period (as defined in the Amended and
Restated Forbearance Agreement) Wells Fargo Foothill agreed to forbear from enforcing its
rights under the Foothill Facility that arise because of certain Designated Events of
Default (as defined in the Amended and Restated Forbearance Agreement) including the
non-payment of interest on the Senior Secured Notes. Upon the expiration of the Forbearance
Period, the forbearance shall terminate and Wells Fargo Foothill shall have the right to
exercise any and all rights and remedies under the Foothill Facility, including the
acceleration of the Company’s obligations under the Foothill Facility of approximately
$14.8 million. The Forbearance Termination Date (as defined in the Amended and Restated
Forbearance Agreement) is March 2, 2009, subject to extension to March 9, 2009 or earlier
termination as provided in the Amended and Restated Forbearance Agreement. A covenant in
the Amended and Restated Forbearance Agreement required the Company to execute a
forbearance agreement with the holders of the Senior Secured Notes (“Senior Noteholders”)
by February 17, 2009 with respect to the Senior Secured Notes. As no forbearance agreement
was executed with the Senior Noteholders within this timeframe, the Company was in breach
of the terms of the Amended and Restated Forbearance Agreement, and Wells Fargo Foothill
has the right to exercise any and all rights and remedies under the Foothill Facility,
including the acceleration of the Company’s obligations under the Foothill Facility of
approximately $14.8 million. Wells Fargo Foothill also consented to the continued reduction
of operations at the Oasis during the Forbearance Period.
•
On February 25, 2009, the Company entered into a Second Amended and Restated Forbearance
Agreement (“Second Amended Forbearance”) with respect to the Foothill Facility. The Second
Amended Forbearance amended and restated in its entirety the Amended and Restated
Forbearance Agreement. Pursuant to the Second Amended Forbearance, during the Forbearance
Period (as defined in the Second Amended Forbearance Agreement) Wells Fargo Foothill agreed
to forbear from enforcing its rights under the Foothill Facility that arise because of
certain Designated Events of Default (as defined in the Second Amended Forbearance
Agreement). Upon the expiration of the Forbearance Period, the forbearance shall terminate
and Wells Fargo Foothill shall have the right to exercise any and all rights and remedies
under the Foothill Facility, including the acceleration of the Company’s obligations under
the Foothill Facility of approximately $14.8 million. The Forbearance Termination Date (as
defined in the Second Amended Forbearance Agreement) was March 2, 2009, subject to
extension to March 9, 2009 if the Company provided a restructuring term sheet to Wells
Fargo Foothill by March 2, 2009. The Company also agreed to provide Wells Fargo Foothill
with certain projections by March 6, 2009. Wells Fargo Foothill also consented to the
continued reduction of operations at the Oasis during the Forbearance Period and to the
ability of the Company to transfer equipment from the Oasis to one of the Company’s other
operating casino locations.
•
As of the date of this report the Forbearance Termination Date has passed. The Company
has provided a restructuring term sheet and certain projections to Wells Fargo Foothill by
the required date. The Company is continuing to evaluate its financial and strategic
alternatives in light of the expiration of the Forbearance Period. Accordingly, our
obligations under the Foothill Facility are classified as current in the accompanying
balance sheet.
Senior Secured and Senior Subordinated Notes
In December 2004, VRCC, RBG and B&BB (the “Issuers”) issued $125.0 million of 9% senior secured
notes (“Senior Notes”) due on January 15, 2012 and $39.9 million in gross proceeds of 12 3/4 % senior
subordinated notes (“Senior Sub Notes”) due January 15, 2013 (collectively the “Notes”). The Notes
are joint and several obligations of the Issuers and all current and future subsidiaries of the
Issuers.
BLACK GAMING, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Senior Notes pay interest semiannually while the Senior Sub Notes accrue interest in the form
of increased accreted value until January 15, 2009, when the carrying book value of the Senior Sub
Notes will be $66.0 million. Beginning on July 15, 2009, the Senior Sub Notes will cash pay
interest semiannually similar to the Senior Notes.
The Indentures governing the Notes (the “Indentures”) contain certain customary financial and other
covenants, which limit the Company’s ability to incur additional debt. The Indentures provide that
the Company may not incur additional indebtedness, other than specified types of indebtedness,
unless the Consolidated Coverage Ratio, on a pro-forma basis after the incurrence of the additional
indebtedness is at least 2.00 to 1.00. As of December 31, 2008, the Company has a Consolidated
Coverage Ratio that is less than 2.00 to 1.00 and accordingly has incurred no additional
indebtedness as defined.
The Indentures also contain other covenants which limit the ability of the Issuers and Guarantors,
as defined, to pay dividends, redeem stock, or make other distributions, make investments, create
certain liens, enter into certain transactions with affiliates, utilize proceeds from asset sales,
transfer or sell assets, issue or sell equity interests of subsidiaries and enter into certain
mergers and consolidations, as defined in the Indentures. There are no restrictions related to the
transfer of funds between the Issuers, Guarantors and their respective subsidiaries. The Issuers
were in compliance with these covenants at December 31, 2008 and December 31, 2007.
The Senior Notes are secured by substantially all existing and future assets of the Issuers and the
Guarantors, as well as the equity interest of the Guarantors, the equity interests of the Black
Trust in the Issuers. The Guarantors are all the wholly owned subsidiaries of the Issuers. The
Senior Notes are subordinated to the security interests of the Foothill Facility. The Senior Sub
Notes are subordinate to the Senior Notes and all other indebtedness of the Company.
As part of the costs of issuing the Notes, the Company incurred approximately $10.6 million in
deferred financing fees. Within the $10.6 million in deferred financing fees is $7.7 million in
underwriter fees associated with the Notes. These costs are being amortized over the life of the
Notes.
The estimated fair value of the Company’s Senior Notes and Senior Sub Notes at December 31, 2008
and 2007 was $37.0 million, $3.1 million, $108.1 million and $44.0 million, respectively. The
estimated fair value amounts were based on quoted market prices. For all other indebtedness, the
fair value approximates the carrying amount of the debt due to the short-term maturities of the
individual components of the debt.
Subsequent Events
•
On January 15, 2009, the Company failed and is continuing to fail to make the
$5.625 million semi-annual interest payment then due to the Noteholders. The Company’s
30-day grace period expired on February 15, 2009. The Company is in discussions with an ad
hoc committee of holders of Senior Notes (the “Senior Noteholders”) regarding the Company’s
financial alternatives. Because the interest payment was not made prior to the expiration
of the 30-day grace period, the aggregate principal amount of the Senior Notes, plus the
unpaid interest payment and any other amounts due and owing on the Senior Notes could be
declared immediately due and payable by the Trustee under the Indenture or by holders of
25% or more of the aggregate principal amount of the Senior Notes. The acceleration of the
Company’s obligation under the Senior Notes would constitute an event of default under the
Senior Sub Notes. In such event, the aggregate principal amount of the Senior Sub Notes,
plus accrued and unpaid interest, if any, and any other amounts due and owing on the Senior
Sub Notes could be declared immediately due and payable by the Trustee under the indenture
governing the Senior Sub Notes or by holders of 25% or more of the aggregate principal
amount of the Senior Sub Notes. Failure to make the interest payment on the Senior Notes
also constituted an event of default under the Foothill Facility. Wells Fargo Foothill is
currently able to declare the Company’s obligations under the Foothill Facility immediately
due and payable.
BLACK GAMING, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
•
On February 19, 2009, the Company entered into a Forbearance Agreement (“Noteholders
Forbearance Agreement”) with the Senior Noteholders who have represented that they hold
more than 75% of the Company’s Senior Notes. The Noteholders Forbearance Agreement provides
that during the Forbearance Period (as defined in the Noteholders Forbearance Agreement)
the Senior Noteholders would forbear from exercising rights and remedies that are available
under the Indenture governing the Senior Notes and the other Loan Documents (as defined in
the Noteholders Forbearance Agreement) relating to certain Specified Defaults (as defined
in the Noteholders Forbearance Agreement) including the Company’s failure to make the
interest payment on the Senior Notes. The Senior Noteholders also agreed to forbear from
taking any action to cause the Trustee under the Indenture to exercise any of the Trustee’s
rights or remedies arising out of the Specified Defaults, and, if the Trustee does take any
action with respect to any of the Specified Defaults during the Forbearance Period, to the
extent provided for in the Loan Documents, the Senior Noteholders would cause the Trustee
to forbear from exercising any of its rights or remedies under the Loan Documents. The
Forbearance Period commenced on the Effective Date and went through March 9, 2009, provided
that (i) the Company provided a restructuring term sheet to the professional advisors of
the Senior Noteholders by March 2, 2009 and (ii) the Company provided certain projections
to the professional advisors of the Senior Noteholders by March 6, 2009.
