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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________
FORM 10-K/A
(AMENDMENT NO. 1)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
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 #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 Identification No.)
incorporation or organization)
4000 WEST FLAMINGO ROAD, LAS VEGAS, NEVADA 89103
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (702) 367-7111
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
(Title of class)
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
---- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes No X
---- ----
The number of shares of the Registrant's Common Stock outstanding as of
June 30, 1996 was 1,494,352.94. The aggregate market value of the Common Stock
held by non-affiliates of the Registrant, was $57,979,251.19 as of June 30,
1996.
___________________________
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COAST RESORTS, INC.
TABLE OF CONTENTS
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
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PART I
Item 1. Business................................................. 1
Item 2. Properties............................................... 9
Item 3. Legal Proceedings........................................ 10
Item 4. Submission of Matters to a Vote of Security Holders...... 10
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters...................................... 11
Item 6. Selected Financial Data.................................. 11
Item 7. Management's Discussion And Analysis Of Financial
Condition And Results Of Operations...................... 14
Item 8. Financial Statements and Supplementary Data.............. 21
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...................... 22
PART III
Item 10. Directors and Executive Officers of the Registrant....... 23
Item 11. Executive Compensation................................... 23
Item 12. Security Ownership of Certain Beneficial Owners and
Management............................................... 23
Item 13. Certain Relationships and Related Transactions........... 23
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on
Form 8-K................................................. 24
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PART I
ITEM 1. BUSINESS.
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THE COMPANY
Coast Resorts, Inc., a Nevada corporation (the "Company"), through its
wholly owned subsidiary, Coast Hotels and Casinos, Inc ("Coast Hotels"), owns
and operates two established Las Vegas hotel-casinos, the Gold Coast Hotel and
Casino (the "Gold Coast") and the Barbary Coast Hotel and Casino (the "Barbary
Coast"), and is developing and constructing a third hotel-casino in Las Vegas,
The Orleans Hotel and Casino ("The Orleans"). Another wholly-owned subsidiary,
Coast West, Inc. ("Coast West"), leases certain real property held for potential
development of another gaming property in the future, although no assurance can
be given that any additional properties will be developed. See "Item 2 --
Properties."
The Company was recently formed as a holding company to consolidate and
reorganize two affiliated partnerships, the Gold Coast Hotel and Casino, a
Nevada limited partnership (the "Gold Coast Partnership"), and the Barbary Coast
Hotel and Casino, a Nevada general partnership (the "Barbary Coast Partnership"
and, together with the Gold Coast Partnership, the "Predecessor Partnerships").
The Gold Coast Partnership, formed in 1987, and the Barbary Coast Partnership,
formed in 1978, previously owned and operated the Gold Coast and the Barbary
Coast, respectively, and the Gold Coast Partnership commenced the development
and construction of The Orleans.
Unless the context otherwise requires, the term "Company" collectively
refers to the Company and its subsidiaries, Coast Hotels and Coast West. The
Company's principal executive office is located at 4000 West Flamingo Road, Las
Vegas, Nevada 89103. The telephone number is (702) 367-7111.
THE REORGANIZATION
Effective January 1, 1996, the Predecessor Partnerships were consolidated
and reorganized (the "Reorganization") pursuant to an Agreement and Plan of
Reorganization, as supplemented and amended, entered into among each of the
Predecessor Partnerships, Gaughan-Herbst, Inc., the former sole general partner
of the Gold Coast Partnership, and the Company. As a result of the
Reorganization, the Company, through Coast Hotels, owns and operates the Gold
Coast and the Barbary Coast and is continuing the development and construction
of The Orleans begun by the Predecessor Partnerships, and Coast West has become
the lessee under the Coast West Lease (as defined below). In the Reorganization,
(a) the partners of the Predecessor Partnerships each transferred to the
Company, by assignment or through the merger of Gaughan-Herbst, Inc., 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
the Company ("Common Stock"), (b) the Company assumed, jointly and severally
with Coast Hotels, all of the liabilities of the Predecessor Partnerships other
than (i) the obligations under approximately $52.5 million principal amount of
notes payable held by certain shareholders of the Company that were exchanged
for an aggregate of 494,353 shares of Common Stock on January 16, 1996, and (ii)
those liabilities incident to the Coast West Lease, and (c) the Company assumed,
jointly and severally with Coast West, all of the liabilities of the Predecessor
Partnerships incident to the Coast West Lease.
THE GOLD COAST
The Gold Coast, which opened in 1986, is located on West Flamingo Road
approximately one mile west of the Las Vegas Strip (the "Strip") in close
proximity to a major exit from Interstate 15, the major highway linking Las
Vegas and Southern California. The Gold Coast features an approximately 70,000
square foot casino, including approximately 2,010 slot machines, 48 table games,
a keno lounge, a 700-seat bingo parlor, an 11-table poker room and a 160-seat
race and sports book. The Gold Coast also features an 11-story tower with 712
hotel rooms and a swimming pool with a covered bar. From January 1, 1993
through December 31, 1995, the Gold Coast's average occupancy rate was 93.7% and
the average daily room rate was $37.72.
The Gold Coast features three full-service restaurants, including the
Mediterranean Room, the Cortez Room and the Monterey Room, a 380-seat buffet, a
fast-food restaurant, a snack bar and ice cream parlor. The Gold Coast's
entertainment amenities include a 72-lane bowling center, two movie theaters,
approximately 10,000 square feet of banquet and meeting facilities, four bars,
two entertainment lounges and a dance hall. Other amenities include a gift
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ship, a liquor store, a travel agency, an American Express office, a Western
Union office, a beauty salon, a barber shop, a child care facility and over
3,000 parking spaces.
The Gold Coast has developed a number of innovative marketing programs
designed to complement the non-gaming amenities at the Gold Coast and increase
the level of gaming activity. The Gold Coast's slot club (the "Club") has
approximately 165,000 active members and, since 1991, has been voted the "Best
of Las Vegas" slot club by readers in an annual survey published by Nevada's
largest daily newspaper. The Club was established in 1987 to encourage repeat
business from slot machine players at the Gold Coast. Each time members win at a
Gold Coast slot machine, points are awarded to their accounts. Upon accumulating
sufficient points, members can redeem the points for awards, including
appliances, vacations and other items. Other Gold Coast marketing programs
include the original "Pick the Pros" football contest which attracts
approximately 15,000 entries each year, a $250,000 paycheck cashing contest,
country music concerts in the dance hall, Superbowl parties and the annual
"Gold Coast Open," a 10-day poker tournament. In addition, the Gold Coast is a
sponsor of the annual National Finals Rodeo, which attracts thousands of
visitors to Las Vegas each December. The awards ceremonies for the Rodeo are
held nightly at the Gold Coast during the 10-day event.
THE BARBARY COAST
The Barbary Coast, which opened in 1979, is located at the intersection of
Flamingo Road and the Strip (the "Flamingo Four Corners"), adjacent to the
Flamingo Hotel and Casino. It is situated directly across from Caesars Palace
and Bally's Grand and is diagonally across from the site of the former Dunes
Hotel and Casino where Mirage Resorts, Inc. is developing a new mega-resort,
Bellagio. Additionally, Bally's Entertainment has announced its intention to
develop a new mega-resort, Paris, to be located adjacent to Bally's Grand.
These properties are expected to open during 1998.
The Barbary Coast features an approximately 30,000 square foot casino,
including approximately 562 slot machines, 45 table games, race and sports books
and other amenities. The Barbary Coast also features an 8-story tower with 197
hotel rooms. From January 1, 1993 through December 31, 1995, the Barbary Coast's
average occupancy rate was 95.3% and the average daily room rate was $48.56.
The Barbary Coast is furnished and decorated in an elegant turn-of-the-century
Victorian theme and includes three bars and three restaurants, including
Michael's gourmet restaurant, the Victorian Room, which features Chinese and
American cuisine and a McDonald's restaurant. For the past three years,
Michael's, which caters primarily to preferred casino customers, has received a
distinguished dining award from the Distinguished Restaurants of North America.
According to the Distinguished Restaurants of North America, a non-profit
organization, in order to qualify for the distinguished dining award, a
restaurant must have been open to the public under the same ownership for at
least three years and pass an evaluation conducted anonymously by specially
trained members of the organization's independent panel of industry
professionals and consumers who are "connoisseurs" of distinguished dining.
The Barbary Coast is designed to provide a more personal and intimate
casino environment than the larger casinos that surround it on the Strip.
Management believes that the Barbary Coast's strategic location on the Flamingo
Four Corners has historically resulted in a large volume of pedestrian traffic
from the Strip, which has provided a significant part of its gaming revenues.
This important walk-in traffic has fluctuated since the opening of the Mirage
mega-resort in 1989 altered foot traffic patterns on the Strip. Since then,
other factors such as the closing of the former Dunes Hotel and Casino in
January 1993, the addition of new casinos at the south end of the Strip,
including the Excalibur in June 1990 and the Luxor and MGM Grand in 1993, and
sidewalk and road construction around the Barbary Coast during the first six
months of 1995, have all contributed to a substantial decrease in walk-in
traffic at the Barbary Coast. Management expects that pedestrian traffic at the
Flamingo Four Corners and the Barbary Coast will increase as a result of the
expected openings during 1998 of Bellagio, Paris and the recently announced
Caesars Expansion (as defined below). No assurance can be given, however, that
Bellagio or Paris will open or the Caesars Expansion will be completed or, if
opened or completed, will increase the volume of walk-in customers to the
Barbary Coast.
ORLEANS
The Company is developing The Orleans to expand its presence in the growing
Las Vegas market and to capitalize on management's belief in the demand for an
upscale, off-Strip hotel-casino alternative for both visitors to Las Vegas and
local residents. The Orleans site is located on Tropicana Avenue, approximately
one and one-half miles
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west of the Strip. Construction of The Orleans commenced in July 1995 and The
Orleans is expected to open by December 1996.
The Orleans is designed with a distinctive theme reflecting the
architectural heritage of the New Orleans French Quarter. The Orleans is
expected to feature an approximately 92,000 square foot casino, a 22-story tower
consisting of 840 hotel rooms, a 70-lane bowling center, approximately 40,000
square feet of banquet and meeting facilities, including an approximately 17,000
square foot grand ballroom, a wedding chapel, five restaurants, specialty themed
bars, a child care facility, a barber shop, a beauty salon and approximately
3,750 parking spaces. The casino is expected to include approximately 2,150 slot
machines, 62 table games, a keno lounge, a poker parlor and race and sports
books. Plans for The Orleans also include an 800-seat live entertainment
theater patterned after those in Branson, Missouri that is expected to feature
headline performers, musical shows and other special events.
The Orleans has a construction and development budget of approximately
$158.1 million (including contingencies but excluding pre-opening expenditures,
opening bankroll and capitalized interest costs). Coast Hotels has entered into
an Agreement between owner and Contractor with J.A. Tiberti Construction
Company, Inc. ("Tiberti Construction"), the general contractor for the
construction of The Orleans, dated as of January 24, 1996, for the construction
of buildings and site improvements for a guaranteed maximum price not to exceed
$100.0 million. The construction and development budget also includes
approximately $53.2 million for furniture, fixtures, equipment, signs and
certain interior and other improvements that will be completed pursuant to
separate contracts to be entered into between the Company and various
contractors and suppliers. Additionally, the budget allocates approximately
$4.9 million for architectural and design fees. As of June 30, 1996, Coast
Hotels had paid approximately $55.7 million in construction and development
costs, including approximately $48.8 million for work 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.
There can be no assurance that Tiberti Construction would have the financial
resources to fund any significant cost overruns in excess of the $100.0 million
guaranteed maximum contract price. J. Tito Tiberti, a director and shareholder
of the Company and a director of Coast Hotels, is the president, a director and
shareholder of, and together with his immediate family controls, Tiberti
Construction.
Initial construction costs of The Orleans were funded with cash flow from
Gold Coast operations and borrowings under an unsecured revolving credit
facility. On January 30, 1996, Coast Hotels consummated a private placement of
$175.0 million principal amount of First Mortgage Notes due 2002 (the "First
Mortgage Notes), a portion of the net proceeds of which are being used for the
construction of The Orleans. The Company believes that the available proceeds
from the offering of the First Mortgage Notes, in combination with approximately
$30.0 million of anticipated equipment financing and internally generated cash
from operations during The Orleans construction period, should be sufficient to
fund the development, construction, opening and equipping of The Orleans.
However, any construction project entails significant 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
interferences, any of which, if they occurred, could delay construction or
result in a substantial increase in costs to the Company. Such risks may be
compounded by the Company's decision to construct The Orleans on an accelerated
schedule under which construction is in process while final plans are being
completed. To the extent that the completion of The Orleans is delayed,
operational results of the Company will be adversely impacted.
The opening of The Orleans will be contingent upon, among other things, the
Company's receipt of all required licenses, permits and authorizations. The
scope of the approvals required for a project of this nature is extensive,
including, without limitation, state and local land-use permits, building and
zoning permits, health and safety permits and gaming and liquor licenses. In
addition, unexpected changes or concessions required by local, regulatory and
state authorities could involve significant additional costs and could delay or
prevent the completion of construction or the opening of all or part of The
Orleans. The Company has obtained all permits, licenses and approvals necessary
for the construction in progress of The Orleans to date. There can be no
assurance, however, that the Company will receive the necessary permits,
licenses and approvals for the construction and operation of The Orleans that it
has not yet obtained, or that such permits, licenses and approvals will be
obtained within the anticipated time frame. Furthermore, there can be no
assurance that The Orleans will become operational or become operational within
the time frames and budgets currently contemplated.
If the Company's sources of funds prove to be inadequate to complete and
open The Orleans as designed, the Company would be required to reduce the size
or scope of the project, reduce or delay capital expenditures or sell material
assets or operations. No assurance can be given that the Company would be
successful in implementing any of
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these alternatives, if necessary. If the construction budget were to increase
significantly, completion of construction were to be delayed or the Company were
to be unsuccessful in implementing necessary alternatives, there would be a
material adverse effect on the financial condition and results of operations of
the Company.
BUSINESS AND MARKETING STRATEGY
The Company's business strategy is to attract gaming customers to its
various gaming facilities by offering a combination of quality gaming, dining
and entertainment activities. In addition, both the Gold Coast and Barbary
Coast seek to encourage repeat business by providing friendly service and
complimentary or reduced-rate accommodations, meals and automotive and aircraft
transportation. However, the Gold Coast and the Barbary Coast each target
different markets and employ different techniques to accomplish its strategy.
The Gold Coast primarily targets middle-market gaming customers, catering
to local residents as well as repeat visitors to Las Vegas who desire an
alternative to the hotel-casino properties located on the Strip. Management's
operating strategy is to maximize customer visitation and thereby increase
casino revenues at the Gold Coast by offering value-conscious customers a
combination of friendly service, generous portions of quality food at
competitive prices and clean, comfortable and inexpensive hotel rooms.
Management believes this value-oriented approach has generated a high level of
customer satisfaction, fostering customer loyalty and repeat business. In
addition, the Gold Coast is conveniently located on West Flamingo Road, in close
proximity to a major exit from Interstate 15, offering easy automotive access
from all four directions in the Las Vegas valley. The Gold Coast has developed
a number of innovative campaigns designed to promote its business and attract
local residents. See "--The Gold Coast."
The Barbary Coast's customer base is primarily visitors to the Las Vegas
area. In addition to its favorable location on the Las Vegas Strip, which has
historically enabled it to attract a large volume of walk-in traffic, the
Barbary Coast has also benefited from its more intimate gaming atmosphere,
allowing it to develop a loyal base of table games customers.
Management believes that The Orleans will differentiate itself in the Las
Vegas market by combining an upscale, off-Strip experience in an exciting New
Orleans French Quarter-themed environment with a wide variety of non-gaming
amenities. The Orleans will primarily target middle to upper-middle income
gaming customers, both visitors to Las Vegas and local residents. Management
believes The Orleans will be an attractive alternative for Las Vegas visitors
and local residents by offering a full-service hotel-casino and entertainment
experience complemented with a value-oriented pricing strategy. The Orleans
will employ marketing programs similar to those which make the Gold Coast a
success, including a slot club and football contests, and will tailor its
marketing programs to promote The Orleans as a multi-faceted entertainment
complex.
GAMING SECURITY
Each of the Company's existing casinos employs extensive supervision and
accounting procedures to control the handling of cash in their gaming
operations. These measures include security personnel; closed-circuit
television observation of critical areas of the casino; locked cash boxes;
independent auditors and observers; strict sign-in and sign-out procedures which
ensure, to the extent practicable, that gaming chips issued by, and returned to,
the casino cashier's cages are accurately accounted for; and procedures for the
regular observation of gaming employees. The accounting departments of each of
the Company's casinos, which employ persons who have no involvement in the
gaming operations, review on a daily basis records compiled by gaming employees
pertaining to cash flow and credit extension. Moreover, regular periodic
analysis of the results of the Company's gaming operations, including analyses
of the Company's compliance with the internal control standards established by
the Nevada Board (as defined herein), are performed by the Company and its
independent auditors to detect significant deviations from industry standards.
