AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 9, 2001
FILE NO. 000-32987
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1 to
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of The Securities Exchange Act of 1934
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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.)
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COLONY RIH ACQUISITIONS, 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.)
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1133 Boardwalk
Atlantic City, NJ 08401
(Address of principal executive offices) (Zip Code)
Registrants' telephone number, including area code:
(609) 344-6000
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Copies of correspondence to:
Thomas J. Barrack, Jr. Thomas M. Cerabino, Esq.
Colony Capital, LLC Willkie Farr & Gallagher
1999 Avenue of the Stars 787 Seventh Avenue
Suite 1200 New York, NY 10019
Los Angeles, CA 90067
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SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NOT APPLICABLE NOT APPLICABLE
Title of each class Name of each exchange on which
to be so registered each class is to be registered
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SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COLONY RIH HOLDINGS, INC.
CLASS A COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of Class)
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COLONY RIH ACQUISITIONS, INC.
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of Class)
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TABLE OF CONTENTS
ITEM 1. BUSINESS..........................................................2
ITEM 2. FINANCIAL INFORMATION............................................22
ITEM 3. PROPERTIES.......................................................35
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...36
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.................................38
ITEM 6. EXECUTIVE COMPENSATION...........................................41
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................46
ITEM 8. LEGAL PROCEEDINGS................................................48
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANTS'
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS...................48
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.........................49
ITEM 11. DESCRIPTION OF REGISTRANTS' SECURITIES TO BE REGISTERED.........49
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.......................51
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.....................52
ITEM 14. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE............................52
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS...............................53
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
CERTAIN STATEMENTS IN THIS REGISTRATION STATEMENT CONTAIN OR MAY CONTAIN
INFORMATION THAT IS FORWARD-LOOKING. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM
THOSE DESCRIBED IN THE FORWARD-LOOKING STATEMENTS AND WILL BE AFFECTED BY A
VARIETY OF RISKS AND FACTORS INCLUDING BUT NOT LIMITED TO THE FOLLOWING: THE
INABILITY OF REGULATED ENTITIES AND CERTAIN OFFICERS AND OTHER AFFILIATES OF THE
PARENT, THE COMPANY OR RIH (AS DEFINED IN THIS REGISTRATION STATEMENT) TO OBTAIN
GAMING LICENSES OR PERMITS IN JURISDICTIONS WHERE THE CURRENT OR PLANNED
BUSINESS OF RIH REQUIRES SUCH LICENSES OR PERMITS; THE LIMITATION, CONDITIONING,
REVOCATION OR SUSPENSION OF ANY SUCH GAMING LICENSES OR PERMITS; A FINDING OF
UNSUITABILITY OR DENIAL BY REGULATORY AUTHORITIES WITH RESPECT TO ANY OFFICERS,
DIRECTORS OR KEY EMPLOYEES REQUIRED TO BE FOUND SUITABLE; LOSS OR RETIREMENT OF
KEY EXECUTIVES; INCREASED COMPETITION IN EXISTING MARKETS OR THE OPENING OF NEW
GAMING JURISDICTIONS (INCLUDING IN NATIVE AMERICAN LANDS); A DECLINE IN THE
PUBLIC ACCEPTANCE OF GAMING; INCREASES IN OR NEW TAXES OR FEES IMPOSED ON GAMING
REVENUES OR GAMING DEVICES; SIGNIFICANT INCREASES IN FUEL OR TRANSPORTATION
PRICES; ADVERSE ECONOMIC CONDITIONS IN RIH'S KEY MARKETS; AND SEVERE OR UNUSUAL
WEATHER IN RIH'S KEY MARKETS. THE LEVEL OF RIH'S INDEBTEDNESS AND OTHER FIXED
CHARGE OBLIGATIONS COULD HAVE IMPORTANT CONSEQUENCES, INCLUDING BUT NOT LIMITED
TO THE FOLLOWING: (1) A SUBSTANTIAL PORTION OF RIH'S CASH FLOW FROM OPERATIONS
IS DEDICATED TO DEBT SERVICE AND OTHER FIXED CHARGE OBLIGATIONS AND MAY NOT BE
AVAILABLE FOR OTHER PURPOSES; (2) RIH'S ABILITY TO OBTAIN ADDITIONAL FINANCING
IN THE FUTURE FOR WORKING CAPITAL, CAPITAL EXPENDITURES OR ACQUISITIONS MAY BE
LIMITED; AND (3) RIH'S LEVEL OF INDEBTEDNESS COULD LIMIT ITS FLEXIBILITY IN
REACTING TO CHANGES IN ITS INDUSTRY AND ECONOMIC CONDITIONS GENERALLY. READERS
SHOULD CAREFULLY REVIEW THIS REGISTRATION STATEMENT IN ITS ENTIRETY, INCLUDING
BUT NOT LIMITED TO THE PARENT'S, THE COMPANY'S AND RIH'S RESPECTIVE FINANCIAL
STATEMENTS AND THE NOTES THERETO.
ITEM 1. BUSINESS
The Registrants
Colony RIH Holdings, Inc., or the Parent, was formed at the direction of
Colony Investors IV, L.P., or Colony IV, an affiliate of Colony Capital, LLC, of
Los Angeles, California. Colony RIH Acquisitions, Inc., or the Company, is a
wholly-owned subsidiary of the Parent and was formed at the direction of Colony
IV. The Parent and the Company are referred to in this registration statement as
the Registrants. Resorts International Hotel, Inc., or RIH, is a wholly-owned
subsidiary of the Company. RIH owns and operates Resorts Atlantic City, a casino
hotel located in Atlantic City, New Jersey.
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Colony Capital, LLC is a private, international investment firm focusing
primarily on real estate-related assets and operating companies with a strategic
dependence on such assets. Colony Capital, LLC has consummated investments with
a total capitalization exceeding $6.0 billion. Colony IV is its fourth discrete
investment fund. In addition to its ownership of the Parent, Colony IV has
completed more than 20 transactions since its formation in December 1999. Colony
Capital, LLC is led by Thomas J. Barrack, Jr., Chairman and Chief Executive
Officer. Colony Capital, LLC has a staff of approximately 85 people, with
offices in Los Angeles, New York, the Kohala Coast in Hawaii, Singapore, Seoul,
Tokyo and Paris.
The Acquisition
The Company, Sun International North America, Inc., or SINA, and GGRI,
Inc. entered into a Purchase Agreement, dated as of October 30, 2000. Pursuant
to the Purchase Agreement, the Company acquired all of the capital stock of
Resorts International Hotel, Inc., or RIH, certain assets used in connection
with RIH's business and all of the capital stock of New Pier Operating Company,
Inc., or New Pier, on April 25, 2001, in exchange for approximately $127.3
million in cash and a $17.5 million note issued by the Parent to SINA. The
acquisition of the capital stock of RIH, the capital stock of New Pier and the
assets is referred to in this registration statement as the Acquisition. As a
result of the Acquisition, RIH and New Pier became direct, wholly-owned
subsidiaries of the Company.
Simultaneously with the closing of the Acquisition, the Company entered
into an Option Agreement, dated April 25, 2001, which gives the Company the
right to acquire certain undeveloped real estate, adjacent to Resorts Atlantic
City, owned by SINA for a purchase price of $40.0 million. The Option Agreement
has a two-year term, which term may be extended for two additional one-year
terms upon the payment of a $2.5 million extension fee, payable upon each
extension. The Company currently leases the property subject to the Option
Agreement from SINA pursuant to a Lease Agreement, dated April 25, 2001, with a
term concurrent with the term of the Option Agreement.
Following the completion of the Acquisition, neither the Parent nor the
Company has any ongoing relationship with SINA, other than as counter parties to
the Option Agreement, Lease Agreement and Seller Note. All three agreements were
negotiated at arm's length.
In connection with and immediately prior to the Acquisition, the Parent
issued the following:
o 19,950 shares of its class A common stock, par value $.01 per share,
to Colony RIH Voteco, LLC, or Voteco, for a total purchase price of
$950 in cash;
o 403,740 shares of its class B common stock, par value $.01 per
share, to Colony IV, for a total purchase price of $40,374,000 in
cash; and
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o 1,050 shares of its class A common stock and 21,250 shares of its
class B common stock to Nicholas L. Ribis, who serves as Vice
Chairman of the Company's Board of Directors and head of its
Operating Committee, for a total purchase price of $2,125,050 in
cash.
Holders of class A common stock are entitled to one vote per share in all
matters to be voted on by stockholders of the Parent. Holders of class B common
stock have no vote, except as otherwise expressly required by law. Mr. Barrack
is the sole member and manager of Voteco.
The Parent issued class A common stock and class B common stock in
connection with the organizational structure put in place to consummate the
Acquisition. As a result of the Acquisition, Colony IV owns 95% of the
outstanding non-voting common stock of RIH through the ownership of 95% of the
Parent's outstanding class B common stock, representing approximately 95% of the
common equity of RIH. Voteco owns 95% of the voting common stock in RIH through
the ownership of 95% of the Parent's outstanding class A common stock,
representing less than 1% of the common equity of RIH. Mr. Ribis owns 5% of the
outstanding non-voting common stock and 5% of the voting common stock of RIH
through the ownership of 5% of the Parent's outstanding class B common stock and
5% of the Parent's outstanding class A common stock, representing approximately
5% of the common equity of RIH. As a result, Voteco will be able to govern all
matters of the Parent that are subject to the vote of stockholders, including
the appointment of directors and the amendment of the Parent's Amended and
Restated Certificate of Incorporation and Bylaws.
The conditions to the consummation of the Acquisition included the Company
obtaining interim authorization from the authority regulating gaming in the
State of New Jersey, the New Jersey Casino Control Commission, or the NJCCC. The
Company was required to obtain interim authorization from the NJCCC in order for
RIH to continue to conduct gaming activities in New Jersey after the
consummation of the Acquisition. The NJCCC granted interim authorization on
March 28, 2001, by way of Resolution No. 01-7-6, finding that the Company
established by clear and convincing evidence that issuance of interim
authorization to it will best serve the interest of the public. The NJCCC is
required by statute to conduct a hearing within nine months of March 28, 2001 to
decide whether the Company is plenarily qualified to own RIH. The NJCCC may
extend this nine month period by three months. The Company currently anticipates
that the NJCCC will be in a position to conduct the plenary qualification
hearing within the initial nine month period. See "--Regulatory and Gaming Taxes
and Fees."
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The diagram below shows the ownership of RIH immediately before the
Acquisition, as well as certain affiliations between certain parties.
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| |
| Sun International Hotels, Ltd. |
| |
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|
|
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| |
| Sun International North America, Inc. |
| |
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| |
| |
--------------- |
| | |
| GGRI, INC. | |
| | |
--------------- |
| |
| |
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| | | |
| Resorts International Hotel, Inc. | | New Pier |
| | | Operating |
--------------------------------------- | Company, Inc. |
| |
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The diagram below shows the ownership of the Parent and RIH following the
Acquisition, as well as certain affiliations among certain parties.
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| | | | | | | |
| Colony Capital, |---| Colony Investors IV, |---| Colony RIH Voteco, | | Mr. Nicholas Ribis |
| LLC | | L.P. | | LLC | | |
| | | | | | | |
- --------------------- -------------------------- ------------------------ ------------------------
| / /
| / /
-------------------------- / /
| |/ /
| Colony RIH Holdings, | /
| Inc. | /
| | /
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|
|
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| |
| Colony RIH Holdings, |
| Acquisitions, Inc. |
| |
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| |
| |
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| | | |
| Resorts International Hotel, Inc. | | New Pier Operating |
| | | Company, Inc. |
- --------------------------------------- | |
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The Parent financed the Acquisition and paid related fees and expenses
with:
o proceeds from the issuance of common stock to Colony IV, Voteco and
Mr. Ribis, totaling approximately $42.5 million,
o a $17.5 million note issued by the Parent to SINA, or the Seller
Note,
o borrowings totaling approximately $82.0 million by the Company,
guaranteed by the Parent, under a new $90.0 million Credit Facility,
and
o RIH's available cash, totaling approximately $7.8 million.
The note issued by the Parent to SINA pays interest at a rate of 12.5% per
annum. The interest is payable semi-annually, 50% in cash and 50% in additional
subordinated notes with the principal due April 25, 2008. The new Credit
Facility is comprised of term loans and a revolving credit facility. The
principal lender under the new Credit Facility is Merrill Lynch Capital
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Corporation and assignments by lenders are restricted by gaming law
requirements. The loans under the new Credit Facility are secured by
substantially all of the Parent's, the Company's and, directly or indirectly,
RIH's assets, including a pledge of all of the capital stock of the Company and
RIH, mortgages on all material real property owned or leased by the Company or
RIH and the accounts receivable, inventory, equipment and intangibles of the
Company or RIH. The revolving credit facility will mature on April 25, 2006 and
the term loans will mature on the last business day of either December 2005 or
March 2007. The principal balance of the term loans will be reduced on a
quarterly basis, commencing June 29, 2001. Interest on borrowings outstanding
shall be either at LIBOR or an alternative base rate, plus an applicable margin
in each case. In the future, the applicable margins may be changed based on the
Company's leverage ratio, as defined in the Credit Agreement. The new Credit
Facility contains a number of covenants that, among other things, restrict the
ability of the Registrants, RIH and their respective subsidiaries to incur
additional indebtedness, create liens on assets, dispose of assets, make
investments, loans, or advances, engage in mergers or consolidations, pay
dividends, engage in certain transactions with affiliates, change their
respective line of business and otherwise restrict certain corporate activities.
In addition, under the new Credit Facility, the Company and its subsidiaries are
required to maintain specified financial ratios, satisfy specified financial
tests, including interest coverage and leverage tests, and limit capital
expenditures. The new Credit Facility contains events of default customary for
facilities of this nature.
The Registrants are filing this registration statement on Form 10
voluntarily, to comply with the requirements of the New Jersey gaming
authorities and to facilitate the gaming licensing process. The Registrants are
not required to file this registration statement pursuant to the Securities
Exchange Act of 1934, or the Exchange Act, or the rules and regulations of the
Securities and Exchange Commission, or the SEC, promulgated thereunder.
Upon the effectiveness of this registration statement, the class A common
stock of the Parent and common stock of the Company will be registered under
Section 12(g) of the Exchange Act. The New Jersey Casino Control Act, N.J.S.A.
5:12-1 et seq., or the NJCCA, defines a publicly traded corporation as any
corporation which has one or more classes of security registered pursuant to
Section 12 of the Exchange Act. Therefore, once this registration statement is
deemed effective, the Registrants will be considered publicly traded
corporations under the NJCCA.
Following the effectiveness of this registration statement, the
Registrants will be required and expect to file annual, quarterly and current
reports, proxy statements and other information with the SEC. You may read and
copy any reports, statements or other information filed by the Registrants at
the SEC's public reference facility at Room 1300, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference room. The Registrants' filings are also
available to the public from commercial document retrieval services and at the
world wide web site maintained by the SEC at http://www.sec.gov.
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Resorts Atlantic City
Resort and Hotel Facilities
Resorts Atlantic City is a facility owned and operated by RIH, a direct,
wholly-owned subsidiary of the Company. Resorts Atlantic City commenced
operations in May 1978 and was the first casino hotel opened in Atlantic City.
This was accomplished by the conversion of the former Haddon Hall Hotel, a
classic hotel structure originally built in the early 1900's, into a casino
hotel. It is situated on approximately seven acres of land with approximately
310 feet of Boardwalk frontage overlooking the Atlantic Ocean. Resorts Atlantic
City consists of two hotel towers, the 15-story Ocean Tower and the nine-story
Atlantic City Tower. In addition to the casino facilities described below, the
casino hotel complex includes 644 guest rooms and suites, a 1,400-seat theater,
seven restaurants, a VIP slot and table player lounge, an indoor swimming pool,
a lounge, a health club and leased retail shops. The complex also has
approximately 28,500 square feet of convention facilities, including six large
meeting rooms and a 12,000 square foot ballroom.
RIH owns a parking garage that is connected to Resorts Atlantic City by a
covered walkway. This garage is used for patrons' self-parking and accommodates
approximately 700 vehicles. RIH also owns additional adjacent properties
consisting of approximately 3.5 acres that provide parking for approximately 300
vehicles. In addition, under the terms of the Lease Agreement, the Company
leases from SINA approximately 4.4 acres adjoining Resorts Atlantic City. The
leased acreage currently provides additional uncovered self-parking for
approximately 400 vehicles and valet parking for approximately 415 vehicles.
Consistent with industry practice, RIH reserves a portion of its hotel
rooms and suites as complimentary accommodations for high-level casino patrons.
The average occupancy rates, including complimentary rooms which were primarily
provided to casino patrons, were 87% in 2000, 82% in 1999 and 90% in 1998. The
average occupancy rate and average daily room rate, excluding complimentary
rooms, were 27% and $86 in 2000, 27% and $82 in 1999 and 36% and $71 in 1998.
Gaming Facilities
Resorts Atlantic City has a casino floor of approximately 68,704 square
feet and a simulcast and pari-mutuel betting facility of approximately 16,512
square feet. At December 31, 2000, these gaming areas contained approximately 70
table games that consisted of blackjack tables, roulette tables, craps tables,
and other specialty games that included Caribbean Stud, Baccarat, Mini-Baccarat,
Let It Ride, Three-card Poker, Pai Gow Poker, Big Six, Pai Gow and Spanish
Twenty-One. Additionally, there are approximately 2,370 slot machines, and, for
simulcast pari-mutuel betting, five betting windows and six customer-operated
terminals. Resorts Atlantic City added 258 additional slot machines to its
gaming areas on June 30, 2001, the majority of which are located directly
adjacent to the Boardwalk. Management of Resorts Atlantic City continuously
monitors the configuration of the casino floor and the games it offers to
patrons with a view towards making changes and improvements. As new games have
been approved by the NJCCC, management has integrated such games into its casino
operations to the extent it deems appropriate.
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Casino gaming in Atlantic City is highly competitive and is strictly
regulated under the NJCCA and the regulations promulgated thereunder, which
affect virtually all aspects of RIH's casino operations. See "--Competition" and
"--Regulation and Gaming Taxes and Fees" below.
Business Strategy
Resorts Atlantic City offers casino gaming and a full range of amenities
in a friendly atmosphere that caters to middle- to higher-income customers.
Beginning February 2000, a new management team was put in place and has been
retained in large measure following the Acquisition. This management team has an
intimate knowledge of the local market and significant experience in the
Atlantic City gaming market. The current management team includes Audrey Oswell,
former President and Chief Operating Officer of Caesars Atlantic City, who
serves as President and Chief Operating Officer, and Joseph D'Amato, former
acting Chief Operating Officer and Chief Financial Officer of Trump Marina, who
serves as Chief Financial Officer. This new management team has implemented a
new strategy, which includes:
HIGH QUALITY FACILITIES AND SUPERIOR CUSTOMER SERVICE. As part of its
commitment to providing a quality entertainment experience for its patrons,
Resorts Atlantic City is dedicated to ensuring a high level of customer
satisfaction and loyalty by providing distinctive and modern accommodations and
attentive customer service in a friendly atmosphere. Management recognizes that
consistent quality and a comfortable atmosphere can differentiate its facilities
from the competition. To foster a high level of customer satisfaction through
attentive customer service, management plays an active role in the training of
all of its employees at all levels.
TARGETED CUSTOMER BASE. Resorts Atlantic City targets middle- and
higher-income customers who tend to have more disposable income for gaming and
entertainment. Resorts Atlantic City has completely reengineered its customer
databases to identify and target value-added, high-margin repeat gaming
customers and uses sophisticated player tracking systems to award cash rebates
or promotional allowances, such as complimentary rooms, food, beverage and
entertainment, to guests based on their level of profitability to Resorts
Atlantic City. In addition, Resorts Atlantic City instituted an aggressive slot
club that increases player's loyalty by rewarding a player with increasing cash
incentives based on his level of play. Finally, Resorts Atlantic City
implemented a competitive slot program, which includes gift giveaways,
tournaments and other promotional activities.
FOCUSED MARKETING. RIH promotes Resorts Atlantic City through radio,
billboard, print advertising and direct mailings. The vast majority of future
marketing efforts will seek to increase Resorts Atlantic City's market share of
drive-in slot players. Management believes drive-in players tend to be
higher-margin slot customers with larger bankrolls than customers who travel by
bus and tend to spend more of their time in the casino where they are staying.
EMPHASIS ON SLOT PLAY. Responding to the increased popularity of slot
machines over the past several years, Resorts Atlantic City has shifted its
gaming mix and promotional efforts toward slot machines. Compared to table
games, slot machines are less labor intensive, require less square footage and
generate higher profit margins. Resorts Atlantic City monitors
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payout percentages closely and ensures that its slot machine payouts are
competitive, and as a result lowered its slot hold percentage in the second half
of 2000. Resorts Atlantic City has also implemented a new slot club.
Entertainment
Resorts Atlantic City has reduced the amount of headline entertainment it
offers as compared to recent years. It continues to offer headliners that appeal
to its targeted customer base.
Player Development/Casino Hosts/Junkets
RIH employs junket, player development and Asian marketing representatives
to promote Resorts Atlantic City to prospective gaming patrons. Resorts Atlantic
City has casino hosts who assist patrons on the casino floor, make room and
dinner reservations, encourage Resorts Card (the player identification card)
membership sign-ups in order to increase Resorts Atlantic City's marketing base
and provide general assistance.
Promotional Activities
The Resorts Card constitutes a key element in Resorts Atlantic City's
direct marketing program. Slot players are encouraged to register for and
utilize their personalized Resorts Card to earn complimentary items based upon
their level of play. The Resorts Card is inserted during play into a card reader
attached to the slot machine for use in computerized rating systems. These
proprietary information systems are critical to the success of the program. The
database maintains a comprehensive profile of the cardholder, which includes
playing preferences and frequency, denomination of play and the amount of gaming
revenues produced.
Resorts Atlantic City designs promotional offers, conveyed via direct mail
and telemarketing, for patrons expected to provide revenues based upon their
historical gaming patterns. Such information is gathered on slot wagering by the
Resorts Card and on table game wagering by the table game management.
Resorts Atlantic City offers extensive promotional programs to attract
patrons to the facility. The nature of the gifts and prizes awarded in
connection with these programs vary based on the targeted group and their
relative gaming level.
Capital Improvements
In June 1999, management completed the renovation of Resorts Atlantic
City, which included extensive renovations to the casino floor, hotel lobby,
guest rooms and suites, room corridors, restaurants, the hotel porte cochere and
public areas and the addition of a new VIP player lounge and three new
restaurants. The total cost of the 1999 renovation was approximately $50.0
million. In December 2000, management completed construction of a $3.5 million
nine-bay bus center. Additionally, during 2000, RIH expended $3.3 million on new
slot machines, conversions and upgrades of existing machines and associated
amenities. Other expenditures consisted of various building improvement projects
and information technology upgrades.
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The newly constructed, nine-bay bus center dramatically improved the
appearance and convenience of the bus waiting area. The entrance from the new
bus center leads patrons directly into the casino, significantly improving the
performance of the slot machines located in the immediate area of the bus
center. This addition has been extremely well received by guests. Furthermore,
the relocation of the bus waiting area allowed the casino floor to be further
expanded to include an additional 86 slot machines. Management also closed Club
1133 and installed 258 new slot machines in this area on June 30, 2001. This new
gaming area offers gaming access from the Boardwalk which was previously lacking
at the facility.
The Atlantic City Market
Atlantic City is located along the New York-Philadelphia-Baltimore-
Washington, D.C. corridor, with nearly 30.0 million people living within a
three-hour driving distance. Average household income within the 50-mile radius
of Atlantic City is 10% above the national average, and 23% to 32% above the
national average within the 200-mile radius. The average income per household
within 50 miles of Atlantic City is $53,469. This 50-mile area has the second
highest average household income among all gaming jurisdictions in North
America. Management believes that the foregoing statistics, coupled with the
many community improvements, either recently completely or currently underway in
Atlantic City, bode well for Atlantic City's potential as a destination resort.
Construction projects recently completed or currently in progress in Atlantic
City include the following:
o the $268.0 million new Atlantic City Convention Center, the second
largest convention center in the Northeast, completed in May 1997,
o the $84.0 million Grand Boulevard Project completely revamping the
entrance to the city from the Atlantic City Expressway, completed in
1998,
o the $330.0 million Atlantic City Tunnel Project currently underway
and expected to be completed in the summer of 2001, which will, when
completed, connect the Atlantic City Expressway to the Marina
District and H-Tract,
o $200.0 million in new, publicly subsidized housing replacing
dilapidated housing,
o a $15.0 million minor league baseball stadium, completed in June
1999, and
o the $90.0 million refurbishment of the Boardwalk Convention Center
Hall into a 12,000- to 15,000-seat special events venue, expected to
be completed in the summer of 2001, with the potential to attract
major entertainers and strong boxing matches.
The Atlantic City market has demonstrated continued, steady growth despite
the recent proliferation of new gaming venues across the country. The 12 casino
hotels located in Atlantic City generated approximately $4.31 billion in gaming
revenues in 2000, an increase of approximately 3.2% over 1999 gaming revenues of
approximately $4.18 billion. From 1996 to 2000, total gaming revenues in
Atlantic City have increased approximately 12.7%, while the number of hotel
rooms increased by 21.9% during the same period. Although total visitor
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volume to Atlantic City remained relatively constant in 2000, the volume of bus
customers decreased to 9.1 million in 2000 from 9.5 million in 1999, continuing
the trend of decline from 10.2 million bus customers in 1996. The volume of
customers traveling by other means to Atlantic City has grown to 24.3 million in
2000 from 23.5 million in 1996.
During the last five years, however, overall casino revenue growth in
Atlantic City has lagged behind that of other traditional gaming markets,
principally Las Vegas, Nevada. Management believes that this relatively slower
growth is primarily attributable to three key factors found in Atlantic City: a
shortage of hotel rooms, more stringent regulatory environment and
infrastructure problems. First, there are currently only 12 casinos in Atlantic
City, as compared to 27 casinos located on the Las Vegas Strip. Until 1996,
there had been no significant additions to hotel capacity in Atlantic City, and
the last totally new property constructed in Atlantic City was the Taj Mahal in
1990, whereas Las Vegas has recently experienced a boom in hotel constructions
and the addition of rooms to existing hotels. Both markets have exhibited a
strong correlation between hotel room inventory and total casino revenues.
Second, the regulatory environment and infrastructure problems in Atlantic City
have made it more difficult and costly to operate a casino in Atlantic City as
compared to Las Vegas. Overall regulatory costs and tax levies in New Jersey
have exceeded those in Nevada since gambling was legalized in Atlantic City in
1976, and management believes there is generally a higher level of regulatory
oversight in New Jersey than in Nevada. Third, management believes that the
infrastructure problems of Atlantic City, manifested by impaired accessibility
to the casinos, downtown Atlantic City congestion and the structural decay of
the areas immediately surrounding the casinos, have impacted the public's
perception of Atlantic City as a desirable destination resort. Management
believes, however, that the development projects recently completed or currently
underway in Atlantic City, particularly the construction of the new $268.0
million Atlantic City Convention Center, completed in May 1997, and the current
Tunnel Project, when completed, will enhance the public's perception of Atlantic
City as a favorable convention location and destination resort, although no
assurances can be given. Moreover, no assurances can be given that the Tunnel
Project, when completed, will alleviate the traffic congestion as originally
proposed. See "--Regulation and Gaming Taxes and Fees."
Total Atlantic City slot revenues increased 4.4% in 2000 from 1999,
continuing a trend of increases over the past eight years. From 1996 through
2000, slot revenue growth in Atlantic City has averaged 3.7% per year. Total
table game revenue increased by 0.5% in 2000 from 1999, while table game revenue
from 1996 to 2000 has increased on average approximately 0.6% per year.
Management believes the slow growth in table game revenue is primarily
attributable to two factors. First, the selection and variety of the slot
product has significantly improved over the last eight years. Bill and coupon
acceptors, new slot machines, video poker, themed slot machines and other
improvements have been effective in increasing the popularity of slot play to
guests who tend to gamble more for entertainment value. During the past several
years, casino operators in Atlantic City have opted to increase their number of
slot machines in favor of table games due to the increased popularity of slot
play with the Atlantic City patron and slot machines' higher profit margin.
Since 1996, the number of slot machines in Atlantic City has increased by 13.4%,
while the number of table games has decreased by 5.1%. Slot revenues increased
from 68.7% of total casino revenues in 1996 to 72.5% in 2000. The second reason
for the historical slow growth in table game revenue is that table game players
tend to typically be higher-end players who are more likely to be interested in
overnight stays and other amenities.
-11-
During the peak spring and summer seasons and weekends, room availability in
Atlantic City has typically proven to be inadequate in meeting demand,
indirectly making it difficult for casino operators and hosts to aggressively
promote table play to potential higher-end table game customers.
Atlantic City's new $268.0 million Convention Center, completed in May
1997, with approximately 500,000 square feet of exhibition and pre-function
space, 45 meeting rooms, food-service facilities and an underground parking
garage that can accommodate up to 1,600 vehicles located at the base of the
Atlantic City Expressway, is currently the second largest convention center in
the Northeast. Atlantic City's original convention center is located on the
Boardwalk and is owned by the New Jersey Sports and Exposition Authority, or the
NJSEA. Its East Hall, which was completed in 1929 and is listed on the National
Register of Historic Places, is currently undergoing, with funding approved by
the New Jersey Casino Reinvestment Development Authority, or the CRDA, in
February 1999, a $90.0 million renovation to be completed by the summer of 2001.
This renovation, while preserving the historic features of this landmark, will
convert the East Hall into a modern special events venue with new seating for
12,000- to 15,000-people in its main auditorium and new lighting, sound and
television-ready wiring systems. Management believes that the East Hall, when
completed, will have the potential to attract major entertainers and showcase
popular boxing events, although no assurances can be given that these events
will occur.
