<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 May 12, 1997, there
were 9,453,275 shares of Monarch Casino & Resort, Inc. $0.01 par value common
stock outstanding.
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MONARCH CASINO & RESORT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1997 1996
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues
Casino...................................... $ 9,094,148 $ 7,440,622
Food and beverage........................... 4,175,846 4,295,335
Hotel....................................... 2,258,367 2,512,226
Other....................................... 493,343 432,153
------------ ------------
Gross revenues........................... 16,021,704 14,680,336
Less promotional allowances................. (1,883,839) (1,837,289)
------------ ------------
Net revenues............................. 14,137,865 12,843,047
------------ ------------
Operating expenses
Casino...................................... 3,699,674 3,392,590
Food and beverage........................... 2,329,423 2,371,636
Hotel....................................... 912,234 932,856
Other....................................... 106,054 91,699
Selling, general and administrative......... 3,885,187 3,534,571
Depreciation and amortization............... 1,066,304 1,062,291
Gaming development costs.................... 10,969 33,906
------------ ------------
Total.................................... 12,009,845 11,419,549
------------ ------------
Income from operations................... 2,128,020 1,423,498
------------ ------------
Other income (expense)
Interest expense............................ (870,927) (923,480)
Minority interests in net loss of
consolidated subsidiaries.................. - 6,781
------------ ------------
Total (870,927) (916,699)
------------ ------------
Income before income taxes............... 1,257,093 506,799
Income tax expense............................ 427,411 177,381
------------ ------------
Net Income............................... $ 829,682 $ 329,418
============ ============
Net income per share..................... $ 0.09 $ 0.03
============ ============
Weighted average common
shares outstanding...................... 9,453,275 9,536,275
============ ============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
-2- <PAGE>
MONARCH CASINO & RESORT, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash........................................ $ 4,428,974 $ 4,021,952
Receivables, net............................ 761,053 519,215
Inventories................................. 324,618 362,193
Prepaid expenses............................ 1,132,480 1,188,650
Deferred income taxes....................... 1,584,009 1,351,000
------------ ------------
Total current assets..................... 8,231,134 7,443,010
------------ ------------
Property and equipment
Land........................................ 10,339,530 10,339,530
Buildings................................... 36,469,411 36,428,415
Furniture and equipment..................... 22,502,291 22,563,156
Improvements................................ 4,860,916 4,855,481
------------ ------------
74,172,148 74,186,582
Less accumulated
depreciation and amortization.............. (15,963,698) (15,267,331)
------------ ------------
Net property and equipment............... 58,208,450 58,919,251
------------ ------------
Other assets.................................. 1,023,235 1,016,711
------------ ------------
$ 67,462,819 $ 67,378,972
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt........ $ 2,844,850 $ 3,487,169
Accounts payable............................ 2,251,404 2,817,766
Accrued expenses............................ 3,201,774 2,644,056
------------ ------------
Total current liabilities................ 8,298,028 8,948,991
Long-term debt, less current maturities....... 36,846,783 37,602,075
Deferred income taxes......................... 2,254,411 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;
9,453,275 and 9,453,275 outstanding........ 95,363 95,363
Additional paid-in capital.................. 17,241,788 17,008,779
Treasury stock.............................. (264,000) (264,000)
Retained earnings........................... 2,990,446 2,160,764
------------ ------------
Total stockholders' equity............... 20,063,597 19,000,906
------------ ------------
$ 67,462,819 $ 67,378,972
============ ============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
-3- <PAGE>
MONARCH CASINO & RESORT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1997 1996
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income.................................. $ 829,682 $ 329,418
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization............. 1,066,304 1,062,291
Gain on disposal of assets................ (343) -
Increase in receivables, net.............. (241,838) (2,857)
Decrease in inventories................... 37,575 14,494
(Increase) decrease in prepaid expenses... 56,016 (79,162)
(Increase) decrease in other assets....... (7,370) 34,402
Decrease in accounts payable.............. (566,362) (843,191)
Increase in accrued expenses.............. 557,718 536,452
Increase (decrease) in deferred
income tax liability..................... 427,411 (29,542)
Decrease in minority interests............ - (6,781)
------------ ------------
Net cash provided by
operating activities.................... 2,158,793 1,015,524
------------ ------------
Cash flows from investing activities:
Proceeds from sale of assets................ 343 -
Acquisition of property and equipment....... (264,349) (661,789)
------------ ------------
Net cash used in investing activities.... (264,006) (661,789)
------------ ------------
Cash flows from financing activities:
Principal payments on long-term debt........ (1,487,765) (569,986)
------------ ------------
Net cash used in financing activities.... (1,487,765) (569,986)
------------ ------------
