confidential - Investors

ANNUAL REPORT
of
ELDORADO RESORTS LLC
and
ELDORADO CAPITAL CORP.
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FOR THE YEAR ENDED DECEMBER 31, 2011
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345 North Virginia Street, Reno, Nevada 89501
(Address of principal executive offices, including zip code)
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(775) 786-5700
(Telephone number, including area code)
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Because Eldorado Resorts LLC (“Resorts”) and Eldorado Capital Corp. (“Capital” and along
with Resorts, the “Issuers”) are not required to file periodic reports with the Securities and
Exchange Commission (the “SEC”) pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has not been filed with the SEC. The content is not
intended to, and does not, include all requirements of the consolidated entity as would be
required in an SEC filing or Form 10-K. However, for the convenience of the reader, the
information included in this report, which relates to Resorts and its Subsidiaries, has been
organized and presented under captions that generally correspond to those in Form 10-K.
Explanation Regarding the Financial Information in this Report. This report includes the
consolidated financial statements of Resorts and its consolidated subsidiaries, including the
subsidiaries that are “restricted” as well as those that are “unrestricted” under the provisions
of that certain Indenture, dated as of June 1, 2011 by and among Resorts and Capital, as
issuers, and U.S. Bank National Association, as Trustee, and Capital One, N.A., as Collateral
Trustee, (the “Indenture”). In accordance with Section 4.03 of the Indenture, also included in
Item 7 to this Annual Report is an unaudited presentation of consolidated Earnings before
Interest, Taxes, Depreciation and Amortization (“EBITDA”) and Adjusted EBITDA as
derived from the audited consolidated financial statements.
TABLE OF CONTENTS
Page
Part I
1 Item 1. Business. .................................................................................................................................................. 1 N
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Introduction .............................................................................................................................................. 1 Eldorado Shreveport................................................................................................................................. 1 Eldorado Reno.......................................................................................................................................... 3 Silver Legacy Resort Casino .................................................................................................................... 5 Tamarack Junction ................................................................................................................................... 6 Business Strategy ..................................................................................................................................... 6 Our Markets ............................................................................................................................................. 8 Shreveport/Bossier City Market ............................................................................................................... 9 Reno Market ............................................................................................................................................. 9 Marketing Strategy ................................................................................................................................. 10 Competition ............................................................................................................................................ 10 Shreveport/Bossier City ......................................................................................................................... 11 Reno ....................................................................................................................................................... 11 Government Gaming Regulations .......................................................................................................... 12 Nevada Regulation and Licensing.......................................................................................................... 12 Louisiana Regulation and Licensing ...................................................................................................... 15 Taxation ................................................................................................................................................. 17 Internal Revenue Service Regulations ................................................................................................... 17 Other Laws and Regulations .................................................................................................................. 17 Environmental Matters ........................................................................................................................... 17 Seasonality ............................................................................................................................................. 18 Employees .............................................................................................................................................. 18 Factors that May Affect the Company’s Future Results ........................................................................ 19 Item 1A. Risk Factors. ........................................................................................................................... 20 Risks Related to our Business ................................................................................................................ 20 Item 2. Properties. .............................................................................................................................................. 28 Item 3. Legal Proceedings. ................................................................................................................................. 28 Item 4. Not applicable. ....................................................................................................................................... 28 28 O
Part II
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Item 5. Market for Registrants’ Common Equity and Related Stockholder Matters and Issuer
Purchases of Equity Securities. .............................................................................................................. 28 Item 6. Selected Financial Data. ......................................................................................................................... 29 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. ................ 33 General ................................................................................................................................................... 33 Critical Accounting Policies................................................................................................................... 33 Factors Impacting Operating Trends ...................................................................................................... 35 Other Factors Affecting Results of Operations ...................................................................................... 36 Summary Financial Results .................................................................................................................... 37 Supplemental Unaudited Presentations of Consolidated Earnings before Interest, Taxes, Depreciation
and Amortization (“EBITDA”) and Adjusted EBITDA For the Years ended December 31, 2011, 2010
and 2009 ................................................................................................................................................. 43 Liquidity and Capital Resources ............................................................................................................ 44 Contractual Commitments...................................................................................................................... 48 Item 7A. Quantitative and Qualitative Disclosures About Market Risk. ................................................ 48 Item 8. Financial Statements and Supplementary Data. ..................................................................................... 49 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. ................ 49 Item 9A. [Intentionally Omitted]............................................................................................................ 49 Item 9B. Other Information. ................................................................................................................... 49 ii Part III 50 Item 10. Directors, Executive Officers and Corporate Governance. .................................................................... 50 Board of Managers ................................................................................................................................. 50 Audit Committee Financial Expert......................................................................................................... 50 Code of Ethics ........................................................................................................................................ 51 Indemnification of Board Members and Officers .................................................................................. 51 Board Members, Executive Officers and Significant Employees .......................................................... 51 Item 11. Executive Compensation. ....................................................................................................................... 53 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters. .................................................................................................................................................. 54 Item 13. Certain Relationships and Related Transactions, and Director Independence. ...................................... 56 Transactions with Related Persons ......................................................................................................... 56 Board Members Independence ............................................................................................................... 59 Review of Related Party Transactions ................................................................................................... 59 Item 14. Principal Accounting Fees and Services ................................................................................................ 59 L
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Item 15. Financial Statement Schedules. .............................................................................................................. 59 SIGNATURES ....................................................................................................................................... 61 EN
ELDORADO RESORTS LLC ............................................................................................................................. 65 CONSOLIDATED BALANCE SHEETS ............................................................................................................ 65 C
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For the year ended December 31, ........................................................................................................... 73 For the year ended December 31, ........................................................................................................... 73 iii PART I
Item 1.
Business.
Introduction
Eldorado Resorts LLC, a Nevada limited liability company (“Resorts”), was formed on July 1, 1996 and is a wholly
owned subsidiary of Eldorado HoldCo, LLC, a Nevada limited liability company (“HoldCo”). HoldCo was formed on April
1, 2009 to be the holding company for Resorts, and the members of Resorts contributed all their respective membership
interests in Resorts to HoldCo in return for proportionate membership interests in HoldCo. Other than the membership
interests in Resorts, HoldCo has no assets or liabilities and conducts no operations. Eldorado Capital Corp., a Nevada
corporation wholly owned by Resorts (“Capital”), was incorporated for the sole purpose of serving as co-issuer of certain
debt co-issued by Resorts and Capital. Capital holds no significant assets and conducts no business activity.
Resorts was formed in 1996 and became the successor to a predecessor partnership that constructed the Eldorado Hotel
and Casino ( “Eldorado Reno”), a premier hotel/casino and entertainment facility centrally located in downtown Reno,
Nevada which opened for business in 1973. Resorts owns and operates Eldorado Reno. Eldorado Reno is easily accessible
both to vehicular traffic from Interstate 80, the principal highway linking Reno to its primary visitor markets in northern
California, and to pedestrian traffic from nearby casinos.
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Resorts indirectly owns 100% of the partnership interests of Eldorado Casino Shreveport Joint Venture, a Louisiana
general partnership (the “Louisiana Partnership”). The Louisiana Partnership owns and Resorts manages the Eldorado Resort
Casino Shreveport (the “Eldorado Shreveport”), a 403-room all suite art deco-style hotel and a tri-level riverboat dockside
casino complex situated on the Red River in Shreveport, Louisiana which commenced operations under its previous owners
in December 2000. Resorts acquired a majority ownership interest in the hotel and riverboat casino complex in July 2005,
and acquired the remaining minority interest in March 2008. Resorts’ ownership interest in the Louisiana Partnership is held
through Eldorado Shreveport #1, LLC (“ES#1”) and Eldorado Shreveport #2, LLC (“ES#2”), both Nevada limited liability
companies that are wholly owned subsidiaries of Resorts. Shreveport Capital Corp., a Louisiana corporation (“Shreveport
Capital”), is a wholly owned subsidiary of the Louisiana Partnership and was incorporated with the sole purpose of serving as
co-issuer of certain debt co-issued by the Louisiana Partnership and Shreveport Capital. Shreveport Capital holds no
significant assets and conducts no business activity.
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Resorts also owns 96.1858% of Eldorado Limited Liability Company, a Nevada limited liability company (“ELLC”).
ELLC is a 50% partner in a joint venture (the “Silver Legacy Joint Venture”) that owns the Silver Legacy Resort Casino
(“Silver Legacy”). A major themed hotel/casino, Silver Legacy is situated between, and seamlessly connected to, Eldorado
Reno and Circus Circus-Reno, a hotel/casino owned and operated by the other partner in the Silver Legacy Joint Venture,
Galleon, Inc., an indirect wholly owned subsidiary of MGM Resorts International.
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Resorts also owns a 21.25% interest in Tamarack Crossing, LLC, a Nevada limited liability company (“Tamarack”), that
owns and operates Tamarack Junction, a small casino in south Reno which commenced operations on September 4, 2001.
Tamarack Junction is situated on approximately 62,000 square feet of land with approximately 13,230 square feet of gaming
space and approximately 465 slot machines.
Resorts, Capital, ES#1, ES#2, the Louisiana Partnership, Shreveport Capital and ELLC are collectively referred to
herein as the “Company.”
Eldorado Shreveport
Eldorado Shreveport, which is located in the largest gaming market in Louisiana, is a premier resort-casino located
adjacent to Interstate 20, a major highway that connects the Shreveport market with the attractive feeder markets of East
Texas and Dallas/Fort Worth. Since our acquisition of a majority ownership interest in the property in 2005, we have taken
steps to change the property’s theme from its original design and re-position it as a modern, Las Vegas-style resort with a
gaming experience that appeals to both local gamers and out-of-town visitors. Our integrated casino and entertainment resort
benefits from the following features:
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A location that positions us as the first casino that customers reach when driving to Shreveport from our primary
feeder markets and the airport;
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A purpose-built 50,000-square foot barge that houses 30,000 square feet of gaming space, as measured by the actual
footprint of the gaming equipment, offering 1,511 slots, 53 table games and a poker room with nine tables;
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A gaming experience with a land-based feel without the extensive ramping systems of most of our competitors;
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The premier restaurant and entertainment pavilion in our market, featuring a 60-foot high atrium that enables patrons
to see the casino floor from almost anywhere in the pavilion, which we continue to update and refresh;
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A luxurious 403-room, all-suite, hotel, with updated rooms featuring modern décor and flat screen TVs;
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Part of the only “cluster” in our market that allows for walkable visits between two gaming facilities with over 900
hotel rooms;
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A 400-seat ballroom with four breakout rooms, a 6,000-square foot spa, a fitness center and salon, a premium
players’ club and an entertainment show room; and
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Two parking lots and an eight-story parking garage providing approximately 1,900 parking spaces that connects
directly to the pavilion by an enclosed walkway, including valet parking for approximately 340 cars.
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The casino contains approximately 59,000 square feet of space with approximately 1,500 slot machines, approximately
50 table games and a poker room. The centerpiece of Eldorado Shreveport is an approximately 170,000 square foot landbased pavilion housing numerous restaurants and entertainment amenities, including a deli and ice cream shop, VIP check-in,
a premium quality bar and a retail store. An 85-foot wide seamless entrance connects the casino to the land-based pavilion
on all three levels resulting in the feel of a land-based casino. The pavilion features a dramatic 60-foot high atrium enabling
patrons to see the casino floor from almost anywhere in the pavilion.
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Eldorado Shreveport offers award-winning cuisine ranging from fine dining to a sports-themed casual diner. Eldorado
Shreveport’s four dining venues include the following:
The Vintage, with a seating capacity of approximately 140, is a gourmet steakhouse offering 100% USDA prime
beef and fresh seafood along with an extensive wine list;
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The Café, with a seating capacity of approximately 40, is a self-service deli featuring pre-made sandwiches, fresh
pastries, salads, desserts and ice cream;
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The Market Place Buffet, with a seating capacity of approximately 325, serves a variety of regional to ethnic dishes,
including Mexican, steak and seafood buffet, fresh salads and desserts; and
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Sportsmans’ Paradise Café, which is located in the pavilion, offers 24-hours-a-day service with a menu featuring
omelets and buttermilk pancakes to thick steaks and gourmet burgers as well as a wide variety of southern favorites
and Asian cuisine.
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The riverboat casino floats in a concrete and steel basin that raises the riverboat nearly 20 feet above the river. The basin
virtually eliminates variation in the water height and allows the boat to be permanently moored to the land-based pavilion.
Eldorado Shreveport’s computerized pumping system is designed to regulate the water level of the basin to a variance of no
more than three inches.
Eldorado Shreveport offers three parking facilities, including two parking lots and an eight-story parking garage directly
across the street and connected to the pavilion by an enclosed walkway. The three parking facilities provide space for
approximately 1,900 cars, including valet parking for approximately 340 cars.
Eldorado Shreveport commenced operations on December 20, 2000. Resorts acquired an initial 76.4% interest in the
partnership that owns Eldorado Shreveport and assumed its role as manager of the property on July 22, 2005. Resorts
acquired the remaining 23.6% partnership interest, other than certain rights associated with the “Preferred Capital
Contribution Amount” and “Preferred Return” (as these terms are defined in the partnership agreement) on March 20, 2008.
Such rights terminated in June 2011 as a result of the retirement of the “Preferred Capital Contribution Amount” and
“Preferred Return” with a portion of the proceeds from the Company’s refinancing of its then outstanding indebtedness.
The primary source of our operating revenues is the casino, although the hotel, restaurants, bars, shops and other services
are important adjuncts to the casino. The following table sets forth the respective contributions to our net operating revenues
on a dollar and percentage basis of our major activities at Eldorado Shreveport for each of the three most recent fiscal years.
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2010
(Dollars in Thousands)
2011
Operating Revenues:
Casino(1)
Food, Beverage and Entertainment(2)
Hotel(2)
Other(2)
Total Operating Revenues
Less: Promotional Allowances(2)
Net Operating Revenues
$ 142,089
26,681
8,933
3,783
91.8%
17.2%
5.8%
2.5%
$ 137,462
26,490
9,309
3,181
181,486
(26,740)
$ 154,746
117.3%
(17.3%)
100.0%
176,442
(25,776)
$ 150,666
91.2%
17.6%
6.2%
2.1%
117.1%
(17.1%)
100.0%
2009
$ 143,059
27,079
8,926
3,491
182,555
(27,724)
$ 154,831
92.4%
17.5%
5.8%
2.2%
117.9%
(17.9%)
100.0%
(1) Casino revenues are the net difference between the sums received as winnings and the sums paid as losses.
(2) Hotel, food, beverage, entertainment and other include the retail value of services which are provided to casino customers and
others on a complimentary basis. Such amounts are then deducted as promotional allowances to arrive at net operating revenues.
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Eldorado Reno
Eldorado Reno currently offers:
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We also own and operate Eldorado Reno, an 814-room premier hotel, casino and entertainment facility centrally located
in downtown Reno. Reno is the second largest metropolitan area in Nevada, with a population of approximately 421,000,
and is located at the base of the Sierra Nevada Mountains along Interstate 80, approximately 60 miles from South Lake
Tahoe, 135 miles east of Sacramento, California and 225 miles east of San Francisco, California. Reno is a destination
market that attracts year-round visitation by offering gaming, numerous summer and winter recreational activities and
popular special events such as national bowling tournaments.
Approximately 76,500 square feet of gaming space, with approximately 1,240 slot machines and 46 table games;
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814 finely-appointed guest rooms and suites, including 17 specialty suites, 93 “Eldorado Player’s Spa Suites” with
bedside spas and 26 one- or two-bedroom penthouse suites;
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Nationally recognized cuisine which ranges from buffet to gourmet;
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A 566-seat showroom, a VIP lounge, three retail shops, a versatile 12,400 square foot convention center and an
outdoor plaza located diagonal to Eldorado Reno which hosts a variety of special events; and
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Parking facilities for over 1,130 vehicles, including a 643-space self-park garage, a 124-space surface parking lot
and a 363-space valet parking facility.
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Eldorado Reno is centrally positioned in the heart of Reno’s prime gaming area and room base and is easily accessible to
both foot and vehicular traffic. With three towers, including a 26-story tower that lights up with over 2,000 feet of neon at
night, Eldorado Reno is visible from Interstate 80, attracting visitors to the downtown area and generating interest in the
property. Management believes Eldorado Reno serves as a downtown landmark, situated to attract foot traffic from other
casinos as well as from the local populace. In addition, Eldorado Reno is easily accessible to visitors competing in and
attending the various bowling tournaments that are held in the National Bowling Stadium and to visitors attending events in
the Reno Event Center and a city-owned downtown ballroom facility, all of which are located just one block away.
Management believes that Eldorado Reno’s casino’s mix of slot machines and table games, including blackjack, craps,
roulette, Pai Gow Poker, Let It Ride®, Caribbean stud poker, mini-baccarat, a keno lounge, a races and sport book and a
poker room, makes it attractive to both middle-income and premium-play customers. Slot machines, which are offered in
denominations from 1 cent to $100, generated approximately 70.6% of Eldorado Reno’s total gaming revenues in 2011. A
diverse selection of table games and a variety of table limits encourage play from a wide range of gaming customers, which
management believes makes Eldorado Reno one of the premier table games casinos in the Reno market.
The interior of the hotel is designed to create a European ambiance where 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
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have created an identifiable and innovative presence in the Reno market for Eldorado Reno. In 2011 and 2010, Eldorado
Reno achieved average hotel occupancy of 83.4% and 83.0%, respectively. In 2011, Eldorado Reno achieved an Average
Daily Rate (“ADR”) of $63.62 compared with $62.78 in 2010.
Eldorado Reno is nationally recognized for its cuisine. Its nine dining venues, which have an aggregate seating capacity
of more than 1,400, range from buffet to gourmet and offer high quality food at reasonable prices.
Eldorado Reno’s dining venues include the following:
Roxy’s, with a seating capacity of approximately 160, is a Parisian-style bistro, restaurant and bar with
contemporary American influences offering French country fare, steaks and seafood along with an extensive
wine list;
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Sushi Sake, located on the patio of Roxy’s, provides sushi and libations in a contemporary Euro-Asian setting
with a seating capacity of 46;
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La Strada features northern Italian cuisine in an Italian countryside villa setting, and has a seating capacity of
approximately 164;
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The Brew Brothers, with a seating capacity of approximately 190, is the first microbrewery located in a
hotel/casino;
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The Prime Rib Grill, with a seating capacity of approximately 186, is a spirited, lively steak and seafood house
specializing in prime rib and grilled entrees;
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The Buffet, which was totally remodeled in 2008 and has a seating capacity of approximately 340, offers a 200foot long buffet with a variety of cuisines, including American, Italian, Chinese, Mexican, Hop Wok grill, a
pizza station and salad, fruit and ice cream bars;
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Tivoli Gardens, with a seating capacity of approximately 210, offers a 24-hour-a-day restaurant with a menu
featuring Asian, Italian, Mexican and classic American cuisines;
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Pho Mein, with a seating capacity of approximately 122, is an authentic Asian noodle kitchen featuring an array
of Chinese and Vietnamese favorites available for dine in or take out; and
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Eldorado Coffee Company features Eldorado Reno’s freshly roasted on-site blends, offering gourmet coffee
and teas. Eldorado Reno was proudly the first hotel in the United States with its own coffee roaster and fullscale gourmet coffee program.
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Eldorado Reno’s selection of high-quality food and beverages reflects the Carano family’s emphasis on the dining
experience. Eldorado Reno 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.
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The primary source of Eldorado Reno’s revenues is the casino, although the hotel, restaurants, bars, shops and other
services are an important adjunct to the casino. The following table sets forth the respective contributions to our net revenues
on a dollar and percentage basis of our major activities at Eldorado Reno for each of the three most recent fiscal years.
2010
(Dollars in Thousands)
2011
Operating Revenues:
Casino(1)
Food, Beverage and Entertainment(2)
Hotel(2)
Management Fee(3)
Other(2)
Total Operating Revenues
Less: Promotional Allowances(2)
Net Operating Revenues
$
59,164
35,963
17,614
2,792
3,242
118,775
(14,657)
$ 104,118
56.8%
34.6%
16.9%
2.7%
3.1%
$ 66,075
34,348
16,982
4,826
3,179
114.1%
(14.1%)
125,410
(16,392)
100.0%
$ 109,018
60.6%
31.5%
15.6%
4.4%
2.9%
115.0%
(15.0%)
100.0%
2009
$ 71,363
33,781
16,137
4,925
3,330
129,536
(15,786)
113.9%
(13.9%)
$ 113,750
100.0%
(1) Casino revenues are the net difference between the sums received as winnings and the sums paid as losses.
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62.8%
29.7%
14.2%
4.3%
2.9%
(2) Hotel, food, beverage, entertainment and other include the retail value of services which are provided to casino customers and
others on a complimentary basis. Such amounts are then deducted as promotional allowances to arrive at net operating revenues.
(3) Resorts’ management fee relates to our management agreement with the Louisiana Partnership. Effective June 1, 2011, Resorts
and the Louisiana Partnership amended the Management Agreement to call for a New Base Management Fee of $250,000 per
month payable monthly. Prior to June 1, 2011, Resorts was entitled to receive a base management fee of $2.5 million annually,
payable in quarterly installments of $625,000 each on October 22, January 22, April 22 and July 22. Resorts was also entitled to
an incentive fee equal to the sum of (i) 15% of the amount, if any, by which “EBITDA” (as defined in the management
agreement) for any calendar year during the term of the management agreement exceeded $20 million and (ii) an additional 5%
of the amount, if any, by which “EBITDA” (as defined in the management agreement) for any such calendar year exceeded $25
million. The management fee is eliminated in consolidation.
Silver Legacy Resort Casino
Silver Legacy, a 50/50 joint venture between Resorts and MGM Resorts International, 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 Silver
Legacy were originally formulated in 1993 by the Company and Mandalay, who jointly recognized the potential synergies of
constructing a new hotel/casino between Eldorado Reno and Mandalay’s property, Circus Circus-Reno.
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Silver Legacy’s design is inspired by Nevada’s rich mining heritage and the legend of Sam Fairchild, a fictitious silver
baron who “struck it rich” on the site of the casino. Silver Legacy’s hotel, the tallest building in northern Nevada, is a “Y”shaped structure with three wings, consisting of 37-, 34- and 31-floor tiers. Silver Legacy’s opulent interior showcases a
casino built around Sam Fairchild’s 120-foot tall mining rig, which appears to mine for silver. The rig is situated beneath a
180-foot diameter dome, which is a distinctive landmark on the Reno skyline. The interior surface of the dome features
dynamic sound and laser light shows, providing visitors with a unique experience when they are in the casino.
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Silver Legacy is situated on two city blocks, encompassing 240,000 square feet in downtown Reno. The hotel currently
offers 1,711 guest rooms, including 141 player spa suites, eight penthouse suites and seven hospitality suites. Many of the
Silver Legacy’s guest rooms feature views of Reno’s skyline and the Sierra Nevada mountain range. The Silver Legacy’s 10story parking facility can accommodate approximately 1,760 vehicles. At December 31, 2011, the Silver Legacy’s casino
featured approximately 87,300 square feet of gaming space with 1,399 slot machines and 63 table games, including
blackjack, craps, roulette, Pai Gow Poker, Let It Ride®, Caribbean stud poker, Baccarat and Pai Gow, a keno lounge and a
race and sports book. “Club Legacy,” the Silver Legacy’s slot club, offers customers exciting special events and tournaments
and convenient ways of earning complimentaries.
Silver Legacy’s dining options are offered in six venues:
Sterling’s Seafood Steakhouse, with a seating capacity of approximately 170, offering the finest in steaks and
seafood along with an extensive wine list, tableside desserts and an extravagant Sunday Brunch;
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Flavors! The Buffet, has a seating capacity of approximately 500;
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Fairchild’s Oyster Bar, with a seating capacity of approximately 55, offering a comfortable drink and
specialized seafood dining;
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Café Sedona, with a seating capacity of approximately 330, offers an extensive menu that includes American
classics and Chinese cuisine 24-hours a day;
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Fresh Express Food Court, with a seating capacity of approximately 110, offering a range of options including
a deli and grill, authentic Asian cuisine and American classics; and
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Sips Coffee House, situated in the hotel lobby, offers gourmet coffee and teas.
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In addition, the hotel sponsors entertainment events which are held in the hotel’s convention area. Silver Legacy’s other
amenities include retail shops, exercise and spa facilities, a beauty salon and an outdoor swimming pool and sundeck. A cityowned 50,000 square-foot ballroom facility is operated and managed by Silver Legacy, together with Eldorado Reno and
Circus Circus-Reno, and complements the existing Reno Events Center. It provides an elegant venue for large dinner
functions and convention meeting space along with concert seating for approximately 3,000 attendees.
The Eldorado Reno, 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 bridge ways between the three properties and house
several restaurants and retail shops. Eldorado Reno, 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 4,097 rooms, 18 restaurants and enough parking to
accommodate approximately 6,050 vehicles, and as of December 31, 2011, approximately 3,554 slot machines and 144 table
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games. We believe that the centralized location and critical mass of these three properties, together with the ease of access
between the facilities, provide Eldorado Reno with significant advantages over other freestanding hotel/casinos in the Reno
market.
Silver Legacy was developed by the Silver Legacy Joint Venture, which was formed pursuant to the Agreement of Joint
Venture of Circus and Eldorado Joint Venture dated as of March 1, 1994 (as amended, the “Joint Venture Agreement”),
between ELLC and Galleon, Inc. (“Galleon”). Under the terms of the Original Joint Venture Agreement, ELLC and Galleon
(each a “Partner” and, together, the “Partners”) each acquired a 50% interest in the Silver Legacy Joint Venture (each
Partner’s “Percentage Interest”).
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On March 5, 2002, the Silver Legacy Joint Venture and its wholly owned finance subsidiary, Silver Legacy Capital
Corp., issued $160 million principal amount of 10⅛% mortgage notes due 2012 (the “Silver Legacy Notes”). The Silver
Legacy Notes are secured by a security interest in substantially all of the existing and future assets and pledges of each of the
Partners’ interests in the Silver Legacy Joint Venture and are nonrecourse to the Company. The Silver Legacy Notes matured
on March 1, 2012 and the Silver Legacy Joint Venture did not make the principal and interest payment due on such date. On
March 16, 2012, the Silver Legacy Joint Venture, Silver Legacy Capital Corp., Galleon, ELLC and a significant holder of
the Silver Legacy Notes entered into a Restructuring Support Agreement (the “Restructuring Support Agreement”) pursuant
to which the consenting holder agreed to support and tender all of its claims in, and Silver Legacy Joint Venture, Galleon and
ELLC agreed to use their reasonable best efforts to support and complete, a restructuring of the Silver Legacy Joint Venture's
obligations under the Silver Legacy Notes (the "Silver Legacy Restructuring") on the terms described in and subject to the
conditions set forth in, the Restructuring Support Agreement. The terms of the Restructuring Support Agreement
contemplate that ELLC will contribute an additional $7.5 million to the capital of the Silver Legacy Joint Venture in
connection with the consummation of the Restructuring. The Restructuring is subject to the satisfaction of numerous
conditions. There can be no assurance that the Restructuring will be consummated on the terms described in the
Restructuring Support Agreement, or at all.
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If the Silver Legacy Joint Venture is unable to restructure its obligations with respect to the Silver Legacy Notes, the
holders thereof may exercise the remedies provided in the indenture governing the Silver Legacy Notes, including
foreclosing on the assets securing the Silver Legacy Notes, which constitute substantially all of the assets of the Silver
Legacy Joint Venture, or the Silver Legacy Joint Venture may file for bankruptcy protection.
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As a result of our identification of a triggering event, we recognized a non-cash impairment charge of $33.1 million in
2011 for our investment in the Silver Legacy Joint Venture. Such impairment charge eliminated the Company’s remaining
investment in the Silver Legacy Joint Venture. Noncontrolling interests in the Silver Legacy Joint Venture were allocated
$4.8 million of the non-cash impairment, eliminating the remaining noncontrolling interest. Assumptions used in such
analysis were impacted by the default in the payment of principal and interest on the Silver Legacy Joint Venture’s debt
obligations on March 1, 2012 (see Note 6), the current cash flow forecasts and market conditions for the Silver Legacy Joint
Venture. There was no impairment of our investment in the Silver Legacy Joint Venture in 2010 or 2009. As a result of the
elimination of the Company's remaining investment in the Silver Legacy Joint Venture, we will discontinue the equity
method for our investment in the Silver Legacy Joint Venture and will not provide for additional losses until our share of
future net income, if any, equals the share of net losses not recognized during the period the equity method was suspended.
Tamarack Junction
Tamarack Junction is a small casino in south Reno in which the Company owns a 21.25% interest. Tamarack Junction is
situated on approximately 62,000 square feet with approximately 13,230 square feet of gaming space. At December 31,
2011, Tamarack Junction had approximately 465 slot machines, a keno game, a sports book and three themed restaurants.
Four members of Tamarack, including Resorts and three unaffiliated third parties, manage the business and affairs of the
Tamarack Junction. At December 31, 2011 and 2010, Resorts’ financial investment in Tamarack was $5.2 million and $5.3
million, respectively. Resorts’ capital contribution to Tamarack represents its proportionate share of the total capital
contributions of the members. Additional capital contributions of the members, including Resorts, may be required for
certain purposes, including the payment of operating costs and capital expenditures or the repayment of loans, to the extent
such costs are not funded by prior capital contributions and earnings. The Company’s investment in Tamarack is accounted
for using the equity method of accounting. Equity in income related to Tamarack for the years ended December 31, 2011,
2010 and 2009, of $1.0 million, $0.9 million and $1.2 million, respectively, is included as a component of operating income.
Business Strategy
We have an 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 6
founded Eldorado Reno in 1973 and has been the driving force behind its development. In addition to Donald Carano, each
of our other senior executives, other than Thomas Reeg, who joined the Company in January 2011 as Senior Vice President
of Strategic Development, has in excess of thirty years of operating experience in the gaming industry. In addition to their
roles in management of the Company, members of the Carano family indirectly own 51% of Resorts.
Personal Service and High Quality Amenities. One of the cornerstones of our business strategy is to provide our
customers with an extraordinary level of personal service. Our senior management is actively involved in the daily
operations of our properties, frequently interacting with hotel, restaurant and gaming patrons to ensure that they are receiving
the highest level of personal attention. Management believes that personal service is an integral part of fostering customer
loyalty and generating repeat business. We continually monitor our casino operations to react to changing market conditions
and customer demands. We target premium-play customers as well as the value-conscious gaming patron with our state-ofthe-art casino featuring the latest in game technology, electronic displays and customer-convenient features.
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Marketing to Target Gaming Patrons. The Company targets the following customer segments of the Reno and
Shreveport/Bossier City gaming markets: (i) free and independent travelers, (ii) preferred casino customers, (iii) convention
groups, (iv) local patrons and (v) wholesale/specialty and internet groups. The free and independent traveler segment
consists of those travelers not affiliated with groups who make their reservations directly with us or through independent
travel agents. To attract the independent traveler, we use print media, radio, television and direct mail to advertise in our core
markets and other regional travel markets. Preferred casino customers are those patrons who maintain the necessary level of
gaming activity to become established casino guests. We use special events and a guest development program, including
providing casino credit, to attract and retain preferred casino customers. Wholesale/specialty and Internet 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 in Reno. Our sales force targets this segment by
attending trade shows in order to establish relationships with airlines, travel agents, meeting planners and wholesalers. We
seek to attract and retain local customers through frequent promotions that highlight our quality gaming and dining
experience, as well as being an active supporter of numerous market events and organizations in our Shreveport/Bossier City
and Reno markets.
Eldorado Shreveport
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Strategic Expansion and Improvements. Since opening Eldorado Reno in 1973, we have employed a strategy of
periodic expansion and improvement in order to maintain and enhance our position as a leader in the Reno market.
Continuing this strategy, Eldorado Shreveport and Eldorado Reno are constantly updating their facilities in order to maintain
their presence as premier hotels in the Shreveport/Bossier City and Reno market areas.
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Since taking majority ownership of the property in 2005, we have invested approximately $29.4 million in the following
capital improvement projects at Eldorado Shreveport:
Approximately $21.1 million to reconfigure the gaming floor and add new slot machines;
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Approximately $4.4 million for room upgrades and improvements to the hotel; and
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Approximately $3.9 million for improvements to our restaurants and opening of a new private lounge for higher
end guests.
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We believe our continued reinvestment has allowed us to distinguish our property from competing facilities, many of
which have found it difficult to provide funds to re-invest in their properties during the recession.
The quality of our renovated casino and non-gaming areas allows us to successfully attract all segments of the gaming
market: the free and independent traveler, preferred casino customers, local patrons and wholesale/specialty groups. We
continue to tailor our marketing programs to each of these segments and believe recent increases in gaming win and nongaming revenues demonstrate our ability to successfully implement new strategies to gain market share and grow cash flows.
Eldorado Reno
Our property in Reno is connected by 200-foot wide skyway corridors to the Tri Properties. These enclosed corridors
serve as entertainment bridgeways between the three properties and house several restaurants and retail shops. Eldorado
Reno, 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
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area, with an aggregate of 3,580 slot machines, 144 table games, 4,095 rooms, 29 food and beverage outlets and enough
parking to accommodate approximately 6,100 vehicles.
Eldorado Reno is located adjacent to the Reno Downtown Event Center and Ballroom which has approximately 120,000
square feet for multi-purpose events such as concerts, sporting events, large dinners and trade shows. Both of these buildings
are located across the street from the approximately 80-lane National Bowling Stadium, which opened in 1995 and cost
approximately $47 million to construct. The National Bowling Stadium is contracted to host the USBC tournaments for every
year from 2012 to 2018, except for 2017.
We believe that the centralized location and critical mass of the Tri Properties, together with the ease of access between
the facilities, provide Eldorado Reno with significant advantages over other freestanding hotel/casinos in the Reno market
and the surrounding area.
In addition, one of the cornerstones of our business strategy is to provide our customers with an extraordinary level of
personal service. Our senior management team is actively involved in the daily operations of our properties, frequently
interacting with hotel, restaurant and gaming patrons to ensure that they are receiving the highest level of personal attention.
Management believes that personal service is an integral part of fostering customer loyalty and generating repeat business.
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Moreover, we continually monitor our casino and hotel operations to react to changing market conditions and customer
demands. We target premium-play customers as well as the value-conscious gaming patron with our state-of-the-art casino
featuring the latest in game technology, electronic displays and customer-convenient features.
Our Markets
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Our management team seeks to own and operate properties in markets that possess the following characteristics:
Proven gaming market depth. The Shreveport/Bossier City and Reno gaming markets generated over
$1.4 billion in combined gaming revenues in 2011. Shreveport/Bossier City casinos generated over 10.8 million
admissions and Reno casino visitation was over 4.3 million in 2011.
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Stable regulatory jurisdictions with pro-gaming policies. Nevada and Louisiana have historically been very
stable jurisdictions with respect to policies and legislation that impact their gaming industries. For example,
Louisiana’s legislature defeated a smoking ban proposal in 2009 and Nevada’s current budget proposals do not
include increases to gaming tax rates.
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Stable, low to moderate gaming tax rates. Nevada taxes gaming revenues at 6.75% and Louisiana taxes gaming
revenues at 21.5% plus local boarding fees. Our effective gaming tax rate in Louisiana was 26% in 2011.
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Significant hurdles to supply growth:
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Louisiana’s last remaining gaming license was recently awarded to a proposed development in Lake
Charles, approximately 195 miles south of Eldorado Shreveport, which caters to the Houston
metropolitan market.
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In February 2012, Margaritaville Resort Casino announced it would begin construction in Bossier City
on a $197 million casino and hotel resort with a targeted opening date in June 2013. The resort will
include over 1,300 slot machines and 46 table games.
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The Texas legislature has from time to time considered proposals to legalize gaming. Any such
proposal would require an amendment to the Texas State constitution, which requires approval by twothirds of the Texas State Legislature and approval by a majority of votes cast in a statewide voter
referendum. Such approvals would legalize gaming in Texas notwithstanding vetoes by the Governor
of casino gambling bills.
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Off-reservation proposals for tribal gaming in northern California continue to face resistance at the
federal and local levels.
Within our markets, we seek to position and operate our properties in order to maximize our market share and cash
flows. We believe that our business strategies distinguish us from our competitors in our markets.
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Shreveport/Bossier City Market
Eldorado Shreveport was built next to an existing riverboat gaming and hotel facility formerly operated by Harrah’s
Entertainment and now operated by Boyd Gaming Corporation. The two casinos form the first and only “cluster” in the
Shreveport/Bossier City market, allowing patrons to park once and easily walk between the two facilities. There are currently
five casinos and a racino operating in the Shreveport/Bossier City market, which is the largest gaming market in Louisiana.
The Shreveport/Bossier City gaming market permits continuous dockside gaming without cruising requirements or simulated
cruising schedules, allowing casinos to operate 24 hours a day with uninterrupted access. Based on information published by
the state of Louisiana, the five casino operators and racino in the Shreveport/Bossier City market generated approximately
$732.7 million in gaming revenues in 2011, a decrease of approximately 3.8% from 2010.
The principal target markets for Eldorado Shreveport are patrons from the Dallas/Fort Worth Metroplex and East Texas.
There are approximately 7.2 million adults who reside within approximately 200 miles of Shreveport/Bossier City. Eldorado
Shreveport is located approximately 180 miles east of Dallas and can be reached by car in approximately three hours. Flight
times are less than one hour from both Dallas and Houston to the Shreveport Regional Airport.
The following table sets forth certain statistical information for the Shreveport/Bossier City market for the years 2007
through 2011 as reported by the Louisiana Gaming Control Board.
Gaming Positions(2)(3)
Admissions(1)
2008
2007
$732,738
$ 761,565
$ 779,653
$ 847,533
$ 844,130
8,666
8,915
9,010
8,975
8,930
10,840,000
11,559,000
12,002,000
12,657,000
13,373,000
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Gaming Revenues (000’s)(1)
2009
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2010
2011
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The Shreveport/Bossier City Market
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(1) For the twelve months ended December 31 for each period shown.
(2) As of December 31 for each period shown.
(3) Calculated from information provided by the Louisiana Gaming Control Board.
Reno Market
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Reno is the second largest metropolitan area in Nevada, with a population of 421,000 according to the most recently
available census data, and is located at the base of the Sierra Nevada Mountains along Interstate 80, approximately 135 miles
east of Sacramento, California and 225 miles east of San Francisco, California. Reno is a destination resort market that
primarily attracts “drive-in” visitors by offering gaming as well as numerous other summer and winter recreational activities.
Management believes that approximately two-thirds of visitors to the Reno market arrive by some form of ground
transportation. Popular special events include the National Championship Air Races, the Reno-Tahoe Open PGA tour event,
Street Vibrations, a motorcycle event, and Hot August Nights, a vintage car event.
According to the Reno-Sparks Convention & Visitors Authority (the “Visitors Authority”), the greater Reno area
attracted approximately 4.3 million and 4.4 million visitors during the years 2011 and 2010, respectively. The following
table sets forth certain statistical information for the Reno market for the years 2007 through 2011 as reported by the Visitors
Authority and the Nevada State Gaming Control Board.
The Reno Market
2010
2011
Gaming Revenues (000’s)(1)
2009
2008
2007
$ 663,282
$ 683,940
$ 715,234
$ 831,889
$ 928,512
Gaming Positions(2)(3)
18,140
18,091
19,009
20,217
21,670
Hotel Rooms(2)
15,600
15,398
16,134
15,637
15,292
Average Hotel Occupancy Rate(1)
65.5%
66.1%
64.7%
66.6%
75.4%
4,345,141
4,406,270
4,354,423
4,583,298
5,097,591
Visitors(1)
(1) For the twelve months ended December 31 for each period shown.
(2) As of December 31 for each period shown.
(3) Calculated from information provided by the Nevada State Gaming Control Board.
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The National Bowling Stadium, located approximately one block from Eldorado Reno and Silver Legacy, opened in
February 1995. 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”), which has
merged with the ABC to form the United States Bowling Congress (the “USBC”), two of every three years through 2018 and
is expected to host tournaments for other bowling organizations. Through a one-time agreement, the National Bowling
Stadium hosted the USBC Open Tournament in Reno in 2011 and will host the USBC Open Tournament in 2014; usually
off-years for Reno. The National Bowling Stadium was the site of the WIBC’s National Championship Bowling Tournament
in 2009 and was the host of ABC’s National Championship Bowling Tournament in 2010. 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,
retail space and can be configured to host special events and conventions.
Marketing Strategy
We target the following customer segments of the Shreveport/Bossier City and Reno gaming market: free and
independent travelers, preferred casino customers, convention groups, local patrons, wholesale/specialty and Internet groups.
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Free and Independent Travelers. This customer segment consists of persons who are not affiliated with travel groups
and who make arrangements for their accommodations directly or through independent travel agents. We target this segment
through advertising efforts, including television and newsprint exposure, emphasizing the exciting atmosphere and high level
of relative value offered at our properties. Advertising efforts are directed principally to existing gaming customers of the
Reno and Shreveport/Bossier City markets, as well as to experienced gaming customers of Las Vegas and other markets.
Additionally, utilizing the unique theming of our casinos, the variety, quality, and attractive pricing of our food and beverage
outlets, and its close proximity to other hotel casinos in downtown Reno, we target “walk-in” customers for our casino hotels.
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Preferred Casino Customers. Management targets valued gaming customers through an aggressive development
program. This program utilizes independent sales representatives to engage in one-on-one sales activities and marketing
personnel trained to identify and target these individuals while they patronize our casino facilities. We also use television
advertisements featuring the elegant image and exciting atmosphere at our properties to target preferred gaming customers. In
addition, through specialized entertainment programs and special events, including boxing matches, and by highlighting our
quality hotel rooms and suites, excellent restaurant venues and our properties’ entertainment facilities, amenities and unique
attractions, we seek to capture a significant portion of the valued gaming business of Reno and Shreveport/Bossier City
markets. Our marketing efforts for gaming customers include the provision of complimentary rooms, food and beverages, air
transportation and the extension of credit to qualified persons. Our rewards programs offer customers exciting special events
and tournaments and convenient ways of earning complimentaries.
