_______________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934
For the Quarterly Period Ended June 30, 1996
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 0-26922
COAST RESORTS, INC.
(Exact name of registrant as specified in its charter)
NEVADA 88-0345704
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification number)
4000 WEST FLAMINGO ROAD, LAS VEGAS, NEVADA 89103
(Address of principal executive offices) (Zip code)
(702) 367-7111
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year,
if changed since last report.)
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 X No
----- ----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Shares of Common Stock outstanding as of August 1, 1996: 1,494,352.94
--------
_______________________________________________________________________________
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
COAST RESORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
(Unaudited)
June 30, December 31,
1996 1995
-------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 22,303 $ 14,543
Restricted cash equivalents, in
escrow account 11,164 -
Accounts receivable, net 2,122 1,990
Other current assets 7,136 6,506
-------- --------
TOTAL CURRENT ASSETS 42,725 23,039
PROPERTY AND EQUIPMENT, net 165,552 125,155
RESTRICTED CASH EQUIVALENTS, IN ESCROW
ACCOUNT 79,973 -
OTHER ASSETS 9,799 4,169
-------- --------
$298,049 $152,363
======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,767 $ 8,389
Accrued liabilities 16,679 14,426
Current portion of long-term debt 589 1,591
-------- --------
TOTAL CURRENT LIABILITIES 21,035 24,406
-------- --------
LONG-TERM DEBT, less current portion 171,924 83,357
-------- --------
DEFERRED RENT 3,320 1,712
-------- --------
OTHER LIABILITIES 2,500 -
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value, 500,000
shares authorized, no shares issued and
outstanding - -
Common Stock, $.01 par value, 2,000,000
shares authorized, 1,494,353 (1996)
and 1,000,000 (1995) shares issued and
outstanding 15 10
Additional paid - in capital 95,398 19,340
Retained earnings 3,857 23,538
-------- --------
TOTAL STOCKHOLDERS' EQUITY 99,270 42,888
-------- --------
$298,049 $152,363
======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
COAST RESORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Three Months and Six Months Ended June 30, 1996 and 1995
(amounts in thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------------------
1996 1995 1996 1995
---- ---- ---- ----
OPERATING REVENUES:
Casino $ 35,380 $ 30,878 $ 71,300 $ 61,812
Food and beverage 9,510 9,594 19,389 19,208
Hotel 3,496 3,280 7,017 6,511
Other 2,463 2,233 4,914 4,622
---------- ---------- ---------- ----------
GROSS REVENUES 50,849 45,985 102,620 92,153
Less: promotional allowances (4,061) (4,044) (8,420) (8,014)
---------- ---------- ---------- ----------
NET REVENUES 46,788 41,941 94,200 84,139
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Casino 16,903 16,636 33,842 33,220
Food and beverage 7,268 7,979 14,672 16,501
Hotel 1,806 1,737 3,485 3,366
Other 1,827 2,098 3,698 4,174
General and administrative 8,927 8,465 17,693 16,735
Development expenses 955 -- 1,910 --
Depreciation and amortization 1,861 1,835 3,622 3,574
---------- ---------- ---------- ----------
TOTAL OPERATING EXPENSES 39,547 38,750 78,922 77,570
---------- ---------- ---------- ----------
OPERATING INCOME 7,241 3,191 15,278 6,569
OTHER INCOME (EXPENSES)
Interest expense (5,870) (632) (10,177) (1,012)
Interest income 1,484 5 2,447 75
Interest capitalized 1,530 -- 2,231 --
Gain on sale of equipment and
securities 2 11 2 68
---------- ---------- ---------- ----------
TOTAL OTHER INCOME (EXPENSES) (2,854) (616) (5,497) (869)
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAX PROVISION 4,387 2,575 9,781 5,700
---------- ---------- ---------- ----------
