-----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, G4QsKW+C8ZhI/0L7VAakd7Os0tOFKnSIizub+HIDXUSLVibHJOanlid/ft94xBHb IPGjO9j5/wzsMo5kt2sVAg== 0001013559-01-500009.txt : 20010815 0001013559-01-500009.hdr.sgml : 20010815 ACCESSION NUMBER: 0001013559-01-500009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 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: 1934 Act SEC FILE NUMBER: 000-26922 FILM NUMBER: 1710294 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 cr01q2.txt QUARTERLY REPORT - PERIOD ENDED 06-30-01 _______________________________________________________________________________ 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, 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 August 14, 2001: 1,462,678 ________________________________________________________________________________ Part I - FINANCIAL INFORMATION Item 1. Financial Statements. COAST RESORTS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (dollars in thousands, except share data) June 30, December 2001 31, (unaudited) 2000 --------- --------- ASSETS CURRENT ASSETS: Cash and cash equivalents ........................ $ 38,546 $ 43,560 Accounts receivable, net ......................... 6,328 5,658 Other current assets ............................. 21,247 24,284 --------- --------- TOTAL CURRENT ASSETS ............................. 66,121 73,502 PROPERTY AND EQUIPMENT, net ........................ 501,849 485,925 OTHER ASSETS ....................................... 8,440 7,772 --------- --------- $ 576,410 $ 567,199 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable ................................. $ 15,225 $ 16,308 Accrued liabilities .............................. 37,372 38,208 Construction accounts payable .................... 9,950 4,868 Current portion of long-term debt ................ 2,123 2,430 --------- --------- TOTAL CURRENT LIABILITIES ........................ 64,670 61,814 LONG-TERM DEBT, less current portion ............... 339,136 353,337 DEFERRED INCOME TAXES .............................. 12,519 11,417 DEFERRED RENT ...................................... 22,099 20,330 --------- --------- TOTAL LIABILITIES ................................ 438,424 446,898 --------- --------- 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 ................................ 45,691 28,006 --------- --------- TOTAL STOCKHOLDERS' EQUITY ....................... 137,986 120,301 --------- --------- $ 576,410 $ 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 and Six Months Ended June 30, 2001 and 2000 (dollars in thousands, except share data) (unaudited) Three Months Ended Six Months Ended June 30, June 30, -------------------- -------------------- 2001 2000 2001 2000 --------- --------- --------- --------- OPERATING REVENUES: Casino......................... $ 93,963 $ 64,975 $ 188,684 $ 137,985 Food and beverage ............. 26,442 19,104 53,135 38,808 Hotel ......................... 9,533 8,192 19,478 16,506 Other ......................... 9,148 7,205 17,934 14,126 --------- --------- --------- --------- GROSS OPERATING REVENUES .... 139,086 99,476 279,231 207,425 Less: promotional allowances .. (12,391) (8,729) (24,988) (18,093) --------- --------- --------- --------- NET OPERATING REVENUES ...... 126,695 90,747 254,243 189,332 --------- --------- --------- --------- OPERATING EXPENSES: Casino ........................ 42,755 29,700 85,924 62,582 Food and beverage ............. 19,753 13,964 38,618 27,310 Hotel ......................... 3,872 3,198 7,655 6,363 Other ......................... 6,794 5,913 13,493 11,505 General and administrative .... 23,982 15,959 46,897 32,246 Pre-opening expenses .......... -- 874 -- 1,142 Deferred rent ................. 885 519 1,769 1,039 Depreciation and amortization . 8,749 5,477 17,317 10,988 --------- --------- --------- --------- TOTAL OPERATING EXPENSES .... 106,790 75,604 211,673 153,175 --------- --------- --------- --------- OPERATING INCOME ................ 19,905 15,143 42,570 36,157 --------- --------- --------- --------- OTHER INCOME (EXPENSES) Interest expense, net ......... (7,701) (6,199) (15,682) (11,937) Interest capitalized .......... 137 1,865 199 2,835 Gain (loss) on disposal of assets ...................... (1,656) 8 (122) 8 --------- --------- --------- --------- TOTAL OTHER INCOME (EXPENSES) ... (9,220) (4,326) (15,605) (9,094) --------- --------- --------- --------- INCOME BEFORE INCOME TAXES ...... 10,685 10,817 26,965 27,063 Income tax provision ............ 3,659 3,817 9,280 9,426 --------- --------- --------- --------- NET INCOME ...................... $ 7,026 $ 7,000 $ 17,685 $ 17,637 ========= ========= ========= ========= PER SHARE INFORMATION: Basic net income per share of common stock................ $ 4.80 $ 4.73 $ 12.09 $ 11.93 ========= ========= ========= ========= Diluted net income per share of common stock................ $ 4.69 $ 4.62 $ 11.80 $ 11.65 ========= ========= ========= ========= Basic weighted-average shares outstanding............. 1,463,178 1,478,978 1,463,178 1,478,978 ========= ========= ========= ========= Diluted weighted-average shares outstanding............. 