<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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)
(775) 786-5700
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants' knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[X]
Aggregate market value of the Registrants' voting stock held by non-affiliates
of the Registrants: None
Number of shares of common stock of Eldorado Capital Corp. outstanding at March
12, 1999: 2,500 Shares.
<PAGE>
PART I
ITEM 1. BUSINESS.
Eldorado Resorts LLC, a Nevada limited liability company
("Resorts"), was formed to be the successor to Eldorado Hotel Associates Limited
Partnership (the "Predecessor Partnership") pursuant to an exchange of all of
the then outstanding partnership interests in the Predecessor Partnership for
membership interests in Resorts (the "Reorganization"). The Reorganization was
effective on July 1, 1996. Insofar as they relate to periods prior to the
effective date of the Reorganization, references to Resorts are to the
Predecessor Partnership except to the extent the context requires otherwise.
Eldorado Capital Corp., a Nevada corporation wholly-owned by Resorts
("Capital"), was incorporated with the sole purpose of serving as co-issuer of
$100,000,000 principal amount of 10 1/2% Senior Subordinated Notes due 2006
issued by Resorts and Capital on July 31, 1996. Accordingly, Capital holds no
significant assets and conducts no business activity. Resorts and Capital,
together with Eldorado Limited Liability Company, a 96% owned subsidiary of
Resorts and Nevada limited liability company ("ELLC"), are collectively referred
to as the "Company." Effective June 30, 1997, ELLC completed a recapitalization,
converting a note receivable and accrued interest thereon into equity,
increasing Resorts' interest in ELLC from approximately 77% to approximately
96%.
The Company owns and operates the Eldorado Hotel & Casino (the
"Eldorado"), a premier hotel/casino and entertainment facility in Reno, Nevada.
The Company has established the Eldorado as a luxury destination resort by
creating a sophisticated, elegant atmosphere and providing unsurpassed personal
service and cuisine, a dynamic gaming environment and a wide variety of
amenities attractive to multiple market segments. The Eldorado is centrally
located in downtown Reno and is easily accessible both to vehicle traffic from
Interstate 80, the principal highway linking Reno to its primary visitor markets
in northern California, and to pedestrian traffic from nearby casinos. In
addition to owning the Eldorado, ELLC owns a 50% interest in a 50/50 joint
venture with a subsidiary of Circus Circus Enterprises, Inc. ("Circus Circus")
which owns the Silver Legacy Resort Casino (the "Silver Legacy"), a major themed
hotel/casino located adjacent to the Eldorado.
BUSINESS STRATEGY
The Company has a broad experienced management team that includes,
among others, Donald Carano and several members of his immediate family. Donald
Carano, the Chief Executive Officer and a member of the Board of Managers of
Resorts, co-founded the Eldorado in 1973 and has been the driving force behind
its development. In addition to Donald Carano, each of the Company's other seven
senior executives has in excess of 10 years of operating experience in the
gaming industry. Management believes that its family-oriented, hands-on approach
has enabled the Company to operate the Eldorado successfully for over two
decades. In addition to their roles in management of the Company, members of the
Carano family beneficially own 63% of the Company.
The Company's business strategy draws upon its extensive gaming
management experience gained from operating the Eldorado successfully for over
two decades. Key elements of the Company's strategy include the following:
UNSURPASSED PERSONAL SERVICE AND HIGH QUALITY AMENITIES. One of the
cornerstones of the Company's business strategy is to provide its customers with
an extraordinary level of personal service. The Company's senior management is
actively involved in the daily operations of the Eldorado, frequently
interacting with hotel, restaurant and gaming patrons to ensure that they are
receiving the highest level of personal attention. Management believes that
extraordinary personal service is an integral part of fostering customer loyalty
and generating repeat business. Management regularly conducts feedback sessions
and focus groups with customers to elicit comments and suggestions on ways it
can improve each customer's experience at the Eldorado. Additionally, management
personally responds to suggestions made on comment cards placed in each of the
Eldorado's hotel rooms. Furthermore, management continually strives to instill
in each employee a dedication to superior service designed to exceed guests'
expectations.
In addition to personalized service, the Eldorado has earned a
reputation for high quality amenities and an excellent price-to-value
relationship. Locals and visitors alike are attracted to the Eldorado's
selection of dining venues and exceptional food quality, for which the Eldorado
has received national recognition. Management believes that the Eldorado's
excellent cuisine adds to the overall atmosphere and prestige of the hotel and
therefore emphasizes outstanding food and ambiance and a wide variety of dining
choices.
The Eldorado continually monitors and enhances its casino operations
to react to changing market conditions and customer demands. For example, the
Company has shifted its slots mix towards $1 and higher denominated machines
in response to the increased popularity of higher-end slot machines, which
the Company believes appeal to its base of higher-income gaming clientele.
The Company targets premium-play customers as well as the
1
<PAGE>
value-conscious gaming patron with its state-of-the-art casino featuring the
latest in game technology, electronic displays and customer-convenient
features.
MARKETING TO TARGET GAMING PATRONS. The Company primarily targets its
marketing programs to four segments of the gaming market: the free and
independent traveler, preferred casino customers, local patrons and the
wholesale/specialty groups.
The free and independent traveler segment consists of those travelers
not affiliated with groups who make their reservations directly with the
Eldorado or through independent travel agents. To attract the independent
traveler, the Company uses print media, radio, television and direct mail to
advertise in northern California, the Pacific Northwest and other regional
travel markets.
Preferred casino customers are those patrons who maintain the necessary
gaming criteria to become established casino guests. The Company uses a broad
special events agenda and an extensive guest development program, including
providing casino credit, to attract and retain preferred casino customers. In
addition, the Company utilizes its quality hotel rooms, excellent restaurant
venues and other amenities to offer complimentaries to a broad spectrum of
established casino guests, from the frequent players who place relatively modest
wagers to the true premium players who consistently wager high amounts. The
Company believes that the ability to reward the more modest gaming patrons
fosters intense loyalty and repeat business.
Wholesale/specialty groups consist of those customers participating in
travel packages offered by air tour operators, groups of up to 100 people with
strong gaming profiles and visitors attending tournaments at the National
Bowling Stadium. The Eldorado sales force targets this segment by attending
trade shows in order to establish relationships with airlines, travel agents,
meeting planners and wholesalers. The Eldorado has developed special marketing
programs and tools to cultivate relationships with these air tour operators and
specialty groups, including offering familiarization tours of the Eldorado. The
Eldorado attempts to utilize this market segment as a means of creating a
consistent utilization of its rooms during the calendar year.
The Eldorado has a state-of-the-art, real-time customer tracking system
which comprehensively tracks its gaming customers throughout the casino.
Customers are given an electronically readable card to insert into slot machines
and to provide to floor supervisors at table games. The slot machines
automatically transmit gaming data to a central computer and floor supervisors
manually enter certain data relating to gaming customers which is then
computerized. The system enables the Eldorado to obtain up-to-the-minute
information on a customer's gaming habits, maximum and minimum wagers, the total
amount wagered and length of play. The Eldorado can thereby ensure that
customers receive immediate recognition and complimentaries based on their
levels of gaming. This innovation is enhanced by a friendly, knowledgeable staff
and a conveniently located promotion center. In addition, "Club Eldorado," the
casino's full-service slot club, offers an array of special events and exciting
tournaments and convenient ways of earning complimentaries.
The cost incurred by the Company for advertising in 1998 was $4,383,000
compared with $3,890,000 in 1997.
STRATEGIC EXPANSION AND IMPROVEMENTS. Since opening the Eldorado in
1973, the Company has employed a strategy of continual expansion and
improvement in order to maintain and enhance its position as a leader in the
Reno market. Continuing its successful expansion strategy, the Eldorado
opened a state-of-the-art 566-seat showroom in May 1997. The showroom adds an
entertainment experience that management believes attracts a larger and
broader audience of entertainment seekers. The showroom features the only
nightly production show of its kind in downtown Reno. In addition, the
Company opened a new VIP Lounge in December 1997, offering a relaxing
atmosphere, including a complimentary full service bar and VIP room
registration for preferred casino customers. In February 1998, the Eldorado
opened a new slot area with 97 slot machines across from the property's
microbrewery, THE BREW BROTHERS. Management believes that the addition of
these unique amenities has enhanced the Eldorado's position in the Reno
market. In July 1998 a portion of CHOICES RESTAURANT was enclosed and
remodeled into a 78-seat Asian cuisine restaurant, the Golden Fortune.
The Company owns a 31,000 square foot piece of property across the
street from and west of the Eldorado, which could be used for further expansion
of the Eldorado, although there are no immediate plans for the development of
this site.
ELDORADO HOTEL & CASINO
The Eldorado is centrally positioned in the heart of Reno's prime
gaming area and room base. Easily accessible to both foot and vehicle traffic,
the Eldorado is strategically located directly off Interstate 80, the principal
highway linking the Reno market with San Francisco, Sacramento and other cities
in its primary visitor market of
2
<PAGE>
northern California. With three golden towers, including a 26-story tower
that lights up with over 2,000 feet of neon at night, the Eldorado is visible
from Interstate 80, attracting visitors to the downtown area and generating
interest in the property. Management believes the Eldorado serves as a
downtown landmark, situated to attract a large volume of foot traffic from
other casinos as well as from the local populace. In addition, the Eldorado
is easily accessible to visitors competing in and attending the various
bowling tournaments that are held in the National Bowling Stadium, which is
located just one block away.
As of December 31, 1998, the Eldorado offered approximately 84,000
square feet of gaming space, with approximately 1,871 slot machines, 79 table
games consisting of blackjack, craps, roulette, Pai Gow Poker, Let It
Ride(R), Caribbean stud poker, mini-baccarat, three keno games, a poker room
and a race and sports book. The Eldorado also operates a satellite race and
sports book at the Silver Legacy. The Eldorado's casino includes a mix of
slot machines and table games which management believes makes it attractive
to both middle-income and premium-play customers. Slot machines, which are
offered in denominations from 5 cents to $100, generated approximately 67% of
the total gaming revenues for the casino in 1998 and provide consistency in
revenues and cash flow. A diverse selection of table games and a variety of
table limits allow play from a wide range of gaming customers, which
management believes makes the Eldorado one of the premier table games casinos
in the Reno market.
The interior of the hotel is designed to create a European ambiance and
offers 816 finely-appointed rooms and suites, including 18 specialty suites, 93
"Eldorado Player's Spa Suites" with bedside spas and 26 one-bedroom and
two-bedroom penthouse suites. Hotel guests enjoy panoramic views of Reno's
skyline and the majestic Sierra Nevada mountain range. Management believes that
attention to detail, decor and architecture have created an identifiable and
innovative presence in the Reno market for the Eldorado. In 1997 and 1998, the
Eldorado achieved a 90.1% and 92.8% average hotel occupancy rate at an Average
Daily Rate ("ADR") of approximately $60 in both 1997 and 1998.
The Eldorado is nationally recognized for its exceptional cuisine.
Management believes that the Eldorado's superior cuisine and wide-ranging
selection of dining opportunities are crucial factors in attracting and
retaining customers. All of the Eldorado's dining venues, which range from
buffet to gourmet, offer high quality food at reasonable prices. The following
chart details the Eldorado's dining venues, their respective seating capacities
and their outstanding attributes, including a detail of the awards and
distinctions each has received.
3
<PAGE>
ELDORADO RESTAURANTS
SEATING
DINING VENUE CAPACITY DESCRIPTION
Bistro Roxy 175 . A Parisian-style bistro, bar and restaurant
offering French country fare, steak and seafood
. Designed by famed restaurant designer Pat Kuleto
to feature seven distinct architectural styles
. Awarded the Golden Cup Award by Specialty Coffee
Association of America in 1997
. Received "Award of Excellence" from WINE
SPECTATOR 1998
La Strada 170 . Features northern Italian cuisine in an Italian
countryside villa setting
. Recognized as one of the country's top 10 Italian
restaurants in the 1994 BEST OF THE BEST ACADEMY
AWARDS OF THE RESTAURANT INDUSTRY
. Recipient of the WINE SPECTATOR AWARD OF
EXCELLENCE in each of the past five years
. Hailed in the March 1993 issue of BON APPETIT
magazine as a "sure thing in Reno" for food
lovers
The Brew 225 . The first microbrewery located in a hotel/casino.
Brothers Features a variety of handcrafted beers and live
nightly entertainment
. Named as the area's best microbrewery in the RENO
GAZETTE-JOURNAL in 1998
. Offers eight microbrewed beers, including Lady
Luck Lager, Eldorado Extra Pale Honey Ale,
Redhead Amber Ale, Wild Card Wheat Ale, Big Dog
Ale, Gold Dollar Pale Ale, Double Down Stout and
a rotating seasonal brew.
The Grill 185 . A spirited, lively steak and seafood house
. Specializes in prime rib and grilled entrees at
affordable prices
. Offers top quality USDA cuts of beef and fresh
seafood, a "never-ending" salad and fruit bar
with homemade soups
Chefs' Buffet 525 . A 220-foot buffet offering a wide variety of
(formerly-Chefs' cuisines, including a Mongolian barbecue,
Pavilion) omelet station and a salad, fruit, ice cream
and dessert bar
. Features an open exhibition kitchen where
customers can observe meals being prepared
Tivoli Gardens 210 . A 24-hour restaurant with a menu featuring Asian,
Italian, Mexican and South American cuisines
. Features the Eldorado Coffee Company, where fresh
coffee beans are roasted each day for use
throughout the hotel and for retail purchase
Choices Express 185 . A food court offering a diverse selection of
Cafe cuisines, including an Asian noodle kitchen,
a delicatessen, a gelato shop where 24 flavors
are made fresh each day, a salad bar, a bakery
and an espresso bar
Seafood Buffet 425 . Offered each Friday and Saturday night during
the summer months, in the Convention Center,
featuring Reno's best seafood spread
. Named one of the top 25 seafood restaurants in
the country in the 1994 BEST OF THE BEST ACADEMY
AWARDS OF THE RESTAURANT INDUSTRY
Golden Fortune -- 78 . Authentic Hong Kong style cuisine offering
He Fu Li 90 specialties
. A classic Chinese setting atmosphere featuring
hand blown and stained glass imported from China
4
<PAGE>
The Eldorado's selection of high-quality food and beverages reflects
the Carano family's emphasis on the dining experience. Eldorado chefs utilize
homemade pasta, carefully chosen imported ingredients, fresh seafood and top
quality USDA choice cuts of beef. Throughout the property, beverage offerings
include THE BREW BROTHERS microbrewed beers and wines from the Ferrari Carano
Winery.
The Eldorado features a 566-seat showroom. Other amenities
offered by the Eldorado include several specialty shops, a versatile 12,400
square foot convention center and an outdoor plaza located diagonal to the
Eldorado which hosts a variety of special events. The Eldorado has parking
facilities for over 1,100 vehicles including a 652-space parking garage, a
360-space valet parking facility and 126 surface parking spaces.
SILVER LEGACY RESORT CASINO
The Silver Legacy opened in July 1995 as the first major
newly-constructed hotel/casino in the Reno market since 1978 and its first
themed mega-resort. Plans for the Silver Legacy were originally formulated in
1993 by the Company and Circus Circus, who jointly recognized the potential
synergies of constructing a new hotel/casino in between the Eldorado and Circus
Circus-Reno properties.
The Silver Legacy's design is based upon Nevada's silver mining
heritage and the legend of Sam Fairchild, a fictitious silver baron who "struck
it rich" on the site of the hotel/casino. Accordingly, the opulent interior of
the Silver Legacy showcases a variety of antique silver pieces from the Mackay
silver collection and a casino built around Sam Fairchild's legendary 120-foot
tall mining rig. The mining rig appears to transform ore into silver coins that
cascade into slot machines located at the mining rig's base. The mining rig is
enclosed within a 75,000 square foot dome, the interior of which is painted to
resemble the sky and features three dynamic sound and light shows which are
continuously updated so that visitors are provided with a unique experience each
time they enter the hotel. The exterior of the dome serves as a distinctive
landmark on the Reno skyline. The Company's management believes that the Silver
Legacy is a "must see" attraction for visitors to the Reno market.
The Silver Legacy is situated on two city blocks, encompassing 240,000
square feet in downtown Reno. The hotel currently offers 1,712 guest rooms and
suites, many of which feature views of Reno's skyline and the Sierra Nevada
mountain range. The Silver Legacy's 10-story parking facility can accommodate
approximately 1,800 vehicles. At December 31, 1998, the Silver Legacy's casino
featured approximately 88,500 square feet of gaming space and contained over
2,243 slot machines and 81 table games, including blackjack, craps, roulette,
Pai Gow Poker, Let It Ride(R), Caribbean stud poker, mini-baccarat and Pai Gow
and two keno games. The Eldorado operates a satellite race and sports book
located on the Silver Legacy's casino floor. "Club Legacy," the Silver Legacy's
slot club, offers customers exciting special events and tournaments and
convenient ways of earning complimentaries.
The Silver Legacy's dining options include a 240-seat buffet, a
steak and seafood restaurant, an oyster bar, a 24-hour coffee shop and a
gourmet coffee house. In addition, the hotel sponsors entertainment events
which are held in the hotel's convention area. The Silver Legacy's other
amenities include custom retail shops, exercise facilities, a beauty salon,
comedy club and an outdoor swimming pool and sundeck, as well as a video
arcade.
The Eldorado, Silver Legacy, and Circus Circus-Reno properties are
connected in a "seamless" manner by 200-foot wide skyway corridors. These
enclosed corridors serve as entertainment bridgeways between the three
properties and house several restaurants and custom retail shops. The
Eldorado, Silver Legacy and Circus Circus-Reno comprise the heart of the Reno
market's prime gaming area and room base, providing the most extensive and
the broadest variety of gaming, entertainment, lodging and dining amenities
in the Reno area, with an aggregate of over 4,100 rooms, 19 restaurants and
enough parking to accommodate approximately 6,600 vehicles and, as of
December 31, 1998, approximately 5,900 slot machines and 230 table games. The
Company's management believes that centralized location and critical mass of
these three properties, together with the ease of access between the
facilities, provide the Eldorado with significant advantages over other
freestanding hotel/casinos in the Reno market.
