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 September 30, 1997
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: (702) 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 November 12, 1997,
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.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenues
Casino............................... $ 9,845,923 $ 8,452,900 $ 29,094,980 $ 23,932,501
Food and beverage.................... 4,615,082 4,379,561 13,308,028 12,975,987
Hotel................................ 3,204,724 2,824,034 8,061,099 7,737,375
Other................................ 625,005 500,466 1,752,834 1,772,503
------------ ------------ ------------ ------------
Gross revenues.................... 18,290,734 16,156,961 52,216,941 46,418,366
Less promotional allowances.......... (2,345,759) (1,970,683) (6,385,061) (5,653,233)
------------ ------------ ------------ ------------
Net revenues...................... 15,944,975 14,186,278 45,831,880 40,765,133
------------ ------------ ------------ ------------
Operating expenses
Casino............................... 4,206,635 3,648,050 12,100,612 10,621,974
Food and beverage.................... 2,464,323 2,509,777 7,231,546 7,294,983
Hotel................................ 958,258 899,200 2,859,755 2,735,730
Other................................ 111,765 108,138 325,584 295,885
Selling, general and administrative.. 3,956,459 3,922,150 11,837,022 11,370,452
Depreciation and amortization........ 1,054,175 992,315 3,174,166 3,067,262
Gaming development costs............. 6,449 31,831 22,079 102,093
------------ ------------ ------------ ------------
Total............................. 12,758,064 12,111,461 37,550,764 35,488,379
------------ ------------ ------------ ------------
Income from operations............ 3,186,911 2,074,817 8,281,116 5,276,754
------------ ------------ ------------ ------------
Other income (expense)
Interest expense..................... (794,279) (899,378) (2,494,788) (2,747,385)
Minority interests in net loss of
consolidated subsidiaries........... - 192,404 - 206,456
Impairment loss on fixed assets...... - (1,030,592) - (1,030,592)
------------ ------------ ------------ ------------
Total............................. (794,279) (1,737,566) (2,494,788) (3,571,521)
------------ ------------ ------------ ------------
Income before income taxes........ 2,392,632 337,251 5,786,328 1,705,233
Income tax expense..................... 813,495 118,037 1,967,351 596,830
------------ ------------ ------------ ------------
Net income........................ $ 1,579,137 $ 219,214 $ 3,818,977 $ 1,108,403
============ ============ ============ ============
Net income per share.............. $ 0.17 $ 0.02 $ 0.40 $ 0.12
============ ============ ============ ============
Weighted average common
shares outstanding............... 9,436,275 9,483,840 9,447,048 9,515,056
============ ============ ============ ============
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
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MONARCH CASINO & RESORT, INC.
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1997 1996
------------ ------------
(Unaudited)
ASSETS
Current assets
Cash........................................ $ 3,804,525 $ 4,021,952
Receivables, net............................ 1,086,480 519,215
Inventories................................. 378,466 362,193
Prepaid expenses............................ 1,314,925 1,188,650
Deferred income taxes....................... 1,584,009 1,351,000
------------ ------------
Total current assets..................... 8,168,405 7,443,010
------------ ------------
Property and equipment
Land........................................ 10,339,530 10,339,530
Buildings................................... 36,576,362 36,428,415
Furniture and equipment..................... 21,881,972 22,563,156
Improvements................................ 5,027,223 4,855,481
------------ ------------
73,825,087 74,186,582
Less accumulated
depreciation and amortization.............. (16,906,812) (15,267,331)
------------ ------------
Net property and equipment............... 56,918,275 58,919,251
------------ ------------
Other assets.................................. 996,330 1,016,711
------------ ------------
$ 66,083,010 $ 67,378,972
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt........ $ 2,419,630 $ 3,487,169
Accounts payable............................ 2,112,656 2,817,766
Accrued expenses............................ 3,145,327 2,644,056
Federal income taxes payable................ 141,000 -
------------ ------------
Total current liabilities................ 7,818,613 8,948,991
Long-term debt, less current maturities....... 32,350,925 37,602,075
Deferred income taxes......................... 2,926,455 1,827,000
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 and 9,453,275 outstanding........ 95,363 95,363
Additional paid-in capital.................. 17,241,788 17,008,779
Treasury stock.............................. (329,875) (264,000)
Retained earnings........................... 5,979,741 2,160,764
------------ ------------
Total stockholders' equity............... 22,987,017 19,000,906
------------ ------------
$ 66,083,010 $ 67,378,972
============ ============
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
