Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Sep. 30, 2016 | Oct. 28, 2016 | |
Document and Entity Information | ||
Entity Registrant Name | MONARCH CASINO & RESORT INC | |
Entity Central Index Key | 907,242 | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2016 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 17,368,559 | |
Document Fiscal Year Focus | 2,016 | |
Document Fiscal Period Focus | Q3 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - USD ($) shares in Thousands, $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2016 | Sep. 30, 2015 | Sep. 30, 2016 | Sep. 30, 2015 | |
Revenues | ||||
Casino | $ 43,882 | $ 41,394 | $ 125,613 | $ 117,384 |
Food and beverage | 15,621 | 14,725 | 44,581 | 41,803 |
Hotel | 6,901 | 6,646 | 18,038 | 17,211 |
Other | 2,891 | 2,723 | 8,390 | 7,991 |
Gross revenues | 69,295 | 65,488 | 196,622 | 184,389 |
Less promotional allowances | (12,186) | (11,912) | (35,186) | (33,629) |
Net revenues | 57,109 | 53,576 | 161,436 | 150,760 |
Operating expenses | ||||
Casino | 17,684 | 16,913 | 52,449 | 49,477 |
Food and beverage | 6,152 | 5,772 | 18,343 | 16,515 |
Hotel | 1,958 | 1,674 | 5,438 | 4,869 |
Other | 975 | 901 | 2,922 | 2,949 |
Selling, general and administrative | 14,439 | 14,349 | 42,126 | 40,245 |
Depreciation and amortization | 3,644 | 3,918 | 11,134 | 12,157 |
Loss (gain) on disposition of assets | 5 | 668 | (20) | |
Total operating expenses | 44,857 | 43,527 | 133,080 | 126,192 |
Income from operations | 12,252 | 10,049 | 28,356 | 24,568 |
Other expenses | ||||
Interest expense, net of amounts capitalized | (130) | (137) | (275) | (537) |
Total other expense | (130) | (137) | (275) | (537) |
Income before income taxes | 12,122 | 9,912 | 28,081 | 24,031 |
Provision for income taxes | (4,288) | (3,518) | (9,977) | (8,495) |
Net income | $ 7,834 | $ 6,394 | $ 18,104 | $ 15,536 |
Net income | ||||
Basic (in dollars per share) | $ 0.45 | $ 0.38 | $ 1.05 | $ 0.92 |
Diluted (in dollars per share) | $ 0.45 | $ 0.37 | $ 1.03 | $ 0.90 |
Weighted average number of common shares and potential common shares outstanding | ||||
Basic (in shares) | 17,338 | 16,979 | 17,270 | 16,898 |
Diluted (in shares) | 17,720 | 17,343 | 17,603 | 17,281 |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands | Sep. 30, 2016 | Dec. 31, 2015 |
Current assets | ||
Cash and cash equivalents | $ 19,454 | $ 21,164 |
Receivables, net | 4,618 | 3,729 |
Income taxes receivable | 517 | 611 |
Inventories | 2,807 | 2,881 |
Prepaid expenses | 4,281 | 3,402 |
Total current assets | 31,677 | 31,787 |
Property and equipment | ||
Land | 29,549 | 29,549 |
Land improvements | 6,701 | 6,701 |
Buildings | 152,284 | 150,966 |
Buildings improvements | 24,503 | 23,255 |
Furniture and equipment | 133,395 | 134,704 |
Construction in Progress | 50,210 | 37,424 |
Leasehold improvements | 1,347 | 1,347 |
Gross property and equipment | 397,989 | 383,946 |
Less accumulated depreciation and amortization | (186,132) | (180,792) |
Net property and equipment | 211,857 | 203,154 |
Other assets | ||
Goodwill | 25,111 | 25,111 |
Intangible assets, net | 5,326 | 6,200 |
Deferred income taxes | 7,415 | 7,415 |
Other assets, net | 3,490 | 1,179 |
Total other assets | 41,342 | 39,905 |
Total assets | 284,876 | 274,846 |
Current liabilities | ||
Current portion of long-term debt | 40,900 | |
Accounts payable | 7,358 | 6,747 |
Construction accounts payable | 1,213 | 1,407 |
Accrued expenses | 21,298 | 21,873 |
Total current liabilities | 29,869 | 70,927 |
Long-term debt | 29,900 | |
Total liabilities | 59,769 | 70,927 |
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; 17,363,164 outstanding at September 30, 2016; 17,202,699 outstanding at December 31, 2015 | 191 | 191 |
Additional paid - in capital | 22,965 | 22,728 |
Treasury stock, 1,733,136 shares at September 30, 2016; 1,893,601 shares at December 31, 2015 | (23,557) | (26,404) |
Retained earnings | 225,508 | 207,404 |
Total stockholders' equity | 225,107 | 203,919 |
Total liabilities and stockholders' equity | $ 284,876 | $ 274,846 |
CONDENSED CONSOLIDATED BALANCE4
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares | Sep. 30, 2016 | Dec. 31, 2015 |
CONDENSED CONSOLIDATED BALANCE SHEETS | ||
Preferred stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized | 10,000,000 | 10,000,000 |
Preferred stock, shares issued | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 30,000,000 | 30,000,000 |
Common stock, shares issued | 19,096,300 | 19,096,300 |
Common stock, shares outstanding | 17,363,164 | 17,202,699 |
Treasury stock, shares | 1,733,136 | 1,893,601 |
CONDENSED CONSOLIDATED STATEME5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands | 9 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
Cash flows from operating activities: | ||
Net income | $ 18,104 | $ 15,536 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Depreciation and amortization | 11,134 | 12,157 |
Amortization of deferred loan costs | 275 | 229 |
Stock-based compensation | 983 | 938 |
Excess tax benefit from stock-based compensation | (425) | (286) |
Provision for bad debts | 92 | 80 |
Loss (gain) on disposition of assets | 668 | (20) |
Changes in operating assets and liabilities: | ||
Receivables | (981) | (703) |
Inventories | 74 | 158 |
Prepaid expenses | (879) | (684) |
Accounts payable | 611 | 201 |
Accrued expenses | (575) | 665 |
Income taxes | 94 | 160 |
Net cash provided by operating activities | 29,175 | 28,431 |
Cash flows from investing activities: | ||
Proceeds from sale of assets | 16 | 23 |
Change in construction payable | (194) | 1,903 |
Acquisition of property and equipment | (19,646) | (26,575) |
Net cash used in investing activities | (19,824) | (24,649) |
Cash flows from financing activities: | ||
Net exercise of stock options | 2,100 | 1,986 |
