<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, 2000
-------------------
[ ] 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 13, 2000
-----------------
Class A Stock 5,062,500
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
----------------------------------------------------------
(Debtor-In-Possession effective August 16, 1999)
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, 2000 (unaudited) and
December 31, 1999 4
Consolidated Statements of Operations
for the three months ended September
30, 2000 (unaudited) and 1999
(unaudited) 5
Consolidated Statements of Operations
for the nine months ended September 30,
2000 (unaudited) and 1999 (unaudited) 6
Consolidated Statements of Cash Flows
for the nine months ended September 30,
2000 (unaudited) and 1999 (unaudited) 7
Notes to Consolidated Financial
Statements 9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 16
Item 3. Quantitative and Qualitative
Disclosure About Market Risk
None.
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
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[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
----------------------------------------------------------
(Debtor-In-Possession effective August 16, 1999)
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, 2000 and December 31, 1999, and the results of its
operations for the three and nine months ended September 30, 2000 and 1999 and
its cash flows for the three and nine months ended September 30, 2000 and 1999.
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, 1999
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, 2000 and 1999 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 effective August 16, 1999)
Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 23,626 16,834
Receivables, net (including $6,186
at September 30, 2000 and $6,269 at December 31,
1999, due from the Partnership) 7,894 7,977
Other current assets 4,086 3,421
-------- --------
Total current assets 35,606 28,232
-------- --------
Property and equipment, net (note 4) 30,232 28,342
Long-term receivables due from the
Partnership (note 3) 39,763 41,831
Intangible assets and deferred charges 919 1,076
Other assets 3,994 3,041
-------- --------
$110,514 102,522
======== ========
LIABILITIES & STOCKHOLDERS' DEFICIENCY
Current Liabilities Not Subject to Compromise:
Current maturities of long-term debt (note 6) $ 4 125
Accounts payable 4,151 2,902
Other current liabilities (note 5) 16,306 14,253
-------- --------
Total current liabilities not subject to compromise 20,461 17,280
-------- --------
Liabilities Subject to Compromise (note 9) 146,097 145,259
Long-term debt (note 6) -0- 1
Deferred income taxes (note 8) 2,046 2,046
Other noncurrent liabilities (note 7) 1,363 1,354
Stockholders' deficiency:
Common stock 5 5
Additional paid in capital 5,048 5,048
Accumulated deficit (64,506) (68,471)
-------- --------
Total stockholders' deficiency (59,453) (63,418)
-------- --------
$110,514 102,522
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession effective August 16, 1999)
Consolidated Statements of Operations
For the Three Months Ended September 30, 2000 and 1999
(in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
-------- ------
<S> <C> <C>
Revenues:
Casino $ 44,499 46,425
Hotel 3,907 3,508
Food and beverage 5,389 5,163
Interest from the Partnership 2,209 2,881
Interest, other 5 68
Other 803 766
-------- ------
56,812 58,811
Less promotional allowances (note 2) 6,785 6,363
-------- ------
Net revenues 50,027 52,448
-------- ------
Costs and expenses:
Casino 24,905 27,332
Hotel 715 710
Food and beverage 1,671 1,488
Other 1,027 792
Rent expense to the Partnership 6,366 5,752
Rent expense, other 283 298
General and administrative 6,671 6,803
Gaming taxes 3,548 3,689
Reinvestment obligation expense 268 188
Provision for uncollectible accounts 152 320
Depreciation and amortization 437 401
Interest expense (contractual interest of $2,973 in 2000
and $2,775 in 1999)(note 9) -0- 1,387
-------- ------
Total costs and expenses 46,043 49,160
-------- ------
Income before reorganization items 3,984 3,288
Reorganization items:
Professional fees (1,696) (843)
Interest earned from accumulated cash resulting
from Chapter 11 proceeding 268 46
-------- ------
(1,428) (797)
-------- ------
Net income $ 2,556 2,491
======== ======
Net income per share - basic and diluted
(based on 5,062,500 weighted average shares outstanding
for the three months ended September 30, 2000 and 1999) $ .50 .49
======== ======
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession effective August 16, 1999)
Consolidated Statements of Operations
For the Nine Months Ended September 30, 2000 and 1999
(in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
Revenue:
Casino $127,210 126,449
Hotel 9,039 8,281