INCOME TAX PROVISION 1,535 -- 5,924 --
---------- ---------- ---------- ----------
NET INCOME $ 2,852 $ 2,575 $ 3,857 $ 5,700
========== ========== ========== ==========
NET INCOME PER SHARE OF COMMON STOCK $ 1.91 $ 1.67 $ 2.66 $ 3.71
========== ========== ========== ==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 1,494,353 -- 1,450,893 --
========== ========== ========== ==========
PRO FORMA DATA (reflecting reorganization and
change in tax status):
Provision for income taxes 1,535 901 3,423 1,995
---------- ---------- ---------- ----------
Net income $ 2,852 $ 1,674 $ 6,358 $ 3,705
========== ========== ========== ==========
Net income per share of common stock $ 1.91 $ 1.67 $ 4.38 $ 3.71
========== ========== ========== ==========
Weighted average common shares outstanding 1,494,353 1,000,000 1,450,893 1,000,000
========== ========== ========== ==========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
COAST RESORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 1996 and 1995
(amounts in thousands)
(Unaudited)
Six Months Six Months
Ended Ended
June 30, 1995 June 30, 1996
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,857 $ 5,700
--------- --------
ADJUSTMENTS TO RECONCILE NET
INCOME TO NET CASH
PROVIDED BY OPERATING
ACTIVITIES:
Depreciation and amortization 3,622 3,574
Amortization of original issue
discount 217 --
Provision for bad debts 38 294
Deferred income taxes 2,500 --
Non-cash rent expense 880 --
(Gain) loss on sale of assets (2) (68)
Changes in assets and
liabilities:
Net (increase) decrease in
accounts receivable
and other current assets (2,196) (615)
(Increase) decrease in other
assets 193 194
Increase (decrease) in
operating liabilities:
Net increase (decrease) in accounts
payable and other accrued expenses (977) (4,054)
--------- --------
TOTAL ADJUSTMENTS 4,275 (675)
--------- --------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 8,132 5,025
--------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures (42,807) (10,847)
Proceeds from sale of equipment
and securities 20 153
Net additions to restricted cash
equivalents, in escrow accounts (91,137) --
--------- --------
NET CASH USED BY INVESTING
ACTIVITIES (133,924) (10,694)
--------- --------
CASH FLOW FROM FINANCING
ACTIVITIES:
Proceeds from issuance of
long-term debt,
net of discounts and
commissions 164,124 3,000
Principal payments on long-term
debt (1,082) (1,300)
Proceeds from borrowings under
bank line of credit 1,045 6,600
Principal payments on bank line
of credit (29,200) (1,500)
Principal payments on capital
lease (99) (46)
Payments for debt issue costs (1,236) --
Distributions to former partners -- (8,661)
--------- --------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 133,552 (1,907)
--------- --------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 7,760 (7,576)
--------- --------
CASH AND CASH EQUIVALENTS, at
beginning of year 14,543 16,967
--------- --------
CASH AND CASH EQUIVALENTS, at end
of period $ 22,303 $ 9,391
========= ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
COAST RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BACKGROUND INFORMATION AND BASIS OF PRESENTATION
Background Information
Coast Resorts, Inc. ("Coast Resorts" or the "Company") is a Nevada
corporation and serves as a holding Company for Coast Hotels and Casinos, Inc.
("Coast Hotels") and Coast West, Inc. ("Coast West"). Through Coast Hotels, the
Company owns and operates the Gold Coast and Barbary Coast hotel-casinos and is
in the process of constructing The Orleans Hotel and Casino ("The Orleans"), all
of which are located in Las Vegas, Nevada. Coast West has no operations but
holds a long-term lease (the "Coast West Lease") on approximately fifty acres of
land in Las Vegas on which the Company may develop and operate a future hotel-
casino.
