<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM __________ TO _____________
COMMISSION FILE NUMBER 333-49691
THE RESORT AT SUMMERLIN, LIMITED PARTNERSHIP
THE RESORT AT SUMMERLIN, INC.
--------------------------------------------------------------
(EXACT NAME OF REGISTRANTS AS SPECIFIED IN THEIR CHARTERS)
<TABLE>
<S> <C>
Nevada 86-0857506
Nevada 86-0857505
------ ----------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
</TABLE>
1160 TOWN CENTER DRIVE, SUITE 200, LAS VEGAS, NV 89134
--------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, ZIP CODE)
(702) 869-7000
--------------------------------------------------------------
(REGISTRANTS' TELEPHONE NUMBER, INCLUDING AREA CODE)
--------------------------------------------------------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT)
Indicate by check mark whether the registrants (1) have 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
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
1
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
------------------------------------------
CONSOLIDATED
RAS INC. RAS L.P. RAS INC.
--------- ------------- --------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . $ 4 $ 3,968 $ 3,972
Restricted cash . . . . . . . . . . . . . . . . . . . . . . -- 10,154 10,154
Amounts receivable for reimbursement of deposits. . . . . . -- 10,062 10,062
Interest receivable . . . . . . . . . . . . . . . . . . . . -- 43 43
Related party receivable . . . . . . . . . . . . . . . . . 337 56 51
Accounts receivable, net of reserve for
doubtful accounts of $240 . . . . . . . . . . . . . . . . 1,081 1,081
Inventories . . . . . . . . . . . . . . . . . . . . . . . . -- 1,292 1,292
Prepaid expenses and other . . . . . . . . . . . . . . . . -- 2,972 2,972
---------- ----- -----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . 341 29,628 29,627
Property and equipment:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 16,628 16,628
Land improvements . . . . . . . . . . . . . . . . . . . . . -- 2,200 2,200
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . -- 179,403 179,403
Construction in progress . . . . . . . . . . . . . . . . . -- 42,657 42,657
Furniture, fixtures and equipment . . . . . . . . . . . . . -- 10,019 10,019
---------- ------ -----------
-- 250,907 250,907
Accumulated depreciation . . . . . . . . . . . . . . . . . -- (1,557) (1,557)
---------- ------ -----------
-- 249,350 249,350
Debt issuance costs, net of accumulated amortization of $2,996. . . . -- 11,861 11,861
Investment in The Resort at Summerlin, L.P. . . . . . . . . . . . . . 95 -- --
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . -- 625 625
Security deposits . . . . . . . . . . . . . . . . . . . . . . . . . . -- 5,152 5,152
---------- ----- -----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 436 $296,616 $ 296,615
========== ======== ===========
LIABILITIES
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . $ -- $ 8,962 $ 8,962
Construction and accounts payable . . . . . . . . . . . . . -- 11,143 11,143
Interest payable . . . . . . . . . . . . . . . . . . . . . -- 6,204 6,204
Related party payable . . . . . . . . . . . . . . . . . . . 6 861 525
Current portion of long-term debt . . . . . . . . . . . . . -- 10,870 10,870
Accrued expenses and other . . . . . . . . . . . . . . . . -- 10,627 10,627
---------- ------ -----------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . 6 48,667 48,331
Tenant security deposits payable . . . . . . . . . . . . . . . . . . -- 95 95
Long-term debt, net of discount of $5,332 . . . . . . . . . . . . . . -- 205,568 205,568
Warrants redeemable for partnership interests . . . . . . . . . . . . -- 22,202 22,202
---------- ------ -----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . -- 276,532 276,196
Limited partners' interests . . . . . . . . . . . . . . . . . . . . . -- -- 19,989
STOCKHOLDER'S EQUITY AND PARTNERSHIP INTERESTS
Common stock, no par value, 2,500 shares
authorized, 1,000 shares issued . . . . . . . . . . . . . . 683 -- 683
General partner interest . . . . . . . . . . . . . . . . . . . . . . -- 675 --
Limited partners' interests . . . . . . . . . . . . . . . . . . . . . -- 77,393 --
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . (253) (57,984) (253)
---------- --------- -----------
Total stockholder's equity and partnership interests . . . . . . . . 430 20,084 430
---------- --------- -----------
Total liabilities, stockholder's equity and partnership interests . . $ 436 $ 296,616 $ 296,615
========== ========= ===========
</TABLE>
SEE ACCOMPANYING NOTES.
2
<PAGE> 3
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------------------
CONSOLIDATED
RAS INC. RAS L.P. RAS INC.
--------- -------------------- ----------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . $ 4 $ 117,885 $ 117,889
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . - 4,438 4,438
Interest receivable . . . . . . . . . . . . . . . . . . . . . . . - 151 151
Related party receivable . . . . . . . . . . . . . . . . . . . . . - 9 4
Other current assets . . . . . . . . . . . . . . . . . . . . . . . - 771 771
---------- ------------ ------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . 4 123,254 123,253
Property and equipment:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 16,628 16,628
Land improvements . . . . . . . . . . . . . . . . . . . . . . . . - 629 629
Construction in progress . . . . . . . . . . . . . . . . . . . . . - 125,587 125,587
Furniture, fixtures and equipment . . . . . . . . . . . . . . . . - 7,925 7,925
---------- ------------ ------------
- 150,769 150,769
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . - (417) (417)
---------- ------------ ------------
- 150,352 150,352
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . - 7,978 7,978
Debt issuance costs, net of accumulated amortization of $1,660. . . . - 11,520 11,520
Investment in The Resort at Summerlin, L.P. . . . . . . . . . . . . . 548 - -
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . - 519 519
Security deposits . . . . . . . . . . . . . . . . . . . . . . . . . . - 682 682
Preopening costs . . . . . . . . . . . . . . . . . . . . . . . . . . - 10,611 10,611
---------- ------------ ------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 552 $ 304,916 $ 304,915
========== ============ ============
LIABILITIES
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . $ - $ 1,042 $ 1,042
Construction and preopening accounts payable . . . . . . . . . . . - 17,514 17,514
Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . - 2,167 2,167
Partner distribution payable . . . . . . . . . . . . . . . . . . . - 238 238
Related party payable . . . . . . . . . . . . . . . . . . . . . . 6 124 125
Other current liabilities . . . . . . . . . . . . . . . . . . . . - 2 2
---------- ------------ ------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . 6 21,087 21,088
Tenant security deposits payable . . . . . . . . . . . . . . . . . . - 15 15
Long-term debt, net of discount of $5,578 . . . . . . . . . . . . . . - 207,262 207,262
Warrants redeemable for partnership interests . . . . . . . . . . . . - 15,201 15,201
---------- ------------ ------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 6 243,565 243,566
Limited partners' interests . . . . . . . . . . . . . . . . . . . . . - - 60,803
STOCKHOLDER'S EQUITY AND PARTNERSHIP INTERESTS
Common stock, no par value, 2,500 shares authorized,
1,000 shares issued . . . . . . . . . . . . . . . . . . . . . . . . 683 - 683
General partner interest . . . . . . . . . . . . . . . . . . . . . . - 675 -
Limited partners' interests . . . . . . . . . . . . . . . . . . . . . - 73,393 -
Deficit accumulated during development stage . . . . . . . . . . . . (137) (12,717) (137)
---------- ------------ ------------
Total stockholder's equity and partnership interests. . . . . . . . . 546 61,351 546
---------- ------------ ------------
Total liabilities, stockholder's equity and partnership interests . . $ 552 $ 304,916 $ 304,915
========== ============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE> 4
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30, 1999
----------------------------------------------------------
CONSOLIDATED
RAS INC. RAS L.P. RAS INC.
