<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 September 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
November 18, 1999
----------------------------
Class A Stock 5,062,500
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession)
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
September 30, 1999 (unaudited)
and December 31, 1998 4
Consolidated Statements of Operations
for the three months ended September 30,
1999 (unaudited) and 1998 (unaudited) 5
Consolidated Statements of Operations
for the nine months ended September 30,
1999 (unaudited) and 1998 (unaudited) 6
Consolidated Statements of Cash Flows
for the nine months ended September 30,
1999 (unaudited) and 1998 (unaudited) 7
Notes to Consolidated Financial
Statements 9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 16
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
(Debtor-In-Possession)
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 September 30, 1999 and December 31, 1998, and the results of its
operations for the three and nine months ended September 30, 1999 and 1998 and
its cash flows for the nine months ended September 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 Note 1 to the consolidated financial statements, the
Corporation filed for reorganization under Chapter 11 of the United States
Bankruptcy Code on August 16, 1999. In addition, Atlantic City Boardwalk
Associates, L.P. (the "Partnership") filed for reorganization under Chapter 11
of the United States Bankruptcy Code on October 5, 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 (i) as to assets, their realizable value on a
liquidation basis or their availability to satisfy liabilities; (ii)
contingencies, or the status and priority thereof; or (iii) 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 nine months ended September
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
(Debtor-In-Possession)
Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
September 30, December 31,
1999 1998
------------- ------------
ASSETS
- ------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 16,548 9,798
Receivables, net (including $6,602
at September 30, 1999 and $3,111 at December 31,
1998, due from the Partnership) 8,678 5,561
Other current assets 3,429 3,044
--------- ---------
Total current assets 28,655 18,403
--------- ---------
Property and equipment, net (note 4) 28,483 29,377
Long-term receivables due from the
Partnership (note 3) 78,960 79,593
Intangible assets and deferred charges 1,166 1,510
Other assets 3,962 2,893
--------- ---------
$ 141,226 131,776
========= =========
LIABILITIES & STOCKHOLDERS' DEFICIENCY
- --------------------------------------
Current Liabilities Not Subject to
Compromise:
Current maturities of long-term debt (note 7) $ 282 351
Accounts payable 3,207 3,535
Loan from the Partnership (note 5) -0- 3,600
Other current liabilities (note 6) 13,000 34,602
--------- ---------
Total current liabilities not subject to compromise 16,489 42,088
--------- ---------
Liabilities Subject to Compromise (note 10) 144,885 -0-
Long-term debt (note 7) 3 85,170
Deferred rent due to the Partnership -0- 5,827
Deferred income taxes (note 9) 2,046 2,579
Other noncurrent liabilities (note 8) 2,057 21,340
Stockholders' deficiency:
Common stock 5 5
Additional paid in capital 5,048 5,048
Accumulated deficit (29,307) (30,281)
--------- ---------
Total stockholders' deficiency (24,254) (25,228)
--------- ---------
$ 141,226 131,776
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession)
Consolidated Statements of Operations
For the Three Months Ended September 30, 1999 and 1998
(in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
-------- --------
Revenues:
<S> <C> <C>
Casino $ 46,425 43,519
Hotel 3,508 3,135
Food and beverage 5,163 5,402
Interest from the Partnership 2,881 2,942
Interest, other 68 112
Other 766 866
-------- --------
58,811 55,976
Less promotional allowances (note 2) 6,363 5,742
-------- --------
Net revenues 52,448 50,234
-------- --------
Costs and expenses:
Casino 27,332 26,965
Hotel 710 646
Food and beverage 1,488 2,434
Other 792 705
Rent expense to the Partnership 5,752 7,087
Rent expense, other 298 302
General and administrative 6,803 6,931
Gaming taxes 3,689 3,465
Reinvestment obligation expense 188 176
Provision for uncollectible accounts 320 227
Depreciation and amortization 401 663
Interest expense (contractual interest of $2,775 in 1999) 1,387 2,632
-------- --------
Total costs and expenses 49,160 52,233
-------- --------
Income (loss) before reorganization items and income taxes 3,288 (1,999)
Reorganization items:
Professional fees (843) -0-
Interest earned from accumulated cash resulting
from Chapter 11 proceeding 46 -0-
-------- --------
(797) -0-
-------- --------
Income (loss) before income tax benefit 2,491 (1,999)
Income tax benefit -0- -0-
-------- --------
Net income (loss) $ 2,491 (1,999)
======== ========
Net income (loss) per share (based on 5,062,500 and 4,970,730 weighted average
shares outstanding for the three months
ended September 30, 1999 and 1998, respectively) $ .49 (.40)
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession)
Consolidated Statements of Operations
For the Nine Months Ended September 30, 1999 and 1998
(in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
Revenue:
<S> <C> <C>
Casino $ 126,449 128,231
Hotel 8,281 7,176
Food and beverage 14,194 14,559
Interest from the Partnership 8,732 9,234
Interest, other 271 659
Other 4,412 2,266
--------- ---------
162,339 162,125
Less promotional allowances (note 2) 16,900 15,196
--------- ---------
Net revenues 145,439 146,929
--------- ---------
Costs and expenses:
Casino 76,721 77,795
