Yes x No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
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.
Common stock, $0.01 par
value
|
|
16,122,048 shares
|
Class
|
|
Outstanding
at November 4, 2008
|
Item
|
Page
Number
|
|
|
|
|
|
4
|
|
5
|
|
6
|
|
7
|
|
|
|
15
|
|
|
|
24
|
|
|
|
24
|
|
|
|
24
|
|
24
|
|
|
|
25
|
|
|
|
25
|
|
|
|
25
|
Exhibit
31.1 Certification of John Farahi pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
26
|
Exhibit
31.2 Certification of Ronald Rowan pursuant to Section 302 of the
Sarbanes- Oxley Act of 2002
|
27
|
Exhibit
32.1 Certification of John Farahi pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
28
|
Exhibit
32.2 Certification of Ronald Rowan pursuant to Section 906 of the
Sarbanes- Oxley Act of 2002
|
29
|
Part I.
Financial Information
ITEM 1. FINANCIAL
STATEMENTS
MONARCH
CASINO & RESORT, INC.
Condensed
Consolidated Statements of Income
(Unaudited)
|
|
Three
Months Ended
September 30,
|
|
|
Nine
Months Ended
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Casino
|
|
$ |
27,612,822 |
|
|
$ |
29,936,988 |
|
|
$ |
77,041,679 |
|
|
$ |
84,512,978 |
|
Food
and beverage
|
|
|
10,582,809 |
|
|
|
11,011,808 |
|
|
|
29,891,424 |
|
|
|
32,084,196 |
|
Hotel
|
|
|
6,301,547 |
|
|
|
8,002,564 |
|
|
|
17,677,248 |
|
|
|
21,857,687 |
|
Other
|
|
|
1,181,343 |
|
|
|
1,229,521 |
|
|
|
3,598,915 |
|
|
|
3,703,972 |
|
Gross
revenues
|
|
|
45,678,521 |
|
|
|
50,180,881 |
|
|
|
128,209,266 |
|
|
|
142,158,833 |
|
Less
promotional allowances
|
|
|
(6,891,322 |
) |
|
|
(6,557,585 |
) |
|
|
(19,804,909 |
) |
|
|
(19,192,626 |
) |
Net
revenues
|
|
|
38,787,199 |
|
|
|
43,623,296 |
|
|
|
108,404,357 |
|
|
|
122,966,207 |
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casino
|
|
|
9,991,844 |
|
|
|
9,232,990 |
|
|
|
28,005,260 |
|
|
|
26,970,411 |
|
Food
and beverage
|
|
|
5,218,032 |
|
|
|
5,381,681 |
|
|
|
14,513,679 |
|
|
|
15,217,367 |
|
Hotel
|
|
|
1,983,818 |
|
|
|
2,161,564 |
|
|
|
6,056,911 |
|
|
|
6,416,669 |
|
Other
|
|
|
338,847 |
|
|
|
386,056 |
|
|
|
998,498 |
|
|
|
1,127,113 |
|
Selling,
general and administrative
|
|
|
12,732,367 |
|
|
|
12,731,275 |
|
|
|
38,713,980 |
|
|
|
37,054,086 |
|
Depreciation
and amortization
|
|
|
2,353,562 |
|
|
|
1,982,184 |
|
|
|
6,388,848 |
|
|
|
6,122,600 |
|
Total
operating expenses
|
|
|
32,618,470 |
|
|
|
31,875,750 |
|
|
|
94,677,176 |
|
|
|
92,908,246 |
|
Income
from operations
|
|
|
6,168,729 |
|
|
|
11,747,546 |
|
|
|
13,727,181 |
|
|
|
30,057,961 |
|
Other
(expense) income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
36,107 |
|
|
|
568,462 |
|
|
|
333,689 |
|
|
|
1,385,883 |
|
Interest
expense, net
|
|
|
(82,981 |
) |
|
|
- |
|
|
|
(82,981 |
) |
|
|
(152,274 |
) |
Total
other (expense) income
|
|
|
(46,874 |
) |
|
|
568,462 |
|
|
|
250,708 |
|
|
|
1,233,609 |
|
Income
before income taxes
|
|
|
6,121,855 |
|
|
|
12,316,008 |
|
|
|
13,977,889 |
|
|
|
31,291,570 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
(2,096,160 |
) |
|
|
(4,280,000 |
) |
|
|
(4,847,260 |
) |
|
|
(10,860,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
4,025,695 |
|
|
$ |
8,036,008 |
|
|
$ |
9,130,629 |
|
|
$ |
20,431,570 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.25 |
|
|
$ |
0.42 |
|
|
$ |
0.53 |
|
|
$ |
1.07 |
|
Diluted
|
|
$ |
0.25 |
|
|
$ |
0.41 |
|
|
$ |
0.53 |
|
|
$ |
1.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares and potential common shares
outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
16,122,048 |
|
|
|
19,079,062 |
|
|
|
17,238,273 |
|
|
|
19,080,347 |
|
Diluted
|
|
|
16,141,830 |
|
|
|
19,366,043 |
|
|
|
17,314,438 |
|
|
|
19,352,064 |
|
The Notes
to the Condensed Consolidated Financial Statements are an integral part of these
statements.
MONARCH CASINO & RESORT, INC.
Condensed
Consolidated Balance Sheets
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
ASSETS
|
|
(Unaudited)
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
10,643,000 |
|
|
$ |
38,835,820 |
|
Receivables,
net
|
|
|
3,445,614 |
|
|
|
4,134,099 |
|
Federal
income tax refund receivable
|
|
|
- |
|
|
|
998,123 |
|
Inventories
|
|
|
1,591,575 |
|
|
|
1,496,046 |
|
Prepaid
expenses
|
|
|
3,544,082 |
|
|
|
3,144,374 |
|
Deferred
income taxes
|
|
|
325,221 |
|
|
|
1,084,284 |
|
Total
current assets
|
|
|
19,549,492 |
|
|
|
49,692,746 |
|
Property
and equipment
|
|
|
|
|
|
|
|
|
Land
|
|
|
12,162,522 |
|
|
|
10,339,530 |
|
Land
improvements
|
|
|
3,511,484 |
|
|
|
3,166,107 |
|
Buildings
|
|
|
113,655,538 |
|
|
|
78,955,538 |
|
Building
improvements
|
|
|
10,435,062 |
|
|
|
10,435,062 |
|
Furniture
and equipment
|
|
|
92,373,657 |
|
|
|
72,511,165 |
|
Leasehold
improvements
|
|
|
1,346,965 |
|
|
|
1,346,965 |
|
|
|
|
233,485,228 |
|
|
|
176,754,367 |
|
Less
accumulated depreciation and amortization
|
|
|
(98,500,079 |
) |
|
|
(92,215,149 |
) |
|
|
|
134,985,149 |
|
|
|
84,539,218 |
|
Construction
in progress
|
|
|
15,508,180 |
|
|
|
17,236,062 |
|
Net
property and equipment
|
|
|
150,493,329 |
|
|
|
101,775,280 |
|
Other
assets, net
|
|
|
2,817,842 |
|
|
|
2,817,842 |
|
Total
assets
|
|
$ |
172,860,663 |
|
|
$ |
154,285,868 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Borrowings
under credit facility
|
|
$ |
42,500,000 |
|
|
$ |
- |
|
Accounts
payable
|
|
|
11,045,878 |
|
|
|
10,840,318 |
|
Construction
payable
|
|
|
2,441,246 |
|
|
|
1,971,022 |
|
Accrued
expenses
|
|
|
9,214,424 |
|
|
|
9,230,157 |
|
Federal
income taxes payable
|
|
|
190,074 |
|
|
|
- |
|
Total
current liabilities
|
|
|
65,391,622 |
|
|
|
22,041,497 |
|
Deferred
income taxes
|
|
|
2,825,433 |
|
|
|
2,825,433 |
|
Total
liabilities
|
|
|
68,217,055 |
|
|
|
24,866,930 |
|
Stockholders'
equity
|
|
|
|
|
|
|
|
|
Preferred
stock, $.01 par value, 10,000,000 shares authorized; none
issued
|
|
|
- |
|
|
|
- |
|
Common
stock, $.01 par value, 30,000,000 shares authorized; 19,096,300 shares
issued; 16,122,048 outstanding at 9/30/08, 18,566,540 outstanding at
12/31/07
|
|
|
190,963 |
|
|
|
190,963 |
|
Additional
paid-in capital
|
|
|
27,510,467 |
|
|
|
25,741,972 |
|
Treasury
stock, 2,974,252 shares at 9/30/08, 529,760 shares at 12/31/07, at
cost
|
|
|
(48,943,359 |
) |
|
|
(13,268,905 |
) |
Retained
earnings
|
|
|
125,885,537 |
|
|
|
116,754,908 |
|
Total
stockholders' equity
|
|
|
104,643,608 |
|
|
|
129,418,938 |
|
Total
liability and stockholder's equity
|
|
$ |
172,860,663 |
|
|
$ |
154,285,868 |
|
The Notes
to the Condensed Consolidated Financial Statements are an integral part of these
statements.
