United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2008
OR
o¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______to______.
Commission File No. 0-22088
MONARCH CASINO & RESORT, INC.
(Exact name of registrant as specified in its charter)
Nevada | 88-0300760 | |
(State or Other Jurisdiction of | (I.R.S. Employer | |
Incorporation or Organization) | Identification No.) | |
3800 S. Virginia St. | ||
Reno, Nevada | 89502 | |
(Address of Principal Executive Offices) | (ZIP Code) |
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
(775) 335-4600
Registrant’s telephone number, including area code:
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 xNo ¨o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer”, “non-accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer | o | Accelerated Filer | x |
Non-Accelerated Filer | o | Smaller Reporting Company | o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ oNo x
Indicate the number of shares outstanding of each of the issuer'sissuer’s classes of common stock, as of the latest practicable date.
Common stock, $0.01 par value | 16,122,048 shares | |
Class | Outstanding at |
2
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4 | ||||
5 | ||||
6 | ||||
7 | ||||
12 | ||||
20 | ||||
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21 | ||||
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22 |
3
Part I. FINANCIAL INFORMATION
MONARCH CASINO & Resort, Inc.
Condensed Consolidated Statements of Income
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
Revenues | ||||||||||||||||
Casino | $ | 25,672,907 | $ | 29,277,718 | $ | 49,428,857 | $ | 54,575,990 | ||||||||
Food and beverage | 9,547,395 | 10,568,173 | 19,308,615 | 21,072,388 | ||||||||||||
Hotel | 5,545,006 | 7,027,156 | 11,375,701 | 13,855,123 | ||||||||||||
Other | 1,185,503 | 1,285,828 | 2,417,572 | 2,474,451 | ||||||||||||
Gross revenues | 41,950,811 | 48,158,875 | 82,530,745 | 91,977,952 | ||||||||||||
Less promotional allowances | (6,607,046 | ) | (6,597,555 | ) | (12,913,587 | ) | (12,635,041 | ) | ||||||||
Net revenues | 35,343,765 | 41,561,320 | 69,617,158 | 79,342,911 | ||||||||||||
Operating expenses | ||||||||||||||||
Casino | 9,266,916 | 9,268,084 | 18,013,416 | 17,737,421 | ||||||||||||
Food and beverage | 4,606,282 | 4,866,969 | 9,295,647 | 9,835,686 | ||||||||||||
Hotel | 1,967,720 | 2,111,765 | 4,073,093 | 4,255,105 | ||||||||||||
Other | 312,997 | 377,437 | 659,651 | 741,057 | ||||||||||||
Selling, general and administrative | 12,877,513 | 12,792,008 | 25,981,613 | 24,322,811 | ||||||||||||
Depreciation and amortization | 1,893,237 | 2,064,970 | 3,899,794 | 4,140,416 | ||||||||||||
Total operating expenses | 30,924,665 | 31,481,233 | 61,923,214 | 61,032,496 | ||||||||||||
Income from operations | 4,419,100 | 10,080,087 | 7,693,944 | 18,310,415 | ||||||||||||
Other (expense) income | ||||||||||||||||
Interest income | 46,238 | 473,537 | 297,582 | 817,421 | ||||||||||||
Interest expense | (131,335 | ) | (3,174 | ) | (135,492 | ) | (152,274 | ) | ||||||||
Total other (expense) income | (85,097 | ) | 470,363 | 162,090 | 665,147 | |||||||||||
Income before income taxes | 4,334,003 | 10,550,450 | 7,856,034 | 18,975,562 | ||||||||||||
Provision for income taxes | (1,531,100 | ) | (3,650,000 | ) | (2,751,100 | ) | (6,580,000 | ) | ||||||||
Net income | $ | 2,802,903 | $ | 6,900,450 | $ | 5,104,934 | $ | 12,395,562 | ||||||||
Earnings per share of common stock | ||||||||||||||||
Net income | ||||||||||||||||
Basic | $ | 0.16 | $ | 0.36 | $ | 0.29 | $ | 0.65 | ||||||||
Diluted | $ | 0.16 | $ | 0.36 | $ | 0.29 | $ | 0.64 | ||||||||
Weighted average number of common shares and potential common shares outstanding | ||||||||||||||||
Basic | 17,189,200 | 19,091,756 | 17,802,518 | 19,081,173 | ||||||||||||
Diluted | 17,253,109 | 19,366,442 | 17,899,384 | 19,345,213 |
|
| Three Months Ended |
| ||||
|
| March, 31 |
| ||||
|
| 2009 |
| 2008 |
| ||
Revenues |
|
|
|
|
| ||
Casino |
| $ | 22,804,499 |
| $ | 23,755,950 |
|
Food and beverage |
| 9,593,068 |
| 9,761,220 |
| ||
Hotel |
| 5,379,742 |
| 5,830,695 |
| ||
Other |
| 1,133,450 |
| 1,232,069 |
| ||
Gross revenues |
| 38,910,759 |
| 40,579,934 |
| ||
Less promotional allowances |
| (6,331,575) |
| (6,306,541) |
| ||
Net revenues |
| 32,579,184 |
| 34,273,393 |
| ||
Operating expenses |
|
|
|
|
| ||
Casino |
| 8,906,892 |
| 8,746,500 |
| ||
Food and beverage |
| 4,635,397 |
| 4,689,365 |
| ||
Hotel |
| 2,005,920 |
| 2,105,373 |
| ||
Other |
| 296,771 |
| 346,654 |
| ||
Selling, general and administrative |
| 11,619,722 |
| 13,104,100 |
| ||
Depreciation and amortization |
| 3,180,955 |
| 2,006,557 |
| ||
Total operating expenses |
| 30,645,657 |
| 30,998,549 |
| ||
Income from operations |
| 1,933,527 |
| 3,274,844 |
| ||
Other (expense) income |
|
|
|
|
| ||
Interest income |
| 35,418 |
| 251,344 |
| ||
Interest expense |
| (550,210) |
| (4,157) |
| ||
Total other (expense) income |
| (514,792) |
| 247,187 |
| ||
Income before income taxes |
| 1,418,735 |
| 3,522,031 |
| ||
Provision for income taxes |
| (496,575) |
| (1,220,000) |
| ||
Net income |
| $ | 922,160 |
| $ | 2,302,031 |
|
|
|
|
|
|
| ||
Earnings per share of common stock |
|
|
|
|
| ||
Net income |
|
|
|
|
| ||
Basic |
| $ | 0.06 |
| $ | 0.13 |
|
Diluted |
| $ | 0.06 |
| $ | 0.12 |
|
|
|
|
|
|
| ||
Weighted average number of common shares and potential common shares outstanding |
|
|
|
|
| ||
Basic |
| 16,122,048 |
| 18,415,836 |
| ||
Diluted |
| 16,148,037 |
| 18,545,964 |
|
The Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.
