<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______
COMMISSION FILE NO. 1-12030
STRATOSPHERE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 88-0292318
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2000 LAS VEGAS BOULEVARD SOUTH
LAS VEGAS, NEVADA 89104
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(702) 382-4446
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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 ______
INDICATE THE NUMBER OF SHARES OUTSTANDING FOR EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE: 58,393,105.
<PAGE> 2
STRATOSPHERE CORPORATION
(DEBTOR-IN-POSSESSION)
FORM 10-Q
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS AT MARCH 30, 1997 AND DECEMBER 29, 1996 (unaudited) 3
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 30, 1997 AND MARCH 31, 1996 (unaudited) 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED
MARCH 30, 1997 AND MARCH 31, 1996 (unaudited) 5-6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 7-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS 9-10
PART II. OTHER INFORMATION 11
</TABLE>
2
<PAGE> 3
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STRATOSPHERE CORPORATION AND SUBSIDIARIES
BALANCE SHEETS (DEBTORS-IN-POSSESSION)
- -----------------------------------------------------------------------------------------------------------------------------------
MARCH 30, DECEMBER 29,
1997 1996
(Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $24,491,225 $22,558,804
Cash and cash equivalents - restricted 2,703,132 2,678,344
Securities available for sale - 2,000,905
Accounts receivable 3,642,252 4,575,490
Affiliate receivable 27,081 -
Other current assets 6,016,415 6,127,325
- -----------------------------------------------------------------------------------------------------------------------------------
Total Current Assets 36,880,105 37,940,868
- -----------------------------------------------------------------------------------------------------------------------------------
Property and Equipment, Net 128,936,426 130,000,000
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS:
Deferred financing costs-net 885,629 12,339,097
Related party receivable - net 800,000 800,000
- -----------------------------------------------------------------------------------------------------------------------------------
Total Other Assets 1,685,629 13,139,097
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $167,502,160 $181,079,965
===================================================================================================================================
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities:
Accounts payable-trade $1,149,676 $1,250,786
Accounts payable-construction 10,883 858,665
Current installments of long-term debt 175,281 429,103
Current installments of capital lease obligations - 8,684,360
Accrued interest 379,001 18,644,462
Accrued payroll and related expenses 5,272,132 5,005,047
Affiliate payable - 1,878,717
Other accrued expenses 3,606,659 9,231,792
- -----------------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 10,593,632 45,982,932
- -----------------------------------------------------------------------------------------------------------------------------------
Long-term Liabilities:
Long-term debt - less current installments - 203,000,000
Capital lease obligations - less current installments - 19,539,815
Note payable to affiliate - 50,000,000
- -----------------------------------------------------------------------------------------------------------------------------------
Total Long-Term Liabilities - 272,539,815
- -----------------------------------------------------------------------------------------------------------------------------------
Liabilities Subject to Compromise 309,558,556 -
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 320,152,188 318,522,747
- -----------------------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies
Shareholders' Deficit:
Preferred stock, $.01 par value; authorized 10,000,000 shares;
no shares issued and outstanding
Common stock, $.01 par value; authorized 100,000,000 shares;
issued and outstanding 58,393,105 at
March 30, 1997 and December 30, 1996 583,931 583,931
Additional paid-in-capital 218,786,069 218,787,643
Accumulated deficit (372,020,028) (356,814,356)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Deficit (152,650,028) (137,442,782)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $167,502,160 $181,079,965
===================================================================================================================================
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STRATOSPHERE CORPORATION AND SUBSIDIARIES
STATEMENTS OF OPERATIONS (DEBTORS-IN- POSSESSION)
THREE MONTHS ENDED MARCH 30, 1997 AND MARCH 31, 1996 (Unaudited) 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES:
Casino $ 17,402,986 $ -
Hotel 6,430,174 -
Food and beverage 8,703,293 -
Tower, retail and other income 7,303,041 8,877
- -----------------------------------------------------------------------------------------------------------------------------------
Gross Revenues 39,839,494 8,877
Less: Promotional allowances 2,936,764 -
- -----------------------------------------------------------------------------------------------------------------------------------
NET REVENUES 36,902,730 8,877