Excess tax benefit from stock-based compensation | 425 | 286 |
Principal payments on long-term debt | (11,000) | (8,400) |
Loan issuance cost | (2,586) | |
Net cash used in financing activities | (11,061) | (6,128) |
Net decrease in cash | (1,710) | (2,346) |
Cash and cash equivalents at beginning of period | 21,164 | 21,583 |
Cash and cash equivalents at end of period | 19,454 | 19,237 |
Supplemental disclosure of cash flow information | ||
Cash paid for interest, net of amounts capitalized | 308 | |
Cash paid for income taxes | $ 9,475 | $ 8,050 |
SUMMARY OF SIGNIFICANT ACCOUNTI
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 9 Months Ended |
Sep. 30, 2016 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation : Monarch Casino & Resort, Inc. was incorporated in 1993 and, through its wholly owned subsidiary, Golden Road Motor Inn, Inc. (“Golden Road”), owns and operates the Atlantis Casino Resort Spa, a hotel/casino facility in Reno, Nevada (the “Atlantis”). Monarch’s wholly owned subsidiaries, High Desert Sunshine, Inc. (“High Desert”), Golden East, Inc. (“Golden East”) and Golden North, Inc. (“Golden North”), each own separate parcels of land located proximate to the Atlantis. Monarch’s wholly owned subsidiary, Monarch Growth Inc. (“Monarch Growth”), formed in 2011, acquired Riviera Black Hawk, Inc., owner of the Riviera Black Hawk Casino, on April 26, 2012. Riviera Black Hawk, Inc. was renamed Monarch Black Hawk, Inc. and Riviera Black Hawk Casino was renamed Monarch Casino Black Hawk in October 2013. Monarch Growth also owns a parcel of land in Black Hawk, Colorado contiguous to the Monarch Casino Black Hawk. In addition to owning the Monarch Casino Black Hawk, Monarch Black Hawk, Inc. wholly owns Chicago Dogs Eatery, Inc. and Monarch Promotional Association, both of which were formed in relation to extended licensure requirements for extended hours of liquor operation in Black Hawk, Colorado. The accompanying unaudited condensed consolidated financial statements include the accounts of Monarch and its subsidiaries (the “Consolidated Financial Statements”). Intercompany balances and transactions are eliminated. Unless otherwise indicated, “Monarch,” the “Company,” “we,” “our” and “us” refer to Monarch Casino & Resort, Inc. and its subsidiaries. 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. GAAP 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 and nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. The balance sheet at December 31, 2015 has been derived from the audited consolidated financial statements of the Company at that date, but does not include all of the information and footnotes required by U.S. GAAP 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, 2015. Fair Value of Financial Instruments : The estimated fair value of the Company’s financial instruments has been determined by the Company, using available market information and valuation methodologies. However, considerable judgment is required to develop the estimates of fair value; thus, the estimates provided herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The carrying amounts of cash, receivables, accounts payable and accrued expenses approximate fair value because of the short-term nature of these instruments. Additionally, the carrying value of our debt approximates fair value due to the variable nature of applicable interest rates and relatively short-term maturity. Debt Issuance Costs: Costs incurred in connection with the issuance of long-term debt are capitalized and amortized to interest expense over the term of the related debt agreement. Loan issuance costs are included in “Other assets, net” on the Company’s condensed consolidated balance sheets. As of September 30, 2016 loan issuance costs, net of amortization, was $2,582 thousand. Change in Accounting Estimate of Depreciable Life of Monarch Casino Black Hawk Parking Structure: In December 2013, the Company began construction of a new parking facility at Monarch Casino Black Hawk. Upon completion of that new structure, the Company plans to demolish the existing parking structure. At December 31, 2013, the existing parking structure had a net book value of approximately $4.8 million and a remaining depreciable life of approximately 37 years. The new parking facility was estimated to be completed on March 31, 2015. In accordance with Financial Accounting Standards Board (“FASB”) accounting standards codification (“ASC”) 250-10-45-17, effective January 1, 2014, the Company modified the estimated depreciable life of the existing parking structure to 15 months; the period from January 1, 2014 through the estimated demolition commencement date of March 31, 2015. As a result of this modification to the estimated depreciable life, depreciation expense of the existing parking structure increased by approximately $0.3 million per month (approximately $0.2 million net of tax). In July 2014, because of a delayed construction schedule, the Company revised the new parking facility completion date to December 31, 2015. At this time, the existing parking structure had a net book value of approximately $2.9 million. The Company modified the estimated depreciable life of the existing parking structure to 18 months; the period from July 1, 2014 through the revised estimated demolition commencement date of December 31, 2015. In October 2015, the general contractor notified the Company that further delay was expected and completion was then expected in the second quarter of 2016 at which time demolition of the existing structure would commence. At September 30, 2015, the existing parking structure had a net book value of approximately $0.4 million. Beginning in October 2015, the Company reduced the monthly depreciation expense to $0.04 million to reflect the revised depreciable life of the