1,498,593 1,514,393 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 Six Months Ended June 30, 2001 and 2000 (dollars in thousands) (unaudited) Six Months Ended June 30, ------------------- 2001 2000 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income ............................................. $ 17,685 $ 17,637 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Depreciation and amortization ........................ 17,317 10,988 Amortization of debt offering costs .................. 596 526 Loss on disposal of assets ........................... 122 -- Deferred income taxes ................................ 911 54 Deferred rent ........................................ 1,769 1,799 Other non-cash expenses .............................. -- 57 Changes in assets and liabilities: Net decrease (increase) in accounts receivable and other assets ................................. 2,224 (2,889) Net decrease in accounts payable and accrued liabilities ...................................... (1,919) (2,246) -------- -------- TOTAL ADJUSTMENTS ...................................... 21,020 8,289 -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES .............. 38,705 25,926 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures, net of amounts in construction accounts payable ........................ (37,697) (77,993) Proceeds from disposal of assets ....................... 9,415 51 -------- -------- NET CASH USED IN INVESTING ACTIVITIES .................. (28,282) (77,942) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of long-term debt, net of issuance costs .................................... 49,071 -- Principal payments on long-term debt ................... (2,508) (350) Proceeds from borrowings under bank line of credit ..... 6,000 43,600 Repayments of borrowings under bank line of credit ..... (68,000) -- Repurchase of common stock ............................. -- (1,580) -------- -------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES .... (15,437) 41,670 -------- -------- NET DECREASE IN CASH AND CASH EQUIVALENTS ................ (5,014) (10,346) CASH AND CASH EQUIVALENTS, at beginning of period ........ 43,560 38,629 -------- -------- CASH AND CASH EQUIVALENTS, at end of period .............. $ 38,546 $ 28,283 ======== ======== 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 Six Months Ended June 30, 2001 (dollars in thousands, except share data)
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(unaudited)........ -- -- -- 17,685 -- 17,685 --------- ------ --------- -------- -------- -------- Balances at June 30, 2001 (unaudited)................. 1,463,178 $ 15 $ 95,398 $45,691 $(3,118) $137,986 --------- ------ --------- -------- -------- --------
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. Effective January 1, 2001, the Company adopted Emerging Issues Task Force Issues 00-14 and 00-22 (the "Issues"). The Issues require that cash discounts and other cash incentives related to gaming play be recorded as a reduction to gross casino revenues. The Issues also require 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 June 30, 2001 and December 31, 2000: June 30, December 2001 31, (unaudited) 2000 -------- -------- (in thousands) Related parties: 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. .............. 114,000 176,000 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 ....................................... -- 2,133 Other notes payable ..................................... 284 659 -------- -------- 341,259 355,767 Less: current portion ................................... 2,123 2,430 -------- -------- $339,136 $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 June 30, 2001, the premium over LIBOR was 2.00% (200 basis points) and the interest rate was 5.75%. For the six months ended June 30, 2001 the weighted-average interest rate for the senior secured credit facility was 7.31%. Coast Hotels incurs a commitment fee, payable quarterly in arrears, on the unused portion of the credit facility. As of June 30, 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 June 30, 2001, Coast Hotels had $86.0 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. The loan agreement limits the amount of capital expenditures (other than maintenance capital expenditures) to a maximum of approximately $109.0 million during the term of the agreement. Through June 30, 2002, Coast Hotels spent approximately $53.9 million. Currently, planned capital expenditures through 2002 would cause Coast Hotels to exceed this maximum permitted by the loan agreement. At the appropriate time, management anticipates seeking an amendment to the facility to amend the capital expenditure covenant and increase the revolving line of credit to accommodate the additional planned capital expenditures. Additionally, the loan agreement governing the $200.0 million senior secured revolving credit facility 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 June 30, 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 June 30, 2001, 31,175 shares of common stock had been repurchased from shareholders at a total purchase price of $3.1 million. On July 6, 2001, another 500 shares were repurchased from a shareholder for a total purchase price of $50,000. 