<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 June 30, 1998.
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
---------
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
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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
August 12, 1998: 2,500 shares.
<PAGE>
ELDORADO RESORTS LLC
ELDORADO CAPITAL CORP.
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
-------
<S> <C> <C>
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............................ 15
SIGNATURES............................................................... 16
</TABLE>
<PAGE>
Part 1
FINANCIAL INFORMATION
Item 1. Financial Statements.
ELDORADO RESORTS LLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,613 $ 6,369
Accounts receivable, net 3,171 3,650
Inventory 2,874 2,882
Prepaid expenses 1,348 1,703
-------- --------
Total current assets 12,006 14,604
Note receivable 467 557
Investment in joint venture 46,792 46,792
Property and equipment, net 160,204 163,443
Other assets, net 13,155 13,231
-------- --------
Total assets $232,624 $238,627
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
2
<PAGE>
ELDORADO RESORTS LLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
(unaudited)
<S> <C> <C>
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,228 $ 1,269
Accounts payable 2,598 3,710
Construction and retention payables 15 319
Interest payable 3,944 3,950
Accrued payroll, taxes and other accruals 6,422 5,910
-------- --------
Total current liabilities 14,207 15,158
Long-term debt, less current portion 122,262 128,135
Other liabilities 981 911
-------- --------
Total liabilities 137,450 144,204
Minority interest 5,154 5,154
Members' equity 90,020 89,269
-------- --------
Total liabilities and members' equity $232,624 $238,627
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
3
<PAGE>
ELDORADO RESORTS LLC
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- --------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating Revenues:
Casino $27,202 $27,332 $49,027 $50,516
Food and beverage 9,538 9,350 18,126 17,927
Hotel 4,977 4,899 8,924 8,685
Entertainment 1,566 1,216 2,864 1,216
Equity in net income of unconsolidated
affiliate (Note 4) - 224 - -
Other 1,795 1,768 3,157 3,394
------- ------- ------- -------
45,078 44,789 82,098 81,738
Less: Promotional allowances (3,754) (3,863) (7,339) (7,382)
------- ------- ------- -------
Net revenues 41,324 40,926 74,759 74,356
Operating Expenses:
Casino 11,777 11,960 22,829 22,392
Food and beverage 7,115 6,895 13,665 13,124
Hotel 2,041 1,871 3,787 3,606
Entertainment 1,321 747 2,541 826
Other 1,020 887 1,979 1,630
Selling, general and administrative 6,741 7,410 13,398 14,178
Management fees 439 455 899 929
Depreciation 3,456 3,021 6,782 5,832
------- ------- ------- -------
Total operating expenses 33,910 33,246 65,880 62,517
------- ------- ------- -------
Operating Income 7,414 7,680 8,879 11,839
Interest Expense, net 3,343 3,456 6,728 6,779
------- ------- ------- -------
Net Income Before Minority Interest 4,071 4,224 2,151 5,060
Minority Interest in Net (Income) of
Subsidiary (Note 4) - (52) - -
------- ------- ------- -------
Net Income $ 4,071 $ 4,172 $ 2,151 $ 5,060
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated statements.
4
<PAGE>
ELDORADO RESORTS LLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 2,151 $ 5,060
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 6,782 5,832
Loss (Gain) on sale of property and equipment 205 (81)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable, net and
due from members and affiliates 479 (57)
Decrease in note receivable 90 90
Decrease (increase) in inventories 8 (22)
Decrease (increase) in prepaid expenses 355 (850)
Decrease in other assets, net 76 162
Decrease in accounts payable, retention payable,
interest payable, accrued payroll, taxes and
other accruals (840) (1,804)
------- -------
Net cash provided by operating activities 9,306 8,330
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (3,923) (12,262)
Proceeds from sale of property and equipment 175 90
------- -------
Net cash used in investing activities (3,748) (12,172)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term and other debt 8,250 14,500
Principal payments on long-term and other debt (14,164) (10,003)
Bond offering costs - (56)
Distributions (1,400) (3,000)
------- -------
Net cash (used in) provided by financing activities (7,314) 1,441
------- -------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
5
<PAGE>
ELDORADO RESORTS LLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------
1998 1997
---- ----
<S> <C> <C>
DECREASE IN CASH AND CASH EQUIVALENTS ($1,756) ($2,401)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 6,369 5,785
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,613 $ 3,384
------- -------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during period for interest $ 6,464 $ 7,076
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated statements.