- -----------------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Casino 7,451,931 -
Hotel 2,378,238 -
Food and beverage 6,810,812 -
Other operating expenses 2,812,816 -
Depreciation and amortization 2,026,844 -
Selling, general and administrative 14,877,841 37,686
- -----------------------------------------------------------------------------------------------------------------------------------
Total Costs and Expenses 36,358,482 37,686
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS 544,248 (28,809)
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest income 47,674 2,367,642
Interest expense (Contractual Interest Estimated at $ 10,096,758) (3,702,200) (344,047)
Loss on sale of assets (1,190) -
- -----------------------------------------------------------------------------------------------------------------------------------
Total Other Income (Expense), net (3,655,716) 2,023,595
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE REORGANIZATION ITEMS AND INCOME TAXES (3,111,468) 1,994,786
- -----------------------------------------------------------------------------------------------------------------------------------
REORGANIZATION ITEMS: (12,094,204) -
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES (15,205,672) 1,994,786
- -----------------------------------------------------------------------------------------------------------------------------------
Provision for Income Taxes - 78,807
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $(15,205,672) $1,915,979
===================================================================================================================================
INCOME (LOSS) PER COMMON SHARE $(0.26) $0.03
===================================================================================================================================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 58,393,105 58,047,766
===================================================================================================================================
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STRATOSPHERE CORPORATION AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS (DEBTORS-IN-POSSESSION)
- -----------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 30, 1997 AND MARCH 31, 1996 (Unaudited) 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(15,205,672) $1,994,786
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,276,454 238,403
Write-off of debt issuance costs 11,210,108 -
Provision for doubtful accounts 411,295 -
Loss on sale or disposal of assets 1,190 -
Changes in operating assets and liabilities:
Accounts receivable 690,061 (4,110,818)
Other current assets 110,910 (2,703,324)
Accounts payable - trade 236,392 753,441
Other accrued expenses 3,809,410 7,987,119
- -----------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,540,148 4,159,607
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in cash and cash equivalents-restricted $ (26,362) $ 54,456,685
Change in securities available for sale 2,000,905 5,145,674
Payments for property and equipment (967,887) (106,663,414)
Change in construction payables (533,250) 5,573,399
Pre-opening costs - (6,363,018)
Increase in related party receivable and other (168,118) -
Cash proceeds from sale of property and equipment 3,427 -
- -----------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 308,715 (47,850,674)
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options/common stock
purchase warrants - 335,750
Costs of secondary stock offering - (242,243)
Debt issuance and deferred financing costs (6,250) (18,750)
Payments on long-term debt and capital lease obligations (2,424,912) -
Increase in affiliate payable 514,720 438,577
- -----------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (1,916,442) 513,334
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,932,421 (43,177,733)
Cash and cash equivalents - beginning of period 22,558,804 92,595,770
- -----------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $24,491,225 $49,418,037
===================================================================================================================================
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STRATOSPHERE CORPORATION AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS (DEBTORS-IN-POSSESSION)
- -----------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 30, 1997 AND MARCH 31, 1996 (Unaudited) 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest-net of capitalized interest $605,389 $ -
Income taxes $ - $ -
Non-Cash Investing and Financing Activities:
Issuance of common stock in purchase of land $ - $18,204,760
</TABLE>
See notes to consolidated financial statements.
6
<PAGE> 7
NOTES TO CONDENSED CONSOLIDATED STRATOSPHERE CORPORATION AND SUBSIDIARIES
FINANCIAL STATEMENTS (DEBTORS-IN-POSSESSION )
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
The accompanying Condensed Consolidated Financial Statements present the
financial position, results of operations and cash flows of Stratosphere
Corporation and its wholly-owned subsidiaries, Stratosphere Gaming Corp.,
Stratosphere Land Corporation, Stratosphere Advertising Agency and 2000 Las
Vegas Boulevard Retail Corporation (collectively the "Company"). The Company
commenced operations on April 29, 1996, with an integrated casino, hotel and
entertainment facility and a 1,149 foot, free-standing observation tower.
