<PAGE>
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 September 30, 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
November 1, 1995
----------------
Class A Stock 5,046,064
<PAGE>
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
September 30, 1995 and 1994 and
December 31, 1994 4
Consolidated Statements of Operations
for the three months ended September 30,
1995 and 1994 5
Consolidated Statements of Operations
for the nine months ended September 30,
1995 and 1994 6
Consolidated Statements of Cash Flows
for the nine months ended September 30,
1995 and 1994 7
Notes to Consolidated Financial
Statements 9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 13
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
1
<PAGE>
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 September 30, 1995 and 1994 and December 31, 1994, and the results of
its operations for the three and nine months ended September 30, 1995 and 1994
and its cash flows for the nine months ended September 30, 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 and nine months ended September
30, 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.
3
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1995 1994 1994
-------- ------- -------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $37,964 37,244 38,684
Receivables, net (including
$14,879 and $13,163 at September 30, 1995 and
1994, respectively and $13,656 at December 31,
1994, due from the Partnership) 15,756 16,888 14,355
Other current assets 4,151 8,149 7,851
-------- ------- -------
Total current assets 57,871 62,281 60,890
-------- ------- -------
Property and equipment, net 20,615 8,663 8,678
Long-term receivables due from the
Partnership (note 3) 106,860 114,244 116,642
Intangible assets and deferred charges 3,054 4,140 3,750
Other assets 1,614 1,470 3,134
-------- ------- -------
$190,014 190,798 193,094
======== ======= =======
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable 3,330 2,782 3,797
Loan from the Partnership (note 4) 3,600 3,600 3,600
Other current liabilities (note 5) 30,485 30,621 29,085
-------- ------- -------
37,415 37,003 36,482
-------- ------- -------
Long-term debt (note 6) 85,000 85,000 85,000
Deferred rent due to the Partnership 31,445 33,133 34,126
Deferred income taxes (note 8) 8,686 8,199 7,578
Other noncurrent liabilities (note 7) 20,171 20,000 20,000
Stockholders' equity:
Common stock 5 5 5
Additional paid in capital 5,048 5,048 5,048
Accumulated earnings 2,244 2,410 4,855
Treasury stock, 16,436 Class A
shares at $-0- cost at September 30, 1995, and
8,218 Class A Shares at $-0- cost at
December 31, 1994 and September 30, 1994 -0- -0- -0-
-------- ------- -------
Total stockholders' equity 7,297 7,463 9,908
-------- ------- -------
$190,014 190,798 193,094
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
For the Three Months Ended September 30, 1995 and 1994
(in thousands except per share data)
1995 1994
-------- ------
Revenue:
Casino $ 47,074 47,705
Hotel 2,935 3,651
Food and beverage 5,607 5,757
Interest from the Partnership 4,271 4,532
Interest, other 466 396
Other 576 769
-------- ------
60,929 62,810
Less promotional allowances (note 2) 4,771 5,488
-------- ------
Net revenues 56,158 57,322
-------- ------
Costs and expenses:
Casino 24,660 25,610
Hotel 718 722
Food and beverage 3,352 3,029
Other 905 1,041
Rent expense to the Partnership 9,277 9,064
Rent expense, other 378 384
General and administrative 7,058 7,704
Gaming taxes 3,761 3,800
Reinvestment obligation expense 291 1,273
Provision for uncollectible accounts (132) 147
Depreciation and amortization 739 729
Interest expense 2,058 2,613
-------- ------
Total costs and expenses 53,065 56,116
-------- ------
Income before income taxes 3,093 1,206
Income tax expense 1,411 483
-------- ------
Net income $ 1,682 723
======== ======
Net income per share (based on 5,048,654 and
5,054,282 weighted average shares outstanding
for the three months ended September 30, 1995
and 1994, respectively) $ .33 .14
======== ======
See accompanying notes to consolidated financial statements.