existing parking structure. The existing parking structure was fully depreciated as of June 30, 2016. The existing parking structure will be demolished following the opening of the new parking facility, which is expected to be completed in the fourth quarter of 2016. The depreciation expense was not adjusted to reflect the latest delay due to the insignificance of the effect the delay has on the depreciation expense. For the three months ended September 30, 2016, the changes in estimate did not have an effect on depreciation expense, net income and diluted earnings per share. For the three months ended September 30, 2015, the effect of the changes in estimate was an increase of depreciation expense by $399 thousand, a decrease of net income by $259 thousand and a decrease of basic and diluted earnings per share by $0.02. For the nine months ended September 30, 2016, the effect of the changes in estimate was an increase of depreciation expense by $266 thousand, a decrease of net income by $173 thousand and a decrease of basic and diluted earnings per share by approximately $0.01. For the nine months ended September 30, 2015, the effect of the changes in estimate was an increase of depreciation expense by $1,371 thousand, a decrease of net income by $891 thousand and a decrease of basic and diluted earnings per share by $0.06. Segment Reporting: The accounting guidance for disclosures about segments of an enterprise and related information requires separate financial information to be disclosed for all operating segments of a business. The Company determined that the Company’s two operating segments, Atlantis and Monarch Casino Black Hawk, meet all of the aggregation criteria stipulated by ASC 280-10-50-11. The Company views each property as an operating segment and the two operating segments have been aggregated into one reporting segment. |
STOCK-BASED COMPENSATION
STOCK-BASED COMPENSATION | 9 Months Ended |
Sep. 30, 2016 | |
STOCK-BASED COMPENSATION | |
STOCK-BASED COMPENSATION | NOTE 2. STOCK-BASED COMPENSATION The Company accounts for its stock-based compensation in accordance with the authoritative guidance requiring the compensation cost relating to stock-based payment transactions to be recognized in the Company’s consolidated statements of income. Reported stock-based compensation expense was classified as follows (in thousands): Three months ended Nine months ended September 30, September 30, 2016 2015 2016 2015 Casino $ $ $ $ Food and beverage Hotel Selling, general and administrative Total stock-based compensation, before taxes Tax benefit Total stock-based compensation, net of tax $ $ $ $ |
EARNINGS PER SHARE
EARNINGS PER SHARE | 9 Months Ended |
Sep. 30, 2016 | |
EARNINGS PER SHARE | |
EARNINGS PER SHARE | NOTE 3. 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 September 30, 2016 2015 Per Share Per Share Shares Amount Shares Amount Basic $ $ Effect of dilutive stock options - Diluted $ $ Nine months ended September 30, 2016 2015 Per Share Per Share Shares Amount Shares Amount Basic $ $ Effect of dilutive stock options Diluted $ $ 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. For the three and nine months ended September 30, 2016, options for 314 thousand and 885 thousand shares, respectively, were excluded from the computation. For the three and nine months ended September 30, 2015, 687 thousand and 645 thousand shares, respectively, were excluded from the computation. |
NEW ACCOUNTING PRONOUNCEMENTS
NEW ACCOUNTING PRONOUNCEMENTS | 9 Months Ended |
Sep. 30, 2016 | |
NEW ACCOUNTING PRONOUNCEMENTS | |
NEW ACCOUNTING PRONOUNCEMENTS | NOTE 4. NEW ACCOUNTING PRONOUNCEMENTS In May 2014, the FASB issued an accounting standard update (“ASU”) that amends the FASB ASC and creates a new topic for Revenue from Contracts with Customers. The new guidance is expected to clarify the principles for revenue recognition and to develop a common revenue standard for U.S. GAAP applicable to revenue transactions. This guidance provides that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. This guidance also provides substantial revision of interim and annual disclosures. The update allows for either full retrospective adoption, meaning the guidance is applied for all periods presented, or modified retrospective adoption, meaning the guidance is applied only to the most current period presented in the financial statements with the cumulative effect of initially applying the guidance recognized at the date of initial application. In July 2015, FASB voted to delay the effective date of the new revenue standard by one year. The new effective date is for the annual and interim periods beginning after December 15, 2017. Reporting entities may choose to adopt the standard as of the original effective date. The Company plans to adopt this standard effective January 1, 2018. The Company is currently assessing the impact the adoption of this standard will have on its Consolidated Financial Statements. In August 2014, FASB issued an ASU that requires management to assess an entity’s ability to continue as a going concern and to provide related footnote disclosures in certain circumstances. Substantial doubt about an entity’s ability to continue as a going concern exist when relevant conditions and events, consolidated and aggregated, indicate that it is probable that an entity will be unable to meet its obligations as they become due within one year after the date that the financial statement are issued. Currently, there is no guidance in U.S. GAAP for management’s responsibility to perform an evaluation. Under the update, management’s evaluation is to be performed when preparing financial statements for each annual and interim reporting period and based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued. The effective