FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2002
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------- -----------------------
Commission file number
--------
COLONY RIH HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-4849060
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
---------------------------------------
RESORTS INTERNATIONAL HOTEL AND CASINO, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-4828297
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
---------------------------------------
1133 Boardwalk
Atlantic City, NJ 08401
(Address of principal executive offices) (Zip Code)
Registrants' telephone number, including area code:
(609) 344-6000
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 Colony RIH Holdings, Inc.'s Class A Common
Stock, $0.01 par value was 38,295 and the number of shares outstanding of Colony
RIH Holdings, Inc.'s Class B Common Stock, $0.01 par value was 774,982, each as
of May 13, 2002.
The number of shares outstanding of Resorts International Hotel and Casino,
Inc.'s Common Stock, $0.01 par value was 100 as of May 13, 2002.
COLONY RIH HOLDINGS, INC.
AND
RESORTS INTERNATIONAL HOTEL AND CASINO, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Unaudited Financial Statements
Condensed Consolidated Balance Sheets of Colony RIH Holdings, Inc. at March 2
31, 2002 and December 31, 2001
Condensed Consolidated Statements of Operations of Colony RIH Holdings, Inc. 3
for the three months ended March 31, 2002 and 2001
Condensed Consolidated Statements of Cash Flows of Colony RIH Holdings, Inc. 4
for the three months ended March 31, 2002 and 2001
Notes to Condensed Consolidated Financial Statements of Colony RIH Holdings, 5
Inc.
Condensed Consolidated Balance Sheets of Resorts International Hotel and 8
Casino, Inc. at March 31, 2002 and December 31, 2001
Condensed Consolidated Statements of Operations of Resorts International 9
Hotel and Casino, Inc. for the three months ended March 31, 2002 and 2001
Condensed Consolidated Statements of Cash Flows of Resorts International 10
Hotel and Casino, Inc. for the three months ended March 31, 2002 and 2001
Notes to Condensed Consolidated Financial Statements of Resorts 11
International Hotel and Casino, Inc.
Item 2. Management's Discussion and Analysis of Financial Condition and Results 14
of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COLONY RIH HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
March 31, December 31,
2002 2001
------------- -------------
ASSETS (Unaudited)
------
Current assets
Cash and cash equivalents $ 28,757 $ 15,363
Receivables, net 7,369 8,273
Inventories 1,355 1,536
Prepaid expenses 2,224 2,818
Deferred income taxes 2,524 2,524
------------- -------------
Total current assets 42,229 30,514
Property and equipment, net 126,078 126,139
Other assets (including $99,400 and $0 of restricted cash
and cash equivalents in 2002 and 2001) 126,427 22,491
------------- -------------
Total assets $ 294,734 $ 179,144
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities
Current maturities of long-term debt $ 832 $ 10,229
Accounts payable 6,478 5,746
Accrued interest payable 575 1,277
Accrued expenses and other current liabilities 23,048 21,274
------------- -------------
Total current liabilities 30,933 38,526
------------- -------------
Long-term debt 176,820 88,502
Deferred income taxes 1,349 1,349
Redeemable common stock 2,338 2,338
------------- -------------
Total liabilities 211,440 130,715
Shareholders' equity
Common stock:
Class A - $0.01 par value, 38,295 and 21,000 shares issued and
outstanding at March 31, 2002 and December 31, 2001,
respectively - -
Class B - $0.01 par value, 774,982 and 424,990 shares issued
and outstanding at March 31, 2002 and December 31, 2001,
respectively 8 4
Capital in excess of par 75,780 40,750
Retained earnings 7,506 7,524
Accumulated other comprehensive income - 151
------------- -------------
Total shareholders' equity 83,294 48,429
------------- -------------
Total liabilities and shareholders' equity $ 294,734 $ 179,144
============= =============
The accompanying notes are an integral part of these financial statements.
-2-
COLONY RIH HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
For the three months ended March 31, 2002 and 2001
(Dollars in thousands)
Three months ended
March 31,
---------------------------------------------
2002 2001
------------------ -----------------
Successor Predecessor
Revenues
Casino $ 58,084 $ 52,054
Lodging 3,174 3,083
Food and beverage 5,766 5,386
Other 1,289 1,106
Less: promotional allowances (6,538) (5,826)
---------------- ------------------
Total net revenue 61,775 55,803
Costs and expenses
Casino 35,330 33,104
Lodging 427 656
Food and beverage 2,829 2,791
Other operating 6,167 6,612
Selling, general and administrative 9,601 8,078
Depreciation and amortization 1,527 4,376
---------------- ------------------
Total costs and expenses 55,881 55,617
---------------- ------------------
Income from operations 5,894 186
Interest income 230 392
Interest expense (2,461) (6,088)
Other expense (33) -
----------------- ------------------
Income (loss) before income taxes
and extraordinary item 3,630 (5,510)
Provision for income taxes (1,452) -
---------------- ------------------
Income (loss) before extraordinary item 2,178 (5,510)
Extraordinary loss on extinguishment of debt,
net of income tax benefit of $1,182 (2,196) -
----------------- ------------------
Net loss $ (18) $ (5,510)
================= ==================
The accompanying notes are an integral part of these financial statements.