Based on the results of these analyses, management believes that its procedures
are in compliance in all material respects with the requirements established by
the Nevada Gaming Authorities (as defined below).
CREDIT POLICY
The Gold Coast and the Barbary Coast each issue credit in exchange for
gaming chips in compliance with the regulations of the Nevada Gaming
Authorities. Credit will be extended to a customer only after examination of
the customer's financial condition in accordance with established credit
policies. Credit customers are not a material aspect of the operations of the
Gold Coast or the Barbary Coast. For fiscal years ending December 31, 1994 and
December 31, 1995, respectively, approximately 4.9% and 5.1% of the Gold Coast's
table game volume involved the issuance of
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credit, and approximately 8.8% and 9.0% of the Barbary Coast's table game volume
involved the issuance of credit. As of December 31, 1995, the Company had
approximately $1.4 million in outstanding customer credit. Nevada gambling debts
evidenced by a credit instrument are legally enforceable in Nevada, but Nevada
judgments enforcing such instruments may not be enforceable in other states.
FUTURE PLANS
The Company is exploring the possible development of additional gaming
properties. The Company is contemplating the development of a new gaming
property in the northwestern area of the Las Vegas valley on real property which
is leased by Coast West. Preliminary plans for the property include, in
addition to casino space and hotel rooms, movie theatres, banquet and meeting
facilities and possibly a bowling center. Management does not expect to begin
construction of this property until after The Orleans has commenced gaming
operations.
The Company owns an approximately 29.0-acre parcel of undeveloped land
located at the corner of Rancho Drive and Carey Avenue in North Las Vegas, in
close proximity to the Fiesta Hotel and Casino and the Texas Station. The site
is zoned for gaming.
The Company has no agreements, arrangements or understandings with respect
to financing the development of either of the foregoing sites, and does not
expect to commence such development in the near future. Any future development
would be subject to, among other things, the Company's ability to obtain
necessary financing. No assurance can be given that the Company will develop
successfully any additional properties or, if completed, such properties will be
successful.
COMPETITION
Both the gaming and hotel industries are highly fragmented and
characterized by a high degree of competition among a large number of
participants. Many of the Company's competitors are much larger than the Company
and have substantially greater resources.
The Company faces competition from all other casinos and hotels in the Las
Vegas area, including competitors that primarily target local residents and
casinos and hotels located on the Strip, on the Boulder Highway and in downtown
Las Vegas. The Company also faces competition from non-hotel gaming facilities
that also target local residents of Las Vegas. Several of the Company's direct
competitors have opened new hotel-casinos or have commenced or completed major
expansion projects in recent months, and the construction of two additional
hotel-casinos catering to local residents is currently underway. In addition,
the Strip is experiencing a significant increase in the number of hotel rooms
and gaming capacity. In June 1996, Monte Carlo, a 3,000-room hotel-casino,
opened on the Strip and New York-New York, a 2,500-room hotel-casino, is
expected to open in December 1996. Additionally, Bellagio and Paris are
expected to be completed during 1998 and Caesars Palace has recently announced
an extensive expansion and renovation plan (the "Caesars Expansion") that will
add, among other things, approximately 2,000 new hotel rooms and significant
expansion of the Forum Shop areas. Furthermore, Harrah's has commenced
construction of an expansion that is expected to include additional hotel rooms,
and Luxor has commenced construction on an additional 2,000 hotel rooms.
Several other new hotel-casino projects have been announced and are expected to
be completed by the year 2000 which would further increase the number of hotel
rooms and gaming capacity. The completion of each of these projects would add
approximately 16,000 hotel rooms to the Strip by 1998. Each of these facilities
is expected to draw significant numbers of visitors and increase the overall
pedestrian traffic on the Strip. While management believes that the opening of
Bellagio and Paris and the completion of the Caesars Expansion will increase
pedestrian traffic at the Flamingo Four Corners and thereby benefit the Barbary
Coast, the construction of new properties, including the mega-resorts, and the
expansions or enhancements of existing properties by competitors could have a
material adverse effect on the Company's business and results of operations.
The Company also competes for gaming customers to a lesser extent with
casinos located in the Laughlin and Reno-Lake Tahoe areas of Nevada, in Atlantic
City, New Jersey, and in other parts of the world, including gaming on cruise
ships and international gaming operations, as well as with state-sponsored
lotteries, on- and off- track wagering, card parlors, riverboat and Native
American gaming ventures and other forms of legalized gaming in the United
States. In addition, several states have recently legalized, and several other
states are currently considering legalizing, casino gaming in specific
geographical areas within those states. The Company believes that the
development of casino properties similar to those in Las Vegas in areas close to
Nevada, particularly California and Arizona, could have a
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material adverse effect on its business and its results of operations. The
Company believes that the recent widespread legalization of gaming is being
fueled by a combination of increasing popularity and acceptability of gaming
activities and the desire and need for states and local communities to generate
revenues without increasing general taxation. The Company believes that the
legalization of unlimited land-based casino gaming in or near any major
metropolitan area, such as Chicago or Los Angeles, could have a material adverse
effect on its business and results of operations. In addition, the development
or expansion of casinos, lotteries and other forms of gaming in other states,
particularly in areas close to Nevada such as California, could have a material
adverse effect on the Company's business and its results of operations.
The Gold Coast primarily targets local residents as well as repeat visitors
to Las Vegas. While The Orleans is expected to target a higher income segment of
gaming customers, it will also focus its marketing efforts in part on the same
customer base as the Gold Coast. The Orleans will be located approximately one
mile south of the Gold Coast. Due to the close proximity and overlapping target
markets of the two properties, the opening of The Orleans may negatively impact
the operating results and financial performance of the Gold Coast and the
Company will be subject to greater risks, including risks related to local
competitive and economic conditions, than if these two gaming properties were
more geographically distant or had more diverse targeted markets.
ENVIRONMENTAL MATTERS
The Company is subject to a wide variety of federal, state and local laws
and regulations relating to the use, storage, discharge, emission and disposal
of hazardous materials. While management believes that the Company is presently
in material compliance with all environmental laws, failure to comply with such
laws could result in the imposition of severe penalties or restrictions on
operations by government agencies or courts that could adversely affect
operations. The Company has completed Phase I environmental assessments at the
seven properties owned or leased by it. The reports include suggestions
relative to certain conditions and areas of potential environmental concerns.
The reports did not, however, identify any environmental conditions or non-
compliance, the remediation or correction of which are reasonably expected to
have a material adverse impact on the business or financial condition of the
Company at any of the sites.
EMPLOYEES AND LABOR RELATIONS
At June 30, 1996, there were approximately 2,200 and 800 employees at the
Gold Coast and the Barbary Coast, respectively.
None of the employees at the Gold Coast is represented by a union. Coast
Hotels has a collective bargaining agreement with the International Union of
Operating Engineers which covers 13 employees at the Barbary Coast. This
agreement became effective in March 1995 and expires in March 1998. Coast
Hotels also has a collective bargaining agreement with the Culinary Workers
Union and Bartenders Union which covers approximately 260 employees that work in
the food, hotel, bar and slot departments at the Barbary Coast. This agreement
became effective in October 1993 and expires in May 1999. Management believes
that its relations with its employees are satisfactory.
NEVADA REGULATION AND LICENSING
The ownership and operation of casino gaming facilities in Nevada are
subject to (i) the Nevada Gaming Control Act and the regulations promulgated
thereunder (collectively, the "Nevada Act"), and (ii) various local regulations.
The Company's gaming operations are subject to the licensing and regulatory
control of the Nevada Gaming Commission (the "Nevada Commission"), the Nevada
State Gaming Control Board (the "Nevada Board") and the Clark County Liquor and
Gaming Licensing Board (the "Clark County Board"). The Nevada Commission, the
Nevada Board and the Clark County Board are collectively referred to as the
"Nevada Gaming Authorities."
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which seek to, among
other things, (i) prevent unsavory or unsuitable persons from having any direct
or indirect involvement with gaming at any time or in any capacity, (ii)
establish and maintain responsible accounting practices and procedures, (iii)
maintain effective control over the financial practices of licensees, including
establishing minimum procedures for internal fiscal affairs and the safeguarding
of assets and revenues, providing reliable record keeping and requiring the
filing of periodic reports with the Nevada Gaming Authorities, (iv) prevent
cheating and fraudulent practices and (v) provide a source of state and local
revenues through taxation and licensing
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fees. Changes in such laws, regulations and procedures could have an adverse
effect on the Company's gaming operations.
Coast Hotels, which operates Gold Coast and the Barbary Coast, is licensed
by the Nevada Gaming Authorities and is a corporate licensee (a "Corporate
Licensee") under the terms of the Nevada Act. The gaming licenses require the
periodic payment of fees and taxes and is not transferable. The Company is
registered with the Nevada Commission as a publicly traded corporation (a
"Registered Corporation") and has been found suitable to own the stock of Coast
Hotels. As a Registered Corporation, the Company is required periodically to
submit detailed financial and operating reports to the Nevada Commission and
furnish any other information that the Nevada Commission may request. No person
may become a shareholder of, or receive any percentage of the profits from,
Coast Hotels without first obtaining licenses and approvals from the Nevada
Gaming Authorities. The Company and Coast Hotels have obtained from the Nevada
Gaming Authorities the various registrations, approvals, permits and licenses
required in order to engage in gaming activities at the Gold Coast and the
Barbary Coast.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, the Company or Coast
Hotels in order to determine whether such individual is suitable or should be
licensed as a business associate of a Corporate Licensee or a Registered
Corporation. Officers, directors and certain key employees of the Company must
file applications with the Nevada Gaming Authorities and may be required to be
licensed or found suitable by the Nevada Gaming Authorities. Officers,
directors and key employees of the Company who are actively and directly
involved in gaming activities of Coast Hotels may be required to be licensed or
found suitable by the Nevada Gaming Authorities. The Nevada Gaming Authorities
may deny an application for licensing for any cause which they deem reasonable.
A finding of suitability is comparable to licensing, and both require submission
of detailed personal and financial information followed by a thorough
investigation. The applicant for licensing or a finding of suitability must pay
all the costs of the investigation. Changes in licensed positions must be
reported to the Nevada Gaming Authorities and, in addition to their authority to
deny an application for a finding of suitability or licensure, the Nevada Gaming
Authorities have jurisdiction to disapprove a change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director or key
employee of the Company or Coast Hotels unsuitable for licensing or unsuitable
to continue having a relationship with the Company or Coast Hotels, the Company
and Coast Hotels would have to sever all relationships with such person. In
addition, the Nevada Commission may require the Company and Coast Hotels to
terminate the employment of any person who refuses to file appropriate
applications. Determinations of suitability or of questions pertaining to
licensing are not subject to judicial review in Nevada.
The Company and Coast Hotels are required to submit detailed financial and
operating reports to the Nevada Commission. Substantially all material loans,
leases, sales of securities and similar financing transactions by Coast Hotels
must be reported to, or approved by, the Nevada Commission.
If it were determined that the Nevada Act was violated by Coast Hotels, the
gaming licenses it holds could be limited, conditioned, suspended or revoked,
subject to compliance with certain statutory and regulatory procedures. In
addition, the Company, Coast Hotels and the persons involved could be subject to
substantial fines for each separate violation of the Nevada Act at the
discretion of the Nevada Commission. Further, a supervisor could be appointed
by the Nevada Commission to operate the Company's gaming properties and, under
certain circumstances, earnings generated during the supervisor's appointment
(except for the reasonable rental value of the Company's gaming properties)
could be forfeited to the State of Nevada. Limitation, conditioning or
suspension of any gaming license or the appointment of a supervisor could (and
revocation of any gaming license would) materially adversely affect the
Company's gaming operations.
Any beneficial holder of a Registered Corporation's voting securities,
regardless of the number of shares owned, may be required to file an
application, be investigated, and have his suitability as a beneficial holder of
a Registered Corporation's voting securities determined if the Nevada Commission
has reason to believe that such ownership would otherwise be inconsistent with
the declared policies of the State of Nevada. The applicant must pay all costs
of investigation incurred by the Nevada Gaming Authorities in conducting any
such investigation.
The Nevada Act requires any person who acquires beneficial ownership of
more than 5% of a Registered Corporation's voting securities to report the
acquisition to the Nevada Commission. The Nevada Act requires that beneficial
owners of more than 10% of a Registered Corporation's voting securities apply to
the Nevada Commission for a finding of suitability within 30 days after the
Chairman of the Nevada Board mails the written notice requiring
7
<PAGE>
such filing. Under certain circumstances, an "institutional investor," as
defined in the Nevada Act, which acquires more than 10%, but not more than 15%
of a Registered Corporation's voting securities may apply to the Nevada
Commission for a waiver of such finding of suitability if such institutional
investor holds the voting securities for investment purposes only. An
institutional investor will not be deemed to hold voting securities for
investment purposes unless the voting securities were acquired and are held in
the ordinary course of business as an institutional investor and not for the
purpose of causing, directly or indirectly, the election of a majority of the
members of the board of directors of a Registered Corporation, any change in a
Registered Corporation's corporate charter, bylaws, management, policies or
operations, or any of its gaming affiliates, or any other action which the
Nevada Commission finds to be inconsistent with holding the Registered
Corporation's voting securities for investment purposes only. Activities which
are not deemed to be inconsistent with holding voting securities for investment
purposes only include: (i) voting on all matters voted on by shareholders; (ii)
making financial and other inquiries of management of the type normally made by
securities analysts for informational purposes and not to cause a change in its
management policies or operations; and (iii) such other activities as the Nevada
Commission may determine to be consistent with such investment intent. If the
beneficial holder of voting securities who must be found suitable is a
corporation, partnership or trust, it must submit detailed business and
financial information including a list of beneficial owners. The applicant is
required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within 30 days after being ordered to do so by the Nevada Commission or
the Chairman of the Nevada Board, may be found unsuitable. The same
restrictions apply to a record owner if the owner, after request, fails to
identify the beneficial owner. Any shareholder found unsuitable and who holds,
directly or indirectly, any beneficial ownership of the voting securities of a
Registered Corporation beyond such period of time as may be prescribed by the
Nevada Commission may be guilty of a criminal offense. The Company is subject
to disciplinary action if, after it receives notice that a person is unsuitable
to be a shareholder or to have any other relationship with the Company or Coast
Hotels, the Company (i) pays that person any dividend or interest upon voting
securities of the Company, (ii) allows that person to exercise, directly or
indirectly, any voting right conferred through securities held by that person,
(iii) pays remuneration in any form to that person for services rendered or
otherwise, or (iv) fails to pursue all lawful efforts to require such unsuitable
person to relinquish his voting securities, including, if necessary, the
immediate purchase of such voting securities for cash at fair market value.
The Nevada Commission may, in its discretion, require the holder of any
debt security of a Corporate Licensee or a Registered Corporation to file
applications, be investigated and be found suitable to own the debt security.
If the Nevada Commission determines that a person is unsuitable to own such
security, then pursuant to the Nevada Act, the Corporate Licensee or the
Registered Corporation can be sanctioned, including the loss of its licenses, if
without the prior approval of the Nevada Commission, it: (i) pays to the
unsuitable person any dividend, interest or any distribution whatsoever; (ii)
recognizes any voting right by such unsuitable person in connection with such
securities; (iii) pays the unsuitable person remuneration in any form; or (iv)
makes any payment to the unsuitable person by way of principal, redemption,
conversion, exchange, liquidation or similar transaction.
The Company is required to maintain a current stock ledger in Nevada which
may be examined by the Nevada Gaming Authorities at any time. If any securities
are held in trust by an agent or by a nominee, the record holder may be required
to disclose the identity of the beneficial owner to the Nevada Gaming
Authorities. A failure to make such disclosure may be grounds for finding the
record holder unsuitable. The Company is also required to render maximum
assistance in determining the identity of the beneficial owner. The Nevada
Commission has the power to require the Company's stock certificates to bear a
legend indicating that the securities are subject to the Nevada Act.
Neither the Company nor Coast Hotels may make a public offering of its
securities without the prior approval of the Nevada Commission if the securities
or proceeds therefrom are intended to be used to construct, acquire or finance
gaming facilities in Nevada, or to require or extend obligations incurred for
such purposes. Such approval, if given, does not constitute a finding,
recommendation or approval by the Nevada Commission or the Nevada Board as to
the accuracy or adequacy of the prospectus or the investment merits of the
securities. Any representation to the contrary is unlawful.
Changes in control of a Registered Corporation through merger,
consolidation, stock or asset acquisitions, management or consulting agreements,
or any act or conduct by a person whereby he obtains control, may not occur
without the prior approval of the Nevada Commission. Entities seeking to
acquire control of a Registered Corporation must satisfy the Nevada Board and
Nevada Commission with respect to a variety of stringent standards prior to
assuming control of such Registered Corporation. The Nevada Commission may also
require controlling shareholders,
8
<PAGE>
officers, directors and other persons having a material relationship or
involvement with the entity proposing to acquire control, to be investigated and
licensed as a part of the approval process relating to the transaction.