------------------ ------------------ ------------------
<S> <C> <C> <C>
Revenues:
Casino . . . . . . . . . . . . . . . . . . . . . . . . . -- 7,504 7,504
Rooms . . . . . . . . . . . . . . . . . . . . . . . . . . -- 658 658
Food and beverage . . . . . . . . . . . . . . . . . . . . -- 3,952 3,952
Other . . . . . . . . . . . . . . . . . . . . . . . . . . -- 151 151
Management fees . . . . . . . . . . . . . . . . . . . . . 337 -- --
-------- ---------- ----------
337 12,265 12,265
Less - promotional allowances . . . . . . . . . . . . . . -- (1,107) (1,107)
-------- ----------- -----------
337 11,158 11,158
Costs and expenses:
Casino . . . . . . . . . . . . . . . . . . . . . . . . . -- 5,749 5,749
Rooms . . . . . . . . . . . . . . . . . . . . . . . . . . -- 971 971
Food and beverage . . . . . . . . . . . . . . . . . . . . -- 3,912 3,912
Other . . . . . . . . . . . . . . . . . . . . . . . . . . -- 249 249
Provision for losses on receivables . . . . . . . . . . . -- 240 240
General and administrative . . . . . . . . . . . . . . . -- 11,115 10,778
Depreciation . . . . . . . . . . . . . . . . . . . . . . -- 915 915
Preopening expenses . . . . . . . . . . . . . . . . . . . -- 6,909 6,909
Equity in loss of The Resort at Summerlin, L.P. . . . . . 219 -- --
-------- ---------- ----------
219 30,060 29,723
-------- ---------- ----------
Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . 118 (18,902) (18,565)
Other income (expense):
Interest income . . . . . . . . . . . . . . . . . . . . . -- 187 187
Interest expense, net of amounts capitalized:
Long-term debt . . . . . . . . . . . . . . . -- (2,451) (2,451)
Accretion of warrant liability . . . . . . . -- (705) (705)
-------- ---------- ----------
-- (2,969) (2,969)
-------- ---------- ----------
Loss before limited partners' interest . . . . . . . . . . . . . . 118 (21,871) (21,534)
Limited partners' interest . . . . . . . . . . . . . . . . . . . . -- -- 21,652
-------- ---------- ----------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . $ 118 $ (21,871) $ 118
======== ========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30, 1998
---------------------------------------------------------
CONSOLIDATED
RAS INC. RAS L.P. RAS INC.
------------------ ----------------- ------------------
<S> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ -- $ --
Costs and expenses:
Equity in loss of The Resort at Summerlin, L.P. . . 28 -- --
General and administrative . . . . . . . . . . . . 5 189 194
Depreciation . . . . . . . . . . . . . . . . . . . -- 66 66
-------- ----------- ----------
33 255 260
Other income (expense):
Interest income . . . . . . . . . . . . . . . . . . -- 1,741 1,741
Interest expense, net of amounts capitalized:
Long-term debt . . . . . . . . . . . . -- (1,899) (1,899)
Accretion of warrant liability . . . . -- (2,358) (2,358)
-------- ----------- ----------
-- (2,516) (2,516)
-------- ----------- ----------
Loss before limited partners' interest . . . . . . . . . . . (33) (2,771) (2,776)
Limited partners' interest . . . . . . . . . . . . . . . . . -- -- 2,743
. -------- ----------- ----------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . $ (33) $ (2,771) $ (33)
======== =========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE> 5
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
-----------------------------------------------------------
CONSOLIDATED
RAS INC. RAS L.P. RAS INC.
------------------- ------------------ ------------------
<S> <C> <C> <C>
Revenues:
Casino . . . . . . . . . . . . . . . . . . . . -- 7,504 7,504
Rooms . . . . . . . . . . . . . . . . . . . . . -- 658 658
Food and beverage . . . . . . . . . . . . . . . -- 3,952 3,952
Other . . . . . . . . . . . . . . . . . . . . . -- 151 151
Management fees . . . . . . . . . . . . . . . . 337 -- --
-------- ---------- ----------
337 12,265 12,265
Less - promotional allowances . . . . . . . . . -- (1,107) (1,107)
-------- ----------- -----------
337 11,158 11,158
Costs and expenses:
Casino . . . . . . . . . . . . . . . . . . . . -- 5,749 5,749
Rooms . . . . . . . . . . . . . . . . . . . . . -- 972 972
Food and beverage . . . . . . . . . . . . . . . -- 3,912 3,912
Other . . . . . . . . . . . . . . . . . . . . . -- 249 249
Provision for losses on receivables . . . . . . -- 240 240
General and administrative . . . . . . . . . . -- 13,090 12,753
Depreciation . . . . . . . . . . . . . . . . . -- 1,140 1,140
Preopening expenses . . . . . . . . . . . . . . -- 15,779 15,779
Equity in loss of The Resort at Summerlin, L.P. 453 -- --
-------- ---------- ----------
453 41,131 40,794
-------- ---------- ----------
Operating (loss). . . . . . . . . . . . . . . . . . . . . (116) (29,973) (29,636)
Other income (expense):
Interest income . . . . . . . . . . . . . . . . -- 2,023 2,023
Interest expense, net of amounts capitalized:
Long-term debt . . . . . . . . . . -- (5,288) (5,288)
Accretion of warrant liability . . -- (1,418) (1,418)
-------- ----------- ------------
-- (4,683) (4,683)
-------- ----------- ------------
Loss before cumulative effect of
change in accounting principle and
limited partners' interest . . . . . . . . . . . . . (116) (34,656) (34,319)
Cumulative effect of change in accounting principle . . . -- (10,611) (10,611)
-------- ----------- ------------
Loss before limited partners' interest . . . . . . . . . -- (45,267) (44,930)
Limited partners' interest . . . . . . . . . . . . . . . -- -- 44,814
--------- ----------- ------------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . $ (116) $ (45,267) $ (116)
========= =========== ============
</TABLE>
SEE ACCOMPANYING NOTES.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1998
-----------------------------------------------------------
CONSOLIDATED
RAS INC. RAS L.P. RAS INC.
