UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED September 30, 2005. |
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO . |
Commission file number 333-87202
CIRCUS AND ELDORADO JOINT VENTURE
SILVER LEGACY CAPITAL CORP.
(Exact names of registrants as specified in their charters)
| Nevada | 88-0310787 | |
| Nevada | 71-0868362 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
407 North Virginia Street, Reno, Nevada 89501
(Address of principal executive offices, including zip code)
(800) 687-7733
(Registrants’ telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether either of the registrants is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate by check mark whether either of the registrants is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Circus and Eldorado Joint Venture | Yes ¨ No x | |||
Silver Legacy Capital Corp. | Yes x No ¨ |
The number of shares of Silver Legacy Capital Corp.’s Common Stock outstanding at November 14, 2005 was 2,500. All of these shares are owned by Circus and Eldorado Joint Venture.
CIRCUS AND ELDORADO JOINT VENTURE
SILVER LEGACY CAPITAL CORP.
FORM 10-Q
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PART I. FINANCIAL INFORMATION
| Item 1. | Financial Statements |
CIRCUS AND ELDORADO JOINT VENTURE
(doing business as Silver Legacy Resort Casino)
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
| September 30, 2005 | December 31, 2004 | |||||
ASSETS | ||||||
CURRENT ASSETS: | ||||||
Cash and cash equivalents | $ | 28,527 | $ | 30,239 | ||
Accounts receivable, net | 4,923 | 4,532 | ||||
Inventories | 1,994 | 2,111 | ||||
Prepaid expenses and other | 5,415 | 3,993 | ||||
Total current assets | 40,859 | 40,875 | ||||
PROPERTY AND EQUIPMENT, NET | 259,601 | 260,289 | ||||
OTHER ASSETS, NET | 8,403 | 8,168 | ||||
Total Assets | $ | 308,863 | $ | 309,332 | ||
LIABILITIES AND PARTNERS’ EQUITY | ||||||
CURRENT LIABILITIES: | ||||||
Accounts payable | $ | 4,461 | $ | 4,336 | ||
Accrued interest | 1,350 | 5,400 | ||||
Accrued and other liabilities | 8,818 | 9,041 | ||||
Total current liabilities | 14,629 | 18,777 | ||||
LONG-TERM DEBT | 159,601 | 159,554 | ||||
OTHER LONG-TERM LIABILITIES | 3,897 | 3,213 | ||||
Total liabilities | 178,127 | 181,544 | ||||
PARTNERS’ EQUITY | 130,736 | 127,788 | ||||
Total Liabilities and Partners’ Equity | $ | 308,863 | $ | 309,332 | ||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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CIRCUS AND ELDORADO JOINT VENTURE
(doing business as Silver Legacy Resort Casino)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||||
OPERATING REVENUES: | ||||||||||||||||
Casino | $ | 24,295 | $ | 22,749 | $ | 61,712 | $ | 65,810 | ||||||||
Rooms | 11,852 | 11,138 | 28,970 | 30,790 | ||||||||||||
Food and beverage | 10,138 | 9,777 | 26,343 | 27,566 | ||||||||||||
Other | 2,303 | 2,719 | 6,513 | 6,751 | ||||||||||||
| 48,588 | 46,383 | 123,538 | 130,917 | |||||||||||||
Less: promotional allowances | (4,327 | ) | (4,025 | ) | (11,048 | ) | (11,094 | ) | ||||||||
Net operating revenues | 44,261 | 42,358 | 112,490 | 119,823 | ||||||||||||
OPERATING EXPENSES: | ||||||||||||||||
Casino | 11,942 | 11,417 | 32,041 | 32,162 | ||||||||||||
Rooms | 3,312 | 3,093 | 9,012 | 9,148 | ||||||||||||
Food and beverage | 6,559 | 6,601 | 18,103 | 18,623 | ||||||||||||
Other | 1,685 | 2,076 | 5,006 | 5,213 | ||||||||||||
Selling, general and administrative | 8,183 | 8,076 | 23,160 | 23,002 | ||||||||||||
Depreciation | 2,798 | 2,664 | 8,215 | 7,974 | ||||||||||||
(Gain) loss on disposition of assets | (22 | ) | — | (24 | ) | 14 | ||||||||||
Total operating expenses | 34,457 | 33,927 | 95,513 | 96,136 | ||||||||||||
OPERATING INCOME | 9,804 | 8,431 | 16,977 | 23,687 | ||||||||||||
OTHER (INCOME) EXPENSE: | ||||||||||||||||
Interest expense, net | 4,153 | 4,243 | 12,510 | 12,745 | ||||||||||||
Other, net | (21 | ) | 78 | (21 | ) | 74 | ||||||||||
Total other (income) expense | 4,132 | 4,321 | 12,489 | 12,819 | ||||||||||||
NET INCOME | $ | 5,672 | $ | 4,110 | $ | 4,488 | $ | 10,868 | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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CIRCUS AND ELDORADO JOINT VENTURE
(doing business as Silver Legacy Resort Casino)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS’ EQUITY
(In thousands)
| Galleon, Inc. | Eldorado Resorts, LLC | Total | ||||||||||
BALANCE, January 1, 2005 | $ | 58,894 | $ | 68,894 | $ | 127,788 | ||||||
Net Income | 2,244 | 2,244 | 4,488 | |||||||||
Partners’ Distributions | (770 | ) | (770 | ) | (1,540 | ) | ||||||
BALANCE, September 30, 2005 | $ | 60,368 | $ | 70,368 | $ | 130,736 | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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CIRCUS AND ELDORADO JOINT VENTURE
(doing business as Silver Legacy Resort Casino)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Months Ended September 30, | ||||||||
| 2005 | 2004 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income | $ | 4,488 | $ | 10,868 | ||||
Adjustments to reconcile net income to net cash provided by operating operating activities: activities: | ||||||||
Depreciation and amortization | 8,756 | 8,516 | ||||||
(Gain) loss on disposition of assets | (24 | ) | 14 | |||||
Increase in accrued pension cost | 684 | 655 | ||||||
Changes in current assets and current liabilities: | ||||||||
Accounts receivable, net | (391 | ) | (296 | ) | ||||
Inventories | 117 | (163 | ) | |||||
Prepaid expenses and other | (1,430 | ) | (520 | ) | ||||
Accounts payable | 125 | 852 | ||||||
Accrued interest | (4,050 | ) | (4,050 | ) | ||||
Accrued and other liabilities | (223 | ) | 380 | |||||
