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What changed 10-Q

Item 1. Financial Statements

2021-05-07 compared with 2020-11-06 · 117 added, 147 removed, 254 unchanged (51% of the section changed)

5 unchanged sentences

Three months ended

Nine months ended

September 30,

September 30,

Food and beverage

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Income from operations

Other expense

Interest expense, net of amounts capitalized

Income before income taxes

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(In thousands, except shares)

September 30, 2020

March 31, 2021

December 31, 2020

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Total current assets

Property and equipment

Land improvements

Buildings improvements

Furniture and equipment

Construction in progress

Right of use assets

Leasehold improvements

Less accumulated depreciation and amortization

Net property and equipment

Property and equipment, net

Intangible assets, net

Deferred income taxes

Other assets, net

Total other assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

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Accrued expenses

Income taxes payable

Short-term lease liability

Total current liabilities

Deferred income taxes

Long-term lease liability

5 unchanged sentences

19,096,300 shares issued;

18,260,072 outstanding at September 30, 2020;

18,517,961 outstanding at March 31, 2021;

18,426,130 outstanding at December 31, 2020

Additional paid-in capital

Treasury stock, 836,228 shares at September 30, 2020;

Treasury stock, 578,339 shares at March 31, 2021;

670,170 shares at December 31, 2020

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Balance, January 1, 2021

Net exercise of stock options

Exercise of stock options, net

Stock-based compensation expense

Balance, March 31, 2021

Net exercise of stock options

Stock-based compensation expense

Balance, June 30, 2020

Net exercise of stock options

Stock-based compensation expense

Capital contribution

Balance, September 30, 2020

Balance, January 1, 2020

Net exercise of stock options

Exercise of stock options, net

Stock-based compensation expense

Balance, March 31, 2020

Net exercise of stock options

Stock-based compensation expense

Balance, June 30, 2019

Net exercise of stock options

Stock-based compensation expense

Balance, September 30, 2019

The Notes to the Consolidated Financial Statements are an integral part of these statements.

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(In thousands, Unaudited)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities:

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Provision for bad debts

Loss on disposition of assets

Write off of unamortized debt issuance costs

Non cash operating lease expense

Deferred income taxes

Changes in operating assets and liabilities:

Prepaid expenses

Right of use asset, net

Accounts payable

Accrued expenses

Net cash provided by operating activities

Net cash provided by (used in) operating activities

Cash flows from investing activities:

Proceeds from sale of assets

Change in construction payable

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Principal payments on long-term debt

Loan issuance cost

Long-term debt borrowings

Net cash (used in) provided by financing activities

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Supplemental disclosure of cash flow information:

Cash paid for income taxes

Conversion of long term deposit to short term deposit

Cash paid for interest, net of amounts capitalized

The Notes to the Consolidated Financial Statements are an integral part of these statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020

QUARTERLY PERIOD ENDED MARCH 31, 2021

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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In the opinion of the management of the Company, all adjustments considered necessary for a fair presentation are included.

Operating results for the three months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

The balance sheet at December 31, 2020 has been derived from the audited consolidated financial statements of the Company at that date, but does not include all of the information and footnotes required by U.S.

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In March 2020, a global pandemic was declared due to an outbreak of a new strain of coronavirus (“COVID-19”).

In an effort to contain the virus, on March 16 th the state of Colorado mandated a temporary shutdown of all casinos including Monarch Casino Resort Spa Black Hawk and on March 17 th the state of Nevada mandated the temporary closure of all casinos including Atlantis Casino Resort Spa in Reno.

The COVID-19 outbreak has had, and will continue to have, an adverse effect on the Company's results of operations.

In an effort to contain the virus, on March 16, 2020 the state of Colorado mandated a temporary shutdown of all casinos including Monarch Casino Resort Spa Black Hawk and on March 17, 2020 the state of Nevada mandated the temporary closure of all casinos including Atlantis Casino Resort Spa in Reno.

The COVID-19 outbreak has had, and may continue to have, an adverse effect on the Company's results of operations.

Our Nevada and Colorado properties reopened with limited operations on June 4, 2020 and June 17, 2020, respectively.

The poker room and buffet at Atlantis resumed operations at the beginning of August.

The table games at our Colorado property resumed operation on September 11, 2020.

The buffet at our Colorado property is temporarily being operated as a table-service restaurant.

Additionally, changes were made from routine operations relating to restrictions in occupancy and social distancing requirements, which include reduced seating at table games at and in all restaurants, and a decreased number of active slot machines on the casino floors.

