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, 2002
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______TO______.
Commission File 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 14, 2002, 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,
----------------------------
2002 2001
------------ ------------
(Unaudited) (Unaudited)
Revenues
Casino...................................... $ 16,579,314 $ 14,993,171
Food and beverage........................... 8,003,566 7,510,012
Hotel....................................... 4,378,916 4,090,180
Other....................................... 830,603 783,296
------------ ------------
Gross revenues........................... 29,792,399 27,376,659
Less promotional allowances................. (3,996,198) (3,633,978)
------------ ------------
Net revenues............................. 25,796,201 23,742,681
------------ ------------
Operating expenses
Casino...................................... 6,537,794 6,262,100
Food and beverage........................... 4,249,507 4,189,108
Hotel....................................... 1,517,613 1,618,342
Other....................................... 321,832 293,688
Selling, general, and administrative........ 7,116,155 6,582,816
Depreciation and amortization............... 2,546,902 2,472,140
------------ ------------
Total operating expenses................. 22,289,803 21,418,194
------------ ------------
Income from operations................... 3,506,398 2,324,487
Other expense
Interest expense............................ 1,117,990 1,865,697
------------ ------------
Income before income taxes............... 2,388,408 458,790
Provision for income taxes.................... 803,324 156,479
------------ ------------
Net income............................... $ 1,585,084 $ 302,311
============ ============
Net income per share of common stock
Basic..................................... $ 0.17 $ 0.03
Diluted................................... $ 0.17 $ 0.03
Weighted average number of common
shares and potential common
shares outstanding
Basic................................... 9,436,275 9,436,275
Diluted................................. 9,502,697 9,473,880
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,
2002 2001
------------- -------------
(Unaudited)
ASSETS
Current assets
Cash............................................ $ 7,909,182 $ 8,385,743
Receivables, net................................ 2,488,081 2,863,939
Federal income tax refund receivable............ - 770,019
Related party receivables....................... 22,414 4,759
Inventories..................................... 903,423 976,141
Prepaid expenses................................ 1,922,488 1,635,125
Deferred income taxes........................... 720,184 1,146,058
------------- -------------
Total current assets......................... 13,965,772 15,781,784
------------- -------------
Property and equipment
Land............................................ 10,339,530 10,339,530
Land improvements............................... 3,173,676 3,173,676
Buildings....................................... 78,955,538 78,955,538
Building improvements........................... 4,770,772 4,763,904
Furniture and equipment......................... 54,418,885 54,101,471
------------- -------------
151,658,401 151,334,119
Less accumulated depreciation and amortization.. (49,692,549) (47,164,026)
------------- -------------
101,965,852 104,170,093
Construction in progress........................ 2,350,880 625,048
------------- -------------
Net property and equipment................... 104,316,732 104,795,141
------------- -------------
Other assets, net................................. 440,870 486,592
------------- -------------
Total assets................................. $ 118,723,374 $ 121,063,517
============= =============
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,
2002 2001
------------- -------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt............ $ 8,722,362 $ 8,106,296
Accounts payable................................ 5,127,673 6,449,087
Accounts payable construction................... 408,210 147,481
Accrued expenses................................ 5,003,391 5,702,850
Federal income taxes payable.................... 355,535 -
------------- -------------
Total current liabilities.................... 19,617,171 20,405,714
Long-term debt, less current maturities........... 61,247,970 64,236,548
Deferred income taxes............................. 4,842,723 4,990,829
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............................... 16,008,234 14,423,150
------------- -------------
Total stockholders' equity................... 33,015,510 31,430,426
------------- -------------
Total liabilities and stockholders' equity... $ 118,723,374 $ 121,063,517
============= =============
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,
----------------------------
2002 2001
------------ ------------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income.................................. $ 1,585,084 $ 302,311
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization............. 2,591,759 2,516,997
Loss on disposal of assets................ 1,864 -
Deferred income taxes..................... 277,768 156,469
Decrease in receivables, net.............. 1,128,222 743,069
Decrease in inventories................... 72,718 68,631
Increase in prepaid expenses.............. (287,363) (316,445)
Decrease in other assets.................. - 5,435
Decrease in accounts payable.............. (1,321,414) (2,118,340)
(Decrease) increase in accrued expenses
and federal income taxes payable........ (343,924) 1,774,237
------------ ------------
Net cash provided by
operating activities.................... 3,704,714 3,132,364
------------ ------------
Cash flows from investing activities:
Proceeds from sale of assets................ 2,500 -
Acquisition of property and equipment....... (1,821,028) (288,292)
Increase (decrease) in accounts payable
construction.............................. 260,729 (12,872)
------------ ------------
Net cash used in investing activities.... (1,557,799) (301,164)
------------ ------------
Cash flows from financing activities:
Principal payments on long-term debt........ (2,623,476) (1,765,789)
------------ ------------
Net cash used in
financing activities.................... (2,623,476) (1,765,789)
------------ ------------
Net increase (decrease) in cash.......... (476,561) 1,065,411
Cash at beginning of period................... 8,385,743 6,783,998
------------ ------------
Cash at end of period......................... $ 7,909,182 $ 7,849,409
============ ============
Supplemental disclosure of
cash flow information:
Cash paid for interest...................... $ 1,132,987 $ 1,162,697
Supplemental schedule of non-cash
investing and financing activities:
The Company financed the purchase
of property and equipment in the
following amounts........................... $ 250,964 $ 59,492
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"), owns and 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 Golden Road
subsidiary.