Total adjustments | 3,564 | 5,388 | ||||||
Net cash provided by operating activities | 8,052 | 16,256 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Proceeds from sale of assets | 38 | 4 | ||||||
Increase in other assets | (731 | ) | (617 | ) | ||||
Purchase of property and equipment | (7,531 | ) | (3,508 | ) | ||||
Net cash used in investing activities | (8,224 | ) | (4,121 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Distributions to partners | (1,540 | ) | (5,434 | ) | ||||
Net cash used in financing activities | (1,540 | ) | (5,434 | ) | ||||
Net (decrease) increase in cash and cash equivalents | (1,712 | ) | 6,701 | |||||
Cash and cash equivalents at beginning of period | 30,239 | 19,405 | ||||||
Cash and cash equivalents at end of period | $ | 28,527 | $ | 26,106 | ||||
SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
Cash paid during period for interest | $ | 16,253 | $ | 16,255 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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CIRCUS AND ELDORADO JOINT VENTURE
(doing business as Silver Legacy Resort Casino)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies and Basis of Presentation
Principles of Consolidation/Operations
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 Mandalay Resort Group) (“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 $25,000,000 and cash of $26,900,000 for a total equity investment of $51,900,000. Galleon contributed cash to the Partnership of $51,900,000 to comprise their total equity investment. Each partner has a 50% interest in the Partnership.
On April 25, 2005, a wholly owned subsidiary of MGM MIRAGE (“MGM”) was merged with and into Mandalay Resort Group (“Mandalay”) as a result of which Mandalay became a wholly owned subsidiary of MGM MIRAGE. With the consummation of the merger, MGM MIRAGE acquired Mandalay’s ownership of Galleon, Inc.
The condensed 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 $160,000,000 principal amount of 10 1/8% mortgage notes due 2012 issued by the Partnership and Capital and, as such, Capital does not have any operations, assets, or revenues. All significant intercompany accounts and transactions have been eliminated in consolidation.
In the opinion of Management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, all of which are normal and recurring, necessary to present fairly the financial position of the Partnership as of September 30, 2005, and the results of operations for the three and nine months ended September 30, 2005 and 2004 and cash flows for the nine months ended September 30, 2005 and 2004. The results of operations for such periods are not necessarily indicative of the results to be expected for a full year.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Partnership’s annual report on Form 10-K for the year ended December 31, 2004.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Note 2. Certain Risks and Uncertainties
A significant portion of the Partnership’s revenues and operating income are generated from patrons who are residents of northern California. A change in general economic conditions or the extent and nature of casino gaming in California, Washington or Oregon could adversely affect the Partnership’s operating results. In March 2000, California voters approved the constitutional amendment which legalized “Nevada-style” gaming on Native American reservations. Many existing Native American gaming facilities in northern California are modest compared to Silver Legacy. However, some Native American tribes have established large-scale gaming facilities in California and numerous 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. In particular, a significant Native American casino located approximately 21 miles northeast of Sacramento opened in June 2003. While this casino does not currently have hotel rooms, it presently has approximately 2,700 slot machines and 100 table games which exceeds the number of gaming units at Silver Legacy.
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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 reservation. The number of 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, including the aforementioned Sacramento-area casino which received approval of amendments to its compact in September 2004 allowing for an increase in the number of slot machines at this property to approximately 2,700.
We believe the continued growth of Native American gaming establishments could continue to place additional competitive pressure on our operations. While we cannot predict the extent of any future impact, it could be significant.
Note 3. Long-Term Debt
Long-term debt consisted of the following (in thousands):
| September 30, 2005 | December 31, 2004 | |||||
10 1/8% Mortgage Notes due 2012 (net of unamortized discount of $399 and $446, respectively) | $ | 159,601 | $ | 159,554 | ||
On March 5, 2002, the Partnership and Capital (the “Issuers”) issued $160,000,000 principal amount of 10 1/8% Mortgage Notes due 2012 (“Notes”). Concurrent with issuing the Notes, the Partnership entered into a new senior secured credit facility (the “New Credit Facility”) for $40,000,000. The proceeds from the Notes, together with $26,000,000 in borrowings under the New Credit Facility, were used to repay $150,200,000 representing all of the indebtedness outstanding under the prior bank credit facility (the “Bank Credit Facility”) and to fund $30,000,000 of distributions to the Partners. In addition, the remaining proceeds along with operating cash flows were used to pay $6,300,000 in related fees and expenses of the transactions. These fees were capitalized and are included in other assets.
