SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1997
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 1-8570
CIRCUS CIRCUS ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Nevada 88-0121916
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
2880 Las Vegas Boulevard South, Las Vegas, Nevada 89109-1120
(Address of principal executive offices)
(702) 734-0410
(Registrant's telephone number, including area code)
N/A
(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
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at August 31, 1997
Common Stock, $.01-2/3 par value 95,051,783 shares
CIRCUS CIRCUS ENTERPRISES, INC. AND SUBSIDIARIES
Form 10-Q
INDEX
Page No.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets at
July 31, 1997 (Unaudited) and January 31,
1997......................................... 3-4
Condensed Consolidated Statements of Income
(Unaudited) for the Three and Six Months
Ended July 31, 1997 and 1996................. 5
Condensed Consolidated Statements of Cash
Flows (Unaudited) for the Six Months Ended
July 31, 1997 and 1996....................... 6-7
Notes to Condensed Consolidated Financial
Statements (Unaudited)....................... 8-18
Item 2. Management's Discussion and Analysis of Fi-
nancial Condition and Results of Operations.. 19-28
Part II. OTHER INFORMATION 29
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CIRCUS CIRCUS ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
July 31, January 31,
1997 1997
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents................ $ 76,130 $ 69,516
Receivables.............................. 27,020 34,434
Inventories.............................. 21,351 19,371
Prepaid expenses and other............... 28,694 28,528
Total current assets................ 153,195 151,849
PROPERTY, EQUIPMENT AND LEASEHOLD INTERESTS,
at cost, less accumulated depreciation
and amortization of $580,466 and $526,902
respectively............................. 2,166,765 1,920,032
EXCESS OF PURCHASE PRICE OVER FAIR MARKET
value of net assets acquired, net........ 380,479 385,583
NOTES RECEIVABLE............................ 36,301 36,443
INVESTMENTS IN UNCONSOLIDATED AFFILIATES.... 234,138 214,123
OTHER ASSETS................................ 24,892 21,081
Total Assets......................... $2,995,770 $2,729,111
The accompanying notes are an integral part of these
condensed consolidated financial statements.
CIRCUS CIRCUS ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
July 31, January 31,
1997 1997
(Unaudited)
CURRENT LIABILITIES:
Current portion of long-term debt................ $ 3,008 $ 379
Accounts payable - trade ........................ 23,696 22,658
Accounts payable - construction.................. 33,597 21,144
Accrued liabilities ............................. 98,560 85,587
Total current liabilities ................ 158,861 129,768
LONG-TERM DEBT ...................................... 1,580,953 1,405,897
DEFERRED INCOME TAX ................................. 157,816 152,635
OTHER LONG-TERM LIABILITIES ......................... 5,172 6,439
Total liabilities ........................ 1,902,802 1,694,739
REDEEMABLE PREFERRED STOCK........................... - 17,631
TEMPORARY EQUITY .................................... - 44,950
STOCKHOLDERS' EQUITY:
Common stock, $.01-2/3 par value
Authorized - 450,000,000 shares
Issued - 113,594,008 and 112,808,337 shares ... 1,893 1,880
Preferred stock, $.01 par value
Authorized - 75,000,000 shares ................ - -
Additional paid-in capital ...................... 556,373 498,893
Retained earnings ............................... 1,046,340 984,363
Treasury stock (18,542,225 and 18,749,209 shares),
at cost........................................ (511,638) (513,345)
Total stockholders' equity ............... 1,092,968 971,791
Total Liabilities and
Stockholders' Equity .................. $2,995,770 $2,729,111
The accompanying notes are an integral part of these
condensed consolidated financial statements.
CIRCUS CIRCUS ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share data)
(Unaudited)
Three Months Six Months
Ended July 31, Ended July 31,
REVENUES: 1997 1996 1997 1996
Casino ......................... $158,642 $167,853 $ 319,237 $343,031
Rooms .......................... 79,608 71,093 165,931 148,783
Food and beverage .............. 54,889 55,582 108,854 110,548
Other .......................... 38,584 42,375 72,257 81,837
Earnings of unconsolidated
affiliates ................... 26,618 16,393 51,874 36,208
358,341 353,296 718,153 720,407
Less-complimentary allowances... (15,049) (14,490) (30,763) (28,716)
343,292 338,806 687,390 691,691
COSTS AND EXPENSES:
Casino ......................... 75,904 75,853 148,382 150,200
Rooms .......................... 31,358 29,503 61,511 58,580
Food and beverage .............. 51,912 53,434 99,931 104,096
Other operating expenses ....... 23,513 25,950 43,528 49,382
General and administrative ..... 60,846 57,691 115,498 111,536
Depreciation and amortization .. 28,839 24,009 57,183 48,505
Abandonment losses ............. - 40,103 - 48,309
272,372 306,543 526,033 570,608
OPERATING PROFIT BEFORE CORPORATE
EXPENSE ........................ 70,920 32,263 161,357 121,083
CORPORATE EXPENSE ................ 8,173 7,613 15,972 15,136
INCOME FROM OPERATIONS ........... 62,747 24,650 145,385 105,947
OTHER INCOME (EXPENSE):
Interest, dividend and
other income ................. 551 1,479 1,447 2,646
Interest income and guarantee
fees from unconsolidated
affiliate .................... 1,662 1,745 3,388 3,343
Interest expense ............... (22,049) (11,439) (43,716) (23,573)
Interest expense from
unconsolidated affiliates .... (4,035) (3,554) (8,261) (6,097)
(23,871) (11,769) (47,142) (23,681)
INCOME BEFORE PROVISION FOR
INCOME TAX...................... 38,876 12,881 98,243 82,266
Provision for income tax ....... 14,388 5,572 36,266 31,485
NET INCOME ....................... $ 24,488 $ 7,309 $ 61,977 $ 50,781
EARNINGS PER SHARE................ $ .26 $ .07 $ .65 $ .49
Average shares outstanding .. 95,015,728 103,896,790 94,809,607 103,510,964
The accompanying notes are an integral part of these
condensed consolidated financial statements.