------------------- ------------------ ------------------
<S> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ -- $ --
Costs and expenses:
Equity in loss of The Resort at Summerlin, L.P. . . 103 -- --
General and administrative . . . . . . . . . . . . 5 477 482
Depreciation . . . . . . . . . . . . . . . . . . . -- 189 189
-------- ---------- -----------
108 666 671
Other income (expense):
Interest income . . . . . . . . . . . . . . . . . . -- 6,491 6,491
Interest expense, net of amounts capitalized:
Long-term debt . . . . . . . . . . . . -- (9,170) (9,170)
Accretion of warrant liability . . . . -- (6,973) (6,973)
-------- ---------- -----------
-- (9,652) (9,652)
-------- ---------- -----------
Loss before limited partners' interest . . . . . . . . . . . (108) (10,318) (10,323)
Limited partners' interest . . . . . . . . . . . . . . . . . -- -- 10,215
-------- ---------- -----------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . $ (108) $ (10,318) $ (108)
======== ========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE> 6
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
----------------------------------------------------
CONSOLIDATED
RAS INC. RAS L.P. RAS INC.
--------------- ---------------- ------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (116) $ (45,267) $ (116)
Adjustments to reconcile net loss to net cash used in operating activities:
Cumulative effect of change in accounting principle . . . . . . . -- 10,611 10,611
Provision for losses on receivables . . . . . . . . . . . . . . . -- 240 240
Depreciation of property and equipment . . . . . . . . . . . . . -- 1,140 1,140
Amortization of debt discount and issuance costs. . . . . . . . . -- 1,582 1,582
Accretion of warrant liability, net of amounts capitalized. . . . -- 1,418 1,418
Pay in kind notes, net of amounts capitalized . . . . . . . . . . -- 2,265 2,265
Equity in loss of The Resort at Summerlin, L.P. . . . . . . . . . 453 -- --
Limited partners' interest . . . . . . . . . . . . . . . . . . . -- -- (44,814)
Changes in operating assets and liabilities:
Restricted cash . . . . . . . . . . . . . . . . . . . . . . -- 2,262 2,262
Accounts receivable . . . . . . . . . . . . . . . . . . . . -- (1,321) (1,321)
Interest receivable . . . . . . . . . . . . . . . . . . . . -- 108 108
Prepaid expenses, inventories and other current assets...... -- (3,493) (3,493)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . -- 7,920 7,920
Related party receivable and payable . . . . . . . . . . . . (337) 690 353
Interest payable . . . . . . . . . . . . . . . . . . . . . . -- 36 36
Other current liabilities . . . . . . . . . . . . . . . . . -- 3,162 3,162
--------- ------------- -------------
Net cash used in operating activities . . . . . . . . . . . . . . . . . . . -- (18,647) (18,647)
INVESTING ACTIVITIES
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (80,193) (80,193)
Deposits paid on furniture, fixtures and equipment . . . . . . . . . . . . -- (12,512) (12,512)
Interest capitalized into construction in progress . . . . . . . . . . . . -- (5,295) (5,295)
Increase in construction and preopening payables . . . . . . . . . . . . . -- 114 114
Increase in security deposits . . . . . . . . . . . . . . . . . . . . . . . -- (420) (420)
Investment in licensing costs and other intangible assets . . . . . . . . . -- (106) (106)
--------- ------------- -------------
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . -- (98,412) (98,412)
FINANCING ACTIVITIES
Capital contribution from partner . . . . . . . . . . . . . . . . . . . . . -- 4,000 4,000
Tax allowance distribution to minority partners . . . . . . . . . . . . . . -- (238) (238)
Debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (700) (700)
Tenant security deposits payable . . . . . . . . . . . . . . . . . . . . . -- 80 80
--------- ------------- -------------
Net cash provided by financing activities . . . . . . . . . . . . . . . . . -- 3,142 3,142
--------- ------------- -------------
Net change in cash and cash equivalents . . . . . . . . . . . . . . . . . . -- (113,917) (113,917)
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . 4 117,885 117,889
--------- ------------- -------------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . $ 4 $ 3,968 $ 3,972
========= ============= =============
Supplemental Information:
Interest paid $ - $ 6,639 $ 6,639
Interest capitalized into construction in progress
from warrant accretion, pay-in-kind notes
and interest payable - $ 14,650 $ 14,650
Supplemental disclosure of noncash activity:
The Companies' borrowings on its unsecured line of credit increased by $1.8
million to fund security deposits on equipment leases. The leasing company
withheld approximately $2,450,000 of reimbursements due to the Companies, of
which approximately $200,000 reduced the outstanding principal of the unsecured
line and $2,250,000 funded security deposits on the leases.
</TABLE>
SEE ACCOMPANYING NOTES.
6
<PAGE> 7
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1998
----------------------------------------------------------
CONSOLIDATED
RAS INC. RAS L.P. RAS INC.
