STATEMENT ON FORWARD-LOOKING INFORMATION
When used in this report and elsewhere by management from time to time, the
words "believes", "anticipates" and "expects" and similar expressions are
intended to identify forward-looking statements with respect to our financial
condition, results of operations and our business including our expansion,
construction timelines, development activities, legal proceedings and employee
matters. Certain important factors, including, but not limited to, competition
from other gaming operations, factors affecting our ability to compete,
acquisitions of gaming properties, legalization of additional gaming operations
in our markets, leverage, construction risks, the inherent uncertainty and costs
associated with litigation and governmental and regulatory investigations, and
licensing and other regulatory risks, could cause our actual results to differ
materially from those expressed in our forward-looking statements. Any changes
in the law that would permit the establishment of gaming operations in or near
Denver could materially impact Monarch Casino Black Hawk operations and could
alter, delay or cause us to reconsider our master development plan to expand our
Monarch Casino Black Hawk property. Further information on potential factors
which could affect our financial condition, results of operations and business
including, without limitation, our expansion, development activities, legal
proceedings and employee matters, are included in our filings with the
Securities and Exchange Commission. Readers are cautioned not to place undue
reliance on any forward-looking statements, which speak only as of the date
thereof. We undertake no obligation to publicly release any revisions to such
forward-looking statement to reflect events or circumstances after the date
hereof.
Monarch Casino & Resort, Inc. ( "Monarch" or "Company"), through its direct and
indirect wholly-owned subsidiaries, Golden Road Motor Inn, Inc., Monarch Growth
Inc. ("Monarch Growth"), Monarch Black Hawk, Inc. ("Monarch Black Hawk"), High
Desert Sunshine, Inc., Golden North, Inc., Golden East, Inc., Chicago Dogs
Eatery, Inc. and Monarch Promotional Association, owns and operates the Atlantis
Casino Resort Spa, a hotel/casino facility in Reno, Nevada (the "Atlantis"), the
Monarch Casino Black Hawk in Black Hawk, Colorado, and certain real estate
proximate to the Atlantis and Monarch Casino Black Hawk.
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Unless otherwise indicated, "Monarch," "Company," "we," "our" and "us" refer to
Monarch Casino & Resort, Inc. and its subsidiaries.
OPERATING RESULTS SUMMARY
Our operating results may be affected by, among other things, competitive
factors, gaming tax increases, the commencement of new competitive gaming
operations, construction at our facilities, general public sentiment regarding
travel, overall economic conditions and governmental policies affecting the
disposable income of our patrons and weather conditions affecting our
properties.
The following significant factors and trends should be considered in analyzing
our operating performance:
Atlantis: Our business strategy is to maximize revenues, operating income and
cash flow primarily through our casino, food and beverage operations and hotel
operations. During the recessionary periods of 2008 and 2009 and after, we
expanded and upgraded the facility. With quality gaming, hotel and dining
products, we believe the Atlantis is well positioned to benefit from future
macro and local economic growth. Several national businesses have announced
plans to expand or relocate operations to Northern Nevada. While such economic
activity could ultimately drive additional revenue and profit at Atlantis, we
are experiencing the more immediate effect of increased labor costs which,
combined with continued aggressive marketing programs by our competitors, have
applied upward pressure on Atlantis operating costs.
