<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO
_______________.
Commission file number 333-11811
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ELDORADO RESORTS LLC
ELDORADO CAPITAL CORP.
(EXACT NAMES OF REGISTRANTS AS SPECIFIED IN THEIR CHARTERS)
NEVADA 88-0115550
NEVADA 88-0367075
-------------------------------- -----------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
345 NORTH VIRGINIA STREET, RENO, NEVADA 89501
---------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(702) 786-5700
----------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
-----------------------------------------------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Indicate by check mark whether the registrants (1) have 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
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes X No
---- -----
Number of shares of common stock of Eldorado Capital Corp. outstanding at
November 10, 1997: 2,500 shares.
<PAGE>
ELDORADO RESORTS LLC
ELDORADO CAPITAL CORP.
FORM 10-Q
TABLE OF CONTENTS
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets................. 2
Condensed Consolidated Statements of Income........... 4
Condensed Consolidated Statements of Cash Flows....... 5
Notes to Condensed Consolidated Financial Statements.. 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS......... 10
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K...................... 16
SIGNATURES........................................................... 17
1
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
ELDORADO RESORTS LLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30, December 31,
1997 1996
------------- ------------
(unaudited)
ASSETS
--------
Current assets:
Cash and cash equivalents $ 3,060 $ 5,785
Accounts receivable, net 4,039 3,986
Inventory 2,590 2,471
Prepaid expenses 2,424 1,259
-------- -------
Total current assets 12,113 13,501
Note receivable 557 692
Investment in joint venture 46,402 46,402
Property and equipment, net 164,703 159,981
Other assets, net 13,413 13,717
-------- --------
Total assets $237,188 $234,293
-------- --------
-------- --------
The accompanying notes are an integral part of these condensed consolidated
statements.
2
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ELDORADO RESORTS LLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30, December 31,
1997 1996
------------- ------------
(unaudited)
LIABILITIES AND MEMBERS' EQUITY
-------------------------------
Current liabilities:
Current portion of long-term debt $ 1,234 $ 1,436
Accounts payable 3,210 3,692
Construction and retention payables 18 1,937
Interest payable 1,354 4,446
Accrued payroll, taxes and other accruals 7,228 5,859
-------- --------
Total current liabilities 13,044 17,370
Long-term debt, less current portion 129,941 127,067
Other liabilities 873 762
-------- --------
Total liabilities 143,858 145,199
Minority interest 5,063 5,063
Members' equity 88,267 84,031
-------- --------
Total liabilities and members' equity $237,188 $234,293
-------- --------
-------- --------
The accompanying notes are an integral part of these condensed consolidated
statements.
3
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ELDORADO RESORTS LLC
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------ ------- ------- -------
<S> <C> <C> <C> <C>
Operating Revenues:
Casino $29,399 $29,953 $79,915 $79,272
Food, beverage and entertainment 11,963 9,502 31,106 26,421
Hotel 5,061 4,887 13,746 12,923
Equity in net income (loss) of unconsolidated
affiliate (Note 3) 0 1,869 0 1,808
Other 1,789 1,842 5,183 5,193
-------- -------- --------- ---------
48,212 48,053 129,950 125,617
Less: Promotional allowances (3,709) (3,611) (11,091) (10,436)
-------- -------- --------- ---------
Net revenues 44,503 44,442 118,859 115,181
Operating Expenses:
Casino 11,699 11,704 34,091 32,788
Food, beverage and entertainment 8,870 7,272 22,820 20,050
Hotel 1,993 1,977 5,599 5,548
Other 941 893 2,571 2,408
Selling, general and administrative 7,611 7,391 21,789 19,387
Management fees 457 480 1,386 2,464
Depreciation 3,253 2,563 9,085 7,630
-------- -------- --------- ---------
Total operating expenses 34,824 32,280 97,341 90,275
-------- -------- --------- ---------
Operating Income 9,679 12,162 21,518 24,906
Interest Expense, net 3,503 3,041 10,282 7,692
-------- -------- --------- ---------
Net Income Before Minority Interest 6,176 9,121 11,236 17,214
Minority Interest in Net (Income) Loss of
Subsidiary (Note 3) 0 (434) 0 (420)
-------- -------- --------- ---------
Net Income $6,176 $8,687 $11,236 $16,794
-------- -------- --------- ---------
-------- -------- --------- ---------
The accompanying notes are an integral part of these condensed consolidated statements.