6
<PAGE>
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, which
is the successor entity to Eldorado Hotel Associates Limited Partnership (the
"Predecessor Partnership") pursuant to a reorganization effective July 1,
1996, Eldorado Capital Corp. ("Capital"), a Nevada corporation and
wholly-owned subsidiary of Resorts, and a majority owned subsidiary, Eldorado
Limited Liability Company ("ELLC") (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 of the Company as of June 30, 1998 and
the results of operations for the three and six month periods ended June 30,
1998 and 1997 and cash flows for the six month periods ended June 30, 1998
and 1997. 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, 1997.
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. Long Term Debt and Notes Payable
Long term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- ------------
<S> <C> <C>
10 1/2% Senior Subordinated Notes, due
August 15, 2006 $100,000 $100,000
Outstanding portion of reducing revolver
and the credit line. 18,000 23,250
Notes payable to a corporation 1,022 1,144
Notes Payable, Other 2,583 2,775
-------- --------
Less: Current Maturities (495) (556)
-------- --------
$121,110 $126,613
-------- --------
-------- --------
</TABLE>
7
<PAGE>
Total interest expense for the first six months of 1998 and 1997 was $6.7
million and $6.8 million, respectively. The Company anticipates drawing
approximately $3.0 million against the credit line in August 1998 due to the
$5.25 million interest payment on the Notes payable on August 15, 1998.
4. 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. Galleon, Inc. contributed cash
of $51,900,000 to the Silver Legacy Joint Venture. Each partner owns a 50%
interest in the Silver Legacy Joint Venture.
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 Interests. 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
8
<PAGE>
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 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%. During 1998, the
Company converted the $23,000,000 loan to ELLC and accrued interest on the
loan into equity of ELLC; as a result, the Company's interest in ELLC was
increased to 96.19% effective June 30, 1997.
Summarized balance sheet and results of operations for the Silver Legacy
Joint Venture are as follows:
Summarized balance sheet information (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- ---------
(Unaudited)
<S> <C> <C>
Current Assets............................... $ 15,469 $ 18,230
Property and equipment, net.................. 318,343 326,018
Other assets................................. 1,977 2,306
-------- --------
Total assets $335,789 $346,554
-------- --------
-------- --------
Current Liabilities.......................... $ 16,969 $ 22,939
Long-term liabilities........................ 204,500 213,000
Partners' equity............................. 114,320 110,615
-------- --------
Total liabilities and partners' equity..... $335,789 $346,554
-------- --------
-------- --------
</TABLE>
Summarized results of operations (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -----------------
1998 1997 1998 1997
----- ---- ---- ----
<S> <C> <C> <C> <C>
Net Revenues.................... $ 43,153 $ 43,671 $ 79,375 $ 78,045
Operating Expenses.............. (34,535) (33,785) (66,122) (63,211)
-------- -------- -------- --------
Operating Income................ 8,618 9,886 13,253 14,834
Other (Expense)................. (4,740) (5,347) (9,549) (10,744)
-------- -------- -------- --------
Net Income...................... $ 3,878 $ 4,539 $ 3,704 $ 4,090
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
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' majority 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 minority interest of ELLC
is owned by the principal equityholders of Resorts. In June 1998, ELLC
completed a recapitalization effective June 30, 1997, converting a note
receivable and accrued interest into equity, increasing Resorts' interest in
ELLC from approximately 77% to approximately 96%. 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 4 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 JUNE 30, 1998 COMPARED TO
THREE MONTHS ENDED JUNE 30, 1997
NET REVENUES
Net revenues increased by approximately $0.4 million, or 1.0%, to $41.3
million for the three months ended June 30, 1998 compared to $40.9 million
for the same period in 1997. Net revenues in the second quarter of 1997
include $224,000 in income of the Company's unconsolidated affiliate, the
Silver Legacy Joint Venture. The Company did not recognize income (loss)
from its unconsolidated affiliate during the second quarter of 1998 as the
result of a priority allocation to Galleon, Inc. pursuant to the Joint
Venture Agreement. The Company's slight increase in net revenues during the
1998 period is a result of increased food, beverage and entertainment revenues.
