<PAGE>
GD&C DRAFT DATED AUGUST 9, 1996
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934
For the Quarterly Period Ended June 30, 1996
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from _________________ to _________________
Commission file number 333-4356
COAST HOTELS AND CASINOS, INC.
(Exact name of registrant as specified in its charter)
NEVADA 88-0345706
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification number)
4000 WEST FLAMINGO ROAD, LAS VEGAS, NEVADA 89103
(Address of principal executive offices) (Zip code)
(702) 367-7111
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Shares of Common Stock outstanding as of August 1, 1996: 1,000
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
COAST HOTELS AND CASINOS, INC.
(A Wholly Owned Subsidiary of Coast Resorts, Inc.)
CONDENSED BALANCE SHEETS
(amounts in thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 22,299 $ 14,539
Restricted cash equivalents, in escrow account 11,164 -
Accounts receivable, net 2,122 1,990
Other current assets 8,961 6,506
-------- --------
TOTAL CURRENT ASSETS 44,546 23,035
PROPERTY AND EQUIPMENT, net 103,534 105,188
CONSTRUCTION IN PROGRESS, ORLEANS PROJECT 61,861 19,824
RESTRICTED CASH EQUIVALENTS, IN ESCROW ACCOUNT 79,973 -
OTHER ASSETS 9,799 4,169
-------- --------
$299,713 $152,216
======== ========
LIABILITIES AND
STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,767 $ 8,389
Accrued liabilities 18,789 14,426
Current portion of long-term debt 589 1,591
-------- --------
TOTAL CURRENT LIABILITIES 23,145 24,406
-------- --------
LONG-TERM DEBT, less current portion 171,924 83,357
-------- --------
DEFERRED RENT 1,848 1,119
-------- --------
OTHER LIABILITIES 2,500 -
-------- --------
STOCKHOLDER'S EQUITY:
Common Stock, $1.00 par value, 25,000 shares authorized,
1,000 shares issued and outstanding 1 1
Additional paid - in capital 95,858 38,239
Retained earnings 4,437 5,094
-------- --------
TOTAL STOCKHOLDER'S EQUITY 100,296 43,334
-------- --------
$299,713 $152,216
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
2
<PAGE>
COAST HOTELS AND CASINOS, INC.
(A Wholly Owned Subsidiary of Coast Resorts, Inc.)
CONDENSED STATEMENTS OF INCOME
For the Three Months and Six Months Ended June 30, 1996 and 1995
(amounts in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Casino $35,380 $30,878 $ 71,300 $61,812
Food and beverage 9,510 9,594 19,389 19,208
Hotel 3,496 3,280 7,017 6,511
Other 2,463 2,233 4,914 4,622
------- ------- -------- -------
GROSS REVENUES 50,849 45,985 102,620 92,153
Less: promotional allowances (4,061) (4,044) (8,420) (8,014)
------- ------- -------- -------
NET REVENUES 46,788 41,941 94,200 84,139
------- ------- -------- -------
OPERATING EXPENSES:
Casino 16,903 16,636 33,842 33,220
Food and beverage 7,268 7,979 14,672 16,501
Hotel 1,806 1,737 3,485 3,366
Other 1,827 2,098 3,698 4,174
General and administrative 9,431 8,465 18,712 16,735
Development expenses - - - -
Depreciation and amortization 1,861 1,835 3,622 3,574
------- ------- -------- -------
TOTAL OPERATING EXPENSES 39,096 38,750 78,031 77,570
------- ------- -------- -------
OPERATING INCOME 7,692 3,191 16,169 6,569
------- ------- -------- -------
OTHER INCOME (EXPENSES)
Interest expense (5,870) (632) (10,177) (1,012)
Interest income 1,484 5 2,447 75
Interest capitalized 1,530 - 2,231 -
Gain on sale of equipment and securities 2 11 2 68
------- ------- -------- -------
TOTAL OTHER INCOME (EXPENSES) (2,854) (616) (5,497) (869)
------- ------- -------- -------
INCOME BEFORE INCOME TAX PROVISION 4,838 2,575 10,672 5,700
------- ------- -------- -------
INCOME TAX PROVISION 1,693 - 6,235 -
------- ------- -------- -------
NET INCOME $ 3,145 $ 2,575 $ 4,437 $ 5,700
======= ======= ======== =======
PRO FORMA DATA (reflecting reorganization
and change in tax status):
Provision for income taxes 1,693 901 3,735 1,995
------- ------- -------- -------
Net income $ 3,145 $ 1,674 $ 6,937 $ 3,705
======= ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
3
<PAGE>
COAST HOTELS AND CASINOS, INC.
