<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 March 31, 1998
--------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from___________to___________
Commission File Number 0-11268
THE CLARIDGE HOTEL AND CASINO CORPORATION
(Exact name of registrant as specified in its charter)
New York 22-2469172
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Indiana Avenue and the Boardwalk
Atlantic City, New Jersey 08401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 340-3400
------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
The number of shares outstanding of each class of the Registrant's Stock is as
follows:
Number of Shares Outstanding
May 14, 1998
------------
Class A Stock 4,970,730 (After deducting 91,770 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
March 31, 1998 and 1997 and
December 31, 1997 4
Consolidated Statements of Operations
for the three months ended March 31,
1998 and 1997 5
Consolidated Statements of Cash Flows
for the three months ended March 31,
1998 and 1997 6
Notes to Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 13
PART II. OTHER INFORMATION
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 March 31, 1998 and 1997 and December
31, 1997, and the results of its operations for the three months ended March
31, 1998 and 1997 and its cash flows for the three months ended March 31, 1998
and 1997. 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, 1997 filed with the Securities and Exchange Commission.
The results of operations for the three months ended March 31, 1998
and 1997 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>
March 31, December 31, March 31,
1998 1997 1997
--------- ------------ ---------
<S> <C> <C> <C>
ASSETS
- ------
Current Assets:
Cash and cash equivalents $ 10,486 12,424 8,472
Receivables, net (including $15,691 and
$18,609 at March 31, 1998 and 1997,
respectively and $19,878 at December 31,
1997, due from the Partnership) 18,014 21,467 20,490
Other current assets 3,214 3,205 3,087
-------- -------- --------
Total current assets 31,714 37,096 32,049
-------- -------- --------
Property and equipment, net (note 4) 30,941 32,094 34,463
Long-term receivables due from the
Partnership (note 3) 75,762 75,465 88,148
Intangible assets and deferred charges 1,898 2,020 2,434
Other assets 4,041 3,705 2,795
-------- -------- --------
$144,356 150,380 159,889
======== ======== ========
LIABILITIES & STOCKHOLDERS' DEFICIENCY
- --------------------------------------
Current Liabilities:
Current maturities of long-term debt (note 7) $ 40 39 -0-
Accounts payable 4,123 3,202 3,365
Loan from the Partnership (note 5) 3,600 3,600 3,600
Other current liabilities (note 6) 32,446 34,393 31,548
-------- -------- --------
40,209 41,234 38,513
-------- -------- --------
Long-term debt (note 7) 85,012 85,023 85,000
Deferred rent due to the Partnership 12,843 16,506 27,526
Deferred income taxes (note 9) 2,580 2,580 2,580
Other noncurrent liabilities (note 8) 21,170 20,850 20,919
Stockholders' deficiency:
Common stock 5 5 5
Additional paid in capital 5,048 5,048 5,048
Accumulated deficit (22,511) (20,866) (19,702)
Treasury stock, 91,770 Class A Shares at
cost at March 31, 1998 and December 31,
1997, resepectively, and 56,158 Class A
Shares at March 31, 1997 -0- -0- -0-
-------- -------- --------
Total stockholders' deficiency (17,458) (15,813) (14,649)
-------- -------- --------
$144,356 150,380 159,889
======== ========= ========
</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 March 31, 1998 and 1997
(in thousands except per share data)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Revenues:
Casino $ 40,994 39,885
Hotel 1,738 1,765
Food and beverage 4,499 4,617
Interest from the Partnership 3,214 3,741
Interest, other 414 72
Other 744 586
-------- -------
51,603 50,666
Less promotional allowances (note 2) 4,604 4,460
-------- -------
Net revenues 46,999 46,206
-------- -------
Costs and expenses:
Casino 25,229 23,297
Hotel 548 523
Food and beverage 1,753 2,249
Other 683 633
Rent expense to the Partnership 6,918 9,767
Rent expense, other 299 363
General and administrative 6,410 7,245
Gaming taxes 3,274 3,188
Reinvestment obligation expense 167 161
Provision for uncollectible accounts 74 54
Depreciation and amortization 657 827
Interest expense 2,632 2,714
-------- -------
Total costs and expenses 48,644 51,021
-------- -------
Loss before income taxes (1,645) (4,815)
Income tax benefit -0- -0-
-------- -------
Net loss $ (1,645) (4,815)
======== =======
Net loss per share (based on 4,970,730 and
5,006,342 weighted average shares outstanding
for the three months ended March 31, 1998
and 1997, respectively) $ (.33) (.96)
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,645) (4,815)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 657 827
Deferred rent to the Partnership (3,663) (484)
Deferred interest receivable and
discount from the Partnership (477) (415)
Reinvestment obligation expenses 167 161
Gain on disposal of assets (29) (5)
Deferred income taxes -0- (1)
Change in assets and liabilities:
Receivables, net, excluding current
portion of long-term receivables (528) (421)
Other current assets (9) 390
Accounts payable 921 368
Other current liabilities (1,947) (882)
Other noncurrent liabilities 16 1,540
------- ------
Net cash flows used in operating activities (6,537) (3,737)
------- ------
Cash flows from investment activities:
Increase in intangible assets and deferred charges (18) -0-
Additions to property and equipment (46) -0-
Increase in other assets (503) (473)
Proceeds from disposal of assets 1,015 88
Increase in long-term receivables (287) (61)
Receipt of long-term receivables 4,448 4,123
------- ------
Net cash flows provided by investment activities 4,609 3,677
------- ------
Cash flows from financing activities:
Payment of long-term debt (10) -0-
------- ------
Net cash flows used by financing activities (10) -0-
------- ------
Decrease in cash and cash equivalents (1,938) (60)
Cash and cash equivalents at beginning of period 12,424 8,532
------- ------
Cash and cash equivalents at end of period $10,486 8,472
======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION
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.