Hotel 2,072 1,805
Food and beverage 3,965 6,300
Other 2,109 2,051
Rent expense to the Partnership 18,084 20,074
Rent expense, other 904 953
General and administrative 20,169 20,716
Gaming taxes 10,058 10,228
Reinvestment obligation expense 712 765
Provision for uncollectible accounts 738 406
Depreciation and amortization 1,412 1,995
Interest expense (contractual interest of $8,112 in 1999) 6,724 7,880
--------- ---------
Total costs and expenses 143,668 150,968
--------- ---------
Income (loss) before reorganization items and income taxes 1,771 (4,039)
Reorganization items:
Professional fees (843) -0-
Interest earned from accumulated cash resulting
from Chapter 11 proceeding 46 -0-
--------- ---------
(797) -0-
--------- ---------
Income (loss) before income tax benefit 974 (4,039)
Income tax benefit -0- -0-
--------- ---------
Net income (loss) $ 974 (4,039)
========= =========
Net income (loss) per share (based on 5,062,500 and 4,970,730 weighted average
shares outstanding for the nine months
ended September 30, 1999 and 1998, respectively) $ .19 (.81)
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
6
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession)
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1999 and 1998
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------- -------
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $ 974 (4,039)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,412 1,995
Deferred rent to the Partnership 931 (10,989)
Deferred interest receivable and discount from the Partnership (1,705) (1,484)
Reinvestment obligation expenses 712 765
Gain on disposal of assets (119) (86)
Deferred income taxes -0- (1)
Reorganization items 797 -0-
Change in assets and liabilities:
Decrease (increase) in receivables, net, excluding
current portion of long-term receivables (1,769) (1,085)
Increase in other current assets (385) (165)
Increase in accounts payable 2,953 788
Increase (decrease) in other current liabilities 4,407 (2,096)
Increase in other noncurrent liabilities 2 44
------- -------
Net cash provided by (used in) operating activities
before reorganization items 8,210 (16,353)
Reorganization items:
Professional fees paid (305) -0-
Interest earned on accumulated cash resulting from
Chapter 11 proceeding 46 -0-
------- -------
Net cash provided by (used in) operating activities 7,951 (16,353)
------- -------
</TABLE>
(continued)
See accompanying notes to consolidated financial statements.
7
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession)
Consolidated Statements of Cash Flows (continued)
For the Nine Months Ended September 30, 1999 and 1998
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
-------- --------
Cash flows from investment activities:
<S> <C> <C>
Increase in intangible assets and deferred charges (54) (47)
Additions to property and equipment (102) (209)
Increase in other assets (1,781) (1,388)
Proceeds from disposal of assets -0- 1,034
Increase in long-term receivables (309) (569)
Receipt of long-term receivables 1,300 13,945
-------- --------
Net cash (used in) provided by investment activities (946) 12,766
-------- --------
Cash flows from financing activities:
Payment of long-term debt (255) (135)
-------- --------
Net cash used in financing activities (255) (135)
-------- --------
Increase (decrease) in cash and cash equivalents 6,750 (3,722)
Cash and cash equivalents at beginning of period 9,798 12,424
-------- --------
Cash and cash equivalents at end of period $ 16,548 8,702
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession)
Notes to Consolidated Financial Statements
1. Significant Events and Basis of Presentation
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 its first mortgage
notes (the "Notes"). The Corporation did not pay the interest due on
August 2, 1999 on the Notes, and, on August 16, 1999, the Corporation
and New Claridge filed voluntary petitions under Chapter 11 of the
United States Bankruptcy Code (the "Bankruptcy Code") in the United
States Bankruptcy Court for the District of New Jersey (the "Bankruptcy
Court"). The Corporation continues to operate in the ordinary course of
business, as set forth in the Bankruptcy Code, under the supervision of
the Bankruptcy Court, as a debtor-in-possession. Under the Bankruptcy
Code, the Corporation has an exclusive period of 120 days to file a plan
of reorganization with the Bankruptcy Court; such exclusivity period
would expire on December 14, 1999. Management of the Corporation is in
the process of developing such a plan.
On November 3, 1999, the Corporation announced that Robert M. Renneisen
had resigned as Chairman of the Board of Directors of the Corporation,
and would no longer serve as its Chief Executive Officer. Mr. Renneisen
will continue to serve as a member of the Corporation's Board of
Directors. James M. Montgomery, who has been a member of the
Corporation's Board of Directors since March 1995, has been named as
Chairman of the Board of Directors. Frank A. Bellis, Jr., who has been
the Corporation's chief legal counsel since 1992, has been named to
serve as the Corporation's Chief Executive Officer and a member of the
Board of Directors.
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles and in accordance with
Statement of Position 90-7, "Financial Reporting By Entities in
Reorganization under the Bankruptcy Code," and include disclosure of
liabilities subject to compromise (see Note 10). 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. The accompanying consolidated financial statements do not
include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the
Corporation be unable to continue as a going concern.
