- --------------------------------------------------------------------------------
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 March 31, 2001
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)
4500 West Tropicana Avenue, Las Vegas, Nevada 89103
(Address of principal executive offices) (Zip code)
(702) 365-7000
(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 May 15, 2001: 1,463,178
------------------------------------------------------------------------------
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements.
COAST RESORTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
March 31,
2001 December 31,
(unaudited) 2000
------------- --------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................... $ 57,808 $ 43,560
Accounts receivable, net....................... 5,825 5,658
Other current assets........................... 20,039 24,284
------------- --------------
TOTAL CURRENT ASSETS........................... 83,672 73,502
PROPERTY AND EQUIPMENT, net....................... 481,830 485,925
OTHER ASSETS...................................... 8,147 7,772
------------- --------------
$ 573,649 $ 567,199
============= ==============
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................... $ 11,759 $ 16,308
Accrued liabilities............................ 45,569 38,208
Construction accounts payable.................. 3,943 4,868
Current portion of long-term debt.............. 2,443 2,430
------------- --------------
TOTAL CURRENT LIABILITIES...................... 63,714 61,814
LONG-TERM DEBT, less current portion.............. 345,861 353,337
DEFERRED INCOME TAXES............................. 11,900 11,417
DEFERRED RENT..................................... 21,214 20,330
------------- --------------
TOTAL LIABILITIES.............................. 442,689 446,898
------------- --------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 500,000
shares authorized, none issued and
outstanding................................. -- --
Common stock, $.01 par value, 2,000,000 shares
authorized, 1,463,178 shares issued and
outstanding................................. 15 15
Treasury stock................................. (3,118) (3,118)
Additional paid-in capital..................... 95,398 95,398
Retained earnings ............................. 38,665 28,006
------------- --------------
TOTAL STOCKHOLDERS' EQUITY..................... 130,960 120,301
------------- --------------
$ 573,649 $ 567,199
============= ==============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
1
COAST RESORTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 2001 and 2000
(dollars in thousands, except share data)
(unaudited)
Three Months Ended
March 31,
-------------------------
2001 2000
------------ -----------
OPERATING REVENUES:
Casino........................... $ 94,721 $ 73,011
Food and beverage................ 26,693 19,704
Hotel............................ 9,945 8,314
Other............................ 8,786 6,921
------------ -----------
GROSS OPERATING REVENUES....... 140,145 107,950
Less: promotional allowances..... (12,597) (9,364)
------------ -----------
NET OPERATING REVENUES......... 127,548 98,586
------------ -----------
OPERATING EXPENSES:
Casino........................... 43,169 32,882
Food and beverage................ 18,865 13,346
Hotel............................ 3,783 3,165
Other............................ 6,699 5,592
General and administrative....... 22,915 16,288
Pre-opening expenses ............ -- 268
Deferred rent.................... 884 520
Depreciation and amortization.... 8,568 5,774
------------ -----------
TOTAL OPERATING EXPENSES....... 104,883 77,835
------------ -----------
OPERATING INCOME.................... 22,665 20,751
------------ -----------
OTHER INCOME (EXPENSES):
Interest expense, net............ (7,981) (5,475)
Interest capitalized ............ 62 970
Gain on disposal of assets ...... 1,534 --
------------ -----------
TOTAL OTHER INCOME (EXPENSES)....... (6,385) (4,505)
------------ -----------
INCOME BEFORE INCOME TAXES.......... 16,280 16,246
Income tax provision ............... 5,621 5,608
------------ -----------
NET INCOME.......................... $ 10,659 $ 10,638
============ ===========
PER SHARE INFORMATION:
Basic net income per share of
common stock..................... $ 7.28 $ 7.19
============ ===========
Diluted net income per share of
common stock..................... $ 7.11 $ 7.02
============ ===========
Basic weighted-average shares
outstanding...................... 1,463,178 1,478,978
============ ===========
Diluted weighted-average shares
outstanding...................... 1,498,593 1,514,393
============ ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
COAST RESORTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2001 and 2000
(dollars in thousands)
(unaudited)
Three Months Ended
March 31,
-----------------------
2001 2000
