<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 June 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
August 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
June 30, 1995 and 1994 and
December 31, 1994 4
Consolidated Statements of Operations
for the three months ended June 30,
1995 and 1994 5
Consolidated Statements of Operations
for the six months ended June 30,
1995 and 1994 6
Consolidated Statements of Cash Flows
for the six months ended June 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 June 30, 1995 and 1994 and December 31, 1994, and the results of its
operations for the three and six months ended June 30, 1995 and 1994 and its
cash flows for the six months ended June 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 six months ended June 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>
June 30, December 31, June 30,
1995 1994 1994
-------- ------------ --------
<S> <C> <C> <C>
ASSETS
------
Current Assets:
Cash and cash equivalents $37,077 37,244 41,826
Receivables, net (including $14,503 and $12,793
at June 30, 1995 and 1994, respectively and
$13,656 at December 31, 1994, due from the
Partnership) 15,195 16,888 13,782
Other current assets 5,272 8,149 7,074
--------- --------- ---------
Total current assets 57,544 62,281 62,682
--------- --------- ---------
Property and equipment, net 18,901 8,663 8,750
Long-term receivables due from the
Partnership (note 3) 109,444 114,244 117,573
Intangible assets and deferred charges 3,202 4,140 3,691
Other assets 1,343 1,470 4,516
--------- --------- ---------
$190,434 190,798 197,212
========= ========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
Current Liabilities:
Accounts payable 3,507 2,782 6,232
Loan from the Partnership (note 4) 3,600 3,600 3,600
Other current liabilities (note 5) 32,311 30,621 31,710
--------- --------- ---------
39,418 37,003 41,542
--------- --------- ---------
Long-term debt (note 6) 85,000 85,000 85,000
Deferred rent due to the Partnership 32,034 33,133 34,721
Deferred income taxes (note 8) 8,252 8,199 6,764
Other noncurrent liabilities (note 7) 20,115 20,000 20,000
Stockholders' equity:
Common stock 5 5 5
Additional paid in capital 5,048 5,048 5,048
Accumulated earnings 562 2,410 4,132
Treasury stock, 8,218 Class A
shares at $-0- cost at June 30, 1995,
December 31, 1994, and June 30, 1994 -0- -0- -0-
--------- --------- ---------
Total stockholders' equity 5,615 7,463 9,185
--------- ---------- ----------
$190,434 190,798 197,212
========= ========== ==========
</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 June 30, 1995 and 1994
(in thousands except per share data)
<TABLE>
<CAPTION>
1995 1994
----------- --------
<S> <C> <C>
Revenue:
Casino $42,755 39,407
Hotel 2,294 2,675
Food and beverage 5,094 4,433
Interest from the Partnership 4,332 4,493
Interest, other 482 431
Other 484 676
-------- ---------
55,441 52,115
Less promotional allowances (note 2) 4,068 3,956
-------- ---------
Net revenues 51,373 48,159
-------- ---------
Costs and expenses:
Casino 23,227 22,891
Hotel 836 861
Food and beverage 2,988 2,615
Other 739 965
Rent expense to the Partnership 9,394 9,058
Rent expense, other 378 384
General and administrative 6,656 8,108
Gaming taxes 3,417 3,143
Reinvestment obligation expense 478 165
Provision for uncollectible accounts 57 128
Depreciation and amortization 727 535
Interest expense 2,605 2,553
-------- ---------
Total costs and expenses 51,502 51,406
-------- ---------
Loss before income taxes (129) (3,247)
Income tax expense (benefit) 28 (1,300)
-------- ---------
Net loss $ (157) (1,947)
======== =========
Net loss per share (based on 5,054,282 and 5,045,251 weighted average shares
outstanding for the three months ended June 30, 1995
and 1994, respectively) $ (.03) (.39)
======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
For the Six Months Ended June 30, 1995 and 1994
(in thousands except per share data)
<TABLE>
<CAPTION>
1995 1994
--------- --------
<S> <C> <C>
Revenue:
Casino $ 81,345 69,519
Hotel 4,268 4,834
Food and beverage 9,523 8,191
Interest from the Partnership 8,730 8,895
Interest, other 854 684
Other 991 1,294
---------- ----------
105,711 93,417
Less promotional allowances (note 2) 7,591 7,466
---------- ----------
Net revenues 98,120 85,951
---------- ----------
Costs and expenses:
Casino 44,874 41,523
Hotel 1,702 1,588
Food and beverage 5,747 4,816
Other 1,442 1,849
Rent expense to the Partnership 18,879 17,790
Rent expense, other 756 765
General and administrative 13,141 14,474
Gaming taxes 6,499 5,545
Reinvestment obligation expense 1,001 295
Provision for uncollectible accounts 114 228
Depreciation and amortization 1,410 972