The Nevada legislature had declared that some corporate acquisitions
opposed by management, repurchases of voting securities and corporate defense
tactics affecting Nevada gaming licensees, and Registered Corporations that are
affiliated with those operations, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming operators and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly governance of corporate
affairs. Approvals are, in certain circumstances, required from the Nevada
Commission before a Registered Corporation can make exceptional repurchases of
voting securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada Act also
requires prior approval of a plan of recapitalization proposed by a Registered
Corporation's Board of Directors in response to a tender offer made directly to
the Registered Corporation's shareholders for the purposes of acquiring control
of the Registered Corporation.
License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, are payable to the State of Nevada and to the
counties and cities in which the Nevada licensee's respective operations are
conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly or annually and are based upon
either: (i) a percentage of the gross revenues received; (ii) the number of
gaming devices operated; or (iii) the number of table games operated. A casino
entertainment tax is also paid by casino operations where entertainment is
furnished in connection with the selling of food or refreshments. Nevada
licensees that hold a license as an operator of a slot route, or a
manufacturer's or distributor's license, also pay certain fees and taxes to the
State of Nevada.
Any person who is licensed, required to be licensed, registered, required
to be registered, or is under common control with such persons (collectively,
"Licensees"), and who proposes to become involved in a gaming venture outside of
Nevada is required to deposit with the Nevada Board, and thereafter maintain, a
revolving fund in the amount of $10,000 to pay the expenses of investigation of
the Nevada Board of their participation in such foreign gaming. The revolving
fund is subject to increase or decrease at the discretion of the Nevada
Commission. Thereafter, Licensees are required to comply with certain reporting
requirements imposed by the Nevada Act. Licensees are also subject to
disciplinary action by the Nevada Commission if they knowingly violate any laws
of the foreign jurisdiction pertaining to the foreign gaming operation, fail to
conduct the foreign gaming operation in accordance with the standards of honesty
and integrity required of Nevada gaming operations, engage in activities that
are harmful to the State of Nevada or its ability to collect gaming taxes and
fees, or employ a person in the foreign operation who has been denied a license
or finding of suitability in Nevada on the ground of personal unsuitability.
ITEM 2. PROPERTIES.
----------
The Company owns the approximately 26.0 acres that the Gold Coast occupies
on West Flamingo Road. The Company also owns an 8.33-acre site across the street
from the Gold Coast that contains an approximately 100,000 square foot
warehouse. The warehouse is used by both the Gold Coast and the Barbary Coast as
a shared distribution and storage facility and has capacity that will be used by
The Orleans.
The Barbary Coast occupies approximately 1.8 acres at the intersection of
Flamingo Road and the Strip. The hotel-casino occupies real property that is
currently leased by the Company pursuant to a lease that expires on May 1, 2003.
The lease provides for rental payments of $175,000 per annum. The lease contains
two options, exercisable by the Company, to extend the term of the lease for 30-
years each (with the rent to be readjusted as provided in the lease during those
renewal periods). The Company has an option to purchase the leased property at
any time during the six month period prior to the expiration of the lease,
provided that certain conditions are met, at a purchase price equal to the
greater of $3.5 million or the then appraised value of the real property. The
Company also has a right of first refusal in the event the landlord desires to
sell the real property during the initial term of the lease. The Company also
leases approximately 2.5 additional acres of real property located adjacent to
the Barbary Coast. The lease expires on December 31, 2003. The lease provides
for rental payments of $125,000 per annum. The real property is used by the
Company as a parking lot for its employees and for valet parking. The landlord
has the right to terminate the lease upon six months prior notice to the Company
if it requires the use of the property for its own business purposes (which
excludes leaving the property vacant or leasing it to third parties prior to
January 1, 2003).
9
<PAGE>
The Orleans is being constructed on a portion of an 80.0-acre site located
on West Tropicana Avenue, approximately one mile south of the Gold Coast. The
real property is leased pursuant to a ground lease entered into by the Company
and The Tiberti Company, a Nevada general partnership. The lease has an
effective commencement date as of October 1, 1995 and will continue for an
initial term of 50 years, and includes an option, exercisable by the Company, to
extend the initial term for an additional 25 years. The lease provides for
monthly rental payments commencing in January 1996 of $251,726 per month through
December 1996, $175,000 per month during the 26-month period thereafter,
$200,000 per month during the 36-month period thereafter, $225,000 per month
during the 48-month period thereafter and $250,000 per month during the 60-month
period thereafter. In March 2011, annual rental payments will increase on a
compounding basis at a rate of 3.0% per annum. In addition, the Company has been
granted an option to purchase the real property during the two-year period
commencing in February 2016. The lease provides that the purchase price will be
the fair market value of the real property at the time the Company exercises the
option, provided that the purchase price will not be less than 10 times the
annual rent and not more than 12 times such annual rent at such time.
Coast West, as the successor to the Gold Coast Partnership, leases an
approximately 50.0-acre site located at the corner of Rampart Boulevard and Alta
Drive in northwest Las Vegas pursuant to a Ground Lease Agreement dated as of
October 28, 1994 (the "Coast West Lease"). The Company plans to develop in the
future the Sundance at such site, although there can be no assurance that the
Sundance will ever be developed or, if developed, will be successful. See
"--Future Plans." The initial term of the Coast West Lease commenced on
September 1, 1995, and expires on December 31, 2055. The lease contains three
options, exercisable by Coast West, to extend the term of the lease for 10 years
each. The lease provides for monthly rental payments of $166,667 for the year
ending December 31, 1995. Thereafter, the monthly rent will be increased by the
amount of $5,000 in January of each year. The landlord has the option to require
Coast West to purchase the property at the end of 2014, 2015, 2016, 2017 and
2018, at the fair market value of the real property at the time the landlord
exercises the option, provided that the purchase price shall not be less than 10
times nor more than 15 times the annual rent at such time. Based on the terms of
the lease, the potential purchase price commitment ranges from approximately
$31.0 million to approximately $51.0 million in the years 2014 through 2018.
Coast West has a right of first refusal in the event the landlord desires to
sell the property at any time during the lease term.
In March 1995, the Gold Coast Partnership purchased approximately 29.0
acres of undeveloped land located at the corner of Rancho Drive and Carey Avenue
in North Las Vegas in close proximity to the Fiesta Hotel and Casino and the
Texas Station. The site is zoned for gaming, although the Company has no present
intention to develop the property.
ITEM 3. LEGAL PROCEEDINGS.
-----------------
The Predecessor Partnerships currently and from time to time are involved
in litigation arising in the ordinary course of its business. In October 1994,
a security guard at the Barbary Coast filed a disability discrimination claim
under the Americans With Disabilities Act with the Equal Employment Opportunity
Commission ("EEOC"). No action has yet been taken by the EEOC. In addition, in
July 1995, a former dealer at the Barbary Coast filed a discrimination lawsuit
under Title VII and the Nevada Fair Employment Practices Act (removed to federal
district court in Nevada), seeking full back pay, benefits, seniority and
prejudgment interest, compensatory damages in an amount in excess of $20,000,
punitive damages in an amount in excess of $20,000 and attorneys' fees and costs
of suit. The Barbary Coast Partnership filed a motion to dismiss the lawsuit
based upon failure to timely file discrimination charges. The Barbary Coast
Partnership denied the existence of any alleged discrimination and intends to
vigorously defend itself in these proceedings. In connection with the
Reorganization, the Company has assumed substantially all of the liabilities of
the Predecessor Partnerships, including liabilities, if any, related to such
litigation. The Company does not believe that such litigation, including the
foregoing proceedings, will, individually or in the aggregate, have material
adverse effect on its financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
---------------------------------------------------
No matters were submitted to the shareholders of the Company during the
quarter ended December 31, 1995.
10
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
-----------------------------------------------------------------
MATTERS.
-------
No equity securities of the Company are being, or have been, publicly
offered by the Company. The Company may in the future, from time to time, issue
additional equity securities, including without limitation in connection with
establishing employee stock incentive plans. As of June 30, 1996, the
Company had approximately 60 shareholders.
The Company was formed in September 1995 and has not declared or paid any
dividends. The Company intends to retain future earnings for use in the
development of its business and does not anticipate paying any cash dividends in
the foreseeable future. The payment of all dividends will be at the discretion
of the Company's Board of Directors and will depend upon, among other things,
future earnings, operations, capital requirements, the general financial
condition of the Company and general business conditions. As a holding company,
the Company is reliant upon the operations of its subsidiaries for cash flow.
Subject to certain exceptions, Coast Hotels is restricted under its financing
arrangements, including the indenture under which the First Mortgage Notes were
issued (the "Indenture"), from declaring or paying any dividends or making any
distributions to the Company prior to the date upon which The Orleans is
operating. Following such date, Coast Hotels may pay dividends and make
distributions to the Company only if certain financial covenants are met. No
assurance can be given that Coast Hotels will be permitted under its financing
arrangements, including the Indenture, to pay any cash dividends to the Company.
ITEM 6. SELECTED FINANCIAL DATA.
-----------------------
The following Selected Historical and Pro Forma Financial Data should be
read in conjunction with ''Management's Discussion and Analysis of Financial
Condition and Results of Operations'' and the financial statements and notes
thereto included elsewhere in this Annual Report. The historical statements of
income data for the four years ended December 31, 1992, 1993, 1994 and 1995 and
the historical balance sheet data as of December 31, 1993, 1994 and 1995 are
derived from the financial statements of the Company which have been audited by
Coopers & Lybrand L.L.P. The historical statements of income data for the year
ended December 31, 1991 and the historical balance sheet data as of December 31,
1991 and 1992 have been derived from the financial statements of the Gold Coast
Partnership and the Barbary Coast Partnership which were audited by other
auditors, whose reports are not presented in this Annual Report.
The selected pro forma financial data set forth below is derived from the
unaudited pro forma financial statements and notes thereto included elsewhere in
this Annual Report, and reflects the pro forma impact of the sale of the First
Mortgage Notes and other transactions described in footnote 8 hereafter. The pro
forma balance sheet data assumes that such transactions occurred on December 31,
1995 and the pro forma income statement data assumes that such transactions
occurred on January 1, 1995. The selected pro forma data is presented for
informational purposes only and does not purport to present the results which
would have been achieved had the transactions assumed therein occurred on the
dates specified, nor is it necessarily indicative of the results that may be
achieved in the future. The selected pro forma financial data is qualified in
its entirety by, and should be read in conjunction with, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements, together with the related notes thereto, included
elsewhere in this Annual Report.
11
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------
HISTORICAL
------------------------------------------------------------ PRO FORMA
1991 1992 1993 1994 1995 1995
--------- --------- --------- --------- -------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Net revenues............................ $163,142 $169,251 $169,573 $172,573 $174,756 $ 174,756
Departmental operating expenses (1)..... 100,745 105,037 108,662 115,028 114,253 114,253
General and administrative expenses..... 29,243 30,290 32,402 32,940 35,132 35,782
Guaranteed payments to former
partners (2)........................... 2,501 2,762 2,485 2,672 858
Depreciation and amortization........... 8,658 8,492 7,822 6,766 7,280 7,280
Operating income........................ 21,995 22,670 18,202 15,167 17,233 17,441
Interest expense, net................... (3,664) (1,852) (837) (227) (3,545) (28,767)
Other income (expense).................. (222) 128 3 23 92 92
-------- -------- -------- -------- -------- ---------
Net income (loss)....................... $ 18,109 $ 20,946 $ 17,368 $ 14,963 13,780 (11,234)
======== ======== ======== ======== ======== =========
PRO FORMA INFORMATION TO REFLECT
CHANGE IN TAX STATUS (3):
Provision for income taxes.............. 6,157 7,333 6,117 5,251 4,823 --
-------- -------- -------- -------- -------- ---------
Net income (loss)....................... $ 11,952 $ 13,613 $ 11,251 $ 9,712 $ 8,957 ($11,234)
======== ======== ======== ======== ======== =========
OTHER DATA:
EBITDA (4).............................. $ 30,653 $ 31,162 $ 26,024 $ 21,933 24,513 24,721
Capital expenditures.................... $ 2,328 $ 2,104 $ 2,736 $ 5,514 $ 32,331 32,331
Distributions to partners (5)........... $ 9,000 $ 11,250 $ 11,500 $ 25,823 $ 58,660 58,660
Ratio of earnings to fixed charges...... 5.3x 11.2x 17.9x 30.9x 4.3x ---(6)
CASH FLOW INFORMATION:
Operating activities.................... $ 27,408 28,934 28,817 22,572 22,489
Investing activities.................... (2,267) (2,324) (2,294) (5,509) (32,112)
Financing activities.................... (23,476) (26,929) (22,887) (14,884) 7,199
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------------------------------------
HISTORICAL
------------------------------------------------------------ PRO FORMA (8)
1991 1992 1993 1994 1995 1995
--------- --------- --------- --------- -------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............... $ 11,471 $ 11,152 $ 14,788 $ 16,967 $ 14,543 $ 63,297(9)
Total assets............................ 130,914 125,029 123,570 134,295 152,363 323,417
Total long-term debt (7)................ 27,739 11,783 1,464 11,776 83,357 201,886
Stockholder's equity.................... 83,064 92,760 98,628 87,781 42,888 92,913
</TABLE>
- - ----------------------
See Footnotes to Selected Historical and Pro Forma Financial Data.
12
<PAGE>
Footnotes to Selected Historical and Pro Forma Financial Data
(1) Includes casino, food and beverage, hotel and other expenses.
(2) Prior to the Reorganization, the Predecessor Partnerships made
guaranteed payments to partners pursuant to the terms of their respective
partnership agreements. In connection with the Reorganization, such guaranteed
payments have been eliminated and replaced with annual compensation (reflected
in general and administrative expenses) to Michael J. Gaughan and certain other
former partners of the Predecessor Partnerships who are executive officers of
the Company. See "Item 1. Business" and "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations," and "Item 11.
Executive Compensation."
(3) The Gold Coast Partnership and the Barbary Coast Partnership operated
as partnerships and were not subject to federal income taxes. As a result of the
Reorganization, the operations of the Gold Coast and the Barbary Coast are being
conducted by the Company, which has been formed as a "C Corporation" and,
therefore, is subject to federal income taxes. A pro forma provision for federal
income taxes has been made, and pro forma net income has been calculated, for
the historical financial statements for all periods presented as if the Gold
Coast Partnership and the Barbary Coast Partnership had been treated as a C
corporation during those periods.
(4) EBITDA consists of operating income plus depreciation and amortization.
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 the Company's 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. EBITDA is
presented solely as supplemental disclosure because management believes that it
is a widely used measure of operating performance in the gaming industry.
(5) Because the Gold Coast Partnership and the Barbary Coast Partnership
were partnerships during these periods, a substantial portion of their net
income was distributed to the partners. In 1994, the Barbary Coast Partnership
distributed $11.0 million of partners' capital in the form of notes payable and,
in 1995, the Gold Coast Partnership distributed $50.0 million of partners'
capital in the form of notes payable. Such distributions represented previously
taxed but undistributed earnings of the Predecessor Partnerships. See Notes to
Financial Statements and "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(6) The pro forma ratio of earnings to fixed charges for the year ended
December 31, 1995 has not been computed since earnings would not have been
sufficient to cover fixed charges. The pro forma deficiency for the year ended
December 31, 1995 was approximately $11.5 million.
(7) Excludes current maturities.
(8) The pro forma financial information gives effect to (i) the sale of the
First Mortgage Notes and the application of the net proceeds therefrom, (ii) the
planned incurrence of the $30.0 million of equipment financing expected to be
incurred in the fourth quarter of 1996 to purchase equipment for The Orleans,
(iii) the exchange of $52.5 million of notes payable held by certain
shareholders of the Company for shares of Common Stock, and (iv) the change in
income tax status resulting from the Reorganization. The pro forma balance
sheet data assumes that such transactions occurred on December 31, 1995. The pro
forma statements of income data assumes that such transactions occurred on
January 1, 1995. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(9) Pro forma cash and cash equivalents include (i) restricted cash of
approximately $19.3 million, (ii) $30.0 million of equipment financing expected
to be incurred in the fourth quarter of 1996 to purchase equipment for The
Orleans and (iii) approximately $1.0 million used to repay additional borrowings
under the Company's revolving credit facility made subsequent to year-end. As
the approximately $1.0 million in additional borrowings is not reflected in pro
forma total long-term debt, upon such repayment, pro forma cash and cash
equivalents would decrease by approximately $1.0 million without a corresponding
decrease in pro forma total long-term debt.
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS.
-------------
The following discussion should be read in conjunction with, and is
qualified in its entirety by, the Company's financial statements, including the
notes thereto, and the other financial information appearing elsewhere in this
Annual Report. The discussion herein reflects the historical operations of the
Gold Coast and the Barbary Coast which, prior to the consummation of the
Reorganization on January 1, 1996, had been operated separately by the
Predecessor Partnerships. As a result of the Reorganization, the Company is a
holding company which conducts its operations through Coast Hotels, which owns
and operates the Gold Coast and the Barbary Coast and is developing and
constructing The Orleans, and Coast West, which leases certain real property.