5
<PAGE>
SILVER LEGACY JOINT VENTURE AGREEMENT
The Silver Legacy was developed by the Silver Legacy Joint Venture
formed pursuant to the Agreement of Joint Venture of Circus and Eldorado
Joint Venture (the "Joint Venture Agreement") dated as of March 1, 1994,
between ELLC and Galleon, Inc. ("Circus Sub"). Under the terms of the Joint
Venture Agreement, each of ELLC and Circus Sub (together the "Partners") owns
a 50% interest in the Silver Legacy Joint Venture (each Partner's "Percentage
Interest"). Each Partner was obligated to contribute cash or property to the
Silver Legacy Joint Venture with a value equal to 15% of the total budgeted
cost for developing and constructing the Silver Legacy. To satisfy their
respective contribution obligations, ELLC contributed real property worth
$25.0 million on which to build the Silver Legacy and $26.9 million in cash
and Circus Sub contributed $51.9 million in cash. In addition, pursuant to
the Joint Venture Agreement, Circus Sub's parent corporation, Circus Circus,
provided certain loans to the Silver Legacy Joint Venture for the costs of
developing and constructing the Silver Legacy and also provided credit
support for a $230 million credit agreement originally entered into by the
Silver Legacy Joint Venture on May 30, 1995 (the "Original Silver Legacy
Credit Agreement") to fund the balance of the development and construction
costs (such loans and financing are collectively referred to herein as the
"Construction Financing"). In return, Circus Circus receives from the Silver
Legacy Joint Venture an annual fee equal to 1.5% of the average outstanding
principal balance of such financing. The Original Silver Legacy Credit
Agreement, as amended and restated, most recently on November 24, 1997 (the
"Silver Legacy Credit Agreement") is secured by a deed of trust on the Silver
Legacy and by security interests in other assets of the Silver Legacy Joint
Venture. Under the terms of the Silver Legacy Credit Agreement, the borrowing
limit ($213 million at December 31, 1998) is subject to scheduled reductions
(adjustable ratably for any voluntary permanent reductions) of $4.25 million
quarterly through December 31, 2000 (with the next such payment being due on
March 31, 1999), $5.5 million quarterly from March 31, 2001 through December
31, 2002, $6 million on March 31, 2003, and the balance on June 30, 2003 when
any indebtedness then outstanding thereunder will become due and payable.
Each of ELLC's and Circus Sub's ability to participate in cash flows
generated by the Silver Legacy is limited by the terms of the Joint Venture
Agreement and the Silver Legacy Credit Agreement. On November 24, 1997, in
connection with the most recent amendment and restatement of the Silver
Legacy Credit Agreement, the Silver Legacy Joint Venture repaid its
indebtedness to Circus Circus in the amount of $35.1 million and funded the
repayment by an additional advance under the Silver Legacy Credit Agreement.
As of December 31, 1998, the assets of the Silver Legacy Joint Venture,
including the Silver Legacy, were subject to encumbrances securing the
repayment of indebtedness in the principal amount of $198.5 million
(representing the principal amount then outstanding under the Silver Legacy
Credit Agreement) plus accrued interest of $1,279,000.
Additional capital contributions in proportion to each Partner's
Percentage Interest may be required by the Managing Partner (as defined in
the Joint Venture Agreement) to defray any net loss (not including
depreciation and amortization expenses) incurred by the Silver Legacy Joint
Venture. If either Partner fails to make such additional capital
contributions, the non-defaulting Partner may (i) contribute the amount of
the additional capital contribution that the defaulting Partner has failed to
pay to the Silver Legacy Joint Venture on behalf of the defaulting Partner,
which amount will be considered a loan to the defaulting Partner from the
non-defaulting Partner (an "Additional Capital Contribution Loan") and must
be repaid by the defaulting Partner from the cash distributions it receives
pursuant to the Joint Venture Agreement or (ii) loan the amount of the
additional capital contribution that the defaulting Partner has failed to pay
to the Silver Legacy Joint Venture, which loan must be repaid from Net Cash
from Operations (as defined herein).
PROFIT ALLOCATION. 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 currently
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
Circus Sub 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 Circus
Sub'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 less interest expense 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.
Under the terms of the Joint Venture Agreement, such Profits were allocated to
the Partners in proportion to their respective Percentage Interests prior to May
1, 1997. 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.
Circus Sub is entitled to a priority allocation ("Priority
Allocation") in an amount equal to approximately 11.54% of the average of the
"Adjusted Initial Investment" (as defined) for the period. If, after
deducting equal shares of interest expense, a Partner's share of the Priority
Allocation is less than zero, additional operating income is allocated to
that Partner to bring their allocation to zero. 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 the Partners and (ii) the principal payments which would have
been made in repayment of the orginal bank financing utilized for the
development, construction and completion of the Silver Legacy.
6
<PAGE>
Circus Sub is entitled to such Priority Allocation, which began May 1, 1997,
for so long as ELLC selects the General Manager (as defined in the Joint
Venture Agreement) of the Silver Legacy (as provided for in the Joint Venture
Agreement).
DISTRIBUTIONS OF CASH FROM OPERATIONS. The Joint Venture Agreement
provides 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 Construction Financing, other than
indebtedness owed Partners or affiliates as provided for in the Joint Venture
Agreement) is to be distributed quarterly to the Partners in proportion to their
Percentage Interests 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, 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 Circus Sub of an amount up to its
Priority Allocation and to ELLC of an amount up to the amount distributed to
Circus Sub pursuant to Circus Sub's Priority Allocation, (vii) 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 (viii) the
payment of the balance of the portion of the Construction Financing provided by
Circus Circus until such loans are paid in full or refinanced. In addition, any
withdrawal from the Silver Legacy Joint Venture by either party results in a
reduction of distributions to such withdrawing Partner to 75% of amounts
otherwise payable to such Partner.
MANAGEMENT. The Silver Legacy Joint Venture is managed by an Executive
Committee, a Managing Partner and a General Manager. The Executive Committee
consults with, reviews, monitors and oversees the performance of the Managing
Partner and the General Manager, thus functioning in a capacity similar to a
corporation's board of directors. The Executive Committee may act only upon the
approval of a majority of its members. The Executive Committee has five members,
three of whom are appointed by the Managing Partner and the other two of whom
are appointed by the other Partner. The Joint Venture Agreement names Circus Sub
as the Managing Partner. The current members of the Executive Committee
appointed by the Managing Partner are Steve Greathouse, Yvette Landau and Scott
Beeman; the current members appointed by ELLC are Donald Carano and Robert
Jones.
The Managing Partner is generally responsible for overseeing the
management and the business affairs of the Silver Legacy Joint Venture and may
be replaced only: (i) upon the unanimous agreement of the Partners or (ii) by
the other Partner if the Silver Legacy Joint Venture's net operating results for
any four consecutive quarters are less than 80% of the amount projected in the
Silver Legacy Joint Venture's annual business plan, upon which such other
Partner will become the Managing Partner; provided, however, that as long as
ELLC appoints the General Manager, ELLC may not require Circus Sub to resign as
Managing Partner.
The General Manager is responsible for the oversight and management of
the day-to-day operations of the Silver Legacy and other business of the Silver
Legacy Joint Venture. The General Manager, currently Gary Carano, is appointed
by ELLC subject to the approval of Circus Sub. The General Manager will continue
to be selected by ELLC so long as Circus Sub is allocated its Priority
Allocation or so long as the Silver Legacy Joint Venture's net operating results
are not less than 80% of the amount projected in the Silver Legacy Joint
Venture's annual business plan. If the General Manager fails to meet such
performance requirements, Circus Sub may replace the General Manager; provided,
however, that if Circus Sub replaces the General Manager without ELLC's consent,
Circus Sub will not receive its Priority Allocation.
TRANSFERS OF PARTNERSHIP INTERESTS. After the Silver Legacy has been in
operation for at least 10 years and the initial Construction Financing has been
paid in full, either Partner may, so long as such Partner is not in default of
any of the provisions of the Joint Venture Agreement, offer to purchase the
entire interest of the other Partner. If either Partner makes such an offer, the
other Partner is required to either sell its interest or purchase the interest
of the offering Partner at the price proposed by the offering Partner, subject
to a pro rata adjustment if the interests are not equal at the time of the
offer. In addition, in the event that (i) a Partner is in default at any time on
any two required additional capital contributions, (ii) an Additional Capital
Contribution Loan is not repaid within two years, (iii) any deed of trust for
the benefit of Circus Circus for the Construction Financing is in default for
over one year or (iv) unless otherwise agreed to by Circus Circus, Donald
Carano, an immediate family member acceptable to Circus Sub or one of their
respective affiliates does not control ELLC, or unless otherwise agreed to by
ELLC, Circus Circus does not control Circus Sub, then the non-defaulting Partner
may purchase the defaulting Partner's interest. The purchase price will be equal
to the net equity of the defaulting Partner's interest, decreased by any amount
that the non-defaulting Partner contributed as a capital contribution on behalf
of the defaulting Partner (which amount is considered a loan to
7
<PAGE>
the defaulting Partner pursuant to the Joint Venture Agreement). Any such
purchase and sale is subject to the approval of the Nevada Gaming Authorities.
RENO MARKET
The Reno market is one of the larger gaming markets in the United
States which generated approximately $930 million of gaming revenues in 1998.
The opening of the Silver Legacy in 1995 marked Reno's first opening of a newly
constructed major hotel/casino since 1978 and its first themed mega-resort,
representing an approximately 13% increase in the number of hotel rooms and an
approximately 10% increase in the number of gaming positions in the Reno market.
As of December 31, 1998, the Reno market featured 15,271 hotel rooms which had
an estimated 79.1% average hotel occupancy rate in 1998. According to the Reno
Sparks Convention and Visitors Authority (the "Visitors Authority"), other
approved or announced projects are expected to add up to 4,800 rooms to the Reno
market within a decade, although the Company can not predict how many rooms will
actually be completed and placed into service.
Reno is the second largest city in Nevada, with a population of
approximately 166,000 as of July 1998, and is located at the base of the Sierra
Nevada mountains along Interstate 80, approximately 140 miles east of
Sacramento, California and 225 miles east of San Francisco, California. Reno is
a destination resort market which attracts visitors by offering gaming as well
as numerous other summer and winter recreational activities. In addition to
gaming, the Reno area features numerous national forests, mountains and lakes
(including Lake Tahoe) and offers outstanding year-round opportunities for
outdoor activities of all types. According to the Visitors Authority, visitors
to the Reno market stayed an average of 2.5 nights in 1998. The Reno area enjoys
relatively mild weather, with abundant sunshine throughout the year and low
humidity. Reno's annual snowfall is modest, although heavier snowfall in the
mountain passes around Reno can obstruct traffic to Reno. Special annual events
in the Reno area include Hot August Nights, the National Championship Air Races,
the Reno Balloon Races and the Reno Rodeo. According to the Visitors Authority,
the greater Reno area attracted an estimated 5.1 million visitors in both 1998
and 1997.
The following table sets forth certain statistical information for the
Reno market for the years 1994 through 1998 as reported by the Visitors
Authority or the Nevada State Gaming Control Board.
<TABLE>
<CAPTION>
THE RENO MARKET
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gaming Revenues (000's) ........... $ 826,174 $ 889,480 $ 885,578 $ 901,989 $ 929,844
Gaming Positions(1)(2)............. 29,943 31,926 32,164 31,762 30,816
Hotel Rooms(1)..................... 12,582 14,241 15,536 15,773 15,271
Average Hotel Occupancy Rate....... 84.4% 86.0% 83.3% 80.3% 79.1%
Airline Passenger Arrivals(3)...... 2,670,969 2,911,834 3,450,920 3,523,410 3,487,360
Convention Attendance.............. 203,389 314,137 196,707 250,170 256,285
</TABLE>
(1) As of December 31 for each period shown.
(2) Calculated from information provided by the Nevada State Gaming Control
Board.
(3) Arrivals to Reno/Tahoe International Airport.
The National Bowling Stadium, located approximately one block from the
Eldorado and Silver Legacy, opened in February 1995 at a reported cost of
approximately $48 million. The state-of-the-art facility, which features 80
bowling lanes, has been selected to host tournaments for the American Bowling
Congress (the "ABC") and the Women's International Bowling Congress (the "WIBC")
over the next 10 years and is expected to host many other tournaments for other
bowling organizations. The National Bowling Stadium held the WIBC's National
Championship Bowling Tournament in 1997 and has scheduled the 2000, 2003, 2006
and 2009 tournaments and the ABC's National Championship Bowling Tournament for
1998, 2001, 2004 and 2007, providing a major bowling tournament in Reno two out
of every three years through the year 2009. According to the Visitors Authority,
bowling tournaments held at the National Bowling Stadium attract visitors from
markets that do not normally contribute substantially to Reno's visitor profile.
The National Bowling Stadium also features a large-screen movie theater and
retail space and can be configured to host special events and conventions.
In 1998, eleven scheduled airlines and a number of other charter
airlines provided non-stop service between Reno and approximately 21 North
American cities, providing available seats for more than 13,800 people daily
both
8
<PAGE>
inbound and outbound. The most frequent users of the airport are Reno Air and
Southwest Airlines, with approximately 79 and 87 daily flights, respectively,
to or from Reno as of December 31, 1998. The Eldorado and Silver Legacy are
within a 10-minute drive of the airport, making them easily accessible to
visitors traveling to Reno by air.
COMPETITION
The Company competes for customers primarily on the basis of location,
range and pricing of amenities and overall atmosphere. Of the 44 casinos
currently operating in the Reno market, the Company competes principally with
the eight other hotel/casinos that each generate over $36 million in annual
gaming revenues, including Circus Circus-Reno and the Silver Legacy. The
Visitors Authority estimates that up to approximately 4,800 rooms will be added
to the Reno market within a decade. The Company expects that any additional
rooms added in the Reno market will increase competition for visitor revenue. To
a lesser extent, the Company also competes with hotel/casino operations located
in Las Vegas and Laughlin, Nevada and in the Lake Tahoe area. A substantial
number of customers travel to both Reno and the Lake Tahoe market during their
visits. Consequently, the Company believes that its success is influenced to
some degree by the success of the Lake Tahoe market. Environmental restrictions
place limitations on the expansion of hotels and casinos in the Lake Tahoe
market. Additionally, the Company competes with casino gaming on Native
American-owned lands throughout California, Washington and Oregon, from where it
is estimated the Reno market drew in excess of 67% of its visitors in 1998.
Furthermore, since the 1980's, legalized gaming opportunities have proliferated
throughout the United States, and the Company now competes with pari-mutuel
wagering, state-sponsored lotteries, card clubs, bingo, off-track betting,
riverboat and other forms of legalized gaming.
In November 1998, the California electorate approved Proposition 5,
the California Indian Self-Reliance Initiative, to provide a model compact
between the State of California and its Indian tribes, setting terms and
conditions for gambling on tribal lands. Video gaming devices and card games
are currently operated on a number of California reservations without the
State approval required by law. If implemented, Proposition 5 would give all
California Indian tribes the right to operate an unlimited number of certain
kinds of gaming machines and conduct other forms of casino wagering on
California reservations. In December 1998, the California Supreme Court
blocked the enforcement of Proposition 5 pending the resolution of legal
challenges to Proposition 5 which are currently before the Court. However, in
December 1998, the United States Court of Appeals in San Francisco declined
to enforce a federal injunction shutting down the gaming operations currently
conducted on California reservations. Legal challenges to Proposition 5 may
delay or prevent its implementation. However, if implemented, Proposition 5
may negatively affect Nevada gaming markets, including Reno. The Company is
unable at this time to determine the outcome of the litigation relating to
Proposition 5 or to assess the impact on the Company's operations and those
of Silver Legacy if Proposition 5 is eventually implemented.
Riverboat, dockside or land-based casino gaming is currently legal
in 16 states and casino gaming on Native American-owned land is legal in at
least 24 states, including California, Washington, and Oregon. In addition,
California (from which the Reno market drew approximately 50% of its
visitors, and whose residence contributed a significant portion of the
Company's revenues, in 1998) allows other non-casino style gaming, including
pari-mutuel wagering, state-sponsored lottery, card clubs, bingo, and
off-track betting. The Company believes that the expansion of casino gaming
on Native American lands in California, and to a lesser extent in Washington
and Oregon, could have a material adverse affect on the Company's operations.
Furthermore, while the Company believes that the continued spread of
legalized gaming may in the future present the Company with opportunities for
expansion (subject to available financing), increased legalized gaming in
other states, particularly in areas close to Nevada, such as California,
Washington, and Oregon, could adversely affect the Company's operations.
NEVADA REGULATION AND LICENSING
The ownership and operation of casino gaming facilities in Nevada are
subject to the Nevada Gaming Control Act (the "Nevada Act") and regulations
promulgated there under as well as various local regulations. The Company's
gaming operations are subject to the licensing and regulatory control of the
Nevada Gaming Commission (the "Nevada Commission"), the Nevada State Gaming
Control Board (the "Nevada Board") and various local and governmental
authorities (collectively with the Nevada Commission and the Nevada Board, the
"Nevada Gaming Authorities"). The laws, regulations and supervisory procedures
of the Nevada Gaming Authorities are based upon declarations of public policy
which seek to, among other things, (i) prevent unsavory or unsuitable persons
from having any direct or indirect involvement with gaming at any time or in any
capacity, (ii) establish and maintain responsible accounting practices and
procedures, (iii) maintain effective control over the financial practices of
licensees, including establishing minimum procedures for internal fiscal affairs
and the safeguarding of assets and revenues, providing reliable recordkeeping
and requiring the filing of periodic reports with the Nevada Gaming Authorities,
(iv) prevent cheating and fraudulent practices and (v) provide a source of state
and local revenues through taxation and licensing fees. Changes in such laws,
regulations and procedures could have an adverse effect on the Company's gaming
operations.
9
<PAGE>
Resorts, which operates the Eldorado, is licensed by the Nevada Gaming
Authorities and is a corporate licensee (a "Corporate Licensee") under the terms
of the Nevada Act. The gaming license requires the periodic payment of fees and
taxes and is not transferable. Resorts and Capital each is registered by the
Nevada Commission as a publicly traded corporation (a "Registered Corporation").
Registered Corporations are required periodically to submit detailed financial
and operating reports to the Nevada Commission and furnish any other information
that the Nevada Commission may request. No person may become a member of, or
receive any percentage of the profits from, the Company without first obtaining
licenses and approvals from the Nevada Gaming Authorities. All of the members of
Resorts have obtained the licenses and approvals necessary to own their
respective interests in the Company. The Company has obtained from the Nevada
Gaming Authorities the various registrations, approvals, permits and licenses
required in order to engage in gaming activities at the Eldorado.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, the Company in order to
determine whether such individual is suitable or should be licensed as a
business associate of the Company. Officers, directors and certain key employees
of the Company must file applications with the Nevada Gaming Authorities and may
be required to be licensed or found suitable by the Nevada Gaming Authorities.