In the fall of 1998, the South Jersey Transportation Authority, or the
SJTA, commenced the Tunnel Project, consisting of the construction of an
approximate 2.2 mile roadway and tunnel system in Atlantic City which, when
completed, will connect the Atlantic City Expressway to:
o the Marina District,
o the H-Tract, which has been Atlantic City's focal point for new
casino construction, and
o the nearby residential city of Brigantine.
The Tunnel Project was completed in the summer of 2001. The projected cost of
the Tunnel Project is estimated to be approximately $330.0 million.
In addition to the construction projects completed or currently underway,
major infrastructure improvements have been completed in the past several years.
In 1998, an $88.0 million "Grand Boulevard" corridor linking the new Atlantic
City Convention Center with the Boardwalk was completed. Also in 1998, the CRDA
undertook a $20.8 million beautification project of the five-block Virginia and
Maryland Avenue corridor which connects the 30-acre Boardwalk site of the Taj
Mahal to Absecon Boulevard (Route 30), one of Atlantic City's principal access
roadways. This comprehensive project included: the repair, resurfacing and
resignalizing of roads and the installation of new roadside lighting; the
acquisition and demolition of deteriorated structures on Virginia Avenue and, to
a lesser extent, Maryland Avenue, and the installation and maintenance of
roadside landscaping on those sites; the construction of a 26-unit subdivision
of two-story, single unit and duplex residences which will front on opposing
sides of Virginia Avenue; and the improvement of the exterior facades of
-12-
selected Virginia Avenue structures among others, with the consents of the
owners, to achieve a harmony and continuity of design among closely proximate
properties. Construction of the roadway and housing elements of this project was
completed in the summer of 2000. See "--Competition."
In conjunction with the street beautification and housing project that was
given approval by the CRDA, the CRDA has engaged consultants to explore the
feasibility of the beautification of North Carolina Avenue, which will allow for
improved traffic flow in a more appealing corridor from Absecon Boulevard (Route
30) to the main entrance of Resorts Atlantic City. Management believes the
improved traffic flow from this project would bring more patrons to Resorts
Atlantic City.
Transportation Facilities
The lack of an adequate transportation infrastructure in the Atlantic City
area continues to negatively affect the industry's ability to attract patrons
from outside a core geographic area. In 1996, the Atlantic City International
Airport (located approximately 12 miles from Atlantic City) underwent
renovations which doubled the size of the terminal and added departure gates,
improved the baggage handling system and provided sheltered walkways connecting
the terminal and planes. However, scheduled service to the Atlantic City airport
from major cities by national air carriers remains extremely limited.
Since the inception of gaming in Atlantic City, there has been no
significant change in the industry's marketing base or in the principal means of
transportation to Atlantic City, which continues to be automobile and bus. The
resulting geographic limitations and traffic congestion have restricted Atlantic
City's growth as a major destination resort.
RIH continues to utilize day-trip bus programs. To accommodate its bus
patrons, Resorts Atlantic City constructed a nine-bay bus center with a waiting
area that can accommodate up to 200 persons.
Competition
Atlantic City. Competition in the Atlantic City market remains intense. At
the present time, there are 12 casino hotels located in Atlantic City, including
Resorts Atlantic City, all of which compete for patrons. Substantial new
expansion and development activity has recently been completed or has been
announced in Atlantic City, which intensifies competitive pressures in the
Atlantic City market. In addition, in September 2000, Boyd Gaming and MGM Grand,
Inc., or MGM, commenced their joint development of a 25-acre site located in the
Marina District for the construction of a Tuscan-style casino resort to be named
the "Borgata." The Borgata is planned to feature a 40-story hotel tower with
2,010 rooms and suites, as well as a 143,500 square foot casino, restaurants,
retail shops, a spa and pool, and entertainment venues. Construction of the
Borgata is scheduled to be completed by mid-2003 and is estimated to cost
approximately $1.0 billion. In addition, management believes that there are
several other sites on the Boardwalk and in the Marina District on which casino
hotels could be built in the future, and various applications for casino
licenses have been filed and announcements with respect to these applications
have been made from time to time. While management believes that the
-13-
addition of hotel capacity would be generally beneficial to the Atlantic City
market overall, especially in peak spring and summer months when there has
historically been an inadequate supply of available hotel rooms, there can be no
assurances that the proposed and future expansions would not have a material
adverse effect on the business and operations of Resorts Atlantic City.
In March 2000, MGM consummated its acquisition of Mirage Resorts, Inc. to
become MGM Mirage Inc., or MGM Mirage. MGM Mirage owns and/or operates 18 casino
properties on three continents. In addition to the Borgata project discussed
above, MGM Mirage also owns the 55-acre lot adjacent to the site committed to
the Borgata, and in the first quarter of 2001, announced its intention to build
an additional casino hotel on such site, which is estimated to cost between $1
billion and $1.5 billion. At this time, it is not possible to determine the
impact that this acquisition and announcement will have on any planned
development in the H-Tract, on the Boardwalk or elsewhere in Atlantic City.
During the first quarter of 2001, Aztar Corp. announced its plan to build
a $225.0 million expansion of its Atlantic City Tropicana, which would include
an additional 502 hotel rooms and a 200,000 square foot retail, dining and
entertainment complex. Park Place Entertainment Corporation acquired the
Claridge Casino Hotel. Harrah's Entertainment Inc. commenced building a $110.0
million hotel tower and parking garage at Harrah's Atlantic City. Sands Casino
Hotel announced its plan to convert a recently acquired structure into an
additional 132 to 135 suites. Additionally, Showboat Hotel & Casino has
announced plans to construct a 500 room hotel tower. The Claridge Casino Hotel
has announced plans to build a $25.0 million air-bridge linking the Claridge
Casino Hotel with Bally's Atlantic City, making it possible for visitors to go
to four Park Place Entertainment Corporation casinos without going outside. The
Claridge Casino Hotel also announced a $25.0 million renovation plan which
includes upgrading slot machines and renovating hotel rooms. Management does not
know if or when any of these projects will be completed and cannot ascertain the
effect they might have, if or when they are completed, on the business and
operations of Resorts Atlantic City.
Total Atlantic City gaming revenues have increased over the past five
years, although the casinos have experienced such increase at varying rates. In
1998, seven casinos experienced increased gaming revenues compared to 1997,
while five casinos, including Resorts Atlantic City, experienced decreased
revenues. In 1999, nine casinos experienced increased gaming revenues compared
to 1998, while three casinos, including Resorts Atlantic City, experienced
decreased revenues. In 2000, eight casinos, including Resorts Atlantic City,
experienced increased gaming revenues, while four casinos experienced decreased
revenues.
During 1998, a total of approximately 38,350 square feet of casino floor
space was added in Atlantic City. Slot machines increased by 167 units and table
games decreased by 78 units during 1998. During 1999, casino floor space
decreased by approximately 41,070 square feet. Slot machines increased by 175
units and table games decreased by 55 units during 1999. During 2000, a total of
approximately 27,430 square feet of casino floor space was added. Slot machines
increased by 71 units and table games decreased by 25 units during 2000.
Resorts Atlantic City also competes, or will compete, with facilities in
the northeastern and mid-Atlantic regions of the United States at which casino
gaming or other forms of wagering
-14-
are currently, or in the future may be, authorized. To a minimal extent, Resorts
Atlantic City faces competition from gaming facilities nationwide, including
land-based, cruise line, riverboat and dockside casinos located in Colorado,
Florida, Illinois, Indiana, Iowa, Louisiana, Michigan, Mississippi, Missouri,
Nevada, South Dakota, Ontario (Windsor and Niagara Falls), the Bahamas, Puerto
Rico and other locations inside and outside the United States, from other forms
of legalized gaming in New Jersey and its surrounding states, such as lotteries,
horse racing (including off-track betting), jai alai, bingo and dog racing, and
from illegal wagering of various types. New or expanded gaming operations by
other persons in the above markets can be expected to increase competition and
could result in the saturation of certain gaming markets. For example, at the
end of 2000, there were a total of approximately 5,150 slot machines installed
and operational in Delaware. West Virginia also permits slot machines at
racetracks, and track owners in several other states, including Maryland and
Pennsylvania, are seeking to do the same. In December 1996, the Casino Niagara
opened in Niagara Falls, Ontario. In February 1998, the Ontario Casino
Commission designated a consortium whose principal investor is Hyatt Hotels
Corporation as the preferred developer of the permanent Casino Niagara.
Moreover, Resorts Atlantic City also faces competition from various forms of
internet gambling.
Native American Casinos. In addition, Resorts Atlantic City also faces
competition from casino facilities in a number of states operated by federally
recognized Native American tribes. Pursuant to the Indian Gaming Regulatory Act
of 1988, or the IGRA, any state which permits casino-style gaming (even if only
for limited charity purposes) is required to negotiate gaming compacts with
federally recognized Native American tribes. Under the IGRA, Native American
tribes enjoy comparative freedom from regulation and taxation of gaming
operations, which provides them with an advantage over their competitors,
including Resorts Atlantic City. In March 1996, the United States Supreme Court
struck down a provision of the IGRA which had allowed Native American tribes to
sue states in federal court for failing to negotiate gaming compacts in good
faith. Management cannot predict the impact of this decision on the ability of
Native American tribes to negotiate compacts with states.
In February 1992, the Mashantucket Pequot Nation opened Foxwoods Resorts
Casino, or Foxwoods, a casino hotel in Ledyard, Connecticut (located in the far
eastern portion of the state), approximately a three-hour drive from New York
City and a two and one-half hour drive from Boston, Massachusetts. Foxwoods
currently offers 24-hour gaming and has approximately 5,900 slot machines, 350
table games, over 1,400 rooms and suites, 24 restaurants, 17 retail shops,
entertainment and a year-round golf course. Also, a high-speed ferry operates
seasonally between New York City and Foxwoods. The Mashantucket Pequot Nation
has also announced plans for a high-speed train linking Foxwoods to the
interstate highway and an airport outside Providence, Rhode Island.
In October 1996, the Mohegan Nation opened the Mohegan Sun Resort in
Uncasville, Connecticut, located 10 miles from Foxwoods. Developed by Sun
International Hotels Limited, the Mohegan Sun Resort has approximately 3,000
slot machines, 192 table games, off-track horse betting, bingo, 20 food and
beverage outlets and retail shops. The Mohegan Sun Resort is in the midst of a
$960.0 million, 4.0 million square foot expansion entailing the construction of
a 115,000 square foot casino, a 10,000-seat arena, a 34-story hotel tower with
1,200 rooms, nine new restaurants and two parking garages that will accommodate
up to 5,000 vehicles. The
-15-
project is expected to be completed in the spring of 2002. The expansion of the
Mohegan Sun Resort could have a material adverse impact on the revenue growth of
Resorts Atlantic City.
In July 1993, the Oneida Nation opened Turning Stone, a casino featuring
24-hour table gaming and electronic gaming machines near Syracuse, New York. In
October 1997, the Oneida Nation opened a hotel which included expanded gaming
facilities and constructed a golf course and convention center at Turning Stone.
Construction of a new 24,000 square foot clubhouse for the Oneida Nation's golf
course is expected to commence in the summer of 2001 and to be completed in
2002. There are also preliminary plans for a casino expansion consisting of 300
additional hotel rooms and a water park.
In April 1999, the St. Regis Mohawk Nation opened the Akwesasne Casino,
featuring electronic gaming machines, in the northern portion of New York State,
close to the Canadian border. In April 1999, the St. Regis Mohawks also
announced their intention of opening a casino with Catskill Development Company
at the Monticello Race Track in the Catskill Mountains region of New York. This
plan was approved by the Assistant Secretary-Indian Affairs (Interior) but is
also subject to the approval of the Governor of New York pursuant to IGRA. In
April 2000, the St. Regis Mohawks terminated their contract with Catskill
Development Company and announced that Park Place Entertainment Corporation
would build and manage its tribal casino in the Catskill Mountains. In May 2000,
Park Place Entertainment Corporation agreed to purchase Kutshers Resort for the
new St. Regis Mohawks' casino site. In April 2001, a New York State court ruling
invalidating compacts allowing Indian casinos in New York put the future of the
proposed casino and Turning Stone in doubt. New York State officials plan to
appeal the decision.
The Seneca Nation plans to negotiate with New York State to open a casino
in Western New York. Approval of the proposed casino would be contingent upon
the purchase of additional property that is declared reservation property by the
federal government. However, a recent ruling by the federal Interior Department
may allow the Seneca Nation to transform its bingo halls into casino-type
operations without having to negotiate with New York State.
The Narragansett Nation of Rhode Island, which has federal recognition, is
seeking to open a casino in Rhode Island.
The Aquinnah Wampanoag Tribe is seeking to open a casino in the state of
Massachusetts. The Eastern Pequot Tribe, along with the Paucatuck Eastern Pequot
Tribe, is seeking federal recognition as a Tribal Nation. Both tribes received
findings of preliminary recognition in 2000. Other Native American nations are
seeking federal recognition and land and negotiating gaming compacts in New
York, Rhode Island, Connecticut and other states near Atlantic City. If
successful, there can be no assurance that additional casinos built in or near
this portion of the United States, as well as the casino expansions discussed
above, would not have a material adverse effect on the business and operations
of Resorts Atlantic City.
State Legislation. Legislation permitting other forms of casino gaming has
been proposed, from time to time, in various states, including those bordering
the state of New Jersey. Six states have presently legalized riverboat gambling
while others are considering its approval, including Delaware. The business and
operations of Resorts Atlantic City could be materially
-16-
adversely affected by such competition, particularly if casino gaming were
permitted in jurisdictions near or elsewhere in New Jersey, or in other
northeastern states. Currently, casino gaming, other than Native American
gaming, is not allowed in other areas of New Jersey or in Connecticut, New York
or Pennsylvania. In June 1998, the New York State Senate and General Assembly
failed to enact a constitutional amendment to legalize casino gambling in
certain areas of New York State, effectively postponing any referendum to
authorize such a constitutional amendment until not earlier than November 2001.
To the extent that legalized gaming becomes more prevalent in New Jersey or
other jurisdictions near Atlantic City, competition will intensify. In addition,
legislation has from time to time been introduced in the New Jersey State
Legislature relating to types of statewide legalized gaming, such as video games
with small wagers. To date, no such legislation, which may require a state
constitutional amendment, has been enacted. Management is unable to predict
whether any such legislation, in New Jersey or elsewhere, will be enacted or
whether, if passed, it would have a material adverse effect on Resorts Atlantic
City.
Gaming Credit Policy
Resorts Atlantic City extends credit to selected gaming customers,
primarily in order to compete with other casino hotels in Atlantic City that
also extend credit to customers. Credit play represented 25% of table game
volume at Resorts Atlantic City in 2000, 25% in 1999 and 17% in 1998. The credit
play percentage of table game volume for the Atlantic City industry was 23% in
2000, 24% in 1999 and 23% in 1998. RIH's gaming receivables, net of allowance
for uncollectible amounts, were $6.9 million as of December 31, 2000, $4.8
million as of December 31, 1999 and $3.3 million as of December 31, 1998. RIH's
overall collections of gaming receivables were 97.3% in 2000, 99.0% in 1999 and
98.8% in 1998. The collectibility of gaming receivables has an effect on results
of operations and management believes that overall collections have been
satisfactory. Atlantic City gaming debts are enforceable under the laws of New
Jersey and certain other states, although it is not clear whether other states
will honor this policy or enforce judgments rendered by the courts of New Jersey
with respect to such debts.
Security Controls
Gaming at Resorts Atlantic City is conducted by trained personnel and
supervised by RIH. Prior to employment, all casino personnel must be licensed
under the NJCCA. Security checks are made to determine, among other matters,
that job applicants for key positions have had no criminal ties or associations.
RIH employs extensive security and internal controls at its casino. Security at
Resorts Atlantic City utilizes closed circuit video cameras to monitor the
casino floor and money counting areas. The count is observed daily by
representatives of NJCCC.
Seasonal Factors
RIH's business activities are affected by seasonal factors that influence
New Jersey tourism. Higher revenues and earnings are typically realized during
the middle third of the year.
-17-
Employees
RIH had approximately 3,000 employees during 2000. RIH believes that its
employee relations are satisfactory. Approximately 1,300 of RIH's employees are
represented by unions. Of these employees, approximately 1,000 are represented
by the Hotel Employees and Restaurant Employees International Union Local 54,
whose contract was renewed in September 1999 for a term of five years. There are
several union contracts covering other union employees.
All of RIH's casino employees and certain of its hotel employees must be
licensed under the NJCCA. Casino employees are those employees whose work
requires access to the casino, the casino simulcasting facility or restricted
casino areas. Casino and certain hotel employees must meet applicable standards
pertaining to such matters as financial stability, integrity and responsibility;
good character, honesty and integrity; and New Jersey residency. Certain hotel
employees are no longer required to be registered with the NJCCC.
Regulation and Gaming Taxes and Fees
General
RIH's operations in Atlantic City are subject to regulation under the
NJCCA, which authorizes the establishment of casinos in Atlantic City, provides
for licensing, regulation and taxation of casinos and created the NJCCC and the
Division of Gaming Enforcement to administer the NJCCA. In general, the
provisions of the NJCCA concern: the ability, character and financial stability
and integrity of casino operators, their officers, directors and employees and
others financially interested in a casino; the nature and suitability of hotel
and casino facilities, operating methods and conditions; and financial and
accounting practices. Gaming operations are subject to a number of restrictions
relating to the rules of games, type of games, credit play, size of hotel and
casino operations, hours of operation, persons who may be employed, companies
which may do business with casinos, the maintenance of accounting and cash
control procedures, security and other aspects of the business.
There were significant regulatory changes in recent years. In addition to
the approval of new games, the NJCCA was amended to allow casinos to expand
their casino floors before building the requisite number of hotel rooms, subject
to approval of the NJCCC. This amendment was designed to encourage hotel room
construction by giving casino licensees an incentive and an added ability to
generate cash flow to finance hotel construction. Previous law only allowed for
casino expansion if a casino built new hotel rooms first. In addition, the
minimum casino square footage has been increased from 50,000 square feet to
60,000 square feet for the first 500 qualifying rooms and the current law allows
for an additional 10,000 square feet for each additional 100 qualifying rooms
over 500, up to a maximum of 200,000 square feet. Future costs of regulation
have been reduced as new legislation no longer requires hotel employees to be
registered, extends the term for casino and casino key employee license renewals
from two years to four years and allows greater efficiency by either reducing or
eliminating the time permitted to allow the NJCCC to approve internal controls,
patron complimentary programs and the movement of gaming equipment.
-18-
Casino License
A casino license is initially issued for a term of one year and must be
renewed annually by action of the NJCCC for the first two renewal periods
succeeding the initial issuance of a casino license. The NJCCC may renew a
casino license for a period of four years, although the NJCCC may reopen
licensing hearings at any time. A license is not transferable and may be
conditioned, revoked or suspended at any time upon proper action by the NJCCC.
The NJCCA also requires an operations certificate which, in effect, has a term
coextensive with that of a casino license.
In January 2000, RIH's license was renewed until January 31, 2004.
Restrictions on Ownership of Equity and Debt Securities
The NJCCA imposes certain restrictions upon the ownership of securities
issued by a corporation which holds a casino license or is a holding,
intermediary or subsidiary company of a corporate licensee, or collectively, a
Holding Company. Among other restrictions, the sale, assignment, transfer,
pledge or other disposition of any security issued by a corporation which holds
a casino license is conditional and shall be ineffective if disapproved by the
NJCCC. If the NJCCC finds that an individual owner or holder of any securities
of a corporate licensee or its Holding Company must be qualified and is not
qualified under the NJCCA, the NJCCC has the right to propose any necessary
remedial action. In the case of corporate holding companies and affiliates whose
securities are publicly traded, the NJCCC may require divestiture of the
security held by any disqualified holder who is required to be qualified under
the NJCCA.
In the event that entities or persons required to be qualified refuse or
fail to qualify and fail to divest themselves of such security interest, the
NJCCC has the right to take any necessary action, including the revocation or
suspension of the casino license. If any security holder of the licensee or its
Holding Company or affiliate who is required to be qualified is found
disqualified, it will be unlawful for the security holder to:
o receive any dividends or interest upon such securities,
o exercise, directly or through any trustee or nominee, any right
conferred by such securities or
o receive any remuneration in any form from the corporate licensee for
services rendered or otherwise.
The Amended and Restated Certificate of Incorporation of the Parent and the
Certificate of Incorporation, as amended, of the Company provide that all
securities of the Parent and the Company are held subject to the condition that
if the holder thereof is found to be disqualified by the NJCCC pursuant to the
provisions of the NJCCA, then the Parent or the Company, as the case may be, has
the absolute right to repurchase at the lesser of the market price or the
purchase price, any security, share or other interest in the corporation.
-19-
Remedies
In the event that it is determined that a licensee has violated the NJCCA,
or if a security holder of the licensee required to be qualified is found
disqualified but does not dispose of his securities in the licensee or Holding
Company, under certain circumstances the licensee could be subject to fines or
have its license suspended or revoked.
The NJCCA provides for the mandatory appointment of a conservator to
operate the casino and hotel facility if a license is revoked or not renewed and
permits the appointment of a conservator if a license is suspended for a period
in excess of 120 days. If a conservator is appointed, the suspended or former
licensee is entitled to a "fair rate of return out of net earnings, if any,
during the period of the conservatorship, taking into consideration that which
amounts to a fair rate of return in the casino or hotel industry." Under certain
circumstances, upon the revocation of a license or failure to renew, the
conservator, after approval by the NJCCC and consultation with the former
licensee, may sell, assign, convey or otherwise dispose of all of the property
of the casino hotel. In such cases, the former licensee is entitled to a summary
review of such proposed sale by the NJCCC and creditors of the former licensee
and other parties in interest are entitled to prior written notice of the sale.
License Fees, Taxes and Investment Obligations
The NJCCA provides for casino license renewal fees, other fees based upon
the cost of maintaining control and regulatory activities and various license
fees for the various classes of employees. In addition, a casino licensee is
subject annually to a tax of 8% of gross revenue, as defined under the NJCCA,
and license fees of $500 for every slot machine for use or in use in a casino as
of the first of July each year. Also, the NJCCA has been amended to create an
Atlantic City fund, or the AC Fund, for economic development projects other than
the construction and renovation of casino hotels. Beginning with fiscal year
1999/2000 and for the following three fiscal years, an amount equal to the
average amount paid into the AC Fund for the previous four fiscal years shall be
contributed to the AC Fund annually. Each licensee's share of the amount to be
contributed to the AC Fund is based upon its percentage of the total industry
gross revenue for the relevant fiscal year. After eight years, the casino
licensee's obligation to contribute to this fund ceases.
The following table summarizes, for the periods shown, the fees, taxes and
contributions assessed upon RIH by the NJCCC.
-20-
For the Year Ended December 31,
------------------------------------
2000 1999 1998
-------- -------- --------
($ in thousands)
Gaming tax.............................. $18,904 $17,701 $18,785
License, investigation, inspection
and other fees....................... 3,891 3,603 3,733
Contribution to AC Fund................. 453 307 496
------- ------- -------
Total.............................. $23,248 $21,611 $23,014
======= ======= =======
The amended NJCCA requires a licensee to satisfy an investment obligation
by purchasing bonds to be issued by the CRDA or by making other investments
authorized by the CRDA, in an amount equal to 1.25% of a licensee's gross
revenue. If the investment obligation is not satisfied, then the licensee will
be subject to an investment alternative tax of 2.5% of gross revenue. Licensees
are required to make quarterly deposits with the CRDA against their current year
investment obligations. RIH's investment obligations amounted to $2.6 million
for 2000, $2.7 million for 1999 and $3.0 million for 1998, and have been
satisfied by deposits made with the CRDA. At December 31, 2000, RIH held $7.5
million face amount of bonds issued by the CRDA and had $19.8 million on deposit
with the CRDA. The CRDA bonds issued through 2000 have interest rates ranging
from 3.5% to 7.0% and have repayment terms of between 20 and 50 years.
In February 1999, Resorts Atlantic City and various Atlantic City casinos
entered into agreements with the CRDA to invest in a project through which the
CRDA and NJSEA are planning to renovate the existing Atlantic City Boardwalk
Convention Center into a 10,000- to 14,000-seat special events center, or the
Project.
The Project will be funded in phases through direct investments from
various Atlantic City casinos, including RIH. Of the total budgeted cost, RIH
has agreed to invest $8.7 million in cash which will be paid from funds RIH has
or will have deposited with the CRDA to meet its investment obligations as
described above. As of December 31, 2000, $1.9 million of the total amount
deposited with the CRDA by RIH had been allocated to the Project. As the CRDA
allocates funds deposited by RIH to the Project, RIH will receive an investment
credit reducing its obligation to purchase CRDA bonds in an equal amount.
Other Properties
The Company owns approximately 5.5 acres of land adjacent to Resorts
Atlantic City and an additional 5.5 acres at various sites in Atlantic City. The
Company has an option to acquire an additional six acres of land adjacent to
Resorts Atlantic City and an additional six acres at various sites in Atlantic
City, or collectively, the Option Properties, pursuant to the terms of the
Option Agreement. See "Item 3. Properties."
The Company leases the Option Properties from SINA under the Lease
Agreement.
-21-
ITEM 2.
FINANCIAL INFORMATION
The Registrants
Prior to the completion of the Acquisition on April 25, 2001, the
Registrants had conducted no business other than in connection with the Purchase
Agreement and the new Credit Facility. On April 25, 2001, the Company, a
wholly-owned subsidiary of the Parent, 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. See "Item 1.
Business--The Registrants" and the financial statements of the Parent and the
Company as of June 30, 2001, included elsewhere in this registration statement.
Selected Pro Forma Condensed Financial Data
The following table sets forth selected pro forma condensed consolidated
financial data of the Parent for the six months ended June 30, 2001 and for the
year ended December 31, 2000. The historical condensed financial data for the
six months ended June 30, 2001 includes a combination of the following: (i)
RIH's consolidated accounts for the period January 1, 2001 to April 24, 2001 and
(ii) the Parent's consolidated accounts for the period April 25, 2001 to June
30, 2001. The historical condensed financial data for the twelve months ended
December 31, 2000 include RIH's consolidated accounts. The selected pro forma
condensed consolidated financial data gives effect to the Acquisition and the
Acquisition financing as if they occurred at the beginning of the periods
presented. The selected pro forma condensed consolidated financial data is not
necessarily indicative of the results that would have been reported had such
transactions actually occurred on the dates specified, nor are they indicative
of the Registrants' future results. The selected pro forma condensed
consolidated financial data should be read in conjunction with the Registrants'
and RIH's audited financial statements, and those notes thereto, appearing
elsewhere in this registration statement. The selected pro forma condensed
consolidated financial data is based on and should be read in conjunction with,
and are qualified in their entirety by, the historical and pro forma financial
statements and notes thereto of the Registrants and the historical financial
statements and notes thereto of RIH, including "Management's Discussion and
Analysis of Financial Condition and Results of Operations" relating thereto,
appearing elsewhere in this registration statement.
As discussed in Note 2 of the RIH financial statements for the year ended
December 31, 2000, appearing elsewhere in this registration statement, RIH did
not record an impairment charge under the provisions of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets." SINA,
who is the ultimate parent company of RIH, did record a loss on assets held for
sale in the fourth quarter of 2000, as a result of entering into the agreement
to sell RIH. However, RIH measured the recoverability of its long-lived assets
on the undiscounted cash flows of RIH on a held for use basis. Accordingly, the
following pro forma information reflects a reduction in depreciation and
amortization expense resulting from the reduction in the carrying value of fixed
assets and goodwill because the purchase price allocated to fixed assets and
goodwill was less than the carrying value of those assets on RIH's books prior
to the acquisition.
-22-
Until April 25, 2001, RIH was a wholly-owned subsidiary of SINA. SINA
provided certain services during these periods for which RIH paid management
fees. Adjustments have been made to account for the elimination of these fees.
The pro forma adjustments are based upon available information and upon
certain assumptions that the Registrants believe are reasonable under the
circumstances.
-23-
FOR THE SIX MONTHS
ENDED FOR THE YEAR ENDED
JUNE 30, 2001 DECEMBER 31, 2000
-------------------------------------- ------------------------------------
Pro Forma RIH Pro Forma
Historical As Adjusted Historical As Adjusted
----------------- ------------------- --------------- ------------------
REVENUES: ($ in thousands)
Casino................................. $109,554 $109,554 $224,259 $224,259
Lodging................................ 6,656 6,656 16,412 16,412
Food and beverage...................... 11,760 11,760 26,039 26,039
Other.................................. 2,832 2,832 4,973 4,973
Less casino promotional allowances... (12,149) (12,149) (25,288) (25,288)
----------------- ------------------- ---------------- ------------------
Total net revenues.................. 118,653 118,653 246,395 246,395
COST AND EXPENSES:
Casino................................. 67,576 67,576 146,324 146,324
Lodging................................ 1,587 1,587 4,186 4,186
Food and beverage...................... 6,335 6,335 14,716 14,716
Other operating........................ 12,668 12,668 25,668 25,668
Selling, general and administrative.... 16,387 17,009 (1) 37,727 33,019 (1)
Depreciation and amortization.......... 6,545 3,422 (2) 17,034 6,864 (2)
----------------- ------------------- ---------------- ------------------
Total costs and expenses............ 111,098 108,597 245,655 230,777
----------------- ------------------- ---------------- ------------------
Operating income........................... 7,555 10,056 740 15,618
Other income (expense)
Interest and other income........... 705 705 1,557 1,557
Interest expense.................... (9,592) (5,623)(3) (24,703) (12,033)(3)
Other expense....................... (86) (86) - -
----------------- ------------------- ---------------- ------------------
Income (loss) before income taxes.......... (1,418) 5,052 (22,406) 5,142
Provision for income taxes................. (1,337) (2,021) - (2,057)
----------------- ------------------- ---------------- ------------------
Net income (loss).......................... $(2,755) $3,031 $(22,406) $3,085
================= =================== ================ ==================
- -----------------
(1) Selling, general and administrative expenses are adjusted to recognize: (a)
the elimination of management fees paid to SINA that were terminated as
part of the Purchase Agreement, (b) additional lease payments to SINA for
certain undeveloped real estate under the Lease Agreement and (c)
additional stand-alone contractual costs resulting from the transaction.
