MONARCH CASINO & RESORT INC - Quarter Report: 2016 March (Form 10-Q)
United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2016
OR
o 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)
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Nevada |
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88-0300760 |
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(State or Other Jurisdiction of |
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(I.R.S. Employer |
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Incorporation or Organization) |
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Identification No.) |
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3800 S. Virginia St. |
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Reno, Nevada |
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89502 |
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(Address of Principal Executive Offices) |
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(ZIP Code) |
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Registrant’s telephone number, including area code: (775) 335-4600
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 o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer”, “non-accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large Accelerated Filer o |
Accelerated Filer x |
Non-Accelerated Filer o |
Smaller Reporting Company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
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Common stock, $0.01 par value |
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17,233,295 shares |
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Class |
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Outstanding at April 29, 2016 |
MONARCH CASINO & RESORT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
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Three months ended March 31, |
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2016 |
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2015 |
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Revenues |
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Casino |
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$ |
39,732 |
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$ |
37,439 |
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Food and beverage |
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13,414 |
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13,103 |
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Hotel |
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5,103 |
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4,737 |
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Other |
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2,671 |
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2,600 |
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Gross revenues |
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60,920 |
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57,879 |
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Less promotional allowances |
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(11,171 |
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(10,708 |
) | ||
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Net revenues |
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49,749 |
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47,171 |
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|
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Operating expenses |
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|
|
|
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Casino |
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17,330 |
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16,336 |
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Food and beverage |
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5,780 |
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5,219 |
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Hotel |
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1,614 |
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1,519 |
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Other |
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959 |
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934 |
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Selling, general and administrative |
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13,151 |
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12,579 |
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Depreciation and amortization |
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3,700 |
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4,131 |
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Loss (gain) on disposition of assets |
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56 |
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(18 |
) | ||
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Total operating expenses |
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42,590 |
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40,700 |
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Income from operations |
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7,159 |
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6,471 |
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Other expenses |
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Interest expense, net of amounts capitalized |
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(85 |
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(219 |
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Total other expense |
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(85 |
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(219 |
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Income before income taxes |
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7,074 |
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6,252 |
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Provision for income taxes |
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(2,499 |
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(2,209 |
) | ||
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Net income |
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$ |
4,575 |
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$ |
4,043 |
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Earnings per share of common stock |
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|
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Net income |
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|
|
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Basic |
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$ |
0.27 |
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$ |
0.24 |
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Diluted |
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$ |
0.26 |
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$ |
0.24 |
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|
|
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|
|
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Weighted average number of common shares and potential common shares outstanding |
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|
|
|
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Basic |
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17,211 |
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16,821 |
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Diluted |
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17,540 |
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17,198 |
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The Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.
MONARCH CASINO & RESORT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except shares)
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March 31, |
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December 31, |
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2016 |
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2015 |
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(Unaudited) |
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ASSETS |
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Current assets |
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Cash and cash equivalents |
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$ |
18,409 |
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$ |
21,164 |
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Receivables, net |
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3,480 |
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3,729 |
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Income taxes receivable |
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— |
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611 |
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Inventories |
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2,838 |
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2,881 |
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Prepaid expenses |
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3,696 |
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3,402 |
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Total current assets |
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28,423 |
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31,787 |
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Property and equipment |
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Land |
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29,549 |
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29,549 |
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Land improvements |
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6,701 |
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6,701 |
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Buildings |
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150,860 |
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150,966 |
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Buildings improvements |
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23,250 |
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23,255 |
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Furniture and equipment |
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136,432 |
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134,704 |
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Construction in progress |
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41,870 |
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37,424 |
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Leasehold improvements |
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1,347 |
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1,347 |
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390,009 |
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383,946 |
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Less accumulated depreciation and amortization |
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(181,392 |
) |
(180,792 |
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Net property and equipment |
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208,617 |
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203,154 |
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Other assets |
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Goodwill |
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25,111 |
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25,111 |
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Intangible assets, net |
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5,909 |
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6,200 |
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Deferred income taxes |
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7,415 |
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7,415 |
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Other assets, net |
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1,103 |
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1,179 |
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Total other assets |
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39,538 |
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39,905 |
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Total assets |
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$ |
276,578 |
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$ |
274,846 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities |
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Current portion of long-term debt |
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$ |
35,400 |
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$ |
40,900 |
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Accounts payable |
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8,000 |
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6,747 |
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Construction accounts payable |
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1,873 |
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1,407 |
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Accrued expenses |
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20,478 |
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21,873 |
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Income taxes payable |
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1,830 |
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— |
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Total current liabilities |
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67,581 |
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70,927 |
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Total liabilities |
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67,581 |
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70,927 |
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Stockholders’ equity |
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Preferred stock, $.01 par value, 10,000,000 shares authorized; none issued |
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— |
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— |
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Common stock, $.01 par value, 30,000,000 shares authorized; 19,096,300 shares issued; 17,233,295 outstanding at March 31, 2016; 17,202,699 outstanding at December 31, 2015 |
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191 |
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191 |
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Additional paid - in capital |
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22,673 |
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22,728 |
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Treasury stock, 1,863,005 shares at March 31, 2016; 1,893,601 shares at December 31, 2015 |
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(25,846 |
) |
(26,404 |
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Retained earnings |
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211,979 |
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207,404 |
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Total stockholders’ equity |
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208,997 |
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203,919 |
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Total liabilities and stockholders’ equity |
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$ |
276,578 |
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$ |
274,846 |
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The Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.
