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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
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 #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 Identification No.)
incorporation or organization)
4500 West Tropicana Road, Las Vegas, Nevada 89103
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (702)
365-7000
Securities Registered Pursuant To Section 12(B) of The Act: None
Securities Registered Pursuant To Section 12(G) of The Act: Common
Stock, $ .01 Par Value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The number of shares of the Registrant's Common Stock outstanding as of
March 30, 2001 was 1,463,177.94. The aggregate market value of the Common Stock
held by non-affiliates of the Registrant was $54,579,471 as of March 1, 2001.
COAST RESORTS, INC.
Table of Contents
Annual Report on Form 10-K
For the Fiscal Year Ended December 31, 2000
PAGE
----
PART I
Item 1. Business.......................................................... 1
Item 2. Properties........................................................ 10
Item 3. Legal Proceedings................................................. 11
Item 4. Submission of Matters to a Vote of Security Holders............... 11
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters............................................... 12
Item 6. Selected Historical Financial Data................................ 13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................... 15
Item 7A. Quantitative and Qualitative Disclosures about Market Risk........ 21
Item 8. Financial Statements and Supplementary Data....................... 21
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.......................................... 21
PART III
Item 10. Directors and Executive Officers of the Registrant................ 22
Item 11. Executive Compensation............................................ 25
Item 12. Security Ownership of Certain Beneficial Owners and Management.... 27
Item 13. Certain Relationships and Related Transactions.................... 28
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K... 30
PART I
Item 1. Business
The Company
Coast Resorts, Inc. (Coast Resorts) is a Nevada corporation. Through our
wholly owned subsidiary, Coast Hotels and Casinos, Inc.(Coast Hotels), we own
and operate four Las Vegas hotel-casinos:
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 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 Barbary Coast Hotel and Casino, which opened in March 1979, is located
on the Las Vegas Strip.
The following chart provides certain information about our properties as of
December 31, 2000:
Casino Slots
Hotel Square and Gaming
Property Rooms Footage Video Tables
Poker
----- ------- ----- ------
The Orleans..... 840 105,000 2,450 63
Gold Coast...... 712 70,000 1,900 44
Suncoast........ 203 78,000 2,077 50
Barbary Coast... 197 30,000 672 36
Our principal executive office is located at 4500 West Tropicana Road, Las
Vegas, Nevada 89103. The telephone number is (702) 365-7000.
Business and Marketing Strategy
Our business and marketing strategy is to attract gaming customers to our
casinos by offering consistently high quality gaming, hotel, entertainment and
dining experiences at affordable prices. We emphasize attracting and retaining
repeat customers. Our primary target market for The Orleans, the Gold Coast and
the Suncoast consists of value-oriented local middle-market customers who gamble
frequently. The Barbary Coast's customer base is primarily composed of visitors
to the Las Vegas area.
While a significant portion of our customers are local residents, the same
factors that appeal to local residents also appeal to visitors to Las Vegas,
including better odds on slot and video poker machines and lower minimum wager
limits on our table games than those traditionally found at Strip casinos. In
addition to the growing local resident market, Las Vegas is one of the fastest
growing entertainment markets in the United States.
1
Item 1. Business (continued)
Business and Marketing Strategy (continued)
We believe that the most important factors in successfully operating our
casinos are convenient locations with easy access, a friendly atmosphere, a
value-oriented approach and high quality entertainment and amenities.
Additionally, we offer Las Vegas visitors spacious, well-appointed and
competitively priced guest rooms.
o Convenient, Strategic Locations. The Orleans and the Gold Coast are easily
accessible and offer ample parking, providing our customers with convenient
alternatives to the congestion on the Strip. The Suncoast has a suburban
location conveniently located adjacent to the fast-growing Summerlin
master-planned community. The Barbary Coast is located on the corner of the
Strip and Flamingo Road.
o Friendly Atmosphere. A key element of our strategy is to provide patrons
with friendly, personal service that is designed to foster customer loyalty
and generate repeat business. Locals appreciate a friendly, casual gaming
environment where employees make them feel at home.
o Value. We offer value to our gaming patrons by providing slot and video
poker machines with better odds than those traditionally found at Strip
casinos. Locals' perception of value is also influenced by such things as
slot clubs that reward frequent play. We also offer value in our many
restaurants and bars, where patrons are served their favorite beverages and
generous portions of quality food at attractive prices.
o Entertainment, Movie Theaters and Amenities. We believe we compete
effectively with other locals-oriented casinos by offering amenities and
entertainment that our customers demand and that accentuate the perception
of value for our customers. Our properties offer a number of amenities that
generate significant foot traffic through our casinos, including movie
theaters, bowling centers, quality restaurants and a variety of musical
entertainment.
o Tourist Customers. Las Vegas is one of the fastest growing entertainment
markets in the United States. The same factors that appeal to local
residents also appeal to visitors to Las Vegas, including better odds and
lower minimum wager limits than those traditionally found at Strip casinos.
Additionally, our casinos are strategically situated to benefit from the
growing visitor market, with the Gold Coast and The Orleans each located
within two miles of the Strip and the Barbary Coast located at one of the
busiest corners on the Strip.
Casino Properties
The Orleans. The Orleans is strategically located on Tropicana Avenue, a
short distance from the Las Vegas Strip and McCarran International Airport. The
Orleans provides an upscale, off-Strip experience in an exciting New Orleans
French Quarter-themed environment.
The Orleans features an approximately 105,000 square foot casino, including
approximately 2,450 slot machines, 63 table games, a keno lounge, a poker parlor
and race and sports books. The Orleans has 840 hotel rooms, 12 ``stadium
seating'' first-run movie theaters, a 70-lane bowling center, approximately
40,000 square feet of banquet and meeting facilities, including an approximately
17,000 square foot grand ballroom, four full-service restaurants and a
multi-station buffet, specialty themed bars, a swimming pool, a barber shop, a
beauty salon, a child care facility, a video arcade and approximately 4,000
parking spaces. The Orleans also includes an 850-seat theater that features
headliner entertainment and other special events, allowing us to attract more
tourists who would otherwise gamble at Strip casinos.
2
Item 1. Business (continued)
Casino Properties (continued)
In January 2001, we announced a $100 million expansion of The Orleans. The
project is expected to be completed in phases through the end of 2002. Featured
in the expansion will be a special-events arena, a 620-room hotel tower, a
2,600-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.
Gold Coast. The Gold Coast is located on West Flamingo Road approximately
one mile west of the Las Vegas Strip and one-quarter mile west of Interstate 15,
the major highway linking Las Vegas and Southern California, offering easy
access from all four directions in the Las Vegas valley.
The Gold Coast features an approximately 70,000 square foot casino,
including approximately 1,900 slot machines, 44 table games, a keno lounge, a
160-seat race and sports book and a 700-seat bingo parlor. Our eleven-story
tower includes 712 hotel rooms and suites, a swimming pool and fitness center.
The Gold Coast features three full-service restaurants, a 380-seat buffet
restaurant, a fast-food restaurant, a snack bar and an ice cream parlor.
Entertainment amenities include a 72-lane bowling center, approximately 10,000
square feet of banquet and meeting facilities, four bars, two entertainment
lounges and a showroom/dance hall featuring live musical entertainment. Other
amenities include a gift shop, a liquor store, a travel agency, an American
Express office, a Western Union office, a beauty salon, a barber shop, a child
care facility and over 3,000 parking spaces.
In the fourth quarter of 2000, we commenced a $20 million 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
end of 2001.
Suncoast. The Suncoast serves one of the fastest growing areas of the Las
Vegas valley and is located on approximately 50 acres in Peccole Ranch, a
master-planned community adjacent to Summerlin. The Suncoast is strategically
located at the intersection of Rampart Boulevard and Alta Drive, readily
accessible from most major points in Las Vegas, including downtown
(approximately eight miles) and the Strip (approximately nine miles).
The Suncoast is a Mediterranean-themed facility featuring approximately
78,000 square feet of casino space, including approximately 2,077 slot machines,
50 table games, a 150-seat race and sports book and a 600-seat bingo parlor. The
Suncoast has 203 spacious hotel rooms and suites, approximately 25,000 square
feet of banquet and meeting facilities, 16 ``stadium seating'' movie theaters,
five full-service restaurants, a 64-lane bowling center and approximately 6,000
parking spaces. A swimming pool is expected to be completed in the second
quarter of 2001. The Suncoast hotel tower was built to accommodate approximately
200 additional hotel rooms, and we commenced construction of those rooms in the
first quarter of 2001.
Barbary Coast. The Barbary Coast is located at the intersection of Flamingo
Road and Las Vegas Boulevard, one of the busiest intersections on the Strip,
along with Caesars Palace, Bally's Las Vegas and Bellagio. Historically, the
Barbary Coast has relied on foot traffic on the Las Vegas Strip for a
significant amount of its revenues. As a result, the Barbary Coast's customer
base is primarily visitors to the Las Vegas area. In addition to its favorable
location on the Strip, the Barbary Coast has also benefited from its more
intimate gaming atmosphere, allowing it to develop a loyal base of table games
and slot customers.
3
Item 1. Business (continued)
Casino Properties (continued)
The Barbary Coast features an approximately 30,000 square foot casino,
including approximately 672 slot machines, 36 table games, a race and sports
book and other amenities. Our eight-story tower includes 197 spacious rooms and
suites. The Barbary Coast is furnished and decorated in an elegant
turn-of-the-century Victorian theme and includes three bars and three
restaurants: Michael's gourmet restaurant, Drai's on the Strip (leased to and
operated by a third party) and the Victorian Room.
Gaming Security
Each of our casinos employs extensive supervision and accounting procedures
to control the handling of cash in their gaming operations. These measures
include security personnel, closed-circuit television observation of critical
areas of the casino, locked cash boxes, independent auditors and observers,
strict sign-in and sign-out procedures which ensure, to the extent practicable,
that gaming chips issued by, and returned to, the casino cashier's cages are
accurately accounted for, and procedures for the regular observation of gaming
employees. The accounting departments of each of our casinos, which employ
persons who have no involvement in the gaming operations, review on a daily
basis records compiled by gaming employees pertaining to cash flow and credit
extension. Moreover, regular periodic analysis of the results of our gaming
operations, including analyses of our compliance with the internal control
standards established by the Nevada State Gaming Control Board (the "Nevada
Board"), are performed by us and our independent auditors to detect significant
deviations from industry standards. Based on the results of these analyses,
management believes that its procedures are in compliance in all material
respects with the requirements established by the Nevada Gaming Commission (the
"Nevada Commission") and the Nevada Board.
Potential Future Developments
From time to time in our ordinary course of business we review proposals for
new developments, joint ventures and other strategic transactions. We cannot
assure you that any such new developments, ventures or transactions will be
pursued or, if pursued, will be successful.
Competition
There is intense competition among companies in the gaming industry. The
Orleans, the Gold Coast and the Suncoast compete primarily with Las Vegas
hotel-casinos and non-hotel gaming facilities that target local residents. Some
of these competitors have recently completed expansions or new projects. In
addition, there are currently gaming facilities that have been announced or are
under construction in the immediate vicinity of our casinos. A hotel-casino is
under construction on a location adjacent to the Gold Coast and is scheduled to
open in December 2001. The construction of new properties and the expansion or
enhancement of existing properties near our casinos could have a negative impact
on our business.
In contrast to our other casinos, the Barbary Coast competes for customers
primarily with the hotel-casinos located on the Strip. The construction of new
properties and the expansion or enhancement of existing properties on the Strip
by competitors could materially adversely affect the Barbary Coast.
In addition, each of our properties competes to a lesser extent with all
other casinos and hotels in the Las Vegas area. A number of new hotel-casinos or
expansions have opened in Las Vegas over the last several years, and several new
hotel-casino projects and expansions have been announced or are under
construction in Las Vegas. This additional gaming and room capacity may have a
negative impact on our business.
4
Item 1. Business (continued)
Competition (continued)
We also compete with other legalized forms of gaming and gaming operations
in other parts of the state of Nevada and elsewhere. Certain states have
recently legalized, and several other states are currently considering
legalizing, casino gaming in designated areas. We also face competition from
casinos located on Native American reservations. We believe that the development
by Native Americans and other casino properties similar to those in Las Vegas in
areas close to Nevada, particularly California and Arizona, could have a
material adverse effect on our business and results of operations. In March
2000, California voters passed Proposition 1-A, which exempts California Native
American tribes from constitutional prohibitions against casino gaming and
allows the California governor to compact with the tribes to conduct limited Las
Vegas-style gaming activities. The governor has entered into compacts with
nearly 60 tribes that allow the tribes to operate slot and video poker machines,
banked card games and lotteries. An increase in gaming in California as a result
of the passage of Proposition 1-A could have a material adverse effect on our
business and results of operations.
Employees
At December 31, 2000, we had approximately 6,900 employees. We have not
experienced any significant work stoppages and believe our labor relations are
good. The Las Vegas job market for qualified employees is very competitive.
Approximately 350 employees at the Barbary Coast are covered by a collective
bargaining agreement; none of our other employees are covered by a collective
bargaining agreement.
Nevada Regulation and Licensing
The ownership and operation of casino gaming facilities in Nevada are
subject to (i) the Nevada Gaming Control Act and the regulations promulgated
thereunder (collectively, the "Nevada Act"), and (ii) various local regulations.
Our gaming operations are subject to the licensing and regulatory control of the
Nevada Commission, the Nevada Board and the Clark County Liquor and Gaming
Licensing Board (the "Clark County Board"). The Nevada Commission, the Nevada
Board and the Clark County Board are collectively referred to as the "Nevada
Gaming Authorities".
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which seek to, among
other things, (i) prevent unsavory or unsuitable persons from having any direct
or indirect involvement with gaming at any time or in any capacity, (ii)
establish and maintain responsible accounting practices and procedures, (iii)
maintain effective control over the financial practices of licensees, including
establishing minimum procedures for internal fiscal affairs and the safeguarding
of assets and revenues, providing reliable record keeping and requiring the
filing of periodic reports with the Nevada Gaming Authorities, (iv) prevent
cheating and fraudulent practices and (v) provide a source of state and local
revenues through taxation and licensing fees. Changes in such laws, regulations
and procedures could have an adverse effect on our gaming operations.