The Nevada Gaming Authorities may deny an application for licensing for any
cause which they deem reasonable. A finding of suitability is comparable to
licensing, and both require submission of detailed personal and financial
information followed by a thorough investigation. The applicant for licensing or
a finding of suitability must pay all the costs of the investigation. Changes in
licensed positions must be reported to the Nevada Gaming Authorities and, in
addition to their authority to deny an application for a finding of suitability
or licensure, the Nevada Gaming Authorities have jurisdiction to disapprove a
change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director or
key employee of the Company unsuitable for licensing or unsuitable to continue
having a relationship with the Company, the Company would have to sever all
relationships with such person. In addition, the Nevada Commission may require
the Company to terminate the employment of any person who refuses to file
appropriate applications. Determinations of suitability or of questions
pertaining to licensing are not subject to judicial review in Nevada.
The Company is required to submit detailed financial and operating
reports to the Nevada Commission. Substantially all material loans, leases,
sales of securities and similar financing transactions by the Company must be
reported to, or approved by, the Nevada Commission.
If it were determined that the Nevada Act was violated by the Company,
the gaming licenses it holds could be limited, conditioned, suspended or
revoked, subject to compliance with certain statutory and regulatory procedures.
In addition, the Company and the persons involved could be subject to
substantial fines for each separate violation of the Nevada Act at the
discretion of the Nevada Commission. Further, a supervisor could be appointed by
the Nevada Commission to operate the Company's gaming properties and, under
certain circumstances, earnings generated during the supervisor's appointment
(except for the reasonable rental value of the Company's gaming properties)
could be forfeited to the State of Nevada. Limitation, conditioning or
suspension of any gaming license or the appointment of a supervisor could (and
revocation of any gaming license would) materially adversely affect the
Company's gaming operations.
The Nevada Commission may, in its discretion, require the holder of any
debt security of the Company, including the 10 1/2% Senior Subordinated Notes
due 2006 of Resorts and Capital, to file applications, be investigated and be
found suitable to own such debt security. If the Nevada Commission determines
that a person is unsuitable to own such security, then pursuant to the Nevada
Act, the Company can be sanctioned, including the loss of its licenses, if
without the prior approval of the Nevada Commission, it: (i) pays to the
unsuitable person any dividend, interest or any distribution whatsoever, (ii)
recognizes any voting right by such unsuitable person in connection with such
securities, (iii) pays the unsuitable person remuneration in any form or (iv)
makes any payment to the unsuitable person by way of principal, redemption,
conversion, exchange, liquidation or similar transaction.
Any beneficial holder of a Registered Corporation's voting securities,
regardless of the number of shares owned, may be required to file an
application, be investigated and have his suitability as a beneficial holder of
a Registered Corporation's voting securities determined if the Nevada Commission
has reason to believe that such ownership would otherwise be inconsistent with
the declared policies of the State of Nevada. The applicant must pay all costs
of investigation incurred by the Nevada Gaming Authorities in conducting any
such investigation.
The Nevada Act requires any person who acquires beneficial ownership of
more than 5% of a Registered Corporation's voting securities to report the
acquisition to the Nevada Commission. The Nevada Act requires that beneficial
owners of more than 10% of a Registered Corporation's voting securities apply to
the Nevada Commission for a finding of suitability within 30 days after the
Chairman of the Nevada Gaming Board mails the written notice requiring such
filing. Under certain circumstances, an "institutional investor," as defined in
the Nevada Act, which acquires more than 10%, but not more than 15%, of a
Registered Corporation's voting securities may apply to the
10
<PAGE>
Nevada Commission for a waiver of such finding of suitability if such
institutional investor holds the voting securities for investment purposes
only. An institutional investor will not be deemed to hold voting securities
for investment purposes unless the voting securities were acquired and are
held in the ordinary course of business as an institutional investor and not
for the purpose of causing, directly or indirectly, the election of a
majority of the members of the board of directors of a Registered
Corporation, any change in a Registered Corporation's corporate charter,
bylaws, management, policies or operations or any of its gaming affiliates or
any other action which the Nevada Commission finds to be inconsistent with
holding the Registered Corporation's voting securities for investment
purposes only. Activities which are not deemed to be inconsistent with
holding voting securities for investment purposes only include: (i) voting on
all matters voted on by shareholders, (ii) making financial and other
inquiries of management of the type normally made by securities analysts for
informational purposes and not to cause a change in management, policies or
operations, and (iii) such other activities as the Nevada Commission may
determine to be consistent with such investment intent. If the beneficial
holder of voting securities who must be found suitable is a corporation,
partnership or trust, it must submit detailed business and financial
information including a list of beneficial owners. The applicant is required
to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of suitability
or a license within 30 days after being ordered to do so by the Nevada
Commission or the Chairman of the Nevada Board may be found unsuitable. The same
restrictions apply to a record owner of the Company's securities if the record
owner, after request, fails to identify the beneficial owner of such securities.
Any shareholder found unsuitable and who holds, directly or indirectly, any
beneficial ownership of the voting securities of a Registered Corporation beyond
such period of time as may be prescribed by the Nevada Commission may be guilty
of a criminal offense. A Registered Corporation is subject to disciplinary
action if, after it receives notice that a person is unsuitable to be a member
of or to have any other relationship with such corporation, the Registered
Corporation (i) pays that person any dividend or interest upon voting securities
of such corporation, (ii) allows that person to exercise, directly or
indirectly, any voting right conferred through securities held by that person,
(iii) pays remuneration in any form to that person for services rendered or
otherwise or (iv) fails to pursue all lawful efforts to require such unsuitable
person to relinquish his voting securities, including, if necessary, the
immediate purchase of such voting securities for cash at fair market value.
A Registered Corporation is required to maintain a current stock ledger
in Nevada which may be examined by the Nevada Gaming Authorities at any time. If
any securities are held in trust by an agent or by a nominee, the record holder
may be required to disclose the identity of the beneficial owner to the Nevada
Gaming Authorities. A failure to make such disclosure may be grounds for finding
the record holder unsuitable. A Registered Corporation is also required to
render maximum assistance in determining the identity of the beneficial owner.
The Nevada Commission has the power to require the stock certificates of a
Registered Corporation to bear a legend indicating that the securities are
subject to the Nevada Act.
Neither the Company nor a Registered Corporation may make a public
offering of its securities without the prior approval of the Nevada Commission
if the securities or proceeds therefrom are intended to be used to construct,
acquire or finance gaming facilities in Nevada or to retire or extend
obligations incurred for such purposes. Such approval, if given, does not
constitute a finding, recommendation or approval by the Nevada Commission or the
Nevada Board as to the accuracy or adequacy of the prospectus or the investment
merits of the securities. Any representation to the contrary is unlawful.
Changes in control of a Registered Corporation through merger,
consolidation, stock or asset acquisitions, management or consulting agreements
or any act or conduct by a person whereby he obtains control may not occur
without the prior approval of the Nevada Commission. Entities seeking to acquire
control of a Registered Corporation must satisfy the Nevada Board and Nevada
Commission with respect to a variety of stringent standards prior to assuming
control of such Registered Corporation. The Nevada Commission may also require
controlling shareholders, officers, directors and other persons having a
material relationship or involvement with the entity proposing to acquire
control to be investigated and licensed as a part of the approval process
relating to the transaction.
The Nevada legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and corporate defense
tactics affecting Registered Corporations may be injurious to stable and
productive corporate gaming. The Nevada Commission has established a regulatory
scheme to ameliorate the potentially adverse effects of these business practices
upon Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming operators and their affiliates, (ii)
preserve the beneficial aspects of conducting business in the corporate form and
(iii) promote a neutral environment for the orderly governance of corporate
affairs. Approvals are required in certain circumstances from the Nevada
Commission before a Registered Corporation may make exceptional repurchases of
voting securities above the current market price thereof and before a corporate
acquisition opposed by management may be consummated. The Nevada Act also
requires prior approval of a plan of recapitalization proposed by a Registered
Corporation's Board of Directors in response to a tender offer made directly to
the Registered Corporation's shareholders for the purposes of acquiring control
of the Registered Corporation.
11
<PAGE>
License fees and taxes, computed in various ways depending on the type
of gaming or activity involved, are payable to the State of Nevada and to the
counties and cities in which the Nevada licensee's respective operations are
conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly or annually and are based upon
either: (i) a percentage of the gross revenues received, (ii) the number of
gaming devices operated or (iii) the number of table games operated. A casino
entertainment tax is also paid by casino operations where entertainment is
furnished in connection with the selling of food or refreshments.
Any person who is licensed, required to be licensed, registered,
required to be registered or is under common control with such person
(collectively, "Licensees"), and who proposes to become involved in a gaming
venture outside of Nevada, is required to deposit with the Nevada Gaming Board,
and thereafter maintain, a revolving fund in the amount of $10,000 to pay the
expenses of investigation by the Nevada Board of their participation in such
foreign gaming. The revolving fund is subject to increase or decrease at the
discretion of the Nevada Commission. Thereafter, Licensees are required to
comply with certain reporting requirements imposed by the Nevada Act. Licensees
are also subject to disciplinary action by the Nevada Commission if they
knowingly violate any laws of the foreign jurisdiction pertaining to the foreign
gaming operation, fail to conduct the foreign gaming operation in accordance
with the standards of honesty and integrity required of Nevada gaming
operations, engage in activities that are harmful to the State of Nevada or its
ability to collect gaming taxes and fees or employ a person in the foreign
operation who has been denied a license or finding of suitability in Nevada for
the reason of personal unsuitability.
NATIONAL GAMBLING COMMISSION
A National Gambling Impact Study Commission (the "National Commission")
has been established by the United States Congress to conduct a comprehensive
legal and factual study of the social and economic impact of gaming in the
United States. The National Commission is required by the enabling legislation
to issue a comprehensive report containing its findings and conclusions,
together with any recommendations of the National Commission for legislation and
administrative actions, within two years after the date on which it held its
first meeting, which occurred on June 20, 1997. Any recommendations which may be
made by the National Commission could result in the enactment of new laws and/or
the adoption of new regulations which could adversely impact the gaming industry
in general and the Company in particular. The Company is unable at this time to
determine what recommendations, if any, the National Commission will make, or
the ultimate disposition of any recommendations the National Commission may
make.
ENVIRONMENTAL MATTERS
As is the case with any owner or operator of real property, the Company
is subject to a variety of federal, state and local governmental regulations
relating to the use, storage, discharge, emission and disposal of hazardous
materials. Federal, state and local environmental laws and regulations also
impose liability on potentially responsible parties, including the owners or
operators of real property, to clean up, or contribute to the cost of cleaning
up, sites at which hazardous wastes or materials were disposed of or released.
The Company does not have environmental liability insurance to cover such
events.
Certain of the Company's properties and former properties, including
the Silver Legacy property, had or have varying degrees of petroleum
contamination in the soil and/or groundwater. In each instance where such
petroleum contamination has been identified, investigation or remediation
activities have been undertaken or are ongoing. The possibility exists that
additional contamination, as yet unknown, may exist at these or other of the
Company's properties. In addition, under the terms of an Environmental
Indemnity, dated May 30, 1995 (the "Environmental Indemnity"), the Company has
agreed jointly and severally with Circus Circus to indemnify, defend and hold
harmless the agents and lenders under the Silver Legacy Joint Venture's bank
credit facility from and against any and all Environmental Losses (as defined in
the Environmental Indemnity) suffered or incurred on the premises of the Silver
Legacy or arising through the ownership, use, occupancy or operation thereof.
Generally, liability under the Environmental Indemnity covers the period prior
to the date the lenders foreclose on and take possession of the real property
securing their loans to the Silver Legacy Joint Venture. The agents and lenders
are not required to seek payments from the Silver Legacy Joint Venture before
pursuing payments from the Company and Circus Circus for Environmental Losses.
In all cases, the Company believes that the contamination arose from activities
of prior owners or occupants, or from offsite sources and not as a result of any
actions or operations conducted by the Company.
In 1998 the Silver Legacy received reimbursement and indemnification
from Chevron Company USA of $750,000 for petroleum contamination identified on
the Silver Legacy property. The possibility exists that other responsible
parties may be identified for this or other sites, and the Company will
determine whether to seek contribution or reimbursement from such parties. In
addition, reimbursement for some of the expenditures has been,
12
<PAGE>
and further reimbursement may be, obtained from the State of Nevada Petroleum
Fund which has been established to reimburse parties for costs incurred in
clean-up of underground storage tank related contamination.
The Company's properties and former properties also lie within the
proposed Central Truckee Meadows Remediation District, encompassing much of the
City of Reno, which will address groundwater contaminated with solvents as
identified by the Nevada Division of Environmental Protection. The Company does
not believe that it has contributed to this solvent contamination. The Company
has not been required to conduct any remediation or investigation of this matter
nor to contribute toward any costs associated therewith. However, the
possibility remains that funding of the investigation or remediation of this
regional groundwater issue could result in a special assessment on the Company's
properties or former properties among others within the Remediation District.
The possibility exists that the entire area of contamination, or a portion
thereof, could be listed under the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980.
Asbestos has been determined to be present in the sheetrock of
approximately 400 of the Eldorado's older hotel rooms. Removal of the asbestos
will be required only in the event of the demolition of the affected rooms or if
the asbestos is otherwise disturbed. Management currently has no plans to
renovate or demolish the affected rooms in a manner that would require removal
of the asbestos at this time.
The Company has expended approximately $734,000 in connection with
environmental matters from January 1, 1993 through December 31, 1998, of which
approximately $9,000 was expended during 1998.
EMPLOYEES
As of December 31, 1998, the Company had 2,456 employees, the
substantial majority of whom are nonmanagement personnel. The number of
people employed at any time is subject to seasonal fluctuation. None of the
Company's employees is covered by a collective bargaining agreement. The
Company believes that employee relations are excellent.
FORWARD LOOKING INFORMATION
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 plans for future expansion and other business
development activities as well as other capital spending, financing sources and
the effects of regulation (including gaming and tax regulation) and competition.
Such forward-looking information involves important risk 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 risk 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).
ITEM 2. PROPERTIES.
The Company's executive offices reside inside the Eldorado, which is
located on an approximately 159,000 square foot parcel at 345 North Virginia
Street, Reno, Nevada. The Company owns the entire parcel, except for
approximately 30,000 square feet which is leased by the Company from C, S and Y
Associates, a general partnership of which Donald Carano is a general partner.
See "Compensation Committee Interlocks and Insider Participation" in Item 11 of
this Report. The lease expires on June 30, 2027. Annual rent is equal to the
greater of (i) $400,000 and (ii) an amount based on a decreasing percentage of
the Eldorado's gross gaming revenues ranging from 3.0% of the first $6.5 million
of gross gaming revenues to 0.1% of gross gaming revenues in excess of $75.0
million. Rent in 1998 totaled $654,000. Substantially all of the Company's real
property, including the Eldorado, is subject to encumbrances securing the
repayment of the Company's $50 million revolving credit facility (the "Credit
Facility"). The amount of credit available pursuant to the Credit Facility
reduced to approximately $40.6 million on December 31, 1998 and, by its terms,
the facility reduces by an additional $1,562,500 at the end of each subsequent
quarter until July 31, 2001, when it terminates and any balance then outstanding
becomes due and payable. At December 31, 1998, the indebtedness outstanding
under the Credit Facility was $20.0 million. The Credit Facility is secured by a
first deed of trust and
13
<PAGE>
security interest in all real property interests and fixtures underlying the
Eldorado, certain parking facilities, a second deed of trust on the 31,000
square foot property located across the street from the Eldorado, all related
personal property, substantially all other assets of the Company and a pledge
of the Company's interest in ELLC. In addition, Capital has guaranteed the
Company's obligations under the Credit Facility.
The Company owns a 35,000 square foot parcel of land located at 444
North Center Street, Reno, Nevada, on which the Company's human resources
offices are located, and owns approximately 90 acres of land located in
Verdi, Nevada. The Credit Facility is secured by a first deed of trust and
security interest in all real property interests and fixtures relating to the
land located in Verdi, Nevada and the land located at 444 North Center Street.
The Company owns a 31,000 square foot parcel of property across the
street from and west of the Eldorado, which could be used for expansion of the
Eldorado. As of December 31, 1998, this parcel was subject to an encumbrance
securing the repayment of indebtedness of $2,294,000, in addition to the
aforementioned second deed of trust securing the Company's interest under the
Credit Facility.
The Company and Circus Circus each own a one-half interest in a 63,000
square foot parcel of land across the street from the Silver Legacy. At December
31, 1998, this parcel was subject to an encumbrance securing the repayment of
indebtedness of $893,000. Circus Circus reimburses the Eldorado on a quarterly
basis for one half the total principal and interest payments relating to this
indebtedness.
The Company's 96% owned subsidiary, ELLC, owns a 50% joint venture
interest in the Silver Legacy, a major themed hotel/casino located adjacent to
the Eldorado. Reference is made to the information appearing under the heading
"Silver Legacy Resort Casino" in Item 1 of this Report, which information is
hereby incorporated in this Item 2 by this reference.
ITEM 3. LEGAL PROCEEDINGS.
The Company from time to time is involved in litigation arising in the
ordinary course of its business. The Company does not believe that such
litigation to which the Company or any subsidiary of the Company is a party or
of which any of their property is the subject will, individually or in the
aggregate, have a material adverse effect on the Company's financial position or
the results of its operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There is no established public trading market for the Company's
outstanding membership interests which were owned of record by three entities
and two individuals as of December 31, 1998. See Item 12 of this Report for
additional information concerning the ownership of Resorts' membership
interests. As a limited liability company, Resorts is not (and its
predecessor, the Predecessor Partnership, was not) subject to Federal income
tax liability. Because the Company's holders of membership interests are (and
the Predecessor Partnership's partners were) required to include their
respective shares of Resorts or the Predecessor Partnership's taxable income
in their individual income tax returns, Resorts and the Predecessor
Partnership have made distributions to their members and partners to cover
such tax liabilities. Distributions for 1998 were, and distributions for
subsequent years will be, limited in accordance with the provisions of the
Operating Agreement of Eldorado Resorts LLC dated as of June 28, 1996 (the
"Operating Agreement"). The Operating Agreement provides that the Board of
Managers will distribute each year to each member an amount equal to such
member's allocable share of taxable income multiplied by the highest marginal
combined Federal, state, and local income tax rate applicable to individuals
for that year; provided that such distributions will not be made after any
event that causes Resorts to thereafter be taxed under the Internal Revenue
Code of 1986, as amended, as a corporation. Distributions of Resorts to its
members aggregated $7 million and $11.4 million for 1997 and 1998,
respectively, of which approximately $4.8 million in 1997 and $3.9 million in
1998 was for income taxes.
