-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BBJLRfMdgut8hg+jT0cXy+kHAm7Cyp6ocZprF8ULpGFTUNTOorGdjRH+JT1zMM2M yWUOn8gOyNw7I6D2AIlAtA== 0000898430-98-002978.txt : 19980817 0000898430-98-002978.hdr.sgml : 19980817 ACCESSION NUMBER: 0000898430-98-002978 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: COAST RESORTS INC CENTRAL INDEX KEY: 0001001865 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 880345704 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26922 FILM NUMBER: 98687259 BUSINESS ADDRESS: STREET 1: 4000 WEST FLAMINGO RD STREET 2: POST OFFICE BOX 80750 CITY: LAS VEGAS STATE: NV ZIP: 89103 BUSINESS PHONE: 7023677111 MAIL ADDRESS: STREET 1: 4500 W TROPICANA AVE CITY: LAS VEGAS STATE: NV ZIP: 89103 10-Q 1 QUARTERLY REPORT FOR PERIOD ENDED JUNE 30, 1998 _______________________________________________________________________________ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE - --- ACT OF 1934 For the Quarterly Period Ended June 30, 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 0-26922 COAST RESORTS, INC. (Exact name of registrant as specified in its charter) Nevada 88-0345704 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) identification number) 4500 WEST TROPICANA AVENUE, LAS VEGAS, NEVADA 89103 (Address of principal executive offices) (Zip Code) (702) 365-7000 (Registrant's telephone number, including area code) NONE (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ---- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Shares of Common Stock outstanding as of June 30, 1998: 1,494,352.94 _______________________________________________________________________________ Item 1. Financial Statements. COAST RESORTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (amounts in thousands, except share data)
June 30, December 31, 1998 (unaudited) 1997 --------------- ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents....................................... $ 28,711 $ 29,430 Accounts receivable, net........................................ 5,072 5,617 Other current assets............................................ 18,290 17,975 -------- -------- TOTAL CURRENT ASSETS......................................... 52,073 53,022 PROPERTY AND EQUIPMENT, net...................................... 303,334 307,151 OTHER ASSETS..................................................... 5,989 6,446 -------- -------- $361,396 $366,619 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable................................................ $ 6,913 $ 9,107 Accrued liabilities............................................. 24,503 27,681 Construction accounts payable................................... -- 2,491 Current portion of long-term debt............................... 7,971 8,076 -------- -------- TOTAL CURRENT LIABILITIES.................................... 39,387 47,355 LONG-TERM DEBT, less current portion............................. 203,543 207,173 DEFERRED INCOME TAXES............................................ 8,642 8,645 DEFERRED RENT.................................................... 11,016 9,007 -------- -------- TOTAL LIABILITIES............................................ 262,588 272,180 -------- -------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred Stock, $.01 par value, 10,000,000 shares authorized, no shares issued and outstanding................................ -- -- Common Stock, $.01 par value, 2,000,000 shares authorized, 1,494,353 shares issued and outstanding............................. 15 15 Additional paid-in capital...................................... 95,398 95,398 Retained earnings (deficit)..................................... 3,395 (974) -------- -------- TOTAL STOCKHOLDERS' EQUITY................................... 98,808 94,439 -------- -------- $361,396 $366,619 ======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements. 2 COAST RESORTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (amounts in thousands, except per share data) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------------- -------------------------------- 1998 1997 1998 1997 ------------- ---------- --------- ---------- OPERATING REVENUES: Casino....................................... $ 57,856 $ 51,679 $ 117,035 $ 103,581 Food and beverage............................ 16,183 14,903 32,761 30,183 Hotel........................................ 7,288 7,288 14,226 14,336 Other........................................ 5,986 4,714 12,079 9,188 ---------- ---------- ---------- ---------- GROSS OPERATING REVENUES.................. 87,313 78,584 176,101 157,288 Less: promotional allowances................ (7,330) (6,251) (15,104) (12,571) ---------- ---------- ---------- ---------- NET OPERATING REVENUES.................... 79,983 72,333 160,997 144,717 ---------- ---------- ---------- ---------- OPERATING EXPENSES: Casino....................................... 30,372 27,805 61,884 56,084 Food and beverage............................ 