- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2002
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from __________ to __________
Commission file number 0-26922
COAST HOTELS AND CASINOS, INC.
(Exact name of registrant as specified in its charter)
Nevada 88-0345706
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
4500 West Tropicana Avenue, Las Vegas, Nevada 89103
(Address of principal executive offices) (Zip code)
(702) 365-7000
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Shares of Common Stock outstanding as of August 14, 2002: 1,000
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Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
COAST HOTELS AND CASINOS, INC.
(A Wholly Owned Subsidiary of Coast Casinos, Inc.)
CONDENSED BALANCE SHEETS
(amounts in thousands, except share data)
June 30,
2002 December 31,
(unaudited) 2001
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................ $ 29,357 $ 43,347
Accounts receivable, net................. 7,374 6,367
Due from Coast Casinos................... -- 5,464
Other current assets..................... 20,534 18,950
----------- -----------
TOTAL CURRENT ASSETS..................... 57,265 74,128
PROPERTY AND EQUIPMENT, net................ 664,714 579,545
OTHER ASSETS............................... 11,970 7,807
----------- -----------
$ 733,949 $ 661,480
=========== ===========
LIABILITIES AND
STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable......................... $ 11,864 $ 13,138
Accrued liabilities...................... 45,133 41,061
Due to Coast Casinos..................... 63 --
Construction accounts payable............ 22,399 34,053
Current portion of long-term debt........ 162 148
----------- -----------
TOTAL CURRENT LIABILITIES................ 79,621 88,400
LONG-TERM DEBT, less current portion....... 422,979 369,376
DEFERRED INCOME TAXES...................... 22,781 19,251
DEFERRED RENT.............................. 25,506 23,868
----------- -----------
TOTAL LIABILITIES........................ 550,887 500,895
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock, $1.00 par value, 25,000
shares authorized, 1,000 shares issued
and outstanding........................ 1 1
Additional paid-in capital............... 86,903 86,903
Retained earnings........................ 96,158 73,681
----------- -----------
TOTAL STOCKHOLDER'S EQUITY............... 183,062 160,585
----------- -----------
$ 733,949 $ 661,480
=========== ===========
The accompanying notes are an integral part of these condensed financial
statements.
1
COAST HOTELS AND CASINOS, INC.
(A Wholly Owned Subsidiary of Coast Casinos, Inc.)
CONDENSED STATEMENTS OF OPERATIONS For the Three Months and Six
Months Ended June 30, 2002 and 2001
(amounts in thousands)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
2002 2001 2002 2001
--------- --------- --------- ---------
OPERATING REVENUES:
Casino......................... $ 102,397 $ 93,963 $ 203,305 $ 188,684
Food and beverage.............. 27,588 26,442 55,563 53,135
Hotel.......................... 9,954 9,533 20,043 19,478
Other.......................... 9,767 9,148 19,114 17,934
--------- --------- --------- ---------
GROSS OPERATING REVENUES..... 149,706 139,086 298,025 279,231
Less: promotional allowances.. (13,251) (12,391) (26,495) (24,988)
--------- --------- --------- ---------
NET OPERATING REVENUES....... 136,455 126,695 271,530 254,243
--------- --------- --------- ---------
OPERATING EXPENSES:
Casino......................... 45,563 42,755 89,885 85,924
Food and beverage.............. 20,876 19,753 41,541 38,618
Hotel.......................... 4,089 3,872 8,074 7,655
Other.......................... 7,447 6,794 14,362 13,493
General and administrative..... 26,402 23,986 51,197 46,897
Deferred rent.................. 795 885 1,639 1,769
Depreciation and amortization.. 10,164 8,749 19,443 17,317
--------- --------- --------- ---------
TOTAL OPERATING EXPENSES..... 115,336 106,794 226,141 211,673
--------- --------- --------- ---------
OPERATING INCOME................. 21,119 19,901 45,389 42,570
--------- --------- --------- ---------
OTHER INCOME (EXPENSES):
Interest expense, net.......... (7,866) (7,701) (15,036) (15,682)
Interest capitalized .......... 858 137 1,446 199
Gain (loss) on disposal of
assets ...................... 7 (1,656) (311) (122)
Other income .................. 2,809 -- 2,809 --
--------- --------- --------- ---------
TOTAL OTHER INCOME (EXPENSES).... (4,192) (9,220) (11,092) (15,605)
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES....... 16,927 10,681 34,297 26,965
Income tax provision ............ 5,833 3,659 11,820 9,280
--------- --------- --------- ---------
NET INCOME....................... $ 11,094 $ 7,022 $ 22,477 $ 17,685
========= ========= ========= =========
The accompanying notes are an integral part of these condensed financial
statements.
2
COAST HOTELS AND CASINOS, INC.
(A Wholly Owned Subsidiary of Coast Casinos, Inc.)
