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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
Form 10-Q
(Mark One) | ||
þ | 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 | ||
o | 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: 333-118149
American Casino & Entertainment Properties LLC
(Exact name of registrant as specified in its charter)
Delaware | 20-0573058 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
2000 Las Vegas Boulevard South Las Vegas, NV (Address of principal executive offices) | 89104 (Zip Code) |
(702) 380-7777
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has 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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes o No þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ
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PART I. FINANCIAL INFORMATION
ITEM 1. | Unaudited Condensed Consolidated Financial Statements |
AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC
CONDENSED CONSOLIDATED BALANCE SHEETS
As of | As of | ||||||||
September 30, 2005 | December 31, 2004 | ||||||||
(Unaudited) | |||||||||
(In thousands) | |||||||||
ASSETS | |||||||||
Current Assets: | |||||||||
Cash and cash equivalents | $ | 98,204 | $ | 75,161 | |||||
Cash and cash equivalents-restricted | 502 | 448 | |||||||
Investments-restricted | 2,828 | 2,546 | |||||||
Accounts receivable, net | 4,168 | 3,942 | |||||||
Related party receivables | 1,111 | 388 | |||||||
Deferred income taxes | 2,685 | 2,685 | |||||||
Other current assets | 10,162 | 10,311 | |||||||
Total Current Assets | 119,660 | 95,481 | |||||||
Property and equipment, net | 318,390 | 314,609 | |||||||
Debt issuance and deferred financing costs, net | 6,660 | 7,447 | |||||||
Lessee incentive | — | 367 | |||||||
Deferred income taxes | 38,263 | 46,437 | |||||||
Total Other Assets | 44,923 | 54,251 | |||||||
Total Assets | $ | 482,973 | $ | 464,341 | |||||
LIABILITIES AND MEMBER’S EQUITY | |||||||||
Current Liabilities: | |||||||||
Accounts payable-trade | $ | 4,614 | $ | 5,234 | |||||
Accrued expenses | 19,341 | 22,759 | |||||||
Accrued payroll and related expenses | 9,014 | 10,779 | |||||||
Current portion of capital lease obligation | 467 | 450 | |||||||
Total Current Liabilities | 33,436 | 39,222 | |||||||
Long-Term Liabilities: | |||||||||
Notes payable | 215,000 | 215,000 | |||||||
Accrued lessee incentive | 40 | 568 | |||||||
Capital lease obligations, less current portion | 2,946 | 3,298 | |||||||
Other | 5,257 | 5,257 | |||||||
Total Long-Term Liabilities | 223,243 | 224,123 | |||||||
Total Liabilities | 256,679 | 263,345 | |||||||
Commitments and Contingencies | |||||||||
Member’s Equity: | |||||||||
Member’s Equity | 226,294 | 200,996 | |||||||
Total Member’s Equity | 226,294 | 200,996 | |||||||
Total Liabilities and Member’s Equity | $ | 482,973 | $ | 464,341 | |||||
See notes to condensed consolidated financial statements.
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AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months | Three Months | |||||||||
Ended | Ended | |||||||||
September 30, 2005 | September 30, 2004 | |||||||||
(Unaudited) | ||||||||||
(In thousands) | ||||||||||
Revenues: | ||||||||||
Casino | $ | 45,195 | $ | 42,188 | ||||||
Hotel | 14,976 | 12,893 | ||||||||
Food and beverage | 17,524 | 16,705 | ||||||||
Tower, retail and other | 9,360 | 9,169 | ||||||||
Gross Revenues | 87,055 | 80,955 | ||||||||
Less promotional allowances | 5,274 | 5,816 | ||||||||
Net Revenues | 81,781 | 75,139 | ||||||||
Costs and Expenses: | ||||||||||
Casino | 15,856 | 15,386 | ||||||||
Hotel | 7,183 | 6,509 | ||||||||
Food and beverage | 13,489 | 12,292 | ||||||||
Other operating expenses | 3,913 | 3,890 | ||||||||
Selling, general and administrative | 21,268 | 20,926 | ||||||||
Depreciation and amortization | 6,021 | 5,594 | ||||||||
(Gain) loss on sale of assets | (3 | ) | 125 | |||||||
Total Costs and Expenses | 67,727 | 64,722 | ||||||||
Income From Operations | 14,054 | 10,417 | ||||||||
Other Income (Expense): | ||||||||||
Interest income | 469 | 37 | ||||||||
Interest expense | (4,559 | ) | (4,592 | ) | ||||||
Total Other Expense, net | (4,090 | ) | (4,555 | ) | ||||||
Income Before Income Taxes | 9,964 | 5,862 | ||||||||
Provision for income taxes | 3,438 | 1,661 | ||||||||
Net Income | $ | 6,526 | $ | 4,201 | ||||||
See notes to condensed consolidated financial statements.
