SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A No.1
(MARK ONE)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period
ended March 31, 1997
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 July 14, 1997 4,929,313
Elsinore Corporation and Subsidiaries
Form 10-Q/A No. 1
For the Quarter Ended March 31, 1997
INDEX
PART I. FINANCIAL INFORMATION: PAGE
Item 1. Consolidated Financial Statements:
Independent Auditors' Review Report 3-4
Balance Sheets at March 31, 1997 (Reorganized
Company) (Unaudited) and December 31, 1996
(Predecessor Company) 5-6
Statements of Operations for the One Month Ended March 31, 1997
(Reorganized Company); Two Months Ended February 28,
1997 (Predecessor Company) and Three Months Ended
March 31, 1996 (Predecessor Company); Combined
Reorganized and Predecessor Company for the Three
Months Ended March 31, 1997
(Unaudited) 7-8
Statements of Cash Flows for the One Month Ended March 31, 1997
(Reorganized Company); Two Months Ended February 28,
1997 (Predecessor Company) and Three Months Ended
March 31, 1996 (Predecessor Company); Combined
Reorganized and Predecessor Company for the Three
Months Ended
March 31, 1997 (Unaudited) 9-10
Notes to Financial Statements 11-20
SIGNATURES 21
INDEPENDENT AUDITORS' REVIEW REPORT
The Board of Directors and Shareholders
Elsinore Corporation:
We have reviewed the consolidated balance sheet of Elsinore Corporation and
subsidiaries (Reorganized Company) as of March 31, 1997, and the related
consolidated statements of operations and cash flows for the period from March
1, 1997 through March 31, 1997 and the related consolidated statements of
operations and cash flows of Elsinore Corporation and subsidiaries,
Debtor-In-Possession (Predecessor Company) for the period January 1, 1997
through February 28, 1997. These consolidated financial statements are the
responsibility of the Reorganized and Predecessor Companys' management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Elsinore Corporation and
subsidiaries, Debtor-In-Possession as of December 31, 1996 and the related
consolidated statements of operations, shareholders' equity (deficit) and cash
flows for the year then ended (not presented herein); and in our report dated
February 19, 1997, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying consolidated balance sheet as of December 31, 1996, is fairly
stated, in all material respects, in relation to the consolidated balance sheet
from which it has been derived.
Our report dated February 19, 1997, on the consolidated financial statements of
Elsinore Corporation and subsidiaries, Debtor-In-Possession as of and for the
year ended December 31, 1996, contains an explanatory paragraph that states that
on October 31, 1995, the Company filed a voluntary petition seeking to
reorganize under Chapter 11 of the United States Bankruptcy code. The Company is
currently operating as a Debtor-In-Possession under the jurisdiction of the
Bankruptcy Court and this event and circumstances relating to this event raise
substantial doubt about the entity's ability to continue as a going concern. The
consolidated balance sheet as of December 31, 1996, does not include any
adjustments that might result from the outcome of that uncertainty.
<PAGE>
As discussed in Note 2 to the consolidated financial statements, on February 28,
1997, Elsinore Corporation emerged from bankruptcy. The consolidated financial
statements of the Reorganized Company reflect the impact of adjustments to
reflect the fair value of assets and liabilities under fresh start reporting. As
a result, the financial statements of the Reorganized Company are presented on a
different basis of accounting than those of the Predecessor Company and,
therefore, are not comparable in all respects.
