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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2003
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
Commission file number: 0-22088
MONARCH CASINO & RESORT, INC.
(Exact name of registrant as specified in its charter)
-------------------------
NEVADA 88-0300760
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1175 W. MOANA LANE, SUITE 200
RENO, NEVADA 89509
(Address of principal (Zip code)
executive offices)
Registrant's telephone number, including area code: (775) 825-3355
-------------------------
NOT APPLICABLE
(Former name, former address and former fiscal
year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES _X_ NO ___
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). YES ___ NO _X_
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
As of November 12, 2003, there were 9,340,328 shares of Monarch Casino &
Resort, Inc. $0.01 par value common stock outstanding.
TABLE OF CONTENTS
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Income for the three
and nine months ended September 30, 2003 and 2002 (unaudited).... 3
Condensed Consolidated Balance Sheets at September 30, 2003
(unaudited) and December 31, 2002................................ 4
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 2003 and 2002 (unaudited)............. 6
Notes to Condensed Consolidated Financial Statements
(unaudited)...................................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................... 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk........ 21
Item 4. Controls and Procedures........................................... 21
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................. 22
Item 6. Exhibits and Reports on Form 8-K.................................. 23
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MONARCH CASINO & RESORT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Revenues
Casino............................. $ 19,893,383 $ 18,979,642 $ 56,247,540 $ 53,376,299
Food and beverage.................. 9,146,124 8,826,254 26,093,733 25,202,895
Hotel.............................. 6,259,807 6,344,964 16,483,022 15,651,826
Other.............................. 1,169,165 984,037 3,040,978 2,753,073
------------ ------------ ------------ ------------
Gross revenues.................. 36,468,479 35,134,897 101,865,273 96,984,093
Less promotional allowances........ (5,021,786) (4,483,316) (14,178,582) (12,907,439)
------------ ------------ ------------ ------------
Net revenues.................... 31,446,693 30,651,581 87,686,691 84,076,654
------------ ------------ ------------ ------------
Operating expenses
Casino............................. 7,550,337 6,982,318 22,035,163 20,358,504
Food and beverage.................. 4,530,680 4,642,013 13,129,591 13,186,634
Hotel.............................. 1,846,802 1,803,069 5,231,101 4,899,231
Other.............................. 357,879 329,748 971,121 947,676
Selling, general and
administrative.................... 8,363,361 8,060,423 24,478,855 22,462,330
Depreciation and amortization...... 2,611,621 2,618,077 7,928,450 7,721,347
------------ ------------ ------------ ------------
Total operating expenses........ 25,260,680 24,435,648 73,774,281 69,575,722
------------ ------------ ------------ ------------
Income from operations.......... 6,186,013 6,215,933 13,912,410 14,500,932
------------ ------------ ------------ ------------
Other expenses
Interest expense................... (372,063) (647,346) (1,244,145) (2,122,107)
Stockholder guarantee fee expense.. (250,334) (315,027) (792,613) (1,000,405)
Other expense...................... - - - (225,000)
------------ ------------ ------------ ------------
Total other expenses............ (622,397) (962,373) (2,036,758) (3,347,512)
------------ ------------ ------------ ------------
Income before income taxes...... 5,563,616 5,253,560 11,875,652 11,153,420
Provision for income taxes........... 1,897,802 1,786,100 4,040,802 3,848,710
------------ ------------ ------------ ------------
Net income...................... $ 3,665,814 $ 3,467,460 $ 7,834,850 $ 7,304,710
============ ============ ============ ============
Earnings per share of common stock
Net income
Basic.......................... $ 0.39 $ 0.37 $ 0.84 $ 0.77
Diluted........................ $ 0.39 $ 0.36 $ 0.83 $ 0.77
Weighted average number of common
shares and potential common
shares outstanding
Basic.......................... 9,339,567 9,468,880 9,379,446 9,452,279
Diluted........................ 9,373,006 9,529,212 9,411,771 9,494,602
The accompanying Notes to the Unaudited Condensed Consolidated Financial
Statements are an integral part of these statements.
-3-
MONARCH CASINO & RESORT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2003 2002
------------- -------------
(UNAUDITED)
ASSETS
Current assets
Cash............................................ $ 9,875,676 $ 9,961,484
Receivables, net................................ 2,607,884 2,724,726
Inventories..................................... 1,233,625 993,260
Prepaid expenses................................ 2,538,101 1,961,763
Prepaid federal income taxes.................... 278,278 176,321
Deferred income taxes........................... 542,457 492,457
------------- -------------
Total current assets......................... 17,076,021 16,310,011
------------- -------------
Property and equipment
Land............................................ 10,339,530 10,339,530
Land improvements............................... 3,226,913 3,191,371
Buildings....................................... 78,955,538 78,955,538
Building improvements........................... 6,304,642 6,262,903
Furniture and equipment......................... 59,839,989 58,086,570
------------- -------------
158,666,612 156,835,912
Less accumulated depreciation and amortization.. (62,027,745) (55,985,653)
------------- -------------
Net property and equipment................... 96,638,867 100,850,259
------------- -------------
Other assets, net................................. 175,790 319,817
------------- -------------
Total assets................................. $ 113,890,678 $ 117,480,087
============= =============
The accompanying Notes to the Unaudited Condensed Consolidated Financial
Statements are an integral part of these statements.
-4-
MONARCH CASINO & RESORT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2003 2002
------------- -------------
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt............ $ 48,409,923 $ 8,279,095
Accounts payable................................ 5,883,950 6,227,124
Accrued expenses................................ 5,643,688 6,146,440
Federal income taxes payable.................... 1,947,800 -
------------- -------------
Total current liabilities.................... 61,885,361 20,652,659
Long-term debt, less current maturities........... - 52,000,000
Deferred income taxes............................. 5,053,587 4,526,744
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;
9,340,328 outstanding at 09/30/2003,
9,474,830 outstanding at 12/31/2002............ 95,363 95,363
Additional paid-in capital...................... 17,432,635 17,381,517
Treasury stock,
195,947 shares at 09/30/2003, 61,445 shares
at 12/31/2002, at cost......................... (1,437,614) (202,692)
Retained earnings............................... 30,861,346 23,026,496
------------- -------------
Total stockholders' equity................... 46,951,730 40,300,684
------------- -------------
Total liabilities and stockholders' equity... $ 113,890,678 $ 117,480,087
============= =============
The accompanying Notes to the Unaudited Condensed Consolidated Financial
Statements are an integral part of these statements.