14
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
Operating revenues:
Casino........................... $ 97,809 $106,737 $104,608 $104,513 $104,441
Food and beverage................ 31,137 33,265 34,061 36,529 37,938
Hotel ........................... 16,837 17,200 16,784 17,769 18,142
Entertainment.................... 581 515 422 4,532 6,392
Equity in net income (loss) of
unconsolidated affiliate(1)..... -- (3,208) 1,758 390 --
Other............................ 4,316 4,908 7,120 7,093 6,698
Less promotional allowances...... (12,482) (13,895) (14,102) (14,545) (15,296)
--------- -------- -------- -------- --------
Net revenues............. 138,198 145,522 150,651 156,281 158,315
Operating expenses:
Casino........................... 37,554 42,692 44,557 45,786 47,575
Food and beverage................ 22,047 25,359 25,412 27,576 28,321
Hotel ........................... 6,554 7,536 7,219 7,387 7,611
Entertainment.................... 959 1,004 813 2,955 4,696
Other............................ 2,361 2,043 3,246 3,510 3,881
Selling, general and
administrative(2).............. 27,509 28,335 29,237 30,566 29,745
Depreciation..................... 7,325 8,166 10,361 12,478 13,718
Abandonment loss(3).............. -- 1,862 -- -- --
--------- -------- -------- -------- --------
Total Operating expenses. 104,309 116,997 120,845 130,258 135,547
--------- -------- -------- -------- --------
Operating income ..................... 33,889 28,525 29,806 26,023 22,768
Interest expense, net................. (3,254) (5,336) (10,935) (13,694) (13,151)
--------- -------- -------- -------- --------
Net income before minority interest... 30,635 23,189 18,871 12,329 9,617
Minority interest in net (income) loss
of unconsolidated affiliate(4)...... -- 745 (408) (91) --
--------- -------- -------- -------- --------
Net income(5)......................... $ 30,635 $ 23,934 $ 18,463 $ 12,238 $ 9,617
--------- -------- -------- -------- --------
--------- -------- -------- -------- --------
OTHER DATA:
EBITDA(6)............................. $ 41,214 $ 41,761 $ 38,409 $ 38,111 $ 36,486
Net cash provided by (used in):
Operating activities............. 38,786 36,345 31,201 22,782 23,122
Investing activities............. (37,045) (62,791) (22,336) (15,837) (5,484)
Financing activities............. (1,205) 27,208 (9,202) (6,361) (15,920)
Capital expenditures.................. 12,053 57,451 24,981 15,957 5,665
OPERATING DATA(7):
Number of hotel rooms(8).............. 783 817 817 815 816
Average hotel occupancy rate.......... 93.7% 93.8% 93.6% 90.1% 92.8%
Casino square footage(8).............. 61,500 76,500 81,500 81,500 84,000
Number of slot machines(8)............ 1,597 1,904 1,976 1,858 1,871
Number of table games(8).............. 71 84 89 79 79
AT DECEMBER 31,
-----------------------------------------------------------------------------
1994 1995 1996 1997 1998
--------- -------- -------- -------- --------
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............. $ 5,360 $ 6,122 $ 5,785 $ 6,369 $ 8,087
Total assets.......................... 160,384 215,592 234,293 238,627 231,258
Total debt............................ 79,064 123,630 128,503 129,404 124,884
Members' equity (9)................... 69,634 74,768 84,031 89,269 87,486
</TABLE>
SEE FOOTNOTES TO SELECTED CONSOLIDATED FINANCIAL DATA WHICH APPEAR ON THE NEXT
PAGE.
15
<PAGE>
FOOTNOTES TO SELECTED CONSOLIDATED FINANCIAL DATA
(1) Equity in net income (loss) of unconsolidated affiliate represents ELLC's
50% joint venture interest in the Silver Legacy Joint Venture. The equity
in net income (loss) of unconsolidated affiliate for the year ended
December 31, 1995, includes the impact of ELLC's share of the $9.9 million
of pre-opening expenses that were incurred by the Silver Legacy Joint
Venture.
(2) Resorts pays management fees to Recreational Enterprises, Inc. and Hotel
Casino Management, Inc., the owners of 55% and 29% of Resorts' equity
interests, respectively. The management fees paid to Recreational
Enterprises, Inc. and Hotel Casino Management, Inc. are included in
selling, general and administrative expenses and totaled $2.9 million, $1.8
million and $1.8 million for the years ended December 31, 1996, 1997 and
1998, respectively. Historically, the salaries of senior executive officers
and certain other key employees of the Predecessor Partnership were not
directly incurred by the Predecessor Partnership but were paid from a
portion of the management fees paid to Recreational Enterprises, Inc. As of
July 1, 1996, the aggregate annual salaries of such senior executive
officers and other key employees became payroll obligations of Resorts.
Resorts has entered into a Management Agreement with Recreational
Enterprises, Inc. and Hotel Casino Management, Inc. providing that future
management fees paid to Recreation Enterprises, Inc. and Hotel Casino
Management, Inc. will not exceed 1.5% of Resorts' annual net revenues. As a
result of the Management Agreement and Resorts' assumption of
responsibility for the salaries of senior executive officers and other key
employees previously paid by Recreational Enterprises, Inc. from its
management fee, Resorts incurred such salaries and management fees for the
years ended December 31, 1996, 1997 and 1998 of $4.6 million, $4.3 million
and $3.9 million, respectively.
(3) Abandonment loss equals the net book value of property disposed of as a
result of the expansion of the Eldorado and represents the undepreciated
value of such property.
(4) Minority interest in net (income) loss of unconsolidated affiliate
represented the 23% minority interest partners' share of ELLC's 50% joint
venture interest in the Silver Legacy Joint Venture. The minority interest
in ELLC is owned by Resorts' equityholders. In June 1998, ELLC completed a
recapitalization, effective June 30, 1997, decreasing minority interest in
net (income) loss of unconsolidated affiliate to 4%.
(5) As a limited liability company, Resorts is not (and its predecessor
Partnership, was not) subject to Federal income tax liability. Because the
Company's holders of membership interests are (and the Predecessor
Partnership's partners were) required to include their respective shares of
Resorts or the Predecessor Partnership's taxable income in their individual
income tax returns, Resorts and the Predecessor Partnership have made
distributions to their members and partners to cover such liabilities.
(6) EBITDA is defined as earnings before interest, taxes, depreciation and
amortization. For the year ended December 31, 1995, EBITDA was adjusted to
exclude ELLC's equity in net income (loss) of its unconsolidated affiliate
of ($3.2) million and abandonment loss of $1.9 million. For the year ended
December 31, 1996, EBITDA was adjusted to exclude ELLC's equity in net
income of its unconsolidated affiliate of $1.8 million. For the year ended
December 31, 1997, EBITDA was adjusted to exclude ELLC's equity in net
income of its unconsolidated affiliate of $0.4 million. EBITDA as presented
may not be comparable to EBITDA of other entities as other entities may not
calculate EBITDA in the same manner. EBITDA should not be construed as an
alternative to operating income or net income (as determined in accordance
with generally accepted accounting principles) as an indicator of the
Company's operating performance, or as an alternative to cash flows
generated by operating, investing and financing activities (as determined
in accordance with generally accepted accounting principles) as an
indicator of cash flows or a measure of liquidity. EBITDA is presented
solely as supplemental disclosure because management believes that it is a
widely used measure of operating performance in the gaming industry.
(7) Excludes the operating data of the Silver Legacy.
(8) As of the end of each period presented.
(9) Effective upon consummation of the Reorganization, partners' equity was
reclassified as members' equity.
16
<PAGE>
ITEM 7. 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. In June 1998, ELLC completed a
recapitalization, retroactive to 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 8 of the Notes to the Consolidated Financial Statements
included in this Report.
The following discussion of the Company's operations relates to the
Eldorado except as otherwise indicated.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO
YEAR ENDED DECEMBER 31, 1997
NET REVENUES
Net revenues increased by approximately $2.0 million to $158.3 million
for the year ended December 31, 1998 compared to $156.3 million for the year
ended December 31, 1997. The increase in net revenues resulted from increases in
hotel revenues, food and beverage and entertainment revenues. Net revenues
increased notwithstanding the fact that the Company did not recognize income
from its unconsolidated affiliate, the Silver Legacy Joint Venture, as compared
to recognition of $0.4 million of income from the Silver Legacy Joint Venture
for the year ended December 31, 1997, as the result of a priority allocation to
Galleon, Inc. pursuant to the Joint Venture Agreement. See Note 8 of the Notes
to the Consolidated Financial Statements included in this Report.
Casino revenues remained essentially unchanged at $104.4 million for
the year ended December 31, 1998 compared to $104.5 million in 1997.
Food and beverage revenues were $37.9 million for the year ended
December 31, 1998 compared to $36.5 million in 1997, an increase of 3.9%. The
increase is primarily a result of a slight increase in restaurant customer
counts and an increase in the average check.
Hotel revenues increased slightly to $18.1 million for the year ended
December 31, 1998 from $17.8 million for the year ended December 31, 1997, an
increase of 2.1%. The increase is primarily a result of an increase in the
Company's hotel occupancy rate for the year ended December 31, 1998 to
approximately 93% from 90% in 1997. The Company's average daily rate ("ADR") was
comparable at approximately $60 for the years ended December 31, 1998 and 1997.
Entertainment revenues increased by approximately 41% or $1.9 million
to $6.4 million for the year ended December 31, 1998 compared to $4.5 million in
1997. The increase was primarily due to the Eldorado's Showroom which had a full
year of operations in 1998 as compared to eight months in 1997.
Other revenues decreased by approximately $0.4 million or 5.6%, to $6.7
million for year ended December 31, 1998 as compared to $7.1 million in 1997 as
a result of lower parking and retail revenue.
17
<PAGE>
Promotional allowances, expressed as a percentage of casino revenues
increased to 14.7% in 1998 as compared to 13.9% in 1997. The increase is due
to increased use of complimentaries to all levels of casino patrons and an
increase in promotions related to the Eldorado Showroom.
OPERATING EXPENSES
The Company's operating expenses increased by 4.1% to $135.5 million
for the year ended December 31, 1998 from $130.3 million for the year ended
December 31, 1997. This increase is mainly attributable to increased casino,
food and beverage, entertainment and depreciation expenses.
Casino expenses increased by 3.9% to $47.6 million for the year ended
December 31, 1998 from $45.8 million for the year ended December 31, 1997. The
increase is attributable to increased slot, entertainment and bus program
promotional expenses, in addition to increased expenses related to a new poker
room which opened in May 1998.
Food and beverage expenses increased by approximately $0.7 million, or
2.7% to $28.3 million for the year ended December 31, 1998 from $27.6 million
for the year ended December 31, 1997 primarily due to slight increases in cost
of sales and payroll expenses.
Entertainment expenses increased approximately $1.7 million to $4.7
million for the year ended December 31, 1998 from $3.0 million for the year
ended December 31, 1997. The increase was primarily due to additional months of
operation of Eldorado's Showroom in 1998 as compared to 1997.
Hotel expenses increased slightly by 3.0% or $0.2 million to $7.6
million for the year ended December 31, 1998 from $7.4 million for the year
ended December 31, 1997 due to a slight increase in payroll and amenity
expenses.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES AND MANAGEMENT FEES
Selling, general and administrative expenses and management fees
decreased by 2.7% to $29.7 million for the year ended December 31, 1998 from
$30.6 million during the same period in 1997. The decrease was primarily due to
a decrease in the employee bonuses for the year ended December 31, 1998 as
compared to 1997.
DEPRECIATION
Depreciation for the year ended December 31, 1998 was $13.7 million
compared to $12.5 million for the year ended December 31, 1997, an increase of
9.9%. 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 $13.2 million for the year ended December 31, 1998
compared to $13.7 million for the year ended December 31, 1997. Interest expense
decreased as a result of a decrease in the average outstanding borrowings during
1998 as compared to 1997. The Company capitalized interest of approximately
$72,000 for the year ended December 31, 1998 compared to $256,000 during 1997.
NET INCOME
As a result of the factors described above, net income for the year
ended December 31, 1998 declined by 21.4% to $9.6 million compared to a net
income of $12.2 million in 1997.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO
YEAR ENDED DECEMBER 31, 1996
NET REVENUES
Net revenues were $156.3 million for the year ended December 31, 1997,
compared to $150.7 million in 1996, an increase of 3.7%, despite a January 1997
flood in Reno, which negatively impacted traffic during the month. The
18
<PAGE>
increase in net revenues resulted from increased hotel revenues and food,
beverage and entertainment revenues, due in part to an influx of visitors in
the Reno market attending the WIBC National Championship Bowling Tournament
held from March through July 1997. Net revenues increased notwithstanding the
fact that the Company only recognized income from its unconsolidated
affiliate, the Silver Legacy Joint Venture, during the first quarter of 1997,
as the result of a priority allocation to Galleon, Inc. pursuant to the Joint
Venture Agreement. See Note 8 of the Notes to the Consolidated Financial
Statements included in this Report. The Company recognized income from its
unconsolidated affiliate from January 1, 1997 through May 1, 1997, after
clarification of the Joint Venture Agreement. Net revenues for the year ended
December 31, 1997 include $0.4 million of income from its unconsolidated
affiliate as compared to $1.8 million for the year ended December 31, 1996.
Casino revenues remained essentially unchanged at $104.5 million for
the year ended December 31, 1997 compared to $104.6 million in 1996.
Food, beverage and entertainment revenues were $41.1 million for the
year ended December 31, 1997 compared to $34.5 million in 1996, an increase of
19.1%. The increase in food, beverage and entertainment revenues was due
primarily to the opening of THE BISTRO ROXY in December 1996 and the ELDORADO
SHOWROOM which opened in May 1997.
Hotel revenues increased to $17.8 million for the year ended December
31, 1997 from $16.8 million for the year ended December 31, 1996, an increase of
5.9%, despite a decrease in the Company's hotel occupancy rate for the year
ended December 31, 1997 to approximately 90.1% from 93.6% in 1996. Such decrease
in the hotel occupancy rate was due primarily to the flood in January 1997. The
revenue increase is a result of an increase in the Company's average daily rate
("ADR") by approximately $5 in 1997 compared with 1996. The influx of visitors
attending the WIBC National Championship Bowling Tournament was a factor
contributing to this increase in ADR.
Other revenues for the year ended December 31, 1997 and 1996 were
comparable at $7.1 million. Included in the 1996 amount is a $0.5 million gain
on the sale of land during the second quarter of 1996, which was primarily
offset by increased revenues in the Company's retail shops in 1997.
Promotional allowances, expressed as a percentage of casino revenues,
increased to 13.9% in 1997 as compared to 13.5% in 1996. The increase is due to
increased use of complimentaries to all levels of casino patrons including those
participating in the WIBC National Championship Bowling Tournament.
OPERATING EXPENSE
The Company's operating expenses increased by 7.8% to $130.3 million
for the year ended December 31, 1997 from $120.8 million for the year ended
December 31, 1996. This increase is attributable to increased expenses in the
casino, food, beverage and entertainment departments, depreciation and an
increase in selling, general and administrative expenses.
Casino expenses increased by 2.8% to $45.8 million for the year ended
December 31, 1997 from $44.6 million for the year ended December 31, 1996. The
increase was due to the opening, during the second quarter of 1996, of a
satellite race and sports book operated by the Eldorado at the Silver Legacy, in
addition to increased promotional expense related to the WIBC bowling tournament
and bus programs.
Food, beverage and entertainment expenses increased 16.4% to $30.5
million for the year ended December 31, 1997 from $26.2 million for the year
ended December 31, 1996. The increase is due primarily to the addition of THE
BISTRO ROXY which opened in December 1996 and the ELDORADO SHOWROOM which opened
in May 1997.
Hotel expenses increased slightly to $7.4 million for the year ended
December 31, 1997 from $7.2 million for the year ended December 31, 1996, an
increase of 2.3%, reflecting a slight increase in payroll and marketing
expenditures despite a decrease in hotel occupancy.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES AND MANAGEMENT FEES
Selling, general and administrative expenses and management fees
increased by 4.6% for the year ended December 31, 1997 to $30.6 million from
$29.2 million for the year ended December 31, 1996. The increase was
partially attributable to increased expenditures in advertising, property
maintenance and public area housekeeping in 1997. Historically, the salaries
of senior executive officers and certain other key
19
<PAGE>
employees of the Company were not directly incurred by the Company but were
paid from a portion of the management fees paid to Recreational Enterprises,
Inc., Resorts' controlling member. As of July 1, 1996, the aggregate annual
salaries of such senior executive officers and other key employees became
payroll obligations of the Company. These obligations and the aforementioned
management fees are included within selling, general and administrative
expenses.
DEPRECIATION
Depreciation for the year ended December 31, 1997 was $12.5 million
compared to $10.4 million for the year ended December 31, 1996, an increase of
20.4%. The increase was attributable to the depreciation of THE BISTRO ROXY and
the ELDORADO SHOWROOM, which were not in service in the prior period, and the
DANIEL'S MOTOR Lodge, which was in service for only a portion of the prior
period.
INTEREST EXPENSE, NET
Interest expense, net of capitalized interest and interest income, for
the years ended December 31, 1997 and 1996 was $13.7 million and $10.9 million,
respectively, an increase of 25.2%. Interest expense increased as a result of an
increase in the average outstanding borrowings in 1997, as compared to 1996, and
as a result of an increase in the Company's cost of capital in 1997. This
increase in average outstanding borrowings is attributable to costs incurred in
connection with the Company's expansion activities in 1996 and 1997. The
Company's increase in cost of capital is due to the issuance in July 1996 of
$100 million principal amount of 10 1/2% Notes, the net proceeds of which were
used to repay approximately $96.5 million of borrowings outstanding under the
Company's Credit Facility (as defined below), which as of July 31, 1996 bore
interest at an average annual rate of 7.5%. The Company capitalized interest of
$0.3 million for the year ended December 31, 1997 related to construction costs,
as compared to $0.4 million for the year ended December 31, 1996.
NET INCOME
As a result of the factors described above, net income in net income
for the year ended December 31, 1997, declined by 33.7% to $12.2 million
compared to $18.5 million for the year ended December 31, 1996.