date for this update is for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early application is permitted. The Company will adopt this standard effective December 31, 2016. The adoption of this standard is not expected to have a material impact on our Consolidated Financial Statements. In April 2015, FASB issued an ASU that requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. In August 2015, FASB issued an ASU which clarifies that the guidance issued in April 2015 does not apply to line-of-credit arrangements. According to the additional guidance, line-of-credit arrangements will continue to present debt issuance costs as an asset and subsequently amortize the deferred debt issuance costs ratably over the term of the arrangement. The effective date for this update is for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The Company adopted this standard effective January 1, 2016. Because our credit facility is a line-of-credit arrangement, the adoption of this standard does not have any impact on our Consolidated Financial Statements. In July 2015, FASB issued an ASU which changes the measurement principle for inventories valued under the first-in, first-out or weighted-average methods from the lower of cost or market to the lower of cost and net realizable value. Net realizable value is defined by FASB as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The effective date for this guidance is for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The Company is currently assessing the impact the adoption of this standard will have on its Consolidated Financial Statements. In February 2016, the FASB issued an ASU which addresses the recognition and measurement of leases. Under the new guidance, for all leases (with the exception of short-term leases), at the commencement date, lessees will be required to recognize a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Further, the new lease guidance simplifies the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and liabilities, which no longer provides a source for off- balance sheet financing. The effective date for this update is for the annual and interim periods beginning after December 15, 2018 with early adoption permitted. Lessees and lessors must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company is currently assessing the impact the adoption of this standard will have on its Consolidated Financial Statements. In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The effective date for this update is for the annual and interim periods beginning after December 15, 2016, with early adoption permitted. The Company is currently assessing the impact the adoption of this standard will have on its Consolidated Financial Statements. A variety of proposed or otherwise potential accounting standards are currently under review and study by standard-setting organizations and certain regulatory agencies. Because of the tentative and preliminary nature of such proposed standards, we have not yet determined the effect, if any, the implementation of any such proposed or revised standards would have on the Company’s Consolidated Financial Statements. |
RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS | 9 Months Ended |
Sep. 30, 2016 | |
RELATED PARTY TRANSACTIONS | |
RELATED PARTY TRANSACTIONS | NOTE 5. RELATED PARTY TRANSACTIONS The shopping center adjacent to the Atlantis (the “Shopping Center”) is owned by Biggest Little Investments, L.P. (“BLI”). John Farahi and Bob Farahi, Co-Chairmen of the Board and executive officers of the Company, and Ben Farahi are the three largest stockholders (the “Farahi Family Stockholders”) of Monarch and each also beneficially own limited partnership interests in BLI. Maxum LLC is the sole general partner of BLI, and Ben Farahi is the sole managing member of Maxum LLC. Neither John Farahi nor Bob Farahi has any management or operational control over BLI or the Shopping Center. Until May 2006, Ben Farahi held the positions of Co-Chairman of the Board, Secretary, Treasurer and Chief Financial Officer of the Company. On August 28, 2015, Monarch, through its subsidiary Golden Road, entered into a 20-year lease agreement with BLI for a portion of the Shopping Center (the “Parking Lot Lease”) consisting of an approximate 46,000 square-foot commercial building on approximately 4.15 acres of land adjacent to the Atlantis (the “Leased Property”). We have demolished the commercial building on the Leased Property and have converted the now vacant land into approximately 300 additional surface parking spaces for the Atlantis. The minimum annual rent under the Parking Lot Lease is $695 thousand commencing November 17, 2015. The minimum annual rent is subject to a cost of living adjustment increase on each five year anniversary. In addition, we are responsible for payment of property taxes, utilities and maintenance expenses related to the Leased Property. We have an option to renew the Parking Lot Lease for an additional 10-year term. If we elect not to exercise its renewal option, we will be obligated to pay BLI $1.6 million. For the three and nine months ended September 30, 2016, the Company paid $174 thousand and $522 thousand in rent, respectively, plus $13 thousand and $49 thousand for operating expenses, respectively, related to this lease. In addition, we share a driveway with and lease approximately 37,000 square-feet from BLI (the “Driveway Lease”) for an initial lease term of 15 years, which commenced on September 30, 2004, at an original annual rent of $300 thousand plus common area expenses. The annual rent is subject to a cost of living adjustment increase on each five year anniversary of the Driveway Lease. Effective August 28, 2015, in connection with the Company entering into the Parking Lot Lease, the Driveway