The Notes are senior secured obligations which rank equally with all of the Partnership’s outstanding senior debt and senior to any subordinated debt. The Notes are secured by a security interest in the Issuers’ existing and future assets, which is junior to a security interest in such assets securing the Partnership’s obligations on the New Credit Facility and any refinancings of such facility that are permitted pursuant to the terms of the Notes. Each of the Partners executed a pledge of all of its partnership interest in the Partnership to secure the Notes, which is junior to a pledge of such partnership interest to secure the Partnership’s obligations on the New Credit Facility and any refinancings of such facility that are permitted pursuant to the terms of the Notes. The Notes mature on March 1, 2012 and bear interest at the rate of 10 1/8% per annum, payable semi-annually in arrears on March 1 and September 1 of each year, commencing on September 1, 2002.
The New Credit Facility originally provided for a $20,000,000 senior secured revolving credit facility and a $20,000,000 five-year term loan facility, each of which provided for the payment of interest at floating rates based on LIBOR plus a spread. The commitment under the term loan facility originally provided for periodic reductions with the then remaining balance due March 31, 2007. The term loan was paid in full as of December 31, 2003 and the revolving credit facility was reduced to $10,000,000 in November 2003.
The Notes and New Credit Facility contain various restrictive covenants including the maintenance of certain financial ratios and limitations on additional debt, disposition of property, mergers and similar transactions. On November 4, 2003, the Partnership, U.S. Bank, N.A. and Bank of America, N.A., executed an amendment to the New Credit Facility which reduced the revolving facility to $10,000,000 and revised certain covenant ratios with retroactive effect to September 30, 2003, including the maximum total debt to EBITDA ratio that the Partnership had exceeded as of September 30, 2003. On June 15, 2005, the parties executed a further amendment to the New Credit Facility (as amended, the “Amended Credit Facility”) to provide a conditional waiver of the facility’s financial covenants in respect of the quarter ended June 30, 2005, and each subsequent quarter through and including December 31, 2005, provided that no additional credit is extended under the Amended Credit Facility during a quarter for which the waiver is relied upon. In addition, as a condition precedent to any draw on the Amended Credit Facility subsequent to June 15, 2005, the Partnership must be in compliance with the Amended Credit Facility’s financial covenants as to the then most recent fiscal quarter in respect of which the Partnership is required to deliver financial statements pursuant to section 6.1 of the Amended Credit Facility. For further information regarding our financial covenants, see “Senior Secured Credit Facility” in Item 2. During the quarter ended September 30, 2005, there was no indebtedness outstanding under the Amended Credit Facility. As of September 30, 2005, the Partnership did not meet the financial covenants in the Amended Credit Facility and, consequently, is precluded from utilizing the Amended Credit Facility until it has
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completed a fiscal quarter as to which it is in compliance with the facility’s covenants. The entire principal amount, if any, then outstanding under the Amended Credit Facility becomes due and payable on March 31, 2007, unless the maturity date is extended with the consent of the lenders. As of September 30, 2005, the Partnership was in compliance with the covenants in the indenture relating to the Notes.
Note 4. Related Parties
An affiliate of each of our 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.
Note 5. Supplemental Executive Retirement Plan
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 65, 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. While the SERP is an unfunded plan, the Partnership is informally funding the plan through life insurance contracts on the participants. The Partnership anticipates that its periodic pension cost for the year ending December 31, 2005 will be approximately $924,600, of which $684,000 had been accrued as of September 30, 2005.
Note 6. Partnership Agreement
Concurrent with the issuance of the Notes on March 5, 2002, the Partnership’s partnership agreement was amended and restated in its entirety and was further amended in April 2002 (the “Partnership Agreement”). The Partnership Agreement provides for, among other things, 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.
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Overview
Effective March 1, 1994, Eldorado Limited Liability Company (“ELLC”), a Nevada limited liability company owned and controlled by Eldorado Resorts LLC, and Galleon, Inc. (“Galleon”), a Nevada corporation owned and controlled by Mandalay Resort Group (“Mandalay”), formerly known as Circus Circus Enterprises, Inc., entered into a joint venture agreement to establish the Partnership for the purpose of constructing, owning and operating Silver Legacy. On April 25, 2005, a wholly owned subsidiary of MGM MIRAGE (“MGM”) was merged with and into Mandalay as a result of which Mandalay became a wholly owned subsidiary of MGM MIRAGE. With the consummation of the merger, MGM MIRAGE acquired Mandalay’s ownership of Galleon, Inc. Silver Legacy Capital Corp. (“Capital”), a wholly owned subsidiary of the Partnership, which was incorporated for the sole purpose of serving as a co-issuer of the $160 million principal amount of 10 1/8% mortgage notes due 2012 issued by the Partnership and Capital (the “Notes”), and does not have any operations, assets or revenues.
On July 28, 1995, Silver Legacy commenced operations as a hotel-casino in downtown Reno, Nevada. Silver Legacy is a leader within the Reno market, offering the largest number of table games and slot machines and the second largest number of hotel rooms of any property in the Reno market. Silver Legacy’s net operating revenues and income are derived largely from our gaming activities. In an effort to enhance our gaming revenues, we attempt to maximize the use of our gaming facilities at Silver Legacy by providing a well-balanced casino environment that contains a mix of games attractive to multiple market segments. Rooms, food and beverage also contribute a large portion of our net revenues.
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. In addition, hotel occupancy and price per room, or average daily rate (“ADR”), are key indicators for our hotel business.
