<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------
FORM 10-Q
<TABLE>
<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE QUARTERLY PERIOD ENDED APRIL 30, 2000
OR
<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 1-8570
MANDALAY RESORT GROUP
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
NEVADA 88-0121916
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
3950 LAS VEGAS BOULEVARD SOUTH, (702) 632-6700
LAS VEGAS, NEVADA 89119 (Registrant's telephone number, including area
code)
(Address of principal executive offices)
</TABLE>
(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.
<TABLE>
<S> <C>
CLASS OUTSTANDING AT MAY 31, 2000
Common Stock, $.01-2/3 par value 78,120,928 shares
</TABLE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE NO.
---------
<S> <C> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets at April 30, 2000
(Unaudited) and January 31, 2000.......................... 3-4
Condensed Consolidated Statements of Income (Unaudited) for
the Three Months Ended April 30, 2000 and 1999............ 5-6
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the Three Months Ended April 30, 2000 and 1999........ 7
Notes to Condensed Consolidated Financial Statements
(Unaudited)............................................... 8-13
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 14-18
Item 3. Quantitative and Qualitative Disclosures About Market
Risks..................................................... 19
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................ 20
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MANDALAY RESORT GROUP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31,
2000 2000
----------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 142,578 $ 116,617
Receivables............................................... 74,964 62,167
Inventories............................................... 27,326 28,499
Prepaid expenses and other................................ 68,831 74,256
---------- ----------
Total current assets.................................... 313,699 281,539
PROPERTY, EQUIPMENT AND LEASEHOLD INTERESTS,
at cost, less accumulated depreciation and amortization of
$944,152 and $893,776, respectively....................... 3,316,521 3,335,071
EXCESS OF PURCHASE PRICE OVER FAIR MARKET
value of net assets acquired, net......................... 393,362 396,433
NOTES RECEIVABLE............................................ 3,798 1,605
INVESTMENTS IN UNCONSOLIDATED AFFILIATES.................... 262,268 264,995
OTHER ASSETS................................................ 60,281 49,833
---------- ----------
Total Assets............................................ $4,349,929 $4,329,476
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31,
2000 2000
----------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt......................... $ 25,271 $ 13,022
Accounts payable - trade.................................. 43,863 40,395
Accounts payable - construction........................... 9,575 33,415
Accrued liabilities....................................... 206,660 157,787
---------- ----------
Total current liabilities............................... 285,369 244,619
LONG-TERM DEBT.............................................. 2,803,705 2,691,292
DEFERRED INCOME TAX......................................... 215,788 210,689
OTHER LONG-TERM LIABILITIES................................. 20,459 20,192
---------- ----------
Total liabilities....................................... 3,325,321 3,166,792
---------- ----------
MINORITY INTEREST........................................... (21,505) (25,096)
---------- ----------
STOCKHOLDERS' EQUITY:
Common stock, $.01-2/3 par value
Authorized - 450,000,000 shares
Issued - 113,634,013 shares............................. 1,894 1,894
Preferred stock, $.01 par value
Authorized - 75,000,000 shares.......................... -- --
Additional paid-in capital................................ 565,887 565,925
Retained earnings......................................... 1,250,490 1,201,632
Treasury stock (35,647,584 and 23,764,216 shares), at
cost.................................................... (772,158) (581,671)
---------- ----------
Total stockholders' equity.............................. 1,046,113 1,187,780
---------- ----------
Total Liabilities and Stockholders' Equity.............. $4,349,929 $4,329,476
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED APRIL 30,
-------------------
2000 1999
-------- --------
<S> <C> <C>
REVENUES:
Casino.................................................... $314,659 $216,815
Rooms..................................................... 159,930 130,610
Food and beverage......................................... 105,502 81,355
Other..................................................... 69,748 50,953
Earnings of unconsolidated affiliates..................... 29,649 21,994
-------- --------
679,488 501,727
Less-complimentary allowances............................. (39,872) (30,468)
-------- --------
639,616 471,259
-------- --------
COSTS AND EXPENSES:
Casino.................................................... 162,145 110,519
Rooms..................................................... 50,644 41,965
Food and beverage......................................... 76,781 64,134
Other operating expenses.................................. 50,031 34,599
General and administrative................................ 99,681 73,308
Depreciation and amortization............................. 51,577 41,090