Lease was amended to: (i) make the Company solely responsible for the operation and maintenance costs of the shared driveway (including the fountains thereon); (ii) eliminate the Company’s obligation to reimburse the Shopping Center for its proportionate share of common area expenses; and (iii) exercise the three successive five-year renewal terms beyond the initial 15 year term in the existing Driveway Lease Agreement. At the end of the renewal terms, we have the option to purchase the leased driveway section of the Shopping Center. As of September 30, 2016, the annual rent is $377 thousand. For the three month periods ended September 30, 2016 and 2015, the Company paid $94 thousand in rent, plus $5 thousand and $23 thousand in operating expenses, respectively. For the nine month periods ended September 30, 2016 and 2015, the Company paid $282 thousand in rent, plus $30 thousand and $76 thousand in expenses related to this lease, respectively. We occasionally lease billboard advertising, storage space and parking lot space from affiliates controlled by Farahi Family Stockholders and paid $35 thousand and $47 thousand for the three month periods ended September 30, 2016 and 2015, respectively, and $93 thousand and $118 thousand for the nine month periods ended September 30, 2016 and 2015, respectively, for such leases. |
LONG-TERM DEBT
LONG-TERM DEBT | 9 Months Ended |
Sep. 30, 2016 | |
LONG-TERM DEBT | |
LONG-TERM DEBT | NOTE 6. LONG-TERM DEBT On July 20, 2016, the Company entered into an amended and restated credit facility agreement (the “Amended Credit Facility”), under which our former $100 million credit facility (under which as of June 30, 2016 the borrowing capacity had been reduced to $45.5 million as a result of $19.5 million in mandatory reductions pursuant to the agreement and $35 million in voluntary reductions, as allowed by the agreement) was increased to $250.0 million, and the maturity date was extended from November 15, 2016 to July 20, 2021. As of September 30, 2016, the Company had $29.9 million borrowed and $220.1 million remaining in available borrowings of the $250.0 million maximum principal available under the Amended Credit Facility. The total revolving loan commitment under the Amended Credit Facility will be automatically and permanently reduced to $50 million in the first full quarter after completion of the expansion project at the Monarch Casino Black Hawk and all then outstanding revolving loans up to $200 million under the Amended Credit Facility will be converted to a term loan at such time. We may be required to prepay borrowings under the Amended Credit Facility using excess cash flows depending on our leverage ratio no later than December 31, 2019. We have an option to permanently reduce the maximum revolving available credit at any time so long as the amount of such reduction is at least $0.5 million and in multiples of $50,000. Borrowings are secured by liens on substantially all of the Company’s real and personal property. In addition to other customary covenants for a facility of this nature, as of September 30, 2016, we are required to maintain a leverage ratio, defined as consolidated debt divided by Adjusted EBITDA, of no more than 3.5:1 and a fixed charge coverage ratio (Adjusted EBITDA divided by fixed charges, as defined) of at least 1.15:1. As of September 30, 2016, the Company’s leverage ratio and fixed charge coverage ratios were 0.6:1 and 46.4:1, respectively. The interest rate under the Amended Credit Facility is LIBOR plus a margin ranging from 1.00% to 2.50%, or a base rate (as defined in the Amended Credit Facility) plus a margin ranging from 0.00% to 1.50%, or the Prime Rate. The applicable margins will vary depending on our leverage ratio. Commitment fees are equal to the daily average unused revolving commitment multiplied by the commitment fee percentage, ranging from 0.175% to 0.45%, based on our leverage ratio. At September 30, 2016, our interest rate was based on LIBOR and our leverage ratio was such that pricing for borrowings under the Amended Credit Facility was LIBOR plus 1.00%. At September 30, 2016, the one-month LIBOR interest rate was 0.53%. The carrying value of the debt outstanding under the Amended Credit Facility approximates fair value because the interest fluctuates with the lender’s prime rate or other market rates of interest. We may prepay borrowings under the Amended 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 may be borrowed so long as the total borrowings outstanding do not exceed the maximum principal available. We believe that our existing cash balances, cash flow from operations and borrowings available under the Amended Credit Facility will provide us with sufficient resources to fund our operations, meet our debt obligations, and fulfill our capital expenditure plans over the next twelve months; 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 or if our cash needs exceed our borrowing capacity under the Amended Credit Facility, 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. |
TAXES
TAXES | 9 Months Ended |
Sep. 30, 2016 | |
TAXES | |
TAXES | NOTE 7. TAXES For each of the nine months ended September 30, 2016 and 2015, the Company’s effective tax rate was 35.5% and 35.4%, respectively. The Company early adopted ASU No. 2015-17 at December 31, 2015, which simplifies presentation of the deferred tax assets and liabilities by allowing all such balances to be treated as noncurrent. |
STOCK REPURCHASE PLAN
STOCK REPURCHASE PLAN | 9 Months Ended |
Sep. 30, 2016 | |
STOCK REPURCHASE PLAN. | |
