<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, 1999
-------------
[ ] 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 0-11287
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 20, 1999
---------------
Class A Stock 5,062,500
<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, 1999 (unaudited)
and December 31, 1998 4
Consolidated Statements of Operations
for the three months ended June 30,
1999 (unaudited) and 1998 (unaudited) 5
Consolidated Statements of Operations
for the six months ended June 30,
1999 (unaudited) and 1998 (unaudited) 6
Consolidated Statements of Cash Flows
for the six months ended June 30,
1999 (unaudited) and 1998 (unaudited) 7
Notes to Consolidated Financial
Statements 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 14
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 June 30, 1999 and December 31, 1998, and the results of its
operations for the three and six months ended June 30, 1999 and 1998 and its
cash flows for the six months ended June 30, 1999 and 1998. 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, 1998
filed with the Securities and Exchange Commission.
As discussed in the subsequent events Note 11 to the consolidated
financial statements, the Corporation filed for reorganization under Chapter 11
of the United States Bankruptcy Code on August 16, 1999. The accompanying
consolidated financial statements do not claim to reflect or provide for the
consequences of the bankruptcy proceedings. In particular, such consolidated
financial statements do not show (a) as to assets, their realizable value on a
liquidation basis or their availability to satisfy liabilities; (b)
contingencies, or the status and priority thereof; (c) as to stockholder
accounts, the effect of any changes that may be made in the Corporation's
business. The eventual outcome of these matters is not presently determinable.
The results of operations for the three and six months ended June 30,
1999 and 1998 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>
(Unaudited) (Audited)
June 30, December 31,
1999 1998
--------------- ---------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 10,356 9,798
Receivables, net (including $3,433
at June 30, 1999 and $3,111 at December 31,
1998, due from the Partnership) 5,563 5,561
Other current assets 3,527 3,044
-------- --------
Total current assets 19,446 18,403
-------- --------
Property and equipment, net (note 4) 28,705 29,377
Long-term receivables due from the
Partnership (note 3) 79,565 79,593
Intangible assets and deferred charges 1,291 1,510
Other assets 3,437 2,893
-------- --------
$132,444 131,776
======== ========
LIABILITIES & STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Current maturities of long-term debt (note 7) $ 334 351
Accounts payable 3,813 3,535
Loan from the Partnership (note 5) 3,600 3,600
Other current liabilities (note 6) 36,150 34,602
-------- --------
43,897 42,088
-------- --------
Long-term debt (note 7) 85,020 85,170
Deferred rent due to the Partnership 6,448 5,827
Deferred income taxes (note 9) 2,579 2,579
Other noncurrent liabilities (note 8) 21,245 21,340
Stockholders' deficiency:
Common stock 5 5
Additional paid in capital 5,048 5,048
Accumulated deficit (31,798) (30,281)
-------- --------
Total stockholders' deficiency (26,745) (25,228)
-------- --------
$132,444 131,776
======== ========
</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, 1999 and 1998
(in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Revenues:
Casino $ 43,470 43,718
Hotel 2,779 2,303
Food and beverage 4,779 4,658
Interest from the Partnership 2,890 3,078
Interest, other 116 133
Other 771 656
-------- -------
54,805 54,546
Less promotional allowances (note 2) 5,667 4,850
-------- -------
Net revenues 49,138 49,696
-------- -------
Costs and expenses:
Casino 26,549 25,601
Hotel 733 611
Food and beverage 1,291 2,113
Other 695 663
Rent expense to the Partnership 6,068 6,069
Rent expense, other 302 352
General and administrative 6,589 7,375
Gaming taxes 3,460 3,489
Reinvestment obligation expense 374 422
Provision for uncollectible accounts 222 105
Depreciation and amortization 486 675
Interest expense 2,638 2,616
-------- -------
Total costs and expenses 49,407 50,091
-------- -------
Loss before income taxes (269) (395)
Income tax benefit -0- -0-
-------- -------
Net loss $ (269) (395)
======== =======
Net loss per share (based on 5,062,500
and 4,970,730 weighted average shares outstanding
for the three months ended June 30, 1999
and 1998, respectively) $ (.05) (.08)
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
For the Six Months Ended June 30, 1999 and 1998
(in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------- --------
<S> <C> <C>
Revenue:
Casino $ 80,024 84,712
Hotel 4,773 4,041
Food and beverage 9,031 9,157
Interest from the Partnership 5,851 6,292
Interest, other 203 547
Other 3,646 1,400
-------- --------
103,528 106,149
Less promotional allowances (note 2) 10,537 9,454
-------- --------
Net revenues 92,991 96,695
-------- --------
Costs and expenses:
Casino 49,389 50,830
Hotel 1,362 1,159
Food and beverage 2,477 3,866
Other 1,317 1,346
Rent expense to the Partnership 12,332 12,987
Rent expense, other 606 651
General and administrative 13,366 13,785