•
As of the date of this report the termination date of the Noteholders Forbearance
Agreement has passed. The Company has provided a term sheet and certain projections to the
professional advisors of the Senior Noteholders by the required date. The Company is
continuing to evaluate its financial and strategic alternatives in light of the termination
of the Forbearance Agreement.
As such, the entire amount of the Senior Notes and Senior Sub Notes are classified as current
liabilities in the Company’s consolidated balance sheet as of December 31, 2008.
The Company also agreed to pay certain fees and expenses incurred by the professional advisors
of the Senior Noteholders and to provide them with reasonable access to the Company.
Interest Rate Swaps
During 2001, as part of entering into the Original Credit Agreement, the Company entered into two
interest-rate swaps, each with notional amounts equal to $28.0 million (the “Swaps”), to be
utilized as cash-flow hedges to reduce the Company’s exposure to changes in interest rates. The
Swaps effectively converted $56.0 million of the Company’s floating rate debt to a fixed rate. The
Swaps became effective on June 29, 2001 and terminated on June 30, 2006. The Company paid a fixed
rate of 5.88% on the Swaps, which was priced to assume no value at inception.
The Swaps became completely ineffective during the year ended December 31, 2004. Accordingly, for
the year ended December 31, 2006, the change in fair value of the Swaps was accounted for in net
income. The total amount of the loss was recorded in the accompanying consolidated statement of
operations of the Company. At December 31, 2008 and 2007, the Company had no swap arrangements.
9. Leases
Capital Leases
The Company is the lessee of golf maintenance equipment under a capital lease which was executed in
December 2008 and expires in October 2010. The assets and liabilities under capital leases are
recorded at the lower of the present value of the minimum lease payments or the fair value of the
asset. The assets are depreciated over the lower of their related lease terms or their estimated
productive lives. These assets totaled approximately $356,000 and are included under the caption
furniture and fixtures on the Company’s consolidated balance sheet for the year ended
December 31, 2008. Depreciation of the assets began the month after they were placed in service
accordingly there was no depreciation expense for these capitalized assets included in the year
ended December 31, 2008.
BLACK GAMING, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Future minimum lease payments under capital leases for the five years subsequent to December 31,2008 are as follows (in thousands):
Years ending December 31:
2009
$
173
2010
155
2011
—
2012
—
2013
—
Thereafter
—
$
328
Operating Leases
As part of the acquisition of the Oasis Resort Hotel and Casino, Resorts LLC has been assigned the
rights to an agreement to lease the land which underlies a portion of the golf course of the Oasis
Casino and Hotel from the state of Arizona. The lease agreement is for a term of ten years that
began in May 1998 at an annual rate of $26,650 and increases every year until the last year of the
lease when the annual lease rate was $135,750. The Company is currently in negotiations to renew
this lease under similar terms.
As part of the acquisition of the CasaBlanca, the Company has been assigned the rights to an
agreement to lease the land and water rights which underlies the golf course of the CasaBlanca. The
lease agreement is for a term of 99 years that began in June 1995 at a monthly lease rate of
$18,000. In June 2005 and every 5 years thereafter, the lease rate will be adjusted based on the
increase in the Consumer Price Index, as defined.
During 2006, the Company entered into an agreement with Town Center Drive & 215, LLC to lease
executive office space. The term of the lease is 84 months at a rate of approximately $11,508 a
month. The lease also provides for two five-year options to extend the lease at market price. The
lease also requires the Company to pay its pro rata share of real estate taxes, operating expenses,
and common area costs. In addition, the Company has received lease incentives in connection with
this lease. The Company will recognize the benefits related to the lease incentives on a
straight-line basis over the applicable lease term.
Future minimum lease payments under operating leases for the five years subsequent to December 31,2008 are as follows (in thousands):
Years ending December 31:
2009
$
545
2010
408
2011
408
2012
408
2013
408
Thereafter
22,343
$
24,520
Rent expense for the years ended December 31, 2008, 2007 and 2006 were $1.8 million, $2.0 million
and $1.8 million, respectively.
BLACK GAMING, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
10. Related Party Transactions
MDW is a Nevada limited-liability company in which Mr. Black has an interest. MDW owned a
condominium complex located in Mesquite, Nevada. The Company had entered into a lease agreement
with MDW whereby MDW gave the members of the CasaBlanca Vacation Club (the timeshare club
associated with the CasaBlanca) the right to use and occupy the timeshare units located on the
leasehold property. The remaining units at the condominium complex were utilized by the CasaBlanca
for hotel and apartment purposes. On December 15, 2004, pursuant to a termination agreement, the
Company terminated its lease with MDW. The Company recorded approximately $0, $0 million and $0.9
million in other income related to the condominium sales during the years ended December 31, 2008,
2007 and 2006, respectively. At December 31, 2008 and 2007 the Company had no amounts owed to MDW.
Participants in the Company’s Slot Program are able to redeem their points for gasoline at the
Virgin River Foodmart, Inc., a Nevada corporation, (“Foodmart”) which is owned by Mr. Black and
former shareholders of the VRCC. The Foodmart charges the Company the retail amount of gas
purchased with player points. For the years ended December 31, 2008, 2007 and 2006, the Foodmart
had charged the Company $20,000, $35,000 and $45,000 respectively, for gasoline purchased with
points from the Company’s Slot Program.
Black & LoBello is a law firm managed by the daughter of Mr. Black. The Company retains Black &
LoBello as outside legal counsel, and Black & LoBello has received legal fees for legal services in
the amount of $103,000, $307,000 and $303,000 for the years ended December 31, 2008, 2007 and 2006,
respectively.
Pursuant to the Indentures, Mr. Black is entitled to a management fee for his management of the
Companies of up to 5% of EBITDA, as defined. The Company has expensed $550,000, $863,000 and $1.3
million as of December 31, 2008, 2007 and 2006, respectively.
During the year ended December 31, 2006, it was determined upon completion of the Company’s income
tax returns that $1.4 million was overpaid by the Company to Mr. Black for tax distributions during
the year ended December 31, 2005. As a result, the Company offset that overpayment against earned
and unpaid management fees during the year ended December 31, 2006 which resulted in an equity
contribution of $1.4 million to the Company.
Gaming Research is a consulting firm which was retained to perform marketing research for the
Company. The principal of Gaming Research is the father of the Company’s former chief operating
officer. Gaming research received consulting fees of $0, $177,000 and $222,000 for the years ended
December 31, 2008, 2007 and 2006, respectively.
The Company provided management and other services to two related parties that manage and operate
the home owners associations of the vacation intervals sold at the property. As of December 31,2008 and 2007, respectively, included in the accompanying consolidated balance sheets,
respectively, is a receivable for $460,000 and $327,000 related to amounts owed for those services.
During 2006, the Company entered into an agreement with Town Center Drive & 215, LLC to lease
executive office space. The term of the lease is 84 months at a rate of approximately $11,508 a
month. Mr. Black is the owner and manager of Town Center Drive & 215, LLC. The Company paid a
total of $169,000, $223,000 and $0 to Town Center Drive & 215, LLC under the lease for the years
ended December 31, 2008, 2007 and 2006, respectively.
BLACK GAMING, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
11. Impairment of Long Lived Assets, Goodwill and Intangibles
Long lived assets—In accordance with Statement of Financial Accounting Standards No. 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), the Company reviews
identified intangible and other long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying value of the asset may not be recoverable. If such events
or changes in circumstances are present, an impairment loss would be recognized if the sum of the
expected future net cash flows is less than the carrying amount of the asset. For purposes of
testing the Company’s intangible and other long lived assets, the Company estimated its fair value
using values assigned by the local tax authorities in relation to the equipment and buildings and a
discounted cash flow valuation for the customer lists and trademarks. The discounted cash flow
approach is dependent on a number of critical management assumptions including appropriate discount
rates and other relevant assumptions. Due to deterioration of economic conditions, the Company
temporarily suspended portions of its operations as of December 5, 2008 at the Oasis Hotel and
Casino. The Company recorded impairment charges in the fourth quarter of 2008, related to its long
lived assets, which totaled approximately $6.6 million. These charges consisted of a $5.0 million
impairment charge on equipment and buildings related to the Oasis facility, a $1.3 million
impairment charge related to the Oasis’ customer lists and approximately $0.3 million related to
the value of the property held for vacation interval sales.
In conjunction with the Company’s original plan to expand the Casablanca Hotel and Casino with a
180-room hotel tower, the Company incurred costs associated with the architectural design and
planning of this project. These plans were re-evaluated and abandoned during the first quarter of
2008. As a result, the Company recognized a non-cash write-off of these assets of approximately
$1.0 million which is included as a component of operating expenses under the caption “Impairment
of long lived assets”.
During the second quarter of 2008 the Company re-assessed its plans to build a 37,000 square foot
event center. As a result of the decision to indefinitely postpone the event center project the
Company recognized non-cash write off of approximately $2.8 million which is included as a
component of operating expenses under the caption “Impairment of long lived assets”.