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MONARCH CASINO & RESORT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
----------------------------
1997 1996
------------ ------------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income.................................. $ 3,818,977 $ 1,108,403
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization............. 3,174,166 3,067,262
(Gain) loss on disposal of assets......... (412) 1,006,679
Increase in receivables, net.............. (567,265) (142,789)
Increase in inventories................... (16,273) (3,986)
Increase in prepaid expenses.............. (126,275) (78,550)
(Increase) decrease in other assets....... 17,803 (77,611)
Decrease in accounts payable.............. (705,110) (768,029)
Increase in accrued expenses.............. 642,271 1,272,725
Increase (decrease) in deferred
income tax liability..................... 1,099,455 (390,249)
Decrease in minority interests............ - (206,456)
------------ ------------
Net cash provided by
operating activities.................... 7,337,337 4,787,399
------------ ------------
Cash flows from investing activities:
Proceeds from sale of assets ............... 187,215 -
Acquisition of property and equipment....... (1,226,369) (1,277,950)
------------ ------------
Net cash used in investing activities.... (1,039,154) (1,277,950)
------------ ------------
Cash flows from financing activities:
Principal payments on long-term debt........ (6,449,735) (3,546,388)
Acquisition of treasury stock............... (65,875) (237,750)
------------ ------------
Net cash used in financing activities.... (6,515,610) (3,784,138)
------------ ------------
Net decrease in cash..................... (217,427) (274,689)
Cash at beginning of period................... 4,021,952 3,644,363
------------ ------------
Cash at end of period......................... $ 3,804,525 $ 3,369,674
============ ============
Supplemental disclosure of cash flow information:
Cash paid for interest...................... $ 2,547,699 $ 2,354,585
Cash paid for income taxes.................. 610,000 327,542
Supplemental schedule of non-cash
investing and financing activities:
The Company financed the purchase of property
and equipment in the following amounts..... 316,162 875,873
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
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MONARCH CASINO & RESORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reorganization and Basis of Presentation
Monarch Casino & Resort, Inc. ("Monarch") was incorporated in 1993.
Golden Road Motor Inn, Inc., dba Atlantis Casino Resort ("Golden Road")
operates a hotel and casino in Reno, Nevada. Unless stated otherwise, the
"Company" refers collectively to Monarch, its wholly owned subsidiary Golden
Road, and majority owned subsidiaries, Dunes-Marina Resort and Casino, Inc.
("Monarch-Marina"), formed in December 1993, and Sea World Processors, Inc.
("Sea World"), purchased in February 1994.
The consolidated financial statements include the accounts of Monarch,
Golden Road, Monarch-Marina and Sea World, and eliminate intercompany balances
and transactions in a manner similar to a pooling of interests.
In preparing these financial statements in conformity with generally
accepted accounting principles, 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.
NOTE 2. INTERIM FINANCIAL STATEMENTS
The accompanying consolidated financial statements for the three month
and nine month periods ended September 30, 1997 and September 30, 1996 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 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,
1996. The results for the three month and nine month periods ended September
30, 1997 are not necessarily indicative of the results that may be expected
for the year ending December 31, 1997, or for any other period.
-5-
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 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, 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 and changes in federal or state tax
laws or the administration of such laws.
RESULTS OF OPERATIONS
Comparison of Operating Results for the Three Month
Periods Ended September 30, 1997 and 1996
For the three month period ended September 30, 1997, the Company earned
$1.6 million, or $.17 per share, on net revenues of $15.9 million, up from
earnings of $219 thousand, or $.02 per share, on net revenues of $14.2 million
for the three months ended September 30, 1996, a 620% and 12% increase in net
income and net revenues, respectively. Income from operations for the three
months ended September 30, 1997 totaled $3.2 million, up from $2.1 million for
the three months ended September 30, 1996, a 54% increase. In each of the
three categories, net revenues, operating income and net income, the 1997
third quarter results represent the highest results achieved during any
quarter in the Company's history. The Company attributes its favorable 1997
third quarter results to the increasing popularity of the Company's Atlantis
Casino Resort (the "Atlantis") and its south Reno location with patrons from
the rapidly growing residential and industrial communities south of the
Atlantis in Reno, as well as with visitors to the Reno area. The Company also
credits effective marketing programs and continued emphasis on cost control.