(2) Depreciation and amortization expense is adjusted to reflect: (a) the
reduction in value of property and equipment to reflect the fair market
value of the assets and (b) the elimination of existing goodwill.
(3) Interest expense is adjusted to recognize: (a) additional interest expense
related to the borrowing under the new Credit Facility and the Seller Note,
(b) the elimination of interest expense related to the former revolving
credit agreement and senior subordinated unsecured notes, (c) a reduction
in interest expense related to the amortization of the premium recorded on
the former senior subordinated unsecured notes, (d) additional interest
expense related to the amortization of deferred financing costs incurred
with the new Credit Facility and (e) the decrease of amortization expense
related to former debt issuance costs.
(4) Provision for income taxes is adjusted to recognize the effects of the
foregoing adjustments on the provision for income taxes based on the
Parent's effective tax rate.
-24-
Selected Historical Financial Data
The following table sets forth the selected historical financial data of
RIH as of and for each of the years in the five-year period ended December 31,
2000, and as of and for the six-month periods ended June 30, 2000 and 2001. The
selected historical financial data as of and for the six months ended June 30,
2001 includes a combination of the following: (i) RIH's consolidated accounts
for the period January 1, 2001 to April 24, 2001 and (ii) the Parent's
consolidated accounts for the period April 25, 2001 to June 30, 2001. The
statement of operations and balance sheet data as of and for each of the years
in the five-year period ended December 31, 2000 are derived from RIH's audited
financial statements and related notes thereto. The audited financial statements
of RIH and related notes thereto as of December 31, 1998, 1999 and 2000 and for
the years then ended appear elsewhere in this registration statement. Arthur
Andersen, LLP's report with respect to the financial statements for the fiscal
years ended December 31, 1998, 1999 and 2000 is included elsewhere in this
registration statement. The statement of operations and balance sheet data as of
and for each of the six-month periods ended June 30, 2000 and 2001 are
unaudited; however, in the opinion of management, all included adjustments
consist only of normal recurring adjustments necessary for a fair presentation
of the results for such periods. The results for such periods should not be
considered indicative of results for a full fiscal year. The selected financial
historical data is not necessarily indicative of the Registrants' or RIH's
future results of operations or financial condition, and should be read in
conjunction with "Management's Discussion and Analysis of RIH's Financial
Condition and Results of Operations" and RIH's financial statements, including
the notes thereto, appearing elsewhere in this registration statement.
UNAUDITED SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------------- -----------------------
1996 1997 1998 1999 2000 2000 2001
----------- ----------- ----------- ----------- ----------- ----------- -----------
REVENUES: ($ in thousands) ($ in thousands)
Casino.................. $241,408 $227,574 $219,854 $210,758 $224,259 $108,756 $109,554
Lodging.................. 16,010 16,514 16,148 15,160 16,412 8,115 6,656
Food and beverage....... 27,867 27,085 26,692 25,512 26,039 12,898 11,760
Other................... 9,534 11,344 11,460 8,076 4,973 2,187 2,832
Less casino promotional
allowances............. (26,272) (28,465) (28,295) (26,632) (25,288) (12,209) (12,149)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total net revenues...... 268,547 254,052 245,859 232,874 246,395 119,747 118,653
----------- ----------- ----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Casino.................. 146,247 136,977 131,673 141,803 146,324 72,247 67,576
Lodging................. 3,604 3,036 3,454 2,929 4,186 1,986 1,587
Food and beverage....... 16,747 15,973 16,638 15,401 14,716 7,750 6,335
Other operating......... 35,193 33,045 30,509 28,762 25,668 12,920 12,668
Selling, general and
administrative......... 44,090 37,988 37,513 35,568 37,727 19,285 16,387
Depreciation and
amortization........... 13,851 14,452 14,722 16,737 17,034 8,998 6,545
Preopening.............. -- -- -- 5,398 -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total costs and expenses 259,732 241,471 234,509 246,598 245,655 123,186 111,098
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating income (loss). 8,815 12,581 11,350 (13,724) 740 (3,439) 7,555
Interest expense, net.. (15,936) (15,509) (16,861) (19,639) (23,146) (11,306) (8,887)
Other expenses......... -- -- -- -- -- -- (86)
Loss before income taxes (7,121) (2,928) (5,511) (33,363) (22,406) (14,745) (1,418)
Provision for income taxes (1,337)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Loss before extraordinary
item................... (7,121) (2,928) (5,511) (33,363) (22,406) (14,745) (2,755)
Extraordinary item...... (2,957) -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net loss............... $(7,121) $(5,885) $(5,511) $(33,363) $(22,406) $(14,745) $(2,755)
=========== =========== =========== =========== =========== =========== ===========
-25-
BALANCE SHEET DATA:
Cash and cash equivalents $20,892 $43,250 $23,357 $14,541 $21,453 $13,962 $18,950
Total assets............ 351,402 391,589 386,622 417,251 410,971 405,636 173,705
Long-term debt, net..... 156,210 205,925 205,940 272,374 278,337 272,298 89,500
Stockholders' equity.... $118,083 $119,148 $113,637 $79,901 $57,495 $65,156 $42,513
OTHER OPERATING DATA:
Net cash provided by (used
in) operating activities $(584) $14,967 $10,419 $(20,443) $(3,742) $(12,017) $11,041
Net cash provided by (used
in) investing activities (16,196) (22,861) (24,792) (44,652) (14,296) (5,361) (102,392)
Net cash provided by (used
in) financing activities (355) 29,502 (5,520) 56,279 24,950 16,799 116,344
EBITDA (1)........... 34,265 36,005 35,993 10,143 25,063 9,660 14,101
Capital expenditures(2). $13,126 $19,739 $21,837 $41,906 $11,692 $4,067 $4,056
OPERATING STATISTICS:
Table games drop........ $470,924 $ 458,608 $415,609 $454,820 $466,978 $225,602 $222,688
Hold %.................. 15.1% 14.9% 14.8% 13.6% 14.9% 14.8% 14.0%
Table games units (3)... 81 82 76 69 69 67 73
Win per unit per day.... $2,405 $ 2,283 $2,217 $2,456 $2,763 $2,738 $2,360
Slot handle............. $2,049,594 $1,947,023 $1,822,418 $1,683,519 $1,924,629 $911,047 $1,015,403
Hold %.................. 8.0% 7.9% 8.6% 8.7% 7.9% 8.1% 7.6%
Slot units (3).......... 2,350 2,299 2,253 2,033 2,298 2,256 2,425
Win per unit per day.... $191 $183 $191 $197 $181 $180 $176
Gaming square footage,
including simulcasting. 75,713 75,713 75,713 75,713 76,454 75,713 78,442
Room inventory.......... 662 662 662 651 644 644 644
(1) EBITDA is defined as earnings before interest, taxes, depreciation and
amortization, management fees, construction contingency, CRDA bond
discount and extraordinary item. EBITDA is provided because it is a
measure of financial performance commonly used as an indicator of a
company's historical ability to service debt. EBITDA is presented to
enhance an investor's understanding of RIH's operating results. It should
not be construed as an alternative to operating income as an indicator of
operating performance. It should also not be construed as an alternative
to cash flows from operating activities as a measure of liquidity
determined in accordance with Generally Accepted Accounting Principals
(GAAP). RIH may calculate EBITDA differently from other companies. For
further information, see RIH's financial statements and related notes
elsewhere in this registration statement.
(2) Of the capital expenditures shown, $10.9 million in fiscal year 1997 was
for acquisition of land; $1.3 million in fiscal year 1997, $9.9 million
in fiscal year 1998, $36.1 million in fiscal year 1999 and $2.6 million
in fiscal year 2000 related to a major renovation to the facility,
including the casino floor and hotel public areas; and $3.5 million in
fiscal year 2000 was for construction of a bus waiting center and related
casino floor improvements. The remaining capital expenditures were
recurring capital expenditures related to the maintenance of the
facility, including the periodic purchase of new gaming equipment.
(3) During fiscal year 1999, RIH renovated a major portion of the public
areas of the facility, including parts of the casino floor. As a result
of the renovation, there was a net reduction in table game units of 7
(9.2%) until fiscal year 2001 and a reduction of 220 (9.8%) slot units on
the casino floor until completion of the bus waiting center in the later
part of the fiscal year 2000.
In the first quarter of 2001, the Emerging Issues Task Force, or the EITF,
reached a consensus on certain issues in EITF 00-22 "Accounting for "Points" and
Certain Other Time-Based Sales Incentive Offers, and Offers for Free Products or
Services to Be Delivered in the Future." EITF 00-22 requires that volume based
cash rebates or refunds be shown as a reduction of revenues effective for
quarters ending after February 15, 2001. The Parent adopted the consensus
provisions of EITF 00-22 in the first quarter of 2001. To be consistent with the
2001 presentation, approximately $4.8 million of cash rebates and refunds,
previously shown as casino expenses, were reclassified as a reduction of casino
revenues in the six months ended June 30, 2000. Similar reclassifications were
made for the twelve months ended December 31 of $17.3 million in 1996, $16.6
million in 1997, $14.9 million in 1998, $10.3 million in 1999 and $11.6 million
in 2000. This did not have any affect on previously reported operating income or
net income.
-26-
Certain reclassifications have been made to the previous years' balances
to conform with the current year presentation.
Management's Discussion and Analysis of Financial Condition and Results
of Operations
Prior to the completion of the Acquisition on April 25, 2001, the
Registrants had conducted no business other than in connection with the Purchase
Agreement and the new Credit Facility. On April 25, 2001, the Company, a
wholly-owned subsidiary of the Parent, 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. See "Item 1.
Business--The Registrants" and the financial statements of the Parent and the
Company as of June 30, 2001, included elsewhere in this registration statement.
The financial information contained in "--Liquidity," "--Capital
Expenditures and Resources" and "--Results of Operations--Comparison of Three
Months Ended June 30, 2001 and 2000" provides a comparison of the combination of
the Parent and RIH in the current year to that of RIH in the prior year.
Liquidity
RIH's principal source of liquidity is cash flow from operations. For the
six months ended June 30, 2001, cash flow from operations approximated $11.0
million, compared to cash used by operations of approximately $12.0 million in
the same period for the prior year. Since April 25, 2001, RIH also has available
for its use a five-year term revolving credit facility of $10.0 million, of
which $3.0 million was borrowed as of June 30, 2001.
RIH expended approximately $4.1 million on capital improvements and
replacements for the six months ended June 30, 2001 and $4.1 million for the
comparable period ended June 30, 2000. RIH plans to expend approximately $10.0
million in the aggregate for the year ended December 31, 2001, including $5.0
million that was expended to convert a closed nightclub to a slot parlor with
258 slot machines, which was completed June 30, 2001, and the purchase of
additional slot machines, with the remainder being used for ordinary maintenance
and other improvements.
At June 30, 2001, RIH's cash and cash equivalents were $19.0 million as
compared to $14.0 million at June 30, 2000. The increase over prior year is
primarily attributable to the discontinuance of payments to SINA for interest on
intercompany borrowings and other intercompany charges in accordance with the
Purchase Agreement and improved operating results. 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. Due to the change in RIH's indebtedness following the
Acquisition, RIH's long-term debt decreased from $272.3 million at June 30, 2000
to $89.5 million at June 30, 2001. RIH's total debt at June 30, 2001 consisted
of $78.2 million in term loans under the new Credit Facility, a $17.5 million
subordinate note issued by the Parent to SINA and $3.0 million outstanding on a
$10.0 million revolving credit facility.
As of April 25, 2001, the Acquisition was completed. In connection with
the closing of the Acquisition, Mr. Ribis, Colony IV and Voteco were issued
shares of the Parent's capital
-27-
stock in exchange for $42.5 million in cash, the Company and RIH entered into a
new Credit Facility, RIH was released from its then outstanding debt obligations
and the Parent issued a subordinated note of $17.5 million to SINA. The new
Credit Facility is structured as term loan facilities, in an aggregate principal
amount of $80.0 million, and a revolving credit facility, in an aggregate
principal amount of $10.0 million. Immediately following the close of the
Acquisition, the Parent had outstanding $80.0 million in term loans and $2.0
million on the new revolving credit line.
The term loan facilities are structured as a term loan A facility in an
aggregate principal amount of $25.0 million, and a term loan B facility in an
aggregate principal amount of $55.0 million. The term loan A facility will
mature on the last business day of December 2005. This loan will amortize
principal on a quarterly basis, beginning with the first full quarter after
April 25, 2001. Interest will be based, at the Company's option, at the lower of
the London Inter-Bank Offering Rate, or LIBOR, plus 3.5% per annum or an
alternative base rate, or ABR, plus 2.5% per annum. The term loan B facility
will amortize principal on a quarterly basis, beginning with the first full
quarter after April 25, 2001. Interest will be based, at the Company's option,
at the lower of LIBOR plus 4.5% per annum or an ABR plus 3.5% per annum.
The $17.5 million note issued by the Parent to SINA, is subordinated to
the term loans and has a seven-year term. This loan bears interest at 12.5% per
annum of which 6.25% is payable in cash and 6.25% is paid in kind. Principal is
due in full on April 25, 2008.
As of April 25, 2001, the Company also has available for its use a
five-year term revolving credit facility of $10.0 million. The revolving credit
facility bears interest based on the same terms as the term loan A facility,
accrues commitment fees on the unused balance of 0.5% per annum, and has due and
payable yearly on April 25th a $45,000 Collateral Agent Fee.
The agreements covering term loan A facility, term loan B facility, the
revolving credit facility, and the $17.5 million note contain certain covenants.
The covenants under these agreements, among other things, subject to applicable
gaming approvals, restrict the Company's ability to dispose of assets, incur
additional indebtedness, pay dividends, create liens on assets, make
investments, loans or advances, engage in certain transactions with affiliates,
and otherwise restrict certain corporate activities. In addition, under the new
Credit Facility, the Company is required to:
o maintain minimum levels of EBITDA, as defined in the agreement,
o maintain a consolidated leverage ratio, as defined, of less than
3.20, 2.85, 2.5 and 2.0 for the twelve months ended June 30, 2001,
September 30, 2001, December 31, 2001 and December 31, 2002,
respectively, and other amounts as defined thereafter,
o maintain a minimum interest coverage ratio, as defined, of at least
3.50 for the period April 25, 2001 through June 30, 2001, 3.5 for
the quarterly periods ended September 30, 2001 and December 31,
2001, 4.0 for the annual period ended December 31, 2002, and other
amounts as defined thereafter,
-28-
o maintain a minimum fixed charge coverage ratio, as defined, of 1.05
for the quarterly periods ended June 30, 2001, September 30, 2001
and December 31, 2001 and 1.05 for the annual periods thereafter,
and
o limit capital expenditures to $10.0 million for the quarterly
periods ended June 30, 2001 and September 30, 2001, $11.5 million
for the quarter ended December 31, 2001 and $12.3 million plus 25%
of excess cash flow, as defined, for the annual periods thereafter.
The new Credit Facility contains events of default customary for facilities of
this nature.
Management believes that its existing cash and projected operating cash
flows, combined with its borrowing capacity under the revolving credit facility,
will be sufficient to meet the cash requirements of its existing operations,
including maintenance, capital improvements and debt service requirements, for
at least the next twelve months. Management currently believes that cash
requirements of its existing operations beyond the next twelve months will
consist of debt service requirements and capital improvements and replacements
in the ordinary course of business, which management expects to be met by
then-existing cash, cash flows from operations and borrowing capacity under the
revolving credit facility.
Capital Expenditures and Resources
On June 30, 1999, the former owners of RIH completed the renovation of
Resorts Atlantic City. The construction included extensive renovations to the
casino floor, hotel lobby, guestrooms and suites, restaurants and public areas.
The renovation also included adding an additional restaurant, VIP player lounge
and Club 1133. Club 1133 was closed early this year and on June 30, 2001, 258
slot machines were installed in its former location.
In 2000, RIH invested $11.7 million in capital expenditures, which
included $3.5 million for the construction of a bus transportation center. Other
capital expenditures included the purchase of approximately 280 slot machines
and computer equipment.
In November 2000, RIH completed construction and opened a bus
transportation center. The transportation center includes a 200-seat passenger
waiting area and nine parking bays for buses. This project allowed RIH to add 86
slot machines to its existing casino floor. The project cost $3.5 million and
was funded by operating cash flows.
The Company is considering the construction of a new hotel tower on the
site of its existing 166 room Atlantic City Tower that was constructed in 1961.
The Company is in the process of completing the architectural design of the
tower. The expansion is expected to add additional gaming space. The Company
anticipates demolition of the existing hotel tower could commence as soon as the
fourth quarter of 2001 and construction of the new tower as soon as the first
quarter of 2002. This project is subject to many variables including financing,
regulatory and governmental approvals and typical delays associated with
construction. The Company can give no assurances when this expansion project
will commence or if the project will be completed.
-29-
Competition for Atlantic City casino patrons remains intense. Over the
past few years, several Atlantic City casinos have expanded to add more casino
space and hotel rooms. On October 1, 1999, one casino company closed its hotel
and gaming space. Construction has started on a major casino hotel in the Marina
section of Atlantic City and other operators have announced plans to expand
existing casino hotels in Atlantic City. See "Item 1. Business--Competition."
Results of Operations - Comparison of Three Months Ended June 30, 2001 and
2000
Revenues
Gaming revenues were $57.5 million for the three months ended June 30,
2001, a decrease of $1.7 million, or 2.9%, from gaming revenues for the
comparable 2000 period of $59.2 million.
Slot revenues were $41.2 million for the three months ended June 30, 2001,
an increase of $0.8 million, or 2.0%, from the comparable 2000 period of $40.4
million. This was due to an increase in slot handle, or dollar amounts wagered,
of $41.7 million, or 8.4%, to $539.9 million, partially offset by a decrease in
the net slot hold percentage to 7.6% for the three months ended June 30, 2001
from 8.1% for the comparable 2000 period.
Table game revenue were $15.5 million for the three months ended June 30,
2001, a decrease of $2.6 million, or 14.4%, from table game revenues for the
comparable 2000 period of $18.1 million. Net table games hold percentage
decreased to 13.1% for the three months ended June 30, 2001 from 15.4% for the
comparable 2000 period, partially offset by an increase in table games drop, or
the dollar amount of chips purchased, of $1.5 million, or 1.3%, to $118.6
million for the three months ended June 30, 2001 from $117.1 million for the
comparable 2000 period.
Simulcast Revenues were $0.8 million for the three months ended June 30,
2001, an increase of $0.1 million, or 14.3%, from the comparable 2000 period of
$0.7 million.
Room revenues were $3.6 million for the three months ended June 30, 2001,
a decrease of $1.0 million, or 21.7%, from the comparable 2000 period of $4.6
million. Room revenues decreased due to a lower average room rate. The average
room rate was $66.41 for the three months ended June 30, 2001, a decrease of
$20.19, or 23.3%, from the comparable 2000 period of $86.60. The reduction in
average room rate is attributable to a reduction in the complimentary room rate
of $25.36, or 28.6%, to $63.22 for the three months ended June 30, 2001 from
$88.58 for the comparable 2000 period. For the same periods, cash room rates
decreased $6.98, or 8.5%, to $75.54 in 2001 from $82.52 in 2000. The occupancy
rate was 92.8% for the three months ended June 30, 2001 versus 91.5% for the
comparable period in 2000.
Food and beverage revenues were $6.4 million for the three months ended
June 30, 2001, a decrease of $0.5 million, or 7.2%, from the comparable 2000
period of $6.9 million. The decrease is mainly due to the closure of a nightclub
and decreased days of operation at certain restaurants.
-30-
Other revenues, which include revenues from entertainment and other
miscellaneous items, were $1.7 million for the three months ended June 30, 2001,
an increase of $0.5 million, or 41.7%, from the comparable 2000 period.
Entertainment revenues were $0.6 million for the three months ended June 30,
2001, an increase of $0.3 million, or 79.1%, from the comparable 2000 period,
due to an increase in the number of headliner acts from the comparable 2000
period.
Costs and Expenses
Gaming costs and expenses were $34.5 million for the three months ended
June 30, 2001, a decrease of $3.1 million, or 8.2%. The decrease is mainly due
to reduced promotional and marketing expenses as RIH adjusted its marketing
strategy to target more profitable segments of the gaming market.
Lodging costs and expenses were $931,000 for the three months ended June
30, 2001, a decrease of $32,000, or 3.4%, from the comparable 2000 period of
$963,000. The decrease in costs is attributable to reduced labor costs and
operating expenses as a result of operational efficiencies.
Selling, general and administrative costs were $8.3 million for the three
months ended June 30, 2001, a decrease of $1.7 million, or 17.0%, from expenses
for the comparable 2000 period of $10.0 million. The decrease is due to the
elimination of SINA's management fees as of October 1, 2000 resulting in a $2.2
million reduction from prior year offset by an increase in payable related
costs.
Results of Operations - Comparison of Six Months Ended June 30, 2001 and
2000
Revenues
Gaming revenues were $109.6 million for the six months ended June 30,
2001, an increase of $0.8 million, or 0.7%, from gaming revenues for the
comparable 2000 period of $108.8 million.
Slot revenues were $76.8 million for the six months ended June 30, 2001,
an increase of $2.7 million, or 3.6%, from the comparable 2000 period of $74.1
million. This was due to an increase in slot handle, or dollar amounts wagered,
of $104.4 million, or 11.5%, to $1,015.4 million, partially offset by a decrease
in the net slot hold percentage to 7.6% for the six months ended June 30, 2001
from 8.1% for the comparable 2000 period.
Table game revenue were $31.3 million for the six months ended June 30,
2001, a decrease of $2.1 million, or 6.3%, from table game revenues for the
comparable 2000 period of $33.4 million. Net table games hold percentage
decreased to 14.0% for the six months ended June 30, 2001 from 14.8% for the
comparable 2000 period. Table games drop, or the dollar amount of chips
purchased, decreased $2.9 million, or 1.3%, to $222.7 million for the six months
ended June 30, 2001 from $225.6 million for the comparable 2000 period.
Simulcast revenues were $1.5 million for the six months ended June 30,
2001, an increase of $0.2 million, or 15.4%, from the comparable 2000 period of
$1.3 million.
-31-
Room revenues were $6.7 million for the six months ended June 30, 2001, a
decrease of $1.4 million, or 17.3%, from the comparable 2000 period of $8.1
million. Room revenues decreased due to a lower average room rate. The average
room rate was $66.58 for the six months ended June 30, 2001, a decrease of
$14.66, or 18.0%, from the comparable 2000 period of $81.24. The reduction in
average room rate is attributable to a reduction in the complimentary room rate
of $20.40, or 24.2%, to $63.80 for the three months ended June 30, 2001 from
$84.20 for the comparable 2000 period. The occupancy rate was 88.8% for the six
months ended June 30, 2001 versus 88.1% for the comparable period in 2000.
Food and beverage revenues were $11.8 million for the six months ended
June 30, 2001, a decrease of $1.1 million, or 8.5%, from the comparable 2000
period of $12.9 million. The decrease is mainly due to the closure of a
nightclub and decreased days of operation at certain restaurants.
Other revenues, which include revenues from entertainment and other
miscellaneous items, were $2.8 million for the six months ended June 30, 2001,
an increase of $0.6 million, or 27.3%, from the comparable 2000 period.
Entertainment revenues were $1.0 million for the six months ended June 30, 2001,
an increase of $0.4 million, or 66.7%, from the comparable 2000 period, due to
an increase in the number of headliner acts from the comparable 2000 period.
Costs and Expenses
Gaming costs and expenses were $67.6 million for the six months ended
June 30, 2001, a decrease of $4.6 million, or 6.4%. The decrease is mainly due
to reduced promotional and marketing expenses as RIH adjusted its marketing
strategy to target more profitable segments of the gaming market.
Lodging costs and expenses were $1.6 million for the six months ended
June 30, 2001, a decrease of $0.4 million, or 20.0%, from the comparable 2000
period of $2.0 million. The decrease in costs is attributable to reduced labor
costs and operating expenses as a result of operational efficiencies.
Selling, general and administrative costs were $16.4 million for the six
months ended June 30, 2001, a decrease of $2.9 million, or 15.0%, from expenses
for the comparable 2000 period of $19.3 million. The decrease is due to the
elimination of SINA's management fees as of October 1, 2000 resulting in a $4.1
million reduction from prior year, offset by an increase in payroll related
costs.
Results of Operations - Comparison of Years Ended December 31, 2000 and
1999
Revenues
Gaming revenues were $224.3 million for the year ended December 31, 2000,
an increase of $13.5 million, or 6.4%, from gaming revenues for the comparable
1999 period of $210.8 million. All sources of gaming revenues showed increases
for this period.
Slot revenues were $152.0 million for the year ended December 31, 2000, an
increase of $5.3 million, or 3.6%, from the comparable 1999 period. This was due
to an increase in slot
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handle, or dollar amounts wagered, of $241.1 million, or 14.3%, to $1,924.6
million, partially offset by a decrease in the net slot hold percentage to 7.9%
for the year ended December 31, 2000 from 8.7% for the comparable 1999 period.
In 2000, RIH instituted several effective marketing initiatives that had
favorable impact on slot revenues.
Table game revenue were $69.6 million for the year ended December 31,
2000, an increase of $7.6 million, or 12.3%, from table game revenue for the
comparable 1999 period of $62.0 million. This increase resulted from an increase
in the net table game hold percentage to 14.9% for the year ended December 31,
2000, from 13.6% for the comparable 1999 period and higher table game drop, or
the dollar amount of chips purchased, of $12.2 million, or 2.7%, to $467.0
million for the year ended December 31, 2000, from $454.8 million for the
comparable 1999 period.
Simulcast revenues were $2.7 million for the year ended December 31, 2000,
an increase of $700,000, or 36.8%, from the comparable 1999 period.
Room revenues were $16.4 million for the year ended December 31, 2000, an
increase of $1.2 million, or 7.9%, from the comparable 1999 period. Room
revenues increased due to higher occupancy and average room rate. Room occupancy
was 87.2% for the year ended December 31, 2000, an increase of 3.5% over the
comparable 1999 period. The average room rate was $80.77 for the year ended
December 31, 2000, an increase of $3.25, or 4.2%, over the comparable 1999
period. The higher occupancy resulted from increased emphasis on using the hotel
to support gaming operations.
Other revenues, which include revenues from entertainment and
miscellaneous items, were $5.0 million for the year ended December 31, 2000, a
decrease of $3.1 million, or 38.3% from the comparable 1999 period.
Entertainment revenues were $1.5 million for the year ended December 31, 2000, a
decrease of $3.5 million from the comparable 1999 period due to a reduction in
the number of headliner acts from the prior year.
Costs and Expenses
Gaming costs and expenses were $146.3 million for the year ended
December 31, 2000, an increase of $3.8 million, or 2.7%, from the comparable
1999 period. The increase represents higher costs attributable to increased
gaming revenues compared to the prior year, principally labor and casino win
tax.
Lodging costs and expenses were $4.2 million for the year ended
December 31, 2000, an increase of $1.3 million, or 44.8%, from the comparable
1999 period. The increase is directly attributable to increased occupancy
compared to the prior year.
Selling, general and administrative costs were $37.7 million for the year
ended December 31, 2000, a decrease of $1.9 million, or 4.8%, from expenses for
the comparable 1999 period of $39.6 million. The decrease is a result of the
elimination of management fees during the fourth quarter of 2000.
Interest expense, net of amortization and interest income, was $23.1
million for the year ended December 31, 2000, an increase of $3.5 million, or
17.9%, from the comparable 1999
-33-
period. The increase is directly attributable to a higher level of advances from
SINA's credit facility.
Results of Operations - Comparison of Years Ended December 31, 1999 and
1998
Revenues
For the year 1999, gaming revenues were lower than the previous year by
$9.1 million, or 4.1%. The decrease consisted of a reduction in slot revenues
partially offset by an increase in table game revenue.
Slot revenues decreased in 1999 by $9.3 million, or 5.9%, mainly due to a
decrease in slot handle, or dollar amounts wagered, of $138.9 million, or 7.6%.
Beginning in February 1999, Resorts Atlantic City had taken out of service
and/or removed from the casino floor as many as 800 slot machines during the
renovation of Resorts Atlantic City. As a result, there was an average of 2,033
slot machines in service during the year 1999 compared to 2,253 in 1998.
Table game revenue increased in 1999 by $393,000, or 0.6%, over the
previous year. This was primarily due to an increase in table game drop, or the
dollar amount of chips purchased, of $39.2 million, or 9.4%, which was partially
offset by a reduction in the net hold percentage to 13.6% in 1999 from 14.8% in
1998.
RIH also experienced slight decreases in room and food and beverage
revenues for the year ended 1999 as a result of the renovation. Throughout the
year, in order to complete the renovation of its existing hotel rooms and
suites, RIH took out of service an average of 45 rooms of its existing inventory
of 658. Upon completion of the renovation, the number of available rooms
decreased to 644 compared to 662 in 1998.
Other revenues decreased by $3.4 million in 1999 compared to the previous
year. This decrease was primarily due to lower complimentary entertainment
revenues. With the availability of the "Club 1133" entertainment lounge, which
offered free admission to patrons, there were fewer headliner shows in the main
theater.