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed of"
requires, among other things, that an entity review its long-lived
assets and certain related intangibles for impairment whenever changes
in circumstances indicate that the carrying amount of an asset may not
be fully recoverable. As a result of the Corporation's filing for
reorganization under Chapter 11 on August 16, 1999, as well as the
Partnership's Chapter 11 filing on October 5, 1999, certain long-lived
assets of the Corporation have more than likely become impaired;
however, the amount of the impairment is not currently determinable, and
therefore has not been reflected in the accompanying consolidated
financial statements.
9
<PAGE>
- ------
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession)
Notes to Consolidated Financial Statements (continued.)
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 nine
months ended September 30, 1999 and 1998 has been allocated to casino
operating expenses as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Hotel $ 1,063 1,020 3,125 2,868
Food and beverage 3,601 3,678 10,377 10,319
Other (Entertainment) 174 286 708 775
------- ------- ------ ------
Total costs allocated to
casino operating expenses $ 4,838 4,984 14,210 13,962
======= ====== ====== ======
</TABLE>
3. Long-Term Receivables
Long-term receivables consist of the following amounts due from the
Partnership:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(in thousands)
<S> <C> <C>
Expandable Wraparound Mortgage 14%, maturities through September 30,
2000 (net of $2,820,000 discount at September 30, 1999
and $4,525,000 discount at December 31, 1998) $47,680 45,975
Deferred Expandable Wraparound
Mortgage interest receivable, due
September 30, 2000 20,000 20,000
FF&E promissory notes, 14% 11,280 13,618
--------- --------
$ 78,960 79,593
======== ========
</TABLE>
As a result of the Partnership's Chapter 11 filing on October 5, 1999,
collectability of the Expandable Wraparound Mortgage may have become impaired;
however, the amount of such impairment is not currently determinable.
10
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession)
Notes to Consolidated Financial Statements (continued.)
4. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(in thousands)
<S> <C> <C>
Gaming equipment $ 12,559 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
--------- -------
41,905 41,785
Less accumulated depreciation and amortization 13,422 12,408
--------- -------
Net property and equipment $ 28,483 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 contractually accrues at 12% per annum, is payable in
full upon maturity. Interest on this loan ceased to accrue as a result
of the Corporation's filing for reorganization under Chapter 11 (see
Note 1) on August 16, 1999. The loan and accrued interest through August
16, 1999 of $4,392,000 are included in "Liabilities Subject to
Compromise" (see Note 10) as of September 30, 1999.
11
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession)
Notes to Consolidated Financial Statements (continued.)
6. Other Current Liabilities
Other current liabilities consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(in thousands)
<S> <C> <C> <C>
Deferred rent, current $ -0- 15,078
Deferred rent 1,125 475
Accrued payroll and related benefits 7,877 6,571
Accrued interest, First Mortgage Notes -0- 4,161
Accrued interest due to Partnership -0- 4,122
Auto and general liability reserves 77 1,424
Other current liabilities 3,921 2,771
--------- ---------
$ 13,000 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).
As of September 30, 1999, deferred rent, current; accrued interest,
First Mortgage Notes; accrued interest due to Partnership; and the auto
and general liability reserves incurred prior to August 16, 1999 are
included in "Liabilities Subject to Compromise" (see Note 10), as a
result of the Corporation's filing for reorganization under Chapter 11
(see Note 1) on August 16, 1999.
12
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession)
Notes to Consolidated Financial Statements (continued.)
7. Long-Term Debt
Long-term debt consists of the following:
September 30, December 31,
1999 1998
------------- ------------
(in thousands)
11 3/4% Notes due 2002 $ -0- 85,000
Capital lease obligations 285 521
---------- ------
285 85,521
Less current installments 282 351
---------- -------
$ 3 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. 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.
As of September 30, 1999, the principal amount due on the Notes is
included in "Liabilities Subject to Compromise" (see Note 10), as a
result of the Corporation's filing for reorganization under Chapter 11
(see Note 1) on August 16, 1999. In addition, interest on the Notes
ceased to accrue as of August 16, 1999. The interest payable on the
Notes, as accrued through August 16, 1999 of $5,440,000, is also
included in "Liabilities Subject to Compromise" (see Note 10).
8. Other Noncurrent Liabilities
Other noncurrent liabilities consist of the following:
September 30, December 31,
1999 1998
------------- ------------
(in thousands)
Contingent Payment $ -0- 19,000
License agreement 1,315 1,369
Other 742 971
-------- ------
$ 2,057 21,340
======== ======
Pursuant to the Restructuring Agreement, Del Webb Corporation ("Webb")
retained an interest, which was
13
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession)
Notes to Consolidated Financial Statements (continued.)
8. Other Noncurrent Liabilities (continued)
assigned to a trustee for the benefit of the Valley of the Sun United
Way on April 2, 1990, equal to $20 million plus interest at a rate of
15% per annum, compounded quarterly, commencing December 1, 1988, in any
proceeds ultimately recovered from operations and/or the sale or
refinancing of the Claridge facility in excess of the first mortgage
loan and other liabilities ("Contingent Payment"). Consequently, New
Claridge has deferred the recognition of $20 million of forgiveness
income with respect to the Contingent Payment obligation. Interest on
the Contingent Payment has not been recorded in the accompanying
consolidated financial statements since the likelihood of paying such
amount is not considered probable at this time. As of September 30,
1999, accrued interest would have amounted to approximately $78.6
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 had been 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
it's 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.