CIRCUS CIRCUS ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months
Ended July 31,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 61,977 $ 50,781
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 62,833 52,060
(Gain) loss on disposition of fixed assets (202) 47,126
(Increase) decrease in other current assets 5,268 (2,123)
Increase in other noncurrent assets (3,743) (3,305)
Increase (decrease) in interest payable 6,608 (940)
Increase (decrease) in other current liabilities 7,402 (10,372)
Increase in deferred income tax 5,181 7,393
Decrease in other noncurrent liabilities (33) (33)
Unconsolidated affiliates' earnings in
excess of distributions (18,137) (2,573)
Total adjustments 65,177 87,233
Net cash provided by operating activities 127,154 138,014
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (302,841) (160,638)
Increase in construction payable 12,453 6,896
Increase in investments in unconsolidated
affiliates (2,085) (39,154)
(Increase) decrease in notes receivable 142 (9,021)
Proceeds from sale of equipment and other assets 328 2,368
Other - (1,273)
Net cash used in investing activities (292,003) (200,822)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of senior notes - 199,562
Net effect on cash of issuances and payments
of debt with original maturities of
three months or less 430,808 (140,043)
Issuances of debt with original maturities
in excess of three months 14,287 644
Principal payments of debt with original
maturities in excess of three months (267,476) (17,128)
Exercise of stock options and warrants 5,794 16,231
Purchases of treasury stock (1,300) -
Other (10,650) (425)
Net cash provided by financing activities 171,463 58,841
Net increase (decrease) in cash and cash equivalents 6,614 (3,967)
Cash and cash equivalents at beginning of period 69,516 62,704
Cash and cash equivalents at end of period $ 76,130 $ 58,737
CIRCUS CIRCUS ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(In thousands)
(Unaudited)
Six Months
Ended July 31,
1997 1996
SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid during the period for:
Interest (net of amount capitalized) $ 35,733 $ 23,380
Income tax $ 37,270 $ 47,040
The accompanying notes are an integral part of these
condensed consolidated financial statements.
CIRCUS CIRCUS ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(All information for the three and six months ended July 31, 1997
and 1996 is unaudited.)
(1) Principles of consolidation and basis of presentation -
Circus Circus Enterprises, Inc. (the "Company") was
incorporated February 27, 1974. The Company owns and operates
hotel and casino facilities in Las Vegas, Reno, Laughlin, Jean
and Henderson, Nevada and a dockside casino in Tunica County,
Mississippi. It is also an investor in several unconsolidated
affiliates, with operations that include a riverboat casino in
Elgin, Illinois, a hotel/casino in Reno, Nevada and a
hotel/casino on the Las Vegas Strip.
The condensed consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries.
Material intercompany accounts and transactions have been
eliminated.
The condensed consolidated financial statements included
herein have been prepared by the Company, without audit, pursuant
to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the
information presented not misleading. In the opinion of
management, all adjustments (which include normal recurring
adjustments) necessary for a fair statement of results for the
interim periods have been made. The results for the three and
six month periods are not necessarily indicative of results to be
expected for the full fiscal year.
Certain reclassifications have been made to the financial
statements for the three and six months ended July 31, 1996 to
conform to the financial statement presentation for the three and
six months ended July 31, 1997. These reclassifications have no
effect on net income.
These financial statements should be read in conjunction
with the financial statements and notes thereto included in the
Company's annual report on Form 10-K for the year ended January
31, 1997.
(2) Long-term debt -
Long-term debt consists of the following (in thousands):
July 31, January 31,
1997 1997
(Unaudited)
Amounts due under corporate
debt program at floating
interest rates, weighted
average of 5.9% and 5.6% $741,872 $501,191
6.45% Senior Notes due 2006
(net of unamortized discount
of $374 and $396) 199,626 199,604
7-5/8% Senior Subordinated
Debentures due 2013 150,000 150,000
6-3/4% Senior Subordinated Notes
due 2003 (net of unamortized
discount of $95 and $103) 149,905 149,897
7.0% Debentures due 2036
(net of unamortized
discount of $153 and $160) 149,847 149,840
6.70% Debentures due 2096
(net of unamortized discount
of $303 and $327) 149,697 149,673
10-5/8% Senior Subordinated Notes
due 1997 (net of unamortized
discount of $7) - 99,993
Amounts due under bank credit
agreement at floating interest
rates, weighted average of 6.0% 30,000 -
Other notes 13,014 6,078
1,583,961 1,406,276
Less - current portion (3,008) (379)
$1,580,953 $1,405,897
The Company has established a corporate debt program whereby
it can issue commercial paper or similar forms of short-term
debt. Although the debt instruments issued under this program are
short-term in tenor, they are classified as long-term debt
because (i) they are backed by a long-term debt facility (see
below) and (ii) it is management's intention to continue to
(2) Long-term debt (continued) -
replace such borrowings on a rolling basis as various instruments
come due and to have such borrowings outstanding for longer than
one year. To the extent that the Company incurs debt under this
program, it must maintain an equivalent amount of credit
available under its bank credit facility discussed more fully
below.
In May 1997, the Company renegotiated its $1.5 billion
unsecured credit facility, dated January 29, 1996. This
agreement was replaced by a new $2.0 billion unsecured credit
facility which matures on July 31, 2002 (the "Facility"). The
maturity date may be extended for an unlimited number of one-year
periods with the consent of the bank group. The Facility
contains financial covenants regarding total debt and new venture
capital expenditures and investments. The Facility is for
general corporate purposes. The Company incurs commitment fees
(currently 15 basis points) on the unused portion of the
Facility. As of July 31, 1997, the Company had $30 million
outstanding under the Facility. At such date, the Company also
had $741.9 million of indebtedness outstanding under the
corporate debt program thus reducing, by that amount, the credit
available under the Facility for purposes other than repayment of
such indebtedness. The fair value of the debt issued under the
corporate debt program approximates the carrying amount of the
debt due to the short-term maturities of the individual
components of the debt.