2. Promotional Allowances
----------------------
The retail value of complimentary rooms, food and beverages and other
complimentaries furnished to patrons is included in gross revenues and
then deducted as promotional allowances. The estimated cost of
providing such promotional allowances to casino patrons for the three
months ended March 31, 1998 and 1997 has been allocated to casino
operating expenses as follows (in thousands):
1998 1997
---- ----
Hotel $ 917 1,055
Food and beverage 3,255 2,942
Other (Entertainment) 219 192
------- ------
Total costs allocated to
casino operating expenses $ 4,391 4,189
======= ======
3. Long-Term Receivables
---------------------
Long-term receivables consist of the following amounts due from
Atlantic City Boardwalk Associates, L.P. (the "Partnership"):
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1998 1997 1997
--------- ------------ ---------
(in thousands)
<S> <C> <C> <C>
Expandable Wraparound Mortgage 14%,
maturities through September 30, 2000
(net of $6,062,000 discount and
$7,875,000 discount at March 31, 1998
and 1997 respectively, and $6,539,000
discount at December 31, 1997) $ 40,938 40,461 49,625
Deferred Expandable Wraparound
Mortgage interest receivable, due
September 30, 2000 20,000 20,000 20,000
FF&E promissory notes, 14% 14,824 15,004 16,991
Expansion/Construction promissory note, 14% -0- -0- 1,532
-------- -------- --------
$ 75,762 75,465 88,148
======== ======== ========
</TABLE>
7
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION
Notes to Consolidated Financial Statements (cont'd.)
4. Property and Equipment
----------------------
Property and equipment consists of the following:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1998 1997 1997
--------- ------------ ---------
(in thousands)
<S> <C> <C> <C>
Gaming equipment $ 16,005 18,366 18,622
Land and land improvements 7,598 7,598 8,100
Self-parking garage facility 20,070 20,070 20,100
Leasehold improvements 745 745 745
Capital lease asset 693 693 613
Other equipment 107 107 107
-------- ------- -------
45,218 47,579 48,287
Less accumulated depreciation and amortization 14,277 15,485 13,824
--------- ------- -------
Net property and equipment $ 30,941 32,094 34,463
======== ======= =======
</TABLE>
5. Loan from the Partnership
-------------------------
In accordance with the terms of the Restructuring Agreement, on June
16, 1989 the Partnership loaned to New Claridge $3.6 million, which
represented substantially all cash and cash equivalents remaining in
the Partnership other than funds needed to pay expenses incurred
through the closing of the restructuring. This loan is evidenced by an
unsecured promissory note and will become payable (i) upon a sale or
refinancing of the Claridge; (ii) upon full or partial satisfaction of
the Expandable Wraparound Mortgage; and (iii) upon full satisfaction
of any first mortgage then in place.
Interest, which accrues at 12% per annum, is payable in full upon
maturity. As of March 31, 1998 such interest, which is included in
other current liabilities, amounted to $3,798,000.
8
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION
Notes to Consolidated Financial Statements (cont'd.)
6. Other Current Liabilities
-------------------------
Other current liabilities consist of the following:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1998 1997 1997
--------- ------------ ---------
(in thousands)
<S> <C> <C> <C>
Deferred rent, current $ 15,078 15,078 15,078
Deferred rent, 03/01/97 925 1,075 1,300
Accrued payroll and related benefits 6,506 6,508 6,410
Accrued interest, First Mortgage Notes 1,665 4,161 1,665
Accrued interest due to Partnership 3,798 3,690 3,366
Auto and general liability reserves 1,527 1,488 1,293
Other current liabilities 2,947 2,393 2,436
-------- -------- --------
$ 32,446 34,393 31,548
======== ======== ========
</TABLE>
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 in June 1989. 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.
