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, 1999
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 November 9, 1999, 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,
-------------------------- --------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenues
Casino............................... $ 13,744,711 $ 10,666,836 $ 35,623,157 $ 30,846,935
Food and beverage.................... 7,467,982 4,509,286 17,832,428 13,505,549
Hotel................................ 5,054,669 3,057,075 10,832,779 8,506,178
Other................................ 829,793 791,076 2,129,621 2,048,595
------------ ------------ ------------ ------------
Gross revenues.................... 27,097,155 19,024,273 66,417,985 54,907,257
Less promotional allowances.......... (3,538,745) (2,626,320) (9,347,854) (7,394,250)
------------ ------------ ------------ ------------
Net revenues...................... 23,558,410 16,397,953 57,070,131 47,513,007
------------ ------------ ------------ ------------
Operating expenses
Casino............................... 6,229,649 4,607,507 16,154,441 13,217,037
Food and beverage.................... 4,636,017 2,512,958 10,524,364 7,389,736
Hotel................................ 1,580,120 916,197 3,493,466 2,730,628
Other................................ 134,132 119,473 347,932 364,567
Selling, general and administrative.. 6,395,170 4,339,007 16,774,430 12,628,978
Depreciation and amortization........ 1,714,025 1,151,666 4,537,584 3,437,814
------------ ------------ ------------ ------------
Total............................. 20,689,113 13,646,808 51,832,217 39,768,760
------------ ------------ ------------ ------------
Income from operations............ 2,869,297 2,751,145 5,237,914 7,744,247
------------ ------------ ------------ ------------
Other expense
Interest expense..................... 1,735,314 548,872 3,185,021 1,746,606
------------ ------------ ------------ ------------
Total............................. 1,735,314 548,872 3,185,021 1,746,606
------------ ------------ ------------ ------------
Income before income taxes........ 1,133,983 2,202,273 2,052,893 5,997,641
Provision for income taxes............. 385,555 739,524 697,984 2,029,914
------------ ------------ ------------ ------------
Net Income........................ $ 748,428 $ 1,462,749 $ 1,354,909 $ 3,967,727
============ ============ ============ ============
Income per share of common stock
Net income
Basic.............................. $ 0.08 $ 0.16 $ 0.14 $ 0.42
Diluted............................ $ 0.08 $ 0.15 $ 0.14 $ 0.42
Weighted average number of common
shares and potential common
shares outstanding
Basic.............................. 9,436,275 9,436,275 9,436,275 9,436,275
Diluted............................ 9,503,570 9,504,397 9,500,418 9,505,855
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,
1999 1998
-------------- -------------
(Unaudited)
ASSETS
Current assets
Cash................................................. $ 5,822,215 $ 4,950,244
Receivables, net..................................... 2,300,949 1,274,343
Inventories.......................................... 720,341 476,948
Prepaid expenses..................................... 1,962,257 1,628,717
Prepaid federal income taxes ........................ - 449,226
Deferred income taxes................................ 796,152 432,874
------------- ------------
Total current assets.............................. 11,601,914 9,212,352
------------- ------------
Property and equipment
Land................................................. 10,339,530 10,339,530
Land improvements.................................... 2,628,956 -
Buildings............................................ 78,366,226 35,335,973
Furniture and equipment.............................. 47,131,737 24,667,318
Improvements......................................... 5,113,129 4,969,881
------------- ------------
143,579,578 75,312,702
Less accumulated depreciation and amortization....... (26,517,174) (22,125,039)
------------- ------------
117,062,404 53,187,663
Construction in progress............................. - 32,669,282
------------- ------------
Net property and equipment........................ 117,062,404 85,856,945
------------- ------------
Other assets........................................... 1,748,086 1,662,663
------------- ------------
$ 130,412,404 $ 96,731,960
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt................. $ 5,090,336 $ 850,498
Accounts payable-trade............................... 5,483,200 3,441,829
Accounts payable-construction........................ 3,388,469 7,275,617
Accrued expenses..................................... 4,867,917 4,152,237
Federal income taxes payable......................... 111,039 -
------------- ------------
Total current liabilities......................... 18,940,961 15,720,181
Long-term debt, less current maturities................ 80,913,545 52,309,785
Deferred income taxes.................................. 2,749,545 2,248,548
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....................................... (329,875) (329,875)
Retained earnings.................................... 10,801,077 9,446,170
------------- ------------
Total stockholders' equity........................ 27,808,353 26,453,446
------------- ------------
$ 130,412,404 $ 96,731,960
============= ============
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
-3-
MONARCH CASINO & RESORT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
----------------------------
1999 1998
------------ ------------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income............................................ $ 1,354,909 $ 3,967,727
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization....................... 4,537,584 3,437,814
(Gain) loss on disposal of assets................... (15,044) 17,495
Increase in receivables, net........................ (1,026,606) (368,038)