-3-
COLONY RIH HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the three months ended March 31, 2002 and 2001
(Dollars in thousands)
Three months ended
March 31,
----------------------
2002 2001
--------- ---------
Successor Predecessor
CASH FLOWS FROM OPERATING ACTIVITIES:
Reconciliation of net loss to net cash provided by
operating activities-
Net loss $ (18) $ (5,510)
Adjustments to reconcile net loss to net cash
provided by operating activities-
Extraordinary loss on extinguishment of debt 2,196 -
Depreciation and amortization 2,012 4,146
Amortization of debt premiums, discounts
and issuance costs 183 159
Provision for doubtful receivables 377 446
Provision for discount on CRDA obligations,
net of amortization (482) 226
Stock option costs 34 -
Net decrease in receivables 527 242
Net decrease in inventories and prepaid expenses 624 78
Net (increase) decrease in deferred charges and other assets (293) 85
Net increase in accounts payable and accrued expenses 3,598 1,758
Net increase (decrease) in interest payable (702) 7,568
--------- ---------
Net cash provided by operating activities 8,056 9,198
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of cash and cash equivalents - restricted (99,400) -
Purchases of property and equipment (1,665) (932)
CRDA deposits (714) (667)
CRDA refunds 1,492 -
--------- ---------
Net cash used in investing activities (100,287) (1,599)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 180,835 -
Payments to secure borrowings (7,293) -
Proceeds from the issuance of common stock 35,000 -
Prepayment penalty on long-term debt (1,094) -
Debt repayments (101,925) (235)
Other 102 -
--------- ---------
Net cash provided by (used in) financing activities 105,625 (235)
--------- ---------
Net increase in cash and cash equivalents 13,394 7,364
Cash and cash equivalents at beginning of period 15,363 21,453
--------- ---------
Cash and cash equivalents at end of period $ 28,757 $ 28,817
========= =========
The accompanying notes are an integral part of these financial statements.
-4-
COLONY RIH HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation - Colony RIH Holding, Inc., a
Delaware corporation ("CRH", the "Company," or the "Successor"), owns 100% of
the outstanding common stock of Resorts International Hotel and Casino, Inc.
("RIHC"), a Delaware corporation ("CRA"). RIHC, through its wholly owned
subsidiary Resorts International Hotel, Inc., a New Jersey corporation ("RIH",
or the "Predecessor"), owns and operates Resorts Atlantic City, a casino/hotel
located in Atlantic City, NJ.
CRH was formed at the direction of Colony Investors IV, L.P. ("Colony
IV"), a Delaware limited partnership, under the laws of the State of Delaware on
March 7, 2001. RIHC was formed at the direction of Colony IV on October 24,
2000.
RIHC, Sun International North America, Inc., a Delaware corporation
("SINA"), and GGRI, Inc., a Delaware corporation ("GGRI"), entered into a
purchase agreement, dated as of October 30, 2000, as amended (the "Purchase
Agreement"). Pursuant to the Purchase Agreement, RIHC acquired all of the
capital stock of RIH, the Warehouse Assets (as defined in the Purchase
Agreement) and all of the capital stock of New Pier Operating Company, Inc., a
New Jersey corporation (collectively, the "Acquisition") on April 25, 2001 for
approximately $144.8 million.
The Acquisition has been accounted for using the purchase method, and
accordingly, the aggregate purchase price, including transaction fees and
expenses, has been allocated based on the preliminary estimated fair value of
the assets acquired and liabilities assumed. As a result, the condensed
consolidated financial statements for the period subsequent to the Acquisition
are presented on a different basis of accounting than those for the periods
prior to the Acquisition and, therefore, are not directly comparable.