-5-
MONARCH CASINO & RESORT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 30,
----------------------------
2003 2002
------------ ------------
Cash flows from operating activities:
Net income....................................... $ 7,834,850 $ 7,304,710
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization.................. 7,928,450 7,721,346
Amortization of deferred loan costs............ 134,570 134,570
Provision for bad debts........................ (582,823) (410,640)
Gain on disposal of assets..................... (117,771) (34,647)
Deferred income taxes.......................... 476,842 233,896
Changes in assets and liabilities
Receivables, net............................... 699,665 1,601,447
Inventories.................................... (240,365) 104,280
Prepaid expenses............................... (678,294) (695,041)
Other assets................................... 8,014 (19,587)
Accounts payable, net.......................... (343,175) (2,204,310)
Accrued expenses and federal income taxes
payable...................................... 1,566,552 300,029
------------ ------------
Net cash provided by operating activities..... 16,686,515 14,036,053
------------ ------------
Cash flows from investing activities:
Proceeds from sale of assets..................... 230,844 48,979
Acquisition of property and equipment............ (1,525,716) (3,953,636)
Changes in accounts payable construction......... - (133,298)
------------ ------------
Net cash used in investing activities......... (1,294,872) (4,037,955)
------------ ------------
Cash flows from financing activities:
Proceeds from exercise of stock options.......... 122,092 99,385
Principal payments on long-term debt............. (14,172,143) (12,046,359)
Purchase of Monarch common stock................. (1,427,400) -
------------ ------------
Net cash used in financing activities......... (15,477,451) (11,946,974)
------------ ------------
Net decrease in cash.......................... (85,808) (1,948,876)
Cash at beginning of period........................ 9,961,484 8,385,743
------------ ------------
Cash at end of period.............................. $ 9,875,676 $ 6,436,867
============ ============
Supplemental disclosure of
cash flow information:
Cash paid for interest........................... $ 1,714,447 $ 2,859,294
Cash paid for income taxes....................... $ 1,596,612 $ 2,805,760
Supplemental schedule of non-cash
investing and financing activities:
The Company financed the purchase
of property and equipment in the
following amounts................................ $ 2,302,971 $ 1,322,025
The accompanying Notes to the Unaudited Condensed Consolidated Financial
Statements are an integral part of these statements.
-6-
MONARCH CASINO & RESORT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Monarch Casino & Resort, Inc. ("Monarch"), a Nevada corporation, was
incorporated in 1993. Monarch's wholly-owned subsidiary, Golden Road Motor
Inn, Inc. ("Golden Road"), operates the Atlantis Casino Resort (the
"Atlantis"), a hotel/casino facility in Reno, Nevada. Unless stated otherwise,
the "Company" refers collectively to Monarch and its Golden Road subsidiary.
The condensed consolidated financial statements include the accounts of
Monarch and Golden Road. Intercompany balances and transactions are
eliminated.
Interim Financial Statements
The accompanying unaudited condensed consolidated financial statements
for the three and nine month periods ended September 30, 2003 and September
30, 2002 are unaudited. In the opinion of management, all adjustments, (which
include 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 condensed 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, 2002. The results for the three and nine month periods ended
September 30, 2003 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2003, or for any other period.
Use of Estimates
In preparing these financial statements in conformity with accounting
principles generally accepted in the United States, 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 respective
periods. Actual results could differ from those estimates.
Reclassifications
Certain amounts in the 2002 third quarter unaudited condensed
consolidated financial statements have been reclassified to conform with the
2003 presentation. These reclassifications had no effect on the previously
reported net income.
Self-insurance Reserves
The Company reviews self-insurance reserves at least quarterly. The amount
of reserve is determined by reviewing the actual expenditures for the previous
twelve-month period and reviewing reports prepared by the third party plan
administrator for any significant unpaid claims. The reserve is accrued at an
amount that approximates a two-to-three month period of those costs, which
management believes are adequate.
-7-
Stockholder Guarantee Fees
All of the Company's bank debt is personally guaranteed by the Company's
three largest stockholders since the inception of our original Loan Agreement
dated December 29, 1997. Since January 1, 2001, the Company has compensated
the guarantors at the rate of 2% per annum of the quarterly average
outstanding bank debt amount until the guarantees are cancelled or the notes
are paid off. During the three months ended September 30, 2003 and 2002, the
Company recorded interest expense in the amount of approximately $250 thousand
and $315 thousand in guarantee fees, respectively.
Inventories
Inventories, consisting primarily of food, beverages, and retail
merchandise, are stated at the lower of cost or market. Cost is determined on
a first-in, first-out basis.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation
and amortization. Since inception, property and equipment have been
depreciated principally on a straight line basis over the estimated service
lives as follows:
Land improvements ........... 15-40 years
Buildings ................... 30-40 years
Building improvements ....... 15-40 years
Furniture ................... 5-10 years
Equipment ................... 5-20 years
The Company evaluates the carrying value of its long-lived assets for
impairment at least annually or whenever events or changes in circumstances
indicate that the carrying value of the assets may not be recoverable from
related future undiscounted cash flows. Indicators which could trigger an
impairment review include legal and regulatory factors, market conditions and
operational performance. Any resulting impairment loss, measured as the
difference between the carrying amount and the fair value of the assets, could
have a material adverse impact on the Company's financial condition and
results of operations.
Casino Revenues
Casino revenues represent the net win from gaming activity, which is the
difference between wins and losses. Additionally, net win is reduced by a
provision for anticipated payouts on slot participation fees, progressive
jackpots and any pre-arranged marker discounts.
Promotional Allowances
The retail value of hotel, food and beverage services provided to
customers without charge is included in gross revenue and deducted as
promotional allowances.