STOCK REPURCHASE PLAN | NOTE 8. STOCK REPURCHASE PLAN On October 22, 2014, the board of directors authorized a stock repurchase plan (the “Repurchase Plan”). Under the Repurchase Plan, the board of directors authorized a program to repurchase up to 3,000,000 shares of the Company’s common stock in the open market or in privately negotiated transactions from time to time, in compliance with Rule 10b-18 of the Securities and Exchange Act of 1934, subject to market conditions, applicable legal requirements and other factors. The Repurchase Plan does not obligate the Company to acquire any particular amount of common stock and the plan may be suspended at any time at our discretion, and it will continue until exhausted. The actual timing, number and value of shares repurchased under the Repurchase Program will be determined by management at its discretion and will depend on a number of factors, including the market price of the Company’s stock, general market economic conditions and applicable legal requirements. The Company has made no purchases under the Repurchase Plan. |
SUMMARY OF SIGNIFICANT ACCOUN14
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 9 Months Ended |
Sep. 30, 2016 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
Basis of Presentation | Basis of Presentation : Monarch Casino & Resort, Inc. was incorporated in 1993 and, through its wholly owned subsidiary, Golden Road Motor Inn, Inc. (“Golden Road”), owns and operates the Atlantis Casino Resort Spa, a hotel/casino facility in Reno, Nevada (the “Atlantis”). Monarch’s wholly owned subsidiaries, High Desert Sunshine, Inc. (“High Desert”), Golden East, Inc. (“Golden East”) and Golden North, Inc. (“Golden North”), each own separate parcels of land located proximate to the Atlantis. Monarch’s wholly owned subsidiary, Monarch Growth Inc. (“Monarch Growth”), formed in 2011, acquired Riviera Black Hawk, Inc., owner of the Riviera Black Hawk Casino, on April 26, 2012. Riviera Black Hawk, Inc. was renamed Monarch Black Hawk, Inc. and Riviera Black Hawk Casino was renamed Monarch Casino Black Hawk in October 2013. Monarch Growth also owns a parcel of land in Black Hawk, Colorado contiguous to the Monarch Casino Black Hawk. In addition to owning the Monarch Casino Black Hawk, Monarch Black Hawk, Inc. wholly owns Chicago Dogs Eatery, Inc. and Monarch Promotional Association, both of which were formed in relation to extended licensure requirements for extended hours of liquor operation in Black Hawk, Colorado. The accompanying unaudited condensed consolidated financial statements include the accounts of Monarch and its subsidiaries (the “Consolidated Financial Statements”). Intercompany balances and transactions are eliminated. Unless otherwise indicated, “Monarch,” the “Company,” “we,” “our” and “us” refer to Monarch Casino & Resort, Inc. and its subsidiaries. |
Interim Financial Statements | 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. GAAP 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 and nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. The balance sheet at December 31, 2015 has been derived from the audited consolidated financial statements of the Company at that date, but does not include all of the information and footnotes required by U.S. GAAP 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, 2015. |
Fair Value of Financial Instruments | Fair Value of Financial Instruments : The estimated fair value of the Company’s financial instruments has been determined by the Company, using available market information and valuation methodologies. However, considerable judgment is required to develop the estimates of fair value; thus, the estimates provided herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The carrying amounts of cash, receivables, accounts payable and accrued expenses approximate fair value because of the short-term nature of these instruments. Additionally, the carrying value of our debt approximates fair value due to the variable nature of applicable interest rates and relatively short-term maturity. |
Debt Issuance Costs | Debt Issuance Costs: Costs incurred in connection with the issuance of long-term debt are capitalized and amortized to interest expense over the term of the related debt agreement. Loan issuance costs are included in “Other assets, net” on the Company’s condensed consolidated balance sheets. As of September 30, 2016 loan issuance costs, net of amortization, was $2,582 thousand. |
Change in Accounting Estimate of Depreciable Life of Monarch Casino Black Hawk Parking Structure | Change in Accounting Estimate of Depreciable Life of Monarch Casino Black Hawk Parking Structure: In December 2013, the Company began construction of a new parking facility at Monarch Casino Black Hawk. Upon completion of that new structure, the Company plans to demolish the existing parking structure. At December 31, 2013, the existing parking structure had a net book value of approximately $4.8 million and a remaining depreciable life of approximately 37 years. The new parking facility was estimated to be completed on March 31, 2015. In accordance with Financial Accounting Standards Board (“FASB”) accounting standards codification (“ASC”) 250-10-45-17, effective January 1, 2014, the Company modified the estimated depreciable life of the existing parking structure to 15 months; the period from January 1, 2014 through the estimated demolition commencement date of March 31, 2015. As a result of this modification to the estimated depreciable life, depreciation expense of the existing parking structure increased by approximately $0.3 million per month (approximately $0.2 million net of tax). In July 2014, because of a delayed construction schedule, the Company revised the new parking facility completion date to December 31, 2015. At this time, the existing parking structure had a net book value of approximately $2.9 million. The Company modified the estimated depreciable life of the existing parking structure to 18 months; the period from July 1, 2014 