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AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Nine Months | Nine Months | |||||||||
Ended | Ended | |||||||||
September 30, 2005 | September 30, 2004 | |||||||||
(Unaudited) | ||||||||||
(In thousands) | ||||||||||
Revenues: | ||||||||||
Casino | $ | 136,715 | $ | 124,579 | ||||||
Hotel | 46,481 | 40,616 | ||||||||
Food and beverage | 52,492 | 50,125 | ||||||||
Tower, retail and other | 26,785 | 25,749 | ||||||||
Gross Revenues | 262,473 | 241,069 | ||||||||
Less promotional allowances | 16,345 | 17,561 | ||||||||
Net Revenues | 246,128 | 223,508 | ||||||||
Costs and Expenses: | ||||||||||
Casino | 47,156 | 46,568 | ||||||||
Hotel | 20,050 | 18,045 | ||||||||
Food and beverage | 38,823 | 35,956 | ||||||||
Other operating expenses | 11,625 | 10,456 | ||||||||
Selling, general and administrative | 59,953 | 58,253 | ||||||||
Depreciation and amortization | 17,194 | 17,908 | ||||||||
Gain on sale of assets | (24 | ) | (19 | ) | ||||||
Total Costs and Expenses | 194,777 | 187,167 | ||||||||
Income From Operations | 51,351 | 36,341 | ||||||||
Other Income (Expense): | ||||||||||
Interest income | 992 | 992 | ||||||||
Interest expense | (13,659 | ) | (14,339 | ) | ||||||
Total other expense, net | (12,667 | ) | (13,347 | ) | ||||||
Income Before Income Taxes | 38,684 | 22,994 | ||||||||
Provision for income taxes | 13,386 | 7,605 | ||||||||
Net Income | $ | 25,298 | $ | 15,389 | ||||||
See notes to condensed consolidated financial statements.
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AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months | Nine Months | ||||||||||
Ended | Ended | ||||||||||
September 30, 2005 | September 30, 2004 | ||||||||||
(Unaudited) | |||||||||||
(In thousands) | |||||||||||
Cash Flows From Operating Activities: | |||||||||||
Net income | $ | 25,298 | $ | 15,389 | |||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
Depreciation and amortization | 17,194 | 17,908 | |||||||||
Gain on sale or disposal of assets | (24 | ) | (19 | ) | |||||||
Provision for deferred income taxes | 8,174 | 2,830 | |||||||||
Changes in operating assets and liabilities: | |||||||||||
Restricted cash | (54 | ) | (447 | ) | |||||||
Accounts receivable, net | (226 | ) | 86 | ||||||||
Other assets | 1,303 | 458 | |||||||||
Accounts payable — trade | (620 | ) | (2,104 | ) | |||||||
Accrued expenses | (5,711 | ) | 1,890 | ||||||||
Net Cash Provided By Operating Activities | 45,334 | 35,991 | |||||||||
Cash Flows From Investing Activities: | |||||||||||
(Increase) decrease in investments — restricted | (282 | ) | 427 | ||||||||
Sale of marketable securities | — | 4,200 | |||||||||
Acquisition of property and equipment | (20,993 | ) | (12,320 | ) | |||||||
Related party receivables | (723 | ) | (121 | ) | |||||||
Proceeds from sale of property and equipment | 42 | 399 | |||||||||
Net Cash Used in Investing Activities | (21,956 | ) | (7,415 | ) | |||||||
Cash Flows From Financing Activities: | |||||||||||
Debt issuance and deferred financing costs | — | (1,363 | ) | ||||||||
Proceeds from notes payable | — | 215,000 | |||||||||
Member contribution | — | 28,219 | |||||||||
Capital distribution | — | (187,816 | ) | ||||||||
Payments on related party notes payable | — | (101,252 | ) | ||||||||
Payments on capital lease obligation | (335 | ) | (134 | ) | |||||||
Net Cash Used in Financing Activities | (335 | ) | (47,346 | ) | |||||||
Net increase (decrease) in cash and cash equivalents | 23,043 | (18,770 | ) | ||||||||
Cash and cash equivalents — beginning of period | 75,161 | 77,258 | |||||||||
Cash and Cash Equivalents — end of period | $ | 98,204 | $ | 58,488 | |||||||
Supplemental Disclosure of Cash Flow Information: | |||||||||||
Cash paid during the period for interest | $ | 17,113 | $ | 10,966 | |||||||
