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 April 30, 1998
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 May 31. 1998
Common Stock, $.01-2/3 par value 95,129,383 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
April 30, 1998 (Unaudited) and January 31,
1998......................................... 3-4
Condensed Consolidated Statements of Income
(Unaudited) for the Three Months Ended
April 30, 1998 and 1997...................... 5
Condensed Consolidated Statements of Cash
Flows (Unaudited) for the Three Months Ended
April 30, 1998 and 1997...................... 6-7
Notes to Condensed Consolidated Financial
Statements (Unaudited)....................... 8-17
Item 2. Management's Discussion and Analysis of Fi-
nancial Condition and Results of Operations.. 18-24
Item 3. Quantitative and Qualitative Disclosures
About Market Risks........................... 25
Part II. OTHER INFORMATION 26
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CIRCUS CIRCUS ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
April 30, January 31,
1998 1998
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents................ $ 73,656 $ 58,631
Receivables.............................. 21,566 33,640
Inventories.............................. 22,834 22,440
Prepaid expenses and other............... 27,058 28,152
Total current assets................ 145,114 142,863
PROPERTY, EQUIPMENT AND LEASEHOLD INTERESTS,
at cost, less accumulated depreciation
and amortization of $655,266 and $624,205,
respectively............................. 2,617,794 2,466,848
EXCESS OF PURCHASE PRICE OVER FAIR MARKET
value of net assets acquired, net........ 372,822 375,375
INVESTMENTS IN UNCONSOLIDATED AFFILIATES.... 265,865 255,392
OTHER ASSETS................................ 22,359 23,070
Total Assets......................... $3,423,954 $3,263,548
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
April 30, January 31,
1998 1998
(Unaudited)
CURRENT LIABILITIES:
Current portion of long-term debt................ $ 2,991 $ 3,071
Accounts payable - trade ........................ 29,467 22,103
Accounts payable - construction.................. 51,639 40,670
Accrued liabilities ............................. 106,124 101,114
Total current liabilities ................ 190,221 166,958
LONG-TERM DEBT ...................................... 1,903,083 1,788,818
DEFERRED INCOME TAX ................................. 177,745 175,934
OTHER LONG-TERM LIABILITIES ......................... 7,330 8,089
Total liabilities ........................ 2,278,379 2,139,799
STOCKHOLDERS' EQUITY:
Common stock, $.01-2/3 par value
Authorized - 450,000,000 shares
Issued - 113,622,508 and 113,609,008 shares ... 1,894 1,893
Preferred stock, $.01 par value
Authorized - 75,000,000 shares ................ - -
Additional paid-in capital ...................... 558,839 558,658
Retained earnings ............................... 1,095,879 1,074,271
Treasury stock (18,493,125 and 18,496,125 shares),
at cost........................................ (511,037) (511,073)
Total stockholders' equity ............... 1,145,575 1,123,749
Total Liabilities and
Stockholders' Equity .................. $3,423,954 $3,263,548
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
Ended April 30,
REVENUES: 1998 1997
Casino ....................................... $168,417 $160,595
Rooms ........................................ 87,799 86,323
Food and beverage ............................ 60,089 53,965
Other ........................................ 37,984 33,673
Earnings of unconsolidated affiliates ........ 22,051 25,256
376,340 359,812
Less-complimentary allowances ................ (19,378) (15,714)
356,962 344,098
COSTS AND EXPENSES:
Casino ....................................... 84,069 72,478
Rooms ........................................ 31,422 30,153
Food and beverage ............................ 51,094 48,019
Other operating expenses ..................... 24,097 20,015
General and administrative ................... 65,127 54,652
Depreciation and amortization ................ 33,966 28,344
289,775 253,661
OPERATING PROFIT BEFORE CORPORATE
EXPENSE ...................................... 67,187 90,437
CORPORATE EXPENSE .............................. 6,128 7,799
INCOME FROM OPERATIONS ......................... 61,059 82,638
OTHER INCOME (EXPENSE):
Interest, dividend and
other income ............................... 920 896
Interest income and guarantee
fees from unconsolidated affiliate ......... 798 1,726
Interest expense ............................. (23,823) (21,667)
Interest expense from unconsolidated
affiliates ................................. (3,160) (4,226)