Las Vegas, Nevada
May 12, 1997
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
<TABLE>
Elsinore Corporation and Subsidiaries
Consolidated Balance Sheets
March 31, 1997 and December 31, 1996
(Dollars in Thousands)
Reorganized Predecessor
Company Company
March 31, December 31,
1997 1996
------------------ --------------------
(Unaudited)
Assets
<S> <C> <C>
Current Assets:
Cash and cash equivalents 11,542 7,208
Accounts receivable, less allowance for
doubtful accounts of $327 and $347,
respectively 450 815
Inventories 361 354
Prepaid expenses 1,515 1,177
------------------- --------------------
Total current assets 13,868 9,554
------------------- --------------------
Cash and cash equivalents, restricted - 4,445
Property and equipment, net 36,391 23,544
Leasehold acquisition costs, net - 1,941
Investment in Fremont Street Experience LLC 2,400
Reorganization value in excess of amounts allocable to 384 -
identifiable assets
Restricted cash available for principal payments of long-term debt
353
Other assets 737 743
------------------- --------------------
Total assets 51,733 42,627
=================== ====================
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
Elsinore Corporation and Subsidiaries
Consolidated Balance Sheets
March 31, 1997 and December 31, 1996
(Dollars in Thousands)
Reorganized Predecessor
Company Company
March 31, December 31,
1997 1996
------------------ -----------------
(Unaudited)
Liabilities and Shareholders' Equity (Deficit)
Current liabilities:
<S> <C> <C>
Accounts payable 1,187 1,065
Accrued interest 375 2,137
Accrued expenses 6,343 6,176
Current portion of long-term debt 909 50
------------------ -----------------
Total current liabilities 8,814 9,428
------------------ -----------------
Estimated liabilities subject to Chapter 11
proceedings - 73,909
Long-term debt, less current portion 37,367 -
------------------ -----------------
Total liabilities 46,181 83,337
------------------ -----------------
Commitments and contingencies
Shareholders' equity (deficit):
Common stock, $.001 par value per share.
Authorized 100,000,000 shares. Issued
and outstanding 15,891,793 shares,
Predecessor company - 16
Common stock, $.001 par value per share.
Authorized 100,000,000 shares. Issued
and outstanding 4,929,313 shares,
Reorganized company 5 -
Additional paid-in capital 4,995 69,602
Retained earnings (accumulated deficit) 552 (110,328)
------------------ -----------------
Total shareholders' equity (deficit) 5,552 (40,710)
------------------ -----------------
Total liabilities and shareholders'
equity (deficit) 51,733 42,627
================== =================
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
Elsinore Corporation and Subsidiaries
Consolidated Statements of Operations
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
Combined
Reorganized
and
Reorganized Predecessor
Company Predecessor Company Company
------------------- ------------------- ------------------- -------------------
Period from Period from Period from Three Months
March 1 January 1 to January 1 to Ended
to February 28 March 31 March 31
March 31 1997 1996 1997
1997
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Revenues, net:
Casino 3,549 6,922 11,174 10,471
Hotel 864 1,736 2,996 2,600
Food and beverage 895 1,745 3,501 2,640
Other 162 153 171 315
Promotional allowances (320) (760) (1,956) (1,080)
------------------- ------------------- ------------------- -------------------
Total revenues, net 5,150 9,796 15,886 14,946
Costs and expenses:
Casino 1,164 2,710 4,862 3,874
Hotel 694 1,410 1,878 2,104
Food and beverage 547 1,105 1,756 1,652
Taxes and licenses 507 980 1,811 1,487
Selling, general and
administrative 789 1,808 2,450 2,597
Rents 335 673 1,017 1,008
Depreciation and
amortization 169 529 970 698
Interest 393 772 264 1,165
------------------- ------------------- ------------------- -------------------
Total costs and
expenses 4,598 9,987 15,008 14,585
------------------- ------------------- ------------------- -------------------
Income (loss) before
reorganization items
and extraordinary
gain on elimination
of debt 552 (191) 878 361
===================
Reorganization items - - 534
Extraordinary gain on
elimination of debt - 35,977 -
------------------- ------------------- -------------------
Net income (loss) 552 35,786 344
Retained earnings (deficit) at
beginning of period
- (110,327) (108,772)
Fresh start adjustments - 74,541 -
------------------- ------------------- -------------------
Retained earnings
(deficit) at end of period
552 - (108,428)
=================== =================== ===================
</TABLE>
<PAGE>
<TABLE>
Elsinore Corporation and Subsidiaries
Consolidated Statements of Operations
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
Reorganized