-8-
Income Taxes
Income taxes are recorded in accordance with the liability method
specified by Statement of Financial Accounting Standards ("SFAS") No. 109
"Accounting for Income Taxes." Under the asset and liability approach for
financial accounting and reporting for income taxes, the following basic
principles are applied in accounting for income taxes at the date of the
financial statements: (a) a current liability or asset is recognized for the
estimated taxes payable or refundable on taxes for the current year; (b) a
deferred income tax liability or asset is recognized for the estimated future
tax effects attributable to temporary differences and carryforwards; (c) the
measurement of current and deferred tax liabilities and assets is based on the
provisions of the enacted tax law; the effects of future changes in tax laws or
rates are not anticipated; and (d) the measurement of deferred income taxes is
reduced, if necessary, by the amount of any tax benefits that, based upon
available evidence, are not expected to be realized.
Stock-based Compensation
The Company maintains three stock option plans. The Company accounts for
these plans under the recognition and measurement principles of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and
related interpretations in accounting for its plans. No stock-based
compensation costs are reflected in net income, as all options granted under
those plans had an exercise price equal to the market value of the underlying
common stock on the date of the grant. If the Company had elected to recognize
compensation cost on the market value at the grant dates for awards under the
stock option plans, consistent with the method prescribed by SFAS No. 123,
"Accounting for Stock-Based Compensation," as amended by SFAS No. 148 -
"Accounting for Stock-based Compensation - Transition and Disclosure" ("SFAS
No. 148"), net income and income per share would have been changed to the pro
forma amounts indicated below:
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -------------------------
2003 2002 2003 2002
---------- ----------- ---------- -----------
Net income, as reported $3,665,814 $3,467,460 $7,834,850 $7,304,710
Stock-based employee compensation
expensed determined under the fair
value based method for all awards,
net of related income tax effects (14,973) (33,840) (26,908) (101,519)
----------- ----------- ---------- -----------
Pro forma net income $3,650,841 $3,433,620 $7,807,942 $7,203,191
=========== =========== ========== ===========
Basic earnings per share
As reported $ 0.39 $ 0.37 $ 0.84 $ 0.77
Pro forma $ 0.39 $ 0.36 $ 0.83 $ 0.76
Diluted earnings per share
As reported $ 0.39 $ 0.36 $ 0.83 $ 0.77
Pro forma $ 0.39 $ 0.36 $ 0.83 $ 0.76
-9-
Maturity of Revolving Credit Facility
The Company has a reducing revolving credit facility with a group of
banks (the "Credit Facility"). At September 30, 2003, the total balance
outstanding on the Credit Facility was $48.0 million. As discussed below, the
Credit Facility matures and becomes due and payable on June 30, 2004. The
Company intends to refinance or seek a replacement credit facility (see "The
Credit Facility") prior to the maturity date. This facility is guaranteed by
the Company's three principal stockholders who, beginning in 2001, earn a fee
equal to 2% per annum of the quarterly average outstanding bank debt amount.
The Company incurred guarantee expenses of approximately $250 thousand and
$315 thousand in the third quarters of 2003 and 2002, respectively.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of bank deposits and trade
receivables. The Company maintains its cash in bank deposit accounts which, at
times, may exceed federally insured limits. The Company has not experienced
any losses in such accounts. Concentrations of credit risk with respect to
trade receivables are limited due to the large number of customers comprising
the Company's customer base. The Company believes it is not exposed to any
significant credit risk on cash and accounts receivable.
Certain Risks and Uncertainties
A significant portion of the Company's revenues and operating income are
generated from patrons who are residents of northern California. A change in
general economic conditions or the extent and nature of casino gaming in
California, Washington or Oregon could adversely affect the Company's
operating results. On September 10, 1999, California lawmakers approved a
constitutional amendment that would give Indian tribes the right to offer slot
machines and a range of house-banked card games. On March 7, 2000, California
voters approved the constitutional amendment. Several Native American casinos
have opened in northern California since passage of the constitutional
amendment. A large Native American casino facility has recently opened in the
Sacramento area, one of the Company's primary feeder markets.
The Company also relies on non-conventioneer visitors partially comprised
of individuals flying into the Reno area. The tragic events of September 11,
2001 combined with the ongoing situation in Iraq and the threat of further
terrorist attacks could have an adverse effect on the Company's revenues from
this segment as consumers may change travel plans based on concerns from time
to time arising out of threatened or actual terrorist and other events.
-10-
NOTE 2. EARNINGS PER SHARE
The Company reports "basic" earnings per share and "diluted" earnings per
share in accordance with the provisions of SFAS No. 128, "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):
Three Months Ended September 30,
-----------------------------------
2003 2002
---------------- ----------------
Per Share Per Share
Shares Amount Shares Amount
------ --------- ------ ---------
Net Income
Basic..................... 9,340 $ 0.39 9,469 $ 0.37
Effect of dilutive
stock options............ 33 - 60 (0.01)
------ ------- ------ -------
Diluted................... 9,373 $ 0.39 9,529 $ 0.36
====== ======= ====== =======
Nine Months Ended September 30,
-----------------------------------
2003 2002
---------------- ----------------
Per Share Per Share
Shares Amount Shares Amount
------ --------- ------ ---------
Net Income
Basic..................... 9,379 $ 0.84 9,452 $ 0.77
Effect of dilutive
stock options............ 33 (0.01) 43 -
------ ------- ------ -------
Diluted................... 9,412 $ 0.83 9,495 $ 0.77
====== ======= ====== =======
Excluded from the computation of diluted earnings per share are options
where the exercise prices are greater than market price and their effects
would be anti-dilutive in the computation of diluted earnings per share.
NOTE 4. RECENTLY ISSUED ACCOUNTING STANDARDS
In January 2003, the FASB issued interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities." The objective of FIN 46 is to
improve the financial reporting by companies involved with variable interest
entities. FIN 46 changes certain consolidation requirements by requiring a
variable interest entity to be consolidated by a company that is subject to a
majority of the risk of loss from the variable interest entity's activities or
entitled to receive a majority of the entity's residual returns or both. In
-11-
October 2003, the FASB agreed to defer the effective date of FIN 46 for
variable interests held by public companies in all entities that were acquired
prior to February 1, 2003. The deferal will require that public companies
adopt the provisions of FIN 46 at the end periods ending after December 15,
2003. The Company has determined that all entities acquired after February 1,
2003 are not variable interest entities and that FIN 46 will not have a
significant impact on its results of operations or financial position.
