SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 30, 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 August 13, 1998 4,929,313
<PAGE>
Elsinore Corporation and Subsidiaries
Form 10-Q
For the Quarter Ended June 30, 1998
INDEX
PART I. FINANCIAL INFORMATION: PAGE
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets at 4-5
June 30, 1998 (Reorganized Company) (Unaudited)
and December 31, 1997 (Reorganized Company)
Condensed Consolidated Statements of Operations 6-7
for the Three Months Ended June 30, 1998 and
Three Months Ended June 30, 1997 (Unaudited)
Condensed Consolidated Statements of Operations for the 8-9
Six Months Ended June 30, 1998 (Reorganized Company)
and Four Months Ended June 30, 1997 (Reorganized
Company); Two Months Ended February 28, 1997
(Predecessor Company); Combined Reorganized and
Predecessor Company for the Six Months Ended June
30, 1997 (Unaudited)
Condensed Consolidated Statements of Cash Flows for the 10-11
Six Months Ended June 30, 1998 (Reorganized Company)
and Four Months Ended June 30, 1997 (Reorganized
Company); Two Months Ended February 28, 1997
(Predecessor Company); Combined Reorganized and
Predecessor Company for the Six Months Ended June
30, 1997 (Unaudited)
Notes to Condensed Consolidated Financial Statements 12-16
Item 2. Management's Discussion and Analysis of 16-28
Financial Condition and Results of
Operations
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings 29
Item 6. Exhibits and Reports on Form 8-K 30
SIGNATURES 31
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
<TABLE>
<CAPTION>
Elsinore Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
June 30, 1998 and December 31, 1997
(Dollars in Thousands)
Reorganized Reorganized
Company Company
June 30, December 31,
1998 1997
------------------- --------------------
(Unaudited)
Assets
Current Assets:
<S> <C> <C>
Cash and cash equivalents $4,602 $6,822
Accounts receivable, less allowance for
doubtful accounts of $229 and $165,
respectively 492 623
Inventories 338 382
Prepaid expenses 1,888 1,846
------------------- --------------------
Total current assets 7,320 9,673
------------------- --------------------
Property and equipment, net 40,552 39,042
Reorganization value in excess of amounts
allocable to indentifiable 352 367
assets
Other assets 1,184 741
------------------- --------------------
Total assets $49,408 $49,823
=================== ====================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Elsinore Corporation and Subsidiaries
Condensed Consolidated Balance Sheets (continued)
June 30, 1998 and December 31, 1997
(Dollars in Thousands)
Reorganized Reorganized
Company Company
June 30, December 31,
1998 1997
------------------ --------------------
(Unaudited)
Liabilities and Shareholders' Equity Current liabilities:
<S> <C> <C>
Accounts payable $772 $1,174
Accrued interest 1,515 1,492
Accrued expenses 4,319 4,453
Current portion of long-term debt 1,766 1,477
------------------ --------------------
Total current liabilities 8,372 8,596
------------------ --------------------
Long-term debt, less current portion 38,590 38,141
------------------ --------------------
Total liabilities $46,962 $46,737
------------------ --------------------
Commitments and contingencies
Shareholders' equity (deficit):
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 4,995 4,995
Accumulated deficit (2,554) (1,914)
------------------ --------------------
Total shareholders' equity 2,446 3,086
------------------ --------------------
Total liabilities and shareholders'
equity $49,408 $49,823
================== ====================
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Elsinore Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
------------------- -------------------
Three Three
Months Months
Ended Ended
June 30, 1998 June 30, 1997
------------------- -------------------
Revenues, net:
<S> <C> <C>
Casino $9,554 $9,051
Hotel 2,138 2,406
Food and beverage 2,538 2,270
Other 934 355
Promotional allowances (1,387) (896)
------------------- -------------------
Total revenues, net 13,777 13,186
Costs and expenses:
Casino 3,574 3,576
Hotel 1,935 2,155
Food and beverage 1,538 1,504
Taxes and licenses 1,281 1,381
Selling, general and
administrative 2,937 2,043
Rents 948 1,025
Depreciation and
amortization 563 551
Interest 1,274 1,285
Merger costs 97 -
------------------- -------------------
Total costs and