11,829 12,852 23,563 26,178 Hotel........................................ 3,010 3,268 5,721 6,368 Other........................................ 5,160 4,574 9,988 8,905 General and administrative................... 13,932 14,154 27,837 29,163 Deferred rent................................ 1,004 1,019 2,009 2,039 Depreciation and amortization................ 5,324 4,764 10,205 9,485 ---------- ---------- ---------- ---------- TOTAL OPERATING EXPENSES...................... 70,631 68,436 141,207 138,222 ---------- ---------- ---------- ---------- OPERATING INCOME 9,352 3,897 19,790 6,495 ---------- ---------- ---------- ---------- OTHER INCOME (EXPENSES): Interest expense............................. (6,869) (6,550) (13,634) (13,030) Interest income.............................. 190 -- 291 98 Gain on disposal of assets................... 117 -- 143 829 ---------- ---------- ---------- ---------- TOTAL OTHER INCOME (EXPENSES)................. (6,562) (6,550) (13,200) (12,103) ---------- ---------- ---------- ---------- INCOME (LOSS) BEFORE INCOME TAXES............. 2,790 (2,653) 6,590 (5,608) ---------- ---------- ---------- ---------- INCOME TAX PROVISION (BENEFIT)................ 821 (839) 2,223 (1,700) ---------- ---------- ---------- ---------- NET INCOME (LOSS)............................. $ 1,969 $ (1,814) $ 4,367 $ (3,908) ========== ========== ========== ========== BASIC AND DILUTED NET INCOME (LOSS) PER SHARE OF COMMON STOCK........................ $ 1.32 $ (1.21) $ 2.92 $ (2.62) ========== ========== ========== ========== SHARES USED IN COMPUTATION OF NET INCOME (LOSS) PER SHARE............................. 1,494,353 1,494,353 1,494,353 1,494,353 ========== ========== ========== ==========
The accompanying notes are an integral part of these condensed consolidated financial statements. 3 COAST RESORTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (AMOUNTS IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ------------------------------------ 1998 1997 ------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)..................................................... $ 4,367 $ (3,908) ------- -------- ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: Depreciation and amortization....................................... 10,205 9,485 Provision for bad debts............................................. 316 23 Gain on disposal of assets.......................................... (143) (829) Deferred income taxes............................................... (3) 16 Deferred rent....................................................... 2,009 2,039 Other non-cash expenses............................................. 338 295 Changes in assets and liabilities: Net increase in accounts receivable and other assets.............. (609) (3,814) Net decrease in accounts payable and accrued liabilities.......... (5,372) (7,404) ------- -------- TOTAL ADJUSTMENTS..................................................... 6,741 (189) ------- -------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES................... 11,108 (4,097) ------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures.................................................. (7,846) (34,077) Proceeds from disposal of assets...................................... 128 1,088 ------- -------- NET CASH USED IN INVESTING ACTIVITIES................................. (7,718) (32,989) ------- -------- CASH FLOW FROM FINANCING ACTIVITIES: Principal payments on long-term debt.................................. (4,109) (3,852) ------- -------- NET CASH USED IN FINANCING ACTIVITIES................................. (4,109) (3,852) ------- -------- NET DECREASE IN CASH AND CASH EQUIVALENTS.............................. (719) (40,938) CASH AND CASH EQUIVALENTS, at beginning of year........................ 29,430 61,567 ------- -------- CASH AND CASH EQUIVALENTS, at end of period............................ $28,711 $ 20,629 ======= ========
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 COAST RESORTS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - BACKGROUND INFORMATION AND BASIS OF PRESENTATION Background Information Coast Resorts, Inc. ("Coast Resorts" or the "Company") is a Nevada corporation and serves as a holding Company for Coast Hotels and Casinos, Inc. ("Coast Hotels") and Coast West, Inc. ("Coast West"). Through Coast Hotels, the Company owns and operates the following Las Vegas hotel-casinos: . Gold Coast Hotel and Casino, approximately one mile west of the Las Vegas Strip on Flamingo Road. . Barbary Coast Hotel and Casino, located on the Las Vegas Strip. . The Orleans Hotel and Casino, located approximately one mile west of the Las Vegas Strip on Tropicana Avenue. Coast West has no operations but holds a long-term lease (the "Coast West Lease") on approximately fifty acres of land in Las Vegas on which the Company may develop and operate a future hotel-casino. The Gold Coast and