NOTE 5. RELATED PARTY TRANSACTIONS
The three principal stockholders of the Company, through their affiliates,
control the ownership and management of a shopping center directly adjacent to
the Atlantis. The shopping center occupies 18.7 acres and consists of 233,000
square feet of retail space. The Company currently rents approximately 5,100
square feet in the shopping center which it uses as office space. For the
three months ended September 30, 2003 and 2002, the Company paid approximately
$11,600 and $12,200 in rent and other charges for this space, respectively.
For the nine months ended September 30, 2003 and 2002, the Company paid
approximately $48,000 and $36,700 in rent and other charges for this space,
respectively.
On September 23, 2003, the Company entered into an option agreement with
an affiliate of the Company's controlling stockholders to purchase property in
South Reno for development of a new hotel casino. Commencement of any
development of the property will require completion of property due diligence
and receipt of numerous approvals, including master plan changes and zone
changes, neither of which can be assured. The Company, through the current
property owner, have filed application with the City of Reno for master plan
change and zone change for 13 acres of the property.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Monarch Casino & Resort, Inc., through its wholly-owned subsidiary, Golden
Road Motor Inn, Inc. ("Golden Road"), owns and operates the tropically-themed
Atlantis Casino Resort, a hotel/casino facility in Reno, Nevada (the
"Atlantis"). Monarch was incorporated in 1993 under Nevada law for the purpose
of acquiring all of the stock of Golden Road. The principal asset of Monarch
is the stock of Golden Road, which holds all of the assets of the Atlantis.
Our sole operating asset, the Atlantis, is a hotel/casino resort located
in Reno, Nevada. Our business strategy is to maximize the Atlantis' revenues,
operating income and cash flow primarily through our casino, our food and
beverage operations, our hotel operations and other revenue sources. We derive
our revenues by appealing to middle to upper-middle income Reno residents,
emphasizing slot machine play in our casino. We capitalize on the Atlantis'
location, offer exceptional service, value and an appealing theme to our
guests, focus on repeat customers, and utilize hands-on management of
operations, costs and efficiencies.
Unless otherwise indicated, "Monarch," "Company," "we," "our" and "us"
refer to Monarch Casino & Resort, Inc. and its Golden Road subsidiary.
-12-
OPERATING RESULTS SUMMARY
During the third quarter and nine months of 2003, we exceeded all
previously reported third quarter casino revenues, net revenues, net income and
earnings per share results.
Three Months Percentage
Ended September 30, Increase / (Decrease)
------------------- -----------------------
2003 2002 Third Quarter 03 vs 02
------ ------ -----------------------
(In millions, except earnings per share
and percentages)
Casino revenues......................... $ 19.9 $ 19.0 4.8%
Food and beverage revenues.............. 9.1 8.8 3.6%
Hotel revenues.......................... 6.3 6.3 (1.3)%
Net revenues............................ 31.4 30.7 2.6%
Income from operations.................. 6.2 6.2 (0.5)%
Net income.............................. 3.7 3.5 5.7%
Earnings per share - diluted............ 0.39 0.36 8.3%
Operating margin........................ 19.7% 20.3% (0.6) pts
Nine Months Percentage
Ended September 30, Increase / (Decrease)
------------------- ----------------------------
2003 2002 January - September 03 vs 02
------ ------ ----------------------------
(In millions, except earnings per share
and percentages)
Casino revenues......................... $ 56.2 $ 53.4 5.4%
Food and beverage revenues.............. 26.1 25.2 3.5%
Hotel revenues.......................... 16.5 15.7 5.3%
Net revenues............................ 87.7 84.1 4.3%
Income from operations.................. 13.9 14.5 (4.1)%
Net income.............................. 7.8 7.3 7.3%
Earnings per share - diluted............ 0.83 0.77 7.8%
Operating margin........................ 15.9% 17.2% (1.3) pts
Some significant items that affected our third quarter results in 2003 are
listed below. These items are discussed in greater detail elsewhere in our
discussion of operating results and in the "Liquidity and Capital Resources"
section.
-13-
- Promotional allowances as a percentage of gross revenues increased from
12.8% in the 2002 third quarter to 13.8% in 2003. This increase in
promotional allowances reflects our efforts to attract and retain
high-end players and local patrons in an increasingly competitive
market. We believe these efforts were effective in reaching this goal.
- Casino expenses increased 8.1% from $6,982,318 in the 2002 third
quarter to $7,550,337 in the 2003 third quarter. The increase was
mainly attributable to increased costs of complimentaries, the
increased gaming revenue tax rate that took effect on August 1, 2003,
and increased slot machine upgrade and repair costs.
- Interest and stockholder guarantee fee expenses decreased 35.3%
compared to last year's third quarter from $962 thousand to $622
thousand due to lower prevailing interest rates combined with
continuously decreasing outstanding debt.
CAPITAL SPENDING AND DEVELOPMENT
Capital expenditures at the Atlantis totaled approximately $3.8 million
and $5.4 million during the first nine months of 2003 and 2002, respectively.
This year, to date, our capital expenditures consisted primarily of the
construction and opening of our new Sushi Bar and continued acquisitions of and
upgrades to gaming equipment. During last year's first nine months, capital
expenditures consisted primarily of renovations of hotel room suites in the
Atlantis' first tower and continued acquisitions of and upgrades to slot
machines, computer information system equipment and various other furniture,
fixtures and equipment to upgrade existing facilities.
Future cash needed to finance capital spending is expected to be made
available from operating cash flow, a new credit facility to replace the
existing Credit Facility (see "Liquidity and Capital Resources - THE CREDIT
FACILITY" below) and, if necessary, additional borrowings.
