SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 30, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period from
to
Commission File Number 1-7831
ELSINORE CORPORATION
(Exact name of registrant as specified in its charter)
Nevada 88 0117544
(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)
202 FREMONT STREET, LAS VEGAS, NEVADA 89101
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number (Including Area Code): 702/385-4011
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past
ninety (90) days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
TITLE OF STOCK NUMBER OF SHARES
CLASS DATE OUTSTANDING
Common August 7, 1996 15,891,793
<PAGE>
Elsinore Corporation and Subsidiaries (Debtor-in-Possession)
Form 10-Q
For the Quarter Ended June 30, 1996
INDEX
PART I. FINANCIAL INFORMATION: PAGE
Item 1. Consolidated Financial Statements:
Balance Sheets at June 30, 1996 and
December 31, 1995 3 - 4
Statements of Operations for the Three
Month Periods Ended June 30, 1996 and 1995 5
Statements of Operations for the Six
Month Periods Ended June 30, 1996 and 1995 6
Statements of Cash Flows for the Six
Month Periods Ended June 30, 1996 and 1995 7
Notes to Financial Statements 8 - 20
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 21 - 25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 26
Item 5. Other Information 26
Item 6. Exhibits and Reports of Form 8-K 26
SIGNATURES 27
PART 1. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Consolidated Balance Sheets
June 30, 1996 and December 31, 1995
(Dollars in Thousands)
June 30, December 31,
1996 1995
(UNAUDITED)
Assets
Current Assets:
Cash and cash equivalents $ 5,649 $ 3,572
Accounts receivable, less allowance for
doubtful accounts of $218 and $201,
respectively 980 729
Inventories 226 248
Prepaid expenses 1,590 1,029
Total current assets 8,445 5,578
Property and equipment, net 24,493 25,473
Leasehold acquisition costs, net of accumulated
amortization of $4,795 and $4,691,
respectively 2,044 2,148
Investment in Fremont Street Experience LLC, net
of accumulated amortization of $300
and $0, respectively 2,700 3,000
Other assets 819 902
$ 38,501 $ 37,101
See accompanying notes to consolidated financial statements.
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Consolidated Balance Sheets
June 30, 1996 and December 31, 1995
(Dollars in Thousands)
June 30, December 31,
1996 1995
(UNAUDITED)
Liabilities and Shareholders' Deficit
Current liabilities:
Accounts payable $ 444 $ 676
Accrued interest 400 100
Accrued expenses 6,388 5,352
Current portion of capital
Lease obligations 55 54
Total current liabilities 7,287 6,182
Prepetition liabilities not subject to compromise:
Long-term debt, subject to demand for
acceleration, net of unaccreted discount 3,000 2,902
Capital lease obligations, net of current
portion 1,503 1,531
4,503 4,433
Prepetition liabilities subject to compromise:
Accounts payable 3,611 4,070
Prior period income taxes and related
interest 2,985 2,985
Accrued interest 4,419 4,419
Accrued expenses 28 28
Long-term debt subject to
demand for acceleration 58,425 58,425
69,468 69,927
Total liabilities 81,258 80,542
Shareholders' deficit(note 1):
Common stock, $.001 par value per share.
Authorized 100,000,000 shares. Issued
and outstanding 15,891,793 shares 16 16
Additional paid-in capital 65,315 65,315
Accumulated deficit (108,088) (108,772)
Total shareholders' deficit (42,757) (43,441)
Commitments and contingencies(notes 4 and 6).
$ 38,501 $ 37,101
See accompanying notes to consolidated financial statements.
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Consolidated Statements of Operations
Three Month Periods Ended June 30, 1996 and 1995
(Dollars in Thousands, Except Per Share Amounts)
(UNAUDITED)
1996 1995
Revenues:
Casino $ 10,691 $ 9,799
Hotel 2,732 2,331
Food and beverage 3,088 3,003
Other 130 551
Promotional allowances (1,525) (1,652)
15,116 14,032
Costs and Expenses:
Casino 4,244 4,963
Hotel 2,021 1,941
Food and beverage 1,711 1,442
Taxes and licenses 1,681 1,549
Selling, general and administrative 2,323 2,774
Rents 1,017 977
Depreciation and amortization 924 1,019
Interest (Contractual interest
for 1996 of $2,348) 251 2,317
Interest, prior period income tax
obligation - 194
14,172 17,177
Income (loss) before
Reorganization items 944 (3,145)
Reorganization items 604 -
Income (loss) before income taxes 340 (3,145)
Income taxes - -
Net income (loss) $ 340 $ (3,145)
Income (loss) per
common share (note 5) $ 0.02 $ (0.20)
Weighted average number
of common shares outstanding 15,891,793 15,635,218
See accompanying notes to consolidated financial statements.
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Consolidated Statements of Operations
Six Month Periods Ended June 30, 1996 and 1995
(Dollars in Thousands, Except Per Share Amounts)
(UNAUDITED)
1996 1995
Revenues:
Casino $ 21,865 $ 20,557
Hotel 5,728 4,773
Food and beverage 6,589 6,262
Other 301 1,245
Promotional allowances (3,481) (3,544)
31,002 29,293
Costs and Expenses:
Casino 9,112 10,402
Hotel 3,894 3,822
Food and beverage 3,466 3,034
Taxes and licenses 3,492 3,369
Selling, general and administrative 4,773 5,663
Rents 2,034 1,943
Casino development costs - 1,037
Depreciation and amortization 1,894 2,038
Interest (Contractual interest
for 1996 of $4,701) 515 4,610
Interest, prior period income tax
obligation - 652
29,180 36,570
Income (loss) before
Reorganization items 1,822 (7,277)
Reorganization items 1,138 -
Income (loss) before income taxes 684 (7,277)
Income taxes - -
Net income (loss) $ 684 $ (7,277)
Income (loss) per
Common share (note 5) $ 0.04 $ (0.48)
Weighted average number
of common shares outstanding 15,891,793 15,220,853
See accompanying notes to consolidated financial statements.