Monarch Casino Black Hawk: Since the acquisition of Monarch Casino Black Hawk
in April 2012, our focus has been to maximize casino and food and beverage
revenues while upgrading the existing facility and laying the groundwork for the
major expansion that we plan. There is currently no hotel on the property. In
October 2012, we began a project to redesign and upgrade the existing Monarch
Casino Black Hawk facility. In September 2013, we opened a new buffet, which was
an important step in our ongoing process of redesigning and upgrading the
existing Monarch Casino Black Hawk facility. In December 2013, we began a
project to remodel and upgrade the casino. To minimize disruption, we staged the
work in three equal phases. The first phase was completed and opened in
August 2014. The second phase was completed and opened in March 2015 and the
final phase was completed and opened in August 2015. In the fourth quarter of
2013, we began work on a multi-phased expansion of the Monarch Casino Black
Hawk, which involves construction of a new parking structure, demolition of the
existing parking structure and followed by construction of a new hotel tower and
casino expansion on the site where the existing parking structure currently sits
(see "Master Planned Expansion of the Monarch Casino Black Hawk"). The planned
nine-story parking structure will increase total parking on site from
approximately 500 spaces to approximately 1,500 spaces. Once completed, the
Monarch Casino Black Hawk expansion will nearly double the casino space and will
add a 23-story hotel tower with approximately 500 guest rooms and suites, an
upscale spa and pool facility, three additional restaurants (increasing the
total to four), additional bars, a new parking structure and associated support
facilities. We currently expect completion of the entire expansion in the first
quarter of 2019.
CAPITAL SPENDING AND DEVELOPMENT
We seek to continuously upgrade and maintain our facilities in order to present
a fresh, high quality product to our guests.
Capital expenditures for the each of the six-month periods ended June 30, 2016
and 2015 totaled approximately $14.8 million. During the six month period ended
June 30, 2016, our capital expenditures related primarily to the major redesign
and upgrade of the Toucan Charlie's Buffet, improvements to new additional
parking spaces at Atlantis, continued work on the new garage structure at
Monarch Casino Black Hawk as well as acquisition of gaming equipment to upgrade
and replace existing equipment in the Atlantis and Monarch Casino Black Hawk.
During the six month period ended June 30, 2015, our capital expenditures
related primarily to the redesign and upgrade of the Monarch Casino Black Hawk
facility as well as acquisition of gaming equipment to upgrade and replace
existing equipment in the Atlantis and the Monarch Casino Black Hawk.
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Master Planned Expansion of the Monarch Black Hawk
The Company has a master plan to expand and convert the Monarch Casino Black
Hawk into a full-scale casino resort (the "Black Hawk Expansion Plan").
In October 2012, we began an extensive redesign and upgrade of the existing
facility at Monarch Casino Black Hawk. We have upgraded the property's food and
beverage operations (including an all-new buffet) and completed the redesign and
upgrade of the existing casino floor. Our plans also call for the exterior of
the existing facility to be refinished to match the master planned expansion
which is expected to cost approximately $16-$18 million and is expected to be
funded primarily from operating cash flow.
We have also begun work on the Black Hawk Expansion Plan. The excavation and
foundation work for the facility's new parking structure has been completed and
construction of the new parking structure is well underway. The new 9-story
parking structure will increase on-site parking from approximately 500 spaces to
approximately 1,500 spaces. Construction of the new parking structure began in
the first quarter of 2015 and construction is anticipated to be completed in the
third quarter of 2016. Upon completion of the new parking structure, the
existing parking structure will be razed to make room for the new hotel tower
and casino expansion. The remaining cost of the parking structure-related work
is expected to be approximately $3-$6 million, which we expect to fund primarily
from operating cash flow and, to a lesser extent, from our Amended Credit
Facility.
We expect to begin construction of the new hotel tower and casino expansion
during the first quarter of 2017. The new 23-story tower will nearly double the
existing casino space and will include approximately 500 hotel rooms, an upscale
spa and pool facility, three additional restaurants and additional bars. Tower
floors will be opened as they are finished beginning with the casino expansion
and additional restaurants. We currently expect completion of the entire tower
in the first quarter of 2019 at a total cost of approximately $229-$234 million.
The cost is expected to be financed through a combination of operating cash flow
and funds from the $250-million Amended Credit Facility, which the Company
secured on July 20, 2016.
