<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
--------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from___________to___________
Commission File Number 0-11268
THE CLARIDGE HOTEL AND CASINO CORPORATION
(Exact name of registrant as specified in its charter)
New York 22-2469172
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Indiana Avenue and the Boardwalk
Atlantic City, New Jersey 08401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 340-3400
__________________
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
----- -----
The number of shares outstanding of each class of the Registrant's Stock is
as follows:
Number of Shares Outstanding
May 1, 1995
-----------
Class A Stock 5,054,282 (After deducting 8,218 shares of
Treasury Stock)
<PAGE> 2
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
Index to Form 10-Q
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Introductory Notes to Consolidated
Financial Statements 3
Consolidated Balance Sheets at
March 31, 1995 and 1994 and
December 31, 1994 4
Consolidated Statements of Operations
for the three months ended March 31,
1995 and 1994 5
Consolidated Statements of Cash Flows
for the three months ended March 31,
1995 and 1994 6
Notes to Consolidated Financial
Statements 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 12
PART II. OTHER INFORMATION
Item 6. No information is provided under this
Section as the answers to Items 1 through
6 are either inapplicable or negative.
<PAGE> 3
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Introductory Notes to Consolidated Financial Statements
The accompanying consolidated financial statements have been prepared by
The Claridge Hotel and Casino Corporation ("Corporation") without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, these financial statements contain
all adjustments necessary to present fairly the consolidated financial
position of The Claridge Hotel and Casino Corporation and its wholly-owned
subsidiaries, The Claridge at Park Place, Incorporated ("New Claridge") and
Claridge Gaming Incorporated ("CGI") at March 31, 1995 and 1994 and December
31, 1994, and the results of its operations for the three months ended March
31, 1995 and 1994 and its cash flows for the three months ended March 31,
1995 and 1994. All adjustments made are of a normal recurring nature.
Although management believes that the disclosures included herein are
adequate to make the information contained herein not misleading, certain
information and footnote disclosure normally included in financial statements
prepared in accordance with generally accepted accounting principles have
been omitted. It is suggested that these financial statements be read in
conjunction with the financial statements and the related disclosures
contained in the Corporation's Annual Report on Form 10-K for the year ended
December 31, 1994 filed with the Securities and Exchange Commission.
The results of operations for the three months ended March 31, 1995 and
1994 are not necessarily indicative of the operating results to be expected
for the full year. Historically, the gaming industry in Atlantic City, New
Jersey has been seasonal in nature with peak demand months occurring during
the summer season.
<PAGE> 4
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1995 1994 1994
--------- ------------ ---------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 30,215 37,244 46,626
Receivables, net (including
$14,403 and $12,355 at March 31,
1995 and 1994, respectively
and $13,656 at December 31,
1994, due from the Partnership) 14,689 16,888 13,145
Other current assets 8,739 8,149 3,767
-------- -------- --------
Total current assets 53,643 62,281 63,538
-------- -------- --------
Land and land improvements 8,100 -0- -0-
Gaming equipment, net 8,240 8,663 4,335
Long-term receivables due from the
Partnership (note 3) 111,896 114,244 115,655
Intangible assets and deferred charges 4,493 4,140 3,805
Other assets 1,298 1,470 3,841
-------- -------- --------
$187,670 190,798 191,174
======== ======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,505 2,782 2,750
Loan from the Partnership (note 5) 3,600 3,600 3,600
Other current liabilities (note 6) 29,641 30,621 27,041
-------- -------- --------
35,746 37,003 33,391
-------- -------- --------
Long-term debt (note 7) 85,000 85,000 85,000