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Convention Groups. We target conventioneers and attendees of events in our core markets, depending on our view of
their relative propensity for gaming and, in Reno, the timing of the specific events or conventions relative to the historic
seasonality of our gaming business. In so doing, we seek to increase our mid-week occupancies and mitigate the effects of
seasonality on our operations. For example, we target competitors at the National Bowling Stadium in Reno and their guests.
Other special events groups are also targeted by us by invitations to concerts, shows, theme parties, boxing matches and other
events.
Local Patrons. We seek to attract and retain local customers through frequent promotions that highlight our quality
gaming and dining experience, as well as being an active supporter of numerous events and organizations in the Reno and
Shreveport/Bossier City markets.
Wholesale/Specialty and Internet Groups. The wholesale/specialty segment consists of customers who utilize
“packages” to reduce the cost of travel, lodging and entertainment. These packages are produced by wholesalers (such as
major airlines) and travel agents, and emphasize mid-week stays. This market segment allows us to utilize our rooms during
slower mid-week periods. In addition, Internet customers, which are encompassed in this segment, continue to expand as
more customers utilize this option for its convenience and in an effort to obtain the most competitive rate.
Competition
The gaming industry includes land-based casinos, dockside casinos, riverboat casinos, casinos located on Native
American reservations and other forms of legalized gaming. There is intense competition among companies in the gaming
industry, many of which have significantly greater resources than we do. Certain states have legalized casino gaming and
other states may legalize gaming in the future. Legalized casino gaming in these states and on Native American reservations
near our markets or changes to gaming laws in states surrounding Nevada and Louisiana could increase competition and
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could adversely affect our operations. We also compete, to a lesser extent, with gaming facilities in other jurisdictions with
dockside gaming facilities, state-sponsored lotteries, on-and-off track pari-mutuel wagering, Internet gaming, card clubs,
riverboat casinos and other forms of legalized gambling.
Shreveport/Bossier City
The Shreveport/Bossier City gaming market is characterized by intense competition and the market has not grown
appreciably since the property opened in December 2000. We compete directly with four casinos, all of which have operated
in the Shreveport/Bossier City market for several years and have established customer bases. In addition, we also compete
with the slot machine facility at Harrah’s Louisiana Casino and Racetrack located in Bossier City and WinStar Casino and
casino facilities owned by the Choctaw Nation located in Oklahoma.
Reno
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Casino gaming is currently prohibited in several jurisdictions from which the Shreveport/Bossier City market draws
customers, primarily Texas. Although casino gaming is currently not permitted in Texas, the Texas legislature has from time
to time considered proposals to authorize casino gaming and there can be no assurance that casino gaming will not be
approved in Texas in the future, which would have a material adverse effect on our business. Eldorado Shreveport competes
with several Native American casinos located in Oklahoma, certain of which are located near our core Texas markets.
WinStar Casinos, a Las Vegas-style gaming facility owned by the Chickasaw Nation, is located in Oklahoma approximately
60 miles north of the Dallas/Fort Worth area and has total square feet of 519,000 with more than 380,000 square feet of
gaming space, more than 6,400 electronic gaming devices, numerous table games, 46 poker tables, an 800-seat bingo hall and
a 2,500-seat event center, and a 395-room hotel with a spa. Eldorado Shreveport also competes with Choctaw Casino Resort,
a casino and hotel facility owned by the Choctaw Nation and located in Durant, Oklahoma, approximately 75 miles north of
the Dallas/Fort Worth area, with approximately 4,500 electronic gaming devices, 38 table games, 30 poker tables, an 500-seat
bingo hall, a 330-room hotel and event center, several restaurants, a buffet, concert hall, amphitheater, lounge, spa and RV
park. Both the Chickasaw Nation and the Choctaw Nation are permitted to operate Class-III gaming devices in the state of
Oklahoma, which permits them to offer Las Vegas-style gaming. Because we draw a significant amount of our customers
from the Dallas/Fort Worth area, but are located approximately 190 miles from that area, we believe we will continue to face
increased competition from gaming operations in Oklahoma, including the WinStar and Choctaw casinos, and would face
significant competition that may have a material adverse effect on our business and results of operations if casino gaming
were to be approved in Texas.
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Of the 31 casinos currently operating in the Reno market, we believe we compete principally with the six other
hotel-casinos that, like Eldorado Reno and Silver Legacy, each generate at least $36 million in annual gaming revenues. At
this time, we cannot predict the extent to which new and proposed projects will be undertaken or the extent to which current
hotel and/or casino space may be expanded. We expect that any additional rooms added in the Reno market will increase
competition for visitor revenue. There can be no assurance that any growth in Reno’s current room base or gaming capacity
will not adversely affect our financial condition or results of operations.
We also compete with hotel-casinos located in the nearby Lake Tahoe region as well as those in other areas of Nevada,
including Las Vegas. A substantial number of customers travel to both Reno and the Lake Tahoe area during their visits.
Consequently, we believe that our success is influenced to some degree by the success of the Lake Tahoe market. The
number of visitors decreased slightly during the twelve-month period ended December 31, 2011 compared with the same
prior year period, and while we do not anticipate a significant decline in the popularity of either Reno or Lake Tahoe as
tourist destination areas in the foreseeable future, any such decline could adversely affect our operations.
Since visitors from California comprise a significant portion of our customer base, we also compete with Native
American gaming operations in California. In total, the State of California has signed and ratified compacts with 68 Native
American tribes, and there are currently 59 Native American casinos operating in California, including casinos located in
Northern California, which we consider to be a significant target market. These Native American tribes are allowed to
operate slot machines, lottery games, and banking and percentage games on Native American lands. Although many existing
Native American gaming facilities in northern California are modest compared to Eldorado Reno and Silver Legacy, a
number of Native American tribes have established large-scale gaming facilities in California and some Native American
tribes have announced that they are in the process of expanding, developing, or are considering establishing, large-scale hotel
and gaming facilities in northern California.
Under their current compacts, most Native American tribes in California may operate up to 2,000 slot machines, and up
to two gaming facilities may be operated on any one reservation. However, under action taken by the National Indian
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Gaming Commission, gaming devices similar in appearance to slot machines, but which are deemed to be technological
enhancements to bingo style gaming, are not subject to such limits and may be used by tribes without state permission. The
number of slot machines the tribes are allowed to operate may increase as a result of any new or amended compacts the tribes
may enter into with the State of California that receive the requisite approvals, such as has been the case with respect to a
number of new or amended compacts which have been executed and approved.
As northern California Native American gaming operations have expanded, we believe the increasing competition
generated by these gaming operations has negatively impacted, and may continue to negatively impact, principally drive-in,
day-trip visitor traffic from our main feeder markets in northern California.
In addition, land-based, riverboat or dockside casino gaming (other than that conducted on Native American-owned
land) is currently legal in 15 states and tribal gaming on Native American-owned land is legal in a number of states, including
California, Washington, and Oregon. Management believes the Reno market draws over 50% of its visitors from California.
In addition to gaming on Native American-owned land, California allows other non-casino style gaming, including parimutuel wagering, a state-sponsored lottery, card clubs, bingo, and off-track betting.
Government Gaming Regulations
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We are subject to extensive regulation under laws, rules and supervisory procedures primarily in the jurisdictions where
our facilities are located or docked. If additional gaming regulations are adopted in a jurisdiction in which we operate, such
regulations could impose restrictions or costs that could have a significant adverse effect on us. From time to time, various
proposals have been introduced in the legislatures of the two jurisdictions in which we have operations that, if enacted, could
adversely affect the tax, regulatory, operational or other aspects of the gaming industry and us. We do not know whether or
when such legislation will be enacted. Gaming companies are currently subject to significant state and local taxes and fees in
addition to normal federal and state corporate income taxes, and such taxes and fees are subject to increase at any time. Any
material increase in these taxes or fees could adversely affect us.
Some jurisdictions, including the two in which we are licensed, Nevada and Louisiana, empower their regulators to
investigate participation by licensees in gaming outside their jurisdiction and require access to periodic reports respecting
those gaming activities. Violations of laws in one jurisdiction could result in disciplinary action in other jurisdictions.
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Under provisions of gaming laws in jurisdictions in which we have operations, and under our organizational documents,
certain of our securities are subject to restriction on ownership which may be imposed by specified governmental authorities.
The restrictions may require a holder of our securities to dispose of the securities or, if the holder refuses, or is unable, to
dispose of the securities, we may be required to repurchase the securities.
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The indenture governing our notes provides that if a holder of a note or beneficial owner of a note is required to be
licensed, qualified, or found suitable under the applicable gaming laws and such holder or owner is not so licensed, qualified
or found suitable within any time period specified by the applicable gaming authority, we would be permitted to require the
holder or owner to dispose of its notes within a time period that either we prescribe or such other time period prescribed by
the applicable gaming authority. Under such circumstances, the redemption price would be the lesser of the holder’s or
owner’s cost for such notes and the principal amount thereof, or such other amount as is required by applicable gaming
authorities.
Nevada Regulation and Licensing
The ownership and operation of casino gaming facilities in the State of Nevada are subject to the Nevada Gaming
Control Act (the “Nevada Act”) and regulations promulgated under the Nevada Act and various local regulations. Resorts’
gaming operations are subject to the licensing and regulatory control of the Nevada Gaming Commission, the Nevada State
Gaming Control Board and the City of Reno, which we refer to collectively as the “Nevada Gaming Authorities.”
The laws, regulations and supervisory procedures of the Nevada Gaming Authorities are based upon declarations of
public policy that are concerned with, among other things:
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prevention of unsavory or unsuitable persons from having a direct or indirect involvement with gaming at any time
or in any capacity;
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establishment and maintenance of responsible accounting practices and procedures;
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maintenance of effective controls over the financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and revenues, providing reliable record keeping
and requiring the filing of periodic reports with the Nevada Gaming Authorities;
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prevention of cheating and fraudulent practices; and
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providing a source of state and local revenues through taxation and licensing fees.
Changes in these laws, regulations and procedures could have an adverse effect on our gaming operations.
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Resorts, which operates Eldorado Reno, is licensed by the Nevada Gaming Authorities and is a corporate licensee (a
“Corporate Licensee”) under the terms of the Nevada Act. Resorts is also registered with the Nevada Gaming Commission
as a holding company in connection with its interest in ELLC, a partner in the Silver Legacy Joint Venture, and as a manager
and member of Tamarack Crossing, LLC (dba Tamarack Junction). Each of Eldorado Reno, Silver Legacy, and the
Tamarack Junction are licensed non-restricted (casino) gaming operations under Nevada law. The gaming licenses held by
each of these properties require periodic payments of fees and taxes and are not transferable. Corporate Licensees are
required periodically to submit detailed financial and operating reports to the Nevada Gaming Commission and to furnish any
other information that the Nevada Gaming Commission may require. No person may become a member of, or receive any
percentage of the profits from, Resorts 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 and manage their respective
interests in Resorts. Resorts and our affiliated entities have obtained from the Nevada Gaming Authorities the various
registrations, findings of suitability, approvals, permits and licenses required in order to engage in gaming activities at
Eldorado Reno and to own Resorts’ interests in ELLC and Tamarack Junction.
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The Nevada Gaming Authorities may investigate any individual who has a material relationship to, or material
involvement with, Resorts in order to determine whether such individual is suitable or should be licensed as a business
associate of Resorts. Members, officers, directors and key employees of Resorts 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. An applicant for licensing or an applicant for a finding of suitability must pay for 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 licensing, the Nevada Gaming Authorities have the jurisdiction
to disapprove a change in a corporate position.
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If the Nevada Gaming Authorities were to find a member, officer, or key employee of Resorts unsuitable for licensing or
unsuitable to continue having a relationship with Resorts or any of our affiliated entities, Resorts would have to sever all
relationships with such person. In addition, the Nevada Gaming 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.
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Resorts is required to submit detailed financial and operating reports to the Nevada Gaming Commission. Substantially
all material loans, leases, sales of securities and similar financing transactions by Resorts must be reported to, or approved
by, the Nevada Gaming Commission.
If the Nevada Gaming Commission determined that we violated the Nevada Gaming Control Act or any of its
regulations, it could limit, condition, suspend or revoke our gaming licenses. In addition, we and the persons involved could
be subject to substantial fines for each separate violation of the Nevada Gaming Control Act or of the regulations of the
Nevada Gaming Commission at the discretion of the Nevada Gaming Commission. Further, a supervisor could be appointed
by the Nevada Gaming Commission to operate Resorts’ gaming properties and, under specified circumstances, earnings
generated during the supervisor’s appointment (except for the reasonable rental value of the premises) could be forfeited to
the State of Nevada. Limitation, conditioning or suspension of any of our gaming licenses and the appointment of a
supervisor could, or revocation of any gaming license would, have a material adverse effect on our operations.
Any beneficial holder of Resorts’ membership interests, regardless of the amount of membership interests owned, is
required to file an application, be investigated, and have that person’s suitability as a beneficial holder of membership
interests determined if the Nevada Gaming Commission has reason to believe that the ownership would otherwise be
inconsistent with the declared policies of the State of Nevada. The applicant must pay all costs of the investigation incurred
by the Nevada Gaming Authorities in conducting any investigation.
13
The prior approval of the Nevada Gaming Commission is required for a pledge of the equity interests in Resorts as
collateral for payment of any of our indebtedness. Further approvals of the Nevada Gaming Commission must be sought and
obtained by any person, including the trustee under the indenture relating to our outstanding indebtedness, before any
execution on or transfer of the pledged interests may occur.
If the beneficial holder of an interest of Resorts’ membership interest who must be found suitable is a corporation,
partnership, limited partnership, limited liability company or trust, it must submit detailed business and financial information
including a list of beneficial owners. The applicant is required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of suitability or a license within 30 days after being ordered to do
so by the Nevada Gaming Commission or by the Chairman of the Nevada State Gaming Control Board, or who refuses or
fails to pay the investigative costs incurred by the gaming authorities in connection with the investigation of its application,
may be found unsuitable. The same restrictions apply to a record owner if the record owner, after request, fails to identify the
beneficial owner. Any person found unsuitable and who holds, directly or indirectly, any beneficial ownership of an interest
in Resorts beyond the period of time as may be prescribed by the Nevada Gaming Commission may be guilty of a criminal
offense. We will be subject to disciplinary action if, after we receive notice that a person is unsuitable to hold an equity
interest or to have any other relationship with us, we:
pay that person any dividend or interest upon any partnership interest or other equity interest;
•
allow that person to exercise, directly or indirectly, any voting right held by that person relating to Resorts;
•
pay remuneration in any form to that person for services rendered or otherwise; or
•
fail to pursue all lawful efforts to require the unsuitable person to relinquish his interest voting securities or
membership interests, including, if necessary, the immediate purchase of the interest or voting securities or
membership interests for cash at fair market value.
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The Nevada Gaming Commission may, in its discretion, require the holder of any debt security of a licensee or registered
corporation to file applications, be investigated, and be found suitable to own the debt security of the licensee or registered
corporation. If a holder of the Notes is required by the Nevada Gaming Commission to be found suitable, the burden of
proving qualification to be found suitable as a holder of the Notes is at all times on the applicant and requires a determination
by the Nevada Gaming Commission that the applicant is a person of good character, honesty and integrity. When making
this determination, the Nevada Gaming Commission must be satisfied that the applicant is a person whose prior activities,
criminal record (if any), reputation, habits and associations do not pose a threat to the interests of the State of Nevada, or to
the effective regulation and control of gaming, or create or enhance the dangers of unsuitable, unfair, or illegal practices. If
the Nevada Gaming Commission determines that a person is unsuitable to own the security, then under the Nevada Gaming
Control Act, the licensee or registered corporation can be sanctioned, including the loss of its approvals, if without the prior
approval of the Nevada Gaming Commission, it:
pays to the unsuitable person any dividend, interest or any distribution whatsoever;
•
recognizes any voting right by the unsuitable person in connection with the securities;
•
pays the unsuitable person remuneration in any form; or
•
makes any payment to the unsuitable person by way of principal, redemption, conversion, exchange, liquidation or
similar transaction.
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We are required to maintain current stock ledgers 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 the disclosure may be grounds for
finding the record holder unsuitable. We are also required to render maximum assistance in determining the identity of the
beneficial owner of any of our voting securities. The Nevada Gaming Commission has the power to require the stock
certificates of any registered corporation to bear a legend indicating that the securities are subject to the Nevada Gaming
Control Act.
We may not make a public offering of our securities without the prior approval of the Nevada Gaming Commission if we
intend to use the securities or the proceeds from the offering to construct, acquire or finance gaming facilities in Nevada, or to
retire or extend obligations incurred for those purposes or for similar transactions.
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 licensed subsidiaries’ respective operations are conducted.
14
Depending upon the particular fee or tax involved, these fees and taxes are payable monthly, quarterly or annually and are
based upon:
•
a percentage of the gross revenues received;
•
the number of gaming devices operated; or
•
the number of table games operated.
A live entertainment tax is also paid by casino operations where live entertainment is furnished in connection with the
selling or serving of food or refreshments or the selling of merchandise.
Any person who is licensed, required to be licensed, registered, required to be registered, or is under common control
with those persons (collectively, “licensees”), and who proposes to become involved in a gaming venture outside of Nevada,
is required to deposit with the Nevada State Gaming Control Board, and thereafter maintain, a revolving fund in the amount
of $10,000 to pay the expenses of investigation of the Nevada State Gaming Control Board of the licensee’s participation in
such foreign gaming. The revolving fund is subject to increase or decrease in the discretion of the Nevada Gaming
Commission. Thereafter, licensees are required to comply with the reporting requirements imposed by the Nevada Gaming
Control Act. A licensee is also subject to disciplinary action by the Nevada Gaming Commission if it:
knowingly violates any laws of the foreign jurisdiction pertaining to the foreign gaming operation;
•
fails to conduct the foreign gaming operation in accordance with the standards of honesty and integrity required of
Nevada gaming operations;
•
engages in activities or enters into associations that are harmful to the State of Nevada or its ability to collect gaming
taxes and fees; or
•
employs, contracts with or associates with a person in the foreign operation who has been denied a license or finding
of suitability in Nevada on the ground of personal unsuitability.
Louisiana Regulation and Licensing
EN
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We are subject to federal, state, and local regulations, related to our current casino operations. The following description
of the regulatory environment in which we operate is only a summary and not a complete recitation of all applicable
regulatory laws. Moreover, our current and proposed operations could be subjected at any time to additional or more
restrictive regulations, or banned entirely.
O
We and our Louisiana affiliates that are involved in the ownership and operation of Eldorado Shreveport, referred to as
the “Louisiana Licensees,” are subject to regulation by the State of Louisiana.
C
In July 1991, the Louisiana legislature adopted legislation permitting certain types of gaming activity on certain rivers
and waterways in Louisiana. Since May 1, 1999, the Louisiana Gaming Control Board (the “Louisiana Board”) has regulated
such gaming activities.
The Louisiana Riverboat Economic Development and Gaming Control Act (the “Louisiana Act”) authorized the issuance
of up to fifteen licenses to conduct gaming activities on a riverboat of new construction in accordance with applicable law.
However, no more than six licenses may be granted to riverboats operating from any one parish. All fifteen of the available
licenses have been issued; however, as of December 31, 2011, thirteen properties were in operation.
Riverboat gaming licenses in Louisiana are issued for an initial five-year term with five-year renewals thereafter. In
issuing or renewing a license, the Louisiana Board must find that the applicant is a person of good character, honesty and
integrity and that the applicant is a person whose prior activities, criminal record, if any, reputation, habits and associations
do not pose a threat to the public interest of the State of Louisiana or to the effective regulation and control of gaming, or
create or enhance the dangers of unsuitable, unfair or illegal practices, methods and activities in the conduct of gaming or the
carrying on of business and financial arrangements in connection therewith. The Louisiana Board will grant or renew a
license if it finds that: (i) the applicant can demonstrate the capability, either through training, education, business experience,
or a combination of the above, to operate a gaming casino; (ii) the proposed financing of the riverboat and the gaming
operation is adequate for the nature of the proposed operation and from a source suitable and acceptable to the Louisiana
Board; (iii) the applicant demonstrates a proven ability to operate a vessel of comparable size, capacity and complexity to a
riverboat so as to ensure the safety of its passengers, with relevant employees being appropriately United States Coast Guard
certified; (iv) the applicant submits a detailed plan of design of the riverboat in its application for a license; (v) the applicant
15
designates the docking facilities to be used by the riverboat; (vi) the applicant shows adequate financial ability to construct
and maintain a riverboat; and (vii) the applicant has a good faith plan to recruit, train and upgrade minorities in all
employment classifications.
On July 19, 2005, the Louisiana Board approved the agreement between our previous owner and Resorts providing for
the acquisition of the predecessor partnership. On August 18, 2009, the Louisiana Board renewed our license through
October 14, 2014.
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Other regulations imposed by the Louisiana Act or rules adopted pursuant thereto include, but are not limited to, the
following: (i) we must periodically submit financial and operating reports to the Louisiana Board for ourselves and our
subsidiary; (ii) owners holding greater than a 5% interest or who are officers or directors of us or subsidiaries related to the
Louisiana Licensees must be found suitable by the Louisiana Board; (iii) any individual who is found to have a material
relationship to, or involvement with the Louisiana Licensees may be required to be investigated for suitability; (iv) if a
director, officer, or key employee were found to be unsuitable, we and our subsidiary would have to sever all relationships
with that person; (v) the transfer of a license or permit or an interest in a license or permit is prohibited without prior
approval; (vi) the Louisiana Licensees must notify the Louisiana Board of any withdrawals of capital, loans, advances, or
distributions in excess of 5% of retained earnings upon completion of such transaction; and (vii) each of the Louisiana
Licensees must give prior notification to the Louisiana Board if it applies or receives, accepts or modifies the terms of any
loan or other financing transaction or a parent of the Louisiana Licensees receives, accepts or modifies the terms of a loan or
other financing transaction on behalf of or for the benefit of any of the Louisiana Licensees. In some cases, the Louisiana
Board will be required to investigate the reported transaction and to either approve or disapprove the transaction.
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The Louisiana Act or rules adopted pursuant thereto contain certain restrictions and conditions relating to the operation
of riverboat gaming, including the following: (i) agents of the Louisiana Board are permitted on board at any time during
gaming operations; (ii) gaming devices, equipment and supplies may only be purchased or leased from permitted suppliers;
(iii) gaming may only take place in the designated gaming area while the riverboat is upon a designated river or waterway;
(iv) gaming equipment may not be possessed, maintained or exhibited by any person on a riverboat except in the specifically
designated gaming area, or a secure area used for inspection, repair or storage of such equipment; (v) wagers may be received
only from a person present on a licensed riverboat; (vi) persons under 21 are not permitted on gaming vessels; (vii) except for
slot machine play, wagers may be made only with tokens, chips or electronic cards purchased from the licensee aboard a
riverboat; (viii) licensees may only use docking facilities for which they are licensed and may only board and discharge
passengers at the riverboat’s licensed berth; (ix) licensees must have adequate protection and indemnity insurance;
(x) licensees must have all necessary federal and state licenses, certificates and other regulatory approvals prior to operating a
riverboat; and (xi) gaming may only be conducted in accordance with the terms of the license, the Louisiana Act and the rules
and regulations adopted by the Louisiana Board.
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Fees for conducting gaming activities on a riverboat pursuant to the Louisiana Act include (i) $50,000 per riverboat for
the first year of operation and $100,000 per year per riverboat thereafter plus (ii) a percentage of net gaming proceeds (gross
revenue). In March 2001, Louisiana passed Act 3 of the 1st Extraordinary Legislative Session, which allows riverboat
gaming licensees to operate dockside. In consideration of this change, the tax on gaming revenues was increased to 21.5%.
The Louisiana Act also authorizes the City of Shreveport to assess a boarding fee, up to $3.00. In lieu of the boarding
fee, our previous owner negotiated a payment in an amount equal to 3.225% of the net gaming proceeds (gross revenues) of
our riverboat to be paid to the City of Shreveport and 0.5375% of the net gaming proceeds (gross revenues) of our riverboat
to be paid to the Bossier Parish School Board. In May 2005, our previous owner and the Bossier Parish Police Jury
concluded an agreement under which we began paying a percentage of our Net Gaming Proceeds, as defined, to the Bossier
Parish Police Jury. Such payments were initially in the amount of 0.3% of our Net Gaming Proceeds during 2006, and
subsequently increased to 0.4% and 0.5% effective January 1, 2007 and 2008, respectively. The payments are in addition to
those under our ground lease and are in lieu of both admission fees and any sales or use tax for complimentary goods or
services.
Proposals to amend or supplement the Louisiana Act are frequently introduced in the Louisiana State legislature. In
addition, the state legislature from time to time considers proposals to repeal the Louisiana Act, which would effectively
prohibit riverboat gaming in the State of Louisiana. Although we do not believe that a prohibition of riverboat gaming in
Louisiana is likely, no assurance can be given that changes in the Louisiana gaming law will not occur or that such changes
will not have a material adverse effect on the business of the Louisiana Licensees.
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Taxation
Gaming companies are typically subject to significant taxes and fees in addition to normal federal, state and local
income taxes, and such taxes and fees are subject to increase at any time. We pay substantial taxes and fees with respect to
our operations. From time to time, federal, state, local and provincial legislators and officials have proposed changes in tax
laws, or in the administration of such laws, affecting the gaming industry. It is not possible to determine with certainty the
likelihood of changes in tax laws or in the administration of such laws.
Internal Revenue Service Regulations
The Internal Revenue Service requires operators of casinos located in the United States to file information returns for
U.S. citizens, including names and addresses of winners, for keno, bingo and slot machine winnings in excess of stipulated
amounts. The Internal Revenue Service also requires operators to withhold taxes on some keno, bingo and slot machine
winnings of nonresident aliens. We are unable to predict the extent to which these requirements, if extended, might impede
or otherwise adversely affect operations of, and/or income from, the other games.
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Regulations adopted by the Financial Crimes Enforcement Network of the Treasury Department (“FINCEN”) and the
Nevada Gaming Authorities require the reporting of currency transactions in excess of $10,000 occurring within a gaming
day, including identification of the patron by name and social security number. This reporting obligation began in May 1985
and may have resulted in the loss of gaming revenues to jurisdictions outside the United States which are exempt from the
ambit of these regulations. In addition to currency transaction reporting requirements, suspicious financial activity is also
required to be reported to FINCEN.
Other Laws and Regulations
EN
The sale of alcoholic beverages at Eldorado Reno, the Silver Legacy and Eldorado Shreveport are subject to licensing,
control and regulation by applicable local regulatory agencies. All licenses are revocable and are not transferable. The
agencies involved have full power to limit, condition, suspend or revoke any license, and any disciplinary action could, and
revocation would, have a material adverse effect upon our operations.
Environmental Matters
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Eldorado Reno, the Silver Legacy and Eldorado Shreveport are subject to extensive state and local regulations and, on a
periodic basis, must obtain various licenses and permits, including those required to sell alcoholic beverages. We believe that
we have obtained all required licenses and permits and that our business is conducted in substantial compliance with
applicable laws.
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As is the case with any owner or operator of real property, we are 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. We do not have environmental liability insurance to cover such events.
In 1998, Silver Legacy received reimbursement and indemnification from Chevron Company USA for petroleum
contamination identified on Silver Legacy property. In addition, reimbursement for some of the expenditures has been, 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. In 2005, Resorts demolished two
motels it owned across the street from and west of Eldorado Reno. It was determined that contamination of the soil existed
and Resorts sought and received reimbursement from the State of Nevada Petroleum Fund for expenditures of approximately
$20,000 incurred in the clean-up relating to the contamination.
Groundwater in the vicinity of the Eldorado property is also contaminated by a chlorinated solvent known as
perchloroethylene or “PCE.” This contaminant is widespread in the Reno/Sparks area. The Central Truckee Meadows
Remediation District, encompassing much of the cities of Reno and Sparks, was established pursuant to state legislation to
address this contamination. The Central Truckee Meadows Remediation District is managed by Washoe County under the
direction of the Nevada Division of Environmental Protection, and is currently conducting investigations and developing a
remediation plan. Funding for the Central Truckee Meadows Remediation District is provided through assessments to water
customers which are calculated on the basis of water use. The annual assessment to Eldorado Reno is currently $61, plus an
additional sum based on the amount of water used, which in our most recent annual assessment amounted to approximately
$7,600. The Silver Legacy has paid annual assessments of $25,000 or less per year since 2009. It is possible that additional
assessments may be made against properties that receive special benefits from the Central Truckee Meadows Remediation
17
District, such as clean-up of contamination affecting a specific parcel. The legislation implementing this program exempts
property owners who did not cause or contribute to the contamination from civil and criminal liability for the cost of
remediation and any related damages, except to the extent of unpaid assessments. We do not believe that Eldorado Reno has
contributed to this solvent contamination; however, we expect that Eldorado Reno will be required to allow the Central
Truckee Meadows Remediation District access to its property for continued investigation.
Asbestos has been determined to be present in the acoustic ceilings of approximately 216 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.
The possibility exists that additional contamination, as yet unknown, may exist at Eldorado Reno or Silver Legacy. In
all cases, however, we believe that any such contamination would have arisen from activities of prior owners or occupants, or
from offsite sources and not as a result of any of our actions or operations. The Company does not believe that our
expenditures for environmental investigations or remediation will have a material adverse effect on our financial condition or
results of operations.
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In addition to the annual assessments referred to above, Resorts has expended approximately $0.9 million in connection
with environmental matters from January 1, 1993 through December 31, 2011, of which expenditures were less than $1,000
during each of 2011 and 2010 and less than $5,000 during 2009.
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Seasonality
EN
Hotel/casino operations in the Reno market are subject to seasonal variation, with the strongest operating results
generally occurring in the second and third quarters of each year and the weakest results generally occurring during the
period from November through February. Variations occur when weather conditions make travel to Reno by visitors from
northern California and the Pacific Northwest difficult. The following table shows Eldorado Reno’s percentage of gross
revenues by quarter for each of 2011, 2010 and 2009.
2011
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First quarter
Second quarter
Third quarter
Fourth quarter
Total
2010
2009
21.6%
27.1%
27.1%
24.2%
22.6%
27.6%
26.9%
22.9%
21.1%
28.6%
25.9%
24.2%
100.0%
100.0%
100.0%
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Hotel/casino operations in the Shreveport/Bossier City market are subject to slight seasonal variations, with the strongest
operating results generally occurring in the first and third quarters of each year and the weakest results generally occurring
during the fourth quarter. The following table shows Eldorado Shreveport’s percentage of gross revenues by quarter for each
of 2011, 2010 and 2009.
2011
First quarter
Second quarter
Third quarter
Fourth quarter
Total
2010
2009
25.7%
24.6%
25.5%
24.2%
25.5%
24.1%
25.9%
24.5%
26.4%
25.2%
25.1%
23.3%
100.0%
100.0%
100.0%
Employees
As of December 31, 2011, there were approximately 1,500 employees at Eldorado Reno and approximately 1,300
employees at Eldorado Shreveport. At that date there were approximately 1,836 employees at Silver Legacy. A substantial
majority of the employees at each property are nonmanagement personnel. The number of people employed at any time at
either of the Reno properties is subject to seasonal fluctuation. None of the employees at Eldorado Reno, Eldorado
Shreveport or Silver Legacy are covered by a collective bargaining agreement. We believe that employee relations at
Eldorado Reno, Eldorado Shreveport and Silver Legacy are excellent.
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Factors that May Affect the Company’s Future Results
Certain information included in this report (as well as information included in oral statements or other written statements
made or to be made by the Company) contains or may contain forward-looking statements which can be identified by the fact
that they do not relate strictly to historical or current facts. The Company has based these forward-looking statements on its
current expectations about future events. These forward-looking statements include statements with respect to the
Company’s beliefs, plans, objectives, goals, expectations, anticipations, intentions, financial condition, results of operations,
future performance and business, including:
•
current and future operations; and
•
statements that include the words “may,” “could,” “should,” “would,” “believe,” “expect,” “anticipate,” “estimate,”
“intend,” “plan” or similar expressions.
Such statements include information relating to capital spending, financing sources and the effects of regulation
(including gaming and tax regulation) and competition.
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Any or all of the forward-looking statements in this report and in any other public statements we might make may turn
out to be wrong. This can occur as a result of inaccurate assumptions or as a consequence of known or unknown risks and
uncertainties. Many factors discussed in this report, such as government regulation and the competitive environment, will be
important in determining our future performance. Consequently, actual results may differ materially from those that might be
anticipated from forward-looking statements.
EN
We undertake no obligation to update any forward-looking statements, whether as a result of new information, future
events or otherwise. However, any further disclosures made on related subjects in our subsequent quarterly and annual
reports should be consulted. The following discussion of risks, uncertainties and possible inaccurate assumptions relevant to
our business includes factors we believe could cause our actual results to differ materially from expected and historical
results. Other factors beyond those listed below could also adversely affect the Company:
As described under “Competition,” in this Item 1, Eldorado Reno, Silver Legacy and Eldorado Shreveport operate in
very competitive environments. The growth in the number of hotel rooms and/or casino capacity in Reno or
Shreveport/Bossier City or the spread of legalized gaming in other jurisdictions, including the growth of Native
American gaming in northern California, the northwestern United States, Texas or Oklahoma could negatively affect
future operating results;
•
As discussed under “Nevada Regulation and Licensing” and “Louisiana Regulation and Licensing” in this Item 1,
the Company’s gaming operations are highly regulated by governmental authorities in Nevada and Louisiana, and
our future operations may be significantly impacted by these regulations;
•
Changes in applicable gaming, tax or other laws or regulations could have a significant effect on the operations of
Eldorado Reno, Silver Legacy and Eldorado Shreveport;
•
Our operations are particularly sensitive to reductions in discretionary consumer spending and are affected by
changes in general economic and market conditions nationally, such as the recession currently impacting the
national economy, particularly when such conditions impact (i) the Reno area where Eldorado Reno’s and Silver
Legacy’s operations are conducted and in those areas where their customers live, including California and (ii) the
Shreveport/Bossier City area where Eldorado Shreveport’s operations are conducted and in those areas where their
customers live, including the Dallas/Fort Worth area, East Texas, Louisiana and Arkansas;
•
Security concerns or terrorist activity, including any future security alerts and/or terrorist attacks similar to those that
occurred on September 11, 2001 could adversely affect our operations;
•
The highway between Reno and northern California, where a large number of Eldorado Reno’s and Silver Legacy’s
customers reside, experience winter weather conditions from time to time that limit the number of customers who
visit Reno during such periods;
•
The concentration of all of our operations in Reno and Shreveport/Bossier City poses a risk that is not applicable to
a geographically diversified gaming company;
•
The gaming industry represents a significant source of tax revenues to the states, counties and local jurisdictions in
which gaming is conducted and our operations have been and will continue to be subject to increases in such taxes.
From time to time, various state and federal legislators and officials have proposed a variety of changes in tax laws,
or in the administration of the laws, affecting the gaming industry, including a federal gaming tax;
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•
Claims have been brought against the Company from time to time in various legal proceedings, and additional legal
and tax claims may arise. While the Company believes that the ultimate disposition of current matters will not have
a material impact on its financial condition or results of operations, it is possible that the Company’s cash flows and
results of operations could be affected from time to time by the resolution of one or more of these contingencies;
•
There is intense competition to attract and retain management and key employees in the gaming industry. Our
operations could be adversely affected in the event of the inability to recruit or retain key personnel; and
•
The adverse impact of the failure of the Silver Legacy Joint Venture to pay the amounts outstanding under the Silver
Legacy Notes and the perception of customers, suppliers and other stakeholders regarding the Silver Legacy
Restructuring and/or a filing for bankruptcy protection by the Silver Legacy Joint Venture.
Item 1A. Risk Factors.
The following is a discussion of certain factors that currently impact or may impact our business, operating results and/or
financial condition.
Risks Related to our Business
We face substantial competition in the hotel and casino industry.
EN
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The hotel and casino industry is very competitive. We compete for customers primarily on the basis of location, range
and pricing of amenities and overall atmosphere. Of the 31 casinos currently operating in the Reno market, we believe we
compete principally with the six other hotel-casinos that, like Eldorado Reno and Silver Legacy, each generate at least
$36 million in annual gaming revenues. Reno casinos, including our own, also compete with Native American gaming in
California and the northwestern United States. We also compete with hotel-casinos located in Las Vegas, Nevada and the
Lake Tahoe area. To a lesser extent, we compete with hotel-casinos in other parts of the United States and with dockside
gaming facilities, riverboat casinos, state-sponsored lotteries, on-and-off track pari-mutuel wagering, Internet gaming, card
clubs, riverboat casinos and other forms of legalized gaming.
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According to statistics published by the Visitors Authority, there were approximately 15,600 hotel rooms in the Reno
area at December 31, 2011. At this time, we cannot predict the extent to which new or proposed projects will be undertaken
or the extent to which existing hotel and/or casino space may be expanded in the future. There can be no assurance that any
growth in Reno’s room base or gaming capacity will not adversely affect our financial condition or results of operations.
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The Shreveport/Bossier City gaming market is characterized by intense competition and the market has not grown
appreciably since we opened in December 2000. Eldorado Shreveport competes directly with four casinos, all of which have
operated in the Shreveport/Bossier City market for several years and have established customer bases. In addition, we also
compete with the slot machine facility at Harrah’s Louisiana Casino and Racetrack located in Bossier City and WinStar
Casino and casino facilities owned by the Choctaw Nation located in Oklahoma. In February 2012, Margaritaville Resort
Casino announced it would begin construction in Bossier City on a $197 million casino and hotel resort with a targeted
opening date in June 2013. The resort will include over 1,300 slot machines and 46 table games.
Casino gaming is currently prohibited in several jurisdictions from which the Shreveport/Bossier City market draws
customers, primarily Texas. Although casino gaming is currently not permitted in Texas, the Texas legislature has from time
to time considered proposals to authorize casino gaming and there can be no assurance that casino gaming will not be
approved in Texas in the future, which would have a material adverse effect on our business. Because we draw a significant
amount of our customers from the Dallas/Fort Worth area, but are located approximately 190 miles from that area, we believe
we will continue to face increased competition from gaming operations in Oklahoma, including the WinStar and Choctaw
casinos, and would face significant competition that may have a material adverse effect on our business and results of
operations if casino gaming were to be approved in Texas.
Our operations are particularly sensitive to reductions in discretionary consumer spending and may be negatively affected
by general economic conditions.
Consumer demand for casino hotel properties, such as ours, is particularly sensitive to downturns in the economy and the
associated impact on discretionary spending on leisure activities. Any adverse change in general economic conditions, such
as the recent economic downturn, can adversely affect consumer spending, which can have a negative impact on our ability to
generate revenues from our operations. Increases in gasoline prices, including increases prompted by global political and
economic instabilities, can adversely affect our operations because most of our patrons travel to our properties by car or on
airlines that may pass on increases in fuel costs to their passengers in the form of higher ticket prices. The recent global,
national and regional economic downturn, including the housing crisis, credit crisis, lower consumer confidence, and other
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related factors which impact discretionary consumer spending and other economic activities that have direct effects on our
business, have resulted in a decline in the tourism industry that has adversely impacted our operations. We cannot be sure
how long these factors will continue to impact our operations in the future or the extent of the impact.
Native American gaming has adversely affected our core markets and our operations. The continued growth of Native
American gaming in states near our core markets could have a material adverse effect beyond that we have experienced.
Since visitors from California comprise a significant portion of our customer base, we also compete with Native
American gaming operations in California. In total, the State of California has signed and ratified compacts with 68 Native
American tribes, and there are currently 59 Native American casinos operating in California, including casinos located in
northern California, which we consider to be a significant target market. These Native American tribes are allowed to
operate slot machines, lottery games, and banking and percentage games on Native American lands. Although many existing
Native American gaming facilities in northern California are modest compared to Eldorado Reno and Silver Legacy, a
number of Native American tribes have established large-scale gaming facilities in California and some Native American
tribes have announced that they are in the process of expanding, developing, or are considering establishing, large-scale hotel
and gaming facilities in northern California.
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Under their current compacts, most Native American tribes in California may operate up to 2,000 slot machines, and up
to two gaming facilities may be operated on any one reservation. However, under action taken by the National Indian
Gaming Commission, gaming devices similar in appearance to slot machines, but which are deemed to be technological
enhancements to bingo style gaming, are not subject to such limits and may be used by tribes without state permission.
Additionally, the number of slot machines the tribes are allowed to operate may increase as a result of any new or amended
compacts the tribes may enter into with the State of California that receive the requisite approvals, such as has been the case
with respect to a number of new or amended compacts which have been executed and approved.
EN
In addition, we also compete with Native American gaming operations in Oklahoma. Thirty-three Oklahoma tribes
currently have compact agreements with the State of Oklahoma, and there are approximately 110 tribal casinos operating
within the state, including the WinStar Casinos and the casino and hotel facility owned by the Choctaw Nation located in
Durant, Oklahoma. Oklahoma’s tribal gaming market has experienced significant growth in a relatively short period since
the authorization of the State-Tribal Gaming Act in 2005 and, in terms of the number of gaming devices, Oklahoma ranks
second to California, with a total of approximately 53,900 machines.
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Under the tribal-state compact agreements, the Native American tribes in Oklahoma were granted substantial exclusivity
to engage in casino-style gaming. The Oklahoma State-Tribal Gaming Act also authorizes Class-III gaming at four of the
state’s horse racetracks, with the racetracks limited to operating no more than 750 slot machines at their tracks. Under the
compact, the tribes are authorized to operate electronic bonanza-style bingo, electronic amusement games, electronic instant
bingo games and non-house-backed card games. Because Eldorado Shreveport draws a significant amount of its customers
from the Dallas/Fort Worth area, we believe that WinStar Casinos, the casino facilities owned by the Choctaw Nation in
Oklahoma and similar types of facilities in Oklahoma or other markets from which Eldorado Shreveport draws its customers
could have a material adverse impact on our operations.
C
Increased competition from Native American gaming, including increases in competition attributable to additional
gaming licenses being granted to Native American tribes and expanded Native American gaming operations in northern
California, Oklahoma or other states near our core markets, may result in a decline in our revenues and have a material
adverse effect on our business. While we cannot predict the precise extent of any future effects, they could be significant.
Energy and fuel price increases may adversely affect our business and results of operations.
