10-Q 1 ten-q.txt 10-Q 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 March 31, 2001 -------------- [ ] 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 May 14, 2001 Class A Stock 5,062,500 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 2 Consolidated Balance Sheets at March 31, 2001 (unaudited) and December 31, 2000 3 Consolidated Statements of Operations for the three months ended March 31, 2001 (unaudited) and 2000 (unaudited) 4 Consolidated Statements of Cash Flows for the three months ended March 31, 2001 (unaudited) and 2000 (unaudited) 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 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 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 March 31, 2001 and December 31, 2000, and the results of their operations for the three months ended March 31, 2001 and 2000 and their cash flows for the three months ended March 31, 2001 and 2000. 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, 2000 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 months ended March 31, 2001 and 2000 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. THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES (Debtor-In-Possession effective August 16, 1999) Consolidated Balance Sheets (in thousands)

See accompanying notes to consolidated financial statements. 3 THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES (Debtor-In-Possession effective August 16, 1999) Consolidated Statements of Operations For the Three Months Ended March 31, 2001 and 2000 (in thousands except per share data) (Unaudited)

See accompanying notes to consolidated financial statements. 4 THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES (Debtor-In-Possession effective August 16, 1999) Consolidated Statements of Cash Flows For the Three Months Ended March 31, 2001 and 2000 (in thousands) (Unaudited)

See accompanying notes to consolidated financial statements. 5 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. The Partnership filed a voluntary petition under Chapter 11 of the Bankruptcy Code on October 5, 1999. 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 an amended plan of reorganization and disclosure statement. The adequacy of the amended plan was approved by the Bankruptcy Court on May 9, 2000, which allowed for 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 had intended 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, 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 attempt to locate potential investors to submit competing reorganization plans. The two primary offers which were considered by the Corporation's Board of Directors (the "Board") were submitted by Park Place Entertainment Corporation ("PPE") (owner and operator of Bally's Park Place, Incorporated, the Atlantic City Hilton Casino Resort, and Caesars Atlantic City casinos in Atlantic City) and GB Holdings, Incorporated ("GBHI") (owner and operator of the Sands Hotel and Casino in Atlantic City). After evaluation by the Board and its financial and legal advisors, the Corporation informed the Bankruptcy Court judge that it intended to pursue the bid submitted by PPE. The GBHI offer expired by its own terms on October 13, 2000. On November 28, 2000, the Corporation filed a second amended joint plan of reorganization and a second amended disclosure statement, which included an executed copy of the purchase and sale agreement between New Claridge, the Partnership, and PPE. The second amended joint plan of reorganization provided for a sale of substantially all of the assets of New Claridge and the Partnership to PPE. Certain amendments were subsequently made to this plan, and on March 27, 2001, the fourth amended joint plan of reorganization and fourth amended disclosure statement (the "Plan") were approved by the Bankruptcy Court to be submitted to the creditors for a vote. Pursuant to the terms of the Plan, the secured noteholders would receive approximately an 83% recovery on their claims of $90.5 million, and the unsecured creditors would receive approximately 61.5% of their claims. 6 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) On May 11, 2001, the Corporation announced the results of the voting of its creditors regarding the Plan. The holders of the Notes voted to accept the Plan. The result of the vote from the unsecured creditors has not been finalized; however, the Corporation believes that the unsecured creditors also voted to accept the Plan. The Corporation intends to move forward to have the Plan confirmed. The confirmation hearing is scheduled for May 16, 2001. The accompanying consolidated 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 accompanying 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. 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 months ended March 31, 2001 and 2000 has been charged to casino operating expenses as follows (in thousands): 2001 2000 ---- ---- Hotel $ 1,104 992 Food and beverage 3,181 3,308 Other (Entertainment) 87 65 ------- ----- Total $ 4,372 4,365 ======= ===== 3. Long-Term Receivables Long-term receivables consist of the following amounts due from the Partnership (in thousands):