MONARCH CASINO & RESORT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
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Three months ended March 31, |
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2016 |
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2015 |
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Cash flows from operating activities: |
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|
|
|
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Net income |
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$ |
4,575 |
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$ |
4,043 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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|
|
|
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Depreciation and amortization |
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3,700 |
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4,131 |
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Amortization of deferred loan costs |
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76 |
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76 |
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Stock-based compensation |
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127 |
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291 |
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Excess tax benefit from stock-based compensation |
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(70 |
) |
— |
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Provision for bad debts |
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18 |
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7 |
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Loss (gain) on disposition of assets |
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56 |
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(18 |
) | ||
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Changes in operating assets and liabilities: |
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|
|
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Receivables |
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231 |
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152 |
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Inventories |
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43 |
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(8 |
) | ||
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Prepaid expenses |
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(294 |
) |
(315 |
) | ||
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Accounts payable |
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1,253 |
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(1,674 |
) | ||
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Accrued expenses |
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(1,395 |
) |
(655 |
) | ||
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Income taxes |
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2,441 |
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2,209 |
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Net cash provided by operating activities |
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10,761 |
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8,239 |
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|
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|
|
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Cash flows from investing activities: |
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|
|
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Proceeds from sale of assets |
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— |
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20 |
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Change in construction payable |
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466 |
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411 |
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Acquisition of property and equipment |
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(8,928 |
) |
(7,780 |
) | ||
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Net cash used in investing activities |
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(8,462 |
) |
(7,349 |
) | ||
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|
|
|
|
|
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Cash flows from financing activities: |
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|
|
|
| ||
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Net exercise of stock options |
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376 |
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297 |
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Excess tax benefit from stock-based compensation |
|
70 |
|
— |
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Principal payments on long-term debt |
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(5,500 |
) |
(4,300 |
) | ||
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Net cash used in financing activities |
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(5,054 |
) |
(4,003 |
) | ||
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|
|
|
|
|
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Net decrease in cash |
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(2,755 |
) |
(3,113 |
) | ||
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Cash and cash equivalents at beginning of period |
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21,164 |
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21,583 |
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Cash and cash equivalents at end of period |
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$ |
18,409 |
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$ |
18,470 |
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|
|
|
|
|
|
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Supplemental disclosure of cash flow information Cash paid for interest, net of amounts capitalized |
|
$ |
9 |
|
$ |
142 |
|
The Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.
MONARCH CASINO & RESORT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
QUARTERLY PERIOD ENDED MARCH 31, 2016
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation:
Monarch Casino & Resort, Inc. was incorporated in 1993 and through its wholly-owned subsidiary, Golden Road Motor Inn, Inc. (“Golden Road”), owns and operates the Atlantis Casino Resort Spa, a hotel/casino facility in Reno, Nevada (the “Atlantis”). Monarch’s wholly-owned subsidiaries, High Desert Sunshine, Inc. (“High Desert”), Golden East, Inc. (“Golden East”) and Golden North, Inc. (“Golden North”), each own separate parcels of land located proximate to the Atlantis.
Monarch’s wholly-owned subsidiary, Monarch Growth Inc. (“Monarch Growth”), formed in 2011, acquired Riviera Black Hawk, Inc., owner of the Riviera Black Hawk Casino, on April 26, 2012. Riviera Black Hawk, Inc. was renamed Monarch Black Hawk, Inc. and Riviera Black Hawk Casino was renamed Monarch Casino Black Hawk in October 2013. Monarch Growth also owns a parcel of land in Black Hawk, Colorado contiguous to the Monarch Casino Black Hawk. In addition to owning the Monarch Casino Black Hawk, Monarch Black Hawk, Inc. wholly owns Chicago Dogs Eatery, Inc. and Monarch Promotional Association, both of which were formed in relation to extended licensure for extended hours of liquor operation in Black Hawk.
The unaudited condensed consolidated financial statements include the accounts of Monarch and its subsidiaries. Intercompany balances and transactions are eliminated.
Unless otherwise indicated, “Monarch,” “Company,” “we,” “our” and “us” refer to Monarch Casino & Resort, Inc. and its subsidiaries.
Interim Financial Statements:
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management of the Company, all adjustments considered necessary for a fair presentation are included. Operating results for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.
The balance sheet at December 31, 2015 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2015.
Fair Value of Financial Instruments:
The estimated fair value of the Company’s financial instruments has been determined by the Company, using available market information and valuation methodologies. However, considerable judgment is required to develop the estimates of fair value; thus, the estimates provided herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange.
The carrying amounts of cash, receivables, accounts payable and accrued expenses approximate fair value because of the short-term nature of these instruments. Additionally, the carrying value of our debt approximates fair value due to the variable nature of applicable interest rates and short-term maturity.
Change in Accounting Estimate of Depreciable Life of Monarch Casino Black Hawk Parking Structure:
In December 2013, the Company began construction of a new parking facility at the Monarch Casino Black Hawk. Upon completion of that new structure, the Company plans to demolish the existing parking structure. At December 31, 2013, the existing parking structure had a net book value of approximately $4.8 million and a remaining depreciable life of approximately 37 years. The new parking facility was estimated to be completed on March 31, 2015. In accordance with ASC 250-10-45-17, effective January 1, 2014, the Company modified the estimated depreciable life of the existing parking structure to 15 months; the period from January 1, 2014 through the estimated demolition commencement date of March 31, 2015. As a result of this modification to the estimated depreciable life, depreciation expense of the existing parking structure increased by approximately $0.3 million per month (approximately $0.2 million net of tax). In July 2014, because of a delayed construction schedule, the Company revised the new parking facility completion date to December 31, 2015. At this time, the existing parking structure had a net book value of approximately $2.9 million. The Company modified the estimated depreciable life of the existing parking structure to 18 months; the period from July 1, 2014 through the revised estimated demolition commencement date of December 31, 2015. In October 2015, the general contractor notified the Company that further delay is expected and completion is now expected in the second quarter of 2016 at which time demolition of the existing structure will commence. At September 30, 2015, the existing parking structure had a net book value of approximately $0.4 million. Beginning in October 2015, the Company reduced the monthly depreciation expense to $0.04 million to reflect the revised depreciable life of the existing parking structure.
For the three months ended March 31, 2016, the effect of the change in estimate was an increase of depreciation expense by $133 thousand, a decrease of net income by $87 thousand and a decrease of basic and diluted earnings per share by approximately $0.01. For the three months ended March 31, 2015, the effect of the change in estimate was an increase of depreciation expense by $451 thousand, a decrease of net income by $293 thousand and a decrease of basic and diluted earnings per share by approximately $0.02.
Segment Reporting:
The accounting guidance for disclosures about segments of an enterprise and related information requires separate financial information to be disclosed for all operating segments of a business. The Company determined that the Company’s two operating segments, Atlantis and Monarch Casino Black Hawk, meet all of the aggregation criteria stipulated by ASC 280-10-50-11. The Company views each property as an operating segment and the two operating segments have been aggregated into one reporting segment.
NOTE 2. STOCK-BASED COMPENSATION
The Company accounts for its stock-based compensation in accordance with the authoritative guidance requiring the compensation cost relating to stock-based payment transactions to be recognized in the Company’s consolidated statements of income.