As of September 30, 1999, the Contingent Payment is included in
"Liabilities Subject to Compromise" (see Note 10), as a result of the
Corporation's filing for reorganization under Chapter 11 (see Note 1) on
August 16, 1999.
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 income tax expense of $392,000, and a
corresponding decrease in the valuation allowance, resulting in no
income tax provision or benefit for the nine months ended September 30,
1999.
As of September 30, 1999, the Corporation had net operating loss
carryforwards for federal income tax purposes of approximately $48
million, none of which expire before the year 2016. These net operating
loss carryforwards are available to offset future federal taxable
income, if any. The Corporation also has tax credit carryforwards for
income tax purposes of approximately $940,000, which are available to
reduce future federal income taxes, if any, through 2002. The
availability of the net operating loss and tax credit carryforwards will
be further subject to the tax consequences of a plan of reorganization
approved by the Bankruptcy Court.
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THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession)
Notes to Consolidated Financial Statements (continued.)
9. Income Taxes (continued)
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. As of September 30, 1999, the amount of this settlement,
including interest, has been included in "Liabilities Subject to
Compromise" (see Note 10), as a result of the Corporation's filing for
reorganization under Chapter 11 (see Note 1) on August 16, 1999.
10. Liabilities Subject to Compromise
Liabilities subject to compromise are subject to future adjustments
depending on Bankruptcy Court actions and further developments with
respect to disputed claims. Payment of these liabilities may not be made
except pursuant to an approved plan of reorganization or under the
order of the Bankruptcy Court while the Corporation continues to operate
as debtor-in-possession. As of September 30, 1999, liabilities subject
to compromise consist of the following (in thousands):
September 30,
1999
-------------
Accounts payable and accrued expenses $ 3,331
11 3/4% Notes 85,000
Accrued interest 9,832
Loan from the Partnership 3,600
Deferred rent due to the Partnership 21,836
Contingent Payment 19,000
Auto and general liability reserves 1,587
Other 699
-----------
$ 144,885
===========
Accrued interest as of September 30, 1999 of $9,832,000 consists of
$5,440,000 of interest due on the Notes, and $4,392,000 of interest due
on the $3.6 million loan from the Partnership. Interest on both of these
items ceased to accrue as of August 16, 1999.
11. Claridge License Renewal
On September 22, 1999, New Claridge was issued a one-year casino license
by the New Jersey Casino Control Commission (the "Commission") for the
period commencing September 30, 1999. Although New Claridge had
reapplied for a four-year casino license, the filing of the voluntary
petition under Chapter 11 of the United States Bankruptcy Code on August
16, 1999 prompted the Commission to renew New Claridge's license for the
reduced period of time. Additionally, the casino license renewal
contains certain financial reporting conditions and requirements
consistent with the manner in which the Commission has relicensed other
casino licensees who have filed voluntary petitions under Chapter 11 in
the past.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations for the Three Months Ended September 30, 1999
The Corporation had net income of $2,491,000 for the three months ended
September 30, 1999, compared to a net loss of $1,999,000 for the same period of
1998. The improvement in earnings was due to an increase in total revenues,
combined with a decrease in costs, as further discussed below.
Casino revenue, which is the difference between amounts wagered by and
amounts paid to casino patrons, totalled $46,425,000 during the third quarter of
1999, an increase of 6.7% over the third quarter of 1998. Citywide casino
revenue, as reported, increased 3.5% in the third quarter of 1999 over the same
period of 1998. Casino capacity (including the number of table games and slots
available and the casino square footage) remained relatively consistent, both at
the Claridge and citywide during the three months ended September 30, 1999, as
compared to the same period of 1998. The Claridge reflected a larger increase in
casino revenues over 1998, as compared to the citywide increase, as a result of
improvement in table games revenue, as further discussed below.
Table games drop (the amount of gaming chips purchased by patrons) at
the Claridge during the third quarter of 1999 increase 2.0% over the same period
of 1998, in line with the citywide increase in table games drop, as reported, of
2.4%. However, the hold percentage (the percentage of win to drop) at the
Claridge during the third quarter of 1999 was 14.0%, compared to a 12.9% hold
percentage in the third quarter of 1998. As a result, New Claridge's table games
revenue increased 10.6%, to $11,993,000, in the three months ended September 30,
1999, as compared to the same period of 1998. Citywide, table games revenue, as
reported, decrease slightly from the third quarter of 1998, due to a lower hold
percentage.
New Claridge reported revenue from slot machines of $34,432,000 for the
third quarter of 1999, an increase of 5.4% over the same period of 1998.
Marketing programs which are focused on increasing drive-in patron volumes
continued during the third quarter of 1999, contributing to the increase in slot
machine revenues. Bus program volumes during the third quarter of 1999 continued
to be lower than the prior year, as further discussed below, although not as
dramatically as during the second quarter of 1999. Citywide slot machine
revenues during the third quarter of 1999, as reported, also increased 5.4% over
the third quarter of 1998.
