UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 Or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______TO______. Commission File No. 0-22088 MONARCH CASINO & RESORT, INC. (Exact name of registrant as specified in its charter) ------------------------- NEVADA 88-0300760 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 1175 W. MOANA LANE, SUITE 200 RENO, NEVADA 89509 (Address of principal (Zip code) executive offices) Registrant's telephone number, including area code: (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 ___ APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. YES ___ NO ___ APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of May 9, 2001, there were 9,436,275 shares of Monarch Casino & Resort, Inc. $0.01 par value common stock outstanding. PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS MONARCH CASINO & RESORT, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME <TABLE> <CAPTION> Three Months Ended March 31, ---------------------------- 2001 2000 ------------ ------------ (Unaudited) (Unaudited) <S> <C> <C> Revenues Casino...................................... $ 15,000,671 $ 14,048,729 Food and beverage........................... 7,510,012 6,775,376 Hotel....................................... 4,090,180 4,109,261 Other....................................... 783,296 809,776 ------------ ------------ Gross revenues........................... 27,384,159 25,743,142 Less promotional allowances................. (3,633,978) (3,093,416) ------------ ------------ Net revenues............................. 23,750,181 22,649,726 ------------ ------------ Operating expenses Casino...................................... 6,269,600 5,833,903 Food and beverage........................... 4,189,108 4,251,636 Hotel....................................... 1,618,342 1,616,464 Other....................................... 293,688 307,076 Selling, general, and administrative........ 6,582,816 5,958,071 Depreciation and amortization............... 2,472,140 2,499,755 ------------ ------------ Total operating expenses................. 21,425,694 20,466,905 ------------ ------------ Income from operations................... 2,324,487 2,182,821 Other expense Interest expense, net....................... 1,865,697 2,039,109 ------------ ------------ Income before income taxes............... 458,790 143,712 Provision for income taxes.................... 156,479 50,508 ------------ ------------ Net income............................... $ 302,311 $ 93,204 ============ ============ Net income per share of common stock Basic..................................... $ 0.03 $ 0.01 Diluted................................... $ 0.03 $ 0.01 Weighted average number of common shares and potential common shares outstanding Basic................................... 9,436,275 9,436,275 Diluted................................. 9,473,880 9,483,785 </TABLE> The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements. -2- MONARCH CASINO & RESORT, INC. CONDENSED CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> March 31, December 31, 2001 2000 ------------- ------------- (Unaudited) <S> <C> <C> ASSETS Current assets Cash............................................ $ 7,849,409 $ 6,783,998 Receivables, net................................ 2,637,487 2,963,648 Federal income tax refund receivable............ - 417,135 Related party receivables....................... 63,147 62,920 Inventories..................................... 1,030,654 1,099,285 Prepaid expenses................................ 2,192,354 1,875,909 Prepaid federal income taxes.................... 154,281 154,281 Deferred income taxes........................... 2,066,337 2,045,651 ------------- ------------- Total current assets......................... 15,993,669 15,402,827 ------------- ------------- Property and equipment Land............................................ 10,339,530 10,339,530 Land improvements............................... 3,173,926 3,173,926 Buildings....................................... 78,955,538 78,955,538 Building improvements........................... 4,718,355 4,733,595 Furniture and equipment......................... 51,003,364 50,924,021 ------------- ------------- 148,190,713 148,126,610 Less accumulated depreciation and amortization.. (40,288,150) (37,816,876) ------------- ------------- 107,902,563 110,309,734 Construction in progress........................ 283,681 - ------------- ------------- Net property and equipment................... 108,186,244 110,309,734 ------------- ------------- Other assets, net................................. 627,089 678,247 ------------- ------------- Total assets................................. $ 124,807,002 $ 126,390,808 ============= ============= </TABLE> The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements. -3- MONARCH CASINO & RESORT, INC. CONDENSED CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> March 31, December 31, 2001 2000 ------------- ------------- (Unaudited) <S> <C> <C> LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Current maturities of long-term debt............ $ 8,170,952 $ 7,537,893 Accounts payable................................ 6,115,879 8,234,219 Accounts payable construction................... 21,778 34,650 Accrued expenses................................ 7,465,125 5,690,888 ------------- ------------- Total current liabilities.................... 21,773,734 21,497,650 Long-term debt, less current maturities........... 71,141,432 73,480,788 Deferred income taxes............................. 4,760,863 4,583,708 Commitments and contingencies..................... Stockholders' equity Preferred stock, $.01 par value, 10,000,000 shares authorized; none issued................. - - Common stock, $.01 par value, 30,000,000 shares authorized; 9,536,275 issued; 9,436,275 outstanding.......................... 