Cash paid during the period for income taxes | $ | 4,000 | $ | 1,850 | |||||||
Net assets contributed by parent | $ | — | $ | 6,886 | |||||||
Change in tax asset related to acquisition | $ | — | $ | 12,721 | |||||||
See notes to condensed consolidated financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. | The Company |
American Casino & Entertainment Properties LLC (the “Company” or “ACEP”) was formed in Delaware on December 29, 2003. The Company is a holding company that was formed for the purpose of acquiring the entities that own and operate the Stratosphere Casino Hotel & Tower (“Stratosphere”), Arizona Charlie’s Decatur and Arizona Charlie’s Boulder in Las Vegas, Nevada. Stratosphere had been owned by a subsidiary of our indirect parent, American Real Estate Holdings Limited Partnership (“AREH”). Arizona Charlie’s Decatur and Arizona Charlie’s Boulder were owned by Carl C. Icahn and one of his affiliated entities. Our senior management team has been responsible for the management of all three properties since 2002.
ACEP is a subsidiary of American Entertainment Properties Corp. (“AEP”) and its ultimate parent is American Real Estate Partners, L.P. (“AREP”), a Delaware master limited partnership whose units are traded on the New York Stock Exchange. As of September 30, 2005, affiliates of Mr. Icahn owned 9,346,044 Preferred Units and 55,655,382 Depositary Units, which represent approximately 86.5% of the outstanding Preferred Units and approximately 90.0% of the outstanding Depositary Units of AREP. Mr. Icahn is the Chairman of the Board of Directors and owns all of the capital stock of American Property Investors, Inc., AREP’s general partner.
Note 2. | Basis of Presentation |
The condensed consolidated financial statements have been prepared in accordance with the accounting policies described in our 2004 audited consolidated financial statements. These condensed consolidated financial statements should be read in conjunction with the notes to the 2004 consolidated audited financial statements presented in our Annual Report on Form 10-K for the year ended December 31, 2004 filed with the Securities and Exchange Commission (“SEC”) on March 16, 2005 (SEC File No. 333-118149).
In the opinion of management, the accompanying condensed consolidated financial statements include all adjustments (consisting only of those of a normal recurring nature), which are necessary for a fair presentation of the results for the interim periods presented. Certain information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to such rules and regulations of the SEC. Interim results are not necessarily indicative of results to be expected for any future interim period or for the entire fiscal year.
Principles of Consolidation
The consolidated financial statements include the accounts of ACEP and its wholly owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation.
Note 3. | Related Party Transactions |
As of May 26, 2004, the Company entered into an intercompany services arrangement, to provide management and consulting services with Atlantic Coast Entertainment Holdings, Inc. (“Atlantic Holdings”), the owner of The Sands Hotel and Casino in Atlantic City, New Jersey. Atlantic Holdings is majority owned by AREP. The Company is compensated based upon an allocation of salaries plus an overhead charge of 15% of the salary allocation plus reimbursement of reasonable out-of-pocket expenses. During the three months ended September 30, 2005 and 2004, the Company billed Atlantic Holdings and its affiliates for services under the arrangement approximately $189,000 and $135,000, respectively. The Company billed Atlantic Holdings approximately $504,000 and $251,000 for the nine months ended September 30, 2005 and 2004, respectively.
