Monarch Casino & Resort, Inc. — FY 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012. This is an annual report, not a standalone quarterly filing; selected unaudited fourth-quarter results are included below. Monarch operates the Atlantis Casino Resort Spa in Reno, Nevada, and acquired the Riviera Black Hawk casino in Colorado on April 26, 2012.
Financial performance and position
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Gross revenue | $211.0 million | $169.8 million |
| Net revenue, after promotional allowances | $170.4 million | $140.6 million |
| Income from operations | $16.0 million | $9.8 million |
| Net income | $8.9 million | $5.7 million |
| Diluted EPS | $0.55 | $0.35 |
| Operating cash flow | $26.0 million | $22.6 million |
| Capital expenditures | $10.3 million | $5.2 million |
| Cash and cash equivalents at year-end | $19.0 million | $13.6 million |
| Long-term debt at year-end | $81.1 million | $24.7 million |
FY 2012 operating margin was approximately 9.4% of net revenue and net margin approximately 5.2%. Fourth-quarter 2012 net revenue was $43.6 million, operating income $2.9 million, and net income $1.3 million, versus $34.0 million, $1.3 million, and $0.6 million, respectively, in fourth-quarter 2011.
The company reported current assets of $31.9 million and current liabilities of $26.2 million at year-end. Its $100 million revolving credit facility matures November 15, 2016; $81.1 million was drawn at year-end, leaving nominal availability of about $18.9 million before any facility conditions. Borrowings bear variable rates; year-end pricing was LIBOR plus 2.25%. The reported leverage ratio was 2.02:1 versus a maximum covenant of 3.25:1, and fixed-charge coverage was 13.5:1 versus a minimum of 1.15:1.
Material changes versus the prior year
- Reported net revenue rose 21.1%, substantially reflecting the addition of Riviera Black Hawk from its acquisition date. Atlantis revenue alone was nearly flat at $140.9 million, up 0.2%.
- Riviera contributed $29.4 million in net revenue and $6.4 million in operating income from acquisition through year-end. FY 2012 consolidated results included $2.2 million of acquisition expense.
- Debt increased by $56.4 million year over year, largely funding the acquisition. Interest expense rose to $2.0 million from $0.9 million.
- Operating cash flow increased $3.5 million, while investing cash outflow rose to $77.1 million, primarily for the acquisition and property/equipment spending. Financing provided $56.5 million.
- Atlantis hotel performance weakened: occupancy fell to 87.2% from 89.1%, ADR to $71.13 from $74.22, and RevPAR to $66.78 from $71.05. Higher slot revenue supported casino revenue; promotional allowances increased to $40.7 million from $29.1 million.
- FY 2011 included a $3.5 million noncash building demolition charge; FY 2012 did not. Comparisons are also affected by the partial-year inclusion of Riviera and higher depreciation and SG&A.
Outlook, risks, and unusual items
- Management expects continued pressure on Atlantis revenue from weak economic conditions in Reno and aggressive competitor promotions. It states that cash, operating cash flow, and available credit should support operations, debt obligations, and planned capital spending for the next 12 months, while noting that results and financing access depend on factors outside its control. No specific earnings or revenue guidance is provided.
- The company is developing a Riviera improvement plan that may include property-wide renovation, a hotel, and additional parking; scope, timing, funding, and approvals remain uncertain. FY 2012 Black Hawk capital spending was $6.8 million.
- Nevada approval for interactive gaming was extended for six months from February 26, 2013, but required conditions, provider contracts, and system approvals remained outstanding; operations had not begun. Nevada interactive gaming was limited to intrastate poker.
- Key risks include intense gaming competition, potential new competition near Reno, dependence on Reno and Denver-area economies and discretionary spending, gaming-license and tax regulation, variable-rate debt, acquisition integration, project cost/permit risks, and exposure to severe weather and environmental liabilities. The filing specifically notes Riviera’s location in a historic mining area near cleanup sites.
- The $81.1 million credit-facility balance is due at maturity in 2016; management says it expects to refinance all or part of indebtedness at maturity, but gives no assurance refinancing will be available on acceptable terms. The facility is secured by substantially all relevant real and personal property.
- The company has an approximately $1.5 million Nevada use-tax refund claim, excluding interest, that it has not recognized. It accrued approximately $410,000 for tax on complimentary meals following a state directive, which it says it believes is being challenged.
- The IRS examination of 2006–2008 returns was settled in 2012; the company paid approximately $1.1 million and eliminated its $1.5 million uncertain-tax-position liability. Kerzner’s appeal in the Atlantis trademark litigation remained pending, with briefing stayed during settlement discussions. Management said other ordinary-course claims were not expected to have a material impact.
- Auditors issued unqualified opinions on the financial statements and internal control over financial reporting. The filing reports no material subsequent events through issuance.
Important facts for investors to verify
- How Riviera performs over a full year, including whether acquisition-period operating results and integration costs translate into sustained returns.
- Remaining borrowing availability, covenant headroom, variable-rate exposure, and the company’s refinancing plan ahead of the 2016 maturity.
- Progress, cost estimates, approvals, and financing for the proposed Riviera renovation, hotel, and parking plans.
- Atlantis trends in room rates, occupancy, gaming revenue, and promotional spending amid local competition and economic weakness.
- Status and potential financial effect of the Nevada use-tax refund claim, complimentary-meal tax accrual, and remaining trademark proceedings.
- Whether Monarch Interactive satisfies licensing conditions, secures an approved provider and system, and launches within the applicable approval period.