Operating lease rent...................................... 9,680 2,415
Preopening expenses....................................... 255 33,610
-------- --------
500,794 401,640
-------- --------
OPERATING PROFIT BEFORE CORPORATE EXPENSE................... 138,822 69,619
CORPORATE EXPENSE........................................... 7,907 7,120
-------- --------
INCOME FROM OPERATIONS...................................... 130,915 62,499
-------- --------
OTHER INCOME (EXPENSE):
Interest, dividend and other income....................... 2,492 522
Guarantee fees from unconsolidated affiliate.............. 621 715
Interest expense.......................................... (49,487) (33,507)
Interest expense from unconsolidated affiliates........... (2,705) (2,802)
-------- --------
(49,079) (35,072)
-------- --------
MINORITY INTEREST........................................... 3,591 --
-------- --------
INCOME BEFORE PROVISION FOR INCOME TAX...................... 78,245 27,427
Provision for income tax.................................. 29,387 10,288
-------- --------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE................................................. 48,858 17,139
Cumulative effect of change in accounting principle for
preopening expenses, net of tax benefit of $11,843...... -- (21,994)
-------- --------
NET INCOME (LOSS)........................................... $ 48,858 $ (4,855)
======== ========
</TABLE>
5
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED APRIL 30,
-------------------------
2000 1999
----------- -----------
<S> <C> <C>
BASIC EARNINGS PER SHARE
Income before cumulative effect of change in accounting
principle............................................... $ 0.58 $ 0.19
Cumulative effect of change in accounting principle....... $ -- $ (0.24)
----------- -----------
Net income (loss) per share............................... $ 0.58 $ (0.05)
=========== ===========
DILUTED EARNINGS PER SHARE
Income before cumulative effect of change in accounting
principle............................................... $ 0.58 $ 0.19
Cumulative effect of change in accounting principle....... $ -- $ (0.24)
----------- -----------
Net income (loss) per share............................... $ 0.58 $ (0.05)
=========== ===========
Average shares outstanding - basic........................ 84,077,239 90,540,287
=========== ===========
Average shares outstanding - diluted...................... 84,779,605 91,583,038
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED APRIL 30,
---------------------
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ 48,858 $ (4,855)
--------- ---------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 54,313 43,262
Gain on disposition of fixed assets..................... (16) (19)
Increase in other current assets........................ (6,199) (35,311)
(Increase) decrease in other noncurrent assets.......... (10,418) 15,703
Increase in interest payable............................ 16,606 13,658
Increase in other current liabilities................... 35,735 19,004
Increase (decrease) in deferred income tax.............. 5,099 (1,990)
Decrease in other noncurrent liabilities................ -- (16)
Unconsolidated affiliates' distributions in excess of
earnings.............................................. 2,556 8,602
Minority interest in earnings........................... 3,591 --
--------- ---------
Total adjustments..................................... 101,267 62,893
--------- ---------
Net cash provided by operating activities............. 150,125 58,038
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (32,640) (213,547)
Decrease in construction payable.......................... (23,840) (24,221)
Increase in investments in unconsolidated affiliates...... -- (2,155)
Proceeds from sale of equipment and other assets.......... 14 251
Increase in notes receivable.............................. (2,193) (6,863)
Other..................................................... 121 --
--------- ---------
Net cash used in investing activities................. (58,538) (246,535)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net effect on cash of issuances and payments of debt with
original maturities of three months or less............. 125,000 204,515
Issuances of debt with original maturities in excess of
three months............................................ -- 480
Principal payments of debt with original maturities in
excess of threemonths................................... (369) (819)
Exercise of stock options and warrants.................... 420 135
Purchases of treasury stock............................... (190,943) (7,258)
Other..................................................... 266 613
--------- ---------
Net cash (used in) provided by financing activities... (65,626) 197,666
--------- ---------
Net increase in cash and cash equivalents................... 25,961 9,169
Cash and cash equivalents at beginning of period............ 116,617 81,389
--------- ---------
Cash and cash equivalents at end of period.................. $ 142,578 $ 90,558
========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid during the period for:
Interest (net of amount capitalized)...................... $ 31,728 $ 18,946
Income tax................................................ $ 365 $ 110
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
7
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(ALL INFORMATION FOR THE THREE MONTHS ENDED APRIL 30, 2000 AND 1999 IS
UNAUDITED.)