During the fourth quarter of 1998, in response to the acceleration of
increasing coin incentives offered citywide to patrons arriving by bus, New
Claridge purposely reduced its bus program volumes in order to reduce the
related costs. To offset the decrease in bus patrons, marketing programs such as
double coin incentive bonuses and one-day gift giveaways were increased, to
focus on increasing drive-in patrons. This marketing strategy continued through
the first half of 1999. During the third quarter of 1999, the drive-in
promotions continued, and while bus program volumes continued to be below 1998
levels, they did not decrease as dramatically as in the first half of the year.
During the third quarter of 1999, 202,000 patrons arrived at the Claridge by
bus, a decrease of 18.2% from the third quarter of 1998 bus patrons. Coin
incentives issued to bus patrons totalled $3,310,000 during the third quarter of
1999 (an average of $16 per patron), compared to $4,037,000 of coin incentives
issued in the third quarter of 1998 (also an average of $16 per patron). In
addition to the bus program, New Claridge offers promotional incentives to its
customers through its direct marketing programs, based on their level of gaming
activity. Promotional incentives issued through this program (coin and gaming
chips) during the third quarter of 1999 totalled $3,735,000, compared to
$2,633,000 of incentives issued during the third quarter of 1998.
Hotel revenues for the three months ended September 30, 1999 were
$3,508,000, reflecting an 11.9% increase over hotel revenues during the third
quarter of 1998. The increase in hotel revenues for the quarter was due to an
increase in occupancy (99% in the third quarter of 1999 compared to 95% in the
third quarter of 1998), combined with an increase in the average rate ($76 in
the third quarter of 1999 compared to $71 in the same period of 1998). Food and
beverage revenues of $5,163,000 during the third quarter of 1999 were 4.4% lower
than in the same period of
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1998, primarily due to a 16% decrease in the number of covers (meals served)
resulting from the closing of New Claridge's buffet in late 1998 as part of the
refocusing of marketing efforts away from the large volumes of bus patrons.
During August 1999, New Claridge opened "Pronto", a self-service, fast food
Italian eatery, to assist in servicing the increase in customer volumes during
the busy summer months.
Total costs and expenses for the third quarter of 1999 were $49,160,000,
reflecting a 5.9% decline from the same period of 1998. As discussed in Note 1
to the Corporation's consolidated financial statements, the Corporation filed
for reorganization under Chapter 11 of the United States Bankruptcy Code on
August 16, 1999. As a result, interest on the Notes and the $3.6 million loan
from the Partnership ceased to accrue as of August 16, 1999. Had the interest
not ceased accruing, interest expense for the third quarter of 1999 would have
been $2,775,000, in line with interest expense during the third quarter of 1998.
Other costs which declined significantly included food and beverage costs,
primarily due to the closing of New Claridge's buffet in late 1998. Rent expense
to the Partnership declined from the third quarter of 1998 levels, primarily due
to higher abatements of rent in 1999 resulting from lower cash requirements of
the Partnership for servicing the debt under the Expandable Wraparound Mortgage.
Reorganization items for the three months ended September 30, 1999,
totalling $797,000, include professional fees incurred as a result of the
Corporation's filing for reorganization under Chapter 11, offset by interest
earned from the investment of accumulated cash resulting from the Chapter 11
filing.
For the third quarter of 1999, the Corporation recorded income tax
expense of $996,000, offset by a corresponding decrease in the valuation
allowance. During the third quarter of 1998, the Corporation recorded an income
tax benefit of $1,004,000, offset by a corresponding increase in the valuation
allowance.
Results of Operations for the Nine Months Ended September 30, 1999
For the nine months ended September 30, 1999, the Corporation had net
income of $974,000, compared to a net loss of $4,039,000 for the nine months
ended September 30, 1998.
Total casino revenue recorded by New Claridge during the nine months
ended September 30, 1999 was $126,449,000, reflecting a slight decline from
casino revenues recorded during the same period of 1998. Citywide, total casino
revenues, as reported, increased 3.3% in the first nine months of 1999 over the
same period of 1998.
New Claridge's table games drop for the nine months ended September 30,
1999 decreased 3.6% from the same period of 1998, while table games revenue of
$32,886,000 declined 1.8% during that period. The table games hold was 13.9%
during the nine months ended September 30, 1999, compared to 13.7% during the
nine months ended September 30, 1998. Citywide results, as reported, reflected a
slight decline in table games drop for the first nine months of 1999 over 1998,
while table games revenue increased slightly during that period.
New Claridge's slot machine revenue for the first nine months of 1999
was $93,563,000, reflecting a 1.2% decrease from the same period of 1998.
Citywide slot machine revenues for the nine months ended September 30, 1999, as
reported, increased 4.4% over the same period of 1998. The average number of
slot machines available citywide increased 1.9% during that period, primarily
due to the casino expansion at Caesars Atlantic City Casino in the second
quarter of 1998; the number of slot machines available at the Claridge remained
consistent with prior year levels.