(Increase) decrease in inventories.................. (243,393) 165,743
Decrease in prepaid expenses........................ 115,686 72,225
(Increase) decrease in deferred income tax asset.... (363,278) 682,497
Increase in other assets............................ (85,423) (5,877)
Increase (decrease) in accounts payable............. 2,041,371 (1,363,529)
Increase in accrued expenses........................ 826,719 268,211
Increase (decrease) in deferred income tax liability 500,997 (47,666)
------------ ------------
Net cash provided by operating activities.......... 7,643,522 6,826,602
------------ ------------
Cash flows from investing activities:
Proceeds from sale of assets.......................... 21,018 8,120
Acquisition of property and equipment................. (32,788,935) (10,671,106)
------------ ------------
Net cash used in investing activities.............. (32,767,917) (10,662,986)
------------ ------------
Cash flows from financing activities:
Proceeds from long-term borrowings.................... 27,492,634 7,167,345
Principal payments on long-term debt.................. (1,496,268) (4,202,333)
------------ ------------
Net cash provided by financing
activities........................................ 25,996,366 2,965,012
------------ ------------
Net increase (decrease) in cash.................... 871,971 (871,372)
Cash at beginning of period............................. 4,950,244 5,527,839
------------ ------------
Cash at end of period................................... $ 5,822,215 $ 4,656,467
============ ============
Supplemental disclosure of
cash flow information:
Cash paid for interest,
net of capitalized interest.......................... $ 3,352,036 $ 2,443,045
Capitalized interest.................................. 1,090,428 141,531
Cash paid for income taxes............................ - 1,237,479
Supplemental schedule of non-cash
investing and financing activities:
The Company financed the purchase of property
and equipment in the following amounts............... 6,847,232 603,075
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
-4-
MONARCH CASINO & RESORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Monarch Casino & Resort, Inc. ("Monarch") was incorporated in 1993.
Golden Road Motor Inn, Inc. ("Golden Road") operates the Atlantis Casino
Resort (the "Atlantis") in Reno, Nevada, and owns a 16-acre site adjacent to
the Atlantis, which is suitable for future development. 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. ("Dunes 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, Dunes Marina and Sea World, and eliminate intercompany balances
and transactions.
Use of Estimates
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.
Reclassifications
Certain amounts in the 1998 consolidated financial statements have been
reclassified to conform with the 1999 presentation. These reclassifications
had no effect on the Company's net income.
NOTE 2. INTERIM FINANCIAL STATEMENTS
The accompanying consolidated financial statements for the three month
and nine month periods ended September 30, 1999 and September 30, 1998 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,
1998. The results for the three month and nine month periods ended September
30, 1999 are not necessarily indicative of the results that may be expected
for the year ending December 31, 1999, or for any other period.
NOTE 3. EARNINGS PER SHARE
In 1997, the Company adopted the provisions of SFAS No. 128, Earnings Per
Share. Earnings per share for all periods presented have been restated to
reflect the adoption of SFAS No. 128. SFAS No. 128 requires companies to
present basic earnings per share, and, if applicable, diluted earnings per
-5-
share. Basic earnings per share excludes dilution and is computed by dividing
net earnings available to common stockholders by the weighted average number
of common shares outstanding for the period. Diluted earnings per share
reflects the potential dilution that could occur if options to issue common
stock were exercised into common stock.
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,
-----------------------------------
1999 1998
---------------- ----------------
Per Share Per Share
Shares Amount Shares Amount
------ --------- ------ ---------
Net Income
Basic..................... 9,436 $0.08 9,436 $0.16
Effect of dilutive
stock options............ 68 - 68 (0.01)
------ ------- ------ -------
Diluted................... 9,504 $0.08 9,504 $0.15
====== ======= ====== =======
Nine Months ended September 30,
-----------------------------------
1999 1998
---------------- ----------------
Per Share Per Share
Shares Amount Shares Amount
------ --------- ------ ---------
Net Income
Basic..................... 9,436 $0.14 9,436 $0.42
Effect of dilutive
stock options............ 64 - 70 -
------ ------ ------ ------
Diluted................... 9,500 $0.14 9,506 $0.42
====== ====== ====== ======
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:
-6-
Three Months ended September 30,
-----------------------------------
1999 1998
---------------- ----------------
Options to purchase shares of
common stock (in thousands)... 10 13
Exercise prices................. $7.56 $5.94-$8.06
Expiration dates................ 7/09 6/99-5/08
Nine Months ended September 30,
-----------------------------------
1999 1998
---------------- ----------------
Options to purchase shares of
common stock (in thousands)... 10 4
Exercise prices................. $7.56 $6.44-$8.06
Expiration dates................ 7/09 6/99-5/08
-7-
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 reduction of construction disruption, vendor
lien disputes, 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 construction activities, 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, changes in federal or state tax laws or the administration of such
laws, and issues related to the year 2000.
