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 March 31, 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
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 May 13, 1998 4,929,313
Elsinore Corporation and Subsidiaries
Form 10-Q
For the Quarter Ended March 31, 1998
INDEX
PART I. FINANCIAL INFORMATION: PAGE
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets at 3-4
March 31, 1998 (Reorganized Company) (Unaudited)
and December 31, 1997 (Reorganized Company)
Condensed Consolidated Statements of Operations 5-6
for the Three Months Ended March 31, 1998 (Reorganized
Company) and One Month Ended March 31, 1997
(Reorganized Company); Two Months Ended February 28,
1997 (Predecessor Company); Combined Reorganized and
Predecessor Company for the Three Months Ended March
31, 1997 (Unaudited)
Condensed Consolidated Statements of Cash Flows for 7-8
the Three Months Ended March 31, 1998 (Reorganized
Company) and One Month Ended March 31, 1997
(Reorganized Company); Two Months Ended February 28,
1997 (Predecessor Company); Combined Reorganized and
Predecessor Company for the Three Months Ended March
31, 1997 (Unaudited)
Notes to Condensed Consolidated Financial Statements 9-12
Item 2. Management's Discussion and Analysis of 13-20
Financial Condition and Results of
Operations
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings 21
Item 4. Submission of Matters to a Vote
of Security Holders 21
Item 5. Other Information 21-22
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 23
PART 1. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
<TABLE>
<CAPTION>
Elsinore Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
March 31, 1998 and December 31, 1997
(Dollars in Thousands)
Reorganized Reorganized
Company Company
March 31, December 31,
1998 1997
------------------- --------------------
(Unaudited)
Assets
Current Assets:
<S> <C> <C>
Cash and cash equivalents $4,529 $6,822
Accounts receivable, less allowance for
doubtful accounts of $177 and $165,
respectively 501 623
Inventories 420 382
Prepaid expenses 1,964 1,846
------------------- --------------------
Total current assets 7,414 9,673
------------------- --------------------
Property and equipment, net 39,581 39,042
Reorganization value in excess of amounts
allocable to indentifiable assets 365 367
Other assets 689 741
------------------- --------------------
Total assets $48,049 $49,823
=================== ====================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<TABLE>
<CAPTION>
Elsinore Corporation and Subsidiaries
Condensed Consolidated Balance Sheets (continued)
March 31, 1998 and December 31, 1997
(Dollars in Thousands)
Reorganized Reorganized
Company Company
March 31, December 31,
1998 1997
------------------ --------------------
(Unaudited)
Liabilities and Shareholders' Equity (Deficit)
Current liabilities:
<S> <C> <C>
Accounts payable $843 $1,174
Accrued interest 462 1,492
Accrued expenses 4,555 4,453
Current portion of long-term debt 1,445 1,477
------------------ --------------------
Total current liabilities 7,305 8,596
------------------ --------------------
Long-term debt, less current portion 37,928 38,141
------------------ --------------------
Total liabilities $45,233 $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 (2,184) (1,914)
------------------ --------------------
Total shareholders' equity (deficit) 2,816 3,086
------------------ --------------------
Total liabilities and shareholders'
equity (deficit) $48,049 $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)
(Unaudited)
Combined
Reorganized
and
Predecessor Predecessor
Reorganized Company Company Company
-------------------------------------------------------------------------------
Three Period from Period from Three
Months March 1 January 1 to Months
Ended to February 28 Ended
March 31, March 31, 1997 March 31,
1998 1997 1997
-------------------------------------------------------------------------------
Revenues, net:
<S> <C> <C> <C> <C>
Casino $10,235 $3,549 $6,922 $10,471
Hotel 2,375 864 1,736 2,600
Food and beverage 2,657 895 1,745 2,640
Other 565 162 153 315
Promotional allowances (1,579) (320) (760) (1,080)
------------------- ------------------ ------------------- --------------------
Total revenues, net 14,253 5,150 9,796 14,946
Costs and expenses:
Casino 4,068 1,164 2,710 3,874
Hotel 1,771 694 1,410 2,104
Food and beverage 1,446 547 1,105 1,652
Taxes and licenses 1,761 507 980 1,487
Selling, general and
administrative 2,459 789 1,807 2,596
Rents 964 335 673 1,008
Depreciation and
amortization 567 169 529 698
Interest 1,332 393 772 1,165
Merger costs 155 - - -
------------------- ------------------ ------------------- --------------------
Total costs and
expenses 14,523 4,598 9,986 14,584
------------------- ------------------ ------------------- --------------------
Income (loss) before
extraordinary
gain on elimination
of debt (270) 552 (190) $362
====================
Extraordinary gain on
elimination of debt - - 35,977
------------------- ------------------ -------------------
Net income (loss) (270) 552 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
------------------------------------- ------------------
Three Period from Period from
Months March 1 January 1 to
Ended to February 28
March 31, March 31, 1997
1998 1997
------------------ ------------------ ------------------
Basic and diluted income (loss)
per share:
Income (loss) before