Casino revenues decreased slightly to $27.2 million for the three
months ended June 30, 1998 compared to $27.3 million for the same period in
1997. The decrease in casino revenues was due primarily to decreased revenue
from slots due to a decrease in volume compared to the previous period.
Food and beverage revenues increased by approximately 2.0% to $9.5
million for the three months ended June 30, 1998 compared to $9.4 million
during the same period in 1997. The increase was the result of increased
beverage revenue.
Hotel revenues increased to $5.0 million during the second quarter of
1998 from $4.9 million in the second quarter of 1997 despite a decrease in
the Company's average daily rate ("ADR") to approximately $63 in the second
quarter of 1998 from $66 in the second quarter of 1997. The increase is a
result of an increase in the Company's hotel occupancy rate for the three
months
10
<PAGE>
ended June 30, 1998 to approximately 97% from 93% during the same period in
1997 and increased utilization of room amenities, such as in-room movies and
telephone usage.
Entertainment revenues increased by approximately $0.4 million, or
28.8%, to $1.6 million for the three months ended June 30, 1998 compared to
$1.2 million during the same period in 1997. The increase was due primarily
to an additional month of operations of the Eldorado Showroom in the 1998
period as compared to the 1997 period when it opened.
Promotional allowances expressed as a percentage of casino revenues were
13.8% for the second quarter of 1998 compared to 14.1% for the same period in
1997. The decrease was primarily due to a marketing promotional event in the
prior period.
OPERATING EXPENSES
The Company's operating expenses increased by $0.7 million, or 2.0%, to
$33.9 million for the three months ended June 30, 1998 from $33.2 million
during the same period in 1997. This increase is primarily attributable to
increased food, beverage, hotel, entertainment and depreciation expenses.
Casino expenses decreased by $0.2 million, or 1.5%, to $11.8 million for
the three months ended June 30, 1998 from $12.0 million during the same
period in 1997. The decrease is primarily due to a decrease in bad debt
expenses as a result of improved collections.
Food and beverage expenses increased 3.2% to $7.1 million in the second
quarter of 1998 from $6.9 million during the same period in 1997. The
increase is primarily due to an increase in food and beverage cost of sales
and a corresponding increase in revenues.
Hotel expenses increased 9.1% to approximately $2.0 million for the
three months ended June 30, 1998 from approximately $1.9 million primarily
due to slight increases in payroll and travel agent commissions.
Entertainment expenses increased 76.8% to $1.3 million in the second
quarter of 1998 from $0.7 million during the same period in 1997. The
increase was primarily due to an additional month of operations of the
Eldorado Showroom in 1998 as compared to the same period in 1997. The
decrease in operating margin is primarily due to a decrease in showroom
occupancy.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES AND MANAGEMENT FEES
Selling, general and administrative expenses and management fees decreased
by 8.7% to $7.2 million for the three months ended June 30, 1998 from $7.9
million during the same period in 1997. The decrease was primarily due to the
elimination of mid year employee bonuses for the six months ended June 30, 1998.
DEPRECIATION
Depreciation for the three months ended June 30, 1998 was $3.5 million
compared to $3.0 million for the same period in 1997, an increase of 14.4%.
The increase was primarily attributable to the opening of the Eldorado
Showroom in May 1997 and the casino and hotel refurbishment completed during
the first quarter of 1998.