Net increase (decrease) in cash.......... 407,022 (216,251)
Cash at beginning of period................... 4,021,952 3,644,363
------------ ------------
Cash at end of period......................... $ 4,428,974 $ 3,428,112
============ ============
Supplemental disclosure of
cash flow information:
Cash paid for interest...................... $ 851,446 $ 975,706
Cash paid for income taxes.................. - 29,542
Supplemental schedule of non-cash
investing and financing activities:
The Company financed the purchase of property
and equipment in the following amounts..... 90,154 347,734
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
-4- <PAGE>
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 Casino & Resort, Inc., 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
periods ended March 31, 1997 and March 31, 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 period ended March 31, 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- <PAGE>
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 March 31, 1997 and 1996
For the three month period ended March 31, 1997, the Company earned $830
thousand, or $.09 per share, on net revenues of $14.1 million, up from
earnings of $329 thousand, or $.03 per share, on net revenues of $12.8 million
for the three months ended March 31, 1996. Income from operations for the
three months ended March 31, 1997 totaled $2.1 million, up from $1.4 million
for the same period in 1996. In each of the three categories, net revenues,
operating income and net income, the 1997 first quarter results represent the
highest results achieved by the Company during any first quarter in the
Company's history. The Company was able to achieve record results in the 1997
first quarter in spite of severe flooding in the Reno area in January of 1997,
which resulted in temporary closures of Reno's airport and nearly all roadway
access into the Reno area, as well as a continuation of the intensely
competitive conditions that materially impacted most operators' results during
1996. Management believes that the Atlantis' location in southwest Reno, next
to the Reno Sparks Convention Center and approximately three miles south of
downtown Reno, allows the Company to market with equal effectiveness to Reno
area residents, conventioneers, and non-conventioneer visitors to the Reno
area. During the 1997 first quarter, management believes that the Company's
three-pronged marketing strategy helped to reduce the impact of severe
weather-related disruptions in the Reno area by diversifying the Atlantis'
customer base and lessening the Company's reliance on the tour and travel
segment of the tourist market.
Casino revenues in the 1997 first quarter were up 22.2% compared to the
1996 first quarter, reflecting solid increases in both slot and table game
revenues. Slot revenues were up 21.2% in the 1997 first quarter compared to
the 1996 first quarter, due to an increase in the volume of slot machine play.
Table game revenue in the 1997 first quarter rose 26.4% over the 1996 first
quarter, due to an increase in table game drop combined with an improvement in
average table game hold. Casino operating expenses amounted to 40.7% of
casino revenues in the 1997 first quarter, compared to 45.6% in the 1996 first
quarter, with the difference owing primarily to higher casino revenues and
-6- <PAGE>
lower promotional allowance costs (as a percentage of revenues) during the
1997 period.
Food and beverage revenues for the three month period ended March 31,
1997 were down 2.8% from the same period in 1996. Management believes the
decrease was the result of additional competition resulting from an increase
in the number of restaurants operating in southwest Reno during the 1997
period, as well as weather-related disruptions during January which adversely
impacted occupancy levels at the Atlantis' hotel during the 1997 first
quarter. Food and beverage operating expenses amounted to 55.8% of food and
beverage revenues during the 1997 first quarter, compared to 55.2% in the 1996
first quarter.
Hotel revenues in the 1997 first quarter were down 10.1% from the 1996
first quarter, reflecting continuing room rate pressures in the Reno area
market, weather-related disruptions during January which temporarily but
severely restricted travel into and out of the Reno area, and the positive
impact of a major convention during the 1996 first quarter which did not
return to Reno during the 1997 first quarter. The Atlantis' average daily
room rate in the 1997 first quarter was $48.34, down from $51.33 in the 1996
first quarter. The Atlantis had an average occupancy rate of 84.8% during the
1997 first quarter, down from 88.9% in the 1996 first quarter. Hotel
operating expenses in the 1997 first quarter amounted to 40.4% of hotel
revenues, compared to 37.1% in the 1996 first quarter, primarily reflecting a
lower level of revenues from which to offset the relatively high level of
fixed costs of the hotel operation.
Selling, general and administrative expenses amounted to 27.5% of net
revenues in the first quarter of 1997, unchanged from the 1996 first quarter.
Interest expense for the 1997 first quarter totaled $871 thousand, down
from $923 thousand in the 1996 first quarter, reflecting lower average
outstanding debt. Over the past 12 months, the Company has reduced its
outstanding debt obligations by approximately $3.2 million.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 1997, net cash provided by operating
activities totaled $2.2 million. Net cash used in investing activities for
the same period totaled $264 thousand, which consisted entirely of
acquisitions of property and equipment at the Atlantis, and net cash used in
financing activities totaled $1.5 million, with funds used to reduce the
Company's outstanding debt. As a result, at March 31, 1997 the Company had
cash of $4.4 million, compared to $4.0 million at December 31, 1996.