Barbary Coast hotel-casinos had previously been owned and operated independently by two partnerships, Gold Coast Hotel and Casino, a Nevada limited partnership, and Barbary Coast Hotel and Casino, a Nevada general partnership (collectively, the "Predecessor Partnerships"). On January 1, 1996, the partners of the Predecessor Partnerships completed a reorganization (the "Reorganization") with Coast Resorts. Coast Resorts was formed in September 1995 for the purpose of effecting such Reorganization of the Predecessor Partnerships. Coast Resorts, Gold Coast and Barbary Coast were all related through common ownership and management control. In the Reorganization, the partners of the Predecessor Partnerships each transferred to Coast Resorts their respective partnership interests in the Predecessor Partnerships in exchange for an aggregate of 1,000,000 shares of common stock, par value $.01 per share, of Coast Resorts ("Coast Resorts Common Stock"). Coast Resorts immediately contributed to Coast Hotels all of the assets and liabilities of the Predecessor Partnerships other than those relating to the Coast West Lease, which Coast Resorts contributed to Coast West. Coast Resorts retained the liability for an aggregate principal amount of $51.0 million in notes payable to former partners and retained the liability for $1.5 million relating to demand notes due to a related party (the "Exchange Liabilities"). On January 16, 1996, the Exchange Liabilities were exchanged for 494,353 shares of Coast Resorts Common Stock, based upon management's estimate of the fair market value of such Coast Resorts Common Stock. 5 COAST RESORTS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - BACKGROUND INFORMATION AND BASIS OF PRESENTATION (CONTINUED) Basis of Presentation The accompanying financial statements are unaudited and have been prepared in accordance with generally accepted accounting principles for interim financial information and with Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The unaudited financial statements should be read in conjunction with the audited financial statements and footnotes for the year ended December 31, 1997. In the opinion of management, all adjustments and normal recurring accruals considered necessary for a fair presentation of the results for the interim period have been included. The interim results reflected in the unaudited financial statements are not necessarily indicative of expected results for the full year. Reclassifications Certain amounts in the 1997 financial statements have been reclassified to conform with the 1998 presentation. NOTE 2 - ADVANCES TO COAST WEST Coast Hotels has agreed to provide advances to Coast West sufficient to make payments on the Coast West Lease and other obligations, including project development and site improvement. The Coast West Lease relates to a parcel of land located in the western area of Las Vegas to be used for future expansion opportunities. The Coast West Lease term runs through December 31, 2055, with three 10-year renewal options, with monthly payments of $166,667 for the year ending December 31, 1995. Thereafter the monthly rent increases by the amount of $5,000 in January of each year. The lease includes a put option exercisable by the landlord requiring the purchase of the land at fair market value at the end of the 20th through 24th years of the lease, provided that the purchase price shall not be less than ten times, nor more than fifteen times, the annual rent at such time. Based on the terms of the lease, the potential purchase price commitment ranges from approximately $31,000,000 to approximately $51,000,000 in the years 2014 through 2018. The advances to Coast West are non-interest bearing and, pursuant to the indenture governing 13% first mortgage notes issued by Coast Hotels (the "Indenture"), cannot exceed $8.0 million in aggregate principal amount at any time outstanding unless Coast West becomes a subsidiary of Coast Hotels. As of June 30, 1998 and December 31, 1997, Coast Hotels had advanced Coast West $7.7 million and $6.4 million, respectively, related to the Coast West Lease and development activities. Coast West is a development stage enterprise and has no source of income and is therefore solely dependent on the advances to be provided by Coast Hotels. There can be no assurance that Coast West will develop a gaming property at the Coast West site or that it will be able to repay any advances made by Coast Hotels. On July 21, 1998, the Company contributed the capital stock of Coast West to Coast Hotels, as a result of which Coast West became a wholly owned subsidiary of Coast Hotels. Coast West remains a guarantor of the 13% First Mortgage Notes. Pursuant to the terms of the Indenture, Coast Hotels may continue to make advances to Coast West as it is now a wholly owned subsidiary. 