-----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, R4IzHQg5KwFvsLUKlDpGrNXBWJ8OiI9K2foBT7ycu1/Ct8Xieptan8ST4q2ocLYQ qJDb1fefQFiPOxHS/ZB7xg== 0001001865-01-500009.txt : 20010516 0001001865-01-500009.hdr.sgml : 20010516 ACCESSION NUMBER: 0001001865-01-500009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 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: 1638190 BUSINESS ADDRESS: STREET 1: 4500 W TROPICANA AVE STREET 2: POST OFFICE BOX 80750 CITY: LAS VEGAS STATE: NV ZIP: 89103 BUSINESS PHONE: 7023657000 MAIL ADDRESS: STREET 1: 4500 W TROPICANA AVE STREET 2: PO BOX 80750 CITY: LAS VEGAS STATE: NV ZIP: 89103 10-Q 1 resortsq101.txt COAST RESORTS, INC. - -------------------------------------------------------------------------------- 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 March 31, 2001 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 May 15, 2001: 1,463,178 ------------------------------------------------------------------------------ Part I - FINANCIAL INFORMATION Item 1. Financial Statements. COAST RESORTS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (dollars in thousands, except share data) March 31, 2001 December 31, (unaudited) 2000 ------------- -------------- ASSETS CURRENT ASSETS: Cash and cash equivalents...................... $ 57,808 $ 43,560 Accounts receivable, net....................... 5,825 5,658 Other current assets........................... 20,039 24,284 ------------- -------------- TOTAL CURRENT ASSETS........................... 83,672 73,502 PROPERTY AND EQUIPMENT, net....................... 481,830 485,925 OTHER ASSETS...................................... 8,147 7,772 ------------- -------------- $ 573,649 $ 567,199 ============= ============== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable............................... $ 11,759 $ 16,308 Accrued liabilities............................ 45,569 38,208 Construction accounts payable.................. 3,943 4,868 Current portion of long-term debt.............. 2,443 2,430 ------------- -------------- TOTAL CURRENT LIABILITIES...................... 63,714 61,814 LONG-TERM DEBT, less current portion.............. 345,861 353,337 DEFERRED INCOME TAXES............................. 11,900 11,417 DEFERRED RENT..................................... 21,214 20,330 ------------- -------------- TOTAL LIABILITIES.............................. 442,689 446,898 ------------- -------------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value, 500,000 shares authorized, none issued and outstanding................................. -- -- Common stock, $.01 par value, 2,000,000 shares authorized, 1,463,178 shares issued and outstanding................................. 15 15 Treasury stock................................. (3,118) (3,118) Additional paid-in capital..................... 95,398 95,398 Retained earnings ............................. 38,665 28,006 ------------- -------------- TOTAL STOCKHOLDERS' EQUITY..................... 130,960 120,301 ------------- -------------- $ 573,649 $ 567,199 ============= ============== The accompanying notes are an integral part of these condensed consolidated financial statements. 1 COAST RESORTS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS For the Three Months Ended March 31, 2001 and 2000 (dollars in thousands, except share data) (unaudited) Three Months Ended March 31, ------------------------- 2001 2000 ------------ ----------- OPERATING REVENUES: Casino........................... $ 94,721 $ 73,011 Food and beverage................ 26,693 19,704 Hotel............................ 9,945 8,314 Other............................ 8,786 6,921 ------------ ----------- GROSS OPERATING REVENUES....... 140,145 107,950 Less: promotional allowances..... (12,597) (9,364) ------------ ----------- NET OPERATING REVENUES......... 127,548 98,586 ------------ ----------- OPERATING EXPENSES: Casino........................... 43,169 32,882 Food and beverage................ 18,865 13,346 Hotel............................ 3,783 3,165 Other............................ 6,699 5,592 General and administrative....... 22,915 16,288 Pre-opening expenses ............ -- 268 Deferred rent.................... 884 520 Depreciation and amortization.... 8,568 5,774 ------------ ----------- TOTAL OPERATING EXPENSES....... 104,883 77,835 ------------ ----------- OPERATING INCOME.................... 22,665 20,751 ------------ ----------- OTHER INCOME (EXPENSES): Interest expense, net............ (7,981) (5,475) Interest capitalized ............ 62 970 Gain on disposal of assets ...... 1,534 -- ------------ ----------- TOTAL OTHER INCOME (EXPENSES)....... (6,385) (4,505) ------------ ----------- INCOME BEFORE INCOME TAXES.......... 16,280 16,246 Income tax provision ............... 5,621 5,608 ------------ ----------- NET INCOME.......................... $ 10,659 $ 10,638 ============ =========== PER SHARE INFORMATION: Basic net income per share of common stock..................... $ 7.28 $ 7.19 ============ =========== Diluted net income per share of common stock..................... $ 7.11 $ 7.02 ============ =========== Basic weighted-average shares outstanding...................... 