Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
X Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1995
Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number 1-7831
ELSINORE CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA 88-0117544
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
202 FREMONT STREET, LAS VEGAS, NEVADA 89101
(Address of principal executive offices) (Zip Code)
(702) 385-4011
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class Name of Stock Exchange on Which Registered
COMMON STOCK AMERICAN STOCK EXCHANGE
Securities Registered Pursuant to Section 12(g) of the Act:
NONE
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 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
On March 29, 1996 there were 15,891,793 shares of common stock issued
and outstanding.
Total number of sequentially numbered pages _______
Exhibit Index begins at sequential page number ________
TABLE OF CONTENTS
PART I Page
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a
Vote of Security-Holders
Part II
Item 5. Market for Registrant's Common Equity
and Related Shareholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and
Analysis of Financial Condition
and Results of Operations
Item 8. Financial Statements and
Supplementary Data
Item 9. Changes in and Disagreements
with Accountants
on Accounting and Financial Disclosure
PART III
Item 10. Directors and Executive Officers
of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain
Beneficial Owners and Management
Item 13. Certain Relationships and
Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K
SIGNATURES
PART I
ITEM 1. BUSINESS
SUMMARY AND RECENT DEVELOPMENTS
Elsinore Corporation ("Elsinore" or the "Company") owns,
operates and develops casinos and casino/hotels in the United
States. The Company owns and operates its principal property, the
Four Queens Hotel and Casino (the "Four Queens") in downtown Las
Vegas, Nevada. The Company has also assisted in the development
and management of two casinos on Native American land; the
Spotlight 29 Casino, located near Palm Springs, California, which
opened on January 14, 1995, and the 7 Cedars Casino, located on
the Olympic Peninsula in Washington State, which opened February
3, 1995. In addition, the Company has also participated in a
venture formed with an intention to develop up to five
casino/hotels as part of the Mojave Valley Resort on the Colorado
River six miles south of Laughlin, Nevada. Due to developments
during 1995, however, the Company's primary business now is
concentrated on the operation of the Four Queens.
To assist in management's expansion strategy which began in
1993, the Company borrowed $60 million through the issuance of its
12.5% First Mortgage Notes due 2000 ("1993 First Mortgage Notes")
in October 1993 and an additional $3 million through the issuance
of its 20% Mortgage Notes due 1996 ("1994 Mortgage Notes") in
October 1994. The net proceeds of these offerings were used to
repay existing indebtedness and interest, refurbish major portions
of the Four Queens, invest in a downtown redevelopment project,
and develop and construct the two Native American gaming projects.
In January 1995, the Company completed an underwritten
public offering of 2.5 million shares of its common stock (the
"Equity Offering"). At that time, the Company believed the net
proceeds of the Equity Offering (approximately $4 million before
deducting the Company's offering expenses), together with cash on
hand and cash generated from operations, would be sufficient to
satisfy the Company's working capital requirements through the
first quarter of 1995. However, principally as a result of the
unanticipated poor initial performance of the Spotlight 29 Casino
following its opening, the Company was required to obtain
additional financing through the sale of $1,706,250 aggregate
principal amount of its 7.5% Convertible Subordinated Notes due
December 31, 1996 (the "Convertible Notes"). The private
placement of Convertible Notes was completed on March 31, 1995.
Chapter 11 Proceedings. On October 31, 1995, Elsinore and
certain of its subsidiaries filed a voluntary petition in the
United States Bankruptcy Court for the District of Nevada (Las
Vegas, Nevada) (the "Bankruptcy Court") to reorganize under
Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy
Code"). The file number in the case is 95-24685 RCJ with Judge
Robert C. Jones presiding. On November 10, 1995, Olympia Gaming
Corporation, a wholly-owned subsidiary of the Company, also filed
a voluntary petition in the same Court. The Company is currently
operating as a debtor-in-possession under the supervision of the
Bankruptcy Court. The Company believes that no single factor led
directly to the filing of the Elsinore related bankruptcy cases;
but rather, the Company believes a combination of several factors
led to the need to seek Chapter 11 relief.
The reorganization process is expected to result in the
cancellation and/or restructuring of substantial debt obligations
of the Company. The Company anticipates that the reorganization
process will not result in the elimination of the interests of its
common stockholders; however, it is anticipated that the interest
of the current common stockholders in the Company will be
substantially reduced.
Under the Bankruptcy Code, the Company's pre-petition
liabilities are subject to settlement under a plan of
reorganization. The Company had the exclusive right to file a
plan of reorganization from October 31, 1995 through February 28,
1996. On February 28, 1996, Elsinore and its subsidiaries filed a
plan of reorganization with the Bankruptcy Court. The Company has
until at least April 28, 1996 to solicit acceptances of the plan.
The plan of reorganization must be approved by the Bankruptcy
Court and by specified majorities of each class of creditors and
equity holders whose claims are impaired by the plan.
Alternatively, absent the requisite approvals, the Company may
seek Bankruptcy Court approval of its reorganization plan pursuant
to Section 1129(b) of the Bankruptcy Code, assuming certain tests
are satisfied. See "Item 1. Business--Chapter 11 Proceedings--Plan
of Reorganization."
There can be no assurance that the plan of reorganization
submitted by the Company will be confirmed. There also can be no
assurance that, with or without a plan of reorganization, the
Company can generate sufficient cash to sustain operations. If at
any time the Creditors Committee or any creditor of the Company or
equity holder of the Company believes that the Company is or will
not be in a position to sustain operations, such party can move
the Bankruptcy Court to compel liquidation of the Company's estate
by conversion to Chapter 7 bankruptcy proceedings or otherwise.
The bankruptcy process has provided an opportunity for
Elsinore to respond to changes in the industry and redirect its
strategy to become more competitive. In addition, the bankruptcy
process affords the Company an opportunity to eliminate or
renegotiate certain pre-petition debt to a more manageable level
resulting in greater financial flexibility.
The Four Queens; The Fremont Street Experience. Based
principally on results at the Four Queens, the Company's earnings
before interest, income taxes, depreciation and amortization, (and
before the provision for losses recognized on loans receivable
from Native American Tribes, the write-off of casino development
costs and expenses recognized as a result of the reorganization
proceedings in 1995) dropped in 1995 to $1.4 million, from $3.8
million in 1994. Although occupancy rates at the Four Queens
remained above 88% in 1995, gaming revenues declined approximately
13.6% from the prior year. The Company believes this decline is
primarily due to disruption of traffic flow to downtown Las Vegas
caused by construction of the Fremont Street Experience attraction
and related infrastructure improvements as well as the continued
impact of themed mega-casinos on the Las Vegas Strip such as the
MGM Grand, Luxor, and Treasure Island, each of which opened in the
fourth quarter of 1993. The Company believes that customers of
the downtown casino/hotels who would normally spend substantially
all of their gaming and entertainment budget at downtown casinos
are being drawn to and spent a portion of their budgets at these
new Strip properties, resulting in a loss of revenue to downtown
casinos.
The Company, however, anticipates that the Four Queens and
the other downtown casinos will benefit from the opening of the
Fremont Street Experience. The Fremont Street Experience is a
cooperative undertaking among the downtown casinos to create a
feature attraction along Fremont Street in downtown Las Vegas.
The Fremont Street Experience has transformed four blocks of
Fremont Street into a covered pedestrian mall, connecting the Four
Queens and nine other major entertainment venues that together
offer 17,000 slot machines, over 500 blackjack and other table
games, 41 restaurants and 8,000 hotel rooms. The Fremont Street
Experience features a 10-story celestial vault, sound effects and
a high tech light show which add to the neon signs and marquees
for which the downtown area is already famous. As part of the
Fremont Street Experience, a new 1,500-space parking garage has
been constructed. The Company believes that the Fremont Street
Experience will become a major attraction in the Las Vegas area
and will result in additional patronage in the downtown market.
Based on the observation of downtown gaming revenue patterns
in 1989-1991, the period during which two other themed mega-resort
casinos, the Mirage and Excalibur, opened on the Las Vegas Strip,
and on the opening of the Fremont Street Experience in December
1995, the Company believes that gaming revenues at the Four Queens
and at downtown casinos generally will increase, driven
principally by a greater number of gaming and hotel patrons in the
downtown market. However, there is no assurance that patronage or
gaming revenues at downtown casinos or the Four Queens will
increase.
Spotlight 29 Casino. Since March 1995, Elsinore, its wholly
owned subsidiary, Elsub Management Corporation ("Elsub") and Palm
Springs East Limited Partnership ("Palm Springs East"), of which
Elsub is the general partner, and the Twenty-Nine Palms Band of
Mission Indians (the "Twenty-Nine Palms Band") have been involved
in a dispute regarding, among other things, the terms of a
management contract (the "Spotlight 29 Contract") under which Palm
Springs East had the exclusive right to manage and operate the
Spotlight 29 Casino, owned by the Twenty-Nine Palms Band, located
near Palm Springs, California.
As a result of this dispute, on April 17, 1995, the Company
was ousted as manager of the Spotlight 29 Casino and on April 19,
1995, the Company issued a demand letter to the Twenty-Nine Palms
Band declaring a breach of the Spotlight 29 Contract and a related
loan agreement under which Palm Springs East had lent
approximately $12.5 million to the Twenty-Nine Palms Band for
construction of the Spotlight 29 Casino and for working capital
contributions. The demand letter claimed damages in the full
amount of the funds which had been advanced to the Twenty-Nine
Palms Band.
On May 16, 1995, in response to the Company's demand, the
Twenty-Nine Palms Band delivered to the Company "Notice to
Terminate Management Agreement." The notice asserted material
breaches of the Spotlight 29 Contract and requested payment of
approximately $1.5 million by June 16, 1995 to cover working
capital shortfalls or the Spotlight 29 Contract would be
terminated.
On October 31, 1995, Elsinore, Palm Springs East and Elsub
filed voluntary petitions for reorganization under Chapter 11 of
the Bankruptcy Code. Since that time, the Company has continued
in its protracted negotiations, which began in the spring of 1995,
with the Twenty-Nine Palms Band for a settlement of the respective
claims asserted by the parties. Based upon the progress of those
negotiations at the time, in September 1995 the Company wrote-down
to $9,000,000 the aggregate amount advanced to the Band and
accrued interest thereon. As of March 29, 1995, the Company
believes that a settlement with the Twenty-Nine Palms Band is
imminent. Under the proposed settlement, the Company would
recover $9,000,000 plus interest at 10-12% over a period not to
exceed seven years. Given that the $9 million recovery is limited
to 20% of the net income generated by Spotlight 29, the fact that
there can be no assurance that a settlement agreement will
ultimately be reached with the Twenty-Nine Palms Band, nor that
the Bankruptcy Court and NIGC will approve such settlement,
management determined to provide an allowance for loss in the
amount of $9,000,000 against the aggregate receivable as of
December 31, 1995. See "Item 1. Business -- Native American
Gaming Projects -- Spotlight 29 Casino" for further detail.
7 Cedars Casino. Elsinore, through its wholly-owned
subsidiary, Olympia Gaming Corporation ("Olympia"), entered a
Gaming Project Development and Management Agreement (the "7 Cedars
Contract") to operate the 7 Cedars Casino located on the Olympic
Peninsula in the state of Washington and owned by the Jamestown
S'Klallam Tribe (the "S'Klallam Tribe"). In addition, the Company
lent, in the aggregate, $9 million to the S'Klallam Tribe for
construction of the casino pursuant to the 7 Cedars Contract.
Under the terms of the 7 Cedars Contract, the Company is
obligated to establish a reserve fund for "working capital," a
term which is not defined in the 7 Cedars Contract, in the amount
of $500,000 for operation of the 7 Cedars Casino. The Company
believes the parties did not intend to apply a "working capital"
definition based on generally accepted accounting principles
which, in the Company's view, would be impracticable in the
context of the 7 Cedars Contract and which, in practice, has never
been followed. Since its opening on February 3, 1995, the 7 Cedars
Casino incurred a cumulative net loss and an attendant decrease in
working capital which has been substantial.
On November 1, 1995, the S'Klallam Tribe asserted that the
Company had defaulted on the June, July, August and September 1995
minimum guaranteed payments to the S'Klallam Tribe as defined by
the 7 Cedars Contract in the aggregate amount of $100,000 and
requested immediate payment. In addition, the S'Klallam Tribe
demanded that sufficient monies be paid to enable all current
gaming project expenses to be paid and the working capital reserve
to be maintained at the required funding level. The S'Klallam
Tribe demanded that a minimum of $2,540,000 be paid immediately
and also contended that the working capital shortfall could be as
high as approximately $5,390,000 according to their interpretation
of the 7 Cedars Contract. On November 13, 1995 the Company
received a letter from the S'Klallam Tribe dated November 9, 1995
asserting that the 7 Cedars Contract had been terminated as a
result of the Company's failure to make the payments which had
been demanded.
On November 10, 1995, Olympia filed a voluntary petition for
reorganization under Chapter 11 of the Bankruptcy Code with the
United States Bankruptcy Court for the District of Nevada (Las
Vegas, Nevada).
As a result of significantly lower than projected gaming
revenues, 7 Cedars has incurred substantial operating losses since
its opening. Based upon the cumulative net loss incurred for the 7
Cedars Casino and because the Company's $9 million loan to the
S'Klallam Tribe is payable solely from the 7 Cedars earnings,
management determined to write-off the remaining unamortized
balance of capitalized casino development costs of approximately
$242,000 in September 1995 and in December 1995 provided an
allowance for loss against the $9,000,000 outstanding balance of
the project loan and accrued interest thereon.
Mojave Valley Resort. As a condition to its participation
in the Mojave Valley Resort project, a joint venture between
Mojave Gaming, Inc. ("Mojave Gaming"), a wholly owned subsidiary
of Elsinore, and Mojave Valley Resort Casino Company, an affiliate
of Temple Development Company, to develop a master planned casino
resort on land leased from the Fort Mojave Indian Tribe, Mojave
Gaming was required to make a capital contribution to the venture
by September 30, 1995. The contribution was not made and,
therefore, the contract was terminated. Based on the foregoing,
in September 1995, management determined to write-off
approximately $807,000, representing all capitalized costs
incurred for the project.
Changes in Management. Effective April 1, 1995, Gary R.
Acord joined the Company's management team as Chief Financial
Officer and Treasurer. Prior to joining the Company, Mr. Acord
was managing partner of the Las Vegas office of KPMG Peat Marwick
LLP, where he specialized in serving gaming industry clients both
within and outside Nevada and led the firm's International Gaming
Practice. Mr. Acord replaced James L. White in the CFO position.
In addition, Richard A. LeVasseur, who has served as a Director
and a Senior Vice President of the Company, left the Company
effective April 1, 1995. The Company did not replace Mr.
LeVasseur's officer or director positions. Also, Edward M.
Fasulo, who has served as a Director and Senior Vice President of
the Company, left the Company effective July 1, 1995. The Company
did not replace Mr. Fasulo and, accordingly, the size of the Board
of Directors was reduced from seven to five members to reflect
their departures.
During the first quarter of 1995, Frank L. Burrell, Jr.
informed the Board of Directors that he did not wish to be a
candidate for reelection as Chief Executive Officer at the
Company's annual shareholders' meeting held on May 11, 1995. Mr.
Burrell nominated Thomas E. Martin to succeed him as Chief
Executive Officer effective May 11, 1995. Mr. Burrell has
remained Chairman of the Board of the Company. Effective May 11,
1995, when Mr. Martin became Chief Executive Officer, Rodolfo E.
Prieto assumed the role of Chief Operating Officer of the Company.
Effective November 30, 1995, Mr. Prieto resigned his positions
with the Company and his duties were assumed by Mr. Martin. Also,
effective January 12, 1996, Ernest East, Vice President, General
Counsel and Secretary, resigned his positions with the Company.
Pursuant to a Stipulation between the Company and an
unofficial committee representing a majority of the holders of the
1993 First Mortgage Notes (the "Bondholders Committee"), certain
individuals within the Company's senior management, including
Messrs. Burrell, Acord and Martin, may be replaced following
confirmation of a plan of reorganization. However, the provisions
of the Stipulation with regards to changes in the Company's
management have not been approved by the Bankruptcy Court and are
required to be so approved. If the Bankruptcy Court approves
these provisions of the Stipulation, Messrs. Burrell, Martin and
Acord will receive severance equal to one year's salary (payable
over 6 to 12 months) following the termination of their employment
with the Company. The Bankruptcy Court has indicated that these
matters will be addressed at the Plan confirmation hearing, which
has not yet been scheduled.
CHAPTER 11 PROCEEDINGS
Initiation of Chapter 11 Proceedings.
On October 31, 1995, Elsinore and certain of its
subsidiaries (Four Queens, Inc., Four Queens Experience
Corporation, Elsub Management Corporation, and Palm Springs East
Limited Partnership) filed voluntary petitions in the United
States Bankruptcy Court for the District of Nevada (Las Vegas,
Nevada) (the "Bankruptcy Court") to reorganize under Chapter 11 of
the United States Bankruptcy Code (the "Bankruptcy Code"). On
November 10, 1995, Elsinore's subsidiary, Olympia Gaming
Corporation, also filed a voluntary petition in the Bankruptcy
Court seeking reorganization under Chapter 11. The Company is
continuing to manage its business affairs as a debtor-in-possession
under the supervision of the Bankruptcy Court. The
Bankruptcy Court has entered orders providing the reorganization
of Elsinore and its subsidiaries will be jointly administered.
The file number in the case is 95-24685 RCJ with Judge Robert C.
Jones presiding.
The Company believes that no single factor led directly to
the filing of the Elsinore related bankruptcy cases; but rather,
that a combination of several factors led to the need to seek
Chapter 11 relief.
In October 1994, the IRS delivered to Elsinore a final
assessment relating to certain adjustments to taxable income taken
by Elsinore for fiscal years ending January 31, 1980 through
December 31, 1983. The Company was advised and believed that
there would be no liability for taxes in these years above the
$3.5 million payment which was deposited with the IRS in 1991.
However, the IRS assessment called for Elsinore to pay
approximately $5.7 million, in addition to $3.5 million deposited
in 1991. A tax lien was recorded by the IRS in November 1994. In
December of 1994, Elsinore and the IRS entered into an agreement
whereby the assessment was to be paid in monthly installments over
the course of a year. In the nine months prior to the filing of
its bankruptcy petition, Elsinore paid approximately $3.5 million
to the IRS. The Company believes that these payments contributed
greatly to the liquidity problems faced by Elsinore prior to
commencing its bankruptcy case.
Second, as discussed more thoroughly below, Elsinore
developed and managed the Spotlight 29 Casino, a Class II gaming
facility operated on the tribal land owned by the Twenty-Nine
Palms Band approximately twenty miles east of Palm Springs,
California. In March of 1995, in order to compete with other
casinos in the area, the Twenty-Nine Palms Band installed Class
III electronic gaming machines at the Spotlight 29 Casino. In
March of 1995, as well as today, there is no express state or
federal authorization for the use of Class III gaming devices at
the Spotlight 29 Casino. The installation of these Class III
devices was brought to the attention of the Nevada Gaming
Authorities and Elsinore was informed that the Nevada Gaming
Authorities viewed the installation of the devices as a violation
of California and Federal gaming law and expressed concerns
regarding Elsinore's continued association with the Twenty-Nine
Palms Band. See "Item 1. Business--Regulations--Proceedings
Before Nevada Gaming Authorities." The Company attempted to
persuade the Twenty-Nine Palms Band to discontinue use of the
Class III devices at the Spotlight 29 Casino, but they refused.
In view of the position taken by the Nevada Gaming Authorities,
the Company withdrew as manager of the Spotlight 29 Casino and
commenced action against the Twenty-Nine Palms Band. The Company
and the Twenty-Nine Palms Band have been, and continue to be,
engaged in negotiations to settle the dispute. As of March 29,
1996, the Company believes that a settlement of this dispute is
imminent; however, there can be no assurances that such a
settlement will be reached or that the Bankruptcy Court or the
National Indian Gaming Commission would approve any settlement
that is reached. In addition, there can be no assurance that the
Twenty-Nine Palms Band will perform all of its obligations under
the contemplated settlement. See "Item 1. Business--Native
American Gaming Projects--Spotlight 29 Casino." The Company
believes that the resulting non-payment of principal and interest
on the project loan and management fees in 1995 together with the
approximately $1.2 million in working capital deficiencies funded
by the Company prior to its disassociation with the Spotlight 29
Casino contributed to the Company's financial difficulties leading
up to the bankruptcy filings.
Third, as discussed more thoroughly below, principally due
to the unanticipated negative impact of the opening of two Native
American casinos in the general vicinity of the 7 Cedars Casino
and the lower than expected propensity to gamble on the part of
summer tourists visiting the Olympic Peninsula, revenues at the 7
Cedars Casino was much lower than projected during 1995. See
"Item 1. Business--Native American Gaming Projects--7 Cedars
Casino." The Company believes that the resulting operating losses
and consequent inability of 7 Cedars to payback project loan
interest and principal and management fees contributed to the
Company's financial difficulties leading up to the bankruptcy
filings.
Fourth, construction of the Fremont Street Experience and
related infrastructure improvements significantly disrupted
traffic flow into and around the Four Queens. As a result,
patronage and business at the Four Queens was down while the
Fremont Street Experience was under construction. Originally, the
Fremont Street experience was scheduled to open by September,
1995. However, a decision to significantly upgrade the quality of
the light show delayed the opening of the Fremont Street
Experience to December 1995. The Company believes that this delay
prolonged the drag on business at the Four Queens. See "Item 1.
Business--The Four Queens Hotel and Casino."
Fifth, the loan agreements between Elsinore and the holders
of the 1993 First Mortgage Notes and the 1994 Mortgage Notes
contain a number of financial and restrictive covenants. Among
others, these loan agreements require Elsinore to maintain its
management contract with the Twenty-Nine Palms Band, to maintain
certain net worth and fixed charge coverage ratios, and to avoid
placement of any additional liens against assets of the Company
which had been pledged to the holders of the 1993 First Mortgage
Notes and the 1994 Mortgage Notes. The dispute between the
Company and the Twenty-Nine Palms Band, and the IRS assessment and
tax lien, violated certain covenants in these loan agreements. In
the summer of 1995, Elsinore obtained one time waivers of these
loan covenant defaults from the holders of the 1993 First Mortgage
Notes and the 1994 Mortgage Notes.
Finally, after satisfying its debt service obligations on
the 1993 First Mortgage Notes and the 1994 Mortgage Notes in the
spring of 1995, the Company became aware of its inability to pay
the next installment due at the beginning of October to both the
holders of the 1993 First Mortgage Notes and the 1994 Mortgage
Notes without some form of additional financing. The Company
sought a consensual, out-of-court restructuring of its obligation
to the holders of the 1993 First Mortgage Notes. Although good
faith negotiations occurred, the Company and the 1993 First
Mortgage Noteholders were unable to reach an agreement. In
October 1995, the Company defaulted on its payments owing on the
1993 First Mortgage Notes and the 1994 Mortgage Notes and a
voluntary petition was filed on October 31, 1995 to permit
Elsinore (and its subsidiaries) to obtain financial relief.
The reorganization process is expected to result in the
cancellation and/or restructuring of substantial debt obligations
of the Company. The Company anticipates that the reorganization
process will not result in the elimination of the interests of its
common stockholders; however, it is anticipated that the interests
of the current common stockholders will be substantially reduced.
Plan of Reorganization. Under the Bankruptcy Code, the
Company's pre-petition liabilities are subject to settlement under
a plan of reorganization. The Bankruptcy Code also requires that
all administrative claims be paid on the effective date of the
plan of reorganization unless the respective claimants agree to
different treatment. The Company expects that such claims, in the
aggregate, will be material.
During the course of the bankruptcy proceedings, an
unofficial committee of a majority of the holders of the 1993
First Mortgage notes was formed (the "Bondholders Committee").
Beginning in approximately December 1995, the Company and the
Bondholders Committee participated in settlement negotiations in
an effort to consensually resolve their concerns in the case. The
result of these negotiations was an agreed upon conceptual
framework for a plan of reorganization, which was thereafter
embodied in a Stipulation.
From the date the petitions were filed (October 31, 1995)
through February 28, 1996, the Company had the exclusive right to
file a plan of reorganization. On February 28, 1996, the Company
did file a plan of reorganization (the "Plan") consistent with the
terms of its settlement with the Bondholders Committee and the
Company has at least until April 28, 1996 to solicit acceptances
of that Plan. The solicitation period may be extended by the
Bankruptcy Court upon a showing of cause after notice and a
hearing, although no assurance can be given that any extensions
will be granted if requested by the Company. Any plan of
reorganization must be approved by the Bankruptcy Court and by
specified majorities of each class of creditors and equity holders
whose claims are impaired by the Plan. Alternatively, absent the
requisite approvals, the Company may seek Bankruptcy Court
approval of its reorganization plan pursuant to Section 1129(b) of
the Bankruptcy Code, assuming certain tests are satisfied. The
Company cannot predict whether the Plan will be approved. The
Plan provides for a substantial reduction of the interests of its
common stockholders.
The Plan provides for the continuation of the Company as a
going concern. Pursuant to the Plan, holders of the 1994 Mortgage
Notes will retain their $3 million in outstanding principal plus
accrued interest and will be paid at an interest rate of 10% per
annum or other appropriate interest rate approved by the
Bankruptcy Court. The IRS, which asserts a claim of approximately
$2,985,000 million, would be paid in accordance with the
Bankruptcy Code or in such other manner as otherwise agreed by the
IRS. Also, as part of the Plan, $1,500,000 will be placed in a
pool for payment to unsecured creditors over a two-year period.
In addition, the old common stock interests in Elsinore will
be canceled pursuant to the Plan and Elsinore, as reorganized,
will issue new common stock (the "New Common Stock"). Under the
terms of the Plan, eighty percent (80%) of the New Common Stock
will be distributed in the following proportions: holders of the
1993 First Mortgage Notes would receive 87.5% in consideration for
a reduction of their claim from approximately $60 million to $30
million; the Company's convertible subordinated noteholders, who
currently assert claims for approximately $1.5 million, would
receive 2.5%; current Elsinore common stockholders would receive
approximately 10%; and the remaining 20% of the New Common Stock
will be issued through a rights offering to raise $5,000,000 to
assist in funding the Plan. Pursuant to the terms of the Plan,
the entire amount of the rights offering initially will be made
available for subscription to the 1993 First Mortgage noteholders,
the convertible subordinated noteholders and the current common
stockholders in the percentages enumerated above as part of the
balloting process for the Plan.
There can be no assurance that the Plan will be confirmed.
