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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
_____________ ____________
Commission File No. 1-4748
RESORTS INTERNATIONAL, INC.
_______________________________________________________________________
(Exact name of registrant as specified in its charter)
DELAWARE 59-0763055
_______________________________ ___________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1133 Boardwalk, Atlantic City, New Jersey 08401
_________________________________________ ______________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 609-344-6000
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
__________________________________ _______________________
Series A Senior Secured Redeemable American Stock Exchange
Notes
Series B Senior Secured Redeemable American Stock Exchange
Notes
First Mortgage Non-Recourse American Stock Exchange
Pass-Through Notes
Common Stock American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
_______________________________________________________________________
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Exhibit Index is presented on pages 105 through 116.
Total No. of Pages 118
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
___________ ___________
Based on the closing price on the American Stock Exchange, on February
28, 1994 the aggregate market value of the registrant's common stock
held by nonaffiliates was $23,616,000.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
Yes X No
___________ ___________
As of February 28, 1994 there were 20,157,234 shares of the
registrant's common stock outstanding.
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PART I
ITEM 1. BUSINESS
________________
(a) General Development of Business
_______________________________
Resorts International, Inc. ("RII") is a holding company which,
through its subsidiaries, is principally engaged in the ownership and
operation of Merv Griffin's Resorts Casino Hotel ("Resorts Casino
Hotel") in Atlantic City, New Jersey, and the Paradise Island Resort &
Casino, the Ocean Club Golf & Tennis Resort and the Paradise Paradise
Beach Resort, all located on Paradise Island, The Bahamas. RII was
incorporated in Delaware in 1958. The term "Company" as used herein
includes RII and/or one or more of its subsidiaries as the context may
require.
In Atlantic City, the Company owns and operates the Resorts
Casino Hotel, which has approximately 670 guest rooms, a 60,000 square
foot casino, an 8,000 square foot racetrack simulcast betting and
poker area and related facilities, located on the Boardwalk. Pursuant
to a major capital improvements program that began in 1989, virtually
all guest rooms and public areas at the Resorts Casino Hotel have been
refurbished. See "(c) Narrative Description of Business - Atlantic
City - Capital Improvements" below, and "ITEM 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
Approximately 10 acres of Boardwalk property owned by the Company
is leased to Atlantic City Showboat, Inc. ("ACS") under a 99-year net
lease (the "Showboat Lease"). All lease payments due under the
Showboat Lease directly service the Company's interest obligations
under the Showboat Notes described under "(c) Narrative Description of
Business - Atlantic City - Showboat Lease" below. The leased acreage
is the site of the Showboat Casino Hotel (the "Showboat") which is
operated by ACS. The Company also owns other real estate in the
Atlantic City area, most of which consists of vacant land.
Casino operations in Atlantic City are conducted under a casino
license which is subject to periodic review and renewal by action of
the New Jersey Casino Control Commission (the "Casino Control
Commission"). The Company's current license was renewed in February
1994 through January 31, 1996 and is subject to certain financial
reporting and other conditions. See "Regulation and Gaming Taxes and
Fees - New Jersey" under "(c) Narrative Description of Business" below.
On Paradise Island, the Company operates a 30,000 square foot
casino and owns and operates resort and hotel facilities that include
a total of 1,357 guest rooms and related amenities. The Company owns
substantial undeveloped real estate in The Bahamas in addition to its
operating properties. See "Restructuring of Series Notes" below for a
description of a proposed restructuring (the "Restructuring") which
includes the disposition of the Company's Paradise Island operations
and properties.
Casino operations in The Bahamas are conducted under a casino
license which is subject to periodic review and renewal by the Gaming
Board of the Commonwealth of The Bahamas. The Company's current
license is subject to various conditions. See "Regulation and Gaming
Taxes and Fees - The Bahamas" under "(c) Narrative Description of
Business" below.
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Restructuring of Series Notes
_____________________________
Background
__________
The outstanding principal amount of RII's Senior Secured
Redeemable Notes due April 15, 1994 (the "Series Notes") is
$481,907,000. Including the interest due on the maturity date of
approximately $36,000,000, RII's total obligation at maturity will
amount to approximately $518,000,000.
The Company's ability to pay the principal balance due on the
Series Notes at maturity was premised on certain assumptions included
in RII's 1990 plan of reorganization (the "Old Plan"), the most
significant of which was the Company's ability to sell its Paradise
Island assets by December 31, 1991 at a price ranging from
$250,000,000 to $300,000,000. Other assumptions included the
Company's ability to generate substantial excess cash flow from its
operations and the Company's ability to sell its non-operating real
estate holdings in Atlantic City at acceptable prices. However, the
recession in the United States, and more specifically in the northeast
sector, the acute competition in Atlantic City and The Bahamas, the
unexpected increase in competition from other jurisdictions, the
unforeseen difficulty in selling the Paradise Island assets at the
projected price, and the adverse impact of the conflict in the Persian
Gulf in early 1991 on transportation and tourism, all adversely
affected the Company's ability to realize the assumptions in the Old
Plan.
Although the Company did not discontinue its efforts to sell the
Paradise Island assets, it experienced a very limited amount of
interest by prospective purchasers. The only offer the Company
received for its Paradise Island assets prior to the Restructuring
described below was made in August 1991. That offer would have netted
the Company approximately $150,000,000 if the transaction had been
consummated. This amount was inadequate to retire sufficient Series
Notes at par so as to permit the Company's then remaining Atlantic
City operations to service the debt that would have remained
outstanding. Subsequent discussions with the prospective purchaser
did not lead to a definitive agreement, and the discussions terminated
in early 1992.
As the possibilities of a sale of the Paradise Island assets at
other than a depressed price diminished and the Company was unable to
generate substantial excess cash flow from its operations, the
principal amount of the Series Notes (originally $325,000,000)
increased due to a payment-in-kind ("PIK") interest feature of the
Series Notes, which allowed the Company to satisfy interest
obligations on its Series Notes by the issuance of additional Series
Notes in lieu of making cash interest payments. Thus, it became
evident that in order for the Company to reduce its debt to a level
that could be supported by the cash flow reasonably anticipated on a
continuing basis, it had to develop financial alternatives other than,
or in conjunction with, a sale of its Paradise Island assets. The
Company has been working with its financial advisers on developing and
analyzing financial alternatives, as well as developing a long-term
financial plan, since late 1991. In this connection, management of
the Company, with the assistance of its legal and financial advisers,
commenced discussions with representatives of major holders of Series
- 4 -
Notes in the summer of 1992 in an effort to reach an agreement as to
the terms of a possible restructuring of the Series Notes. This
process resulted in the Restructuring described below.
Restructuring
_____________
On October 25, 1993 RII and three of its subsidiaries, Resorts
International Hotel, Inc. ("RIH"), Resorts International Hotel
Financing, Inc. ("RIHF") and P.I. Resorts Limited ("PIRL"), filed a
Form S-4 Registration Statement (No. 33-50733) with the Securities and
Exchange Commission. This Registration Statement describes in detail
the Restructuring which RII and GGRI, Inc. ("GGRI"), RII's subsidiary
which guaranteed the Series Notes, propose to accomplish through a
joint plan of reorganization (the "Plan") which was proposed and for
which acceptances were solicited before commencing cases under chapter
11 of title 11 of the United States Code (the "Bankruptcy Code").
This process is known as a "prepackaged bankruptcy." On February 1,
1994, after certain amendments, the Registration Statement was
declared effective. On February 5, 1994 the solicitation of
acceptances of the Plan commenced with the mailing of the Information
Statement/Prospectus for Solicitation of Votes on Prepackaged Plan of
Reorganization, ballots and other materials to holders of Series
Notes, RII's common stock (the "RII Common Stock") and stock options
(the "1990 Stock Options") issued pursuant to the RII Senior
Management Stock Option Plan (the "1990 Stock Option Plan"). Holders
of Series Notes, RII Common Stock and 1990 Stock Options as of January
10, 1994 (the "Voting Record Date") were entitled to vote on the
Plan. The solicitation period ended on March 15, 1994.
The Plan is the result of extensive negotiations among RII,
Fidelity Management & Research Company ("Fidelity") and TCW Special
Credits ("TCW"). Fidelity and TCW separately advise and manage
various funds and accounts that as of the Voting Record Date held in
the aggregate approximately 64% of the outstanding principal amount of
Series Notes. In addition, RII, Fidelity and TCW held discussions
with Sun International Investments Limited ("SIIL"), an unaffiliated
company, regarding the purchase of a 60% interest in the Company's
Paradise Island assets (the "SIHL Sale") through a subsidiary of SIIL,
Sun International Hotels Limited ("SIHL"), formed for that purpose.
The Restructuring contemplates, among other things, the exchange
of the Series Notes for: (i) $125,000,000 principal amount of 11%
Mortgage Notes due 2003 (the "RIHF Mortgage Notes") to be issued by
RIHF and guaranteed by RIH, RII's subsidiary that owns and operates
the Resorts Casino Hotel; (ii) $35,000,000 principal amount of 11.375%
Junior Mortgage Notes due 2004 (the "RIHF Junior Mortgage Notes") to
be issued by RIHF and guaranteed by RIH; (iii) 40% of the RII Common
Stock on a fully diluted basis (excluding 1990 Stock Options and
options to be issued under a newly proposed stock option plan (the
"1994 Stock Option Plan")); (iv) either (a) $65,000,000 in cash, plus
interest at an annual rate of 7.5% from January 1, 1994 through the
closing date of the SIHL Sale, plus 40% of the capital stock of SIHL,
representing the consideration received from the proposed SIHL Sale,
or, if the SIHL Sale is not consummated, (b) 100% of the equity of
PIRL, which was recently formed to be a holding company in the event
of the spin-off (the "PIRL Spin-Off") of 100% of the equity of RII's
Bahamian subsidiaries and, through subsidiaries, the assets of RII and
certain of its domestic subsidiaries which support the Company's
Bahamian operations, and related liabilities; (v) the Company's Excess
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Cash, as defined in the Plan, which is estimated to be at least
$30,000,000 and (vi) rights to receive distributions estimated to be
approximately $2,500,000 in respect of units of beneficial interest
(the "Litigation Trust Units") owned by RII in a litigation trust (the
"Litigation Trust") established pursuant to the Old Plan to pursue
certain claims against Donald Trump and certain of his affiliates.
Each $1,000 principal amount of RIHF Junior Mortgage Notes is to
be issued as part of a unit with one share of RII Class B Common Stock
(the "RII Class B Stock") and may not be transferred separately from
such share of RII Class B Stock. Holders of the RII Class B Stock are
to have certain voting rights only with respect to the election of
directors and are not to participate in any dividends which may be
declared by RII's Board of Directors. Holders of RII Class B Stock
will be entitled to elect one-third of RII's Board of Directors unless
on more than six occasions RIHF either makes PIK interest payments or
fails to make interest payments on the RIHF Junior Mortgage Notes (the
"Class B Triggering Event"). Upon the occurrence of the Class B
Triggering Event, holders of RII Class B Stock will be entitled to
elect the majority of RII's Board of Directors. RIHF may only make
PIK interest payments under certain circumstances provided for in the
indenture for the RIHF Junior Mortgage Notes.