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain financial information regarding the results of operations of the Company:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------- ---------------------- 1998 1997 1998 1997 ------- -------- -------- -------- GOLD COAST Net operating revenues............. $31,010 $31,427 $ 63,469 $ 63,955 Operating income................... 6,351 5,674 13,025 12,025 EBITDA (1)......................... 7,600 6,883 15,505 14,425 BARBARY COAST Net operating revenues............. $10,898 $10,176 $ 21,353 $ 22,639 Operating income................... 631 (898) 694 (79) EBITDA (1)......................... 1,071 (496) 1,558 727 THE ORLEANS Net operating revenues............. $38,075 $30,730 $ 76,175 $ 58,123 Operating income................... 4,533 1,264 10,595 (1,217) EBITDA (1)......................... 8,386 4,663 17,891 5,554 EBITDAR (1)........................ 8,911 5,188 18,941 6,009 TOTAL (INCLUDING CORPORATE) Net operating revenues............. $79,983 $72,333 $160,997 $144,717 Operating income................... 9,352 3,896 19,790 6,495 EBITDA (1)......................... 15,680 9,680 32,004 18,018 EBITDAR (1)........................ 16,750 10,736 34,144 19,109
(1) "EBITDA" is defined as earnings before interest, taxes, depreciation, amortization and deferred (non-cash) rent. "EBITDAR" is defined as earnings before interest, taxes, depreciation, amortization and rent expense (both cash and deferred). EBITDA and EBITDAR should not be construed as alternatives to operating income as an indicator of the company's operating performance, or as alternatives to cash provided by operating activities as an indicator of cash flows or a measure of liquidity. EBITDA and EBITDAR are presented solely as supplemental disclosure because management believes that they are widely used measures of financial performance in the gaming industry. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997 and Six Months ended June 30, 1998 Compared to Six Months Ended June 30, 1997 Net revenues, operating income and net income all improved in the quarter ended and six months ended June 30, 1998, primarily due to improved revenues at the Company's newest hotel-casino, The Orleans. Net revenues in the quarter ended June 30, 1998 were $80.0 million compared to $72.3 million in the same quarter of 1997, an increase of 10.6%. For the six months ended June 30, 1998, net revenues were $161.0 million compared to $144.7 million in the same period in 1997. Operating income in the second quarter of 1998 was $9.4 million compared to $3.9 million in the second quarter of 1997, an increase of 126.0%. For the six months ended June 30, 1998, operating income was $19.8 million, an increase of 204.6% over operating income of $6.5 million in the same period in 1997. Net income in the quarter ended June 30, 1998 was $2.0 million compared to a net loss of $1.8 million in the second quarter of 1997. For the six months ended June 30, 1998, net income was $4.4 million compared to a net loss of $3.9 million in 1997. The Orleans. The Orleans opened in December 1996 and generated lower-than- expected revenues in the first half of 1997. During the second half of 1997, the property expanded its customer base through increased promotional activities, the use of headliner entertainment in its showroom and, in December 1997, the opening of twelve new movie theaters. Net revenues in the three months ended June 30, 1998 were $38.1 million, an increase of 23.9% over revenues of $30.7 million in the same quarter in 1997. For the six month period ended June 30, 1998, net revenues were $76.2 million, an increase of 31.1% compared to the first six months of 1997. Casino revenues were up in the second quarter of 1998 (25.1%) and in the six months ended June 30, 1998 (35.0%), primarily as a result of increased slot machine activity. Increased customer volume led to an increase in food and beverage revenues of 27.4% in the quarter ended June 30, 1998 and an increase of 23.9% in the six months ended June 30, 1998. Hotel revenues increased slightly in the quarter and year-to-date, primarily as a result of increased occupancy. Other revenues increased in the second quarter and year-to-date due primarily to higher showroom revenue. Despite an increase in operating expenses of 13.8% in the quarter ended June 30, 1998 and 10.5% for the six months ended June 30, 1998, due primarily to increased casino promotional activities, operating income increased by $3.3 million in the quarter and by $11.8 million year-to-date. Gold Coast. Net revenues in the three months and six months ended June 30, 1998 were relatively flat compared to the same periods in 1997, with slight increases in casino revenues and slight decreases in hotel, food and beverage and other revenues. For the quarter ended June 30, 1998, net revenues were $31.0 million, down 1.3% from second quarter 1997 revenues of $31.4 million. Year-to- date, net revenues were $63.5 million, down 0.8% compared to $64.0 million in the first