---------------- ------------------- -------------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ($108) ($10,318) ($108)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation of property and equipment. . . . . . . . . . . . -- 189 189
Amortization of debt discount and issuance costs. . . . . . . -- 1,432 1,432
Accretion of warrant liability. . . . . . . . . . . . . . . . -- 6,974 6,974
Interest paid by issuance of Senior Subordinated
Notes. . . . . . . . . . . . . . . . . . . . . . . . -- 5,955 5,955
Equity in loss of The Resort at Summerlin, L.P. . . . . . . . 103 -- --
Limited partners' interest . . . . . . . . . . . . . . . . . -- -- (10,215)
Changes in operating assets and liabilities
Interest receivable . . . . . . . . . . . . . . . . . . -- (243) (243)
Prepaid expenses . . . . . . . . . . . . . . . . . . . . -- (141) (141)
Accounts payable . . . . . . . . . . . . . . . . . . . . 5 -- 5
Interest payable . . . . . . . . . . . . . . . . . . . . -- 5,426 5,426
--------- ------------- ------------
Net cash provided by operating activities . . . . . . . . . . . . . . . -- 9,274 9,274
INVESTING ACTIVITIES
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . -- (75,718) (75,718)
Interest capitalized into construction in progress. . . . . . . . . . . -- (6,945) (6,945)
Preopening costs . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (4,057) (4,057)
Increase in construction and preopening payables. . . . . . . . . . . . -- 13,588 13,588
Purchases of investments . . . . . . . . . . . . . . . . . . . . . . . -- (41,966) (41,966)
Investment in licensing costs and other intangible assets . . . . . . . -- (109) (109)
--------- ------------- ------------
Net cash used in investing activities . . . . . . . . . . . . . . . . . -- (115,207) (115,207)
FINANCING ACTIVITIES
Debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . -- (480) (480)
--------- ------------- ------------
Net cash used in financing activities . . . . . . . . . . . . . . . . . -- (480) (480)
--------- ------------- ------------
Net change in cash and cash equivalents . . . . . . . . . . . . . . . . -- (106,413) (106,413)
Cash and cash equivalents at beginning of period. . . . . . . . . . . . 4 175,488 175,492
--------- ------------- ------------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . $ 4 $ 69,075 $ 69,079
========= ============= ============
Supplemental Information:
Interest paid $ - $ 3,108 $ 3,108
</TABLE>
SEE ACCOMPANYING NOTES.
7
<PAGE> 8
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The Resort at Summerlin, Limited Partnership ("RAS L.P.") is majority owned by
Swiss Casinos of America, Inc. ("SCA"). RAS L.P. was formed on August 15, 1996
for the purpose of acquiring land and developing and operating a resort
facility (the "Resort Casino") in the Summerlin master planned community in Las
Vegas, Nevada ("Summerlin"). The Resort at Summerlin, Inc. ("RAS Inc." and,
together with RAS L.P., the "Companies") is a wholly owned subsidiary of SCA
and serves as general partner of RAS L.P. Swiss Casinos Holding AG ("SCH") owns
83.0% of SCA and is a limited partner in RAS L.P. The ownership percentages in
RAS L.P. are as follows:
<TABLE>
<S> <C>
RAS Inc. 1.00%
SCA 69.46%
SCH 23.36%
Unaffiliated investors 6.18%
</TABLE>
These percentages reflect a $4.0 million equity contribution by SCH on August
30, 1999.
RAS L.P. allocates earnings and losses to the partners in accordance with these
percentages.
RAS L.P. owns and operates the Resort Casino, which includes a casino, hotel,
conference center, spa, restaurants and retail center.
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the accounting policies described in the
Companies' December 31, 1998 audited consolidated financial statements included
in the Companies' Annual Report on Form 10-K filed with the United States
Securities and Exchange Commission on March 31, 1999 and should be read in
conjunction with the Notes to Consolidated Financial Statements which appear
therein. The Consolidated Balance Sheet as of December 31, 1998 contained
herein was derived from audited financial statements, but does not include all
disclosures included in the December 31, 1998 audited consolidated financial
statements and applicable under generally accepted accounting principles.
The Companies began operations of the Resort Casino on July 15, 1999, prior to
which time the Companies were development stage companies.
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results for the
interim periods have been included. The results for the 1999 interim periods
reported upon are not necessarily indicative of expected results for the full
year.
The Companies have made certain reclassifications to the financial statements
for the three and nine month periods ended September 30, 1998 to conform to the
financial statement presentation for the three and nine month periods ended
September 30, 1999. These reclassifications have no effect on net income.
As prescribed by Statement of Position 78-9 of the Accounting Standards
Executive Committee of the American Institute of Certified Public Accountants
("AcSEC"), Accounting for Investments in Real Estate Ventures, RAS Inc.'s
indirect ownership in RAS L.P. through SCA and its direct 1.0% general
partnership investment constitutes a controlling interest. Therefore, RAS L.P.
is considered a subsidiary requiring consolidation in the financial statements
of RAS Inc. RAS Inc.'s sole business activity at this time is its 1.0% general
partnership interest in RAS L.P. The consolidated RAS Inc. financial statements
include the following adjusting entries:
- - Elimination of RAS Inc.'s investment in RAS L.P.
- - Reclassification of the 99.0% limited partnership interests in RAS L.P. to a
minority interest within the balance sheet.
- - Allocation of 99.0% of the net losses of RAS L.P. to the limited partners and
the elimination of RAS Inc.'s equity interest in the losses of RAS L.P.
8
<PAGE> 9
- - Elimination of intercompany management fees, accounts payable and accounts
receivable.
In April 1998, AcSEC issued Statement of Position 98-5 entitled "Reporting on
the Costs of Start-up Activities" ("SOP 98-5") which requires entities to
expense costs of preopening activities as they are incurred. SOP 98-5 is
effective for fiscal years beginning after December 15, 1998. Accordingly, the
Companies adopted SOP 98-5 on January 1, 1999. Upon adoption, the Companies
reported the initial adoption as a cumulative effect of a change in accounting
principle of $10.6 million and expensed subsequent preopening costs as incurred
of $15.8 million for the nine months ended September 30, 1999.
2. CONSTRUCTION MANAGER DISPUTE
In December 1997, RAS L.P. executed a Construction Management Agreement (the
"Construction Contract") with J.A. Jones Construction ("Jones") for the
construction of the Resort Casino for a guaranteed maximum price of $133
million. As a result of disputes which subsequently arose under the
Construction Agreement with respect to the cost and timing of the completion of
the Resort Casino, on December 22, 1998, the Companies and Jones entered into a
Settlement Agreement (the "Settlement Agreement") concerning the Construction
Contract.
The Settlement Agreement provides (i) RAS L.P. will pay to Jones an
additional $23 million (inclusive of $3 million previously budgeted for the
completion of the Resort Casino), as set forth in the Construction Contract and
including certain additional work; (ii) the Companies are not responsible for
any additional project costs necessary to accomplish substantial completion of
the Resort Casino on or before April 30, 1999 except as otherwise expressly set
forth in the Settlement Agreement; (iii) Jones is solely responsible, and will
indemnify the Companies, for all costs of substantial completion except as
otherwise expressly provided in the Settlement Agreement; (iv) if substantial
completion of the Resort Casino does not occur on or before April 30, 1999
(which it did not), all delay and other penalties provided for in the
Construction Contract would commence as of April 30, 1999, and Jones is not
entitled to any amounts for general conditions or any other payments of a
similar nature from that date, unless certain savings specified in the
Construction Contract are achieved; (v) for a bonus to Jones of up to $1
million provided that the Resort Casino is substantially completed on or before
April 30, 1999 (which it was not), and that no bonus shall be paid if the
Resort Casino is not substantially completed on or before April 30, 1999.
