<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, 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 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 12, 1998: 2,500 shares.
<PAGE>
ELDORADO RESORTS LLC
ELDORADO CAPITAL CORP.
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <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. ......... 11
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K........................ 15
SIGNATURES.............................................................. 17
</TABLE>
1
<PAGE>
Part 1
FINANCIAL INFORMATION
Item 1. Financial Statements.
ELDORADO RESORTS LLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,020 $ 6,369
Accounts receivable, net 3,274 3,650
Inventory 2,776 2,882
Prepaid expenses 1,605 1,703
------------- ------------
Total current assets 13,675 14,604
Note receivable 377 557
Investment in joint venture 46,792 46,792
Property and equipment, net 157,611 163,443
Other assets, net 12,988 13,231
------------- ------------
Total assets $231,443 $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>
September 30, December 31,
1998 1997
------------- ------------
(unaudited)
<S> <C> <C>
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,936 $ 1,269
Accounts payable 2,724 3,710
Construction and retention payables 15 319
Interest payable 1,397 3,950
Accrued payroll, taxes and other accruals 7,242 5,910
------------- ------------
Total current liabilities 13,314 15,158
Long-term debt, less current portion 116,790 126,613
Capital lease obligations, less current portion 966 1,522
Other liabilities 1,014 911
------------- ------------
Total liabilities 132,084 144,204
Minority interest 5,154 5,154
Members' equity 94,205 89,269
------------- ------------
Total liabilities and members' equity $231,443 $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 Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Operating Revenues:
Casino $29,529 $29,399 $78,556 $79,915
Food and beverage 10,228 10,028 28,354 27,955
Hotel 5,054 5,061 13,978 13,746
Entertainment 1,586 1,935 4,450 3,151
Equity in net income of unconsolidated affiliate (Note 4) - - - -
Other 1,667 1,789 4,824 5,183
------- ------- ------- -------
48,064 48,212 130,162 129,950
Less: Promotional allowances (4,268) (3,709) (11,607) (11,091)
------- ------- ------- -------
Net revenues 43,796 44,503 118,555 118,859
Operating Expenses:
Casino 12,995 11,699 35,824 34,091
Food and beverage 7,674 7,742 21,339 20,866
Hotel 2,069 1,993 5,856 5,599
Entertainment 1,076 1,128 3,617 1,954
Other 1,131 941 3,110 2,571
Selling, general and administrative 7,513 7,611 20,911 21,789
Management fees 441 457 1,340 1,386
Depreciation 3,451 3,253 10,233 9,085
------- ------- ------- -------
Total operating expenses 36,350 34,824 102,230 97,341
------- ------- ------- -------
Operating Income 7,446 9,679 16,325 21,518
Interest Expense, net 3,262 3,503 9,990 10,282
------- ------- ------- -------
Net Income Before Minority Interest 4,184 6,176 6,335 11,236
Minority Interest in Net (Income) of Subsidiary (Note 4) - - - -
------- ------- ------- -------
Net Income $ 4,184 $6,176 $6,335 $11,236
------- ------- ------- -------
------- ------- ------- -------
</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>
Nine Months Ended
September 30,
---------------------
1998 1997
------ -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $6,335 $11,236
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 10,233 9,085
Loss (Gain) on sale of property and equipment 204 (81)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable, net and due from
members and affiliates 376 (52)
Decrease in note receivable 180 135
Decrease (increase) in inventories 106 (119)
Decrease (increase) in prepaid expenses 98 (1,166)
Decrease in other assets, net 244 256
Decrease in accounts payable, retention payable, interest
payable, accrued payroll, taxes and other accruals (2,408) (4,012)
------- -------
Net cash provided by operating activities 15,368 15,282
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (4,786) (13,816)
Proceeds from sale of property and equipment 181 90
------- -------
Net cash (used in) investing activities (4,605) (13,726)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term and other debt 11,250 22,500
Principal payments on long-term and other debt (20,962) (19,828)
Bond offering costs - 47
Distributions (1,400) (7,000)
------- -------
Net cash (used in) provided by financing activities (11,112) (4,281)
------- -------
</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>
Nine Months Ended
September 30,
----------------------
1998 1997
------- -------
<S> <C> <C>
DECREASE IN CASH AND CASH EQUIVALENTS ($349) ($2,725)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 6,369 5,785