Deferred rent due to the Partnership 32,417 33,133 34,966
Deferred income taxes (note 9) 8,678 8,199 6,685
Other noncurrent liabilities (note 8) 20,057 20,000 20,000
Stockholders' equity:
Common stock 5 5 5
Additional paid in capital 5,048 5,048 5,048
Accumulated earnings 719 2,410 6,079
Treasury stock, 8,218 Class A Shares at $-0-
cost at March 31, 1995 and December 31, 1994,
respectively and 73,963 Class A shares at $-0-
cost at March 31, 1994 -0- -0- -0-
-------- -------- --------
Total stockholders' equity 5,772 7,463 11,132
-------- -------- --------
$187,670 190,798 191,174
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
For the Three Months Ended March 31, 1995 and 1994
(in thousands except per share data)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Revenues:
Casino $ 38,590 30,112
Hotel 1,974 2,159
Food and beverage 4,429 3,758
Interest from the Partnership 4,398 4,402
Interest, other 372 253
Other 507 618
-------- -------
50,270 41,302
Less promotional allowances (note 2) 3,523 3,510
-------- -------
Net revenues 46,747 37,792
-------- -------
Costs and expenses:
Casino 21,647 18,632
Hotel 866 727
Food and beverage 2,759 2,201
Other 703 884
Rent expense to the Partnership 9,485 8,732
Rent expense, other 378 381
General and administrative 6,485 6,366
Gaming taxes 3,082 2,402
Reinvestment obligation expense 523 130
Provision for uncollectible accounts 57 100
Depreciation and amortization 683 437
Interest expense 2,605 2,186
-------- -------
Total costs and expenses 49,273 43,178
-------- -------
Loss before income taxes (2,526) (5,386)
Income tax benefit (835) (2,154)
-------- -------
Net loss $ (1,691) (3,232)
======== =======
Net loss per share (based on 5,054,282 and
4,988,537 weighted average shares outstanding
for the three months ended March 31, 1995
and 1994, respectively) $ (.33) (.65)
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1995 and 1994
(in thousands)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,691) (3,232)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 683 437
Deferred rent to the Partnership (716) (1,376)
Deferred interest receivable and
discount from the Partnership (314) (273)
Reinvestment obligation expenses 523 130
Loss on disposal of assets -0- 9
Deferred income taxes 479 582
Change in assets and liabilities:
Receivables, net, excluding current
portion of long-term receivables 2,594 468
Other current assets, excluding current portion
of CRDA credit (905) 437
Accounts payable (277) 242
Other current liabilities (980) (1,120)
Other noncurrent liabilities 57 -0-
------- -------
Net cash flows used in operating activities (547) (3,696)
------- -------
Cash flows from investment activities:
Increase in intangible assets and deferred charges (510) (3,276)
Additions to land and land improvements (8,100) -0-
Additions to gaming equipment (103) (444)
Additions to other assets, net (36) (740)
Proceeds from disposition of property -0- 10
Increase in long-term receivables (796) (2,799)
Receipt of long-term receivables 3,063 2,637
------- -------
Net cash flows used in investment activities (6,482) (4,612)
------- -------
</TABLE>
(Continued)
<PAGE> 7
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1995 and 1994
(in thousands)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Cash flows from financing activities:
Increase in long-term debt -0- 85,000
Payment of long-term debt -0- (33,559)
Increase in revolving credit line borrowings -0- 7,625
Payment of revolving credit line borrowings -0- (9,325)
------- -------
Net cash provided by financing activities -0- 49,741
------- -------
Increase (decrease) in cash and cash equivalents (7,029) 41,433
Cash and cash equivalents at beginning of period 37,244 5,193
------- -------
Cash and cash equivalents at end of period $30,215 46,626
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 8
Notes to Consolidated Financial Statements
1. Basis of Presentation
The consolidated financial statements are prepared in accordance with
generally accepted accounting principles. The consolidated financial
statements include the accounts of the Corporation and its wholly-owned
subsidiaries, New Claridge and CGI. All material intercompany accounts and
transactions have been eliminated in consolidation.
CGI was formed on March 16, 1994 for the purpose of developing gaming
opportunities in other jurisdictions.