See "Item 1. Business."
OVERVIEW
The Company was recently formed as a holding company to consolidate and
reorganize two affiliated partnerships, the Gold Coast Partnership and the
Barbary Coast Partnership, and to develop and construct The Orleans, a new
gaming property to be located in Las Vegas. The Company's net revenues and net
income are derived primarily from gaming activities at the Gold Coast and the
Barbary Coast. The Company utilizes food and beverage, hotel operations and its
various entertainment amenities to maximize customer visitation to its casinos,
thereby enhancing gaming revenues. The Company expects to maintain a pricing
structure for its non-gaming amenities that is competitive with comparable
casinos in their respective markets. For the year ended December 31, 1995,
casino revenues for the Gold Coast and the Barbary Coast accounted for
approximately 72.2% and 80.2%, respectively, of total net revenues.
RESULTS OF OPERATIONS -- GOLD COAST
The Gold Coast's core customer base is the local residents of Las Vegas.
The Gold Coast seeks to attract these local residents as well as repeat visitors
to Las Vegas by offering a combination of casino, entertainment, dining and
recreational activities, as well as its convenient location, easy automotive
access, ample parking and child care facilities. The net revenues and net income
of the Gold Coast are derived largely from casino gaming. Management's operating
strategy is to maximize customer visitation and thereby increase casino revenues
by offering value-conscious customers a combination of friendly service,
generous portions of quality food at competitive prices, clean, comfortable and
inexpensive hotel rooms and a wide array of entertainment amenities.
Historically, the Gold Coast has in particular targeted local resident slot
players through its slot club. As a result, slot win has generally accounted for
approximately two-thirds of the Gold Coast's casino revenues.
14
<PAGE>
The following table sets forth, for the periods indicated, certain
financial information regarding the historical results of operations of the Gold
Coast.
GOLD COAST
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1993 1994 1995
-------- -------- --------
(DOLLARS IN THOUSANDS)
Revenues:
<S> <C> <C> <C>
Casino............................. $ 90,945 $ 93,500 $ 94,354
Food and beverage.................. 26,214 27,431 28,784
Hotel.............................. 8,632 9,062 9,710
Other (1).......................... 7,358 7,934 8,392
-------- -------- --------
Gross revenues................... 133,149 137,927 141,240
Less: promotional allowances (2)... (8,876) (9,433) (10,545)
-------- -------- --------
Net revenues....................... 124,273 128,494 130,695
Expenses:
Casino............................. 40,959 43,162 43,980
Food and beverage.................. 25,614 28,157 25,566
Hotel.............................. 4,872 5,489 5,378
Other.............................. 6,153 6,473 6,935
General and administrative(3)...... 22,247 23,625 24,986
Guaranteed payments to former
partner (3)...................... 458 472 460
Depreciation and amortization...... 5,639 4,704 5,457
-------- -------- --------
Total operating expenses......... 105,942 112,082 112,762
-------- -------- --------
Operating income.................... 18,331 16,412 17,933
Total other income (expense) (4).... (476) 111 (2,067)
-------- -------- --------
Net income.......................... $ 17,855 $ 16,523 $ 15,866
======== ======== ========
</TABLE>
- - -------------------
(1) Includes revenues primarily derived from bowling, gift shop, theater and
liquor store operations.
(2) Amounts represent the retail value for rooms, food, beverage and other
promotional items provided to customers without charge.
(3) Prior to the Reorganization, the Gold Coast Partnership made guaranteed
payments to Michael J. Gaughan based on a minimum salary plus 1% of the
profits at the Gold Coast as required under the Gold Coast Partnership
Agreement. In connection with the Reorganization, such guaranteed payments
have been eliminated and replaced with annual compensation to Mr. Gaughan as
an employee of the Company. After giving effect to the compensation being
paid subsequent to the Reorganization, general and administrative expenses
would have been approximately $22.4 million, $23.8 million and $25.2 million
in 1993, 1994 and 1995, respectively.
(4) Includes interest (net) and gains and losses on disposal of equipment.
Fiscal 1995 Compared to 1994
Net Revenues. Net revenues for 1995 were $130.7 million compared to $128.5
million in 1994, an increase of $2.2 million (1.7%). Food and beverage revenues
accounted for most of the increase, while casino, hotel and other revenues also
increased.
Casino revenues were $94.4 million in 1995 compared to $93.5 million in
1994, an increase of 0.9%. Table game revenues increased $1.1 million (6.3%) in
1995 to $19.4 million compared to $18.3 million in 1994. Table game drop (i.e.,
the total amount of cash and credit wagered at table games) increased only
slightly (1.5%), but a higher table game hold percentage (i.e., table game
revenues (win) as a percentage of table game drop) accounted for the increased
revenues. Slot revenues were $64.4 million in 1995 compared to $63.3 million in
1994, an increase of $1.1 million (1.8%) as the Gold Coast began to realize the
effect of upgrading most of its slot machines during the year. Sports book
wagering volume (i.e., the total amount of cash wagered on sporting events)
increased $4.6 million (13.9%) in 1995, but a lower sports book win percentage
resulted in a 24.5% decrease in revenues to $2.5 million compared to $3.3
million in 1994. The race book, poker room and keno lounge all experienced
lower wagering volume, resulting in
15
<PAGE>
lower revenues in those departments. Race book revenues declined $320,000 (9.6%)
from $3.3 million in 1994 to $3.0 million in 1995, poker room revenues declined
$312,000 (12.5%) from $2.5 million in 1994 to $2.2 million in 1995 and keno
revenues declined $190,000 (8.1%) from $2.4 million in 1994 to $2.2 million in
1995. Bingo drop (i.e., the amount of cash wagered at bingo) increased 12.8% and
bingo revenue increased by $183,000 (37.9%) as a result of modifications to the
bingo games offered.
Higher food and beverage prices and hotel room rates resulted in increased
revenues in those areas. Food and beverage revenues were $28.8 million in 1995
compared to $27.4 million in 1994, an increase of $1.4 million (4.9%). Hotel
revenues increased $648,000 (7.2%) to $9.7 million in 1995 compared to $9.1
million in 1994. Increased sales in the liquor store and bowling pro shop
contributed to a 5.8% increase in other revenues, which were $8.4 million in
1995 compared to $7.9 million in 1994.
In determining net revenues, the retail value of hotel accommodations and
food and beverage items provided to customers without charge is included in
gross income and then deducted as a promotional allowance. Promotional
allowances as a percent of casino revenue increased to 11.2% in 1995 compared to
10.1% in 1994, primarily due to increased food and beverage prices and hotel
room rates.
Operating Income. Operating income for 1995 was $17.9 million compared to
$16.4 million in 1994, an increase of 9.3%, primarily due to the 1.7% increase
in net revenues described above and an increase in operating expenses of only
0.6%.
Casino operating expenses were $44.0 million in 1995 compared to $43.2
million in 1994, an increase of approximately $800,000 (1.9%) due primarily to
increased payroll costs as a result of annual employee raises. Total casino
wages and benefits were $19.8 million in 1995 compared to $19.3 million in 1994,
an increase of $469,000 (2.4%). In addition, casino bad debt expense increased
by $226,000 in 1995.
Food and beverage expenses were $25.6 million in 1995, a decrease of $2.6
million (9.2%) compared to 1994 food and beverage expenses of $28.2 million.
The decrease was largely attributable to an increased focus on purchasing
efficiencies.
Hotel expenses declined $111,000 (2.0%) in 1995 due to a major linen
purchase that was charged to expense in 1994.
Other expenses were $6.9 million in 1995 compared to $6.5 million in 1994.
The 7.2% increase was largely attributable to higher cost of sales as a result
of increased sales in the liquor store and bowling pro shop.
General and administrative expenses were $25.4 million in 1995 compared to
$24.1 million in 1994, an increase of $1.3 million (5.6%). The increase is
primarily attributable to higher payroll costs of $13.3 million in 1995 compared
to $12.5 million in 1994, an increase of approximately $850,000 (6.8%) due to
additional staffing in the general and administrative departments.
Depreciation expense increased $754,000 (16.1%) to $5.4 million in 1995
compared to $4.7 million in 1994. The increase was primarily due to the
replacement of most of the Gold Coast slot machines during the year.
Net Income. Net income was $15.9 million in 1995 compared to $16.5 million
in 1994. The decrease of $656,000 (4.0%) was primarily due to increased
interest expense as a result of the issuance of $50.0 million principal amount
of subordinated notes payable to the former partners of the Gold Coast in June
1995. In December 1995, $8.0 million principal amount was paid down on the
subordinated notes and, in January 1996, $40.7 million principal amount was
exchanged by the noteholders for common stock of the Company. See "Item 1.
Business."
16
<PAGE>
Fiscal 1994 Compared to Fiscal 1993
Net Revenues. Net revenues for 1994 were $128.5 million compared to $124.3
million in 1993, an increase of $4.2 million (3.4%). The increase was largely
due to a 2.8% increase in casino revenues to $93.5 million in 1994 from $90.9
million in 1993. The Gold Coast continued to experience higher levels of table
game drop, which increased approximately 4.5% in 1994 compared to 1993. This
increase in table game drop coupled with a slight decrease in table game hold
percentage, resulted in a modest increase in table game revenues in 1994 of
$233,000, to $18.3 million compared to $18.0 million in 1993. Slot revenues
improved slightly to $63.3 million in 1994 compared to $62.8 million in 1993 (an
increase of $493,000, or 0.8%), despite a 5.4% increase in slot gross wagering
due to a lower overall slot win percentage in 1994.
Sports book wagering volume in 1994 was relatively unchanged from 1993.
However, the sports book win percentage in 1994 was higher, resulting in an
$845,000 (34.4%) increase in revenues, to $3.3 million from $2.5 million in
1993. Sports book win percentage can fluctuate significantly between periods
based on the outcome of certain sporting events.
Other casino revenues increased approximately $1.0 million (12.8%), to $8.6
million in 1994 compared to $7.6 million in 1993, resulting principally from a
$437,000 increase in poker revenues and a $279,000 increase in race book
revenues. Management believes that the increase in poker revenues (21.2%, to
$2.5 million in 1994) was due to the addition of a second major poker tournament
in October 1994 and to some relatively high progressive jackpots which increased
the amount of play. Higher race book revenues were the result of continued
growth in race book gross wagering.
Food and beverage revenues increased 4.6% in 1994 to $27.4 million compared
to $26.2 million in 1993. An increase of approximately 95,000 customers served
in the Monterey Room restaurant, made possible by a 100-seat expansion of that
restaurant in August 1994, was the primary reason for the higher revenues.
Hotel revenues were $9.1 million in 1994, reflecting an increase of 5.0%
over the previous year's revenue of $8.6 million. The increase was generated by
a small increase in room rates, which increased the average daily rate to $36.72
from $35.67, and by an increased occupancy rate to 95.7% in 1994 versus 92.9% in
1993. The increased occupancy rate resulted from more aggressive marketing,
including an increased presence at travel shows and industry trade shows.
Other revenues increased approximately $576,000 in 1994 primarily due to
higher volume at the bowling center. Promotional allowances as a percentage of
casino revenues remained substantially unchanged at 10.1% in 1994 compared to
9.8% in 1993, primarily due to constant food and beverage retail prices.
Operating Income. Operating income for 1994 was $16.4 million compared to
$18.3 million in 1993. The decrease was due primarily to increased departmental
operating expenses. Casino expenses increased $2.2 million (5.4%) to $43.2
million in 1994 compared to $41.0 million in 1993, primarily as a result of
annual employee raises and increased complimentary expenses.
Food and beverage expenses were $28.2 million in 1994 compared to $25.6
million in 1993, an increase of $2.5 million (9.9%), principally due to higher
wholesale food prices. Hotel expenses increased $617,000 (12.7%) to $5.5 million
in 1994 from $4.9 million in 1993 due primarily to an increase in payroll of
$254,000 resulting from annual wage increases. Linen expenses increased $304,000
as a result of a major purchase in 1994. Other operating expenses increased
$320,000 (5.2%) due to an increase in liquor store wholesale costs and the
opening of the retail pro shop in the bowling center during 1994.
General and administrative expenses were $23.6 million in 1994, an increase
of $1.4 million (6.2%) over 1993 expenses of $22.2 million. The increase was due
to increased payroll costs attributable to annual wage increases. Additionally,
advertising expenses were higher as a result of increased use of billboards and
television and increased participation in trade shows. Utilities expense
increased $191,000 (7.3%) to $2.8 million from $2.6 million due to higher power
costs.
Net Income. Net income was $16.5 million in 1994 compared to $17.9 million
in 1993. The decrease of $1.4 million (7.5%) was due primarily to the increase
in the operating expenses discussed above and a $493,000 decrease in interest
expense due to the repayment of debt in 1993.
17
<PAGE>
RESULTS OF OPERATIONS BARBARY COAST
The revenues and profits of the Barbary Coast are derived primarily from
the large amount of pedestrian traffic that frequents multiple casinos on the
Strip as well as overnight visitors to Las Vegas who desire a more personal and
intimate gaming environment than that offered by larger casinos that surround it
on the Strip. Walk-in traffic has fluctuated since 1989 with the opening of the
Mirage, which altered pedestrian traffic patterns on the Strip. Since then,
other factors such as the closing of the former Dunes Hotel and Casino in
January 1993, the addition of new casinos at the south end of the Strip,
including the Excalibur in June 1990 and the Luxor and MGM Grand in 1993, and
sidewalk and road construction around the Barbary Coast during the first six
months of 1995 have all contributed to a substantial decrease in walk-in
traffic.
The following table sets forth, for the periods indicated, certain
financial information regarding the historical results of operations of the
Barbary Coast.
BARBARY COAST
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
-------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Casino............................. $36,484 $35,586 $35,321
Food and beverage.................. 9,522 9,393 9,684
Hotel.............................. 3,188 3,170 3,523
Other (1).......................... 1,479 1,452 1,576
------- ------- -------
Gross revenues................... 50,673 49,601 50,104
Less: promotional allowances (2) (5,373) (5,522) (6,043)
------- ------- -------
Net revenues..................... 45,300 44,079 44,061
Expenses:
Casino............................. 21,348 22,214 23,802
Food and beverage.................. 6,311 6,304 5,676
Hotel.............................. 1,471 1,445 1,314
Other.............................. 1,934 1,784 1,602
General and administrative (3)..... 10,155 9,315 9,200
Guaranteed payments to former
partners (3)..................... 2,027 2,200 398
Depreciation and amortization...... 2,183 2,062 1,823
------- ------- -------
Total operating expenses......... 45,429 45,324 43,815
------- ------- -------
Operating income (loss)............. (129) (1,245) 246
Total other income (expense) (4).... (358) (315) (1,386)
------- ------- -------
Net income (loss)................... $ (487) $(1,560) $(1,140)
======= ======= =======
</TABLE>
- - -----------------
(1) Includes revenues derived primarily from the gift shop, telephone charges,
Western Union operations and rent received from third parties.
(2) Amounts represent the retail value for rooms, food, beverage and other
promotional items provided to customers without charge.
(3) Prior to the Reorganization, the Barbary Coast Partnership made guaranteed
payments to partners pursuant to the terms of the Barbary Coast Partnership
Agreement. In connection with the Reorganization, such guaranteed payments
have been eliminated and replaced with annual compensation to the former
partners who are also employees of the Company. After giving effect to the
compensation being paid subsequent to the Reorganization, general and
administrative expenses would have been approximately $10.6 million, $9.7
million and $9.7 million in 1993, 1994 and 1995, respectively.
(4) Includes interest (net) and gains and losses on disposal of equipment.
18
<PAGE>
Fiscal Year 1995 Compared to Fiscal Year 1994
Net Revenues. Net revenues for 1995 were unchanged from 1994 revenues of
$44.1 million. Casino revenues decreased slightly while food and beverage,
hotel and other operating revenues increased.
Casino revenues were $35.3 million in 1995 compared to $35.6 million in
1994. Race book wagering increased 57.3% in 1995 resulting in revenues of $5.4
million compared to $3.2 million in 1994, an increase of $2.2 million (69.6%).
Despite the favorable results in the race book, decreases in table games, slot,
sports book and keno revenues resulted in the decrease in gaming revenues.
Table game revenues were $16.7 million in 1995 compared to $17.5 million in
1994. The decrease of $766,000 is attributable to a 2.8% decrease in table game
drop and a slightly lower table game hold percentage. A lower slot machine hold
percentage caused slot revenues to decline $319,000 (2.65%) to $11.7 million in
1995 compared to $12.0 million in 1994. Sports book revenues were $1.3 million
in 1995 compared to $2.3 million in 1994, a decrease of $1.0 million (45.7%)
attributable to a 23.1% decrease in sports book wagering and a lower sports book
win percentage.
Food and beverage revenues increased 3.1% to $9.7 million in 1995 compared
to $9.4 million in 1994 due to higher food and beverage prices. Higher hotel
room rates contributed to hotel revenues of $3.5 million in 1995, an 11.1%
increase over 1994 revenues of $3.2 million. Other revenues were $1.6 million
in 1995, increasing 8.5% over 1994 revenues of $1.5 million.