STATEMENT ON FORWARD-LOOKING INFORMATION
Certain information included herein contains statements that may be
considered forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
such as statements relating to anticipated expenses, capital spending and
financing sources. Such forward-looking information involves important risks
and uncertainties that could significantly affect anticipated results in the
future and, accordingly, such results may differ from those expressed in any
forward-looking statements made herein. These risks and uncertainties include,
but are not limited to, those relating to competitive industry conditions,
expansion of Indian casinos in California, 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, including those affected by
the events of September 11, 2001 and the ongoing war and post-war situation in
Iraq and other areas of the World, and changes in federal or state tax laws or
the administration of such laws.
-14-
RESULTS OF OPERATIONS
Comparison of Operating Results for the Three-Month
Periods Ended September 30, 2003 and 2002
For the three-month period ended September 30, 2003, the Company earned
net income of $3.7 million, or $0.39 per share (diluted), on net revenues of
$31.4 million, an increase from net income of $3.5 million, or $0.36 per share
(diluted), on net revenues of $30.7 million for the three months ended
September 30, 2002. Income from operations for the three months ended
September 30, 2003 totaled $6.2 million, relatively unchanged when compared to
the $6.2 million for the same period in 2002. Both net revenues and net income
for the third quarter of 2003 represent new third quarter records for the
Company. Net revenues increased 2.6%, and net income increased 5.7% when
compared to last year's third quarter.
Casino revenues totaled $19.9 million in the third quarter of 2003, a
4.8% increase from the $19.0 million in the third quarter of 2002, reflecting
increases in slot, Keno and poker win. Slot revenues were up 10.7% in the
third quarter of 2003 compared to the third quarter of 2002 due to an increase
in the volume of slot machine play and a slightly higher hold percentage.
Table game and poker room revenue in the third quarter of 2003 decreased 13.3%
from the third quarter of 2002 due to a lower hold percentage caused by higher
than average winnings by our casino patrons. Keno win increased 18.8% in the
third quarter of 2003 compared to the third quarter 2002. The increase was
due to a higher hold percentage partially offset by a slight decrease of 0.1%
in Keno write in the third quarter of 2003 compared to the third quarter 2002.
Casino operating expenses amounted to 38.0% of casino revenues in the third
quarter of 2003, compared to 36.8% in the third quarter of 2002, with the
difference due primarily to the lower table game hold percentage, increased
costs of complimentaries and increased gaming revenue tax expense resulting
from the gaming revenue tax rate increase effective August 1, 2003.
Food and beverage revenues totaled $9.1 million in the third quarter of
2003, a 3.6% increase from the $8.8 million in the third quarter of 2002, due
primarily to increases in the number of covers served during the quarter and,
to a lesser extent, a slight increase in the average price per cover. Food
and beverage operating expenses amounted to 49.5% of food and beverage
revenues during the third quarter of 2003 compared to 52.6% in the third
quarter of 2002. The decrease was due to decreases in cost of sales and
direct operating expenses partially offset by a slight increase in payroll and
benefit costs.
Hotel revenues were $6.3 million for the third quarter of 2003,
relatively unchanged from the $6.3 million in hotel revenues in the 2002 third
quarter. Both third quarters' 2003 and 2002 revenues also included a $3 per
occupied room energy surcharge. During the third quarter of 2003, the
Atlantis experienced a 98.2% occupancy rate, an increase from a 97.4%
occupancy rate for the same period in 2002. The Atlantis' ADR was $64.48 in
the third quarter of 2003 compared to $66.52 in the third quarter of 2002.
Hotel operating expenses as a percent of hotel revenues increased slightly to
29.5% in the 2003 third quarter, compared to 28.4% in the 2002 third quarter,
primarily due to an increase in accounts receivable collection reserve.
Promotional allowances increased to $5.0 million, or 13.8% of gross
revenues, in the third quarter of 2003 compared to $4.5 million, or 12.8% of
gross revenues, in the third quarter of 2002. The increase is attributable to
-15-
expanded efforts to increase revenues. We believe these efforts were
successful in helping revenue growth.
Other revenues increased 18.8% to $1.2 million in the 2003 third quarter
compared to $984 thousand in the same period last year. The increase reflects
increased retail sales in both the gift and sundries shops as well as an
increase at the entertainment fun center. Other expenses in the 2003 third
quarter decreased to 30.6% of other revenues, from 33.5% in the 2002 third
quarter, reflecting increased efficiencies.
Depreciation and amortization expense was $2.6 million in the third
quarter of 2003, relatively unchanged when compared to $2.6 million in the same
period last year.
Selling, general and administrative expenses amounted to $8.4 million, or
26.6% of net revenues in the third quarter of 2003, an increase from $8.1
million, or 26.3% in the third quarter of 2002 due primarily to an increase in
sales, marketing and special event costs.
Interest expense for the 2003 third quarter totaled $622 thousand, a
decrease of 35.3%, from $962 thousand in the 2002 third quarter. The decrease
reflects the Company's reduction in debt outstanding and lower applicable
interest rates. Interest expense for both the quarters ended September 30,
2003 and 2002, included guarantee fees paid to the three principal
stockholders of the Company. Starting January 2001, the Company began
compensating the three principal stockholders of the Company for their
personal guarantees of the Company's outstanding bank debt at the rate of 2%
per annum of the quarterly average outstanding bank debt. These guarantee
expenses totaled approximately $250 thousand and $315 thousand in the third
quarters of 2003 and 2002, respectively.
Comparison of Operating Results for the Nine-month Periods
Ended Setember 30, 2003 and 2002
For the nine months ended September 30, 2003, the Company earned net
income of $7.8 million, or $0.83 per share (diluted), on net revenues of $87.7
million, an increase from net income of $7.3 million, or $0.77 per share
(diluted), on net revenues of $84.1 million during the nine months ended
September 30, 2002. Income from operations for the 2003 nine-month period
totaled $13.9 million, compared to $14.5 million for the same period in 2002.
