<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
(Mark One)
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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
August 11, 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 June 30, 2000
(unaudited) and December 31, 1999 4
Consolidated Statements of Operations for
the three months ended June 30, 2000
(unaudited) and 1999 (unaudited) 5
Consolidated Statements of Operations for
the six months ended June 30, 2000
(unaudited) and 1999 (unaudited) 6
Consolidated Statements of Cash Flows for
the six months ended June 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
<PAGE>
[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 June 30, 2000 and December 31, 1999, and the results of its
operations for the three and six months ended June 30, 2000 and 1999 and its
cash flows for the three and six months ended June 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 six months ended June 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)
June 30, December 31,
2000 1999
--------- ------------
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 20,578 16,834
Receivables, net (including $5,515
at June 30, 2000 and $6,269 at December 31,
1999, due from the Partnership) 7,374 7,977
Other current assets 3,842 3,421
--------- ---------
Total current assets 31,794 28,232
--------- ---------
Property and equipment, net (note 4) 29,010 28,342
Long-term receivables due from the
Partnership (note 3) 40,890 41,831
Intangible assets and deferred charges 951 1,076
Other assets 3,701 3,041
--------- ---------
$ 106,346 102,522
========= =========
LIABILITIES & STOCKHOLDERS' DEFICIENCY
Current Liabilities Not Subject to Compromise:
Current maturities of long-term debt (note 6) $ 7 125
Accounts payable (note 9) 3,959 2,902
Other current liabilities (notes 5 and 9) 15,203 14,253
--------- ---------
Total current liabilities not subject to compromise 19,169 17,280
--------- ---------
Liabilities Subject to Compromise (note 9) 145,775 145,259
Long-term debt (notes 6 and 9) -0- 1
Deferred income taxes (notes 8 and 9) 2,046 2,046
Other noncurrent liabilities (notes 7 and 9) 1,365 1,354
Stockholders' deficiency:
Common stock 5 5
Additional paid in capital 5,048 5,048
Accumulated deficit (67,062) (68,471)
--------- ---------
Total stockholders' deficiency (62,009) (63,418)
--------- ---------
$ 106,346 102,522
========= =========
</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 June 30, 2000 and 1999
(in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
-------- --------
Revenues:
<S> <C> <C>
Casino $ 43,951 43,470
Hotel 2,980 2,779
Food and beverage 4,996 4,779
Interest from the Partnership 2,243 2,890
Interest, other 53 116
Other 671 771
-------- --------
54,894 54,805
Less promotional allowances (note 2) 5,719 5,667
-------- --------
Net revenues 49,175 49,138
-------- --------
Costs and expenses:
Casino 25,230 26,549
Hotel 778 733
Food and beverage 1,687 1,291
Other 840 695
Rent expense to the Partnership 6,532 6,068
Rent expense, other 284 302
General and administrative 6,291 6,589
Gaming taxes 3,502 3,460
Reinvestment obligation expense 225 374
Provision for uncollectible accounts 183 222
Depreciation and amortization 396 486
Interest expense (contractual interest of $2,973 in 2000) 21 2,638
-------- --------
Total costs and expenses 45,969 49,407
-------- --------
Income (loss) before reorganization items 3,206 (269)
Reorganization items:
Professional fees (839) -0-
Interest earned from accumulated cash resulting
from Chapter 11 proceeding 183 -0-
-------- --------
(656) -0-
Net income (loss) $ 2,550 (269)
======== ========
Net income (loss) per share - basic and diluted (based on
5,062,500 weighted average shares outstanding for the
three months ended June 30, 2000 and 1999) $ .50 (.05)
======== ========
</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 Six Months Ended June 30, 2000 and 1999
(in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
--------- ---------
Revenue:
<S> <C> <C>
Casino $ 82,711 80,024
Hotel 5,132 4,773
Food and beverage 9,557 9,031
Interest from the Partnership 4,510 5,851
Interest, other 91 203
Other 1,375 3,646
--------- ---------
103,376 103,528
Less promotional allowances (note 2) 10,815 10,537
--------- ---------
Net revenues 92,561 92,991
--------- ---------
Costs and expenses:
Casino 48,836 49,389
Hotel 1,415 1,362
Food and beverage 3,058 2,477
Other 1,823 1,317
Rent expense to the Partnership 13,272 12,332
Rent expense, other 568 606
General and administrative 12,448 13,366
Gaming taxes 6,590 6,369
Reinvestment obligation expense 400 524
Provision for uncollectible accounts 340 418
Depreciation and amortization 767 1,011
Interest expense (contractual interest of $6,185 in 2000) 48 5,337
--------- ---------
Total costs and expenses 89,565 94,508
--------- ---------
Income (loss) before reorganization items 2,996 (1,517)
Reorganization items:
Professional fees (1,913) -0-
Interest earned from accumulated cash resulting
from Chapter 11 proceeding 326 -0-
