Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 No. 1-4748
Sun International North America, 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.)
1415 E. Sunrise Blvd., Ft. Lauderdale, FL 33304
(Address of principal executive offices) (Zip Code)
(954) 713-2500
(Registrant's telephone number,
including area code)
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
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 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
- continued -
Total number of pages 14
Number of shares outstanding of registrant's common stock as of
March 31, 1999: 100, all of which are owned by one shareholder.
Accordingly there is no current market for any of such shares.
The registrant meets the conditions set forth in General
Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing
this Form 10-Q with the reduced disclosure format permitted by that
General Instruction.
<PAGE>
SUN INTERNATIONAL NORTH AMERICA, INC.
FORM 10-Q
INDEX
Page Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
at March 31, 1999 and
December 31, 1998 4
Consolidated Statements of
Operations for the Quarters
Ended March 31, 1999 and 1998 5
Consolidated Statements of
Cash Flows for the Quarters
Ended March 31, 1999 and 1998 6
Notes to Consolidated
Financial Statements 7
Item 2. Management's Discussion and
Analysis of Financial
Condition and Results of
Operations 9
Part II. Other Information
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on
Form 8-K 13
<PAGE>
<TABLE>
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
SUN INTERNATIONAL NORTH AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars, except par value)
<CAPTION>
March 31, December 31,
1999 1998
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 18,852 $ 25,160
Receivables, less allowance for
doubtful accounts of $2,417
and $2,436 8,559 8,088
Inventories 1,652 1,523
Prepaid expenses 2,317 2,091
Due from affiliates - 10,096
31,380 46,958
Land held for investment,
development or resale 66,038 56,839
Property and equipment, net of
accumulated depreciation of $25,651
and $22,843 271,432 262,694
Deferred charges and other assets,
net 23,979 22,604
Goodwill, net 95,836 96,871
$488,665 $485,966
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term
debt $ 1,630 $ 2,235
Accounts payable and accrued
liabilities 47,424 46,385
Due to affiliates 8,252 -
57,306 48,620
Long-term debt, net of current
maturities 204,934 205,940
Deferred income taxes 42,253 42,253
Shareholder's equity:
Common stock - $.01 par value - -
Capital in excess of par 192,635 193,008
Accumulated deficit (8,463) (3,855)
184,172 189,153
$488,665 $485,966
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
SUN INTERNATIONAL NORTH AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands of Dollars)
(Unaudited)
<CAPTION>
Quarter Ended
March 31,
1999 1998
<S> <C> <C>
Revenues:
Casino $50,686 $59,741
Rooms 2,505 2,942
Food and beverage 5,867 6,315
Other casino/hotel revenues 1,969 2,780
61,027 71,778
Less promotional allowances (5,674) (6,494)
Net casino and resort revenues 55,353 65,284
Tour operations 6,017 3,425
Management fees and other income 4,480 1,689
65,850 70,398
Expenses:
Casino 36,314 37,815
Rooms 627 928
Food and beverage 3,759 3,770
Other casino/hotel operating
expense 6,975 7,727
Tour operations 5,873 3,144
Selling, general and
administrative 9,927 11,106
Depreciation and amortization 3,695 3,557
67,170 68,047
Operating income (loss) (1,320) 2,351
Other income (expense):
Interest income 649 2,096
Interest expense, net (3,935) (6,403)
Loss before income taxes (4,606) (1,956)
Income tax expense (2) (294)
Net loss $(4,608) $(2,250)
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
SUN INTERNATIONAL NORTH AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
(Unaudited)
<CAPTION>
Quarter Ended
March 31,
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Reconciliation of net loss to net
cash used in operating activities:
Net loss $ (4,608) $ (2,250)
Depreciation and amortization 3,831 3,680
Provision for doubtful receivables 251 230
Provision for discount on CRDA
obligations, net 122 144
Net change in working capital accounts:
Receivables 92 953
Inventories and prepaid expenses (355) 320
Accounts payable and accrued
liabilities (3,390) (6,699)
Net change in deferred charges (1,119) 198
Net cash used in operating
activities (5,176) (3,424)
Cash flows from investing activities:
Payments for construction capital
expenditures (6,903) (2,918)
Payments for operating capital
expenditures (1,230) (138)
Acquisition of other fixed assets (9,199) (2,382)
Proceeds received from the sale of land - 110,000
Payments of merger costs - (100)
CRDA deposits and bond purchases (651) (673)
Net cash provided by (used in)
investing activities (17,983) 103,789
Cash flows from financing activities:
Net repayments from (advances to)
affiliates 18,468 (4,943)
Repayment of debt (1,617) (106,492)
Net cash provided by (used in)
financing activities 16,851 (111,435)
Net decrease in cash and cash equivalents (6,308) (11,070)
Cash and cash equivalents at beginning
of period 25,160 50,814
Cash and cash equivalents at end
of period $ 18,852 $ 39,744
See notes to consolidated financial statements.