The condensed 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 accounting
principles generally accepted 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.
Reclassifications
Certain amounts in the three months ended March 31, 2001 condensed
consolidated financial statements have been reclassified to conform with the
2002 presentation. These reclassifications had no effect on the Company's
previously reported net income.
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.
Stockholder Guarantee Fees
All of the Company's bank debt is personally guaranteed by the Company's
three largest stockholders. Effective January 1, 2001 the Company is
compensating the guarantors at the rate of 2% per annum of the quarterly
average outstanding bank debt amount until the guarantees are cancelled or the
notes are paid off. During the three months ended March 31, 2002, and 2001,
the Company recorded an interest expense in the amount of approximately $350
thousand and $390 thousand in guarantee fees, respectively.
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NOTE 2. INTERIM FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements for the
three month periods ended March 31, 2002 and March 31, 2001 are unaudited. In
the opinion of management, all adjustments, (which include 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, 2001. The
results for the three month period ended March 31, 2002 are not necessarily
indicative of the results that may be expected for the year ending December
31, 2002, or for any other period.
NOTE 3. EARNINGS PER SHARE
The Company reports "basic" earnings per share and "diluted" earnings per
share in accordance with the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 128, "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 March 31,
-----------------------------------
2002 2001
---------------- ----------------
Per Share Per Share
Shares Amount Shares Amount
------ --------- ------ ---------
Net Income
Basic..................... 9,436 $ 0.17 9,436 $ 0.03
Effect of dilutive
stock options............ 67 - 38 -
------ ------- ------ -------
Diluted................... 9,503 $ 0.17 9,474 $ 0.03
====== ======= ====== =======
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,
-----------------------------------
2002 2001
---------------- ----------------
Options to purchase shares of
common stock (in thousands)... - 14
Exercise prices................ - $5.25-$5.94
Expiration dates............... - 9/03-2/10
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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, economic conditions in Northern California, 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 including those affected by the events of September 11, 2001 and
changes in federal or state tax laws or the administration of such laws.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company prepares its condensed consolidated financial statements in
conformity with principles generally accepted in the United States. Certain of
the Company's policies, including the estimated lives assigned to the Company's
assets, the determination of bad debt, self insurance reserves, credit risk,
and the calculation of income tax liabilities, require that the Company apply
significant judgment in defining the appropriate assumptions for calculating
financial estimates. By their nature, these judgments are subject to an
inherent degree of uncertainty. The Company's judgments are based on
historical experience, terms of existing contracts, observations of trends in
the industry, information provided by customers and information available from
other outside sources, as appropriate. There can be no assurance that actual
results will not differ from Company estimates. To provide an understanding of
the methodologies applied, the Company's significant accounting policies are
discussed where appropriate in this discussion and analysis and in the Notes to
condensed consolidated financial statements.
RESULTS OF OPERATIONS
Comparison of Operating Results for the Three Month
Periods Ended March 31, 2002 and 2001
For the three month period ended March 31, 2002, the Company earned net
income of $1.6 million, or $0.17 per share, on net revenues of $25.8 million,
an increase from net income of $302 thousand, or $.03 per share, on net
revenues of $23.7 million for the three months ended March 31, 2001. Income
from operations for the three months ended March 31, 2002 totaled $3.5
million, compared to $2.3 million for the same period in 2001. Both net
revenues and net income for the first quarter of 2002 represent new first
quarter records for the Company. Net revenues increased 8.6%, and net income
increased 424.3% when compared to last year's first quarter. 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
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winter storms producing moderate to severe travel delays and difficulties for
visitors to the region. Due to the relatively mild winter, management
believes that the impact of the weather this year was, once again, relatively
minor.
Casino revenues totaled $16.6 million in the first quarter of 2002, a
10.6% increase from the $15.0 million in the first quarter of 2001, reflecting
increases in slot, table game and poker win. Slot revenues were up 7.2% in
the first quarter of 2002 compared to the first quarter of 2001 due to an
increase in the volume of slot machine play. Table game and poker room
revenue in the first quarter of 2002 increased 26.1% from the first quarter of
2001 due to an increase in table game and poker room drop and a higher hold
percentage. Keno win decreased 24.9% in the first quarter 2002 compared to
the first quarter 2001. Although keno write increased approximately 3.1%, the
increase was offset by a lower win percentage in the first quarter of 2002
compared to the first quarter 2001. Casino operating expenses amounted to
39.4% of casino revenues in the first quarter of 2002, compared to 41.8% in
the first quarter of 2001, with the difference due primarily to more efficient
operations.