Casino revenues for the first nine months of 2003 totaled $56.2 million,
a 5.4% increase from $53.4 million for the first nine months of 2002,
reflecting increases in slot, Keno and poker win. Slot revenues were up 9.8%
in the first nine months of 2003 compared to the first nine months of 2002 due
to an increase in the volume of slot machine play. Table game revenue for the
nine months ended September 30, 2003 decreased 10.1% compared to the same
period in 2002, as a result of lower hold percentages over the same period of
2002. Poker room revenue increased 15.1% for the nine months ended September
30, 2003, compared to the same period last year. Keno revenue increased 11.8%
in the nine-month period ended September 30, 2003 when compared to the same
period last year. The increase was due to a higher hold percentage combined
with an approximate 2.3% increase in Keno write. Casino operating expenses
amounted to 39.2% of casino revenues for the nine months ended September 30,
2003, compared to 38.1% for the same period in 2002, primarily due to lower
hold percentages, higher costs of complimentaries and increased gaming revenue
taxes that took effect August 1, 2003.
-16-
Food and beverage revenues totaled $26.1 million for the nine months
ended September 30, 2003, an increase of 3.5% from the $25.2 million for the
nine months ended September 30, 2002, due to increases in the number of covers
served and the average revenue per cover. Food and beverage operating expenses
amounted to 50.3% of food and beverage revenues during the 2003 nine-month
period, compared to 52.3% for the same period in 2002, which was primarily due
to overall successful efforts to manage direct operating costs as a percentage
of revenues partially offset by a slight increase in both food cost of sales
and payroll and benefit costs as a percentage of revenues.
Hotel revenues for the first nine months of 2003 increased 5.3% to $16.5
million from $15.7 million for the first nine months of 2002, primarily due to
an increase in both the ADR and hotel occupancy. Hotel revenues for the entire
first nine months of 2003 and 2002 also include a $3 per occupied room energy
surcharge. The Atlantis experienced an increase in the ADR during the 2003
nine-month period to $58.93, compared to $56.42 for the same period in 2002.
The occupancy rate increased slightly to 94.3% for the nine-month period in
2003, from 94.1% for the same period in 2002. Hotel operating expenses in the
first nine months of 2003 were 31.7% of hotel revenues, relatively flat when
compared to 31.3% for the same period in 2002.
Other revenues were $3.0 million for the nine months ended September 30,
2003, an increase of 10.5% from $2.8 million in the same period in 2002,
reflecting primarily increased sales in both our retail stores and, to a
lesser extent, the entertainment fun center. Other expenses as a percentage
of revenue decreased to 31.9% for the nine months ended September 30, 2003 as
compared to 34.4% for the same period in 2002.
Selling, general and administrative expenses increased 9.0% to $24.5
million in the first nine months of 2003, compared to $22.5 million in the
first nine months of 2002, due primarily to increased marketing and
promotional expenditures. As a percentage of net revenue, SG&A expenses
increased to 27.9% in the 2003 nine-month period from 26.7% in the same period
in 2002.
Interest expense for the first nine months of 2003 totaled $2.0 million,
a decrease of 34.8%, compared to $3.1 million for the same period one year
earlier. The decrease reflects the Company's reduction in debt outstanding
and lower applicable interest rates. Interest expense for the nine-month
periods ended September 30, 2003, and 2002 included guarantee fees paid to the
Company's three principal shareholders. These guarantee fee expenses totaled
approximately $793 thousand and $1.0 million in the first nine months of 2003
and 2002, respectively.
Also during the first nine months of 2002, the Company incurred
approximately $225 thousand in non-recurring expenses associated with a
secondary stock offering by certain principal stockholders. These expenses
included legal, accounting, printing and road show charges.
LIQUIDITY AND CAPITAL RESOURCES
We have historically funded our daily hotel and casino activities with net
cash provided by operating activities.
For the nine months ended September 30, 2003, net cash provided by
operating activities totaled $16.7 million, an increase of 18.9% compared to
the same period last year. Net cash used in investing activities totaled $1.3
milllion and $4.0 million in the nine months ended September 30, 2003 and 2002,
respectively. During the first nine months of 2003 and 2002, net cash
used in investing activities was used primarily in the purchase of property
and equipment. Net cash used in financing activities totaled $15.5 million
-17-
for the first nine months of 2003, compared to $11.9 million for the same
period last year, as the Company used funds primarily to reduce long-term debt
and for the repurchase of Monarch common stock pursuant to the stock
repurchase program announced during the first quarter of 2003. As a result,
at September 30, 2003, the Company had a cash balance of $9.9 million,
compared to $6.4 million at September 30, 2002 and $10.0 million at December
31, 2002.
The Company has a reducing revolving credit facility with a group of
banks (the "Credit Facility"). At September 30, 2003, the total balance
outstanding on the Credit Facility was $48.0 million. As discussed below, the
Credit Facility matures and becomes due and payable on June 30, 2004. The
Company intends to refinance or seek a replacement credit facility (see "The
Credit Facility") prior to the maturity date. The Company has begun to
negotiate with banks to refinance the Credit Facility. This facility is
guaranteed by the Company's three principal stockholders who, beginning in
2001, earn a fee equal to 2% per annum of the quarterly average outstanding
bank debt amount. The Company incurred guarantee expenses of approximately
$250 thousand and $315 thousand in the third quarters of 2003 and 2002,
respectively.
OFF BALANCE SHEET ARRANGEMENTS
On September 23, 2003, we entered into an option agreement with an
affiliate of our controlling stockholders to purchase property in South Reno
for development of a new hotel casino. Commencement of any development of the
property will require completion of property due diligence and receipt of
numerous approvals, including master plan changes and zone changes, neither of
which can be assured. We, through the current property owner, have filed
application with the City of Reno for master plan change and zone change for
13 acres of the property.
Critical Accounting Policies
A description of our critical accounting policies and estimates can be
found in Item 7 of our Form 10-K for the year ended December 31, 2002. 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 2002 Form 10-K filed on March 28, 2003.
OTHER FACTORS AFFECTING CURRENT AND FUTURE RESULTS
The constitutional amendment approved by California voters in 1999
allowing the expansion of Indian casinos in California will have an impact on
casino revenues in Nevada in general, and many analysts have predicted the
impact will be more significant on the Reno-Lake Tahoe market. The extent of
this impact is difficult to predict, but the Company believes that the impact
on the Company will be mitigated to an extent due to the Atlantis' emphasis on
Reno-area residents as a significant base of its business. However, if other
Reno-area casinos suffer business losses due to increased pressure from
California Indian casinos, they may intensify their marketing efforts to Reno-
area residents as well.