Gaming taxes 6,369 6,763
Reinvestment obligation expense 524 589
Provision for uncollectible accounts 418 179
Depreciation and amortization 1,011 1,332
Interest expense 5,337 5,248
-------- --------
Total costs and expenses 94,508 98,735
-------- --------
Loss before income taxes (1,517) (2,040)
Income tax benefit -0- -0-
-------- --------
Net loss $ (1,517) (2,040)
======== ========
Net loss per share (based on 5,062,500 and
4,970,730 weighted average shares outstanding
for the six months ended June 30, 1999
and 1998, respectively) $ (.30) (.41)
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1999 and 1998
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
--------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,517) (2,040)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,011 1,332
Deferred rent to the Partnership 621 (7,327)
Deferred interest receivable and
discount from the Partnership (1,117) (972)
Reinvestment obligation expenses 524 589
Gain on disposal of assets (79) (71)
Change in assets and liabilities:
Decrease (increase) in receivables, net, excluding
current portion of long-term receivables 466 (882)
Increase in other current assets (483) (832)
Increase in accounts payable 278 938
Increase in other current liabilities 1,548 167
(Decrease) increase in other noncurrent liabilities (16) 30
-------- --------
Net cash provided by (used in) operating activities 1,236 (9,068)
-------- --------
Cash flows from investment activities:
Increase in intangible assets and deferred charges (53) (47)
Additions to property and equipment (49) (149)
Increase in other assets (1,068) (850)
Proceeds from disposal of assets -0- 1,019
Increase in long-term receivables (175) (445)
Receipt of long-term receivables 852 8,933
-------- --------
Net cash (used in) provided by investment activities (493) 8,461
-------- --------
Cash flows from financing activities:
Payment of long-term debt (185) (49)
-------- --------
Net cash used in financing activities (185) (49)
-------- --------
Increase (decrease) in cash and cash equivalents 558 (656)
Cash and cash equivalents at beginning of period 9,798 12,424
-------- --------
Cash and cash equivalents at end of period $ 10,356 11,768
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<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 and six
months ended June 30, 1999 and 1998 has been allocated to casino
operating expenses as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- -------------------------
1999 1998 1999 1998
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Hotel $ 1,044 931 2,062 1,848
Food and beverage 3,519 3,386 6,776 6,641
Other (Entertainment) 227 270 534 489
------- ------ ------ ------
Total costs allocated to
casino operating expenses $ 4,790 4,587 9,372 8,978
======= ====== ====== ======
</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,
1999 1998
-------- ------------
(in thousands)
<S> <C> <C>
Expandable Wraparound Mortgage 14%, maturities through September 30,
2000 (net of $3,408,000 discount at June 30, 1999
and $4,525,000 discount at December 31, 1998) $ 47,092 45,975
Deferred Expandable Wraparound
Mortgage interest receivable, due
September 30, 2000 20,000 20,000
FF&E promissory notes, 14% 12,473 13,618
Expansion/Construction promissory note, 14% -0- -0-
-------- --------
$ 79,565 79,593
======== ========
</TABLE>
8
<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>
June 30, December 31,
1999 1998
-------- -----------
(in thousands)
<S> <C> <C>
Gaming equipment $ 12,505 12,457
Land and land improvements 7,598 7,598
Self-parking garage facility 20,070 20,070
Leasehold improvements 745 745
Capital lease asset 826 808
Other equipment 107 107
-------- -------
41,851 41,785
Less accumulated depreciation and amortization 13,146 12,408
-------- -------
Net property and equipment $ 28,705 29,377
======== =======
</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 June 30, 1999 such interest, which is included in other
current liabilities, amounted to $4,338,000.
9
<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>
June 30, December 31,
1999 1998
-------- -----------
(in thousands)
<S> <C> <C>
Deferred rent, current $ 15,078 15,078
Deferred rent 1,275 475
Accrued payroll and related benefits 7,088 6,571
Accrued interest, First Mortgage Notes 4,161 4,161
Accrued interest due to Partnership 4,338 4,122
Auto and general liability reserves 1,515 1,424
Other current liabilities 2,695 2,771
-------- --------
$ 36,150 34,602
======== ========
</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).
Effective September 30, 1998, the Operating Lease and Expansion
Operating Lease were further amended, pursuant to a Sixth Amendment to
the Operating Lease and Fifth Amendment to the Expansion Operating Lease
(the "Sixth Amendment"). The Sixth Amendment provided for the deferral
of $1.1 million of rent in either February 1999 or March 1999, dependent
upon certain conditions being met. These conditions were met, and the
$1.1 million of rent was deferred in March 1999. The $1.1 million of
basic rent deferred is to be paid to the Partnership in monthly
installments of $25,000 commencing January 1, 2000 until paid in full
(subject to acceleration under certain circumstances).