11
<PAGE>
INTEREST EXPENSE, NET
Interest expense, net of capitalized interest and interest income,
decreased 3.3% to $3.3 million in the second quarter of 1998 compared to $3.5
million for the same period in 1997 as a result of a decrease in the average
outstanding borrowings in the second quarter of 1998, as compared to the same
period in 1997. The Company capitalized interest of approximately $19,000
for the three months ended June 30, 1998 compared to $89,000 during the same
period in 1997.
NET INCOME
As a result of the factors described above, net income for the three
months ended June 30, 1998 declined by 2.4% to $4.1 million compared to a net
income of $4.2 million during the same period in 1997.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO
SIX MONTHS ENDED JUNE 30, 1997
NET REVENUES
Net revenues increased by approximately $0.4 million to $74.8 million
for the six months ended June 30, 1998 compared to $74.4 million for the same
period in 1997. The Company's slight increase in net revenues is a result of
increased hotel and entertainment revenues, partially attributable to the
opening of the Eldorado Showroom in May 1997.
Casino revenues decreased by approximately $1.5 million, or 2.9%, to
$49.0 million for the six months ended June 30, 1998 compared to $50.5
million for the same period in 1997. The decrease in casino revenues was due
primarily to decreased revenue from slots due to a decrease in volume
compared to the previous period.
Food and beverage revenues increased by approximately 1.1% to $18.1
million for the six months ended June 30, 1998 compared to $17.9 million
during the same period in 1997 primarily as a result of increased beverage
revenue.
Entertainment revenues increased by approximately $1.6 million to $2.9
million for the six months ended June 30, 1998 compared to $1.2 million
during the same period in 1997. The increase in revenues was due primarily
to the Eldorado Showroom which had a full six months of operations in the
1998 period as compared to two months of operations in the 1997 period.
Hotel revenues increased to $8.9 million during the first half of 1998
from $8.7 million during the first half of 1997 despite a decrease in the
Company's average daily rate ("ADR") to approximately $58 in the first six
months of 1998 from $59 during the same period in 1997. The increase is a
result of an increase in the Company's hotel occupancy rate for the six
months ended June 30, 1998 to approximately 94% from 91% during the same
period in 1997.
Other revenues decreased by approximately $237,000, or 7.0%, to $3.2
million for the six months ended June 30, 1998 as compared to $3.4 million
during the same period in 1997 as a result of lower parking and retail
revenue.
Promotional allowances expressed as a percentage of casino revenues were
15.0% for the six months ended June 30, 1998 compared to 14.6% for the same
period in 1997 as a result of an increase of promotions related to the
Eldorado Showroom in the 1998 period.
12
<PAGE>
OPERATING EXPENSES
The Company's operating expenses increased approximately 5.4% to $65.9
million for the six months ended June 30, 1998 from $62.5 million during the
same period in 1997. This increase is primarily attributable to increased
food, beverage, entertainment and depreciation expenses.
Casino expenses increased by approximately 2.0% to $22.8 million for the
six months ended June 30, 1998 from $22.4 million during the same period in
1997 primarily due to increased promotional expenses.
Food and beverage expenses increased by approximately $0.5 million, or
4.1%, to $13.7 million for the six months ended June 30, 1998 from $13.1
million during the same period in 1997. The increase was primarily due to a
slight increase in beverage cost of sales and operating expenses.
Entertainment expenses increased $1.7 million to $2.5 million for the
six months ended June 30, 1998 from $0.8 million during the same period in
1997. The increase was primarily due to additional months of the Eldorado
Showroom operations in the 1998 period as compared to the 1997 period.
Hotel expenses increased slightly to $3.8 million for the six months
ended June 30, 1998 from $3.6 million primarily due to a slight increase in
payroll.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES AND MANAGEMENT FEES
Selling, general and administrative expenses and management fees
decreased by 5.4% to $14.3 million for the six months ended June 30, 1998
from $15.1 million during the same period in 1997. The decrease was
primarily due to the elimination of mid-year employee bonuses for the six
months ended June 30, 1998.
