UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______TO______.
Commission File No. 0-22088
MONARCH CASINO & RESORT, INC.
(Exact name of registrant as specified in its charter)
-------------------------
NEVADA 88-0300760
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1175 W. MOANA LANE, SUITE 200
RENO, NEVADA 89509
(Address of principal (Zip code)
executive offices)
Registrant's telephone number, including area code: (775) 825-3355
-------------------------
NOT APPLICABLE
(Former name, former address and former fiscal
year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES _X_ NO ___
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES ___ NO ___
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. As of May 9, 2001, there
were 9,436,275 shares of Monarch Casino & Resort, Inc. $0.01 par value common
stock outstanding.
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MONARCH CASINO & RESORT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
March 31,
----------------------------
2001 2000
------------ ------------
(Unaudited) (Unaudited)
Revenues
Casino...................................... $ 15,000,671 $ 14,048,729
Food and beverage........................... 7,510,012 6,775,376
Hotel....................................... 4,090,180 4,109,261
Other....................................... 783,296 809,776
------------ ------------
Gross revenues........................... 27,384,159 25,743,142
Less promotional allowances................. (3,633,978) (3,093,416)
------------ ------------
Net revenues............................. 23,750,181 22,649,726
------------ ------------
Operating expenses
Casino...................................... 6,269,600 5,833,903
Food and beverage........................... 4,189,108 4,251,636
Hotel....................................... 1,618,342 1,616,464
Other....................................... 293,688 307,076
Selling, general, and administrative........ 6,582,816 5,958,071
Depreciation and amortization............... 2,472,140 2,499,755
------------ ------------
Total operating expenses................. 21,425,694 20,466,905
------------ ------------
Income from operations................... 2,324,487 2,182,821
Other expense
Interest expense, net....................... 1,865,697 2,039,109
------------ ------------
Income before income taxes............... 458,790 143,712
Provision for income taxes.................... 156,479 50,508
------------ ------------
Net income............................... $ 302,311 $ 93,204
============ ============
Net income per share of common stock
Basic..................................... $ 0.03 $ 0.01
Diluted................................... $ 0.03 $ 0.01
Weighted average number of common
shares and potential common
shares outstanding
Basic................................... 9,436,275 9,436,275
Diluted................................. 9,473,880 9,483,785
The accompanying Notes to the Condensed Consolidated Financial Statements are
an integral part of these statements.
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MONARCH CASINO & RESORT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2001 2000
------------- -------------
(Unaudited)
ASSETS
Current assets
Cash............................................ $ 7,849,409 $ 6,783,998
Receivables, net................................ 2,637,487 2,963,648
Federal income tax refund receivable............ - 417,135
Related party receivables....................... 63,147 62,920
Inventories..................................... 1,030,654 1,099,285
Prepaid expenses................................ 2,192,354 1,875,909
Prepaid federal income taxes.................... 154,281 154,281
Deferred income taxes........................... 2,066,337 2,045,651
------------- -------------
Total current assets......................... 15,993,669 15,402,827
------------- -------------
Property and equipment
Land............................................ 10,339,530 10,339,530
Land improvements............................... 3,173,926 3,173,926
Buildings....................................... 78,955,538 78,955,538
Building improvements........................... 4,718,355 4,733,595
Furniture and equipment......................... 51,003,364 50,924,021
------------- -------------
148,190,713 148,126,610
Less accumulated depreciation and amortization.. (40,288,150) (37,816,876)
------------- -------------
107,902,563 110,309,734
Construction in progress........................ 283,681 -
------------- -------------
Net property and equipment................... 108,186,244 110,309,734
------------- -------------
Other assets, net................................. 627,089 678,247
------------- -------------
Total assets................................. $ 124,807,002 $ 126,390,808
============= =============
The accompanying Notes to the Condensed Consolidated Financial Statements are
an integral part of these statements.
