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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
---
EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
---
EXCHANGE ACT OF 1934
For the Transition Period from ________________ to ________________
Commission file number 0-26922
COAST RESORTS, INC.
(Exact name of registrant as specified in its charter)
Nevada 88-0345704
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
4500 West Tropicana Avenue, Las Vegas, Nevada 89103
(Address of principal executive offices) (Zip code)
(702) 365-7000
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares of Common Stock outstanding as of November 14, 2000: 1,463,178
--------------------------------------------------------------------------------
<PAGE>
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements.
COAST RESORTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
September 30, December 31,
2000 1999
--------- ---------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..................... $ 60,217 $ 38,629
Accounts receivable, net...................... 5,183 4,212
Other current assets.......................... 19,546 16,922
--------- ---------
TOTAL CURRENT ASSETS.......................... 84,946 59,763
PROPERTY AND EQUIPMENT, net...................... 478,797 337,704
OTHER ASSETS..................................... 9,487 8,652
--------- ---------
$ 573,230 $ 406,119
========= =========
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.............................. $ 12,756 $ 11,738
Accrued liabilities........................... 40,100 32,781
Construction accounts payable................. 39,771 8,304
Current portion of long-term debt............. 2,416 2,473
--------- ---------
TOTAL CURRENT LIABILITIES..................... 95,043 55,296
LONG-TERM DEBT, less current portion............. 339,892 234,766
DEFERRED INCOME TAXES............................ 4,569 4,222
DEFERRED RENT.................................... 19,431 16,732
--------- ---------
TOTAL LIABILITIES............................. 458,935 311,016
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 500,000
shares authorized, none issued and
outstanding.................................. -- --
Common stock, $.01 par value, 2,000,000
shares authorized, 1,463,178 (2000) and
1,478,978 (1999) shares issued and
outstanding.................................. 15 15
Treasury stock................................ (3,118) (1,538)
Additional paid-in capital.................... 95,398 95,398
Retained earnings ............................ 22,000 1,228
--------- ---------
TOTAL STOCKHOLDERS' EQUITY.................... 114,295 95,103
--------- ---------
$ 573,230 $ 406,119
========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
1
<PAGE>
COAST RESORTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months and Nine Months Ended September 30, 2000 and 1999
(dollars in thousands, except share data)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
2000 1999 2000 1999
--------- --------- --------- ---------
OPERATING REVENUES:
Casino........................ $ 72,965 $ 64,813 $ 215,731 $ 195,435
Food and beverage............. 20,258 17,767 59,065 53,353
Hotel......................... 8,054 7,157 24,561 22,489
Other......................... 7,520 7,246 21,646 21,441
--------- --------- --------- ---------
GROSS OPERATING REVENUES.... 108,797 96,983 321,003 292,718
Less: promotional allowances. (9,240) (8,603) (27,333) (25,713)
--------- --------- --------- ---------
NET OPERATING REVENUES...... 99,557 88,380 293,670 267,005
--------- --------- --------- ---------
OPERATING EXPENSES:
Casino........................ 35,845 33,097 103,207 97,195
Food and beverage............. 15,076 12,929 42,386 37,359
Hotel......................... 3,569 3,441 9,932 9,696
Other......................... 6,064 6,405 17,569 18,352
General and administrative.... 17,745 16,549 49,992 47,570
Pre-opening expenses ......... 4,656 78 5,798 78
Deferred rent................. 600 519 1,639 2,398
Depreciation and amortization. 5,637 5,528 17,151 16,056
--------- --------- --------- ---------
TOTAL OPERATING EXPENSES.... 89,192 78,546 247,674 228,704
--------- --------- --------- ---------
OPERATING INCOME................. 10,365 9,834 45,996 38,301
--------- --------- --------- ---------
OTHER INCOME (EXPENSES)
Interest expense, net......... (7,654) (5,097) (19,065) (16,583)
Interest capitalized ......... 2,139 160 4,973 160
Loss on disposal of assets ... (14) (23) (5) (9)
--------- --------- --------- ---------
TOTAL OTHER INCOME (EXPENSES).... (5,529) (4,960) (14,097) (16,432)
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM .............. 4,836 4,874 31,899 21,869
