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, 1997March 31, 1998
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,May 8, 1998, 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,
-------------------------- --------------------------March 31,
----------------------------
1998 1997
1996 1997 1996
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
(Unaudited) (Unaudited)
Revenues
Casino...............................Casino...................................... $ 9,845,9239,498,970 $ 8,452,900 $ 29,094,980 $ 23,932,5019,094,148
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
------------ ------------beverage........................... 4,223,401 4,175,846
Hotel....................................... 2,402,414 2,258,367
Other....................................... 562,394 493,343
------------ ------------
Gross revenues.................... 18,290,734 16,156,961 52,216,941 46,418,366revenues........................... 16,687,179 16,021,704
Less promotional allowances.......... (2,345,759) (1,970,683) (6,385,061) (5,653,233)
------------ ------------allowances................. (2,133,937) (1,883,839)
------------ ------------
Net revenues...................... 15,944,975 14,186,278 45,831,880 40,765,133
------------ ------------revenues............................. 14,553,242 14,137,865
------------ ------------
Operating expenses
Casino............................... 4,206,635 3,648,050 12,100,612 10,621,974Casino...................................... 4,071,035 3,699,674
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................................ 111,765 108,138 325,584 295,885beverage........................... 2,285,703 2,329,423
Hotel....................................... 920,614 912,234
Other....................................... 117,313 106,054
Selling, general and administrative.. 3,956,459 3,922,150 11,837,022 11,370,452administrative......... 4,043,839 3,896,156
Depreciation and amortization........ 1,054,175 992,315 3,174,166 3,067,262
Gaming development costs............. 6,449 31,831 22,079 102,093amortization............... 1,130,044 1,066,304
------------ ------------
------------ ------------
Total............................. 12,758,064 12,111,461 37,550,764 35,488,379
------------ ------------Total.................................... 12,568,548 12,009,845
------------ ------------
Income from operations............ 3,186,911 2,074,817 8,281,116 5,276,754
------------ ------------operations................... 1,984,694 2,128,020
------------ ------------
Other income (expense)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)expense............................ 616,633 870,927
------------ ------------
------------ ------------
Total............................. (794,279) (1,737,566) (2,494,788) (3,571,521)
------------ ------------Total.................................... 616,633 870,927
------------ ------------
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
------------ ------------taxes............... 1,368,061 1,257,093
Provision for income taxes.................... 465,106 427,411
------------ ------------
Net income........................Income............................... $ 1,579,137902,955 $ 219,214 $ 3,818,977 $ 1,108,403829,682
============ ============
============ ============Income per share of common stock
Net income
per share..............Basic..................................... $ 0.170.10 $ 0.020.09
Diluted................................... $ 0.400.10 $ 0.12
============ ============ ============ ============0.09
Weighted average number of common
shares outstanding...............and potential common
shares outstanding
Basic..................................... 9,436,275 9,483,840 9,447,048 9,515,056
============ ============ ============ ============9,453,275
Diluted................................... 9,504,643 9,453,275
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
-2-
MONARCH CASINO & RESORT, INC.
CONSOLIDATED BALANCE SHEETS
September 30,March 31, December 31,
1998 1997 1996
------------ ------------
(Unaudited)
ASSETS
Current assets
Cash........................................ $ 3,804,5254,026,365 $ 4,021,9525,527,839
Receivables, net............................ 1,086,480 519,2151,284,444 837,420
Inventories................................. 378,466 362,193390,133 570,367
Prepaid expenses............................ 1,314,925 1,188,6501,414,957 1,333,176
Deferred income taxes....................... 1,584,009 1,351,000965,000 1,055,000
------------ ------------
Total current assets..................... 8,168,405 7,443,0108,080,899 9,323,802
------------ ------------
Property and equipment
Land........................................ 10,339,530 10,339,530
Buildings................................... 36,576,362 36,428,41536,273,298 36,273,298
Furniture and equipment..................... 21,881,972 22,563,15622,828,759 22,304,919
Improvements................................ 5,027,223 4,855,4815,040,033 5,040,033
------------ ------------
73,825,087 74,186,58274,481,620 73,957,780
Less accumulated
