<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, 1996
[ ] 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 13, 1996
---------------
Class A Stock 5,046,064 (After deducting 16,436 shares of
Treasury Stock)
<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, 1996 and 1995 and
December 31, 1995 4
Consolidated Statements of Operations
for the three months ended June 30,
1996 and 1995 5
Consolidated Statements of Operations
for the six months ended June 30,
1996 and 1995 6
Consolidated Statements of Cash Flows
for the six months ended June 30,
1996 and 1995 7
Notes to Consolidated Financial
Statements 8
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, 1996 and 1995 and December 31, 1995, and the results of its
operations for the three and six months ended June 30, 1996 and 1995 and its
cash flows for the six months ended June 30, 1996 and 1995. 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, 1995
filed with the Securities and Exchange Commission.
The results of operations for the three and six months ended June 30,
1996 and 1995 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,
1996 1995 1995
---- ---- ----
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 18,485 35,747 37,077
Receivables, net (including $16,698 and
$14,503 at June 30, 1996 and 1995,
respectively and $15,391 at December 31,
1995, due from the Partnership) 17,976 16,808 15,195
Other current assets 3,928 2,987 5,272
-------- -------- ---------
Total current assets 40,389 55,542 57,544
-------- -------- --------
Property and equipment, net (note 4) 37,277 24,468 18,901
Long-term receivables due from the
Partnership (note 3) 97,579 104,207 109,444
Intangible assets and deferred charges 2,860 2,930 3,202
Other assets 2,324 1,927 1,343
-------- -------- ---------
$180,429 189,074 190,434
======== ======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 6,827 3,880 3,507
Loan from the Partnership (note 5) 3,600 3,600 3,600
Other current liabilities (note 6) 33,803 32,940 32,311
--------- --------- ---------
44,230 40,420 39,418
--------- --------- ---------
Long-term debt (note 7) 85,000 85,000 85,000
Deferred rent due to the Partnership 29,464 30,747 32,034
Deferred income taxes (note 9) 3,190 7,123 8,252
Other noncurrent liabilities (note 8) 19,304 20,229 20,115
Stockholders' equity:
Common stock 5 5 5
Additional paid in capital 5,048 5,048 5,048
Accumulated earnings (deficit) (5,812) 502 562
Treasury stock, 16,436 Class A Shares at cost
at June 30, 1996 and December 31, 1995,
respectively and 8,218 Class A shares at cost
at June 30, 1995 -0- -0- -0-
--------- --------- ---------
Total stockholders' equity (deficiency) (759) 5,555 5,615
--------- --------- ---------
$ 180,429 189,074 190,434
========= ========= =========
</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, 1996 and 1995
(in thousands except per share data)
1996 1995
---- ----
Revenues:
Casino $ 43,589 42,755
Hotel 2,310 2,294
Food and beverage 5,368 5,094
Interest from the Partnership 4,018 4,332
Interest, other 215 482
Other 689 484
-------- -------
56,189 55,441
Less promotional allowances (note 2) 4,858 4,068
-------- -------
Net revenues 51,331 51,373
------- -------
Costs and expenses:
Casino 26,769 23,227
Hotel 742 836
Food and beverage 2,939 2,988
Other 758 739
Rent expense to the Partnership 9,745 9,394
Rent expense, other 375 378
General and administrative 8,582 6,656
Gaming taxes 3,483 3,417
Reinvestment obligation expense 253 478
Provision for uncollectible accounts 58 57
Depreciation and amortization 742 727
Interest expense 2,006 2,605
-------- -------
Total costs and expenses 56,452 51,502
------- -------
Loss before income taxes (5,121) (129)
Income tax (benefit) expense (1,880) 28
----------- -------
Net loss $ (3,241) (157)
========= =======
Net loss per share (based on 5,046,064 and
5,054,282 weighted average shares outstanding
for the three months ended June 30, 1996
and 1995, respectively) $ (.64) (.03)
========== ========
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, 1996 and 1995
(in thousands except per share data)
1996 1995
--------- ---------
Revenue:
Casino $ 82,648 81,345