--------- --------- --------- ---------
Income tax provision ............ 1,701 1,396 11,127 7,362
--------- --------- --------- ---------
INCOME BEFORE EXTRAORDINARY ITEM 3,135 3,478 20,772 14,507
--------- --------- --------- ---------
Extraordinary item - loss on
early retirement of debt, net
of applicable income tax benefit
($14,543)...................... -- -- -- (27,007)
--------- --------- --------- ---------
NET INCOME (LOSS)............... $ 3,135 $ 3,478 $ 20,772 $ (12,500)
========= ========= ========= =========
PER SHARE INFORMATION:
Basic and diluted income before
extraordinary item.............. $ 2.14 $ 2.35 $ 14.10 $ 9.76
========= ========= ========= =========
Basic and diluted net income
(loss) .......................... $ 2.14 $ 2.35 $ 14.10 $ (8.41)
========= ========= ========= =========
Weighted average shares
outstanding...................... 1,463,178 1,481,572 1,473,711 1,487,452
========= ========= ========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
<PAGE>
COAST RESORTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2000 and 1999
(dollars in thousands)
(unaudited)
Nine Months Ended
September 30,
---------------------
2000 1999
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................................... $ 20,772 $ (12,500)
--------- ---------
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization....................... 17,151 16,056
Amortization of debt offering costs................. 790 --
Deferred income taxes............................... (32) (3,578)
Deferred rent....................................... 2,699 2,635
Loss on early retirement of debt.................... -- 41,550
Other non-cash expenses............................. 143 319
Changes in assets and liabilities:
Net increase in accounts receivable and other
assets............................................ (5,277) (6,856)
Net increase in accounts payable and accrued
liabilities....................................... 8,337 12,431
--------- ---------
TOTAL ADJUSTMENTS..................................... 23,811 62,557
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES............. 44,583 50,057
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net of amounts in construction
accounts payable..................................... (126,585) (28,842)
Proceeds from disposal of assets...................... 101 27
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES................. (126,484) (28,815)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt, net of
issuance costs....................................... -- 167,808
Early retirement of debt.............................. -- (223,017)
Principal payments on long-term debt.................. (431) (15,468)
Proceeds from borrowings under bank line of credit.... 108,600 63,010
Repayments of borrowings under bank line of credit.... (3,100) (14,000)
Repurchase of common stock............................ (1,580) (1,538)
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES... 103,489 (23,205)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..... 21,588 (1,963)
CASH AND CASH EQUIVALENTS, at beginning of period........ 38,629 41,598
--------- ---------
CASH AND CASH EQUIVALENTS, at end of period.............. $ 60,217 $ 39,635
========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
COAST RESORTS, INC. AND SUBSIDIARY
STATEMENTS OF STOCKHOLDERS' EQUITY
For the Year Ended December 31, 1999 and
For the Nine Months Ended September 30, 2000
(dollars in thousands)
Common Stock Additional
---------------- Paid-In Retained Treasury
Shares Amount Capital Earnings Stock Total
--------- ------ -------- -------- ------- --------
Balances at
December 31, 1998..... 1,494,353 $ 15 $ 95,398 $ 7,013 $ -- $102,426
Repurchase of common
stock................ (15,375) -- -- -- (1,538) (1,538)
Net loss.............. -- -- -- (5,785) -- (5,785)
--------- ------ -------- -------- ------- --------
Balances at
December 31, 1999..... 1,478,978 15 95,398 1,228 (1,538) 95,103
Repurchase of common
stock............... (15,800) -- -- -- (1,580) (1,580)
Net income........... -- -- -- 20,772 -- 20,772
--------- ------ -------- -------- ------- --------
Balances at
September 30, 2000
(unaudited).......... 1,463,178 $ 15 $ 95,398 $ 22,000 $(3,118) $114,295
========= ====== ======== ======== ======= ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
COAST RESORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BACKGROUND INFORMATION AND BASIS OF PRESENTATION
Background Information
Coast Resorts, Inc. ("Coast Resorts" or the "Company") is a Nevada
corporation and serves as a holding company for Coast Hotels and Casinos, Inc.