1,463,178 1,478,978 ============ =========== Diluted weighted-average shares outstanding...................... 1,498,593 1,514,393 ============ =========== The accompanying notes are an integral part of these condensed consolidated financial statements. 2 COAST RESORTS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended March 31, 2001 and 2000 (dollars in thousands) (unaudited) Three Months Ended March 31, ----------------------- 2001 2000 ----------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income......................................... $ 10,659 $ 10,638 ----------- ---------- ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Depreciation and amortization.................... 8,568 5,774 Amortization of debt offering costs.............. 294 -- Gain on disposal of assets....................... (1,534) -- Deferred income taxes............................ 576 355 Deferred rent.................................... 884 900 Changes in assets and liabilities: Net increase (decrease) in accounts receivable and other assets............................. 4,200 (1,899) Net increase in accounts payable and accrued liabilities................................... 2,812 7,983 ----------- ---------- TOTAL ADJUSTMENTS.................................. 15,800 13,113 ----------- ---------- NET CASH PROVIDED BY OPERATING ACTIVITIES.......... 26,459 23,751 ----------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures, net of amounts in construction accounts payable......................... (13,234) (31,235) Proceeds from disposal of assets................... 9,415 -- ----------- ---------- NET CASH USED IN INVESTING ACTIVITIES.............. (3,819) (31,235) ----------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of long-term debt........... 49,071 -- Principal payments on long-term debt............... (463) (270) Proceeds from borrowings under bank line of credit. 6,000 9,000 Repayments of borrowings under bank line of credit. (63,000) -- ----------- ---------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES...................................... (8,392) 8,730 ----------- ---------- NET INCREASE IN CASH AND CASH EQUIVALENTS............. 14,248 1,246 CASH AND CASH EQUIVALENTS, at beginning of period..... 43,560 38,629 ----------- ---------- CASH AND CASH EQUIVALENTS, at end of period........... $ 57,808 $ 39,875 =========== ========== The accompanying notes are an integral part of these condensed consolidated financial statements. 3 COAST RESORTS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY For the Year Ended December 31, 2000 and For the Three Months Ended March 31, 2001 (dollars in thousands)
Common Stock Additional ----------------- Paid-In Retained Treasury Shares Amount Capital Earnings Stock Total --------- ------- ---------- --------- --------- --------- Balances at December 31, 1999.. 1,478,978 $ 15 $ 95,398 $ 1,228 $ (1,538) $ 95,103 Repurchase of common stock.. (15,800) -- -- -- (1,580) (1,580) Net income.................. -- -- -- 26,778 -- 26,778 --------- ------- ---------- --------- --------- --------- Balances at December 31, 2000.. 1,463,178 15 95,398 28,006 (3,118) 120,301 Net income.................. -- -- -- 10,659 -- 10,659 --------- ------- ---------- --------- --------- --------- Balances at March 31, 2001 (unaudited)................. 1,463,178 $ 15 $ 95,398 $ 38,665 $ (3,118) $130,960 ========= ======= ========== ========= ========= =========
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 COAST RESORTS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - BACKGROUND INFORMATION AND BASIS OF PRESENTATION Background Information Coast Resorts, Inc. ("Coast Resorts") is a Nevada corporation and serves as a holding company for Coast Hotels and Casinos, Inc. ("Coast Hotels"), which is also a Nevada corporation. Through Coast Hotels, the Company owns and operates four Las Vegas hotel-casinos: o The Suncoast Hotel and Casino, which opened in September 2000, is located near Summerlin in the west end of the Las Vegas valley, approximately nine miles from the Las Vegas Strip. o The Orleans Hotel and Casino, which opened in December 1996, is located approximately one and one-half miles west of the Las Vegas Strip on Tropicana Avenue. o The Gold Coast Hotel and Casino, which opened in December 1986, is located approximately one mile west of the Las Vegas Strip on Flamingo Road. o The Barbary Coast Hotel and Casino, which opened in March 1979, is located on the Las Vegas Strip. Basis of Presentation The accompanying consolidated financial statements are unaudited and have been prepared in accordance with generally accepted accounting principles for interim financial information and with Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In addition, certain amounts in the 2000 financial statements have been reclassified to conform to the 2001 presentation. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in our annual report on Form 10-K for the year ended December 31, 2000. 