The convention business at Atlantis was affected by the state-mandated gathering limits, which at this time are 50 persons or 50% of fire code capacity, whichever is less.

During the first quarter of 2021, we continued to operate under government-enforced capacity restrictions.

Changes were made from routine operations relating to restrictions in occupancy and social distancing requirements, which include reduced seating at table games at and in all restaurants, and a decreased number of active slot machines on the casino floors.

The convention business at Atlantis was adversely affected by the state-mandated gathering limits.

We have experienced hotel stay and convention booking cancelations, and since the reopening, guest visitation and hotel and convention bookings have been lower than prior to the state-mandated closures, and are expected to remain lower for the near future.

The Company has taken steps to mitigate the effects of the economic downturn and uncertainty by reducing the operating expenses taking advantage of federal and state government programs that support companies affected by the COVID-19 pandemic and their employees, and entering in an amended and restated credit agreement with its lender, which extended the maturity date of the Company’s credit facility to September 3, 2023 and increased the aggregated principal amount of the facility from $ 241.3 million to $ 270.0 million with an option to increase the facility by up to an additional $ 75.0 million revolving line of credit.

At the same time, however, our results of operation for the first quarter of 2021 benefited from pent-up demand with patrons across the gaming industry, particularly in regional gaming markets.

The Company has taken steps to mitigate the effects of the COVID-19 pandemic and uncertainty by reducing the operating expenses taking advantage of federal and state government programs that support companies affected by the COVID-19 pandemic and their employees, and entering in an amended and restated credit agreement with its lender, which extended the maturity date of the Company’s credit facility to September 3, 2023 and increased the aggregated principal amount of the facility from $ 241.3 million to $ 270.0 million (consisting of a $ 200.0 million term loan and a $ 70.0 million revolving credit facility) with an option to increase the facility by up to an additional $ 75.0 million revolving line of credit.

LONG-TERM DEBT.

The Company believes that the $ 4.0 million of cash in our interest-bearing money market fund and the $ 70.0 million available under our Amended Credit Facility as of September 30, 2020, as well as the anticipated operating cash flow, will be sufficient to fund its operations, meets its debt obligations and fulfill its capital expenditure plans for the next twelve months.

Given the Company's liquidity position at September 30, 2020, management believes the Company has sufficient liquidity to fund operations and satisfy its obligations for the next twelve months.

The Company believes that its anticipated cash flows from operating activities, combined with the $ 70.0 million available under its Fourth Amended Credit Facility, will be sufficient to fund its operations, meets its debt obligations and fulfill its capital expenditure plans for the next twelve months.

The Company accounts for goodwill in accordance with ASC Topic 350, Intangibles-Goodwill and Other (“ASC Topic 350”).

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Goodwill consists of the excess of the acquisition cost over the fair value of the net assets acquired in business combinations in April 2012.

As of September 30, 2020, we had goodwill totaling $ 25.1 million related to the purchase of Monarch Casino Black Hawk, Inc.

Due to the COVID-19 pandemic related government orders to suspend operations at our properties and the continued adverse effect of the pandemic on our business, after reopening of our properties, we performed a qualitative assessment for the quarters ended March 31, 2020 and June 30, 2020 to determine if the Company’s goodwill was impaired.

The impairment testing, resulted in the recognition of no impairment loss.

Based upon the financial performance of the company during the third quarter, management determined that there was no continued indicator of impairment .

The evaluations used to assess the Company’s goodwill for impairment incorporate inherent uncertainties that are difficult to predict in the current economic environment.

When evaluating for impairment, we make numerous highly subjective and judgmental estimates and assumptions, all of which are subject to a variety of risks and uncertainties, and many of which are based on significant unobservable inputs.

The most significant assumptions and inputs used in evaluating for impairment are projected short-term and long-term operating results and cash flows, projected capital expenditures, estimated long-term growth rates and the weighted-average cost of capital of market participants, adjusted for the risk profile of the assets being evaluated.

The timing and trajectory of the expected post-pandemic economic recovery is unknown, and accordingly, estimates and assumptions are likely to change as more information becomes available.

As of March 31, 2021, we had goodwill totaling $ 25.1 million related to the purchase of Monarch Casino Black Hawk, Inc.

ASC Topic 350 requires goodwill be tested for impairment between annual tests if an even or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

We performed an assessment to determine whether events or circumstances such as those described in ASC 350-20-35-3C existed and we determined that they did not exist during the interim period;

therefore, an interim impairment test was not performed.