MONARCH CASINO & RESORT, INC.
Condensed
Consolidated Statements of Cash Flows
(Unaudited)
|
|
Nine
Months Ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$ |
9,130,629 |
|
|
$ |
20,431,570 |
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
6,388,848 |
|
|
|
6,122,600 |
|
Amortization
of deferred loan costs
|
|
|
- |
|
|
|
148,838 |
|
Share
based compensation
|
|
|
1,768,495 |
|
|
|
1,663,197 |
|
Provision
for bad debts
|
|
|
818,696 |
|
|
|
242,126 |
|
Gain
on disposal of assets
|
|
|
(10,200 |
) |
|
|
(6,969 |
) |
Deferred
income taxes
|
|
|
759,063 |
|
|
|
(1,122,118 |
) |
Changes
in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Receivables,
net
|
|
|
867,912 |
|
|
|
(1,563,378 |
) |
Inventories
|
|
|
(95,529 |
) |
|
|
(6,875 |
) |
Prepaid
expenses
|
|
|
(399,708 |
) |
|
|
(739,056 |
) |
Other
assets
|
|
|
- |
|
|
|
(2,413 |
) |
Accounts
payable
|
|
|
205,560 |
|
|
|
(537,412 |
) |
Accrued
expenses
|
|
|
(15,733 |
) |
|
|
(1,108,250 |
) |
Federal
income taxes payable
|
|
|
190,074 |
|
|
|
1,355,290 |
|
Net
cash provided by operating activities
|
|
|
19,608,107 |
|
|
|
24,877,150 |
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from sale of assets
|
|
|
10,200 |
|
|
|
6,969 |
|
Acquisition
of property and equipment
|
|
|
(55,106,897 |
) |
|
|
(10,209,214 |
) |
Changes
in payable construction
|
|
|
470,224 |
|
|
|
1,525,987 |
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(54,626,473 |
) |
|
|
(8,676,258 |
) |
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from exercise of stock options
|
|
|
- |
|
|
|
340,682 |
|
Tax
benefit of stock option exercise
|
|
|
- |
|
|
|
178,904 |
|
Borrowings
under credit facility
|
|
|
42,500,000 |
|
|
|
- |
|
Purchase
of treasury stock
|
|
|
(35,674,454 |
) |
|
|
(756,311 |
) |
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) financing activities
|
|
|
6,825,546 |
|
|
|
(236,725 |
) |
Net
(decrease) increase in cash
|
|
|
(28,192,820 |
) |
|
|
15,964,167 |
|
Cash
and cash equivalents at beginning of period
|
|
|
38,835,820 |
|
|
|
36,985,187 |
|
Cash
and cash equivalents at end of period
|
|
$ |
10,643,000 |
|
|
$ |
52,949,354 |
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid for interest net of $452,019 and $0 capitalized,
respectively
|
|
$ |
82,981 |
|
|
$ |
3,437 |
|
Cash
paid for income taxes
|
|
$ |
2,900,000 |
|
|
$ |
10,447,923 |
|
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
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 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 and nine months
ended September 30, 2008 are not necessarily indicative of the results that may
be expected for the year ending December 31, 2008.
The balance sheet at December 31, 2007
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, 2007.
Use of
Estimates:
In preparing these financial statements
in conformity with U.S. generally accepted accounting principles, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and revenues and expenses during the
respective periods. Actual results could differ from those
estimates.
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 third party plan administrators for any significant unpaid
claims. The reserve is accrued at an amount needed to pay both reported and
unreported claims as of the balance sheet dates, which management believes are
adequate.
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
|
In accordance with Statement of
Financial Accounting Standards (“SFAS”) No. 144, "Accounting for the Impairment
and Disposal of Long-Lived Assets," 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.
For assets to be disposed of, the
Company recognizes the asset to be sold at the lower of carrying value or fair
market value less costs of disposal. Fair market value for assets to
be disposed of is generally estimated based on comparable asset sales, solicited
offers or a discounted cash flow model.
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 Company’s frequent player program,
Club Paradise, allows members, through the frequency of their play at the
casino, to earn and accumulate point values, which may be redeemed for a variety
of goods and services at the Atlantis Casino Resort. Point values may be applied
toward room stays at the hotel, food and beverage consumption at any of the food
outlets, gift shop items as well as goods and services at the spa and beauty
salon. Point values earned may also be applied toward off-property events such
as concerts, shows and sporting events. Point values may not be redeemed for
cash.
Awards under the Company’s frequent
player program are recognized as promotional expenses at the time of
redemption.
The retail value of hotel, food and
beverage services provided to customers without charge is included in gross
revenue and deducted as promotional allowances. The cost associated with
complimentary food, beverage, rooms and merchandise redeemed under the program
is recorded in casino costs and expenses.
Income
Taxes:
Income taxes are recorded in accordance
with the liability method specified by 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.
The Company also applies the
requirements of FIN 48 which prescribes minimum recognition thresholds a tax
position is required to meet before being recognized in the financial
statements. FIN 48 also provides guidance on derecognition, measurement,
classification, interest and penalties, accounting in interim periods,
disclosure and transition.
Allowance for Doubtful
Accounts:
The Company extends short-term credit
to its gaming customers. Such credit is non-interest bearing and due on demand.
In addition, the Company also has receivables due from hotel guests, which are
primarily secured with a credit card at the time a customer checks in. An
allowance for doubtful accounts is set up for all Company receivables based upon
the Company’s historical collection and write-off experience, unless situations
warrant a specific identification of a necessary reserve related to certain
receivables. The Company charges off its uncollectible receivables
once all efforts have been made to collect such receivables. The book value of
receivables approximates fair value due to the short-term nature of the
receivables.
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 gave 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 opened in the Sacramento
area, one of the Company’s primary feeder markets, in June of 2003. Other new
Native American casinos are under construction in the northern California
market, as well as other markets the Company currently serves, that could have
an impact on the Company's financial position and results of
operations. In June 2004, five California Indian tribes signed
compacts with the state that allow the tribes to increase the number of slot
machines beyond the previous 2,000-per-tribe limit in exchange for higher fees
from each of the five tribes. In February 2008, the voters of the
State of California approved compacts with four tribes located in Southern
California that increase the limit of Native American operated slot machines in
the State of California.