We use significant amounts of electricity, natural gas and other forms of energy. An increase in the cost of any source of
energy may negatively affect our results of operations. In addition, energy and fuel price increases could negatively impact
our business and results of operations by causing a decrease in visitation to our properties, including by making it difficult for
potential patrons to travel to our properties, or by causing patrons who do visit our properties to decrease their spending,
including due to reductions in disposable income as a result of escalating energy and fuel prices.
Because we are heavily dependent upon hotel/casino and related operations that are conducted in Reno, Nevada and
Shreveport, Louisiana, we are subject to greater risks than a company that is geographically or otherwise diversified.
We are heavily dependent upon hotel/casino and related operations that are conducted in Reno, Nevada and Shreveport,
Louisiana for all of our cash flow. Therefore, we are subject to a greater degree of risk than a gaming company that is
geographically or otherwise diverse. The risks to which we have a greater degree of exposure include the following:
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•
local economic and competitive conditions;
•
inaccessibility due to weather conditions, road construction or closure of primary access routes;
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changes in local and state governmental laws and regulations, including gaming laws and regulations;
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natural and other disasters;
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a decline in the number of residents in or near, or visitors to, our operations; and
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a decrease in gaming activities at Eldorado Reno, Silver Legacy and Eldorado Shreveport.
Any of the factors outlined above could adversely affect our ability to generate sufficient cash flow to make payments on
our senior secured obligations or with respect to our other debt.
Our hotel-casinos in the Reno market and the Shreveport/Bossier City market historically have been subject to seasonal
variations and quarterly fluctuations in operating results and we can expect to experience such variations and fluctuation
in the future.
EN
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Historically, hotel-casino operations in the Reno market and the Shreveport/Bossier City market, including Eldorado
Reno, Silver Legacy and Eldorado Shreveport, have been subject to seasonal variations. Eldorado Reno’s strongest operating
results have historically occurred in the second and third quarters and the weakest results have occurred during the period
from November through February when weather conditions adversely affected operating results. In the Reno market,
excessive snowfall during the winter months can make travel to the Reno area more difficult. This often results in significant
declines in traffic on major highways, particularly on routes to and from northern California, and causes a decline in
customer volume. Furthermore, management believes that approximately two-thirds of visitors to the Reno market arrive by
some form of ground transportation. Therefore, even normal winter weather may cause revenues and cash flows for our
Reno operations to be adversely affected. Hotel/casino operations in the Shreveport/Bossier City market are subject to slight
seasonal variations, with the strongest operating results generally occurring in the third quarter of each year and the weakest
results generally occurring during the fourth quarter. Results during 2009 varied from the historic pattern with the second
and third quarters falling below first quarter gross revenues. Such deviation was due to the lingering effects of the economic
recession coupled with increased competition from the expanded WinStar Casino in Oklahoma.
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We expect the highest level of customer visits to occur during the summer months, because of the more favorable
weather conditions. A poor summer season, due to any reason, including events outside our control, would adversely affect
our business. Congestion on the roads leading to our properties, common during the peak summer season, holidays and other
times, may discourage potential customers from traveling to our hotel-casino, particularly if road construction is in process.
See Seasonality in Item 1.
O
Security concerns, terrorist attacks and other geopolitical events could have a material adverse effect on our future
operations.
C
Security concerns, terrorist attacks and other geopolitical events can have a material adverse effect on leisure and
business travel, discretionary spending and other areas of economic behavior that directly impact the gaming and
entertainment industries in general and our business in particular. We cannot predict the extent to which any future security
alerts, terrorist attacks or other geopolitical events might impact our business, results of operations or financial condition.
Our hotel-casinos are highly dependent on surrounding market areas.
We believe that visitors from California, Washington and Oregon account for approximately two-thirds of the visitors to
the Reno market. The Shreveport/Bossier City market draws customers primarily from East Texas and, specifically,
Eldorado Shreveport draws a significant amount of its customers from the Dallas/Fort Worth area. We are primarily
dependent upon the gaming activities of customers visiting our hotel-casinos from these areas for our revenues. A decline in
the economies of any one or more of these areas, such as the economic decline in each of these states associated with the
recent recession, or a decline in the number of gaming customers traveling to our facilities from these areas for any reason,
including increased competition, such as Native American gaming in California, Washington, Oregon, Oklahoma or other
states near our core markets could have a material adverse effect on our business, results of operations and financial
condition.
22
We are subject to extensive state and local regulation, and licensing and gaming authorities have significant control over
our operations, which could have an adverse effect on our business.
The ownership and operation of casino gaming facilities, such as Eldorado Reno, Silver Legacy and Eldorado
Shreveport, are subject to extensive state and local regulation. We currently hold all state and local licenses and related
approvals necessary to conduct our present gaming operations. We are required by the State of Nevada and the State of
Louisiana, as well as the applicable local authorities, to comply with all applicable gaming laws and regulations and to
maintain various licenses and registrations, findings of suitability, permits and approvals in good standing. The gaming
authorities in Nevada or Louisiana may deny, limit, condition, suspend or revoke a gaming license or related approval for
violations of applicable gaming laws and regulations and may impose substantial fines and take other actions, any one of
which could have a significant adverse effect on our business, financial condition, and results of operations. If additional
gaming laws or regulations are adopted, these regulations could impose additional restrictions or costs that could have a
significant adverse effect on us. See “Business—Regulation and Licensing.”
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The Nevada Gaming Commission or the Louisiana Board may, in its discretion, require the holder of any securities
issued by us to file applications, be investigated, and be found suitable to own our securities if it has reason to believe that the
security ownership would be inconsistent with the declared policies of the States of Nevada or Louisiana. Further, the costs
of any investigation conducted by the Nevada Gaming Commission or the Louisiana Board under these circumstances must
be paid by the applicant and refusal or failure to pay these charges may constitute grounds for a finding that the applicant is
unsuitable to own the securities. If the Nevada Gaming Commission or the Louisiana Board determines that a person is
unsuitable to own our securities, then, under the Nevada Gaming Control Act or the Louisiana Act and the regulations
promulgated thereunder, we can be sanctioned, including the loss of our approvals, if, without the prior approval of the
Nevada Gaming Commission or the Louisiana Board, as applicable, we:
pay to the unsuitable person any dividend, interest or any distribution whatsoever;
•
recognize any voting right by the unsuitable person in connection with the securities;
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pay the unsuitable person remuneration in any form; or
•
make any payment to the unsuitable person including any principal, redemption, conversion, exchange, liquidation
or similar payment.
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We may not make a public offering of our securities without prior approval of the Nevada Gaming Commission if we
intend to use the securities or proceeds from the Offering to:
construct, acquire or finance gaming properties in Nevada; or
•
retire or extend obligations incurred for these purposes or for similar transactions.
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If the Nevada or Louisiana gaming authorities were to find an officer, director or key employee unsuitable for licensing
or unsuitable to continue having a relationship with us, we would have to sever all relationships with that person.
Furthermore, the Nevada Gaming Commission or the Louisiana Board may require us to terminate the employment of any
person who refuses to file appropriate applications. Either result could materially adversely affect our gaming operations.
Eldorado Shreveport is subject to risks relating to mechanical failure and regulatory compliance.
Generally, all of our facilities are subject to the risk that operations could be halted for a temporary or extended period of
time, as the result of casualty, forces of nature, mechanical failure, or extended or extraordinary maintenance, among other
causes. In addition, our gaming operations, including those conducted on riverboats or at dockside facilities such as Eldorado
Shreveport, could be damaged or halted due to extreme weather conditions.
We currently conduct our Eldorado Shreveport gaming operations on a riverboat. Our riverboat must comply with
extensive state regulations, including the Louisiana Act. Pursuant to the Louisiana Act and the regulations promulgated
thereunder, each applicant which desired to operate a riverboat casino in Louisiana was required to file a number of separate
applications for a Certificate of Preliminary Approval, all necessary gaming licenses, and a Certificate of Final Approval. No
final Certificate can be issued without all necessary and property certificates from all regulatory agencies, including the U.S.
Coast Guard, the U.S. Army Corps of Engineers, local port authorities and local levee authorities. Eldorado Shreveport
received its license and related approvals in July 2005 and the license was renewed in 2009. This license is subject to
periodic renewal and is subject to certain general operational conditions. The next renewal period will be in 2014. There can
be no assurance that we will continue to successfully renew our license and the loss of a dockside casino or riverboat casino
23
from service for any period of time could adversely affect our business, financial condition and results of operations. See
“Business—Regulation and Licensing—Louisiana Regulation and Licensing.”
Because we own real property, we are subject to extensive environmental regulation, which creates uncertainty regarding
future environmental expenditures and liabilities.
We have incurred and may continue to incur costs to comply with environmental requirements, such as those relating to
the discharges into air, water and land, the handling and disposal of solid and hazardous waste, and the cleanup of properties
affected by hazardous substances. Under these and other environmental requirements, we, as an owner of the property on
which Eldorado Reno is situated, may be required to investigate and clean up hazardous or toxic substances or chemical
releases at that property. As an owner or operator, we could also be held responsible to a governmental entity or third parties
for property damage, personal injury and for investigation and cleanup costs incurred by them in connection with the
contamination. These laws typically impose cleanup responsibility and liability without regard to whether the owner or
operator knew of or caused the presence of the contaminants and the liability under those laws has been interpreted to be joint
and several unless the harm is divisible and there is a reasonable basis for allocation of the responsibility. The costs of
investigation, remediation or removal of those substances may be substantial, and the presence of those substances, or the
failure to remediate a property properly, may adversely affect our ability to rent or otherwise utilize our property. In addition,
environmental requirements address the impacts of development on wetlands.
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Groundwater in the vicinity of the Eldorado Reno property is also contaminated by a chlorinated solvent known as
perchloroethylene or “PCE.” This contaminant is widespread in the Reno/Sparks area. Eldorado Reno currently pays
assessments of approximately $7,600 annually and Silver Legacy is required to pay assessments averaging approximately
$20,000 annually in contribution to a Washoe County special assessment district which is undertaking community wide
remediation of groundwater solvent contamination. See “Business—Environmental Matters.”
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The possibility exists that additional contamination, as yet unknown, may exist on our properties. Although we believe
that any remaining contamination arose from activities of prior owners or occupants, or from offsite sources and not as a
result of any of our actions or operations, we cannot make any assurances that we will not incur expenditures for
environmental investigations or remediation in the future.
Because a portion of the property on which the Eldorado’s property is situated is leased, the termination of such leases
could adversely affect our business.
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We own the parcel on which Eldorado Reno is located, except for approximately 30,000 square feet which is leased from
C. S. & Y. Associates, a general partnership of which Donald Carano is a general partner (the “CSY Lease”). The CSY
Lease expires on June 30, 2027. In the event of a foreclosure on this property or upon a refinancing of the Notes, the value or
perceived value, as the case may be, of this property may be reduced because of the near term expiration of the lease. If we
default on a payment under the CSY Lease or if certain other specified events were to occur, C. S. & Y. Associates has the
right to terminate the lease and take possession of the property located on the premises. If C. S. & Y. Associates were to
exercise these rights, this could adversely affect our business.
The Louisiana Partnership is party to a ground lease with the City of Shreveport for the land on which the casino was
built (the “Shreveport Lease”). The Shreveport Lease has a term ending December 20, 2015 with subsequent renewals for up
to an additional 35 years. If we default on a payment under the Shreveport Lease or if certain other specified events were to
occur, the City of Shreveport could terminate the lease. If the City of Shreveport were to exercise this right, this could
adversely affect our business.
An earthquake, flood or other natural disasters could adversely affect our business.
The Reno area has been, and may in the future be, subject to earthquakes and other natural disasters. Depending on the
magnitude and location of such an event, Eldorado Reno and/or the Silver Legacy could be severely damaged, which could
adversely affect our business and operations. We currently maintain earthquake and flood insurance for Eldorado Reno and
the Silver Legacy and for the potential resulting business interruption. However, there is no assurance that our coverage will
be sufficient if there is a major earthquake. In addition, upon the expiration of our current policies which expire in July 2012
(subject to annual renewal), we cannot assure that adequate coverage will be available at economically justifiable rates, if at
all.
Eldorado Shreveport is located in a designated flood zone and is subject to risks in addition to those associated with
land-based casinos, including loss of service due to flood, hurricane or other severe weather conditions. We currently
24
maintain flood insurance for Eldorado Shreveport and for the potential business interruption resulting. However, there is no
assurance that our coverage will be sufficient if there is a major flood. Although we have flood insurance at our properties,
reduced patronage and the loss of any casino from service, the inability to use a dockside facility or riverboat for any period
of time due to flood, hurricane or other severe weather could adversely affect our business, financial condition and results of
operations.
We rely on our key personnel.
Our future success will depend upon, among other things, our ability to keep our senior executives and highly qualified
employees. We compete with other potential employers for employees, and we may not succeed in hiring or retaining the
executives and other employees that we need. We do not have employment contracts with any of our senior executives other
than Thomas Reeg and we do not maintain key man insurance policies for any of our executives. A sudden loss of or
inability to replace key employees could have a material adverse effect on our business, financial condition and results of
operation.
We may face difficulties in attracting and retaining qualified employees for our casinos.
EN
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The operation of our business requires qualified executives, managers and skilled employees with gaming industry
experience and qualifications who are able to obtain the requisite licenses and approval from the Nevada Gaming
Commission or the Louisiana Board. While not currently the case, there has from time to time been a shortage of skilled
labor in the Reno area. In addition to limitations that may otherwise exist in the supply of skilled labor, the continued growth
of Native American gaming in northern California may make it more difficult for us to attract qualified individuals. In the
Shreveport/Bossier City area, we have from time to time experienced difficulty attracting and retaining qualified executives
and managers which we believe is a result of a shortage of skilled labor as well as the difficulty of having potential
candidates relocate to this area. While we believe that we will continue to be able to attract and retain qualified employees,
shortages of skilled labor will make it increasingly difficult and expensive to attract and retain the services of a satisfactory
number of qualified employees, and we may incur higher costs than expected as a result.
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We are or may become involved in legal proceedings that, if adversely adjudicated or settled, could impact our business
and financial condition.
O
From time to time, we are named in lawsuits or other legal proceedings relating to our business. In particular, the nature
of our business subjects us to the risk of lawsuits filed by customers, past and present employees, competitors, business
partners and others in the ordinary course of business. As with all legal proceedings, no assurances can be given as to the
outcome of these matters. Moreover, legal proceedings can be expensive and time consuming, and we may not be successful
in defending or prosecuting these lawsuits, which could result in settlements or damages that could significantly impact our
business, financial condition and results of operations.
C
Significant negative industry or economic trends, reduced estimates of future cash flows, disruptions to our business,
slower growth rates or lack of growth in our business may cause us to incur impairments to indefinite lived intangible
assets or long-lived assets.
We test indefinite lived intangible assets for impairment annually or if a triggering event occurs. We consider whether
the fair values of any of our equity method investments have declined below their carrying value whenever adverse events or
changes in circumstances indicate that recorded values may not be recoverable. Estimated fair value is determined using a
discounted cash flow analysis based on estimated future results of the investee and market indicators of the terminal year
capitalization rate. If we consider any such decline to be other than temporary, we record a write-down to estimated fair
value. In 2011, our impairment test in the Silver Legacy Joint Venture resulted in the recognition of a non-cash impairment
charge of $33.1 million. Such impairment charge eliminated the Company’s remaining investment in the Silver Legacy Joint
Venture.
The volatility and disruption of the capital and credit markets and adverse changes in the U.S. and global economies may
negatively impact our revenues and our ability to access financing.
During recent years, a confluence of many factors has contributed to diminished expectations for the U.S. economy and
increased market volatility for publicly traded securities, including the common shares and notes issued by publicly owned
companies. These factors include the availability and cost of credit, declining business and consumer confidence and
increased unemployment. These conditions have combined to create an unprecedented level of market volatility, which could
25
has influence the price of our debt securities. These economic conditions have also affected lenders who provide capital that
we use to support elements of our business strategy.
Further, adverse regional and national economic conditions could cause us to experience material decreases in revenues
from our operations attributable to decreases in consumer spending levels and we could fail to satisfy covenants imposed by
our existing debt agreements.
Our substantial level of debt could adversely affect our financial condition and prevent us from fulfilling obligations
under the Notes and our other debt.
We have and will continue to have substantial debt. We have an aggregate principal amount of $183.5 million in debt
outstanding as of December 31, 2011 (including capital leases), all of which is secured. Additionally, if we satisfy certain
debt incurrence tests under the indenture governing our senior secured obligations, we could issue additional notes and incur
further debt, which may be secured if certain secured leverage ratios are satisfied. If new debt were to be incurred in the
future, the related risks could intensify.
Our substantial debt could have significant effects on our business, such as:
limiting our ability to satisfy our obligations;
•
limiting our ability to obtain additional financing to fund our working capital requirements, capital expenditures,
debt service, general corporate or other obligations;
•
limiting our ability to use operating cash flow in other areas of our business because we must dedicate a significant
portion of these funds to make principal and/or interest payments on our senior secured obligations and other debt;
•
causing our failure to comply with the financial and restrictive covenants contained in the indenture governing our
senior secured obligations or our credit facility, and any agreements governing other indebtedness we may incur,
which could cause a default under those instruments and which, if not cured or waived, could have a material
adverse effect on us;
•
placing us at a competitive disadvantage to our competitors who are not as highly leveraged;
•
affecting our ability to renew gaming and other licenses necessary to conduct our business; and
•
increasing our vulnerability to, and limiting our ability to react to, changing market conditions, changes in our
industry and economic downturns.
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If we do not generate sufficient cash from our operations to make scheduled payments on or senior secured obligations
or to meet our other obligations, we will need to take one or more actions including the refinancing of our debt, obtaining
additional financing, selling assets, obtaining additional equity capital, or reducing or delaying capital expenditures and our
ability to take one or more of these actions may be limited by the financial and other restrictive covenants contained in the
indenture governing our senior secured obligations, our credit facility or any agreements governing any future indebtedness
we may incur. We cannot assure you that our business will continue to generate cash flow or that we will be able to obtain
funding sufficient to satisfy our debt service requirements.
The indenture governing our senior secured obligations contains, and our other debt agreements may contain, covenants
that significantly restrict our operations.
The indenture governing our senior secured obligations and our credit facility contain, and any of our other future debt
agreements may contain, numerous covenants imposing financial and operating restrictions on our business. These
restrictions may affect our ability to operate our business, may limit our ability to take advantage of potential business
opportunities as they arise and may adversely affect the conduct of our current business, including by restricting our ability to
finance future operations and capital needs and limiting our ability to engage in other business activities. These covenants
will place restrictions on our ability and the ability of our operating subsidiaries to, among other things:
•
incur additional debt;
•
create liens or other encumbrances;
•
pay dividends or make other restricted payments;
•
agree to payment restrictions affecting our restricted subsidiaries;
•
prepay subordinated indebtedness;
26
•
make investments, loans or other guarantees;
•
sell or otherwise dispose of a portion of our assets; or
•
make acquisitions or merge or consolidate with another entity.
Our credit facility also includes certain financial and other covenants, including maintaining certain total leverage and
earnings to fixed charge ratios as well as restrictions on capital expenditures. Our ability to comply with these provisions
may be affected by general economic conditions, industry conditions and other events beyond our control. We cannot assure
you that we will be able to comply with these covenants. If we fail to comply with a financial covenant or other restriction
contained in the indenture governing our senior secured obligations, the credit facility or other financing agreements, an event
of default could occur. An event of default could result in acceleration of some or all of our indebtedness and the inability to
borrow additional funds. We do not have, and are not certain we would be able to obtain, sufficient funds to repay our
indebtedness if it is accelerated, including our payments on the senior secured obligations.
Servicing our debt and funding our other obligations requires a significant amount of cash, and our ability to generate
sufficient cash depends on many factors, some of which are beyond our control.
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Our ability to make payments on and refinance our indebtedness and to fund our operations and capital expenditures
depends upon our ability to generate cash flow and secure financing in the future. Our ability to generate future cash flow
depends, among other things, upon:
our future operating performance;
•
the demand for services we provide;
•
general economic conditions;
•
competition; and
•
legislative and regulatory factors affecting our operations and business.
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Some of these factors are beyond our control. We cannot assure you that our business will generate cash flow from
operations or that future debt or equity financings will be available to us to enable us to pay our indebtedness, including our
senior secured obligations, or to fund other needs. As a result, we may need to refinance all or a portion of our indebtedness,
including our senior secured obligations, on or before maturity. We cannot assure that we will be able to refinance any of our
indebtedness on favorable terms, or at all. Any inability to generate sufficient cash flow or refinance our indebtedness on
favorable terms could have a material adverse effect on our financial condition. See “Management’s Discussion and
Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” in Item 7.
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The Silver Legacy Restructuring and/or a filing for bankruptcy protection by the Silver Legacy Joint Venture could have a
negative impact on our image and may negatively impact our business going forward.
As a result of the possibility that the Silver Legacy Joint Venture may file for bankruptcy protection, we may be the
subject of negative publicity, which could have an impact on our image. Negative publicity may have an effect on the terms
under which some customers and suppliers are willing to continue to do business with us and could materially adversely
affect our business, financial condition, future business prospects and results of operations. The impact of this negative
publicity cannot be accurately predicted or quantified.
The partnership agreement of the Silver Legacy Joint Venture contains a buy sell provision which, if exercised by either
partner, could adversely affect us.
The partnership agreement for the entity that owns the Silver Legacy contains a buy sell provision pursuant to which
either ELLC, our 96% owned unrestricted subsidiary that owns our interest in the Silver Legacy, or the wholly owned
subsidiary of MGM Resorts International that owns its 50% interest in the Silver Legacy Joint Venture may sell its
partnership interest or purchase the partnership interest of the other partner, in either case, at the price proposed by the
offering partner. If either partner should make such an offer, the partnership agreement requires the other partner to either
sell its partnership interest or purchase the partnership interest of the offering partner, in either case, at the price proposed by
the offering partner. An election by either partner to exercise its buy sell right, which would result in the buyout of one of the
partners, could adversely impact our operations, depending, among other things, on our ability to respond to an offer from the
other partner and the price at which any offer is made. MGM Resorts International has significantly greater resources than
27
we have. If an offer by either partner should result in the purchase of our interest in the Silver Legacy, the sale of the interest
could adversely affect, or result in the termination of, any existing arrangements or agreements we may have with the Silver
Legacy or the other partner, or otherwise adversely impact us.
Item 2.
Properties.
The Company’s executive offices are located inside Eldorado Reno, which is situated on an approximately 159,000
square foot parcel at 345 North Virginia Street, Reno, Nevada. Resorts owns the entire parcel, except for approximately
30,000 square feet which is leased from C. S. & Y. Associates, a general partnership in 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
Eldorado Reno’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 2011 totaled approximately $580,000. As of December 31, 2011,
the Company’s senior secured obligations and credit facility were secured by a first deed of trust and security interest in
substantially all of the Company’s Reno and Shreveport real property interests and fixtures, including Eldorado Reno and
Eldorado Shreveport, certain parking facilities, 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 Resorts’ obligations under the credit
facility.
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The Company owns a 31,000 square foot parcel of property across the street from and west of Eldorado Reno and two
other adjacent parcels totaling 18,687 square feet which could be used for expansion of Eldorado Reno. These parcels also
secured the Company’s indebtedness under the credit facility.
EN
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 Eldorado Reno. Reference is made to the information appearing under the heading “Silver
Legacy Resort Casino” in Item 1 of this report, which information is incorporated by reference in this Item 2. At December
31, 2011, the Silver Legacy was subject to encumbrances securing repayment of indebtedness in the aggregate principal
amount of $143 million.
Legal Proceedings.
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Item 3.
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We lease approximately nine acres of land in Shreveport, Louisiana on which Eldorado Shreveport is located. Eldorado
Shreveport consists of a 403-room, all-suite hotel and a three-level riverboat dockside casino that opened on December 20,
2000. The casino contains approximately 59,000 square feet of space with 1,511 slot machines, 53 table games and a poker
room with nine tables. The centerpiece of Eldorado Shreveport is a 170,000 square foot land-based pavilion housing
numerous restaurants and entertainment amenities. An 85-foot wide seamless entrance connects the casino to the land-based
pavilion on all three levels resulting in the feel of a land-based casino. Amenities include a gourmet steakhouse, a buffet, a
sports-themed casual diner, two lounges, a spa and a retail store. We also lease other properties in the Shreveport area for
office space, employee parking and storage.
C
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.
Not applicable.
PART II
Item 5.
Market for Registrants’ Common Equity and Related Stockholder Matters and Issuer Purchases of Equity
Securities.
There is no established public trading market for (i) the outstanding membership interests of Resorts (which are held by a
single member), or (ii) the common stock of Capital, which is a wholly owned subsidiary of Resorts. There are no plans,
proposals, arrangements or understandings with any person with regard to the development of a trading market in the
Company’s membership interests or the common stock of Capital. See Item 12 of this report for additional information
concerning the ownership of Resorts’ membership interests and the membership interests of HoldCo, Resorts’ only member.
As limited liability companies, HoldCo and Resorts are not subject to Federal income tax liability. Because holders of
membership interests in HoldCo are required to include their respective shares of HoldCo’s taxable income (including that of
Resorts) in their individual income tax returns, distributions are made to their respective member(s) to cover such tax
liabilities. Such distributions are subject to limitation in accordance with the provisions of their respective operating
28
agreements. The operating agreement of Eldorado HoldCo LLC dated April 1, 2009, (the “HoldCo 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 HoldCo’s 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 HoldCo,
to thereafter be taxed under the Internal Revenue Code of 1986, as amended, as a corporation, and the operating agreement of
Resorts has a provision to make similar distributions to HoldCo with respect to Resorts’ taxable income. No distributions
were made to the members of Resorts or HoldCo in 2009. In 2010, a $325,000 distribution was made in the second quarter
by Resorts to HoldCo and, in turn, by HoldCo to its members for the members’ Louisiana partnership composite tax. In
2011, distributions amounting to $1.7 million were made by Resorts to HoldCo and, in turn, by HoldCo to its members for
the members’ Louisiana partnership composite tax.
During the fiscal year ended December 31, 2011, neither Resorts nor Capital issued any equity securities and, during that
period, neither Resorts nor Capital, nor any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities
Exchange Act of 1934), purchased any of the equity securities of Resorts or Capital.
Item 6.
Selected Financial Data.
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The following table sets forth selected consolidated financial data of the Company for each of the five years ended
December 31, 2011. This information should be read in conjunction with the audited consolidated financial statements
contained elsewhere in this report. Operating results for the periods presented below are not necessarily indicative of the
results that may be expected for future years.
29
SELECTED CONSOLIDATED FINANCIAL DATA
(including the financial statements of the Louisiana Partnership)
(dollars in thousands)
Year Ended December 31,
Consolidated Statement of Operations Data:
Operating revenues:
Casino
Food, beverage and entertainment
Hotel
Other
Less promotional allowances
2011
2010
2009
2008
2007
$ 201,253
62,644
26,547
7,025
297,469
(41,397)
$ 203,537
60,838
26,291
6,360
297,026
(42,168)
$ 214,422
60,860
25,063
6,821
307,166
(43,510)
$ 224,474
63,367
27,310
7,145
322,296
(44,087)
$ 220,043
67,049
29,440
7,383
323,915
(43,888)
256,072
254,858
263,656
278,209
280,027
120,550
31,826
7,866
4,324
47,919
19,780
232,265
123,744
30,040
7,489
3,982
48,121
22,440
235,816
129,250
28,928
7,641
3,841
48,021
23,932
241,613
134,837
32,195
8,515
4,183
53,439
23,916
257,085
130,990
34,135
8,561
4,434
53,467
23,030
254,617
Loss on sale/disposition of long-lived assets (2)
Acquisition termination charges (3)
Equity in (losses) income of unconsolidated affiliates (4)
Impairment of investment in joint venture (5)
(120)
–
(3,695)
(33,066)
O
Net (loss) income attributable to the Company (8)
C
Other Data:
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Capital expenditures
Ratio of earnings to fixed charges (9)
TI
A
(288)
(6,840)
(3,341)
(16,550)
(2,387)
–
5,610
–
14,877
19,723
(5,895)
28,633
–
12
(18,457)
2,499
–
1
(21,065)
–
101
1
(21,263)
–
432
228
(22,622)
–
–
782
(24,957)
–
(15,946)
(21,064)
(21,161)
(21,962)
(24,175)
(29,020)
(6,187)
(1,438)
(27,857)
4,458
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Net (loss) income
Less net loss (income) attributable to
noncontrolling interest (7)
Operating Data (10):
Number of hotel rooms (11)
Average hotel occupancy rate (12)
Number of slot machines (11)
Number of table games (11)
(1,102)
–
(1,218)
–
(13,074)
Other income (expense):
Other income (6)
Interest income
Interest expense
Gain on early retirement of debt, net
Total other expense
(266)
–
(3,899)
–
EN
Operating (loss) income
L
Net operating revenues
Operating expenses:
Casino
Food, beverage and entertainment
Hotel
Other
Selling, general and administrative (1)
Depreciation and amortization
Operating expenses
4,807
$ (24,213)
$ 21,171
(7,715)
(31,439)
7,889
–
1,217
86.3%
2,751
99
183
90
798
(162)
$ (6,004)
$ (1,348)
$ (27,059)
$
$ 25,216
(8,422)
19
8,270
0.7x
$ 24,462
(10,231)
(16,179)
10,583
0.9x
$ 20,155
(13,374)
(11,454)
13,740
–
$ 20,973
(13,280)
(10,272)
13,889
1.2x
1,217
86.4%
2,766
97
1,218
84.8%
2,848
95
1,218
85.9%
2,913
100
4,296
1,218
86.2%
2,856
105
At December 31,
2011
Consolidated Balance Sheet Data:
Cash and cash equivalents
Total assets
Total debt (13)
Members’ equity
$ 30,150
272,662
183,502
66,023
2010
$ 48,133
333,643
209,620
95,905
2009
$ 31,320
341,528
209,163
102,392
2008
$ 33,268
358,914
224,570
104,047
See footnotes to Selected Consolidated Financial Data which appear on the next page.
30
2007
$ 37,941
398,963
223,718
143,908
Footnotes to Selected Consolidated Financial Data
Resorts pays management fees to Recreational Enterprises, Inc. and Hotel Casino Management, Inc., the owners of
47% and 25% 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
$600,000, $120,000, $0, $500,000 and $600,000 for the years ended December 31, 2011, 2010, 2009, 2008 and 2007,
respectively.
(2)
In 2007, loss on sale/disposition of long-lived assets included a $1.6 million charitable land contribution to the City
of Reno.
(3)
On November 26, 2008, we entered into a settlement on the termination of a potential acquisition in Evansville,
Indiana. As a result of the settlement, Resorts forfeited a $5.0 million escrow deposit resulting in a fourth quarter
2008 expense along with other expenses relating to the transaction of approximately $1.8 million.
(4)
Equity in (losses) income of unconsolidated affiliates represents ELLC’s 50% joint venture interest in the Silver
Legacy Joint Venture and Resorts’ 21.25% interest in Tamarack for all years presented. Since the Company operates
in the same line of business as the Silver Legacy and Tamarack, each with casino and/or hotel operations, the
Company’s equity in the income (losses) of such affiliates is included in operating income (loss).
(5)
As a result of the Company’s identification of triggering events, it recognized non-cash impairment charges of $33.1
million and $16.55 million in 2011 and 2008, respectively, for its investment in the Silver Legacy Joint Venture,
which is included in the consolidated statements of operations. Such impairment charge in 2011 eliminated the
Company’s remaining investment in the Silver Legacy Joint Venture. Noncontrolling interests in the Silver Legacy
Joint Venture were allocated $4.8 million and $0.6 million of the non-cash impairments in 2011 and 2008,
respectively. Assumptions used in the 2011 analysis were impacted by the default in the payment of principal and
interest on the Silver Legacy Joint Venture’s debt obligations on March 1, 2012 (see Note 6), the current cash flow
forecasts and market conditions for the Silver Legacy Joint Venture. Assumptions used in the 2008 analysis were
impacted by market conditions including: 1) lower market valuation multiples for gaming assets; 2) higher discount
rates resulting from turmoil in the credit and equity markets; and 3) current cash flow forecasts for the Silver Legacy
Joint Venture. As a result of the elimination of the Company's remaining investment in the Silver Legacy Joint
Venture, we will discontinue the equity method for our investment in the Silver Legacy Joint Venture and will not
provide for additional losses until our share of future net income, if any, equals the share of net losses not recognized
during the period the equity method was suspended.
(6)
Effective July 1, 2000, Resorts and Avereon Research LTD. entered into an agreement to form MindPlay, LLC for
the purpose of developing, owning and marketing a sophisticated system to permit the tracking and surveillance of pit
gaming operations. On February 19, 2004, Alliance Gaming Corp. (“Bally’s”), a New York Stock Exchange listed
company, purchased substantially all of the assets of the MindPlay, LLC, consisting primarily of intellectual
property, and assumed certain of its liabilities. On March 11, 2008, the managers and members of MindPlay, LLC
voted to accept a settlement agreement with Bally’s and to dissolve the company. MindPlay, LLC was dissolved in
March 2008. In 2008, Resorts received $239,000 in cash and 18,663 warrants, each representing the right to
purchase one share of Bally’s common stock at an exercise price of $24.69 per share. As a result of the cash payment
and warrants, the Company recognized income of $432,000 in 2008. In 2009, Resorts exercised and sold its Bally’s
warrants and recognized $101,000 in income
(7)
Noncontrolling interest represents the minority partners’ share of ELLC’s 50% joint venture interest in the Silver
Legacy Joint Venture and the interest of Shreveport Gaming Holdings, Inc. (“SGH”) in the Louisiana Partnership.
The noncontrolling interest in ELLC is owned by certain Resorts’ equityholders and is approximately 4%. SGH’s
interest in the Louisiana Partnership was 23.6% until March 20, 2008 when, as a result of the closing of the Louisiana
Partnership’s call of the 23.6% partnership interest held by SGH, ES#1 and ES#2, which are wholly owned by
Resorts, obtained all of the partnership interests in the Louisiana Partnership.
(8)
As a limited liability company, Resorts is not subject to Federal income tax liability. Because holders of membership
interests in Resorts are required to include their respective shares of Resorts’ taxable income (loss) in their individual
income tax returns, Resorts has made distributions to its members to cover such liabilities.
(9)
The ratio of earnings to fixed charges has been computed as earnings divided by fixed charges. Earnings represent
net income (loss) plus fixed charges. Fixed charges represent interest expense, whether expensed or capitalized, the
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(1)
31
interest component of rent expense and amortization of debt issuance costs. Net loss for the years ended December
31, 2011 and 2008 resulted in coverage deficiencies of $5,756,000 and $4,437,000, respectively.
(10)
Excludes the operating data of the Silver Legacy and Tamarack.
(11)
As of the end of each period presented.
(12)
For each period presented.
(13)
At December 31, 2011, debt includes (i) $170.0 million of 8.625% Senior Secured Notes due June 15, 2019 (the
“Senior Secured Notes”), (ii) $12.5 million of a term loan requiring principal payments of $1.25 million each quarter
beginning September 30, 2011 (the “Term Loan”) and (iii) $1.0 million of obligations under capital leases. The
effective rate of interest on borrowings under the Term Loan was 3.30% as of December 31, 2011
L
At December 31, 2010, total debt includes (i) $124.5 million of 10% First Mortgage Notes co-issued by the Louisiana
Partnership and Shreveport Capital (the “Shreveport Notes”), including $6.9 million of Shreveport Notes due to a
related party, (ii) $18.9 million of a 13% preferred equity interest, due 2013 in the Louisiana Partnership (the
“Preferred Equity Interest”), (iii) $0.4 million of accrued interest on the 13% Preferred Equity Interest, (iv) $64.5
million of 9% senior notes due 2014 co-issued by Resorts and Capital (the “ 9% Senior Notes”) and (v) $1.4 million
of obligations under capital leases.
TI
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At December 31, 2009, total debt includes (i) $124.5 million of Shreveport Notes, including $6.9 million of
Shreveport Notes due to a related party, (ii) $18.9 million of 13% Preferred Equity Interest, (iii) $0.4 million of
accrued interest on the 13% Preferred Equity Interest, (iv) $64.5 million of 9% Senior Notes and (v) $0.9 million of
obligations under capital leases.
EN
At December 31, 2008, total debt includes (i) $124.5 million of Shreveport Notes, including $6.9 million of
Shreveport Notes due to a related party, (ii) $18.9 million of 13% Preferred Equity Interest, (iii) $0.4 million of
accrued interest on the 13% Preferred Equity Interest, (iv) $64.5 million of 9% Senior Notes, (v) $12.8 million under
a revolving credit facility, (vi) $2.4 million of a bank loan and (vii) $1.1 million of obligations under capital leases.
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At December 31, 2007, total debt includes (i) $124.5 million of Shreveport Notes, including $6.9 million of
Shreveport Notes due to a related party, (ii) $18.9 million of 13% Preferred Equity Interest, (iii) $0.4 million of
accrued interest on the 13% Preferred Equity Interest, (iv) $64.5 million of 9% Senior Notes, (v) $12.0 million under
a revolving credit facility, (vi) $2.6 million of a bank loan and (vii) $0.8 million of obligations under capital leases.
32
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
General
Eldorado Resorts, LLC (“Resorts”) was formed in June 1996 and is a wholly owned subsidiary of Eldorado HoldCo,
LLC, a Nevada limited liability company formed in April 2009 (“HoldCo”). Resorts owns and operates the Eldorado Hotel &
Casino, a premier hotel/casino and entertainment facility in Reno, Nevada (the “Eldorado Reno”) and a hotel and riverboat
gaming complex that includes a 403-room, all suite, art deco-style hotel and a tri-level riverboat dockside casino situated on
the Red River in Shreveport, Louisiana (the “Eldorado Shreveport”). Resorts owns Eldorado Shreveport indirectly through
two wholly owned subsidiaries which own 100% of the partnership interests in the Eldorado Shreveport Joint Venture, a
Louisiana general partnership (the “Louisiana Partnership”). In addition, Resorts’ 96% 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 Eldorado Reno. Resorts also owns a 21.25% interest in Tamarack Junction, a small casino in south Reno.
Resorts, the Louisiana Partnership, 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 “we,” “us,” “our” or the
“Company.”
EN
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This Item 7 contains forward-looking information. Without limitation, when we use the words “believe,” “estimate,”
“plan,” “expect,” “intend,” “anticipate,” “continue,” “may,” “probably,” “should,” “could,” “will” and similar expressions in
this Annual Report, we are identifying forward-looking statements. These forward-looking statements are subject to risks,
uncertainties and assumptions about us and our operations that are subject to change based on various important factors,
some of which are beyond our control, including our substantial indebtedness, the effects of competition, the impact of
gaming and other regulations, general economic and market conditions, weather conditions, geographic concentration of our
operations and our reliance on management and key employees. We undertake no obligation to update any forward-looking
statements. It is not possible to foresee or identify all factors that could cause actual results to differ from expected or historic
results. Therefore, the reader should not consider this discussion to be an exhaustive statement of all risks, uncertainties, or
factors that could potentially cause actual results to differ from forward-looking statements.
Critical Accounting Policies
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The Company accounts for its investment in the Silver Legacy Joint Venture and Tamarack utilizing the equity method
of accounting. The Company’s consolidated net income (loss) includes our proportional share of the net income (losses)
before taxes of the Silver Legacy Joint Venture and Tamarack.
C
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Our discussion and analysis of our results of operations and financial condition that follows is based upon the
information in the consolidating financial statements for Resorts and its subsidiaries. The preparation of the accompanying
consolidated financial statements requires that we apply significant judgment in defining the appropriate assumptions for
calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. Our
judgments are based on our historical experience, terms of existing contracts, observance of trends in the industry,
information provided by our customers and information available from other outside sources, as appropriate. Because of the
uncertainty inherent in these matters, there is no assurance that actual results will not differ from our estimates used in
applying the following critical accounting policies.
Accounting for Unconsolidated Affiliates
The consolidated financial statements include the accounts of the Company and its subsidiaries. Investments in
unconsolidated affiliates which are 50% or less owned and do not meet the consolidation criteria of Accounting Codification
Standards (“ASC”) Topic 810, “Consolidation” (“ASC 810”) are accounted for under the equity method. All intercompany
balances and transactions have been eliminated in consolidation. Certain amendments of ASC 810 became effective for us
beginning January 1, 2010. Such amendments include changes to the quantitative approach to determine the primary
beneficiary of a variable interest entity (“VIE”). An enterprise must determine if its variable interest or interests give it a
controlling financial interest in a VIE by evaluating whether 1) the enterprise has the power to direct activities of the VIE that
have a significant effect on economic performance, and 2) the enterprise has an obligation to absorb losses or the right to
receive benefits from the entity that could potentially be significant to the VIE. The amendments to ASC 810 also require
ongoing reassessments of whether an enterprise is the primary beneficiary of a VIE. The Company believes the adoption of
these amendments did not have a material effect on our consolidated financial statements.
The Company considers whether the fair values of any of its equity method investments have declined below their
carrying value whenever adverse events or changes in circumstances indicate that recorded values may not be recoverable. If
the Company considers any such decline to be other than temporary, then a write-down would be recorded to estimate fair
33
value. Estimated fair value is determined using a discounted cash flow analysis based on estimated future results of the
investee and market indicators of terminal year capitalization rate. As a result of a triggering event, the Company tested its
investments for impairment in 2011. The Company recognized a non-cash impairment charge of $33.1 million in 2011
relating solely to its investment in the Silver Legacy Joint Venture. Assumptions used in such analysis were impacted by the
default in the payment of principal and interest on the Silver Legacy Joint Venture’s debt obligations on March 1, 2012 (see
Note 6), the current cash flow forecasts and market conditions for the Silver Legacy Joint Venture. There were no
impairments of the Company’s equity method investments in 2010 or 2009.
Recently Issued Accounting Pronouncements
In April 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.
2010-16 which clarifies that an entity should not accrue a jackpot liability (or portions thereof) before the jackpot is won if
the entity can avoid paying that jackpot. Jackpots should be accrued and charged to revenue when an entity has the
obligation to pay the jackpot. The guidance became effective for the first annual period beginning after December 15, 2010
and the interim periods within that first annual period. The Company adopted the standard as of January 1, 2011 and
recorded the cumulative effect of the change in accounting as of that date as an approximately $0.8 million increase to
members’ equity.