CORPORATE EXPENSES/MANAGEMENT FEES
The Company pays management fees to Recreational Enterprises, Inc.
and Hotel Casino Management, Inc., the owners of 55% and 29% of the Company's
equity interests, respectively. The management fees paid to Recreational
Enterprises, Inc. and Hotel Casino Management, Inc. are included in selling,
general and administrative expenses and totaled $2.9 million, $1.8 million
and $1.8 million for the years ended December 31, 1996, 1997 and 1998,
respectively. Historically, the salaries of senior executive officers and
certain other key employees were not directly incurred but were paid from a
portion of the management fees paid to Recreational Enterprises, Inc. As of
July 1, 1996, the aggregate annual salaries of such senior executive officers
and other key employees have become payroll obligations of the Company and
the Company entered into a Management Agreement with Recreational
Enterprises, Inc. and Hotel Casino Management, Inc. providing that future
management fees paid to Recreational Enterprises, Inc. and Hotel Casino
Management, Inc. will not exceed 1.5% of the Company's annual net revenues.
As a result of the Management Agreement and the Company's assumption of
responsibility for the salaries of senior executive officers and other key
employees previously paid by Recreational Enterprises, Inc. from its
management fee, the Company incurred such salaries and management fees for
the years ended December 31, 1996, 1997 and 1998 of $4.6 million, $4.3
million and $3.9 million, respectively.
SEASONALITY
Hotel/casino operations in the Reno market are subject to seasonal
variation, with the strongest operating results occurring in the third quarter
of each year and the weakest results occurring during the period from November
through February. Such variations occur when weather conditions have made travel
to Reno by visitors from northern California and the Pacific Northwest
difficult. The following table shows the Company's percentage of gross revenues
by quarter for each of 1996, 1997 and 1998.
20
<PAGE>
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
First quarter...... 21.8% 21.8% 21.3%
Second quarter..... 25.4% 26.3% 26.0%
Third quarter...... 29.0% 28.3% 27.7%
Fourth quarter..... 23.8% 23.6% 25.0%
------ ----- -----
Total......... 100.0% 100.0% 100.0%
</TABLE>
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 and the issuance in July 1996 of $100 million in aggregate principal
amount of 10 1/2% Notes. Since 1996, the Company has completed several expansion
and remodeling projects, accounting for a significant use of cash flow from
operations and borrowed funds. The Company's earnings before interest, taxes,
depreciation and amortization as adjusted to exclude equity in net income of its
unconsolidated affiliate was $36.5 million for the year ended December 31, 1998,
as compared to $38.1 million during the same period in 1997. Net cash provided
by operating activities was $23.1 million for the year ended December 31, 1998
compared to $22.8 million for the prior year.
At December 31, 1998, the Company had $8.1 million of cash and cash
equivalents and $19.3 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 indebtedness under 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. The
Former Credit Facility 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
$40.6 million on December 31, 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.
As of December 31, 1998, the Company had $100 million in aggregate
principal amount of 10 1/2% Notes outstanding, approximately $20 million
outstanding under the Credit Facility and $2.2 million of other long term debt
(net of current portion).
The Operating Agreement of Resorts dated June 28, 1996 obligates Resorts
to distribute each year for as long as it is not taxed as a corporation to each
of its members an amount equal to such members allocable share of the taxable
income of Resorts multiplied by the highest marginal combined Federal, state and
local income tax rate applicable to individuals for that year. For the year
ended December, 1998, Resorts made distributions of $11.4 million to its members
as compared with distributions of $7.0 million during the same period in 1997.
During the second quarter of 1998, 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 year ended December 31, 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
78-seat Asian cuisine restaurant, the GOLDEN FORTUNE opened July 1998. Total
capital expenditures for the year ended December 31, 1998 were $5.7 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.
21
<PAGE>
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.
22
<PAGE>
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. All
initial inquiries to identified significant third party vendors and suppliers
have been completed by the Eldorado and Silver Legacy. 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. The initial third party inquiries to the remaining third party
vendors and suppliers are expected to be completed by March 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 $135,000 had been incurred at
December 31, 1998; and (ii) $130,000 to $160,000 to replace problem systems and
equipment, of which approximately $20,000 had been incurred at December 31,
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 $600,000 to $850,000, none
of which had been incurred at December 31, 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 $400,000 to $600,000. The replacement of problem systems and equipment costs
will be capitalized and depreciated over their expected useful
23
<PAGE>
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 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) those relating to any development and
construction activities and applications for licenses and approvals under
applicable laws and regulations (including gaming laws and regulations).
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Reference is made to the report of independent public accountants and
the consolidated financial statements appearing on pages 39 through 55 of this
Report, which are incorporated in this Item 8 by such reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
24
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS.
Resorts is managed by its Board of Managers, which currently consists
of four Board Members. The initial Board Members designated in the Operating
Agreement are Donald Carano, Recreational Enterprises, Inc. and Hotel Casino
Management, Inc. In September 1996, the Members elected Leslie Stone Abraham as
an additional Board Member. Each corporation that serves as a Board Member must
select a corporate officer as its representative. Recreational Enterprises, Inc.
has selected Gary Carano as its representative and Hotel Casino Management, Inc.
has selected Raymond Poncia as its representative. A corporation which is a
Board Member may change its representative at any time by providing notice to
Resorts. The Operating Agreement provides that the Board of Managers will
consist of at least three, but not more than seven, Board Members, as determined
by a majority of the Board of Managers.
Board Members are elected at annual meetings of the Resorts' members
for one-year terms. Any Board Member may be removed from office with a vote of
60% of the membership interests, but no Board Member may be removed where there
would be enough votes to elect that Board Member at an election. In an election,
each Member is entitled to as many votes as equals the number of percentage
points of such Member's interest multiplied by the number of Board Members to be
elected. Members can cast all of their votes for a single Board Member or
distribute them among the candidates for Board Members as they see fit. The
Board of Managers generally has control over the management and affairs of
Resorts. Board Members are required to devote enough time to Resorts to
reasonably perform their duties. Resorts' Chief Executive Officer, Donald L.
Carano, supervises the day-to-day operations of Resorts. Members and interest
holders have no right to participate directly in management or control of
Resorts, except for votes required for certain extraordinary transactions
described in the Operating Agreement.
The Operating Agreement provides that no Board Member or Officer will
be liable to Resorts, its Members or holders of its membership interests for
acts or omissions of such Board Member or Officer in connection with the
business or affairs of Resorts, including for breach of fiduciary duty or
mistake of judgment, except for acts involving intentional misconduct, fraud or
knowing violations of the law. The Operating Agreement also provides that
Resorts will indemnify, defend and hold harmless every Board Member and Officer
for any losses arising out of Resorts or its business or affairs, unless such
losses are based on acts or omissions involving intentional misconduct, fraud or
a knowing violation of the law.
The following tables set forth certain information with respect to
persons who are members of the Board of Managers (each a "Board Member"),
executive officers of Resorts or the Eldorado and other significant employees.
Also set forth are the respective positions with Capital held by each person who
is a director or officer of Capital.
BOARD MEMBERS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---------------- --- -----------------------------------------------
<S> <C> <C>
Donald L. Carano 67 Presiding Board Member, Chief Executive Officer
and President of Resorts; President and
Director of Capital
Robert M. Jones 56 Chief Financial Officer of Resorts
Gene R. Carano 43 Vice President and Secretary of Resorts
and General Manager of the Eldorado;
Treasurer of Capital
Gregg R. Carano 39 Vice President of Resorts and Director of
Customer Development of the Eldorado; Director
of Capital
Gary L. Carano 46 Board Member--Appointed by Recreational
Enterprises, Inc. as its corporate
representative
Raymond J. Poncia, Jr. 65 Board Member--Appointed by Hotel Casino
Management, Inc. as its corporate
representative; Director of Capital
Leslie Stone Abraham 38 Board Member
SIGNIFICANT EMPLOYEES
NAME AGE POSITION(S)
------------------ ---- -------------------------------------------
Robert B. MacKay 51 Director of Administration of the Eldorado
Robert B. Mouchou 43 Vice President of Operations of the Eldorado
Rick W. Murdock 43 Director of Casino Marketing of the Eldorado
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Rhonda B. Carano 45 Director of Advertising and Public Relations
of the Eldorado
</TABLE>
DONALD L. CARANO. Mr. Carano has served as Chief Executive Officer of, and has
owned a controlling interest in, Resorts or its predecessor since 1973.
Previously, he was an attorney with the firm of McDonald Carano Wilson McCune
Bergin Frankovich & Hicks LLP, with which he maintains an "of counsel"
relationship. Mr. Carano has been involved in the gaming industry and has been a
licensed casino operator since 1969. Mr. Carano's commitment to the development
and promotion of tourism in Reno has earned him several awards, including the
Nevada Food and Beverage Directors Association Man-of-the-Year Award, the
American Lung Association 1993 Distinguished Community Service Award and the
1992 Hotelier of the Year Award. Also, since 1984, Mr. Carano has been the Chief
Executive Officer of the Ferrari Carano Winery. He is the father of Gary, Gene,
Glenn, Gregg and Cindy Carano and is married to Rhonda Carano.
ROBERT M. JONES. Mr. Jones has served as Chief Financial Officer of Resorts or
its predecessor since 1989. Prior to joining the Predecessor Partnership in
1984, Mr. Jones spent fourteen years in public accounting, ten of which were as
an audit principal with the international accounting firm of Arthur Young &
Company. Mr. Jones is a former Certified Public Accountant, was an honors
graduate of the University of Arizona with a major in accounting and has a
Master of Business Administration degree in taxation from Golden Gate University
in San Francisco.
GENE R. CARANO. Mr. Carano has served as General Manager of the Eldorado
since July 1998 and served as Vice President of Resorts or its predecessor
since 1993 and has been Secretary of Resorts since June 1996. From 1993 until
July 1998 he served as a Co-General Manager of the Eldorado. From 1986 to
1993, Mr. Carano served as the Eldorado's Director of Gaming. Prior to
joining the Eldorado, Mr. Carano held various positions at another major
casino in northern Nevada, including slot floor supervisor and pit boss. Mr.
Carano studied business management and hotel administration at Utah State
University and the University of Nevada, Las Vegas.
GREGG R. CARANO. Mr. Carano has served as Vice President of Resorts or its
predecessor since 1994 and has served as the Director of Customer Development of
the Eldorado since July 1998. From 1993 until July 1998 he served as a
Co-General Manager of the Eldorado. He served as General Manager of Circus
Circus-Reno from 1993 to 1994. From 1985 to 1993, Mr. Carano served as Director
of Food and Beverage at the Eldorado. Mr. Carano holds a Bachelor of Science
Degree in Hotel/Restaurant Management from Florida International University and
an Associates Degree in Occupational Studies in Culinary Arts from the Culinary
Institute of America.
GARY L. CARANO. Mr. Carano has served as General Manager of the Silver Legacy
since 1995. Previously, he served as Assistant General Manager, General Manager
and Chief Operating Officer of the Eldorado from 1980 to 1994. Mr. Carano holds
a Bachelors Degree in Business Administration from the University of Nevada,
Reno.
RAYMOND J. PONCIA, JR. Mr. Poncia has had an ownership interest in the Eldorado
since 1973 and has been involved in the gaming industry since 1968. He has been
involved with the Eldorado in the areas of development, architectural and
interior design, construction financing and business planning. Mr. Poncia
received his architectural degree from Case-Reserve University and has been a
licensed architect in private practice since 1960.
LESLIE STONE ABRAHAM. Ms. Abraham has been a Board Member since 1996. Since
December 1996, she has been a Managing Director of Wasserstein Perella & Co.
Inc., where she has been a director since 1995. Prior thereto, Ms. Abraham
was a Vice President at Salomon Brothers Inc. where she provided capital
raising and financial advisory services to a wide variety of companies. Ms.
Abraham received an M.B.A. and a B.S. from U.C.L.A.
ROBERT B. MACKAY. Mr. MacKay has been the Director of Administration of the
Eldorado since 1989. From 1985 to 1989, Mr. MacKay served as the Eldorado's
Treasurer. He also has held the positions of Director of Finance and Controller
of the Eldorado. Mr. MacKay is a Certified Public Accountant and is a graduate
of the University of Nevada, Reno with a degree in Accounting.
ROBERT B. MOUCHOU. Mr. Mouchou has been the Vice President of Operations of the
Eldorado since 1997. Mr. Mouchou joined the Eldorado in 1979 and has held a
variety of positions, including Director of Gaming, Games Manager, Assistant
Slot Manager, Casino Analyst, Assistant Controller and Audit Supervisor.
RICK W. MURDOCK. Mr. Murdock has been the Director of Casino Marketing of the
Eldorado since 1995. He began his career at the Eldorado in 1981 and has since
held various positions, including Director of Sales, National Sales Manager and
Assistant Hotel Manager.
RHONDA B. CARANO. Mrs. Carano has been the Director of Advertising and Public
Relations of the Eldorado since 1978. Mrs. Carano previously worked as a
management trainee at the Eldorado from 1976 to 1978 where she learned
26
<PAGE>
the hotel/casino business. Mrs. Carano is the Vice President of the Ferrari
Carano Winery. She received a Bachelor of Science degree from the University
of Nevada, Reno.
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLES
The following table sets forth all compensation paid by the Predecessor
Partnership from January 1, 1996 through June 30, 1996, and by Resorts from July
1, 1996 through December 31, 1998, to the Resort's officers named below (the
"Named Officers").
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION(1) COMPENSATION
--------------------- --------------
NUMBER OF
APPRECIATION
RIGHTS ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS GRANTED COMPENSATION
-------- ----- -------------- ------------
<S> <C> <C> <C> <C> <C>
Donald Carano..................................... 1998 $550,000 0 0 $2,851(2)
Board Member and Chief Executive 1997 561,000 0 0 2,693
Officer of Resorts 1996 550,000 0 0 2,564
Robert Jones...................................... 1998 $320,000 0 0 $3,642(3)
Chief Financial Officer of Resorts 1997 303,000 24,000 0 3,488
1996 270,000 24,000 0 3,344
Gene Carano....................................... 1998 $300,000 0 0 $2,632(4)
Vice President of Resorts and 1997 306,000 71,500 0 3,000
General Manager of the Eldorado 1996 300,000 48,000 0 3,235
Gregg Carano...................................... 1998 $300,000 0 0 $3,632(5)
Vice President of Resorts and Director of 1997 306,000 72,000 0 3,488
Customer Development of the Eldorado 1996 300,000 48,000 0 3,344
Rob Mouchou....................................... 1998 $300,000 0 0 $2,650(6)
Vice President of Operations 1997 263,000 20,000 0 2,507
1996 195,000 20,000 0 2,357
</TABLE>
(1) Salary includes for each Named Officer any amount he or she elected to
defer the receipt of pursuant to the Company's Deferred Compensation Plan.
Prior to July 1, 1996, the salaries of the Named Officers were not directly
incurred by the Company but were paid from a portion of the management fees
paid to Recreational Enterprises, Inc. Certain of such Named Officers also
perform services for Recreational Enterprises, Inc. unrelated to the
business of the Company for which they receive salaries from Recreational
Enterprises, Inc., which are not included in the compensation reported in
this table. As of July 1, 1996, the aggregate annual salaries of such Named
Officers and certain other key employees became payroll obligations of the
Company. The Company has been informed by Recreational Enterprises, Inc.
that the salaries and bonuses (including deferred compensation) shown for
the periods prior to July 1996 are attributable to services provided by the
Named Officers to the Company.
(2) Includes contributions to the Company's 401(k) Plan (as defined herein) of
$2,500, payment of term life insurance premiums of $150 and payment of
health insurance premiums of $201.
(3) Includes contributions to the Company's 401(k) Plan of $2,510, payment of
term life insurance premiums of $150 and payment of health insurance
premiums of $982.
(4) Includes contributions to the Company's 401(k) Plan of $1,500, payment of
term life insurance premiums of $150 and payment of health insurance
premiums of $982.
(5) Includes contributions to the Company's 401(k) Plan of $2,500, payment of
term life insurance premiums of $150 and payment of health insurance
premiums of $982.
(6) Includes contributions to the Company's 401(k) Plan of $2,500, payment of
term life insurance premiums of $150.
27
<PAGE>
1995 PERFORMANCE AND APPRECIATION RIGHTS PLAN
The Eldorado Hotel Associates Limited Partnership 1995 Performance and
Appreciation Rights Plan (the "Rights Plan"), which was adopted effective
January 1, 1995, provides certain executives and other key employees of the
Company who have substantial responsibility for its management and growth with
incentives and rewards. The Rights Plan is administered by a Committee comprised
of Donald Carano and two other individuals selected by the members of the
Company (the "Rights Committee"). The Rights Committee has sole and complete
authority to select eligible employees, to grant performance and appreciation
rights up to a maximum of 1,000,000 each in the aggregate, to determine the date
on which each performance right or appreciation right will vest and to impose
restrictions and conditions on performance and appreciation rights. An employee
is eligible to be granted performance and appreciation rights if, on the
proposed grant date, such employee is an executive or other key employee of the
Company or an affiliate of the Company, as determined by the Rights Committee.
An employee's performance rights terminate upon such employee's exercise of any
appreciation rights or the termination of such employee's employment with the
Company. Upon the termination of an employee's employment with the Company, the
employee will be entitled to exercise appreciation rights only to the extent
that such rights have vested to such date. No performance or appreciation rights
may be granted after June 1, 2000.
A performance right allows an employee to receive upon exercise
compensation equal to a percentage of the total distributions to the members of
the Company for the prior fiscal quarter between the date that the right was
granted and the date of exercise. An appreciation right allows an employee upon
exercise to receive compensation based on the difference between the value of
the membership interests of the Company at the date the right was granted and
the date of exercise. The combination of one performance right and one
appreciation right is intended to represent the economic equivalent of ownership
of .00001% of one membership interest in the Company. Performance and
appreciation rights do not, however, entitle holders thereof to any rights in or
to own or control any membership interests in the Company.
Performance rights and appreciation rights may not be transferred other
than by will or the laws of descent and distribution or to a family trust
created solely for the benefit of an employee or such employee's spouse and
descendants. Performance rights and appreciation rights may be exercised only by
the employee holding such rights (or a legal guardian, legal representative,
trustee of a family trust or executor of the estate of a deceased employee). The
Rights Committee, however, may in its discretion allow certain other transfers
of performance and appreciation rights, such as transfers during the lifetime of
an employee to the spouse and children of the employee.