The Company also believes that unlimited land-based casino gaming in or
near any major metropolitan area in the Atlantis' key non-Reno marketing
areas, such as San Francisco or Sacramento, could have a material adverse
effect on its business.
-18-
If the transfer of non-restricted gaming license described under
"Commitments and Contingencies" below is allowed to proceed as proposed and a
new casino property is built, the Company's results of operations may be
negatively impacted. We expect the legal proceeding against the City of Reno
and other third parties described in "Commitments and Contingencies" to
continue into future quarters, and our Selling, General and Administrative
expenses will continue to be adversely impacted as a result.
COMMITMENTS AND CONTINGENCIES
Contractual cash obligations for the Company as of September 30, 2003 over
the next five years are as follows:
Payments Due by Period
------------------------------------------------
Contractual Cash Less than 1 to 3 4 to 5
Obligations Total 1 year years years
------------------------------------------------
Long-term Debt $48,409,923 $48,409,923 $ - $ -
Operating Leases 282,207 161,261 120,946 -
----------- ----------- ----------- ---------
Total Contractual Cash $48,692,130 $48,571,184 $ 120,946 $ -
Obligations
On March 10, 2003, we announced a plan to repurchase up to 250,000 shares,
or 2.6%, of our common stock in open market transactions. The repurchases may
be made from time to time depending on market conditions and availability of
funds. The repurchases are to be made with our cash (see our Current Report
filed on Form 8-K dated March 10, 2003). During the third quarter of 2003, we
did not purchase any shares of our common stock pursuant to this stock
repurchase program. During the first quarter of 2003 we purchased 180,000
shares under the repurchase program.
On April 16, 2003, our Golden Road subsidiary filed a complaint against
the City of Reno and other interested parties petitioning the Second Judicial
District Court of Nevada to review the City of Reno's decision to enter into an
agreement for the acquisition and relocation of the Old Reno Casino in downtown
Reno, to condemn the real property occupied by the Old Reno Casino, to declare
the agreement null and void and to preclude the City of Reno from condemning
the real property. We believe that there is no basis under Nevada law for the
City's decision to condemn the property at issue, which will allow a private
group to transfer a non-restricted gaming license to a new location and, in the
process, bypass the legal requirements generally associated with acquiring a
non-restricted gaming license. See Part II - Item 1. Legal Proceedings.
The Company believes that its existing cash balances, cash flow from
operations, and availability of equipment financing, if necessary, will
provide the Company with sufficient resources to fund its operations, meet its
existing routine debt obligations (with the exception of the maturing Credit
Facility which comes due on June 30, 2004), and fulfill its capital
expenditure requirements; however, the Company's operations are subject to
financial, economic, competitive, regulatory, and other factors, many of which
-19-
are beyond its control. The Company will need to refinance or seek other
credit facilities to replace the Credit Facility maturing June 30, 2004. See
"The Credit Facility" below. If the Company is unable to generate sufficient
cash flow, it could be required to adopt one or more alternatives, such as
reducing, delaying, or eliminating planned capital expenditures, selling
assets, restructuring debt, or obtaining additional equity capital.
THE CREDIT FACILITY
At origination in 1997, we had an $80.0 million reducing revolving term
loan credit facility (the "Credit Facility") with a consortium of banks. As of
September 30, 2003, maximum borrowing capacity was $49,000,000, of which
$48,000,000 was outstanding. We voluntarily paid down more than was required
by the loan agreement as, according to the loan agreement, the maximum
outstanding balance required at July 1, 2003 was $54.5 million and $52.0
million at October 1, 2003. The Credit Facility is a direct obligation of
Golden Road, and is guaranteed by Monarch. The Credit Facility is also
guaranteed individually by John Farahi, Co-Chairman of the Board, Chief
Executive Officer and Chief Operating Officer of Monarch and Golden Road and
General Manager of the Atlantis; Bahram (Bob) Farahi, Co-Chairman of the Board
and President of Monarch and Golden Road; and Behrouz Ben Farahi, Co-Chairman
of the Board, Chief Financial Officer, Secretary and Treasurer of Monarch and
Golden Road.
We were able to utilize proceeds from the Credit Facility for working
capital needs and general corporate purposes relating to the Atlantis and for
ongoing capital expenditure requirements at the Atlantis.
At our option, borrowings under the Credit Facility can accrue interest at
a rate designated by the agent bank as its base rate (the "Base Rate") or at
the London Interbank Offered Rate ("LIBOR") for one, two, three or six month
periods. The rate of interest paid by us will include a margin added to either
the Base Rate or to LIBOR that is tied to our ratio of funded debt to EBITDA
(the "Leverage Ratio"). Depending on our Leverage Ratio, this margin
can vary between 0.00 percent and 2.00 percent above the Base Rate, and between
1.50 percent and 3.50 percent above LIBOR. At September 30, 2003, the
applicable margin was the Base Rate plus 0.0%, and the applicable LIBOR margin
was LIBOR plus 1.5%. At September 30, 2003, we had no Base Rate loans
outstanding and had one LIBOR loan outstanding totaling $48.0 million, for a
total obligation of $48.0 million. The LIBOR rate at September 30, 2003, was
1.12%.
Beginning July 1, 2000, the maximum principal available under the Credit
Facility has reduced quarterly from $80.0 million by an aggregate of $40.0
million in increasing increments ranging from $1.5 million to $6.0 million per
quarter. 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) so long as the amount
repaid is at least $200 thousand and a multiple of $10 thousand. Amounts
prepaid under the Credit Facility may be reborrowed so long as the total
borrowings outstanding do not exceed the maximum principal available. We may
also permanently reduce the maximum principal available under the Credit
Facility at any time so long as the amount of such reduction is at least $500
thousand and a multiple of $50 thousand.