six months of 1997. Operating income in the second quarter of 1998 was $6.4 million, an increase of 11.9% over the second quarter of 1997. Operating income in the first six months of 1998 was $13.0 million, an increase of 8.3% over the first six months of 1997. The increases were due primarily to lower payroll expenses as a result of reduced staffing. Barbary Coast. Net revenues in the three months ended June 30, 1998 increased 7.1% to $10.9 million compared to $10.2 million in the three months ended June 30, 1997, primarily as a result of increased customer wagering on slot machines. Additionally, table games revenues were up because of improved win percentages compared to the same quarter in 1997. Increases in slot machine and table games revenues were partially offset by decreases in race book revenues due to lower win percentages. For the six months ended June 30, 1998, net revenues were $21.4 million, down $1.3 million (5.7%). 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) compared to the same period in 1997 primarily due to a lower-than-expected table games win percentage in the first quarter of 1998 as well as a lower win percentage in the race book. For the second quarter, operating income was $631,000 compared to a loss of $898,000 in the second quarter of 1997. For the six months ended June 30, 1998, operating income was $694,000 compared to an operating loss of $79,000 in the same period in 1997. Operating expenses declined $808,000 (7.3%) and $2.1 million (9.1%) in the three month and six month periods ended June 30, 1998, respectively, compared to the same periods in 1997, primarily due to decreased promotional expenses in the race book. LIQUIDITY AND CAPITAL RESOURCES The Company's principal sources of liquidity have consisted of cash provided by operating activities, bank financing and debt financing. Cash provided by operating activities was $11.0 million in the first six months of 1998, an increase of $15.1 million over the same period in 1997, primarily due to the Company's increased profitability discussed above. In January 1996, Coast Hotels issued $175.0 million principal amount of 13% first mortgage notes due 2002 ("13% First Mortgage Notes"). Additionally, in November 1997, Coast Hotels issued $16.8 million principal amount of 10 7/8% first mortgage notes due 2001 ("10 7/8% First Mortgage Notes"). The indentures pursuant to which the 13% First Mortgage Notes and the 10 7/8% First Mortgage Notes were issued ("the Indentures") contain covenants that, among other things, limit the ability of Coast Hotels to pay dividends or make advances to Coast Resorts, repay existing indebtedness, incur additional indebtedness, or sell material assets as defined in the Indentures. As a holding company, the Company is reliant on the operations of its subsidiaries for cash flow. The Company's cash requirements, in addition to interest on the 10 7/8% First Mortgage Notes, the 13% First Mortgage Notes and equipment notes payable, which is anticipated to be approximately $27.0 million in 1998, include annual principal payments of approximately $7.5 million on the equipment notes payable, land lease payments for its properties, ongoing maintenance capital expenditures at its existing facilities and periodic enhancements to those facilities. The Company's maintenance capital expenditures for 1997 were approximately $9.2 million. Management expects that maintenance capital expenditures for 1998 will be approximately $9.5 million. Management believes that existing cash balances and operating cash flow will provide the Company with sufficient resources to meet its existing debt obligations, lease payments and foreseeable capital expenditure requirements at the Company's existing properties. Coast Hotels agreed to provide advances to Coast West sufficient to make payments on the Coast West Lease and other obligations, including project development and site improvement. Pursuant to the Indenture under which the 13% First Mortgage Notes were issued, the advances to Coast West could not exceed $8.0 million in aggregate principal amount at any time outstanding. As of June 30, 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) 1998, Coast Hotels had advanced Coast West $7.7 million related to the Coast West Lease and development activities. Based on the cash requirements of Coast West for lease payments and anticipated development costs, it is likely that during 1998 Coast West would require cash from the Coast Hotels that, when added to the outstanding advances, would exceed $8 million. On July 21, 1998, the Company contributed the capital stock of Coast West to Coast Hotels, as a result of which Coast West became a wholly owned subsidiary of Coast Hotels. Coast West remains a guarantor of the 13% First Mortgage Notes. Pursuant to the terms of the Indenture, Coast Hotels may make advances to its wholly owned subsidiaries. The Company has no agreements, arrangements