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $6,020 $3,060
------- -------
------- -------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during period for interest $12,121 $13,016
------- -------
------- -------
</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 September 30, 1998
and the results of operations for the three and nine month periods ended
September 30, 1998 and 1997 and cash flows for the nine month periods ended
September 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>
September 30, December 31,
------------- ------------
1998 1997
---- ----
<S> <C> <C>
10 1/2% Senior Subordinated Notes: semi-annual
payments of interest only, in arrears on February 15
and August 15 of each year, maturing August 15, 2006... $100,000 $100,000
Outstanding portion of reducing revolver and the
revolving credit line, due in quarterly installments
of principal (plus interest calculated using either the
Base rate or Eurodollar rate; the Eurodollar rate at
September 30, 1997 and 1998 was 5.63% and 5.34%,
respectively, and the Base rate at September 30, 1997
and 1998 was 8.50% and 8.25%, respectively) due
July 31, 2001; secured by substantially all real
property............................................... 14,500 23,250
7
<PAGE>
Notes payable to a corporation, due in a quarterly
principal installment of $90,000 (including monthly
interest at prime plus 2%, the rate at September 30,
1997 and 1998 was 10.5% and 10.25%, respectively), to
July 30, 1999 when principal balance is due; secured
by real property....................................... 959 1,144
Notes Payable, Other................................... 2,526 2,775
------------- ------------
117,985 127,169
Less--Current Maturities............................... (1,195) (556)
------------- ------------
$116,790 $126,613
------------- ------------
------------- ------------
</TABLE>
Total interest expense for the first nine months of 1998 and 1997 was
$10.0 million and $10.3 million, respectively.
The amount of credit available pursuant to the Credit Facility reduced to
approximately $42.2 million on September 30, 1998 and, by its terms, the
facility reduces by an additional $1,562,500 as of the end of each subsequent
quarter until July 31, 2001 when it terminates and any balance then
outstanding becomes due and payable.
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
8
<PAGE>
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
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. 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>
September 30, December 31,
1998 1997
------------- ------------
(Unaudited)
<S> <C> <C>
Current Assets.................................. $ 17,686 $ 18,230
Property and equipment, net..................... 314,654 326,018
Other assets.................................... 1,860 2,306
------------- ------------
Total assets............................ $ 334,200 $ 346,554
------------- ------------
------------- ------------
Current Liabilities............................. $ 15,546 $ 22,939
Long-term liabilities........................... 200,250 213,000
Partners' equity................................ 118,404 110,615
------------- ------------
Total liabilities and partners' equity.. $ 334,200 $ 346,554
------------- ------------
------------- ------------
</TABLE>
Summarized results of operations (in thousands):
9
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- --------------------
1998 1997 1998 1997
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Net Revenues ................... $ 43,840 $ 47,120 $ 123,215 $125,165
Operating Expenses ............. (35,131) (35,815) (101,253) (99,026)
-------- -------- --------- --------
Operating Income................ 8,709 11,305 21,962 26,139
Other (Expense)................. (4,624) (5,268) (14,173) (16,012)
-------- -------- --------- --------
Net Income...................... $ 4,085 $ 6,037 $ 7,789 $ 10,127
-------- -------- --------- --------
-------- -------- --------- --------
</TABLE>
10
<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 in 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 thereon 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 SEPTEMBER 30, 1998 COMPARED TO
THREE MONTHS ENDED SEPTEMBER 30, 1997
NET REVENUES
Net revenues decreased by approximately $0.7 million, or 1.6%, to $43.8
million for the three months ended September 30, 1998 compared to $44.5
million for the same period in 1997. The Company did not recognize income
(loss) from its unconsolidated affiliate during the third quarter of 1998 and
1997 as the result of a priority allocation to Galleon, Inc. pursuant to the
Joint Venture Agreement. The Company's slight decrease in net revenues
during the 1998 period is primarily a result of a decrease in table games and
entertainment revenues.