("Coast Hotels"), which is also a Nevada corporation. Through Coast Hotels, the
Company owns and operates four Las Vegas hotel-casinos.
o The Suncoast Hotel and Casino, which opened on September 12, 2000, is
located near Summerlin in the west end of the Las Vegas valley.
o The Orleans Hotel and Casino, which opened in December 1996, is located
approximately one and one-half miles west of the Las Vegas Strip on
Tropicana Avenue.
o The Gold Coast Hotel and Casino, which opened in December 1986, is located
approximately one mile west of the Las Vegas Strip on Flamingo Road.
o The Barbary Coast Hotel and Casino, which opened in March 1979, is located
on the Las Vegas Strip.
Basis of Presentation
The accompanying consolidated financial statements are unaudited and have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In addition, certain amounts in the 1999 financial statements have been
reclassified to conform to the 2000 presentation. The unaudited consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements and footnotes included in our annual report on Form 10-K
for the year ended December 31, 1999. In the opinion of management, all
adjustments and normal recurring accruals considered necessary for a fair
presentation of the results for the interim period have been included. The
interim results reflected in the unaudited consolidated financial statements are
not necessarily indicative of expected results for the full year.
5
<PAGE>
COAST RESORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - LONG-TERM DEBT
Long-term debt consists of the following as of September 30, 2000 and
December 31, 1999:
September 30, December 31,
2000 1999
------------ ------------
(unaudited)
(in thousands)
9.5% senior subordinated notes due April 2009....... $ 175,000 $ 175,000
$200.0 million reducing revolving credit facility
due April 2004, collateralized by substantially all
of the assets of Coast Hotels and Casinos, Inc..... 160,500 55,000
13% first mortgage notes due December 2000, with
interest payable semiannually on June 15 and
December 15........................................ 1,960 1,960
8.6% note due August 11, 2007, payable in monthly
installments of $26,667 principal plus interest
on remaining principal balance, collateralized
by 1980 Hawker aircraft............................ 2,213 2,453
7.5% notes, payable in monthly installments of
interest only, with all principal and any unpaid
interest due December 31, 2001. The notes are
uncollateralized and are payable to former
partners of Barbary Coast and Gold Coast........... 1,975 1,975
Other notes payable................................. 660 851
--------- ---------
342,308 237,239
Less: current portion............................... 2,416 2,473
--------- ---------
$ 339,892 $ 234,766
========= =========
In March 1999, Coast Hotels issued $175.0 million principal amount of 9.5%
senior subordinated notes with interest payable on April 1 and October 1,
beginning October 1, 1999, and entered into a $75.0 million senior secured
revolving credit facility due 2004 to facilitate a refinancing. Availability
under the credit facility was increased to $200.0 million in September 1999.
Borrowings under the credit facility bear interest, at our option, at a premium
over the one-, two-, three- or six-month London Interbank Offered Rate
("LIBOR"). As of September 30, 2000 the interest rate was 8.62%. Coast Hotels
incurs a commitment fee, payable quarterly in arrears, on the unused portion of
the credit facility. This variable fee is currently at the maximum rate of 0.5%
per annum times the average unused portion of the facility.
6
<PAGE>
NOTE 2 - LONG-TERM DEBT (Continued)
With the proceeds from the senior subordinated notes and borrowings under
the credit facility, Coast Hotels repurchased substantially all of the $175.0
million principal amount outstanding of its 13% first mortgage notes and all
$16.8 million principal amount outstanding of its 10-7/8% first mortgage notes
and amended the indenture under which the 13% first mortgage notes were issued
to eliminate substantially all of its restrictive covenants. Approximately $2.0
million in principal amount of the 13% first mortgage notes remains outstanding
and is governed by the terms of the amended indenture. We are required by the
indenture for the 9.5% senior subordinated notes to redeem the 13% first
mortgage notes that remain outstanding no later than December 15, 2000 at a
redemption price of 106.5% of the principal amount, plus any accrued and unpaid
interest. Interest on the remaining $2.0 million of the first mortgage notes is
payable semiannually on June 1 and December 1. In connection with the repurchase
of the 13% notes and the 10-7/8% notes, Coast Hotels incurred repurchase
premiums of $31.0 million and $2.1 million, respectively. The repurchase
premiums and the write-offs of unamortized debt issuance costs and original
issue discount resulted in an extraordinary loss of $27.0 million in the nine
months ended September 30, 1999, net of applicable income tax benefit of $14.5
million.