RESULTS OF OPERATIONS
Comparison of Operating Results for the Three-Month Periods Ended June 30, 2016
and 2015
For the three months ended June 30, 2016, our net income totaled $5.7 million,
or $0.32 per diluted share, compared to net income of $5.1 million, or $0.29 per
diluted share for the same period in 2015, reflecting an 11.7% increase in net
income and a 10.3% increase in diluted earnings per share. Net revenues totaled
$54.6 million in the second quarter of 2016, an increase of $4.6 million
compared to the second quarter of 2015. Income from operations for the three
months ended June 30, 2016 totaled $8.9 million compared to $8.0 million for the
same period in 2015.
Casino revenue increased 8.9% in the second quarter of 2016 compared to the
second quarter of 2015. Casino operating expense as a percentage of casino
revenue decreased from 42.1% in the second quarter of 2015 to 41.5% in the same
quarter of 2016 primarily as a result of the increase in casino revenue combined
with operating cost efficiencies.
Food and beverage revenue for the second quarter of 2016 increased 11.2% over
the second quarter of 2015, due to a 6.7% increase in average revenue per cover
and a 4.2% increase in covers. Food and beverage operating expense as a
percentage of food and beverage revenue increased in the second quarter of 2016
to 41.2% compared to 39.5% for the same period in 2015 primarily as a result of
higher salaries and wages expense.
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Hotel revenue increased 3.5% due to a higher average daily room rate ("ADR") of
$82.93 in the second quarter of 2016 compared to $79.45 in the second quarter of
2015 offset by a slightly lower hotel occupancy of 89.2% during the second
quarter of 2016 compared to 90.3% during the second quarter of 2015. Revenue per
Available Room ("REVPAR"), calculated by dividing total room revenue (less
service charges, if any) by total rooms available, was $80.47 and $77.73 for the
three months ended June 30, 2016 and 2015, respectively. Hotel operating expense
as a percentage of hotel revenue increased to 30.9% in the second quarter of
2016 as compared to 28.8% for the comparable prior year period primarily due to
higher salaries and wages expense.
Other revenue increased 6.0% in the second quarter of 2016 compared to the
second quarter of 2015 driven primarily by increased arcade, spa and retail
revenue.
Promotional allowances as a percentage of gross revenues decreased to 17.8%
during the second quarter of 2016 compared to 18.0% in the comparable 2015
quarter. This decrease was primarily due to higher revenues.
Selling, General and Administrative ("SG&A") expense increased to $14.5 million
in the second quarter of 2016 from $13.3 million in the second quarter of 2015
primarily due to higher salaries, wages and benefits expenses, higher rental
expenses from the parking lot lease at Atlantis (see Note 5 "Related Party
Transactions") and higher marketing expenses. As a percentage of net revenue,
SG&A expense was flat at 26.6%.
Depreciation and amortization expense decreased to $3.8 million for the three
months ended June 30, 2016 as compared to $4.1 million for the three months
ended June 30, 2015 primarily as a result of a decrease in monthly depreciation
expense of the existing parking structure following the revision in the expected
date of early removal of the parking structure from service in relation to the
Monarch Black Hawk expansion project.
Interest expense, net of amounts capitalized decreased to $60 thousand in the
second quarter of 2016 from $181 thousand in the second quarter of 2015 as a
result of lower average outstanding borrowings in the second quarter of 2016
compared to the second quarter of 2015.
In the second quarter of 2016, the Company completed the hotel towers' doors
replacement capital project at the Atlantis and as a result, the Company wrote
off the remaining net book value of the existing doors, incurring a $0.6 million
loss on the disposal.
Comparison of Operating Results for the Six-Month Periods Ended June 30, 2016
and 2015
For the six months ended June 30, 2016, our net income totaled $10.3 million, or
$0.58 per diluted share, compared to net income of $9.1 million, or $0.53 per
diluted share, for the same period in 2015, reflecting a 12.3% increase in net
income and 9.4% increase in diluted earnings per share. Net revenues totaled
$104.3 million in the six month period of 2016, reflecting an increase of $7.1
million, or 7.3%, compared to the same period in 2015. Income from operations
for the six months ended June 30, 2016 totaled $16.1 million compared to $14.5
million for the same period in 2015, representing an increase of $1.6 million or
10.9%.