Extraordinary gain on
<S> <C> <C> <C>
elimination of debt $(.05) ($.11) ($0.01)
Extraordinary gain on
elimination of debt - - $2.26
------------------ ------------------ ------------------
Net income (loss) $(.05) ($.11) $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)
(Unaudited)
Combined
Reorganized and
Predecessor
Company
Reorganized Company Predecessor
-------------------------------------------------------------------------
Three Period from Period from Three
Months March 1 January 1 to Months
Ended to February 28 Ended
March 31, March 31, 1997 March 31,
1998 1997 1997
-------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C> <C> <C>
Net income (loss) ($270) $552 $35,787 $36,339
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 567 172 529 701
Decrease in accounts
receivable 122 96 269 365
(Increase) decrease in
inventories (38) (11) 6 (5)
Increase in prepaid
expenses (118) (226) (111) (337)
Decrease in restricted
cash - - 4,092 4,092
Decrease in other assets 22 6 2 8
Increase (decrease) in
accounts payable (331) 85 (178) (93)
Increase (decrease) in
accrued expenses 102 (424) 591 167
Increase (decrease) in
accrued interest (1030) (1,991) 749 (1,242)
-------------------------------------------------------------------------
Net cash provided by (used
in) operating activities ($974) ($1,741) $5,759 $4,018
-------------------------------------------------------------------------
</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
----------------------------------------------------------------------------
Three Period from Period from Three
Months March 1 January 1 to Months
Ended to February 28 Ended
March 31, March 31, 1997 March 31,
1998 1997 1997
----------------------------------------------------------------------------
Cash flows from investing
activities:
<S> <C> <C> <C> <C>
Capital expenditures (799) (239) (141) (380)
----------------------------------------------------------------------------
Cash flows from financing
activities -
Principal payments on
long-term debt (520) (5) (12) (17)
Proceeds from issuance of
common stock
subscription rights - - 713 713
----------------------------------------------------------------------------
Net cash provided by (used
in) financing activities (520) (5) 701 696
----------------------------------------------------------------------------
Net increase (decrease) in
cash and cash equivalents (2,293) (1,985) 6,319 4,334
----------------------------------------------------------------------------
Cash and cash equivalents at
beginning of period 6,822 13,527 7,208 7,208
----------------------------------------------------------------------------
Cash and cash equivalents at
end of period $4,529 $11,542 $13,527 $11,542
============================================================================
</TABLE>
Elsinore Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
March 31, 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 March 31, 1998 and the
results of operations and cash flows for the three months ended March 31, 1998
and the two months ended February 28, 1997 for the Predecessor Company and the
one month ended March 31, 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.
<TABLE>
<CAPTION>
2. Shareholders' Equity
Common Stock
---------------------------------
Total
Additional Accumulated Shareholders'
Outstanding Paid-In- Earnings Equity
Shares Amount Capital (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, March 31, 1998 4,929,313 $5 $4,995 ($2,184) $2,816
=================== ============= ================ ==================== =====================
</TABLE>
3. Supplemental Disclosure of Cash Flows
<TABLE>
<CAPTION>
Reorganized Predecessor
Company Company
----------------------------------------
Three months Period from
Ended January 1 to
March 31, February 28
1998 1997
----------------------------------------
(Dollars in
thousands)
Supplemental disclosure of non-cash investing and
financing activities:
<S> <C> <C>
Equipment purchased with capital lease financing $275 -
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>
4. 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, this claim has
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.
5. 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 opinion 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 has alleged, among other things, violations
by the Company of the Merger Agreement, violations of law and misrepresentations
by the manager of certain investment accounts which 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 has denied the allegations and
has asked that R&E complete the merger.
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.
The Company has denied the allegations and has asked that R&E complete the
merger (Paulson, et al. v Jeffries & Company et al.). Plaintiff's 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. The Company has not yet
been served with the lawsuit and is currently unable to form an opinion as to
the amount of its exposure in respect thereto. If forced to defend the lawsuit,
there can be no assurance that the Company will be successful in such defense or
that future operating results will not be materially adversely affected by 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 table sets forth certain operating information for the Company for
the three months ended March 31, 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.