(1) PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION--
Mandalay Resort Group (the "Company"), which changed its name from Circus
Circus Enterprises, Inc. effective June 18, 1999, 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. In Detroit, Michigan, the Company is the majority
investor in a temporary casino which opened December 14, 1999. 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, its wholly owned subsidiaries and the Detroit joint venture, which is
required to be consolidated. Material intercompany accounts and transactions
have been eliminated. Investments in 50% or less owned affiliated companies are
accounted for under the equity method.
Minority interest, as reflected on the Condensed Consolidated Financial
Statements, represents the 46.5% interest of the minority partners in MotorCity
Casino in Detroit, Michigan.
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, 1999 to conform to the financial statement
presentation for the three months ended April 30, 2000. 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, 2000.
8
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION FOR THE THREE MONTHS ENDED APRIL 30, 2000 AND 1999 IS
UNAUDITED.)
(2) LONG-TERM DEBT--
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31,
2000 2000
----------- ------------
(UNAUDITED)
<S> <C> <C>
Amounts due under bank credit agreement at floating interest
rates, weighted average of 7.0% and 6.8%.................. $1,550,000 $1,425,000
Amounts due under corporate debt program at floating
interest rates, weighted average of 6.7% and 6.2%......... 50,000 50,000
Amounts due under majority-owned joint venture revolving
credit facility at floating interest rates, weighted
average of 7.3% and 7.1%.................................. 150,000 150,000
9-1/4% Senior Subordinated Notes due 2005................... 275,000 275,000
6.45% Senior Notes due 2006 (net of unamortized discount of
$253 and $264)............................................ 199,747 199,736
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 $51 and $55)...................... 149,949 149,945
7.0% Debentures due 2036 (net of unamortized discount of
$116 and $119)............................................ 149,884 149,881
6.70% Debentures due 2096 (net of unamortized discount of
$171 and $183)............................................ 149,829 149,817
Other notes................................................. 4,567 4,935
---------- ----------
2,828,976 2,704,314
Less - current portion...................................... (25,271) (13,022)
---------- ----------
$2,803,705 $2,691,292
========== ==========
</TABLE>
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 Company has interest rate swap agreements under which it pays a
fixed interest rate (weighted average of approximately 6.1%) and receives a
variable interest rate (weighted average of approximately 6.2% at April 30,
2000) on $550 million notional
9
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION FOR THE THREE MONTHS ENDED APRIL 30, 2000 AND 1999 IS
UNAUDITED.)
(2) LONG-TERM DEBT-- (CONTINUED)
amount of "initial" swaps. The net effect of all such swaps resulted in a
reduction of interest expense of approximately $116,000 for the three months
ended April 30, 2000. 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 two initial swaps of $200 million notional amount each
terminate in fiscal 2003 and 2004.
The Company also entered into a forward interest rate swap with a notional
amount of $200 million which had an effective date of December 31, 1999 and a
termination date of March 31, 2000. Under this agreement, the Company paid a
fixed rate of 6.1% and received a variable interest rate based on three-month
LIBOR.
As of April 30, 2000, under its most restrictive loan covenant, the Company
was restricted from issuing additional debt in excess of approximately $966
million. Our borrowing capacity under this covenant can fluctuate substantially
from quarter to quarter depending upon our operating cash flow.
(3) LEASE FACILITY--
On October 30, 1998, the Company entered into an operating lease agreement
with a group of financial institutions (the "Lease Facility") to permit the
Company to lease up to $200 million of equipment. As of June 30, 1999, the
Company had utilized the entire $200 million Lease Facility to lease equipment
at Mandalay Bay and the commitment under the Company's bank credit facility was
permanently reduced to $1.8 billion. The base term of the lease expires June 30,
2001, but the lease provides for up to two successive one-year renewal terms.
The rent expense related to this lease facility is reported separately on the
income statement as "operating lease rent."