Casino revenues increased slightly to $29.5 million for the three months
ended September 30, 1998 compared to $29.4 million for the same period in
1997. The increase in casino revenues was due primarily to increased revenue
from slots resulting primarily from an increase in volume as compared to the
previous period.
Food and beverage revenues increased by approximately 2.0% to $10.2
million for the three months ended September 30, 1998 compared to $10.0
million during the same period in 1997. The increase was primarily due to
increased food revenue resulting from an increase in customer counts compared
with the prior period.
Hotel revenues for the three months ended September 30, 1997 and 1998
were comparable at $5.1 million. An increase in the Company's hotel
occupancy rate for the three months ended September 30, 1998 to approximately
95% from 94% during the same period in 1997 and increased utilization of room
amenities, such as in-room movies and telephone usage offset a decrease in
the Company's average daily rate ("ADR") to approximately $65 in the third
quarter of 1998 from $66 in the third quarter of 1997.
11
<PAGE>
Entertainment revenues decreased by approximately $0.3 million, or 18.0%,
to $1.6 million for the three months ended September 30, 1998 compared to
$1.9 million during the same period in 1997. The decrease was due primarily
to a decrease in the Eldorado Showroom occupancy in the 1998 period as
compared to the 1997 period.
Promotional allowances expressed as a percentage of casino revenues were
14.5% for the third quarter of 1998 compared to 12.6% for the same period in
1997. The increase was primarily due to increased use of complimentaries to
all levels of casino patrons and promotions related to the Eldorado Showroom.
OPERATING EXPENSES
The Company's operating expenses increased by approximately $1.5 million,
or 4.4%, to $36.4 million for the three months ended September 30, 1998 from
$34.8 million during the same period in 1997. This increase is primarily
attributable to increased gaming, hotel and depreciation expenses.
Casino expenses increased by $1.3 million, or 11.1%, to $13.0 million for
the three months ended September 30, 1998 from $11.7 million during the same
period in 1997 due to an increase in slot promotional expenses.
Hotel expenses increased 3.8% to approximately $2.1 million for the three
months ended September 30, 1998 from approximately $2.0 million primarily due
to slight increases in payroll and operating expenses.
Food and beverage expenses were comparable at $7.7 million in the third
quarter of 1998 and 1997.
Entertainment expenses were comparable at $1.1 million in the third
quarter of 1998 and 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES AND MANAGEMENT FEES
Selling, general and administrative expenses and management fees
decreased by 1.4% to $8.0 million for the three months ended September 30,
1998 from $8.1 million during the same period in 1997. The decrease was
primarily due to a decrease in the employee bonus accrual as compared to the
1997 period.
DEPRECIATION
Depreciation for the three months ended September 30, 1998 was $3.5
million compared to $3.3 million for the same period in 1997, an increase of
6.1%. The increase was primarily attributable to casino and hotel
refurbishments completed during the first quarter of 1998.
INTEREST EXPENSE, NET
Interest expense, net of capitalized interest and interest income,
decreased 6.9% to $3.3 million in the third 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 third quarter of 1998, as compared to the same
period in 1997. The Company capitalized interest of approximately $13,000
for the three months ended September 30, 1998 compared to $37,000 during the
same period in 1997.
NET INCOME
As a result of the factors described above, net income for the three
months ended September 30, 1998 declined by 32.3% to $4.2 million compared to
a net income of $6.2 million during the same period in 1997.
12
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO
NINE MONTHS ENDED SEPTEMBER 30, 1997
NET REVENUES
Net revenues decreased by approximately $0.3 million to $118.6 million
for the nine months ended September 30, 1998 compared to $118.9 million for
the same period in 1997. The Company's slight decrease in net revenues is a
result of decreased gaming revenues.
Casino revenues decreased by approximately $1.4 million, or 1.7%, to
$78.6 million for the nine months ended September 30, 1998 compared to $79.9
million for the same period in 1997. The decrease in casino revenues was due
primarily to decreased revenue from slots resulting from a decrease in volume
compared to the previous period.
Food and beverage revenues increased by approximately 1.4% to $28.4
million for the nine months ended September 30, 1998 compared to $28.0
million during the same period in 1997 primarily as a result of increased
beverage revenue.