DEPRECIATION
Depreciation for the first six months of 1998 was $6.8 million compared
to $5.8 million for the first six months of 1997, an increase of 16.3%. The
increase was primarily attributable to the opening of the Eldorado Showroom
in May 1997 and casino and hotel refurbishments completed during the first
quarter of 1998.
INTEREST EXPENSE, NET
Interest expense, net of capitalized interest and interest income,
decreased slightly to $6.7 million for the first six months ended June 30,
1998 compared to $6.8 million for the same period in 1997. Interest expense
decreased as a result of a decrease in the average outstanding borrowings
during the first six months ended June 30, 1998, as compared to the same
period in 1997. The Company capitalized interest of approximately $54,000
for the six months ended June 30, 1998 compared to $198,000 during the same
period in 1997.
NET INCOME
As a result of the factors described above, net income for the six
months ended June 30, 1998 declined by 57.5% to $2.2 million compared to a
net income of $5.1 million during the same period in 1997.
13
<PAGE>
YEAR 2000 SITUATION
As the result of computer programs being written using two digits rather
than four to define the applicable year, systems failures and disruptions to
operations may occur at January 1, 2000 (the "Year 2000 Situation"). The
Company has retained the services of a consulting firm to specifically assist
in the Year 2000 Situation. The consulting firm and the Company are
currently in the process of assessing the Year 2000 Situation and are in the
process of remediating the system to avoid systems' failures and disruptions
as a result of the Year 2000 Situation. This remediation plan includes
continuing to assess the Company's inventory of issues associated with the
Year 2000 Situation, contacting the suppliers of certain of their systems to
determine the timing of applicable upgrades, and implementing the currently
available upgrades to address the Year 2000 Situation. The Company will
continue to evaluate its vulnerability in the case of suppliers' failure to
remediate their own exposure to the Year 2000 Situation. The Company's
failure to successfully conclude its remediation efforts by January 1, 2000
could have a material adverse effect on the Company. Expenditures to address
the Year 2000 Situation are currently estimated to be $500,000 and $470,000
in 1998 and 1999, respectively.
The Company's unconsolidated affiliate, Silver Legacy Joint Venture, is
in the process of assessing its exposure to the Year 2000 Situation. The
Silver Legacy remediation plan is encompassed within the remediation plan of
Circus Circus Enterprises, Inc. The failure to successfully conclude the
remediation effort relating to the Silver Legacy by January 1, 2000 could
have a material adverse effect on the Silver Legacy Joint Venture and the
Company.
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 $100 million in aggregate principal amount of 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 as adjusted to exclude equity in net
income of unconsolidated affiliate was $15.7 million for the six months ended
June 30, 1998, as compared to $17.7 million during the same period in 1997.
Net cash provided by operating activities for the six months ended June 30,
1998 and 1997 was $9.3 million and $8.3 million, respectively.
At June 30, 1998, the Company had $4.6 million of cash and cash
equivalents and $24.7 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 $43.8 million on June 30, 1998 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 June 30, 1998, the Company
had $100 million in aggregate principal amount of 10 1/2% Notes outstanding,
approximately $18.0 million outstanding under the Credit Facility and $4.3
million of other long term debt (net of current portion). The Company
anticipates drawing approximately $3.0 million against the credit line in
August 1998 due to the $5.25 million interest payment on the 10 1/2% Notes.
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 six months ended June 30, 1998, Resorts made distributions of
$1.4 million to its members as compared with distributions of $3.0 million
during the same period in 1997.
14
<PAGE>
During the second quarter, ELLC completed a recapitalization increasing
Resorts' equity interest in ELLC to 96.19% from 76.76%. A $23,000,000 note
receivable and accrued interest due from ELLC was converted into equity as a
contribution of capital. The capital contribution by Resorts diluted down
the equity interests of Recreational Enterprises, Inc., and Hotel Casino
Management, Inc., as they elected not to make proportionate capital
contributions. The recapitalization adjusted the capital balances as of June
30, 1997.