In the Settlement Agreement, Jones represented that it had reviewed all of
the construction documents and determined that the Resort Casino, including the
second hotel, can be constructed "in a fashion and of a functionality, quality
and level of aesthetics reasonably inferable from the architects' design to
create a five-star rated property" and that Jones did not know of any reason
that the Resort Casino could not be constructed as described in the Settlement
Agreement or substantially completed on or before April 30, 1999 for the amount
set forth in the Construction Contract as modified by the Settlement Agreement.
Jones failed to achieve substantial completion of the Resort Casino by April
30, 1999. The Companies have advised Jones that it has breached the
Construction Contract; RAS L.P. has invoked certain liquidated damages
provisions as of May 1, 1999; and the Companies have reserved their rights to
hold Jones liable for all damages which result from Jones' breach. Since the
execution of the Settlement Agreement, Jones also has presented to RAS L.P.
additional requests for change orders for work totaling approximately $18.2
million. RAS L.P. has accepted $13.4 million, and has rejected $4.8 million.
RAS L.P. has informed Jones that it believes certain of the rejected change
orders are for construction subject to the terms of the Settlement Agreement
that Jones is obligated to provide pursuant to the terms thereof and are not
properly the subject of change orders. RAS L.P. also believes that it may
possess legal rights against Jones and/or others with respect to certain of the
change orders which it has accepted, and RAS L.P. has accepted certain change
orders only for the purpose of having work continue on the Resort Casino.
Jones has denied the Companies' allegations of breach of the Construction
Contract and disagrees with the Companies with respect to the disputed change
orders; however, Jones continues to perform work on the Resort Casino. The
Companies intend vigorously to pursue their rights under the Construction
Contract as modified by the Settlement Agreement and as appropriate with
respect to the disputed change orders in a manner consistent with achieving
their overall business goal of the successful completion of the remainder of
the Resort Casino. Notwithstanding this dispute, the Companies and Jones are
continuing to cooperate with respect to the completion of the Resort Casino.
There can be no assurance as to the ultimate outcome of the dispute with Jones
or the Companies' ability to achieve successful operations of the Resort Casino
at any time.
3. OPERATING LEASES
During the second quarter of 1999, the Companies closed on approximately $44.9
million of equipment operating leases. The
9
<PAGE> 10
Companies are using the operating lease facilities to finance new gaming
devices, related systems, vehicles and furniture, fixtures and equipment. As of
September 30, 1999, approximately $10.l million was due from the leasing
company to reimburse RAS L.P. for deposits paid by RAS L.P. to certain vendors.
Subsequent to September 30, 1999, RAS L.P. collected approximately $9.1 million
of the outstanding reimbursements due from the leasing company. In order to
fund the $9.1 million, the leasing company sold participation in the leases to
SCA, which in turn borrowed funds from SCH to purchase the lease participation.
The leasing company owes suppliers of the leased equipment approximately $5.4
million, which amount RAS L.P. may pay to the suppliers and then seek
reimbursement from the leasing company.
The terms of the facilities are for 36 to 48 months. Maximum annual payments
under the facilities will be approximately $15.5 million. The Companies have
been granted an option, upon expiration of the facilities, to (i) purchase not
less than all of the equipment, by equipment category, at fair market value as
determined by an independent appraiser, (ii) renew the facilities for 12
months, or (iii) return the equipment to the leasing company.
4. LONG-TERM DEBT
Debt outstanding as of September 30, 1999 includes the following (in
thousands):
<TABLE>
<S> <C>
First Mortgage Notes $ 100,000
Senior Subordinated PIK Notes 120,170
Unsecured Credit Facility 1,600
------------
221,770
Less unamortized original issue discount (5,332)
Less current portion (10,870)
------------
Total long-term debt $ 205,568
============
</TABLE>
On October 21, 1999, RAS L.P. borrowed the remaining $3.4 million available of
its $5.0 million unsecured line of credit, bringing the total amount
outstanding to $5.0 million. In order to fund the $3.4 million, the leasing
company sold participation in the unsecured line to SCA, which in turn borrowed
funds from SCH to purchase the line of credit participation.
LONG-LIVED ASSETS
The Companies have adopted the provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of." Long-lived assets which are not to be
disposed of, including property and equipment, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying value of
the asset may not be recoverable. The Companies deem an asset to be impaired if
a projection of undiscounted future operating cash flows directly related to
the asset, including disposal value if any, is less than the carrying amount.
The Company measures fair value by discounting estimated cash flows, and
considerable management judgement is necessary related to this estimate.
Accordingly, actual results could vary significantly from such estimates.
Continued operating losses during the third quarter ended September 30, 1999
required management to review the Companies' long-lived assets for potential
impairment. Management determined that the carrying amount of the Companies'
long-lived assets has not been impaired, as projections on undiscounted future
cash flows exceeded the carrying amount of related long-lived assets.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with, and is qualified
in its entirety by, the information contained in the financial statements,
including the notes thereto, included in this Form 10-Q.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. This Form 10-Q contains certain
"forward-looking statements" which represent the Companies' expectations or
beliefs, including, but not limited to, statements concerning (i) the
completion and opening of the remaining components of the Resort Casino; and
(ii) RAS L.P.'s operations, performance, financial condition and plans to
obtain additional financing. Any statements contained in this Form 10-Q that
are not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the generality of the foregoing, words such as
"may," "will," "expect," "anticipate," "intend," "could," "estimate," or
"continue" or the negative or other variations
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<PAGE> 11
thereof or comparable terminology are intended to identify forward-looking
statements. These statements by their nature involve substantial risks and
uncertainties, including, but not limited to, those relating to development and
construction activities; market fluctuations; gaming and other regulatory
matters; the receipt of certificates of occupancy; the impact of internal and
external problems caused by the Year 2000 computer problem; taxation;
dependence on existing management; leverage and debt service (including
sensitivity to fluctuations in interest rates); ability to realize the full
value of current assets; ability to obtain additional financing; domestic or
international economic conditions; changes in federal and state laws or the
administration of such laws; and changes in gaming laws or regulations
(including the legalization of gaming in certain jurisdictions). Certain of
these risks and uncertainties are beyond the Companies' control, and actual
results may differ materially depending on a variety of important factors,
including those described in this Form 10-Q.