The Fifth Amendment to the Operating Lease and the Fourth Amendment to
the Expansion Operating Lease, which were effective on March 1, 1997,
provided for the abatement of $867,953 of basic rent and for the
deferral of $1.3 million of basic rent on March 1, 1997, and for
additional monthly abatements of rent beginning April 1, 1997. The
$1.3 million of basic rent deferred on March 1, 1997 is to be paid to
the Partnership in monthly installments of $25,000 for the period
April 1, 1997 through December 31, 1997, and monthly installments of
$50,000 for the year 1998 and thereafter until paid in full (subject
to acceleration under certain circumstances).
7. Long-Term Debt
--------------
Long-term debt consists of the following:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1998 1997 1997
--------- ------------ ---------
(in thousands)
<S> <C> <C> <C>
11 3/4% Notes due 2002 $ 85,000 85,000 85,000
Capital lease obligation 52 62 -0-
-------- ------- -------
85,052 85,062 85,000
Less current installments 40 39 -0-
-------- ------- -------
$ 85,012 85,023 85,000
======== ======= =======
</TABLE>
9
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION
Notes to Consolidated Financial Statements (cont'd.)
7. Long-Term Debt (cont'd.)
------------------------
On January 31, 1994, the Corporation completed an offering of $85
million of First Mortgage Notes (the "Notes") due 2002, bearing
interest at 11 3/4%. 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. On January 28, 1997, New Claridge entered into an
agreement to subject the new self-parking garage to the lien of the
mortgage; such lien will not be subordinated to any lien which may be
placed on New Claridge's 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. A portion of the
net proceeds of $82.2 million was used to repay in full the then
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 a 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
----------------------------
Other noncurrent liabilities consist of the following:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1998 1997 1997
--------- ------------ ---------
(in thousands)
<S> <C> <C> <C>
Contingent Payment $ 19,000 19,000 19,000
License agreement 1,425 1,444 1,500
Deferred gain on sale 304 -0- -0-
Other 441 406 419
-------- ------ ------
$ 21,170 20,850 20,919
======== ====== ======
</TABLE>
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 in the accompanying
consolidated financial statements since the likelihood of paying such
amount is not considered probable at this time. As of March 31, 1998,
accrued interest would have amounted to approximately $59.1 million.
10
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION
Notes to Consolidated Financial Statements (cont'd.)
8. Other Noncurrent Liabilities (cont'd.)
--------------------------------------
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 could have been exercised any time prior to December
31, 1997.
Given recent operating results, the Corporation was not able to
exercise this Contingent Payment option, and it expired in accordance
with its terms on December 31, 1997.
On February 28, 1997, New Claridge entered into an agreement with
Thermal Energy Limited Partnership I ("Atlantic Thermal"), pursuant to
which Atlantic Thermal was granted an exclusive license for a period
of twenty years to use, operate, and maintain certain steam and
chilled water production facilities at the Claridge. In consideration
for this license agreement, Atlantic Thermal paid New Claridge $1.5
million. This amount will be recognized as income over the term of the
agreement, commencing April 1997.
In December 1997, New Claridge obtained a committment from PDS
Financial Corporation ("PDS") for a $2 million sale lease-back
facility (the "Facility"). Under the terms of the Facility, New
Claridge may sell certain of its slot machines to PDS under a sale
lease-back arrangement, for a specified amount per slot machine, for
up to $2 million. In February 1998, New Claridge sold 370 slot
machines to PDS for approximately $1 million under this Facility. The
machines will be leased back to New Claridge under an operating lease
arrangement for two years. After two years, New Claridge has an option
to either purchase the machines, renew the lease arrangement for
twelve months, or return the equipment to PDS. Deferred gain on sale
represents the gain on this sale lease-back transaction which will be
recognized over the term of the lease.
9. Income Taxes
------------
The Corporation recorded an income tax benefit of $552,000, and a
corresponding increase in the valuation allowance, resulting in no
income tax provision or benefit for the three months ended March 31,
1998.
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. In October 1996, the IRS sent the
Corporation a statutory notice of deficiency for the Corporation's
1990 and 1991 taxable years. On January 23, 1997, the Corporation
filed a petition with the United States Tax Court requesting a
redetermination of the asserted deficiency. The United States Tax Court
11
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION
Notes to Consolidated Financial Statements (cont'd.)
9. Income Taxes (cont'd.)
----------------------
set a trial date for this case of June 1, 1998. In April 1998, the
Corporation filed a Motion for Continuance of Trial, which was
subsequently granted; the case has been restored to the general trial
docket. 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.
12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations for the Three Months Ended March 31,1998
- --------------------------------------------------------------
The Corporation had a net loss of $1,645,000 for the three months
ended March 31, 1998, compared to a net loss of $4,815,000 for the same period
of 1997.
During the first quarter of 1998, New Claridge's total casino revenue
was $40,994,000, reflecting a 2.8% increase over the first quarter of 1997,
which was slightly better than the 2.5% increase reported in citywide casino
revenues for the same period. Citywide casino results include the effects of
the Bally's Wild Wild West casino, which opened in July 1997, including a 6.6%
increase in the average number of slot machines available, and a 6.5% increase
in the average casino square footage available.