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 consolidated financial statements are not necessarily indicative of expected results for the full year. On January 1, 2001, the Company adopted Emerging Issues Task Force Issue 00-14 ("EITF 00-14"). EITF 00-14 requires that cash discounts and other cash incentives related to gaming play be recorded as a reduction to gross casino revenues. EITF 00-14 also requires that prior periods be restated to conform to this presentation. The Company previously recorded such incentives as an operating expense and has reclassified prior period amounts. There is no effect on previously reported net income. 5 COAST RESORTS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - LONG-TERM DEBT Long-term debt consists of the following as of March 31, 2001 and December 31, 2000: March 31, 2001 December 31, (unaudited) 2000 ----------- ------------ Related parties: (in thousands) 7.5% notes, payable in monthly installments of interest only, with all principal and any unpaid interest due December 31, 2001. The notes are uncollateralized and are payable to the former partners of Barbary Coast and Gold Coast.......... $ 1,975 $ 1,975 Non-related parties: 9.5% senior subordinated notes due April 2009, with interest payable semiannually on April 1 and October 1..................................... 225,000 175,000 $200.0 million reducing revolving credit facility due April 2004, collateralized by substantially all of the assets of Coast Hotels and Casinos, Inc.... 119,000 176,000 8.6% note due August 11, 2007, payable in monthly installments of $26,667 principal plus interest on remaining principal balance, collateralized by 1980 Hawker aircraft.............................. 2,053 2,133 Other notes payable.................................. 276 659 ----------- ----------- 348,304 355,767 Less: current portion................................ 2,443 2,430 ----------- ----------- $ 345,861 $ 353,337 ========== =========== In March 1999, Coast Hotels issued $175.0 million principal amount of 9.5% senior subordinated notes with interest payable on April 1 and October 1 beginning October 1, 1999 and entered into a $75.0 million senior secured revolving credit facility due 2004 to facilitate a refinancing. Availability under the credit facility was increased to $200.0 million in September 1999. On February 2, 2001, Coast Hotels issued an additional $50.0 million principal amount of senior subordinated notes. The net proceeds of approximately $49.1 million were used to reduce borrowings under the senior secured credit facility. The notes were issued under the same indenture and have the same terms, interest rate and maturity date as the $175.0 million principal amount of senior subordinated notes issued in 1999. Coast Resorts is a guarantor of the indebtedness under both the indenture and the credit facility. Borrowings under the credit facility bear interest, at Coast Hotels' option, at a premium over the one-, two-, three- or six-month London Interbank Offered Rate ("LIBOR"). The premium varies between 125 and 250 basis points, depending on Coast Hotels' ratio of total debt to EBITDA. As of March 31, 2001, the premium over LIBOR was 2.25% (225 basis points) and the interest rate was 7.3%. For the quarter ended March 31, 2001 the weighted-average interest rate for the senior secured credit facility was 7.95%. Coast Hotels incurs a commitment fee, payable quarterly in arrears, on the unused portion of the credit facility. As of March 31, 2001, this variable fee was at the maximum rate of 0.5% per annum times the average unused portion of the facility. 6 COAST RESORTS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - LONG-TERM DEBT (continued) The availability under the $200.0 million credit facility will be reduced quarterly beginning in the fiscal quarter ending September 30, 2001. The reductions will be $6.0 million on each of September 30, 2001, December 31, 2001, March 31, 2002 and June 30, 2002; $8.5 million on each of September 30, 2002, December 31, 2002, March 31, 2003 and June 30, 2003; and $11.5 million on each of September 30, 2003, December 31, 2003, March 31, 2004 and June 30, 2004. Advances under the credit facility may be used for working capital, general corporate purposes and certain improvements to The Orleans, the Gold Coast, the Suncoast and the Barbary Coast. As of March 31, 2001, Coast Hotels had $81.0 million of availability under the $200.0 million credit facility. The loan agreement governing the $200.0 million senior secured revolving credit facility contains covenants that, among other things, limit the ability of Coast Hotels to pay dividends or make advances to Coast Resorts, to make certain capital expenditures, to repay certain existing indebtedness, to incur additional indebtedness or to sell material assets of Coast Hotels. Additionally, the loan agreement requires that Coast Hotels maintain certain financial ratios with respect to its leverage and fixed charge coverage. Coast Hotels is also subject to certain covenants associated with the indenture governing the senior subordinated notes, including, in part, limitations on certain restricted payments, the incurrence of additional indebtedness and asset sales. Management believes that, at March 31, 2001, Coast Hotels was in compliance with all covenants and required ratios. NOTE 3 - TREASURY STOCK In May 1999, Coast Resorts' board of directors authorized the potential repurchase of up to 50,000 shares of common stock from stockholders at a maximum aggregate repurchase price of $5.0 million. As of March 31, 2001, 31,175 shares of common stock have been repurchased from shareholders at a total purchase price of $3.1 million. 