(4) 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 relating to the Company's common
stock and one of the plans also permits grants of the Company's common stock as
performance share and restricted stock awards. The only awards granted pursuant
to such plans through April 30, 2000 are stock options, which are generally
exercisable in one or more installments beginning not less than six months after
the grant date.
10
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION FOR THE THREE MONTHS ENDED APRIL 30, 2000 AND 1999 IS
UNAUDITED.)
(4) STOCK OPTIONS-- (CONTINUED)
Summarized information for stock options granted pursuant to the Company's
plans is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 30, 2000
--------------------
WEIGHTED
AVERAGE
EXERCISE
OPTIONS PRICE
--------- --------
<S> <C> <C>
Outstanding at beginning of period....................... 6,014,959 $13.70
Granted.................................................. 461,500 13.17
Exercised................................................ (37,332) 11.25
Canceled................................................. -- --
--------- ------
Outstanding at end of period............................. 6,439,127 $13.67
========= ======
Options exercisable at end of period..................... 2,931,702 $13.50
Options available for grant at end of period........... 1,465,532
</TABLE>
Options available for grant at April 30, 2000 include 389,500 shares
reserved for issuance only as annual formula awards of 10,000 shares each to
nonemployee directors pursuant to a plan that expires in June 2001.
(5) STOCK RELATED MATTERS--
For the three months ended April 30, 2000, the Company repurchased 11.9
million shares of its common stock at a cost of $190.9 million.
(6) EARNINGS PER SHARE--
The table below reconciles weighted average shares outstanding used to
calculate basic earnings per share with the weighted average shares outstanding
used to calculate diluted earnings per share. There were no reconciling items
for net income.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED APRIL 30,
-------------------
(IN THOUSANDS, EXCEPT 2000 1999
EARNINGS PER SHARE) -------- --------
<S> <C> <C>
Net income (loss)........................................... $48,858 $(4,855)
======= =======
Weighted average shares outstanding used in computation of
basic earnings per share.................................. 84,077 90,540
Stock options............................................... 703 1,043
------- -------
Weighted average shares outstanding used in computation of
diluted earnings per share................................ 84,780 91,583
======= =======
Basic earnings (loss) per share............................. $ .58 $ (.05)
======= =======
Diluted earnings (loss) per share........................... $ .58 $ (.05)
======= =======
</TABLE>
11
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION FOR THE THREE MONTHS ENDED APRIL 30, 2000 AND 1999 IS
UNAUDITED.)
(7) 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):
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31,
2000 2000
----------- ------------
(UNAUDITED)
<S> <C> <C>
Circus and Eldorado Joint Venture (50%) (Silver Legacy,
Reno, Nevada)............................................. $ 89,392 $ 87,150
Elgin Riverboat Resort (50%) (Grand Victoria, Elgin,
Illinois)................................................. 37,297 40,780
Victoria Partners (50%) (Monte Carlo, Las Vegas, Nevada).... 135,579 137,065
-------- --------
$262,268 $264,995
======== ========
</TABLE>
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):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Revenues................................................ $207,869 $174,359
Expenses................................................ 154,095 145,933
Operating income........................................ 53,775 28,426
Net income.............................................. 48,914 23,186
</TABLE>
Included in the above are revenues of the Grand Victoria of $99,767 and
$67,581 for the three months ended March 31, 2000 and 1999. The property's
operating margin during those periods was 30% and 24%, respectively.
(8) 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 of the joint
venture's $230 million bank credit agreement, the Company 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).
We have formed a joint venture with the Detroit-based Atwater Casino Group
to build, own and operate a hotel/casino in Detroit, Michigan. This joint
venture is one of three groups which negotiated development agreements with the
city. We had an initial 45% ownership interest in the joint venture. Effective
December 14, 1999, we acquired an additional 8.5% interest at a cost of $38.4
million, thus increasing our total ownership interest to 53.5%.
Pending the development of a permanent hotel/casino, the joint venture
constructed a temporary casino (MotorCity Casino) in downtown Detroit, which
opened December 14, 1999. MotorCity Casino contains approximately 75,000 square
feet of gaming space, with approximately 2,600 slot machines and
12
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION FOR THE THREE MONTHS ENDED APRIL 30, 2000 AND 1999 IS
UNAUDITED.)