Casino revenue increased 7.6% in the first six months of 2016 compared to the
first six months of 2015. Casino operating expense as a percentage of casino
revenue decreased to 42.5% in the first six months of 2016, compared to 42.9% in
the first six months of 2015 due to higher casino revenue.
Food and beverage revenue for the first six months of 2016 increased 7.0% over
the first six months of 2015, due to a 4.7% increase in average revenue per
cover and 2.2% increase in covers despite Toucan Charlie's Buffet at Atlantis
being closed for 70 days during the first quarter of 2016 for a major redesign
and upgrade. The average revenue per cover increased primarily as a result of
price increases at the Toucan Charlie's Buffet relative to the improved quality
and increased menu item offerings. Food and beverage operating expense as a
percentage of food and beverage revenue increased in the first six months of
2016 to 42.1% compared to 39.7% for the prior year same period. This increase
was primarily the result of the repair and maintenance expenses related to the
Atlantis buffet redesign and upgrade and an increase in salaries and wages
expense.
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Hotel revenue increased 5.4% due to an increase in ADR to $78.58 in the first
six months of 2016 from $74.58 in the first six months of 2015, partially offset
by slightly lower occupancy of 86.0% during the first six months of 2016
compared to 86.9% during the first six months of 2015. REVPAR was $74.26 and
$70.84 for the six months ended June 30, 2016 and 2015, respectively. Hotel
operating expense as a percentage of hotel revenue increased to 31.2% in the
first six months of 2016 as compared to 30.2% for the comparable prior year
period due to higher payroll and related expenses.
Other revenue increased 4.4% in the first six months of 2016 compared to the
first six months of 2015 driven primarily by increased arcade, spa and retail
revenues.
Promotional allowances as a percentage of gross revenues decreased to 18.1%
during the first six months of 2016 compared to 18.3% in the comparable 2015
period primarily as a result of the increase in gross revenues.
SG&A expense increased by $1.8 million to $27.7 million in the first six months
of 2016 primarily due to: (i) a $1.1 million increase in salaries and wages
expense; (ii) a $0.3 million increase in rental expense from the parking lot
lease at Atlantis (see Note 5. "Related Party Transactions"); (iii) $0.2 million
higher repair and maintenance expense, and (iv) a $0.2 million increase in
marketing expense. As a percentage of net revenue, SG&A expense slightly
decreased to 26.5% in the first six months of 2016 from 26.6% in the first six
months of 2015.
Depreciation and amortization expense decreased to $7.5 million for the six
months ended June 30, 2016 as compared to $8.2 million for the six months ended
June 30, 2015 primarily as a result of a decrease in monthly depreciation
expense of the Monarch Casino Black Hawk parking structure following the
revision in the expected date of early removal of the parking structure from
service in relation to the Monarch Black Hawk expansion project.
Interest expense, net of amounts capitalized decreased to $145 thousand in the
first six months of 2016 from $400 thousand in the first six months of 2015
primarily as a result of lower average outstanding borrowings.
Liquidity and Capital Resources
For the six months ended June 30, 2016, net cash provided by operating
activities totaled $17.1 million, an increase of $2.2 million or 15.0% compared
to the same period in the prior year. This increase was primarily the result of
$1.2 million in cash provided by the change in working capital, a $1.1 million
increase in net income and $0.6 million loss on disposal of assets, partially
offset by a $0.7 million decrease in depreciation expense.