</TABLE>
<PAGE>
SUN INTERNATIONAL NORTH AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. General:
The accompanying consolidated interim financial statements, which
are unaudited, include the operations of Sun International North
America, Inc. ("SINA") and its subsidiaries. The term "Company" as used
herein includes SINA and its subsidiaries. SINA is a wholly owned
subsidiary of Sun International Hotels Limited ("SIHL").
While the accompanying interim financial information is unaudited,
management of the Company believes that all adjustments necessary for a
fair presentation of these interim results have been made and all such
adjustments are of a normal recurring nature. The seasonality of the
business is described in Management's Discussion and Analysis of
Financial Condition and Results of Operations in the SINA 1998 Form 10-
K. The results of operations for the three-month periods presented are
not necessarily indicative of the results to be expected for the entire
fiscal year ending December 31, 1999.
The notes presented herein are intended to provide supplemental
disclosure of items of significance occurring subsequent to December 31,
1998 and should be read in conjunction with the Notes to Consolidated
Financial Statements contained in pages 39 through 53 of the SINA 1998
Form 10-K.
B. Reverse Repurchase Agreements:
Cash equivalents at March 31, 1999 included $9.2 million of reverse
repurchase agreements (federal government securities purchased under
agreements to resell those securities) under which the Company had not
taken delivery of the underlying securities. These agreements matured
during the first week of April 1999.
C. Statements of Cash Flows:
Supplemental disclosures required by Statement of Financial
Accounting Standards No. 95 "Statement of Cash Flows" are presented
below.
<TABLE><CAPTION>
Quarter Ended
March 31,
(In Thousands of Dollars) 1999 1998
<S> <C> <C>
Interest paid, net of capitalization $ 8,992 $14,720
Income taxes paid 70 213
Noncash investing and financing
activities:
Property and equipment acquired
under capital lease obligations - 3,785
Increase in liabilities
for additions to other assets 23 74
______________________________________________________________________
/TABLE
<PAGE>
D. Comprehensive Income
Comprehensive income is equal to net loss for all periods
presented.
E. Commitments and Contingencies:
Casino Reinvestment Development Authority ("CRDA")
The New Jersey Casino Control Act, as amended, requires SINA to
purchase bonds issued by the CRDA, or to make other investments
authorized by the CRDA, in an amount equal to 1.25% of its gross gaming
revenues, as defined. The CRDA bonds have interest rates ranging from
3.6% to 7.0% and have repayment terms of between 20 and 50 years.
At March 31, 1999, SINA had $11.4 million face value of bonds
issued by the CRDA and had $16.2 million on deposit with the CRDA.
These bonds and deposits, net of an estimated discount to reflect
the below-market interest rates payable on the bonds, are included in
deferred charges and other assets in the accompanying Consolidated
Balance Sheets.
In February 1999, SINA entered into an agreement with the CRDA
whereby the CRDA and the New Jersey Sports and Exposition Authority will
work to coordinate the planning, design and renovation of the Atlantic
City Boardwalk Convention Center (the "Project") into a 10,000 to 14,000
seat special events center.
The Project is budgeted to cost $72.9 million to be funded in
phases through direct investments from various Atlantic City casinos.
Of the total budgeted cost, SINA has agreed to invest $8.7 million which
will be paid from funds SINA has or will have deposited with the CRDA
to meet its bond obligations as described above. As of March 31, 1999,
$1.4 million of the total amount deposited with the CRDA had been
allocated to the Project. As the CRDA reallocates funds deposited by
SINA to the Project, SINA will receive an investment credit reducing its
obligation to purchase CRDA bonds in an equal amount.