On March 22, 2002, RIHC sold $180.0 million aggregate principal amount
of 11 1/2% First Mortgage Notes (the "First Mortgage Notes") at a price of
97.686% yielding $175.8 million. Concurrent with the sale of the notes, CRH
issued 17,295 shares of class A common stock at a cash price of $0.0475 and
349,992 shares of class B common stock at a price of $100 to our existing
shareholders for a total price of approximately $35.0 million. The proceeds from
the sale of the First Mortgage Notes and issuance of stock were used to retire
existing debt and will be used to finance the cost to develop, construct, and
equip a new hotel tower. Additionally, $10.0 million of the proceeds from the
issuance of stock has been deposited in a liquidity disbursement account to be
used for working capital in the event RIHC's Adjusted Consolidated EBITDA for
any four fiscal quarters ending on or prior to December 31, 2004 is less than
$28.0 million. Of the proceeds, $99.4 million is considered restricted cash
under the terms of the debt offering and is included in other assets on the
Condensed Consolidated Balance Sheet as of March 31, 2002.
-5-
The condensed consolidated financial statements include the accounts of
CRH and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. The Predecessor's financial statements
include the accounts of RIH.
In June 2001, Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" ("SFAS No. 142") was issued. This
Statement addresses how goodwill and other intangible assets should be accounted
for after they have been initially recognized in the financial statements. The
Company adopted SFAS No. 142 on January 1, 2002. Adjusting the statement of
operations for the quarter ending March 31, 2001, to reflect the adoption of
SFAS No. 142 by excluding amortization of goodwill totaling $660,000 would have
resulted in a net loss of $4.9 million for the quarter ended March 31, 2001.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for fair
presentation have been included. The casino industry in Atlantic City is
seasonal in nature; accordingly, operating results for the three-month period
ended March 31, 2002 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2002.
The balance sheet at December 31, 2001 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
For further information refer to the consolidated financial statements
and footnotes thereto included in CRH's annual report on Form 10-K for the year
ended December 31, 2001.
2. EFFECTS OF ACQUISITION FINANCING
CRH financed the Acquisition and paid related fees and expenses with:
(i) proceeds of $42.5 million from the issuance of common stock, (ii) a $17.5
million note issued by CRH to SINA (the "Seller Note"), (iii) borrowings by
RIHC, guaranteed by CRH under a $90 million credit agreement (the "Credit
Facility") and (iv) RIH's available cash.
Prior to the Acquisition, CRH conducted no business other than in
connection with the Purchase Agreement and the Credit Facility.
In connection with the Acquisition for approximately $144.8 million,
CRH acquired assets with a fair value of $173.9 million and assumed liabilities
of $29.1 million.
-6-
The pro forma unaudited results of operations for the three months
ended March 31, 2001, assuming consummation of the Acquisition and issuance of
the Company's Common Stock, Seller Note, and Credit Facility as of January 1,
2001 are as follows:
Revenue $ 55,803
Net income 250
3. LONG TERM DEBT
On March 22, 2002, RIHC sold $180.0 million aggregate principal amount
of 11 1/2% First Mortgage Notes at a price of 97.686% yielding $175.8 million.
Interest on the First Mortgage Notes is payable on March 15 and September 15 of
each year and the First Mortgage Notes are due in full on March 15, 2009.
The First Mortgage Notes contain certain covenants that, among other
things, will limit our ability and the ability of our subsidiaries to pay
dividends on, redeem or repurchase our or their capital stock, make investments,
incur additional indebtedness, permit payment of or restrict dividends by
certain of our subsidiaries, enter into sale leaseback transactions, sell
assets, guarantee indebtedness, create certain liens, engage in transactions
with affiliates, and consolidate, merge or transfer all or substantially all our
assets and the assets of our subsidiaries on a consolidated basis.
In conjunction with the Acquisition, RIHC borrowed $82.0 million under
an Amended and Restated Credit Agreement, dated April 25, 2001, from the lenders
named therein (the "Credit Facility"). The Credit Facility was comprised of
$80.0 million in term loans (Term Loan A for $25.0 million and Term Loan B for
$55.0 million) and a $10.0 million revolving credit facility. Principal payments
on the term loans were being paid quarterly, commencing on June 29, 2001.
Interest on borrowings outstanding was either at LIBOR or an alternative base
rate, plus an applicable margin in each case. The outstanding balance on the
Credit Facility was repaid with the proceeds from the sale of the First Mortgage
Notes. Additionally, the Company terminated its existing interest rate collar
agreements and received $102,000 in cash upon termination of these agreements.
In conjunction with the Acquisition, CRH also issued a $17.5 million
note to SINA (the "Seller Note"). The Seller Note was subordinated to the term
loans under the Credit Facility and had a 7-year term. This loan had interest at
12.5% per annum of which 6.25% was payable in cash and 6.25% was paid in kind.
There was no amortization of principal on this loan. The Seller Note was repaid
with the proceeds from the sale of the First Mortgage Notes.
In connection with the repayment of the Credit Facility and the Seller
Note, the Company recorded an extraordinary loss, net of tax, of $2.2 million
related to pre-payment penalties and the write-off of deferred financing costs
associated with the Credit Facility.