(25,265) (23,271)
INCOME BEFORE PROVISION FOR
INCOME TAX.................................... 35,794 59,367
Provision for income tax ..................... 14,187 21,878
NET INCOME ..................................... $ 21,607 $ 37,489
BASIC EARNINGS PER SHARE........................ $ .23 $ .40
DILUTED EARNINGS PER SHARE...................... $ .23 $ .39
Average shares outstanding - basic............ 95,122,726 94,596,540
Average shares outstanding - diluted.......... 95,294,160 95,258,403
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)
Three Months
Ended April 30,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 21,607 $ 37,489
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 35,983 31,162
Gain on disposition of fixed assets (422) (171)
Decrease in other current assets 12,744 6,839
Increase in other noncurrent assets 671 320
Increase in interest payable 5,060 16,206
Increase in other current liabilities 7,314 21,208
Increase in deferred income tax 1,811 3,137
Decrease in other noncurrent liabilities (16) (16)
Unconsolidated affiliates' earnings in
excess of distributions (9,050) (10,952)
Total adjustments 54,095 67,733
Net cash provided by operating activities 75,702 105,222
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (184,379) (124,696)
Increase (decrease) in construction payable 10,969 (1,311)
Increase in investments in unconsolidated
affiliates (1,510) (2,085)
Proceeds from sale of equipment and other assets 528 217
Other 61 81
Net cash used in investing activities (174,331) (127,794)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net effect on cash of issuances and payments
of debt with original maturities of
three months or less 251,434 171,628
Issuances of debt with original maturities
in excess of three months 21,736 11,337
Principal payments of debt with original
maturities in excess of three months (159,015) (163,094)
Exercise of stock options and warrants 219 1,735
Purchases of treasury stock - (1,300)
Other (720) (1,199)
Net cash provided by financing activities 113,654 19,107
Net increase (decrease) in cash and cash equivalents 15,025 (3,465)
Cash and cash equivalents at beginning of period 58,631 69,516
Cash and cash equivalents at end of period $ 73,656 $ 66,051
CIRCUS CIRCUS ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(In thousands)
(Unaudited)
Three Months
Ended April 30,
1998 1997
SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid during the period for:
Interest (net of amount capitalized) $ 18,125 $ 4,808
Income tax $ 120 $ 70
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 months ended April 30, 1998 and 1997
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 hotel and 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-month
period 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 months ended April 30, 1997 to conform
to the financial statement presentation for the three months
ended April 30, 1998. 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, 1998.
(2) Long-term debt -
Long-term debt consists of the following (in thousands):
April 30, January 31,
1998 1998
(Unaudited)
Amounts due under corporate
debt program at floating
interest rates, weighted
average of 5.9% and 5.8% $591,241 $981,310
Amounts due under bank credit
agreement at floating interest
rates, weighted average of 6.3% 505,000 -
6.45% Senior Notes due 2006
(net of unamortized discount
of $341 and $352) 199,659 199,648
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 $83 and $87) 149,917 149,913
7.0% Debentures due 2036
(net of unamortized
discount of $143 and $146) 149,857 149,854
6.70% Debentures due 2096
(net of unamortized discount
of $267 and $279) 149,733 149,721
Other notes 10,667 11,443
1,906,074 1,791,889
Less - current portion (2,991) (3,071)
$1,903,083 $1,788,818
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
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
(2) Long-term debt (continued) -
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 senior and total debt and
new venture capital expenditures and investments. The Facility
is for general corporate purposes. The Company incurs commitment
fees (currently 17.5 basis points) on the unused portion of the
Facility. As of April 30, 1998, the Company had $505 million
outstanding under the Facility. At such date, the Company also
had $591.2 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.
In February 1996, the Company issued $200 million principal
amount of 6.45% Senior Notes due February 1, 2006 (the "6.45%
(2) Long-term debt (continued) -
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.
