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, 2000
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
PRECEDING 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 May 11, 2000 4,929,313
<PAGE>
Elsinore Corporation and Subsidiaries
Form 10-Q
For the Quarter Ended March 31, 2000
INDEX
PART I. FINANCIAL INFORMATION: PAGE
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets at 4-5
March 31, 2000 and December 31, 1999
Condensed Consolidated Statements of Income 6-7
for the Three Months Ended March 31, 2000 and
Three Months Ended March 31, 1999
Condensed Consolidated Statements of Cash Flows for 8-9
the Three Months Ended March 31, 2000 and
Three Months Ended March 31, 1999
Notes to Condensed Consolidated Financial Statements 10-14
Item 2. Management's Discussion and Analysis of 14-22
Financial Condition and Results of
Operations
Item 3. Quantitative and Qualitative Disclosures 22
About Market Risk
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings 23
Item 6. Exhibits and Reports 24
SIGNATURES 25
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
<TABLE>
<CAPTION>
Elsinore Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
March 31, 2000 and December 31, 1999
Unaudited
(Dollars in Thousands)
March 31, December 31,
2000 1999
--------------- ---------------
Assets
Current Assets:
<S> <C> <C>
Cash and cash equivalents $3,511 $3,547
Accounts receivable, less allowance for
doubtful accounts of $248 and $249,
respectively 1,027 694
Inventories 417 594
Prepaid expenses 1,480 1,187
--------------- ---------------
Total current assets 6,435 6,022
--------------- ---------------
Property and equipment, net 40,309 40,815
Reorganization value in excess of amounts
allocable to identifiable 307 313
assets
Other assets 1,675 1,643
--------------- ---------------
Total assets $48,726 $48,793
=============== ===============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Elsinore Corporation and Subsidiaries
Condensed Consolidated Balance Sheets (continued)
March 31, 2000 and December 31, 1999
Unaudited
(Dollars in Thousands)
March 31, December 31,
2000 1999
--------------- ---------------
Liabilities and Shareholders' Equity
Current liabilities:
<S> <C> <C>
Accounts payable $800 $1,803
Accrued interest 366 735
Accrued expenses 5,000 4,573
Current portion of long-term debt 1,705 2,079
--------------- ---------------
Total current liabilities 7,871 9,190
--------------- ---------------
Long-term debt, less current portion 13,803 14,264
--------------- ---------------
Total Liabilities 21,674 23,454
--------------- ---------------
Commitments and contingencies
Shareholders' equity:
6% cumulative convertible preferred stock, no
par value. Authorized, issued and
outstanding 50,000,000 shares. Liquidation
preference of $19,652 and $19,366, at
March 31, 2000 and December 31, 1999,
respectively. 19,652 19,366
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 7,984 8,270
Accumulated deficit (589) (2,302)
--------------- ---------------
Total shareholders' equity 27,052 25,339
--------------- ---------------
Total liabilities and shareholders'
equity $48,726 $48,793
=============== ===============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<TABLE>
<CAPTION>
Elsinore Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
Unaudited
(Dollars in Thousands)
Three Three
Months Months
Ended Ended
March 31, March 31,
2000 1999
--------------- ---------------
Revenues, net:
<S> <C> <C>
Casino $10,140 $10,579
Hotel 2,571 2,400
Food and beverage 2,783 2,587
Other 1,521 749
--------------- ---------------
Total revenues 17,015 16,315
Promotional allowances (1,243) (1,130)
--------------- ---------------
Net revenues 15,772 15,185
--------------- ---------------
Costs and expenses:
Casino 3,281 3,406
Hotel 2,166 2,119
Food and beverage 1,797 1,842
Taxes and licenses 1,524 1,589
Selling, general and
administrative 2,934 2,657
Rents 1,037 973
Depreciation and
amortization 938 821
Interest 402 506
Merger and litigation costs (21) 97
--------------- ---------------
Total costs and
expenses 14,058 14,010
--------------- ---------------
Net income before
undeclared dividends on cumulative
Preferred Stock 1,714 1,175
Undeclared dividends on
cumulative Preferred Stock 285 270
--------------- ---------------
Net income applicable
to common shares $1,429 $905
=============== ===============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Elsinore Corporation and Subsidiaries
Condensed Consolidated Statements of Operations (continued)
Unaudited
Three Three
Months Months
Ended Ended
March 31, March 31,
2000 1999
--------------- ---------------
Basic and diluted income
per share:
<S> <C> <C>
Basic income per share $.29 $.18