The Company did not grant any appreciation rights to the Named
Officers in 1998. Nor did any of the Named Officers exercise any appreciation
rights during 1998. No performance rights had been granted under the Rights
Plan as of December 31, 1998. The following table provides certain
information with respect to the appreciation rights held by the Named
Officers as of December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
APPRECIATION RIGHTS AS OF APPRECIATION RIGHTS AS OF
DECEMBER 31, 1998 DECEMBER 31, 1998
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Donald Carano....... -- -- -- --
Robert Jones........ 37,500 37,500 $0 $0
Gene Carano......... 50,000 50,000 0 0
Gregg Carano........ 50,000 50,000 0 0
Robert Mouchou...... 25,000 25,000 0 0
</TABLE>
DEFERRED COMPENSATION PLAN.
Effective January 1, 1990, the Eldorado Hotel Casino Deferred
Compensation Plan (the "Deferred Compensation Plan") was established for the
benefit of a select group of management and highly compensated employees. As of
December 31, 1998, four employees of the Company were eligible to participate.
Under the Deferred Compensation Plan as presently administered, eligible
employees may elect each year to defer the receipt of a portion of their
compensation from the Company. A participating employee is 100% vested with
respect to any amount deferred pursuant to his or her deferral election. Amounts
deferred in prior years which were determined in the sole discretion of Resorts'
Chief Executive Officer, Donald Carano, vest 20% per year so that they become
vested over a five-year period. A participating employee becomes 100% vested in
all amounts credited to such employee's account upon retirement, death,
permanent disability or termination of employment with the Company for any
reason other than
28
<PAGE>
fraud, or upon a sale of substantially all of the Company's assets or if the
Carano family ceases to have majority ownership or control of the Company.
Participating employees are entitled to receive annual distributions
commencing upon the earliest of the second month after death, permanent
disability, retirement or, if employment is terminated for reasons other than
death or disability prior to attainment of age 60, attainment of age 60.
However, Resorts' Chief Executive Officer may in his sole discretion elect to
make a distribution to a terminated employee prior to such terminated
employee attaining age 60. In addition, such Chief Executive Officer may in
his sole discretion elect to distribute an employee's benefits in the form of
a lump sum distribution and may elect to distribute benefits to an employee
over a shorter period of time than that provided for in the Deferred
Compensation Plan. Amounts the Company is obligated to distribute to
participants pursuant to the Deferred Compensation Plan represent an unfunded
obligation of the Company which, as of December 31, 1998, totaled $1,047,000.
401(K) RETIREMENT SAVINGS PLAN
The Company maintains a savings plan (the "401(k) Plan") qualified
under Sections 401(a) and 401(k) of the Internal Revenue Code of 1986, as
amended. Generally, all employees of the Company in the United States who are 21
years of age or older, who have completed six months and 1,000 hours of service
and who are not covered by collective bargaining agreements are eligible to
participate in the 401(k) Plan. Employees who elect to participate in the 401(k)
Plan may defer up to 15% but not less than 1% of their annual compensation,
subject to statutory and certain other limits. The Company makes matching
contributions of 25% of the employees' contributions, up to a maximum of 1.5% of
the employees' annual compensation and subject to certain other limitations.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company has historically paid a management fee to each of
Recreational Enterprises, Inc. and Hotel Casino Management, Inc. A portion of
these fees represented compensation for services provided to the Company by
certain members of the Carano family. Effective July 1, 1996, the Company
entered into a new Management Agreement (the "Management Agreement") with
Recreational Enterprises, Inc. and Hotel Casino Management, Inc. which provides
that Recreational Enterprises, Inc. and Hotel Casino Management, Inc.
(collectively, the "Managers") will, among other things, (a) develop strategic
plans for the Company's business, including preparing annual budgets and capital
expenditure plans, (b) provide advice and oversight with respect to financial
matters of the Company, (c) establish and oversee the operation of financial
accounting systems and controls and regularly review the Company's financial
reports, (d) provide planning, design and architectural services to the Company
and (e) furnish advice and recommendations with respect to certain other aspects
of the Company's operations. In consideration for such services, the Company
will pay to the Managers a management fee not to exceed 1.5% of the Company's
annual net revenues. The current term of the Management Agreement continues in
effect until July 1, 1999 and will be automatically renewed for additional
three-year terms until terminated by one of the parties. In 1998, the management
fees paid by the Company to Recreational Enterprises, Inc. and Hotel Casino
Management, Inc. pursuant to the Management Agreement aggregated $1,386,168 and
$392,490, respectively. There can be no assurance that the terms of the
Management Agreement are at least as favorable to the Company as could be
obtained from unaffiliated third parties.
The Company owns the entire parcel on which the Eldorado is located,
except for approximately 30,000 square feet which is leased by the Company
from C, S and Y Associates, a general partnership of which Donald Carano is a
general partner (the "C, S and Y Lease"). The C, S and Y Lease expires on
June 30, 2027. Annual rent is equal to the greater of (i) $400,000 or (ii) an
amount based on a decreasing percentage of the Eldorado's gross gaming
revenues ranging from 3% of the first $6.5 million of gross gaming revenues
to 0.1% of gross gaming revenues in excess of $75 million. In 1998 , the rent
paid pursuant to the C, S and Y Lease, totaled $654,000. In the opinion of
the Company's management, the terms of the C, S and Y Lease are at least as
favorable to the Company as could have been obtained from unaffiliated third
parties.
Donald Carano has been an attorney with the firm of McDonald Carano
Wilson McCune Bergin Frankovich & Hicks LLP ("McDonald Carano") since 1961. Mr.
Carano maintains an "of counsel" relationship with McDonald Carano, but is not
involved in the active practice of law or in the representation of the Company
or any of its affiliates as an attorney. Donald Carano receives no compensation
from McDonald Carano. The Company currently retains McDonald Carano in
connection with a variety of legal matters. In the opinion of the Company's
management, the fees paid to McDonald Carano are at least as favorable to the
Company as could be obtained from any other law firm for comparable services.
Donald Carano and Recreational Enterprises, Inc., which is owned by
members of the Carano family, collectively own a 50% equity interest in the
Pioneer Inn Hotel Casino, a small hotel/casino located in downtown Reno.
29
<PAGE>
The Company from time to time leases an aircraft owned by
Recreational Enterprises, Inc., for use in operating the Company's business.
In 1998, lease payments for the aircraft totaled $227,000. In the opinion of
the Company's management, the lease payments are at least as favorable to the
Company as could have been obtained from an unaffiliated third party.
The Company does not have a compensation committee or other committee
of the Board of Managers performing equivalent functions. The compensation paid
in 1998 to each of the Company's Board Members and executive officers was
determined by the Chief Executive Officer, and it is anticipated that such
compensation will be so determined in the future.
30
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following chart illustrates the ownership of the Company and the
Silver Legacy Joint Venture. Recreational Enterprises, Inc. is beneficially
owned by members of the Carano family and Hotel Casino Management, Inc. is
beneficially owned by members of the Poncia family. Capital is a wholly-owned
subsidiary of Resorts.
DESCRIPTION OF THE CHART: The chart illustrates the following relationships: (i)
the ownership of Resorts by Recreational Enterprises, Inc. (55%), Hotel Casino
Realty Investments, Inc. (6%), Hotel Casino Management, Inc. (29%), Donald L.
Carano (5%) and Ludwig J. Corrao (5%); (ii) the ownership of Hotel Casino Realty
Investments, Inc. by Recreational Enterprises, Inc. (50%) and Hotel Casino
Management, Inc. (50%); (iii) the ownership of Capital by Resorts (100%); (iv)
the ownership of ELLC by Recreational Enterprises, Inc. (2.5428%), Hotel Casino
Management, Inc. (1.2714%) and Resorts (96.1858%); (v) the ownership of Silver
Legacy Joint Venture by ELLC (50%) and Circus Sub (50%); and (vi) the ownership
of Circus Sub by Circus Circus (100%).
31
<PAGE>
The following table sets forth certain information regarding the
beneficial ownership of the Resorts' outstanding membership interests by (i)
each person known by Resorts to be a beneficial owner of 5% or more of the
outstanding membership interests, (ii) each Board Member, (iii) each of the
Named Officers and (iv) all Board Members and executive officers of Resorts as a
group.
<TABLE>
<CAPTION>
MEMBERSHIP
NAME AND ADDRESS OF BENEFICIAL OWNER INTEREST %
------------------------------------ -----------
<S> <C>
Donald L. Carano(1)(2)..................................... 63.0%
Recreational Enterprises, Inc.(3).......................... 55.0%
Raymond J. Poncia, Jr.(4)(5)............................... 32.0%
Hotel Casino Management, Inc.(5)(6)........................ 29.0%
Hotel Casino Realty Investments, Inc.(7)................... 6.0%
Gene R. Carano(2)(8)....................................... 5.6%
Gregg R. Carano(2)(8)...................................... 5.6%
Gary L. Carano(2)(8)....................................... 5.6%
Cindy L. Carano(2)(8)...................................... 5.6%
Glenn T. Carano(2)(8)...................................... 5.6%
Ludwig J. Corrao(9)........................................ 5.0%
Robert M. Jones............................................ --
Rob B. Mouchou............................................. --
Leslie Stone Abraham....................................... --
All Board Members and executive officers as a group ....... 95.0%
</TABLE>
- ----
(1) Includes 5.0% owned by Mr. Carano individually, 55.0% owned by Recreational
Enterprises, Inc., which is owned by members of the Carano family, and 3.0%
beneficially owned by Mr. Carano through Recreational Enterprises, Inc.'s
50.0% ownership of Hotel Casino Realty Investments, Inc.
(2) The address of Donald L. Carano, Gene R. Carano, Gregg R. Carano and Cindy
L. Carano is c/o Eldorado Resorts LLC, P.O. Box 3399, Reno, Nevada 89505.
The address of Gary L. Carano and Glenn T. Carano is c/o Silver Legacy
Resort Casino, 407 N. Virginia Street, Reno, Nevada 89501.
(3) Recreational Enterprises, Inc. is beneficially owned by the following
members of the Carano family in the following percentages: Donald L.
Carano-49.5%; Gene R. Carano-10.1%; Gregg R. Carano-10.1%; Gary L.
Carano-10.1%; Cindy L. Carano-10.1% and Glenn T. Carano-10.1%. Gary holds
7.185% of his interest in Recreational Enterprises, Inc. through various
trusts. Gene, Gregg, Cindy and Glenn each hold all of their respective
interests in Recreational Enterprises, Inc. through various trusts. The
address of Recreational Enterprises, Inc. is P.O. Box 2540, Reno, Nevada
89505.
(4) Includes 29.0% owned by Hotel Casino Management, Inc., which is owned by
members of the Poncia family, and 3.0% beneficially owned by Mr. Poncia
through Hotel Casino Management, Inc.'s 50.0% ownership of Hotel Casino
Realty Investments, Inc.
(5) The address of Raymond J. Poncia, Jr. and Hotel Casino Management, Inc. is
P.O. Box 429, Verdi, Nevada 89439.
(6) Hotel Casino Management, Inc. is beneficially owned by the following
members of the Poncia family in the following percentages: Raymond J.
Poncia, Jr.-49.712%; Cathy L. Poncia-Vigen-12.572%; Linda R.
Poncia-12.572%; Michele L. Poncia-12.572% and Tammy R. Poncia-12.572%.
Cathy, Linda, Michele and Tammy each hold all of their respective interests
in Hotel Casino Management, Inc. through various trusts.
(7) Recreational Enterprises, Inc. and Hotel Casino Management, Inc. each own
50% of the outstanding shares of capital stock of Hotel Casino Realty
Investments, Inc. The address of Hotel Casino Realty Investments, Inc. is
P.O. Box 429, Verdi, Nevada 89439.
(8) All of such membership interest is beneficially owned through such
individual's 10.1% ownership of Recreational Enterprises, Inc.
(9) The address of Ludwig J. Corrao is P.O. Box 12907, Reno, Nevada 89510.
32
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Resorts' approximately 96% owned subsidiary, ELLC, holds a 50% interest
in the Silver Legacy Joint Venture, which owns and operates the Silver Legacy.
In connection with ELLC's entering into the Silver Legacy Joint Venture, Resorts
loaned $23.0 million to ELLC, and ELLC contributed the $23.0 million to the
Silver Legacy Joint Venture as a portion of its equity investment. 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%.
On May 16, 1996, the Company entered into an agreement with the Silver
Legacy Joint Venture to operate a race and sports book located in the Silver
Legacy, (the "Legacy Book"). The company supplies the management, employees, and
equipment associated with the operation of the Legacy Book and records a
proportionate share of revenue and expenses included in casino revenue and
casino expense according to a formula included in the race and sports book
agreement. For the year ended December 31, 1998 the Company recorded $810,000 in
casino revenues and $400,000 in casino expenses. Silver Legacy Joint Venture is
owned approximately 3% and 1% respectively, by entities which are beneficially
owned by members of the Carano family and the Poncia family. See Item 12 of the
Report.
A reference is made to the information which appears under the heading
"Compensation Committee Interlocks and Insider Participation" in Item 11 of this
Report, which information is incorporated herein by this reference.
33
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements
Incorporated by reference in Item 8 of this Report and included on
pages 39 through 55 hereof:
Consolidated Balance Sheets at December 31, 1998 and December 31, 1997
Consolidated Statements of Income for the Years Ended December 31,
1998, 1997 and 1996
Consolidated Statements of Members' Equity for the Years Ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules
Schedule I - Condensed Financial Information of Registrants
(a)(3) Exhibits:
The following exhibits are filed as part of this Report or
incorporated herein by reference:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
2.1 Eldorado Resorts LLC Articles of Merger. (Incorporated by reference to
Exhibit 2.1 to the Registrants' Form S-4 Registration Statement -
Securities and Exchange Commission File No. 333-11811)
2.2 Agreement and Plan of Merger dated as of June 28, 1996 by and between
Eldorado Hotel Associates Limited Partnership and Eldorado Resorts LLC.
(Incorporated by reference to Exhibit 2.2 to the Registrants' Form S-4
Registration Statement - Securities and Exchange Commission File No.
333-11811)
3.1 Articles of Organization of Eldorado Capital Corp. (Incorporated by
reference to Exhibit 3.1 to the Registrants' Form S-4 Registration
Statement - Securities and Exchange Commission File No. 333-11811)
3.2 Articles of Incorporation of Eldorado Capital Corp. (Incorporated by
reference to Exhibit 3.2 to the Registrants' Form S-4 Registration
Statement - Securities and Exchange Commission File No. 333-11811)
3.3 Operating Agreement of Eldorado Resorts LLC dated as of June 28, 1996
by and among Recreational Enterprises Inc., Hotel-Casino Management,
Inc., Hotel Casino Realty Investments, Inc., Donald L. Carano and
Ludwig J. Corrao. (Incorporated by reference to Exhibit 3.3 to the
Registrant's Form S-4 Registration Statement - Securities and Exchange
Commission File No. 333-11811)
34
<PAGE>
3.4 Bylaws of Eldorado Capital Corp. (Incorporated by reference to Exhibit
3.4 to the Registrants' Form S-Registration Statement - Securities and
Exchange Commission File No. 333-11811)
4.1 Indenture dated July 31, 1996 between Eldorado Resorts, Eldorado
Capital Corp. and Fleet National Bank, as trustee, and Form of Exchange
Note. (Incorporated by reference to Exhibit 4.1 to the Registrants'
Form S-4 Registration Statement Securities and Exchange Commission File
No. 333-11811)
4.2 Registration Rights Agreement dated as of July 31, 1996 by and among
Eldorado Resorts LLC, Eldorado Capital Corp., Bear, Stearns & Co. Inc.,
Wassertstein Perella Securities, Inc. and BA Securities, Inc.
(Incorporated by reference to Exhibit 4.2 to the Registrants' Form S-4
Registration Statement - Securities and Exchange Commission File No.
333-11811)
4.3 Amended and Restated Loan Agreement dated as of July 31, 1996 among
Eldorado Resorts LLC and Bank of America National Trust and Savings
Association, as sole initial Bank, Issuing Bank and Administrative
Agent. (Incorporated by reference to Exhibit 4.3 to the Registrants'
Form S-4 Registration Statement - Securities and Exchange Commission
File No. 333-11811)
4.4 Amendment No. 1, dated as of July 31, 1997, to Loan Agreement dated as
of July 31, 1996 among Eldorado Resorts LLC and Bank of America
National Trust and Savings Association, as Administrative Agent.