No impairment charges were recognized during the year ended December 31, 2007.
During the year ended December 31, 2006 the Company recorded an impairment loss of approximately
$1.4 million to adjust the carrying value of land due to contested ownership rights related to the
land.
Goodwill and Intangibles—In accordance with Statement of Financial Accounting Standard No. 142,
Goodwill and Other Intangible Assets (“SFAS 142”), the Company performs an impairment test of
goodwill on an annual basis and, if certain events or circumstances indicate that an impairment
loss may have been incurred, on an interim basis. The analysis of potential impairment of goodwill
requires a two-step process. The first step is the estimation of fair value. If step one indicates
that impairment potentially exists, the second step is performed to measure the amount of
impairment, if any. Goodwill impairment exists when the estimated fair value of goodwill is less
than its carrying value.
Because such indicators existed for the Company during the second quarter of 2008, the Company
performed impairment testing on its goodwill. Factors deemed by the Company to be collectively
indicators that a goodwill impairment test was required included record high fuel prices, operating
losses and a softening U.S. economy.
For purposes of testing the Company’s goodwill, the Company estimated its fair value using a
valuation technique based on discounted cash flows to substantiate the results of its enterprise
value. The discounted cash flow approach is dependent on a number of critical management
assumptions including appropriate discount rates and other relevant assumptions.
BLACK GAMING, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Step one indicated the fair value of the Company was less than its carrying value. Consequently,
to confirm the existence of and to measure the amount of any impairment, the Company was required
to perform step two of the
SFAS 142 goodwill impairment testing methodology. In step two of the impairment testing, the
Company determined the implied fair value of its goodwill estimating the current fair value of all
of its assets and liabilities, including any recognized and unrecognized intangible assets. As a
result of the step two testing, the Company determined that goodwill was fully impaired and
therefore recorded a $12.5 million impairment charge during the second quarter of 2008 to eliminate
the carrying value of its goodwill. This impairment charge is classified within “Goodwill
impairment” in the Company’s condensed consolidated statements of operations.
During the fourth quarter of 2008 the Company also performed an impairment test of its various
trademarks. The analysis of the potential impairment of the trademarks required a comparison of the
fair value of the trademarks with their carrying amounts. If the carrying amount of the trademarks
exceeded their fair value, an impairment loss would be recognized in an amount equal to that
excess. As a result of the Company’s analysis an impairment of $4.3 million was recognized related
to the Company’s various trademarks.
12. 401(k) Plan and Other Benefit Plans
The Company implemented a defined contribution 401(k) plan, which covers all employees who meet
certain age and length of service requirements and allows an employer contribution up to 40% of the
first 6% of each participating employee’s compensation. Effective January 1, 2008 the Company
suspended all matching employer contributions. The plan participants can elect to defer before tax
compensation through payroll deductions. These deferrals are regulated under Section 401(k) of the
Internal Revenue Code. The Company’s portion of the matching contributions for the years ended
December 31, 2008, 2007 and 2006 were $0, $218,000, and $238,000, respectively.
As of December 31, 2008 the Company’s Long Term Incentive Plan (“LTIP”), adopted in October 2006,
is no longer active. The LTIP was a long-term formula based compensation plan utilizing EBITDA, as
defined, Long-term Debt, as defined, cash and a fixed multiple to compensate senior executives for
increasing the operating performance and financial condition of the Company in the event that the
executive remained with the Company. The Company awarded $205,000 in the LTIP for the fiscal year
ended December 31, 2005, of which $68,000 was recognized as compensation expense and paid during
the year ended December 31, 2006. As of December 31, 2006, the Company awarded $588,000 in the LTIP
for the fiscal year ended December 31, 2006. For the year ended December 31, 2007, the Company
recognized and paid approximately $68,000 as compensation expense related to the fiscal year 2006
and 2005 award. There are no remaining amounts to be paid as the senior executives included in the
plan are no longer employed by the Company.
13. Commitments and Contingencies
Litigation—From time to time the Company is party to various legal proceedings, most of which
relate to routine matters incidental to the business. Management does not believe that the outcome
of such proceedings will have a material adverse effect on the Company’s consolidated financial
position, cash flows or results of operations.
Environmental Matter—The Company has become aware that there is contamination present on some of
its properties apparently due to past operations, which included a truck stop and gas station. In
particular, groundwater contamination at the Oasis property (which appears to have migrated onto
the CasaBlanca property) is the subject of investigation and cleanup activities being conducted by
the prior owners of the Oasis. Management believes that the prior owners are responsible for such
matters under an indemnity agreement negotiated at the time the Oasis was purchased; however, there
is no assurance that the Company will not incur costs related to this matter. Moreover, it is
possible that future developments could lead to material environmental compliance costs or other
liabilities for the Company and these costs could have a material adverse effect on our combined
financial position or results of operations. In anticipation of marketing the golf course property
during 2006, Resorts, LLC, entered into several agreements with WSR, Inc (“WSR”), the former owners
of the Oasis Hotel & Casino, to terminate WSR’s remaining rights in the golf course property, among
other matters, for approximately $1.1 million. Pursuant to the agreements,
the funds paid to WSR will be used by WSR to remediate the existing environmental liability at the
Oasis Hotel & Casino which continues to be an obligation of WSR.
BLACK GAMING, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Sales and Use Tax on Complimentary Meals—On March 27, 2008, in the matter captioned Sparks
Nugget, Inc. vs. State ex rel. Department of Taxation, the Nevada Supreme Court ruled that
complimentary meals provided to employees and patrons are not subject to Nevada use tax. On
April 15, 2008, the Department of Taxation filed a motion for rehearing of the Supreme Court’s
decision and in July 2008, the Court denied that motion for rehearing. The Department has notified
interested parties that it intends to pursue an alternative legal theory through an available
administrative process, and they continue to deny refund claims. It is anticipated that a hearing
before the Nevada Administrative Law Judge may occur during the summer of 2009. Through June 2008,
the Company paid use tax on these items and filed for refunds for the periods from July 2000 to
June 2008. The amount subject to these refunds is approximately $1.8 million. As of December 31,2008, the Company had not recorded a receivable related to this matter.
Other—In January 2006, Oasis Interval Ownership, LLC entered into an agreement with Global Exchange
Development Corp. to sell substantially all of the unsold time share intervals at the Oasis Hotel
and Casino. All sales were completed and there are no outstanding receivable amounts after December31, 2007.
14. Rental Revenue
In November 2006, the Company entered into a lease agreement with MDC Restaurants, LLC (“MDC”), a
Nevada limited liability company and franchisee of Denny’s, Inc., whereby MDC will operate a
Denny’s restaurant in the location of the former coffee shop of the Oasis Hotel & Casino. The
lease is for a five-year term, with one five-year renewal term and five one-year renewal terms.
The Company will receive a minimum lease payment of $78,000 annually along with a percentage of
rent based on revenue as defined in the agreement. As part of entering the lease, the Company
agreed to provide a tenant improvement allowance of $212,500, $106,250 which was paid as of
December 31, 2006 and the reminder paid during the year ended December 31, 2007. This amount will
be amortized as a reduction of rental revenue over the term of the lease.
In 1990, the Company entered into a lease agreement, which was last amended in April 1995, with
Westates Theater, Inc. to lease and operate theaters at the Virgin River Hotel/Casino/Bingo. The
term of the lease is for 15 years from the last amendment date. The lease calls for monthly lease
payments, which currently approximate $10,600, in addition to a percentage rent that is calculated
annually based on 7% of gross revenue from the theater operations in excess of $800,000. Annually
the monthly lease payment shall increase based on the change in the Consumer Price Index.
Future minimum lease payments to the Company under operating leases subsequent to December 31, 2008
are as follows (in thousands):
Years ending December 31:
2009
$
205
2010
120
2011
78
2012
—
2013
—
Thereafter
—
$
403
Rental revenue for the years ended December 31, 2008, 2007 and 2006 was $678,000, $617,000 and
$135,000, respectively and is included in other revenue in the accompanying statements of
operations.
BLACK GAMING, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
•
Subsequent Event
During the first quarter of 2009 Westates Theatre made the decision to cease operations at
the Virgin River Hotel/Casino/Bingo. The Company and Westates Theater are negotiating a lease
termination settlement. The Company does not expect to have rental income from the operations
of the theater during 2009.
15. Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as
a going concern. As shown in the financial statements, the Company has generated net losses from
operations of $54.6 million, $17.2 million and $12.2 million for the years ended December 31, 2008,
2007 and 2006, respectively, and has an accumulated deficit of $75.3 million at December 31, 2008.