=============== ===============
Weighted average number of
common shares outstanding 4,929,313 4,929,313
=============== ===============
Diluted income per share $.02 $.01
=============== ===============
Weighted average number of
common and common
equivalent shares
outstanding 97,993,963 97,993,963
=============== ===============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Elsinore Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Unaudited
(Dollars in Thousands)
Three Three
Months Months
Ended Ended
March 31, March 31,
2000 1999
--------------- ---------------
Cash flows from operating activities:
<S> <C> <C>
Net income $1,714 $1,175
Adjustments to reconcile
net income to net
cash provided by
operating activities:
Depreciation and
amortization 938 821
Changes in assets and
liabilities:
Accounts receivable (333) (10)
Inventories 177 42
Prepaid expenses (293) (134)
Other assets (26) 115
Accounts payable (1,003) 289
Accrued expenses 427 666
Accrued interest (369) (1,918)
--------------- ---------------
Net cash provided by
operating activities 1,232 1,046
--------------- ---------------
Cash flows from investing
activities - capital
expenditures (374) (162)
--------------- ---------------
Cash flows from financing
activities - principal
payments on long-term debt (894) (745)
--------------- ---------------
Net increase (decrease) in
Cash and cash equivalents (36) 139
Cash and cash equivalents at
beginning of period 3,547 5,604
--------------- ---------------
Cash and cash equivalents at
end of period $3,511 $5,743
=============== ===============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Elsinore Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (continued)
Unaudited
(Dollars in Thousands)
Three Months Three Months
Ended Ended
March 31, March 31,
2000 1999
--------------- ---------------
(Dollars in (Dollars in
thousands) thousands)
Supplemental disclosure of non-cash
investing and financing activities:
Equipment purchased with capital
<S> <C> <C>
lease financing $59 $275
Supplemental disclosure of cash activities:
Cash paid for interest $845 $2,423
Cash paid for income taxes - -
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
Elsinore Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
March 31, 2000
1. Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of Elsinore
Corporation and its wholly-owned subsidiaries. All material intercompany
balances and transactions have been eliminated in consolidation.
(b) Basis of Presentation
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 accounting principles generally accepted
in the United States of America have been condensed or omitted pursuant to such
rules and regulations. It is suggested that this report be read in conjunction
with the Company's audited consolidated financial statements included in the
annual report for the year ended December 31, 1999. In the opinion of
management, the accompanying financial statements contain all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly the
Company's financial position as of March 31, 2000, the results of operations for
the three months ended March 31, 2000 and March 31, 1999, and the results of
operations and cash flows for the three months ended March 31, 2000 and March
31, 1999. The operating results and cash flows for these periods are not
necessarily indicative of the results that will be achieved for the full year or
for future periods.
(c) Reclassifications
Certain 1999 amounts have been reclassified to conform with the 2000
presentation. These reclassifications had no effect on the Company's net income.
(d) Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates generally accepted and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Significant
estimates used by the Company include the estimated useful lives for depreciable
and amortizable assets, the estimated allowance for doubtful accounts
receivable, the estimated valuation allowance for deferred tax assets, and
estimated cash flows used in assessing the recoverability of long-lived assets.
Actual results may differ from those estimates.
<PAGE>
(e) Net Income Per Common Share
Basic per share amounts are computed by dividing net income by average shares
outstanding during the period. Diluted per share amounts are computed by
dividing net income by average shares outstanding plus the dilutive effect of
common share equivalents. The effect of the warrants outstanding to purchase
1,125,000 shares of common stock were not included in diluted per share
calculations during the three-month periods ended March 31, 1999 since the
exercise price of such warrants was greater than the average price of the
Company's common stock during these periods.