There also can be no assurance that, with or without a plan of
reorganization, the Company can generate sufficient cash to
sustain operations. If at any time the Creditors Committee or any
creditor of the Company or equity holder of the Company believes
that the Company is or will not be in a position to sustain
operations, such party can move the Bankruptcy Court to compel
liquidation of the Company's estate by conversion to Chapter 7
bankruptcy proceedings or otherwise. In the event that the
Company is forced to sell its assets and liquidate, unsecured
creditors and equity holders may not receive any value for their
claims or interests.
Pursuant to a Stipulation between the Company and the
Bondholders Committee, members of senior management for Elsinore
and Four Queens, Inc. will be replaced on or prior to the date a
plan of reorganization is confirmed. As a result, the Company
anticipates that Messrs. Burrell, Martin and Acord will no longer
be employed by the Company after a plan of reorganization is
confirmed. Messrs. Burrell, Martin and Acord are parties to
agreements with the Company which, among other things, provide
them with the equivalent of two years' salary upon their severance
from the Company. However, under the Stipulation with the
Bondholders Committee, Messrs. Burrell, Martin and Acord will
receive severance equal to one year's salary (payable over 6 to 12
months) following the termination of their employment with the
Company. The Bankruptcy Court must, however, first approve these
provisions of the Stipulation and it has indicated that it will
address these provisions of the Stipulation at the plan
confirmation hearing.
THE FOUR QUEENS HOTEL AND CASINO
The Four Queens
Elsinore, through its wholly owned subsidiary, Four Queens,
Inc., owns and operates the Four Queens Hotel and Casino (the
"Four Queens"), located on the corner of Fremont Street and Casino
Center Boulevard in downtown Las Vegas. The property has been in
operation since 1966. The property is accessible via Interstate
15 and Interstate 515 and markets to a local population of
approximately one million residents and over 29 million visitors a
year to Las Vegas.
In 1994, the Company completed a $5 million refurbishment of
the Four Queens, which has gaming space of 32,000 square feet.
The casino is currently equipped with approximately 1,057 slot
machines, 23 blackjack tables, four craps tables, one pai gow
poker table, two Caribbean Stud Poker tables, two Let-It-Ride
tables, two roulette wheels,a Big Six wheel, a keno game and a
sports book. The hotel has 690 guest rooms and suites in two
towers. The Four Queens features four full-service restaurants,
three cocktail lounges and one entertainment lounge. As part of
the refurbishment, meeting space in the Four Queens was doubled to
almost 15,000 square feet in 1993. The Four Queens also has
parking facilities which can accommodate 560 cars.
Based principally on results at the Four Queens, the
Company's earnings before interest, taxes, depreciation and
amortization (and before the provision for losses recognized on
loans receivable from Native American Tribes, the write-off of
casino development costs and expenses recognized as a result of
the reorganization proceedings in 1995)dropped in 1995 to $1.4
million, from $3.8 million in 1994. Although the occupancy rate
at the Four Queens remained above 88% in 1995, gaming revenues
declined approximately 13.6% from the prior year. The Company
believes that this decline is primarily due to disruption of
traffic flow to downtown Las Vegas caused by construction of the
Fremont Street Experience attraction and related infrastructure
improvements as well as the continuing impact of three themed
mega-casinos opening on the Las Vegas Strip during the fourth
quarter of 1993.
Operations
The following table sets forth the contributions from major
activities to the Company's total revenues from the Four Queens
for the years ended December 31, 1995, 1994 and 1993.
1995 1994 1993
(Dollars in Thousands)
Casino(1) $39,964 $46,270 $51,950
Hotel(2) 9,564 9,234 9,876
Food & Beverage(2) 12,136 12,693 12,495
Other(3) 1,983 2,020 768
63,647 70,217 75,089
Less: Promotional Allowances (6,674) (7,511) (8,237)
$56,973 $62,706 $66,852
(1) Consists of the net win from gaming activities (i.e., the
difference between gaming wins and losses).
(2) Includes revenues from services provided as promotional
allowances to casino customers and others on a complimentary
basis.
(3) Consists primarily of interest income, commissions from
credit card and automatic teller cash advances and
miscellaneous other income (including net royalties of
$185,000 in 1995, $243,000 in 1994, and $136,000 in 1993
from the licensing of MULTIPLE ACTION "registered trademark"
blackjack).
The following table summarizes the primary aspects of the
Company's operations at the Four Queens.
Casino:
Floor area (square foot) 32,296
Slot machines 1,057
Blackjack tables 23
Craps tables 4
Caribbean Stud Poker tables 2
Roulette wheels 2
Big Six Wheel 1
Let-It-Ride tables 2
Pai Gow poker tables 1
Keno (seats) 46
Sports book 1
Hotel:
Rooms 690
Meeting areas (square feet) 14,600
Restaurants and entertainment and cocktail lounges:
Restaurants 4
Restaurant seats 454
Entertainment lounges 1
Entertainment lounge seats 147
Cocktail lounges 3
Other:
Gift Shops 1
Parking facilities (cars) 560
Marketing
Elsinore has developed a marketing strategy employed for the
Four Queens that emphasizes a high level of customer service,
targeted marketing, value-oriented promotions, club memberships
and special events.
Customer Service. The Company believes that the Four Queens
is distinguished by its friendly "at home" atmosphere and the high
level of personalized service provided to its patrons. The
Company strives to maintain the level of service by actively
seeking customer feedback on suggestion cards, by senior floor
personnel asking patrons if their wants are being met, and by
employees engaging in friendly dialogue with the customers in
order to reinforce the "at home" feeling. In this respect,
customer service contributes to significantly reduced marketing
costs, since it is less costly to maintain and cultivate existing
customer relationships than it is to develop new ones.
Additionally, the Company believes that good service results in
word-of-mouth endorsement of the Four Queens by satisfied
customers to others.
Targeted Marketing. The Company maintains a database of
patrons that includes over 320,000 names of customers and
prospects. The Company has assembled this database from its
players clubs, reservation systems and tournaments and special
events. Using this database, the Company has identified a segment
of loyal core customers; management estimates that a significant
portion of this group has returned to the Four Queens at least
three times each year and spends an average of two to four days
per visit. The Company believes that an additional benefit of the
database is the ability to analyze the effectiveness of each
marketing event in terms of profitability. This analysis aids
management in developing future promotions for which there is a
high probability of success. Finally, the Company publishes a
periodic newsletter which announces upcoming tournaments and
special events.
Promotions. The Company believes that customers in the
downtown Las Vegas market are attracted to perceived "value" in a
gaming vacation. Accordingly, the Company promotes the value
theme in a number of ways, from a 99-cent shrimp cocktail
appetizer and $4.95 prime rib dinner to an assortment of
value-oriented vacation packages.
Club Memberships.
REEL Winners Club The largest component of the customer
database is the REEL Winners Club, a slot club with over 250,000
members. The objective of this club is to provide loyal and
valuable slot players the opportunity to accumulate points that
may be redeemed for entries into slot tournaments, bingo sessions
and auctions. Special parties and priority room reservations are
also benefits for REEL Winners Club members. Additionally, the
points earned may be used for slot play, scrip for use at any
non-gaming facility at the Four Queens and Spiegel gift certificates.
Maintaining and operating the slot club enables the Company to
market continuously to a proven customer segment which is
attracted to casino gaming and the Four Queens.
VIP Database Through the visual observation of table game
activity on the casino floor, the Company has developed a database
of VIP players based on their average bet and length of play. The
Company continuously builds on this database in order to target
market to a segment of "high limit" players who enjoy the Four
Queens atmosphere. In order to maintain the loyalty and level of
play provided by this customer segment, management has instituted
a very aggressive and generous "comp" plan designed to make the
player's stay as comfortable and as long as possible. Management
utilizes a database to track the player's length of stay, average
bet, time played, estimated amount won or lost, comping limit and
comps used during the trip. This information affords the Company
the opportunity to provide the appropriate level of privileges in
order to maintain the loyalty and satisfaction of this customer
segment.
Special Events. The Four Queens hosts a variety of high and
low stakes table game and other gaming tournaments, including the
well known annual Queens Poker Classic, and caters to its VIP
players and core customers by purchasing and supplying them with
complimentary tickets to Las Vegas special events.
The Las Vegas Market
The Las Vegas gaming and entertainment market has generally
expanded in recent years. The number of visitors traveling to Las
Vegas increased from 11.6 million visitors in 1982 to over 29
million visitors in 1995. McCarran International Airport passenger
volume is estimated to have increased 4.4% during 1995. Expansive
themed properties such as Excalibur, The Mirage, The MGM Grand
Hotel and Theme Park, Treasure Island and Luxor have become
destination resorts. Las Vegas is also one of the five fastest
growing cities in the United States and the population has
increased from approximately 507,000 in 1982 to over one million
in 1995. This population increase has been driven by growth in
the gaming industry, relocation of companies to Las Vegas because
of favorable tax conditions and increases in the number of
retirement age residents drawn to Las Vegas primarily by the warm
climate, relatively low cost of living, entertainment options and
absence of state income tax. More than 47,000 jobs are estimated
to have been created in Las Vegas over the 12 months ended
December 31, 1995.
Despite the significant increase in the supply of rooms and
a series of competitive developments, including the expansion of
gaming in many jurisdictions nationwide and the introduction of
the California lottery, Las Vegas's hotel occupancy rate exceeded
85% in each of the last eight years and was 91.4% in 1995. Las
Vegas's gaming revenues increased from $1.7 billion in 1984 to
$4.4 billion in 1995. The Company believes that several factors,
including the three new destination resorts and the expansion of
McCarran International Airport, will enable Las Vegas to continue
to grow.
Each of the three principal segments of the Las Vegas
market--the Las Vegas Strip, the Boulder Strip and Downtown--has
exhibited generally steady growth during the past decade. Set
forth below is information concerning revenues and growth of each
of Las Vegas's three principal gaming markets:
Gaming Revenue ($000's)*
Fiscal Year Ended Las Vegas Strip Downtown BoulderStrip
June 30 Revenues Growth Revenues Growth Revenues Growth
1985 1,318,568 4.0% 441,023 7.3 % NA NA
1986 1,371,208 4.0 486,828 10.4 80,328 NA
1987 1,597,414 16.5 524,156 7.7 94,203 17.3%
1988 1,739,265 8.9 592,616 13.1 104,161 10.6
1989 2,023,619 16.3 638,506 7.7 121,726 16.9
1990 2,278,666 12.6 641,990 0.5 137,265 12.8
1991 2,626,868 14.8 669,248 4.2 143,307 4.4
1992 2,530,932 (3.3) 646,577 (3.4) 150,854 5.3
1993 2,680,866 5.9 677,702 4.8 161,810 7.3
1994 3,188,994 19.0 657,173 (0.3) 179,042 10.6
1995 3,516,054 10.3 655,972 - 270,704 51.2
Compound Annual
Growth Rate 10.3% 4.1% 14.5%
* For casinos with gaming revenue of $1 million and over.
The Las Vegas Strip has demonstrated strong growth, and
revenues have increased at a 10.3% compound annual growth rate to
approximately $3.5 billion in 1995 from $1.3 billion in 1985.
Based on 1995 statistics, the 5,000-room MGM Grand Hotel and Theme
Park, the 2,500-room Luxor Hotel and Casino and the 3,000-room
Treasure Island Hotel and Casino appear to be drawing more
visitors to Las Vegas.
The downtown market has grown from approximately $441
million in 1985 to approximately $656 million in 1995 at a
compound annual growth rate of 4.1%. Downtown Las Vegas, with its
world famous neon lighting and its 12 major casinos all located
within close proximity of each other, is where Las Vegas started,
and the area continues to attract a significant number of loyal
customers comprised of both visitors to Las Vegas and local
residents. The Company believes many gaming patrons choose to
play downtown because the casinos traditionally offer more liberal
slot payouts and better odds on table games than casinos located
on the Las Vegas Strip and provide a more comfortable and less
intimidating environment. In addition, it is much easier to
stroll from one casino to another in the downtown market than on
the Strip.
Recent results of the downtown Las Vegas casino operators
have been adversely affected by, among other things, the opening
of themed mega-casinos on the Las Vegas Strip. In the 1989-1991
period, the opening of The Mirage and Excalibur casino/hotels
depressed the growth rate of downtown Las Vegas gaming revenues.
Similarly, the openings of the MGM Grand, Luxor and Treasure
Island casino/hotels have had an adverse effect on downtown gaming
revenue, which decreased 0.3% for the 12-month period ended
June 30, 1994. In addition, two new themed casino resorts are
scheduled to open on the Strip in 1996, Monte Carlo (June 1996)
and New York, New York (December 1996). In addition, another
major casino resort, Stratosphere, is scheduled to open just north
of the Strip in April 1996.
The Fremont Street Experience
The casino operators in downtown Las Vegas formed the
Downtown Progress Association to improve the downtown area. A
product of the Downtown Progress Association's efforts is the
Fremont Street Experience, which features a celestial vault and
light show. The celestial vault is a 100-foot high, 100-foot
wide, 1,340 foot long space frame spanning Fremont Street, from
Main Street to Fourth Street, which is closed to traffic to create
a pedestrian mall. The celestial vault is the framework for a
high tech light show involving 2.1 million reflectors, 600 strobe
lights, and laser image projectors. Nine major entertainment
venues, including the Four Queens, that together offer 17,000 slot
machines, over 500 blackjack and other table games, 41 restaurants
and 8,000 hotel rooms are connected by the project. The project
also includes a 1,500 space parking facility. The goal of Fremont
Street Experience is to create an attraction for gaming customers
and other visitors to Las Vegas, drawing visitors to the historic
downtown area and providing competition for the larger and newer
gaming and entertainment complexes located on or near the Strip.
The total cost of the Fremont Street Experience was
approximately $70 million, $6.7 million of which was financed by
the Las Vegas Convention and Visitor Association, $28.7 million
(consisting of an $18 million equity investment plus additional
room taxes) was provided by six downtown casino operators
(including the Company) and the remainder was provided by a local
bond issuance and matching federal funds. The Company's share of
the initial project costs is approximately $3 million, which funds
have already been contributed by the Company to the project.
Construction on the project began in Spring 1994 and was completed
in November of 1995. The grand opening of the project was on
December 13, 1995.
The Company and several of the other downtown casino
operators collectively own the Fremont Street Experience.
Elsinore has a one-sixth ownership share and will be responsible
for a proportionate share of the project's operating costs. Since
the opening of the Fremont Street Experience, access to the Four
Queens, which had previously been hampered by the construction,
has improved, and the Company believes business is improving and
operating profits appear to be returning.
Competition
The gaming industry in Nevada and elsewhere in the United
States is highly competitive and this competition is increasing as
new gaming facilities are built and additional jurisdictions
license gaming establishments. Although the industry generally
has recently been able to absorb additional capacity without
significant loss of revenues to existing establishments, there is
no assurance that gaming in the United States will increase at a
rate sufficient to absorb the additional facilities expected to be
constructed. Many of the Company's actual and potential
competitors have greater financial resources, more diversified
operations, and a longer history of successful operation than does
the Company; each of these factors could afford a competitive
advantage.
Three new "mega-resorts" opened on the Las Vegas Strip in
the fourth quarter of 1993. These complexes increased the number
of rooms in Las Vegas by approximately 10,500, or 15%. Two more
themed resorts, the Monte Carlo and New York New York, are
scheduled to open on the Strip in June 1996 and December 1996,
respectively. These two resorts will add approximately 5,200 rooms
in Las Vegas. A themed mega-resort casino, the Stratosphere Tower
Casino and Hotel, featuring an 1,149 foot observation tower, 1,500
rooms, a 97,000 square foot casino and other amenities and
attractions, is scheduled to open north of the Las Vegas Strip in
April 1996. Although the occupancy levels increased slightly in
1995, as compared to 1994, there can be no assurances that the
addition of such a large number of rooms will not have negative
impact on average hotel occupancy levels in Las Vegas and at the
Four Queens, unless visitor volume and other sources of room
demand increase proportionately.
The Company believes that the Four Queens primary
competitors are other downtown Las Vegas properties, casino hotels
located on the Las Vegas Strip and the Boulder Highway, local
neighborhood casinos, Laughlin casinos and casino properties
located near the Nevada/California state line. In addition, but
to a lesser extent, the Four Queens also competes with state-sponsored
lotteries, on- and off-track betting and other gaming
operations located in other jurisdictions in the U.S. The Company
believes that the legalization of gaming in other states, as well
as on various Native American lands including Native American
lands in Arizona and California, has not yet had an adverse impact
on its operations. However, there is no assurance that such
gaming in other jurisdictions will not have an adverse impact on
the Company's Las Vegas operations in the future. In particular,
the expansion of casino gaming, in or near any geographic area
from which the Company attracts or expects to attract a
significant number of its customers, such as Hawaii or California,
could have a material adverse affect on the Company's operations.
Casino hotels in Las Vegas generally compete on the basis of
promotional allowances, entertainment, advertising, service
provided to patrons, caliber of personnel, attractiveness of the
hotel and the casino areas and related amenities. The Company has
faced greater competition from new and existing Las Vegas
casino/hotels seeking to attract middle market slot machine
players, tour and travel agents, and Las Vegas area residents,
each of which is a market the Company actively seeks to attract to
the Four Queens.
Many operators in the downtown Las Vegas market have
observed that the new Las Vegas Strip properties such as MGM Grand
and Luxor have been drawing gaming revenues away from downtown Las
Vegas. However, the Company believes that, like the 1989-1991
period when The Mirage and Excalibur casino/hotels opened,
following an initial period of dilution of downtown Las Vegas
patronage, the entire Las Vegas market could benefit from an
overall increase in tourism, with those benefits being shared
downtown. Further, as the Las Vegas Strip becomes more congested,
certain patrons may prefer the ease and relative friendliness of
the downtown market. Additionally, the Company expects that the
Four Queens, along with other downtown operators, will benefit
from the increased tourism that the Company expects will result
from the addition of the Fremont Street Experience.
NATIVE AMERICAN GAMING PROJECTS
Background on Native American Gaming.
In 1988, Congress passed the federal Indian Gaming
Regulatory Act ("IGRA") providing a legal and regulatory framework
for Native American tribes to offer for profit any games allowed
by states. During the six-year period through 1994, approximately
200 Native American casino facilities, ranging from small bingo
halls to full-fledged gambling houses, were initiated in more than
20 states. As of February 1995, approximately 100 of these
facilities offered Class III gaming (as defined below) pursuant to
tribal-state compacts. Casinos on Native American lands are
subject to the regulatory authority of the federal National Indian
Gaming Commission ("NIGC"), tribal regulatory authorities and,
where applicable, state agencies. See "Regulations--Native
American Gaming Operations" below.
Spotlight 29 Casino
Background.
On January 14, 1995, Elsinore and the Twenty-Nine Palms Band
of Mission Indians ("Twenty-Nine Palms Band") opened the
Spotlight 29 Casino, a 74,000 square foot Class II gaming facility
on tribal lands located near Palm Springs, California. The
Spotlight 29 Casino cost approximately $10 million to develop.
Pursuant to the terms of the management contract (the "Spotlight
29 Contract") between the Twenty-Nine Palms Band and Palm Springs
East L.P., of which Elsub is the general partner and of which the
Company owns 90%, the Company was to receive management fee
revenues equal to approximately 27% of Spotlight 29 Casino's
earnings from gaming operations, after deducting certain expenses.
In addition, the Twenty-Nine Palms Band was to repay from its
share of casino earnings a $10 million loan and certain other
advances from the Company to finance the development and
construction of the Spotlight 29 Casino.
During its first six weeks of operations, Spotlight 29's
gaming revenues were significantly lower than anticipated,
resulting in a net operating loss through February 1995 of
approximately $1.1 million. This lower revenue is believed by the
Company to be attributable in part to the marketing plan of the
Spotlight 29 Casino taking longer to implement than expected, and
from competition from other Native American gaming facilities in
Southern California that continue to operate electronic gaming
machines without an approved compact with the State of California.
Pursuant to its obligations under the Spotlight 29 Contract, the
Company through April 3, 1995 advanced $1.26 million to the casino
to cover working capital shortfalls.
The Company has loaned $10 million to the Twenty-Nine Palms
Band to finance the development and construction of the Spotlight
29 Casino. This loan bears interest at the rate of 10% per year,
is payable solely from the Twenty-Nine Palms Band's share of the
casino's earnings and amortizes over four years from the date the
casino opened. Pursuant to the Spotlight 29 Contract, payments of
principal on the loan and repayments of any operating advances
made by the Company to the casino (subject to a minimum payment to
the Band of $35,000) will be deducted by Palm Springs East L.P.
from the Band's share of the casino's earnings.
As a Class II gaming facility, Spotlight 29 Casino is
permitted under the IGRA to offer Class II games including bingo,
pull-tabs and non-house banked games. Class III games, which
include slot machines and house-banked games, are permitted under
the IGRA on Native American land if conditions applicable to Class
II gaming are met and, in addition, the gaming is in compliance
with the terms of a written agreement ("compact") between the
tribal government and the applicable state government. All
compacts between Bands and states require approval by the
Secretary of the United States Department of the Interior. To
date, the State of California has not entered into any tribal-state
compacts permitting Class III gaming (other than off-track
betting and authorized state lottery facilities).
1995 Developments
In February 1995, the Company learned from discussions with
tribal representatives that the Twenty-Nine Palms Band was
contemplating the installation of Class III gaming devices at the
Spotlight 29 Casino. In late February, in response to the
Company's written objection to the placement of any Class III
gaming devices on the Spotlight 29 Casino premises, the Twenty-Nine
Palms Band advised the Company that, as the owner of the
Spotlight 29 Casino, the Band would install such devices if doing
so was in the Band's best interest and that the Band believed this
position did not conflict with the terms of the Spotlight 29
Contract. In early March 1995, the Twenty-Nine Palms Band caused
approximately 70 Class III gaming devices to be installed at
Spotlight 29 Casino and such devices currently are in operation.
In addition, the Company understands that a shipment of additional
Class III devices intended for use at the Spotlight 29 Casino was
intercepted and confiscated by governmental authorities before it
reached the casino premises.
The Company opposes these activities by the Twenty-Nine
Palms Band and in early March notified the Nevada State Gaming
Control Board ("Nevada Board") and the NIGC that it will not
participate in conduct that contravenes the IGRA. On March 6,
1995, the Company served on the Twenty-Nine Palms Band a notice
and demand that the operation of the Class III devices without the
Company's consent and compliance with applicable federal law
violates the management contract and that such activity must
immediately cease. Following the Band's failure to remove the
gaming devices, the Company on March 16, 1995 filed suit in the
United States District Court for the Central District of
California to enjoin their operation. See "Item 3. Legal
Proceedings."
In March 1995, the Nevada Board conducted two public
hearings and a confidential investigative hearing, and the Nevada
Gaming Commission ("Nevada Commission") conducted a public
hearing, into matters surrounding the operation of Class III
gaming devices at the Spotlight 29 Casino.
See "Regulations--Proceedings Before Nevada Gaming Authorities" below.
On April 17, 1995, the Company was ousted as manager of the
Spotlight 29 Casino and on April 19, 1995, the Company issued a
demand letter to the Twenty-Nine Palms Band declaring a breach of
the Spotlight 29 Contract and a related loan agreement under which
Palm Springs East had lent approximately $12.5 million to the
Twenty-Nine Palms Band for construction of the Spotlight 29 Casino
and for working capital advances. The demand letter claimed
damages in the full amount of the funds which had been advanced to
the Twenty-Nine Palms Band.
On May 16, 1995, in response to the Company's demand, the
Twenty-Nine Palms Band delivered to the Company "Notice to
Terminate Management Agreement." The notice asserted material
breaches of the Spotlight 29 Contract and requested payment of
approximately $1.5 million by June 16, 1995 to cover working
capital shortfalls or the Spotlight 29 Contract would be
terminated.
On October 31, 1995, Palm Springs East, Elsub and the
Company filed a voluntary petition for reorganization under
Chapter 11 of the Bankruptcy Code. Palm Springs East, Elsub and
the Company have been involved in protracted negotiations with the
Twenty-Nine Palms Band for a settlement of the respective claims
asserted by the parties since the events described above. Based
upon the progress of the aforementioned negotiations at the time,
in September 1995 the Company wrote-down to $9,000,000 the
aggregate amount advanced to the Twenty-Nine Palms Band and
accrued interest thereon.
As of March 29, 1996, the Company believes that a settlement
with the Twenty-Nine Palms Band is imminent. Under this
settlement, the Company expects to recover $9 million of its
investment in the Spotlight 29 Casino over a three-year period.
Interest will be paid on the $9 million recovery at the rate of at
least 10% per year. Although the $9 million recovery is limited
to 20% of net income generated at the Spotlight 29 Casino, the
Company believes that the settlement can be performed within the
projected three-year period. However, there can be no assurance
that a settlement agreement can be reached with the Twenty-Nine
Palms Band, that the NIGC and the Bankruptcy Court will approve
the final settlement, or that if a settlement is reached and
approved that the Company will recover the amounts expected.
Based upon these uncertainties, management determined to provide
an allowance for loss in the amount of $9,000,000 against the
aggregate receivable.
7 CEDARS CASINO
On February 3, 1995, Elsinore, through its wholly owned
subsidiary Olympia Gaming Corporation ("Olympia") and the
Jamestown S'Klallam Tribe ("S'Klallam Tribe") opened the 7 Cedars
Casino ("7 Cedars"), a 54,000 square foot Class II and limited
Class III gaming facility on tribal lands fronting U.S. Interstate
Highway 101, on the Olympic Peninsula approximately 70 miles
northwest of Seattle. The 7 Cedars Casino was conceived as a
Native American gaming operation in the northeastern part of the
Olympic peninsula in Washington state that would cater primarily
to approximately 80,000 local citizens in Clallam and Jefferson
Counties in Washington state. Kitsap County, with a population of
approximately 180,000 people, was targeted as a secondary market
for the 7 Cedars Casino. When the 7 Cedars Casino opened in
February 1995, only two other Native American casinos were
operating in the Puget Sound area. Neither operation was viewed
at the time as a serious competitor of the 7 Cedars Casino.
The development cost for the 7 Cedars was approximately
$9 million. The 7 Cedars' 12,500 square foot gaming area features
Las Vegas-style table games including craps, blackjack, roulette,
as well as poker, bingo, and pull tabs. Pursuant to the terms of
the management contract between the S'Klallam Tribe and Olympia
(the "Olympia Contract"), the Company was to receive a management
fee equal to 30% of the casino's earnings from gaming operations,
after depreciation and interest expense (subject to the S'Klallam
Tribe receiving a $25,000 per month minimum payment) and the Tribe
will receive the remainder of the casino's earnings. The Olympia
Contract had an initial term of five years from the date the 7
Cedars opened, subject to renewal for an additional two years in
the event that the project loan was not paid in full at the end of
the initial term (in some cases at a reduced management fee) under
certain circumstances.