5
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
For the Nine Months Ended September 30, 1995 and 1994
(in thousands except per share data)
1995 1994
--------- -------
Revenue:
Casino $ 128,419 117,224
Hotel 7,203 8,485
Food and beverage 15,130 13,948
Interest from the Partnership 13,001 13,427
Interest, other 1,320 1,080
Other 1,567 2,063
--------- -------
166,640 156,227
Less promotional allowances (note 2) 12,362 12,954
--------- -------
Net revenues 154,278 143,273
--------- -------
Costs and expenses:
Casino 69,534 67,133
Hotel 2,420 2,310
Food and beverage 9,099 7,845
Other 2,347 2,890
Rent expense to the Partnership 28,156 26,854
Rent expense, other 1,134 1,149
General and administrative 20,199 22,178
Gaming taxes 10,260 9,345
Reinvestment obligation expense 1,292 1,568
Provision for uncollectible accounts (18) 375
Depreciation and amortization 2,149 1,701
Interest expense 7,268 7,352
--------- -------
Total costs and expenses 153,840 150,700
--------- -------
Income (loss) before income taxes 438 (7,427)
Income tax expense (benefit) 604 (2,971)
--------- -------
Net loss $ (166) (4,456)
======== ======
Net loss per share (based on 5,052,386 and
5,029,598 weighted average shares outstanding
for the nine months ended September 30, 1995
and 1994, respectively) $ (.03) (.89)
======== ======
See accompanying notes to consolidated financial statements.
6
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1995 and 1994
(in thousands)
1995 1994
------- -------
Cash flows from operating activities:
Net loss $ (166) (4,456)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization 2,149 1,701
Deferred rent to the Partnership (1,688) (2,216)
Deferred interest receivable and
discount from the Partnership (977) (850)
Reinvestment obligation expenses 1,292 1,568
(Gain) loss on disposal of assets (42) 58
Deferred income taxes 487 1,475
Change in assets and liabilities:
Receivables, net, excluding
current portion of long-term
receivables 2,528 171
Other current assets, excluding
current portion of CRDA credit 3,083 (3,647)
Accounts payable 548 1,288
Other current liabilities (136) 924
Other noncurrent liabilities 171 -0-
------- -------
Net cash flows provided by (used in) operating activities 7,249 (3,984)
------- -------
Cash flows from investment activities:
Decrease (increase) in intangible assets
and deferred charges 624 (187)
Additions to property and equipment, net (13,672) (5,819)
Additions to other assets (521) (1,470)
Proceeds from disposition of property 75 35
Increase in long-term receivables (1,984) (9,240)
Receipt of long-term receivables 8,949 7,755
------- -------
Net cash flows used in investment activities (6,529) (8,926)
------- -------
(Continued)
7
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1995 and 1994
(in thousands)
1995 1994
-------- ------
Cash flows from financing activities:
Increase in long-term debt -0- 85,000
Payment of long-term debt -0- (33,559)
Increase in deferred charges related to
issuance of long term debt -0- (3,340)
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- 46,401
-------- ------
Increase in cash and cash equivalents 720 33,491
Cash and cash equivalents at beginning of period 37,244 5,193
-------- ------
Cash and cash equivalents at end of period $ 37,964 38,684
======== ======
See accompanying notes to consolidated financial statements.
8
<PAGE>
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.
Certain reclassifications have been made to the 1994 consolidated
financial statements to conform to the 1995 presentation.
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 and nine
months ended September 30, 1995 and 1994 has been allocated to casino
operating expenses as follows (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1995 1994 1995 1994
---- ---- ---- ----
Hotel $ 887 828 2,178 2,029
Food and beverage 2,587 2,761 7,138 7,602
Other (Entertainment) 144 206 601 575
------ ----- ----- ------
Total costs allocated to
casino operating expenses $3,618 3,795 9,917 10,206
====== ===== ===== ======
9
<PAGE>
Notes to Consolidated Financial Statements
3. Long-Term Receivables
Long-term receivables consist of the following amounts due from
Atlantic City Boardwalk Associates, L.P. (the "Partnership"):
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1995 1994 1994
--------- -------- --------
<S> <C> <C> <C>
(in thousands)
Expandable Wraparound Mortgage 14%,
maturities through September 30, 2002
(net of $10,164,000 discount and
$11,445,000 discount at September 30, 1995
and 1994 respectively, and $11,141,000
discount at December 31, 1994) $ 65,336 71,859 73,805
Deferred Expandable Wraparound
Mortgage interest receivable, due
September 30, 2000 20,000 20,000 20,000
FF&E promissory notes, 14% 16,495 15,863 15,851
Expansion/Construction promissory
note, 14% 5,029 6,522 6,986
--------- -------- --------
$ 106,860 114,244 116,642
========= ======== ========
</TABLE>
4. 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 September 30, 1995, such interest, which is included in
other current liabilities, amounted to $2,718,000.
10
<PAGE>
Notes to Consolidated Financial Statements
5. Other Current Liabilities
Other current liabilities consist of the following:
September 30, December 31, September 30,
1995 1994 1994
(in thousands)
Deferred rent due to Partnership $15,078 15,078 15,078
Accrued payroll and
related benefits 7,298 5,625 6,508
Accrued interest, First
Mortgage Notes 1,665 4,161 1,665
Accrued interest due to
Partnership 2,718 2,394 2,286
Auto and general
liability reserves 1,125 1,149 1,151
Other current liabilities 2,601 2,214 2,397
------- ------ ------
$30,485 30,621 29,085
======= ====== ======
The amount of deferred rent 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.