<TABLE>
<CAPTION>
Three Months Ended
March 31, 2000
(unaudited)
---------------------------------------
Income Shares Per Share
Amounts
Basic EPS:
Net income available to common
<S> <C> <C> <C>
shareholders $1,429,000 4,929,313 $0.29
Effect of Dilutive Securities:
Convertible preferred stock 285,000 93,000,000 (0.27)
Common stock required to be issued
to shareholders - 64,650 -
Diluted EPS:
---------------------------------------
Net income available to common
shareholders plus assumed conversions $1,714,000 97,993,963 $0.02
=======================================
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1999
(unaudited)
---------------------------------------
Income Shares Per Share
Amounts
Basic EPS:
Net income available to common
<S> <C> <C> <C>
shareholders $905,000 4,929,313 $0.18
Effect of Dilutive Securities:
Convertible preferred stock 270,000 93,000,000 (0.17)
Common stock required to be issued
to shareholders - 64,650 -
Diluted EPS:
----------------------------------------
Net income available to common
shareholders plus assumed conversions $1,175,000 97,993,963 $0.01
========================================
</TABLE>
<PAGE>
2. Income Taxes
The Company's effective tax rate will be approximately 0% until its net
operating losses expire or are used.
3. Commitments and Contingencies
RGME managed the Four Queens Casino in accordance with the Management
Arrangement among the Company, Four Queens, Inc. and RGME effective April 1,
1997. RGME received an annual fee of $1 million in equal monthly installments.
The arrangement under which RGME managed the Four Queens Hotel and Casino
terminated on December 31, 1999.
The Company is a party to litigation involving a proposed merger with R&E Gaming
Corp. as discussed in Note 4 below.
Under the Plan of Reorganization that became effective following the close of
business on February 28, 1997, the Company is presently required to issue
additional shares of New Common Stock to the following creditor groups or to a
disbursing agent on behalf of such creditor groups:
Unsecured Creditors of Four Queens, Inc. 50,491
Unsecured Creditors of Elsinore Corporation 14,159
------
Total 64,650
======
The Company is currently arranging for the issuance of these shares.
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 statements of the Company taken as a
whole.
4. Proposed Merger
In the first half of 1998, Elsinore and Mr. Allen E. Paulson ("Paulson")
commenced discussions which culminated in an Agreement and Plan of Merger (the
"Merger Agreement"), dated as of September 15, 1998, between Elsinore and
entities controlled by Paulson, namely R&E Gaming Corp. ("R&E") and Elsinore
Acquisition Sub, Inc. ("EAS"), to acquire by merger (the "Merger") the
outstanding Common Stock for $3.16 per share in cash plus an amount of
additional consideration in cash equal to the daily portion of the accrual on
$3.16 at 9.43% compounded annually, from June 1, 1998 to the date immediately
preceding the date such acquisition is consummated. The Merger Agreement
provided for EAS to merge into Elsinore, and Elsinore to become a wholly owned
subsidiary of R&E.
Contemporaneously with the Merger Agreement, R&E executed an Option and Voting
Agreement (the "Option Agreement") with MWV, on behalf of the MWV Accounts which
owned 94.3% of the outstanding Common Stock prior to the Recapitalization. Under
certain conditions and circumstances, the Option Agreement provided for, among
other things, (i) the grant by the MWV Accounts to R&E of an option to purchase
all of their Common Stock; (ii) an obligation by R&E to purchase all of the MWV
Accounts' Common Stock, and (iii) the MWV Accounts to vote their Common Stock in
favor of the Merger Agreement. Elsinore's shareholders approved the Merger
Agreement at a special meeting of shareholders held on February 4, 1999.
<PAGE>
Paulson also entered into discussions with Riviera to acquire a controlling
interest in that company as well. Riviera owns and operates the Riviera Hotel
and Casino in Las Vegas and is the parent corporation of RGME. On September 16,
1998, R&E and Riviera Acquisition Sub, Inc. ("RAS") (another entity controlled
by Paulson) entered into an Agreement and Plan of Merger (the "Riviera Merger
Agreement") with Riviera, which provided for the merger of RAS into Riviera (the
"Riviera Merger"), and for Riviera to become a wholly owned subsidiary of R&E.