CONDENSED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2002 and 2001
(amounts in thousands)
(unaudited)
Six Months Ended
June 30,
--------------------
2002 2001
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................... $ 22,477 $ 17,685
-------- --------
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization..................... 19,443 17,317
Amortization of debt offering costs............... 732 596
Loss on disposal of assets........................ 311 122
Deferred income taxes............................. 3,190 911
Deferred rent..................................... 1,639 1,769
Changes in assets and liabilities:
Net increase in accounts receivable and
other assets.................................. (5,595) (3,196)
Net increase (decrease) in accounts payable
and accrued liabilities....................... 2,798 (1,912)
-------- --------
TOTAL ADJUSTMENTS.................................... 22,518 15,607
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES............ 44,995 33,292
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net of amounts in
construction accounts payable...................... (117,513) (37,697)
Proceeds from sale of assets......................... 958 9,415
-------- --------
NET CASH USED IN INVESTING ACTIVITIES................ (116,555) (28,282)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt, including
original issue premium, net of financing costs..... 103,191 49,071
Principal payments on long-term debt................. (148) (2,508)
Proceeds from borrowings under bank line of credit... 56,500 6,000
Repayments of borrowings under bank line of credit... (107,500) (68,000)
Payments from Coast Casinos.......................... 5,527 5,410
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES.. 57,570 (10,027)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS.............. (13,990) (5,017)
CASH AND CASH EQUIVALENTS, at beginning of period...... 43,347 43,560
-------- --------
CASH AND CASH EQUIVALENTS, at end of period............ $ 29,357 $ 38,543
======== ========
The accompanying notes are an integral part of these condensed financial
statements.
3
COAST HOTELS AND CASINOS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1 - BACKGROUND INFORMATION AND BASIS OF PRESENTATION
Background Information
Coast Hotels and Casinos, Inc. (the "Company" or "Coast Hotels") is a
Nevada corporation and a wholly owned subsidiary of Coast Casinos, Inc. ("Coast
Casinos"), which is also a Nevada corporation. Coast Casinos changed its name
from Coast Resorts, Inc. on July 2, 2002. Coast Hotels was formed in September
1995 and owns and operates the following hotel-casinos in Las Vegas, Nevada:
o The Suncoast Hotel and Casino, which is located in the west end of the Las
Vegas valley.
o The Orleans Hotel and Casino, which is located approximately one mile west
of the Las Vegas Strip on Tropicana Avenue.
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.
Basis of Presentation
The accompanying condensed financial statements are unaudited and have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. The unaudited
financial statements should be read in conjunction with the audited financial
statements and footnotes included in our annual report on Form 10-K for the year
ended December 31, 2001. In the opinion of management, all adjustments and
normal recurring accruals considered necessary for a fair presentation of the
results for the interim periods have been included. The interim results
reflected in the unaudited financial statements are not necessarily indicative
of expected results for the full year.
4
COAST HOTELS AND CASINOS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 2 - LONG-TERM DEBT
Long-term debt consists of the following as of June 30, 2002 and December
31, 2001:
June 30, December 31,
2002 2001
----------- -----------
(in thousands)
9.5% senior subordinated notes due April 2009,
with interest payable semiannually on April 1
and October 1, including unamortized
original issue premium of $4,765 in 2002
and $0 in 2001................................... $ 329,765 $ 225,000
Senior secured credit facility due September 2004,
collateralized by substantially all of the assets
of Coast Hotels and Casinos, Inc................. 93,000 144,000
Other notes payable................................ 376 524
----------- -----------
423,141 369,524
Less: current portion.............................. 162 148
----------- -----------
$ 422,979 $ 369,376
=========== ===========
In March 1999, the Company 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 credit
facility due 2004 to facilitate a refinancing. Availability under the credit
facility was increased to $200.0 million in September 1999, subject to automatic
reductions in availability from September 2001 through June 2004, as described
below. Coast Casinos is a guarantor of the indebtedness under both of these debt
agreements. 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 the Company's ratio of total
debt to EBITDA and can vary between 125 and 250 basis points. As of June 30,
2002, the premium over LIBOR was 1.75% (175 basis points) and the interest rate
was 3.58%. For the six months ended June 30, 2002, the weighted average interest
rate for the senior secured credit facility was 3.62%. The Company incurs a
commitment fee, payable quarterly in arrears, on the unused portion of the
credit facility. This variable fee is currently at a rate of 0.375% per annum
times the average unused portion of the facility.
The availability under the senior secured credit facility was reduced by
$6.0 million to $194.0 million on September 30, 2001, by $6.0 million to $188.0
million on December 31, 2001, by $6.0 million to $182.0 million on March 31,
2002 and by $6.0 million to $176.0 million on June 30, 2002. The quarterly
reduction will increase to $8.5 million on each of September 30, 2002, December
31, 2002, March 31, 2003 and June 30, 2003, and to $11.5 million on each of
September 30, 2003, December 31, 2003, March 31, 2004 and June 30, 2004. As of
June 30, 2002, the Company had $83.0 million of availability under the credit
facility.
On February 2, 2001, the Company issued $50.0 million additional principal
amount of senior subordinated notes. The net proceeds of approximately $49.1
million were used to reduce borrowings under the senior secured credit facility.
On March 19, 2002, the Company issued $100.0 million additional principal amount
of senior subordinated notes and received a $5.0 million original issue premium
in connection with the issuance. The net proceeds of approximately $103.2
million were used to reduce borrowings under the credit facility. The notes that
were issued in 2001 and 2002 were issued under the same indenture and have the
same terms, interest rate and maturity date as the $175.0 million principal
amount of senior subordinated notes issued in 1999.
5
COAST HOTELS AND CASINOS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 2 - LONG-TERM DEBT (continued)
The loan agreement governing the senior secured credit facility contains
covenants that, among other things, limit the ability of the Company to pay
dividends or make advances to Coast Casinos, to make certain capital
expenditures, to repay certain existing indebtedness, to incur additional
indebtedness or to sell material assets of the Company. Additionally, the loan
agreement requires that the Company maintain certain financial ratios with
respect to its leverage and fixed charge coverage. The agreement was amended in
December 2001 and in March 2002 to increase the amount of certain capital
expenditures that may be made. The Company 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. At June 30, 2002, the Company was in
compliance with all covenants and required ratios.