Casino revenues totaled $9.8 million in the third quarter of 1997,
representing an increase of more than 16% over the $8.5 million reported for
the third quarter of 1996. Slot revenues rose approximately 23% in the 1997
third quarter compared to the 1996 third quarter, while table game revenues
increased by approximately 3%. The Company's slot and table game revenues were
positively impacted in the 1997 third quarter by growth in the Atlantis'
premium player segment as well as positive contributions from special events
both at the Atlantis and in the Reno area. Casino operating expenses amounted
to 42.7% of casino revenues in the 1997 third quarter, compared to 43.2% in
the 1996 third quarter.
Food and beverage revenues for the 1997 third quarter increased by more
than 5% over the same period in 1996, rising to $4.6 million from $4.4
million, primarily as a result of an increase in the average ticket price at
the Atlantis' food and beverage outlets. Food and beverage operating
-6-
expenses during the 1997 third quarter amounted to 53.4% of food and beverage
revenues, compared to 57.3% for the third quarter of 1996.
Hotel revenues in the 1997 third quarter increased by approximately 13%
over the same period in 1996, to $3.2 million in 1997 from $2.8 million in
1996. The increased revenues were driven by a 20% increase in the Atlantis'
average daily room rate ("ADR") in the 1997 third quarter compared to the 1996
third quarter, which was partially offset by a 4.9 point drop in the Atlantis'
average occupancy rate in the 1997 third quarter compared to the 1996 third
quarter. During the 1996 third quarter, the Atlantis' hotel revenues were
adversely impacted by unusually severe price competition in the Reno area
lodging market, which the Company believes also negatively impacted the hotel
revenues of the Atlantis' primary competitors. Hotel operating expenses in
the 1997 third quarter equaled 29.9% of hotel revenues, compared to 31.8% for
the same quarter in 1996.
Other revenues in the 1997 third quarter totaled $625 thousand, up from
$500 thousand in the 1996 third quarter, a 25% increase. The increase
primarily reflects increased revenues from the Atlantis' retail operations and
commission income in the 1997 third quarter.
Selling, general and administrative ("SG&A") expenses amounted to 24.8%
of net revenues in the third quarter of 1997, compared to 27.6% in the third
quarter of 1996. The improvement in the SG&A expense margin in the 1997 third
quarter reflects the Company's success in holding down the growth in SG&A
costs in the 1997 third quarter to less than 1% compared to the 1996 period,
while increasing net revenues during the same period by more than 12%. The
Company incurred a relatively high level of marketing costs during the 1996
third quarter, primarily resulting from heightened levels of competition in
the Reno area market during that period.
Interest expense for the 1997 third quarter totaled $794 thousand, down
from $899 thousand in the third quarter of 1996, a 12% decrease, reflecting
lower average outstanding debt. During the first nine months of 1997, the
Company has reduced its outstanding debt obligations by approximately $6.3
million.
During the 1996 third quarter, the Company recorded a one-time, non-cash
impairment loss on fixed assets of approximately $1 million (before minority
interests). The impairment loss was recognized on a marine vessel owned by a
subsidiary of the Company, which the Company had intended to use as a
riverboat gaming vessel.
Comparison of Operating Results for the Nine Month
Periods Ended September 30, 1997 and 1996
For the nine months ended September 30, 1997, the Company earned $3.8
million, or $.40 per share, on net revenues of $45.8 million, compared to
earnings of $1.1 million, or $.12 per share, on net revenues of $40.8 million
during the nine months ended September 30, 1996, a 245% and 12% increase in
net income and net revenues, respectively. Operating income for the 1997 nine
month period totaled $8.3 million, compared to $5.3 million for the same
period in 1996, a 57% increase. In each of the three categories, net
revenues, operating income and net income, the 1997 nine month results
represent the highest results achieved during any comparable period in the
Company's history.
-7-
Casino revenues for the first nine months of 1997 totaled $29.1 million,
up approximately 22% from casino revenues of $23.9 million for the first nine
months of 1996, driven by growth in both slot and table game revenues, which
were up 26% and 8%, respectively. Casino operating expenses amounted to 41.6%
of casino revenues for the nine months ended September 30, 1997, compared to
44.4% for the nine month period ended September 30, 1996, with the improvement
primarily resulting from higher revenues from slot and video poker devices,
which are the Company's most profitable source of revenue.
Food and beverage revenues totaled $13.3 million for the nine months
ended September 30, 1997, compared to $13.0 million for the nine months ended
September 30, 1996, a 3% increase. Food and beverage operating expenses
totaled $7.2 million for the nine month period ended September 30, 1997,
compared to $7.3 million for the nine month period ended September 30, 1996,
resulting in an improvement in the food and beverage operating expense margin,
which fell to 54.3% for the nine month period ended September 30, 1997, from
56.2% for the nine month period ended September 30, 1996.