Food and beverage 14,946 14,194
Interest from the Partnership 6,719 8,732
Interest, other 96 271
Other 2,178 4,412
-------- -------
160,188 162,339
Less promotional allowances (note 2) 17,600 16,900
-------- -------
Net revenues 142,588 145,439
-------- -------
Costs and expenses:
Casino 73,741 76,721
Hotel 2,130 2,072
Food and beverage 4,729 3,965
Other 2,850 2,109
Rent expense to the Partnership 19,638 18,084
Rent expense, other 851 904
General and administrative 19,119 20,169
Gaming taxes 10,138 10,058
Reinvestment obligation expense 668 712
Provision for uncollectible accounts 492 738
Depreciation and amortization 1,204 1,412
Interest expense (contractual interest of $8,959 in 2000
and $8,112 in 1999)(note 9) 48 6,724
-------- -------
Total costs and expenses 135,608 143,668
-------- -------
Income before reorganization items 6,980 1,771
Reorganization items:
Professional fees (3,609) (843)
Interest earned from accumulated cash resulting
from Chapter 11 proceeding 594 46
-------- -------
(3,015) (797)
-------- -------
Net income $ 3,965 974
======== =======
Net income per share - basic and diluted (based on
5,062,500 weighted average shares outstanding for the
nine months ended September 30, 2000 and 1999, respectively) $ .78 .19
========= =======
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession effective August 16, 1999)
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2000 and 1999
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,965 974
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,204 1,412
Deferred rent to the Partnership 931 931
Deferred interest receivable and discount from the Partnership -0- (1,705)
Reinvestment obligation expenses 668 712
Gain on disposal of assets (79) (119)
Reorganization items, net 3,015 797
Change in assets and liabilities:
Decrease (increase) in receivables, net, excluding
current portion of long-term receivables 36 (1,769)
Increase in other current assets (665) (385)
Increase in accounts payable 1,156 2,953
Increase in other current liabilities 280 4,407
Increase in other noncurrent liabilities 35 2
------- ------
Net cash provided by operating activities
before reorganization items 10,546 8,210
Reorganization items:
Professional fees paid (1,836) (305)
Interest earned on accumulated cash resulting from
Chapter 11 proceeding 594 46
------- ------
Net cash provided by operating activities 9,304 7,951
------- ------
</TABLE>
(continued)
See accompanying notes to consolidated financial statements.
7
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession effective August 16, 1999)
Consolidated Statements of Cash Flows (continued)
For the Nine Months Ended September 30, 2000 and 1999
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
--------- ----------
<S> <C> <C>
Cash flows from investment activities:
Increase in intangible assets and deferred charges (255) (54)
Additions to property and equipment (2,703) (102)
Increase in other assets (1,621) (1,781)
Proceeds from disposal of assets 74 -0-
Increase in long-term receivables -0- (309)
Collection of long-term receivables 2,115 1,300
-------- ------
Net cash used in investment activities (2,390) (946)
-------- ------
Cash flows from financing activities -
Payment of long-term debt (122) (255)
-------- ------
Increase in cash and cash equivalents 6,792 6,750
Cash and cash equivalents at beginning of period 16,834 9,798
-------- ------
Cash and cash equivalents at end of period $ 23,626 16,548
======== ======
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession effective August 16, 1999)
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 the business, as set forth
in the Bankruptcy Code, under the supervision of the Bankruptcy Court,
as a debtor-in-possession.
On January 27, 2000, the Corporation, New Claridge, and the Partnership
filed a joint plan of reorganization and disclosure statement with the
Bankruptcy Court. On April 5, 2000, in response to objections raised by
the trustee for the noteholders, the United States Trustee, and others,
the Corporation, New Claridge, and the Partnership filed a revised plan
of reorganization and disclosure statement (the "Plan"). The adequacy of
the Plan was approved by the Bankruptcy Court on May 9, 2000, which
allowed for the Plan to be submitted to the Corporation's creditors for
a vote. On July 18, 2000, the Corporation announced the results of that
vote: the holders of the Corporation's Notes voted to reject the Plan;
management of the Corporation believes that the unsecured creditors
voted to accept the Plan. The Corporation had intended to pursue
confirmation of the Plan under Section 1129B of the Bankruptcy Code,
which allows for the Bankruptcy Court judge to confirm the Plan through
the "cramdown" procedure, at the confirmation hearing, which was
scheduled to begin September 6, 2000.