--------- ---------
(1,587) -0-
--------- ---------
Net income (loss) $ 1,409 (1,517)
========= =========
Net income (loss) per share - basic and diluted (based on
5,062,500 weighted average shares outstanding for the
six months ended June 30, 2000 and 1999, respectively) $ .28 (.30)
========= =========
</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 Six Months Ended June 30, 2000 and 1999
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
------- -------
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $ 1,409 (1,517)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 767 1,011
Deferred rent to the Partnership 621 621
Deferred interest receivable and discount from the Partnership -0- (1,117)
Reinvestment obligation expenses 400 524
Gain on disposal of assets (55) (79)
Reorganization items, net 1,587 -0-
Change in assets and liabilities:
Decrease in receivables, net, excluding
current portion of long-term receivables 92 466
Increase in other current assets (421) (483)
Increase in accounts payable 953 278
Increase in other current liabilities 36 1,548
Increase (decrease) in other noncurrent liabilities 37 (16)
------- -------
Net cash provided by operating activities
before reorganization items 5,426 1,236
Reorganization items:
Professional fees paid (1,000) -0-
Interest earned on accumulated cash resulting from
Chapter 11 proceeding 326 -0-
------- -------
Net cash provided by operating activities 4,752 1,236
------- -------
</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 Six Months Ended June 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 (148) (53)
Additions to property and equipment (1,179) (49)
Increase in other assets (1,060) (1,068)
Proceeds from disposal of assets 46 -0-
Increase in long-term receivables -0- (175)
Collection of long-term receivables 1,452 852
-------- --------
Net cash used in investment activities (889) (493)
-------- --------
Cash flows from financing activities -
Payment of long-term debt (119) (185)
-------- --------
Increase in cash and cash equivalents 3,744 558
Cash and cash equivalents at beginning of period 16,834 9,798
-------- --------
Cash and cash equivalents at end of period $ 20,578 10,356
======== ========
</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.
Under the Bankruptcy Code, the Corporation had an exclusive period of
120 days to file a plan of reorganization with the Bankruptcy Court,
which would have expired on December 14, 1999. In November 1999, the
Corporation petitioned the Bankruptcy Court for, and was granted, an
extension of this exclusivity period to February 14, 2000; a further
extension was subsequently granted, extending the exclusivity period to
May 14, 2000. The Bankruptcy Court denied the Corporation's petition to
further extend the exclusivity period to September 15, 2000. On January
27, 2000, the Corporation, New Claridge, and the Partnership filed a
joint plan of reorganization and disclosure statement (the "Plan") 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 "Amended Plan"). In summary, the Amended
Plan, as proposed jointly by the Corporation, New Claridge, and the
Partnership, calls for the following to occur, subject to certain
conditions contained in the Amended Plan:
(i) the existing Class A Stock of the Corporation will be
cancelled;
(ii) the holders of the existing Notes will be entitled to
receive, on a pro rata basis, (a) 100% of the equity of
the reorganized Corporation outstanding on the effective
date, and (b) debt, in an amount not to exceed $15
million in total. The new debt ("New Notes"), which will
be issued by the reorganized Corporation, will be
guaranteed by New Claridge and secured by the Hotel
Assets. The New Notes will have a term of 10 years and
will bear interest at a rate of 8% per year;
(iii) the Partnership will transfer the Hotel Assets to New
Claridge in full satisfaction of its obligations under
the Expandable Wraparound Mortgage. All debts owed by New
Claridge to the Partnership will be forgiven, and the
Partnership will liquidate; and
(iv) the Contingent Payment and Contingent Payment Rights (see
Note 7) 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 May 9, 2000, the adequacy of the Amended Plan was approved by the
Bankruptcy Court, which allowed the Amended 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
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 Amended Plan; management of the Corporation believes that the
unsecured creditors voted to accept the Amended Plan. The Corporation
intends to pursue confirmation of the Amended Plan under Section 1129B
of the Bankruptcy Code, which allows for the Bankruptcy Court judge to
confirm the Amended Plan through the "cramdown" procedure. Pursuant to
the terms of the Amended Plan, if the Amended Plan is confirmed through
this cramdown procedure, the holders of the existing Notes would receive
a pro rata distribution of 100% of the equity of the reorganized
Corporation; no New Notes would be issued. The confirmation hearing is
scheduled to begin September 6, 2000.