New Claridge's table games drop (the amount of gaming chips purchased
by patrons) for the first quarter of 1998 increased 26.2% over the same period
of 1997. This increase resulted from several programs to increase the table
games segment of the business, including a marketing initiative aimed at Asian
players, increased junket activity, and increased player development activity.
However, the table games hold percentage (the percentage of win to drop)
during the first quarter of 1998 decreased to 13.4% from 15.7% during the same
period of 1997. As a result, table games revenue for the first three months of
1998 increased 8.1%, to $10,903,000, over the same period of 1997. Citywide
table games drop in the first quarter of 1998, as reported, decreased 1.1%
from the same period of 1997, while citywide table games revenue decreased
2.4% from the first quarter of 1997.
New Claridge's slot machine revenue for the first quarter of 1998 was
$30,091,000, reflecting a 1.0% increase over the first quarter of 1997 slot
revenue. Citywide slot machine revenue for the first three months of 1998, as
reported, increased 4.8% over the same period of 1997. As previously
discussed, the average number of slot machines available citywide during the
first quarter of 1998 increased 6.6% over the first quarter of 1997 as a
result of the opening of Bally's Wild Wild West casino in July 1997, while the
average number of slot machines available at the Claridge decreased slightly
during that period as a result of a reconfiguration of the casino floor in
early 1997.
During the first quarter of 1998, competition for attracting bus
customers continued to ease somewhat, as evidenced by lower average coin
packages offered to patrons in comparison to the same period of 1997. During
the three months ended March 31, 1998, 216,000 casino patrons arrived at the
Claridge by bus, and were issued $3,410,000 in coin incentives, for an average
coin incentive per passenger of $16. This compares to 224,000 bus passengers
arriving at the Claridge in the first quarter of 1997, at an average coin
incentive per passenger of $18, for a total of $3,958,000 in coin incentives
issued through the bus program. In addition to the bus program, New Claridge
offers promotional incentives to its customer through direct marketing
programs, in the form of coin to play slot machines and gaming chips to play
table games, based on their levels of gaming activity. Promotional incentives
issued through these direct marketing programs during the first quarter of
1998 totalled $2,944,000, compared to $2,850,000 in the first quarter of 1997.
Hotel revenues for the first quarter of 1998 were $1,738,000, slightly
lower than the same period of 1997. Hotel occupancy during the first three
months of 1998 was 84.9%, with an average room rate of $47, compared to 87.8%
occupancy and an average room rate of $45 in the first quarter of 1997. Food
and beverage revenues during the first quarter of 1998 of $4,499,000 were 2.6%
lower than the same period of 1997, primarily due to the closing of the buffet
during a portion of the quarter for completion of kitchen repairs. As a result
of the closing of this outlet, the number of covers (meals served) decreased
to approximately 270,000 in the first quarter of 1998, from approximately
322,300 in the same period of 1997, while the average price per cover
13
<PAGE>
increased to approximately $10.62 in the first quarter of 1998 from
approximately $9.32 in the same period of 1997. Promotional allowances, which
represent the value of goods and services provided free of charge to casino
customers under various marketing programs, increased 3.2% in the first
quarter of 1998 over the same period of 1997 primarily due to increased player
development activities.
Casino operating expenses for the three months ended March 31, 1998 of
$25,229,000 increased 8.3% over the same period of 1997, primarily due to
increased table games activity, including higher payroll costs resulting from
the increased level of business, as well as the increased marketing
initiatives to attract that business, as previously discussed. Food and
beverage expenses for the first quarter of 1998 were lower than the same
period of 1997 due to an increase in the allocation of these costs to casino
expenses for the cost of providing promotional allowances to casino patrons.
General and administrative expenses for the first quarter of 1998 of
$6,410,000 were lower than those expenses during the first quarter of 1997 as
a result of the increased professional and legal fees incurred in 1997 related
to the Corporation's attempted reorganization last year.
Rent expense to the Partnership in the first quarter of 1998 was
$6,918,000, reflecting a decrease from rent expense during the first quarter
of 1997 of $9,767,000 due to the abatement of rent pursuant to the March 1,
1997 amendments to the Operating Lease and Expansion Operating Lease (see
"Liquidity and Capital Resources"). Prior to these amendments, lease expense
(including the effect of the $38.8 million of rent abatements provided in
accordance with the 1989 Restructuring Agreement) was recognized on a leveled
basis over the initial lease term ending September 30, 1998. Since the amount
of abatements permitted in accordance with the March 1, 1997 amendments will
vary depending on the Partnership's cash flow, the actual amount abated on a
monthly basis is recorded as a reduction to lease expense. For the three
months ended March 31, 1998, the reduction to lease expense resulting from the
abatement of rent was approximately $2.5 million; no reduction to lease
expense was recorded in the first quarter of 1997 as a result of the abatement
of rent.