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Significant Factors Affecting Year to Date Results of Operations
Expansion of Native American Gaming
A significant portion of Silver Legacy’s revenues and operating income are generated from patrons who are residents of northern California, and as such, our results of operations have been adversely impacted by the growth in Native American gaming in northern California. Many existing Native American gaming facilities in northern California are modest compared to Silver Legacy. However, some Native American tribes have established large-scale gaming facilities in California and numerous 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. In particular, a significant Native American casino located approximately 21 miles northeast of Sacramento opened in June 2003. While this casino does not currently have hotel rooms, it presently has approximately 2,700 slot machines and 100 table games which exceeds the number of gaming units at Silver Legacy. As this facility and other northern California Native American gaming operations have expanded, we believe the increasing competition generated by these gaming operations has negatively impacted drive-in, day-trip visitor traffic from our main feeder markets 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 reservation. The number of 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, including the aforementioned Sacramento-area casino which received approval of amendments to its compact in September 2004 allowing for an increase in the number of slot machines at this property to approximately 2,700.
We believe the continued growth of Native American establishments could continue to place additional competitive pressure on our operations. While we cannot predict the extent of any future impact, it could be significant.
Severe Weather
Silver Legacy’s operations are subject to seasonal variation, with the weakest results generally occurring during the winter months. Variations occur when weather conditions make travel to Reno by visitors from northern California, our main feeder market, difficult. From January through April of 2005, our region experienced extremely poor weather, including 100-year record snowfall. As a result, there was a significant adverse affect on our hotel occupancy and slots, table games, and restaurant volume during these months.
Absence of a Major Bowling Tournament in the Reno Market
The absence of a major bowling tournament during the first half of 2005 negatively impacted our non-gaming revenues, and to a lesser extent our casino revenues. The National Bowling Stadium, located one block from Silver Legacy, is one of the largest bowling complexes in North America and has been selected to host multi-month tournaments in Reno two of every three years through 2018. Historically, these bowling tournaments have attracted a significant number of visitors to the Reno market and have benefited the downtown area. In 2004, the American Bowling Congress Tournament brought approximately 80,000 bowlers to the downtown Reno area over the period from mid-February through June.
Other Factors Affecting Results of Operations
A public works project is underway in the downtown Reno area which will lower the train tracks that traverse Reno’s downtown district and separate the Silver Legacy and the two adjoining properties from the rest of the downtown gaming facilities. Construction on this project began in 2003 and is expected to be completed in 2006. To date, the impact of this project on our operations has been minimal; however, we cannot determine its impact on our future operations.
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Summary Financial Results
The following table highlights the results of our operations (dollars in thousands):
Three months ended September 30, 2005 | Three months ended September 30, 2004 | Percent Change | Nine months ended September 30, 2005 | Nine months ended September 30, 2004 | Percent Change | |||||||||||||
Net revenues | $ | 44,261 | $ | 42,358 | 4.5 | % | $ | 112,490 | $ | 119,823 | (6.1 | )% | ||||||
Operating expenses | 34,457 | 33,927 | 1.6 | 95,513 | 96,136 | (0.6 | ) | |||||||||||
Operating income | 9,804 | 8,431 | 16.3 | 16,977 | 23,687 | (28.3 | ) | |||||||||||
Net income | 5,672 | 4,110 | 38.0 | 4,488 | 10,868 | (58.7 | ) | |||||||||||
Net Revenues. During the three months ended September 30, 2005, we experienced growth in net revenues compared with the same prior year period as a result of higher casino, rooms, and to a lesser extent, food and beverage revenues. These increases were primarily driven by growth in the number of visitors to the Reno market during the current period combined with successful efforts to drive visitation to Silver Legacy via direct mail promotional offers, our improved players’ club program, and increased advertising. Moreover, an enhanced concert and special events schedule, both on property and within the downtown Reno area, generated traffic and provided the opportunity to capture additional volume.
Net revenues declined during the nine months ended September 30, 2005 compared to the nine months ended September 30, 2004 primarily due to decreases in casino, rooms, and food and beverage revenues. We believe the main contributors to these decreases were the previously discussed factors impacting the first six months of 2005 which included increased competition generated by growth in Native American gaming, severe weather conditions, and the lack of a major bowling tournament in 2005. In addition, lower hold percentages in both table games and slots contributed to the declines in net revenues during the nine months ended September 30, 2005.
Operating Income and Net Income. Operating income and net income both increased during the three months ended September 30, 2005 compared to the same prior year periods due to increased revenues combined with efforts to control costs which resulted in improved departmental profit margins.
During the nine months ended September 30, 2005 compared to the same prior year period, operating income and net income declined as a result of lower departmental revenues along with increased selling, general and administrative expenditures. Depreciation expense increased over the prior year period which also contributed to the percentage decrease in operating income and net income.
Revenues
The following table highlights our sources of net operating revenues (dollars in thousands):
Three months ended September 30, 2005 | Three months ended September 30, 2004 | Percent Change | Nine months ended September 30, 2005 | Nine months ended September 30, 2004 | Percent Change | |||||||||||||
Casino | $ | 24,295 | $ | 22,749 | 6.8 | % | $ | 61,712 | $ | 65,810 | (6.2 | )% | ||||||
Rooms | 11,852 | 11,138 | 6.4 | 28,970 | 30,790 | (5.9 | ) | |||||||||||
Food and beverage | 10,138 | 9,777 | 3.7 | 26,343 | 27,566 | (4.4 | ) | |||||||||||
Other | 2,303 | 2,719 | (15.3 | ) | 6,513 | 6,751 | (3.5 | ) | ||||||||||
Promotional allowances | 4,327 | 4,025 | 7.5 | 11,048 | 11,094 | (0.4 | ) | |||||||||||
Casino Revenues.We experienced growth in our gaming revenues during the current quarter compared to the same prior year period primarily due to increased volume in both the table games and slots departments. The main contributors to these increases were various direct mail promotional offers and our improved players’ club program along with the aforementioned strong special events and concert schedule during the current period.