The Gold Coast and Barbary Coast hotel-casinos had previously been owned
and operated independently by two partnerships, Gold Coast Hotel and Casino, a
Nevada limited partnership, and Barbary Coast Hotel and Casino, a Nevada general
partnership (collectively, the "Predecessor Partnerships"). On January 1, 1996,
the partners of the Predecessor Partnerships completed a reorganization (the
"Reorganization") with Coast Resorts. Coast Resorts was formed in September
1995 for the purpose of effecting such Reorganization of the Predecessor
Partnerships. Coast Resorts, Gold Coast and Barbary Coast were all related
through common ownership and management control.
In the Reorganization, the partners of the Predecessor Partnerships each
transferred to Coast Resorts their respective partnership interests in the
Predecessor Partnerships in exchange for an aggregate of 1,000,000 shares of
common stock, par value $.01 per share, of Coast Resorts ("Coast Resorts Common
Stock"). Coast Resorts immediately contributed to Coast Hotels all of the
assets and liabilities of the Predecessor Partnerships other than those relating
to the Coast West Lease, which Coast Resorts contributed to Coast West. Coast
Resorts retained the liability for an aggregate principal amount of $51.0
million in notes payable to former partners and retained the liability for $1.5
million relating to demand notes due to a related party (the "Exchange
Liabilities"). On January 16, 1996, the Exchange Liabilities were exchanged for
494,353 shares of Coast Resorts Common Stock, based upon management's estimate
of the fair market value of such Coast Resorts Common Stock.
Basis of Presentation
Prior to the Reorganization, the Gold Coast and the Barbary Coast hotel-
casinos historically operated under a high degree of common control. The former
Managing General Partner of the Gold Coast Hotel and Casino was also a general
partner, and the principal manager, of the Barbary Coast Hotel and Casino. Due
to common control of the Predecessor Partnerships and the continuation of
ownership by the former partners, the Reorganization was accounted for as a
reorganization of entities under common control. Accordingly, the consolidated
financial statements of the Company for all periods are presented as if the
Reorganization occurred at the beginning of the earliest period presented and
include the accounts of all entities involved on a historical cost basis, in a
manner similar to a pooling of interests. The consolidated financial statements
include the accounts of the Company and all its subsidiaries. All intercompany
balances and transactions have been eliminated.
The accompanying consolidated financial statements reflect the Exchange
Liabilities as obligations of Coast Resorts at December 31, 1995, as the
exchange for Coast Resorts Common Stock had not yet occurred. The exchange was
accounted for subsequent to the completion of the Reorganization, through the
issuance of Coast Resorts Common Stock in the approximate amount of $52.5
million reflecting the historical cost basis of the Exchange Liabilities.
The accompanying financial statements are unaudited and have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. The unaudited
financial statements should be read in conjunction with the audited
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1-BACKGROUND INFORMATION AND BASIS OF PRESENTATION (Continued)
financial statements and footnotes for the year ended December 31, 1995. In the
opinion of management, all adjustments and normal recurring accruals considered
necessary for a fair presentation of the results for the interim period have
been included. The interim results reflected in the unaudited financial
statements are not necessarily indicative of expected results for the full year.
NOTE 2-THE ORLEANS CONSTRUCTION COMMITMENTS
During 1995, the Company commenced construction of The Orleans. The plans
for The Orleans have been developed with a theme of the French Quarter in New
Orleans, and include an approximately 92,000 square foot casino, 840 hotel
rooms, a 70-lane bowling center and five restaurants. The Orleans has a revised
construction and development budget of approximately $172.6 million; including
contingencies but excluding capitalized interest, pre-opening expenditures, and
opening bankroll. In January 1996, the Company entered into a guaranteed maximum
price contract for the construction of the buildings and site improvements.