In November 1996, the Company issued $150 million principal
amount of 7.0% Debentures due November 2036 (the "7.0%
Debentures"). The 7.0% Debentures may be redeemed at the option
of the holder in November 2008. Also, in November 1996, the
Company issued $150 million principal amount of 6.70% Debentures
due November 2096 (the "6.70% Debentures"). The 6.70% Debentures
may be redeemed at the option of the holder in November 2003.
Both the 7.0% Debentures, which were discounted to $149.8
million, and the 6.70% Debentures, which were discounted to
$149.7 million, have interest payable each May and November, are
not redeemable by the Company prior to maturity and are not
subject to any sinking fund requirements. The net proceeds from
these offerings were used primarily to repay borrowings under the
Company's corporate debt program.
(2) Long-term debt (continued) -
In February 1996, the Company issued $200 million principal
amount of 6.45% Senior Notes due February 1, 2006 (the "6.45%
Notes"), with interest payable each February and August. The
6.45% Notes, which were discounted to $199.6 million, are not
redeemable prior to maturity and are not subject to any sinking
fund requirements. The net proceeds from this offering were used
primarily to repay borrowings under the Company's corporate debt
program.
In July 1993, the Company issued $150 million principal
amount of 6-3/4% Senior Subordinated Notes (the "6-3/4% Notes")
due July 2003 and $150 million principal amount of 7-5/8% Senior
Subordinated Debentures (the "7-5/8% Debentures") due July 2013,
with interest payable each July and January. The 6-3/4% Notes,
which were discounted to $149.8 million, and the 7-5/8%
Debentures are not redeemable prior to maturity and are not
subject to any sinking fund requirements. The net proceeds from
these offerings were used primarily to repay borrowings under the
Company's corporate debt program.
In June 1990, the Company issued $100 million principal
amount of 10-5/8% Senior Subordinated Notes (the "10-5/8%
Notes"). The 10-5/8% Notes were redeemed at maturity in June
1997.
The Company has a policy aimed at managing interest rate
risk associated with its current and anticipated future
borrowings. This policy enables the Company to use any
combination of interest rate swaps, futures, options, caps and
similar instruments. To the extent the Company employs such
financial instruments pursuant to this policy, they are accounted
for as hedging instruments. In order to qualify for hedge
accounting, the underlying hedged item must expose the Company to
risks associated with market fluctuations and the financial
instrument used must be designated as a hedge and must reduce the
Company's exposure to market fluctuation throughout the hedge
period. If these criteria are not met, a change in the market
value of the financial instrument is recognized as a gain or loss
in the period of change. Otherwise, gains and losses are not
recognized except to the extent that the financial instrument is
disposed of prior to maturity. Net interest paid or received
(2) Long-term debt (continued) -
pursuant to the financial instrument is included as interest
expense in the period.
The Company has entered into various interest rate swaps,
principally with its bank group, to manage interest expense,
which is subject to fluctuation due to the variable-rate nature
of the debt under the Company's corporate debt program. The
Company has interest rate swap agreements under which it pays a
fixed interest rate (weighted average of approximately 8.6%) and
receives a variable interest rate (weighted average of
approximately 5.8% at July 31, 1997) on $79 million notional
amount of "initial" swaps, and pays a variable interest rate of
approximately 5.8% at July 31, 1997, and receives a fixed
interest rate of approximately 8.2% on $30 million notional
amount of a "reversing" swap. The net effect of all such swaps
resulted in additional interest expense, due to an interest rate
differential which, at July 31, 1997, was approximately 1.4% on
the total notional amount of the swaps. One of the initial swaps
provides for quarterly reductions in the notional amount of up to
$1 million. This swap has a current notional amount of $24.5
million, but declines to $22.5 million by its termination date in
fiscal 1999. Excluding this swap, the initial swaps have the
following termination dates: $29.5 million in fiscal 1999 and
$25 million in fiscal 2000. The reversing swap expires in fiscal
2002.
As of July 31, 1997, under its most restrictive loan
covenants, the Company was restricted as to the purchase of its
own capital stock in excess of $516 million and was restricted
from issuing additional debt in excess of approximately $437
million.
(3) Stock options -
The Company has various stock option plans for executive,
managerial and supervisory personnel as well as the Company's
outside directors and consultants. The plans permit grants of
options, performance shares and restricted stock relating to the
Company's common stock. The stock options are generally
exercisable in one or more installments beginning not less than
six months after the grant date.<PAGE>
(3) Stock options (continued) -
Summarized information for stock option plans is as follows:
Six Months Ended
July 31, 1997
Weighted
Average
Exercise
Options Price
Outstanding at beginning of period.. 7,150,060 $25.38
Granted............................. 150,000 25.06
Exercised........................... (279,905) 21.13
Cancelled........................... (90,800) 31.72
Outstanding at end of period........ 6,929,355 $25.46
Options exercisable at end of period 4,740,000 $24.34
Options available for grant at end
of period......................... 2,302,150
(4) Stock rights -
On July 14, 1994, the Company declared a dividend of one
Common Stock Purchase Right (the "Rights") for each share of
common stock outstanding at the close of business on August 15,
1994. Each Right entitles the holder to purchase from the
Company one share of common stock at an exercise price of $125,
subject to certain antidilution adjustments. The Rights
generally become exercisable ten days after the earlier of an
announcement that an individual or group has acquired 15% or more
of the Company's outstanding common stock or the announcement of
commencement of a tender offer for 15% or more of the Company's
common stock.