4
June 30, | December 31, | |||||||
2008 | 2007 | |||||||
ASSETS | (Unaudited) | |||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 11,672,748 | $ | 38,835,820 | ||||
Receivables, net | 3,679,824 | 4,134,099 | ||||||
Federal income tax refund receivable | - | 998,123 | ||||||
Inventories | 1,471,347 | 1,496,046 | ||||||
Prepaid expenses | 3,040,123 | 3,144,374 | ||||||
Deferred income taxes | 582,407 | 1,084,284 | ||||||
Total current assets | 20,446,449 | 49,692,746 | ||||||
Property and equipment | ||||||||
Land | 12,162,522 | 10,339,530 | ||||||
Land improvements | 3,511,484 | 3,166,107 | ||||||
Buildings | 80,655,538 | 78,955,538 | ||||||
Building improvements | 10,435,062 | 10,435,062 | ||||||
Furniture and equipment | 73,328,364 | 72,511,165 | ||||||
Leasehold improvements | 1,346,965 | 1,346,965 | ||||||
181,439,935 | 176,754,367 | |||||||
Less accumulated depreciation and amortization | (96,011,025 | ) | (92,215,149 | ) | ||||
85,428,910 | 84,539,218 | |||||||
Construction in progress | 53,494,393 | 17,236,062 | ||||||
Net property and equipment | 138,923,303 | 101,775,280 | ||||||
Other assets, net | 2,817,842 | 2,817,842 | ||||||
Total assets | $ | 162,187,594 | $ | 154,285,868 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current liabilities | ||||||||
Borrowings under credit facility | $ | 34,000,000 | $ | - | ||||
Accounts payable | 12,788,488 | 10,840,318 | ||||||
Construction payable | 3,330,226 | 1,971,022 | ||||||
Accrued expenses | 9,193,030 | 9,230,157 | ||||||
Federal income taxes payable | 51,100 | - | ||||||
Total current liabilities | 59,362,844 | 22,041,497 | ||||||
Deferred income taxes | 2,825,433 | 2,825,433 | ||||||
Total Liabilities | 62,188,277 | 24,866,930 | ||||||
Stockholders' equity | ||||||||
Preferred stock, $.01 par value, 10,000,000 shares authorized; none issued | - | - | ||||||
Common stock, $.01 par value, 30,000,000 shares authorized; 19,096,300 shares issued; 16,122,048 outstanding at 6/30/08 18,566,540 outstanding at 12/31/07 | 190,963 | 190,963 | ||||||
Additional paid-in capital | 26,891,871 | 25,741,972 | ||||||
Treasury stock, 2,974,252 shares at 6/30/08 529,760 shares at 12/31/07, at cost | (48,943,359 | ) | (13,268,905 | ) | ||||
Retained earnings | 121,859,842 | 116,754,908 | ||||||
Total stockholders' equity | 99,999,317 | 129,418,938 | ||||||
Total liabilities and stockholder's equity | $ | 162,187,594 | $ | 154,285,868 |
|
| March 31, |
| December 31, |
| ||
|
| 2009 |
| 2008 |
| ||
ASSETS |
| (Unaudited) |
|
|
| ||
Current assets |
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 11,428,243 |
| $ | 11,756,900 |
|
Receivables, net |
| 3,488,296 |
| 3,344,441 |
| ||
Inventories |
| 1,418,374 |
| 1,564,347 |
| ||
Prepaid expenses |
| 2,969,024 |
| 2,851,872 |
| ||
Deferred income taxes |
| 429,300 |
| 429,300 |
| ||
Total current assets |
| 19,733,237 |
| 19,946,860 |
| ||
Property and equipment |
|
|
|
|
| ||
Land |
| 12,162,522 |
| 12,162,522 |
| ||
Land improvements |
| 3,511,484 |
| 3,511,484 |
| ||
Buildings |
| 133,674,917 |
| 133,332,232 |
| ||
Building improvements |
| 10,435,062 |
| 10,435,062 |
| ||
Furniture and equipment |
| 102,377,493 |
| 96,767,076 |
| ||
Leasehold improvements |
| 1,346,965 |
| 1,346,965 |
| ||
|
| 263,508,443 |
| 257,555,341 |
| ||
Less accumulated depreciation and amortization |
| (104,218,052) |
| (101,825,190) |
| ||
|
| 159,290,391 |
| 155,730,151 |
| ||
Construction in progress |
| - |
| 4,026,536 |
| ||
Net property and equipment |
| 159,290,391 |
| 159,756,687 |
| ||
Other assets, net |
| 3,498,240 |
| 2,797,949 |
| ||
Total assets |
| $ | 182,521,868 |
| $ | 182,501,496 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
| ||
Current liabilities |
|
|
|
|
| ||
Borrowings under credit facility |
| $ | 900,000 |
| $ | 2,500,000 |
|
Accounts payable |
| 6,317,908 |
| 10,213,418 |
| ||
Construction payable |
| 1,468,452 |
| 5,404,372 |
| ||
Accrued expenses |
| 9,292,872 |
| 8,940,110 |
| ||
Federal income taxes payable |
| 390,311 |
| 233,736 |
| ||
Total current liabilities |
| 18,369,543 |
| 27,291,636 |
| ||
Long-term debt, less current maturities |
| 55,000,000 |
| 47,500,000 |
| ||
Deferred income taxes |
| 2,115,371 |
| 2,115,371 |
| ||
Total liabilities |
| 75,484,914 |
| 76,907,007 |
| ||
Stockholders’ equity |
|
|
|
|
| ||
Preferred stock, $.01 par value, 10,000,000 shares authorized; none issued |
| - |
| - |
| ||
Common stock, $.01 par value, 30,000,000 shares authorized; 19,096,300 shares issued; 16,122,048 outstanding at 3/31/09 16,122,048 outstanding at 12/31/08 |
| 190,963 |
| 190,963 |
| ||
Additional paid-in capital |
| 28,571,314 |
| 28,051,009 |
| ||
Treasury stock, 2,974,252 shares at 3/31/09 2,974,252 shares at 12/31/08, at cost |
| (48,943,359) |
| (48,943,359) |
| ||
Retained earnings |
| 127,218,036 |
| 126,295,876 |
| ||
Total stockholders’ equity |
| 107,036,954 |
| 105,594,489 |
| ||
Total liabilities and stockholder’s equity |
| $ | 182,521,868 |
| $ | 182,501,496 |
|
The Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.
5
Six Months Ended June 30, | ||||||||
2008 | 2007 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 5,104,934 | $ | 12,395,562 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 3,899,794 | 4,140,416 | ||||||
Amortization of deferred loan costs | - | 148,838 | ||||||
Share based compensation | 1,149,899 | 1,072,018 | ||||||
Provision for bad debts | 607,721 | 22,786 | ||||||
Gain on disposal of assets | (10,200 | ) | (5,770 | ) | ||||
Deferred income taxes | 501,877 | (740,206 | ) | |||||
Changes in operating assets and liabilities: | ||||||||
Receivables, net | 844,677 | (379,484 | ) | |||||
Inventories | 24,700 | (23,254 | ) | |||||
Prepaid expenses | 104,251 | (174,778 | ) | |||||
Other assets | - | (4,826 | ) | |||||
Accounts payable | 1,948,170 | 1,794,905 | ||||||
Accrued expenses | (37,127 | ) | 59,915 | |||||
Federal income taxes payable, net | 51,100 | 930,599 | ||||||
Net cash provided by operating activities | 14,189,796 | 19,236,721 | ||||||
Cash flows from investing activities: | ||||||||
Proceeds from sale of assets | 10,200 | 5,770 | ||||||
Acquisition of property and equipment | (41,047,818 | ) | (5,263,977 | ) | ||||
Changes in construction payable | 1,359,204 | - | ||||||
Net cash used in investing activities | (39,678,414 | ) | (5,258,207 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from exercise of stock options | - | 311,353 | ||||||
Tax benefit of stock option exercise | - | 141,684 | ||||||
Borrowings under credit facility | 34,000,000 | - | ||||||
Purchase of treasury stock | (35,674,454 | ) | - | |||||
Net cash (used in) provided by financing activities | (1,674,454 | ) | 453,037 | |||||
Net (decrease) increase in cash | (27,163,072 | ) | 14,431,551 | |||||
Cash and cash equivalents at beginning of period | 38,835,820 | 36,985,187 | ||||||
Cash and cash equivalents at end of period | $ | 11,672,748 | $ | 51,416,738 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for interest. | $ | 50,158 | $ | 3,437 | ||||
Cash paid for income taxes | $ | 1,200,000 | $ | 6,247,923 |
|
| Three Months Ended March 31, |
| ||||
|
| 2009 |
| 2008 |
| ||
|
|
|
|
|
| ||
Cash flows from operating activities: |
|
|
|
|
| ||
Net income |
| $ | 922,160 |
| $ | 2,302,031 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
| ||
Depreciation and amortization |
| 3,180,955 |
| 2,006,557 |
| ||
Amortization of deferred loan costs |
| 72,446 |
| - |
| ||
Share based compensation |
| 520,305 |
| 565,071 |
| ||
Provision for bad debts |
| 315,196 |
| 436,419 |
| ||
Gain on disposal of assets |
| (63,948) |
| (8,000) |
| ||
Deferred income taxes |
| - |
| 501,877 |
| ||
Changes in operating assets and liabilities |
|
|
|
|
| ||
Receivables, net |
| (459,051) |
| 927,849 |
| ||
Inventories |
| 145,973 |
| 84,451 |
| ||
Prepaid expenses |
| (117,152) |
| 89,737 |
| ||
Other assets |
| (772,737) |
| - |
| ||
Accounts payable |
| (3,895,510) |
| (1,222,723) |
| ||
Accrued expenses |
| 352,762 |
| 230,183 |
| ||
Federal income taxes payable |
| 156,575 |
| - |
| ||
Net cash provided by operating activities |
| 357,974 |
| 5,913,452 |
| ||
|
|
|
|
|
| ||
Cash flows from investing activities: |
|
|
|
|
| ||
Proceeds from sale of assets |
| 83,425 |
| 8,000 |
| ||
Acquisition of property and equipment |
| (2,734,136) |
| (19,096,073) |
| ||
Changes in construction payable |
| (3,935,920) |
| 1,984,031 |
| ||
Net cash used in investing activities |
| (6,586,631) |
| (17,104,042) |
| ||
|
|
|
|
|
| ||
Cash flows from financing activities: |
|
|
|
|
| ||
Borrowings under credit facility |
| 5,900,000 |
| - |
| ||
Purchase of treasury stock |
| - |
| (11,907,153) |
| ||
Net cash provided by (used in) financing activities |
| 5,900,000 |
| (11,907,153) |
| ||
Net decrease in cash |
| (328,657) |
| (23,097,743) |
| ||
Cash and cash equivalents at beginning of period |
| 11,756,900 |
| 38,835,820 |
| ||
Cash and cash equivalents at end of period |
| $ | 11,428,243 |
| $ | 15,738,077 |
|
|
|
|
|
|
| ||
Supplemental disclosure of cash flow information: |
|
|
|
|
| ||
Cash paid for interest |
| $ | 560,500 |
| $ | 4,157 |
|
Cash paid for income taxes |
| $ | 340,000 |
| $ | - |
|
The Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.
6
MONARCH CASINO
& RESORT, INC.NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation:
Monarch Casino & Resort, Inc. ("Monarch"(“Monarch”), a Nevada corporation, was incorporated in 1993. Monarch'sMonarch’s wholly-owned subsidiary, Golden Road Motor Inn, Inc. ("(“Golden Road"Road”), operates the Atlantis Casino Resort Spa (the "Atlantis"“Atlantis”), a hotel/casino facility in Reno, Nevada. Monarch’s other wholly owned subsidiary, High Desert Sunshine, Inc. (“High Desert”), owns a parcel of land located adjacent to the Atlantis. Unless stated otherwise, the "Company"“Company” refers collectively to Monarch and its Golden Road subsidiary.