On June 30, 1999, management completed the renovation of Resorts Atlantic
City. The construction included extensive renovations to the casino floor, hotel
lobby, guestrooms and suites, room corridors, restaurants, the hotel porte
cochere and public areas. In addition, three new restaurants were created,
replacing two older restaurants, and a VIP player lounge was constructed. As of
December 31, 1999, RIH had spent $47.3 million on the renovation. In addition,
in 1999, Resorts Atlantic City purchased approximately 340 slot machines and
leased approximately 260 slot machines. Other expenditures consisted of various
building improvement projects and computer upgrades.
Costs and Expenses
While gaming revenues were down for the year 1999, gaming expense
increased by $10.8 million. This was primarily due to increased promotional
costs which more than offset a decrease in casino win tax which is based on a
percentage of casino win. As explained above, the effect of fewer slot machines
on the floor and lower hold percentage on table games had an
-34-
unfavorable impact on casino revenues. Therefore, RIH was not able to fully
realize the effects of the increased promotional costs.
Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
The Company's exposure to interest rate risk arises principally from the
variable rates associated with its credit facilities. The interest on borrowings
are based, at the Company's option, at LIBOR plus 3.5% per annum or at an
alternative base rate, or ABR, plus 2.5% per annum for term loan A and the new
revolving credit facility and LIBOR plus 4.5% per annum or the ABR rate plus
3.5% per annum for term loan B. As of June 30, 2001, the Company had borrowings
of $82.0 million under its new Credit Facility that was subject to these
variable rates, with a blended rate of 10.6%. An adverse change of 1% in the
interest rate of all such borrowings outstanding would cause the Company to
incur an increase in interest expense of approximately $0.8 million on an annual
basis. Pursuant to the new Credit Facility, by October 22, 2001, the Company
must hedge its exposure to interest rate fluctuations by having not less than
50% of its aggregate principal amount of Indebtedness (as defined in the Credit
Agreement) be either, or any combination thereof, fixed rate debt or debt
subject to an interest rate swap, cap or collar agreement or similar arrangement
between the Company and one or more approved financial institutions providing
for the transfer or mitigation of interest risks either generally or under
specific contingencies. As of June 30, 2001, the Company had not yet hedged its
exposure to interest rate fluctuations.
ITEM 3. PROPERTIES
Casino, Hotel and Related Properties
RIH's core real estate assets consist of approximately 26 acres of
developed land and land available for development in Atlantic City which it
either owns or has an option to purchase.
Land used in the operation of the casino hotel consists of approximately
12 acres and is owned in fee simple, except for approximately 1.2 acres of the
Resorts Atlantic City site which are leased pursuant to ground leases expiring
from 2056 through 2067. The 12 acres includes approximately seven acres under
the Resorts Atlantic City building complex, approximately 3.5 acres of parking
lots available for future expansion and approximately one acre in front of the
casino hotel which is utilized for patron valet and related services.
The Company also owns an approximate 5.5 acre Atlantic Ocean pier site,
two acres of which contained the former Steeplechase Pier. The pier has been
removed and the Company has current federal and state permits to construct a new
pier on two acres of the 5.5 acre site, although no decision has been made at
this time to develop this location. Atlantic City amended its zoning ordinances
to permit casinos, hotel rooms and ancillary amusements on five of the City's
pier sites, including the Steeplechase Pier site. State environmental
regulations are currently under review as a result of these recent zoning
changes.
-35-
The Company has an option to purchase approximately 5.5 acres of real
property immediately adjacent to the Resorts Atlantic City site, pursuant to the
terms of the Option Agreement for a purchase price of $40.0 million. The Option
Agreement has a two-year term, which term may be extended for two additional
one-year terms upon the payment of a $2.5 million extension fee payable upon
each extension. The option property is zoned for casino hotel use and available
for future expansion. Some of the acreage is currently utilized as a surface
parking lot. During the option period, the Company leases the property pursuant
to the terms of the Lease Agreement.
Other Properties
The Company also owns in fee simple an approximate six acres of land
adjacent to Delaware Avenue in Atlantic City, a portion of which is utilized by
RIH for a warehouse operation servicing Resorts Atlantic City.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Parent
The table below sets forth information regarding beneficial ownership of
the Parent's class A common stock (the only class of voting securities of the
Parent) as of June 30, 2001 for:
o each stockholder who beneficially owns more than 5% of the
outstanding shares of common stock;
o each of the Parent's directors;
o each of the Parent's named executive officers; and
o all of the Parent's directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules and
regulations of the SEC. Except as indicated in the footnotes to this table and
subject to applicable community property laws, the persons named in the table
have sole voting and investment power with respect to all shares of common stock
listed as beneficially owned by them. Except as otherwise indicated, the address
for each of the Parent's named executive officers and other key executive
officers is 1133 Boardwalk, Atlantic City, New Jersey 08401.
- -------------------------------------- -------------------- ------------------
Total Shares
Name of Beneficial Owner Beneficially Owned Percent of Class
- -------------------------------------- -------------------- ------------------
Colony RIH Voteco, LLC (1) 19,950 92.6% (2)
- -------------------------------------- -------------------- ------------------
Thomas J. Barrack, Jr. (1)(3) 19,950 92.6%
- -------------------------------------- -------------------- ------------------
Nicholas L. Ribis (4) 1,605 7.4%
- -------------------------------------- -------------------- ------------------
-36-
- -------------------------------------- -------------------- ------------------
Joseph A. D'Amato 0 0%
- -------------------------------------- -------------------- ------------------
All directors and executive officers 21,555 100.0%
as a group (3 persons) (3)
- -------------------------------------- -------------------- ------------------
(1) The address of each of Mr. Barrack and Colony RIH Voteco, LLC is 1999
Avenue of the Stars, Suite 1200, Los Angeles, CA 90067. Mr. Barrack is the
sole member of Colony RIH Voteco, LLC.
(2) Pursuant to the Transfer Restriction Agreement, dated April 25, 2001,
Colony IV has the right to acquire such shares on each occasion that
shares of class B common stock of the Parent held by Colony IV would be
transferred to a proposed purchaser who, in connection with such proposed
transfer, has obtained all licenses, registrations, authorizations,
consents, waivers, orders, findings of suitability or other approvals
required to be obtained from, and has made all filings, notices or
declarations required to be made with, all gaming authorities under all
applicable gaming laws. In such event, Colony IV shall have an option to
purchase from Voteco the number of shares of class A common stock of the
Parent equal to the product of the number of shares of class A common
stock of the Parent held by Voteco and the fraction whose numerator is the
number of shares of class B common stock of the Parent proposed to be sold
by Colony IV in the Approved Sale and whose denominator is the number of
shares of class B common stock of the Parent held by Colony IV.
(3) Mr. Barrack is the Manager of Voteco, and thereby may be deemed to have
beneficial ownership of class A common stock of the Parent owned of record
by Voteco. Mr. Barrack has disclaimed beneficial ownership of such shares
of class A common stock of the Parent.
(4) Includes vested options to acquire 555 shares of class A common stock of
the Parent.
The Company
The table below sets forth information regarding beneficial ownership of
the Company's common stock as of June 30, 2001 for:
o each stockholder who beneficially owns more than 5% of the
outstanding shares of common stock;
o each of the Company's directors;
o each of the Company's named executive officers; and
o all of the Company's directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules and
regulations of the SEC. Except as indicated in the footnotes to this table and
subject to applicable community property laws, the persons named in the table
have sole voting and investment power with respect to all shares of common stock
listed as beneficially owned by them. Except as otherwise indicated, the address
for each of the Company's named executive officers and other key executive
officers is 1133 Boardwalk, Atlantic City, New Jersey 08401.
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- --------------------------------- --------------------------- ------------------
Name of Beneficial Owner Shares Beneficially Owned Percent of Class
- --------------------------------- --------------------------- ------------------
Colony RIH Holdings, Inc. (1) 100 100%
- --------------------------------- --------------------------- ------------------
Thomas J. Barrack, Jr. (2) 0 0%
- --------------------------------- --------------------------- ------------------
Nicholas L. Ribis 0 0%
- --------------------------------- --------------------------- ------------------
Joseph A. D'Amato 0 0%
- --------------------------------- --------------------------- ------------------
All directors and executive
officers as a group (3 persons) 0 0%
- --------------------------------- --------------------------- ------------------
- -------------------
(1) The principal address of Colony RIH Holdings, Inc. is 1133 Boardwalk,
Atlantic City, NJ 08401. The Company is wholly owned by Colony RIH
Holdings, Inc. and all of the outstanding common stock of the Company is
pledged to lenders under the terms of our new Credit Facility.
(2) The address of Mr. Barrack is 1999 Avenue of the Stars, Suite 1200, Los
Angeles, CA 90067.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
The Parent
The directors and executive officers of the Parent are as follows:
- ---------------------------------------- -------------------------------------- --------------------------------------
Name Age Position
- ---------------------------------------- -------------------------------------- --------------------------------------
- ---------------------------------------- -------------------------------------- --------------------------------------
Thomas J. Barrack, Jr. 54 President and Treasurer; Director
- ---------------------------------------- -------------------------------------- --------------------------------------
- ---------------------------------------- -------------------------------------- --------------------------------------
Nicholas L. Ribis 56 Vice President and Secretary;
Director
- ---------------------------------------- -------------------------------------- --------------------------------------
- ---------------------------------------- -------------------------------------- --------------------------------------
Joseph A. D'Amato 53 Vice President
- ---------------------------------------- -------------------------------------- --------------------------------------
The Company
The directors and executive officers of the Company are as follows:
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- --------------------------- ------------------- -------------------------------
Name Age Position
- --------------------------- ------------------- -------------------------------
Thomas J. Barrack, Jr. 54 President and Treasurer;
Director
- --------------------------- ------------------- -------------------------------
Nicholas L. Ribis 56 Vice President and Secretary;
Director
- --------------------------- ------------------- -------------------------------
Joseph A. D'Amato 53 Vice President
- --------------------------- ------------------- -------------------------------
RIH
The directors and executive officers of RIH are as follows:
- --------------------------- ------------------- -------------------------------
Name Age Position
- --------------------------- ------------------- -------------------------------
Thomas J. Barrack 54 Director
- --------------------------- ------------------- -------------------------------
Nicholas L. Ribis 56 Director
- --------------------------- ------------------- -------------------------------
Robert L. Clifford 77 Director
- --------------------------- ------------------- -------------------------------
Audrey Oswell 44 Chief Operating Officer and
President
- --------------------------- ------------------- -------------------------------
Joseph A. D'Amato 53 Chief Financial Officer and
Senior Vice President of
Finance
- --------------------------- ------------------- -------------------------------
Nicholas Amato 61 Senior Vice President and
General Counsel
- --------------------------- ------------------- -------------------------------
Alan Rivin 48 Senior Vice President Hotel
Operations
- --------------------------- ------------------- -------------------------------
Rosalind Krause 40 Senior Vice President Casino
Operations
- --------------------------- ------------------- -------------------------------
Joseph Weis 47 Vice President Information
Technology
- --------------------------- ------------------- -------------------------------
THOMAS J. BARRACK, JR. serves as director of the Parent, the Company and
RIH. He has held this position with the Parent, the Company and RIH since March
2001, October 2000 and August 2001, respectively. He also serves as President
and Treasurer for the Parent and the Company. He has held these positions with
the Parent and the Company since March 2001 and October 2000, respectively. Mr.
Barrack is the sole member of Voteco.
-39-
Mr. Barrack serves as director of Continental Airlines, Inc., Public Storage,
Inc., Kennedy-Wilson, Inc., Lucia, S.A., Olipar, S.A., Megaworld Properties &
Holdings, Inc., Aozora Bank and First Republic Bank, all publicly traded
companies. Mr. Barrack has served as Chairman and Chief Executive Officer of
each of Colony Capital, LLC and Colony Advisors, LLC since 1992 and 1991,
respectively. Colony Capital, LLC and Colony Advisors, LLC are international
real estate investment and management firms.
NICHOLAS L. RIBIS serves as director of the Parent, the Company and RIH.
He also serves as Vice President and Secretary of the Parent and the Company. He
has held these positions with the Parent, the Company and RIH since March 2001,
October 2000 and April 2001, respectively. Mr. Ribis served as President, Chief
Executive Officer and director of Trump Hotels and Casino Resorts from 1995 to
2000. Trump Hotels and Casino Resorts engages in investments in real estate and
gaming facilities. From January 1993 to January 1995, Mr. Ribis was Chairman of
the Casino Association of New Jersey, and has served for seven years on the
board of trustees of the CRDA.
ROBERT L. CLIFFORD serves as director and sole member of the audit
committee of RIH. He has held these positions since October 16, 2001. Mr.
Clifford has served and continues to serve as counsel to McElroy, Deutsch &
Mulvaney since January 1995. Mr. Clifford served on the New Jersey Supreme Court
from 1973 until his retirement in 1994. Mr Clifford served as director of the
Bank of the Somerset Hills from January 1998 to August 2000.
Audrey Oswell was appointed President and Chief Operating Officer of RIH
in February 2000. Prior to joining RIH, Ms. Oswell served as President and Chief
Operating Officer of Caesars Atlantic City, from January 1999 to February 2000,
which also included responsibility for the Sheraton Atlantic City Convention
Center Hotel and the management of Dover Downs Slots. Ms. Oswell began her
career in the Finance Department of Caesars Atlantic City in 1979, holding
various positions in the Finance and Marketing Departments, including Senior
Vice President/ Marketing and Executive Vice President/General Manager before
being appointed President and Chief Operating Officer. Ms. Oswell holds a
Masters of Business Administration degree in Marketing from Drexel University
and a Bachelor of Arts degree from Temple University.
JOSEPH A. D'AMATO serves as Vice President for both the Parent and the
Company and as the Chief Financial Officer and Senior Vice President of Finance
of RIH. He has held these positions with the Parent, the Company and RIH since
March 2001, October 2000 and August 2000, respectively. Prior to August 2000,
Mr. D'Amato served as the acting Chief Operating Officer, from May 2000 until
August 2000, and Chief Financial Officer, from November 1999 until August 2000,
of Trump Marina. Mr. D'Amato also served as the Chief Operating Officer, from
July 1997 until November 1999, and Chief Financial Officer, from April 1997
until July 1997, of Trump Indiana Inc. From January 1997 until March 1997, Mr.
D'Amato served as Vice President of the Atlantic City Hilton. Mr. D'Amato is a
certified public accountant in New Jersey and Pennsylvania.
NICHOLAS AMATO serves as Senior Vice President and General Counsel of RIH.
He has held these positions since April 2001. From January 1999 until April
2001, Mr. Amato served as the Senior Vice President of Development at Trump
Hotels and Casino Resorts. From
-40-
December 1994 to December 1996, Mr. Amato was the President of the Casino
Association of New Jersey. From November 1991 to November 1994, Mr. Amato was
the Executive Director of the CRDA.
ALAN J. RIVIN serves as Senior Vice President Hotel Operations of RIH. He
has held this position since March 2000. In this capacity, Mr. Rivin has
responsibility for all aspects of hotel operations, including food and beverage,
front office, facilities, security, housekeeping and the health spa. In
addition, the divisions retail operations and valet parking report directly to
Mr. Rivin. From January 1998 to March 2000, Mr. Rivin served as Vice President
Hotel/Food and Beverage Operations at Caesars Atlantic City. Mr. Rivin joined
Caesars Atlantic City in February 1979 as Assistant Food and Beverage Director.
Over the next 21 years, he held increasingly responsible positions including
Food and Beverage Director, Assistant Vice President of Food and Beverage, Vice
President Hotel Operations until he was named Vice President Hotel/Food &
Beverage Operations in 1998.
ROSALIND KRAUSE serves as Senior Vice President Casino Operations of RIH.
She has held this position since July 2001. From March 2000 to July 2001, Ms.
Krause was Vice President Casino Operations/Marketing of RIH. From April 1988 to
March 2000, Ms. Krause was employed at Caesars Atlantic City as the Vice
President of Casino Operations/ Marketing Services. In 1988, Ms. Krause joined
Caesars' Atlantic City as a Table Game Pit Manager. During the next 12 years,
Ms. Krause held numerous management positions, including Director of VIP
Services, Assistant Vice President of Casino Marketing and Vice President Casino
Services.
JOSEPH WEIS serves as Vice President Information Technology of RIH. He has
held this position since June 2000. Prior to joining RIH, Mr. Weis spent sixteen
years with the Caesars World organization, serving most recently as Vice
President of Finance and Information Systems for Caesars Atlantic City. In
addition, Mr. Weis served as acting Chief Financial Officer for Caesars Atlantic
City's transition to Park Place Entertainment. Mr. Weis has also held the
positions of Chief Information Officer and Special Projects Director at Caesars
Atlantic City and Director of Internal Audit for Caesars World, Inc. Mr. Weis is
a certified public accountant in New Jersey.
ITEM 6. EXECUTIVE COMPENSATION
The Parent and the Company currently pay no compensation to any of their
executive officers.
The following table sets forth the compensation paid by RIH during the
fiscal year ended December 31, 2000 to the Chief Operating Officer of RIH, to
the former Chief Operating Officer of RIH and each of the four other most highly
compensated executive officers of RIH as of December 31, 2000.
-41-
Annual Compensation
-----------------------------------------------
Other Annual
Compensation
Name and Principal Position Year Salary ($) Bonus ($) ($) (1)
- --------------------------------- ---------- -------------- ---------------- --------------
Audrey Oswell (2)................ 2000 496,168 75,000
President and Chief
Operating Officer
George Papanier (3).............. 2000 125,962 -- 375,000
Executive Vice President
and Chief Operating
Officer
Joseph A. D'Amato (4) ........... 2000 70,292 30,080
Senior Vice President of
Finance and Chief Financial
Officer
Lyndon Stockton (5).............. 2000 300,000 30,846 --
Senior Vice President
Corporate Casino Sales
John Daniels (6)................. 2000 232,058 30,000 --
Senior Vice President
Corporate Development and
General Counsel
Alan J. Rivin (7)................ 2000 161,549 30,000 --
Senior Vice President Hotel
Operations
- --------------
1. Severance compensation.
2. On February 25, 2000, Ms. Oswell was appointed RIH's President and Chief
Operating Officer.
3. Mr. Papanier served as RIH's Executive Vice President and Chief Operating
Officer from May 14, 1997 to February 24, 2000.
4. Mr. D'Amato was appointed RIH's Senior Vice President of Finance and Chief
Financial Officer in August 2000.
5. Mr. Stockton served as RIH's Senior Vice President of Corporate Casino
Sales from August 9, 1999 to April 25, 2001.
6. Mr. Daniels served as RIH's Senior Vice President of Corporate Development
and General Counsel from November 5, 1997 to March 30, 2001.
7. Mr. Rivin was appointed RIH's Senior Vice President of Hotel Operations on
March 6, 2000.
Employment Agreements
RIH entered into an employment agreement with Audrey Oswell on
February 18, 2000. Ms. Oswell is currently serving as RIH's Chief Operating
Officer and President. The current term of this agreement expires on
February 26, 2002. RIH currently pays Ms. Oswell an annual base salary of
$600,000. Ms. Oswell is eligible to receive an annual bonus of 50% of her annual
base salary in the event that EBITDA for RIH for the six months ended December
31, 2000 is in excess of $18.0 million. In the event EBITDA for RIH for such
period is in excess of $21.5 million, Ms. Oswell will be paid a total bonus of
100% of her annual base salary. Under this agreement, Ms. Oswell is entitled to
a monthly automobile allowance of $2,000 and RIH will
-42-
pay all insurance premiums on such automobile. The following termination
benefits are provided by this agreement:
o if Ms. Oswell is terminated for "cause," as defined in the
agreement, she will receive no additional compensation or
termination benefits other than accrued and unpaid base salary and
accrued and unused vacation pay and any other benefits to which she
is entitled to under any applicable employee benefit plan or program
or by reason of applicable law;
o if Ms. Oswell is terminated "without cause," as defined in the
agreement, she will receive a lump sum payment equal to the greater
of six months base salary or an amount equal to her base salary for
the remainder of the agreement's term, and her medical and dental
benefits until she is enrolled in the medical plans of her new
employer or the term of the agreement expires;
o if Ms. Oswell "voluntarily terminates" her employment, as defined in
the agreement, she will receive no additional compensation or
termination benefits other than accrued and unpaid base salary and
accrued and unused vacation pay; and
o if Ms. Oswell is terminated without cause within six months of or
voluntarily resigns after three months but within six months of a
"change of control," as defined in the agreement, she will receive a
lump sum payment equal to the greater of the amount that would
otherwise be payable to her as base salary for the remainder of the
agreement's term or one year's base salary.
This agreement also entitles Ms. Oswell to participate in RIH's other standard
benefit programs and contains customary confidentiality and competition
provisions.
RIH entered into an employment agreement with Joseph D'Amato on August 29,
2000. Mr. D'Amato is currently serving as RIH's Chief Financial Officer and
Senior Vice President of Finance. The current term of this agreement expires on
August 29, 2002. RIH currently pays Mr. D'Amato an annual base salary of
$215,000. Under this agreement, Mr. D'Amato received a one-time bonus payment
equal to $5,000 on August 29, 2000. Mr. D'Amato is also eligible to participate
in RIH's bonus program. The following termination benefits are provided by this
agreement:
o if Mr. D'Amato either voluntarily terminates his employment or is
terminated for "cause," as defined in the agreement, he will receive
no additional compensation or termination benefits other than
accrued but unpaid base salary and accrued and unused vacation pay;
o if Mr. D'Amato is terminated other than for "cause," he will receive
a lump sum payment equal to six months of his base salary and
medical benefits for the lesser of the period of time for which he
is not enrolled in a subsequent employer's medical benefits plan or
six months from the date of his termination; and
-43-
o if Mr. D'Amato is terminated other than for "cause" upon a change of
control in the ownership of RIH, he will receive a lump sum payment
equal to the greater of six months of his base salary or the
remaining term of the agreement, not to exceed twelve months.
This agreement also entitles Mr. D'Amato to participate in RIH's other standard
benefit programs and contains customary confidentiality and competition
provisions.
RIH entered into an employment agreement with Alan J. Rivin on March 8,
2000. Mr. Rivin is currently serving as RIH's Senior Vice President Hotel
Operations. The current term of this agreement expires on March 6, 2002. RIH
currently pays Mr. Rivin an annual base salary of $200,000. Mr. Rivin is
eligible to participate in RIH's bonus program. The following termination
benefits are provided by this agreement:
o if Mr. Rivin either voluntarily terminates his employment or is
terminated for "cause," as defined in the agreement, he will receive
no additional compensation or termination benefits other than
accrued but unpaid base salary and accrued and unused vacation pay;
and
o if Mr. Rivin is terminated other than for "cause," he will receive a
lump sum payment equal to six months of his base salary and medical
benefits for the lesser of the period of time for which he is not
enrolled in a subsequent employer's medical benefits plan or six
months from the date of his termination.
This agreement also entitles Mr. Rivin to participate in RIH's other standard
benefit programs and contains customary confidentiality and competition
provisions.
RIH entered into an employment agreement with Rosalind Krause on March 6,
2000. Ms. Krause is currently serving as RIH's Senior Vice President Casino
Operations. The current term of this agreement expires on March 6, 2002. RIH
currently pays Ms. Krause an annual base salary of $175,000. Ms. Krause is
eligible to participate in RIH's bonus program. The following termination
benefits are provided by this agreement:
o if Ms. Krause either voluntarily terminates her employment or is
terminated for "cause," as defined in the agreement, she will
receive no additional compensation or termination benefits other
than accrued but unpaid base salary and accrued and unused vacation
pay; and
o if Ms. Krause is terminated other than for "cause," she will receive
a lump sum payment equal to six months of her base salary and
medical benefits for the lesser of the period of time for which she
is not enrolled in a subsequent employer's medical benefits plan or
six months from the date of her termination.
This agreement also entitles Ms. Krause to participate in RIH's other standard
benefit programs and contains customary confidentiality and competition
provisions.
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RIH entered into an employment agreement with Joseph Weis on June 5, 2000.
Mr. Weis is currently serving as RIH's Vice President Information Technology.
The current term of this agreement expires on June 5, 2002. RIH currently pays
Mr. Weis an annual base salary of $165,000. Mr. Weis is eligible to participate
in RIH's bonus program. The following termination benefits are provided by this
agreement:
o if Mr. Weis either voluntarily terminates his employment or is
terminated for "cause," as defined in the agreement, he will receive
no additional compensation or termination benefits other than
accrued but unpaid base salary and accrued and unused vacation pay;
and
o if Mr. Weis is terminated other than for "cause," he will receive a
lump sum payment equal to six months of his base salary and medical
benefits for the lesser of the period of time for which he is not
enrolled in a subsequent employer's medical benefits plan or six
months from the date of his termination.
This agreement also entitles Mr. Weis to participate in RIH's other standard
benefit programs and contains customary confidentiality and competition
provisions.
Vice Chairman's Agreement
The Parent and the Company entered into a Vice Chairman's Agreement with
Nicholas L. Ribis on April 25, 2001, as amended. Mr. Ribis is currently serving
as a director of the Parent, the Company and RIH. The current term of this
agreement expires on April 25, 2006. The Company currently pays Mr. Ribis annual
consulting fees of $240,000 and an annual base salary of $60,000. Mr. Ribis is
entitled to an annual bonus based upon achievement of the Company's annual
budget and business plan targets to be determined by the Company's board of
directors. The annual budget and business plan targets have not yet been
formally approved by the Company's board of directors. The agreement provides
for a minimum guaranteed annual bonus of $300,000 in 2001. Mr. Ribis received a
one-time transaction bonus payment of $300,000 during the second quarter of
2001. Under this agreement, the Parent agreed to grant Mr. Ribis an option to
purchase 1,105 shares of its class A common stock at a price of $0.0475 per
share and 22,368 shares of its class B common stock at $100 per share, of which
555 shares of class A common stock and 11,188 shares of class B common stock
vested on April 25, 2001 and 55 shares of class A common stock and 1,118 shares
of class B common stock vest on each of April 25, 2002, 2003, 2004, 2005 and
2006. Additionally, 55 shares of class A common stock and 1,118 shares of class
B common stock vest on each of April 25, 2002, 2003, 2004, 2005 and 2006,
subject to the Company satisfying the performance targets established for Mr.
Ribis' annual bonus. Upon termination of this agreement under certain
circumstances, the Parent shall have the right to purchase and Mr. Ribis shall
have the right to sell, any shares of capital stock of the Parent held by Mr.
Ribis. The Company has also agreed to pay Mr. Ribis' reasonable business
expenses. The agreement also contains customary confidentiality and competition
provisions.
The agreement includes the following termination benefits:
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o If Mr. Ribis is terminated without "cause," as defined in the
agreement, dies or becomes disabled or Mr. Ribis terminates his
services for "good reason," as defined in the agreement, he will be
entitled to receive his salary for a period of 12 months following
the date of termination and the portion of his annual bonus accrued
in the year of termination. The options that would vest in the
two-year period following the date of termination shall immediately
vest and shall be exercisable for a period of 90 days following the
date of termination.
o If Mr. Ribis is terminated for "cause," as defined in the agreement
or Mr. Ribis terminates his services "without good reason," he will
receive no additional compensation and all outstanding but
unexercised options shall be cancelled.
The options issued to Mr. Ribis will be accounted for under the fair value
method of accounting on the date the shares become vested and will be reflected
as compensation expense over the life of the agreement. Further, the common
shares purchased by Mr. Ribis will be classified separately from stockholders'
equity as "Redeemable common stock" in the balance sheet of the Company to
reflect the rights granted Mr. Ribis to require the Parent to repurchase his
shares upon termination of the agreement under certain circumstances.
Director Compensation
As director of RIH, Robert L. Clifford is entitled to an annual retainer
fee of $25,000. Mr. Clifford is also entitled to a fee of $2,000 per board
meeting which he attends and $350 per hour for other services as may be
requested from time to time by the Company.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transfer Restriction Agreement
Shares of the Parent's class A common stock held by Voteco are subject to
a Transfer Restriction Agreement, dated April 25, 2001, by and among Mr.
Barrack, Voteco and Colony IV. The Transfer Restriction Agreement provides,
among other things, that:
o Colony IV has the right to acquire shares of the Parent's class A
common stock from Voteco on each occasion that shares of the
Parent's class B common stock held by Colony IV would be transferred
to a proposed purchaser who, in connection with such proposed sale,
has obtained all licenses, permits, registrations, authorizations,
consents, waivers, orders, findings of suitability or other
approvals required to be obtained from, and has made all filings,
notices or declarations required to be made with, all gaming
authorities under all applicable gaming laws, and
o Voteco will not transfer ownership of shares of the Parent's class A
common stock owned by it except pursuant to such option of Colony
IV.
See "Item 4. Security Ownership of Certain Beneficial Owners and Management."
Colony IV required Voteco and Mr. Barrack to enter into the Transfer Restriction
Agreement to restrict the ability of Voteco and Mr. Barrack, without the assent
of Colony IV, to obtain personal benefit
-46-
from any control premium or price appreciation associated with the shares of the
Parent's class A common stock or to transfer control of RIH to a third party.
The per share exercise price of Colony IV's option under the Transfer
Restriction Agreement has been set to reimburse Voteco for its original cost of
acquiring shares of the Parent's class A common stock, plus interest accruing at
a rate of 6% per year on the original purchase price. In addition, the Amended
and Restated Certificate of Incorporation of the Parent provides that no stock
or other securities issued by the Parent, and no interest, claim or charge
therein or thereto, may be transferred, except in accordance with the provisions
of the NJCCA and the regulations promulgated thereunder. See "Item 11.
Description of Parent's Securities to Be Registered."
Stockholders Agreement
On April 25, 2001, the Parent, Voteco, Colony IV and Mr. Ribis entered
into a Stockholders Agreement. Pursuant to the terms of the Stockholders
Agreement, Mr. Ribis and any other future employee stockholder, or an Employee
Stockholder, will be prohibited from transferring any shares of the Parent's
capital stock prior to the initial public offering of the Parent's common stock.