DEVELOPMENT ACTIVITIES
The Resort Casino opened for business on July 15, 1999 with the Regent Grand Spa
hotel, Ceres wellness cuisine restaurant, the casino, the Upstairs Market
buffet, the parking lot and the parking garage. During September, the Resort
Casino opened the pool and gardens, the conference center and most of the
restaurants and shops in the lifestyle center. The Companies expect the spa and
a portion of the Regent Grand Palms hotel to open during the fourth quarter of
1999.
The partial opening of the Resort Casino and subsequent construction delays
have had a significant negative impact on the Companies' operating results to
date. The Companies believe that operating results will continue to be
negatively impacted until the entire Resort Casino is open for business to the
public. See "Results of Operations" below.
Since the December 22, 1998 Settlement Agreement, Jones has continued to file
additional claims for change orders, general conditions and other amounts. (See
Footnote 2 to the Financial Statements, "Construction Manager Dispute,"
included in this Form 10-Q.)
Construction projects of this nature entail significant risks and the
anticipated costs and completion schedule are based upon budgets, design
documents and schedule estimates. As construction progresses, there is always a
possibility that delay claims and construction change orders may occur or that
certificates of occupancy may not be obtained on a timely basis.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RAS Inc. does not have significant assets or operations. Accordingly, the
following discussion pertains only to RAS L.P.
Cash and cash equivalents decreased to $4.0 million as of September 30, 1999,
compared to $117.9 million as of December 31, 1998. This decrease occurred as
the Companies expended available cash for the construction and equipping of the
Resort Casino, funding the preopening expenses of the Resort Casino and funding
operating losses during the three months ended September 30, 1999. Accounts
payable, construction accounts payable, and accrued expenses increased to $30.7
million as of September 30, 1999, compared to $18.6 million as of December 31,
1998. This increase is mainly attributable to operating accounts payable
associated with the opening and operating of the Resort Casino. Long-term debt,
including current portions, increased to $216.4 million as of September 30,
1999, compared to $207.3 million as of December 31, 1998. This increase is due
in part to the issuance of $7.3 million of pay-in-kind notes to pay the June 15,
1999 interest on the 13% Senior Subordinated PIK Notes due 2004 ("Senior
Subordinated PIK Notes") and borrowings of $1.8 million of the $5.0 million
unsecured line of credit.
A portion of the Resort Casino opened for business on July 15, 1999. Total
operating revenues, net of complimentary items, for the three and nine months
ended September 30, 1999 were $11.2 million. Operating losses for the three and
nine months ended September 30, 1999 were $18.9 million and $30.0 million,
respectively. Operating losses for the corresponding periods of 1998 were
insignificant, as the Resort Casino was in the development stage.
The Companies' goal was to open all of the Resort Casino on June 29, 1999.
Several factors resulted in a delay and a partial opening on July 15, 1999,
including (i) ongoing construction delays; (ii) the malfunction of a major piece
of electrical equipment; (iii) longer than expected time frames for the fire and
life safety testing and City of Las Vegas permitting process; and (iv) a major
city-wide flood on July 8, 1999. The partial opening of the Resort Casino has
had a significant negative impact on the Companies' operating results to date.
The lack of dining and entertainment options until September hampered the
Companies' ability to attract local residents to the Resort Casino. The lack of
the pool, gardens and conference center until September and the continued lack
of the spa and second hotel have prevented the Companies from aggressively
marketing the property to out-of-town hotel guests, including golfer-gamblers,
spa guests, conference and incentive travel guests and free independent
travelers. In addition, July and August tend to be weak months for desert golf
and spa resorts because of the extremely hot weather.
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<PAGE> 12
RAS L.P.'s revenues for each month in the quarter ended September 30, 1999 were
as follows:
<TABLE>
<CAPTION>
(in thousands) July 1999 (15 days) August 1999 September 1999 Quarter Ended September 30, 1999
<S> <C> <C> <C> <C>
Total revenues, net of
complimentary items $2,362 $3,761 $5,035 $11,158
</TABLE>
September revenues were 34% higher than in August. Revenues for October were
$6.9 million, or 37% higher than in September. This month on month growth
demonstrates the positive impact of the September opening of several components
of the Resort Casino. The Companies expect operating performance to improve
during the fourth quarter of 1999 due to the completion of the other facilities
in the Resort Casino, the more attractive weather for golf and spa resort
guests and the celebrations anticipated for New Year's Eve. However, such
improvement in operating results is subject to the successful completion,
marketing and operation of the Resort Casino.
General and administrative expenses were $11.1 million for the three months
ended September 30 , 1999 and $13.1 million for nine months ended September
30, 1999. These expenses increased from minimal amounts in the corresponding
1998 periods due to the opening of the Resort Casino on July 15, 1999.
Depreciation increased significantly during the 1999 periods as a portion of
the building and other fixed assets were placed in service during the third
quarter of 1999.
Interest income declined significantly in 1999 versus 1998 in the three and
nine month periods. This decline was due to lower invested fund balances as the
proceeds from debt and equity funding were expended to construct and open the
Resort Casino.
Interest expense for the three months ended September 30, 1999 decreased to
$3.2 million from $4.3 million for the three months ended September 30, 1998.
Although more debt was outstanding in the 1999 period, the amount of interest
capitalized increased due to larger construction in progress balances. For the
same reasons, interest expense for the nine months ended September 30, 1999
decreased to $6.7 million from $16.1 million for the nine months ended
September 30, 1998
PREOPENING COSTS
Prior to 1999, it was RAS L.P.'s policy to capitalize preopening expenses as
incurred and charge such costs to expense at the commencement of operations.
These costs include legal fees, payroll, travel, and other costs related to
the development of the Resort Casino.
In April 1998, AcSEC issued SOP 98-5 entitled "Reporting on the Costs of
Start-up Activities" which requires entities to expense costs of preopening
activities as they are incurred. SOP 98-5 is effective for fiscal years
beginning after December 15, 1998. Accordingly, the Companies adopted SOP 98-5
on January 1, 1999. Upon adoption, the Companies reported the initial adoption
as a cumulative effect of a change in accounting principle of $10.6 million and
expensed subsequent preopening costs as incurred of $6.9 million for the three
months ended September 30, 1999 and $15.8 million for the nine months ended
September 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Companies' capital requirements during the remainder of 1999 are expected to
include (i) approximately $22.3 million for the completion of the Resort Casino
including construction costs, costs related to the acquisition of furniture,
fixtures and equipment and the payment of retention amounts due under the
Construction Contract; (ii) interest payments on the First Mortgage Notes due
2004 ("First Mortgage Notes") and Senior Subordinated PIK Notes; and (iii)
operating losses. The Companies intend to fund these capital requirements from
available cash at September 30, 1999 including a portion of the interest escrow
account for the First Mortgage Notes; the anticipated net proceeds to the
Companies of reimbursements related to operating lease facilities; and the
proceeds of additional permitted borrowing. The Companies also are pursuing
claims under their insurance policies for a portion of the interest expense
incurred during the delay in completing the Resort Casino.