Elsinore loaned the $9 million to the S'Klallam Tribe used
to finance the development and construction of the 7 Cedars. This
loan bears interest at a rate of 10.9% per annum, is payable
solely from casino earnings and will amortize over five years from
the date the casino opened. Pursuant to the Olympia Contract,
payments of principal and repayments of any operating advances
made by the Company to the casino will (subject to the minimum
payment to the tribe described above) be deducted by the Company
from the S'Klallam Tribe's share of the 7 Cedars' earnings.
Because the 7 Cedars' opening occurred during the low season
for tourism on the Olympic Peninsula, the Company anticipated the
casino would experience a negative cash flow during its initial
months of operations. In February 1995, the 7 Cedars had gross
revenues of approximately $1.5 million, resulting in an estimated
net operating loss of approximately $300,000, compared to an
anticipated loss for the month of approximately $200,000.
Also, during 1995, two new casinos opened in direct
competition with the 7 Cedars. The first casino opened in Auburn,
which is between Seattle and Tacoma, Washington. The second
casino opened just north of Bremerton, one of the largest
metropolitan areas in Kitsap County. The magnitude of the
negative impact of these two casinos on local residents'
visitation to 7 Cedars was not anticipated.
Further, a significantly lower than expected propensity to
gamble on the part of summer tourist visitors to the Olympia
Peninsula, significantly impacted casino revenues during the
summer of 1995.
In order to deal with the lower than projected revenues,
management of Olympia took several cost cutting measures.
Originally, the 7 Cedars was open 16 hours a day. Currently,
hours at the 7 Cedars have been reduced to just evening
operations. Employees at the 7 Cedars have been reduced from 460
to less than 200. Since these measures were taken, the 7 Cedars
has operated essentially at a cash break even level. However,
Olympia management projects modest growth in revenues at the 7
Cedars once the busier spring and summer seasons arrive.
Under the terms of the Olympia Contract, the Company was
also obligated to establish a reserve fund for "working capital,"
a term which is not defined by the Olympia Contract, in the amount
of $500,000 for operation of the 7 Cedars. The Company believes
the parties did not intend to apply a "working capital" definition
based on generally accepted accounting principles which, in the
Company's view, would be impracticable in the context of the
Olympia Contract and which, in practice, has never been followed.
Since its opening on February 3, 1995, the 7 Cedars has incurred a
cumulative net loss and an attendant decrease in working capital
which has been substantial.
On November 1, 1995, the S'Klallam Tribe asserted that the
Company had defaulted on the June, July, August and September 1995
minimum guaranteed payments to the S'Klallam Tribe in the
aggregate amount of $100,000 and requested immediate payment. In
addition, the S'Klallam Tribe demanded that sufficient monies be
paid to enable all current gaming project expenses to be paid and
the working capital reserve to be maintained at the required
funding level. The S'Klallam Tribe demanded that a minimum of
$2,540,000 be paid immediately and also contended that the working
capital shortfall could be as high as approximately $5,390,000
according to their interpretation of the Olympia Contract. On
November 13, 1995 the Company received a letter from the S'Klallam
Tribe dated November 9, 1995 asserting that the Olympia Contract
had been terminated as a result of the Company's failure to make
the payments which had been demanded.
On November 10, 1995, Olympia filed a voluntary petition for
reorganization under Chapter 11 of the Bankruptcy Code with the
United States Bankruptcy Court for the District of Nevada (Las
Vegas, Nevada). The Company maintains that the Olympia Contract
remains in full force and effect. Also, the Company continues to
manage the 7 Cedars pending a resolution of its dispute with the
S'Klallam Tribe over the Olympia Contract.
While management believes the operation will show a modest
profit in March 1996 and gaming revenues will continue to improve
through the spring and summer months, in light of the existing
competition in the Puget Sound area, the demographics of 7 Cedars'
primary locals markets and the apparent low propensity for Olympic
Peninsula tourists to gamble, there exists substantial uncertainty
as to whether, during the remaining term of the management and
loan agreements, 7 Cedars can achieve the level of profitability
required to obtain full recovery of the loan principal and accrued
interest thereon.
As of September 1, 1995, as the summer 1995 Olympic
Peninsula tourist season came to a close, the Company ceased
accruing interest on the project loan and wrote-off the remaining
unamortized balance of capitalized casino development costs of
approximately $242,000.
Based upon the foregoing, management determined in the
quarter ended December 31, 1995 to provide an allowance for loss
against the $9,000,000 outstanding balance of the project loan
plus accrued interest theron.
Facilities
The 7 Cedars is a 54,000 square foot Class II and limited
Class III gaming facility on tribal lands fronting U.S. Interstate
Highway 101 on the Olympic Peninsula. An estimated 4 million
tourists visit the Olympic Peninsula annually. 7 Cedars' 12,500
square foot gaming area features Las Vegas-style table games,
including craps, blackjack and roulette, as well as bingo, poker,
and pull-tabs. The casino's Class III games are authorized
pursuant to a compact between the S'Klallam Tribe and the State of
Washington, which has been approved by the Secretary of the
Interior. In addition to the gaming operation, the Company also
operates a gift shop, a video arcade and dining facilities at the
site. The S'Klallam Tribe also operates a Native American arts
and crafts shop at the facility.
Marketing
The Company believes that the physical beauty of the site
and casino building differentiates 7 Cedars from competing
properties. In addition, the Company believes that its
implementation of an active marketing plan similar to the
techniques used at the Four Queens (e.g., player clubs, frequent
visitor drawings, special events and tournaments) will draw
traffic to the 7 Cedars. The Company will also emphasize a high
level of customer satisfaction to encourage repeat visits. These
programs will supplement standard brochure distributions and
comprehensive customer tracking systems. The Company believes
that with the busier spring and summer seasons approaching, these
marketing efforts, together with media promotional efforts and
joint marketing programs, should result in modest revenue growth
during 1996.
The Washington Market
7 Cedars is located in Clallam County, Washington, which is
located at the northeastern corner of the Olympic Peninsula
approximately 70 miles northwest of Seattle. The state has
identified Clallam and Jefferson Counties as a rapid growth
county, designating it as a "growth management county."
Populations within a 50- and 100-mile radius of the site are
approximately 236,000 and 3 million, respectively. In addition to
targeting the local population in Clallam County, the Company
expects also to rely heavily on tourist traffic which flows
through the Olympic Peninsula, one of the most popular vacation
destinations for Washington State residents. Popular attractions
include the Olympic National Park, with over 3.7 million visitors
annually and Sequim Bay State Park, which attracts between 800,000
and 900,000 visitors annually. The primary target market of 7
Cedars is Clallam and Jefferson Counties which have a combined
population of approximately 80,000 (of which 24% are of retirement
age). 7 Cedars' secondary target markets include Victoria,
British Columbia with a population of approximately 280,000,
Kitsap County with a population of approximately 180,000, and the
Seattle/Tacoma area with a population of approximately 2 million.
MOJAVE VALLEY RESORT
Background.
Mojave Valley Resort, Inc. ("MVR"), an affiliate of Temple
Development Company, has a 65-year lease (subject to renewal at
MVR's option for an additional 20 years) with the Fort Mojave
Tribe for development of a prime portion of the Fort Mojave Indian
Reservation as a master planned resort community, the Mojave
Valley Resort. The property is located six miles south of
Laughlin, Nevada and 15 miles north of Needles, California and
covers portions of Nevada and Arizona. MVR has been in the
process of developing the resort, including the construction of
hotel/casinos on the property. It was proposed that the Nashville
Nevada Hotel and Casino ("Nashville Nevada") be the second
casino/hotel planned for the Mojave Valley Resort, subject to
obtaining the necessary financing.
Nashville Nevada was to be owned by Nashville Nevada LLC and
operated by Mojave Gaming, Inc. ("Mojave Gaming"), a wholly owned
subsidiary of Elsinore. The total estimated project cost for the
development of Nashville Nevada was $65.5 million.
As a condition to its participation in the Nashville Nevada
project, Mojave Gaming was required to make a capital contribution
to the venture in the amount of $10.0 million and obtain financing
for the balance of the estimated project cost by September 30,
1995. This contribution was not made nor the financing obtained
and, therefore, the contract terminated. Based on the foregoing,
in September 1995 management determined to write-off approximately
$807,000, representing all capitalized costs incurred for the
project.
REGULATIONS
Nevada Gaming Operations
The ownership and operation of casino gaming facilities in
Nevada are governed by: (i) the Nevada Gaming Control Act and the
regulations promulgated thereunder (collectively, "Nevada Act");
and (ii) various local regulations. The Company's gaming
operations are subject to the licensing and regulatory control of
the Nevada Commission, the Nevada Board and Liquor and Gaming
Licensing Board of the City of Las Vegas (the "City Board"). The
Nevada Commission, the Nevada Board and City Board are
collectively referred to as the "Nevada Gaming Authorities."
The laws, regulations and supervisory procedures of the
Nevada Gaming Authorities are based upon declarations of public
policy which are concerned with, among other things: (i) the
prevention of unsavory or unsuitable persons from having a direct
or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible
accounting practices and procedures; (iii) the maintenance of
effective controls over the financial practices of licensees,
including the establishment of minimum procedures for internal
fiscal affairs and the safeguarding of assets and reports to the
Nevada Gaming Authorities; (iv) the prevention of cheating and
fraudulent practices; and (v) the provision of a source of state
and local revenues through taxation and licensing fees. Change in
such laws, regulations and procedures could have an adverse effect
on the Company's gaming operations.
The Company is registered by the Nevada Commission as a
publicly traded corporation ("Registered Corporation") and as
such, it is required periodically to submit detailed financial and
operating reports to the Nevada Commission and furnish any other
information that the Nevada Commission may require. Pinnacle
Gaming Corporation ("Pinnacle"), a wholly owned subsidiary, is
licensed by the Nevada Gaming Authorities as a manufacturer and
distributor of gaming devices. Four Queens, Inc. ("FQI"), which
operates the Four Queens, is licensed by the Nevada Gaming
Authorities. The gaming licenses require the periodic payment of
fees and taxes and is not transferable. No person may become a
stockholder of, or receive any percentage of profits from, FQI or
Pinnacle without first obtaining licenses and approvals from the
Nevada Gaming Authorities. The Company, Pinnacle and FQI have
obtained from the Nevada Gaming Authorities the various
registrations, approvals, permits and licenses required in order
to engage in gaming activities in Nevada.
The Nevada Gaming Authorities may investigate any individual
who has a material relationship to, or material involvement with,
the Company or FQI in order to determine whether such individual
is suitable or should be licensed as a business associate of a
gaming licensee. Officers, directors and certain key employees of
FQI and Pinnacle must file applications with the Nevada Gaming
Authorities and may be required to be licensed or found suitable
by the Nevada Gaming Authorities. Officers, directors and key
employees of the Company who are actively and directly involved in
gaming activities of FQI and Pinnacle may be required to be
licensed or found suitable by the Nevada Gaming Authorities. The
Nevada Gaming Authorities may deny an application for licensing
for any cause that they deem reasonable. A finding of suitability
is comparable to licensing, and both require submission of
detailed personal and financial information followed by a thorough
investigation. The applicant for licensing or a finding of
suitability must pay all the costs of the investigation. Changes
in licensed positions must be reported to the Nevada Gaming
Authorities and in addition to their authority to deny an
application for a finding of suitability or licensure, the Nevada
Gaming Authorities have jurisdiction to disapprove a change in a
corporate position.
If the Nevada Gaming Authorities were to find an officer,
director or key employee unsuitable for licensing or unsuitable to
continue to have a relationship with the Company, Pinnacle or FQI
the companies involved would have to sever all relationships with
such person. In addition, the Nevada Commission may require the
Company, Pinnacle or FQI to terminate the employment of any person
who refuses to file appropriate applications. Determinations of
suitability or of questions pertaining to licensing are not
subject to judicial review in Nevada.
The Company and FQI are required to submit detailed
financial and operating reports to the Nevada Commission.
Substantially all material loans, leases, sales of securities and
similar financing transactions by FQI must be reported to, or
approved by, the Nevada Commission.
If it were determined that the Nevada Act was violated by
FQI or Pinnacle, the gaming licenses it holds could be limited,
conditioned, suspended or revoked, subject to compliance with
certain statutory and regulatory procedures. In addition, FQI,
Pinnacle, the Company and the persons involved could be subject to
substantial fines for each separate violation of the Nevada Act at
the discretion of the Nevada Commission. Further, a supervisor
could be appointed by the Nevada Commission to operate the
Company's gaming property in Nevada and, under certain
circumstances, earnings generated during the supervisor's
appointment (except for the reasonable rental value of the
Company's gaming property in Nevada) could be forfeited to the
State of Nevada. Limitation, conditioning or suspension of any
gaming license or the appointment of a supervisor could (and
revocation of any gaming license would) materially adversely
affect the Company's gaming operations.
Any beneficial owner of the Company's voting securities,
regardless of the number of shares owned, may be required to file
an application, be investigated, and have his suitability as a
beneficial owner of the Company's voting securities determined if
the Nevada Commission has reason to believe that such ownership
would otherwise be inconsistent with the declared policies of the
State of Nevada. The applicant must pay all costs incurred by the
Nevada Gaming Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires more than 5%
of the Company's voting securities to report the acquisition to
the Nevada Commission. The Nevada Act requires that beneficial
owners of more than 10% of the Company's voting securities apply
to the Nevada Commission for a finding of suitability within 30
days after the Chairman of the Nevada Board mails written notice
requiring such filing. Under certain circumstances, an
"institutional investor," as defined in the Nevada Act, which
acquires more than 10%, but not more than 15%, of the Company's
voting securities may apply to the Nevada Commission for a waiver
of such finding of suitability if such institutional investor
holds the voting securities for investment purposes only. An
institutional investor shall not be deemed to hold voting
securities for investment purposes unless the voting securities
were acquired and are held in the ordinary course of business as
an institutional investor and not for the purpose of causing,
directly or indirectly, the election of a majority of the members
of the board of directors of the Company, any change in the
Company's corporate charter, bylaws, management, policies or
operations of the Company, or any of its gaming affiliates, or any
other action which the Nevada Commission finds to be inconsistent
with holding the Company's voting securities for investment
purposes only. Activities which are not deemed to be inconsistent
with holding voting securities for investment purposes only
include: (i) voting on all matters voted on by stockholders; (ii)
making financial and other inquiries of management of the type
normally made by securities analysts for informational purposes
and not to cause a change in its management, policies or
operations; and (iii) such other activities as the Nevada
Commission may determine to be consistent with such investment
intent. If the beneficial owner of voting securities who must be
found suitable is a corporation, partnership or trust, it must
submit detailed business and financial information including a
list of beneficial owners. The applicant is required to pay all
costs of investigation.
Any person who fails or refuses to apply for a finding of
suitability or a license within 30 days after being ordered to do
so by the Nevada Commission or the Chairman of the Nevada Board,
may be found unsuitable. The same restrictions apply to a record
owner if the record owner, after request, fails to identify the
beneficial owner. Any stockholder found unsuitable and who holds,
directly or indirectly, any beneficial ownership of the common
stock of a Registered Corporation beyond such period of time as
may be prescribed by the Nevada Commission, may be guilty of a
criminal offense. The Company is subject to disciplinary action
if, after it receives notice that a person is unsuitable to be a
stockholder or to have any other relationship with the Company or
FQI, the Company (i) pays that person any dividend or interest
upon voting securities of the Company, (ii) allows that person to
exercise, directly or indirectly, any voting right conferred
through securities held by that person, (iii) pays remuneration in
any form to that person for services rendered or otherwise, or
(iv) fails to pursue all lawful efforts to require such unsuitable
person to relinquish his voting securities for cash at fair market
value.
The Nevada Commission may, in its discretion, require the
holder of any debt security of a Registered Corporation to file
applications, be investigated and be found suitable to own the
debt security of a Registered Corporation. If the Nevada
Commission determines that a person is unsuitable to own such
security, then pursuant to the Nevada Act, the Registered
Corporation can be sanctioned, including the loss of its
approvals, if without the prior approval of the Nevada Commission,
it: (i) pays to the unsuitable person any dividend, interest, or
any distribution whatsoever; (ii) recognizes any voting right by
such unsuitable person in connection with such securities; (iii)
pays the unsuitable person remuneration in any form; or (iv) makes
any payment to the unsuitable person by way of principal,
redemption, conversion, exchange, liquidation, or similar
transaction.
The Company is required to maintain a current stock ledger
in Nevada which may be examined by the Nevada Gaming Authorities
at any time. If any securities are held in trust by an agent or
by a nominee, the record holder may be required to disclose the
identity of the beneficial owner to the Nevada Gaming Authorities.
A failure to make such disclosure may be grounds for finding the
record holder unsuitable. The Company is also required to render
maximum assistance in determining the identity of the beneficial
owner. The Nevada Commission has the power to require the
Company's stock certificates to bear a legend indicating that the
securities are subject to the Nevada Act. The Nevada Commission
has imposed such a requirement on the Company.
The Company may not make a public offering of its securities
without the prior approval of the Nevada Commission if the
securities or the proceeds therefrom are intended to be used to
construct, acquire or finance gaming facilities in Nevada, or to
retire or extend obligations incurred for such purposes. Such
approval, if given, does not constitute a finding, recommendation
or approval by the Nevada Commission or the Nevada Board as to the
accuracy or adequacy of the prospectus or the investment merits of
the securities. Any representation to the contrary is unlawful.
Changes in control of the Company through merger,
consolidation, stock or asset acquisitions, management or
consulting agreements, or any act or conduct by a person whereby
he obtains control, may not occur without the prior approval of
the Nevada Commission. Entities seeking to acquire control of a
Registered Corporation must satisfy the Nevada Board and Nevada
Commission in a variety of stringent standards prior to assuming
control of such Registered Corporation. The Nevada Commission may
also require controlling stockholders, officers, directors and
other persons having a material relationship or involvement with
the entity proposing to acquire control, to be investigated and
licensed as part of the approval process relating to the
transaction.
The Nevada Legislature has declared that some corporate
acquisitions opposed by management, repurchases of voting
securities and corporate defense tactics affecting Nevada gaming
licenses, and Registered Corporations that are affiliated with
those operations, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a
regulatory scheme to ameliorate the potentially adverse effects of
these business practices upon Nevada's gaming industry and to
further Nevada's policy to: (i) assure the financial stability of
corporate gaming operators and their affiliates; (ii) preserve the
beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly governance
of corporate affairs. Approvals are, in certain circumstances,
required from the Nevada Commission before the Company can make
exceptional repurchases of voting securities above the current
market price thereof and before a corporate acquisition opposed by
management can be consummated. The Nevada Act also requires prior
approval of a plan of recapitalization proposed by the Company's
Board of Directors in response to a tender offer made directly to
the Registered Corporation's stockholders for the purposes of
acquiring control of the Registered Corporation.
License fees and taxes, computed in various ways depending
on the type of gaming or activity involved, are payable to the
State of Nevada and to the counties and cities in which the Nevada
licensee's respective operation are conducted. Depending upon the
particular fee or tax involved, these fees and taxes are payable
either monthly, quarterly or annually and are based upon either:
(i) a percentage of the gross revenues received; (ii) the number
of gaming devices operated; or (iii) the number of table games
operated. A casino entertainment tax is also paid by casino
operations where entertainment is furnished in connection with the
selling of food or refreshments. Nevada licensees that hold a
license as an operator of a slot route, or a manufacturer's or
distributor's license, must also pay certain fees and taxes to the
State of Nevada.
Any person who is licensed, required to be licensed,
registered, required to be registered, or is under common control
with such persons (collectively, "Licensees"), and who proposes to
become involved in a gaming venture outside of Nevada is required
to deposit with the Nevada Board, and thereafter maintain, a
revolving fund in the amount of $10,000 to pay the expenses of
investigation of the Nevada Board of their participation in such
foreign gaming. The revolving fund is subject to increase or
decrease in the discretion of the Nevada Commission. Thereafter,
Licensees are required to comply with certain reporting
requirements imposed by the Nevada Act. Licensees are also
subject to disciplinary action by the Nevada Commission if they
knowingly violate any laws of the foreign jurisdiction pertaining
to the foreign gaming operation, fail to conduct the foreign
gaming operation in accordance with the standards of honesty and
integrity required of Nevada or its ability to collect gaming
taxes and fees, or employ a person in the foreign operation who
has been denied a license or finding of suitability in Nevada on
the ground of personal unsuitability.
Proceedings Before Nevada Gaming Authorities
On March 8, 1995, in connection with its Mortgage Note
Registration Application, the Company appeared at a public hearing
before the Nevada Board. During this hearing, the Board inquired
at length concerning the decision of the Twenty-Nine Palms Band to
install Class III gaming devices at the Spotlight 29 Casino. See
"Business--Native American Gaming Projects --Spotlight 29 Casino"
above. The Nevada Board questioned the Company regarding its
participation, if any, in the installation and operation of these
gaming devices and stated the agency's view that such operation
and installation constituted a violation of California and federal
gaming laws. In this regard, the Nevada Board expressed grave
concerns about the Company's continued "association" with the
Twenty-Nine Palms Band because of the alleged illegal conduct of
that Band, which the Nevada Board apparently view as a violation
by the Company of the foreign gaming provisions of the Nevada Act.
At the conclusion of the hearing, the Nevada Board continued
further action on the Mortgage Note Registration Application to a
special meeting of the Nevada Board scheduled for March 28, 1995.
On March 10, 1995, the Company was served with a demand for
production of documents, records and certain demonstrative
evidence by March 15, 1995, and notified to appear before a
hearing officer appointed by the Nevada Board for the purpose of a
confidential investigative hearing which was conducted on
March 17, 1995. The purpose of the investigative hearing was to
solicit testimony from the Company's management and examine
evidence on confidential business and financial matters, the
Company's dispute with the Twenty-Nine Palms Band, and any related
violations of the Nevada Act or the regulations of the Nevada
Commission.
On March 28, 1995, the Nevada Board conducted a special
public meeting on the Mortgage Note Registration Application. At
that meeting, the Company advised the Board as to the status of
the various matters relating to the dispute with the Twenty-Nine
Palms Band, and disclosed the Company's intent, absent a dramatic
change in circumstances, to terminate the Spotlight 29 Contract
through a buy-out arrangement with the Twenty-Nine Palms Band.
The Company further advised the Nevada Board that the Company
would seek to obtain necessary waivers or consents from its
noteholders. Based on the Company's affirmative presentation, the
Nevada Board unanimously voted to recommend approval of the
Mortgage Note Registration Application to the Nevada Commission,
subject to two conditions. These conditions provided that (1) the
Company must quit the premises of the Spotlight 29 Casino and
terminate any direct or indirect association with the Spotlight 29
Casino by April 30, 1995, unless the video gaming devices
currently operated there by the Twenty-Nine Palms Band were
removed (voluntarily or by court order), made subject to a tribal-state
compact or otherwise deemed legal pursuant to federal and
state law; and (2) by April 4, 1995, the Company must file with
the Nevada Commission an application requesting that the first
condition be made a permanent condition to the license of Four
Queens, Inc. (the "License Condition Request").
On March 30, 1995, the Nevada Commission unanimously
approved the recommendation of the Nevada Board, including the
enumerated conditions. Although the Company could have avoided
compliance with the referenced conditions by refusing to consum-
mate the transaction contemplated by the approved Mortgage Note
Registration Application, the Nevada Board publicly advised the
Company that such action could result in the Nevada Board
commencing disciplinary action against the Company. In this
regard, both the Nevada Board and Nevada Commission indicated
during the public hearings that the April 30, 1995, date for
termination of the Company's business relationship with the
Twenty-Nine Palms Band could be extended or modified based only on
demonstrable progress in completing an agreement with the Twenty-Nine
Palms Band and obtaining NIGC approval, or changed factual or
legal circumstances.
On April 4, 1995, the Company filed the License Condition
Request and this application was placed on the public hearing
agenda for a special meeting of the Nevada Board and the Nevada
Commission scheduled for April 26, 1995. On April 19, 1995, the
Company requested that the Nevada Board and the Nevada Commission
cancel the special hearing and refer the License Condition Request
back to staff because of the April 17, 1995, decision of the
Twenty-Nine Palms Band to evict the Company from the premises of
the Spotlight 29 Casino and prevent Palm Springs East from
performing its obligations under the Spotlight 29 Contract. On
April 20, 1995, the Nevada Board and the Nevada Commission granted
that request subject to certain conditions related to the
Company's future dealings with the Twenty-Nine Palms Band.
Native American Gaming Operations
Gaming on Native American lands, including the Spotlight 29
Casino and the 7 Cedars Casino, is extensively regulated under
federal law, tribal law and/or tribal-state compacts. Under IGRA,
management contracts for Native American gaming facilities may
provide for a management fee for up to 40% of net revenues and a
term of up to seven years if the Chairman of the NIGC determines
that capital investment required and the income projections for
the facility merit such terms. The NIGC has approved the
management contracts for both Spotlight 29 Casino and the 7 Cedars
Casino.
In connection with obtaining NIGC approval for these
management contracts, the Company, its directors, persons with
management responsibilities, certain owners of the Company and
certain persons with a financial interest in the management
agreements as determined by the NIGC and tribal regulatory
authorities must provide background information and be
investigated by the NIGC and tribal regulatory authorities, and be
approved in order for a management contract to be approved by the
NIGC and for the Company to be issued a license to operate a
gaming facility by tribal regulatory authorities. Persons who
acquire beneficial ownership of the Company's securities may be
subject to certain reporting and qualification procedures
established by the NIGC and tribal regulatory authorities.
The operations and management of the Company's Native
American casino projects are and will be subject to the regulating
authority of the NIGC, tribal regulatory authorities and, where
applicable, state agencies. Such regulatory authorities have
jurisdiction to inspect, supervise and audit gaming operations on
Native American lands and where warranted may restrict, suspend or
revoke licenses and approvals granted by the issuing agency. The
NIGC and tribal governments may impose taxes and licensing fees on
gaming operations located on Native American lands.
Should a management contract be suspended or revoked by the
NIGC, tribal officials or state regulatory agencies, the effect
could have an adverse impact on the business of the Company.
Similarly, changes in the IGRA, the governing tribal ordinance, or
applicable state law, or the termination of any existing tribal-
state compact for Class III gaming, could have an adverse effect
on the Company's gaming operations on Indian lands.
Internal Revenue Service and Treasury Regulations
The IRS requires operators of casinos located in the United
States to file information returns for United States citizens
(including names and addresses of winners) for Keno and slot
machine winnings in excess of stipulated amounts. The IRS also
requires casino operators to withhold taxes on certain Keno, bingo
and slot machine winnings of certain non-resident aliens.