2. Promotional Allowances
The retail value of complimentary rooms, food and beverages and other
complimentaries furnished to patrons is included in gross revenues and then
deducted as promotional allowances. The estimated cost of providing such
promotional allowances to casino patrons for the three months ended March
31, 1995 and 1994 has been allocated to casino operating expenses as follows
(in thousands):
1995 1994
---- ----
Hotel $ 561 601
Food and beverage 2,226 2,339
Other (Entertainment) 215 168
------- ------
Total costs allocated to
casino operating expenses $ 3,002 3,108
======= =====
3. Long-Term Receivables
Long-term receivables consist of the following amounts due from Atlantic
City Boardwalk Associates, L.P. (the "Partnership"):
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1995 1994 1994
--------- ------------ ---------
(in thousands)
<S> <C> <C> <C>
Expandable Wraparound Mortgage 14%,
maturities through September 30, 2000
(net of $10,827,000 discount and
$12,021,000 discount at March 31, 1995
and 1994 respectively, and $11,141,000
discount at December 31, 1994) $ 69,673 71,859 77,729
Deferred Expandable Wraparound
Mortgage interest receivable, due
September 30, 2000 20,000 20,000 20,000
FF&E promissory notes, 14% 16,181 15,863 10,059
Expansion/Construction promissory note, 14% 6,042 6,522 7,867
-------- ------- -------
$111,896 114,244 115,655
======== ======= =======
</TABLE>
<PAGE> 9
Notes to Consolidated Financial Statements (cont'd.)
4. Working Capital Loans
Pursuant to the terms of the Revolving Credit and Term Loan Agreement (the
"Loan Agreement"), First Fidelity Bank, N.A., New Jersey (the "Bank")
established a revolving working capital facility, which, prior to the full
satisfaction of the Loan Agreement on January 31, 1994, was in the amount of
$7.5 million. Interest on the working capital facility borrowings, which was
payable monthly in arrears, accrued at a rate equal to the prime rate plus
four percent, as amended effective April 1, 1993 (see Note 7, Long-Term
Debt). New Claridge was also required to pay quarterly a commitment fee
equal to .5% per annum of the unused portion of the revolving working
capital facility.
On January 31, 1994, the Corporation completed an offering of $85 million of
First Mortgage Notes (the "Notes") due 2002, bearing interest at 11 3/4%
(see Note 7, Long-Term Debt). A portion of the net proceeds of $82.2
million, after deducting fees and expenses, was used to repay in full the
Corporation's outstanding debt under the Loan Agreement, including the
outstanding balance of the Corporation's revolving credit line, which was
secured by the first mortgage. In conjunction with the full satisfaction of
the Loan Agreement, the Corporation's revolving credit line arrangement was
terminated.
5. Loan from the Partnership
In accordance with the terms of the Restructuring Agreement, on June 16,
1989 the Partnership loaned to New Claridge $3.6 million, which represented
substantially all cash and cash equivalents remaining in the Partnership
other than funds needed to pay expenses incurred through the closing of the
Restructuring. This loan is evidenced by an unsecured promissory note and
will become payable (i) upon a sale or refinancing of the Claridge; (ii)
upon full or partial satisfaction of the Expandable Wraparound Mortgage; and
(iii) upon full satisfaction of any first mortgage then in place.
Interest, which accrues at 12% per annum, is payable in full upon maturity.
As of March 31, 1995, such interest, which is included in other current
liabilities, amounted to $2,502,000.
<PAGE> 10
Notes to Consolidated Financial Statements (cont'd.)
6. Other Current Liabilities
Other current liabilities consist of the following:
March 31, December 31, March 31,
1995 1994 1994
--------- ------------ ---------
(in thousands)
Deferred rent, current $ 15,078 15,078 15,078
Accrued payroll and
related benefits 7,139 5,625 6,148
Accrued interest, First
Mortgage Notes 1,665 4,161 1,692
Accrued interest due to
Partnership 2,502 2,394 2,070
Auto and general
liability reserves 1,179 1,149 1,315
Other current liabilities 2,078 2,214 738
-------- ------- -------
$ 29,641 30,621 27,041
======== ======= =======
The amount of deferred rent as of March 31, 1995 of $15,078,000 represents
the maximum deferral allowed in accordance with the Operating Lease
Agreement and Expansion Operating Lease Agreement, as amended. The deferred
rent will become payable (i) upon a sale or refinancing of the Claridge;
(ii) upon full or partial satisfaction of the Expandable Wraparound
Mortgage; and (iii) upon full satisfaction of any first mortgage then in
place.