Company Predecessor Company
------------------ ------------------ -- ------------------
Period from Period from Period from
March 1 January 1 to January 1 to
to February 28 March 31
March 31 1997 1996
1997
------------------ ------------------ ------------------
<S> <C> <C> <C>
Income (Loss) Per Share:
Income (loss) before
extraordinary gain on
elimination of debt $0.11 $(0.01) $0.02
Extraordinary gain on
elimination of debt - $2.26 -
------------------ ------------------ ------------------
Net income (loss) $0.11 $2.25 $0.02
================== ================== ==================
Weighted average number of common
shares outstanding
4,929,313 15,891,793 15,891,793
================== ================== ==================
</TABLE>
<TABLE>
Elsinore Corporation and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(Dollars in Thousands)
(Unaudited)
Combined
Reorganized
Reorganized Predecessor
Company Predecessor Company Company
---------------------------------------------------------------------------
Period from Period from Period from Three Months
March 1 January 1 to January 1 to Ended
to February 28 March 31 March 31
March 31 1997 1996 1997
1997
---------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C> <C> <C>
Net income (loss) $552 $(191) $344 $361
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Depreciation and
Amortization 172 529 970 701
Accretion of discount on
long-term debt - - 53 -
Reorganization items - - 534 -
Accrued expenses (424) 591 1,365 167
Change in other assets and
liabilities, net (2,041) 608 (481) (1,433)
Liabilities subject to
compromise:
Accounts payable 130 (464) 130
---------------------------------------------------------------------------
Net cash provided by (used
in) operating activities (1,741) 1,667 2,321 (74)
---------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (239) (141) (257) (380)
---------------------------------------------------------------------------
Net cash used in investing
Activities (239) (141) (257) (380)
---------------------------------------------------------------------------
Cash flows from financing activities:
Repayment of debt (5) (12) (13) (17)
Proceeds from issuance of
common stock and
subscription rights - 713 - 713
---------------------------------------------------------------------------
Net cash provided by (used
in) financing activities (5) 701 (13) 696
---------------------------------------------------------------------------
</TABLE>
<TABLE>
Elsinore Corporation and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(Dollars in Thousands)
(Unaudited)
Combined
Reorganized
Reorganized Predecessor
Company Predecessor Company Company
-------------------
--------------------------------------------------------
Period from Period from Period from Three Months
March 1 January 1 to January 1 to Ended
to February 28 March 31 March 31
March 31 1997 1996 1997
1997
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net increase (decrease) in
cash and cash equivalents (1,985) 2,227 2,051 242
---------------------------------------------------------------------------
Cash and cash equivalents at
beginning of period,
including restricted cash 13,880 11,653 3,572 11,653
---------------------------------------------------------------------------
Cash and cash equivalents at
end of period, including
restricted cash $11,895 $13,880 $5,623 $11,895
===========================================================================
</TABLE>
See accompanying notes to financial statements.
Elsinore Corporation and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 1997
On October 31, 1995, Elsinore Corporation, D. I. P. (the "Predecessor Company")
filed a voluntary petition to reorganize under Chapter 11 of the Federal
Bankruptcy Code. On August 12, 1996, the Plan of Reorganization filed by the
Predecessor Company (the "Plan") was confirmed and became effective following
the close of business on February 28, 1997 (the "Effective Date"). Upon the
effectiveness of the Plan, Elsinore Corporation (the "Reorganized Company" or
the "Company") adopted fresh start reporting in accordance with Statement of
Position 90-7, "Financial Reporting by Entities in Reorganization under the
Bankruptcy Code" ("SOP 90-7") of the American Institute of Certified Public
Accountants. Accordingly, the Company's post-reorganization balance sheet and
statement of operations have not been prepared on a consistent basis with such
pre-reorganization financial statements. For accounting purposes, the inception
date of the Reorganized Company is deemed to be March 1, 1997. A vertical black
line is shown in the financial statements to separate the Reorganized Company
from the Predecessor Company since they have not been prepared on a consistent
basis of accounting.