On January 27, 1997 ("Petition Date"), Stratosphere Corporation and its
wholly-owned subsidiary Stratosphere Gaming Corp. ("SGC" and collectively with
Stratosphere Corporation, the "Debtors") filed voluntary petitions for Chapter
11 Reorganization pursuant to the United States Bankruptcy Code. As of that
date, the United States Bankruptcy Court for the District of Nevada
("Bankruptcy Court") assumed jurisdiction over the assets of Stratosphere
Corporation and SGC. Stratosphere Corporation and SGC are acting as
debtors-in-possession on behalf of their respective bankrupt estates, and are
authorized as such to operate their business subject to Bankruptcy Court
supervision. The Condensed Consolidated Financial Statements have been
prepared assuming that the Company will continue as a going concern. These
Condensed Consolidated Financial Statements do not include any adjustments that
might result if the Company is unable to successfully emerge from bankruptcy.
Principles of Presentation
The Condensed Consolidated Financial Statements have been prepared in
accordance with the accounting policies described in the Company's 1996 Annual
Report on Form 10-K. Although the Company believes that the disclosures are
adequate to make the information presented not misleading, it is suggested that
these financial statements be read in conjunction with the Notes to the
Consolidated Financial Statements which appear in that report.
In addition, as a result of the restructuring (see Note 2), the Company has
implemented the guidance provided by Statement of Position 90-7 "Financial
Reporting By Entities in Reorganization Under the Bankruptcy Code" in the
accompanying March 30, 1997 Condensed Consolidated Financial Statements.
In the opinion of management, the accompanying Condensed Consolidated Financial
Statements include all adjustments (consisting of a normal recurring nature)
which are necessary for a fair presentation of the results for the interim
periods presented. Certain information and footnote disclosures normally
included in financial statements have been condensed or omitted pursuant to
such rules and regulations of the Securities and Exchange Commission. Interim
results are not necessarily indicative of results to be expected for any future
interim period or for the entire fiscal year. Significant intercompany
accounts and transactions have been eliminated.
Reclassifications
Certain amounts in the 1996 Condensed Consolidated Financial Statements have
been reclassified to conform with the 1997 presentation. These
reclassifications had no effect on the Company's net income.
(2) RESTRUCTURING
In connection with the bankruptcy petitions filed by the Debtors a Joint Plan
of Reorganization (the "Plan") was filed by the Debtors and Grand Casinos, Inc.
("Grand") with the Bankruptcy Court. The Plan includes several conditions of
which none are currently satisfied. Included as a condition is a requirement
that the Company obtain average monthly Consolidated Cash Flow (as defined in
the restructuring agreement) for the period October 1996 through June 1997 of
at least $2,267,000. The average for the seven months ended April 27, 1997, was
$1,674,039. The Company believes it is unlikely that it will satisfy this
condition. Grand has informed the Company that it will not waive this
condition and that
7
<PAGE> 8
Grand is prepared to explore with the Company and the Company's Noteholders
Committee alternatives for a consensual reorganization of the Company. Grand
also indicated if an alternative consensual agreement can not be reached and
conditions to the pending plan of reorganization and related investment
agreement are not met, Grand may propose or participate in alternative plans of
reorganization or may terminate altogether its participation in the bankruptcy
process. If the Plan or another viable proposal can not be negotiated, the
Company will likely be unable to continue as a going concern.
The Company plans to expense future restructuring costs as incurred. Accrued
professional fees since the Petition Date totaled $1,000,000 which must
be approved by the Bankruptcy Court prior to being paid. The Company incurred
approximately $450,000 of professional during January 1997 prior to the
Petition Date resulting in total professional during the three
months ended March 30, 1997, of approximately $1,450,000 or $0.03 per common
share.
The Company expensed unamortized deferred debt issuance costs as of the
Petition Date. The total write-off included in "Reorganization Items" on the
Condensed Consolidated Statements of Operations was $11.2 million or $0.19 per
common share. Prior to the Petition Date, deferred debt issuance costs were
amortized over the life of the 14.25% First Mortgage Notes and included in
interest expense.