7 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 (continued) 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. The total amount of this write-down was $37.6 million. 4. Property and Equipment Property and equipment consists of the following: March 31, December 31, 2001 2000 ------- ------- (in thousands) Gaming equipment $12,123 12,345 Land and land improvements 7,598 7,598 Self-parking garage facility 20,070 20,070 Building improvements 1,272 1,260 Leasehold improvements 745 745 Capital lease asset 822 822 Other furniture, fixtures, and equipment 1,793 1,755 ------- ------- 44,423 44,595 Less accumulated depreciation and amortization 13,551 13,591 ------- ------- Net property and equipment $30,872 31,004 ======= ======= 5. Other Current Liabilities Other current liabilities consist of the following: March 31, December 31, 2001 2000 ------- ------- (in thousands) Deferred rent $ 725 800 Accrued payroll and related benefits 9,289 8,761 Auto/general insurance reserves 971 831 Reorganization costs 3,010 2,854 Other current liabilities 3,396 3,513 ------- ------- $17,391 16,759 ======= ======= 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 8 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 (continued) 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 March 31, 2001 and December 31, 2000, 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 would be subordinated to liens that might be placed on those gaming and other assets to secure any future revolving credit line arrangement. On January 28, 1997, New Claridge entered into an agreement to subject the new self-parking garage to the lien of the mortgage; such lien will not be subordinated to any lien which may be placed on New Claridge's gaming and other assets to secure any future revolving credit line arrangement. Interest on the Notes is payable semiannually on February 1 and August 1 of each year. A portion of the net proceeds of $82.2 million was used to repay in full the then outstanding debt under the Revolving Credit and Term Loan Agreement (the "Loan Agreement"), including the outstanding balance of the Corporation's revolving credit line, which was secured by a first mortgage. In conjunction with the full satisfaction of the Loan Agreement, the Corporation's $7.5 million revolving credit line arrangement was terminated. As of March 31, 2001 and December 31, 2000, 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: March 31, December 31, 2001 2000 --------- ------------ (in thousands) License agreement $ 1,200 1,219 Other 25 25 -------- ------ $ 1,225 1,244 ======== ====== Pursuant to the Restructuring Agreement, Del Webb Corporation ("Webb") 9 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) 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 March 31, 2001, accrued interest would have amounted to approximately $103 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. As of March 31, 2001 and December 31, 2000, 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 March 31, 2001, the Corporation had net operating loss carryforwards for federal income tax purposes of approximately $44.3 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 $1,121,000, 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. 10 THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES (Debtor-In-Possession effective August 16, 1999) Notes to Consolidated Financial Statements (continued) 8. Income Taxes (continued) During 1995, the Corporation received notice from the Internal Revenue Service ("IRS") asserting deficiencies in Federal corporate income taxes for the Corporation's 1990 and 1991 taxable years. Many of the proposed adjustments to the Corporation's tax returns have been settled with no adverse impact to the Corporation's consolidated financial statements. There was a remaining IRS asserted deficiency for the 1990 and 1991 taxable years. In January 1999, the Corporation reached a settlement agreement with the IRS District Counsel, which was confirmed by the United States Tax Court on March 4, 1999. This settlement agreement did not have a material impact on the Corporation's consolidated financial statements. As of March 31, 2001 and December 31, 2000, 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. 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): March 31, December 31, 2001 2000 -------- ------- Accounts payable and accrued expenses $ 3,158 3,158 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 23,078 Contingent Payment 19,000 19,000 Auto and general liability reserves 771 771 Other 1,607 1,607 -------- ------- $146,046 146,046 ======== ======= Accrued interest as of March 31, 2001 and December 31, 2000 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 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 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 who have filed voluntary petitions under Chapter 11 in the past. 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations for the Three Months Ended March 31, 2001 The Corporation had a net loss of $2,500,000 for the three months ended March 31, 2001, compared to a net loss of $1,141,000 for the same period of 2000. Total casino revenue earned by New Claridge during the first quarter of 2001 was $38,542,000, slightly lower than casino revenues earned during the first quarter of 2000 of $38,760,000. Citywide casino revenues for the first quarter of 2001, as reported, were also slightly lower than the first quarter of 2000. During the first three months of 2001, New Claridge's table games drop (the amount of gaming chips purchased by patrons) increased 3.1% over the same period of 2000. In addition, the "hold" percentage (the percentage of win to drop) increased to 13.8% in the first quarter of 2001, from 13.5% in the first quarter of 2000. As a result, New Claridge's revenue from table games during the first three months of 2001 was $9,678,000, an increase of 4.9% over the same period of 2000. Citywide, table games drop and revenue for the first three months of 2001, as