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 September 30, 1998
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
APPLICABLE ONLY TO ISSUERS, INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court.
YES X NO
<PAGE>
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 November 12, 1998 4,929,313
<PAGE>
Elsinore Corporation and Subsidiaries
Form 10-Q
For the Quarter Ended September 30, 1998
INDEX
PART I. FINANCIAL INFORMATION: PAGE
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets at 4-5
September 30, 1998 (Reorganized Company)
and December 31, 1997 (Reorganized Company)
Condensed Consolidated Statements of Operations 6-7
for the Three Months Ended September 30, 1998 and
Three Months Ended September 30, 1997
Condensed Consolidated Statements of Operations 8-9
for the Nine Months Ended September 30, 1998
(Reorganized Company) and Seven Months Ended
September 30, 1997 (Reorganized Company);
Two Months Ended February 28, 1997 (Predecessor
Company); Combined Reorganized and Predecessor
Company for the Nine Months Ended September
30, 1997
Condensed Consolidated Statements of Cash Flows 10-11
for the Nine Months Ended September 30, 1998
(Reorganized Company) and Seven Months Ended
September 30, 1997 (Reorganized Company); Two
Months Ended February 28, 1997 (Predecessor
Company); Combined Reorganized and Predecessor
Company for the Nine Months Ended September
30, 1997
Notes to Condensed Consolidated Financial Statements 12-16
Item 2. Management's Discussion and Analysis of 16-29
Financial Condition and Results of
Operations
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings 30-31
Item 2. Change in Securities and Use of Proceeds 31
Item 4. Submission of Matter to a Vote of Security Holders 31
Item 6. Exhibits and Reports on Form 8-K 31-32
SIGNATURES 33
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
<TABLE>
<CAPTION>
Elsinore Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
September 30, 1998 and December 31, 1997
(Dollars in Thousands)
September 30, December
1998 31,
1997
-------------------- --------------------
Assets
Current Assets:
<S> <C> <C>
Cash and cash equivalents $4,739 $6,822
Accounts receivable, less allowance for
doubtful accounts of $236 and $165,
respectively 317 623
Inventories 380 382
Prepaid expenses 1,611 1,846
-------------------- --------------------
Total current assets 7,047 9,673
-------------------- --------------------
Property and equipment, net 40,568 39,042
Reorganization value in excess of amounts
allocable to indentifiable 351 367
assets
Other assets 1,195 741
-------------------- --------------------
Total assets $49,161 $49,823
==================== ====================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Elsinore Corporation and Subsidiaries
Condensed Consolidated Balance Sheets (continued)
September 30, 1998 and December 31, 1997
(Dollars in Thousands)
September 30, December
1998 31,
1997
------------------ --------------------
Liabilities and Shareholders' Equity Current liabilities:
<S> <C> <C>
Accounts payable $906 $1,174
Accrued interest 2,329 1,492
Accrued expenses 4,593 4,453
Current portion of long-term debt 1,864 1,477
------------------ --------------------
Total current liabilities 9,692 8,596
------------------ --------------------
Long-term debt, less current portion 15,664 38,141
------------------ --------------------
Total liabilities $25,356 $46,737
------------------ --------------------
Commitments and contingencies
Shareholders' equity:
6% cumulative convertible preferred stock, no
par value. Authorized, issued and outstanding
50,000,000 shares. Liquidation preference of
$18,000,000. $18,000 -
Common stock, $.001 par value per share.
Authorized 100,000,000 shares. Issued
and outstanding 4,929,313 shares. 5 5
Additional paid-in capital 9,636 4,995
Accumulated deficit (3,836) (1,914)
------------------ --------------------
Total shareholders' equity 23,805 3,086
------------------ --------------------
Total liabilities and shareholders'
equity $49,161 $49,823
================== ====================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Elsinore Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
(Dollars in Thousands, Except Per Share Amounts)
------------------- -------------------
Three Three
Months Months
Ended Ended
September 30, September 30,
1998 1997
------------------- -------------------
Revenues, net:
<S> <C> <C>
Casino $10,020 $8,741
Hotel 1,996 2,110
Food and beverage 2,202 2,280
Other 611 892
Promotional allowances (1,203) (1,136)
------------------- ----------- -------------------
Total revenues, net 13,626 12,887
Costs and expenses:
Casino 3,586 3,395
Hotel 2,026 2,172
Food and beverage 1,486 1,437
Taxes and licenses 1,450 1,325
Selling, general and
administrative 3,177 2,509
Rents 998 1,034
Depreciation and
amortization 837 551
Interest 1,260 1,269
Merger costs 11 -
------------------- ----------- -------------------
Total costs and
expenses 14,831 13,692
------------------- ----------- -------------------
Loss before extraordinary item and income
taxes (1,205) (805)
Extraordinary item - loss on extinguishment
of debt (77) -
Income taxes - (15)
------------------- ----------- -------------------
Net loss (1,282) (820)
=================== =========== ===================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Elsinore Corporation and Subsidiaries
Condensed Consolidated Statements of Operations (continued)
(Dollars in Thousands, Except Per Share Amounts)
---------------------------------------------------
Three Three
Months Months
Ended Ended
September 30, September 30,
1998 1997
---------------------------------------------------
Basic and diluted loss per share:
<S> <C> <C>
Loss before extraordinary item ($.24) ($.17)
Loss on extinguishment of debt (.02) -
===================================================
Net loss ($.26) ($.17)
===================================================
Weighted average number of
common shares
outstanding 4,929,313 4,929,313
===================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Elsinore Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
(Dollars in Thousands, Except Per Share Amounts)
Combined
Reorganized
and
Predecessor Predecessor
Reorganized Company Company Company
-------------------------------------------------------------------------------
Nine Period from Period from Nine
Months March 1 January 1 to Months
Ended to February Ended
September 30, September 30, 28, September 30,
1998 1997 1997 1997
-------------------------------------------------------------------------------
Revenues, net:
<S> <C> <C> <C> <C>
Casino $29,809 $21,341 $6,922 $28,263
Hotel 6,509 5,380 1,736 7,116
Food and beverage 7,397 5,445 1,745 7,190
Other 2,110 1,408 153 1,561
Promotional allowances (4,169) (2,351) (760) (3,111)
-------------------------------------------------------------------------------
Total revenues, net 41,656 31,223 9,796 41,019
Costs and expenses:
Casino 11,228 8,135 2,710 10,845
Hotel 5,732 5,021 1,410 6,431
Food and beverage 4,470 3,488 1,105 4,593
Taxes and licenses 4,492 3,213 980 4,193
Selling, general and
administrative 8,573 5,341 1,807 7,148
Rents 2,910 2,394 673 3,067
Depreciation and
amortization 1,967 1,271 529 1,800
Interest 3,866 2,947 772 3,719
Merger costs 263 - - -
-------------------------------------------------------------------------------
Total costs and
expenses 43,501 31,810 9,986 41,796
-------------------------------------------------------------------------------
Loss before
extraordinary item (1,845) (587) (190) (777)
====================
Extraordinary item (77) - 35,977
Income taxes - (45) -
----------------------------------------------------------
Net income (loss) (1,922) (632) 35,787
==========================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Elsinore Corporation and Subsidiaries
Condensed Consolidated Statements of Operations (continued)
(Dollars in Thousands, Except Per Share Amounts)
Predecessor
Reorganized Company Company
--------------------------------------------------------
Nine Period from Period from
Months March 1 January 1 to
Ended to February
September 30, September 30, 28,
1998 1997 1997
--------------------------------------------------------
Basic and diluted income (loss) per
share:
Loss before
<S> <C> <C> <C>
extraordinary item ($.37) ($.13) ($0.01)
Extraordinary item (.02) - $2.26
================== ================== ==================
Net income (loss) ($.39) ($.13) $2.25
================== ================== ==================
Weighted average number of
common shares
outstanding 4,929,313 4,929,313 15,891,793