Hotel 4,061 4,268
Food and beverage 9,967 9,523
Interest from the Partnership 8,119 8,730
Interest, other 531 854
Other 1,174 991
--------- ---------
106,500 105,711
Less promotional allowances (note 2) 8,869 7,591
--------- ---------
Net revenues 97,631 98,120
--------- ---------
Costs and expenses:
Casino 51,121 44,874
Hotel 1,449 1,702
Food and beverage 5,555 5,747
Other 1,446 1,442
Rent expense to the Partnership 19,375 18,879
Rent expense, other 741 756
General and administrative 15,476 13,141
Gaming taxes 6,604 6,499
Reinvestment obligation expense 424 1,001
Provision for uncollectible accounts 104 114
Depreciation and amortization 1,441 1,410
Interest expense 4,140 5,210
--------- ---------
Total costs and expenses 107,876 100,775
--------- ---------
Loss before income taxes (10,245) (2,655)
Income tax benefit (3,931) (807)
--------- ---------
Net loss $ (6,314) (1,848)
========= =========
Net loss per share (based on 5,046,064 and
5,054,282 weighted average shares outstanding
for the six months ended June 30, 1996
and 1995, respectively) $ (1.25) (.37)
========= =========
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, 1996 and 1995
(in thousands)
<TABLE>
<CAPTION>
1996 1995
--------- ------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(6,314) (1,848)
Adjustments to reconcile net loss to net
cash (used in) provided by operating activities:
Depreciation and amortization 1,441 1,410
Deferred rent to the Partnership (1,283) (1,099)
Deferred interest receivable and
discount from the Partnership (736) (640)
Reinvestment obligation expenses 424 1,001
Gain on disposal of assets (95) -0-
Deferred income taxes (3,933) 367
Change in assets and liabilities:
Receivables, net, excluding current
portion of long-term receivables 260 121
Other current assets, excluding current portion
of CRDA credit (941) 1,795
Accounts payable 2,947 725
Other current liabilities 863 1,690
Other noncurrent liabilities (925) 115
--------- ---------
Net cash flows (used in) provided by operating activities (8,292) 3,637
--------- ---------
Cash flows from investment activities:
(Increase) decrease in intangible assets and deferred charges (195) 631
Additions to property and equipment (14,019) (11,341)
(Increase) decrease in other assets (821) 2,435
Proceeds from disposition of property 130 -0-
Increase in long-term receivables (1,073) (1,566)
Receipt of long-term receivables 7,008 6,037
-------- --------
Net cash flows used in investment activities (8,970) (3,804)
--------- --------
Decrease in cash and cash equivalents (17,262) (167)
Cash and cash equivalents at beginning of period 35,747 37,244
-------- --------
Cash and cash equivalents at end of period $ 18,485 37,077
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<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 1995 consolidated
financial statements to conform to the 1996 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. In addition, the estimated cost
of providing such promotional allowances to casino patrons for the three
and six months ended June 30, 1996 and 1995 has been allocated to casino
operating expenses as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Hotel $ 796 730 1,581 1,291
Food and beverage 3,109 2,325 5,799 4,551
Other (Entertainment) 460 289 677 457
------ ------ ------ ------
Total costs allocated to
casino operating expenses $4,365 3,344 8,057 6,299
====== ====== ====== ======
</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,
1996 1995 1995
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Expandable Wraparound Mortgage 14%,
maturities through September 30, 2000
(net of $9,079,000 discount and
$10,501,000 discount at June 30, 1996
and 1995 respectively, and $9,815,000
discount at December 31, 1995) $ 57,921 63,185 67,499
Deferred Expandable Wraparound
Mortgage interest receivable, due
September 30, 2000 20,000 20,000 20,000
FF&E promissory notes, 14% 16,287 16,527 16,401
Expansion/Construction promissory note, 14% 3,371 4,495 5,544
-------- --------- ---------
$97,579 104,207 109,444
======= ========= =========
</TABLE>
8
<PAGE>
Notes to Consolidated Financial Statements (cont'd.)
4. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1996 1995 1995
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Gaming equipment $ 19,532 19,186 19,676
Land and land improvements 8,100 8,100 8,100
Building 20,733 -0- -0-
Construction in progress -0- 8,204 1,706
Leasehold improvements 745 745 745
Capital lease asset 613 613 967
Other FF&E 63 -0- -0-
-------- ------- -------
49,786 36,848 31,194
Less accumulated depreciation and amortization 12,509 12,380 12,293
------- ------- -------
Net property and equipment $ 37,277 24,468 18,901
======== ======= =======
</TABLE>
Building and construction in progress represent the costs incurred
associated with the construction of New Claridge's self-parking garage
facility, which opened on June 28, 1996. Interest costs related to the
construction of the garage facility were capitalized, and will be
amortized over the estimated useful life of the garage (39 years). Total
interest capitalized as of June 30, 1996 was $2,207,000, and as of
December 31, 1995 was $1,138,000; no interest was capitalized as of June
30, 1995.
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 June 30, 1996 such interest, which is included in other
current liabilities, amounted to $3,042,000.
9
<PAGE>
Notes to Consolidated Financial Statements (cont'd.)
6. Other Current Liabilities
Other current liabilities consist of the following:
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1996 1995 1995
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Deferred rent, current $ 15,078 15,078 15,078
Accrued payroll and related benefits 8,064 7,279 7,377
Accrued interest, First Mortgage Notes 4,161 4,161 4,161
Accrued interest due to Partnership 3,042 2,826 2,610
Auto and general liability reserves 920 1,037 1,135
Other current liabilities 2,538 2,559 1,950
---------- --------- ---------
$ 33,803 32,940 32,311
======== ========= =========
</TABLE>
The amount of deferred rent as of June 30, 1996 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 $7.5 million revolving credit line arrangement was
terminated.
8. Other Noncurrent Liabilities
Pursuant to the Restructuring Agreement, Del Webb Corporation ("Webb")
retained an interest, which was assigned to a trustee for the benefit of
the Valley of the Sun United Way 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 and other liabilities ("Contingent
Payment"). 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
10
<PAGE>
Notes to Consolidated Financial Statements (cont'd.)
8. Other Noncurrent Liabilities (cont'd.)
in the accompanying consolidated financial statements since the
likelihood of paying such amount is not considered probable at this
time. As of June 30, 1996, accrued interest would have amounted to
approximately $41.1 million.
In connection with the restructuring, Webb agreed to grant those
investors in the Corporation and the Partnership ("Releasing
Investors"), from whom Webb had received written releases from all
liabilities, rights ("Contingent Payment Rights") to receive certain
amounts to the extent available for application to the Contingent
Payment. Approximately 84% in interest of the investors provided
releases and became Releasing Investors. Payments to Releasing Investors
are to be made in accordance with a schedule of priorities, as defined
in the Restructuring Agreement.
On February 23, 1996, the Corporation acquired an option to purchase, at
a discount from the carrying value, the Contingent Payment. The purchase
price of the option of $1 million was recorded as an offset to the
Contingent Payment liability which is included in other noncurrent
liabilities on the Corporation's consolidated balance sheet. The option
may be exercised any time prior to December 31, 1997. Upon exercise of
the option, the purchase price of the Contingent Payment would be $10
million, plus interest at 10% per annum for the period from January 1,
1997 to the date of payment of the purchase price if the purchase occurs
after December 31, 1996. As a result, if the option is exercised, any
obligation to pay the accrued interest, as discussed above, would be
eliminated, except in respect of the obligation to the Releasing
Investors. The purchase price may also increase in an amount not to
exceed $10 million if future distributions to Releasing Investors exceed
$20 million.