10
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION
Notes to Consolidated Financial Statements (cont'd.)
7. Long-Term Debt
--------------
Long-term debt consists of the following:
June 30, December 31,
1999 1998
-------- -----------
(in thousands)
11 3/4% Notes due 2002 $ 85,000 85,000
Capital lease obligations 354 521
-------- -------
85,354 85,521
Less current installments 334 351
-------- -------
$ 85,020 85,170
======== =======
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 (see Note 11, "Subsequent Events"). 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:
June 30, December 31,
1999 1998
-------- ------------
(in thousands)
Contingent Payment $ 19,000 19,000
License agreement 1,331 1,369
Other 914 971
-------- ------
$ 21,245 21,340
======== ======
Pursuant to the Restructuring Agreement, Del Webb Corporation ("Webb")
retained an interest, which was assigned to a trustee for the benefit o
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
11
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION
Notes to Consolidated Financial Statements (cont'd.)
8. Other Noncurrent Liabilities (cont'd.)
----------------------------
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 June 30, 1999, accrued interest would have
amounted to approximately $75.0 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
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.
9. Income Taxes
------------
The Corporation recorded an income tax benefit of $604,000, and a
corresponding increase in the valuation allowance, resulting in no
income tax provision or benefit for the six months ended June 30, 1999.
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 was a remaining IRS asserted deficiency for the 1990 and 1991
taxable years. In January 1999, the Corporation reached a settlement
agreement with the IRS District Counsel, which was confirmed by the
United States Tax Court on March 4, 1999. This settlement agreement did
not have a material impact on the Corporation's consolidated financial
statements.
12
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION
Notes to Consolidated Financial Statements (cont'd.)
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.
New Claridge has reapplied for a four-year casino license. However, in
light of the filing of a voluntary petition under Chapter 11 of the
United States Bankruptcy Code on August 16, 1999, New Claridge
anticipates that its casino license will be renewed for an additional
period, the term of which will be determined by the Commission.
Additionally, New Claridge recognizes that its casino license will
likely contain financial reporting conditions and requirements
consistent with the manner in which the Commission has relicensed other
casino licensees who have filed voluntary petition under Chapter 11 in
the past.
11. Subsequent Events
-----------------
The Corporation has experienced recurring losses and deterioration in
its cash flow since 1996, which has affected the Corporation's ability
to continue to meet its obligation to pay interest on the Notes. As a
result, the Corporation did not pay the interest due August 2, 1999 on
the Notes, and, on August 16, 1999, filed a voluntary petition under
Chapter 11 of the United States Bankruptcy Code. (See "Liquidity and
Capital Resources".)
These consolidated financial statements do not show (a) as to assets,
their realizable value on a liquidation basis or their availability to
satisfy liabilities; (b) contingencies, or the status and priority
thereof; (c) as to stockholder accounts, the effect of any changes that
may be made in the Corporation's business. The eventual outcome of these
matters is not presently determinable.
13
<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, 1999
- --------------------------------------------------------------
The Corporation had a net loss of $269,000 for the three months ended
June 30, 1999, compared to a net loss of $395,000 for the same period of 1998.
Casino revenue, which is the difference between amounts wagered by and
amounts paid to casino patrons, totalled $43,470,000 during the second quarter
of 1999, a slight decline from the same period of 1998. Citywide, total casino
revenue as reported for the second quarter of 1999 increased 7.2% over the
second quarter of 1998.
New Claridge's table games drop (the amount of gaming chips purchased by
patrons) for the second quarter of 1999 was $79,968,000, a slight increase over
table games drop during the same period of 1998. However, the "hold" percentage
(the percentage of win to drop) decreased to 13.6% in 1999, from 14.7% in 1998.
As a result, table games revenue for the second quarter of 1999, of $10,903,000,
reflected a 7.2% decrease from table games revenue of $11,742,000 during the
second quarter of 1998. Citywide, table games drop, as reported, increased 2.1%
over the second quarter of 1998, while table games revenue increased 5.9% over
the second quarter of 1998.
New Claridge's revenue from slot machines during the second quarter of
1999 was $32,567,000, an increase of 1.9% over the second quarter of 1998
revenue of $31,976,000. Although Claridge bus patron volumes during the second
quarter of 1999 declined from prior year levels, as further discussed below,
marketing promotions which focused on increasing drive-in patron volumes offset
the reductions in revenues from bus patrons. Citywide slot machine revenue
during the second quarter of 1999, as reported, increased 7.8% over the same
period of 1998. The number of slot machines available citywide during the second
quarter of 1999 increased 2.0% over the same period of 1998, primarily due to a
casino expansion at Caesars Atlantic City Casino during the second quarter of
1998; the number of slot machines available at the Claridge remained consistent
with the prior year.