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
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
(2) Long-term debt (continued) -
Company has interest rate swap agreements under which it pays a
fixed interest rate (weighted average of approximately 6.2%) and
receives a variable interest rate (weighted average of
approximately 5.7% at April 30, 1998) on $175 million notional
amount of "initial" swaps, and pays a variable interest rate of
approximately 5.8% at April 30, 1998, 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 April 30, 1998, was approximately 0.1% on
the total notional amount of the swaps. Two of the initial swaps
with a combined notional amount of $150 million provide that the
swaps will terminate two business days after any date on which
three-month LIBOR is set at or above 9% on or after October 15,
2000 for $100 million notional amount and on or after January 15,
2001 for $50 million notional amount. These swaps otherwise
terminate in fiscal 2008. The remaining initial swap of $25
million terminates in fiscal 2000 while the reversing swap
expires in fiscal 2002.
As of April 30, 1998, under its most restrictive loan
covenants, the Company was restricted as to the purchase of its
own capital stock in excess of $485 million and was restricted
from issuing additional debt in excess of approximately $100
million. In order to provide increased borrowing capacity during
the period when construction of Mandalay Bay is being completed,
the credit facility was amended in May 1998 to provide a more
liberal leverage test on total debt during such period and a new
leverage test on senior debt.
(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.
(3) Stock options (continued) -
Summarized information for stock option plans is as follows:
Three Months Ended
April 30, 1998
Weighted
Average
Exercise
Options Price
Outstanding at beginning of period.. 5,115,255 $23.93
Granted............................. 140,000 22.69
Exercised........................... (16,500) 13.29
Cancelled........................... (18,200) 22.06
Outstanding at end of period........ 5,220,555 $23.94
Options exercisable at end of period 3,360,253 $22.66
Options available for grant at end
of period......................... 3,933,350
(4) Stock related matters -
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
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
(4) Stock related matters (continued) -
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.
During the year ended January 31, 1998, 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.
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.
(5) Earnings per share -
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128 -
Earnings Per Share ("SFAS 128"). SFAS 128 is effective for
periods ending after December 15, 1997 and replaces earnings per
share as previously reported with "basic", or undiluted earnings
per share, and "diluted" earnings per share. Basic earnings per
share is computed by dividing net income by the weighted average
number of common shares outstanding during the period, while
diluted earnings per share reflects the additional dilution for
all potentially dilutive securities, such as stock options.
The Company has adopted the provisions of SFAS 128 and all
previously reported earnings per share amounts have been
restated. The table below reconciles weighted average shares
outstanding used to calculate basic earnings per share with the
weighted shares outstanding used to calculate diluted earnings
per share. There were no reconciling items for net income.
(5) Earnings per share (continued) -
Three months ended April 30,
(in thousands, except earnings per share) 1998 1997
Net income $21,607 $37,489
Weighted average shares out-
standing used in computation
of basic earnings per share 95,123 94,597
Stock options 171 662
Weighted average shares out-
standing used in computation
of diluted earnings per share 95,294 95,259
Basic earnings per share $0.23 $0.40
Diluted earnings per share $0.23 $0.39
(6) 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
unconsolidated affiliates consist of the following (in
thousands):
April 30, January 31,
1998 1998
(Unaudited)
Circus and Eldorado Joint Venture (50%)
(Silver Legacy, Reno, Nevada) $ 66,393 $ 64,407
Elgin Riverboat Resort (50%)
(Grand Victoria, Elgin, Illinois) 43,334 44,759
Victoria Partners (50%)
(Monte Carlo, Las Vegas, Nevada) 148,344 139,958
Detroit Entertainment (45%)
(Proposed Hotel/Casino, Detroit, Michigan) 7,794 6,268
$265,865 $255,392
(6) Investments in unconsolidated affiliates (continued) -
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):
Three Months
Ended March 31,
1998 1997
Revenues $163,513 $159,495
Expenses 125,132 113,995
Operating income 38,381 45,500
Net income 32,015 36,717
Included in the above are revenues of the Grand Victoria of
$64,994 and $62,218 for the three months ended March 31, 1998 and
1997. The property's operating margin during those periods was
27% and 35%, respectively.