7. Long-Term Debt
On January 31, 1994, the Corporation completed an offering of $85 million of
Notes due 2002, bearing interest at 11 3/4%. The Notes are secured by (i) a
non-recourse mortgage granted by the Partnership representing a first lien
on the Hotel Assets, (ii) a pledge granted by the Corporation of all
outstanding shares of capital stock of New Claridge, and (iii) a guarantee
by New Claridge. New Claridge's guarantee of the Notes is secured by a
collateral assignment of the second lien Expandable Wraparound Mortgage, and
by a lien on the Claridge's gaming and other assets, which lien will be
subordinated to liens that may be placed on those gaming and other assets to
secure any future revolving credit line arrangement. Interest on the Notes
is payable semiannually on February 1 and August 1 of each year, commencing
August 1, 1994. A portion of the net proceeds of $82.2 million was used to
repay in full the Corporation's outstanding debt under the Loan Agreement,
including the outstanding balance of the Corporation's revolving credit
line, which was secured by the First Mortgage. In conjunction with the full
satisfaction of the Loan Agreement, the Corporation's revolving credit line
arrangement was terminated.
8. Other Noncurrent Liabilities
Pursuant to the Restructuring Agreement, Del Webb Corporation retained an
interest, which was assigned to a trustee for the benefit of the United Way
of Arizona on April 2, 1990, equal to $20 million plus interest at a rate of
<PAGE> 11
Notes to Consolidated Financial Statements (cont'd.)
8. Other Noncurrent Liabilities (cont'd.)
15% per annum, compounded quarterly, commencing December 1, 1988, in any
proceeds ultimately recovered from operations and/or the sale or refinancing
of the Claridge facility in excess of the first mortgage loan ("Contingent
Payment"), which amount is payable under certain circumstances.
Consequently, New Claridge has deferred the recognition of $20 million of
forgiveness income with respect to the Contingent Payment obligation.
Interest on the Contingent Payment has not been recorded in the accompanying
consolidated financial statements since the likelihood of paying such amount
is not considered probable at this time. As of March 31, 1995, accrued
interest would have amounted to approximately $30.8 million.
9. Income Taxes
The Corporation recorded an income tax benefit of $835,000 for the three
months ended March 31, 1995 which represents the tax benefit of losses which
the Corporation believes will more likely than not be realized. As of March
31, 1995, the current portion of the income tax benefit of approximately
$4.6 million is included in other current assets.
10. Claridge License Renewal
On September 22, 1993, New Claridge was issued a two-year casino license by
the New Jersey Casino Control Commission (the "Commission") for the period
commencing September 30, 1993.
<PAGE> 12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations for the Three Months Ended March 31, 1995
The Corporation had a net loss of $1,691,000, for the three months ended
March 31, 1995 compared to a net loss of $3,232,000 for the same period in
1994.
For the three months ended March 31, 1995, the Corporation's "Adjusted
EBITDA" was $3,315,000, compared to ($1,645,000) for the same period of 1994.
"EBITDA" represents earnings before interest expense, income taxes,
depreciation, amortization, and other non-cash items. "Adjusted EBITDA" is
equal to EBITDA plus rent expense to the Partnership less interest income
from the Partnership less "Net Partnership Payments," which represent New
Claridge's net cash outflow to the Partnership, and is used by the
Corporation to evaluate its financial performance in comparison to other
gaming companies with more traditional financial structures. Adjusted EBITDA
may be used as one measure of the Corporation's historical ability to service
its debt, but should not be considered as an alternative to, or more
meaningful than, operating income or cash flow.
Casino revenue, which is the difference between amounts wagered by and
amounts paid to casino patrons, for the first quarter of 1995 totalled
$38,590,000 (including poker, simulcast, and keno revenue) an increase of
28.2% over casino revenues earned in the first quarter of 1994. Casino
revenues earned by all Atlantic City properties as reported for the three
months ended March 31, 1995 were 16.1% higher than revenues earned during the
same period of 1994. The greater increase in revenues experienced by the
Claridge as compared to all Atlantic City casinos was due primarily to the
opening, in late June 1994, of New Claridge's expanded casino facility, which
included the addition of approximately 500 slot machines, as well as a poker,
simulcast, and keno area.
Claridge table games revenue for the first quarter of 1995 was $9,970,000
(including poker revenue), an increase of 16.5% over table games revenue
earned during the first quarter of 1994. Citywide table games revenue as
reported (including poker) for the first quarter of 1995 increased 4.6% over
the same period of 1994. The increase in Claridge's table games revenue
resulted from an increase in the "hold" percentage (the win to drop
percentage) to 17.0% in the first quarter of 1995, compared to 14.8% in the
same period of 1994. Additionally, table games drop (the amount of gaming
chips purchased by patrons) for the first quarter of 1995 increased 1.0% over
the same period of 1994.