Under Chapter 11 Reorganization, actions to enforce claims against the Debtors
or Debtors', property are stayed if those claims arose, or are based on events
that occurred, on or before the Petition Date of January 27, 1997, and such
claims cannot be paid or restructured prior to the conclusion of the Chapter 11
proceedings or approval of the Bankruptcy Court. Other liabilities may arise
or be subject to compromise as a result of rejection of executory contracts,
including leases, or the Bankruptcy Court's resolution of claims for
contingencies and other disputed amounts. Liabilities subject to compromise on
the accompanying consolidated condensed balance sheets represent the Company's
estimate of the Debtors' pre-petition liabilities which are subject to
compromise (see Note 3).
(3) LIABILITIES SUBJECT TO COMPROMISE
Liabilities subject to compromise under reorganization proceedings consist of
the following as of March 30, 1997 (In Thousands):
<TABLE>
<S> <C>
Accounts Payable Trade $ 652
Accrued Payroll and Related Expenses 1,406
Affiliate Payable 2,421
Other Accrued Expenses 5,452
Capital Lease Obligations 26,053
14 1/4% First Mortgage Notes - Including accrued interest through 1/27/97 223,575
Note Payable to Affiliate 50,000
--------
Total Liabilities Subject to Compromise $309,559
========
</TABLE>
The Company ceased accruing interest on the 14 1/4% First Mortgage Notes and
the note payable to affiliate as of the Petition Date. Although classified as a
liability subject to compromise, the Company anticipates the continuation of
payments on its capital lease obligations pursuant to a pre-petition standstill
agreement and an order entered by the Bankruptcy Court on March 4, 1997,
approving a stipulation for adequate protection.
(4) REORGANIZATION ITEMS
Reorganization items consisted of the following for the period ended March
30, 1997 (In Thousands):
<TABLE>
<S> <C>
Write-off of Debt Issuance Costs $ 11,210
Professional Fees 1,000
Interest Earned on Accumulated Cash
During Chapter 11 Proceedings (116)
---------
Net Reorganization Items $ 12,094
=========
</TABLE>
Cash interest earned since the Petition Date was $ 112,363.
(5) SUBSEQUENT EVENTS
On April 29, 1997, the Company received notice from Nasdaq that its appeal for
continued listing on the Nasdaq National Market System had been denied. Nasdaq
cited the fact that the Company was in the early stages of the bankruptcy
proceeding and the uncertainty of the results of such proceeding as reasons for
denying the Company's appeal. Subsequently, the Company's common stock began
trading on the over the counter bulletin board.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company commenced operations on April 29, 1996, with a 1,149 foot, free
standing observation tower with an integrated casino, hotel and retail
entertainment center. Prior to opening, the Company was in the development
stage and did not have any historical operating income as there were no
operating revenues. Until opening, expenses consisted primarily of interest
and amortization of costs and expenses relating to the 14 1/4% First Mortgage
Notes issued in March 1995.
On January 27, 1997 ("Petition Date"), Stratosphere Corporation and its
wholly-owned subsidiary Stratosphere Gaming Corp. (collectively the "Debtors")
filed voluntary petitions for Chapter 11 Reorganization pursuant to the United
States Bankruptcy Code. As of that date, the United States Bankruptcy Court
for the District of Nevada ("Bankruptcy Court") assumed jurisdiction over the
assets of the Debtors. The Debtors are acting as debtors-in-possession on
behalf of their respective bankrupt estates, and are authorized as such to
operate their business subject to Bankruptcy Court supervision.
The Debtors and Grand Casinos, Inc. ("Grand") filed a Joint Plan of
Reorganization (the "Plan") with the Bankruptcy Court on the Petition Date.
The Plan includes several conditions of which none are currently satisfied.