In the event the Rights become exercisable, each Right
(except the Rights beneficially owned by the acquiring individual
or group, which become void) would entitle the holder to
purchase, for the exercise price, a number of shares of the
Company's common stock having an aggregate current market value
equal to two times the exercise price. The Rights expire August
(4) Stock rights (continued) -
15, 2004, and may be redeemed by the Company at a price of $.01
per Right any time prior to their expiration or the acquisition
of 15% or more of the Company's common stock. The Rights should
not interfere with any merger or other business combination
approved by the Company's Board of Directors and are intended to
cause substantial dilution to a person or group that attempts to
acquire control of the Company on terms not approved by the Board
of Directors.
(5) Share repurchases -
During the six months ended July 31, 1997, the Company
repurchased 38,486 shares of its common stock at a cost of $1.3
million.
During the second quarter, the Company elected to settle,
for cash, outstanding put options on 2.0 million shares of its
common stock and call options on 600,000 shares of common stock.
The net cost to the Company was $9.4 million. The put and call
options were entered into as a complement to the Company's
overall share repurchase program.
(6) Redeemable preferred stock -
In connection with the acquisition of Gold Strike Resorts,
New Way, Inc., a wholly owned subsidiary of the Company, issued
1,069,926 shares of $10.00 Cumulative Preferred Stock. Of the
preferred shares issued, 866,640 were issued to another wholly
owned subsidiary of the Company. During the year ended January
31, 1997, the Company purchased 9,864 shares of the preferred
stock for $1.3 million. The price paid by the Company was based
on the trading price of the Company's common stock prior to the
transaction. On February 26, 1997, New Way, Inc. merged into
another subsidiary of the Company and the remaining preferred
stock was converted into 754,666 shares of common stock.
(7) Preferred stock -
The Company is authorized to issue up to 75 million shares
of $.01 par value preferred stock in one or more series having
such respective terms, rights and preferences as are designated
by the Board of Directors. No such preferred stock has yet been
issued.
(8) Earnings per share -
Earnings per share is computed by dividing net income by the
weighted average number of common shares outstanding during the
period. Outstanding stock options and exchangeable preferred
stock are not included in earnings per share computations since
their assumed exercise or conversion would not have a material
dilutive effect.
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128 -
Earning Per Share ("SFAS 128"). SFAS 128 is effective for
periods ending after December 15, 1997 and replaces currently
reported earnings per share with "basic", or undiluted, earnings
per share and "diluted" earnings per share. Basic earnings per
share is computed as detailed above, while diluted earnings per
share reflects the additional dilution for all potentially
dilutive securities, such as stock options.
The Company will adopt the provisions of SFAS 128 in its
fiscal 1998 annual financial statements, and all previously
reported earnings per share amounts will be restated. The
following table discloses the Company's pro forma earnings per
share for the three and six-month periods ended July 31, 1997 and
1996 as determined in accordance with SFAS 128.
Three Months Six Months
Ended July 31, Ended July 31,
Earnings per share 1997 1996 1997 1996
As reported $.26 $.07 $.65 $.49
Basic $.26 $.07 $.65 $.49
Diluted $.26 $.07 $.65 $.48
(9) Investments in unconsolidated affiliates -
The Company has investments in unconsolidated affiliates
that are accounted for under the equity method. Using the equity
method, original investments are recorded at cost and adjusted by
the Company's share of earnings or losses of these entities. The
investment balance also includes interest capitalized during
construction (net of amortization). Investments in
(9) Investments in unconsolidated affiliates (continued) -
unconsolidated affiliates consist of the following (in
thousands):
July 31, January 31,
1997 1997
(Unaudited)
Circus and Eldorado Joint Venture (50%)
(Silver Legacy, Reno, Nevada) $ 60,119 $ 54,269
Elgin Riverboat Resort (50%)
(Grand Victoria, Elgin, Illinois) 48,265 51,174
Victoria Partners (50%)
(Monte Carlo, Las Vegas, Nevada) 125,754 108,680
$234,138 $214,123
The above unconsolidated affiliates operate with fiscal
years ending on December 31. Summarized results of operations of
the unconsolidated affiliates are as follows (unaudited, in
thousands):
Six Months Ended June 30,
1997 1996
Revenues $329,675 $215,022
Expenses 232,824 146,428
Operating income 96,851 68,594
Net income 80,220 52,510
The results for the six months ended June 30, 1996 include
the operations of Windsor Casino Limited. In January 1997, the
Company transferred its one-third interest in Windsor Casino
Limited to the two remaining shareholders. Results for the six
months ended June 30, 1997 include a full six months of
operations of Monte Carlo, which opened June 21, 1996.
Included in the above are revenues of the Grand Victoria of
$125,046 and $120,525 for the six months ended June 30, 1997 and
1996. The property's operating margin during those periods was
35% and 46%, respectively.<PAGE>
(10) Abandonment losses -
During the six months ended July 31, 1996, the Company wrote
off $48.3 million of various assets. These write-offs included
the special-effects films at Luxor ($12.0 million) which were
replaced by IMAX special-format filmed attractions, structural
elements demolished as part of Luxor's remodeling ($12.1
million), and fixtures and equipment at Circus Circus-Las Vegas,
Excalibur and Circus Circus-Tunica replaced in the course of
upgrading and expanding those properties ($16.0 million). The
Company also wrote off $8.2 million of costs associated with the
demolition of a people mover at Circus Circus-Las Vegas and the
removal of the Nile River at Luxor.
(11) Commitments and contingent liabilities -
In July 1995, Silver Legacy, a 50/50 joint venture with the
Eldorado Hotel/Casino, opened in downtown Reno, Nevada. As a
condition to the joint venture's $220 million bank credit
agreement (which amended and restated the joint venture's
previous $230 million credit agreement), Circus is obligated
under a make-well agreement to make additional contributions to
the joint venture as may be necessary to maintain a minimum
coverage ratio (as defined). As of July 31, 1997, the Company
had an outstanding loan to the joint venture in the principal
amount of $35.1 million at an interest rate of 10%.