The condensed consolidated financial statements include the accounts of Monarch, Golden Road and Golden Road.High Desert. Intercompany balances and transactions are eliminated.
Interim Financial Statements:
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAPgenerally accepted accounting principles for complete financial statements. In the opinion of management of the Company, all adjustments considered necessary for a fair presentation are included. Operating results for the three months and six months ended June 30, 2008March 31, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008.
The balance sheet at December 31, 20072008 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAPgenerally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2007.
NOTE 2. STOCK-BASED COMPENSATION
Weighted Average | ||||||||||||||||
Options | Shares | Exercise Price | Remaining Contractual Term | Aggregate Intrinsic Value | ||||||||||||
Outstanding at beginning of period | 1,295,426 | $ | 19.04 | - | - | |||||||||||
Granted | 74,957 | 17.15 | - | - | ||||||||||||
Exercised | - | - | - | - | ||||||||||||
Forfeited | (20,000 | ) | 24.04 | - | - | |||||||||||
Expired | - | - | - | - | ||||||||||||
Outstanding at end of period | 1,350,383 | $ | 18.86 | 7.5 yrs. | $ | (9,512,414 | ) | |||||||||
Exercisable at end of period | 542,750 | $ | 10.20 | 7.0 yrs. | $ | (782,787 | ) |
Nonvested Shares | Shares | Weighted-Average Grant Date Fair Value | ||||||
Nonvested at January 1, 2008 | 782,676 | $ | 10.43 | |||||
Granted | 74,957 | 6.49 | ||||||
Vested | (30,000 | ) | 6.54 | |||||
Forfeited | (20,000 | ) | 24.04 | |||||
Nonvested at June 30, 2008 | 807,633 | $ | 10.20 |
The Company implemented SFAS 123R using the modified prospective transition method. Accordingly,accounts for the six months ended June 30, 2008 and 2007, the Company recognized share-basedits stock-based compensation for all current award grants and for the unvested portion of previous award grants based on grant date fair values. Prior to fiscal 2006, the Company accounted for share-based awards under the disclosure-only provisions ofin accordance with SFAS No. 123, as amended by SFAS No. 148, but applied APB No. 25 and related interpretations in accounting for the Plans, which resulted in pro-forma compensation expense only for stock option awards. Prior period financial statements have not been adjusted to reflect fair value share-based compensation expense under SFAS 123R. With the adoption of SFAS 123R, the Company changed its method of expense attribution for fair value share-based compensation from the straight-line approach to the accelerated approach for all awards granted. The Company anticipates the accelerated method will provide a more meaningful measure of costs incurred and be most representative of the economic reality associated with unvested stock options outstanding. Unrecognized costs related to all share-based awards outstanding at June 30, 2008 is approximately $3.9 million and is expected to be recognized over a weighted average period of 1.18 years.
Three Months Ended June 30, | ||||||||
2008 | 2007 | |||||||
Expected volatility | 55.1 | % | 37.8 | % | ||||
Expected dividends | - | - | ||||||
Expected life (in years) | ||||||||
Directors’ Plan | 2.5 | 2.5 | ||||||
Executive Plan | 4.5 | 8.3 | ||||||
Employee Plan | 3.1 | 3.1 | ||||||
Weighted average risk free rate | 1.9 | % | 4.5 | % | ||||
Weighted average grant date fair value per share of options granted | $ | 4.77 | $ | 7.66 | ||||
Total intrinsic value of options exercised | - | $ | 465,471 |
|
| Three Months Ended |
| ||||
|
| March 31, |
| ||||
|
| 2009 |
| 2008 |
| ||
Casino |
| $ | 15,303 |
| $ | 20,480 |
|
Food and beverage |
| 15,186 |
| 16,767 |
| ||
Hotel |
| 5,891 |
| 10,597 |
| ||
Selling, general and administrative |
| 483,925 |
| 517,227 |
| ||
Total stock-based compensation, before taxes |
| 520,305 |
| 565,071 |
| ||
Tax benefit |
| (182,107) |
| (197,775) |
| ||
Total stock-based compensation, net of tax |
| $ | 338,198 |
| $ | 367,296 |
|
7
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
Casino | $ | 20,490 | $ | 21,285 | $ | 40,970 | $ | 35,974 | ||||||||
Food and beverage | 18,816 | 11,972 | 35,583 | 23,591 | ||||||||||||
Hotel | 9,520 | 9,152 | 20,117 | 18,058 | ||||||||||||
Selling, general and administrative | 536,002 | 529,725 | 1,053,229 | 994,395 | ||||||||||||
Total stock-based compensation, before taxes | 584,828 | 572,134 | 1,149,899 | 1,072,018 | ||||||||||||
Tax benefit | (204,689 | ) | (200,247 | ) | (402,464 | ) | (375,206 | ) | ||||||||
Total stock-based compensation, net of tax | $ | 380,139 | $ | 371,887 | $ | 747,435 | $ | 696,812 |
NOTE 3. EARNINGS PER SHARE
The Company reports "basic"“basic” earnings per share and "diluted"“diluted” earnings per share in accordance with the provisions of SFAS No. 128, "Earnings“Earnings Per Share."” Basic earnings per share is computed by dividing reported net earnings by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflect the additional dilution for all potentially dilutive securities such as stock options. The following is a reconciliation of the number of shares (denominator) used in the basic and diluted earnings per share computations (shares in thousands):
Three Months Ended June 30, | ||||||||||||||||
2008 | 2007 | |||||||||||||||
Shares | Per Share Amount | Shares | Per Share Amount | |||||||||||||
Basic | 17,189 | $ | 0.16 | 19,092 | $ | 0.36 | ||||||||||
Effect of dilutive stock options | 64 | - | 274 | - | ||||||||||||
Diluted | 17,253 | $ | 0.16 | 19,366 | $ | 0.36 |
Six Months Ended June 30, | ||||||||||||||||
2008 | 2007 | |||||||||||||||
Shares | Per Share Amount | Shares | Per Share Amount | |||||||||||||
Basic | 17,803 | $ | 0.29 | 19,081 | $ | 0.65 | ||||||||||
Effect of dilutive stock options | 96 | - | 264 | (0.01 | ) | |||||||||||
Diluted | 17,899 | $ | 0.29 | 19,345 | $ | 0.64 |
|
| Three Months Ended March 31, |
| ||||||
|
| 2009 |
| 2008 |
| ||||
|
| Shares |
| Per Share |
| Shares |
| Per Share |
|
Basic |
| 16,122 |
| $0.06 |
| 18,416 |
| $0.13 |
|
Effect of dilutive stock options |
| 26 |
| - |
| 130 |
| (0.01) |
|
Diluted |
| 16,148 |
| $0.06 |
| 18,546 |
| $0.12 |
|
Excluded from the computation of diluted earnings per share are options where the exercise prices are greater than the market price as their effects would be anti-dilutive in the computation of diluted earnings per share.
NOTE 4. RECENTLY ISSUED ACCOUNTING STANDARDS
In September 2006, the Financial Accounting Standards Board (the “FASB”(“FASB”) issued SFASStatement of Financial Accounting Standards No. 157, Fair Value Measurements. Measurements (“SFAS No. 157”). SFAS No. 157 definesprovides enhanced guidance for using fair value to measure assets and liabilities. SFAS No. 157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing assets or liabilities and establishes a frameworkhierarchy that prioritizes the information used to develop those assumptions. SFAS No. 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value. On February 12, 2008, the FASB delayed the effective date of SFAS No. 157 for measuring fair value in U.S. GAAPnonfinancial assets and expands disclosures about fair value measurements. This statement applies under other accounting pronouncements that require or permit fair value measurements, accordingly, this statement does not require any new fair value measurements. However, for some entities, the application of this statement will change current practice. This statement is effective for financial statements issued fornonfinancial liabilities until fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. In February 2008, the FASB issued FASB Staff Position FAS 157-2, which defers the effective date of SFAS 157except for non-financial assets and liabilitiesitems that are recognized or disclosed at fair value in the entity’s financial statements on a recurring basis to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. We are evaluating SFAS 157 as it relates to non-financial assets and have not yet determined(at least annually). The Company implemented the impact the adoption will have on the consolidated financial statements. The adoptionprovisions of SFAS No. 157 as of January 1, 2008 for financialthose assets and liabilities not subject to the deferral described above. The implementation of SFAS No. 157 as of January 1, 2009 for assets and liabilities previously subject to the deferral described above did not have a material impact on the Company’s financial position, results of operations, financial position or cash flows
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115.” SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value, with unrealized gains and losses related to these financial instruments reported in earnings at each subsequent reporting date. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The adoption of SFAS No. 159 did not have a material impact on the Company’sour financial position or results of operations or cash flows.operations.