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 six
months ended June 30, 2000 and 1999 has been charged to casino operating
expenses as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Hotel $1,079 1,044 2,071 2,062
Food and beverage 3,369 3,519 6,677 6,776
Other (Entertainment) 2 227 67 534
------ ------ ------ ------
Total costs allocated to
casino operating expenses $4,450 4,790 8,815 9,372
====== ====== ====== ======
</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>
June 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 June 30, 2000
and December 31, 1999) $ 48,139 48,289
Deferred Expandable Wraparound
Mortgage interest receivable, due
September 30, 2000 20,000 20,000
FF&E promissory notes, 14% 10,346 11,137
Allowance for impairment (37,595) (37,595)
-------- --------
$ 40,890 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>
June 30, December 31,
2000 1999
-------- ------------
(in thousands)
<S> <C> <C>
Gaming equipment $11,715 12,593
Land and land improvements 7,598 7,598
Self-parking garage facility 20,070 20,070
Leasehold improvements 745 745
Capital lease asset 822 822
Other furniture, fixtures, and equipment 1,039 213
------- -------
41,989 42,041
Less accumulated depreciation and amortization 12,979 13,699
------- -------
Net property and equipment $29,010 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:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------- ------------
(in thousands)
<S> <C> <C>
Deferred rent $ 950 1,100
Accrued payroll and related benefits 8,642 8,232
Auto/general insurance reserves 528 228
Reorganization costs 1,726 813
Other current liabilities 3,357 3,880
-------- ---------
$15,203 14,253
======== ========
</TABLE>
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 June 30, 2000 and December 31, 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 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
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)
Agreement, the Corporation's $7.5 million revolving credit line
arrangement was terminated.
As of June 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:
June 30, December 31,
2000 1999
-------- ------------
(in thousands)
License agreement $ 1,256 1,294
Other 109 60
-------- ------
$ 1,365 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 June 30, 2000, accrued interest would have amounted to
approximately $90.1 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 June 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
Amended 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 June 30, 2000, the Corporation had net operating loss
carryforwards for federal income tax purposes of approximately $48
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 June 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):
June 30, December 31,
2000 1999
-------- ------------
Accounts payable and accrued expenses $ 3,147 3,251
113/4% 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 22,767 22,147
Contingent Payment 19,000 19,000
Auto and general liability reserves 1,086 1,086
Other 1,343 1,343
-------- --------
$145,775 145,259
======== ========
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 June 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.
10. 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 that have filed voluntary petitions under Chapter 11 in
the past.
Due to the uncertainty concerning the outcome of the confirmation of the
Amended Plan, management believes that the Commission will again issue
New Claridge a one-year casino license for the period commencing
September 30, 2000.
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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 June 30, 2000
The Corporation had net income of $2,550,000 for the three months ended
June 30, 2000, compared to a net loss of $269,000 for the same period of 1999.
Results for the second quarter of 2000 included $839,000 of professional fees
incurred as a result of the Chapter 11 proceedings, but do not include interest
expense related to the Corporation's First Mortgage Notes (the "Notes"), as a
result of the Chapter 11 status.
Total casino revenue for the second quarter of 2000 was $43,951,000, an
increase of 1.1% over second quarter of 1999 casino revenue of $43,470,000,
resulting from higher slot machine revenues, as further discussed below. Total
citywide casino revenues, as reported, for the second quarter of 2000, were 3.3%
higher than during the same period of 1999.