During the nine months ended September 30, 2005 compared to the same prior year period, casino revenues fell due to lower hold percentages in both the table games and slots departments combined with declines in both table games drop and slot handle. The factors affecting net revenues during the first half of 2005 were the primary contributors to the decreases in casino volume with the majority of the impact occurring during the period from January through April 2005.
Room Revenues.An increase in our occupancy percentage resulted in higher room revenues during the current quarter compared to the same prior year period. Our ADR and occupancy were $74.72 and 92.6%, respectively, for the
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three months ended September 30, 2005 compared to $74.47 and 87.5%, respectively during the three months ended September 30, 2004. While our ADR remained flat, we were able to achieve higher occupancy levels in the current quarter due to an increase in the number of casino, leisure and wholesale room nights resulting from increased demand within the Reno market. In addition, our casino and leisure segments benefited from various direct mail offers and a high-quality concert and special events schedule during the current quarter.
During the nine months ended September 30, 2005 compared to the same prior year period, our room revenues decreased as a result of lower ADR and occupancy percentages in the 2005 period. Our ADR and occupancy were $69.28 and 81.6%, respectively, for the nine months ended September 30, 2005 compared to $69.82 and 86.2%, respectively, for the nine months ended September 30, 2004. The primary contributors to these declines in ADR and occupancy were decreases in our convention and wholesale segments which were adversely impacted by the lack of a major bowling tournament in the Reno market during the first half of 2005. Additional factors included severe winter weather during January through April of 2005 and our hotel room renovation project which removed from service approximately 100 rooms per day throughout the first half of 2005, including holidays and weekends when we generally would have otherwise achieved an occupancy level at or near 100%.
Food and Beverage Revenues. Despite a decline in banquet revenues associated with several large convention groups which were hosted during the three months ended September 30, 2004, food and beverage revenues increased during the current quarter compared to the same prior year period. This increase was driven by growth in the average check in our food outlets, increased cash beverage sales in our beverage outlets, and additional traffic generated by the increase in hotel guests during the current quarter.
During the nine months ended September 30, 2005 compared to the same prior year period, food and beverage revenues decreased as a result of reduced guest counts attributable to the previously discussed factors affecting overall revenues.
Other Revenues. Other revenues are comprised of revenues generated by our retail outlets, arcade, entertainment, events pavilion, and other miscellaneous items. The decreases in other revenues during the three and nine months ended September 30, 2005 compared to the same prior year periods were mainly due to declines in entertainment and events pavilion revenues which were partially offset by increased retail revenues. During 2005, Silver Legacy, in partnership with three other downtown area casinos, produced or promoted several concerts in a newly constructed downtown special events center. This new facility offers a larger seating capacity and the opportunity to produce concerts with headliner acts that command higher professional entertainer fees. While these concerts were successful in bringing visitors to the downtown area, our entertainment revenues were impacted as we reduced the number of concerts produced solely by Silver Legacy in an effort to take advantage of the new facility. Events pavilion revenues declined during the three and nine months ended September 30, 2005 compared to the same prior year periods due to the absence of several large convention banquets held in our events pavilion during the prior year. The increases in retail revenues in both periods were primarily due to growth in complimentary retail revenues associated with our new Club Legacy players’ club program.
Promotional Allowances. Promotional allowances, expressed as a percentage of gross revenues, increased to 8.9% for the three and nine months ended September 30, 2005 compared to 8.7% and 8.5% for the three and nine months ended September 30, 2004, respectively. These increases were primarily due to increased complimentary rooms and food offered in association with our enhanced Club Legacy players’ club which was implemented in January 2005. The new club format is more user-friendly and enables casino players in our database to redeem their complimentaries directly at our restaurants, bars and retail outlets and upon hotel check-out.
Operating Expenses
The following table highlights our operating expenses (dollars in thousands):
Three months ended September 30, 2005 | Three months ended September 30, 2004 | Percent Change | Nine months ended September 30, 2005 | Nine months ended September 30, 2004 | Percent Change | |||||||||||||
Casino | $ | 11,942 | $ | 11,417 | 4.6 | % | $ | 32,041 | $ | 32,162 | (0.4 | )% | ||||||
Rooms | 3,312 | 3,093 | 7.1 | 9,012 | 9,148 | (1.5 | ) | |||||||||||
Food and beverage | 6,559 | 6,601 | (0.6 | ) | 18,103 | 18,623 | (2.8 | ) | ||||||||||
Other | 1,685 | 2,076 | (18.8 | ) | 5,006 | 5,213 | (4.0 | ) | ||||||||||
Selling, general and administrative | 8,183 | 8,076 | 1.3 | 23,160 | 23,002 | 0.7 | ||||||||||||
Depreciation | 2,798 | 2,664 | 5.0 | 8,215 | 7,974 | 3.0 | ||||||||||||
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Casino Expenses.For the three months ended September 30, 2005 compared to the same prior year period, casino expenses rose as a result of increased volume within the casino departments combined with higher promotional and direct mail expenditures.