8
In December 2007, the FASB issued SFAS No. 141 (revised 2007) (SFAS 141(R)), “Business Combinations,” which is a revision of SFAS 141, “Business Combinations.” The primary requirements of SFAS 141(R) are as follows: (i.) Upon initially obtaining control, the acquiring entity in a business combination must recognize 100% of the fair values of the acquired assets, including goodwill, and assumed liabilities, with only limited exceptions even if the acquirer has not acquired 100% of its target. As a consequence, the current step acquisition model will be eliminated. (ii.) Contingent consideration arrangements will be fair valued at the acquisition date and included on that basis in the purchase price consideration. The concept of recognizing contingent consideration at a later date when the amount of that consideration is determinable beyond a reasonable doubt, will no longer be applicable. (iii.) All transaction costs will be expensed as incurred. Implementation of SFAS No. 141 (revised) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, noncontrolling interest in the acquiree and the goodwill acquired. The revision is intended to simplify existing guidance and converge rulemaking under U.S. GAAP with international accounting rules. This statement applies141(R) would have required treatment prospectively to business combinations where the acquisition date iscompleted on or after January 1, 2009. Because the beginningCompany had no business combinations during that time, the adoption did not have a material impact on our financial position or results of the first annual reporting period beginning on or after December 15, 2008. We will adopt FAS 141 (revised) in the first quarter of 2009. The adoption of SFAS No. 141 (revised) is prospective and early adoption is not permitted.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB No. 51.” This statement establishes accounting and reporting standards for ownership interest in subsidiaries held by parties other than the parent and for the deconsolidation of a subsidiary. It also clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS No. 160 changes the way the consolidated income statement is presented by requiring consolidated net income to be reported at amounts that include the amount attributable to both the parent and the noncontrolling interests. The statement also establishes reporting requirements that provide sufficient disclosure that clearly identify and distinguish between the interest of the parent and those of the noncontrolling owners. This statement is effective for fiscal years beginning on or after December 15, 2008. The adoption of SFAS No. 160 isdid not expected to have a material impact on the Company’s financial position, results of operations or cash flows.
In March 2008, the FASB issued SFAS 161, “Disclosures about Derivative Instruments and Hedging Activities –-- an amendment of FASB Statement No. 133”. SFAS 161 changes the disclosure requirements for derivative instruments and hedging activities. Under SFAS 161, entities are required to provide enhanced disclosures about how and why they use derivative instruments, how derivative instruments and related hedged items are accounted for and the affect of derivative instruments on the entity’s financial position, financial performance and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. We will adopt SFAS 161 in the first quarter of 2009. The adoption of SFAS No. 161 isdid not expected to have a material impact on the Company’s financial position, results of operations or cash flows.
In May 2008, the FASB issued SFAS 162, “The Hierarchy of Generally Accepted Accounting Principles”, which identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles. SFAS 162 will become effective sixty days following the Securities and Exchange Commission’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles”. The adoption of the provisions of SFAS 162 is not anticipated to materiallyhave a material impact on the Company’s financial position, results of operations or cash flows.
In October 2008, the FASB issued FASB Staff Position No. FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active (FSP 157-3 or the FSP). FSP 157-3 clarifies the application of SFAS No. 157, Fair Value Measurements (Statement 157), in a market that is not active. The FSP amends Statement 157 to include an example that illustrates key considerations
9
when applying the principles in Statement 157 to financial assets when the market for these instruments is not active. FSP 157-3 is not anticipated to have a material impact on the Company’s financial position, results of operations or cash flows.
In April 2009, the FASB issued FASB Staff Position (FSP) FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies, which amends the accounting in SFAS 141(R) for assets and liabilities arising from contingencies in a business combination. The FSP is effective January 1, 2009, and requires pre-acquisition contingencies to be recognized at fair value, if fair value can be reasonably determined during the measurement period. If fair value cannot be reasonably determined, the FSP requires measurement based on the recognition and measurement criteria of SFAS 5, Accounting for Contingencies. The adoption of the provisions of FSP 141(R)-1 did not have a material impact on the Company’s financial position, results of operations or cash flows.
In January 2009, the FASB issued FASB Staff Position on EITF Issue No. 99-20, “Amendments to the Impairment Guidance of EITF Issue No. 99-20” (FSP EITF 99-20-1). FSP EITF 99-20-1 aligns the impairment guidance in EITF Issue No. 99-20 with that in Statement of Financial Accounting Standards No. 115 (SFAS 115), “Accounting for Certain Investments in Debt and Equity Securities.” It changes how companies determine whether an other-than-temporary impairment exists for certain beneficial interests by allowing management to exercise more judgment. We will adopt this new accounting standard effective April 1, 2009. We do not expect that the adoption of FSP EITF 99-20-1 will have a material impact on our financial position, results of operations or cash flows.
In April 2009, the FASB issued FASB Staff Position on FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (FSP FAS 107-1 and APB 28-1). This FSP requires that the fair value disclosures required by SFAS 107 “Disclosures about Fair Value of Financial Instruments” be included for interim reporting periods. We will adopt this new accounting standard effective April 1, 2009. We do not expect that the adoption of FSP FAS 107-1 and APB 28-1 will have a material impact on our financial position, results of operations or cash flows.
In April 2009, the FASB issued FASB Staff Position on FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (FSP FAS 115-2 and FAS 124-2). This FSP amends the impairment guidance relating to certain debt securities and will require a company to assess the likelihood of selling the security prior to recovering its cost basis. Additionally, when a company meets the criteria for impairment, the impairment charges related to credit losses would be recognized in earnings, while non-credit losses would be reflected in other comprehensive income. We will adopt this new accounting standard effective April 1, 2009. We do not expect that the adoption of FSP FAS 115-2 and FAS 124-2 will have a material impact on our financial position, results of operations or cash flows.
FSP FAS 157-4 – In April 2009, the FASB issued FASB Staff Position on FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (FSP FAS 157-4). FSP FAS 157-4 provides guidance on determining when the trading volume and activity for an asset or liability has significantly decreased, which may indicate an inactive market, and on measuring the fair value of an asset or liability in inactive markets. We will adopt this new accounting standard effective April 1, 2009. We do not expect that the adoption of FSP FAS 157-4 will have a material impact on our financial position, results of operations or cash flows.
FSP FAS 141R-1 – In April 2009, the FASB issued FASB Staff Position on FAS 141R-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies” (FSP FAS 141R-1). FSP FAS 141R-1 requires that an acquirer recognize at fair value, at
10
the acquisition date, an asset acquired or a liability assumed in a business combination that arises from a contingency if the acquisition-date fair value of the asset or liability can be determined during the measurement period. We adopted this new accounting standard on January 1, 2009. The adoption of FSP FAS 140R-1 did not have a material impact on our financial position, results of operations or cash flows.
NOTE 5. RELATED PARTY TRANSACTIONS
On July 26, 2006, the Company submitted a formal offer to Biggest Little Investments, L.P. (“BLI”), formulated and delivered by a committee comprised of the Company’s independent directors (the “Committee”), to purchase the 18.95-acre shopping center (the “Shopping Center”) adjacent to the Atlantis Casino Resort Spa. On October 16, 2006, the Committee received a letter from counsel to BLI advising the Company that BLI, through its general partner, Maxum, L.L.C. (“Maxum”), had “decided that such offer is not in the best interest of the Partnership’s limited partners and, therefore, will not be entering into negotiations with Monarch.” While there have been subsequent communications between BLI and the Company from time to time regarding the Company’sour interest in the Shopping Center, nothing has resulted. The Board of Directors continues to consider expansion alternatives.
John Farahi and Bob Farahi each individually own non-controlling interests in BLI and Ben Farahi own a controlling interest in BLI.Maxim. John Farahi is Co-Chairman of the Board, Chief Executive Officer, Chief Operating Officer and a Director of Monarch. Bob Farahi is Co-Chairman of the Board, President, Secretary and a Director of Monarch. Ben Farahi formerly was the Co-Chairman of the Board, Secretary, Treasurer, Chief Financial Officer and a Director of Monarch. Monarch’s board of directors accepted Ben Farahi’s resignation from these positions on May 23, 2006.
The Company currently rents various spaces in the Shopping Center which it uses as office, and storage space and guest parking and paid rent of approximately $67,900$21,800 and $168,600$100,700 plus common area expenses forin during the first three months of 2009 and six months ended June 30, 2008, respectively, and approximately $31,700 and $61,400 plus common area expenses for the three and six months ended June 30, 2007, respectively.
In addition, a driveway that is being shared between the Atlantis and the Shopping Center was completed on September 30, 2004. As part of this project, in January 2004, the Company leased a 37,368 square-foot corner section of the Shopping Center for a minimum lease term of 15 years at an annual rent of $300,000, subject to increase every 60 months based on the Consumer Price Index. The Company began paying rent to the Shopping Center on September 30, 2004. The Company also uses part of the common area of the Shopping Center and pays its proportional share of the common area expense of the Shopping Center. The Company has the option to renew the lease for three3 five-year terms, and at the end of the extension periods, the Company has the option to purchase the leased driveway section of the Shopping Center at a price to be determined based on an MAI Appraisal. The leased space is being used by the Company for pedestrian and vehicle access to the Atlantis, and the Company may use a portion of the parking spaces at the Shopping Center. The total cost of the project was $2.0 million; the Company was responsible for two thirds of the total cost, or $1.35 million. The cost of the new driveway is being depreciated over the initial 15-year lease term; some components of the new driveway are being depreciated over a shorter period of time. The Company paid approximately $75,000 plus common area maintenance charges for each of the three months ended March 31, 2009 and 2008 for its leased driveway space at the Shopping Center during each of the three months ended June 30, 2008 and 2007.