(8) COMMITMENTS AND CONTINGENT LIABILITIES-- (CONTINUED)
136 table games, plus five restaurants and a 3,450-space parking facility. The
cost of the temporary casino, including land and capitalized interest but
excluding preopening expenses, was approximately $150 million. This cost was
financed pursuant to the joint venture's $150 million credit facility, which is
secured by the assets associated with the temporary casino. Mandalay has
guaranteed this credit facility subject to the release of the guaranty if
certain performance measures are reached. The joint venture's operation of the
temporary casino is subject to ongoing regulatory oversight, and its ability to
proceed with a permanent hotel/casino facility is contingent upon the receipt of
all necessary gaming approvals and satisfaction of other conditions.
The Detroit joint venture is planning a $600 million permanent hotel/casino
facility. We have committed to contribute 20% of this amount in the form of
equity, and the joint venture will seek project-specific funding for the balance
of the cost. The development agreement provides that we will guarantee
completion of the permanent facility and will enter into a keep-well guarantee
with the city, pursuant to which we could be required to contribute additional
funds, if and as needed, to continue operation of the project for a period of
two years. This keep-well agreement also applies to the temporary casino.
Mandalay has issued letters of credit totaling $50 million for the benefit of
Bank of America in order to back letters of credit issued by Bank of America for
the same total amount. The Bank of America letters of credit were issued to
secure payments of principal and interest on bonds issued by the Economic
Development Corporation of the City of Detroit. The proceeds of the bonds are to
be used to finance costs associated with activities (including acquisition)
relating to the land on which the permanent facility will be built.
Various lawsuits have been filed in the state and federal courts challenging
the constitutionality of the Detroit Casino Competitive Selection Process and
the Michigan Gaming Control and Revenue Act, and seeking to appeal the issuance
of a certificate of suitability to MotorCity Casino. No assurance can be given
regarding the timing and outcome of these proceedings. An adverse ruling in any
of these lawsuits could adversely impact the status of our joint venture's
operation of the temporary facility, as well as its ability to obtain a
certificate of suitability and a casino license for its permanent facility.
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.
13
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (UNAUDITED)
RESULTS OF OPERATIONS
EARNINGS PER SHARE
We reported net income of $48.9 million, or $.58 per share, for the quarter
ended April 30, 2000, versus a net loss of $4.9 million, or $.05 per share, for
the same quarter last year. The prior year loss included the write-off of $67.4
million of preopening expenses related primarily to Mandalay Bay (which opened
March 2, 1999) and MotorCity Casino (a 53.5%-owned joint venture which opened
December 14, 1999 in Detroit, Michigan). Excluding these preopening expenses,
earnings per share in last year's first quarter were $.43. The increase in
earnings in the first quarter was due primarily to strong operating results at
all of our major properties, most notably our south Las Vegas Strip properties
and Grand Victoria in Elgin, Illinois. The contribution from the recently opened
MotorCity Casino was also a factor.
The preopening expenses discussed above were reflected in two categories.
Those expenses incurred prior to January 31, 1999 were treated as a cumulative
effect of a change in accounting principle and those incurred subsequent to
January 31, 1999 were expensed as incurred.
REVENUES
Revenues increased $168.4 million, or 36%, in the three months ended
April 30, 2000 compared to the prior year. All of our major wholly owned and
joint venture properties generated higher revenues during the quarter. The
overall increase was attributable primarily to MotorCity Casino, which produced
$78.5 million in revenue in its first full quarter of operations, and to
Mandalay Bay, which generated $137.8 million in revenues in the quarter compared
with $80.5 million in the prior year quarter when it was open only 59 days.
Other significant contributors were Luxor (up $9.2 million, or 10%) and
Excalibur (up $5.3 million, or 7%).
We record our share of the operating income of our unconsolidated joint
ventures (Grand Victoria, Monte Carlo and Silver Legacy) as revenue under
"Earnings of Unconsolidated Affiliates." Results of MotorCity Casino are
consolidated for financial reporting purposes.
INCOME FROM OPERATIONS (EXCLUDING NONRECURRING ITEMS)
For the three months ended April 30, 2000, income from operations rose $35.1
million, or 36%, from the prior year. The composite operating margin was 20.5%
versus 20.4% in the prior year quarter. A discussion of operating results by
market follows.