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................... $ 10,659 $ 10,638
----------- ----------
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization.................... 8,568 5,774
Amortization of debt offering costs.............. 294 --
Gain on disposal of assets....................... (1,534) --
Deferred income taxes............................ 576 355
Deferred rent.................................... 884 900
Changes in assets and liabilities:
Net increase (decrease) in accounts receivable
and other assets............................. 4,200 (1,899)
Net increase in accounts payable and accrued
liabilities................................... 2,812 7,983
----------- ----------
TOTAL ADJUSTMENTS.................................. 15,800 13,113
----------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES.......... 26,459 23,751
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net of amounts in
construction accounts payable......................... (13,234) (31,235)
Proceeds from disposal of assets................... 9,415 --
----------- ----------
NET CASH USED IN INVESTING ACTIVITIES.............. (3,819) (31,235)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt........... 49,071 --
Principal payments on long-term debt............... (463) (270)
Proceeds from borrowings under bank line of credit. 6,000 9,000
Repayments of borrowings under bank line of credit. (63,000) --
----------- ----------
NET CASH (USED IN) PROVIDED BY FINANCING
ACTIVITIES...................................... (8,392) 8,730
----------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS............. 14,248 1,246
CASH AND CASH EQUIVALENTS, at beginning of period..... 43,560 38,629
----------- ----------
CASH AND CASH EQUIVALENTS, at end of period........... $ 57,808 $ 39,875
=========== ==========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
COAST RESORTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Year Ended December 31, 2000 and
For the Three Months Ended March 31, 2001
(dollars in thousands)
Common Stock Additional
----------------- Paid-In Retained Treasury
Shares Amount Capital Earnings Stock Total
--------- ------- ---------- --------- --------- ---------
Balances at December 31, 1999.. 1,478,978 $ 15 $ 95,398 $ 1,228 $ (1,538) $ 95,103
Repurchase of common stock.. (15,800) -- -- -- (1,580) (1,580)
Net income.................. -- -- -- 26,778 -- 26,778
--------- ------- ---------- --------- --------- ---------
Balances at December 31, 2000.. 1,463,178 15 95,398 28,006 (3,118) 120,301
Net income.................. -- -- -- 10,659 -- 10,659
--------- ------- ---------- --------- --------- ---------
Balances at March 31, 2001
(unaudited)................. 1,463,178 $ 15 $ 95,398 $ 38,665 $ (3,118) $130,960
========= ======= ========== ========= ========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
COAST RESORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BACKGROUND INFORMATION AND BASIS OF PRESENTATION
Background Information
Coast Resorts, Inc. ("Coast Resorts") is a Nevada corporation and serves as
a holding company for Coast Hotels and Casinos, Inc. ("Coast Hotels"), which is
also a Nevada corporation. Through Coast Hotels, the Company owns and operates
four Las Vegas hotel-casinos:
o The Suncoast Hotel and Casino, which opened in September 2000, is
located near Summerlin in the west end of the Las Vegas valley,
approximately nine miles from the Las Vegas Strip.
o The Orleans Hotel and Casino, which opened in December 1996, is located
approximately one and one-half miles west of the Las Vegas Strip on
Tropicana Avenue.
o The Gold Coast Hotel and Casino, which opened in December 1986, is
located approximately one mile west of the Las Vegas Strip on Flamingo
Road.
o The Barbary Coast Hotel and Casino, which opened in March 1979, is
located on the Las Vegas Strip.
Basis of Presentation
The accompanying consolidated 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.
In addition, certain amounts in the 2000 financial statements have been
reclassified to conform to the 2001 presentation. The unaudited consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements and footnotes included in our annual report on Form 10-K
for the year ended December 31, 2000. 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 consolidated financial statements are
not necessarily indicative of expected results for the full year.
On January 1, 2001, the Company adopted Emerging Issues Task Force Issue
00-14 ("EITF 00-14"). EITF 00-14 requires that cash discounts and other cash
incentives related to gaming play be recorded as a reduction to gross casino
revenues. EITF 00-14 also requires that prior periods be restated to conform to
this presentation. The Company previously recorded such incentives as an
operating expense and has reclassified prior period amounts. There is no effect
on previously reported net income.