For the first quarters of 1998 and 1997, the Corporation recorded
income tax benefits of $552,000 and $1,801,000, respectively, offset by
increases in the valuation allowance of $552,000 and $1,801,000, respectively.
Results of Operations for the Three Months Ended March 31, 1997
- ---------------------------------------------------------------
The Corporation had a net loss of $4,815,000 for the three months
ended March 31, 1997, compared to a net loss of $3,073,000 for the three
months ended March 31, 1996.
Total casino revenue was $39,885,000 for the first quarter of 1997,
reflecting a 2.1% increase over casino revenue earned in the same period of
1996. Citywide casino revenues, as reported, for the first quarter of 1997
increased 6.0% over the first quarter of 1996. Casino revenues in the first
quarter of 1996 were adversely affected by several winter storms, most notably
the January blizzard, which blanketed the Northeastern United States with a
record amount of snow. In addition, 1997 revenues reflect the effects of the
citywide increase in casino capacity, primarily resulting from the opening of
the Trump World's Fair casino in the second quarter of 1996.
Claridge table games revenue for the three months ended March 31, 1997
was $10,089,000, reflecting a 2.2% increase over table games revenue for the
same period of 1996. Table games drop during the first quarter of 1997
increased 6.1% over the first quarter of 1996. However, the hold percentage
declined to 15.7% in the first quarter of 1997, from 16.3% in the same period
of 1996. Citywide table games drop and revenue, as reported for the first
quarter of 1997, increased 11.0% and 5.7%, respectively, over the same period
of 1996.
14
<PAGE>
Slot machine revenue earned by the Claridge during the first quarter
of 1997 was $29,796,000, a 2.1% increase over slot machine revenue earned in
the first quarter of 1996. Citywide slot machine revenue, as reported,
increased 6.3% in the first quarter of 1997 over the same period of 1996. The
average number of slot machines available citywide during the first quarter of
1997 increased 10.4% over the same period of 1996, resulting primarily from
the opening of the Trump World's Fair casino in the second quarter of 1996.
Beginning in the latter part of 1995, competition for bus customers
began to increase, in the form of increased coin incentives offered to these
customers. Because of its lack of a self-parking garage at that time, and
therefore its dependency on the bus market, New Claridge had to remain
competitive with the incentives offered by other Atlantic City casinos in
order to maintain its share of this market. In 1996, the competition for bus
customers became even more intense, as the average cost of coin incentives
issued to patrons arriving by bus to the Claridge during 1996 increased
approximately 46% per person over the average cost of bus coin incentives
issued per person in 1995. In the first quarter of 1997, the incentives
offered to bus customers abated somewhat, as the average coin incentive issued
to Claridge bus patrons decreased to approximately $18 per person, compared to
approximately $20 per person in the first quarter of 1996. In total, during
the first quarter of 1997, New Claridge issued $3,958,000 of coin incentives
to approximately 224,000 bus patrons, compared to $4,617,000 of coin
incentives issued to 231,000 bus passengers in the first quarter of 1996. In
addition, promotional incentives issued New Claridge's direct marketing
programs totalled $2,850,000 during the first quarter of 1997, compared to
$2,882,000 in the first quarter of 1996.
Hotel and food and beverage revenues for the first quarter of 1997
were $6,382,000, in line with hotel and food beverage revenues earned during
the first quarter of 1996. Hotel occupancy during the first quarter of 1997
was 87.8%, with an average room rate of $45, comparable to the 90.3% occupancy
and $43 average room rate during the first quarter of 1996. The total number
of covers decreased to 322,300 in the first three months of 1997 from 409,500
during the same period of 1996. This decrease was due to a decline in New
Claridge's buffet business, as well as the conversion of New Claridge's "fast
food" restaurant in late 1996 to a "fast food" Chinese restaurant, managed by
an independent operator. The average price per cover for the first quarter of
1997 increased to $9.32, compared to the average price per cover of $7.20 in
the first quarter of 1996. Promotional allowances increased to $4,460,000 in
the first quarter of 1997 from $4,011,000 in the first quarter of 1996,
primarily due to the increased efforts to maintain casino revenue market
share. As a result, hotel, food and beverage, and other revenues, net of
promotional allowances, for the first quarter of 1997 were $2,508,000, a
decrease from the first quarter of 1996 net revenues of $2,824,000.
Total costs and expenses for the first quarter of 1997 of $51,021,000
were slightly lower than 1996 expenses of $51,424,000. Casino expenses of
$23,297,000 were lower than casino expenses for the first quarter of 1996
primarily due to the decrease in coin incentives issued to bus patrons, as
well as lower payroll costs as a result of staffing reductions initiated as
part of New Claridge's cost containment efforts. Hotel and food and beverage
expenses for the first quarter of 1997 were lower than last year due to an
increase in the allocation of these costs to casino expenses for the cost of
providing promotional allowances to casino patrons. General and administrative
expenses for the first quarter of 1997 of $7,245,000 increased over the first
quarter of 1996 due to increased professional and legal expenses incurred as a
result of refinancing efforts; this increase was offset somewhat by decreased
advertising expenditures during 1997, in addition to decreased payroll costs
realized as a result of staffing reductions. Interest expense for the first
three months of 1997 was higher than the prior year due to the capitalization
of interest in 1996 during the construction of the self-parking garage
facility.