During the three months ended September 30, 2005 and 2004 and the nine months ended September 30, 2005 and 2004, the Company made payments to XO Communications, Inc., which, since January 2003, has
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) — (Continued)
been controlled by affiliates of Mr. Icahn, for certain telecommunications services provided to us. The payments totaled approximately $54,000 and $44,000 for the three months ended September 30, 2005 and 2004, respectively, and $140,000 and $125,000 for the nine months ended September 30, 2005 and 2004, respectively.
As of September 30, 2005 and December 31, 2004, the Company was owed approximately $1.1 million and $388,000, respectively, from related parties. This receivable is primarily related to the intercompany services arrangement with Atlantic Holdings.
Note 4. Non-guarantor Subsidiaries
The Company’s 7.85% senior secured notes due 2012 are guaranteed by all but three of its subsidiaries. In accordance with the positions established by the SEC, separate information with respect to the parent, co-issuer, guarantor subsidiaries and non-guarantor subsidiaries is not required as the parent and co-issuer have no independent assets or operations, the guarantees are full and unconditional and joint and several, and the total assets, stockholders’ equity, revenues, income from operations before income taxes and cash flows from operating activities of the non-guarantor subsidiaries are less than 3% of the Company’s consolidated amounts.
Note 5. Legal Proceedings
We are involved in various inquiries, administrative proceedings and litigation arising in the normal course of business. While any proceedings or litigation has an element of uncertainty, we believe that the final outcome of these matters will not have a material adverse effect upon our consolidated financial position or our results of operations.
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Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion contains management’s discussion and analysis of our results of operations and financial condition and should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations presented in our Annual Report on Form 10-K for the year ended December 31, 2004. Certain statements in this discussion are forward-looking statements.
On May 26, 2004, we completed the purchase of Charlie’s Holding LLC, a newly formed entity that acquired Arizona Charlie’s Decatur and Arizona Charlie’s Boulder, from Carl C. Icahn and Starfire Holding Corporation, which is wholly-owned by Mr. Icahn. Additionally, on that date, American Real Estate Holdings Limited Partnership (“AREH”) contributed to us 100% of the capital stock of Stratosphere Corporation. These transactions represent a merger of entities under the common control of Mr. Icahn. Our financial statements for all periods (including for periods preceding the acquisitions) are consolidated.
Overview
We own and operate three gaming and entertainment properties in the Las Vegas metropolitan area. The three properties are the Stratosphere Casino Hotel & Tower (“Stratosphere”), which is located on the Las Vegas Strip and caters to visitors to Las Vegas, and two off-Strip casinos, Arizona Charlie’s Decatur and Arizona Charlie’s Boulder, which cater primarily to residents of Las Vegas and the surrounding communities. The Stratosphere is one of the most recognized landmarks in Las Vegas and our two Arizona Charlie’s properties are well-known casinos in their respective marketplaces.
Each of our properties offers patrons a value-oriented experience by providing competitive odds in our casinos, quality rooms in our hotels, award-winning dining facilities and, at the Stratosphere, an offering of competitive, value-oriented entertainment attractions. We believe the value that we offer our patrons, together with a strong focus on customer service, will enable us to continue to attract patrons to our properties.
We currently offer gaming, hotel, dining, entertainment, tower visits, retail and other amenities at our properties. The following table provides certain summary information for each of our properties at September 30, 2005:
Casino | Number of | Number | Number | |||||||||||||
Square | Hotel | of | of | |||||||||||||
Footage | Rooms | Slots | Table Games | |||||||||||||
Stratosphere | 80,000 | 2,444 | 1,408 | 48 | ||||||||||||
Arizona Charlie’s Decatur | 52,000 | 258 | 1,500 | 15 | ||||||||||||
Arizona Charlie’s Boulder | 41,000 | 303 | 849 | 14 |
We use certain key measurements to evaluate operating revenue. Casino revenue measurements include table games drop and slot handle as volume measurements of the amounts wagered by patrons. Win or hold percentage represents the percentage of table games drop or slot handle that is won by the casino and recorded as casino revenue. Hotel revenue measurements include hotel occupancy rate, which is the average percentage of available hotel rooms occupied during a period, and average daily room rate, which is the average price of occupied rooms per day. Food and beverage revenue measurements include number of covers, which is the number of guest checks, and the average check amount.