Casino expenses remained flat during the nine months ended September 30, 2005 compared to the same prior year period. Decreases in departmental payroll, gaming taxes and gaming supplies were offset by the previously discussed increases in direct mail and promotional costs and an expense recorded for unredeemed complimentaries associated with our new players’ club program put into operation in January 2005.
Room Expenses. Room expenses for the three months ended September 30, 2005 increased compared to the same prior year period as a result of increased occupied room nights.
During the nine months ended September 30, 2005, room expenses decreased compared to the same prior year periods primarily due to lower occupancy levels in the current period. Additional costs, including housekeeping labor, amenity supplies and laundry, were incurred with each newly renovated hotel room placed in service during the first half of 2005, which adversely affected departmental profit in the 2005 periods.
Food and Beverage Expenses. Despite an increase in food and beverage revenues, food and beverage expenses decreased during the current quarter due to declines in food cost of sales and food labor, both in absolute dollars and as a percentage of revenues.
During the nine months ended September 30, 2005 compared to the same prior year period, food and beverage expenses decreased as a result of decreased food and beverage revenues. Increases in food cost of sales and labor, as a percentage of revenues, resulted in lower departmental profit margins during the current period.
Other Operating Expenses. Other operating expenses are comprised of expenses associated with the operation of our retail outlets, arcade and events pavilion along with the entertainment department’s production costs and professional fees. Other expenses decreased during the three and nine months ended September 30, 2005 compared to the same prior year periods primarily due to declines in expenses related to the events pavilion in conjunction with the previously discussed decreases in events pavilion revenues. Lower entertainment expenses during the three months ended September 30, 2005 also contributed to the overall decrease in other operating expenses during the current quarter. However, the decrease during the nine months ended September 30, 2005 compared to the same prior year period was partially offset by an increase in entertainment expenses, principally for professional entertainer fees and incentive costs associated with concerts at the newly constructed downtown special events center.
Selling, General and Administrative Expenses. During the three and nine months ended September 30, 2005, selling, general and administrative expenses increased over the same prior year periods. The primary contributor to these increases was increased advertising media expenditures, which were increased in an effort to increase awareness in our feeder markets and counteract the escalation of Native American gaming competition. In addition, administrative costs grew during both periods in 2005 due to increases in professional services, human resources employee programs, and equipment rental associated with a new AS400 computer lease. These increases were partially offset by declines in building repairs and maintenance, utilities costs, and property insurance premiums.
Depreciation Expense. Depreciation expense increased during the three and nine months ended September 30, 2005 compared to the same prior year periods primarily due to depreciation associated with new capital purchases.
Other (Income) Expense
Other (income) expense is comprised of interest expense, net and other, net. During the three and nine months ended September 30, 2005 compared to the same prior year periods, interest expense, net decreased as a result of increased interest income during 2005 which was generated by growth in our invested cash reserves. Other, net in both periods was related to the change in market value of the funded portion of our supplemental executive retirement plan.
Liquidity and Capital Resources
During the nine months ended September 30, 2005, we generated cash flows from operating activities of $8.1 million compared to $16.3 million during the nine months ended September 30, 2004. The $8.2 million decrease in cash provided by operations was primarily due to the $6.4 million decrease in net income and various changes in balance sheet accounts. The changes in these balance sheet accounts represented changes which occurred in the normal course of business. As of September 30, 2005, cash and cash equivalents were $28.5 million, sufficient for normal operating requirements.
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Cash used in investing activities for the nine months ended September 30, 2005 was $8.2 million compared to $4.1 million for the nine months ended September 30, 2004, and related primarily to capital expenditures for various renovation projects and equipment purchases. During the third quarter of 2004, we began a hotel room renovation project. The budget for this project is approximately $7.2 million, of which $1.6 million was incurred in 2004. An additional $4.4 million was spent during the nine months ended September 30, 2005, with the remainder to be completed by the end of 2005. Including $5.6 million for the aforementioned room renovation project, our executive committee has approved approximately $10.0 million in capital expenditures for 2005.
Cash used in financing activities during the nine months ended September 30, 2005 was $1.5 million representing tax distributions to our partners. Cash used in financing activities during the nine months ended September 30, 2004 was $5.4 million representing tax distributions to our partners for 2004 in addition to taxes owed related to our fiscal 1995 and 1996 Internal Revenue Service audits.
In July 2005, we renewed our general and liability insurance policies. Under these policies, the Partnership and the owner of the adjacent property, Eldorado Resorts LLC (which is an affiliate of ELLC), have combined earthquake coverage of $320 million and combined flood coverage of $245 million. In the event that an earthquake causes damage only to the Partnership’s property, the Partnership is eligible to receive up to $320 million in coverage depending on the replacement cost. However, in the event that both properties are damaged, the Partnership is entitled to receive, to the extent of any replacement cost incurred, up to $266 million of the coverage amount (based on our percentage of the earthquake coverage) and up to the portion of the other $54 million, if any, remaining after satisfaction of a claim of Eldorado Resorts LLC with respect to its adjoining property. In the event that a flood causes damage only to the Partnership’s property, the Partnership is eligible to receive up to $245 million in coverage depending on the replacement cost. However, in the event that both properties are damaged, the Partnership is entitled to receive, to the extent of any replacement cost incurred, up to $231.5 million of the coverage amount (based on our percentage of the flood coverage) and up to the portion of the other $13.5 million, if any, remaining after satisfaction of a claim of Eldorado Resorts LLC with respect to its adjoining property.