expenses 14,147 13,520
------------------- -------------------
Income (loss) before
income taxes (370) (334)
Income taxes - 30
------------------- -------------------
Net income (loss) (370) (364)
=================== ===================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Elsinore Corporation and Subsidiaries
Condensed Consolidated Statements of Operations (continued)
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
------------------- ------------------
Three Three
Months Months
Ended Ended
June 30, June 30,
1998 1997
------------------- ------------------
Basic and diluted income (loss) per
<S> <C> <C>
share: ($.08) ($.07)
=================== ==================
Weighted average number of
common shares
outstanding 4,929,313 4,929,313
=================== ==================
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Elsinore Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
Combined
Reorganized
and
Predecessor Predecessor
Reorganized Company Company Company
------------------- -------------------------------------- --------------------
Six Period from Period from Six
Months March 1 January 1 to Months
Ended to February 28 Ended
June 30, June 30, 1997 June 30,
1998 1997 1997
------------------- -------------------------------------- --------------------
Revenues, net:
<S> <C> <C> <C> <C>
Casino $19,789 $12,600 $6,922 $19,522
Hotel 4,513 3,270 1,736 5,006
Food and beverage 5,195 3,165 1,745 4,910
Other 1,499 517 153 670
Promotional allowances (2,966) (1,216) (760) (1,976)
------------------- ------------------ ------------------- --------------------
Total revenues, net 28,030 18,336 9,796 28,132
Costs and expenses:
Casino 7,642 4,740 2,710 7,450
Hotel 3,706 2,849 1,410 4,259
Food and beverage 2,984 2,051 1,105 3,156
Taxes and licenses 3,042 1,888 980 2,868
Selling, general and
administrative 5,396 2,832 1,807 4,639
Rents 1,912 1,360 673 2,033
Depreciation and
amortization 1,130 720 529 1,249
Interest 2,606 1,678 772 2,450
Merger costs 252 - - -
------------------- ------------------ ------------------- --------------------
Total costs and
expenses 28,670 18,118 9,986 28,104
------------------- ------------------ ------------------- --------------------
Income (loss) before
extraordinary
gain on elimination
of debt and income
taxes (640) 218 (190) 28
====================
Extraordinary gain on
elimination of debt - - 35,977
Income taxes - 30 -
------------------- ------------------ -------------------
Net income (loss) (640) 188 35,787
=================== ================== ===================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Elsinore Corporation and Subsidiaries
Condensed Consolidated Statements of Operations (continued)
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
Predecessor
Reorganized Company Company
------------------------------------- ------------------
Six Period from Period from
Months March 1 January 1 to
Ended to February 28
June 30, June 30, 1997
1998 1997
------------------ ------------------ ------------------
Basic and diluted income (loss)
per share:
Income (loss) before
extraordinary gain on
<S> <C> <C> <C>
elimination of debt ($.13) $.04 ($0.01)
Extraordinary gain on
elimination of debt - - $2.26
------------------ ------------------ ------------------
Net income (loss) ($.13) $.04 $2.25
================== ================== ==================
Weighted average number of
common shares
outstanding 4,929,313 4,929,313 15,891,793
================== ================== ==================
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Elsinore Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Dollars in Thousands)
(Unaudited)
Combined
Reorganized and
Predecessor
Reorganized Company Predecessor Company
-------------------------------------------------------------------------
Six Period from Period from Six
Months March 1 January 1 to Months
Ended to February 28 Ended
June 30, June 30, 1997 June 30,
1998 1997 1997
-------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C> <C> <C>
Net income (loss) ($640) $188 $35,787 $35,975
Adjustments to reconcile
net income (loss) to net
cash provided by (used
in) operating activities:
Extraordinary gain on
elimination of debt - - (35,977) (35,977)
Depreciation and
amortization 1,130 720 529 1,249
Decrease in accounts
receivable 131 212 269 481
Decrease in inventories 44 92 6 98
Increase in prepaid