(A Wholly Owned Subsidiary of Coast Resorts, Inc.)
CONDENSED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 1996 and 1995
(amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, 1996 June 30, 1995
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,437 $ 5,700
--------- --------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization 3,622 3,574
Amortization of original issue discount 217 -
Provision for bad debts 1,068 294
Deferred income taxes 2,500 -
(Gain) loss on sale of assets (2) (68)
Changes in assets and liabilities:
Net (increase) decrease in accounts receivable
and other current assets (2,196) (615)
(Increase) decrease in other assets 193 194
Increase (decrease) in operating liabilities:
Net increase (decrease) in accounts payable
and other accrued expenses 1,135 (4,054)
--------- --------
TOTAL ADJUSTMENTS 6,537 (675)
--------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 10,974 5,025
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (42,793) (10,847)
Proceeds from sale of equipment and securities 20 153
Net additions to restricted cash equivalents,
in escrow accounts (91,137) -
--------- --------
NET CASH USED BY INVESTING ACTIVITIES (133,910) (10,694)
--------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt,
net of discounts and commissions 164,124 3,000
Principal payments on long-term debt (1,082) (1,300)
Proceeds from borrowings under bank line of credit 1,045 6,600
Principal payments on bank line of credit (29,200) (1,500)
Principal payments on capital lease (99) (46)
Payments for debt issue costs (1,236) -
Advances (to) from affiliates (2,856) -
Distributions to former partners - (8,661)
--------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 130,696 (1,907)
--------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7,760 (7,576)
CASH AND CASH EQUIVALENTS, at beginning of year 14,539 16,967
--------- --------
CASH AND CASH EQUIVALENTS, at end of period $ 22,299 $ 9,391
========= ========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
4
<PAGE>
COAST HOTELS AND CASINOS, INC.
(A Wholly Owned Subsidiary of Coast Resorts, Inc.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1 - BACKGROUND INFORMATION AND BASIS OF PRESENTATION
Background Information
Coast Hotels and Casinos, Inc., a Nevada corporation (the "Company"), owns
and operates two hotel-casinos located in Las Vegas the Gold Coast Hotel and
Casino (the "Gold Coast") and the Barbary Coast Hotel and Casino (the "Barbary
Coast"), and is in the process of constructing a third hotel-casino in Las
Vegas, The Orleans Hotel and Casino ("The Orleans"). The Company is a wholly
owned subsidiary of Coast Resorts, Inc., a Nevada corporation ("Coast Resorts").
Coast Resorts also has another wholly owned subsidiary, Coast West, Inc. ("Coast
West"), which has no operations but which holds a long-term lease (the "Coast
West Lease") on approximately fifty acres of land in Las Vegas on which Coast
West may develop and operate a future hotel-casino.
The Gold Coast and the Barbary Coast had previously been owned and operated
independently by two partnerships, Gold Coast Hotel and Casino, a Nevada limited
partnership, and Barbary Coast Hotel and Casino, a Nevada partnership,
respectively (collectively, the "Predecessor Partnerships"). On January 1,
1996, the partners of the Predecessor Partnerships completed a reorganization
(the "Reorganization") with Coast Resorts, which was formed in September 1995
for the purpose of effecting the Reorganization. Coast Resorts and the
Predecessor Partnerships were all related through common ownership and
management control.
In the Reorganization, the partners of the Predecessor Partnerships each
transferred to Coast Resorts their respective partnership interests in the
Predecessor Partnerships in exchange for an aggregate of 1,000,000 shares of
common stock, par value $.01 per share, of Coast Resorts ("Coast Resorts Common
Stock"). Coast Resorts immediately contributed to the Company all of the assets
and liabilities of the Predecessor Partnerships other than those relating to the
Coast West Lease, which Coast Resorts contributed to Coast West. Coast Resorts
retained the liability for an aggregate principal amount of $51.0 million in
notes payable to former partners and retained the liability for $1.5 million
relating to demand notes due to a related party (the "Exchange Liabilities").