Interest expense 5,210 4,739
---------- ----------
Total costs and expenses 100,775 94,584
---------- ----------
Loss before income taxes (2,655) (8,633)
Income tax benefit (807) (3,454)
---------- ----------
Net loss $ (1,848) (5,179)
========== ==========
Net loss per share (based on 5,054,282 and 5,017,051 weighted average shares
outstanding for the six months ended June 30, 1995
and 1994, respectively) $ (.37) (1.03)
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1995 and 1994
(in thousands)
<TABLE>
<CAPTION>
1995 1994
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,848) (5,179)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,410 972
Deferred rent to the Partnership (1,099) (1,621)
Deferred interest receivable and
discount from the Partnership (640) (557)
Reinvestment obligation expenses 1,001 295
Loss on disposal of assets -0- 53
Deferred income taxes 53 661
Change in assets and liabilities:
Receivables, net, excluding
current portion of long-term
receivables 2,662 321
Other current assets, excluding
current portion of CRDA credit 2,109 (2,870)
Accounts payable 725 3,723
Other current liabilities 1,690 3,549
Other noncurrent liabilities 115 -0-
---------- ----------
Net cash flows provided by (used in) operating activities 6,178 (653)
---------- ----------
Cash flows from investment activities:
Decrease (increase) in intangible assets
and deferred charges 631 (3,317)
Additions to property and equipment, net (11,341) (5,303)
Additions to other assets (106) (1,578)
Proceeds from disposition of property -0- 29
Increase in long-term receivables (1,566) (7,559)
Receipt of long-term receivables 6,037 5,273
---------- ----------
Net cash flows used in investment activities (6,345) (12,455)
---------- ----------
</TABLE>
(Continued)
7
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 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 (167) 36,633
Cash and cash equivalents at beginning of period 37,244 5,193
---------- ----------
Cash and cash equivalents at end of period $ 37,077 41,826
========== ==========
</TABLE>
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.
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 and six
months ended June 30, 1995 and 1994 has been allocated to casino
operating expenses as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
Hotel $ 730 600 1,291 1,201
Food and beverage 2,325 2,502 4,551 4,841
Other (Entertainment) 289 201 457 369
------ ------ ------ ------
Total costs allocated to
casino operating expenses $ 3,344 3,303 6,299 6,411
====== ====== ====== ======
</TABLE>
3. Long-Term Receivables
---------------------
Long-term receivables consist of the following amounts due from Atlantic
City Boardwalk Associates, L.P. (the "Partnership"):
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1995 1994 1994
----------- ------------ --------
(in thousands)
<S> <C> <C> <C>
Expandable Wraparound Mortgage 14%,
maturities through September 30, 2002
(net of $10,501,000 discount and $11,738,000
discount at June 30, 1995 and 1994 respectively,
and $11,141,000 discount at December 31, 1994) $ 67,499 71,859 75,762
Deferred Expandable Wraparound
Mortgage interest receivable, due
September 30, 2000 20,000 20,000 20,000
FF&E promissory notes, 14% 16,401 15,863 14,377
Expansion/Construction promissory
note, 14% 5,544 6,522 7,434
--------- --------- ---------
$ 109,444 114,244 117,573
========= ========= =========
</TABLE>
9
<PAGE>
Notes to Consolidated Financial Statements
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 June 30, 1995, such interest, which is included in other
current liabilities, amounted to $2,610,000.
5. Other Current Liabilities
-------------------------
Other current liabilities consist of the following:
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1995 1994 1994
----------- ------------ --------
(in thousands)
<S> <C> <C> <C>
Deferred rent due to Partnership $ 15,078 15,078 15,078
Accrued payroll and
related benefits 7,377 5,625 6,313
Accrued interest, First
Mortgage Notes 4,161 4,161 4,189
Accrued interest due to
Partnership 2,610 2,394 2,178
Auto and general
liability reserves 1,135 1,149 1,249
Other current liabilities 1,950 2,214 2,703
-------- --------- ---------
$ 32,311 30,621 31,710
======== ========= =========
</TABLE>
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.
10
<PAGE>
Notes to Consolidated Financial Statements
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
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 June 30, 1995, accrued interest would have amounted to
approximately $32.7 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.