7 COAST RESORTS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4 - EARNINGS PER SHARE Basic 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. Diluted net income per common share assumes dilution and is computed based on the weighted-average number of common shares outstanding after consideration of the dilutive effect of stock options. The computations of basic net income per common share and diluted net income per common share for the three months and six months ended June 30, 2001 and 2000, are as follows (in thousands, except share data, unaudited): Three Months Ended Six Months Ended June 30, June 30, -------------------- -------------------- 2001 2000 2001 2000 --------- --------- --------- --------- Net income applicable to computations...................... $ 7,026 $ 7,000 $ 17,685 $ 17,637 ========= ========= ========= ========= Weighted-average common shares applicable to net income per common share...................... 1,463,178 1,478,978 1,463,178 1,478,978 Effect of dilutive securities: Stock option incremental shares... 35,415 35,415 35,415 35,415 --------- --------- --------- --------- Weighted-average common shares applicable to net income per common share, assuming dilution.......................... 1,498,593 1,514,393 1,498,593 1,514,393 ========= ========= ========= ========= Basic net income per share of common stock................... $ 4.80 $ 4.73 $ 12.09 $ 11.93 ========= ========= ========= ========= Diluted net income per share of common stock............. $ 4.69 $ 4.62 $ 11.80 $ 11.65 ========= ========= ========= ========= 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 Six Months Ended June 30, June 30, -------------------- -------------------- 2001 2000 2001 2000 -------- -------- -------- -------- (in thousands) (in thousands) (unaudited) (unaudited) Net operating revenues ......... $126,695 $ 90,747 $254,243 $189,332 Operating expenses ............. 106,790 75,604 211,673 153,175 -------- -------- -------- -------- Operating income ............... $ 19,905 $ 15,143 $ 42,570 $ 36,157 ======== ======== ======== ======== Net income ..................... $ 7,026 $ 7,000 $ 17,685 $ 17,637 ======== ======== ======== ======== EBITDA (1) ..................... $ 29,539 $ 22,013 $ 61,656 $ 49,326 ======== ======== ======== ======== (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 June 30, 2001 Compared to Three Months Ended June 30, 2000 and Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000 In the quarter ended June 30, 2001, we experienced increases in revenues, operating income, operating cash flows and EBITDA, primarily due to contributions from our newest hotel-casino, the Suncoast, which opened in September 2000. Net revenues in the second quarter were $126.7 million compared to $90.7 million in 2000, an increase of 39.6%. Operating income was $19.9 million in the quarter compared to $15.1 million in 2000, an increase of 31.4%. Despite the increase in operating income, net income was flat compared to the second quarter of 2000 at $7.0 million due to a loss on the disposal of certain gaming equipment assets as well as an increase in interest expense. Net interest expense is higher in 2001 due to a higher average balance of outstanding indebtedness after the completion of the Suncoast. 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 $29.5 million in the quarter, an increase of 34.2% over 2000 second quarter EBITDA of $22.0 million. In the six months ended June 30, 2001, we had increases in revenues, operating income, net income, operating cash flows and EBITDA, primarily due to the Suncoast. Net revenues in the first half of 2001 were $254.2 million compared to $189.3 million in the first six months of 2000. Revenues from our newest property, the Suncoast, and increases at The Orleans were partially offset by a decrease at the Gold Coast due to construction disruption and the competitive impact of a recently opened locals-oriented hotel-casino within close proximity to the Gold Coast. Revenues at the Barbary Coast were down slightly, possibly due to the recent economic downturn. Operating income for the first six months of 2001 was $42.6 million compared to $36.2 million in the first six months of 2000. Net income was up slightly (0.3%) in the period and EBITDA increased 25.0% to $61.7 million compared to $49.3 million in the first half of 2000. Casino. Casino revenues were $94.0 million in the three months ended June 30, 2001 compared to $65.0 million in the same period in 2000, an increase of 44.6% due primarily to the opening of the Suncoast in September 2000. In the six months ended June 30, 2001, casino revenues increased 36.7% to $188.7 million compared to $138.0 million in 2000. Gold Coast casino revenues declined in the quarter and year-to-date due to disruption from the on-going renovation of its interior and the recent opening of a new locals-oriented casino