The Company is currently leasingleasesd sign space from the Shopping Center.Center through July 2008. The lease took effect in March 2005 for a monthly cost of $1. The lease was renewed for another year forwith a monthly lease of $1,000 effective January 1, 2006, and subsequently renewed on June 15, 2007 for a monthly lease of $1,060.2006. The Company paid $3,200 and $6,400 for the leased sign at the Shopping Center$3,000 for the three and six months ended June 30, 2008, respectively, and paid $3,060 and $6,060 for the three and six months ended June 30, 2007, respectively.March 31, 2008.
11
The Company is currently leasingoccasionally leases billboard advertising space from affiliates of its controlling stockholders and paid $21,000 for each of the three and six months ended June 30, 2008, and paid $21,000$10,500 for the three and six months ended June 30, 2007, respectively.
On December 24, 2007, the Company entered into a lease with Triple “J” Plus, LLC (“Triple J”) for the use of a facility on 2.3 acres of land (jointly the “Property”) across Virginia Street from the Atlantis that the Company currently utilizesplans to utilize for storage.administrative staff offices. The managing partner of Triple J is a first-cousin of John and Bob Farahi, the Company’s Chief Executive Officer and President, respectively. The term of the lease is two years requiring monthly rental payments of $20,256. Commensurate with execution of the lease, the Company entered into an agreement that provides the Company with a purchase option on the Property at the expiration of the lease period while also providing Triple J with a put option to cause the Company to purchase the Property during the lease period. The purchase price of the Property has been established by a third party appraisal company. Lastly, as a condition of the lease and purchase option, the Company entered into a promissory note (the “Note”) with Triple J whereby the Company advanced a $2.7 million loan to Triple J. The Note requires interest only payments at 5.25% and matures on the earlier of i) the date the Company acquires the Property or ii) January 1, 2010.
NOTE 6. FAIR VALUE MEASUREMENTS
In September 2006, the FASB issued statement No. 157, “Fair Value Measurements” (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with U.S. GAAP ,accounting principles generally accepted in the United States, and expands disclosures about fair value measurements. The Company has adopted the provisions of SFAS 157 as of January 1, 2008, for financial instruments. Although the adoption of SFAS 157 did not materially impact its financial condition, results of operations, or cash flow, the Company is now required to provide additional disclosures as part of its financial statements.
SFAS 157 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. As of June 30, 2008,March 31, 2009, the Company had no assets or liabilities that are required to be measured at fair value on a recurring basis.
Monarch Casino & Resort, Inc., through its wholly-owned subsidiary, Golden Road Motor Inn, Inc. ("(“Golden Road"Road”), owns and operates the tropically-themed Atlantis Casino Resort Spa, a hotel/casino facility in Reno, Nevada (the "Atlantis"“Atlantis”). Monarch’s other wholly owned subsidiary, High Desert Sunshine, Inc., owns a parcel of land located adjacent to the Atlantis. Monarch was incorporated in 1993 under Nevada law for the purpose of acquiring all of the stock of Golden Road. The principal asset of Monarch is the stock of Golden Road, which holds all of the assets of the Atlantis.
Our sole operating asset, the Atlantis, is a hotel/casino resort located in Reno, Nevada. Our business strategy is to maximize the Atlantis'Atlantis’ revenues, operating income and cash flow primarily through our casino, our food and beverage operations and our hotel operations. We derive our revenues by appealing to middle to upper-middle income Reno residents, tourists and conventioneers, emphasizing slot machine play in our casino. We capitalize on the Atlantis' Atlantis’
12
location for locals, tour and travel visitors, conventioneers and conventioneerslocal residents by offering exceptional service, value and an appealing theme to our guests. Our hands-on management style focuses on customer service and cost efficiencies.
Unless otherwise indicated, "Monarch," "Company," "we," "our"“Monarch,” “Company,” “we,” “our” and "us"“us” refer to Monarch Casino & Resort, Inc. and its Golden Road subsidiary.
OPERATING RESULTS SUMMARY
Below is a summary of our secondfirst quarter results for 20082009 and 2007:
Amounts in millions, except per share amounts | ||||||||||||
Three Months | ||||||||||||
Ended June 30, | Percentage | |||||||||||
2008 | 2007 | (Decrease)/Increase | ||||||||||
Casino revenues | $ | 25.7 | $ | 29.3 | (12.3 | ) | ||||||
Food and beverage revenues | 9.6 | 10.6 | (9.4 | ) | ||||||||
Hotel revenues | 5.6 | 7.0 | (20.0 | ) | ||||||||
Other revenues | 1.2 | 1.3 | (7.7 | ) | ||||||||
Net revenues | 35.3 | 41.6 | (15.1 | ) | ||||||||
Sales, general and admin expense | 12.9 | 12.8 | 0.8 | |||||||||
Income from operations | 4.4 | 10.1 | (56.4 | ) | ||||||||
Net Income | 2.8 | 6.9 | (59.4 | ) | ||||||||
Earnings per share - diluted | 0.16 | 0.36 | (55.6 | ) | ||||||||
Operating margin | 12.5 | % | 24.3 | % | (11.8 | ) pts. |
Six Months | ||||||||||||
Ended June 30, | Percentage | |||||||||||
2008 | 2007 | (Decrease)/Increase | ||||||||||
Casino revenues | $ | 49.4 | $ | 54.6 | (9.5 | ) | ||||||
Food and beverage revenues | 19.3 | 21.1 | (8.5 | ) | ||||||||
Hotel revenues | 11.4 | 13.9 | (18.0 | ) | ||||||||
Other revenues | 2.4 | 2.5 | (4.0 | ) | ||||||||
Net revenues | 69.6 | 79.3 | (12.2 | ) | ||||||||
Sales, general and admin expense | 26.0 | 24.3 | 7.0 | |||||||||
Income from operations | 7.7 | 18.3 | (57.9 | ) | ||||||||
Net Income | 5.1 | 12.4 | (58.9 | ) | ||||||||
Earnings per share - diluted | 0.29 | 0.64 | (54.7 | ) | ||||||||
Operating margin | 11.1 | % | 23.1 | % | (12.0 | ) pts. |
Amounts in millions, except per share amounts
|
| Three Months |
| Percentage |
| ||||
|
|
| Ended March 31, |
|
| Increase/(Decrease) |
| ||
|
| 2009 |
| 2008 |
| 09 vs 08 |
| ||
Casino revenues |
| $22.8 |
| $23.8 |
| (4.2) |
| ||
Food and beverage revenues |
| 9.6 |
| 9.8 |
| (2.0) |
| ||
Hotel revenues |
| 5.4 |
| 5.8 |
| (6.9) |
| ||
Other revenues |
| 1.1 |
| 1.2 |
| (8.3) |
| ||
Net revenues |
| 32.6 |
| 34.3 |
| (5.0) |
| ||
Sales, general and administrative expense |
| 11.6 |
| 13.1 |
| (11.5) |
| ||
Income from operations |
| 1.9 |
| 3.3 |
| (42.4) |
| ||
|
|
|
|
|
|
|
| ||
Net Income |
| 0.9 |
| 2.3 |
| (60.9) |
| ||
|
|
|
|
|
|
|
| ||
Earnings per share - diluted |
| 0.06 |
| 0.12 |
| (50.0) |
| ||
|
|
|
|
|
|
|
| ||
Operating margin |
| 5.9% |
| 9.6% |
| (3.7) points |
| ||
The decline in revenues for the three months ended June 30, 2008March 31, 2009 compared to the same period of the prior year reflect the effects of thea challenging operating environment that we also experienced in the three month periods ended December 31, 2007 and March 31, 2008.environment. As in many other areas around the country, the economic slowdown in northern NevadaReno in the fourth quarter of 2007 accelerated indeepened throughout 2008 and into the first and second quarters of 2008. Other factors causing negative financial impact that continued from the fourth quarter of 2007 were disruption from construction related to our $50 million expansion project (see “COMMITMENTS AND CONTINGENCIES” below) and2009. Additionally, aggressive marketing programs by our competitors. Consistent with the fourth quarter of 2007 andcompetitors in 2008 continued through the first quarter of 2008, we increased marketing2009. Income from operations was impacted by an increase in depreciation expense of $1.2 million for the quarter ended March 31, 2009 compared to the same prior year period. This increase in depreciation expense was due to the completion of our expansion, remodel and promotional expendituresAtlantis Convention Center Skybridge capital projects (see “CAPITAL SPENDING AND DEVELOPMENT” below). These adverse effects were mitigated somewhat by our ability to attractreduce sales, general and retain guests in response to these challenges. We also had higher legal expenses associated with the ongoing and previously disclosed Kerzner litigation (see “LEGAL PROCEEDINGS” below).administrative expense. We anticipate that downward pressure on profitsrevenue will persist as long as we continue to experience the adverse effects of the negative macroeconomic environment construction disruption,and the aggressive marketing programs of our competitors and the legal defense costs associated with the Kerzner lawsuit.