LAS VEGAS
Our Las Vegas properties posted an overall increase in operating income of
$12.3 million, or 17%. Luxor was the largest contributor to this increase, with
operating income rising $6.4 million, or 32%. Excalibur was also a significant
contributor, producing an increase of $4.9 million, or 25%. Moreover, operating
income at Circus Circus-Las Vegas rose 8%, while Monte Carlo's contribution to
operating income rose 7%. Operating income at Mandalay Bay declined slightly
despite the property being open an additional month in this year's first
quarter. Operating lease rent for that property, which increased $7.3 million
from the prior year, was the principal factor in this decline.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (UNAUDITED) (CONTINUED)
The strong year-over-year increases in operating income at our Las Vegas
properties were driven by an uptrend in the number of visitors to the Las Vegas
Strip. This was evidenced by an average $8 increase in revenue per available
room (REVPAR) at our wholly owned properties, led by Mandalay Bay, whose average
room rate increased 17% to $155, and Luxor, whose average room rate topped $102
(up 8%). For its part, Monte Carlo's REVPAR increased $10. Furthermore, casino
revenues at our wholly owned Las Vegas properties increased approximately 8% on
a same-store basis (adjusting for the additional month of operations at Mandalay
Bay in the current year).
RENO
In Reno, our combined operating income (Circus Circus-Reno plus the
Company's 50% interest in Silver Legacy) rose $3.4 million, or 68%, versus the
year ago quarter. Both properties posted significant REVPAR increases, while
casino revenues rose 10% at Circus Circus-Reno and 20% at Silver Legacy. Reno
hosts national bowling tournaments two out of every three years, and this year
the city is hosting the women's national tournament.
LAUGHLIN
Our two Laughlin properties, Colorado Belle and Edgewater, posted a combined
increase in operating income of $.9 million, or 10%. This market has been on a
general uptrend over the past two years, as visitor counts to Laughlin have
increased. Like our Las Vegas operations, these properties experienced increases
in both REVPAR and casino revenues.
OTHER MARKETS
Our newest property, MotorCity Casino in Detroit, Michigan, delivered $11.0
million in operating income in its first full quarter of operations. See
"Financial Position and Capital Resources" for additional details regarding our
Detroit operation.
In Tunica County, Mississippi, operating income at Gold Strike rose $1.7
million, or 30%, from the prior year. Casino revenues grew 9%, as this property
continued to increase its market share.
The contribution to operating income from Grand Victoria (a 50%-owned
riverboat casino in Elgin, Illinois) increased $6.5 million, or 83%, as the
advent of dockside gaming in June 1999 contributed to significant volume
increases.
INTEREST EXPENSE
For the three months ended April 30, 2000, interest expense (excluding
unconsolidated joint venture interest expense and before capitalized interest)
rose $10.0 million to $51.2 million. The increase was due primarily to higher
average borrowings (approximately $2.8 billion in the current quarter against
approximately $2.4 billion last year) related to the purchase of approximately
11.9 million shares of our common stock during this year's first quarter and
$150 million in borrowings associated with MotorCity Casino, which is
consolidated for financial reporting purposes. Capitalized interest was $1.7
million for the quarter ended April 30, 2000 versus $7.7 million in the year-ago
quarter. Long-term debt at April 30, 2000 stood at $2.8 billion compared to
nearly $2.5 billion at April 30, 1999.
We also recorded interest expense related to unconsolidated joint venture
projects of $2.7 million in the quarter ended April 30, 2000 compared to $2.8
million in the previous year. This reflects our 50% share of the interest
expense of Silver Legacy and Monte Carlo.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (UNAUDITED) (CONTINUED)
INCOME TAX
The effective tax rate was approximately 37.5% for the three months ended
April 30, 2000 and 1999. This rate reflects the corporate statutory rate of 35%
plus the effect of various nondeductible expenses, primarily the amortization of
goodwill.