(Incorporated by reference to Exhibit 4 to the Registrants' Quarterly
Report on Form 10-Q for the period ended June 30, 1997)
10.1 Agreement of Joint Venture of Circus and Eldorado Joint Venture dated
as of March 1, 1994 by and between Eldorado Limited Liability Company
and Galleon, Inc. (Incorporated by reference to Exhibit 10.1 to the
Registrants' Form S-4 Registration Statement - Securities and Exchange
Commission File No. 333-11811)
10.2 Environmental Indemnity entered into as of May 30, 1995 by Circus
Circus Enterprises, Inc. and Eldorado Hotel Associates Limited
Partnership. (Incorporated by reference to Exhibit 10.2 to the
Registrants' Form S-4 Registration Statement - Securities and Exchange
Commission File No. 333-11811)
10.3.1 Management Agreement dated as of June 28, 1996 by and between Eldorado
Resorts LLC, Recreational Enterprises, Inc. and Hotel-Casino
Management, Inc. (Incorporated by reference to Exhibit 10.3 to the
Registrants' Form S-4 Registration Statement - Securities and Exchange
Commission File No. 333-11811)
10.3.2 Written Consent in Lieu of Meeting of Members of Eldorado Limited
Liability Company (Incorporated by reference to Exhibit 10 to the
Registrants' quarterly report on Form 10-Q for the period ended
June 30, 1998)
10.4 Indemnity Agreement dated as of July 25, 1996 between Eldorado Resorts
LLC and Eldorado Capital Corp. (Incorporated by reference to Exhibit
10.4 to the Registrants' Form S-4 Registration Statement - Securities
and Exchange Commission File No. 333-11811)
10.5 Purchase Agreement and Joint Escrow Instructions dated June 26, 1996 by
and between Daniel's Motor Lodge, Inc. and Eldorado Hotel Associates
Limited Partnership. (Incorporated by reference to Exhibit 10.5 to the
Registrants' Form S-4 Registration Statement - Securities and Exchange
Commission File No. 333-11811)
10.6.1 Lease dated July 21, 1972 by and between C. S. & Y. Associates and
Eldorado Hotel Associates . (Incorporated by reference to Exhibit
10.6.1 to the Registrants' Form S-4 Registration Statement - Securities
and Exchange Commission File No. 333-11811)
10.6.2 Addendum to Lease dated March 20, 1973 by and between C. S. & Y.
Associates and Eldorado Hotel Associates. (Incorporated by reference to
Exhibit 10.6.2 to the Registrants' Form S-4 Registration Statement -
Securities and Exchange Commission File No. 333-11811)
35
<PAGE>
10.6.3 Amendment to Lease dated January 1, 1978 by and between C. S. & Y.
Associates and Eldorado Hotel Associates. (Incorporated by reference to
Exhibit 10.6.3 to the Registrants' Form S-4 Registration Statement -
Securities and Exchange Commission File No. 333-11811)
10.6.4 Amendment to Lease dated January 31, 1985 by and between C. S. & Y.
Associates and Eldorado Hotel Associates. (Incorporated by reference to
Exhibit 10.6.4 to the Registrants' Form S-4 Registration Statement -
Securities and Exchange Commission File No. 333-11811)
10.6.5 Third Amendment to Lease dated December 24, 1987 by and between C. S. &
Y. Associates and Eldorado Hotel Associates. (Incorporated by reference
to Exhibit 10.6.5 to the Registrants' Form S-4 Registration Statement -
Securities and Exchange Commission File No. 333-11811)
10.7* Eldorado Hotel Associates Limited Partnership 1995 Performance and
Appreciation Rights Plan effective January 1, 1995. (Incorporated by
reference to Exhibit 10.7 to the Registrants' Form S-4 Registration
Statement - Securities and Exchange Commission File No. 333-11811)
10.8* Eldorado Hotel Casino Deferred Compensation Plan effective January 1,
1990. (Incorporated by reference to Exhibit 10.8 to the Registrants'
Form S-4 Registration Statement - Securities and Exchange Commission
File No. 333-11811)
10.9* Eldorado Hotel Casino Deferred Compensation Plan Trust Agreement dated
December 1, 1990 by and between Eldorado Hotel Associates Limited
Partnership and Donald L. Carano. (Incorporated by reference to Exhibit
10.9 to the Registrants' Form S-4 Registration Statement - Securities
and Exchange Commission File No. 333-11811)
10.10 Amended and Restated Credit Agreement, dated November 24, 1997, by and
among Circus and Eldorado Joint Venture, the Banks named therein and
Bank of America National Trust and Savings Association as
Administrative Agent, and the related Note, Amended and Restated
Make-Well Agreement and Amended and Restated Deed of Trust.
(Incorporated by reference to Exhibit 4 (h) to the Quarterly Report for
the quarterly period ended October 31, 1997 of Circus Circus
Enterprises, Inc. (Commission File No. 1-8570.)
21 List of Subsidiaries.
27 Financial Data Schedule
---------------------------
* Constitutes a management contract or compensatory plan or
arrangement.
(b) Reports on Form 8-K
During the fourth quarter of 1998, the Registrants filed no
Current Report on Form 8-K.
(c) The exhibits required by Item 601 of Regulation S-K filed as part
of this Report or incorporated herein by reference are listed in
Item 14 (a)(3) above, and the exhibits filed herewith are listed
on the Index to Exhibits which accompanies this Report.
(d) See Item 14 (a)(2) of this Report.
36
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 24, 1999 By: /S/ Donald L. Carano
-----------------------------
Donald L. Carano
CHIEF EXECUTIVE OFFICER, PRESIDENT
AND PRESIDING MANAGER
ELDORADO CAPITAL CORP.
Date: March 24, 1999 By: /S/ Donald L. Carano
-----------------------------
Donald L. Carano
PRESIDENT
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrants and
in the capacities and on the dates indicated.
Signature Title Date
/S/ Donald L. Carano Chief Executive Officer, President March 24, 1999
- --------------------- and Presiding Manager of the Board
Donald L. Carano of Managers of Eldorado Resorts
LLC (Principal Executive Officer)
and President (Principal Executive
Officer) and Director of Eldorado
Capital Corp.
/S/ Robert M. Jones Chief Financial Officer of March 24, 1999
- -------------------- Eldorado Resorts LLC (Principal
Robert M. Jones Financial and Accounting Officer)
37
<PAGE>
Signature Title Date
/S/ Gene R. Carano Treasurer of Eldorado Capital March 24, 1999
- ---------------------- Corp. (Principal Financial and
Gene R. Carano Accounting Officer)
/S/ Raymond J. Poncia Member of the Board of Managers March 24, 1999
- ---------------------- of Eldorado Resorts LLC--
Raymond J. Poncia, Jr. appointed by Hotel Casino
Management, Inc. as its corporate
representative and Director of
Eldorado Capital Corp.
/S/ Gary L. Carano Member of the Board of Managers March 24, 1999
- ---------------------- of Eldorado Resorts LLC--
Gary L. Carano appointed by Recreational
Enterprises, Inc. as its corporate
representative
/S/ Gregg R. Carano Director of Eldorado Capital Corp. March 24, 1999
- ----------------------
Gregg R. Carano
/S/ Leslie S. Abraham Member of the Board of Managers March 24, 1999
- ---------------------- of Eldorado Resorts LLC
Leslie S. Abraham
38
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
------
Report of Independent Public Accountants................. 40
Consolidated Balance Sheets ............................. 41
Consolidated Statements of Income ....................... 42
Consolidated Statements of Members' Equity .............. 43
Consolidated Statements of Cash Flows.................... 44
Notes to Consolidated Financial Statements .............. 46
39
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Members of Eldorado Resorts LLC:
We have audited the accompanying consolidated balance sheets of
ELDORADO RESORTS LLC, a Nevada limited liability company (the "Company"), as of
December 31, 1998 and 1997, and the related consolidated statements of income,
members' equity and cash flows for the three years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Eldorado Resorts LLC
as of December 31, 1998 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
February 23, 1999
40
<PAGE>
ELDORADO RESORTS LLC
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1997 1998
------------- -------------
<S> <C> <C>
A S S E T S
CURRENT ASSETS:
Cash and cash equivalents.................................. $ 6,369 $ 8,087
Accounts receivable, net................................... 3,456 3,261
Due from members and affiliates........................... 194 154
Inventories................................................ 2,882 2,904
Prepaid expenses........................................... 1,703 1,857
Note Receivable............................................ 180 377
------------- -------------
Total current assets.................................. 14,784 16,640
NOTE RECEIVABLE................................................. 377 --
INVESTMENT IN JOINT VENTURE..................................... 46,792 46,792
PROPERTY AND EQUIPMENT, net..................................... 163,443 155,005
OTHER ASSETS, net............................................... 13,231 12,821
------------- -------------
Total assets ........................................ $238,627 $231,258
------------- -------------
------------- -------------
L I A B I L I T I E S A N D M E M B E R S' E Q U I T Y
CURRENT LIABILITIES:
Current portion of long-term debt ......................... $ 556 $ 1,136
Current portion of capital lease obligations .............. 713 749
Accounts payable........................................... 3,710 2,737
Construction and retention payables........................ 319 15
Interest payable .......................................... 3,950 3,991
Accrued and other liabilities.............................. 5,571 5,831
Notes payable.............................................. 224 --
Due to members and affiliates.............................. 115 113
------------- -------------
Total current liabilities............................. 15,158 14,572
LONG-TERM DEBT, less current portion............................ 126,613 122,226
CAPITAL LEASE OBLIGATIONS, less current portion................. 1,522 773
OTHER LIABILITIES............................................... 911 1,047
------------- -------------
Total liabilities..................................... 144,204 138,618
------------- -------------
MINORITY INTEREST .............................................. 5,154 5,154
COMMITMENTS AND CONTINGENCIES (Note 13)
MEMBERS' EQUITY................................................. 89,269 87,486
------------- -------------
------------- -------------
Total liabilities and members' equity................. $238,627 $231,258
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
41
<PAGE>
ELDORADO RESORTS LLC
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1996 1997 1998
---------------- ------------- -------------
<S> <C> <C> <C>
OPERATING REVENUES:
Casino .......................................... $104,608 $104,513 $104,441
Food and beverage................................. 34,061 36,529 37,938
Hotel............................................. 16,784 17,769 18,142
Entertainment..................................... 422 4,532 6,392
Equity in net income of unconsolidated affiliate.. 1,758 390 --
Other............................................. 7,120 7,093 6,698
---------------- ------------- -------------
164,753 170,826 173,611
Less--promotional allowances....................... (14,102) (14,545) (15,296)
---------------- ------------- --------------
Net revenues...................................... 150,651 156,281 158,315
---------------- ------------- -------------
OPERATING EXPENSES:
Casino............................................ 44,557 45,786 47,575
Food and beverage................................. 25,412 27,576 28,321
Hotel............................................. 7,219 7,387 7,611
Entertainment..................................... 813 2,955 4,696
Other............................................. 3,246 3,510 3,881
Selling, general and administrative............... 26,293 28,723 27,966
Management fees................................... 2,944 1,843 1,779
Depreciation...................................... 10,361 12,478 13,718
---------------- ------------- -------------
Total operating expenses.......................... 120,845 130,258 135,547
---------------- ------------- -------------
OPERATING INCOME....................................... 29,806 26,023 22,768
INTEREST EXPENSE, net.................................. (10,935) (13,694) (13,151)
---------------- --------------- --------------
NET INCOME BEFORE MINORITY INTEREST.................... 18,871 12,329 9,617
MINORITY INTEREST IN NET (INCOME)
OF UNCONSOLIDATED AFFILIATE ....................... (408) (91) --
---------------- -------------- -------------
NET INCOME............................................. $ 18,463 $ 12,238 $ 9,617
---------------- -------------- -------------
---------------- -------------- -------------
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
42
<PAGE>
ELDORADO RESORTS LLC
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
BALANCE, December 31, 1995........................................ $ 74,768
---------------
Distributions................................................ (9,200)
Net Income................................................... 18,463
---------------
BALANCE, December 31, 1996 ....................................... 84,031
---------------
Distributions ............................................... (7,000)
Net Income .................................................. 12,238
---------------
BALANCE, December 31, 1997........................................ 89,269
---------------
Distributions................................................ (11,400)
Net Income................................................... 9,617
---------------
BALANCE, December 31, 1998........................................ $ 87,486
---------------
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
43
<PAGE>
ELDORADO RESORTS LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................ $18,463 $12,238 $ 9,617
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation.......................................... 10,361 12,478 13,718
Equity in net (income) of unconsolidated
affiliate.......................................... (1,758) (390) --
Minority interest in net income of
unconsolidated affiliate........................... 408 91 --
(Gain) loss on sale of property and equipment......... (450) (103) 204
(Increase) Decrease in--
Accounts receivable, net and due from members and
affiliates......................................... (38) 336 235
Note receivable....................................... 90 135 180
Inventories........................................... (479) (411) (22)
Prepaid expenses...................................... 269 (444) (154)
Other assets, net .................................... 178 748 410
(Decrease) Increase in--
Notes payable short-term ............................. -- 224 (224)
Accounts payable, construction and retention payables,
interest payable, accrued and other liabilities,
due to members and affiliates and other long-term
liabilities......................................... 4,157 (2,120) (842)
------------- ------------- -------------
Net cash provided by operating activities............. 31,201 22,782 23,122
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment................... (24,981) (15,957) (5,665)
Proceeds from sale of property and equipment.......... 2,645 120 181
------------- ------------- -------------
Net cash used in investing activities................. (22,336) (15,837) (5,484)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term and other debt................ 142,072 28,500 21,250
Principal payments on long-term and other debt........ (138,255) (27,599) (25,770)
Bond offering costs .................................. (3,819) (262) --
Distributions......................................... (9,200) (7,000) (11,400)
------------- ------------- -------------
Net cash (used in) financing activities............... $ (9,202) $ (6,361) $ (15,920)
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
44
<PAGE>
ELDORADO RESORTS LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
(DECREASE)/INCREASE IN CASH AND CASH
EQUIVALENTS ......................................... $ (337) $ 584 $1,718
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR ................................... 6,122 5,785 6,369
------------- -------------- --------------
CASH AND CASH EQUIVALENTS AT END OF
YEAR ................................................ $ 5,785 $ 6,369 $8,087
------------- -------------- --------------
------------- -------------- --------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during year for interest, net of amounts
capitalized ...................................... $ 7,182 $13,668 $12,548
------------- -------------- --------------
------------- -------------- --------------
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the year ended December 31, 1996, the Company entered into
capital lease obligations totaling $1,056,000 for slot machines and other
equipment.
During the year ended December 31, 1996, the Company accepted a $782,000
note receivable in partial payment for the sale of land.
The accompanying notes are an integral part of these
consolidated statements.
45
<PAGE>
ELDORADO RESORTS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION/OPERATIONS
The consolidated financial statements include the accounts of Eldorado
Resorts, LLC, ("Resorts") a Nevada limited liability company, Eldorado Capital
Corp., ("Capital") a Nevada Corporation and wholly-owned subsidiary of Resorts,
and a majority owned subsidiary, Eldorado Limited Liability Company ("ELLC")
and, for the period prior to July 1, 1996, Resorts' Predecessor, Eldorado Hotel
Associates Limited Partnership (the "Predecessor Partnership") (together, the
"Company"). All significant intercompany accounts and transactions have been
eliminated in consolidation.
The Company owns and operates the Eldorado Hotel & Casino, an
816-room hotel casino in downtown Reno, Nevada. ELLC owns a 50% interest in
the Circus and Eldorado Joint Venture that owns the Silver Legacy Resort
Casino, a 1,712 room hotel casino that opened July 28, 1995 and is located
contiguous to the Eldorado Hotel & Casino.
ELLC was organized as a Nevada limited liability company on March 1,
1994. During 1994, the Predecessor Partnership contributed land and received
an initial 88.75% interest in ELLC. During 1995, the Predecessor
Partnership's interest was reduced to 76.76% as a result of other members'
contributions. Effective June 30, 1997, ELLC completed a recapitalization by
converting a note receivable and accrued interest thereon into equity,
increasing Resorts' interest to 96.12%.
Resorts was formed on July 1, 1996, to be the successor to the
Predecessor Partnership pursuant to an exchange of all the then currently
outstanding partnership interests in the Predecessor Partnership for membership
interests in Resorts (the "Reorganization"), which was effective July 1, 1996.
Eldorado Capital Corp. was incorporated with the sole purpose of serving as
co-issuer of the 10 1/2% Senior Subordinated Notes due 2006 (the "Notes") in
order to facilitate the offering thereof.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include investments purchased with an
original maturity of 90 days or less.
INVENTORIES
Inventories are stated at the lower of cost, using a first-in,
first-out basis, or market value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed
using the straight-line method over the estimated useful life of the asset or
the term of the capitalized lease, whichever is less. Costs of major
improvements are capitalized, while costs of normal repairs and maintenance are
charged to expense as incurred.
CAPITALIZATION OF INTEREST
The Company capitalizes interest on funds disbursed during the active
construction and development phases of its facilities and other major projects.
This includes interest capitalized on the Company's investment in the Silver
Legacy Resort Casino. Interest capitalized during the fiscal years ended
December 31, 1996, 1997 and 1998 was approximately $365,000, $256,000 and
$72,000, respectively.
46
<PAGE>
INVESTMENT IN THE SILVER LEGACY RESORT CASINO
ELLC accounts for its 50% joint venture interest in the Silver Legacy
Joint Venture (as defined herein) under the equity method of accounting.
CASINO REVENUE AND PROMOTIONAL ALLOWANCES
In accordance with industry practice, the Company recognizes as casino
revenue the net win from gaming activities, which is the difference between
gaming wins and losses. The retail value of food, beverage, rooms and other
services furnished to customers on a complimentary basis is included in gross
revenue and then deducted as promotional allowances. The cost of providing such
complimentary services is charged to operating expenses in the casino
department. Such costs of providing complimentary services are as follows (in
thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
1996 1997 1998
-------------- -------------- -------------
<S> <C> <C> <C>
Food, beverage and entertainment ....... $ 7,695 $ 7,970 $ 8,779
Hotel ................................... 1,474 1,521 1,617
Other ................................... 1,098 1,162 1,030
-------------- -------------- -------------
-------------- -------------- -------------
$10,267 $10,653 $11,426
-------------- -------------- -------------
-------------- -------------- -------------
</TABLE>
ADVERTISING
Advertising costs are expensed the first time the advertising takes
place. Advertising costs included in selling, general and administrative
expenses were $3,192,000, $3,890,000 and $4,383,000 for the years ended December
31, 1996, 1997 and 1998, respectively.
MEMBERS' EQUITY
Effective upon consummation of the Reorganization, partners' equity was
reclassified as members' equity.
FEDERAL INCOME TAXES
The Predecessor Partnership was not subject to income taxes; therefore,
no provision for income taxes was made as the Partners included their respective
shares of partnership income in their income tax returns. As a limited liability
company, Resorts is not subject to income tax liability. Therefore, holders of
membership interests will include their respective shares of Resorts' taxable
income in their income tax returns and Resorts will continue to make
distributions for such tax liabilities.
The Operating Agreement of Eldorado Resorts LLC 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 member's 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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's financial instruments approximates
their recorded value at December 31, 1997 and 1998, except for the 10 1/2%
Senior Subordinated Notes ("Notes"), the fair market values of which, based
on quoted market prices, were approximately $105.0 million and $110.5
million, respectively. The fair values are not necessarily indicative of the
amounts the Company could realize in a current market exchange.
47
<PAGE>
RECLASSIFICATIONS
Certain reclassifications have been made to prior years' consolidated
financial statements, which have no effect on net income, to conform to current
year presentation.
2. OPERATING AGREEMENT OF RESORTS
The rights and obligations of the equityholders of Resorts (the
"Members") are governed by the Operating Agreement of Eldorado Resorts LLC dated
as of June 28, 1996, as amended (the "Operating Agreement"), entered into in
connection with the Reorganization. In accordance with the Reorganization, all
assets and liabilities of the Predecessor Partnership became the assets and
liabilities of Resorts. Each Members' interest in Resorts is equal to the
percentage of capital contributed by that Member, in accordance with the
ownership percentages previously held in the Predecessor Partnership. The
Operating Agreement provides that no officer or member of the Board of Managers
("Board Member") of Resorts will be liable to Resorts, its Members or holders of
its membership interests for acts or omissions of such officer or Board Member
in connection with the business or affairs of Resorts, including for any breach
of fiduciary duty or mistake of judgment, except for acts involving intentional
misconduct, fraud or knowing violations of the law. Resorts will dissolve upon
the earliest to occur of: (a) December 31, 2030, (b) the sale or disposition of
all or substantially all of the assets in Resorts, (c) the written consent of
Members holding more than a 75% voting interest in Resorts or (d) any event
that, pursuant to the Operating Agreement, terminates a Member's interest,
unless there are at least two remaining Members and at least a Majority
Interest, as defined in the Operating Agreement, of the remaining Members agree
to continue Resorts.