Upon exercise of the option, it is anticipated that the Contingent
Payment will be canceled so that neither the Corporation nor the
Partnership will have any obligation to make any payment in respect of
the Contingent Payment before making a distribution to shareholders or
limited partners. Upon the purchase and cancellation, however, the
Corporation and the Partnership will remain obligated to make payments
to the Releasing Investors, in respect of the Contingent Payment Rights,
before any distribution may be made to shareholders or limited partners.
These payments would be required to be in the same amounts as if the
Contingent Payment had not been purchased and cancelled. As a result, it
is not likely that shareholders or limited partners who are not
Releasing Investors will receive any distribution from the Corporation
or the Partnership. In the aggregate, Releasing Investors are entitled
to receive up to an amount equal to approximately 72% of the Contingent
Payment.
Under the terms of the option, upon purchase of the Contingent Payment,
the Corporation and/or the Partnership are required to make
distributions in excess of $7 million to the Releasing Investors. The
Corporation and the Partnership have agreed to cooperate in the purchase
of the option and the Contingent Payment, with each contributing
one-half of the purchase price of the option and each anticipated to
contribute one-half of the purchase price of the Contingent Payment. A
portion of the Partnership's contribution will be contributed through
additional abatements of basic rent payments due under the Operating
Lease and Expansion Operating Lease.
11
<PAGE>
Notes to Consolidated Financial Statements (cont'd.)
9. Income Taxes
The Corporation recorded an income tax benefit of $3,931,000 for the six
months ended June 30, 1996 which represents the tax benefit of losses
which the Corporation believes will more likely than not be realized.
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 not result in a material impact on
the Corporation's consolidated financial statements.
10. 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.
11. Recently Adopted Accounting Pronouncements
During the first quarter of 1996, the Corporation adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS
121") and No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123").
SFAS 121 requires that a review for impairment be performed whenever
events or changes in circumstances indicate that the carrying amount of
long-lived assets may not be recoverable. In performing the review for
recoverability, the company should evaluate the future undiscounted cash
flows expected to result from the use of the asset and its eventual
disposition. The adoption of SFAS 121 on January 1, 1996 did not require
any impairment to be recognized during the first half of 1996.
SFAS 123 requires either the application of fair value based method of
accounting or additional proforma disclosures for stock-based
compensation plans. The adoption of SFAS 123 on January 1, 1996 had no
effect on the Corporation's consolidated financial position or results
of operations for the three and six months ended June 30, 1996.
12. Subsequent Events
On June 28, 1996, the Corporation opened its new $27 million,
1,200-space self parking garage. On July 10, 1996, the facility was
closed as a result of a fatal accident which occurred in the garage. The
self- parking garage will not be reopened until certain structural
enhancements are completed and all necessary approvals of the
enhancements are obtained, which is expected to be in mid-September
1996.
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, 1996
The Corporation had a loss of $3,241,000, net of income tax benefit of
$1,880,000, for the three months ended June 30, 1996, compared to a loss of
$157,000, net of income tax expense of $28,000 for the same period in 1995.
Casino revenue, which is the difference between amounts wagered by and
amounts paid to casino patrons, for the second quarter of 1996 totaled
$43,589,000 an increase of 2.0% over casino revenues earned in the second
quarter of 1995. Casino revenues earned by all Atlantic City properties as
reported for the three months ended June 30, 1996 were 3.6% higher than revenues
earned during the same period of 1995.
Claridge table games revenue for the second quarter of 1996 was
$10,579,000, an increase of 21.1% over table games revenue earned during the
second quarter of 1995. Citywide table games revenue as reported for the second
quarter of 1996 increased 1.4% over the same period of 1995. The increase in
Claridge table games revenue resulted from a 12.2% increase in table games drop
(the amount of gaming chips purchased by patrons), combined with an increase in
the "hold" percentage (the percentage of win to drop) to 15.6% in the second
quarter of 1996, from 14.4% in the same period of 1995. Table games activity
increased in 1996 as a result of the introduction of several new player
development programs, including a junket program and the offering of gaming chip
coupons, as well as the introduction of the popular game "Let It Ride Poker".
