--------------------------------------------------------------------------------
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, 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 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)
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 August 14, 2000: 1,000
--------------------------------------------------------------------------------
<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)
June 30, December 31,
2000 1999
(unaudited)
----------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................... $ 28,280 $ 38,616
Accounts receivable, net....................... 4,339 4,212
Due from Coast Resorts......................... 3,588 2,863
Other current assets........................... 17,860 16,126
---------- ----------
TOTAL CURRENT ASSETS........................... 54,067 61,817
PROPERTY AND EQUIPMENT, net....................... 408,708 337,704
OTHER ASSETS...................................... 10,072 8,652
---------- ----------
$ 472,847 $ 408,173
========== ==========
LIABILITIES AND
STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable............................... $ 9,470 $ 11,738
Accrued liabilities............................ 32,939 32,781
Construction accounts payable.................. 11,998 8,304
Current portion of long-term debt.............. 5,515 2,473
---------- ----------
TOTAL CURRENT LIABILITIES...................... 59,922 55,296
LONG-TERM DEBT, less current portion.............. 274,974 234,766
DEFERRED INCOME TAXES............................. 4,601 4,222
DEFERRED RENT..................................... 18,531 16,732
---------- ----------
TOTAL LIABILITIES.............................. 358,028 311,016
---------- ----------
COMMITMENTS AND CONTINGENCIES
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..................... 86,903 86,903
Retained earnings.............................. 27,915 10,253
---------- ----------
TOTAL STOCKHOLDER'S EQUITY..................... 114,819 97,157
---------- ----------
$ 472,847 $ 408,173
========== ==========
The accompanying notes are an integral part of these condensed financial
statements.
1
<PAGE>
COAST HOTELS AND CASINOS, INC.
(A Wholly Owned Subsidiary of Coast Resorts, Inc.)
CONDENSED STATEMENTS OF OPERATIONS
For the Three Months and Six Months Ended June 30, 2000 and 1999
(amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Casino......................... $ 68,742 $ 64,564 $ 142,766 $ 130,622
Food and beverage ............. 19,104 17,812 38,808 35,586
Hotel.......................... 8,192 7,455 16,506 15,333
Other.......................... 7,205 7,148 14,126 14,194
--------- -------- --------- ---------
GROSS OPERATING REVENUES..... 103,243 96,979 212,206 195,735
Less: promotional allowances.. (8,729) (8,421) (18,093) (17,111)
--------- -------- --------- ---------
NET OPERATING REVENUES....... 94,514 88,558 194,113 178,624
--------- -------- --------- ---------
OPERATING EXPENSES:
Casino......................... 33,467 32,052 67,363 64,097
Food and beverage.............. 13,964 12,654 27,310 24,430
Hotel.......................... 3,198 3,214 6,363 6,255
Other.......................... 5,913 5,978 11,505 11,947
General and administrative..... 15,939 15,567 32,221 30,991
Pre-opening expenses........... 874 -- 1,142 --
Deferred rent.................. 519 914 1,039 1,879
Depreciation and amortization.. 5,477 5,318 10,988 10,528
--------- -------- --------- ---------
TOTAL OPERATING EXPENSES...... 79,351 75,697 157,931 150,127
--------- -------- --------- ---------
OPERATING INCOME.................. 15,163 12,861 36,182 28,497
--------- -------- --------- ---------
OTHER INCOME (EXPENSES)
Interest expense, net.......... (6,199) (5,186) (11,937) (11,486)
Interest capitalized........... 1,865 -- 2,835 --
Gain on disposal of assets..... 8 14 8 14
--------- -------- --------- ---------
TOTAL OTHER INCOME (EXPENSES)..... (4,326) (5,172) (9,094) (11,472)
--------- -------- --------- ---------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM................ 10,837 7,689 27,088 17,025
--------- -------- --------- ---------
Income tax provision.............. 3,817 2,963 9,426 5,976
--------- -------- --------- ---------
INCOME BEFORE EXTRAORDINARY ITEM.. 7,020 4,726 17,662 11,049
--------- -------- --------- ---------
Extraordinary item - loss on early
retirement of debt, net of
applicable income tax benefit
($14,543)........................ -- -- -- (27,007)
--------- -------- --------- ---------
NET INCOME (LOSS)................. $ 7,020 $ 4,726 $ 17,662 $ (15,958)
========= ======== ========= =========
</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 CASH FLOWS
For the Six Months Ended June 30, 2000 and 1999
(amounts in thousands)
(unaudited)
Six Months Ended
June 30,
----------------------
2000 1999
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................. $ 17,662 $ (15,958)
--------- ---------
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization.................... 10,988 10,528
Amortization of debt offering costs.............. 526 --