The Corporation recorded an income tax benefit of $1,801,000, offset
by a corresponding increase in the valuation allowance, for the first quarter
of 1997, compared to an income tax benefit of $2,051,000 recorded in the first
quarter of 1996, as a result of the losses incurred in that period.
15
<PAGE>
Liquidity and Capital Resources
- -------------------------------
On January 31, 1994, the Corporation completed an offering of $85
million of First Mortgage Notes (the "Notes"), due 2002, bearing interest at
11 3/4%. 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 New 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. On
January 28, 1997, New Claridge entered into an agreement to subject the new
self-parking garage to the lien of the mortgage; such lien will not be
subordinated to any liens which may be placed on New Claridge's 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.
The net proceeds of the Notes, totalling $82.2 million, were used as
follows: (i) to repay the then outstanding debt of the Corporation under the
Revolving Credit and Term Loan Agreement of approximately $35 million,
including the outstanding balance of the Corporation's revolving credit line,
which was secured by a first mortgage; (ii) to expand the casino capacity of
the Claridge by 12,000 square feet in 1994, including the addition of
approximately 500 slot machines and the relocation of two restaurants and
their related kitchens, at a cost of approximately $12.7 million; (iii) to
purchase property in 1995 and construct on that property a selfparking garage,
which opened in 1996, at a cost (excluding capitalized interest of
approximately $2.2 million) of approximately $28 million (of which
approximately $7.5 million represents the cost of acquiring the land and
approximately $20.5 million represents the costs attributable to building the
garage facility); and (iv) to acquire the Contingent Payment Option (see Note
8, "Other Noncurrent Liabilities") at a cost of $1 million. With the
completion of the construction of the self-parking garage, the proceeds of the
offering of the Notes had largely been expended.
At March 31, 1998, the Corporation had a working capital deficiency of
$8,495,000 as compared to a working capital deficiency of $4,138,000 at
December 31, 1997. The increase in the working capital deficiency is
principally attributable to a decrease in receivables of $3,453,000 (primarily
due to a decrease in the current portion of the Expandable Wraparound Mortgage
due from the Partnership), a decrease in cash of $1,938,000 (primarily due to
the interest paid on the Notes during the quarter), an increase in accounts
payable of $921,000, and an increase in other current liabilities (excluding
interest payable) of $549,000, offset by a decrease in interest payable on the
Notes of $2,496,000. The working capital deficiency at March 31, 1997 was
$6,464,000. Current liabilities at March 31, 1998 and December 31, 1997
included deferred rental payments of $15,078,000, and a $3.6 million loan from
the Partnership plus accrued interest thereon of $3,798,000 at March 31, 1998
and $3,690,000 at December 31, 1997. These amounts will only be payable upon
(i) a sale or refinancing of the Claridge; (ii) full or partial satisfaction
of the Expandable Wraparound Mortgage; and (iii) full satisfaction of any
first mortgage then in place. If these amounts were not included in current
liabilities, the Corporation's working capital at March 31, 1998 and December
31, 1997 would have been $13,981,000 and $18,230,000, respectively.
For the three months ended March 31, 1998, cash flows used in
operating activities were $6,537,000, compared to $3,737,000 for the three
months ended March 31, 1997. Cash flows used in operating activities in 1997
were improved by the deferral on March 1, 1997 of $1.3 million of basic rent
payable to the Partnership under the Operating Lease and Expansion Operating
Lease, in addition to the $1.5 million license fee received from Atlantic
Thermal on February 28, 1997. Cash flows provided by investment activities for
the three months ended March 31, 1998 were $4,609,000, compared to cash flows
provided by investment activities for the three months ended March 31, 1997 of
$3,677,000. Cash flows provided by investment activities in the first quarter
16
<PAGE>
of 1998 were from the receipt of Expandable Wraparound Mortgage principal
payments of $4,448,000, in addition to the approximately $1 million in
proceeds received from PDS Financial Corporation for the sale of certain slot
machines under a sale lease-back arrangement (see further discussion below).
For the three months ended March 31, 1997, cash flows provided by investment
activities were primarily from the receipt of Expandable Wraparound Mortgage
principal payments of $4,123,000. Cash flows used by financing activities in
1998 represent payments of a capital lease obligation for certain gaming
equipment.
For the three months ended March 31, 1998, the Corporation's "Adjusted
EBITDA" was $2,119,000, compared to $2,110,000 for the same period of 1997.
"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.