The Restructuring also provides for certain funds or accounts
managed by Fidelity to enter into a senior credit facility with RIHF
(the "RIHF Senior Facility") which will allow RIHF to borrow up to
$20,000,000 through the issuance of notes. The RIHF Senior Facility
is to be available for a single borrowing during the one-year period
from the date the Plan becomes effective (the "Effective Date").
Notes issued pursuant to the RIHF Senior Facility will bear interest
at 11% per year and mature in 2002.
The following transactions, among others, are also to be
effected in connection with the Restructuring: (i) the initial
post-Restructuring directors of RII will be named to the RII Board of
Directors (see "ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT"); (ii) RII will issue warrants to purchase 10% of RII
Common Stock on a fully diluted basis (the "Griffin Warrants"), to The
Griffin Group, Inc. (the "Griffin Group"), a company controlled by
Merv Griffin, the Chairman of the Board of RII (see "Transactions with
Management and Others - Griffin Services Agreement" under "ITEM 11.
EXECUTIVE COMPENSATION - Compensation Committee Interlocks and Insider
Participation") and (iii) the 1990 Stock Option Plan will be
terminated, though existing holders of 1990 Stock Options will retain
their options, and the 1994 Stock Option Plan, which will allow for
the granting of options to purchase up to 5% of the outstanding RII
Common Stock, will be implemented.
Consummation of the Plan is subject to a number of conditions
including, but not limited to, confirmation by the Bankruptcy Court
and receipt of required regulatory approvals of the Casino Control
Commission and the Government of The Bahamas.
For the Plan to be confirmed by the Bankruptcy Court, the Plan
must comply with various requirements of the Bankruptcy Code. Also,
to confirm the Plan on a consensual basis, acceptances must be
received from (i) holders of Series Notes constituting at least 66
2/3% in principal amount and more than 50% in number of those voting
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and (ii) at least 66 2/3% each of RII Common Stock and 1990 Stock
Options voted. In addition to the vote required by the Bankruptcy
Code, a condition to confirmation of the Plan is the entry of an order
declaring that certain security documents (the "Security Documents")
under which the liens on the property securing the Series Notes were
granted or created shall be deemed released and terminated. To
effectuate such termination and release consensually, the record
holders of at least 66 2/3% in aggregate principal amount of the
outstanding Series Notes and the record holders of at least a majority
in aggregate principal amount of each series of the Series Notes must
consent to the termination of the Security Documents. There are
several other conditions to confirmation of the Plan which, subject to
the approval of Fidelity and TCW (in certain circumstances), may be
waived by RII and GGRI.
The solicitation agent has advised the Company that it has
received the requisite acceptances for confirmation of the Plan and
sufficient consents to release the Security Documents. The Company
intends to proceed with the filing of its prepackaged bankruptcy
cases; however, there can be no assurance as to whether or when the
Restructuring will be effected, or that any restructuring that may
ultimately be consummated will be on terms similar to those of the
Restructuring.
Event of Default
________________
As of September 30, 1993 RII was not in compliance with its
covenant contained in the indenture for the Series Notes (the "Series
Note Indenture") to maintain a Tangible Net Worth, as defined in the
Series Note Indenture, of at least $50,000,000. Since that date RII's
Tangible Net Worth has continued to decline. On February 2, 1994, 30
days after receiving notice of such default from the trustee for the
Series Notes (the "Series Note Trustee"), this default became an Event
of Default. Upon the occurrence of an Event of Default, the Series
Note Trustee may accelerate the maturity of the Series Notes by
declaring all unpaid principal of and accrued interest on the Series
Notes due and payable or may foreclose upon the collateral securing
the Series Notes. In addition, the holders of 40% in principal amount
of the Series Notes then outstanding may require the Series Note
Trustee to accelerate the maturity of the Series Notes.
If the Series Note Trustee accelerates the maturity of the Series
Notes or forecloses upon the collateral securing the Series Notes, RII
and GGRI, as guarantor of the Series Notes, and certain of their
subsidiaries whose assets are pledged to secure the Series Notes
(including RIH and Resorts International (Bahamas) 1984 Limited
("RIB"), RII's indirect subsidiary, which together with its
subsidiaries owns and operates the Company's Bahamian properties)
would be forced to seek immediate protection under the Bankruptcy
Code. If such events occur, there can be no assurance that the
Restructuring would be implemented, that a reorganization of RII and
GGRI rather than a liquidation would occur or that any reorganization
that might occur would be on terms as favorable to the holders of
Series Notes and holders of RII Common Stock as the terms of the Plan.
(b) Financial Information about Industry Segments
_____________________________________________
The information called for by this item is incorporated by
reference to the tables entitled "Revenues," "Contribution to
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Consolidated Loss Before Income Taxes" and "Identifiable Assets,
Depreciation and Capital Additions" in "ITEM 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
(c) Narrative Description of Business
_________________________________
Atlantic City
_____________
Gaming Facilities
_________________
The Resorts Casino Hotel has a 60,000 square foot casino and a
racetrack simulcast betting and poker area of approximately 8,000
square feet. At December 31, 1993, these gaming areas contained 50
blackjack tables, 25 poker tables, 13 dice tables, 10 roulette tables,
2 baccarat tables, 2 mini-baccarat tables, 2 pai gow poker tables, 1
big six wheel, 1 sic bo table, 1,916 slot machines and nine betting
windows and customer-operated terminals for race book. As described
below under "Capital Improvements," the casino and hotel facilities at
the Resorts Casino Hotel have undergone extensive renovation and
remodeling pursuant to a major capital improvements program.
During 1993, the Company had total gaming revenues from its
Atlantic City casino of $244,116,000. This compares to total gross
win of $233,780,000 for 1992 and $218,881,000 for 1991. For 1993 this
amount includes simulcast commissions and poker revenue totaling
$5,745,000; the Company has offered simulcast betting and poker since
June 28, 1993.
Casino gaming in Atlantic City is highly competitive and is
strictly regulated under the New Jersey Casino Control Act and
regulations promulgated thereunder ("Casino Control Act"), which
affect virtually all aspects of the Company's Atlantic City casino
operations. See "Competition" and "Regulation and Gaming Taxes and
Fees - New Jersey" below.
Resort and Hotel Facilities
___________________________
The Resorts Casino Hotel 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. The
Resorts Casino Hotel consists of two hotel towers, the 15-story East
Tower and the nine-story North Tower. In addition to the casino
facilities described above, the casino/hotel complex includes
approximately 670 guest rooms and suites, the 1,400-seat Superstar
Theatre, eight restaurants, two cocktail and entertainment lounges, a
new VIP slot and table player lounge, an indoor swimming pool and
health club, and retail stores. The complex also has approximately
50,000 square feet of convention facilities, including eight large
meeting rooms and a 16,000 square foot ballroom.
The Company owns a garage that is connected to the Resorts Casino
Hotel by a covered walkway. This garage is used for patrons' self
parking and accommodates approximately 700 vehicles. The Company also
offers valet parking at nearby, uncovered leased lots that provide
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space for approximately 600 cars and has an additional leased lot
which provides self-parking for approximately 200 cars.
Consistent with industry practice, the Company reserves a portion
of its hotel rooms and suites as complimentary accommodations for
high-level casino wagerers. For 1993, 1992 and 1991 the average
occupancy rates, including complimentary rooms which were primarily
provided to casino patrons, were 92%, 93% and 90%, respectively. The
average occupancy rate and weighted average daily room rental,
excluding complimentary rooms, were 47% and $62, respectively, for
1993. This compares with 57% and $61, respectively, for 1992, and 51%
and $67, respectively, for 1991.
Capital Improvements
____________________
The Company has pursued a major capital improvements program
since 1989 in order to compete more effectively in the Atlantic City
market. During these five years capital additions at Resorts Casino
Hotel exceeded $100,000,000. In 1993 the Company converted certain
back-of-the-house space into a simulcast facility, which houses nine
betting windows and customer-operated terminals and approximately 80
seats for simulcast betting operations, as well as 25 poker tables,
various other table games and a bar with food service. Also, certain
casino renovations were completed, 280 slot machines were purchased,
most of which replaced older models, and the new VIP slot and table
player lounge, "Club Griffin," opened. In addition, guest room
refurbishments continued and a new centralized mobile communications
system was installed. During the years 1989 through 1992 improvements
included refurbishment of rooms in both the East Tower and the North
Tower, casino renovations, purchase of new slot machines and gaming
equipment, conversion of the parking garage from valet to
self-parking, restaurant remodeling and upgrading, renovation of
public areas, installation of new computer equipment and management
information systems, as well as improvements to the infrastructure
such as elevators, air conditioning, and exterior renovations and
painting. With the completion of the capital improvements program in
1993, management expects capital expenditures in 1994 to decline to
approximately $12,000,000 which will be primarily for maintenance of
existing facilities.
Marketing
_________
The Company continues to take advantage of the celebrity status
of Merv Griffin, who is actively engaged in the marketing of the
Resorts Casino Hotel. Mr. Griffin, who is Chairman of the Board of
RII, is featured in television commercials and in print
advertisements. Mr. Griffin also produced live at the Resorts Casino
Hotel "Merv Griffin's New Year's Eve Special 1993" which was broadcast
nationwide. Mr. Griffin is to continue to participate in the
operations and marketing of the Resorts Casino Hotel through the term
of a License and Services Agreement described in "Transactions with
Management and Others - Griffin Services Agreement" under "ITEM 11.
EXECUTIVE COMPENSATION - Compensation Committee Interlocks and Insider
Participation."
The Company's marketing strategy is designed to enhance the
appeal of the Resorts Casino Hotel to the mid and premium-level slot
and table game players. For slot players, in 1993 the Company (i)
introduced a new "cash-back" program which rewards players with cash
refunds or complimentaries based on their volume of play; (ii) expanded
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and upgraded "Hollywood Hills," its high-limit slot area; and (iii)
opened a VIP slot and table player lounge, "Club Griffin." Also, in
an effort to attract mid and premium table game players, the Company
has established customer development teams to increase opportunities
in this market area. The entertainment product has also been modified
to attract the mid and premium players through increased booking of
star headliners and, in 1993, changing the revue show more frequently
than in prior years.
New Convention Center
_____________________
In January 1992, the State of New Jersey enacted legislation that
authorized a financing plan for the construction of a new convention
center to be located on a 30-acre site next to the Atlantic City train
station at the base of the Atlantic City Expressway. The Company
understands that the new convention center will have 500,000 square
feet of exhibit space and an additional 104,200 square feet of meeting
rooms. Construction of the new convention center began in early 1993
and it is scheduled to be completed in the fall of 1996.