4. REDEEMABLE COMMON STOCK
The value of stock and stock options owned by a shareholder has been
classified separately from shareholders' equity as "Redeemable Common Stock" in
the balance sheet to reflect the rights to require CRH to repurchase shares
under certain circumstances.
-7-
RESORTS INTERNATIONAL HOTEL AND CASINO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
March 31, December 31,
2002 2001
------------- -------------
ASSETS (Unaudited)
------
Current assets
Cash and cash equivalents $ 28,757 $ 15,363
Receivables, net 7,369 8,273
Inventories 1,355 1,536
Prepaid expenses 2,224 2,818
Deferred income taxes 2,524 2,524
------------- -------------
Total current assets 42,229 30,514
Property and equipment, net 126,078 126,139
Other assets (including $99,400 and $0 of restricted cash
and cash equivalents in 2002 and 2001) 126,427 22,491
------------- -------------
Total assets $ 294,734 $ 179,144
============= =============
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
Current liabilities
Current maturities of long-term debt $ 832 $ 10,229
Accounts payable 6,478 5,746
Accrued interest payable 575 324
Accrued interest payable to affiliates - 953
Accrued expenses and other current liabilities 23,048 21,274
------------- -------------
Total current liabilities 30,933 38,526
------------- -------------
Notes payable to affiliates, net of unamortized discounts - 18,018
Long-term debt 176,820 70,484
Deferred income taxes 1,349 1,349
------------- -------------
Total liabilities 209,102 128,377
Shareholder's equity
Common stock ($0.01 par value, 100 shares issued and
outstanding) - -
Capital in excess of par 77,913 42,879
Retained earnings 7,719 7,737
Accumulated other comprehensive income - 151
------------- -------------
Total shareholder's equity 85,632 50,767
------------- -------------
Total liabilities and shareholder's equity $ 294,734 $ 179,144
============= =============
The accompanying notes are an integral part of these financial statements.
-8-
RESORTS INTERNATIONAL HOTEL AND CASINO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
For the three months ended March 31, 2002 and 2001
(Dollars in thousands)
Three months ended
March 31,
---------------------------------------------
2002 2001
------------------ -----------------
Successor Predecessor
Revenues
Casino $ 58,084 $ 52,054
Lodging 3,174 3,083
Food and beverage 5,766 5,386
Other 1,289 1,106
Less: promotional allowances (6,538) (5,826)
---------------- ------------------
Total net revenue 61,775 55,803
Costs and expenses
Casino 35,330 33,104
Lodging 427 656
Food and beverage 2,829 2,791
Other operating 6,167 6,612
Selling, general and administrative 9,601 8,078
Depreciation and amortization 1,527 4,376
---------------- ------------------
Total costs and expenses 55,881 55,617
---------------- ------------------
Income from operations 5,894 186
Interest income 230 392
Interest expense (2,461) (6,088)
Other expense (33) -
----------------- ------------------
Income (loss) before income taxes
and extraordinary item 3,630 (5,510)
Provision for income taxes (1,452) -
---------------- ------------------
Income (loss) before extraordinary item 2,178 (5,510)
Extraordinary loss on extinguishment of debt,
net of income tax benefit of $1,182 (2,196) -
----------------- ------------------
Net loss $ (18) $ (5,510)
================= ==================
The accompanying notes are an integral part of these financial statements.
-9-
RESORTS INTERNATIONAL HOTEL AND CASINO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the three months ended March 31, 2002 and 2001
(Dollars in thousands)
Three months ended
March 31,
-----------------------------------------
2002 2001
-------------------- -------------------
Successor Predecessor
CASH FLOWS FROM OPERATING ACTIVITIES:
Reconciliation of net loss to net cash provided by
operating activities-
Net loss $ (18) $ (5,510)
Adjustments to reconcile net loss to net cash
provided by operating activities-
Extraordinary loss on extinguishment of debt 2,196 -
Depreciation and amortization 2,012 4,146
Amortization of debt premiums, discounts
and issuance costs 183 159
Provision for doubtful receivables 377 446
Provision for discount on CRDA obligations,
net of amortization (482) 226
Stock option costs 34 -
Net decrease in receivables 527 242
Net decrease in inventories and prepaid expenses 624 78
Net (increase) decrease in deferred charges and
other assets (293) 85
Net increase in accounts payable and accrued
expenses 3,598 1,758
Net increase (decrease) in interest payable (702) 7,568
-------------------- -------------------
Net cash provided by operating activities 8,056 9,198
-------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of cash and cash equivalents - restricted (99,400) -
Purchases of property and equipment (1,665) (932)
CRDA deposits (714) (667)
CRDA refunds 1,492
-------------------- -------------------
Net cash used in investing activities (100,287) (1,599)
-------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 180,835 -
Payments to secure borrowings (7,293) -
Proceeds from the issuance of common stock 35,000 -
Advances from (repayments to) affiliates (18,018) -
Prepayment penalty on long-term debt (1,094) -
Debt repayments (83,907) (235)
Other 102 -
-------------------- -------------------
Net cash provided by (used in) financing
activities 105,625 (235)
-------------------- -------------------
Net increase in cash and cash equivalents 13,394 7,364
Cash and cash equivalents at beginning of period 15,363 21,453
-------------------- -------------------
Cash and cash equivalents at end of period $ 28,757 $ 28,817
==================== ===================
The accompanying notes are an integral part of these financial statements.