On April 10, 1995, the Company announced that its Board of Directors (the
"Board") 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 issuances 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 first quarter, over the past 12 months the Company has
repurchased 83,000 shares of its common stock on the open market at a total
cost of $264 thousand, and retains the ability to repurchase up to 117,000
additional 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.
-7- <PAGE>
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. Capital expenditures at the Atlantis totaled approximately
$354 thousand during the 1997 first quarter, 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 May 12, 1997, the Company had prepaid
all of the mandatory principal reductions due under its bank loan through
January 31, 1998. Also as of May 12, 1997, the Company had approximately $1.6
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. The Company
does not presently have the capital resources to construct this expansion
project, nor has it sought or obtained financing commitments of any sort 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. The Company's present intention is to proceed with the
planning associated with this expansion project, and to proceed further only
if market conditions warrant the additional capacity and if financing can be
arranged on terms acceptable to the Company. The Company has not made any
commitments to proceed with this expansion project, and has the option of
scaling back the project, building it in phases, or abandoning the project
altogether should it choose to do so.
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.
-8- <PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
William H. Ahern v. Caesars World, Inc., et al., Case No. 94-532-Civ-Orl-
22, instituted on May 10, 1994 in the United States District Court for the
Middle District of Florida, transferred to the United States District Court
for the District of Nevada, Southern Division; William Poulos v. Caesars
World, Inc., et al., Case No. 94-478-Civ-Orl-22, instituted on April 26, 1994
in the United States District Court for the Middle District of Florida,
transferred to the United States District Court for the District of Nevada,
Southern Division; Larry Schreier v. Caesars World, Inc., et al., Case No. 95-
923-LDG (RJJ), instituted on September 26, 1995, in the United States District
Court for the District of Nevada, Southern Division. Plaintiffs in these
actions, each purportedly representing a class, filed complaints against
manufacturers, distributors and casino operators of video poker and electronic
slot machines, including the Company, alleging that the defendants have
engaged in a course of conduct intended to induce persons to play such games
based on a false belief concerning how the gaming machines operate, as well as
the extent to which there is an opportunity to win on a given play. The
Complaints charge defendants with violations of the Racketeer Influenced and
Corrupt Organizations Act, as well as claims of common law fraud, unjust
enrichment and negligent misrepresentation, and seek damages in excess of $1
billion without any substantiation of that amount. The Company filed motions
to dismiss the Complaints. The Nevada District Court dismissed the
Complaints, granting leave to Plaintiffs to re-file, and denying as moot all
other pending motions, including those of the Company. The Plaintiffs filed
an amended complaint on or about May 31, 1996. The Company renewed its
motions to dismiss based on abstention and related doctrines, and joined in
the motions to dismiss filed by other defendants, which were based on defects
in the pleadings. The Nevada District Court consolidated the actions (and one
other action styled William Poulos v. American Family Cruise Line, N.V., et
al., Case No. CV-S-95-936-LDG (RLH), in which the Company is not a named
defendant), ordered Plaintiffs to file a consolidated amended complaint on or
before February 14, 1997, and ordered all defense motions, including those of
the Company, withdrawn without prejudice. The parties have established a
steering committee to address motion practice, scheduling and discovery
matters. Plaintiffs filed their consolidated amended complaint on February
14, 1997. The defendants, including the Company, filed consolidated motions
to dismiss the consolidated amended complaints. The motions to dismiss are
based on defects in the pleadings, failure to state a claim, and abstention
and related doctrines. Management believes that the substantive allegations
in the Complaints are without merit and intends vigorously to defend the
allegations.
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
-9- <PAGE>
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)
<TABLE>
<S> <C>
Date: May 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)
</TABLE>
-10- <PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C> <C>
Exhibit No. Description Page No.
- ----------- ----------- --------
EX-27 Financial Data Schedule
</TABLE>
-11- <PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REGISTRANT'S
CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 1997 AND THE ACCOMPANYING
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS AND NOTES TO FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 4,428,974
<SECURITIES> 0
<RECEIVABLES> 761,053
<ALLOWANCES> 0
<INVENTORY> 324,618
<CURRENT-ASSETS> 8,231,134
<PP&E> 74,172,148
<DEPRECIATION> 15,963,698
<TOTAL-ASSETS> 67,462,819
<CURRENT-LIABILITIES> 8,298,028
<BONDS> 36,846,783
0
0
<COMMON> 95,363
<OTHER-SE> 19,968,234
<TOTAL-LIABILITY-AND-EQUITY> 67,462,819
<SALES> 0
<TOTAL-REVENUES> 9,094,148
<CGS> 0
<TOTAL-COSTS> 7,047,385
<OTHER-EXPENSES> 1,066,304
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 870,927
<INCOME-PRETAX> 1,257,093
<INCOME-TAX> 427,411
<INCOME-CONTINUING> 829,682
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 829,682
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