in close proximity to the Gold Coast. Casino expenses increased $13.1 million (44.0%) in the quarter, primarily due to the Suncoast operations. The casino operating margin was relatively flat at 54.5% compared to 54.3% in the second quarter of 2000. Year-to-date, the casino operating margin was 54.5% compared to 54.6% in 2000. Food and Beverage. Food and beverage revenues were $26.4 million in the second quarter of 2001 compared to $19.1 million in 2000, an increase of 38.4% due primarily to the Suncoast. Food and beverage expenses increased 41.5% to $19.8 million in 2001 compared to $14.0 million in 2000, primarily due to the additional expenses of the Suncoast. For the six months ended June 30, 2001, food and beverage revenues were $53.1 million compared to $38.8 million in 2000, an increase of 36.9%. Food and beverage expenses were $38.6 million in the first six months of 2001 compared to $27.3 million in 2000. 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Results of Operations (continued) Hotel. Hotel room revenues were $9.5 million in the second quarter of 2001 compared to $8.2 million in 2000, an increase of 16.4% primarily due to the Suncoast. The hotel operating margin declined slightly in the quarter due to lower-than-expected occupancy rates at our hotels. For the six months ended June 30, 2001, hotel room revenues were $19.5 million compared to $16.5 million in the same period in 2000. The hotel operating margin decreased slightly due to lower-than-expected occupancy rates. Other. Other revenues include bowling, showroom, special events, retail and miscellaneous other revenues. Other revenues were $9.1 million in the second quarter of 2001 compared to $7.2 million in 2000, an increase of 27.0% primarily due to the Suncoast. Expenses related to the other revenues also increased because of the Suncoast to $6.8 million in 2001 compared to $5.9 million in 2000, an increase of 14.9%. In the six months ended June 30, 2001, other revenues were $17.9 million compared to $14.1 million in the same period in 2000, an increase of 27.0%. Other expenses were $13.5 million in the first half of 2001 compared to $11.5 million in 2000, an increase of 17.3%. General and Administrative. General and administrative expenses were $24.0 million in the second quarter of 2001 compared to $16.0 million in 2000, an increase of 50.3%, 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 $641,000 (42.6%) compared to the second quarter of 2000. Included in general and administrative expenses for the second quarter were cash rent expenses 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. For the six months ended June 30, 2001, general and administrative expenses were $46.9 million compared to $32.2 million in 2000, an increase of 45.4%, primarily due to the Suncoast. Excluding the Suncoast, which was not open in the first half of 2000, utilities expenses increased by $1.5 million (46.8%) compared to the first half of 2000. Pre-opening Costs. Pre-opening costs related to the development of the Suncoast were expensed as incurred. Pre-opening expenses were $874,000 in the second quarter of 2000. There were no pre-opening expenses in the second quarter of 2001. For the first six months of 2000, pre-opening expenses were $1.1 million. There were no pre-opening expenses in the first six months of 2001. Deferred Rent. Deferred rent in the second quarter of 2001 was $885,000 compared to $519,000 in the second 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. For the first six months of 2001, deferred rent was $1.8 million compared to $1.0 million in 2000. Depreciation and Amortization. Depreciation and amortization expense was $8.7 million in the second quarter of 2001 compared to $5.5 million in 2000. The increase was primarily due to the opening of the Suncoast. Year-to-date, depreciation and amortization expense was $17.3 million compared to $11.0 million in the first half of 2000. 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Results of Operations (continued) Other Income (Expenses). Net interest expense increased in the second quarter of 2001 due to the higher debt related to the financing of the construction of the Suncoast. Net interest expense was $7.6 million in the quarter compared to $4.3 million in the second quarter of 2000. Capitalized interest decreased by $1.7 million due to the completion of the Suncoast construction in September 2000. For the first six months of 2001, net interest expense was $15.5 million compared to $9.1 million in the first six months of 2000. Capitalized interest decreased by $2.6 million in the period compared to the first half of 2000. 