</TABLE>
4
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ELDORADO RESORTS LLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------
1997 1996
------ ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $11,236 $16,794
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 9,085 7,630
Equity in net (income) loss of
unconsolidated affiliate -- (1,808)
Minority interest in net (loss) of
unconsolidated affiliate -- 420
Gain on sale of property and equipment (81) (450)
Changes in assets and liabilities:
(Increase) in accounts receivable, net (52) (443)
Decrease in notes receivable 135 --
(Increase) in inventories (119) (371)
(Increase) in prepaid expenses (1,166) (373)
Decrease (Increase) in other assets 256 (10)
(Decrease) Increase in accounts payable,
retention payable, accrued payroll, taxes
and other accruals (4,012) 826
-------- --------
Net cash provided by operating activities 15,282 22,215
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (13,816) (17,677)
Proceeds from sale of property and equipment 90 2,554
-------- --------
Net cash used in investing activities (13,726) (15,123)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term and other debt 22,500 116,733
Principal payments on long-term and other debt (19,828) (114,067)
Bond Offering costs 47 (3,665)
Distributions (7,000) (6,200)
-------- --------
Net cash provided by financing activities (4,281) (7,199)
The accompanying notes are an integral part of these condensed consolidated statements.
</TABLE>
5
<PAGE>
ELDORADO RESORTS LLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Nine Months Ended
September 30,
---------------------------
1997 1996
--------- --------
DECREASE IN CASH AND CASH EQUIVALENTS ($ 2,725) ($ 107)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 5,785 6,122
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,060 $ 6,015
--------- --------
--------- --------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during period for interest $13,016 $ 6,354
The accompanying notes are an integral part of these condensed consolidated
statements.
6
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ELDORADO RESORTS LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The condensed consolidated financial statements include the accounts of
Eldorado Resorts LLC ("Resorts"), a Nevada limited liability company,
Eldorado Capital Corp. ("Capital"), a Nevada Corporation and wholly-owned
subsidiary of Resorts, and a majority owned subsidiary, Eldorado Limited
Liability Company ("ELLC") and, for the period prior to July 1, 1996,
Resorts' predecessor, Eldorado Hotel Associates Limited Partnership (the
"Predecessor Partnership") (together, the "Company"). All significant
intercompany accounts and transactions have been eliminated in consolidation.
In the opinion of Management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to
present fairly the financial position as of September 30, 1997, the results
of operations for the three and nine month periods ended September 30, 1997
and 1996 and cash flows for the nine month periods ended September 30, 1997
and 1996. The results of operations for such periods are not necessarily
indicative of the results to be expected for a full year.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Annual
Report of Eldorado Resorts LLC and Eldorado Capital Corp. on Form 10-K for
the year ended December 31, 1996.
2. SENIOR SUBORDINATED NOTES
On July 31, 1996, Resorts and Capital (the "Issuers") sold $100,000,000
in aggregate principal amount of 10 1/2% Senior Subordinated Notes due 2006
(the "Notes"). The Notes are joint and several obligations of the Issuers.
The Notes mature on August 15, 2006 and bear interest at the rate of 10 1/2%
per annum, payable semi-annually in arrears on February 15 and August 15 of
each year, commencing on February 15, 1997. Pursuant to a Registration
Rights Agreement dated as of July 31, 1996, among the Issuers and the initial
purchasers party thereto, the Issuers filed a registration statement under
the Securities Act of 1933, as amended (the "1933 Act") with respect to an
offer to exchange the Notes, which were issued in reliance on an exemption
from registration under the 1933 Act, for registered debt securities of the
Issuers ("Registered Notes") with terms identical to the Notes. The exchange
of the Notes for the Registered Notes was completed on February 26, 1997.
3. INVESTMENT IN SILVER LEGACY RESORT CASINO
Effective March 1, 1994, ELLC and Galleon, Inc. (a Nevada corporation
owned and controlled by Circus Circus Enterprises, Inc.) entered into a joint
venture (the "Silver Legacy Joint Venture") pursuant to a joint venture
agreement (the "Joint Venture Agreement") to develop the Silver Legacy Resort
Casino (the "Silver Legacy"). The Silver Legacy consists of a casino and
hotel located in Reno, Nevada, which began operations on July 28, 1995.