In addition, the Company relies on
non-conventioneer visitors partially comprised of individuals flying into the
Reno area. The threat of terrorist attacks could have an adverse effect on the
Company's revenues from this segment. The terrorist attacks that took place in
the United States on September 11, 2001, were unprecedented events that created
economic and business uncertainties, especially for the travel and tourism
industry. The potential for future terrorist attacks, the national
and international responses, and other acts of war or hostility including the
ongoing situation in Iraq, have created economic and political uncertainties
that could materially adversely affect our business, results of operations, and
financial condition in ways we cannot predict.
A change in regulations on land use
requirements with regard to development of new hotel casinos in the proximity of
the Atlantis could have an adverse impact on our business, results of
operations, and financial condition.
The Company also markets to northern
Nevada residents. A major casino-hotel operator that successfully focuses on
local resident business in Las Vegas announced plans to develop hotel-casino
properties in Reno. The competition for this market segment is likely to
increase and could impact the Company’s business.
NOTE 2.
STOCK-BASED COMPENSATION
The
Company’s three stock option plans, consisting of the Directors' Stock
Option Plan, the Executive Long-term Incentive Plan, and the Employee
Stock Option Plan (the "Plans"), collectively provide for the granting of
options to purchase up to 3,250,000 common shares. The exercise price of
stock options granted under the Plans is established by the respective
plan committees, but the exercise price may not be less than the market
price of the Company's common stock on the date the option is granted. The
Company’s stock options typically vest on a graded schedule, typically in
equal, one-third increments, although the respective stock option
committees have the discretion to impose different vesting periods or
modify existing vesting periods. Options expire ten years from the grant
date. By their amended terms, the Plans will expire in June 2013 after
which no options may be granted.
|
A summary of the current year stock
option activity as of and for the nine months ended September 30, 2008 is
presented below:
|
|
|
|
|
Weighted Average
|
|
|
|
|
Options
|
|
Shares
|
|
|
Exercise
Price
|
|
|
Remaining
Contractual
Term
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding
at beginning of period
|
|
|
1,295,426 |
|
|
$ |
19.04 |
|
|
|
- |
|
|
|
- |
|
Granted
|
|
|
85,957 |
|
|
|
16.67 |
|
|
|
- |
|
|
|
- |
|
Exercised
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Forfeited
|
|
|
(20,000 |
) |
|
|
24.04 |
|
|
|
- |
|
|
|
- |
|
Expired
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Outstanding
at end of period
|
|
|
1,361,383 |
|
|
$ |
18.81 |
|
|
7.3 yrs.
|
|
|
$ |
(10,088,341 |
) |
Exercisable
at end of period
|
|
|
542,750 |
|
|
$ |
12.60 |
|
|
5.9 yrs.
|
|
|
$ |
( 1,005,315 |
) |
A summary of the status of the
Company’s nonvested shares as of September 30, 2008, and for the nine months
ended September 30, 2008, is presented below:
Nonvested Shares
|
|
Shares
|
|
|
Weighted-Average
Grant Date Fair
Value
|
|
Nonvested
at January 1, 2008
|
|
|
782,676 |
|
|
$ |
10.43 |
|
Granted
|
|
|
85,957 |
|
|
|
6.42 |
|
Vested
|
|
|
(30,000 |
) |
|
|
6.54 |
|
Forfeited
|
|
|
(20,000 |
) |
|
|
9.23 |
|
Nonvested
at September 30, 2008
|
|
|
818,633 |
|
|
$ |
10.14 |
|
Expense Measurement and
Recognition:
On January 1, 2006, the Company adopted
the provisions of SFAS 123R requiring the measurement and recognition of all
share-based compensation under the fair value method. The Company implemented
SFAS 123R using the modified prospective transition
method. Accordingly, for the nine months ended September 30, 2008 and
2007, the Company recognized share-based compensation for all current award
grants and for the unvested portion of previous award grants based on grant date
fair values. Prior to fiscal 2006, the Company accounted for share-based awards
under the disclosure-only provisions of SFAS No. 123, as amended by SFAS No.
148, but applied APB No. 25 and related interpretations in accounting for the
Plans, which resulted in pro-forma compensation expense only for stock option
awards. Prior period financial statements have not been adjusted to reflect fair
value share-based compensation expense under SFAS 123R. With the
adoption of SFAS 123R, the Company changed its method of expense attribution for
fair value share-based compensation from the straight-line approach to the
accelerated approach for all awards granted. The Company anticipates the
accelerated method will provide a more meaningful measure of costs incurred and
be most representative of the economic reality associated with unvested stock
options outstanding. Unrecognized costs related to all share-based awards
outstanding at September 30, 2008 is approximately $3.3 million and is expected
to be recognized over a weighted average period of 1.28 years.
The Company uses historical data and
projections to estimate expected employee, executive and director behaviors
related to option exercises and forfeitures.
The Company estimates the fair value of
each stock option award on the grant date using the Black-Scholes valuation
model incorporating the assumptions noted in the following table. Option
valuation models require the input of highly subjective assumptions, and changes
in assumptions used can materially affect the fair value
estimate. Option valuation assumptions for options granted during the
third quarter of 2008 were as follows (there were no option grants during the
third quarter of 2007):
|
|
Three
Months
Ended
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
Expected
volatility
|
|
|
65.9 |
% |
|
|
- |
|
Expected
dividends
|
|
|
- |
|
|
|
- |
|
Expected
life (in years)
|
|
|
|
|
|
|
|
|
Directors’
Plan
|
|
|
2.5 |
|
|
|
- |
|
Executive
Plan
|
|
|
4.5 |
|
|
|
- |
|
Employee
Plan
|
|
|
3.1 |
|
|
|
- |
|
Weighted
average risk free rate
|
|
|
2.9 |
% |
|
|
- |
|
Weighted
average grant date fair value per share of options granted
|
|
$ |
5.94 |
|
|
|
- |
|
Total
intrinsic value of options exercised
|
|
|
- |
|
|
$ |
105,239 |
|
The risk-free interest rate is based on
the U.S. treasury security rate in effect as of the date of grant. The
expected lives of options are based on historical data of the
Company. Upon implementation of SFAS 123R, the Company determined
that an implied volatility is more reflective of market conditions and a better
indicator of expected volatility.
Reported stock based compensation
expense was classified as follows:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Casino
|
|
$ |
19,550 |
|
|
$ |
17,865 |
|
|
$ |
60,519 |
|
|
$ |
53,839 |
|
Food
and beverage
|
|
|
19,512 |
|
|
|
14,424 |
|
|
|
55,095 |
|
|
|
38,015 |
|
Hotel
|
|
|
5,748 |
|
|
|
9,676 |
|
|
|
25,865 |
|
|
|
27,734 |
|
Selling,
general and administrative
|
|
|
573,786 |
|
|
|
549,214 |
|
|
|
1,627,016 |
|
|
|
1,543,609 |
|
Total
stock-based compensation, before taxes
|
|
|
618,596 |
|
|
|
591,179 |
|
|
|
1,768,495 |
|
|
|
1,663,197 |
|
Tax
benefit
|
|
|
(216,509 |
) |
|
|
(206,913 |
) |
|
|
(618,973 |
) |
|
|
(582,119 |
) |
Total
stock-based compensation, net of tax
|
|
$ |
402,087 |
|
|
$ |
384,266 |
|
|
$ |
1,149,522 |
|
|
$ |
1,081,078 |
|
NOTE 3.