The availability under the $200.0 million credit facility will be reduced
quarterly beginning in the fiscal quarter ending September 30, 2001. The initial
advance of $47.0 million under the credit facility was used in connection with
the repurchase of the 13% first mortgage notes and the 10-7/8% first mortgage
notes. Subsequent advances under the credit facility may be used for working
capital, general corporate purposes, construction of the Suncoast and certain
improvements to our existing properties. As of September 30, 2000, Coast Hotels
had $160.5 million outstanding under the credit facility.
The $200.0 million senior secured revolving credit facility agreement
contains covenants that, among other things, limit our ability to pay dividends,
to make certain capital expenditures, to repay certain existing indebtedness, to
incur additional indebtedness or to sell material assets. Additionally, the loan
agreement requires that we maintain certain financial ratios with respect to
leverage and fixed charge coverage. We are also subject to certain covenants
associated with the indenture governing the $175.0 million principal amount of
senior subordinated notes, including, in part, limitations on certain restricted
payments, the incurrence of additional indebtedness and asset sales. We believe
that, at September 30, 2000, we were in compliance with all covenants and
required ratios.
NOTE 3 - TREASURY STOCK
In May 1999, our board of directors authorized the potential repurchase of
up to 50,000 shares of common stock from stockholders at a maximum aggregate
repurchase price of $5.0 million. On June 29, 2000 we repurchased 15,800 shares
of common stock from shareholders at a purchase price of $1,580,000. As of
September 30, 2000, we have repurchased a total of 31,175 shares of common stock
from shareholders at a total purchase price of $3.1 million.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
The following table sets forth, for the periods indicated, certain financial
information regarding our results of operations:
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(in thousands) (in thousands)
(unaudited) (unaudited)
Net operating revenues.......... $ 99,557 $ 88,380 $ 293,670 $ 267,005
Operating expenses.............. 89,192 78,546 247,674 228,704
--------- --------- --------- ---------
Operating income ............... $ 10,365 $ 9,834 $ 45,996 $ 38,301
========= ========= ========== ==========
Net income (loss)............... $ 3,135 $ 3,478 $ 20,772 $ (12,500)
========= ========= ========= =========
EBITDA (1)...................... $ 21,258 $ 15,959 $ 70,584 $ 56,833
========= ========= ========= =========
(1) "EBITDA" means earnings before interest, taxes, depreciation, amortization,
deferred (non-cash) rent expense, other non-cash expenses and certain
non-recurring items, including pre-opening expenses. EBITDA is defined in
the Amended and Restated Loan Agreement governing our $200.0 million
revolving line of credit, dated September 16, 1999 and in the indenture
governing the $175.0 million of senior subordinated notes, dated March 18,
1999. EBITDA is presented as supplemental disclosure because the calculation
of EBITDA is necessary to determine our compliance with certain covenants
under these financing agreements and because management believes that it is
a widely used measure of operating performance in the gaming industry.
EBITDA should not be construed as an alternative to operating income or net
income (as determined in accordance with generally accepted accounting
principles) as an indicator of 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. All
companies do not calculate EBITDA in the same manner. As a result, EBITDA as
presented here may not be comparable to a similarly titled measure presented
by other companies.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Results of Operations (Continued)
Three Months Ended September 30, 2000 Compared to Three Months Ended September
30, 1999 and Nine Months Ended September 30, 2000 Compared to Nine Months Ended
September 30, 1999
Net revenues in the quarter ended September 30, 2000 were $99.6 million
compared to $88.4 million in the same quarter in 1999, an increase of 12.6%
primarily due to the opening of our newest hotel-casino, the Suncoast, on
September 12, 2000. Operating revenues at our other three properties increased a
combined 4.1%, including an increase of 3.1% in casino revenues. Despite the
increase in net operating revenues, third quarter operating income increased
only 5.4% due to Suncoast pre-opening expenses that totaled $4.7 million.