The Credit Facility is secured by liens on substantially all of the real
and personal property of Golden Road, as well as by the aforementioned parent
-20-
and personal guarantees. The Credit Facility contains covenants customary and
typical for a facility of this nature, including, but not limited to, covenants
requiring the preservation and maintenance of our assets (including provisions
requiring that a minimum amount equal to two percent of our gaming revenues
each year must be expended on capital expenditures at the Atlantis), and
covenants restricting our ability to merge, transfer ownership of Golden
Road, incur additional indebtedness, encumber assets, and make certain
investments. The Credit Facility also contains covenants requiring us to
maintain certain financial ratios, and provisions restricting transfers
between Golden Road and Monarch and between Golden Road and other specified
persons. The Credit Facility also contains provisions requiring the
achievement of certain financial ratios before we can repurchase our common
stock or pay or declare dividends. We are in compliance with all required
covenants as of September 30, 2003.
The maturity date of the Credit Facility is June 30, 2004. Prior to
maturity, we expect to seek refinancing of the remaining amount but no
assurance can be given that such refinancing will be successful. Given our
financial condition and relatively low debt to cash flow and equity, we fully
expect the refinancing to be successful. Should the refinancing effort be
unsuccessful, the Company would be faced with substantial liquidity problems.
The Company has begun to negotiate with banks to refinance the Credit Facility.
The current loan guarantors are not legally required to provide further
guarantees in connection with a potential refinancing of the Credit Facility.
Substantially all of the real and personal property of Golden Road Motor Inn,
Inc., the Company's wholly-owned subsidiary, secures the existing Credit
Facility.
We paid various fees and other loan costs upon the closing of the Credit
Facility that are being amortized over the term of the Credit Facility using
the straight-line method, which approximates the effective interest rate
method.
SHORT-TERM DEBT. At September 30, 2003, we had approximately $410
thousand in slot purchase contracts outstanding. These contracts have original
terms of 12 months or less and do not bear any interest.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss arising from adverse changes in market
risks and prices, such as interest rates, foreign currency exchange rates and
commodity prices. We do not have any cash or cash equivalents as of September
30, 2003 that are subject to market risks.
We have substantial variable interest rate debt (the Credit Facility) in
the amount of approximately $48.0 million as of September 30, 2003, and $60.8
million as of September 30, 2002, which is subject to market risks.
A one-point increase in interest rates would have resulted in an increase
in interest expense of approximately $127 thousand in the third quarter of
2003 and $160 thousand in the third quarter of 2002.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures. The Company's Chief
Executive Officer and Chief Financial Officer have evaluated the effectiveness
of the Company's disclosure controls and procedures (as such
-21-
term is defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) as of a date within 90 days prior
to the filing date of this quarterly report (the "Evaluation Date"). Based on
such evaluation, such officers have concluded that, as of the Evaluation Date,
the Company's disclosure controls and procedures are effective in alerting them
on a timely basis to material information relating to the Company (including
its consolidated subsidiaries) required to be included in the Company's
periodic filings under the Exchange Act.
(b) Changes in Internal Controls. Since the Evaluation Date, there have
not been any significant changes in the Company's internal controls or in other
factors that could significantly affect such controls.
PART II. OTHER INFORMATION
ITEM 1. - LEGAL PROCEEDINGS
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
31.01 Certifications of John Farahi and Ben Farahi,
pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 (18 U.S.C. Section 1350).
32.01 Certifications of John Farahi and Ben Farahi,
pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (18 U.S.C. Section 1350).
(b) Reports on Form 8-K
On October 31, 2003, we filed a Current Report on Form 8-K reporting that
we had issued a press release announcing results for the quarter ended
September 30, 2003.
On October 8, 2003, we filed a Current Report on Form 8-K reporting a
change in our certifying accountant. Our Audit Committee elected not to engage
Deloitte & Touche LLP as our independent public accountants for the current
year's audit, and engaged Ernst & Young LLP as our new independent accountants
as of October 1, 2003.
On September 25, 2003, we filed a Current Report on Form 8-K reporting
that we entered into an option agreement with an affiliate of our controlling
stockholders to purchase property in South Reno for development of a new hotel
casino.
On July 31, 2003, we filed a Current Report on Form 8-K reporting that we
had issued a press release announcing record results for our second quarter
ended June 30, 2003.
-22-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this quarterly report to be signed on its behalf by
the undersigned thereunto duly authorized.
MONARCH CASINO & RESORT, INC.
(Registrant)
Date: November 13, 2003 By: /s/ BEN FARAHI
------------------------------------
Ben Farahi, Co-Chairman of the Board,
Secretary, Treasurer, and Chief
Financial Officer(Principal Financial
Officer and Duly Authorized Officer)
-23-
EXHIBIT 31.01
CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John Farahi, Chief Executive Officer of Monarch Casino & Resort, Inc.,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of Monarch Casino
& Resort, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
report;
4. The registrant's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) [Omitted]
(c) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect,
the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: November 13, 2003
By: /s/ John Farahi
---------------
John Farahi
Chief Executive Officer
-24-
I, Ben Farahi, Chief Financial Officer of Monarch Casino & Resort, Inc.,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of Monarch Casino
& Resort, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
report;
4. The registrant's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) [Omitted]
(c) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect,
the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: November 13, 2003
By: /s/ Ben Farahi
--------------
Ben Farahi
Chief Financial Officer, Secretary and Treasurer
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EXIBIT 32.01
MONARCH CASINO & RESORT, INC.
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Monarch Casino & Resort, Inc.
(the "Company") on Form 10-Q for the quarterly period ended September 30,
2003, as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), I, John Farahi, Chief Executive Officer of the Company
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities and Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
Dated: November 13, 2003
By: /s/ JOHN FARAHI
---------------
John Farahi
Chief Executive Officer
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MONARCH CASINO & RESORT, INC.
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Monarch Casino & Resort, Inc.
(the "Company") on Form 10-Q for the quarterly period ended September 30,
2003, as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), I, Ben Farahi, Chief Financial Officer of the Company certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities and Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
Dated: : November 13, 2003
By: /s/ BEN FARAHI
--------------
Ben Farahi
Chief Financial Officer
-27-