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In May 2011, the FASB issued ASU No. 2011-04 intended to enhance consistency in fair value measurements and
disclosures between accounting principles generally accepted in the United States of America and those under International
Financial Reporting Standards. This guidance is effective for interim and annual periods beginning after December 15, 2011.
Management does not believe the adoption of this guidance will have a material impact on our consolidated financial
statements.
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In June 2011, the FASB issued ASU No. 2011-05 which amends the presentation of comprehensive income to allow an
entity the option to present the total of comprehensive income, the components of net income, and the components of other
comprehensive income either in a single continuous statement of comprehensive income or in two separate, but consecutive
statements. The guidance also eliminates the option to present the components of other comprehensive income as part of the
statement of changes in members' equity. This guidance is effective for interim and annual periods beginning after December
15, 2012. Management does not believe the adoption of this guidance will have a material impact on our consolidated
financial statements.
O
In September 2011, the FASB issued ASU No. 2011-08 which allows for the use of a qualitative approach to test
goodwill for impairment. The updated guidance permits the performance of a qualitative assessment to determine whether it
is more likely than not that the fair value of a reporting unit is less than its carrying value. If such a determination is made,
the currently prescribed two-step goodwill impairment test is then performed. Otherwise, the two-step goodwill impairment
test is not required. The updated guidance is effective for interim and annual goodwill impairment tests performed for fiscal
years beginning after December 15, 2011 with early adoption permitted. Management does not believe the adoption of this
guidance will have a material impact on our consolidated financial statements.
Property and Equipment and Other Long-Lived Assets
C
Property and equipment is recorded at cost and is depreciated over its estimated useful life or lease term. Judgments are
made in determining estimated useful lives and salvage values of these assets. The accuracy of these estimates affects the
amount of depreciation expense recognized in our financial results and whether we have a gain or loss on the disposal of
assets. We review depreciation estimates and methods as new events occur, more experience is acquired, and additional
information is obtained that would possibly change our current estimates. Long-lived assets are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The
Company then compares the estimated future cash flows of the asset, on an undiscounted basis, to the carrying amount of the
asset. If the undiscounted cash flows exceed the carrying value, no impairment is indicated. If the undiscounted cash flows do
not exceed the carrying amount then an impairment is recorded based on the fair value of the asset, typically measured using
a discounted cash flow model. If the asset is still under development, future cash flows include remaining construction costs.
We use an estimate of undiscounted future cash flows produced by the asset as compared to its carrying value to determine
whether an impairment exists. If it is determined that the asset is impaired based on expected future cash flows, a loss,
measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset, would be recognized.
At December 31, 2011 and 2010, no events or changes in circumstances indicated that the carrying values of our long-lived
assets may not be recoverable.
We have assigned a value of $20.7 million to our gaming license in Louisiana. Our operations are dependent on
continued licensing by the applicable gaming authorities. In assessing the recoverability of the carrying value of our license,
we must make assumptions regarding future cash flows, gaming taxes and the costs of continued licensing. If these estimates
or the related assumptions change in the future, we may be required to record impairment losses with respect to this asset.
34
Such impairment loss would be recognized as a non-cash component of operating income. We do not believe that the value
of the gaming license has been impaired and no impairment has been recorded during any of the periods presented. The
value assigned to our gaming license does not diminish with the passage of time; accordingly, the recorded value of the
gaming license is not currently being amortized.
We assigned a value of $2 million to our customer relationships in Louisiana, which have been fully amortized on a
straight-line basis over a five-year period and have no remaining carrying value.
We have recorded deferred financing costs of $6.9 million, which are being amortized on a straight-line basis, which
approximates the effective interest method over the remaining term of the underlying debt obligations. In assessing the
recoverability of the carrying value of our deferred financing costs, we must make assumptions regarding future cash flows.
If these estimates or the related assumptions change in the future, we may be required to record impairment losses with
respect to this asset. Such impairment loss would be recognized as a non-cash component of operating income.
Reserve for Uncollectible Accounts Receivable
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We reserve an estimated amount for receivables that may not be collected. Methodologies for estimating bad debt
reserves range from specific reserves to various percentages applied to aged receivables. Historical collection rates are
considered, as are customer relationships, in determining specific reserves. As with many estimates, management must make
judgments about potential actions by third parties in establishing and evaluating our reserves for bad debts.
Self Insurance Reserves
Players’ Club Point Liability
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Eldorado Reno and Eldorado Shreveport are self insured for their group health programs and Eldorado Reno is self
insured for its workmen’s compensation program. We utilize historical claims information provided by our third party
administrators to make estimates for known pending claims as well as claims that have been incurred, but not reported as of
the balance sheet date. In order to mitigate our potential exposure, we have an individual claim stop loss policy on our group
health claims and an aggregate stop loss policy on our workmen’s compensation claims. If we become aware of significant
claims or material changes affecting our estimates, we would increase our reserves in the period in which we made such a
determination and record the additional expense. At December 31, 2011 and 2010, $1.2 million and $1.3 million,
respectively, was accrued for insurance and medical claims reserves and is included in accrued and other liabilities on our
consolidated balance sheets.
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Our players’ club allows customers to earn “points” based on the volume of their gaming activity. Under the terms of
our program, these points are redeemable for certain complimentary services, at their discretion, including rooms, food,
beverage, retail and entertainment tickets. We accrue the expense for unredeemed complimentaries, after consideration of
estimated breakage, as they are earned. The value of the cost to provide the complimentaries is expensed as redeemed and is
included in casino expense on our consolidating statement of operations. To arrive at the estimated cost associated with our
players’ club, estimates and assumptions are made regarding incremental marginal costs of the benefits, breakage rates and
the mix of goods and services for which the points will be redeemed. We use historical data to assist in the determination of
estimated accruals. If we become aware of significant claims or material changes affecting our estimates, we would increase
our reserves in the period in which we made such a determination and record the additional expense.
Litigation, Claims and Assessments
We utilize estimates for litigation, claims and assessments. These estimates are based on our knowledge and experience
regarding current and past events, as well as assumptions about future events. If our assessment of such a matter should
change, we may have to change the estimates, which may have an adverse effect on our financial position, results of
operations or cash flows. Actual results could differ from these estimates.
Factors Impacting Operating Trends
Economic Impact
The state of the national economy, including the decrease in liquidity in the credit markets, high unemployment and a
weak housing market, continue to negatively influence consumers’ confidence and discretionary spending. We believe the
weakness and volatility of the economy have had a significant negative impact on the gaming and tourism industries, and, as
a result, our operating performance the last three years. In response to the difficult economic environment, management has
implemented cost savings measures and will continue to look for opportunities to further reduce expenses and maximize cash
flows. We believe the current economic conditions will continue to negatively affect our operating results for some period of
time; however, we are uncertain as to the duration and magnitude of the continued impact on our operations.
35
Expansion of Native American Gaming
A significant portion of our revenues and operating income are generated from patrons who are residents of northern
California and northeastern Texas, and as such, our operations have been adversely impacted by the growth in Native
American gaming in northern California and, to a lesser extent, in Oklahoma.
Many existing Native American gaming facilities in northern California are modest compared to Eldorado Reno.
However, a number of Native American tribes have established large-scale gaming facilities in California and some Native
American tribes have announced that they are in the process of expanding, developing, or are considering establishing, largescale hotel and gaming facilities in northern California. As northern California Native American gaming operations have
expanded, we believe the increasing competition generated by these gaming operations has had a negative impact, principally
on drive-in, day-trip visitor traffic from our main feeder markets in northern California.
L
Under their current compacts, most Native American tribes in California may operate up to 2,000 slot machines and up
to two gaming facilities on any one reservation. However, under action taken by the National Indian Gaming Commission,
gaming devices similar in appearance to slot machines, but which are deemed to be technological enhancements to bingo
style gaming, are not subject to such limits and may be used by tribes without state permission. The number of slot machines
the tribes may be allowed to operate could increase as a result of any new or amended compacts the tribes may enter into with
the State of California that receive the requisite approvals. Such increases have occurred with respect to a number of new or
amended compacts which have been executed and approved.
EN
TI
A
Casino gaming is currently prohibited in several jurisdictions from which the Shreveport/Bossier City market draws
customers, primarily Texas. Although casino gaming is currently not permitted in Texas, the Texas legislature has from time
to time considered proposals to authorize casino gaming and there can be no assurance that casino gaming will not be
approved in Texas in the future, which would have a material adverse effect on our business. Eldorado Shreveport competes
with several Native American casinos located in Oklahoma, certain of which are located near our core Texas markets.
Because we draw a significant amount of our customers from the Dallas/Fort Worth area, but are located approximately 190
miles from that area, we believe we will continue to face increased competition from gaming operations in Oklahoma,
including the WinStar and Choctaw casinos, and would face significant competition that may have a material adverse effect
on our business and results of operations if casino gaming is approved in Texas.
Severe Weather
N
FI
D
We believe any future growth of Native American gaming establishments, including the addition of hotel rooms and
other amenities, could place additional competitive pressure on our operations. While we cannot predict the extent of any
future impact, it could be significant.
C
O
Eldorado Reno’s operations are subject to seasonal variation, with the weakest results generally occurring during the
winter months. During the first quarter of 2011, the Reno area experienced severe weather conditions, including the second
highest snowfall on record. On the majority of the weekends during the first quarter of 2011, poor weather made travel to
Eldorado Reno from northern California, our main feeder market, difficult due to significant snowfall or impossible due to
road closures. As a result, there was an adverse effect on business levels during the first quarter of 2011. Periods of severe
weather could negatively impact our future operating results.
Major Bowling Tournaments in the Reno Market
The National Bowling Stadium, located one block from Eldorado Reno, is one of the largest bowling complexes in North
America and has been selected to host multi-month tournaments in Reno every year from 2010 through 2018, except for
2017. Through a one-time agreement, the National Bowling Stadium hosted the USBC Open Tournament in Reno in 2011
and will host the USBC Open Tournament in 2014; usually off-years for Reno. Historically, these multi-month bowling
tournaments have attracted a significant number of visitors to the Reno market and have benefited business in the downtown
area, including Eldorado Reno. In 2010, the USBC Open Tournament attracted approximately 68,500 men and women
bowlers to the Reno area during the period from late-February through the end of June 2010. In 2011, the USBC Open
Tournament returned to the Reno market beginning in late February and continued through the end of June 2011. This
tournament brought approximately 62,300 bowlers to the Reno area during the 2011 tournament period. The USBC Women’s
Tournament will take place in Reno beginning in mid-April through early July 2012 and is expected to attract approximately
32,500 women bowlers.
Other Factors Affecting Results of Operations
Our operating results are highly dependent on the volume of customers visiting and staying at our resort. Key volume
indicators include table games drop and slot handle, which refer to amounts wagered by our customers. The amount of
volume we retain, which is not fully controllable by us, is recognized as casino revenues and is referred to as our win or hold.
36
In addition, hotel occupancy and price per room designated by average daily rate (“ADR”) are key indicators for our hotel
business.
Summary Financial Results
Year Ended December 31, 2011 Compared to the Year Ended December 31, 2010
The following table highlights the results of our operations (dollars in thousands):
Year Ended December 31,
2011
Net revenues
Operating expenses
Equity in losses of unconsolidated affiliates
Impairment of investment in Joint Venture
Operating (loss) income
Net loss attributable to the Company
$ 256,072
232,265
(3,695)
(33,066)
(13,074)
(24,213)
2010
Percent Change
$ 254,858
235,816
(3,899)
—
14,877
(6,004)
0.5%
(1.5%)
5.2%
(100.0%)
(187.9%)
(303.3%)
TI
A
L
Net Revenues. Net revenues were virtually unchanged for the year ended December 31, 2011 as decreases in casino
revenue at Eldorado Reno were offset by both increases in casino revenue at Eldorado Shreveport and overall increases in
food, beverage, entertainment and hotel revenues. The increase in casino revenue at Eldorado Shreveport resulted primarily
from improvement in its hold percentages as overall wagering increased only slightly in 2011 compared to the prior year.
EN
Equity in Losses of Unconsolidated Affiliates. Losses from the Company’s unconsolidated affiliates, the Silver Legacy
Joint Venture and Tamarack, decreased approximately $204,000 for the year ended December 31, 2011 as compared to 2010.
The 2011 decrease in equity in losses of the Silver Legacy Joint Venture was approximately $166,000 primarily as a result of
increased net revenues partially offset by increased operating expenses. Equity in the income of Tamarack for the year ended
December 31, 2011 increased approximately $38,000 due to increased revenues which more than offset the increase in
operating costs.
O
Revenues
N
FI
D
Operating (Loss) Income and Net Loss. In 2011, we experienced a reduction in operating income due primarily to a
$33.1 million impairment in the value of our investment in the Silver Legacy Joint Venture partially offset by decreased
operating expenses. Such operating expense decreases consisted primarily of reduced casino expenses resulting from
reduced marketing and event expenses and reductions in depreciation expense. Net loss increased in 2011 compared to the
prior year due to the factors negatively impacting operating income previously noted, partially offset by (i) $2.5 million in
gains realized on the early retirement of our prior and current debt obligations and (ii) $2.6 million in decreased interest
expense.
C
The following table highlights our sources of operating revenues (dollars in thousands):
Casino:
Eldorado Reno
Eldorado Shreveport
Total
Food, beverage and entertainment:
Eldorado Reno
Eldorado Shreveport
Total
Hotel:
Eldorado Reno
Eldorado Shreveport
Total
Year Ended December 31,
2011
2010
Percent Change
$ 59,164
142,089
201,253
$ 66,075
137,462
203,537
35,963
26,681
62,644
34,348
26,490
60,838
4.7%
0.7%
3.0%
17,614
8,933
26,547
16,982
9,309
26,291
3.7%
(4.0%)
1.0%
37
(10.5%)
3.4%
(1.1%)
Other:
Eldorado Reno
Eldorado Shreveport
Total
Promotional allowances:
Eldorado Reno
Eldorado Shreveport
Total
3,242
3,783
7,025
3,179
3,181
6,360
2.0%
18.9%
10.5%
(14,657)
(26,740)
(41,397)
(16,392)
(25,776)
(42,168)
10.6%
(3.7%)
1.8%
TI
A
L
Casino Revenues. Consolidated casino revenues decreased by 1.1% during 2011 compared to 2010. The decrease in
such revenues at Eldorado Reno of 10.5% was due to a lower table games hold percentage together with a 3.9% decrease in
slot handle and a 6.1% decrease in table games drop as compared to 2010. In 2010, the table games hold percentage was
higher than average while in 2011, the table games hold percentage was lower than average. Table games credit play and
high end slot volume declined for the year ended December 31, 2011 compared to 2010. We believe these decreases were
associated with the previously discussed economic factors that continue to negatively influence the spending levels of our
customers. Casino revenues at Eldorado Shreveport increased in 2011 by 3.4%, attributable to a 7.1% increase in table game
drop coupled with increases in both the table games and slot machine hold percentages while slot coin-in remained basically
unchanged. Based on reports issued by the Louisiana Gaming Control Board, admissions and casino win in the local market
decreased by 6.2% and 3.8%, respectively, during 2011 compared to 2010. We believe the year-over-year decreases in the
market are attributable to the lingering effects of the economic recession.
N
FI
D
EN
Food, Beverage and Entertainment Revenues. Consolidated food, beverage and entertainment revenues increased by
3.0% for the year ended December 31, 2011 as compared to 2010. The more significant increase occurred at Eldorado Reno,
primarily due to increased beverage and entertainment revenues. Beverage revenues increased 13.6% due to increased
promotions attracting more customers in Brew Brothers and to the openings of the BuBinga nightclub in March 2011 and a
new bar on the casino floor in May 2011. Entertainment revenues increased 14.7% due to increased ticket sales as a result of
increased occupancy in the Eldorado Reno showroom in 2011. Restaurant revenues decreased 0.8% in 2011 compared to
2010 due to a 0.8% decrease in customer counts. Food, beverage and entertainment revenues increased slightly at Eldorado
Shreveport for the year ended December 31, 2011 as compared to 2010 as a result of increased restaurant revenues.
O
Hotel Revenues. Consolidated hotel revenues did not change significantly during 2011 compared to 2010. Hotel
revenues at Eldorado Reno increased due to higher hotel occupancy of approximately 83.4% in 2011 compared to 83.0% in
2010. The hotel ADR was approximately $64 in 2011 compared to $63 in 2010. Other hotel revenues at Eldorado Reno
increased as we increased our resort fee from $3 to $5 effective September 2010. Hotel revenues at Eldorado Shreveport
decreased by 4.0% due to a reduction in the occupancy rate to 92.0% in 2011 from 93.3% in 2010 and a decline in the ADR
to $66 in 2011 from $68 in 2010.
C
Other Revenues. Other revenues are comprised of revenues generated by our retail outlets and other miscellaneous
items. Other revenues at Eldorado Reno increased by 2.0% during the year ended December 31, 2011 compared to the prior
year primarily due to higher ATM commission revenues. Other revenues increased by 18.9% at Eldorado Shreveport during
2011 compared to 2010 due to higher ATM commission revenues and retail sales, partially offset by lower tobacco sales.
Promotional Allowances. Consolidated promotional allowances, expressed as a percentage of casino revenues, improved
slightly to 20.6% in 2011 compared to 20.7% in 2010. The overall amount of promotional allowances decreased by 1.8%, as
decreases in such costs at Eldorado Reno were partially offset by increases at Eldorado Shreveport. Management at
Eldorado Reno is actively reviewing the effectiveness of promotions, and consequently eliminating or reducing less
profitable promotions. The increase in promotional activities at Eldorado Shreveport reflects, in part, our efforts to increase
the property’s share of the Shreveport/Bossier City gaming market. During the year ended December 31, 2011, Eldorado
Shreveport experienced an increase of 0.6% in its combined table drop and slot handle compared to 2010 in a gaming market
that experienced an overall decline of 6.2% as measured by admissions.
38
Operating Expenses
The following table highlights our operating expenses (dollars in thousands):
Year Ended December 31,
2011
2010
Selling, general and administrative
Management fee
Depreciation and amortization
$ 41,041
82,703
123,744
25,125
6,701
31,826
23,516
6,524
30,040
6.8%
2.7%
5.9%
6,847
1,019
7,866
6,431
1,058
7,489
6.5%
(3.7%)
5.0%
TI
A
2,832
1,492
4,324
L
$ 35,361
85,189
120,550
EN
Casino:
Eldorado Reno
Eldorado Shreveport
Total
Food, beverage and entertainment:
Eldorado Reno
Eldorado Shreveport
Total
Hotel:
Eldorado Reno
Eldorado Shreveport
Total
Other:
Eldorado Reno
Eldorado Shreveport
Total
Percent Change
47,319
600
19,780
(13.8%)
3.0%
(2.6%)
2,702
1,280
3,982
4.8%
16.6%
8.6%
48,001
120
22,440
(1.4%)
400.0%
(11.9%)
N
FI
D
Casino Expenses. Casino expenses at Eldorado Reno decreased in 2011 as compared to 2010 primarily due to decreases
in bad debt expense, gaming taxes, marketing expenses and decreased promotional allowances related to the cost of rooms,
food and retail complimentaries allocated to the casino department. Casino expenses at Eldorado Shreveport increased by
$2.5 million, or 3.0%, during 2011 compared to 2010 as a result of higher gaming taxes reflecting increases in gaming
revenues and increased promotional allowances related to the cost of rooms, food retail and spa complimentaries allocated to
the casino department.
C
O
Food, Beverage and Entertainment Expenses. For the year ended December 31, 2011, food, beverage and entertainment
expenses at Eldorado Reno increased primarily as a result of increases in beverage payroll expenditures, beverage cost of
sales and operating expenses associated with the aforementioned opening of the BuBinga nightclub. Eldorado Reno opened
a new dining venue, relocated another dining venue and opened a new casino bar in May 2011, all of which increased
operating expenses. Food, beverage and entertainment expenses increased slightly at Eldorado Shreveport during the year
ended December 31, 2011 compared to 2010.
Hotel Expenses. For the year ended December 31, 2011, hotel expenses at Eldorado Reno increased by 6.5% due to
increased occupancy levels. For the year ended December 31, 2011, hotel expenses at Eldorado Shreveport decreased by
$39,000 due to decreases in payroll expenditures associated with reduced occupancy levels as reflected in the decrease in its
occupancy percentage from 93.3% in 2010 to 92.0% in 2011.
Other Expenses. Other expenses increased $130,000 for the year ended December 31, 2011 as compared to 2010 due to
costs associated with the new retail outlet at Eldorado Reno that opened in June 2010. Other expenses at Eldorado
Shreveport increased 16.6% for the year ended December 31, 2011 primarily due to the increase in cost of goods sold
associated with improved retail sales.
Selling, General and Administrative Expenses and Management Fees. For the year ended December 31, 2011, as
compared to 2010, selling, general and administrative expenses decreased slightly, primarily due to decreases in utility
expenses, real property taxes, and travel and entertainment expenses. Historically, the Company pays management fees to
Recreational Enterprises, Inc. and Hotel Casino Management, Inc., the owners of 47% and 25% of the Company’s equity
interests, respectively. The Company paid management fees of $600,000 during 2011 compared to $120,000 in 2010. In
39
connection with the refinancing of our debt obligations in June 2011, the management agreement was amended which,
among other things, placed a maximum management fee payment allowed at $600,000 annually.
Depreciation and Amortization Expense. Depreciation expense decreased for the year ended December 31, 2011 as
more assets became fully depreciated.
Interest Expense
For the year ended December 31, 2011, interest expense decreased by approximately $2.6 million, or 12.4%, to $18.5
million compared to $21.1 million for 2010. The decrease is due to the reduction in our interest rate for borrowings as a
result of the June 1, 2011 refinancing of our long-term debt obligations.
Gain on Early Retirement of Debt, net
We recognized a $1.6 million net gain on the retirement of our previously outstanding debt obligations during the second
quarter of 2011 as a result of a $2.9 million gain on the retirement of the 9% Senior Notes due April 15, 2014 co-issued by
Resorts and Capital (the “9% Senior Notes”) and a $1.3 million loss on the retirement of the $155.6 million principal amount
of 10% First Mortgage Notes due 2012 co-issued by the Louisiana Partnership and Shreveport Capital (the “Shreveport
Notes”).
TI
A
L
During the third and fourth quarters of 2011, we purchased and retired $10.0 million principal amount of our Senior
Secured Notes utilizing available excess cash. The total purchase price of the Senior Secured Notes was $8.7 million plus
accrued interest which, after the write off of the associated bond offering costs of $0.4 million, resulted in a gain on early
retirement of debt in the amount of $0.9 million.
Year Ended December 31, 2010 Compared to the Year Ended December 31, 2009
EN
The following table highlights the results of our operations (dollars in thousands):
Year Ended December 31,
N
FI
D
2010
Net revenues
Operating expenses
Equity in losses of unconsolidated affiliates
Operating income
Net loss attributable to the Company
$ 254,858
235,816
(3,899)
14,877
(6,004)
2009
Percent Change
$ 263,656
241,613
(1,218)
19,723
(1,348)
(3.3%)
2.4%
(220.1%)
(24.6%)
(345.4%)
C
O
Net Revenues. Net revenues decreased by 3.3% for the year ended December 31, 2010 compared to the prior year as
decreases in casino revenue at both Eldorado Reno and Eldorado Shreveport were only slightly offset by an increase in hotel
revenues. The decline in casino revenues is attributable to significant decreases in gross wagering at both properties, partially
offset by improved hold percentages.
Equity in Losses of Unconsolidated Affiliates. Earnings from the Company’s unconsolidated affiliates, the Silver Legacy
Joint Venture and Tamarack, decreased approximately $2.7 million for the year ended December 31, 2010 as compared to
2009. The increase in equity in losses of the Silver Legacy Joint Venture was approximately ($2.4) million for the year
ended December 31, 2010, primarily from our $2.8 million share of the joint venture’s gain on the retirement of $17.2 million
of its debt in 2009 for which there was no corresponding gain in 2010. The Silver Legacy Joint Venture’s operating income
increased slightly in 2010 compared to the prior year as the decrease in its net revenues was more than offset by the decrease
in its operating expenses. Equity in income in Tamarack for the year ended December 31, 2010 decreased approximately
$0.2 million due to decreased revenues and increased operating expenses.
Operating Income and Net Loss. For the year ended December 31, 2010 as compared to 2009, we experienced a
decrease in operating income and an increase in net loss primarily due to the aforementioned decreases in net revenues and
equity in losses of unconsolidated affiliates partially offset by a decrease in operating expenses.
40
Revenues
The following table highlights our sources of operating revenues (dollars in thousands):
Year Ended December 31,
2010
2009
$ 71,363
143,059
214,422
(7.4%)
(3.9%)
(5.1%)
34,348
26,490
60,838
33,781
27,079
60,860
1.7%
(2.2%)
—%
16,982
9,309
26,291
16,137
8,926
25,063
5.2%
4.3%
4.9%
3,330
3,491
6,821
(4.5%)
(8.9%)
(6.8%)
(15,786)
(27,724)
(43,510)
(3.8%)
7.0%
3.1%
TI
A
3,179
3,181
6,360
L
$ 66,075
137,462
203,537
(16,392)
(25,776)
(42,168)
EN
Casino:
Eldorado Reno
Eldorado Shreveport
Total
Food, beverage and entertainment:
Eldorado Reno
Eldorado Shreveport
Total
Hotel:
Eldorado Reno
Eldorado Shreveport
Total
Other:
Eldorado Reno
Eldorado Shreveport
Total
Promotional allowances:
Eldorado Reno
Eldorado Shreveport
Total
Percent Change
O
N
FI
D
Casino Revenues. Consolidated casino revenues decreased by 5.1% during 2010 compared to 2009. For the year ended
December 31, 2010 as compared to the prior year, Eldorado Reno’s casino revenues decreased primarily due to 10.2% and
7.6% decreases, respectively, in slot handle and table games drop as compared to 2009, which resulted in $5.1 million and
$1.5 million of decreased casino revenues, respectively. These revenue decreases were partially offset by higher table games
and slot machine hold percentages in 2010. Historically, the USBC Open Tournament attracts table games players, which
held true in 2010, and as a result had a positive impact on table games volume. While table games cash play benefited from
the traffic generated by the bowlers, table games credit play and high end slot volume significantly declined for the year
ended December 31, 2010 compared to the year ended December 31, 2009, which benefited from the USBC Women’s
Tournament. We believe these decreases were associated with the previously discussed economic factors which continue to
negatively influence the spending levels of our customers.
C
Casino revenues at Eldorado Shreveport decreased in 2010 by 3.9%, attributable to a 6.8% decrease in table game drop
and a 7.0% decrease in slot coin-in coupled with a decrease in the table games hold percentage and partially offset by an
increase in the slot machine hold percentage. Based on reports issued by the Louisiana Gaming Control Board, admissions
and casino win in the local market decreased by 3.7% and 2.3%, respectively, during 2010 compared to 2009. We believe
the year-over-year decreases in the market are attributable to the lingering effects of the economic recession.
Food, Beverage and Entertainment Revenues. Consolidated food, beverage and entertainment revenues were virtually
unchanged for the year ended December 31, 2010 as compared to 2009. Food, beverage and entertainment revenues at
Eldorado Reno increased for the year ended December 31, 2010 as compared to 2009, primarily due to increased food and
beverage revenues. Food revenues increased in 2010 due to restaurant customer counts increasing by 2.9% while the average
check remained flat. Beverage revenues increased 4.7% due to increased promotions attracting more customers in Brew
Brothers. Food, beverage and entertainment revenues decreased slightly at Eldorado Shreveport for the year ended
December 31, 2010 as compared to 2009 as a result of decreased restaurant revenues.
Hotel Revenues. Consolidated hotel revenues increased by 4.9% during 2010 compared to 2009. Hotel revenues at
Eldorado Reno increased due to increases in our ADR and hotel occupancy percentage to approximately $63 and 83.0%,
respectively, compared to approximately $61 and 81.3%, respectively, in 2009. We were able to sustain a higher ADR and
hotel occupancy percentage in 2010 as a result of efforts to elevate room rates via effective rate yield management, email
promotional campaigns targeted at slower booking periods and, during the first and second quarters, demand created by the
additional bowler room nights. Hotel revenues at Eldorado Shreveport increased due to an increase in the ADR to $68 in
41
2010 from $66 in 2009 partially offset by a reduction in the occupancy rate to 93.3% in 2010 from 94.4% in 2009. In
addition, during the fourth quarter of 2009, approximately 35 to 40 rooms were out of service due to renovations, reducing
the amount of hotel revenues realized.
Other Revenues. Other revenues are comprised of revenues generated by our retail outlets and other miscellaneous
items. Other revenues at Eldorado Reno decreased by 4.5% during the year ended December 31, 2010 compared to the prior
year primarily due to higher ATM commission revenues. Other revenues decreased by 8.9% at Eldorado Shreveport during
2010 compared to 2009 reflecting decreases in retail, tobacco and miscellaneous revenues resulting from both lower patron
volumes and the reduced use of complimentaries.
L
Promotional Allowances. Consolidated promotional allowances, expressed as a percentage of casino revenues, increased
to 20.7% during 2010 compared to 20.3% during 2009. The overall amount of promotional allowances decreased by 3.1%,
as decreases in such costs at Eldorado Shreveport were partially offset by increases at Eldorado Reno. For the year ended
December 31, 2010, promotional allowances at Eldorado Reno, expressed as a percentage of casino revenues, were 24.8%
compared to 22.1% in 2009. Promotional allowances increased in 2010 as a result of free room offers to our casino guests
during events and an increased direct mail campaign. The decrease in promotional activities at Eldorado Shreveport reflects
decreases in food, beverage and entertainment and retail complimentaries from the continuing refinement of our marketing
programs. Management at Eldorado Shreveport is actively reviewing the effectiveness of promotions, and consequently
eliminating or reducing less profitable promotions.
TI
A
Operating Expenses
The following table highlights our operating expenses (dollars in thousands):
Percent Change
$ 41,041
82,703
123,744
$ 41,878
87,372
129,250
23,516
6,524
30,040
22,899
6,029
28,928
2.7%
8.2%
3.8%
6,431
1,058
7,489
6,307
1,334
7,641
2.0%
(20.7%)
(2.0%)
2,702
1,280
3,982
2,566
1,275
3,841
5.3%
0.4%
3.7%
48,001
120
22,440
48,021
—
23,932
C
O
N
FI
D
Casino:
Eldorado Reno
Eldorado Shreveport
Total
Food, beverage and entertainment:
Eldorado Reno
Eldorado Shreveport
Total
Hotel:
Eldorado Reno
Eldorado Shreveport
Total
Other:
Eldorado Reno
Eldorado Shreveport
Total
EN
Year Ended December 31,
2010
2009
Selling, general and administrative
Management fee
Depreciation and amortization
(2.0%)
(5.3%)
(4.3%)
(—%)
100.0%
(6.2%)
Casino Expenses. Casino expenses at Eldorado Reno decreased for the year ended December 31, 2010 primarily due to
decreases in gaming taxes, bad debt expense and payroll expenditures. These reductions were partially offset by increased
customer discounts, higher group health insurance and the redemption of complimentaries by our casino customers as we
provided more promotional offers in 2010 in order to drive business. Casino expenses at Eldorado Shreveport decreased by
$4.7 million, or 5.3%, during 2010 compared to 2009 as a result of lower gaming taxes reflecting decreases in gaming
revenues and reduced marketing expenses, which are included in casino expenses. Reductions in cash coupons, special
events, customer development costs, television and radio advertising and patron transportation costs were partially offset by
increases in giveaways and print advertising. The decrease in marketing expenses reflects the ongoing refinement of our
marketing programs in response to patron trends. The remaining decrease in casino expenses at Eldorado Shreveport resulted
from reductions in payroll and related payroll costs.
42
Food, Beverage and Entertainment Expenses. For the year ended December 31, 2010, food, beverage and entertainment
expenses at Eldorado Reno increased primarily as a result of increased cost of sales associated with increased restaurant
customer counts and increased liquor costs along with higher group health insurance. Entertainment expenses decreased
slightly in 2010 as the result of having less expensive shows. Food, beverage and entertainment expenses increased at
Eldorado Shreveport during the year ended December 31, 2010 compared to 2009 primarily due to higher food costs.
Hotel Expenses. For the year ended December 31, 2010, hotel expenses at Eldorado Reno increased primarily due to an
increase in laundry expense as a result of providing higher quality linens and towels to our guests, including triple sheeting
our beds, which resulted in an increase in the amount of bed linen being laundered, along with increased sales and marketing
expenses associated with hotel promotions and higher group health insurance. For the year ended December 31, 2010, hotel
expenses at Eldorado Shreveport decreased by $276,000 due to the realization of certain operating efficiencies combined with
decreases in payroll expenditures associated with reduced occupancy levels as reflected in the decrease in our occupancy
percentage from 94.4% in 2009 to 93.3% in 2010.
Other Expenses. Other expenses at Eldorado Reno increased for the year ended December 31, 2010 as compared to the
prior year, primarily due to the opening of a new retail outlet in June 2010. Other expenses at Eldorado Shreveport did not
change significantly for the year ended December 31, 2010 compared to the prior year period.
TI
A
L
Selling, General and Administrative Expenses and Management Fees. For the year ended December 31, 2010, as
compared to 2009, selling, general and administrative expenses did not change significantly.
EN
Management Fee. Historically, the Company pays management fees to Recreational Enterprises, Inc. and Hotel Casino
Management, Inc., the owners of 47% and 25% of the Company’s equity interests, respectively. In 2010, a management fee
of $120,000 was paid to Recreational Enterprises, Inc. No management fee was paid for the year ended December 31, 2009.
By agreement, these fees may not exceed 1.5% of the Company’s annual net revenues.
Depreciation and Amortization Expense. Depreciation expense decreased for the year ended December 31, 2010 as
more assets became fully depreciated.
N
FI
D
Interest Expense
For the year ended December 31, 2010, interest expense decreased slightly by approximately $0.2 million, or 1.0%, to
$21.1 million compared to $21.3 million for 2009.
Other Expense
O
In the fourth quarter of 2009, the Company exercised the warrants relating to the MindPlay settlement agreement with
Bally’s and sold the shares so acquired and recorded income resulting from such exercise and sale of $101,000.
C
Supplemental Unaudited Presentations of Consolidated Earnings before Interest, Taxes, Depreciation and
Amortization (“EBITDA”) and Adjusted EBITDA For the Years ended December 31, 2011, 2010 and 2009
EBITDA is defined as earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA is defined as
earnings before interest, taxes, depreciation, amortization, and other non-operating income (expense), such as impairment of
investment in joint venture, equity or loss of unconsolidated affiliates and gain or loss on the disposition of assets. EBITDA
and Adjusted EBITDA are presented solely as supplemental disclosure because we believe that they are widely utilized by,
and are presented to assist, investors in understanding our performance and operating results. Adjusted EBITDA is not
intended to represent cash flow from operations as defined by U.S. generally accepted accounting principles (“GAAP”), and
is not necessarily indicative of cash available to fund cash flow needs. While we believe certain items excluded from
Adjusted EBITDA may be recurring in nature and should not be disregarded in evaluation of the Company’s performance, it
is useful to exclude such items when analyzing current results and trends compared to other periods because these items can
vary significantly depending on specific underlying transactions or events that may not be comparable between the periods
presented. Also, we believe excluded items may not relate specifically to current operating trends or be indicative of future
results. Furthermore, Adjusted EBITDA should not be considered as an alternative to net income under GAAP for purposes
of evaluating our results of operations. The Company’s calculation of Adjusted EBITDA may be different from the
calculation methods used by other companies and may not be comparable to similar non-GAAP financials measures
presented by other issuers. Therefore, comparability may be limited.
43
The reconciliation between net loss, EBITDA and Adjusted EBITDA for the Company on a consolidated basis is as
follows for the periods indicated:
Year Ended December 31,
2010
(unaudited)
(dollars in thousands)
Net loss attributable to the Company
Interest expense
Interest income
Depreciation and amortization
$ (24,213)
18,457
(12)
19,780
EBITDA
14,012
Impairment of investment in joint venture
Gain on early retirement of debt, net
Net loss attributable to noncontrolling interest
Equity in losses of unconsolidated affiliates
Loss on sale/disposition of long-lived assets
33,066
(2,499)
(4,807)
3,695
120
$ 43,587
37,500
—
—
(183)
3,899
266
$ 41,482
TI
A
Adjusted EBITDA
$ (6,004)
21,065
(1)
22,440
L
2011
Liquidity and Capital Resources
2009
$
(1,348)
21,263
(1)
23,932
43,846
—
—
(90)
1,218
1,102
$ 46,076
EN
The Company’s primary sources of liquidity and capital resources have been through cash flow from operations,
borrowings under various credit agreements and, where necessary, the issuance of debt obligations.
Cash Flows
N
FI
D
At December 31, 2011, we had $30.2 million of cash and cash equivalents. During the year ended December 31, 2011,
we generated cash flows from operating activities of $21.2 million as compared to $25.2 million in 2010. The 2011 amount
was comprised primarily of (1) net loss of $29.0 million; (2) non-cash reconciling items of $51.5 million, primarily due to
$33.1 million of impairment of investment in joint venture and $20.4 million in depreciation and amortization, offset by $2.4
million in gain on the retirement of debt; (3) losses of unconsolidated affiliates of $3.7 million; (4) net decreases in current
and other liability accounts and increases in current asset accounts aggregating ($6.0) million; and (5) distributions received
from unconsolidated affiliates of $1.0 million.
C
O
Net cash flows used in investing activities totaled ($7.7) million during 2011 compared to ($8.4) million for 2010. Net
cash flows used in investing activities during 2011 included ($7.9) million for capital expenditures, net of less than $0.1
million in proceeds realized from the disposition of assets and $0.1 million cash realized from other assets.
Net cash flows used in financing activities during 2011 amounted to ($31.4) million as compared to an insignificant
amount of cash provided by financing activities 2010. Net repayments of long-term debt resulting from the refinancing of
our debt obligations amounted to ($10.9) million and additionally required the payment of debt issue costs amounting to
($7.3) million. In addition we paid ($8.7) million during the third and fourth quarters of 2011 to retire $10.0 million of our
Senior Secured Notes and made scheduled payments of ($2.5) million on our New Credit Facility (see below). Other
financing activity expenditures included the repayment of capital lease obligations of ($0.4) million and net cash distributions
of ($1.6) million.
Insurance Programs
In July 2011, we renewed our property and liability insurance policies each covering a 12-month period. Under these
policies, Eldorado Reno and the Silver Legacy have combined per occurrence earthquake coverage of $186 million and
combined aggregate flood coverage of $250 million. In the event that an earthquake causes damage only to Eldorado Reno’s
property, Eldorado Reno is eligible to receive up to $186 million in coverage, depending on the replacement cost. However,
in the event that both properties are damaged, Eldorado Reno is entitled to receive, to the extent of any replacement cost
incurred, any portion of the $186 million remaining after satisfaction of the claim of the Silver Legacy with respect to its
property. In the event that a flood causes damage only to Eldorado Reno’s property, Eldorado Reno is eligible to receive up
to $250 million in coverage, depending on the replacement cost. However, in the event that both properties are damaged,
44
Eldorado Reno is entitled to receive, to the extent of any replacement cost incurred, up to $109 million of the coverage
amount (based on our percentage of the total reported property values) and the portion of the other $141 million, if any,
remaining after satisfaction of the claim of the Silver Legacy with respect to its property. Eldorado Shreveport is eligible to
receive up to $100 million of flood coverage independently and irrespective of any losses at the other properties.
Our insurance policy also includes combined terrorism coverage for Eldorado Reno and the Silver Legacy up to $800
million. In the event that an act of terrorism causes damage only to Eldorado Reno’s property, Eldorado Reno is eligible to
receive up to $800 million in coverage, depending on the replacement cost. However, in the event that both properties are
damaged, Eldorado Reno is entitled to receive, to the extent of any replacement cost incurred, up to $350 million of the
coverage amount (based on our percentage of the total reported property values) and the portion of the other $450 million, if
any, remaining after satisfaction of the claim of the Silver Legacy. This policy also covers Eldorado Shreveport. In the event
that an act of terrorism causes damage to Eldorado Reno, Silver Legacy and Eldorado Shreveport, Eldorado Reno is entitled
to receive, to the extent of any replacement cost incurred, up to $273 million of the coverage amount (based on our
percentage of the total reported property values) and the portion of the other $527 million, if any, remaining after satisfaction
of the claims of the other two properties.
Capital Expenditures
TI
A
L
We spent approximately $7.9 million during 2011 for slot machine purchases, hotel suite remodeling, hotel check in
renovations, remodel of the BuBinga Lounge nightclub, a new casino bar, a new dining venue and relocation of another
dining venue. We are planning to spend approximately $9.8 million during 2012, including $4.0 million at Eldorado Reno,
primarily for slot machine purchases, exterior improvements and hotel improvements, and $5.8 million at Eldorado
Shreveport for, among other things, a buffet remodel and the purchase of new slot machines.
EN
In addition, pursuant to, and subject to the terms of, the Restructuring Support Agreement for the restructuring of the
Silver Legacy Notes, the Company has agreed to use its reasonable best efforts to support and complete a restructuring of the
Silver Legacy Notes on the terms set forth in the Restructuring Support Agreement. The terms of the Restructuring Support
Agreement contemplate that ELLC will contribute an additional $7.5 million to the capital of the Silver Legacy Joint Venture
in connection with the consummation of the Restructuring.
O
Senior Secured Notes
N
FI
D
Our future sources of liquidity are anticipated to be from our operating cash flow, capital lease financing for certain fixed
asset purchases and funds available from our credit facility. Available funds from our credit facility are subject to debt
covenants (see “New Credit Facility” below). We believe our capital resources are adequate to meet our obligations,
including the funding of our debt service and recurring capital expenditures, for the foreseeable future. We cannot provide
assurance, however, that we will generate sufficient income and liquidity to meet all of our liquidity requirements or other
obligations.
C
On June 1, 2011, we completed the issuance of $180 million of 8.625% Senior Secured Notes due June 15, 2019.