New Claridge issued $8,877,000 of coin incentives to 510,000 bus patrons
during the first nine months of 1999, for an average of $17 per bus patron. This
compares to $11,218,000 of coin incentives issued to 712,000 bus patrons during
the same period of 1998, an average of $16 per bus patron. In addition,
promotional incentives issued through New Claridge's direct marketing programs
during the nine months ended September 30, 1999 totalled $9,723,000, compared to
$8,303,000 during the same period of 1998.
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<PAGE>
Hotel revenues during the nine months ended September 30, 1999 totalled
$8,281,000, a 15.4% increase over the same period of 1998. Hotel occupancy
improved to 94% in 1999, compared to 89% in 1998, while the average room rate
increased to $64 in 1999 from $59 in 1998. Food and beverage revenues during the
first nine months of 1999 were $14,194,000, a decrease of 2.5% 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 declined to
729,000 in 1999, compared to 918,000 in 1998, the average price per cover
increased to $12.88 in 1999, from $10.85 in 1998. Other income for the first
nine months 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 nine months of 1999 were
$143,668,000, a 4.8% decrease from the same period of 1998. As previously noted,
interest expense on the Notes and the $3.6 million loan from the Partnership
ceased to accrue as of the August 16, 1999 filing by the Corporation under
Chapter 11. Had the interest not ceased accruing, interest expense for the nine
months ended September 30, 1999 would have been $8,112,000, slightly higher than
interest expense during the third quarter of 1998. The reduction in casino
operating expenses was primarily due 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. Rent expense to the Partnership
declined from 1998 levels, primarily due to higher abatements of rent in 1999
resulting from lower cash requirements of the Partnership for servicing the debt
under the Expandable Wraparound Mortgage.
Reorganization items for the nine months ended September 30, 1999,
totalling $797,000, include professional fees incurred as a result of the
Corporation's filing for reorganization under Chapter 11, offset by interest
earned from the investment of accumulated cash resulting from the Chapter
11 filing.
For the nine months ended September 30, 1999, the Corporation recorded
income tax expense of $392,000, offset by a corresponding decrease in the
valuation allowance. During the third quarter of 1998, the Corporation recorded
an income tax benefit of $1,611,000, offset by a corresponding increase in the
valuation allowance.
Liquidity and Capital Resources
Financial Condition
On January 31, 1994, the Corporation completed an offering of $85
million of First Mortgage Notes (the "Notes"), due 2002, bearing interest at
11 3/4%. The Notes are secured by (i) a non-recourse mortgage granted by the
Partnership representing a first lien on the Hotel Assets; (ii) a pledge granted
by the Corporation of all outstanding shares of capital stock of New Claridge;
and (iii) a guarantee by New Claridge. New Claridge's guarantee of the Notes is
secured by a collateral assignment of the second lien Expandable Wraparound
Mortgage, and by a lien on New Claridge's gaming and other assets, which lien
will be subordinated to liens that may be placed on those gaming and other
assets to secure any future revolving credit line arrangement. On January 28,
1997, New Claridge entered into an agreement to subject the new self-parking
garage to the lien of the mortgage; such lien will not be subordinated to any
liens which may be placed on New Claridge's gaming and other assets to secure
any future revolving credit line arrangement. Interest on the Notes is payable
semiannually on February 1 and August 1 of each year.
The net proceeds of the Notes, totalling $82.2 million, were used as
follows (i) to repay the then outstanding debt of the Corporation under the
Revolving Credit and Term Loan Agreement of approximately $35 million, including
the outstanding balance of the Corporation's revolving credit line, which was
secured by a first mortgage; (ii) to expand the casino capacity of the Claridge
by 12,000 square feet in 1994, including the addition of approximately 500 slot
machines and the relocation of two restaurants and their related kitchens, at a
cost of approximately $12.7 million; (iii) to purchase property in 1995 and
construct on that property a self- parking garage, which opened in 1996, at a
cost (excluding capitalized interest of approximately $2.2 million)
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<PAGE>
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.
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
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
nine months of 1999 was $8.8 million, compared to $11.2 million in the same
period of 1998. Marketing efforts are being directed toward the mid-level slot
customer through the use of promotions, direct mail and advertising.
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 financial
transactions with PDS Financial Corporation ("PDS") and the Casino Reinvestment
Development Authority ("CRDA"). 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, continued to lag behind
prior year levels, which 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, the
Corporation and New Claridge filed voluntary petitions under Chapter 11 of the
United States Bankruptcy Code (the "Bankruptcy Code") in the United States
Bankruptcy Court for the District of New Jersey (the "Bankruptcy Court"). The
Corporation continues to operate in the ordinary course of business, as set
forth in the Bankruptcy Code, under the supervision of the Bankruptcy Court, as
a debtor-in-possession. Under the Bankruptcy Code, the Corporation has an
exclusive period of 120 days to file a plan of reorganization with the
Bankruptcy Court; such exclusivity period would expire on December 14, 1999.
Management of the Corporation is in the process of developing such a plan.
The Partnership filed a voluntary petition under Chapter 11 of the
Bankruptcy Code on October 5, 1999.