through the revised estimated demolition commencement date of December 31, 2015. In October 2015, the general contractor notified the Company that further delay was expected and completion was then expected in the second quarter of 2016 at which time demolition of the existing structure would commence. At September 30, 2015, the existing parking structure had a net book value of approximately $0.4 million. Beginning in October 2015, the Company reduced the monthly depreciation expense to $0.04 million to reflect the revised depreciable life of the existing parking structure. The existing parking structure was fully depreciated as of June 30, 2016. The existing parking structure will be demolished following the opening of the new parking facility, which is expected to be completed in the fourth quarter of 2016. The depreciation expense was not adjusted to reflect the latest delay due to the insignificance of the effect the delay has on the depreciation expense. For the three months ended September 30, 2016, the changes in estimate did not have an effect on depreciation expense, net income and diluted earnings per share. For the three months ended September 30, 2015, the effect of the changes in estimate was an increase of depreciation expense by $399 thousand, a decrease of net income by $259 thousand and a decrease of basic and diluted earnings per share by $0.02. For the nine months ended September 30, 2016, the effect of the changes in estimate was an increase of depreciation expense by $266 thousand, a decrease of net income by $173 thousand and a decrease of basic and diluted earnings per share by approximately $0.01. For the nine months ended September 30, 2015, the effect of the changes in estimate was an increase of depreciation expense by $1,371 thousand, a decrease of net income by $891 thousand and a decrease of basic and diluted earnings per share by $0.06. |
Segment Reporting | Segment Reporting: The accounting guidance for disclosures about segments of an enterprise and related information requires separate financial information to be disclosed for all operating segments of a business. The Company determined that the Company’s two operating segments, Atlantis and Monarch Casino Black Hawk, meet all of the aggregation criteria stipulated by ASC 280-10-50-11. The Company views each property as an operating segment and the two operating segments have been aggregated into one reporting segment. |
STOCK-BASED COMPENSATION (Table
STOCK-BASED COMPENSATION (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
STOCK-BASED COMPENSATION | |
Schedule of stock-based compensation expense | Reported stock-based compensation expense was classified as follows (in thousands): Three months ended Nine months ended September 30, September 30, 2016 2015 2016 2015 Casino $ $ $ $ Food and beverage Hotel Selling, general and administrative Total stock-based compensation, before taxes Tax benefit Total stock-based compensation, net of tax $ $ $ $ |
EARNINGS PER SHARE (Tables)
EARNINGS PER SHARE (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
EARNINGS PER SHARE | |
Schedule of reconciliation of the number of shares (denominator) used in the basic and diluted earnings per share computations | 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 September 30, 2016 2015 Per Share Per Share Shares Amount Shares Amount Basic $ $ Effect of dilutive stock options - Diluted $ $ Nine months ended September 30, 2016 2015 Per Share Per Share Shares Amount Shares Amount Basic $ $ Effect of dilutive stock options Diluted $ $ |
SUMMARY OF SIGNIFICANT ACCOUN17
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Change in Accounting Estimate (Details) $ / shares in Units, $ in Thousands | 1 Months Ended | 3 Months Ended | 9 Months Ended | 12 Months Ended | 15 Months Ended | 18 Months Ended | ||||
Oct. 31, 2015USD ($) | Sep. 30, 2016USD ($) | Sep. 30, 2015USD ($)$ / shares | Sep. 30, 2016USD ($)item$ / shares | Sep. 30, 2015USD ($)$ / shares | Dec. 31, 2014USD ($) | Dec. 31, 2013USD ($) | Mar. 31, 2015 | Dec. 31, 2015USD ($) | Jul. 31, 2014USD ($) | |
Change in Accounting Estimate | ||||||||||
Net book value | $ 211,857 | $ 211,857 | $ 203,154 | |||||||
Net income | $ 7,834 | $ 6,394 | $ 18,104 | $ 15,536 | ||||||
SEGMENT INFORMATION | ||||||||||
Number of operating segments | item | 2 | |||||||||
Number of reportable segments | item | 1 | |||||||||
Monarch Black Hawk Parking Structure | ||||||||||
Change in Accounting Estimate | ||||||||||
Net book value | $ 4,800 | |||||||||
Estimated depreciable life | P37Y | |||||||||
Monarch Black Hawk Parking Structure | Service Life | ||||||||||
Change in Accounting Estimate | ||||||||||
Net book value | 400 | 400 | $ 2,900 | |||||||
Estimated depreciable life | P15M | P18M | ||||||||
Depreciation expense per month | $ 40 | $ 300 | ||||||||
Depreciation expense net of tax per month | $ 200 | |||||||||
Depreciation expense | 399 | $ 266 | 1,371 | |||||||
Net income | $ 259 | $ 173 | $ 891 | |||||||
Basic and diluted earnings per share (in dollars per share) | $ / shares | $ 0.02 | $ 0.01 | $ 0.06 |
STOCK-BASED COMPENSATION (Detai
STOCK-BASED COMPENSATION (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2016 | Sep. 30, 2015 | Sep. 30, 2016 | Sep. 30, 2015 | |
Stock-based compensation expense | ||||
Total stock-based compensation, before taxes | $ 433 | $ 318 | $ 983 | $ 938 |
Tax benefit | (152) | (111) | (345) | (328) |
Total stock-based compensation, net of tax | 281 | 207 | 638 | 610 |
Casino | ||||
Stock-based compensation expense | ||||
Total stock-based compensation, before taxes | 29 | 1 | 80 | 35 |
Food and beverage | ||||
Stock-based compensation expense | ||||
Total stock-based compensation, before taxes | 26 | 17 | 77 | 59 |
Hotel | ||||
Stock-based compensation expense | ||||