5
Item 1. Business (continued)
Nevada Regulation and Licensing (continued)
Through our wholly owned subsidiary, we operate the Gold Coast, the Barbary
Coast, The Orleans and the Suncoast, and are licensed by the Nevada Gaming
Authorities. The gaming licenses require the periodic payment of fees and taxes
and are not transferable. Coast Resorts is registered with the Nevada Commission
as a publicly traded corporation (a "Registered Corporation") and has been found
suitable to own the stock of Coast Hotels. Coast Resorts, as a Registered
Corporation, and Coast Hotels, as a Corporate Licensee, are required
periodically to submit detailed financial and operating reports to the Nevada
Commission and furnish any other information that the Nevada Commission may
request. No person may become a stockholder of, or receive any percentage of the
profits from, Coast Hotels without first obtaining licenses and approvals from
the Nevada Gaming Authorities. Coast Hotels and Coast Resorts have obtained from
the Nevada Gaming Authorities the various registrations, approvals, permits and
licenses required in order to engage in gaming activities at its hotel-casinos.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, Coast Hotels or Coast
Resorts in order to determine whether such individual is suitable or should be
licensed as a business associate of a Corporate Licensee or a Registered
Corporation. Officers, directors and certain key employees of Coast Hotels must
file applications with the Nevada Gaming Authorities and may be required to be
licensed or found suitable by the Nevada Gaming Authorities. Officers, directors
and key employees of Coast Hotels who are actively and directly involved in
gaming activities may be required to be licensed or found suitable by the Nevada
Gaming Authorities. The Nevada Gaming Authorities may deny an application for
licensing for any cause, which they deem reasonable. A finding of suitability is
comparable to licensing, and both require submission of detailed personal and
financial information followed by a thorough investigation. The applicant for
licensing or a finding of suitability must pay all the costs of the
investigation. Changes in licensed positions must be reported to the Nevada
Gaming Authorities and, in addition to their authority to deny an application
for a finding of suitability or licensure, the Nevada Gaming Authorities have
jurisdiction to disapprove a change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director or key
employee of Coast Hotels or Coast Resorts unsuitable for licensing or unsuitable
to continue having a relationship with Coast Hotels or Coast Resorts, we would
have to sever all relationships with such person. In addition, the Nevada
Commission may require the Company and Coast Hotels to terminate the employment
of any person who refuses to file appropriate applications. Determinations of
suitability or of questions pertaining to licensing are not subject to judicial
review in Nevada.
Coast Hotels and Coast Resorts are required to submit detailed financial and
operating reports to the Nevada Commission. Substantially all material loans,
leases, sales of securities and similar financing transactions by Coast Hotels
must be reported to, or approved by, the Nevada Commission.
If it were determined that the Nevada Act was violated by Coast Hotels, the
gaming licenses it holds could be limited, conditioned, suspended or revoked,
subject to compliance with certain statutory and regulatory procedures. In
addition, Coast Hotels, Coast Resorts and the persons involved could be subject
to substantial fines for each separate violation of the Nevada Act at the
discretion of the Nevada Commission. Further, a supervisor could be appointed by
the Nevada Commission to operate our gaming properties and, under certain
circumstances, earnings generated during the supervisor's appointment (except
for the reasonable rental value of our gaming properties) could be forfeited to
the State of Nevada. Limitation, conditioning or suspension of any gaming
license or the appointment of a supervisor could (and revocation of any gaming
license would) materially adversely affect our gaming operations.
6
Item 1. Business (continued)
Nevada Regulation and Licensing (continued)
Any beneficial holder of a Registered Corporation's voting securities,
regardless of the number of shares owned, may be required to file an
application, be investigated, and have his suitability as a beneficial holder of
a Registered Corporation's voting securities determined if the Nevada Commission
has reason to believe that such ownership would otherwise be inconsistent with
the declared policies of the State of Nevada. The applicant must pay all costs
of investigation incurred by the Nevada Gaming Authorities in conducting any
such investigation.
The Nevada Act requires any person who acquires beneficial ownership of more
than 5% of a Registered Corporation's voting securities to report the
acquisition to the Nevada Commission. The Nevada Act requires that beneficial
owners of more than 10% of a Registered Corporation's voting securities apply to
the Nevada Commission for a finding of suitability within 30 days after the
Chairman of the Nevada Board mails the written notice requiring such filing.
Under certain circumstances, an "institutional investor," as defined in the
Nevada Act, which acquires more than 10%, but not more than 15% of a Registered
Corporation's voting securities may apply to the Nevada Commission for a waiver
of such finding of suitability if such institutional investor holds the voting
securities for investment purposes only. An institutional investor will not be
deemed to hold voting securities for investment purposes unless the voting
securities were acquired and are held in the ordinary course of business as an
institutional investor and not for the purpose of causing, directly or
indirectly, the election of a majority of the members of the board of directors
of a Registered Corporation, any change in a Registered Corporation's corporate
charter, bylaws, management, policies or operations, or any of its gaming
affiliates, or any other action which the Nevada Commission finds to be
inconsistent with holding the Registered Corporation's voting securities for
investment purposes only. Activities which are not deemed to be inconsistent
with holding voting securities for investment purposes only include: (i) voting
on all matters voted on by stockholders; (ii) making financial and other
inquiries of management of the type normally made by securities analysts for
informational purposes and not to cause a change in its management policies or
operations; and (iii) such other activities as the Nevada Commission may
determine to be consistent with such investment intent. If the beneficial holder
of voting securities who must be found suitable is a corporation, partnership or
trust, it must submit detailed business and financial information including a
list of beneficial owners. The applicant is required to pay all costs of
investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within 30 days after being ordered to do so by the Nevada Commission or
the Chairman of the Nevada Board, may be found unsuitable. The same restrictions
apply to a record owner if the owner, after request, fails to identify the
beneficial owner. Any stockholder found unsuitable and who holds, directly or
indirectly, any beneficial ownership of the voting securities of a Registered
Corporation beyond such period of time as may be prescribed by the Nevada
Commission may be guilty of a criminal offense. Coast Hotels is subject to
disciplinary action if, after it receives notice that a person is unsuitable to
be a stockholder or to have any other relationship with Coast Hotels or Coast
Resorts, we (i) pay that person any dividend or interest upon voting securities
of our company, (ii) allow that person to exercise, directly or indirectly, any
voting right conferred through securities held by that person, (iii) pay
remuneration in any form to that person for services rendered or otherwise, or
(iv) fail to pursue all lawful efforts to require such unsuitable person to
relinquish his voting securities, including, if necessary, the immediate
purchase of such voting securities for cash at fair market value.
7
Item 1. Business (continued)
Nevada Regulation and Licensing (continued)
The Nevada Commission may, at its discretion, require the holder of any debt
security of a Corporate Licensee or a Registered Corporation to file
applications, be investigated and be found suitable to own the debt security. If
the Nevada Commission determines that a person is unsuitable to own such
security, then pursuant to the Nevada Act, the Corporate Licensee or the
Registered Corporation can be sanctioned, including the loss of its licenses, if
without the prior approval of the Nevada Commission, it: (i) pays to the
unsuitable person any dividend, interest or any distribution whatsoever; (ii)
recognizes any voting right by such unsuitable person in connection with such
securities; (iii) pays the unsuitable person remuneration in any form; or (iv)
makes any payment to the unsuitable person by way of principal, redemption,
conversion, exchange, liquidation or similar transaction.
Coast Hotels is required to maintain a current stock ledger in Nevada, which
may be examined by the Nevada Gaming Authorities at any time. If any securities
are held in trust by an agent or by a nominee, the record holder may be required
to disclose the identity of the beneficial owner to the Nevada Gaming
Authorities. A failure to make such disclosure may be grounds for finding the
record holder unsuitable. Coast Hotels is also required to render maximum
assistance in determining the identity of the beneficial owner. The Nevada
Commission has the power to require our stock certificates to bear a legend
indicating that the securities are subject to the Nevada Act.
Licensed Corporations and Registered Corporations such as Coast Hotels and
Coast Resorts may not make public offering of their securities without the prior
approval of the Nevada Commission if the securities or proceeds therefrom are
intended to be used to construct, acquire or finance gaming facilities in
Nevada, or to require or extend obligations incurred for such purposes. The
Nevada Commission has previously granted exemptions from this prior approval
process for certain public offerings by Coast Hotels and Coast Resorts. Approval
of a public offering, if given, will not constitute a finding, recommendation or
approval by the Nevada Commission or the Nevada Board as to the accuracy or
adequacy of the prospectus or the investment merits of the securities. Any
representation to the contrary is unlawful.
Changes in control of a Registered Corporation through merger,
consolidation, stock or asset acquisitions, management or consulting agreements,
or any act or conduct by a person whereby he obtains control, may not occur
without the prior approval of the Nevada Commission. Entities seeking to acquire
control of a Registered Corporation must satisfy the Nevada Board and Nevada
Commission with respect to a variety of stringent standards prior to assuming
control of such Registered Corporation. The Nevada Commission may also require
controlling stockholders, officers, directors and other persons having a
material relationship or involvement with the entity proposing to acquire
control, to be investigated and licensed as a part of the approval process
relating to the transaction.
8
Item 1. Business (continued)
Nevada Regulation and Licensing (continued)
The Nevada legislature has declared that some corporate acquisitions opposed
by management, repurchases of voting securities and corporate defense tactics
affecting Licensed Corporations, and Registered Corporations that are affiliated
with those operations, may be injurious to stable and productive corporate
gaming. The Nevada Commission has established a regulatory scheme to ameliorate
the potentially adverse effects of these business practices upon Nevada's gaming
industry and to further Nevada's policy to: (i) assure the financial stability
of corporate gaming operators and their affiliates; (ii) preserve the beneficial
aspects of conducting business in the corporate form; and (iii) promote a
neutral environment for the orderly governance of corporate affairs. Approvals
are, in certain circumstances, required from the Nevada Commission before a
Registered Corporation can make exceptional repurchases of voting securities
above the current market price thereof and before a corporate acquisition
opposed by management can be consummated. The Nevada Act also requires prior
approval of a plan of recapitalization proposed by a Registered Corporation's
Board of Directors in response to a tender offer made directly to the Registered
Corporation's stockholders for the purposes of acquiring control of the
Registered Corporation.
License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, are payable to the State of Nevada and to the
counties and cities in which the Nevada licensee's respective operations are
conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly or annually and are based upon
either: (i) a percentage of the gross revenues received; (ii) the number of
gaming devices operated; or (iii) the number of table games operated. A casino
entertainment tax is also paid by casino operations where entertainment is
furnished in connection with the selling of food or refreshments.
Any person who is licensed, required to be licensed, registered, required to
be registered, or is under common control with such persons (collectively,
"Licensees"), and who proposes to become involved in a gaming venture outside of
Nevada is required to deposit with the Nevada Board, and thereafter maintain, a
revolving fund in the amount of $10,000 to pay the expenses of investigation of
the Nevada Board of their participation in such foreign gaming. The revolving
fund is subject to increase or decrease at the discretion of the Nevada
Commission.
Thereafter, Licensees are required to comply with certain reporting
requirements imposed by the Nevada Act. Licensees are also subject to
disciplinary action by the Nevada Commission if they knowingly violate any laws
of the foreign jurisdiction pertaining to the foreign gaming operation, fail to
conduct the foreign gaming operation in accordance with the standards of honesty
and integrity required of Nevada gaming operations, engage in activities that
are harmful to the State of Nevada or its ability to collect gaming taxes and
fees, or employ a person in the foreign operation who has been denied a license
or finding of suitability in Nevada on the grounds of personal unsuitability.
Coast Hotels may pursue development opportunities in other jurisdictions and
expects that if it does so it will be subject to similar rigorous regulatory
standards in each other jurisdiction in which it seeks to conduct gaming
operations. There can be no assurance that regulations adopted, permits required
or taxes imposed, by other jurisdictions will permit profitable operations by
Coast Hotels in those jurisdictions.
9
Item 1. Business (continued)
Certain Forward-Looking Statements
This Form 10-K 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-K are forward-looking statements. In
addition, in those and other portions of this Form 10-K, 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-K, 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;
and
o changes in laws or regulations, third party relations and approvals,
decisions of courts, regulators and governmental bodies.
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-K. We do not intend, and undertake no obligation,
to update these forward-looking statements.
Item 2. Properties
The Orleans occupies a portion of an approximately 80-acre site located on
West Tropicana Avenue, approximately one mile south of the Gold Coast. We lease
the real property under a ground lease entered into by Coast Hotels and the
Tiberti Company, a Nevada general partnership of which J. Tito Tiberti, a
director of Coast Hotels, is managing partner. The lease had an effective
commencement date of October 1, 1995, an initial term of 50 years, and includes
an option, exercisable by us, to extend the initial term for an additional 25
years. The lease provides for monthly rental payments of $200,000 per month
through February 2002, $225,000 per month during the 48-month period thereafter,
and $250,000 per month during the 60-month period thereafter. In March 2011,
annual rental payments will increase on a compounding basis at a rate of 3.0%
per annum. In addition, we have been granted an option to purchase the real
property during the two-year period commencing in February 2016. The lease
provides that the purchase price will be the fair market value of the real
property at the time we exercise the option, provided that the purchase price
will not be less than 10 times, nor more than 12 times, annual rent at such
time.
10
Item 2. Properties (continued)
We own the approximately 26 acres that the Gold Coast occupies on West
Flamingo Road. We also own an 8.33-acre site across the street from the Gold
Coast that contains an approximately 100,000 square foot warehouse. We use the
warehouse primarily as a storage facility.
The Suncoast occupies the approximately 50-acre site located at the corner
of Rampart Boulevard and Alta Drive in the west end of the Las Vegas valley that
we lease pursuant to a Ground Lease Agreement dated as of October 28, 1994. The
initial term of the lease expires on December 31, 2055. The lease contains three
options, exercisable by us, to extend the term of the lease for 10 years each.
The lease provided for monthly rental payments of $166,667 for the year ended
December 31, 1995. Thereafter, the monthly rent increases by the amount of
$5,000 in January of each year. The landlord has the option to require us to
purchase the property at the end of 2014, 2015, 2016, 2017 and 2018, at the fair
market value of the real property at the time the landlord exercises the option,
provided that the purchase price will not be less than 10 times nor more than 15
times the annual rent at such time. Based on the terms of the lease, the
potential purchase price commitment ranges from approximately $31.0 million to
approximately $51.0 million in the years 2014 through 2018. We have a right of
first refusal in the event the landlord desires to sell the property at any time
during the lease term.
The Barbary Coast occupies approximately 1.8 acres at the intersection of
Flamingo Road and the Strip and occupies real property that we lease pursuant to
a lease that expires on May 1, 2003. The lease provides for rental payments of
$175,000 per year. The lease contains two options, exercisable by us, to extend
the term of the lease for 30 years each (with the rent to be readjusted as
provided in the lease during those renewal periods). We have an option to
purchase the leased property at any time during the six month period prior to
the expiration of the lease, provided that certain conditions are met, at a
purchase price equal to the greater of $3.5 million or the then appraised value
of the real property. We also have a right of first refusal in the event the
landlord desires to sell the real property during the initial term of the lease.
We also lease approximately 2.5 additional acres of real property located
adjacent to the Barbary Coast. The lease expires on December 31, 2003. The lease
provides for rental payments of $125,000 per annum. We use the 2.5-acre property
as a parking lot for our employees and for valet parking. The landlord has the
right to terminate the lease upon six months prior notice to us if it requires
the use of the property for its own business purposes (which excludes leaving
the property vacant or leasing it to third parties prior to January 1, 2003).
Item 3. Legal Proceedings
We are currently, and are from time to time, involved in litigation arising
in the ordinary course of our business. We are currently subject to lawsuits in
which the plaintiffs have sought punitive damages. We intend to continue to
defend the lawsuits vigorously. We do not believe that such litigation,
including the foregoing proceedings, will, individually or in the aggregate,
have a material adverse effect on our financial position, results of operations
or cash flows.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to our shareholders during the quarter ended
December 31, 2000.
11
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
No equity securities of Coast Resorts are being, or have been, publicly
offered by us and there is no public trading market for our common stock. As of
March 30, 2001, Coast Resorts had 77 shareholders.