Operating income was $10.4 million in the quarter compared to $9.8 million in
the third quarter of 1999. Net income was $3.1 million in the quarter, compared
to $3.5 million in 1999.
In the nine months ended September 30, 2000, net revenues were $293.7
million compared to $267.0 million in the first nine months of 1999, an increase
of 10.0%, primarily due to improved casino revenues at the Orleans, the Gold
Coast and the Barbary Coast as well as the opening of the Suncoast in September.
Operating income was $46.0 million in the nine-month period ended September 30,
2000 compared to $38.3 million in the first nine months of 1999. Operating
income improved at the Orleans, the Gold Coast and the Barbary Coast, but was
partially offset by pre-opening expenses of $5.8 million related to the
Suncoast. Net income was $20.8 million in the first nine months of 2000 compared
to a net loss of $12.5 million in the first nine months of 1999. The loss in
1999 was primarily due to a one-time charge of $27.0 million, net of income tax
benefit, as a result of the early retirement of debt in March 1999. Net income
before the extraordinary charge was $14.5 million in the first nine months of
1999.
Casino. Casino revenues in the quarter ended September 30, 2000 were $73.0
million compared to $64.8 million in 1999, an increase of 12.6% due, in part, to
the opening of the Suncoast in September 2000. Additionally, increased customer
wagering volume in the Gold Coast table games and the Orleans slot machines
contributed to the growth in casino revenues. In the first nine months of 2000,
casino revenues were $215.7 million compared to $195.4 million in the first nine
months of 1999, an increase of 10.4% due, in part, to the opening of the
Suncoast. Additionally, casino revenues improved at the Orleans, the Gold Coast
and the Barbary Coast in the period.
Casino expenses in the quarter ended September 30, 2000 increased by 8.3%,
primarily due to the opening of the Suncoast. The casino operating margin
improved in the third quarter of 2000 to 50.9% compared to 48.9% in the third
quarter of 1999. Year-to-date, casino expenses increased by 6.2% over the first
nine months of 1999 due, in part, to the opening of the Suncoast. Casino
expenses increased at the Orleans and the Gold Coast, in line with increases in
casino revenues. Casino expenses at the Barbary Coast decreased 4.7%. The casino
operating margin improved to 52.2% for the period compared to 50.3% in the prior
year.
Food and Beverage. Food and beverage revenues were $20.3 million in the
quarter ended September 30, 2000 compared to $17.8 million in 1999, an increase
of 14.0%. The increase was primarily due to increased customer volume at the
Orleans and the opening of the Suncoast in September 2000. Year-to-date, food
and beverage revenues were $59.1 million compared to $53.4 million in 1999, an
increase of 10.7%. The increase was attributable to the opening of the Suncoast
and to the opening of two new restaurants in April 2000 at the Orleans.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Results of Operations (Continued)
Food and Beverage (continued)
Food and beverage expenses in the three months ended September 30, 2000
increased by 16.6% over the same period in 1999, primarily due to the opening of
the Suncoast in September 2000 and the opening of two new restaurants at the
Orleans in April 2000. Year-to-date, food and beverage expenses increased by
13.5%, primarily due to the opening of the Suncoast and the two new restaurants
at the Orleans.
Hotel. Hotel room revenues were $8.1 million in the three months ended
September 30, 2000, an increase of 12.5% over 1999 revenues of $7.2 million,
despite a slight decrease in room occupancy percentages that we believe is
attributable to increased competition from three new hotel-casinos opened in
1999 on the Las Vegas Strip. An increase in average daily room rates from $47 in
the third quarter of 1999 to $52 in the third quarter of 2000 contributed to the
increased revenues. Hotel operating margins improved from 51.9% in the third
quarter of 1999 to 55.7% in 2000 as revenues increased and expenses grew only
slightly (3.7%) from the prior year.