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,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Shares
|
|
|
Per Share Amount
|
|
|
Shares
|
|
|
Per Share Amount
|
|
Basic
|
|
|
16,122 |
|
|
$ |
0.25 |
|
|
|
19,079 |
|
|
$ |
0.42 |
|
Effect
of dilutive stock options
|
|
|
20 |
|
|
|
- |
|
|
|
287 |
|
|
|
(0.01 |
) |
Diluted
|
|
|
16,142 |
|
|
$ |
0.25 |
|
|
|
19,366 |
|
|
$ |
0.41 |
|
|
|
Nine Months Ended September
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Shares
|
|
|
Per Share Amount
|
|
|
Shares
|
|
|
Per Share Amount
|
|
Basic
|
|
|
17,238 |
|
|
$ |
0.53 |
|
|
|
19,080 |
|
|
$ |
1.07 |
|
Effect
of dilutive stock options
|
|
|
76 |
|
|
|
- |
|
|
|
272 |
|
|
|
(0.01 |
) |
Diluted
|
|
|
17,314 |
|
|
$ |
0.53 |
|
|
|
19,352 |
|
|
$ |
1.06 |
|
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.
NOTE 4.
RECENTLY ISSUED ACCOUNTING STANDARDS
In February 2008, the FASB issued FASB
Staff Position No. FAS 157-2, Effective Date of SFAS 157
(“FSP FAS 157-2”). The FSP amends SFAS 157, to delay the effective date of
SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those
that are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually). The FSP defers the effective date of SFAS
157 to fiscal years beginning after November 15, 2008, and interim periods
within those fiscal years for items within the scope of the FSP. The Company has
not yet determined the effect on the Company’s consolidated financial statements
that adoption of SFAS 157 will have for those items within the scope of the
FSP.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations.” SFAS No. 141 (revised) establishes principles and
requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed,
noncontrolling interest in the acquiree and the goodwill acquired. The revision
is intended to simplify existing guidance and converge rulemaking under U.S.
GAAP with international accounting rules. This statement applies prospectively
to business combinations where the acquisition date is on or after the beginning
of the first annual reporting period beginning on or after December 15,
2008. The Company will adopt FAS 141 (revised) in the first quarter of
2009. The adoption of SFAS No. 141 (revised) is prospective
and early adoption is not permitted.
In December 2007, the FASB issued SFAS
No. 160, “Noncontrolling Interest in Consolidated Financial Statements, an
amendment of ARB No. 51.” This statement establishes accounting
and reporting standards for ownership interest in subsidiaries held by parties
other than the parent and for the deconsolidation of a subsidiary. It also
clarifies that a noncontrolling interest in a subsidiary is an ownership
interest in the consolidated entity that should be reported as equity in the
consolidated financial statements. SFAS No. 160 changes the way the
consolidated income statement is presented by requiring consolidated net income
to be reported at amounts that include the amount attributable to both the
parent and the noncontrolling interests. The statement also establishes
reporting requirements that provide sufficient disclosure that clearly identify
and distinguish between the interest of the parent and those of the
noncontrolling owners. This statement is effective for fiscal years beginning on
or after December 15, 2008. The adoption of SFAS No. 160 is not
expected to have a material impact on the Company’s financial position, results
of operations or cash flows.
In March 2008, the FASB issued
SFAS 161, “Disclosures about Derivative Instruments and Hedging Activities – an
amendment of FASB Statement No. 133”. SFAS 161 changes the disclosure
requirements for derivative instruments and hedging activities. Under SFAS 161,
entities are required to provide enhanced disclosures about how and why they use
derivative instruments, how derivative instruments and related hedged items are
accounted for and the affect of derivative instruments on the entity’s financial
position, financial performance and cash flows. SFAS 161 is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008. The Company will adopt SFAS 161 in the first quarter of 2009.
The adoption of SFAS No. 161 is not expected to have a material impact on
the Company’s financial position, results of operations or cash
flows.
In May 2008, the FASB issued SFAS 162,
“The Hierarchy of Generally Accepted Accounting Principles”, which identifies
the sources of accounting principles and the framework for selecting the
principles used in the preparation of financial statements of nongovernmental
entities that are presented in conformity with generally accepted accounting
principles. SFAS 162 will become effective sixty days following the
Securities and Exchange Commission’s approval of the Public Company Accounting
Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles”. The
adoption of the provisions of SFAS 162 is not anticipated to materially impact
the Company’s financial position, results of operations or cash
flows.
NOTE 5.
RELATED PARTY TRANSACTIONS
On July 26, 2006, the Company
submitted a formal offer to Biggest Little Investments, L.P. (“BLI”), formulated
and delivered by a committee comprised of the Company’s independent directors
(the “Committee”), to purchase the 18.95-acre shopping center (the “Shopping
Center”) adjacent to the Atlantis Casino Resort Spa. On October 16,
2006, the Committee received a letter from counsel to BLI advising the Company
that BLI, through its general partner, Maxum, L.L.C., had “decided that such
offer is not in the best interest of the Partnership’s limited partners and,
therefore, will not be entering into negotiations with Monarch.” The
Board of Directors continues to consider expansion alternatives.
John Farahi, Bob Farahi and Ben Farahi,
beneficially own a controlling interest in BLI through their beneficial
ownership interest in Western Real Estate Investments, LLC. John
Farahi is Co-Chairman of the Board, Chief Executive Officer, Chief Operating
Officer and a Director of Monarch. Bob Farahi is Co-Chairman of the
Board, President, Secretary and a Director of Monarch. Ben Farahi formerly
was the Co-Chairman of the Board, Secretary, Treasurer, Chief Financial Officer
and a Director of Monarch. Monarch’s board of directors accepted Ben
Farahi’s resignation from these positions on May 23, 2006.
The Company currently rents various
spaces in the Shopping Center which it uses as office, storage and parking lot
space and paid rent of approximately $13,100 and $181,700 plus common area
expenses for the three and nine months ended September 30, 2008, respectively,
and approximately $101,200 and $162,600 plus common area expenses for the three
and nine months ended September 30, 2007, respectively. The Company
intends to vacate these spaces by December 31, 2008.
In addition, a driveway that is being
shared between the Atlantis and the Shopping Center was completed on September
30, 2004. As part of this project, in January 2004, the Company 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 $300,000, subject to increase every 60 months based
on the Consumer Price Index. The Company began paying rent to the Shopping
Center on September 30, 2004. The Company also uses part of the common area of
the Shopping Center and pays its proportional share of the common area expense
of the Shopping Center. The Company has the option to renew the lease for three
five-year terms, and, at the end of the extension periods, the Company has 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 the
Company for pedestrian and vehicle access to the Atlantis, and the Company may
use a portion of the parking spaces at the Shopping Center. The total cost of
the project was $2.0 million; the Company was responsible for two thirds of the
total cost, or $1.35 million. The cost of the new driveway is being depreciated
over the initial 15-year lease term; some components of the new driveway are
being depreciated over a shorter period of time. The Company paid approximately
$75,000 plus common area maintenance charges for its leased driveway space at
the Shopping Center during each of the three months ended September 30, 2008 and
2007 and paid $225,000 plus common area maintenance for each of the nine months
ended September 30, 2008 and 2007.
The Company leased sign space from the
Shopping Center until August 1, 2008. The lease took effect in March 2005 for a
monthly cost of $1. The lease was renewed for another year for a monthly lease
of $1,000 effective January 1, 2006, and subsequently renewed on June 15, 2007
for a monthly lease of $1,060. The Company paid $1,060 and $7,460 for the leased
sign at the Shopping Center for the three and nine months ended September 30,
2008, respectively, and paid $3,180 and $9,240 for the three and nine months
ended September 30, 2007, respectively.
The Company is currently leasing
billboard advertising space from affiliates of its controlling stockholders and
paid $7,000 and $28,000 for the three and nine months ended September 30, 2008,
respectively. The Company paid $17,500 and $38,500 for the three and nine months
ended September 30, 2007, respectively.