7 COAST RESORTS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4 - EARNINGS PER SHARE Net income per common share excludes dilution and is computed by dividing income applicable to common shareholders by the weighted-average number of common shares outstanding. Net income per common share, assuming dilution, is computed based on the weighted-average number of common shares outstanding after consideration of the dilutive effect of stock options. The computations of net income per common share and net income per common share, assuming dilution, for the three months ended March 31, 2001 and 2000, are as follows (in thousands, except share data, unaudited): Three Months Ended March 31, ---------------------- 2001 2000 ---------- ---------- Net income applicable to computations......... $ 10,659 $ 10,638 ========== ========== Weighted-average common shares applicable to net income per common share............. $ 1,463 $ 1,479 Effect of dilutive securities: Stock option incremental shares............ 35 35 ---------- ---------- Weighted-average common shares applicable to net income per common share, assuming dilution.......................... $ 1,498 $ 1,514 ========== ========== Basic net income per share of common stock.... $ 7.28 $ 7.19 ========== ========== Diluted net income per share of common stock.. $ 7.11 $ 7.02 ========== ========== 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations The following table sets forth, for the periods indicated, certain financial information regarding our results of operations: Three Months Ended March 31, ---------------------- 2001 2000 ----------- ----------- (in thousands) (unaudited) Net operating revenues.......... $ 127,548 $ 98,586 Operating expenses.............. 104,883 77,835 ----------- ----------- Operating income ............... $ 22,665 $ 20,751 =========== =========== Net income ..................... $ 10,659 $ 10,638 =========== =========== EBITDA (1)...................... $ 32,117 $ 27,313 =========== =========== (1) "EBITDA" means earnings before interest, taxes, depreciation, amortization, deferred (non-cash) rent expense, other non-cash expenses and certain non-recurring items, including pre-opening expenses and gains and losses on disposal of assets (for all periods presented, the only non-cash expense was deferred rent and the only non-recurring items were pre-opening expenses and gains and losses on disposal of assets). EBITDA is defined in our senior secured credit facility and in the indenture governing our senior subordinated notes. EBITDA is presented as supplemental disclosure because the calculation of EBITDA is necessary to determine our compliance with certain covenants under these financing agreements and because management believes that it is a widely used measure of operating performance in the gaming industry. EBITDA should not be construed as an alternative to operating income or net income (as determined in accordance with generally accepted accounting principles) as an indicator of our operating performance, or as an alternative to cash flows generated by operating, investing and financing activities (as determined in accordance with generally accepted accounting principles) as an indicator of cash flows or a measure of liquidity. All companies do not calculate EBITDA in the same manner. As a result, EBITDA as presented here may not be comparable to the similarly titled measures presented by other companies. 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Results of Operations (continued) Three Months Ended March 31, 2001 Compared to Three Months Ended March 31, 2000 In the quarter ended March 31, 2001, we experienced increases in revenues, operating income, net income and cash flows (EBITDA), primarily due to contributions from our newest hotel-casino, the Suncoast, which opened in September 2000. Net revenues in the first quarter were $127.5 million compared to $98.6 million in 2000, an increase of 29.4%. Operating income was $22.7 million in the quarter compared to $20.8 million in 2000, an increase of 9.2%. Net income was $10.7 million, up slightly over 2000 first quarter net income of $10.6 million. EBITDA (earnings before interest, taxes, depreciation, amortization, deferred rent, other non-cash expenses and certain non-recurring items, including pre-opening expenses and gains and losses on disposal of assets) was $32.1 million in the quarter, an increase of 17.6% over 2000 EBITDA of $27.3 million. Casino. Casino revenues were $94.7 million in the three months ended