Claridge table games drop (the amount of gaming chips purchased by
patrons) during the second quarter of 2000 decreased 16.8% from the same period
of 1999. However, the "hold" percentage (the percentage of win to drop)
increased to 14.3% in the second quarter of 2000, compared to a 13.6% hold
during the second quarter of 1999. As a result, Claridge table games revenue for
the second quarter of 2000 of $9,818,000 was 10.0% lower than table games
revenue during the same period of 1999 of $10,903,000. Citywide table games drop
during the second quarter of 2000, as reported, decreased 1.3% from prior year
results. However, as a result of an increase in the hold percentage, citywide
revenue, as reported, increased 4.2% in the second quarter of 2000 as compared
to the same period of 1999.
During the second quarter of 2000, Claridge slot machine revenue was
$34,133,000, an increase of 4.8% over the same period of 1999 slot machine
revenue of $32,567,000. Citywide slot machine revenue, as reported, for the
second quarter of 2000 increased 3.0% over the same period of 1999. The increase
in Claridge slot machine revenue was due in part to increased bus passenger
volumes, as further discussed below. In addition, the average number of slot
machines available citywide decreased 1.1% from the average number of machines
available during the second quarter of 1999, primarily due to the closing of the
Trump World's Fair Casino during the fourth quarter of 1999, while the average
number of slot machines available at the Claridge during the second quarter of
2000 increased 1.5% over the prior year.
The Atlantic City casino market continues to rely heavily on patrons who
arrive by bus, and are issued incentives in the form of coin to play slot
machines. To attract these patrons, casinos compete by offering higher amounts
of coin incentives than their direct competition. In an effort to reduce these
coin redemption costs, in late 1998 New Claridge redirected its bus program by
reducing the number of patrons arriving by bus, and focusing more marketing
programs towards attracting drive-in patrons. During the second quarter of 1999,
approximately 187,000 passengers arrived by bus to the Claridge, a 25% reduction
from the same period of 1998. However, as citywide competition for bus
passengers began to ease somewhat during the second half of 1999, New Claridge
began to increase bus passenger volumes. During the second quarter of 2000,
195,000 patrons arrived at the Claridge by bus, a 4.3% increase over the second
quarter of 1999. Total coin incentives issued to bus passengers during the
second quarter of 2000 were $3,315,000 (an average of $17.00 per passenger),
compared to $3,322,000 issued during the second quarter of 1999 (an average of
$17.76 per passenger). In addition to the bus program, New Claridge offers
promotional incentives to its customers through its direct marketing programs,
based on their levels of gaming activity, as do other Atlantic City casinos.
Promotional incentives issued through this program totalled $3,454,000 during
the second quarter of 2000, compared to $3,664,000 during the same period of
1999.
Hotel revenues for the three months ended June 30, 2000 were $2,980,000,
reflecting an increase of 7.2%
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over hotel revenues for the three months ended June 30, 1999. Hotel occupancy
during the second quarter of 2000 was 95.1%, slightly lower than the 96.5%
occupancy during the second quarter of 1999. However, the average room rate
increased to $68 in 2000, from $63 in 1999. Food and beverage revenues during
the second quarter of 2000 were $4,996,000, an increase of 4.5% over the same
period of 1999 revenues of $4,779,000. This increase resulted from an increase
in covers (meals served), due in part to the increased casino patron volumes,
and the opening of Pronto's, New Claridge's self-service Italian restaurant,
which opened in August 1999. During the second quarter of 2000, the number of
covers was 263,000, at an average price per cover of $12.97, compared to 234,000
covers in the second quarter of 1999, at an average price per cover of $13.36.
Total costs and expenses for the second quarter of 2000 were
$45,969,000, reflecting a reduction from the same period of 1999 expenses of
$49,407,000, 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.
Casino operating expenses of $25,230,000 were 5.0% lower than in the second
quarter of 1999, due in part to lower payroll and other operating expenses
related to the table games operation as a result of decreased volume in that
area, as well as lower total coin redemption expenses, as previously discussed.
Food and beverage operating expenses of $1,687,000 increased over the second
quarter of 1999 as a result of the increase in business volume, and the opening
of Pronto's.
Reorganization items during the second quarter of 2000 of $656,000
includes professional fees incurred as a result of the Corporation's filing for
reorganization under Chapter 11 of $839,000, offset by interest earned from the
investment of accumulated cash resulting from the Chapter 11 filing of $183,000.