On December 24, 2007, the Company
entered into a lease with Triple “J” Plus, LLC (“Triple J”) for the use of a
facility on 2.3 acres of land (jointly the “Property”) across Virginia Street
from the Atlantis that the Company currently utilizes for
storage. The managing partner of Triple J is a first-cousin of John
and Bob Farahi, the Company’s Chief Executive Officer and President,
respectively. The term of the lease is two years requiring monthly
rental payments of $20,256. Commensurate with execution of the lease,
the Company entered into an agreement that provides the Company with a purchase
option on the Property at the expiration of the lease period while also
providing Triple J with a put option to cause the Company to purchase the
Property during the lease period. The purchase price of the Property
has been established by a third party appraisal company. Lastly, as a
condition of the lease and purchase option, the Company entered into a
promissory note (the “Note”) with Triple J whereby the Company advanced a $2.7
million loan to Triple J. The Note requires interest only payments at
5.25% and matures on the earlier of i) the date the Company acquires the
Property or ii) January 1, 2010.
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 and our hotel operations.
We derive our revenues by appealing to tourists, conventioneers and middle to
upper-middle income Reno residents, emphasizing slot machine play in our casino.
We capitalize on the Atlantis' location for locals, tour and travel visitors and
conventioneers by offering exceptional service, value and an appealing theme to
our guests. Our hands-on management style focuses on customer service and cost
efficiencies.
Unless otherwise indicated, "Monarch,"
"Company," "we," "our" and "us" refer to Monarch Casino & Resort, Inc. and
its Golden Road subsidiary.
OPERATING RESULTS
SUMMARY
Below is a summary of our third quarter
results for 2008 and 2007:
Amounts in millions, except per share
amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months
Ended September 30,
|
|
|
Percentage
|
|
|
|
2008
|
|
|
2007
|
|
|
Increase/(Decrease)
|
|
Casino
revenues
|
|
$ |
27.6 |
|
|
$ |
29.9 |
|
|
|
(7.7 |
) |
Food
and beverage revenues
|
|
|
10.6 |
|
|
|
11.0 |
|
|
|
(3.6 |
) |
Hotel
revenues
|
|
|
6.3 |
|
|
|
8.0 |
|
|
|
(21.3 |
) |
Other
revenues
|
|
|
1.2 |
|
|
|
1.2 |
|
|
|
- |
|
Net
revenues
|
|
|
38.8 |
|
|
|
43.6 |
|
|
|
(11.0 |
) |
Sales,
general and admin exp
|
|
|
12.7 |
|
|
|
12.7 |
|
|
|
- |
|
Income
from operations
|
|
|
6.2 |
|
|
|
11.7 |
|
|
|
(47.0 |
) |
Net
Income
|
|
|
4.0 |
|
|
|
8.0 |
|
|
|
(50.0
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share - diluted
|
|
|
0.25 |
|
|
|
0.41 |
|
|
|
(39.0
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
margin
|
|
|
15.9 |
% |
|
|
26.9 |
% |
|
(11.0
|
)
pts. |
|
|
Nine
Months
Ended
September30,
|
|
|
Percentage
|
|
|
|
2008
|
|
|
2007
|
|
|
Increase/(Decrease)
|
|
Casino
revenues
|
|
$ |
77.0 |
|
|
$ |
84.5 |
|
|
|
(8.9 |
) |
Food
and beverage revenues
|
|
|
29.9 |
|
|
|
32.1 |
|
|
|
(6.9 |
) |
Hotel
revenues
|
|
|
17.7 |
|
|
|
21.9 |
|
|
|
(19.2 |
) |
Other
revenues
|
|
|
3.6 |
|
|
|
3.7 |
|
|
|
(2.7 |
) |
Net
revenues
|
|
|
108.4 |
|
|
|
123.0 |
|
|
|
(11.9 |
) |
Sales,
general and admin exp
|
|
|
38.7 |
|
|
|
37.1 |
|
|
|
4.3 |
|
Income
from operations
|
|
|
13.7 |
|
|
|
30.1 |
|
|
|
(54.5 |
) |
Net
Income
|
|
|
9.1 |
|
|
|
20.4 |
|
|
|
(55.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share - diluted
|
|
|
0.53 |
|
|
|
1.06 |
|
|
|
(50.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
margin
|
|
|
12.7 |
% |
|
|
24.4 |
% |
|
(11.7
|
)
pts. |
Our results for the three months ended
September 30, 2008 reflect the effects of the challenging operating environment
that we have experienced beginning in the three month period ended December 31,
2007. As in many other areas around the country, the economic
downturn in northern Nevada in the fourth quarter of 2007 has deepened through
the third quarter of 2008. Other factors causing negative financial
impact that continued from the fourth quarter of 2007 were disruption from
construction related to capital projects (see “COMMITMENTS AND CONTINGENCIES”
below) and aggressive marketing programs by our competitors. In
response to these challenges, we increased marketing and promotional
expenditures to attract and retain guests. We also continued to incur
legal expenses associated with the ongoing and previously disclosed Kerzner
litigation (see “LEGAL PROCEEDINGS” below). We anticipate that
downward pressure on profits will persist as long as we continue to experience
the adverse effects of the negative macroeconomic environment, construction
disruption, the aggressive marketing programs of our competitors and the legal
defense costs associated with the Kerzner lawsuit.
These factors were the primary drivers
of:
|
·
|
Decreases
of 7.7%, 3.6% and 21.3% in our casino, food and beverage and hotel
revenues, respectively, resulting in a net revenue decrease of
11.0%.
|
|
·
|
A
decrease in our third quarter 2008 operating margin by 11.0 points or
40.9%.
|
CAPITAL SPENDING AND
DEVELOPMENT
Capital expenditures at the Atlantis
totaled approximately $55.1 and $10.2 million during the first nine months
of 2008 and 2007, respectively. During the nine months ended
September 30, 2008, our capital expenditures consisted primarily of construction
costs associated with our $50 million expansion project and the Atlantis
Convention Center Skybridge project (see additional discussion of these projects
under “COMMITMENTS AND CONTINGENCIES” below). Additional capital
expenditures during the nine months ended September 30, 2008 were for
acquisition of land to be used for administrative offices, acquisition of gaming
equipment to upgrade and replace existing equipment and continued renovation and
upgrades to the Atlantis facility. During the nine months ended
September 30, 2007, our capital expenditures consisted primarily of construction
costs associated with the current expansion phase of the Atlantis that commenced
in June 2007 and the acquisition of gaming equipment to upgrade and replace
existing gaming equipment.
Future cash needed to finance ongoing
maintenance capital spending is expected to be made available from operating
cash flow and the Credit Facility (see "THE CREDIT FACILITY" below) and, if
necessary, additional borrowings.
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, development activities, legal proceedings
and employee matters. Certain important factors, including but not
limited to, deteriorating macroeconomic trends, financial market risks,
competition from other gaming operations, factors affecting our ability to
compete, acquisitions of gaming properties, 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. 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.
RESULTS OF
OPERATIONS
Comparison of Operating
Results for the Three-Month Periods Ended September 30, 2008 and
2007
For the three months ended September
30, 2008, our net income was $4.0 million, or $0.25 per diluted share, on net
revenues of $38.8 million, a decrease from net income of $8.0 million, or $0.41
per diluted share, on net revenues of $43.6 million for the three months ended
September 30, 2007. Income from operations for the three months ended
September 30, 2008 totaled $6.2 million when compared to $11.7 million for the
same period in 2007. Net revenues decreased 11.0%, and net income
decreased 50.0%, when compared to last year's third quarter.