Purchase Commitments
At March 31, 1999, the Company had unfunded contracts in place for
capital expenditures of $15.2 million related to the renovation of the
Resorts Casino Hotel (the "Renovation").
Litigation
SINA and certain of its subsidiaries are defendants in certain
litigation. Except for items disclosed in the 1998 SINA 10-K, in the
opinion of management, based upon advice of counsel, the aggregate
liability, if any, arising from such litigation will not have a material
adverse effect on the accompanying consolidated financial statements.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
FINANCIAL CONDITION
Liquidity
At March 31, 1999 the Company's current liabilities exceeded its
current assets by $25.9 million. The Company's cash is required for
day-to-day operations of the Resorts Casino Hotel, including
approximately $15.0 million of currency and coin on hand which amount
varies by days of the week, holidays and seasons.
As described below, the Resorts Casino Hotel is undergoing a
renovation project. Available cash balances in excess of those required
for day to day operations have been utilized during the quarter to fund
the Renovation. In addition, SINA drew funds available under an
existing credit facility of an unconsolidated affiliated company
(affiliated by common ownership) to fund the Renovation and to purchase
certain parcels of land.
Capital Expenditures and Resources
As of March 31, 1999, extensive renovations have been made to the
casino floor, hotel lobby, guest rooms and suites, and restaurants.
Continued plans include adding an additional restaurant, VIP player
lounge, an entertainment lounge and public area renovations. Each
phase of the development is in various stages of completion, but is
anticipated that substantially all work will be completed by June 30,
1999, subject to regulatory and other approvals. It is expected that the
Renovation will cost approximately $50.0 million. As of March 31, 1999,
the Company had spent $19.9 million on the Renovation. Of this amount
$6.9 million was spent in the first quarter of 1999. Included in the
$6.9 million was $338,000 of capitalized interest.
Management believes that existing cash balances, the available
borrowing facility of an unconsolidated affiliate and operating cash
flows will provide the Company with sufficient resources to meet its
foreseeable capital expenditure requirements and existing debt
obligations with respect to current operations for at least the next
twelve months.
RESULTS OF OPERATIONS - Quarter Ended March 1999 Compared to 1998
Revenues
Casino and Resort Revenues
Gaming revenues were $50.7 million for the first quarter of 1999,
a decrease of $9.0 million or 15.1% from gaming revenues of $59.7
million for the comparable period in 1998. This decrease in gaming
revenues consisted primarily of a decrease in slot revenue, and to a
lesser extent, a decrease in table game revenues.
Slot revenues were $34.6 million for the first quarter of 1999, a
decrease of $8.1 million or 19.0% from $42.7 million for the comparable
period in 1998. This decrease was due to a decrease in slot handle
<PAGE>
(dollar amounts wagered) by $97.1 million or 20.6% to $373.7 million for
the first quarter of 1999 from $470.8 million for the comparable period
in 1998. Beginning in February, the property has been operating with
over 25% of its slot machines off the casino floor at any one time.
Further, poor weather during the quarter had the effect of depressing
the property's operating results. For the duration of the Renovation,
the Company will continue to shut down portions of the casino floor and
take slot units off line.
Table games revenues were $15.7 million for the first quarter of
1999, a decrease of $700,000 or 4.3% from $16.4 million for the
comparable period in 1998. This decrease was due to a reduction in
table games drop (the dollar amount of chips purchased) by $7.9 million
or 7.5% to $98.1 million for the first quarter of 1999. The existing
high-end pit was shut down on December 14, 1998 for renovation and a
temporary location was added to the casino floor. Additionally, the
Company continues to add, remove, and relocate table game units as a
result of the Renovation. Casino revenues from other sources were not
significant in either period.