5
COAST RESORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - LONG-TERM DEBT
Long-term debt consists of the following as of March 31, 2001 and December
31, 2000:
March 31,
2001 December 31,
(unaudited) 2000
----------- ------------
Related parties: (in thousands)
7.5% notes, payable in monthly installments of
interest only, with all principal and any unpaid
interest due December 31, 2001. The notes are
uncollateralized and are payable to the former
partners of Barbary Coast and Gold Coast.......... $ 1,975 $ 1,975
Non-related parties:
9.5% senior subordinated notes due April 2009,
with interest payable semiannually on April 1
and October 1..................................... 225,000 175,000
$200.0 million reducing revolving credit facility due
April 2004, collateralized by substantially all
of the assets of Coast Hotels and Casinos, Inc.... 119,000 176,000
8.6% note due August 11, 2007, payable in monthly
installments of $26,667 principal plus interest
on remaining principal balance, collateralized by
1980 Hawker aircraft.............................. 2,053 2,133
Other notes payable.................................. 276 659
----------- -----------
348,304 355,767
Less: current portion................................ 2,443 2,430
----------- -----------
$ 345,861 $ 353,337
========== ===========
In March 1999, Coast Hotels issued $175.0 million principal amount of 9.5%
senior subordinated notes with interest payable on April 1 and October 1
beginning October 1, 1999 and entered into a $75.0 million senior secured
revolving credit facility due 2004 to facilitate a refinancing. Availability
under the credit facility was increased to $200.0 million in September 1999. On
February 2, 2001, Coast Hotels issued an additional $50.0 million principal
amount of senior subordinated notes. The net proceeds of approximately $49.1
million were used to reduce borrowings under the senior secured credit facility.
The notes were issued under the same indenture and have the same terms, interest
rate and maturity date as the $175.0 million principal amount of senior
subordinated notes issued in 1999.
Coast Resorts is a guarantor of the indebtedness under both the indenture
and the credit facility. Borrowings under the credit facility bear interest, at
Coast Hotels' option, at a premium over the one-, two-, three- or six-month
London Interbank Offered Rate ("LIBOR"). The premium varies between 125 and 250
basis points, depending on Coast Hotels' ratio of total debt to EBITDA. As of
March 31, 2001, the premium over LIBOR was 2.25% (225 basis points) and the
interest rate was 7.3%. For the quarter ended March 31, 2001 the
weighted-average interest rate for the senior secured credit facility was 7.95%.
Coast Hotels incurs a commitment fee, payable quarterly in arrears, on the
unused portion of the credit facility. As of March 31, 2001, this variable fee
was at the maximum rate of 0.5% per annum times the average unused portion of
the facility.
6
COAST RESORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - LONG-TERM DEBT (continued)
The availability under the $200.0 million credit facility will be reduced
quarterly beginning in the fiscal quarter ending September 30, 2001. The
reductions will be $6.0 million on each of September 30, 2001, December 31,
2001, March 31, 2002 and June 30, 2002; $8.5 million on each of September 30,
2002, December 31, 2002, March 31, 2003 and June 30, 2003; and $11.5 million on
each of September 30, 2003, December 31, 2003, March 31, 2004 and June 30, 2004.
Advances under the credit facility may be used for working capital, general
corporate purposes and certain improvements to The Orleans, the Gold Coast, the
Suncoast and the Barbary Coast. As of March 31, 2001, Coast Hotels had $81.0
million of availability under the $200.0 million credit facility.
The loan agreement governing the $200.0 million senior secured revolving
credit facility contains covenants that, among other things, limit the ability
of Coast Hotels to pay dividends or make advances to Coast Resorts, to make
certain capital expenditures, to repay certain existing indebtedness, to incur
additional indebtedness or to sell material assets of Coast Hotels.
Additionally, the loan agreement requires that Coast Hotels maintain certain
financial ratios with respect to its leverage and fixed charge coverage. Coast
Hotels is also subject to certain covenants associated with the indenture
governing the senior subordinated notes, including, in part, limitations on
certain restricted payments, the incurrence of additional indebtedness and asset
sales. Management believes that, at March 31, 2001, Coast Hotels was in
compliance with all covenants and required ratios.