As debtor-in-possession, the Corporation is authorized to operate its
business, but may not engage in transactions outside of the normal course of
business without the approval of the Bankruptcy Court. Further, the Corporation
is subject to operating within certain weekly cash budgets which have been
approved by the Bankruptcy Court pursuant to certain orders authorizing the use
of its cash. As of the petition date, actions to collect prepetition
indebtedness are stayed, and other contractual obligations may not be enforced
against the Corporation. In addition, the Corporation may reject executory
contracts and lease obligations, and parties
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<PAGE>
affected by these rejections may file claims with the Bankruptcy Court in
accordance with the reorganization process. As part of the "first day orders,"
the Bankruptcy Court approved the Corporation's payment of prepetition employee
compensation, benefits and reimbursable employee expenses, as well as to
continue to honor all existing employee benefit plans and policies. In addition,
the Bankruptcy Court approved the payment of certain prepetition vendor claims,
up to a total of $250,000, certain prepetition guest-related claims (such as
outstanding direct mail coupons, progressive jackpots, and safekeeping deposits)
up to a total of $1.2 million, and prepetition payroll, gaming and other taxes
and fees.
Management of the Corporation believes that this filing will permit the
Corporation to conserve its cash pending a restructuring of its financial
obligations in the Chapter 11 proceeding. As of September 30, 1999, the
Corporation had approximately $16.5 million of cash and cash equivalents,
including approximately $6.3 million of "bankroll" used in casino operations.
Management anticipates a one-time increase in general and administrative
expenses (in an amount that is currently not determinable), primarily for
professional fees, in connection with the Chapter 11 filing, as well as an
increase in ongoing general and administrative expenses, again primarily for
professional fees, during the pendency of the bankruptcy proceeding. For the
three months ended September 30, 1999, such fees totalled approximately
$843,000.
While the Corporation and its subsidiaries have sustainable operations,
the cash generated by those operations 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 had previously announced that it had 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 contemplated a $10 million investment by
Schottenstein in the Claridge in exchange for a substantial equity interest in a
new entity that would own all of the assets used by the Claridge, (including the
assets currently owned by the Partnership), except for the casino assets. The
letter of intent contemplated 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
called 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 were not binding on the Corporation or
Schottenstein until reflected in a definitive agreement, and, in any case, were
subject to negotiation and approval by holders of the Notes and the Partnership
and to approval by the Bankruptcy Court. On November 10, 1999, the Corporation
announced that it would no longer pursue the relationship contemplated by this
letter of intent. The Board of Directors of the Corporation, after careful
consideration, determined that it would be in the best interest of its creditors
to file a separate and independent "stand alone" plan of reorganization.
However, management of the Corporation will continue to consider alternate
strategic initiatives as it prepares to file its plan of reorganization.
The consolidated financial statements do not show (i) as to assets,
their realizable value on a liquidation basis or their availability to satisfy
liabilities; (ii) contingencies, or the status and priority thereof; or (iii) as
to
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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.
At September 30, 1999, prior to the reclassification of liabilities
subject to compromise resulting from the Chapter 11 filing on August 16, 1999,
the Corporation would have had a working capital deficiency of $21,262,000 as
compared to a working capital deficiency of $23,685,000 at December 31, 1998.
The decrease in the working capital deficiency is principally attributable to an
increase in cash and cash equivalents of $6,750,000, offset by an increase in
accounts payable of $2,953,000 and an increase in interest payable on the Notes
of $5,440,000. Interest on the Notes ceased to accrue as of August 16, 1999. As
a result of the reclassification of certain items to liabilities subject to
compromise, the Corporation had working capital of $12,166,000 at September 30,
1999.
For the nine months ended September 30, 1999, cash provided by operating
activities was $7,951,000, compared to cash used in operating activities of
$16,353,000 for the nine months ended September 30, 1998. As a result of the
Chapter 11 filing on August 16, 1999, the interest payment due on the Notes on
August 2, 1999 was not made; therefore, interest payments for the nine months
ended September 30, 1999 were approximately $5 million lower than in the same
period of 1998. Cash provided by operating activities in 1999 was also 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 nine months of 1999 were approximately $13.9 million lower than during
the same period 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 nine months ended September 30, 1999 was $946,000, compared
to cash provided by investing activities for the nine months ended September 30,
1998 of $12,766,000. Cash provided by investing activities in the first nine
months of 1998 was from the receipt of Expandable Wraparound Mortgage principal
payments of $13,945,000, in addition to the approximately $1 million in proceeds
received from PDS for the sale of certain slot machines under a sale lease-back
arrangement. For the nine months ended September 30, 1999, cash receipts from
Expandable Wraparound Mortgage principal payments were $1,300,000. Cash used in
financing activities in 1999 and 1998 of $255,000 and $135,000, respectively,
represents payments of capital lease obligations for certain gaming equipment.
For the nine months ended September 30, 1999, the Corporation's
"Adjusted EBITDA" was $10,348,000, compared to $8,073,000 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.
Relationship with the Partnership
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. New Claridge
exercised the first of the ten-year renewal options, extending the term of the
Operating Lease and Expansion Operating
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Lease through September 30, 2008.