8. Income Taxes
------------
The Corporation recorded an income tax benefit of $807,000 for the six
months ended June 30, 1995 which represents the tax benefit of losses
which the Corporation believes will more likely than not be recognized.
As of June 30, 1995, the current portion of the income tax benefit of
approximately $900,000 is included in other current assets.
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.
11
<PAGE>
Notes to Consolidated Financial Statements
9. 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. New Claridge has applied for the
renewal of its casino license for a period of four years, commencing
September 30, 1995. Management of New Claridge is aware of no charges,
objections, or other facts which would provide a basis for the
Commission to deny renewal of its casino license.
12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations for the Three Months Ended June 30, 1995
--------------------------------------------------------------
The Corporation had a loss of $157,000 net of income tax expense of
$28,000 for the three months ended June 30, 1995, compared to a loss of
$1,947,000 net of income tax benefit of $1,300,000 for the same period in 1994.
For the three months ended June 30, 1995, the Corporation's "Adjusted
EBITDA" was $5,946,000, compared to $2,111,000 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 second quarter of 1995 totalled
$42,755,000 an increase of 8.5% over casino revenues earned in the second
quarter of 1994. Casino revenues earned by all Atlantic City properties as
reported for the three months ended June 30, 1995 were 10.2% higher than
revenues earned during the same period of 1994.
Claridge table games revenue for the second quarter of 1995 was
$8,735,000, a decrease of 10.2% from table games revenue earned during the
second quarter of 1994. Citywide table games revenue as reported for the second
quarter of 1995 increased 8.8% over the same period of 1994. The decrease in
Claridge table games revenue resulted from a decrease in table games drop (the
amount of gaming chips purchased by patrons) during the second quarter of 1995
of 12.4% from the same period of 1994, which was offset slightly by an increase
in the "hold" percentage (the percentage of win to drop) to 14.4% in the second
quarter of 1995 from 14.0% in the same period of 1994.
New Claridge earned $34,020,000 of revenues from slot machines in the
second quarter of 1995, a 14.6% increase over slot revenues earned in the second
quarter of 1994 of $29,679,000. This increase was due to the expansion of New
Claridge's casino floor space, including the addition of approximately 500 slot
machines, which became fully operational on June 30, 1994. Slot machine revenues
earned by all Atlantic City casinos as reported for the three months ended June
30, 1995 increased 10.7% over the same period of 1994; the average number of
slot machines available citywide during the second quarter of 1995 increased
12.7% over the same period of 1994.
New Claridge offers promotional incentive 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 second quarter of 1995, coin
issued through this program totalled $3,196,000, compared to $2,935,000 in the
second quarter of 1994. In addition, New Claridge offers coin incentives to
patrons arriving by bus. During the three months ended June 30, 1995, 256,000
bus patrons arrived at the Claridge and were issued $2,939,000 in coin
incentives, compared to 239,000 bus passengers and $2,761,000 of coin incentives
in the second quarter of 1994.
13
<PAGE>
Hotel revenues for the second quarter of 1995 of $2,294,000 were 14.2%
lower than hotel revenues for the second quarter of 1994, resulting from a lower
average room rate ($51 in 1995 compared to $63 in 1994) partially offset by an
increase in the number of room sold (45,100 in 1995 compared to 42,500 in 1994).
Food and beverage revenues for the second quarter of 1995 of $5,094,000 were
14.9% higher than the second quarter of 1994, due to an increase in the average
price per cover (meals served) to $7.95 in 1995 compared to $7.08 in 1994. In
October 1994, the operation of the Claridge's gift shop was assumed by an
outside vendor; as a result, other revenues for the second quarter of 1995 of
$484,000 decreased from the second quarter of 1994.
Total costs and expenses for the three months ended June 30, 1995 of
$51,502,000 were slightly higher than expenses from the same period of 1994.
Casino operating expenses for the second quarter of 1995 increased over the
second quarter of 1994 due to increased coin incentive costs. General and
administrative costs for the three months ended June 30, 1995 decreased from the
same period of 1994 due to decreased advertising costs as a result of the
promotion of the casino expansion in 1994, as well as an out of court settlement
recorded in the second quarter of 1994.
Results of Operations for the Six Months Ended June 30, 1995
------------------------------------------------------------
The Corporation had a loss of $1,848,000 net of income tax benefit of
$807,000, for the six months ended June 30, 1995, compared to a loss of
$5,179,000 net of income tax benefit of $3,454,000 for the same period in 1994.
Adjusted EBITDA for the first half of 1995 was $9,264,000, compared to $466,000
for the first half of 1994.