During the six months ended June 30, 1998, the Company's principal uses
of funds were capital expenditures related to the Company's hotel
refurbishment of $0.6 million, casino refurbishment of $0.7 million and
construction of a new mezzanine slot area located across from Brew Brothers,
which opened in February 1998, of $0.7 million. Additionally, a portion of
CHOICES restaurant was enclosed and remodeled for approximately $0.2 million
into a 70-seat Asian cuisine restaurant, the GOLDEN FORTUNE opened July 1998.
Total capital expenditures for the six months ended June 30, 1998 were $3.9
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 will be for recurring capital
expenditures and debt service.
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.
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<S> <C>
10 WRITTEN CONSENT IN LIEU OF MEETING OF
MEMBERS OF ELDORADO LIMITED LIABILITY
COMPANY
27 FINANCIAL DATA SCHEDULE
FOR THE THREE MONTHS
JUNE 30, 1998
(b) REPORTS ON FORM 8-K
NO REPORT ON FORM 8-K WAS FILED DURING THE PERIOD COVERED
BY THIS REPORT.
</TABLE>
15
<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
<TABLE>
<S> <C>
Date: August 12, 1998 By: /s/ Donald L. Carano
------------------------------------
Donald L. Carano
Chief Executive Officer, President
and Presiding Manager
Date: August 12, 1998 By: /s/ Robert M. Jones
------------------------------------
Robert M. Jones
Chief Financial Officer of
Eldorado Resorts LLC (Principal
Financial and Accounting Officer)
ELDORADO CAPITAL CORP.
Date: August 12, 1998 By: /s/ Donald L. Carano
------------------------------------
Donald L. Carano
President
Date: August 12, 1998 By: /s/ Gene R. Carano
------------------------------------
Gene R. Carano
Treasurer (Principal Financial and
Accounting Officer)
</TABLE>
16
<PAGE>
EXHIBITS INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- -------- ----------------------
<S> <C>
10 Written Consent in Lieu of Meeting of Members of Eldorado Limited
Liability Company
27 Financial Data Schedule
</TABLE>
17
<PAGE>
EXHIBIT 10
WRITTEN CONSENT IN LIEU OF MEETING OF
MEMBERS OF ELDORADO LIMITED LIABILITY COMPANY
In lieu of meeting of the Members ("Members") of ELDORADO LIMITED
LIABILITY COMPANY ("Company"), a Nevada Limited Liability Company, the
Members of the Company, in accordance with Chapter 86 of the Nevada Revised
Statutes and the Operating Agreement of the Company, as amended ("Operating
Agreement"), agree to the following resolutions and actions of the Company:
WHEREAS, pursuant to the Operating Agreement, ELDORADO RESORTS LLC, as
Manager and successor in interest to ELDORADO HOTEL ASSOCIATES LIMITED
PARTNERSHIP, agreed to loan such cash to the Company as was necessary for the
initial capital contribution to the CIRCUS AND ELDORADO JOINT VENTURE for the
construction of the SILVER LEGACY RESORT CASINO; and
WHEREAS, pursuant to Section 9.2 of the Operating Agreement, the Members
may, by unanimous vote, agree to convert the cash loan to an equity position;
and
WHEREAS, the Members hereby agree to convert said loan to an equity
position, thereby increasing the percentage interest of ELDORADO RESORTS
LLC, the Manager, with a corresponding reduction in the percentage interest
of the other Members as reflected on Exhibit "A" hereto; and
WHEREAS, because of the conversion of said loan to an equity interest,
Exhibit "A" of the Operating Agreement must be amended to reflect the new
percentage interests of the Members.