Net cash used in investing activities totaled $14.8 million and $14.7 million in
the six months ended June 30, 2016 and 2015, respectively. Net cash used in
investing activities during the first six months of 2016 consisted primarily of
cash used for the new garage building at Monarch Casino Black Hawk, the redesign
and upgrade of Toucan Charlie's Buffet at the Atlantis, improvements to new
additional parking spaces at Atlantis, and for acquisition of gaming and other
equipment at both properties. Net cash used in investing activities during the
first six months of 2015 consisted primarily of cash used for the ongoing
redesign and upgrade work at Monarch Casino Black Hawk, and acquisition of
gaming and other equipment at both properties.
Net cash used in financing activities during the first six months of 2016 was
$4.2 million and represents $5.9 million payments made on the Credit Facility
offset by $1.7 million proceeds from stock options exercises, including excess
tax benefit from exercise of stock options. Net cash used in financing
activities during the first six months of 2015 was $1.9 million and represented
$4.1 million in payments made on the Credit Facility offset by $2.2 million in
proceeds from exercise of stock options, including excess tax benefit from
options exercised.
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As of June 30, 2016, we had $45.5 million maximum principal available under the
Credit Facility, of which $35.0 million was drawn. The proceeds from the Credit
Facility were utilized to finance the acquisition of Monarch Casino Black Hawk
and the availability under the Credit Facility may also be used for working
capital needs, general corporate purposes and for ongoing capital expenditure
requirements. We had $10.5 million remaining available credit on the Credit
Facility as of June 30, 2016.
The maximum principal available under the Credit Facility is reduced by $1.5
million per quarter beginning June 1, 2013. We may permanently reduce the
maximum principal available at any time so long as the amount of such reduction
is at least $0.5 million and in multiples of $50,000. During the second quarter
of 2015, we permanently reduced the amount available under the Credit Facility
by $20 million and by an additional $15 million in the fourth quarter of 2015.
The Credit Facility contains covenants customary for a facility of this nature,
including, but not limited to, covenants requiring the preservation and
maintenance of the Company's assets and covenants restricting our ability to
merge, transfer ownership of Monarch, incur additional indebtedness, encumber
assets and make certain investments. Management does not consider the covenants
to restrict normal functioning of day-to-day operations. See Part I - Financial
Information, Item 1 - Financial Statements, Note 6 "Long-Term Debt".
We may prepay borrowings under the Credit Facility without penalty (subject to
certain charges applicable to the prepayment of LIBOR borrowings prior to the
end of the applicable interest period). Amounts prepaid may be borrowed so long
as the total borrowings outstanding do not exceed the maximum principal
available.
On July 20, 2016, we entered into an amended and restated credit facility
agreement (the "Amended Credit Facility"), under which our available borrowing
capacity was increased to $250 million and the maturity date was extended from
November 15, 2016 to July 20, 2021 (See Part I - Financial Information, Item 1 -
Financial Statements, Note 1 - "Summary of Significant Accounting Policies -
Subsequent Event and Note 6 - "Long Term Debt"). Upon execution of the Amended
Credit Facility, the entire amount outstanding under the Credit Facility of
$35.0 million as of June 30, 2016 has been reclassified as a long-term liability
in the Consolidated Balance Sheets.
We believe that our existing cash balances, cash flow from operations and
borrowings available under the Amended Credit Facility will provide us with
sufficient resources to fund our operations, meet our debt obligations, and
fulfill our capital expenditure plans over the next twelve months; however, our
operations are subject to financial, economic, competitive, regulatory, and
other factors, many of which are beyond our control. If we are unable to
generate sufficient cash flow or if our cash needs exceed our borrowing capacity
under the Amended Credit Facility, we could be required to adopt one or more
alternatives, such as reducing, delaying or eliminating planned capital
expenditures, selling assets, restructuring debt or obtaining additional equity
capital.
OFF BALANCE SHEET ARRANGEMENTS
A driveway (the "Driveway Project") was completed and opened on September 30,
2004, that is being shared between the Atlantis and a shopping center directly
adjacent to the Atlantis (the "Shopping Center"). The Shopping Center is
controlled by the Biggest Little Investments, L.P. ("BLI").