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, was $24 million for the Operating Lease
and $2.5 million for the Expansion Operating Lease, and will remain the same for
the lease year commencing October 1, 1999.
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.
The terms of the Operating Lease and Expansion Operating Lease have been
amended from time to time. The most recent amendment (the "Sixth Amendment"),
which was effective September 30, 1998, allowed for the deferral of $1.1 million
of rent in either February 1999 or March 1999, dependent 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. As a result of the
Corporation and New Claridge's Chapter 11 filing on August 16, 1999, under the
terms of the indenture governing the Notes (the "Indenture"), an "Event of
Default" has occurred (as defined in the Indenture). As a result of this Event
of Default, the Corporation and New Claridge are precluded from receiving any
further payments of principal or interest on the Expandable Wraparound Mortgage.
As a result, the Corporation and New Claridge have exercised this right of
offset against rental payments made subsequent to August 16, 1999.
22
<PAGE>
New Claridge is obligated under its Operating Lease with the Partnership
to lend the Partnership, at an annual interest rate of 14%, any amounts
necessary to fund the cost of furniture, fixtures and equipment replacements.
The Expandable Wraparound Mortgage, granted by the Partnership to New Claridge,
by its terms may secure up to $25 million of additional loans to the Partnership
from New Claridge to finance the replacements of furniture, fixtures and
equipment and facility maintenance and engineering shortfalls. The advances to
the Partnership are in the form of FF&E Loans and are secured by the Hotel
Assets. One half of the FF&E Loan principal is due in the 48th month following
the advance, with the remaining balance due in the 60th month following the date
of issuance. In connection with the offering of $85 million of the Notes on
January 31, 1994, the Corporation agreed to use not less than $8 million from
the net proceeds of the offering to finance internal improvements to the
Claridge, which were funded through additional FF&E Loans. In connection
therewith, the Expandable Wraparound Mortgage Loan agreement as well as the
Operating Lease, and the Expansion Operating Lease were amended to provide that
the principal on these additional FF&E Loans will be payable at final maturity
of the Expandable Wraparound Mortgage. New Claridge is obligated to pay as
additional rent to the Partnership the debt service on the FF&E Loans.
As a result of the Corporation and New Claridge's Chapter 11 filing on
August 16, 1999, and the Partnership's Chapter 11 filing on October 5, 1999, the
Partnership no longer provides furniture, fixture, and equipment replacements to
the Claridge; rather, New Claridge has begun to provide such replacements.
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 September 30, 1999 (including the outstanding
FF&E Loans and the $20 million of deferred interest) was $85.2 million.
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed of"
requires, among other things, that an entity review its long-lived assets and
certain related intangibles for impairment whenever changes in circumstances
indicate that the carrying amount of an asset may not be fully recoverable. As a
result of the Corporation's filing for reorganization under Chapter 11 on August
16, 1999, as well as the Partnership's Chapter 11 filing on October 5, 1999,
certain long-lived assets of the Corporation, most notably the Expandable
Wraparound Mortgage, have more than likely become impaired; however, the amount
of the impairment is not currently determinable.
The Expandable Wraparound Mortgage has been amended from time to time.
In the most recent amendment, which was 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.
23
<PAGE>
Year 2000
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 $2.2 million. Approximately 63% of the total cost relates to labor
while the remaining 37% relates to the cost of supplies, equipment, software and
hardware. Through September 30, 1999, the Corporation has spent approximately
$1.7 million, or 77%, of the anticipated total year 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 has
contacted its significant vendors concerning their year 2000 readiness, and has
formulated contingency plans, in the event that certain vendors are not able to
fulfill their obligations to the Corporation.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Claridge Hotel and Casino Corporation
- -------------------------------------------
(Registrant)
By: /s/ Jean I. Abbott
-------------------------------------------
Jean I. Abbott
Executive Vice President of Finance/
Chief Financial Officer
(Authorized Officer, Principal Financial Officer
and Principal Accounting Officer)
Dated: November 18, 1999
25
<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 SEPTEMBER 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> U.S.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 16,548,000
<SECURITIES> 0
<RECEIVABLES> 10,141,000
<ALLOWANCES> 1,463,000
<INVENTORY> 297,000
<CURRENT-ASSETS> 28,655,000
<PP&E> 41,905,000
<DEPRECIATION> 13,422,000
<TOTAL-ASSETS> 141,226,000
<CURRENT-LIABILITIES> 18,076,000
<BONDS> 3,000
0
0
<COMMON> 5,000
<OTHER-SE> (24,254,000)
<TOTAL-LIABILITY-AND-EQUITY> 141,226,000
<SALES> 0
<TOTAL-REVENUES> 145,439,000
<CGS> 0
<TOTAL-COSTS> 84,867,000
<OTHER-EXPENSES> 51,339,000
<LOSS-PROVISION> 738,000
<INTEREST-EXPENSE> 6,724,000
<INCOME-PRETAX> 974,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 974,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 974,000
<EPS-BASIC> .19
<EPS-DILUTED> 0
</TABLE>