In Tunica County, Mississippi, construction continues on a
1,200-room tower addition to the casino which includes remodeling
and retheming the property into a more elegant resort, which was
rechristened Gold Strike Casino Resort effective August 1. The
estimated cost of this expansion is $135 million, with a
projected completion date in December 1997. Through July 31,
1997, the Company had incurred $53.0 million for this project.
The Company has commenced construction of an entertainment
megastore of approximately 3,800 rooms on the former site of the
Hacienda Hotel and Casino. The new resort, whose working title
is Project Paradise, is slated to open late 1998 or early 1999.
Project Paradise will feature, as its centerpiece, a 10-acre
tropical environment that is expected to contain, among other
attractions, a surfing beach with six-foot waves. Inside,
Project Paradise will offer waterfalls, terraced gardens,
(11) Commitments and contingent liabilities (continued) -
mythical statuary and open-air restaurants set amid beautifully
crafted environments, including a swan island. The cost of
Project Paradise is currently estimated at approximately
$800-$900 million (excluding land) and as of July 31, 1997,
$69.2 million had been incurred for this project.
As part of its development of its Masterplan Mile, the
Company will build a 400-room Four Seasons Hotel as part of the
Paradise complex, providing Las Vegas visitors with a luxury
"five-star" hospitality experience. This hotel, which will be
owned by Circus and managed by Four Seasons Regent Hotels and
Resorts, represents the first step pursuant to the Company's
cooperative effort with Four Seasons to identify strategic
opportunities for development of hotel and casino properties
worldwide.
The Company has funded the above projects from internal cash
flows, project specific financing or its credit facility, and
anticipates that future funding for such projects will be from
these sources, including the $2.0 billion credit facility, of
which approximately $771.9 million was utilized as of July 31,
1997.
The Company is a defendant in various pending litigation. In
management's opinion, the ultimate outcome of such litigation
will not have a material effect on the results of operations or
the financial position of the Company.
CIRCUS CIRCUS ENTERPRISES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Unaudited)
RESULTS OF OPERATIONS
Earnings per Share
For the quarter ended July 31, 1997, the Company reported net
income of $24.5 million, or $.26 per share, versus $7.3 million,
or $.07 per share, a year ago. For the six months, net income
was $62.0 million, or $.65 per share, compared to $50.8 million,
or $.49 per share, in the prior year.
Results in the prior-year second quarter include asset write-offs
of $40.1 million related to expansion projects, primarily the new
room towers at Luxor and Circus Circus-Las Vegas, as well as $5.6
million in preopening expenses related to the June 21, 1996
opening of Monte Carlo (50% owned by the Company). Prior year
results for the six months include an additional $8.2 million in
asset write-offs related to the same expansion projects.
Excluding the effect of the above nonrecurring items, earnings
for the prior-year second quarter and six months were $.36 and
$.83.
Revenues
Revenues for the Company for the three and six months ended July
31, 1997 were relatively flat with the prior year. Luxor, with
1,950 new rooms, posted significant revenue increases in both
periods, up $17.2 million, or 30%, in the quarter and $26.9
million, or 23%, for the six months, though it was comparing
against prior-year periods when the property experienced
significant construction disruption, primarily in the second
quarter. Likewise, Circus Circus-Las Vegas posted revenue
increases of $2.3 million, or 4%, and $6.2 million, or 6%, for
the three and six months due to 1,000 additional rooms which
opened late last year, though it too was comparing against
disrupted prior year periods. Monte Carlo was also a significant
contributor to revenues, generating an additional $5.1 million in
revenue in the second quarter and $14.6 million in the six months
compared against partial periods last year. (For accounting
purposes, the Company's share of the operating income of joint
ventures is reflected as revenue in Earnings of Unconsolidated
Affiliates.)
The above increases were largely offset by the closure of the
Hacienda Hotel and Casino, which posted total revenues of $11.5
million in last year's second quarter, and $27.0 million for the
six months. That property was demolished December 31, 1996 to
make way for Project Paradise, a new megaresort adjacent to
Luxor. Meanwhile, Excalibur's revenues declined $6.9 million, or
make way for Project Paradise, a new megaresort adjacent to
9%, in the quarter and $12.1 million, or 8%, year-to-date, as
that property faced significant competition from New York-New
York (which opened January 3, 1997), Monte Carlo and the expanded
Luxor, as well as comparing against a record prior year.
Revenues at Circus Circus-Tunica decreased 28% in both the three
and six month periods, as it experienced significant construction
disruption as part of its $135 million expansion. See Financial
Position and Capital Resources for more detail regarding Project
Paradise and the Tunica expansion.
Operating Income (excluding nonrecurring items)
For the quarter and six months ended July 31, 1997, income from
operations declined $7.6 million, or 11%, and $14.5 million, or
9%, from the same periods a year ago. Depreciation was a
principal factor, rising $5.9 million in the quarter and $10.8
million in the six months. The additional depreciation related
primarily to the expansion projects at Luxor and Circus Circus-
Las Vegas completed in the prior year. The Company's composite
operating margin was 18.3% and 21.2% for the three and six months
ended July 31, 1997 versus 20.4% and 22.9% for the comparable
periods in the prior year. A discussion of operating results by
market follows.
Las Vegas
The Company's Las Vegas properties posted overall increases in
operating income of $3.8 million, or 10%, and $6.7 million, or
7%, for the three and six month periods compared to the same
periods a year ago. The increases were attributable primarily to
Monte Carlo (a 50% owned joint venture which opened June 21,
1996), which generated increases in operating income of $5.1
million and $14.5 million in the three and six months compared to
the prior year. Overall, the Las Vegas market has been slow to
absorb recent room expansions, which has negatively affected room
and occupancy rates at the Company's properties, particularly
Luxor.