Promotional allowances as a percentage of casino revenues were 17.1% in
1995 compared to 15.5% in 1994. The increase was primarily due to increases in
food and beverage prices and hotel room rates during the period.
Operating Income. Operating income for 1995 was $246,000 compared to a
loss of $1.2 million in 1994. An increase in casino expenses was offset by
decreases in food and beverage expenses and general and administrative expenses.
Casino expenses were $23.8 million in 1995 compared to $22.2 million in
1994, an increase of approximately $1.6 million (7.4%). Race book promotions
expense and parimutuel track fees increased by a combined $1.3 million (147.7%)
compared to 1994 as a result of the increase in parimutuel revenues. An
additional $361,000 was charged to casino expenses in the third quarter of 1995
for a special table games promotion.
Food and beverage expenses were $5.7 million in 1995 compared to $6.3
million in 1994, a 10% decrease attributable to lower wholesale food costs as a
result of increased efficiencies in purchasing. Hotel expenses were down 9.1%
and other expenses decreased 10.2% as a result of management's focus on staffing
and other expense reductions in the operating departments.
General and administrative expenses were $9.6 million in 1995 compared to
$11.5 million in 1994, a decrease of $1.9 million (16.7%). The decrease is due
primarily to a reduction of the guaranteed payments to former Barbary Coast
partners. Those payments were $398,000 in 1995 compared to $2.2 million in
1994.
Depreciation and amortization expense decreased 11.6% to $1.8 million in
1995 compared to $2.1 million in 1994 as a result of certain assets becoming
fully depreciated.
Net Loss. Net loss was $1.1 million in 1995 compared to a net loss of $1.6
million in 1994. The increase in operating income was partially offset by
increased interest expense of $1.4 million in 1995 compared to $319,000 in 1994,
due primarily to $11.0 million in subordinated notes issued to the former
partners of the Barbary Coast in December 1994. As of January 16, 1996, all but
$715,000 of outstanding principal amount of the subordinated notes was exchanged
for Common Stock. See "Item 1. Business."
19
<PAGE>
Fiscal 1994 Compared to Fiscal 1993
Net Revenues. Net revenues for 1994 were $44.1 million compared to $45.3
million in 1993, a decrease of $1.2 million (2.7%). This decrease is primarily
the result of decreased casino revenues caused by increased competition
principally at the south end of the Strip and a decline in walk-in traffic in
the casino. During the period, casino revenues decreased 2.5%, declining to
$35.6 million in 1994 from $36.5 million in 1993. Table game revenues were $17.5
million in 1994 compared to $18.4 million in 1993, a decrease of 5.3% due to a
9.6% decrease in table game drop. Slot gross wagering was down 7.6%, resulting
in a decrease in slot revenues of $1.0 million (7.7%) to $12.0 million in 1994
compared to $13.0 million in 1993. Sports book revenues were $2.3 million in
1994 compared to $1.6 million in 1993, an increase of $704,000 (43.2%), which
was due primarily to an increase in the sports book win percentage. Race book
revenues were $3.2 million in 1994, up $386,000 (13.9%) from 1993 revenues of
$2.8 million. Promotional allowances as a percentage of casino revenues were
15.5% in 1994 compared to 14.7% in 1993, an increase of 5.4% primarily due to
increases in food prices.
Operating Loss and Net Loss. Operating loss was $1.2 million in 1994
compared to a loss of $129,000 in 1993. The increased loss primarily was due to
the lower casino revenues discussed above. Total operating expenses were
relatively unchanged as an increase in casino expenses was offset by a decrease
in general and administrative expenses.
Casino expenses increased $866,000 (4.1%) primarily due to an increase in
marketing expense of $269,000 related to the race book and to higher
complimentary expenses. Complimentary expense increased $377,000 due to higher
complimentary volume and increased costs of food and beverage. Bad debt expense
increased $210,000 due to the write-off related to a single casino customer.
Food and beverage, hotel and other expenses were relatively unchanged
during 1994. General and administrative expenses decreased $840,000 (8.3%) in
1994 due to higher 1993 expenses relating to some unusual nonrecurring expenses,
including a $650,000 payment in connection with the Barbary Coast's settlement
with a union and a write-off of $309,000 for expenses incurred in an abandoned
pursuit of a riverboat development in Louisiana.
Net loss for 1994 was $1.6 million compared to a loss of $487,000 in 1993.
The loss increased $1.1 million primarily due to the decrease in net revenues
discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity have consisted of cash
provided by operating activities and, until termination of a bank credit
facility in January 1996, bank financing. At December 31, 1995, the Company had
$14.5 million in cash and cash equivalents and $9.3 million available under the
$37.5 million revolving credit facility. On January 30, 1996, Coast Hotels
issued $175.0 million principal amount of First Mortgage Notes. 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 the Company to
finance in part the cost of developing, constructing, equipping and opening The
Orleans, (ii) approximately $19.3 million was used by the Company 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 the Company to repay all
outstanding indebtedness under the Company's revolving credit facility, which
was terminated upon repayment. The balance of approximately $800,000 was used
to pay, in part, the estimated offering expenses of $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 estimated to be at least approximately
$2.1 million annually (up to a maximum of $8.0 million in the aggregate), 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
20
<PAGE>
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 for reinvestment in the Company's business.
The Company expects to satisfy The Orleans development and construction
costs with the funds deposited in the construction disbursement account,
approximately $30 million of anticipated equipment financing and an anticipated
$8.5 million of internally generated cash from operations at the Gold Coast and
the Barbary Coast. Taking into account the anticipated use of cash from
operations for the construction of The Orleans, the Company expects that the
remaining cash generated from operations at the Gold Coast and the Barbary Coast
will be sufficient to satisfy the Company's consolidated cash requirements other
than costs related to the development, construction, equipping and opening of
The Orleans. Subsequent to the commencement of operations of The Orleans, the
Company expects that cash generated from operations will be sufficient to
satisfy the Company's 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.
Net cash provided by operating activities was approximately $22.5 million
for 1995, compared to approximately $22.6 million for 1994. Capital
expenditures for 1995 (exclusive of those associated with the development and
construction of The Orleans) were approximately $16.8 million, of which
approximately $2.7 million related to normal maintenance capital expenditures,
approximately $7.7 million related to the purchase of gaming equipment and
approximately $6.4 million related to the purchase of real property for future
development. Management anticipates that capital expenditures in 1996
(exclusive of those associated with the development and construction of The
Orleans) will be approximately $4.0 million. In March 1995 the Company made a
cash distribution in the aggregate amount of $8.7 million to the former partners
of the Gold Coast Partnership. As stated above, the Company does not expect to
make regular cash dividends in the future, and the Indenture restricts the
ability of Coast Hotels to pay dividends or make distributions to the Company.
See "Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters."
IMPACT OF INFLATION
Absent changes in competitive and economic conditions or in specific prices
affecting the industry, the Company does not expect that inflation will have a
significant impact on the Company's operations. Change in specific prices, such
as fuel and transportation prices, relative to the general rate of inflation may
have a material adverse effect on the hotel and casino industry.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
-------------------------------------------
The report of independent accountants, consolidated financial statements
and schedules listed in the accompanying index are filed as part of this report.
See "Index to Financial Statements" on page F-1.
21
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE.
--------------------
The consolidated financial statements of the Company for the fiscal years
ended December 31, 1993, 1994 and 1995 were audited by Coopers & Lybrand L.L.P.
("Coopers & Lybrand"), which was first engaged by such entities effective
September 6, 1995. Prior to the engagement of Coopers & Lybrand, the firm of
Conway, Stuart & Woodbury ("CSW") served as the sole independent accounting firm
of the Predecessor Partnerships for purposes of performing audits required under
the Nevada gaming laws and bank credit facilities. The change in accountants
from CSW to Coopers & Lybrand (or, in the case of the Company, the initial
selection of Coopers & Lybrand) was made upon the determination of the partners
of the Predecessor Partnerships in contemplation of a financing of The Orleans.
The Audit Committee of the Board of Directors was established in March 1996,
after the Company changed its independent accountants; accordingly, the decision
to change accountants was not approved by the Audit Committee.
The reports of Coopers & Lybrand with respect to the financial statements
of the Company for the fiscal years ended December 31, 1993, 1994 and 1995 did
not contain any adverse opinion or disclaimer of opinion, and were not qualified
or modified as to uncertainty, audit scope or accounting principles, other than
for a change in accounting principles for marketable securities and for
depreciation in 1994. During the fiscal year ended December 31, 1992 and prior
to the termination of CSW as the Predecessor's sole independent accounting firm,
there were no disagreements between the Predecessor Partnerships and CSW, on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedures, which disagreements, if not resolved to the
satisfaction of CSW, would have caused it to make reference to the subject
matter thereof in connection with any of its reports.
22
<PAGE>
PART III
ITEM 10. EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT.
--------------------------------------------------
The information required by Item 10 is set forth in the Proxy Statement
under the caption "Directors and Executive Officers" and is incorporated herein
by reference.
ITEM 11. EXECUTIVE COMPENSATION.
----------------------
The information required by Item 11 is set forth in the Proxy Statement
under the caption "Executive Compensation" and is incorporated herein by this
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
--------------------------------------------------------------
The information required by Item 12 is set forth in the Proxy Statement
under the caption "Security Ownership of Certain Beneficial Owners and
Management" and is incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
----------------------------------------------
The information required by Item 13 is set forth in the Proxy Statement
under the caption "Certain Relationships and Related Transactions" and is
incorporated herein by this reference.
23
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.
-----------------------------------------------------------------
(a) Index to Financial Statements, Financial Statement Schedules and Exhibits:
1. Financial Statements Index
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors.......................................... F-2
Audited Financial Statements
Balance Sheets..................................................... F-3
Statements of Income............................................... F-4
Statements of Stockholders' Equity................................. F-5
Statements of Cash Flows........................................... F-6
Notes to Financial Statements........................................... F-7
2. Financial Statement Schedules Index
II -- Valuation and Qualifying Accounts (previously filed)
</TABLE>
3. Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- - -------- ----------------------
<C> <S>
2.1 Agreement and Plan of Reorganization dated as of September 29,
1995, among Coast Resorts, Inc., the Gold Coast Hotel and
Casino, a Nevada limited partnership, the Barbary Coast Hotel
and Casino, a Nevada general partnership, and Gaughan-Herbst,
Inc., a Nevada corporation (incorporated by reference as
Exhibit 1.1 to Amendment No. 1 to General Form for
Registration of Securities on Form 10/A of Coast Resorts, Inc.
filed on November 22, 1995)
2.2 Supplement to Agreement and Plan of Reorganization dated as of
December 22, 1995, among Coast Resorts, Inc., the Gold Coast
Hotel and Casino, a Nevada limited partnership, the Barbary
Coast Hotel and Casino, a Nevada general partnership, and
Gaughan-Herbst, Inc., a Nevada corporation (incorporated by
reference as Exhibit 1.2 to Amendment No. 2 to General Form
for Registration of Securities on Form 10/A of Coast Resorts,
Inc. filed on January 12, 1996)
3.1 Articles of Incorporation of Coast Resorts, Inc. (incorporated
by reference as Exhibit 3.1 to General Form for Registration
of Securities on Form 10 of Coast Resorts, Inc. filed on
October 3, 1995)
3.2 First Amended Bylaws of Coast Resorts, Inc. (incorporated by
reference as Exhibit 3.4 to Registration Statement on Form S-4
of Coast Hotels and Casinos, Inc., Coast Resorts, Inc. and
Coast West, Inc., filed on May 2, 1996)
10.1 Indenture dated as of January 30, 1996, among Coast Hotels and
Casinos, Inc., the Guarantors, and American Bank National
Association, as Trustee. (incorporated by reference as Exhibit
10.1 to Annual Report on Form-K of Coast Resorts, Inc. filed
on March 27, 1996)
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- - -------- ----------------------
<C> <S>
10.2 Registration Rights Agreement dated as of January 30, 1996
among Coast Hotels and Casinos, Inc., the Guarantors, and
Bear, Stearns & Co. Inc. and BA Securities, Inc. (incorporated
by reference as Exhibit 10.2 to Annual Report on Form-K of
Coast Resorts, Inc. filed on March 27, 1996)
10.3 Form of Note (included in Exhibit 10.1 above)
10.4 Note Guarantee of Coast Resorts, Inc. (incorporated by
reference as Exhibit 10.4 to Annual Report on Form-K of Coast
Resorts, Inc. filed on March 27, 1996)
10.5 Note Guarantee of Coast West, Inc. (incorporated by reference
as Exhibit 10.5 to Annual Report on Form-K of Coast Resorts,
Inc. filed on March 27, 1996)
10.6 Leasehold Deed of Trust, Assignment of Rents, Leases and
Security Agreement dated January 30, 1996 of Coast Hotels and
Casinos, Inc. (incorporated by reference as Exhibit 10.6 to
Annual Report on Form-K of Coast Resorts, Inc. filed on March
27, 1996)
10.7 Leasehold Deed of Trust, Assignment of Rents, Leases and
Security Agreement dated January 30, 1996 of Coast West, Inc.
(incorporated by reference as Exhibit 10.7 to Annual Report on
Form-K of Coast Resorts, Inc. filed on March 27, 1996)
10.8 Security Agreement dated January 30, 1996 between Coast Hotels
and Casinos, Inc. and American Bank National Association
(incorporated by reference as Exhibit 10.8 to Annual Report on
Form-K of Coast Resorts, Inc. filed on March 27, 1996)
10.9 Security Agreement dated January 30, 1996 between Coast West,
Inc. and American Bank National Association (incorporated by
reference as Exhibit 10.9 to Annual Report on Form-K of Coast
Resorts, Inc. filed on March 27, 1996)
10.10 Stock Pledge and Security Agreement dated January 30, 1996 by
and among Coast Resorts, Inc. and American Bank National
Association (incorporated by reference as Exhibit 10.10 to
Annual Report on Form-K of Coast Resorts, Inc. filed on March
27, 1996)
10.11 Disbursement and Escrow Agreement dated January 30, 1996,
among Nevada Title Company, Nevada Construction Services,
Inc., American Bank National Association and Coast Hotels and
Casinos, Inc. (incorporated by reference as Exhibit 10.11 to
Annual Report on Form 10-K of Coast Resorts, Inc. filed on
March 27, 1996)
10.12 Pledge and Escrow Agreement dated January 30, 1996 between
American Bank National Association and Coast Hotel and
Casinos, Inc. (incorporated by reference as Exhibit 10.12 to
Annual Report on Form 10-K of Coast Resorts, Inc. filed on
March 27, 1996)
10.13 Collateral Assignment of Contracts dated January 30, 1996
(incorporated by reference as Exhibit 10.13 to Annual Report
on Form 10-K of Coast Resorts, Inc. filed on March 27, 1996)
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- - --------- ----------------------
<C> <S>
10.14 Escrow Agreement dated January 30, 1996 by and among Coast
Resorts, Inc., American Bank National Association, and Bank of
America Nevada (incorporated by reference as Exhibit 10.14 to
Annual Report on Form 10-K of Coast Resorts, Inc. filed on
March 27, 1996)
10.15 Unsecured Environmental Indemnification Agreement dated
January 30, 1996 among Coast Hotel and Casinos, Inc. and
American Bank National Association (incorporated by reference
as Exhibit 10.15 to Annual Report on Form 10-K of Coast
Resorts, Inc. filed on March 27, 1996)
10.16 Unsecured Environmental Indemnification Agreement among Coast
West, Inc. and American Bank National Association
(incorporated by reference as Exhibit 10.16 to Annual Report
on Form 10-K of Coast Resorts, Inc. filed on March 27, 1996)
10.17 Tax Sharing Agreement dated as of January 30, 1996 by and
among Coast Resorts, Inc., Coast Hotels and Casinos, Inc., and
Coast West, Inc. (incorporated by reference as Exhibit 10.17
to Annual Report on Form 10-K of Coast Resorts, Inc. filed on
March 27, 1996)
10.18 Agreement Between Owner and Contractor dated as of January 24,
1996, between J.A. Tiberti Construction Co., Inc. and Coast
Hotels and Casinos, Inc. (incorporated by reference as Exhibit
10.18 to Annual Report on Form 10-K of Coast Resorts, Inc.
filed on March 27, 1996)
10.19 Ground Lease dated as of October 1, 1995, between The Tiberti
Company, a Nevada general partnership, and Coast Hotels and
Casinos, Inc. (as successor of Gold Coast Hotel and Casino, a
Nevada limited partnership (incorporated by reference as
Exhibit 10.12 to Amendment No. 2 to General Form for
Registration of Securities on Form 10/A of Coast Resorts, Inc.
filed on January 12, 1996)
10.20 Lease Agreement dated May 1, 1992, by and between Empey
Enterprises, a Nevada general partnership, as lessor, and the
Barbary Coast Hotel & Casino, a Nevada general partnership, as
lessee (incorporated by reference as Exhibit 10.1 to General
Form for Registration of Securities on Form 10 of Coast
Resorts, Inc. filed on October 3, 1995)
10.21 Ground Lease Agreement dated October 28, 1994 by and among 21
Stars, Ltd., a Nevada limited liability company, as landlord,
Barbary Coast Hotel & Casino, a Nevada general partnership, as
tenant, Wanda Peccole, as successor trustee of the Peccole
1982 Trust dated February 15, 1982 ("Trust"), and The William
Peter and Wanda Ruth Peccole Family Limited Partnership, a
Nevada limited partnership ("Partnership"), and, together with
Trust, as owner, as amended (incorporated by reference as
Exhibit 10.2 to General Form for Registration of Securities on
Form 10 of Coast Resorts, Inc. filed on October 3, 1995)
10.22 Form of Subordination Agreement with former Gold Coast
partners holding Subordinated Notes (incorporated by reference
as Exhibit 10.22 to Annual Report on Form 10-K of Coast
Resorts, Inc. filed on March 27, 1996)
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- - --------- ----------------------
<C> <S>
10.23 Lease dated as of November 1, 1982, by and between Nevada
Power Company, a Nevada corporation, and Barbary Coast Hotel
and Casino, a Nevada general partnership (incorporated by
reference as Exhibit 10.6 to General Form for Registration of
Securities on Form 10 of Coast Resorts, Inc. filed on October
3, 1995)
10.24 Leasehold Deed of Trust, Assignment of Rents and Security
Agreement dated February 13, 1991, by and between the Barbary
Coast Hotel and Casino, a Nevada general partnership, First
American Title Company of Nevada, and Exber, Inc., a Nevada
corporation (incorporated by reference as Exhibit 10.7 to
General Form for Registration of Securities on Form 10 of
Coast Resorts, Inc. filed on October 3, 1995)
16 Letter re Change in Certifying Accountant (incorporated by
reference as Exhibit 16 to Amendment No. 1 to General Form for
Registration of Securities on Form 10/A of Coast Resorts, Inc.
filed on November 22, 1995)
21 List of Subsidiaries of Coast Resorts, Inc. (incorporated by
reference as Exhibit 21 to General Form for Registration of
Securities on Form 10 of Coast Resorts, Inc. filed on October
3, 1995)
27 Financial Data Schedule for Coast Resorts, Inc. and
Subsidiaries
</TABLE>
(B) REPORTS ON FORM 8-K
The Company filed no Reports on Form 8-K during the last quarter of the
1995 fiscal year.