The Companies' available sources of capital are insufficient to meet their
presently foreseeable capital requirements through the end of 1999. In the
longer term, the Companies do not believe the Resort Casino will generate
sufficient cash flow to meet its debt service and other cash outflow
requirements and maintain compliance with the covenants applicable to the Senior
Subordinated PIK Notes and First Mortgage Notes. The Companies are pursuing
additional sources of capital including additional equity investments from both
current investors and others, permitted borrowings and lease financing
transactions. Such additional capital may be unavailable to the
12
<PAGE> 13
Companies on acceptable terms or at all and there can be no assurance that the
Companies will be successful in obtaining the additional required capital. In
the event that available sources of capital are unavailable or inadequate to
meet the Companies' capital needs, any resulting shortfall may be material and
adversely impact the ability of the Companies to continue operation of the
Resort Casino and to meet the Companies' obligations with respect to the Senior
Subordinated PIK Notes and the First Mortgage Notes.
On August 30, 1999, SCH contributed $4.0 million of additional equity to RAS
L.P.
Under the terms of the December 30, 1997 Credit Agreement (the "Credit
Agreement") with respect to the Companies' First Mortgage Notes and the
December 31, 1997 Indenture (the "Indenture") with respect to the Companies'
Senior Subordinated PIK Notes, the Companies may obtain additional sources of
liquidity, if necessary, including up to $15.0 million of capital lease
financing for furniture, fixtures and equipment, and operating lease financing.
To date, the Companies have closed on the following credit facilities with a
lease financing company:
- operating lease facility for up to $15.0 million of general
equipment;
- operating lease facility for up to approximately $10.9 million for
gaming equipment;
- operating lease facility for up to $15.0 million of hotel and casino
furniture, fixtures and equipment;
- operating lease facility for up to $4.0 million for certain other
equipment; and
- unsecured credit facility for $5.0 million.
The Companies are using the operating lease facilities to finance new gaming
devices, related systems, vehicles and furniture, fixtures and equipment
acceptable to the leasing company. As of September 30, 1999, approximately
$10.1 million was due from the leasing company to reimburse RAS L.P. for
deposits paid by RAS L.P. to certain vendors. Subsequent to September 30, 1999,
RAS L.P. collected approximately $9.1 million of the outstanding reimbursements
due from the leasing company. In order to fund the $9.1 million, the leasing
company sold participation in the leases to SCA, which in turn borrowed funds
from SCH to purchase the lease participation. The leasing company owes
suppliers of the leased equipment approximately $5.4 million, which amount RAS
L.P. may pay to the suppliers and then seek reimbursement from the leasing
company.
The terms of the facilities are for 36 to 48 months. Maximum annual payments
under the facilities will be approximately $15.5 million. The Companies have
been granted an option, upon expiration of the facilities, to (i) purchase not
less than all of the equipment, by equipment category, at fair market value as
determined by an independent appraiser, (ii) renew the facilities for 12
months, or (iii) return the equipment to the leasing company.
RAS L.P. borrowed $1.8 million of the $5.0 million unsecured credit facility on
July 20, 1999, of which $200,000 was subsequently repaid. The loan is repayable
over 24 months fully amortizing at an interest rate of 13.0%. On October 21,
1999, RAS L.P. borrowed $3.4 million, bringing the total amount outstanding to
$5.0 million. In order to fund the $3.4 million, the leasing company sold
participation in the unsecured line to SCA, which in turn borrowed funds from
SCH to purchase the line of credit participation.
As of September 30, 1999, the Companies had approximately $10.2 million in an
interest escrow account. Subject to certain application procedures, the
Companies can use these funds to pay the interest due on the First Mortgage
Notes through June 30, 2000. Any balance remaining after the June 30, 1999
withdrawal will be applied to the outstanding principal amount of the First
Mortgage Notes on September 30, 1999. On October 29, 1999, the Companies
withdrew $2.3 million to make a quarterly interest payment.
YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. As a result, those
programs have time-sensitive software that recognize a date using "00" as the
year 1900 rather than the year 2000. This could cause a system failure or
miscalculations causing disruptions of operations, including among other
things, a temporary inability to process transactions or engage in similar
normal business activities.
Based on recent assessments, RAS L.P. believes that its systems, including
information systems and embedded chips, are Year 2000 compliant and will
properly recognize dates beyond December 31, 1999. Given that RAS L.P. is a
relatively new entity and significant systems were not implemented until 1997,
management was able to select and implement systems which had previously been
certified
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<PAGE> 14
as Year 2000 compliant. Although the costs of achieving Year 2000 compliance
are difficult to estimate, management does not believe that they were material.
RAS L.P. is in the process of contacting its significant suppliers and
subcontractors that do not share information systems with RAS L.P. (external
agents) as to their Year 2000 compliance. To date, RAS L.P. is not aware of any
external agent with a Year 2000 issue that would materially impact RAS L.P.'s
results of operations, liquidity, or capital resources. However, RAS L.P. has
no means of ensuring that external agents will be Year 2000 compliant. The
inability of external agents to complete their Year 2000 compliance in a timely
fashion could materially adversely impact RAS L.P. The effect of non-compliance
by external agents is not determinable. Possible Year 2000 related problems due
to external agents could include loss of power or telephone service, supply
shortages and flight cancellations.
In the event that RAS L.P. experiences Year 2000 difficulties with its systems
or with significant external agents, RAS L.P. has contingency plans for certain
critical applications and is developing such plans for others. Contingency
plans generally consist of performing mission critical procedures manually or
with substitute systems which are Year 2000 compliant. The use of certain
manual procedures and substitute systems would lower the level of service the
Companies are able to offer their guests and may result in lost revenues and
increased expenses.