The regulations of the Treasury Department and the Nevada
Gaming Authorities require the reporting of currency transactions
in excess of $10,000 occurring within a gaming day, including, in
certain circumstances, identification of the customer by name and
social security number. This practice commenced in May 1985, and
may have resulted in the loss of gaming revenue to other
jurisdictions where such reporting is not required.
Other Laws And Regulations
The Four Queens, Spotlight 29 and 7 Cedars each is subject
to extensive state and local regulations and must obtain various
licenses and permits, including those required to sell alcoholic
beverages, on a periodic basis. All licenses are revocable and
are not transferable. The agencies involved have full power to
limit, condition, suspend or revoke any such license, and any such
disciplinary action could (and revocation would) have a material
adverse effect upon the operations of the casino. Management
believes that FQI has obtained all required licenses and permits
and that the business is conducted in substantial compliance with
applicable laws.
Pursuant to federal law, sales of beer, wine and other
intoxicating beverages ("Liquor") must be in conformance with
tribal and state laws. Under the Nevada law, the sale of Liquor
by the drink at gaming facilities is subject to state regulation
and licensing. The Company is licensed to sell Liquor by the
drink at the Four Queens.
OTHER BUSINESS INFORMATION
Patents
The Company's only significant patent covers MULTIPLE
ACTION blackjack, a faster version of traditional blackjack that
was developed by an officer of the Company. The patent was issued
in 1992 and expires in 2017. MULTIPLE ACTION blackjack permits a
player to make three separate bets on his hand, and the dealer
uses a single up-card against the three-player bets. This results
in a higher volume of play.
The Company has licensed MULTIPLE ACTION blackjack to other
casinos in Las Vegas and throughout the United States and at
December 31, 1995 had licensed 82 locations for 128 tables.
Revenues from licensing MULTIPLE ACTION blackjack through
December 31, 1995 represented an immaterial part of the Company's
overall revenues.
Employees and Labor Relations
At December 31, 1995, the Four Queens employed 1,051
persons, of which 32 were covered by collective bargaining
agreements which expired in April 1987. The union employees have
continued to work under the terms of an expired agreement. The
Company believes that its relationship with the employees of the
Four Queens is good.
Control Procedures
The Company employs stringent controls, checks and record
keeping of all receipts and disbursements in connection with its
gaming operations and believes that its internal controls are in
compliance with the laws and regulations established by the Nevada
Gaming Authorities, the Washington State Gambling Commission,
National Indian Gambling Commission, and the respective tribal
gaming commissions. The audit and cash controls employed by the
Company include locked cash boxes, independent counters and
observers to perform daily cash and coin counts, floor
observations of the gaming area, closed circuit television
monitoring of critical activities and rapid analysis and
resolution of discrepancies or deviations from normal performance.
Credit Policies
The Four Queens gaming operations are conducted on a credit
as well as cash basis. The Company believes that it is necessary
to extend credit to selected customers in order to compete
effectively with other casino/hotels. Credit play at the Four
Queens accounts for a relatively minor portion of total gaming
activities. Allowances for doubtful accounts are made on the
basis of a subjective analysis of the receivables involved and are
charged as an expense in the period in which such determination
are made. Credit is not issued at the Native American Casinos.
Certain Income Tax Matters
Management has reevaluated transactions which occurred in
prior years and as a result believes the Company possesses a total
net operating loss carryforward which was approximately
$106,500,000 at December 31, 1995. As a result of ownership
changes in prior years, Internal Revenue Code Section 382 limits
the amount of loss carryforward currently available to offset
federal taxable income. At December 31, 1995, the amount of loss
carryforward not limited by Section 382 and therefore available to
offset current federal taxable income was approximately
$63,300,000. These loss carryforwards begin to expire in the year
1999 and will be completely expired by 2007. Because of the
reorganization proceedings, the Company's net operating loss
carryforwards may, however, be eligible for special treatment
under Section 382. (See Note 9 of Notes to Consolidated Financial
Statements.)
ITEM 2. PROPERTIES.
Except for certain small parcels of land owned in fee and
one lease for approximately 7,000 square feet of casino space that
expires on December 31, 1997, the real property underlying the
Four Queens is leased pursuant to several long-term leases, none
of which expires before October 31, 2024. The adjoining garage is
occupied under a lease that expires in 2034. Such leases
generally provide for annual minimum rental and adjustments
relating to cost of living. The Four Queens is subject to the
mortgage security interest of the Company's 1993 First Mortgage
Notes and 1994 Mortgage Notes. (See Note 8 of Notes to
Consolidated Financial Statements.) The Four Queens is more fully
described under Item 1. The Company does not own any fee or
leasehold interests in the real property underlying the Spotlight
29 Casino or the 7 Cedars Casino.
ITEM 3. LEGAL PROCEEDINGS
Chapter 11 Reorganization
On October 31, 1995, the Company and certain of its
subsidiaries filed a voluntary petition in the United States
Bankruptcy Court for the District of Nevada seeking to reorganize
under Chapter 11 of the United States Bankruptcy Code. On
November 10, 1996, Olympia Gaming Corporation filed a voluntary
petition in the same Court. Since the Bankruptcy filing, several
entities have filed administrative claims requesting the
Bankruptcy Court order the Company to reimburse or compensate such
entities for goods, taxes and services they allege the Company has
received or collected, but for which they claim the Company has
not paid.
The Company currently estimates that the administrative
claims will be approximately $1.5 million; however, there can be
no assurance that additional amounts will not be claimed or the
extent to which administrative claims may be allowed by the
Bankruptcy Court. The Bankruptcy Code requires that all
administrative claims be paid on the effective date of a plan of
reorganization unless the respective claimants agree to different
treatment. Depending on the ultimate amount of administrative
claims allowed by the Bankruptcy Court, the ability of the Company
to confirm and consummate a plan of reorganization may be impacted
negatively. The Company is actively negotiating with claimants to
achieve mutually acceptable dispositions of these claims.
Hyland Litigation
Thomas Hyland, a professional card counter and blackjack player,
filed a complaint on August 23, 1995 in Federal District Court in
Camden, New Jersey, No. 95CV2236 (JEI), against the Company and
virtually every other casino company in the United States. The
complaint alleges violations of the antitrust, consumer fraud and
fair credit reporting laws by the defendants in illegally
conspiring to prevent Mr. Hyland and other professional card
counters from playing blackjack at their respective casinos. The
complaint alleges that the defendants share information concerning
card counters and then act in concert to implement industry wide
policy in banning them at the blackjack tables.
Management believes that the claims are without merit and
does not believe that the lawsuit will have a material adverse
effect on the Company's operating results.
WARN Act Litigation
The Company is a defendant in two consolidated lawsuits
pending in the federal court for the District of New Jersey,
alleging violation by the Company and certain of its subsidiaries
and affiliates of the Worker Adjustment and Retraining
Notification Act ("WARN Act") and breach of contract. The
plaintiffs in the two consolidated cases are (i) former employees
of a casino/hotel in New Jersey formerly affiliated with the
Company bringing suit on behalf of a class of all employees laid
off as a result of the casino's closing and (ii) a union local
seeking to represent its members who were laid off at that time.
Plaintiffs claim that there are approximately 1,300 such employees
within the class who seek damages under the WARN Act providing for
up to 60 days' pay and lost benefits and payments for deferred
compensation allegedly due under a contract with certain
employees. Damages payable, if any, would be calculated on the
basis of the number of days' notice determined by the court to
have been required under the WARN Act and the wages, benefits and
deferred compensation applicable to each such employee.
The Company has vigorously defended the action on the basis
that even if the WARN Act does apply as a matter of law to a
regulatory-forced closing, the closing was due to unforeseeable
circumstances and, accordingly, the notice given was as timely as
practicable, among other grounds. The liability phase of the
trial of the two consolidated lawsuits concluded in August 1993.
On June 30, 1995, the presiding judge entered an Order for
Verdict Upon Liability Issues in which he ruled that: (i) the
plaintiffs had failed to prove any liability under the WARN Act;
and (ii) that Elsinore and certain of its subsidiaries are jointly
liable for certain retroactive wages due to former employees of
Elsinore Shore Associates under a collective bargaining agreement,
plus prejudgment interest on such wages. The total amount of
judgment the plaintiffs would be entitled to under this ruling has
not yet been determined. The plaintiffs' attorney asserts that
the amount due as of October 1, 1995, taking into account interest
on that date, was approximately $676,000. The Order is stayed
until the Findings of Fact and Conclusions of Law are entered by
the Court, which could be forthcoming at any time. Until such
Findings of Fact and Conclusions of Law are entered, the Company
is not able to make a determination concerning the extent of its
ultimate exposure or whether an appeal of the decision is
appropriate. Because of the filing of the bankruptcy petitions,
the WARN Act litigation has also been stayed by operation of
Bankruptcy Code Section 362(a).
Action Against Twenty-Nine Palms Band
On March 16, 1995, Elsinore Corporation, its wholly owned
subsidiary, Elsub Management Corporation, and Palm Springs East
Limited Partnership, of which Elsub Management is the General
Partner, filed a complaint against the 29 Palms Band in the United
States District Court for the Central District of California, case
no. CV 95-1669-RG(MCx). The complaint sought injunctive and
declaratory relief based upon alleged breaches by the Tribe of the
Spotlight 29 Contract when it installed Class III electronic
gaming machines at the casino without the Company's consent and
without any involvement whatsoever by the Company in the operation
of the machines. The suit was dismissed without prejudice by the
Company on April 21, 1995. As noted previously, the Company
expects to settle its dispute with the Band soon.
Poulos/Ahern Class Actions
In April and May 1993, two class action lawsuits were filed
in the United States District Court, Middle District of Florida,
against 41 manufacturers, distributors and casino operators of
video poker and electronic slot machines, including the Company.
The suits allege that the defendants have engaged in a course of
fraudulent and misleading conduct intended to induce persons to
play such games by collectively misrepresenting how the gaming
machines operate, as well as the extent to which there is an
opportunity to win. It also alleges violations of the Racketeer
Influenced and Corrupt Organizations Act, as well as claims of
common law fraud, unjust enrichment and negligent
misrepresentation, and seeks damages in excess of $6 billion. On
December 9, 1994, the Florida Court ordered that the consolidated
cases be transferred to the United States District Court for the
District of Nevada. That transfer has occurred and the Nevada
Court has assumed control of the cases. The new case number is
CV-S-94-1126-LDG(RJJ). Numerous defendants (including the
Company) have moved to dismiss the complaint for failure to state
a claim. No hearing has been set on this motion. The plaintiffs
have filed a motion seeking to certify the consolidated actions as
a class action. The defendants (including the Company) have
opposed certification of the class. No hearing date has been set
on this motion and the proceeding has been stayed because of the
Company's bankruptcy filing. Management believes that the claims
are wholly without merit and does not expect that the lawsuit will
have a material adverse effect on the Company's financial
statements taken as a whole.
Other
At December 31, 1995, the Company and its subsidiaries were
parties to various other claims and lawsuits arising in the normal
course of business. Management is of the opinion that all such
legal matters are either covered by insurance or, if not insured,
will not have a material adverse effect on the financial position
or the results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's
security holders during the last quarter of the last fiscal year.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock, par value $.001 per share (the
"Common Stock"), was traded on the American Stock Exchange under
the symbol "ELS." After the Company's bankruptcy petition filing,
the Company was informed by the American Stock Exchange that
trading in its stock had been halted indefinitely pending
clarification of the outcome of the bankruptcy proceedings. That
halt continues as of March 29, 1996.
The following table sets forth the closing high and low sales
price for the Common Stock on the American Stock Exchange
Composite Tape during each quarter of the last two fiscal years,
as reported by the American Stock Exchange.
Price Range
High Low
Year ended December 31, 1995:
First Quarter $2.750 $ 1.000
Second Quarter 1.313 0.750
Third Quarter 1.000 0.500
Fourth Quarter 0.875 0.438 (a)
Year ended December 31, 1994:
First Quarter $6.125 $3.875
Second Quarter 4.563 2.313
Third Quarter 3.500 2.563
Fourth Quarter 2.813 1.813
(a) These prices are based upon the month ended October 31, 1995
due to the fact that the stock has not been trading on the open
market since the Company filed for Chapter 11 bankruptcy
protection on October 31, 1995.
On March 30, 1996, the number of holders of record of Common Stock
was approximately 4,232.
The Company has never declared or paid, nor does it have any
present intention to declare or pay, cash dividends on its Common
Stock. Any determination by the Board of Directors to pay cash
dividends in the future would depend upon numerous factors such as
the Company's earnings, financial condition and capital
requirements. In addition, certain covenants of the First
Mortgage Notes and Mortgage Notes restrict the payment of cash
dividends under certain circumstances.
ITEM 6. SELECTED FINANCIAL DATA
Set forth below is selected consolidated historical
financial data with respect to the Company for the five years
ended December 31, 1995. This data should be read in conjunction
with the consolidated financial statements and notes thereto set
forth elsewhere herein.
December 31,
1995 1994 1993 1992 1991
(Dollars in thousands except per share amounts)
Balance Sheet Data:
Total Assets $37,101 $67,315 $71,923 $41,961 $45,083
Current Portion
of Long-Term Debt 54 - 204 3,051 3,101
Long-Term Debt Net of
Current Portion:
Notes Payable 61,327 59,099 53,018 28,513 31,181
Capital Leases 1,531 1,290 1,350 1,555 1,939
Stockholder's Equity
(Deficit) (43,441) (1,664) 4,567 (182) 1,598
Operations Data:
Revenues (Net) $56,973 $62,706 $66,852 $63,998 $63,031
(Loss) Before
Extraordinary Items $(45,749) $(10,176) $(2,252) $(1,780) $ (573)
Extraordinary Items:
Gain (Loss) on
Extinguishment of Debt - 735 (285) - -
Net Loss $(45,749) $( 9,441) $(2,537) $(1,780) $ ( 573)
Per Share Amounts:
Loss Before
Extraordinary Items $ (2.95) $ (.84) $ (.19) $ (.15) $ (.05)
Extraordinary Items - .06 (.02) - -
Net Loss $ (2.95) $ (.78) $ (.21) $(.15) $ (.05)
Capital Costs:
Depreciation and
Amortization $ 3,948 $ 3,990 $ 3,393 $ 3,302 $ 3,691
Interest Related to Prior-
Period Tax Obligation 590 885 1,385 213 313
Interest Expense 8,006 9,086 4,069 3,124 3,858
$ 12,544 $ 13,961 $ 8,847 $ 6,639 $ 7,862
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis should be read in conjunction with
the consolidated financial statements and notes thereto set forth
elsewhere herein.
OVERVIEW
Chapter 11 Proceedings: On October 31, 1995, the Company and
certain of its subsidiaries filed a voluntary petition in the
United States Bankruptcy Court for the District of Nevada to
reorganize under chapter 11 of Title 11 of the United States
Bankruptcy Code. On November 10, 1995 an additional subsidiary of
the Company also filed a voluntary petition to reorganize under
Chapter 11 in the same court. The Company is continuing to manage
its business affairs as a debtor-in-possession under the
supervision of the Bankruptcy Court.
On February 28, 1996, Elsinore and its subsidiaries filed a plan
of reorganization (the "Plan") with the Bankruptcy Court. The
reorganization process is expected to result in the cancellation
and/or restructuring of substantial debt obligations of the
Company. The Company anticipates that the reorganization process
will not result in the elimination of the interests of its common
stockholders; however, it is anticipated that the interest of the
current common stockholders in the Company will be substantially
reduced.
There can be no assurance that the plan of reorganization
submitted by the Company will be confirmed. There also can be no
assurance that, with or without a plan of reorganization, the
Company can generate sufficient cash to sustain operations.
The Company believes that a combination of several factors led to
the need to reorganize under Chapter 11. For additional
information regarding such factors and Chapter 11 proceedings, see
"Item 1. Business--Summary and Recent Developments" and "Item 1.
Business--Chapter 11 Proceedings."
Going Concern Basis: The accompanying financial statements have
been prepared on a going concern basis which assumes continuity of
operations and realization of assets and liquidation of
liabilities in the ordinary course of business. The consolidated
financial statements do not include all of the consequences of the
proceedings under Chapter 11 nor all adjustments that might be
necessary should the Company be unable to continue as a going
concern. The Company's ability to continue as a going concern is
dependent upon, among other things, its obtaining the required
regulatory approvals from the State of Nevada, including approvals
by the gaming authorities, obtaining sufficient cash to fund all
distributions and cash reserves required at the time the Plan
becomes effective and achieving profitable operations and
sufficient cash flows to meet future obligations required by the
plan. The outcome of these matters is not presently determinable.
LIQUIDITY AND CAPITAL RESOURCES
Capital Resources: On January 25, 1995 through an underwritten
public offering of its common stock, the Company raised
approximately $3,747,000 net of underwriting discounts and
commissions, and other direct offering costs in consideration for
the issuance of 2,500,000 shares of Common Stock. The net
proceeds have been used for debt service and other working capital
purposes.
On March 31, 1995, the Company sold, through a private placement
to six purchasers, an aggregate of $1,706,250 principal amount of
its 7.5% Convertible Subordinated Notes. The net proceeds of
$1,566,000 have been used for debt service and other working
capital purposes.
Cash and cash equivalents, (including restricted amounts of
$3,685,000 at December 31, 1994) decreased $3,520,000 to
$3,572,000 at December 31, 1995. Net cash used by operating
activities for the twelve months ended December 31, 1995 was
approximately $656,000. Major uses of cash during 1995 included
payment of $3,563,000 interest on the 1993 First Mortgage notes,
payments of $3,475,000 applied to prior period income taxes and
related interest, and loans aggregating $6,646,000 advanced to
Native American Tribes in conjunction with completion and opening
of the Spotlight 29 and the 7 Cedars Casino projects.
Liquidity: Currently, the Company's primary sources of liquidity
are cash flows from the operations of the Four Queens Hotel and
Casino. The substantial decrease in gaming revenues, operating
results and cash flows experienced by the Four Queens in 1994
continued through 1995 principally resulting from traffic
disruption caused by construction of the Fremont Street Experience
attraction and related downtown infrastructure improvements.
In addition, during the period from its opening on February 3,
1995 through December 31, 1995, 7 Cedars Casino incurred a
significant cumulative net loss and an attendant decrease in
working capital. Although the Company anticipated that gaming
revenues would increase in the late spring and summer of 1995 as a
result of increased tourist visitation to the Olympia Peninsula,
gaming revenues, in fact, decreased during the summer months of
1995. Management believes the decrease is the result of reduced
local population visitation resulting from competing outdoor
activities, the opening of a competing Native American Casino in
May 1995, certain road and bridge improvement projects that have
disrupted visitation patterns to the casino, and finally,
substantially lower than expected visitation by tourists. These
events had a negative impact on the Company's liquidity.
During the summer of 1995, to offset the effects of these events,
the Company implemented certain cost containment measures and
commencing November 13, 1995, reduced the days of operation at the
7 Cedars Casino to Wednesday through Sunday to bring the casino's
cost structure more in line with customer volume.
There is no assurance that 7 Cedars Casino will generate
increased gaming revenues or have the capacity to further reduce
costs to become profitable (See Note 4 to Consolidated Financial
Statements for discussion regarding the Company's obligation to
fund working capital to the 7 Cedars Casino).
In addition to the impact of impaired results of operations,
the Company's liquidity during the ten-month period ended October
31, 1995 was significantly affected by its substantial debt
service obligations.
During the remainder of 1995, the Company experienced less
liquidity pressure because of the protection afforded by the
bankruptcy laws in the payment of obligations incurred prior
to the filing and arising under certain executory contracts
entered into prior to the filing of the bankruptcy petition and
the opening of the Fremont Street Experience.
RESULTS OF OPERATIONS
1995 COMPARED TO 1994
Total revenues, net of promotional allowances, decreased
$5,733,000 (9.1%). Casino revenues, decreased $6,306,000 (13.6%),
as compared to 1994. Promotional allowances, which are subtracted
from gross revenues, decreased $837,000 (11.1%) in 1995 compared
to 1994 for the same reasons.
The decrease in casino revenues in 1995, as compared to
1994, consisted primarily of a $3,178,000 (20.1%)decrease in
table game revenues and a $3,078,000 (10.1%) decrease in slot
revenues. The decreases in table games revenues resulted from
decreases in both volumes of play and win percentages. The
decrease in slot revenues resulted from decreases in volumes of
play. Overall, management believes that these decreases were
primarily due to the disruption of traffic flow to downtown Las
Vegas caused by construction of the Fremont Street Experience
attraction and related infrastructure improvements and lower than
expected hold percentages in table games.
Hotel revenues increased slightly during 1995 due to a small
increase in average room rate which was partially offset by a
small decrease in occupancy. Food and Beverage revenues decreased
$557,000 (4.4% in 1995) reflecting the lower volume of customer
traffic during the period. Interest and other income was
comparable with 1994.
Total costs and expenses, excluding interest, depreciation
amortization and provisions for losses on loans receivable from
Native American Tribes, casino development costs and
reorganization items decreased $3,342,000 (5.7%) in 1995 as
compared to 1994. Casino costs and expenses decreased $3,161,000
(13.8%) primarily as a result of reduced casino payroll expenses
resulting from cost containment programs and the decrease in
casino volume. Hotel expenses increased $252,000 (3.3%).
In 1995, food and beverage expenses decreased $240,000
(3.8%), as compared to 1994 due to cost containment programs.
Costs incurred as a result of taxes and license fees
decreased $328,000 (4.7%) in 1995 with higher payroll taxes offset
by lower gaming taxes expenses. Selling, general and
administrative expenses decreased $507,000 (4.3%) from 1994
primarily as a result of reduced payroll expenses resulting from
cost containment programs.
In 1995, rent expenses increased $642,000 (19.4%) primarily
because of an increase in gaming equipment leased under operating
leases.
Depreciation and amortization decreased 42,000 (1.1%) in
1995 primarily because the remaining unamortized balance of debt
issue costs related to the 1993 First Mortgage Notes was charged
to reorganization items at October 31, 1995 (See notes 1 and 8 of
Notes to Consolidated Financial Statements).
Interest on prior period income tax obligations decreased
$295,000 primarily because of adjustment of accruals to lower
effective rates for the year. Interest expense, excluding interest
on prior period income taxes, decreased $1,080,000 (11.9%)
because, in connection with the reorganization proceedings,
interest subsequent to October 31, 1995 was only accrued on the
$3,000,000 principal, 20% first mortgage notes. In addition, the
unaccreted debt discount balance related to the 1993 First
Mortgage Notes was charged to reorganization expense at October
31, 1995. Contractual interest not recorded since October 31,
1995 was $1,206,000.
During the year ended December 31, 1995, the Company
charged-off $23,598,000 of loans receivable from Native American
Tribes and wrote-off $2,323,000 of casino development costs
related to Native American Casino projects (for additional
information, see Note 4 of Notes to Consolidated Financial
Statements.)
For 1995, reorganization items consisted of the following:
(in thousands)
Professional fees $ 293
Write-off of debt issue costs 2,695
Write-off of original issue discount on debt 5,690
Total reorganization items $8,678
1994 COMPARED TO 1993
Total revenues, net of promotional allowances, for 1994
decreased $4,146,000 or 6.2% as compared to 1993. Decreased
casino revenue was the primary contributing factor to the overall
decrease in revenues, a portion of which was attributable to the
Company's renovation of approximately 300 of the 700 rooms at the
Four Queens Hotel and Casino during the first quarter of 1994 and
a portion of which was attributable to the discontinuation of a
fee-based casino tour operator program in the second quarter of
1994. However, management believes that the primary reason for
the decrease in revenue was that a portion of the Four Queens
guests, as well as some of the guests of other downtown Las Vegas
properties, spent at least part of their Las Vegas gaming and
entertainment budgets at the recently opened properties on the Las
Vegas Strip. Management's belief is supported by the fact that,
in contrast to the decrease in Casino revenue, hotel occupancy at
the Four Queens in 1994 increased to 92.7% from 92.4% for the
prior year.
As mentioned above, during 1994 casino revenue was affected
most significantly and decreased $5,680,000 (10.9%), while Hotel
revenue decreased $642,000 (6.5%). Food and Beverage revenue
increased marginally by $198,000 (1.6%). Interest and Other
revenue increased $1,252,000 primarily because of increased
interest income from the investment of a portion of the proceeds
of the First Mortgage Notes.
The decrease in casino revenue from that in 1993 resulted
primarily from a $3,502,000 (10.4%) decrease in gross slot revenue
and a $2,372,000 (14.7%) decrease in gross table game revenue.
Both the decrease in slot and table games revenue resulted from
decreases in volume of play as well as win percentage. Compared
to 1993, coin-in for slots decreased approximately 9.7% and the
revenue as a percentage of coin-in decreased one tenth of a
percentage point, while table game drop decreased about 7.8% and
the revenue as a percentage of drop decreased six tenths of a
percentage point in 1994.
The decrease in Hotel revenue for 1994 as compared to the
same period for 1993 was due in part to approximately 7,800 fewer
room nights being available during the first quarter of 1994 due
to refurbishment of the Four Queens and in part to a 1.4% decrease
in the average daily rate per occupied room. In an effort to
bolster lower Casino revenue, management implemented a special
summer room rate to drive-in customers without advance
reservations. While contributing to an increase in hotel
occupancy in 1994 compared to 1993, the promotion effectively
lowered the average daily room rate. Management discontinued the
program in September 1994.
Total costs and expenses, excluding interest and
depreciation decreased $712,000 (1.2%) for 1994 as compared to
1993. Casino costs and expenses decreased $1,350,000 (5.6%) from
1993 primarily as a result of management's decision to eliminate a
fee-based player program, run by a third party, that was no longer
deemed profitable. The program was eliminated in April 1994, and
resulted in a reduction in expense of approximately $1,047,000
from the prior year.
Food and Beverage costs and expenses increased $782,000
(14.3%) for 1994 compared to 1993 due primarily to increased costs
of goods on two loss leaders (prime rib and shrimp cocktail) in an
effort to attract additional casino customers and thereby
increased the number of meals served in the Four Queens' coffee
shop by 5.1% in 1994. As a result of the effort to bolster Casino
revenue, Food revenue increased marginally ($198,000) due to the
increase in the number of meals served, but was offset to a great
extent because the average price of a meal decreased approximately
6.1%. However, the volume increase at lower prices was
responsible for an approximately 15.7% increase in the cost of
sales. Management's evaluation of this program resulted in an
increase in its loss leader pricing in late September 1994 in an
effort to meet its objectives. Management will continue to
monitor this program and may discontinue or modify it as necessary
to achieve its objectives.