expenses (42) (420) (111) (531)
(Increase) decrease in
restricted cash - (71) 4,092 4,021
(Increase) decrease in
other assets (443) 7 2 9
Increase (decrease) in
accounts payable (402) (31) (178) (209)
Increase (decrease) in
accrued expenses (134) (1,669) 591 (1,078)
Increase (decrease) in
accrued interest 23 (870) 749 (121)
-------------------------------------------------------------------------
Net cash provided by (used
in) operating activities ($333) ($1,842) $5,759 $3,917
-------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Elsinore Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (continued)
(Dollars in Thousands)
(Unaudited)
Combined
Reorganized and
Predecessor
Company
Reorganized Company Predecessor
----------------------------------------------------------------------------
Six Period from Period from Six
Months March 1 January 1 to Months
Ended to February 28 Ended
June 30, June 30, 1997 June 30,
1998 1997 1997
----------------------------------------------------------------------------
Cash flows from investing
activities - capital
<S> <C> <C> <C> <C>
expenditures (1,181) (1,019) (141) (1,160)
----------------------------------------------------------------------------
Cash flows from financing activities:
Principal payments on
long-term debt (706) (74) (12) (86)
Proceeds from issuance of
common stock
subscription rights - - 713 713
----------------------------------------------------------------------------
Net cash provided by (used
in) financing activities (706) (74) 701 627
----------------------------------------------------------------------------
Net increase (decrease) in
cash and cash equivalents (2,220) (2,935) 6,319 3,384
Cash and cash equivalents at
beginning of period
6,822 13,527 7,208 7,208
----------------------------------------------------------------------------
Cash and cash equivalents at
end of period
$4,602 $10,592 $13,527 $10,592
============================================================================
</TABLE>
<PAGE>
Elsinore Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 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 unaudited financial statements contain
all adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the Company's financial position as of June 30, 1998, the results
of operations for the three months ended June 30, 1998 and June 30, 1997 and the
results of operations and cash flows for the six months ended June 30, 1998 and
the two months ended February 28, 1997 for the Predecessor Company and the four
months ended June 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
---------------------------------
Total
Additional Accumulated Shareholders'
Outstanding Paid-In-Capital Earnings Equity
Shares Amount (Deficiency) (Deficiency)
------------------- ------------- ---------------- -------------------- ---------------------
Balance,
<S> <C> <C> <C> <C> <C>
December 31, 1996 15,891,793 $16 $69,602 $(110,328) $(40,710)
Proceeds from issuance of common
stock subscription rights 713 - 713
Net income predecessor company
Jan. 1, 1997 - Feb. 28, 1997 - 35,787 35,787
Fresh start adjustments (10,962,480) (11) (65,320) 74,541 9,210
Net loss of reorganized company
Mar. 1, 1997 - Dec. 31, 1997 - - - (1,914) (1,914)
------------------- ------------- ---------------- -------------------- ---------------------
Balance, December 31, 1997 4,929,313 5 4,995 (1,914) 3,086
Net loss Jan. 1, 1998 - Mar. 31,
1998 - - (270) (270)
------------------- ------------- ---------------- -------------------- ---------------------
Balance, Mar. 31, 1998 4,929,313 $5 $4,995 ($2,184) $2,816
Net loss Apr. 1, 1998 -
June 30, 1998 (370) (370)
------------------- ------------- ---------------- -------------------- ---------------------
Balance, June 30, 1998 4,929,313 $5 $4,995 ($2,554) $2,446
=================== ============= ================ ==================== =====================
</TABLE>
<TABLE>
<CAPTION>
3. Supplemental Disclosure of Cash Flows
Reorganized Predecessor
Company Company
---------------------- ----------------------
Six Months Period from
Ended January 1 to
June 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 $1,444 -
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
</TABLE>
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.
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 August 31, 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.