NOTE 3 - TREASURY STOCK
In May 1999, Coast Resorts' board of directors authorized the potential
repurchase of up to 50,000 shares of common stock from stockholders at a maximum
aggregate repurchase price of $5.0 million. As of March 31, 2001, 31,175 shares
of common stock have been repurchased from shareholders at a total purchase
price of $3.1 million.
7
COAST RESORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - EARNINGS PER SHARE
Net income per common share excludes dilution and is computed by dividing
income applicable to common shareholders by the weighted-average number of
common shares outstanding. Net income per common share, assuming dilution, is
computed based on the weighted-average number of common shares outstanding after
consideration of the dilutive effect of stock options.
The computations of net income per common share and net income per common
share, assuming dilution, for the three months ended March 31, 2001 and 2000,
are as follows (in thousands, except share data, unaudited):
Three Months Ended
March 31,
----------------------
2001 2000
---------- ----------
Net income applicable to computations......... $ 10,659 $ 10,638
========== ==========
Weighted-average common shares applicable
to net income per common share............. $ 1,463 $ 1,479
Effect of dilutive securities:
Stock option incremental shares............ 35 35
---------- ----------
Weighted-average common shares applicable
to net income per common share,
assuming dilution.......................... $ 1,498 $ 1,514
========== ==========
Basic net income per share of common stock.... $ 7.28 $ 7.19
========== ==========
Diluted net income per share of common stock.. $ 7.11 $ 7.02
========== ==========
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
The following table sets forth, for the periods indicated, certain
financial information regarding our results of operations:
Three Months Ended
March 31,
----------------------
2001 2000
----------- -----------
(in thousands)
(unaudited)
Net operating revenues.......... $ 127,548 $ 98,586
Operating expenses.............. 104,883 77,835
----------- -----------
Operating income ............... $ 22,665 $ 20,751
=========== ===========
Net income ..................... $ 10,659 $ 10,638
=========== ===========
EBITDA (1)...................... $ 32,117 $ 27,313
=========== ===========
(1) "EBITDA" means earnings before interest, taxes, depreciation, amortization,
deferred (non-cash) rent expense, other non-cash expenses and certain
non-recurring items, including pre-opening expenses and gains and losses on
disposal of assets (for all periods presented, the only non-cash expense
was deferred rent and the only non-recurring items were pre-opening
expenses and gains and losses on disposal of assets). EBITDA is defined in
our senior secured credit facility and in the indenture governing our
senior subordinated notes. EBITDA is presented as supplemental disclosure
because the calculation of EBITDA is necessary to determine our compliance
with certain covenants under these financing agreements and because
management believes that it is a widely used measure of operating
performance in the gaming industry. EBITDA should not be construed as an
alternative to operating income or net income (as determined in accordance
with generally accepted accounting principles) as an indicator of our
operating performance, or as an alternative to cash flows generated by
operating, investing and financing activities (as determined in accordance
with generally accepted accounting principles) as an indicator of cash
flows or a measure of liquidity. All companies do not calculate EBITDA in
the same manner. As a result, EBITDA as presented here may not be
comparable to the similarly titled measures presented by other companies.
9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Results of Operations (continued)
Three Months Ended March 31, 2001 Compared to Three Months Ended March 31, 2000
In the quarter ended March 31, 2001, we experienced increases in revenues,
operating income, net income and cash flows (EBITDA), primarily due to
contributions from our newest hotel-casino, the Suncoast, which opened in
September 2000. Net revenues in the first quarter were $127.5 million compared
to $98.6 million in 2000, an increase of 29.4%. Operating income was $22.7
million in the quarter compared to $20.8 million in 2000, an increase of 9.2%.
Net income was $10.7 million, up slightly over 2000 first quarter net income of
$10.6 million. EBITDA (earnings before interest, taxes, depreciation,
amortization, deferred rent, other non-cash expenses and certain non-recurring
items, including pre-opening expenses and gains and losses on disposal of
assets) was $32.1 million in the quarter, an increase of 17.6% over 2000 EBITDA
of $27.3 million.