Reported stock-based compensation expense was classified as follows (in thousands):
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Three months ended March 31, |
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|
|
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2016 |
|
2015 |
| ||
|
Casino |
|
$ |
21 |
|
$ |
16 |
|
|
Food and beverage |
|
25 |
|
24 |
| ||
|
Hotel |
|
11 |
|
3 |
| ||
|
Selling, general and administrative |
|
70 |
|
248 |
| ||
|
Total stock-based compensation, before taxes |
|
127 |
|
291 |
| ||
|
Tax benefit |
|
(45 |
) |
(102 |
) | ||
|
Total stock-based compensation, net of tax |
|
$ |
82 |
|
$ |
189 |
|
NOTE 3. EARNINGS PER SHARE
Basic earnings per share is computed by dividing reported net earnings by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflect the additional dilution for all potentially dilutive securities such as stock options. The following is a reconciliation of the number of shares (denominator) used in the basic and diluted earnings per share computations (shares in thousands):
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Three months ended March 31, |
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|
|
2016 |
|
2015 |
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|
|
|
Shares |
|
Per Share |
|
Shares |
|
Per Share |
| ||
|
Basic |
|
17,211 |
|
$ |
0.27 |
|
16,821 |
|
$ |
0.24 |
|
|
Effect of dilutive stock options |
|
329 |
|
(0.01 |
) |
377 |
|
— |
| ||
|
Diluted |
|
17,540 |
|
$ |
0.26 |
|
17,198 |
|
$ |
0.24 |
|
Excluded from the computation of diluted earnings per share are options where the exercise prices are greater than the market price as their effects would be anti-dilutive in the computation of diluted earnings per share. For the three months ended March 31, 2016 and 2015, options for approximately 566 thousand and 420 thousand shares, respectively, were excluded from the computation.
NOTE 4. NEW ACCOUNTING PRONOUNCEMENTS
In May 2014, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update that amends the FASB Accounting Standards Codification and creates a new topic for Revenue from Contracts with Customers. The new guidance is expected to clarify the principles for revenue recognition and to develop a common revenue standard for U.S. GAAP applicable to revenue transactions. This guidance provides that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. This guidance also provides substantial revision of interim and annual disclosures. The update allows for either full retrospective adoption, meaning the guidance is applied for all periods presented, or modified retrospective adoption, meaning the guidance is applied only to the most current period presented in the financial statements with the cumulative effect of initially applying the guidance recognized at the date of initial application. In July 2015, FASB voted to delay the effective date of the new revenue standard by one year. The new effective date is for the annual and interim periods beginning after December 15, 2017. Reporting entities may choose to adopt the standard as of the original effective date. The Company plans to adopt this standard effective January 1, 2018. The Company is currently assessing the impact the adoption of this standard will have on its Consolidated Financial Statements.
In August 2014, FASB issued an accounting standard update that requires management to assess an entity’s ability to continue as a going concern and to provide related footnote disclosures in certain circumstances. Substantial doubt about an entity’s ability to continue as a going concern exist when relevant conditions and events, consolidated and aggregated, indicate that it is probable that an entity will be unable to meet its obligations as they become due within one year after the date that the financial statement are issued. Currently, there is no guidance in U.S. GAAP for management’s responsibility to perform an evaluation. Under the update, management’s evaluation is to be performed when preparing financial statements for each annual and interim reporting period and based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued. The effective date for this update is for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early application is permitted. The Company will adopt this standard effective January 1, 2017. The adoption of this standard is not expected to have a material impact on our Consolidated Financial Statements.
In April 2015, FASB issued an accounting standards update that requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. In August 2015, FASB issued an accounting standards update which clarifies that the guidance issued in April 2015 does not apply to line-of-credit arrangements. According to the additional guidance, line-of-credit arrangements will continue to present debt issuance costs as an asset and subsequently amortize the deferred debt issuance costs ratably over the term of the arrangement. The effective date for this update is for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The Company adopted this standard effective January 1, 2016. Because the current credit facility we have is a line-of-credit arrangement, the adoption of this standard does not have any impact on our Consolidated Financial Statements.
In July 2015, FASB issued an accounting standards update which changes the measurement principle for inventories valued under the first-in, first-out or weighted-average methods from the lower of cost or market to the lower of cost and net realizable value. Net realizable value is defined by FASB as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The effective date for this guidance is for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The Company is currently assessing the impact the adoption of this standard will have on its Consolidated Financial Statements.
In February 2016, the FASB issued an accounting standards update which addresses the recognition and measurement of leases. Under the new guidance, for all leases (with the exception of short-term leases), at the commencement date, lessees will be required to recognize a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Further, the new lease guidance simplifies the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and liabilities, which no longer provides a source for off-balance sheet financing. The effective date for this update is for the annual and interim periods beginning after December 15, 2018 with early adoption permitted. Lessees and lessors must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company is currently assessing the impact the adoption of this standard will have on its Consolidated Financial Statements.
A variety of proposed or otherwise potential accounting standards are currently under review and study by standard-setting organizations and certain regulatory agencies. Because of the tentative and preliminary nature of such proposed standards, we have not yet determined the effect, if any, the implementation of any such proposed or revised standards would have on the Company’s Consolidated Financial Statements.
NOTE 5. RELATED PARTY TRANSACTIONS
The shopping center adjacent to the Atlantis (the “Shopping Center”) is owned by Biggest Little Investments, L.P. (“BLI”). John Farahi and Bob Farahi, Co-Chairmen of the Board and executive officers of the Company, and Ben Farahi are the three largest stockholders (“Farahi Family Stockholders”) of Monarch and each also beneficially own limited partnership interests in BLI. Maxum LLC is the sole general partner of BLI, and Ben Farahi is the sole managing member of Maxum LLC. Neither John Farahi nor Bob Farahi has any management or operational control over BLI or the Shopping Center. Until May 2006, Ben Farahi formerly held positions of Co-Chairman of the Board, Secretary, Treasurer and Chief Financial Officer of the Company.