However, on August 11, 2000, the Bankruptcy Court judge granted
permission to the Official Secured Noteholders Committee (the
"Committee") to hire an investment banker to try to locate potential
investors to submit competing reorganization plans. All final written
offers of interest were received by the Corporation by October 5, 2000,
and were subsequently evaluated by the Corporation's Board of Directors
and legal and financial advisors. At a hearing held on October 13, 2000,
the Corporation informed the Bankruptcy Court judge that it intended to
pursue the bid submitted by Park Place Entertainment Corporation ("Park
Place") (owner and operator of Bally's Park Place, Incorporated, the
Atlantic City Hilton Casino Resort, and Caesars Atlantic City casinos in
Atlantic City). The Corporation's financial advisors have estimated that
the Park Place bid would provide the noteholders with approximately an
80% recovery. All other terms of the Park Place bid are confidential
until definitively approved by the Claridge's Board of Directors.
Park Place's purchase of the Claridge Casino Hotel is contingent upon,
among other matters, its receiving certain regulatory approvals from the
New Jersey Casino Control Commission and the confirmation of a plan of
reorganization by the Bankruptcy Court. GB Holdings, Inc. (owner and
operator of the Sands Hotel and Casino in Atlantic City), which had also
submitted a bid for the Claridge Casino Hotel which expired by its own
terms on October 13, 2000, has indicated that it may file a competing
plan of reorganization. Management of the Corporation expects to provide
an update regarding the status of the reorganization plans to the
Bankruptcy Court on November 28, 2000.
9
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession effective August 16, 1999)
Notes to Consolidated Financial Statements (continued)
1. Significant Events and Basis of Presentation (continued)
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 9). 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.
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, 2000 and 1999 has been charged to casino
operating expenses as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------ -----------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Hotel $ 1,189 1,063 3,260 3,125
Food and beverage 3,524 3,601 10,201 10,377
Other (Entertainment) 6 174 73 708
------- ----- ------ ------
Total costs allocated to
casino operating expenses $ 4,719 4,838 13,534 14,210
======= ===== ====== ======
</TABLE>
10
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession effective August 16, 1999)
Notes to Consolidated Financial Statements (continued)
3. Long-Term Receivables
Long-term receivables consist of the following amounts due from the
Partnership:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
(in thousands)
<S> <C> <C>
Expandable Wraparound Mortgage 14%, maturities through September 30,
2000 (net of $2,211,000 discount at September 30, 2000
and December 31, 1999) $47,989 48,289
Deferred Expandable Wraparound
Mortgage interest receivable, due
September 30, 2000 20,000 20,000
FF&E promissory notes, 14% 9,369 11,137
Allowance for impairment (37,595) (37,595)
-------- --------
$ 39,763 41,831
======== ========
</TABLE>
As a result of the Corporation's and New Claridge's filing for
reorganization under Chapter 11 on August 16, 1999, as well as the
Partnership's Chapter 11 filing on October 5, 1999, the realizable value
of the Expandable Wraparound Mortgage has become impaired. Therefore,
during the fourth quarter of 1999, the Corporation recorded an
adjustment to write-down the balance of the Expandable Wraparound
Mortgage receivable to an amount estimated to be the realizable value of
the Hotel Assets. (As previously noted, the Plan calls for the
Partnership to transfer the Hotel Assets to New Claridge in full
satisfaction of its obligations under the Expandable Wraparound
Mortgage.) The total amount of this write-down was $37.6 million.
4. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
(in thousands)
<S> <C> <C>
Gaming equipment $12,301 12,593
Land and land improvements 7,598 7,598
Self-parking garage facility 20,070 20,070
Building improvements 746 -0-
Leasehold improvements 745 745
Capital lease asset 822 822
Other furniture, fixtures, and equipment 1,191 213
------- ------
43,473 42,041
Less accumulated depreciation and amortization 13,241 13,699
------- ------
Net property and equipment $30,232 28,342
======= ======
</TABLE>
11
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession effective August 16, 1999)
Notes to Consolidated Financial Statements (continued)
5. Other Current Liabilities
Other current liabilities consist of the following:
September 30, December 31,
2000 1999
------------ ------------
(in thousands)
Deferred rent $ 875 1,100
Accrued payroll and related benefits 8,784 8,232
Auto/general insurance reserves 678 228
Reorganization costs 2,586 813
Other current liabilities 3,383 3,880
------- ------
$16,306 14,253
======= ======
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 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, 2000 and December 31, 1999, deferred rent, current
(which resulted from the 1989 restructuring transaction); 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 9),
as a result of the Corporation's filing for reorganization under Chapter
11 (see Note 1) on August 16, 1999.