Results of Operations for the Six Months Ended June 30, 2000
For the six months ended June 30, 2000, the Corporation had net income
of $1,409,000, compared to a net loss of $1,517,000 for the same period of 1999.
Results for the first half of 2000 include approximately $1.9 million of
professional fees related to the Corporation Chapter 11 filing, but do not
include interest expense on the Notes. Results for the first half 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.
Total Claridge casino revenue for the six months ended June 30, 2000 of
$82,711,000 was 3.4% higher than the casino revenue for the same period of 1999
of $80,024,000, due to increased revenue from slot machines, as further
discussed below. Citywide total casino revenue, as reported, for the first half
of 2000 was 5.1% higher than the first half of 1999.
During the first six months of 2000, New Claridge's table games drop and
revenue decreased 9.2% and 8.8%, respectively, from the same period of 1999. The
decrease in table games activity during the first half of 2000 resulted from
management's efforts to reduce costs in that area, while maintaining
profitability from the table games segment of New Claridge's business. Citywide
table games drop and revenue, as reported, for the first half of 2000 increased
2.4% and 3.6%, respectively, over the first half of 1999.
New Claridge's slot revenue for the first six months of 2000 was
$63,663,000, reflecting a 7.7% increase over slot revenue of $59,131,000 for the
same period of 1999. Citywide slot machine revenue, as reported, for the first
half of 2000 increased 5.8% over the first half of 1999. The increase in
Claridge slot machine revenue is attributable, in part, to increased bus patron
volumes during the first half of 2000, as further discussed below. The average
number of slot machines available citywide during the first half of 2000
decreased 1.2% from the same period of 1999, primarily due to the closing of the
Trump World's Fair Casino in the fourth quarter of 1999, while the average
number of slot machines available at the Claridge increased slightly during the
first half of 2000.
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As discussed previously, New Claridge had purposely reduced its bus
program volumes in late 1998, in response to increasing citywide coin redemption
packages offered to passengers arriving by bus. However, as citywide competition
for bus passengers began to ease somewhat during the second half of 1999, New
Claridge began to increase its bus passenger volumes slowly, while still
maintaining a focus on attracting drive-in patrons with various marketing
programs. During the first half of 2000, approximately 355,000 passengers
arrived at the Claridge by bus, an increase of 15.2% over the first half of
1999. In the first half of 2000, these passengers were issued $6,295,000 of coin
incentives, (an average of $17.73 per passenger), compared to $5,567,000 of coin
incentives issued to bus passengers in the first half of 1999 (an average of
$18.07 per passenger). In addition, promotional incentives issued through New
Claridge's direct marketing programs totalled $5,504,000 in the first half of
2000, compared to $5,988,000 in the same period of 1999.
Hotel revenues for the first six months of 2000 were $5,132,000,
reflecting a 7.5% increase over hotel revenues in the first half of 1999. This
increase was attributable to an increase in the average room rate, to $63 in the
first half of 2000, from $57 in the first half of 1999, offset by a slight
decrease in the occupancy rate, to 88.9% in the first six months of 2000 from
90.8% in the first half of 1999. Food and beverage revenues for the first half
of 2000 were $9,557,000, an increase of 5.8% over the same period of 1999. This
increase was primarily due to an increase in the number of covers, to
approximately 475,000 in the first half of 2000, from approximately 444,000 in
the same period of 1999, resulting from increased casino patrons (including bus
passengers). The average price per cover in the first half of 2000 was $13.32,
consistent with the prior year's average. 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 first half of 2000 were $89,565,000,
reflecting a reduction from the same period of 1999 expenses of $94,508,000,
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. Casino operating
expenses of $48,836,000 were 1.1% lower than in the first half of 1999, due in
part to lower payroll and other operating expenses related to the table games
operation as a result of decreased volume in that area, offset by an increase in
total coin redemption expenses, as previously discussed. Food and beverage
operating expenses of $3,058,000 increased over the first half of 1999 as a
result of the increase in business volume, and the opening of Pronto's. General
and administrative expenses for the first half of 2000 decreased from the same
period of 1999 primarily due to decreased legal fees, which in 1999 were related
to the self-parking garage arbitration proceedings.