Operating income at Luxor improved $1.3 million, or 14%, in the
quarter and $4.1 million, or 17%, for the six months due largely
to 1,950 new rooms which were placed in service late last year.
This property also underwent substantial remodeling last year,
which was significantly disruptive to prior-year results, and
certain elements of this remodeling have continued into the
current year. The new 1,200-seat showroom opened September 10
with the debut of Imagine, A Theatrical Odyssey. Construction is
continuing on a microbrewery and night club which will open later
this year, as well as the remodeling of the attractions level.
The Company believes that this continued construction has had a
disruptive effect on operations, though not on the scale suffered
in the prior year. Furthermore, the Company believes that due to
the continued phase-in of the remodeling, improvements in
operating results at this property are likely to occur gradually.
At Excalibur, operating income was down $6.5 million, or 30%, in
the second quarter, while year-to-date operating income was down
$10.8 million, or 22%, compared to the same periods last year.
Results at Excalibur have been adversely affected by new
competition, particularly from the nearby New York-New York
(opened January 3, 1997) and Monte Carlo, but also from the
adjacent Luxor, which has been significantly expanded and
remodeled.
Meanwhile, operating income at Circus Circus-Las Vegas declined
5% and 6% in the three and six month periods compared to a year
ago. Despite having 1,000 new rooms in operation at virtually
100% occupancy for the quarter and six months, the Company
believes that many of its new customers are spending a portion of
their time visiting the newer megaresorts on the south end of the
Las Vegas Strip. Furthermore, the Company believes that a number
of the guests staying in the new hotel rooms represent former
"walk-in" customers who were already established as gaming
customers.
Reno
In Reno, the Company's combined operating income increased $3.2
million, or 38%, in the second quarter and $5.2 million, or 38%,
in the six months versus the same periods last year. Strong
results at Silver Legacy (50% owned by the Company) accounted for
the increases, as results at Circus Circus-Reno were relatively
flat with the prior year, despite a disruptive remodeling of the
casino. This market has benefited from the presence of the
women's national bowling tournament this year, which commenced in
March and concluded in July.
Laughlin
In Laughlin, the Colorado Belle and the Edgewater posted
combined decreases in operating income of $1.2 million, or 24%,
and $3.9 million, or 24%, for the second quarter and six months
ended July 31, 1997 versus the previous year. This market
continues to suffer from difficult competitive challenges,
foremost of which are the unregulated Native American casinos in
Laughlin's prime central Arizona and southern California feeder
markets. Competition from new resorts in Las Vegas and Primm,
Nevada (formerly Stateline, Nevada) has also contributed to the
erosion of Laughlin's customer base.
Riverboat Markets
In Tunica County, Mississippi, operating income at the
rechristened Gold Strike Casino Resort declined significantly,
down more than 50% in both the three and six month periods, due
primarily to disruption from the ongoing $135 million expansion.
This expansion project includes a 1,200-room hotel tower (the
property currently has no rooms) and extensive rethemeing of the
property into a more elegant resort. The remodeling of the
casino was completed by the Labor Day weekend, while the new
hotel tower is in the latter stages of construction and is
expected to open in December.
Results at the Grand Victoria (a 50% owned riverboat casino in
Elgin, Illinois) reflected decreases of $1.6 million and $4.7
million in the Company's share of operating income for the three
and six months. These decreases were due entirely to a full
second quarter's contribution to a 20% profit sharing arrangement
with public entities in the city and county that began in June
1996.
Interest Expense
For the three and six months ended July 31, 1997, interest
expense (excluding joint venture interest expense) increased
$10.6 million and $20.1 million versus the prior year. The
increase was due principally to higher average borrowings related
to various construction projects (primarily the new rooms and
improvements at Luxor and Circus Circus-Las Vegas completed in
the prior year, and the ongoing construction of Project Paradise
and the hotel tower in Tunica) and the repurchase of $341.8
million of Circus' common stock in the third and fourth quarters
last year. To date, the share repurchase has had no effect on
earnings per share. Average borrowings were approximately $1.5
billion and $1.4 billion for the current quarter and six months,
compared against $709 million and $706 million for the same
periods last year. Capitalized interest was $4.9 million and
$8.5 million for the quarter and six months ended July 31, 1997
versus $3.6 million and $6.5 million in the year-ago periods.
Long-term debt at July 31, 1997 stood at $1.6 billion compared to
$759 million at July 31, 1996.
The Company also recorded interest expense related to joint
venture projects of $4.0 million and $8.3 million in the quarter
and six months ended July 31, 1997 compared to $3.6 million and
$6.1 million in the previous year. This reflects the Company's
50% share of the interest expense of Silver Legacy and Monte
Carlo (which opened June 21, 1996).
Income Tax
For the three and six months ended July 31, 1997, the Company's
effective tax rate was approximately 37%, compared with 43.3% and
38.3% for the three and six months ended July 31, 1996. These
rates reflect the corporate statutory rate of 35% plus the effect
of various nondeductible expenses, including the amortization of
goodwill associated with the acquisition of Gold Strike Resorts.
The higher rate in the prior year second quarter was attributable
to the application of the statutory rate of 35% to the asset
write-offs reflected in that quarter.
Financial Position and Capital Resources
The Company had cash and cash equivalents of $76.1 million at
July 31, 1997, reflecting normal daily operating requirements.
The Company's pretax cash flow from operations (before asset
write-offs and preopening expenses) was $94.3 million and $208.2
million for the three and six months ended July 31, 1997 versus
$96.2 million and $211.9 million for the same periods last year.
On the same basis of operations (excluding the effect of the
Hacienda Hotel and Casino which ceased operations on December 1,
1996), cash flow was even with the prior year. In this context,
pretax cash flow from operations is defined as the Company's
income from operations plus noncash operating expenses (primarily
depreciation and amortization). The Company has used its current
year cash flow primarily to fund the construction of Project
Paradise, the construction of the new hotel tower in Tunica
County, Mississippi and miscellaneous other construction
projects.