The Company believes that it has made reasonable estimates and judgments in performing its analysis in light of the risks and uncertainties surrounding the COVID-19 pandemic.

However, if the excess of fair value over the carrying amount declines by a significant amount in the future as a result of changes in actual and projected operating results or other internal or external economic factors, the Company could be required to recognize goodwill impairment charges in future periods.

Property and Equipment, net:

Property and Equipment, net consist of the following (in thousands):

March 31, 2021

December 31, 2020

Land improvements

Buildings improvements

Furniture and equipment

Construction in progress

Right of use assets

Leasehold improvements

Less accumulated depreciation and amortization

Property and equipment, net

Property and equipment are stated at cost, less accumulated depreciation and amortization.

Property and equipment is depreciated principally on a straight line basis over the estimated useful lives as follows:

Land improvements

Building improvements

The Company evaluates property and equipment and other long-lived assets for impairment in accordance with the guidance for accounting for the impairment or disposal of long-lived assets.

For assets to be disposed of, the Company recognizes the asset to be sold at the lower of carrying value or fair value less costs of disposal.

Fair value for assets to be disposed of is generally estimated based on comparable asset sales, solicited offers or a discounted cash flow model.

For assets to be held and used, the Company reviews fixed assets for impairment annually during the fourth quarter of each year or whenever indicators of impairment exist.

If an indicator of impairment exists, we compare the estimated future cash flows of the asset, on an undiscounted basis, to the carrying value of the asset.

If the undiscounted cash flows exceed the carrying value, no impairment is indicated.

If the undiscounted cash flows do not exceed the carrying value, the impairment is measured based on fair value compared to carrying value, with fair value typically based on a discounted cash flow model or market comparables, when available.

For the three-month periods ended March 31, 2021 and 2020, there were no impairment charges.

Segment Reporting:

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Unamortized amounts of debt issuance costs are recorded as a reduction of the outstanding debt and included in “Long-term debt, net”.

On September 3, 2020, the Company refinanced its credit facility.

The unamortized costs related to the existing credit facility as of August 31, 2020 was $ 476 thousand.

As the credit facility is a loan syndication with separate debt instruments existing between the debtor and the individual creditors participating in the syndication, in accordance to ASC 470-50, the Company expensed $ 95 thousand, representing a portion of unamortized debt issuance cost, allocated to the lenders that left the syndication and deferred the rest of the unamortized debt issuance cost of the existing credit facility, together with the issuance costs of the new facility.

As of September 30, 2020, debt issuance costs, net of amortization, were $ 3.1 million.

As of March 31, 2021, debt issuance costs, net of amortization, were $ 2.5 million.

Capitalized Interest:

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Interest capitalization is ceased when the project is substantially complete.

The Company capitalized $ 1.8 million and $ 5.0 million during the three and nine months ended September 30, 2020, respectively.

The Company capitalized $ 1.8 million during the three months ended March 31, 2020.

No capitalized interest was recognized in the first three months ending March 31, 2021, as the Monarch Black Hawk expansion project was substantially completed in the fourth quarter of 2020.

Revenue Recognition:

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The points estimated SSP is computed as the cash redemption value of the points expected to be redeemed, which is determined through an analysis of all redemption activity over the preceding twelve -month period.

As of September 30, 2020, the Company had estimated the obligations related to the players’ club program at $ 10.4 million, which is included in Accrued Expenses in the Liabilities and Stockholders’ Equity section in the Consolidated Balance Sheet.

As of March 31, 2021, the Company had estimated the obligations related to the players’ club program at $ 9.7 million, which is included in Accrued Expenses in the Liabilities and Stockholders’ Equity section in the Consolidated Balance Sheet.

Food and Beverage, Hotel and Other (retail) Revenues:

9 unchanged sentences

In addition, tips and other gratuities, excluding service charges, collected from customers on behalf of the Company’s employees are also accounted for on a net basis and are not included in revenues or operating expenses.

Other Operating items, net:

Other operating items, net, in general consist of miscellaneous operating charges or proceeds.

For the three months ended September 30, 2020, Other operating items, net, was $ 2.4 million and included:

$ 0.9 million in pre-opening expenses relating to the Monarch Black Hawk Expansion project;

$ 0.5 million in professional service fees relating to our construction litigation;

$ 0.5 million in Colorado legislation lobbying expenses;

$ 0.4 million equipment, supplies and employee testing expenses directly attributable to the pandemic for reopening of the properties and incremental to normal operations;

and $ 0.1 million in unamortized debt issuance cost write off.