Proceeds from the Senior Secured Notes, together with borrowings under the New Credit Facility (see below), were used to
redeem or otherwise retire the previously outstanding Shreveport Notes (see below), the 9% Senior Notes (see below) and the
Preferred Equity Interest (see below). We recognized a $1.6 million gain on the retirement of our previously outstanding
debt obligations during the second quarter of 2011 as a result of a $2.9 million gain on the retirement of the 9% Senior Notes
and a $1.3 million loss on the retirement of the Shreveport Notes. Interest on the Senior Secured Notes is payable
semiannually each June 15 and December 15 (commencing on December 15, 2011) to holders of record on the preceding
June 1 or December 1, respectively.
The indenture relating to the Senior Secured Notes contains various restrictive covenants including covenants imposing
limitations on additional debt, restricted payments and investments, additional liens, transactions with affiliates, dispositions
of property, mergers and similar transactions. As of December 31, 2011, the Company was in compliance with all of the
covenants under the indenture relating to the Senior Secured Notes.
The Senior Secured Notes are unconditionally guaranteed, jointly and severally, by all of our current and future domestic
restricted subsidiaries other than Capital (collectively, the “Guarantors”). ELLC is the only unrestricted subsidiary as of the
closing date. The Silver Legacy Joint Venture and Tamarack are not subsidiaries and did not guarantee the Senior Secured
Notes. The Senior Secured Notes are secured by a first priority security interest in substantially all of our current and future
assets (other than certain excluded assets, including gaming licenses and our interests in ELLC, the Silver Legacy Joint
Venture and Tamarack). Such security interests are junior to the security interests with respect to obligations of Resorts and
45
the Guarantors under the New Credit Facility. In addition, all of the membership interests in Resorts and equity interests in
the Guarantors are subject to a pledge for the benefit of the holders of the Senior Secured Notes.
Prior to June 15, 2014, we may redeem up to 35% of the Senior Secured Notes at a redemption price equal to 108.625%
of the principal amount due plus accrued and unpaid interest with the proceeds from certain equity offerings. We may also
redeem some or all of the Senior Secured Notes prior to June 15, 2015 at a redemption price of 100% plus a “make whole
premium” together with accrued and unpaid interest. Not more than once in each twelve-month period ended June 15, 2012,
2013 and 2014, we may redeem up to 10% of the Senior Secured Notes at a purchase price of 103% of the principal amount
due plus accrued and unpaid interest. On or after June 15, 2015, we may redeem the Senior Secured Notes at the following
redemption prices (expressed as a percentage of principal amount) plus any accrued and unpaid interest:
Percentage
104.313%
102.156%
100.000%
Year beginning June 15,
2015
2016
2017 and thereafter
L
During the third and fourth quarters of 2011, we purchased and retired $10.0 million principal amount of our Senior
Secured Notes utilizing available excess cash. The total purchase price of the Senior Secured Notes was $8.7 million plus
accrued interest which, after the write off of the associated bond offering costs of $0.4 million, resulted in a net gain on early
retirement of debt in the amount of $0.9 million.
TI
A
Shreveport Notes and 9% Senior Notes
New Credit Facility
N
FI
D
EN
On May 16, 2011, we commenced tender offers for any and all of the Shreveport Notes and the 9% Senior Notes and a
solicitation of consents of holders of such notes to proposed amendments to their respective governing indentures. The
purpose of the proposed amendments was, among other things, to eliminate substantially all of the restrictive covenants and
certain events of default contained in the indentures. Holders of approximately 93% of the outstanding principal amount of
the Shreveport Notes agreed to tender their notes in the tender offer. On August 1, 2011, the remaining 7% of Shreveport
Notes that were not tendered in the tender offer were redeemed at a redemption price equal to 100% of the principal amount
thereof plus accrued and unpaid interest with proceeds from the issuance of the Senior Secured Notes. The Company utilized
restricted cash in the amount of $9.7 million which was set aside with the trustee at June 1, 2011 to redeem the remaining
Shreveport Notes. All of the holders of the outstanding principal amount of the 9% Senior Notes agreed to tender their notes
in the tender offer.
C
O
On June 1, 2011, we entered into a new $30 million senior secured revolving credit facility (the “New Credit Facility”)
available until June 30, 2014 consisting of a $15 million term loan requiring principal payments of $1.25 million each quarter
beginning September 30, 2011 (the “Term Loan”) and a $15 million revolving credit facility. Mandatory prepayments of
principal will also be required from 100% of the net cash proceeds of asset sales (as defined), the issuance or incurrence of
additional debt and the receipt of certain tax refunds, insurance proceeds and condemnation awards, with such prepayments
being applied first to the outstanding Term Loan balance, if any, followed by the revolving credit facility. Borrowings under
the New Credit Facility bear interest, at our option, at either (1) a “Base Rate”, defined to be the greater of (a) the rate
publicly announced from time to time by Bank of America as its “Prime Rate,” (b) the Federal Funds Rate plus .50% per
annum or (c) LIBOR plus 1.0% per annum or (2) a “Eurodollar Rate” of LIBOR plus 1.0% per annum. Both the Base Rate
and Eurodollar Rate are further increased by an “Applicable Rate”, as defined in the credit facility, which ranges from .50%
to 2.0% per annum for Base Rate borrowings and from 1.5% to 3.0% per annum for Eurodollar Rate borrowings, the rate to
be determined based on the most recent “Consolidated Leverage Ratio” (as defined) maintained by us. The term of
Eurodollar Rate loans may be one, two, three or six months as selected by the Company. Interest for each Base Rate loan is
payable as the end of the respective quarter. Interest for each Eurodollar Rate loan is payable on the last day of the loan,
provided, however, that if the period exceeds three months, the interest will be payable on the respective dates that fall every
three months after the beginning of the loan period. The interest period cannot exceed the maturity date of the credit facility
for either a Base Rate loan or a Eurodollar Rate loan. In addition, we will pay a commitment fee on our borrowing capacity
under the New Credit Facility not being utilized in the amount of .50% per annum for periods when our Consolidated
Leverage Ratio is less than or equal to three to one and .75% per annum otherwise. As of December 31, 2011, there was no
indebtedness on the revolving credit facility and $12.5 million outstanding indebtedness on the Term Loan. The effective
rate of interest on borrowings under the Term Loan was 3.30% as of December 31, 2011.
The New Credit Facility is subject to various restrictive loan covenants including those requiring the maintenance of
certain financial ratios and covenants imposing limitations on additional debt, dispositions of property, the payment of
46
dividends and distributions, transactions with affiliates, mergers and similar transactions and a limitation on the annual
amount expended on capital expenditures. As of December 31, 2011, we were in compliance with all of such covenants
pertaining to the New Credit Facility.
Borrowings under the New Credit Facility are unconditionally guaranteed, jointly and severally, by all of our current and
future subsidiaries other than ELLC. The Silver Legacy Joint Venture and Tamarack are not subsidiaries and did not
guarantee borrowings under the New Credit Facility. The New Credit Facility is secured by a first priority security interest in
substantially all of our current and future assets (other than certain excluded assets including gaming licenses and our
interests in ELLC, the Silver Legacy Joint Venture and Tamarack). Such security interests are senior to the security interests
with respect to our obligations under the Senior Secured Notes (see above).
The New Credit Facility replaced an existing credit facility which matured February 28, 2011 and was not renewed. As
of December 31, 2011, there was no indebtedness under the credit facility and we were in compliance with all of the
covenants under the credit facility.
Preferred Equity Interest
TI
A
L
On July 21, 2005, Shreveport Gaming Holdings, Inc., an unaffiliated Delaware corporation (“SGH”), acquired a 25%
non-voting partnership equity interest and a $20 million preferred equity interest, due 2013, in the Louisiana Partnership. On
July 22, 2005, ES#1 converted 55,006 shares of the common stock of SGH into (i) a 1.4% non-voting partnership interest in
the Louisiana Partnership (reducing SGH’s interest to 23.6%) and (ii) the right to distributions by the Louisiana Partnership
in respect of $1.12 million of the preferred equity interests of SGH (reducing the amount retained by SGH to $18.88 million).
During March 2008, the Louisiana Partnership exercised an available call option and acquired all of SGH’s remaining 23.6%
non-voting partnership interest. The preferred equity interest was retired in June 2011 with a portion of the proceeds from
the Senior Secured Notes and Term Loan.
EN
Commitments and Contingencies
N
FI
D
The operating agreement of HoldCo dated April 1, 2009 obligates HoldCo, 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
HoldCo multiplied by the highest marginal combined Federal, state and local income tax rate applicable to individuals for
that year. In 2011 and 2010, distributions of $1.7 million and $325,000, respectively, were made by Resorts to HoldCo and,
in turn, by HoldCo to its members for the members’ Louisiana partnership composite tax. No tax or other distributions were
made to the members of HoldCo or Resorts in 2009.
C
O
Under the terms of HoldCo’s operating agreement, at any time after the occurrence of a “Material Event” (as defined) or
at any time after June 14, 2015 (the “Trigger Date”) NGA AcquisitionCo or its permitted assignee(s) (the “Interest Holder”)
will have the right to sell (“Put”) all but not less than all of its 14.47% interest in HoldCo (the “14.47% Interest”) and HoldCo
will have the right to purchase (“Call”) all but not less than all of the Interest Holders’ 17.0359% interest in HoldCo (the
“17.0359% Interest”), at a price equal to the fair market value of the interest being acquired without discounts for minority
ownership and lack of marketability, as determined by mutual agreement of the Interest Holder and HoldCo or, in the event
that after 30 days the Interest Holder and HoldCo have not mutually agreed on a purchase price, then at the purchase price
determined by the average of two appraisals by nationally recognized appraisers of private companies, provided the two
appraisals are within a 5% range of value based upon the lowest of the two appraisals. If the two appraisals are not within the
5% range, the purchase price will be determined by the average of a third mutually acceptable, independent, nationally
recognized appraiser of private companies and the next nearest of the first two appraisals unless the third appraisal is at the
mid-point of the first two appraisals, in which event the third appraisal will be used to established the fair market value. So
long as a Material Event has not occurred, the Interest Holder will have the right to unilaterally extend the Trigger Date for
up to two one-year extension periods. Upon exercise of either the Call or the Put, HoldCo’s operating agreement provides
that the transaction close within one year of the exercise of the right unless delayed for necessary approvals from applicable
gaming authorities.
As defined in HoldCo’s operating agreement, a “Material Event” for the purpose of allowing HoldCo to exercise the
right to Call the 17.0359% Interest means the loss, forfeiture, surrender or termination of a material license or finding of
unsuitability issued by one or more of the applicable gaming authorities with respect to the Interest Holder or any transferee
of the Interest Holder or any affiliate of the Interest Holder. If a Material Event occurs that permits HoldCo to exercise its
Call right prior to the Trigger Date, the Interest Holder will be obligated to provide carry back financing to HoldCo on terms
and conditions reasonably acceptable to HoldCo. If a Call is required or ordered by any applicable gaming authority, the Call
will be on the terms provided for in HoldCo’s operating agreement, unless other terms are required by any of the applicable
gaming authorities, in which event the Call will be on those terms.
47
As defined in HoldCo’s operating agreement, a “Material Event” for the purpose of allowing the Interest Holder to
exercise the right to Put the 14.43% Interest to HoldCo means the loss, forfeiture, surrender or termination of a material
license or finding of unsuitability by any applicable gaming authority with respect to HoldCo, or any affiliates of HoldCo
(other than the Interest Holder or its affiliates), including, but not limited to, Eldorado Reno, Eldorado Shreveport and Silver
Legacy.
Under the terms of a separate Put-Call Agreement, the Interest Holder is entitled, if it exercises its Put right under
HoldCo’s operating agreement, to require Donald L. Carano to purchase from it the portion of the 17.0359% Interest
acquired by the Interest Holder from Donald L. Carano. In that event, the purchase price payable by Donald L. Carano will
be the amount determined by multiplying the purchase price payable to the Interest Holder for the 14.47% Interest, as
determined in accordance with the terms of HoldCo’s operating agreement, by a fraction the numerator of which is the
percentage interest in HoldCo being sold to Donald L. Carano and the denominator of which is the percentage interest in
HoldCo being sold to HoldCo.
TI
A
L
Resorts is subject to certain covenants under the indenture relating to Senior Secured Notes that impose limitations on
Resorts. So long as these covenants are in effect, they may limit or prevent Resorts from taking one or more actions,
including but not limited to distributions to HoldCo or the consent to liens on the assets of Resorts, in the event the Interest
Holder exercises its Put right under HoldCo’s operating agreement or HoldCo exercises its Call right. Accordingly, one or
more then applicable covenants may, in effect, prohibit the purchase of the 14.47% Interest or the 17.0359% Interest unless
all of the actions required to accomplish such transaction, at the time it occurs, can be accomplished in accordance with such
covenant’s provisions or any non-compliance is waived by the holders of the Senior Secured Notes and/or the lenders under
our New Credit Facility or any future credit facility, as applicable. There can be no assurance that any waivers that may be
required to consummate a transaction can be obtained or that HoldCo will be able to eliminate any covenant restrictions by
the repayment of any indebtedness then owed to the creditors whom the covenants are intended to benefit or otherwise.
Contractual Commitments
EN
The following table summarizes our estimated contractual payment obligations, as of December 31, 2011 (in thousands).
Type of Contractual Obligation
N
FI
D
Interest
payments on
long-term
debt
$ 15,009
14,846
14,693
14,663
14,663
36,656
$ 110,530
Capital
Leases
$ 465
437
202
—
—
—
$ 1,104
Operating
Leases
$ 1,176
807
659
631
485
21,638
$ 25,396
Total
21,650
21,090
18,054
15,294
15,148
228,294
$ 319,530
$
C
2012
2013
2014
2015
2016
Thereafter
Total
O
Payment due by Period
Long-Term
Debt
Instruments
$ 5,000
5,000
2,500
—
—
170,000
$ 182,500
The repayment of our long-term debt, which consists of indebtedness evidenced by the Senior Secured Notes and
borrowings under the New Credit Facility, is subject to acceleration upon the occurrence of an event of default under their
respective indentures.
We routinely enter into operational contracts in the ordinary course of our business, including construction contracts for
minor projects that are not material to our business or financial condition as a whole. Our commitments relating to these
contracts are recognized as liabilities in our consolidated balance sheets when services are provided with respect to such
contracts.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign
currency exchange rates and commodity prices. We are exposed to market risk in the form of fluctuations in interest rates
and their potential impact on our variable rate debt outstanding. At December 31, 2011, interest on borrowings under our
New Credit Facility is subject to fluctuation based on changes in short-term interest rates. The Company evaluates its
exposure to market risk by monitoring interest rates in the marketplace and it has, on occasion, utilized derivative financial
instruments to help manage this risk. The Company does not utilize derivative financial instruments for trading purposes.
There were no material quantitative changes in our market risk exposure, or how such risks are managed, during the years
ended December 31, 2011 and 2010.
48
The following table provides information as of December 31, 2011 about our debt obligations, including debt that is
sensitive to changes in interest rates, and presents principal payments and related weighted-average interest rates by expected
maturity dates. Implied forward rates should not be considered a predictor of actual future interest rates.
Year ending December 31,
(in thousands)
2013
2014
2015
2012
Fixed Rate Debt
Senior Secured Notes
Fixed interest rate
Variable Rate Debt
Term Loan under credit
facility
Average interest rate
$ —
—
$
$ 5,000
$ 5,000
3.30%
—
—
2016
Thereafter
Total
$ 170,000
8.625%
$170,000
8.625%
$ —
—
$
—
—
$ —
—
$ 2,500
$
—
$
3.30%
3.30%
—
—
$
—
—
—
$ 12,500
3.30%
As of December 31, 2011, borrowings outstanding under our New Credit Facility are long-term variable-rate borrowings.
Based on our debt outstanding at December 31, 2011, a 100 basis point change in the LIBOR rate or the Base Rate would
increase our annual interest costs by approximately $0.1 million.
Financial Statements and Supplementary Data.
L
Item 8.
Item 9.
TI
A
Reference is made to the report of Ernst & Young LLP, dated March 29, 2012, and the consolidated financial statements
of Eldorado Resorts LLC appearing on pages 64 through 89 and of this report and the report of Deloitte & Touche LLP,
dated March 30, 2012, and the consolidated financial statements of Circus and Eldorado Joint Venture appearing on pages 90
through 105, which are incorporated in this Item 8 by such reference.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
Item 9B. Other Information.
C
O
Not applicable.
N
FI
D
Item 9A. [Intentionally Omitted].
EN
On October 6, 2011, we issued a special report to disclose the resignation of accountants. On October 13, 2011, we
issued a special report to disclose the engagement of accountants.
49
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Board of Managers
Resorts is overseen by a Board of Managers, which is the acting Board of Managers of its sole member, HoldCo. The
current members of Resorts’ Board of Managers are Donald L. Carano, Gary L. Carano, Raymond J. Poncia, Jr., Thomas R.
Reeg and Timothy T. Janszen.
TI
A
L
HoldCo is overseen by a Board of Managers, which currently has five members. HoldCo’s managers, as designated in
its operating agreement, are Recreational Enterprises, Inc. (“REI”), which may designate three representatives, Hotel Casino
Management, Inc. (“HCM”), and NGA AcquisitionCo, LLC (“NGA”). Under the terms of the HoldCo Operating
Agreement, NGA is deemed to have designated Timothy Janszen, NGA’s operating manager, who replaced Thomas R. Reeg
on February 24, 2011, as its current representative for all determinations to be made by HoldCo’s board, and REI has
designated as its current representatives on HoldCo’s board, Donald L. Carano, Gary L. Carano and, as of February 24, 2011,
Thomas R. Reeg. HCM has designated Raymond J. Poncia, Jr., as its current representative. Under the terms of the HoldCo
Operating Agreement, so long as they remain managers of HoldCo, NGA, REI and HCM may change their respective
representatives from time to time by notice to HoldCo. The HoldCo Operating Agreement provides that the HoldCo 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.
Audit Committee Financial Expert
EN
Each member of the HoldCo Board of Managers is selected in the sole discretion of one of HoldCo’s members, with no
role of HoldCo or the Board of Managers in that selection process. Because the structure of HoldCo gives the sole authority
to designate each member of the Board of Managers to one of the members, HoldCo believes that the attribute that best
qualifies each member of its Board of Managers to hold his position on the Board of Managers is the confidence in such
manager of the member that designates him to serve.
N
FI
D
Resorts’ Board of Managers, which does not have a separate audit committee, has determined that Thomas R. Reeg, who
is a member of the Board of Managers, is an “audit committee financial expert” in that he has the following attributes:
an understanding of generally accepted accounting principles and financial statements;
•
the ability to assess the general application of such principles in connection with the accounting for estimates,
accruals and reserves;
•
experience analyzing or evaluating financial statements that present a breadth and level of complexity of accounting
issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be
raised by the Company’s financial statements or experience actively supervising one or more persons engaged in
such activities;
•
an understanding of internal control over financial reporting; and
•
an understanding of audit committee functions.
C
O
•
Reference is made to the description of Mr. Reeg’s business experience which appears under “Board Members,
Executive Officers and Significant Employees”, below. The Board of Managers has also determined that no member of the
Board of Managers, including Mr. Reeg, is “independent” as that term is defined under current rules of the New York Stock
Exchange (the “NYSE”). None of Resorts’ or Capital’s securities are listed on the NYSE or any other national securities
exchange or any national securities association, nor is there any current intention to so list any securities of Resorts or Capital
in the future.
Capital’s Board of Directors, which does not have a separate audit committee, has determined that it does not have an
“audit committee financial expert” as that term is defined under current rules of the NYSE. The Board of Directors does not
believe Capital requires an audit committee financial expert since it has no operations and is consolidated for financial
reporting purposes with Resorts.
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Code of Ethics
Resorts’ Board of Managers and Capital’s Board of Directors have adopted a code of ethics that applies to their principal
executive officer, principal financial officers, principal accounting officer, or persons performing similar functions. The code
of ethics is a written standard designed to deter wrongdoing and to promote
•
honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal
and professional relationships;
•
full, fair, accurate, timely and understandable disclosure in the Company’s quarterly and annual reports and in public
communications made by the Company;
•
compliance with applicable governmental laws, rules and regulations;
•
the prompt internal reporting of violations of the code to an appropriate person identified in the code; and
•
accountability for adherence to the code.
We undertake to provide to any holder of our Senior Secured Notes, upon request, a copy of the code of ethics. Requests
should be directed to Eldorado Resorts LLC, 345 N. Virginia St., Reno, Nevada 89501 Attention: Chief Financial Officer.
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Indemnification of Board Members and Officers
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The operating agreement of Resorts provides that no Board Member or Officer will be liable to Resorts, its Member or
holders of any membership interests for any threatened, pending or completed action, suit against such Board Member or
Officer in connection with the business or affairs of Resorts except for acts involving intentional misconduct or knowing
violations of the law.
Board Members, Executive Officers and Significant Employees
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The following tables set forth certain information with respect to the individuals who serve on Resorts’ Board of
Managers (each a “Board Member”), executive officers of Resorts or Eldorado Reno or Eldorado Shreveport and other
significant employees. The first table also includes the individuals who are members of the Board of Directors or executive
officers of Capital. Each person who serves on HoldCo’s Board of Managers is a designated representative of one of
HoldCo’s members and each person who serves on Resorts’ Board of Managers and/or is an executive officer of Resorts
holds the same position(s) with HoldCo.
Board Members and Executive Officers
Name
Age
Donald L. Carano
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Robert M. Jones
Gene R. Carano
80
68
56
Gregg R. Carano
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Gary L. Carano
59
Raymond J. Poncia, Jr.
78
Thomas R. Reeg
40
Timothy T. Janszen
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Position(s)
Presiding Board Member and Chief Executive Officer of
Resorts; President and Director of Capital
Chief Financial Officer of Resorts
Vice President of Resorts and General Manager of Eldorado
Reno; Treasurer of Capital
Vice President of Resorts and Vice President of Corporate
Food of Resorts; Director of Capital
President and Chief Operating Officer of Resorts; Board
Member—Appointed by Recreational Enterprises, Inc. as its
corporate representative
Board Member—Appointed by Hotel Casino Management,
Inc. as its corporate representative; Director of Capital
Senior Vice President of Strategic Development of Resorts;
Board Member— Appointed by Recreational Enterprises, Inc.
as its corporate representative
Board Member—Appointed by NGA AcquisitionCo, LLC as
its corporate representative
Significant Employees
Name
Robert B. MacKay
Robert B. Mouchou
Rick W. Murdock
Age
63
56
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Position(s)
Director of Administration of Eldorado Reno
Vice President of Operations of Eldorado Reno
Vice President of Sales and Casino Marketing of Eldorado
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Rhonda B. Carano
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Michael Whitemaine
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Reno
Vice President of Advertising and Public Relations of Eldorado
Reno
General Manager of Eldorado Shreveport
Donald L. Carano. Mr. Carano has served as Chief Executive Officer of, and has, individually or together with members of
his immediate family, owned a controlling interest in, Resorts or its predecessor since 1973. Mr. Carano served as President
of Resorts or its predecessor from 1973 until 2004, and has served as a member of Resorts’ board of managers since its
formation in 1996 and as President and as a director of Capital since its incorporation in 1996. Previously, he was an
attorney with the firm of McDonald Carano Wilson 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 and Gregg Carano and is married to Rhonda Carano.
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Robert M. Jones. Mr. Jones has served as Chief Financial Officer of Resorts or its predecessor since 1989. Prior to joining
Resorts’ predecessor 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 has been a member of the executive
committee of the Silver Legacy Joint Venture, which acts in the capacity of a Board of Directors, since November 1995. 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.
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Gene R. Carano. Mr. Carano has served as General Manager of Eldorado Reno since June 2007, a position he previously
held from 1998 to June 2002. Mr. Carano served as Assistant General Manager of Eldorado Reno from July 2002 to June
2007. He has served as Vice President of Resorts or its predecessor since 1993 and was Secretary of Resorts from June 1996
to June 2007. Mr. Carano has served as Treasurer of Capital since its incorporation in 1996. From 1993 until 1998 he served
as a Co-General Manager of Eldorado Reno. From 1986 to 1993, Mr. Carano served as Eldorado Reno’s Director of
Gaming. Prior to joining Eldorado Reno, Mr. Carano held various positions at another major casino in northern Nevada,
including slot floor supervisor and pit boss. Mr. Carano was a member of the executive committee of the Silver Legacy Joint
Venture, which acts in the capacity of a Board of Directors, from December 2000 to August 2011. Mr. Carano studied
Business Management and Hotel Administration at Utah State University and the University of Nevada, Las Vegas.
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Gregg R. Carano. Mr. Carano has served as Resorts’ Vice President of Corporate Food since July 2007. He was General
Manager of Eldorado Reno from July 2002 until June 2007. He also has served as Vice President of Resorts or its
predecessor since 1994 and has served as Vice President of Eldorado Reno since July 1998. Mr. Carano has served as a
director of Capital since its incorporation in 1996. From 1993 until July 1998, he served as a Co-General Manager of
Eldorado Reno. 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 Eldorado Reno. Mr. Carano holds a Bachelor of Science Degree in
Hotel/Restaurant Management from Florida International University and an Associate’s 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. Mr. Carano has served as
President and Chief Operating Officer of Resorts since 2004 and as a member of Resorts’ board of managers since its
formation in 1996. Previously, he served as Assistant General Manager, General Manager and Chief Operating Officer of
Eldorado Reno 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 Eldorado Reno since 1973 and has been involved in
the gaming industry since 1968. He has been involved with Eldorado Reno in the areas of development, architectural and
interior design, construction financing and business planning. Mr. Poncia received his architectural degree from CaseReserve University and has been a licensed architect in private practice since 1960. Mr. Poncia has served as a member of
Resorts’ board of managers since its formation in 1996 and as a director of Capital since its incorporation in 1996.
Thomas R. Reeg, CFA. Mr. Reeg has been a member of Resorts’ Board of Managers since December 2007. Mr. Reeg
became the Senior Vice President of Strategic Development for Resorts in January 2011. Mr. Reeg was the Senior Managing
Director of Newport Global Advisors L.P. from September 2005 through November 2010. Prior to joining Newport Global
Advisors L.P., Mr. Reeg held a number of positions, most recently Managing Director and portfolio manager, in the High
Yield Group of AIG Global Investment Group from 2002 to September 2005. Mr. Reeg was responsible for co-management
of the high yield mutual fund portfolios. Mr. Reeg joined AIG Global Investment Group in 2002 as a senior high yield
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investment analyst where he coordinated credit research in the gaming, lodging and utilities sectors. Prior to joining AIG
Global Investment Group, Mr. Reeg was a senior high yield research analyst covering telecommunications, casino, lodging
and leisure sectors at Bank One Capital Markets. Mr. Reeg’s previous experience also includes similar high yield research
positions with ABN AMRO and Bank of America Securities. Mr. Reeg was a member of the Board of Managers of NGA
HoldCo, LLC from January 2007 through November 2010. Mr. Reeg has been a member of the executive committee of the
Silver Legacy Joint Venture, which acts in the capacity of a Board of Directors, since August 2011. He received a Bachelor
of Business Administration in Finance from the University of Notre Dame in 1993. Mr. Reeg is a Chartered Financial
Analyst.
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Timothy T. Janszen. Mr. Janszen has been a member of Resorts’ Board of Managers since February 2011. Mr. Janszen has
been the Chief Executive Officer of Newport Global Advisors L.P. since September 14, 2005. Prior to joining Newport
Global Advisors L.P., Mr. Janszen held a number of positions, most recently Managing Director and portfolio manager, in
the High Yield Group of AIG Global Investment Group over a period of more than five years. Mr. Janszen joined AIG
Global Investment Group with the acquisition of American General Investment Management (“AGIM”) in 2001.
Mr. Janszen was responsible for the management of AIG Global Investment Group’s high yield group. Mr. Janszen was also
the lead portfolio manager of all general and separate high yield accounts. Previously, Mr. Janszen was head of high yield
portfolio management at AIG Global Investment Group. At AGIM, he was head of credit research. Prior to rejoining AGIM,
Mr. Janszen served as director of research for Pacholder Associates, an independent money manager focused on high yield
and distressed investing. Prior to that, Mr. Janszen worked for American General as a senior investment manager. For the
four years prior to originally joining American General, Mr. Janszen served in a variety of senior management positions
including the last two years as president of ICO, Inc., a public oil service company affiliated with Pacholder. Mr. Janszen
spent the first four years of his career as a high yield trader and analyst at Pacholder. Mr. Janszen has been a member of the
Board of Managers of NGA HoldCo, LLC since January 2007. Mr. Janszen received a Bachelor of Science in Business
Administration, cum laude, from Xavier University in Cincinnati, Ohio, in 1986.
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Robert B. MacKay. Mr. MacKay has been the Director of Administration of Eldorado Reno since 1989. From 1985 to
1989, Mr. MacKay served as Eldorado Reno’s Treasurer. He also has held the positions of Director of Finance and
Controller of Eldorado Reno. Mr. MacKay is a Certified Public Accountant and is a graduate of the University of Nevada,
Reno with a degree in Accounting.
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Robert B. Mouchou. Mr. Mouchou has been the Vice President of Operations of Eldorado Reno since 1997. Mr. Mouchou
joined Eldorado Reno 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.
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Rick W. Murdock. Mr. Murdock has been Vice President of Sales and Casino Marketing of Eldorado Reno since 1999,
previously serving as Director of Casino Marketing of Eldorado Reno from 1995 until he assumed his current position. He
began his career at Eldorado Reno in 1981 and has since held various positions, including Director of Sales, National Sales
Manager and Assistant Hotel Manager.
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Rhonda B. Carano. Mrs. Carano has been the Vice President of Advertising and Public Relations of Eldorado Reno since
1999, previously serving as Director of Advertising and Public Relations of the Eldorado from 1978 until 1999. Mrs. Carano
is the Vice President of the Ferrari Carano Winery. She holds a Bachelor of Science degree from the University of Nevada,
Reno.
Michael Whitemaine. Mr. Whitemaine was appointed to the position of General Manager of Eldorado Shreveport in July
2005. Mr. Whitemaine previously held the position of Assistant General Manager in January of 1995 at the Silver Legacy
from January 1995 through July 2005. Prior to January 1995, he worked at Eldorado Reno for 12 years, including service as
Food and Beverage Director, Slot Director and ultimately Assistant General Manager.
Item 11. Executive Compensation.
Summary Compensation Table
The following table summarizes the total compensation paid to or earned by each of Resorts named executive officers for
the fiscal years ended December 31, 2011, 2010 and 2009. During the fiscal years ended December 31, 2011, 2010 and
2009, none of the directors or officers of Capital received any remuneration for their services in those capacities.
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(a)
(b)
(c)
Name and
Principal Position
Donald Carano
Board Member & Chief Executive
Officer of Resorts
Year
2011
2010
2009
$
Salary
($)
20,000
20,000
29,616
(d)
All Other
Compensation(1)
($)
$
2,108 (2)
1,796 (2)
1,888 (2)
$
275,962
$
Gene Carano
Vice President of Resorts &
General Manager of Eldorado
Reno
Gregg Carano
Vice President of Resorts & Vice
President of Corporate Food
2011
Michael Whitemaine
General Manager of Operations of
Eldorado Shreveport
2011
2010
2009
175,000
183,731
$
2010
2009
2011
363,828
$
363,828
$
382,194
279,322
3,360 (4)
177,940
186,671
$
1,796 (4)
1,796 (4)
$
363,828
365,343
$
$
2,940 (3)
2,940 (3)
363,828
365,343
2010
2009
3,360 (3)
$
Total
($)
22,108
21,796
31,504
4,116 (5)
$
2,940 (5)
3,319 (5)
$
35,585 (6)
367,188
365,624
367,139
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2011
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Robert Jones
Chief Financial Officer of Resorts
(e)
$
367,944
366,768
368,662
417,779
382,194
35,585 (6)
417,779
2009
344,695
—
344,695
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2010
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(1) In 2011, 2010, and 2009, the named executive officers received certain perquisites and personal benefits, consisting of one or
more dues for country club memberships, automobile insurance, complimentary food and beverage, and complimentary tickets
for various events. The incremental cost of these perquisites and personal benefits is not included in the amounts set forth in the
table since the perquisites received in each year by each named executive officer involved, in the aggregate, an incremental cost
to Resorts of less than $10,000.
(2) Includes payment of term life insurance premiums of $600, $600 and $600 and payment of health insurance premiums of $1,508,
$1,196 and $1,196 in 2011, 2010 and 2009, respectively, and employer 401(k) match of $92 in 2009.
(3) Includes payment of term life insurance premiums of $600, $600 and $600 and payment of health insurance premiums of $2,760,
$2,340 and $2,340 in 2011, 2010 and 2009, respectively.
(4) Includes payment of term life insurance premiums of $600, $600 and $600 and payment of health insurance premiums of $2,760,
$1,196 and $1,196 in 2011, 2010 and 2009, respectively.
(5) Includes payment of term life insurance premiums of $600, $600 and $600 and payment of health insurance premiums of $3,516,
$2,340 and $2,340 in 2011, 2010 and 2009, respectively, and employer 401(k) match of $379 in 2009.
(6) Includes bonus of $35,000 and payment of term life insurance premiums of $585 in both 2011 and 2010.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Effective April 1, 2009, HoldCo became the sole member of Resorts when the members of Resorts exchanged their
respective interests in Resorts for identical interests in HoldCo. The following chart illustrates the ownership of HoldCo,
Resorts (excluding its unrestricted subsidiaries), Capital and the Silver Legacy Joint Venture as of the date hereof.
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, as more fully described in notes (3) and (6), respectively, to the table
on page 56. Capital is a wholly owned subsidiary of Resorts.
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Description of the Chart: The chart illustrates the following relationships: (i) the ownership of Resorts by HoldCo (100%)
(ii) the ownership of HoldCo by Recreational Enterprises, Inc. (47.1%), Hotel Casino Realty Investments, Inc. (5.1%), Hotel
Casino Management, Inc. (24.8%), NGA AcquisitionCo, LLC (17.0%), Ludwig J. Corrao (4.3%), Gary Carano S Corp Trust
(.34%), Glenn Carano S Corp Trust (.34%), Gene Carano S Corp Trust (.34%), Gregg Carano S Corp Trust (.34%) and Cindy
Carano S Corp Trust (.34%) (ii) the ownership of Hotel Casino Realty Investments, Inc. by Gary Carano S Corp Trust (10%),
Glenn Carano S Corp Trust (10%), Gene Carano S Corp Trust (10%), Gregg Carano S Corp Trust (10%), Cindy Carano S
Corp Trust (10%), Tammy Poncia S Corp Trust (12.5%), Michelle Poncia Staunton S Corp Trust (12.5%), Linda Poncia
Ybarra S Corp Trust (12.5%) and Cathy Poncia Vigen S Corp Trust (12.5%); (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 Galleon, Inc. (50%); and (vi)
the ownership of Galleon, Inc. by MGM Resorts International (100%).
55
The following table sets forth certain information regarding the beneficial ownership of HoldCo’s outstanding
membership interests by (i) each person known by Resorts to be a beneficial owner of 5% or more of the outstanding
membership interests of HoldCo, (ii) each member of Resorts’ Board of Managers, (iii) each of Resorts’ named executive
officers and (iv) all of the members of Resorts’ Board of Managers and Resorts’ executive officers as a group.
Name and Address of Beneficial Owner
Membership
Interest %
47.1%
47.1%
24.8%
24.8%
17.0%
17.0%
5.1%
5.6%
5.6%
5.6%
5.6%
5.6%
4.3%
—
—
—
95.7%
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Donald L. Carano (1)(2) ..........................................................................
Recreational Enterprises, Inc.(3) .............................................................
Raymond J. Poncia, Jr.(4)(5) ...................................................................
Hotel Casino Management, Inc.(5)(6) .....................................................
NGA AcquisitionCo, LLC (7) .................................................................
Timothy Janszen (7) ................................................................................
Hotel Casino Realty Investments, Inc (8) ................................................
Gene R. Carano (2)(8)(9).........................................................................
Gregg R. Carano (2)(8)(9) .......................................................................
Gary L. Carano (2)(8)(9) .........................................................................
Cindy L. Carano (2)(8)(9)........................................................................
Glenn T. Carano (2)(8)(9) .......................................................................
Ludwig J. Corrao (10) ............................................................................
Robert M. Jones ......................................................................................
Rob B. Mouchou......................................................................................
Thomas Reeg ...........................................................................................
All Board Members and executive officers as a group ...........................
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(1) Includes all of the 47.1% interest owned by Recreational Enterprises, Inc., which is owned by members of the Carano family,
including Mr. Carano. (See Note 3)
(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) Consists of 24.8% owned by Hotel Casino Management, Inc., which is owned by members of the Poncia family. (See Note 6)
(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 Ybarra-12.572%; Michelle L.
Poncia Staunton-12.572% and Tammy R. Poncia-12.572%. Cathy, Linda, Michelle and Tammy each hold all of their respective
interests in Hotel Casino Management, Inc. through various trusts.
(7) NGA AcquisitionCo, LLC. is wholly owned by NGA HoldCo, LLC, whose one voting Class A unit is owned by NGA VoteCo,
LLC which is beneficially owned by Timothy Janszen – 42.86%; Ryan Langdon – 42.86% and Roger May – 14.28%. NGA
HoldCo, LLC’s, 9,999 non-voting Class B units are owned by NGA No VoteCo, LLC. The address of NGA AcquisitionCo,
LLC. is 21 Waterway Avenue, Suite 150, The Woodlands, Texas 77380.
(8) Hotel Casino Realty Investments, Inc. is beneficially owned by the following members of the Carano and Poncia family in the
following percentages: Gary Carano-10%; Glenn Carano-10%; Gene Carano-10%; Gregg Carano-10%; Cindy Carano-10%;
Cathy Poncia Vigen-12.5%; Linda Poncia Ybarra-12.5%; Michelle Poncia Staunton-12.5% and Tammy Poncia-12.5%. All
family members hold all of their respective interests in Hotel Casino Realty Investment, Inc. through various trusts. The address
of Hotel Casino Realty Investments, Inc. is P.O. Box 429, Verdi, Nevada 89439.
(9) Membership interest is beneficially owned through such individual’s 10.1% ownership of Recreational Enterprises, Inc., 10%
ownership of Hotel Casino Realty Investments, Inc. and 0.4% ownership of Resorts held in trust.
(10) The address of Ludwig J. Corrao is P.O. Box 12907, Reno, Nevada 89510.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Transactions with Related Persons
Until July 1, 1996, the Company had 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, as
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amended June 1, 2011, (the “Eldorado 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 pays to the Managers a management fee not to exceed 1.5% of the Company’s annual net revenues. In connection
with the refinancing of our debt obligations in June 2011, the management agreement was amended which, among other
things, placed a maximum management fee payment allowed to $600,000. There is no minimum payment required to be paid
to the Managers pursuant the Eldorado Management Agreement. The current term of the Eldorado Management Agreement
will continue in effect until July 1, 2011, and the term will continue to be automatically extended for additional three-year
periods until it is terminated by one of the parties. In 2011 and 2010, the Company paid management fees to Recreational
Enterprises, Inc. in the amounts of $600,000 and $120,000, respectively. No management fees were paid in 2009. There can
be no assurance that the terms of the Eldorado Management Agreement are at least as favorable to the Company as could be
obtained from unaffiliated third parties. 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. See Item 12 of this
report.
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Resorts owns the parcel on which Eldorado Reno is located, except for approximately 30,000 square feet which is leased
from C. S. & Y. Associates, a general partnership of which Donald Carano is a general partner (the “CSY Lease”). The CSY
Lease expires on June 30, 2027. Annual rent is payable in an amount equal to the greater of (i) $400,000 or (ii) an amount
based on a decreasing percentage of Eldorado Reno’s gross gaming revenues for the year 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. Rent pursuant to the CSY
Lease amounted to approximately $580,000, $598,000 and $605,000 in 2011, 2010 and 2009, respectively. In the opinion of
the Company’s management, the terms of the CSY Lease are at least as favorable to the Company as could have been
obtained from unaffiliated third parties. On May 30, 2011, the Company and C. S. & Y Associates entered into a fourth
amendment to the CSY Lease. C. S & Y Associates agreed to execute and deliver the deeds of trust encumbering the
approximately 30,000 square feet leased from C. S. & Y Associates on which a portion of Eldorado Reno is located as
security for Senior Secured Notes and the New Credit Facility. In exchange for this subordination, a fee of $100,000 will be
paid annually during the term of the Indenture. In 2011, the Company paid $100,000 to C. S. & Y Associates for this
subordination.
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The Company currently retains the firm of McDonald Carano Wilson LLP (“McDonald Carano”) in connection with a
variety of legal matters. Donald Carano was an attorney with McDonald Carano from 1961 until 1980. 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. Mr. Carano receives no compensation from McDonald
Carano. 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.
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The Company from time to time leases aircraft owned by Recreational Enterprises, Inc., for use in operating the
Company’s business. In 2011, 2010 and 2009, lease payments for the aircraft totaled approximately $0.7 million, $1.0
million and $0.9 million, respectively. In the opinion of the Company’s management, the lease terms were at least as
favorable to the Company as could have been obtained from an unaffiliated third party.
The Company from time to time leases a yacht owned by Sierra Adventure Equipment, a limited liability company
beneficially owned by Recreational Enterprises, Inc., for use in operating the Company’s business. In 2011, 2010 and 2009,
lease payments for the yacht totaled approximately $43,500, $43,500 and $2,500, respectively. In the opinion of the
Company’s management, the lease terms were at least as favorable to the Company as could have been obtained from an
unaffiliated third party.
The Company occasionally purchases wine directly from the Ferrari Carano Winery, which is owned by Recreational
Enterprises, Inc. and Donald Carano. The wine purchases are sent directly to customers in appreciation of their patronage. In
2011, 2010 and 2009, the Company spent approximately $23,000, $77,000 and $43,000, respectively, for these products. In
the opinion of the Company’s management, the purchases were on terms as least as favorable to the Company as could have
been obtained from an unaffiliated third party.