Hotel revenues for the first nine months of 1997 totaled $8.1 million, up
approximately 4% from $7.7 million for the first nine months of 1996. The
hotel operating expense margin for the nine month period ended September 30,
1997 was 35.5%, compared to 35.4% for the 1996 nine month period.
SG&A expenses amounted to 25.8% of net revenues for the nine months ended
September 30, 1997, compared to 27.9% for the same period in 1996, primarily
reflecting name change costs and increased marketing costs incurred in the
second and third quarters of 1996.
Interest expense for the nine months ended September 30, 1997 totaled
$2.5 million, down from $2.7 million for the same period in 1996,a 9%
decrease, reflecting lower average outstanding debt in the 1997 period.
The Company's 1996 nine month results reflect a one-time, non-cash
impairment loss on fixed assets of approximately $1 million (before minority
interests). The impairment loss was recognized on a marine vessel owned by a
subsidiary of the Company, which the Company had intended to use as a
riverboat gaming vessel.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 1997, net cash provided by
operating activities totaled $7.3 million. Net cash used in investing
activities for the same period totaled $1.0 million, which consisted entirely
of acquisitions of property and equipment at the Atlantis. Net cash used in
financing activities during the same period totaled $6.5 million, with funds
used to reduce debt and repurchase the Company's common stock. As a result,
at September 30, 1997 the Company had cash of $3.8 million, compared to $4.0
million on December 31, 1996.
In April 1995, the Company announced that its Board of Directors
authorized the open market repurchase of up to 200,000 shares of the Company's
common stock to be used, in part, to fund future issuance of stock under the
Company's director, executive, and employee stock option and incentive
compensation plans. Although the Company did not repurchase any shares during
the 1997 third quarter, over the past 15 months the Company has repurchased
100,000 shares of its common stock on the open market at a total
-8-
cost of $330 thousand, and retains the ability to repurchase up to 100,000
shares under the Board's authorization. The Company has funded the purchases
made to date and intends to fund any future repurchases from cash on hand.
The Company believes that it is important to maintain the Atlantis as a
first class resort facility in order to compete successfully and increase its
customer base in the face of competitive pressures, and intends to expend
funds on maintenance, refurbishment and renovation sufficient to maintain the
Atlantis as such. Net Capital expenditures at the Atlantis totaled approxi-
mately $547 thousand in the 1997 third quarter, including amounts financed,
bringing net capital expenditures for the nine month period ended September
30, 1997, to approximately $1.4 million, including amounts financed.
The Company maintains a bank loan with a syndicate of banks which has a
reducing revolving feature allowing the Company to prepay and reborrow funds
so long as the maximum amount outstanding does not exceed an established
maximum amount. (For a complete description of the Company's bank loan
arrangements, please see the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, Item 8.) In order to minimize interest expense, the
Company has in the past used available funds to prepay the bank loan, while
preserving the right to reborrow certain of the prepaid amounts in order to
enhance the Company's liquidity. As of November 12, 1997, the Company had
prepaid all of the mandatory principal reductions due under its bank loan
through January 31, 1999. Also as of November 12, 1997, the Company had
approximately $4.7 million available under the bank loan, representing prepaid
amounts available to be reborrowed and previously unused availability. Funds
drawn on the bank loan can be used by the Company for purposes specified in
the loan agreement, including capital expenditures at the Atlantis.
The Company announced in 1995 that it had submitted plans for review and
approval of a major expansion of the Atlantis to the City of Reno. Those
plans were subsequently approved by the City of Reno substantially as
submitted. The Company estimates that the total cost of the expansion, as
approved by the City of Reno, would be in excess of $100 million; however, the
Company has the option of building the project in phases, scaling back or
abandoning the project. Management believes it could effectively utilize more
room, restaurant, meeting space and gaming capacity at the Atlantis, and has
begun designing the next phase of expansion of the Atlantis. The Company does
not presently have the capital resources to construct the expansion project,
nor has it obtained financing commitments for the expansion project.
Furthermore, the Company cannot provide any assurance that financing will be
available for this project on terms acceptable to the Company, if at all.
For a more detailed discussion of the Company's liquidity and capital
resources, see the Company's Annual Report on Form 10-K for the year ended
December 31, 1996, Item 7.
-9-
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
EX-27 Financial Data Schedule
(b) Reports on Form 8-K
None
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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: November 13, 1997 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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EXHIBIT INDEX
Exhibit No. Description Page No.
- ----------- ----------- --------
EX-27 Financial Data Schedule
-12-