The convention center is part of a broader plan that includes an
additional expansion of the Atlantic City International Airport and
other improvements in Atlantic City. Officials have commented upon the
need for improved commercial air service into Atlantic City as a
factor in the success of the proposed convention center. See further
discussion under "Transportation Facilities" below. Also, in order to
spur construction of new hotel rooms and renovation of substandard
hotel rooms into deluxe accommodations to support the new convention
center, certain funds have been set aside by the Casino Reinvestment
Development Authority (the "CRDA"), a public authority created under
the Casino Control Act, to aid in financing such projects. Ten
casino/hotels have filed proposals to obtain financing for such
projects; however, plans for these projects are considered preliminary.
Although these developments are viewed as positive and favorable
to the future prospects of the Atlantic City gaming industry, the
Company, at this point, can make no representations as to whether, or
to what extent, its operations may be improved by the completion of
the new convention center, the proposed airport expansion projects and
the proposed increase in number of hotel rooms in the area.
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
1989 the terminal at the Atlantic City International Airport (located
approximately 12 miles from Atlantic City) was expanded to handle
additional air carriers and large passenger jets, but scheduled
service to that airport from major cities by national air carriers
remains extremely limited. Also, in 1989 Amtrak express rail service
to Atlantic City commenced from Philadelphia, New York, Washington and
other major cities in the northeast. This was expected to improve
access to Atlantic City and expand the geographic size of the Atlantic
City casino industry's marketing base. However, 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
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destination resort. However, the Company understands that the South
Jersey Transportation Authority has begun work on a comprehensive
master plan for the future development of the airport which plan is
expected to be completed in 1994. Plans for expansion that would
approximately double the size of the existing passenger terminal have
already been announced. The Company understands that construction of
this project is to commence in the spring of 1994 and its completion
is scheduled for late in the summer of 1995.
The Company continues to utilize day-trip bus programs. A
non-exclusive easement enables the Resorts Casino Hotel to utilize a
bus tunnel under the adjacent Trump Taj Mahal Casino-Resort (the "Taj
Mahal"), which connects Pennsylvania and Virginia Avenues, and a
service road exit from the bus tunnel. This reduces congestion around
the Pennsylvania Avenue bus entrance to the Resorts Casino Hotel. To
comfortably accommodate its bus patrons, the Company has a waiting
facility which is located indoors, adjacent to the casino, and offers
various amenities.
Competition
___________
Competition in the Atlantic City casino/hotel industry is
intense. Casino/hotels compete primarily on the basis of promotional
allowances, entertainment, advertising, services provided to patrons,
caliber of personnel, attractiveness of the hotel and casino areas and
related amenities, and parking facilities. The Resorts Casino Hotel
competes directly with 11 casino/hotels in Atlantic City which, in the
aggregate, contain approximately 786,000 square feet of gaming area,
including simulcast betting and poker rooms, and 8,700 hotel rooms.
The total amount of gaming area of these competing properties is
expected to increase as the Showboat has announced plans for a sizable
addition to its casino gaming floor and certain other casino/hotels
are expected to add simulcasting rooms which are permitted to house
other authorized table games. Unlike casino gaming floor area, which
is regulated based on the number of guest rooms at a particular
property, the size of simulcasting rooms is not limited.
The Resorts Casino Hotel is located at the eastern end of the
Boardwalk adjacent to the Taj Mahal, which is next to the Showboat.
These three properties have a total of more than 2,400 hotel rooms and
approximately 278,000 square feet of gaming space in close proximity
to each other. A 28-foot wide enclosed pedestrian bridge between the
Resorts Casino Hotel and the Taj Mahal allows patrons of both hotels
and guests for events being held at the Resorts Casino Hotel and at
the Taj Mahal to move between the facilities without exposure to the
weather. A similar enclosed pedestrian bridge connects the Showboat
to the Taj Mahal, allowing patrons to walk under cover among all three
casino/hotels. The remaining nine Atlantic City casino/hotels are
located approximately one-half mile to one and one-half miles to the
west on the Boardwalk or in the Marina area of Atlantic City.
All Atlantic City casino/hotels compete for customers with
casino/hotels located in Nevada, and in certain foreign resort areas,
including The Bahamas, particularly with respect to
destination-oriented business, including conventions. The Las Vegas
casino/hotel industry benefits from a favorable climate and nearby
airport facilities that serve most major domestic carriers.
- 11 -
Atlantic City casino/hotels also compete with casinos located in
other U.S. jurisdictions, particularly those close to New Jersey.
Colorado, Illinois, Iowa, Louisiana, Mississippi, Missouri and South
Dakota have legalized, and several other states, including
Pennsylvania, and the District of Columbia are currently considering
legalizing limited land-based and riverboat casino gaming.
Additionally, certain gaming operations are conducted or have been
proposed on Federal Indian reservations in a number of states. In
January 1993, a casino on an Indian reservation located in Connecticut
was authorized to operate slot machines and in September 1993 this
facility was expanded to house more than 3,000 slot machines.
Previously, this casino, which opened in early 1991, was only
authorized to conduct table gaming operations. In July 1993 the
Oneida Indians opened a casino near Syracuse, New York. In October
1993 approval was granted for the construction of a high stakes
gambling casino on the St. Regis Mohawk reservation in New York State
near the Canadian border, 50 miles southwest of Montreal. Under New
York state law, poker and slot machines currently are not permitted.
This rapid expansion of casino gaming, particularly that which has
been or may be introduced into jurisdictions in close proximity to
Atlantic City, may adversely affect the Company's operations as well
as the Atlantic City gaming industry.
Gaming Credit Policy
____________________
Credit is extended to selected gaming customers primarily in
order to compete with other casino/hotels in Atlantic City which also
extend credit to customers. Credit play represented 24% of table game
volume at the Resorts Casino Hotel in 1993, 23% in 1992 and 24% in
1991. Gaming receivables, net of allowance for uncollectible amounts,
were $3,618,000, $4,503,000 and $5,586,000 as of December 31, 1993,
1992 and 1991, respectively. 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.
Showboat Lease
______________
The Showboat has approximately 515 guest rooms, a 60-lane bowling
center, a 65,000 square foot casino and a 15,000 square foot simulcast
betting and poker room. The Showboat is situated on approximately 10
acres which are owned by the Company and leased to ACS pursuant to the
Showboat Lease, a 99-year net lease dated October 26, 1983, as
amended. The Showboat Lease provided for an initial annual rental,
which commenced in March 1987, of $6,340,000, subject to future annual
adjustment based upon changes in the consumer price index. The annual
rental was $8,118,000 for the 1993 lease year and is expected to
approximate $8,300,000 for the 1994 lease year.
The Company's First Mortgage Non-Recourse Pass-Through Notes due
June 30, 2000 (the "Showboat Notes") are secured and serviced by the
Showboat Lease, and all lease payments are made to the Indenture
Trustee for the Showboat Notes to meet the Company's interest
obligations under those notes. See Note 11 of Notes to Consolidated
Financial Statements.
- 12 -
The Showboat Lease provides that if, under New Jersey law, the
Company is prohibited from acting as lessor, including any finding by
the Casino Control Commission that the Company is unsuitable, the
Company must appoint a trustee, acceptable to the Casino Control
Commission, to act for the Company and collect all lease payments on
the Company's behalf. In that event, the trustee also must proceed to
sell the Company's interest in the Showboat Lease and the leased
property to a buyer qualified to act as lessor. The net proceeds of
any such sale, together with any unremitted rentals, would be paid to
the Company. Also, if the Company is no longer able to act as a
lessor, as aforesaid, ACS would have an option to acquire ownership of
the 10 acres leased from the Company. The option would be exercisable
during a period of not more than three months. The purchase price
would be an amount equal to the greater of $66,000,000 or the fair
market value of the leased acreage, as defined, but in no event may
the purchase price be more than 11 times the rent being paid by ACS in
the year in which the option may become effective. If the fair market
value is not ascertained within the time required by the Casino
Control Commission, then the purchase price would be the lesser of
$66,000,000 or 11 times the rent being paid by ACS in the year the
option may become effective. In the event of any sale of the leased
property under the circumstances described above, the disposition of
the proceeds of such sale would be governed by the indenture for the
Showboat Notes.
Under the Casino Control Act, both the Company and ACS, because
of their lessor-lessee relationship, are jointly and severally liable
for the acts of the other with respect to any violations of the Casino
Control Act by the other. In order to limit the potential liability
that could result from this provision, ACS, its parent, Ocean
Showboat, Inc., and the Company have entered into an indemnity
agreement pursuant to which they agree to indemnify each other from
all liabilities and losses which may arise as a result of acts of the
other party that violate the Casino Control Act. The Casino Control
Commission could determine, however, that the party seeking
indemnification is not entitled to, or is barred from, such
indemnification.
Other Properties
________________
The Company owns in the aggregate approximately 90 acres of land
in Atlantic City at various sites which could be developed and are
available for sale. This acreage primarily consists of vacant land in
Great Island, Rum Point, the marina area and waterfront parcels in the
inlet section. See "ITEM 2. Properties."
The Bahamas
___________
General
_______
The Company, through Bahamian subsidiaries, owns and operates a
major destination resort on Paradise Island, The Bahamas. The
Company's facilities consist of three hotel complexes: The Paradise
Island Resort & Casino; the Ocean Club Golf & Tennis Resort; and the
Paradise Paradise Beach Resort. The Paradise Island Resort & Casino
includes two hotel towers totalling 1,186 guest rooms, the 30,000
square foot Paradise Island casino and related facilities. The Ocean
Club Golf & Tennis Resort is an exclusive 71-room hotel with premium
room rates. The Paradise Paradise Beach Resort is a 100-room hotel
complex that offers more moderately priced accommodations. The
- 13 -
Company also owns and operates convention facilities, shops,
restaurants, bars and lounges, an 18-hole golf course, tennis courts
and swimming pools. It owns approximately six miles of beach and
water frontage and other resort facilities on Paradise Island. Its
holdings on Paradise Island, including undeveloped real estate,
represent 562 acres, or almost 70% of the acreage of the entire
island. The Restructuring contemplates the disposition of the
Paradise Island operations.
Since 1990, given the Company's intention to sell its Paradise
Island assets and in light of the operating performance of those
properties (see "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS"), capital expenditures
there were essentially limited to maintenance of existing facilities.
It is anticipated that capital expenditures by the Company in 1994
will also be limited to maintenance projects.
Paradise Island is part of the Commonwealth of The Bahamas. It
is situated immediately across Nassau Harbour, north of the capital
city of Nassau, New Providence Island, and is connected to Nassau by a
two-lane toll bridge and ferry boat service. The entire island is 5.5
miles in length, two-thirds of a mile wide at its widest point, and
totals 826 acres.