For the nine months ended September 30, 2020, Other operating items, net, was $ 4.9 million and included:

$ 1.9 million in pre-opening expenses relating to the Monarch Black Hawk Expansion project;

$ 0.8 million in professional service fees relating to our construction litigation;

$ 1.4 million in Colorado legislation lobbying expenses;

$ 0.7 million in equipment, supplies and employee testing expenses directly attributable to the pandemic for reopening of the properties and incremental to normal operations;

and $ 0.1 million in unamortized debt issuance cost write off.

For the three and nine months ended September 30, 2019, Other operating items, net, was $ 1.1 million and $ 1.7 million, representing:

$ 0.9 million and $ 1.5 million pre-opening expenses relating to the Monarch Black Hawk Expansion project, respectively;

and $ 0.2 million in professional service fees relating to our construction litigation for each of the periods.

Impact of Recently Adopted Accounting Standards:

Financial Instruments - Credit Losses:

In June 2016, the FASB issued amended accounting guidance for the measurement of credit losses on financial instruments.

The Accounting Standards Update (“ASU”) 2016-13 significantly changes the way entities account for credit losses for most financial assets and certain other instruments that are not measured at fair value through net income.

The amended accounting guidance replaces the incurred loss impairment model with a forward-looking expected loss model, and is applicable to most financial assets, including trade receivables other than those arising from operating leases.

In the first quarter of 2020, the Company adopted ASU 2016-13.

The adoption of this ASU did not have a material impact on the Company’s Consolidated Financial Statements.

Credit Losses

The Company extends short-term credit to its gaming customers.

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The book value of receivables approximates fair value due to the short-term nature of the receivables.

Cloud Computing Arrangement Implementation Costs:

In August 2018, the FASB issued ASU 2018-15 to align the requirements for capitalizing implementation costs incurred in a hosting arrangement with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.

The implementation costs incurred in a hosting arrangement that is a service contract should be presented as a prepaid asset in the balance sheet and expensed over the term of the hosting arrangement to the same line item in the statement of income as the costs related to the hosting fees.

The Company adopted the guidance effective January 1, 2020 .

The adoption of this ASU did not have a material impact on the Company’s Consolidated Financial Statements.

Goodwill impairment:

In January 2017, the FASB issued ASU 2017-04 that simplifies the accounting for goodwill impairment for all entities by eliminating the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of today’s goodwill impairment test) to measure a goodwill impairment charge.

Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value (i.e., measure the charge based on today’s Step 1).

The standard does not change the guidance on completing Step 1 of the goodwill impairment test.

An entity will still be able to perform today’s optional qualitative goodwill impairment assessment before determining whether to proceed to Step 1.

The Company adopted the guidance effective January 1, 2020 .

The adoption of this ASU did not have a material impact on the Company’s Consolidated Financial Statements.

A variety of proposed or otherwise potential accounting standards are currently under review and study by standard-setting organizations and certain regulatory agencies.

Other Operating items, net:

Other operating items, net, in general consist of miscellaneous operating charges or proceeds.

For the three months ended March 31, 2021, Other operating items, net, was $0.7 million and included:

$ 0.6 million in professional service fees relating to our construction litigation;

and $ 0.1 million equipment, supplies and employee testing expenses directly attributable to the pandemic for reopening of the properties and incremental to normal operations.

For the three months ended March 31, 2020, Other operating items, net, was $ 1.3 million and included:

$ 0.8 million in pre-opening expenses relating to the Monarch Black Hawk Expansion project;

$ 0.4 million in Colorado legislation lobbying expenses;

and $ 0.1 million in professional service fees relating to our construction litigation.

Impact of Recently Adopted Accounting Standards:

The Company has evaluated the recently issued or proposed by the Financial Accounting Standards Board (“FASB”) or other standards-setting bodies accounting standards and does not believe the future adoption of any such pronouncements will have a material effect on the Company’s Consolidated Financial Statements.

In addition, a variety of proposed or otherwise potential accounting standards are currently under review and study by standard-setting organizations and certain regulatory agencies.

Because of the tentative and preliminary nature of such proposed standards, the Company has not yet determined the effect, if any, the implementation of any such proposed or revised standards would have on the Company’s Consolidated Financial Statements.

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As permitted by ASC 842, the Company elected not to separate non-lease components from their related lease components.