During the course of construction, the Company has elected to upgrade and
improve the quality of furnishings, systems and materials and to position The
Orleans for future expansion. The Company also made certain changes designed to
enhance the overall experience of The Orleans. Such changes include the addition
of an Italian restaurant and improvements to the ballroom to allow it to be used
for live entertainment and to permit greater flexibility in the types of events
for which it may be used. Changes to the original budget have been made
primarily to accommodate quality enhancements in the project and changes in the
scope of the project, as well as increased architectural and design fees and
other costs resulting from additional pending and anticipated change orders and
modifications. Such project enhancements, changes and modifications are expected
to result in change orders for (and have a budget allocation of) an additional
$12.5 million under the construction contract and a corresponding increase in
the guaranteed maximum price under the construction contract to $112.5 million
in accordance with the terms of the construction contract and the related
disbursement agreement. The balance of the increase in the revised budget of
approximately $2.0 million is expected to be allocated to increased
architectural and design fees and to the budget for furniture, fixtures,
equipment, additional signage and certain interior and other improvements. As of
June 30, 1996, the Company had paid approximately $55.7 million of construction
and development costs, including approximately $48.8 million that is subject to
the construction contract, approximately $4.6 million of architectural and
design fees and approximately $2.3 million of other construction and development
costs.
NOTE 3-INCOME TAXES
Prior to the Reorganization, the Company operated as individual
partnerships which did not pay federal income taxes. The partners of the
Predecessor Partnerships were taxed on their proportionate share of each of
their respective partnership's taxable income or loss. Effective January 1, 1996
and in connection with the Reorganization, the Predecessor Partnerships were
terminated. The change in status to a "C" corporation resulted in the
recognition of net deferred tax liabilities, and a corresponding charge to
earnings through the income tax provision of approximately $2.5 million for the
quarter ended March 31, 1996. In addition, upon termination of the partnership
tax status on January 1, 1996, all undistributed earnings of the Predecessor
Partnerships were reclassified to paid-in-capital.
The income statements for the quarter ended June 30, 1995 and six months
ended June 30, 1995 do not include any provision or liability for corporate
income taxes due to the partnership status. The pro forma provision for income
taxes and the related pro forma net income reflect adjustments to income taxes
assuming that the change in corporate income tax status occurred as of January
1, 1995.
NOTE 4-PRIVATE PLACEMENT FINANCING
On January 30, 1996, Coast Hotels completed a private placement offering of
$175.0 million principal amount of 13% First Mortgage Notes Due December 15,
2002 (the "First Mortgage Notes"). Interest on the First Mortgage Notes is
payable semi-annually, commencing June 15, 1996. The First Mortgage Notes are
unconditionally guaranteed by Coast Resorts, Coast West and certain future
subsidiaries of Coast Hotels. Net proceeds from the offering (after deducting
original issue discount and commissions) were approximately $164.1 million. Of
that amount, (i) approximately $114.8 million was deposited in a construction
disbursement account restricted for use by Coast Hotels to finance in part the
cost of developing, constructing, equipping and opening The Orleans, (ii)
approximately $19.3 million was used by Coast Hotels to purchase U.S.
Government Obligations which were deposited into an interest escrow account
restricted to fund the interest payable on the First Mortgage Notes through
December 15, 1996 and (iii) approximately $29.2 million was used by Coast Hotels
to repay all outstanding
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 4-PRIVATE PLACEMENT FINANCING (Continued)
indebtedness under its revolving credit facility, which was terminated upon
repayment. The balance of approximately $800,000 was used to pay, in part, the
offering expenses of approximately $2.4 million.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Coast Resorts, Inc. is a holding company formed in 1995 to effect the
combination of two partnerships, the Barbary Coast Hotel and Casino and the Gold
Coast Hotel and Casino, which were Las Vegas gaming operations owning the
Barbary Coast Hotel and Casino (the "Barbary Coast") and the Gold Coast Hotel
and Casino (the "Gold Coast"). One of the Company's wholly-owned subsidiaries,
Coast Hotels and Casinos, Inc. ("Coast Hotels"), owns and operates these two
existing properties and is currently constructing a third in Las Vegas, The
Orleans Hotel and Casino ("The Orleans"). Another wholly-owned subsidiary of the
Company, Coast West, Inc., leases an approximately fifty-acre site in Las Vegas
on which the Company may develop and operate a future hotel-casino.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
financial information regarding the results of operations of the Company:
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------------------------
1996 1995 1996 1995
---- ---- ---- ----
NET REVENUES:
Gold Coast............................ $35,055 $31,824 $70,768 $63,724
Barbary Coast......................... 11,733 10,117 23,432 20,415
------- ------- ------- -------
$46,788 $41,941 $94,200 $84,139
======= ======= ======= =======
OPERATING INCOME:
Gold Coast............................ $ 7,727 $ 4,104 $16,317 $ 7,764
Barbary Coast......................... 1,260 (913) 2,224 (1,195)
Corporate Expenses.................... (791) -- (1,353) --
Development Expenses.................. (955) -- (1,910) --
------- ------- ------- -------
$ 7,241 $ 3,191 $15,278 $ 6,569
======= ======= ======= =======
Three Months Ended June 30, 1996 Compared to Three Months Ended June 30, 1995
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
COAST RESORTS, INC.