The Company has prepared the accompanying financial statements without audit,
pursuant to rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. In the
opinion of management, the accompanying unaudited financial statements contain
all adjustments necessary to present fairly its financial position as of March
31, 1997 and the results of its operations and its cash flows for the periods
ended March 31 and February 28, 1997 and March 31, 1996.
1. Chapter 11 Reorganization
On August 12, 1996 (the "Confirmation Date"), the United States
Bankruptcy Court for the District of Nevada (the "Bankruptcy Court")
confirmed the Plan. The Plan became effective on the Effective Date.
Pursuant to the Plan, the following occurred upon the Effective Date:
The old common stock interests in the Predecessor Company were
canceled and the Reorganized Company issued 4,929,313 shares of
new common stock (the "New Common Stock"). The New Common Stock
was distributed to the following classes of creditors and equity
holders:
12.5% First Mortgage noteholders 3,750,000
7.5% Convertible Subordinated noteholders 68,234
Internal Revenue Service 38,373
Old common stockholders 72,706
------
Total 3,929,313
The Reorganized Company issued 1 million of those shares through a
rights offering which raised $5 million to assist in funding the
Plan. These shares were subscribed for by members of the following
classes of creditors and equity holders:
12.5% First Mortgage noteholders 995,280
Old common stockholders 4,720
Total 1,000,000
The Plan also calls for the Reorganized Company to issue the
following additional shares of New Common Stock to the following
creditor groups as soon as disputed claims within those groups are
resolved:
Unsecured Creditors of Four Queens, Inc. 50,491
Unsecured Creditors of Elsinore Corporation 20,196
Total 70,687
After giving effect to this issuance of additional shares, the
Reorganized Company will have 5 million issued and outstanding
shares of New Common Stock.
The proceeds from the rights offering were held in a separate bank
account and use was restricted until the Effective Date.
Riviera Gaming Management Corp. - Elsinore, Inc. holds a warrant
to purchase 1,125,000 shares of new common stock for $1 per share.
The 1994 Mortgage Notes were amended and restated to include the
original principal amount of $3,000,000, accrued interest at 20%
through the confirmation date in the amount of $725,363, and
attorneys fees and disbursements through the Effective Date of
$130,377, resulting in a new principal amount of $3,855,739. On
the Effective Date, each 1994 Mortgage Note holder received its
prorata share of restated mortgage notes (the "New First Mortgage
Notes"). The New First Mortgage Notes bear interest at 11.5%,
payable quarterly commencing on the fourth month following the
confirmation date and are due four years from the Confirmation
Date. These noteholders retained their lien interests as
collateral for repayment.
The 1993 First Mortgage Notes were amended and restated to reduce
the principal amount of $57,000,000 to $30,000,000 which
represented the secured portion of the claim. On the Effective
Date, each 1993 First Mortgage Note holder received their prorata
share of restated mortgage notes (the "New Second Mortgage
Notes"). The New Second Mortgage Notes bear interest at 13.5%,
payable semi-annually and are due five years from the Confirmation
Date. The unsecured portion of their claim, approximately
$4,000,000, (representing accrued interest through the filing date
at 12.5%)was exchanged for shares of New Common Stock as described
above.
The Convertible Notes with the principal amount of $1,425,000 were
exchanged for shares of New Common Stock on a prorata basis.
The general unsecured creditors with claims in the amount of
approximately $3,510,000 received a prorata share of $1,400,000
and are entitled 70,687 shares of New Common Stock. The stock
distribution will take place once certain litigation has been
settled which will determine the number of shares to which each
individual unsecured creditor is entitled.