95,363 95,363 Additional paid-in capital...................... 17,241,788 17,241,788 Treasury stock, at cost......................... (329,875) (329,875) Retained earnings............................... 10,123,697 9,821,386 ------------- ------------- Total stockholders' equity................... 27,130,973 26,828,662 ------------- ------------- Total liabilities and stockholders' equity... $ 124,807,002 $ 126,390,808 ============= ============= </TABLE> The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements. -4- MONARCH CASINO & RESORT, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> Three Months Ended March 31, ---------------------------- 2001 2000 ------------ ------------ (Unaudited) (Unaudited) <S> <C> <C> Cash flows from operating activities: Net income.................................. $ 302,311 $ 93,204 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization............. 2,516,997 2,545,132 Gain on disposal of assets................ - (87,980) Deferred income taxes..................... 156,469 (19,428) Decrease (increase) in receivables, net... 743,069 (410,356) Decrease in inventories................... 68,631 202,780 Increase in prepaid expenses.............. (316,445) (353,132) Decrease in other assets.................. 5,435 5,435 Decrease in accounts payable.............. (2,118,340) (2,099,941) Increase in accrued expenses.............. 1,774,237 1,028,707 ------------ ------------ Net cash provided by operating activities.................... 3,132,364 904,421 ------------ ------------ Cash flows from investing activities: Proceeds from sale of assets................ - 87,980 Acquisition of property and equipment....... (288,292) (759,263) Decrease in accounts payable construction.............................. (12,872) (631,776) ------------ ------------ Net cash used in investing activities.... (301,164) (1,303,059) ------------ ------------ Cash flows from financing activities: Principal payments on long-term debt........ (1,765,789) (1,852,294) ------------ ------------ Net cash used in financing activities.................... (1,765,789) (1,852,294) ------------ ------------ Net increase (decrease) in cash.......... 1,065,411 (2,250,932) Cash at beginning of period................... 6,783,998 6,367,507 ------------ ------------ Cash at end of period......................... $ 7,849,409 $ 4,116,575 ============ ============ Supplemental disclosure of cash flow information: Cash paid for interest, net of capitalized interest................ $ 1,162,697 $ 1,536,395 Supplemental schedule of non-cash investing and financing activities: The Company financed the purchase of property and equipment in the following amounts........................... $ 59,492 $ 24,053 </TABLE> The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements. -5- 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 wholly-owned subsidiary, Golden Road. The consolidated financial statements include the accounts of Monarch and Golden Road. Intercompany balances and transactions are eliminated. Use of Estimates In preparing these financial statements in conformity with generally accepted accounting principles 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 year. Actual results could differ from those estimates. Related Party Receivables Receivables from officers, employees, or affiliated companies are primarily for banquet related services, and are priced at the retail value of the goods or services provided. NOTE 2. INTERIM FINANCIAL STATEMENTS The accompanying condensed consolidated financial statements for the three month periods ended March 31, 2001 and March 31, 2000 are unaudited. In the opinion of management, all adjustments, consisting of normal recurring adjustments necessary for a fair presentation of the Company's financial position and results of operations for such periods, have been included. The accompanying unaudited 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, 2000. The results for the three month period ended March 31, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001, or for any other period. NOTE 3. EARNINGS PER SHARE The Company accounts for earnings per share using Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." The following is a reconciliation of the number of shares (denominator) used in the basic and diluted earnings per share computations (shares in thousands): -6- <TABLE> <CAPTION> Three Months ended March 31, ----------------------------------- 2001 2000 ---------------- ---------------- Per Share Per Share Shares Amount Shares Amount ------ --------- ------ --------- <S> <C> <C> <C> <C> Net Income Basic..................... 9,436 $ 0.03 9,436 $ 0.01 Effect of dilutive stock options............ 38 - 48 - ------ ------- ------ ------- Diluted................... 9,474 $ 0.03 9,484 $ 0.01 ====== ======= ====== ======= </TABLE> The following options were not included in the computation of diluted earnings per share because the options' exercise price was greater than the average market price of the common shares and their inclusion would be antidilutive: <TABLE> <CAPTION> Three Months ended March 31, ----------------------------------- 2001 2000 ---------------- ---------------- <S> <C> <C> Options to purchase shares of common stock (in thousands)... 14 19 Exercise prices................ $5.25-$5.94 $5.25-$6.00 Expiration dates............... 