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Consolidated Statements of Cash Flows
Six Month Periods Ended June 30, 1996 and 1995
(Dollars in Thousands)
(UNAUDITED)
1996 1995
Cash flows from operating activities:
Net income (loss) $ 684 $ (7,277)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,894 2,038
Accretion of discount on long-term debt 98 649
Write-off of casino development costs - 1,037
Accrued expenses 1,036 -
Change in other assets and liabilities,
net (718) (719)
Liabilities subject to compromise:
Accounts payable (459) 2,644
Prior period income taxes
and related interest - (1,999)
Accrued interest and other
expenses - (917)
Total adjustments 1,851 2,733
Cash provided by (used in)
operating activities 2,535 (4,544)
Cash flows from investing activities:
Notes and loans receivable from Native
American Tribes - (6,192)
Investment in Fremont Street Experience LLC - (117)
Capital expenditures (431) (40)
Cash used in investing
activities (431) (6,349)
Cash flows from financing activities:
Issuance of long-term debt - 1,706
Principal repayments of long-term debt (27) (35)
Proceeds from issuance of common stock,
net of underwriting discounts and
commissions and other direct costs - 3,742
Debt issuance costs - (62)
Cash (used in) provided by
financing activities (27) 5,351
Increase (decrease) in cash and
cash equivalents 2,077 (5,542)
Cash and cash equivalents at beginning of
period (including restricted amounts of
$0 and $3,685 at December 31, 1995
and 1994, respectively) 3,572 7,092
Cash and cash equivalents at end of period $ 5,649 $ 1,550
See accompanying notes to consolidated financial statements.
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
June 30, 1996 and December 31, 1995
(Unaudited)
1. Reorganization Under Chapter 11, Liquidity and Financial
Condition
On October 31, 1995, Elsinore Corporation and certain subsidiaries filed
voluntary petitions (the "Chapter 11 filing") in the United States Bankruptcy
Court for the District of Nevada (the "Bankruptcy Court") seeking to
reorganize under Chapter 11 of the United States Bankruptcy Code (the
"Bankruptcy Code"). On November 10, 1995, Olympia Gaming Corporation, a
wholly-owned subsidiary, filed a voluntary Chapter 11 petition in the same
court. The Company is operating as a debtor-in-possession under the
supervision of the Bankruptcy Court. As a debtor-in-possession, the Company
is authorized to operate its business but may not engage in transactions
outside its ordinary course of business without the approval of the Bankruptcy
Court.
Subject to certain exceptions under the Bankruptcy Code, the Company's filing
for reorganization automatically enjoined the continuation of any judicial or
administrative proceedings against the Company. Any creditor actions to
obtain possession of property from the Company or to create, perfect or
enforce any lien against the property of the Company are also enjoined. As a
result, the creditors of the Company are precluded from collecting
pre-petition debts without the approval of the Bankruptcy Court.
On February 28, 1996, the last day of the 120 day period within which the
Company had the exclusive right to do so, the Company filed a plan of
reorganization (the "Plan") and accompanying disclosure statements (see
below). The Company then had 60 days to obtain necessary acceptances of the
Plan. The disclosure statement was approved on May 13, 1996 subject to the
insertion of certain language acceptable to the 1993 bondholders.
On July 16, 1996, the Bankruptcy Court conducted a hearing regarding
confirmation of the plan as submitted by the Company. At that time, the
Bankruptcy Court considered the various objections to the plan raised by
certain creditors and equity holders. On July 18, 1996, the Bankruptcy Court
conducted further proceedings with respect to the plan of reorganization
submitted by the Company. At the July 18 hearing, the Bankruptcy Court
concluded that certain modifications to the plan would be necessary for its
confirmation. These modifications included, among others, making no
distribution to the existing equity holders.
Following the July 18 confirmation hearing , but before the entry of an order
incorporating the Bankruptcy Court's ruling on the plan submitted by the
Company, certain of the Company's creditors filed a motion for reconsideration
based upon their withdrawal of objections to the plan. These creditors agreed
to withdraw their objections in return for a reallocation of equity interests
in the reorganized Elsinore.
On August 5, 1996, the Bankruptcy Court conducted a hearing on the
reconsideration motion. After that hearing, the Bankruptcy Court determined
that the relief sought by that motion should be granted and determined that
the confirmation date for the plan should be moved up so that, among other
things, the management transition provided under the plan would not be
delayed. Accordingly, on August 8, 1996, the Bankruptcy Court entered an order
confirming the plan of reorganization submitted by the Company as modified by
that order (the "Plan").
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
June 30, 1996 and December 31, 1995
(Unaudited)
Plan of Reorganization
The Plan provides for the continuation of Elsinore and at least three of its
subsidiaries (Four Queens, Inc., ElSub Management Corporation and Palm Springs
East Limited Partnership) as going concerns. Under the Plan, the old common
stock interests in Elsinore Corporation will be canceled and Elsinore, as
reorganized, will issue new common stock (the "New Common Stock"). On the
effective date of the Plan, 80% of the New Common Stock will be distributed to
the following creditors and equity holders in the following proportions:
Interest Percentage
12.5% First Mortgage noteholders 87.5%
7.5% Convertible Subordinated noteholders 3.5%
Unsecured creditors of Four Queens, Inc 2.5%
Unsecured creditors of Elsinore Corporation 1.0%
Internal Revenue Service 1.9%
Old common stockholders 3.6%
100.0%
The remaining 20% of the New Common Stock will be issued through a rights
offering to raise $5,000,000 to assist in funding the Plan. Initially, the
entire amount of the rights offering will be made available for subscription
to the following creditors and equity holders in the percentages enumerated
below:
Interest Percentage
12.5% First Mortgage noteholders 87.5%
7.5% Convertible Subordinated noteholders 3.5%
Unsecured creditors of Four Queens, Inc 2.5%
Old common stockholders 6.5%
100.0%
Each member of the above classes of creditors and equity holders will be
required to elect whether they will exercise the right to purchase the New
Common Stock allocated and whether they intend to purchase additional shares
of New Common Stock if one or more holders of that class do not fully exercise
their right to purchase New Common Stock. The subscription rights of
non-exercising members of the above classes will be automatically reallocated
among the other members of the class electing to exercise their rights to
purchase additional shares of New Common Stock. If any of the members of any
class do not elect to exercise all of the rights allocated to that class, the
unexercised rights will be automatically distributed to the members of the
unofficial committee of the First Mortgage noteholders (the Bondholder
Committee") The Bondholder Committee has guaranteed a 100% subscription for
the $5 million rights offering, in the event the percentages enumerated above
are not otherwise fully subscribed.
The effective date of the Plan will be after all regulatory approvals
required by the State of Nevada, including approvals by the gaming
authorities, have been obtained and Elsinore has sufficient cash to fund all
distributions. Currently it is expected that the Plan will be fully effective
by the end of 1996.
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
June 30, 1996 and December 31, 1995
(Unaudited)
Proposed Treatment of Creditors and Equity Interests
The Plan is expected to be funded principally from cash generated from
operations and the $5,000,000 proceeds from the rights offering.