The Internal Revenue Service ("IRS") has tentatively agreed to a
note payable in the amount of $629,000 in settlement of an
unsecured claim to be fixed in the amount of $1,892,994 which was
calculated based on the percentage of the allowed claim compared
to the total general unsecured claims. The note is to be
non-interest bearing and is to be payable in semi-annual payments
beginning August 1997. Additionally, the IRS received a note
payable in the amount of $1,087,000 and 38,373 shares of New
Common Stock in settlement of its secured claim. The note will
accrue interest at 8% per annum and is due four years from the
Effective Date. Finally, the IRS has an unsecured priority claim
in the amount of $5,000 which was paid.
The Company's Board of Directors was reconstituted to include five
members, of which four were designated by the Bondholders
Committee and one was appointed by the Equity Committee in the
Bankruptcy Case.
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 and executive severance expenses was $0, $0 and $534,000 for the
one month ended March 31, 1997, the two months ended February 28, 1997
and the three months ended March 31, 1996, respectively.
2. Fresh Start Reporting
In connection with its emergence from bankruptcy on February 28, 1997,
the Company adopted fresh start reporting in accordance with SOP 90-7.
The fresh start reporting common equity value of $5.0 million was
determined by the Company. The significant factors used in the
determination of this value were analyses of industry, economic and
overall market conditions, historical and estimated performance of the
Company as well as of the gaming industry, discussions with various
potential investors and certain financial analyses.
Under fresh start reporting, the reorganization value of the entity has
been allocated to the Reorganized Company's assets and liabilities on a
basis substantially consistent with purchase accounting. The portion of
reorganization value not attributable to specific tangible assets has
been reflected as "Reorganization Value in Excess of Amounts Allocable
to Identifiable Assets" in the accompanying balance sheet as of March
1, 1997. The fresh start reporting adjustments, primarily related to
the adjustment of the Company's assets and liabilities to estimated
fair market value, will have a significant effect on the Company's
future statements of operations. The more significant of these
adjustments relate to reduced depreciation expense on property and
equipment, increased amortization expense relating to reorganization
value in excess of amounts allocable to identifiable assets and
increased interest expense.
The effects of the Plan and fresh start reporting on the balance sheet
at February 28, 1997 are as follows:
<TABLE>
Predecessor (a) (b) (c) Reorganized
Company Debt Issue of Fresh Start Company
February 28, Discharge Stock Adjustments March 1,
1997 1997
----------------------------------- -------------- ----------------- --------------------------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents 13,527 13,527
Accounts recievable, net 546 546
Inventories 348 348
Prepaid expenses 1,288 1,288
------------------- --------------- -------------- ------------------ --------------------
Total current assets 15,709 15,709
Property and equipment, net 23,191 13,130 36,321
Leasehold acquisition costs, net 1,907 (1,907)
Reorganization value in excess of amounts
allocable to identifiable assets 387 387
Investment in Fremont Street 2,400 (2,400)
Restricted cash available for payment 353 353
on long-term debt
Other assets 741 741
------------------- --------------- -------------- ------------------ --------------------
Total assets $44,300 $ - $ - $9,210 $53,510
=================== =============== ============== ================== ====================
Liabilities and Shareholders' Equity (Deficit)
Current liabilities:
Current maturities of long-term 41 873 914
Accounts payable 757 344 1,102
Accrued expenses 6,766 6,766
Accrued interest 2,886 (525) 2,361
------------------- --------------- -------------- ------------------ --------------------
Total current liabilities 10,451 (181) 873 11,143
Estimated liabilities subject to Chapter 11
proceedings 72,552 (72,552)
Long-term debt, less current 1,484 36,756 (873) 37,367
maturities
------------------- --------------- -------------- ------------------ --------------------
Total Liabilities 84,487 (35,977) 48,510
------------------- --------------- -------------- ------------------ --------------------
Shareholders' equity (deficiency)
Common stock, Predecessor 16 (16)
Company
Common stock, Reorganized 4 1 5
Company
Additional paid in capital 70,315 (4) (65,316) 4,995
Accumulated deficit (110,518) 35,977 74,541
------------------- --------------- -------------- ------------------ --------------------
Total Shareholders' equity (deficiency) (40,187) 35,977 9,210 5,000
------------------- --------------- -------------- ------------------ --------------------
Total liabilities and shareholders' equity
(deficiency) $44,300 $ - $ - $9,210 $53,510
=================== =============== ============== ================== ====================
<FN>
(a) To record the discharge of prepetition obligations pursuant to the Plan of Reorganization.