Our insurance policy also includes combined terrorism coverage up to $425 million for a certified act of terrorism and up to $250 million for a non-certified act of terrorism. In the event that a certified, or a non-certified, act of terrorism causes damage only to the Partnership’s property, the Partnership is eligible to receive up to $425 million, or $250 million, respectively, in coverage depending on the replacement cost. However, in the event that both properties are damaged, the Partnership is entitled to receive, to the extent of any replacement cost incurred, up to $235 million for a certified act, or up to $138 million for a non-certified act, of the coverage amount (based on our percentage of the total property value) and up to the portion of the other $190 million, or $112 million, respectively, if any, remaining after satisfaction of a claim of Eldorado Resorts LLC with respect to its adjoining property. This new policy also covers an additional property located in Shreveport, LA which was recently acquired by Eldorado Resorts LLC. In the event that a certified, or a non-certified, act of terrorism causes damage to all three properties, the Partnership is entitled to receive, to the extent of any replacement cost incurred, up to $195.5 million for a certified act, or up to $115 million for a non-certified act, of the coverage amount (based on our percentage of the total property value) and up to the portion of the other $229.5 million, or $135 million, respectively, if any, remaining after satisfaction of a claim of the other two properties.
The Partnership’s partnership agreement, as currently in effect, provides that, subject to any contractual restrictions to which the Partnership is subject, including the indenture relating to the Notes, and prior to the occurrence of a “Liquidating Event,” the Partnership will be required to make distributions to its partners as follows:
(i) The estimated taxable income of the Partnership 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 (as of the date hereof both rates were 35%); 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).
(ii) Annual distributions of remaining “Net Cash From Operations” in proportion to the percentage interests of the partners.
(iii) Distributions of “Net Cash From Operations” in amounts or at times that differ from those described in (i) and (ii) above, provided in each case that both partners agree in writing to the distribution in advance thereof.
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As defined in the partnership agreement, the term “Net Cash From Operations” means the gross cash proceeds received by the Partnership, less the following amounts: (i) cash operating expenses and payments of other expenses and obligations of the Partnership, including interest and scheduled principal payments on Partnership indebtedness, including indebtedness owed to the partners, if any, (ii) all capital expenditures made by the Partnership, and (iii) such reasonable reserves as the partners deem necessary in good faith and in the best interests of the Partnership to meet its anticipated future obligations and liabilities (less any release of reserves previously established, as similarly determined).
The Partnership’s partnership agreement provides that the partners shall not be permitted or required to contribute additional capital to the Partnership without the consent of the partners, which consent may be given or withheld in each partner’s sole and absolute discretion.
We believe we have sufficient capital resources to meet all of our obligations. These obligations include existing cash obligations, funding of capital commitments and servicing our debt. Our future sources of liquidity are anticipated to be from our operating cash flow and borrowings available under our amended senior secured credit facility. For information concerning limitations on our ability to utilize our credit facility, see “Senior Secured Credit Facility” below.
The Notes
On March 5, 2002, the Partnership and Capital issued $160,000,000 principal amount of senior secured mortgage notes due 2012 (“Notes”). The Notes are senior secured obligations which rank equally with all of the Partnership’s outstanding senior debt and senior to any subordinated debt. The Notes are secured by a security interest in the Issuers’ existing and future assets, which is junior to a security interest in such assets securing the Partnership’s obligations under its credit facility and any refinancings of such facility that are permitted pursuant to the terms of the Notes. Each of the Partners executed a pledge of all of its partnership interest in the Partnership to secure the Notes, which is junior to a pledge of such partnership interest to secure the Partnership’s obligations on the credit facility and any refinancings of such facility that are permitted pursuant to the terms of the Notes. The Notes mature on March 1, 2012 and bear interest at the rate of 10 1/8% per annum, payable semi-annually in arrears on March 1 and September 1 of each year, commencing on September 1, 2002. At September 30, 2005, we were in compliance with all of the covenants in the indenture related to the Notes.
Senior Secured Credit Facility
On November 4, 2003, we executed an amendment to our credit facility (as amended, the “Credit Facility”) that originally included a term facility (which was paid in full in 2003) and a revolving facility. The amendment reduced the revolving facility to $10.0 million and revised certain covenant ratios with retroactive effect to September 30, 2003, including the maximum total debt to EBITDA ratio which we had exceeded as of September 30, 2003. Under the Credit Facility, we must maintain a maximum ratio of total debt to EBITDA of 5.00 to 1.00 for the quarters ending September 30, 2003 through March 31, 2006 and 4.75 to 1.00 for the quarter ending June 30, 2006 and thereafter. Under the Credit Facility, we are also required to maintain a minimum ratio of EBITDA to fixed charges of 1.20 to 1.00 at all times. The Credit Facility is secured by a first priority security interest in substantially all of our existing and future assets, other than certain licenses which may not be pledged under applicable law, and a first priority pledge of and security interest in all of the partnership interests in the Partnership held by its partners. The Credit Facility ranks equal in right of payment to our existing and future senior indebtedness, including the Notes, but the security interests securing our obligations under the Credit Facility are senior to the security interests securing our obligations on the Notes. The Credit Facility contains customary events of default and covenants, including covenants that limit or restrict our ability to incur additional debt; create liens or other encumbrances; pay dividends or make other restricted payments; prepay subordinated indebtedness; 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.