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 June 30, 1998 and 1997 and the six months ended June 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>
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, 1998 June 30, 1997
------------- -------------
(Dollars in (Dollars in
thousands) % thousands) %
Revenues, net:
<S> <C> <C> <C> <C>
Casino $9,554 69.4% $9,051 68.6%
Hotel 2,138 15.5% 2,406 18.3%
Food & beverage 2,538 18.4% 2,270 17.2%
Other 934 6.8% 355 2.7%
Gross revenue 15,164 110.1% 14,082 106.8%
Less promotional allowances (1,387) (10.1%) (896) (6.8%)
Revenues, net $13,777 100.0% $13,186 100.0%
Costs and expenses:
Casino $3,574 37.4% $3,576 39.5%
Hotel 1,935 90.5% 2,155 89.6%
Food and beverage 1,538 60.6% 1,504 66.3%
Taxes and licenses 1,281 9.3% 381 10.5%
Selling, general and
2,937 21.3% 2,043 15.5%
administrative
Rents 948 6.9% 1,025 7.8%
Depreciation and
amortization 563 4.1% 551 4.2%
Interest 1,274 9.2% 1,285 9.8%
Merger costs 97 .7% - -
Total costs and expenses $14,147 102.7% $13,520 102.5%
Net loss before income taxes ($370) (2.7%) ($334) (2.5%)
Income taxes - - 30 .2%
------------------ ------------ ------------------ ---------------
Net loss ($370) (2.7%) ($364) (2.7%)
------------------ ------------ ------------------ ---------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, 1998 June 30, 1997
---------------------------------- -----------------------------------
(Dollars in (Dollars in
thousands) % thousands) %
------------------- -------------- ------------------- ---------------
Other Data:
<S> <C> <C> <C> <C>
Net income (loss) ($370) (2.7%) ($364) (2.8%)
Depreciation and amortization 563 4.1% 551 4.2%
Interest 1,274 9.2% 1,285 9.8%
Income taxes - - 30 .2%
Merger costs 97 .7% - -
------------------- -------------- ------------------- ---------------
Earnings before interest,
taxes, depreciation and
amortization and merger
costs (EBITDA) $1,564 11.4% $1,502 11.4%
=================== ============== =================== ===============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1998 June 30, 1997
--------------------------- ------------------------------
(Dollars in (Dollars in
thousands) % thousands) %
----------- -------- ----------- --------
Revenues, net:
<S> <C> <C> <C> <C>
Casino $19,789 70.6% $19,522 69.4%
Hotel 4,513 16.1% 5,006 17.8%
Food & beverage 5,195 18.5% 4,910 17.5%
Other 1,499 5.4% 670 2.4%
Gross revenue 30,996 110.6% 30,108 107.2%
Less promotional allowances (2,966) (10.6%) (1,976) (7.2%)
Revenues, net $28,030 100.0% $28,132 100.0%
Costs and expenses:
Casino $7,642 38.6% $7,450 38.2%
Hotel 3,706 82.1% 4,259 85.1%
Food and beverage 2,984 57.4% 3,156 64.3%
Taxes and licenses 3,042 10.9% 2,868 10.2%
Selling, general and
5,396 19.3% 4,639 16.5%
administrative
Rents 1,912 6.8% 2,033 7.2%
Depreciation and
amortization 1,130 4.0% 1,249 4.4%
Interest 2,606 9.3% 2,450 8.7%
Merger costs 252 .9% - -
Total costs and expenses 28,670 102.3% $28,104 99.9%
----------- -------- ----------- --------
Net loss ($640) (2.3%) $28 .1%
----------- -------- ----------- --------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1998 June 30, 1997
---------------------------------- -----------------------------------
(Dollars in (Dollars in
thousands) % thousands) %
------------------- -------------- ------------------- ---------------
Other Data:
<S> <C> <C> <C> <C>
Net income (loss) ($640) (2.3%) $28 .1%
Depreciation and amortization 1,130 4.0% 1,249 4.4%
Interest 2,606 9.3% 2,450 8.7%
Income taxes - - - -
Merger costs 252 .9% - -
------------------- -------------- ------------------- ---------------
Earnings before interest,
taxes, depreciation and
amortization and merger
costs (EBITDA) $3,348 11.9% $3,727 13.3%
=================== ============== =================== ===============
Cash flows provided by (used
in) operating activities ($333) $3,917
=================== ===================
Cash flows from investing
activities ($1,181) ($1,160)
=================== ===================
Cash flows provided by (used
in) financing activities ($706) $627
=================== ===================
</TABLE>
<PAGE>
THREE MONTHS ENDED JUNE 30, 1998 COMPARED
TO THREE MONTHS ENDED JUNE 30, 1997
- --------------------------------------------------------------------------------
REVENUES
Net revenues increased by approximately $591,000, or 4.5%, from $13,186,000 for
the three months ended June 30, 1997, to $13,777,000 for the three months ended
June 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 $503,000, or 5.6%, from $9,051,000