reported, declined 4.3% and 5.2%, respectively, from results reported for the first three months of 2000. New Claridge's slot machine revenue for the first quarter of 2001 was $28,864,000, reflecting a decline of 2.3% from slot machine revenue of $29,530,000 for the first quarter of 2000. Citywide slot machine revenues for the first quarter of 2001, as reported, increased 1.8% over the same period of 2000. The average number of slot machines available citywide during the first three months of 2001, as reported, increased 3.0% over the average number available during the same period of 2000, while the average number of slot machines available at the Claridge increased .6% over the first quarter of 2000. New Claridge's marketing programs, which are similar in nature to other Atlantic City casinos, include offering promotional incentives, primarily in the form of coin, to customers who arrive by bus at the Claridge. During the first quarter of 2001, approximately 168,000 patrons arrived at the Claridge by bus, and were issued a total of $2,968,000 of coin incentives, for an average incentive per patron of $18. This compares to the first quarter of 2000, when approximately 160,000 patrons arrived by bus at the Claridge, and were issued a total of $2,980,000 of coin incentives, for an average of $19 per patron. In addition to the bus programs, all Atlantic City casinos, including New Claridge, offer promotional incentives to their customers through direct marketing programs, based on their level of gaming activity. New Claridge issued approximately $2,057,000 of coin incentives through its direct marketing programs during the first quarter of 2001, comparable to the $2,050,000 of coin incentives issued through these programs during the same period of 2000. Hotel revenues for the first three months of 2001 totaled $2,179,000, reflecting a 1.2% increase over the first quarter of 2000. Hotel occupancy during the first quarter of 2001 was 85.0%, compared to 82.8% during the first quarter of 2000, while the average room rate of $56 in 2001 was in line with 2000. Food and beverage revenues for the first quarter of 2001 of $4,395,000 were 3.6% lower than the same period of 2000, primarily due to lower revenue from complimentary beverages served on the casino floor. The total number of covers (meals served) was approximately 205,000, at an average price per cover of $14.07 during the first quarter of 2001, compared to approximately 211,000 covers, at an average price per cover of $13.75, during the first quarter of 2000. Total costs and expenses for the first quarter of 2001 were $44,500,000, reflecting an increase of 2.1% over the first quarter of 2000. Casino operating expenses increased approximately 3.5%, primarily due to increased table games payroll costs as a result of the increased business volume, as well as increased marketing costs for promotional giveaways. Hotel expenses increased primarily due to the increase in hotel occupancy. General and administrative expenses increased primarily due to increased advertising expenditures and higher energy costs. Reorganization items include professional fees incurred as a result of the Corporation's filing for 12 reorganization under Chapter 11 of $1,032,000 and $1,074,000 for the first quarters of 2001 and 2000, respectively, offset by interest earned from the investment of accumulated cash resulting from the Chapter 11 filing of $108,000 and $143,000 for the first quarters of 2001 and 2000, respectively. Liquidity and Capital Resources Financial Condition On January 31, 1994, the Corporation completed an offering of $85 million of First Mortgage Notes (the "Notes"), due 2002, bearing interest at 11 3/4%. The Notes are secured by (i) a non-recourse mortgage granted by the Partnership representing a first lien on the Hotel Assets; (ii) a pledge granted by the Corporation of all outstanding shares of capital stock of New Claridge; and (iii) a guarantee by New Claridge. New Claridge's guarantee of the Notes is secured by a collateral assignment of the second lien Expandable Wraparound Mortgage, and by a lien on New Claridge's gaming and other assets, which lien would be subordinated to liens that might be placed on those gaming and other assets to secure any future revolving credit line arrangement. On January 28, 1997, New Claridge entered into an agreement to subject the new self-parking garage to the lien of the mortgage; such lien will not be subordinated to any liens which may be placed on New Claridge's gaming and other assets to secure any future revolving credit line arrangement. Interest on the Notes is payable semiannually on February 1 and August 1 of each year. The net proceeds of the Notes, totaling $82.2 million, were used as follows (i) to repay the then outstanding debt of the Corporation under the Revolving Credit and Term Loan Agreement of approximately $35 million, including the outstanding balance of the Corporation's revolving credit line, which was secured by a first mortgage; (ii) to expand the casino capacity of the Claridge by 12,000 square feet in 1994, including the addition of approximately 500 slot machines and the relocation of two restaurants and their related kitchens, at a cost of approximately $12.7 million; (iii) to purchase property in 1995 and construct on that property a self-parking garage, which opened in 1996, at a cost (excluding capitalized interest of approximately $2.2 million) of approximately $28 million (of which approximately $7.5 million represents the cost of acquiring the land and approximately $20.5 million represents the costs attributable to building the garage facility); and (iv) to acquire the Contingent Payment Option (see Note 7, "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, which has affected the Corporation's ability to meet its obligation to pay interest on the Notes. 