Casino. Casino revenues were $94.7 million in the three months ended March
31, 2001 compared to $73.0 million in the same period in 2000, an increase of
29.7% due primarily to the opening in September 2000 of the Suncoast. Gold Coast
casino revenues declined in the quarter due to the recent openings of two new
locals-oriented casinos and construction disruption from the on-going renovation
of the Gold Coast public areas. Additionally, a record Megabucks progressive
jackpot of $34.0 million in the first quarter of the prior year attracted
unusually high slot machine wagering volume in that period and contributed to a
comparative decline in our slot revenues in 2001 at the Gold Coast, Barbary
Coast and The Orleans.
Casino expenses increased $10.3 million (31.3%) in the quarter, primarily
due to the Suncoast. The casino operating margin was relatively flat at 54.4%
compared to 55.0% in 2000.
Food and Beverage. Food and beverage revenues were $26.7 million in the
first quarter of 2001 compared to $19.7 million in 2000, an increase of 35.5%
due primarily to the additional revenues from the Suncoast. Food and beverage
expenses increased 41.4% to $18.9 million in 2001 compared to $13.3 million in
2000, primarily due to the additional expenses of the Suncoast.
Hotel. Hotel room revenues were $9.9 million in the first quarter of 2001
compared to $8.3 million in 2000, an increase of 19.6% primarily due to the
Suncoast. Additionally, improvements in the room occupancy percentage and the
average daily rate at The Orleans contributed to the increase in revenues.
Other. Other revenues were $8.8 million in the first quarter of 2001
compared to $6.9 million in 2000, an increase of 26.9% primarily due to the
Suncoast. Other expenses also increased because of the Suncoast to $6.7 million
in 2001 compared to $5.6 million in 2000, an increase of 19.8%.
General and Administrative. General and administrative expenses were $22.9
million in the first quarter of 2001 compared to $16.3 million in 2000, an
increase of 40.7%, primarily due to the Suncoast expenses. Additionally,
utilities expenses increased substantially in the quarter. Excluding the
Suncoast, which opened in September 2000, electricity and gas expenses increased
by $868,000 (75.2%) compared to the first quarter of 2000, primarily because
increased costs of natural gas, which increased $672,000 (347.2%). Included in
general and administrative expenses was cash rent expense of $1.3 million in
2001 and $675,000 in 2000. During the construction of the Suncoast and until it
opened in September 2000, rent expense was capitalized as a cost of the project.
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Results of Operations (continued)
Three Months Ended March 31, 2001 Compared to Three Months Ended March 31, 2000
(continued)
Pre-opening Costs. Pre-opening costs related to the development of the
Suncoast were expensed as incurred. Pre-opening expenses were $268,000 in the
first quarter of 2000. There were no pre-opening expenses in the first quarter
of 2001.
Deferred Rent. Deferred rent in the first quarter of 2001 was $884,000
compared to $520,000 in the first quarter of 2000. During the construction of
the Suncoast and until it opened in September 2000, rent expense was capitalized
as a cost of the project.
Depreciation and Amortization. Depreciation and amortization expense was
$8.6 million in the first quarter of 2001 compared to $5.8 million in 2000. The
increase was primarily due to the opening of the Suncoast.
Other Income (Expenses). Net interest expense increased in the first
quarter of 2001 due to the higher debt related to the financing of the
construction of the Suncoast. Net interest expense was $8.0 million in the
quarter compared to $5.5 million in the first quarter of 2000. Capitalized
interest decreased by $908,000 due to the completion of the Suncoast
construction in September 2000. The $1.5 million net gain on disposal of assets
included a gain of $2.4 million on the sale of approximately 29 acres that had
been held for possible future development.
Liquidity and Capital Resources
Our principal sources of liquidity have consisted of cash provided by
operating activities and debt financing. Cash provided by operating activities
was $26.5 million in the three months ended March 31, 2001 and $23.8 million in
the three months ended March 31, 2000.
Cash used in investing activities in the quarters ended March 31, 2001 and
2000 was $3.8 million and $31.2 million, respectively, and was primarily for
capital expenditures. Expenditures of approximately $13.2 million in the first
quarter of 2001, primarily for capital improvement projects at the Gold Coast,
The Orleans and the Suncoast, were offset in part by proceeds received from the
sale of assets, including approximately 29 acres of land in North Las Vegas that
had been held for possible future development. Expenditures in the first quarter
of 2000 were primarily for the construction of the Suncoast.