Taxes and licenses decreased $204,000 for 1994 as compared
to 1993 due primarily to lower gaming taxes as a result of the
decrease in Casino revenue compared to 1993. This decrease was
offset partially by increased payroll taxes as a result of added
corporate and development company level staff and increased FICA
due to tip rate adjustments imposed in January 1994 by the IRS.
Interest expense increased $4,517,000 in 1994, substantially
due to the impact of the additional debt incurred in connection
with the 1993 First Mortgage Notes; the 1994 Mortgage Notes
interest rate, which is higher than the rate for the retired bank
debt (rates of 12.5% and 8.0%, respectively) that was repaid with
a portion of the proceeds of the offering and the amortization of
original issue discount associated therewith, and the impact on
both periods of accrued interest on prior period tax obligation
resulting from an audit by the IRS for the fiscal years ended
January 31, 1980 through December 31, 1983 ($885,000 and
$1,385,000, respectively).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Consolidated Financial Statements are listed and
included under Item 14 of this Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Name, Position with Company, Year
Principal Occupation First
and Other Directorships Age Elected
Frank L. Burrell, Jr. 68 1991
Chairman of the Company since January 1993;
Managing General Partner since 1977 of
Burrell & Co., a securities broker-dealer;
Director of Home Federal Financial Corporation.
Howard R. Carlson 74 1993
Retired business and banking executive.
Julian H. Levi 86 1978
Professor of Law, University of California,
Hastings College of Law, San Francisco, since 1978.
Thomas E. Martin 53 1990
President and Chief Executive Officer of the
Company since January 1993 and May 1995,
respectively; President and Chief Executive
Officer of Four Queens, Inc. since March 1993.
Robert A. McKerroll 65 1993
Retired. President and Chief Executive Officer
of Foothill Bank, Mountain View, California
from 1987 to 1995.
In addition to the executive officers of the Company who are also
directors, the executive officers of the Company are as follows:
Gary R. Acord was named Chief Financial Officer of the Company on
April 1, 1995. Prior to joining the Company, for the past 15 years,
Mr. Acord was associated with KPMG Peat Marwick LLP, where he was the
managing partner of the firm's Las Vegas office and an audit partner in
the firm's Pacific Southwest practice. Mr. Acord's practice focused on
serving gaming industry clients both within and outside Nevada and he
served as the leader of KPMG's International Gaming Practice. A
certified public accountant in Nevada, California, Arizona and
Mississippi, Mr. Acord is a member of the American Institute and Nevada
Society of Certified Public Accountants. He serves on the Accounting
Advisory Council of the University of Nevada, Las Vegas, the gaming
committee of the Nevada Society of C.P.A.'s and the Board of Trustees of
the Nevada Development Authority. Mr. Acord holds a master of
accounting degree from the University of Arizona.
John G. Cook was named Vice President-Facilities Management of the
Company in July 1994. Mr. Cook has more than 40 years' experience in
construction, design, engineering and construction management. He has
supervised a broad variety of construction assignments covering
commercial, industrial, and institutional projects. From August 1993 to
July 1994, Mr. Cook served as a consultant to the Company in connection
with the development of its Native American casino projects.
Effective January 12, 1996, Ernest E. East, Vice President,
General Counsel and Secretary resigned his positions with the Company.
Committees and Meetings
The Board of Directors has established an Audit Committee,
an Executive Committee, a Finance Committee, a Personnel and
Compensation Committee (the "Compensation Committee") and a
Nominating Committee. The membership of such committees is
determined from time to time by the Board of Directors.
Currently, the Audit Committee consists of Professor Julian H.
Levi (Chairman) and Messrs. Carlson and McKerroll. The Executive
Committee consists of Frank L. Burrell, Jr. (Chairman) and Messrs.
Martin and Carlson. The Finance Committee consists of Robert A.
McKerroll (Chairman) and Gary R. Acord. The Compensation
Committee consists of Howard R. Carlson (Chairman) and Messrs.
Levi and McKerroll. The Nominating Committee consists of
Professor Levi (Chairman) and Messrs. Burrell and Martin.
The functions of the Audit Committee include reviewing the
independence of the independent auditors, recommending to the
Board of Directors the engagement and discharge of independent
auditors, reviewing with the independent auditors the plan and
results of auditing engagements, approving or ratifying each
material professional service provided by independent auditors,
considering the range of audit and non-audit fees, reviewing the
scope and results of the Company's procedures for internal
auditing and the adequacy of internal accounting controls and
directing and supervising special investigations.
The function of the Executive Committee is to meet
periodically between regular meetings of the full Board of
Directors and to take any and all required action at such meetings
so as to carry out and perform the duties of the Board to the
fullest extent permitted by the By-Laws of the Corporation and by
law.
The primary function of the Finance Committee is to provide
an oversight discipline to the Company's operating performance
with particular emphasis on cash needs and availability through
monitoring such cash availability and needs on unconsolidated and
consolidated bases in time horizons of (a) 1-30 days, (b) 31-180
days, and (c)beyond 180 days up to one year. In addition, the
Committee monitors the Company's operating performance through
monthly reports against approved operating plan and budgets.
The functions of the Compensation Committee include
reviewing and establishing the general employment and compensation
practices and policies of the Company and approving procedures for
the administration thereof. The Compensation Committee also
establishes the awards under and administers the Incentive Plan
for Senior Executives. The Compensation Committee also makes
recommendations to the Board of Directors respecting the grant of
options under the Company's 1991 Stock Option Plan, the 1993 Long-Term
Stock Incentive Plan and administers such plans.
The functions of the Nominating Committee including advising
the Board of Directors on matters concerning the selection of
candidates as nominees for election as director. Stockholders who
wish to recommend qualified candidates to the Board of Directors
should write to the Secretary of the Company, stating in detail
the candidate's qualifications. All such recommendations will be
brought to the attention of the Nominating Committee.
In 1995, the Board of Directors held 13 meetings and took
action by written consent 3 times, the Audit Committee held 3
meetings, the Executive Committee held 6 meetings, the Finance
Committee held 6 meetings, the Compensation Committee held 5
meetings, and the Nominating Committee did not meet in 1995. Each
director attended more than 75% of the aggregate number of
meetings of the Board and the committees, if any, on which he
served in 1995.
Director's Fees
Each non-employee director of the Company receives an annual
fee of $25,000. The Executive Committee is paid $12,000 per year
for up to 12 meetings. Over 12 meetings, the fee is $1,000 per
meeting. The Finance Committee is paid $6,000 per year for up to
12 meetings. Over 12 meetings, the fee is $500 per meeting.
Audit, Compensation and Nominating Committee chairs and members
are paid an additional fee of $5,000 and $2,500, respectively, for
service as such. All fees are payable in four equal quarterly
installments which will be accelerated in the event of a change in
control of the Company. In addition, directors are reimbursed for
out-of-pocket expenses incurred in connection with attendance at
board and committee meetings.
ITEM 11 . EXECUTIVE COMPENSATION
The following table provides certain summary information
concerning compensation paid to Frank L. Burrell, Jr., the
Company's Chairman during the three years ended December 31, 1995,
and each of the other executive officers whose total annual salary
and bonus exceeded $100,000 in such year.
Annual Compensation Long Term Compensation Awards
Securities All Other
Name and Principal Underlying Compensation
Position Year Salary ($) Bonus($) Options (#) ($)
Frank L.
Burrell, Jr., 1995 228,235 -0- -0- 2,310(1)
Chairman 1994 227,991 -0- 100,000 2,310(1)
1993 118,750 50,000 150,000 -0-
Thomas E.
Martin, 1995 343,344 -0- -0- 2,310(2)
President 1994 346,606 -0- 200,000 2,310(2)
and Chief 1993 238,377 100,000 300,000 -0-
Executive
Officer
Gary R. Acord, 1995 202,092 -0- 100,000 -0-(3)
Senior Vice
President-Finance
Ernest E. East,1995 183,350 -0- -0- -0-(4)
Vice President 1994 22,597 -0- 100,000 -0-
and General
Counsel
John G. Cook, 1995 126,664 -0- -0- 1,380(5)
Vice President 1994 69,508 -0- 50,000 -0-
Facilities
Development
(1) Mr. Burrell received compensation for matching contributions
under the Company's 401 (k) Plan. Mr. Burrell served as Chief
Executive Officer until May 11, 1995.
(2) Mr. Martin received compensation for matching contributions
under the Company's 401 (k) Plan.
(3) Mr. Acord joined the Company as Senior Vice President-Finance
in April 1995.
(4) Mr. East joined the Company as Vice President and General
Counsel in November 1994. Effective January 12, 1996, Mr. East
resigned his position with the Company.
(5) Mr. Cook received compensation for matching contributions
under the Company's 401 (k) Plan.
Option Grants in Last Fiscal Year Table
The table below sets forth certain information regarding
options granted to each of the named executive officers of the
Company during 1995.
Individual Grants
Percentage of Potential
Total Number Realizable Value
of Options at Assumed Annual
Securities Granted to Exercise Rates of Stock
Underlying Employees or Base Price Appreciation
Options in Fiscal Price Expiration for Option Term
Name Granted (#)(1) Year ($/sh) Date 5%($) 10%($)
Gary R.
Acord 100,000 58% 1.25 4/1/05 78,612 199,218
(1) The options granted have a 10-year term and vest on a
schedule of one-third of the options in each of the three
successive years following the grant. The exercise price is
the fair market value on the date of grant.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year
End Option Values
The following table shows the number of shares of Common
Stock represented by outstanding stock options held by each of the
named executive officers as of December 31, 1995. No stock
appreciation rights have been granted by the Company.
Number of Value of
Securities Unexercised
Underlying In-the-Money
Unexercised Options at
Options at FY End ($)(1)
Shares FY End (#)
Acquired Value
on Realized Exer- Unexer- Exer- Unexer-
Name Exercise(#) ($) cisable cisable cisable cisable
Frank L.
Burrell, Jr. -0- -0- 133,000 117,000 -0- -0-
Thomas E. Martin -0- -0- 266,667 233,333 -0- -0-
Gary R. Acord -0- -0- -0- 100,000 -0- -0-
Ernest E. East -0- -0- 33,333 66,667 -0- -0-
John G. Cook -0- -0- 16,667 33,333 -0- -0-
(1) Value of outstanding stock options equals the fair market
value for the underlying securities at year-end, minus the
exercise price of "in-the-money" options.
Employment Contracts and Termination of Employment and
Change-of-Control Arrangements
In March 1993, the Company adopted an Amended and Restated
Senior Executive Severance Plan (the "Severance Plan"). Pursuant
thereto, the Company has entered into severance agreements with
Messrs. Burrell and Martin as of same date and Mr. Acord as of
April 1, 1995. Under such agreements, all such officers will
receive an amount equal to two times their respective annual
salaries, in each case, thirty days after termination (subject to
certain limitations) if such termination occurs within two years
after a change of control of the Company. The Severance Plan also
provides that a covered officer may "put" to the Company any stock
options theretofore granted to him under the Company's option
plans in return for cash payments equal to the difference (if
greater than zero) between the "fair market value" (as defined in
the relevant option plan) and the exercise price per share of such
options. These agreements are subject to revision pursuant to the
terms of the Stipulation with the Bondholders Committee provided
Bankruptcy Court approval is obtained. See "Item 1.
Business--Chaper 11 Proceedings--Plan of Reorganization."
For purposes of the Severance Plan and related agreements,
the term "change in control" means the occurrence of any of the
following events: (1) any person becomes the beneficial owner of
20% or more of the combined voting power of the Company's
outstanding securities entitled to vote in an election of
directors, (2) a merger or other business combination with, or
sale of substantially all of the assets of the Company to, another
entity or (3) persons who are disinterested directors of the
Company cease to constitute a majority of the Board of Directors
of the Company. "Disinterested director' means any director who
served as a director for the 24-month period preceding a change in
control and is not affiliated with any person who causes or
participates in causing a change in control, and any director
prior to the change in control who was initially appointed or
elected upon the recommendation of a majority of the disinterested
directors then on the Board and is designated a disinterested
director by the Board.
Compensation Committee Report on Executive Compensation
The duties of the Compensation Committee are to establish
the salaries of the company's executive officers; to exercise the
authority of the Board of Directors concerning the Company's
benefit plan; to administer the Company's stock option plans; to
make recommendations to the Board of Directors concerning salary
increases and bonus awards for the Company's executives, including
the Chairman and the President/Chief Executive Officer; and to
advise the Board of Directors on other compensation and benefit
matters. The members of the Compensation Committee are Messrs.
Carlson (Chairman), Levi and McKerroll.
The Company's fundamental philosophy and policy is to
provide a total compensation program which will enable the Company
to attract, retain and motivate the high-caliber management team
needed to achieve the Company's longer-term objectives.
Accordingly, each executive's compensation package is comprised of
four elements: (i) base salary, which represents competitive pay
within the gaming and hospitality industry for a comparable level
of responsibility and reflects individual performance; (ii) annual
variable performance awards payable in cash, which are tied to the
Company's achievement of financial goals and individual
performance; (iii) stock-based incentive awards which strengthen
the mutual interests of the executive officers and the
shareholders; and (iv) a cost effective and tax efficient benefits
package to provide security for officers and their families. It
is the Company's objective to pay "market rate" base salaries
(i.e. at the 50th percentile) and to pay above the market rate
through variable compensation vehicles (incentives and stock),
contingent upon the Company's performance and results attained.
Base Salary. The base salary of each officer is set on the
basis of the salary level in effect for comparable positions
within the Company's peer group (i.e. market or 50% percentile)
and personal performance. The factors considered when measuring
personal performance of an executive officer include, but are not
limited to, the Company's performance, the executive's departments
and personal performance. The executive's departments are
evaluated by reviewing performance to budget and goals, including
such factors as profit. Other factors may include development and
retention of staff as well as the review of all audit reports.
Due to the Company's financial performance, base salaries
were reduced by 5% and a salary freeze was instituted effective
October 5, 1994 which will remain in effect through March 31,
1996.
Annual Incentive Compensation. The executive officers are
eligible to receive an annual cash bonus under the Incentive Plan
for Senior Executives. Receipt of a bonus depends upon the
Company's attainment of budgeted net income targets. Once the
threshold target is met, the bonuses are as follows:
Amount of Bonus Net Income Target
25% of base salary net income targeted
30% of base salary target + $ 750,000
35% of base salary target + $1,500,000
Because the net income target for 1995 was not attained, no
bonuses were awarded to executives under this plan.
In addition to the bonus plan, the Compensation Committee
may, at its discretion, award cash bonus awards to executive
officers based on individual performance, considering such factors
as extraordinary efforts or results. No discretionary bonuses
were awarded during 1995.
Long-Term Incentive Compensation. The 1993 Long-Term Stock
Incentive Plan provides for grants of Company securities to
executives and other key individuals in the form of stock options,
SARs, stock units or restricted shares. The Compensation
Committee grants stock options to attract new executives to the
Company and to retain current officers. The grants are designed
to align the interests of the executive officers with those of
shareholders and ensure long-term commitment to the Company. Each
stock option grant allows the executive to acquire the Company's
common stock at a fixed price per share (the market price on the
date of grant) over a specified period of time (up to 10 years).
Accordingly, the option will provide a return to the executive
officer only if the market price of the Company's common stock
appreciates over the option term. The number of options
historically awarded was compared to the option grants of the
Company's industry. The Company's practices with regard to stock
option awards and holdings were found to be below market when
compared with practices within the industry peer group.
Competitive grant guidelines were used to determine the size
of combined regular and retention grants. Individual grants were
targeted slightly below the 50th percentile of competitive
practices. Grants are not based on the past performance of the
Company. No SARs, stock units, restricted stock or long term
incentive plan payouts were made during 1995.
Chief Executive Officer's Compensation
During 1995, Mr. Martin, who prior to May, 1995, was Chief
Operating Officer of the Company, was paid a base salary of
$360,000, which was reduced by 5% in October 1994 due to the
financial performance of the Company. Upon becoming Chief
Executive Officer on May 11, 1995, Mr. Martin continued to receive
that same salary. In setting Mr. Martin's salary, the
Compensation Committee considered the market survey and personal
performance. The Committee believes that Mr. Martin's salary is
fair and appropriate
in light of the obligations and responsibilities of the Chief
Executive Officer. Mr. Martin was not awarded any cash bonuses
during 1995. Mr. Martin received no grants of options in 1995.
COMPENSATION COMMITTEE
Howard R. Carlson, Chairman
Julian H. Levi
Robert A. McKerroll
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth the names and addresses of
all persons who beneficially owned, to the knowledge of the
Company, more than 5% of the outstanding shares of Common Stock on
December 31, 1995, and the number of shares beneficially owned by
each director, each executive officer named in the Summary
Compensation Table and all directors and executive officers as a
group. Shares are beneficially owned by a person if he or she
currently owns such shares or has or will have the right to
acquire such shares within 60 days of December 31, 1995. Unless
otherwise noted, the persons named in the table have sole voting
and investment power with respect to all shares shown as
beneficially owned by them.
Beneficial Ownership
of Common Stock
Number of Percent
Name and Address of Owner Shares of Class
Frank L. Burrell, Jr. 1,475,500(1) 9.3%
c/o Elsinore Corporation
202 Fremont Street
Las Vegas, NV 89101
Cundill Value Fund, Ltd. 803,900(2) 5.1%
1200 Sun Life Plaza
1100 Melville Street
Vancouver, B.C. V6E 4A6
Goldsmith Financial Corporation 1,204,030(3) 7.6%
11350 McCormick Road, Suite 200
Hunt Valley, Maryland 21031
Mojave Partners, L.P. 1,053,417(4) 6.6%
181 Maple Street
Stowe, Vermont 05672
Howard R. Carlson 10,000(5) *
Julian H. Levi 2,112 *
Thomas E. Martin 322,667(6) 2.0%
Robert A. McKerroll 6,000 *
All directors and executive
officers as a group(10) 2,068,279(7) 13.0%
* Less than one percent.
(1) Includes 133,000 shares subject to immediately exercisable
options.
(2) Based solely on information set forth in Schedule 13D and
amendments thereto jointly filed with the Securities and Exchange
Commission by Peter Cundill & Associates (Bermuda) Ltd. ("PCB")
and Cundill Value Fund, Ltd. ("Value Fund") through December 31,
1995. Pursuant to an agreement between PCB and Value Fund, PCB
has sole voting power, and PCB and Value Fund share dispositive
power, of such shares. PCB's address is Clarendon House, Church
Street, Hamilton, Bermuda.
(3) Based solely on information set forth in Schedule 13D and
amendments thereto filed with the Securities and Exchange
Commission by Goldsmith Financial Corporation through December 31,
1995.
(4) Based solely on information set forth in Schedule 13D and
amendments thereto filed with the Securities and Exchange
commission by Mojave Partners, L.P. through December 31, 1995.
Includes 122,382 shares of Common Stock subject to immediately
exercisable warrants at an exercise price of $5.50 per share.
(5) Consists of 10,000 shares held by the Howard R. and Jeanne M.
Carlson Trust.
(6) Includes 266,667 shares subject to immediately exercisable
options.
(7) Includes 426,667 shares subject to immediately exercisable
options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
Performance Graph
The Commission requires that the Company include in this Form 10K
a graphical comparison of the Company's cumulative five-year shareholder
returns on an indexed basis with (i) a broad equity market index and
(ii) and industry index or peer group. Set forth below is a line graph
(table) comparing the percentage change in the cumulative total
shareholder return on the Company's Common Stock against the cumulative
total return of the Dow Jones Equity Market Index and the Entertainment
& Leisure Index for the five years ended December 31, 1995. "Total
return," for the purpose of the graph, assumes reinvestment of all
dividends.
Comparison of Five Year Cumulative Total Return
for Elsinore Corporation, the Dow Jones Equity Market Index and the
Entertainment and Leisure Index.
Elsinore Corporation
Equity Growth
December 31, 1995
No.of
No.of shares Market value Total Market shares
o/s at 12/31 at 12/31 Value per $100
1990 12,067,950 $1.5625 $18,856,172 64
1991 12,017,164 0.75 9,012,873 133
1992 12,017,164 0.9375 11,266,091 107
1993 12,062,164 4.625 55,787,509 22
1994 13,135,214 1.9375 25,449,477 52
1995 15,891,793 0.6875 10,925,608 145
Value of Dow Jones Index for Dow Jones Index for
invest at Equity 100 at E&L 100 at
each YE Index base Index base
1990 100 305.594 100 268.766 100
1991 48 391.906 128 327.813 122
1992 60 413.297 135 402.234 150
1993 296 442.19 145 501.34 187
1994 124 433.07 142 450.64 168
1995 44 581.43 190 590.09 220
Other 1995 Matters
SEC regulations require the Company to identify the names of
persons who failed to file or filed a late report under Section 16 of
the Securities Exchange Act of 1934, as amended. Generally, the
reporting regulations under Section 16 require directors and officers to
report changes in ownership in the Company's securities. Mr. Gary R.
Acord inadvertently failed to file an initial Form 3 stating no
beneficial ownership of Company securities as of the date he was hired.
There has been no reportable activity with respect to Mr. Acord's
security ownership since he was hired in April 1995. This statement has
since been reported on Form 5 for 1995.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
Page
Number
A. Documents filed as part of this report on behalf of
Elsinore Corporation and Subsidiaries:
(i) Financial Statements:
Independent Auditors' Report F-1
Consolidated Balance Sheets,
December 31, 1995 and 1994 F-2
Consolidated Statements of Operations,
Years Ended December 31, 1995, 1994 and 1993 F-4
Consolidated Statements of Cash Flows,
Years Ended December 31, 1995, 1994 and 1993 F-5
Consolidated Statements of Shareholders'
Equity, (Deficit), Years Ended
December 31, 1995, 1994 and 1993 F-7
Notes to Consolidated Financial Statements F-8
(ii) Financial Statement Schedules:
All Schedules are omitted because they are either not
required or not applicable, or the required
information is presented in the Notes to the
Consolidated Financial Statements.
(iii) Exhibits:
3.1* Amended and Restated Articles of Incorporation of Elsinore
Corporation [3.1](1)
3.2* Amended and Restated Bylaws of Elsinore Corporation (4)
10.1* Sublease, dated May 26, 1964, by and between A. W. Ham, Jr.
and Four Queens, Inc. [10.1](2)
10.2* Amendment of Sublease, dated June, 15, 1964, by and between
A. W. Ham, Jr. and Four Queens, Inc. [10.2] (2)
10.3* Amendment of Sublease, dated February 25, 1965, by and
between A. W. Ham, Jr. and Four Queens, Inc. [10.3](2)
10.4* Amendment of Sublease, dated January 29, 1973, by and
between A. W. Ham, Jr. and Four Queens, Inc. [10.4](2)
10.5* Supplemental Lease, dated January 29, 1973, by and between
A. W. Ham, Jr. and Four Queens, Inc. [10.5](2)
10.6* Lease Agreement, dated April 25,1972, by and between Bank
of Nevada and Leon H. Rockwell, Jr., as Trustees of Four Queens,
Inc. [10.6](2)
10.7* Lease, dated January 1, 1978, between Finley Company and
the Company [10.7](2)
10.8* Ground Lease, dated October 25, 1983, between Julia E.
Albers, Otto J, Westlake, Guardian, and Four Queens, Inc.
[10.8](2)
10.9* Ground Lease, dated October 25, 1983 between Katherine M.
Purkiss and Four Queens, Inc. [10.9](2) 10.10* Ground Lease,
dated October 25, 1983 between Otto J. Westlake and Four Queens,
Inc. [10.10](2)
10.11* Indenture of Lease, dated March 28, 1984, by and between
the City of Las Vegas and Four Queens, Inc. [10.11](2)
10.12* Lease Indenture, dated May 1, 1970, by and between Thomas
L. Carroll, et al. and Four Queens, Inc. [10.12](2)
10.13* Memorandum of Lease, dated January 26, 1973, between
President and Board of Trustees of Santa Clara College and Four
Queens, Inc. [10.13](2)
10.14* Elsinore Corporation 1991 Stock Option Plan (the "1991
Plan") [10.11](1)
10.15* Form of Option Agreement pursuant to the 1991 Plan.
[10.21](2)
10.16* Form of Director and Officer Indemnity Agreement.
[10.16](11)
10.17* Elsinore Corporation 1993 Long-Term Stock Incentive Plan
(the "1993 Plan"). [10.23](2)
10.18* Form of Option Agreement pursuant to the 1993 Plan.
[10.24](2)
10.19* Agreement, dated January 14, 1993, between Jeanne Hood,
the Company and Four Queens, Inc. [10.25](2)
10.20* Amended and Restated Elsinore Corporation Senior Executive
Severance Plan, dated March 15, 1993. [10.26] (2)
10.21* Form of Amended and Restated Senior Executive Severance
Agreement. [10.27](2)
10.22* Agreement, dated April 28, 1992, by and between Four
Queens, Inc., Jeanne Hood, Edward M. Fasulo and Richard A.
LeVasseur. [10.28](2)
10.23* 1995 Short Term Incentive Plan for Senior Executive,
adopted December 16, 1994 [10.23](11)
10.24* Agreement of Limited Partnership, dated January 28, 1993,
by and between ELSUB Management Corporation and Native American
Casino Corporation. [10.30](2)
10.25* Incentive Consulting Agreement, dated January 28, 1993, by
and among Palm Springs East, L.P. (the "Partnership"), James G.