Deferred income taxes............................ 54 (4,975)
Deferred rent.................................... 1,799 1,879
Loss on early retirement of debt................. -- 41,550
Other non-cash expenses.......................... 57 300
Changes in assets and liabilities:
Net increase in accounts receivable and other
assets......................................... (3,895) (3,402)
Net increase (decrease) in accounts payable and
accrued liabilities............................ (2,110) 4,867
--------- ---------
TOTAL ADJUSTMENTS.................................. 7,419 50,747
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES.......... 25,081 34,789
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net of amounts in accounts
payable........................................... (77,993) (17,924)
Proceeds from disposal of assets................... 51 18
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES.............. (77,942) (17,906)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt, net of
issuance costs.................................... -- 167,960
Early retirement of debt........................... -- (223,017)
Principal payments on long-term debt............... (350) (15,388)
Proceeds from borrowings under bank line of credit. 43,600 59,000
Repayments of borrowings under bank line of credit. -- (10,000)
Advances to Coast Resorts.......................... (725) (5,924)
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES........................................ 42,525 (27,369)
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS............. (10,336) (10,486)
CASH AND CASH EQUIVALENTS, at beginning of period..... 38,616 41,595
--------- ---------
CASH AND CASH EQUIVALENTS, at end of period........... $ 28,280 $ 31,109
========= =========
The accompanying notes are an integral part of these condensed financial
statements.
3
<PAGE>
COAST HOTELS AND CASINOS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1 - BACKGROUND INFORMATION AND BASIS OF PRESENTATION
Background Information
Coast Hotels and Casinos, Inc. ("Coast Hotels" or the "Company") is a Nevada
corporation and a wholly owned subsidiary of Coast Resorts, Inc. ("Coast
Resorts"), which is also a Nevada corporation. Coast Hotels owns and operates
three Las Vegas hotel-casinos and is developing a fourth.
o The Orleans Hotel and Casino, 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, 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, opened in March 1979, is located
on the Las Vegas Strip.
o On July 1, 1999, we began construction of the Suncoast Hotel and
Casino near Summerlin in the west end of the Las Vegas valley. The
Suncoast, with a construction budget of $185 million, is expected to
open in September 2000.
Basis of Presentation
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. In addition,
certain amounts in the 1999 financial statements have been reclassified to
conform to the 2000 presentation. The unaudited financial statements should be
read in conjunction with the audited 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 financial
statements are not necessarily indicative of expected results for the full year.
4
<PAGE>
COAST HOTELS AND CASINOS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 2 - LONG-TERM DEBT
Long-term debt consists of the following as of June 30, 2000 and December
31, 1999:
June 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................................. 98,600 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........... 2,293 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 the former
partners of Barbary Coast and Gold Coast......... 1,975 1,975
Other notes payable............................... 661 851
---------- ----------
280,489 237,239
Less: current portion............................. 5,515 2,473
---------- ----------
$ 274,974 $ 234,766
========== ==========
5
<PAGE>
COAST HOTELS AND CASINOS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 2 - LONG-TERM DEBT (Continued)
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. Coast Resorts
is a guarantor of the indebtedness under both of these debt agreements.
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 June 30, 2000 the interest rate was 8.40%. 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.
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 outstanding 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 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, 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 in the six months ended June
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 June 30, 2000, we had $98.6
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
or make advances to Coast Resorts, to make certain capital expenditures, to
repay certain existing indebtedness, to incur additional indebtedness or to sell
material assets. Additionally, the loan agreement requires that we maintain
certain financial ratios with respect to 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 June 30, 2000, we were in
compliance with all covenants and required ratios.