During 1994, ELLC contributed land to the Silver Legacy Joint Venture with a
fair value of $25,000,000 (a book value of $17,215,000), and cash of
$23,000,000. Additional cash contributions of $3,900,000 were made in 1995,
for a total equity investment of $51,900,000. Each partner owns a 50%
interest in the Silver Legacy Joint Venture. Galleon, Inc. contributed cash
of $51,900,000 to the Silver Legacy Joint Venture.
7
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Under the terms of the Joint Venture Agreement, Profits of the Silver
Legacy Joint Venture (defined as the Silver Legacy Joint Venture's taxable
income with certain adjustments) in each fiscal year are allocated to the
Partners pursuant to the following formula: (i) the net operating income of
the Silver Legacy Joint Venture for financial reporting purposes (determined
in accordance with generally accepted accounting principles) for such fiscal
year, exclusive of interest expense, is credited to Galleon, Inc. up to the
amount of its Priority Allocation (as defined below) for such fiscal year,
any balance is credited to ELLC up to the amount of Galleon, Inc.'s Priority
Allocation for such fiscal year and any remaining balance is credited to the
Partners in proportion to their Percentage Interests, (ii) interest expense
of the Silver Legacy Joint Venture for such fiscal year is charged to the
Partners in proportion to their Percentage Interests and (iii) the difference
between net operating income for such fiscal year less interest expense for
such fiscal year and Profits for such fiscal year is credited (or charged) to
the Partners in proportion to their Percentage Interest. If this formula
causes a Partner to be charged with a loss in any fiscal year, such Partner
will be allocated zero Profits for such year and the other Partner will be
allocated all of the Profits for such year. In addition, losses of the
Silver Legacy Joint Venture (defined as the Silver Legacy Joint Venture's
taxable loss with certain adjustments) in any fiscal year are allocated to
the Partners in proportion to their Percentage Interests.
For so long as ELLC selects the General Manager of the Silver Legacy, as
provided in the Joint Venture Agreement, Galleon, Inc. is entitled annually
on a non-cumulative basis, commencing with the seven-month period ending
December 31, 1997 and for each subsequent 12-month period, to a priority
allocation of the Silver Legacy Joint Venture's operating income (the
"Priority Allocation") in an amount equal to approximately 11.54% of the
average of the "Adjusted Initial Investment" (as defined) at the beginning of
the period for which the determination is being made and at the end of such
period. For purposes of determining the amount of the Priority Allocation
for any period, the term "Adjusted Initial Investment" means $290,000,000
(the "Initial Investment") as adjusted at the end of each year by subtracting
(i) the depreciation on the Initial Investment taken in such year in
accordance with the depreciation schedule agreed to by ELLC and Galleon, Inc.
(collectively the "Partners") and (ii) the principal payments which would
have been made in repayment of the original bank financing utilized for the
development, construction and completion of the Silver Legacy.
The Joint Venture Agreement provides, subject to limitations on
distributions to Partners in other agreements to which the Silver Legacy
Joint Venture is a party, including its credit agreement, that Net Cash from
Operations (defined as the gross cash proceeds from all Silver Legacy Joint
Venture operations, less cash operating expenses and certain other expenses
and obligations, including interest and principal payments on indebtedness
including the financing required for the development, construction and
completion of the Silver Legacy (the "Construction Financing"), other than
indebtedness owed Partners or affiliates as provided for in the Joint Venture
Agreement, and reasonable reserves deemed necessary to meet anticipated
future obligations and liabilities of the Silver Legacy Joint Venture) is to
be distributed quarterly to the Partners in proportion to their Percentage
Interests in the Silver Legacy Joint Venture after satisfaction of certain
other obligations as follows: (i) at the end of the first year of operation
only, the distribution to each Partner of an amount equal to its tax
liability attributable to the Silver Legacy Joint Venture, (ii) the payment
of interest and principal on all loans to the Silver Legacy Joint Venture
from Partners and affiliates (excluding payment of principal on the
Construction Financing), (iii) the payment of principal and interest on any
Additional Capital Contribution Loan (as defined) of a Partner, plus the
distribution to the non-defaulting Partner who provided such Additional