During the second half of 1998, citywide competition accelerated for
attracting customers who arrive in Atlantic City by bus, resulting in increased
coin incentives paid to these customers; this competition continued into the
first half of 1999. In response to the acceleration of this competition, in the
fourth quarter of 1998, New Claridge redirected its bus program to reduce the
number of customers who arrive by bus, and, as a result, reduce the related
costs. During the second quarter of 1999, 187,000 patrons arrived at the
Claridge by bus, a 25% reduction from the number of bus passengers who arrived
at the Claridge during the second quarter of 1998. Coin incentives issued to bus
patrons during the second quarter of 1999 totalled $3,322,000 (an average of $18
per patron), reflecting a 12% reduction from coin incentives issued to bus
patrons during the same period of 1998 of $3,771,000 (an average of $15 per
patron). New Claridge's marketing efforts have been redirected toward the
mid-level slot customer, through the use of direct promotions and advertising.
New Claridge offers promotional incentives to its customers in the form of coin
to play slot machines and gaming chips to play table games, through its direct
marketing programs, based on their level of gaming activity. Promotional
incentives issued through these programs during the second quarter of 1999
totalled $3,664,000, compared to $2,726,000 in the second quarter of 1998.
Hotel occupancy during the second quarter of 1999 increased to 96.5%,
compared to 87.6% during the second quarter of 1998, while the average room rate
also increased, to $63 in 1999 from $58 in 1998. As a result, hotel revenues for
the second quarter of 1999 were $2,779,000, an increase of 21% over the
14
<PAGE>
same period of 1998. Food and beverage revenues during the second quarter of
1999 of $4,779,000 were 2.5% higher than the same period of 1998. The number of
covers (meals served) decreased by approximately 25% from the second quarter of
1998, resulting from the closing of New Claridge's buffet in late 1998, as part
of the refocusing of marketing efforts away from the bus program. The average
price per cover in the second quarter of 1999 was $13, compared to $10 in the
second quarter of 1998.
Total costs and expenses for the second quarter of 1999 were
$49,407,000, reflecting a slight decline from the same period of 1998, primarily
due to a reduction in food and beverage costs (resulting from the closing of the
buffet in late 1998), as well as lower general and administrative costs
(primarily due to legal fees incurred in 1998 in connection with the
self-parking garage arbitration proceedings). Casino operating expenses of
$26,549,000 reflect a 3.7% increase over the second quarter of 1998 expenses due
to the higher direct marketing coin incentives, as previously discussed, as well
as higher slot equipment rental costs as a result of limited capital expenditure
funding available and certain popular varieties of slots being available for
lease only.
For the second quarters of 1999 and 1998, the Corporation recorded
income tax benefits of $109,000 and $55,000, respectively, offset by
corresponding increases in the valuation allowances for each respective year.
Results of Operations for the Six Months Ended June 30, 1999
- ------------------------------------------------------------
For the six months ended June 30, 1999, the Corporation had a net loss
of $1,517,000, compared to a net loss of $2,040,000 for the same period of 1998.
New Claridge's total casino revenue during the first half of 1999 was
$80,024,000, a 5.5% decrease from total casino revenue during the first half of
1998. Citywide, total casino revenue for the first six months of 1999, as
reported, increased 3.2% over the same period of 1998. The total casino capacity
during the first half of 1999 increased 1.7% over the prior year, due primarily
to the casino expansion at Caesars Atlantic City Casino in the second quarter of
1998.
New Claridge's table games drop and revenue during the first half of
1999 declined 6.5% and 7.7%, respectively, from the same period of 1998.
Contributing to the decreases in table games during the first half of 1999 was
the aggressive efforts in 1998 to increase table games business, which
contributed to the 23.8% increase in drop over the first half of 1997. Citywide,
table games drop for the first half of 1999, as reported, decreased 1.8% from
the same period of 1998, while table games revenue for the first half of 1999,
as reported, increased 1.6% over the first half of 1998.
During the first half of 1999, New Claridge's slot machine revenues
decreased 4.7%, to $59,131,000, from the same period of 1998, primarily due to
the reductions in bus program activity, as previously discussed. Citywide slot
machine revenues during the first half of 1999, as reported, increased 3.9%,
while the number of slot machines available citywide increased 2.6%.