Specifically, the proposed treatment of each of the creditor and equity
interests is as follows:
The 20% Mortgage noteholders have an allowed secured claim equal to the
$3,000,000 principal amount of the notes plus accrued interest thereon at 20%
through the date on which the confirmation order was entered by the Bankruptcy
Court. On the effective date of the Plan, each noteholder will receive its
prorata share of restated mortgage notes (the "Restated Mortgage Notes"), due
four years from the confirmation date, in exchange for its allowed claim.
Interest on the Restated Mortgage Notes will accrue at an annual rate of 11.5%
or other appropriate interest rate approved by the Bankruptcy Court and will
be payable quarterly. These noteholders will retain their lien interests as
collateral for repayment of the restated mortgage notes.
The 12.5% First Mortgage noteholders have an allowed claim equal approximately
$61,000,000. Under the Plan, this claim is reduced to $30,000,000. On the
effective date of the Plan, each noteholder will receive, in exchange for its
allowed claim, (i) its prorata share of $30,000,000 face amount of restated
first mortgage notes (the "Restated First Mortgage Notes") which will accrue
interest at an annual rate of 13.5% per annum payable semi-annually and will
be due five years from the confirmation date, and (ii) New Common Stock (see
above).
The 7.5% convertible subordinated noteholders have an allowed claim equal to
approximately $1,500,000. On the effective date of the Plan, each convertible
subordinated noteholder will receive its prorata share of New Common Stock
(see above) in exchange for its allowed claim.
The company's larger unsecured creditors, other than the 7.5% convertible
subordinated noteholders, will receive payments from a fund of approximately
$1,400,000 over a three-year period and their prorata share, if any, of New
Common Stock (see above).
The Internal Revenue Service ("IRS"), which has both secured and unsecured
claims aggregating approximately $3,000,000 will receive full payment of its
secured claim with interest at 8% per annum over four years and will receive,
with respect to its unsecured claim, proportionately the same type of recovery
which is provided for the Company's larger unsecured creditors. In addition,
the IRS will receive its prorata share of the New Common Stock (see above).
Management Agreements
The Plan also calls for a change in the management of the reorganized
Elsinore. Effective at noon on August 12, 1996, Elsinore entered into an
Interim Management Agreement with Riviera Gaming Management Corp - Elsinore,
Inc. to manage the business operations of the Company subject to the direction
of the existing boards of directors of Elsinore and its subsidiaries. When the
Plan is fully effective, the existing board of directors will be reconstituted
with new directors, four of whom will be chosen by the Bondholders Committee,
and one of whom will be chosen by the Equity Committee appointed in the
bankruptcy case (with input from other creditor constituencies in the case).
Under the stipulation between the Company and the Bondholders Committe, senior
management (Thomas E. Martin, President and Chief Executive Officer, and Frank
l. Burrell, Jr., Chairman of the Board) ceased to be compensated employees of
the Company on Monday, August 12, 1996, although they will continue to serve
as directors and authorized officers until replaced.
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
June 30, 1996 and December 31, 1995
(Unaudited)
Other Reorganization Matters
Certain pre-petition liabilities have been paid after obtaining the approval
of the Bankruptcy Court, including certain wages and employee benefits, gaming
related liabilities and hotel room and other customer deposits. Subsequent to
filing and with the approval of the Bankruptcy Court, the Company assumed
executory contracts for all real estate and equipment leases.
In accordance with the Stipulation between the Company and the Bondholders
Committee, the Company (with the participation of the Bondholders Committee)
prior to confirmation of the Plan decided which executory contracts would be
assumed. All executory contracts which were not expressly assumed by the
Company were deemed rejected at the confirmation date. All creditors claims
resulting from the rejection of an executory contract must be filed with the
Bankruptcy Court no later than September 11, 1996. All such claims which are
timely filed will be treated in a manner identical to the treatment received
by other members of the appropriate class of creditors under the Plan. All
such claims which are not timely filed will be barred and discharged and the
creditor holding such claim will not receive or be entitled to any
distribution under the Plan on account of such claim.
The Company has incurred significant costs associated with the reorganization.
Such amounts are expensed as incurred.
As a result of its filing for protection under Chapter 11 of the Bankruptcy
Code, the Company is in default of substantially all of its debt agreements.
All outstanding unsecured and undersecured debt of the Company has been
presented in these financial statements within the caption "Pre-petition
liabilities subject to compromise: Long-term debt subject to demand for
acceleration."
Additional liabilities subject to the proceedings may arise in the future as a
result of the rejection of executory contracts and from the determination by
the Bankruptcy Court (or agreement by parties in interest) of allowed claims
for contingencies and other disputed amounts. Conversely, the assumption of
executory contracts may convert pre-petition liabilities shown as subject to
compromise to not subject to compromise.
Trading in the Company's common stock continues to be halted by the American
Stock Exchange ("AMEX") and the Pacific Stock Exchange ("PSE"). Elsinore
intends to pursue reactivation of its listings with AMEX and PSE so that the
New Common Stock in the reorganized Elsinore can be traded publicly following
the effective date of the Plan. There can be no assurance, however, that the
listings on AMEX and PSE will be continued.
2. Reorganization Items
Reorganization expense is comprised of items incurred by the Company as a
result of reorganization under Chapter 11 of the Bankruptcy Code.
Reorganization expenses, consisting primarily of accrued professional fees,
was $604,000 and $0 for the three month periods ended June 30, 1996 and 1995
and $1,138,000 and $0 for the six month periods ended June 30, 1996 and 1995,
respectively.
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
June 30, 1996 and December 31, 1995
(Unaudited)
3. Summary of Significant Accounting Policies
In the opinion of management, the accompanying financial statements include
all adjustments (of a normal recurring nature) which are necessary for a fair
presentation of the results for the interim periods presented. Certain
information and footnote disclosures normally included in financial statements
have been condensed or omitted pursuant to such rules and regulations of the
Securities and Exchange Commission. Although the Company believes that the
disclosures are adequate to make the information presented not misleading, it
is suggested that these condensed consolidated financial statements be read in
conjunction with the consolidated financial statements and the notes thereto
included in the Company's Report on Form 10-K for the fiscal year ended
December 31, 1995.
Certain items in the June 30, 1995 financial statements have been reclassified
for comparability with the June 30, 1996 presentation.
(a) Financial Reporting for Bankruptcy Proceedings
The accompanying financial statements have been prepared on a going concern
basis which assumes continuity of operations and realization of assets and
liquidation of liabilities in the ordinary course of business. The financial
statements do not include any adjustments that might be necessary as a result
of the outcome of the uncertainties discussed herein including the effect of
the Plan.