Paradise Island Casino
______________________
The Paradise Island casino is the center of the Paradise Island
Resort & Casino complex. It is connected by arcades with shops to the
682-room Britannia Towers and the 504-room Paradise Towers. The
one-story and part-mezzanine casino building situated between the two
hotel towers contains nearly 165,000 square feet, including the 30,000
square foot casino gaming area. It also houses several restaurants
and bars; the Le Cabaret Theatre, which also serves meals; a central
commissary; employee cafeteria; shops; and casino offices.
At December 31, 1993, the Paradise Island casino gaming area
contained 58 blackjack tables, 10 dice tables, 10 roulette tables, 6
poker tables, 2 big six wheels, 2 baccarat tables and 800 slot
machines. During 1993, the Company's Paradise Island casino had a
total gross gaming win of $62,943,000, compared to $66,120,000 and
$61,003,000 in 1992 and 1991, respectively.
Paradise Island Resort and Hotel Facilities
___________________________________________
The Company's resort and hotel facilities on Paradise Island
include the Paradise Island Resort & Casino, the Ocean Club Golf &
Tennis Resort and the Paradise Paradise Beach Resort, with a total of
1,357 guest rooms, suites and villas, 15 restaurants, 13 bars and
lounges, 21 tennis courts, 4 swimming pools, an 18-hole golf course,
approximately six miles of beach and water frontage, and other resort
facilities and land holdings.
The Paradise Island Resort & Casino is the largest hotel complex
in The Bahamas. It includes a 1,186-room hotel and casino complex
with two swimming pools, restaurants, lounges, tennis courts,
convention facilities, ocean beach, shops and other resort
facilities. This complex includes the 682-room Britannia Towers and
the 504-room Paradise Towers. The total floor area of the two hotel
towers, villas, casino and restaurants exceeds 1,000,000 square feet.
- 14 -
The Ocean Club Golf & Tennis Resort is an exclusive, luxury
resort facility geared toward the affluent visitor. The complex
comprises 71 guest rooms including villas and cabanas, an 18-hole golf
course, tennis courts, a swimming pool, ocean beach and dining and
cocktail facilities.
The Paradise Paradise Beach Resort includes 100 guest rooms, a
restaurant, lounge, swimming pool and ocean beach. The complex
attracts value-conscious tourists.
Consistent with industry practice, the Company reserves a portion
of its hotel rooms and suites as complimentary accommodations for
high-level wagerers. During 1993, 1992 and 1991 the average occupancy
rates, including complimentary rooms which were primarily provided to
casino patrons, were 65%, 68% and 71%, respectively. The average
occupancy rate and weighted average daily room rental, excluding
complimentary rooms, were 50% and $111, respectively, for 1993. This
compares with 54% and $108, respectively, for 1992, and 58% and $111,
respectively, for 1991.
Marketing
_________
The Company's marketing strategy for the Paradise Island
properties continues to focus on the casino rather than primarily
promoting the hotels and related amenities. Through direct mailings
to those known to be casino players, both in the United States and
abroad, and increased casino promotional activities, the Company hopes
to attract more casino customers to Paradise Island. Also, in an
effort to attract the large number of families arriving in Nassau on
cruise ships, the Company has begun promoting its "Camp Paradise,"
which offers supervised activities for children. In addition, the
Paradise Island complex has well established ties with numerous tour
and travel wholesalers, as well as many repeat patrons.
Merv Griffin is involved in the development of marketing
campaigns promoting the Paradise Island facilities. During December
1993, Merv Griffin hosted his fifth annual "Star Sports Spectacular"
which featured celebrities from the entertainment and sports fields
who participated with the Company's casino guests in golf and tennis
tournaments. It is expected that Merv Griffin will not be associated
with the promotion of Paradise Island subsequent to the
Restructuring. See "Competition" below for information regarding the
Company's competitive position in The Bahamas.
Transportation Facilities
_________________________
Airline Transportation. Several major airlines provide regularly
______________________
scheduled service to Nassau International Airport. In March 1993 Jet
Shuttle began a new air shuttle service between Miami and Nassau. In
November 1993 a new Bahamian carrier, Trinity Air, began offering
flights between Nassau and south Florida. Also, from mid-November
1993 through early January 1994, Bahamasair, the national air carrier
of The Bahamas, changed the aircraft used for its south Florida-Nassau
flights to jets with a larger seating capacity. Although this
resulted in increased capacity during the fourth quarter of 1993, in
recent years overall air transportation to Nassau has been reduced
significantly. This has resulted from the failure of certain major
United States air carriers, financial difficulties experienced by
- 15 -
Bahamasair as well as the economic recession, particularly in the
northeastern United States. The reduction in airline service to
Nassau has adversely affected the Company's Bahamian operations.
Most patrons arriving by air use the Nassau International
Airport. However, the Company also owns and operates a short takeoff
and landing ("STOL") airport facility, including a 3,000-foot runway,
airport terminal and customs building, situated on 63 acres of land
located at the southeast corner of Paradise Island. Paradise Island
Airlines, Inc. ("PIA"), a subsidiary of RII, is currently the second
largest passenger carrier to The Bahamas. PIA provides scheduled
service between Paradise Island and Miami, Ft. Lauderdale and West
Palm Beach, Florida and offers a program of casino night flights to
and from Ft. Lauderdale, Florida; PIA operates one Company-owned and
four leased Dash 7 STOL aircraft. The Restructuring contemplates the
disposition of PIA.
Cruise Ships. The Company believes that a significant portion of
____________
the cruise ship tourists currently docking at New Providence Island
visit the Company's facilities on Paradise Island. The Bahamian
government operates 11 cruise ship berths in Nassau Harbour.
Competition
___________
The Company's Paradise Island facilities compete with other
hotels and resorts on Paradise Island, elsewhere in The Bahamas, the
southeastern United States, the Caribbean and Mexico, as well as
cruise ships serving these areas. As new hotels are constructed or
new cruise ships are introduced into service in these areas,
competition can be expected to increase.
The Company's properties principally compete with a casino/hotel
and resort complex on Cable Beach, New Providence Island, comprised of
the Crystal Palace Resort and Casino (the "Crystal Palace"), with 860
guest rooms, a 33,500 square foot casino, a show theatre and other
amenities owned by Carnival Cruise Lines, Inc. ("Carnival"), and the
Radisson Cable Beach Casino & Golf Resort (the "Radisson") with 679
guest rooms owned by The Hotel Corporation of The Bahamas ("HCB"), a
corporation owned by the Government of The Bahamas. Carnival had
operated the entire complex prior to February 1992, as until that time
Carnival leased the property now known as the Radisson from HCB. In
October 1993, Carnival announced that it had signed an agreement in
principle to sell an 81% interest in the Crystal Palace complex to a
group of German investors. This investor group has announced that it
plans to increase the marketing of the Crystal Palace complex in
Europe and will invest additional capital in the complex to establish
it as a high-end resort destination. Although there can be no
assurance that such sale will be completed, an upgraded Crystal Palace
complex may adversely affect the Company's operations in The Bahamas.
Carnival Air Lines, affiliated with Carnival, provides charter air
service from the continental United States to Nassau International
Airport.
In addition to the Crystal Palace casino, the Bahamian government
is obligated to facilitate the grant of a casino license to the
operators of the Ramada Resort located on the southwestern end of New
Providence Island. The Bahamian government is also obligated to
support a proposal for the operation of a slot casino at the Radisson
resort on Cable Beach.
- 16 -
There is a total of approximately 7,300 rooms for overnight
guests on New Providence Island and Paradise Island combined. Of such
rooms, approximately 3,100 are located in hotels on Paradise Island,
including 1,357 in hotels owned and operated by the Company. In
recent years the Company's Bahamian hotel and casino operations have
experienced increased competition from the new, larger cruise ships
which have begun serving this area as these cruise ships have
effectively provided more available rooms.
Also, the Company's Paradise Island casino competes with two
casinos on Grand Bahama Island, with casinos located on Caribbean
islands and, to a lesser extent, with Atlantic City and Las Vegas
casino/hotels. Plans for a new casino on Grand Bahama Island have
recently been announced.
Competition among hotels and resort properties is, in general,
based upon the attractiveness of the facilities and the relative
convenience of available transportation to destinations; the presence
of a casino; service; quality and price of rooms, food and beverages;
convention facilities; and entertainment. The Company believes that
its Paradise Island resort facilities, because of location, variety of
hotels and restaurants, beaches, available sports activities and
overall quality, compete strongly with other resort properties.
Certain Arrangements with the Government of The Bahamas
_______________________________________________________
The Company, through certain of its Bahamian subsidiaries, and
HCB have entered into various agreements, effective in 1978, pursuant
to which the Paradise Island casino facility is leased to HCB, and
Paradise Enterprises Limited ("PEL"), an indirect subsidiary of RII,
is retained by HCB to manage and operate the casino. These
agreements, as subsequently amended, are referred to herein as the
"Paradise Island Agreements."
Under the Paradise Island Agreements, the casino facility is
leased to HCB at an annual rental of $500,000 and PEL has an exclusive
right to manage and operate the casino through December 31, 1997,
subject to an annual finding of fitness. The lease of the casino
facility was extended to December 31, 1997 by a 1988 letter agreement
between RIB and HCB. In consideration of the right to manage and
operate the casino and to use the gaming facilities, PEL pays HCB an
annual operating fee of $5,000,000 plus 15% of gross revenues from
casino gaming in excess of $25,000,000. PEL also pays all gaming
taxes. However, pursuant to the Paradise Island Agreements any
increase in the rate of gaming tax is to result in a commensurate
reduction in the amounts otherwise payable to HCB under the management
agreement.
Pursuant to amendments of PEL's casino license, the Company,
among other things, is required to (i) continue its efforts to
achieve a prompt sale of its Paradise Island operations to a purchaser
satisfactory to the Government of The Bahamas and HCB; (ii) consult
with HCB in advance with respect to material aspects of any
contemplated disposition of the Paradise Island operations; (iii)
provide quarterly reports to HCB describing the progress made by the
Company in implementing plans for separating various functions
relating to its Bahamian operations from the Company's non-Bahamian
operations; (iv) provide to HCB various financial reports; and (v)
- 17 -
reimburse the Government of The Bahamas and HCB for legal and advisory
fees incurred by them relative to any restructuring of the Company.
Land and Other Assets
_____________________
The Company, through Bahamian subsidiaries, owns 562 acres on
Paradise Island. Of such land, 218 acres is not used in the Company's
operations and is available for future development. The Company has
prepared a master plan for the island, which includes properties
available for hotel, commercial, condominium and time-share land use.
The Company also owns roads and other land improvements on Paradise
Island and a water and sewage system which serves, at stated charges,
substantially all facilities on Paradise Island. The water and sewage
system is presently operating near full capacity and significant
additional development on the island will require expansion of the
system. The Company also owns approximately 1,555 acres of
undeveloped and 120 acres of partially developed land located on
Little Hawksbill Creek, several miles from Freeport, Grand Bahama
Island.