27
<PAGE>
INDEX TO FINANCIAL STATEMENTS
COAST RESORTS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants.................................... F-2
Balance Sheets of Coast Resorts, Inc. and Subsidiaries as of
December 31, 1994 and 1995 ......................................... F-3
Statements of Income of Coast Resorts, Inc. and Subsidiaries
for the years ended December 31, 1993, 1994 and 1995................ F-4
Statements of Stockholders' Equity of Coast Resorts, Inc. and
Subsidiaries for the years ended December 31, 1993, 1994 and 1995... F-5
Statements of Cash Flows of Coast Resorts, Inc. and Subsidiaries
for the years ended December 31, 1993, 1994 and 1995................ F-6
Notes to Financial Statements........................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors and Stockholders of
Coast Resorts, Inc. and Subsidiaries
We have audited the consolidated financial statements and the financial
statement schedule of Coast Resorts, Inc. and Subsidiaries listed in Item 14(a)
of this Form 10-K/A. These financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Coast Resorts,
Inc. and Subsidiaries as of December 31, 1994 and 1995 and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information required to be included therein.
As more fully described in Note 2, the Company changed its method of
accounting for marketable securities and depreciation in 1994.
COOPERS & LYBRAND L.L.P.
Las Vegas, Nevada
February 14, 1996
F-2
<PAGE>
COAST RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE> ASSETS
<CAPTION>
1994 1995
-------- ---------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents..............$ 16,967 $ 14,543
Accounts receivable, net............... 2,159 1,990
Inventories............................ 4,933 4,079
Prepaid expenses....................... 2,775 2,427
-------- --------
TOTAL CURRENT ASSETS................. 26,834 23,039
-------- --------
PROPERTY AND EQUIPMENT, less
accumulated depreciation................ 104,618 125,155
-------- --------
OTHER ASSETS:
Marketable securities.................. 63 --
Other assets........................... 2,780 4,169
-------- --------
TOTAL OTHER ASSETS................... 2,843 4,169
-------- --------
$134,295 $152,363
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................$ 18,113 $ 8,389
Accrued liabilities.................... 13,525 14,426
Bank lines of credit................... 2,400 --
Current portion of long-term debt...... 587 1,389
Current portion of obligation under
capital lease......................... 113 202
-------- --------
TOTAL CURRENT LIABILITIES............ 34,738 24,406
-------- --------
LONG-TERM DEBT, less current portion:
Bank line of credit.................... -- 28,155
Related parties........................ 11,000 54,500
Other.................................. 413 348
-------- --------
TOTAL LONG TERM DEBT................. 11,413 83,003
-------- --------
OBLIGATION UNDER CAPITAL LEASE, less
current portion......................... 363 354
-------- --------
DEFERRED RENT............................ -- 1,712
-------- --------
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,
1,000,000 shares issued and
outstanding........................... 10 10
Additional paid-in capital............. 19,340 19,340
Unrealized gains....................... 13 --
Retained earnings...................... 68,418 23,538
-------- --------
TOTAL STOCKHOLDERS' EQUITY........... 87,781 42,888
-------- --------
$134,295 $152,363
======== ========
</TABLE>
The accompanying notes are an integral part of these financial consolidated
statements.
F-3
<PAGE>
COAST RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
OPERATING REVENUES:
Casino................................................. $ 127,429 $ 129,086 $ 129,675
Food and beverage...................................... 35,736 36,824 38,468
Hotel.................................................. 11,820 12,232 13,233
Other.................................................. 8,837 9,386 9,968
--------- --------- ---------
GROSS REVENUES........................................... 183,822 187,528 191,344
Less: promotional allowances........................... (14,249) (14,955) (16,588)
--------- --------- ---------
NET REVENUES............................................. 169,573 172,573 174,756
--------- --------- ---------
OPERATING EXPENSES:
Casino................................................. 62,307 65,376 67,782
Food and beverage...................................... 31,925 34,461 31,242
Hotel.................................................. 6,343 6,934 6,692
Other.................................................. 8,087 8,257 8,537
General and administrative............................. 32,402 32,940 35,132
Guaranteed payments to former partners................. 2,485 2,672 858
Depreciation and amortization.......................... 7,822 6,766 7,280
--------- --------- ---------
TOTAL OPERATING EXPENSES............................. 151,371 157,406 157,523
--------- --------- ---------
OPERATING INCOME..................................... 18,202 15,167 17,233
--------- --------- ---------
OTHER INCOME (EXPENSES):
Interest expense:
Related parties...................................... (282) (169) (3,126)
Other................................................ (607) (176) (760)
Interest income........................................ 52 118 106
Interest capitalized................................... -- -- 235
Gain on sale of equipment and securities............... 3 23 92
--------- --------- ---------
TOTAL OTHER INCOME (EXPENSES)........................ (834) (204) (3,453)
--------- --------- ---------
NET INCOME............................................... $ 17,368 $ 14,963 $ 13,780
========= ========= =========
UNAUDITED PRO FORMA DATA (reflecting
change in tax status):
Provision for income taxes............................. 6,117 5,251 4,823
--------- --------- ---------
Net income............................................. $ 11,251 $ 9,712 $ 8,957
========= ========= =========
Net income per share of common stock................... $ 11.25 $ 9.71 $ 8.96
========= ========= =========
Weighted average common shares
outstanding........................................... 1,000,000 1,000,000 1,000,000
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
COAST RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Common Stock Additional Unrealized
------------ Paid-In Gains Retained
Shares Amount Capital (Losses) Earnings Total
------ ------ ---------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1993............ 1,000,000 $10 $19,340 $ -- $ 73,410 $ 92,760
Net income........................... 17,368 17,368
Distributions to former partners..... (11,500) (11,500)
--------- --- ------- ------ -------- --------
Balances at December 31, 1993.......... 1,000,000 10 19,340 $ -- 79,278 98,628
Adjustments to beginning balances
for change in accounting principle
relating to marketable securities... 27 27
--------- --- ------- ------ -------- --------
Balances at January 1, 1994............ 1,000,000 10 19,340 27 79,278 98,655
Net income........................... 14,963 14,963
Change in unrealized gains (losses)
on marketable securities............ (14) (14)
Distributions to former partners..... (25,823) (25,823)
--------- --- ------- ------ -------- --------
Balances at December 31, 1994.......... 1,000,000 10 19,340 13 68,418 87,781
Net income........................... 13,780 13,780
Change in unrealized gains (losses)
on marketable securities............ (13) (13)
Distributions to former partners..... (58,660) (58,660)
--------- --- ------- ------ -------- --------
Balances at December 31, 1995.......... 1,000,000 $10 $19,340 $ -- $ 23,538 $ 42,888
========= === ======= ====== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
COAST RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................................ $ 17,368 $ 14,963 $ 13,780
-------- -------- --------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization............................................. 7,822 6,766 7,280
Provision for bad debts................................................... 326 452 411
Gain on disposal of equipment and securities.............................. (3) (23) (92)
Other non-cash expenses................................................... 650 -- 593
(Increase) decrease in operating assets:
Accounts receivable................................................... (724) (163) (267)
Inventories........................................................... (557) (553) 854
Prepaid expenses...................................................... 303 18 349
Other assets.......................................................... 222 (479) (264)
Increase (decrease) in operating liabilities:
Accounts payable...................................................... 1,679 868 (1,057)
Accrued expenses...................................................... 1,731 723 902
-------- -------- --------
TOTAL ADJUSTMENTS................................................. 11,449 7,609 8,709
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES......................... 28,817 22,572 22,489
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities................................................. (19) -- --
Capital expenditures.............................................................. (2,736) (5,514) (32,331)
Proceeds from sale of equipment and securities.................................... 6 160 219
Issuance of notes receivable...................................................... -- (500) --
Principal payment from notes receivable........................................... 455 345 --
-------- -------- --------
NET CASH USED BY INVESTING ACTIVITIES............................. (2,294) (5,509) (32,112)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings under bank lines of credit............................... 9,007 6,250 26,941
Principal payments on bank lines of credit........................................ (8,757) (4,100) (4,000)
Proceeds from issuance of long-term debt.......................................... -- -- 4,500
Principal payments on long-term debt.............................................. (11,548) (2,110) (10,331)
Principal payments on capital lease............................................... (89) (101) (82)
Payments for debt issue costs..................................................... -- -- (1,169)
Distributions to former partners.................................................. (11,500) (14,823) (8,660)
-------- -------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES............... (22,887) (14,884) 7,199
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..................................... 3,636 2,179 (2,424)
CASH AND CASH EQUIVALENTS, at beginning of year.......................................... 11,152 14,788 16,967
-------- -------- --------
CASH AND CASH EQUIVALENTS, at end of year................................................ $ 14,788 $ 16,967 $ 14,543
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
COAST RESORTS, INC. AND SUBSIDIARIES
NOTES TO 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"), also Nevada Corporations. Through
Coast Hotels, the Company owns and operates hotel-casinos in Las Vegas, Nevada
which had previously been operated independently by the following two
partnerships:
. Gold Coast Hotel and Casino, a Nevada limited partnership organized in 1986
("Gold Coast"), operated the Gold Coast Hotel and Casino which is located
approximately one mile west of the Las Vegas Strip. Gold Coast also commenced
development of the Orleans Hotel and Casino in Las Vegas in 1995, which
development is being continued by Coast Hotels as more fully explained in
Note 12.
. Barbary Coast Hotel and Casino, a Nevada partnership organized in 1979
("Barbary Coast"), operated the Barbary Coast Hotel and Casino which is
located on the Las Vegas Strip.
On January 1, 1996, the partners of Gold Coast and Barbary Coast (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, by assignment or through the merger of Gaughan-
Herbst, Inc., a Nevada corporation, the sole general partner of the Gold Coast,
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. The partners of the Gold Coast (or their
principals) received in the aggregate 65% of such shares of common stock of
Coast Resorts, and the partners of the Barbary Coast received in the aggregate
35% of such shares. The shares of common stock were issued to the respective
partners (or their principals) of each such Predecessor Partnership based upon
such partners' pro rata interests in such Predecessor Partnership.
Concurrently with the exchange of the partners' interests in the Predecessor
Partnerships and the merger of Gaughan-Herbst, Inc. into Coast Resorts, Coast
Resorts became the sole partner of each of the Predecessor Partnerships, and
each Predecessor Partnership dissolved and terminated. Immediately upon such
dissolution and termination, all of the assets and liabilities of the
Predecessor Partnerships became the assets and liabilities of Coast Resorts.
Coast Resorts immediately contributed to Coast Hotels all of the assets of the
Predecessor Partnerships other than those relating to a certain ground lease
(the "Coast West Lease"), which Coast Resorts contributed to Coast West Inc.,
another wholly-owned subsidiary of Coast Resorts ("Coast West"). In addition,
Coast Hotels assumed, jointly and severally with Coast Resorts, all of the
liabilities of the Predecessor Partnerships other than (i) obligations under a
portion of the subordinated notes payable to former partners and $1,500,000
principal amount of demand notes payable to a related party which were retained
by Coast Resorts and were exchanged for shares of Coast Resorts Common Stock (as
defined below), and (ii) those liabilities incident to the Coast West Lease.
Coast West assumed jointly and severally with Coast Resorts, all of the
liabilities of the Predecessor Partnerships incident to the Coast West Lease.
F-7
<PAGE>
COAST RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--BACKGROUND INFORMATION AND BASIS OF PRESENTATION--(CONTINUED)
Coast Resorts retained the liability for an aggregate principal amount of
$51,025,000 in notes payable to former partners and retained the liability for
$1,500,000 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 common stock, par value $.01 per share, of Coast Resorts (the
"Coast Resorts Common Stock"), based upon management's estimate of the fair
market value of such common stock.
As a result of the Reorganization, the former partners of the Predecessor
Partnerships (or their principals) own all of the issued and outstanding shares
of capital stock of Coast Resorts, Coast Resorts owns all of the issued and
outstanding capital stock of Coast Hotels and Coast West, and Coast Hotels and
Coast West own and have assumed in the aggregate all of the assets and
liabilities of the Predecessor Partnerships (other than the Exchange Liabilities
that were exchanged for Coast Resorts Common Stock). Thereafter, Coast Hotels
and Coast West will carry on the prior business operations of the Predecessor
Partnerships.
Coast West plans to hold the Coast West Lease for future development. Coast
West has had no source of income since its inception in September 1995. Coast
Hotels has agreed to provide Coast West with advances sufficient to make
payments on the Coast West Lease, as more fully explained in Note 6.
Basis of Presentation
Gold Coast and Barbary Coast have historically operated under a high degree of
common control. The former Managing General Partner of Gold Coast was also a
general partner, and the principal manager, of Barbary Coast. Due to the common
control of Gold Coast and Barbary Coast 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, 1994 and 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 amount of $52,525,000,
reflecting the historical cost basis of the Exchange Liabilities.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Inventories
Inventories, which consist primarily of food and beverage, liquor store, and
gift shop merchandise, are valued at the lower of cost (first-in, first-out) or
market value except for the base stocks of bar glassware and restaurant china
which are stated at original cost with subsequent replacements charged to
expense.
Original Issue Discount and Debt Issue Costs
Original issue discount is amortized over the life of the related indebtedness
using the effective interest method. Costs associated with the issuance of debt
are deferred and amortized over the life of the related indebtedness also using
the effective interest method.
F-8
<PAGE>
COAST RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Property, Equipment and Depreciation
Property and equipment are stated at cost. Expenditures for additions,
renewals and betterments are capitalized; expenditures for maintenance and
repairs are charged to expense as incurred. Upon retirement or disposal of
assets, the cost and accumulated depreciation are eliminated from the accounts
and the resulting gain or loss is included in income. Depreciation is computed
by the straight-line method over the estimated useful lives of property and
equipment, which range from 5 to 15 years for equipment and up to 40 years for
buildings and improvements.
During 1994, the Company changed its method of accounting for depreciation for
property and equipment, to compute depreciation on the straight-line method. The
Company had used accelerated depreciation methods for computing depreciation
prior to such change. Although both methods are considered generally acceptable,
the straight-line method is more prevalent in the gaming industry and is
considered by management to therefore be preferable. The change in accounting
has been retroactively reflected in the Company's financial statements.
Preopening and related promotional expense
Costs associated with the opening of new hotel-casinos, including personnel,
training, certain advertising and other costs, are capitalized and charged to
expense over management's estimate of the period of economic benefit associated
with such costs. Management believes that such period with respect to major
hotel-casinos is within one fiscal quarter of the date of opening.