or understandings with respect to financing the development of future properties. Any future development would be subject to, among other things, the Company's ability to obtain necessary financing. IMPACT OF THE YEAR 2000 ISSUE The "Year 2000 Issue" is the result of computer programs being written using two digits rather than four to define the applicable year. If a company's date-sensitive computer programs should recognize a date "00" as the year 1900 rather than the year 2000, miscalculations or a system failure could occur, causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices or engage in similar normal business activities. The Company is currently reviewing all of its computer systems with regard to the Year 2000 Issue and has determined that much of its software is already compliant. For those systems not already compliant, the Company will utilize both internal and external resources to reprogram, replace and test the software for the Year 2000 modifications so that its computer systems will properly recognize and utilize dates beyond December 31, 1999. Management believes that expenditures for these modifications will not be material. However, the Company may be adversely affected to the extent that vendors and other entities with which it does business are unable to achieve Year 2000 compliance by December 31, 1999. ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"), which establishes standards for reporting and display of comprehensive income and its components. SFAS 130 requires a separate statement to report components of comprehensive income for each period presented. The provisions of SFAS 130 are effective for fiscal years beginning after December 15, 1997. Management believes that the Company currently does not have items that would require presentation in a separate statement of comprehensive income. 10 In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"), which supersedes FASB Statement No. 14, "Financial Reporting for Segments of a Business Enterprise." SFAS 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. SFAS 131 is effective for fiscal years beginning after December 15, 1997 and requires restatement of earlier periods presented. SFAS 131 will not have a material effect on the Company's financial statements as the required information is either currently being presented by the Company or it is not applicable to the Company. In April 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-5 (SOP 98-5), Reporting on the Costs of Start-Up Activities. SOP 98-5 requires that the Company expense its pre-opening and related promotional expense as incurred rather than capitalize it and amortize it over the estimated period of economic benefit of such costs as has been the Company's policy in the past. Effective January 1, 1998, the Company adopted SOP 98-5. The adoption had no impact on the financial position, results of operations or cash flows of the Company as all start-up costs previously capitalized had been expensed in prior periods. FORWARD LOOKING STATEMENTS The statements in this Management's Discussion and Analysis which are not historical fact are forward looking statements that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. The statements are subject to risks and uncertainties, including, but not limited to increased competition, both in Nevada and other jurisdictions, dependence on the Las Vegas area and the Southern California region for a majority of the Company's customers, uncertainties associated with construction projects, including the related disruption of operations and the availability of financing, which could cause actual results to vary materially from those discussed herein. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not Applicable 11 PART II. OTHER INFORMATION Item 1: Legal Proceedings. ----------------- None. Item 2: Changes in Securities. --------------------- None. Item 3: Defaults Upon Senior Securities. ------------------------------- None. Item 4: Submission of Matters to a Vote of Security Holders. --------------------------------------------------- None. Item 5: Other Information. ----------------- None. Item 6: Exhibits and Reports on Form 8-K: -------------------------------- (a) Exhibits. 27. Financial Data Schedule. (b) Reports on Form 8-K. There were no reports filed on Form 8-K during the three months ended June 30, 1998. 12 SIGNATURES - ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized. Date: August 14, 1998 COAST RESORTS, INC., a Nevada corporation By: /s/ Gage Parrish ------------------------ Gage Parrish Vice President and Chief Financial Officer 13 EX-27 2 FINANCIAL DATA SCHEDULE - ARTICLE 5
5 1,000 3-MOS DEC-31-1998 APR-1-1998 JUN-30-1998 28,711 0 5,072 0 4,603 52,073 394,029 90,695 361,396 39,387 0 0 0 15 98,793 361,396 0 160,997 0 101,156 40,051 0 13,634 6,590 2,223 4,367 0 0 0 4,367 2.92 2.92
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