<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 June 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______TO______.
Commission File No. 0-22088
MONARCH CASINO & RESORT, INC.
(Exact name of registrant as specified in its charter)
-------------------------
NEVADA 88-0300760
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1175 W. MOANA LANE, SUITE 200
RENO, NEVADA 89509
(Address of principal (Zip code)
executive offices)
Registrant's telephone number, including area code: (702) 825-3355
-------------------------
NOT APPLICABLE
(Former name, former address and former fiscal
year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES _X_ NO ___
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES ___ NO ___
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. As of August 12, 1997,
there were 9,436,275 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 Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues
Casino............................... $ 10,154,909 $ 8,038,979 $ 19,249,057 $ 15,479,601
Food and beverage.................... 4,517,100 4,301,091 8,692,946 8,596,426
Hotel................................ 2,598,008 2,401,115 4,856,375 4,913,341
Other................................ 634,486 839,884 1,127,829 1,272,037
------------ ------------ ------------ ------------
Gross revenues.................... 17,904,503 15,581,069 33,926,207 30,261,405
Less promotional allowances.......... (2,155,463) (1,845,261) (4,039,302) (3,682,550)
------------ ------------ ------------ ------------
Net revenues...................... 15,749,040 13,735,808 29,886,905 26,578,855
------------ ------------ ------------ ------------
Operating expenses
Casino............................... 4,194,303 3,581,334 7,893,977 6,973,924
Food and beverage.................... 2,437,800 2,413,570 4,767,223 4,785,206
Hotel................................ 989,263 903,674 1,901,497 1,836,530
Other................................ 107,765 96,048 213,819 187,747
Selling, general and administrative.. 3,995,376 3,913,731 7,880,563 7,448,302
Depreciation and amortization........ 1,053,687 1,012,656 2,119,991 2,074,947
Gaming development costs............. 4,661 36,356 15,630 70,262
------------ ------------ ------------ ------------
Total............................. 12,782,855 11,957,369 24,792,700 23,376,918
------------ ------------ ------------ ------------
Income from operations............ 2,966,185 1,778,439 5,094,205 3,201,937
------------ ------------ ------------ ------------
Other income (expense)
Interest expense..................... (829,582) (924,527) (1,700,509) (1,848,007)
Minority interests in net loss of
consolidated subsidiaries........... - 7,271 - 14,052
------------ ------------ ------------ ------------
Total............................. (829,582) (917,256) (1,700,509) (1,833,955)
------------ ------------ ------------ ------------
Income before income taxes........ 2,136,603 861,183 3,393,696 1,367,982
Income tax expense..................... 726,445 301,412 1,153,856 478,793
------------ ------------ ------------ ------------
Net income........................ $ 1,410,158 $ 559,771 $ 2,239,840 $ 889,189
============ ============ ============ ============
Net income per share.............. $ 0.15 $ 0.06 $ 0.24 $ 0.09
============ ============ ============ ============
Weighted average common
shares outstanding............... 9,451,780 9,525,396 9,452,524 9,530,835
============ ============ ============ ============
</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>
June 30, December 31,
1997 1996
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash........................................ $ 2,937,503 $ 4,021,952
Receivables, net............................ 1,100,039 519,215
Inventories................................. 331,775 362,193
Prepaid expenses............................ 1,504,213 1,188,650
Deferred income taxes....................... 1,584,009 1,351,000
------------ ------------
Total current assets..................... 7,457,539 7,443,010
------------ ------------
Property and equipment
Land........................................ 10,339,530 10,339,530
Buildings................................... 36,488,374 36,428,415
Furniture and equipment..................... 21,436,615 22,563,156
Improvements................................ 5,013,741 4,855,481
------------ ------------
73,278,260 74,186,582
Less accumulated
depreciation and amortization.............. (15,853,504) (15,267,331)
------------ ------------
Net property and equipment............... 57,424,756 58,919,251
------------ ------------
Other assets.................................. 1,034,166 1,016,711
------------ ------------
$ 65,916,461 $ 67,378,972