On August 28, 2015, Monarch, through its subsidiary Golden Road, entered into a 20-year lease agreement with BLI for a portion of the Shopping Center (the “Parking Lot Lease”) consisting of an approximate 46,000 square-foot commercial building on approximately 4.15 acres of land adjacent to the Atlantis (the “Leased Property”). We have demolished the building and are in the process of converting the now vacant land into approximately 300 additional surface parking spaces for the Atlantis. The minimum annual rent under the Parking Lot Lease is $695 thousand commencing on November 17, 2015. The minimum annual rent is subject to a cost of living adjustment increase on each five year anniversary. In addition, we are responsible for payment of property taxes, utilities and maintenance expenses related to the Leased Property. We have an option to renew the Parking Lot Lease for an additional 10-year term. If we elect not to exercise its renewal option, we will be obligated to pay BLI $1.6 million. For the three months ended March 31, 2016, the Company paid $174 thousand in rent, plus $9 thousand for operating expenses related to this lease.
In addition, we share a driveway with and lease approximately 37,000 square-feet from BLI (the “Driveway Lease”) for an initial lease term of 15 years, which commenced on September 30, 2004, at an original annual rent of $300 thousand plus common area expenses. The annual rent is subject to a cost of living adjustment increase on each five year anniversary of the Driveway Lease. Effective August 28, 2015, in connection with the Parking Lot Lease, the Driveway Lease was amended to: (i) make the Company solely responsible for the operation and maintenance costs of the shared driveway (including the fountains thereon); (ii) eliminate the Company’s obligation to reimburse the Shopping Center for its proportionate share of common area expenses; and (iii) exercise the three successive five-year renewal terms beyond the initial 15 year term in the existing Driveway Lease Agreement. At the end of the renewal terms, we have the option to purchase the leased driveway section of the Shopping Center. As of March 31, 2016, the annual rent is $377 thousand. For each of the three months ended March 31, 2016 and 2015, the Company paid $94 thousand in rent, plus $5 thousand and $28 thousand, respectively, for operating expenses to this lease.
We occasionally lease billboard advertising, storage space and parking lot space from affiliates controlled by Farahi Family Stockholders and paid $28 thousand and $43 thousand for the three months ended March 31, 2016 and 2015, respectively.
NOTE 6. LONG-TERM DEBT
On November 15, 2011, we amended and restated our $60.0 million credit facility with a new $100 million facility (the “Credit Facility”). We utilized the Credit Facility to finance the acquisition of Black Hawk and the Credit Facility is available to be used for working capital needs, general corporate purposes and for ongoing capital expenditure requirements.
Borrowings are secured by liens on substantially all of the Company’s real and personal property.
In addition to other customary covenants for a facility of this nature, as of March 31, 2016, we are required to maintain a leverage ratio, defined as consolidated debt divided by Adjusted EBITDA, of no more than 2.0:1 and a fixed charge coverage ratio (Adjusted EBITDA divided by fixed charges, as defined) of at least 1.15:1. As of March 31, 2016, the Company’s leverage ratio and fixed charge coverage ratios were 0.7:1 and 40.5:1, respectively.
We may prepay borrowings under the Credit Facility without penalty (subject to certain charges applicable to the prepayment of LIBOR borrowings prior to the end of the applicable interest period). Amounts prepaid may be borrowed so long as the total borrowings outstanding do not exceed the maximum principal available.
The Credit Facility is structured to reduce the maximum principal available by $1.5 million each quarter beginning June 30, 2013. The Credit Facility also allows us to permanently reduce the maximum principal available at any time so long as the amount of such reduction is at least $0.5 million and a multiple of $50,000. During the second quarter of 2015, we exercised this option and permanently reduced the amount available under the credit facility by $20 million and in the fourth quarter of 2015 by an additional $15 million. As of March 31, 2016, the maximum principle available under the credit facility is $47.0 million.
The maturity date of the Credit Facility is November 15, 2016. As such, the entire amounts outstanding under the credit facility of $35.4 million as of March 31, 2016 and $40.9 million as of December 31, 2015 are classified as a current liability in the Consolidated Balance Sheet.
At March 31, 2016, our leverage ratio was such that pricing for borrowings under the Credit Facility was LIBOR plus 1.25%. At March 31, 2016, the one-month LIBOR interest rate was 0.44%. The carrying value of the debt outstanding under the Credit Facility approximates fair value because the interest fluctuates with the lender’s prime rate or other market rates of interest.
Subject to entering into a new or amended credit facility with sufficient borrowing capacity to refinance the outstanding balance and to complete the Black Hawk Expansion Plan, we believe, based on the relationship with our current lenders and our recent and projected financial performance, that our existing cash balances, cash flow from operations and borrowings available under the existing, amended or new Credit Facility will provide us with sufficient resources to fund our operations, meet our debt obligations, and fulfill our capital expenditure plans over the next twelve months; however, our operations are subject to financial, economic, competitive, regulatory, and other factors, many of which are beyond our control. If we are unable to enter into a new or amended credit facility or to generate sufficient cash flow, we 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.
NOTE 7. TAXES
For each of the three months ended March 31, 2016 and 2015 the Company’s effective tax rate was 35.3%.
The Company early adopted ASU No. 2015-17, at December 31, 2015, which simplifies presentation of the deferred tax assets and liabilities by allowing all such balances to be treated as noncurrent.
NOTE 8. STOCK REPURCHASE PLAN
On October 22, 2014, the board of directors authorized a stock repurchase plan (the “Repurchase Plan”). Under the Repurchase Plan, the board of directors authorized a program to repurchase up to 3,000,000 shares of the Company’s common stock in the open market or in privately negotiated transactions from time to time, in compliance with Rule 10b-18 of the Securities and Exchange Act of 1934, subject to market conditions, applicable legal requirements and other factors. The Repurchase Plan does not obligate the Company to acquire any particular amount of common stock and the plan may be suspended at any time at our discretion, and it will continue until exhausted. The actual timing, number and value of shares repurchased under the Repurchase Program will be determined by management at its discretion and will depend on a number of factors, including the market price of the Company’s stock, general market economic conditions and applicable legal requirements. The Company has made no purchases under the Repurchase Plan.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
STATEMENT ON FORWARD-LOOKING INFORMATION
When used in this report and elsewhere by management from time to time, the words “believes”, “anticipates” and “expects” and similar expressions are intended to identify forward-looking statements with respect to our financial condition, results of operations and our business including our expansion, construction timelines, development activities, legal proceedings and employee matters. Certain important factors, including, but not limited to, competition from other gaming operations, factors affecting our ability to compete, acquisitions of gaming properties, legalization of additional gaming operations in our markets, leverage, construction risks, the inherent uncertainty and costs associated with litigation and governmental and regulatory investigations, and licensing and other regulatory risks, could cause our actual results to differ materially from those expressed in our forward-looking statements. Any changes in the law that would permit the establishment of gaming operations in or near Denver could materially impact Monarch Casino Black Hawk operations and could alter, delay or cause us to reconsider our master development plan to expand our Monarch Casino Black Hawk property. Further information on potential factors which could affect our financial condition, results of operations and business including, without limitation, our expansion, development activities, legal proceedings and employee matters, are included in our filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date thereof. We undertake no obligation to publicly release any revisions to such forward-looking statement to reflect events or circumstances after the date hereof.