In the event Mr. Ribis or any Employee Stockholder proposes to transfer any
shares of the Parent's capital stock, the Parent, then Voteco and Colony IV have
a right of first offer on such transfer. In the event that Colony IV or Voteco
sell their respective holdings or a substantial portion of their respective
holdings of the Parent's capital stock, Mr. Ribis and other Qualified
Stockholders, as defined in the Stockholders Agreement, have the right to
participate in the sale on the same terms.
All holders of the Parent's common stock who are party to the Stockholders
Agreement have "piggyback" registration rights. If the Parent registers any of
its equity securities, the investors may require the Parent to include all or a
portion of their registrable securities in the registration and in any related
underwriting. In an underwritten offering, the managing underwriter, if any, of
any such offering, has the right, subject to certain conditions, to limit the
number of registrable securities. In general, the Parent will bear all fees,
costs and expenses of any such registrations, other than underwriting discounts
and commissions.
Vice Chairman's Agreement
The Parent and the Company entered into a Vice Chairman's Agreement with
Nicholas L. Ribis on April 25, 2001, as amended. See "Item 6. Executive
Compensation--Vice Chairman's Agreement."
Indemnification Agreement
The directors and certain executive officers of the Parent will enter into
an Indemnification Agreement. See "Item 12. Indemnification of Directors and
Officers."
McElroy, Deutsch & Mulvaney
McElroy, Deutsch & Mulvaney provides legal services to RIH. Robert L.
Clifford, a director of RIH, is counsel to McElroy, Deutsch & Mulvaney.
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ITEM 8. LEGAL PROCEEDINGS
Various legal proceedings are now pending against RIH. Management
considers all such proceedings to be ordinary litigation incident to the
character of its business. Management believes that the resolution of these
claims will not, individually or in the aggregate, have a material adverse
effect on RIH's financial condition or results of operations.
From time to time, RIH may be involved in routine administrative
proceedings involving alleged violations of certain provisions of the NJCCA.
However, management believes that the final outcome of these proceedings will
not, either individually or in the aggregate, have a material adverse effect on
the Parent, the Company or RIH, or on their ability to otherwise retain or renew
any casino or other licenses required under the NJCCA, although no assurances
can be given.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANTS' COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
No established public trading market exists for either the Parent's or the
Company's common equity. There are no plans, proposals, arrangements or
understandings with any person with regard to the development of a trading
market in either of the Parent's or the Company's common equity.
There are no outstanding options or warrants to purchase, or securities
convertible into, either the Parent's or the Company's common equity. The Parent
has agreed to grant Mr. Ribis an option to purchase 1,105 shares of its class A
common stock at a price of $0.0475 per share and 22,368 shares of its class B
common stock at $100 per share, of which 555 shares of class A common stock and
11,188 shares of class B common stock vested on April 25, 2001 and 55 shares of
class A common stock and 1,118 shares of class B common stock vest on each of
April 25, 2002, 2003, 2004, 2005 and 2006. Additionally, 55 shares of class A
common stock and 1,118 shares of class B common stock vest on each of April 25,
2002, 2003, 2004, 2005 and 2006, subject to the Company satisfying certain
performance targets. See "Item 7. Certain Relationships and Related
Transactions--Vice Chairman's Agreement." All shares of the Parent's and the
Company's common equity are subject to sale pursuant to Rule 144 of the
Securities Act of 1933, as amended, or the Securities Act, subject to the
limitations set forth therein. Neither the Parent nor the Company has agreed
with any security holder to register any of their common equity for sale by any
security holder. Neither the Parent nor the Company currently proposes to
publicly offer any shares of their common equity.
Presently, the Parent has three holders of record and the Company has one
holder of record.
Neither the Parent nor the Company pays or anticipates paying in the
foreseeable future any dividends on their common equity. The new Credit Facility
contains restrictions on the payment of dividends by the Parent and the Company.
See "Item 1. Business--The Registrants." In addition, Section 1.05 of the NJCCA
prohibits the Parent from paying dividends to any person who is disqualified by
the NJCCC. Both the Parent and the Company are
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restricted from paying any dividends without the consent of the lenders under
the new Credit Facility.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
Since March 7, 2001, the Parent's date of incorporation, the Parent has
issued the following securities without registration pursuant to Section 4(2) of
the Securities Act:
o In April 2001, the Parent issued 19,950 shares of class A common
stock to Voteco at a cash price of $0.0475 per share for a total
price of $950;
o In April 2001, the Parent issued 403,740 shares of class B common
stock to Colony IV at a cash price of $100 per share for a total
price of $40,374,000;
o In April 2001, the Parent issued 1,050 shares of class A common
stock at a cash price of $0.0475 per share and 21,250 shares of
class B common stock to Ribis at a cash price of $100 per share for
a total price of $2,125,050; and
o In April 2001, the Parent agreed to grant Mr. Ribis options to
purchase 1,105 shares of class A common stock at a price of $0.0475
per share and 22,368 shares of class B common stock at a price of
$100 per share.
Since October 24, 2000, the Company's date of incorporation, the Company
has issued the following securities without registration pursuant to Section
4(2) of the Securities Act:
o In October 2000, the Company issued 100 shares of common stock to
Colony IV at a cash price of $.01 per share for a total price of
$1.00; and
o In April 2001, Colony IV transferred the shares of common stock of
the Company to the Parent, pursuant to the terms of a Securities
Purchase Agreement between Colony IV and the Parent, dated April 25,
2001.
ITEM 11. DESCRIPTION OF REGISTRANTS' SECURITIES TO BE REGISTERED
The Parent
The authorized capital stock of the Parent consists of 1.1 million shares
of common stock, of which 600,000 shares have been designated class A common
stock, par value $.01 per share, and 500,000 shares have been designated class B
common stock, par value $.01 per share, and 50,000 shares of preferred stock,
par value $.01 per share, none of which are designated. Presently, 21,000 shares
of class A common stock and 424,990 shares of class B common stock are
outstanding. The class A common stock is the only class of the Parent's capital
stock being registered pursuant to this registration statement.
Common Stock
Holders of class A common stock are entitled to one vote per share on all
matters to be voted on by the stockholders of the Parent and are not entitled to
cumulative voting for the
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election of directors. Except as otherwise expressly required by law, holders of
class B common stock have no right to vote on any matters to be voted on by the
stockholders of the Parent. Holders of class A common stock and class B common
stock have no preemptive rights, no other rights to subscribe for additional
shares of the Parent, no conversion rights and no redemption rights, will not
benefit from any sinking fund and will not have preferential rights upon
liquidation. Subject to preferences that may apply to shares of preferred stock
at the time, holders of class A common stock and class B common stock are
entitled to share ratably, share for share, in dividends when, as and if
declared on the common stock of the Parent, provided that dividends or
distributions that are declared that are payable in shares of, or in
subscription or other rights to acquire class A common stock or class B common
stock, dividends or distributions payable in shares of, or in subscription or
other rights to acquire shares of, any particular class of common stock shall be
payable only to holders of such class of common stock.
The shares of class A common stock are subject to substantial dilution.
Colony IV holds approximately 95 percent of the class B common stock issued. The
Parent's Amended and Restated Certificate of Incorporation provides Colony IV
and its successor entities and affiliates (as such term is defined in Rule
501(b) under the Securities Act) with the right to convert at any time any of
their shares of class B common stock into an equal number of shares of class A
common stock, subject to compliance with all gaming and other statutes, laws,
rules and regulations applicable to the Parent at the time of such exercise.
No stock or other securities issued by the Parent and no interest, claim
or charge therein or thereto may be transferred, except in accordance with the
provisions of the NJCCA and the regulations promulgated thereunder. Any transfer
in violation thereof is ineffective until the Parent either ceases to be subject
to the jurisdiction of the NJCCC, or the NJCCC validates or waives any defect in
such transfer. Stock issued by the Parent may be liable to a call option. See
"Item 1. Business--Regulation and Gaming Taxes and Fees--Restrictions on
Ownership of Equity and Debt Securities."
Undesignated Preferred Stock
The board of directors of the Parent is authorized to provide for the
issuance of the preferred stock in one or more classes, or series, and to fix
for such class or series such voting powers, full or limited, or no voting
powers, and such distinctive designations, preferences and relative,
participating, optional or other special rights and such qualifications,
limitations or restrictions thereof, as shall be stated and expressed in the
resolution or resolutions adopted by the board providing for the issuance of
such class or series including, without limitation, the authority to provide
that any such class or series may be:
(i) subject to redemption at such time or times and at such price or
prices;
(ii) entitled to receive dividends (which may be cumulative or
non-cumulative) at such rates, on such conditions, and at such
times, and payable in preference to, or in such relation to, the
dividends payable on any other class or classes or any other series;
-50-
(iii) entitled to such rights upon the dissolution of, or upon any
distribution of the assets of, the Parent; or
(iv) convertible into, or exchangeable for, shares of any other class or
classes of stock, or of any other series of the same or any other
class or classes of stock, of the Parent at such price or prices or
at such rates of exchange and with such adjustments, all as may be
stated in such resolution or resolutions.
Stock issued by the Parent may be liable to a call option. See "Item 1.
Business--Regulation and Gaming Taxes and Fees--Restrictions on Ownership of
Equity and Debt Securities." Notwithstanding the foregoing, the rights of each
holder of Preferred Stock shall be subject at all times to compliance with all
gaming and other statutes, laws, rules and regulations applicable to the Parent
and such holder at that time.
The Company
The authorized capital stock of the Company consists of 10,000 shares of
common stock, par value $.01 per share. Presently, 100 shares of common stock
are outstanding. The common stock is being registered pursuant to this
registration statement.
Holders of common stock are entitled to one vote per share on all matters
to be voted on by the stockholders of the Company and are not entitled to
cumulative voting for the election of directors. Holders of common stock have no
preemptive rights, no other rights to subscribe for additional shares of the
Company, no conversion rights and no redemption rights, will not benefit from
any sinking fund and will not have preferential rights upon liquidation. Common
stockholders are entitled to share ratably, share for share, in dividends when,
as and if declared on the common stock of the Company, provided that dividends
or distributions that are declared that are payable in shares of, or in
subscription or other rights to acquire common stock, dividends or distributions
payable in shares of, or in subscription or other rights to acquire shares of,
any particular class of common stock shall be payable only to holders of such
class of common stock. Stock issued by the Company may be liable to a call
option. See "Item 1. Business--Regulation and Gaming Taxes and
Fees--Restrictions on Ownership of Equity and Debt Securities."
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Parent's Amended and Restated Certificate of Incorporation and the
Company's Certificate of Incorporation, as amended, limit the liability of the
Parent's and the Company's directors to the fullest extent permitted under
Delaware corporate law. Specifically, the directors are not liable to either
Registrant or its stockholders for monetary damages for any breach of fiduciary
duty by a director, except for liability for:
o any breach of the director's duty of loyalty to either Registrant or
its stockholders;
o acts or omissions not in good faith or which may involve intentional
misconduct or a knowing violation of the law;
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o dividends or other distributions of corporate assets that are in
contravention of restrictions in Delaware law, the applicable
certificate of incorporation, bylaws or any agreement to which the
Registrants are a party; and
o any transaction from which a director derived an improper personal
benefit.
The provision will generally not limit liability under state or federal
securities laws.
Delaware law and the Registrants' respective certificates of incorporation
provide that the Registrants will, in certain situations, indemnify any person
made or threatened to be made a party to a proceeding by reason of that person's
former or present official capacity with the Registrant against judgments,
penalties, fines, settlements and reasonable expenses including reasonable
attorney's fees. Any person is also entitled, subject to certain limitations, to
payment or reimbursement of reasonable expenses in advance of the final
disposition of the proceeding.
Under the Indemnification Agreement, the Parent shall indemnify to the
fullest extent permitted by law, against all expenses, liability and loss
reasonably incurred or suffered by the director or executive officer in
connection with any action, suit or proceeding (other than an action by or in
the right of the Parent) in which the director or executive officer is or was a
party, is threatened to be made a party to or is involved in by reason of his or
her position with the Parent or his or her serving at the request of the Parent
as an officer or director of another enterprise.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data are as set forth in the
"Index to Financial Statements" on page F-1.
ITEM 14. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
In April 2001, the Parent engaged Ernst & Young LLP as its independent
accountants. The decision to engage Ernst & Young LLP as the Parent's
independent accountants was not approved by the Parent's board of directors.
Prior to April 2001, the Parent had not consulted with Ernst & Young LLP on
items that involved accounting principles.
From October 1997 to April 2001, RIH retained Arthur Andersen, LLP as its
principal accountants. Arthur Andersen, LLP audited the financial statements of
RIH for the years ended December 31, 1997 through 2000. The audit reports of
Arthur Andersen, LLP did not contain an adverse opinion or disclaimer of opinion
and were not qualified or modified as to uncertainty, audit scope and accounting
principles. RIH did not have any disagreement with Arthur Andersen, LLP on any
matters of accounting principles or practices, financial statement disclosure,
or auditing scope and procedures, with respect to the financial statements they
audited, which disagreement, if not resolved to the satisfaction of Arthur
Andersen, LLP would have caused Arthur Andersen, LLP to make reference to the
matter of the disagreement in their reports.
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ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) List separately all financial statements filed. See "Index to Financial
Statements."
(b) Exhibits
Exhibit
Numbers Exhibit
- ------- -------
3.1 Amended and Restated Certificate of Incorporation of Colony RIH
Holdings, Inc.*
3.2 By-Laws of Colony RIH Holdings, Inc.*
3.3 Certificate of Incorporation of Colony RIH Acquisitions, Inc.*
3.4 Certificate of Amendment of Certificate of Incorporation of Colony
RIH Acquisitions, Inc.*
3.5 By-Laws of Colony RIH Acquisitions, Inc.*
4.1 Form of Colony RIH Holdings, Inc. Stock Certificate.*
4.2 Form of Colony RIH Acquisitions, Inc. Stock Certificate.*
10.1 Purchase Agreement, dated October 30, 2000, by and among Colony
RIH Acquisitions, Inc., Sun International North America, Inc. and
GGRI, Inc.*
10.2 First Amendment to the Purchase Agreement, dated February 28,
2001, among Colony RIH Acquisitions, Inc., Sun International
North America, Inc. and GGRI, Inc.*
10.3 Second Amendment to the Purchase Agreement, dated April 5, 2001,
among Colony RIH Acquisitions, Inc., Sun International North
America, Inc. and GGRI, Inc.*
10.4 Third Amendment to the Purchase Agreement, dated April 24, 2001,
among Colony RIH Acquisitions, Inc., Sun International North
America, Inc. and GGRI, Inc.*
10.5 Second Amended and Restated Credit Agreement, dated May 18, 2001,
among Colony RIH Acquisitions, Inc., the guarantors named therein,
the lenders named therein, Merrill Lynch & Company, Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Bankers Trust Company.*
10.6 Amendment No. 1 to the Second Amended and Restated Credit
Agreement, dated June 27, 2001, among Colony RIH Acquisitions,
Inc., the guarantors named therein, the lenders named therein,
Merrill Lynch & Company, Merrill
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Lynch, Pierce, Fenner & Smith Incorporated and Bankers Trust
Company.*
10.7 Security Agreement, dated April 25, 2001, by Colony RIH
Acquisitions, Inc., Colony RIH Holdings, Inc. Resorts International
Hotel, Inc., New Pier Operating Company, Inc., the guarantors named
therein and Bankers Trust Company.*
10.8 Option Agreement, dated April 25, 2001, by and between Colony RIH
Acquisitions, Inc. and Sun International North America, Inc.*
10.9 Lease Agreement, dated April 25, 2001, by and between Sun
International North America, Inc. and Colony RIH Acquisitions,
Inc.*
10.10 Form of Note.*
10.11 Form of Indemnification Agreement.*
10.12 Securities Purchase Agreement, dated April 25, 2001, between
Nicholas L. Ribis and Colony RIH Holdings, Inc.*
10.13 Securities Purchase Agreement, dated April 25, 2001, between Colony
RIH Voteco, LLC and Colony RIH Holdings, Inc.*
10.14 Securities Purchase Agreement, dated April 25, 2001, between Colony
Investors IV, L.P. and Colony RIH Holdings, Inc.*
10.15 Stockholders Agreement, dated April 25, 2001, by and among Colony
RIH Holdings, Inc., Colony RIH Voteco, LLC, Colony Investors IV,
L.P. and Nicholas L. Ribis.*
10.16 Vice Chairman Agreement, dated April 25, 2001, by and among
Nicholas L. Ribis and Colony RIH Acquisitions, Inc.*
16.1 Acknowledgment of Arthur Andersen, LLP.*
21.1 Subsidiaries of the registrant.*
23.1 Consent of Arthur Andersen, LLP.**
23.2 Consent of Ernst & Young, LLP, Colony RIH Holdings, Inc.**
23.3 Consent of Ernst & Young, LLP, Colony RIH Acquisitions, Inc.**
- ----------------
* Incorporated by reference to the Registrants' Form 10 filed July 13, 2001
(File No. 0-32987), as amended by Amendment No. 1, filed August 24, 2001.
**Incorporated by reference to the Registrants' Form 10 filed November 1, 2001
(File No. 000-32987).
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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, each registrant has caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
COLONY RIH HOLDINGS, INC.
Dated: November 9, 2001 By: /s/ Joseph A. D'Amato
---------------------------
Name: Joseph A. D'Amato
Title: Vice President
COLONY RIH ACQUISITIONS, INC.
Dated: November 9, 2001 By: /s/ Joseph A. D'Amato
---------------------------
Name: Joseph A. D'Amato
Title: Vice President
INDEX TO FINANCIAL STATEMENTS
Page
----
Colony RIH Holdings, Inc.
Condensed Consolidated Balance Sheets at June 30, 2001
and December 31, 2000 (Unaudited)................................ F-3
Condensed Consolidated Statements of Operations for the
three and six months ended June 30, 2001 and
June 30, 2000 (Unaudited)........................................ F-4
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 2001 and June 30, 2000 (Unaudited)..... F-5
Notes to Condensed Consolidated Financial Statements (Unaudited)..... F-6
Report of Independent Auditors....................................... F-9
Balance Sheet........................................................ F-10
Notes to Balance Sheet............................................... F-11
Introduction to the Pro Forma Condensed Consolidated Statements
of Operations ................................................... F-13
Pro Forma Condensed Consolidated Statements of Operations............ F-14
Notes to Pro Forma Condensed Consolidated Statements of Operations... F-16
Colony RIH Acquisitions, Inc.
Condensed Consolidated Balance Sheets at June 30, 2001
and December 31, 2000 (Unaudited)................................ F-18
Condensed Consolidated Statements of Operations for the
three and six months ended June 30, 2001 and
June 30, 2000 (Unaudited)........................................ F-19
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 2001 and June 30, 2000 (Unaudited)..... F-20
Notes to Condensed Consolidated Financial Statements (Unaudited)..... F-21
Report of Independent Auditors....................................... F-24
Balance Sheet........................................................ F-25
Notes to Balance Sheet............................................... F-26
Resorts International Hotel, Inc. (Predecessor Company)
Report of Independent Public Accountants for the years ended
December 31, 2000 and 1999....................................... F-28
Balance Sheets for the years ended December 31, 2000 and 1999........ F-29
Statements of Operations for the years ended December 31, 2000 and
1999 ............................................................ F-30
Statements of Shareholder's Equity for the years ended December 31,
2000 and 1999.................................................... F-31
Statements of Cash Flows for the years ended December 31, 2000 and
1999............................................................. F-32
Notes to Financial Statements for the years ended December 31, 2000
and 1999......................................................... F-33
Report of Independent Public Accountants for the years ended
December 31, 1999 and 2000....................................... F-42
Valuation and Qualifying Accounts for the years ended December 31,
1999 and 2000.................................................... F-43
F-1
Report of Independent Public Accountants for the years ended
December 31, 1999 and 1998....................................... F-44
Balance Sheets for the years ended December 31, 1999 and 1998........ F-45
Statements of Operations for the years ended December 31, 1999 and
1998............................................................. F-46
Statements of Shareholder's Equity for the years ended December 31,
1999 and 1998.................................................... F-47
Statements of Cash Flows for the years ended December 31, 1999 and
1998............................................................. F-48
Notes to Financial Statements for the years ended December 31, 1999
and 1998......................................................... F-49
Report of Independent Public Accountants for the years ended
December 31, 1998 and 1999....................................... F-59
Valuation and Qualifying Accounts for the years ended December 31,
1998 and 1999.................................................... F-60
F-2
COLONY RIH HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands, except per share amounts)
June 30, December 31,
2001 2000
--------------- ---------------
Successor Predecessor
(Unaudited)
ASSETS
------
Current assets
Cash and cash equivalents $ 18,950 $ 21,453
Receivables, net 6,312 9,142
Inventories 1,729 2,006
Prepaid expenses 5,304 1,934
--------------- ---------------
Total current assets 32,295 34,535
Property and equipment, net 114,897 257,778
Deferred charges and other assets 26,513 23,567
Goodwill, net of amortization -- 95,091
--------------- ---------------
Total assets $ 173,705 $ 410,971
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities
Current maturities of long-term debt $ 9,233 $ 581
Accounts payable 5,932 5,405
Accrued interest payable 752 1,648
Accrued interest payable to affiliates -- 5,300
Accrued expenses and other current liabilities 23,650 26,748
--------------- ---------------
Total current liabilities 39,567 39,682
--------------- ---------------
Notes payable to affiliates, net of unamortized discounts -- 199,337
Long-term debt 89,500 79,000
Deferred income taxes -- 35,457
Redeemable common stock 2,125 --
--------------- ---------------
Total liabilities 131,192 353,476
Shareholders' equity
Common stock:
Class A - $.01 par value, 21,000 shares issued and outstanding -- --
Class B - $.01 par value, 424,990 shares issued and outstanding 4 --
RIH - $1 par value, 1,000,000 shares issued and outstanding -- 1,000
Capital in excess of par 40,371 123,660
Retained earnings (accumulated deficit) 2,138 (67,165)
--------------- ---------------
Total shareholders' equity 42,513 57,495
--------------- ---------------
Total liabilities and shareholders' equity $ 173,705 $ 410,971
=============== ===============
The accompanying notes are an integral part of these financial statements.
F-3
COLONY RIH HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS (Unaudited) For the three and six
months ended June 30, 2001 and June 30, 2000
(Dollars in thousands)
April 1, April 25, Three months January 1, April 25, Six months
2001 to 2001 to ended 2001 to 2001 to ended
April 24, 2001 June 30, 2001 June 30, 2000 April 24, 2001 June 30, 2001 June 30, 2000
---------------- --------------- --------------- --------------- ------------- --------------
Predecessor Successor Predecessor Predecessor Successor Predecessor
Revenues
Casino $ 16,166 $ 41,334 $ 59,193 $ 68,220 $ 41,334 $ 108,756
Lodging 913 2,660 4,564 3,996 2,660 8,115
Food and beverage 1,591 4,783 6,932 6,977 4,783 12,898
Other 417 1,309 1,196 1,523 1,309 2,187
Less: promotional
allowances (1,684) (4,639) (6,700) (7,510) (4,639) (12,209)
---------------- --------------- --------------- --------------- ------------- --------------
Total net revenue 17,403 45,447 65,185 73,206 45,447 119,747
Costs and expenses
Casino 9,130 25,342 37,626 42,234 25,342 72,247
Lodging 257 674 963 913 674 1,986
Food and beverage 848 2,696 4,002 3,639 2,696 7,750
Other operating 1,681 4,375 6,706 8,293 4,375 12,920
Selling, general and
administrative 2,454 5,855 9,984 10,532 5,855 19,285
Depreciation and
amortization 949 1,220 4,449 5,325 1,220 8,998
---------------- --------------- --------------- --------------- ------------- --------------
Total costs and
expenses 15,319 40,162 63,730 70,936 40,162 123,186
Income (loss) from
operations 2,084 5,285 1,455 2,270 5,285 (3,439)
Interest income 118 195 515 510 195 878
Interest expense (1,585) (1,919) (6,103) (7,673) (1,919) (12,184)
Other expense -- (86) -- -- (86) --
---------------- --------------- --------------- --------------- ------------- --------------
Income (loss) before
income taxes 617 3,475 (4,133) (4,893) 3,475 (14,745)
Provision for income taxes -- (1,337) -- -- (1,337) --
---------------- --------------- --------------- --------------- ------------- --------------
Net income (loss) $ 617 $ 2,138 $ (4,133) $ (4,893) $ 2,138 $ (14,745)
================ =============== =============== =============== ============= ==============
The accompanying notes are an integral part of these financial statements.
F-4
COLONY RIH HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the six months ended June 30, 2001 and 2000
(Dollars in thousands)
Six months ended
June 30, 2001
-------------------------------------------
January 1, 2001 April 25, 2001
to April 24, 2001 to June 30, 2001
-------------------- --------------------
Predecessor Successor
CASH FLOWS FROM OPERATING ACTIVITIES:
Reconciliation of net income (loss) to net cash provided by (used in)
operating activities-
Net income (loss) $ (4,893) $ 2,138
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities-
Depreciation and amortization 5,038 1,038
Amortization of debt premiums, discounts
and issuance costs 203 203
Provision for doubtful receivables 517 142
Provision for discount on CRDA obligations,
net of amortization 280 180
Net (increase) decrease in receivables 684 (427)
Net increase in inventories and prepaid expenses (1,600) (2,030)
Net (increase) decrease in deferred charges and other assets 72 (116)
Net increase (decrease) in accounts payable and
accrued expenses (572) 1,075
Net increase in interest payable to affiliates 9,109 --
-------------------- --------------------
Net cash provided by (used in) operating activities 8,838 2,203
-------------------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,229) (2,827)
Purchase of RIH, net of cash acquired -- (97,004)
CRDA deposits and bond purchases (1,332) --
-------------------- --------------------
Net cash used in investing activities (2,561) (99,831)
-------------------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings -- 84,000
Payments to secure borrowings -- (6,808)
Proceeds from the issuance of common stock -- 40,375
Proceeds from the issuance of redeemable common stock -- 2,125
Advances from affiliates -- --
Debt repayments (234) (3,114)
-------------------- --------------------
Net cash provided by (used in) financing activities (234) 116,578
--------------------- --------------------
Net increase (decrease) in cash and cash equivalents 6,043 18,950
Cash and cash equivalents at beginning of period 21,453 --
-------------------- --------------------
Cash and cash equivalents at end of period $ 27,496 $ 18,950
==================== ====================
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
Purchase of RIH financed by issuance of note payable to SINA $ -- $ 17,500
==================== ====================
Six months
ended
June 30, 2000
---------------------
Predecessor
CASH FLOWS FROM OPERATING ACTIVITIES:
Reconciliation of net income (loss) to net cash provided by (used in)
operating activities-
Net income (loss) $ (14,745)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities-
Depreciation and amortization 8,529
Amortization of debt premiums, discounts
and issuance costs 295
Provision for doubtful receivables 412
Provision for discount on CRDA obligations,
net of amortization 460
Net (increase) decrease in receivables (3,472)
Net increase in inventories and prepaid expenses (1,292)
Net (increase) decrease in deferred charges and other assets (449)
Net increase (decrease) in accounts payable and
accrued expenses (1,755)
Net increase in interest payable to affiliates --
---------------------
Net cash provided by (used in) operating activities (12,017)
---------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (4,067)
Purchase of RIH, net of cash acquired --
CRDA deposits and bond purchases (1,294)
---------------------
Net cash used in investing activities (5,361)
---------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings --
Payments to secure borrowings --
Proceeds from the issuance of common stock --
Proceeds from the issuance of redeemable common stock --
Advances from affiliates 17,891
Debt repayments (1,092)
---------------------
Net cash provided by (used in) financing activities 16,799
---------------------
Net increase (decrease) in cash and cash equivalents (579)
Cash and cash equivalents at beginning of period 14,541
---------------------
Cash and cash equivalents at end of period $ 13,962
=====================
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
Purchase of RIH financed by issuance of note payable to SINA $ --
=====================
The accompanying notes are an integral part of these financial statements.
F-5
COLONY RIH HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation - Colony RIH Holdings, Inc., a
Delaware corporation ("CRH"), owns 100% of the outstanding common stock of
Colony RIH Acquisitions, Inc., a Delaware corporation ("CRA"). CRA 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. CRA was formed at the direction of Colony IV on October 24, 2000.
CRA, 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, CRA 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.
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 the first quarter of 2001, the Emerging Issues Task Force ("EITF")
reached a consensus on certain issues in EITF 00-22 "Accounting for "Points" and
Certain Other Time-Based Sales Incentive Offers, and Offers for Free Products or
Services to Be Delivered in the Future." EITF 00-22 requires that volume based
cash rebates or refunds be shown as a reduction of revenues effective for
quarters ending after February 15, 2001. RIH adopted the consensus provisions of
EITF 00-22 in the first quarter of 2001. To be consistent with the 2001
presentation, approximately $3.8 million and $4.8 million of cash rebates and
refunds, previously shown as casino expenses, were reclassified as a reduction
of casino revenues in the three and six months ended June 30, 2000 respectively.
This did not have any effect on previously reported operating income or net
income.
Certain reclassifications have been made to RIH's historical information
for the three and six months ended June 30, 2000 to conform to the current year
presentation.
The accompanying condensed consolidated financial statements are
unaudited. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of financial
condition, results of operations and cash flows have been included. These
condensed consolidated financial statements
F-6
should be read in conjunction with the financial statements and notes thereto in
CRH's Form 10, General Form for Registration of Securities, filed with the
Securities and Exchange Commission (the "SEC") on July 13, 2001.
The accompanying condensed consolidated financial statements have been
prepared pursuant to the rules and regulations of the SEC. Accordingly, certain
information and note disclosures normally included in financial statements
prepared in conformity with generally accepted accounting principles have been
condensed or omitted.
The casino industry in Atlantic City is seasonal in nature; accordingly,
results of operations for the three and six months ended June 30, 2001 are not
necessarily indicative of the operating results for a full year.