On April 2, 2002, Coast Hotels entered into an interest rate swap agreement
with a member of the Company's bank group wherein $100.0 million notional amount
of the Company's fixed rate debt was converted to a floating rate. The fixed
rate paid to the Company was 5.77% and the floating rate paid to the bank was
based on six-month LIBOR and set at 2.33% for the six months ending September
30, 2002. On July 16, 2002, the Company terminated the swap agreement and
received $3.75 million, including $1.0 million of accrued interest receivable.
Based on quoted market values as of June 30, 2002, the estimated fair value of
the swap agreement was $2.8 million. As of and for the three- and six-month
periods ended June 30, 2002, the Company has recorded the estimated fair value
of the swap agreement in the accompanying financial statements as an other
current asset with the gain reported in other income.
6
COAST HOTELS AND CASINOS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 3 - 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 following is
a breakdown of these complimentary revenues for the three months and six months
ended June 30, 2002 and 2001:
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Complimentary revenues:
Food and beverage............. $ 10,636 $ 10,183 $ 21,452 $ 20,802
Hotel......................... 1,727 1,500 3,359 2,979
Other......................... 888 708 1,684 1,207
--------- --------- --------- ---------
Promotional allowances...... $ 13,251 $ 12,391 $ 26,495 $ 24,988
========= ========= ========= =========
The estimated cost of providing these complimentary services is as follows
for the three months and six months ended June 30, 2002 and 2001:
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Food and beverage............. $ 10,821 $ 10,532 $ 21,566 $ 21,417
Hotel......................... 712 647 1,386 1,213
Other......................... 312 238 567 347
--------- --------- --------- ---------
$ 11,845 $ 11,417 $ 23,519 $ 22,977
========= ========= ========= =========
The cost of promotional allowances has been allocated to expense as follows
for the three months and six months ended June 30, 2002 and 2001:
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Casino........................ $ 11,055 $ 10,713 $ 21,778 $ 21,146
General and administrative.... 790 704 1,741 1,831
--------- --------- --------- ---------
$ 11,845 $ 11,417 $ 23,519 $ 22,977
========= ========= ========= =========
NOTE 4 - INITIAL PUBLIC OFFERING
On May 24, 2002, Coast Casinos filed a registration statement with the
Securities and Exchange Commission with respect to a proposed initial public
offering of its common stock. The timing of the initial public offering is
indefinite and subject to market conditions. There is no guarantee that an
initial public offering will take place.
7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Critical Accounting Policies and Estimates
We have identified the following critical accounting policies that affect
our more significant judgments and estimates used in the preparation of our
financial statements. The preparation of our financial statements in conformity
with accounting principles generally accepted in the United States of America
requires that we make estimates and judgments that affect the reported amounts
of assets and liabilities, revenues and expenses, and related disclosures of
contingent assets and liabilities. On an on-going basis, we evaluate those
estimates, including those related to asset impairment, accruals for slot
marketing points, self-insurance, compensation and related benefits, revenue
recognition, allowance for doubtful accounts, contingencies and litigation.
These estimates are based on the information that is currently available to us
and on various other assumptions that we believe to be reasonable under the
circumstances. Actual results could vary from those estimates under different
assumptions or conditions.
We believe that the following critical accounting policies require
significant judgments and estimates used in the preparation of our financial
statements:
o We maintain an allowance for doubtful accounts for estimated losses
resulting from the inability of our customers to make required payments,
which results in bad debt expense. We determine the adequacy of this
allowance by periodically evaluating individual customer receivables and
considering the customer's financial condition, credit history and current
economic conditions. If the financial condition of customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required.
o We maintain accruals for health and workers compensation self-insurance and
slot club point redemption, which are classified as accrued liabilities in
the balance sheets. We determine the adequacy of these accruals by
periodically evaluating the historical experience and projected trends
related to these accruals. If such information indicates that the accruals
are overstated or understated, we will adjust the assumptions utilized in
the methodologies and reduce or provide for additional accruals as
appropriate.
o We are subject to various claims and legal actions in the ordinary course
of business. Some of these matters include personal injuries to customers
and damage to customers' personal assets. We estimate guest claims and
accrue for such liability based on historical experience in accrued
liabilities in the balance sheets.
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
The following table sets forth, for the periods indicated, certain
financial information regarding our results of operations:
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
2002 2001 2002 2001
--------- --------- --------- ---------
(in thousands) (in thousands)
Net operating revenues...... $ 136,455 $ 126,695 $ 271,530 $ 254,243
Operating expenses.......... 115,336 106,794 226,141 211,673
--------- --------- --------- ---------
Operating income ........... $ 21,119 $ 19,901 $ 45,389 $ 42,570
========= ========= ========= =========
Net income.................. $ 11,094 $ 7,022 $ 22,477 $ 17,685
========= ========= ========= =========
EBITDA (1).................. $ 32,078 $ 29,535 $ 66,471 $ 61,656
========= ========= ========= =========
Cash provided by operating
activities................ $ 25,741 $ 11,866 $ 44,995 $ 33,292
========= ========= ========= =========
Cash used in investing
activities................ $ (60,751) $ (24,463) $(116,555) $ (28,282)
========= ========= ========= =========
Cash provided by (used in)
financing activities...... $ 28,314 $ (6,680) $ 57,570 $ (10,027)
========= ========= ========= =========
(1) "EBITDA" means earnings before interest, taxes, depreciation, amortization,
deferred (non-cash) rent expense, certain other non-cash expenses and
pre-opening expenses (for all periods presented, the only non-cash expenses
were deferred rent, gains and losses on disposal of assets and other income
associated with the interest rate swap agreement). EBITDA is defined in our
senior secured credit facility and in the indenture governing our senior
subordinated notes. EBITDA is presented as supplemental disclosure because
the calculation of EBITDA is necessary to determine our compliance with
certain covenants under these financing agreements and because management
believes that it is a widely used measure of operating performance in the
gaming industry. EBITDA should not be construed as an alternative to
operating income or net income (as determined in accordance with generally
accepted accounting principles) as an indicator of our operating
performance, or as an alternative to cash flows generated by operating,
investing and financing activities (as determined in accordance with
generally accepted accounting principles) as an indicator of cash flows or
a measure of liquidity. All companies do not calculate EBITDA in the same
manner. As a result, EBITDA as presented here may not be comparable to the
similarly titled measures presented by other companies.