Hotel revenues increased to $14.0 million for the nine months ended
September 30, 1998 from $13.7 million for the same period in 1997 despite a
decrease in the Company's average daily rate ("ADR") by approximately $1 in
the first nine months of 1998 compared to the same period in 1997. The
increase is primarily a result of an increase in the Company's hotel
occupancy rate for the nine months ended September 30, 1998 to approximately
94% from 92% during the same period in 1997.
Entertainment revenues increased by approximately 41.2% or $1.3 million to
$4.5 million for the nine months ended September 30, 1998 compared to $3.2
million during the same period in 1997. The increase in revenues was due
primarily to the Eldorado Showroom which had a full nine months of operations
in the 1998 period as compared to five months of operations in the 1997
period.
Other revenues decreased by approximately $0.4 million or 6.9%, to $4.8
million for the nine months ended September 30, 1998 as compared to $5.2
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
14.8% for the nine months ended September 30, 1998 compared to 13.9% for the
same period in 1997 as a result of an increase in slot promotions and
promotions related to the Eldorado Showroom in the 1998 period.
OPERATING EXPENSES
The Company's operating expenses increased approximately 5.0% to $102.2
million for the nine months ended September 30, 1998 from $97.3 million
during the same period in 1997. This increase is primarily attributable to
increased gaming, entertainment and depreciation expenses.
Casino expenses increased by approximately 5.1% to $35.8 million for the
nine months ended September 30, 1998 from $34.1 million during the same
period in 1997 primarily due to increased slot promotional expenses and the
addition of a poker room in May 1998.
Food and beverage expenses increased by approximately $0.5 million, or
2.3%, to $21.3 million for the nine months ended September 30, 1998 from
$20.9 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 approximately $1.7 million to $3.6
million for the nine months ended September 30, 1998 from $2.0 million during
the same period in 1997. The increase was primarily due to Eldorado
Showroom's additional months of operation in the 1998 period as compared to
the 1997 period. The decrease in operating margin is a result of decreased
occupancy as compared to the previous period.
13
<PAGE>
Hotel expenses increased slightly to $5.9 million for the nine months
ended September 30, 1998 from $5.6 million primarily due to a slight increase
in payroll and marketing expenses.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES AND MANAGEMENT FEES
Selling, general and administrative expenses and management fees
decreased by 4.0% to $22.3 million for the nine months ended September 30,
1998 from $23.2 million during the same period in 1997. The decrease was
primarily due to a decrease in the employee bonus accrual for the nine months
ended September 30, 1998 as compared to the same period in 1997.
DEPRECIATION
Depreciation for the first nine months of 1998 was $10.2 million compared
to $9.1 million for the first nine months of 1997, an increase of 12.6%. 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 $10.0 million for the first nine months ended September
30, 1998 compared to $10.3 million for the same period in 1997. Interest
expense decreased as a result of a decrease in the average outstanding
borrowings during the first nine months ended September 30, 1998, as compared
to the same period in 1997. The Company capitalized interest of
approximately $66,000 for the nine months ended September 30, 1998 compared
to $235,000 during the same period in 1997.
NET INCOME
As a result of the factors described above, net income for the nine
months ended September 30, 1998 declined by 43.6% to $6.3 million compared to
a net income of $11.2 million during the same period in 1997.
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 $26.6 million for the nine months
ended September 30, 1998, as compared to $30.6 million during the same period
in 1997. Net cash provided by operating activities for the nine months ended
September 30, 1998 and 1997 was $15.4 million and $15.3 million,
respectively.
At September 30, 1998, the Company had $6.0 million of cash and cash
equivalents and $26.6 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 $42.2 million on September 30, 1998 and, by its
terms, the facility reduces by an additional $1,562,500 as of the end of each
subsequent quarter until July 31, 2001 when it terminates and any balance
then outstanding becomes due and payable.
14
<PAGE>
As of September 30, 1998, the Company had $100 million in aggregate
principal amount of 10 1/2% Notes outstanding, approximately $14.5 million
outstanding under the Credit Facility and $3.3 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, 1998, Resorts made
distributions of $1.4 million to its members as compared with distributions
of $7.0 million during the same period in 1997.