Reorganization items during the first half of 2000 of $1,587,000
includes professional fees incurred as a result of the Corporation's filing for
reorganization under Chapter 11 of $1,913,000, offset by interest earned from
the investment of accumulated cash resulting from the Chapter 11 filing of
$326,000.
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
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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, 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 June 30, 2000, the Corporation
had approximately $20.6 million of cash and cash equivalents, including
approximately $9.9 million of "bankroll" used in casino operations. Management
anticipates an increase in ongoing general and administrative expenses,
primarily for professional fees, during the pendency of the bankruptcy
proceeding. For the six months ended June 30, 2000, such expenses totalled
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approximately $1,913,000; through December 31, 1999, such expenses totalled
$1,268,000.
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. 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 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 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.
Under the Bankruptcy Code, the Corporation had an exclusive period of
120 days to file a plan of reorganization with the Bankruptcy Court, which would
have expired on December 14, 1999. In November 1999, the Corporation petitioned
the Bankruptcy Court for, and was granted, an extension of this exclusivity
period to February 14, 2000; a further extension was subsequently granted,
extending the exclusivity period to May 14, 2000. The Bankruptcy Court denied
the Corporation's petition to further extend the exclusivity period to September
15, 2000. On January 27, 2000, the Corporation, New Claridge, and the
Partnership filed a joint plan of reorganization and disclosure statement (the
"Plan") 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 "Amended Plan"). In summary, the Amended Plan, as
proposed jointly by the Corporation, New Claridge, and the Partnership, calls
for the following to occur, subject to certain conditions contained in the
Amended Plan:
(i) the existing Class A Stock of the Corporation will be
cancelled;
(ii) the holders of the existing Notes will be entitled to receive,
on a pro rata basis, (a) 100% of the equity of the reorganized
Corporation outstanding on the effective date, and (b) debt,
in an amount not to exceed $15 million in total. The new debt
("New Notes"), which will be issued by the reorganized
Corporation, will be guaranteed by New Claridge and secured by
the Hotel Assets. The New Notes will have a term of 10 years
and will bear interest at a rate of 8% per year;
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(iii) the Partnership will transfer the Hotel Assets to New Claridge
in full satisfaction of its obligations under the Expandable
Wraparound Mortgage. All debts owed by New Claridge to the
Partnership will be forgiven, and the Partnership will
liquidate; and
(iv) the Contingent Payment and 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 May 9, 2000, the adequacy of the Amended Plan was approved by the
Bankruptcy Court, which allowed the Amended 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 Amended Plan; management of the Corporation believes that the unsecured
creditors voted to accept the Amended Plan. The Corporation intends to pursue
confirmation of the Amended Plan under Section 1129B of the Bankruptcy Code,
which allows for the Bankruptcy Court judge to confirm the Amended Plan through
the "cramdown" procedure. Pursuant to the terms of the Amended Plan, if the
Amended Plan is confirmed through this cramdown procedure, the holders of the
existing Notes would receive a pro rata distribution of 100% of the equity of
the reorganized Corporation; no New Notes would be issued. The confirmation
hearing is scheduled to begin September 6, 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 June 30, 2000, the Corporation had working capital of $12,625,000 as
compared to working capital of $10,952,000 at December 31, 1999. The increase in
working capital was due primarily to an increase in cash of $3,744,000, offset
by an increase in accounts payable of $1,057,000, and an increase in
reorganization costs payable of $913,000.
For the six months ended June, 2000, cash provided by operating
activities was $4,752,000, compared to $1,236,000 for the same period of 1999.
As a result of the Chapter 11 filing on August 16, 1999, the interest payment
due on the Notes on February 1, 2000 was not made; therefore, interest payments
for the six months ended June 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 six months
ended June 30, 2000 was $889,000, compared to $493,000 for the six months ended
June 30, 1999. Cash used in financing activities in 2000 and 1999 of $119,000
and $185,000, respectively, represents payments of capital lease obligations for
certain gaming equipment.
For the six months ended June 30, 2000, the Corporation's "Adjusted
EBITDA" was $4,697,000, compared to $5,711,000 for the same period of 1999.
"Adjusted EBITDA" for the first half 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
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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 year commencing October 1, 1998, was $24 million for the Operating Lease
and $2.5 million for the Expansion Operating Lease, and remained the same for
the lease year which commenced 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
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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.
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 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
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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: August 11, 2000
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