depreciation and amortization.............. (16,906,812) (15,267,331)(18,914,934) (17,868,111)
------------ ------------
55,566,686 56,089,669
Construction in progress.................... 1,244,440 682,047
------------ ------------
Net property and equipment............... 56,918,275 58,919,25156,811,126 56,771,716
------------ ------------
Other assets.................................. 996,330 1,016,7111,774,279 1,732,569
------------ ------------
$ 66,083,01066,666,304 $ 67,378,97267,828,087
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt........ $ 2,419,6302,420,444 $ 3,487,1692,243,611
Accounts payable............................ 2,112,656 2,817,7661,960,296 4,111,457
Accrued expenses............................ 3,145,327 2,644,0564,029,332 3,383,855
Federal income taxes payable................ 141,000 -349,597 240,970
------------ ------------
Total current liabilities................ 7,818,613 8,948,9918,759,669 9,979,893
Long-term debt, less current maturities....... 32,350,925 37,602,07532,084,016 32,907,530
Deferred income taxes......................... 2,926,455 1,827,0002,226,000 2,247,000
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 9,453,2759,436,275 outstanding........ 95,363 95,363
Additional paid-in capital.................. 17,241,788 17,008,77917,241,788
Treasury stock.............................. (329,875) (264,000)(329,875)
Retained earnings........................... 5,979,741 2,160,7646,589,343 5,686,388
------------ ------------
Total stockholders' equity............... 22,987,017 19,000,90623,596,619 22,693,664
------------ ------------
$ 66,083,01066,666,304 $ 67,378,97267,828,087
============ ============
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
-3-
MONARCH CASINO & RESORT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NineThree Months Ended
September 30,March 31,
----------------------------
1998 1997 1996
------------ ------------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income.................................. $ 3,818,977902,955 $ 1,108,403829,682
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization............. 3,174,166 3,067,2621,130,044 1,066,304
(Gain) loss on disposal of assets......... (412) 1,006,67917,515 (343)
Increase in receivables, net.............. (567,265) (142,789)
Increase(447,023) (241,838)
Decrease in inventories................... (16,273) (3,986)
Increase in prepaid expenses.............. (126,275) (78,550)180,234 37,575
(Increase) decrease in prepaid expenses... (81,781) 56,016
Decrease in deferred income tax asset..... 90,000 -
Increase in other assets....... 17,803 (77,611)assets.................. (41,710) (7,370)
Decrease in accounts payable.............. (705,110) (768,029)(2,151,161) (566,362)
Increase in accrued expenses.............. 642,271 1,272,725754,103 557,718
Increase (decrease) in deferred
income tax liability..................... 1,099,455 (390,249)
Decrease in minority interests............ - (206,456)(21,000) 427,411
------------ ------------
Net cash provided by
operating activities.................... 7,337,337 4,787,399332,176 2,158,793
------------ ------------
Cash flows from investing activities:
Proceeds from sale of assets ............... 187,215 -assets................ 8,100 343
Acquisition of property and equipment....... (1,226,369) (1,277,950)(843,995) (264,349)
------------ ------------
Net cash used in investing activities.... (1,039,154) (1,277,950)(835,895) (264,006)
------------ ------------
Cash flows from financing activities:
Proceeds from long-term borrowings.......... 3,205,000 -
Principal payments on long-term debt........ (6,449,735) (3,546,388)
Acquisition of treasury stock............... (65,875) (237,750)(4,202,755) (1,487,765)
------------ ------------
Net cash used in financing activities.... (6,515,610) (3,784,138)(997,755) (1,487,765)
------------ ------------
Net decreaseincrease (decrease) in cash..................... (217,427) (274,689)cash.......... (1,501,474) 407,022
Cash at beginning of period................... 5,527,839 4,021,952 3,644,363
------------ ------------
Cash at end of period......................... $ 3,804,5254,026,365 $ 3,369,6744,428,974
============ ============
Supplemental disclosure of
cash flow information:
Cash paid for interest......................interest,
net of capitalized interest................ $ 2,547,699243,209 $ 2,354,585851,446
Capitalized interest........................ 18,662 -
Cash paid for income taxes.................. 610,000 327,542287,479 -
Supplemental schedule of non-cash
investing and financing activities:
The Company financed the purchase of property
and equipment in the following amounts..... 316,162 875,873351,074 90,154
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
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 casinothe Atlantis Casino
Resort (the "Atlantis") in Reno, Nevada. Unless stated otherwise, the
"Company" refers collectively to Monarch, its wholly owned subsidiary, Golden
Road, and majority owned subsidiaries, Dunes-MarinaDunes Marina Resort and Casino, Inc.