New Claridge earned $28,514,000 of revenues from slot machines in the
first quarter of 1995, a 32.3% increase over the same period of 1994. This
increase was due to the expansion of New Claridge's casino floor space,
including the addition of approximately 500 slot machines and to the
favorable weather experienced during the first quarter of 1995 compared to
the same period of 1994. Slot machine revenues earned by all Atlantic City
casinos as reported for the three months ended March 31, 1995 increased 22.3%
over the same period of 1994; the average number of slot machines available
citywide during the first quarter of 1995 increased 12.8% over the same
period of 1994.
New Claridge offers promotional incentives through its direct marketing
program to its customers based on their casino play, as well as to
prospective customers based on demographic models. During the first quarter
of 1995, coin issued through this program totalled $2,799,000, compared to
$2,035,000 in the first quarter of 1994. In addition, New Claridge offers
coin incentives to patrons arriving by bus. During the three months ended
March 31, 1995, 182,000 bus patrons arrived at the Claridge and were issued
$2,406,000 in coin incentives, compared to 103,000 bus passengers and
$1,018,000 of coin incentives in the first quarter of 1994. The increased
coin incentive per passenger resulted from efforts to maintain a competitive
<PAGE> 13
position with other Atlantic City casino operators, which, starting in the
second quarter of 1994, increased the incentives offered in order to increase
business levels which had been depressed due to the severe weather
experienced during the first quarter of 1994.
Hotel revenues for the first quarter of 1995 of $1,974,000 were 8.6%
lower than hotel revenues for the first quarter of 1994, resulting from a
lower average room rate ($53 in 1995 compared to $59 in 1994) partially
offset by an increase in the number of rooms sold (37,600 in 1995 compared to
36,400 in 1994). Food and beverage revenues for the first quarter of 1995 of
$4,429,000 were 17.9% higher than the first quarter of 1994, due to an
increase in total covers (meals served) to 358,300 in 1995 compared to
315,000 in 1994.
Total costs and expenses for the three months ended March 31, 1995 of
$49,273,000 were 14.1% higher than expenses for the same period of 1994.
This increase primarily resulted from higher coin incentive costs, increased
payroll costs and increased gaming taxes. Interest expense for the first
quarter of 1995 was higher than the same period of 1994 due to the completion
of the offering of $85 million of Notes on January 31, 1994.
The Corporation recorded income tax benefit of $835,000 and $2,154,000
for the three months ended March 31, 1995 and 1994, respectively, as a result
of the loss incurred in those periods.
Results of Operations for the Three Months Ended March 31, 1994
The Corporation had a net loss of $3,232,000, for the three months ended
March 31, 1994, compared to net income of $129,000 for the same period in
1993.
Casino revenue for the first quarter of 1994 totalled $30,112,000, a
decrease of 13.0% from casino revenues earned in the first quarter of 1993.
Casino revenues earned by all Atlantic City properties as reported for the
three months ended March 31, 1994 were 2.7% lower than casino revenues earned
during the same period of 1993. Citywide revenues were adversely effected by
severe snow and ice storms experienced throughout the Northeastern United
States. Claridge's dependency on customers arriving by bus, its focus on the
New York and Northern New Jersey markets and its lack of a covered self-
parking facility contributed to a percentage decline in casino revenues
greater than that experienced by other Atlantic City properties.
Claridge table games revenue for the three months ended March 31, 1994
was $8,559,000, a decrease of 10.2% from 1993 table games revenue; citywide
table games revenue decreased .7%. The decrease in Claridge table games
revenue resulted from a 9.2% decrease in table games drop compared to 1993,
combined with a lower "hold" percentage; for the first quarter of 1994, the
hold percentage was 14.8%, compared to 15.0% for the same period of 1993.
Citywide table games revenue as reported for the first quarter of 1994
included $9,600,000 of poker revenue, which was not an approved gaming option
in the first quarter of 1993, and was not offered at the Claridge during the
first quarter of 1994.