Slot machine revenue earned by the Claridge during the second quarter of
1996 totaled $33,010,000, reflecting a 3.0% decrease from slot machine revenues
earned in the second quarter of 1995. This decrease was primarily due to
increased competition as a result of the continued expansions of other Atlantic
City casinos, including the dilutive effects of the Trump World's Fair Casino,
which opened in May 1996 with 1,500 slot machines and 33 table games. Slot
machine revenues earned by all Atlantic City casinos as reported for the three
months ended June 30, 1996 increased 4.6% over the same period of 1995. The
average number of slot machines available at the Claridge and citywide during
the second quarter of 1996 increased 1.4% and 8.6%, respectively, over the same
period of 1995.
Intense competition for attracting the bus passenger market continued
citywide during the second quarter of 1996, taking the form of increased coin
incentives offered to passengers arriving by bus. Due to the lack of a
self-parking garage and its dependency on the bus market, the Claridge has had
to remain competitive with the incentives offered by other Atlantic City casinos
in order to maintain its share of this market. In the second quarter of 1996,
coin incentives were issued to 318,000 bus passengers by the Claridge totaling
$6,495,000, an average of approximately $20 per passenger. This compares to
$2,939,000 of coin incentives issued to 256,000 bus passengers in the second
quarter of 1995, an average of approximately $11 per passenger. In addition, the
Claridge offers promotional incentives to existing customers, in the form of
coin to play slot machines and gaming chips to play table games. In 1995, the
Claridge also offered incentives to prospective customers who were identified
based on demographic models; analysis of the results of this program resulted in
a reduction of prospecting efforts, starting in late 1995. During the second
quarter of 1996, promotional incentives issued through these direct mail
programs totaled $2,313,000, compared to $3,196,000 in the second quarter of
1995.
Hotel revenues for the second quarter of 1996 of $2,310,000 were
slightly higher than hotel revenues for the second quarter of 1995. Hotel
occupancy in the second quarter of 1996 was 92.5%, slightly lower than the 94.1%
in the same period of 1995; however, the average room rate was $57 in the second
quarter of 1996, compared to $54 in the second quarter of 1995. In the second
quarter of 1996, the number of hotel rooms
13
<PAGE>
available in Atlantic City increased as a result of the opening of the
Tropicana's new 628-room hotel tower, and the opening of the Trump World's Fair
Casino, which includes approximately 500 hotel rooms. Food and beverage revenues
for the second quarter of 1996 of $5,368,000 were 5.4% higher than the second
quarter of 1995, due to an increase in the number of covers (meals served) to
476,000 in 1996, from 424,000 in the same period of 1995. Hotel and food and
beverage revenues, net of promotional allowances (i.e. cash revenues), for the
second quarter of 1996 were $3,003,000, a decrease of 11.5% from net revenues
during the same period of 1995 of $3,393,000. The decrease in cash hotel
revenues resulted from the reduction of the prospect marketing efforts in late
1995, which included the offering of special discounted cash room rates to
prospective customers. The reduction in cash food revenues as compared to the
second quarter of 1995 was due primarily to a decrease in the buffet price,
which averaged $5.24 in the second quarter of 1996, compared to $6.82 in the
same period of 1995. Second quarter of 1996 other revenues (including
promotional allowances) of $689,000 increased over other revenues of $484,000
during the same period of 1995 due primarily to a more aggressive entertainment
policy, which resulted in an increase in showroom revenues.
Total costs and expenses for the three months ended June 30, 1996 of
$56,452,000 were 9.6% higher than expenses during the second quarter of 1995.