(b) To record the issuance of 3,929,313 shares of new common stock.
(c) To record adjustments to reflect assets and liabilities at fair market values and to
record reorganization value in excess allocable to identifiable assets.
</FN>
</TABLE>
3. Significant Accounting Policies
A. Reorganization Value in Excess of Amounts Allocable to
identifiable Assets
Reorganization value in excess of amounts allocable to
identifiable assets is amortized on a straight line basis over
15 years. Accumulated amortization at March 31, 1997 is
approximately $2,000. The Company will continue to assess the
recoverability of this asset based upon expected future
undiscounted cash flows and other relevant information.
B. Reclassification
Certain prior period reclassifications have been made in the
Predecessor Company's financial statements to conform to the
Reorganized Company's presentation.
4. Per Share Data
In February, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per
Share, (Statement 128) which establishes standards for computing and
presenting earnings per share (EPS). It replaces the presentation of
primary and fully diluted EPS with a presentation of basic and diluted
EPS. Statement 128 is effective for financial statements for both
interim and annual periods ending after December 15, 1997. Earlier
application is not permitted. After adoption, all prior period EPS data
should be restated to conform to Statement 128.
The Company will adopt Statement 128 in the fourth quarter of 1997. The
pro forma impact of Statement 128 on the one month ended March 31, 1997
and the two months ended February 28, 1997 is basic EPS would have been
$0.11 and $(0.01) per share, respectively and diluted EPS would have
been $0.11 and $(0.01) per share, respectively.
Earnings per share for the two months ended February 28, 1997 and the
three months ended March 31, 1996 are based upon the weighted average
number of shares of common stock outstanding as there were no common
stock equivalents outstanding during the period.
5. Long-Term Debt
The New First Mortgage Notes bear interest at 11.5% payable on March 1,
June 1, September 1, and December 1 of each year. Principal is due on
August 20, 2000. The New First Mortgage Notes are redeemable at any
time at 102% of par. The Company is required to make an offer to
purchase all New First Mortgage Notes at 101% upon any "Change of
Control" as defined in the Amended and Restated Note Agreement ("Note
Agreement"). The Company is also required to offer to purchase a
portion of the New First Mortgage Notes in the amount of any proceeds
received on the Palm Springs East Limited Partnership Note. The New
First Mortgage Notes are collateralized by a first priority deed of
trust on and pledge of substantially all assets of Elsinore
Corporation, Elsub Management Corporation, Four Queens, Inc., and Palm
Springs East Limited Partnership. The New First Mortgage Notes are
guaranteed by certain wholly owned subsidiaries of the Company.
The Note Agreement, among other things, places significant restrictions
on the incurrence of additional indebtedness by the Company, the
creation of additional liens on the collateral securing the New First
Mortgage Notes, transactions with affiliates and payment of certain
restricted payments (as defined). In order for the Company to incur
additional indebtedness or make a restricted payment, the Company must,
among other things, meet a specified fixed charge coverage ratio and
have earned $1 million in EBITDA. The Company must also maintain a
minimum amount of consolidated net worth (as defined).
The New Second Mortgage Notes bear interest at 13.5%, payable on
February 28 and August 31 of each year. Principal is due on August 20,
2001. The New Second Mortgage Notes are redeemable by the Company at
any time at 100% of par, without premium. The Company is required to
make an offer to purchase all New Second Mortgage Notes at 101% upon
any "Change of Control" as defined in the Indenture. The New Second
Mortgage Notes are guaranteed by Elsub Management Corporation, Four
Queens, Inc. and Palm Springs East Limited Partnership and are
collateralized by a second deed of trust on and pledge of substantially
all the assets of the Company and the Guarantors. The New Second
Mortgage Notes have substantially the same restrictions and covenants
as the New First Mortgage Notes.