3. ACCOUNTS RECEIVABLE
Components of accounts receivable, net are as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
1997 1998
------------- -------------
<S> <C> <C>
Accounts receivable ......................... $ 4,952 $4,880
Allowance for doubtful accounts........... (1,496) (1,619)
------------- ---------------
Total .......................... $ 3,456 $3,261
------------- ---------------
------------- ---------------
</TABLE>
The provision for bad debt expense is $1,320,000, $1,088,000 and
$864,000 for the years ended December 31, 1996, 1997 and 1998, respectively.
4. NOTE RECEIVABLE
Note receivable consists of a partial payment for the sale of land to
Galleon, Inc., a 50% interest holder in the Silver Legacy Joint Venture.
The note receivable bears interest at the Wells Fargo Prime Rate plus
2%. Resorts makes quarterly payments of $90,000 and is reimbursed quarterly
by Circus in the amount of $45,000. The note matures on July 31, 1999.
5. CERTAIN RISK AND UNCERTAINTIES
A significant portion of the Company's revenues and operating income
are generated from patrons who are residents of northern California. A change in
general economic conditions or the extent and nature of casino gaming in
California, Washington or Oregon could adversely affect the Company's operating
results.
48
<PAGE>
6. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED
SERVICE LIFE DECEMBER 31,
(years) 1997 1998
------------- --------------
<S> <S> <C> <C>
Land and improvements.................................... -- $ 15,773 $ 15,639
Buildings and other leasehold improvements............... 10-33 157,697 157,017
Furniture, fixtures and equipment........................ 5-15 54,351 57,938
Property held under capital lease (Note 13).............. 3-15 6,765 6,765
Construction in progress................................. 1,654 119
------------- --------------
236,240 237,478
Less--Accumulated depreciation............................ ( 72,797) (82,473)
------------- --------------
------------- --------------
Property and equipment, net......................... $163,443 $155,005
------------- --------------
------------- --------------
</TABLE>
Substantially all property and equipment are pledged as collateral for
long-term debt (see Note 10).
7. OTHER ASSETS
Other assets include the following amounts (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1998
-------------- -------------
<S> <C> <C>
Land held for development....................................... $ 8,157 $8,157
Loan acquisition costs.......................................... 1,876 1,876
Bond offering costs............................................. 4,238 4,238
Other........................................................... 541 803
-------------- -------------
14,812 15,074
Accumulated amortization loan costs............................ (1,007) (1,250)
Accumulated amortization bond costs............................. (574) (1,003)
-------------- -------------
Total................................................. $13,231 $12,821
-------------- -------------
-------------- -------------
</TABLE>
8. INVESTMENT IN THE 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 the Silver
Legacy Joint Venture pursuant to a joint venture agreement (the "Joint Venture
Agreement") to develop the Silver Legacy. The Silver Legacy consists of a casino
and hotel located in Reno, Nevada, which began operations on July 28, 1995.
During 1994, ELLC contributed land to the Silver Legacy Joint Venture with a
fair value of $25,000,000 (a book value of $17,215,000), and cash of
$23,000,000. Additional cash contributions of $3,900,000 were made in 1995, for
a total equity investment of $51,900,000. Each partner owns a 50% interest in
the Silver Legacy Joint Venture. Galleon, Inc. contributed cash of $51,900,000
to the Silver Legacy Joint Venture. Galleon, Inc. is entitled to receive a
priority allocation of operating income, up to an amount equal to 7.5% of the
initial $290,000,000 investment, adjusted for taxes, and reduced for
depreciation and principal payments, starting May 1997, as defined in the Joint
Venture Agreement.
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%. Effective June 30,
1997, ELLC completed a recapitalization, converting the loan and accrued
interest thereon into equity, increasing Resorts' interest in ELLC from
approximately 77% to approximately 96%. For the years ended December 31,
1996, and 1997, ELLC's 50% share of the Silver Legacy Joint Venture's net
income was $1,758,000 and $390,000, respectively. The Company did not
49
<PAGE>
recognize income in 1998 as a result of the priority allocation to Galleon,
Inc. pursuant to the Joint Venture Agreement. The minority interest members'
investment in ELLC was therefore adjusted by $408,000, and $91,000, its
respective share of the income for the years ended 1996 and 1997.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
----------------- ----------------
(in thousands) (in thousands)
<S> <C> <C>
Beginning balance..................................... $ 46,402 $ 46,792
Equity in net income of unconsolidated affiliate...... 390 --
--------- ---------
Ending balance........................................ $ 46,792 $ 46,792
--------- ---------
--------- ---------
</TABLE>
Summarized balance sheet information for the Silver Legacy Joint Venture is as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1998
-------------- -------------
<S> <C> <C>
Current assets ........................................... $ 18,230 $ 18,272
Property and equipment,net................................ 326,018 313,181
Other assets.............................................. 2,306 1,772
------------ -----------
Total assets ........................................ $ 346,554 $ 333,225
------------ -----------
------------ -----------
Current liabilities....................................... $ 22,939 $ 16,661
Long-term liabilities..................................... 213,000 196,000
Partners' equity.......................................... 110,615 120,564
------------ -----------
------------ -----------
Total liabilities and partners' equity............... $ 346,554 $ 333,225
------------ -----------
------------ -----------
</TABLE>
Summarized results of operations for the Silver Legacy Joint Venture are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Net Revenues......................................... $ 147,121 $ 159,810 $ 160,318
Operating Expenses .................................. (122,268) (129,054) (131,732)
--------------- --------------- ---------------
Operating Income .................................... 24,853 30,756 28,586
--------------- --------------- ---------------
Other Expense ....................................... (21,337) (21,041) (18,637)
--------------- --------------- ---------------
Net Income .......................................... $ 3,516 $ 9,715 $ 9,949
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
The Silver Legacy commenced operations on July 28, 1995.
50
<PAGE>
9. ACCRUED AND OTHER LIABILITIES
Accrued and other liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1998
------------- --------------
<S> <C> <C>
Accrued payroll and benefits................. $ 1,089 $ 846
Accrued vacation ............................ 1,059 875
Accrued medical claims ...................... 282 355
Progressive slot liability .................. 827 1,124
Related party rent and management fees...... 109 114
Other ....................................... 2,205 2,517
------------- --------------
------------- --------------
$ 5,571 $ 5,831
------------- --------------
------------- --------------
</TABLE>
51
<PAGE>
10. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1998
-------------- -------------
<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, commencing on February 15, 1997,
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 December 31, 1997 and December 31, 1998 was
5.88% and 5.06%, respectively, and the Base rate at December 31,
1997 and December 31, 1998 was 8.5% and 7.75%, respectively)
due July 31, 2001; secured by substantially all real
property......................................................... 23,250 20,000
Notes payable to a corporation, due in quarterly principal
installments of $97,500 and $90,000, respectively (including
monthly interest at prime plus 2%; the rate at December 31, 1997
and December 31, 1998 was 10.5%, and 9.75%, respectively), to
June 30, 1997 and July 30, 1999, respectively, when principal
balance is due; secured by real property......................... 1,144 893
Notes payable to individuals, due in monthly installments of $34,614
(including monthly interest at 9%), to August 14, 2006, when
principal balance is due; secured by real property............... 2,494 2,294
Notes payable, other.........,....................................... 281 175
-------------- -------------
127,169 123,362
Less--Current portion................................................ (556) (1,136)
-------------- -------------
$126,613 $122,226
-------------- -------------
-------------- -------------
</TABLE>
Scheduled maturities of long-term debt are as follows for the years
ended December 31, (in thousands):
<TABLE>
<S> <C>
1999...................... $ 1,136
2000...................... 266
2001...................... 20,292
2002...................... 319
2003...................... 349
Thereafter................ 101,000
--------------
$123,362
--------------
--------------
</TABLE>
52
<PAGE>
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.
The Indenture relating to the Notes contains certain covenants
which, among other things, limit the ability of the Issuers and any
Restricted Subsidiaries (as defined in the Indenture) to incur additional
indebtedness, pay dividends or make other distributions, create certain
liens, enter into certain transactions with affiliates, utilize proceeds from
asset sales, issue or sell equity interests of subsidiaries and enter into
certain mergers and consolidations and requires the Company to maintain
certain financial requirements. The Company is in compliance with these
covenants at December 31, 1998.
The net proceeds from the issuance of the Notes of approximately $96.5
million were used by the Company to repay a portion of its existing debt.
Concurrent with this repayment, the Company amended its $130 million existing
bank credit facility, which was scheduled to mature March 25, 2000. The amended
credit facility (the "Credit Facility") provides for a senior secured revolving
Credit Facility of $50 million. The amount of credit available pursuant to the
Credit Facility reduced to approximately $40.6 million on December 31, 1998 and,
by its terms, the facility reduces by an additional $1,562,500 at the end of
each subsequent quarter until July 31, 2001, when it terminates and any balance
then outstanding becomes due and payable. Borrowings bear interest, at the
Company's option, at either (i) the greater of (a) the reference rate publicly
announced by Bank of America and (b) the Federal Funds Rate plus .50% plus an
applicable percentage or (ii) the Eurodollar rate plus an applicable percentage.
The Credit Facility will mature July 31, 2001. As of December 31, 1998, $20.0
million of borrowings were outstanding under the Credit Facility and an
additional $19.3 million of borrowing capacity was available thereunder.
The Credit Facility is secured by substantially all of the Company's
real property. The facility includes various restrictions and other covenants
including: (i) restrictions on the disposition of property, (ii) restrictions on
investments and acquisitions, (iii) restrictions on distributions to members of
Resorts, (iv) restrictions on the incurrence of negative pledges, (v)
restrictions on the incurrence of indebtedness and the issuance of guarantees,
(vi) restrictions on transactions with affiliates and, (vii) restrictions on
annual capital expenditures including capital leases. The Credit Facility also
contains financial covenants including a maximum total debt to EBITDA ratio, a
maximum senior debt to EBITDA ratio, a minimum fixed charge coverage ratio and a
minimum equity requirement. As of December 31, 1998, the Company was in
compliance with all provisions of the Credit Facility. Included in other assets
at December 31, 1998 are $3.9 million of debt offering costs related to the
Indenture and the amendment to the Credit Facility which are being amortized
over the life of the applicable agreements.
11. EMPLOYEE BENEFIT PLANS
On May 1, 1990, the Company established a voluntary, qualified,
defined contribution plan covering all full-time employees of the Company who
have completed six months and 1,000 hours of service and are age twenty-one
or older. The plan allows for an employer contribution up to 25 percent of
the first 6 percent of each participating employee's contribution. Plan
participants can elect to defer before tax compensation through payroll
deductions. These deferrals are regulated under Section 401(k) of the
Internal Revenue Code. The Company's matching contributions were $224,000,
$255,000 and $281,000 for the fiscal years ended December 31, 1996, 1997 and
1998, respectively.
12. EXECUTIVE DEFERRED COMPENSATION PLANS
Effective January 1, 1990, the Company established a Deferred
Compensation Plan for the benefit of a select group of management or highly
compensated employees. As of December 31, 1996, 1997 and 1998, the Company had
accrued obligations of $762,000, $911,000 and $1,047,000, respectively, related
to this deferred compensation agreement which represents an unfunded obligation
of the Company.
The Company instituted the Eldorado Performance and Appreciation Rights
Plan (the "Plan") for the benefit of certain of its key executives and other key
employees of the Company and its general partners, effective for the fiscal year
commencing January 1, 1995. A person shall be eligible to be granted performance
and/or appreciation rights only if on the proposed grant date, such person is an
executive or other key employee of the Company or an affiliate of the Company.
The performance right allows the key employee the right to receive an amount
equal to a percentage of income from the grant date, as defined, through the
date of exercise. The appreciation right allows the
53
<PAGE>
key employee to receive compensation based upon the difference between the
value of the Company, as defined, as of January 1, 1995 (the "Base Rate") and
the future value of the Company. One Company Unit (1% of the Company) is
equivalent to the combination of 100,000 performance rights and 100,000
appreciation rights. The Base Rate for each appreciation right is $26.66 as
of January 1, 1995. The Company value is calculated as a factor of eight (8)
times trailing twelve months operating income (adjusted for certain items to
approximate EBITDA) less funded indebtedness and adjusted for certain
additional items, as defined. The rights are not ownership interests in the
Company. As of December 31, 1996, 860,000 appreciation rights had been
granted. No additional rights were granted in 1997 or 1998. The maximum
amount of performance rights and appreciation rights which may be granted
shall not exceed 1,000,000 each.
The Plan's committee shall determine the date on which each performance
right or appreciation right shall vest and become exercisable; as of December
31, 1998, no vesting period had been established. The Company value as of
December 31, 1997 and 1998, as calculated, is below the $26.66 Base Rate, and
therefore no accrual is required as of December 31, 1998. Except as defined in
the Plan agreement, the Company has no duty or obligation to fund or secure the
benefits payable to key executives.
13. COMMITMENTS AND CONTINGENCIES
LETTERS OF CREDIT
The Credit Facility (see Note 10) allows for the issuance of letters of
credit which reduces the available line by the amount pledged. At December 31,
1998, the amount pledged was $1,341,150, inclusive of $372,000 pledged on behalf
of Express Vacations, LLC, a Nevada limited liability company. Resorts is a
one-third member of Express Vacations, LLC and recognized $210,000 of income
reflected in Other Income.
CAPITAL LEASES
The Company leases certain equipment under agreements classified as
capital leases. The future minimum lease payments by year under these leases,
together with the present value of the minimum lease payments consisted of
the following at December 31, 1998 (in thousands):
<TABLE>
<S> <C>
1999....................................... $ 848
2000....................................... 720
2001....................................... 90
2002....................................... --
2003....................................... --
Thereafter................................. --
-------------
Minimum lease payments..................... 1,658
Less--Amounts representing interest........ (136)
-------------
$ 1,522
-------------
-------------
</TABLE>
OPERATING LEASES
The Company leases equipment under operating leases. Future minimum
payments (expiring from 1999 and thereafter) under noncancellable operating
leases with initial terms of one year or more consisted of the following at
December 31, 1998 (in thousands):
54
<PAGE>
<TABLE>
<CAPTION>
FUTURE MINIMUM
LEASE PAYMENTS
<S> <C>
1999 ................................ $ 237
2000................................. 127
2001 ................................ 127
2002 ................................ 127
2003................................. 127
Thereafter .......................... --
---------
$ 745
---------
---------
</TABLE>
Total rental expense under operating leases was $1,210,000 for the year
ended December 31, 1996, $1,027,000 for the year ended December 31, 1997 and
$882,000 for the year ended December 31, 1998. Additional rent for land upon
which the Eldorado Hotel Casino resides of $654,000 in 1998 ($646,000 in 1996
and $668,000 in 1997) was paid to a related party based on gross gaming
receipts. This rental agreement expires June 30, 2027.
LEGAL MATTERS
The Company is a litigant in legal matters arising in the normal course
of business. In the opinion of management, all pending legal matters are either
adequately covered by insurance or, if not insured, will not have a material
adverse effect on the financial position or results of operations of the
Company.
14. CORPORATE EXPENSES/MANAGEMENT FEES
Resorts pays management fees to Recreational Enterprises, Inc. and
Hotel Casino Management, Inc., the owners of 55% and 29% of Resorts' equity
interests, respectively. Historically, the salaries of senior executive
officers and certain other key employees of the Predecessor Partnership were
not directly incurred by the Predecessor Partnership, but were paid from a
portion of the management fees paid to Recreational Enterprises, Inc. As of
July 1, 1996, the aggregate annual salaries of such senior executive officers
and other key employees became payroll obligations of Resorts. In connection
with the consummation of the offering of the Notes, Resorts entered into a
Management Agreement with Recreational Enterprises, Inc. and Hotel Casino
Management, Inc. providing that future management fees paid to Recreational
Enterprises, Inc. and Hotel Casino Management, Inc. will not exceed 1.5% of
Resorts' annual net revenues.
15. RELATED PARTIES
Resorts pays management fees to two of its corporate Members. Such
fees, included in general and administration and operating department
expenses, were $2,944,000 for 1996, $1,843,000 for 1997 and $1,779,000 for
1998.
On May 16, 1996, the Company entered into an agreement with the
Circus and Eldorado Joint Venture, (the "Silver Legacy") to operate a race
and sports book located in the Silver Legacy, (the "Legacy Book"). The
Company supplies the management, employees and equipment associated with the
operation of the Legacy Book and records a proportionate share of revenue and
expenses included in casino revenue and casino expense according to a formula
included in the race and sports book agreement. For the years ended December
31, 1996, 1997 and 1998 the Company recorded $243,000, $483,000 and $810,000
in casino revenues and $205,000, $358,000 and $400,000 in casino expenses,
respectively.
55
<PAGE>
EXHIBITS INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
21 List of Subsidiaries
27 Financial Data Schedule
56
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES
Eldorado Resorts LLC (the "Company")
Eldorado Capital Corp., a Nevada corporation (100%-owned by the Company)
Eldorado Limited Liability Company, a Nevada limited-liability company
(96.12%-owned by the Company)
Silver Legacy Joint Venture, a Nevada general partnership (50%-owned by
Eldorado Limited Liability Company)
Express Vacations, LLC, a Nevada limited liability company (33.33%-owned
by the Company)
Eldorado Capital Corp.
None
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001022644
<NAME> ELDORADO RESORTS LLC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 8,087
<SECURITIES> 0
<RECEIVABLES> 4,881
<ALLOWANCES> 1,620
<INVENTORY> 2,904
<CURRENT-ASSETS> 16,640
<PP&E> 237,478
<DEPRECIATION> 82,473
<TOTAL-ASSETS> 231,258
<CURRENT-LIABILITIES> 14,572
<BONDS> 122,999
0
0
<COMMON> 0
<OTHER-SE> 87,486
<TOTAL-LIABILITY-AND-EQUITY> 231,258
<SALES> 0
<TOTAL-REVENUES> 158,315
<CGS> 0
<TOTAL-COSTS> 134,705
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 842
<INTEREST-EXPENSE> 13,151
<INCOME-PRETAX> 9,617
<INCOME-TAX> 0
<INCOME-CONTINUING> 9,617
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,617
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