Slot machine revenue earned by the Claridge for the first quarter of 1994
was $21,553,000, a decrease of 14.1% from 1993 levels of $25,083,000.
Citywide slot machine revenue as reported for the three months ended March
31, 1994 was 3.7% lower than slot machine revenue for the same period of
1993. During the first quarter of 1994, coin issued through the direct
marketing program decreased to $2,035,000 from $2,310,000 during the same
period of 1993. Coin issued to bus patrons during the first quarter of 1994
amounted to $1,018,000, compared to $1,507,000 in the same period in 1993.
During the first quarter of 1994, 103,000 bus passengers arrived at the
<PAGE> 14
Claridge, compared to 152,000 in the same period of 1993. Decreases in cash
incentives and bus passengers reflect the impact of severe weather conditions
on patron volume.
Hotel revenues for the first quarter of 1994 of $2,159,000 were 6.4%
lower than hotel revenues for the first quarter of 1993, resulting from a
decrease in the number of rooms sold (36,400 in 1994 compared to 38,300 in
1993), combined with a lower average room rate ($59 in 1994 compared to $60
in 1993). Food and beverage revenues for the first quarter of 1994 of
$3,758,000 were 11.4% lower than the first quarter of 1993, due to a decrease
in total covers to 315,000 in 1994 compared to 389,000 in 1993, partially
offset by a higher average cover price ($7.89 in 1994 compared to $7.14 in
1993).
Total costs and expenses for the three months ended March 31, 1994 of
$43,178,000 were 1.2% higher than first quarter 1993 expenses primarily due
to increased interest expense resulting from a higher long-term debt balance
resulting from the completion of the offering of $85 million of Notes on
January 31, 1994. Casino operating expenses for the first quarter of 1994
were slightly lower than the first quarter of 1993 expenses.
The Corporation recorded an income tax credit of $2,154,000 for the three
months ended March 31, 1994 which represents the tax benefit of losses which
the Corporation believes will more likely than not be recognized. The
Corporation recorded income tax expense of $86,000 as a result of the income
earned for the first quarter of 1993.
Liquidity and Capital Resources
On January 31, 1994, the Corporation completed an offering of $85 million
of Notes, due 2002, bearing interest at 11 3/4%. The Notes are secured by (i) a
non-recourse mortgage granted by the Partnership representing a first lien on
the Hotel Assets, (ii) a pledge granted by the Corporation of all outstanding
shares of capital stock of New Claridge, and (iii) a guarantee by New Claridge.
New Claridge's guarantee of the Notes is secured by a collateral assignment of
the second lien Expandable Wraparound Mortgage, and by a lien on the Claridge's
gaming and other assets, which lien will be subordinated to liens that may be
placed on those gaming and other assets to secure any future revolving credit
line arrangement. Interest on the Notes is payable semiannually on February 1
and August 1 of each year, commencing August 1, 1994.
A portion of the net proceeds of $82.2 million, after deducting fees and
expenses, was used as follows:
(i) to repay in full the Corporation's outstanding debt under the Loan
Agreement, including the outstanding balance of the Corporation's
revolving credit line, which was secured by the First Mortgage. In
conjunction with the full satisfaction of the Loan Agreement, the
Corporation's revolving credit line arrangement was terminated. The
Corporation is currently seeking to obtain a new line of credit
arrangement;
(ii) to fund the cost of a 12,000 square foot expansion of New Claridge's
casino capacity, the addition of approximately 500 slot machines, and
the relocation of two restaurants and their related kitchen areas. The
total cost of this expansion, which became fully operational on June
30, 1994, was approximately $12.7 million; and
(iii) the acquisition of adjacent land, to be used for the construction of a
self-parking facility. In March 1994, New Claridge acquired options to
purchase for $7,500,000 two parcels of property adjacent to its
existing valet-parking facility. On June 6, 1994, New Claridge
exercised these options, and deposited $400,000 with the Title Company
of Jersey, to be held in escrow until settlement. In an effort to
<PAGE> 15
ensure that site preparation and construction of the self-parking
facility could commence as soon as possible, New Claridge purchased an
assignment of National Westminster Bank NJ's first mortgage interest
in the property on November 3, 1994 for $2,040,000. These acquisitions
gave New Claridge control of the property as of November 16, 1994. The
first mortgage interest was satisfied by the mortgagor at settlement,
which occurred on January 5, 1995.