FINANCIAL POSITION AND CAPITAL RESOURCES
Mandalay had cash and cash equivalents of $142.6 million at April 30, 2000,
representing normal daily operating requirements. Our pretax cash flow from
operations, before preopening expenses, was $185.9 million for the three months
ended April 30, 2000 versus $141.8 million in the prior year, an increase of
31%. In this context, pretax cash flow from operations is defined as income from
operations plus noncash operating expenses (primarily depreciation and
amortization) plus rent expense related to certain equipment at Mandalay Bay
which was financed pursuant to an operating lease agreement. In the first
quarter ended April 30, 2000, we used our cash flow to fund a portion of the
purchase of 11.9 million shares of our common stock. In the prior year quarter,
the cash flow was used to fund construction of Mandalay Bay and other
miscellaneous construction projects.
CAPITAL SPENDING
Capital expenditures for the quarter ended April 30, 2000 were $32.6
million, of which $14.6 million related to the Shark Reef at Mandalay Bay, our
new saltwater aquarium attraction which is set to open June 20, 2000.
NEW PROJECTS
SHARK REEF AT MANDALAY BAY On March 2, 1999, we opened Mandalay Bay, a
43-story hotel/casino resort in Las Vegas, Nevada. Mandalay Bay is part of
Masterplan Mile, our development property with approximately one mile of
frontage on the Las Vegas Strip. The property is the site of our Mandalay Bay,
Luxor and Excalibur resorts. Our development plan for Masterplan Mile includes
various core components which will be cross-marketed to guests at our existing
and future hotel/casinos within this resort development. These core components
include an aquarium exhibit, the SHARK REEF AT MANDALAY BAY, which is currently
under construction and is expected to open June 20, 2000. The estimated cost of
the aquarium (excluding land, capitalized interest and preopening expenses) is
approximately $45 million, of which $39.9 million had been incurred as of
April 30, 2000. We may add other core components to our development plan for
Masterplan Mile in the future.
DETROIT
We have formed a joint venture with the Detroit-based Atwater Casino Group
to build, own and operate a hotel/casino in Detroit, Michigan. This joint
venture is one of three groups which negotiated development agreements with the
city. We had an initial 45% ownership interest in the joint venture. Effective
December 14, 1999, we acquired an additional 8.5% interest at a cost of $38.4
million, thus increasing our total ownership interest to 53.5%.
Pending the development of a permanent hotel/casino, the joint venture
constructed a temporary casino (MotorCity Casino) in downtown Detroit, which
opened December 14, 1999. MotorCity Casino contains approximately 75,000 square
feet of gaming space, with approximately 2,600 slot machines and 136 table
games, plus five restaurants and a 3,450-space parking facility. The cost of the
temporary casino, including land and capitalized interest but excluding
preopening expenses, was approximately
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (UNAUDITED) (CONTINUED)
$150 million. This cost was financed pursuant to the joint venture's $150
million credit facility, which is secured by the assets associated with the
temporary casino. Mandalay has guaranteed this credit facility subject to the
release of the guaranty if certain performance measures are reached. The joint
venture's operation of the temporary casino is subject to ongoing regulatory
oversight, and its ability to proceed with a permanent hotel/casino facility is
contingent upon the receipt of all necessary gaming approvals and satisfaction
of other conditions.
The Detroit joint venture is planning a $600 million permanent hotel/casino
facility. We have committed to contribute 20% of this amount in the form of
equity, and the joint venture will seek project-specific funding for the balance
of the cost. The development agreement provides that we will guarantee
completion of the permanent facility and will enter into a keep-well guarantee
with the city, pursuant to which we could be required to contribute additional
funds, if and as needed, to continue operation of the project for a period of
two years. This keep-well agreement also applies to the temporary casino.
Mandalay has issued letters of credit totaling $50 million for the benefit of
Bank of America in order to back letters of credit issued by Bank of America for
the same total amount. The Bank of America letters of credit were issued to
secure payments of principal and interest on bonds issued by the Economic
Development Corporation of the City of Detroit. The proceeds of the bonds are to
be used to finance costs associated with activities (including acquisition)
relating to the land on which the permanent facility will be built.