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 nine months ended September 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, signage
and building facade refurbishment of $0.5 million, construction of a new
mezzanine slot area located across from Brew Brothers, which opened in
February 1998, of $0.7 million in addition to recurring capital expenditures.
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 nine
months ended September 30, 1998 were $4.8 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 will be for recurring capital
expenditures and debt service.
YEAR 2000 READINESS DISCLOSURE
BACKGROUND
In the past, many computer software programs were written using two
digits rather than four to define the applicable year. As a result,
information technology such as date-sensitive computer software ("IT") as
well as non-IT systems such as equipment containing microcontrollers or other
embedded technology may recognize a date using "00" as the year 1900 rather
than the year 2000 (the "Year 2000"). The inability of date-sensitive IT and
non-IT systems and equipment using two digits rather than four to
differentiate between the years 1900 and 2000 may cause such systems and
equipment to fail or create erroneous results at January 1, 2000 (a "Year
2000 Disruption").
RISK FACTORS
There is worldwide concern that Year 2000 Disruptions could wreak havoc
on global economies, including the U.S. domestic economy. The extent of the
potential impact from Year 2000 Disruptions is not yet known, and may not be
adequately identified prior to the Year 2000. In the event of a significant
adverse impact on the global economies or on the U.S. domestic economy, the
Company may be materially and adversely impacted, even if its own IT and
non-IT systems and equipment are Year 2000 compliant.
Date-sensitive IT and non-IT systems and equipment are utilized in
virtually all aspects of the hotel, casino and related operations at the
Eldorado and at the Company's 50% owned joint venture property, Silver
Legacy. While task forces have initiated programs at the Eldorado and Silver
Legacy to identify the date-sensitive IT and non-IT systems and equipment at
these properties and to take such actions as may be necessary to make such
systems and equipment Year 2000 compliant, a Year 2000 Disruption could occur
in hotel, casino and related IT and non-IT systems and equipment utilized at
the Eldorado and/or Silver Legacy due to a failure of such systems and
equipment to be Year 2000 compliant. Depending on the severity and duration,
any such Year 2000 Disruption could have a material adverse impact on the
Company.
In addition to the risks associated with a Year 2000 Disruption from the
failure of the IT and non-IT systems and equipment at the Eldorado and Silver
Legacy, the Company is exposed to the risk that one or more of the suppliers
of critical goods or services could experience a Year 2000 Disruption that
impacts the ability of such suppliers to provide all of the goods and
services required in the operation of the Eldorado and/or Silver Legacy. The
Company believes that the impact of such an interruption in the delivery of
goods would be limited due to the availability of alternative suppliers of
the essential goods utilized in the operations conducted at the Eldorado and
Silver Legacy, although no assurances can be given that a Year 2000
Disruption will not materially disrupt the ability to secure delivery of such
goods from any source.
A Year 2000 Disruption of essential services to the Eldorado or Silver
Legacy, such as utilities or banking services, could, depending on the extent
of the disruption, have a material adverse impact on the Company. Because
the Eldorado and Silver Legacy obtain their utilities from the same providers
that serve all of the greater Reno area and there are no alternative sources
from which to obtain such services (other than limited-capacity generators
for the production of electricity during short-term emergency situations), a
Year 2000 Disruption in the delivery of power, natural gas or water would
most likely impact all or a significant portion of the Reno area, including
the Eldorado and Silver Legacy, and would require that such properties be
closed for the duration of any extended interruption of such service. While
an interruption in telephone service might not require that the affected
properties be closed, such an interruption could, depending on the nature and
duration of the interruption, have a material adverse effect on operations at
the Eldorado and Silver Legacy.
The Company is exposed to the risk that a Year 2000 Disruption could
result in a significant interruption of banking services in the Reno area. A
significant number of the Eldorado's and Silver Legacy's customers depend on
credit card processing and automated teller machines to access cash or credit
during their visits to the Eldorado and Silver Legacy. In addition, the
Eldorado and Silver Legacy depend on a reliable source of cash to fund the
day-to-day casino operations at those properties. Accordingly, any
interruption of banking services could, depending upon the nature and
duration of the interruption, have a material adverse effect on operations at
the Eldorado and Silver Legacy.