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 $38.7 million in the six months ended June 30, 2001 and $25.9 million in the six months ended June 30, 2000. Cash used in investing activities in the six months ended June 30, 2001 and 2000 was $28.3 million and $77.9 million, respectively, and was primarily for capital expenditures. Expenditures of approximately $42.8 million in the first half of 2001, including amounts in construction accounts payable, were for maintenance capital expenditures ($8.5 million) and for capital improvement projects at the Gold Coast, The Orleans and the Suncoast. Expenditures in the first half of 2000 were primarily for the construction of the Suncoast. Cash used in financing activities was $15.4 million in the first half of 2001. Proceeds from the issuance on February 2, 2001 of $50.0 million principal amount of senior subordinated notes and from borrowings under our revolving line of credit were offset by reductions of amounts under 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 $41.7 million in the first half of 2000, primarily from borrowings under our $200.0 million senior secured credit facility due to construction of the Suncoast. 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 June 30, 2001, we had $114.0 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 June 30, 2001, the premium over LIBOR was 2.00% (200 basis points) and the interest rate was 5.75%. For the quarter ended June 30, 2001 the weighted-average interest rate for the senior secured credit facility was 7.31%. 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Liquidity and Capital Resources (continued) The loan agreement governing the $200.0 million senior secured revolving credit facility contains covenants that, among other things, limit our 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 June 30, 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 includes a 10,000-seat special-events center, a 620-room hotel tower, a 2,600-car parking garage, six additional movie theaters, two restaurants, an Irish pub and approximately 40,000 square feet of new gaming area and public space. Various enhancements to the scope of the special-events center, hotel tower, parking garage and movie theaters and the addition of two more restaurants and a bar have increased the estimated cost of the expansion from $100.0 million to approximately $130.0 million. One of the restaurants and the Irish pub opened in the second quarter of 2001, and construction of the second restaurant and the movie theaters began in that quarter. We anticipate that 2001 cash outlays for the project will total approximately $50.0 million, of which $15.0 million had been expended in the first six months. In the fourth quarter of 2000, we commenced an approximately $20.5 million first phase expansion and remodel of the Gold Coast. The project 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 and to spend approximately $18.5 million in 2001, of which $12.0 million had been expended in the first six months. In the second quarter of 2001, we commenced construction of the $30.0 million second phase of the Gold Coast remodel. The project includes a 2,000-car parking garage, a 10,000 square foot expansion of the convention and banquet facilities, 30,000 square feet of additional casino space, relocation of the bingo parlor and various other improvements. 2001 cash outlays for the project are expected to be approximately $10.0 million. 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 in the third quarter of 2001 at an estimated cost of $11.0 million. 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 life of our physical plants. We anticipate that these maintenance capital expenditures will total approximately $12.0 million in 2001, of which approximately $8.5 million had been expended in the first six months. 13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Capital Expenditures (continued) Our expansion and remodel projects are expected to be funded in 2001 with existing cash balances, operating cash flow and available borrowings under our credit facility. We believe those sources will provide sufficient resources to meet our debt and lease payment obligations and capital expenditure requirements for 2001. The loan agreement governing our $200.0 million revolving line of credit limits the amount of our capital expenditures (other than maintenance capital expenditures) to a maximum of approximately $109.0 million during the term of the agreement. Through June 30, 2002, we have spent approximately $53.9 million. Currently, our planned capital expenditures through 2002 would cause us to exceed this maximum permitted by the loan agreement. At the appropriate time, we anticipate seeking an amendment to the facility to amend the capital expenditure covenant and increase the revolving line of credit to accommodate our additional planned capital expenditures. If such an amendment and increase cannot be obtained, it may become necessary to delay certain of the capital projects or to seek alternative financing. 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. 14 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. 15 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. 16 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. None. 17 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, 2001 COAST RESORTS, INC., a Nevada corporation By: /s/ Gage Parrish ----------------------- Gage Parrish Vice President and Chief Financial Officer 18 -----END PRIVACY-ENHANCED MESSAGE-----