Included as a condition is a requirement that the Company obtain average
monthly Consolidated Cash Flow (as defined in the restructuring agreement) for
the period October 1996 through June 1997 of at least $2,267,000. The average
for the seven months ended April 27, 1997 was $1,674,039. The Company
believes it is unlikely that it will satisfy this condition. Grand has
informed the Company it will not waive this condition and that Grand is
prepared to explore with the Company and the Company's Noteholders Committee
alternatives for a consensual reorganization of the Company. Grand also
indicated if an alternative consensual agreement can not be reached and
conditions to the pending plan of reorganization and related investment
agreement are not met, Grand may propose or participate in alternative plans of
reorganization or may terminate altogether its participation in the bankruptcy
process. If the Plan or similar proposal can not be negotiated, the Company
will likely be unable to continue as a going concern.
Due to the short operating period, historical results may not be indicative of
future operating results and comparison to the prior year fiscal quarter may
not provide relevant information and therefore has not been included.
RESULTS OF OPERATIONS
Three Months Ended March 30, 1997
The Company produced gross revenues of $39.8 million during the first quarter
of 1997. Casino revenue represented 44% of gross revenue, hotel 16%, food and
beverage 22%, and tower, retail and other revenue 18%. The net loss for the
quarter was $15.2 million or $0.26 per common share.
The Company experienced hotel occupancy of 87% at an average daily rate of $56
for the quarter. Tower visitation totaled 630,078 for the period inclusive of
guests dining at the Top of The World revolving restaurant.
Other Factors Affecting Earnings
The Company's roller coaster was not operational during the first quarter,
which management believes unfavorably impacted tower operating revenues.
Modifications and an annual maintenance program have been completed and the
roller coaster became operational on April 20, 1997. There can be no assurance
that the continued operation of the roller coaster will increase tower
visitation and gaming levels.
The Company has incorporated the requirements of Statement of Position 90-7
"Financial Reporting By Entities in Reorganization Under the Bankruptcy Code".
Accordingly, the Company has reflected professional fees since the Petition
Date
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<PAGE> 10
as a separate category "Reorganization Items" in the accompanying Condensed
Consolidated Statements of Operations. Professional fees incurred since the
Petition Date totaled $1.0 million. When combined with professional fees
related to the restructuring prior to the Petition Date, which are included as
selling, general and administrative expenses, the total is approximately $1.5
million or $0.03 per common share. The Company plans to expense such costs as
incurred during the term of the bankruptcy proceedings. All professional fees
related to the restructuring, since the Petition Date, must be approved by the
Bankruptcy Court prior to payment.
The Company expensed unamortized deferred debt issuance costs as of the
Petition Date. The total write-off included in "Reorganization Items" on the
condensed consolidated statements of operations was $11.2 million or $0.19 per
common share. Prior to the Petition Date deferred debt issuance costs were
amortized over the life of the 14.25% First Mortgage Notes and included in
interest expense.
Depreciation and amortization expense of $2.0 million was approximately $3.7
million less than the fourth quarter of 1996. The reduction in depreciation
and amortization is due to the adoption of Statement of Financial Accounting
Standards No. 121 at December 29, 1996, in which the asset carry values were
reduced from approximately $426.0 million to $130.0 million.
Interest expense was approximately $4.1 million for the quarter of which $2.9
million related to the 14.25% First Mortgage Notes ("Mortgage Notes") and $0.5
million related to the note payable to affiliate (Grand) for interest accrued
through the Petition Date. The Company has not accrued interest on these items
since the Petition Date and does not anticipate such interest accrual during
the term of the bankruptcy proceedings.
The Company currently employees approximately 2,500 Associates. Management
continues to assess the appropriate levels of employment.
LIQUIDITY AND CAPITAL RESOURCES
The Company had unrestricted cash balances of approximately $24.5 million as of
March 30, 1997. The Company relies on its ability to generate funds from
operations and current cash balances to continue its operations during the term
of the bankruptcy proceedings as the Company does not have the availability of
working capital credit lines. Management believes that funds available from
these sources will be sufficient to meet the Company's working capital, capital
expenditure requirements and obligations under its capital leases that are
anticipated to be paid during the term of the bankruptcy proceedings. The
Company generated cash from operating activities of approximately $3.5 million
during the quarter ended March 30, 1997.