Brewer, Donald Wright and Sparkesh Enterprises, Ltd. [10.31](2)
10.26* Revised Management Agreement for Gaming Activities, dated
November 11, 1993 by and between Twenty-Nine Palms Band of Mission
Indians and the Partnership [10.26](5)
10.27* Addendum to Revised Management Agreement for Gaming
Activities, dated January 25, 1994, between Twenty-Nine Palms Band
of Mission Indians and the Partnership [10.27](5)
10.28* Loan Agreement dated November 11, 1993, by and between
Twenty-Nine Palms Band of Mission Indians and the Partnership
[10.28](5)
10.29* Gaming Project Development and Management Agreement, dated
September 28, 1993, by and among Olympia Gaming Corporation, The
Jamestown S'Klallam Tribe and JKT Gaming, Inc., a Tribal
Corporation organized and chartered by the Jamestown S'Klallam
Tribe ("JKT Gaming"). [10.29](5)
10.30* Addendum to Gaming Project and Development Management
Agreement, dated January 28, 1994 by and among Olympia Gaming
Corporation, The Jamestown S'Klallam Tribe and JKT Gaming
[10.30](5)
10.31* Loan Agreement, dated November 12, 1993 by and among The
Jamestown S'Klallam Tribe and JKT Gaming [10.31](5)
10.32* First Amendment to Loan Agreement, dated January 28, 1994
by and among The Jamestown S'Klallam Tribe and JKT Gaming
[10.32](5)
10.33* Purchase Agreement, dated October 8, 1993, among the
Company, the Guarantors named therein and the Purchasers named
therein. [10.1](3)
10.34* Warrant Agreement, dated as of October 8, 1993, between
the Company and First Trust National Association, as warrant
agent. [10.3](3)
10.35* First Mortgage Notes Registration Rights Agreement, dated
as of October 8, 1993, among the Company, the Guarantors named
therein and the Purchasers named therein. [10.4](3)
10.36* Warrant Shares Registration Rights Agreement, dated as of
October 8, 1993, among the Company and the Purchasers named
herein. [10.5](3)
10.37* Amendment No. 1, dated as of April 21, 1994, to Warrant
Agreement, dated as of October 8, 1993, among the Company and
First Trust National Association, as warrant agent [10.2](6)
10.38* Indenture, dated as of October 8, 1993, by and among
Elsinore Corporation, the Guarantors named therein and First Trust
National Association, as trustee, including the form of Series B
Note registered on Form S-4 dated January 6, 1994. [10.2](3)
10.39* Escrow and Disbursement Agreement, dated as of October 8,
1993, among the Company, First Trust National Association and
First Interstate Bank of Nevada, N.A., as escrow agent. [10.6](3)
10.40* Pledge Agreement, as of dated October 8, 1993, from the
Company and ELSUB Management Corporation to First Trust National
Association [10.7](3)
10.41* Deed of Trust, Assignment of Rents and Security Agreement,
dated as of October 8, 1993, by and among Four Queens, Inc., Land
Title of Nevada, Inc. and First Trust National Association
[10.8](3)
10.42* Assignment of Operating Agreements, dated as of October 8,
1993 by Palm Springs East Limited Partnership to First Trust
National Association. [10.9](3)
10.43* Assignment of Operating Agreements, dated as of October 8,
1993 by Olympia Gaming Corporation to First Trust National
Association. [10.10](3)
10.44* Supplemental Indenture No. 1, dated as of April 21, 1994,
to the Indenture dated as of October 8, 1993, among the Company,
the Guarantors named therein and First Trust National Association,
as trustee. [10.1](6)
10.45* Operating Agreement of Nashville Nevada LLC. [10.52](9)
10.46* Amendment No. 1 to Operating Agreement of Nashville Nevada
LLC. [10.53](9)
10.47* Hotel/Casino Sublease for Owner-Operator between Mojave
Valley Resort, Inc. and Mojave Valley Resort Casino Company.
[10.54](9)
10.48* Installment Agreement (on Form 433-D) dated December 6,
1994 by and between the Company and the Internal Revenue Service.
[10.55](10)
10.49* Supplemental Indenture No. 2, dated December 14, 1994, to
the Indenture dated as of October 8, 1993 by and among the
Company, the Guarantors named therein and First Trust National
Association, as Trustee. [10.56](10)
10.50* Amendment no. 1 to Note and Stock Purchase Agreement,
dated December 14, 1994 by and among the Company, the Guarantors
named therein and the Purchasers named therein. [10.57](10)
10.51* First Mortgage Note and Common Stock Exchange Agreement,
dated as of December 29, 1994, by and among the Company, Mojave
Partners, L.P., a Delaware limited partnership, and Edward
Herrick, an individual. [10.51](11)
10.52* Amendment to Agreement, dated January 4, 1994, between
Jeanne Hood, the Company and Four Queens, Inc. [10.52](11)
10.53* Employment Agreement, dated December 5, 1994, between Rudy
Prieto and the Company. [10.53] (11)
10.54* Employment Agreement, dated July 1994, between John Cook
and the Company. [10.54.](11)
10.55* 1993 Long Term Stock Incentive Plan, as amended and
restated on July 1, 1994. [10.55] (11)
10.56* Restated and Amended Elsinore Corporation Senior Executive
Severance Plan, dated as of March 15, 1993 [10.56] (12)
10.57* Form of Senior Executive Severance Agreement by and
between the Company and certain senior executives. [10.57] (12)
10.58* Amendment No. 2 to Operating Agreement of Nashville Nevada
L.L.C., effective as of September 30, 1994, by and among the
Company, Mojave Gaming, Inc., Mojave Valley Resort Casino Company,
and Nashville Nevada, L.L.C. [10.58] (12)
10.59* Note Purchase Agreement, dated as of March 30, 1995,
between the Company and Magnolia Partners, L.P., a Delaware
limited partnership. [10.59] (12)
10.60* Common Stock Registration rights Agreement, dated as of
March 31, 1995, between the Company and Magnolia Partners, L.P.
[10.60] (12)
10.61* Note Purchase Agreement, dated as of March 30, 1995,
between the Company and Mojave Partners, L.P., a Delaware limited
partnership. [10.61] (12)
10.62* Common Stock Registration Rights Agreement, dated as of
March 31, 1995, between the Company and Mojave Partners, L.P.
[10.62] (12)
10.63* Note Purchase Agreement, dated as of March 30, 1995,
between the Company and G & O Partners, L.P., a Delaware limited
partnership. [10.63] (12)
10.64* Note Purchase Agreement, dated as of March 30, 1995,
between the Company and GroRan LLC1, a Delaware limited liability
company. [10.64] (12)
10.65* Note Purchase Agreement, dated as of March 30, 1995,
between the Company and Paul Orwicz. [10.65] (12)
10.66* Note Purchase Agreement, dated as of March 30, 1995,
between the Company and David Ganek. [10.66] (12)
10.67* Common Stock Registration Rights Agreement, dated as of
March 31, 1995, between the Company and G & O Partners, L.P.,
GroRan LLC1, Paul Orwicz and David Ganek. [10.67] (12)
10.68* Stock Pledge Agreement, dated March 31, 1995, by and among
the Company, Magnolia Partners, L.P., Mojave Partners, L.P., G & O
Partners, L.P., GroRan LLC1, Paul Orwicz and David Ganek. [10.68]
(12)
10.69* Information Statement of Elsinore Corporation dated June
16, 1995, regarding the Consent to Waiver of Compliance and
Amendment of the Indenture governing its 12.5% First Mortgage
Notes due 2000, as amended by the Supplemental Information
Statement dated June 23, 1995. [10.1] (13)
10.70* Supplemental Indenture No. 3 dated as of June 30, 1995, by
and among the Company, the Guarantors named therein, and First
Trust National Association, as Trustee on behalf of the First
Mortgage Noteholders. [10.2] (13)
10.71* Amendment No. 2 dated as of June 23, 1995, to the Note and
Stock Purchase Agreement by and among the Company, each Guarantor
named therein and each Mortgage Noteholder. [10.3] (13)
10.72* Waiver of Compliance and Agreement to Amend Promissory
Notes, each dated as of June 30, 1995, by and among the Company
and each Convertible Noteholder. [10.4] (13)
21.1 List of Subsidiaries
23.1 Consent of KPMG Peat Marwick LLP
27.1 Financial Data Schedules
99.1* Voluntary Petition for Bankruptcy Pursuant to Chapter 11
of the Bankruptcy Code dated October 31, 1995.[99.2](14)
99.2 Olympia Gaming Corporation Voluntary Petition for
Bankruptcy Pursuant to Chapter 11 of the bankruptcy
Code dated October 31, 1995
* Previously filed with the Securities and Exchange Commission
as exhibits to the document shown below under the Exhibit
Number indicated in brackets and incorporated herein by
reference and made a part of hereof:
(1) Annual Report on Form 10-K for the year ended
December 31, 1991
(2) Annual Report on Form 10-K for the year ended
December 31, 1992
(3) Current Report on Form 8-K dated October 19, 1993
(4) Current Report on Form 8-K dated November 12, 1993
(5) Annual Report on Form 10-K for the year ended December
31, 1993
(6) Current Report on Form 8-K dated April 28, 1994
(7) Registration Statement on Form S-4 filed January 6,
1994
(8) Current Report on Form 8-K dated October 24, 1994
(9) Registration Statement on Form S-2 filed October 24,
1994
(10) Amendment No. 2 to Registration Statement on Form S-2
filed December 23, 1994
(11) Registration Statement on Form S-4 filed January 23,
1995
(12) Annual Report on Form 10-K for the year ended December
31, 1994
(13) Current Report on Form 8-K dated July 7, 1995
(14) Current Report on Form 8-K dated November 7, 1995
B. Reports on Form 8-K
During the fourth quarter of 1995, the Company filed
the following Current Report on Form 8-K:
Form 8-K dated November 7, 1995 (regarding initiation
of bankruptcy proceedings.)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 duly authorized.
ELSINORE CORPORATION
(Registrant)
By: /s/ Thomas E. Martin
THOMAS E. MARTIN, President
Dated: March 29, 1996
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities as indicated on March 29, 1996.
/s/ Frank L. Burrell, Jr. /s/ Howard Carlson
Frank L. Burrell, Jr. Howard Carlson
Chairman of the Director
Board of Directors
/s/ Julian H. Levi /s/ Robert A. McKerroll
Julian H. Levi Robert A. McKerroll
Director Director
/s/ Thomas E. Martin /s/ Gary R. Acord
Thomas E. Martin Gary R. Acord
President and Director Treasurer, Chief Financial
(Chief Executive Officer) Officer and Chief Accounting
Officer
Independent Auditors' Report
The Board of Directors and Shareholders
Elsinore Corporation, Debtor-In-Possession
We have audited the consolidated balance sheets of Elsinore
Corporation and subsidiaries, Debtor-In-Possession, as of December
31, 1995 and 1994 and the related consolidated statements of
operations, shareholders' equity (deficit) and cash flows for each
of the years in the three-year period ended December 31, 1995.
These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Elsinore Corporation and subsidiaries,
Debtor-In-Possession, as of December 31, 1995 and 1994, and
the results of their operations and their cash flows for each of
the years in the three- year period ended December 31, 1995,
in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 1 to the consolidated financial
statements, on October 31, 1995 the Company filed a voluntary
petition seeking to reorganize under Chapter 11 of the United
States Bankruptcy Code. This event and circumstances relating to
this event, including the Company's significant losses from
operations, net capital deficiency and working capital deficiency
raise substantial doubt about its ability to continue as a going
concern. Although the Company is currently operating as a
Debtor-In-Possession under the jurisdiction of the Bankruptcy Court,
the continuation of the business as a going concern is contingent
upon, among other things, the ability to formulate a Plan of
Reorganization which will gain approval of the creditors and
shareholders and confirmation by the Bankruptcy Court, achieve
satisfactory levels of future operating results and cash flows and
obtain additional equity. The consolidated financial statements
do not include any adjustments that might result from the outcome
of these uncertainties.
KPMG Peat Marwick LLP
Las Vegas, Nevada
March 29, 1996 F-1
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Consolidated Balance Sheets
December 31, 1995 and December 31, 1994
(Dollars in Thousands)
1995 1994
Assets
Current Assets:
Cash and cash equivalents $ 3,572 $ 3,407
Accounts receivable, less allowance for
doubtful accounts of $201 and $214,
respectively 729 742
Inventories 248 396
Prepaid expenses 1,029 1,659
Total current assets 5,578 6,204
Cash and cash equivalents - restricted - 3,685
Notes and other loans receivable from Native
American Tribes(note 4) - 16,952
Property and equipment, net(note 5) 25,473 28,341
Leasehold acquisition costs, net of accumulated
amortization of $4,691 and $4,485,
respectively 2,148 2,354
Casino development costs(note 4) - 1,250
Investment in Fremont Street Experience,LLC 3,000 3,000
Other assets(note 6) 902 5,529
$ 37,101 $ 67,315
F-2
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Consolidated Balance Sheets (continued)
December 31, 1995 and December 31, 1994
(Dollars in Thousands)
1995 1994
Liabilities and Shareholders' Deficit
Current liabilities:
Accounts payable $ 676 $ -
Accrued interest 100 -
Accrued expenses(note 7) 5,352 -
Current portion of capital lease obligations
(note 12) 54 -
Total current liabilities 6,182 -
Prepetition liabilities not subject to compromise:
Long-term debt, subject to demand for
acceleration, net of unaccreted discount(note 8) 2,902 2,687
Capital lease obligations, net of current
portion(note 12) 1,531 1,349
Total 4,433 4,036
Prepetition liabilities subject to compromise:
Accounts payable 4,070 2,088
Prior period income taxes and related
interest (note 9) 2,985 5,870
Accrued interest 4,419 2,063
Accrued expenses(note 7) 28 4,568
Long-term debt subject to
demand for acceleration(note 8) 58,425 50,354
Total 69,927 64,943
Total liabilities 80,542 68,979
Shareholders' deficit(note 10):
Common stock, $.001 par value per share.
Authorized 100,000,000 shares. Issued
and outstanding 15,891,793 and 13,135,214
shares, respectively 16 13
Additional paid-in capital 65,315 61,346
Accumulated deficit (108,772) (63,023)
Total shareholders' deficit (43,441) ( 1,664)
Commitments and contingencies (notes 4, 11 and 12)
$ 37,101 $ 67,315
See accompanying notes to consolidated financial statements.
F-3
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Consolidated Statements of Operations
Years Ended December 31, 1995, 1994 and 1993
(Dollars in Thousands, Except Per Share Amounts)
1995 1994 1993
Revenues, net:
Casino $ 39,964 $ 46,270 $ 51,950
Hotel 9,564 9,234 9,876
Food and beverage 12,136 12,693 12,495
Interest and other 1,983 2,020 768
Promotional allowances (6,674) (7,511 (8,237)
56,973 62,706 66,852
Costs and Expenses:
Casino 19,705 22,866 24,216
Hotel 7,897 7,645 7,657
Food and beverage 6,010 6,250 5,468
Taxes and licenses(note 14) 6,627 6,955 7,159
Selling, general and administrative 11,385 11,892 11,980
Rents 3,955 3,313 3,153
Provision for losses on loans
receivable from Native American
Tribes (note 4) 23,598 - -
Casino development costs (note 4) 2,323 - -
Depreciation and amortization 3,948 3,990 3,393
Interest (contractural interest for
1995 of $9,212)(note 8) 8,006 9,086 4,069
Interest, prior period income tax
obligation(note 9) 590 885 1,385
94,044 72,882 68,480
Loss before reorganization items (37,071) (10,176) (1,628)
Reorganization items(note 2) (8,678) - -
Loss before income taxes and (45,749) (10,176) (1,628)
extraordinary item
Income taxes(note 9) - - ( 624)
Loss before extraordinary item (45,749) (10,176) (2,252)
Extraordinary item(note 15) - 735 (285)
Net loss $(45,749) $(9,441) $(2,537)
Loss per common share:
Loss before extraordinary item $ (2.95) $ (0.84) $ (0.19)
Extraordinary item - 0.06 (0.02)
$ (2.95) $ (0.78) $ (0.21)
Weighted average number of common
shares outstanding 15,511,983 12,106,778 12,049,430
See accompanying notes to consolidated financial statements.
F-4
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Consolidated Statements of Cash Flows
Years Ended December 31, 1995, 1994 and 1993
(Dollars in Thousands)
1995 1994 1993
Cash flows from operating activities:
Net loss $(45,749) $ (9,441) $ (2,537)
Adjustments to reconcile net loss to
net cash provided by (used in) operating
activities:
Depreciation and amortization 3,948 3,990 3,393
Accretion of discount on long-term debt 1,170 1,171 259
Provision for loss on loans receivable
from Native American Tribes 23,598 - -
Write-off of casino development costs 2,323 - -
Write-off of Fremont Street Experience
operating costs 525 - -
Loss on disposition of property and
equipment - - 100
Extraordinary item on extinguishment
of debt - (735) 285
Reorganization items 8,678 - -
Accrued expenses 5,352 - -
Change in other assets and liabilities,
net 3,111 (227) (982)
Liabilities subject to compromise:
Accounts payable 1,982 (204) (177)
Prior period income taxes
and related interest (3,475) (50) -
Accrued interest and other
expenses (2,119) 2,059 3,324
Total adjustments 45,093 6,004 6,202
Cash provided by (used in)
operating activities (656) (3,437) 3,665
Cash flows from investing activities:
Notes and loans receivable from Native
American Tribes (6,646) (15,908) (1,044)
Casino development costs (1,073) (302) (690)
Investment in Fremont St. Experience LLC (525) (1,122) (1,878)
Capital expenditures (148) (4,364) (2,511)
Cash used in investing
activities (8,392) (21,696) (6,123)
See accompanying notes to Consolidated Financial Statements.
F-5
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Consolidated Statements of Cash Flows (Continued)
Years Ended December 31, 1995, 1994 and 1993
(Dollars in Thousands)
1995 1994 1993
Cash flows from financing activities:
Issuance of long-term debt 1,706 3,000 60,208
Principal repayments of long-term debt (62) (204) (31,773)
Proceeds from issuance of common stock,
net of underwriting discounts and
commissions and other direct costs 3,747 15 45
Debt issuance costs (140) (1,416) (3,071)
Modification of capital lease obligation 277 - -
Cash provided by
financing activities 5,528 1,395 25,409
Decrease in cash and cash equivalents (3,520) (23,738) 22,951
Cash and cash equivalents at beginning of
period 7,092 30,830 7,879
Cash and cash equivalents at end of period
(Including restricted amounts of $3,685 and
$25,716 at December 31, 1994 and 1993,
respectively) $ 3,572 $ 7,092 $ 30,830
Supplemental Disclosures of Cash Flow Information:
The Company paid $3,998,000, $7,750,000 and $2,270,000 for interest in 1995,
1994 and 1993, respectively, and $3,475,000, $50,000 and $20,000 for income
taxes in 1995, 1994 and 1993, respectively.
Supplemental Schedule of Non-Cash Financing and Investing Activities:
The Company acquired equipment in the amount of $613,000 in 1993 through
short-term installment purchase contracts.
The Company reduced equipment and related accumulated depreciation by $0,
$1,909,000, and $195,000 to reflect the write-off of fully depreciated assets
taken out of service during 1995, 1994 and 1993, respectively.
In connection with the Private Placement in 1993 of the Company's 12.5% First
Mortgage Notes due 2000, the Company recorded a discount on the
First Mortgage Notes and increased additional paid-in capital by $7,241,000,
the fair market value of the stock purchase warrants issued with the notes.
In connection with the supplemental issuance in 1994 of 750,000 stock purchase
warrants, the Company recorded a discount on the First Mortgage Notes and
increased additional paid-in capital by $1,125,000, the fair market value of
the stock purchase warrants.
In connection with the Private Placement in 1994 of the Company's 20.0%
Mortgage Notes due 1996, the Company recorded a discount on the Notes and
increased additional paid-in capital by $268,000, the fair value of the
126,050 shares of common stock issued with the notes.
In 1995, the holders of Convertible Notes with a face amount of $281,250
effected conversion of the notes into 256,579 shares of the Company's common
stock.
See accompanying Notes to Consolidated Financial Statements
F-6
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Consolidated Statements of Shareholders' Equity (Deficit)
Years Ended December 31, 1995, 1994 and 1993
(Dollars in Thousands)
Common Common Paid-in Accumulated Treasury
Shares Stock Capital Deficit Stock Total
Balance, December 31, 1992 12,025,017 $ 12 $ 50,930 $ (51,045) $(79) $( 182)
Issuance of treasury stock 45,000 - (22) - 67 45
Proceeds from issuance of
long-term debt allocated
to stock purchase
warrants (note 8) - - 7,241 - - 7,241
Net Loss - - - (2,537) - (2,537)
Balance, December 31, 1993 12,070,017 12 58,149 (53,582) (12) 4,567
Issuance of stock purchase
warrants to First mortgage
noteholders (note 8) - - 1,125 - - 1,125
Issuance of 17,000 shares,
including 7,853 shares held
in treasury, upon exercise
of stock options 9,147 - 3 - 12 15
Issuance of shares as partial
consideration for debt
(note 8) 126,050 - 268 - - 268
Issuance of shares in
exchange for First mortgage
notes (notes 8 and 15) 930,000 1 1,801 - - 1,802
Net loss - - - (9,441) - (9,441)
Balance, December 31, 1994 13,135,214 13 61,346 (63,023) - (1,664)
Issuance of shares(note 10) 2,500,000 3 3,744 - - 3,747
Issuance of shares upon
partial conversion of
7.5% convertible notes
(note 8) 256,579 - 225 - - 225
Net loss - - - (45,749) - (45,749)
Balance, December 31, 1995 15,891,793 $ 16 $ 65,315 $(108,772) $ - $(43,441)
See accompanying notes to consolidated financial statements.
F-7
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994 and 1993
1. Reorganization Under Chapter 11, Liquidity and Financial
Condition
On October 31, 1995, Elsinore Corporation and certain subsidiaries
filed voluntary petitions (the "Chapter 11 filing") in the United
States Bankruptcy Court for the District of Nevada (the
"Bankruptcy Court") seeking to reorganize under Chapter 11 of the
United States Bankruptcy Code (the "Bankruptcy Code"). On
November 10, 1995, Olympia Gaming Corporation, a wholly-owned
subsidiary, filed a voluntary Chapter 11 petition in the same
court. The Company is operating as a debtor-in-possession under
the supervision of the Bankruptcy Court. As a debtor-in-possession,
the Company is authorized to operate its business but
may not engage in transactions outside its ordinary course of
business without the approval of the Bankruptcy Court.
Subject to certain exceptions under the Bankruptcy Code, the
Company's filing for reorganization automatically enjoined the
continuation of any judicial or administrative proceedings against
the Company. Any creditor actions to obtain possession of
property from the Company or to create, perfect or enforce any
lien against the property of the Company are also enjoined. As a
result, the creditors of the Company are precluded from collecting
pre-petition debts without the approval of the Bankruptcy Court.
On February 28, 1996, the last day of the 120 day period within
which the Company had the exclusive right to do so, the Company
filed a plan of reorganization (the "Plan") and accompanying
disclosure statements (see below). The Company has 60 days to
obtain necessary acceptances of the Plan. Such period may be
extended at the discretion of the Bankruptcy Court, but only on a
showing of good cause. Subject to certain exceptions set forth in
the Bankruptcy Code, acceptance of the Plan requires approval of
the Bankruptcy Court and affirmative vote (i.e. 50% of the number
and 66-2/3% of the dollar amount) of each class of creditors and
equity holders whose claims are impaired by the Plan.
Alternatively, absent the requisite approvals, the Company may
seek Bankruptcy Court approval of the Plan under "cramdown"
provisions of the Bankruptcy Code, assuming certain tests are met.
If the Company fails to achieve acceptance of the Plan within the
exclusivity period prescribed or any extensions thereof, any
creditor or equity holder will be free to file a plan of
reorganization with the Court and solicit acceptances thereof.
There can be no assurance that the plan of reorganization
submitted by the Company will be confirmed.
F-8
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994 and 1993
There also can be no assurance that, with or without a plan of
reorganization, the Company can generate sufficient cash to
sustain operations. If at any time the Creditors' or Equity
Committees or any creditor or equity holder of the Company
believes that the Company is or will not be in a position to
sustain operations, such party can move the Bankruptcy Court to
compel liquidation of the Company's estate by conversion to
Chapter 7 bankruptcy proceedings or otherwise. In the event that
liquidation is forced upon the Company, it is likely that the
Company's unsecured creditors and equity holders will receive
nothing from the net proceeds generated by liquidation.
Proposed Corporate Reorganization
The Plan provides for the continuation of the Company as a going
concern. Specifically, the old common stock interests in Elsinore
Corporation would be canceled pursuant to the Plan and Elsinore, as
reorganized, would issue new common stock (the "New Common
Stock"). On the effective date of the Plan, 80% of the New Common
Stock would be distributed to the following creditors and equity
holders:
Interest Percentage
12.5% First mortgage noteholders 87.5%
7.5% Convertible subordinated noteholders 2.5
Old common stockholders 10.0
100.0%
The remaining 20% of the New Common Stock would be issued through
a rights offering to raise $5,000,000 to assist in funding the
Plan. Initially, the entire amount of the rights offering would
be made available for subscription to the 12.5% First Mortgage
noteholders, 7.5% Convertible Subordinated noteholders and old
common stockholders in the percentages enumerated above as part of
the balloting process for the plan.
The effective date would occur after all regulatory approvals
required by the State of Nevada, including approvals by the gaming
authorities, have been obtained and Elsinore has sufficient cash
to fund all distributions.
Proposed Treatment of Creditors and Equity Interests
The Plan is expected to be funded principally from cash generated
from operations and the $5,000,000 proceeds from the rights
offering. Specifically, the proposed treatment of each of the
creditor and equity interests is as follows:
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994 and 1993
The 20% Mortgage noteholders will have an allowed secured claim
equal to the $3,000,000 principal amount of the notes plus accrued
interest thereon at 20% through the date on which the confirmation
order is entered by the Bankruptcy Court. On the effective date
of the plan, each noteholder will receive its prorata share of
restated mortgage notes (the "Restated Mortgage Notes"), due four
years from the confirmation date, in exchange for its allowed
claim. Interest on the Restated Mortgage Notes will accrue at an
annual rate of 10% or other appropriate interest rate approved by
the Bankruptcy Court and will be payable quarterly.
The 12.5% First Mortgage noteholders will have an allowed claim
equal to the $57,000,000 principal amount of the notes plus
accrued interest thereon through the date of petition. On the
effective date of the Plan, each noteholder will receive its
prorata share of $30,000,000 face amount of restated first
mortgage notes (the "Restated First Mortgage Notes"), due five
years from the confirmation date, and New Common Stock (see above)
in exchange for its allowed claim. Interest on the Restated First
Mortgage Notes will accrue at an annual rate of 13.5% and will be
payable semi-annually.
The 7.5% convertible subordinated noteholders will have an allowed
claim equal to the $1,425,000 principal amount of the notes plus
accrued interest thereon through the date of petition. On the
effective date of the Plan, each noteholder will receive its
prorata share of New Common Stock (see above) in exchange for its
allowed claim.
The unsecured creditors, other than the 7.5% convertible
subordinated noteholders, will receive payments which, in the
aggregate, amount to $1,500,000 and will be paid over a two-year
period.
The claim of the Internal Revenue Service of approximately
$2,985,000 (as and when it is an allowed claim) will be paid in
accordance with the Bankruptcy Code or in such manner as is
otherwise agreed to by the Internal Revenue Service.
Other Reorganization Matters
Certain pre-petition liabilities have been paid after obtaining
the approval of the Bankruptcy Court, including certain wages and
employee benefits, gaming related liabilities and hotel room and
other customer deposits. Subsequent to filing and with the
approval of the Bankruptcy Court, the Company assumed executory
contracts for all real estate and equipment leases.