Coast Resorts was formed in September 1995 and has not declared or paid any
dividends. We intend to retain future earnings for use in the development of our
business and do not anticipate paying any cash dividends in the foreseeable
future. The payment of all dividends will be at the discretion of our Board of
Directors and will depend upon, among other things, future earnings, operations,
capital requirements, our general financial condition and general business
conditions. As a holding company, we are reliant upon the operations of Coast
Hotels for cash flow. The indenture under which our 9.5% senior subordinated
notes were issued and our revolving credit facility (see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources" in Item 7) restrict the ability of Coast Hotels
to pay dividends or make other distributions to us. (See note 6 of "Notes to
Consolidated Financial Statements.")
12
Item 6. Selected Historical Financial Data
The following Selected Historical Financial Data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and notes
thereto included elsewhere in this Form 10-K. The balance sheets and statements
of income data as of and for each of the five years in the period ended December
31, 2000 are derived from our audited consolidated financial statements. Our
consolidated financial statements as of December 31, 1999 and 2000 and for each
of the three years in the period ended December 31, 2000 are included in this
report on Form 10-K. The historical results are not necessarily indicative of
the results of operations to be expected in the future.
Years Ended December 31,
-------------------------------------------------
1996(1) 1997 1998 1999 2000(2)
--------- --------- --------- --------- ---------
(dollars in thousands)
STATEMENTS OF INCOME DATA:
Net revenues............................ $195,987 $293,883 $332,363 $362,531 $419,527
Departmental operating expenses(3)...... 121,628 197,200 209,149 220,289 248,398
General and administrative expenses..... 36,020 52,526 54,926 60,480 69,443
Pre-opening expenses.................... 7,125 -- -- 235 6,161
Land leases............................. 2,060 4,220 4,280 3,770 3,396
Deferred (non-cash) rent................ 1,760 4,078 4,018 2,918 2,538
Depreciation and amortization........... 7,883 18,278 20,607 21,613 25,375
--------- --------- --------- --------- ---------
Operating income........................ 19,511 17,581 39,383 53,226 64,216
Interest expense, net................... (9,981) (25,225) (26,570) (21,441) (22,973)
Other income (expense).................. 58 919 168 (192) (60)
--------- --------- --------- --------- ---------
Income (loss) before income
taxes and extraordinary item........... 9,588 (6,725) 12,981 31,593 41,183
Provision for income taxes (benefit).... 5,952 (2,115) 4,994 10,371 14,405
--------- --------- --------- --------- ---------
Income (loss) before
extraordinary item..................... 3,636 (4,610) 7,987 21,222 26,778
Extraordinary item - loss on early
retirement of debt, net of applicable
income tax benefit ($14,543)............ -- -- -- (27,007) --
--------- --------- --------- --------- ---------
Net income (loss)....................... $ 3,636 $ (4,610) $ 7,987 $ (5,785) $ 26,778
========= ========= ========= ========= =========
Basic income (loss) per share of common
stock before extraordinary item........ $ 2.47 $ (3.08) $ 5.34 $ 14.35 $ 18.20
========= ========= ========= ========= =========
Diluted income (loss) per share of common
stock before extraordinary item........ $ 2.47 $ (3.08) $ 5.34 $ 14.35 $ 17.92
========= ========= ========= ========= =========
Basic net income (loss) per share of
common stock.......................... $ 2.47 $ (3.08) $ 5.34 $ (3.91) $ 18.20
========= ========= ========= ========= =========
Diluted net income (loss) per share of
common stock........................... $ 2.47 $ (3.08) $ 5.34 $ (3.91) $ 17.92
========= ========= ========= ========= =========
Basic weighted average common shares
outstanding............................ 1,472,742 1,494,353 1,494,353 1,478,978 1,471,208
========= ========= ========= ========= =========
Diluted weighted average common shares
outstanding............................ 1,472,742 1,494,353 1,494,353 1,478,978 1,494,066
========= ========= ========= ========= =========
See Footnotes to Selected Historical Financial Data.
13
Item 6. Selected Historical Financial Data (continued)
Years Ended December 31,
------------------------------------------------
1996(1) 1997 1998 1999 2000(2)
-------- -------- -------- -------- --------
(dollars in thousands)
BALANCE SHEET DATA:
Cash and cash equivalents (4).. $ 61,567 $ 29,430 $ 41,598 $ 38,629 $ 43,560
Total assets................... $374,022 $366,619 $366,827 $406,119 $567,199
Total debt..................... $202,545 $215,249 $207,859 $237,239 $355,767
Stockholders' equity........... $ 99,049 $ 94,439 $102,426 $ 95,103 $120,301
See Footnotes to Selected Historical Financial Data.
Footnotes to Selected Historical Financial Data
(1) The Orleans opened in December 1996.
(2) The Suncoast opened September 2000.
(3) Includes casino, food and beverage, hotel and other expenses.
(4) Cash and cash equivalents at December 31, 1996 include approximately $8.2
million in cash which was restricted to pay for construction of The Orleans.
14
Item 7. 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 the results of our operations:
December 31,
1998 1999 2000
--------- --------- ---------
(dollars in thousands)
Net operating revenues............. $ 332,363 $ 362,531 $ 419,527
Operating expenses................. 292,980 309,305 355,311
--------- --------- ---------
Operating income .................. $ 39,383 $ 53,226 $ 64,216
========= ========= =========
Net income (loss).................. $ 7,987 $ (5,785) $ 26,778
========= ========= =========
EBITDA (1)......................... $ 64,008 $ 77,992 $ 98,290
========= ========= =========
(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 equipment (for all periods presented, the only non-cash expense
was deferred rent and the only non-recurring items were pre-opening
expenses, gains and losses on disposal of equipment and extraordinary loss
on retirement of debt). 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.
Fiscal 2000 Compared to 1999
Net revenues and operating income increased in the year ended December 31,
2000, primarily due to improved slot revenues at The Orleans and the opening in
September 2000 of the Suncoast. Net revenues in 2000 were $419.5 million
compared to $362.5 million in 1999, an increase of 15.7%. Operating income was
$64.2 million in 2000 compared to $53.2 million in 1999, an increase of 20.6%.
Operating expenses increased by 15.0%, in line with the increased revenues.
Net income in 2000 was $26.8 million compared to a net loss in 1999 of $5.8
million. The net loss in the prior year was primarily due to a one-time charge
of $27.0 million, net of income tax benefit, as a result of the early retirement
of debt in March 1999. Despite increased long-term debt due to construction of
the Suncoast, net interest expense increased by only $1.5 million (7.2%) as a
result of $4.5 million of interest being capitalized in 2000. Capitalized
interest was $612,000 in 1999.
15
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Fiscal 2000 Compared to 1999 (continued)
Casino. Casino revenues were $309.0 million in 2000, an increase of 16.3%
over 1999 casino revenues of $265.8 million. The increase was primarily due to
improved slot revenues at The Orleans and the opening in September 2000 of the
Suncoast. Because of the improvement in high-margin slot revenues, casino
expenses increased only 12.5% contributing to an improved casino operating
margin of 52.2% in 2000 compared to 50.6% in 1999.
Food and Beverage. For the year ended December 31, 2000, food and beverage
revenues were $84.8 million, an increase of $12.1 million (16.6%) over 1999
revenues of $72.7 million. The increase was primarily due to increased customer
volume at The Orleans and the opening of the Suncoast. Food and beverage
expenses increased $11.1 million, in line with the increase in revenues.
Hotel. Hotel room revenues were $33.7 million in 2000, an increase of $3.4
million (11.3%) over 1999 room revenues of $30.3 million. The increase was
primarily due to the opening of the Suncoast and an increase in the average
daily room rate from $53 in 1999 to $59 in 2000 that was offset by a slight
decrease in room occupancy percentage from 94.2% in 1999 to 93.0% in 2000. The
increase in hotel expenses was commensurate with the increase in revenues.
Other. Other revenues increased 7.1% in 2000 to $31.2 million compared to
$29.1 million in 1999, primarily due to the opening of the Suncoast. Costs
related to the other revenues decreased slightly (1.2%).
General and Administrative. General and administrative expenses were $69.4
million in 2000 compared to $60.5 million in 1999, an increase of 14.8% due
primarily to related expenses of the Suncoast.
Pre-opening, Rent and Depreciation. Pre-opening expenses were $6.2 million
in 2000 compared to $235,000 in 1999 due to the opening of the Suncoast. Land
lease expense and the related deferred rent expense were both lower in 2000
because the rent on the Suncoast land was capitalized during the construction
period, July 1, 1999 to September 12, 2000. Depreciation and amortization
expense was higher in 2000 because of the Suncoast.
Fiscal 1999 Compared to 1998
Net revenues and operating income improved in the year ended December 31,
1999, primarily due to improved revenues at The Orleans and the Gold Coast. Net
revenues in 1999 were $362.5 million compared to $332.4 million in the year
ended December 31, 1998, an increase of 9.1%. Operating income in the year ended
December 31, 1999 was $53.2 million compared to $39.4 million in the prior year,
an increase of 35.1% primarily due to the increased revenues. Operating expenses
increased $16.3 million, primarily as a result of higher casino and food and
beverage expenses related to increased business at our hotel-casinos as well as
July wage increases at our three hotel-casinos. Additionally, an expansion
completed at The Orleans in May 1999 resulted in higher utility costs and
increased staffing in several ancillary departments.
In 1999, we experienced a net loss of $5.8 million compared to net income of
$8.0 million in 1998. The loss was primarily due to a one-time charge of $27.0
million, net of income tax benefit, as a result of the early retirement of debt
in March 1999. Interest expense decreased in 1999 as a result of lower interest
rates on replacement indebtedness.
16
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Fiscal 1999 Compared to 1998 (continued)
Casino. Casino revenues were $265.8 million in 1999, an increase of 9.4%
over 1998 casino revenues of $243.0 million. The increase was primarily due to a
22.9% increase in slot revenues at The Orleans. An expansion completed at The
Orleans in May 1999, which added a new buffet, other amenities and approximately
10,000 square feet of casino space, increased the number of slot machines by
approximately 220 units. Despite the increased number of slot machines, the
average win per machine increased at The Orleans. Slot revenues were also higher
in 1999 at the Gold Coast and the Barbary Coast, increasing 4.6% and 14.8%,
respectively. Table games wagering volume increased at all three properties in
1999, resulting in a combined increase of 7.0% in table games revenues. Casino
expenses increased $3.9 million (3.1%) in 1999 primarily due to July wage
increases at each of our hotel-casinos as well as increased staffing related to
the expansion at The Orleans. The casino operating margin improved to 50.6% from
47.5% in 1998 primarily due to the increases in the higher-margin slot machine
revenues.
Food and Beverage. For the year ended December 31, 1999, food and beverage
revenues were $72.7 million, an increase of 9.3% over 1998 revenues of $66.5
million. The increase was primarily due to the opening in May 1999 of a new
larger buffet at The Orleans. Food and beverage expenses increased 7.7% in 1999,
which is in line with the increase in revenues.
Hotel. Hotel room revenues were $30.3 million in 1999, an increase of 6.5%
over 1998 room revenues of $28.4 million. Each of our three hotels experienced
increases in room occupancy rates, contributing to a combined occupancy rate of
94.1% for the year compared to 91.8% in 1998. In addition, average daily room
rates increased at all three properties, resulting in a 4.6% increase in our
overall average room rate. The hotel operating margin decreased in 1999 to 57.3%
compared to 58.3% in 1998, primarily due to wage increases and higher
advertising expenses.
Other. Other revenues increased 10.2% in 1999 to $29.1 million compared to
$26.4 million in 1998, primarily due to increases in revenues at the Gold Coast
and Orleans showrooms, bowling centers, gift shops and liquor stores. Costs
related to the other revenues increased 11.3% in 1999, in line with the
increases in revenues.
General and Administrative. General and administrative expenses were $60.5
million in 1999 compared to $54.9 million in 1998, an increase of 10.1%. The
increase was due, in part, to the July wage increases at our three
hotel-casinos. Additionally, an expansion completed in May at The Orleans
resulted in higher utility costs and increased staffing in several ancillary
departments.
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 $64.8 million in the year ended December 31, 2000, compared to $64.5 million
in 1999 and $35.8 million in 1998.
17
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Liquidity and Capital Resources (continued)
Cash used in investing activities in the each of the years ended December
31, 1998, 1999 and 2000 was primarily for capital expenditures. During 2000, our
capital expenditures were approximately $181.8 million, including construction
accounts payable of $4.9 million. Approximately $155.2 million was used for
construction of the Suncoast, which began in July 1999. The remainder was used
for maintenance capital expenditures ($10.7 million) and various projects at the
Gold Coast and The Orleans.
Cash provided by financing activities was $116.9 million in 2000, primarily
from borrowings under our $200.0 million senior secured credit facility. Cash
used in financing activities was $8.1 million in 1998, primarily for principal
payments on long-term debt and $18.7 million in 1999 primarily as a result of
the refinancing of our debt. In March 1999, we issued $175.0 million principal
amount of 9.5% senior subordinated notes and entered into a $75.0 million senior
secured revolving credit facility due 2004 to facilitate the refinancing. (The
senior secured credit facility was increased to $200.0 million in September 1999
to finance the construction of the Suncoast).
With the proceeds from our $175.0 million principal amount of 9.5% senior
subordinated notes and borrowings under the senior secured credit facility, in
1999 we repurchased substantially all of the $175.0 million principal amount
outstanding of 13% first mortgage notes and all $16.8 million principal amount
of 10-7/8% first mortgage notes. In December 2000 we redeemed the remaining 13%
first mortgage notes at a redemption price of 106.5% of the principal amount,
plus accrued interest. In connection with the 1999 repurchase of the 13% notes
and the 10-7/8% notes, we incurred repurchase premiums of $31.0 million and $2.1
million, respectively. The repurchase premiums and the write-offs of unamortized
debt issuance costs and original issue discount resulted in an extraordinary
loss in 1999 of $27.0 million, net of applicable income tax benefit of $14.5
million.
On February 2, 2001 we issued $50.0 million principal amount of senior
subordinated notes. The net proceeds of approximately $48.8 million were used to
reduce borrowings under our senior secured credit facility which will provide us
additional availability under the credit facility to complete certain proposed
capital improvement projects as further described below. The notes were issued
under the same indenture and have the same terms, interest rate and maturity
date as our outstanding $175.0 million principal amount of senior subordinated
notes.
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 September 30, 2001
and December 31, 2001. The advances under the facility may be used for working
capital, general corporate purposes, and certain improvements to our existing
properties. As of March 28, 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 December 31, 2000, the premium over LIBOR was 2.0% (200 basis points) and the
interest rate was 8.64%. The weighted average interest rate on the senior
secured credit facility was 8.27% in 2000. As of March 28, 2001, the premium
over LIBOR is 2.25% (225 basis points) and the interest rate is 7.3%.
18
Item 7. 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, 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 our leverage and fixed charge coverage. We are
also subject to certain covenants associated with the indenture governing our
senior subordinated notes, including, in part, limitations on certain restricted
payments, the incurrence of additional indebtedness and asset sales. We believe
that, at December 31, 2000, we were in compliance with all covenants and
required ratios.
Capital Improvement Projects
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 flow 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.
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 flow, 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.
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 $1.5 million.
A key element of our business strategy is the expansion or renovation of our
existing properties 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.
19
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Other Matters
In June 1998, the Financial Accounting Standards Board adopted Statement of
Financial Accounting Standards No. 133 ("SFAS 133") entitled "Accounting for
Derivative Instruments and Hedging Activities", which establishes accounting and
reporting standards for derivative instruments and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If specific conditions are met, a derivative may be specifically
designated as a hedge of specific financial exposures. The accounting for
changes in the fair value of a derivative depends on the intended use of the
derivative and, if used in hedging activities, its effective use as a hedge.