Monarch Casino & Resort, Inc., ( “Monarch” or “Company”) through its direct and indirect wholly-owned subsidiaries, Golden Road Motor Inn, Inc., Monarch Growth Inc. (“Monarch Growth”), Monarch Black Hawk, Inc. (“Monarch Black Hawk”), High Desert Sunshine, Inc., Golden North, Inc., Golden East, Inc., Chicago Dogs Eatery, Inc. and Monarch Promotional Association, owns and operates the Atlantis Casino Resort Spa, a hotel/casino facility in Reno, Nevada (the “Atlantis”), the Monarch Casino Black Hawk in Black Hawk, Colorado, and certain real estate proximate to the Atlantis and Monarch Casino Black Hawk.
Unless otherwise indicated, “Monarch,” “Company,” “we,” “our” and “us” refer to Monarch Casino & Resort, Inc. and its subsidiaries.
OPERATING RESULTS SUMMARY
Our operating results may be affected by, among other things, competitive factors, gaming tax increases, the commencement of new competitive gaming operations, construction at our facilities, general public sentiment regarding travel, overall economic conditions and governmental policies affecting the disposable income of our patrons and weather conditions affecting our properties.
The following significant factors and trends should be considered in analyzing our operating performance:
Atlantis: Our business strategy is to maximize revenues, operating income and cash flow primarily through our casino, food and beverage operations and hotel operations. During the recessionary periods of 2008 and 2009 and after, we expanded and upgraded the facility. With quality gaming, hotel and dining products, we believe the Atlantis is well positioned to benefit from future macro and local economic growth. Several national businesses have announced plans to expand or relocate operations to Northern Nevada. While such economic activity could ultimately drive additional revenue and profit at Atlantis, we are experiencing the more immediate effect of increased labor costs, which combined with continued aggressive marketing programs by our competitors have applied upward pressure on Atlantis operating costs.
Monarch Casino Black Hawk: Since the acquisition of Monarch Casino Black Hawk in April 2012, our focus has been to maximize casino and food and beverage revenues while upgrading the existing facility and laying the groundwork for the major expansion that we plan. There is currently no hotel on the property. In October 2012, we began a project to redesign and upgrade the existing Monarch Casino Black Hawk facility. In September 2013, we opened a new buffet, which was an important step in our ongoing process of redesigning and upgrading the existing Monarch Casino Black Hawk facility. In December 2013, we began a project to remodel and upgrade the casino. To minimize disruption, we staged the work in three equal phases. The first phase was completed and opened in August 2014. The second phase was completed and opened in March 2015 and the final phase was completed and opened in August 2015. In the fourth quarter of 2013, we began work on a multi-phased expansion of the Monarch Casino Black Hawk which involves construction of a new parking structure and demolition of the existing parking structure followed by construction of a new hotel tower and casino expansion on the site where the existing parking structure currently sits (see “Master Planned Expansion of the Monarch Casino Black Hawk”). The planned nine-story parking structure will increase total parking on site from approximately 500 spaces to approximately 1,500 spaces. Once completed, the Monarch Casino Black Hawk expansion will nearly double the casino space and will add a 23-story hotel tower with approximately 500 guest rooms and suites, an upscale spa and pool facility, three additional restaurants (increasing the total to four), additional bars, a new parking structure and associated support facilities. We currently expect completion of the entire expansion in the third quarter of 2018.
CAPITAL SPENDING AND DEVELOPMENT
We seek to continuously upgrade and maintain our facilities in order to present a fresh, high quality product to our guests.
Capital expenditures for the three month periods ended March 31, 2016 and 2015 totaled approximately $8.5 million and $7.4 million, respectively. During the three month period ended March 31, 2016, our capital expenditures related primarily to the major redesign and upgrade of the Toucan Charlie’s Buffet at Atlantis and continued work on the new garage structure at Monarch Casino Black Hawk as well as acquisition of gaming equipment to upgrade and replace existing equipment in the Atlantis and Monarch Casino Black Hawk. During the three month period ended March 31, 2015, our capital expenditures related primarily to the redesign, upgrade and expansion of the Monarch Casino Black Hawk facility as well as acquisition of gaming equipment to upgrade and replace existing equipment in the Atlantis and the Monarch Casino Black Hawk.
Master Planned Expansion of the Monarch Black Hawk
The Company has completed a master plan to expand and convert the Monarch Casino Black Hawk into a full-scale casino resort (the “Black Hawk Expansion Plan”).
In October 2012, we began an extensive redesign and upgrade of the existing facility at Monarch Casino Black Hawk. We have upgraded the property’s food and beverage operations (including an all-new buffet) and completed the redesign and upgrade of the existing casino floor. Our plans also call for the exterior of the existing facility to be refinished to match the master planned expansion which is expected to cost approximately $17-$19 million and is expected to be funded primarily from operating cash flow.
We have also begun work on our master plan to expand and convert the Monarch Casino Black Hawk into a full-scale casino resort. The excavation and foundation work for the facility’s new parking structure has been completed and construction of the new parking structure is well underway. The new 9-story parking structure will increase on-site parking from approximately 500 spaces to approximately 1,500 spaces. Construction of the new parking structure began in the first quarter of 2015 and construction is anticipated to be completed in the second quarter of 2016. Upon completion of the new parking structure, the existing parking structure will be razed to make room for the new hotel tower and casino expansion. The remaining cost of the parking structure-related work is expected to be approximately $7-$10 million, which we expect to fund primarily from operating cash flow and, to a lesser extent, from our Credit Facility.