Capital Spending
Capital expenditures for the quarter and six months ended July
31, 1997 were $178.1 million and $302.8 million. Of these
amounts, $49.3 million and $63.2 million related to the
construction of Project Paradise, $34.6 million and $46.5 million
related to the construction and remodeling at the Gold Strike
Casino Resort in Tunica County, Mississippi, $37.0 million and
$79.5 million related to the remaining elements of the Luxor
expansion, $13.1 million and $19.6 million related to various
renovation projects at Excalibur (primarily the casino floor
expansion, wedding chapel and meeting rooms), $9.3 million and
$16.4 million related to remodeling the casino at Circus Circus-
Reno, $6.5 million and $10.4 million related to the remaining
tower rooms being remodeled at Circus Circus-Las Vegas, and $5.1
million and $9.0 million related to the addition of a
microbrewery at the Colorado Belle.
Credit Facility
On May 23, 1997, the Company amended its unsecured credit
facility with its bank group, increasing the size of the facility
from $1.5 billion to $2.0 billion at more favorable terms and
pricing (see Note 2 of Notes to Condensed Consolidated Financial
Statements). As of July 31, 1997, Circus had utilized $772
million under the facility.
Joint Ventures
The Company holds a 50% interest in and manages a joint venture
(with Mirage Resorts) which developed and operates Monte Carlo, a
major destination resort that opened June 21, 1996 on the Las
Vegas Strip. Monte Carlo features 3,002 rooms and a 90,000-
square-foot casino, with a palatial style reminiscent of the
Belle Epoque, the French architecture of the late 19th century.
This project had a total cost of approximately $350 million,
including land and capitalized interest. The Company's equity
contribution was $87.9 million, all of which had been funded as
of July 31, 1997.
In July 1995, Silver Legacy, a 50/50 joint venture with the
Eldorado Hotel/Casino, opened in downtown Reno, Nevada. As a
condition to the joint venture's $220 million bank credit
agreement (which amended and restated the joint venture's
previous $230 million credit agreement), Circus is obligated
under a make-well agreement to make additional contributions to
the joint venture as may be necessary to maintain a minimum
coverage ratio (as defined). As of July 31, 1997, the Company
also had outstanding loans to the joint venture in the principal
amount of $35.1 million.
New Projects
The Company has commenced construction on an entertainment
megastore of approximately 3,800 rooms on the former site of the
Hacienda Hotel and Casino. The new resort, whose working title
is Project Paradise, is slated to open in late 1998 or early
1999. Project Paradise will feature, as its centerpiece, a 10-
acre tropical environment that will contain, among other
attractions, a surfing beach with six-foot waves. Inside,
Project Paradise will offer waterfalls, terraced gardens,
mythical statuary and open-air restaurants set amid beautifully
crafted environments, including a swan island. The cost of
Project Paradise is currently estimated at approximately
$800-$900 million (excluding land) and as of July 31, 1997,
$69.2 million had been incurred for this project.
As part of its development of its Masterplan Mile, the Company
will build a 400-room Four Seasons Hotel as part of the Paradise
complex, providing Las Vegas visitors with a luxury "five-star"
hospitality experience. This hotel, which will be owned by
Circus and managed by Four Seasons Regent Hotels and Resorts,
represents the first step pursuant to the Company's cooperative
effort with Four Seasons to identify strategic opportunities for
development of hotel and casino properties worldwide.
At Luxor, the Company completed construction of two new hotel
towers, designed in ziggurat shapes, which added 1,950 rooms to
the property, bringing the total rooms base to approximately
4,400. This project also involved substantial remodeling of the
property's interior spaces, especially the casino and hotel
lobby. The original scope of the remodeling and expansion of
Luxor was broadened to include a second hotel lobby, convention
space, a redesigned attractions level, a microbrewery, a luxury
health spa, a new 1,200-seat showroom, and additional restaurants
and retail areas. The additional restaurants and retail areas
opened in late summer, while the showroom opened September 10
with the debut of Imagine, A Theatrical Odyssey. The microbrewery
and night club will open later this year, with the remodeled
attractions level completed by fiscal year-end. The total cost
for the expansion is approximately $400 million.
In December 1996, the Company completed construction of a 1,000-
room tower addition at Circus Circus-Las Vegas, which brought the
total number of rooms at Circus Circus-Las Vegas to approximately
3,800. The total cost of the project, which also included a new
porte cochere, new lobby space, a retail concourse and two new
restaurants, plus the refurbishment of all 1,188 rooms in the
Skyrise Tower, was approximately $130 million. The Company is
refurbishing the balance of the tower rooms at this property in
phases. This refurbishment, expected to be completed this year,
is budgeted at approximately $21 million, of which $11.3 million
had been incurred as of July 31, 1997.
In Tunica County, Mississippi, the Company is constructing a
1,200-room tower addition to its casino and remodeling and
retheming the property into a more elegant resort. Effective
August 1, the property was rechristened Gold Strike Casino
Resort. The estimated cost of this expansion is $135 million,
with a projected completion in December 1997. Through July 31,
1997, the Company had incurred $53.0 million for this project.
Also in Mississippi, the Company has announced that it plans to
develop a hotel/casino resort on the Mississippi Gulf Coast at
the north end of the Bay of St. Louis, near the DeLisle exit on
Interstate 10. The planned resort will feature 1,500 rooms and
has an estimated cost of $225 million. The Company anticipates
construction to begin after receipt of all customary approvals.
As presently contemplated, Circus will own 90% of the project,
with a partner contributing land (up to 500 acres) in exchange
for the remaining 10%.
The Company recently completed several other improvement
projects. At Circus Circus-Reno, the Company remodeled the
casino at a total cost of approximately $21 million ($18.5
million incurred through July 31, 1997), and a microbrewery was
added to the Colorado Belle at a total cost of approximately
$10.3 million (at July 31, 1997).