Approval by the Government of The Bahamas is required for foreign
ownership of real property in The Bahamas. In addition, any foreign
investment in The Bahamas requires exchange control approval by the
Central Bank of The Bahamas. No sale of any property located in The
Bahamas to non-Bahamian nationals may be completed until such
governmental approvals are obtained.
Security Controls
_________________
Gaming at the Atlantic City and Paradise Island casinos is
conducted by Company trained and supervised personnel. Prior to
employment in Atlantic City, all casino personnel must be licensed
under the Casino Control Act. In The Bahamas all casino personnel
must be cleared by the Bahamian Government. Security checks are made
to determine, among other matters, that job applicants for key
positions have had no criminal ties or associations. The Company
employs extensive security and internal controls at each of its
casinos. Security in both the Atlantic City and Paradise Island
casinos utilizes closed circuit video cameras to monitor the casino
floor and money counting areas. The count of monies from gaming is
observed daily by government representatives at each of the Company's
casinos.
Airline Operations
__________________
The Company's airline operations are entirely conducted by PIA
and are described under "The Bahamas - Transportation Facilities"
above.
Seasonal Factors
________________
The Company's business activities are strongly affected by
seasonal factors that influence the New Jersey beach and Bahamian
tourist trade. Higher revenues and earnings are typically realized
from the Company's Atlantic City operations during the middle third of
the year and from its operations in The Bahamas during the first
quarter of the year.
- 18 -
Employees
_________
During 1993, the Company had a maximum of approximately 7,400
employees, of whom approximately 4,000 were located in Atlantic City
and 3,000 were in The Bahamas. The Company believes that its employee
relations are satisfactory, with the exception of the Bahamian union
dispute described below.
In Atlantic City, approximately 1,600 of the Company's employees
are represented by unions. Of these employees, approximately 1,300
are represented by the Hotel Employees and Restaurant Employees
International Union Local 54, whose contract expires in September
1994. There are several union contracts covering other Atlantic City
union employees.
In The Bahamas, approximately 1,800 of the Company's employees
are represented by the Bahamas Catering and Allied Workers Union,
whose contract expires in January 1995. In light of the downturn in
business being experienced by hotels in the Paradise - New Providence
Island area, the Company, along with other affected operators in that
area, did not pay wage and pension increases scheduled for January
1993 as they were negotiating with the union for certain concessions
under the contract. Since then the union filed claims against the
employers and, after attempting to mediate the dispute, the Minister
of Labour referred it to arbitrators. The dispute remains unsettled,
negotiations among the parties continue and no work interruptions have
been experienced.
In Atlantic City, all of the Company's casino employees must be
licensed under the Casino Control Act. Casino employees are subject
to more stringent requirements than non-casino employees, including
hotel employees who must be registered with the Casino Control
Commission. Each casino employee must meet applicable standards
pertaining to such matters as financial responsibility, good
character, ability, casino training and experience, and New Jersey
residency.
In The Bahamas, all casino employees must also be licensed and
all non-Bahamian employees must apply for and receive work permits
issued by the Government of The Bahamas. From time to time this
requirement has created difficulties in hiring certain skilled
non-Bahamian employees. These work permits are generally subject to
renewal annually.
Foreign Operations
__________________
A significant portion of the Company's operating assets are
located in The Bahamas. See "(b) Financial Information about Industry
Segments." The Company believes that its business experience in The
Bahamas has been satisfactory. Changes in applicable taxes, duties,
immigration policies, exchange control regulations, policies
concerning investments, ownership and transfer of real estate, or
legislation could adversely affect the Company. In August 1992 a new
Prime Minister was elected in The Bahamas. The former Prime Minister
had been in office for 25 years. Management believes that the change
in government will favorably impact the tourism industry in The
Bahamas over the long term.
- 19 -
From time to time, Bahamian subsidiaries of the Company have
made, and in the future may make, legal political contributions in The
Bahamas solely for general goodwill purposes without any
understandings or agreements as to the receipt by the Company of any
favors, privileges or other special treatment in its dealings with the
Government of The Bahamas.
Regulation and Gaming Taxes and Fees
____________________________________
New Jersey
__________
General. The Company's operations in Atlantic City are subject
_______
to regulation under the Casino Control Act, which authorizes the
establishment of casinos in Atlantic City, provides for licensing,
regulation and taxation of casinos and created the Casino Control
Commission and the Division of Gaming Enforcement. These bodies
administer the Casino Control Act. In general, the provisions of the
Casino Control Act 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, number of games, credit play, size and facilities
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 1993 and early 1994.
The Casino Control Commission approved poker, which was implemented in
the summer of 1993, and keno, which is anticipated to be implemented
in the summer of 1994. Also, the Casino Control Act was amended to
allow casinos to expand their casino floors before building the
requisite number of hotel rooms, subject to approval of the Casino
Control Commission. This amendment was designed to encourage hotel
room construction by giving casino licensees an incentive and an added
ability to generate money to finance hotel construction. Further
legislation was passed allowing the Casino Control Commission to
approve increasing a casino's gaming space if a licensee rebuilds
existing hotel rooms as part of a neighborhood rehabilitation
program. Previous law only allowed for casino expansion if a casino
built new hotel rooms. In addition, recent legislation allows
gamblers to buy casino chips directly with credit cards.
Casino License. A casino license is initially issued for a term
______________
of one year and must be renewed annually by action of the Casino
Control Commission for the first two renewal periods succeeding the
initial issuance of a casino license. Thereafter, a casino license is
renewed for a period of two years, although the Casino Control
Commission 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 Casino Control Commission. The Casino
Control Act also requires an operations certificate which, in effect,
has a term coextensive with that of a casino license.
On February 26, 1979, the Casino Control Commission granted a
casino license to RIH for the operation of the Company's Atlantic City
casino. In February 1994, RIH's license was renewed until
- 20 -
January 31, 1996. RIH's renewed license is subject to several
conditions, including (i) the Company must provide certain periodic
reports and immediate notification of certain events related to RII's
public debt securities to the Casino Control Commission, (ii) no
material changes to the Restructuring may be implemented without prior
approval of the Casino Control Commission, (iii) the Company must
submit certain financial and other reports relative to the
Restructuring and certain other periodic financial reports to the
Casino Control Commission, (iv) certain payments from RIH to related
parties are subject to prior approval of the Casino Control
Commission, (v) if the prepackaged bankruptcy filing is not made, and
all elements of the Restructuring have not been reduced to final
executed agreements, by March 21, 1994, RIH must have petitioned the
Casino Control Commission for an extension of such deadline and (vi)
any borrowing under the RIHF Senior Facility is subject to prior
approval of the Casino Control Commission.
Restrictions on Ownership of Equity and Debt Securities. The
_______________________________________________________
Casino Control Act 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
(collectively, "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 Casino
Control Commission. If the Casino Control Commission 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 Casino Control Act, the Casino Control Commission has the right to
propose any necessary remedial action. In the case of corporate
holding companies and affiliates whose securities are publicly traded,
the Casino Control Commission may require divestiture of the security
held by any disqualified holder who is required to be qualified under
the Casino Control Act.
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 Casino Control Commission 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: (i)
receive any dividends or interest upon any such securities; (ii)
exercise, directly or through any trustee or nominee, any right
conferred by such securities; or (iii) receive any remuneration in any
form from the corporate licensee for services rendered or otherwise.
The Restated Certificate of Incorporation of RII provides that all
securities of RII and any of its subsidiaries are held subject to the
condition that if the holder thereof is found to be disqualified by
the Casino Control Commission pursuant to provisions of the Casino
Control Act, then that holder must dispose of his or her interest in
the securities.
Remedies. In the event that it is determined that a licensee has
________
violated the Casino Control Act, 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.
- 21 -
The Casino Control Act 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 Casino
Control Commission 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 Casino Control Commission
and creditors of the former licensee and other parties in interest are
entitled to prior written notice of sale.
License Fees, Taxes and Investment Obligations. The Casino
______________________________________________
Control Act provides for casino license renewal fees and other fees
based upon the cost of maintaining control and regulatory activities,
and various work permits and license fees for the various classes of
employees. In addition, a licensee is subject annually to a tax of 8%
of "gross revenue" (defined under the Casino Control Act as casino
win, less provision for uncollectible accounts up to 4% of casino win)
and license fees of $500 on each slot machine.
The following table summarizes, for the periods shown, the fees
and taxes assessed upon the Company by the Casino Control Commission.
For the Year
_______________________________________
1993 1992 1991
___________ ___________ ___________
Gaming tax $19,545,000 $18,788,000 $17,384,000
License, investigation,
inspection and other fees 3,985,000 4,417,000 4,730,000
___________ ___________ ___________
$23,530,000 $23,205,000 $22,114,000
___________ ___________ ___________
The Casino Control Act, as originally adopted, required a
licensee to make investments equal to 2% of the licensee's gross
revenue (the "investment obligation") for each calendar year,
commencing in 1979, in which such gross revenue exceeded its
"cumulative investments" (as defined in the Casino Control Act). A
licensee had five years from the end of each calendar year to satisfy
this investment obligation or become liable for an "alternative tax"
in the same amount. In 1984 the New Jersey legislature amended the
Casino Control Act so that these provisions now apply only to
investment obligations for the years 1979 through 1983. Certain
issues have been raised concerning the satisfaction of the Company's
investment obligations for the years 1979 through 1983. See Note 15
of Notes to Consolidated Financial Statements for a discussion of
these issues.
Effective for 1984 and subsequent years, the amended Casino
Control Act requires a licensee to satisfy its 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
- 22 -
alternative tax of 2.5% of gross revenue. Licensees are required to
make quarterly deposits with the CRDA against their current year
investment obligations. The Company's investment obligations for the
years 1993, 1992 and 1991 amounted to $3,054,000, $2,930,000, and
$2,706,000, respectively, and have been satisfied by deposits made
with the CRDA. At December 31, 1993, the Company held $4,873,000 face
amount of bonds issued by the CRDA and had $12,946,000 on deposit with
the CRDA. The CRDA bonds issued through 1993 have interest rates
ranging from 5.8% to 7% and have repayment terms of between 41 and 50
years.
The Bahamas
___________
Licensing. PEL is currently licensed to operate the Paradise
_________
Island casino under The Lotteries and Gaming Act, 1969, as amended
(the "Gaming Act"), of the Commonwealth of The Bahamas, which
regulates the operation of casinos in The Bahamas. The Gaming Act
established a Gaming Board which observes the count of all gaming
receipts, prescribes accounting and control procedures and regulates
personnel and security matters. Gaming licenses are renewable
annually. The Gaming Board also is empowered to revoke or suspend any
gaming license if a violation occurs.