As of September 30, 2020, the Company’s right of use assets consisted of the Parking Lot Lease, the Driveway Lease (as defined and discussed in NOTE 5.

As of March 31, 2021, the Company’s right of use assets consisted of the Parking Lot Lease, the Driveway Lease (as defined and discussed in NOTE 5.

RELATED PARTY TRANSACTIONS) , as well as certain billboard leases.

Upon adoption of the new lease standard, incremental borrowing rates used for existing leases were established using the rates in effect as of the lease inception or modification date.

The weighted-average incremental borrowing rate of the leases presented in the lease liability as of September 30, 2020 was 4.33 %.

The weighted-average remaining lease term of the leases presented in the lease liability as of September 30, 2020 was 21.3 years.

Cash paid related to the operating leases presented in the lease liability for each of the nine months ended September 30, 2020 and 2019, was $ 1.1 million.

The weighted-average incremental borrowing rate of the leases presented in the lease liability as of March 31, 2021 was 4.33 %.

The weighted-average remaining lease term of the leases presented in the lease liability as of March 31, 2021 was 21.1 years.

Cash paid related to the operating leases presented in the lease liability for each of the three months ended March 31, 2021 and 2020, was $ 0.4 million.

STOCK-BASED COMPENSATION

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Three months ended

Nine months ended

September 30,

September 30,

Food and beverage

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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,

Effect of dilutive stock options

Nine months ended September 30,

Three months ended March 31,

Effect of dilutive stock options

Excluded from the computation of diluted earnings per share are options where the exercise prices are greater than the market price as their effects would be anti-dilutive in the computation of diluted earnings per share.

For the three months ended September 30, 2020 and 2019, options for approximately 1,062 thousand and 847 thousand shares, respectively, were excluded from the computation.

For the nine months ended September 30, 2020 and 2019, options for approximately 1,077 thousand and 795 thousand shares, respectively, were excluded from the computation.

For the three months ended March 31, 2021 and 2020, options for approximately 210 thousand and 1,036 thousand shares, respectively, were excluded from the computation.

RELATED PARTY TRANSACTIONS

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If the Company elects not to exercise its renewal option, the Company will be obligated to pay BLI $ 1.6 million.

For each of the three-month periods ended September 30, 2020 and 2019, the Company paid $ 174 thousand in rent, plus $ 13 and $ 6 thousand, respectively, in operating expenses relating to this lease.

For each of the nine-month periods ended September 30, 2020 and 2019, the Company paid $ 522 thousand in rent, plus $ 20 thousand and $ 19 thousand, respectively, in operating expenses relating to this lease.

The right of use asset and lease liability balances as of September 30, 2020, recognized in the Consolidated Balance Sheet, was $ 10.6 million.

For each of the three-month periods ended March 31, 2021 and 2020, the Company paid $ 174 thousand in rent, plus $ 7 thousand in operating expenses relating to this lease.

The right of use asset and lease liability balances as of March 31, 2021, recognized in the Consolidated Balance Sheet, was $ 10.4 million.

In addition, the Atlantis shares a driveway with the Shopping Center and leases approximately 37,400 square feet from BLI (the “Driveway Lease”) for an initial lease term of 15 years , which commenced on September 30, 2004, at an original annual rent of $ 300 thousand plus common area expenses.

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At the end of the renewal terms, the Company has the option to purchase the leased driveway section of the Shopping Center.

For the three-month periods ended September 30, 2020 and 2019, the Company paid $ 101 thousand and $ 94 thousand in rent, respectively, plus $ 8 thousand and $ 7 thousand, respectively, in operating expenses relating to this lease.

For each of the nine-month periods ended September 30, 2020 and 2019, the Company paid $ 303 thousand and $ 282 thousand in rent, respectively, plus $ 17 thousand and $ 20 thousand, respectively, in operating expenses relating to this lease.

The right of use asset and lease liability balances as of September 30 , 2020, recognized in the Consolidated Balance Sheet, was $ 4.0 million.

The Company occasionally leases billboard advertising, storage space and parking lot space from affiliates controlled by the Farahi Family Stockholders and paid $ 27 thousand and $ 48 thousand for the three-month periods ended September 30, 2020 and 2019 respectively, for such leases, and paid $ 101 thousand and $ 117 thousand, respectively, for the nine-month periods ended September 30, 2020 and 2019, for such leases.

For each of the three-month periods ended March 31, 2021 and 2020, the Company paid $ 101 thousand in rent plus $ 8 thousand in operating expenses relating to this lease.