These factors were the primary drivers of:
·Decreases of 4.2%, 2.0% and 6.9% in our casino, food and beverage and hotel revenues, respectively, resulting in a net revenue decrease of 5.0%;
13
·A decrease in income from operations and diluted earnings per share of 42.4% and 50.0%, respectively;
·A decrease in our operating margin by 3.7 points or 38.5%.
CAPITAL SPENDING AND DEVELOPMENT
We seek to continuously upgrade and maintain the Atlantis facility in order to present a fresh, high quality product to our guests.
In June 2007, we broke ground on an expansion project several phases of which we completed and opened in the second half of 2008. New space was added to the first floor casino level, the second and third floors and the basement level totaling approximately 116,000 square feet. The existing casino floor was expanded by over 10,000 square feet, or approximately 20%. The first floor casino expansion included a redesigned, updated and expanded race and sports book of approximately 4,000 square feet and an enlarged poker room. The expansion also included the new Manhattan deli, a New York deli-style restaurant. The second floor expansion created additional ballroom and convention space of approximately 27,000 square feet, doubling the existing facilities. We constructed and opened a pedestrian skywalk over Peckham Lane that connects the Reno-Sparks Convention Center directly to the Atlantis. In January 2009, we opened the final phase of the expansion project, the new Spa Atlantis featuring an atmosphere, amenities and treatments that are unique from any other offering in our market. Additionally, many of the pre-expansion areas of the Atlantis were remodeled to be consistent with the upgraded look and feel of the new facilities. The total cost of these capital projects (the “Capital Projects”) was approximately $73 million.
With the opening of the new skywalk the Atlantis became the only hotel-casino to be physically connected to the Reno-Sparks Convention Center. The Reno-Sparks Convention Center offers approximately 500,000 square feet of leasable exhibition, meeting room, ballroom and lobby space.
Capital expenditures at the Atlantis totaled approximately $41.1$2.7 and $5.3$19.1 million during the first sixthree months of 20082009 and 2007,2008, respectively. During the six monthsthree month periods ended June 30,March 31, 2009 and 2008, our capital expenditures consisted primarily of construction costs associated with our $50 million expansion project and the Atlantis Convention Center Skybridge project (see additional discussion of these projects under “COMMITMENTS AND CONTINGENCIES” below). Additional capital expenditures duringCapital Projects, the six months ended June 30, 2008 were for acquisition of land to be used for administrative offices, acquisition of gaming equipment to upgrade and replace existing equipment and continued renovation and upgrades to the Atlantis facility. During the six months ended June 30, 2007, ourAdditional capital expenditures consisted primarily of construction costs associated withduring the current expansion phase of the Atlantis that commenced in June 2007 and thequarter ended March 31, 2008 were for acquisition of gaming equipmentland to be used for administrative offices.
In addition to the expenditures incurred to complete Capital Projects during the first quarter of 2009, we anticipate spending approximately $5 to $12 million on capital expenditures in 2009 to upgrade and replace existing gaming equipment,
We believe that our existing cash balances, cash flow from operations and borrowings available under the Credit Facility (see "THE CREDIT FACILITY" below)will provide us with sufficient resources to fund our operations, meet our debt obligations, and if necessary,fulfill our capital expenditure requirements; however, our operations are subject to financial, economic, competitive, regulatory, and other factors, many of which are beyond our control. If we are unable to generate sufficient cash flow, we could be required to adopt one or more alternatives,
14
such as reducing, delaying or eliminating planned capital expenditures, selling assets, restructuring debt or obtaining additional borrowings.
STATEMENT ON FORWARD-LOOKING INFORMATION
When used in this report and elsewhere by management from time to time, the words “believes”, “anticipates” and “expects” and similar expressions are intended to identify forward-looking statements with respect to our financial condition, results of operations and our business including our expansion, development activities, legal proceedings and employee matters. Certain important factors, including but not limited to, national, regional and local economic conditions, competition from other gaming operations, factors affecting our ability to compete, acquisitions of gaming properties, leverage, construction risks, the inherent uncertainty and costs associated with litigation and governmental and regulatory investigations, and licensing and other regulatory risks, could cause our actual results to differ materially from those expressed in our forward-looking statements. Further information on potential factors which could affect our financial condition, results of operations and business including, without limitation, theour expansion, development activities, legal proceedings and employee matters are included in our filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date thereof. We undertake no obligation to publicly release any revisions to such forward-looking statement to reflect events or circumstances after the date hereof.
Comparison of Operating Results for the Three-Month Periods Ended June 30,March 31, 2009 and 2008 and 2007
For the three-month periodthree months ended June 30, 2008,March 31, 2009, our net income was $2.8 million,$922 thousand, or $0.16$0.06 per diluted share, on net revenues of $35.3$32.6 million, a decrease from net income of $6.9$2.3 million, or $0.36$0.12 per diluted share, on net revenues of $41.6$34.3 million for the three months ended June 30, 2007.March 31, 2008. Income from operations for the three months ended June 30, 2008March 31, 2009 totaled $4.4$1.9 million, a 56.4%42.4% decrease when compared to $10.1$3.3 million for the same period in 2007.2008. Net revenues decreased 15.1%, and net income decreased 59.4%5.0% and 60.9%, respectively, when compared to last year's secondyear’s first quarter.
Casino revenues totaled $25.7$22.8 million in the secondfirst quarter of 2008,2009, a 12.3%4.2% decrease from $29.3$23.8 million in the secondfirst quarter of 2007,2008, which was primarily due to decreases indecreased slot table games, poker and keno revenues. Casino operating expenses amounted to 36.1%39.1% of casino revenues in the secondfirst quarter of 2008,2009, compared to 31.7%36.8% in the secondfirst quarter of 2007;2008; the increase was due primarily due to the decreased casino revenue.
Food and beverage revenues totaled $9.6 million in the secondfirst quarter of 2008,2009, a 9.4%2.0% decrease from $10.6$9.8 million in the secondfirst quarter of 2007,2008, due primarily to a 15.4% decrease in covers served partially offset by a 6.5%0.4% increase in the average revenue per cover.food cover partially offset by an 3.9% decrease in the number of covers served. Food and beverage operating expenses amounted to 48.3% of food and beverage revenues during the secondfirst quarter of 20082009 as compared to 46.1%48.0% for the secondfirst quarter of 2007. This increase was primarily the result of the lower revenue combined with increased food commodity and labor costs.
Hotel revenues were $5.6$5.4 million for the secondfirst quarter of 2008,2009, a decrease of 20.0%6.9% from the $7.0$5.8 million reported in the 2007 second2008 first quarter. This decrease was the result of decreaseslower hotel occupancy and a decrease in both the average daily room rate (“ADR”). Both 2009 and hotel occupancy. Both second quarters' 2008 and 2007first quarter revenues also included a $3 per occupied room energy surcharge. During the secondfirst quarter of 2008,2009, the Atlantis experienced an 86.5%a 76.9% occupancy rate, as compared to 97.0%85.7% during the same period in 2007.2008. The Atlantis'Atlantis’ ADR was $64.08 $66.89in the secondfirst quarter of 20082009 compared to $72.47$68.55 in the secondfirst quarter of 2007.2008. Hotel operating
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expenses as a percent of hotel revenues increased to 35.5% in37.3% for the 2008 secondfirst quarter compared to 30.1% inof 2009 from 36.1% for the 2007 second quarter. The lower margin isfirst quarter of 2008 primarily due to the decreasesdecreased revenue partially offset by a $99 thousand decrease in occupancy and ADR combined with higher payroll and benefit expenses and higher directcosts in the hotel operating costs.
Promotional allowances were $6.6remained flat at $6.3 million infor both the second quarterfirst quarters of 20082009 and the second quarter of 2007.2008. Promotional allowances as a percentage of gross revenues increased to 15.7%16.3% during the secondfirst quarter of 2008 from 13.7%2009 as compared to 15.5% in the secondfirst quarter of 2007. This2008. The increase was primarilyis attributable to continued promotional efforts to attract guests and generate revenues.
Other revenues remained relatively flat at $1.1 million in the result2009 first quarter as compared to $1.2 million for the first quarter of increased promotional and discount programs in response to the challenging economic environment and ongoing competitor promotional and discount programs.
Depreciation and amortization expense was $1.9$3.2 million in the secondfirst quarter of 2009 as compared to $2.0 million in the first quarter of 2008, as compared to $2.1an increase of $1.2 million for the second quarter of 2007. This decrease is primarily attributable to assets that became fully depreciated during the period.
SG&A expenses were $11.6 million from our $50 million credit facility to pay for share repurchases and to fund ongoing capital projects. As a result of this borrowing activity, we incurred interest expense of $131 thousand duringin the quarter, an increase of $128 thousand when compared to the samefirst quarter of the prior year. We used our invested cash reserves during the quarter to fund the $502009, an 11.5% decrease from $13.1 million expansion project and share repurchases resulting in a decrease in interest income from the $474 thousand reported in the secondfirst quarter of 2007 to $46 thousand in the current quarter.
Interest income decreased from approximately $251 thousand in the first quarter of 2008 to approximately $35 thousand in the first quarter of 2009. The decrease resulted from our use of excess cash in 2008 for the capital projects and share repurchases. First quarter 2009 interest income forrepresents interest earned on a note receivable.