Casino operating expenses for the second quarter of 1996 increased over the
second quarter of 1995 due to the increase in coin incentive costs, combined
with the increase in the cost of providing promotional allowances to casino
patrons. General and administrative costs for the three months ended June 30,
1996 increased over the same period of 1995 due to increased advertising
expenditures. Interest expense for the second quarter of 1996 was lower than the
same period of 1995 due to the capitalization of interest during the
construction of the self-parking garage facility.
Results of Operations for the Six Months Ended June 30, 1996
The Corporation had a loss of $6,314,000, net of income tax benefit of
$3,931,000, for the six months ended June 30, 1996, compared to a loss of
$1,848,000, net of income tax benefit of $807,000, for the same period in 1995.
Casino revenue earned by the Claridge for the first six months of 1996
was $82,648,000, an increase of 1.6% over casino revenues earned in the same
period of 1995. Casino revenues earned by all Atlantic City properties as
reported for the six months ended June 30, 1996, increased 3.6% over the same
period of 1995. Citywide casino revenues were adversely affected in the first
quarter of 1996 by several severe winter storms, most notably the January
blizzard, which blanketed the Northeastern United States with a record amount of
snow; this compared to the mild weather conditions experienced in the first
quarter of 1995. In addition, citywide casino capacity has continued to increase
over the first half of 1995, reflected in a 5.9% increase in the average casino
square footage, and a 7.8% increase in the average number of slot machines,
including the opening of the Trump World's Fair Casino in May 1996. These
expansions have resulted in heightened efforts among the Atlantic City casinos
to compete for market share.
Table games revenue earned by the Claridge during the six months ended
June 30, 1996 was $20,453,000, an 8.8% increase over table games revenue earned
in the same period of 1995. This increase was due to an 8.0% increase in table
games drop over the first half of 1995 resulting from the increased table games
player development efforts, combined with a slight increase in the hold
percentage, to 15.9% during the first six months of 1996, from 15.8% in the
first six months of 1995. Citywide table games revenue, as reported, for the
first six months of 1996 increased 3.4% over the same period of 1995.
Claridge slot machine revenue for the six months ended June 30, 1996 was
$62,195,000, a slight decrease from slot revenues earned during the same period
of 1995 of $62,533,000. Citywide slot machine revenues, as
14
<PAGE>
reported, for the first half of 1996 increased 3.7% over the same period of
1995. Contributing to the increase in citywide slot revenues during the first
half of 1996 was the 7.8% increase in the average number of slot machines
available over the same period of 1995, including the addition of approximately
1,500 new machines at the Trump World's Fair; the average number of slot
machines available at the Claridge during the first half of 1996 remained
consistent with the average number available during the first half of 1995.
Coin incentives issued to patrons arriving at the Claridge by bus during
the first six months of 1996 averaged $20 per passenger, compared to an average
of $12 per passenger in the first half of 1995. In total, $11,112,000 of coin
incentives were issued to 549,000 bus passengers during the six months ended
June 30, 1996, compared to $5,345,000 issued to 438,000 passengers in the same
period of 1995. In addition, during the first half of 1996, the Claridge issued
$5,195,000 in coin, matched play, and gaming chip incentives to patrons through
its direct mail programs, compared to $5,995,000 issued in the first half of
1995.
Hotel revenues, net of promotional allowances, earned during the first
half of 1996 totaled $1,823,000, compared to $2,345,000 in the same period of
1995, primarily due to the reduction of rooms sold as a result of the
elimination of prospecting efforts in late 1995. Total food and beverage
revenues for the first half of 1996 of $9,967,000 increased 4.7% over revenues
earned in the first half of 1995. However, food and beverage revenues net of
promotional allowances during the six months ended June 30, 1996 decreased 11.2%
from the same period of 1995, primarily as a result of the reduction in the
price of the buffet, to an average of $4.91 in the first half of 1996, from
$6.40 in the first half of 1995. Other revenues earned during the first six
months of 1996 of $1,174,000 increased over the same period of 1995 primarily
due to an increase in showroom revenues as a result of the more aggressive
entertainment policy in 1996.