9/03-2/10 6/03-2/10 </TABLE> ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS STATEMENT ON FORWARD-LOOKING INFORMATION Certain information included herein contains statements that may be considered forward-looking statements within the meaning of Section 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, and 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, changes in federal or state tax laws or the administration of such laws. -7- RESULTS OF OPERATIONS Comparison of Operating Results for the Three Month Periods Ended March 31, 2001 and 2000 For the three month period ended March 31, 2001, the Company had net income of $302 thousand, or $0.03 per share, on net revenues of $23.8 million, an increase from net income of $93 thousand, or $.01 per share, on net revenues of $22.6 million for the three months ended March 31, 2000. Income from operations for the three months ended March 31, 2001 totaled $2.3 million, compared to $2.2 million for the same period in 2000. The Company's first quarter of 2001 net revenue represents a new first quarter record for the Company. In the Reno area market, the January through March period encompassing the Company's first quarter has traditionally been marked by weather-related seasonality, with winter storms producing moderate to severe travel delays and difficulties for visitors to the region. The impact of the weather this year was relatively minor. Casino revenues were up 6.8% in the first quarter of 2001 compared to the first quarter of 2000, reflecting increases in both slot and table game win. Slot revenues were up 7.0% in the first quarter of 2001 compared to the first quarter of 2000 due to an increase in the volume of slot machine play. Table game and poker room revenue in the first quarter of 2001 increased 4.9% from the first quarter of 2000 due to an increase in table game and poker room drop. Casino operating expenses amounted to 41.8% of casino revenues in the first quarter of 2001, compared to 41.5% in the first quarter of 2000, with the difference due primarily to more efficient operations. Food and beverage revenues increased 10.8% in the first quarter of 2001 compared to the first quarter of 2000, due primarily to the popularity of Atlantis' restaurants and buffet, and also due to an increase in hotel occupancy. Food and beverage operating expenses amounted to 55.8% of food and beverage revenues during the first quarter of 2001, compared to 62.8% in the first quarter of 2000, which was primarily due to more efficient operations. Hotel revenues were $4.1 million for the first quarter of 2001, a decrease of 0.5% from the 2000 first quarter. While the Atlantis' occupancy rate for the first quarter of 2001 increased, the average daily room rate ("ADR") decreased, causing the slight decrease in hotel revenues. During the first quarter of 2001, the Atlantis experienced an 89.2% occupancy rate, up from an 86.5% occupancy rate for the same period in 2000. The Atlantis' ADR was $48.58 in the first quarter of 2001 compared to $50.39 in the first quarter of 2000. Hotel operating expenses remained relatively constant as a percent of hotel revenues at 39.6% in the 2001 first quarter, compared to 39.3% in the 2000 first quarter. Other revenues decreased 3.3% in the 2001 first quarter compared to the same period last year. The decrease reflects the gain on sale of assets included in the 2000 first quarter revenues with no gain or loss included in the 2001 first quarter. Other expenses in the 2001 first quarter amounted to 37.5% of other revenues, compared to 37.9% in the 2000 first quarter, reflecting a slight increase in operating efficiencies. -8- Selling, general and administrative expenses amounted to 27.7% of net revenues in the first quarter of 2001, compared to 26.3% in the first quarter of 2000. This increase is primarily due to increased energy costs in our area. Interest expense for the 2001 first quarter totaled $1.9 million, a decrease of 8.5%, from $2.0 million in the 2000 first quarter. The decrease reflects the Company's reduction in debt outstanding from the completed Atlantis expansion and a reduction in interest rates. The three principal officers of the Company have personally guaranteed the debt of the Company. In the past, they have agreed not to be compensated for their personal guarantees. There is no assurance that they will not be compensated in the future. 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. LIQUIDITY AND CAPITAL RESOURCES For the three months ended March 31, 2001, net cash provided by operating activities totaled $3.1 million, an increase of 246.3% compared to the same period last year. Net cash used in investing activities totaled $301 thousand in the first quarter of 2001, a decrease of 76.9% over the same period last year. Investing activities consisted primarily of acquisitions of property and equipment at the Atlantis. Net cash used in financing activities totaled $1.8 million for the first quarter of 2001, compared to $1.9 million for the same period last year, as the Company used funds to reduce long-term debt. As a result, at March 31, 2001, the Company had a cash balance of $7.8 million, compared to $6.8 million at December 31, 2000. The Company has an $80 million construction and reducing revolving credit facility with a group of banks (the "Credit Facility"). The principal terms of the Credit Facility are summarized in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. At March 31, 2001, the outstanding balance of the Credit Facility was $73.6 million. 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 debt obligations, and fulfill its capital expenditure requirements; however, the Company's operations are subject to financial, economic, -9- competitive, regulatory, and other factors, many of which are beyond its control. 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. PART II. OTHER INFORMATION None. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MONARCH CASINO & RESORT, INC. (Registrant) <TABLE> <S> <C> Date: May 10, 2001 By: /s/ BEN FARAHI ------------------------------------ Ben Farahi, Co-Chairman of the Board, Secretary, Treasurer, and Chief Financial Officer(Principal Financial Officer and Duly Authorized Officer) </TABLE> -10-