At March 31, 2009, we had $55.9 million outstanding under our $60 million credit facility (see the “CREDIT FACILITY” section below). The resultant interest expense recognized during the first six monthsquarter of 2008 totaled $162,000, compared to $665,000 for2009 was approximately $550 thousand, a $546 thousand increase over the same periodfi rst quarter of the prior year. The difference reflects our reduction in interest bearing cash and cash equivalents, combined with increasedyear when we had no debt outstanding (see "THE CREDIT FACILITY" below), during the first six months of 2008 as compared to same period in 2007.
For the sixthree months ended June 30, 2008,March 31, 2009, net cash provided by operating activities totaled $14.2 million,$358 thousand, a decrease of 26.2%$5.6 million or 93.9% compared to the same period last year. This decrease was primarily related to the timing of the payment of a greater amount of accounts payable during the first quarter of 2009 and the collection of a greater amount accounts receivable during the first quarter of the prior year.
Net cash used in investing activities totaled $39.7$6.6 million and $5.3$17.1 million in the sixthree months ended June 30,March 31, 2009 and 2008, and 2007, respectively. During the first sixthree months of 2009 and 2008, net cash used in investing activities consisted primarily of construction costs associated with the currentrecent expansion phase of the Atlantis that commenced(see further discussion of the Capital Projects in June 2007the “CAPITAL SPENDING AND
16
DEVELOPMENT” section above) and the acquisition of property and equipment. DuringBecause the first six months of 2007,construction was completed in January 2009, we used $10.5 million, or 61.4%, less net cash used in investing activities consisted primarily of construction costs associated withduring the current expansion ofthree months ended March 31, 2009 compared same period in the Atlantis and the acquisition of gaming equipment to upgrade and replace existing gaming equipment. prior year.
Net cash used in financing activities totaled $1.7 million for the first six months of 2008 compared to net cash provided by financing activities of $453,037 for$5.9 million during the same period in 2007. Net cashthree months ended March 31, 2009 represents borrowings under our Credit Facility (see “THE CREDIT FACILITY” below). During the three months ended March 31, 2008, we used in financing activities for the first six months of 2008 was due$11.9 million to our $35.7 million purchase of Monarch common stock pursuant to a stock repurchase plan that was in place in the Repurchase Plan offset by $34.0 million in credit line drawsprior year.
We believe that our existing cash balances, cash flow from operations and borrowings available under the Credit Facility (see “COMMITMENTS AND CONTINGENCIES” below). Netwill provide us with sufficient resources to fund our operations, meet our debt obligations, and fulfill our capital expenditure plans; however, our operations are subject to financial, economic, competitive, regulatory, and other factors, many of which are beyond our control. If we are unable to generate sufficient cash provided by financing activities for the first six months of 2007 was dueflow, we could be required to proceeds from the exercise of stock options and the tax benefits associated with such stock option exercises. At June 30, 2008, we had a cash and cash equivalents balance of $11.7 million compared to $38.8 million at December 31, 2007.
OFF BALANCE SHEET ARRANGEMENTS
A driveway was completed and opened on September 30, 2004, that is being shared between the Atlantis and a shopping center (the “Shopping Center”) directly adjacent to the Atlantis. The Shopping Center is controlled by an entity whose owners include our controlling stockholders. As part of this project, in January 2004, we leased a 37,368 square-foot corner section of the Shopping Center for a minimum lease term of 15 years at an annual rent of $300,000, subject to increase every 60 months based on the Consumer Price Index. We also use part of the common area of the Shopping Center and pay our proportional share of the common area expense of the Shopping Center. We have the option to renew the lease for three five-year terms, and at the end of the extension periods, we have the option to purchase the leased section of the Shopping Center at a price to be determined based on an MAI Appraisal. The leased space is being used by us for pedestrian and vehicle access to the Atlantis, and we may use a portion of the parking spaces at the Shopping Center. The total cost of the project was $2.0 million; we were responsible for two thirds of the total cost, or $1.35 million. The cost of the new driveway is being depreciated over the initial 15-year lease term; some components of the new driveway are being depreciated over a shorter period of time. We paid approximately $150,000$75,000 in lease payments for the leased driveway space at the Shopping Center during the sixthree months ended June 30, 2008.
Critical Accounting Policies
A description of our critical accounting policies and estimates can be found in Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for the year ended December 31, 20072008 (“20072008 Form 10-K”). For a more extensive discussion of our accounting policies, see Note 1, Summary of Significant Accounting Policies, in the Notes to the Consolidated Financial Statements in our 20072008 Form 10-K filed on March 17, 2008.
OTHER FACTORS AFFECTING CURRENT AND FUTURE RESULTS
The economy in northern Nevada and our feeder markets, like many other areas around the country, are experiencing the effects of several negative macroeconomic trends, including a possible broad economic recession, higher fuel prices, home mortgage defaults higher mortgage interest rates and declining residential real estate values. These negative trends could adversely impact discretionary incomes of our target customers, which, in turn could adversely impact our business. We believe that as recessionary pressures increase or continue for
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an extended period of time, target customers may further curtail discretionary spending for leisure activities and businesses may reduce spending for conventions and meetings, both of which would adversely impact our business. Management continues to monitor these trends and intends, as appropriate, to adopt operating strategies to attempt to mitigate the effects of such adverse conditions. We can make no assurances that such strategies will be effective.
The constitutional amendment approved by California voters in 1999 allowing the expansion of IndianNative American casinos in California has had an impact on casino revenues in Nevada in general, and many analysts have continued to predict the impact will be more significant on the Reno-Lake Tahoe market. If other Reno-area casinos continue to suffer business losses due to increased pressure from California IndianNative American casinos, theysuch casinos may intensify their marketing efforts to northernorthern Nevada residents as well.
Higher fuel costs may deter California and other drive-in customers from coming to the Atlantis
We also believe that unlimited land-based casino gaming in or near any major metropolitan area in the Atlantis'Atlantis’ key feeder market areas, such as San Francisco or Sacramento, could have a material adverse effect on our business.
Other factors that may impact current and future results are set forth in detail in Part II - Item 1A “Risk Factors” of this Form 10-Q and in Item 1A “Risk Factors” of our 20072008 Form 10-K.
Our contractual cash obligations as of June 30, 2008March 31, 2009 and the next five years and thereafter are as follow:
Payments Due by Period | ||||||||||||||||||||
Less Than | 1 to 3 | 4 to 5 | More Than | |||||||||||||||||
Total | 1 Year | Years | Years | 5 Years | ||||||||||||||||
Operating leases (1) | $ | 4,527,000 | $ | 613,000 | $ | 862,000 | $ | 740,000 | $ | 2,312,000 | ||||||||||
Current maturities of borrowings under credit facility (2) | 34,000,000 | 34,000,000 | - | - | - | |||||||||||||||
Purchase obligations (3) | 27,003,000 | 27,003,000 | - | - | - | |||||||||||||||
Total contractual cash obligations | $ | 65,530,000 | $ | 61,616,000 | $ | 862,000 | $ | 740,000 | $ | 2,312,000 |
Contractual Cash |
|
|
| Payments Due by Period (4) |
|
|
| ||||||||||
Obligations |
|
|
| less than |
| 1 to 3 |
| 4 to 5 |
| more than |
| ||||||
|
| Total |
| 1 year |
| years |
| years |
| 5 years |
| ||||||
Operating Leases(1) |
| $ 4,067,000 |
| $ 552,000 |
| $ 740,000 |
| $740,000 |
| $2,035,000 |
| ||||||
Current Maturities of Borrowings Under Credit Facility (2) |
| 55,900,000 |
| 900,000 |
| 55,000,000 |
| - |
| - |
| ||||||
Purchase Obligations(3) |
| 6,114,000 |
| 6,114,000 |
| - |
| - |
| - |
| ||||||
Total Contractual Cash Obligations |
|
| $66,081,000 |
|
| $7,566,000 |
|
| $55,740,000 |
|
| $740,000 |
|
| $2,035,000 |
| |
(1) Operating leases include $370,000 per year in lease and common area expense payments to the shopping center adjacent to the Atlantis and $243,000 per year in lease payments to Triple J (see Note 5. Related Party Transactions, in the Notes to the Condensed Consolidated Financial Statements in this Form 10-Q).
(2) The amount represents outstanding draws against theour Credit Facility (see “THE CREDIT FACILITY” below) as of June 30, 2008.March 31, 2009.
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(3) Our open purchase orderPurchase obligations represent approximately $4.1 million of commitments related to capital projects and construction commitments total approximately $27.0 million.$2.0 million of materials and supplies used in the normal operation of our business. Of the total purchase order and construction commitments, approximately $2.0 million are cancelable by us upon providing a 30-day notice.
(4) Because interest payments under our BoardCredit Facility are subject to factors that in our judgment vary materially, the amount of Directors (our “Board”) authorizedfuture interest payments is not presently determinable. These factors include: 1) future short-term interest rates; 2) our future leverage ratio which varies with EBITDA and our borrowing levels and 3) the speed with which we deploy capital and other spending which in turn impacts the level of future borrowings. The interest rate under our Credit Facility is LIBOR, or a stock repurchase plan (the “Repurchase Plan”). Under the Repurchase Plan, our Board authorized a program to repurchase up to 1,000,000 shares of our common stockbase rate (as defined in the open market or in privately negotiated transactionsCredit Facility agreement), plus an interest rate margin ranging from time2.00% to time, in compliance with Rule 10b-183.375% depending on our leverage ratio. The interest rate is adjusted quarterly based on our leverage ratio which is calculated using operating results over the previous four quarters and borrowings at the end of the Securities and Exchange Act of 1934, subject to market conditions, applicable legal requirements and other factors. The Repurchase Plan did not obligate us to acquire any particular amount of common stock.