In 2011, a $1.7 million distribution was made by Resorts to HoldCo and, in turn, by HoldCo to its members, including
Donald Carano and members of his immediate family, for the members’ Louisiana partnership composite tax. In 2010, a
$325,000 distribution was made by Resorts to HoldCo and, in turn, by HoldCo to its members, including Donald Carano and
57
members of his immediate family, for the members’ Louisiana partnership composite tax. No distributions were made to the
members of Resorts or HoldCo in 2009. For additional information concerning distributions to the members of Resorts or
HoldCo, see Item 5 of this report, and for information concerning the ownership of HoldCo, see Item 12 of this report.
During the year ended December 31, 2011, Gary L. Carano, the Silver Legacy Joint Venture’s Chief Executive Officer,
served on the Board of Managers of Eldorado Resorts LLC, and Gene R. Carano, Vice President of Eldorado Resorts LLC,
served on the Silver Legacy Joint Venture’s executive committee until August 2011.
Resorts owns the skywalk that connects the Silver Legacy with Eldorado Reno. The charges from the service provider
for the utilities associated with this skywalk are billed to the Silver Legacy together with the charges for the utilities
associated with the Silver Legacy. Such charges are paid to the service provider by Silver Legacy, and the Silver Legacy is
reimbursed by Eldorado Reno for the portion of the charges allocable to the utilities provided to the skywalk. The charges for
the utilities provided to the skywalk during the year ended December 31, 2011 totaled $52,200.
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In October 2005, the Silver Legacy began providing on-site laundry services for Eldorado Reno related to the cleaning of
certain types of linens. Although there is no agreement obligating Eldorado Reno to utilize this service, it is anticipated that
the Silver Legacy will continue to provide these laundry services in the future. The Silver Legacy charges Eldorado Reno for
labor and laundry supplies on a per unit basis which totaled $129,100 during the year ended December 31, 2011. We believe
the terms on which the Silver Legacy provided these services were at least as favorable to it as those that would have been
obtained in comparable transactions with an unaffiliated third party.
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Since 1998, the Silver Legacy has purchased from Eldorado Reno homemade pasta and other products for use in the
restaurants at Silver Legacy and it is anticipated that Silver Legacy will continue to make similar purchases in the future. For
purchases of these products during the year ended December 31, 2011, which are billed to Silver Legacy at cost plus
associated labor, the Silver Legacy paid Eldorado Reno $56,600.
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In April 2008, the Silver Legacy and Eldorado Reno began combining certain back-of-the-house and administrative
departmental operations, including purchasing, advertising, information systems, surveillance, retail and engineering, of
Eldorado Reno and Silver Legacy in an effort to achieve payroll cost savings synergies at both properties. Payroll costs
associated with the combined operations are shared equally and are billed at cost plus an estimated allocation for related
benefits and taxes. During 2011, 2010 and 2009, the Silver Legacy reimbursed Eldorado Reno $657,000, $657,000 and
$543,000, respectively, for Silver Legacy’s allocable portion of the shared administrative services costs associated with the
operations performed at Eldorado Reno and Eldorado Reno reimbursed the Silver Legacy $304,000, $245,000 and $142,000,
respectively, for Eldorado Reno’s allocable portion of the shared administrative services costs associated with the operations
performed at Silver Legacy.
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The Louisiana Partnership utilizes the services of Newport Global Advisors, LP, a financial advisory firm of which one
of Resort's directors is the Senior Managing Partner. Expenses incurred amounting to $75,000, $113,000 and $38,000 during
the years ended December 31, 2011, 2010 and 2009, respectively. There were no amounts payable with respect to such
charges outstanding at December 31, 2011 or 2010.
In December 2007, Donald Carano acquired $6,912,000 of the Shreveport Notes in a private transaction. The
obligations were called by the Louisiana Partnership on August 1, 2011. Interest expense with respect to the Shreveport
Notes held by Mr. Carano amounted to $422,000, $691,000 and $691,000, respectively, during each of the years ended
December 31, 2011, 2010 and 2009. At December 31, 2010, interest accrued to Mr. Carano with respect to the Shreveport
Notes he owned amounted to $288,000. Due to the aforementioned call of the Shreveport Notes on August 1, 2011, at
December 31, 2011 there was no accrued interest to Mr. Carano with respect to the Shreveport Notes.
Cross-Property Payments. Registered hotel guests at Eldorado Reno have the ability to charge to their hotel rooms the
costs incurred at the restaurants and shops located within Eldorado Reno and Silver Legacy. In addition, registered hotel
guests at the Silver Legacy may charge costs incurred at Eldorado Reno outlets to their hotel rooms. Any of these charges
that are incurred by a paying guest are paid by the guest when he or she checks out and Eldorado Reno remits to the other
property, and the other property remits to Eldorado Reno, the respective amounts collected for charges incurred at the
property. In the case of registered guests who are provided room, food, beverage and other services on a complimentary
basis, the property where the guest is registered pays the other property the respective amounts of any charges to the guest’s
room for services provided on a complimentary basis by the other property. The following table sets forth for the year ended
December 31, 2011, the respective amounts paid for such complimentary charges by Eldorado Reno to the Silver Legacy and
by the Silver Legacy to Eldorado Reno.
58
Payor
Payee
Amount
Silver Legacy
Eldorado Reno
$ 34,500
Eldorado Reno
Silver Legacy
1,000
Board Members Independence
None of the members of Resorts’ Board of Managers is independent as that term is defined under the current rules of the
New York Stock Exchange (the “NYSE”). None of Resorts’ and Capital’s securities are listed on the NYSE or any other
national securities exchange or any national securities association, nor is there any current intention to so list any securities of
Resorts or Capital in the future.
Review of Related Party Transactions
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Item 14. Principal Accounting Fees and Services
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Resorts’ identification and review of related party transactions is not covered by any formal policies or procedures but is
accomplished through informal discussion and examination among executive management and the Board of Managers.
Transactions with related parties are subjected to the prior review of management and Resorts’ Board of Managers. Related
party transactions typically involve various transactions with our affiliates, or entities in which an affiliate has an interest,
which generally provide Resorts with an opportunity to obtain favorable terms and/or premium products. However, all
related party transactions are reviewed to ensure that the terms are, in the opinion of Resorts’ management, at least as
favorable to Resorts as those obtainable from an unaffiliated third party. There has not been any transaction since the
beginning of Resorts’ last fiscal year that would have been required to be reported pursuant to Items 404(a) of Securities and
Exchange Commission Regulation S-K if Resorts had been subject to the periodic reporting requirements under the Securities
Exchange Act of 1934 that was not so reviewed and approved.
The following table presents fees billed for professional services to Resorts rendered by both Ernst & Young LLP and
our predecessor auditors for the fiscal years ended December 31, 2011 and 2010.
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Predecessor Auditors
2011
2010
$ 152,000
$ 188,000
—
—
—
—
76,000
—
$ 228,000
$ 188,000
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Audit fees (a)
Audit-related fees
Tax fees
Other fees(b)
Total fees
Ernst & Young
2011
$ 325,000
—
—
—
$ 325,000
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(a) Audit fees consist of fees billed for professional services rendered for the audit of the Company’s annual consolidated financial
statements for the fiscal year and reviews of the consolidated financial statements included in the Company’s quarterly reports for
the fiscal year, accounting consultations and statutory audits required by gaming regulators.
(b) Fees associated with the refinancing of the Company’s debt obligations in June 2011.
All of the services provided by our auditors for the fiscal years 2011 and 2010 were approved in advance by our Board of
Managers.
PART IV
Item 15. Financial Statement Schedules.
Financial Statements
Incorporated by reference in Item 8 of this report, and included on pages 64 through 88 hereof, are the
following consolidated financial statements of Eldorado Resorts LLC:
Independent Auditors’ Report
Consolidated Balance Sheets as of December 31, 2011 and 2010
Consolidated Statements of Operations for the Years Ended December 31, 2011, 2010, and 2009
59
Consolidated Statements of Members’ Equity for the Years Ended December 31, 2011, 2010, and 2009
Consolidated Statements of Cash Flows for the Years Ended December 31, 2011, 2010, and 2009
Notes to Consolidated Financial Statements
Incorporated by reference in Item 8 of this report, and included on pages 90 through 105 hereof, are the
following financial statements of Circus and Eldorado Joint Venture:
Independent Auditors’ Report
Consolidated Balance Sheets as of December 31, 2011 and 2010
Consolidated Statements of Income for the Years Ended December 31, 2011, 2010, and 2009
Consolidated Statements of Partners’ Equity for the Years Ended December 31, 2011, 2010, and 2009
Consolidated Statements of Cash Flows for the Years Ended December 31, 2011, 2010, and 2009
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Notes to Consolidated Financial Statements
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SIGNATURES
Eldorado Resorts LLC and Eldorado Capital Corp. have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
ELDORADO RESORTS LLC
By: /s/ Donald L. Carano
Donald L. Carano
Chief Executive Officer and
Presiding Manager
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Date: March 30, 2012
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ELDORADO CAPITAL CORP.
By: /s/ Donald L. Carano
Donald L. Carano
Presiding Manager
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Date: March 30, 2012
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Eldorado Resorts LLC and Eldorado Capital Corp. have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
Signature
Title
Date
Chief Executive Officer and
Presiding Manager of the Board of
Managers of Eldorado Resorts LLC
(Principal Executive Officer) and
President (Principal Executive
Officer) and Director of Eldorado
Capital Corp.
March 30, 2012
/s/ Robert M. Jones
Robert M. Jones
Chief Financial Officer of Eldorado
Resorts LLC (Principal Financial
and Accounting Officer)
March 30, 2012
/s/ Gene R. Carano
Gene R. Carano
Treasurer of Eldorado Capital Corp.
(Principal Financial and Accounting
Officer)
March 30, 2012
/s/ Raymond J. Poncia, Jr.
Raymond J. Poncia, Jr.
Member of the Board of Managers
of Eldorado Resorts LLC--appointed
by Hotel Casino Management, Inc.
as its corporate representative and
Director of Eldorado Capital Corp.
March 30, 2012
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/s/ Donald L. Carano
Donald L. Carano
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Title
Date
/s/ Gary L. Carano
Gary L. Carano
Member of the Board of Managers
of Eldorado Resorts LLC--appointed
by Recreational Enterprises, Inc. as
its corporate representative
March 30, 2012
/s/ Gregg R. Carano
Gregg R. Carano
Director of Eldorado Capital Corp.
March 30, 2012
/s/ Thomas R. Reeg
Thomas R. Reeg
Member of the Board of Managers
of Eldorado Resorts LLC--appointed
by Recreational Enterprises, Inc as
its corporate representative
March 30, 2012
/s/ Timothy T. Janszen
Timothy T. Janszen
Member of the Board of Managers
of Eldorado Resorts LLC--appointed
by NGA AcquisitionCo LLC as its
corporate representative
March 30, 2012
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Signature
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF ELDORADO RESORTS LLC
Page
64
Consolidated Balance Sheets .........................................................................................
65
Consolidated Statements of Operations ..........................................................................
66
Consolidated Statements of Members’ Equity ...............................................................
67
Consolidated Statements of Cash Flows .........................................................................
68
Notes to Consolidated Financial Statements ..................................................................
69
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Independent Auditors’ Report – Ernst & Young LLP ....................................................
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REPORT OF INDEPENDENT AUDITORS
The Members
Eldorado Resorts LLC
We have audited the balance sheet of Eldorado Resorts LLC as of December 31, 2011, and the related statements of
operations, members' equity, and cash flows for the year 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 audit. The
financial statements of Eldorado Resorts LLC and subsidiaries for the years ended December 31, 2010 and 2009 were audited
by other auditors whose report dated April 8, 2011, expressed an unqualified opinion on those statements prior to the
reclassifications.
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We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting.
Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
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In our opinion, the 2011 financial statements referred to above present fairly, in all material respects, the consolidated
financial position of Eldorado Resorts LLC and subsidiaries at December 31, 2011, and the consolidated results of their
operations and their cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.
We also audited the reclassifications described in Note 1 that were applied to the 2010 and 2009 financial statements. In our
opinion, such reclassifications are appropriate and have been properly applied.
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Las Vegas, Nevada
March 29, 2012
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ELDORADO RESORTS LLC
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
December 31,
2011
2010
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Restricted cash
Accounts receivable, net
Due from members and affiliates
Inventories
Prepaid expenses
$ 30,150
160
3,982
139
3,129
2,366
$ 48,133
150
4,167
167
3,220
1,910
39,926
57,747
5,213
42,994
198,728
209,996
20,720
20,720
8,075
$ 272,662
2,186
$ 333,643
$
$
Total current assets
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PROPERTY AND EQUIPMENT, net
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INTANGIBLE ASSETS, net
OTHER ASSETS, net
Total assets
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INVESTMENT IN UNCONSOLIDATED AFFILIATES
LIABILITIES AND MEMBERS’ EQUITY
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CURRENT LIABILITIES:
Current portion of long-term debt
Current portion of capital lease obligations
Accounts payable
Interest payable
Accrued and other liabilities
Due to members and affiliates
Total current liabilities
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LONG-TERM DEBT, less current portion
CAPITAL LEASE OBLIGATIONS, less current portion
13% PREFERRED EQUITY INTEREST, includes interest of $409 in 2010
OTHER LIABILITIES
Total liabilities
COMMITMENTS AND CONTINGENCIES (Note 10)
EQUITY:
Members’ equity
Noncontrolling interest
Total members’ equity
Total liabilities and members’ equity
5,000
400
7,020
695
14,128
178
27,421
27,685
177,500
188,958
602
1,002
—
19,289
1,116
804
206,639
237,738
66,023
—
91,098
4,807
66,023
$ 272,662
95,905
$ 333,643
The accompanying notes are an integral part of these consolidated financial statements.
65
—
371
5,952
6,599
14,571
192
ELDORADO RESORTS LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
For the year ended December 31,
2011
2010
2009
OPERATING REVENUES:
Casino
Food, beverage and entertainment
Hotel
Other
$ 201,253
62,644
26,547
7,025
297,469
(41,397)
256,072
Less—promotional allowances
Net operating revenues
$ 203,537
60,838
26,291
6,360
297,026
(42,168)
254,858
$ 214,422
60,860
25,063
6,821
307,166
(43,510)
263,656
120,550
31,826
7,866
4,324
47,319
600
19,780
232,265
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Casino
Food, beverage and entertainment
Hotel
Other
Selling, general and administrative
Management fees
Depreciation and amortization
Operating expenses
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OPERATING EXPENSES:
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LOSS ON SALE/DISPOSITION OF LONG-LIVED ASSETS
AND PROPERTY AND EQUIPMENT
EQUITY IN LOSSES OF UNCONSOLIDATED AFFILIATES
123,744
30,040
7,489
3,982
48,001
120
22,440
235,816
129,250
28,928
7,641
3,841
48,021
–
23,932
241,613
(120)
(266)
(1,102)
(3,695)
(3,899)
(1,218)
(33,066)
–
–
OPERATING (LOSS) INCOME
(13,074)
14,877
19,723
OTHER INCOME (EXPENSE)
Interest income
Other income
Interest expense
Gain on early retirement of debt, net
Total other expense
12
–
(18,457)
2,499
(15,946)
1
–
(21,065)
–
(21,064)
1
101
(21,263)
–
(21,161)
NET LOSS
(29,020)
(6,187)
(1,438)
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IMPAIRMENT OF INVESTMENT IN JOINT VENTURE
LESS NET LOSS ATTRIBUTABLE TO
NONCONTROLLING INTEREST
4,807
NET LOSS ATTRIBUTABLE TO THE COMPANY
$ (24,213)
183
$ (6,004)
The accompanying notes are an integral part of these consolidated financial statements.
66
90
$ (1,348)
ELDORADO RESORTS LLC
CONSOLIDATED STATEMENTS OF MEMBERS’ EQUITY
(dollars in thousands)
Eldorado Noncontrolling
Interest
Resorts
BALANCES, January 1, 2009
$ 98,967
Net loss
Other comprehensive income marketable security adjustment
Total comprehensive loss
Cash distributions
(90)
—
(90)
—
(1,438)
108
(1,330)
(325)
97,402
(6,004)
25
(325)
4,990
(183)
—
—
102,392
(6,187)
25
(325)
91,098
4,807
95,905
(24,213)
(4,807)
(29,020)
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BALANCES, December 31, 2010
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Net loss
Cumulative effect of adoption of ASU No. 2010-16,
Accrual for Casino Jackpot Liability Reserve
Cash contributions
Cash distributions
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BALANCES, December 31, 2011
784
27
(1,673)
$ 66,023
—
—
—
—
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The accompanying notes are an integral part of these consolidated financial statements.
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$ 104,047
(1,348)
108
(1,240)
(325)
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BALANCES, December 31, 2009
Net loss
Contributions
Cash distributions
$ 5,080
Total
784
27
(1,673)
$ 66,023
ELDORADO RESORTS LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
For the year ended December 31,
2010
2009
2011
22,440
254
3,899
—
1,020
—
—
266
1,902
2,535
(130)
1,071
(3,415)
122
(25)
234
(6,313)
639
(210)
—
(1,644)
(263)
(11)
(50)
21,171
25,216
24,462
(7,889)
92
(10)
92
—
(8,270)
85
—
(237)
—
(10,583)
5
29
24
294
(7,715)
(8,422)
(10,231)
195,000
(217,110)
—
(371)
(7,312)
27
(1,673)
—
—
552
(233)
—
25
(325)
—
—
18,000
(33,407)
(447)
—
(325)
(31,439)
19
(16,179)
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Net cash (used in) provided by financing activities
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(17,983)
16,813
(1,948)
48,133
31,320
33,268
$ 30,150
$ 48,133
$ 31,320
$ 23,687
$ 20,810
$ 21,114
$
$
$
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS AT END OF YEAR
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during year for interest
SCHEDULE OF NON-CASH ACTIVITIES:
Cumulative effect of adoption of ASU No. 2010-16, Accrual for Casino
Jackpot Liability Reserve
Payables for purchase of property and equipment
784
834
The accompanying notes are an integral part of these consolidated financial statements.
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23,932
236
1,218
—
1,020
—
(101)
1,102
2,135
(181)
91
(456)
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt
Payments of long-term debt
Proceeds from credit facility and capital leases
Principal payments on credit facility and capital leases
Debt issuance costs
Cash contributions
Cash distributions
$ (1,438)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment
Proceeds from sale of property and equipment
(Increase) decrease in restricted cash
Decrease (increase) in other assets, net
Proceeds from sale of marketable securities
$ (6,187)
19,780
601
3,695
33,066
1,020
(2,499)
—
120
394
EN
Net cash provided by operating activities
$ (29,020)
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization
Amortization of debt issue costs
Equity in losses of unconsolidated affiliates
Impairment of investment in joint venture
Distributions from unconsolidated affiliates
Gain on early retirement of debt, net
Gain on sale of marketable securities
Loss on sale/disposition of long-lived assets and property and equipment
Provision for bad debt expense
(Increase) Decrease inAccounts receivable
Inventories
Prepaid expenses
(Decrease) Increase inAccounts payable
Interest payable
Accrued and other liabilities and due to members and affiliates
—
—
—
—
ELDORADO RESORTS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2011
1.
Summary of Significant Accounting Policies
Principles of Consolidation/Operations
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The accompanying consolidated financial statements include the accounts of (1) Eldorado Resorts, LLC (“Resorts”), a
Nevada limited liability company that is a wholly owned subsidiary of Eldorado HoldCo, LLC, a Nevada limited liability
company formed in April 2009 (“HoldCo”); (2) Eldorado Capital Corp. (“Capital”), a Nevada Corporation that is a wholly
owned subsidiary of Resorts; (3) Eldorado Shreveport #1, LLC (“ES#1”) and Eldorado Shreveport #2, LLC (“ES#2”), two
Nevada limited liability companies that are wholly owned subsidiaries of Resorts; (4) Eldorado Casino Shreveport Joint
Venture, a Louisiana general partnership (the “Louisiana Partnership”) in which ES#1 and ES#2 own all of the partnership
interests; (5) Shreveport Capital Corp. (“Shreveport Capital”), a Louisiana corporation that is a wholly owned subsidiary of
the Louisiana Partnership; and (6) Eldorado Limited Liability Company, a Nevada limited liability company that is a 96%
owned subsidiary of Resorts (“ELLC” and, collectively with Resorts, Capital, ES#1, ES#2, the Louisiana Partnership, and
Shreveport Capital, the “Company”). Intercompany accounts and transactions have been eliminated in consolidation.
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The Company shall be liquidated upon the occurrence of any event requiring dissolution of the Company. Proceeds
from liquidation shall be dispersed first to creditors, including Members and interest holders who are creditors for debts other
than their respective capital contributions, and second to Members and interest holders in accordance with their capital
account balances.
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Resorts was formed in 1996 and became the successor to a predecessor partnership that constructed the Eldorado Hotel
and Casino, a premier hotel/casino and entertainment facility centrally located in downtown Reno, Nevada (the “Eldorado
Reno”), which opened for business in 1973. Resorts owns and operates Eldorado Reno. Eldorado Reno is easily accessible
both to vehicular traffic from Interstate 80, the principal highway linking Reno to its primary visitor markets in northern
California, and to pedestrian traffic from nearby casinos.
Capital was incorporated with the sole purpose of serving as co-issuer of certain debt co-issued by Resorts and Capital.
Capital holds no significant assets and conducts no business activity.
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Resorts indirectly owns 100% of the partnership interests of the Louisiana Partnership. The Louisiana Partnership owns,
and Resorts manages, a 403-room all suite art deco-style hotel and a tri-level riverboat dockside casino complex situated on
the Red River in Shreveport, Louisiana, which commenced operations under its previous owners in December 2000. Resorts
acquired a majority ownership interest in the hotel and riverboat casino complex in July 2005, began operating it as the
Eldorado Resort Casino Shreveport (the “Eldorado Shreveport”) on October 26, 2005 and acquired the remaining minority
interest in March 2008. Prior to the refinancing of the Company’s debt obligations in June 2011 (see Note 8), ES#1 and
ES#2, between them, owned all of the partnership interests in the Louisiana Partnership other than an unrelated third party’s
rights relating to its “Preferred Capital Contribution Amount” and its “Preferred Return” (as those terms are defined in the
partnership agreement). Such rights were eliminated as a result of distributions made in redemption of the preferred equity
interest with the proceeds from the Senior Secured Notes due 2019 (see Note 8). Each of ES#1, ES#2, the Louisiana
Partnership and its subsidiaries, including Shreveport Capital, is a “guarantor”, as defined in the Indenture, dated as of June 1,
2011, by and among Resorts and Capital, as issuers, and U.S. Bank National Association, as Trustee, and Capital One, N.A.,
as Collateral Trustee (the “Indenture”).
Resorts also owns 96.1858% of ELLC. ELLC is a 50% joint venture partner in a joint venture (the “Silver Legacy Joint
Venture”) which owns the Silver Legacy Resort Casino (the “Silver Legacy”), a major themed hotel/casino situated between,
and seamlessly connected at the casino level to, Eldorado Reno and Circus Circus-Reno, a hotel casino owned and operated
by Galleon, Inc. (“Galleon”), an indirect, wholly owned subsidiary of MGM Resorts International, the other partner in the
Silver Legacy Joint Venture.
Resorts also owns a 21.25% interest in Tamarack Crossing, LLC (“Tamarack”), a Nevada limited liability company that
owns and operates Tamarack Junction, a small casino in south Reno which commenced operations on September 4, 2001.
Tamarack Junction is situated on approximately 62,000 square feet of land with approximately 13,230 square feet of gaming
space and approximately 465 slot machines.
69
Eldorado HoldCo, LLC
Effective April 1, 2009, HoldCo was formed to be the holding company for Resorts. The members of Resorts
contributed all their respective membership interests in Resorts to HoldCo in return for proportionate membership interests in
HoldCo. Other than the membership interests in Resorts, HoldCo has no assets, liabilities or revenues and conducts no
operations.
Prior Period Reclassifications
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Certain reclassifications, which had no effect on previously reported net income (loss), have been made to the 2010 and
2009 consolidated statements of operations to conform to the 2011 presentation. Pursuant to guidance in the “Audit and
Accounting Guide – Gaming” recently issued by the American Institute of Certified Public Accountants (the “AICPA”),
Resorts reclassified amounts paid under its slot participation agreements from casino revenues to casino expenses and
reclassified amounts paid under its cash coupons from casino expenses to casino revenues. The total amount reclassified for
the years ended December 31, 2010 and 2009 was $7,764,000 and $8,243,000, respectively. Additionally, during the
preparation of the accompanying consolidated financial statements for the year ended December 31, 2011, Management
identified errors in the classification of certain casino expenses and selling, general and administrative expenses which were
recorded within food, beverage and entertainment, hotel and other operating expenses. Management determined that
Eldorado Shreveport had not allocated the estimated cost of complimentary services to be charged to the casino department
from the food, beverage and entertainment, hotel and other operations departments on a consistent basis with other properties
operated by Resorts.
These reclassifications resulted in the following adjustments in revenues and expenses in the prior year periods:
EN
Year Ended December 31, 2010
Year Ended December 31, 2009
As Previously
As Previously
Presented
As Corrected
Presented
As Corrected
(in thousands)
$ 203,537
$ 222,665
$ 214,422
114,552
42,679
9,433
10,583
43,773
123,744
30,040
7,489
3,982
48,001
119,024
42,952
9,613
10,752
43,583
129,250
28,928
7,641
3,841
48,021
C
O
Operating Expenses:
Casino
Food, beverage and entertainment
Hotel
Other
Selling, general and administrative
Use of Estimates
$ 211,301
N
FI
D
Operating Revenues:
Casino
The preparation of financial statements in conformity with accounting principles generally accepted in the United States
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. Significant estimates incorporated into our consolidated financial statements include
the estimated useful lives for depreciable and amortizable assets, the estimated allowance for doubtful accounts receivable,
estimated cash flows in assessing the recoverability of long-lived assets and indefinite life intangible assets, fair values of
acquired assets and liabilities, our self-insured liability reserves, players’ club liabilities, contingencies and litigation, claims
and assessments. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include investments purchased with a maturity at the day of purchase of 90 days or less. Book
overdraft balances resulting from the Company’s cash management program are recorded as accounts payable.
Restricted Cash
The Company has a certificate of deposit, which is used for security with the Nevada Department of Insurance for its
self-insured workers compensation. The certificate of deposit had a maturity date of February 2, 2012 at which time it was
renewed at the same amount and the maturity date was extended to August 2, 2012.
70
Accounts Receivable and Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of casino
accounts receivable. The Company issues markers to approved casino customers following background checks and
assessments of creditworthiness. Trade receivables, including casino and hotel receivables, are typically non-interest bearing.
Accounts are written off when management deems the account to be uncollectible. Recoveries of accounts previously written
off are recorded when received. An estimated allowance for doubtful accounts is maintained to reduce the Company’s
receivables to their carrying amount, which approximates fair value. The allowance is estimated based on specific review of
customer accounts as well a historical collection experience and current economic and business conditions. Management
believes that as of December 31, 2011 and 2010, no significant concentrations of credit risk existed.
Certain Concentrations of Risk
The Company’s operations are in Reno, Nevada and Shreveport, Louisiana. Therefore, the Company is subject to risks
inherent within the Reno and Shreveport markets. To the extent that new casinos enter into the markets or hotel room
capacity is expanded, competition will increase. The Company may also be affected by economic conditions in the United
States and globally affecting the markets or trends in visitation or spending in the Reno and Shreveport markets.
L
Inventories
TI
A
Inventories are stated at the lower of cost, using a first-in, first-out basis, or market. Inventories consist primarily of food
and beverage, retail merchandise and operating supplies, and are stated at the lower of cost or market. Cost is determined
primarily by the average cost method for food and beverage and operating supplies. Cost for retail merchandise is
determined using the retail inventory method or specific identification method.
EN
Property and Equipment
N
FI
D
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. We evaluate our assets for impairment if a
triggering event occurs.
Investment in Unconsolidated Affiliates
O
The Company accounts for ELLC’s 50% joint venture interest in the Silver Legacy Joint Venture and its 21.25% interest
in Tamarack, affiliates that it does not control but over which it does exert significant influence, using the equity method of
accounting. Since the Company operates in the same line of business as the Silver Legacy and Tamarack, each with casino
and/or hotel operations, the Company’s equity in the income or losses of such joint ventures is included in operating income
(loss).
C
The Company considers whether the fair values of any of its equity method investments have declined below their
carrying value whenever adverse events or changes in circumstances indicate that recorded values may not be recoverable.
Estimated fair value is determined using a discounted cash flow analysis based on estimated future results of the investee and
market indicators of terminal year capitalization rate. If the Company considered any such decline to be other than
temporary, then a write-down would be recorded to estimated fair value. In 2011, as a result of the Company’s identification
of a triggering event, a non-cash impairment charge of $33.1 million was recognized for its investment in the Silver Legacy
Joint Venture, which is included in the accompanying consolidated statement of operations for the year ended December 31,
2011. Such impairment charge eliminated the Company’s remaining investment in the Silver Legacy Joint Venture.
Noncontrolling interests in the Silver Legacy Joint Venture were allocated $4.8 million of the non-cash impairment,
eliminating the remaining noncontrolling interest. Assumptions used in such analysis were impacted by the default in the
payment of principal and interest on the Silver Legacy Joint Venture’s debt obligations on March 1, 2012 (see Note 6), and
the current cash flow forecasts and market conditions for the Silver Legacy Joint Venture. There was no impairment of our
investment in the Silver Legacy Joint Venture in 2010 or 2009. As a result of the elimination of the Company’s remaining
investment in the Silver Legacy Joint Venture, we will discontinue the equity method for our investment in the Silver Legacy
Joint Venture and will not provide for additional losses until our share of future net income, if any, equals the share of net
losses not recognized during the period the equity method was suspended.
Long-Lived and Finite-Lived Intangible Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. The Company then compares the estimated future cash flows of the asset, on an
undiscounted basis, to the carrying amount of the asset. If the undiscounted cash flows exceed the carrying value, no
71
impairment is indicated. If the undiscounted cash flows do not exceed the carrying amount then an impairment is recorded
based on the fair value of the asset, typically measured using a discounted cash flow model. If the asset is still under
development, future cash flows include remaining construction costs. An estimate of undiscounted future cash flows
produced by the asset is compared to its carrying value to determine whether an impairment exists. An impairment loss shall
be recognized only if the carrying amount of a long-lived asset is not recoverable and exceeds its fair value. If the
undiscounted cash flows do not exceed the carrying amount, then an impairment is recorded based on the fair value of the
asset, typically measured using a discounted cash flow model. That assessment shall be based on the carrying amount of the
asset at the date it is tested for recoverability, whether in use or under development. An impairment loss shall be measured as
the amount by which the carrying amount of a long-lived asset exceeds its fair value.
In 2011, we recorded a loss on the sale/disposition of long-lived assets as a result of losses of $61,000 and $59,000 from
the write off of property and equipment replaced as part of the updating and remodeling of our Eldorado Reno and Eldorado
Shreveport properties. In 2010, we recorded a loss on the sale/disposition of long-lived assets as a result of a $338,000 loss
from the write off of property and equipment replaced as part of the updating and remodeling of our hotel at Eldorado
Shreveport which was offset by a $72,000 gain on the sale of slot machines in both Reno and Shreveport. In 2009, we
recorded a $1.1 million loss on the sale/disposition of long-lived assets as a result of the sale or write off of property and
equipment replaced as part of the updating and remodeling of our casino space at Eldorado Shreveport.
Indefinite-Lived Intangible Assets
TI
A
L
Indefinite-lived intangible assets include the gaming license rights. Indefinite-lived intangible assets are not subject to
amortization, but they are subject to an annual impairment test each year. The Eldorado Shreveport gaming license is tested
for impairment using the relief-from-royalty method. If the fair value of an indefinite-lived intangible asset is less than its
carrying amount, an impairment loss is recognized equal to the difference between the calculated fair value and the carrying
amount.
EN
Self-Insurance
Outstanding Chips and Tokens
N
FI
D
The Company is self-insured for various levels of general liability and employee medical insurance coverage and
Eldorado Reno is self-insured for its workers’ compensation coverage. Self-insurance reserves are estimated based on the
Company’s claims experience and are included in accrued expenses on the consolidated balance sheets. For both years ended
December 31, 2011 and 2010, accrued insurance and medical claims reserves were $1.2 million and $1.3 million,
respectively.
C
O
The Company recognizes the impact on gaming revenues on an annual basis to reflect an estimate of the change in the
value of outstanding chips and tokens that are not expected to be redeemed. This estimate is determined by measuring the
difference between the total value of chips and tokens placed in service less the value of chips and tokens in the inventory of
chips and tokens under our control. This measurement is performed on an annual basis utilizing a methodology in which a
consistent formula is applied to estimate the percentage value of chips and tokens not in custody that are not expected to be
redeemed. In addition to the formula, certain judgments are made with regard to various denominations and souvenir chips
and tokens.
Casino Revenue and Promotional Allowances
The Company recognizes as casino revenue the net win from gaming activities, which is the difference between gaming
wins and losses. Hotel, food and beverage, and other operating revenues are recognized as services are performed. Advance
deposits on rooms and advance ticket sales are recorded as accrued liabilities until services are provided to the customer.
Gaming revenues are recognized net of certain cash and free play incentives. The retail value of food, beverage, rooms and
other services furnished to customers on a complimentary basis is included in gross revenues and then deducted as
promotional allowances. The Company rewards customers, through the use of our loyalty programs, with complimentaries
based on amounts wagered or won that can be redeemed for a specified time period. 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.
72
The retail value of complimentaries included in promotional allowances is as follows (in thousands):
For the year ended December 31,
2011
2010
2009
Food, beverage and entertainment
Hotel
Other
$ 28,421
10,601
2,375
$ 41,397
$ 28,838
10,807
2,523
$ 42,168
$ 30,498
10,179
2,833
$ 43,510
The estimated 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):
For the year ended December 31,
2011
2010
2009
$ 22,165
4,194
1,571
$ 27,930
Advertising
$ 23,437
3,971
1,723
$ 29,131
L
$ 21,818
3,886
1,495
$ 27,199
TI
A
Food, beverage and entertainment
Hotel
Other
EN
Advertising costs are expensed in the period the advertising initially takes place. Advertising costs included in selling,
general and administrative expenses were $5.6 million, $5.7 million and $6.1 million for the years ended December 31, 2011,
2010 and 2009, respectively.
N
FI
D
Federal Income Taxes
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.
C
O
The operating agreement of Eldorado HoldCo dated as of April 1, 2009 (the “HoldCo Operating Agreement”) obligates
HoldCo, and the operating agreement of Eldorado Resorts LLC dated as of June 28, 1996, as amended (the “Operating
Agreement”), which was further amended and restated as of April 1, 2009 (the “New Operating Agreement”), obligated
Resorts, to distribute each year, for as long as HoldCo is not taxed as a corporation, to each of its members an amount equal
to such members’ allocable share of the taxable income (loss) of HoldCo multiplied by the highest marginal combined
Federal, state and local income tax rate applicable to individuals for that year.
Fair Value of Financial Instruments
Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants. Accordingly, fair value is a market based measurement that is
determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for
considering such assumptions, there is a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair
values as follows:
• Level 1: Quoted market prices in active markets for identical assets or liabilities.
• Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
• Level 3: Unobservable inputs that are not corroborated by market data.
The 8.625% Senior Secured Notes due 2019 (see Note 8) are classified as Level 2, as there is limited market activity.
Our term loan under the credit facility is classified as Level 2 as it is tied to market rates of interest and its carrying value
approximates market value.
The following methods and assumptions are used to estimate the fair value of each class of financial instruments for
which it is practical to estimate fair value:
73
Cash and Cash Equivalents: The carrying amounts approximate the fair values due to the short maturity of the cash
equivalents.
Restricted Cash: The carrying amounts approximate the fair values due to the short maturity of the restricted cash.
Long-term Debt: Management estimates that the fair market value of the $180 million of 8.625% Senior Secured
Notes due June 15, 2019 (the “Senior Secured Notes”) was approximately $152.2 million at December 31, 2011
versus its carrying value of $170.0 million. The fair value of the Company’s long-term debt has been calculated
based on management’s estimate of the borrowing rates available as of December 31, 2011 for debt with similar
terms and maturities.
Segment Reporting
The executive decision makers of our Company review operating results, assess performance and make decisions on a
property-by-property basis. We, therefore, consider the Eldorado Reno and Eldorado Shreveport properties to be operating
segments.
Comprehensive Loss
TI
A
L
Other comprehensive loss consists of revenues, expenses, gains and losses which do not affect net income (loss) under
accounting principles generally accepted in the United States of America. “Comprehensive loss” is the sum of net income
(loss), and other comprehensive loss which includes unrealized gain (loss) on marketable securities available for sale.
EN
In 2009, Resorts exercised certain warrants it had received from Alliance Gaming Corp. (“Bally’s”) in connection with
the dissolution of MindPlay, LLC in July 2008 and received shares of stock. Resorts subsequently sold the shares in 2009.
The warrants that we received were valued at $193,000 and recorded as income in 2008. As of December 31, 2009, as a
result of the exercising of the warrants and sale of the securities, the Company no longer recorded changes in fair market
value on its balance sheets as a component of Other Comprehensive Loss.
N
FI
D
Other comprehensive loss consists of revenues, expenses, gains and losses which do not affect net loss under accounting
principles generally accepted in the United States of America. Other comprehensive loss for the year ended December 31,
2009 includes an adjustment to our Bally’s warrants computed as follows (in thousands):
Net loss
Marketable securities adjustment
Comprehensive loss
$ (1,348)
108
$ (1,240)
Recently Issued Accounting Pronouncements
C
O
In April 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.
2010-16 which clarifies that an entity should not accrue a jackpot liability (or portions thereof) before the jackpot is won if
the entity can avoid paying that jackpot. Jackpots should be accrued and charged to revenue when an entity has the obligation
to pay the jackpot. The guidance became effective for the first annual period beginning after December 15, 2010 and the
interim periods within that first annual period. The Company adopted the standard as of January 1, 2011 and recorded the
cumulative effect of the change in accounting as of that date as an approximately $0.8 million increase to members’ equity.
In May 2011, the FASB issued ASU No. 2011-04 intended to enhance consistency in fair value measurements and
disclosures between accounting principles generally accepted in the United States of America and those under International
Financial Reporting Standards. This guidance is effective for interim and annual periods beginning after December 15, 2011.
The Company does not believe the adoption of this guidance will have a material impact on its consolidated financial
statements.
In June 2011, the FASB issued ASU No. 2011-05 which amends the presentation of comprehensive income to allow an
entity the option to present the total of comprehensive income, the components of net income, and the components of other
comprehensive income either in a single continuous statement of comprehensive income or in two separate, but consecutive
statements. The guidance also eliminates the option to present the components of other comprehensive income as part of the
statement of changes in members' equity. This guidance is effective for interim and annual periods beginning after December
15, 2012. Certain presentation requirements included in ASU No. 2011-05 were subsequently deferred by the issuance of
ASU No. 2011-12 in December 2011. The Company does not believe the adoption of this guidance will have a material
impact on its consolidated financial statements.
74
In September 2011, the FASB issued ASU No. 2011-08 which allows for the use of a qualitative approach to test
goodwill for impairment. The updated guidance permits the performance of a qualitative assessment to determine whether it
is more likely than not that the fair value of a reporting unit is less than its carrying value. If such a determination is made,
the currently prescribed two-step goodwill impairment test is then performed. Otherwise, the two-step goodwill impairment
test is not required. The updated guidance is effective for interim and annual goodwill impairment tests performed for fiscal
years beginning after December 15, 2011 with early adoption permitted. The Company does not believe the adoption of this
guidance will have a material impact on its consolidated financial statements.
Subsequent Events
We have evaluated subsequent events through the date of this report.
2.
Operating Agreement of Resorts
3.
TI
A
L
The rights and obligations of the equity holders of Resorts (the “Members”) are governed by the amended and restated
New Operating Agreement of Eldorado Resorts LLC dated as of April 1, 2009. The New 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 known violations of the law. Resorts will dissolve upon the earliest to occur of: (a) the sale or
disposition of all or substantially all of the assets in Resorts, (b) the written consent of Members holding more than a 75%
voting interest in Resorts or (c) any event that, pursuant to the New 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 New Operating Agreement,
of the remaining Members agree to continue Resorts.
Accounts Receivable and Due From Members and Affiliates
EN
Components of accounts receivable, net are as follows (in thousands):
N
FI
D
Accounts receivable and due from members and affiliates
Allowance for doubtful accounts
Total
December 31,
2011
2010
$ 6,494
$ 6,878
(2,373)
(2,544)
$ 4,121
$ 4,334
The provision for bad debt expense was $394, $1,902 and $2,135 for the years ended December 31, 2011, 2010 and
2009, respectively. Write-offs of accounts receivable were $565, $2,150 and $926 for the years ended December 31, 2011,
2010 and 2009, respectively.
Property and Equipment
O
4.
C
Property and equipment consist of the following (in thousands):
Land and improvements
Buildings and other leasehold improvements
Riverboat
Furniture, fixtures and equipment
Furniture, fixtures and equipment held under
capital lease (Note 10)
Construction in progress
Estimated
Service
Life
December 31,
(years)
—
10-45
25
3-15
2011
$ 29,660
249,514
39,023
112,299
3-15
3,498
1,454
435,448
(236,720)
$ 198,728
Less—Accumulated depreciation
Property and equipment, net
$
2010
29,660
247,732
39,023
108,221
3,498
1,548
429,682
(219,686)
$ 209,996
Substantially all property and equipment is pledged as collateral under our long-term debt (see Note 8).
75
At December 31, 2011 and 2010, accumulated depreciation includes $2.8 million and $2.4 million, respectively, related
to assets acquired under capital leases.
Depreciation and amortization expense was $19.8 million, $22.4 million and $23.9 million for the years ended December
31, 2011, 2010 and 2009, respectively.
5.