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1998 March 31, 1997
-------------- --------------
(Dollars in (Dollars in
thousands) % thousands %
------------ ---------- ------------ ----------
Revenues, net:
<S> <C> <C> <C> <C>
Casino $10,235 71.8% $10,471 70.1%
Hotel 2,375 16.7% 2,600 17.4%
Food & beverage 2,657 18.5% 2,640 17.7%
Other 565 4.0% 315 2.1%
------------ ---------- ----------- ----------
Gross revenue 15,832 111.1% 16,026 107.2%
Less promotional allowances (1,579) (11.1%) (1,080) (7.2%)
------------ ---------- ----------- ----------
Revenues, net $14,253 100.0% $14,946 100.0%
------------ ---------- ----------- ----------
Costs and expenses:
Casino $4,068 39.8% $3,874 37.0%
Hotel 1,771 74.6% 2,104 80.9%
Food and beverage 1,446 54.4% 1,652 62.6%
Taxes and licenses 1,761 12.4% 1,487 10.0%
Selling, general and 2,459 17.3% 2,596 17.4%
administrative
Rents 964 6.8% 1,008 6.7%
Depreciation and 567 4.0% 698 4.7%
amortization
Interest 1,332 9.4% 1,165 7.8%
------------ ---------- ----------- ----------
Merger costs 155 1.1% - -
------------ ---------- ----------- ----------
Total costs and expenses $14,523 100.8% $14,584 97.6%
------------ ---------- ----------- ----------
Net loss ($270) (.8%) $362 2.4%
------------ ---------- ----------- ----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1998 March 31, 1997
---------------------------------- -----------------------------------
(Dollars in (Dollars in
thousands) % thousands) %
------------------- -------------- ------------------- ---------------
Other Data:
<S> <C> <C> <C> <C>
Net income (loss) ($270) (1.9%) $362 2.4%
Depreciation and amortization 567 4.0% 698 4.7%
Interest 1,332 9.4% 1,165 7.8%
Income taxes - - - -
Merger costs 155 1.1% - -
------------------- -------------- ------------------- ----------------
Earnings before interest,
taxes, depreciation and
amortization and reorganiza-
tional items (EBITDA) $1,783 12.5% $2,225 14.9%
=================== ============== =================== ================
Cash flows provided by (used
in) operating activities ($974) $4,018
=================== ===================
Cash flows used in investing
activities ($799) ($380)
=================== ===================
Cash flows used in financing
activities ($520) $696
=================== ===================
</TABLE>
<PAGE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED
TO THREE MONTHS ENDED MARCH 31, 1997
REVENUES
Net revenues decreased by approximately $693,000, or 4.6%, from $14,946,000 for
the three months ended March 31, 1997, to $14,253,000 for the three months ended
March 31, 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.
Casino revenues decreased by approximately $236,000, or 2.3%, from $10,471,000
during the 1997 period to $10,235,000 during the 1998 period due primarily to a
$148,000, or 6.5%, decrease in table games revenues, a $128,000, or 40.9%,
decrease in poker tournament entry fee revenue, a $480,000, or 51.2%, decrease
in slot promotion revenue partially offset by a $567,000, or 8.5%, increase in
slot machine revenue. Management eliminated certain unprofitable complimentary
programs which generated significant poker, slot and table games volume in the
first quarter of 1997. During the first quarter of 1998, table games drop
decreased $2,563,000 or 14.3%. However, the win percentage increased by 1.2% as
a result of more stringent controls over the dice games and a change in customer
mix from complimentary credit players to cash paying vacationers. Slot coin-in
increased $11,263,000, or 9.5%, 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 $225,000, or 8.7%, from $2,600,000
during the 1997 period to $2,375,000 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 $17,000, or 0.6%, from
$2,640,000 during the 1997 period to $2,657,000 during the 1998 period due to an
increase in complimentary revenues of $219,000 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 $250,000, or 79.4%, from $315,000
during the 1997 period to $565,000 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 $499,000, or 46.2%, from
$1,080,000 during the 1997 period to $1,579,000 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 $252,000, or 2.0%, from $12,721,000 for the
1997 period to $12,469,000 for 1998 period.
Casino expense increased by approximately $194,000, or 5.0%, from $3,874,000
during the 1997 period to $4,068,000 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 37.0% to 39.8% 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 $333,000, or 15.8%, from $2,104,000
during the 1997 period to $1,771,000 during the 1998 period. Hotel expenses as a
percentage of revenues decreased from 80.9% to 74.6% 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 $206,000, or
12.5%, from $1,652,000 during the 1997 period to $1,446,000 during the 1998
period, primarily as a result of an increase in the cost of complimentary rooms,
food and beverages reflected as casino expense.
EBITDA AND MORTGAGE NOTE COVENANTS
EBITDA decreased by approximately $442,000, or 19.8%, from $2,225,000 during the
1997 period to $1,783,000 during the 1998 period. The decrease was due to lower
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.