March 31, 2001 compared to $73.0 million in the same period in 2000, an increase of 29.7% due primarily to the opening in September 2000 of the Suncoast. Gold Coast casino revenues declined in the quarter due to the recent openings of two new locals-oriented casinos and construction disruption from the on-going renovation of the Gold Coast public areas. Additionally, a record Megabucks progressive jackpot of $34.0 million in the first quarter of the prior year attracted unusually high slot machine wagering volume in that period and contributed to a comparative decline in our slot revenues in 2001 at the Gold Coast, Barbary Coast and The Orleans. Casino expenses increased $10.3 million (31.3%) in the quarter, primarily due to the Suncoast. The casino operating margin was relatively flat at 54.4% compared to 55.0% in 2000. Food and Beverage. Food and beverage revenues were $26.7 million in the first quarter of 2001 compared to $19.7 million in 2000, an increase of 35.5% due primarily to the additional revenues from the Suncoast. Food and beverage expenses increased 41.4% to $18.9 million in 2001 compared to $13.3 million in 2000, primarily due to the additional expenses of the Suncoast. Hotel. Hotel room revenues were $9.9 million in the first quarter of 2001 compared to $8.3 million in 2000, an increase of 19.6% primarily due to the Suncoast. Additionally, improvements in the room occupancy percentage and the average daily rate at The Orleans contributed to the increase in revenues. Other. Other revenues were $8.8 million in the first quarter of 2001 compared to $6.9 million in 2000, an increase of 26.9% primarily due to the Suncoast. Other expenses also increased because of the Suncoast to $6.7 million in 2001 compared to $5.6 million in 2000, an increase of 19.8%. General and Administrative. General and administrative expenses were $22.9 million in the first quarter of 2001 compared to $16.3 million in 2000, an increase of 40.7%, primarily due to the Suncoast expenses. Additionally, utilities expenses increased substantially in the quarter. Excluding the Suncoast, which opened in September 2000, electricity and gas expenses increased by $868,000 (75.2%) compared to the first quarter of 2000, primarily because increased costs of natural gas, which increased $672,000 (347.2%). Included in general and administrative expenses was cash rent expense of $1.3 million in 2001 and $675,000 in 2000. During the construction of the Suncoast and until it opened in September 2000, rent expense was capitalized as a cost of the project. 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Results of Operations (continued) Three Months Ended March 31, 2001 Compared to Three Months Ended March 31, 2000 (continued) Pre-opening Costs. Pre-opening costs related to the development of the Suncoast were expensed as incurred. Pre-opening expenses were $268,000 in the first quarter of 2000. There were no pre-opening expenses in the first quarter of 2001. Deferred Rent. Deferred rent in the first quarter of 2001 was $884,000 compared to $520,000 in the first quarter of 2000. During the construction of the Suncoast and until it opened in September 2000, rent expense was capitalized as a cost of the project. Depreciation and Amortization. Depreciation and amortization expense was $8.6 million in the first quarter of 2001 compared to $5.8 million in 2000. The increase was primarily due to the opening of the Suncoast. Other Income (Expenses). Net interest expense increased in the first quarter of 2001 due to the higher debt related to the financing of the construction of the Suncoast. Net interest expense was $8.0 million in the quarter compared to $5.5 million in the first quarter of 2000. Capitalized interest decreased by $908,000 due to the completion of the Suncoast construction in September 2000. The $1.5 million net gain on disposal of assets included a gain of $2.4 million on the sale of approximately 29 acres that had been held for possible future development. Liquidity and Capital Resources Our principal sources of liquidity have consisted of cash provided by operating activities and debt financing. Cash provided by operating activities was $26.5 million in the three months ended March 31, 2001 and $23.8 million in the three months ended March 31, 2000. Cash used in investing activities in the quarters ended March 31, 2001 and 2000 was $3.8 million and $31.2 million, respectively, and was primarily for capital expenditures. Expenditures of approximately $13.2 million in the first quarter of 2001, primarily for capital improvement projects at the Gold Coast, The Orleans and the Suncoast, were offset in part by proceeds received from the sale of assets, including approximately 29 acres of land in North Las Vegas that had been held for possible future development. Expenditures in the first quarter of 2000 were primarily for the construction of the Suncoast. Cash used in financing activities was $8.4 million in the first quarter of 2001, primarily from the issuance on February 2, 2001 of $50.0 million principal amount of senior subordinated notes which was offset by paydowns of the credit facility with cash flows from operations and approximately $49.1 million of net proceeds from the senior subordinated note issuance. The senior subordinated notes were issued under the same indenture and have the same terms, interest rate and maturity date as our $175.0 million principal amount of senior subordinated notes issued in 1999. Cash provided by financing activities was $8.7 million in the first quarter of 2000, primarily from borrowings under our $200.0 million senior secured credit facility. 