NOW, THEREFORE, BE IT RESOLVED that Exhibit "A" attached hereto, which
has been presented to and reviewed by the undersigned Members and which
correctly states each Member's name, address, initial cash contribution,
initial non-cash contribution, initial value of the Membership interest and
current percentage membership interest shall be and hereby is approved and a
copy thereof shall be attached to and substituted as Exhibit "A" to the
Operating Agreement and shall be inserted in the Minute Book of the Company.
RESOLVED FURTHER that Manager of the Company shall be and hereby is
authorized, empowered and directed to execute all documents and take such
other action as necessary to effectuate this transaction, including, without
limitation, obtaining appropriate approval from the Nevada Gaming Commission.
The transfer of the membership interests as reflected herein is subject to
the prior approval of the Nevada Gaming Commission.
The Members, by signing this Consent, waive notice of the time, place
and purpose of the meeting of the Members and agree to the terms and
conditions and transaction of business as set forth herein.
<PAGE>
ELDORADO RESORTS LLC by signing this Consent acknowledges that the
Promissory Notes and loans referenced herein are canceled and deemed fully
satisfied by the increased percentage interest as set forth herein.
DATED as of June 30, 1997.
APPROVED:
ELDORADO RESORTS LLC,
as Successor in Interest
to ELDORADO HOTEL ASSOCIATES
LIMITED PARTNERSHIP,
A Nevada limited partnership,
Member and Manager
By: /s/ DONALD L. CARANO
---------------------------------
DONALD L. CARANO
President, Chief Operating
Officer and Managing Member
RECREATIONAL ENTERPRISES, INC.
A Nevada Corporation,
Member
By: /s/ GENE CARANO
---------------------------------
Its: Vice President
-----------------------------
HOTEL-CASINO MANAGEMENT, INC.
A Nevada Corporation
Member
By: /s/ RAYMOND J. PONCIA, JR.
---------------------------------
RAYMOND J. PONCIA, JR.
President
2
<PAGE>
EXHIBIT "A"
TO THE
OPERATING AGREEMENT OF
ELDORADO LIMITED LIABILITY COMPANY
MEMBER NAME: ELDORADO RESORTS LLC
A Nevada limited liability company
Address: 345 North Virginia Street
Reno, Nevada 89501
Capital Contribution:
Cash in the form of debt
and interest forgiveness $29,373,663
Non-Cash 88.74% Interest in a portion of the
Real Property underlying the Silver
Legacy Resort Casino
Percentage of Interest
Effective June 30, 1997 96.1858%
MEMBER NAME: RECREATIONAL ENTERPRISES, INC.
A Nevada corporation
Address: 345 North Virginia Street
Reno, Nevada 89501
Capital Contribution:
Cash Contribution $2,600,000
Non-Cash Contribution 7.5067% Interest in a portion of the
Real Property underlying the Silver
Legacy Resort Casino
Percentage of Interest
Effective June 30, 1997 2.5428%
1
<PAGE>
MEMBER NAME: HOTEL-CASINO MANAGEMENT, INC.
A Nevada corporation
Address: 221 South Virginia Street
Reno, Nevada 89501
Capital Contribution:
Cash Contribution $1,300,000
Non-Cash Contribution 3.7533% Interest in a portion of the
Real Property underlying the Silver
Legacy Resort Casino
Percentage of Interest
Effective June 30, 1997 1.2714%
2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 4,613
<SECURITIES> 0
<RECEIVABLES> 4,560
<ALLOWANCES> 1,389
<INVENTORY> 2,874
<CURRENT-ASSETS> 12,006
<PP&E> 237,073
<DEPRECIATION> 76,869
<TOTAL-ASSETS> 232,624
<CURRENT-LIABILITIES> 14,207
<BONDS> 122,262
0
0
<COMMON> 0
<OTHER-SE> 90,020
<TOTAL-LIABILITY-AND-EQUITY> 232,624
<SALES> 0
<TOTAL-REVENUES> 74,759
<CGS> 0
<TOTAL-COSTS> 65,626
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 252
<INTEREST-EXPENSE> 6,728
<INCOME-PRETAX> 2,151
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,151
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,151
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