(7) 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 $230 million bank 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). In
November 1997, the joint venture repaid an outstanding loan to
the Company in the principal amount of $35.1 million.
In Tunica County, Mississippi, the Company recently
completed construction on a 1,100-room tower addition to its
casino, which was also remodeled and rechristened Gold Strike
Casino Resort. The remodeled casino opened prior to the 1997
Labor Day weekend and the majority of the new rooms were in
service by February 1998. The total cost of this expansion was
approximately $140 million.
The Company is constructing a 3,700-room luxury destination
resort set on 60 acres just south of Luxor. Mandalay Bay is
slated to open in March 1999 and will be the third property
developed within Circus' Masterplan Mile. Mandalay Bay's
attractions will include an 11-acre tropical lagoon featuring a
(7) Commitments and contingent liabilities (continued) -
sand-and-surf beach, a three-quarter mile lazy river ride and a
swim-up shark tank. Inside, Mandalay Bay will offer
internationally renowned restaurants, as well as a House of Blues
nightclub and restaurant, including its signature Foundation Room
sited on Mandalay Bay's rooftop and 100 "music-themed" hotel
rooms in Mandalay Bay's towers. The resort will also feature
convention facilities and a 30,000-square-foot spa, plus multiple
entertainment attractions, including a 12,000-seat arena. The
cost of Mandalay Bay is currently estimated at approximately $950
million (excluding land) and as of April 30, 1998, $426.5 million
in costs had been incurred for this project.
Within Mandalay Bay and as part of its 3,700 rooms, there
will be a Four Seasons Hotel of approximately 400 rooms, which
will provide Las Vegas visitors with a luxury "five-star"
hospitality experience. This hotel, 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.
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 April 30, 1998, the Company reported net
income of $21.6 million, or $.23 per share, versus $37.5 million,
or $.40 per share, in the prior year quarter. The decline in
earnings was due primarily to lower operating results at the
Company's core Las Vegas properties.
Revenues
Revenues for the Company increased $12.9 million, or 4%, versus
the prior year. The increase in revenues was attributable to two
properties. First, the completion of an 1,100-room hotel tower
at Gold Strike-Tunica during the quarter contributed to an
increase in revenues at that property of $14.1 million, or 136%.
Second, revenues at Luxor increased $12.1 million, or 17%, due to
an increase in the amount of high-budget play in the casino and
the opening of a new 1,200-seat showroom in the third quarter of
the prior year.
The increases noted above were partially offset by decreases in
revenues at both Circus Circus-Las Vegas and Excalibur. Circus
Circus declined $2.5 million, or 4%, while Excalibur declined
$3.6 million, or 5%. These decreases are due primarily to the
continued soft market conditions in Las Vegas, particularly
during mid-week periods. Also, an increase in the maximum tax
rate on casino revenues in Illinois from 20% to 35% reduced the
contribution from Grand Victoria (50%-owned by the Company) by
$3.1 million, or 27%.
Operating Income
For the quarter ended April 30, 1998, income from operations
declined $21.6 million, or 26%, from the prior year. The
Company's composite operating margin was 17.1% versus 24.0% in
the prior year quarter. A discussion of operating results by
market follows.
Las Vegas
The Company's Las Vegas properties posted an overall decrease in
operating income of $14.7 million, or 25%. Declines occurred at
all of the Company's wholly owned properties. At Luxor,
operating income fell $5.5 million, or 31%, as results were<PAGE>
affected by the
additional costs associated with a new national
advertising campaign which began in February, as well as
increases in casino promotional expenses and a lower hold
percentage on table games. At Excalibur, operating income
decreased $4.9 million, or 22%, while Circus Circus decreased
$3.8 million, or 38%. Each of the Company's Las Vegas properties
has been negatively affected by overall soft conditions in the
market, particularly during mid-week.
Reno
In Reno, the Company's combined operating income declined $1.8
million, or 24%, versus the year ago quarter. This market
suffered from adverse weather conditions in February, making
travel in and out of the area difficult. However, results in
Reno benefitted from the Company recording its priority return
from the 50%-owned Silver Legacy. This priority return began in
the second quarter of the prior year and provides the Company
with approximately two-thirds of the operating income of the
joint venture. This priority return in expected to continue
through fiscal 2000.