The American Institute of Certified Public Accountant's Statement of Position
90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code" ("SOP 90-7") provides guidance for financial reporting by entities that
have filed petitions with the Bankruptcy Court and expect to reorganize under
Chapter 11 of the Bankruptcy Code.
Under SOP 90-7, the financial statements of an entity in a Chapter 11
reorganization proceeding should distinguish transactions and events that are
directly associated with the reorganization from those of the operations of
the ongoing business as it evolves. Accordingly, SOP 90-7 requires the
following financial reporting or accounting treatments in respect to each of
the financial statements.
Balance Sheet
The balance sheet separately classifies pre-petition and post-petition
liabilities. A further distinction is made between pre-petition liabilities
subject to compromise (generally unsecured and undersecured claims) and those
not subject to compromise (fully secured claims). Pre-petition liabilities
are reported on the basis of the expected amount of such allowed claims, as
opposed to the amounts for which those allowed claims may be settled. Under
an approved final plan of reorganization, those claims may be settled at
amounts substantially less than their allowed amounts.
When debt subject to compromise has become an allowed claim and that claim
differs from the net carrying amount of the debt (defined as the face amount
of the debt less unamortized debt issuance costs and unaccreted discount), the
net carrying amount is adjusted to the amount of the allowed claim. The
resulting gain or loss is classified as a reorganization item.
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
June 30, 1996 and December 31, 1995
(Unaudited)
Statement of Operations
Pursuant to SOP 90-7, revenues and expenses, realized gains and losses, and
provisions for losses resulting from the reorganization and restructuring of
the business are reported in the statement of operations separately as
reorganization items. Professional fees are expensed as incurred. Interest
expense is reported only to the extent that it will be paid during the
proceeding or that it is probable that it will be an allowed claim.
Statement of Cash Flows
Reorganization items are reported separately within the operating, investing
and financing categories of the statement of cash flows.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of Elsinore
Corporation and its wholly and majority-owned subsidiaries. All material
intercompany balances and transactions have been eliminated in consolidation.
(c) Accounting for Casino Revenue and Promotional Allowances
In accordance with industry practice, the Company recognizes as casino revenue
the net win from gaming activities, which is the difference between gaming
wins and losses. The retail value of complimentary food, beverages and hotel
services furnished to customers is included in the respective revenue
classifications and then deducted as promotional allowances.
The estimated costs of providing such promotional allowances are included in
casino costs and expenses and consist of the following:
Three Month Periods Ended
June 30,
1996 1995
(Dollars in Thousands)
Hotel $ 300 $ 447
Food & Beverage 1,011 1,224
Total $1,311 $1,671
Six Month Periods Ended
June 30,
1996 1995
(Dollars in Thousands)
Hotel $ 690 $ 929
Food & Beverage 2,191 2,548
Total $2,881 $3,477
(d) Investment in Fremont Street Experience
The Company and seven other downtown Las Vegas property owners, who together
operate ten casinos, have formed the Fremont Street Experience LLC (FSELLC), a
limited liability company of which the Company is a one-sixth owner, to
develop the Fremont Street Experience attraction. The Fremont Street
Experience has transformed four blocks of Fremont Street into a covered
pedestrian mall featuring a 10-story celestial vault, sound effects and a high
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
June 30, 1996 and December 31, 1995
(Unaudited)
tech light show which add to the neon signs and marquees for which the
downtown area is already famous. The Company's $3,000,000 capital contribution
for its one-sixth ownership of FSELLC was paid in full by January 1994. The
project was completed at the end of November 1995 and the grand opening
ceremonies held on December 13, 1995. As FSELLC is expected to operate at a
loss for the foreseeable future, the $3,000,000 capital contribution is being
amortized over five years using the straight-line method. The Company's
allocated share of the operating costs of the Fremont Street Experience are
expensed as incurred.
(e) Earnings (Loss) Per Share
Earnings (loss) per share has been computed by dividing net income (loss) by
the weighted average common shares outstanding during the period.
(f) Use of Estimates
Management of the Company has made estimates and assumptions relating to the
reporting of assets and liabilities and the disclosure of contingent assets
and liabilities to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from
those estimates.
4. Native American Casino Operations
Spotlight 29 Casino
Since March 1995, Elsinore Corporation, its wholly owned subsidiary, Elsub
Management Corporation and Palm Springs East Limited Partnership, of which
Elsub is the general partner (collectively the "Company"), and the Twenty-Nine
Palms Band of Mission Indians (the "Band") have been involved in a dispute
regarding, among other things, the terms of a management contract (the
"contract") under which the Company had the exclusive right to manage and
operate the Spotlight 29 Casino (the "Spotlight 29"), owned by the Band,
located near Palm Springs, California.
On April 17, 1995, the Company was ousted as manager of Spotlight 29 and on
April 19, 1995, the Company issued a demand letter to the Band declaring a
breach of the Contract and a related loan agreement under which the Company
had lent approximately $12,500,000 to the Band for construction of Spotlight
29 and for working capital Contributions. The demand letter claimed damages
in the full amount of the funds which had been advanced to the Band.
In light of the Company's disassociation with the operations of Spotlight 29,
management determined to write off, during the quarter ended March 31, 1995,
the unamortized balance of casino development costs incurred for the project
of $1,037,000 and ceased the accrual of interest on the project note and loans
evidencing working capital advances.
On May 16, 1995, in response to the Company's demand, the Band delivered to
the Company a "Notice to Terminate Management Agreement." The notice asserted
material breaches of the Contract and requested payment of approximately
$1,500,000 by June 16, 1995 to cover working capital shortfalls or the
Contract would be terminated.
On October 31, 1995, the Company filed a voluntary petition for reorganization
under Chapter 11 of the Bankruptcy Code with the United States Bankruptcy
Court for the District of Nevada (Las Vegas, Nevada).
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
June 30, 1996 and December 31, 1995
(Unaudited)
The Company has been involved in protracted negotiations with the Band for a
settlement of the respective claims asserted by the parties since the events
described above. Based upon the progress of the aforementioned negotiations
at the time, in September 1995 the Company wrote-down to $9,000,000 the
aggregate amount advanced to the Band and accrued interest thereon.
As of March 29, 1996, the Company has reached a settlement with the Band,
which has been approved by the Bankruptcy court and is awaiting final
clearance by the Bureau of Indian Affairs (the "BIA"). The Company would
receive a promissory note from the Band in the principal amount of $9,000,000.