New Claridge issued $5,567,000 of coin incentives to 308,000 patrons
arriving at the casino by bus during the first half of 1999, an average of $18
per patron. In total, this was a reduction from the $7,181,000 of coin
incentives issued to 465,000 bus patrons during the first half of 1998; however,
the average per person in 1998 was only $15. In addition, promotional incentives
issued through New Claridge's direct marketing programs during the first half of
1999 totalled $5,988,000, compared to $5,670,000 during the same period of 1998.
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Hotel revenues during the first half of 1999 totalled $4,773,000, an
increase of 18.1% over the same period of 1998. The increase in revenues
resulted from higher hotel occupancy (90.8% in the first half of 1999, compared
to 86.3% in the first half of 1998), combined with a higher average room rate
($57 in 1999 compared to $53 in 1998). Food and beverage revenues during the
first half of 1999 declined 1.4% from the same period of 1998, primarily due to
the closing of New Claridge's buffet in late 1998, as previously discussed.
Although the total number of covers served decreased to approximately 444,000 in
the first half of 1999 from 579,000 in the same period of 1998, the average
price per cover increased to $13.33 in 1999 from $10.36 in 1998. Other income
during the first half of 1999 includes the $2.3 million received by New Claridge
in February 1999 as a result of the settlement of the self-parking garage
arbitration proceedings.
Total costs and expenses for the first half of 1999 were $94,508,000, a
4.3% decrease from the same period of 1998. The reduction in casino operating
expenses was due primarily to decreased coin incentives, as previously noted.
The reduction in food and beverage expenses was primarily due to the closing of
New Claridge's buffet in late 1998. General and administrative expenses
decreased, primarily due to decreased legal fees related to the self-parking
garage arbitration proceedings.
For the first six months of 1999 and 1998, the Corporation recorded
income tax benefits of $604,000 and $607,000, respectively, offset by
corresponding increases in the valuation allowance, as a result of the losses
incurred in those periods.
Liquidity and Capital Resources
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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, totaling $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 self-parking 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.
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At June 30, 1999, the Corporation had a working capital deficiency of
$24,451,000 as compared to a working capital deficiency of $23,685,000 at
December 31, 1998. The increase in the working capital deficiency is principally
attributable to an increase in deferred rent due to the Partnership of $800,000
and an increase in accrued payroll and related benefits of $517,000, offset by
an increase in cash and cash equivalents of $558,000. Current liabilities at
June 30, 1999 and December 31, 1998 included deferred rental payments of
$15,078,000, and a $3.6 million loan from the Partnership plus accrued interest
thereon of $4,338,000 at June 30, 1999 and $4,122,000 at December 31, 1998.
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 deficiency at June 30, 1999 and December 31, 1998 would have
been $1,435,000 and $885,000, respectively.
For the six months ended June 30, 1999, cash provided by operating
activities was $1,236,000, compared to cash used in operating activities of
$9,068,000 for the six months ended June 30, 1998. Cash provided by operating
activities in 1999 was improved by the deferral, on March 1, 1999, of $1.1
million of basic rent payable to the Partnership under the Operating Lease and
Expansion Operating Lease, as well as the $2.3 million received as a result of
the settlement of the garage arbitration proceedings. In addition, rental
payments made to the Partnership in the first half of 1999 were approximately
$8.6 million lower than during the first half of 1998, due to the decreased cash
requirements of the Partnership for servicing the debt under the Expandable
Wraparound Mortgage. (This decrease in rental payments to the Partnership was
offset by a decrease in Expandable Wraparound Mortgage payments received from
the Partnership, which are included in cash provided by investing activities.)
Cash used in investing activities for the six months ended June 30, 1999 was
$493,000, compared to cash provided by investing activities for the six months
ended June 30, 1998 of $8,461,000. Cash provided by investing activities in the
first half of 1998 was from the receipt of Expandable Wraparound Mortgage
principal payments of $8,933,000, in addition to the approximately $1 million in
proceeds received from PDS Financial Corporation ("PDS") for the sale of certain
slot machines under a sale lease-back arrangement (see further discussion
below). For the six months ended June 30, 1999, cash provided by investing
activities was primarily from the receipt of Expandable Wraparound Mortgage
principal payments of $852,000, offset by increases in other assets and
long-term receivables. Cash used in financing activities in 1999 and 1998
represents payments of capital lease obligations for certain gaming equipment.
For the six months ended June 30, 1999, the Corporation's "Adjusted
EBITDA" was $5,711,000, compared to $5,763,000 for the same period of 1998.
"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 Corporation has experienced recurring losses and deterioration in
its cash flow since 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
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to meet its on-going obligations, including the interest due on the Notes.