================== ================== ==================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Elsinore Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Dollars in Thousands)
Combined
Reorganized and
Predecessor
Company
Reorganized Company Predecessor
-------------------------------------------------------------------------
Nine Period from Period from Nine
Months March 1 January 1 to Months
Ended to February Ended
September 30, September 30, 28, September 30,
1998 1997 1997 1997
-------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C> <C> <C>
Net income (loss) ($1,922) ($632) $35,787 $35,155
Adjustments to reconcile
net income (loss) to net
cash provided by (used
in) operating activities:
Extraordinary item - - (35,977) (35,977)
-----------
Depreciation and
amortization 1,967 1,271 529 1,800
Decrease in accounts
receivable 306 130 269 399
Decrease in inventories 2 69 6 75
(Decrease) increase in
prepaid expenses 235 (830) (111) (941)
(Increase) decrease in
restricted cash - (560) 4,092 3,532
(Increase) decrease in
other assets (454) (5) 2 (3)
Decrease in accounts
payable (268) (407) (178) (585)
Increase (decrease) in
accrued expenses 140 (2,140) 591 (1,549)
Increase (decrease) in
accrued interest 837 (1,960) 749 (1,211)
-------------------------------------------------------------------------
Net cash provided by (used
in) operating activities $843 ($5,064) $5,759 $695
-------------------------------------------------------------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Elsinore Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (continued)
(Dollars in Thousands)
Combined
Reorganized and
Predecessor
Company
Reorganized Company Predecessor
----------------------------------------------------------------------------
Nine Period from Period from Nine
Months March 1 January 1 to Months
Ended to February Ended
September 30, September 30, 28, September 30,
1998 1997 1997 1997
----------------------------------------------------------------------------
Cash flows from investing
activities - capital
<S> <C> <C> <C> <C>
expenditures (1,439) (1,876) (141) (2,017)
----------------------------------------------------------------------------
Cash flows from financing activities:
Principal payments on
long-term debt (6,128) (456) (12) (468)
Capital contribution 4,641 - - -
Proceeds from issuance of
common stock
subscription rights - - 713 713
----------------------------------------------------------------------------
Net cash provided by (used
in) financing activities (1,487) (456) 701 245
----------------------------------------------------------------------------
Net increase (decrease) in
cash and cash equivalents (2,083) (7,396) 6,319 (1,077)
Cash and cash equivalents at
beginning of period 6,822 13,527 7,208 7,208
----------------------------------------------------------------------------
Cash and cash equivalents at
end of period $4,739 $6,131 $13,527 $6,131
============================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
Elsinore Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 1998
1. Chapter 11 Reorganization
On October 31, 1995, Elsinore Corporation filed a voluntary petition to
reorganize under Chapter 11 of the Federal Bankruptcy Code and continued to
operate as a debtor in possession (Elsinore Corporation, D.I.P.) ("Predecessor
Company"). 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
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" of the American Institute of Certified Public Accountants. As a
result of fresh start reporting, the material adjustments made by the Company
were the revaluation of property and equipment, write-off of the investment in
Fremont Street Experience, the revaluation of mortgage notes and other
liabilities, including the related gain on forgiveness of indebtedness, and
write-off of the accumulated deficit, additional paid-in-capital and common
stock of the Predecessor. 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.
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 the 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 financial statements contain all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the Company's financial position as of September 30, 1998, the
results of operations for the three months ended September 30, 1998 and
September 30, 1997 and the results of operations and cash flows for the nine
months ended September 30, 1998 and the two months ended February 28, 1997 for
the Predecessor Company and the seven months ended September 30, 1997 for the
Reorganized Company. The operating results and cash flows for these purposes are
not necessarily indicative of the results that will be achieved for the full
year or for future periods.
2. Shareholders' Equity
<TABLE>
<CAPTION>
Common Stock Preferred Stock
---------------------------------------------------------
Total
Out- Out- Additional Accumulated Shareholders
standing Standing Paid-In-Capital Earnings Equity
Shares Amount Shares Amount (Deficiency) (Deficiency)
---------------------------------------------------------------------------------------------------------------
Balance,
December 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1996 15,891,793 $16 $69,602 $(110,328) $(40,710)
Proceeds from
issuance of
common stock 713 - 713
subscription
rights
Net income
predecessor
company Jan. 1, - 35,787 35,787
1997 - Feb.
28,
1997
Fresh start (10,962,480) (11) (65,320) 74,541 9,210
adjustments
Net loss of
reorganized
company Mar. 1, - - (1,914) (1,914)
1997 - Dec. 31,
1997
------------------ --------- ---------------- ----------- --------------- ------------------ ------------------
Balance,December
31,1997 4,929,313 5 - - 4,995 (1,914) 3,086
Net loss Jan. 1,
1998 - Mar. 31, - (270) (270)
1998
------------------ --------- ---------------- ----------- --------------- ------------------ ------------------
Balance, Mar. 31, 4,929,313 $5 - - $4,995 ($2,184) $2,816
1998
Net loss Apr. 1,
1998 - June 30, (370) (370)
1998
------------------ --------- ---------------- ----------- --------------- ------------------ ------------------
Balance, June 30, 4,929,313 $5 - - $4,995 ($2,554) $2,446
1998
Capital
contribution, net 4,641 4,641
Issuance of
preferred stock 50,000,000 $18,000 18,000
Net loss July 1,
1998 - September (1,282) (1,282)
30, 1998
------------------ --------- ---------------- ----------- --------------- ------------------ ------------------
Balance,
September 4,929,313 $5 50,000,000 $18,000 $9,636 ($3,836) $23,805
30, 1998
================== ========= ================ =========== =============== ================== ==================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
3. Supplemental Disclosure of Cash Flows
Reorganized Predecessor
Company Company
---------------------- ----------------------
Nine Months Period from
Ended January 1 to
September 30, February 28
1998 1997
---------------------- ----------------------
(Dollars in (Dollars in
thousands) thousands)
Supplemental disclosure of non-cash investing and financing activities:
<S> <C>
Equipment purchased with capital lease financing $2,038 -
Long-term debt exchanged for preferred stock 18,000 -
-
Fresh start adjustments which result in increase (decrease) to the following:
Property and equipment,net - (13,130)
Leasehold acquisitions costs, net - 1,907
Reorganization value in excess of amounts
allocable to identifiable assets - (387)
Investment in Fremont Street Experience LLC - 2,400
Accounts payable - 344
Accrued interest - (525)
Estimated liabilities subject to Chapter 11
proceedings - (72,552)
Long-term debt, less current maturities - 36,756
Common stock, Predecessor Company - (16)
Common stock, Reorganized Company - 5
Additional paid in capital - (65,320)
Accumulated deficit - 110,518
3. Commitments and Contingencies
- - --------------------------------------------------------------------------------
Riviera Gaming Management Corp. - Elsinore ("RGME") manages the Four Queens
Hotel & Casino (which is owned by Four Queens, Inc., for which the Company is a
holding company) in accordance with the Management Agreement among the Company,
Four Queens, Inc. and RGME effective April 1, 1997. RGME receives an annual fee
of $1 million in equal monthly installments plus a performance fee payable
annually equal to 25% of any increase in earnings before interest, taxes,
depreciation and amortization ("EBITDA") in any fiscal year over $8 million.
RGME also received warrants to purchase 1,125,000 shares of the Company's Common
Stock at $1 per share. The Management Agreement is for approximately 40 months
and can be extended for an additional 24 months at RGME's option if certain
performance standards are met.