We expect to begin construction of the new hotel tower and casino expansion during the fourth quarter of 2016. The new 23-story tower will nearly double the existing casino space and will include approximately 500 hotel rooms, an upscale spa and pool facility, three additional restaurants and additional bars. Tower floors will be opened as they are finished beginning with the casino expansion and additional restaurants. We currently expect completion of the entire tower in the third quarter of 2018 at a total cost of approximately $229-$234 million. The cost is expected to be financed through a combination of operating cash flow and an expansion or replacement of our Credit Facility. The Company’s current Credit Facility will mature in November 2016, and before that time, we expect to negotiate a new or amended credit facility with sufficient borrowing capacity to complete the expansion. We can provide no assurance that any project will be completed on schedule, if at all, or within established budgets, or that any project will result in increased earnings to us. In addition, no assurance can be given that we will be able to enter into a new or amended credit facility on a timely basis, if at all, or upon terms favorable to us.
RESULTS OF OPERATIONS
Comparison of Operating Results for the Three-Month Periods Ended March 31, 2016 and 2015
For the three months ended March 31, 2016, our net income totaled $4.6 million, or $0.26 per diluted share, compared to net income of $4.0 million, or $0.24 per diluted share for the same period in 2015, reflecting a 13.2% increase in net income and an 8.3% increase in diluted earnings per share. Net revenues totaled $49.7 million in the current quarter, an increase of $2.6 million compared to the 2015 first quarter. Income from operations for the three months ended March 31, 2016 totaled $7.2 million compared to $6.5 million for the same period in 2015.
Casino revenue increased 6.1% in the first quarter of 2016 compared to the first quarter of 2015. Casino operating expenses as a percentage of casino revenue for the first quarter of 2016 were flat with the prior year same period at 43.6%.
Food and beverage revenue for the first quarter of 2016 increased 2.4% over the first quarter of 2015. The Toucan Charlie’s Buffet at Atlantis was closed for 70 days during the first quarter of 2016 for a major redesign and upgrade, which is reflected in the relatively low percentage of food and beverage revenue increase compared to casino and hotel revenue growth. Food and beverage operating expenses as a percentage of food and beverage revenues increased in the first quarter of 2016 to 43.1% compared to 39.8% for the prior year same period primarily as a result of the increase in repair and maintenance expenses related to the Atlantis buffet redesign and upgrade.
Hotel revenue increased 7.7% due to a higher average daily room rate (“ADR”) of $72.87 in the first quarter of 2016 compared to $68.43 in first quarter of 2015 offset by a slightly lower hotel occupancy of 83.9% during first quarter of 2016 compared to 84.4% during first quarter of 2015. Revenue per Available Room (“REVPAR”), calculated by dividing total room revenue (less service charges, if any) by total rooms available was $68.06 and $63.88 for the three months ended March 31, 2016 and 2015, respectively. Hotel operating expenses as a percentage of hotel revenue decreased to 31.6% in first quarter of 2016 as compared to 32.1% for the comparable prior year period due to lower equipment and miscellaneous replacement expenses.
Promotional allowances as a percentage of gross revenues decreased to 18.3% during the first quarter of 2016 compared to 18.5% in the comparable 2015 quarter. This decrease was primarily due to higher revenue and lower food complimentaries due to the buffet at Atlantis being closed for the redesign and upgrade for 70 days during the first quarter of 2016.
Other revenue increased 2.7% in the first quarter of 2016 compared to the first quarter of 2015 driven primarily by increased arcade, spa and retail revenues.
Selling, General and Administrative (“SG&A”) expense increased to $13.2 million in the first quarter of 2016 from $12.6 million in the first quarter of 2015 primarily due to higher salaries, wages and benefits expenses and higher rental expenses from the parking lot lease at Atlantis. See Note 5 “Related Party Transactions”. As a percentage of net revenue, SG&A expense was relatively flat at 26.4% compared to 26.7% for the same quarter in the prior year.
Depreciation and amortization expense decreased to $3.7 million for the three months ended March 31, 2016 as compared to $4.1 million for the three months ended March 31, 2015 primarily as a result of a decrease in monthly depreciation expense of the existing parking structure following the revision in the expected date of early removal of the parking structure from service in relation to the Monarch Black Hawk expansion project.
During the first quarter of 2016, the Company paid down the principal balance on its credit facility by $5.5 million, which decreased the outstanding balance of the credit facility to $35.4 million at March 31, 2016 from $40.9 million at December 31, 2015. Interest expense, net of amounts capitalized decreased to $85 thousand in the first quarter of 2016 from $219 thousand in the first quarter of 2015 as a result of lower average outstanding borrowings in the 2016 first quarter compared to the 2015 first quarter.
Liquidity and Capital Resources
For the three months ended March 31, 2016, net cash provided by operating activities totaled $10.8 million, an increase of $2.5 million or 30.6% compared to the same period in the prior year. This increase was primarily the result of $2.6 million in cash provided by the change in ordinary working capital and a $0.5 million increase in net income partially offset by a $0.4 million decrease in depreciation expense.
Net cash used in investing activities totaled $8.5 million and $7.3 million for the three months ended March 31, 2016 and 2015, respectively. Net cash used in investing activities during the first three months of 2016 consisted primarily of cash used for the new garage building at Monarch Casino Black Hawk, redesign and upgrade of Toucan Charlie’s buffet at Atlantis and for acquisition of gaming and other equipment at both properties. Net cash used in investing activities during the first three months of 2015 consisted primarily of cash used for the ongoing redesign and upgrade work at Monarch Casino Black Hawk, as well as acquisition of gaming and other equipment at both properties.
Net cash used in financing activities during the first quarter of 2016 was $5.1 million and represents $5.5 million payments made on the Credit Facility offset by $0.4 million proceeds from stock options exercises, including excess tax benefit from options exercised. Net cash used in financing activities during the first quarter of 2015 was $4.0 million and represented $4.3 million in payments made on the Credit Facility offset by $0.3 million in proceeds from stock option exercises.
As of March 31, 2016, we had $47.0 million maximum principal available under the Credit Facility, of which $35.4 million was drawn. The proceeds from the Credit Facility were utilized to finance the acquisition of Monarch Casino Black Hawk and the availability under the Credit Facility may also be used for working capital needs, general corporate purposes and for ongoing capital expenditure requirements. We had $11.6 million remaining available credit on the Credit Facility as of March 31, 2016.