Laughlin
The Company's two properties in Laughlin, the Colorado Belle and
the Edgewater, posted a combined decrease in operating income of
$1.6 million, or 19%. 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 Gold Strike
rose to $1.4 million, a 13% increase over the prior year. During
the quarter, the Company completed construction of a 1,100-room
hotel tower.
Results at Grand Victoria (a 50% owned riverboat casino in Elgin,
Illinois) reflected a $3.2 million decrease in the Company's
share of operating income. An increase in the maximum tax rate
on casino revenues in Illinois from 20% to 35% reduced the
contribution from Grand Victoria.
Interest Expense
For the three months ended April 30, 1998, interest expense
(excluding joint venture interest expense) increased $2.2 million
versus the prior year. The increase was due principally to
higher average borrowings (approximately $1.9 billion in the
current quarter against approximately $1.4 billion last year)
related to various construction projects (primarily the ongoing
construction of Mandalay Bay, the completion of a new hotel tower
at Gold Strike-Tunica and the completion of various improvements
at Luxor). Capitalized interest was $7.1 million for the quarter
ended April 30, 1998 versus $3.6 million in the year-ago quarter.
Long-term debt at April 30, 1998 stood at $1.9 billion compared
to $1.4 billion at April 30, 1997.
The Company also recorded interest expense related to joint
venture projects of $3.2 million in the quarter ended April 30,
1998 compared to $4.2 million in the previous year. This
reflects the Company's 50% share of the interest expense of
Silver Legacy and Monte Carlo.
Income Tax
For the three months ended April 30, 1998, the Company's
effective tax rate was 39.6% compared with 36.9% for the three
months ended April 30, 1997. 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.
Financial Position and Capital Resources
The Company had cash and cash equivalents of $73.7 million at
April 30, 1998, representing normal daily operating requirements.
The Company's pretax cash flow from operations, before asset
write-offs, was $97.0 million for the three months ended April
30, 1998 versus $113.9 million in the prior year, a decrease of
15%. 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 used its cash flow primarily to fund the construction
of Mandalay Bay, the completion of a new hotel tower at Gold
Strike-Tunica and miscellaneous other construction projects.
Capital Spending
Capital expenditures for the quarter ended April 30, 1998 were
$184.4 million, of which $153.3 million related to the
construction of Mandalay Bay and $14.2 million related to the
completion of construction and remodeling at Gold Strike-Tunica.
Credit Facility
In May 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). The Company also has a $1.0 billion commercial
paper program which is backed by the credit facility. As of
April 30, 1998, Circus had aggregate borrowings of $1.1 billion
outstanding under the credit facility and commercial paper
program and under the Company's most restrictive loan covenants,
it could issue additional debt of approximately $100 million.
In order to provide increased borrowing capacity during the
period when construction of Mandalay Bay is being completed, the
credit facility was amended in May 1998 to provide a more liberal
leverage test on total debt during such period and a new leverage
test on senior debt.
Joint Ventures
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 $230 million bank 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).
New Projects
The Company is constructing a 3,700-room luxury destination
resort set on 60 acres just south of Luxor. Mandalay Bay is
slated to open in March 1999 and will be the third property
developed within Circus' Masterplan Mile. Mandalay Bay's
attractions will include an 11-acre tropical lagoon featuring a
sand-and-surf beach, a three-quarter-mile lazy river ride and a
swim-up shark tank. Inside, Mandalay Bay will offer
internationally renowned restaurants, as well as a House of Blues
<PAGE>
nightclub and restaurant, including its signature Foundation Room
sited on Mandalay Bay's rooftop and 100 "music-themed" hotel
rooms in Mandalay Bay's towers. The resort will also feature
convention facilities and a 30,000-square-foot spa, plus multiple
entertainment attractions, including a 12,000-seat arena. The
cost of Mandalay Bay is currently estimated at approximately $950
million (excluding land) and as of April 30, 1998, $426.5 million
in costs had been incurred for this project.