The Company is liable for one-sixth of the operating expenses incurred by
Fremont Street Experience, LLC.
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 and breach of contract. The Company believes that
this claim is included in the Class 10 Unsecured Creditor's pool of the
bankruptcy proceedings, which is capped at $1.4 million. As such, these claims
have been reserved for as part of the Class 10 notes payable and, therefore,
will not have a material financial effect on the Company.
<PAGE>
The Company is a party to other claims and lawsuits. Management believes that
such matters are either covered by insurance or, if not insured, will not have a
material adverse effect on the financial position or results of operations of
the Company.
4. Proposed Merger
The Company entered into an Agreement and Plan of Merger ("Merger Agreement"),
dated as of September 15, 1997, between R&E Gaming Corp. ("R&E"), Elsinore
Acquisition Sub, Inc. ("EAS") and the Company. Pursuant to the Merger Agreement,
the Company would merge with EAS and would become a wholly-owned subsidiary of
R&E. The Company's shareholders (other than those who exercised dissenter's
rights under Nevada law) would receive in exchange for each share of the
Company's Common Stock held, cash in the amount of $3.16 plus an amount equal to
the daily accrual on $3.16 at 9.43% compounded annually, accruing from June 1,
1997 to the date immediately preceding consummation of the Merger.
On March 20, 1998, the Company was notified by R&E, through Mr. Allen Paulson
("Paulson"), that it was its position that the Merger Agreement was void and
unenforceable against R&E and EAS, or alternatively, R&E and EAS intended to
terminate the Merger Agreement. R&E alleged, among other things, violations by
the Company of the Merger Agreement, violations of law and misrepresentations by
the manager of certain investment accounts that 94.3% of the Company's
outstanding Common Stock in connection with an option and voting agreement
relating to the Company's stock which that manager entered into with R&E in
connection with the merger, and the non-satisfaction of certain conditions
precedent to completing the merger. The Company denied the allegations and asked
that R&E complete the merger.
Thereafter, in April 1998, Paulson, R&E, EAS and certain other entities filed a
lawsuit against eleven defendants, including the Company and the manager of
certain investment accounts which hold 94.3% of the Company's outstanding Common
Stock (Paulson, et al. v Jeffries & Company et al.). Plaintiffs' allegations
include breach of the Merger Agreement by the Company, as well as fraud, various
violations of the federal securities laws and violation of the Nevada
anti-racketeering statute in connection with the proposed merger. Plaintiffs are
seeking (i) unspecified actual damages in excess of $20 million, (ii) $20
million in exemplary damages, (iii) treble damages, and (iv) rescission of the
Merger Agreement and other relief. The lawsuit was filed in the United States
District Court for the Central District of California.
On July 13, 1998, the Company filed a motion to dismiss certain of the claims
alleged in the lawsuit, as amended. This motion is scheduled to be heard by the
Court on November 22, 1998. No discovery has yet taken place, and the Company is
currently unable to form an opinion as to the amount of its exposure, if any.
Although the Company intends to defend the lawsuit vigorously, there can be no
assurance that it will be successful in such defense or that future operating
results will not be materially adversely affected by the final resolution of the
lawsuit.
5. Recapitalization
On September 29, 1998, certain investment accounts controlled by Morgens,
Waterfall, Vintiadis & Company, Inc. ("MWV" and the accounts controlled by MWV,
the "Funds") contributed $4,641,000, net of $260,000 of expenses, to the capital
of Elsinore Corporation ("Elsinore" or the "Company"), which the Company used,
together with other funds of the Company, to purchase in full all of the
Company's outstanding 11.5% First Mortgage Notes due 2000 in the original
aggregate principal amount of $3,856,000 and $896,000 of original principal
amount 13.5% Second Mortgage Notes of the Company due 2001.
Also on September 29, 1998, Elsinore issued to the Funds, 50,000,000 shares of
Series A Convertible Preferred Stock of the Company in exchange for the
surrender to the Company of $18,000,000 original principal amount of second
mortgage notes held by the Funds. The 50,000,000 shares of Series A Convertible
Preferred Stock have an aggregate liquidation preference of $18,000,000 and are
convertible into 93,000,000 shares of the Company's Common Stock. Following the
recapitalization, John C. "Bruce" Waterfall will beneficially own 97,646,440
shares of Common Stock, or approximately 99.7% of the outstanding Common Stock.
The number of shares beneficially owned and the percentage of shares
beneficially owned are determined in accordance with the rules of the Securities
and Exchange Commission and (i) are based on 4,929,313 shares of Common Stock
outstanding as of September 29, 1998 and (ii) assumes that the 50,000,000 shares
of Series A Convertible Preferred Stock are converted into 93,000,000 shares of
the Company's Common Stock.
In addition, the Company issued to the Funds new second mortgage notes in the
aggregate principal amount of $11,104,000 in exchange for all remaining
outstanding second mortgage notes held by the Funds in the same aggregate
principal amount, pursuant to an amended indenture governing the second mortgage
notes that reduced the interest rate payable thereon from 13.5% to 12.83%.
Following the recapitalization, the Company has notes outstanding in the
aggregate principal amount of $11,104,000.
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operation
This discussion and analysis should be read in conjunction with the Condensed
Consolidated Financial Statements and notes thereto set forth elsewhere herein.
The following tables set forth certain operating information for the Company for
the three months ended September 30, 1998 and 1997 and the nine months ended
September 30, 1998 and 1997. Revenues and promotional allowances are shown as a
percentage of net revenues. Departmental costs are shown as a percentage of
departmental revenues.
All other percentages are based on net revenues.