Advertising Costs
Costs for advertising are expensed as incurred, except costs for direct-
response advertising, which are capitalized and amortized over the period of the
related program. Capitalized advertising costs were immaterial at December 31,
1995 and 1994. Advertising expense was $4,281,183, $3,668,760, and $3,225,860
for the years ended December 31, 1995, 1994 and 1993, respectively.
Marketable Securities
During the year ended December 31, 1994, the Company adopted Statement of
Financial Accounting Standards No. 115 ("SFAS 115"), "Accounting for Certain
Investments in Debt and Equity Securities." The adoption of SFAS 115 resulted in
an increase in stockholders' equity of approximately $27,000, to reflect a net
unrealized holding gain at the beginning of the year. In conformity with the
provisions of SFAS 115, the balance sheet at December 31, 1993 was not restated
to give effect to the adoption of this statement.
Marketable equity securities have been categorized as available for sale and
as a result are stated at fair value, as determined by market quotations on a
national stock exchange. Realized gains and losses are charged to income while
unrealized holding gains and losses are included as a component of stockholders'
equity until realized.
Casino Revenue
In accordance with common industry practice, the Company recognizes as casino
revenue the net win from gaming activities which is the difference between
amounts wagered and amounts paid to winning patrons.
F-9
<PAGE>
COAST RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Deferred Revenue
Wagers received on all sporting events are recorded as a liability until the
final outcome of the event when the payoffs, if any, can be determined.
Progressive Jackpot Payouts
The Company has a number of progressive slot machines, progressive poker games
and a progressive keno game. As coins are played on the progressive slot
machines, the amount available to win increases, to be paid out when the
appropriate jackpot is hit. The keno game and poker game payout also increases
with the amount of play, to be paid out when hit. In accordance with common
industry practice, the Company has recorded the progressive jackpot as a
liability with a corresponding charge against casino revenue.
Promotional Allowances
The retail value of hotel accommodations and food and beverage items provided
to customers without charge is included in gross revenues and then deducted as
promotional allowances, to arrive at net revenues.
The estimated cost of providing these complimentary services is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1993 1994 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Hotel................................. $ 1,205 $ 1,350 $ 1,426
Food and beverage..................... 13,236 14,465 14,704
------- ------- -------
Total cost of promotional allowances.. $14,441 $15,815 $16,130
======= ======= =======
</TABLE>
The cost of promotional allowances has been allocated to expense as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1993 1994 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Casino............................. $13,436 $14,693 $15,232
Other.............................. 1,005 1,122 898
------- ------- -------
$14,441 $15,815 $16,130
======= ======= =======
</TABLE>
Slot Club Promotion
The Company has established promotional slot clubs to encourage repeat
business from frequent and active slot customers. Members in the clubs earn
points based on slot activity accumulated in the members' account. Points can be
redeemed for certain consumer products (typically household appliances), travel,
and food and beverage. The Company accrues for slot club points expected to be
redeemed in the future based on the average cost of items expected to be
redeemed.
F-10
<PAGE>
COAST RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Income Taxes
Prior to the Reorganization, the Company operated as individual partnerships
which did not pay federal income taxes. The partners of Gold Coast and Barbary
Coast were taxed on their proportionate share of each of their respective
partnership's taxable income or loss. Therefore, these statements do not include
any provision or liability for corporate income taxes.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a remaining maturity
at acquisition of three months or less to be cash equivalents. Cash in excess of
daily requirements is typically invested in U.S. Government-backed repurchase
agreements with maturities of 30 days or less. Such investments are generally
made with major financial institutions having a high credit quality. At times,
the Company's cash deposited in financial institutions may be in excess of
federally insured limits.
Concentration of Credit Risk
The Company extends credit to patrons throughout the world after background
checks and investigations of creditworthiness and does not require collateral.
The Company records provisions for potential credit losses and such losses have
been within management's expectations. Management believes that as of December
31, 1995, no significant concentration of credit risk exists for which an
allowance has not already been determined and recorded.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Reclassifications
Certain amounts in the 1993 and 1994 financial statements have been
reclassified to conform with the 1995 presentation.
F-11
<PAGE>
COAST RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--MARKETABLE SECURITIES
Marketable securities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Aggregate Cost $50 $--
Aggregate Market Value 63 --
--- ---
Unrealized gain $13 $--
=== ===
</TABLE>
At December 31, 1994, marketable equity securities includes gross unrealized
holding gains and losses of $27,000 and $14,000, respectively. The net
unrealized holding gain of $13,000 as of December 31, 1994, has been included as
a separate component of stockholders' equity. For the year ended December 31,
1994, an unrealized holding loss was recognized, in the amount of $14,000.
During 1995, all marketable securities were sold by the Company for
approximately $55,000 and, as a result, the Company recorded a total realized
gain of approximately $16,000. Gross realized gains and losses on the sales of
marketable equity securities, based on the cost of such securities, were $27,900
and $11,900, respectively.
NOTE 4--ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Casino receivables.................... $1,509 $1,430
Other receivables..................... 1,032 934
Allowance for doubtful accounts....... (382) (374)
------ ------
$2,159 $1,990
====== ======
</TABLE>
F-12
<PAGE>
COAST RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--PROPERTY AND EQUIPMENT
Major classes of property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1995
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Building....................... $ 86,493 $ 86,564
Furniture and fixtures......... 65,313 55,889
Building improvements.......... 10,110 10,128
-------- --------
161,916 152,581
Less accumulated depreciation.. (66,322) (62,709)
-------- --------
95,594 89,872
Land........................... 8,758 15,230
Construction in progress....... 266 20,053
-------- --------
Net property and equipment..... $104,618 $125,155
======== ========
</TABLE>
Furniture and fixtures at December 31, 1994 included $7,985,000 of slot
equipment which had not yet been placed in service. As of December 31, 1995, all
such slot equipment was in use.
NOTE 6--LEASES
The Barbary Coast building is located on land which is leased. The lease term
runs through May 2003 with a purchase option and two 30 year renewal options. In
addition, the parking lot adjacent to the building is being leased under a 10
year lease which runs through December 2003.
The Company leases the main sign on the Barbary Coast building under a capital
lease with an initial term of 7 years which commenced July 12, 1991. Upon
termination of the agreement, the Company has the right to purchase the sign at
a price equal to its fair market value. The sign is included in property and
equipment at a cost of $743,000 less accumulated amortization of $247,000 and
$192,000 at December 31, 1995 and 1994, respectively.
During 1995 the Company leased computer equipment at the Gold Cost under a
capital lease with an initial term of 3 years which commenced June 1995. Upon
termination of the lease, the Company has the right to purchase the equipment at
a price of one dollar. At December 31, 1995, the computer equipment is included
in property and equipment at a cost of approximately $241,000 less accumulated
amortization of $21,000.
In September 1995, the Company entered into the Coast West Lease for a parcel
of land located in the western area of Las Vegas to be used for future expansion
opportunities. The Coast West Lease term runs through December 31, 2055, with
three 10-year renewal options, with monthly payments of $166,667 for the year
ending December 31, 1995. Thereafter the monthly rent will be increased by the
amount of $5,000 in January of each year. The lease includes a put option
exercisable by the landlord requiring the purchase of the land at fair market
value at the end of the 20th through 24th years of the lease, provided that the
purchase price shall not be less than ten times, nor more than fifteen times,
the annual rent at such time. Based on the terms of the lease, the potential
F-13
<PAGE>
COAST RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--LEASES--(CONTINUED)
purchase price commitment ranges from approximately $31,000,000 to approximately
$51,000,000 in the years 2014 through 2018. The total amount of the base rent
payments on the Coast West Lease are being charged to expense on the straight-
line method over the term of the lease. The Company has recorded a deferred
credit to reflect the excess of rent expense over cash payments since inception
of the lease. Coast Hotels has agreed to provide advances to Coast West
sufficient to make payments on the Coast West Lease and other obligations. Coast
West is a development stage enterprise and has no source of income and is
therefore solely dependent on the advances to be provided by Coast Hotels. There
can be no assurance that Coast West will develop a gaming property at the Coast
West site, or that it will be able to repay any advances made by Coast Hotels.
During December 1995, the Company entered into a ground lease for the land
underlying the Orleans. The land is owned by The Tiberti Company, a Nevada
general partnership, of which a stockholder of Coast Resorts is the managing
partner. The stockholder is also the president and a director and stockholder of
the general contractor for the construction of the Orleans, as more fully
described in Note 13. The lease provides for an initial term of fifty years with
a twenty-five year renewal option and includes a purchase option, exercisable by
the Company, at fair market value during the twentieth and twenty-first years of
the lease, provided that the purchase price will not be less than ten times the
annual rent and not more than 12 times the annual rent at such time. Lease
payments range from $175,000 to $250,000 per month during the first sixteen
years of the lease increasing by 3% per annum thereafter. The total amount of
the base rent payments on the Orleans lease are being charged to expense on the
straight-line method over the term of the lease. The Company has recorded a
deferred credit to reflect the excess of rent expense over cash payments since
inception of the lease.
Future Minimum Lease Payments
The following is an annual schedule of future minimum lease payments required
under operating and capital leases that have initial or remaining noncancelable
terms in excess of one year as of December 31, 1995:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
(IN THOUSANDS)
<S> <C> <C>
1996......................................... $256 $ 5,381
1997......................................... 256 4,520
1998......................................... 141 4,580
1999......................................... -- 4,890
2000......................................... -- 5,000
Later years.................................. -- 432,021
---- --------
Total minimum lease payments................. 653 $456,392
========
Less amount representing interest........ 97
----
Present value of net minimum lease payments.. 556
Less current portion..................... 202
----
Obligations under capital lease.............. $354
====
</TABLE>
F-14
<PAGE>
COAST RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--LEASES--(CONTINUED)
Rental Expense
Rent expense for the years ended December 31, 1993, 1994 and 1995 is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1993 1994 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Occupancy rentals....... $275 $300 $1,559
Other equipment......... 146 171 262
---- ---- ------
$421 $471 $1,821
==== ==== ======
</TABLE>
NOTE 7--ACCOUNTS PAYABLE
Major classes of accounts payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Trade accounts payable....................... $16,034 $6,370
Customer deposits, unpaid winnings and other. 2,079 2,019
------- ------
$18,113 $8,389
======= ======
</TABLE>
NOTE 8--ACCRUED LIABILITIES
Major classes of accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1995
------- -------
(In Thousands)
<S> <C> <C>
Slot club liability................ $ 4,473 $ 4,813
Compensation and benefits.......... 3,707 3,850
Taxes.............................. 1,017 699
Progressive jackpot payouts........ 3,477 3,841
Deferred sports book revenue....... 851 736
Accrued interest expense........... -- 487
------- -------
$13,525 $14,426
======= =======
</TABLE>
F-15
<PAGE>
COAST RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--BANK LINES OF CREDIT
Gold Coast and Barbary Coast previously maintained separate revolving line of
credit agreements with Bank of America Nevada which provided for maximum
borrowings of $25,000,000 and $3,000,000, respectively, through October 31,
1995. Interest on borrowings outstanding under the lines was payable monthly at
the bank's reference rate plus 1.125% (8.5% at December 31, 1994). Gold Coast
and Barbary Coast had outstanding balances of $0 and $3,000,000 at December 31,
1994, respectively.
During November 1995, in connection with the Reorganization, the revolving
bank lines of credit maintained by the Predecessor Partnerships were canceled
and replaced by a new revolving line of credit with Bank of America Nevada (the
"New Revolving Facility") maintained by Coast Resorts, Coast Hotels and the
Predecessor Partnerships (the "Borrowers"). The New Revolving Facility provided
for maximum borrowings of $37,500,000 through February 1996. At December 31,
1995, the Borrowers had approximately $28,155,000 outstanding under the New
Revolving Facility. Interest on outstanding borrowings was payable monthly at
the bank's reference rate.
As more fully explained in Note 16, in January 1996, the New Revolving
Facility was canceled and repaid with a portion of the proceeds from Coast
Hotels' issuance of $175,000,000, First Mortgage Notes due 2002. Accordingly,
all borrowings under the New Revolving Facility have been classified as long-
term debt at December 31, 1995.
F-16
<PAGE>
COAST RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- -------
(In Thousands)
<S> <C> <C>
Bank line of credit classified as long-term (See Note 9) $ -- $28,155
- - -------------------------------------------------------- ------- -------
Related parties:
- - ----------------
Prime note payable in monthly installments of $175,000
principal and interest with all remaining outstanding
principal together with all accrued interest due
February 1, 1996. The note is payable to Exber, Inc. (see
Note 13), collateralized by the land lease underlying the
Barbary Coast Hotel and a deed of trust covering property
and equipment. The effective rate of interest at December
31, 1994 was 8.5%; repaid during 1995...................... 465 --
Uncollateralized note payable in monthly installments of
$175,000 principal and interest until said balance is paid
in full. The Note is payable to Exber, Inc. (See Note 13).
The effective rate of interest at December 31, 1995 was
8.5%...................................................... -- 1,256
7.5% notes, payable in monthly installments of interest
only, with all principal and any unpaid interest due
December 31, 2001. The notes are unsecured and are payable
to the former partners of Barbary Coast and Gold Coast.
Approximately $51,025,000 of the notes were exchanged for
Coast Resorts Common Stock on January 16, 1996 as more
fully described in Note 1. .............................. 11,000 53,000
6% uncollateralized note payable to related party due on
demand. As more fully described in Note 1, the note was
exchanged for Coast Resorts Common Stock on January 16,
1996...................................................... -- 1 ,500
------- -------
11,465 55,756
Less current portion........................................ 465 1,256
------- -------
Total, related parties............................ 11,000 54,500
------- -------
Non-related parties:
- - --------------------
6% note, payable in 60 monthly installments of $13,000
principal and interest beginning January 28, 1994. The
note is collateralized by gaming equipment................ 535 414
Uncollateralized note, payable in semi-annual installments
of principal and interest until said balance is paid in
full. The effective rate of interest at December 31, 1995
was approximately 6%...................................... -- 67
------- -------
535 481
Less current portion........................................ 122 133
------- -------
Total, non-related parties........................ 413 348
------- -------
$11,413 $83,003
======= =======
</TABLE>
F-17
<PAGE>
COAST RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--LONG-TERM DEBT--(CONTINUED)
Maturities on long-term debt as adjusted for (i) the exchange of Notes for
Coast Resorts Common Stock as described in Note 1 and, (ii) the repayment of the
bank line of credit with proceeds from the offering of First Mortgage Notes due
2002 as described in Note 9, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, MATURITIES
- - ------------------------ ---------------
(IN THOUSANDS)
<S> <C>
1996................................... $ 1,389
1997................................... 140
1998................................... 150
1999................................... 3
2000................................... 3
Thereafter............................. 30,182
-------
$31,867
=======
</TABLE>
NOTE 11--FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value of the company's financial instruments have
been determined by the company using available market information and
appropriate valuation methodologies. The carrying amounts of cash and cash
equivalents, accounts receivable, and accounts payable approximate fair values
due to the short-term maturities of these instruments. The carrying amounts and
estimated fair values of the Company's other financial instruments at December
31, 1995 are as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Liabilities:
Bank line of credit.................. $28,155 $28,155
Current portion of long-term debt.... 1,389 1,389
Long-term debt....................... 54,848 54,255
</TABLE>
The methods and assumptions are summarized as follows:
Bank lines of credit and current portion of long-term debt--For bank lines of
credit and current portion of long-term debt, the carrying amounts approximate
fair value due to the short-term nature of such items.
Long-term debt-- For all long-term debt not exchanged for Coast Resorts Common
Stock, the fair value is estimated using a discounted cash flow analysis, based
on the incremental borrowing rates currently available to the Company for debt
with similar terms and maturity. The fair value of long-term debt exchanged for
Coast Resorts Common Stock approximates carrying value based on the values
utilized for the exchange transaction subsequent to year-end.
F-18
<PAGE>
COAST RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--CONTINGENCIES AND COMMITMENTS
During 1995, the Company commenced construction of the Orleans Hotel and
Casino ("Orleans") in Las Vegas. The plans for the Orleans have been developed
with a theme of the French Quarter in New Orleans, and include an approximately
100,000 square-foot casino, 840 hotel rooms, a 70-lane bowling center, and four
restaurants. The Orleans has a construction and development budget of
approximately $158.1 million, 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 for a price not to exceed $100.0 million. The general contractor is
a related party, as more fully described in Note 13. As of December 31, 1995,
the Company has incurred approximately $19,824,000 related to the construction
of the Orleans of which approximately $13,204,000 was incurred under the
guaranteed maximum price contract.
The Company is involved in various legal actions arising in the ordinary
course of business. In the opinion of management, the ultimate disposition of
these matters will not have a material adverse effect on the financial position,
results of operations or cash flows of the Company.
NOTE 13--RELATED PARTY TRANSACTIONS
The Company's advertising services are provided by LGT Advertising, a Company
owned by several stockholders of Coast Resorts. Advertising expense amounted to
approximately $2,026,000, $2,276,000, and $2,841,000 for the years ended
December 1993, 1994 and 1995, respectively.