SFAS 133, as amended, is effective for all fiscal quarters of fiscal years
beginning after December 31, 2000. SFAS 133 should not be applied retroactively
to financial statements for prior periods. The Company will adopt SFAS 133 when
required. Because of our minimal use of derivatives, we do not anticipate that
the adoption of SFAS 133 will have a significant effect on our earnings or
financial position.
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.
Impact of Inflation and Other Economic Factors
Absent changes in competitive and economic conditions or in specific prices
affecting the industry, we do not expect that inflation will have a significant
impact on our operations. Change in specific prices, such as fuel and
transportation prices, relative to the general rate of inflation may have a
material adverse effect on the hotel and casino industry. We depend upon Las
Vegas and Southern California for a majority of our customers. Any economic
downturn in those areas could materially adversely affect our business and
results of operations and our ability to pay interest and principal on our debt.
Regulation and Taxes
Coast Hotels is subject to extensive regulation by the Nevada Gaming
Authorities. Changes in applicable laws or regulations could have a significant
impact on our operations.
The gaming industry represents a significant source of tax revenues,
particularly to the State of Nevada and its counties and municipalities. From
time to time, various state and federal legislators and officials have proposed
changes in tax law, or in the administration of such law, affecting the gaming
industry. Proposals in recent years that have not been enacted included a
federal gaming tax and increases in state or local taxes.
We believe that our recorded tax balances are adequate. However, it is not
possible to determine with certainty the likelihood of possible changes in tax
law or in the administration of such law. Such changes, if adopted, could have a
material adverse effect on our operating results.
20
Item 7A. 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-ter0m borrowings under our revolving bank credit facility. To date, we
have not invested in derivative- or foreign currency-based financial
instruments.
Item 8. Financial Statements and Supplementary Data
The report of independent accountants, financial statements and financial
statement schedule listed in the accompanying index are filed as part of this
report. See "Index to Financial Statements".
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
21
PART III
Item 10. Directors and Executive Officers of the Registrant
The following table sets forth the names and ages of the directors and
executive officers of Coast Hotels and their respective positions as of December
31, 2000.
Name Age Position(s) Held
- --------------------- ----- -----------------------------------------
Michael J. Gaughan 57 Director, Chairman of the Board and
Chief Executive Officer
Harlan D. Braaten 50 Director, President and Chief Operating Officer
Jerry Herbst 62 Director, Vice President, Treasurer
and Assistant Secretary
J. Tito Tiberti 55 Director, Vice President and Secretary
Gage Parrish 47 Director, Vice President, Chief Financial Officer
and Assistant Secretary
Franklin Toti 62 Director, Vice President of Casino Operations
F. Michael Corrigan 64 Director
Charles Silverman 68 Director
Joseph Blasco 57 Director
Michael J. Gaughan. Mr. Gaughan has been a director of Coast Hotels since
its formation in September 1995 and is the Chairman of the Board and Chief
Executive Officer of Coast Hotels. His current term as a director expires in
2003. He is also a director and Chairman of the Board and Chief Executive
Officer of Coast Resorts, Inc. Mr. Gaughan was a general partner of the Barbary
Coast Partnership from its inception in 1979 until January 1, 1996, the
effective date of the reorganization in which the Barbary Coast Partnership and
the Gold Coast Partnership consolidated with Coast Resorts and Coast Hotels (the
"Reorganization"). Mr. Gaughan served as the managing general partner of the
Gold Coast Partnership from its inception in December 1986 until the effective
date of the Reorganization. Mr. Gaughan and Mr. Herbst were the sole
stockholders of Gaughan-Herbst, Inc., which was the sole corporate general
partner of the Gold Coast Partnership prior to the Reorganization. Mr. Gaughan
has been involved in the gaming industry since 1960 and has been licensed as a
casino operator since 1967.
Harlan D. Braaten. Mr. Braaten joined Coast Hotels as the President, Chief
Financial Officer and a director in October 1995, and was appointed Chief
Operating Officer in February 1996. His current term as a director expires in
2003. Mr. Braaten is also the President and Chief Operating Officer of Coast
Resorts. Prior to joining Coast Hotels, Mr. Braaten was employed in various
capacities, including the general manager and, most recently, senior vice
president, treasurer and chief financial officer of Rio Hotel and Casino, Inc.
in Las Vegas. From March 1989 to February 1991, Mr. Braaten was vice president,
finance of MGM/Marina Hotel and Casino in Las Vegas, Nevada. Prior thereto, from
November 1983 to March 1989, Mr. Braaten was property controller for Harrah's in
Reno, Nevada. Mr. Braaten has over 22 years of experience in the Nevada gaming
industry.
22
Item 10. Directors and Executive Officers of the Registrant (continued)
Jerry Herbst. Mr. Herbst has been a director, Treasurer and Assistant
Secretary of Coast Hotels since its formation in September 1995. His current
term as a director expires in 2002. Mr. Herbst has been the president of
Terrible Herbst Oil Company, an owner and operator of gas stations and car
washes, since 1959. Mr. Herbst and Mr. Gaughan were the sole stockholders of
Gaughan-Herbst, Inc., which was the sole corporate general partner of the Gold
Coast Partnership prior to the formation of Coast Hotels. Mr. Herbst has served
as a member of the board of directors of Nevada Power Company since 1990 and of
Edelbrock Corporation since 1994.
J. Tito Tiberti. Mr. Tiberti has been a director and Secretary of Coast
Hotels since its formation in September 1995. His current term as a director
expires in 2002. He is also a director and Vice President and Secretary of Coast
Resorts. Mr. Tiberti is the president, a director and a stockholder of, and
together with his immediate family, controls Tiberti Construction, a
construction company which served as the general contractor for the construction
of The Orleans and is also serving as general contractor for the Suncoast. He
has also served as managing general partner of The Tiberti Company, a real
estate rental and development company, since 1971. The Tiberti Company is the
lessor of the real property site for The Orleans. Mr. Tiberti has been involved
in the gaming industry for 21 years and was a general partner of the Barbary
Coast Partnership prior to the formation of Coast Hotels.
Gage Parrish. Mr. Parrish was named Vice President, Finance, Assistant
Secretary and a director of Coast Hotels and Coast Resorts in October 1995 and
was promoted to Chief Financial Officer in February 1996. His current term as a
director expires in 2003. Since 1986, he had been the Controller and Chief
Financial Officer of the Gold Coast Partnership prior to the formation of Coast
Hotels. From 1981 to 1986, Mr. Parrish served as Assistant Controller of the
Barbary Coast Partnership. Mr. Parrish is a certified public accountant and has
approximately 22 years of experience in the gaming industry.
Franklin Toti. Mr. Toti has been a director of Coast Hotels and Coast
Resorts since October 5, 1998. His current term expires in 2002. He has been
Vice President of Casino Operations for Coast Hotels since January 1, 1996. Mr.
Toti was a general partner and Casino Manager of the Barbary Coast Partnership
from its inception in 1979 until January 1, 1996, the effective date of the
Reorganization. Mr. Toti has 40 years of experience in the gaming industry.
F. Michael Corrigan. Mr. Corrigan was elected as a director of Coast Hotels
and Coast Resorts effective as of March 1, 1996. His current term as a director
expires in 2001. Since July 1989, Mr. Corrigan has served as the chief executive
officer of Corrigan Investments, Inc., which owns and manages real estate in
Nevada and Arizona. In addition, Mr. Corrigan is the Chief Executive Officer of
Corstan, Inc., a mortgage banking company, and was previously the owner,
President and Chief Operating Officer of Stanwell Mortgage, a Las Vegas mortgage
company.
Charles Silverman. Mr. Silverman was elected as a director of Coast Hotels
and Coast Resorts effective as of March 1, 1996. His current term as a director
expires in 2001. Mr. Silverman is the President and sole stockholder of
Yates-Silverman, Inc., which specializes in developing theme-oriented interiors
and exteriors and is a leading designer of hotels and casinos. Completed
projects of Yates-Silverman, Inc. include New York-New York, Excalibur, Circus
Circus, Luxor, the Trump Taj Mahal, Trump Castle and Atlantic City Showboat.
Yates-Silverman, Inc. also served as the primary designer for The Orleans and
the Suncoast. Mr. Silverman has served as the president of Yates-Silverman, Inc.
since its inception in 1971.
23
Item 10. Directors and Executive Officers of the Registrant(continued)
Joseph A. Blasco. Mr. Blasco was elected as a director of Coast Hotels and
Coast Resorts effective as of December 16, 1996. His current term as a director
expires in 2001. Since 1984, Mr. Blasco has been a partner in the real estate
development partnership that developed the Spanish Trail community in Las Vegas,
a project that includes over 1,200 homes, a 27-hole golf course and a country
club. Mr. Blasco is currently the managing General Partner of United Realty
Investments, a real estate development and management company in Las Vegas. He
is also general partner in two real estate development partnerships, Summer
Trail LLC and Trop-Edmond Ltd.
Directors of Coast Hotels who are also employees of Coast Hotels or Coast
Resorts receive no compensation for service on the Board of Directors or its
committees. All other directors receive an annual director's fee of $24,000,
payable quarterly in arrears. Directors may also be reimbursed for out-of-pocket
expenses incurred in connection with attending Board of Director or committee
meetings.
Compliance with Section 16(A) of the Securities Exchange Act of 1934
Rules adopted by the SEC under Section 16(a) of the Securities Exchange Act
of 1934 (the "Exchange Act") require the Company's officers and directors, and
persons who own more than ten percent of the issued and outstanding shares of
the Company's equity securities, to file reports of their ownership, and changes
in ownership, of such securities with the SEC on SEC Forms 3, 4 or 5, as
appropriate. Such persons are required by the SEC's regulations to furnish the
Company with copies of all forms they file pursuant to Section 16(a).
Based solely upon a review of Forms 3, 4 and 5 and amendments thereto
furnished to the Company during its most recent fiscal year, and any written
representations provided to it, the Company believes that each of the officers,
directors, and owners of more than 10% of the outstanding Common Stock of the
Company are in compliance with Section 16(a) of the Securities Exchange Act of
1934 for the year 2000.
24
Item 11. Executive Compensation
The following table sets forth all compensation earned by or paid by Coast
Hotels during 1998, 1999 and 2000 to each executive officer (the "Named
Executive Officers") whose compensation exceeded $100,000 in all capacities in
which they served.
Summary Compensation Table
Annual Compensation
-----------------------------------------
All Other
Name and Principal Position Year Salary Bonus Compensation(1)
- ----------------------------------- ---- -------- -------- --------------
Michael J. Gaughan................. 2000 $300,000 $ -- $4,361
Chairman of the Board and Chief 1999 $300,000 $ -- $4,000
Executive Officer of Coast Resorts 1998 $300,000 $ -- $5,000
Harlan D. Braaten.................. 2000 $300,000 $150,000 $4,361
President and Chief Operating 1999 $275,000 $137,500 $3,150
Officer of Coast Resorts 1998 $250,000 $125,000 $5,000
Gage Parrish....................... 2000 $225,000 $ -- $4,361
Vice President, Chief Financial 1999 $212,500 $ 15,000 $3,900
Officer and Asst. Secretary of 1998 $200,000 $ -- $5,000
Coast Resorts
(1) The amounts reflect matching contributions paid to our 401(k) Profit Sharing
Plan and Trust.
Employment Agreement
Effective as of January 1, 1999, Coast Hotels entered into an employment
agreement with Harlan Braaten, President and Chief Operating Officer. The
agreement has a term of three years and provides for Mr. Braaten to receive a
base salary of $250,000 for the first year and $300,000 for the second and third
years. The agreement may be terminated upon 30 days notice by Mr. Braaten and at
any time by Coast Hotels. In addition, in the event of a termination of Mr.
Braaten's employment other than for failure to comply with Nevada gaming
regulations, failure to perform his duties, medical incapacity or his arrest on
a felony offense, Mr. Braaten will be entitled to receive a severance payment in
the amount of $300,000 plus any pro rata bonus payment and unvested stock
options to which he is entitled. Pursuant to the arrangement, Coast Hotels
granted Mr. Braaten options to purchase 30,415 shares of Coast Resorts, Inc. for
$100 per share. The option vested as to one-third of the shares on the grant
date, January 1, 1999, vested as to an additional one-third of the shares on
January 1, 2000 and vested as to the final one-third of the shares on January 1,
2001. The options expire on December 31, 2008.
Stock Options
Effective June 14, 1999 Coast Resorts issued options to purchase 5,000
shares of its common stock to its chief financial officer, who is also chief
financial officer of the Coast Hotels. The options vest in one-third increments
on June 14, 1999, June 14, 2000 and June 14, 2001. The exercise price of the
options is at $100 per share, which is equivalent to the estimated fair value of
Coast Resorts' common stock at the grant date, as estimated by Coast Resorts
from recent sales of common stock between shareholders. The options expire on
June 13, 2009.
25
Item 11. Executive Compensation (continued)
Compensation Committee Report
The Compensation Committee of the Board of Directors was appointed in June
1996. The Compensation Committee has reviewed and will review and recommend
compensation levels for executive officers of the Company and oversee and
administer the Company's executive compensation programs. The Compensation
Committee recommends, and the Board of Directors determines compensation levels
for the executive officers of the Company. All members of the Compensation
Committee are outside directors, who are not eligible to participate in any of
the compensation programs that the Committee oversees.
The Company's executive compensation plans are designed to attract, retain,
motivate and appropriately reward individuals who are responsible for the
Company's short and long-term profitability, growth and return to stockholders.
Compensation for the Company's executive officers generally consists of salary
and an annual bonus. In some cases, stock options are also awarded.
Executive officers also participate in a 401(k) plan, a medical plan and
other benefit plans available to employees generally.
Pay levels for executives generally are based on the level of
responsibility, scope and complexity of the executive's position relative to
other senior management positions internally and at other competitive gaming
companies.
The determination of salary increases, annual bonus awards and long-term
incentive awards is expected to be reviewed annually based on the performance of
the Company. Also factored into these decisions will be each executive's
individual performance and contribution to the Company's future positioning.
Although the components of compensation (salary, annual bonuses and long-term
incentive awards) will be reviewed separately, compensation decisions are based
on a review of the total compensation level awarded compared to other executives
with similar gaming companies. In establishing 2000 compensation for the named
executive officers, the Board of Directors took into account the compensation
paid to Messrs. Gaughan, Braaten and Parrish in 1999, the levels of compensation
paid to executives in the gaming industry generally, and the performance of the
Company in the year 2000. During the year 2000 the net revenues of the Company
increased from $362,531,000 to $419,527,000 and the net income, before
extraordinary items, increased from $21,222,000 to $26,778,000. EBITDA increased
from $77,992,000 in 1999, to $98,290,000 in 2000 an increase of approximately
26%. Based upon this performance, and in Mr. Braaten's case under the terms of
his employment contract, Mr. Braaten received a bonus of $150,000. While the
Compensation Committee believed that Mr. Gaughan was entitled to a bonus for the
year 2000 in an amount at least equal to the bonus paid to Mr. Braaten, Mr.
Gaughan indicated to the Compensation Committee and the Board of Directors that
he did not wish to receive a bonus for the year 2000.