Capital Contribution Loan of an amount equal to the amount of such Additional
Capital Contribution Loan, (iv) the payment of certain construction cost
overruns, (v) at the end of the first year of operation only, the payment of
the balance of the principal of the Construction Financing not including cost
overruns, (vi) to the extent earned and available, the distribution to
Galleon, Inc. of an amount up to the Priority Allocation, (vii) to the extent
earned and available, the distribution to ELLC of an amount up to the amount
distributed to Galleon, Inc. pursuant to the Priority Allocation, (viii)
after the first year of operation, the distribution to each Partner of an
amount equal to its tax liability attributable to the Silver Legacy Joint
Venture and (ix) the payment of the balance of the portion of the
Construction Financing provided by Galleon, Inc. or Circus Circus
8
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Enterprises, Inc. until such loans are paid in full or refinanced. Any
withdrawal from the Silver Legacy Joint Venture by either Partner results in
a reduction of distributions to such withdrawing Partner to 75% of amounts
otherwise payable to such Partner
During 1994, the Predecessor Partnership contributed land with a fair value
of $22,185,000 (cost of $15,715,000) to ELLC: the minority interest member
of ELLC contributed land with a fair value of $2,815,000 (cost of $1,500,000)
to ELLC. Based upon these contributions, the Predecessor Partnership had an
88.75% interest in ELLC as of December 31, 1994. In addition, during 1994,
the Company loaned $23,000,000 to ELLC to contribute to the Silver Legacy
Joint Venture: this note receivable from ELLC is eliminated in consolidation.
During 1995, the minority interest member contributed cash of $3,900,000 to
ELLC; as a result, the Predecessor Partnership's interest in ELLC was reduced
to 76.76%.
Summarized balance sheet and results of operations for Silver Legacy
Joint Venture are as follows:
Summarized balance sheet information (in thousands) (Unaudited):
September 30, December 31,
1997 1996
------------- ------------
Current Assets $ 19,096 $ 13,976
Property and equipment, net 329,032 340,028
Other assets 2,177 2,585
------------- ------------
Total assets $350,305 $356,589
------------- ------------
------------- ------------
Current Liabilities $ 14,174 $ 18,785
Long-term liabilities 225,104 236,904
Partners' equity 111,027 100,900
------------- ------------
Total liabilities and partners' equity. $350,305 $356,589
------------- ------------
------------- ------------
Summarized results of operations (in thousands) (Unaudited):
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
Net Revenues ......... $47,120 $41,638 $125,165 $112,654
Operating Expenses ... (35,815) (32,645) (99,026) $(93,399)
-------- -------- --------- ---------
Operating Income ..... $11,305 $ 8,993 $ 26,139 $ 19,255
Other (Expense) ...... (5,268) (5,255) (16,012) (15,639)
-------- -------- --------- ---------
Net Income (Loss) .... $ 6,037 $ 3,738 $ 10,127 $ 3,616
-------- -------- --------- ---------
-------- -------- --------- ---------
9
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Operations (Unaudited)
GENERAL.
Eldorado Resorts LLC ("Resorts") was formed in June 1996 to be the
successor to Eldorado Hotel Associates Limited Partnership (the "Predecessor
Partnership") pursuant to an exchange of all the outstanding partnership
interests in the Predecessor Partnership for membership interests in Resorts
(the "Reorganization"). The Reorganization was effective on July 1, 1996.
Resorts owns and operates the Eldorado Hotel & Casino (the "Eldorado"), a
premier hotel/casino and entertainment facility in Reno, Nevada. In addition
to owning the Eldorado, Resorts' 77%-owned subsidiary, Eldorado Limited
Liability Company, a Nevada limited-liability company ("ELLC"), owns a 50%
interest in a joint venture (the "Silver Legacy Joint Venture") which owns
the Silver Legacy Resort Casino (the "Silver Legacy"), a major, themed
hotel/casino located adjacent to the Eldorado. The remaining 23% of ELLC is
owned by the principal equity holders of Resorts. Resorts, ELLC and Eldorado
Capital Corp. ("Capital"), a wholly-owned subsidiary of Resorts which holds
no significant assets and conducts no business activity, are collectively
referred to as the "Company."
The Company accounts for its investment in the Silver Legacy Joint
Venture utilizing the equity method of accounting. The Company's
consolidated net income includes its proportional share of the Silver Legacy
Joint Venture's net income (loss) before taxes as determined in accordance
with the terms of the Silver Legacy Joint Venture's joint venture agreement
(the "Joint Venture Agreement"). See Note 3 of the Notes to Condensed
Consolidated Financial Statements included in Item 1 of this Report.
