What changed in this filing

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Item 1. Financial Statements

2022-11-04 compared with 2022-08-05 · 69 added, 56 removed, 315 unchanged (28% of the section changed)

5 unchanged sentences

Three months ended

Six months ended

Nine months ended

September 30,

Food and beverage

17 unchanged sentences

(In thousands, except shares)

June 30, 2022

September 30, 2022

December 31, 2021

9 unchanged sentences

Current liabilities

Current portion of long-term debt

Current maturities of long-term debt, net

Accounts payable

11 unchanged sentences

19,096,300 shares issued;

18,888,070 outstanding at June 30, 2022;

18,894,736 outstanding at September 30, 2022;

18,764,540 outstanding at December 31, 2021

Additional paid-in capital

Treasury stock, 208,230 shares at June 30, 2022;

Treasury stock, 201,564 shares at September 30, 2022;

331,760 shares at December 31, 2021

17 unchanged sentences

Balance, June 30, 2022

Exercise of stock options, net

Stock-based compensation expense

Balance, September 30, 2022

Balance, January 1, 2021

5 unchanged sentences

Balance, June 30, 2021

Exercise of stock options, net

Stock-based compensation expense

Balance, September 30, 2021

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

3 unchanged sentences

(In thousands, Unaudited)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities:

5 unchanged sentences

Provision for bad debts

Gain on disposition of assets

Loss on disposition of assets

Non-cash operating lease expense

3 unchanged sentences

Prepaid expenses

Right of use asset, net

Accounts payable

23 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

QUARTERLY PERIOD ENDED JUNE 30, 2022

QUARTERLY PERIOD ENDED SEPTEMBER 30, 2022

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

17 unchanged sentences

In the opinion of the management of the Company, all adjustments considered necessary for a fair presentation, consisting of normal recurring accruals, are reflected in the interim financial statements.

Operating results for the three and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

The balance sheet at December 31, 2021, 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.

21 unchanged sentences

Historically, the Company has not incurred any significant credit-related losses.

As of June 30, 2022, the Company has recorded a reserve of $ 0.1 million for gaming and non-gaming receivables.

As of September 30, 2022, the Company has recorded a reserve of $ 0.2 million for gaming and non-gaming receivables.

The Company believes it is not exposed to any significant credit risk on cash and accounts receivable.

4 unchanged sentences

Property and equipment, net consists of the following (in thousands):

June 30, 2022

September 30, 2022

December 31, 2021

20 unchanged sentences

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 and six months periods ended June 30, 2022 and 2021, respectively, there were no impairment charges.

For the three- and nine- months periods ended September 30, 2022 and 2021, respectively, there were no impairment charges.

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

2 unchanged sentences

Impairment testing for goodwill is performed at the reporting unit level, and each of the Company’s casino properties is considered to be a reporting unit.

As of June 30, 2022, we had goodwill totaling $ 25.1 million related to the purchase of Monarch Black Hawk, Inc.

As of September 30, 2022, we had goodwill totaling $ 25.1 million related to the purchase of Monarch Black Hawk, Inc.

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

3 unchanged sentences

Costs incurred in connection with the issuance of long-term debt are amortized to interest expense over the term of the related debt agreement utilizing the effective interest rate method.

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

As of June 30, 2022, debt issuance costs, net of amortization, were $ 1.2 million.

Unamortized amounts of debt issuance costs are recorded as a reduction of the outstanding debt.

As of September 30, 2022, debt issuance costs, net of amortization, were $ 0.8 million and included in “Current maturities of long-term debt, net”.

Revenue Recognition:

15 unchanged sentences

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 June 30, 2022, 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.

As of September 30, 2022, the Company had estimated the obligations related to the players’ club program at $ 9.5 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:

11 unchanged sentences

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

For the three months ended June 30, 2022, Other operating items, net, was $ 2.2 million and primarily represented professional service fees relating to our construction litigation of $ 2.4 million, offset by gain on disposal of assets and litigation proceeds of $ 0.2 million.

For the three months ended June 30, 2021, Other operating items, net, was $ 0.8 million and primarily represented professional services fees relating to our construction litigation.

For the six months ended June 30, 2022, Other operating items, net, was $ 3.5 million and primarily represented professional service fees relating to our construction litigation of $ 3.7 million, offset by gain on disposal of assets and litigation proceeds of $ 0.2 million.

For the six months ended June 30, 2021, Other operating items, net, was $ 1.6 million and primarily represented professional services fees relating to our construction litigation of $ 1.5 million and $ 0.1 million in 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 September 30, 2022, Other operating items, net, was $ 2.9 million and represented professional service fees relating to our construction litigation of $ 2.8 million, and loss on disposal of assets of $ 0.1 million.