On January 16, 1996, the Exchange Liabilities were exchanged for 494,353 shares
of Coast Resorts Common Stock, based upon management's estimate of the fair
market value of such Coast Resorts Common Stock.
Basis of Presentation
Prior to the Reorganization, the Gold Coast and the Barbary Coast hotel-
casinos historically operated under a high degree of common control. The former
Managing General Partner of the Gold Coast Hotel and Casino was also a general
partner, and the principal manager, of the Barbary Coast Hotel and Casino. Due
to common control of the Predecessor Partnerships and the continuation of
ownership by the former partners, the Reorganization was accounted for as a
reorganization of entities under common control. Accordingly, the 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 accompanying financial statements reflect the Exchange Liabilities as
obligations of the Company at December 31, 1995, as the exchange for Coast
Resorts Common Stock had not yet occurred. The exchange was accounted for
subsequent to the completion of the Reorganization, through the issuance of
Coast Resorts Common Stock in the approximate amount of $52.5 million reflecting
the historical cost basis of the Exchange Liabilities.
The accompanying financial statements are unaudited and have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. The unaudited
financial statements should be read in conjunction with the audited financial
statements and footnotes for the year ended December 31, 1995. In the opinion
of management, all adjustments and normal recurring accruals considered
necessary for a fair presentation of the results for the interim period have
been included. The interim results reflected in the unaudited financial
statements are not necessarily indicative of expected results for the full year.
5
<PAGE>
COAST HOTELS AND CASINOS, INC.
(A Wholly Owned Subsidiary of Coast Resorts, Inc.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 2 - THE ORLEANS CONSTRUCTION COMMITMENTS
During 1995, the Company commenced construction of The Orleans. The plans
for The Orleans have been developed with a theme of the French Quarter in New
Orleans, and include an approximately 92,000 square foot casino, 840 hotel
rooms, a 70-lane bowling center and five restaurants. The Orleans has a revised
construction and development budget of approximately $172.6 million; including
contingencies but excluding capitalized interest, pre-opening expenditures, and
opening bankroll. In January 1996, the Company entered into a guaranteed maximum
price contract for the construction of the buildings and site improvements.
During the course of construction, the Company has elected to upgrade and
improve the quality of furnishings, systems and materials and to position The
Orleans for future expansion. The Company also made certain changes designed to
enhance the overall experience of The Orleans. Such changes include the addition
of an Italian restaurant and improvements to the ballroom to allow it to be used
for live entertainment and to permit greater flexibility in the types of events
for which it may be used. Changes to the original budget have been made
primarily to accommodate quality enhancements in the project and changes in the
scope of the project, as well as increased architectural and design fees and
other costs resulting from additional pending and anticipated change orders and
modifications. Such project enhancements, changes and modifications are expected
to result in change orders for (and have a budget allocation of) an additional
$12.5 million under the construction contract and a corresponding increase in
the guaranteed maximum price under the construction contract to $112.5 million
in accordance with the terms of the construction contract and the related
disbursement agreement. The balance of the increase in the revised budget of
approximately $2.0 million is expected to be allocated to increased
architectural and design fees and to the budget for furniture, fixtures,
equipment, additional signage and certain interior and other improvements. As of
June 30, 1996, the Company had paid approximately $55.7 million of construction
and development costs, including approximately $48.8 million that is subject to
the construction contract, approximately $4.6 million of architectural and
design fees and approximately $2.3 million of other construction and development
costs.
NOTE 3 - INCOME TAXES
Prior to the Reorganization, the Company operated as individual
partnerships which did not pay federal income taxes. The partners of the
Predecessor Partnerships were taxed on their proportionate share of each of
their respective partnership's taxable income or loss. Effective January 1,
1996 and in connection with the Reorganization, the Predecessor Partnerships
were terminated. The change in status to a "C" corporation resulted in the
recognition of net deferred tax liabilities, and a corresponding charge to
earnings through the income tax provision of approximately $2.5 million for the
six months ended March 31, 1996. In addition, upon termination of the
partnership tax status on January 1, 1996, all undistributed earnings of the
Predecessor Partnerships were reclassified to paid-in-capital.