While the note would have a 36-month amortization schedule, monthly payments
would be limited to 20% of Spotlight 29's monthly net income. In the event
that net income is insufficient to fully pay the note at the end of 36 months,
the note will be automatically extended for up to an additional two years. If
still not fully paid at the end of the extension period, it may be extended up
to an additional two years upon the approval of the NIGC. If not paid at the
end of the final extension period, the note will be forgiven. Interest on the
note is at an annual rate equal to the greater of 10% or the maximum rate
allowed under California law, not to exceed 12%. Given that the $9 million
recovery is limited to 20% of the net income generated by Spotlight 29 and
because there can be no assurance that the settlement agreement reached with
the Band will be cleared by the BIA, management determined not to reduce the
allowance for loss in the amount of $9,000,000 against the aggregate
receivable, which was provided during the quarter ended December 31, 1995.
7 Cedars Casino
Elsinore Corporation, through its wholly-owned subsidiary, Olympia Gaming
Corporation (collectively the "Company"), has a Gaming Project Development and
Management Agreement (the "Contract") to operate the 7 Cedars Casino (the "7
Cedars") which is located on the Olympic Peninsula in the state of Washington
and is owned by the Jamestown S'Klallam Tribe (the "Tribe"). In addition,
pursuant to a loan agreement, the Company lent $9,000,000 to the Tribe for the
construction of 7 Cedars.
Under the terms of the Contract, the Company is obligated to establish a
reserve fund for "working capital", which is not defined in the Contract, in
the amount of $500,000 for the operation of 7 Cedars. The Company believes
that in negotiating the contract the parties did not intend to apply a
"working capital" definition based upon generally accepted accounting
principles which, in the Company's view, would be impracticable in the context
of the Contract and which, in practice, has never been followed. Since its
opening on February 3, 1995, the Casino has incurred a substantial cumulative
net loss and an attendant decrease in working capital.
On November 1, 1995, the Tribe asserted that the Company had defaulted on the
June, July, August and September 1995 minimum guaranteed payments to the
Tribe, as defined by the Contract, in the aggregate amount of $100,000 and
requested immediate payment.
In addition, the Tribe demanded that sufficient monies be paid to enable all
current gaming project expenses to be paid and working capital reserve to be
maintained at the required funding level. The Tribe demanded that a minimum
of $2,540,000 be paid immediately and also contended that the working capital
shortfall could be as high as approximately $5,390,000 according to their
interpretation of the Contract. On November 13, 1995, the Company received a
letter from the Tribe dated November 9, 1995 asserting that the Contract had
been terminated as a result of the Company's failure to make the payments
which has been demanded.
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
June 30, 1996 and December 31, 1995
(Unaudited)
On November 10, Olympia Gaming filed a voluntary petition for reorganization
under Chapter 11 of the Bankruptcy Code with the United States Bankruptcy
Court for the District of Nevada (Las Vegas, Nevada).
Pursuant to the terms of the Contract, the Company receives a management fee
equal to 30% of the net distributable profits of 7 Cedars (subject to the
Tribe receiving a $25,000 per month guaranteed payment) and the Tribe 70%.
The Contract has an initial term of five years (expires February 2, 2000),
subject to renewal for an additional two years in the event that the project
loan is not paid in full by the end of the initial term. The project loan to
finance the development and construction of 7 Cedars is payable solely from
the Tribe's share of the net distributable profits of 7 Cedars, and will
amortize over the five-year term of the contract at an annual interest rate of
10.9%.
As a result of significantly lower than projected gaming revenues, 7 Cedars
has incurred substantial operating losses since its opening. Management
believes the following are the principal factors contributing to the lower
gaming revenues.
A significantly lower than anticipated propensity for the 3,000,000 plus
tourists visiting the Olympic Peninsula in the summer to gamble. This
includes both the numbers of tourist customers and their level of play
in the casino.
A significantly higher than anticipated impact of competition for the
locals market. Native American casino openings in May 1995 (Muckleshoot
near Auburn, Washington) and January 1996 (Suquamish, north of
Bremerton, Washington) have resulted in substantially reduced visitation
from Kitsap County residents. While Kitsap County, approximately 50
miles to the east of 7 Cedars, was originally identified as a secondary
market, its larger, younger, population proved to be a significant
market in the first several months following the opening of 7 Cedars.
A substantially lower than expected average table games wager.
In response to declining revenues following the first several months of
operations, management undertook certain cost-cutting measures in the late
spring and summer 1995 and increased marketing activities in an effort to
achieve profitability. In November 1995 and January 1996, more substantial
expense reductions were effected through reductions in the hours of operation
of 7 Cedars and deeper, "across the board" cost cutting. While management
believes that gaming revenues will continue to improve through the spring
and summer months, in light of the existing competition in the Puget Sound
area, the demographics of 7 Cedars primary locals' markets and the apparent
low propensity for destination tourists to the Olympic Peninsula to gamble,
there exists substantial uncertainty as to whether, during the remaining
term of the management and loan agreements, 7 Cedars can achieve the level
of profitability required to obtain full recovery of the loan principal and
accrued interest thereon. The outlook for 7 Cedars could change dramatically,
however, if an initiative was passed in the State of Washington to allow
electronic gaming machines at Native American casinos. A number of tribes have
recently formed an apparently well-funded coalition for the purpose of a
petition drive to place an initiative on the fall 1996 ballot to allow limited
numbers of electronic gaming machines at Native American casinos. While the
tribes and others are optimistic about the passage of such an initiative, if
and when gaming machines will ultimately be allowed is uncertain at this time.
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
June 30, 1996 and December 31, 1995
(Unaudited)
Based upon the foregoing, management determined during the quarter ended
December 31, 1995 to provide an allowance for loss against the $9,000,000
outstanding balance of the project loan plus accrued interest thereon.
Previously, as of September 1, 1995, as the summer 1995 Olympic Peninsula
tourist season came to a close, the Company ceased accruing interest on the
project loan and wrote-off the remaining unamortized balance of capitalized
casino development costs of approximately $242,000.