Although 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, operating results in
1998 fell below 1997 levels due to increased citywide competition for casino
customers. In 1998, the Corporation experienced a net loss of $9.4 million,
compared to a net loss of $6.0 million in 1997. In the fall of 1998, New
Claridge redirected its bus program to reduce the number of customers who arrive
by bus, and, as a result, reduce the related costs. Total coin issued to bus
passengers in 1998 was $13.5 million, compared to $15.0 million of coin issued
to bus passengers in 1997. Total coin issued to bus passengers during the first
half of 1999 was $5.6 million, compared to $7.2 million in the first half of
1998. Marketing efforts are being directed toward the mid-level slot customer
through the use of promotions, direct mail and advertising. Additionally,
management continues to conserve cash through various cost containment measures.
In view of the operating results of New Claridge in 1998, and in order
to meet its obligations, management of the Corporation took several steps to
enhance its cash position, through both operational changes, including the
previously mentioned redirection of the bus program, and certain transactions
with PDS and the Casino Reinvestment Development Authority ("CRDA"), as further
discussed below.
In December 1997, New Claridge obtained a commitment from PDS for a sale
lease-back facility (the "Facility"). Under the terms of the Facility, New
Claridge could sell certain of its slot machines to PDS under a sale lease-back
arrangement, for a specified amount per slot machine. In February 1998, New
Claridge sold 370 slot machines to PDS for approximately $1 million under this
Facility. The machines were then 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. In December 1998, New Claridge completed the sale
of an additional 379 slot machines to PDS for approximately $776,000, under
terms similar to those described above. No additional financing is available
under this Facility.
In October 1998, the CRDA approved the direct investment of New Claridge
funds, already on deposit with the CRDA, and the completion of certain donations
of New Claridge funds also already on deposit. These transactions resulted in
the receipt by New Claridge of approximately $930,000 from the CRDA in December
1998.
In addition, in February 1999, the Corporation and New Claridge agreed
to a settlement of approximately $2.3 million in the arbitration proceedings
concerning the accident which took place in New Claridge's self-parking garage
in July 1996. The settlement proceeds were received by New Claridge in late
February 1999.
As a result of these transactions, on March 2, 1999, New Claridge was
able to pay the interest that was due on the Notes on February 1, 1999, under
the 30-day grace period allowed in accordance with the terms of the Indenture.
Operating results for the first half of 1999, however, have continued to lag
behind prior year levels, which has affected the Corporation's ability to
continue to meet its obligation to pay interest on the Notes. As a result, the
Corporation did not pay the interest due August 2, 1999 on the Notes and on
August 16, 1999 filed a voluntary petition under Chapter 11 of the United States
Bankruptcy Code.
Management of the Corporation believes that such filing will permit the
Corporation to conserve its cash pending a restructuring of its financial
obligations in the Chapter 11 proceeding. As of July 31, 1999 the Corporation
had approximately $13.5 million of cash and cash equivalents, including
approximately $9.3 million of "bankroll" used in casino operations. Management
anticipates a one-time increase in general and
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administrative expenses (in an amount that is currently not determinable),
primarily for professional fees, in connection with preparing for such filing,
as well as an increase in ongoing general and administrative expenses, again
primarily for professional fees, during the pendency of the bankruptcy
proceeding.
While the Corporation and its subsidiaries have sustainable operations,
the cash generated by those operations clearly are not sufficient to (i) permit
the Corporation to meet the debt service on the currently outstanding Notes;
(ii) to make significant capital improvements that management believes are
necessary to improve the Claridge's competitive position in the Atlantic City
casino market; and (iii) regularly make capital improvements in the future to
maintain that competitive position. Accordingly, management of the Corporation
intends to seek, in the Chapter 11 proceeding, to reduce the Corporation's debt
obligations to a level that it believes is consistent with the sustainable level
of cash to be generated by the Claridge. At the same time, management will seek
to simplify the ownership structure of the Claridge as between the Corporation,
New Claridge and the Partnership. Any such restructuring of the financial
obligations of the Claridge and of its ownership structure will be subject to
the outcome of the Chapter 11 proceeding and, in particular, the approval of the
holders of the requisite percentage of the outstanding Notes, as to which there
can be no assurance.
The Corporation has previously announced that it has entered into a
letter of intent with Schottenstein Realty Corporation ("Schottenstein")
regarding an investment in the Claridge in connection with any such
restructuring. The letter of intent contemplates a $10 million investment by
Schottenstein in the Claridge in exchange for a substantial equity interest in a
new entity that would own the assets used by the Claridge, including the assets
currently owned by the Partnership, other than the casino assets. The letter of
intent contemplates that this new entity would exchange new notes and equity in
the entity for the currently outstanding Notes. The new notes would have a
substantially smaller principal amount than the existing Notes, together with a
lower interest rate and a later maturity date. The letter of intent also calls
for providing a limited amount of equity in the new entity to the Partnership
and for setting aside a portion of the equity in the new entity as incentive
compensation for the management of the Claridge. The above described terms of
the letter of intent are not binding on the Corporation or Schottenstein until
reflected in a definitive agreement, and, in any case, are subject to
negotiation and approval by holders of the Notes and the Partnership and to
approval by the Bankruptcy Court. There can be no assurance that such a
definitive agreement will be reached or that any definitive agreement that is
reached will not have terms that are substantially different from those
described above.