The Company has total cash and cash equivalents of $11.5 million and a net working-capital deficit
of $207.4 million at December 31, 2008. The net working-capital deficit includes $11.8 million of
the Company’s Foothill Facility, $125.0 million of the Company’s 9% Senior Secured Notes and $65.7
million of the Company’s 12 3/4% Senior Subordinated Notes. The Company is currently in default under
its Foothill Facility and Senior Notes. The defaults under the
Foothill Facility and Senior Notes may also constitute an event of
default under the Company’s Senior Sub Notes if the obligations
under the Foothill Facility or Senior Secured Notes are accelerated. Our liquidity is dependent on
cash flows from operations, which have been adversely affected by the downturn in the economy
causing the Company to realize operating losses and impairment charges.
As a result of the default under the Senior Secured Notes due to the failure to make the $5.625
million semi-annual interest payment and the cross default events as a result of that failed
payment, the Company’s lenders could declare an event of default under the Indentures governing the
Notes and require repayment of all outstanding borrowings ($205.5 million at December 31, 2008).
The Company is currently in discussions with its lenders to negotiate a restructuring of its debt.
If the Company is not successful in obtaining an extended forbearance agreement, a restructuring
agreement or entering into a transaction to address its liquidity and capital structure, the
Company may be required to seek protection under Chapter 11 of the U. S. Bankruptcy Code. The
conditions and events described above raise a substantial doubt about the Company’s ability to
continue as a going concern. The accompanying consolidated financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and classification of
assets or the amounts and classifications of liabilities that may result should the Company be
unable to continue as a going concern.
At December 31, 2008, BG LLC and all of the Issuer’s, and Issuers’ subsidiaries, each of which is
directly or indirectly wholly-owned by the BG LLC, are guarantors under the Foothill Facility and
the indentures governing the Notes, see Note 8. These guarantees are full, unconditional and joint
and several.
Note 17 represents the condensed consolidating balance sheets of BG LLC (“Parent”),
Issuers, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries and eliminating
entries as of December 31, 2008 and December 31, 2007 and the related condensed consolidating
statements of operations and cash flows for each year in the three-year period ended
December 31, 2008.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None
ITEM 9A(T). CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls
We evaluated the effectiveness of our disclosure controls and procedures as of the end of the
2008 fiscal year. This evaluation was done with the participation of our management, including our
Chief Executive Officer and Chief Accounting Officer.
Disclosure controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed by us in the reports that we file or submit under
the Securities Exchange Act of 1934 are recorded, processed, summarized and reported within the
time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information required to be
disclosed by us in the reports that we file under the Securities Exchange Act of 1934 is
accumulated and communicated to our management, as appropriate to allow timely decisions regarding
required disclosure.
Limitations on the Effectiveness of Controls
Our management does not expect that our disclosure controls and procedures or our internal
controls over financial reporting will prevent all error and all fraud. A control system, no
matter how well conceived and operated, can provide only reasonable, but not absolute, assurance
that the objectives of a control system are met. Further, any control system reflects limitations
on resources, and the benefits of a control system must be considered relative to its costs.
Because of the inherent limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any, within us have been
detected. These inherent limitations include the realities that judgments in decision-making can
be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two or more people, or
by management override of a control. The design of a control system is also based upon certain
assumptions about the likelihood of future events, there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions; over time, controls
may become inadequate because of changes in conditions, or the degree of compliance with the
policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective
control system, misstatements due to error or fraud may occur and may not be detected.
Conclusions
Based on this evaluation, our Chief Executive Officer and Chief Accounting Officer have
evaluated our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934
Rules 13a-15(e) and 15d-15(e)) as of December 31, 2008, and have concluded that they are effective
to timely alert them to material information relating to the Company required to be included in the
reports that we file or submit under the Securities Exchange Act of 1934.
There were no changes in our internal controls over financial reporting that occurred during
our last fiscal quarter, i.e., the quarter ended December 31, 2008, that have materially affected,
or are reasonably likely to materially affect, our internal controls over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting. Our internal control system was designed to provide reasonable assurance to
our management and board of directors regarding the preparation and fair presentation of published
financial statements.
Management assessed the effectiveness of our internal control over financial reporting (as
defined in the Securities Exchange Act of 1934 Rules 13a-15(f) and 15d-15(f)) as of December 31,2008. In making this assessment, it used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Based on
management’s assessment, it believes that, as of December 31, 2008, our internal control over
financial reporting is effective based on those criteria.
This annual report does not include an attestation report of our registered public accounting
firm regarding internal control over financial reporting. Management’s report was not subject to
attestation by the our registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only management’s report in
this annual report.
Robert R. Black, Sr.Mr. Black has been involved in all phases of the Nevada real estate
industry since 1967. Additionally, Mr. Black is the managing member or member of several business
entities which primarily relate to real estate development. Currently, Mr. Black serves as Chairman
of the Board of Diversified Interest, Inc., a full-service real estate entity he founded in 1979.
Since 1997, Mr. Black has served as Commander of the Nellis Support Team, a team organized to
support the men, women and missions of Nellis Air Force Base by interacting with the local business
and government community in order to raise funds to support the air force base and military
personnel needs.
Since August 2006, Mr. Black has been the sole Manager of Black Gaming, LLC. Since December
2004, Mr. Black has been Chairman of the Board, Chief Executive Officer and President of Virgin
River Casino Corporation and B & B B, Inc. Mr. Black was Secretary and a Director of Virgin River
Casino Corporation from July 1988 to December 2004. Mr. Black was Secretary of B & B B, Inc. from
December 1990 to December 2004 and a Director of B & B B, Inc. from December 1989 to December 2004.
Mr. Black has been the sole Manager of RBG, LLC since February 1997.
Sean P. McKay. Mr. McKay has served as our Chief Accounting Officer since January 2008.
Previously, Mr. McKay served as Corporate Controller to Virgin River Casino Corporation, RBG, LLC
and B & B B, Inc. since July 2005. From May 2002 to July 2005, Mr. McKay was employed by Avery
Dennison, most recently as the General Accounting Manager. From 2000 to 2002, Mr. McKay was
employed by the accounting firm of Arthur Andersen, LLP in the firm’s Las Vegas office providing
audit services to the hospitality and gaming industry.
Anthony Toti. Mr. Toti has served as our Chief Operating Officer since December 2008.
Previously, Mr. Toti served as Vice President of Gaming Operations since November 2007. Mr. Toti
has approximately 28 years experience in the gaming industry, most recently as Director of Casino
Operations at the Suncoast Hotel and Casino from October 2006 to October 2007. From July 2000 to
October 2006, Mr. Toti served as Casino Manager at the Suncoast Hotel and Casino.
Martha
Rapson. Ms. Rapson has served as our Vice President of
Marketing Operations since November 2007. Ms. Rapson has been
employed by us since June 1997 as Marketing Director for the Virgin
River and Casablanca, with the addition of the Oasis in 2001.
Marleen
Szalay. Ms. Szalay has served as our Vice President of Hotel
Operations since December 2007. Ms. Szalay has been employed by us
since May 1990 with varying degrees of responsibility. Her most
recent position included Tri-Property Hotel Director from July 2001
to December 2007.
Key Employees
Kevin Boyer. Mr. Boyer, 40, has served as the General Manager of the Virgin River Hotel &
Casino since October 2007. Mr. Boyer has been employed by us since May 1991 in various positions
with varying degrees of responsibility. His most recent position included Oasis Controller from
July 2002 to
September 2006, transitioning to tri-property responsibility in September 2006 and to
Assistant General Manager of Black Gaming, LLC in July 2007.
Marcus A. Hall. Mr. Hall, 64, returned to Black Gaming out of retirement as General Manger of
the Virgin River in February 2008. From 1997 to 2007 Mr. Hall served as General Manager of the
Casablanca. Mr. Hall served as General Manager of the Virgin River since its inception in 1990 to
1997.
Code of Ethics
We have not yet adopted a code of ethics which applies to our principal executive officer,
principal financial officer, principal accounting officer or controller, or persons performing
similar functions because of our limited size.
ITEM 11. EXECUTIVE COMPENSATION.
Compensation Discussion and Analysis
Compensation Philosophy
Our primary goal with respect to executive compensation is to attract, retain and motivate the
most qualified and dedicated executives, who possess the high-quality skills and talent required
for the success of the business, to tie annual and long-term incentive compensation to achievement
of certain performance objectives for us and the individual executives, and to encourage executive
performance that contributes to our long-term growth. Since our equity is not publicly held, we are
not required to form a compensation committee comprised of independent directors, as required by
applicable laws and regulations, including the Sarbanes-Oxley Act, and applicable listing
requirements.
To achieve our executive compensation objectives, we implement and maintain compensation plans
and policies that ensure that executive compensation is fair, reasonable and competitive, and that
reward executives’ contributions to our overall short and long-term growth. We use short-term
compensation (base salaries and annual cash bonuses) and long-term incentive compensation, to
achieve our goal of driving long-term growth. Our compensation policy links each executive’s
earnings opportunity with our short and long-term performance.