R&E also entered into an Option and Voting Agreement with certain Riviera
shareholders, including MWV acting on behalf of the MWV Accounts, containing
terms similar to those described above with respect to the Option Agreement.
The Merger Agreement contained conditions precedent to consummation of the
Merger, including (i) the Option Agreement being in full force and effect and
MWV having complied in all respects with the terms thereof, (ii) all necessary
approvals from gaming authorities and (iii) consummation of the Riviera Merger.
On March 20, 1998, Elsinore was notified by R&E, through Paulson, that it was
R&E's 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 Elsinore of the Merger
Agreement, violations of law and misrepresentations by MWV in connection with
the Option and Voting Agreement 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
Elsinore and MWV (Paulson, et al. v Jeffries & Company et al.) (the "Paulson
Lawsuit"). On January 25, 2000, the Court granted Plaintiffs' motion for leave
to file a Fourth Amended Complaint. Plaintiffs' allegations in the Fourth
Amended Complaint against the Company include breach of the Merger Agreement by
Elsinore, as well as fraud and various violations of the federal securities laws
in connection with the proposed merger. Plaintiffs are seeking (i) unspecified
actual damages in excess of $20 million, (ii) $20 million in exemplary damages,
and (iii) 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 March 1, 2000, the Company filed its Answer to the Fourth Amended Complaint,
denying the material allegations thereof. In addition, the Company alleged
various counterclaims against plaintiffs for breach of the Merger Agreement,
fraud and violations of the federal securities laws. On May 5, 2000, the Company
filed its First Amended Counterclaims. The counterclaims seek specific
performance of the Merger Agreement, compensatory damages, punitive damages and
other relief.
Discovery is only now beginning, 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.
<PAGE>
5. Subsequent Event
On April 19, 2000, the non-binding letter of intent between the Company and PDS
Financial Corporation was terminated.
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 March 31, 2000 and 1999. 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, 2000 March 31, 1999
(unaudited) (unaudited)
----------- -----------
(Dollars in (Dollars in
thousands) % thousands) %
------------- -------- ------------ --------
Revenues, net:
<S> <C> <C> <C> <C>
Casino $10,140 64.3% $10,579 69.7%
Hotel 2,571 16.3% 2,400 15.8%
Food & beverage 2,783 17.6% 2,587 17.0%
Other 1,521 9.6% 749 4.9%
------------ -------- ------------ --------
Total revenue 17,015 107.9% 16,315 107.4%
Promotional allowances (1,243) (7.9%) (1,130) (7.4%)
------------ -------- ------------ --------
Net revenues 15,772 100.0% 15,185 100.0%
Costs and expenses:
Casino 3,281 32.4% 3,406 32.2%
Hotel 2,166 84.2% 2,119 88.3%
Food and beverage 1,797 64.6% 1,842 71.2%
Taxes and licenses 1,524 9.7% 1,589 10.5%
Selling, general and
administrative 2,934 18.6% 2,657 17.5%
Rents 1,037 6.6% 973 6.4%
Depreciation and
amortization 938 5.9% 821 5.4%
Interest 402 2.5% 506 3.3%
Merger and litigation costs (21) (.1%) 97 .6%
------------ -------- ------------ --------
Total costs and expenses 14,058 89.1% 14,010 92.3%
Net income before
undeclared dividends on
cumulative Preferred Stock 1,714 10.9% 1,175 7.7%
Undeclared dividends on
cumulative Preferred Stock 285 1.8% 270 1.8%
Net income applicable
------------ -------- ------------ --------
to common shares 1,429 9.1% 905 5.9%
------------ -------- ------------ --------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 2000 March 31, 1999
(unaudited) (unaudited)
----------- -----------
(Dollars in (Dollars in
thousands) % thousands) %
------------- -------- ------------ --------
Other Data:
Net income applicable
<S> <C> <C> <C> <C>
to common shares 1,429 9.1% 905 5.9%
Interest 402 2.5% 506 3.3%
Depreciation and amortization 938 5.9% 821 5.4%
Rents 1,037 6.6% 973 6.4%
Merger and litigation costs (21) (.1%) 97 .6%
Undeclared dividends 285 1.8% 270 1.8%
------------- -------- ------------ --------
Earnings before interest,
taxes, depreciation and
amortization, rents, and
undeclared dividends (EBITDA)$4,070 25.8% $3,572 23.5%