Food and beverage revenues totaled $8.0 million in the first quarter of
2002, a 6.6% increase from the $7.5 million in the first quarter of 2001, due
primarily to the popularity of Atlantis' restaurants, buffet, convention
facilities and an increase in hotel occupancy. Food and beverage operating
expenses amounted to 53.1% of food and beverage revenues during the first
quarter of 2002, compared to 55.8% in the first quarter of 2001, which was
primarily due to more efficient operations achieved through reduced average
cost of sales and reduced variable operating expenses.
Hotel revenues were $4.4 million for the first quarter of 2002, an
increase of 7.1% from the $4.1 million in hotel revenues in the 2001 first
quarter. This increase was the result of increases in both hotel occupancy
and the average daily room rate (ADR). First quarter 2002 revenues also
included a $3 per occupied room energy surcharge that was not assessed during
the first quarter of 2001. During the first quarter of 2002, the Atlantis
experienced a 91.0% occupancy rate, up from an 89.2% occupancy rate for the
same period in 2001. The Atlantis' ADR was $48.71 in the first quarter of
2002 compared to $47.95 in the first quarter of 2001. Hotel operating
expenses as a percent of hotel revenues decreased to 34.7% in the 2002 first
quarter, compared to 39.6% in the 2001 first quarter, primarily due to
increased efficiencies.
Other revenues increased 6.0% to $831 thousand in the 2002 first quarter
compared to $783 thousand in the same period last year. The increase reflects
increased retail sales in both the gift and sundries shops and the
entertainment fun center. Other expenses in the 2002 first quarter amounted
to 38.7% of other revenues, compared to 37.5% in the 2001 first quarter,
reflecting a slight increase as a result of higher costs of sales and
equipment repair costs.
Selling, general and administrative expenses amounted to 27.6% of net
revenues in the first quarter of 2002, relatively unchanged compared to 27.7%
in the first quarter of 2001.
-9-
Interest expense for the 2002 first quarter totaled $1.1 million, a
decrease of 40.1%, from $1.9 million in the 2001 first quarter. The decrease
reflects the Company's reduction in debt outstanding and lower applicable
interest rates. Interest expense for both the quarters ending March 31, 2002,
and 2001, included guarantee fees paid to the three principal stockholders of
the Company. Starting January 2001, the Company began compensating the three
principal stockholders of the Company for their personal guarantees of the
Company's outstanding bank debt at the rate of 2% per annum of the quarterly
average outstanding bank debt. These guarantee expenses totaled approximately
$350 thousand and $390 thousand in the first quarters of 2002 and 2001,
respectively.
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, 2002, net cash provided by operating
activities totaled $3.7 million, an increase of 18.3% compared to the same
period last year. Net cash used in investing activities totaled $1.6 million
and were used primarily in the acquisition of property and equipment at the
Atlantis in the first quarter of 2002. Net cash used in financing activities
totaled $2.6 million for the first quarter of 2002, compared to $1.8 million
for the same period last year, as the Company used funds to reduce long-term
debt. As a result, at March 31, 2002, the Company had a cash balance of $7.9
million, compared to $8.4 million at December 31, 2001.
The Company has a reducing revolving credit facility with a group of
banks (the "Credit Facility"). At March 31, 2002, the total balance
outstanding on the Credit Facility was $66.3 million. This facility is
guaranteed by the Company's three principal stockholders who, beginning in
2001, earn a fee equal to 2% per annum of the quarterly average outstanding
bank debt amount. These guarantee expenses totaled approximately $350 thousand
in the first quarter of 2002. 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, 2001.
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;
-10-
however, the Company's operations are subject to financial, economic,
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.
Contractual cash obligations for the Company as of March 31, 2002 over the
next five years are as follows:
Payments Due by Period
------------------------------------------------
Contractual Cash Less than 1 to 3 4 to 5
Obligations Total 1 year years years
------------------------------------------------
Long Term debt $69,822,101 $ 8,680,919 $61,141,182 $ -
Capital Lease Obligations 169,638 52,179 104,358 13,101
Operating Leases 524,098 161,261 322,522 40,315
----------- ----------- ----------- ---------
Total Contractual Cash $70,515,837 $ 8,894,359 $61,568,062 $ 53,416
Obligations
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not utilize derivative transactions to hedge the
Company's exposure to interest rate changes.
PART II. OTHER INFORMATION
ITEM 5 - Other Information
The three principal stockholders of the Company, through their
affiliates, directly or indirectly control the ownership and management of a
shopping center directly adjacent to the Atlantis. The shopping center
occupies 18.7 acres and consists of 233,000 square feet of retail space. The
Company currently rents approximately 3,400 square feet in the shopping center
and pays rent of approximately $3,400 per month.
-11-
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 14, 2002 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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