For the reference periods ending March 31, 1998, 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. As of the reference period ended March 31, 1998 the Ratio
was .98 to 1.00. The waivers further provided 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.
OTHER EXPENSES
Depreciation and amortization decreased by approximately $131,000, or 18.8%,
from $698,000 during the 1997 period to $567,000 during the 1998 period due to
revaluation of property and equipment as a result of fresh start accounting.
Interest expense increased by approximately $167,000, or 14.3%, from $1,165,000
during the 1997 period to $1,332,000 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 the first quarter of the 1998 period, the company incurred approximately
$155,000 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 $115,000 compared to a net profit of $362,000 in the 1997
period, a decrease of $477,000, or 131.8%.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of approximately $4.5 million at March
31, 1998, as compared with approximately $6.8 million at December 31, 1997, a
decrease of $2,293,000 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.
For the first three months of 1998, the Company's net cash used by operating
activities was $944,000 compared to $4,371,000 provided by operating activities
in the first three 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 three months of 1998 and 1997 was $1.8 million and
$2.2 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 were $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 5 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 as 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 $1.5 million has been used as of March 31, 1998, from cash on hand, cash
flow and slot lease financing. Uses of cash during the three month period ended
March 31, 1998 included capital expenditures of $799,000.
Management believes that the Company's working capital and cash flows from
operations will be sufficient to meet the Company's operating and capital
expenditure requirements for the next twelve months. However, in the longer
term, the Company may require additional funds to support its working capital
requirements or for other purposes and may seek to raise such funds through
public or private equity financing, bank lines of credit or from other sources.
No assurance can be given that additional financing will be available or that,
if available, 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 refinancing
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 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 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. In addition, the Company has certain other
pending matters. See "Item 5. Other Information."
Item 4. Submission of Matters to a Vote of Security Holders
At a special meeting of the shareholders of the Company held
on February 4, 1998, the Company's shareholders approved the
Merger Agreement among the Company, R&E and EAS by the
affirmative vote of shareholders holding approximately 94.3%
of the outstanding shares of the Company's Common Stock and a
negative vote of shareholders holding less than 1% of the
outstanding shares of the Company's Common Stock. Less than 1%
of the shareholders abstained.
Item 5. Other Information:
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 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
has alleged, among other things, violations by the Company of
the Merger Agreement, violations of law and misrepresentations
by the manager of certain investment accounts which 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 has denied the
allegations and asked that R&E complete the merger.
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.). Plaintiff's 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. The Company has not yet been
served with the lawsuit and is currently unable to form an
opinion as to the amount of its exposure in respect thereto.
If forced to defend the lawsuit, there can be no assurance
that the Company will be successful in such defense or that
future operating results will not be materially adversely
affected by final resolution of the lawsuit.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
15.1 KPMG Peat Marwick LLP Independent Auditor's Review Report
27.1 Financial Data Schedule
(b) Reports on Form 8-K
(i) Current Report on Form 8-K filed February 25, 1998,
relating to a press release issued by the Company
concerning notice given by R&E reserving its right
not to proceed with the proposed merger among the
Company, R&E and EAS (the "Proposed Merger").
(ii) Current Report on Form 8-K filed March 25, 1998
relating to a press release, issued by the Company
concerning notice given to the Company by R&E of its
intent not to proceed with the Proposed Merger.
<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: May 13, 1998
<PAGE>
INDEX TO EXHIBITS
15.1 KPMG Peat Marwick LLP Independent Auditor's Review Report
27.1 Financial Data Schedule
INDEPENDENT ACCOUNTANT'S 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 March 31, 1998, and the
related condensed consolidated statements of operations and cash flows for the
three months ended March 31, 1998 and the period from March 1, 1997 through
March 31, 1997 and the related consolidated statements of operations and cash
flows of Elsinore Corporation and subsidiaries, Debtor-In-Possession
(Predecessor Company) for the period 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 inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of an 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 principals.
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/ KMPG Peat Marwick LLP
Las Vegas, Nevada
May 4, 1998
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 4,529,000
<SECURITIES> 0
<RECEIVABLES> 678,000
<ALLOWANCES> (177,000)
<INVENTORY> 420,000
<CURRENT-ASSETS> 7,414,000
<PP&E> 41,614,000
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<TOTAL-ASSETS> 48,049,000
<CURRENT-LIABILITIES> 7,305
<BONDS> 33,900,000
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<SALES> 15,832,000
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<INTEREST-EXPENSE> 1,332,000
<INCOME-PRETAX> (270,000)
<INCOME-TAX> 0
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