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Results of Operations
Three Months Ended September 30, 2005 Compared to Three Months Ended September 30, 2004 |
Three Months Ended | ||||||||||||||
September 30, | ||||||||||||||
2005 | 2004 | % Change | ||||||||||||
(In millions) | ||||||||||||||
INCOME STATEMENT DATA: | ||||||||||||||
Revenues: | ||||||||||||||
Casino | $ | 45.2 | $ | 42.2 | 7.1 | % | ||||||||
Hotel | 15.0 | 12.9 | 16.3 | % | ||||||||||
Food and beverage | 17.5 | 16.7 | 4.8 | % | ||||||||||
Tower, retail and other | 9.4 | 9.2 | 2.2 | % | ||||||||||
Gross revenues | 87.1 | 81.0 | 7.5 | % | ||||||||||
Less promotional allowances | 5.3 | 5.8 | (8.6 | )% | ||||||||||
Net revenues | 81.8 | 75.2 | 8.8 | % | ||||||||||
Costs and expenses: | ||||||||||||||
Casino | 15.9 | 15.4 | 3.2 | % | ||||||||||
Hotel | 7.2 | 6.5 | 10.8 | % | ||||||||||
Food and beverage | 13.5 | 12.3 | 9.8 | % | ||||||||||
Other operating expenses | 3.9 | 3.9 | 0.0 | % | ||||||||||
Selling, general and administrative | 21.3 | 21.0 | 1.4 | % | ||||||||||
Depreciation and amortization | 6.0 | 5.6 | 7.1 | % | ||||||||||
Total costs and expenses | 67.8 | 64.7 | 4.8 | % | ||||||||||
Income from operations | $ | 14.0 | $ | 10.5 | 33.3 | % | ||||||||
Gross Revenues |
Gross revenues increased 7.5% to $87.1 million for the three months ended September 30, 2005 from $81.0 million for the three months ended September 30, 2004. This increase was primarily due to an increase in business volume as discussed below.
Casino Revenues |
Casino revenues increased 7.1% to $45.2 million for the three months ended September 30, 2005 from $42.2 million for the three months ended September 30, 2004. For the three months ended September 30, 2005, slot machine revenues were $37.2 million, or 82.2% of casino revenues, and table game revenues were $6.1 million, or 13.5% of casino revenues, compared to $34.9 million and $6.2 million, respectively, for the three months ended September 30, 2004. Other casino revenues were $1.9 million and $1.1 million for the three months ended September 30, 2005 and 2004, respectively. This increase was primarily due to an increase in slot hold percentage.
Non-Casino Revenues |
Hotel revenues increased 16.3% to $15.0 million for the three months ended September 30, 2005 from $12.9 million for the three months ended September 30, 2004. This increase was primarily due to an increase in the average daily room rate from $51.62 to $57.15, or 10.7%, and an increase in the hotel occupancy rate from 89.0% to 92.9%. The increase in the average daily room rate and hotel occupancy rate was primarily attributable to an increase in direct bookings, a decrease in rooms sold through wholesalers and an increase in tourism to Las Vegas.
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Promotional Allowances |
Promotional allowances are comprised of the estimated retail value of goods and services provided to casino patrons under various marketing programs. Promotional allowances decreased to 11.7% of casino revenues for the three months ended September 30, 2005 from 13.8% for the three months ended September 30, 2004. This decrease was primarily attributable to a reduction in benefits from promotional activities related to slots.
Operating Expenses |
Hotel operating expenses increased 10.8% to $7.2 million, or 48.0% of hotel revenues, for the three months ended September 30, 2005 from $6.5 million, or 50.4% of hotel revenues, for the three months ended September 30, 2004. This increase was primarily due to an increase in labor costs and supplies as a result of an increase in business volume. The decrease in operating expenses as a percentage of hotel revenues was attributable to an increase in the average daily room rate.