-10-
RESORTS INTERNATIONAL HOTEL AND CASINO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation - Colony RIH Holding, Inc., a
Delaware corporation ("CRH"), owns 100% of the outstanding common stock of
Resorts International Hotel and Casino, Inc. ("RIHC"), a Delaware corporation
("CRA", the "Company," or the "Successor"). RIHC, through its wholly owned
subsidiary Resorts International Hotel, Inc., a New Jersey corporation ("RIH",
or the "Predecessor"), owns and operates Resorts Atlantic City, a casino/hotel
located in Atlantic City, NJ.
CRH was formed at the direction of Colony Investors IV, L.P. ("Colony
IV"), a Delaware limited partnership, under the laws of the State of Delaware on
March 7, 2001. RIHC was formed at the direction of Colony IV on October 24,
2000.
RIHC, Sun International North America, Inc., a Delaware corporation
("SINA"), and GGRI, Inc., a Delaware corporation ("GGRI"), entered into a
purchase agreement, dated as of October 30, 2000, as amended (the "Purchase
Agreement"). Pursuant to the Purchase Agreement, RIHC acquired all of the
capital stock of RIH, the Warehouse Assets (as defined in the Purchase
Agreement) and all of the capital stock of New Pier Operating Company, Inc., a
New Jersey corporation (collectively, the "Acquisition") on April 25, 2001 for
approximately $144.8 million.
The Acquisition has been accounted for using the purchase method, and
accordingly, the aggregate purchase price, including transaction fees and
expenses, has been allocated based on the preliminary estimated fair value of
the assets acquired and liabilities assumed. As a result, the condensed
consolidated financial statements for the period subsequent to the Acquisition
are presented on a different basis of accounting than those for the periods
prior to the Acquisition and, therefore, are not directly comparable.
On March 22, 2002, RIHC sold $180.0 million aggregate principal amount
of 11 1/2% First Mortgage Notes (the "First Mortgage Notes") at a price of
97.686% yielding $175.8 million. Concurrent with the sale of the notes, CRH
issued 17,295 shares of class A common stock at a cash price of $0.0475 and
349,992 shares of class B common stock at a price of $100 to our existing
shareholders for a total price of approximately $35.0 million. The proceeds from
the sale of the First Mortgage Notes and issuance of stock were used to retire
existing debt and will be used to finance the cost to develop, construct, and
equip a new hotel tower. Additionally, $10.0 million of the proceeds from the
issuance of stock has been deposited in a liquidity disbursement account to be
used for working capital in the event RIHC's Adjusted Consolidated EBITDA for
any four fiscal quarters ending on or prior to December 31, 2004 is less than
$28.0 million. Of the proceeds, $99.4 million is considered restricted cash
under the terms of the debt offering and is included in other assets on the
Condensed Consolidated Balance Sheet as of March 31, 2002.
-11-
The condensed consolidated financial statements include the accounts of
RIHC and its wholly owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated. The Predecessor's financial statements
include the accounts of RIH.
In June 2001, Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" ("SFAS No. 142") was issued. This
Statement addresses how goodwill and other intangible assets should be accounted
for after they have been initially recognized in the financial statements. The
Company adopted SFAS No. 142 on January 1, 2002. Adjusting the statement of
operations for the quarter ending March 31, 2001, to reflect the adoption of
SFAS No. 142 by excluding amortization of goodwill totaling $660,000 would have
resulted in a net loss of $4.9 million for the quarter ended March 31, 2001.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for fair
presentation have been included. The casino industry in Atlantic City is
seasonal in nature; accordingly, operating results for the three-month period
ended March 31, 2002 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2002.
The balance sheet at December 31, 2001 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
For further information refer to the consolidated financial statements
and footnotes thereto included in CRH's annual report on Form 10-K for the year
ended December 31, 2001.