Cash used in financing activities was $8.4 million in the first quarter of
2001, primarily from the issuance on February 2, 2001 of $50.0 million principal
amount of senior subordinated notes which was offset by paydowns of the credit
facility with cash flows from operations and approximately $49.1 million of net
proceeds from the senior subordinated note issuance. The senior subordinated
notes were issued under the same indenture and have the same terms, interest
rate and maturity date as our $175.0 million principal amount of senior
subordinated notes issued in 1999. Cash provided by financing activities was
$8.7 million in the first quarter of 2000, primarily from borrowings under our
$200.0 million senior secured credit facility.
11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Liquidity and Capital Resources (continued)
The availability under our $200.0 million senior secured credit facility
will be reduced in quarterly amounts beginning in the fiscal quarter ending
September 30, 2001. The reductions will be $6.0 million on each of September 30,
2001, December 31, 2001, March 31, 2002 and June 30, 2002; $8.5 million on each
of September 30, 2002, December 31, 2002, March 31, 2003 and June 30, 2003; and
$11.5 million on each of September 30, 2003, December 31, 2003, March 31, 2004
and June 30, 2004. The advances under the facility may be used for working
capital, general corporate purposes, and certain improvements to our existing
properties. As of March 31, 2001, we had $119.0 million outstanding under the
$200.0 million credit facility. Borrowings under the credit facility bear
interest, at our option, at a premium over the one-, two-, three- or six-month
London Interbank Offered Rate ("LIBOR"). The premium varies depending on our
ratio of total debt to EBITDA and can vary between 125 and 250 basis points. As
of March 31, 2001, the premium over LIBOR was 2.25% (225 basis points) and the
interest rate was 7.3%. For the quarter ended March 31, 2001 the
weighted-average interest rate for the senior secured credit facility was 7.95%.
The loan agreement governing the $200.0 million senior secured revolving
credit facility contains covenants that, among other things, limit Coast Hotels'
ability to pay dividends or make advances to Coast Resorts, to make certain
capital expenditures, to repay certain existing indebtedness, to incur
additional indebtedness or to sell material assets. Additionally, the loan
agreement requires that we maintain certain financial ratios with respect to its
leverage and fixed charge coverage. We are also subject to certain covenants
associated with the indenture governing our $225.0 million principal amount of
senior subordinated notes, including, in part, limitations on certain restricted
payments, the incurrence of additional indebtedness and asset sales. We believe
that, at March 31, 2001, we were in compliance with all covenants and required
ratios.
Capital Expenditures
In January 2001, we announced a proposed expansion of The Orleans. The
project has an estimated cost of $100.0 million and is expected to be paid for
primarily out of cash flows from operations through the first quarter of 2003.
The expansion will include a special-events arena, a 620-room hotel tower, a
2600-car parking garage, six additional movie theaters, two restaurants and an
Irish pub. Approximately 40,000 square feet of new gaming area and public space
will also be created for future use. We anticipate that 2001 cash outlays for
the project will total approximately $50.0 million, of which $3.2 million had
been expended in the first quarter.
In the fourth quarter of 2000, we commenced an approximately $20.0 million
expansion and remodel of the Gold Coast. The project, which is expected to be
paid for primarily out of cash flows from operations, will include a new,
expanded buffet, a sports bar, an Asian-themed restaurant, 10,000 square feet of
additional meeting space, the refurbishing of our standard hotel guest rooms and
the redesign of most of the Gold Coast's public areas. We expect to complete the
project by the fourth quarter of 2001 and to spend approximately $18.5 million
in 2001, of which $4.1 million had been expended in the first quarter.
The Suncoast hotel room tower was originally built to accommodate
approximately 200 additional hotel rooms. We began construction of these
additional rooms in the first quarter of 2001 and expect to complete them during
2001 at an estimated cost of $9.0 million. Additionally, we expect to complete
the swimming pool and related landscaping in the second quarter of 2001 at a
cost of approximately $11.5 million, of which $2.8 million had been expended in
the first quarter.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Capital Expenditures (continued)
In the ordinary course of operating our hotel-casinos, it is necessary to
upgrade or replace fixtures and equipment and to make improvements that will
extend the lives of our physical plants. We anticipate that these maintenance
capital expenditures will total approximately $12.0 million in 2001.