For the three months ended September 30, 2021, Other operating items, net, was $ 1.2 million and included:

$ 1.5 million of professional services relating to our construction litigation and $ 0.1 million loss on disposal of assets, offset by $ 0.3 million of litigation proceeds and $ 0.1 million of insurance claims proceeds.

For the nine months ended September 30, 2022, Other operating items, net, was $ 6.4 million and primarily represented professional service fees relating to our construction litigation.

For the nine months ended September 30, 2021, Other operating items, net, was $ 2.8 million and primarily included:

$ 3.0 million of professional services relating to our construction litigation, $ 0.1 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 loss on disposal of assets, offset by $ 0.3 million of litigation proceeds and $ 0.1 million of insurance claims proceeds.

Impact of Recently Adopted Accounting Standards:

4 unchanged sentences

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

As of June 30, 2022, the Company’s right of use assets consisted of the Parking Lot Lease, the Driveway Lease (each as defined and discussed in NOTE 5.

As of September 30, 2022, the Company’s right of use assets consisted of the Parking Lot Lease, the Driveway Lease (each 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 June 30, 2022 was 4.34 %.

There were no new leases entered into in the second quarter of 2022.

The weighted-average remaining lease term of the leases presented in the lease liability as of June 30, 2022 was 20.1 years.

Cash paid related to the operating leases presented in the lease liability for each of the six months ended June 30, 2022 and 2021, was $ 0.7 million.

The weighted-average incremental borrowing rate of the leases presented in the lease liability as of September 30, 2022, was 4.34 %.

There were no new leases entered into in the third quarter of 2022.

The weighted-average remaining lease term of the leases presented in the lease liability as of September 30, 2022, was 20 years.

Cash paid related to the operating leases presented in the lease liability for each of the nine months ended September 30, 2022 and 2021, was $ 1.0 million and $ 1.1 million respectively.

STOCK-BASED COMPENSATION

3 unchanged sentences

Three months ended

Six months ended

Nine months ended

September 30,

Food and beverage

6 unchanged sentences

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 June 30,

Three months ended September 30,

Effect of dilutive stock options

Six months ended June 30,

Nine months ended September 30,

Effect of dilutive stock options

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

For the three months ended June 30, 2022 and 2021, options for approximately 527 thousand and 235 thousand shares, respectively, were excluded from the computation.

For the six months ended June 30, 2022 and 2021, options for approximately 521 thousand and 199 thousand shares, respectively, were excluded from the computation.

For the three months ended September 30, 2022 and 2021, options for approximately 592 thousand and 316 thousand shares, respectively, were excluded from the computation.

For the nine months ended September 30, 2022 and 2021, options for approximately 538 thousand and 239 thousand shares, respectively, were excluded from the computation.

RELATED PARTY TRANSACTIONS

4 unchanged sentences

Until May 2006, Ben Farahi held the positions of Co-Chairman of the Board, Secretary, Treasurer and Chief Financial Officer of the Company.

On August 28, 2015, Monarch, through its subsidiary Golden Road Motor Inn, Inc., entered into a 20-year lease agreement with BLI for a portion of the Shopping Center, consisting of an approximate 46,000 square-foot commercial building on approximately 4.2 acres of land adjacent to the Atlantis (the “Parking Lot Lease”).

This lease gives the Atlantis the right to use a parcel, approximately 4.2 acres, comprised of a commercial building and surrounding land adjacent to the Atlantis.

On August 28, 2015, Monarch, through its subsidiary Golden Road Motor Inn, Inc., entered into a 20-year lease agreement with BLI for a portion of the Shopping Center (the “Parking Lot Lease”).

This lease gives the Atlantis the right to use a parcel, approximately 4.2 acres, adjacent to the Atlantis.

The primary purpose of the Parking Lot Lease is to provide additional, convenient, Atlantis surface parking.

The Company demolished the building and converted the land into approximately 300 additional surface parking spaces for the Atlantis.

The minimum annual rent under the Parking Lot Lease is $ 695 thousand commencing on November 17, 2015.

3 unchanged sentences

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

For the three-month periods ended June 30, 2022 and 2021, the Company paid $ 187 thousand and $ 174 thousand in rent, respectively, plus $ 1 thousand in operating expenses in each period relating to this lease for each of the periods.

For the six-month periods ended June 30, 2022 and 2021, the Company paid $ 374 and $ 348 thousand in rent, respectively, plus $ 8 thousand in each period in operating expenses relating to this lease.

The right of use asset and lease liability balances as of June 30, 2022, recognized in the Consolidated Balance Sheet, was $ 10.1 million.