The right of use asset and lease liability balances as of March 31 , 2021, recognized in the Consolidated Balance Sheet, was $ 3.9 million.

The Company occasionally leases billboard advertising, storage space and parking lot space from affiliates controlled by the Farahi Family Stockholders and paid $ 42 thousand and $ 36 thousand for the three-month periods ended March 31, 2021 and 2020 respectively, for such leases.

LONG-TERM DEBT

On September 3, 2020, the Company entered into the Fourth Amended and Restated Credit Agreement with Wells Fargo Bank, N.A., as administrative agent and certain banks (the “Fourth Amended Credit Facility”).

The Fourth Amended Credit Facility amends and restates the Company’s $ 250.0 million credit facility, dated as of July 20, 2016 (the “Amended Credit Facility”).

On September 29, 2020, the Company and its lender executed an Amendment to the Fourth Amended Credit Facility, which amends the definition of “Financial Covenant Start Date”.

The Fourth Amended Credit Facility amends and restates the Company’s $ 250.0 million credit facility, dated as of July 20, 2016 (the “Prior Credit Facility”).

The Fourth Amended Credit Facility extends the maturity date of the Amended Credit Facility from July 20, 2021 to September 3, 2023.

1 unchanged sentence

The $ 270.0 million Fourth Amended Credit Facility consists of:

$ 200 million term loan (“Term Loan Facility”) and $ 70 million revolving credit facility (“Revolving Credit Facility”).

$ 200 million term loan (“Term Loan Facility”) and $ 70 million revolving credit facility (“Revolving Credit Facility”), together with an option to increase the facility by up to an additional $ 75.0 million Revolving Credit Facility.

The Company is required to make quarterly principal payments under the Term Loan Facility on each Term Loan Installment Date, commencing on December 31, 2020, in an amount equal to (x) the percentage set forth opposite the applicable period during which such Term Loan Installment Date occurs (i.e., 1.25 % for the period from December 31, 2020 to September 30, 2021, and 2.50 % for the period from December 31, 2021 and thereafter) multiplied by (y) $ 200.0 million.

Commencing with the delivery of the compliance certificate for fiscal year 2021, the Company may be required to prepay borrowings under the Fourth Amended Credit Facility using excess cash flows for each fiscal year, depending on the Company’s leverage ratio.

The estimated amount of the mandatory principal payments due in the next twelve months is $ 15.0 million.

As of September 30, 2020, the Company had an outstanding principal balance of $ 185.0 million under the Term Loan Facility, from which $ 10 million is expected to have a maturity date in next twelve months.

As of September 30, 2020, the Company had no borrowings under the Revolving Credit Facility, therefore all $ 70.0 million remained available for borrowing.

Commencing with the delivery of the compliance certificate for fiscal year 2021, the Company may be required to prepay borrowings under the Fourth Amended Credit Facility using excess cash flows for each fiscal year, depending on the Company’s leverage ratio.

As of March 31, 2021, the Company had an outstanding principal balance of $ 160.0 million under the Term Loan Facility, from which $ 15 million is expected to have a maturity date in next twelve months.

As of March 31, 2021, the Company had no borrowings under the Revolving Credit Facility, therefore all $ 70.0 million remained available for borrowing.

Borrowings are secured by liens on substantially all of the Company’s real and personal property.

In addition to other customary covenants for a facility of this nature, as of September 30, 2020, the Company is required to maintain a Total Leverage Ratio (as defined in the Fourth Amended Credit Facility) of no more than 4.75 :1 and Fixed Charge Coverage Ratio (as defined in the Fourth Amended Credit Facility) of at least 1.15 :1.

As of September 30, 2020, the Company’s Total Leverage Ratio and Fixed Charge Coverage Ratio were 2.2 :1 and 9.1 :1.

The Fourth Amended Credit Facility added a new definition, “Operational Liquidity”, to the Amended Credit Facility.

Operational Liquidity as defined is, as of any date of determination, the amount by which (a) (i) the Unused Revolving Commitment as of such date, plus (ii) cash (including cage cash) as of such date exceeds (b) (i) $ 24,000,000 minus (ii) any retainage costs with respect to the expansion project and any settlement or judgment under the PCL Litigation paid in cash;

provided that from and after the expansion project completion date, the receipt of a final certificate of occupancy (or its local equivalent) for the expansion project and the final resolution or disposition of the PCL Litigation, the amount in this clause (b) shall be deemed to be zero .