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MONARCH CASINO & RESORT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2001 2000
------------- -------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt............ $ 8,170,952 $ 7,537,893
Accounts payable................................ 6,115,879 8,234,219
Accounts payable construction................... 21,778 34,650
Accrued expenses................................ 7,465,125 5,690,888
------------- -------------
Total current liabilities.................... 21,773,734 21,497,650
Long-term debt, less current maturities........... 71,141,432 73,480,788
Deferred income taxes............................. 4,760,863 4,583,708
Commitments and contingencies.....................
Stockholders' equity
Preferred stock, $.01 par value, 10,000,000
shares authorized; none issued................. - -
Common stock, $.01 par value, 30,000,000
shares authorized; 9,536,275 issued;
9,436,275 outstanding.......................... 95,363 95,363
Additional paid-in capital...................... 17,241,788 17,241,788
Treasury stock, at cost......................... (329,875) (329,875)
Retained earnings............................... 10,123,697 9,821,386
------------- -------------
Total stockholders' equity................... 27,130,973 26,828,662
------------- -------------
Total liabilities and stockholders' equity... $ 124,807,002 $ 126,390,808
============= =============
The accompanying Notes to the Condensed Consolidated Financial Statements are
an integral part of these statements.
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MONARCH CASINO & RESORT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
----------------------------
2001 2000
------------ ------------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income.................................. $ 302,311 $ 93,204
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization............. 2,516,997 2,545,132
Gain on disposal of assets................ - (87,980)
Deferred income taxes..................... 156,469 (19,428)
Decrease (increase) in receivables, net... 743,069 (410,356)
Decrease in inventories................... 68,631 202,780
Increase in prepaid expenses.............. (316,445) (353,132)
Decrease in other assets.................. 5,435 5,435
Decrease in accounts payable.............. (2,118,340) (2,099,941)
Increase in accrued expenses.............. 1,774,237 1,028,707
------------ ------------
Net cash provided by
operating activities.................... 3,132,364 904,421
------------ ------------
Cash flows from investing activities:
Proceeds from sale of assets................ - 87,980
Acquisition of property and equipment....... (288,292) (759,263)
Decrease in accounts payable
construction.............................. (12,872) (631,776)
------------ ------------
Net cash used in investing activities.... (301,164) (1,303,059)
------------ ------------
Cash flows from financing activities:
Principal payments on long-term debt........ (1,765,789) (1,852,294)
------------ ------------
Net cash used in
financing activities.................... (1,765,789) (1,852,294)
------------ ------------
Net increase (decrease) in cash.......... 1,065,411 (2,250,932)
Cash at beginning of period................... 6,783,998 6,367,507
------------ ------------
Cash at end of period......................... $ 7,849,409 $ 4,116,575
============ ============
Supplemental disclosure of
cash flow information:
Cash paid for interest,
net of capitalized interest................ $ 1,162,697 $ 1,536,395
Supplemental schedule of non-cash
investing and financing activities:
The Company financed the purchase
of property and equipment in the
following amounts........................... $ 59,492 $ 24,053
The accompanying Notes to the Condensed Consolidated Financial Statements are
an integral part of these statements.
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MONARCH CASINO & RESORT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Monarch Casino & Resort, Inc. ("Monarch"), a Nevada corporation, was
incorporated in 1993. Monarch's wholly-owned subsidiary, Golden Road Motor
Inn, Inc. ("Golden Road"), operates the Atlantis Casino Resort (the
"Atlantis"), a hotel/casino facility in Reno, Nevada. Unless stated
otherwise, the "Company" refers collectively to Monarch and its wholly-owned
subsidiary, Golden Road.
The consolidated financial statements include the accounts of Monarch and
Golden Road. Intercompany balances and transactions are eliminated.
Use of Estimates
In preparing these financial statements in conformity with generally
accepted accounting principles in the United States, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the
date of the financial statements and revenues and expenses during the year.
Actual results could differ from those estimates.
Related Party Receivables
Receivables from officers, employees, or affiliated companies are
primarily for banquet related services, and are priced at the retail value of
the goods or services provided.