during the 1997 period to $9,554,000 during the 1998 period due primarily to a
$1,184,000, or 282.7%, increase in slot machine revenue, partially offset by a
$314,000, or 16.5%, decrease in table games revenues, and a $315,000, or 75.2%,
decrease in slot promotion revenue. Management eliminated certain unprofitable
complimentary programs which generated significant slot and table games volume
in the second quarter of 1997. During the second quarter of 1998, table games
drop increased $1,960,000 or 19.1%, which was partially offset by the effect of
a decrease in the win percentage of .7%, or $314,000. Slot coin-in increased
$14,925,000, or 13.0%, 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 $268,000, or 11.1%, from $2,406,000
during the 1997 period to $2,138,000 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 $268,000, or 11.8%, from
$2,270,000 during the 1997 period to $2,538,000 during the 1998 period primarily
due to an increase in complimentary revenues of $196,000 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 increased by approximately $579,000, or 163.1%, from $355,000
during the 1997 period to $934,000 during the 1998 period, due to additional
rental income as a result of new tenant leases and a payment received under a
settlement agreement with the Twenty-Nine Palms Band of Mission Indians.
Promotional allowances increased by approximately $491,000, or 54.8%, from
$896,000 during the 1997 period to $1,387,000 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 $288,000, or 3.3%, from $8,616,000 for the
1997 period to $8,328,000 for 1998 period.
Hotel expense decreased by approximately $220,000, or 10.2%, from $2,155,000
during the 1997 period to $1,935,000 during the 1998 period. Hotel expenses as a
percentage of revenues increased from 89.6% to 90.5% 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 decreased by approximately $34,000, or
2.3%, from $1,504,000 during the 1997 period to $1,538,000 during the 1998
period, primarily as a result of an increase in costs associated with an
increase in promotional allowances.
Taxes and licenses decreased $100,000, or 7.2%, from $1,381,000 in the 1997
period to $1,281,000 in the 1998 period due primarily to a decrease in payroll
taxes.
OTHER OPERATING EXPENSES
Selling, general and administrative expenses increased $894,000, or 43.7%, from
$2,043,000 during the 1997 period to $2,937,000 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 15.5% to 21.3%.
EBITDA AND MORTGAGE NOTE COVENANTS
EBITDA increased by approximately $62,000, or 4.1%, from $1,502,000 during the
1997 period to $1,564,000 during the 1998 period. The increase was due to an
increase in revenues, as discussed above.
Pursuant to covenants applicable to the Company's restated 1994 11 1/2% First
Mortgage Notes due 2000 ("New First Mortgage Notes") and restated 1993 13 1/2%
Mortgage Notes due 2001 ("New Second Mortgage Notes"), 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 waivers of those covenants from the holders of the First
Mortgage Notes and Second Mortgage Notes due to the Ratio being lower than
required as of the reference period ended March 31, 1998. The waivers provide
that the noteholders will not take action prior to January 2, 1999 in respect of
a Ratio lower than 1.25 to 1.00 for the reference periods ending June 30 and
September 30, 1998. As of the reference period ended June 30, 1998 the Ratio was
.99 to 1.00.
OTHER EXPENSES
During the second quarter of the 1998 period, the Company incurred approximately
$97,000 in merger and acquisition costs related to the Merger Agreement.
NET INCOME (LOSS)
As a result of the factors discussed above, the Company experienced a net loss
in the 1998 period of $370,000 compared to a net loss of $334,000 in the 1997
period, a decrease of $36,000, or 10.8%.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED
TO SIX MONTHS ENDED JUNE 30, 1997
- --------------------------------------------------------------------------------
REVENUES
Net revenues decreased by approximately $102,000, or 0.4%, from $28,132,000 for
the six months ended June 30, 1997, to $28,030,000 for the six months ended June
30, 1998, primarily due to continued competition and increased casino and hotel
capacity in the general Las Vegas market which has adversely affected
hotel/casinos in the downtown area. Management's implementation of slot and
casino promotions have proven to be effective in the second quarter at lessening
the negative impact of this competition and increased capacity on revenues.