("Monarch-Marina"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, Monarch-MarinaDunes Marina and Sea World, and eliminate intercompany balances
and transactions in a manner similar to a poolingtransactions.
Use of interests.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 1997 consolidated financial statements have been
reclassified to conform with the 1998 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,March 31, 1998 and March 31, 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, 1996.1997. The results for the three
month and nine month periodsperiod ended September
30, 1997March 31, 1998 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1997,1998, 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
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
-5-
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 March 31,
-----------------------------------
1998 1997
---------------- ----------------
Per Share Per Share
Shares Amount Shares Amount
------ --------- ------ ---------
Net Income
Basic..................... 9,436 $0.10 9,453 $0.09
Effect of dilutive
stock options............ 69 - - -
------ --------- ------ ---------
Diluted................... 9,505 $0.10 9,453 $0.09
====== ========= ====== =========
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:
Three Months ended March 31,
----------------------------
1998 1997
----------- -----------
Options to purchase shares of
common stock (in thousands)..... 15 22
Exercise prices.................. $7.25-$8.06 $3.50-$8.06
Expiration dates................. 9/98-6/00 9/98-6/01
-6-
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, 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.laws, and
issues related to the year 2000.
RESULTS OF OPERATIONS
Comparison of Operating Results for the Three Month
Periods Ended September 30,March 31, 1998 and 1997 and 1996
For the three month period ended September 30, 1997,March 31, 1998, the Company earned $1.6 million,$903
thousand, or $.17$.10 per share, on net revenues of $15.9$14.6 million, up from
earnings of $219$830 thousand, or $.02$.09 per share, on net revenues of $14.2$14.1 million
for the three months ended September 30, 1996, a 620% and 12% increase in net
income and net revenues, respectively.March 31, 1997. Income from operations for the
three months ended September 30, 1997March 31, 1998 totaled $3.2$2.0 million, up fromcompared to $2.1
million for the three months ended September 30, 1996, a 54% increase. In each of the
three categories,same period in 1997. The Company's 1998 first quarter net
revenues, operating income, earnings per share, and net income, the 1997
third quarterrevenue results represent new first
quarter records for the highest resultsCompany; moreover, the Company achieved record levels
of performance in spite of severe winter weather during any
quarter inthe period. In the
Reno area market, the January through March period encompassing the Company's
history. The Company attributes its favorable 1997
thirdfirst quarter resultshas traditionally been marked by weather-related seasonality,
with winter storms producing moderate to the increasing popularity of the Company's Atlantis
Casino Resort (the "Atlantis")severe travel delays and its south Reno location with patrons from
the rapidly growing residential and industrial communities south of the
Atlantis in Reno, as well as withdifficulties
for visitors to the region. The impact of weather on the 1998 first quarter
was quite severe; weather patterns attributed to El-Nino produced far above
average snowfall during the period and materially impeded travel to the Reno
area.area during much of the quarter. Although severe flooding in the Reno area in
January 1997 had a very detrimental short-term impact on the tourism
environment, especially in downtown Reno, the Company believes the intensity
and pervasiveness of the 1998 first quarter weather patterns had a larger
overall negative impact on the Company's results. The Company also
credits effective marketing programs and continued emphasisestimates that
road controls were in effect on cost control.
Casino revenues totaled $9.8 millionthe primary access roads into the Reno area
approximately twice as many days in the third1998 first 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%as in the 1997
thirdfirst quarter.
Casino revenues were up 4.5% in the 1998 first quarter compared to the
1996 third1997 first quarter, while table game revenues
increased by approximately 3%. The Company'sreflecting growth in both slot and table game revenues.
Slot revenues were positively impactedup 4.3% in the 1998 first quarter compared to the 1997
thirdfirst quarter by growthdue to an increase in the Atlantis'
premium player segment as well as positive contributions from special events
both at the Atlantis andvolume of slot machine play. Table
game revenue in the Reno area.1998 first quarter rose 6.7% over the 1997 first quarter
due to an increase in table game drop. Casino operating expenses amounted to
42.7%42.9% of casino revenues in the 1997 third1998 first quarter, compared to 43.2%40.7% in the
1996 third-7-
1997 first quarter, with the difference due primarily to higher labor costs
resulting from an increase in the federal minimum wage, and higher promotional
allowance costs in the 1998 period.