On June 15, 2005, we executed a further amendment to the Credit Facility to provide a conditional waiver of the facility’s financial covenants in respect of the quarter ended June 30, 2005, and each subsequent quarter through and including December 31, 2005, provided that no additional credit is extended under the Credit Facility during a quarter for which the waiver is relied upon. In addition, as a condition precedent to any draw on the Credit Facility subsequent to June 15, 2005, we must be in compliance with the Credit Facility’s financial covenants as to the then most recent fiscal quarter in respect of which we are required to deliver financial statements pursuant to the Credit Facility. During the quarter ended September 30, 2005, there was no indebtedness outstanding under the Credit Facility. As of September 30, 2005, we did not meet the financial covenants in the Credit Facility and, consequently, we are precluded from utilizing the Credit Facility during the remainder of 2005. The entire principal amount, if any, then outstanding
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under the Credit Facility becomes due and payable on March 31, 2007, unless the maturity date is extended with the consent of the lenders.
We believe we may not be in compliance with all of the financial covenants under the Credit Facility as of March 31, 2006. In such an event, we intend to seek to continue the waiver discussed in the preceding paragraph that would permit us to remain in compliance with the debt covenants and retain our borrowing capacity. If we are unable to continue the waiver, we believe we have sufficient cash to meet all of our obligations for the foreseeable future and would terminate the Credit Facility and seek a new revolving credit facility with another lender. So long as we do not have any indebtedness outstanding under the Credit Facility our inability to satisfy its covenant ratios would not constitute a default under the indenture relating to the Notes.
Critical Accounting Policies
A description of our critical accounting policies can be found in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2004. There have been no material changes to these policies during the nine months ended September 30, 2005.
Forward-Looking Statements
Certain information included in this report and other materials filed or to be filed by the Partnership and Capital with the Securities and Exchange Commission (as well as information included in oral statements or written statements made or to be made by them) contains statements that are forward-looking within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements can be identified by the fact that they do not relate strictly to historical or current facts. We have based these forward-looking statements on our current expectations about future events. These forward-looking statements include statements with respect to our 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. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by us or on our behalf. These risks and uncertainties include, but are not limited to dependence on existing management, leverage and debt service (including sensitivity to fluctuations in interest rates), domestic or global economic conditions, changes in Federal or state tax laws or the administration of such laws, changes in gaming laws or regulations (including the legalization of gaming in certain jurisdictions), expansion of gaming on Native American lands (including such lands in California), risks and uncertainties relating to any applications for licenses and approvals under applicable laws and regulations (including gaming laws and regulations) and any further terrorist attacks similar to those that occurred September 11, 2001. Additional information concerning potential factors that we think could cause our actual results to differ materially from expected and historical results is included under the caption “Factors that May Affect Our Future Results” in Item 1 of our annual report on Form 10-K for the fiscal year ended December 31, 2004. If one or more of the assumptions underlying our forward-looking statements proves incorrect, then our actual results, performance or achievements could differ materially from those expressed in, or implied by, the forward-looking statements contained in this report. Therefore, we caution you not to place undue reliance on our forward-looking statements. This statement is provided as permitted by the Private Securities Litigation Reform Act of 1995.
| Item 3. | Quantitative and Qualitative Disclosures About Market Risks |
We are potentially exposed to market risk in the form of fluctuations in interest rates and their potential impact upon our variable rate debt outstanding, if any. We evaluate our exposure to this market risk by monitoring interest rates in the marketplace and we have, on occasion, utilized derivative financial instruments to help manage this risk. To manage our exposure to counterparty credit risk in interest rate swaps, we enter into agreements with highly rated institutions. As of September 30, 2005, we had no variable rate debt outstanding. However, under our $10.0 million revolving credit facility, we may have outstanding from time to time up to $10.0 million of variable rate debt. For information concerning limitations on our ability to utilize our credit facility, see “Item 2” above.
| Item 4. | Controls and Procedures |
An evaluation was performed by management, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2005, our disclosure controls and procedures (as defined in Rule15d-15(e) under the Securities Exchange Act of 1934) are effective to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms of the Securities and Exchange Commission.
There have been no changes in our internal control over financial reporting (as defined in Rule 15d-15(f) under the Securities Exchange Act of 1934) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Part II. OTHER INFORMATION
| Item 6. | Exhibits |
(a) Exhibits.
| 31.1 | Certification of Gary L. Carano | |
| 31.2 | Certification of Bruce C. Sexton | |
| 32.1 | Certification of Gary L. Carano pursuant to 18 U.S.C. Section 1350 | |
| 32.2 | Certification of Bruce C. Sexton pursuant to 18 U.S.C. Section 1350 | |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.
CIRCUS AND ELDORADO JOINT VENTURE | ||||||||
Date: November 14, 2005 | By: | /S/ GARY L. CARANO | ||||||
| Gary L. Carano | ||||||||
| Chief Executive Officer (Principal Executive Officer) | ||||||||
Date: November 14, 2005 | By: | /S/ BRUCE C. SEXTON | ||||||
Bruce C. Sexton | ||||||||
| Chief Accounting and Financial Officer (Principal Financial and Accounting Officer) | ||||||||
SILVER LEGACY CAPITAL CORP. | ||||||||
Date: November 14, 2005 | By: | /S/ GARY L. CARANO | ||||||
| Gary L. Carano | ||||||||
| Chief Executive Officer (Principal Executive Officer) | ||||||||
Date: November 14, 2005 | By: | /S/ BRUCE C. SEXTON | ||||||
Bruce C. Sexton | ||||||||
| Treasurer (Principal Financial and Accounting Officer) | ||||||||
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