In the first nine months of 2000, hotel revenues were $24.6 million compared
to $22.5 million in the same period in 1999, an increase of 9.2%. A slight
decline in occupancy percentages at our hotels was offset by an increase in the
average daily room rates from $52 in the first nine months of 1999 to $59 in the
first nine months of 2000. Hotel operating margins improved to 59.6% in the
first nine months of 2000 compared to 56.9% in the first nine months of 1999,
due to the increased revenues and only a slight (2.4%) increase in expenses.
Other. Other revenues increased 3.8% in the quarter, primarily due to the
opening of the Suncoast. Other expenses in the quarter decreased 5.3%, primarily
due to fewer special events and lower showroom entertainment costs at the
Orleans and the Gold Coast. For the first nine months of 2000, other revenues
increased 1.0% compared to the prior year. Other expenses decreased 4.3%,
primarily due to a decline in entertainers' fees at the Orleans as a result of
fewer nights booked in the showroom.
General and Administrative. General and administrative expenses increased by
$1.2 million (7.3%) to $17.7 million in the third quarter primarily due to the
opening of the Suncoast in September 2000. In the nine months ended September
30, 2000, general and administrative expenses increased $2.4 million (5.1%)
compared to the first nine months of 1999. The increases were due, in part, to
July 1999 wage increases as well as the opening of the Suncoast. Additionally,
an expansion completed in May 2000 at the Orleans resulted in higher utility
costs and increased staffing in several ancillary departments. General and
administrative expenses include cash rent expense of $796,000 and $600,000 in
the third quarters of 2000 and 1999, respectively. Cash rent included in general
and administrative expenses was $2.1 million in the first nine months of 2000
and $2.9 million in the first nine months of 1999. Rent is lower in 2000 because
rent on the Suncoast land was capitalized from July 1999, when construction of
that project commenced, until September 2000, when the Suncoast opened.
Pre-opening Costs. Pre-opening costs related to the development of the
Suncoast were expensed as incurred. These costs were $4.7 million and $5.8
million in the three months and nine months ended September 30, 2000,
respectively. Pre-opening expenses were $78,000 in the third quarter and first
nine months of 1999.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Results of Operations (Continued)
Deferred Rent. Deferred rent in the third quarter of 2000 was $600,000
compared to $519,000 in the third quarter of 1999. Year-to-date, deferred rent
was $1.6 million in 2000 compared to $2.4 million in the first nine months of
1999. The decrease in deferred rent is due to the capitalizing of rent on the
Suncoast land described above.
Depreciation and Amortization. Depreciation and amortization expense was
$5.6 million in the third quarter of 2000 compared to $5.5 million in 1999. In
the nine months ended September 30, 2000, depreciation and amortization expense
was $17.2 million compared to $16.1 million in the nine months ended September
30, 1999. The increases were primarily due to the opening of the Suncoast in
September 2000 as well as the addition of new equipment at each of our other
hotel-casino properties.
Liquidity and Capital Resources
Our principal sources of liquidity have consisted of cash provided by
operating activities and debt financing. Cash provided by operating activities
was $44.6 million in the nine months ended September 30, 2000 compared to $50.1
million in 1999.
Cash used in investing activities in the nine months ended September 30,
2000 was $126.5 million and was primarily for capital expenditures, including
$118.4 million (net of $31.5 million in construction accounts payable) for the
ongoing construction of the Suncoast. Our anticipated capital expenditures for
the remainder of 2000 are $4.7 million for maintenance capital expenditures and
various projects. Cash used in investing activities in the first nine months of
1999 was $28.8 million, primarily for capital expenditures.