2. EFFECTS OF ACQUISITION FINANCING
CRH financed the Acquisition and paid related fees and expenses with;
(i) proceeds of $42.5 million from the issuance of common stock, (ii) a $17.5
million note issued by CRH to SINA (the "Seller Note"), (iii) borrowings by
RIHC, guaranteed by CRH under a $90 million credit agreement (the "Credit
Facility") and (iv) RIH's available cash.
Prior to the Acquisition, RIHC conducted no business other than in
connection with the Purchase Agreement and the Credit Facility.
In connection with the Acquisition for $144.8 million, RIHC acquired
assets with a fair value of $173.9 million and assumed liabilities of $29.1
million.
The pro forma unaudited results of operations for the three months
ended March 31, 2001, assuming consummation of the Acquisition and issuance of
the Company's Common Stock, Seller Note, and Credit Facility as of January 1,
2001 are as follows:
Revenue $ 55,803
Net income 250
-12-
3. LONG TERM DEBT
On March 22, 2002, RIHC sold $180.0 million aggregate principal amount
of 11 1/2% First Mortgage Notes at a price of 97.686% yielding $175.8 million.
Interest on the First Mortgage Notes is payable on March 15 and September 15 of
each year and the First Mortgage Notes are due in full on March 15, 2009.
The First Mortgage Notes contain certain covenants that, among other
things, will limit our ability and the ability of our subsidiaries to pay
dividends on, redeem or repurchase our or their capital stock, make investments,
incur additional indebtedness, permit payment of or restrict dividends by
certain of our subsidiaries, enter into sale leaseback transactions, sell
assets, guarantee indebtedness, create certain liens, engage in transactions
with affiliates, and consolidate, merge or transfer all or substantially all our
assets and the assets of our subsidiaries on a consolidated basis.
In conjunction with the Acquisition, RIHC borrowed $82.0 million under
an Amended and Restated Credit Agreement, dated April 25, 2001, from the lenders
named therein (the "Credit Facility"). The Credit Facility was comprised of
$80.0 million in term loans (Term Loan A for $25.0 million and Term Loan B for
$55.0 million) and a $10.0 million revolving credit facility. Principal payments
on the term loans were being paid quarterly, commencing on June 29, 2001.
Interest on borrowings outstanding was either at LIBOR or an alternative base
rate, plus an applicable margin in each case. The outstanding balance on the
Credit Facility was repaid with the proceeds from the sale of the First Mortgage
Notes. Additionally, the Company terminated its existing interest rate collar
agreements and received $102,000 in cash upon termination of these agreements.
In conjunction with the Acquisition, CRH also issued a $17.5 million
note to SINA (the "Seller Note"). The Seller Note was subordinated to the term
loans under the Credit Facility and had a 7-year term. This loan had interest at
12.5% per annum of which 6.25% was payable in cash and 6.25% was paid in kind.
There was no amortization of principal on this loan. The Seller Note was repaid
with the proceeds from the sale of the First Mortgage Notes.
In connection with the repayment of the Credit Facility and the Seller
Note, the Company recorded an extraordinary loss, net of tax, of $2.2 million
related to pre-payment penalties and the write-off of deferred financing costs
associated with the Credit Facility.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Prior to the completion of the Acquisition on April 25, 2001, neither
CRH nor RIHC had conducted business other than in connection with the Purchase
Agreement and the new Credit Facility. On April 25, 2001, RIHC, a wholly-owned
subsidiary of CRH, acquired all of the outstanding capital stock of RIH, all of
the outstanding capital stock of New Pier and certain related assets. RIH owns
and operates Resorts Atlantic City.
The financial information contained in "Results of Operations" and
"Liquidity and Capital Resources" provides a comparison of the combination of
CRH, RIHC and RIH (collectively, the "Companies") in the current year to that of
RIH in the prior year.
Results of Operations - Comparison of Three Months Ended March 31, 2002
and 2001
Revenues
Gaming revenues were $58.1 million for the three months ended March 31,
2002, an increase of $6.0 million (11.5%) from gaming revenues for the
comparable 2001 period of $52.1 million.
Slot revenues were $39.4 million for the three months ended March 31,
2002, an increase of $3.8 million (10.7%) from the comparable 2001 period of
$35.6 million. This was due to an increase in slot handle, or dollar amounts
wagered, of $114.4 million (24.1%) to $589.9 million, partially offset by a
decrease in the net slot hold percentage to 6.7% for the three months ended
March 31, 2002 from 7.5% for the comparable 2001 period.
Table game revenues were $17.9 million for the three months ended March
31, 2002, an increase of $2.1 million (13.3%) from table game revenues for the
comparable 2001 period of $15.8 million. The increase is attributable to a
higher net table game hold percentage of 17.0% for the three months ended March
31, 2002 as compared to 15.2% for the comparable 2001 period.