6. Income Taxes
The Company follows the Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes (SFAS 109). The Predecessor Company
also followed SFAS 109. Under SFAS 109, deferred tax assets (subject to
a possible valuation allowance) and liabilities are recognized for the
expected future tax consequences of events that are reflected in the
Company's financial statements or tax returns.
Income tax expense:
For the periods shown below, the Company recorded income tax expense as
follows:
Period from Period from
March 1, 1997 through January 1, 1997 through
March 31, 1997 February 28, 1997
Current taxes $ 0 $ 0
=== ===
Deferred taxes $ 0 $ 0
=== ===
For the period beginning January 1, 1997 and ending February 28, 1997,
income tax expense pertains solely to income from continuing
operations. No income tax expense was recognized with respect to the
extraordinary gain resulting from the cancellation of indebtedness that
occurred in connection with the effectiveness of the Plan as such gain
is offset without limitation by the net operating loss carryover.
With respect to the period beginning March 1, 1997 and ending March 31,
1997, income tax expense pertains both to income from continuing
operations as well as certain adjustments necessitated by the
effectiveness of the Plan and the resultant "Fresh Start" adjustments
to the Company's financial statements. A reconciliation of taxes at the
federal statutory rate ("expected taxes") to those reflected in the
financial statements (the "effective rate") is as follows:
Period from March Period from
1, 1997 through January 1, 1997
March 31, 1997 through
February 28, 1997
Taxes at U.S. Statutory Rate 187,340 (64,940)
Amortization of Reorganization Value
in excess of amounts allocable to
identifiable assets 730 0
Unrealized/(Realized) net operating
loss carryforward (188,070) 64,940
------- ------
Total 0 0
=========== ===========
As of March 31, 1997, the Company has available net operating loss,
business tax credit and alternative minimum tax credit carryforwards
for Federal income tax purposes of approximately $103,332,000, $640,000
and $312,000, respectively. The net operating loss carryforwards expire
during the years 1999 through 2010 and have not been reduced by the
cancellation of indebtedness income of $35,977,000 resulting from the
bankruptcy. However, such carryforwards are not fully available to
offset federal alternative minimum taxable income. Further, as a result
of a statutory "ownership change" (as defined for purposes of ss.382 of
the Internal Revenue Code) that occurred as a result of the
effectiveness of the Plan, the Company's ability to utilize its net
operating loss and business tax credit carryforwards may be restricted.
The restriction is not only one of timing based on Section 382
limitation, but may be restricted to a de minimis amount. The
alternative minimum tax credit may be carried forward without
expiration and is available to offset future income tax payable. The
Company is currently reviewing its alternatives and opportunities under
section 382 in connection with the determination of any limitation on
the utilization of the net operating loss.
Composition of Deferred Tax Items:
The Company has not recognized any net deferred tax items for the
periods ended February 28, 1997 and March 31, 1997, respectively.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's deferred tax assets
and liabilities are a result of the temporary differences related to
the items described as follows:
Net Deferred Items
(dollars in thousands)
March 31, 1997 February 28, 1997
Deferred income tax liabilities:
Property and equipment, principally
depreciation and "fresh start"
differences (9,010) (9,010)
Other (694) (631)
----- -----
Total deferred income tax liabilities (9,704) (9,641)
------ ------
Deferred tax assets:
Reorganization expenses 3,723 3,723
Net operating loss carryforward 22,900 22,808
Tax credit carryforwards 952 952
Reserve for notes receivable 7,573 7,573
Investments 1,188 1,188
Other 1,154 1,187
------- -------
Total deferred income tax assets 37,490 37,431
Valuation allowance (27,786) (27,790)
------- -------
Net deferred tax assets 9,704 9,641
--------- ---------
Net deferred tax items 0 0
=========== ===========
SFAS 109 requires a "more likely than not" criterion be applied when
evaluating the realizability of a deferred tax asset. Given the
Company's history of losses for income tax purposes, the volatility of
the industry within which the Company operates and certain other
factors, the Company has established a valuation allowance principally
for the portion of its net operating loss and other carryforwards that
may not be available due to expirations or other limitations after
consideration of net reversals of future taxable and deductible
amounts. After application of the valuation allowance, the Company's
net deferred tax assets and liabilities are zero. If the Company, in
future tax periods, were to recognize additional tax benefits related
to the net operating loss and other carryforwards of the Predecessor
Company, any such benefit would be applied to reduce reorganization
value in excess of amounts allocable to identifiable assets to zero.