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 permitted the Corporation to conserve its cash pending a restructuring of its financial obligations in the Chapter 11 proceeding. As of March 31, 2001, the Corporation had approximately $18.2 million of cash and cash equivalents. General and administrative expenses, primarily for professional fees, have increased as a result of the bankruptcy proceeding. Through March 31, 2001, such expenses have totaled approximately $6.8 million, of which approximately $3.8 million has been paid as of March 31, 2001. 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 13 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 intended 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 intended to seek to simplify the ownership structure of the Claridge as between the Corporation, New Claridge and the Partnership. On January 27, 2000, the Corporation, New Claridge, and the Partnership filed a joint plan of reorganization and disclosure statement with the Bankruptcy Court, which provided for the above discussed financial restructuring. 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 adequacy of the amended plan was approved by the Bankruptcy Court on May 9, 2000, which allowed for 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 had intended 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, 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. The two primary offers which were considered by the Corporation's Board of Directors (the "Board") were submitted by Park Place Entertainment Corporation ("PPE")(owner and operator of Bally's Park Place, Incorporated, the Atlantic City Hilton Casino Resort, and Caesars Atlantic City casinos in Atlantic City) and GB Holdings, Incorporated ("GBHI") (owner and operator of the Sands Hotel and Casino in Atlantic City). After evaluation by the Board and its financial and legal advisors, the Corporation informed the Bankruptcy Court judge that it intended to pursue the bid submitted by PPE. The GBHI offer expired by its own terms on October 13, 2000. On November 28, 2000, the Corporation filed a second amended joint plan of reorganization and a second amended disclosure statement, which included an executed copy of the purchase and sale agreement between New Claridge, the Partnership, and PPE. The second amended joint plan of reorganization provided for a sale of substantially all of the assets of New Claridge and the Partnership to PPE. Certain amendments were subsequently made to this plan, and on March 27, 2001, the fourth amended joint plan of reorganization and fourth amended disclosure statement (the "Plan") were approved by the Bankruptcy Court to be submitted to the creditors for a vote. Pursuant to the terms of the Plan, the secured noteholders would receive approximately an 83% recovery on their claims of $90.5 million, and the unsecured creditors would receive approximately 61.5% of their claims. On May 11, 2001, the Corporation announced the results of the voting of its creditors regarding the Plan. The holders of the Notes voted to accept the Plan. The result of the vote from the unsecured creditors has not been 14 finalized; however, the Corporation believes that the unsecured creditors also voted to accept the Plan. The Corporation intends to move forward to have the Plan confirmed. The confirmation hearing is scheduled for May 16, 2001. 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 March 31, 2001, the Corporation had working capital of $8,332,000 as compared to working capital of $10,757,000 at December 31, 2000. The decrease in working capital is principally attributable to an increase in accrued payroll and related benefits of $528,000, combined with decreases in cash and cash equivalents of $1,239,000 and accounts receivable of $965,000, partially offset by a decrease in accounts payable of $299,000. At March 31, 2000, the Corporation had working capital of $9,883,000. For the three months ended March 31, 2001, cash used in operating activities was $1,181,000, compared to cash provided by operating activities of $1,682,000 for the same period of 2000. The variance from the first quarter of 2000 was due primarily to a higher net loss, combined with an increase in the payment of professional fees relating to the Chapter 11 proceeding ($876,000 paid during the first quarter of 2001, compared to no payments during the first quarter of 2000), and a decrease in accounts payable of $299,000 during the three months ended March 31, 2001, compared to an increase of $835,000 during the same period of 2000. Cash used in investing activities for the three months ended March 31, 2001 was $57,000, compared to $317,000 for the three months ended March 31, 2000. Cash used in financing activities in 2001 and 2000 of $1,000 and $47,000, respectively, represents payments of capital lease obligations for certain gaming equipment. For the three months ended March 31, 2001, the Corporation's "Adjusted EBITDA" was ($1,075,000), compared to $417,000 for the same period of 2000. "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 15 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, 1999 and 2000 was $24 million for the Operating Lease and $2.5 million for the Expansion Operating Lease. New Claridge is also required to pay, as additional rent, certain