Casino revenues increased by approximately $267,000, or 1.4%, from $19,522,000
during the 1997 period to $19,789,000 during the 1998 period due primarily to a
$1,751,000, or 13.7%, increase in slot machine revenue partially offset by a
$462,000, or 11%, decrease in table games revenues, a $125,000, or 39.9%,
decrease in poker tournament entry fee revenue and a $795,000, or 46.1%,
decrease in slot promotion revenue. During 1998, table games drop decreased
$603,000 or 2.2%. Slot coin-in increased $26,188,000, or 11.3%, 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 $493,000, or 9.8%, from $5,006,000
during the 1997 period to $4,513,000 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 $285,000, or 5.8%, from
$4,910,000 during the 1997 period to $5,195,000 during the 1998 period due to an
increase in complimentary revenues of $374,000 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 $829,000, or 123.7%, from $670,000
during the 1997 period to $1,499,000 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 $990,000, or 50.1%, from
$1,976,000 during the 1997 period to $2,966,000 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 $359,000, or 2.0%, from $17,733,000 for the
1997 period to $17,374,000 for 1998 period. Costs could increase 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 $192,000, or 2.6%, from $7,450,000
during the 1997 period to $7,642,000 during the 1998 period due to an increase
in the cost of complimentary rooms, food, and beverage. Casino expenses as a
percentage of revenues increased from 38.2% to 38.6% 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 $553,000, or 13.0%, from $4,259,000
during the 1997 period to $3,706,000 during the 1998 period. Hotel expenses as a
percentage of revenues decreased from 85.1% to 82.1% 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 $172,000, or
5.4%, from $3,156,000 during the 1997 period to $2,984,000 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 $174,000, or 6.1%, due primarily to a corresponding
increase in slot revenues.
OTHER OPERATING EXPENSE
Selling, general and administrative expenses increased $757,000, or 16.3%, as a
result of an increase in promotional expenses.
Rent expense decreased $121,000, or 6.0%, due primarily to the elimination of an
operating lease in the 1998 period.
EBITDA AND MORTGAGE NOTE COVENANTS
EBITDA decreased by approximately $379,000, or 10.1%, from $3,727,000 during the
1997 period to $3,348,000 during the 1998 period. The decrease was due to lower
revenues, as discussed above.
As noted above, pursuant to covenants applicable to the Company's New First
Mortgage Notes and New Second Mortgage Notes, the Company is required to
maintain the minimum Ratio of 1.25 to 1.00. The Company obtained waivers of
those covenants from the holders of the First Mortgage Notes and Second Mortgage
Notes due to the Ratio being lower than required as of the reference period
ended March 31, 1998. The waivers provide that the noteholders will not take
action prior to January 2, 1999 in respect of a Ratio lower than 1.25 to 1.00
for the reference periods ending June 30 and September 30, 1998. As of the
reference period ended June 30, 1998 the Ratio was .99 to 1.00.
OTHER EXPENSES
Depreciation and amortization decreased by approximately $119,000, or 9.5%, from
$1,249,000 during the 1997 period to $1,130,000 during the 1998 period due to
revaluation of property and equipment as a result of fresh start accounting.
Interest expense increased by approximately $156,000, or 6.4%, from $2,450,000
during the 1997 period to $2,606,000 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 $252,000 in merger and
acquisition costs related to the Merger Agreement.
NET INCOME (LOSS)
As a result of the factors discussed above, the Company experienced a net loss
in the 1998 period of $640,000 compared to a net profit of $28,000 in the 1997
period, a decrease of $668,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of approximately $4.6 million at June
30, 1998, as compared with approximately $6.8 million at December 31, 1997, a
decrease of $2.2 million from December 31, 1997. Significant debt service on the
New Second Mortgage 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. The holders of $29,104,000 of the
New Second Mortgage Notes have waived payment of interest in the amount of
$2,025,000 payable August 31 for sixty days.