Setting Executive Compensation
In setting compensation, we evaluate individuals on their executive performance with the goal
of setting compensation at levels we believe are comparable with executives in other companies of
similar size, with similar revenues and in similar industries, while taking into account our
relative performance and our own strategic goals.
Elements of Compensation
For the fiscal year ended December 31, 2008, our compensation components for the named
executive officers included the following elements:
We pay base salaries to our named executive officers and all other employees to compensate
them for their services during the fiscal year. Base salaries for our executives are established
based on the scope of their responsibilities, taking into account competitive market compensation
paid by other companies for similar positions. To assist us in the determination of appropriate
compensation ranges we utilize the services of Business and Legal Reports, a subscription service
which provides salary data and ranges for a variety of positions and, generally, we believe that
executive base salaries should be targeted near the median of the range of salaries for executives
in similar positions with similar responsibilities at companies of similar size, with similar
revenues and in similar industries, in line with our compensation philosophy. Base salaries are
reviewed annually, and executives are eligible for performance based increases based on the
individual responsibilities and performance as it relates to the pre-determined financial targets
that we set.
Annual Bonus
We award annual bonuses to the named executive officers and to other employees. The annual
incentive bonuses are intended to compensate officers for achieving financial and operational goals
and for achieving individual annual performance objectives. When we decide to award a bonus, we
determine the pool of eligible employees and the amount that those employees will be eligible to
receive under the plan. Our plan includes various incentive levels based on the participant’s
accountability and impact on our operations, and target award opportunities are established as a
percentage of base salary, ranging from 2.5% of base salary to 30% of base salary for our named
executive officers. In addition, discretionary bonus amounts may be paid to named executives based
on individual performance.
Each year, we set minimum, targets and maximum levels for corporate and individual performance
goals, and payment of awards is based upon the achievement of those goals for that year. Upon
completion of the fiscal year, we assess our performance and individual performance with respect to
those goals, and an overall percentage amount for the corporate financial goals is calculated. The
annual bonus is paid in cash and is ordinarily paid in a single installment in the March following
the completion of a given fiscal year.
Post-Termination Compensation
In order for us to attract and retain well-qualified executives and key personnel and to
provide ourselves and each executive certain security of continuity of management in the event of a
change in control of the Company, we entered into employment security agreements with certain of
our executive officers.
Perquisites and Other Personal Benefits
We provide our named executive officers with certain perquisites and other personal benefits
that the we believe are reasonable and consistent with our overall compensation philosophy to
attract, retain and motivate the most qualified and dedicated employees for key positions.
We do not issue stock or option awards to our executives. We also do not provide non-equity
incentive plan compensation, do not have a pension plan and do not offer a nonqualified deferred
compensation program. We have a 401(k) plan for our employees.
The named executive officers are provided access to term life insurance policies, long-term
disability insurance policies, contributions to our 401(k) plan, and participation in the plans and
programs described above. In certain instances and on a case-by-case basis, we may reimburse
relocation expenses and pay relocation bonuses to executives who are required, due to promotions or
reorganizations, to move to another location. Additionally, we may pay special one-time bonuses to
certain executives when their performance far-exceeds any targets or goals. Such bonuses are not
common and are not paid through any formal compensation plan.
Summary Compensation Table
The following table sets forth the cash and non-cash compensation for each of the last three
fiscal years awarded to or earned by our Principal Executive Officer, our Principal Financial
Officer, and our three other most highly compensated executives as of December 31, 2008.
Management fees are paid at the direction of Mr. Black and are accrued quarterly. Pursuant
to the terms of the indentures governing the notes and the agreement governing our Foothill
Facility, so long as no default has occurred and is continuing, we may pay Mr. Black
management fees up to 5% of our consolidated EBITDA (as that term is defined in the indentures
governing the notes and the agreement governing our Foothill Facility) for the immediately
preceding fiscal year. Mr. Black has advised us that it is his present intention to charge us
and collect management fees in the maximum amount permitted under the indentures and our
Foothill Facility. In addition to management fees, commencing January 1, 2005, we have paid
Mr. Black a salary at an annualized
rate of $556,500. Although Mr. Black has sole authority to set his own salary, he has advised
us that his salary will not exceed industry standards.
Representing $541,150 in
management fees, accrued but not paid, related to fiscal year 2008, $0 in dividends and
distributions accrued to Mr. Black by us and $10,000 in perquisites provided to Mr. Black and
his wife in the form of compensatory use of hotel rooms, the Company limousine, golf and spa
services, meals and Company tickets for events.
(3)
Representing $862,500 in management fees related to fiscal year 2007, $0 in dividends and
distributions paid to Mr. Black by us and $10,000 in perquisites provided to Mr. Black and his
wife in the form of compensatory use of hotel rooms, the Company limousine, golf and spa
services, meals and Company tickets for events.
(4)
Representing $1,068,639 in management fees related to fiscal year 2006, $0 in dividends and
distributions paid to Mr. Black by us and $10,000 in perquisites provided to Mr. Black and his
wife in the form of compensatory use of hotel rooms, the Company limousine, golf and spa
services, meals and Company tickets for sporting events.
(5)
Mr. McKay assumed the position of Chief Accounting Officer in January 2008. Mr. McKay served
as the Company’s Corporate Controller in 2007 and 2006.
(6)
Mr. Toti assumed the position of Chief Operating Office in December 2008. Mr. Toti served as
the Company’s Vice President of Gaming Operations in 2008 and 2007.
(7)
Mr. Toti began his tenure with Black Gaming in November 2007.
Employment Agreements
We entered into an executive employment agreement with Robert R. Black, Sr. effective as of
January 8, 2009, where we agreed to pay Mr. Black a base salary of $577,500 which will increase by
5% on January 1 of each renewal period of the agreement. We will also pay Mr. Black a management
fee equal to 5% of our Consolidated EBITDA, as defined in the Indenture. The management fee will be
paid on January 8 of each year. In addition to his salary and management fee, Mr. Black is entitled
to (1) reimbursement for all reasonable out-of-pocket expenses incurred in performing services
under the agreement, (2) a car allowance of not less than $19,200 per year, (3) various food, spa,
hotel rooms and related services at no charge, provided, such complimentaries do not exceed $2,000
per month. If Mr. Black is terminated without cause, he will be
entitled to receive an amount equal to his base salary for the
remainder of the term of the agreement, any portion of the
management fee for any prior year which has not yet been paid, and,
with respect to the year in which the termination without cause
occurs, the management fee for such year through the effective date
of the termination.
We entered into an executive employment agreement with Anthony Toti effective as of January 8,2009, where we agreed to pay Mr. Toti a base salary of $250,000 per year and a bonus of $50,000 per
year if Mr. Toti is employed by us as of December 31 of any year. However, if Mr. Toti is not
employed by us as of December 31, he will have no right to receive any portion of such amount. In
addition to his salary and bonus, Mr. Toti is entitled to (1) reimbursement for all reasonable
out-of-pocket expenses incurred in performing services under the agreement, (2) participation in
our employee benefit programs and plans generally made available to our executives or salaried
employees, (3) executive perquisites in accordance with the terms and provisions of the applicable
policies, and (4) participation in all PTO and vacation programs made available to our executives
or salaried employees. If Mr. Toti is terminated without cause,
he will be entitled to receive an amount equal to his salary for the
remainder of the term of the agreement.
We entered into an executive employment agreement with Sean P. McKay effective as of January7, 2008, where we agreed to pay Mr. McKay a base salary of $180,000 per year and a nondiscretionary
annual bonus up to $70,000 based on certain personal and Company performance measures as determined
by us. We have also agreed to pay Mr. McKay a payment equal to one year of his base salary upon a
change in control.
Compensation Committee Interlocks and Insider Participation
We do not have a compensation committee. Mr. Black makes the decisions concerning the
compensation of our executive officers.
THE FOLLOWING REPORT OF THE MANAGEMENT BOARD SHALL NOT BE DEEMED TO BE SOLICITING MATERIAL OR
TO BE FILED WITH THE SEC UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE ACT OF 1934 OR
INCORPORATED BY REFERENCE IN ANY DOCUMENT SO FILED.
Management Board Compensation Report
Our management board has reviewed and discussed the above Compensation Discussion and Analysis
with our management and determined that the Compensation Discussion and Analysis be included in
this annual report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.
We are wholly owned by Robert R. Black, Sr., our Manager and Majority Member, and his
affiliates, with the exception of a 0.97% ownership interest held by a minority owner. The
following table sets forth our beneficial ownership. As of December 31, 2008, no rights exist to
purchase any additional ownership interest in us.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
We believe that all of the transactions discussed below are on terms at least as favorable to
us as would have been obtained from an unrelated third party.