Within Mandalay Bay and as part of its 3,700 rooms, there will
also be a Four Seasons Hotel of approximately 400 rooms, which
will provide Las Vegas visitors with a luxury "five-star"
hospitality experience. This hotel, 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.
In Tunica County, Mississippi, the Company recently completed
construction of a 1,100-room tower addition to its casino, which
was also remodeled and rechristened Gold Strike Casino Resort.
The remodeled casino opened prior to the 1997 Labor Day weekend
and all of the new rooms were in service by March 1998. The
total cost of this expansion was approximately $140 million.
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, which will have approximately
1,500 rooms, is estimated to cost $225 million. The Company has
received all necessary approvals to commence development.
However, these approvals have been challenged in state and
federal court, and the Company expects construction to begin only
after satisfactory resolution of all legal actions. As the
project is presently contemplated, Circus will own 90% of the
resort, with a partner contributing land (up to 500 acres) in
exchange for the remaining 10% interest.
The Company has formed a joint venture with the Detroit-based
Atwater Casino Group, comprised of numerous Detroit-area
business, education, civic and community leaders. Circus will
own a 45% equity interest in the proposed project and receive a
management fee. On November 21, 1997, the joint venture was
selected to be one of three groups permitted to negotiate a
development agreement with the city, and its development
agreement was approved by the city council on April 9, 1998. The
joint venture's ability to proceed with the proposed project is
contingent upon the receipt of all necessary gaming approvals and
satisfaction of other customary conditions. The joint venture is
planning a $600 million project, of which the Company would be
required to contribute 20% in equity, with the balance provided
through project-specific financing. If the Company proceeds with
the project, it will guarantee completion of the facility and
will be required to give a keep-well guarantee, pursuant to which
the Company would contribute additional funds, if and as needed,
to continue operations of the project for a period of two years.
The Company has entered into an agreement with Mirage Resorts to
participate in the development of a site located in the Marina
District of Atlantic City, New Jersey. As reported by Mirage,
the site consists of 181 acres, of which about 125 acres are
developable. The site is the subject of an agreement between
Mirage and Atlantic City which provides (as reported by Mirage)
that the city will convey the site to Mirage in exchange for
Mirage's agreeing to develop a hotel/casino thereon and to
undertake certain other obligations.
On January 8, 1998, the City of Atlantic City transferred title
to the land to a subsidiary of Mirage. Shortly thereafter,
Mirage purported to cancel its agreement with the Company, and
filed suit to have the agreement declared invalid. The Company
has filed its own suit against Mirage seeking, among other
things, to enforce the agreement. The Company and Mirage are
engaged in settlement discussions to resolve this dispute.
However, there can be no assurances as to when or whether a
settlement will be reached or whether the Company will prevail in
the litigation. In any event, various governmental permits
required for the development of the site have not yet been
received.
Additionally, as reported by Mirage, an existing Atlantic City
hotel/casino operator and others have filed various lawsuits
which seek to prevent Mirage's acquisition of the site and
construction of road improvements to the site. These lawsuits
have the potential to delay or prevent the Company's acquisition
of a portion of the site from Mirage and development of a
hotel/casino. Moreover, in order to proceed, the Company must
obtain the requisite gaming and other approvals (including
various governmental permits required for the development of the
site) and licenses in New Jersey and various other jurisdictions.
While the Company and a wholly owned subsidiary have initiated
the gaming application process, based upon the contingencies and
impediments to this project, there can be no assurances as to
whether or when the Company will proceed with the development of
a hotel/casino on the Atlantic City site or the magnitude of the
Company's investment in any such project.
Other Matters
The Company believes that, through a combination of its credit
facility, operating cash flows and ability to raise additional
funds through debt or equity markets, it has sufficient capital
resources to meet all of its existing cash obligations and fund
its commitments on the projects underway.
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).
CIRCUS CIRCUS ENTERPRISES, INC. AND SUBSIDIARIES
Item 3. Quantitative and Qualitative Disclosures About Market
Risks
As of April 30, 1998 there were no material changes to the
information incorporated by reference in Item 7A of the Company's
Form 10-K for the fiscal year ended January 31, 1998.