On April 29, 1997, the Company received notice from Nasdaq that its appeal for
continued listing on the Nasdaq National Market System had been denied. Nasdaq
cited the fact that the Company was in the early stages of the bankruptcy
proceedings and the uncertainty of the results of such proceedings as reasons
for denying the Company's appeal. Subsequently, the Company's common stock
began trading on the over the counter bulletin board.
PRIVATE SECURITIES LITIGATION REFORM ACT
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain information included in this Form 10-Q
and other materials filed or to be filed by the Company with the Securities and
Exchange Commission (as well as information included in oral statements or
other written statements made or to be made by the Company) contains statements
that are forward-looking, such as statements relating to plans for future
expansion, future construction costs and other business development activities
as well as other capital spending, financing sources and the effects of
regulation (including gaming and tax regulation) and competition. Such
forward-looking information involves important risks and uncertainties that
could significantly affect anticipated results in the future and, accordingly,
such results may differ from those expressed in any forward-looking statements
made by or on behalf of the Company. These risks and uncertainties include,
but are not limited to, those relating to development and construction
activities, dependence on existing management, leverage and debt service
(including sensitivity to fluctuations in interest rates), domestic or global
economic conditions, changes in federal or state tax laws or the administration
of such laws and changes in gaming laws or regulations (including the
legalization of gaming in certain jurisdictions). See the Companys annual
report on form 10K for the fiscal year ended 1996 for certain other factors
that could impact future results.
10
<PAGE> 11
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The hearing previously anticipated to be April 25, 1997, relating to the motion
to dismiss the Consolidated and Amended Class Action Complaint filed February
14, 1997, occurred on May 6, 1997. The court's ruling on that motion is
pending.
The estimation proceeding scheduled for May 5, 1997, regarding plaintiffs
claims in the consolidated federal litigation (the Caesar Case) was canceled.
See the Company's Annual Report on Form 10-K for the fiscal year ended December
29, 1996, for information regarding other pending legal proceedings.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company defaulted on its 14 1/4% interest payment obligation of
approximately $14.5 million which was due on November 15, 1996 to holders of the
Mortgage Notes. The Company does not anticipate meeting future payment
obligations during the term of the bankruptcy proceedings. The total principal
and interest accrued as of March 30, 1997, was approximately $223.6 million.
Interest has not been accrued since the Petition Date.
The Company is also in default on its capital lease obligations due to its
inability to meet certain financial covenants. The Company anticipates it will
continue payment on this obligation during the term of the bankruptcy
proceedings. The Company was current on this payment obligation as of March
30, 1997. The balance of principal and accrued interest as of March 30, 1997,
was $26.4 million.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K. The Company filed two Reports on Form 8-K
during the fiscal quarter ended March 30, 1997.
Date Filed Items Listed
-------------- ------------
January 7, 1997 5,7
January 28, 1997 3
11
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
STRATOSPHERE CORPORATION
Date: May 14, 1997 By: /s/ Richard J. Schuetz
----------------------------
Name: Richard J. Schuetz
---------------------------
Title: President & CEO
--------------------------
By: /s/ Thomas A. Lettero
-----------------------------
Name: Thomas A. Lettero
---------------------------
Title: Chief Financial Officer
--------------------------
12
<PAGE> 13
EXHIBIT INDEX
STRATOSPHERE CORPORATION
Exhibit
No.
- -------
27 Financial Data Schedule
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-30-1997
<PERIOD-END> MAR-30-1997
<CASH> 27,194,357
<SECURITIES> 2,000,905
<RECEIVABLES> 4,274,572
<ALLOWANCES> 632,320
<INVENTORY> 3,066,155
<CURRENT-ASSETS> 2,950,260
<PP&E> 142,399,913
<DEPRECIATION> 13,463,487
<TOTAL-ASSETS> 167,502,160
<CURRENT-LIABILITIES> 19,277,992
<BONDS> 0
0
0
<COMMON> 583,931
<OTHER-SE> (153,233,959)
<TOTAL-LIABILITY-AND-EQUITY> 167,502,160
<SALES> 38,850,730
<TOTAL-REVENUES> 39,839,494
<CGS> 4,510,619
<TOTAL-COSTS> 19,453,791
<OTHER-EXPENSES> 16,905,881
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,702,200
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