Food and beverage operating expenses increased 9.8% to $13.5 million, or 77.1% of food and beverage revenues, for the three months ended September 30, 2005 from $12.3 million, or 73.7% of food and beverage revenues, for the three months ended September 30, 2004. This increase was primarily due to an increase in labor costs and costs associated with an increase in the number of covers.
Interest Expense |
Interest expense for the three months ended September 30, 2005 and 2004 was primarily attributable to interest expense associated with the $215.0 million principal amount of 7.85% senior secured notes due 2012, which were issued on January 29, 2004.
Nine Months Ended September 30, 2005 Compared to Nine Months Ended September 30, 2004 |
Nine Months Ended | ||||||||||||||
September 30, | ||||||||||||||
2005 | 2004 | % Change | ||||||||||||
(In millions) | ||||||||||||||
INCOME STATEMENT DATA: | ||||||||||||||
Revenues: | ||||||||||||||
Casino | $ | 136.7 | $ | 124.6 | 9.7 | % | ||||||||
Hotel | 46.5 | 40.6 | 14.5 | % | ||||||||||
Food and beverage | 52.5 | 50.1 | 4.8 | % | ||||||||||
Tower, retail and other | 26.8 | 25.8 | 3.9 | % | ||||||||||
Gross revenues | 262.5 | 241.1 | 8.9 | % | ||||||||||
Less promotional allowances | 16.4 | 17.6 | (6.8 | )% | ||||||||||
Net revenues | 246.1 | 223.5 | 10.1 | % | ||||||||||
Costs and expenses: | ||||||||||||||
Casino | 47.2 | 46.6 | 1.3 | % | ||||||||||
Hotel | 20.1 | 18.0 | 11.7 | % | ||||||||||
Food and beverage | 38.8 | 36.0 | 7.8 | % | ||||||||||
Other operating expenses | 11.6 | 10.5 | 10.5 | % | ||||||||||
Selling, general and administrative | 59.9 | 58.2 | 2.9 | % | ||||||||||
Depreciation and amortization | 17.2 | 17.9 | (3.9 | )% | ||||||||||
Total costs and expenses | 194.8 | 187.2 | 4.1 | % | ||||||||||
Income from operations | $ | 51.3 | $ | 36.3 | 41.3 | % | ||||||||
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Gross Revenues |
Gross revenues increased 8.9% to $262.5 million for the nine months ended September 30, 2005 from $241.1 million for the nine months ended September 30, 2004. This increase was primarily due to an increase in business volume, as discussed below.
Casino Revenues |
Casino revenues increased 9.7% to $136.7 million for the nine months ended September 30, 2005 from $124.6 million for the nine months ended September 30, 2004. Slot machine revenues were $111.2 million, or 81.4% of casino revenues, and table game revenues were $18.7 million, or 13.7% of casino revenues, for the nine months ended September 30, 2005 compared to $101.3 million and $19.0 million, respectively for the nine months ended September 30, 2004. Other casino revenues were $6.8 million and $4.3 million for the nine months ended September 30, 2005 and 2004, respectively. This increase was primarily due to an increase in slot hold percentage.
Non-Casino Revenues |
Hotel revenues increased 14.5% to $46.5 million for the nine months ended September 30, 2005 from $40.6 million for the nine months ended September 30, 2004. This increase was primarily due to an increase in the average daily room rate from $54.38 to $61.44, or 13.0%. The increase in the average daily room rate was primarily attributable to an increase in direct bookings and a decrease in rooms sold through wholesalers.
Promotional Allowances
Promotional allowances are comprised of the estimated retail value of goods and services provided to casino patrons under various marketing programs. Promotional allowances decreased to 12.0% of casino revenues for the nine months ended September 30, 2005 from 14.1% for the nine months ended September 30, 2004. This decrease was primarily attributable to a reduction in benefits from promotional activities related to slots.