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Liquidity and Capital Resources (continued) The availability under our $200.0 million senior secured credit facility will be reduced in quarterly amounts beginning in the fiscal quarter ending September 30, 2001. The reductions will be $6.0 million on each of September 30, 2001, December 31, 2001, March 31, 2002 and June 30, 2002; $8.5 million on each of September 30, 2002, December 31, 2002, March 31, 2003 and June 30, 2003; and $11.5 million on each of September 30, 2003, December 31, 2003, March 31, 2004 and June 30, 2004. The advances under the facility may be used for working capital, general corporate purposes, and certain improvements to our existing properties. As of March 31, 2001, we had $119.0 million outstanding under the $200.0 million credit facility. Borrowings under the credit facility bear interest, at our option, at a premium over the one-, two-, three- or six-month London Interbank Offered Rate ("LIBOR"). The premium varies depending on our ratio of total debt to EBITDA and can vary between 125 and 250 basis points. As of March 31, 2001, the premium over LIBOR was 2.25% (225 basis points) and the interest rate was 7.3%. For the quarter ended March 31, 2001 the weighted-average interest rate for the senior secured credit facility was 7.95%. The loan agreement governing the $200.0 million senior secured revolving credit facility contains covenants that, among other things, limit Coast Hotels' ability to pay dividends or make advances to Coast Resorts, to make certain capital expenditures, to repay certain existing indebtedness, to incur additional indebtedness or to sell material assets. Additionally, the loan agreement requires that we maintain certain financial ratios with respect to its leverage and fixed charge coverage. We are also subject to certain covenants associated with the indenture governing our $225.0 million principal amount of senior subordinated notes, including, in part, limitations on certain restricted payments, the incurrence of additional indebtedness and asset sales. We believe that, at March 31, 2001, we were in compliance with all covenants and required ratios. Capital Expenditures In January 2001, we announced a proposed expansion of The Orleans. The project has an estimated cost of $100.0 million and is expected to be paid for primarily out of cash flows from operations through the first quarter of 2003. The expansion will include a special-events arena, a 620-room hotel tower, a 2600-car parking garage, six additional movie theaters, two restaurants and an Irish pub. Approximately 40,000 square feet of new gaming area and public space will also be created for future use. We anticipate that 2001 cash outlays for the project will total approximately $50.0 million, of which $3.2 million had been expended in the first quarter. In the fourth quarter of 2000, we commenced an approximately $20.0 million expansion and remodel of the Gold Coast. The project, which is expected to be paid for primarily out of cash flows from operations, will include a new, expanded buffet, a sports bar, an Asian-themed restaurant, 10,000 square feet of additional meeting space, the refurbishing of our standard hotel guest rooms and the redesign of most of the Gold Coast's public areas. We expect to complete the project by the fourth quarter of 2001 and to spend approximately $18.5 million in 2001, of which $4.1 million had been expended in the first quarter. The Suncoast hotel room tower was originally built to accommodate approximately 200 additional hotel rooms. We began construction of these additional rooms in the first quarter of 2001 and expect to complete them during 2001 at an estimated cost of $9.0 million. Additionally, we expect to complete the swimming pool and related landscaping in the second quarter of 2001 at a cost of approximately $11.5 million, of which $2.8 million had been expended in the first quarter. 