6
<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:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------------------
2000 1999 2000 1999
------------------------------------------------
(in thousands) (in thousands)
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Hotel-casino operations:
Net operating revenues................. $ 94,514 $ 88,558 $194,113 $178,624
Operating expenses..................... 78,380 73,556 155,440 145,330
-------- -------- -------- --------
Operating income from hotel-casino
operations.............................. 16,134 15,002 38,673 33,294
Corporate expenses (1).................... 971 2,141 2,491 4,797
-------- -------- -------- --------
Total operating income.................... $ 15,163 $ 12,861 $ 36,182 $ 28,497
======== ======== ======== ========
EBITDA, hotel-casino operations (2)....... $ 22,922 $ 20,596 $ 51,590 $ 44,335
======== ======== ======== ========
EBITDA, total (including corporate) (2)... $ 22,033 $ 19,093 $ 49,351 $ 40,904
======== ======== ======== ========
</TABLE>
(1) Corporate expenses include corporate general and administrative expenses,
depreciation and amortization and, prior to July 1, 1999, land lease
expenses, both cash and deferred, on the Suncoast land. Suncoast land lease
expenses subsequent to July 1, 1999, the date we commenced construction of
the Suncoast, are being capitalized during construction.
(2) "EBITDA" means earnings before interest, taxes, depreciation, amortization,
deferred (non-cash) rent expense and certain non-recurring items, including
pre-opening expenses. 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. 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.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Results of Operations (Continued)
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999
and Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
Net revenues in the quarter ended June 30, 2000 were $94.5 million compared
to $88.6 million in the same quarter in 1999, an increase of 6.7%, primarily due
to improved casino revenues at each of our hotel-casinos. Revenues were higher
at all three of our hotel-casino properties. Second quarter operating income was
$15.2 million compared to 1999 second quarter operating income of $12.9 million,
an increase of 17.9%. Operating income improvements at each of our three
existing hotel-casinos were partially offset by $874,000 of pre-opening expenses
related to our newest hotel-casino, the Suncoast, which is expected to open in
the fall of 2000. Net income improved to $7.0 million in the second quarter of
2000, compared to net income of $4.7 million in the second quarter of 1999.
In the six months ended June 30, 2000, net revenues were $194.1 million
compared to $178.6 million in the first six months of 1999, an increase of 8.7%,
primarily due to improved casino revenues at each of our hotel-casinos.
Operating income was $36.2 million in the six-month period ended June 30, 2000
compared to $28.5 million in the first six months of 1999. Operating income
improved at each of our three existing hotel-casinos, but was partially offset
by pre-opening expenses of $1.1 million related to the Suncoast. Net income was
$17.7 million in the first six months of 2000 compared to a net loss of $16.0
million in the first six months of 1999. The loss in the first half of 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 $11.0 million in the first six months of 1999.
Casino. Casino revenues in the quarter ended June 30, 2000 were $68.7
million compared to $64.6 million in 1999, an increase of 6.5%. Casino revenues
improved at all three of our hotel-casinos, primarily due to improved customer
wagering volume in our table games and slot machine areas. In the first six
months of 2000, casino revenues were $142.8 million compared to $130.6 million
in the first six months of 1999, an increase of 9.3%. The increase was
attributable to improved customer wagering volume at each of our three
hotel-casinos.
Casino expenses in the quarter ended June 30, 2000 increased by 4.4% over
the same quarter in 1999, primarily due to increased promotional expenses at the
Gold Coast and the Orleans. The casino operating margin improved in the second
quarter of 2000 to 51.3% compared to 50.4% in the second quarter of 1999.
Year-to-date, casino expenses increased by 5.1% over the first six months of
1999, and the casino operating margin improved to 52.8% for the period compared
to 50.9% in the prior year.
Food and Beverage. Food and beverage revenues were $19.1 million in the
quarter ended June 30, 2000 compared to $17.8 million in 1999, an increase of
7.3%. The increase was primarily due to increased customer volume and higher
prices at the Orleans' new buffet that opened in May 1999, as well as the
addition in April 2000 of two new restaurants at the Orleans. Year-to-date, food
and beverage revenues were $38.8 million compared to $35.6 million in 1999, an
increase of 9.1%. The increase was attributable to the expanded buffet and the
two new restaurants at the Orleans.