6. Long-Term Debt
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.
12
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession effective August 16, 1999)
Notes to Consolidated Financial Statements (continued)
6. Long-Term Debt (continued)
As of September 30, 2000 and December 31, 1999, the principal amount due
on the Notes is included in "Liabilities Subject to Compromise" (see
Note 9), 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 9).
7. Other Noncurrent Liabilities
Other noncurrent liabilities consist of the following:
September 30, December 31,
2000 1999
------------- ------------
(in thousands)
License agreement $ 1,238 1,294
Other 125 60
-------- -----
$ 1,363 1,354
======== =====
Pursuant to a Restructuring Agreement entered into in October 1988 by
the Corporation, New Claridge, the Partnership and Del Webb Corporation
("Webb"), Webb retained an interest, which was assigned to a trustee for
the benefit of the Valley of the Sun United Way on April 2, 1990, equal
to $20 million plus interest at a rate of 15% per annum, compounded
quarterly, commencing December 1, 1988, in any proceeds ultimately
recovered from operations and/or the sale or refinancing of the Claridge
facility in excess of the first mortgage loan and other liabilities
("Contingent Payment"). Consequently, New Claridge has deferred the
recognition of $20 million of forgiveness income with respect to the
Contingent Payment obligation. Interest on the Contingent Payment has
not been recorded in the accompanying consolidated financial statements
since the likelihood of paying such amount is not considered probable at
this time. As of September 30, 2000, accrued interest would have
amounted to approximately $94.3 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 its
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.
13
<PAGE>
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession effective August 16, 1999)
Notes to Consolidated Financial Statements (continued)
7. Other Noncurrent Liabilities (continued)
As of September 30, 2000 and December 31, 1999, the Contingent Payment
is included in "Liabilities Subject to Compromise" (see Note 9), as a
result of the Corporation's filing for reorganization under Chapter 11
(see Note 1) on August 16, 1999. As proposed under the terms of the
Plan, the Contingent Payment and the Contingent Payment Rights would be
extinguished, and the holders of the Contingent Payment and Contingent
Payment Rights would not receive any distributions in respect of these
items.
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 (which was subsequently extended to twenty-five 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 is being
recognized as income over the term of the agreement, commencing April
1997.
8. Income Taxes
As of September 30, 2000, the Corporation had net operating loss
carryforwards for federal income tax purposes of approximately $49
million; none 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.
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, 2000 and December 31, 1999, the amount
of this settlement, including interest, has been included in
"Liabilities Subject to Compromise" (see Note 9), as a result of the
Corporation's filing for reorganization under Chapter 11 (see Note 1) on
August 16, 1999.
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THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
(Debtor-In-Possession effective August 16, 1999)
Notes to Consolidated Financial Statements (continued)
9. 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. Liabilities subject to compromise consist of the
following (in thousands):
September 30, December 31,
2000 1999
------------- ------------
Accounts payable and accrued expenses $ 3,158 3,251
11 3/4% Notes 85,000 85,000
Accrued interest 9,832 9,832
Loan from the Partnership 3,600 3,600
Deferred rent due to the Partnership 23,078 22,147
Contingent Payment 19,000 19,000
Auto and general liability reserves 1,086 1,086
Other 1,343 1,343
-------- -------
$146,097 145,259
======== =======
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.
Accrued interest as of September 30, 2000 and December 31, 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. Contractual interest expense for the nine months ended
September 30, 2000 and 1999 would have been $8,959,000 and $8,112,000,
respectively, of which $48,000 and $6,724,000 was actually recorded for
the nine months ended September 30, 2000 and 1999, respectively.