9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001
and Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001
In the quarter and six months ended June 30, 2002, we experienced increases
in revenues, operating income, net income and EBITDA, primarily due to continued
improvement in revenues at the Suncoast, which opened in September 2000. The
Suncoast improvement was offset somewhat by lower hotel room occupancy levels at
our four hotel-casino properties, consistent with the general slowdown in
tourism after the September 11, 2001 terrorist attacks. Net revenues in the
second quarter were $136.5 million compared to $126.7 million in 2001, an
increase of 7.7%. Net operating revenues were up 25.5% at the Suncoast and 6.9%
at the Gold Coast, but were down 3.8% at The Orleans and relatively flat at the
Barbary Coast. Operating income was $21.1 million in the quarter compared to
$19.9 million in 2001, an increase of 6.1%. Net income was $11.1 million
compared to 2001 second quarter net income of $7.0 million, an increase of
58.0%. EBITDA was $32.1 million in the quarter, an increase of 8.6% over EBITDA
of $29.5 million in the second quarter of 2001.
In the six months ended June 30, 2002, net revenues were $271.5 million
compared to $254.2 million in the first six months of 2001. Operating income was
$45.4 million in the first half of 2002 compared to $42.6 million in the first
half of 2001, an increase of 6.6%. Net income in the six months ended June 30,
2002 was $22.5 million, an increase of 27.1% over net income of $17.7 million in
the first half of 2001. EBITDA in the first half of 2002 was $66.5 million
compared to $61.7 million in 2001, an increase of 7.8%.
Casino. Casino revenues were $102.4 million in the three months ended June
30, 2002 compared to $94.0 million in the same period in 2001, an increase of
9.0% due primarily to a 24.5% increase at the Suncoast. Gold Coast casino
revenues increased 8.1% in the quarter, Barbary Coast revenues increased 2.8%,
but casino revenues at The Orleans declined 2.8% due, in part, to increased
competition and construction disruption.
In the six months ended June 30, 2002, casino revenues were $203.3 million
compared to $188.7 million in the first six months of 2001, an increase of 7.7%.
Casino revenues at the Suncoast increased 27.8% year-to-date over last year.
Gold Coast and Barbary Coast casino revenues increased 4.4% and 1.5%,
respectively, over the first half of 2001, but The Orleans casino revenues
decreased 5.1% in the period due to increased competition and construction
disruption.
Casino expenses increased $2.8 million (6.6%) in the second quarter,
primarily due to an 8.9% increase at the Suncoast because of the increased
gaming activity there and an 11.4% increase at the Gold Coast due to increased
casino promotional expenses. Year-to-date, casino expenses increased $4.0
million (4.6%) due to a 10.9% increase at the Suncoast and a 7.5% increase at
the Gold Coast.
Food and Beverage. Food and beverage revenues were $27.6 million in the
second quarter of 2002 compared to $26.4 million in 2001, an increase of 4.3%.
Food and beverage revenues at the Suncoast increased 20.5%, in line with the
overall increase in business at that property. Gold Coast food and beverage
revenues increased 7.7%, primarily due to a new, expanded buffet. The increases
were partially offset by a 6.2% decrease in food and beverage revenues at The
Orleans, in line with the overall decrease in revenues at The Orleans discussed
above, and a 2.8% decrease in food and beverage revenues at the Barbary Coast.
Food and beverage expenses increased 5.7% to $20.9 million in 2002 compared to
$19.8 million in 2001, primarily due to the overall increase in business at the
Suncoast and the additional expenses related to the larger new buffet at the
Gold Coast.
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001
and Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001
(continued)
Food and Beverage (continued). In the six months ended June 30, 2002, food
and beverage revenues were $55.6 million, an increase of 4.6% over revenues of
$53.1 million in the first half of 2001. The increases were primarily at the
Suncoast and the Gold Coast, for the reasons described above. Food and beverage
expenses were $41.5 million in the first six months of 2002 compared to $38.6
million in 2001, an increase of 7.6% due primarily to the new buffet at the Gold
Coast and the overall increase in customer volume at the Suncoast.
Hotel. Hotel room revenues were $10.0 million in the second quarter of 2002
compared to $9.5 million in 2001, an increase of 4.4%. Lower room occupancy
percentages and lower average room rates due to a slowdown in tourism after
September 11, 2001 led to decreases at the Gold Coast, Barbary Coast and The
Orleans. The decreases were offset by increases at the Suncoast, which opened
216 additional hotel rooms in August 2001. Hotel expenses were $4.1 million in
the second quarter compared to $3.9 million in 2001, an increase of 5.6% due
primarily to the additional rooms at the Suncoast.