Food and beverage revenues were essentially flat in the 1998 first
quarter, increasing 1.1% over the 1997 first 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%54.1% of food and beverage revenues compared to 57.3% forduring the
third1998 first quarter, of 1996.an improvement from 55.8% in the 1997 first quarter.
Hotel revenues in the 1997 third1998 first quarter increased by approximately 13%
over6.4% from 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% increasefirst quarter, reflecting an improvement in the Atlantis' average daily room
rate ("ADR") and a slight improvement in the 1997 thirdAtlantis' average hotel occupancy
rate. The Atlantis' ADR and hotel occupancy were up 5.3% and 1.1 percentage
points, respectively, in the 1998 first 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 thirdfirst
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 third1998 first quarter equaled 29.9%amounted to 38.3%
of hotel revenues, compared to 31.8% for
the same quarter in 1996.
Other revenues40.4% in the 1997 thirdfirst quarter, totaled $625 thousand, upprimarily
reflecting a higher level of revenue from $500 thousandwhich to offset the relatively high
level of fixed costs of the hotel operation.
Other revenues increased 14.0% in the 1996 third1998 first quarter a 25% increase. The increasecompared to the
1997 first quarter, primarily reflectsreflecting increased revenues from the Atlantis'
retail operations and
commission incomeoutlet. Other expenses in the 1998 first quarter amounted to 20.9% of
other revenues, compared to 21.5% in the 1997 thirdfirst quarter.
Selling, general and administrative ("SG&A") expenses amounted to 24.8%27.8% of net
revenues in the thirdfirst quarter of 1997, compared to1998, essentially unchanged from 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.first quarter.
Interest expense for the 1997 third1998 first quarter totaled $794$617 thousand, downa
decrease of 29% from $899$871 thousand in the third quarter of 1996, a 12%1997 first quarter. The decrease
reflectingreflects lower average interest rates on outstanding debt and lower average
outstanding debt. Duringdebt during the first nine months of 1997, the1998 period. The Company has aggressively reduced
its outstanding debt obligationsover the past 12 months, bringing the total down by
approximately $6.3$5.2 million.
DuringOTHER FACTORS AFFECTING CURRENT AND FUTURE RESULTS
The Company has completed the 1996 third quarter,planning and design work on an expansion of
the Atlantis that would add approximately 390 rooms, 16,000 square feet of
additional casino space and other amenities to the Atlantis (the "Expansion
Project"), and has invited a limited number of qualified contractors to submit
bids for a fixed-price contract covering a majority of the project's hard
construction costs. The Company currently expects to decide whether or not to
proceed with the Expansion Project in the 1998 second quarter. If the Company
recordedproceeds with the Expansion Project, it will involve major construction
activity at the Atlantis, which could impede access to the property and result
in business disruptions while the construction is underway. The Company
believes it can 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;
however, the Company believes it is unlikely that such steps would completely
alleviate the disruptive impact of such a one-time, non-cash
impairment loss on fixed assetslarge-scale construction project.
On April 20, 1998, the Company entered into a $4.8 million contract with
Krump Construction, Inc. ("Krump") of approximately $1 million (before minority
interests). The impairment loss was recognized onReno, Nevada to construct a marine vesselpedestrian
overhead walkway connecting the Atlantis with a 16-acre site owned by a
subsidiary of the
Company whichadjacent to and across South Virginia Street from the Atlantis (the
-8-
"Walkway Project"). Although the Walkway Project is much smaller in scale
than the Expansion Project, the construction activity associated with the
Walkway Project could also impede access to the property and result in
business disruptions while the construction is underway. The Company intends
to take similar steps to those described above to minimize the disruptive
impact of this construction activity, but believes that some disruption will
occur.
With the Walkway Project, and to a larger degree if it proceeds with the
Expansion Project, the Company had intendedwill be subject to use as a
riverboat gaming vessel.
Comparisoncertain risks typically
associated with large-scale construction projects, including the risks of
Operating Results for the Nine Month
Periods Ended September 30, 1997delay, shortages of materials or skilled labor, unforeseen engineering,
environmental and/or geological problems, work stoppages, weather interference
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.unanticipated cost increases.