The following discussion of the Company's operations relates to the
Eldorado except as otherwise indicated.
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO
THREE MONTHS ENDED SEPTEMBER 30, 1996
NET REVENUES.
Net revenues for the three month period ended September 30, 1997 were
$44.5 million compared to $44.4 million for the same period in 1996, an
increase of 0.1%. Net revenues in the third quarter of 1996 include $1.9
million in net income of unconsolidated affiliate. The Company did not
recognize income from an unconsolidated affiliate in the third quarter of
1997, as a result of the priority allocation to Galleon, Inc., a Nevada
corporation owned and controlled by Circus Circus Enterprises, Inc., pursuant
to the Joint Venture Agreement. See Note 3 of the Notes to Condensed
Consolidated Financial Statements in Item 1 of this Report. The Company's
slight increase in net revenues is a result of increased slot revenues and
the expansion of the food, beverage and entertainment facilities, through the
addition of THE BISTRO ROXY, which opened December 1996, and the ELDORADO
SHOWROOM, which opened in May 1997.
Casino revenues decreased by approximately $600,000, or 1.9%, to $29.4
million for the three months ended September 30, 1997 compared to the same
period in 1996. The decrease in casino revenues was due primarily to
decreased revenue from table games due to a lower than expected hold
percentage in the 1997 period.
Food, beverage and entertainment revenues were $12.0 million for the
three months ended September 30, 1997 compared to $9.5 million during the
same period in 1996, an increase of 25.9%. The increase in food, beverage
and entertainment revenues was due primarily to the opening of THE BISTRO
ROXY in December 1996 and the opening of the ELDORADO SHOWROOM in May 1997.
10
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Hotel revenues increased to $5.1 million during the third quarter of 1997
from $4.9 million in the third quarter of 1996, an increase of 3.6%, despite
a slight decrease in the Company's hotel occupancy rate for the three months
ended September 30, 1997 compared with the same period in 1996. The
increase resulted from an increase in the Company's average daily rate
("ADR") by approximately $4 in the third quarter of 1997 compared with the
ADR during the same period in 1996.
Promotional allowances expressed as a percentage of casino revenues were
12.6% for the third quarter of 1997 compared to 12.1% for the same period in
1996 as a result of greater use of complimentaries to all levels of casino
patrons.
OPERATING EXPENSES.
The Company's operating expenses increased by 7.9% to $34.8 million for
the three months ended September 30, 1997 from $32.3 million during the same
period in 1996. This increase is primarily attributable to increased
expenses in the food, beverage and entertainment departments, depreciation
and an increase in selling, general and administrative expenses.
Food, beverage and entertainment expenses increased 22.0% to $8.9
million in the third quarter of 1997 from $7.3 million during the same period
in 1996. The increase was due primarily to the addition of THE BISTRO ROXY in
December 1996 and the opening of the ELDORADO SHOWROOM in May 1997.
Casino expenses for the three months ended September 30, 1997 and 1996
were comparable at $11.7 million. In the 1997 period, a decrease in
customer discounts and airfare reimbursements was offset by a slight increase
in casino marketing expenditures.
Hotel expenses in the third quarter of 1997 and 1996 were comparable at
$2.0 million. Despite a slight decrease in hotel occupancy, hotel expenses
were comparable primarily due to a slight increase in payroll.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES AND MANAGEMENT FEES.
Selling, general and administrative expenses and management fees
increased by 2.5% for the three months ended September 30, 1997 to $8.1
million from $7.9 million during the same period in 1996. The increase was
due principally to an increase in property taxes and a slight increase in
payroll expense.
DEPRECIATION.
Depreciation for the three months ended September 30, 1997 was $3.3
million compared to $2.6 million for the same period in 1996, an increase of
26.9%. The increase was attributable to the depreciation of THE BISTRO ROXY
and the ELDORADO SHOWROOM, which were not in service in the prior period, and
the DANIEL'S MOTOR LODGE, which was in service for only a portion of the
prior period.
INTEREST EXPENSE, NET.