26
Item 11. Executive Compensation (continued)
Compensation Committee Interlocks and Insider Participation
There are no members of the Compensation Committee that have been, or
currently are officers or employees of the Company or its subsidiaries. Mr.
Silverman is the president of Yates-Silverman, Inc., which served as the
designer of The Orleans and the Suncoast. For the fiscal years ended December
31, 1998, 1999 and 2000, we incurred expenses payable to Yates-Silverman of
$500,000, $721,000 and $548,000, respectively.
By the Compensation Committee
Charles Silverman
F. Michael Corrigan
Joseph A. Blasco
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the beneficial
ownership of Coast Resorts common stock as of March 1, 2001 by (i) each person
who, to the knowledge of Coast Resorts, owns more than 5% of the outstanding
Coast Resorts common stock, (ii) each director of the Company, (iii) Named
Executive Officers and (iv) all directors and executive officers of the Company
as a group.
Number
Name(1) of Shares Percent
- ----------------------------------------- ---------- -------
Michael J. Gaughan....................... 455,103.97 31.1%
Jerry Herbst............................. 265,488.08 18.1%
Jimma Lee Beam........................... 104,529.41 7.1%
Franklin Toti............................ 99,776.47 6.8%
J. Tito Tiberti.......................... 90,751.47 6.2%
Harlan D. Braaten(2)..................... 30,415.00 2.0%
F. Michael Corrigan...................... 5,263.24 *
Joseph Blasco............................ 500.00 *
Charles Silverman........................ 500.00 *
Gage Parrish(3).......................... 3,333.33 *
All directors and executive officers as a
group (nine persons)..................... 951,131.56 63.6%
* Less than one percent.
(1)The address of Messrs. Gaughan, Herbst and Toti is 4500 West Tropicana
Avenue, Las Vegas, Nevada, 89103. The address of Mr Tiberti is 1806 South
Industrial Road, Las Vegas, Nevada 89102. The address of Ms. Beam is 2409
Windjammer Way, Las Vegas, Nevada 89107.
(2)Reflects shares that may be purchased upon exercise of a stock option.
Pursuant to his employment agreement, Mr. Braaten was granted an option to
purchase 30,415 shares of Coast Resorts, Inc. for $100 per share. One third
of the options vested on the grant date (January 1, 1999), one third vested
January 1, 2000 and the remaining third vest on January 1, 2001.
(3)Reflects shares that may be purchased upon exercise of a stock option. One
third of the options vested on the grant date (June 14, 1999), one third
vested on June 14, 2000 and the remaining third vest on June 14, 2001.
27
Item 13. Certain Relationships and Related Transactions
We maintain numerous racetrack dissemination contracts with Las Vegas
Dissemination Company, Inc. ("LVDC"). Michael J. Gaughan's son is the president
and sole stockholder of LVDC. LVDC provides certain dissemination and
pari-mutuel services to the Gold Coast, the Barbary Coast, The Orleans and the
Suncoast. LVDC has been granted a license by the Nevada Gaming Authorities to
disseminate live racing for those events and tracks for which it contracts and
has been granted the exclusive right to disseminate all pari-mutuel services and
race wire services in the State of Nevada. Under these dissemination contracts,
we pay to LVDC an average of 3% of the wagers accepted for races held at the
racetracks covered by the respective contracts. We also pay to LVDC a monthly
fee for race wire services. For the fiscal year ended December 31, 2000 we
incurred expenses payable to LVDC of approximately $1.6 million. The terms on
which such services are provided are regulated by the Nevada Gaming Authorities.
Tiberti Construction Company served as the general contractor for the
original construction of the Gold Coast and for certain expansions thereof, and
for the original construction of the Barbary Coast and all expansions thereof.
Tiberti Construction was also the general contractor for the original
construction of The Orleans, and for the expansions in 1997 and 1999, as well as
the general contractor for the construction of the Suncoast. J. Tito Tiberti
owns approximately 6.7% of the outstanding common stock of Coast Resorts, and is
a director, Vice President and Secretary of Coast Hotels and Coast Resorts. Mr.
Tiberti is the president, a director and stockholder of, and together with his
immediate family members, controls Tiberti Construction. For the year ended
December 31, 2000 we incurred expenses payable to Tiberti Construction of
approximately $108.5 million. At December 31, 2000, we had construction accounts
payable to Tiberti Construction of approximately $4.9 million. Although no
formal contracts have been entered into, we anticipate that we will incur
expenses payable to Tiberti Construction of approximately $65.0 million in 2001
in connection with our proposed capital improvement projects as further
described in Item 7.
We have entered into a ground lease with The Tiberti Company, a Nevada
general partnership, with respect to the real property on which The Orleans is
located. Mr. Tiberti, a director of Coast Hotels and a director and stockholder
of Coast Resorts, is the managing partner of The Tiberti Company. We paid rental
expenses to The Tiberti Company of $2.4 million for the fiscal year ended
December 31, 2000.
Michael J. Gaughan and Franklin Toti are owners of LGT Advertising, which
serves as our advertising agency. LGT Advertising purchases advertising for our
casinos from third parties and passes any discounts directly through to us. LGT
Advertising receives no compensation or profit for such activities, and invoices
us for actual costs incurred. LGT Advertising uses our facilities and employees
in rendering its services, but does not pay any compensation to us for such use.
Messrs. Gaughan and Toti receive no compensation from LGT Advertising.
Advertising expenses payable to LGT Advertising expenses payable to LGT
Advertising were approximately $6.5 million for the year ended December 31,
2000.
We have purchased certain of our equipment and inventory for our operations
from RJS Inc., a Nevada corporation that is owned by Michael J. Gaughan's father
and Steven Delmont, our restaurant manager. RJS invoices us for actual costs
incurred. For the fiscal year ended December 31, 2000 we incurred expenses
payable to RJS of approximately $6.5 million.
Michael J. Gaughan is the majority stockholder of Nevada Wallboards, Inc., a
Nevada corporation ("Nevada Wallboards"), which prints wallboards and parlay
cards for the use in our race and sports books. Mr. Gaughan receives no
compensation from Nevada Wallboards. For the fiscal year ended December 31, 2000
we incurred expenses payable to Nevada Wallboards of approximately $192,000.
28
Item 13. Certain Relationships and Related Transactions (continued)
Charles Silverman, a director of Coast Hotels and Coast Resorts, is the
president of Yates-Silverman, Inc., which served as the designer of The Orleans
and is serving as the designer for the Suncoast. For the fiscal year ended
December 31, 2000 we incurred expenses payable to Yates-Silverman of $548,000.
We anticipate incurring expenses payable in 2001 to Yates-Silverman of
approximately $500,000.
Coast Hotels promotes The Orleans by advertising on NASCAR racecars operated
by Orleans Motorsports, Inc. In 2000 we spent $180,000 in connection with this
promotion. Brendan Gaughan, the main driver employed by Orleans Motorsports, is
the son of Michael J. Gaughan.
The foregoing transactions are believed to be on terms no less favorable to
us than could have been obtained from unaffiliated third parties and were
approved by a majority of our disinterested directors. Any future transactions
between us and our officers, directors, principal stockholders or affiliates
will be on terms no less favorable to us than may be obtained from unaffiliated
third parties, and will be approved by a majority of our disinterested
directors.
29
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Financial Statements, Financial Statement Schedules and Exhibits
Page
----
1. Financial Statements Index .......................................... F-1
2. Financial Statements Schedules Index:
Schedule I - Condensed Financial Information of Coast Resorts, Inc.
(Parent Company Only)............................................... F-23
Schedule II - Valuation and Qualifying Accounts...................... F-27
30
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(continued)
Exhibit Index
Exhibit
Number Description of Exhibit
------ -------------------------------------------------------------------
3.1 Amended Articles of Incorporation of Coast Hotels and Casinos, Inc. (5)
3.2 First Amended Bylaws of Coast Hotels and Casinos, Inc. (5)
3.3 Articles of Incorporation of Coast Resorts, Inc. (1)
3.4 First Amended Bylaws of Coast Resorts, Inc. (1)
10.1 Tax Sharing Agreement dated as of January 30, 1996 by and among
Coast Resorts, Inc., Coast Hotels and Casinos, Inc., and Coast
West, Inc. (4)
10.2 Ground Lease dated as of October 1, 1995, between The Tiberti Company,
a Nevada general partnership, and Coast Hotels and Casinos, Inc. (as
successor of Gold Coast Hotel and Casino, a Nevada limited partnership)
(3)
10.3 Lease Agreement dated May 1, 1992, by and between Empey Enterprises, a
Nevada general partnership, as lessor, and the Barbary Coast Hotel &
Casino, a Nevada general partnership, as lessee (1)
10.4 Ground Lease Agreement dated October 28, 1994 by and among 21 Stars,
Ltd., a Nevada limited liability company, as landlord, Barbary Coast
Hotel & Casino, a Nevada general partnership, as tenant, Wanda Peccole,
as successor trustee of the Peccole 1982 Trust dated February 15, 1982
("Trust), and The William Peter and Wanda Ruth Peccole Family Limited
Partnership, a Nevada limited partnership ("Partnership"), and,
together with Trust, as owner, as amended (1)
10.5 Form of Subordination Agreement between Coast Hotels and Casinos, Inc.
and certain former Gold Coast partners holding Subordinated Notes (4)
10.6 Lease dated as of November 1, 1982, by and between Nevada Power
Company, a Nevada Corporation as landlord, and Barbary Coast Hotel and
Casino, a Nevada general partnership (1)
10.7 Leasehold Deed of Trust, Assignment of Rents and Security Agreement
dated February 13, 1991, by and between the Barbary Coast Hotel and
Casino, a Nevada general partnership, First American Title Company of
Nevada, and Exber, Inc., a Nevada corporation (1)
10.8 Employment Agreement dated as of January 1, 1999, between Harlan
Braaten and Coast Hotels and Casinos, Inc. (8)
10.9 Loan Agreement dated as of March 18, 1999 among Coast Hotels and
Casinos, Inc., as Borrower, the Lenders referred to therein, and Bank
of America National Trust and Savings Association, as Administrative
Agent (8)
10.10 Amended and Restated Loan Agreement dated as of September 16,
1999 among Coast Hotels and Casinos, Inc. as Borrower, the
Lenders referred to therein, and Bank of America National Trust
and Savings Association as Administrative Agent (9)
10.11 Security Agreement dated as of March 18, 1999 by Coast Hotels
and Casinos, Inc. in favor of Bank of American National Trust
and Savings Association as Administrative Agent (10)
10.12 Security Agreement dated as of March 18, 1999 by Coast Resorts,
Inc. in favor of Bank of America National Trust and Savings
Association as Administrative Agent (10)
10.13 Pledge Agreement dated as of September 1999 by Coast Resorts,
Inc. in favor of Bank of America National Trust and Savings
Association as Administrative Agent (10)
31
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(continued)
Exhibit Index (continued)
10.14 Leasehold Deed of Trust, Assignment of Rents and Fixture Filing
dated as of March 18, 1999 by Coast Hotels and Casinos, Inc. in
favor of Bank of America National Trust and Savings Association
as Administrative Agent (The Orleans Hotel and Casino) (10)
10.15 Leasehold Deed of Trust, Assignment of Rents and Fixture Filing
dated as of March 18, 1999 by Coast Hotels and Casinos, Inc. in
favor of Bank of America National Trust and Savings Association
as Administrative Agent (The Gold Coast Hotel and Casino) (10)
10.16 Leasehold Deed of Trust, Assignment of Rents and Fixture Filing
dated as of March 18, 1999 by Coast Hotels and Casinos, Inc. in
favor of Bank of America National Trust and Savings Association
as Administrative Agent (The Suncoast) (10)
10.17 Guaranty dated March 18, 1999 by Coast Resorts, Inc. in favor
of Bank of America National Trust and Savings Association as
Administrative Agent
10.18 Trademark Security Interest Assignment dated as of March 18,
1999 by Coast Hotels and Casinos, Inc. and Coast Resorts, Inc.
in favor of Bank of America National Trust and Savings
Association as Administrative Agent (10)
10.19 Indenture dated as of March 23, 1999 among Coast Hotels and
Casinos, Inc., as issuer of 9-1/2% Senior Subordinated Notes
due 2009, Coast Resorts, Inc., as guarantor, and Firstar Bank
of Minnesota, N.A., as trustee (8)
10.20 First Supplemental Indenture dated as of November 20, 2000
among Coast Hotels and Casinos, Inc., as issuer, Coast Resorts,
Inc., as guarantor, and Firstar Bank of Minnesota, N.A., as
trustee (11)
10.21 Second Supplemental Indenture dated as of February 2, 2001,
among Coast Hotels and Casinos, Inc., as issuer, Coast Resorts,
Inc., as guarantor, and Firstar Bank of Minnesota, N.A., as
trustee (11)
10.22 Form of 9-1/2% Note (included in Exhibit 10.23) (10)
10.23 Registration Rights Agreement dated as of February 2, 2001,
among Coast Hotels and Casinos, Inc. as issuer, Coast Resorts,
Inc., as guarantor, and Banc of America Securities, LLC, as
Representative of the Placement Agents (11)
10.24 Placement Agreement dated as of January 23, 2001, by and among
Coast Hotels and Casinos, Inc., Coast Resorts, Inc., Banc of
America Securities LLC and Morgan Stanley & Co. Incorporated
(11)
21 List of Subsidiary of Coast Resorts, Inc. (8)
- --------------------------------
(1)Previously filed with the Securities and Exchange Commission as an exhibit
to Coast Resorts, Inc.'s General Form for Registration of Securities on Form
10 and incorporated herein by reference.
(2)Previously filed with the Securities and Exchange Commission as an exhibit
to Coast Resorts, Inc.'s Amendment No. 1 to General Form for Registration of
Securities on Form 10 and incorporated herein by reference.
(3)Previously filed with the Securities and Exchange Commission as an exhibit
to Coast Resorts, Inc.'s Amendment No. 2 to General Form for Registration of
Securities on Form 10 and incorporated herein by reference.
(4)Previously filed with the Securities and Exchange Commission as an exhibit
to Coast Resorts, Inc.'s Annual Report on Form 10-K for the period ended
December 31, 1995 and incorporated herein by reference.
(5)Previously filed with the Securities and Exchange Commission as an exhibit
to Coast Resorts, Inc.'s Registration Statement on Form S-4 filed May 2, 1996
and incorporated herein by reference
(6)Previously filed with the Securities and Exchange Commission as an exhibit
to Coast Resorts, Inc.'s Annual Report on Form 10-K for the period ended
December 31, 1997 and incorporated herein by reference.
32
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(continued))
Exhibit Index (continued)
(7)Previously filed with the Securities and Exchange Commission as an exhibit
to Coast Resorts, Inc.'s Annual Report on Form 10-K for the period ended
December 31, 1998 and incorporated herein by reference.
(8)Previously filed with the Securities and Exchange Commission as an exhibit
to Coast Hotels and Casinos, Inc.'s Registration Statement on Form S-4 (File
no. 333-79657) dated May 28, 1999 and incorporated herein by reference.
(9)Previously filed with the Securities and Exchange Commission as an exhibit
to Coast Resorts, Inc.'s Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999 and incorporated herein by reference.
(10) Previously filed with the Securities and Exchange Commission as an exhibit
to Coast Hotels and Casinos, Inc.'s Annual Report on Form 10-K for the period
ended December 31, 1999 and incorporated herein by reference.