10. Claridge License Renewal
On September 20, 2000, New Claridge was issued a one-year casino license
by the New Jersey Casino Control Commission (the "Commission") for the
period commencing September 30, 2000. Due to the uncertainty concerning
the disposition of New Claridge's bankruptcy proceedings, the Commission
elected, for the second year in a row, to issue the one-year license,
rather than the typical four-year casino license. Additionally, the
casino license renewal contains certain financial reporting conditions
and requirements consistent with the previous license conditions, and
with the manner in which the Commission has relicensed other casino
licensees that 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, 2000
The Corporation had net income of $2,556,000 for the three months ended
September 30, 2000, compared to net income of $2,491,000 for the same period of
1999. Results for both periods include the effects of the Corporation's Chapter
11 proceedings which commenced August 16, 1999, including professional fee
expense of $1,696,000 and $843,000 for the three months ended September 30, 2000
and 1999, respectively. Interest expense related to the Corporation's First
Mortgage Notes (the "Notes") ceased to accrue as of August 16, 1999. For the
three months ended September 30, 2000 and 1999, contractual interest expense
would have been $2,973,000 and $2,775,000, respectively, of which none was
actually recorded in 2000, and $1,387,000 was actually recorded for the third
quarter of 1999.
Total casino revenue for the third quarter of 2000 was $44,499,000, a
4.1% decline from the third quarter 1999 casino revenue of $46,425,000; this
decrease resulted primarily from lower table games revenue, as further discussed
below. Citywide, total casino revenue, as reported, increased 4.0% in the third
quarter of 2000 over the same period of 1999.
Table games drop (the amount of gaming chips purchased by patrons) at
the Claridge during the third quarter of 2000 declined 13.4% from the same
period of 1999. The "hold" percentage (the percentage of win to drop) during the
third quarter of 2000 was 14.1%, slightly better than the 14.0% hold achieved
during the third quarter of 1999. As a result, table games revenue of
$10,482,000 for the third quarter of 2000 was 12.6% lower than the same period
of 1999. The decrease in table games revenue was offset by reductions in related
expenses, including payroll and other operating costs. Citywide table games drop
for the third quarter of 2000, as reported, increased slightly over the same
period of 1999, while citywide table games revenue, as reported, increased 1.5%
over the prior year.
New Claridge earned revenue from slot machines of $34,017,000 during the
third quarter of 2000, reflecting a 1.2% decrease from slot machine revenue
during the third quarter of 1999. This slight decrease is attributable to a
specific marketing program which occurred in the third quarter of 1999, and
which rewarded customers with increased cash bonuses, redeemable during July
1999, based on their slot machine play during the two preceding months.
Therefore, the reduction in slot machine revenues was offset by reduced coin
redemption expense during the third quarter of 2000, as further discussed below.
Citywide slot machine revenues, as reported, increased 5.0% during the third
quarter of 2000, as compared to the same period of 1999.
Atlantic City casinos continued to market heavily to patrons who arrive
by bus, and are issued incentives in the form of coin to play slot machines.
During the third quarter of 2000, approximately 184,000 patrons arrived by bus
at the Claridge, and were issued $3,143,000 in coin incentives, for an average
of $17.08 per passenger. This compared to $3,310,000 of coin incentives issued
to 202,000 bus passengers during the third quarter of 1999, or an average of
$16.39 per passenger. In addition to bus programs, all Atlantic City casinos,
including New Claridge, offer promotional incentives, in the form of coin or
currency, to their customers through direct marketing programs, based on their
levels of gaming activity. Promotional incentives (coin) issued by New Claridge
through its direct marketing programs during the third quarter of 2000 totaled
$2,319,000, compared to $3,735,000 during the same period of 1999. The decrease
from 1999 incentive costs was due to a specific marketing program which rewarded
customers with double cash bonuses, redeemable during July 1999.
Hotel revenues for the three months ended September 30, 2000 were
$3,907,000, an increase of 11.4% over the same period of 1999. Although the
hotel occupancy rate of 97.4% during the third quarter of 2000 was
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lower than the 99.2% occupancy during the same period of 1999, the average room
rate increased to $86 in the third quarter of 2000, compared to $76 in 1999.
Food and beverage revenues of $5,389,000 during the third quarter of 2000 were
4.4% higher than the same period of 1999. The number of covers (meals served) in
New Claridge's restaurants during the third quarter of 2000 was 273,000, lower
than the 286,000 covers in the same period of 1999; however, the average price
per cover increased to $13.43 during the third quarter of 2000, from $12.17
during the third quarter of 1999. Promotional allowances, which represent the
value of goods and services provided free of charge to customers under various
marketing programs, increased 6.6% during the third quarter of 2000, compared to
the third quarter of 1999, primarily due to increased hotel allowances.