For the first six months of 1998, the Company's net cash used in operating
activities was $333,000 compared to $3,917,000 provided by operating activities
in the first six months of 1997, due primarily to the payment of accrued
interest on the New Second Mortgage Notes and other debt issued pursuant to the
Plan. EBITDA for the first six months of 1998 and 1997 was $3.3 million and $3.7
million, respectively. The Company's ability to service its debt will be
dependent on future performance, which will be effected by, among other things,
prevailing economic conditions and financial, business and other factors,
certain of which are beyond the Company's control.
Scheduled interest payments on the New Second Mortgage Notes and other
indebtedness are $5.2 million in 1998, declining to $4.2 million in 2001. Cash
flow from operations is not expected to be sufficient to pay 100% of the $30
million principal of the New Second Mortgage Notes at maturity on August 20,
2001. Accordingly, the ability of the Company to repay the New Second Mortgage
Notes at maturity will be dependent upon its ability to refinance the New Second
Mortgage Notes. There can be no assurance that the Company will be able to
refinance the principal amount of the New Second Mortgage Notes at maturity. The
New Second Mortgage Notes are redeemable at the option of the Company at 100% at
any time without premium.
The indenture governing the New Second Mortgage 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 Second Mortgage Notes upon the occurrence of a change of
control or certain other events at 101%. The Company is also required to offer
to purchase all of its New First Mortgage Notes, the principal amount of which
is approximately $3.9 million, at 101% upon any "Change of Control," as defined
in the indenture governing those notes. (See the "Proposed Merger" discussion in
Note 4 to the Company's Condensed Consolidated Financial Statements included
herein regarding the potential change in control of the Company.) 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 Second Mortgage 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 First Mortgage Notes and New Second Mortgage Notes. The
Company has obtained waivers from its compliance with these covenants for the
reference period ended March 31, 1998, and the waivers further provide that the
noteholders will not take action prior to January 2, 1999 for non-compliance
with the Ratio covenants through the September 30, 1998 reference periods. If
the Company fails to be in compliance with the Ratio covenants as of September
30, 1998, it would be required to seek further relief from the noteholders or
refinance the indebtedness represented by the New First Mortgage Notes and New
Second Mortgage Notes. In the event that this was not accomplished, the holders
of the New First Mortgage Notes and New Second Mortgage Notes would be entitled
to declare a default on the New First Mortgage Notes and New Second Mortgage
Notes and the entire amount of principle and interest thereunder could become
due and payable. There can be no assurance that the holders of the New First
Mortgage Notes and New Second Mortgage Notes would give additional forbearance
past January 2, 1999 or that the New First Mortgage Notes and New Second
Mortgage 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, of
which $2.7 million has been used as of June 30, 1998, from cash on hand, cash
flow and slot lease financing. Uses of cash during the six-month period ended
June 30, 1998 included capital expenditures of $1,472,000.
The Company is currently in discussions with certain significant debtholders
regarding a possible restructuring of outstanding indebtedness. There can be no
assurance that any restructuring will occur on terms favorable to the Company or
at all. If the Company is unable to restructure its existing indebtedness, the
Company would be required to significantly reduce its capital expenditures in
order to be able to meet its debt service obligations as they become due without
external financing. In addition, if the restructuring is not consummated, the
Company would not be in compliance with the Ratio covenants applicable to its
New First Mortgage Notes and New Second Mortgage Notes at the end of the
forebearance period discussed above and would be required to seek additional
waivers or financing. No assurance can be given that additional waivers or
external financing will be available or that, if available, such financing or
waivers will be on terms favorable to the Company.
COMPUTERIZED OPERATIONS AND YEAR 2000
During recent years, there has been significant global awareness raised
regarding the potential disruption to business operations worldwide resulting
from the inability of current technology to process properly the date change
from the year 1999 to 2000. Although, based on a review of its data processing,
operating and other computer-based systems, the Company does not currently
believe that it will experience significant adverse effects or material
unbudgeted costs resulting from the inability of its technology to adequately
process the year 2000 date change, the Company cannot provide any assurance in
this regard, and any such costs or effect could materially and adversely affect
the operations of the Company. In addition, there can be no assurance that the
systems and technology of other parties upon which the Company relies for
various products or services will be able to process the year 2000 date change;
such inability could also adversely affect the operations of the Company.