RESULTS OF OPERATIONS
Comparison of Operating Results for the Three Month
Periods Ended September 30, 1999 and 1998
For the three month period ended September 30, 1999, the Company earned
$748 thousand, or $0.08 per share, on net revenues of $23.6 million, compared
to earnings of $1.5 million, or $0.15 per share (diluted), on net revenues of
$16.4 million for the three months ended September 30, 1998. The Company's
income from operations totaled $2.9 million in the 1999 third quarter,
compared to $2.8 million in the 1998 third quarter. The 1999 third quarter
net income and earnings per share were negatively impacted primarily by
construction disruption and start-up expenses related to the Company's major
expansion project at the Atlantis (the "Atlantis Expansion"). The Company
incurred ongoing expansion related expenses throughout the third quarter of
1999. The recently completed Atlantis Expansion consists of the enclosed
overhead "skywalk" structure connecting the Atlantis with its 16-acre site
across South Virginia Street from the Atlantis (the "Skywalk") and a new 27-
story hotel tower containing additional casino and public space (the "Hotel
Tower Project"). The Company completed the Skywalk during the third week of
March 1999 and began bringing on line certain areas of the Hotel Tower Project
during May 1999. The remainder of the Hotel Tower Project was phased in and
substantially completed in late June 1999.
Casino revenues totaled $13.7 million in the third quarter of 1999, a
28.9% increase from $10.7 million in the 1998 third quarter, driven by
increases in both slot and table game revenues attributed to increased use of
the new Skywalk, casino facilities, and hotel rooms which came on line in the
second quarter. Casino operating expenses amounted to 45.3% of casino
revenues in the 1999 third quarter, compared to 43.2% in the 1998 third
quarter, primarily as a result of higher labor costs and higher promotional
allowance costs associated with pre-opening activities in the 1999 period.
-8-
Food and beverage revenues for the 1999 third quarter totaled $7.5
million, representing an increase of 65.6%, up from $4.5 million for the 1998
third quarter, with the increase primarily due to the new and expanded
restaurants and the increased number of hotel guests as the new rooms were
occupied. Food and beverage operating expenses during the 1999 third quarter
amounted to 62.1% of food and beverage revenues, up from 55.7% for the third
quarter of 1998, primarily as a result of increased labor and food costs.
Hotel revenues in the 1999 third quarter increased 65.3% to $5.1 million
from $3.1 million in the 1998 third quarter, resulting from an increase in
capacity of 33,614 room nights, a 61.7% capacity increase over the same
quarter last year. The Atlantis experienced an 87.0% occupancy rate, even
with the increase in new hotel rooms available during the 1999 third quarter
period, up from an 86.0% occupancy rate in the 1998 third quarter period.
Hotel operating expenses in the 1999 third quarter equaled 31.3% of hotel
revenues, compared to 30.0% for the same quarter in 1998, which can be
attributed to start-up of the new hotel rooms.
Other revenues in the 1999 third quarter totaled $830 thousand, up
slightly from $791 thousand in the 1998 third quarter. Other expenses
increased slightly as a percentage of other revenues, increasing to 16.2% in
the 1999 third quarter from 15.1% in the 1998 third quarter.
Selling, general and administrative expenses were $6.4 million in the
1999 third quarter or 27.2% of net revenues, compared to $4.3 million or 26.5%
of net revenues in the third quarter of 1998. The increase was primarily due
to higher marketing costs and overhead increases necessary to support the
expanded facility.
Interest expense for the 1999 third quarter totaled $1.7 million, up from
$549 thousand in the third quarter of 1998, reflecting an increase in average
outstanding debt primarily from the Atlantis Expansion financing.