Total costs and expenses for the third quarter of 2000 were $46,043,000,
reflecting a 6.3% reduction from the third quarter of 1999. This reduction was
due in part to lower interest expenses as a result of the Corporation's filing
under Chapter 11 of the Bankruptcy Code on August 16, 1999. In addition, casino
operating expenses of $24,905,000 were 8.9% lower than during the third quarter
of 1999, resulting from lower table games operating costs and lower coin
redemption costs, as previously discussed. Rent expense to the Partnership for
the third quarter of 2000 is higher than the same period of 1999, resulting in
part from a $1 million annual decrease in the abatements permitted as per the
terms of the sixth amendment to the Operating Lease and Expansion Operating
Lease, which was effective September 30, 1998, as well as increased general and
administrative costs of the Partnership, which are funded by New Claridge
through the Operating Lease payments.
Reorganization items during the third quarter of 2000 of $1,428,000
includes professional fees incurred as a result of the Corporation's filing for
reorganization under Chapter 11 of $1,696,000, offset by interest earned from
the investment of accumulated cash resulting from the Chapter 11 filing of
$268,000. During the third quarter of 1999, these items totaled $843,000 for
professional fees incurred, offset by $46,000 of interest earned.
Results of Operations for the Nine Months Ended September 30, 2000
For the nine months ended September 30, 2000, the Corporation had net
income of $3,965,000, compared to net income of $974,000 for the same period of
1999. Results for the first nine months of 2000 included approximately $3.6
million of professional fees incurred related to the Corporation's Chapter 11
filing (compared to $843,000 during the nine months ended September 30, 1999),
but do not include interest expenses on the Notes, which ceased to accrue on
August 16, 1999. For the nine months ended September 30, 2000 and 1999,
contractual interest expense would have been $8,959,000 and $8,112,000,
respectively, of which $48,000 was actually recorded in 2000, and $6,724,000 was
actually recorded in 1999. Results for the first nine months of 1999 included
income from the $2.3 million settlement received by New Claridge in February
1999 as a result of the settlement of the self parking garage arbitration
proceedings.
New Claridge earned total casino revenue during the first nine months of
2000 of $127,210,000, reflecting a slight increase over the same period of 1999,
which was due to increased revenue from slot machines, offset by decreased table
games revenue, as further discussed below. Total citywide casino revenue, as
reported, for the first nine months of 2000 was 4.7% higher than the same period
of 1999.
During the first nine months of 2000, New Claridge's table games drop
and revenue decreased 10.7% and 10.2%, respectively, from the same period of
1999. This decrease in revenue was offset by decreased operating expenses,
including payroll and related marketing costs. Citywide, as reported, table
games drop increased 1.6% during the first nine months of 2000, while revenue
increased 2.9%, resulting from a slightly higher hold percentage.
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New Claridge's slot machine revenues for the nine months ended September
30, 2000 was $97,680,000, reflecting a 4.4% increase over the same period of
1999. Citywide slot machine revenue, as reported, increased 5.5% during the
first nine months of 2000 over the prior year. The increase in Claridge slot
machine revenue is attributable, in part, to increased bus patron volumes during
the first half of 2000 over 1999 volumes, which had been reduced in an effort to
reduce bus-related coin redemption costs, while focusing more on drive-in casino
patrons.
During the first nine months of 2000, approximately 539,000 patrons have
arrived at the Claridge by bus, and have received $9,438,000 in coin incentives,
for an average of $17.51 per patron. This compares to 510,000 bus patrons during
the first nine months of 1999, with total coin redemption costs of $8,877,000,
or $17.41 per patron. In addition, promotional incentives (coin) issued through
New Claridge's direct marketing programs have totaled $7,823,000 during the
first nine months of 2000, compared to $9,723,000 during the same period of
1999. The decrease in coin incentives issued through the direct marketing
programs was due primarily to the double cash bonus redemption program which
occurred in July 1999, as previously discussed.