Casino revenues totaled $27.6 million
in the third quarter of 2008, a 7.7% decrease from the $29.9 million reported in
the third quarter of 2007, which was primarily due to decreased slot revenue.
Casino operating expenses amounted to 36.2% of casino revenues in the third
quarter of 2008, compared to 30.8% in the third quarter of 2007. The
increase was due primarily due to the decreased casino revenue combined with
increased complimentary expenses.
Food and beverage revenues totaled
$10.6 million in the third quarter of 2008, a 3.6% decrease from $11.0 million
in the third quarter of 2007, due primarily to a 6.3% decrease in the number of
covers served partially offset by a 2.7% increase in the average revenue per
cover. Food and beverage operating expenses amounted to 49.3% of food
and beverage revenues during the third quarter of 2008 as compared to 48.9% for
the third quarter of 2007. This increase was primarily the result of
increased food commodity and labor costs.
Hotel revenues were $6.3 million for
the third quarter of 2008, a decrease of 21.3% from the $8.0 million reported in
the 2007 third quarter. This decrease was the result of lower hotel
occupancy combined with a decrease in the average daily room rate (“ADR”). Both
2008 and 2007 third quarter revenues included a $3 per occupied room energy
surcharge. During the third quarter of 2008, the Atlantis experienced a 91.6%
occupancy rate, as compared to 97.9% during the same period in 2007. The
Atlantis' ADR was $68.68 in the third quarter of 2008 compared to $81.11 in the
third quarter of 2007. Hotel operating expenses as a percent of hotel revenues
increased to 31.5% during the third quarter of 2008 as compared to 27.0% in the
2007 third quarter. This increase was primarily the result of the
decreased hotel revenues.
Promotional allowances increased to
$6.9 million in the third quarter of 2008 compared to $6.6 million in the third
quarter of 2007. The increase is attributable to continued promotional efforts
to generate additional revenues. Promotional allowances as a percentage of gross
revenues increased to 15.1% during the third quarter of 2008 as compared to
13.1% during the third quarter of 2007.
Other revenues remained flat at
$1.2 million in both the 2008 third quarter and the third quarter of
2007.
Depreciation and amortization expense
was $2.4 million in the third quarter of 2008 as compared to $2.0 million in the
third quarter of 2007. The increase in depreciation expense is
primarily related to depreciation expense of the portion on the Expansion assets
(see “COMMITMENTS AND CONTINGENCIES” below) that opened in July
2008.
SG&A expense remained flat at $12.7
million in both the third quarters of 2008 and 2007. Increased
marketing expense in the third quarter of 2008 was offset primarily by lower
payroll and benefit expenses. As a percentage of net revenue, SG&A expenses
increased to 32.8% in the third quarter of 2008 from 29.2% in the same period in
2007.
Through September 30, 2008, we drew $42.5 million from our $50 million credit
facility to pay for share repurchases and to fund ongoing capital
projects. As a result of this borrowing activity, we incurred
interest expense of $83 thousand during the current quarter, as compared to no interest expense for
the third quarter of 2007. We used our invested cash
reserves during the first
and second
quarters of
2008 to fund the $50
million expansion project and share repurchases resulting in a decrease in
interest income from the $568 thousand reported in the second
quarter of 2007 to $36 thousand in the current
quarter. Current quarter interest
income represents interest earned on the Note with Triple J (see NOTE 5. RELATED
PARTY TRANSACTIONS to the Company’s consolidated financial
statements).
Comparison of Operating
Results for the Nine-Month Periods Ended September 30, 2008 and 2007.
For the nine months ended September 30,
2008, our net income was $9.1 million, or $.53 per diluted share, on
net revenues of $108.4 million, a decrease from net income of $20.4
million, or $1.06 per diluted share, on net revenues of $123.0 million during
the nine months ended September 30, 2007. Income from operations for the 2008
nine-month period totaled $13.7 million, compared to $30.1 million for the same
period in 2007. Net revenues decreased 11.9%, and net income decreased 55.4%
when compared to the nine-month period ended September 30, 2007.
Casino revenues for the nine months
ended September 30, 2008 totaled $77.0 million, an 8.9% decrease from $84.5
million for the nine months ended September 30, 2007. Casino
operating expenses amounted to 36.4% of casino revenues for the nine months
ended September 30, 2008, compared to 31.9% for the same period in 2007,
primarily due to the decreased casino revenue combined with decreased payroll
and benefit expenses offset by increased complimentary expenses.
Food and beverage revenues totaled
$29.9 million for the nine months ended September 30, 2008, a decrease of 6.9%
from the $32.1 million for the nine months ended September 30, 2007, due to an
approximate 11.0% decrease in the number of covers served partially offset by an
approximate 4.9% increase in the average revenue per cover. Food and beverage
operating expenses amounted to 48.6% of food and beverage revenues during the
2008 nine-month period as compared to 47.4% for the same period in
2007. This increase was primarily the result of increased food
commodity and labor costs.
Hotel revenues for the nine months
ended September 30, 2008 decreased 19.2% to $17.7 million from $21.9
million for the nine months ended September 30, 2007, primarily due to decreases
in the occupancy and ADR at the Atlantis. Hotel revenues for the nine
months of 2008 and 2007 include a $3 per occupied room energy surcharge. The
Atlantis experienced a decrease in the ADR during the 2008 nine-month period to
$67.15, compared to $75.20 for the same period in 2007. The occupancy
rate decreased to 87.9% for the nine-month period in 2008, from 96.8% for the
same period in 2007. Hotel operating expenses in the first nine
months of 2008 were 34.3% as compared to 29.4% for the same period in
2007. The increase was primarily due to the decreased
revenues.
Promotional allowances increased to
$19.8 million in the first nine months of 2008 compared to $19.2 million in the
same period of 2007. The increase is attributable to continued
efforts to generate additional revenues through promotional efforts. Promotional
allowances as a percentage of gross revenues increased to 15.5% for the first
nine months of 2008 compared to 13.5% for the same period in 2007.
Other revenues were $3.6 million for
the nine months ended September 30, 2008, a 2.7% decrease from $3.7 million in
the same period in 2007.
Depreciation and amortization expense
was $6.4 million in the first nine months of 2008, an increase of 4.9%
compared to $6.1 million in the same period last year. The increase in
depreciation expense is primarily related to depreciation expense on the portion
of the Expansion assets (see “COMMITMENTS AND CONTINGENCIES” below) that opened
in July 2008.
SG&A expenses increased 4.3% to
$38.7 million in the first nine months of 2008, compared to $37.1 million in the
first nine months of 2007, primarily as a result of increased marketing and bad
debt expense. As a percentage of net revenue, SG&A expenses
increased to 35.7% in the 2008 nine-month period from 30.1% in the same period
in 2007.
Net interest income for the first nine
months of 2008 totaled $251 thousand compared to $1.2 million for the same
period of the prior year. The difference reflects our reduction in interest
bearing cash and cash equivalents, combined with increased debt outstanding (see
"THE CREDIT FACILITY" below), during the first nine months of 2008 as compared
to same period in 2007.