============= ======== ============ ========
Cash flows provided by
operating activities $1,231 $1,046
============= ============
Cash flows used in investing
activities ($373) ($162)
============= ============
Cash flows used in financing
activities ($894) ($745)
============= ============
</TABLE>
EBITDA consists of earnings before interest, taxes, depreciation, amortization,
rents, extraordinary item, merger and litigation costs, and undeclared
dividends. While EBITDA should not be construed as a substitute for operating
income or a better indicator of liquidity than cash flow from operating
activities, which are determined in accordance with generally accepted
accounting principles ("GAAP"), it is included herein to provide additional
information with respect to the ability of the Company to meet its future debt
service, capital expenditure and working capital requirements. Although EBITDA
is not necessarily a measure of the Company's ability to fund its cash needs,
management believes that certain investors find EBITDA to be a useful tool for
measuring the ability of the Company to service its debt. EBITDA margin is
EBITDA as a percent of net revenues. The Company's definition of EBITDA may not
be comparable to other companies' definitions.
<PAGE>
THREE MONTHS ENDED MARCH 31, 2000 COMPARED
TO THREE MONTHS ENDED MARCH 31, 1999
- --------------------------------------------------------------------------------
REVENUES
Net revenues increased by approximately $587,000, or 3.9%, from $15,185,000
during the 1999 period, to $15,772,000 for the 2000 period. This increase was
primarily due to payments received under a settlement agreement with the
Twenty-Nine Palms Band of Mission Indians (the "Band").
Casino revenues decreased by approximately $439,000, or 4.1%, from $10,579,000
during the 1999 period to $10,140,000 during the 2000 period. This decrease was
primarily due to a $712,000, or 100%, decrease in slot promotion revenue and a
$32,000, or 16.3%, decrease in keno revenue, partially offset by a $200,000, or
2.6%, increase in slot machine revenue and a $105,000, or 5.4%, increase in
table games revenue. Slot promotion revenue decreased due to the termination of
a license agreement on December 1, 1999, regarding a promotional program known
as $40 of Slot Play for $20SM ("$40 for $20"). This promotion was replaced in
February 2000 by a new marketing promotion, as discussed below, which partially
attributed to the increase in slot machine revenue. The increase in slot machine
revenue is also attributable to an increase in hold percentage of 0.2% partially
offset by a decrease in slot coin-in of $212,000 or 0.2%. The increase in table
games revenue is attributable to an increase in drop of $3,367,000, or 25.9%,
offset by a decrease in the win percentage of 2.5%.
Hotel revenues increased by approximately $171,000, or 7.1%, from $2,400,000
during the 1999 period to $2,571,000 during the 2000 period. This increase was
primarily due to an increase in the average daily room rate of $4.59, from
$36.29 in the 1999 period to $40.88 in the 2000 period, while room occupancy, as
a percentage of total rooms available for sale, decreased from 96.2%, for the
1999 period, to 91.6%, for the 2000 period. Cash room revenue increased
$224,000, or 12.4%, from the 1999 period.
Food and beverage revenues increased approximately $196,000, or 7.6%, from
$2,587,000 during the 1999 period to $2,783,000 during the 2000 period. This
increase was primarily due to an increase in complimentary beverage revenues
resulting from an increase in complimentary beverages given to patrons during
their play in the casino. In addition, cash beverage revenue increased as a
result of a higher average check.
Other revenues increased by approximately $772,000, or 103.1%, from $749,000
during the 1999 period to $1,521,000 during the 2000 period. This increase was
primarily due to payments received under a settlement agreement with the Band.
Promotional allowances increased by approximately $113,000, or 10.0%, from
$1,130,000 during the 1999 period to $1,243,000 during the 2000 period due to an
increase in complimentary rooms, food, and beverage resulting an increase in
casino complimentaries due, in part, to increased play in the casino.