John Farahi and Bob Farahi, Co-Chairmen of the Board and executive officers of
the Company, and Ben Farahi are the three largest stockholders of Monarch and
each also beneficially owns limited partnership interests in BLI. Maxum LLC is
the sole general partner of BLI, and Ben Farahi is the sole managing member of
Maxum LLC. Neither John Farahi nor Bob Farahi has any management or operational
control over BLI or the Shopping Center. Until May 2006, Ben Farahi formerly
held positions of Co-Chairman of the Board, Secretary, Treasurer and Chief
Financial Officer of the Company.
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As part of the Driveway Project, in January 2004, we leased a 37,368 square-foot
corner section of the Shopping Center for a minimum lease term of 15 years at an
annual rent of $300 thousand, subject to a cost of living increase on each five
year anniversary of the driveway lease. As of June 30, 2016, the annual rent is
$377 thousand. In August 2015, we exercised our option to extend the lease for
three individual five-year terms in addition to the 15 year initial term. At the
end of the extension periods, we have the option to purchase the leased section
of the Shopping Center at a price to be determined based on an MAI Appraisal.
The leased space is being used by us for pedestrian and vehicle access to the
Atlantis, and we may use a portion of the parking spaces at the Shopping Center.
The total cost of the project was $2.0 million. We were responsible for two
thirds of the total cost, or $1.35 million. The cost of the new driveway is
being depreciated over the 15-year expected economic useful life of the asset;
some components of the new driveway were depreciated over a shorter period of
time. We paid approximately $94 thousand and $188 thousand in lease payments for
the leased driveway space at the Shopping Center during the three-month and
six-month periods ended June 30, 2016, respectively.
In response to customer demand for more convenient surface parking at the
Atlantis, and after detailed analysis, on August 28, 2015, the Company, through
its subsidiary Golden Road, entered into a 20-year lease (the "Parking Lot
Lease") with BLI with respect to a portion of the Shopping Center. 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. The
primary purpose of the Parking Lot Lease is to provide additional, convenient,
Atlantis surface parking. We have demolished the commercial building at the
Shopping Center and have completed improvements to convert vacant 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. The minimum annual rent is subject to a cost of living
adjustment increase on each five year anniversary. We have an option to renew
the Parking Lot Lease for an additional 10-year term. If we elect not to
exercise the renewal option, we will be obligated to pay BLI $1.6 million.
During the three-month and six-month periods ended June 30, 2016, we paid
approximately $174 thousand and $348 thousand in parking lot rent payments,
respectively.
CRITICAL ACCOUNTING POLICIES
A description of our critical accounting policies and estimates can be found in
Item 7 - "Management's Discussion and Analysis of Financial Condition and
Results of Operations" of our Form 10-K for the year ended December 31, 2015
("2015 Form 10-K"). For a more extensive discussion of our accounting policies,
see Note 1, Summary of Significant Accounting Policies, in the Notes to the
Consolidated Financial Statements in our 2015 Form 10-K filed on March 11, 2016.
OTHER FACTORS AFFECTING CURRENT AND FUTURE RESULTS
Negative economic developments in Northern Nevada, the Denver metropolitan area,
or in our feeder markets, could adversely impact discretionary incomes of our
target customers, which, in turn could adversely impact our business. Our target
customers might curtail discretionary spending for leisure activities and
businesses may reduce spending for conventions and meetings, both of which would
adversely impact our business. Management continues to monitor economic trends
and intends, as appropriate, to adopt operating strategies to attempt to
mitigate the effects of such adverse conditions. We can make no assurances that
such strategies will be effective should negative economic developments in our
markets occur.
The expansion of Native American casinos in California has had an impact on
casino revenues in Nevada, in general, and many analysts have continued to
predict the impact will be more significant on the Reno-Lake Tahoe market. If
other Reno-area casinos continue to suffer business losses due to increased
pressure from California Native American casinos, such casinos may intensify
their marketing efforts to northern Nevada residents as well, greatly increasing
competitive activities for our local customers.