<PAGE>
Three Months Ended Three Months Ended
September 30, 1998 September 30, 1997
------------------ ------------------
(Dollars in (Dollars in
thousands) % thousands %
----------- -------- ----------- -------
Revenues, net:
Casino $10,020 73.5% $8,741 67.8%
Hotel 1,996 14.6% 2,110 16.4%
Food & beverage 2,202 16.2% 2,280 17.7%
Other 611 4.5% 892 6.9%
----------- -------- ----------- -------
Gross revenue 14,829 108.8% 14,023 108.8%
Less promotional allowances (1,203) (8.8%) (1,136) (8.8%)
----------- -------- ----------- -------
Revenues, net $13,626 100.0% $12,887 100.0%
----------- -------- ----------- -------
Costs and expenses:
Casino $3,586 35.8% $3,395 38.8%
Hotel 2,026 101.5% 2,172 102.9%
Food and beverage 1,486 67.5% 1,437 63.0%
Taxes and licenses 1,450 10.6% 1,325 10.3%
Selling, general and
3,177 23.3% 2,509 19.5%
administrative
Rents 998 7.3% 1,034 8.0%
Depreciation and
amortization 837 6.1% 551 4.3%
Interest 1,260 9.2% 1,269 9.8%
Merger costs 11 .1% - -
----------- -------- ----------- -------
Total costs and expenses $14,831 108.8% $13,692 106.2%
----------- -------- ----------- -------
Net loss before
extraordinary items and ($1,205) (8.8%) ($805) (6.2%)
income taxes
Extraordinary item (77) (.6%) - -
Income taxes - - (15) (.1%)
------------------ ------------ ------------------ ---------------
Net loss ($1,282) (9.4%) ($820) (6.3%)
------------------ ------------ ------------------ ---------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 1998 September 30, 1997
---------------------------------- -----------------------------------
(Dollars in (Dollars in
thousands) % thousands) %
----------------------------------------------------------------------
Other Data:
<S> <C> <C> <C> <C>
Net loss ($1,282) (9.4%) ($820) (6.3%)
Depreciation and amortization 837 6.1% 551 4.3%
Interest 1,260 9.2% 1,269 9.8%
Income taxes - - 15 .1%
Extraordinary item 77 .6% - -
Merger costs 11 .1% - -
------------------- ------------- ------------------ ---------------
Earnings before interest,
taxes, depreciation and
amortization, extraordinary
items and merger
costs (EBITDA) $903 6.6% $1,015 7.9%
=================== ============= ================== ===============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1998 September 30, 1997
------------------ ------------------
(Dollars in (Dollars in
thousands) % thousands) %
------------- ------- ----------- ------
Revenues, net:
<S> <C> <C> <C> <C>
Casino $29,809 71.6% $28,263 68.9%
Hotel 6,509 15.6% 7,116 17.3%
Food & beverage 7,397 17.8% 7,190 17.5%
Other 2,110 5.1% 1,561 3.8%
------------- ------- ----------- ------
Gross revenue 45,825 110.0% 44,130 107.6%
Less promotional allowances (4,169) (10.0%) (3,111) (7.6%)
------------- ------- ----------- ------
Revenues, net $41,656 100.0% $41,019 100.0%
------------- ------- ----------- ------
Costs and expenses:
Casino $11,228 37.7% $10,845 38.4%
Hotel 5,732 88.1% 6,431 90.4%
Food and beverage 4,470 60.4% 4,593 63.9%
Taxes and licenses 4,492 10.8% 4,193 10.2%
Selling, general and
administrative 8,573 20.6% 7,148 17.4%
Rents 2,910 7.0% 3,067 7.5%
Depreciation and
amortization 1,967 4.7% 1,800 4.4%
Interest 3,866 9.3% 3,719 9.1%
Merger costs 263 .6% - -
------------ ------- ----------- -------
Total costs and expenses $43,501 104.4% $41,796 101.9%
------------ ------- ----------- -------
Loss before extraordinary
item ($1,845) (4.4%) ($777) (1.9%)
Extraordinary item (77) (.2%) - -
------------ ------------ ----------- -------
Net loss ($1,922) (4.6%) ($777) (1.9%)
============ ============ =========== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1998 September 30, 1997
---------------------------------- -----------------------------------
(Dollars in (Dollars in
thousands) % thousands) %
----------------------------------------------------------------------
Other Data:
<S> <C> <C> <C> <C>
Net loss ($1,922) (4.6%) ($777) (1.9%)
Depreciation and amortization 1,967 4.7% 1,800 4.4%
Interest 3,866 9.3% 3,719 9.1%
Income taxes - - - -
Extraordinary item 77 .2%
Merger costs 263 .6% - -
------------------- ------------- ------------------ --------------
Earnings before interest,
taxes, depreciation and
amortization, extraordinary
items and merger costs $4,251 10.2% $4,742 11.6%
EBITDA =================== ============= ================== ==============
Cash flows provided by (used
in) operating activities $843 $694
=================== ==================
Cash flows from investing
activities ($1,439) ($2,017)
=================== ==================
Cash flows provided by (used
in) financing activities ($1,487) $245
=================== ===================
</TABLE>
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED
TO THREE MONTHS ENDED SEPTEMBER 30, 1997
- - --------------------------------------------------------------------------------
REVENUES
Net revenues increased by approximately $739,000, or 5.7%, from $12,887,000 for
the three months ended September 30, 1997, to $13,626,000 for the three months
ended September 30, 1998, primarily due to an increase in casino revenues as a
result of management's implementation of casino and slot promotions in an effort
to offset the adverse affect on hotel/casinos in the downtown area from
continued competition and increased casino and hotel capacity in the general Las
Vegas market.
Casino revenues increased by approximately $1,279,000, or 14.6%, from $8,741,000
during the 1997 period to $10,020,000 during the 1998 period due primarily to a
$1,560,000, or 26.7%, increase in slot machine revenue and a $48,000, or 7.9%,
increase in slot promotion revenue, partially offset by a $69,000, or 3.7%,
decrease in table games revenues. Management eliminated certain unprofitable
complimentary programs which generated significant slot and table games volume
in the third quarter of 1997. During the third quarter of 1998, table games drop
increased $104,000 or .9%, which was partially offset by the effect of a
decrease in the win percentage of .5%, or $52,000. Slot coin-in increased
$15,943,000, or 14.0%, due to the implementation of slot promotions efforts to
increase the Four Queens customer database. In March 1998, the Nickel Palace
area was opened which targets nickel customers with an additional 110 nickel
slot machines. In addition, the purchase of new state-of-the-art slot equipment
increased the overall number of slot machines in the casino.
Hotel revenues decreased by approximately $114,000, or 5.4%, from $2,110,000
during the 1997 period to $1,996,000 during the 1998 period due primarily to a
decrease in the average room rate as a result of competitive room pricing in the
Las Vegas market as well as a decrease in cash room revenues resulting from the
implementation of casino and slot marketing promotions as a part of management's
effort to increase casino revenues.
Food and beverage revenues decreased approximately $78,000, or 3.4%, from
$2,280,000 during the 1997 period to $2,202,000 during the 1998 period primarily
due to an increase in complimentary revenues of $52,000 resulting from the
implementation of casino and slot marketing promotions, which was partially
offset by a decrease in cash revenues as a result of lower cash covers.
Other revenues decreased by approximately $281,000, or 31.5%, from $892,000
during the 1997 period to $611,000 during the 1998 period, due to payments
received under a settlement agreement with the Twenty-Nine Palms Band of Mission
Indians in 1997.
Promotional allowances increased by approximately $67,000, or 5.9%, from
$1,136,000 during the 1997 period to $1,203,000 during the 1998 period due to an
increase in complimentary rooms, food, and beverage resulting from the
implementation of casino and slot marketing promotions.
DIRECT COSTS AND EXPENSES OF OPERATING DEPARTMENTS
Total direct costs and expenses of operating departments (including taxes and
licenses) increased by approximately $219,000, or 2.6%, from $8,329,000 for the
1997 period to $8,548,000 for 1998 period.
Casino costs and expenses increased $191,000, or 5.6%, from $3,395,000 during
the 1997 period to $3,586,000 during the 1998 period. However, casino expenses
as a percentage of revenue decreased from 38.8% to 35.8%. The increase in
expenses was due to the increase in cost of complimentary rooms, food and
beverages reflected as a casino expense resulting from management's
implementation of casino and slot marketing promotions.
Hotel expense decreased by approximately $146,000, or 6.7%, from $2,172,000
during the 1997 period to $2,026,000 during the 1998 period. Hotel expenses as a
percentage of revenues decreased from 102.9% to 101.5% due to a decrease in
hotel cash revenues as a result of management's marketing promotions which
resulted in higher promotional allowances.
Food and beverage costs and expenses increased by approximately $49,000, or
3.4%, from $1,437,000 during the 1997 period to $1,486,000 during the 1998
period. Food and beverage expenses as a percentage of revenue increased from
63.0% to 67.5% primarily as a result of an increase in costs associated with an
increase in promotional allowances.
Taxes and licenses increased $125,000, or 9.4%, from $1,325,000 in the 1997
period to $1,450,000 in the 1998 period due primarily to an increase in slot
revenues which resulted in higher gaming taxes.
OTHER OPERATING EXPENSES
Selling, general and administrative expenses increased $668,000, or 26.6%, from
$2,509,000 during the 1997 period to $3,177,000 during the 1998 period,
primarily as a result of an increase in promotional costs resulting from
marketing promotions. As a percentage of total net revenues, selling, general
and administrative expenses increased from 19.5% to 23.3%.