The consolidated financial statements do not show (a) as to assets,
their realizable value on a liquidation basis or their availability to satisfy
liabilities; (b) contingencies, or the status and priority thereof; or (c) as to
stockholder accounts, the effect of any changes that may be made in the
Corporation's business. The eventual outcome of these matters is not presently
determinable.
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
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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.
The Expandable Wraparound Mortgage required 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 June 30, 1999 (including the outstanding FF&E
Loans and the $20 million of deferred interest) was $85.5 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, would 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.
Effective September 30, 1998, the Corporation, New Claridge, and the
Partnership agreed to amend the March 1997 restructuring agreement to provide
for an extension of the maturity date of the Expandable Wraparound Mortgage to
January 1, 2005. In addition, the Expandable Wraparound Mortgage Agreement and
Note were amended to defer the principal payments which were payable during the
fourth quarter of 1998 (totalling $3.5 million) to the earlier of (i) the
maturity date of the Expandable Wraparound Mortgage Agreement and Note; (ii)
such earlier date, if any, as the entire principal amount of the Expandable
Wraparound Mortgage becomes due and payable; or (iii) the date on which any
merger, consolidation or similar transaction to which the Corporation or New
Claridge is a party, or any sale of all or substantially all of the assets of
the Corporation or New Claridge is consummated, or any change of control of the
Corporation or New Claridge, occurs.
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 expired on September 30, 1998 and each lease provided for
three ten-year renewal options at the election of New Claridge. In connection
with the March 1997 restructuring agreement, New Claridge agreed to exercise the
first of the ten-year renewal options, extending the term of the Operating Lease
and Expansion Operating Lease through September 30, 2008.
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Basic rent during the renewal term of each lease is calculated pursuant
to a defined formula, with such rent for the lease year commencing October 1,
1998 through September 30, 1999 not to be more than $29.5 million nor less than
$24 million for the Operating Lease, and not to be more than $3 million nor less
than $2.5 million for the Expansion Operating Lease. In addition, in each
subsequent lease year, rent will be calculated pursuant to a defined formula,
but may not exceed 10% more than the basic rent for the immediately preceding
lease year. Basic rent, as calculated pursuant to the defined formula for the
lease year commencing October 1, 1998 is $24 million for the Operating Lease and
$2.5 million for the Expansion Operating Lease.
New Claridge is also required to pay, as additional rent, certain
amounts including certain taxes, insurance, and other charges related to the
occupancy of the land and Hotel Assets, certain expenses and debt service
related to furniture, fixture and equipment replacements and building
improvements, and the general and administrative costs of the Partnership.
Effective with the consummation of the restructuring in June 1989, the
Operating Lease Agreement and Expansion Operating Lease Agreement were amended
to provide for the deferral of $15.1 million of rental payments due during the
period July 1, 1988 through the beginning of 1992, and to provide for the
abatement of $38.8 million of basic rent payable through 1998, thereby reducing
the Partnership's cash flow to an amount estimated to be necessary to meet the
Partnership's cash requirements. Lease expense (which had been recognized on a
level basis in accordance with Statement of Financial Accounting Standards No.
13) was reduced prospectively as a result of the abatements provided for in
connection with the June 1989 restructuring. During the third quarter of 1991,
the maximum deferral of rent was reached. On August 1, 1991, the Operating Lease
and Expansion Operating Lease were amended further to revise the abatement
provisions so that, commencing January 1, 1991, for each calendar year through
1998, the lease abatements could not exceed $10 million in any one calendar
year, and $38.8 million in the aggregate. All of the $38.8 million of available
rent abatements were fully utilized by the end of March 1997.
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).
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. 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 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.