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994 and 1993
Parties to executory contracts may, under certain circumstances,
file motions with the bankruptcy Court to require the Company to
assume or reject such contracts. Unless otherwise agreed, the
assumption of a contract will require the Company to cure all
prior defaults under the related contract, including all pre-petition
liabilities. Unless otherwise agreed, the rejection of a contract
is deemed to constitute a breach of the agreement as of the moment
immediately preceding Chapter 11 filing, giving the other party to
the contract a right to assert a general unsecured claim for
damages arising out of the breach. The Company is actively
engaged in the process of reviewing its executory contracts and,
except for the assumption of executory contracts for real estate
and equipment leases, final decisions with respect to assuming or
rejecting the contracts and the approval of the Bankruptcy Court
are still pending.
May 10, 1996 was set as the last date for the filing of proof of
claims under the Bankruptcy Code and the Company's creditors
have/will be submitting claims for liabilities not paid and for
damages incurred. There may be differences between the amounts at
which any such liabilities are recorded in the financial
statements and the amount claimed by the Company's creditors.
Significant litigation may be required to resolve any such
disputes.
The Company will incur significant costs associated with the
reorganization. The amount of these expenses, which are being
expensed as incurred, is expected to significantly affect future
operating results.
As a result of its filing for protection under Chapter 11 of the
Bankruptcy Code, the Company is in default of substantially all of
its debt agreements. All outstanding unsecured and undersecured
debt of the Company has been presented in these financial
statements within the caption "Pre-petition liabilities subject to
compromise: Long-term debt subject to demand for acceleration."
Additional liabilities subject to the proceedings may arise in the
future as a result of the rejection of executory contracts and
from the determination by the Bankruptcy Court (or agreement by
parties in interest) of allowed claims for contingencies and other
disputed amounts. Conversely, the assumption of executory
contracts may convert pre-petition liabilities shown as subject to
compromise to not subject to compromise.
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994 and 1993
2. Reorganization Items
Reorganization expense is comprised of items incurred by the
Company as a result of reorganization under Chapter 11 of the
Bankruptcy Code. Such items for 1995 consisted of the
following (in thousands):
Professional fees $ 293
Write-off of debt issuance costs 2,695
Write-off of original issue discount on debt 5,690
$8,678
3. Summary of Significant Accounting Policies
(a) Financial Reporting for Bankruptcy Proceedings
The accompanying financial statements have been prepared on a
going concern basis which assumes continuity of operations and
realization of assets and liquidation of liabilities in the
ordinary course of business. As a result of the reorganization
proceedings, there are significant uncertainties relating to the
ability of the Company to continue as a going concern. The
financial statements do not include any adjustments that might be
necessary as a result of the outcome of the uncertainties
discussed herein including the effect of any plan of
reorganization.
The American Institute of Certified Public Accountant's Statement
of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" ("SOP 90-7") provides
guidance for financial reporting by entities that have filed
petitions with the Bankruptcy Court and expect to reorganize under
Chapter 11 of the Bankruptcy Code.
Under SOP 90-7, the financial statements of an entity in a Chapter
11 reorganization proceeding should distinguish transactions and
events that are directly associated with the reorganization from
those of the operations of the ongoing business as it evolves.
Accordingly, SOP 90-7 requires the following financial
reporting/accounting treatments in respect to each of the
financial statements.
Balance Sheet
The balance sheet separately classifies pre-petition and post-petition
liabilities. A further distinction is made between pre-petition
liabilities subject to compromise (generally unsecured and
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994 and 1993
undersecured claims) and those not subject to compromise (fully
secured claims). Pre-petition liabilities are reported on the
basis of the expected amount of such allowed claims, as opposed to
the amounts for which those allowed claims may be settled. Under
an approved final plan of reorganization, those claims may be
settled at amounts substantially less than their allowed amounts.
When debt subject to compromise has become an allowed claim and
that claim differs from the net carrying amount of the debt
(defined as
the face amount of the debt less unamortized debt issuance costs
and unaccreted discount), the net carrying amount is adjusted to
the amount of the allowed claim. The resulting gain or loss is
classified as a reorganization item.
Statement of Operations
Pursuant to SOP 90-7, revenues and expenses, realized gains and
losses, and provisions for losses resulting from the
reorganization and restructuring of the business are reported in
the statement of operations separately as reorganization items.
Professional fees are expensed as incurred. Interest expense is
reported only to the extent that it will be paid during the
proceeding or that it is probable that it will be an allowed
claim.
Statement of Cash Flows
Reorganization items are reported separately within the operating,
investing and financing categories of the statement of cash flows.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of
Elsinore Corporation and its wholly and majority-owned
subsidiaries. All material intercompany balances and transactions
have been eliminated in consolidation.
(c) Accounting for Casino Revenue and Promotional Allowances
In accordance with industry practice, the Company recognizes as
casino revenue the net win from gaming activities, which is the
difference between gaming wins and losses. The retail value of
complimentary food, beverages and hotel services furnished to
customers is included in the respective revenue classifications
and then deducted as promotional allowances. The estimated costs
of providing such promotional allowances are included in casino
costs and expenses and consist of the following:
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994 and 1993
Years Ended December 31,
1995 1994 1993
(Dollars in Thousands)
Hotel $1,608 $2,179 $2,439
Food & beverage 4,869 5,022 4,898
Total $6,477 $7,201 $7,337
(d) Cash Equivalents
Cash equivalents include highly liquid investments purchased with
an original maturity date of 90 days or less.
(e) Inventories
Inventories are stated at the lower of cost (first-in, first-out)
or market.
(f) Property and Equipment
Property and equipment are stated at cost. Depreciation is
provided over the estimated useful lives of the assets using the
straight-line method. Useful lives range from 8 to 40 years.
Equipment held under capital lease are recorded at the net present
value of minimum lease payments at the inception of the lease and
are amortized over the shorter of the terms of the leases or
estimated useful lives of the related assets.
(g) Leasehold Acquisition Costs
The costs of acquiring leasehold interests are deferred and
amortized using the straight-line method over the shorter of the
term of the lease or the useful life of the property.
(h) Amortization of Original Issue Discount and Debt Issuance
Costs
Original issue discount is accreted over the life of the related
indebtedness using the effective interest method.
Costs associated with the issuance of the debt are deferred and
amortized over the life of the related indebtedness using the
straight-line method.
See discussion in notes 2 and 8 regarding the write-off of
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994 and 1993
unamortized amounts as of December 31, 1995 in connection with the
reorganization proceedings.
(i) Casino Development Costs
Casino development costs consist of costs incurred by the Company
in connection with the development of the Palm Springs and
Washington Casinos (See Note 4) and legal and other costs incurred
to enter into management contracts with the respective Native
American Tribes and to obtain necessary federal and state regulatory
approvals. Pursuant to the respective management contracts, costs
incurred by the Tribes (as defined in the contracts) to construct
and develop the casinos are loaned to the Tribal enterprises
in the form of promissory notes. Other casino development costs
are deferred and amortized over the five-year terms of the related
management contracts. See note 4 for discussion of the write-off
of previously deferred amounts during 1995.
(j) Investment in Fremont Street Experience
The Company and seven other downtown Las Vegas property owners,
who together operate ten casinos, have formed the Fremont Street
Experience LLC (FSELLC), a limited liability company of which the
Company is a one-sixth owner, to develop the Fremont Street
Experience attraction. The Fremont Street Experience has transformed
four blocks of Fremont Street into a covered pedestrian mall featuring
a 10-story celestial vault, sound effects and a high tech light
show which add to the neon signs and marquees for which the
downtown area is already famous. The Company's $3,000,000 capital
contribution for its one-sixth ownership of FSELLC was paid in
full by January 1994. The project was completed at the end of
November 1995 and the grand opening ceremonies held on December
13, 1995. During 1995, the Company paid approximately $525,000 to
FSELLC, representing its allocated share of the 1995 operating
costs of the Fremont Street Experience. These costs were
capitalized and expensed upon the opening of the project. As
FSELLC is expected to operate at a loss for the foreseeable
future, the $3,000,000 capital contribution will be amortized over
five years using the straight-line method. The Company's
allocated share of the operating costs of the Fremont Street
Experience are expensed as incurred.
(k) Income Taxes
Income taxes have been provided for using the asset and liability
method in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." Under the
asset and liability method, deferred tax assets and liabilities
are
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994 and 1993
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under
Statement 109, the effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period
that includes the enactment date.
(l) Loss Per Share
Loss per share has been computed by dividing net loss by the
weighted average common shares outstanding during the year.
(m) Stock Based Compensation
The Company grants stock options for a fixed number of shares to
employees with an exercise price equal to the fair value of the
shares at the date of grant. The Company accounts for stock
option grants in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees", and,
accordingly, recognizes no compensation expense for the stock
option grants.
(n) Impact of Recently Issued Accounting Standards
In March, 1995, the Financial Accounting Standards Board
issued Statement Of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of", which requires
impairment losses to be recorded on long-lived assets
used in operations when indicators of impairment are present and
the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. Statement 121
also addresses the accounting for long-lived assets that are
expected to be disposed of. The Company will adopt Statement 121
in the first quarter of 1996 and, based on current circumstances,
does not believe the effect of adoption will be material.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation ("SFAS No. 123"). Statement 123
is effective for transactions entered into in fiscal years
beginning after December 15, 1995. The Company will not
be adopting the recognition and measurement criteria of Statement 123
and thus, the impact of Statement 123 on the Company's financial
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994 and 1993
statements will not be material.
(O) Reclassification
Certain items in the 1994 and 1993 consolidated financial statements
have been reclassified for comparability with the 1995 presentation.
(p) Use of Estimates
Management of the Company has made estimates and assumptions
relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those
estimates.
(q) Fair Value of Financial Instruments
The carrying amount of cash equivalents and receivables
approximates fair value because of the short term maturity of
these instruments. It is not practical to estimate the fair
market value of prepetition liabilities subject to compromise due
to the bankruptcy and the fact that there has been no active
trading of long-term debt subject to compromise. The carrying
amount of the long-term debt which is not subject to compromise
approximates fair value because it is deemed to be fully secured.
4. Native American Casino Operations
Spotlight 29 Casino
Since March 1995, Elsinore Corporation, its wholly owned
subsidiary, Elsub Management Corporation and Palm Springs East
Limited Partnership, of which Elsub is the general partner
(collectively the "Company"), and the Twenty-Nine Palms Band of
Mission Indians (the "Band") have been involved in a dispute
regarding, among other things, the terms of a management contract
(the "contract") under which the Company had the exclusive right
to manage and operate the Spotlight 29 Casino (the "Spotlight
29"), owned by the Band, located near Palm Springs, California.
On April 17, 1995, the Company was ousted as manager of Spotlight
29 and on April 19, 1995, the Company issued a demand letter to
the Band declaring a breach of the Contract and a related loan
agreement under which the Company had lent approximately
$12,500,000 to the Band for construction of Spotlight 29 and for
working capital Contributions. The demand letter claimed damages
in the full amount of the funds which had been advanced to the
Band.
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994 and 1993
In light of the Company's disassociation with the operations of
Spotlight 29, management determined to write off, during the
quarter ended March 31, 1995, the unamortized balance of casino
development costs incurred for the project of $1,037,000 and
ceased the accrual of interest on the project note and loans
evidencing working capital advances.
On May 16, 1995, in response to the Company's demand, the Band
delivered to the Company a "Notice to Terminate Management
Agreement." The notice asserted material breaches of the Contract
and requested payment of approximately $1,500,000 million by June
16, 1995 to cover working capital shortfalls or the Contract would
be terminated.
On October 31, 1995, the Company filed a voluntary petition for
reorganization under Chapter 11 of the Bankruptcy Code with the
United States Bankruptcy Court for the District of Nevada (Las
Vegas, Nevada).
The Company has been involved in protracted negotiations with the
Band for a settlement of the respective claims asserted by the
parties since the events described above. Based upon the progress
of the aforementioned negotiations at the time, in September 1995
the Company wrote-down to $9,000,000 the aggregate amount advanced
to the Band and accrued interest thereon.
As of March 29, 1996, the Company believes that a settlement with
the Band is imminent. Under the proposed settlement agreement,
the Company would receive a promissory note from the Band in the
principal amount of $9,000,000. While the note would have a 36-month
amortization schedule, monthly payments would be limited to
20% of Spotlight 29's monthly net income. In the event that net
income is insufficient to fully pay the note at the end of 36
months, the note would be automatically extended for up to an
additional two years. If still not fully paid at the end of the
extension period, it may be extended up to an additional two years
upon the approval of the National Indian Gaming Commission (the
"NIGC"). If not paid at the end of the final extension period,
the note will be forgiven. Interest on the note is at an annual
rate equal to the greater of 10% or the maximum rate allowed under
California law, not to exceed 12%. Given that the $9 million
recovery is limited to 20% of the net income generated by
Spotlight 29, the fact that there can be no assurance that a
settlement agreement will ultimately be reached with the Band, nor
that the
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994 and 1993
Bankruptcy Court and NIGC will approve such settlement, Management
determined to provide an allowance for loss in the amount of
$9,000,000 against the aggregate receivable during the quarter
ended December 31, 1995.
7 Cedars Casino
Elsinore Corporation, through its wholly-owned subsidiary, Olympia
Gaming Corporation (collectively the "Company"), has a Gaming
Project Development and Management Agreement (the "Contract") to
operate the 7 Cedars Casino (the "7 Cedars") which is located on
the Olympic Peninsula in the state of Washington and is owned by
the Jamestown S'Klallam Tribe (the "Tribe"). In addition,
pursuant to a loan agreement, the Company lent $9,000,000 to the
Tribe for the construction of 7 Cedars.
Under the terms of the Contract, the Company is obligated to
establish a reserve fund for "working capital", which is not
defined in the Contract, in the amount of $500,000 for the
operation of 7 Cedars. The Company believes that in negotiating
the contract the parties did not intend to apply a "working
capital" definition based upon generally accepted accounting
principles which, in the Company's view, would be impracticable in
the context of the Contract and which, in practice, has never been
followed. Since its opening on February 3, 1995, the Casino has
incurred a substantial cumulative net loss and an attendant
decrease in working capital.
On November 1, 1995, the Tribe asserted that the Company had
defaulted on the June, July, August and September 1995 minimum
guaranteed payments to the Tribe, as defined by the Contract, in
the aggregate amount of $100,000 and requested immediate payment.
In addition, the Tribe demanded that sufficient monies be paid to
enable all current gaming project expenses to be paid and working
capital reserve to be maintained at the required funding level.
The Tribe demanded that a minimum of $2,540,000 be paid
immediately and also contended that the working capital shortfall
could be as high as approximately $5,390,000 according to their
interpretation of the Contract. On November 13, 1995, the Company
received a letter from the Tribe dated November 9, 1995 asserting
that the Contract had been terminated as a result of the Company's
failure to make the payments which has been demanded.
On November 10, Olympia Gaming filed a voluntary petition for
reorganization under Chapter 11 of the Bankruptcy Code with the
United States Bankruptcy Court for the District of Nevada (Las
Vegas, Nevada).
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994 and 1993
Pursuant to the terms of the Contract, the Company receives a
management fee equal to 30% of the net distributable profits of 7
Cedars (subject to the Tribe receiving a $25,000 per month
guaranteed payment) and the Tribe 70%. The Contract has an
initial
term of five years (expires February 2, 2000), subject to renewal
for an additional two years in the event that the project loan is
not paid in full by the end of the initial term. The project loan
to finance the development and construction of 7 Cedars is payable
solely from the Tribe's share of the net distributable profits of
7 Cedars, and will amortize over the five-year term of the
contract at an annual interest rate of 10.9%.
As a result of significantly lower than projected gaming revenues,
7 Cedars has incurred substantial operating losses since its
opening. Management believes the following are the principal
factors contributing to the lower gaming revenues.
A significantly lower than anticipated propensity for the
3,000,000 plus tourists visiting the Olympic Peninsula in
the summer to gamble. This includes both the numbers of
tourist customers and their level of play in the casino.
A significantly higher than anticipated impact of
competition for the locals market. Native American casino
openings in May 1995 (Muckleshoot near Auburn, Washington)
and January 1996 (Suquamish, north of Bremerton, Washington)
have resulted in substantially reduced visitation from
Kitsap County residents. While Kitsap County, approximately
50 miles to the east of 7 Cedars, was originally identified
as a secondary market, its larger, younger, population
proved to be a significant market
in the first several months following the opening of 7
Cedars.
A substantially lower than expected average table games
wager.
In response to declining revenues following the first several
months of operations, management undertook certain cost-cutting
measures in the late spring and summer 1995 and increased
marketing activities in an effort to achieve profitability. In
November 1995 and January 1996, more substantial expense
reductions were effected through reductions in the hours of
operation of 7 Cedars and deeper, "across the board" cost cutting.
While management believes the operation will show a modest profit
in March 1996 and gaming revenues will continue to improve through
the spring and summer months, in light of the existing competition
in the Puget Sound area, the demographics of 7 Cedars primary
locals' markets and the apparent low propensity for destination
tourists to the Olympic Peninsula to
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994 and 1993
gamble, there exists substantial uncertainty as to whether, during
the remaining term of the management and loan agreements, 7 Cedars
can achieve the level of profitability required to obtain full
recovery of the loan principal and accrued interest thereon. The
outlook for 7 Cedars could change dramatically, however, if an
initiative was passed in the State of Washington to allow
electronic gaming machines at Native American casinos. A number
of Tribes have recently formed an apparently well-funded coalition
for the purpose of a petition drive to place an initiative on the
fall 1996 ballot to allow limited numbers of electronic gaming
machines at Native American casinos. While the Tribes and others
are optimistic about the passage of such an initiative, if and
when gaming machines will ultimately be allowed is uncertain at
this time.
Based upon the foregoing, management determined during the quarter
ended December 31, 1995 to provide an allowance for loss against
the $9,000,000 outstanding balance of the project loan plus
accrued interest thereon.
Previously, as of September 1, 1995, as the summer 1995 Olympic
Peninsula tourist season came to a close, the Company ceased
accruing interest on the project loan and wrote-off the remaining
unamortized balance of capitalized casino development costs of
approximately $242,000.
Mojave Valley Resort Project
As a condition to its participation in the Mojave Valley Resort
Project, a joint venture between Mojave Gaming, Inc. ("Mojave
Gaming"), a wholly owned subsidiary of Elsinore Corporation and
Mojave Valley Resort Casino Company, an affiliate of Temple
Development Company, to develop a master planned casino resort on
land leased from the Fort Mojave Indian Tribe, Mojave Gaming was
required to make a capital contribution to the venture by
September 30, 1995. The contribution was not made and therefore,
the contract terminated. Based upon the foregoing, in September
1995 management wrote-off as casino development costs
approximately $807,000, representing all capitalized costs
incurred for the project.
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994 and 1993
5. Property and Equipment, Net
Property and equipment, net, consists of the following:
December 31,
1995 1994
(Dollars in Thousands)
Land $ 1,275 $ 1,275
Buildings 39,207 39,041
Equipment 23,564 24,121
Construction in progress - 161
64,046 64,598
Less accumulated depreciation
and amortization 38,573 36,257
$25,473 $28,341
6. Other Assets
Other assets consist of the following:
December 31,
1995 1994
(Dollars in Thousands)
Debt issuance costs, net $ 79 $3,365
Deposits and other 823 2,164
$ 902 $5,529
7. Accrued Expenses:
Accrued expenses consist of the following:
Postpetition - not subject to compromise: December 31,
1995 1994
(Dollars in Thousands)
Salaries and wages $1,559 $ -
Payroll taxes and employee benefits 617 -
Gaming taxes 625 -
Slot club liability 396 -
Other 2,155 -
$5,352 $ -
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994 and 1993
Prepetition - subject to compromise:
December 31,
1995 1994
(Dollars in Thousands)
Salaries and wages $ - $ 1,448
Payroll taxes and employee benefits - 690
Other 28 2,430
$ 28 $4,568
8. Long-Term Debt:
Long-term debt subject to demand for acceleration consists of the
following:
December 31,
1995 1994
(Dollars in Thousands)
12.5% First mortgage notes payable,
net of unaccreted discount of $6,646 at
December 31, 1994 $57,000 $50,354
20% Mortgage notes payable,
net of unaccreted discount of $98 and $313,
at December 31, 1995 and 1994,
respectively 2,902 2,687
7.5% Convertible subordinated notes
payable 1,425 -
Total long-term debt 61,327 53,041
Less: long-term debt subject to demand for
acceleration-not subject to compromise 2,902 2,687
Long-term debt subject to demand for
acceleration-subject to compromise $ 58,425 $ 50,354
First Mortgage Notes
On October 8, 1993, the Company completed a private placement of
$60,000,000 aggregate principal amount of the Company's 12.5%
First Mortgage Notes due 2000 (the "First Mortgage Notes") and
warrants (the "Warrants") to purchase 3,100,340 shares of the
Company's common stock at an exercise price of $5.50 per share,
subject to certain anti-dilution provisions. The net proceeds of
the offering were approximately $57.4 million. In December 1994,
$3,000,000 aggregate principal amount of the First Mortgage Notes
were redeemed and retired, in consideration for which the Company
issued to the noteholder 930,000 shares of common stock.
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994 and 1993
The First Mortgage Notes bear interest at an annual rate of 12.5%,
payable semiannually, commencing April 1, 1994, and mature on
October 8, 2000. The First Mortgage Notes are unconditionally
guaranteed (the "FMN Guaranties") as to principal, premium, if
any, and interest by all existing material subsidiaries (other
than Mojave Gaming) and all future subsidiaries of the Company,
unless designated to be unrestricted subsidiaries (the "FMN
Guarantors"). The First Mortgage Notes and the FMN Guaranties
will, subject to certain exceptions (including the Mortgage Notes,
as described below), rank pari passu with all existing and future
senior indebtedness of the Company and the FMN Guarantors,
respectively. The First mortgage Notes and the FMN Guaranties
were issued pursuant to the terms of an Indenture (the
"Indenture"), dated as of October 8, 1993 among the Company, the
FMN Guarantors and the Trustee.
The Indenture contains certain covenants relating to maintenance
of the Native American casino management contracts, maintenance of
net worth, and maintenance of the specified fixed charge coverage
ratio as well as restrictions on, among other things, the
incurrence of additional debt, liens and the payment of dividends.
Certain of these covenants (including the net worth and fixed
charge coverage ratio maintenance covenants) became effective
beginning the quarter after completion of the Company's Native
American casino projects (i.e., the second quarter of 1995).
On April 20, 1994, the Company reached an agreement with the
holders of the First Mortgage Notes to amend the Indenture in
order to extend the deadlines by which the Company was required to
obtain all federal statutory approvals and to complete
construction and open each of the Native American casinos. All
requisite regulatory approvals were received from the NIGC and
both the Palm Springs Casino and the Washington Casino were
completed and opened by the extended deadlines.
As consideration for obtaining the consent of First Mortgage
Noteholders to the Indenture amendments, the Company issued to
First Mortgage Noteholders warrants (the "Consent Warrants") to
purchase an aggregate of 750,000 shares of Common Stock, at an
exercise price of $3.25 per share (the "Exercise Price"). The
Consent Warrants expire on October 8, 1998. The Company is
entitled to redeem the Consent Warrants, unless earlier exercised,
at a price equal to their exercise price per share at any time
from and after the 15th business day following the mailing of a
notice by the Company to the holders of the Consent Warrants that,
from and after April 7, 1996, the closing trading price of the
Common Stock has equaled or exceeded 200% of the Exercise Price
for any 20 trading days within a period of any 30 consecutive
trading days.
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994 and 1993
The First Mortgage Notes are secured by (i) a pledge of stock of
all of the FMN Guarantors and all future subsidiaries of the
Company, in each case subject to obtaining certain required
regulatory approvals, and all intercompany notes, (ii) a first
priority security interest in, subject to certain limitations,
substantially all of the assets of Four Queens, Inc., other than
equipment and other assets financed by third party lenders, (iii)
a collateral assignment of all of the Company's rights and
interests under the management contracts with respect to the Palm
Springs Casino and the Washington Casino, (iv) an exclusive
security interest in the segregated account in which the proceeds
of the Offering will be held pending disbursement pursuant to the
terms of the Escrow and Disbursement Agreement, (v) an exclusive
security interest in the segregated account in which the proceeds
of certain asset sales will be held pending disbursement pursuant
to the terms of the Escrow and Disbursement Agreement, and (vi) an
exclusive security interest in a portion of the segregated account
to fund certain lease payments on behalf of Four Queens, Inc.
pursuant to the terms of the Escrow and Disbursement Agreement.
The First Mortgage Notes are redeemable at the option of the
Company, in whole or in part, at any time on or after October 1,
1996, at a premium to the principal amount thereof, declining
ratably from 106.25% to par on or after October 1, 1999. Pursuant
to the Indenture, the First Mortgage Notes are also redeemable at
par, at any time, upon the occurrence of certain gaming regulatory
events.
Beginning in the years ending after December 31, 1993, the Company
will (subject to certain gaming regulatory requirements) be
required to offer to repurchase the portion of the principal
amount of the First Mortgage Notes then outstanding equal to 50%
of the Company's prior fiscal year Excess Available Cash Flow (as
defined in the Indenture), at 101% of the principal amount
thereof, plus accrued interest.
The Indenture includes other covenants of the Company and the
Guarantors including, among other things, insurance, maintenance
of net worth, maintenance of fixed charge coverage ratio and
limitations on: occurrence of additional indebtedness, liens,
change of control, dividends and other restricted payments and
investments, transactions with affiliates, consolidations, mergers
and sales of assets, restrictions on subsidiary dividends, lines
of business and use of proceeds.
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994 and 1993
On October 1, 1995, the Company failed to make the scheduled
semi-annual interest payment on the First Mortgage Notes in the amount
of $3,562,500. As this condition of default was not cured within
the following 30-day period, the First Mortgage Notes and accrued
interest thereon became due and payable on October 31, 1995.
Mortgage Notes
On October 14, 1994, the Company completed a private placement of
$3,000,000 aggregate principal amount of its 20% Mortgage Notes
due 1996 (the "Mortgage Notes"). In connection with issuing the
Mortgage Notes, the Company paid certain customary fees and
expenses of the purchasers, and issued to the purchasers an
aggregate of 126,050 shares of Common Stock.
The Mortgage Notes bear interest at 20% per annum, payable
quarterly commencing December 31, 1994. The Mortgage Notes were
originally scheduled to mature on March 31, 1996 with interim
mandatory redemptions of $750,000 due on each of June 30,
September 30, and December 31, 1995. Effective June 30, 1995, the
aforementioned payment terms were amended (see below).
The Mortgage Notes were issued pursuant to the terms of a Note and
Stock Purchase Agreement (the "Purchase Agreement"), dated as of
October 11, 1994, among the Company, the Guarantors named therein
and the Purchasers named therein. The holders of the Mortgage
Notes were granted certain rights under the Purchase Agreement,
substantially similar to those of the First Mortgage Noteholders
under the Indenture, which would require the Company to repurchase
the Mortgage Notes at 101% of their principal amount upon
occurrence of certain events.