amounts including certain taxes, insurance, and other charges related to the occupancy of the land and Hotel Assets, certain expenses and debt service related to furniture, fixture and equipment replacements and building improvements, and the general and administrative costs of the Partnership. The terms of the Operating Lease and Expansion Operating Lease have been amended from time to time. The most recent amendment (the "Sixth Amendment"), which was effective September 30, 1998, allowed for the deferral of $1.1 million of rent in either February 1999 or March 1999, dependent upon certain conditions being met. These conditions, which must have occurred prior to March 2, 1999, included (i) New Claridge having received the proceeds in connection with its settlement of the parking garage arbitration; and (ii) the Corporation or New Claridge having paid the interest that was due on the Notes on February 1, 1999. New Claridge received the proceeds from the settlement of the parking garage litigation in February 1999, and paid the interest due on the Notes on March 2, 1999, within the 30-day grace period allowed in accordance with the terms of the Indenture. The $1.1 million of basic rent deferred in 1999 is to be paid to the Partnership in monthly installments of $25,000 commencing January 1, 2000 until paid in full (subject to acceleration under certain circumstances). This amendment also provides for additional abatements of rent, through December 31, 2004, as necessary to reduce the Partnership's cash flow to an amount necessary only to meet the Partnership's cash requirements; these abatements, however, are to be reduced by specified amounts for each period commencing January 1, 2000 and ending December 31, 2004 ($83,333 per month in 2000, $130,000 per month in 2001, $180,000 per month in 2002 and 2003, and $130,000 per month in 2004). In addition to the deferral and abatements of rent provided for in the Sixth Amendment, the amendment provides for the payment of $3.5 million of additional basic rent on the earlier of (i) the maturity date of the Expandable Wraparound Mortgage Note; (ii) such earlier date, if any, as the entire principal amount of the Expandable Wraparound Mortgage becomes due and payable; or (iii) the date on which any merger, consolidation, or similar transaction to which the Corporation or New Claridge is a party, or any sale of all or substantially all of the assets of the Corporation or New Claridge is consummated, or any change in control of the Corporation or New Claridge occurs. If the Partnership should fail to make any payment due under the Expandable Wraparound Mortgage, New Claridge may exercise a right of offset against rent or other payments due under the Operating Lease and Expansion Operating Lease to the extent of any such deficiency. As a result of the Corporation and New Claridge's Chapter 11 filing on August 16, 1999, under the terms of the indenture governing the Notes (the "Indenture"), an "Event of Default" has occurred (as defined in the Indenture). As a result of this Event of Default, the Corporation and New Claridge are precluded from receiving any further payments of principal or interest on the Expandable Wraparound Mortgage. As a result, the Corporation and New Claridge have exercised this right of offset against rental payments 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 16 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 amend the March 1997 restructuring agreement to provide for an extension of the maturity date of the Expandable Wraparound Mortgage to January 1, 2005. In addition, the Expandable Wraparound Mortgage Agreement and Note were amended to defer the principal payments which were payable during the fourth quarter of 1998 (totaling $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. 17 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: May 14, 2001 18 Item 601(c) of Regulation S-K Commercial and Industrial Companies Article 5 of Regulation S-X THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CLARIDGE HOTEL AND CASINO CORPORATION'S FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2001 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. CIK 0000730409 Name Claridge Hotel and Casino Corporation Multiplier 1 Currency US Period Type Quarter Fiscal Year End December 31, 2001 Period start January 01, 2001 Period end March 31, 2001 Exchange rate 1 Cash and cash items 18,227,000 Marketable securities 0 Notes and accounts receivable-trade 8,156,000 Allowances for doubtful accounts 944,000 Inventory 247,000 Total current assets 29,504,000 Property, plant and equipment 44,423,000 Accumulated depreciation 13,551,000 Total assets 104,906,000 Total current liabilities 21,172,000 Bonds, mortgages and similar debt 0 Preferred stock - mandatory redemption 0 Preferred stock - no mandatory redemption 0 Common stock 5,000 Other stockholders' equity (65,407,000) Total liabilities and stockholders' equity 104,906,000 Net sales of tangible products 0 Total revenues 43,032,000 Cost of tangible goods sold 0 Total costs and expenses applicable to sale and revenues 27,434,000 Other costs and expenses 18,037,000 Provision for doubtful accounts and notes 61,000 Interest and amortization of debt discount 0 Income before taxes and other items (2,500,000) Income tax expense 0 Income/loss from continuing operations (2,500,000) Discontinued operations 0 Extraordinary items 0 Cumulative effect-change in accounting principles 0 Net income or loss (2,500,000) Earnings per share - basic (.49) Earnings per share - diluted (.49)

CLARIDGE HOTEL & CASINO CORP 10-Q