Hotel revenues during the first nine months of 2000 totaled $9,039,000,
an increase of 9.2% over the same period of 1999. This increase was attributable
to an increase in the average room rate, (to $70.89 during the first nine months
of 2000 from $63.98 during the same period of 1999), offset by a slight decrease
in hotel occupancy (to 91.8% in 2000 from 93.6% in 1999). Food and beverage
revenues of $14,946,000 during the first nine months of 2000 were 5.3% higher
than in the same period of 1999, primarily due to an increase in covers (to
747,000 in 2000 from 729,000 in 1999), resulting from increased casino patrons
(including bus patrons), combined with an increase in the average price per
cover, to $13.36 in 2000 from $12.88 in 1999. Other income in the first half of
1999 includes the $2.3 million received by New Claridge in February 1999 as a
result of the settlement of the self-parking garage arbitration proceedings.
Total costs and expenses for the nine months ended September 30, 2000
totaled $135,608,000, reflecting a 5.6% decrease from the same period of 1999,
primarily due to lower interest expense as a result of the Corporation's filing
under Chapter 11 of the Bankruptcy Code on August 16, 1999. In addition, casino
operating expenses of $73,741,000 during the first nine months of 2000 were 3.9%
lower than during the same period of 1999, due to lower costs associated with
table games operations, combined with lower total coin redemption costs. Food
and beverage costs of $4,729,000 increased over the first nine months of 1999 as
a result of the increased business volumes. General and administrative expenses
for the first nine months of 2000 decreased from the same period of 1999 due in
part to decreased legal fees, which in 1999 were related to the self-parking
garage arbitration proceedings, as well as lower advertising costs. Rent expense
to the Partnership for the first nine months of 2000 are higher than the same
period of 1999, resulting in part from a $1 million annual decrease in the
abatements permitted as per the terms of the sixth amendment to the Operating
Lease and Expansion Operating Lease, which was effective September 30, 1998, as
well as increased general and administrative costs of the Partnership, which are
funded by New Claridge through the Operating Lease payments.
Reorganization items during the nine months of 2000 of $3,015,000
includes professional fees incurred as a result of the Corporation's filing for
reorganization under Chapter 11 of $3,609,000, offset by interest earned from
the investment of accumulated cash resulting from the Chapter 11 filing of
$594,000. During the same period of 1999, these items totaled $843,000 for
professional fees incurred, offset by $46,000 of interest earned.
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Liquidity and Capital Resources
Financial Condition
On January 31, 1994, the Corporation completed an offering of $85
million of 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) 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 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, 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,
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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 Partnership filed a
voluntary petition under Chapter 11 of the Bankruptcy Code on October 5, 1999.
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, 2000, the
Corporation had approximately $23.6 million of cash and cash equivalents.
Management anticipates an increase in ongoing general and administrative
expenses, primarily for professional fees, during the pendency of the bankruptcy
proceeding. For the nine months ended September 30, 2000, such expenses totalled
approximately $3,609,000; through December 31, 1999, such expenses totalled
$1,268,000, for a total of these expenses of $4,877,000. To date, approximately
$2,291,000 of these expenses have been paid, leaving $2,586,000 to be paid as of
September 30, 2000.
The Corporation continues to operate the business, under the supervision
of the Bankruptcy Court, as a debtor-in- possession. 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 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
permitting the Corporation to continue to honor all existing employee benefit
plans and policies. In addition, the Bankruptcy Court approved the payment of
certain prepetition vendor claims, certain prepetition guest- related claims
(such as outstanding direct mail coupons, progressive jackpots, and safekeeping
deposits) and prepetition payroll, gaming and other taxes and fees.
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 intended to
seek, in the Chapter 11 proceeding, to reduce the Corporation's debt obligations
to a level that it believes would be consistent with the sustainable level of
cash to be generated by the Claridge. At the same time, management intended to
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.
On January 27, 2000, the Corporation, New Claridge, and the Partnership
filed a joint plan of reorganization and disclosure statement with the
Bankruptcy Court. On April 5, 2000, in response to objections raised by the
trustee for the noteholders, the United States Trustee, and others, the
Corporation, New Claridge, and the Partnership filed a revised plan of
reorganization and disclosure statement (the "Plan"). On May 9, 2000, the
adequacy of the Plan was approved by the Bankruptcy Court, which allowed for the
Plan to be submitted to the Corporation's creditors for a vote. On July 18,
2000, the Corporation announced the results
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of that vote: the holders of the Corporation's Notes voted to reject the Plan;
management of the Corporation believes that the unsecured creditors voted to
accept the Plan. The Corporation had intended to pursue confirmation of the Plan
under Section 1129B of the Bankruptcy Code, which allows for the Bankruptcy
Court judge to confirm the Plan through the "cramdown" procedure, at the
confirmation hearing, which was scheduled to begin September 6, 2000.