(11) Previously filed with the Securities and Exchange Commission as an exhibit
to Coast Hotels and Casinos, Inc.'s Registration Statement on Form S-4 (File
no. 333-55170) dated February 7, 2001 and incorporated herein by reference.
(b) Reports on Form 8-K
None.
33
SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this Annual
Report on Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Las Vegas, State of Nevada, on March 30, 2001
COAST RESORTS, INC.
By: /s/ MICHAEL J. GAUGHAN
---------------------------------
Michael J. Gaughan,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10-K has been signed by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Signature Title Date
- ------------------------ ----------------------------------- --------------
/s/ MICHAEL J. GAUGHAN Chairman of the Board of Directors March 30, 2001
- ------------------------ and Chief Executive Officer
Michael J. Gaughan (Principal Executive Officer)
and Director
/s/ GAGE PARRISH Director and Chief Financial Officer March 30, 2001
- ------------------------ (Principal Financial and Accounting
Gage Parrish Officer)
/s/ HARLAN D. BRAATEN Director March 30, 2001
- ------------------------
Harlan D. Braaten
/s/ JERRY HERBST Director March 30, 2001
- ------------------------
Jerry Herbst
/s/ TITO TIBERTI Director March 30, 2001
- ------------------------
J. Tito Tiberti
/s/ CHARLES SILVERMAN Director March 30, 2001
- ------------------------
Charles Silverman
/s/ F. MICHAEL CORRIGAN Director March 30, 2001
- ------------------------
F. Michael Corrigan
/s/ JOSEPH A. BLASCO Director March 30, 2001
- ------------------------
Joseph A. Blasco
/s/ FRANKLIN TOTI Director March 30, 2001
- ------------------------
Franklin Toti
34
Index to Consolidated Financial Statements
COAST RESORTS, INC. AND SUBSIDIARY
Page
----
Report of Independent Accountants.......................................... F-2
Consolidated Balance Sheets of Coast Resorts, Inc., and Subsidiary as
of December 31, 1999 and 2000......................................... F-3
Consolidated Statements of Operations of Coast Resorts, Inc. and Subsidiary
for the years ended December 31, 1998, 1999 and 2000.................. F-4
Consolidated Statements of Stockholders' Equity of Coast Resorts, Inc. and
Subsidiary for the years ended December 31, 1998, 1999 and 2000....... F-5
Consolidated Statements of Cash Flows of Coast Resorts, Inc. and Subsidiary
for the years ended December 31, 1998, 1999 and 2000................. F-6
Notes to Consolidated Financial Statements................................. F-7
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors and Stockholders of Coast Resorts, Inc. and
Subsidiary
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of Coast
Resorts, Inc. and Subsidiary as of December 31, 1999 and 2000, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Las Vegas, Nevada
February 2, 2001
F-2
COAST RESORTS, INC AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 2000
(dollars in thousands, except share data)
1999 2000
-------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................... $ 38,629 $ 43,560
Accounts receivable, less allowance for doubtful
accounts of $842 (1999) and $713 (2000) 4,212 5,658
Inventories....................................... 5,481 7,220
Prepaid expenses.................................. 6,324 7,526
Other current assets.............................. 5,117 9,538
-------- --------
TOTAL CURRENT ASSETS............................ 59,763 73,502
PROPERTY AND EQUIPMENT, net......................... 337,704 485,925
OTHER ASSETS........................................ 8,652 7,772
-------- --------
$406,119 $567,199
======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................... $ 11,738 $ 16,308
Accrued liabilities............................ 32,781 38,208
Construction accounts payable.................. 8,304 4,868
Current portion of long-term debt.............. 2,473 2,430
-------- --------
TOTAL CURRENT LIABILITIES.................... 55,296 61,814
LONG-TERM DEBT, less current portion............. 234,766 353,337
DEFERRED INCOME TAXES............................ 4,222 11,417
DEFERRED RENT.................................... 16,732 20,330
-------- --------
TOTAL LIABILITIES............................ 311,016 446,898
-------- --------
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, 1,478,978 (1999) and
1,463,178 (2000) shares issued and
outstanding.................................. 15 15
Treasury stock................................. (1,538) (3,118)
Additional paid-in capital..................... 95,398 95,398
Retained earnings.............................. 1,228 28,006
-------- --------
TOTAL STOCKHOLDERS' EQUITY................... 95,103 120,301
-------- --------
$406,119 $567,199
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
COAST RESORTS, INC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1998, 1999 and 2000
(dollars in thousands, except share data)
1998 1999 2000
-------- -------- --------
OPERATING REVENUES:
Casino................................. $242,992 $265,753 $309,023
Food and beverage...................... 66,503 72,697 84,752
Hotel.................................. 28,443 30,296 33,711
Other.................................. 26,421 29,110 31,183
-------- -------- --------
GROSS OPERATING REVENUES............ 364,359 397,856 458,669
Less: promotional allowances........... (31,996) (35,325) (39,142)
-------- -------- --------
NET OPERATING REVENUES.............. 332,363 362,531 419,527
-------- -------- --------
OPERATING EXPENSES:
Casino................................. 127,512 131,402 147,797
Food and beverage...................... 47,278 50,923 62,063
Hotel.................................. 11,856 12,923 13,788
Other.................................. 22,503 25,041 24,750
General and administrative............. 54,926 60,480 69,443
Pre-opening expenses................... -- 235 6,161
Land leases............................ 4,280 3,770 3,396
Deferred (non-cash) rent............... 4,018 2,918 2,538
Depreciation and amortization.......... 20,607 21,613 25,375
-------- -------- --------
TOTAL OPERATING EXPENSES............ 292,980 309,305 355,311
-------- -------- --------
OPERATING INCOME.................... 39,383 53,226 64,216
-------- -------- --------
OTHER INCOME (EXPENSES):
Interest expense....................... (27,323) (22,503) (27,954)
Interest income........................ 695 450 470
Interest capitalized................... 58 612 4,511
Gain (loss) on disposal of equipment... 168 (192) (60)
-------- -------- --------
TOTAL OTHER INCOME (EXPENSES)....... (26,402) (21,633) (23,033)
-------- -------- --------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM........................ 12,981 31,593 41,183
PROVISION FOR INCOME TAXES.................. 4,994 10,371 14,405
-------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM............ 7,987 21,222 26,778
EXTRAORDINARY ITEM - loss on early
retirement of debt, net of applicable
income tax benefit ($14,543)............... -- (27,007) --
-------- -------- --------
NET INCOME (LOSS) .......................... $ 7,987 $ (5,785) $ 26,778
======== ======== ========
Basic income per share of common stock
before extraordinary item................... $ 5.34 $ 14.35 $ 18.20
======== ======== ========
Diluted income per share of common stock
before extraordinary item................... $ 5.34 $ 14.35 $ 17.92
======== ======== ========
Basic net income (loss) per share of common
stock....................................... $ 5.34 $ (3.91) $ 18.20
======== ======== ========
Diluted net income (loss) per share of
common stock................................ $ 5.34 $ (3.91) $ 17.92
======== ======== ========
Basic weighted average shares outstanding... 1,494,353 1,478,978 1,471,208
========= ========= =========
Diluted weighted average shares outstanding. 1,494,353 1,478,978 1,494,066
========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
COAST RESORTS, INC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For The Years Ended December 31, 1998, 1999 and 2000
(dollars in thousands)
Common Stock Additional Retained
---------------- Paid-In Earnings Treasury
Shares Amount Capital (Deficit) Stock Total
--------- ------ --------- --------- -------- --------
Balances at December 31, 1997......... 1,494,353 $ 15 $ 95,398 $ (974) $ -- $ 94,439
Net income.......................... -- -- -- 7,987 -- 7,987
--------- ------ --------- --------- -------- --------
Balances at December 31, 1998......... 1,494,353 15 95,398 7,013 -- 102,426
Repurchase of common stock.......... (15,375) -- -- -- (1,538) (1,538)
Net loss............................ -- -- -- (5,785) -- (5,785)
--------- ------ --------- --------- -------- --------
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
========= ====== ========= ========= ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
COAST RESORTS, INC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended December 31, 1998, 1999 and 2000
(dollars in thousands)
1998 1999 2000
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................. $ 7,987 $ (5,785) $ 26,778
-------- -------- --------
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization............... 20,607 21,613 25,375
Provision for bad debts..................... 400 248 129
Loss on early retirement of debt............ -- 41,550 --
Loss (gain) on disposal of equipment........ (168) 192 60
Deferred rent............................... 4,018 3,708 3,598
Deferred income taxes....................... 1,086 (3,099) 7,543
Amortization of original issue discount..... 706 124 1,053
(Increase) decrease in operating assets:
Accounts receivable........................ 915 (159) (1,317)
Refundable income taxes.................... 1,772 (870) (5,005)
Inventories................................ 173 (569) (1,739)
Prepaid expenses and other assets.......... (1,727) (117) (1,635)
Increase (decrease) in operating liabilities:
Accounts payable........................... 781 1,850 4,570
Accrued liabilities........................ (705) 5,805 5,427
-------- -------- --------
TOTAL ADJUSTMENTS........................ 27,858 70,276 38,059
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES... 35,845 64,491 64,837
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net of amounts in
accounts payable............................. (15,748) (49,242) (176,956)
Proceeds from sale of equipment............... 168 437 102
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES........ (15,580) (48,805) (176,854)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings under bank
line of credit, net of financing costs....... -- 67,637 131,600
Proceeds from issuance of long-term
debt, net of issuance costs................. -- 167,808 --
Principal payments on long-term debt.......... (8,097) (15,545) (2,472)
Repurchase of common stock................... -- (1,538) (1,580)
Repayments of borrowings under bank line
of credit................................... -- (14,000) (10,600)
Early retirement of debt................. -- (223,017) --
-------- -------- --------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES.................................. (8,097) (18,655) 116,948
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................. 12,168 (2,969) 4,931
CASH AND CASH EQUIVALENTS, at beginning of
year........................................... 29,430 41,598 38,629
-------- -------- --------
CASH AND CASH EQUIVALENTS, at end of year...... $ 41,598 $ 38,629 $ 43,560
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
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" or the "Company") is a Nevada
corporation and serves as a holding company for Coast Hotels and Casinos, Inc.
("Coast Hotels") and (through July 21, 1998) Coast West, Inc. ("Coast West"),
also Nevada corporations. Through Coast Hotels, the Company owns and operates
the following hotel-casinos in Las Vegas, Nevada:
o Gold Coast Hotel and Casino, which is located approximately one mile west of
the Las Vegas Strip on Flamingo Road.
o Barbary Coast Hotel and Casino, which is located on the Las Vegas Strip.
o The Orleans Hotel and Casino, which is located approximately one mile west
of the Las Vegas Strip on Tropicana Avenue.
o The Suncoast Hotel and Casino, which is located in the western Las Vegas
valley. The Suncoast opened September 12, 2000.
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. In March 1999, Coast West was merged into Coast Hotels.
Basis of Presentation
The consolidated financial statements for 1998 include the accounts of the
Company and its subsidiaries through the date on which Coast West was
contributed to Coast Hotels. The 1998 consolidated financial statements
subsequent to that date and for 1999 include the accounts of the Company and
Coast Hotels. All intercompany balances and transactions have been eliminated
for all periods presented.
NOTE 2 -- Summary of Significant Accounting Policies
Inventories
Inventories, which consist primarily of food and beverage, liquor store, and
gift shop merchandise, are valued at the lower of cost or market value (which is
determined using the first-in, first-out and the average cost methods) except
for the base stocks of bar glassware and restaurant china which are stated at
original cost with subsequent replacements charged to expense.
Original Issue Discount and Debt Issue Costs
Original issue discount is amortized over the life of the related
indebtedness using the effective interest method. Costs associated with the
issuance of debt are deferred and amortized over the life of the related
indebtedness also using the effective interest method.
F-7
COAST RESORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 -- Summary of Significant Accounting Policies (continued)
Property, Equipment and Depreciation
Property and equipment are stated at cost. Expenditures for additions,
renewals and betterments are capitalized, and expenditures for maintenance and
repairs are charged to expense as incurred. Upon retirement or disposal of
assets, the cost and accumulated depreciation are eliminated from the accounts
and the resulting gain or loss is included in income. Depreciation is computed
by the straight-line method over the estimated useful lives of property and
equipment, which range from 5 to 15 years for equipment and 25 to 40 years for
buildings and improvements.
During construction, the Company capitalizes interest and other direct and
indirect development costs. Interest is capitalized monthly by applying the
effective interest rate on certain borrowings to the average balance of
expenditures. The interest that was capitalized was $58,000 (1998), $612,000
(1999) and $4,511,000 (2000).
Pre-opening and Related Promotional Expense
Prior to January 1, 1999, costs associated with the opening of new
hotel-casinos or major additions to an existing hotel-casino, including
personnel, training, certain marketing and other costs, were capitalized and
charged to expense over management's estimate of the period of economic benefit
associated with such costs. Management believes that such period, with respect
to major hotel-casinos, is within one fiscal quarter of the date of opening.
Effective January 1, 1999, pre-opening costs are expensed as incurred.
Pre-opening costs of $6,161,000 and $235,000 were expensed in during the years
ended December 31, 2000 and 1999, respectively, in connection with the
development of the Suncoast. There were no capitalized pre-opening costs at
December 31, 1998.
Valuation of Long-Lived Assets
Long-lived assets and certain identifiable intangibles held and used by the
Company are reviewed for impairment whenever events or changes in circumstances
warrant such a review. The carrying value of a long-lived or intangible asset is
considered impaired when the anticipated undiscounted cash flow from such asset
is separately identifiable and is less than its carrying value. In that event, a
loss is recognized based on the amount by which the carrying value exceeds the
fair value of the asset. Fair value is determined primarily using the
anticipated cash flows discounted at a rate commensurate with the risk involved.
Losses on long-lived assets to be disposed of are determined in a similar
manner, except that fair values are reduced for the cost to dispose.
Advertising Costs
Costs for advertising are expensed as incurred, except costs for
direct-response advertising, which are capitalized and amortized over the period
of the related program. Direct-response advertising costs consist primarily of
mailing costs associated with direct mail programs. Capitalized advertising
costs were immaterial at December 31, 1999 and 2000. Advertising expense was
approximately $6.0 million, $5.4 million and $6.5 million for the years ended
December 31, 1998, 1999 and 2000, respectively.
F-8
COAST RESORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 -- Summary of Significant Accounting Policies (continued)
Casino Revenue
In accordance with common industry practice, the Company recognizes as
casino revenue the net win from gaming activities which is the difference
between amounts wagered and amounts paid to winning patrons.
Deferred Revenue
Wagers received on all sporting events are recorded as a liability until the
final outcome of the event when the payoffs, if any, can be determined.
Progressive Jackpot Payouts
The Company has a number of progressive slot machines, progressive poker
games and a progressive keno game. As coins are played on the progressive slot
machines, the amount available to win increases, to be paid out when the
appropriate jackpot is hit. The keno game and poker game payouts also increases
with the amount of play, to be paid out when hit. In accordance with common
industry practice, the Company has recorded the progressive jackpot as a
liability with a corresponding charge against casino revenue.