For the three-month periods ended September 30, 2022 and 2021, the Company paid $ 187 thousand and $ 174 thousand in rent, respectively, plus $ 14 thousand and $ 13 thousand, respectively, in operating expenses relating to this lease.

For the nine-month periods ended September 30, 2022 and 2021, the Company paid $ 561 and $ 522 thousand in rent, respectively, plus $ 22 thousand and $ 21 thousand, respectively, in operating expenses relating to this lease.

The right of use asset and lease liability balances as of September 30, 2022, recognized in the Consolidated Balance Sheet, was $ 10.1 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.

5 unchanged sentences

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

For each of the three-month periods ended June 30, 2022 and 2021, the Company paid $ 101 thousand in rent plus $ 7 thousand and $ 5 thousand, respectively, in operating expenses relating to this lease.

For each of the six-month periods ended June 30, 2022 and 2021, the Company paid $ 202 thousand in rent plus $ 16 thousand and $ 13 thousand, respectively, in operating expenses relating to this lease.

The right of use asset and lease liability balances as of June 30 , 2022, recognized in the Consolidated Balance Sheet, was $ 3.6 million.

The Company occasionally leases billboard advertising, storage space and parking lot space from affiliates controlled by the Farahi Family Stockholders, and paid $ 123 thousand and $ 52 thousand, respectively, for the three-month periods and $ 204 thousand and $ 94 thousand, respectively, for the six-month periods ended June 30, 2022 and 2021, for such leases.

For each of the three-month periods ended September 30, 2022 and 2021, the Company paid $ 101 thousand in rent plus $ 12 thousand in operating expenses relating to this lease.

For each of the nine-month periods ended September 30, 2022 and 2021, the Company paid $ 303 thousand in rent plus $ 28 thousand and $ 25 thousand, respectively, in operating expenses relating to this lease.

The right of use asset and lease liability balances as of September 30 , 2022, recognized in the Consolidated Balance Sheet, was $ 3.5 million.

The Company occasionally leases billboard advertising, storage space and parking lot space from affiliates controlled by the Farahi Family Stockholders, and paid $ 121 thousand and $ 57 thousand, respectively, for the three-month periods and $ 325 thousand and $ 151 thousand, respectively, for the nine-month periods ended September 30, 2022 and 2021, for such leases.

LONG-TERM DEBT

2 unchanged sentences

The maturity date of the Amended Credit Facility is September 3, 2023.

The Amended Credit Facility increases the aggregate principal amount of the credit facilities to $ 270 million.

The Amended Credit Facility increased the aggregate principal amount of the credit facilities to $ 270 million.

The $ 270 million Amended Credit Facility consists of:

a $ 200 million term loan (“Term Loan Facility”) and a $ 70 million revolving credit facility (“Revolving Credit Facility”), with an option to increase the Revolving Credit Facility by up to an additional $ 75 million.

As of June 30, 2022, the Company had an outstanding principal balance of $ 65 million under the Term Loan Facility, a $ 0.6 million letter of credit and no borrowings under the Revolving Credit Facility;

As of September 30, 2022, the Company had an outstanding principal balance of $ 27 million under the Term Loan Facility, a $ 0.6 million letter of credit and no borrowings under the Revolving Credit Facility;

$ 69.4 million remained available for borrowing.

The entire outstanding principal balance is due in the next twelve months.

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 million.

The estimated amount of the mandatory principal payments due in the next twelve months is $ 20 million.

Commencing with the delivery of the compliance certificate for fiscal year 2022, the Company may be required to prepay borrowings under the Amended Credit Facility using excess cash flows for each fiscal year, depending on the Company’s leverage ratio.

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 June 30, 2022, the Company is required to maintain a Total Leverage Ratio (as defined in the Amended Credit Facility) of no more than 4.5 :1 and Fixed Charge Coverage Ratio (as defined in the Amended Credit Facility) of at least 1.15 :1.

As of June 30, 2022, the Company’s Total Leverage Ratio and Fixed Charge Coverage Ratio were 0.4 :1 and 3.6 :1, respectively.

In addition to other customary covenants for a facility of this nature, as of September 30, 2022, the Company is required to maintain a Total Leverage Ratio (as defined in the Amended Credit Facility) of no more than 4.0 :1 and Fixed Charge Coverage Ratio (as defined in the Amended Credit Facility) of at least 1.15 :1.

As of September 30, 2022, the Company’s Total Leverage Ratio and Fixed Charge Coverage Ratio were 0.2 :1 and 3.8 :1, respectively.