Total costs and expenses for the first half of 1996 of $107,876,000
increased 7.0% over expenses during the first half of 1995, primarily as a
result of the increase in coin incentives issued through the bus program. In
addition, general and administrative costs for the first half of 1996 reflect a
17.8% increase over the same period of 1995, primarily resulting from increased
advertising expenditures. Interest expense for the first half of 1996 decreased
from the same period of 1995 due to the capitalization of interest related to
the construction of the self-parking garage.
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
Revolving Credit and Term Loan Agreement (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 has been seeking to obtain a new line
of credit arrangement,
15
<PAGE>
however, to date such attempts have been unsuccessful;
(ii) to fund the cost of a 12,000 square foot expansion of the
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 was used
for the construction of a self-parking facility. Through June 30,
1996, approximately $16.8 million had been expended to fund the
cost of the garage, which opened on June 28, 1996; the total cost
of the garage is expected to be approximately $20 million,
excluding the cost of interest capitalized during the
construction period.
In addition, on February 23, 1996, the Corporation acquired an option to
purchase, at a discount from the carrying value, the Contingent Payment, which
was granted in 1989 and now held in a trust for the benefit of the Valley of the
Sun United Way (see Note 8, Other Noncurrent Liabilities). The purchase price of
the option was $1 million, and the option may be exercised any time prior to
December 31, 1997. Upon exercise of the option, the purchase price of the
Contingent Payment would be $10 million, plus interest at 10% per annum for the
period January 1, 1997 to the date of the payment of the purchase price, if the
purchase occurs after December 31, 1996. The purchase price may also increase if
future distributions to Releasing Investors exceed certain amounts.
At June 30, 1996, the Corporation had a working capital deficit of
$3,841,000 as compared to working capital of $15,122,000 at December 31, 1995.
This decrease in working capital is principally attributable to a decrease in
cash and cash equivalents of $17,262,000 (primarily due to payments for the
construction of the self- parking garage and interest due on the First Mortgage
Notes), an increase in accounts payable of $2,947,000 (primarily due to accruals
related to the construction of the self-parking garage), and an increase in
accrued payroll and related benefits of $785,000, partially offset by an
increase in accounts receivable of $1,168,000 and an increase in other current
assets (primarily prepaid assets) of $941,000. Working capital at June 30, 1995
was $18,126,000. Current liabilities at June 30, 1996 and December 31, 1995
included deferred rental payments of $15,078,000, and a $3.6 million loan from
the Partnership plus accrued interest thereon of $3,042,000 at June 30, 1996 and
$2,826,000 at December 31, 1995. 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, 1996 and December 31,
1995 would have been $17,879,000 and $36,626,000, respectively.
During the first six months of 1996, the Corporation's working capital
was reduced substantially as a result of significant operating losses during
that period, as well as significant capital expenditures for construction of the
self-parking garage, with cash flows used in operating activities (i.e.,
negative cash flow) amounting to $8,292,000, and cash flows used in investment
activities during that period amounting to $8,970,000. During the same period,
the Corporation's Adjusted EBITDA (as defined below) was only $749,000 compared
to $9,264,000 for the first half of 1995. While expenditures for construction of
the self-parking garage have largely been completed, the factors that
contributed to the negative cash flow and substantially reduced Adjusted EBITDA
for the first six months of 1996, including increased and new competition in the
Atlantic City casino market, appear to be continuing. In addition, the
Corporation has essentially lost any potential positive impact during the third
quarter of 1996 from the opening of its new self-parking garage, since the
garage is now closed due to a fatal accident which occured on July 10, 1996, and
is not expected to be reopened until mid-September.