Other casino and resort related revenues were $10.3 million for the
first quarter of 1999, a decrease of $1.7 million or 14.2% from $12.0
million for the comparable period of 1998. Other casino and resort
related revenues include revenues from rooms, food and beverage, and
miscellaneous items. The decrease is primarily attributable to a
$400,000 or 6.3% decrease in food and beverage revenues to $5.9 million
for the first quarter of 1999. The food and beverage revenue decrease
is primarily due to a $368,000 decrease in complimentary items given to
patrons associated with decreased gaming activity compared to the
comparable period of 1998. Also contributing to the decrease is a
$505,000 decrease in entertainment revenue. Due to the Renovation, the
Company has taken an average of 45 hotel rooms, of its existing
inventory of 658 hotel rooms, out of service and reduced the number of
high volume restaurants available.
Tour Operations
Revenues from tour operations increased by $2.6 million, or 75.7%,
over the previous year. The Company's tour operator subsidiary
significantly expanded its operations in response to the expansion of
the resort operations of a subsidiary of SIHL located in The Bahamas.
Management Fees and Other Income
Management fees and other income increased by $2.8 million over the
previous year. In the first quarter of 1999, management fees included
$4.0 million for services provided to certain unconsolidated affiliated
companies, compared to $935,000 for the first quarter of 1998. This
increase in revenues was primarily due to changes in the management
services agreement. The increase in management fees was partially
offset by a decrease in other income as the first quarter of 1998
included rental income of $754,000 for land sold by the Company in
February 1998.
<PAGE>
Expenses
Casino Expenses
Casino expenses were $36.3 million for the first quarter of 1999,
a decrease of $1.5 million or 4.0% from expenses of $37.8 million for
the comparable period in 1998. This represents costs and expenses
associated with table games, slot operations and gaming taxes and fees.
The decrease is directly attributable to management's focus on reducing
costs associated with the decrease in revenues.
Selling, General and Administrative
Selling, general and administrative costs decreased by $1.2 million
from the previous year. This was primarily due to a decrease of $1.9
million in selling, general and administrative costs at the Resorts
Casino Hotel due to a reduction in payroll and related costs as well as
numerous other administrative costs, none of which were individually
significant.
Other Income (Expense)
The decrease in interest income is due to reduced bank interest
earned as excess cash was utilized for the Renovation.
The decrease in interest expense is primarily due the repayment of
the Company's non-recourse debt on February 28, 1998. In addition, in
the first quarter of 1999, interest expense is net of $338,000 of
capitalized interest related to the Renovation.
Year 2000 Compliance
The Company utilizes software and related technologies in parts of
its business that may be affected by the date change in the year 2000
("Y2K"). The Company is continuing to address the impact of Y2K on its
computer programs, resort facilities and third party suppliers. SIHL
has established a dedicated Year 2000 Program Office and has contracted
with independent consultants to coordinate the compliance efforts at
each of its subsidiaries and ensure that the project status is monitored
and reported throughout the organization.
The Company primarily uses industry standard automated applications
in most of its locations. The majority of these applications are
believed to be Y2K compliant, but the Company is currently testing
compliance in coordination with the vendors.
The Company has finalized its assessment of systems and third party
suppliers. As information is received related to these areas, the
Company develops a strategy for repair or replacement of non-compliant
systems as well as testing and validation of such items. The
remediation phase is expected to be complete by the third quarter of
1999.
To date, SIHL estimates that it has spent approximately $1.3
<PAGE>
million on Y2K efforts across all areas and expects to spend a total of
approximately $2.0 million when complete. SIHL expects to fund Y2K
costs through operating cash flows. All system costs associated with
Y2K are expensed as incurred.
The Company presently believes that upon remediation of its
business software applications, as well as other equipment, the Y2K
issue will not present a materially adverse risk to the Company's future
consolidated results of operations, liquidity and capital resources.
However, if such remediation is not completed in a timely manner or the
level of timely compliance by key suppliers or vendors is not
sufficient, the Y2K issue could have a material impact on the Company's
operations including, but not limited to the provision of adequate
utility services at the resort, resulting in loss of revenue, increased
operating costs, loss of customers or suppliers, or other significant
disruptions to the Company's business. The Company has initiated
business continuity and recovery plans which address these issues as far
as can be practical.
Determining the Y2K readiness of third party products and business
dependencies (including suppliers) requires pursuit, collection and
appraisal of voluntary statements made or provided by those parties, if
available, together with independent factual research. Although the
Company has taken, and will continue to take, reasonable efforts to
gather information to determine and verify the readiness of such
products and business dependencies, there can be no assurance that
reliable information will be offered or otherwise available.