Promotional Allowances
The retail value of hotel accommodations and food and beverage items
provided to customers without charge is included in gross revenues and then
deducted as promotional allowances, to arrive at net revenues. The estimated
cost of providing these complimentary services is as follows for the years ended
December 31, 1998, 1999 and 2000:
December 31,
1998 1999 2000
-------- -------- --------
(in thousands)
Hotel....................... $ 2,497 $ 2,167 $ 2,199
Food and beverage........... 25,552 28,593 32,044
-------- -------- --------
$ 28,049 $ 30,760 $ 34,243
========= ======== ========
The cost of promotional allowances has been allocated to expense as follows
for the years ended December 31, 1998, 1999 and 2000:
December 31,
1998 1999 2000
-------- -------- --------
(in thousands)
Casino...................... $ 25,290 $ 28,106 $ 32,052
Other....................... 2,759 2,654 2,191
-------- -------- --------
$ 28,049 $ 30,760 $ 34,243
======== ======== ========
F-9
COAST RESORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 -- Summary of Significant Accounting Policies (continued)
Slot Club Promotion
Coast Resorts has established promotional slot clubs to encourage repeat
business from frequent and active slot customers. Members in the clubs earn
points based on slot activity accumulated in the members' account. Points can be
redeemed for certain consumer products (typically household appliances), travel,
food and beverage and cash. The Company accrues for slot club points expected to
be redeemed in the future based on the average cost of items expected to be
redeemed.
Income Taxes
Coast Resorts accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS
109"). Under SFAS 109 deferred tax assets and liabilities are recognized for the
expected future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. Under
SFAS 109, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Cash and Cash Equivalents
Coast Resorts considers all highly liquid investments with a remaining
maturity at acquisition of three months or less to be cash equivalents. Cash in
excess of daily requirements is typically invested in U.S. Government-backed
repurchase agreements with maturities of 30 days or less. Such investments are
generally made with major financial institutions having a high credit rating. At
times, the Company's cash deposited in financial institutions may be in excess
of federally insured limits. These instruments are stated at cost, which
approximates fair value because of their short maturity.
Net Income (Loss) Per Common Share
Basic earnings per share is computed based on weighted average shares
outstanding while diluted earnings per share reflects the additional dilution
for all potential dilutive securities, such as stock options and warrants.
Net income per common share for the years ended December 31, 1998, 1999 and
2000 is computed by dividing net income by the weighted average number of shares
of common stock outstanding, which weighted average totaled 1,494,353 shares,
1,478,978 shares and 1,471,208 shares, respectively. There were no options to
purchase common stock issued in 1998. The weighted-average number of options to
purchase common stock outstanding for the years ended December 31, 1999 and 2000
was 10,971 and 22,862, respectively. However, these options were excluded from
the calculation of diluted earnings per share in 1999, as their inclusion would
have been antidilutive (by reducing the loss per share).
F-10
COAST RESORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 -- Summary of Significant Accounting Policies (continued)
Concentration of Credit Risk
The Company extends credit to patrons after background checks and
investigations of creditworthiness and does not require collateral. The Company
has a concentration of credit risk in Southern Nevada. The Company records
provisions for potential credit losses and such losses have been within
management's expectations. Management believes that as of December 31, 2000, no
significant concentration of credit risk exists for which an allowance has not
already been determined and recorded.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Stock Options
The Financial Accounting Standards Board has issued Statement No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"). This Statement
defines a fair value based method of accounting for an employee stock option in
which companies account for stock options by recognizing, as compensation
expense in the statement of operations, the fair value of stock options granted
over the vesting period of the option. The statement also permits companies to
continue accounting for stock options under Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"). The Company
has elected to account for stock options under APB No. 25 and to disclose the
pro forma impact on net income and earning per share as if the Company had used
the fair value method recommended by SFAS No. 123.
Reclassifications
Certain amounts in the 1998 and 1999 financial statements have been
reclassified to conform with the 2000 presentation.
Accounting for Derivative Instruments and Hedging Activity
In June 1998, the Financial Accounting Standards Board adopted Statement of
Financial Accounting Standards No. 133 ("SFAS 133") entitled "Accounting for
Derivative Instruments and Hedging Activities", which establishes accounting and
reporting standards for derivative instruments and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If specific conditions are met, a derivative may be specifically
designated as a hedge of specific financial exposures. The accounting for
changes in the fair value of a derivative depends on the intended use of the
derivative and, if used in hedging activities, its effective use as a hedge.
SFAS 133 as amended is effective for all fiscal quarters of fiscal years
beginning after December 31, 2000. SFAS 133 should not be applied retroactively
to financial statements for prior periods. The Company will adopt SFAS 133 when
required. Because of the Company's minimal use of derivatives, management does
not anticipate that the adoption of SFAS 133 will have a significant effect on
the Company's earnings or financial position.
F-11
COAST RESORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 -- Property and Equipment
Major classes of property and equipment consist of the following as of
December 31, 1999 and 2000:
December 31,
1999 2000
-------- --------
(in thousands)
Building....................... $241,605 $371,142
Furniture and fixtures......... 162,961 231,643
-------- --------
404,566 602,785
Less accumulated depreciation.. (118,249) (138,014)
-------- --------
286,317 464,771
Land........................... 15,232 15,232
Construction in progress....... 36,155 5,922
-------- --------
Net property and equipment..... $337,704 $485,925
======== ========
NOTE 4 -- Leases
The Barbary Coast building is located on land that is leased. The lease term
runs through May 2003 with a purchase option and two 30-year renewal options. In
addition, the parking lot adjacent to the building is being leased under a
10-year lease, which runs through January 2003. Annual rental payments under
these leases total $300,000.
During December 1995, the Company entered into a ground lease for the land
underlying The Orleans. The land is owned by The Tiberti Company, a Nevada
general partnership, of which a stockholder of Coast Resorts is the managing
partner. The stockholder is also the president and a director and stockholder of
the general contractor for the construction of The Orleans and the Suncoast, as
more fully described in Note 12. The lease provides for an initial term of fifty
years with a twenty-five year renewal option and includes a purchase option,
exercisable by the Company, at fair market value during the twentieth and
twenty-first years of the lease. Lease payments range from $175,000 to $250,000
per month during the first sixteen years of the lease increasing by 3% per annum
thereafter. The total amount of the base rent payments on The Orleans lease is
being charged to expense on the straight-line method over the term of the lease.
The Company has recorded deferred rent to reflect the excess of rent expense
over cash payments since inception of the lease.
The Suncoast lease was entered into in September 1995 for a parcel of land
located in the western area of Las Vegas to be used for future development
opportunities. The Suncoast lease term runs through December 31, 2055, with
three 10-year renewal options. Monthly payments started at $166,667 for the year
ended 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 total amount of the base rent payments on the
Suncoast lease are being charged to expense (or capitalized during the
construction period) on the straight-line method over the term of the lease. The
Company has recorded deferred rent to reflect the excess of rent expense over
cash payments since the inception of the lease.
F-12
COAST RESORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 -- Leases (continued)
Future Minimum Lease Payments
The following is an annual schedule of future minimum cash lease payments
required under operating leases that have initial or remaining noncancelable
terms in excess of one year as of December 31, 2000:
Operating Leases
Year Ending December 31, Payments
--------
(in thousands)
2001.......................... 5,060
2002.......................... 5,370
2003.......................... 5,363
2004.......................... 5,240
2005.......................... 5,300
Later years................... 405,261
--------
Total minimum lease payments... $431,594
========
Rent Expense
Rent expense for the years ended December 31, 1998, 1999 and 2000 is as
follows:
December 31,
-------------------------
1998 1999 2000
------- ------- -------
(in thousands)
Occupancy rentals... $ 8,597 $ 6,688 $ 5,935
Other equipment..... 115 120 146
------- ------- -------
$ 8,712 $ 6,808 $ 6,081
======= ======= =======
NOTE 5 -- Accrued Liabilities
Major classes of accrued liabilities consist of the following as of December
31, 1999 and 2000:
December 31,
------------------
1999 2000
-------- --------
(in thousands)
Slot club liability....................... $ 8,007 $ 7,293
Compensation and benefits................. 9,118 12,651
Progressive jackpot payouts............... 4,380 4,532
Customer deposits and unpaid winners..... 3,524 5,594
Deferred sports book revenue.............. 1,229 1,500
Taxes..................................... 713 911
Accrued interest expense.................. 4,323 4,364
Outstanding chip and token liability... 1,051 948
Other.................................... 436 415
-------- --------
$ 32,781 $ 38,208
======== ========
F-13
COAST RESORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 -- Long-Term Debt
Long-term debt consists of the following as of December 31, 1999 and 2000:
December 31,
------------------
1999 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............... 175,000 175,000
$200.0 million reducing revolving credit facility due April
2004, collateralized by substantially all of the assets of
Coast Hotels and Casinos, Inc............................... 55,000 176,000
13% First Mortgage Notes due 2002, with interest payable
semiannually on June 15 and December 15..................... 1,960 --
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... 2,453 2,133
Other notes payable.......................................... 851 659
-------- --------
237,239 355,767
Less: current portion........................................ 2,473 2,430
-------- --------
$234,766 $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.
Coast Resorts is a guarantor of the indebtedness under both of these debt
agreements. 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 depending on Coast Hotels' ratio of
total debt to EBITDA and can vary between 125 and 250 basis points. As of
December 31, 2000, the premium over LIBOR was 2.0% (200 basis points) and the
interest rate was 8.64%. For the year ended December 31, 2000, the weighted
average interest rate for the senior secured credit facility was 8.27%. Coast
Hotels incurs a commitment fee, payable quarterly in arrears, on the unused
portion of the credit facility. This variable fee is currently at the maximum
rate of 0.5% per annum times the average unused portion of the facility.
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 September 30, 2001 and December 31, 2001. The
initial advance of $47.0 million under the credit facility was used in
connection with the repurchase of the 13% first mortgage notes and the 10-7/8%
first mortgage notes and is more fully described below. Subsequent advances
under the credit facility may be used for working capital, general corporate
purposes, construction of the Suncoast, and certain improvements to The Orleans,
the Gold Coast and the Barbary Coast. As of December 31, 2000, Coast Hotels had
$24.0 million of availability under the $200.0 million credit facility.
F-14
COAST RESORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 -- Long-Term Debt (continued)
With the proceeds from the senior subordinated notes and borrowings under
the credit facility, Coast Hotels repurchased substantially all of the $175.0
million principal amount outstanding of 13% first mortgage notes in 1999. The
remaining approximately $2.0 million in principal amount of the 13% first
mortgage notes was redeemed on December 15, 2000 at a redemption price of 106.5%
of the principal amount, plus any accrued and unpaid interest. In connection
with the repurchase of the 13% notes and the 10-7/8% notes, the Company incurred
repurchase premiums of $31.0 million and $2.1 million, respectively. The
repurchase premiums and the write-offs of unamortized debt issuance costs and
original issue discount resulted in an extraordinary loss of $27.0 million in
1999, net of applicable income tax benefit of $14.5 million.
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. 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 December 31, 2000, the Company was in compliance with all
covenants and required ratios.
On February 2, 2001 we issued an additional $50.0 million principal amount
of senior subordinated notes. The net proceeds of approximately $48.8 million
were used to reduce borrowings under our senior secured credit facility, which
will provide the Company with additional availability under the credit facility.
The 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.
Maturities on long-term debt are as follows:
Year Ending December 31, Maturities
- ------------------------- ----------
(in thousands)
2001..................... $ 2,430
2002..................... 17,469
2003..................... 40,482
2004..................... 119,497
2005..................... 323
Thereafter............... 175,566
----------
$355,767
==========
F-15
COAST RESORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 -- Income Taxes and Pro Forma Data
The components of the income tax provision (benefit) for the years ended
December 31, 1998, 1999 and 2000 were as follows:
December 31,
-------------------------
1998 1999 2000
------- ------- -------
Federal: (in thousands)
Current........ $ 3,908 $(1,073) $ 6,862
Deferred....... 1,086 (3,099) 7,543
------- ------- -------
$ 4,994 $(4,172) $14,405
======= ======= =======
The income tax provision (benefit) before consideration of the extraordinary
loss for the years ended December 31, 1998, 1999 and 2000 differs from that
computed at the federal statutory corporate tax rate as follows:
December 31,
----------------------
1998 1999 2000
------ ------ ------
Federal statutory rate............. 35.0% 35.0% 35.0%
Other.............................. 3.5% (2.2%) --
------ ------ ------
Effective tax rate................. 38.5% 32.8% 35.0%
====== ====== ======
The tax effects of significant temporary differences representing net
deferred tax assets and liabilities at December 31, 1999 and 2000 are as
follows:
December 31,
-----------------
1999 2000
------- -------
(in thousands)
Deferred tax assets:
Current:
Accrued vacation.................... $ 894 $ 887
Allowance for doubtful accounts.... 375 319
Accrued slot club points............ 714 120
Progressive liabilities............. 1,075 1,060
Accrued medical and other benefits.. 244 567
------- -------
Total current...................... 3,302 2,953
------- -------
Non-current:
FICA, alternative minimum tax
and other tax credits.............. 4,672 583
Deferred rent....................... 5,336 7,116
------- -------
Total non-current.................. 10,008 7,699
------- -------
Total deferred tax assets............. 13,310 10,652
------- -------
Deferred tax liabilities:
Non-current:
Property, plant and equipment....... (14,230) (19,115)
------- -------
Total deferred tax liabilities..... (14,230) (19,115)
------- -------
Net deferred tax liability............ $ (920) $(8,463)
======= =======
F-16
COAST RESORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 -- Fair Value of Financial Instruments
The following estimated fair values of the Company's financial instruments
have been determined by the Company using available market information and
appropriate valuation methodologies. The carrying amounts of cash and cash
equivalents, accounts receivable, and accounts payable approximate fair values
due to the short-term maturities of these instruments. The carrying amounts and
estimated fair values of the Company's other financial instruments at December
31, 2000 are as follows:
Carrying Fair
Amount Value
-------- --------
(in thousands)
Liabilities:
Current portion of long-term debt.... $ 2,430 $ 2,430
======== ========
Revolving credit facility............ $176,000 $176,000
======== ========
9.5% senior subordinated notes....... $175,000 $168,438
======== ========
Other long-term debt................. $ 2,337 $ 2,508
======== ========
For the current portion of long-term debt, the carrying amount approximates
fair value due to the short-term nature of such debt. The carrying amount on the
revolving credit facility is a reasonable estimate of fair value because this
debt is carried with a floating interest rate. The fair value of the 9.5% senior
subordinated notes was determined based upon market quotes. For all other
long-term debt, the fair value is estimated using a discounted cash flow
analysis, based on the incremental borrowing rates currently available to the
Company for debt with similar terms and maturity.
NOTE 9 -- Commitments and Contingencies
The Company is involved in various legal actions arising in the ordinary
course of business. In the opinion of management, the ultimate disposition of
these matters will not have a material adverse effect on the financial position,
results of operations or cash flows of the Company.
The Company has commenced certain capital improvement projects at the Gold
Coast and the Suncoast for which budgeted expenditures are estimated to total
approximately $30.5 million. The Company anticipates the projects will be
completed during 2001.
NOTE 10 -- Related Party Transactions
Coast Hotels' advertising services are provided by LGT Advertising, a
company owned by several stockholders of Coast Resorts. LGT purchases
advertising for Coast Hotels from third parties and passes along any discounts
they receive. LGT and its owners receive no compensation or profit for these
services, as Coast Hotels is invoiced for actual costs incurred. Advertising
expense paid to LGT amounted to approximately $6.0 million, $5.4 million and
$6.5 million for the years ended December 31, 1998, 1999 and 2000, respectively.