EBITDA AND MORTGAGE NOTE COVENANTS
EBITDA decreased by approximately $112,000, or 11.0%, from $1,015,000 during the
1997 period to $903,000 during the 1998 period. The decrease was due to an
increase in revenues which was offset by an increase in costs associated with
promotional costs as discussed above.
Pursuant to covenants applicable to the Company's 12.83% New Notes and Second
Supplemental Indenture dated September 29, 1998, the Company is required to
maintain a minimum consolidated fixed charges coverage ratio (the "Ratio") of
1.25 to 1.00. The Ratio is defined as the ratio of aggregate consolidated EBITDA
to the aggregate consolidated fixed charges for the 12-month reference period.
The Company obtained a waiver of those covenants from the holders of the New
Notes due to the Ratio being lower than required as of the reference period
ended September 30, 1998. The waiver provides that the noteholders will not take
action prior to January 2, 2000 in respect of a Ratio lower than 1.25 to 1.00
for the reference periods ending September 30, 1998 and December 31, 1998. As of
the reference period ended September 30, 1998 the Ratio was .97 to 1.00.
OTHER EXPENSES
During the second quarter of the 1998 period, the Company incurred approximately
$11,000 in merger and acquisition costs related to the Merger Agreement.
EXTRAORDINARY ITEM
The Company incurred approximately $77,000 in extraordinary costs associated
with the buyout of the First Mortgage Notes.
NET INCOME (LOSS)
As a result of the factors discussed above, the Company experienced a net loss
in the 1998 period of $1,282,000 compared to a net loss of $820,000 in the 1997
period, a decrease in net income of $462,000, or 56.3%.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED
TO NINE MONTHS ENDED SEPTEMBER 30, 1997
- - --------------------------------------------------------------------------------
REVENUES
Net revenues increased by approximately $637,000, or 1.6%, from $41,019,000 for
the nine months ended September 30, 1997, to $41,656,000 for the nine months
ended September 30, 1998, primarily due to an increase in casino revenue as a
result of management's implementation of slot and casino promotions which have
proven to be effective in the third quarter at lessening the negative impact of
continued competition and increased hotel and casino capacity in the general Las
Vegas market which has adversely affected hotel/casinos in the downtown area.
Casino revenues increased by approximately $1,546,000, or 5.5%, from $28,263,000
during the 1997 period to $29,809,000 during the 1998 period due primarily to a
$2,564,000, or 12.2%, increase in slot machine revenue partially offset by a
$531,000, or 8.8%, decrease in table games revenues, a $412,000, or 17.4%,
decrease in keno revenue, a $125,000, or 39.9%, decrease in poker tournament
entry fee revenue and a $747,000, or 32.0%, decrease in slot promotion revenue.
During 1998, table games drop decreased $708,000 or 1.8%. Slot coin-in increased
$42,131,000, or 12.1%, due to the implementation of slot promotions efforts to
increase the Four Queens customer database. In March 1998, the Nickel Palace
area was opened which targets nickel customers with an additional 110 nickel
slot machines. In addition, the purchase of new state-of-the-art slot equipment
increased the overall number of slot machines in the casino.
Hotel revenues decreased by approximately $607,000, or 8.5%, from $7,116,000
during the 1997 period to $6,509,000 during the 1998 period due primarily to a
decrease in the average room rate as a result of competitive room pricing in the
Las Vegas market as well as a decrease in cash room revenues resulting from the
implementation of casino and slot marketing promotions as a part of management's
effort to increase casino revenues.
Food and beverage revenues increased approximately $207,000, or 2.9%, from
$7,190,000 during the 1997 period to $7,397,000 during the 1998 period due to an
increase in complimentary revenues of $321,000 resulting from the implementation
of casino and slot marketing promotions, which was partially offset by a
decrease in cash revenues as a result of lower covers.
Other revenues increased by approximately $549,000, or 35.2%, from $1,561,000
during the 1997 period to $2,110,000 during the 1998 period, due to additional
rental income as a result of new tenant leases and payments received under a
settlement agreement with the Twenty-Nine Palms Band of Mission Indians.
Promotional allowances increased by approximately $1,058,000, or 34.0%, from
$3,111,000 during the 1997 period to $4,169,000 during the 1998 period due to an
increase in complimentary rooms, food, and beverage resulting from the
implementation of casino and slot marketing promotions.
DIRECT COSTS AND EXPENSES OF OPERATING DEPARTMENTS
Total direct costs and expenses of operating departments (including taxes and
licenses) decreased by approximately $140,000, or 0.5%, from $26,062,000 for the
1997 period to $25,922,000 for 1998 period. Costs could increase approximately
$1 million annually, in future periods, if the Company were not permitted to be
self-insured as to worker compensation claims. The State of Nevada has
challenged the Company's status as a self-insurer and the Company is currently
responding to the State's challenge.
Casino expense increased by approximately $383,000, or 3.5%, from $10,845,000
during the 1997 period to $11,228,000 during the 1998 period. However, casino
expenses as a percentage of revenues decreased from 38.4% to 37.7%. The increase
in casino expense was due to the increase in cost of complimentary rooms, food
and beverages reflected as casino expense resulting from management's
implementation of casino and slot marketing promotions.
Hotel expense decreased by approximately $699,000, or 10.9%, from $6,431,000
during the 1997 period to $5,732,000 during the 1998 period. Hotel expenses as a
percentage of revenues decreased from 90.4% to 88.1% due to an increase in cost
of complimentary rooms, food and beverages reflected as casino expense.
Food and beverage costs and expenses decreased by approximately $123,000, or
2.7%, from $4,593,000 during the 1997 period to $4,470,000 during the 1998
period, primarily as a result of an increase in the cost of complimentary rooms,
food and beverages reflected as casino expense.
Taxes and licenses increased $299,000, or 7.1%, due primarily to a corresponding
increase in slot revenues.
OTHER OPERATING EXPENSE
Selling, general and administrative expenses increased $1,425,000, or 19.9%, as
a result of an increase in promotional expenses.
Rent expense decreased $157,000, or 5.1%, due primarily to the elimination of an
operating lease in the 1998 period.
EBITDA AND MORTGAGE NOTE COVENANTS
EBITDA decreased by approximately $491,000, or 10.4%, from $4,742,000 during the
1997 period to $4,251,000 during the 1998 period. The decrease was due to an
increase in revenues that were offset by increased promotional expenses as
discussed above.
As noted above, pursuant to covenants applicable to the Company's New Notes and
Second Supplemental Indenture dated September 29, 1998, the Company is required
to maintain a minimum consolidated fixed charges coverage ratio (the "Ratio") of
1.25 to 1.00. The Ratio is defined as the ratio of aggregate consolidated EBITDA
to the aggregate consolidated fixed charges for the 12-month reference period.
The Company obtained a waiver of those covenants from the holders of the New
Notes due to the Ratio being lower than required as of the reference period
ended September 30, 1998. The waiver provides that the noteholders will not take
action prior to January 2, 2000 in respect of a Ratio lower than 1.25 to 1.00
for the reference periods ending September 30, 1998 and December 31, 1998. As of
the reference period ended September 30, 1998 the Ratio was .97 to 1.00.
OTHER EXPENSES
Depreciation and amortization increased by approximately $167,000, or 9.3%, from
$1,800,000 during the 1997 period to $1,967,000 during the 1998 period due to an
increase in property and equipment for the 1998 period.
Interest expense increased by approximately $147,000, or 4.0%, from $3,719,000
during the 1997 period to $3,866,000 for the 1998 period, due to the restatement
of notes and restructured debt as of August 12, 1996, the date of Plan
confirmation, as well as interest expense incurred as a result of capital lease
arrangements entered into for slot equipment. Interest had been stayed while the
Company was under the protection of the Bankruptcy court.