LIQUIDITY AND CAPITAL
RESOURCES
For the nine months ended September 30,
2008, net cash provided by operating activities totaled $19.6 million, a
decrease of 21.2% compared to the same period last year. Net cash used in
investing activities totaled $54.6 million and $8.7 million in the nine months
ended September 30, 2008 and 2007, respectively. During the first
nine months of 2008, net cash used in investing activities consisted primarily
of construction costs associated with the current expansion phase of the
Atlantis that commenced in June 2007 and the acquisition of property and
equipment. During the first nine months of 2008, net cash used in investing
activities consisted primarily of construction costs associated with the current
expansion of the Atlantis and the acquisition of gaming equipment to upgrade and
replace existing gaming equipment. Net cash provided by financing activities
totaled $6.8 million for the first nine months of 2008 compared to net cash used
in financing activities of $237,000 for the same period in 2007. Net cash used
in financing activities for the first nine months of 2008 was due to our $35.7
million purchase of Monarch common stock pursuant to the Repurchase Plan offset
by $42.5 million in credit line draws under the Credit Facility (see
“COMMITMENTS AND CONTINGENCIES” below). Net cash provided by
financing activities for the first nine months of 2007 was due to proceeds from
the exercise of stock options and the tax benefits associated with such stock
option exercises. At September 30, 2008, we had cash and cash
equivalents balance of $10.6 million compared to $38.8 million at December 31,
2007.
We have historically funded our daily
hotel and casino activities with net cash provided by operating activities.
However, to provide the flexibility to execute the share Repurchase Plan, to
fund construction costs associated with our $50 million expansion project and
the Atlantis Convention Center Skybridge project (see Commitments and
Contingencies section below) and to provide for other capital needs should they
arise, we entered into an agreement to amend our Credit Facility (see "THE
CREDIT FACILITY" below) on April 14, 2008. The amendment increased
the available borrowings under the facility from $5 million to $50 million and
extended the maturity date from February 23, 2009 to April 18,
2009. At September 30, 2008, we had $42.5 million outstanding on the
Credit Facility and had $7.5 million available to be drawn under the Credit
Facility. We plan to amend the Credit Facility to extend its maturity
beyond April 18, 2009. Such an amendment will likely result in the
amendment of other material provisions of the Credit Facility, such as the
interest rate charged and other material covenants. In the event that
we are not able to come to mutually acceptable terms with the Credit Facility
lender, we believe that the strength of our balance sheet, combined with our
operating cash flow, will provide the basis for a successful refinancing of
the Credit Facility with an alternative lender. However, there is no
assurance that we will be able to reach acceptable terms for a Credit Facility
amendment or refinancing. If we are unable to amend or refinance the
Credit Facility, we may seek equity or other financing to repay the outstanding
principal of the Credit Facility upon its maturity.
OFF BALANCE SHEET
ARRANGEMENTS
A driveway was completed and opened on
September 30, 2004, that is being shared between the Atlantis and a shopping
center (the “Shopping Center”) directly adjacent to the Atlantis. The Shopping
Center is controlled by an entity whose owners include our controlling
stockholders. As part of this 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 $300,000, subject to increase every 60 months based
on the Consumer Price Index. We also use part of the common area of the Shopping
Center and pay our proportional share of the common area expense of the Shopping
Center. We have the option to renew the lease for three five-year terms, and 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 initial 15-year lease term; some
components of the new driveway are being depreciated over a shorter period of
time. We paid approximately $225,000 in lease payments for the leased driveway
space at the Shopping Center during the nine months ended September 30,
2008.
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, 2007 (“2007 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 2007 Form 10-K filed on March 17, 2008.
OTHER FACTORS AFFECTING
CURRENT AND FUTURE RESULTS
The economy in northern Nevada and our
feeder markets, like many other areas around the country, are experiencing the
effects of several negative macroeconomic trends, including a possible broad
economic recession, higher fuel prices, home mortgage defaults, higher mortgage
interest rates and declining residential real estate values. These
negative trends could adversely impact discretionary incomes of our target
customers, which, in turn could adversely impact our business. We
believe that as recessionary pressures increase or continue for an extended
period of time, target customers may further 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 these 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.
As discussed below in “COMMITMENTS AND
CONTINGENCIES” we commenced construction on an expansion project to the
Atlantis, and Skybridge to the Reno-Sparks Convention Center, in the second
quarter of 2007. While most of the expansion was completed in July
2008, construction of the Skybridge is expected to continue into the fourth
quarter of 2008, construction of the spa facilities is expected to continue into
the first quarter of 2009 and various remodeling of the pre-expansion facilities
are expected to continue into the first half of 2009. During the
construction period, there could be disruption to our operations from various
construction activities. In addition, the construction activity may
make it inconvenient for our patrons to access certain locations and amenities
at the Atlantis which may in turn cause certain patrons to patronize other Reno
area casinos rather than deal with construction-related
inconveniences. As a result, our business and our results of
operations may be adversely impacted so long as we are experiencing construction
related operational disruption.
The constitutional amendment approved
by California voters in 1999 allowing 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
and other drive-in customers from coming to the Atlantis.
We also believe that unlimited
land-based casino gaming in or near any major metropolitan area in the Atlantis'
key feeder market areas, such as San Francisco or Sacramento, could have a
material adverse effect on our business.
Other factors that may impact current
and future results are set forth in detail in Part II - Item 1A “Risk Factors”
of this Form 10-Q and in Item 1A “Risk Factors” of our 2007 Form
10-K.
COMMITMENTS AND
CONTINGENCIES
Our contractual cash obligations as of
September 30, 2008 and the next five years and thereafter are as
follow:
|
|
Payments Due by Period
|
|
|
|
Total
|
|
|
Less
Than
1 Year
|
|
|
1
to 3
Years
|
|
|
4
to 5
Years
|
|
|
More
Than
5 Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
leases (1)
|
|
$ |
4,374,000 |
|
|
$ |
613,000 |
|
|
$ |
801,000 |
|
|
$ |
740,000 |
|
|
$ |
2,220,000 |
|
Current
maturities of borrowings under credit facility (2)
|
|
|
42,500,000 |
|
|
|
42,500,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Purchase
obligations (3)
|
|
|
16,154,000 |
|
|
|
16,154,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
contractual cash obligations
|
|
$ |
63,028,000 |
|
|
$ |
59,267,000 |
|
|
$ |
801,000 |
|
|
$ |
740,000 |
|
|
$ |
2,220,000 |
|
(1) Operating leases include $370,000
per year in lease and common area expense payments to the shopping center
adjacent to the Atlantis and $243,000 per year in lease payments to Triple J
(see Note 5. Related Party Transactions, in the Notes to the Condensed
Consolidated Financial Statements in this Form 10-Q).
(2) The amount represents outstanding
draws against the Credit Facility as of September 30, 2008.
(3) Our open purchase order and
construction commitments total approximately $16.2 million. Of the
total purchase order and construction commitments, approximately $1.9 million
are cancelable by us upon providing a 30-day notice.
On September 28, 2006, our Board of
Directors (our “Board”) authorized a stock repurchase plan (the “Repurchase
Plan”). Under the Repurchase Plan, our Board authorized a program to repurchase
up to 1,000,000 shares of our 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 did not
obligate us to acquire any particular amount of common stock.
On March 11, 2008, our Board increased
its initial authorization by 1 million shares and on April 22, 2008, the Board
increased its authorization a third time by 1 million shares which increased the
shares authorized to be repurchased to a total of three million
shares. During the first and second quarters of 2008, we purchased
2,444,492 shares of the Company’s common stock pursuant to the Repurchase Plan
at a weighted average purchase price of $14.59 per share, which increased the
total number of shares purchased pursuant to the Repurchase Plan to 3,000,000 at
a weighted average purchase price of $16.52 per share. As of June 30,
2008, the Company had purchased all shares under the three million share
Repurchase Plan authorization.