Accordingly, notwithstanding the foregoing efforts, there are no
assurances that the Company is correct in its determination or belief
that a business dependency is Y2K ready.
New Accounting Prouncements
In the first quarter of 1999, the Company adopted Statement of
Position 98-5 which states that all start up costs will be charged to
expense as incurred. Adoption of this Statement of Position did not
have a material impact on the consolidated financial statements.
Forward Looking Statements
The statements contained herein include forward looking statements
based on management's current expectations of SINA's future performance.
Predictions relating to future performance are inherently uncertain and
subject to a number of risks. Consequently, SINA's actual results could
differ materially from the expectations expressed in this report.
Factors that could cause SINA's actual results to differ materially from
the expected results include, among other things: the intensely
competitive nature of the casino gaming industry; increases in the
number of competitors in the market in which SINA operates; the
seasonality of the industry in which SINA operates; the susceptibility
of SINA's operating results to adverse weather conditions and natural
disasters; the risk that certain governmental approvals may not be
obtained and changes in governmental regulations governing SINA's
activities.
<PAGE>
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings
The following is an update of the status of certain litigation
which was previously described in "Item 3. Legal Proceedings" of the
SINA 1998 Form 10-K.
David Goldkrantz vs. Merv Griffin, Sun International Hotels Limited, et
al.
On April 5, 1999, the U.S. District Court for the Southern District
of New York granted the Company's Motion for Summary Judgment dismissing
the Goldkrantz litigation in its entirety. Goldkrantz filed suit
against the Company and its affiliates in December 1997, alleging that
the Proxy Statement and Prospectus issued by Sun International Hotels
Limited and the Company in November 1996, in connection with their
merger, was false and misleading with regard to statements made about a
license and services agreement entered into between Griffin Gaming &
Entertainment and The Griffin Group.
Since the U.S. District Court's dismissal, Goldkrantz has filed an
appeal with the U.S. Court of Appeals.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
The following Part I exhibits are filed herewith:
Exhibit
Number Exhibit
(27) Financial data schedule as of March 31, 1999.
b. Reports on Form 8-K
No Current Report on Form 8-K was filed by SINA covering an event
during the first quarter of 1999. No amendments to previously filed
Forms 8-K were filed during the first quarter of 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
SUN INTERNATIONAL NORTH AMERICA, INC.
(Registrant)
/s/ John Allison
John Allison
Executive Vice President - Finance
(Authorized Officer of Registrant
and Chief Financial Officer)
Date: May 13, 1999
<PAGE>
SUN INTERNATIONAL NORTH AMERICA, INC.
Form 10-Q for the quarterly period
ended March 31, 1999
EXHIBIT INDEX
Exhibit
Number Exhibit Page Number in Form 10-Q
(27) Financial data schedule Page 16
as of March 31, 1999.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SUN
INTERNATIONAL NORTH AMERICA, INC.'S CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
THERETO INCLUDED IN THE FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> $18,852<F1>
<SECURITIES> 0
<RECEIVABLES> $6,356
<ALLOWANCES> $2,417
<INVENTORY> $1,652
<CURRENT-ASSETS> $31,380
<PP&E> $297,083
<DEPRECIATION> $25,651
<TOTAL-ASSETS> $488,665
<CURRENT-LIABILITIES> $57,306
<BONDS> $204,934<F2>
0
0
<COMMON> 0
<OTHER-SE> $184,172
<TOTAL-LIABILITY-AND-EQUITY> $488,665
<SALES> 0
<TOTAL-REVENUES> $65,850
<CGS> 0
<TOTAL-COSTS> $53,548
<OTHER-EXPENSES> $3,695<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> $3,935
<INCOME-PRETAX> $(4,606)
<INCOME-TAX> $(2)
<INCOME-CONTINUING> $(4,608)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $(4,608)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>INCLUDES NON-RESTRICTED CASH EQUIVALENTS OF $9,160.
<F2>NET OF UNAMORTIZED (DISCOUNTS) PREMIUMS.
<F3>DEPRECIATION EXPENSE OF $2,913 AND AMORTIZATION EXPENSE OF $782.
</FN>
</TABLE>