Comparison of Operating Results for the Nine Month
Periods Ended September 30, 1999 and 1998
For the nine months ended September 30, 1999, the Company earned $1.4
million, or $0.14 per share, on net revenues of $57.1 million, compared to
earnings of $4.0 million, or $0.42 per share, on net revenues of $47.5 million
during the nine months ended September 30, 1998. Operating income for the
1999 nine month period totaled $5.2 million, compared to $7.7 million for the
same period in 1998. In the first nine months of 1999, net income and
earnings per share were negatively impacted primarily by construction
disruption and start-up expenses related to the Atlantis Expansion. The
Company incurred ongoing expansion related expenses throughout the nine month
period ended September 30, 1999.
Casino revenues for the first nine months of 1999 totaled $35.6 million,
an increase of 15.5% from the $30.8 million for the first nine months of 1998,
driven by increases in both slot and table game revenues attributed to
increased use of the new casino facilities and hotel rooms which came on line
during the 1999 nine month period. Casino operating expenses amounted to
45.4% of casino revenues for the nine months ended September 30, 1999,
compared to 42.9% for the nine month period ending September 30, 1998,
-9-
primarily as a result of higher labor costs, higher promotional allowance
costs, and pre-opening costs during the 1999 period.
Food and beverage revenues totaled $17.8 million for the nine months
ended September 30, 1999, an increase of 32.0% from the $13.5 million for the
nine months ended September 30, 1998. The increase was primarily due to the
opening of new and expanded restaurants and the increased number of hotel
guests in the new hotel rooms. The Company's food and beverage operating
expense margin increased to 59.0% in the 1999 period from 54.7% for the same
period in 1998, primarily as a result of increased labor and food costs.
Hotel revenues for the first nine months of 1999 increased 27.4% to $10.8
million from $8.5 million for the first nine months of 1998, resulting from an
increase in capacity of 48,460 room nights, a 30.0% capacity increase over the
same nine month period last year. The Atlantis experienced an 88.2% occupancy
rate as new rooms were brought on line during the 1999 nine month period,
compared to an 89.1% occupancy rate for the 1998 nine month period. The hotel
operating expense margin for the nine month period ended September 30, 1999
was relatively unchanged at 32.3%, compared to 32.1% for the first nine months
of 1998.
Other revenues totaled $2.1 million and $2.0 million for the nine month
periods ending in 1999 and 1998, respectively. Other expenses decreased as a
percentage of other revenues to 16.3% in the 1999 nine month period, from
17.8% in the 1998 nine month period, principally due to a reduction in
salaries and benefits in various outlet operations.
Selling, general and administrative expenses were $16.8 million in the
first nine months of 1999, or 29.4% of net revenues, compared to $12.6 million
or 26.6% of net revenues in the first nine months of 1998. The increase was
primarily due to higher marketing costs and overhead increases necessary to
support the expanded facility.
Interest expense for the first nine months of 1999 totaled $3.2 million,
up from $1.7 million in the first nine months of 1998, reflecting an increase
in average outstanding debt primarily from the Atlantis Expansion financing.
During the first nine months of 1999, the Company capitalized approximately
$1.1 million in interest costs related to the Atlantis Expansion. During the
first nine months of 1998, $142 thousand in interest costs were capitalized.
OTHER FACTORS AFFECTING CURRENT AND FUTURE RESULTS
With the Hotel Tower Project being substantially completed late in the
second quarter, the Company has added approximately 390 rooms, 16,000 square
feet of additional casino space and other amenities to the Atlantis. Major
construction on the Hotel Tower Project began in July 1998. The Company
carefully planned the Hotel Tower Project to mitigate the disruptive effects
of construction by redirecting traffic flows, creating alternative access
points at the Atlantis, and restricting construction crews, materials and
vehicles to specified areas. Following the very disruptive construction
mobilization process in July 1998, the Company believes these steps have been
effective in reducing the disruptive effect of the construction activities;
however, the Company believes that some disruption continued to occur during
the third quarter of 1999.
-10-
Several vendors who worked on the Skywalk have filed liens against the
Atlantis totaling $1,243,630. The Company believes that many of the liens are
duplications of amounts previously billed and paid or for services rendered
for which the Company has already paid. The Company intends to work to
resolve these disputes and, if necessary, vigorously defend against the lien
claims.