CHANGE IN PRESIDENT AND CEO
Effective November 15, 1999, Mr. Darrell Luery will become the President and
Chief Executive Officer of RAS L.P. in which capacity he will be responsible for
the completion and operations of the Resort Casino. Since 1997, Mr. Luery has
been president of Ruffin Gaming which operates the New Frontier in Las Vegas,
the Marriott hotel and Crystal Palace Casino in the Bahamas and Wichita
Greyhound Park. Prior to that time, Mr. Luery was the president and chief
operating officer of Bally's Las Vegas for seven years. Mr. Luery also has
served as corporate vice-president of worldwide marketing for Holiday Inns,
Inc., corporate senior vice-president of marketing for Harrah's hotels and
casinos, general manger of Harrah's hotel/casino in Atlantic City, president of
Trump Plaza and executive vice-president of Ramada Inns Inc., overseeing its
Nevada operations including the Tropicana Hotel and Casino.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
RAS L.P. is exposed to market risk in the form of fluctuations in interest
rates and their potential impact upon the First Mortgage Notes, which are
variable-rate debt. Of the $100.0 million First Mortgage Notes, $50.0 million
are covered under a cap of 11.0% until March 31, 2000.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the opinion of management, with the exception of the dispute with Jones, the
Companies are not engaged in any litigation or other legal dispute that could
have a material adverse impact on the Companies. See Note 2 to the Financial
Statements for a description of the dispute with Jones.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
NOT APPLICABLE.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NOT APPLICABLE.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NOT APPLICABLE.
ITEM 5. OTHER INFORMATION
NOT APPLICABLE.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) EXHIBITS
<S> <C>
2.1 December 22, 1997 Purchase Agreement.*
3.1 Certificate of Limited Partnership of RAS L.P.*
3.2 Agreement of Limited Partnership, as amended, of RAS L.P.*
</TABLE>
14
<PAGE> 15
<TABLE>
<S> <C>
3.3 Articles of Incorporation of RAS Inc.*
3.4 Bylaws of RAS Inc.*
4.1 December 31, 1997 Indenture.*
4.2 December 30, 1997 Exchange and Registration Rights Agreement.*
4.3 December 30, 1997 Registration Rights and Limited Partners'
Agreement.*
4.4 December 30, 1997 Warrant Agreement for Partnership Warrants.*
4.5 December 30, 1997 Warrant Agreement for Corporate Warrants.*
4.6 Disbursement Agreement dated December 31, 1997.*
4.7 Subordinated Notes Proceeds Accounts Agreement dated December
31, 1997.*
4.8 Mortgage Notes Proceeds Account Agreement dated December 31,
1997.*
4.9 Interest Escrow Account Agreement dated December 31, 1997.*
4.10 Partnership Funds Account Agreement dated December 31, 1997.*
4.11 December 31, 1997 Global Note.*
4.12 Form of Partnership Warrants.*
4.13 Form of Corporate Warrants.*
10.1 December 22, 1997 Construction Contract.*
10.2 December 16, 1997 License Agreement.*
10.3 December 29, 1997 Architect Agreement.*
10.4 August 15, 1996 Development Declaration and Option to
Repurchase.*
10.5 August 15, 1996 Royalty Agreement.*
10.6 December 22, 1997 Guaranty of Completion of J.A. Jones, Inc.*
10.7 December 30, 1997 Credit Agreement.*
10.8 December 30, 1997 Subordinated Notes Proceeds Agreement.*
10.9 Golf Course Agreement.*
1.10 January 13, 1998 Construction Management Contract.*
10.11 December 22, 1998 Settlement Agreement.*
10.12 Amendment Agreement dated July 6, 1999.*
27.1 Financial Data Schedule.**
27.2 Financial Data Schedule.**
</TABLE>
- ----------
* FILED PREVIOUSLY.
** FILED HEREWITH.
(b) REPORTS ON FORM 8-K
The Companies filed a Form 8-K with the Securities and Exchange
Commission on October 8, 1999 regarding a change in certifying accountant.
SIGNATURES
15
<PAGE> 16
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
The Resort at Summerlin, Limited Partnership (Registrant)
By: The Resort at Summerlin, Inc., a Nevada corporation, its general partner
<TABLE>
<S> <C>
Date: November 15, 1999 By: /s/ Brian McMullan
----------------------
Brian McMullan
Its: President and Chief
Executive Officer
(Principal Executive
Officer)
Date: November 15, 1999 By: /s/ John J. Tipton
----------------------
John J. Tipton
Its: Sr. Vice President, Chief
Financial Officer and
General Counsel, The
Resort at Summerlin, Inc.,
General Partner (Principal
Financial Officer)
The Resort at Summerlin, Inc.
(Registrant)
Date: November 15, 1999 By: /s/ Brian McMullan
----------------------
Brian McMullan
Its: President and Chief
Executive Officer
(Principal Executive
Officer)
Date: November 15, 1999 By: /s/ John J. Tipton
----------------------
John J. Tipton
Its: Sr. Vice President, Chief
Financial Officer and General Counsel
(Principal Financial Officer)
</TABLE>
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANTS' CONDENSED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1999 AND
THE RELATED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0001058870
<NAME> THE RESORT AT SUMMERLIN, LIMITED PARTNERSHIP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,968
<SECURITIES> 0
<RECEIVABLES> 1,321
<ALLOWANCES> 240
<INVENTORY> 1,292
<CURRENT-ASSETS> 29,628
<PP&E> 250,907
<DEPRECIATION> 1,557
<TOTAL-ASSETS> 296,616
<CURRENT-LIABILITIES> 48,667
<BONDS> 205,568
0
0
<COMMON> 78,068
<OTHER-SE> (57,984)
<TOTAL-LIABILITY-AND-EQUITY> 296,616
<SALES> 0
<TOTAL-REVENUES> 11,158
<CGS> 0
<TOTAL-COSTS> 23,972
<OTHER-EXPENSES> 16,919
<LOSS-PROVISION> 240
<INTEREST-EXPENSE> 6,706
<INCOME-PRETAX> (34,656)
<INCOME-TAX> 0
<INCOME-CONTINUING> (34,656)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (10,611)
<NET-INCOME> (45,267)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANTS' CONDENSED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1999 AND
THE RELATED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001058872
<NAME> THE RESORT AT SUMMERLIN, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 4
<SECURITIES> 0
<RECEIVABLES> 337
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 337
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 436
<CURRENT-LIABILITIES> 6
<BONDS> 0
0
0
<COMMON> 683
<OTHER-SE> (253)
<TOTAL-LIABILITY-AND-EQUITY> 436
<SALES> 0
<TOTAL-REVENUES> 337
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 453
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (116)
<INCOME-TAX> 0
<INCOME-CONTINUING> (116)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (116)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