The Company receives laundry services from Exber, Inc. (dba El Cortez Hotel &
Casino). A major stockholder-officer of Exber, Inc. is the father of a major
stockholder of Coast Resorts. Laundry expense amounted to approximately
$966,000, $1,016,000 and $1,065,000 for the years ended December 31, 1993, 1994,
and 1995, respectively.
Included in operating expenses are guaranteed payments of $2,027,000,
$2,200,000 and $398,000 to the former partners of Barbary Coast (now
stockholders of Coast Resorts) for the years ended December 31, 1993, 1994, and
1995, respectively. Also included in operating expenses are guaranteed payments
to the former Managing Partner of Gold Coast (now a stockholder of Coast
Resorts) of $458,000, $472,000 and $460,000 for the years ended December 31,
1993, 1994, and 1995. Guaranteed payments to the Gold Coast Hotel and Casino's
Managing Partner were based on a minimum salary plus 1% of Gold Coast Hotel and
Casino's profits as required under the partnership agreement. In connection with
the Reorganization, the guaranteed payment requirements of the Predecessor
Partnerships have been terminated.
In February 1991, the Company borrowed $7,500,000 from Exber, Inc., in the
form of a collateralized note. On January 25, 1995, the Company borrowed
approximately $3,000,000 through an uncollateralized note payable to Exber,
Inc., a portion of which was used to pay off the balance due on the 1991
collateralized note payable to Exber, Inc. Amounts outstanding relating to these
notes are $465,000 and $1,256,000 at December 31, 1994 and 1995, respectively.
Interest expense for the years ended December 31, 1993, 1994 and 1995 on these
notes amounted to $209,000, $105,000, and $181,000, respectively.
In December 1994, $11,000,000 was distributed to the former partners of
Barbary Coast in the form of notes payable. In June 1995, $50,000,000 was
distributed to the former partners of Gold Coast in the form of notes payable.
In December 1995, Gold Coast repaid $8,000,000 of such notes. As more fully
described in Note 1, on January 16, 1996, approximately $51,025,000 of such
notes payable to former partners were exchanged for shares of Coast Resorts
Common Stock. Interest expense for the years ended December 31, 1993, 1994 and
1995 on these notes amounted to $0, $0, and $2,856,250, respectively.
F-19
<PAGE>
COAST RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13--RELATED PARTY TRANSACTIONS--(CONTINUED)
As more fully described in Note 12, the Company has commenced the construction
of the Orleans Hotel and Casino with J.A. Tiberti Construction Company, Inc.
("Tiberti Construction"). Tiberti Construction also served as the general
contractor for the original construction of the Gold Coast and for certain
expansions thereof, and for the original construction of the Barbary Coast and
all expansions thereof. The President of Tiberti Construction is a stockholder
and director of the Company and a director of Coast Hotels. For the years ended
December 31, 1993, 1994, and 1995, the Company paid approximately $0, $328,000,
and $10,906,000, respectively, to Tiberti Construction in connection with such
construction services.
NOTE 14--EMPLOYEE RETIREMENT PLANS
In November 1993, the Company adopted separate defined contribution (401(k))
plans for eligible employees of the Gold Coast and the Barbary Coast. All
employees of the Gold Coast are eligible to participate. All employees of the
Barbary Coast not covered by a collective bargaining agreement are eligible to
participate. The employees may elect to defer up to 15% of their yearly
compensation, subject to statutory limits. The Company contributes 1% of the
employees' eligible compensation and also makes matching contributions of 50% of
the first 4% of the employees' contribution. Contribution expense was $217,000,
$1,207,000, and $1,224,000 for the years ended December 1993, 1994, and 1995,
respectively.
In addition, beginning in 1993, certain employees at the Barbary Coast became
covered by a union-sponsored, collectively bargained, multi-employer, defined
benefit pension plan. The Barbary Coast contributed $66,000 $293,000 and
$312,000 during the years ended December 31, 1993, 1994, and 1995, respectively,
for the plan. These contributions are determined in accordance with the
provisions of negotiated labor contracts and generally are based on the number
of hours worked.
NOTE 15--SUPPLEMENTAL CASH FLOWS INFORMATION
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1993 1994 1995
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest paid................................................. $925 $ 345 $ 3,164
==== ======= =======
Supplemental schedule of non-cash investing
and financing activities:
Property and equipment and other asset acquisitions
included in accounts payable.............................. $ -- $ 9,042 $ 3,101
==== ======= =======
Litigation settlement by issuance of long-term debt......... $650 $ -- $ --
==== ======= =======
Distribution to former partners by issuance of notes payable $ -- $11,000 $50,000
==== ======= =======
</TABLE>
F-20
<PAGE>
COAST RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 16--REGULATION OF GAMING OPERATIONS
The gaming operations of the Company are subject to the licensing and
regulatory control of the Nevada Gaming Commission (the Nevada Commission), the
Nevada State Gaming Control Board (the Nevada Control Board) and the Clark
County Liquor and Gaming Board (the Clark County Board) (collectively the Nevada
Gaming Authorities). These agencies issue gaming licenses based upon, among
other considerations, evidence that the character and reputation of principal
owners, officers, directors, and certain other key employees are consistent with
regulatory goals. The necessary licenses have been secured by the Company. The
licenses are not transferable and must be renewed periodically upon the payment
of appropriate taxes and license fees. The licensing authorities have broad
discretion with regard to the renewal of the licenses which may at any time
revoke, suspend, condition, limit or restrict a license for any cause deemed
reasonable by the issuing agency. Officers, directors, and key employees of the
Company must be approved by the Nevada Control Board and licensed by the Nevada
Commission and Clark County Board.
NOTE 17--SUBSEQUENT EVENTS
Effective January 1, 1996, the Predecessor Partnerships were dissolved and
terminated as more fully described in Note 1. In connection therewith, the
Company adopted Statement of Financial Accounting Standards No. 109 "Accounting
for Income Taxes" ("SFAS 109"). Under SFAS 109 deferred tax assets and
liabilities are recognized for the expected future tax consequences attributable
to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. The adoption of SFAS 109 on January 1, 1996
resulted in the recognition in the 1996 financial statements of net deferred tax
liabilities and a corresponding charge to earnings through the income tax
provision of approximately $2,500,000. In addition, upon termination of the
partnership tax status on January 1, 1996, all undistributed earnings of the
predecessor partnerships were reclassified to additional paid-in capital.
On January 16, 1996, the Company completed the exchange of Coast Resorts
Common Stock for the Exchange Liabilities, as described in Note 1.
On January 30, 1996, Coast Hotels completed a private placement offering of
$175 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 the Company to repay all
outstanding indebtedness under the Company's New Revolving Facility, which
facility was terminated. The balance of approximately $800,000 was used to pay,
in part, the estimated offering expenses of $2.4 million.
F-21
<PAGE>
COAST RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 17--SUBSEQUENT EVENTS--(CONTINUED)
The indenture governing the First Mortgage Notes contains covenants that,
among other things, limit the ability of Coast Hotels to pay dividends, repay
existing indebtedness, incur additional indebtedness, or sell material assets as
defined in the indenture. Additionally, if on the twentieth day of the month
following the first month in which the Orleans Hotel and Casino has been
operating for 18 months, the Fixed Charge Coverage Ratio (as defined in the
indenture) of Coast Hotels for the most recently ended four full fiscal quarters
is less than 1.5 to 1, Coast Hotels is required to consummate an asset sale of
the Barbary Coast Hotel and Casino within one year. The proceeds from such asset
sale shall be used by Coast Hotels to repurchase First Mortgage Notes at a price
equal to 101% of the principal amount of such First Mortgage Notes.
NOTE 18--UNAUDITED PRO FORMA DATA
Prior to the Reorganization, the Company operated as individual partnerships
which did not pay federal income taxes. The partners of Gold Coast and Barbary
Coast were taxed on their proportionate share of each of their respective
partnership's taxable income or loss. The pro forma provision for income taxes
and the related pro forma net income are unaudited and reflect adjustments to
income taxes assuming that the change in corporate income tax status occurred as
of january 1, 1993.
The following pro forma consolidated financial statements of the Company
give effect to (i) the change in income tax status resulting from the
Reorganization, (ii) the issuance of the First Mortgage Notes, (iii) the
exchange of Coast Resorts Common Stock for the Exchange Liabilities, and (iv)
additional borrowings anticipated to be incurred by Coast Hotels in connection
with the development of The Orleans (the "Orleans Equipment Financing").
The pro forma consolidated balance sheet has been presented assuming that the
transactions described above occurred on December 31, 1995. The pro forma
statement of income has been presented assuming that the transactions described
above occurred on January 1, 1995. These pro forma consolidated financial
statements are unaudited and not necessarily indicative of the results that will
be achieved for future periods.
F-22
<PAGE>
COAST RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 18--UNAUDITED PRO FORMA DATA--(CONTINUED)
<TABLE>
<CAPTION>
December 31, 1995 (Pro Forma)
--------------------------------------------
Actual Adjustments Pro Forma
-------- ------------ -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (including $19,300 of.............. $ 14,543 $ 18,754 (a) $ 63,297
restricted cash, pro forma) 30,000 (b)
Other current assets......................................... 8,496 8,496
-------- -------- --------
TOTAL CURRENT ASSETS.................................... 23,039 48,754 71,793
-------- -------- --------
PROPERTY AND EQUIPMENT, less accumulated depreciation.......... 125,155 125,155
-------- -------- --------
OTHER ASSETS:
Restricted cash 114,800 (a) 114,800
Other assets................................................ 4,169 7,500 (a) 11,669
-------- -------- --------
TOTAL OTHER ASSETS...................................... 4,169 122,300 126,469
-------- -------- --------
$152,363 $171,054 $323,417
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES............................................ 24,406 24,406
-------- -------- --------
LONG TERM DEBT, less current portion:
Bank line of credit.......................................... 28,155 (28,155)(a) --
Related parties.............................................. 54,500 (52,525)(c) 1,975
Other........................................................ 348 169,209 (a) 199,557
30,000 (b)
-------- -------- --------
TOTAL LONG TERM DEBT..................................... 83,003 118,529 201,532
-------- -------- --------
DEFERRED INCOME TAXES.......................................... 2,500 (d) 2,500
-------- -------- --------
OTHER NON-CURRENT LIABILITIES.................................. 2,066 2,066
-------- -------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 2,000,000 shares authorized,
1,000,000 shares issued and outstanding (1,494,353 issued
and outstanding Pro Forma)................................ 10 10
Additional paid-in capital................................... 19,340 52,525 (c) 71,865
Retained Earnings............................................ 23,538 (2,500)(d) 21,038
-------- -------- --------
TOTAL STOCKHOLDERS' EQUITY................................. 42,888 50,025 92,913
-------- -------- --------
$152,363 $171,054 $323,417
======== ======== ========
</TABLE>
F-23
<PAGE>
COAST RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 18--UNAUDITED PRO FORMA DATA -- (CONTINUED)
<TABLE>
<CAPTION>
For the year ended December 31, 1995
---------------------------------------------------
Actual Adjustments Pro Forma
---------- ------------ ----------
<S> <C> <C> <C>
OPERATING REVENUES:
Casino............................................ $129,675 $ $129,675
Food and beverage................................. 38,468 38,468
Hotel............................................. 13,233 13,233
Other............................................. 9,968 9,968
-------- -------- --------
GROSS REVENUES............................... 191,344 191,344
Less: promotional allowances...................... (16,588) (16,588)
-------- -------- --------
NET REVENUES................................. 174,756 174,756
-------- -------- --------
OPERATING EXPENSES:
Casino............................................ 67,782 67,782
Food and beverage................................. 31,242 31,242
Hotel............................................. 6,692 6,692
Other............................................. 8,537 8,537
General and administrative........................ 35,132 650 (e) 35,782
Guaranteed payments to former partner............. 858 (858)(e) --
Depreciation and amortization..................... 7,280 7,280
-------- -------- --------
TOTAL OPERATING EXPENSES.......................... 157,523 (208) 157,315
OPERATING INCOME.................................. 17,233 208 17,441
-------- -------- --------
OTHER INCOME (EXPENSES):
Interest expense:
Related parties.............................. (3,126) 2,749 (f) (377)
Other........................................ (760) (24,063)(g) (28,731)
(3,300)(h)
463 (i)
(1,071)(j)
Interest income................................... 106 106
Interest capitalized.............................. 235 235
Gain on disposal of equipment and securities...... 92 92
-------- -------- --------
TOTAL OTHER INCOME (EXPENSES)..................... (3,453) (25,222) (28,675)
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES...................... 13,780 (25,014) (11,234)
PRO FORMA PROVISION (BENEFIT) FOR INCOME TAXES......... 4,823 (4,823)(k) --
-------- -------- --------
PRO FORMA NET INCOME (LOSS)............................ $ 8,957 $(20,191) $(11,234)
======== ======== ========
</TABLE>
F-24
<PAGE>
COAST RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 18--UNAUDITED PRO FORMA DATA -- (CONTINUED)
The pro forma consolidated financial statements reflect the following
adjustments:
BALANCE SHEET ADJUSTMENTS
(a) To reflect the issuance of the First Mortgage Notes net of original issue
discount of $5.8 million and including the capitalization of approximately
$7.5 million of debt issue costs. The net proceeds from the issuance of
the First Mortgage Notes, 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 restricted
for use by Coast Hotels to finance in part the cost of developing,
constructing, equipping and opening The Orleans (included in non-current
restricted cash), (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
Notes through December 15, 1996 (included in cash and cash equivalents),
and (iii) approximately $29.2 million was used by the Company to repay all
outstanding indebtedness under the Company's revolving credit facility (of
which $28.2 million was outstanding at December 31, 1995). The balance of
approximately $800,000 was used to pay, in part, the estimated offering
expenses of $2.4 million.
(b) To reflect additional borrowings for The Orleans Equipment Financing
expected to be incurred in connection with the completion of the Orleans.
Based on current project plans and the commitment letter from a lender,
total borrowings for furniture, fixtures, and equipment are expected to be
$30.0 million at an interest rate of approximately 11.0%.
(c) To reflect the exchange by Coast Resorts of Coast Resorts Common Stock for
the Exchange Liabilities.
(d) To recognize deferred income taxes attributable to temporary differences
between financial reporting and tax basis of the Company which become
recognized due to change in tax status from partnerships to a corporation
upon completion of the Reorganization.
INCOME STATEMENT ADJUSTMENTS
(e) To reflect the elimination of guaranteed payments to former partners and
inclusion of compensation to be paid to Michael J. Gaughan and certain
other former partners of Barbary Coast who are employees of the Company
following the consummation of the Reorganization. The duties and
responsibilities of Michael J. Gaughan and the other former partners of
Barbary Coast assumed upon the Reorganization are similar to those
previously performed.
(f) To reflect a decrease in interest expense relating to the decrease in
Subordinated Notes (which bear interest at 7.5%) resulting from (i) the
repayment of $8.0 million principal amount repaid by Gold Coast prior to
the consummation of the Reorganization and (ii) the exchange of $51.0
million principal amount of Subordinated Notes for Coast Resorts Common
Stock.
(g) To reflect additional interest expense (including amortization of original
issue discount) to be incurred with respect to the Notes using the
effective interest method.
(h) To reflect an increase in interest expense relating to the Orleans
Equipment Financing at an assumed rate of 11.0% per annum.
F-25
<PAGE>
COAST RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 18--UNAUDITED PRO FORMA DATA -- (CONTINUED)
(i) To reflect a reduction in interest expense relating to the decrease in
amounts outstanding under revolving bank lines of credit resulting from
the use of proceeds from the issuance of the Notes. Amounts represent
actual interest incurred under the lines of credit during 1995.
(j) To reflect the amortization of estimated debt issue costs incurred in
connection with the issuance of the Notes.
(k) To reflect income taxes at the expected effective rate of approximately
35% beginning on January 1, 1995. Pro forma income tax benefits have been
recognized in 1995 to the extent of available deferred income taxes.
F-26
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this Amendment
No. 1 to Annual Report on Form 10-K/A to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Las Vegas, State of
Nevada, on July 11, 1996.
COAST RESORTS, INC., a Delaware corporation
By: /s/ Harlan Braaten
---------------------------------------
Harlan Braaten
President and Chief Operating Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 14,543
<SECURITIES> 0
<RECEIVABLES> 1,990
<ALLOWANCES> 0
<INVENTORY> 4,079
<CURRENT-ASSETS> 23,039
<PP&E> 187,864
<DEPRECIATION> 62,709
<TOTAL-ASSETS> 152,363
<CURRENT-LIABILITIES> 24,406
<BONDS> 83,003
0
0
<COMMON> 10
<OTHER-SE> 44,878
<TOTAL-LIABILITY-AND-EQUITY> 152,363
<SALES> 0
<TOTAL-REVENUES> 174,756
<CGS> 0
<TOTAL-COSTS> 114,253
<OTHER-EXPENSES> 43,270
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,886
<INCOME-PRETAX> 13,780
<INCOME-TAX> 0
<INCOME-CONTINUING> 13,780
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,780
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