In the six months ended June 30, 2002, hotel room revenues were $20.0
million compared to $19.5 million in 2001, an increase of 2.9%. Hotel expenses
in the first half of 2002 were $8.1 million compared to $7.7 million in the
first half of 2001, an increase of 5.5%. The increased revenues and expenses
were primarily attributable to the additional hotel rooms opened at the Suncoast
in August 2001.
Other. Other revenues were $9.8 million in the second quarter of 2002
compared to $9.1 million in 2001, an increase of 6.8% primarily due to increases
at the Suncoast. Slight increases at the Gold Coast and Barbary Coast were
offset by an 8.1% decrease at The Orleans due to an overall decrease in customer
volume related to increased competition and construction disruption.
Year-to-date, other revenues were $19.1 million compared to $17.9 million in the
first six months of 2001, an increase of 6.6% due primarily to increased
customer volume at the Suncoast.
General and Administrative. General and administrative expenses were $26.4
million in the second quarter of 2002 compared to $24.0 million in 2001, an
increase of 10.1%, primarily due to increases in salaries, property taxes and
property and liability insurance costs. Year-to-date, general and administrative
expenses were $51.2 million compared to $46.9 million in the first six months of
2001, an increase of 9.2%, also due to the increases described above.
Depreciation and Amortization. Depreciation and amortization expense was
$10.2 million in the second quarter of 2002 compared to $8.7 million in 2001, an
increase of 16.2% due to the depreciation of remodeling expenditures and
equipment purchases at the Gold Coast and additional rooms and slot machines at
the Suncoast. In the six months ended June 30, 2002, depreciation and
amortization expense was $19.4 million compared to $17.3 million, an increase of
12.3%, also due to the increases described above.
11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001
and Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001
(continued)
Other Income (Expenses). Despite a lower weighted-average interest rate on
our debt, net interest expense was $7.9 million in the second quarter compared
to $7.7 million in the second quarter of 2001, an increase of 2.1% due to higher
aggregate indebtedness related to the construction projects at The Orleans and
the Gold Coast. The effect of the higher aggregate indebtedness was partially
offset by $860,000 in interest savings created by an interest rate swap
agreement we entered into in April 2002 (see "Liquidity and Capital Resources").
In the six months ended June 30, 2002, net interest expense was $15.0 million
compared to $15.7 million in the first six months of 2001. The decrease was due
primarily to a lower weighted-average interest rate on our outstanding
indebtedness and the $860,000 in interest savings from the swap agreement.
Capitalized interest was $858,000 in the second quarter, compared to $137,000 in
the second quarter of 2001 due to ongoing expansion projects at the Gold Coast
and The Orleans. Capitalized interest was $1.4 million in the first six months
of 2002 compared to $199,000 in the same period in 2001 also due to the ongoing
expansion projects. Other income was $2.8 million in the second quarter and
first six months of 2002 due to the recording of the estimated fair value of the
swap agreement as of June 30, 2002, compared to no other income in the 2001
periods. On July 16, 2002 we terminated the swap agreement and received $3.75
million, including $1.0 million of accrued interest receivable.
Aggregate Indebtedness and Fixed Payment Obligations
Our total long-term indebtedness (including current maturities) and fixed
payment obligations on the land leases for the twelve-month periods ending June
30 are summarized by year below:
2003 2004 2005 2006 2007 Thereafter
-------- -------- -------- -------- -------- ----------
(dollars in thousands)
Long-Term Indebtedness:
Senior subordinated notes.... $ -- $ -- $ -- $ -- $ -- $325,000
Bank credit facility......... -- -- 93,000 -- -- --
Other........................ 162 177 3 3 3 28
Fixed Payment Obligations
for Land Leases:
Barbary Coast - land lease... 178 190 190 190 190 5,208
Barbary Coast - parking lot.. 63 -- -- -- -- --
The Orleans - land lease..... 2,700 2,700 2,700 2,700 2,800 194,311
Suncoast - land lease........ 2,450 2,510 2,570 2,630 2,690 202,480
-------- -------- -------- -------- -------- --------
Total Indebtedness and
Fixed Payment Obligations...... $ 5,553 $ 5,577 $ 98,463 $ 5,523 $ 5,683 $727,027
======== ======== ======== ======== ======== ========
For the six months ended June 30, 2002 we made principal payments of $51.0
million, net of borrowings, on the senior secured credit facility and $148,000
in principal payments on other long-term debt. We have debt service payments due
aggregating $162,000 during the next twelve months on other long-term debt
obligations. We also have fixed payment obligations under leases due during the
next twelve months of $5.4 million. Total remaining fixed payment obligations
under leases is $429.5 million. The fixed payment obligations represent payments
due under operating lease agreements primarily for land on which three of our
properties are located.
12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Aggregate Indebtedness and Fixed Payment Obligations (continued)
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.
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 dated May 1, 1993. The lease provides for rental payments of $175,000
per year during the initial term of the lease that expires on May 1, 2003. We
have exercised the first of two 30-year lease-extension options, with rental
payments increasing to $190,000 per year during the first ten years of the
renewal period. We have an option to purchase the leased property at any time
during the six month period prior to the expiration of the initial term 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.
Should the landlord desire to sell the real property during the initial term of
the lease, we have a right of first refusal. We also lease approximately 2.5
additional acres of real property located adjacent to the Barbary Coast. The
lease expires on December 31, 2002. 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).