We began construction in the second
quarter of 2007 on the next expansion phase of the Atlantis (the
“Expansion”). The Expansion impacts the first floor casino level, the
second and third floors and the basement level by adding approximately 116,000
square feet. The project adds over 10,000 square feet to the existing casino, or
approximately 20%. The Expansion includes a redesigned, updated
and expanded race and sports book of approximately 4,000 square feet, an
enlarged poker room and a Manhattan deli restaurant. The second floor
expansion creates additional ballroom and convention space of approximately
27,000 square feet. The spa and fitness center will be remodeled and
expanded to create an ultra-modern spa and fitness center
facility. We opened the Expansion in July 2008 with the exception of
the spa facilities which we expect to open in the first quarter of
2009. We have also begun construction of a pedestrian Skybridge over
Peckham Lane that will connect the Reno-Sparks Convention Center directly to the
Atlantis. Construction of the Skybridge is expected to be completed
in the fourth quarter of 2008. The Expansion is estimated to cost
approximately $50 million and the Atlantis Convention Center Skybridge project
is estimated to cost an additional $12.5 million. We also plan to
remodel the pre-expansion portions of the facility at an estimated cost of $10
million. Through September 30, 2008, the Company paid approximately
$60.4 million of the estimated Expansion, skybridge and remodel
costs.
We believe that our cash flow from
operations and borrowings available under the Credit Facility will provide us
with sufficient resources to fund our operations, meet our debt obligations, and
fulfill our capital expenditure requirements; 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 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.
On March 27, 2008, in the matter
captioned Sparks Nugget, Inc. vs. State ex rel. Department of Taxation, the
Nevada Supreme Court (the “Court”) ruled that complimentary meals provided to
employees and patrons are not subject to Nevada use tax. On April 15,
2008, the Department of Taxation filed a motion for rehearing of the Supreme
Court’s decision. On July 17, 2008, the Court denied the petition of
the Department of Taxation. The Governor’s office of the State of
Nevada has indicated that it intends to work with the Nevada legislature to
change the law to require that such meals are subject to Nevada use tax and to
prevent the refund of any use tax paid on complimentary meals prior to the
effective date of this new law. The Company is evaluating the Court’s
ruling and pending action by the Governor’s office. Accordingly, we
have not recorded a receivable for a refund for previously paid use tax on
complimentary employee and patron meals in the accompanying consolidated balance
sheet at September 30, 2008.
THE CREDIT
FACILITY
On February 20, 2004, our previous
credit facility was refinanced for $50 million (the "Credit Facility"). At our
option, borrowings under the Credit Facility would accrue interest at a rate
designated by the agent bank at 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 included a margin added to either the Base Rate or to LIBOR
tied to our ratio of funded debt to EBITDA (the "Leverage
Ratio"). Depending on our Leverage Ratio, this margin would vary
between 0.25 percent and 1.25 percent above the Base Rate, and between 1.50
percent and 2.50 percent above LIBOR. In February 2007, this margin
was further reduced to 0.00 percent and 0.75 percent above the Base Rate and
between 1.00 percent and 1.75 percent above LIBOR. Our leverage ratio
during the three months ended September 30, 2008 was such that the pricing for
borrowings was the Base Rate plus 0.25 percent or LIBOR plus 1.25
percent. We selected the LIBOR plus 1.25 option for all of the
borrowings during the three months ended September 30, 2008. We paid
various one-time fees and other loan costs upon the closing of the refinancing
of the Credit Facility that will be amortized over the term of the Credit
Facility using the straight-line method.
The Credit Facility is secured by liens
on substantially all of the real and personal property of the Atlantis, and is
guaranteed by Monarch.
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 and
covenants restricting our ability to merge, transfer ownership of Monarch, incur
additional indebtedness, encumber assets and make certain
investments. The Credit Facility also contains covenants requiring us
to maintain certain financial ratios and contains provisions that restrict cash
transfers between Monarch and its affiliates. The Credit Facility also contains
provisions requiring the achievement of certain financial ratios before we can
repurchase our common stock. We do not consider the covenants to restrict our
operations.
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 under the Credit Facility may be reborrowed
so long as the total borrowings outstanding do not exceed the maximum principal
available. We may reduce the maximum principal available under the
Credit Facility at any time so long as the amount of such reduction is at least
$500,000 and a multiple of $50,000.
Effective February 2007, in
consideration of our cash balance, cash expected to be generated from operations
and to avoid agency and commitment fees, we elected to permanently reduce the
available borrowings to $5 million. On April 14, 2008, we entered
into an agreement to amend the Credit Facility to increase the available
borrowings from $5 million to $50 million and to extend the maturity date from
February 23, 2009 to April 18, 2009. At September 30, 2008, $42.5
million was outstanding on the Credit Facility, and $7.5 million was available
to be drawn under the Credit Facility. We intend to renegotiate or
refinance the Credit Facility to extend its maturity beyond April 18, 2009,
which will likely result in the amendment of other material provisions of the
Credit Facility, such as the interest rate charged and other material
covenants. There is no assurance that we will be able to reach
acceptable terms for a Credit Facility amendment or
refinancing.
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, 2008, that are subject to market
risks.
The interest rate on borrowings under
our Credit Facility at September 30, 2008 is LIBOR plus 1.25%. A
one-point increase in interest rates would have increased interest cost for the
three months ended September 30, 2008 by $37,000.
ITEM 4.
CONTROLS AND PROCEDURES
Disclosure 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 Financial 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 Financial Officer concluded that our disclosure controls and
procedures were effective as of the end of the period covered by this
report.
Changes in Internal Control
over Financial Reporting
No changes were made to our internal
control over financial reporting (as defined by Rule 13a-15(e) under the
Securities Exchange Act of 1934) during the last fiscal quarter that materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
PART II – OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
Litigation was filed against Monarch on
January 27, 2006, by Kerzner International Limited (“Kerzner ") owner of the
Atlantis, Paradise Island, Bahamas in the United States District Court, District
of Nevada. The case number assigned to the matter is
3:06-cv-00232-ECR (RAM). The complaint seeks declaratory judgment
prohibiting Monarch from using the name "Atlantis" in connection with offering
casino services other than at Monarch's Atlantis Casino Resort Spa located in
Reno, Nevada, and particularly prohibiting Monarch from using the "Atlantis"
name in connection with offering casino services in Las Vegas, Nevada;
injunctive relief enforcing the same; unspecified compensatory and punitive
damages; and other relief. Monarch believes Kerzner's claims to be entirely
without merit and is defending vigorously against the suit. Further, Monarch has
filed a counterclaim against Kerzner seeking to enforce the license agreement
granting Monarch the exclusive right to use the Atlantis name in association
with lodging throughout the state of Nevada; to cancel Kerzner's registration of
the Atlantis mark for casino services on the basis that the mark was
fraudulently obtained by Kerzner; and to obtain declaratory relief on these
issues. Litigation is in the discovery phase.
We are party to other 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.
A description of our risk factors can
be found in Item 1A of our Annual Report on Form 10-K for the year ended
December 31, 2007. The following information represents material
changes to those risk factors during the nine months ended September 30,
2008.
LIMITATIONS
OR RESTRICTIONS ON THE CREDIT FACILITY COULD HAVE A MATERIAL ADVERSE AFFECT ON
OUR LIQUIDITY
We intend
to renegotiate or refinance the Credit Facility to extend its maturity beyond
April 18, 2009. Any such renegotiation or refinancing will likely
result in the amendment of other material provisions of the Credit Agreement,
such as the interest rate charged and other material covenants. The
Credit Facility is an important component of our liquidity. Any
material restriction on our ability to use the Credit Facility, or the failure
to obtain a new credit facility upon the maturity of the existing Credit
Facility could adversely impact our operations and future growth
options.
(a)
Exhibits
Exhibit No
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Description
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Certifications
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
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Certifications
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
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Certification
of John Farahi, pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
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Certification
of Ronald Rowan, pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
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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: November
7, 2008
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By: /s/ RONALD ROWAN
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Ronald
Rowan, Chief Financial Officer and Treasurer (Principal Financial Officer
and Duly Authorized
Officer)
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