A key element of our business strategy is the expansion or renovation of
our existing properties as described above. The completion of these projects is
subject to certain risks, including but not limited to:
o general construction risks, including cost overruns, shortages of
materials or skilled labor, labor disputes, unforeseen environmental or
engineering problems, work stoppages, fire and other natural disasters,
construction scheduling problems and weather interference;
o change orders and plan or specification modifications;
o changes and concessions required by governmental or regulatory authorities;
and
o delays in obtaining or inability to obtain all required licenses, permits
and authorizations.
We believe that existing cash balances, operating cash flow and available
borrowings under our $200.0 million credit facility will provide sufficient
resources to meet our debt and lease payment obligations and foreseeable capital
expenditure requirements at our hotel-casino properties.
Energy Shortage
Because of a shortage of electricity in the western United States in the
first quarter of 2001 and the possibility of a continued shortage, we are also
exposed to the risk of substantially higher utilities rates. To the extent
possible, we attempt to limit our exposure to utilities rate increases by
purchasing multi-period fixed rate contracts, but no assurance can be made that
such contracts will be available or, if purchased, will result in significant
savings.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Certain Forward-Looking Statements
This Form 10-Q includes "forward-looking statements" within the meaning of
the securities laws. All statements regarding our expected financial position,
business strategies and financing plans under the headings "Management's
Discussion and Analysis of Financial Condition and Results of Operations",
"Business" and elsewhere in this Form 10-Q are forward-looking statements. In
addition, in those and other portions of this Form 10-Q, the words
"anticipates," "believes," "estimates," "seeks," "expects," "plans," "intends"
and similar expressions, as they relate to Coast Resorts or its management, are
intended to identify forward-looking statements. Although we believe that the
expectations reflected in such forward-looking statements are reasonable, and
have based these expectations on our beliefs as well as assumptions we have
made, such expectations may prove to be incorrect. Important factors that could
cause actual results to differ materially from such expectations are disclosed
in this Form 10-Q, including, without limitation, the following factors:
o increased competition, both in Nevada and other states, including increased
competition from California Native American gaming;
o dependence on the Las Vegas area and Southern California for a majority of
our customers;
o substantial leverage and uncertainty that we will be able to service our
debt;
o uncertainties associated with construction projects, including the related
disruption of operations and the availability of financing, if necessary;
o changes in laws or regulations, third party relations and approvals,
decisions of courts, regulators and governmental bodies;
o uncertainties related to the economy; and
o uncertainties related to the cost and/or availability of electricity and
natural gas.
All subsequent written and oral forward-looking statements attributable to
us or persons acting on our behalf are expressly qualified in their entirety by
our cautionary statements. The forward-looking statements included are made only
as of the date of this Form 10-Q. We do not intend, and undertake no obligation,
to update these forward-looking statements.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk.
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. Our primary exposure to market risk is interest rate risk
associated with our long-term debt. We attempt to limit our exposure to interest
rate risk by managing the mix of our long-term fixed-rate borrowings and
short-term borrowings under our revolving bank credit facility. To date, we have
not invested in derivative- or foreign currency-based financial instruments.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
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.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits.
None.
(b) Reports on Form 8-K.
On February 8, 2001, the Company filed a Form 8-K dated February 2, 2001
under Item 5, Other Events, with respect to the preliminary release of unaudited
fourth quarter results and the issuance of $50,000,000 principal amount of
additional 9 1/2% Senior Subordinated Noted Due 2009.
On March 15, 2001, the Company filed a Form 8-K dated March 14, 2001 under
Item 5, Other Events, with respect to the expiration of its offer to exchange up
to $50.0 million principle amount of newly issued additional 9 1/2% Senior
Subordinated Noted Due 2009.
On March 27, 2001, the Company filed a Form 8-K dated March 26, 2001 under
Item 5, Other Events, with respect to the availability of certain financial and
other information on its website.
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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: May 15, 2001 COAST RESORTS, INC., a Nevada corporation
By: /s/ Gage Parrish
-----------------------
Gage Parrish
Vice President and
Chief Financial Officer
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