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Capital Expenditures (continued) In the ordinary course of operating our hotel-casinos, it is necessary to upgrade or replace fixtures and equipment and to make improvements that will extend the lives of our physical plants. We anticipate that these maintenance capital expenditures will total approximately $12.0 million in 2001. A key element of our business strategy is the expansion or renovation of our existing properties as described above. The completion of these projects is subject to certain risks, including but not limited to: o general construction risks, including cost overruns, shortages of materials or skilled labor, labor disputes, unforeseen environmental or engineering problems, work stoppages, fire and other natural disasters, construction scheduling problems and weather interference; o change orders and plan or specification modifications; o changes and concessions required by governmental or regulatory authorities; and o delays in obtaining or inability to obtain all required licenses, permits and authorizations. We believe that existing cash balances, operating cash flow and available borrowings under our $200.0 million credit facility will provide sufficient resources to meet our debt and lease payment obligations and foreseeable capital expenditure requirements at our hotel-casino properties. Energy Shortage Because of a shortage of electricity in the western United States in the first quarter of 2001 and the possibility of a continued shortage, we are also exposed to the risk of substantially higher utilities rates. To the extent possible, we attempt to limit our exposure to utilities rate increases by purchasing multi-period fixed rate contracts, but no assurance can be made that such contracts will be available or, if purchased, will result in significant savings. 13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Certain Forward-Looking Statements This Form 10-Q includes "forward-looking statements" within the meaning of the securities laws. All statements regarding our expected financial position, business strategies and financing plans under the headings "Management's Discussion and Analysis of Financial Condition and Results of Operations", "Business" and elsewhere in this Form 10-Q are forward-looking statements. In addition, in those and other portions of this Form 10-Q, the words "anticipates," "believes," "estimates," "seeks," "expects," "plans," "intends" and similar expressions, as they relate to Coast Resorts or its management, are intended to identify forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, and have based these expectations on our beliefs as well as assumptions we have made, such expectations may prove to be incorrect. Important factors that could cause actual results to differ materially from such expectations are disclosed in this Form 10-Q, including, without limitation, the following factors: o increased competition, both in Nevada and other states, including increased competition from California Native American gaming; o dependence on the Las Vegas area and Southern California for a majority of our customers; o substantial leverage and uncertainty that we will be able to service our debt; o uncertainties associated with construction projects, including the related disruption of operations and the availability of financing, if necessary; o changes in laws or regulations, third party relations and approvals, decisions of courts, regulators and governmental bodies; o uncertainties related to the economy; and o uncertainties related to the cost and/or availability of electricity and natural gas. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by our cautionary statements. The forward-looking statements included are made only as of the date of this Form 10-Q. We do not intend, and undertake no obligation, to update these forward-looking statements. 14 Item 3. Quantitative and Qualitative Disclosures about Market Risk. Market Risk Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. Our primary exposure to market risk is interest rate risk associated with our long-term debt. We attempt to limit our exposure to interest rate risk by managing the mix of our long-term fixed-rate borrowings and short-term borrowings under our revolving bank credit facility. To date, we have not invested in derivative- or foreign currency-based financial instruments. 15 PART II. OTHER INFORMATION Item 1. Legal Proceedings. None. Item 2. Changes in Securities. None. Item 3. Defaults Upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. Not applicable. Item 5. Other Information. None. Item 6. Exhibits and Reports on Form 8-K: (a) Exhibits. None. (b) Reports on Form 8-K. On February 8, 2001, the Company filed a Form 8-K dated February 2, 2001 under Item 5, Other Events, with respect to the preliminary release of unaudited fourth quarter results and the issuance of $50,000,000 principal amount of additional 9 1/2% Senior Subordinated Noted Due 2009. On March 15, 2001, the Company filed a Form 8-K dated March 14, 2001 under Item 5, Other Events, with respect to the expiration of its offer to exchange up to $50.0 million principle amount of newly issued additional 9 1/2% Senior Subordinated Noted Due 2009. On March 27, 2001, the Company filed a Form 8-K dated March 26, 2001 under Item 5, Other Events, with respect to the availability of certain financial and other information on its website. 16 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: May 15, 2001 COAST RESORTS, INC., a Nevada corporation By: /s/ Gage Parrish ----------------------- Gage Parrish Vice President and Chief Financial Officer 17 -----END PRIVACY-ENHANCED MESSAGE-----