However, on August 11, 2000, the Bankruptcy Court judge granted
permission to the Official Secured Noteholders Committee (the "Committee") to
hire an investment banker to try to locate potential investors to submit
competing reorganization plans. All final written offers of interest were
received by the Corporation by October 5, 2000, and were subsequently evaluated
by the Corporation's Board of Directors and legal and financial advisors. At a
hearing held on October 13, 2000, the Corporation informed the Bankruptcy Court
judge that it intended to pursue the bid submitted by Park Place Entertainment
Corporation ("Park Place") (owner and operator of Bally's Park Place,
Incorporated, the Atlantic City Hilton Casino Resort, and Caesars Atlantic City
casinos in Atlantic City). The Corporation's financial advisors have estimated
that the Park Place bid would provide the noteholders with approximately an 80%
recovery. All other terms of the Park Place bid are confidential until
definitively approved by the Claridge's Board of Directors.
Park Place's purchase of the Claridge Casino Hotel is contingent upon,
among other matters, its receiving certain regulatory approvals from the New
Jersey Casino Control Commission and the confirmation of a plan of
reorganization by the Bankruptcy Court. GB Holdings, Inc. (owner and operator of
the Sands Hotel and Casino in Atlantic City), which had also submitted a bid for
the Claridge Casino Hotel which expired by its own terms on October 13, 2000,
has indicated that it may file a competing plan of reorganization. Management of
the Corporation expects to provide an update regarding the status of the
reorganization plans to the Bankruptcy Court on November 28, 2000.
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 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, 2000, the Corporation had working capital of
$15,145,000 as compared to working capital of $10,952,000 at December 31, 1999.
The increase in working capital was due primarily to increases in cash of
$6,792,000 and prepaid expenses of $636,000, offset by increases in accounts
payable of $1,249,000, and other current liabilities of $2,053,000.
For the nine months ended September 30, 2000, cash provided by operating
activities was $9,304,000, compared to $7,951,000 for the same period of 1999.
As a result of the Chapter 11 filing on August 16, 1999, the interest payments
due on the Notes have not been made; therefore, interest payments for the nine
months ended September 30, 2000 were approximately $5 million lower than in the
same period of 1999. Cash provided by operating activities in 1999 was improved
by the deferral 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.
Cash used in investing activities for the nine months ended September 30, 2000
was $2,390,000, compared to $946,000 for the nine months ended September 30,
1999. Cash used in investment activities during the first nine months of 2000
increased over the same period of 1999 primarily due to an increase in additions
to property and equipment. Cash used in financing activities in 2000 and 1999 of
$122,000 and $255,000, respectively, represents payments of capital lease
obligations for certain gaming equipment.
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For the nine months ended September 30, 2000, the Corporation's
"Adjusted EBITDA" was $8,925,000, compared to $10,348,000 for the same period of
1999. "Adjusted EBITDA" for the first nine months of 1999 includes $2.3 million
of income from the settlement of the garage arbitration proceedings. "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 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 years commencing October 1, 1998 and 1999, 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 which commenced October 1, 2000.
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
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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 required to be made subsequent to August 16,
1999. Operating Lease payments are being made monthly by New Claridge to an
escrow account, for the benefit of the secured Noteholders, which can only be
accessed with the approval of the Bankruptcy Court.
Prior to August 16, 1999, New Claridge was 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 were 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
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
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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 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 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.
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, the realizable value of the Expandable Wraparound Mortgage has become
impaired. Therefore, during the fourth quarter of 1999 the Corporation recorded
an adjustment to write-down the balance of the Expandable Wraparound Mortgage
receivable, to an amount estimated to be the realizable value of the Hotel
Assets. The total amount of this write-down was $37.6 million.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Claridge Hotel and Casino Corporation
-----------------------------------------
(Registrant)
By: /s/ Jean I. Abbott
------------------------------------------------
Jean I. Abbott
Executive Vice President of Finance/
Chief Financial Officer
(Authorized Officer, Principal Financial Officer
and Principal Accounting Officer)
Dated: November 13, 2000
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