6. 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 $7.5 million revolving credit line arrangement was
terminated.
7. 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
11
<PAGE>
Notes to Consolidated Financial Statements
interest at a rate of 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 financial statements since the
likelihood of paying such amount is not considered probable at this
time. As of September 30, 1995, accrued interest would have amounted to
approximately $34.7 million. The Corporation is currently negotiating to
purchase the Contingent Payment, for less than face value, from the
trustee for the United Way of Arizona. If these negotiations are
successful, and the transactions thereby contemplated are completed, any
obligation to pay the $34.7 million of accrued interest would be
eliminated.
8. Income Taxes
The Corporation recorded income tax expense of $604,000 for the nine
months ended September 30, 1995. As of September 30, 1995, the current
portion of the income tax expense of approximately $67,000 is included
in other current liabilities.
During 1995 the Corporation received notice from the Internal Revenue
Service ("IRS") asserting deficiencies in Federal corporate income taxes
for the Corporation's 1990 and 1991 taxable years. Many of the proposed
adjustments to the Corporation's tax returns have been settled with no
adverse impact to the Corporation's consolidated financial statements.
There is a remaining IRS asserted deficiency for the 1990 and 1991
taxable years. The Corporation has filed a petition to appeal the entire
amount of this asserted deficiency. The Corporation believes the
ultimate resolution of the case will result in no material impact on the
Corporation's consolidated financial statements.
9. Claridge License Renewal
On September 22, 1995, New Claridge was issued a four-year casino
license by the New Jersey Casino Control Commission (the "Commission")
for the period commencing September 30, 1995.
12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations for the Three Months Ended September 30, 1995
The Corporation had income of $1,682,000 net of income tax expense of
$1,411,000 for the three months ended September 30, 1995, compared to income of
$723,000 net of income tax expense of $483,000 for the same period of 1994.
For the third quarter of 1995, casino revenue, which is the difference
between amounts wagered by and amounts paid to casino patrons, was $47,074,000,
a slight decrease from casino revenues earned in the third quarter of 1994.
Casino revenues reportedly earned by all Atlantic City casinos during the third
quarter of 1995 increased 7.3% over the same period of 1994.
Claridge table games revenue for the three months ended September 30,
1995 was $10,461,000, an 8.5% decrease from third quarter of 1994 table games
revenue. This decrease resulted from a 12.6% decrease in table games drop (the
amount of gaming chips purchased by patrons), offset somewhat by an increase in
the "hold" percentage (the percentage of win to drop) to 14.6% in the third
quarter of 1995, from 13.8% in the third quarter of 1994. In addition, New
Claridge discontinued its keno and poker operations in the second quarter of
1995, as part of an attempt to reduce the segment of the table games business
which produces low operating margins. Citywide table games revenue, as reported,
for the third quarter of 1995 increased 2.7% over the same period of 1994. The
average number of table games available citywide during the third quarter of
1995 were consistent with the third quarter of 1994; the average number of table
games available at the Claridge during the third quarter of 1995 decreased 18.8%
from the same period of 1994, primarily due to the discontinuation of the poker
operation.
New Claridge earned revenues from slot machines of $36,613,000 during
the third quarter of 1995, a slight increase over slot revenues earned during
the third quarter of 1994 of $36,177,000. Slot machine revenues reportedly
earned by all Atlantic City casinos during the third quarter of 1995 increased
9.5% over the same period of 1994. The average number of slot machines available
citywide during the three months ended September 30, 1995 increased 7.6% over
the same period of 1994, while the average number of slot machines available at
the Claridge remained consistent with the third quarter 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 third quarter of 1995,
incentives issued through these programs totalled $3,656,000, compared to
$3,649,000 in the third quarter of 1994. In addition, New Claridge offers coin
incentives to patrons arriving by bus; during the third quarter of 1995, 280,000
patrons arrived at the Claridge, and were issued $3,385,000 in coin incentives,
compared to 274,000 bus patrons and $2,880,000 in coin incentives in the same
period of 1994.