The income statements for the quarter ended June 30, 1995 and six months
ended June 30, 1995 do not include any provision or liability for corporate
income taxes due to the partnership status. The pro forma provision for income
taxes and the related pro forma net income reflect adjustments to income taxes
assuming that the change in corporate income tax status occurred as of January
1, 1995.
NOTE 4 - PRIVATE PLACEMENT FINANCING
On January 30, 1996, the Company completed a private placement offering of
$175.0 million principal amount of 13% First Mortgage Notes Due December 15,
2002 (the "First Mortgage Notes"). Interest on the First Mortgage Notes is
payable semi-annually commencing June 15, 1996. The First Mortgage Notes are
unconditionally guaranteed by Coast Resorts, Coast West and certain future
subsidiaries of the Company. 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 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 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 its revolving credit facility, which was
terminated upon repayment. The balance of approximately $800,000 was used to
pay, in part, the offering expenses of approximately $2.4 million.
NOTE 5 - ADVANCES TO COAST WEST
The Company has agreed to provide advances to Coast West sufficient to make
payments on the Coast West Lease and other obligations. The Coast West Lease
relates to 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 purchase price commitment ranges from approximately $31.0 million
to approximately $51.0 million in the years 2014 through 2018. As of June 30,
1996, the Company had advanced Coast West approximately $1.5 million related to
the Coast West Lease. 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 the Company. 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 the Company. Accordingly, the Company has recorded an allowance
for doubtful accounts in an amount equal to advances provided.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Coast Hotels was formed in 1995 as a wholly owned subsidiary of Coast
Resorts to own and operate the Gold Coast Hotel and Casino (the "Gold Coast")
and the Barbary Coast Hotel and Casino (the "Barbary Coast"), which are two Las
Vegas hotel-casinos previously owned by two partnerships, Gold Coast Hotel and
Casino, a Nevada general partnership, and Barbary Coast Hotel and Casino, a
Nevada limited partnership, and to develop and construct The Orleans Hotel and
Casinos ("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 various entertainment amenities to maximize
customer visitation to its casinos, thereby enhancing casino revenues. The
Company expects to maintain a pricing structure for non-gaming amenities at the
Gold Coast and the Barbary Coast that is competitive with comparable casinos in
their respective markets. For the three months ended June 30, 1996, casinos
revenues for the Gold Coast and the Barbary Coast accounted for approximately
74.2% and 79.8%, respectively of total revenues, and for the six months ended
June 30, 1996, 74.4% and 79.5%, respectively of total revenues.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
financial information regarding the results of operations of the Company:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET REVENUES:
Gold Coast............................ $35,055 $31,824 $70,768 $63,724
Barbary Coast......................... 11,733 10,117 23,432 20,415
------- ------- ------- -------
$46,788 $41,941 $94,200 $84,139
======= ======= ======= =======
OPERATING INCOME:
Gold Coast............................ $ 7,727 $ 4,104 $16,317 $ 7,764
Barbary Coast......................... 1,260 (913) 2,224 (1,195)
Corporate Expenses.................... (1,295) - (2,372) -
------- ------- ------- -------
$ 7,692 $ 3,191 $16,169 $ 6,569
======= ======= ======= =======
</TABLE>
Three Months Ended June 30, 1996 Compared to Three Months Ended June 30, 1995
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Net revenues for the Company were $46.8 million in the quarter ended June
30, 1996 compared to $41.9 million in the same quarter in 1995, an increase of
$4.9 million (11.6%), and were $94.2 million in the six months ended June 30,
1996 compared to $84.1 million for the same period in 1995, an increase of $10.1
million (12.0%). (Percentages are actual and are not adjusted for rounding.) The
increased revenues were primarily due to stronger gaming revenues at the
Company's two hotel-casinos, as well as to increased hotel revenues. Operating
income was $7.7 million for the quarter ended June 30, 1996, compared to $3.2
million in 1995, an increase of 141.1%, and $16.2 million for the six month
period ended June 30, 1996, compared to $6.6 million in 1995, an increase of
146.1%, primarily due to the increased revenues discussed above. Food and
beverage expenses decreased by $711,000 (8.9%) in the three months ended June
30, 1996, compared to the second quarter in 1995, and by $1.8 million (11.1%) in
the six months ended June 30, 1996, compared to the same period in 1995,
primarily due to a decrease in cost of sales in the restaurants as a result of
lower wholesale food prices and fewer meals served. General and administrative
expenses increased $966,000 (11.4%) from second quarter 1995 to 1996, and $2.0
million (11.8%) from the six months ended June 30, 1995 compared to the same
period in 1996, primarily due to an increase in corporate salaries and the
addition of an incentive bonus program.