The interest rate under the Amended Credit Facility is LIBOR plus a margin ranging from 1.00 % to 2.00 %, or a base rate (as defined in the Amended Credit Facility) plus a margin ranging from 0.00 % to 1.00 %, or the Prime Rate.

1 unchanged sentence

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.

As of June 30, 2022, the interest rate on the Term Loan Facility was 2.67 %, or LIBOR plus a 1.00 % margin.

As of September 30, 2022, the interest rate on the Term Loan Facility was 4.12 %, or LIBOR plus a 1.00 % margin.

On the terms and subject to some conditions, the Company may, at any time before the maturity date, request an increase of the Revolving Credit Facility, provided that each such increase is equal to $ 15 million or an integral multiple of $ 1 million in excess and, after giving effect to the requested increase, the aggregate amount of the increases in the total revolving loan commitment shall not exceed $ 75 million.

1 unchanged sentence

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

During the first six months of 2022, the Company made $ 15 million in optional prepayments on its Term Loan Facility in addition to $ 10 million in mandatory payments.

As of June 30, 2022, the $ 43.8 million “Long-term debt, net” in the Company’s consolidated balance sheet represents the $ 65.0 million outstanding loan amount under the Amended Credit Facility, net of $ 1.2 million unamortized debt issuance costs and $ 20.0 million mandatory principal payments that are due in the next twelve months and presented as “Current portion of long-term debt” in the Current liabilities section of the Company’s consolidated balance sheet.

For the six months ended June 30, 2022 and 2021, the Company’s effective tax rate was 17.8 % and 18.2 %, respectively.

The effective tax rate for the six months ended June 30, 2022 and 2021 was impacted by excess tax benefit on stock option exercises.

As of June 30, 2022, the $ 28.3 million “Income taxes receivable” in the Company’s consolidated balance sheet includes $ 26.9 million expected federal and state tax refunds for 2020 and 2021 tax years.

During the first nine months of 2022, the Company made $ 48 million in optional prepayments on its Term Loan Facility in addition to $ 15 million in mandatory payments.

As of September 30, 2022, $ 26.2 million, representing $ 27.0 million outstanding loan amount under the Amended Credit Facility, net of $ 0.8 million unamortized debt issuance costs, is presented in the Current liabilities section of the Company’s consolidated balance sheet as “Current maturities of long-term debt”.

For the nine months ended September 30, 2022 and 2021, the Company’s effective tax rate was 19.8 % and 19.4 %, respectively.

The effective tax rate for the nine months ended September 30, 2022 and 2021 was impacted by excess tax benefit on stock option exercises.

As of September 30, 2022, the $ 24.6 million “Income taxes receivable” in the Company’s consolidated balance sheet includes $ 26.9 million expected federal and state tax refunds for 2020 and 2021 tax years.

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 June 30, 2022 and 2021.

No uncertain tax positions were recorded as of September 30, 2022 and 2021.

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

5 unchanged sentences

On January 19, 2022, under the authority of the Repurchase Plan, the Company purchased 100,000 shares for $ 6.5 million in a privately negotiated transaction.

As of June 30, 2022, we have an authorization to purchase up to 2,900,000 shares under the Repurchase Plan.

As of September 30, 2022, we have an authorization to purchase up to 2,900,000 shares under the Repurchase Plan.

LEGAL MATTERS

3 unchanged sentences

On December 5, 2019, the Company and its Colorado subsidiaries filed an 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 trial date for this matter has been rescheduled and is now set for September 6, 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.

On September 1, 2022, the judge previously assigned to the Denver Action recused herself, resulting in a continuance of the trial then set for September 6, 2022, and reassignment to another courtroom.

Following reassignment, the court set a new trial date of September 5, 2023.

Limited discovery and disputes regarding the scope of discovery remaining are ongoing, and we are currently unable to determine the probability of the outcome or reasonably estimate the loss or gain, if any.

In connection with the expansion of the Monarch Black Hawk, as described above, PCL and certain subcontractors have provided purported notice of liens filed against the real property on which the Monarch Black Hawk is situated (the “Monarch Black Hawk Property”), for sums allegedly owed for construction of the expansion.

10 unchanged sentences

The case remains stayed pending the outcome of the Denver Action.

The Company recognized $ 3.7 million and $ 1.5 million in construction litigation expense relating to these lawsuits for the six months ended June 30, 2022 and 2021, respectively, which is included in Other operating items, net on the Consolidated Statements of Income.

The Company recognized $ 6.5 million and $ 3.0 million in construction litigation expense relating to these lawsuits for the nine months ended September 30, 2022 and 2021, respectively, which is included in Other operating items, net on the Consolidated Statements of Income.

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

2 unchanged sentences

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.

What changed 10-Q

Item 1. Financial Statements