Net revenues for the Company were $46.8 million in the second quarter of
1996 compared to $41.9 million in the second quarter of 1995, an increase of
$4.9 million (11.6%), and were $94.2 million in the six months ended June 30,
1996 compared to $84.1 million for the same period in 1995, an increase of $10.1
million (12.0%). (Percentages are actual and are not adjusted for rounding.)
The increased revenues were primarily due to stronger gaming revenues at the
Company's two hotel-casinos, as well as to increased hotel revenues. Operating
income was $7.2 million for the quarter ended June 30, 1996, compared to $3.2
million in 1995, an increase of 126.9%, and $15.3 million for the six month
period ended June 30, 1996, compared to $6.6 million in 1995, an increase of
132.6%, due to the increased revenues discussed above, partially offset by a
2.1% increase in operating expenses for second quarter 1996 to $39.5 million,
and a 1.7% increase in operating expenses for the first six months of 1996 to
$78.9 million. Food and beverage expenses decreased by $711,000 (8.9%) in the
three months ended June 30, 1996, compared to the second quarter in 1995, and by
$1.8 million (11.1%) in the six months ended June 30, 1996, compared to the same
period in 1995, primarily due to a decrease in cost of sales in the restaurants
as a result of lower wholesale food prices and fewer meals served. General and
administrative expenses increased $462,000 (5.5%) from second quarter 1995 to
1996, and $1.0 million (5.7%) from the six months ended June 30, 1996 compared
to the same period in 1995, primarily due to an increase in corporate salaries
and the addition of an incentive bonus program.
8
Net income increased to $2.9 million in the second quarter of 1996, a 10.8%
increase from $2.6 million for the second quarter of 1995. Net income decreased
to $3.9 million in the six months ended June 30, 1996 from $5.7 million in the
same period in 1995, a 32.3% decrease due in part to a provision for income tax
of $5.9 million, including a one-time charge of $2.5 million in 1996 for
temporary differences as a result of a change in tax status from partnerships to
a corporation on January 1, 1996. ( See Note 3 of Notes to Condensed
Consolidated Financial Statements). Additionally, net interest expense
increased $2.2 million to $2.9 million in the second quarter of 1996 compared to
$627,000 in 1995, and $4.6 million to $5.5 million in the six months ended June
30, 1996 compared to $937,000 in 1995, due to interest on $175.0 million
principal amount of first mortgage notes issued in January 1996 (the "First
Mortgage Notes").
COAST HOTELS AND CASINOS, INC.
Net income for the Company's operating subsidiary, Coast Hotels, was $3.1
million for the second quarter of 1996, compared to $2.6 million for the same
period in 1995, and $4.4 million for the first half of 1996 compared to $5.7
million in 1995. The decrease in the first half of 1996 was primarily due to
the provision for income tax, including the $2.5 million one-time charge
described above, as well as an increase in net interest attributable to the
First Mortgage Notes.