Other and Intangible Assets, net
Other and intangible assets, net, include the following amounts (in thousands):
N
FI
D
Accumulated amortization customer relationships
Total Intangible Assets, net
EN
Gaming license (Indefinite-lived)
Customer relationships (Finite-lived)
TI
A
Accumulated amortization loan costs (Credit facility and consent fees)
Accumulated amortization bond costs 8.625% Senior Secured Notes
Accumulated amortization bond costs 9% Senior Notes
Total Other Assets, net
L
Land held for development
Loan acquisition costs (Credit facility)
Bond offering costs, 8.625% Senior Secured Notes
Bond offering costs, 9% Senior Notes
Other
December 31,
2011
2010
$ 906
$ 906
—
701
6,920
—
—
665
760
853
8,586
3,125
—
(497)
(511)
—
—
(442)
$ 8,075
$ 2,186
$ 20,720
1,959
22,679
(1,959)
$ 20,720
$ 20,720
1,959
22,679
(1,959)
$ 20,720
The Eldorado Shreveport gaming license, recorded at $20.7 million, is an intangible asset acquired from the purchase of
gaming entities that are located in gaming jurisdictions where competition is limited, such as when only a limited number of
gaming operators are allowed to operate. Gaming license rights are not subject to amortization as the Company has
determined that they have an indefinite useful life.
C
O
Amortization of bond and loan costs is computed using the straight-line method, which approximates the effective
interest method, over the term of the bonds or loans, respectively. Amortization expense with respect to deferred financing
costs for the years ended December 31, 2011, 2010 and 2009 amounted to $601,000, $254,000 and $236,000, respectively,
and is included in interest expense on the accompanying consolidated statements of operations. Such amortization expense is
expected to be $864,000 during each of the years ended December 31, 2012 through 2018 and $361,000 during 2019.
Customer relationships, valued at $1.96 million, were amortized over a five-year period using the straight-line method and
became fully amortized as of July 31, 2010. Amortization expense with respect to customer relationships for each of the
years ended December 31, 2010 and 2009 amounted to $225,000 and $390,000, respectively.
6.
Investment in Unconsolidated Affiliates
Effective March 1, 1994, ELLC and Galleon, (each a “Partner” and, together, the “Partners”), entered into the Silver
Legacy Joint Venture pursuant to a joint venture agreement (the “Original Joint Venture Agreement” and, as amended to
date, 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. Each partner owns a 50% interest in the Silver Legacy Joint
Venture.
On March 5, 2002, the Silver Legacy Joint Venture and its wholly owned finance subsidiary, Silver Legacy Capital
Corp., issued $160 million principal amount of 10⅛% mortgage notes due 2012 (the “Silver Legacy Notes”). The Silver
Legacy Notes are secured by a security interest in substantially all of the existing and future assets and pledges of each of the
Partners’ interests in the Silver Legacy Joint Venture and are nonrecourse to the Company. The Silver Legacy Notes matured
on March 1, 2012 and the Silver Legacy Joint Venture did not make the principal and interest payment due on such date. On
76
March 16, 2012, the Silver Legacy Joint Venture, Silver Legacy Capital Corp., Galleon, ELLC and a significant holder of
the Silver Legacy Notes entered into a Restructuring Support Agreement (the “Restructuring Support Agreement”) pursuant
to which the consenting holder agreed to support and tender all of its claims in, and Silver Legacy Joint Venture, Galleon and
ELLC agreed to use their reasonable best efforts to support and complete, a restructuring of the Silver Legacy Joint Venture's
obligations under the Silver Legacy Notes (the "Silver Legacy Restructuring") on the terms described in and subject to the
conditions set forth in, the Restructuring Support Agreement. The terms of the Restructuring Support Agreement
contemplate that ELLC will contribute an additional $7.5 million to the capital of the Silver Legacy Joint Venture in
connection with the consummation of the Restructuring. The Restructuring is subject to the satisfaction of numerous
conditions. There can be no assurance that the Restructuring will be consummated on the terms described in the
Restructuring Support Agreement, or at all.
If the Silver Legacy Joint Venture is unable to restructure its obligations with respect to the Silver Legacy Notes, the
holders thereof may exercise the remedies provided in the indenture governing the Silver Legacy Notes, including
foreclosing on the assets securing the Silver Legacy Notes, which constitute substantially all of the assets of the Silver
Legacy Joint Venture, or the Silver Legacy Joint Venture may file for bankruptcy protection.
EN
TI
A
L
As a result of our identification of a triggering event, we recognized a non-cash impairment charge of $33.1 million in
2011 for our investment in the Silver Legacy Joint Venture. Such impairment charge eliminated the Company’s remaining
investment in the Silver Legacy Joint Venture. Noncontrolling interests in the Silver Legacy Joint Venture were allocated
$4.8 million of the non-cash impairment, eliminating the remaining noncontrolling interest. Assumptions used in such
analysis were impacted by the default in the payment of principal and interest on the Silver Legacy Joint Venture’s debt
obligations on March 1, 2012 (see Note 6), the current cash flow forecasts and market conditions for the Silver Legacy Joint
Venture. There was no impairment of our investment in the Silver Legacy Joint Venture in 2010 or 2009. As a result of the
elimination of the Company's remaining investment in the Silver Legacy Joint Venture, we will discontinue the equity
method for our investment in the Silver Legacy Joint Venture and will not provide for additional losses until our share of
future net income, if any, equals the share of net losses not recognized during the period the equity method was suspended.
N
FI
D
The Joint Venture Agreement provides equal voting rights for ELLC and Galleon (and procedures for resolving
deadlocks) with respect to approval of the Silver Legacy Joint Venture’s annual business plan and the appointment and
compensation of the general manager and gives each partner the right to terminate the general manager.
Subject to any contractual restrictions to which the Silver Legacy Joint Venture is subject, including the indenture
relating to the Silver Legacy Notes, and prior to the occurrence of a “Liquidating Event,” the Silver Legacy Joint Venture
will be required by the Joint Venture Agreement to make distributions to its Partners as follows:
C
O
(a) An amount equal to tax distributions equal to the estimated taxable income of the Silver Legacy Joint Venture allocable
to each Partner multiplied by the greater of the maximum marginal federal income tax rate applicable to individuals for
such period or the maximum marginal federal income tax rate applicable to corporations for such period; provided,
however, that if the State of Nevada enacts an income tax (including any franchise tax based on income), the applicable
tax rate for any tax distributions subsequent to the effective date of such income tax shall be increased by the higher of
the maximum marginal individual tax rate or corporate income tax rate imposed by such tax (after reduction for the
federal tax benefit for the deduction of state taxes, using the maximum marginal federal, individual or corporate rate,
respectively).
(b) Annual distributions of remaining “Net Cash From Operations” in proportion to the Percentage Interests of the Partners.
(c) Distributions of “Net Cash From Operations” in amounts or at times that differ from those described in (a) and (b) above,
provided in each case that both Partners agree in writing to the distribution in advance thereof.
As defined in the Joint Venture Agreement, the term “Net Cash From Operations” means the gross cash proceeds
received by the Silver Legacy Joint Venture, less the following amounts: (i) cash operating expenses and payments of other
expenses and obligations of the Silver Legacy Joint Venture, including interest and scheduled principal payments on Silver
Legacy Joint Venture indebtedness, including indebtedness owed to the Partners, if any, (ii) all capital expenditures made by
the Silver Legacy Joint Venture, and (iii) such reasonable reserves as the Partners deem necessary in good faith and in the
best interests of the Silver Legacy Joint Venture to meet anticipated future obligations and liabilities of the Silver Legacy
Joint Venture (less any release of reserves previously established, as similarly determined). Any withdrawal from the Silver
Legacy Joint Venture by either Partner results in a reduction of distributions to such withdrawing Partner to 75% of amounts
otherwise payable to such Partner.
77
Summarized information for the Company’s equity in the Silver Legacy Joint Venture is as follows (in thousands):
For the year ended December 31,
(unaudited)
2011
2010
$ 37,697
$ 42,494
(4,631)
(4,797)
(33,066)
—
$
—
$ 37,697
Beginning balance
Equity in net loss of unconsolidated affiliate
Impairment of investment in joint venture
Ending balance
Summarized balance sheet information for the Silver Legacy Joint Venture is as follows (in thousands):
December 31,
(unaudited)
2011
$
42,504
$
217,038
6,979
$ 266,521
$
2010
38,817
229,119
7,315
275,251
$
160,598
10,081
95,842
266,521
EN
Current liabilities
Long-term liabilities
Partners’ equity
Total liabilities and partners’ equity
TI
A
L
Current assets
Property and equipment, net
Other assets, net
Total assets
$
$
$
18,510
150,911
105,830
275,251
O
For the year Ended December 31,
(unaudited)
2011
2010
2009
$ 122,855
$ 121,531
$ 122,881
(117,072)
(116,141)
(117,874)
5,783
5,390
5,007
(15,045)
(14,984)
(9,731)
$ (9,262)
$ (9,594)
$ (4,724)
C
Net revenues
Operating expenses
Operating income
Other expense
Net loss
N
FI
D
Summarized results of operations for the Silver Legacy Joint Venture are as follows (in thousands):
Resorts owns a 21.25% interest in Tamarack Crossings, LLC, a Nevada limited liability company, which owns and
operates Tamarack Junction (“Tamarack”), a small casino in south Reno, Nevada. Donald Carano owns a 26.25% interest in
Tamarack Crossings, LLC. Four members of Tamarack Crossings, LLC, including Resorts and three unaffiliated third
parties, manage the business and affairs of the Tamarack. At December 31, 2011 and 2010, Resorts’ financial investment in
Tamarack Crossings, LLC was $5.2 million and $5.3 million, respectively. Resorts’ capital contribution to Tamarack
Crossings, LLC represents its proportionate share of the total capital contributions of the members. Additional capital
contributions of the members, including Resorts, may be required for certain purposes, including the payment of operating
costs and capital expenditures or the repayment of loans, to the extent such costs are not funded by prior capital contributions
and earnings. The Company’s investment in Tamarack is accounted for using the equity method of accounting. Equity in
income related to Tamarack for the years ended December 31, 2011, 2010 and 2009 of $0.9 million, $0.9 million and $1.1
million, respectively, is included as a component of operating income.
78
Summarized information for the Company’s equity in the Tamarack is as follows (in thousands):
For the year ended December 31,
2011
2010
$ 5,297
$ 5,419
(1,020)
(1,020)
936
898
$ 5,213
$ 5,297
Beginning balance
Members’ distribution
Equity in net income of unconsolidated affiliate
Ending balance
Summarized balance sheet information for the Tamarack is as follows (in thousands):
December 31,
$
$
1,657
2,581
24,527
28,765
EN
Current liabilities
Long-term liabilities
Members’ equity
Total liabilities and members’ equity
TI
A
$
6,416
22,223
126
28,765
$
$
2010
L
Current assets
Property and equipment, net
Other assets
Total assets
2011
$
$
$
5,826
21,220
100
27,146
1,806
417
24,923
27,146
O
7.
For the year ended December 31,
2011
2010
2009
$ 17,158
$ 16,809
$ 18,209
(12,675)
(12,476)
(12,674)
4,483
4,333
5,535
(79)
(107)
(154)
$ 4,404
$ 4,226
$ 5,381
C
Net revenues
Operating expenses
Operating income
Interest expense
Net income
N
FI
D
Summarized results of operations for the Tamarack are as follows (in thousands):
Accrued and Other Liabilities
Accrued and other liabilities consist of the following (in thousands):
Accrued payroll and benefits
Accrued vacation
Accrued insurance
Accrued medical claims
Accrued taxes
Unclaimed chips and tokens
Progressive slot liability and accrued gaming promotions
Other
79
December 31,
2011
2010
$ 3,274
$ 2,771
881
862
577
689
460
600
3,154
2,585
1,090
1,105
2,702
3,924
1,990
2,035
$ 14,128
$ 14,571
8.
Long-Term Debt
Long-term debt consists of the following (in thousands):
December 31,
2011
8.625% Senior Secured Notes
Term Loan under New Credit Facility
9% Senior Notes
10% Shreveport Notes
10% Shreveport Notes due to related party
$ 170,000
12,500
—
—
—
182,500
5,000
177,500
—
$ 177,500
Less—Current portion
13% Preferred Equity
2010
$
—
—
64,475
117,571
6,912
188,958
—
188,958
19,289
$ 208,247
$
5,000
5,000
2,500
—
—
170,000
182,500
EN
2012
2013
2014
2015
2016
Thereafter
TI
A
L
Scheduled maturities of long-term debt are as follows for the years ended December 31, (in thousands):
$
O
N
FI
D
On June 1, 2011, Resorts and Capital completed the issuance of $180 million of 8.625% Senior Secured Notes due June
15, 2019. Proceeds from the Senior Secured Notes, together with borrowings under the New Credit Facility (see below), were
used to redeem or otherwise retire the previously outstanding $155.6 million principal amount of 10% First Mortgage Notes
due 2012 co-issued by the Louisiana Partnership and Shreveport Capital (the “Shreveport Notes”), the 9% Senior Notes due
April 15, 2014 co-issued by Resorts and Capital (the “9% Senior Notes”) and the Preferred Equity Interest (see below). The
Company recognized a $1.6 million gain on the retirement of its previously outstanding debt obligations during the second
quarter of 2011 as a result of a $2.9 million gain on the retirement of the 9% Senior Notes and a $1.3 million loss on the
retirement of the Shreveport Notes. Interest on the Senior Secured Notes is payable semiannually each June 15 and December
15 (commencing on December 15, 2011) to holders of record on the preceding June 1 or December 1, respectively.
C
The indenture relating to the Senior Secured Notes contains various restrictive covenants including, restricted payments
and investments, additional liens, transactions with affiliates, covenants imposing limitations on additional debt, dispositions
of property, mergers and similar transactions. As of December 31, 2011, the Company was in compliance with all of the
covenants under the indenture relating to the Senior Secured Notes.
The Senior Secured Notes are unconditionally guaranteed, jointly and severally, by all of the Company’s current and
future domestic restricted subsidiaries other than Capital (collectively, the “Guarantors”). ELLC is the only unrestricted
subsidiary as of the closing date. The Silver Legacy Joint Venture and Tamarack are not subsidiaries and did not guarantee
the Senior Secured Notes. The Senior Secured Notes are secured by a first priority security interest on substantially all of the
Company’s current and future assets (other than certain excluded assets, including gaming licenses and the Company’s
interests in ELLC, the Silver Legacy Joint Venture and Tamarack). Such security interests are junior to the security interests
with respect to obligations of Resorts and the Guarantors under the New Credit Facility. In addition, all of the membership
interests in Resorts and equity interests in the Guarantors are subject to a pledge for the benefit of the holders of the Senior
Secured Notes.
Prior to June 15, 2014, the Company may redeem up to 35% of the Senior Secured Notes at a redemption price equal to
108.625% of the principal amount thereof plus accrued and unpaid interest thereon with the proceeds from certain equity
offerings. The Company may also redeem some or all of the Senior Secured Notes prior to June 15, 2015 at a redemption
price of 100% of the principal amount thereof plus a “make whole premium” together with accrued and unpaid interest
thereon. Not more than once in each twelve-month period ended June 15, 2012, 2013 and 2014, the Company may redeem up
to 10% of the Senior Secured Notes at a purchase price of 103% of the principal amount thereof plus accrued and unpaid
80
interest thereon. On or after June 15, 2015, the Company may redeem the Senior Secured Notes at the following redemption
prices (expressed as a percentage of principal amount) plus any accrued and unpaid interest thereon:
Year beginning June 15,
Percentage
2015
2016
2017 and thereafter
104.313%
102.156%
100.000%
During the third and fourth quarters of 2011, the Company purchased and retired $10.0 million principal amount of its
Senior Secured Notes utilizing available excess cash. The total purchase price of the Senior Secured Notes was $8.7 million
plus accrued interest which, after the write off of the associated bond offering costs of $0.4 million, resulted in a net gain on
early retirement of debt in the amount of $0.9 million.
TI
A
L
On May 16, 2011, the Company commenced tender offers for any and all of the Shreveport Notes and the 9% Senior
Notes and a solicitation of consents of holders of such notes to proposed amendments to their respective governing
indentures. The purpose of the proposed amendments was, among other things, to eliminate substantially all of the restrictive
covenants and certain events of default contained in the indentures. Holders of approximately 93% of the outstanding
principal amount of the Shreveport Notes agreed to tender their notes in the tender offer. On August 1, 2011, the remaining
7% of Shreveport Notes that were not tendered in the tender offer were redeemed at a redemption price equal to 100% of the
principal amount thereof plus accrued and unpaid interest with proceeds from the issuance of the Senior Secured Notes. The
Company utilized restricted cash in the amount of $9.7 million which was set aside with the trustee at June 1, 2011 to redeem
the remaining Shreveport Notes and the associated accrued interest. All of the holders of the outstanding principal amount of
the 9% Senior Notes agreed to tender their notes in the tender offer.
C
O
N
FI
D
EN
On June 1, 2011, Resorts entered into a new $30 million senior secured revolving credit facility (the “New Credit
Facility”) available until June 30, 2014 consisting of a $15 million term loan requiring principal payments of $1.25 million
each quarter beginning September 30, 2011 (the “Term Loan”) and a $15 million revolving credit facility. Mandatory
prepayments of principal will also be required from 100% of the net cash proceeds of asset sales (as defined), the issuance or
incurrence of additional debt and the receipt of certain tax refunds, insurance proceeds and condemnation awards, with such
prepayments being applied first to the outstanding Term Loan balance, if any, followed by the revolving credit facility.
Borrowings under the New Credit Facility bear interest, at the Company’s option, at either (1) a “Base Rate”, defined to be
the greater of (a) the rate publicly announced from time to time by Bank of America as its “Prime Rate,” (b) the Federal
Funds Rate plus .50% per annum or (c) LIBOR plus 1.0% per annum or (2) a “Eurodollar Rate” of LIBOR plus 1.0% per
annum. Both the Base Rate and Eurodollar Rate are further increased by an “Applicable Rate”, as defined in the credit
facility, which ranges from .50% to 2.0% per annum for Base Rate borrowings and from 1.5% to 3.0% per annum for
Eurodollar Rate borrowings, the rate to be determined based on the most recent “Consolidated Leverage Ratio” (as defined)
maintained by the Company. The term of Eurodollar Rate loans may be one, two, three or six months as selected by the
Company. Interest for each Base Rate loan is payable as the end of the respective quarter. Interest for each Eurodollar Rate
loan is payable on the last day of the loan, provided, however, that if the period exceeds three months, the interest will be
payable on the respective dates that fall every three months after the beginning of the loan period. The interest period cannot
exceed the maturity date of the credit facility for either a Base Rate loan or a Eurodollar Rate loan. In addition, the Company
will pay a commitment fee on its borrowing capacity under the New Credit Facility not being utilized in the amount of .50%
per annum for periods when its Consolidated Leverage Ratio is less than or equal to three to one and .75% per annum
otherwise. As of December 31, 2011, there was no indebtedness on the revolving credit facility and $12.5 million outstanding
indebtedness on the Term Loan. The effective rate of interest on borrowings under the Term Loan was 3.30% as of December
31, 2011.
The New Credit Facility is subject to various restrictive loan covenants including those requiring the maintenance of
certain financial ratios and covenants imposing limitations on additional debt, dispositions of property, the payment of
dividends and distributions, transactions with affiliates, mergers and similar transactions. As of December 31, 2011, the
Company was in compliance with all of such covenants pertaining to the New Credit Facility.
Borrowings under the New Credit Facility are unconditionally guaranteed, jointly and severally, by all of the Company’s
current and future subsidiaries other than ELLC. The Silver Legacy Joint Venture and Tamarack are not subsidiaries and did
not guarantee borrowings under the New Credit Facility. The New Credit Facility is secured by a first priority security
interest in substantially all of the Company’s current and future assets (other than certain excluded assets including gaming
licenses and the Company’s interests in ELLC, the Silver Legacy Joint Venture and Tamarack). Such security interest is
senior to the security interests with respect to obligations of the Company under the Senior Secured Notes (see above).
81
The New Credit Facility replaced an existing credit facility which matured on February 28, 2011 and was not renewed.
As of December 31, 2010, there was no indebtedness under the credit facility and the Company was in compliance with all of
the covenants under the credit facility.
On July 21, 2005, Shreveport Gaming Holdings, Inc., an unaffiliated Delaware corporation (“SGH”), acquired a 25%
non-voting partnership equity interest and a $20 million preferred equity interest, due 2013, in the Louisiana Partnership. On
July 22, 2005, ES#1 converted 55,006 shares of the common stock of SGH into (1) a 1.4% non-voting partnership interest in
the Louisiana Partnership (reducing SGH’s interest to 23.6%) and (2) the right to distributions by the Louisiana Partnership
in respect of $1.12 million of the preferred equity interests of SGH (reducing the amount retained by SGH to $18.88 million).
During March 2008, the Louisiana Partnership exercised an available call option and acquired all of SGH’s remaining 23.6%
non-voting partnership interest. As of December 31, 2010, accrued interest with respect to the Preferred Capital Contribution
Amount was $433,000, of which $24,000 was payable to ES#1. The preferred equity interest was retired in June 2011 with a
portion of the proceeds from the Senior Secured Notes and Term Loan.
9.
Employee Benefit Plans
10. Commitments and Contingencies
N
FI
D
Capital Leases
EN
TI
A
L
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 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, including the
named executive officers, are eligible to participate in the 401(k) Plan. Employees who elect to participate in the 401(k) Plan
may defer up to 100% but not less than 1% of their annual compensation, subject to statutory and certain other limits.
Through February 15, 2009, Resorts made matching contributions of 25% of the employees’ contributions, up to a maximum
of 0.75% of the employees’ annual compensation and subject to certain other limitations, at which point Resorts ceased
making matching contributions. The Louisiana Partnership also participates in the Company’s 401(k) Plan. The plan allows
for an employer contribution up to 50 percent of the first 6 percent of each participating employee’s contribution, subject to
statutory and certain other limits. The Company’s matching contributions were $245,000, $249,000 and $227,000 (including
$17,000 at Resorts), respectively, for the years ended December 31, 2011, 2010 and 2009.
C
O
The Company leases certain equipment under agreements classified as capital leases. In 2010, the Company entered into
two lease agreements in the original amounts of $552,000 and $138,000 with third party lessors to acquire a hotel video on
demand system and computer equipment at Eldorado Reno at 6.132% per annum and 5.706% per annum, respectively. The
leases have original terms of 48 and 36 months with monthly payments of $12,875 and $4,187, respectively. In May 2008,
the Company entered into a lease agreement in the original amount of $601,000 with a third party lessor to acquire an
exterior sign at Eldorado Reno at 8.243% per annum. The lease has an original term of 60 months with monthly payments of
$11,269. The lease contains a bargain purchase option at the end of the lease period. During 2006, Eldorado Reno entered
into a lease agreement in the original amount of $690,000 with a third party lessor to acquire mini-bars for hotel rooms at
Eldorado Reno at 9.875% per annum with a 96 month term. The leases are treated as capital leases for financial reporting
purposes. The future minimum lease payments, including interest, by year under these leases, together with the present value
of the minimum lease payments consisted of the following at December 31, 2011 (in thousands):
2012
2013
2014
2015
2016
Thereafter
Minimum lease payments
Less—Amounts representing interest
$
465
437
202
—
—
—
1,104
(102)
$ 1,002
Operating Leases
The Company leases land and equipment under operating leases. Future minimum payments under noncancellable
operating leases with initial terms of one year or more consisted of the following at December 31, 2011 (in thousands):
82
Ground
Lease
2012
2013
2014
2015
2016
Thereafter
$
Other
Leases
403
403
403
404
463
21,638
23,714
$
$
773
404
256
227
22
—
$ 1,682
Total rental expense under operating leases (exclusive of the ground lease described below) was $1.5 million, $1.3
million and $1.3 million for the years ended December 31, 2011, 2010 and 2009, respectively. Additional rent for land upon
which the Eldorado Hotel Casino resides of $580,000, $598,000 and $605,000 in 2011, 2010 and 2009, respectively, was
paid to C, S and Y Associates, a general partnership of which Donald Carano is a general partner, based on gross gaming
receipts. This rental agreement expires June 30, 2027.
EN
TI
A
L
Eldorado Shreveport is party to a ground lease with the City of Shreveport for the land on which the casino was built.
The lease has an initial term which ended December 20, 2010 with subsequent renewals for up to an additional 40 years. The
base rental amount is currently $450,000 per year and continues at that amount for the remainder of the initial ten-year lease
term. The Louisiana Partnership has extended the lease for the first five-year renewal term during which the base annual
rental will be $402,500. The annual base rental payment will increase by 15% during each of the second, third, fourth and
fifth five-year renewal terms with no further increases. The base rental portion of the ground lease is being amortized on a
straight-line basis. In addition to the base rent, the lease requires percentage rent based on adjusted gross receipts to the City
of Shreveport and payments in lieu of admission fees to the City of Shreveport and the Bossier Parish School Board.
Expenses under the terms of the ground lease are as follows (in thousands):
For the year ended December 31,
2011
Ground lease:
Base rent
Percentage rent
$
$
585
1,555
2,140
Payment in lieu of admissions
fees and school taxes
$
6,708
N
FI
D
$
2010
2009
$
$
585
1,498
2,083
$
585
1,540
2,125
$
6,476
$
6,806
C
O
Rental revenue for the years ended December 31, 2011, 2010 and 2009 amounted to $140,000, $151,000 and $185,000,
respectively, and is included in other operating revenues on the accompanying consolidated statements of operations. There
are currently two tenants renting retail space under rental agreements which expired in 2011 and which are currently on a
month-to-month basis. Rental payments are comprised of fixed monthly amounts, percentage rentals and common area
maintenance payments.
Legal Matters
The Company is subject to various legal and administrative proceedings relating to personal injuries, employment
matters, commercial transactions and other matters arising in the normal course of business. In addition, the Company
maintains what it believes is adequate insurance coverage to further mitigate the risks of such proceedings. However, such
proceedings can be costly, time consuming and unpredictable and, therefore, no assurance can be given that the final outcome
of such proceedings may not materially impact its consolidated financial position, results of operations or cash flows.
Further, no assurance can be given that the amount or scope of existing insurance coverage will be sufficient to cover losses
arising from such matters. The Company does not believe that the final outcome of these matters will have a material
adverse effect on its consolidated financial position, results of operations or cash flows.
In March 2008, the Nevada Supreme Court ruled and in July 2008 refused to reconsider its previous decision, in a case
involving another casino company, that food purchased for the use in providing complimentary meals to customers and to
employees was exempt from sales and use tax. The Company had previously paid use tax on these items and has generally
filed for refunds from the periods from November 1999 to February 2008 related to this matter. The aggregate principal
amount for which a refund claim is pending is approximately $1.7 million.
83
Recently, the Nevada Department of Taxation (the “Taxation Department”) has asserted that gaming companies should
pay sales tax on customer complimentary meals on a prospective basis. The position stems from a recent Nevada Tax
Commission decision concerning another casino company which states that complimentary meals provided to customers are
subject to sales tax at the retail value of the meal and employee meals are subject to sales tax at the cost of the meal.
Consequently the Taxation Department audited our refund claim, and has taken the position that those same purchases are
now subject to sales tax; therefore, they subsequently issued a sales tax assessment totaling $2 million plus interest after
application of our refund on use tax. We believe that the Taxation Department’s position has no merit, and in January 2012
we moved the matter to a procedural, administrative hearing before a Taxation Department administrative law judge. As of
the date of this report, we have not received the ruling from the Administrative Law Judge. The Company is currently
evaluating whether or not to accrue tax prospectively as it disagrees with the position asserted by the Taxation Department.
In January 2012, another casino company received a ruling from the Nevada Tax Commission upholding the decision of
an Administrative Law Judge who ruled that (i) complimentary meals provided to employees and patrons were retail sales
subject to sales tax and (ii) that the Taxation Department could not assess additional taxes, penalties or interest because its
regulations and policies at the time only required the payment of use tax on such complimentary meals. Management
believes that the decision of the Nevada Tax Commission ruling will be appealed through the Nevada courts. Due to
uncertainty surrounding the potential arguments that may be raised in the appeals process, the Company has neither recorded
any income related to this matter nor any liability for sales tax on complimentary meals for periods after February 2008.
L
11. Management Fees
C
O
N
FI
D
EN
TI
A
Until July 1, 1996, the Company had 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, as
amended June 1, 2011, (the “Eldorado 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 pays to the Managers a management fee not to exceed 1.5% of the Company’s annual net revenues. In connection
with the refinancing of our debt obligations in June 2011, the management agreement was amended which, among other
things, placed a maximum management fee payment allowed to $600,000. There is no minimum payment required to be paid
to the Managers pursuant the Eldorado Management Agreement. The current term of the Eldorado Management Agreement
continues in effect until July 1, 2014, and the term will continue to be automatically extended for additional three-year
periods until it is terminated by one of the parties. In 2011 and 2010, the Company paid management fees to Recreational
Enterprises, Inc. in the amounts of $600,000 and $120,000, respectively. No management fees were paid in 2009.
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. The Carano family and Poncia family hold significant ownership
interests in the Company.
12. Segment Information
The following table sets forth, for the period indicated, certain operating data for our reportable segments. We review
our operations by our geographic gaming market segments: Eldorado Reno and Eldorado Shreveport.
For the year ended December 31,
2011
2010
2009
(in thousands)
Revenues and expenses
Eldorado Reno
Net operating revenues (a)
Expenses, excluding depreciation
(Loss) Gain on sale/disposition of long-lived assets
and property and equipment
Equity in losses of unconsolidated affiliates
Impairment of investment in joint venture
Depreciation
$
Operating (loss) income – Eldorado Reno
$
84
104,118
(94,934)
$ 109,018
(98,087)
$ 113,509
(98,481)
(59)
(3,696)
(33,065)
(10,639)
16
(3,899)
—
(11,555)
(21)
(1,218)
—
(13,156)
(38,275)
$
(4,507)
$
633
Eldorado Shreveport
Net operating revenues
Expenses, excluding depreciation, amortization (a)
Loss on sale/disposition of long-lived assets and property and equipment
Depreciation and amortization
Operating income – Eldorado Shreveport
$
154,746
(120,343)
(61)
(9,141)
$
25,201
$ 150,666
(120,115)
(282)
(10,885)
$ 154,831
(123,884)
(1,081)
(10,776)
$ 19,384
$ 19,090
For the year ended December 31,
2011
2010
2009
(in thousands)
258,864
(215,277)
(120)
(3,696)
(33,065)
(19,780)
$
259,684
(218,202)
(266)
(3,899)
—
(22,440)
$
(13,074)
$
14,877
TI
A
Operating (loss) income– Total Reportable Segments
$
L
Total Reportable Segments
Net operating revenues (a)
Expenses, excluding depreciation, amortization (a)
Loss on sale/disposition of long-lived assets and property and equipment
Equity in losses of unconsolidated affiliates
Impairment of investment in joint venture
Depreciation and amortization
$ 268,340
(222,365)
(1,102)
(1,218)
—
(23,932)
$
19,723
For the year ended December 31,
2011
2010
2009
$
N
FI
D
EN
Reconciliations to Consolidated Net Loss
Operating (Loss) Income—Total Reportable Segments
Unallocated income and expenses
Interest income (b)
Other income
Noncontrolling interest
Interest expense (b)
Gain on early retirement of debt
Net loss
(13,074)
(in thousands)
$
1,369
—
4,807
(19,814)
2,499
$
(24,213)
14,877
$
3,257
—
183
(24,321)
—
$
(6,004)
19,723
3,335
101
90
(24,597)
—
$
(1,348)
C
O
a) Before the elimination of $2.8 million, $4.8 million and $4.9 million of management and incentive fees to Eldorado Reno
and expense to Eldorado Shreveport for 2011, 2010 and 2009, respectively. Before the elimination of ($241,000) of
airplane lease charges to Eldorado Reno and credits to Eldorado Shreveport in 2009.
b) Before the elimination of $1.297 million, $3.113 million and $3.113 million of interest income on the Shreveport Notes
and $60,000, $143,000 and $143,000 of interest income on the 5.5% equity interest in the $20 million preferred equity
interest in the Louisiana Partnership for the years ended December 31, 2011, 2010 and 2009, respectively.
For the year ended December 31,
2011
2010
2009
(in thousands)
Capital Expenditures
Eldorado Reno
Eldorado Shreveport
Eliminating entries (a)
Total
$
$
3,178
4,711
—
7,889
$
$
3,769
4,501
—
8,270
$
3,746
8,188
(1,351)
$ 10,583
(a) Reflects the elimination of the proceeds of the sale of the airplane by Eldorado Reno to Eldorado Shreveport in 2009.
85
As of December 31,
2011
2010
(in thousands)
Total Assets
Eldorado Reno
Eldorado Shreveport
Eliminating entries (a)
Total
$
$
270,975
159,265
(157,578)
272,662
$
$
194,031
169,141
(29,529)
333,643
(a) Reflects the following eliminations for the periods indicated:
As of December 31,
2011
2010
(in thousands)
$
126,347
481
—
—
$
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Proceeds from Senior Secured Notes loaned to Eldorado Shreveport
Accrued interest on the above intercompany $135 million loan
Shreveport Notes held by Eldorado Reno
Accrued interest on the Shreveport Notes held by Eldorado Reno
Management and incentive fees payable by Eldorado Shreveport to
Eldorado Reno
Intercompany receivables/payables
Net investment in and advances to Eldorado Shreveport
TI
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—
7,413
23,337
157,578
$
2,951
184
(6,036)
29,529
EN
13. Related Parties
$
—
—
31,133
1,297
We believe that all of the transactions mentioned below are on terms at least as favorable to us as would have been
obtained from an unrelated party.
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The Company owns the entire parcel on which Eldorado Reno is located, except for approximately 30,000 square feet
which is leased from C. S. & Y. Associates, a general partnership of which Donald Carano is a general partner (the “CSY
Lease”). The CSY 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. Rent pursuant to the CSY Lease amounted to
approximately $580,000, $598,000 and $605,000, in 2011, 2010, and 2009, respectively. On May 30, 2011, the Company and
C. S. & Y Associates entered into a fourth amendment to the CSY Lease. C. S & Y Associates agreed to execute and deliver
the deeds of trust encumbering the approximately 30,000 square feet leased from C. S. & Y Associates on which a portion of
Eldorado Reno is located as security for Senior Secured Notes and the New Credit Facility. In exchange for this
subordination, a fee of $100,000 will be paid annually during the term of the Indenture. In 2011, the Company paid $100,000
to C. S. & Y Associates for this subordination.
The Company from time to time leases an aircraft owned by Recreational Enterprises, Inc., which owns 47% of Resorts,
for use in operating the Company’s business. In 2011, 2010, and 2009, lease payments for the aircraft totaled $0.7 million,
$1.0 million and $0.9 million, respectively.
The Company from time to time leases a yacht owned by Sierra Adventure Equipment, Inc., a limited liability company
beneficially owned by Recreational Enterprises, Inc., for use in operating the Company’s business. In 2011, 2010 and 2009,
lease payments for the yacht totaled approximately $43,500, $43,500 and $2,500, respectively.
The Company occasionally purchases wine and firewood directly from the Ferrari Carano Winery, which is owned by
Recreational Enterprises, Inc. and Donald Carano. The firewood is used in the Eldorado in its various wood burning ovens
while wine purchases are sent directly to customers in appreciation of their patronage. In 2011, 2010 and 2009, the Company
spent approximately $23,000, $77,000 and $43,000, respectively, for these products.
No distributions were received from the Silver Legacy for any of the years ended December 31, 2011, 2010 and 2009.
During the year ended December 31, 2010, a $325,000 distribution was made in the second quarter by Resorts to HoldCo
and, in turn, by HoldCo to its members for the members’ Louisiana partnership composite tax. No distributions were made
to the members in 2009.
86
Resorts owns the skywalk that connects the Silver Legacy with Eldorado Reno. The charges from the service provider
for the utilities associated with this skywalk are billed to the Silver Legacy together with the charges for the utilities
associated with the Silver Legacy. Such charges are paid to the service provider by Silver Legacy, and the Silver Legacy is
reimbursed by Eldorado Reno for the portion of the charges allocable to the utilities provided to the skywalk. The charges for
the utilities provided to the skywalk during the year ended December 31, 2011 totaled $52,200.
In October 2005, the Silver Legacy began providing on-site laundry services for Eldorado Reno related to the cleaning of
certain types of linens. Although there is no agreement obligating Eldorado Reno to utilize this service, it is anticipated that
the Silver Legacy will continue to provide these laundry services in the future. The Silver Legacy charges Eldorado Reno for
labor and laundry supplies on a per unit basis which totaled $129,100 during the year ended December 31, 2011. We believe
the terms on which the Silver Legacy provided these services were at least as favorable to it as those that would have been
obtained in comparable transactions with an unaffiliated third party.
Since 1998, the Silver Legacy has purchased from Eldorado Reno homemade pasta and other products for use in the
restaurants at Silver Legacy and it is anticipated that Silver Legacy will continue to make similar purchases in the future. For
purchases of these products during the year ended December 31, 2011, which are billed to Silver Legacy at cost plus
associated labor, the Silver Legacy paid Eldorado Reno $56,600.
EN
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In April 2008, the Silver Legacy and Eldorado Reno began combining certain back-of-the-house and administrative
departmental operations, including purchasing, advertising, information systems, surveillance, retail and engineering, of
Eldorado Reno and Silver Legacy in an effort to achieve payroll cost savings synergies at both properties. Payroll costs
associated with the combined operations are shared equally and are billed at cost plus an estimated allocation for related
benefits and taxes. During 2011, 2010 and 2009, the Silver Legacy reimbursed Eldorado Reno $657,000, $657,000 and
$543,000, respectively, for Silver Legacy’s allocable portion of the shared administrative services costs associated with the
operations performed at Eldorado Reno and Eldorado Reno reimbursed the Silver Legacy $307,000, $245,000 and $142,000,
respectively, for Eldorado Reno’s allocable portion of the shared administrative services costs associated with the operations
performed at Silver Legacy.
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The Louisiana Partnership utilizes the services of Newport Global Advisors, LP, a financial advisory firm of which one
of Resort's directors is the Senior Managing Partner. Expenses incurred amounting to $75,000, $113,000 and $38,000 during
the years ended December 31, 2011, 2010 and 2009, respectively, are included in general and administrative expenses in the
accompanying consolidated statements of operations. There were no amounts payable with respect to such charges
outstanding at December 31, 2011 or 2010.
O
In December 2007, Donald Carano acquired $6.9 million of the Shreveport Notes in a private transaction. The
obligations were called by the Louisiana Partnership on August 1, 2011. Interest expense with respect to the Shreveport
Notes held by Mr. Carano amounted to $0.4 million, $0.7 million and $0.7 million, respectively, during each of the years
ended December 31, 2011, 2010 and 2009. At December 31, 2010, interest accrued to Mr. Carano with respect to the
Shreveport Notes he owned amounted to $0.3 million.
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Resorts entered into an Amended and Restated Purchase Agreement, dated as of July 20, 2007 (the “Purchase
Agreement”), with NGA AcquisitionCo LLC, an unaffiliated entity (“NGA”), and Donald L. Carano, who is the presiding
member of Resorts’ Board of Managers and the Chief Executive Officer of Resorts (“Carano”), pursuant to which NGA
agreed, subject to the terms and conditions of the Purchase Agreement, to acquire a 17.0359% equity interest in Resorts (the
“17.0359% Interest”), including a new 14.47% equity interest to be acquired directly from Resorts (the “14.47% Interest”)
and an outstanding 3% membership interest (that, as a result of the issuance of the 14.47% Interest, reduced to a 2.5659%
interest (the “2.5659% Interest”)) to be acquired from Carano. Upon completion of the NGA transaction, which occurred on
December 14, 2007, Carano or members of his family continued to own 51% of Resorts and Carano continued in his roles in
the management of Resorts.
Under the terms of the HoldCo Operating Agreement, at any time after the occurrence of a “Material Event” (as defined)
or at any time after June 14, 2015 (the “Trigger Date”) the Company or its permitted assignee(s) (the “Interest Holder”) will
have the right to sell (“Put”) all but not less than all the 14.47% Interest to HoldCo and HoldCo will have the right to
purchase (“Call”) all but not less than all of the 17.0359% Interest, at a price equal to the fair market value of the interest
being acquired without discounts for minority ownership and lack of marketability, as determined by mutual agreement of the
Interest Holder and HoldCo or, in the event that after 30 days the Interest Holder and HoldCo have not mutually agreed on a
purchase price, then at the purchase price determined by the average of two appraisals by nationally recognized appraisers of
private companies, provided the two appraisals are within a 5% range of value based upon the lowest of the two appraisals.
If the two appraisals are not within the 5% range, the purchase price will be determined by the average of a third mutually
acceptable, independent, nationally recognized appraiser of private companies and the next nearest of the first two appraisals
87
unless the third appraisal is at the mid-point of the first two appraisals, in which event the third appraisal will be used to
established the fair market value. So long as a Material Event has not occurred, the Interest Holder will have the right to
unilaterally extend the Trigger Date for up to two one-year extension periods. Upon exercise of either the Call or the Put, the
HoldCo Operating Agreement provides that the transaction close within one year of the exercise of the right unless delayed
for necessary approvals from applicable gaming authorities.
These put and call rights have been evaluated from an accounting perspective and Company’s management has
determined no need for immediate accounting considerations. Accordingly, the put and call rights are not reflected on the
Company’s consolidated balance sheet.
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In consideration for the 14.47% Interest and the 2.5659% Interest, NGA transferred to Resorts and Carano, respectively,
free and clear of any liens, ownership of $31.1 million and $6.9 million original principal amount of Shreveport Notes,
respectively, together with the right to all interest paid with respect thereto after the closing date. Carano also received an
equity interest of $286,889 related to SGH. The equity interest in Resorts was recorded at fair value. Accordingly, the assets
received by Resorts and Carano from the exchange were recorded at fair value based on the quoted market price of the
investments given up by Resorts and Carano. The Company feels quoted market prices are the best evidence of fair value. It
was determined that the quoted market prices of Resorts’ and Carano’s investments were more indicative of fair value as
compared to the equity value of a privately held company like Resorts. At closing, Resorts paid NGA $1.14 million in cash
representing interest on the Shreveport Notes accrued and unpaid through the date of closing. Carano paid NGA $170,658 in
cash representing interest on the Shreveport Notes accrued and unpaid through October 31, 2007.
TI
A
14. Supplemental Cash Flow Information
C
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EN
In 2010, the Company entered into a lease agreement in the original amount of $138,000 with a third party lessor to
acquire computer equipment at Eldorado Reno at 5.706% per annum.