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt........ $ 700,847 $ 3,487,169
Accounts payable............................ 2,358,035 2,817,766
Accrued expenses............................ 2,652,380 2,644,056
------------ ------------
Total current liabilities................ 5,711,262 8,948,991
Long-term debt, less current maturities....... 35,891,463 37,602,075
Deferred income taxes......................... 2,905,856 1,827,000
Commitments and contingencies................. - -
Stockholders' equity
Preferred stock, $.01 par value, 10,000,000
shares authorized; none issued............. - -
Common stock, $.01 par value, 30,000,000
shares authorized; 9,536,275 issued;
9,436,275 and 9,453,275 outstanding........ 95,363 95,363
Additional paid-in capital.................. 17,241,788 17,008,779
Treasury stock.............................. (329,875) (264,000)
Retained earnings........................... 4,400,604 2,160,764
------------ ------------
Total stockholders' equity............... 21,407,880 19,000,906
------------ ------------
$ 65,916,461 $ 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>
Six Months Ended
June 30,
----------------------------
1997 1996
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income.................................. $ 2,239,840 $ 889,189
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization............. 2,119,991 2,074,947
Gain on disposal of assets................ (412) (30,415)
Increase in receivables, net.............. (580,824) (161,293)
Decrease in inventories................... 30,418 4,812
Increase in prepaid expenses.............. (315,563) (338,392)
Increase in other assets.................. (19,167) (109,065)
Decrease in accounts payable.............. (459,731) (626,462)
Increase in accrued expenses.............. 8,324 840,439
Increase (decrease) in deferred
income tax liability..................... 1,078,856 (29,542)
Decrease in minority interests............ - (14,052)
------------ ------------
Net cash provided by
operating activities.................... 4,101,732 2,500,166
------------ ------------
Cash flows from investing activities:
Proceeds from sale of assets ............... 187,215 -
Acquisition of property and equipment....... (802,716) (1,127,877)
------------ ------------
Net cash used in investing activities.... (615,501) (1,127,877)
------------ ------------
Cash flows from financing activities:
Principal payments on long-term debt........ (4,504,805) (1,867,422)
Acquisition of treasury stock............... (65,875) (108,750)
------------ ------------
Net cash used in financing activities.... (4,570,680) (1,976,172)
------------ ------------
Net decrease in cash..................... (1,084,449) (603,883)
Cash at beginning of period................... 4,021,952 3,644,363
------------ ------------
Cash at end of period......................... $ 2,937,503 $ 3,040,480
============ ============
Supplemental disclosure of cash flow information:
Cash paid for interest...................... $ 1,726,687 $ 1,484,229
Cash paid for income taxes.................. 360,000 327,542
Supplemental schedule of non-cash
investing and financing activities:
The Company financed the purchase of property
and equipment in the following amounts..... 192,987 503,380
</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, its wholly owned subsidiary Golden
Road, and majority owned subsidiaries, Dunes-Marina Resort and Casino, Inc.
("Monarch-Marina"), formed in December 1993, and Sea World Processors, Inc.
("Sea World"), purchased in February 1994.
The consolidated financial statements include the accounts of Monarch,
Golden Road, Monarch-Marina and Sea World, and eliminate intercompany balances
and transactions in a manner similar to a pooling of interests.
In preparing these financial statements in conformity with generally
accepted accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the year. Actual results could
differ from those estimates.
NOTE 2. INTERIM FINANCIAL STATEMENTS
The accompanying consolidated financial statements for the three month
and six month periods ended June 30, 1997 and June 30, 1996 are unaudited. In
the opinion of management, all adjustments, consisting of normal recurring
adjustments necessary for a fair presentation of the Company's financial
position and results of operations for such periods, have been included. The
accompanying unaudited consolidated financial statements should be read in
conjunction with the Company's audited financial statements included in its
Annual Report on Form 10-K for the year ended December 31, 1996. The results
for the three-month and six-month periods ended June 30, 1997 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997, or for any other period.