PEL's gaming license is subject to a number of conditions
relating to PEL's activities and operations. Under the casino
license, PEL and its parent entities are required to observe certain
operating requirements and to provide certain financial and other
information to the Government of The Bahamas on a continuing basis.
See "The Bahamas - Certain Arrangements with the Government of The
Bahamas" above.
License Fees and Taxes. Currently, the Gaming Act provides for
______________________
an annual basic license fee of $200,000 plus a tax of 25% on all
gaming win up to $10,000,000, 20% on the next $6,000,000 of win, 10%
on the next $4,000,000 of win, and 5% on all win over $20,000,000,
with a minimum tax of $2,000,000 payable each year on gaming win.
The following table summarizes, for the periods shown, the taxes
and fees paid or accrued by the Company under the Gaming Act and the
Paradise Island Agreements.
For the Year
_______________________________________
1993 1992 1991
___________ ___________ ___________
Gaming tax $ 6,237,000 $ 6,411,000 $ 6,153,000
Basic license and operating
fees 10,830,000 11,382,000 10,610,000
___________ ___________ ___________
$17,067,000 $17,793,000 $16,763,000
___________ ___________ ___________
(d) Financial Information about Foreign and Domestic Operations
___________________________________________________________
and Export Sales
________________
See "(b) Financial Information about Industry Segments" and "The
Bahamas" and "Foreign Operations" under "(c) Narrative Description of
Business" above.
- 23 -
ITEM 2. PROPERTIES
___________________
The Company's casino, resort hotel and related properties in
Atlantic City and The Bahamas, together with certain other properties,
described above under "ITEM 1. BUSINESS," are owned in fee, except
for approximately 1.2 acres of the Resorts Casino Hotel site which are
leased pursuant to ground leases expiring from 2056 through 2067.
RII's office in North Miami, Florida, is located in a three-story
building owned by RII. The Restructuring contemplates the dispositon
of this office building through either the SIHL Sale or the PIRL
Spin-Off.
The Company's principal properties, including the Resorts Casino
Hotel, the Paradise Island Resort & Casino, the Ocean Club Golf &
Tennis Resort and the Paradise Paradise Beach Resort (but not the land
underlying the Showboat or the Showboat Lease), and, in each case, any
additions or improvements to those properties, together with all
related furniture, fixtures, machinery and equipment, directly or
indirectly comprise the collateral securing the Series Notes. The
Showboat Lease, including the land subject to the lease, secures the
payment of the Showboat Notes.
Atlantic City - Other Properties
________________________________
The Company owns various non-operating sites in Atlantic City
that could be developed and are available for sale. These sites
consist primarily of vacant land in Great Island, Brigantine Island
and the marina area, and waterfront parcels in the inlet section. In
view of the generally depressed state of the commercial real estate
market in Atlantic City and the condition of the economy generally,
the Company does not anticipate any significant real estate activity
in the foreseeable future.
RII is the owner of real property located at Brigantine Boulevard
on Brigantine Island that consists of approximately 40 acres ("Rum
Point"), of which only approximately 17 acres can potentially be
developed because the remaining portions constitute wetlands areas and
consequently are not available for development. Additional
environmental and coastal restrictions apply to the development of Rum
Point, though the Company currently is attempting to have the
restrictions modified to permit development.
RII owns in fee an approximately 552 acre parcel located in
Atlantic City on Blackhorse Pike (the "Great Island Property"), of
which approximately 500 acres are considered to be wetlands. The
Company owns in fee an eight acre parcel located in the marina area of
Atlantic City immediately adjacent to the Harrah's Casino Hotel. The
Company also owns in fee various individual parcels of property
located in the area of Atlantic City known as the South Inlet which in
the aggregate constitute approximately 10 acres and a parcel of land
in Atlantic City consisting of approximately seven acres and a
warehouse thereon. The Company is the owner of various additional
properties at scattered sites in Atlantic City. Principal among these
is the so-called "Trans Expo" site, a 2.3 acre parcel located near the
site of the new convention center.
The Bahamas - Other Properties
______________________________
The Company, through RIB, owns 562 acres on Paradise Island. RIB
has prepared a land use master plan for the island. See "The Bahamas
- 24 -
- - Land and Other Assets" under "ITEM 1. BUSINESS - (c) Narrative
Description of Business" for a description of the acreage available
for development and the preparation of a master plan for Paradise
Island. The Company does not anticipate any significant real estate
sales on Paradise Island while it is seeking to implement the
Restructuring.
The Company, through a subsidiary of RIB, also owns approximately
1,555 acres of undeveloped and 120 acres of partially developed land
located on Little Hawksbill Creek, several miles from Freeport, Grand
Bahama Island.
As previously indicated, approval by the Bahamian Government is
required for foreign ownership of real property in The Bahamas. In
addition, any foreign investment in The Bahamas requires exchange
control approval by the Central Bank of The Bahamas. No sale of any
property located in The Bahamas to non-Bahamian nationals may be
completed until such governmental approvals are obtained.
ITEM 3. LEGAL PROCEEDINGS
__________________________
New York Supreme Court - Friedman Derivative Action
___________________________________________________
RII has been named as the nominal defendant in an action (Arthur
M. Friedman suing derivatively on behalf of RII v. Merv Griffin et al.
and RII, Nominal Defendant) brought derivatively on its behalf by a
shareholder, Arthur Friedman. The complaint was filed in the Supreme
Court of the State of New York, New York County on January 27, 1994
and was amended in February 1994. The defendants in the action, as
amended, are Merv Griffin, Griffin Group, David P. Hanlon, who was
President, Chief Executive Officer and a director of RII through
October 31, 1993, and all of the other current directors of RII. The
complaint seeks to recover for the Company an unspecified sum of money
as compensatory damages for allegedly wrongful acts by the
defendants. The allegations include that the defendants improperly
(i) permitted defendant Griffin not to repay money he allegedly owed
to the Company and (ii) paid defendant Hanlon excessive compensation.
The defendants have until April 1, 1994 to respond to the complaint.
The Company anticipates that it will file its chapter 11 prepackaged
bankruptcy cases before that time and that the litigation will be
stayed by the Bankruptcy Court.
U.S. District Court Action - RII v. Lowenschuss
_______________________________________________
As previously reported, in October 1989 RII filed an action in
the U.S. District Court for the Eastern District of Pennsylvania to
recover certain sums paid to the defendant, as trustee for two
Individual Retirement Accounts, for RII stock in the 1988 merger, in
which RII was acquired by Merv Griffin. This action was transferred
to the Bankruptcy Court for the District of New Jersey. After the
transfer, the Bankruptcy Court granted RII's motion to amend its
complaint to allege two new claims for fraudulent conveyance against
the defendant.
In the Bankruptcy Court, RII filed a motion for summary judgment
and the defendant filed a motion to dismiss. The Bankruptcy Court
issued an opinion in February 1992 denying both parties' motions. In
August 1992, the defendant filed a petition in the Bankruptcy Court
- 25 -
for the District of Nevada, thus staying RII's action in New Jersey.
The Bankruptcy Court confirmed Lowenschuss' plan of reorganization in
October 1993. RII is currently appealing the confirmation order and
other orders of the Bankruptcy Court in the District of Nevada.
New Jersey Superior Court Action - Atlantic City Board of Education -
_____________________________________________________________________
Great Island
____________
In July 1984, the Atlantic City Board of Education enacted a
resolution which identified Great Island as the only suitable site for
a new high school and, consequently, called for its condemnation by
those agencies which have the power of eminent domain. In 1987, a
stringent environmental policy was adopted by the State of New Jersey
which significantly limited the development of Great Island. After
the adoption of this environmental program, and after receiving the
power of eminent domain, the Board formally condemned Great Island. A
condemnation commission determined that the value of the property was
$15,900,000 in 1984 and $10,360,000 in 1987. Both the Board of
Education and RII appealed the commission's decision to the Superior
Court of New Jersey, which held that a 1987 date of valuation was
appropriate, rather than, as claimed by RII, a 1984 date of
valuation. In December 1990, after a de novo inquiry into the value
of the property, a jury decided that the value of the property was
approximately $7,537,000. Of this amount, $5,720,000 had previously
been paid. The difference between the initial consideration offered
and the jury's valuation, plus interest thereon, was released to the
Company in November 1992.
The Company appealed to the Appellate Division the New Jersey
Superior Court's determination of the valuation date of the condemned
property. In July 1993 the Appellate Division affirmed the trial
court's determination of the valuation date. In August 1993 the
Company filed a notice of petition for certification with the Supreme
Court of the State of New Jersey. The certification was denied by the
Supreme Court in October 1993. The Company does not intend to pursue
this case any further.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
____________________________________________________________
Not applicable
- 26 -
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
_____________________________________________________________
STOCKHOLDER MATTERS
___________________
The principal market for RII Common Stock is the American Stock
Exchange. The high and low quarterly sales prices on the American
Stock Exchange of RII Common Stock in 1993 and 1992 were as follows:
1993 1992
_______________ ______________
Quarter High Low High Low
_______________________________________________________________________
First 1 1/8 13/16 2 3/4 1 1/4
Second 3 7/8 13/16 2 3/8 1
Third 2 3/4 1 9/16 1 1/4 3/4
Fourth 2 1/8 1 3/8 1 1/4 11/16
_______________________________________________________________________
No dividends were paid on RII Common Stock during the last two
fiscal years. The Series Notes contain certain restrictions on the
payment of cash dividends.
The number of holders of record of RII Common Stock on February
28, 1994 was 1,984.
- 27 -
ITEM 6. SELECTED FINANCIAL DATA
________________________________
The information presented below should be read in conjunction with the consolidated financial statements,
including notes thereto, presented under "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA."