MDW is a Nevada limited-liability company in which Mr. Black has an interest. MDW owned a
condominium complex located in Mesquite, Nevada. We had entered into a lease agreement with MDW
whereby MDW gave the members of the CasaBlanca Vacation Club (the timeshare club associated with
the CasaBlanca) the right to use and occupy the timeshare units located on the leasehold property.
The remaining units at the condominium complex were utilized by the CasaBlanca for hotel and
apartment purposes. On December 15, 2004, pursuant to a termination agreement, we terminated the
lease with MDW. We recorded approximately $0, $0 million and $0.9 million in other income related
to the condominium sales during the years ended December 31, 2008, 2007 and 2006, respectively. At
December 31, 2008 and 2007 we had no amounts owed to MDW.
Participants in the Company’s Slot Program are able to redeem their points for gasoline at the
Virgin River Foodmart, Inc., a Nevada corporation, (“Foodmart”) which is owned by Mr. Black and
former shareholders of VRCC. The Foodmart charges the Company the retail amount of gas purchased
with player points. For the years ended December 31, 2008, 2007 and 2006, the Foodmart had charged
the Company $20,000, $35,000 and $45,000 respectively, for gasoline purchased with points from the
Company’s Slot Program.
Black & LoBello is a law firm managed by the daughter of the sole shareholder of the Black
Trust. The Company retains Black & LoBello as outside legal counsel, and Black & LoBello has
received legal fees for legal services in the amount of $103,000, $307,000 and $303,000 for the
years ended December 31, 2008, 2007 and 2006, respectively.
Pursuant to the Indenture, Mr. Black is entitled to a management fee for his management of the
Companies of up to 5% of EBITDA, as defined. The Company has expensed $550,000, $863,000 and $1.3
million as of December 31, 2008, 2007 and 2006, respectively.
During the year ended December 31, 2006, it was determined upon completion of the Company’s
income tax returns that $1.4 million was overpaid by the Company to Mr. Black for tax distributions
during the year ended December 31, 2005. As a result, the Company offset that overpayment against
earned and unpaid management fees during the year ended December 31, 2006 which resulted in an
equity contribution of $1.4 million to the Company.
Gaming Research is a consulting firm which was retained to perform marketing research for the
Company. The principal of Gaming Research is the father of the Company’s former chief operating
officer. Gaming research received consulting fees of $0, $177,000 and $222,000 for the years ended
December 31, 2008, 2007 and 2006, respectively.
The Company provided management and other services to two related parties that manage and
operate the home owners associations of the vacation intervals sold at the property. As of
December 31, 2008 and 2007, respectively, included in the accompanying consolidated balance sheets,
respectively, is a receivable for $460,000 and $327,000 related to amounts owed for those services.
During 2006, the Company entered into an agreement with Town Center Drive & 215, LLC to lease
executive office space. The term of the lease is 84 months at a rate of approximately $11,508 a
month. Mr. Black is the owner and manager of Town Center Drive & 215, LLC. The Company paid a
total of $169,000, $223,000 and $0 to Town Center Drive & 215, LLC under the lease for the years
ended December 31, 2008, 2007 and 2006, respectively.
Policy for Related Party Transactions
We review all related party transactions on a case by case basis and approve any such
transaction in accordance with Nevada corporate law. In addition, the notes prohibit us from
entering into certain transactions with certain related parties unless it is determined that the
terms of the transaction are fair and reasonable to us, and no less favorable than could have been
obtained in an arm’s length transaction with an unrelated party. The notes require additional
approvals before we may enter into certain related transactions in which the consideration to
either party in the transaction would exceed specified thresholds.
The aggregate accounting fees billed and services provided by Ernst & Young LLP, our principal
accountant, for the years ended December 31, 2008 and 2007 are as follows:
2008
2007
Audit fees(1)
$
280,000
$
344,000
Audit-related fees(2)
20,000
20,000
Tax fees
—
—
All other fees
—
—
Total fees
$
300,000
$
364,000
(1)
Represents the aggregate fees Ernst & Young LLP billed us for each of the last
two fiscal years for professional services for the audits of our annual financial
statements and review of financial statements included in our reports on Form 10-Q or
services that are normally provided by Ernst & Young LLP in connection with those
filings. In the year ended December 31, 2008 we were billed $60,000 for audit fees
related to our quarterly reports and $220,000 related to our annual report. In the
year ended December 31, 2007, we were billed $54,000 quarterly for audit fees related
to our quarterly reports, and $290,000 related to our annual report.
(2)
Represents the aggregate fees Ernst & Young LLP billed us for each of the last
two fiscal years for assurance and related services that are reasonably related to the
performance of the audit.
We do not have an audit committee or a pre-approval policy with respect to any fees paid to
Ernst & Young LLP, our principal accountant.
Pursuant to the requirements of Section 13 or 15(d) 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.
Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been
signed by the following persons in the capacities and on the dates indicated.
Pursuant to the requirements of Section 13 or 15(d) 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.
Its: Chairman of the Board,
Chief Executive Officer and
President
Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been
signed by the following persons in the capacities and on the dates indicated.
Pursuant to the requirements of Section 13 or 15(d) 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.
Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been
signed by the following persons in the capacities and on the dates indicated.
Pursuant to the requirements of Section 13 or 15(d) 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.
Its: Chairman of the Board,
Chief
Executive Officer and President
Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been
signed by the following persons in the capacities and on the dates indicated.
Articles of Incorporation of Virgin River Casino Corporation
filed July 1, 1988, incorporated by reference to registrant’s
Registration Statement on Form S-4, as filed with the Securities
and Exchange Commission on March 8, 2005.
Articles of Incorporation of B & B B, Inc. filed December 7,
1989, incorporated by reference to registrant’s Registration
Statement on Form S-4, as filed with the Securities and Exchange
Commission on March 8, 2005.
3.6
Articles of Organization of CasaBlanca Resorts, LLC filed
February 6, 2001, incorporated by reference to registrant’s
Registration Statement on Form S-4, as filed with the Securities
and Exchange Commission on March 8, 2005.
3.7
Articles of Organization of Oasis Interval Ownership, LLC filed
May 31, 2001, incorporated by reference to registrant’s
Registration Statement on Form S-4, as filed with the Securities
and Exchange Commission on March 8, 2005.
3.8
Articles of Organization of Oasis Interval Management, LLC filed
May 31, 2001, incorporated by reference to registrant’s
Registration Statement on Form S-4, as filed with the Securities
and Exchange Commission on March 8, 2005.
3.9
Articles of Incorporation of Oasis Recreational Properties, Inc.
filed May 23, 2001, incorporated by reference to registrant’s
Registration Statement on Form S-4, as filed with the Securities
and Exchange Commission on March 8, 2005.
Amendment
to Operating Agreement of Black Gaming, LLC adopted January 13,2009.
3.13
By-laws of Virgin River Casino Corporation adopted July 14,
1988, incorporated by reference to registrant’s Registration
Statement on Form S-4, as filed with the Securities and Exchange
Commission on March 8, 2005.
3.14
Amendment
to By-laws of Virgin River Casino Corporation adopted January 13, 2009.
By-laws of B & B B, Inc. adopted December 8, 1989, incorporated
by reference to registrant’s Registration Statement on Form S-4,
as filed with the Securities and Exchange Commission on March 8,2005.
3.18
Operating Agreement of CasaBlanca Resorts, LLC adopted May 31,2001, incorporated by reference to registrant’s Registration
Statement on Form S-4, as filed with the Securities and Exchange
Commission on March 8, 2005.
3.19
Amendment
to Operating Agreement of Casablanca Resorts, LLC adopted
January 13, 2009.
3.20
Operating Agreement of Oasis Interval Ownership, LLC adopted
June 13, 2001, incorporated by reference to registrant’s
Registration Statement on Form S-4, as filed with the Securities
and Exchange Commission on March 8, 2005.
3.21
Operating Agreement of Oasis Interval Management, LLC adopted
June 6, 2001, incorporated by reference to registrant’s
Registration Statement on Form S-4, as filed with the Securities
and Exchange Commission on March 8, 2005.
3.22
By-laws of Oasis Recreational Properties, Inc. adopted June 13,2001, incorporated by reference to registrant’s Registration
Statement on Form S-4, as filed with the Securities and Exchange
Commission on March 8, 2005.
Agreement for Purchase and Sale or Redemption of Equity
Interests dated November 22, 2004 by and among James A. Black
Gaming Properties Trust, Gary W. Black Gaming Properties Trust,
Michael T. Black Gaming Properties Trust, Jorco, Inc., Marcus A.
Hall, James Ritchie and Barry R. Moore, Robert R. Black, Sr.,
Virgin River Casino Corporation and B & B B, Inc., incorporated
by reference to registrant’s Registration Statement on Form S-4,
as filed with the Securities and Exchange Commission on March 8,2005.
4.2
Agreement for Purchase and Sale or Redemption of Equity
Interests dated December 9, 2004 by and among Scott M. Nielson,
Robert R. Black, Sr. and B & B B, Inc., incorporated by
reference to registrant’s Registration Statement on Form S-4, as
filed with the Securities and Exchange Commission on March 8,2005.