During 1998, the Company incurred approximately $263,000 in merger and
acquisition costs related to the Merger Agreement.
EXTRAORDINARY ITEM
The Company incurred approximately $77,000 in extraordinary costs associated
with the buyout of the First Mortgage Notes.
NET INCOME (LOSS)
As a result of the factors discussed above, the Company experienced a net loss
in the 1998 period of $1,922,000 compared to a net loss of $777,000 in the 1997
period, a decrease in net income of $1,145,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of approximately $4.7 million at
September 30, 1998, as compared with approximately $6.8 million at December 31,
1997, a decrease of $2.1 million from December 31, 1997. Significant debt
service on the New Notes and other debt issued pursuant to the Plan is paid in
August and February and significantly affects the Company's cash and cash
equivalents in the second and fourth quarters. Payment of the interest on
$29,104,000 of the 13.5% Second Mortgage Notes, which were exchanged on
September 29, 1998for $18,000,000 of Preferred Stock and $11,104,000 of New
Mortgage Notes ("New Notes"), has been waived in the amount of $2,025,000
payable August 31, 1998 until December 30, 1998.
For the first nine months of 1998, the Company's net cash provided by operating
activities was $843,000 compared to $694,000 in the first nine months of 1997,
due primarily to the waiver of payment of accrued interest on the 13.5% Second
Mortgage Notes which was due August 31, 1998. EBITDA for the first nine months
of 1998 and 1997 was $4.3 million and $4.7 million, respectively. The Company's
ability to service its debt will be dependent on future performance, which will
be affected by, among other things, prevailing economic conditions and
financial, business and other factors, certain of which are beyond the Company's
control.
On September 29, 1998, certain investment accounts controlled by Morgens,
Waterfall, Vintiadis & Company, Inc. ("MWV" and the accounts controlled by MWV,
the "Funds") contributed $4,641,070, net of $260,000 of expenses, to the capital
of Elsinore Corporation ("Elsinore" or the "Company"), which the Company used,
together with other funds of the Company, to purchase in full all of the
Company's outstanding 11.5% First Mortgage Notes due 2000 in the original
aggregate principal amount of $3,856,000, and $896,000 of original principal
amount of the 13.5% Second Mortgage Notes of the Company due 2001.
Also on September 29, 1998, Elsinore issued to the Funds 50,000,000 shares of
Series A Convertible Preferred Stock of the Company in exchange for the
surrender to the Company of $18,000,000 original principal amount of second
mortgage notes held by the Funds. The 50,000,000 shares of Series A Cumlulative
Convertible Preferred Stock have an aggregate liquidation preference of
$18,000,000 and are convertible into 93,000,000 shares of the Company's Common
Stock.
In addition, the Company issued to the Funds New Notes in the aggregate
principal amount of $11,104,000 in exchange for all remaining outstanding Second
Mortgage Notes held by the Funds in the same aggregate principal amount,
pursuant to an amended indenture governing the Second Mortgage Notes that
reduced the interest rate payable thereon from 13.5% to 12.83%. Following the
recapitalization, the Company has New Notes outstanding in the aggregate
principal amount of $11,104,000.
Scheduled interest payments on the New Notes and other indebtedness are $4.5
million in 1998, declining to $1.6 million in 2001. Cash flow from operations is
not expected to be sufficient to pay 100% of the $11 million principal of the
New Notes at maturity on August 20, 2001. Accordingly, the ability of the
Company to repay the New Notes at maturity will be dependent upon its ability to
refinance the New Notes. There can be no assurance that the Company will be able
to refinance the principal amount of the New Notes at maturity. The New Notes
are redeemable at the option of the Company at 100% at any time without premium.
The indenture governing the New Notes provides for mandatory redemption by the
Company upon the order of the Nevada Gaming Authorities. The indenture also
provides that, in certain circumstances, the Company must offer to repurchase
the New Notes upon the occurrence of a change of control or certain other events
at 101%. In the event of such mandatory redemption or repurchase prior to
maturity, the Company would be unable to pay the principal amount of the New
Notes without a refinancing. There can be no assurance that the Company would be
able to effect such a refinancing on favorable terms, or at all.
As noted above, the Company was not in compliance with the Ratio covenants
applicable to its New Notes. The Company has obtained a waiver from its
compliance with these covenants for the reference period ended September 30,
1998 and December 31, 1998, and the waivers further provide that the noteholders
will not take action prior to January 2, 2000 for non-compliance with the Ratio
covenants through the December 31, 1998 reference periods. If the Company fails
to be in compliance with the Ratio covenants after September 30, 1999, it would
be required to seek further relief from the noteholders or refinance the
indebtedness represented by the New Notes. In the event that this was not
accomplished, the holders of the New Notes would be entitled to declare a
default on the New Notes and the entire amount of principal and interest
thereunder could become due and payable. There can be no assurance that the
holders of the New Notes would give additional forbearance past January 2, 2000
or that the New Notes would be refinanced on favorable terms, or at all.
The Company considers it important to the competitive position of the Four
Queens Hotel & Casino that expenditures be made to upgrade the property. The
Company has budgeted approximately $3.9 million for capital expenditures in
1998. The Company expects to finance such capital expenditures, including an
arrangement to finance slot machine and equipment purchases of $2.6 million,
from cash on hand, cash flow and slot lease financing. Uses of cash during the
nine-month period ended September 30, 1998 included capital expenditures of
$1,439,000.
COMPUTERIZED OPERATIONS AND YEAR 2000
In the past, many computer software programs were written using two digits
rather than four to define the applicable year. As a result, date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This situation is generally referred to as the "Year 2000 Problem." If
such situation occurs, the potential exists for computer system failures or
miscalculations by computer programs, which could disrupt operations.
The Company has conducted a comprehensive review of its computer systems and
other systems (both information technology ("IT) and non-IT systems) for the
purpose of assessing its potential Year 2000 Problem and is in the process of
modifying or replacing those systems which are not Year 2000 compliant. If
modifications are not made or not completed timely or unexpected issues arise,
the Year 2000 Problem could have a significant impact on the Company's
operations.
All costs related to the Year 2000 Problem are expensed as incurred, while the
cost of new hardware and software is capitalized and amortized over its expected
useful life. The costs associated with Year 2000 compliance have not been and
are not anticipated to be material to the Company's financial position or
results of operations and are expected to be funded out of working capital. As
of September 30, 1998, the Company has incurred costs of approximately $125,000
(primarily for acquisition of new systems from third parties) related to the
system applications and anticipates spending an additional $250,000 to become
Year 2000 compliant, which represents substantially all of the Company's IT
budget for 1999. The estimated completion date and remaining costs are based
upon management's best estimates, as well as third party modification plans and
other factors. However, there can be no assurance that such estimates will be
accurate and actual results could differ materially.
In addition, the Company has communicated with its major vendors and suppliers
to determine their state of readiness relative to the Year 2000 problem and the
Company's possible exposure to Year 2000 issues of such third parties. To date,
no material issues have been reported to the Company. However, there can be no
assurance that the systems of other companies, which the Company's systems may
rely upon, will be timely converted or representations made to the Company by
these parties are accurate. The failure of a major vendor or supplier to
adequately address its Year 2000 Problem could have a significant adverse impact
on the Company's operations.