7
<PAGE>
Net income was $3.1 million for the second quarter of 1996, compared to
$2.6 million in 1995 and $4.4 million for the first half of 1996, compared to
$5.7 million in 1995. The decrease in the first half of 1996 was primarily due
to the provision for income tax, including a one-time charge of $2.5 million in
1996 for temporary differences as a result of a change in tax status from
partnerships to a corporation on January 1, 1996 ( See Note 3 of Notes to
Condensed Consolidated Financial Statements), as well as an increase in net
interest attributable to $175.0 million principal amount of first mortgage notes
issued in January 1996 (the "First Mortgage Notes").
Gold Coast. Net revenues at the Gold Coast were $35.1 million for the
quarter ended June 30, 1996, an increase of $3.3 million (10.2%) over 1995
second quarter revenues of $31.8 million and were $70.8 million for the six
months ended June 30, 1996, an increase of $7.1 million (11.1%) over 1995
revenues of $63.7 million. Gaming revenues were $26.0 million for the 1996
second quarter, an increase of $3.1 million (13.7%) compared to $22.9 million in
the same period in 1995, and for the six months ended June 30, 1996 were $52.7
million, an increase of $7.1 million (15.6%) compared to $45.6 million the same
period in 1995. The increase was primarily due to the positive effects of an
upgrade of slot equipment completed in December 1995. Hotel revenues for second
quarter 1996 were $2.5 million, an increase of 5.2% over second quarter 1995
hotel revenues of $2.4 million, and for the six months ended June 30, 1996 were
$5.0 million, an increase of 5.5% over six month 1995 hotel revenues of $4.8
million, due to higher occupancy rates. Operating income was $7.7 million for
the second quarter of 1996 compared to $4.1 million in 1995, an increase of $3.6
million (88.3%) and was $16.3 million for the first half of 1996 compared to
$7.8 million in 1995, an increase of $8.5 million (110.2%). In addition to the
increased revenues discussed above, total operating expenses for second quarter
1996 decreased $392,000 (1.4%) to $27.3 million compared to $27.7 million in
1995, and for the six months ended June 30, 1996 decreased $1.5 million (2.7%)
to $54.5 million compared to $56.0 million in 1995. Food and beverage expenses
accounted for most of the reduction, decreasing $755,000 (11.6%) to $5.8 million
in the second quarter of 1996 compared to 1995, and decreasing $1.8 million
(13.5%) to $11.7 million in the first half of 1996 due to lower cost of sales in
the restaurants as a result of lower wholesale food prices and fewer meals
served.
Barbary Coast. Net revenues at the Barbary Coast were $11.7 million in the
quarter ended June 30, 1996, an increase of $1.6 million (16.0%) over 1995
second quarter revenues of $10.1 million, and were $23.4 million in the six
months ended June 30, 1996, an increase of $3.0 million (14.8%) over 1995
revenues of $20.4 million in the same period. Gaming revenues increased 17.1%
to $9.4 million in the second quarter of 1996 compared to $8.0 million in the
same period in 1995, primarily due to a higher table game win percentage (i.e.