13
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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 $45.0 million in the six months ended June 30, 2002 and $33.3 million in the
six months ended June 30, 2001.
Cash used in investing activities in the six months ended June 30, 2002 and
2001 was $116.6 million and $28.3 million, respectively, and was primarily for
capital expenditures.
Cash provided by financing activities was $57.6 million in the first half
of 2002 primarily from the issuance in March 2002 of $100.0 million principal
amount of senior subordinated notes. The net proceeds of $103.2 million were
used to repay borrowings under our line of credit. In the first half of 2001,
cash used in financing activities was $10.0 million, primarily from repayment of
borrowings under our credit facility offset by proceeds from the issuance in
February 2001 of $50.0 million principal amount of senior subordinated notes.
Our primary cash requirements for the next twelve months include the
payment of principal and interest on our debt, maintenance capital expenditures,
the completion of the expansion and remodeling project at the Gold Coast, the
continued expansion of The Orleans and the expansion of the Suncoast (see
Capital Expenditures below). We believe that existing cash balances, operating
cash flow and available borrowings under our senior secured credit facility will
provide sufficient resources to meet our debt and lease payment obligations,
budgeted capital expenditure requirements at our hotel-casino properties and
operating needs for the next 12 months.
In March 1999, we issued $175.0 million principal amount of 9.5% senior
subordinated notes with interest payable on April 1 and October 1 and entered
into a $75.0 million senior secured credit facility due 2004 to facilitate a
refinancing. Availability under the credit facility was increased to $200.0
million in September 1999, subject to automatic reductions in availability from
September 2001 through June 2004, as described below. Coast Casinos is a
guarantor of the indebtedness under both of these debt agreements. Borrowings
under the credit facility bear interest, at our option, at a premium over the
one-, two-, three- or six-month London Interbank Offered Rate ("LIBOR"). The
premium varies depending on our ratio of total debt to EBITDA and can vary
between 125 and 250 basis points. As of June 30, 2002, the premium over LIBOR
was 1.75% (175 basis points) and the interest rate was 3.58%. For the six months
ended June 30, 2002, the weighted average interest rate for the senior secured
credit facility was 3.62%. We incur a commitment fee, payable quarterly in
arrears, on the unused portion of the credit facility. This variable fee is
currently at a rate of 0.375% per annum times the average unused portion of the
facility.
The availability under the senior secured credit facility was reduced by
$6.0 million to $194.0 million on September 30, 2001, by $6.0 million to $188.0
million on December 31, 2001, by $6.0 million to $182.0 million on March 31,
2002 and by $6.0 million to $176.0 million on June 30, 2002. The quarterly
reduction will increase to $8.5 million on each of September 30, 2002, December
31, 2002, March 31, 2003 and June 30, 2003, and to $11.5 million on each of
September 30, 2003, December 31, 2003, March 31, 2004 and June 30, 2004. As of
June 30, 2002, we had $83.0 million of availability under the credit facility.
14
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources (continued)
On February 2, 2001, we issued $50.0 million additional principal amount of
senior subordinated notes. The net proceeds of approximately $49.1 million were
used to reduce borrowings under our senior secured credit facility. On March 19,
2002, we issued $100.0 million additional principal amount of our senior
subordinated notes. The notes were issued at a premium and the net proceeds of
approximately $103.2 million were used to reduce borrowings under our senior
secured credit facility. As a result, we have additional availability under the
credit facility to complete our capital improvement projects as described under
"Capital Expenditures" below. The notes that were issued in 2001 and 2002 were
issued under the same indenture and have the same terms, interest rate and
maturity date as our the $175.0 million principal amount of senior subordinated
notes issued in March 1999.
The loan agreement governing the credit facility contains covenants that,
among other things, limit our ability to pay dividends or make advances to Coast
Casinos, to make certain capital expenditures, to repay certain existing
indebtedness, to incur additional indebtedness or to sell material assets.
Additionally, the loan agreement requires that we maintain certain financial
ratios with respect to its leverage and fixed charge coverage. The agreement was
amended in December 2001 and in March 2002 to increase the amount of certain
capital expenditures that may be made. We are also subject to certain covenants
associated with the indenture governing our $325.0 million principal amount of
senior subordinated notes, including, in part, limitations on certain restricted
payments, the incurrence of additional indebtedness and asset sales. At June 30,
2002, we were in compliance with all covenants and required ratios.
On April 2, 2002, Coast Hotels entered into an interest rate swap agreement
with a member of our bank group wherein $100.0 million notional amount of our
fixed rate debt was converted to a floating rate. The fixed rate paid to us was
5.77% and the floating rate paid to the bank was based on six-month LIBOR and
was set at 2.33% for the six months ending September 30, 2002. We terminated the
swap agreement in July 2002 and received $3.75 million, including $1.0 million
in accrued interest receivable. We recorded $2.8 million as other income in the
quarter ended June 30, 2002 related to the swap agreement which represented its
estimated market value as of June 30, 2002.
On May 24, 2002, Coast Casinos filed a registration statement with the
Securities and Exchange Commission with respect to a proposed initial public
offering of its common stock. The timing of the initial public offering is
indefinite and subject to market conditions. There is no guarantee that an
initial public offering will take place.