5. Earnings (Loss) Per Share
Because of the Chapter 11 proceedings, certain contractual interest
obligations, debt discount and debt issue costs were not expensed during the
three and six month periods ended June 30, 1996, respectively. In addition,
bankruptcy related reorganization items were incurred and expensed during the
respective periods. The effect on earnings and earnings per share of such
items follow:
Three Month Periods Ended
June 30,
1996 1995
(Dollars in thousands,
except per share amounts)
Net income (loss) per consolidated
statements of operations $ 340 $(3,145)
Subtract:
Interest (1,883) -
Debt discount and
debt issuance costs (420) -
Add:
Reorganization items 604 -
Net loss as adjusted $(1,359) $(3,145)
Per Share:
Income (loss) per common share reflected
on consolidated statements of operations $ 0.02 $ (0.20)
Per share effect of such items (0.11) -
Loss per common share
adjusted for such items $ (0.09) $ (0.20)
Six Month Periods Ended
June 30,
1996 1995
(Dollars in thousands,
except per share amounts)
Net income (loss) per consolidated
statements of operations $ 684 $(7,277)
Subtract:
Interest (3,766) -
Debt discount and
debt issuance costs (840) -
Add:
Reorganization items 1,138 -
Net loss as adjusted $(2,784) $(7,277)
Per Share:
Income (loss) per common share reflected
on consolidated statements of operations $ 0.04 $ (0.48)
Per share effect of such items (0.22) -
Loss per common share
adjusted for such items $ (0.18) $ (0.48)
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
June 30, 1996 and December 31, 1995
(Unaudited)
6. Commitments and Contingencies
Chapter 11 Reorganization
On October 31, 1995, the Company and certain of its subsidiaries filed a
voluntary petition in the United States Bankruptcy Court for the District of
Nevada seeking to reorganize under Chapter 11 of the United States Bankruptcy
Code. On November 10, 1995, Olympia Gaming Corporation filed a voluntary
petition in the same Court. Since the Bankruptcy filing, several entities
have filed administrative claims requesting the Bankruptcy Court order the
Company to reimburse or compensate such entities for goods, taxes and services
they allege the Company has received or collected, but for which they claim
the Company has not paid.
The Company currently estimates that the administrative claims will be
approximately $1.5 million; however, there can be no assurance that additional
amounts will not be claimed or the extent to which administrative claims may
be allowed by the Bankruptcy Court. The Bankruptcy Code requires that all
administrative claims be paid on the effective date of a plan of
reorganization unless the respective claimants agree to different treatment.
Depending on the ultimate amount of administrative claims allowed by the
Bankruptcy Court, the ability of the Company to consummate the plan of
reorganization may be impacted negatively. The Company is actively
negotiating with claimants to achieve mutually acceptable dispositions
of these claims.
Hyland Litigation
Thomas Hyland, a professional card counter and blackjack player, filed a
complaint on August 23, 1995 in Federal District Court in Camden, New Jersey,
No. 95CV2236 (JEI), against the Company and virtually every other casino
company in the United States. The complaint alleges violations of the
antitrust, consumer fraud and fair credit reporting laws by the defendants in
illegally conspiring to prevent Mr. Hyland and other professional card
counters from playing blackjack at their respective casinos. The complaint
alleges that the defendants share information concerning card counters and
then act in concert to implement industry wide policy in banning them at the
blackjack tables.
Management believes that the claims are without merit and does not
believe that the lawsuit will have a material adverse effect on the Company's
operating results.
WARN Act Litigation
The Company is a defendant in two consolidated lawsuits pending in the
federal court for the District of New Jersey, alleging violation by the
Company and certain of its subsidiaries and affiliates of the Worker
Adjustment and Retraining Notification Act ("WARN Act") and breach of
contract. The plaintiffs in the two consolidated cases are (i) former
employees of a casino/hotel in New Jersey formerly affiliated with the Company
bringing suit on behalf of a class of all employees laid off as a result of
the casino's closing and (ii) a union local seeking to represent its members
who were laid off at that time. Plaintiffs claim that there are approximately
1,300 such employees within the class who seek damages under the WARN Act
providing for up to 60 days' pay and lost benefits and payments for deferred
compensation allegedly due under a contract with certain employees. Damages
payable, if any, would be based on the basis of the number of days' notice
determined by the court to have been required under the WARN Act and the
wages, benefits and deferred compensation applicable to each such employee.
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
June 30, 1996 and December 31, 1995
(Unaudited)
The Company has vigorously defended the action on the basis that even if the
WARN Act does apply as a matter of law to a regulatory-forced closing, the
closing was due to unforeseeable circumstances and, accordingly, the notice
given was as timely as practicable, among other grounds. The liability phase
of the trial of the two consolidated lawsuits concluded in August 1993.
On June 30, 1995, the presiding judge entered an Order for Verdict Upon
Liability Issues in which he ruled that: (i) the plaintiffs had failed to
prove any liability under the WARN Act; but (ii) that Elsinore and certain of
its subsidiaries are jointly liable for certain retroactive wages due to
former employees of Elsinore Shore Associates under a collective bargaining
agreement, plus prejudgment interest on such wages. The total amount of
judgment the plaintiffs would be entitled to under this ruling has not yet
been determined. The plaintiffs' attorney asserts that the amount due as of
October 1, 1995, taking into account interest on that date, was approximately
$676,000. On March 4, 1996, the plaintiffs' attorney submitted a proof of
claim for retroactive wages in the amount of $800,000 to the Bankruptcy Court.
Because of the filing of the bankruptcy petitions, the WARN Act litigation in
the New Jersey Court has been stayed by operation of Bankruptcy Code Section
362(a). However, the plaintiff's $800,000 claim is currently the subject of
claims litigation in the Bankruptcy Court. It is the Company's position that
the claim submitted by the plaintiffs should be reduced to zero. However there
can be no assurance as to the success of the Company's attempt to reduce the
claim.
Action Against Twenty-Nine Palms Band
On March 16, 1995, Elsinore Corporation, its wholly owned subsidiary, Elsub
Management Corporation, and Palm Springs East Limited Partnership, of which
Elsub Management is the General Partner, filed a complaint against the Band in
the United States District Court for the Central District of California, case
no. CV 95-1669-RG(MCx). The complaint sought injunctive and declaratory
relief based upon alleged breaches by the Band of the Spotlight 29 Contract
when it installed Class III electronic gaming machines at the casino without
the Company's consent and without any involvement whatsoever by the Company in
the operation of the machines. The suit was dismissed without prejudice on
April 21, 1995. As described in note 4, the Company has reached a settlement
with the Band subject to certain regulatory approvals.