16
<PAGE>
While it is possible that the Corporation's operating results could
improve over the remainder of the year with the reopening of the self-parking
garage in mid-September, and should the competitive pressures in the Atlantic
City market ease, the Corporation anticipates that it is more likely for there
to be a continuation of the current level of operating results for the
foreseeable future. As a result, the Corporation is attempting to conserve its
cash by taking various steps to reduce operating expenses. In addition, the
Corporation intends to explore other means of conserving cash resources and the
possibility of obtaining additional sources of financing. This may include
approaching the holders of the Corporation's Notes to request relief from
certain provisions of the Indenture governing the Notes. The Board of Directors
of the Corporation has authorized management of the Corporation to engage
financial advisors to assist management and the Board in evaluating various
options, which could include a sale or refinancing of the Claridge. In addition,
the Corporation has been seeking to obtain a new line of credit arrangement;
however, to date such attempts have been unsuccessful, and given the operating
results for the first half of 1996, without modifications of certain provisions
of the Indenture governing the Notes, it is unlikely that the Corporation will
be able to secure a line of credit. It is likely that the Corporation will need
to implement a number of these steps in order to have sufficient cash to meet
its cash needs.
For the six months ended June 30, 1996, cash flows used in operating
activities were $8,292,000, compared to cash flows provided by operating
activities of $3,637,000 for the same period of 1995; the increase in cash used
in operating activities was principally due to the increase in pre-tax net loss.
Cash flows used in investment activities for the six months ended June 30, 1996
and 1995 were $8,970,000 and $3,804,000, respectively. Cash flows used in
investment activities in the first half of 1996 for additions to property and
equipment include expenditures for the construction of the self-parking garage
facility; in the first half of 1995, additions to property and equipment
included the cost of the acquisition of the land on which the garage facility is
being constructed.
For the six months ended June 30, 1996, the Corporation's "Adjusted
EBITDA" was $749,000, compared to $9,264,000 for the same period of 1995.
"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 the Corporation's
net cash outflow 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.
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
17
<PAGE>
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 June 30, 1996 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, 1996, $33.1 million of basic rent
had been abated. The remaining $5.7 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 to
approximately $39.5 million in 1997, as compared to $31.7 million (net of
projected abatement) in 1996. Additional abatements of rent totaling $500,000
are available as a result of the acquisition of the option to purchase the
Contingent Payment, and further abatements could become available upon
exercising the Contingent Payment option (see Note 8, Other Noncurrent
Liabilities).
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.
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.
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 loans to 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 Loans and are secured by the Hotel
Assets. One half of the FF&E Loan principal is due in the 48th month following
the advance, with the remaining balance due in 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 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 Loans.
18
<PAGE>
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 totaling $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,
1996 (including the outstanding FF&E Loans and the $20 million of deferred
interest) was $122 million.
19
<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,
Principle Financial Officer and
Principle Accounting Officer)
Dated: August 14, 1996
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Item 601(c) of Regulation S-K
Commercial and Industrial Companies
Article 5 of Regulation S-X
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CLARIDGE
HOTEL AND CASINO CORPORATION'S FORM 10-K FOR THE QUARTER ENDED JUNE 30, 1996 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-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 18,485,000
<SECURITIES> 0
<RECEIVABLES> 18,984,000
<ALLOWANCES> 1,008,000
<INVENTORY> 289,000
<CURRENT-ASSETS> 40,389,000
<PP&E> 49,786,000
<DEPRECIATION> 12,509,000
<TOTAL-ASSETS> 180,429,000
<CURRENT-LIABILITIES> 44,230,000
<BONDS> 85,000,000
0
0
<COMMON> 5,000
<OTHER-SE> (764,000)
<TOTAL-LIABILITY-AND-EQUITY> 180,429,000
<SALES> 0
<TOTAL-REVENUES> 97,631,000
<CGS> 0
<TOTAL-COSTS> 59,571,000
<OTHER-EXPENSES> 44,061,000
<LOSS-PROVISION> 104,000
<INTEREST-EXPENSE> 4,140,000
<INCOME-PRETAX> (10,245,000)
<INCOME-TAX> (3,931,000)
<INCOME-CONTINUING> (6,314,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,314,000)
<EPS-PRIMARY> (1.25)
<EPS-DILUTED> 0
</TABLE>