In addition to the above-referenced factors that could affect future
performance, investors should consider the potential impact of recently
announced proposed Indian gaming facilities near certain central and northern
California cities, such as Sacramento, which could adversely impact the Reno
gaming market, including the Company's operations. Such proposed California
Indian gaming projects are subject to certain future California legal
processes that are not yet final. The Company is not yet in a position to
assess the potential future impact of such expanded California gaming
facilities.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 1999, net cash provided by
operating activities totaled $3.8 million. Net cash used in investing
activities for the same period totaled $28.9 million, which consisted entirely
of acquisitions of property and equipment at the Atlantis, most of which
relate to the Atlantis Expansion. Net cash provided by financing activities
totaled $26.0 million, as the Company borrowed funds under its Credit Facility
(defined below) to fund the cost of the Atlantis Expansion. As a result, at
September 30, 1999 the Company had cash of $5.8 million, compared to $4.7
million at September 30, 1998.
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, 1998. At September 30, 1999, the
outstanding balance of the Credit Facility was $77.8 million.
The Company also has available a second bank credit facility on which it
borrowed $4.5 million. The principal terms of this second bank credit
facility are also summarized in the Company's Annual Report on Form 10-K for
the year ended December 31, 1998. At September 30, 1999, the outstanding
balance on this second bank credit facility was $4.2 million.
The Company continues to monitor expansion and development opportunities
at its other Reno site, elsewhere in Nevada, and in other jurisdictions. The
decision by the Company to proceed with any substantial project will require
the Company to secure adequate financing on acceptable terms. No assurances
can be made that if such projects are pursued that adequate financing would be
available on acceptable terms, if at all.
With completion of the Atlantis Expansion, the Company has drawn down all
of the Credit Facility as well as all of the amount available under its second
bank credit facility. The Company believes that its existing cash balances,
cash flow from operations, and potential other limited borrowings that may be
available to it, will provide the Company with sufficient
-11-
liquidity to fund its operations, meet its existing debt obligations, and its
capital expenditure requirements. However, in the event that there should be
an unanticipated reduction in cash flow from operations, either as a result of
normal operating risks, harsh weather conditions during the traditionally
slower winter season, or other unanticipated events beyond the Company's
control, the Company could experience liquidity pressure. Additionally, the
Company's operations are subject to financial, economic, competitive,
regulatory, and other factors, including Year 2000 issues described below,
which are beyond its control. If the Company is met with any unanticipated or
materially adverse event, whether from the foregoing or from other causes, and
as a result, is unable to generate sufficient cash flow, it could be required
to adopt one or more alternatives, such as modifying operations, reducing,
delaying, or eliminating planned capital expenditures, selling assets,
restructuring debt, or seeking additional funds from the public or private
placement of debt or equity securities.
YEAR 2000
The Company has undertaken an assessment of the information systems and
software used in its operations to determine whether or not those systems were
Year 2000 compliant, and implemented plans to upgrade systems and/or software
that was determined not to be Year 2000 compliant. Based on that assessment
and the plans made as a result thereof, the Company believes that its critical
internal information systems are Year 2000 compliant or will be made Year 2000
compliant before the end of 1999. The Company has begun, and is continuing,
to assess potential issues related to the Year 2000 other than those relating
to the Company's internal information systems, such as critical supplier
readiness and potential problems associated with embedded technologies, and
will develop and implement plans to correct any deficiencies found. Certain
of the Company's casino information systems are being replaced for factors
including Year 2000 issues. The costs of addressing the Company's year 2000
issues have not been finally determined, but are not currently expected to be
material to the Company's results of operations or financial position;
however, should the Company and/or its critical suppliers fail to identify
and/or correct material Year 2000 issues, such failure could impact the
Company's ability to operate as it did before the Year 2000, and subsequently
have a material impact on the Company's results of operations or financial
position. There is no assurance that all systems requiring replacement for
Year 2000 compliance issues will be operational before year-end. In such an
event, the Company will address issues as they arise and strive to minimize
any impact on the Company's operations.
For a more detailed discussion of the Company's liquidity and capital
resources, and issues related to the Year 2000, see the Company's Annual
Report on Form 10-K for the year ended December 31, 1998, Item 7.
-12-
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Several vendors who worked on the Skywalk have filed liens against the
Atlantis property totaling $1,243,630. The Company believes that many of the
liens are duplications of amounts previously billed and paid or for services
rendered for which the Company has already paid. The Company intends to work
to resolve these disputes and, if necessary, vigorously defend against the
lien claims.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
EX-27.01 Financial Data Schedule
(b) Reports on Form 8-K
On November 3, 1999 the Company filed a Form 8-K with the
Securities and Exchange Commission disclosing a change in the Company's
certifying accountants. Effective October 28, 1999, Grant Thornton, LLP
ceased serving as the Company's certifying accountant and effective October
28, 1999, Arthur Andersen & Co. was engaged at the Company's certifying
accountants.
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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 10, 1999 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-27.01 Financial Data Schedule 16
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