LIQUIDITY AND CAPITAL RESOURCES
For the ninethree months ended September 30, 1997,March 31, 1998, net cash provided by operating
activities totaled $7.3 million.$332 thousand. Net cash used in investing activities for
the same period totaled $1.0 million,$836 thousand, which consisted entirely of
acquisitions of property and equipment at the Atlantis. NetAtlantis, and net cash used in
financing activities during the same period totaled $6.5$1.0 million, with funds used to reduce debt and repurchase the
Company's common stock.outstanding debt. As a result, at September 30, 1997March 31, 1998 the Company had
cash of $3.8$4.0 million, compared to $4.0$5.5 million onat December 31, 1996.1997.
On December 30, 1997, the Company completed the refinancing of its long-
term debt with an $80 million construction and reducing revolving credit
facility with a group of banks (the "Credit Facility"). The Credit Facility
replaced approximately $33 million in existing long-term debt, and provides
additional funds which the Company may use as a source of funding for the
Expansion Project and the Walkway Project. Under the terms of the Credit
Facility, the Company has until August 1, 1998 to determine whether or not it
will proceed with the Expansion Project. If the Company elects to proceed
with the Expansion Project, the maximum available borrowings under the Credit
Facility will be $80 million. If the Company elects not to proceed with the
Expansion Project, the maximum available borrowings under the Credit Facility
will be reduced to $37.5 million, and the construction provisions of the
Credit Facility will be nullified. At March 31, 1998, the outstanding balance
of the Credit Facility was $32.0 million. 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, 1997.
The Company has completed the planning and design work for the Expansion
Project, which the Company currently estimates would cost $55 to $65 million
to construct, including the expected cost of the Walkway Project, and has
invited a limited number of qualified contractors to submit bids for a fixed-
price contract covering a majority of the Expansion Project's hard
construction costs. The Company's decision to move forward with the Expansion
Project will largely depend on obtaining favorable results from this process.
Assuming that a fixed-price contract can be negotiated with a qualified
general contractor within the Company's range of expectations, and assuming
that no major unexpected costs emerge for the Expansion Project, the Company
believes it will have adequate resources available through cash on hand, cash
flow from operations, and borrowings allowed under the Credit Facility to
construct the Expansion Project. However, the Company has not made
commitments to proceed with the Expansion Project beyond the commitment to
construct the Walkway Project as described herein, and presently has the
-9-
option of scaling back the Expansion Project, delaying it or abandoning it
altogether should it choose to do so.
On April 20, 1998, the Company entered into a $4.8 million contract with
Krump to construct the Walkway Project. The contract with Krump covers the
hard construction costs of the Walkway Project; the Company currently
estimates that the total cost of the Walkway Project will be $7 to $8 million.
The Company believes it has adequate resources available through cash on hand,
cash flow from operations, and borrowings allowed under the Credit Facility to
construct the Walkway Project.
In addition to the potential funding requirements associated with the
Expansion Project and the Walkway Project, the Company continues to monitor
expansion opportunities at its other Reno site and 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.
The Company believes that its existing cash balances, cash flow from
operations and borrowings allowed under the Credit Facility will provide the
Company with sufficient resources to fund its operations, meet its existing
debt obligations and fund its capital expenditure requirements; 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.
On April 10, 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 issuancestock. As of stock under the
Company's director, executive, and employee stock option and incentive
compensation plans. AlthoughMay 8, 1998, the Company did not repurchase any shares during
the 1997 third quarter, over the past 15 months the Company hashad repurchased 100,000 shares of its common stock
on the open market at a total -8- cost of approximately $330 thousand and retains the ability to repurchase up to 100,000
shares under the Board'sthis
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, 1996,1997, Item 7.
-9--10-
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
EX-2710.01 Agreement dated April 20, 1998, between Golden
Road Motor Inn, Inc. and Krump Construction, Inc.
27.01 Financial Data Schedule
(b) Reports on Form 8-K
None
-10-On January 15, 1998, the Company filed a Report on Form 8-K in
which it reported under Item 5, "Other Events", that it had
refinanced its long-term debt through a new $80 million
construction and reducing revolving credit facility.
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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, 1997May 14, 1998 By: /s/ BEN FARAHI
------------------------------------
Ben Farahi, Co-Chairman of the Board,
Secretary, Treasurer and Chief
Financial Officer(Principal Financial
Officer and Duly Authorized Officer)
-11--12-
EXHIBIT INDEX
Exhibit No. Description Page No.
- ----------- ----------- --------
EX-2710.01 Agreement dated April 20, 1998 14
between Golden Road Motor Inn,
Inc. and Krump Construction,
Inc.
27.01 Financial Data Schedule
-12--13-