Poulos/Ahern Class Actions
In April and May 1993, two class action lawsuits were filed in the United
States District Court, Middle District of Florida, against 41 manufacturers,
distributors and casino operators of video poker and electronic slot machines,
including the Company. The suits allege that the defendants have engaged in a
course of fraudulent and misleading conduct intended to induce persons to play
such games by collectively misrepresenting how the game machines operate, as
well as the extent to which there is an opportunity to win. It also alleges
violations of the Racketeer Influenced and Corrupt Organizations Act, as well
as claims of common law fraud, unjust enrichment and negligent
misrepresentation, and seeks damages in excess of $6 billion. On December 9,
1994, the Florida Court ordered that the consolidated cases be transferred to
the United States District Court for the District of Nevada. That transfer
has occurred and the Nevada Court has assumed control of the cases. The new
case number is CV-S-94-1126-LDG(RJJ). Numerous defendants (including the
Company) have moved to dismiss the complaint for failure to state a claim. No
hearing has been set on this motion. The plaintiffs have filed a motion
seeking to certify the consolidated actions as a class action. The defendants
(including the Company) have opposed certification of the class. During
April, 1996, U.S District Judge Lloyd George approved defense motions to
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
June 30, 1996 and December 31, 1995
(Unaudited)
dismiss such lawsuits saying plaintiffs had failed to state a claim or prove
their case. However, the plaintiffs were given additional time to file an
amended complaint. Management believes the claims are wholly without merit and
does not expect that the lawsuit will have a material adverse effect on the
Company's financial statements taken as a whole.
Other
At June 30, 1996, the Company and its subsidiaries were parties to
various other claims and lawsuits arising in the normal course of business.
Management is of the opinion that all pending legal matters are either covered
by insurance or, if not insured, will not have a material adverse effect on
the financial position or the results of operations of the Company.
<PAGE>
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
This discussion and analysis should be read in conjunction with the
consolidated financial statements and notes thereto.
OVERVIEW
Chapter 11 Proceedings: On October 31, 1995, the Company and certain of its
subsidiaries filed a voluntary petition in the United States Bankruptcy Court
for the District of Nevada to reorganize under chapter 11 of Title 11 of the
United States Bankruptcy Code. On November 10, 1995 an additional subsidiary
of the Company also filed a voluntary petition to reorganize under Chapter 11
in the same court. The Company is continuing to manage its business affairs as
a debtor-in-possession under the supervision of the Bankruptcy Court.
On February 28, 1996, Elsinore and its subsidiaries filed a plan of
reorganization with the Bankruptcy Court. Following negotiations between the
Company and its creditors and equity holders, the Bankruptcy Court entered an
order confirming an amended plan of reorganization (the "Plan") on August 8,
1996. The Plan, once fully effective, will result in the cancellation and/or
restructuring of substantial debt obligations of the Company and will not
eliminate the interests of its common shareholders; however the interests of
the current common stockholders in the Company will be substantially reduced.
There can be no assurance, however, that, even with the Plan, the Company can
generate sufficient cash to sustain operations.
Going Concern Basis: The accompanying financial statements have been prepared
on a going concern basis which assumes continuity of operations and
realization of assets and liquidation of liabilities in the ordinary course of
business. The consolidated financial statements do not include all of the
consequences of the proceedings under Chapter 11 nor all adjustments that
might be necessary should the Company be unable to continue as a going
concern. The Company's ability to continue as a going concern is dependent
upon, among other things, its obtaining the required regulatory approvals from
the State of Nevada, including approvals by the gaming authorities, obtaining
sufficient cash to fund all distributions and cash reserves required at the
time the Plan becomes effective and achieving profitable operations and
sufficient cash flows to meet future obligations required by the Plan. The
outcome of these matters is not presently determinable.
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Management's Discussion and Analysis of Financial
Condition and Results of Operations
FINANCIAL CONDITION
Liquidity and Capital Resources
Cash and cash equivalents
Cash and cash equivalents increased $2,077,000 during the six month period
ended June 30, 1996. Uses of cash during the period included capital
expenditures of $431,000.
Liquidity
Currently, the Company's primary sources of liquidity are cash flows from the
operations of the Four Queens Hotel and Casino. Four Queens revenues,
operating results and cash flows increased during the six month period ended
June 30, 1996, primarily because of an increase in Four Queens hotel guests
and casino visitors, which apparently occurred due to an overall increase in
the number of visitors to Las Vegas and related visitor (and local residents)
interest in the Fremont Street Experience attraction in downtown Las Vegas.
During the six month period ended June 30, 1996, the Company experienced less
liquidity pressure because of the protection afforded by the bankruptcy laws
in the payment of obligations incurred prior to the filing and arising under
certain executory contracts entered into prior to the filing of the bankruptcy
petition and because of the increased visitors to Las Vegas and the opening of
the Fremont Street Experience.
RESULTS OF OPERATIONS
Three Month Periods Ended June 30, 1996 and 1995
Revenues
During the three month period ended June 30, 1996, total revenues, net of
promotional allowances, increased $1,084,000 (7.7%) primarily because of an
increase in the number of Four Queens hotel guests and casino visitors, which
apparently resulted from an overall increase in the number of visitors to Las
Vegas and related visitor (and local residents) interest in the Fremont Street
Experience attraction in downtown Las Vegas. Other income decreased $421,000,
primarily as a result of the nonaccrual of interest income related to the
Native American loans, which were fully reserved at December 31, 1995. Casino
revenues increased $892,000 (9.1%). Promotional allowances, which are
subtracted from gross revenues, decreased $127,000 (7.7%).
The increase in Casino revenues of $892,000 from the comparable prior period,
consisted of a $644,000 (9.1%) increase in slot revenues and a $248,000 (9.2%)
increase in table games revenues. The increase in slot revenues is
attributable to both favorable increases in volumes of play and win variances.
The increase in table games revenues is due to favorable win variances which
were partially offset by unfavorable volume variances.
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Hotel revenue increased $401,000 (17.2%) primarily because of an increase in
room rates. Food and beverage revenues increased by $85,000 (2.8%) as a result
of a slight increase in the average price per food cover.
Costs and Expenses
Total costs and expenses, excluding interest, depreciation, casino development
costs and reorganization items decreased $649,000 (4.8%) during the three
month period ended June 30, 1996.
Casino costs and expenses decreased $719,000 (14.5%) primarily due to (1) a
decrease in French Quarter Lounge entertainment expenses and (2) a decrease in
costs allocated to the casino for promotional allowances (which was lower, as
a result of a reduction in the ratio of complimentary sales to total sales of
rooms, food and beverages during the three month period ended June 30, 1996).
Hotel expenses were comparable to the 1995 quarter. Food and beverage expenses
increased $269,000 (18.6%) primarily due to decreased allocations of the costs
of promotional allowances to the casino, as explained above.
Taxes and licenses increased 132,000 (8.5%) primarily because of increased
taxable revenues and taxable payroll during the quarter. Selling, general and
administrative expenses decreased $451,000 (16.3%) from 1995 primarily due to
reductions in payroll costs of corporate administrative and development staff.