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 CRA,
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.
The pro forma unaudited results of operations for the six months ended
June 30, 2001 and June 30, 2000, assuming consummation of the Acquisition and
issuance of CRH's common stock, Seller Note and Credit Facility as of the
beginning of the periods presented, are as follows:
Six months ended June 30,
-------------------------------------------
2001 2000
-------------------- --------------------
Revenue $ 118,653 $ 119,747
Net income 3,031 72
3. LONG TERM DEBT
Notes Payable to Banks - In conjunction with the Acquisition, CRA borrowed
$82 million under an Amended and Restated Credit Agreement, dated April 25,
2001, from the lenders named therein (the "Credit Facility"). The Credit
Facility is comprised of $80 million in term loans (Term Loan A for $25 million
and Term Loan B for $55 million) and a $10 million revolving credit facility.
The loans under the Credit Facility are secured by substantially all of CRH's,
CRA's and, directly or indirectly, RIH's assets, including a pledge of all of
the capital stock of CRA and RIH, mortgages on all material real property owned
or leased by CRA or RIH and the accounts receivable, inventory, equipment and
intangibles of CRA and RIH. The revolving credit facility will mature on April
25, 2006, Term Loan A will mature on the last business day of December 2005, and
Term Loan B will mature on the last business day of March 2007. The principal
payments of the term loans will be paid on a quarterly basis, commencing June
29, 2001. Interest on borrowings outstanding shall be either at LIBOR or an
alternative base rate, plus an applicable margin in each case. In the future the
applicable margins may be changed, based on CRA's leverage ratio, as defined in
the credit agreement.
Seller Note - In conjunction with the Acquisition, CRH issued a $17.5
million note to SINA (the "Seller Note"). The Seller Note is subordinated to the
term loans under the Credit Facility and has a 7-year term. This loan bears
F-7
interest at 12.5% per annum of which 6.25% is payable in cash and 6.25% is paid
in kind. There is no amortization of principal on this loan. Principal is due in
full on April 25, 2008.
The Credit Facility and the Seller Note contain a number of covenants,
that among other things, restrict the ability of CRH, CRA, and their
subsidiaries, to incur additional indebtedness, create liens on assets, dispose
of assets, make investments, loans, or advances, engage in mergers or
consolidations, pay dividends, engage in certain transactions with affiliates,
change their respective line of business and otherwise restrict certain
corporate activities. In addition, under the Credit Facility, CRA, and its
subsidiaries, are required to maintain specified financial ratios, satisfy
specified financial tests, including interest coverage and leverage tests, and
are limited on capital expenditures. The Credit Facility contains events of
default customary for facilities of this nature.
4. REDEEMABLE COMMON STOCK
The proceeds from the sale of 1,050 shares of Class A Common and 21,250
shares of Class B Common have been classified separately from shareholders'
equity as "Redeemable Common Stock" in the balance sheet to reflect the rights
granted to a shareholder to require CRH to repurchase his shares under certain
circumstances.
F-8
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Colony RIH Holdings, Inc.
We have audited the accompanying balance sheet of Colony RIH Holdings, Inc. as
of March 31, 2001. The balance sheet is the responsibility of the Company's
management. Our responsibility is to express an opinion on the balance sheet
based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Colony RIH Holdings, Inc. at March
31, 2001 in conformity with accounting principles generally accepted in the
United States.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
July 6, 2001
F-9
COLONY RIH HOLDINGS, INC.
BALANCE SHEET
MARCH 31, 2001
ASSETS $--
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES $--
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value, 50,000 shares authorized,
none issued and outstanding --
Common stock, $.01 par value:
Class A - authorized, 600,000 shares; 21,000 shares subscribed 210
Class B - authorized, 500,000 shares; 424,990 shares subscribed 4,250
Additional paid-in capital 42,495,540
Stock subscription receivable (42,500,000)
------------
$ --
============
F-10
NOTES TO BALANCE SHEET
MARCH 31, 2001
1. ORGANIZATION AND CAPITAL STRUCTURE
Colony RIH Holdings, Inc. ("CRH") was formed by affiliates of Colony
Capital, LLC ("Colony Capital"), under the laws of the State of Delaware on
March 7, 2001. CRH has conducted no business other than in connection with the
Purchase Agreement (as defined herein).
Colony RIH Acquisitions, Inc. ("CRA"), Sun International North America,
Inc. ("SINA"), and GGRI, Inc. ("GGRI"), entered into a Purchase Agreement, dated
as of October 30, 2000, as amended (the "Purchase Agreement"). Pursuant to the
Purchase Agreement, CRA acquired all of the capital stock of Resorts
International Hotel, Inc., ("RIH"), the Warehouse Assets (as defined in the
Purchase Agreement) and all of the capital stock of New Pier Operating Company,
Inc., (collectively, the "Acquisition") on April 25, 2001 for total
consideration of approximately $144.8 million. The acquisition will be accounted
for using the purchase method, and accordingly, the aggregate purchase price,
including transaction fees and expenses will be allocated based on the
preliminary estimated fair value of the assets acquired and the liabilities
assumed.
Pursuant to the terms of a Securities Purchase Agreement with Colony
Capital, CRA also became a wholly owned subsidiary of CRH on April 25, 2001.
Simultaneously with the closing of the Acquisition, CRA entered into a Lease
Agreement, (the "Lease Agreement"), which gives CRA the right to acquire certain
undeveloped real estate owned by SINA, adjacent to Resorts Atlantic City, for a
purchase price of $40 million. The Lease Agreement has a two-year term which
term may be extended for two additional one-year terms upon the payment of a
$2.5 million extension fee, payable upon each extension. During the option
period, CRA will lease the property subject to the Lease Agreement from SINA.
In connection with and immediately prior to the Acquisition, CRH issued
the following: (1) 21,000 shares of its Class A common stock, par value $.01 per
share ("class A common stock") and (2) 424,990 shares of its Class B common
stock, par value $.01 per share ("class B common stock"), for a total
consideration of $42.5 million. Holders of class A common stock are entitled to
one vote per share in all matters to be voted on by stockholders of CRH. Holders
of class B common stock have no vote, except as otherwise expressly required by
law.
CRH financed the Acquisition and paid related fees and expenses with (1)
proceeds of $42.5 million from the issuance of common stock, (2) a $17.5 million
note issued by CRH to SINA (the "Seller Note"), (3) borrowings by CRA guaranteed
by CRH under a $90 million credit agreement (the "Credit Facility") and (4)
RIH's available cash (collectively, the "Acquisition Financing").
The Seller Note pays interest at a rate of 12.5% per annum. The interest
is payable semi-annually, 50% in cash and 50% in additional subordinated notes.
The Seller Note is subordinated to the term loans under the Credit Facility and
has a 7-year term. There will be no amortization of any principal on this loan.
The Credit Facility is comprised of $80 million in term loans (Term Loan A
for $25 million and Term Loan B for $55 million) and a $10 million revolving
credit facility. The loans under the Credit Facility are secured by
substantially all of CRH's, CRA's and, directly or indirectly, RIH's assets,
including a pledge of all of the capital stock of CRA and RIH, mortgages on all
material real property owned or leased by CRA or RIH and the accounts
receivable, inventory, equipment and intangibles of CRA or RIH. The revolving
credit facility will mature on April 25, 2006, Term Loan A will mature on the
last business day of December 2005, and Term Loan B will mature on the last
business day of March 2007. The principal payments of the term loans will be
paid on a quarterly basis, commencing
F-11
June 29, 2001. Interest on borrowings outstanding shall be either at LIBOR or an
alternative base rate, plus an applicable margin in each case. In the future the
applicable margins may be changed, based on CRA's leverage ratio, as defined in
the credit agreement.
The Credit Facility contains a number of covenants, that among other
things, restrict the ability of CRH, CRA, and their respective subsidiaries, to
incur additional indebtedness, create liens on assets, dispose of assets, make
investments, loans, or advances, engage in mergers or consolidations, pay
dividends, engage in certain transactions with affiliates, change their
respective line of business and otherwise restrict certain corporate activities.
In addition, under the Credit Facility, CRA, and its subsidiaries, are required
to maintain specified financial ratios, satisfy specified financial tests,
including interest coverage and leverage tests, and are limited on capital
expenditures. The Credit Facility contains events of default customary for
facilities of this nature.
CRH and CRA also entered into an employment agreement with Nicholas L.
Ribis, a shareholder of CRH, on April 25, 2001. Under this agreement, CRH agreed
to grant Mr. Ribis an option to purchase 1,105 shares of class A common stock at
a price of $0.0475 per share and 22,368 shares of class B common stock at $100
per share, of which 555 shares of class A common stock and 11,188 shares of
class B common stock vested on April 25, 2001 and 55 shares of class A common
stock and 1,118 shares of class B common stock vest on each of April 25, 2002,
2003, 2004, 2005, and 2006. Additionally, 55 shares of class A common stock and
1,118 shares of class B common stock vest on each of April 25, 2002, 2003, 2004,
2005, and 2006, subject to CRA satisfying certain performance targets. Upon
termination of this agreement under certain circumstances, CRH shall have the
right to purchase and Mr. Ribis shall have the right to sell, any shares of
capital stock of CRH held by Mr. Ribis.
The options issued to Mr. Ribis will be accounted for under the fair value
method of accounting on the date the shares become vested. Accordingly, assuming
no change in the fair market value of the options, CRH will record compensation
expense over the life of the agreement of approximately $436,000 for the options
granted Mr. Ribis that vest over time and an additional $145,000 for the options
that vest based on satisfying certain performance targets. Further, the common
shares purchased by Mr. Ribis will be classified separately from stockholders'
equity as "Redeemable common stock" in CRH's balance sheet to reflect the rights
granted Mr. Ribis to require CRH to repurchase his shares upon termination of
his employment agreement under certain circumstances.
2. USE OF ESTIMATES
The preparation of the balance sheet in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts in the balance sheet and
accompanying notes. Actual results could differ from those estimates.
F-12
COLONY RIH HOLDINGS, INC.
INTRODUCTION TO THE PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
The pro forma condensed consolidated statements of operations of Colony
RIH Holdings, Inc. ("CRH") and Colony RIH Acquisitions, Inc. ("CRA", and,
together with CRH, the "Registrants") for the six months ended June 30, 2001 and
for the year ended December 31, 2000 give effect to: (a) the consummation of an
Acquisition (the "Acquisition") pursuant to a Purchase Agreement dated as of
October 30, 2000 (the "Acquisition Agreement") with Sun International North
America, Inc. ("SINA") and GGRI, Inc. ("GGRI") to acquire all of the capital
stock of Resorts International Hotel, Inc. ("RIH"), the Warehouse Assets (as
defined in the Purchase Agreement), and all of the capital stock of New Pier
Operating Company, Inc. for total consideration of approximately $144.8 million
and (b) the financing (the "Acquisition Financing") for the Acquisition,
consisting of: (1) proceeds of $42.5 million from the issuance of common stock,
(2) borrowings under a credit agreement (the "Credit Facility") which includes
$80 million in term loans ("Term Loans") and a $10 million revolving credit
facility (the "Revolving Credit Facility"), (3) a $17.5 million note issued by
CRH to SINA (the "Seller Note") and (4) RIH's available cash. The pro forma
condensed consolidated statements of operations give effect to the transactions
as if they occurred at the beginning of the periods presented. The historical
condensed statement of operations for the six months ended June 30, 2001 include
a combination of the following: (i) RIH's consolidated accounts for the period
January 1, 2001 to April 24, 2001 and (ii) CRH's consolidated accounts for the
period April 25, 2001 to June 30, 2001. The historical condensed statement of
operations for the twelve months ended December 31, 2000 include RIH's
consolidated accounts. The pro forma condensed consolidated statements of
operations should be read in conjunction with the Registrants' audited balance
sheets, and notes thereto, and the financial statements, and those notes
thereto, of RIH appearing elsewhere in this Registration Statement. The pro
forma condensed consolidated statements of operations are not necessarily
indicative of the results that would have been reported had such transactions
actually occurred on the dates specified, nor are they indicative of the
Registrants' future results.
The pro forma adjustments are based upon available information and upon
certain assumptions that the Registrants believe are reasonable under the
circumstances.
F-13
COLONY RIH HOLDINGS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2001
(DOLLARS IN THOUSANDS)
ADJUSTMENTS FOR
THE EFFECT OF PRO FORMA
HISTORICAL THE ACQUISITION AS ADJUSTED
---------- --------------- -----------
REVENUES:
Gaming $ 109,554 $ -- $ 109,554
Rooms 6,656 -- 6,656
Food and beverage 11,760 -- 11,760
Other 2,832 -- 2,832
---------------- ---------------- ----------------
Gross revenues 130,802 -- 130,802
Less: promotional allowances (12,149) -- (12,149)
---------------- ---------------- ----------------
Total net revenues 118,653 -- 118,653
COST AND EXPENSES:
Gaming 67,576 -- 67,576
Rooms 1,587 -- 1,587
Food and beverage 6,335 -- 6,335
Other 12,668 -- 12,668
Selling, general and administrative 16,387 622 (a) 17,009
Depreciation and amortization 6,545 (3,123) (b) 3,422
---------------- ---------------- ----------------
Total costs and expenses 111,098 (2,501) 108,597
Operating income 7,555 2,501 10,056
Other income (expense)
Interest and other income 705 -- 705
Interest expense (9,592) (3,696) (c) (5,623)
7,665 (d)
Other expense (86) -- (86)
---------------- ---------------- ----------------
Income (loss) before income taxes (1,418) 6,470 5,052
Income tax provision (1,337) (684) (2,021)
---------------- ---------------- ----------------
Net income (loss) $ (2,755) $ 5,786 $ 3,031
================ ================ ================
See the accompanying notes to the pro forma condensed
consolidated statements of operations
F-14
COLONY RIH HOLDINGS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2000
(DOLLARS IN THOUSANDS)
ADJUSTMENTS FOR THE
RIH EFFECT OF PRO FORMA
HISTORICAL THE ACQUISITION AS ADJUSTED
---------- --------------- -----------
REVENUES:
Gaming $ 224,259 $ -- $ 224,259
Rooms 16,412 -- 16,412
Food and beverage 26,039 -- 26,039
Other 4,973 -- 4,973
---------------- -------------- -------------
Gross revenues 271,683 -- 271,683
Less: promotional allowances (25,288) -- (25,288)
---------------- -------------- -------------
Total net revenues 246,395 -- 246,395
COST AND EXPENSES:
Gaming 146,324 -- 146,324
Rooms 4,186 -- 4,186
Food and beverage 14,716 -- 14,716
Other 25,668 -- 25,668
Selling, general and administrative 37,727 (4,708) (e) 33,019
Depreciation and amortization 17,034 (10,170) (f) 6,864
---------------- -------------- -------------
Total costs and expenses 245,655 (14,878) 230,777
Operating income 740 14,878 15,618
Other income (expense)
Interest and other income 1,557 -- 1,557
Interest expense (24,703) (11,950) (g) (12,033)
24,620 (h)
---------------- -------------- -------------
Income (loss) before income taxes (22,406) 27,548 5,142
Income tax provision -- (2,057) (i) (2,057)
---------------- -------------- -------------
Net income (loss) $ (22,406) $ 25,491 $ 3,085
================ ============== =============
See the accompanying notes to the pro forma condensed
consolidated statements of operations
F-15
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
CRH was formed under the laws of the State of Delaware on March 7, 2001 by
affiliates of Colony Capital, LLC ("Colony Capital"). CRA was formed by
affiliates of Colony Capital under the laws of the State of Delaware on
October 24, 2000. Pursuant to the terms of a Securities Purchase Agreement with
Colony Capital, CRA became a wholly owned subsidiary of CRH on April 25, 2001.
CRH and CRA have not conducted business other than in connection with the
Purchase Agreement.
RIH was formed under the laws of the State of New Jersey and is engaged in
the ownership and operation of a hotel/casino in Atlantic City, NJ. As of the
date of the Acquisition, RIH became a wholly owned subsidiary of CRA and
continued its current business operations.
The pro forma condensed consolidated statements of operations for the six
months ended June 30, 2001 and for the year ended December 31, 2000 present
adjustments to selling, general and administrative expense relative to
contractual changes in arrangements pursuant to the Acquisition, reductions in
depreciation and amortization as the result of the recognition of the fair value
of property and equipment and the associated reduction of goodwill, changes to
interest expense as a result of the Acquisition Financing, and the related
effect of the foregoing adjustments on the provision for income taxes. The
changes in arrangements resulting in adjustments to selling, general and
administrative expense include primarily the elimination of SINA management
fees, additional rent paid to SINA for certain undeveloped real estate property
not acquired by CRH and additional standalone contractual costs resulting from
the transaction. The changes to interest expense reflect: (a) additional
interest expense on the Term Loans, Credit Facility and the Seller Note, (b)
elimination of interest expense on RIH's former revolving credit agreement and
senior subordinated unsecured notes that were cancelled in connection with the
Acquisition, (c) amortization of deferred financing costs associated with the
Acquisition Financing and (d) elimination of amortization of deferred financing
costs associated with the former revolving credit agreement and senior
subordinated unsecured notes.
As discussed in Note 2 of the RIH financial statements for the year ended
December 31, 2000, RIH did not record an impairment charge under the provisions
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets," although SINA, RIH's parent did, because RIH measured the
recoverability of its long-lived assets on the undiscounted cash flows of RIH on
a stand-alone basis, whereas SINA measured its impairment in RIH long-lived
assets based on asset held for sale criteria. Accordingly, the following pro
forma information reflects a reduction in depreciation and amortization
resulting from a reduction in the carrying value of fixed assets and goodwill to
reflect the fact that the purchase price allocated to fixed assets and goodwill
was less than the carrying value of those assets on RIH's books prior to the
acquisition.
In the first quarter of 2001, the Emerging Issues Task Force ("EITF")
reached a consensus on certain issues in EITF 00-22 "Accounting for "Points" and
Certain Other Time-Based Sales Incentive Offers, and Offers for Free Products or
Services to Be Delivered in the Future." EITF 00-22 requires that volume based
cash rebates or refunds be shown as a reduction of revenues effective for
quarters ending after February 15, 2001. RIH adopted the consensus provisions of
EITF 00-22 in the first quarter of 2001. To be consistent with the 2001
presentation, approximately $11.6 million of cash rebates and refunds,
previously shown as casino expenses, were reclassified as a reduction of casino
revenues in the twelve months ended December 31, 2000. This did not have any
effect on previously reported operating income or net income.
Certain reclassifications have been made to RIH's historical information
for the year ended December 31, 2000 to conform with the current year
presentation.
F-16
ADJUSTMENTS TO THE PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR
THE SIX MONTHS ENDED JUNE 30, 2001
(a) To record additional lease payments of $400,000 to SINA for certain
undeveloped real estate under a Lease Agreement, dated April 25,
2001, and additional standalone contractual costs of approximately
$222,0000.
(b) To recognize the decrease in depreciation and amortization expense
of approximately $3.1 million related to: (1) the reduction in value
of property and equipment to reflect the fair market value and (2)
the elimination of the former goodwill.
(c) To recognize additional interest expense of approximately $3.3
million related to the borrowing of $82.0 million under the Credit
Facilities and $17.5 million in Seller Notes. To recognize the
additional interest expense of approximately $406,000 related to the
amortization of deferred financing costs incurred with the Credit
Facilities.
(d) To eliminate interest expense of approximately $7.5 million related
to RIH's former revolving credit agreement and senior subordinated
unsecured notes that were cancelled in connection with the
Acquisition. To recognize a reduction in interest expense of
approximately $25,000 related to the amortization of the premium
recorded on RIH's former senior subordinated unsecured notes. To
recognize the decrease of approximately $178,000 of amortization
expense related to RIH's former debt issuance costs.
ADJUSTMENTS TO THE PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR
THE TWELVE MONTHS ENDED DECEMBER 31, 2000
(e) To recognize (1) the elimination of approximately $6.6 million in
management fees paid to SINA that were terminated as part of the
Purchase Agreement, (2) additional lease payments of $1.2 million to
SINA for certain undeveloped real estate under a Lease Agreement,
dated April 25, 2001, and (3) additional standalone contractual
costs of approximately $665,000.
(f) To recognize the decrease in depreciation and amortization expense
of approximately $10.2 million related to: (1) the reduction in
value of property and equipment to reflect the fair market value and
(2) the elimination of the former goodwill.
(g) To recognize additional interest expense of approximately $10.7
million related to the borrowing of $82.0 million under the Credit
Facilities and $17.5 million in Seller Notes. To recognize
additional interest expense of approximately $1.2 million related to
the amortization of deferred financing costs incurred with the
Credit Facilities.
(h) To eliminate interest expense of approximately $24.0 million related
to RIH's former revolving credit agreement and senior subordinated
unsecured notes that were cancelled in connection with the
Acquisition. To recognize a reduction in interest expense of
approximately $75,000 related to the amortization of the premium
recorded on RIH's former senior subordinated unsecured notes. To
recognize the decrease of approximately $531,000 of amortization
expense related to RIH's former debt issuance costs.
F-17
(i) To recognize the effect of the foregoing adjustments (excluding the
adjustments CRH believes will have no effect on income taxes) on the
provision for income taxes, based on CRH's effective tax rate.
F-18
COLONY RIH ACQUISITIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands, except per share amounts)
June 30, December 31,
2001 2000
--------------- ---------------
Successor Predecessor
(Unaudited)
ASSETS
------
Current assets
Cash and cash equivalents $ 18,950 $ 21,453
Receivables, net 6,312 9,142
Inventories 1,729 2,006
Prepaid expenses 5,304 1,934
--------------- ---------------
Total current assets 32,295 34,535
Property and equipment, net 114,897 257,778
Deferred charges and other assets 26,513 23,567
Goodwill, net of amortization -- 95,091
--------------- ---------------
Total assets $ 173,705 $ 410,971
=============== ===============
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
Current liabilities
Current maturities of long-term debt $ 9,233 $ 581
Accounts payable 5,932 5,405
Accrued interest payable 339 1,648
Accrued interest payable to affiliates 413 5,300
Accrued expenses and other current liabilities 23,650 26,748
--------------- ---------------
Total current liabilities 39,567 39,682
--------------- ---------------
Notes payable to affiliates, net of unamortized discounts 17,500 199,337
Long-term debt 72,000 79,000
Deferred income taxes -- 35,457
--------------- ---------------
Total liabilities 129,067 353,476
Shareholder's equity
Common stock (At June 30, 2001, $.01 par value, 100 shares issued and
outstanding; at June 30, 2000, $1 par value,
1,000,000 shares issued and outstanding) -- 1,000
Capital in excess of par 42,500 123,660
Retained earnings (accumulated deficit) 2,138 (67,165)
--------------- ---------------
Total shareholder's equity 44,638 57,495
--------------- ---------------
Total liabilities and shareholder's equity $ 173,705 $ 410,971
=============== ===============
The accompanying notes are an integral part of these financial statements.
F-19
COLONY RIH ACQUISITIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS (Unaudited) For the three and six
months ended June 30, 2001 and June 30, 2000
(Dollars in thousands)
April 1, April 25, Three months January 1, April 25, Six months
2001 to 2001 to ended 2001 to 2001 to ended
April 24, 2001 June 30, 2001 June 30, 2000 April 24, 2001 June 30, 2001 June 30, 2000
--------------- -------------- -------------- --------------- -------------- ---------------
Predecessor Successor Predecessor Predecessor Successor Predecessor
Revenues
Casino $ 16,166 $ 41,334 $ 59,193 $ 68,220 $ 41,334 $ 108,756
Lodging 913 2,660 4,564 3,996 2,660 8,115
Food and beverage 1,591 4,783 6,932 6,977 4,783 12,898
Other 417 1,309 1,196 1,523 1,309 2,187
Less: promotional
allowances (1,684) (4,639) (6,700) (7,510) (4,639) (12,209)
--------------- -------------- -------------- --------------- -------------- ---------------
Total net revenue 17,403 45,447 65,185 73,206 45,447 119,747
Costs and expenses
Casino 9,130 25,342 37,626 42,234 25,342 72,247
Lodging 257 674 963 913 674 1,986
Food and beverage 848 2,696 4,002 3,639 2,696 7,750
Other operating 1,681 4,375 6,706 8,293 4,375 12,920
Selling, general and
administrative 2,454 5,855 9,984 10,532 5,855 19,285
Depreciation and
amortization 949 1,220 4,449 5,325 1,220 8,998
--------------- -------------- -------------- --------------- -------------- ---------------
Total costs and expenses 15,319 40,162 63,730 70,936 40,162 123,186
Income (loss) from
operations 2,084 5,285 1,455 2,270 5,285 (3,439)
Interest income 118 195 515 510 195 878
Interest expense (1,585) (1,919) (6,103) (7,673) (1,919) (12,184)
Other expense -- (86) -- -- (86) --
--------------- -------------- -------------- --------------- -------------- ---------------
Income (loss) before
income taxes 617 3,475 (4,133) (4,893) 3,475 (14,745)
Provision for income taxes -- (1,337) -- -- (1,337) --
--------------- -------------- -------------- --------------- -------------- ---------------
Net income (loss) $ 617 $ 2,138 $ (4,133) $ (4,893) $ 2,138 $ (14,745)
=============== ============== ============== =============== ============== ===============
The accompanying notes are an integral part of these financial statements.
F-20
COLONY RIH ACQUISITIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the six months ended June 30, 2001 and 2000
(Dollars in thousands)
Six months ended
June 30, 2001
-------------------------------- Six months
January 1, 2001 April 25, 2001 ended
to April 24, 2001 to June 30, 2001 June 30, 2000
------------- --------------- ---------------
Predecessor Successor Predecessor
CASH FLOWS FROM OPERATING ACTIVITIES:
Reconciliation of net income (loss) to net cash provided by (used in)
operating activities-
Net income (loss) $ (4,893) $ 2,138 $ (14,745)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities-
Depreciation and amortization 5,038 1,038 8,529
Amortization of debt premiums, discounts
and issuance costs 203 203 295
Provision for doubtful receivables 517 142 412
Provision for discount on CRDA obligations,
net of amortization 280 180 460
Net (increase) decrease in receivables 684 (427) (3,472)
Net increase in inventories and prepaid expenses (1,600) (2,030) (1,292)
Net (increase) decrease in deferred charges and other assets 72 (116) (449)
Net increase (decrease) in accounts payable and
accrued expenses (572) 662 (1,755)
Net increase in interest payable to affiliates 9,109 413 --
------------- --------------- ---------------
Net cash provided by (used in) operating activities 8,838 2,203 (12,017)
------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,229) (2,827) (4,067)
Purchase of RIH, net of cash acquired -- (97,004) --
CRDA deposits and bond purchases (1,332) -- (1,294)
------------- --------------- ---------------
Net cash used in investing activities (2,561) (99,831) (5,361)
------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings -- 84,000 --
Payments to secure borrowings -- (6,808) --
Paid in capital received from CRH -- 42,500 --
Advances from affiliates -- -- 17,891
Debt repayments (234) (3,114) (1,092)
------------- --------------- ---------------
Net cash provided by (used in) financing activities (234) 116,578 16,799
------------- --------------- ---------------
Net increase (decrease) in cash and cash equivalents 6,043 18,950 (579)
Cash and cash equivalents at beginning of period 21,453 -- 14,541
------------- --------------- ---------------
Cash and cash equivalents at end of period $ 27,496 $ 18,950 $ 13,962
============= =============== ===============
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
Purchase of RIH financed by issuance of note payable to CRH $ -- $ 17,500 $ --
============= =============== ===============
The accompanying notes are an integral part of these financial statements.
F-21
COLONY RIH ACQUISITIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation - Colony RIH Holdings, Inc.,
a Delaware corporation ("CRH"), owns 100% of the outstanding common stock of
Colony RIH Acquisitions, Inc., a Delaware corporation ("CRA"). CRA, 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. CRA was formed at the direction of Colony IV on October 24, 2000.
CRA, 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, CRA 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.
The condensed consolidated financial statements include the accounts
of CRA 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 the first quarter of 2001, the Emerging Issues Task Force ("EITF")
reached a consensus on certain issues in EITF 00-22 "Accounting for "Points" and
Certain Other Time-Based Sales Incentive Offers, and Offers for Free Products or
Services to Be Delivered in the Future." EITF 00-22 requires that volume based
cash rebates or refunds be shown as a reduction of revenues effective for
quarters ending after February 15, 2001. RIH adopted the consensus provisions of
EITF 00-22 in the first quarter of 2001. To be consistent with the 2001
presentation, approximately $3.8 million and $4.8 million of cash rebates and
refunds, previously shown as casino expenses, were reclassified as a reduction
of casino revenues in the three and six months ended June 30, 2000 respectively.
This did not have any effect on previously reported operating income or net
income.
Certain reclassifications have been made to RIH's historical
information for the three and six months ended June 30, 2000 to conform to the
current year presentation.
F-22
The accompanying condensed consolidated financial statements are
unaudited. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of financial
condition, results of operations and cash flows have been included. These
condensed consolidated financial statements should be read in conjunction with
the financial statements and notes thereto in CRA's Form 10, General Form for
Registration of Securities, filed with the Securities and Exchange Commission
(the "SEC") on July 13, 2001.
The accompanying condensed consolidated financial statements have
been prepared pursuant to the rules and regulations of the SEC. Accordingly,
certain information and note disclosures normally included in financial
statements prepared in conformity with generally accepted accounting principles
have been condensed or omitted.
The casino industry in Atlantic City is seasonal in nature;
accordingly, results of operations for the three and six months ended June 30,
2001 are not necessarily indicative of the operating results for a full year.
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 CRA,
guaranteed by CRH, under a $90 million credit agreement (the "Credit Facility")
and (iv) RIH's available cash.
Prior to the Acquisition, CRA conducted no business other than in
connection with the Purchase Agreement and the Credit Facility.