The balance of the net proceeds from the offering of the Notes may be
used as follows:
(i) the construction of the self-parking facility, the cost of which is
estimated at $16.5 million;
(ii) the possible purchase of the Contingent Payment (see Note 8, Other
Non-Current Liabilities) granted in 1989 and now held in a trust for
the benefit of the United Way of Arizona. The Corporation is currently
negotiating to purchase the Contingent Payment, for less than face
value, from the trustee for the United Way of Arizona; and
(iii) the potential expansion of the Corporation's activities into emerging
gaming markets. On March 16, 1994, CGI was formed as a wholly-owned
subsidiary of the Corporation for the purpose of developing gaming
opportunities in other jurisdictions.
At March 31, 1995, the Corporation had working capital of $17,897,000 as
compared to working capital of $25,278,000 at December 31, 1994. This
decrease in working capital is principally attributable to a decrease in cash
of $7,029,000 and a decrease in accounts receivable of $2,199,000, partially
offset by a decrease in other current liabilities of $980,000, an increase in
other current assets of $590,000 and a decrease in accounts payable of
$277,000. The decrease in cash and cash equivalents primarily resulted from
the acquisition of land to be used for the construction of a self-parking
facility. Working capital at March 31, 1994 was $30,147,000. Current
liabilities at March 31, 1995 and December 31, 1994 included deferred rental
payments of $15,078,000, and a $3.6 million loan from the Partnership plus
accrued interest thereon of $2,502,000 at March 31, 1995 and $2,394,000 at
December 31, 1994. These amounts will only be payable upon (i) a sale or
refinancing of the Claridge; (ii) full or partial satisfaction of the
Expandable Wraparound Mortgage; and (iii) full satisfaction of any first
mortgage then in place. If these amounts were not included in current
liabilities, the Corporation's working capital at March 31, 1995 and December
31, 1994 would have been $39,077,000 and $46,350,000, respectively.
The Hotel Assets are owned by the Partnership and leased by the
Partnership to New Claridge under the terms of the Operating Lease originally
entered into on October 31, 1983, and the Expansion Operating Lease, which
covered the expansion improvements made to the Claridge in 1986. The initial
terms of both leases are scheduled to expire on September 30, 1998 and each
lease provides for three 10-year renewal options at the election of New
Claridge. The Operating Lease requires basic rental payments to be made in
equal monthly installments escalating annually up to $41,775,000 in 1997,
and $32,531,000 for the remainder of the initial lease term. Prior to
the Corporation's 1989 restructuring, basic rent expense (recognized on a
leveled basis in accordance with Statement of Financial Accounting Standards
No. 13), was $31,902,000 per year. Therefore, in the early years of the
lease term, required cash payments under the Operating Lease (not including
the Expansion Operating Lease) were significantly lower than the related
expense recognized for financial reporting purposes. Rental payments under
the Expansion Operating Lease are adjusted annually based on a Consumer Price
Index with any increase not to exceed two percent per year. Pursuant to the
Restructuring Agreement, the Operating Lease and the Expansion Operating
Lease were amended to provide for the abatement of $38.8 million of basic
rent payable through 1998 and the deferral of $15.1 million of rental
payments, thereby reducing the Partnership's cash flow to an amount estimated
<PAGE> 16
to be necessary only to meet the Partnership's cash requirements. Effective
on completion of the 1989 restructuring, lease expense recognized on a level
basis was reduced prospectively, based on a revised schedule of rent leveling
based on the agreed rental abatements. At March 31, 1995 the Corporation had
accrued the maximum amount of $15.1 million of deferred rent liability under
the lease arrangements. The deferred rent liability will become payable (i)
upon a sale or refinancing of the Claridge; (ii) upon full or partial
satisfaction of the Expandable Wraparound Mortgage; and (iii) upon full
satisfaction of any first mortgage then in place. Also as of March 31, 1995,
$22.6 million of basic rent had been abated. The remaining $16.2 million of
available abatement is expected to be fully utilized by the fourth quarter of
1996. Because the initial term of the Operating Lease continues through
September 30, 1998, rental payments after the $38.8 million abatement is
fully utilized will increase substantially to approximately $41.8 million in
1997, as compared to $31.2 million (net of projected abatement) in 1996.