During 1995, the cash provided by operations of the Claridge was
sufficient to meet the Corporation's obligations to pay interest on the Notes,
as well as to make at least some moderate capital improvements. Commencing in
the latter part of 1995, however, competition in the Atlantic City casino
market for bus customers, a principal source of customers for the Claridge at
the time, increased; this competition intensified even more during 1996 as
additional casino square footage was added, principally due to the opening of
the Trump World's Fair casino. During 1996, the average coin incentive issued
per bus patron at the Claridge increased to approximately $19, from
approximately $13 in 1995. Total cash incentives issued to Claridge's casino
patrons (in the form of coin to play slot machines and gaming chips to play
table games) increased to approximately $30.5 million in 1996, from
approximately $25.2 million in 1995. While the Corporation's promotional costs
increased significantly, total casino revenues in 1996 actually decreased from
1995 levels. It had been the expectation of the Corporation that, upon the
opening of its new self-parking garage, the Corporation would be able to
reduce its reliance on the bus patron market; however, the Corporation was
forced to close the garage facility on July 10, 1996, only ten days after its
opening, following a fatal accident. Because the facility was not able to
reopen until the end of September 1996, the Corporation lost any possible
benefit of the facility during the normally busy summer season. In addition,
severe winter weather in the first quarter of 1996 adversely affected
revenues. As a result, in November 1996 the Corporation announced that there
was a strong likelihood that the Corporation would be unable to pay the
interest due on the Notes on February 3, 1997. The Corporation experienced a
net loss for 1996 of $15.4 million, compared to a net loss of $1.9 million in
1995.
On March 4, 1997, contrary to earlier expectations, the Corporation
was able to pay the interest that was due on the Notes on February 3, 1997,
under the 30-day grace period allowed in accordance with the terms of the
Indenture. The Corporation had sufficient cash to pay the interest on the
Notes due to several events: (i) cash flow from operations for January and
February 1997 improved significantly over what had been expected; (ii)
effective March 1, 1997, the Operating Lease and Expansion Operating Lease
were amended to provide for the deferral of basic rent of $1.3 million on
March 1, 1997 (as further discussed below); and (iii) on February 28, 1997,
New Claridge entered into an agreement with Atlantic Thermal, pursuant to
which Atlantic Thermal was granted an exclusive license for a period of twenty
years to use, operate and maintain certain steam and chilled water production
facilities at the Claridge. In consideration for this license agreement,
Atlantic Thermal paid New Claridge $1.5 million.
17
<PAGE>
As discussed, the Corporation experienced recurring losses and serious
deterioration in its cash flow in 1996. Since the Corporation does not have
substantial cash reserves or access to a line of credit, the Corporation
needed to experience a significant improvement in operating results in 1997
over 1996 levels in order to meet its on-going obligations, including the
interest due on the Notes. Operating results in 1997 did improve over 1996
levels, due primarily to the positive impact of the availability of the
self-parking garage, lower bus package pricing, and other cost containment
initiatives. Although management of the Corporation believes that operating
results will continue to improve over 1996 levels, no assurances as to the
continuation of this improvement can be given. Management will continue to
conserve cash through various cost containment measures, including limiting
capital expenditures in 1998 to approximately $2 million. Given the various
improvements made to the property in recent years, including the casino
expansion in 1994 and the construction of the self-parking garage, the current
condition of the property is such that the above-mentioned level of capital
expenditures is deemed adequate. Management will also consider various
refinancing efforts, including a sale of the Corporation. In addition, New
Claridge has retained the law firm of Zelle and Larson LLP of Minneapolis,
Minnesota to assist in the recovery of certain expenses incurred in reopening
the self-parking garage and potential lost profit claims as a result of the
accident which occurred in the self-parking garage on July 10, 1996. On July
22, 1997, New Claridge filed a Complaint and Demand for Arbitration in the
amount of $10 million against the general contractor and the architect for the
self-parking garage. Arbitration proceedings commenced in April 1998, and are
expected to continue into the third quarter of 1998. Recovery of these claims
would have a positive impact on New Claridge's financial results and
liquidity. However, there is no assurance that the Corporation will be
successful in realizing any recovery.
In December 1997, New Claridge obtained a committment from PDS
Financial Corporation ("PDS") for a $2 million sale lease-back facility (the
"Facility"). Under the terms of the Facility, New Claridge may sell certain of
its slot machines to PDS under a sale lease-back arrangement, for a specified
amount per slot machine, for up to $2 million. In February 1998, New Claridge
sold 370 slot machines to PDS for approximately $1 million under this
Facility. The machines will be leased back to New Claridge under an operating
lease arrangement for two years. After two years, New Claridge has an option
to either purchase the machines, renew the lease arrangement for twelve
months, or return the equipment to PDS.
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 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 March 31,
1998 (including the outstanding FF&E Loans and the $20 million of deferred
interest) was $96.5 million.