The Borrowers shall not permit Operational Liquidity to be less than $ 25,000,000 at any time.

In addition, any borrowing under the Amended Credit Facility, greater than $ 51,000,000 shall be used solely to pay retainage costs with respect to the Expansion Project and any settlement or judgment under the PCL Litigation.

As of September 30, 2020, the Company’s Operational Liquidity were $ 76.5 million.

The interest rate under the Amended Credit Facility is LIBOR plus a margin ranging from 1.75 % to 3.25 %, or a base rate (as defined in the Fourth Amended Credit Facility) plus a margin ranging from 0.75 % to 2.25 %, or the Prime Rate.

In addition to other customary covenants for a facility of this nature, as of March 31, 2021, the Company is required to maintain a Total Leverage Ratio (as defined in the Fourth Amended Credit Facility) of no more than 4.75 :1 and Fixed Charge Coverage Ratio (as defined in the Fourth Amended Credit Facility) of at least 1.15 :1.

As of March 31, 2021, the Company’s Total Leverage Ratio and Fixed Charge Coverage Ratio were 2.1 :1 and 4.6 :1.

As of March 31, 2021, the interest rate under the Fourth Amended Credit Facility is LIBOR plus a margin ranging from 1.75 % to 3.25 %, or a base rate (as defined in the Fourth Amended Credit Facility) plus a margin ranging from 0.75 % to 2.25 %, or the Prime Rate.

The applicable margins vary depending on Company’s leverage ratio.

3 unchanged sentences

Once reduced or cancelled, the Revolving Credit Facility may not be increased or reinstated without the prior written consent of all lenders.

The Company believes that the $ 4.0 million cash in its interest-bearing money market fund and the $ 70.0 million available under its Amended Credit Facility as of September 30, 2020 will be sufficient to support its current operations, meet its debt obligations and fulfill its capital expenditure plans for the twelve months from filing of Form 10-Q for the quarter ended September 30, 2020;

During the first quarter of 2021, the Company made a $ 20.0 million optional prepayment on its Term Loan Facility in addition to a $ 2.5 million mandatory payment.

As of March 31, 2021, $ 142.5 million “Long-term debt, net” in the Company’s consolidated balance sheet represents the $ 160.0 million outstanding loan amount under the Fourth Amended Credit facility, net of $ 2.5 million unamortized debt issuance costs and $ 15.0 million mandatory principal payment that are due in next twelve months and are presented as “Current portion of long-term debt” in the Current liabilities section of the Company’s consolidated balance sheets.

The Company believes that the expected cash flows from operating activities and the $ 70.0 million available under its Fourth Amended Credit Facility as of March 31, 2021 will be sufficient to support its current operations, meet its debt obligations and fulfill its capital expenditure plans for the twelve months from filing of Form 10-Q for the quarter ended March 31, 2021;

however, the Company is surrounded by uncertainty about COVID-19 and the reopening of its operations, as well as financial, economic, competitive, regulatory, and other factors, many of which are beyond its control.

If the Company is unable to generate sufficient cash flow in the upcoming months or if its cash needs exceed the Company’s borrowing capacity under the Fourth Amended Credit Facility, it could be required to adopt one or more alternatives, such as reducing, delaying or eliminating planned capital expenditures, selling assets, restructuring debt or issuing additional equity.

For the nine months ended September 30, 2020 and 2019, the Company’s effective tax rate was 16.3 % and 19.6 %, respectively.

The low effective tax rate for the nine months ended September 30, 2020 was a result of the high weight of excess tax benefit on stock option exercises on the provision for income taxes, as the suspension of the operations in mid-March for about three months and continued negative effect of the COVID-19 pandemic resulted in reduced income before income tax for the nine-month period ended September 30, 2020.

For the three months ended March 31, 2021 and 2020, the Company’s effective tax rate was 15.6 % and 4.3 %, respectively.

The effective tax rate for the three months ended March 31, 2021 was a result of the excess tax benefit on stock option exercises The effective tax rate for the three months ended March 31, 2020 was a result of the high weight of tax credits and excess tax benefit on stock option exercises on the provision for income taxes, as the quarterly income was negatively impacted by the suspension of the operations in mid-March of 2020.

As of March 31, 2021, $ 23.4 million “Income taxes receivable” in the Company’s consolidated balance sheet represents the $ 24.9 million expected federal and state tax refund for 2020 tax year, net of $ 1.5 million provision for income tax for the first quarter of 2021.