<PAGE>
DIRECT COSTS AND EXPENSES OF OPERATING DEPARTMENTS
Total direct costs and expenses of operating departments, including taxes and
licenses, decreased by approximately $188,000, or 2.1%, from $8,956,000 for the
1999 period to $8,768,000 for the 2000 period due to the termination of the $40
for $20 slot promotion on December 1, 1999.
Casino expenses decreased $125,000, or 3.7%, from $3,406,000 during the 1999
period to $3,281,000 during the 2000 period, and expenses as a percentage of
revenue increased from 32.2% to 32.4%, due primarily to the termination of the
slot promotion as discussed above.
Hotel expenses increased by approximately $47,000, or 2.2% from $2,119,000
during the 1999 period to $2,166,000 during the 2000 period, and expenses as a
percentage of revenues decreased from 88.3% to 84.2%, primarily due to a
reduction in the reclassification of cost of complimentary rooms reflected as a
casino expense, resulting from a lower complimentary room occupancy.
Food and beverage costs and expenses decreased by approximately $45,000, or
2.4%, from $1,842,000 during the 1999 period to $1,797,000 during the 2000
period, and expenses as a percentage of revenues decreased from 71.2% to 64.6%,
primarily due to a reduction in the reclassification of cost of complimentary
food and beverage reflected as a casino expense.
Taxes and licenses decreased $65,000, or 4.1%, from $1,589,000 in the 1999
period to $1,524,000 in the 2000 as a result of corresponding decreases in
casino revenues.
Selling, general, and administrative expenses increased $277,000, or 10.4%, due
primarily to the implementation of a new marketing promotion in February 2000.
The Company believes that city-wide competition for experienced employees may
increase employee turnover and lead to increased payroll costs.
OTHER OPERATING EXPENSES
Selling, general and administrative expenses increased $277,000, from $2,657,000
during the 1999 period to $2,934,000 during the 2000 period, and as a percentage
of total net revenues, expenses decreased from 17.5% to 18.6% due to the
implementation of a slot promotion in February 2000.
EBITDA
EBITDA, as defined, increased by approximately $498,000, or 13.9%, from
$3,572,000 during the 1999 period to $4,070,000 during the 2000 period. The
increase was due to an increase in revenues as discussed above.
OTHER EXPENSES
Rent expense increased by approximately $64,000, or 6.6%, from $973,000 during
the 1999 period to $1,037,000 during the 2000 period, due to corresponding
annual CPI increases for land lease agreements.
Depreciation and amortization increased by approximately $117,000, or 14.3% from
$821,000 during the 1999 period to $938,000 during the 2000 period, primarily
due to the acquisition of new slot and other equipment, and the completion of a
room remodel project.
Interest expense decreased by approximately $104,000, or 20.6% from $506,000
during the 1999 period to $402,000 for the 2000 period, due to the
recapitalization of the Company on September 29, 1998, as discussed below in
Liquidity and Capital Resources
<PAGE>
During 2000, the Company incurred approximately $161,000 in merger and
acquisition costs related to the litigation of the Merger Agreement. This cost
was partially offset by a reimbursement from the Company's D&O insurance carrier
in the amount of $182,000.
NET INCOME BEFORE PROVISION FOR INCOME TAXES AND UNDECLARED DIVIDENDS ON
CUMULATIVE PREFERRED STOCK
As a result of the factors discussed above, the Company experienced net income
in the 2000 period of $1,714,000 compared to a net income of $1,175,000 in the
1999 period, an improvement of $539,000 or 45.9%.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of approximately $3.5 million at March
31, 2000, as compared to approximately $3.6 million at December 31, 1999.