4.3
Indenture dated as of December 20, 2004 between Virgin River
Casino Corporation, RBG, LLC and B & B B, Inc., certain
guarantors and The Bank of New York Trust Company, N.A. relating
to Series A and Series B 9% Senior Secured Notes due 2012,
incorporated by reference to registrant’s Registration Statement
on Form S-4, as filed with the Securities and Exchange
Commission on March 8, 2005.
4.4
Indenture dated as of December 20, 2004 between Virgin River
Casino Corporation, RBG, LLC and B & B B, Inc., certain
guarantors and The Bank of New York Trust Company, N.A. relating
to Series A and Series B 123/4% Senior Subordinated Discount Notes
due 2012, incorporated by reference to registrant’s Registration
Statement on Form S-4, as filed with the Securities and Exchange
Commission on March 8, 2005.
4.5
Form of 123/4% Series B Senior Subordinated Discount Notes due
2012 (included as part of Indenture at Exhibit A), incorporated
by reference to registrant’s Registration Statement on Form S-4,
as filed with the Securities and Exchange Commission on March 8,2005.
Registration Rights Agreement dated as of December 20, 2004, by
and among Virgin River Casino Corporation, RBG, LLC, B & B B,
Inc., certain subsidiaries and Jefferies & Company, Inc.,
incorporated by reference to registrant’s Registration Statement
on Form S-4, as filed with the Securities and Exchange
Commission on March 8, 2005.
4.7
Purchase Agreement dated as of December 10, 2004 by and among
Virgin River Casino Corporation, RBG, LLC, B & B B, Inc.,
certain subsidiaries, certain pledgors and Jefferies & Company,
Inc., incorporated by reference to registrant’s Registration
Statement on Form S-4, as filed with the Securities and Exchange
Commission on March 8, 2005.
4.8
Senior Secured Notes Security Agreement dated December 20, 2004,
by and among Virgin River Casino Corporation, RBG, LLC, B & B B,
Inc., certain subsidiaries and The Bank of New York Trust
Company, N.A., as collateral agent, incorporated by reference to
registrant’s Registration Statement on Form S-4, as filed with
the Securities and Exchange Commission on March 8, 2005.
4.9
Parent Pledge Agreement dated December 20, 2004 by R. Black,
Inc. and The Robert R. Black, Sr. Gaming Properties Trust in
favor of The Bank of New York Trust Company, N.A., as collateral
agent, incorporated by reference to registrant’s Registration
Statement on Form S-4, as filed with the Securities and Exchange
Commission on March 8, 2005.
4.10
Trademark Security Agreement dated December 20, 2004, by and
among Virgin River Casino Corporation, RBG, LLC, B & B B, Inc.,
certain subsidiaries and The Bank of New York Trust Company,
N.A., incorporated by reference to registrant’s Registration
Statement on Form S-4, as filed with the Securities and Exchange
Commission on March 8, 2005.
4.11
Credit Agreement dated December 20, 2004, by and among Virgin
River Casino Corporation, RBG, LLC, B & B B, Inc., certain
subsidiaries, Wells Fargo Foothill, Inc. as the arranger and
administrative agent and the other lending parties thereto,
incorporated by reference to registrant’s Registration Statement
on Form S-4, as filed with the Securities and Exchange
Commission on March 8, 2005.
4.12
Security Agreement dated December 20, 2004 B & B B, Inc.,
CasaBlanca Resorts, LLC, Oasis Interval Management, LLC, Oasis
Interval Ownership, LLC, Oasis Recreational Properties, Inc.,
RBG, LLC and Virgin River Casino Corporation and Wells Fargo
Foothill, Inc., as agent, incorporated by reference to
registrant’s Registration Statement on Form S-4, as filed with
the Securities and Exchange Commission on March 8, 2005.
Trademark Security Agreement dated December 20, 2004 by and
among B & B B, Inc., RBG, LLC, Virgin River Casino Corporation,
certain subsidiaries and Wells Fargo Foothill, Inc.,
incorporated by reference to registrant’s Registration Statement
on Form S-4, as filed with the Securities and Exchange
Commission on March 8, 2005.
4.15
Bailee Agreement dated December 20, 2004 by and among Wells
Fargo Foothill, Inc., The Bank of New York Trust Company, N.A.,
Nevada Title Company, Robert R. Black, Sr., R. Black, Inc. and
Virgin River Casino Corporation, incorporated by reference to
registrant’s Registration Statement on Form S-4, as filed with
the Securities and Exchange Commission on March 8, 2005.
Intercompany Subordination Agreement dated December 20, 2004 by
and among B & B B, Inc., RBG, LLC, Virgin River Casino
Corporation, certain subsidiaries and Wells Fargo Foothill,
Inc., incorporated by reference to registrant’s Registration
Statement on Form S-4, as filed with the Securities and Exchange
Commission on March 8, 2005.
4.17
Intercreditor and Lien Subordination Agreement dated December20, 2004 by and among B & B B, Inc., RBG, LLC, Virgin River
Casino Corporation, certain subsidiaries and Wells Fargo
Foothill, Inc., Wells Fargo Foothill, Inc. and The Bank of New
York Trust Company, N.A., incorporated by reference to
registrant’s Registration Statement on Form S-4, as filed with
the Securities and Exchange Commission on March 8, 2005.
4.18
Leasehold and Fee Deed of Trust, Security Agreement and Fixture
Filing with Assignment of Rents (Nevada) dated as of December20, 2004 and made by Virgin River Casino Corporation, RBG, LLC,
CasaBlanca Resorts, LLC and Oasis Interval Ownership, LLC to
Nevada Title Company, as trustee, for the benefit of The Bank of
New York Trust Company, N.A., incorporated by reference to
registrant’s Registration Statement on Form S-4, as filed with
the Securities and Exchange Commission on March 8, 2005.
4.19
Leasehold and Fee Deed of Trust, Security Agreement and Fixture
Filing with Assignment of Rents (Arizona) dated as of December20, 2004 and made by Oasis Recreational Properties, Inc. to
Transnation Title Insurance Company, as trustee, for the benefit
of The Bank of New York Trust Company, N.A., incorporated by
reference to registrant’s Registration Statement on Form S-4, as
filed with the Securities and Exchange Commission on March 8,2005.
4.20
Leasehold and Fee Deed of Trust, Fixture Filing with Assignment
of Rents and Leases, and Security Agreement (Nevada) dated as of
December 20, 2004 and made by and from RBG, LLC, Virgin River
Casino Corporation, CasaBlanca Resorts, LLC, B & B B, Inc., and
Oasis Interval Ownership, LLC to Nevada Title Company, as
trustee, for the benefit of Wells Fargo Foothill, Inc.,
incorporated by reference to registrant’s Registration Statement
on Form S-4, as filed with the Securities and Exchange
Commission on March 8, 2005.
4.21
Leasehold and Fee Deed of Trust, Assignment of Rents and Leases,
Security Agreement and Fixture Filing (Arizona) dated as of
December 20, 2004 and made by and from Oasis Recreational
Properties, Inc. to Transnation Title Insurance Company, as
trustee, for the benefit of Wells Fargo Foothill, Inc.,
incorporated by reference to registrant’s Registration Statement
on Form S-4, as filed with the Securities and Exchange
Commission on March 8, 2005.
4.22
Assignment of Entitlements, Contracts, Rents and Revenues
(Nevada) dated December 16, 2004 by and between Virgin River
Casino Corporation, RBG, LLC, CasaBlanca Resorts, LLC, Oasis
Interval Ownership, LLC, B & B B, Inc. and The Bank of New York
Trust Company, N.A., incorporated by reference to registrant’s
Registration Statement on Form S-4, as filed with the Securities
and Exchange Commission on March 8, 2005.
4.23
Assignment of Entitlements, Contracts, Rents and Revenues
(Arizona) dated December 17, 2004 by and between Oasis
Recreational Properties, Inc. and The Bank of New York Trust
Company, N.A., incorporated by reference to registrant’s
Registration Statement on Form S-4, as filed with the Securities
and Exchange Commission on March 8, 2005.
Assignment of Entitlements, Contracts, Rents and Revenues
(Nevada) dated December 20, 2004 and made by and between Virgin
River Casino Corporation, RBG, LLC, CasaBlanca Resorts, LLC,
B & B B, Inc. and Oasis Interval Ownership, LLC and Wells Fargo
Foothill, Inc., incorporated by reference to registrant’s
Registration Statement on Form S-4, as filed with the Securities
and Exchange Commission on March 8, 2005.
4.25
Assignment of Entitlements, Contracts, Rents and Revenues
(Arizona) dated December 20, 2004 and made by and between Oasis
Recreational Properties, Inc. and Wells Fargo Foothill, Inc.,
incorporated by reference to registrant’s Registration Statement
on Form S-4, as filed with the Securities and Exchange
Commission on March 8, 2005.