The maximum principal available under the Credit Facility is reduced by $1.5 million per quarter beginning June 1, 2013. We may permanently reduce the maximum principal available at any time so long as the amount of such reduction is at least $0.5 million and in multiples of $50,000. During the second quarter of 2015, we permanently reduced the amount available under the Credit Facility by $20 million and in the fourth quarter of 2015 by an additional $15 million.
The maturity date of the Credit Facility is November 15, 2016. As such, the entire amount outstanding under the Credit Facility at March 31, 2016 of $35.4 million is classified as a current liability in the Consolidated Balance Sheet. Before the Credit Facility matures, based on the relationship with our current lenders and our recent and projected financial performance, we expect to negotiate a new or amended credit facility with sufficient borrowing capacity to refinance the outstanding balance and to complete the Black Hawk Expansion Plan. However, no assurance can be given that we will be able to enter into a new or amended credit facility on a timely basis, if at all, or upon terms favorable to us.
The Credit Facility contains customary covenants for a facility of this nature, including, but not limited to, covenants requiring the preservation and maintenance of the Company’s assets and covenants restricting our ability to merge, transfer ownership of Monarch, incur additional indebtedness, encumber assets and make certain investments. Management does not consider the covenants to restrict normal functioning of day-to-day operations. See Part I — Financial Information, Item 1 — Financial Statements, Note 6 “Long-Term Debt”.
We may prepay borrowings under the Credit Facility without penalty (subject to certain charges applicable to the prepayment of LIBOR borrowings prior to the end of the applicable interest period). Amounts prepaid may be borrowed so long as the total borrowings outstanding do not exceed the maximum principal available.
Subject to entering into a new or amended credit facility with sufficient borrowing capacity to refinance the outstanding balance and to complete the Black Hawk Expansion Plan, we believe, that our existing cash balances, cash flow from operations and borrowings available under the existing, new or amended credit facility will provide us with sufficient resources to fund our operations, meet our debt obligations, and fulfill our capital expenditure plans over the next twelve months; however, our operations are subject to financial, economic, competitive, regulatory, and other factors, many of which are beyond our control. If we are unable to enter into a new or amended credit facility or to generate sufficient cash flow, we 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.
OFF BALANCE SHEET ARRANGEMENTS
A driveway (the “Driveway Project”) was completed and opened on September 30, 2004, that is being shared between the Atlantis and a shopping center directly adjacent to the Atlantis (the “Shopping Center”). The Shopping Center is controlled by the Biggest Little Investments, L.P. (“BLI”).
John Farahi and Bob Farahi, Co-Chairmen of the Board and executive officers of the Company, and Ben Farahi are the three largest stockholders of Monarch and each also beneficially own limited partnership interests in BLI. Maxum LLC is the sole general partner of BLI, and Ben Farahi is the sole managing member of Maxum LLC. Neither John Farahi nor Bob Farahi has any management or operational control over BLI or the Shopping Center. Until May 2006, Ben Farahi formerly held positions of Co-Chairman of the Board, Secretary, Treasurer and Chief Financial Officer of the Company.
As part of the Driveway Project, in January 2004, we leased a 37,368 square-foot corner section of the Shopping Center for a minimum lease term of 15 years at an annual rent of $300 thousand, subject to a cost of living increase on each five year anniversary of the driveway lease. As of March 31, 2016, the annual rent is $377 thousand. In August 2015, we exercised our option to extend the lease for three individual five-year terms in addition to the 15 year initial term. At the end of the extension periods, we have the option to purchase the leased section of the Shopping Center at a price to be determined based on an MAI Appraisal. The leased space is being used by us for pedestrian and vehicle access to the Atlantis, and we may use a portion of the parking spaces at the Shopping Center. The total cost of the project was $2.0 million. We were responsible for two thirds of the total cost, or $1.35 million. The cost of the new driveway is being depreciated over the 15-year expected economic useful life of the asset; some components of the new driveway are being depreciated over a shorter period of time. We paid approximately $94 thousand in rent payments for the leased driveway space and $5 thousand in operating expenses for the Shopping Center during the three month period ended March 31, 2016.
In response to customer demand for more convenient surface parking at the Atlantis, and after detailed analysis, on August 28, 2015, the Company, through its subsidiary Golden Road, entered into a 20-year lease (the “Parking Lot Lease”) with BLI with respect to a portion of the Shopping Center. This lease gives the Atlantis the right to use a parcel, approximately 4.2 acres, comprised of commercial building and surrounding land adjacent to the Atlantis. The primary purpose of the Parking Lot Lease is to provide additional, convenient, Atlantis surface parking. We have demolished the commercial building and are in the process of converting the now vacant land into approximately 300 additional surface parking spaces for the Atlantis. Completion of this work is expected in the second quarter of 2016. The minimum annual rent under the Parking Lot Lease is $695 thousand, commencing on November 17, 2015. The minimum annual rent is subject to a cost of living adjustment increase on each five year anniversary. We have an option to renew the Parking Lot Lease for an additional 10-year term. If we elect not to exercise its renewal option, we will be obligated to pay BLI $1.6 million. During the quarter ended March 31, 2016 we paid approximately $174 thousand in parking lot rent payments and $9 thousand in parking lot operating expenses.
CRITICAL ACCOUNTING POLICIES
A description of our critical accounting policies and estimates can be found in Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for the year ended December 31, 2015 (“2015 Form 10-K”). For a more extensive discussion of our accounting policies, see Note 1, Summary of Significant Accounting Policies, in the Notes to the Consolidated Financial Statements in our 2015 Form 10-K filed on March 11, 2016.
OTHER FACTORS AFFECTING CURRENT AND FUTURE RESULTS
Negative economic developments in Northern Nevada, the Denver metropolitan area, or in our feeder markets, could adversely impact discretionary incomes of our target customers, which, in turn could adversely impact our business. Our target customers might curtail discretionary spending for leisure activities and businesses may reduce spending for conventions and meetings, both of which would adversely impact our business. Management continues to monitor economic trends and intends, as appropriate, to adopt operating strategies to attempt to mitigate the effects of such adverse conditions. We can make no assurances that such strategies will be effective should negative economic developments in our markets occur.