(In Thousands of Dollars, except per share data)
For the Year Ended December 31,
____________________________________________________________________________
1990
_______________________
From Through
Operating Information (Note A) 1993 1992 1991 September 1 August 31 1989
_______________________________________________________________________________________________________________________
Operating revenues (Note B) $ 439,564 $436,934 $418,243 $129,591 $ 293,972 $ 451,254
_________ ________ ________ ________ _________ _________
Earnings (loss) from operations (Note B) $ 12,898 $ 21,502 $ 16,036 $ (1,214) $ 13,540 $ (7,850)
Recapitalization costs (Notes A and C) (8,789) (2,848) (187,018) (7,291)
Write-off of goodwill (181,311)
Net gain from purchases of subordinated
debentures (Note D) 4,149
Other income (deductions), net (Note E) (105,273) (73,456) (58,438) (12,317) 1,884 (114,286)
_________ ________ ________ ________ _________ _________
Loss before income taxes and
extraordinary item (101,164) (54,802) (42,402) (13,531) (171,594) (306,589)
Income tax benefit (expense) (Note F) (1,000) 1,348 831 3,700
_________ ________ ________ ________ _________ _________
Loss before extraordinary item (102,164) (53,454) (41,571) (13,531) (171,594) (302,889)
Extraordinary item (Notes F and G) 429,809
_________ ________ ________ ________ _________ _________
Net earnings (loss) $(102,164) $(53,454) $(41,571) $(13,531) $ 258,215 $(302,889)
_________ ________ ________ ________ _________ _________
Net loss per share of common stock
(Note H) $ (5.07) $ (2.65) $ (2.07) $ (.68)
_________ ________ ________ ________
_______________________________________________________________________________________________________________________
At December 31,
______________________________________________________________
Balance Sheet Information (Note A) 1993 1992 1991 1990 1989
_______________________________________________________________________________________________________________________
Total assets $ 575,785 $568,950 $567,890 $568,746 $ 745,976
Current maturities of long-term debt
(Note I) $ 466,336 $ 828 $ 1,571 $ 1,528 $ 1,269
Long-term debt, excluding current
maturities (Note I) $ 85,029 $460,712 $392,667 $341,069 $ 858,931
Shareholders' equity (deficit) $(113,744) $(17,262) $ 36,099 $ 77,041 $(260,641)
_______________________________________________________________________________________________________________________
- 28 -
Notes to Selected Financial Data
Note A: During 1989, RII and certain of its subsidiaries filed
______
consents to involuntary petitions or filed voluntary petitions for
relief under the Bankruptcy Code. The effects of the bankruptcy
proceedings reflected in the selected financial data for periods
during which the Company operated subject to the jurisdiction of the
Bankruptcy Court are (i) the Company stopped accruing interest on
its previously outstanding public debt issues in November and
December 1989, (ii) the Company stopped amortizing debt issuance
costs on the dates the respective interest accruals ceased, and
(iii) the Company included in long-term debt at December 31, 1989
sinking funds due in 1990 and accrued interest on public debt stayed
in bankruptcy proceedings.
In 1990 the Company emerged from bankruptcy proceedings
pursuant to the Old Plan. The reorganization was accounted for
using "fresh start" accounting. Accordingly, all assets and
liabilities were restated to reflect their estimated fair values and
the accumulated deficit was eliminated. The Company recorded the
effects of the reorganization as of August 31, 1990. The 1990
operating information is presented separately for the periods
"Through August 31" and "From September 1" due to the new basis of
accounting which resulted from the application of fresh start
accounting.
Changes in operations during the past five years include the
following: Amphibious airline operation was sold in December 1990.
Security consulting service operations were sold in 1990 and 1991.
Note B: Operating revenues for 1993 include the sale of a
______
residential lot in The Bahamas for net proceeds of $445,000.
Earnings from operations for 1993 include a net gain of $224,000 on
that sale.
Operating revenues for 1992 include the sale of a residential
lot in The Bahamas for net proceeds of $213,000. Earnings from
operations for 1992 include a net loss of $17,000 on that sale.
Operating revenues for 1990 include the sales of various
parcels of vacant land in The Bahamas for net proceeds of
$3,933,000. Earnings from operations for 1990 include gains of
$247,000 on those sales.
Operating revenues for 1989 include the sales of various
parcels of vacant land in Atlantic City and The Bahamas for net
proceeds of $5,053,000. Earnings from operations for 1989 include a
net loss of $317,000 on those sales.
Note C: See Note 1 of Notes to Consolidated Financial Statements
______
for a discussion of this item in 1993 and 1992.
Note D: The 1989 net gain from purchases of subordinated debentures
______
resulted from the Company's purchases of $13,528,000 of its
subordinated debentures to satisfy sinking fund requirements.
Note E: This item includes interest income, interest expense and
______
amortization of debt discount and issuance costs.
- 29 -
Note F: For the years 1989 through 1992 the Company accounted for
______
income taxes in accordance with Statement of Accounting Standards
No. 96 "Accounting for Income Taxes".
No tax provision was recorded for the two periods of 1990 due
to the generation of net operating losses for federal and state
income tax purposes. The gain on exchange of debt which is
reflected in the extraordinary item in 1990 was not taxable. A
deferred tax benefit resulted from the elimination of basis
differences on the previously outstanding public debt, and is
included in the extraordinary item.
For the year 1989 the Company had net operating losses for
purposes of federal and state income taxes. To the extent the
carryforward of these net operating losses reduced the existing
deferred tax liability, it resulted in a tax benefit for the year.
The write-off of goodwill in 1989 was a non-deductible item for
income tax purposes.
See Note 13 of Notes to Consolidated Financial Statements for
discussion of income taxes for 1993, 1992 and 1991.
Note G: The exchange of securities in connection with the
______
reorganization in 1990 resulted in a gain of $421,611,000 which,
together with the related deferred income tax benefit of $8,198,000,
was reported as an extraordinary item.
Note H: See Note 2 of Notes to Consolidated Financial Statements
______
for discussion of net loss per share of common stock. For 1989 and
the period through August 31, 1990 there was a sole shareholder of
RII. Accordingly, no per share data is disclosed for those periods.
Note I: These items are presented net of unamortized discounts.
______
Note J: RII has not paid any dividends on its capital stock during
______
the five years presented.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
____________________________________________________________________
AND RESULTS OF OPERATIONS
_________________________
FINANCIAL CONDITION
___________________
Liquidity
_________
At December 31, 1993, the Company's current liabilities
exceeded its current assets by $435,081,000 because the Series
Notes, which are due April 15, 1994 are classified as current
liabilities (due within one year). The Company's working capital at
December 31, 1993 included unrestricted cash and equivalents of
$62,546,000. A substantial amount of the unrestricted cash and
equivalents is required for day-to-day operations, including
approximately $15,000,000 of currency and coin on hand which amount
varies by days of the week, holidays and seasons, as well as
approximately $15,000,000 of additional cash balances necessary to
meet current working capital needs.
The principal amount of the Series Notes outstanding is
$481,907,000. Including the interest due on the maturity date of
approximately $36,000,000, the total obligation due on April 15, 1994
- 30 -
will approximate $518,000,000. See "ITEM 1. BUSINESS - (a) General
Development of Business - Restructuring of Series Notes" for a
description of the proposed Restructuring of the Series Notes.
There can be no assurance as to whether or when the Restructuring
will be effected, or that any restructuring that may ultimately be
consummated will be on terms similar to those of the Restructuring.
If the Restructuring is accomplished, management believes that,
although the Restructuring includes the disposition of the Paradise
Island properties and operations, the Restructuring will improve the
Company's long-term liquidity and enhance its ability to meet its
financial obligations as they become due. If the Restructuring had
occurred on December 31, 1993, the Company's working capital deficit
would have been reduced to a nominal amount, the net book value of the
Company's property and equipment would have been reduced to
approximately $275,000,000, the total outstanding principal amount of
the Company's public debt would have been reduced from $587,240,000 to
approximately $266,000,000, and the Company's shareholders' deficit
would have been reduced to a nominal amount.
Although the Restructuring will result in a significant reduction
in the Company's unrestricted cash and equivalents due to the
distribution of Excess Cash to holders of the Series Notes, the
Company will retain $20,000,000 of unrestricted cash and equivalents
and will have the $20,000,000 RIHF Senior Facility available for one
year from the Effective Date of the Restructuring should the Company
have unforeseen cash needs. The Company believes that the RIHF Senior
Facility will serve as a safeguard if an emergency arises from current
operations, or serve as a source of funds for a profitable investment
opportunity.
If the Restructuring is accomplished, there can be no assurance
that the Company will generate sufficient cash from operations to
repay, when due, the principal amount of the RIHF Mortgage Notes due
in 2003, the principal amount of the RIHF Junior Mortgage Notes due in
2004 or the principal amount of the Showboat Notes maturing in 2000.
As a result, the Company may be required to refinance such amounts as
they become due and payable. While the Company believes that it will
be able to refinance such amounts, there can be no assurance that any
such refinancing would be consummated or, if consummated, would be in
an amount sufficient to repay such obligations, particularly in light
of the Company's high level of debt that will continue after the
Restructuring.
Since the Company currently does not have the means to repay the
Series Notes, management is unable to predict the future liquidity of
the Company if the Restructuring is not accomplished.
See Note 1 of Notes to Consolidated Financial Statements for a
description of an Event of Default with respect to the Series Notes
and the possible impact on the Company and the Restructuring should
the Series Note Trustee accelerate the maturity of the Series Notes or
foreclose upon the collateral securing the Series Notes.
Capital Expenditures and Other Uses of Funds
____________________________________________
In recent years, capital expenditures have consistently been a
significant use of financial resources. See capital additions by
- 31 -
geographic and business segment in the table entitled "Identifiable
Assets, Depreciation and Capital Additions" below. Pursuant to a
capital expenditure program developed by the Company in 1989,
virtually all guest rooms and public areas at Resorts Casino Hotel
were refurbished by the end of 1993. Also pursuant to this program,
virtually all guest rooms in the Company's Paradise Island facilities
were refurbished by 1991.
Capital additions for Resorts Casino Hotel in 1991 amounted to
$22,734,000 as approximately 200 guest rooms in the East Tower were
refurbished and certain information systems were upgraded. In 1992,
capital additions amounted to $15,548,000 and included the conversion
of the parking garage from valet to self-parking, the construction of
a covered walkway from the garage to the Resorts Casino Hotel, the
continued renovation of guest rooms, the purchase of additional slot
machines and improvements to the building's infrastructure. Capital
additions in 1993 amounted to $21,618,000, as the Company converted
certain back-of-the-house space into an 8,000 square foot simulcast
facility which houses nine betting windows and customer-operated
terminals and approximately 80 seats for simulcast betting operations,
as well as 25 poker tables, various other table games and a full
service bar. Also, certain casino renovations were completed, 280
slot machines were purchased, most of which replaced older models, and
the new VIP slot and table player lounge, "Club Griffin," opened. In
addition, guest room refurbishment continued and a new centralized
mobile communications system was installed. With the completion of
the capital expenditure program in 1993, recurring capital
expenditures to keep existing facilities competitive can be expected
to approximate $12,000,000 per year for the Resorts Casino Hotel.
Capital additions in 1991 for Paradise Island properties amounted
to $3,726,000 as new carpeting was installed in the casino, a new
casino management system was implemented and certain kitchen areas and
guest rooms were renovated. Capital additions for 1992 totalled
$4,317,000, and included the installation of 37 new slot machines,
expansion of the Paradise Island Airport parking lot, upgrading
existing computer equipment and restaurant renovations. In 1993 the
Company expended $3,747,000 which included the purchase of 110 new
slot machines as replacements for older models as well as various
maintenance projects. The expenditures for 1991, 1992 and 1993 were
somewhat curtailed from those originally planned, in response to the
operating performance of the Company's facilities on Paradise Island.
The Company's capital expenditures on Paradise Island in 1994 are
expected to be limited to maintenance projects.
The Company continually monitors its capital expenditure plan and
considers both the timing and the scope of certain projects to be
flexible. Thus, economic developments and other factors may cause the
Company to deviate from its present capital expenditure plans.