The Company has entered into an agreement to form a joint venture
with the Detroit-based Atwater Casino Group to pursue one of the
three licenses to be issued to own and operate a casino in
Detroit, Michigan. The Atwater Casino Group is comprised of
numerous Detroit-area business, education, civic and community
leaders. Circus would own a 45% equity interest in the proposed
project and receive a management fee. The joint venture's
ability to proceed with the proposed project is contingent upon
selection by the city, negotiation of a development agreement
with the city and the receipt of all necessary gaming approvals
and other customary conditions. Recently, the joint venture was
one of seven (out of 11) groups chosen by the city to proceed to
the second phase of the selection process. The city has
indicated the selection of the finalists who will proceed to
negotiations with the city will be announced in early November.
The bidding and licensing process provides that a "preference" be
granted to the two groups which supported the passage of the
proposal permitting casino gaming in Detroit. Although the joint
venture believes it holds such a "preference", the recognition of
a preference is but one of a number of factors that will be
considered by the applicable authorities in determining the
finalists and issuing gaming licenses. There is no assurance the
joint venture will be one of those selected in November or, if
selected, as to when or whether the joint venture will ultimately
be awarded one of the three licenses.
The Company has entered into an agreement with Mirage Resorts,
Incorporated to participate in the development of a 150-acre site
located in the Marina District of Atlantic City. The agreement
provides for the Company to obtain sufficient land for the
development of a destination resort and casino of at least 2,000
rooms, including dramatic public spaces, in an architectural
format that conforms to a "masterplan". While Mirage will act as
master-developer for the new Marina District, Circus will own its
land and its resort project, which will connect to Mirage's
resort as well as to a joint venture resort to be developed by
Boyd Gaming Corporation and Mirage. Mirage's development of the
site is subject to the satisfaction of a number of conditions.
Accordingly, there can be no assurances as to whether or when
Mirage will proceed with its development of the site. The
Company's participation, among other conditions, is subject to
Mirage's determination to proceed with development of the site.
The Company's ability to proceed is also subject to its obtaining
the requisite gaming and other approvals and licenses in New
Jersey, as well as the approval of the gaming authorities in
various other jurisdictions. While neither the exact extent of a
potential development nor a starting date for construction can be
determined at this time, the Company is currently contemplating
an investment of approximately $600-$700 million to construct
this hotel/casino megaresort.
The collective bargaining agreement with one of the Company's
largest unions expired May 31, 1997. The agreement has been
extended indefinitely as negotiations continue on a new contract.
The Company does not anticipate any difficulties in renewing the
contract.
The Company believes that it has ample capital resources, through
its existing bank arrangements and its operating cash flows, to
meet all of its existing cash obligations, fund its commitments
on the projects enumerated above and opportunistically repurchase
shares. The Company believes that additional funds could be
raised through debt or equity markets, if necessary.
Forward-Looking Statements
Certain information included in this report and other materials
filed or to be filed by the Company with the Securities and
Exchange Commission (as well as information included in oral
statements or written statements made or to be made by the
Company) contains statements that are forward-looking within the
meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as
amended. Such statements include information relating to current
expansion projects, plans for future expansion projects and other
business development activities as well as other capital
spending, financing sources and the effects of regulation
(including gaming and tax regulation) and competition. Such
forward-looking information involves important risks and
uncertainties that could significantly affect anticipated results
in the future and, accordingly, such results may differ from
those expressed in any forward-looking statements made by or on
behalf of the Company. These risks and uncertainties include,
but are not limited to, those relating to development and
construction activities, dependence on existing management,
leverage and debt service (including sensitivity to fluctuations
in interest rates), domestic or global economic conditions,
changes in federal or state tax laws or the administration of
such laws, changes in gaming laws or regulations (including the
legalization of gaming in certain jurisdictions) and applications
for licenses and approvals under applicable laws and regulations
(including gaming laws and regulations).
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The 1997 Annual Meeting of the Company's stockholders was
held on June 24, 1997. At the meeting, management's nominees,
Michael S. Ensign, Michael D. McKee and Glenn W. Schaeffer, were
elected to fill the three available positions as Class III
directors. Voting (expressed in number of shares) was as
follows: Mr. Ensign -- 85,045,051 for, 574,712 against or
withheld and no abstentions or broker non-votes; Mr. McKee --
85,041,960 for, 577,803 against or withheld and no abstentions or
broker non-votes; and Mr. Schaeffer -- 85,046,411 for, 573,352
against or withheld and no abstentions or broker non-votes.
At the meeting, stockholders approved amendments to the
Company's 1989 and 1993 stock option plans and 1991 stock
incentive plan. The vote on the proposal was as follows:
84,147,296 shares for, 1,137,881 shares against or withheld and
334,586 abstentions or broker non-votes.
At the meeting, stockholders ratified the appointment of
Arthur Andersen LLP as the Company's independent auditors to
examine and report on its financial statements for the fiscal
year ending January 31, 1998, by a vote of 85,273,753 shares for,
141,718 shares against or withheld and 204,292 abstentions or
broker non-votes.
Item 6. Exhibits and Reports on Form 8-K.
(a) The exhibits filed as part of this report are listed on
the Index to Exhibits accompanying this report.
(b) Reports on Form 8-K. No report on Form 8-K was filed
during the period covered by this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
CIRCUS CIRCUS ENTERPRISES, INC.
(Registrant)
Date: September 12, 1997 By Clyde T. Turner
Clyde T. Turner
Chairman of the Board and
Chief Executive Officer
Date: September 12, 1997 By Glenn Schaeffer
Glenn Schaeffer
President, Chief Financial
Officer and Treasurer
INDEX TO EXHIBITS
Exhibit
No. Description
27. Financial Data Schedule for the six months ended July
31, 1997 as required under EDGAR.
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