F-17
COAST RESORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 -- Related Party Transactions (continued)
Coast Hotels purchases certain of its equipment and inventory for its
operations from RJS, a company owned by the father of a major stockholder and
director of Coast Resorts and a director and officer of Coast Hotels and the
Company's restaurant manager. RJS invoices Coast Hotels based on actual costs
incurred. For the fiscal years ended December 31, 1998, 1999 and 2000, Coast
Hotels incurred expenses payable to RJS of approximately $829,000, $2.1 million
and $6.5 million, respectively.
Coast Hotels purchases wallboards and parlay cards for its race and sports
books from Nevada Wallboards, Inc. A major stockholder and director of Coast
Resorts and a director and officer of Coast Hotels is the majority stockholder
of Nevada Wallboards, Inc. for the fiscal years ended December 31, 1998, 1999
and 2000, Coast Hotels incurred expenses payable to Nevada Wallboards of
approximately $186,000, $180,000 and $192,000, respectively.
A director of the Company is the president and sole stockholder of
Yates-Silverman, Inc. which was retained by the Company as the designer of The
Orleans and the Suncoast. for the fiscal years ended December 31, 1998, 1999 and
2000, Coast Hotels incurred expenses payable to Yates-Silverman of approximately
$500,000, $721,000 and $548,000, respectively.
Coast Hotels maintains numerous racetrack dissemination contracts with Las
Vegas Dissemination, Inc. ("LVD"). The son of a major stockholder and director
of Coast Resorts and a director and officer of Coast Hotels is the president and
sole shareholder of LVD. LVD has been granted a license by the Nevada gaming
authorities to disseminate live racing for those events and tracks for which it
contracts and has been granted the exclusive right to disseminate all
pari-mutuel services and race wire services in the State of Nevada. Under these
dissemination contracts, Coast Hotels pays to LVD an amount based on the wagers
accepted for races held at the racetracks covered by the respective contracts.
Coast Hotels also pays to LVD a monthly fee for race wire services. For the
fiscal years ended December 31, 1998, 1999 and 2000, Coast Hotels incurred
expenses payable to LVDC of approximately $3.1 million, $1.3 million and $1.6
million, respectively.
J.A. Tiberti Construction Company ("Tiberti Construction") has served as the
general contractor for the original construction of the Gold Coast and for
certain expansions thereof, for the original construction of the Barbary Coast
and all expansions thereof and for the original construction and Phase II
expansion of The Orleans. Tiberti Construction is also the general contractor
for the construction of the Suncoast. The president of Tiberti Construction is a
stockholder and director of Coast Resorts and a director of Coast Hotels. For
the years ended December 31, 1998, 1999 and 2000, Coast Hotels paid
approximately $3.7 million, $27.9 million and $108.5 million, respectively, to
Tiberti Construction in connection with such construction services.
As more fully described in Note 4, Coast Hotels is a party to a ground lease
with The Tiberti Company with respect to the land underlying The Orleans. The
president of The Tiberti Company is a director and stockholder of Coast Resorts.
Amounts paid to the Tiberti Company with respect to the lease were $2.4 million
per year for the fiscal years ended December 31, 1998, 1999 and 2000.
F-18
COAST RESORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 -- Related Party Transactions (continued)
Coast Hotels spent $300,000 in 1999 and $180,000 in 2000 to promote The
Orleans by advertising on a racecar operated by the son of a major shareholder.
The foregoing transactions are believed to be on terms no less favorable to
us than could have been obtained from unaffiliated third parties and were
approved by a majority of our disinterested directors.
NOTE 11 -- Benefit Plans
401(k) Plans
Coast Hotels offers separate defined contribution 401(k) plans for eligible
employees. All employees of the Gold Coast, The Orleans and the Suncoast, and
all employees of the Barbary Coast not covered by a collective bargaining
agreement, are eligible to participate. The employees may elect to defer up to
15% of their yearly compensation, subject to statutory limits. Coast Hotels
makes matching contributions of 50% of the first 6% of the employees'
contributions. Contribution expense was $1.3 million, $1.1 million and $1.6
million for the years ended December 31, 1998, 1999 and 2000, respectively.
Defined Benefit Plan
Certain employees at the Barbary Coast are covered by a union-sponsored,
collectively bargained, multi-employer, defined benefit pension plan. The
Barbary Coast contributed $308,000, $310,000 and $309,000 during the years ended
December 31, 1998, 1999 and 2000, respectively, to the plan. These contributions
are determined in accordance with the provisions of negotiated labor contracts
and generally are based on the number of hours worked.
Stock Compensation Plan
In December 1996, the Board of Directors adopted the 1996 Stock Incentive
Plan (the "Plan") which authorizes the issuance of (i) shares of Coast Resorts
Common Stock or any other class of security of the Company which is convertible
into shares of Coast Resorts Common Stock or (ii) a right or interest with an
exercise or conversion privilege at a price related to Coast Resorts Common
Stock or with a value derived from the value of such common stock. Awards under
the Plan are not restricted to any specified form or structure and may include,
without limitation, sales or bonuses of stock, restricted stock, stock options,
reload stock options, stock purchase warrants, other rights to acquire stock,
securities convertible into or redeemable for stock, stock appreciation rights,
limited stock appreciation rights, phantom stock, dividend equivalents,
performance units or performance shares. Officers, key employees, directors
(whether employee directors or non-employee directors) and consultants of the
Company and its subsidiary are eligible to participate in the Plan.
Under the terms of the Plan, the aggregate number of shares issued and
issuable pursuant to all awards (including all incentive stock options) granted
under the Plan shall not exceed 220,000 at any time. In addition, the aggregate
number of shares subject to awards granted during any calendar year to any one
eligible person (including the number of shares involved in awards having a
value derived from the value of shares) shall not exceed 40,000.
F-19
COAST RESORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 -- Benefit Plans (continued)
Stock Compensation Plan (continued)
No awards may be made under the Plan after the tenth anniversary of the
adoption of the Plan. Although shares may be issued after the tenth anniversary
of the adoption of the Plan pursuant to awards made prior to such date, no
shares may issued under the Plan after the twentieth anniversary of adoption of
the Plan.
Effective January 1, 1999, the Company issued options to purchase 30,415
shares of its common stock to its chief operating officer. The options vest in
one-third increments on January 1, 1999, January 1, 2000 and January 1, 2001.
The options expire on December 31, 2008. Effective June 14, 1999, the Company
issued options to purchase 5,000 shares of its common stock to its chief
financial officer. The options vest in one-third increments on June 14, 1999,
June 14, 2000 and June 14, 2001. The exercise price on the options is at $100
per share, which is equivalent to the estimated fair value of the Company's
common stock at the grant date, as estimated by the Company from recent sales of
common stock between shareholders. The options expire on June 13, 2009.
Pro forma information regarding net income (loss) and earnings per share is
required by SFAS 123 and has been determined as if the Company had accounted for
its stock option plan under the fair-value-based method of that Statement. The
fair value for these options was estimated at the date of grant using the
minimum value method (which is appropriate for valuing options of companies
without publicly traded stock) with the following weighted-average assumptions:
risk-free rate of return of approximately 5.0%, expected life of the options of
5 years and a 0% dividend yield. For purposes of pro forma disclosures, the
estimated fair value of the options is amortized over the respective vesting
periods of the options. For fiscal 1999 the pro forma net loss would have been
$6,013,000, and for fiscal 2000 the pro forma net income would have been
$26,531,000. The pro forma net loss per common share would have been $4.07 for
fiscal 1999, and the pro forma net income per common share would have been
$17.76 for 2000.
NOTE 12 - Treasury Stock
In May 1999, our 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 December 31, 2000, we have repurchased a
total of 31,175 shares of common stock from shareholders at a total purchase
price of $3.1 million.
F-20
COAST RESORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 -- Supplemental Cash Flows Information
For the years ended December 31, 1998, 1999 and 2000 supplemental cash flows
information amounts are as follows:
December 31,
----------------------------
1998 1999 2000
-------- -------- --------
(in thousands)
Interest paid................................ $ 26,764 $ 19,387 $ 27,913
======== ======== ========
Income taxes paid............................ $ 2,300 $ -- $ 12,600
======== ======== ========
Supplemental schedule of non-cash investing
and financing activities:
Property and equipment acquisitions included
in accounts payable or financed through
notes payable.............................. $ -- $ 8,304 $ 4,868
======== ======== ========
NOTE 14 -- Regulation of Gaming Operations
The gaming operations of the Company are subject to the licensing and
regulatory control of the Nevada Gaming Commission (the Nevada Commission), the
Nevada State Gaming Control Board (the Nevada Control Board) and the Clark
County Liquor and Gaming Board (the Clark County Board) (collectively, the
Nevada Gaming Authorities). These agencies issue gaming licenses based upon,
among other considerations, evidence that the character and reputation of
principal owners, officers, directors, and certain other key employees are
consistent with regulatory goals. The necessary licenses have been secured by
the Company. The licenses are not transferable and must be renewed periodically
upon the payment of appropriate taxes and license fees. The Nevada Gaming
Authorities have broad discretion with regard to the renewal of the licenses
which may at any time revoke, suspend, condition, limit or restrict a license
for any cause deemed reasonable by the issuing agency. Officers, directors and
key employees of the Company must be approved by the Nevada Control Board and
licensed by the Nevada Commission and Clark County Board.
F-21
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENTS SCHEDULES
To the Directors and Stockholders of Coast Resorts, Inc. and
Subsidiary
Our audits of the consolidated financial statements referred to in our opinion
dated February 2, 2001 appearing in this Annual Report on Form 10-K of Coast
Resorts, Inc. also included an audit of the financial statement schedules listed
in Item 14(a)(2) of this Form 10-K. In our opinion, these financial statement
schedules present fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
PricewaterhouseCoopers LLP
Las Vegas, Nevada
February 2, 2001
F-22
SCHEDULE I
COAST RESORTS, INC.
CONDENSED FINANCIAL INFORMATION OF THE COMPANY
The following condensed financial statements reflect the parent company
(Coast Resorts, Inc.) only, accounting for its wholly owned subsidiary on the
equity method of accounting. All footnote disclosures have been omitted since
the information has been included in the Company's consolidated financial
statements included elsewhere in this Form 10-K.
COAST RESORTS, INC.
(Parent Company Only)
CONDENSED BALANCE SHEETS
December 31, 1999 and 2000
(dollars in thousands, except share data)
1999 2000
-------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................. $ 13 $ --
Refundable income taxes.................... -- 5,875
Other current assets....................... 660 --
-------- --------
TOTAL CURRENT ASSETS..................... 673 5,875
INVESTMENT IN SUBSIDIARY...................... 97,293 124,107
-------- --------
$ 97,966 $129,982
======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Due to Coast Hotels........................ $ 2,863 $ 9,464
Accrued liabilities........................ -- 217
-------- --------
TOTAL CURRENT LIABILITIES................ 2,863 9,681
-------- --------
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, 1,478,978 (1999) and
1,463,178 (2000) shares issued and
outstanding............................... 15 15
Treasury stock............................. (1,538) (3,118)
Additional paid-in capital................. 95,398 95,398
Retained earnings (deficit)................ 1,228 28,006
-------- --------
TOTAL STOCKHOLDERS' EQUITY.......... 95,103 120,301
-------- --------
$ 97,966 $129,982
======== ========
F-23
SCHEDULE I
COAST RESORTS, INC.
(Parent Company Only)
CONDENSED STATEMENTS OF OPERATIONS
For The Years Ended December 31, 1998, 1999 and 2000
(dollars in thousands)
1998 1999 2000
--------- --------- ---------
Equity interest in income (loss)from subsidiary.. $ 8,287 $ (5,761) $ 26,950
General and administrative expenses.............. (134) (35) (35)
--------- -------- --------
Income (loss) before income taxes................ 8,153 (5,796) 26,915
Income tax provision (benefit)................... 166 (11) 137
--------- -------- ---------
NET INCOME (LOSS)................................ $ 7,987 $ (5,785) $ 26,778
========= ======== ========
Basic net income (loss) per share of
common stock................................... $ 5.34 $ (3.91) $ 18.20
========= ======== ========
Diluted net income (loss) per share
of common stock.................................. $ 5.34 $ (3.91) $ 17.92
========= ======== ========
Basic weighted average common
shares outstanding............................... 1,494,353 1,478,978 1,471,208
========= ========= =========
Diluted weighted average common
shares outstanding............................... 1,494,353 1,478,978 1,494,066
========= ========= =========
F-24
SCHEDULE I
COAST RESORTS, INC.
(Parent Company Only)
STATEMENTS OF STOCKHOLDERS' EQUITY
For The Years Ended December 31, 1998, 1999 and 2000
(dollars in thousands)
Common Stock Additional Retained
---------------- Paid-In Earnings Treasury
Shares Amount Capital (Deficit) Stock Total
--------- ------ --------- --------- -------- --------
Balances at December 31, 1997......... 1,494,353 $ 15 $ 95,398 $ (974) $ -- $ 94,439
Net income.......................... -- -- -- 7,987 -- 7,987
--------- ------ --------- --------- -------- --------
Balances at December 31, 1998......... 1,494,353 15 95,398 7,013 -- 102,426
Repurchase of common stock.......... (15,375) -- -- -- (1,538) (1,538)
Net loss............................ -- -- -- (5,785) -- (5,785)
--------- ------ --------- --------- -------- --------
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
========= ====== ========= ========= ======== ========
F-25
SCHEDULE I
COAST RESORTS, INC.
(Parent Company Only)
CONDENSED STATEMENTS OF CASH FLOWS
For The Years Ended December 31, 1998, 1999 and 2000
(dollars in thousands)
1998 1999 2000
------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................... $ 7,987 $(5,785) $26,778
------- ------- -------
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Equity interest in net (income) loss
from subsidiary........................... (8,287) 5,761 (26,950)
Non-cash tax expense....................... -- -- 136
Other current assets....................... -- (660) (5,215)
Accrued liabilities........................ -- (30) 217
Due to Coast Hotels........................ 300 2,262 6,601
------- ------- -------
TOTAL ADJUSTMENTS......................... (7,987) 7,333 (25,211)
------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES.. -- 1,548 1,567
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase at common stock................. -- (1,538) (1,580)
------- ------- -------
NET CASH USED IN FINANCING ACTIVITIES ..... -- (1,538) (1,580)
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................. -- 10 (13)
CASH AND CASH EQUIVALENTS, at beginning of year 3 3 13
------- ------- -------
CASH AND CASH EQUIVALENTS, at end of year.... $ 3 $ 13 $ --
======= ======= =======
F-26
SCHEDULE II
COAST RESORTS, INC. AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
For The Years Ended December 31, 1998, 1999 and 2000
(dollars in thousands)
ADDITIONS ADDITIONS
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS YEAR
---------- --------- --------- ---------- ---------
Allowance for doubtful accounts
(casino receivables):
Year ended December 31, 1998... $ 194 $1,499 $ -- $1,099 $ 594
========== ========= ========= ========== =========
Year ended December 31, 1999... $ 594 $1,281 $ -- $1,033 $ 842
========== ========= ========= ========== =========
Year ended December 31, 2000... $ 842 $ 556 $ -- $ 685 $ 713
========== ========= ========= ========== =========
F-27