During 2000, the Company's net cash provided by operating activities was
$1,231,000 compared to $1,046,000 in 1999. Earnings before interest, taxes,
depreciation, amortization, rents, extraordinary item, merger and litigation
costs, and undeclared dividends ("EBITDA"), for 2000 and 1999 were $4.1 million
and $3.6 million, respectively. While EBITDA should not be construed as a
substitute for operating income or a better indicator of liquidity than cash
flow from operating activities, which are determined in accordance with
accounting principles generally accepted in the United States of America
("GAAP"), it is included herein to provide additional information with respect
to the ability of the Company to meet its future debt service, capital
expenditure and working capital requirements. Although EBITDA is not necessarily
a measure of the Company's ability to fund its cash needs, management believes
that certain investors find EBITDA to be a useful tool for measuring the ability
of the Company to service its debt. EBITDA margin is EBITDA as a percent of net
revenues. The Company's definition of EBITDA may not be comparable to other
companies' definitions.
Significant debt service on the Company's 12.83% Mortgage Notes ("Notes") is
paid in August and February, during each fiscal year, which significantly
affects the Company's cash and cash equivalents in the second and fourth
quarters and should be considered in evaluating cash increases or decreases in
the second and fourth quarters. Scheduled interest payments on the Notes and
other indebtedness are $2.0 million in 2000, declining to $1.9 million in 2001.
Management believes that sufficient cash flow will be available to cover the
Company's debt service for the next twelve months and enable investment in
forecasted capital expenditures of approximately $2.1 million for 2000. The
Company's ability to service its debt will be dependent on future performance,
which will be affected by, among other things, prevailing economic conditions
and financial, business and other factors, certain of which are beyond the
Company's control.
The Notes are due in full on August 20, 2001. The Notes are redeemable by the
Company at any time at 100% of par, without premium.
The Company is required to make an offer to purchase all Notes at 101% of face
value upon any "Change of Control" as defined in the indenture governing the
Notes. The indenture also provides for mandatory redemption of the Notes by the
Company upon order of the Nevada Gaming Authorities. The Notes are guaranteed by
Elsub Management Corporation, Four Queens, Inc. and Palm Springs East Limited
Partnership and are collateralized by a second deed of trust on, and a pledge
of, substantially all the assets of the Company and the guarantors.
<PAGE>
Cash flow from operations is not expected to be sufficient to pay the $11
million of principal of the Notes at maturity on August 20, 2001, in the event
of a Change of Control, or upon a mandatory redemption. Accordingly, the ability
of the Company to repay the Notes at maturity, upon a Change of Control, or upon
a mandatory redemption will be dependent upon its ability to refinance the
Notes. There can be no assurance that the Company will be able to refinance the
principal amount of the Notes on favorable terms or at all.
The note agreement executed in connection with the issuance of the Notes, among
other things, places significant restrictions on the incurrence of additional
indebtedness by the Company, the creation of additional liens on the collateral
securing the Notes, transactions with affiliates and payment of certain
restricted payments. In order for the Company to incur additional indebtedness
or make a restricted payment, the Company must, among other things, meet a
specified consolidated fixed charges coverage ratio and have earned $1.0 million
in EBITDA. The Company must also maintain a minimum amount of consolidated net
worth not less than an amount equal to its consolidated net worth on the
Effective Date of the Plan, less $5 million. Pursuant to covenants applicable to
the Company's 12.83% New Second Mortgage Notes and Second Supplemental Indenture
dated September 29, 1998, the Company is required to maintain a minimum
consolidated fixed charges coverage ratio (the "Ratio") of 1.25 to 1.00. The
Ratio is defined as the ratio of aggregate consolidated EBITDA to the aggregate
consolidated fixed charges for the 12-month reference period. As of the
reference period ended March 31, 2000 the Ratio was 3.31 to 1.00 and as such,
the Company was in compliance.
Payment was due on the 13.5% Second Mortgage Notes due 2001 on August 31, 1998.
This payment was waived until December 31, 1999. Payment was made on January 5,
1999 for $1.0 million, on February 26, 1999 for $250,000, on June 30, 1999 for
$250,000 and on September 30, 1999 for $250,000. A waiver has been obtained for
the remaining $214,000 until June 2000.
Management considers it important to the competitive position of the Four Queens
Casino that expenditures be made to upgrade the property. Uses of cash included
capital expenditures of $373,000 and $162,000 in the first quarter of 2000 and
1999, respectively. Management has forecasted $2.1 million for the year 2000.