4.26
Collateral Assignment of Notes and Deeds of Trust dated December16, 2004 by and between Oasis Interval Ownership, LLC and The
Bank of New York Trust Company, N.A., incorporated by reference
to registrant’s Registration Statement on Form S-4, as filed
with the Securities and Exchange Commission on March 8, 2005.
4.27
Collateral Assignment of Notes and Deeds of Trust dated December20, 2004 by and between Oasis Recreational Properties, Inc. and
Wells Fargo Foothill, Inc., incorporated by reference to
registrant’s Registration Statement on Form S-4, as filed with
the Securities and Exchange Commission on March 8, 2005.
4.28
Estoppel Certificate Consent and Agreement dated December 20,2004 by River View Limited Liability Company and RBG, LLC, for
the benefit of The Bank of New York, as collateral agent, and
Wells Fargo Foothill, Inc., as arranger and administrative
agent, incorporated by reference to registrant’s Registration
Statement on Form S-4, as filed with the Securities and Exchange
Commission on March 8, 2005.
4.29
Convertible Senior Secured Note Purchase Agreement dated
December 20, 2004 by and between R. Black, Inc., Robert R. Black
Sr., Trustee of the Robert R. Black, Sr. Gaming Properties Trust
u/a/d May 24, 2004 and Michael Gaughan, incorporated by
reference to registrant’s Pre-Effective Amendment No. 1 to Form
S-4, as filed with the Securities and Exchange Commission on May2, 2005.
4.30
Convertible Note Pledge Agreement dated December 20, 2004 by and
between Robert R. Black Sr., Trustee of the Robert R. Black, Sr.
Gaming Properties Trust u/a/d May 24, 2004 and Michael Gaughan,
incorporated by reference to registrant’s Pre-Effective
Amendment No. 1 to Form S-4, as filed with the Securities and
Exchange Commission on May 2, 2005.
4.31
Convertible Promissory Note dated December 20, 2004 made by R.
Black, Inc. in favor of Michael J. Gaughan, incorporated by
reference to registrant’s Pre-Effective Amendment No. 1 to Form
S-4, as filed with the Securities and Exchange Commission on May2, 2005.
10.1
Lease Buy-Out and Condominium Conversion Management Agreement
dated January 24, 2005 by and between MDW Mesquite, LLC, RBG,
LLC and Robert R. Black, Sr., incorporated by reference to
registrant’s Pre-Effective Amendment No. 1 to Form S-4, as filed
with the Securities and Exchange Commission on May 2, 2005.
First Supplemental Indenture for the Senior Subordinated Notes
dated December 31, 2006, incorporated by reference to
registrant’s Current Report of Form 8-K, as filed with the
Securities and Exchange Commission on January 3, 2007.
Pledged Interests Addendum dated December 31, 2006, incorporated
by reference to registrant’s Current Report of Form 8-K, as
filed with the Securities and Exchange Commission on January 3,2007.
First Amendment to Credit Agreement dated October 26, 2007, by
and among Virgin River Casino Corporation, RBG, LLC, B & B B,
Inc., certain subsidiaries, Wells Fargo Foothill, Inc. as the
arranger and administrative agent and the other lending parties
thereto, incorporated by reference to registrant’s Current
Report of Form 8-K, as filed with the Securities and Exchange
Commission on October 31, 2007.
10.18
Executive Employment Agreement dated May 14, 2007 made by Black
Gaming, LLC with Jason Goudie, incorporated by reference to
registrant’s Current Report on Form 8-K, as filed with the
Securities and Exchange Commission on May 17, 2007.*
10.19
Separation of Employment Agreement And General Release dated
September 28, 2007 made by Black Gaming, LLC with Jonathan
Lowenhar, incorporated by reference to registrant’s Current
Report on Form 8-K, as filed with the Securities and Exchange
Commission on October 1, 2007.*
10.20
Separation of Employment Agreement And General Release dated
September 28, 2007 made by Black Gaming, LLC with Scott
DeAngelo, incorporated by reference to registrant’s Current
Report on Form 8-K, as filed with the Securities and Exchange
Commission on October 1, 2007.*
Second Amendment to Credit Agreement dated June 20, 2008, by and
among Virgin River Casino Corporation, RBG, LLC, B & B B, Inc.,
certain subsidiaries, Wells Fargo Foothill, Inc. as the arranger
and administrative agent and the other lending parties thereto,
incorporated by reference to registrant’s Current Report of Form
8-K, as filed with the Securities and Exchange Commission on
June 24, 2008.
10.23
Letter Agreement dated September 17, 2008, by and among Virgin
River Casino Corporation, RBG, LLC, B & B B, Inc., certain
subsidiaries, Wells Fargo Foothill, Inc., incorporated by
reference to registrant’s Current Report of Form 8-K, as filed
with the Securities and Exchange Commission on September 22,2008.
10.24
Executive Employment Agreement dated January 8, 2009 made by
Black Gaming, LLC with Robert R. Black, Sr., incorporated by
reference to registrant’s Current Report on Form 8-K, as filed
with the Securities and Exchange Commission on January 14,2009.*
10.25
Executive Employment Agreement dated January 8, 2009 made by
Black Gaming, LLC with Anthony Toti, incorporated by reference
to registrant’s Current Report on Form 8-K, as filed with the
Securities and Exchange Commission on January 14, 2009.*
10.26
Forbearance, Consent and Third Amendment to Credit Agreement
dated November 3, 2008, by and among Black Gaming, LLC, B & B B,
Inc., Virgin River Casino Corporation, RBG, LLC, Casablanca
Resorts, LLC, Oasis Interval Management, LLC, Oasis Interval
Ownership, LLC, Oasis Recreational Properties, Inc., R. Black,
Inc., Wells Fargo Foothill, Inc. as the arranger and
administrative agent and the other lending parties thereto,
incorporated by reference to registrant’s Form 10-Q, as filed
with the Securities and Exchange Commission on November 7, 2008.
First Amendment to Forbearance, Consent and Third Amendment to
Credit Agreement dated January 15, 2009, by and among Virgin
River Casino Corporation, RBG, LLC, B & B B, Inc., certain
subsidiaries, Wells Fargo Foothill, Inc. as the arranger and
administrative agent and the other lending parties thereto,
incorporated by reference to registrant’s Current Report of Form
8-K, as filed with the Securities and Exchange Commission on
January 20, 2009.
10.28
Second Amendment to Forbearance, Consent and Third Amendment to
Credit Agreement dated February 2, 2009, by and among Virgin
River Casino Corporation, RBG, LLC, B & B B, Inc., certain
subsidiaries, Wells Fargo Foothill, Inc. as the arranger and
administrative agent and the other lending parties thereto,
incorporated by reference to registrant’s Current Report of Form
8-K, as filed with the Securities and Exchange Commission on
February 6, 2009.
10.29
Amended and Restated Forbearance Agreement dated February 12,2009, by and among Virgin River Casino Corporation, RBG, LLC,
B & B B, Inc., certain subsidiaries, Wells Fargo Foothill, Inc.
as the arranger and administrative agent and the other lending
parties thereto, incorporated by reference to registrant’s
Current Report of Form 8-K, as filed with the Securities and
Exchange Commission on February 19, 2009.
10.30
Forbearance Agreement dated February 19, 2009, by and among
Virgin River Casino Corporation, RBG, LLC, B & B B, Inc.,
certain subsidiaries, and Drawbridge Special Opportunities
Advisors LLC, BlackRock Financial Management, Inc. High Yield
Group, Midland National Life Insurance Company and 1 888 FUND,
LTD., and Silver Point Capital Offshore Fund Ltd., incorporated
by reference to registrant’s Current Report of Form 8-K, as
filed with the Securities and Exchange Commission on February23, 2009.
10.31
Second Amended and Restated Forbearance Agreement dated February25, 2009, by and among Virgin River Casino Corporation, RBG,
LLC, B & B B, Inc., certain subsidiaries, Wells Fargo Foothill,
Inc. as the arranger and administrative agent and the other
lending parties thereto, incorporated by reference to
registrant’s Current Report of Form 8-K, as filed with the
Securities and Exchange Commission on March 2, 2009.
21.1
List of Subsidiaries of the Registrant, incorporated by
reference to registrant’s Form 10-K, as filed with the
Securities and Exchange Commission on April 2, 2007.
31.1
Certification of Robert R. Black, Sr. pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2
Certification of Sean P. McKay pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1
Certification of Robert R. Black, Sr. pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.2
Certification of Sean P. McKay pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
*
Management contracts or compensatory arrangements that were previously filed as exhibits pursuant
to Item 601(b)(10)(iii) of Regulation S-K
- 98 -
Dates Referenced Herein and Documents Incorporated by Reference