We believe that our existing cash balances, cash flow from operations and borrowings available under the Credit Facility will provide us with sufficient resources to fund our operations, meet our debt obligations, and fulfill our capital expenditure requirements; however, our operations are subject to financial, economic, competitive, regulatory, and other factors, many of which are beyond our control. If we are unable to generate sufficient cash flow, we could be required to adopt one or more alternatives, such as reducing, delaying or eliminating planned capital expenditures, selling assets, restructuring debt or obtaining additional equity capital.
THE CREDIT FACILITY
Until February 20, 2004, we had a reducing revolving term loan credit facility with a consortium of banks (the “First Credit Facility”). On February 20, 2004, our previous credit facilitythe Original Credit Facility was refinanced (the "Credit Facility"“Second Credit Facility”) for $50 million. At our option, borrowings underThe maturity date of the Second Credit Facility would accrue interest at a rate designated bywas to be April 18, 2009; however, on January 20, 2009, the agent bank at its base rateSecond Credit Facility was amended and refinanced (the "Base Rate") or at the London Interbank Offered Rate ("LIBOR"“New Credit Facility”) for one, two, three or six month periods.$60 million. The rate of interest included a margin added to either the Base Rate or to LIBOR tied to our ratio of funded debt to EBITDA (the "Leverage Ratio"). Depending on our Leverage Ratio, this margin would vary between 0.25 percentNew Credit Facility may be utilized by us for working capital needs, general corporate purposes and 1.25 percent above the Base Rate, and between 1.50 percent and 2.50 percent above LIBOR. In February 2007, this margin was further reduced to 0.00 percent and 0.75 percent above the Base Rate and between 1.00 percent and 1.75 percent above LIBOR. Our leverage ratio during the three months ended June 30, 2008 was such that the pricing for borrowings was the Base Rate plus 0.00 percent or LIBOR plus 1.00 percent. We selected the LIBOR plus 1.00 option for allongoing capital expenditure requirements.
The maturity date of the borrowings during the three months ended June 30, 2008. We paid various one-time fees and other loan costs upon the closing of the refinancing of the Credit Facility that will be amortized over the term of the Credit Facility using the straight-line method.
The New Credit Facility contains covenants customary and typical for a facility of this nature, including, but not limited to, covenants requiring the preservation and maintenance of our assets and covenants restricting our ability to merge, transfer ownership of Monarch, incur additional indebtedness, encumber assets and make certain investments. The New Credit Facility also contains covenants requiring us tothat we maintain certain financial ratios and achieve a minimum level of Earnings-Before-Interest-Taxes-Depreciation and Amortization (EBITDA) on a two-quarter rolling basis. It also contains provisions that restrict cash transfers between Monarch and its affiliates. The Credit Facility alsoaffiliates and contains provisions requiring the achievement of certain financial ratios before we can repurchase our common stock. We dostock or pay dividends. Management does not consider the covenants to restrict ournormal functioning of day-to-day operations.
The maximum principal available under the New Credit Facility is reduced by $2.5 million per quarter beginning on December 31, 2009. We may permanently reduce the maximum principal available at any time so long as the amount of such reduction is at least $500,000 and a multiple of $50,000.
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We may prepay borrowings under the New Credit Facility without penalty (subject to certain charges applicable to the prepayment of LIBOR borrowings prior to the end of the applicable interest period). Amounts prepaid under the Credit Facility may be reborrowed so long as the total borrowings outstanding do not exceed the maximum principal available.
We may reducepaid various one-time fees and other loan costs upon the maximumclosing of the refinancing of the New Credit Facility that will be amortized over the facility’s term using the straight-line method.
At March 31, 2009, we had $55.9 million outstanding under the New Credit Facility, $900 thousand of which was classified as short-term debt which represents the mandatory principal availablereduction, based on the amount outstanding at March 31, 2009, required under the New Credit Facility on December 31, 2009. The interest rate under our Credit Facility is LIBOR, or a base rate (as defined in the Credit Facility agreement), plus an interest rate margin ranging from 2.00% to 3.375% depending on our leverage ratio. The interest rate is adjusted quarterly based on our leverage ratio calculated using operating results over the previous four quarters and borrowings at any time so long as the amount of such reduction is at least $500,000 and a multiple of $50,000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss arising from adverse changes in market risks and prices, such as interest rates, foreign currency exchange rates and commodity prices. We do not have any cash or cash equivalents as of June 30, 2008,March 31, 2009 that are subject to market risks.
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this Quarterly Report on Form 10-Q, (the "Evaluation Date"“Evaluation Date”), an evaluation was carried out by our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined by Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon the evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
There was no change in Internal Control over Financial Reporting
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PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Litigation was filed against Monarch on January 27, 2006, by Kerzner International Limited (“Kerzner ")“) owner of the Atlantis, Paradise Island, Bahamas in the United States District Court, District of Nevada. The case number assigned to the matter is 3:06-cv-00232-ECR (RAM). The complaint seeks declaratory judgment prohibiting Monarch from using the name "Atlantis"“Atlantis” in connection with offering casino services other than at Monarch'sMonarch’s Atlantis Casino Resort Spa located in Reno, Nevada, and particularly prohibiting Monarch from using the "Atlantis"“Atlantis” name in connection with offering casino services in Las Vegas, Nevada; injunctive relief enforcing the same; unspecified compensatory and punitive damages; and other relief. Monarch believes Kerzner'sKerzner’s claims to be entirely without merit and is defending vigorously against the suit. Further, Monarch has filed a counterclaim against Kerzner seeking to enforce the license agreement granting Monarch the exclusive right to use the Atlantis name in association with lodging throughout the state of Nevada; to cancel Kerzner'sKerzner’s registration of the Atlantis mark for casino services on the basis that the mark was fraudulently obtained by Kerzner; and to obtain declaratory relief on these issues. LitigationDiscovery is inconcluded and the discovery phase.
We are party to other claims that arise in the normal course of business. Management believes that the outcomes of such claims will not have a material adverse impact on our financial condition, cash flows or results of operations.
ITEM 1A. RISK FACTORS
A description of our risk factors can be found in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2007.2008. The following information represents material changes to those risk factors during the sixthree months ended June 30, 2008.
AN OUTBREAK OF HIGHLY INFECTIOUS DEISEASE COULD ADVERSELY AFFECT THE CREDIT FACILITY COULD HAVENUMBER OF VISITORS TO OUR FACILITIES AND DISRUPT OUR OPERATIONS, RESULTING IN A MATERIAL ADVERSE AFFECTEFFECT ON OUR LIQUIDITY
Feared or refinance the Credit Facility to extend its maturity beyond April 18, 2009. Any such renegotiation or refinancing will likely result in the amendmentactual outbreaks of other material provisions of the Credit Agreement,highly infectious diseases, such as SARS, avian flu or swine flu, may adversely affect the interest rate chargednumber of visitors to our property and our business and prospects. Furthermore, an other material covenants. The Credit Facility is an important component of our liquidity. Any material restriction onoutbreak might disrupt our ability to use the Credit Facility,adequately staff our business and could generally disrupt our operations. If any of our guests or employees is suspected of having contracted certain highly contagious diseases, we may be required to quarantine these customers or employees or the failure to obtain a new credit facility upon the maturityaffected areas of the existing Credit Facility could adversely impactour facilities and temporarily suspend part or all of our operations at affected facilities. Any new outbreak of such a highly infectious disease could have a material adverse effect on our financial condition, results of operations and future growth options.
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Period | (a) Total number of shares purchased (1) | (b) Average price paid per share | (c) Total number of shares purchased as part of publicly announced plans | (d) Maximum number of shares that may yet be purchased under the plans | ||||||||||||
April 1, 2008 through April 30, 2008 | 60,769 | $ | 13.06 | 60,769 | 1,688,327 | |||||||||||
May 1, 2008 through May 31, 2008 | 951,417 | $ | 13.92 | 951,417 | 736,910 | |||||||||||
June 1, 2008 through June 30, 2008 | 736,910 | $ | 13.20 | 736,910 | - |
Director | Votes Received | Votes Withheld | ||||||
John Farahi | 13,024,965 | 3,993,925 | ||||||
Charles W. Scharer | 14,407,843 | 2,611,047 | ||||||
Craig F. Sullivan | 14,407,841 | 2,611,049 |
ITEM 6. EXHIBITS
(a) Exhibits
Exhibit No | Description | |
3.1 | Bylaws of Monarch Casino & Resort, Inc., as amended. | |
10.1 | Amended and Restated Credit Agreement, | |
Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
Certification of John Farahi, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
Certification of Ronald Rowan, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
MONARCH CASINO & RESORT, INC. | |
(Registrant) | |
Date: | By: /s/ RONALD ROWAN |
Ronald Rowan, Chief Financial Officer | |
and Treasurer (Principal Financial | |
Officer and Duly Authorized Officer) |
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