Casino revenue for the first six months of 1995 was $81,345,000, an
increase of 17.0% over casino revenues earned in the same period of 1994. Casino
revenues reportedly earned by all Atlantic City properties for the six months
ended June 30, 1995, increased 12.9% over the same period of 1994. Citywide
revenues were adversely affected by severe snow and ice storms throughout the
Northeastern United States in the first quarter of 1994. In addition, as a
result of several expansions, citywide casino capacity has increased over the
first half of 1994, reflected in an 8.0% increase in the average casino square
footage, a 6.9% increase in the average number of table games, and a 12.7%
increase in the average number of slot machines.
Table games revenue earned by New Claridge during the six months ended
June 30, 1995 was $18,797,000, a 2.8% increase over table games revenue earned
in the same period of 1994. This increase resulted from an improvement in the
hold percentage, to 15.8% during the first six months of 1995, from 14.4% in the
first six months of 1994, which was offset somewhat by a 6.1% decrease in table
games drop. Citywide table games revenue, as reported, for the first six months
of 1995 increased 6.8% over the same period of 1994.
Claridge slot machine revenue for the six months ended June 30, 1995 was
$62,533,000, a 22.1% increase over slot revenues earned during the same period
of 1994 of $51,233,000. Citywide slot machine revenues, as reported, for the
first half of 1995 increased 15.9% over the same period of 1994. During the six
months ended June 30, 1995, New Claridge issued $5,995,000 in coin incentives
through its direct mail program, compared to $4,970,000 of coin incentives
issued in the same period of 1994. In addition, $5,345,000 of coin incentives
were issued to 438,000 bus passengers during the first six months of 1995, as
compared to $3,779,000 of coin incentives issued to 342,000 passengers in the
same period of 1994. The increase in the average coin incentives per passenger,
to $12.20 in the first half of 1995 from $11.05 in the same period of 1994, was
due to efforts to maintain a competitive position with
14
<PAGE>
other Atlantic City casino operators who increased the incentives offered in
order to increase business levels.
Hotel revenues for the six months ended June 30, 1995 of $4,268,000 were
11.7% lower than in the same period of 1994, due to a lower average room rate
($53 in 1995 compared to $61 in 1994). Food and beverage revenues for the first
six months of 1995 were $9,523,000, reflecting a 16.3% increase over the same
period of 1994, resulting from an increase in the number of covers served, to
782,000 in 1995 from 738,000 in 1994, combined with a higher average price per
cover to $7.98 in the first half of 1995 from $7.43 in the first half of 1994.
Total costs and expenses for the six months ended June 30, 1995 of
$100,775,000 were 6.5% higher than the same period of 1994. Casino operating
expenses increased 8.1% over the first half of 1994 due primarily to higher coin
incentive costs, as well as increased payroll costs resulting from the higher
business levels. Hotel and food and beverage operating costs increased 16.3%
over the first six months of 1994 as a result of the increased business volume
in those areas. General and administrative costs for the first half of 1995
decreased 9.2% from the same period of 1994 due to decreased advertising costs
in the second quarter, as well as an out of court settlement recorded in 1994.
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:
15
<PAGE>
(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;
(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 June 30, 1995, the Corporation had working capital of $18,126,000, 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 $1,693,000, a
decrease in other current assets of $2,877,000, an increase in accounts payable
of $725,000, and an increase in accrued payroll and related benefits of
$1,752,000. Working capital at June 30, 1994 was $21,140,000. Current
liabilities at June 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 $2,610,000 at June 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 June 30, 1995 and December 31, 1994 would have
been $39,414,000 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 to be necessary only to meet the Partnership's
cash requirements. Effective on completion of the 1989 restructuring, lease
16
<PAGE>
expense recognized on a level basis was reduced prospectively, based on a
revised schedule of rent leveling based on the agreed rental abatements. At June
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
June 30, 1995, $25.0 million of basic rent had been abated. The remaining $13.8
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 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 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 June 30,
1995 (including the outstanding FF&E Loans and the $20 million of deferred
interest) was $132.9 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.
17
<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: August 14, 1995
18
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<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> JUN-30-1995
<EXCHANGE-RATE> 1
<CASH> 37,077,000
<SECURITIES> 0
<RECEIVABLES> 16,548,000
<ALLOWANCES> 1,353,000
<INVENTORY> 290,000
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<DEPRECIATION> 12,293,000
<TOTAL-ASSETS> 190,434,000
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0
0
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<INCOME-PRETAX> (2,655,000)
<INCOME-TAX> (807,000)
<INCOME-CONTINUING> (1,848,000)
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