table games revenues (win) as a percentage of table game drop). Gaming revenues
increased 14.6% to $18.6 million in the first half of 1996 compared to $16.3
million in 1995, primarily due to increases in the sports book and race book
wagering volume. Operating income was $1.3 million for the second quarter of
1996 compared to a loss of $913,000 in 1995, and was $2.2 million for the first
half of 1996 compared to a loss of $1.2 million in 1995, primarily due to the
increased revenues discussed above. Operating expenses were $10.5 million in
the second quarter of 1996 compared to $11.0 million in 1995, a decrease of
$557,000 (5.0%), and were $21.2 million in the second half of 1996 compared to
$21.6 million in 1995, a decrease of $402,000 (1.9%), primarily due to lower
casino wages and benefits as a result of a staffing reduction and the
elimination of the Keno department.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity have consisted of cash
provided by operating activities and, until termination of its revolving credit
facility in January 1996, bank financing. In connection with the reorganization
in which the Barbary Coast Hotel and Casino and the Gold Coast Hotel and Casino
were combined with Coast Resorts, Coast Resorts exchanged shares of common
stock, par value $.01 per share, of Coast Resorts for approximately $52.5
million principal amount of notes payable to certain shareholders of Coast
Resorts, resulting in a reduced debt service. See Note 1 to Notes to Condensed
Financial Statements.
On January 30, 1996, the Company issued $175.0 million principal amount of
First Mortgage Notes to finance, in part, the development construction,
equipping and opening of The Orleans. The net proceeds from the issuance, after
deducting discounts and commissions, were approximately $164.1 million. Of that
amount, (i) approximately $114.8 million was deposited in a construction
disbursement account for use by the Company to finance in part 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 its 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,
8
<PAGE>
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 (up to maximum of $8.0 million
in the aggregate) for rent on land held for possible future development
estimated to be at least approximately $2.1 million annually, and debt service
unrelated to the First Mortgage Notes estimated to be approximately $500,000 in
1996. Prior to the Reorganization, a primary use of cash also included
distributions to the partners of the Gold Coast Partnership and the Barbary
Coast Partnership, which were separate partnerships that did not pay income
taxes. The Company does not expect to make regular cash dividends to its
shareholders in the future, and instead intends to retain future earnings (after
payment of corporate income taxes) for reinvestment in the Company's business.
The Company expects to satisfy the costs of developing, constructing,
equipping and opening The Orleans with the proceeds from the issuance of the
First Mortgage Notes, approximately $30.0 million of anticipated equipment
financing and an anticipated $23.0 million of cash from operations at the Gold
Coast and Barbary Coast. Taking into account the anticipated use of cash from
operations for the construction of The Orleans, the Company expects that excess
cash from Coast Hotel's two existing properties will be sufficient to satisfy
the Company's consolidated cash requirements other than costs related to the
development, construction, equipping, and opening The Orleans. Subsequent to
the commencement of operations of The Orleans, the Company expects that cash
generated from the operations of Coast Hotels will be sufficient to satisfy
consolidated cash requirements, including debt service on the First Mortgage
Notes subsequent to December 15, 1996, although no assurance can be given to
that effect. The Company does not expect to make regular cash dividends in the
future.
9
<PAGE>
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.
---------------------------------------------------
None.
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.
There were no reports filed on Form 8-K during the three months
ended June 30, 1996.
10
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on
its behalf by the undersigned thereunto duly authorized.
Date: August 14, 1996 COAST HOTELS AND CASINOS, INC., a Nevada
corporation
By: /s/ Gage Parrish
--------------------------------------
Gage Parrish
Vice President and
Chief Financial Officer
11
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> JUN-30-1996
<CASH> 33,463
<SECURITIES> 0
<RECEIVABLES> 2,122
<ALLOWANCES> 0
<INVENTORY> 3,948
<CURRENT-ASSETS> 44,546
<PP&E> 230,773
<DEPRECIATION> 65,378
<TOTAL-ASSETS> 299,713
<CURRENT-LIABILITIES> 23,145
<BONDS> 171,924
0
0
<COMMON> 1
<OTHER-SE> 100,295
<TOTAL-LIABILITY-AND-EQUITY> 299,713
<SALES> 0
<TOTAL-REVENUES> 94,200
<CGS> 0
<TOTAL-COSTS> 55,697
<OTHER-EXPENSES> 22,334
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,177
<INCOME-PRETAX> 10,672
<INCOME-TAX> 6,235
<INCOME-CONTINUING> 4,437
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,437
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