Deferred tax assets were evaluated by considering historical levels of income, estimates of future taxable income and the impact of tax planning strategies.

No uncertain tax positions were recorded as of September 30, 2020 and 2019.

No uncertain tax positions were recorded as of March 31, 2021 and 2020.

No change in uncertain tax positions is anticipated over the next twelve months.

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On August 30, 2019, PCL Construction Services, Inc.

(“PCL”) filed a complaint in District Court, City and County of Denver, Colorado, against the Company and its Colorado subsidiaries, in connection with the Company’s expansion plans for Monarch Casino Black Hawk.

(“PCL”) filed a complaint in District Court, City and County of Denver, Colorado, against the Company and its Colorado subsidiaries, in connection with the Company’s expansion plans for Monarch Casino Resort Spa Black Hawk.

The complaint alleges, among other things, the defendants breached the construction contract with PCL and certain implied warranties.

On December 5, 2019, the Company filed its answer and counterclaim, which alleges, among other items, that PCL breached the construction contract, duties of good faith and fair dealing, and implied and express warranties, made fraudulent or negligent misrepresentations on which the Company and its Colorado subsidiaries relied, and included claims for monetary damages as well as equitable and declaratory relief.

The court has set a trial date for May 17, 2021.

The trial date for this matter has been rescheduled for March 21, 2022.

Discovery in the action is ongoing, and we are currently unable to determine the probability of the outcome or reasonably estimate the loss or gain, if any.

The Company recognized $ 0.5 million and $ 0.8 million in construction litigation expense relating to this lawsuit for the three and nine months ended September 30, 2020, respectively, which are included in Other operating items, net on the Consolidated Statements of Operations.

In connection with the expansion of the Monarch Black Hawk described above, our general contractor PCL and certain subcontractors have provided Monarch with purported notice of their intent to file a lien against the real property on which the Monarch Black Hawk is situated, for sums allegedly owed for construction of the expansion.

Some of the subcontractors have recorded such liens in the property records of Gilpin County, Colorado.

On March 26, 2021, PCL filed a mechanics’ lien foreclosure action in District Court, County of Gilpin, Colorado, against the Company and its Colorado subsidiaries, in connection with the Company’s expansion plans for Monarch Casino Resort Spa Black Hawk.

The complaint essentially mirrors the claims and allegations made by PCL in the lawsuit it previously filed in the City and County of Denver, Colorado, as described above.

The new lawsuit includes an additional claim, however, for foreclosure of PCL’s purported mechanics’ lien against the property on which the Monarch Casino Resort Spa Black Hawk is situated (the “Property”).

PCL also joined additional parties who may claim a purported lien against the Property, as is typical.

On April 16, 2021, PCL filed an amended complaint, joining more such parties.

Because PCL’s mechanics’ lien action in the County of Gilpin mirrors the claims and allegations in the action PCL filed in the City and County of Denver, Monarch filed a motion to consolidate both actions into one action in the County of Gilpin.

The motion was filed on April 19, 2021, before the Colorado Panel on Consolidated Multidistrict Litigation.

The Panel has set the motion for hearing on June 11, 2021.

Monarch has not yet filed an answer or otherwise responded to PCL’s amended complaint, nor has a trial of the matter been set.

Monarch intends to defend against PCL’s claim and seek to expunge or reduce the liens.

The Company recognized $ 0.6 million and $ 0.2 million in construction litigation expense relating to this lawsuit for the three months ended March 31, 2021 and 2020, respectively, which are included in Other operating items, net on the Consolidated Statements of Operations.

From time to time, we may be subject to other legal proceedings and claims in the ordinary course of business.

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however, the outcome of these actions is inherently difficult to predict.

SUBSEQUENT EVENT

The Company entered into an amendment to the Fourth Amended Credit Facility with an effective date of April 30, 2021.

Based on the amendment the Company is required to maintain a Total Leverage Ratio of no more than 4.00 :1.00.

The amendment removes the requirement for 0.50 % LIBOR floor.

As of the effective date of this amendment, the interest rate is LIBOR plus a margin ranging from 1.00 % to 2.00 %, or a base rate (as defined in the Fourth Amended Credit Facility) plus a margin ranging from 0.00 % to 1.00 %, or the Prime Rate.

The applicable margins vary depending on the Company’s leverage ratio.

Commitment fees are equal to the daily average unused revolving commitment multiplied by the commitment fee percentage, ranging from 0.175 % to 0.325 %, based on our leverage ratio.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.