The Company is also exposed to the risk that a Year 2000 Disruption
could result in a significant interruption of airline service to the Reno
area. The Company believes that a significant number of the Eldorado's and
Silver Legacy's customers (including hotel guests and walk-in customers at
the casinos) depend on the airlines for their travel to and from Reno.
Accordingly, any such interruption of airline service could, depending upon
the extent of the interruption, have a material adverse effect on operations
at the Eldorado and Silver Legacy.
APPROACH
The Company has established a task force to coordinate its response to
the Year 2000. This task force includes the Company's Chief Financial
Officer, Manager of Internal Audit, the Director of Information Services as
well as support staff. An outside consultant was also engaged who assisted
in establishing a Year 2000 compliance program for the Company at the
Eldorado.
A separate task force has been established by the Silver Legacy Joint
Venture at the Silver Legacy to coordinate the response to the Year 2000 at
that property. This task force includes Silver Legacy's Director of Finance
and Administration and its Director of Information Services as well as
support staff.
The Year 2000 compliance programs developed for the Eldorado and Silver
Legacy consist of the following phases:
PHASE 1 Compilation of an inventory of IT and non-IT systems and
equipment that may cause a Year 2000 Disruption ("Critical
Systems and Equipment").
PHASE 2 Identification and prioritization of the Critical Systems and
Equipment from the inventory compiled in Phase 1 and inquiries
of third parties with whom the Eldorado or Silver Legacy does
significant business (i.e., vendors and suppliers) as to the
state of their Year 2000 readiness.
PHASE 3 Analysis of the identified Critical Systems and Equipment to
determine which systems and equipment are not Year 2000 compliant
and evaluation of the costs to repair or replace those systems
and equipment.
PHASE 4 Repair or replacement and testing of noncompliant Critical
Systems and Equipment and the testing of Critical Systems and
Equipment for which representation as to Year 2000 compliance has
not been received or for which representation has been received
but has not been confirmed.
Neither the Eldorado nor Silver Legacy is currently planning to use any
independent verification and validation process to assure the reliability of
their risk and cost estimates. However, this position will continue to be
reevaluated as the Year 2000 compliance programs proceed at the Eldorado and
Silver Legacy.
STATUS
Phases 1 and 2 are substantially complete at the Eldorado and Silver
Legacy but for the process of making inquiries of third parties as to their
Year 2000 readiness, which is currently ongoing with respect to each
property. To date neither the Eldorado nor Silver Legacy has been advised by
any significant third party supplier of goods or services that it will not be
fully Year 2000 compliant by the Year 2000. All initial inquiries to
identified significant third party vendors and suppliers have been completed
by the Eldorado and Silver Legacy. The initial third party inquiries to the
remaining third party vendors and suppliers are expected to be completed by
January 31, 1999.
Phases 3 and 4 are ongoing at the Eldorado and Silver Legacy. September
30, 1999 has been established as the current target date to complete the Year
2000 compliance program at both properties. Based upon the analysis conducted
to date, the Company believes all of the Critical Systems and Equipment at
the Eldorado and Silver Legacy are either currently Year 2000 compliant or
will be Year 2000 compliant by September 30, 1999, although there can be no
assurance as to the ability to achieve full Year 2000 compliance at either
property. The most significant aspect of the Eldorado's Year 2000 compliance
that has been identified is the software modification of the property's
casino system. The most significant aspect of Silver Legacy's Year 2000
compliance that has been identified is the replacement of that property's
non-Year 2000 compliant personal computers.
COSTS
The total cost to the Company of making its systems at the Eldorado Year
2000 compliant, including estimated costs of remediation or replacement and
testing, is currently estimated to be in the range of $800,000 to $1 million.
This current estimate includes the following: (i) $670,000 to $840,000
relating to software modification, of which approximately $100,000 had been
incurred at September 30, 1998; and (ii) $130,000 to $160,000 to replace
problem systems and equipment, of which approximately $20,000 had been
incurred at September 30, 1998. The replacement of problem systems and
equipment costs will be capitalized and depreciated over their expected
useful lives. To the extent existing hardware or software is replaced, the
Company will recognize a loss currently for the undepreciated balance. This
loss is included in the above cost estimate. Furthermore, all costs related
to software modification, as well as all costs associated with the Company's
administration of its Year 2000 project, are being expensed as incurred.