The Company expects to finance such capital expenditures from cash on hand, cash
flow, and slot lease financing. Based upon current operating results and cash on
hand, the Company estimates it has sufficient operating capital to fund its
operations and capital expenditures for the next twelve months.
RGME managed the Four Queens Casino in accordance with the Management
Arrangement among the Company, Four Queens, Inc. and RGME effective April 1,
1997. RGME received an annual fee of $1 million in equal monthly installments.
The arrangement under which RGME managed the Four Queens Hotel and Casino
terminated on December 31, 1999.
<PAGE>
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for certain forward-looking statements. Certain information included in this
Form 10-Q and other materials filed with the Securities and Exchange Commission
(as well as information included in oral statements or other written statements
made or to be made by the Company) contains statements that are forward looking,
such as statements relating to business strategies, plans for future development
and upgrading, the anticipated cost and timing related to remediation of the
Year 2000 Problem, capital spending, financing and restructuring sources,
existing and expected competition and the effects of regulations. Such
forward-looking statements involve important known and unknown risks and
uncertainties that could cause actual results and liquidity to differ materially
from those expressed or anticipated in any forward-looking statements. Such
risks and uncertainties include, but are not limited to, those related to
effects of competition, leverage and debt service, financing and refinancing
needs or efforts, general economic conditions, changes in gaming laws or
regulations (including the legalization of gaming in various jurisdictions),
risks related to development and upgrading activities, uncertainty of casino
customer spending and vacationing in hotel/casinos in Las Vegas, occupancy rates
and average room rates in Las Vegas, risks related to the Year 2000 Problem, the
popularity of Las Vegas as a convention and trade show destination, and other
factors described from time to time in the Company's reports filed with the
Securities and Exchange Commission, including the Company's Report on Form 10-K
for the year ended December 31, 1999. 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.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company's financial instruments include cash and long-term debt. At March
31, 2000 the carrying values of the Company's financial instruments approximated
their fair values based on current market prices and rates. It is the Company's
policy not to enter into derivative financial instruments. The Company does not
currently have any significant foreign currency exposure since it does not
transact business in foreign currencies. Due to this, the Company does not have
significant overall currency exposure at March 31, 2000.
<PAGE>
Elsinore Corporation and Subsidiaries
Other Information
PART II. OTHER INFORMATION
Item 1. Legal Proceedings:
On March 1, 2000, the Company filed its Answer to the Fourth Amended Complaint
to the Paulson Lawsuit, denying the material allegations thereof. In addition,
the Company alleged various counterclaims against plaintiffs for breach of the
Merger Agreement, fraud and violations of the federal securities laws. On May 5,
2000, the Company filed its First Amended Counterclaims. The counterclaims seek
specific performance of the Merger Agreement, compensatory damages, punitive
damages and other relief.
<PAGE>
Item 6. Exhibits and Reports
(a) Exhibits
27.1 Financial Data Schedule
(b) Form 8-K filed during this quarter
(1) Current report on Form 8-K filed March 10, 2000, relating to Company's
non-binding letter of intent with PDS Financial Corporation.
<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 11, 2000
<PAGE>
INDEX TO EXHIBITS
27.1 Financial Data Schedule
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 3,511,000
<SECURITIES> 0
<RECEIVABLES> 1,027,000
<ALLOWANCES> (248,000)
<INVENTORY> 417,000
<CURRENT-ASSETS> 6,435,000
<PP&E> 12,469,000
<DEPRECIATION> (8,439,000)
<TOTAL-ASSETS> 48,726,000
<CURRENT-LIABILITIES> 7,871,000
<BONDS> 11,104,000
0
19,652,000
<COMMON> 5,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 48,726,000
<SALES> 17,015,000
<TOTAL-REVENUES> 15,772,000
<CGS> 0
<TOTAL-COSTS> 11,702,000
<OTHER-EXPENSES> 2,356,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 402,000
<INCOME-PRETAX> 1,714,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,714,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 285,000
<NET-INCOME> 1,429,000
<EPS-BASIC> 0.29
<EPS-DILUTED> 0.02
</TABLE>