Total stock-based compensation, before taxes | 11 | 4 | 33 | 10 |
Selling, general and administrative | ||||
Stock-based compensation expense | ||||
Total stock-based compensation, before taxes | $ 367 | $ 296 | $ 793 | $ 834 |
EARNINGS PER SHARE (Details)
EARNINGS PER SHARE (Details) - $ / shares shares in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2016 | Sep. 30, 2015 | Sep. 30, 2016 | Sep. 30, 2015 | |
Shares | ||||
Basic (in shares) | 17,338 | 16,979 | 17,270 | 16,898 |
Effect of dilutive stock options (in shares) | 382 | 364 | 333 | 383 |
Diluted (in shares) | 17,720 | 17,343 | 17,603 | 17,281 |
Per Share Amount | ||||
Basic (in dollars per share) | $ 0.45 | $ 0.38 | $ 1.05 | $ 0.92 |
Effect of dilutive stock options (in dollars per share) | (0.01) | (0.02) | (0.02) | |
Diluted (in dollars per share) | $ 0.45 | $ 0.37 | $ 1.03 | $ 0.90 |
Stock options | ||||
Anti-dilutive securities | ||||
Anti-dilutive securities excluded from the computation of diluted earnings per share (in shares) | 314 | 687 | 885 | 645 |
RELATED PARTY TRANSACTIONS (Det
RELATED PARTY TRANSACTIONS (Details) $ in Thousands | Aug. 28, 2015USD ($)aft²item | Aug. 28, 2015USD ($)aft²item | Sep. 30, 2004USD ($) | Sep. 30, 2016USD ($)ft² | Sep. 30, 2015USD ($) | Sep. 30, 2016USD ($)ft² | Sep. 30, 2015USD ($) |
Members of Management Holding Noncontrolling Interests | BLI Parking Lot Lease | |||||||
RELATED PARTY TRANSACTIONS | |||||||
Operating expenses related to lease | $ 23 | ||||||
Members of Management Holding Noncontrolling Interests | BLI Driveway Lease | |||||||
RELATED PARTY TRANSACTIONS | |||||||
Lease term under each renewal | 5 years | ||||||
Area of property leased (in square feet) | ft² | 37,000 | 37,000 | |||||
Minimum lease term | 15 years | ||||||
Original annual rent expense | $ 300 | ||||||
Annual rent | $ 377 | ||||||
Number of terms for which the lease can be renewed | item | 3 | ||||||
Lease rent paid | $ 94 | 94 | 282 | $ 282 | |||
Operating expenses related to lease | 5 | 30 | 76 | ||||
Affiliates of Controlling Stockholders | |||||||
RELATED PARTY TRANSACTIONS | |||||||
Lease rent paid | 35 | $ 47 | 93 | $ 118 | |||
Golden Road | Members of Management Holding Noncontrolling Interests | BLI Parking Lot Lease | |||||||
RELATED PARTY TRANSACTIONS | |||||||
Lease term | 20 years | ||||||
Area of property leased (in acres) | a | 4.15 | 4.15 | |||||
Area of building being demolished (in square feet) | ft² | 46,000 | 46,000 | |||||
Number of parking spaces | item | 300 | 300 | |||||
Minimum annual rent | $ 695 | $ 695 | |||||
Anniversary years subject to cost of living adjustment rent increases | 5 years | ||||||
Lease term under each renewal | 10 years | ||||||
Amount due to related party if lease is not renewed | $ 1,600 | $ 1,600 | |||||
Lease rent paid | 174 | 522 | |||||
Operating expenses related to lease | $ 13 | $ 49 |
LONG-TERM DEBT (Details)
LONG-TERM DEBT (Details) | 9 Months Ended | 12 Months Ended | 18 Months Ended | 39 Months Ended | ||||
Sep. 30, 2016USD ($) | Sep. 30, 2016USD ($) | Sep. 30, 2016USD ($) | Sep. 30, 2016USD ($) | Jul. 20, 2016USD ($) | Jun. 30, 2016USD ($) | Dec. 31, 2015USD ($) | Nov. 15, 2011USD ($) | |
Long-term debt | ||||||||
Current portion of long-term debt | $ 40,900,000 | |||||||
Amended Credit Facility | ||||||||
Long-term debt | ||||||||
Maximum borrowing capacity prior to amendment | $ 45,500,000 | $ 100,000,000 | ||||||
Mandatory reductions in borrowing capacity | $ 19,500,000 | |||||||
Voluntary reductions in borrowing capacity | $ 35,000,000 | |||||||
Maximum borrowing capacity | $ 250,000,000 | $ 250,000,000 | 250,000,000 | 250,000,000 | $ 250,000,000 | |||
Outstanding amount under Amended Credit Facility | 29,900,000 | 29,900,000 | 29,900,000 | 29,900,000 | ||||
Remaining available credit capacity under Amended Credit Facility | 220,100,000 | $ 220,100,000 | $ 220,100,000 | $ 220,100,000 | ||||
Amount to which the maximum borrowing capacity will be reduced | 50,000,000 | |||||||
Amount of outstanding revolving loans that will be converted to term loans | $ 200,000,000 | |||||||
Amount in which the maximum borrowing capacity can be permanently reduced | 500,000 | |||||||
Multiple which may be used to permanently reduce the maximum borrowing capacity under the credit facility | $ 50,000 | |||||||
Percentage points added to the reference rate | 1.00% | |||||||
One-month LIBOR interest rate (as a percent) | 0.53% | 0.53% | 0.53% | 0.53% | ||||
Amended Credit Facility | Actual | ||||||||
Long-term debt | ||||||||
Leverage ratio | 0.6 | |||||||
Fixed charge coverage ratio | 46.4 | |||||||
Amended Credit Facility | Minimum | Requirement | ||||||||
Long-term debt | ||||||||
Fixed charge coverage ratio | 1.15 | |||||||
Amended Credit Facility | Minimum | LIBOR | ||||||||
Long-term debt | ||||||||
Percentage points added to the reference rate | 1.00% | |||||||
Amended Credit Facility | Minimum | Base Rate | ||||||||
Long-term debt | ||||||||
Percentage points added to the reference rate | 0.00% | |||||||
Amended Credit Facility | Maximum | Requirement | ||||||||
Long-term debt | ||||||||
Leverage ratio | 3.5 | |||||||
Amended Credit Facility | Maximum | LIBOR | ||||||||
Long-term debt | ||||||||
Percentage points added to the reference rate | 2.50% | |||||||
Amended Credit Facility | Maximum | Base Rate | ||||||||
Long-term debt | ||||||||
Percentage points added to the reference rate | 1.50% |
TAXES (Details)
TAXES (Details) | 9 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
TAXES | ||
Effective tax rate (as a percent) | 35.50% | 35.40% |
STOCK REPURCHASE PLAN (Details)
STOCK REPURCHASE PLAN (Details) - The Repurchase Plan - shares | 9 Months Ended | |
Sep. 30, 2016 | Oct. 22, 2014 | |
Treasury stock, shares purchased | 0 | |
Maximum | ||
Authorized repurchase of Company's common stock | 3,000,000 |