Higher fuel costs may deter California, Denver area, and other drive-in
customers from coming to the Atlantis or the Monarch Casino Black Hawk.
We also believe that unrestricted land-based casino gaming in or near any major
metropolitan area in the Atlantis' key feeder market areas, such as San
Francisco or Sacramento, or in other areas near Denver, Colorado, the Black Hawk
key feeder markets, could have a material adverse effect on our business.
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We rely on information technology and other systems to maintain and transmit
customer financial information, credit card settlements, credit card funds
transmissions, mailing lists and reservations information. The systems and
processes we have implemented to protect customers, employees and company
information are subject to the ever-changing risk of compromised security. These
risks include cyber and physical security breaches, system failure, computer
viruses, and negligent or intentional misuse by customers, company employees, or
employees of third party vendors. The steps we take to deter and mitigate these
risks may not be successful and our insurance coverage for protecting against
cybersecurity risks may not be sufficient. Any disruption, compromise or loss of
data or systems that results from a cybersecurity attack or breach could
materially adversely impact operations or regulatory compliance and could result
in remedial expenses, fines, litigation, and loss of reputation, potentially
impacting our financial results.
COMMITMENTS AND CONTINGENCIES
Our contractual cash obligations as of June 30, 2016 and the next five years and
thereafter are as follows (in millions):
Payments due by period (1)
Less Greater
than 1 1 to 3 3 to 5 than 5
Total year years years years
Operating Leases (2) $ 22.2 $ 1.1 $ 2.2 $ 1.5 $ 17.4
Purchase Obligations (3) 11.5 8.0 1.8 1.7 -
Construction Contracts (4) 5.1 5.1 - - -
Borrowings Under Credit Facility (5) 35.0 - - - 35.0
Total Contractual Cash Obligations $ 73.8 $ 14.2 $ 4.0 $ 3.2 $ 52.4
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(1) Because interest payments under our Credit Facility are subject to factors
that, in our judgment, fluctuate materially, the amount of future interest
payments is not presently determinable. These factors include: (i) future
short-term interest rates; (ii) our future leverage ratio which varies with
Adjusted EBITDA and our borrowing levels; and (iii) the rate with which we
deploy capital and other spending which in turn impacts the level of future
borrowings. The interest rate under our Credit Facility is LIBOR, or a base rate
(as defined in the Credit Facility), plus an interest rate margin ranging from
1.25% to 2.50% depending on our leverage ratio. The interest rate is adjusted
quarterly based on our leverage ratio, which is calculated using operating
results over the previous four quarters and borrowings at the end of the most
recent quarter. Based on our leverage ratio, at June 30, 2016, pricing was LIBOR
plus 1.25% and will be adjusted in subsequent quarters in accordance with our
leverage ratio. At June 30, 2016, the one-month LIBOR rate was 0.47%.
(2) Operating leases include the leased driveway pursuant to the Driveway
Project and the Parking Lot Lease.
(3) Purchase obligations represent approximately $4.7 million of commitments
related to capital projects and approximately $6.8 million of materials and
supplies used in the normal operation of our business. Of the total purchase
order and construction commitments, approximately $11.5 million are cancelable
by us upon providing a 30-day notice.
(4) Construction contracts obligations represent commitments related to
expansion projects in Monarch Casino Black Hawk. The $5.1 million commitment at
the end of first quarter of 2016 relates to the construction of the new parking
garage structure.
(5) The amount represents outstanding draws against the Credit Facility as of
June 30, 2016.
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As described in the "CAPITAL SPENDING AND DEVELOPMENT" section above, we have
begun commencement of the Black Hawk Expansion Plan, which started in the fourth
quarter of 2013. While we have disclosed the estimated cost of that expansion,
we have not entered into contracts for substantial portions of the work. For
this reason, we have included in the table above only the amounts for which we
have contractual commitments.
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