NOTE 2. INTERIM FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements for the
three month periods ended March 31, 2001 and March 31, 2000 are unaudited. In
the opinion of management, all adjustments, consisting of normal recurring
adjustments necessary for a fair presentation of the Company's financial
position and results of operations for such periods, have been included. The
accompanying unaudited condensed consolidated financial statements should be
read in conjunction with the Company's audited financial statements included
in its Annual Report on Form 10-K for the year ended December 31, 2000. The
results for the three month period ended March 31, 2001 are not necessarily
indicative of the results that may be expected for the year ending December
31, 2001, or for any other period.
NOTE 3. EARNINGS PER SHARE
The Company accounts for earnings per share using Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share." The following is
a reconciliation of the number of shares (denominator) used in the basic and
diluted earnings per share computations (shares in thousands):
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Three Months ended March 31,
-----------------------------------
2001 2000
---------------- ----------------
Per Share Per Share
Shares Amount Shares Amount
------ --------- ------ ---------
Net Income
Basic..................... 9,436 $ 0.03 9,436 $ 0.01
Effect of dilutive
stock options............ 38 - 48 -
------ ------- ------ -------
Diluted................... 9,474 $ 0.03 9,484 $ 0.01
====== ======= ====== =======
The following options were not included in the computation of diluted
earnings per share because the options' exercise price was greater than the
average market price of the common shares and their inclusion would be
antidilutive:
Three Months ended March 31,
-----------------------------------
2001 2000
---------------- ----------------
Options to purchase shares of
common stock (in thousands)... 14 19
Exercise prices................ $5.25-$5.94 $5.25-$6.00
Expiration dates............... 9/03-2/10 6/03-2/10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
STATEMENT ON FORWARD-LOOKING INFORMATION
Certain information included herein contains statements that may be
considered forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
such as statements relating to anticipated expenses, capital spending and
financing sources. Such forward-looking information involves important risks
and uncertainties that could significantly affect anticipated results in the
future and, accordingly, such results may differ from those expressed in any
forward-looking statements made herein. These risks and uncertainties
include, but are not limited to, those relating to competitive industry
conditions, and expansion of Indian casinos in California, Reno-area tourism
conditions, dependence on existing management, leverage and debt service
(including sensitivity to fluctuations in interest rates), the regulation of
the gaming industry (including actions affecting licensing), outcome of
litigation, domestic or global economic conditions, changes in federal or
state tax laws or the administration of such laws.
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RESULTS OF OPERATIONS
Comparison of Operating Results for the Three Month
Periods Ended March 31, 2001 and 2000
For the three month period ended March 31, 2001, the Company had net
income of $302 thousand, or $0.03 per share, on net revenues of $23.8 million,
an increase from net income of $93 thousand, or $.01 per share, on net
revenues of $22.6 million for the three months ended March 31, 2000. Income
from operations for the three months ended March 31, 2001 totaled $2.3
million, compared to $2.2 million for the same period in 2000. The Company's
first quarter of 2001 net revenue represents a new first quarter record for
the Company. In the Reno area market, the January through March period
encompassing the Company's first quarter has traditionally been marked by
weather-related seasonality, with winter storms producing moderate to severe
travel delays and difficulties for visitors to the region. The impact of the
weather this year was relatively minor.
Casino revenues were up 6.8% in the first quarter of 2001 compared to the
first quarter of 2000, reflecting increases in both slot and table game win.
Slot revenues were up 7.0% in the first quarter of 2001 compared to the first
quarter of 2000 due to an increase in the volume of slot machine play. Table
game and poker room revenue in the first quarter of 2001 increased 4.9% from
the first quarter of 2000 due to an increase in table game and poker room
drop. Casino operating expenses amounted to 41.8% of casino revenues in the
first quarter of 2001, compared to 41.5% in the first quarter of 2000, with
the difference due primarily to more efficient operations.
Food and beverage revenues increased 10.8% in the first quarter of 2001
compared to the first quarter of 2000, due primarily to the popularity of
Atlantis' restaurants and buffet, and also due to an increase in hotel
occupancy. Food and beverage operating expenses amounted to 55.8% of food and
beverage revenues during the first quarter of 2001, compared to 62.8% in the
first quarter of 2000, which was primarily due to more efficient operations.