In connection with the Acquisition for $144.8 million, CRA 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 six months
ended June 30, 2001 and June 30, 2000 assuming consummation of the Acquisition
and issuance of the Seller Note and Credit Facility as of the beginning of the
periods presented, are as follows:
Six months ended June 30,
-------------------------------------------
2001 2000
-------------------- --------------------
Revenue $ 118,653 $ 119,747
Net income 3,031 72
3. LONG TERM DEBT
Notes Payable to Banks - In conjunction with the Acquisition, CRA
borrowed $82 million under an Amended and Restated Credit Agreement, dated April
25, 2001, from the lenders named therein (the "Credit Facility"). The Credit
Facility is comprised of $80 million in term loans (Term Loan A for $25 million
and Term Loan B for $55 million) and a $10 million revolving credit facility.
The loans under the Credit Facility are secured by substantially all of CRH's,
CRA's and, directly or indirectly, RIH's assets, including a pledge of all of
the capital stock of CRA and RIH, mortgages on all material real property owned
or leased by CRA or RIH and the accounts receivable, inventory, equipment and
intangibles of CRA and RIH. The revolving credit facility
F-23
will mature on April 25, 2006, Term Loan A will mature on the last business day
of December 2005, and Term Loan B will mature on the last business day of March
2007. The principal payments of the term loans will be paid on a quarterly
basis, commencing June 29, 2001. Interest on borrowings outstanding shall be
either at LIBOR or an alternative base rate, plus an applicable margin in each
case. In the future the applicable margins may be changed, based on CRA's
leverage ratio, as defined in the credit agreement.
Note Payable to Affiliates - In conjunction with the Acquisition, CRH
issued a $17.5 million note to SINA (the "Seller Note"). The Seller Note is
subordinated to the term loans and has a 7-year term. This loan bears interest
at 12.5% per annum of which 6.25% is payable in cash and 6.25% is paid in kind.
There is no amortization of principal on this loan. Principal is due in full on
April 25, 2008. In conjunction with the Acquisition, CRA issued a note to CRH
with terms that mirror the Seller Note.
The Credit Facility and Seller Note contains a number of covenants, that among
other things, restricts the ability of CRH, CRA, and their subsidiaries, to
incur additional indebtedness, create liens on assets, dispose of assets, make
investments, loans, or advances, engage in mergers or consolidations, pay
dividends, engage in certain transactions with affiliates, change their
respective line of business and otherwise restrict certain corporate activities.
In addition, under the Credit Facility, CRA, and its subsidiaries, are required
to maintain specified financial ratios, satisfy specified financial tests,
including interest coverage and leverage tests, and are limited on capital
expenditures. The Credit Facility contains events of default customary for
facilities of this nature.
F-24
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Colony RIH Acquisitions, Inc.
We have audited the accompanying balance sheet of Colony RIH Acquisitions, Inc.
as of March 31, 2001. The balance sheet is the responsibility of the Company's
management. Our responsibility is to express an opinion on the balance sheet
based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Colony RIH Acquisitions, Inc. at
March 31, 2001 in conformity with accounting principles generally accepted in
the United States.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
July 6, 2001
F-25
COLONY RIH ACQUISITIONS, INC.
BALANCE SHEET
MARCH 31, 2001
ASSETS
Due from shareholder $ 1
LIABILITIES AND SHAREHOLDER'S EQUITY
LIABILITIES $ -
SHAREHOLDER'S EQUITY
Common stock, $.01 par value, authorized, 10,000 shares;
100 shares outstanding 1
-
$ -
---
F-26
NOTES TO BALANCE SHEET
MARCH 31, 2001
1. ORGANIZATION AND CAPITAL STRUCTURE
Colony RIH Acquisitions, Inc. ("CRA"), was formed by affiliates of
Colony Capital, LLC ("Colony Capital"), under the laws of the State of Delaware
on October 24, 2000. Pursuant to the terms of a Securities Purchase Agreement
with Colony Capital, CRA became a wholly owned subsidiary of Colony RIH
Holdings, Inc. ("CRH") on April 25, 2001. CRA and CRH have not conducted
business other than in connection with the Purchase Agreement (as defined
herein).
CRA, Sun International North America, Inc. ("SINA"), and GGRI, Inc.
("GGRI"), entered into a Purchase Agreement, dated as of October 30, 2000, as
amended (the "Purchase Agreement"). Pursuant to the Purchase Agreement, CRA
acquired all of the capital stock of Resorts International Hotel, Inc. ("RIH"),
the Warehouse Assets (as defined in the Purchase Agreement) and all of the
capital stock of New Pier Operating Company, Inc. (collectively, the
"Acquisition") on April 25, 2001 for total consideration of approximately $144.8
million. The acquisition will be accounted for using the purchase method, and
accordingly, the aggregate purchase price, including transaction fees and
expenses, will be allocated based on the preliminary estimated fair value of the
assets acquired and the liabilities assumed.
Simultaneously with the closing of the Acquisition, CRA entered into
a Lease Agreement, (the "Lease Agreement"), which gives CRA the right to acquire
certain undeveloped real estate owned by SINA, adjacent to Resorts Atlantic
City, for a purchase price of $40 million. The Lease Agreement has a two-year
term which term may be extended for two additional one-year terms upon the
payment of a $2.5 million extension fee, payable upon each extension. During the
option period, CRA will lease the property subject to the Lease Agreement from
SINA.
CRH financed the Acquisition and paid related fees and expenses with
(1) proceeds of $42.5 million from the issuance of common stock, (2) a $17.5
million note issued by CRH to SINA (the "Seller Note"), (3) borrowings by CRA
guaranteed by CRH under a $90 million credit agreement (the "Credit Facility")
and (4) RIH's available cash (collectively, the "Acquisition Financing").
The Seller Note pays interest at a rate of 12.5% per annum. The
interest is payable semi-annually, 50% in cash and 50% in additional
subordinated notes. The Seller Note is subordinated to the term loans under the
Credit Facility and has a 7-year term. There will be no amortization of any
principal on this loan.
The Credit Facility is comprised of $80 million in term loans (Term
Loan A for $25 million and Term Loan B for $55 million) and a $10 million
revolving credit facility. The loans under the Credit Facility are secured by
substantially all of CRA's, CRH's and, directly or indirectly, RIH's assets,
including a pledge of all of the capital stock of CRA and RIH, mortgages on all
material real property owned or leased by CRA or RIH and the accounts
receivable, inventory, equipment and intangibles of CRA or RIH. The revolving
credit facility will mature on April 25, 2006, Term Loan A will mature on the
last business day of December 2005, and Term Loan B will mature on the last
business day of March 2007. The principal payments of the term loans will be
paid on a quarterly basis, commencing June 29, 2001. Interest on borrowings
outstanding shall be either at LIBOR or
F-27
an alternative base rate, plus an applicable margin in each case. In the future
the applicable margins may be changed, based on CRA's leverage ratio, as defined
in the credit agreement.
The Credit Facility contains a number of covenants, that among other
things, restricts the ability of CRA, CRH, and their respective subsidiaries, to
incur additional indebtedness, create liens on assets, dispose of assets, make
investments, loans, or advances, engage in mergers or consolidations, pay
dividends, engage in certain transactions with affiliates, change their
respective line of business and otherwise restrict certain corporate activities.
In addition, under the Credit Facility, CRA, and its subsidiaries, are required
to maintain specified financial ratios, satisfy specified financial tests,
including interest coverage and leverage tests, and are limited on capital
expenditures. The Credit Facility contains events of default customary for
facilities of this nature.
CRA and CRH also entered into an employment agreement with Nicholas
L. Ribis, a shareholder of CRH, on April 25, 2001. Under this agreement, CRH
agreed to grant Mr. Ribis an option to purchase 1,105 shares of class A common
stock at a price of $0.0475 per share and 22,368 shares of class B common stock
at $100 per share, of which 555 shares of class A common stock and 11,188 shares
of class B common stock vested on April 25, 2001 and 55 shares of class A common
stock and 1,118 shares of class B common stock vest on each of April 25, 2002,
2003, 2004, 2005, and 2006. Additionally, 55 shares of class A common stock and
1,118 shares of class B common stock vest on each of April 25, 2002, 2003, 2004,
2005, and 2006, subject to CRA satisfying certain performance targets. Upon
termination of this agreement under certain circumstances, CRH shall have the
right to purchase and Mr. Ribis shall have the right to sell, any shares of
capital stock of CRH held by Mr. Ribis.
The options issued to Mr. Ribis will be accounted for under the fair
value method of accounting on the date the shares become vested. Accordingly,
assuming no change in the fair market value of the options, CRA will record
compensation expense over the life of the agreement of approximately $436,000
for the options granted Mr. Ribis that vest over time and an additional $145,000
for the options that vest based on satisfying certain performance targets.
Further, the common shares purchased by Mr. Ribis will be classified separately
from stockholders' equity as "Redeemable common stock" in CRH's balance sheet to
reflect the rights granted Mr. Ribis to require CRH to repurchase his shares
upon termination of his employment agreement under certain circumstances.
2. USE OF ESTIMATES
The preparation of the balance sheet in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts in the balance sheet and
accompanying notes. Actual results could differ from those estimates.
F-28
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Resorts International Hotel, Inc.:
We have audited the accompanying balance sheets of Resorts International Hotel,
Inc. (a New Jersey corporation) as of December 31, 2000 and 1999, and the
related statements of operations, shareholder's equity and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Resorts International Hotel,
Inc. as of December 31, 2000 and 1999, and the results of its operations and its
cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
Roseland, New Jersey
January 19, 2001
F-29
RESORTS INTERNATIONAL HOTEL, INC.
BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
(in Thousands, except share data)
ASSETS 2000 1999
--------- ---------
CURRENT ASSETS:
Cash and cash equivalents $ 21,453 $ 14,541
--------- ---------
Receivables, net 9,142 6,520
Inventories 2,006 2,490
Prepaid expenses 1,934 2,017
Due from SINA -- 13,091
--------- ---------
Total current assets 34,535 38,659
PROPERTY AND EQUIPMENT, net 257,778 258,516
GOODWILL, net 95,091 97,733
DEFERRED CHARGES AND OTHER ASSETS 23,567 22,343
--------- ---------
Total assets $ 410,971 $ 417,251
========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Obligations under capital lease - current portion $ 581 $ 944
Accounts payable 5,405 6,348
Accrued interest payable to SINA 5,300 5,300
Accrued expenses and other current liabilities 28,396 16,927
--------- ---------
Total current liabilities 39,682 29,519
--------- ---------
NOTES PAYABLE TO AFFILIATE 199,337 199,262
--------- ---------
LONG-TERM DEBT 79,000 73,112
--------- ---------
DEFERRED INCOME TAXES 35,457 35,457
--------- ---------
SHAREHOLDER'S EQUITY:
Common stock - $1 par value, 1,000 shares issued and outstanding 1,000 1,000
Capital in excess of par 123,660 123,660
Accumulated deficit (67,165) (44,759)
--------- ---------
Total shareholder's equity 57,495 79,901
--------- ---------
Total liabilities and shareholder's equity $ 410,971 $ 417,251
========= =========
The accompanying notes are an integral part of these balance sheets.
F-30
RESORTS INTERNATIONAL HOTEL, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
(in Thousands)
2000 1999
--------- ---------
REVENUES:
Gaming $ 224,259 $ 210,758
Rooms 16,412 15,160
Food and beverage 26,039 25,512
Other 4,973 8,076
--------- ---------
Gross revenues 271,683 259,506
Less - Promotional allowances (25,288) (26,632)
--------- ---------
Net revenues 246,395 232,874
--------- ---------
COST AND EXPENSES:
Gaming 146,324 141,803
Rooms 4,186 2,929
Food and beverage 14,716 15,401
Other 25,668 28,762
Selling, general and administration 37,727 35,568
Depreciation and amortization 17,034 16,737
Preopening -- 5,398
Total costs and expenses 245,655 246,598
--------- ---------
(Loss) income from operations 740 (13,724)
INTEREST AND OTHER INCOME 1,557 1,360
INTEREST EXPENSE (24,703) (20,999)
--------- ---------
Net loss $ (22,406) $ (33,363)
========= =========
The accompanying notes are an integral part of these financial statements.
F-31
RESORTS INTERNATIONAL HOTEL, INC.
STATEMENTS OF SHAREHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
(in Thousands)
Capital Total
Common in Excess Accumulated Shareholder's
Stock of Par Deficit Equity
--------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1998 $ 1,000 $ 124,033 $ (11,396) $ 113,637
--------- --------- --------- ---------
Net loss -- -- (33,363) (33,363)
Adjustment to capital in excess of par -- (373) -- (373)
BALANCE AT DECEMBER 31, 1999 1,000 123,660 (44,759) 79,901
Net loss -- -- (22,406) (22,406)
--------- --------- --------- ---------
BALANCE AT DECEMBER 31, 2000 $ 1,000 $ 123,660 $ (67,165) $ 57,495
========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
F-32
RESORTS INTERNATIONAL HOTEL, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
(in Thousands)
2000 1999
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Reconciliation of net loss to net cash (used in) provided by
operating activities-
Net loss $(22,406) $(33,363)
Adjustments to reconcile net loss to net cash (used in) provided
by operating activities-
Depreciation and amortization 17,034 16,737
Provision for doubtful receivables 1,160 1,465
Provision for discount on CRDA investment obligation, net 799 587
Net loss on dispositions of property and equipment 716 --
Changes in assets and liabilities-
Receivables (3,782) (2,621)
Inventories and prepaid expenses 568 (1,323)
Deferred charges and other assets (408) (191)
Current liabilities 2,577 (1,734)
-------- --------
Net cash (used in) provided by operating activities (3,742) (20,443)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (11,692) (41,906)
Deposits made into CRDA investment obligation account (2,604) (2,746)
-------- --------
Net cash used in investing activities (14,296) (44,652)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 6,000 73,000
Redemption of affiliated notes -- (6,717)
Advances from SINA 20,842 (8,011)
Payments under capital lease obligations (1,892) (1,993)
-------- --------
Net cash provided by (used in) financing activities 24,950 56,279
-------- --------
Net decrease in cash and cash equivalents 6,912 (8,816)
CASH AND CASH EQUIVALENTS, beginning of year 14,541 23,357
-------- --------
CASH AND CASH EQUIVALENTS, end of year $ 21,453 $ 14,541
======== ========
The accompanying notes are an integral part of these financial statements.
F-33
RESORTS INTERNATIONAL HOTEL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
(in Thousands)
1. MERGER AND BASIS OF ACCOUNTING
Resorts International Hotel, Inc. ("RIH") owns and operates Resorts Atlantic
City Casino Hotel, a casino/hotel complex located in Atlantic City, New Jersey.
RIH is a wholly owned subsidiary of GGRI, Inc. ("GGRI"), which is a wholly owned
subsidiary of Sun International North America, Inc. ("SINA"). SINA is a
wholly-owned subsidiary of Sun International Hotels Limited ("SIHL").
SINA has entered into a definitive agreement to sell the outstanding capital
stock of RIH, New Pier Company Inc., which owns the rights to develop a pier
adjacent to Resorts Casino Hotel, and certain assets in Atlantic City owned by
SINA to an affiliate of Colony Capital LLC ("Colony") for a purchase price of
$140 million, such purchase price to accrue interest at an annual rate of 6%
during the period from September 30, 2000 until closing. In addition, Colony has
a two-year option to acquire the undeveloped real estate adjacent to Resorts
Atlantic City for a purchase price of $40 million (the "Option Agreement"),
which option can be extended for an additional two years under certain
circumstances. The sale is subject to certain conditions, including approval by
the New Jersey Casino Control Commission, and is also subject to Colony
receiving certain financing in order to consummate the transaction. The parties
expect to close the transaction in 2001.
SIHL has agreed to provide RIH with the necessary financial support to sustain
its operations in the normal course of business through December 31, 2001 except
that, should the sale of RIH to Colony be consummated, SIHL will not provide
financial support subsequent to that transaction.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Estimates
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
RIH provides allowances for doubtful accounts arising from casino, hotel and
other services, which are based upon a specific review of certain outstanding
receivables. In determining the amounts of the allowances, RIH is required to
make certain estimates and, assumptions and actual results may differ from those
assumptions.
Revenue Recognition
RIH records as gaming revenue the net win from gaming activities which
represents the difference between amounts wagered and amounts won by patrons.
Revenues from hotel and related services and from theater ticket sales are
recognized at the time the related service is performed.
F-34
Promotional Allowances
The retail value of hotel accommodations, food, beverage and other services
provided to customers without charge is included in gross revenues and deducted
as promotional allowances. The estimated departmental costs of providing such
promotional allowances are included in gaming costs and expenses as follows-
2000 1999
--------------- ---------------
Rooms $ 8,407 $ 5,536
Food and beverage 15,502 14,634
Entertainment and other 3,181 6,704
--------------- ---------------
$ 27,090 $ 26,874
=============== ===============
Pre-opening expenses
In the first quarter of 1999, RIH adopted Statement of Position 98-5, which
states that all pre-opening expenses will be charged to expense as they are
incurred. RIH incurred $5,398 in pre-opening expenses related to the opening of
the renovated casino during 1999.
Cash Equivalents
RIH considers all of its short-term money market securities purchased with
original maturities of three months or less to be cash equivalents. The carrying
value of cash equivalents approximates fair value due to the short-term maturity
of these instruments. At December 31, 2000 and 1999, RIH's cash equivalents
included reverse repurchase agreements (Federal government securities purchased
under agreements to resell those securities) of $7,085 and $722, respectively,
under which RIH had not taken delivery of the underlying securities.
Inventories
Inventories of provisions, supplies and spare parts are valued at the lower of
cost (first-in, first-out) or market.
Property and Equipment
Property and equipment are stated at cost and are depreciated over their
estimated useful lives reported below using the straight-line method. Interest
costs incurred during the construction period are capitalized in accordance with
Statement of Financial Accounting Standards No. 34, "Capitalization of Interest
Costs."
Land improvements 14 years
Hotels and other buildings 40 years
Furniture, fixtures and equipment 2 - 5 years
F-35
The provisions of Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets" requires, among other
things, that an entity review its long-lived assets and certain intangibles for
impairment whenever changes in circumstances indicate that the carrying amount
of an asset may not be fully recoverable.
As a result of SINA entering into the agreement to sell RIH, which owns and
operates Resorts Atlantic City Casino Hotel, at a purchase price less than the
carrying value of RIH's net assets, SINA recorded a loss of $229.2 million in
the fourth quarter of 2000 to reflect the write down of net assets held for
sale. RIH did not record an impairment charge because RIH evaluated the
recoverability of its long-lived assets on a standalone, held for use basis and
RIH's estimate of future undiscounted cash flows was in excess of its carrying
value for long-lived assets.
Goodwill
Goodwill is amortized on a straight-line basis over 40 years. Amortization of
goodwill included in the accompanying statements of operations amounted to
$2,641 and $2,643 in 2000 and 1999, respectively.
Income Taxes
RIH and SINA's other domestic subsidiaries file consolidated Federal income tax
returns with SINA.
Deferred tax assets and liabilities are determined based on the difference
between the financial reporting and tax bases of assets and liabilities at
enacted tax rates that will be in effect for the years in which the differences
are expected to reverse. A valuation allowance is recognized based on estimates
of the likelihood that some portion or all of the deferred tax assets will not
be realized. Note 12 gives components of RIH's net deferred tax liability.
Although RIH is a member of a consolidated group for Federal income tax
purposes, RIH calculates its income tax provision on a separate return basis for
financial reporting purposes.
Certain indentures described in Note 8 provide for a tax sharing agreement
between RIH and SINA which limits RIH's tax payments to SINA to reimbursements
of cash payments made by SINA for income or alternative minimum taxes arising
from the earnings or operations of RIH.
F-36
3. RECEIVABLES
Components of receivables were as follows at December 31-
2000 1999
-------------- --------------
Gaming $ 9,787 $ 7,439
Less: allowance for doubtful accounts (2,892) (2,606)
-------------- --------------
6,895 4,833
-------------- --------------
Non-gaming:
Hotel and related 379 352
Other 1,902 1,345
-------------- --------------
2,281 1,697
Less: allowance for doubtful accounts (34) (10)
-------------- --------------
2,247 1,687
$ 9,142 $ 6,520
============== ==============
F-37
4. PROPERTY AND EQUIPMENT
Components of property and equipment were as follows at December 31-
2000 1999
-------------- --------------
Land and land rights $ 83,147 $ 83,147
Land improvements 1,028 1,003
Hotels and other buildings 170,821 163,823
Furniture, fixtures and equipment 42,008 40,852
Construction in progress 1,478 1,520
-------------- --------------
298,482 290,345
Less- Accumulated depreciation (40,704) (31,829)
-------------- --------------
Net property and equipment $ 257,778 $ 258,516
============== ==============
Interest costs of $0 and $907 were capitalized in 2000 and 1999, respectively.
5. DEFERRED CHARGES AND OTHER ASSETS
Components of deferred charges and other assets were as follows at December 31-
2000 1999
-------------- --------------
CRDA deposits and bonds, net (Note 14) $ 16,511 $ 15,171
Ac Convention Center Donation (Note 14) 1,902 1,812
Debt issuance costs, net 4,677 5,208
Other 477 152
-------------- --------------
$ 23,567 $ 22,343
============== ==============
Debt issuance costs are amortized over the terms of the related indebtedness
using the effective interest method. Amortization of debt issuance costs, debt
premiums and accretion of discounts amounted to $606 and $429, and is included
within interest expense in the accompanying statements of operations for the
years ended December 31, 2000 and 1999, respectively.
F-38
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Components of accrued expenses and other current liabilities were as follows at
December 31 -
2000 1999
-------------- --------------
Utilities $ 432 $ 548
CRDA obligation 667 646
Legal and related costs 293 1,500
Insurance and related costs 1,339 1,379
Interest 1,648 499
Payroll 7,548 6,008
Unredeemed chip liability 1,170 1,309
Customer deposits 126 230
Due to affiliates 7,893 -
Other 7,280 4,808
-------------- --------------
$ 28,396 $ 16,927
============== ==============
7. OBLIGATIONS UNDER CAPITAL LEASE
RIH entered into obligations under capital lease to finance the purchase of slot
machines. Borrowings under these arrangements totaled approximately $574 and
$880 as of December 31, 2000 and 1999, respectively. The interest portion of the
capital lease obligations is not material.
8. NOTES PAYABLE TO AFFILIATE
The components of notes payable to affiliate were as follows at December 31 -
2000 1999
-------------- --------------
9% Senior Subordinated Notes, due 2007 $ 200,000 $ 200,000
Unamortized discount (663) (738)
-------------- --------------
$ 199,337 $ 199,262
============== ==============
Due to the interest rates and terms thereof, the carrying values of the
long-term debt at December 31, 2000 and 1999 approximate their fair values.
In February 1999, SIHL and SINA (the "Issuers") issued $200,000 principal amount
of 9% Senior Subordinated Notes due 2007 (the "Senior Notes") which, after
costs, resulted in net proceeds of approximately $194,000. These proceeds were
loaned to RIH in exchange for a $200,000 promissory note (the "RIH Note") with
terms that mirror the terms of the Senior Notes, and RIH's guarantee of the
Senior Notes. Interest on both the Senior Notes and the RIH Note is payable on
March 15 and September 15 in each year. These payments commenced September 15,
1997 with an interest payment of $9,550. The indenture for the Senior Notes (the
"Senior Indenture") contains covenants, including limitations on the ability of
the Issuers and the Guarantors (including RIH) to, among other things: (i) incur
additional indebtedness, (ii) incur certain liens, (iii) engage in certain
transactions with affiliates and (iv) pay dividends and make certain other
restricted payments. See Note 10.
F-39
9. LONG-TERM DEBT
During August 1999, SIHL entered into a term credit facility (the "Credit
Facility") with a syndicate of banks led by The Bank of Nova Scotia and Societe
Generale under which RIH is a borrower along with SIHL and Sun International
Bahamas Limited, a wholly-owned subsidiary of SIHL. The Credit Facility allows
for borrowings up to $375,000. Loans under the Credit Facility bear interest at
(i) the higher of (a) The Bank of Nova Scotia's base rate or (b) the Federal
Funds rate, as defined, in either case plus an additional 0.750% to 1.625% based
on a debt to earnings ratio during the period, as defined (the "Debt Ratio") or
(iii) The Bank of Nova Scotia's reserve-adjusted LIBOR rate plus 1.50% to 2.25%
based on the Debt Ratio. Loans under the Credit Facility may be prepaid and
reborrowed at any time and are due in full on August 12, 2002. Through December
31, 2000, funds borrowed on the facility by RIH amounted to $79,000. See Note
10.
10. RELATED PARTY TRANSACTIONS
RIH recorded the following expenses from SINA and its other subsidiaries during-
2000 1999
------------- -------------
Expenses:
Interest and amortization of discounts on notes payable to SINA $ 18,075 $ 16,598
Interest and amortization of premiums on notes payable to
other affiliate - 393
Management fee 6,573 8,093
Marketing services 1,210 1,690
Amortization of debt issuance costs 531 390
Property rentals from SINA 244 325
Billboard rental from affiliate 38 50
------------- -------------
$ 26,671 $ 27,539
============= =============
SINA charges RIH a management fee of three percent of gross revenues for
administrative and other services. In addition to the management fee, charges
for insurance costs are allocated to RIH based on relative amounts of operating
revenue, payroll, property value, or other appropriate measures.
In connection with the proposed sale to Colony (see Note 1) RIH would not be
liable for payment of related party balances, including borrowing from SIHL or
SINA.
11. RETIREMENT PLANS
RIH has a defined contribution plan in which substantially all non-union
employees are eligible to participate. Employees of certain other affiliated
companies are also eligible to participate in this plan. RIH and other
subsidiaries of SINA make contributions to the plan based on a percentage of
eligible employee contributions. RIH's contribution expense for this plan was
$665 and $676 for the years 2000 and 1999, respectively.
Union employees are covered by various multi-employer pension plans to which
contributions are made by RIH and other unrelated employers. RIH's pension
expense for these plans was $1,192 and $1,216 for the years 2000 and 1999,
respectively.
F-40
12. INCOME TAXES
The components of the deferred tax liabilities were as follows at December 31-
2000 1999
-------------- --------------
Deferred tax liabilities:
Basis differences on property and equipment $ (44,300) $ (44,300)
Other (1,500) (1,500)
-------------- --------------
Total deferred tax liabilities (45,800) (45,800)
-------------- --------------
Deferred tax assets:
NOL carryforwards 86,800 82,600
Book reserves not yet deductible for tax 11,900 12,100
Tax credit carryforwards 800 800
Other 6,900 6,100
-------------- --------------
Total deferred tax assets 106,400 101,600
Valuation allowance for deferred tax assets (96,057) (91,257)
-------------- --------------
Deferred tax assets, net of valuation allowance 10,343 10,343
-------------- --------------
Net deferred tax liabilities $ (35,457) $ (35,457)
============== ==============
The effective income tax rate varies from the statutory Federal income tax rate
as a result of the following factors-
2000 1999
------- -------
Statutory Federal income tax rate 35.0% 35.0%
NOL and temporary differences for which no
taxes were provided or benefits recognized (28.0%) (32.2%)
Nondeductible provisions and expenses (7.0%) (2.8%)
------- -------
Effective tax rate 0.0% 0.0%
======= =======
For Federal tax purposes, RIH had NOL carryforwards of approximately $248
million at December 31, 2000 which expire as follows: $24 million in 2003, $50
million in 2004, $91 million in 2005, $1 million in 2009, $7 million in 2011,
$46 million in 2012, $25 million in 2019 and $4 million in 2020. $173,000 of
these NOL carryforwards was produced prior to a change in ownership of the
consolidated group of which RIH is a part; therefore, these loss carryforwards
are limited in their availability of offset against future taxable income.
For financial reporting purposes, in years when RIH has taxable income, the tax
provision is computed as if RIH were entitled to a full allocation of the
group's limitation. This has the effect of reducing RIH's current tax provision;
any remaining current tax provision of RIH is fully offset by a deferred tax
benefit based on the reversal of temporary differences. For tax purposes,
because RIH files a consolidated tax return with SINA and SINA's other
subsidiaries, it is able to utilize the current period losses and NOL
carryforwards of the entire group; thus, in years when RIH generates taxable
income, its usage of its own NOLs is substantially less than the taxable income
it generates.
RIH provided a full valuation allowance related to the income tax benefit
associated with the operating leases during the years ended December 31, 2000
and 1999 due to the uncertainty surrounding the realization of such benefits.
F-41
At December 31, 2000, RIH had approximately $109 million of NOL carryforwards in
the state of New Jersey which expire as follows: $1 million in 2001, $4 million
in 2003, $43 million in 2004, $44 million in 2006 and $17 million in 2007.
Also at December 31, 2000, RIH had Federal income tax credit carryforwards of
approximately $400, which are restricted as to use and expire $100 per year
between 2006 and 2009, and Federal AMT tax credits of approximately $400 which
carry forward indefinitely.
13. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow disclosures were as follows-
2000 1999
----------- -----------
Non-cash investment and financing transactions:
Adjustment to capital in excess of par $ - $ 373
Refinancing of obligations under capital leases $ - $ 1,444
Property and equipment acquired under capital lease obligations $ 1,417 $ 814
14. COMMITMENTS AND CONTINGENCIES
Litigation
RIH is a defendant in certain litigation. In the opinion of management, based
upon advice of counsel, the aggregate liability, if any, arising from such
litigation will not have a material adverse effect on the accompanying financial
statements.
License Renewal
On January 19, 2000, the New Jersey Casino Control Commission (the "CCC")
renewed RIH's license to operate its casino hotel complex in Atlantic City. A
casino license is not transferable, and must be renewed every four years by
filing an application which must be acted upon by the CCC no later than 30 days
prior to the expiration of the license there in force.