Another significant use of funds in recent years has been
recapitalization costs. Payments of legal, financial and other
advisory fees and costs amounted to $8,095,000 and $2,460,000 in 1993
and 1992, respectively, in contemplation of a restructuring of the
Series Notes and payments of $237,000, $2,954,000 and $5,883,000 in
1993, 1992 and 1991, respectively, for costs associated with the Old
Plan.
- 32 -
Capital Resources and Other Sources of Funds
____________________________________________
Since 1991, operations have been the most significant source of
funds to the Company.
In 1993 Merv Griffin, the Chairman of the Board of RII, made a
partial payment of $3,477,000 of principal on his note payable to RII
(the "Griffin Note"). As described in Note 10 of Notes to
Consolidated Financial Statements, the Griffin Note was then cancelled
and a new note (the "Group Note") from Griffin Group was substituted
therefor. Griffin Group now owes the Company $5,318,000 under the
Group Note. Pursuant to the Restructuring, the next payment the
Company is required to make to Griffin Group under its License and
Services Agreement (the "New Griffin Services Agreement," also
described in Note 10), $2,310,000, is to be applied to reduce the
balance due under the Group Note. The then remaining balance of the
Group Note is to be collected by RII and distributed to holders of
Series Notes as part of Excess Cash.
As part of the Restructuring, the Company will have the
$20,000,000 RIHF Senior Facility available for one year from the
Effective Date for the Company's working capital and general corporate
purposes. The Company believes that the RIHF Senior Facility will
serve as a safeguard if an emergency arises from current operations,
or serve as a source of funds for a profitable investment opportunity.
RESULTS OF OPERATIONS
_____________________
General
_______
The following discussion addresses certain operations the
disposition of which is contemplated in the Restructuring. They
include the Paradise Island portion of the casino/hotel segment, the
Paradise Island portion of the real estate related segment and the
airline segment.
- 33 -
Revenues
________
For the Year Ended December 31,
__________________________________
(In Thousands of Dollars) 1993 1992 1991
_______________________________________________________________________
Casino/hotel:
Atlantic City, New Jersey:
Casino $244,116 $233,780 $218,881
Rooms 6,974 8,766 8,074
Food and beverage 15,926 16,056 16,406
Other casino/hotel 4,463 4,138 4,113
________ ________ ________
271,479 262,740 247,474
________ ________ ________
Paradise Island, The Bahamas:
Casino 62,943 66,120 61,003
Rooms 28,734 30,235 33,173
Food and beverage 30,917 32,851 36,053
Other casino/hotel 18,867 17,890 17,563
________ ________ ________
141,461 147,096 147,792
________ ________ ________
Total casino/hotel 412,940 409,836 395,266
________ ________ ________
Real estate related:
Atlantic City, New Jersey 8,057 7,813 7,542
Paradise Island, The Bahamas 445 213
________ ________ ________
8,502 8,026 7,542
________ ________ ________
Airline 21,802 22,483 18,234
Other segments 115 162 97
Intersegment eliminations (3,795) (3,573) (2,896)
________ ________ ________
Revenues from operations $439,564 $436,934 $418,243
________ ________ ________
_______________________________________________________________________
Casino/hotel - Atlantic City, New Jersey
________________________________________
Casino revenues from the Company's Atlantic City casino/hotel
increased by $10,336,000 in 1993 and $14,899,000 in 1992.
Disregarding casino revenues derived from poker and simulcasting,
which activities commenced on June 28, 1993, the increase in table and
slot win was $4,591,000, or a 2% increase over 1992. The Atlantic
City casino industry had a net increase in table and slot win of 2%
over 1992, while the average increase over the previous four years was
4.2%. The Company believes that the increased competition from other
newly opened or expanded jurisdictions which permit gaming has slowed
the growth of gaming revenue in Atlantic City and, for the Company in
1993, has significantly increased the cost of obtaining additional
revenue.
For both years the Company's increased casino revenues resulted
primarily from increased slot revenues. The improvement in slot
revenues resulted from the effect of increases in amounts wagered by
patrons, while the hold percentage (ratio of casino win to total
amount wagered for slots or total amount of chips purchased for table
games) declined. This reflects management's decision to decrease the
slot hold percentage in order to attract more slot players and to
encourage increased slot wagering per player, as well as marketing
programs which targeted slot players.
In 1993 and 1992 the Company's table game revenues declined, as
did the entire Atlantic City casino industry's. In 1993 the Company's
decline of 3.3%, as compared to the industry's decline of 3.1%, was
- 34 -
due to a lower hold percentage, while the amounts wagered on table
games did not fluctuate significantly from the prior year. In 1992,
the Company's decline of 6.5%, as compared to the industry's decline
of 3.3%, was due to a decrease in amounts wagered and, to a lesser
extent, a decrease in the table game hold percentage.
Although total occupancy was relatively flat in 1993 compared to
1992, the number of complimentary rooms provided to casino patrons
increased. The reduced occupancy from rooms sold resulted in lower
room revenues during 1993 and contributed to the decrease in food and
beverage revenues.
Casino/hotel - Paradise Island, The Bahamas
___________________________________________
Revenues from the Company's Paradise Island casino/hotel
operations decreased by $5,635,000 in 1993 and by $696,000 in 1992.
In 1993 casino revenues decreased $3,177,000 primarily due to the
effect of a decrease in table game hold percentage from 16.5% in 1992
to 14.4% in 1993. The Company's average table game hold percentage
over the four years ended 1992 was 17.2%. The effect of this decrease
was partially offset by the effect of an increase in table game drop
and improved slot win. Room revenues and food and beverage revenues
also were lower in 1993 due to lower occupancy, net of complimentary
rooms. Although total air arrivals to the Paradise Island - New
Providence Island area increased by 5% in 1993, the Company lost
market share as it did not continue to reduce room rates in response
to significant rate reductions by competitors.
In 1992 increased casino revenue was more than offset by
decreased room revenue and food and beverage revenue. Casino revenue
was up due to increases in both slot win and table game win. The
increase in table game revenue reflected an increase in drop (amount
of chips purchased), the favorable effect of which more than offset
the impact of a decline in the table game hold percentage. The
decrease in room revenue was due to reduced room rates and occupancy,
net of complimentary rooms. The reduction in occupancy also had an
adverse effect on food and beverage revenue. Total air arrivals to
the Paradise Island - New Providence Island area were down in 1992 by
10%, which management of the Company attributed to the continuing
economic recession and reduced air service available. In addition,
the Company's competitors reduced room rates in 1992 and the Company,
in an effort to maintain occupancy, did the same.
The Restructuring contemplates the disposition of the Paradise
Island assets and operations.
Real Estate Related
___________________
Atlantic City real estate related revenues in 1993, 1992 and 1991
represent rent from ACS pursuant to the Showboat Lease. Such rent
receipts are restricted for the payment of interest on the Showboat
Notes. See Note 7 of Notes to Consolidated Financial Statements.
The Paradise Island real estate related revenues in 1993 and
1992 resulted from the sale of residential lots on Paradise Island.
- 35 -
Airline
_______
Airline revenues decreased by $681,000 in 1993 due primarily to a
decrease in passenger revenues during the fourth quarter of the year,
as competition from the south Florida-Nassau routes increased. In
addition to the new Jet Shuttle service that began operations earlier
in the year, during the fourth quarter of 1993 Trinity Air, a Bahamian
carrier, commenced operations offering jet service at lower fares than
those offered by the Company on its south Florida-Paradise Island
routes and by other carriers on their south Florida-Nassau routes.
Also, from mid-November 1993 through early January 1994, Bahamasair
changed the aircraft used for its south Florida-Nassau flights to jets
with a larger seating capacity. Also affecting airline revenues in
1993 was a decrease in revenues from contract training, flight and
maintenance work for non-affiliated parties.
Airline revenues increased by $4,249,000 in 1992 due primarily to
an increase in number of passengers flown as other airlines ceased
their flights or reduced the frequency of their flights to The Bahamas
and the Company expanded its flight schedule. Also, 1992 includes
revenues from contracted training, flight and maintenance work for
non-affiliated parties.
The Restructuring contemplates the disposition of the airline
operations.
Contribution to Consolidated Loss
_________________________________
Before Income Taxes
___________________
For the Year Ended December 31,
___________________________________
(In Thousands of Dollars) 1993 1992 1991
_______________________________________________________________________
Casino/hotel:
Atlantic City, New Jersey $ 12,069 $ 21,051 $ 14,817
Paradise Island, The Bahamas* (9,979) (5,592) (5,707)
_________ ________ ________
2,090 15,459 9,110
_________ ________ ________
Real estate related:
Atlantic City, New Jersey 6,654 6,425 5,911
Paradise Island, The Bahamas 224 (17)
_________ ________ ________
6,878 6,408 5,911
_________ ________ ________
Airline* (14) 77 83
Other segments (122) (70) (148)
Unallocated corporate expense 4,066 (372) 1,080
_________ ________ ________
Earnings from operations 12,898 21,502 16,036
Other income (deductions):
Interest income 3,174 4,969 4,824
Interest expense (57,244) (40,856) (31,157)
Amortization of debt discount (51,203) (37,569) (32,105)
Recapitalization costs (8,789) (2,848)
_________ ________ ________
Loss before income taxes $(101,164) $(54,802) $(42,402)
_________ ________ ________
* The Paradise Island casino/hotel segment subsidized the operation
of PIA in the amount of $3,329,000 and $760,000 for the years 1993 and
1991, respectively.
_______________________________________________________________________
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Casino/hotel - Atlantic City, New Jersey
________________________________________
Casino, hotel and related operating results decreased by
$8,982,000 for 1993 as increased revenues described above were offset
by a net increase in operating expenses. The most significant
increases in operating expenses were casino promotional costs
($7,700,000), payroll and related costs ($6,000,000), other casino
operating expenses ($2,600,000), depreciation ($2,300,000), fees to
Griffin Group for services rendered under the New Griffin Services
Agreement described in Note 10 of Notes to Consolidated Financial
Statements ($2,200,000) and entertainers fees and accomodations
($1,000,000). The increase in casino promotional costs was due
primarily to a new program in 1993 which rewards slot players by
giving cash back to patrons based on their level of play. Since the
introduction of the "cash-back" program the Company has reduced cash
giveaways to bus patrons and through other promotional mailings. The
majority of the increase in payroll and related costs was due to merit
and union increases in salary and wage rates. The remaining increase
in payroll and related costs and a significant portion of the casino
operating costs increase were associated with the new simulcast and
poker facility. The increase in entertainment costs resulted from a
return to offering more headliner shows in 1993. The most significant
cost reductions in 1993 were in the performance and incentive bonus
($3,300,000) and in food and beverage costs ($1,400,000).
Casino, hotel and related operating results improved by
$6,234,000 for 1992 as increased revenues discussed above were
partially offset by a net increase in