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, as well as other capital spending, financing and restructuring
sources (including any interest payment waiver), 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 date change, 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 August 31,
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 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 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.45 Waiver of Compliance and Letter Dated August 14, 1998
15.1 KPMG Peat Marwick LLP Independent Auditor's Review Report
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during this period.
<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: August 14, 1998
<PAGE>
INDEX TO EXHIBITS
10.45 Waiver of Compliance and Letter Dated August 14, 1998
15.1 KPMG Peat Marwick LLP Independent Auditor's Review Report
27.1 Financial Data Schedule
Exhibit 10.45
MORGENS, WATERFALL, VINTIADIS & COMPANY, INC.
JOANN McNIFF, ESQ. 10 EAST 50TH STREET
(212) 705-0534 NEW YORK, NEW YORK 10022
[email protected] (212) 705-0500
FAX: (212) 838-5540
August 14, 1998
Ms. Gina Contner
Four Queens
202 E. Fremont
Las Vegas, NV 89101
Re: Elsinore Waiver
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/Joann
cc: David Hollander, Esq.
<PAGE>
Waiver of Compliance
To: Elsinore Corporation (the "Company")
First National Trust Association, as trustee ("Trustee") under
that certain Amended and Restated Indenture dated as of March 3, 1997
(the "Indenture"), by and among the Company, the guarantors named
therein and Trustee.
Re: $30,000,000 131/2% Second Mortgage Notes due 2001 of Elsinore Corporation
-------------------------------------------------------------------------
The undersigned, pursuant to Section 10.2 of the Indenture,
hereby:
1. Certifies that it is the beneficial owner of $29,104,000
principal amount (the "Principal Amount") of the Securities,
which Principal Amount is on the date hereof on deposit in the
Depository Trust Company account of Morgan Stanley in the
record name of Cede & Co. as nominee; and
2. Waives, and instructs the Trustee to waive, the semi-annual
payment of interest due on the Principal Amount of the
Securities on August 31, 1998 for sixty (60) days.
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
August 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.
Morgen Stanley & Co.
August ____, 1998
Signature: ________________________________
Title: ____________________________________
<PAGE>
EXHIBIT 15.1
INDEPDENDENT ACCOUNTANTS' REVIEW REPORT
The Board of Directors
Elsinore Corporation
We have reviewed the condensed consolidated balance sheet of Elsinore
Corporation and subsidiaries (Reorganized Company) as of June 30, 1998, and the
related condensed consolidated statements of operations and cash flows for the
three months ended June 30, 1998 and from the period from March 1, 1997 through
June 30, 1997 and the related consolidated statements of operations and cash
flows of Elsinore Corporation and subsidiaries, Debtor-In-Possession
(Predecessor Company) for the period from January 1, 1997 through February 28,
1997. These condensed consolidated financial statements are the responsibility
of the Company's 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 inquires 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 condensed 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 (Reorganized Company) as of December 31, 1997 and the related
consolidated statements of operations, shareholders' equity and cash flows for
the period from March 1, 1997 through December 31, 1997 and of Elsinore
Corporation and subsidiaries, Debtor-In-Possession and the consolidated
statements of operations, shareholders' equity (deficiency) and cash flows for
the period from January 1, 1997 through February 28, 1997 (not presented
herein); and in our report dated February 13, 1998, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of December 31, 1997, is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
/s/ KPMG Peat Marwick LLP
Las Vegas, Nevada
August 12, 1998
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 4,602,000
<SECURITIES> 0
<RECEIVABLES> 721,000
<ALLOWANCES> (229,000)
<INVENTORY> 338,000
<CURRENT-ASSETS> 7,320,000
<PP&E> 43,066,251
<DEPRECIATION> (2,514,251)
<TOTAL-ASSETS> 49,408,000
<CURRENT-LIABILITIES> 8,372,000
<BONDS> 33,900,000
0
0
<COMMON> 5,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 49,408,000
<SALES> 12,390,000
<TOTAL-REVENUES> 13,777,000
<CGS> 0
<TOTAL-COSTS> 14,147,000
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