7. Commitments and Contingencies
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 filed three proof of claims in both the Company's, as
well as Four Queens, Inc.'s, bankruptcy proceedings. Two of the proof
of claims, one for the union employees and one for the non-union
employees, totaled $14,000,000 and allege liability under the WARN Act
for failure to properly notify employees in advance of cessation of
operations of Elsinore Shore Associates. The third proof of claim in
the amount of $800,000 was based upon retroactive wage agreements
executed by Elsinore Shore Associates promising to pay its employees
deferred compensation if the employees remain with Elsinore Shore
Associates during its reorganization. The proof of claims were filed as
priority claims, not general unsecured claims.
Based upon the Order for Verdict Upon Liability Issues issued by the
presiding judge in New Jersey, as well as the Bankruptcy Code, the
Bondholders' Committee filed an objection to the WARN Act proofs of
claims. The Bankruptcy Court tentatively approved the objection and
disallowed the claims pending entry of the final order from the New
Jersey court. A second objection was filed on behalf of the
Bondholders' Committee to the $800,000 proofs of claim regarding the
retroactive wage benefits. Because the New Jersey court had found the
Company to be liable on these obligations together with Elsinore Shore
Associates, the objection filed by the Bondholders' Committee did not
dispute the allowability of the proof of claim to participate with the
other unsecured creditors in the Company's bankruptcy proceedings.
However, the Bondholders' Committee objected to the claim of priority
status in the Company's proceedings. The Bondholders' Committee
objected to the claim in its entirety in the Four Queens, Inc.'s
proceeding. The Bankruptcy Court granted the objections and ruled that
the proof of claim for retroactive wage benefits would be an allowed
unsecured claim against the Company to be treated in Class 10 of the
Plan with final determination of the actual amount of the claim to be
made by the New Jersey District Court. No final appealable order has
been entered as of yet by the Bankruptcy Court.
At March 31, 1997, 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 effect on the financial position of the Company.
8. Subsequent Event
It was reported in Amendment No. 1 to Schedule 13D filed with the
Securities and Exchange Commission on April 11, 1997 by John C. "Bruce"
Waterfall and related parties that beneficially own 4,646,440 shares of
New Common Stock (collectively, the "Reporting Persons"), constituting
94.3% of the total shares outstanding on an undiluted basis, that the
Reporting Persons were willing to grant an option (the "Option")
entitling a third party to purchase the Reporting Persons' New Common
Stock at $3.10 per share, subject to adjustment. Concurrently with that
third party's ongoing negotiations with the Reporting Persons for the
Option, he has commenced discussions with the Company for the
acquisition of the entire equity interest in the Company, at a per
share price equal to the Option price. Exercise of the Option (if it is
granted) and consummation of the acquisition (if the parties approve
it) would be subject to, among other things, prior approval by the
Nevada Gaming Commission. There can be no assurance at this time that
any such transaction will occur.
<PAGE>
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/ Jeffrey Leeds
JEFFREY LEEDS, President
and Chief Executive Officer
By: /s/ S. Barton Jacka
S. BARTON JACKA, Secretary
and Treasurer and Principal
Accounting Officer
Dated: July 14, 1997