Various lawsuits have been filed in the state and federal courts challenging
the constitutionality of the Detroit Casino Competitive Selection Process and
the Michigan Gaming Control and Revenue Act, and seeking to appeal the issuance
of a certificate of suitability to MotorCity Casino. No assurance can be given
regarding the timing and outcome of these proceedings. An adverse ruling in any
of these lawsuits could adversely impact the status of our joint venture's
operation of the temporary facility, as well as its ability to obtain a
certificate of suitability and a casino license for its permanent facility.
MISSISSIPPI GULF COAST
We have announced 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. While we have received all necessary approvals to commence
development, these approvals have been challenged in federal court. We
anticipate that the design and construction of this project will begin only
after satisfactory resolution of all legal actions. Currently, we expect the
resort to include approximately 1,500 rooms and involve an investment of
approximately $225 million. Present plans call for Mandalay to own 90% of the
resort, with a partner contributing land (up to 500 acres) in exchange for the
remaining 10% interest.
LIQUIDITY
Based on our operating cash flows, credit facility and ability to raise
additional funds through debt or equity markets, we believe we have sufficient
capital resources to meet all of our existing cash obligations, fund our capital
commitments on projects under way and strategically purchase shares of our
common stock. As of April 30, 2000, under our most restrictive loan covenant, we
could issue additional debt of approximately $966 million. Our borrowing
capacity under this covenant can fluctuate substantially from quarter to quarter
depending upon our operating cash flow. In May 2000, our Board of Directors
authorized the repurchase of up to 15% (or approximately 11.7 million) of the
outstanding shares of common stock, as market conditions and other factors
warrant.
17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (UNAUDITED) (CONTINUED)
FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements which we have based on our
current expectations about future events. They include statements with respect
to our beliefs, plans, objectives, goals, expectations, anticipations,
intentions, financial condition, results of operations, future performance and
business, including statements relating to our business strategy, our current
and future development plans, and statements that include the words "may,"
"could," "should," "would," "believe," "expect," "anticipate," "estimate,"
"intend," "plan" or similar expressions. These forward-looking statements are
subject to risks, uncertainties, and assumptions about us and our operations
that are subject to change based on various important factors, some of which are
beyond our control. Factors that could cause our financial performance to differ
materially from the goals, plans, objectives, intentions and expectations
expressed in our forward-looking statements, include the following: (i) our
development and construction activities and those of the joint ventures in which
we participate, (ii) competition, (iii) leverage and debt service (including
sensitivity to fluctuations in interest rates and ratings which national rating
agencies assign to our outstanding debt securities), (iv) domestic and global
economic, credit and capital market conditions, (v) changes in federal or state
tax laws or the administration of these laws, (vi) changes in gaming laws or
regulations (including the legalization or expansion of gaming in certain
jurisdictions), (vii) applications for licenses and approvals under applicable
laws and regulations (including gaming laws and regulations), and (viii)
regulatory or judicial proceedings. Additional information concerning potential
factors that we think could cause our actual results to differ materially from
expected and historical results is included under the caption "Factors that May
Affect Our Future Results" in Item 1 of our Annual Report on Form 10-K for the
fiscal year ended January 31, 2000. If one or more of the assumptions underlying
our forward-looking statements proves incorrect, then our actual results,
performance or achievements could differ materially from those expressed in, or
implied by, the forward-looking statements contained in this report. Therefore,
we caution you not to place undue reliance on our forward-looking statements.
This statement is provided as permitted by the Private Securities Litigation
Reform Act of 1995.
18
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
As of April 30, 2000 there were no material changes to the information
incorporated by reference in Item 7A of the Company's Annual Report on Form 10-K
for the fiscal year ended January 31, 2000.
19
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are filed as part of this report:
<TABLE>
<S> <C>
27. Financial Data Schedule for the three months ended
April 30, 2000 as required under EDGAR.
</TABLE>
(b) REPORTS ON FORM 8-K. No report on Form 8-K was filed during the period
covered by this report.
20
<PAGE>
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.
MANDALAY RESORT GROUP
--------------------------------------
(Registrant)
Date: June 12, 2000 By GLENN SCHAEFFER
------------------------------------------
Glenn Schaeffer
PRESIDENT, CHIEF FINANCIAL OFFICER AND
TREASURER
21
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--------- -----------
<S> <C>
27. Financial Data Schedule for the three months ended
April 30, 2000 as required under EDGAR.
</TABLE>
22