Food and beverage expenses in the three months ended June 30, 2000 increased
by 10.4% over the same period in 1999, primarily due to increased staffing and
higher food costs in the Orleans' new buffet, as well as expenses related to the
two new restaurants that opened in the quarter. Year-to-date, food and beverage
expenses increased by 11.8%, primarily due to the new restaurants discussed
above.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Results of Operations (Continued)
Hotel. Hotel room revenues were $8.2 million in the three months ended June
30, 2000, an increase of 9.9% over 1999 revenues of $7.5 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 $50 in the second
quarter of 1999 to $56 in the second quarter of 2000 contributed to the
increased revenues. Hotel operating margins improved to 61.0% from 56.9% in the
second quarter of 1999 as revenues increased and expenses remained flat compared
to the prior year.
In the first six months of 2000, hotel revenues were $16.5 million compared
to $15.3 million in the same period in 1999, an increase of 7.7%. A slight
decline in occupancy percentages at each of our three hotels was offset by an
increase in the average daily room rates from $53 in the first half of 1999 to
$58 in the first half of 2000. Hotel operating margins improved to 61.5% in the
first half of 2000 compared to 59.2% in the first half of 1999, due to the
increased revenues and only a slight (1.7%) increase in expenses.
Other. Other revenues were relatively flat compared to the prior year, up
0.8% in the second quarter and down 0.5% in the first six months. Other expenses
declined 1.1% in the second quarter and 3.7% year-to-date, 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
2.4% to $15.9 million in the second quarter of 2000 compared to $15.6 million in
1999. In the six months ended June 30, 2000, general and administrative expenses
were $32.2 million compared to $31.0 million in the same period in 1999, an
increase of 4.0%. The increases were due, in part, to July 1999 wage increases
at our three hotel-casinos. Additionally, an expansion completed in May 1999 at
the Orleans resulted in higher utility costs and increased staffing in several
ancillary departments. General and administrative expenses include cash rent
expense of $675,000 and $1.2 million in the second quarters of 2000 and 1999,
respectively. Cash rent was $1.4 million in the first six months of 2000 and
$2.3 million in the first six months of 1999. Cash rent is lower in 2000 because
rent on the Suncoast land has been capitalized since July 1999, when
construction of that project commenced.
Pre-opening Costs. Pre-opening costs related to the development of the
Suncoast are expensed as incurred. These costs were $874,000 and $1.1 million in
the three months and six months ended June 30, 2000, respectively. There were no
pre-opening costs in the first six months of 1999.
Deferred Rent. Deferred rent in the second quarter of 2000 was $519,000
compared to $914,000 in the second quarter of 1999. Year-to-date, deferred rent
was $1.0 million in 2000 compared to $1.9 million in the first six 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
$5.5 million in the second quarter of 2000 compared to $5.3 million in 1999. In
the six months ended June 30, 2000, depreciation and amortization expense was
$11.0 million compared to $10.5 million in the six months ended June 30, 1999.
The increases were primarily due to the addition of new equipment at each of our
hotel-casino properties.
9
<PAGE>
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 $25.1 million in the six months ended June 30, 2000 compared to $34.8
million in 1999.
Cash used in investing activities in the six months ended June 30, 2000 was
$77.9 million and was primarily for capital expenditures, including $65.2
million for the ongoing construction of the Suncoast. Our anticipated capital
expenditures for 2000 are $162.8 million, including $149.9 million for
construction of the Suncoast, $9.7 million for maintenance capital expenditures
at our three existing hotel-casinos and $3.2 million for various projects,
including new restaurants at the Orleans and a remodeling of the bowling center
at the Gold Coast. Cash used in investing activities in the first six months of
1999 was $17.9 million, primarily for capital expenditures.
Cash provided by financing activities was $42.5 million in the first six
months of 2000, primarily from borrowings under our $200.0 million line of
credit. In the first six months of 1999, cash used in financing activities was
$27.4 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 June 30, 2000, the interest rate
was 8.40%. 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.
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.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Liquidity and Capital Resources (Continued)
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 June 30, 2000, we had
$98.6 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 at our existing properties and 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 our long-term debt. 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: August 14, 2000 COAST HOTELS AND CASINOS, INC., a Nevada
corporation
By: /s/ Gage Parrish..
------------------
Gage Parrish
Vice President and Chief Financial
Officer
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