15
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Capital Expenditures
Subject to receiving the required governmental approvals, we plan to
commence an approximately $65.0 million expansion of the Suncoast in the first
half of 2003 and complete it in phases through the second half of 2004. The
project is expected to be paid for with operating cash flows and borrowings
under our senior secured credit facility. Should Coast Casinos complete an
initial public offering, the proceeds may also be used to fund this project. The
expansion is expected to feature a 70,000 square foot casino addition, including
approximately 700 additional slot machines, a poker room, a new sports book, a
sports bar, additional table games, a new casino bar, an approximately 1,600-car
parking garage and four new restaurants. We anticipate that remaining 2002 cash
outlays related to the expansion, consisting of architectural and design fees,
will total approximately $1.0 million. Through June 30, 2002, we had spent
$216,000 related to the expansion.
In January 2001, we commenced an expansion of The Orleans. The project has
an estimated cost of $150.0 million and is expected to be paid for with
operating cash flows and borrowings under our senior secured credit facility.
The expansion includes approximately 40,000 square feet of new gaming area and
public space, a special-events arena, a 586-room hotel tower, spa and fitness
facilities, a 2,600-car parking garage, six additional movie theaters, two
restaurants and an Irish pub. Through June 30, 2002, we had completed the movie
theaters, the parking garage, the restaurants, the Irish pub and the additional
gaming and public area. We anticipate that 2002 cash outlays for the project
will total approximately $80.0 million, of which $56.7 million had been spent in
the six months ended June 30, 2002.
In the fourth quarter of 2000, we commenced an expansion and remodel of the
Gold Coast. The project was originally designed to include a new, expanded
buffet restaurant, a sports bar, an Asian-themed restaurant, an Italian
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. In 2001 we expanded the scope of the project to include a
1,300-car parking garage, an expanded porte-cochere, a pedestrian bridge to the
casino, 20,000 square feet of new gaming area and a new bingo parlor. Through
June 30, 2002, we had spent approximately $48.9 million and had opened the
multi-station buffet, the sports bar, the restaurants, the additional meeting
space and the additional gaming space and we had completed the redesign of the
public areas. We expect to complete the project by the fourth quarter of 2002
and to spend approximately $29.0 million in 2002, of which $17.9 million had
been spent in the six months ended June 30, 2002.
In the ordinary course of operating our hotel-casinos, it is necessary to
upgrade or replace fixtures and equipment and to make improvements that will
extend the life of our physical plants. We anticipate that these maintenance
capital expenditures will total approximately $25.0 million in 2002. In the six
months ended June 30, 2002 we had spent $12.1 million for maintenance capital
expenditures. In addition, in June 2002 we purchased a 1996 Bombardier CRJ200
jet aircraft. The purchase price of the aircraft was $14.5 million plus the
trade-in of our 1980 Hawker-Siddely 700, valued at $3.2 million.
16
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Capital Expenditures (continued)
A key element of our business strategy is the expansion or renovation of
our existing properties as described above. The completion of these projects is
subject to certain risks, including but not limited to:
o general construction risks, including cost overruns, shortages of materials
or skilled labor, labor disputes, unforeseen environmental or engineering
problems, work stoppages, fire and other natural disasters, construction
scheduling problems and weather interference;
o change orders and plan or specification modifications;
o changes and concessions required by governmental or regulatory authorities;
o delays in obtaining or inability to obtain all required licenses, permits
and authorizations; and
o disruption of our operations at our hotel-casinos by construction
activities.
We believe that existing cash balances, operating cash flow and available
borrowings under our credit facility will provide sufficient resources to meet
our debt and lease payment obligations, budgeted capital expenditure
requirements at our hotel-casino properties and operating needs for the next 12
months.
17
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Other Matters
In July 2001, the Financial Accounting Standards Board issued Statement No.
141, "Business Combinations" and Statement No. 142, "Goodwill and Other
Intangible Assets". SFAS 141 is effective as follows: (a) use of the
pooling-of-interests method is prohibited for business combinations initiated
after June 30, 2001; and (b) the provisions of SFAS 141 also apply to all
business combinations accounted for by the purchase method that are completed
after June 30, 2001. There are also transition provisions that apply to business
combinations completed before July 1, 2001 which were accounted for by the
purchase method.
SFAS 142 is effective for fiscal years beginning after December 15, 2001
and applies to all goodwill and other intangible assets recognized in an
entity's statement of financial position at that date, regardless of when those
assets were initially recognized.
In August 2001, the Financial Accounting Standards Board issued Statement
No. 143, "Accounting for Obligations Associated with the Retirement of
Long-Lived Assets". The objectives of SFAS 143 are to establish accounting
standards for the recognition and measurement of an asset retirement obligation
and its associated asset retirement cost. SFAS 143 is effective for fiscal years
beginning after June 15, 2002.
In October 2001, the Financial Accounting Standards Board issued Statement
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS
144 addresses financial accounting and reporting for the impairment or disposal
of long-lived assets. SFAS 144 is effective for fiscal years beginning after
December 15, 2001 and, generally, is to be applied prospectively.
In April 2002, the Financial Accounting Standards Board issued Statement
No. 145 ("SFAS 145") "Rescission of FASB Statements Nos. 4, 44 and 64 and
Amendment of FASB Statement No. 13." SFAS 145 addresses the presentation for
losses on early retirements of debt in the statement of operations. Upon
adoption of SFAS 145, the Company may no longer present losses on early
retirements of debt as an extraordinary item. Additionally, prior period
extraordinary losses may be required to be reclassified to conform to this new
presentation. Adoption of SFAS 145 will have no impact on the Company's
financial condition or cash flows.
In June 2002, the Financial Accounting Standards Board issued Statement No.