Operating Expenses |
Hotel operating expenses increased 11.7% to $20.1 million, or 43.2% of hotel revenues, for the nine months ended September 30, 2005 from $18.0 million, or 44.3% of hotel revenues, for the nine months ended September 30, 2004. This increase was primarily due to an increase in labor costs and supplies as a result of an increase in business volume. The decrease in operating expenses as a percentage of hotel revenues was attributable to an increase in the average daily room rate.
Food and beverage operating expenses increased 7.8% to $38.8 million, or 73.9% of food and beverage revenues, for the nine months ended September 30, 2005 from $36.0 million, or 71.9% of food and beverage revenues, for the nine months ended September 30, 2004. This increase was primarily due to an increase in labor costs and costs associated with an increase in the number of covers.
Other operating expenses increased 10.5% to $11.6 million, or 43.3% of tower, retail and other revenues, for the nine months ended September 30, 2005 from $10.5 million, or 40.7% of tower, retail and other revenues, for the nine months ended September 30, 2004. This increase was primarily due to an increase in labor costs related to the opening of the Insanity ride and the opening of a new gift shop.
Interest Expense |
Interest expense in 2005 was primarily attributable to interest expense associated with the $215.0 million principal amount of 7.85% senior secured notes due 2012, which were issued on January 29, 2004. In addition, interest expense in 2004 included interest paid on related parties notes which were repaid in 2004.
Financial Condition
Liquidity and Capital Resources |
Our primary source of cash is from the operation of our properties. At September 30, 2005, we had cash and cash equivalents of $98.2 million. For the nine months ended September 30, 2005, net cash provided by operating activities totaled approximately $45.3 million compared to approximately $36.0 million for the nine
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months ended September 30, 2004. The increase in cash provided by operating activities was attributable to the increase in net income as explained above. In addition to cash from operations, cash is available to us, if necessary, under our senior secured revolving credit facility entered into by us, as borrower, and certain of our subsidiaries, as guarantors. The senior secured revolving credit facility allows for borrowings of up to $20.0 million, subject to us complying with financial and other covenants (discussed below), until January 29, 2008. We had availability under our credit facility of $20.0 million at September 30, 2005, subject to continuing compliance with existing covenant restrictions.
Our primary use of cash is for operating expenses, capital spending and to pay the interest on our 7.85% senior secured notes, which mature in 2012 with interest payments due February 1 and August 1 of each year. Our capital spending was approximately $21.0 million and $12.3 million for the nine months ended September 30, 2005 and 2004, respectively. We have estimated our 2005 capital expenditures to be approximately $25.0 million, which we anticipate to include approximately $8.1 million to refurbish rooms, install the new Insanity ride and construct a night club at the Stratosphere and approximately $1.3 million to expand the gaming floor at Arizona Charlie’s Boulder. The remainder of our capital spending estimate for 2005 will be for upgrades or maintenance to our existing assets.
We believe operating cash flows and borrowings available under the senior secured revolving credit facility will be adequate to meet our anticipated requirements for working capital, capital spending and scheduled interest payments on the notes and under the senior secured revolving credit facility, lease payments and other permitted indebtedness at least through the next twelve months. Although no additional financing is currently contemplated, we will seek, if necessary and to the extent permitted under the indenture governing the notes and the terms of the senior secured revolving credit facility (described below), additional financing through bank borrowings or debt or equity financings. However, additional financing, if needed, may not be available to us, or if available, the financing may not be on terms favorable to us. Our estimates of our reasonably anticipated liquidity needs may not be accurate and new business developments or other unforeseen events could occur, resulting in the need to raise additional funds from outside sources.