The total cost to Silver Legacy of making the systems at that property
Year 2000 compliant, including estimated costs of remediation or replacement
and testing, is currently estimated to be in the range of $500,000 to
$750,000, none of which had been incurred at September 30, 1998. The current
estimated cost relating to Silver Legacy's software modification is $200,000
to $250,000. The current estimated costs to replace Silver Legacy's problem
systems and equipment is $300,000 to $500,000. The replacement of problem
systems and equipment costs will be capitalized and depreciated over their
expected useful lives. To the extent existing hardware or software is
replaced, the Silver Legacy will recognize a loss currently for the
undepreciated balance. This loss is included in the above cost estimate.
Furthermore, all costs related to software modification, as well as all costs
associated with the Silver Legacy's administration of its Year 2000 project,
are being expensed as incurred.
The Company believes the most significant risk of a Year 2000 Disruption
at the Eldorado or Silver Legacy is the loss of utilities at those
properties, particularly power or water, as to which a contingency plan is
not feasible. The Eldorado and Silver Legacy are in the initial stages of
evaluating various alternatives to other potential Year 2000 Disruptions that
might occur at the Eldorado or Silver Legacy.
The source of funding of the costs incurred in connection with the Year
2000 compliance programs at the Eldorado and Silver Legacy is anticipated to
be the operating cash flows at the respective properties.
There can be no assurance that as yet unidentified costs will not be
incurred in connection with the Year 2000 compliance program at the Eldorado or
at Silver Legacy or that the costs actually incurred to achieve full Year 2000
compliance at either property will not be materially higher than currently
estimated.
FORWARD-LOOKING STATEMENTS
Certain information included in this report and other materials filed or
to be filed by the Company with the Securities and Exchange Commission (as
well as information included in oral statements or written statements made or
to be made by the Company) contains statements that are forward-looking
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. Such
statements include information relating to current expansion projects, plans
for future expansion projects and other business development activities as
well as other capital spending, financing sources, Year 2000 compliance and
effects of regulation (including gaming and tax regulation) and competition.
Such forward-looking information involves important risks and uncertainties
that could significantly affect anticipated results in the future and,
accordingly, such results may differ from those expressed in any
forward-looking statements made by or on behalf of the Company. These risks
and uncertainties include, but are not limited to, those relating to
development and construction activities, dependence on existing management,
leverage and debt service (including sensitivity to fluctuations in interest
rates), domestic or global economic conditions, changes in Federal or state
tax laws or the administration of such laws, changes in gaming laws or
regulations (including the legalization of gaming in certain jurisdictions)
and applications for licenses and approvals under applicable laws and
regulations (including gaming laws and regulations).
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
-------------- -----------
15
<PAGE>
27 FINANCIAL DATA SCHEDULE
FOR THE NINE MONTHS
SEPTEMBER 30, 1998
(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 12, 1998 By: /s/ DONALD L. CARANO
--------------------------------------
Donald L. Carano
Chief Executive Officer, President and
Presiding Manager
Date: November 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: November 12, 1998 By: /s/ DONALD L. CARANO
--------------------------------------
Donald L. Carano
President
Date: November 12, 1998 By: /s/ GENE R. 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
September 30, 1998
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 6,020
<SECURITIES> 0
<RECEIVABLES> 4,811
<ALLOWANCES> 1,537
<INVENTORY> 2,776
<CURRENT-ASSETS> 13,675
<PP&E> 236,599
<DEPRECIATION> 78,988
<TOTAL-ASSETS> 231,443
<CURRENT-LIABILITIES> 13,314
<BONDS> 117,756
0
0
<COMMON> 0
<OTHER-SE> 94,205
<TOTAL-LIABILITY-AND-EQUITY> 231,443
<SALES> 0
<TOTAL-REVENUES> 118,555
<CGS> 0
<TOTAL-COSTS> 101,682
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 548
<INTEREST-EXPENSE> 9,990
<INCOME-PRETAX> 6,335
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,335
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,335
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