Simulcast revenues were $0.8 million for the three months ended March
31, 2002, an increase of $0.1 million (14.3%) from simulcast revenues of $0.7
million for the comparable 2001 period.
Lodging revenues were $3.2 million for the three months ended March 31,
2002, an increase of $0.1 million (3.2%) from the comparable 2001 period of $3.1
million. Room revenues decreased due to a lower average room rate of $64.40 for
the three months ended March 31, 2002, a decrease of $2.38 (3.6%) from the
comparable 2001 period of $66.78. The decrease in average room rate is
attributable to a decline in the complimentary room rate of $2.78 (4.3%) to
$61.66 for the three months ended March 31, 2002 from $64.44 for the comparable
2001 period. For the same period, the average cash room rate increased $14.64
(19.3%) to $90.60 in 2002 from $75.96 in 2001. The occupancy rate was 88.5% for
the three months ended March 31, 2002 as compared to 84.5% for the comparable
period in 2001.
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Food and beverage revenues were $5.8 million for the three months ended
March 31, 2002 an increase of $0.4 million (7.4%) from the comparable 2001
period of $5.4 million.
Other revenues, which include revenues from entertainment and other
miscellaneous items, were $1.3 million for the three months ended March 31, 2002
from the comparable 2001 period of $1.1 million. Entertainment revenues were
$0.6 million for the three months ended March 31, 2002, an increase of $0.2
million (50.0%) from the comparable 2001 period, due to an increase in the
number of headliner acts from the comparable 2001 period.
Costs and Expenses
Gaming costs and expenses were $35.3 million for the three months ended
March 31, 2002, an increase of $2.2 million (6.6%) from the comparable 2001
period of $33.1 million. The increase is primarily due to increased promotional
and marketing expenses as RIH adjusted its marketing strategy to target more
profitable segments of the gaming market and the growth in slot revenues.
Lodging expenses were $0.4 million for the three months ended March 31,
2002, a decrease of $0.3 million (42.9%), from the comparable period of 2001 of
$0.7 million. RIH allocates the departmental costs of providing complimentary
services to casino patrons to gaming costs and expenses. In 2002, RIH's
complimentary occupancy percentage was 80.1% compared to 67.3% in 2001 resulting
in a higher allocation of costs, and, therefore, lowered lodging expenses.
Selling, general and administrative costs were $9.6 million for the
three months ended March 31, 2002, an increase of $1.5 million (18.5%) from
expenses for the comparable 2001 period of $8.1 million. The increase is due to
higher wages and related costs, rents, advertising and other miscellaneous
corporate expenses.
Depreciation and amortization expenses were $1.5 million for the three
months ended March 31, 2002, versus $4.4 million for the comparable 2001 period.
The decrease of $2.9 million (65.9%) is due to the reduction in the basis of
assets as a result of the Acquisition.
Interest expense was $2.5 million for the three months ended March 31,
2002, a decrease of $3.6 million (59.0%) from the comparable period of 2001 of
$6.1 million. The decline is attributable to the reduction in RIH's debt due to
the Acquisition. Prior to the March 22, 2002 sale of the First Mortgage Notes,
the Company's long-term debt was $88.4 million compared to $278.4 million at
March 31, 2001.
The extraordinary loss on extinguishment of debt includes a $2.4
million write-off of deferred debt issuance costs and a $1.1 million prepayment
penalty resulting from the repayment of the Credit Facility.
Liquidity and Capital Resources
CRH's principal source of liquidity is cash flow from operations. For
the three months ended March 31, 2002, cash flow from operations approximated
$8.1 million, compared to $9.2 million in the same period for the prior year.
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In November 2002, CRH will begin construction of a new, 27-story hotel
tower on the site of the existing 166 room Atlantic City Tower at a cost of
approximately $115.5 million. The expansion will add approximately 400 hotel
rooms and suites. Subject to the approval of the New Jersey Casino Control
Commission, the project will add approximately 14,000 square feet of additional
gaming space, and 570 slot machines. From the proceeds of the sale of the First
Mortgage Notes, $89.4 million has been deposited in a construction disbursement
account for use in constructing the hotel tower. Additionally, the New Jersey
Casino Reinvestment Development Authority ("CRDA") will reimburse our
construction costs in the amount of $9.8 million through 2003 and an additional
$2.7 million in the aggregate from 2004 through 2008. The CRDA will also make an
additional $1.5 million available for expenses incurred in connection with
public improvements relating to the construction of the new hotel tower. RIHC
intends to enter into a $20.0 million furniture, fixture and equipment facility
and a $10.0 million revolving credit facility. The Companies intend to use $14.8
million of the equipment note to purchase furniture, fixtures and equipment for
the new hotel tower and gaming equipment. The Companies are currently
negotiating the terms of the equipment note and revolving credit facility with
potential lenders, however there can be no assurances that the Companies will
enter into the equipment note or revolving credit facility. It is anticipated
that the pre-construction process will start as soon as July 1, 2002 and the
construction of the new hotel tower will start as soon as November 1, 2002. This
project is subject to many variables, including financing, regulatory and
governmental approvals and typical delays associated with construction. No
assurances can be given as to when this expansion project will commence or if
the project will be completed. Through March 31, 2002, CRH has expended
approximately $1.5 million on costs relating to the construction of the new
hotel tower. For the three months ended March 31, 2002, CRH has expended $1.7
million on capital improvements and replacements including the purchases of slot
machines and related equipment, computer upgrades and other facility
improvements. For the remainder of 2002, CRH expects capital project spending
(in addition to the tower) to total approximately $8.0 million, to include
renovations of the casino floor and related areas, purchases of slot machines
and associated equipment, the purchase of computer equipment and system upgrades
and various facility improvements.