Like the First Mortgage Notes, the Mortgage Notes are
unconditionally guaranteed (the "Subsidiary Guarantees") as to
principal, premium, if any, and interest by all existing material
subsidiaries (other than Mojave Gaming) and all future
subsidiaries of the Company unless designated to be unrestricted
subsidiaries (the "Guarantors").
In order to induce the Purchasers to purchase the Mortgage Notes
and to secure the Company's and Guarantors' payment and other
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994 and 1993
obligations under the Mortgage Notes and the Purchase Agreement,
the Company (or a Guarantor, as applicable, granted to the
Purchasers (i)a first priority security interest in certain
existing and future property of the Company, including the shares
of common stock held by the Company in its subsidiaries, the real
property of Four Queens and substantially all other property
previously pledged (or required to be pledged) as collateral under
the Indenture (collectively, the
"Purchasers' Security Interest"), (ii) a first priority lien on
the proceeds in the accounts established under the First Mortgage
Notes disbursement and escrow agreement (the "Purchasers' Lien"),
and (iii) an assignment of the income and proceeds from the casino
management contracts and other operating agreements relating to
the Spotlight 29 Casino and the 7 Cedars Casino projects (the
"Purchasers' Assignment"), in addition to certain other rights and
remedies under the Purchase Agreement. The Purchasers' Security
Interest, Purchasers' Lien and Purchasers' Assignment are senior
to the liens under the mortgage that secures the First Mortgage
Notes.
The execution, delivery, and performance by the Company and the
Guarantors of the Purchase Agreement, including without limitation
the sale of the Mortgage Notes, conveyance of the Purchasers'
Security Interest, Purchasers' Lien, and Purchasers' Assignment,
and issuance of the Subsidiary Guarantees (collectively, the
"Mortgage Note Transactions") required a waiver in accordance with
the provisions of the Indenture, which waiver was obtained in a
timely manner.
On September 30, 1995, the Company failed to make the scheduled
quarterly interest payment on the Mortgage Notes in the amount of
$150,000. As this condition of default was not cured within the
following 30-day period, the Mortgage Notes and accrued interest
thereon became due and payable on October 30, 1995.
June 1995 Amendments to First Mortgage Notes and Mortgage Notes
On June 30, 1995, the Company obtained from its noteholders,
waivers of certain noncompliance with the Company's covenants
under the Indenture and Purchase Agreement governing its First
Mortgage Notes and Mortgage Notes, respectively. The debt
covenant noncompliance would have arisen from the Company's
inability to achieve by June 30, 1995, and thereafter maintain a
positive Consolidated Net Worth and a Consolidated Fixed Charge
Coverage Ratio of 1.5 to 1, and from the Company's dispute
regarding management of the Spotlight 29 Casino near Palm Springs,
California.
Effective June 30, 1995, the Company amended certain terms and
provisions of the Indenture and Purchase Agreement governing the
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994 and 1993
First Mortgage Notes and Mortgage Notes, respectively. The
amendments (i) eliminated through the fiscal year 1997 the
requirement that the Company maintain a positive consolidated net
worth and consolidated fixed charge coverage ratio and reduced the
size of such ratio the Company will be required to maintain from
fiscal year 1998 through the maturity date of each series of
notes, (ii) imposed a new debt covenant requiring the Company to
have Consolidated EBITDA of at least $5 million for the six month
period ending June 30, 1996 and at least $7.5 million for the nine
month period ending September 30, 1996, and (iii) deleted from the
default provisions any references to the Palm Springs Casino. In
addition, the amendment to the Mortgage Notes eliminated the
mandatory quarterly redemptions of principal commencing on June
30, 1995, and extended the Mortgage Notes maturity date from March
31, 1996, until March 31, 2000. Pursuant to the Mortgage Note
amendment, the mortgage notes may be put to the Company by the
holders thereof on a semi-annual basis commencing March 31, 1996,
but may not be called by the Company prior to maturity.
Convertible Subordinated Notes
On March 31, 1995, the Company completed the private placement of
$1,706,250 of the Company's 7.5% Convertible Subordinated Notes
due December 31, 1996 (Convertible Notes). The convertible notes
are convertible into the Company's common stock at $1.125 per
share subject to certain antidilution provisions.
As additional consideration given by the Company to the
convertible noteholders for certain waivers and amendments
described below, the Company obtained on June 30, 1995, from each
holder of the Convertible Notes, a Waiver of Compliance and
Agreement to Amend Promissory Note ("Convertible Notes Waiver").
Pursuant to the Convertible Notes Waiver, the Company's mandatory
redemptions of principal due on each of March 31, 1996 and June
30, 1996 were eliminated and the amount of its mandatory
redemptions of principal due on each of September 30, 1996 and
December 31, 1996 was proportionately increased. Interest is
payable quarterly, commencing December 31, 1995.
On September 6, 1995, the holders of Convertible Notes with a face
amount of $281,250, effected the conversion of the notes and
accrued interest thereon into 256,579 shares of the Company's
common stock.
Adjustments To Long-Term Debt Pursuant to Reorganization
Preceedings
As the First Mortgage Notes and Convertible Notes are classified as
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994 and 1993
pre-petition liabilities subject to compromise (the First Mortgage
Notes on the basis of the uncertainty regarding whether or not the
claim is undersecured based upon a reorganization value for the
Company yet to be determined) and the outstanding principal and
accrued interest thereon through the date of filing have become
allowed claims, SOP 90-7 requires that the recorded amount of the
debt be adjusted to the amount of the allowed claim. Accordingly,
unamortized debt issuance costs of $2,695,000 and unaccreted
original issue discount of $5,690,000 were written off to adjust
the carrying amounts of these notes to the allowed amounts.
Further, interest expense on the First Mortgage Notes and
Convertible Notes has not been recognized since the date of
petition as it is not probable that post-petition interest for
either issue will be an allowed claim in these proceedings.
9. Income Taxes:
Income tax expense differed from the amounts computed by applying
the U.S. federal income tax rate of 34% to loss before income
taxes and extraordinary item as a result of the following:
Years Ended December 31,
1995 1994 1993
(Dollars in Thousands)
Computed expected tax benefit $(15,555) $(3,460) $(554)
Unrealized net operating loss
carryforward 15,555 3,460 554
Accrual of revised estimate of
prior-period income taxes - - 624
$ - $ - $ 624
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities are presented below:
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994 and 1993
December 31,
1995 1994
(Dollars in Thousands)
Deferred tax assets:
Accounts receivable principally
due to allowance for doubtful
accounts $ 68 $ 73
Accrued compensation, principally
due to accrual for financial
reporting purposes 500 530
Progressive slot accrual 74 45
Net operating loss carryforwards 36,210 34,328
General business credit carryforward,
principally due to investment
tax credit generated in prior years 640 640
Alternative minimum tax (AMT)
credit carry-forward from AMT
paid in prior years 253 253
Contribution deduction carryforward,
principally due to amounts
not deductible in prior years 58 50
Tax loss due to sale of New Jersey
subsidiaries in prior years 702 685
Loan receivable principal due to
allowance for uncollectibility 8,023 -
Reorganization items, principally due
to amounts not deductible for tax
purposes 2,951 -
Total gross deferred tax assets 49,479 36,604
Less valuation allowance (44,965) (32,213)
Net deferred tax assets 4,514 4,391
Deferred tax liabilities:
Plant and equipment, principally due to
differences in depreciation (4,219) (4,391)
Prepaid expenses, principally due to
deduction for tax purposes ( 295) -
Total gross deferred tax liabilities (4,514) (4,391)
Net deferred tax liability $ - $ -
As of December 31,1995, the Company has a net operating loss
carryforward for federal income tax purposes of approximately
$106,500,000. As a result of ownership changes in prior years,
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994 and 1993
Internal Revenue Code Section 382 (Section 382)limits the amount
of loss carryforward currently available to offset federal taxable
income. As of December 31, 1995, the amount of loss carryforward
not limited by Section 382 and therefore available to offset
current federal taxable income is approximately $63,300,000. The
amount of the loss carryforward which is not limited by Section
382 increases annually by $4,653,000. The loss carryforwards
begin to expire in the year 1999 and will be completely expired by
2007.
The Company has general business tax credit carryforwards for
federal income tax purposes of approximately $640,000 which are
available to reduce future federal income taxes, if any, through
1999. In addition, the Company has alternative minimum tax credit
carryforwards of approximately $253,000 which are available to
reduce future federal income taxes, if any, over an indefinite
period.
Special Provisions of IRS Section 382 Available to Corporations in
Bankruptcy.
A corporation in Bankruptcy may be eligible for treatment under
Section 382(1)(5) whereby the corporation's existing net operating
losses will not be subject to the Section 382 limitation even
though the magnitude of the ownership changes effected by the plan
of reorganization would otherwise cause the corporation to exceed
Section 382's 50% change threshold. The key difference in the 50%
ownership change calculation applied in Section 382(1)(5) is that
creditors who will be converting all or a portion of their debt to
equity are, in effect, not counted as part of the ownership change
if they have held their debt more than 18 months (the "Qualified
Debt"). Even if Section 382(1)(5) applies, the existing net
operating losses are reduced by cancellation of debt income and
interest on the Qualified debt during a specific period.
Section 382(1)(5), if available to the Company based upon the
provisions of the final plan of reorganization approved by the
Bankruptcy Court, would severely limit further ownership changes
for the three-year period following plan effectiveness.
As the applicability of Section 382(1)(5) is dependent upon the
ownership changes provided in the final plan of reorganization approved
by the Bankruptcy Court and changes in the ownership of the First
Mortgage Notes that may occur prior to the effective date of the
plan, it is not possible to determine with any degree of
certainty, such section's ultimate applicability.
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994 and 1993
In the event that the Company elects out of Section 382(1)(5), or
fails to qualify under its terms, existing net operating losses
will be subject to the Section 382 limitation. However, in this
case, under Section 382(1)(6) the stock value used for purposes of
computing the limitation is the market value immediately after the
ownership change,(rather than immediately preceding the change, as is
the case in the general Section 382 calculation) thereby taking into
account the increase in stock value attributable to the conversion
of debt pursuant to the reorganization.
Prior Period Tax Obligation
In August 1984, the IRS commenced an examination of the Company's
consolidated income tax returns for the fiscal years ended January
31, 1980, 1981 and 1982, and in October 1988 commenced
examinations of the fiscal year ended January 31, 1983 and the
eleven months ended December 31, 1983. As a result of its
examination, the IRS proposed certain adjustments for the fiscal
years ended January 31, 1980, 1981 and 1982 regarding the
deductibility of pre-opening costs associated with the Atlantis
facility (a former Atlantic City New Jersey hotel casino operated
by the Company) and utilization of certain investment tax credits
regarding the Four Queens and Atlantis facilities. In October
1994, the IRS completed and delivered to the Company a final
assessment (the "IRS Assessment") relating to such adjustments and
in November 1994, the IRS filed and recorded a Notice of Tax Lien
against the Company and its subsidiaries in the amount of the IRS
Assessment. The IRS Assessment called for the Company to pay
aggregate tax and interest of approximately $5.7 million
(exclusive of interest accruing during any period of repayment),
in addition to $3.5 million the Company deposited with the IRS in
March 1991. On December 6, 1994, the Company and the IRS entered
into an installment payment agreement (the "Installment
Agreement") that required the Company to pay $1,000,000 on
February 1, 1995, $275,000 on March 1, 1995 and April 1, 1995, and
$550,000 on the first day of each subsequent month through
December 1, 1995. On May 31, 1995, the Company entered into a new
installment agreement with the IRS whereby the Company was
required to pay commencing June 1, 1995, $275,000 on the first of
each month increasing to $550,000 on January 1, 1996 until paid in
full (May 1996). As of December 31, 1995, the Company had a
remaining obligation to the IRS in the amount of approximately
$2,985,000. As of December 31, 1994, prior to any payments under
the installment agreement, the Company had an accrued liability of
$5,870,000, of which approximately $885,000 and $2,009,000, was
charged to earnings in the years ended December 31, 1994 and 1993,
respectively, for taxes and related interest and the remainder of
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994 and 1993
which was an adjustment to periods prior to 1992. The Company
believes that it has available sufficient net operating loss
("NOL") carryforwards to satisfy any tax liabilities with respect
to periods subsequent of 1983.
Of the $2,009,000 of prior-period income taxes and related
interest charged to earnings in the year ended December 31, 1993,
$1,743,000 represents a change in management's estimate of the
impact of the aforementioned IRS examinations based upon
additional adjustments brought to management's attention in a
revenue agent's report received in October 1993. The $1,743,000
is comprised of prior period income taxes of $624,000 and related
interest of $1,119,000.
10. Common Stock Offering
On January 25, 1995, the Company completed a public offering of
2,500,000 shares of the Company's common stock for $1.75 per
share. Net proceeds to the Company after payment of underwriting
discounts and commissions and other direct costs of the offering
was approximately $3,747,000.
11. Commitments and Contingencies
Chapter 11 Reorganization
On October 31, 1995, the Company and certain of its
subsidiaries filed a voluntary petition in the United States
Bankruptcy Court for the District of Nevada seeking to reorganize
under Chapter 11 of the United States Bankruptcy Code. On
November 10, 1995, Olympia Gaming Corporation filed a
voluntary petition in the same Court. Since the Bankruptcy
filing, several entities have filed administrative claims
requesting the Bankruptcy Court order the Company to reimburse or
compensate such entities for goods, taxes and services they allege
the Company has received or collected, but for which they claim
the Company has not paid.
The Company currently estimates that the administrative claims
will be approximately $1.5 million; however, there can be no
assurance that additional amounts will not be claimed or the
extent to which administrative claims may be allowed by the
Bankruptcy Court. The Bankruptcy Code requires that all
administrative claims be paid on the effective date of a plan of
reorganization unless the respective claimants agree to different
treatment. Depending on the ultimate amount of administrative
claims allowed by the Bankruptcy Court, the ability of the Company
to confirm and consummate a plan of reorganization may be impacted
negatively. The Company is actively negotiating with claimants to
achieve mutually acceptable dispositions of these claims.
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994 and 1993
Hyland Litigation
Thomas Hyland, a professional card counter and blackjack player,
filed a complaint on August 23, 1995 in Federal District Court in
Camden, New Jersey, No. 95CV2236 (JEI), against the Company and
virtually every other casino company in the United States. The
complaint alleges violations of the antitrust, consumer fraud and
fair credit reporting laws by the defendants in illegally
conspiring to prevent Mr. Hyland and other professional card
counters from playing blackjack at their respective casinos. The
complaint
alleges that the defendants share information concerning card
counters and then act in concert to implement industry wide policy
in banning them at the blackjack tables.
Management believes that the claims are without merit and does
not believe that the lawsuit will have a material adverse effect
on the Company's operating results.
WARN Act Litigation
The Company is a defendant in two consolidated lawsuits pending
in the federal court for the District of New Jersey, alleging
violation by the Company and certain of its subsidiaries and
affiliates of the Worker Adjustment and Retraining Notification
Act ("WARN Act") and breach of contract. The plaintiffs in the
two consolidated cases are (i) former employees of a casino/hotel
in New Jersey formerly affiliated with the Company bringing suit
on behalf of a class of all employees laid off as a result of the
casino's closing and (ii) a union local seeking to represent its
members who were laid off at that time. Plaintiffs claim that
there are approximately 1,300 such employees within the class who
seek damages under the WARN Act providing for up to 60 days' pay
and lost benefits and payments for deferred compensation allegedly
due under a contract with certain employees. Damages payable, if
any, would be calculated on the basis of the number of days'
notice determined by the court to have been required under the
WARN Act and the wages, benefits and deferred compensation
applicable to each such employee.
The Company has vigorously defended the action on the basis
that even if the WARN Act does apply as a matter of law to a
regulatory-forced closing, the closing was due to unforeseeable
circumstances and, accordingly, the notice given was as timely as
practicable, among other grounds. The liability phase of the
trial of the two consolidated lawsuits concluded in August 1993.
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994 and 1993
On June 30, 1995, the presiding judge entered an Order for
Verdict Upon Liability Issues in which he ruled that: (i) the
plaintiffs had failed to prove any liability under the WARN Act;
and (ii) that Elsinore and certain of its subsidiaries are jointly
liable for certain retroactive wages due to former employees of
Elsinore Shore Associates under a collective bargaining agreement,
plus prejudgment interest on such wages. The total amount of
judgment the plaintiffs would be entitled to under this ruling has
not yet been determined. The plaintiffs' attorney asserts that
the amount due as of October 1, 1995, taking into account interest
on that date, was approximately $676,000. The Order is stayed
until the Findings of Fact and Conclusions of Law are entered by
the Court, which could be forthcoming at any time. Until such
Findings of Fact and Conclusions of Law are entered, the Company
is not able to make a determination concerning the extent of its
ultimate exposure or whether an appeal of the decision is
appropriate. Because of the filing of the bankruptcy petitions,
the WARN Act litigation has also been stayed by operation of
Bankruptcy Code
Section 362(a).
Action Against Twenty-Nine Palms Band
On March 16, 1995, Elsinore Corporation, its wholly owned
subsidiary, Elsub Management Corporation, and Palm Springs East
Limited Partnership, of which Elsub Management is the General
Partner, filed a complaint against the Band in the United States
District Court for the Central District of California, case no. CV
95-1669-RG(MCx). The complaint sought injunctive and declaratory
relief based upon alleged breaches by the Band of the Spotlight 29
Contract when it installed Class III electronic gaming machines at
the casino without the Company's consent and without any involvement
whatsoever by the Company in the operation of the machines. The
suit was dismissed without prejudice on April 21, 1995. As noted
above, the Company expects to settle its dispute with the Band
soon.
Poulos/Ahern Class Actions
In April and May 1993, two class action lawsuits were filed in
the United States District Court, Middle District of Florida,
against 41 manufacturers, distributors and casino operators of
video poker and electronic slot machines, including the Company.
The suits allege that the defendants have engaged in a course of
fraudulent and misleading conduct intended to induce persons to
play such games by collectively misrepresenting how the game
machines operate, as well as the extent to which there is an
opportunity to win. It also alleges violations of the Racketeer
Influenced and Corrupt Organizations Act, as well as claims of
common law fraud,
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994 and 1993
unjust enrichment and negligent misrepresentation, and seeks
damages in excess of $6 billion. On December 9, 1994, the Florida
Court ordered that the consolidated cases be transferred to the
United States District Court for the District of Nevada. That
transfer has occurred and the Nevada Court has assumed control of
the cases. The new case number is CV-S-94-1126-LDG(RJJ).
Numerous defendants (including the Company) have moved to dismiss
the complaint for failure to state a claim. No hearing has been
set on this motion. The plaintiffs have filed a motion seeking to
certify the consolidated actions as a class action. The
defendants (including the Company) have opposed certification of
the class. No hearing date has been set on this motion and the
proceeding has been stayed because of the Company's bankruptcy
filing. Management believes that the claims are wholly without
merit and does not expect that the lawsuit will have a material
adverse effect on the Company's financial statements taken as a
whole.
Other
At December 31, 1995, the Company and its subsidiaries were
parties to various other claims and lawsuits arising in the normal
course of business. Management is of the opinion that all pending
legal matters are either covered by insurance or, if not insured,
will not have a material adverse effect on the financial position
or the results of operations of the Company.
12. Leases:
All non-cancelable leases have been classified as capital or
operating leases. At December 31, 1995, the Company had leases
for real and personal property which expire in various years
through 2075. Under most leasing arrangements, the Company pays
the taxes, insurance, and the operating expenses related to the
leased property. Certain leases on real property provide for
adjustments of rents based on the cost-of-living index. Buildings
and equipment leased under capital leases, included in property
and equipment, are as follows:
December 31,
1995 1994
(Dollars in Thousands)
Building $2,062 $2,051
Equipment 316 1,972
2,378 4,023
Less accumulated amortization ( 663) (1,642)
$1,715 $ 2,381
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994 and 1993
Amortization of assets held under capital leases is included with
depreciation and amortization expense in the Consolidated
Statements of Operations.
The following is a schedule of future minimum lease payments for
capital and operating leases (with initial or remaining terms in
excess of one year) as of December 31, 1995:
Capital Operating
Leases Leases
(Dollars in Thousands)
Years ending December 31,
1996 $286 $3,922
1997 275 3,740
1998 223 2,920
1999 223 2,908
2000 223 2,886
Thereafter 7,357 96,043
Total minimum lease payments 8,587 $112,419
Less: amount representing
interest (at imputed rates
ranging from 11.5%
to 15.0% 7,002
Present value of net
minimum capital lease
payments 1,585
Less: current portion 54
Capital lease obligations,
excluding current portion $1,531
13. Benefit Plans:
Four Queens, Inc. makes contributions to several multi-employer
pension and welfare benefit plans covering its union employees, of
which there were 32, 37 and 39 individuals at December 31, 1995,
1994 and 1993, respectively. The plans provide defined benefits
to covered employees. Amounts charged to pension cost and
contributed to the plans for the years 1995, 1994 and 1993 totaled
$97,000, $103,000 and $96,000, respectively. While the Company is
liable for its share of unfunded vested benefits, the Company
believes the amount, if any, would not be material to the
consolidated financial statements.
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994 and 1993
On October 1, 1990, the Company instituted a savings plan
qualified under Section 401(k) of the Internal Revenue Code of
1986, as amended. The savings plan covers substantially all
employees who are not covered by a collective bargaining
agreement. Employee contributions to the savings plan are
discretionary. The Company matches and contributes to each
employee's account an amount equal to 25% of the employee's
contributions to the savings plan up to a maximum employee
contribution of 8% of each employee's gross compensation. The
Company's contribution was $102,000, $150,000 and $145,000 for
1995, 1994 and 1993, respectively. There were 480, 465 and 460
participants in the savings plan as of December 31, 1995,
1994 and 1993, respectively.
In 1991, the Board of Directors adopted, and the stockholders
approved, the Elsinore Corporation 1991 Stock Option Plan (the
"1991 Plan"). The Board reserved 600,000 shares of common stock
for issuance thereunder. The 1991 Plan provides for the grant of
non-statutory options to purchase common stock to salaried
officers and key employees of the Company and its corporate
subsidiaries. The exercise price for options granted under the
1991 Plan may not be less than the fair market value of the stock
on the date of grant.
On March 15, 1993, the Board of Directors adopted and the
stockholders approved, the Elsinore Corporation 1993 Long-Term
Stock Incentive Plan (the "1993 Plan") and reserved 600,000 shares
of common stock for issuance thereunder. On April 8, 1994, the
Board of Directors adopted and the shareholders approved an
increase of the number of shares reserved under the 1993 Plan to
1,200,000 shares. On May 11, 1995, the Board of Directors
approved an additional increase in the number of shares reserved
to 1,980,000 shares. The 1993 Plan provides for awards of
restricted shares, stock units, options or stock appreciation
rights to all employees of the Company and its subsidiaries.
Non-statutory stock options granted under the 1993 Plan generally vest
in equal annual increments over a three-year period.
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994 and 1993
The following table summarizes option activity through December
31, 1995:
Aggregate
Shares Available Options Price Value of
For Grant Outstanding Per Share Combined Plans
1991 1993 1991 1993 1991 1993
Plan Plan Plan Plan Plan Plan
Balance Dec 31 1993 # 11,500 # 13,200 # 543,500 # 586,800 $2.456 $4.292 $ 3,853,050
Shares reserved - 600,000 - - - - -
Options granted (11,500) (817,900) 11,500 817,900 5.375 2.687 2,198,224
Options exercised - - (17,000) - 0.875 - (14,875)
Options canceled - 64,100 - ( 64,100) - 5.224 (334,858)
Balance at
December 31, 1994 - (140,600) 538,000 1,340,600 2.623 3.268 5,701,541
Shares reserved - 780,000 - - - - -
Options granted - (171,000) - 171,000 - 1.320 225,720
Options exercised - - - - - - -
Options canceled 145,500 397,900 (145,500) (397,900) 2.220 2.610 (1,361,529)
Balance at
December 31, 1995 145,500 866,300 392,500 1,113,700 $2.772 $3.123 $ 4,565,732
At December 31, 1995, 621,754 shares were exercisable.
On March 15, 1993, the Company adopted an Amended and Restated
Senior Executive Severance Plan (the "Severance Plan"). As of
March 15 1996, seven employees of the Company and its subsidiaries
have executed severance agreements, four of which were modified by
the Bankruptcy Court on March 12, 1996. The three unmodified
severance agreements provide (subject to certain limitations) that
the covered employees will receive two times their annual base
salaries in the event of their involuntary termination within two
years after a change of control (as defined in the Severance Plan
and related agreements). Pursuant to the severance agreements,
the Company has also agreed, under certain circumstances, to pay
the covered employees, a cash payment equal to the difference (if
positive) between the "fair market value" (as defined in the
Severance Plan) of the Company's common stock and the exercise
price of options to purchase common stock held by such employees.
The severance agreements are the subject of a Stipulation between
the Company and the unoffical committee for the First Mortgage
Noteholders.
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994 and 1993
14. Taxes and Licenses, Other Than Income Taxes
Taxes and licenses, other than income taxes, principally include
payroll taxes, gaming licenses and gross revenue taxes, and are
summarized as follows:
Operating Departments
(Dollars in Thousands)
Food and
Casino Hotel Beverage Other Total
1995 $4,377 $ 454 $ 483 $1,313 $6,627
1994 4,710 474 535 1,236 6,955
1993 5,028 457 464 1,210 7,159
15. Extraordinary Item:
On October 8, 1993, the Company repaid the outstanding principal
balance and accrued interest thereon of its mortgage notes payable
to a bank. The Company recognized an extraordinary loss of
$285,000 as a result of the write-off of unamortized debt issuance
costs. Income taxes are not applicable to this extraordinary
item.
On December 29, 1994, $3,000,000 of the original $60,000,000
principal amount of First Mortgage Notes was repurchased by the
Company and retired in exchange for the issuance to the noteholder
of 930,000 shares of Common Stock of the Company. The Company
recorded an extraordinary gain of $735,000 as a result of this
debt retirement. Income taxes are not applicable to this
extraordinary item.
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994 and 1993
16. Supplemental Financial Information
A summary of additions and deductions to the allowance for
doubtful accounts receivable for the years ended December 31,
1995, 1994 and 1993 follows:
Balance at Balance
Allowance for Beginning at End
Doubtful Accounts of Year Additions Deductions of Year
Years Ended
1995 $214 $68 $81 $201
1994 200 40 26 214
1993 180 82 62 200