Cash provided by financing activities was $103.5 million in the first nine
months of 2000, primarily from borrowings under our $200.0 million line of
credit. Cash provided by financing activities was net of a $1.6 million
repurchase of 15,800 shares of common stock from shareholders in June 2000. In
the first nine months of 1999, cash used in financing activities was $23.2
million, due primarily to a refinancing of our debt. In March 1999, we issued
$175.0 million principal amount of 9.5% senior subordinated notes with interest
payable on April 1 and October 1 beginning October 1, 1999 and entered into a
$75.0 million senior secured revolving credit facility due 2004 to facilitate a
refinancing. Availability under the credit facility was increased to $200.0
million in September 1999. Borrowings under the credit facility bear interest,
at our option, at a premium over the one-, two-, three- or six-month London
Interbank Offered Rate ("LIBOR"). As of September 30, 2000, the interest rate
was 8.62%. We incur a commitment fee, payable quarterly in arrears, on the
unused portion of the credit facility. This variable fee is currently at the
maximum rate of 0.5% per annum times the average unused portion of the facility.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Liquidity and Capital Resources (Continued)
With the proceeds from the senior subordinated notes and borrowings under
the credit facility, we repurchased substantially all of the $175.0 million
principal amount outstanding of 13% first mortgage notes and all $16.8 million
principal amount of 10-7/8% first mortgage notes and amended the indenture under
which the 13% first mortgage notes were issued to eliminate substantially all of
its restrictive covenants. Approximately $2.0 million in principal amount of the
13% first mortgage notes remains outstanding and is governed by the terms of the
amended indenture. We are required by the terms of the indenture for the 9.5%
senior subordinated notes to redeem the 13% first mortgage notes that remain
outstanding no later than December 15, 2000 at a redemption price of 106.5% of
the principal amount, plus any accrued and unpaid interest. In connection with
the repurchase of the 13% notes and the 10-7/8% notes, we incurred repurchase
premiums of $31.0 million and $2.1 million, respectively. The repurchase
premiums and the write-offs of unamortized debt issuance costs and original
issue discount resulted in an extraordinary loss of $27.0 million, net of
applicable income tax benefit of $14.5 million.
The availability under the $200.0 million credit facility will be reduced in
quarterly amounts beginning in the fiscal quarter ending September 30, 2001. The
initial advance of $47.0 million under the credit facility was used in
connection with the repurchase of the 13% first mortgage notes and the 10-7/8%
first mortgage notes. Subsequent advances under the credit facility may be used
for working capital, general corporate purposes, construction of the Suncoast,
and certain improvements to our existing properties. As of September 30, 2000,
we had $160.5 million outstanding under the $200.0 million credit facility.
We believe that existing cash balances, operating cash flow and available
borrowings under the $200.0 million credit facility will provide sufficient
resources to meet our debt and lease payment obligations, foreseeable capital
expenditure requirements and the balance of the construction, development and
opening costs of the Suncoast.
Forward-Looking Statements
Certain statements in this section and elsewhere in this Quarterly Report on
Form 10-Q (as well as information included in oral statements or other
statements made or to be made by us) constitute "forward-looking statements".
Such forward-looking statements include the discussions of our business
strategies and expectations concerning future operations, margins,
profitability, liquidity and capital resources. In addition, in certain portions
of this 10-Q, the words: "anticipates", "believes", "estimates", "seeks",
"expects", "plans", "intends" and similar expressions, as they relate to Coast
Hotels or our management, are intended to identify forward-looking statements.
Although we believe that such forward-looking statements are reasonable, we can
give no assurance that any forward-looking statements will prove to be correct.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors, which may cause the actual results, performance or
achievements of Coast Hotels to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the risks associated with
entering into a new venture and new construction, competition and other planned
construction in Las Vegas, government regulation related to the casino industry
(including the regulation of gaming in certain jurisdictions, such as Native
American reservations in the State of California), leverage and debt service
(including sensitivity to fluctuations in interest rates), occupancy rates and
average daily room rates in Las Vegas, the completion of infrastructure projects
in Las Vegas and general economic and business conditions which may impact
levels of disposable income of consumers and pricing of hotel rooms.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Market risk is the risk of loss arising from adverse changes in market rates
and prices, such as interest rates, foreign currency exchange rates and
commodity prices. Our primary exposure to market risk is interest rate risk
associated with the debt under our credit facility. To date, we have not
invested in derivative- or foreign currency-based financial instruments. We
attempt to limit our exposure to interest rate risk by managing the mix of our
long-term fixed-rate borrowings and short-term borrowings under our revolving
bank credit facility.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits.
27. Financial Data Schedule.
(b) Reports on Form 8-K.
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on
its behalf by the undersigned thereunto duly authorized.
Date: November 14, 2000 COAST RESORTS, INC., a Nevada corporation
By: /s/ Gage Parrish..
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Gage Parrish
Vice President and
Chief Financial Officer