Gold Coast. Net revenues at the Gold Coast were $35.1 million for the
quarter ended June 30, 1996, an increase of $3.3 million (10.2%) over 1995
second quarter revenues of $31.8 million, and were $70.8 million for the six
months ended June 30, 1996, an increase of $7.1 million (11.1%) over 1995
revenues of $63.7 million. Gaming revenues were $26.0 million for the 1996
second quarter, an increase of $3.1 million (13.7%) compared to $22.9 million in
the same period in 1995, and for the six months ended June 30, 1996 were $52.7
million, an increase of $7.1 million (15.6%) compared to $45.6 million the same
period in 1995. The increase was primarily due to the positive effects of an
upgrade of slot equipment completed in December 1995. Hotel revenues for second
quarter 1996 were $2.5 million, an increase of 5.2% over second quarter 1995
hotel revenues of $2.4 million, and for the six months ended June 30, 1996 were
$5.0 million, an increase of 5.5% over six month 1995 hotel revenues of $4.8
million, due to higher occupancy rates. Operating income was $7.7 million for
the second quarter of 1996 compared to $4.1 million in 1995, an increase of $3.6
million (88.3%), and was $16.3 million for the first half of 1996 compared to
$7.8 million in 1995, an increase of $8.5 million (110.2%). In addition to the
increased revenues discussed above, total operating expenses for second quarter
1996 decreased $392,000 (1.4%) to $27.3 million compared to $27.7 million in
1995, and for the six months ended June 30, 1996 decreased $1.5 million (2.7%)
to $54.5 million compared to $56.0 million in 1995. Food and beverage expenses
accounted for most of the reduction, decreasing $755,000 (11.6%) to $5.8 million
in the second quarter of 1996 compared to 1995, and decreasing $1.8 million
(13.5%) to $11.7 million in the first half of 1996 due to lower cost of sales in
the restaurants as a result of lower wholesale food prices and fewer meals
served.
Barbary Coast. Net revenues at the Barbary Coast were $11.7 million in the
quarter ended June 30, 1996, an increase of $1.6 million (16.0%) over 1995
second quarter revenues of $10.1 million, and were $23.4 million in the six
months ended June 30, 1996, an increase of $3.0 million (14.8%) over 1995
revenues of $20.4 million in the same period. Gaming revenues increased 17.1%
to $9.4 million in the second quarter of 1996 compared to $8.0 million in the
same period in 1995, primarily due to a higher table game win percentage (i.e.
table game revenues (win) as a percentage of table game drop). Gaming revenues
increased 14.6% to $18.6 million in the first half of 1996 compared to $16.3
million in 1995, primarily due to increases in the sports book and race book
wagering volume. Operating income was $1.3 million for the second quarter of
1996 compared to a loss of 913,000 in 1995, and was $2.2 million for the first
half of 1996 compared to a loss of $1.2 million in 1995, primarily due to the
increased revenues discussed above. Operating expenses were $10.5 million in
the second quarter of 1996 compared to $11.0 million in 1995, a decrease of
$557,000 (5.0%), and were $21.2 million in the second half of 1996 compared to
$21.6 million in 1995, a decrease of $402,000 (1.9%), primarily due to lower
casino wages and benefits as a result of a staffing reduction and the
elimination of the Keno department.
COAST WEST, INC.
Coast West, Inc. has no operations but holds a lease on approximately fifty
acres of land held for possible future development. The net loss for Coast West
was $955,000 in the second quarter of 1996 and was $1.9 million
9
for the first six months of fiscal 1996 (Coast West was not in existence in the
corresponding period of 1995). The net loss was due entirely to rent expense
(including $440,000 of deferred rent expense in the second quarter and $880,000
for the first half of 1996).
LIQUIDITY AND CAPITAL RESOURCES
Coast Resorts, Inc. is a holding company without operations of its own.