Rent expenses increased $40,000 (4.1%) primarily because of scheduled
increases under existing leases.
Depreciation and amortization decreased $95,000 (9.3%), primarily because of
decreased amortization of debt issue costs (unamortized debt issue costs,
incurred in connection with the 12.5% First Mortgage notes, were charged to
expense as reorganization items at October 31, 1995) and slightly lower
depreciation of property and equipment, which was mostly offset by the
start-up (January 1, 1996) of amortization (over 60-months) of the
$3,000,000 Investment in the Fremont Street Experience.
Because of the Chapter 11 proceedings, there has been no accrual of interest
on the $57,000,000, 12.5% First Mortgage notes since October 31, 1995. If
accrued, the quarterly interest expense on the 12.5% notes would have totaled
approximately $1,781,000 for the three month period ended June 30, 1996. (In
addition, the remaining unaccreted discount balance related to the 12.5% first
mortgage notes was charged to expense as a reorganization item at October 31,
1995). There also has been no accrual of interest on the $1,425,000, 7.5%
Convertible Subordinated Notes since October 31, 1995. If accrued, the
quarterly interest expense on the 7.5% notes would have totaled approximately
$27,000 for the three month period ended June 30, 1996. In addition, there
has been no accrual of interest on the $2,950,000 of prior period tax
obligations since October 31, 1995. If accrued, the interest expense on prior
period tax obligations would have totaled approximately $75,000 for the three
month period ended June 30, 1996.
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Reorganization expense is comprised of items incurred by the Company as a
result of reorganization under Chapter 11 of the Bankruptcy Code. Such items
totaled $604,000 and consisted primarily of accrued professional fees, for the
three month period ended June 30, 1996.
Six Month Periods Ended June 30, 1996 and 1995
Revenues
During the six month period ended June 30, 1996, total revenues, net of
promotional allowances, increased $1,709,000 (5.8%) primarily because of an
increase in the number of Four Queens hotel guests and casino visitors, which
apparently resulted from an overall increase in the number of visitors to Las
Vegas and related visitor (and local residents) interest in the Fremont Street
Experience attraction in downtown Las Vegas. Other income decreased $944,000,
primarily as a result of the nonaccrual of interest income related to the
Native American loans, which were fully reserved at December 31, 1995. Casino
revenues increased $1,308,000 (6.4%). Promotional allowances, which are
subtracted from gross revenues, decreased $63,000 (1.8%).
The increase in Casino revenues of $1,308,000 from the comparable prior
period, consisted of a $1,525,000 (11.0%) increase in slot revenues and a
$217,000 (3.2%) decrease in table games revenues. The increase in slot
revenues is attributable to both favorable increases in volumes of play and
win variances. The decrease in table games revenues is due to unfavorable win
and volume variances.
Hotel revenue increased $955,000 (20.0%) primarily because of an increase in
room rates. Food and beverage revenues increased by $325,000 (5.2%) as a
result of an increase in the average price per food cover.
Costs and Expenses
Total costs and expenses, excluding interest, depreciation, casino development
costs and reorganization items decreased $1,462,000 (5.2%) during the six
month period ended June 30, 1996.
Casino costs and expenses decreased $1,289,000 (12.4%) primarily due to (1) a
decrease in French Quarter Lounge entertainment expenses and (2) a decrease in
costs allocated to the casino for promotional allowances (which was lower, as
a result of a reduction in the ratio of complimentary sales to total sales of
rooms, food and beverages during the six month period ended June 30, 1996).
Hotel expenses were comparable to the 1995 period. Food and beverage expenses
increased $431,000 (14.2%) primarily due to decreased allocations of the costs
of promotional allowances to the casino, as explained above.
Taxes and licenses increased 123,000 (3.7%) primarily because of increased
taxable revenues and taxable payroll during the period. Selling, general and
administrative expenses decreased $890,000 (15.7%) from 1995 primarily due to
reductions in payroll costs of corporate administrative and development staff.
Rent expenses increased $91,000 (4.7%) primarily because of scheduled
increases under existing leases.
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Depreciation and amortization decreased $144,000 (7.1%), primarily because of
decreased amortization of debt issue costs (unamortized debt issue costs,
incurred in connection with the 12.5% First Mortgage notes, were charged to
expense as reorganization items at October 31, 1995) and slightly lower
depreciation of property and equipment, which was mostly offset by the
start-up (January 1, 1996) of amortization (over 60-months) of the $3,000,000
Investment in the Fremont Street Experience.
Because of the Chapter 11 proceedings, there has been no accrual of interest
on the $57,000,000, 12.5% First Mortgage notes since October 31, 1995. If
accrued, the interest expense on the 12.5% notes would have totaled
approximately $3,562,000 for the six month period ended June 30, 1996. (In
addition, the remaining unaccreted discount balance related to the 12.5% first
mortgage notes was charged to expense as a reorganization item at October 31,
1995). There also has been no accrual of interest on the $1,425,000, 7.5%
Convertible Subordinated Notes since October 31, 1995. If accrued, the
interest expense on the 7.5% notes would have totaled approximately $54,000
for the six month period ended June 30, 1996. In addition, there has been no
accrual of interest on the $2,950,000 of prior period tax obligations since
October 31, 1995. If accrued, the interest expense on prior period tax
obligations would have totaled approximately $150,000 for the six month period
ended June 30, 1996.
Reorganization expense is comprised of items incurred by the Company as a
result of reorganization under Chapter 11 of the Bankruptcy Code. Such items
totaled $1,138,000 and consisted primarily of accrued professional fees, for
the six month period ended June 30, 1996.
<PAGE>
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Other Information
PART II. OTHER INFORMATION
Item 1. Legal Proceedings:
Disclosed in Note 6 of the Condensed Consolidated
Financial Statements in Part 1 and is incorporated by
reference herein.
Item 5. Other Information:
Described in Notes 1 and 6 of the Condensed
Consolidated Financial Statements in Part 1 and is
incorporated by reference herein.
Item 6. Exhibits and Reports of Form 8-K:
Form 8-K - dated July 19, 1996, announcing
results of July 18, 1996 confirmation
Hearing.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto authorized.
ELSINORE CORPORATION
(Registrant)
By: /s/ Thomas E. Martin
THOMAS E. MARTIN, President
and Chief Executive Officer
By: /s/ Brent E. Duncan
BRENT E. DUNCAN, Secretary
and Treasurer and Principal
Accounting Officer
Dated: August 16, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS UNAUDITED SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE JUNE 30, 1996 10-Q AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH 10-Q.
</LEGEND>
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<PERIOD-END> JUN-30-1996
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