PART II. OTHER INFORMATION
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: June 12, 1998 By GLENN SCHAEFFER
Glenn Schaeffer
President, Chief Financial
Officer and Treasurer
INDEX TO EXHIBITS
Exhibit
No. Description
4(a). Amendment No. 2 to the $2.0 Billion Loan Agreement, by
and among the Company, the Banks named therein and Bank
of America National Trust and Savings Association, as
administrative agent for the Banks.
27. Financial Data Schedule for the three months ended
April 30, 1998 as required under EDGAR.
Exhibit 4(a)
AMENDMENT NO. 2
This Amendment No. 2 to Loan Agreement dated as of May 15 ,
1998 is executed with reference to the Amended and Restated Loan
Agreement dated as of May 23, 1997 among Circus Circus
Enterprises, Inc., a Nevada corporation, the Banks, Managing
Agents, as Co-Agents, and Lead Managers named therein, and Bank
of America National Trust and Savings Association, as Issuing
Bank and Administrative Agent. The aforementioned Loan Agreement
has previously been amended by an Amendment No. 1 thereto dated
as of October 3, 1997 (as so amended, the Loan Agreement ).
Terms defined in the Loan Agreement are used herein with the same
meanings.
The parties hereto agree to amend the Loan Agreement as
follows:
1. Additional Definitions. Section 1.1 of the Loan
Agreement is hereby amended to add the following to the list of
terms defined therein:
"Average Daily Senior Debt" means, as of the last day
of each Fiscal Quarter, the average daily principal amount
of Total Debt minus Subordinated Debt during the calendar
month ending on such date.
"Senior Debt Ratio" means, as of the last day of any
Fiscal Quarter, the ratio of (a) Average Daily Senior Debt
on that date, to (b) the greater of (i) Adjusted EBITDA for
the four Fiscal Quarter period ending on that date, or (ii)
four times Adjusted EBITDA for the Fiscal Quarter ending on
that date.
2. Revised Leverage Requirements. Section 6.11 of the
Loan Agreement is hereby amended to read in full as follows:
"6.11 Leverage Ratios.
(a) Permit the Senior Debt Ratio to exceed, as of the
last day of any Fiscal Quarter described below, the maximum
ratio set forth opposite that Fiscal Quarter:
Fiscal Quarters Ending Maximum Senior Debt Ratio
Closing Date through April 30, 1998 5.00:1.00
July 31, 1998 through April 30, 1999 4.50:1.00
July 31, 1999 through January 31, 2000 3.75:1.00
April 30, 2000 through January 31, 2002 3.50:1.00
Thereafter 3.00:1.00; or
(b) Permit the Total Debt Ratio to exceed, as of the
last day of any Fiscal Quarter described below, the maximum
ratio set forth opposite that Fiscal Quarter:
Fiscal Quarters Ending Maximum Total Debt Ratio
Closing Date through April 30, 1998 5.00:1.00
July 31, 1998 5.75:1.00
October 31, 1998 through April 30, 1999 6.00:1.00
July 31, 1999 through January 31, 2001 4.75:1.00
April 30, 2001 through January 31, 2002 4.50:1.00
Thereafter 4.00:1.00."
3. Treatment of Certain Preferred Stock. The Banks hereby
acknowledge and agree that preferred stock or similar instruments
hereafter issued by Borrower or its Subsidiaries which is not
properly classified as indebtedness under Generally Accepted
Accounting Principles shall not be included in Total Debt for the
purpose of computing the Senior Debt Ratio and the Total Debt
Ratio.
4. Excess Leverage Fee. With respect to each Fiscal
Quarter ending following the date of this Amendment for which the
Total Debt Ratio is in excess of 5.00 to 1.00, Borrower hereby
agrees to pay to the Banks (ratably in accordance with their Pro
Rata Shares through the Administrative Agent) an excess leverage
fee equal to (a) 2.5 basis points times (b) the average daily
principal amount of the Loans. Borrower shall pay this fee on
the date which is 60 days following the last day of each such
Fiscal Quarter and its obligation to pay this fee shall survive
any intervening repayment of the Obligations or termination of
the Commitment.