The expansion of Native American casinos in California has had an impact on casino revenues in Nevada, in general, and many analysts have continued to predict the impact will be more significant on the Reno-Lake Tahoe market. If other Reno-area casinos continue to suffer business losses due to increased pressure from California Native American casinos, such casinos may intensify their marketing efforts to northern Nevada residents as well, greatly increasing competitive activities for our local customers.
Higher fuel costs may deter California, Denver area, and other drive-in customers from coming to the Atlantis or the Monarch Casino Black Hawk.
We also believe that unrestricted land-based casino gaming in or near any major metropolitan area in the Atlantis’ key feeder market areas, such as San Francisco or Sacramento, or in other areas near Denver, Colorado, the Black Hawk key feeder markets, could have a material adverse effect on our business.
We rely on information technology and other systems to maintain and transmit customer financial information, credit card settlements, credit card funds transmissions, mailing lists and reservations information. The systems and processes we have implemented to protect customers, employees and company information are subject to the ever-changing risk of compromised security. These risks include cyber and physical security breaches, system failure, computer viruses, and negligent or intentional misuse by customers, company employees, or employees of third party vendors. The steps we take to deter and mitigate these risks may not be successful and our insurance coverage for protecting against cybersecurity risks may not be sufficient. Any disruption, compromise or loss of data or systems that results from a cybersecurity attack or breach could materially adversely impact operations or regulatory compliance and could result in remedial expenses, fines, litigation, and loss of reputation, potentially impacting our financial results.
COMMITMENTS AND CONTINGENCIES
Our contractual cash obligations as of March 31, 2016 and the next five years and thereafter are as follows (in millions):
|
|
|
Payments due by period (1) |
| |||||||||||||
|
|
|
Total |
|
Less |
|
1 to 3 |
|
3 to 5 |
|
Greater |
| |||||
|
Operating Leases (2) |
|
$ |
22.5 |
|
$ |
1.1 |
|
$ |
2.2 |
|
$ |
1.7 |
|
$ |
17.5 |
|
|
Purchase Obligations (3) |
|
13.4 |
|
9.5 |
|
2.5 |
|
1.4 |
|
— |
| |||||
|
Construction Contracts (4) |
|
8.6 |
|
8.6 |
|
— |
|
— |
|
— |
| |||||
|
Borrowings Under Credit Facility (5) |
|
35.4 |
|
35.4 |
|
— |
|
— |
|
— |
| |||||
|
Total Contractual Cash Obligations |
|
$ |
79.9 |
|
$ |
54.6 |
|
$ |
4.7 |
|
$ |
3.1 |
|
$ |
17.5 |
|
(1) Because interest payments under our credit facility are subject to factors that, in our judgment, fluctuate materially, the amount of future interest payments is not presently determinable. These factors include: (i) future short-term interest rates; (ii) our future leverage ratio which varies with Adjusted EBITDA and our borrowing levels; and (iii) the rate with which we deploy capital and other spending which in turn impacts the level of future borrowings. The interest rate under our credit facility is LIBOR, or a base rate (as defined in the credit facility agreement), plus an interest rate margin ranging from 1.25% to 2.50% depending on our leverage ratio. The interest rate is adjusted quarterly based on our leverage ratio which is calculated using operating results over the previous four quarters and borrowings at the end of the most recent quarter. Based on our leverage ratio, at March 31, 2016 pricing was LIBOR plus 1.25% and will be adjusted in subsequent quarters in accordance with our leverage ratio. At March 31, 2016, the one-month LIBOR rate was 0.44%.
(2) Operating leases include the leased driveway pursuant to the Driveway Project, the Parking Lot Lease and the executive housing in Colorado.
(3) Purchase obligations represent approximately $5.4 million of commitments related to capital projects and approximately $8.0 million of materials and supplies used in the normal operation of our business. Of the total purchase order and construction commitments, approximately $13.4 million are cancelable by us upon providing a 30-day notice.
(4) Construction contracts obligations represent commitments related to expansion projects in Monarch Casino Black Hawk. The $8.6 million commitment at the end of first quarter of 2016 relates to the construction of the new parking garage structure.
(5) The amount represents outstanding draws against the Credit Facility as of March 31, 2016.
As described in the “CAPITAL SPENDING AND DEVELOPMENT” section above, we have begun commencement of a substantial expansion of our Monarch Casino Black Hawk facility, which started in the fourth quarter of 2013. While we have disclosed the estimated cost of that expansion, we have not entered into contracts for substantial portions of the work. For this reason, we have included in the table above only the amounts for which we have contractual commitments.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss arising from adverse changes in market conditions and prices, such as interest rates, foreign currency exchange rates and commodity prices. We do not have any cash or cash equivalents as of March 31, 2016 that are subject to market risk. As of March 31, 2016, we had $35.4 million of outstanding principal balance under our Credit Facility that was subject to credit risk. A 1% increase in the interest rate on the balance outstanding under the Credit Facility at March 31, 2016 would result in a change in our annual interest cost of approximately $0.4 million.
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”), an evaluation was carried out by our management, with the participation of our Chief Executive Officer and our Chief Accounting Officer, of the effectiveness of our disclosure controls and procedures (as defined by Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon the evaluation, our Chief Executive Officer and Chief Accounting Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
There was no change in our internal control over financial reporting during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
We are party to claims that arise in the normal course of business. Management believes that the outcomes of such claims will not have a material adverse impact on our financial condition, cash flows or results of operations.
There have been no material changes to the risk factors we previously disclosed in Item 1A of our 2015 Form 10-K. Investors are urged to review these risk factors carefully.
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Exhibit No |
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Description |
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31.1 |
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Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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31.2 |
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Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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32.1 |
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Certification of Principal Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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32.2 |
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Certification of Principal Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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101.INS |
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XBRL Instance |
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101.SCH |
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XBRL Taxonomy Extension Schema |
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101.CAL |
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XBRL Taxonomy Extension Calculation |
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101.DEF |
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XBRL Taxonomy Extension Definition |
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101.LAB |
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XBRL Taxonomy Extension Labels |
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101.PRE |
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XBRL Taxonomy Extension Presentation |
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.
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MONARCH CASINO & RESORT, INC. | |
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(Registrant) | |
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Date: May 10, 2016 |
By: |
/s/ EDWIN S. KOENIG |
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Edwin S. Koenig, Chief Accounting Officer | |
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(Chief Accounting Officer and Duly Authorized Officer) | |