Effective September 30, 1998, the Operating Lease and Expansion
Operating Lease were further amended, to allow for the deferral of $1.1 million
of rent in either February 1999 or March 1999, dependent
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upon certain conditions being met. These conditions, which must have occurred
prior to March 2, 1999, included (i) New Claridge having received the proceeds
in connection with its settlement of the parking garage arbitration; and (ii)
the Corporation or New Claridge having paid the interest that was due on the
Notes on February 1, 1999. New Claridge received the proceeds from the
settlement of the parking garage litigation in February 1999, and paid the
interest due on the Notes on March 2, 1999, within the 30-day grace period
allowed in accordance with the terms of the Indenture. The $1.1 million of basic
rent deferred in 1999 is to be paid to the Partnership in monthly installments
of $25,000 commencing January 1, 2000 until paid in full (subject to
acceleration under certain circumstances). This amendment also provides for
additional abatements of rent, through December 31, 2004, as necessary to reduce
the Partnership's cash flow to an amount necessary only to meet the
Partnership's cash requirements; these abatements, however, are to be reduced by
specified amounts for each period commencing January 1, 2000 and ending December
31, 2004 ($83,333 per month in 2000, $130,000 per month in 2001, $180,000 per
month in 2002 and 2003, and $130,000 per month in 2004).
In addition to the deferral and abatements of rent provided for in the
Sixth Amendment, the amendment provides for the payment of $3.5 million of
additional basic rent on the earlier of (i) the maturity date of the Expandable
Wraparound Mortgage Note; (ii) such earlier date, if any, as the entire
principal amount of the Expandable Wraparound Mortgage becomes due and payable;
or (iii) the date on which any merger, consolidation, or similar transaction to
which the Corporation or New Claridge is a party, or any sale of all or
substantially all of the assets of the Corporation or New Claridge is
consummated, or any change in control of the Corporation or New Claridge occurs.
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.
In view of the August 16, 1999 filing by the Corporation of a voluntary
petition under Chapter 11 of the United States Bankruptcy Code, and in light of
the fact that the Notes are secured by a non-recourse mortgage granted by the
Partnership representing a first lien on the Hotel Assets, it is possible that
the Partnership will also file a voluntary petition under Chapter 11. However,
it is impossible to speculate, at this time, if and when this will actually
happen, and, if it does occur, what effects such a filing by the Partnership
will have on the Operating Lease and Expansion Operating Lease Agreement and the
Expandable Wraparound Mortgage Agreement, or the Partnership's performance of
their obligations under these agreements.
Management of the Corporation is aware of the issues associated with the
programming code in existing computer systems as the year 2000 approaches. The
"year 2000" problem is the result of computer programs which were written using
two digits rather than four to define the applicable year, which could cause
certain systems to recognize the year 2000 as the year 1900. The Corporation has
assessed its hardware, software, and other non-Information Technology ("IT")
systems, and believes it has a plan in place to address year 2000 issues on a
timely basis. The Corporation's management anticipates using primarily internal
staff to identify, correct, and test the systems for year 2000 compliance,
which, therefore, will not likely result in incremental costs, but rather will
represent a redeployment of existing IT resources. While non-essential, non-year
2000 IT projects may be delayed, adequate resources are available to address
essential non-year 2000 projects, such as regulatory requirements and marketing
programs. The total cost of addressing year 2000 issues is estimated to be
approximately $2.3 million. Approximately 70% of the total cost relates to labor
while the remaining 30% relates to the cost of supplies, equipment, software and
hardware. Through June 30, 1999, the Corporation has spent approximately $1.5
million or 66% of the anticipated total year
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2000 project cost. The Corporation does not expect the amounts required to be
expensed related to correcting the year 2000 problem to have a material effect
on its financial position or results of operations. Although management of the
Corporation anticipates completion of this project by the end of 1999, there can
be no assurance of this. If the modifications are not completed timely, the year
2000 problem could have a material impact on the Corporation's ability to
conduct its business.
In addition to addressing its internal systems, the Corporation is
contacting its significant vendors concerning their year 2000 readiness, and is
formulating contingency plans, which were substantially complete by June 30,
1999, in the event that certain vendors are not able to fulfill their
obligations to the Corporation.
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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: August 20, 1999
24
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CLARIDGE
HOTEL AND CASINO CORPORATION'S FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1999 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 10,356,000
<SECURITIES> 0
<RECEIVABLES> 6,904,000
<ALLOWANCES> 1,341,000
<INVENTORY> 267,000
<CURRENT-ASSETS> 19,446,000
<PP&E> 41,851,000
<DEPRECIATION> 13,146,000
<TOTAL-ASSETS> 132,444,000
<CURRENT-LIABILITIES> 43,897,000
<BONDS> 85,020,000
0
0
<COMMON> 5,000
<OTHER-SE> (26,750,000)
<TOTAL-LIABILITY-AND-EQUITY> 132,444,000
<SALES> 0
<TOTAL-REVENUES> 92,991,000
<CGS> 0
<TOTAL-COSTS> 54,545,000
<OTHER-EXPENSES> 34,208,000
<LOSS-PROVISION> 418,000
<INTEREST-EXPENSE> 5,337,000
<INCOME-PRETAX> (1,517,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,517,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,517,000)
<EPS-BASIC> (.30)
<EPS-DILUTED> 0
</TABLE>