Interest expense, net of capitalized interest and interest income
increased 15.2% to $3.5 million in the third quarter of 1997 compared to $3.0
million for the same period in 1996. Interest expense increased as a
11
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result of an increase in the average outstanding borrowings in the third
quarter of 1997, as compared to the same period in 1996, and as a result of
an increase in the Company's cost of capital. This increase in average
outstanding borrowings is attributable to costs incurred in connection with
the Company's expansion activities in 1996 and 1997. The Company's increase
in cost of capital is due to the issuance on July 31, 1996 of $100 million
principal amount of 10 1/2% Notes, due 2006 (the "10 1/2% Notes"), the net
proceeds of which were used to repay approximately $96.5 million of
borrowings outstanding under the Company's Credit Facility (as defined
below), which as of July 31, 1996 bore interest at the approximate average
annual rate of 7.5% per annum. The Company capitalized interest of
approximately $37,000 for the three months ended September 30, 1997 related
to construction costs, compared to $0.1 million during the same period in
1996.
NET INCOME.
As a result of the factors described above, net income for the three
months ended September 30, 1997, declined by 28.9% to $6.2 million compared
to $8.7 million during the same period in 1996.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO
NINE MONTHS ENDED SEPTEMBER 30, 1996
NET REVENUES.
Net revenues were $118.9 million for the nine month period ended
September 30, 1997, compared to $115.2 million for the same period in 1996,
an increase of 3.2%. Despite a January 1997 flood in Reno, which negatively
impacted traffic during the month, the Company's net revenues exceeded the
results of the prior period as a result of increased casino revenues, hotel
revenues and food, beverage and entertainment revenues, due in part to an
influx of visitors in the Reno Market attending the WIBC National
Championship Bowling Tournament being held from March through July 1997. Net
revenues increased not withstanding the fact that the Company did not
recognize any income from the unconsolidated affiliate in the 1997 period,
as a result of the priority allocation to Galleon, Inc. pursuant to the Joint
Venture Agreement. See Note 3 of the Notes to Condensed Consolidated
Financial Statements in Item 1 of this Report. Net revenues for the nine
month period ended September 30, 1996 include $1.8 million in net income of
an unconsolidated affiliate.
Casino revenues increased slightly to $79.9 million for the nine months
ended September 30, 1997 compared to $79.3 million for the same period in
1996, an increase of .8%. The increase in casino revenues was due primarily
to increased slot revenue, which offset a decline in table games revenue.
Food, beverage and entertainment revenues were $31.1 million for the
nine months ended September 30, 1997 compared to $26.4 million during the
same period in 1996, an increase of 17.7%. The increase in food, beverage
and entertainment revenues was due primarily to the opening of THE BISTRO
ROXY in December 1996 and the ELDORADO SHOWROOM in May 1997.
Hotel revenues increased to $13.7 million for the nine months ended
September 30, 1997 from $12.9 million for the same period in 1996, an
increase of 6.4%. Despite a decrease in the Company's hotel occupancy rate
for the nine months ended September 30, 1997 to approximately 92% from 95%
during the same period in 1996, primarily related to the flood in January
1997, hotel revenues exceeded the prior period. The increase is a result of
an increase in ADR by approximately $5 in the first nine months of 1997
compared with the same
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period in 1996. The influx of visitors attending the WIBC National
Championship Bowling Tournament was a factor contributing to the increase in
ADR.
Other revenues for the nine months ended September 30, 1997 and 1996 were
comparable at $5.2 million. While other revenues in the 1996 period include
a $0.5 million gain on the sale of land, revenues were comparable primarily
due to the addition of retail space with the opening of SAYS WHO II in
December 1996 and revenue from the DANIEL'S MOTOR LODGE, an 82-room motel
located adjacent to the Eldorado parking garage, which has been owned and
operated by the Eldorado since August 1996.
Promotional allowances expressed as a percentage of casino revenues were
13.9% for the nine months ended September 30, 1997 compared to 13.2% for the
same period in 1996 as a result of greater use of complimentaries to all
levels of casino patrons and participants in the WIBC bowling tournament.
OPERATING EXPENSES.
The Company's operating expenses increased by 7.8% to $97.3 million for
the nine months ended September 30, 1997 from $90.3 million during the same
period in 1996. This increase is primarily attributable to increased
expenses in the casino, food, beverage and entertainment departments,
depreciation and an increase in selling, general and administrative expenses.