88
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
OF CIRCUS AND ELDORADO JOINT VENTURE
Page
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Report of Independent Registered Public Accounting Firm – Deloitte & Touche, LLP .................................
Consolidated Balance Sheets as of December 31, 2011 and 2010 ..................................................................
Consolidated Statements of Operations for the years ended December 31, 2011, 2010 and 2009 ..................
Consolidated Statements of Partners’ Equity for the years ended December 31, 2011, 2010 and 2009 .........
Consolidated Statements of Cash Flows for the years ended December 31, 2011, 2010 and 2009 ................
Notes to Consolidated Financial Statements ...................................................................................................
89
90
91
92
93
94
95
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners of
Circus and Eldorado Joint Venture
(doing business as Silver Legacy Resort Casino) :
We have audited the accompanying consolidated balance sheets of Circus and Eldorado Joint Venture (doing business as
Silver Legacy Resort Casino) and subsidiary (collectively, the “Joint Venture”) as of December 31, 2011 and 2010, and the
related consolidated statements of operations, partners’ equity and cash flows for each of the three years in the period ended
December 31, 2011. Our audits also included the consolidated financial statement schedule of Valuation and Qualifying
Accounts included in Item 15(a)(2). These financial statements and financial statement schedule are the responsibility of the
Joint Venture’s management. Our responsibility is to express an opinion on the financial statements and financial statement
schedule based on our audits.
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We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Joint Venture is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances but not for the purpose of
expressing an opinion on the effectiveness of the Joint Venture’s internal control over financial reporting. Accordingly, we
express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
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EN
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Circus
and Eldorado Joint Venture (doing business as Silver Legacy Resort Casino) and subsidiary as of December 31, 2011 and
2010, and the results of their operations and their cash flows for each of the three years in the period ended December 31,
2011, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such
financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
O
The accompanying consolidated financial statements have been prepared assuming that the Joint Venture will continue as a
going concern. As discussed in Note 2 to the consolidated financial statements, the Joint Venture believes there is uncertainty
regarding the Joint Venture’s ability to fulfill its financial commitments as they become due. These conditions raise
substantial doubt about the Joint Venture’s ability to continue as a going concern. Management’s plans concerning these
matters are also discussed in Note 2 to the consolidated financial statements. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Las Vegas, Nevada
March 30, 2012
C
/s/ DELOITTE & TOUCHE LLP
90
CIRCUS AND ELDORADO JOINT VENTURE
(doing business as Silver Legacy Resort Casino)
CONSOLIDATED BALANCE SHEETS
As of December 31, 2011 and 2010
(In thousands)
2011
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Accounts receivable, net
Inventories
Prepaid expenses and other
$
Total current assets
PROPERTY AND EQUIPMENT, NET
OTHER ASSETS, NET
Total liabilities
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Total current liabilities
LONG-TERM DEBT
OTHER LONG-TERM LIABILITIES
EN
LIABILITIES AND PARTNERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable
Accrued interest
Accrued and other liabilities
Current Portion of long-term debt
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Total Assets
COMMITMENTS AND CONTINGENCIES (Note 11)
PARTNERS’ EQUITY
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Total Liabilities and Partners’ Equity
33,744
3,862
1,935
2,963
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$
31,654
2,458
2,013
2,696
42,504
217,038
6,979
38,817
229,119
7,315
$ 266,521
$ 275,251
$
$
4,364
4,819
8,624
142,791
4,493
4,819
9,198
-
160,598
10,081
18,510
142,735
8,176
170,679
169,421
95,842
105,830
$ 266,521
$ 275,251
The accompanying notes are an integral part of these consolidated financial statements.
2010
CIRCUS AND ELDORADO JOINT VENTURE
(doing business as Silver Legacy Resort Casino)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2011, 2010 and 2009
(In thousands)
2011
OPERATING REVENUES:
Casino
Rooms
Food and beverage
Other
$
2010
68,852
31,485
32,695
7,613
$
68,299
31,009
31,365
7,622
$
69,544
31,009
31,871
7,939
140,645
(17,790)
138,295
(16,764)
140,363
(17,482)
Net operating revenues
122,855
121,531
122,881
37,250
9,629
22,065
5,088
28,458
14,437
23
122
36,614
9,471
21,311
5,529
27,665
15,749
(589)
391
37,568
9,484
21,002
5,022
28,977
16,414
(693)
100
117,072
116,141
117,874
5,783
5,390
5,007
15,056
(11)
-
14,995
(11)
-
15,338
(61)
(5,546)
15,045
14,984
9,731
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OPERATING INCOME
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Total operating expenses
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Less: promotional allowances
OPERATING EXPENSES:
Casino
Rooms
Food and beverage
Other
Selling, general and administrative
Depreciation
Change in fair value of life insurance contracts
Loss on disposition of assets
OTHER (INCOME) EXPENSE:
Interest expense
Interest income
Gain on early retirement of debt
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NET LOSS
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Total other expense
$
(9,262)
$
(9,594)
The accompanying notes are an integral part of these consolidated financial statements.
2009
92
$
(4,724)
CIRCUS AND ELDORADO JOINT VENTURE
(doing business as Silver Legacy Resort Casino)
CONSOLIDATED STATEMENTS OF PARTNERS’ EQUITY
For the Years Ended December 31, 2011, 2010 and 2009
(In thousands)
Galleon, Inc.
BALANCE, January 1, 2009
Comprehensive loss:
Net loss
Other comprehensive income minimum pension liability adjustment
$
Total comprehensive loss
EN
Total comprehensive loss
Balance, December 31, 2010 (2)
N
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Comprehensive loss:
Net loss
Other comprehensive income minimum pension liability adjustment
Cumulative effect of adoption of ASU No. 2010-16, Accrual for
Casino Jackpot Liability Reserve
(2,362)
(108)
(4,724)
(216)
(2,470)
(2,470)
(4,940)
52,769
62,769
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115,538
(4,797)
(57)
(4,797)
(57)
(9,594)
(114)
(4,854)
(4,854)
(9,708)
47,915
57,915
(4,631)
(686)
(4,631)
(686)
323
Total comprehensive loss
42,921
(9,262)
(1,372)
323
(4,994)
$
105,830
646
(4,994)
$
52,921
(9,988)
$
95,842
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BALANCE, December 31, 2011 (3)
$ 120,478
(2,362)
(108)
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Comprehensive loss:
Net loss
Other comprehensive income minimum pension liability adjustment
$ 65,239
Total
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Balance, December 31, 2009 (1)
55,239
Eldorado
Resorts, LLC
(1) Balances include Accumulated Other Comprehensive Income totaling ($648,000) comprised of ($324,000) each for
Galleon, Inc. and ELLC.
(2) Balances include Accumulated Other Comprehensive Income totaling ($762,000) comprised of ($381,000) each for
Galleon, Inc. and ELLC.
(3) Balances include Accumulated Other Comprehensive Income totaling ($2,134,000) comprised of ($1,067,000) each for
Galleon, Inc. and ELLC.
The accompanying notes are an integral part of these consolidated financial statements.
93
CIRCUS AND ELDORADO JOINT VENTURE
(doing business as Silver Legacy Resort Casino)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2011, 2010 and 2009
(In thousands)
2011
2010
2009
$(9,262)
$(9,594)
$(4,724)
14,437
597
122
533
(66)
23
15,749
600
391
432
(267)
(589)
16,414
618
100
(5,546)
796
(449)
(693)
(1,338)
78
(299)
46
72
392
(66)
(84)
(271)
(1)
119
948
73
883
(851)
(581)
(1,034)
4,943
6,811
5,954
58
(226)
(2,685)
67
(179)
(10,087)
9
11
(3,249)
(2,853)
(10,199)
(3,229)
-
-
(10)
(11,438)
-
-
-
(11,448)
2,090
31,654
(3,388)
35,042
(8,723)
43,765
$33,744
$31,654
$35,042
$14,459
$14,461
$ 5,300
$
$
$ 580
EN
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation
Amortization
Loss on disposition of assets
Gain on early retirement of debt
Increase in accrued pension cost
Provision for doubtful accounts
(Increase) decrease in cash value of insurance policies in excess of premiums paid
Changes in current assets and current liabilities:
Accounts receivable
Inventories
Prepaid expenses and other
Accounts payable
Accrued interest
Accrued and other liabilities
Net cash provided by operating activities
N
FI
D
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets
Increase (decrease) in other assets
Purchase of property and equipment
Net cash used in investing activities
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CASH FLOWS FROM FINANCING ACTIVITIES:
Debt issuance costs
Payments on retirement of long-term debt
Distributions to partners
Net cash used in financing activities
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CASH AND CASH EQUIVALENTS:
Net increase (decrease) for the year
Balance, beginning of year
Balance, end of year
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during period for interest
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES:
Payables for purchase of property and equipment
446
The accompanying notes are an integral part of these consolidated financial statements.
94
729
CIRCUS AND ELDORADO JOINT VENTURE
(doing business as Silver Legacy Resort Casino)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization, Basis of Presentation and Summary of Significant Accounting Policies
Principles of Consolidation and Operations
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Effective March 1, 1994, Eldorado Limited Liability Company (a Nevada limited liability company owned and
controlled by Eldorado Resorts, LLC) (“ELLC”) and Galleon, Inc. (a Nevada corporation owned and controlled by MGM
Resorts International and previously owned and controlled by Mandalay Resort Group (“Mandalay”) (“Galleon” and,
collectively with ELLC, the “Partners”), entered into a joint venture agreement to establish Circus and Eldorado Joint
Venture (the “Partnership”), a Nevada general partnership. The Partnership owns and operates a casino and hotel located in
Reno, Nevada (“Silver Legacy”), which began operations on July 28, 1995. ELLC contributed land to the Partnership with a
fair value of $25.0 million and cash of $26.9 million for a total equity investment of $51.9 million. Galleon contributed cash
to the Partnership of $51.9 million to comprise their total equity investment. Each partner has a 50% interest in the
Partnership.
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On April 25, 2005, a wholly owned subsidiary of MGM Resorts International (“MGM”) was merged with and into
Mandalay as a result of which Mandalay became a wholly owned subsidiary of MGM Resorts International. With the
consummation of the merger, Galleon, Inc. became an indirect wholly-owned subsidiary of MGM Resorts International.
EN
The consolidated financial statements include the accounts of the Partnership and its wholly owned subsidiary, Silver
Legacy Capital Corp. (“Capital”). Capital was established solely for the purpose of serving as a co-issuer of $160.0 million
principal amount of 10⅛% mortgage notes due March 1, 2012 co-issued by the Partnership and Capital and, as such, Capital
does not have any operations, assets, or revenues. All intercompany accounts and transactions have been eliminated in
consolidation. The Partnership operates as one segment.
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Reclassifications
Use of Estimates
O
Certain reclassifications, which have no effect on previously reported net income (loss), have been made to the 2010 and
2009 consolidated financial statements to conform to the 2011 presentation. Pursuant to the guidance in the recently issued
AICPA Audit and Accounting Guide Gaming, the Partnership reclassified the amounts paid under slot participation
agreements from “Casino” revenue to “Casino” expense. The total amounts reclassified for the twelve months ended
December 31, 2010 and 2009 were $0.9 million and $0.8 million, respectively.
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The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in
the United States of America. Those principles require the Partnership’s management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates.
Certain Concentrations of Risk
The Partnership’s sole operations are in Reno, Nevada. Therefore, the Partnership is subject to risks inherent within the
Reno market. To the extent that new casinos enter into the market or hotel room capacity is expanded, competition will
increase. The Partnership may also be affected by economic conditions in the United States and globally affecting the Reno
market or trends in visitation or spending in the Reno market.
Outstanding Chips and Tokens
The Partnership recognizes the impact on gaming revenues on an annual basis to reflect an estimate of the change in the
value of outstanding chips and tokens that are not expected to be redeemed. This estimate is determined by measuring the
difference between the total value of chips and tokens placed in service less the value of chips and tokens in the inventory of
chips and tokens under our control. This measurement is performed on an annual basis utilizing methodology in which a
consistent formula is applied to estimate the percentage value of chips and tokens not in custody that are not expected to be
95
redeemed. In addition to the formula, certain judgments are made with regard to various denominations and souvenir chips
and tokens.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, as well as investments purchased with maturities of three months or less
at the date of acquisition. The carrying values of these investments approximate their fair values due to their short-term
maturities.
Accounts Receivable and Credit Risk
Financial instruments that potentially subject the Partnership to concentrations of credit risk consist principally of casino
accounts receivable. The Partnership issues markers to approved casino customers following background checks and
assessments of creditworthiness. Trade receivables, including casino and hotel receivables, are typically non-interest bearing.
Accounts are written off when management deems the account to be uncollectible. Recoveries of accounts previously written
off are recorded when received. An estimated allowance for doubtful accounts is maintained to reduce the Partnership’s
receivables to their carrying amount, which approximates fair value. The allowance is estimated based on specific review of
customer accounts as well as historical collection experience and current economic and business conditions. Management
believes that as of December 31, 2011, there are no significant concentrations of credit risk (See Note 3).
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Inventories
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Inventories consist of food and beverage, retail merchandise and operating supplies, and are stated at the lower of cost or
market. Cost is determined primarily by the average cost method for food and beverage and operating supplies or the specific
identification method for retail merchandise.
Property and Equipment
EN
Property and equipment and other long-lived assets are stated at cost. Depreciation is computed using the straight-line
method, which approximates the effective interest method over the estimated useful life of the asset as follows:
N
FI
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Estimated Service Life
Building and other improvements
Furniture, fixtures, and equipment
(Years)
15-45
3-15
Costs of major improvements are capitalized, while costs of normal repairs and maintenance that neither materially add
to the value of the property nor appreciably prolong its life are expensed as incurred. Gains or losses on dispositions of
property and equipment are included in the determination of operating income (loss).
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O
The Partnership reviews its property and equipment and its long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be recoverable. The Partnership then compares the
estimated future cash flows of the asset, on an undiscounted basis, to the carrying amount of the asset. If the undiscounted
cash flows exceed the carrying value, no impairment is indicated. If the undiscounted cash flows do not exceed the carrying
amount then an impairment is recorded based on the fair value of the asset, typically measured using a discounted cash flow
model. If the asset is still under development, future cash flows include remaining construction costs. An estimate of
undiscounted future cash flows produced by the asset is compared to the carrying value to determine whether an impairment
exists. If it is determined that the asset is impaired based on expected undiscounted future cash flows, a loss, measured by the
amount by which the carrying amount of the asset exceeds the fair value of the asset, would be recognized. For assets to be
disposed of, the Partnership recognizes the asset at the lower of carrying value or fair market value, less cost of disposal, as
estimated based on comparable asset sales or solicited offers. As of December 31, 2011 and 2010, no events or changes in
circumstances indicated that the carrying values of our long-lived assets may not be recoverable.
Revenue Recognition and Promotional Allowances
In accordance with industry practice, the Partnership recognizes as casino revenue the net win from gaming activities,
which is the difference between gaming wins and losses. Hotel, food and beverage, and other operating revenues are
recognized as services are performed. Advance deposits on rooms and advance ticket sales are recorded as accrued liabilities
until services are provided to the customer. Gaming revenues are recognized net of certain cash sales incentives and free play.
The retail value of food, beverage, rooms and other services furnished to customers on a complimentary basis is included in
gross revenues and then deducted as promotional allowances. The Partnership rewards customers, through the use of our
loyalty programs, with complimentaries based on amounts wagered or won that can be redeemed for a specified time period.
96
The retail value of complimentaries is recorded as revenue and then is deducted as promotional allowances as follows (in
thousands):
Years ended December 31,
2011
Food and beverage
Rooms
Other
2010
2009
$ 9,606
6,150
2,034
$9,082
5,764
1,918
$9,359
5,565
2,558
$17,790
$16,764
$17,482
The estimated costs of providing such promotional allowances are included in casino expenses and consist of the
following (in thousands):
Years ended December 31,
2011
$
6,789
1,741
1,901
$
$ 10,431
$
2009
6,358
1,770
1,585
$
6,511
1,711
2,003
9,713
$ 10,225
TI
A
L
Food and beverage
Rooms
Other
2010
Advertising
EN
Advertising costs are expensed in the period the advertising initially takes place. Advertising costs included in selling,
general and administrative expenses were $6.1 million, $5.3 million and $5.4 million for the years ended December 31, 2011,
2010 and 2009, respectively.
Federal Income Taxes
Debt Issuance Costs
N
FI
D
The Partnership is not subject to income taxes; therefore, no provision for income taxes has been made, as the partners
include their respective share of the Partnership income (loss) in their income tax returns. The Partnership Agreement
provides for the Partnership to make distributions to the Partners in an amount equal to the maximum marginal federal
income tax rate applicable to any Partner multiplied by the income (loss) of the Partnership for the applicable period (see
Note 12).
C
O
Debt issuance costs incurred in connection with the issuance of long-term debt are capitalized and amortized using the
straight-line method to interest expense over the term of the related debt agreement.
Fair Value of Financial Instruments
Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants. Accordingly, fair value is a market-based measurement that is determined
based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such
assumptions, there is a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair values as follows:
Level 1: Inputs are based upon quoted prices (unadjusted) in active markets for identical assets or liabilities which
are accessible as of the measurement date.
Level 2: Inputs are based upon quoted prices for similar assets or liabilities in active markets, quoted prices for
identical or similar assets or liabilities in markets that are not active, and model-derived valuations for the asset or
liability that are derived principally from or corroborated by market data for which the primary inputs are
observable, including forward interest rates, yield curves, credit risk and exchange rates.
Level 3: Inputs for the valuations are unobservable and are based on management’s estimates of assumptions that
market participants would use in pricing the asset or liability. The fair values are therefore determined using modelbased techniques such as option pricing models and discounted cash flow models.
97
The Partnership’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable,
accrued liabilities and debt. Management believes that the carrying value of cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities are representative of their respective fair values due to the short maturities of these
instruments. The fair value of the Partnership’s 10 1/8% mortgage notes, based on quoted market prices, was approximately
$101.4 million and $139.0 million as of December 31, 2011 and 2010, respectively.
Other Comprehensive Income (Loss)
Other comprehensive income (loss) consists of revenues, expenses, gains and losses which do not affect net income
(loss) under accounting principles generally accepted in the United States of America. Other comprehensive income (loss) for
the years ended December 31, 2011, 2010 and 2009 includes an adjustment to the minimum pension liability and was
computed as follows (in thousands):
2011
Net loss
Minimum pension liability adjustment
Cumulative effect of adoption of ASU No. 2010-16,
Accrual for Casino Jackpot Liability Reserve
$ (9,262)
(1,372)
Comprehensive loss
$ (9,988)
2010
2009
$ (9,594)
(114)
$ (4,724)
(216)
646
-
$ (4,940)
L
$ (9,708)
-
TI
A
The reconciliation of accumulated other comprehensive income as of December 31, 2011 and 2010 are as follows (in
thousands):
2011
EN
Accumulated other comprehensive income, beginning of year
Minimum pension liability adjustment
Accumulated other comprehensive income, end of year
$
762
1,372
$
648
114
$
2,134
$
762
N
FI
D
Recently Issued Accounting Standards
2010
O
In April 2010, the FASB issued ASU No. 2010-16, Accruals for Casino Jackpot Liabilities. Specifically, the guidance
clarifies that an entity should not accrue jackpot liabilities, or portions thereof, before a jackpot is won if the entity can avoid
paying the jackpot. Jackpots should be accrued and charged to revenue when an entity has the obligation to pay the jackpot.
The guidance applies to both base and progressive jackpots. The new guidance was effective for fiscal years beginning on or
after December 15, 2010 and requires a cumulative-effect adjustment to opening retained earnings in the period of adoption.
The Partnership adopted the guidance effective January 1, 2011 and recorded an adjustment to retained earnings of $0.6
million.
C
Certain amendments to Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements,” become effective
for the Partnership for fiscal years beginning after December 15, 2011. Such amendments include a consistent definition of
fair value, enhanced disclosure requirements for “Level 3” fair value adjustments and other changes to required disclosures.
The Partnership does not expect this amendment to have a material affect on its financial statements and will comply with the
disclosure enhancements of this amendment when the amendment is effective.
ASC 220, “Comprehensive Income,” was amended in June 2011 and will become effective for the Partnership for fiscal
years ending after December 15, 2012, including retrospective adjustment. Such amendments allow the Partnership two
options for the presentation of comprehensive income. Under either option, the Partnership is required to present each
component of net income along with total net income, each component of other comprehensive income along with a total for
other comprehensive income, and a total amount for comprehensive income. As a result of the amendment, the option to
present the components of other comprehensive income as part of the statement of changes in stockholders' equity is
eliminated. The Partnership does not expect this amendment to have a material affect on its financial statements and will
comply with the disclosure enhancements of this amendment when the amendment is effective.
Subsequent Events
Management has evaluated all events or transactions that occurred after December 31, 2011 through March 30, 2012, the
date the financial statements were issued.
98
Note 2. Liquidity
The Partnership had $142.8 million in 10 1/8 % mortgage notes (the “Notes”) outstanding as of December 31, 2011. The
Notes matured on March 1, 2012. The Partnership did not make the required principal payment and elected not to make the
scheduled interest payment on the Notes on March 1, 2012, which constituted an event of default under the terms the
indenture governing the Notes. As a result, an aggregate of $142.8 million principal amount of Notes and accrued interest of
$7.2 million on the Notes, as of March 1, 2012, is due and payable.
EN
TI
A
L
On March 16, 2012, the Partnership and a significant holder of the Notes (the “Consenting Holder”) entered into a
Restructuring Support Agreement (the “Restructuring Support Agreement”). In addition, the Consenting Holder agreed to
forbear from exercising remedies with respect to the outstanding defaults and events of default under the Notes prior April
30, 2012 unless specified milestones are met or unless the Restructuring Support Agreement is earlier terminated. Pursuant
to the terms of the Restructuring Support Agreement, the Consenting Holder has agreed to support and tender all of its claims
in, and the Partnership and its partners have agreed to use their reasonable best efforts to support and complete, a
restructuring of the Partnership’s obligations under the Notes (the “Restructuring”) on the terms described in and subject to
the conditions set forth in the Restructuring Support Agreement. The Restructuring is subject to the satisfaction of numerous
conditions, including (i) the Partnership’s entry into a new $70.0 million first lien credit facility, (ii) execution of the
Restructuring Support Agreement by holders of at least 66% in principal amount of the Notes and (iii) negotiation of
definitive documents that are satisfactory to the Consenting Holder, the partners and the Partnership. The Restructuring
Support Agreement will terminate upon the occurrence of specified events, including the commencement of an involuntary
case against the Partnership, a material breach of the Restructuring Support Agreement and the failure of the Partnership to
achieve specified milestones. There can be no assurance that the Restructuring will be consummated on the terms described
in the Restructuring Support Agreement, or at all. The holders of the Notes may be entitled to exercise the remedies provided
in the indenture governing the Notes, including foreclosing on the assets securing the Notes. If the Partnership is unable to
consummate the transactions described in the Restructuring Support Agreement or holders of a sufficient principal amount of
Notes do not accept the terms of the Restructuring or do not otherwise agree on the terms of a restructuring, the Partnership
may be motivated to commence voluntary bankruptcy proceedings or the holders of the Notes and/or various other interested
persons may be motivated to institute bankruptcy proceedings against the Partnership.
Note 3. Accounts Receivable
N
FI
D
The conditions and events described above raise a substantial doubt about the Partnership’s ability to continue as a
going concern. The accompanying consolidated financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result
should the Partnership be unable to continue as a going concern.
2011
$
C
Casino receivables
Hotel receivables
Other receivables
O
Accounts receivable, net at December 31, 2011 and 2010 consisted of the following (in thousands):
1,164
2,095
997
2010
$
4,256
(394)
Less: allowance for doubtful accounts
Accounts receivable, net
$
3,862
1,649
1,102
321
3,072
(614)
$
2,458
The provision for bad debt expense for the years ended December 31, 2011, 2010 and 2009, was $0.1 million, $0.3
million and $0.4 million, respectively.
99
Note 4. Property and Equipment
Property and equipment at December 31, 2011 and 2010 consisted of the following (in thousands):
2011
Land and improvements
Building and other leasehold improvements
Furniture, fixtures, and equipment
$
2010
28,405
269,169
105,550
$
403,124
(186,086)
Less: accumulated depreciation
Property and equipment, net
$
28,405
269,169
104,935
402,509
(173,390)
217,038
$
229,119
Substantially all property and equipment of the Partnership is collateralized by its long-term debt (see Note 7).
Note 5. Other Assets
L
Other assets, net at December 31, 2011 and 2010 consisted of the following (in thousands):
2011
2010
$
210
90
6,264
415
$
210
631
6,286
188
$
6,979
$
7,315
EN
TI
A
China, glassware and silverware
Debt issuance costs, net
Cash surrender value of life insurance policies
Other
The initial inventory of china, glassware and silverware has been amortized to 50% of cost with the balance kept as base
stock. Additional purchases of china, glassware and silverware are placed into inventory and expensed as used.
O
N
FI
D
The Partnership incurred costs in connection with the issuance of its 10 1/8% mortgage notes due March 2012 and its
bank credit facility (see Note 7). Debt issuance costs are capitalized when incurred and amortized to interest expense based
on the related debt maturities using the straight-line method, which approximates the effective interest method. Debt issuance
costs, net of amortization, related to the completed offering of the 10 1/8% mortgage notes included in other assets totaled $0.1
million and $0.6 million at December 31, 2011 and 2010, respectively. Accumulated amortization of the debt issuance costs
were $6.2 million and $5.7 million at December 31, 2011 and 2010, respectively. The amortization of debt issuance costs
included in interest expense was $0.6 million for the years ended December 31, 2011, 2010 and 2009.
C
Life insurance contracts are purchased to informally fund the Partnership’s Supplemental Executive Retirement Plan.
Amounts included in other assets represent the cash surrender value of these life insurance contracts at December 31, 2011
and 2010 (see Note 10).
Note 6. Accrued and Other Liabilities
Accrued and other liabilities at December 31, 2011 and 2010 consisted of the following (in thousands):
2011
Accrued payroll and related
Accrued vacation
Accrued group insurance
Unclaimed chips and tokens
Accrued taxes
Advance room deposits
Progressive slot liability
Players’ club liability
Other
100
2010
$
1,687
1,596
517
442
1,008
401
1,213
409
1,351
$
1,524
1,587
618
405
1,346
514
1,463
419
1,322
$
8,624
$
9,198
Note 7. Long-Term Debt
Long-term debt at December 31, 2011 and 2010 consisted of the following (in thousands):
2011
10 /8 % Mortgage Notes due 2012 (net of unamortized discounts of $9 and $65)
Less current portion
1
2010
$
142,791
$
142,735
-
$
142,791
$
142,735
TI
A
L
On March 5, 2002, the Partnership and Capital (collectively, the “Issuers”) co-issued $160.0 million principal amount of
senior secured mortgage notes due 2012. Concurrent with issuing the Notes, the Partnership entered into a senior secured
credit facility (the “Credit Facility”) for $40.0 million. The Credit Facility originally provided for a $20.0 million senior
secured revolving credit facility and a $20.0 million five-year term loan facility, each of which provided for the payment of
interest at floating rates based on LIBOR plus a spread. The proceeds from the Notes, together with $26.0 million in
borrowings under the Credit Facility, were used to repay $150.2 million representing all of the indebtedness outstanding
under a prior bank credit facility and to fund $30.0 million of distributions to the partners. In addition, the remaining
proceeds along with operating cash flows were used to pay $6.3 million in related fees and expenses of the transactions.
These fees were capitalized and are included in other assets. On November 4, 2003, the Partnership, U.S. Bank, N.A. and
Bank of America, N.A., executed an amendment to the Credit Facility which reduced the revolving facility to $10.0 million.
On March 28, 2008, the Partnership and Bank of America, N.A. executed an amendment reducing the revolving facility to
$1.0 million. On January 28, 2009, the Partnership executed an amendment to extend the Credit Facility’s maturity date for
an additional year to March 30, 2010. The Partnership had not utilized its borrowing capacity under the Credit Facility since
2003. As a result, the Credit Facility was not extended beyond its March 30, 2010 maturity date.
N
FI
D
EN
The Notes are senior secured obligations which rank equally with all of the Partnership’s outstanding senior debt and are
senior to any subordinated debt. The Notes are secured by a security interest in substantially all of the Issuers’ existing and
future assets, other than certain licenses which may not be pledged pursuant to applicable law, and a pledge by each of the
partners of all of its partnership interest in the Partnership. The Notes matured on March 1, 2012 and bear interest at the rate
of 101/8 % per annum, payable semi-annually in arrears on March 1 and September 1 of each year, commencing on
September 1, 2002.
O
The indenture relating to the Notes contains various restrictive covenants. The covenants require, and/or any covenants
in any new credit facility we may secure may require, the maintenance of certain financial ratios and impose limitations on
the ability of the Partnership, among other things, to incur additional debt or liens, engage in transactions with affiliates,
dispose of property, make distributions to its partners or merge, consolidate or sell assets. As of December 31, 2011, the
Partnership was in compliance with the covenants in the indenture relating to the Notes.
C
The entire principal amount of the Notes became due and payable at maturity on March 1, 2012 in accordance with the
terms of Partnership’s indenture agreement. The Partnership did not make the required principal payment and elected not to
make the scheduled interest payment on the Notes on March 1, 2012 which constituted an event of default under the terms of
the indenture governing the Notes (See Note 2).
In February 2009, the Partnership repurchased and retired $17.2 million principal amount of the Notes. The total
purchase price of the Notes was approximately $11.4 million, resulting in a gain of approximately $5.5 million, net of
unamortized debt issuance costs. The repurchase of the Notes reduced the amount of Notes outstanding to $142.8 million.
The transaction was funded by available invested cash reserves.
Note 8. Other Long-term Liabilities
Other long-term liabilities at December 31, 2011 and 2010 consisted of the following (in thousands):
2011
Accrued SERP liability (1)
SERP additional minimum liability
(1)
$
See Note 10 “Employee Retirement Plans”.
101
2010
7,947
2,134
$
7,414
762
$ 10,081
$
8,176
Note 9. Related Parties
An affiliate of each of the Partners owns and operates a casino attached and adjacent to Silver Legacy. Our Partners may
be deemed to be in a conflict of interest position with respect to decisions they make relating to the Partnership as a result of
the interests their affiliates have in the Eldorado Hotel & Casino and Circus Circus Hotel & Casino-Reno, respectively.
The Partnership believes that all of the transactions mentioned below are on terms at least as favorable to the Partnership
as would have been obtained from an unrelated party.
Silver Legacy has utilized an aircraft owned by Recreational Enterprises, Inc. (“REI”), for the purpose of providing air
service to select customers. During the years ended December 31, 2011, 2010 and 2009, the Partnership paid $27,600,
$24,800 and $17,400, respectively, for such services. Although there is no agreement obligating the Partnership to utilize the
plane or entitling it to do so, it is anticipated that the Partnership will continue to utilize this service from time to time in the
future on terms mutually acceptable to the parties. REI, which owns 47.8% of ELLC, is owned by various members of the
Carano family, including Gary L. Carano, Silver Legacy’s General Manager, Glenn T. Carano, Silver Legacy’s Executive
Director of Marketing, and Gene R. Carano, the General Manager of Eldorado Hotel & Casino, each of whom owns an
approximately 10.1% beneficial interest in REI, and Donald L. Carano, the father of Gary, Glenn and Gene Carano, who
owns approximately 49.5% interest in REI.
EN
TI
A
L
Silver Legacy’s marketing and sales departments have utilized a yacht owned by Sierra Adventure Equipment Leasing,
Inc. (“Sierra Leasing”) at a flat rate per trip of $3,000 ($2,500 if the trip was shared with our Partner, ELLC) for various
promotional events. The payments made by the Partnership to Sierra Leasing for the use of the yacht totaled $15,500, $7,500
and $2,500 during 2011, 2010 and 2009, respectively. Although there is no agreement obligating the Partnership to utilize the
yacht or entitling it to do so, it is anticipated that the Partnership will continue to utilize this service from time to time in the
future on terms mutually acceptable to the parties. Sierra Leasing is owned by Donald L. Carano, the father of Gary L.
Carano, Silver Legacy’s General Manager, Glenn T. Carano, Silver Legacy’s Executive Director of Marketing, and Gene R.
Carano, the General Manager of Eldorado Hotel & Casino.
N
FI
D
Eldorado Resorts LLC owns the skywalk that connects Silver Legacy with the Eldorado Hotel & Casino. The charges
from the service provider for the utilities associated with this skywalk are billed to the Partnership together with the charges
for the utilities associated with Silver Legacy. Such charges are paid to the service provider by the Partnership, and the
Partnership is reimbursed by Eldorado Resorts LLC for the portion of the charges allocable to the utilities provided to the
skywalk. The charges for the utilities provided to the skywalk during the years ended December 31, 2011, 2010, and 2009
were $52,200, $52,200 and $61,700, respectively.
O
Since 1998, the Partnership has purchased from Eldorado Resorts LLC homemade pasta and other products for use in the
restaurants at Silver Legacy and it is anticipated that the Partnership will continue to make similar purchases in the future.
For purchases of these products during the years ended December 31, 2011, 2010 and 2009, which are billed to the
Partnership at cost plus associated labor, the Partnership paid Eldorado Resorts LLC $56,900, $54,400 and $50,800,
respectively.
C
Beginning in October 2005, the Partnership began providing on-site laundry services for Eldorado Resorts LLC related
to the cleaning of certain types of linens. Although there is no agreement obligating Eldorado Resorts LLC to utilize this
service, it is anticipated that the Partnership will continue to provide these laundry services in the future. The Partnership
charges Eldorado Resorts LLC for labor and laundry supplies on a per unit basis which totaled $129,100, $131,000 and
$113,100 during the years ended December 31, 2011, 2010 and 2009, respectively. The Partnership believes that the terms
under which the Partnership provided these services were at least as favorable to it as those that would have been obtained in
comparable transactions with an unaffiliated third party.
In April 2008, the Partnership and Eldorado Resort LLC began combining certain back-of-the-house and administrative
departmental operations, including purchasing, advertising, information systems, surveillance, engineering, and various
shared management positions of the Eldorado Hotel & Casino and Silver Legacy in an effort to achieve payroll cost savings
synergies at both properties. Payroll costs associated with the combined operations are shared equally and are billed at cost
plus an estimated allocation for related benefits and taxes. During 2011, 2010 and 2009, the Partnership reimbursed Eldorado
Resorts LLC $654,800, $647,300 and $515,000, respectively, for the Partnership’s allocable portion of the shared
administrative services costs associated with the operations performed at the Eldorado Hotel & Casino. During 2011, 2010
and 2009, Eldorado Resorts LLC reimbursed the Partnership $307,000, $249,500 and $142,000, respectively, for Eldorado’s
allocable portion of the shared administrative services costs associated with the operations performed at Silver Legacy.
In April 2001, the Partnership began utilizing 235 spaces in the parking garage at Circus Circus Hotel and Casino. The
spaces are utilized to provide parking for employees of Silver Legacy. In consideration for its use of the spaces, the
Partnership pays Circus Circus Hotel and Casino rent in the amount of $5,000 per month. In May 2009, the Partnership also
102
began utilizing an uncovered parking lot adjacent to Circus Circus Hotel and Casino for oversize vehicles. In consideration
for its use of the space, the Partnership pays Circus Circus Hotel and Casino rent in the amount of $800 per month. Although
there is no agreement obligating the Partnership to continue utilizing the spaces or entitling it to do so, it is anticipated that
the Partnership will continue this agreement for the foreseeable future.
Note 10. Employee Retirement Plans
The Partnership instituted a defined contribution 401(k) plan in September 1995 which covers all employees who meet
certain age and length of service requirements and allowed for an employer contribution up to 25 percent of the first six
percent of each participating employee’s compensation. Plan participants can elect to defer before tax compensation through
payroll deductions. Those deferrals are regulated under Section 401(k) of the Internal Revenue Code. In conjunction with
implemented cost savings programs, the Partnership discontinued the employer matching contribution in February 2009. As a
result, the Partnership did not have any matching contributions for the years ended December 31, 2011 and 2010. The
Partnership’s matching contribution was $26,900 for the year ended December 31, 2009.
TI
A
L
Effective January 1, 2002, the Partnership adopted a Supplemental Executive Retirement Plan (“SERP”) for a select
group of highly compensated management employees. The SERP provides for a lifetime benefit at age 60, based on a
formula which takes into account a participant’s highest annual compensation, years of service, and executive level. The
SERP also provides an early retirement benefit at age 55 with at least four years of service, a disability provision, and a lump
sum death benefit. The obligation is being funded informally through life insurance contracts on the participants and related
cash surrender value. The Partnership’s periodic pension costs were $0.4 million, $0.7 million and $1.0 million, respectively,
for the years ended December 31, 2011, 2010 and 2009.
N
FI
D
Changes in Projected Benefit Obligation:
Projected benefit obligation at beginning of year
Service cost
Interest cost
Actuarial loss
Benefits paid
EN
The following information summarizes activity in the SERP for the years ended December 31, 2011 and 2010 (in
thousands):
Projected benefit obligation at end of year
O
Fair Value of Plan Assets(1)
C
Reconciliation of Funded Status:
Funded status
Unrecognized actuarial loss
Unrecognized prior service cost
Net amount recognized
Amounts Recognized on the Consolidated Balance Sheet:
Accrued net pension cost
Additional minimum liability
Accumulated other comprehensive loss
Net amount recognized
Weighted Average Assumptions:
Discount rate used to determine benefit obligations (2)
Discount rate used to determine net periodic benefit cost (2)
Expected long-term return on plan assets
Rate of compensation increase
103
2011
2010
$ 8,454
406
1,369
(75)
$ 7,742
18
428
341
(75)
$ 10,154
$ 8,454
$
$
—
2011
—
2010
$ (10,154)
2,134
-
$ (8,454)
762
-
$ (8,020)
$ (7,692)
$ (8,020)
(2,134)
2,134
$ (7,692)
(762)
762
$ (8,020)
$ (7,692)
3.96%
3.96%
N/A
3.50%
5.05%
5.05 %
N/A
3.50 %
The components of net periodic pension cost were as follows for the years ended December 31, 2011, 2010 and 2009
(in thousands):
2011
Components of Net Pension Cost:
Current period service cost
Interest cost
Amortization of prior service cost
$
Net expense
406
-
$ 406
2010
2009
18
428
226
$ 310
446
227
$ 672
$ 983
$
The following benefit payments, which reflect expected future service as appropriate, are expected to be paid over the
next ten years:
(in thousands)
d)
L
75
420
484
564
722
3,676
While the SERP is an unfunded plan, the Partnership is informally funding the plan through life insurance contracts on the participants. The life
insurance contracts had cash surrender values totaling $6.3 million at December 31, 2011 and 2010. The life insurance contracts had a face value of
$11.5 million at December 31, 2011 and $11.8 million at December 31, 2010.
The discount rate utilized was based on the Citigroup Pension Liability Index as of December 31, 2011 and December 31, 2010 with a maturity of 32
years.
Operating Leases
N
FI
D
Note 11. Commitments and Contingencies
EN
c)
$
TI
A
2012
2013
2014
2015
2016
2017-2021
$
162
27
5
5
$
199
C
2012
2013
2014
Thereafter
O
The Partnership leases land and equipment under operating leases. Future minimum payments under noncancellable
operating leases with initial terms of one year or more consisted of the following at December 31, 2011 (in thousands):
Total rental expense under operating leases was $0.5 million, $0.5 million and $0.4 million for the years ended December 31,
2011, 2010 and 2009, respectively, which include rental payments associated with cancellable operating leases with terms
less than one year.
Litigation
The Partnership is party to various litigation arising in the normal course of business. Management is of the opinion that
the ultimate resolution of these matters will not have a material effect on the financial position or the results of operations of
the Partnership.
Sales and Use Tax
In March 2008, the Nevada Supreme Court ruled, in a case involving another gaming company, that food and nonalcoholic beverages purchased for the use in providing complimentary meals to customers and to employees were exempt
from use tax. The Partnership had previously paid use tax on these items and has generally filed for refunds for the periods
from February 2000 to February 2008 related to this matter. The aggregate amount for which a refund claim is pending is
approximately $1.5 million. Due to uncertainty surrounding the administrative process, the Partnership did not record a gain
104
on the tax refund. The Partnership is claiming the exemption on sales and use tax returns for periods after February 2008 in
light of this Nevada Supreme Court decision and has not accrued or paid any sales or use tax for those periods.
Recently, the Nevada Department of Taxation (the “Department”) has asserted that gaming companies should pay sales
tax on customer complimentary meals and employee meals on a prospective basis. This position stems from a recent Nevada
Tax Commission (“Commission”) decision concerning another gaming company which states that complimentary meals
provided to customers are subject to sales tax at the retail value of the meal and employee meals are subject to sales tax at the
cost of the meal. The other gaming company filed in Clark County District Court a petition for judicial review of the
Commission’s decision. The Partnership is currently evaluating whether or not to accrue tax prospectively as it disagrees with
the position asserted by the Department.
Note 12. Partnership Agreement
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Concurrent with the issuance of the Notes on March 5, 2002, the Partnership’s original partnership agreement was
amended and restated in its entirety and was further amended in April 2002 (the “New Partnership Agreement”). The New
Partnership Agreement provides for, among other items, profits and losses to be allocated to the Partners in proportion to
their percentage interests, separate capital accounts to be maintained for each Partner, provisions for management of the
Partnership and payment of distributions and bankruptcy and/or dissolution of the Partnership. The April 2002 amendments
were principally (i) to provide equal voting rights for ELLC and Galleon with respect to approval of the partnership’s annual
business plan and the appointment and compensation of the general manager, and (ii) to give each Partner the right to
terminate the general manager. In conjunction with issuance of the Notes, a $2.1 million distribution was paid to Galleon
representing the remaining Priority Allocation payment to Mandalay pursuant to the Partnership’s original partnership
agreement and a special distribution was paid to ELLC and Galleon of $10.0 million and $20.0 million respectively.
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EN
There were no distributions for the years ended December 31, 2011, 2010 and 2009. No tax distributions of the
Partnership to its partners were made in 2011, 2010 and 2009 and are not anticipated to be owed based on the expected final
2011 tax return.
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