Our 7.85% senior secured notes due 2012 restrict the payment of cash dividends or distributions, the purchase of equity interests, and the purchase, redemption, defeasance or acquisition of debt subordinated to the investments as “restricted payments.” The notes also prohibit the incurrence of debt and the issuance of disqualified or preferred stock, as defined, with certain exceptions, provided that we may incur debt or issue disqualified or preferred stock if, immediately after such incurrence or issuance, the ratio of consolidated cash flow to fixed charges (each as defined in the indenture of the 7.85% senior secured notes due 2012) for the most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional indebtedness is incurred or disqualified or preferred stock is issued would have been at least 2.0 to 1.0, determined on a pro forma basis giving effect to the debt incurrence or issuance. As of September 30, 2005, such ratio was 3.5 to 1.0. The notes also restrict the creation of liens, the sale of assets, mergers, consolidations or sales of substantially all of our assets, the lease or grant of a license, concession, other agreement to occupy manage or use our assets, the issuance of capital stock of restricted subsidiaries and certain related party transactions. The notes allow us to incur indebtedness, among other things, of up to $50.0 million under credit facilities, non-recourse financing of up to $15.0 million to finance the construction, purchase or lease of personal or real property used in our business, permitted affiliate subordinated indebtedness (as defined), the issuance of additional 7.85% senior secured notes due 2012 in an aggregate principal amount not to exceed 2.0 times net cash proceeds received from equity offerings and permitted affiliate subordinated debt and additional indebtedness of up to $10 million.
Additionally as described above, we have a senior secured revolving credit facility that allows for borrowings of up to $20.0 million, including our issuance of letters of credit of up to $10.0 million. Loans made under the senior secured revolving facility will mature and the commitments under them will terminate in January 2008. The facility contains restrictive covenants similar to those contained in the 7.85% senior secured notes due 2012. In addition, the facility requires that, as of the last date of each fiscal quarter, our ratio of net property, plant and equipment for key properties to consolidated first lien debt be not less than 5.0 to 1.0 and our ratio of consolidated first lien debt to consolidated cash flow be not more than 1.0 to 1.0. At September 30,
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2005, these ratios were 93.3 to 1.0 and 0.0 to 1.0, respectively. At September 30, 2005, there were no borrowings or letters of credit outstanding under the facility.
Forward-Looking Statements
With the exception of historical facts, the matters discussed in this report are forward looking statements. Forward-looking statements may relate to, among other things, future actions, future performance generally, business development activities, future capital expenditures, strategies, the outcome of contingencies such as legal proceedings, future financial results, financing sources and availability and the effects of regulation and competition. Also, please see Trends and Other Uncertainties in our Annual Report on Form 10-K for the year ended December 31, 2004. When we use the words “believe,” “intend,” “expect,” “may,” “will,” “should,” “anticipate,” “could,” “estimate,” “plan,” “predict,” “project,” or their negatives, or other similar expressions, the statements which include those words are usually forward-looking statements. When we describe strategy that involves risks or uncertainties, we are making forward-looking statements.
We warn you that forward-looking statements are only predictions. Actual events or results may differ as a result of risks that we face. Forward-looking statements speak only as of the date they were made and we undertake no obligation to update them.
Item 3. | 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. All of our debt is at a fixed rate of interest. We can borrow, from time to time, up to $20.0 million under the senior secured revolving credit facility for working capital purposes. At September 30, 2005, there were no borrowings under the facility.
The fair value of our long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to us for debt of the same remaining maturities. As such, the estimated fair value of long-term debt outstanding is approximately $223.6 million as of September 30, 2005.
We do not invest in derivative financial instruments, interest rate swaps or other investments that alter interest rate exposure.
Item 4. | Controls and Procedures |
As of September 30, 2005, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to the Exchange Act Rule 13a-15(e) and 15d-15(e). Based upon such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable Securities and Exchange Commission rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
During the quarter ended September 30, 2005, there were no changes in our internal controls over financial reporting that materially affected, or are likely to affect, our internal control over financial reporting.
It should be noted that any system of controls, however well designed and operated, can provide only reasonable and not absolute assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
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PART II. OTHER INFORMATION
Item 6. | Exhibits |
Exhibit No. | Description | |||
31 | .1 | Certification of Principal Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002. | ||
31 | .2 | Certification of Principal Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
American Casino & Entertainment Properties LLC |
By: | /s/Denise Barton |
Denise Barton | |
Senior Vice President, Chief Financial Officer, | |
Treasurer and Secretary | |
(Principal Financial and Accounting Officer) |
Date: November 10, 2005
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Exhibits Index
Exhibit No. | Description | |||
31 | .1 | Certification of Principal Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002. | ||
31 | .2 | Certification of Principal Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002. |