However, if New Claridge exercises its option to extend the term of the
Operating Lease, basic rent during the renewal term will be calculated
pursuant to a formula with annual basic rent not to be more than $29.5
million or less than $24 million for the twelve months commencing October 1,
1998, and subsequently, not to be greater than 10% more than the basic rent
for the immediately preceding lease year in each lease year thereafter. If
New Claridge exercises its option to extend the term of the Expansion
Operating Lease, basic rent also will be calculated pursuant to a formula
with annual basic rent not to be more than $3 million or less than $2.5
million for the twelve months commencing October 1, 1998, and subsequently,
not to be greater than 10% more than the basic rent for the immediately
preceding lease year in each lease year thereafter. If the term of both
leases is extended under their renewal options, the aggregate basic rent
payable during the initial years of renewal term will be significantly below
the 1997 level.
New Claridge is obligated under its Operating Lease with the Partnership
to lend the Partnership, at an annual interest rate of 14%, any amounts
necessary to fund the cost of furniture, fixtures and equipment replacements.
The Expandable Wraparound Mortgage, granted by the Partnership to New
Claridge, by its terms may secure up to $25 million of additional borrowings
by the Partnership from New Claridge to finance the replacements of
furniture, fixtures and equipment and facility maintenance and engineering
shortfalls. The advances to the Partnership are in the form of FF&E
Promissory Notes and are secured by the Hotel Assets. One half of the
principal is due on the 48th month following the advance, with the remaining
balance due on the 60th month following the date of issuance. In connection
with the offering of $85 million of the Notes on January 31, 1994, the
Corporation agreed to use not less than $8 million from the net proceeds of
the offering to finance certain internal improvements to the Claridge which
were funded through additional FF&E Loans. In connection therewith, the
Expandable Wraparound Mortgage Loan agreement as well as the Operating Lease,
and the Expansion Operating Lease were amended to provide that the principal
on these additional FF&E Loans will be payable at final maturity of the
Expandable Wraparound Mortgage. New Claridge is obligated to pay as
additional rent to the Partnership the debt service on the FF&E Promissory
Notes.
The Expandable Wraparound Mortgage requires monthly principal payments to
be made by the Partnership to New Claridge, commencing in the year 1988 and
continuing through the year 1998, in escalating amounts totalling $80
million. The Expandable Wraparound Mortgage, which will mature on September
30, 2000, bears interest at an annual rate equal to 14% with the deferral
until maturity of $20 million of certain interest payments which accrued
between 1983 and 1988. In addition, in 1986 the principal amount secured by
the Expandable Wraparound Mortgage was increased to provide the Partnership
with funding for the construction of an expansion improvement, which resulted
in approximately 10,000 square feet of additional casino space and a 3,600
square foot lounge. Effective August 28, 1986, the Partnership commenced
making level monthly payments of principal and interest calculated to provide
for the repayment in full of the principal balance of this increase in the
Expandable Wraparound Mortgage by September 30, 1998. Under the terms of the
<PAGE> 17
Expandable Wraparound Mortgage, New Claridge is not permitted to foreclose on
the Expandable Wraparound Mortgage and take ownership of the Hotel Assets so
long as a senior mortgage is outstanding. The face amount outstanding of the
Expandable Wraparound Mortgage at March 31, 1995 (including the outstanding
FF&E Loans and the $20 million of deferred interest) was $135.1 million.
If the Partnership should fail to make any payment due under the
Expandable Wraparound Mortgage, New Claridge may exercise a right of offset
against rent or other payments due under the Operating Lease and Expansion
Operating Lease to the extent of any such deficiency.
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Claridge Hotel and Casino Corporation
- -----------------------------------------
(Registrant)
By: /s/ Raymond A. Spera
------------------------------------------
Raymond A. Spera
Executive Vice President of Finance/
Chief Financial Officer
(Authorized Officer and
Principal Financial Officer)
Dated: May 15, 1995
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<NAME> CLARIDGE HOTEL AND CASINO CORPORATION
<MULTIPLIER> 1
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
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<CASH> 30,215,000
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