Hotel revenues for the three months ended September 30, 1995 were
$2,935,000, a decrease from hotel revenues of $3,651,000 for the same period of
1994. This decrease resulted from a decrease in the average room rate, to $63 in
the third quarter of 1995, from $80 in the third quarter of 1994, due in part to
a reduction in the complimentary room rate charged. Food and beverage revenues
for the third quarter of 1995 of $5,607,000 were slightly lower than in the same
period of 1994, primarily due to a decrease in complimentary beverages served in
the casino. The total number of covers (meals served) during the third quarter
of 1995 was 553,000, at an average price per cover of $6.90, compared to 568,000
covers at an average price per cover of $6.79 during the same period of 1994.
Other revenues for the third quarter of 1995 of $576,000 decreased from revenues
for the third quarter of 1994 of $769,000 due to the assumption, in October
1994, of the Claridge's gift shop operation, by an outside vendor.
13
<PAGE>
Total costs and expenses for the three months ended September 30, 1995
were $53,065,000, a 5.4% decrease from the same period of 1994. This decrease
was due in part to costs in the third quarter of 1994 associated with the
opening of the Claridge's newly expanded casino, including higher marketing and
advertising costs to promote the opening of the casino expansion. In addition,
during the third quarter of 1994, New Claridge recorded $1.3 million of
reinvestment obligation expense related to the donation of amounts previously
deposited with the Casino Reinvestment Development Authority (the "CRDA"), in
exchange for credits to be applied towards future obligations. Interest expense
for the third quarter of 1995 of $2,058,000 was lower than the same period of
1994 as a result of the capitalization of $781,000 of interest related to the
construction of New Claridge's self-parking garage, which construction commenced
in 1995.
Results of Operations for the Nine Months Ended September 30, 1995
The Corporation had a loss of $166,000 net of income tax expense of
$604,000 for the nine months ended September 30, 1995, compared to a loss of
$4,456,000 net of income tax benefit of $2,971,000 for the same period of 1994.
Casino revenues for the first three quarters of 1995 were $128,419,000,
a 9.6% increase over casino revenues of $117,224,000 for the same period of
1994. Casino revenues earned by all Atlantic City Casinos, as reported, for the
nine months ended September 30, 1995, increased 10.8% over the first nine months
of 1994. The average number of table games and slot machines available increased
3.8% and 11.0%, respectively, over 1994 averages as a result of the continued
expansion of casinos citywide.
New Claridge earned table games revenue of $29,257,000 during the nine
months ended September 30, 1995, a slight decrease from the same period of 1994.
The hold percentage for the first nine months of 1995 increased to 15.3% from
the 14.2% hold in the same period of 1994; however, table games drop for the
first three quarters of 1995 decreased 8.7% from the first three quarters of
1994. The decrease in drop was due in part to an attempt to reduce the segment
of the table games business which produced low operating margins; efforts to
replace that segment with more profitable business have been slower in producing
results than anticipated. Citywide table games revenue, as reported, for the
first nine months of 1995 increased 5.2% over the same period of 1994.
Slot machine revenues earned by New Claridge for the nine months ended
September 30, 1995 were $99,147,000, reflecting a 13.4% increase over revenues
earned from slot machines during the same period of 1994. The average number of
slot machines available at the Claridge during the first three quarters of 1995
increased 20.9% over the same period of 1994, as a result of the casino
expansion which became fully operational in June 1994. Citywide slot machine
revenues for the first nine months of 1995, as reported, also increased 13.4%
over the same period of 1994. During the nine months ended September 30, 1995,
New Claridge issued $8,729,000 of coin incentives to 718,000 patrons arriving at
the Claridge by bus, compared to $6,659,000 in coin incentives issued to 616,000
bus patrons in the same period of 1994. In addition, New Claridge issued
$9,650,000 in incentives through its direct marketing programs during the first
three quarters of 1995, compared to $8,619,000 of incentives issued during the
same period of 1994.
Hotel revenues for the nine months ended September 30, 1995 of
$7,203,000 were 15.1% lower than hotel revenues for the same period of 1994, as
a result of a decrease in the average room rate, to $57 in 1995 from $68 in
14
<PAGE>
1994, due in part to a reduction in the complimentary room rate charged. Food
and beverage revenues for the first three quarters of 1995 were $15,130,000, an
8.5% increase over the same period of 1994. This increase was due to an increase
in the number of covers to 1,336,000 in 1995 from 1,306,000 in 1994, combined
with an increase in the average price per cover, to $7.53 in 1995 from $7.15 in
1994.
Total costs and expenses for the nine months ended September 30, 1995 of
$153,840,000 were 2.1% higher than during the same period of 1994. Casino
operating costs increased 3.6% over the first nine months of 1994 primarily due
to higher coin incentives issued to casino patrons. Food and beverage costs
increased 16.0% over the first three quarters of 1994, due in part to the
increased business volume, as well as a reduction in the cost of promotional
allowances allocated to casino operating costs resulting from a decrease in
promotional allowances issued to casino patrons. General and administrative
costs for the nine months ended September 30, 1995 decreased 8.9% from the same
period of 1994, resulting primarily from decreased advertising costs.