146 ("SFAS 146") "Accounting for Costs Associated with Exit or Disposal
Activities." The provisions of SFAS 146 become effective for exit or disposal
activities commenced subsequent to December 31, 2002 and the Company does not
expect any impact on its financial condition, results of operations or cash
flows.
The adoption of SFAS 141, SFAS 142 and SFAS 144 had no impact on our
financial position, results of operations or cash flows. We do not expect the
impact of the adoption of SFAS 143, SFAS 145 or SFAS 146 to be material to our
financial position, results of operations or cash flows.
18
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Certain Forward-Looking Statements
This Form 10-Q includes "forward-looking statements" within the meaning of
the securities laws. All statements regarding our expected financial position,
business strategies and financing plans under the headings "Management's
Discussion and Analysis of Financial Condition and Results of Operations",
"Business" and elsewhere in this Form 10-Q are forward-looking statements. In
addition, in those and other portions of this Form 10-Q, the words
"anticipates," "believes," "estimates," "seeks," "expects," "plans," "intends"
and similar expressions, as they relate to Coast Hotels or its management, are
intended to identify forward-looking statements. Although we believe that the
expectations reflected in such forward-looking statements are reasonable, and
have based these expectations on our beliefs as well as assumptions we have
made, such expectations may prove to be incorrect. Important factors that could
cause actual results to differ materially from such expectations are disclosed
in this Form 10-Q, including, without limitation, the following factors:
o increased competition, both in Nevada and other states, including increased
competition from California Native American gaming;
o dependence on the Las Vegas area and Southern California for a majority of
our customers;
o substantial leverage and uncertainty that we will be able to service our
debt;
o uncertainties associated with construction projects, including the related
disruption of operations and the availability of financing, if necessary;
o changes in laws or regulations, third party relations and approvals,
decisions of courts, regulators and governmental bodies;
o uncertainties related to the economy;
o uncertainties related to the cost and/or availability of electricity and
natural gas; and
o the impact on the travel and leisure industry, and Las Vegas in particular,
of any terrorist attack or threat of terrorist attack, and of the United
States' response to an attack or threat.
All subsequent written and oral forward-looking statements attributable to
us or persons acting on our behalf are expressly qualified in their entirety by
our cautionary statements. The forward-looking statements included are made only
as of the date of this Form 10-Q. We do not intend, and undertake no obligation,
to update these forward-looking statements.
19
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market Risk
Market risk is the risk of loss arising from adverse changes in market
rates and prices, such as interest rates, foreign currency exchange rates and
commodity prices. Our primary exposure to market risk is interest rate risk
associated with our long-term debt. We attempt to limit our exposure to interest
rate risk by managing the mix of our long-term fixed-rate borrowings and
short-term borrowings under our revolving bank credit facility. Assuming that
the amount of our variable rate debt remained constant at $93.0 million during
the next twelve months, a hypothetical 1% increase in our variable interest rate
would increase our interest expense by $930,000. On April 2, 2002, we entered
into an interest rate swap agreement with a member of our bank group wherein
$100.0 million notional amount of our fixed rate debt was converted to a
floating rate. In July 2002 we terminated the swap agreement. (See "Management's
Discussion and Analysis of Financial Condition and Results of Operation -
Liquidity and Capital Resources".)
The table below provides information about our financial instruments that
are sensitive to changes in interest rates. For debt obligations, the table
presents notional amounts and weighted average interest rates by contractual
maturity dates for the twelve-month periods ended June 30,:
Fair
2003 2004 2005 2006 2007 Thereafter Total Value (1)
-------- -------- -------- -------- -------- ---------- -------- --------
(dollars in thousands)
LIABILITIES
Short-term debt
Fixed rate.................. $ 162 $ -- $ -- $ -- $ -- $ -- $ 162 $ 162
Average interest rate(2).. 9.50% -- -- -- -- -- 9.50% --
Long-term debt
Fixed rate.................. $ -- $ 177 $ 3 $ 3 $ 3 $325,028 $325,214 $337,402
Average interest rate(2).. -- 9.50% 9.50% 9.50% 9.50% 9.50% 9.50% --
Variable rate............... $ -- $ -- $ 93,000 $ -- $ -- $ -- $ 93,000 $ 93,000
Average interest rate(2).. -- -- 3.58% -- -- -- 3.58% --
- -----
(1) The fair values are based on the borrowing rate currently available for
debt instruments with similar terms and maturities, and market quotes of
our publicly traded debt.
(2) Based upon contractual interest rates for fixed indebtedness or the LIBOR
rate at June 30, 2002 for variable rate indebtedness.
20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits.
The following are filed as exhibits to this Quarterly Report on Form 10-Q:
99.1 - Certification of Chief Executive Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
99.2 - Certification of Chief Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act or 2002.
(b) Reports on Form 8-K.
On May 28, 2002, the Company filed a Form 8-K dated May 24, 2002 under
Item 5, Other Events, with respect to the filing by its parent company,
Coast Casinos, with the Securities and Exchange Commission of a
registration statement relating to a proposed initial public offering of
its common stock.
On June 6, 2002, the Company filed a Form 8-K dated May 24, 2002 under
Item 5, Other Events, with respect to the expiration of its offer to
exchange up to $100.0 million principal amount of newly issued 9 1/2%
Senior Subordinated Notes Due 2009.
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on
its behalf by the undersigned thereunto duly authorized.
Date: August 14, 2002 COAST HOTELS AND CASINOS, INC.,
a Nevada corporation
By: /s/ Gage Parrish
----------------------------
Gage Parrish
Vice President and Chief Financial Officer