Hotel revenues were $4.1 million for the first quarter of 2001, a
decrease of 0.5% from the 2000 first quarter. While the Atlantis' occupancy
rate for the first quarter of 2001 increased, the average daily room rate
("ADR") decreased, causing the slight decrease in hotel revenues. During the
first quarter of 2001, the Atlantis experienced an 89.2% occupancy rate, up
from an 86.5% occupancy rate for the same period in 2000. The Atlantis' ADR
was $48.58 in the first quarter of 2001 compared to $50.39 in the first
quarter of 2000. Hotel operating expenses remained relatively constant as a
percent of hotel revenues at 39.6% in the 2001 first quarter, compared to
39.3% in the 2000 first quarter.
Other revenues decreased 3.3% in the 2001 first quarter compared to the
same period last year. The decrease reflects the gain on sale of assets
included in the 2000 first quarter revenues with no gain or loss included in
the 2001 first quarter. Other expenses in the 2001 first quarter amounted to
37.5% of other revenues, compared to 37.9% in the 2000 first quarter,
reflecting a slight increase in operating efficiencies.
-8-
Selling, general and administrative expenses amounted to 27.7% of net
revenues in the first quarter of 2001, compared to 26.3% in the first quarter
of 2000. This increase is primarily due to increased energy costs in our
area.
Interest expense for the 2001 first quarter totaled $1.9 million, a
decrease of 8.5%, from $2.0 million in the 2000 first quarter. The decrease
reflects the Company's reduction in debt outstanding from the completed
Atlantis expansion and a reduction in interest rates. The three principal
officers of the Company have personally guaranteed the debt of the Company.
In the past, they have agreed not to be compensated for their personal
guarantees. There is no assurance that they will not be compensated in the
future.
OTHER FACTORS AFFECTING CURRENT AND FUTURE RESULTS
The constitutional amendment approved by California voters in 1999
allowing the expansion of Indian casinos in California will have an impact on
casino revenues in Nevada in general, and many analysts have predicted the
impact will be more significant on the Reno-Lake Tahoe market. The extent of
this impact is difficult to predict, but the Company believes that the impact
on the Company will be mitigated to an extent due to the Atlantis' emphasis on
Reno area residents as a significant base of its business. However, if other
Reno area casinos suffer business losses due to increased pressure from
California Indian casinos, they may intensify their marketing efforts to Reno
area residents as well.
The Company also believes that unlimited land-based casino gaming in or
near any major metropolitan area in the Atlantis' key non-Reno marketing
areas, such as San Francisco or Sacramento, could have a material adverse
effect on its business.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 2001, net cash provided by operating
activities totaled $3.1 million, an increase of 246.3% compared to the same
period last year. Net cash used in investing activities totaled $301 thousand
in the first quarter of 2001, a decrease of 76.9% over the same period last
year. Investing activities consisted primarily of acquisitions of property
and equipment at the Atlantis. Net cash used in financing activities totaled
$1.8 million for the first quarter of 2001, compared to $1.9 million for the
same period last year, as the Company used funds to reduce long-term debt. As
a result, at March 31, 2001, the Company had a cash balance of $7.8 million,
compared to $6.8 million at December 31, 2000.
The Company has an $80 million construction and reducing revolving credit
facility with a group of banks (the "Credit Facility"). The principal terms
of the Credit Facility are summarized in the Company's Annual Report on Form
10-K for the year ended December 31, 2000. At March 31, 2001, the outstanding
balance of the Credit Facility was $73.6 million.
The Company believes that its existing cash balances, cash flow from
operations, and availability of equipment financing, if necessary, will
provide the Company with sufficient resources to fund its operations, meet its
existing debt obligations, and fulfill its capital expenditure requirements;
however, the Company's operations are subject to financial, economic,
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competitive, regulatory, and other factors, many of which are beyond its
control. If the Company is unable to generate sufficient cash flow, it 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.
PART II. OTHER INFORMATION
None.
SIGNATURES
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: May 10, 2001 By: /s/ BEN FARAHI
------------------------------------
Ben Farahi, Co-Chairman of the Board,
Secretary, Treasurer, and Chief
Financial Officer(Principal Financial
Officer and Duly Authorized Officer)
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