At March 31, 2002, CRH's cash and cash equivalents were $28.8 million
as compared to $15.4 million at December 31, 2001. Additionally, at March 31,
2002, CRH has a restricted cash balance of $99.4 million. Of the restricted
cash, $89.4 million has been deposited in a construction disbursement account to
be disbursed for the construction of the new hotel tower, and $10.0 million has
been deposited in a liquidity disbursement account to be used for working
capital in the event RIHC's Adjusted Consolidated EBITDA for any four fiscal
quarters ending on or prior to December 31, 2004 is less than $28.0 million. A
portion of the unrestricted cash and cash equivalents is required for the
day-to-day operations of Resorts Atlantic City, which includes approximately
$10.0 million of currency and coin on-hand for casino and hotel operations. This
amount varies by days of the week, holidays, and seasons.
Management believes that its existing cash and projected operating
cash flows, will be sufficient to meet the cash requirements of its existing
operations, including capital improvements and debt service requirements, for at
least the next twelve months and the foreseeable future thereafter. Management
currently believes that cash requirements of its existing operations beyond the
next twelve months and the foreseeable future thereafter will consist of costs
relating to construction of the new hotel tower, debt service requirements and
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capital improvements and replacements in the ordinary course of business, which
management expects to be met by existing cash, cash flow from operations, the
equipment note and our new revolving credit facility.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Interest Rate Risk
The First Mortgage Notes have a fixed, 11 1/2% per annum rate. CRH's
interest rate risk is therefore deemed immaterial.
CAUTIONARY STATEMENT FOR PURPOSES OF THE `SAFE HARBOR' PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995.
This document includes various `forward-looking statements' within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Sections 21E of
the Securities Exchange Act of 1934, as amended, which represent CRH's
expectations or beliefs concerning future events. Statements containing
expressions such as `believes', `anticipates', or `expects' used in CRH's press
releases and periodic reports on Forms 10-K and 10-Q filed with the Securities
and Exchange Commission are intended to identify forward-looking statements. All
forward-looking statements involve risks and uncertainties. Although CRH
believes its expectations are based upon reasonable assumptions within the
bounds of its knowledge of its business and operations, there can be no
assurances that actual results will not materially differ from expected results.
CRH cautions that these and similar statements included in this report and in
previously filed periodic reports, including reports filed on Forms 10-K and
10-Q, are further qualified by important factors that could cause actual results
to differ materially from those in the forward-looking statements. Such factors
include, without limitation, the following: increased competition in existing
markets or the opening of new gaming jurisdictions; a decline in the public
acceptance of gaming; the limitation, conditioning or suspension of any of CRH's
gaming licenses; increases in or new taxes imposed on gaming revenues or gaming
devices; a finding of unsuitability by regulatory authorities with respect to
CRH's officers, directors or key employees; loss or retirement of key
executives; significant increases in fuel or transportation prices; adverse
economic conditions in CRH's key markets; severe and unusual weather in CRH's
key markets; adverse results of significant litigation matters. Readers are
cautioned not to place undue reliance on forward-looking statements, which speak
only as of the date thereof. CRH undertakes no obligation to publicly release
any revision to such forward-looking statements to reflect events or
circumstances after the date thereof.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COLONY RIH HOLDINGS, INC.
Dated: May 13, 2002 /s/ Joseph A. D'Amato
---------------------------------------
Joseph A. D'Amato
Vice President
(Duly Authorized Officer and Principal
Financial Officer)
RESORTS INTERNATIONAL HOTEL
AND CASINO, INC.
Dated: May 13, 2002 /s/ Joseph A. D'Amato
---------------------------------------
Joseph A. D'Amato
Vice President
(Duly Authorized Officer and Principal
Financial Officer)
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