-5- <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 June 30, 1997 and 1996
For the three month period ended June 30, 1997, the Company earned $1.4
million, or $.15 per share, on net revenues of $15.7 million, up from earnings
of $560 thousand, or $.06 per share, on net revenues of $13.7 million for the
three months ended June 30, 1996. Income from operations for the three months
ended June 30, 1997 totaled $3.0 million, up from $1.8 million during the
three months ended June 30, 1996. In each of the three categories, net
revenues, operating income and net income, the 1997 second quarter results
represent the highest results achieved during any quarter in the Company's
history. The Company attributes its favorable 1997 second quarter results to
the increasing popularity of the Atlantis and its south Reno location with
patrons from the rapidly growing residential and industrial communities south
of the Atlantis in Reno, as well as with visitors to the Reno area. The
Company also credits effective marketing programs and the positive impact of
the 1997 Women's International Bowling Congress ("WIBC") tournament, which ran
from March through mid-July at the National Bowling Stadium in downtown Reno,
as well as the Company's continued emphasis on cost control.
Casino revenues totaled $10.1 million in the second quarter of 1997,
representing an increase of more than 26% over the $8.0 million reported for
the second quarter of 1996. Slot revenues rose approximately 33% in the 1997
second quarter compared to the 1996 second quarter, while table game revenues
declined by 2%, in spite of record table game drop, due to an abnormally low
table game hold percentage. The Company's slot revenue and table game drop
were positively impacted in the 1997 second quarter by growth in the Atlantis'
premium player segment as well as positive contributions from the WIBC
tournament. Casino operating expenses amounted to 41.3% of casino revenues in
the 1997 second quarter, compared to 44.6% in the 1996 second quarter.
Food and beverage revenues for the 1997 second quarter increased by 5%
over the same period in 1996, rising to $4.5 million from $4.3 million,
primarily as a result of increased customer traffic at the Atlantis' food and
beverage outlets. Food and beverage operating expenses during the 1997 second
-6- <PAGE>
quarter amounted to 54.0% of food and beverage revenues compared to 56.1% for
the second quarter of 1996.
Hotel revenues in the 1997 second quarter increased by 8% over the same
period in 1996, to $2.6 million in 1997 from $2.4 million in 1996. During the
1997 second quarter, the Atlantis had an average occupancy rate of 93.9%, up
from 89.1% in the 1996 second quarter. The Atlantis' average daily room rate
("ADR") in the 1997 second quarter was $50.15, up from $49.12 in the 1996
second quarter. Hotel operating expenses in the 1997 second quarter equaled
38.1% of hotel revenues, compared to 37.6% for the same quarter in 1996.
Other revenues in the 1997 second quarter totaled $634 thousand, down
from $839 thousand in the 1996 second quarter. The decrease primarily
reflects the inclusion in the 1996 second quarter of non-recurring income
items totaling approximately $300 thousand.
Selling, general and administrative expenses amounted to 25.4% of net
revenues in the second quarter of 1997, compared to 28.5% in the second
quarter of 1996. The Company incurred extraordinarily high marketing costs
during the 1996 second quarter, which were attributable in large part to
activities undertaken in conjunction with the name change at Atlantis which
took place in April, 1996. The Company incurred approximately $186 thousand
in direct costs associated with the name change during the 1996 second
quarter, as well as a substantial amount of indirect costs, including
additional costs for advertising and promotional activities.
Interest expense for the 1997 second quarter totaled $830 thousand, down
from $925 thousand in the second quarter of 1996, reflecting lower average
outstanding debt. Over the past 12 months, the Company has reduced its
outstanding debt obligations by approximately $5.1 million.
Comparison of Operating Results for the Six Month
Periods Ended June 30, 1997 and 1996
For the six months ended June 30, 1997, the Company earned $2.2 million,
or $.24 per share, on net revenues of $29.9 million, compared to earnings of
$889 thousand, or $.09 per share, on net revenues of $26.6 million during the
six months ended June 30, 1996. Operating income for the 1997 six month
period totaled $5.1 million, compared to $3.2 million for the same period in
1996. In each of the three categories, net revenues, operating income and
net income, the 1997 six month results represent the highest results achieved
during any comparable period in the Company's history.
Casino revenues for the first six months of 1997 totaled $19.2 million,
up 24% from casino revenues of $15.5 million for the first six months of 1996,
driven by growth in both slot and table game revenues. Casino operating
expenses amounted to 41.0% of casino revenues for the six months ended June
30, 1997, compared to 45.1% for the six month period ending June 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 $8.7 million for the six months ended
June 30, 1997, compared to $8.6 million for the six months ended June 30,
1996. Food and beverage operating expenses were unchanged at $4.8 million,
resulting in a slight improvement in the food and beverage operating expense
-7- <PAGE>
margin, which fell to 54.8% in the 1997 period from 55.7% for the same period
in 1996.