The Company's principal sources of liquidity have consisted of cash provided by
the operating activities of Coast Hotels and, until termination of its revolving
credit facility in January 1996, bank financing. In connection with the
reorganization in which the Barbary Coast Hotel and Casino and the Gold Coast
Hotel and Casino were combined with the Company, the Company exchanged shares of
common stock, par value $.01 per share, of Coast Resorts for approximately $52.5
million principal amount of notes payable to certain shareholders of Coast
Resorts, resulting in a reduced debt service. See Note 1 to Notes to Condensed
Consolidated Financial Statements.
On January 30, 1996, Coast Hotels issued $175.0 million principal amount of
First Mortgage Notes to finance, in part, the development, construction,
equipping and opening of The Orleans. The net proceeds from the issuance, after
deducting discounts and commissions, were approximately $164.1 million. Of that
amount, (i) approximately $114.8 million was deposited in a construction
disbursement account for use by Coast Hotels to finance in part The Orleans,
(ii) approximately $19.3 million was used by Coast Hotels to purchase U.S.
Government Obligations which were deposited into an interest escrow account to
fund the interest payable on the First Mortgage Notes through December 15, 1996
and (iii) approximately $29.2 million was used by Coast Hotels to repay all
outstanding indebtedness under its revolving credit facility, which was
terminated upon repayment. The balance of approximately $800,000 was used to
pay, in part, the offering expenses of approximately $2.4 million.
The Company's consolidated cash requirements include principally the costs
related to the development, construction, equipping and opening of The Orleans,
debt service on the First Mortgage Notes subsequent to December 15, 1996 of
approximately $22.8 million annually, ongoing capital expenditures at the Gold
Coast and the Barbary Coast estimated to be approximately $4.0 million in the
aggregate in 1996, advances to Coast West, Inc. for rent on land held for
possible future development of at least approximately $2.1 million annually, and
debt service unrelated to the First Mortgage Notes estimated to be approximately
$500,000 in 1996. Prior to the Reorganization, a primary use of cash also
included distributions to the partners of the Gold Coast Partnership and the
Barbary Coast Partnership, which were separate partnerships that did not pay
income taxes. The Company does not expect to make regular cash dividends to its
shareholders in the future, and instead intends to retain future earnings (after
payment of corporate income taxes) for reinvestment in the Company's business.
The Company expects to satisfy the costs of developing, constructing,
equipping and opening The Orleans with the proceeds from the issuance of the
First Mortgage Notes, approximately $30.0 million of anticipated equipment
financing and an anticipated $23.0 million of cash from operations at the Gold
Coast and Barbary Coast. Taking into account the anticipated use of cash from
operations for the construction of The Orleans, the Company expects that excess
cash from Coast Hotel's two existing properties will be sufficient to satisfy
the Company's consolidated cash requirements other than costs related to the
development, construction, equipping and opening The Orleans. Subsequent to the
commencement of operations of The Orleans, the Company expects that cash
generated from the operations of Coast Hotels will be sufficient to satisfy
consolidated cash requirements, including debt service on the First Mortgage
Notes subsequent to December 15, 1996, although no assurance can be given to
that effect.
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PART II. OTHER INFORMATION
Item 1: Legal Proceedings.
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None.
Item 2: Changes in Securities.
----------------------
None.
Item 3: Defaults Upon Senior Securities.
--------------------------------
None.
Item 4: Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
None.
Item 5: Other Information.
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None.
Item 6: Exhibits and Reports on Form 8-K:
---------------------------------
(a) Exhibits.
27. Financial Data Schedule.
(b) Reports on Form 8-K.
There were no reports filed on Form 8-K during the three months
ended June 30, 1996.
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SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on
its behalf by the undersigned thereunto duly authorized.
Date: August 14, 1996 COAST RESORTS, INC., a Nevada corporation
By: /s/ Gage Parrish
--------------------------------------
Gage Parrish
Vice President and
Chief Financial Officer
12