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 $7.5 million 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 land, at a cost of $7.5 million, adjacent to
New Claridge's existing valet- parking facility, which is being
used for the construction of a self-parking facility.
The balance of the net proceeds from the offering of the Notes is
expected to be used as follows:
(i) the construction of the self-parking facility, which commenced in
the second quarter of 1995. The total cost of the self-parking
facility, including architectural, engineering, and legal fees,
is estimated to be in excess of $18 million, in addition to the
cost of the land;
15
<PAGE>
(ii) the possible purchase of the Contingent Payment (see Note 7,
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 September 30, 1995, the Corporation had working capital of
$20,456,000, as compared to working capital of $25,278,000 at December 31, 1994.
This decrease in working capital is attributable to a decrease in receivables of
$1,132,000, a decrease in other current assets of $3,998,000, an increase in
accounts payable of $548,000, and an increase in accrued payroll and related
benefits of $1,673,000, offset by an increase in cash of $720,000 and a decrease
in interest payable of $2,172,000. Working capital at September 30, 1994 was
$24,408,000. Current liabilities at September 30, 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 $2,718,000 at September 30,
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 September 30, 1995 and
December 31, 1994 would have been $41,852,000 and $46,350,000, respectively.
For the nine months ended September 30, 1995, cash flows provided by
operating activities were $7,249,000, compared to cash flows used in operating
activities during the same period of 1994 of $3,984,000; this increase in cash
provided was primarily due to improved operating results, as well as a $4
million income tax refund received in the second quarter of 1995. Cash flows
used in investment activities for the nine months ended September 30, 1995 of
$6,529,000 decreased from the same period of 1994 primarily due to an increase
in Expandable Wraparound Mortgage principal payments received. Cash flows used
in investment activities for the first three quarters of 1995 for additions to
property and equipment, (including loans to the Partnership for the purchase of
furniture, fixture and equipment replacements, which are reflected in the
increase in long-term receivables), included expenditures for the acquisition of
land and the construction of the self-parking facility, and were consistent with
expenditures during the same period of 1994, which included the cost of the
expansion of New Claridge's casino capacity and relocation of two restaurants.
For the nine months ended September 30, 1995, the Corporation's
"Adjusted EBITDA" was $17,431,000, compared to $7,883,000 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 out flow to the Partnership. Adjusted EBITDA 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 operating income (as determined in
accordance with generally accepted accounting principles) as an indicator of
operating performance, or to cash flows from operating activities (as determined
in accordance with generally accepted accounting principles) as a measure of
liquidity, or to other consolidated income or cash flow statement data, as are
determined in accordance with generally accepted accounting principles.
16
<PAGE>
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 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
September 30, 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 September 30, 1995, $26.9 million of basic rent had been abated. The
remaining $11.9 million of available abatement is expected to be fully utilized
by the first quarter of 1997. 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 in 1997 as compared to
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 the 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
17
<PAGE>
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 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 September
30, 1995 (including the outstanding FF&E Loans and the $20 million of deferred
interest) was $130.4 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.
18
<PAGE>
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: November 14, 1995
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CLARIDGE
HOTEL AND CASINO CORPORATION'S FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30,
1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000730409
<NAME> CLARIDGE HOTEL AND CASINO CORPORATION
<MULTIPLIER> 1
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<CASH> 37,964,000
<SECURITIES> 0
<RECEIVABLES> 16,908,000
<ALLOWANCES> 1,152,000
<INVENTORY> 289,000
<CURRENT-ASSETS> 57,871,000
<PP&E> 32,507,000
<DEPRECIATION> 11,892,000
<TOTAL-ASSETS> 190,014,000
<CURRENT-LIABILITIES> 37,415,000
<BONDS> 85,000,000
<COMMON> 5,000
0
0
<OTHER-SE> 7,292,000
<TOTAL-LIABILITY-AND-EQUITY> 190,014,000
<SALES> 0
<TOTAL-REVENUES> 154,278,000
<CGS> 0
<TOTAL-COSTS> 83,400,000
<OTHER-EXPENSES> 63,190,000
<LOSS-PROVISION> (18,000)
<INTEREST-EXPENSE> 7,268,000
<INCOME-PRETAX> 438,000
<INCOME-TAX> 604,000
<INCOME-CONTINUING> (166,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (166,000)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