The Company has not yet developed a contingency plan to operate in the event
that any non-compliant critical systems are not remedied by January 1, 2000 and
has not yet determined a timetable for developing such a plan.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for certain forward-looking statements. Certain information included in this
Form 10-Q and other materials filed with the Securities and Exchange Commission
(as well as information included in oral statements or other written statements
made or to be made by the Company) contains statements that are forward looking,
such as statements relating to business strategies, plans for future development
and upgrading, the anticipated cost and timing related to remediation of the
Year 2000 Problem, capital spending, financing and restructuring sources,
existing and expected competition and the effects of regulations. Such
forward-looking statements involve important known and unknown risks and
uncertainties that could cause actual results and liquidity to differ materially
from those expressed or anticipated in any forward-looking statements. Such
risks and uncertainties include, but are not limited to, those related to
effects of competition, leverage and debt service, financing and refinancing
needs or efforts, general economic conditions, changes in gaming laws or
regulations (including the legalization of gaming in various jurisdictions),
risks related to development and upgrading activities, uncertainty of casino
customer spending and vacationing in hotel/casinos in Las Vegas, occupancy rates
and average room rates in Las Vegas, risks related to the Year 2000 Problem, the
popularity of Las Vegas as a convention and trade show destination, and other
factors described from time to time in the Company's reports filed with the
Securities and Exchange Commission, including the Company's Report on Form 10-K
for the year ended December 31, 1997. Accordingly, actual results may differ
materially from those expressed in any forward-looking statement made by or on
behalf of the Company. Any forward-looking statements are made pursuant to the
Private Securities Litigation Reform Act of 1995, and, as such, speak only as of
the date made. The Company undertakes no obligation to revise publicly these
forward-looking statements to reflect subsequent events or circumstances.
<PAGE>
Elsinore Corporation and Subsidiaries
Other Information
PART II. OTHER INFORMATION
Item 1. Legal Proceedings:
The Company entered into a Merger Agreement, dated as of
September 15, 1997, between R&E, EAS and the Company. Pursuant
to the Merger Agreement, the Company would merge with EAS and
would become a wholly-owned subsidiary of R&E. The Company's
shareholders (other than those who exercised dissenter's
rights under Nevada law) would receive in exchange for each
share of the Company's Common Stock held, cash in the amount
of $3.16 plus an amount equal to the daily accrual on $3.16 at
9.43% compounded annually, accruing from June 1, 1997 to the
date immediately preceding consummation of the Merger.
On March 20, 1998, the Company was notified by R&E, through
Paulson, that the Merger Agreement was void and unenforceable
against R&E and EAS, or alternatively, R&E and EAS intended to
terminate the Merger Agreement. R&E alleged, among other
things, violations by the Company of the Merger Agreement,
violations of law and misrepresentations by the manager of
certain investment accounts that hold 94.3% of the Company's
outstanding Common Stock in connection with an option and
voting agreement relating to the Company's stock which that
manager entered into with R&E in connection with the merger,
and the non-satisfaction of certain conditions precedent to
completing the merger. The Company denied the allegations and
asked that R&E complete the merger.
Thereafter, in April 1998, Paulson, R&E, EAS and certain other
entities filed a lawsuit against eleven defendants, including
the Company and the manager of certain investment accounts
that hold 94.3% of the Company's outstanding Common Stock
(Paulson, et al. v Jeffries & Company et al.). Plaintiffs'
allegations include breach of the Merger Agreement by the
Company, as well as fraud, various violations of the federal
securities laws and violation of the Nevada anti-racketeering
statute in connection with the proposed merger. Plaintiffs are
seeking (i) unspecified actual damages in excess of $20
million, (ii) $20 million in exemplary damages, (iii) treble
damages, and (iv) rescission of the Merger Agreement and other
relief. The lawsuit was filed in the United States District
Court for the Central District of California.
On July 13, 1998, the Company filed a motion to dismiss
certain of the claims alleged in the lawsuit, as amended. This
motion is scheduled to be heard by the Court on November 22,
1998. No discovery has yet taken place, and the Company is
currently unable to form an opinion as to the amount of its
exposure, if any. Although the Company intends to defend the
lawsuit vigorously, there can be no assurance that it will be
successful in such defense or that future operating results
will not be materially adversely affected by the final
resolution of the lawsuit.
In addition, the Company is a party to certain other claims
and lawsuits. Management believes that such matters are either
covered by insurance or, if not insured, will not have a
material adverse effect on the financial position or results
of operations of the Company.
Item 2. Changes in Securities and Use of Proceeds
On September 29, 1998, the Funds acquired 50,000,000 shares of
Series A Convertible Preferred Stock of the Company in
exchange for the surrender to the Company of $18,000,000
original principal amount of Second Mortgage Notes held by the
Funds. The 50,000,000 shares of Series A Convertible Preferred
Stock have an aggregate liquidation preference of $18,000,000
and are convertible into 93,000,000 shares of the Company's
Common Stock. In addition, the Company, issued to the Funds
New Notes in the aggregate principal amount of $11,104,000 in
exchange for all outstanding Second Mortgage Notes held by the
Funds, in the same aggregate amount. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources."
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders on September 22, 1998. At
the Annual Meeting, three directors were elected: John C. "Bruce" Waterfall, S.
Barton Jacka and Jeffrey T. Leeds. The Stockholders also ratified the
appointment of KPMG Peat Marwick LLP as the Company's independent auditors for
the fiscal year ending December 31, 1998.
Votes for these proposals were received as follows:
<TABLE>
----------------------------- ---------------- ---------------------- --------------------------
Abstentions and
Director/Proposal Votes For Votes Against Broker Non Votes
----------------------------- ---------------- ---------------------- --------------------------
<S> <C> <C> <C>
Mr. Waterfall 4,646,440 0 5
----------------------------- ---------------- ---------------------- --------------------------
Mr. Jacka 4,646,440 0 5
----------------------------- ---------------- ---------------------- --------------------------
Mr. Leeds 4,646,440 0 5
----------------------------- ---------------- ---------------------- --------------------------
KPMG 4,446,445 0 0
----------------------------- ---------------- ---------------------- --------------------------
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.56 Waiver of Compliance and letters dated November 12 and 13, 1998
10.57 Waiver of Compliance, dated November 6, 1998 under the Second
Supplemental Indenture dated September 29, 1998
27.1 Financial Data Schedule
(b) Reports on Form 8-K
(1) Current Report on Form 8-K filed October 13, 1998
relating to a capital contribution and purchase of
all outstanding First Mortgage Notes and partial
purchase of the 13.5% Second Mortgage Notes.
(2) Current Report on Form 8-K filed October 13, 1998
relating to the issuance of Series A Convertible
Preferred Stock in exchange for the surrender of
$18,000,000 original principal amount of Second
Mortgage Notes and the issuance of New Notes in
the amount of $11,104,000 in exchange for all
remaining outstanding Second Mortgage Notes.
<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 T. Leeds
JEFFREY T. LEEDS, President
and Chief Executive Officer
By: /s/ S. Barton Jacka
S. BARTON JACKA, Secretary
and Treasurer and Principal
Accounting Officer
Dated: November 16, 1998
<PAGE>
INDEX TO EXHIBITS
10.56 Waiver of Compliance and letters dated November 12 and 13, 1998
10.57 Waiver of Compliance, dated November 6, 1998 under the Second
Supplemental Indenture dated September 29, 1998 and letter
dated November 12, 1998
27.1 Financial Data Schedule
EXHIBIT 10.56
MORGENS, WATERFALL, VINTIADIS & COMPANY, INC.
John C. "Bruce" Waterfall
10 East 50th Street
New York, New York 10022
(212)705-0500
f(212)838-5540
November 12, 1998
Ms. Gina L. Contner
Four Queens, Inc.
202 Fremont Street
Las Vegas, Nevada 89101
RE: Elsinore Waiver of Interest
Dear Gina:
Please be advised that Morgens, Waterfall, Vintiadis & Co., Inc. hereby consents
to the attached waiver and will instruct Morgan Stanley to execute the same.