CRDA Investment Obligation
The New Jersey Casino Control Act, as amended, requires RIH to purchase bonds
issued by the Casino Reinvestment Development Authority (CRDA) or make other
investments authorized by the CRDA, in an amount equal to 1.25% of RIH's gross
gaming revenue, as defined.
The CRDA bonds have interest rates ranging from 3.6% to 7.0% and have repayment
terms of between 20 and 50 years. RIH records charges to expense to reflect the
below-market interest rate payable on the bonds it may have to purchase to
fulfill its investment obligation at the date the obligation arises. The charges
in 2000 and 1999 for discounts on obligations arising in those years were $816
and $601, respectively. The discount on CRDA bonds purchased is amortized to
interest income over the life of the bonds using the effective interest method.
From time to time RIH has donated certain funds it has had on deposit with the
CRDA in return for either relief from its obligation to purchase CRDA bonds or
credits against future CRDA deposits.
F-42
At December 31, 2000, RIH owned $7,537 face value of bonds issued by the CRDA
and had $19,754 on deposit with the CRDA. These bonds and deposits, net of an
estimated discount, charged to expense to reflect the below-market interest rate
payable on the bonds, are included in deferred charges and other assets in RIH's
balance sheet. Deferred changes and other assets in RIH's balance sheet also
reflects $1,902 in additional deposits, which have been earmarked for the
refurbishment of the Atlantic City Convention Center. This amount is capitalized
and will be amortized on a straight line basis over a 15 year period when the
Convention Center is reopened for operations. RIH has committed $8,668 of its
current and future CRDA deposit obligations for this project.
F-43
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited in accordance with auditing standards generally
accepted in the United States, the financial statements of Resorts International
Hotel, Inc. included in this Form 10 and have issued our report thereon dated
January 19, 2001. Our audit was made for the purpose of forming an opinion on
the basic financial statements taken as a whole. The accompanying schedule is
the responsibility of the management of Resorts International Hotel, Inc. and is
presented for the purpose of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Roseland, New Jersey
January 19, 2001
F-44
Schedule II
RESORTS INTERNATIONAL HOTEL, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 2000
(In Thousands)
Balance at Charged to
Beginning of Costs and Other Changes Balance at End
Period Expenses (Deductions) of Period
------------ ---------------- ------------ --------------
YEAR ENDED DECEMBER 31, 1999
Allowances for doubtful accounts............... $ 2,402 $ 1,465 $ (1,251)(a) $ 2,616
Valuation allowance for CRDA investments $ 12,725 $ 601 $ (3,349)(b) $ 9,977
YEAR ENDED DECEMBER 31, 2000
Allowances for doubtful accounts............... $ 2,616 $ 1,160 $ (850)(a) $ 2,926
Valuation allowance for CRDA investments. $ 9,977 $ 816 $ (13) $ 10,780
(a) Write-off uncollectible amounts.
(b) Includes the write-off of $3,336 of Vermont Plaza Bonds.
(c) Includes the amortization of the valuation allowance for cross
investments.
F-45
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Resorts International Hotel, Inc.:
We have audited the accompanying balance sheets of Resorts International Hotel,
Inc. (a New Jersey corporation) as of December 31, 1999 and 1998, and the
related statements of operations, shareholder's equity and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Resorts International Hotel,
Inc. as of December 31, 1999 and 1998, and the results of its operations and its
cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
Roseland, New Jersey
January 19, 2000
F-46
RESORTS INTERNATIONAL HOTEL, INC.
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(in Thousands, except share data)
ASSETS 1999 1998
--------- ---------
CURRENT ASSETS:
Cash and cash equivalents $ 14,541 $ 23,357
Receivables, net 6,520 5,364
Inventories 2,490 1,492
Prepaid expenses 2,017 1,692
Due from SINA 13,091 5,080
--------- ---------
Total current assets 38,659 36,985
PROPERTY AND EQUIPMENT, NET 258,516 228,333
GOODWILL, NET 97,733 100,749
DEFERRED CHARGES AND OTHER ASSETS 22,343 20,555
--------- ---------
Total assets $ 417,251 $ 386,622
========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Obligations under capital lease - current portion $ 944 $ 2,235
Accounts payable 6,348 4,699
Accrued interest payable to SINA 5,300 5,483
Accrued expenses and other current liabilities 16,927 19,171
Total current liabilities 29,519 31,588
--------- ---------
NOTES PAYABLE TO AFFILIATE 199,262 205,940
--------- ---------
LONG-TERM DEBT 73,112 --
--------- ---------
DEFERRED INCOME TAXES 35,457 35,457
--------- ---------
SHAREHOLDER'S EQUITY:
Common stock - $1 par value, 1,000 shares issued and outstanding 1,000 1,000
Capital in excess of par 123,660 124,033
Accumulated deficit (44,759) (11,396)
--------- ---------
Total shareholder's equity 79,901 113,637
--------- ---------
Total liabilities and shareholder's equity $ 417,251 $ 386,622
========= =========
The accompanying notes are an integral part of these balance sheets.
F-47
RESORTS INTERNATIONAL HOTEL, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(in Thousands)
1999 1998
--------- ---------
REVENUES:
Gaming $ 210,758 $ 219,854
Rooms 15,160 16,148
Food and beverage 25,512 26,692
Other 8,076 11,460
--------- ---------
Gross revenues 259,506 274,154
Less - Promotional allowances (26,632) (28,295)
--------- ---------
Net revenues 232,874 245,859
--------- ---------
COST AND EXPENSES:
Gaming 141,803 131,673
Rooms 2,929 3,454
Food and beverage 15,401 16,638
Other 28,762 30,509
Selling, general and administration 35,568 37,513
Depreciation and amortization 16,737 14,722
Preopening 5,398 --
--------- ---------
Total costs and expenses 246,598 234,509
--------- ---------
(Loss) income from operations (13,724) 11,350
INTEREST AND OTHER INCOME 1,360 2,595
INTEREST EXPENSE (20,999) (19,456)
--------- ---------
Net loss $ (33,363) $ (5,511)
========= =========
The accompanying notes are an integral part of these financial statements.
F-48
RESORTS INTERNATIONAL HOTEL, INC.
STATEMENTS OF SHAREHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(in Thousands)
Capital Total
Common in Excess Accumulated Shareholder's
Stock of Par Deficit Equity
--------- --------- --------- ---------
Balance at December 31, 1997 $ 1,000 $ 124,033 $ (5,885) $ 119,148
Net loss -- -- (5,511) (5,511)
-------- ---------- ---------- ----------
Balance at December 31, 1998 1,000 124,033 (11,396) 113,637
Net loss -- -- (33,363) (33,363)
Adjustment to capital in excess of par -- (373) -- (373)
-------- ---------- ---------- ----------
Balance at December 31, 1999 $ 1,000 $ 123,660 $ (44,759) $ 79,901
======== ========= ========== ==========
The accompanying notes are an integral part of these financial statements.
F-49
RESORTS INTERNATIONAL HOTEL, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(in Thousands)
1999 1998
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Reconciliation of net loss to net cash (used in) provided by
operating activities-
Net loss $(33,363) $ (5,511)
Adjustments to reconcile net loss to net cash (used in) provided
by operating activities-
Depreciation and amortization 16,737 14,722
Provision for doubtful receivables 1,465 662
Provision for discount on CRDA investment obligation, net 587 572
Changes in assets and liabilities-
Receivables (2,621) (1,196)
Inventories and prepaid expenses (1,323) 146
Deferred charges and other assets (191) 36
Current liabilities (1,734) 988
-------- --------
Net cash (used in) provided by operating activities (20,443) 10,419
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (41,906) (21,837)
Deposits made into CRDA investment obligation account (2,746) (2,955)
-------- --------
Net cash used in investing activities (44,652) (24,792)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from affiliates, net -- 5,098
Proceeds from long-term debt 73,000 --
Redemption of affiliated notes (6,717) --
Advances from SINA (8,011) (7,473)
Payments under capital lease obligations (1,993) (3,145)
-------- --------
Net cash provided by (used in) financing activities 56,279 (5,520)
-------- --------
Net decrease in cash and cash equivalents (8,816) (19,893)
Cash and cash equivalents, beginning of year 23,357 43,250
-------- --------
Cash and cash equivalents, end of year $ 14,541 $ 23,357
======== ========
The accompanying notes are an integral part of these financial statements.
F-50
RESORTS INTERNATIONAL HOTEL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(in Thousands)
1. MERGER AND BASIS OF ACCOUNTING
Resorts International Hotel, Inc. ("RIH") owns and operates Resorts Atlantic
City Casino Hotel, a casino/hotel complex located in Atlantic City, New Jersey.
RIH is a wholly owned subsidiary of GGRI, Inc. ("GGRI"), which is a wholly owned
subsidiary of Sun International North America, Inc. ("SINA").
On December 16, 1996 (the "Effective Date"), SINA became a wholly owned
subsidiary of Sun International Hotels Limited ("SIHL"), a corporation organized
under the laws of the Commonwealth of The Bahamas, through a merger transaction
(the "Merger") approved by shareholders of SINA.
The Merger was accounted for as a purchase and, through push-down accounting,
RIH adjusted its net assets to reflect its portion of the cost of SIHL's
investment in SINA. In doing so, RIH's assets and liabilities were adjusted to
their estimated fair values based on independent appraisals, evaluations,
estimations and other studies. All of SINA's consolidated goodwill, which
resulted from the excess of SIHL's investment in SINA over the fair value of
SINA's net assets, was attributed to RIH, SINA's only subsidiary with
significant operations as of the Effective Date.
On February 26, 1999, the United States Bankruptcy Court for the District of
Delaware issued an order granting a motion filed by SINA. As a result of the
motion, SIHL canceled certain ordinary shares outstanding but never issued
(which through push down accounting were also considered part of shareholder's
equity at RIH) valued at approximately $373 as a result of old SINA noteholders
not excluding their notes to receive equity securities in SINA prior to the
expiration date (see Note 13).
In January 2000, SIHL received a proposal from Sun International Investment
Limited to acquire in a merger transaction all ordinary shares of SIHL not
already owned by Sun International Investments Limited or its shareholders for
$24 per share in cash.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
RIH provides allowances for doubtful accounts arising from casino, hotel and
other services, which are based upon a specific review of certain outstanding
receivables. In determining the amounts of the allowances, RIH is required to
make certain estimates and, assumptions and actual results may differ from those
assumptions.
F-51
Revenue Recognition
RIH records as gaming revenue the net win from gaming activities which
represents the difference between amounts wagered and amounts won by patrons.
Revenues from hotel and related services and from theater ticket sales are
recognized at the time the related service is performed.
Promotional Allowances
The retail value of hotel accommodations, food, beverage and other services
provided to customers without charge is included in gross revenues and deducted
as promotional allowances. The estimated departmental costs of providing such
promotional allowances are included in gaming costs and expenses as follows-
1999 1998
--------------- ---------------
Rooms $ 5,536 $ 5,655
Food and beverage 14,634 13,448
Entertainment and other 6,704 5,570
--------------- ---------------
$ 26,874 $ 24,673
=============== ===============
Preopening expenses
In the first quarter of 1999, RIH adopted statement of Position 98-5, which
states that all pre-opening expenses will be charged to expense as they are
incurred. RIH incurred $5,398 in pre opening expenses related to the opening of
the renovated casino during 1999.
Cash Equivalents
RIH considers all of its short-term money market securities purchased with
original maturities of three months or less to be cash equivalents. The carrying
value of cash equivalents approximates fair value due to the short maturity of
these instruments. At December 31, 1999 and 1998, RIH's cash equivalents
included reverse repurchase agreements (Federal government securities purchased
under agreements to resell those securities) of $722 and $12,212, respectively,
under which RIH had not taken delivery of the underlying securities.
Inventories
Inventories of provisions, supplies and spare parts are valued at the lower of
cost (first-in, first-out) or market.
Property and Equipment
Property and equipment are stated at cost and are depreciated over their
estimated useful lives reported below using the straight-line method. Interest
costs incurred during the construction period are capitalized in accordance with
Statement of Financial Accounting Standards No. 34, "Capitalization of Interest
Costs."
F-52
Land improvements 14 years
Hotels and other buildings 40 years
Furniture, fixtures and equipment 2 - 5 years
The provisions of Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets" requires, among other
things, that an entity review its long-lived assets and certain related
intangibles for impairment whenever changes in circumstances indicate that the
carrying amount of an asset may not be fully recoverable. As a result of its
review, the Company does not believe that any asset impairment exists with
respect to its long-lived assets.
Goodwill
Goodwill is amortized on a straight-line basis over 40 years. Amortization of
goodwill included in the accompanying statements of operations amounted to
$2,643 and $2,651 in 1999 and 1998, respectively.
Income Taxes
RIH and SINA's other domestic subsidiaries file consolidated Federal income tax
returns with SINA.
Deferred tax assets and liabilities are determined based on the difference
between the financial reporting and tax bases of assets and liabilities at
enacted tax rates that will be in effect for the years in which the differences
are expected to reverse. A valuation allowance is recognized based on estimates
of the likelihood that some portion or all of the deferred tax assets will not
be realized. Note 12 gives components of RIH's net deferred tax liability.
Although RIH is a member of a consolidated group for Federal income tax
purposes, RIH calculates its income tax provision on a separate return basis for
financial reporting purposes.
Certain indentures described in Note 8 provide for a tax sharing agreement
between RIH and SINA which limits RIH's tax payments to SINA to reimbursements
of cash payments made by SINA for income or alternative minimum taxes arising
from the earnings or operations of RIH.
3. RECEIVABLES
Components of receivables were as follows at December 31-
1999 1998
-------------- --------------
Gaming $ 7,439 $ 5,700
Less: allowance for doubtful accounts (2,606) (2,401)
-------------- --------------
4,833 3,299
Non-gaming:
Hotel and related 352 568
Other 1,345 1,498
-------------- --------------
1,697 2,066
Less: allowance for doubtful accounts (10) (1)
-------------- --------------
1,687 2,065
-------------- --------------
$ 6,520 $ 5,364
============== ==============
F-53
4. PROPERTY AND EQUIPMENT
Components of property and equipment were as follows at December 31-
1999 1998
-------------- --------------
Land and land rights $ 83,147 $ 83,147
Land improvements 1,003 1,001
Hotels and other buildings 163,823 123,096
Furniture, fixtures and equipment 40,852 28,492
Construction in progress 1,520 13,823
-------------- --------------
290,345 249,559
Less- Accumulated depreciation (31,829) (21,226)
-------------- --------------
Net property and equipment $ 258,516 $ 228,333
============== ==============
Interest costs of $907 and $75 were capitalized in 1999 and 1998, respectively.
5. DEFERRED CHARGES AND OTHER ASSETS
Components of deferred charges and other assets were as follows at December 31-
1999 1998
-------------- --------------
CRDA deposits and bonds, net (Note 14) $ 15,171 $ 14,830
AC Convention Center Donation (Note 14) 1,812 -
Debt issuance costs, net 5,208 5,598
Other 152 127
-------------- --------------
$ 22,343 $ 20,555
============== ==============
Debt issuance costs are amortized over the terms of the related indebtedness
using the effective interest method. Amortization of debt issuance costs, debt
premiums and accretion of discounts amounted to $429 and $511, and is included
within interest expense in the accompanying statements of operations for the
years ended December 31, 1999 and 1998, respectively.
F-54
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Components of accrued expenses and other current liabilities were as follows at
December 31 -
1999 1998
-------------- ------------
Utilities $ 548 $ 567
CRDA obligation 646 1,704
Legal and related costs 1,500 832
Insurance and related costs 1,379 1,450
Interest 499 -
Payroll 6,008 7,146
Unredeemed chip liability 1,309 1,274
Customer deposits 230 272
Other 4,808 5,926
-------------- ------------
$ 16,927 $ 19,171
============== ============
7. OBLIGATIONS UNDER CAPITAL LEASE
RIH entered into obligations under capital lease to finance the purchase of slot
machines. Borrowings under these arrangements totaled approximately $880 and
$2,235 as of December 31, 1999 and December 31, 1998, respectively. The interest
portion of the capital lease obligations is not material and the long-term
portion ($112 at December 31, 1999) is included within long-term debt in the
accompanying balance sheet.
8. NOTES PAYABLE TO AFFILIATE
The components of notes payable to affiliate were as follows at December 31 -
1999 1998
-------------- --------------
11% Mortgage Notes, due 2003 $ - $ 5,352
Unamortized premium - 246
-------------- --------------
- 5,598
-------------- --------------
11.375% Junior Mortgage Notes, due 2004 - 1,095
Unamortized premium - 54
-------------- --------------
- 1,149
-------------- --------------
9% Senior Notes, due 2007 200,000 200,000
Unamortized discount (738) (807)
-------------- --------------
199,262 199,193
-------------- --------------
$ 199,262 $ 205,940
============== ==============
Due to the interest rates and terms thereof, the carrying values of the
long-term debt at December 31, 1999 approximate their fair values.
Resorts International Hotel Financing, Inc. ("RIHF"), a wholly owned financing
subsidiary of SINA, issued $125,000 of 11% Mortgage Notes due 2003 (the
"Mortgage Notes") and $35,000 of 11.375% Junior Mortgage Notes due 2004 (the
"Junior Mortgage Notes") and RIH issued the RIH Promissory Note and the RIH
Junior Promissory Note (collectively, the "RIH Notes"). RIH issued the RIH Notes
to SINA. SINA then transferred the RIH Notes to RIHF in exchange for
F-55
the Mortgage Notes and the Junior Mortgage Notes, and RIH amended and restated
the RIH Notes making them payable to RIHF.
In February 1997, RIHF offered (the "Offer") to purchase its outstanding
Mortgage Notes and Junior Mortgage Notes. In connection with the Offer, RIHF
sought the consent of the holders (the "Consents") to amend the relevant
indentures to, among other things, release the collateral for the Mortgage Notes
and Junior Mortgage Notes. Pursuant to the Offer, RIHF acquired $119,645
principal amount of Mortgage Notes and $21,001 principal amount of Junior
Mortgage Notes, for a total purchase price (including payments relating to the
Consents) of $153,712. At December 31, 1998, $5,352 principal amount of Mortgage
Notes and $1,095 principal amount of Junior Mortgage Notes remained outstanding,
which, as a result of the amendments to the indentures, became unsecured
obligations of RIHF. The remaining Junior Mortgage Notes continue to trade as
part of units consisting of $1 principal amount of Junior Mortgage Notes and
.1928 of an ordinary share of SIHL. During August 1999, the balance of the
mortgage notes and junior mortgage notes were redeemed utilizing proceeds from
the credit facility (see Note 9).
In connection with the Offer, SIHL and SINA (the "Issuers") issued $200,000
principal amount of 9% Senior Subordinated Notes due 2007 (the "Senior Notes")
which, after costs, resulted in net proceeds of approximately $194,000. These
proceeds were loaned to RIH in exchange for a $200,000 promissory note (the "New
RIH Note") with terms that mirror the terms of the Senior Notes, and RIH's
guarantee of the Senior Notes. RIH transferred to RIHF (i) $153,712 in cash
which RIHF used to pay the purchase price (including payments related to the
Consents), excluding accrued interest, for the Mortgage Notes and Junior
Mortgage Notes tendered to RIHF pursuant to the Offer and (ii) $12,899 Junior
Mortgage Notes owned by RIH. In exchange for this, the $125,000 and $35,000
promissory notes from RIH to RIHF (the "RIH Notes"), the terms of which mirror
the terms of the Mortgage Notes and Junior Mortgage Notes, respectively, were
canceled and RIH issued new promissory notes to RIHF in the amounts of, and with
terms that mirror, the remaining Mortgage Notes and Junior Mortgage Notes. The
excess of the cash and carrying value of the Junior Mortgage Notes tendered by
RIH to RIHF over the net decrease in carrying value, excluding accrued interest,
of the affiliated notes from RIH to RIHF, plus estimated costs of the Offer,
which were borne by RIH, resulted in an extraordinary loss of $5,000. RIH also
recorded a deferred tax benefit of $2,043 related to this extraordinary item.
Interest on both the Senior Notes and the New RIH Note is payable on March 15
and September 15 in each year. These payments commenced September 15, 1997 with
an interest payment of $9,550. The indenture for the Senior Notes (the "Senior
Indenture") contains covenants, including limitations on the ability of the
Issuers and the Guarantors (including RIH) to, among other things: (i) incur
additional indebtedness, (ii) incur certain liens, (iii) engage in certain
transactions with affiliates and (iv) pay dividends and make certain other
restricted payments.
9. LONG-TERM DEBT
During August 1999, SIHL entered into a term credit facility (the "Credit
Facility") with a syndicate of banks led by The Bank of Nova Scotia and Societe
Generale under which RIH is a borrower along with SIHL and Sun International
Bahamas Limited, a wholly-owned subsidiary of SIHL. The Credit Facility allows
for borrowings up to $375,000. Loans under the Credit
F-56
Facility bear interest at (i) the higher of (a) The Bank of Nova Scotia's base
rate or (b) the Federal Funds rate, as defined, in either case plus an
additional 0.750% to 1.625% based on a debt to earnings ratio during the period,
as defined (the "Debt Ratio") or (iii) The Bank of Nova Scotia's
reserve-adjusted LIBOR rate plus 1.50% to 2.25% based on the Debt Ratio. Loans
under the Credit Facility may be prepaid and reborrowed at any time and are due
in full on August 12, 2002. Through December 31, 1999, funds borrowed on the
facility by RIH amounted to $73,000.
10. RELATED PARTY TRANSACTIONS
RIH recorded the following expenses from SINA and its other subsidiaries during-
1999 1998
------------- -------------
Expenses:
Interest and amortization of discounts on notes payable to SINA $ 16,598 $ 17,987
Interest and amortization of premiums on notes payable to RIHF 393 679
Management fee 8,093 8,671
Marketing services 1,690 79
Amortization of debt issuance costs 390 494
Property rentals to SINA 325 325
Billboard rental to affiliate 50 50
------------- -------------
$ 27,539 $ 28,285
============= =============
SINA charges RIH a management fee of three percent of gross revenues for
administrative and other services. In addition to the management fee, charges
for insurance costs are allocated to RIH based on relative amounts of operating
revenue, payroll, property value, or other appropriate measures.
11. RETIREMENT PLANS
RIH has a defined contribution plan in which substantially all non-union
employees are eligible to participate. Employees of certain other affiliated
companies are also eligible to participate in this plan. RIH and other
subsidiaries of SINA make contributions to the plan based on a percentage of
eligible employee contributions. RIH'S contribution expense for this plan was
$676 and $744 for the years 1999 and 1998, respectively.
Union employees are covered by various multi-employer pension plans to which
contributions are made by RIH and other unrelated employers. RIH's pension
expense for these plans was $1,216 and $1,149 for the years 1999 and 1998,
respectively.
F-57
12. INCOME TAXES
The components of the deferred tax liabilities are as follows at December 31-
1999 1998
-------------- ----------------
Deferred tax liabilities:
Basis differences on property and equipment $ (44,300) $ (44,000)
Other (1,500) (1,500)
-------------- ----------------
Total deferred tax liabilities (45,800) (45,500)
-------------- ----------------
Deferred tax assets:
NOL carryforwards 82,600 76,600
Book reserves not yet deductible for tax 12,100 13,600
Basis differences on notes payable to affiliate - 400
Tax credit carryforwards 800 800
Other 6,100 5,800
-------------- ----------------
Total deferred tax assets 101,600 97,200
Valuation allowance for deferred tax assets (91,257) (87,157)
-------------- ----------------
Deferred tax assets, net of valuation allowance 10,343 10,043
-------------- ----------------
Net deferred tax liabilities $ (35,457) $ (35,457)
============== ================
The effective income tax rate on income (loss) before extraordinary item varies
from the statutory Federal income tax rate as a result of the following factors-
1999 1998
-------- ---------
Statutory Federal income tax rate 35.0% 35.0%
NOL and temporary differences for which no taxes were
provided or benefits recognized (32.2%) (7.3%)
Nondeductible provisions and expenses (2.8%) (27.4%)
Other - (0.3%)
-------- ---------
Effective tax rate 0.0% 0.0%
======== =========
For Federal tax purposes, RIH had NOL carryforwards of approximately $236,000 at
December 31, 1999 which expire as follows: $24,000 in 2003, $50,000 in 2004,
$91,000 in 2005, $1,000 in 2009, $7,000 in 2011, $46,000 in 2012 and $17,000 in
2019. $173,000 of these NOL carryforwards was produced prior to a change in
ownership of the consolidated group of which RIH is a part; therefore, these
loss carryforwards are limited in their availability of offset against future
taxable income. For Federal tax purposes, this limitation is considered to be
owned by a common parent and would not be available to RIH unless the parent
made an affirmative election to allocate some of the limitation to RIH. Such
election would not be made until such time as RIH ceases to be a member of the
group.
For financial reporting purposes, in years when RIH has taxable income, the tax
provision is computed as if RIH were entitled to a full allocation of the
group's limitation. This has the effect of reducing RIH's current tax provision;
any remaining current tax provision of RIH is fully offset by a deferred tax
benefit based on the reversal of temporary differences. For tax purposes,
F-58
because RIH files a consolidated tax return with SINA and SINA's other
subsidiaries, it is able to utilize the current period losses and NOL
carryforwards of the entire group; thus, in years when RIH generates taxable
income, its usage of its own NOLs is substantially less than the taxable income
it generates.
RIH did not recognize an income tax benefit during the years ended December 31,
1999 and 1998 due to the history of recurring losses and the uncertainty
surrounding the realization of the benefits in future income tax returns.
At December 31, 1999, RIH had approximately $65,000 of NOL carryforwards in the
state of New Jersey which expire as follows: $1,000 in 2001, $4,000 in 2003,
$43,000 in 2004 and $17,000 in 2006.
Also at December 31, 1999, RIH had Federal income tax credit carryforwards of
approximately $400, which are restricted as to use and expire $100 per year
between 2006 and 2009, and Federal AMT tax credits of approximately $400 which
carry forward indefinitely.
13. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosures required by Statement of Financial Accounting Standards
No. 95, "Statement of Cash Flows," are presented below-
1999 1998
---------- -----------
Non-cash investment and financing transactions:
Adjustment to capital in excess of par $ 373 $ --
Refinancing of obligations under capital leases 1,444 --
Property and equipment acquired under capital lease obligations 814 5,098
14. COMMITMENTS AND CONTINGENCIES
Litigation
RIH is a defendant in certain litigation. In the opinion of management, based
upon advice of counsel, the aggregate liability, if any, arising from such
litigation will not have a material adverse effect on the accompanying financial
statements.
License Renewal
On January 19, 2000, the New Jersey Casino Control Commission (the "CCC")
renewed RIH's license to operate its casino hotel complex in Atlantic City. A
casino license is not transferable, and must be renewed every four years by
filing an application which must be acted upon by the CCC no later than 30 days
prior to the expiration of the license there in force.
F-59
CRDA Investment Obligation
The New Jersey Casino Control Act, as amended, requires RIH to purchase bonds
issued by the Casino Reinvestment Development Authority (CRDA) or make other
investments authorized by the CRDA, in an amount equal to 1.25% of RIH's gross
gaming revenue, as defined.
The CRDA bonds have interest rates ranging from 3.6% to 7.0% and have repayment
terms of between 20 and 50 years. RIH records charges to expense to reflect the
below-market interest rate payable on the bonds it may have to purchase to
fulfill its investment obligation at the date the obligation arises. The charges
in 1999 and 1998 for discounts on obligations arising in those years were $601
and $586, respectively. The discount on CRDA bonds purchased is amortized to
interest income over the life of the bonds using the effective interest method.
From time to time RIH has donated certain funds it has had on deposit with the
CRDA in return for either relief from its obligation to purchase CRDA bonds or
credits against future CRDA deposits.
At December 31, 1999, RIH owned $8,152 face value of bonds issued by the CRDA
and had $16,995 on deposit with the CRDA. These bonds and deposits, net of an
estimated discount, charged to expense to reflect the below-market interest rate
payable on the bonds, are included in deferred charges and other assets in RIH's
Balance Sheet. Deferred changes and other assets in RIH's Balance Sheet also
reflects $1,812 in additional deposits, which have been earmarked for the
refurbishment of the Atlantic City Convention Center. This amount is capitalized
and will be amortized on a straight line basis over a 15 year period when the
Convention Center is reopened for operations. RIH has committed $8,668 of its
current and future CRDA deposit obligations for this project.
F-60
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited in accordance with auditing standards generally
accepted in the United States, the financial statements of Resorts International
Hotel, Inc. included in this Form 10 and have issued our report thereon dated
January 19, 2000. Our audit was made for the purpose of forming an opinion on
the basic financial statements taken as a whole. The accompanying schedule is
the responsibility of the management of Resorts International Hotel, Inc. and is
presented for the purpose of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Roseland, New Jersey
January 19, 2000
F-61
Schedule II
RESORTS INTERNATIONAL HOTEL, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999
(In Thousands)
Balance at Charged to
Beginning of Costs and Other Changes Balance at End
Period Expenses (Deductions) of Period
---------------- ------------- ---------------- ---------------
YEAR ENDED DECEMBER 31, 1998
Allowances for doubtful accounts............... $ 3,023 $ 662 $ (1,283)(a) $ 2,402
Valuation allowance for CRDA investments $ 12,287 $ 586 $ (148)(b) $ 12,725
YEAR ENDED DECEMBER 31, 1999
Allowances for doubtful accounts............... $ 2,402 $ 1,465 $ (1,251)(a) $ 2,616
Valuation allowance for CRDA investments $ 12,725 $ 601 $ (3,349)(c) $ 9,977
(a) Write-off uncollectible amounts.
(b) Includes the amortization of the valuation allowance for cross investments
and the reversal of the allowance upon the redemption of bonds.
(c) Includes the write-off of $3,336 of Vermont Plaza Bonds.
F-62