Casino expenses increased by 4.0% to $34.1 million for the nine months
ended September 30, 1997 from $32.8 million during the same period in 1996.
The increase was due to the opening, during the second quarter of 1996, of a
satellite race and sportsbook operated by the Eldorado at the Silver Legacy,
in addition to increased promotional expense related to the WIBC bowling
tournament and bus programs.
Food, beverage and entertainment expenses increased 13.8% to $22.8
million for the first nine months of 1997 from $20.1 million during the same
period in 1996. The increase is due primarily to the addition of THE BISTRO
ROXY in December 1996 and the ELDORADO SHOWROOM in May 1997. The increase
was partially offset by the closing of THE CABARET in January 1997.
Hotel expenses increased slightly to $5.6 million for the nine months
ended September 30, 1997 from $5.5 million during the same period in 1996.
Despite a decrease in hotel occupancy, expenses were comparable primarily due
to a slight increase in payroll and marketing expenditures.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES AND MANAGEMENT FEES.
Selling, general and administrative expenses and management fees
increased by 6.1% for the nine months ended September 30, 1997 to $23.2
million from $21.9 million during the same period in 1996. The increase was
due in part to increased property maintenance expenditures as a result of
expanded facilities and an accrual for employee bonuses, which was not fully
incurred in the corresponding periods of the previous year. Historically,
the salaries of senior executive officers and certain other key employees of
the Company were not directly incurred by the Company but were paid from a
portion of the management fees paid to Recreational Enterprises, Inc.,
Resorts' controlling member. As of July 1, 1996, the aggregate annual
salaries of such senior executive officers and other key employees became
payroll obligations of the Company. These obligations are included within
selling, general and administrative expenses.
13
<PAGE>
DEPRECIATION.
Depreciation for the nine months of 1997 was $9.1 million compared to
$7.6 million for the first nine months of 1996, an increase of 19.1%. The
increase was attributable to the depreciation of THE BISTRO ROXY and the
ELDORADO SHOWROOM, which were not in service in the prior period, and the
DANIEL'S MOTOR LODGE, which was in service for only a portion of the prior
period.
INTEREST EXPENSE, NET.
Interest expense, net of capitalized interest and interest income in the
first nine months of 1997 and 1996 was $10.3 million and $7.7 million,
respectively, an increase of 33.7%. Interest expense increased as a result
of an increase in the average outstanding borrowings in the first nine months
of 1997, as compared to the same period in 1996, and as a result of an
increase in the Company's cost of capital. This increase in average
outstanding borrowings is attributable to costs incurred in connection with
the Company's expansion activities in 1996 and 1997. The Company's increase
in cost of capital is due to the issuance in July 1996 of $100 million
principal amount of 10 1/2% Notes, the net proceeds of which were used to
repay approximately $96.5 million of borrowings outstanding under the
Company's Credit Facility (as defined below), which as of July 31, 1996 bore
interest at an approximate average annual rate of 7.5%. The Company
capitalized interest of $0.2 million for the first nine months of 1997
related to construction costs, as compared to $0.3 million in the same period
of 1996.
NET INCOME.
As a result of the factors described above, net income for the nine
months ended September 30, 1997, declined by 33.1% to $11.2 million compared
to $16.8 million during the same period in 1996.
LIQUIDITY AND CAPITAL RESOURCES.
The Company's primary sources of liquidity and capital resources have
been through cash flow from operations, borrowings under various credit
agreements, including the Former Credit Facility (as defined below) and the
issuance in July 1996 of the 10 1/2% Notes. The Company has completed
several expansion and remodeling projects, accounting for a significant use
of cash flow from operations and borrowings under the Former Credit Facility.
The Company's earnings before interest, taxes, depreciation and amortization
for the nine months ended September 30, 1997 and 1996, as adjusted to exclude
equity in net income (loss) of unconsolidated affiliate was $30.6 million for
the nine months ended September 30, 1997 as compared to $30.7 million during
the same period in 1996. Net cash provided by operating activities for the
nine months ended September 30, 1997 and 1996 was $15.3 million and $22.2
million, respectively. The decrease is primarily related to a reduction in
accrued interest and retentions payable on construction.