Sincerely,
/s/ John C. "Bruce" Waterfall
John C. "Bruce" Waterfall
Cc: Joann McNiff
<PAGE>
MORGAN STANLEY
MORGAN STANLEY & CO.
INCORPORATED
ONE PIERREPONT PLAZA
BROOKLYN, NEW YORK 11201
(718)754-4000
November 13, 1998
The Depository Trust Company
Proxy Department
7 Hanover Square, 23rd Floor
New York, NY 10004
Attn: Legal Assistant - Shareholders Rights
Re: Elsinore Corp. 13.50% 8/20/01
290308AD7 (Broker 050)
Gentleman:
Please cause your nominee, Cede & Co., to sign one copy of the attached
letter (the "waiver letter") in order to waive certain provisions of the
Indenture relating to $29,104,000 Principal Amount of the above-referenced
securities credited to our DTC Participant account on August 26, 1998.
In addition to acknowledging that this request is subject to the
provided for in DTC Rule 6, the undersigned hereby certifies to DTC and Cede &
Co. that the information and facts set forth in the Waiver Letter are true and
correct including the following:
1. The agreement Principal Amount of the Securities credited to
our DTC Participant account that are beneficially owned by our
customer, and
2. There have been no prior requests to DTC or Cede & Co. for the
execution of a letter similar to the attached Waiver Letter
with respect to the Principal Amount of Securities referred to
therein.
Please make the Waiver Letter available for pick-up Morgan Stanley
responsible for picking up documents from DTC.
Very truly yours,
By: SIGNATURE GUARANTEED
MEDALLION GUARANTEED
MORGAN STANLEY & CO. INC.
/s/Ben Largo
XOOOO505
NYSE, INC. MEDALLION SIGNATURE PROGRAM
B1112
<PAGE>
Cede & Co.
Waiver of Compliance
To: Elsinore Corporation (the "Company")
Re: $30,000,000 131/2% Second Mortgage Notes due 2001 of Elsinore Corporation
-------------------------------------------------------------------------
The undersigned, pursuant to Section 10.2 of that certain
Amended and Restated Indenture dated as of March 3, 1997 (the
"Indenture"), by and among the Company, the guarantors named
therein and First National Trust Association, as trustee
("Trustee"), hereby:
1. Certifies that it was the beneficial owner of $29,104,000
principal amount (the "Principal Amount") of the Securities on
the August 15, 1998 record date for payment of interest due on
August 31, 1998, which Principal Amount was on deposit on such
record date in the Depository Trust Company account of Morgan
Stanley in the record name of Cede & Co. as nominee; and
2. Waives the semi-annual payment of interest due on the
Principal Amount of the Securities on August 31, 1998, which
was extended by a previous waiver to October 31, 1998 for an
additional sixty (60) days, to December 30, 1998.
The waiver set forth above shall be limited precisely as
written and relates solely to the semi-annual payment of
interest due on the Principal Amount of the Securities due on
August 31, 1998, in the manner and to the extent described
above, and nothing in this waiver shall be deemed to
(a) constitute a waiver of compliance by Company with respect to (i) Company's
compliance with Section 5.1 of the Indenture (and paragraphs 1 and 2 of the
Securities) in any other instance, including (x) payments of principal or
interest required to be made to the undersigned on any date other than on
October 31, 1998, and (y) payments of principal or interest required to be made
at any time to Trustee, or to any holders of Securities other than the
undersigned; or (ii) any other term, provision or condition of the Indenture,
the Securities, or any other instrument or agreement referred to therein or
ancillary thereto, or
(b) prejudice any right or remedy that Trustee, the undersigned, or any other
holder of Securities may now have or may have in the future under or in
connection with the Indenture, the Securities, or any other instrument or
agreement referred to therein or ancillary thereto
Except as expressly set for herein, the terms provisions, and
conditions of the Indenture, the Securities, and the other
instruments and agreements referenced therein or ancillary
thereto shall remain in full force and effect and in all other
respects are hereby ratified and confirmed.
<PAGE>
This waiver shall be effective upon delivery to the Company
and the Trustee. All capitalized words not defined herein are
used as defined in the Indenture.
Cede & Co.
November 12, 1998
By: /s/John Schuermann
EXHIBIT 10.57
MORGENS, WATERFALL, VINTIADIS & COMPANY, INC.
John C. "Bruce" Waterfall
10 East 50th Street
New York, New York 10022
(212)705-0500
f(212)838-5540
November 12, 1998
Ms. Gina L. Contner
Four Queens, Inc.
202 Fremont Street
Las Vegas, Nevada 89101
RE: Elsinore Waiver of Ratio
Dear Gina:
Please be advised that Morgens, Waterfall, Vintiadis & Co., Inc. hereby consents
to the attached waiver and will instruct Morgan Stanley to execute the same.
Sincerely,
/s/ John C. "Bruce Waterfall
John C. "Bruce" Waterfall
Cc: Joann McNiff
<PAGE>
MORGAN STANLEY
MORGAN STANLEY & CO.
INCORPORATED
ONE PIERREPONT PLAZA
BROOKLYN, NEW YORK 11201
(718) 754-1000
WAIVER OF COMPLIANCE
November 6, 1998
To: Elsinore Corporation
U. S. Bank Trust National Association, as trustee ("Trustee") under that certain
Amended and Restated Indenture dated as of March 3, 1997 ("the Indenture"), by
and among Elsinore Corporation (the "Company"), the guarantors named therein,
and Trustee.
Re: $11,104,000 12.83% New Mortgage Notes due 2001 of Elsinore Corporation.
-----------------------------------------------------------------------
Cede & Co., the nominee of the Depository Trust Company ("DTC") pursuant to
Section 7.12 and 10.2 of the Indenture hereby
1. Certifies that it is the holder of record of $11,104,000 principal amount
(the "Principal Amount") of the Securities, which Principal amount is on
the date hereof, on deposit in the DTC account of Morgan Stanley
2. At the request of Morgan Stanley & Co. Incorporated and as holder of record
of the Principal amount waives compliance by the Company, as of September
30, 1998 and December 31, 1998, with Section 5.15 of the Indenture
pertaining to maintenance of certain Consolidated Fixed Charges Coverage
Rule ("Ratio"); and
3. In connection with such waiver, agrees that it will not take any action
with respect to the principal amount, including providing or requesting the
Trustee to provide a notice of any Default based upon the Ratio under
Section 7.1 (4) of the Indenture, prior to January 2, 2000.
This Waiver shall be effective upon delivery to the company and the Trustee. All
capitalized words not defined herein are used as defined in the Indenture.
Cede & Co.
November ___, 1998
By:
PRINCIPAL
JOHN L. SHUERMANN, Partner
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 4,739,000
<SECURITIES> 0
<RECEIVABLES> 553,000
<ALLOWANCES> (236,000)
<INVENTORY> 380,000
<CURRENT-ASSETS> 7,047,000
<PP&E> 44,028,714
<DEPRECIATION> (3,460,714)
<TOTAL-ASSETS> 49,161,000
<CURRENT-LIABILITIES> 9,692,000
<BONDS> 11,104,000
0
18,000,000
<COMMON> 5,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 49,161,000
<SALES> 14,829,000
<TOTAL-REVENUES> 13,626,000
<CGS> 0
<TOTAL-COSTS> 14,831,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,260,000
<INCOME-PRETAX> (1,205,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,205,000)
<DISCONTINUED> 0
<EXTRAORDINARY> (77,000)
<CHANGES> 0
<NET-INCOME> (1,282,000)
<EPS-PRIMARY> (0.26)
<EPS-DILUTED> (0.26)
</TABLE>