Hotel revenues for the first six months of 1997 totaled $4.9 million,
unchanged from the results from the same period in 1996. The hotel operating
expense margin for the six month period ended June 30, 1997 was 39.2%,
compared to 37.4% for the first six months of 1996, due to higher levels of
hotel complimentary expenses during the 1997 period.
Selling, general and administrative expenses amounted to 26.4% of net
revenues in the six months ended June 30, 1997, compared to 28.0% in the same
period in 1996, primarily reflecting higher marketing costs during the 1996
second quarter.
Interest expense for the six months ended June 30, 1997 totaled $1.7
million, down from $1.8 million for the same period in 1996, reflecting lower
average outstanding debt in the 1997 period.
Liquidity and Capital Resources
For the six months ended June 30, 1997, net cash provided by operating
activities totaled $4.1 million. Net cash used in investing activities for
the same period totaled $616 thousand, which consisted entirely of
acquisitions of property and equipment at the Atlantis. Net cash used in
financing activities during the same period totaled $4.6 million, with funds
used to reduce debt and repurchase the Company's common stock. As a result,
at June 30, 1997 the Company had cash of $2.9 million, compared to $4.0
million on December 31, 1996.
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 issuances of stock under the
Company's director, executive, and employee stock option and incentive
compensation plans. During the 1997 second quarter, the Company repurchased
17,000 shares of its common stock on the open market at a total cost of
approximately $66 thousand. During the 12 months ended June 30, 1997, the
Company has repurchased 70,000 shares of its common stock on the open market
at a total cost of $221 thousand, and retains the ability to repurchase up to
100,000 shares under the Board's authorization. The Company has funded the
purchases made to date and intends to fund any future repurchases from cash on
hand.
The Company believes that it is important to maintain the Atlantis as a
first class resort facility in order to compete successfully and increase its
customer base in the face of competitive pressures, and intends to expend
funds on maintenance, refurbishment and renovation sufficient to maintain the
Atlantis as such. Net Capital expenditures at the Atlantis totaled approxi-
mately $454 thousand in the 1997 second 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
-8- <PAGE>
preserving the right to reborrow certain of the prepaid amounts in order to
enhance the Company's liquidity. As of August 12, 1997, the Company had
prepaid all of the mandatory principal reductions due under its bank loan
through July 31, 1998. Also as of August 12, 1997, the Company had
approximately $3.6 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.
-9- <PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For information on litigation in which the Company is a party, see the
Company's report on Form 10-K for the year ended December 31, 1996, Part I,
Item 3, and the Company's report on Form 10-Q for the quarter ended March 31,
1997, Part II, Item 1.
-10- <PAGE>
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
-11- <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: August 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>
-12- <PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C> <C>
Exhibit No. Description Page No.
- ----------- ----------- --------
EX-27 Financial Data Schedule
</TABLE>
-13- <PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REGISTRANT'S
CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 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> JUN-30-1997
<CASH> 2,937,503
<SECURITIES> 0
<RECEIVABLES> 1,100,039
<ALLOWANCES> 0
<INVENTORY> 331,775
<CURRENT-ASSETS> 7,457,539
<PP&E> 73,278,260
<DEPRECIATION> 15,853,504
<TOTAL-ASSETS> 65,916,461
<CURRENT-LIABILITIES> 5,711,262
<BONDS> 35,891,463
0
0
<COMMON> 95,363
<OTHER-SE> 21,312,517
<TOTAL-LIABILITY-AND-EQUITY> 65,916,461
<SALES> 0
<TOTAL-REVENUES> 15,749,040
<CGS> 0
<TOTAL-COSTS> 7,729,131
<OTHER-EXPENSES> 1,053,687
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 829,582
<INCOME-PRETAX> 2,136,603
<INCOME-TAX> 726,445
<INCOME-CONTINUING> 1,410,158
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,410,158
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