At September 30, 1997 the Company had $3.1 million of cash and cash
equivalents and $23.7 million available pursuant to its Credit Facility (as
defined below). The net proceeds of the offering (the "Offering") by the
Company and its wholly owned subsidiary, Eldorado Capital Corp., of the 10
1/2% Notes were used to repay a portion of the Former Credit Facility. The
Loan Agreement dated as of March 25, 1994, (the "Former Credit Facility"),
between the Company, the banks named therein and Bank of America NT&SA, as
administrative agent, was amended concurrently with the closing of the
Offering to provide the Company with a senior secured revolving credit
facility in the original amount of $50 million (as amended, the "Credit
Facility"). The amount of credit available pursuant to the Credit Facility
reduced to approximately $48.4 million on September 30, 1997 and, by its
terms, the facility reduces by an additional $1,562,500 as of the end of each
subsequent quarter until March 25, 2000 when it terminates and any balance
then outstanding becomes due and payable. As of
14
<PAGE>
September 30, 1997, the Company had $100 million in aggregate principal
amount of 10 1/2% Notes outstanding, approximately $24.8 million outstanding
under the Credit Facility and $5.2 million of other long term debt (net of
current portion).
The Operating Agreement of Resorts dated June 28, 1996 obligates
Resorts to distribute each year for as long as it is not taxed as a
corporation to each of its members an amount equal to such members allocable
share of the taxable income of Resorts multiplied by the highest marginal
combined federal, state and local income tax rate applicable to individuals
for that year. For the nine months ended September 30, 1997, Resorts made
distributions to its members of $7.0 million compared with distributions of
$6.2 million during the same period in 1996.
During the nine months ended September 30, 1997, the Company's principal
uses of funds were capital expenditures related to progress payments on the
Company's hotel refurbishment ($1.3 million) and construction of the ELDORADO
SHOWROOM ($8.5 million). Total capital expenditures for the nine months
ended September 30, 1997 were $13.8 million.
The Company's future sources of liquidity are anticipated to be from its
operating cash flow, funds available from the Credit Facility and capital
lease financing for certain of its fixed asset purchases. The Company's
anticipated uses of cash in the near term include approximately $3.8 million
for the completion of the Company's current casino and hotel refurbishment
program, which has expanded to cover substantially all of the Eldorado hotel
rooms and is anticipated to be completed during 1997 and the first half of
1998.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
THE FOLLOWING EXHIBIT IS FILED AS PART OF THIS REPORT.
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
27 FINANCIAL DATA SCHEDULE
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997
(b) REPORTS ON FORM 8-K
NO REPORT ON FORM 8-K WAS FILED DURING THE PERIOD COVERED
BY THIS REPORT.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
ELDORADO RESORTS LLC
--------------------
Date: November 11, 1997 By: /s/ DONALD L. CARANO
--------------------------------------
Donald L. Carano
Chief Executive Officer, President and
Presiding Manager
Date: November 11, 1997 By: /s/ ROBERT M. JONES
--------------------------------------
Robert M. Jones
Chief Financial Officer of
Eldorado Resorts LLC (Principal
Financial and Accounting Officer)
ELDORADO CAPITAL CORP.
----------------------
Date: November 11, 1997 By: /s/ DONALD L. CARANO
--------------------------------------
Donald L. Carano
President
Date: November 11, 1997 By: /s/ GENE CARANO
--------------------------------------
Gene R. Carano
Treasurer (Principal Financial and
Accounting Officer)
17
<PAGE>
EXHIBITS INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
27 Financial Data Schedule for the nine months ended
September 30,1997.
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,060
<SECURITIES> 0
<RECEIVABLES> 5,102
<ALLOWANCES> 1,264
<INVENTORY> 2,590
<CURRENT-ASSETS> 12,113
<PP&E> 234,241
<DEPRECIATION> 69,538
<TOTAL-ASSETS> 237,188
<CURRENT-LIABILITIES> 13,044
<BONDS> 129,941
0
0
<COMMON> 0
<OTHER-SE> 88,267
<TOTAL-LIABILITY-AND-EQUITY> 237,188
<SALES> 0
<TOTAL-REVENUES> 118,859
<CGS> 0
<TOTAL-COSTS> 64,303
<OTHER-EXPENSES> 9,085
<LOSS-PROVISION> 778
<INTEREST-EXPENSE> 10,282
<INCOME-PRETAX> 11,236
<INCOME-TAX> 0
<INCOME-CONTINUING> 11,236
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,236
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