Effective March 1, 1997, the Corporation, New Claridge and the
Partnership entered into a restructuring agreement, pursuant to which New
Claridge agreed to use its best efforts to cause a modification of the
Expandable Wraparound Mortgage (the "Wraparound Modification") that is
permitted by, or is in compliance with, the terms of the indenture governing
the Notes (the "Indenture"). The Wraparound Modification, if so permitted,
will provide for an extension of the maturity date of the Expandable
Wraparound Mortgage from September 30, 2000 to January 1, 2004. If the
Wraparound Modification is not permitted by or in compliance with the terms of
the Indenture, New Claridge has agreed to effect the Wraparound Modification
at such time as the Notes are no longer outstanding. In addition to the
modification to the Expandable Wraparound Mortgage, the Corporation, New
Claridge, and the Partnership agreed to modify certain terms of the Operating
Lease and Expansion Operating Lease agreements, as discussed below.
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 1989
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. During the third quarter of 1991, 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. All of the $38.8
million of basic rent abatements had been fully utilized by the end of the
first quarter of 1997.
19
<PAGE>
The Fifth Amendment to the Operating Lease and the Fourth Amendment to
the Expansion Operating Lease, which were effective on March 1, 1997, provided
for the abatement of $867,953 of basic rent and for the deferral of $1.3
million of basic rent on March 1, 1997, and provide for additional abatements
of basic rent, commencing on April 1, 1997, as necessary to reduce the
Partnership's cash flow to an amount necessary only to meet the Partnership's
cash requirements through December 31, 1998. The $1.3 million of basic rent
deferred on March 1, 1997 is to be paid to the Partnership in monthly
installments of $25,000 for the period April 1, 1997 through December 31,
1997, and monthly installments of $50,000 for the year 1998 and thereafter
until paid in full (subject to acceleration under certain circumstances). For
the years 1999 through 2003, additional abatements of basic rent will be
reduced to provide the Partnership with amounts needed to meet the
Partnership's cash requirements plus an additional amount ($83,333 per month
in 1999 and 2000, $125,000 per month in 2001, and $166,667 per month in 2002
and 2003). All abatements of rent in excess of the $38.8 million which was
allowed in accordance with the 1989 restructuring will be recognized as a
reduction to lease expense as abated.
In addition, under the March 1, 1997 restructuring agreement between
the Corporation, New Claridge and the Partnership, New Claridge agreed to
exercise the first of three ten-year renewal options extending the term of the
Operating Lease and Expansion Operating Lease through September 30, 2008.
Basic rent during the renewal term of the Operating Lease 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. Basic rent
during the renewal term of the Expansion Operating Lease will also 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.
Under the terms of the Operating Lease, as amended effective March 1,
1997, New Claridge had an option to purchase (the "Purchase Option"), on
September 30, 1998, the Hotel Assets and the underlying land for their fair
market value at the time the Purchase Option is exercised, which in no event
may be less than (i) the amount then outstanding under the Expandable
Wraparound Mortgage, plus (ii) $2.5 million, plus (iii) any amount of the $1.3
million of rent deferred on March 1, 1997 not then paid. To exercise the
Purchase Option, New Claridge was required to give notice to the Partnership,
at least nine months prior to the option date, of its election to do so. Based
on its current financial situation, New Claridge did not give such notice to
the Partnership in respect of the September 30, 1998 option date. However, New
Claridge may also exercise an option, on September 30, 2003, to purchase the
Hotel Assets and the underlying land on January 1, 2004, for their fair market
value at the time the option is exercised.
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.
20
<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/ Jean I. Abbott
------------------------------------------------------
Jean I. Abbott
Executive Vice President of Finance/
Chief Financial Officer
(Authorized Officer, Principal Financial Officer
and Principal Accounting Officer)
Dated: May 14, 1998
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CLARIDGE
HOTEL AND CASINO CORPORATIONS FORM 10-K FOR THE QUARTER ENDED MARCH 31, 1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 10,486,000
<SECURITIES> 0
<RECEIVABLES> 18,725,000
<ALLOWANCES> 711,000
<INVENTORY> 282,000
<CURRENT-ASSETS> 31,714,000
<PP&E> 45,218,000
<DEPRECIATION> 14,277,000
<TOTAL-ASSETS> 144,356,000
<CURRENT-LIABILITIES> 40,209,000
<BONDS> 85,012,000
0
0
<COMMON> 5,000
<OTHER-SE> (17,463,000)
<TOTAL-LIABILITY-AND-EQUITY> 144,356,000
<SALES> 0
<TOTAL-REVENUES> 46,999,000
<CGS> 0
<TOTAL-COSTS> 28,213,000
<OTHER-EXPENSES> 17,725,000
<LOSS-PROVISION> 74,000
<INTEREST-EXPENSE> 2,632,000
<INCOME-PRETAX> (1,645,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,645,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,645,000)
<EPS-PRIMARY> (.33)
<EPS-DILUTED> 0
</TABLE>