5. Conditions Precedent. As conditions precedent to the
effectiveness of this Amendment, the Administrative Agent shall
have received executed counterparts of this Amendment from
Borrower, consented to be each Subsidiary Guarantor, and consents
hereto from Banks comprising at least the Requisite Banks.
6. Counterparts. This Amendment may be executed in
counterparts in accordance with Section 11.7 of the Loan
Agreement.
7. Confirmation. In all other respects, the Loan
Agreement is confirmed.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the date first written above by their duly
authorized representatives.
CIRCUS CIRCUS ENTERPRISES, INC.
By: GLENN SCHAEFFER
Title: PRESIDENT
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Administrative Agent
By: JANICE HAMMOND
Title: VICE PRESIDENT
The undersigned Subsidiaries of Borrower hereby consent to
the execution, delivery and performance of the foregoing
amendment, and reaffirm the Subsidiary Guaranty.
CIRCUS CIRCUS CASINOS, INC., a Nevada corporation
CIRCUS CIRCUS MISSISSIPPI, INC., a Mississippi corporation
COLORADO BELLE CORP., a Nevada corporation
EDGEWATER HOTEL CORPORATION, a Nevada corporation
GALLEON, INC., a Nevada corporation
NEW CASTLE CORP., a Nevada corporation
RAMPARTS, INC., a Nevada corporation
SLOTS-A-FUN, INC., a Nevada corporation
By: GLENN SCHAEFFER
Glenn Schaeffer, as President of the foregoing
CIRCUS CIRCUS DEVELOPMENT CORP., a Nevada corporation
LAST CHANCE INVESTMENTS, INCORPORATED, a Nevada corporation
By: WILLIAM A. RICHARDSON
William A. Richardson, as President of the foregoing
DIAMOND GOLD, INC., a Nevada corporation
OASIS DEVELOPMENT COMPANY, INC., a Nevada corporation
By: PETER A. SIMON
Peter A. Simon, as President of the foregoing
GOLD STRIKE INVESTMENTS, INCORPORATED, a Nevada corporation
By: DAVID R. BELDING
David R. Belding, as President
M.S.E. INVESTMENTS, INCORPORATED, a Nevada corporation
By: MICHAEL S. ENSIGN
Michael S. Ensign, as President
PINKLESS, INC., a Nevada corporation
By: YVETTE E. LANDAU
Yvette E. Landau, as Secretary
RAILROAD PASS INVESTMENT GROUP, a Nevada partnership
JEAN DEVELOPMENT COMPANY, a Nevada partnership
JEAN DEVELOPMENT WEST, a Nevada partnership
NEVADA LANDING PARTNERSHIP, an Illinois partnership
GOLD STRIKE L.V., a Nevada partnership
JEAN DEVELOPMENT NORTH, a Nevada partnership
LAKEVIEW GAMING PARTNERSHIPS JOINT VENTURE, a Nevada partnership
By: Railroad Pass Investment Group general partner of each
of the foregoing
By: M.S.E. Investments, Incorporated
Its: general partner
By: MICHAEL S. ENSIGN
Michael S. Ensign, President
CONSENT OF BANK
This Consent of Bank is delivered with reference to the
Amended and Restated Loan Agreement dated as of May 23, 1997
among Circus Circus Enterprises, Inc., a Nevada corporation,
the Banks, Co-Agents, Managing Agents and Lead Managers
referred to therein, and Bank of America National Trust and
Savings Association, as Issuing Bank and Administrative Agent
(as amended, the Loan Agreement ). Capitalized terms used but
not defined herein are used with the meanings set forth for
those terms in the Loan Agreement.
The undersigned Bank hereby consents to the execution,
delivery and performance of the proposed Amendment No. 2 to
Loan Agreement by the Administrative Agent on behalf of the
Banks, substantially in the form presented to the undersigned
as a draft.
BANK OF AMERICA
[Typed/Printed Name of Bank]
By: JON VARNELL
JON VARNELL, MANAGING DIRECTOR
[Typed/Printed Name and Title]
By: _____________________________
_________________________________
[Typed/Printed Name and Title]
Dated: May 15 , 1998
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